TIDMATI2
Amati VCT 2 plc (formerly Invesco Perpetual AIM VCT plc)
Annual Report & Financial Statements
for the year ended 31 May 2011
CONTENTS
Page
Overview 1
Chairman's Statement 2
Fund Manager's Review 4
Investment Portfolio 8
Top Ten Investments 11
Board of Directors 15
Directors' Report and Business Review 16
Statement of Directors' Responsibilities 22
Statement of Corporate Governance 23
Directors' Remuneration Report 27
Report of the Independent Auditor to the Members of Amati VCT 2 plc 29
Income Statement 30
Reconciliation of Movements in Shareholders' Funds 31
Balance Sheet 32
Cash Flow Statement 33
Notes to the Financial Statements 34
Notice of Annual General Meeting 46
Shareholder Information 49
Corporate Information 50
Form of Proxy 51
OVERVIEW
Highlights
* Total NAV return for the year of 16.5%.
* NAV plus cumulative dividends since launch of 58.7p per share at 31 May
2011, including cumulative dividends paid to date of 27.0p per share.
* Appointment of Amati Global Investors ("Amati") as fund manager on 11
February 2011.
* Name change to Amati VCT 2 plc.
Corporate objective
The objective of Amati VCT 2 plc (the "Company") is to provide a tax free
dividend return to shareholders primarily through the realisation of capital
gains while maintaining the capital value of the shares. The Company is managed
as a VCT in order that shareholders may benefit from the tax reliefs available.
Fund performance
Total NAV return since inception assuming re-invested dividends up to 31 May
2011 was -44.0%. Over this period the FTSE AIM All-Share total return index has
shown a return of 10.5%.
Amati VCT 2 NAV total return assuming re-invested dividends and FTSE AIM
All-Share total return index:
Key data
31/05/11 31/05/10
Total Net Asset Value ("NAV") GBP13.8m GBP13.9m
Shares in issue 43,526,171 43,526,171
NAV per share 31.7p 31.9p
Share price 21.5p 27.0p
Market capitalisation GBP9.4m GBP11.8m
Share price discount to NAV 32.2% 15.4%
Total NAV return for the year * 16.5% (1.2)%
FTSE AIM All-Share total return index 30.8% 33.3%
Total expense ratio 3.0% 2.5%
Dividends paid during the year 5.0p 5.0p
*Total return based on NAV per share assuming that dividends are re-invested on
the ex-dividend date.
Dividends declared
since launch
Ordinary share
Total Cumulative
dividends dividends
declared declared
Year ended 31 May p p
2005 0.00 0.00
2006 5.00 5.00
2007 5.00 10.00
2008 5.00 15.00
2009 5.00 20.00
2010 5.00 25.00
2011 5.00 30.00
CHAIRMAN'S STATEMENT
Introduction
This statement reviews the financial year to 2011 and also, importantly, gives
preliminary details of the Board's proposals for the future of the Company.
During the year the Board appointed Amati Global Investors Limited ("Amati") as
the Company's investment manager and we have been encouraged by the progress
that has been made to restructure and broaden the portfolio, giving more
emphasis on mid-size companies. The evidence for this is provided in detail in
the Fund Manager's Review.
Overview
The period under review includes the first four months following Amati's
appointment, on 11 February 2011, as the Company's investment manager. The
Company's name changed to Amati VCT 2 plc shortly after the change of manager
took effect. Amati has developed a distinctive approach to managing AIM VCTs
and this was one of the reasons why the board decided to appoint them as
manager. Two key elements of this approach are the focusing of the qualifying
investments on quoted companies worth more than GBP15m, and the building up of a
complementary portfolio of non-qualifying investments with the objective of
broadening the liquidity and range of the portfolio as a whole.
The portfolio has changed substantially in line with this approach since
Amati's appointment. In particular sales of the Company's two largest unquoted
investments have been achieved on attractive terms, which, as well as funding
the dividend payment, has allowed a number of non-qualifying investments in
small and mid-sized companies to be made. This gives the portfolio as a whole
greater international diversification and exposure to sectors not normally
found in qualifying investments.
Performance and Dividend
The NAV total return for the year was 16.5% (assuming dividends re-invested at
the ex dividend date). The earnings per ordinary share were 4.67p, which was
fractionally below the level of dividends paid during the year. The FTSE AIM
All-Share total return index rose by 30.8% in the year ended 31 May 2011, an
increase driven largely by resource stocks, most of which the Company cannot
hold as qualifying investments under the VCT regulations. In the final quarter
of the year, when resource stocks were generally weak, the NAV total return was
2.9% whilst this index fell by 3.9%.
The Company paid an interim dividend of 2p per share on 11 March 2011. To
ensure that we can meet the commitment given to shareholders on the level of
dividend payout, notwithstanding the possible merger of the Company ahead of
the continuation vote later this year, we announced on 12 August that a second
interim dividend of 3p per share would be paid on 14 October 2011 to
shareholders on the register on 16 September 2011.
Future of the Company
Shareholders will be aware that the Articles require the Board to put a
resolution to this year's Annual General Meeting to seek approval for it to
continue in existence. In preparation for this the Board last year carried out
a survey of shareholders' opinions; the results from this survey showed that a
clear majority of those responding wanted the Company to continue. In
considering how best to achieve this we concluded that a merger with another
AIM VCT would reduce running costs by spreading fixed expenses over a larger
entity and also permit various other benefits to be achieved.
As it is therefore probable that the Company will not continue in the
foreseeable future in its current legal form, the financial statements have
been prepared on a break-up basis (see Note 1 on page 34).
After reviewing the options we decided that a merger with another VCT managed
by Amati would be the most beneficial course of action, since some of the
investments would be identical, the cost of restructuring the portfolios would
be reduced, and the cost of terminating the manager's contract would be
avoided. We have also been impressed by Amati's abilities as investment
managers, noting that Amati VCT, their flagship fund, is one of the top
performing AIM VCTs.
Early in July 2011, we announced to the market that the boards of directors of
the Company and ViCTory VCT PLC ("ViCTory") had entered discussions regarding a
possible merger. Amati was appointed manager of ViCTory in March 2010 and has
undertaken a restructuring of the portfolio. The Board sees numerous commercial
benefits arising from the merger and these will be outlined fully in a
Prospectus and Circular, hard copy of which is enclosed with this report.
The proposed merger will be effected by way of a scheme of reconstruction,
whereby the Company is placed in members' voluntary liquidation and all of its
assets and liabilities are transferred to ViCTory in exchange for new shares in
ViCTory.
It is the intention of the ViCTory board that the enlarged entity will launch
an offer for subscription of new shares (with an enhanced share buy back and
re-investment facility for ViCTory shareholders), and introduce a dividend
re-investment scheme.
Assuming the necessary resolutions are passed and other conditions of the
scheme are fulfilled, the Company will be liquidated, and the AGM will become a
formality. If these resolutions are rejected, then the proposed merger will not
proceed and the Board will re-consider the future of the Company and proposals
will be put to shareholders along with the continuation vote at the AGM to be
held on 30 November.
In anticipation of these developments the Board has decided to change the
Company's Registrar from Capita Registrars to The City Partnership (UK) Limited
with effect from 16 September 2011. In addition to cost savings this will
enable all enquiries regarding the Company to be directed through The City
Partnership, who also act as company secretary, and who will act as Receiving
Agent for the forthcoming share offer. They can be contacted on 0131 243 7210
or by email through vct-enquiries@amatiglobal.com. Amati maintains an
informative website for the Company - www.amatiglobal.com - on which monthly
investment updates, performance information, all relevant documentation and
contract details can be found.
Annual General Meeting
The Company's 2011 annual general meeting will be held at the offices of Howard
Kennedy, 19 Cavendish Square, London W1A 2AW on 30 November 2011 at 10.30am. If
the merger is approved at the two General Meetings then the AGM will still be
held. However, as the Company would in that case be in the process of being
liquidated, the Company would be under the control of the liquidator. Any
resolutions which have been proposed for the meeting which would be
inconsistent with that process would be withdrawn.
Thank you for your continued support of the Company and I hope that you will
find the proposals that we will be putting to you shortly of interest.
Julian Avery
Chairman
13 September 2011
FUND MANAGER'S REVIEW
Market review
The underlying tone of the UK stock market since mid-2009, and throughout the
period under review to 31 May 2011, was that of continued recovery from the
deep shocks which arose out of the financial crisis of 2008-9. The "V" shaped
recovery that we have witnessed has been driven by expansionary policies of an
extraordinary nature across developed economies. Having reached a short term
peak in April 2010, the period started with a sharp reversal, when confidence
was dented by the government debt crisis in Greece and Ireland, liquidity
tightening in China and question marks over the pace of economic recovery in
the US and Europe. Giving back all of 2010's earlier gains, the market reached
a low at the end of June. Confidence returned after European governments sent a
clear message that they would act to prevent default on government debt within
the Eurozone and investors' attention reverted to the strong pace of recovery
in global business. With corporate profits generally running ahead of
expectations during the reporting season for 2010 year ends, and against a
backdrop of very low interest rates in most developed economies, the market
rose strongly through to the end of January 2011.
During February the unfolding of multiple political upheavals in the Middle
East caused the oil price to spike upwards sharply as supplies from some
countries were disrupted, which acted as a brake on the global economy. This
was compounded by the tragic events surrounding the earthquake in Japan during
March, which had a widespread impact on some key industrial supply chains,
causing some industries to slow, and tending to result in slower economic
growth than forecast in the first half of this year. Meanwhile China had been
making strenuous efforts to dampen down inflation with a long series of steps
aimed at restricting credit, bearing the hopes of the developed world that it
could so while at the same time avoiding a hard landing for the economy. During
May there was a further collapse of confidence in the Greek government bond
market, which made it clear that a further bailout would be required, and
prompting fears of contagion to Italy and Spain. Since the period end, risk
appetite has been falling as a stream of poor economic data and the continued
lack of consensus in the US over the budget deficit have made investors seek
out safety in the form of government bonds and gold. Commodity prices have also
fallen, along with interest rate expectations in both the UK and the US, where
it is now clear that economic conditions are too fragile to withstand rate
rises, and look like they will remain so for a long time.
Performance
The NAV total return was 16.5% for the year. Over the same period the FTSE AIM
All-Share Total Return Index was up 30.8%. This index has been driven by the
continued strong performance of resource stocks, a theme which continued until
February when a reduction in risk appetite caused a sharp sell-off in
commodities, reversing some of these gains. Since February, the VCT has
outperformed the index. The FTSE AIM All-Share Total Return Index has become
less relevant as a meaningful comparison for VCT performance as it has become
increasingly dominated by resource companies. In 2010, for example, the index
would have risen by 23% instead of 44% if resource companies were excluded (RBS
HGSC Index 2011). We have introduced some exposure to natural resources, but
the portfolio as a whole will always be underweight due to the restrictions on
investing in this area in the qualifying portfolio.
The largest positive contributions in the year came from Infrared Integrated
Systems ("Irisys"), Brooks Macdonald Group, Cupid and System C Healthcare.
Irisys is one of two remaining unquoted companies left in the portfolio. The
company has developed infrared technologies and software for applications such
as queue management and checkout scheduling in supermarkets. Irisys has
rolled-out its technology for a number of leading supermarket chains and has a
strong order book for its next phase of growth. On this basis we recommended
that the board approve an uplift in the valuation of the VCT's holding of 127%.
Brooks Macdonald Group, an integrated wealth management group providing asset
management and financial consulting, rose by 73% over the year. The group
reported annual growth in funds under management of 46% in its interim results
to December 2010. Cupid is a collection of online dating websites. It has
performed exceptionally well since float, reporting impressive growth and
adding accretive acquisitions, driving a share price increase of 187%. System C
Healthcare was acquired by McKesson for 70p, a 50% premium to the
pre-announcement price and a 43% premium to the price of System C Healthcare at
the beginning of the financial year. Strong performance also came from some of
the VCT's core holdings such as Software Radio Technology, Staffline Group,
BrainJuicer Group and FFastFill. We remain optimistic about the future
prospects of these companies.
The negative contributors were led by Energetix, which we have now exited. The
company has several energy saving devices but has struggled to translate
products into meaningful revenues and was forced into a fundraising earlier in
the year. Brookwell was also weak following our acquisition of shares in
exchange for the VCT's Ilika holding, due to a forced seller putting pressure
on the price. We decided to write-down the valuation of Antenova, the VCT's
other unquoted company (along with Irisys). The VCT holds both preference and
ordinary shares in Antenova. The preference shares have a preferred return
which we believe leaves no value in the ordinary shares at this stage and we
therefore recommended the write-down of the value of the ordinary shares to
nil. Tristel also disappointed, after a profits warning which saw its share
price fall 28% in April, following which we have reduced the VCT's holding.
Other significant negative contributors were Cyan and Managed Support Services,
which have both been largely exited; and Bglobal, which has seen its share
price suffer as a result of the UK Government's rethink on its plans for the
management of smart meter data aggregation and collection, and its delay in
rolling-out and publishing the specification for smart meters. Our view is that
the changes should have a positive impact on Bglobal in the longer run, as the
rollout of domestic smart meters represents a huge opportunity, albeit that
there is little the company can do to speed up the process during the current
hiatus.
Transactions
We have been very active on the transaction front since taking on the mandate
to manage the portfolio on 11 February 2011. During the year, holdings with a
combined value of GBP7.1m were sold, with GBP4.8m of this coming in the period
since we assumed responsibility for investment management. Similarly, stocks
with a combined cost of GBP3.2m were acquired over the course of the year, of
which GBP2.1m was in the period following our appointment.
Our priority in restructuring the portfolio was two-fold - firstly, we looked
to sell holdings, principally in the qualifying portfolio, which we viewed as
low quality, sub-scale and high risk; and secondly, we began the process of
re-populating the non-qualifying portfolio with small and mid-cap UK quoted
companies with business models that fit with our global investment themes. This
is best illustrated by looking at the weighted average market capitalisation of
the portfolio at the year end, which stood at GBP153m, compared to GBP50m at the
date of Amati's appointment.
Qualifying portfolio
When we took on the investment management contract in February, the high
percentage of qualifying value in the VCT gave us flexibility to sell those
holdings that we saw as undesirable whilst remaining well within the 70%
qualifying test. Selling the type of holding that typically populates a VCT's
qualifying portfolio can be an exercise in patience due to the limited
liquidity of most of these companies, a lesson we had learnt when we took over
the investment management of ViCTory VCT a year earlier. This task was
exacerbated by the fact that the largest position that we were seeking to sell
- Oxford Nanopore Technologies - was unlisted. Normally, an investor would have
to wait for a sale of the entire company to achieve an exit but we were able to
negotiate the sale of this holding at a price that represented a 133% profit on
cost and a 25% premium to the carrying value prior to the sale. Our sale of
Oxford Nanopore Technologies was not triggered by fundamental concerns over the
business, but rather a rare opportunity to sell at a price that we perceived as
attractive. The company remained some way from generating revenues and, whilst
offering an interesting concept in DNA sequencing, remained highly cash
consumptive. Further to this disposal, the most significant sales of qualifying
quoted companies were Ilika, Energetix and Managed Support Services. Ilika was
exchanged for a position in Brookwell, a fund that specialises in stimulating
liquidity events for small, illiquid companies, as historic trading suggested
that our chances of selling the VCT's shares on the market were very slim.
Conversely, we were able to sell Energetix and Managed Support Services over a
period of time through conventional market sales. Software Radio Technology was
deemed to be a disproportionately large holding and reduced accordingly but
remains a significant and core portfolio constituent. Mount Engineering was
sold prior to the investment management handover, having been the subject of a
cash offer by Cooper Industries of the US.
There were no new qualifying additions in portfolio following the transfer of
the investment management contract to Amati. Prior to the handover date, the
qualifying portfolio was bulked up with several additions. Proteome Sciences, a
pharmaceuticals business specialising in proteomics, the study of the structure
and functions of proteins, was added to the portfolio as part of a GBP6.5m
placing, which the company expects to be sufficient to see it through to
profitability. An investment was also completed in EKF Diagnostics Holdings, a
cash shell created for the purposes of acquiring diagnostic companies, which is
led by a team with a strong track record and long experience in the field of
diagnostic testing equipment. The VCT participated in the flotation of Cupid,
which is detailed in the performance review above. The final new qualifying
addition was Hangar8, a provider of management and chartering services to
owners of private jets. The VCT also made follow-on investments into four
existing holdings - Green Compliance, Byotrol, Managed Support Services and
Tristel.
Non-Qualifying portfolio
The most significant sale in the non-qualifying portfolio was AJ Bell, which
provides low cost SIPPs through UK financial advisers as well as third party
SIPP administration and stockbroking services. The business has grown well
since the VCT's original investment and we concluded after due diligence that,
as both a non-qualifying and unlisted holding, a sale would be the best
solution for the VCT. As a private business in which the VCT was a minority
shareholder exit options were limited, however, we were able to complete the
sale of the VCT's shares at a price equal to the carrying value at the time of
the sale, which represented a 100% uplift to cost. We also sold Landkom
International, a Ukrainian farming business; and Mears, an outsourced provider
of support services, predominantly to the public sector. Rockhopper Exploration
, the Falklands Islands based oil and gas exploration company, was sold during
the first half after a strong rise in the share price following successful
drilling.
The proceeds of the non-qualifying and qualifying sales were invested in a
diverse selection of small and mid cap companies in our research universe, that
is, UK listed stocks with market capitalisations up to GBP2 billion. In
re-constructing the non-qualifying portfolio, we have focused on themes that
are largely excluded from the qualifying portfolio, and on companies that are
significantly larger and more liquid than typical qualifying investments. A
particular focus has been exposure to the fast growing economies of China and
India. In line with this strategy, we have acquired a position in Asian Citrus
Holdings, which is engaged in the plantation, cultivation and selling of
oranges in China. It is one of China's largest orange growers with a market
capitalisation of approximately GBP650m and has recently expanded into the
concentrated juice market with the acquisition of a leading producer of
tropical fruit juices. Other additions include Anglo Pacific Group, which has
built up a substantial portfolio of royalties from mining projects; Elementis,
a speciality chemicals company with significant barriers to entry and excellent
growth prospects in its markets; RPC Group, a leading supplier of rigid plastic
packaging that recently completed a transformational acquisition; London
Capital Group Holdings, a provider of spread betting platforms; and XP Power, a
designer and manufacturer of power controllers.
VCT objectives
The recent UK budget has proposed some changes to the VCT legislation which we
regard as very helpful for AIM VCTs, including the raising of the gross assets
test for qualifying investments back to GBP15m, from its current level of GBP7m,
and rebasing the restriction on employee numbers to 250 from the current level
of 50. These will only come into effect from 6 April 2012, and then only if the
changes are approved by Brussels in relation to the EU State Aid rules. Whilst
the rule changes probably won't affect Amati VCT 2 because all of the funds
raised operate under old VCT rules, which include the GBP15m gross assets test,
and no limitation on the numbers of employees, they could serve to bring back a
flow of new funds to the industry, which would be good for stimulating new deal
activity.
Outlook
The recent market turmoil has led us to take a more cautious view of the
business cycle, which may have already ended. It reflects the build up of very
significant macro-economic and political risks, which are difficult to analyse
and predict. At the root of these risks lies excess debt. The credit crunch of
2008 was caused by excess debt in the private sector, with much of the focus
being on over-leveraged banks. This has now morphed into a problem of excess
debt in the public sector, where its trajectory is much less predictable,
because nations, unlike the banks, cannot be bailed out. Something else has to
happen, but it is not clear what. Whilst the 2008 crisis itself was responsible
for pushing up government debt levels in Western markets to unprecedented
levels, as governments bailed out the banking sector while at the same time
experiencing a significant fall in tax revenue, the real difficulty is that
there is a forty year underlying trend in place of rising government debt and
rising budget deficits in most developed economies. This very long-term trend
has been called the "Debt Supercycle", and there appears to be no reverse gear.
Instead, successive generations have devised ways of postponing the problem of
reducing deficits. Hence we have arrived at a situation where over-leveraged
government finances have little capacity to deal with a recession, and less
still to deal with deflation. As a consequence, both Europe and the US appear
locked into close to zero interest rates for the foreseeable future, in order
to ward off the spectre of deflation, with few levers left to pull in order to
stimulate the economy, other than quantitative easing (the technical term for
printing money).
This leaves an acute dilemma for investors. The stock market will be prone to
sudden panic attacks, as we have seen during August, and these may well get
worse. However, many of the companies we analyse and that the Company holds
have been trading exceptionally well, have very strong balance sheets, and good
prospects. In addition we have made some non-qualifying investments in
companies exposed to the major Far Eastern economies, where we see stronger
prospects for growth. It would take a severe and protracted financial meltdown
for such equity investments to fare worse than cash or government bonds from
here over a medium term time-frame. Therefore, although we expect further bumps
on the road, we believe that good equity investments will prove their worth
over time, particularly if it turns out that inflation remains high, as we
suspect it will.
Dr Paul Jourdan and Douglas Lawson
Amati Global Investors
13 September 2011
Paul Jourdan is an award-winning fund manager with a strong track record in
small cap investment. He co-founded Amati Global Investors following the
management buyout of Noble Fund Managers from Noble Group in January 2010. He
moved to Edinburgh in 1998, joining Stewart Ivory to work on UK, emerging
market, and global equities. In 2000 Stewart Ivory was taken over by Colonial
First State (subsequently First State Investments). From September 2000 he
became manager of what is now CF Amati UK Smaller Companies Fund, winning a
number of awards for this fund in 2004/05. In November 2004 he was appointed
Head of UK Equities at First State. In early 2005 he launched what is now Amati
VCT plc. Paul joined Noble Fund Managers in 2007 as Head of Equities. Prior to
1998 Paul worked as a professional violinist, including a four year period with
the City of Birmingham Symphony Orchestra. He currently serves as a Director of
Hebrides Ensemble and of Sistema Scotland, and also as a Governor of the Royal
Scottish Academy of Music and Drama.
Douglas Lawson co-founded Amati Global Investors following the management
buyout of Noble Fund Managers from Noble Group in January 2010. Prior to this
he gained 6 years experience in corporate finance and private equity, initially
as a corporate finance associate focusing on middle market UK private equity
and listed company M&A at British Linen Advisers, and latterly as an investment
manager in the private equity team in Noble. He joined Paul Jourdan in managing
the CF Amati UK Smaller Companies Fund and Amati VCT in 2009 before adding
ViCTory VCT in 2010 and Amati VCT 2 in February 2011. He started his career at
Ernst & Young in London, where he qualified as a Chartered Accountant in 2002.
INVESTMENT PORTFOLIO
as at 31 May 2011
Book cost Valuation Fund % of
shares
FTSE Sector GBP GBP % in issue
Oil & Gas 251,944 129,200 0.9
GETECH Group plc* 251,944 129,200 0.9 2.2
Basic materials 1,737,564 1,063,748 7.7
Altona Energy plc@ 104,500 119,014 0.8 0.3
Anglo Pacific Group plc@ 352,899 340,562 2.5 0.1
Byotrol plc* 429,848 170,333 1.2 1.1
Elementis plc@ 200,317 194,586 1.4 0.0
Inditherm plc* 400,000 120,000 0.9 7.8
Oxford Catalysts Group plc* 250,000 119,253 0.9 0.2
Industrials 2,870,722 2,317,249 16.8
Augean plc* 299,988 54,790 0.4 0.2
Bglobal plc*@ 174,800 66,700 0.5 0.5
Brulines Group plc*@ 323,490 234,070 1.7 0.9
Cohort plc* 383,298 183,120 1.3 0.7
Datong plc* 156,000 67,031 0.5 0.9
Green Compliance plc*@ 280,000 221,000 1.6 1.4
Hangar8 plc* 250,000 225,001 1.6 2.6
Petards Group plc* 34,422 12,047 0.1 0.5
RPC Group plc@ 264,171 291,100 2.1 0.1
Sabien Technology Group plc*@ 415,895 315,000 2.3 2.9
Staffline Group plc* 180,000 535,500 3.9 1.0
XP Power Limited@ 108,658 111,890 0.8 0.0
Consumer goods 782,218 474,762 3.5
Asian Citrus Holdings Limited@ 450,218 423,776 3.1 0.1
PhotonStar LED Group plc* 332,000 50,986 0.4 0.3
Health care 2,230,833 1,823,974 13.3
Allergy Therapeutics plc* 194,097 40,482 0.3 0.1
EKF Diagnostics Holdings plc* 150,000 225,000 1.6 0.6
Futura Medical plc*@ 150,000 397,500 2.9 0.7
Kiotech International plc*@ 550,005 454,350 3.3 3.3
Proteome Sciences plc* 50,000 61,250 0.5 0.1
Proximagen Group plc* 296,000 270,000 2.0 0.3
Synairgen plc* 213,687 44,381 0.3 0.3
Syntopix Group plc* 416,249 112,608 0.8 1.4
Tristel plc*@ 210,795 218,403 1.6 1.2
Consumer services 1,850,748 1,373,043 10.0
BrainJuicer Group plc* 189,000 446,250 3.2 1.4
Cupid plc*@ 175,000 501,667 3.7 0.4
DM plc*@ 356,749 93,793 0.7 1.6
Hasgrove plc* 439,999 216,333 1.6 1.5
Mission Marketing Group (The) plc* 690,000 115,000 0.8 0.8
Telecommunications 1,337,528 236,961 1.7
AdEPT Telecom plc* 326,410 88,594 0.6 1.1
Antenova Limited*# 525,000 - - 3.0
Antenova Limited A Preference*# 100,118 100,117 0.7 3.1
Zamano plc* 386,000 48,250 0.4 1.7
Financials 811,690 1,734,997 12.6
Brooks Macdonald Group plc*@ 126,000 1,210,500 8.8 0.8
Brookwell Limited Redeemable 484,841 315,147 2.3 3.0
Preference@
London Capital Group Holdings plc@ 200,849 209,350 1.5 0.5
Technology 3,146,034 2,483,025 18.0
Celoxica Holdings plc*# 198,125 - - 0.1
Cyan Holdings plc* 330,000 11,550 0.1 0.2
FFastFill plc*@ 182,000 292,500 2.1 0.6
Infrared Integrated Systems Limited*# 300,000 680,000 4.9 1.5
Invu plc 169,984 6,932 0.1 0.8
Netcall plc* 267,857 180,293 1.3 0.8
PROACTIS Holdings plc* 344,000 216,000 1.6 2.5
Publishing Technology plc* 441,500 253,750 1.8 4.3
Sanderson Group plc* 200,000 120,000 0.9 0.9
Software Radio Technology plc*@ 712,568 722,000 5.2 1.8
Total investments 15,019,281 11,636,959 84.5
Net current assets - 2,138,713 15.5
Net assets 15,019,281 13,775,672 100.0
* Qualifying holdings.
| Part qualifying holdings.
# Unquoted holdings.
@ These investments are also held by other funds managed by Amati.
All holdings are in ordinary shares unless otherwise stated.
Notes to the above table:
1. No holding represents more than 9% by value of the Company's portfolio.
2. As at the year end, the percentage of the Company's portfolio held in
qualifying holdings for the purposes of Section 274 of the Income and
Corporation Taxes Act 2007 is 89.56%.
Sector Allocation as at 31 May 2011
FTSE Sector Fund %
Technology 18.0
Industrials 16.8
Health care 13.3
Financials 12.6
Consumer services 10.0
Basic materials 7.7
Consumer goods 3.5
Telecommunications 1.7
Oil & Gas 0.9
Net current assets 15.5
100.0
Top Ten Investments as at 31 May 2011
2011 2010
Company Valuation % of Valuation % of
GBP net assets GBP net assets
Brooks Macdonald Group plc 1,210,500 8.8 691,200 5.0
Software Radio Technology plc 722,000 5.2 574,156 4.1
Infrared Integrated Systems 680,000 4.9 300,000 2.2
Limited
Staffline Group plc 535,500 3.9 195,000 1.4
Cupid plc 501,667 3.7 - -
Kiotech International plc 454,350 3.3 475,001 3.4
BrainJuicer Group plc 446,250 3.2 333,407 2.4
Asian Citrus Holdings Limited 423,776 3.1 - -
Futura Medical plc 397,500 2.9 185,000 1.3
Anglo Pacific Group plc 340,562 2.5 - -
TOP TEN INVESTMENTS
as at 31 May 2011
Brooks Macdonald Group plc
Sector Financials
Market capitalisation GBP143.0m Final results to 30 June 2010 GBP
million
Cost GBP126,000 Profit before tax 5.7
Valuation GBP1,210,500 Profit after tax 3.9
Valuation basis Bid price Net assets 12.4
Income for year GBP10,000
Brooks Macdonald is an AIM traded wealth management group providing
discretionary investment management and independent bespoke planning advice to
individuals as well as managing a range of property investment funds through
its subsidiary, Braemar Group. The company has 240 staff throughout the UK and
has shown impressive growth since its inception twenty years ago. Brooks
Macdonald announced growth in discretionary funds under management of 23% in
the six months to December 2010.
Software Radio Technology plc
Sector Technology
Market capitalisation GBP40.2m Final results to 31 March 2011 GBP
million
Cost GBP712,568 Profit before tax 1.9
Valuation GBP722,000 Profit after tax 2.2
Valuation basis Bid price Net assets 7.2
Income for year GBPnil
Software Radio Technology ("SRT") designs and supplies a range of Automated
Information Systems ("AIS") for maritime identification and tracking. The
market is driven by increasing legislation that is mandating the use of
indentifying and tracking devices on commercial and leisure boats. SRT's focus
is to be the global leader in the AIS market and the company is now evolving
its strategy to include applications and services.
Infrared Integrated Systems Limited
Sector Technology
Market capitalisation GBP44.0m Final results to 31 December GBP
2010 million
Cost GBP300,000 Profit before tax 4.1
Valuation GBP680,000 Profit after tax 5.2
Valuation basis Earnings Net assets 12.0
multiple
Income for year GBPnil
Infrared Integrated Systems ('Irisys') supplies infrared sensors and cameras
and operates through 3 divisions: queue management, people counting and thermal
imaging. Irisys's queue management technology is installed over check-out lanes
at retail outlets, together with detectors which together monitor and count the
number of live 'shopping units' in the checkout line. The company's people
counting units contain imaging optics, sensors, signal processing and
interfacing electronics to detect the heat emitted by people passing the area
beneath them as infrared radiation. People are counted as they pass through a
virtual line, which can be a single counting line or a network of several units
spanning a wide opening. The third division of Irisys sells thermal imaging
technology, combining array technologies and image analysis.
Staffline Group plc
Sector Industrials
Market capitalisation GBP54.0m Preliminary results to 31 GBP
December 2009 million
Cost GBP180,000 Profit before tax 3.5
Valuation GBP535,500 Profit after tax 2.4
Valuation basis Bid price Net assets 26.1
Income for year GBP 10,000
Staffline provides labour to the food industry, including supermarkets, food
growers, manufacturers, logistics and distribution businesses. The company is
based in Nottingham and operates from 150 locations across the UK, supplying
approximately 20,000 workers every day. Staffline provides and manages the
workforce on an outsourced basis and uses training and business improvement
techniques to achieve increased levels of efficiency and give clients improved
productivity and a commercial advantage.
Cupid plc
Sector Consumer services
Market capitalisation GBP138.0m Final results to 31 December GBP
2010 million
Cost GBP175,000 Profit before tax 4.2
Valuation GBP501,667 Profit after tax 3.1
Valuation basis Bid price Net assets 13.3
Income for year GBPnil
Cupid provides online dating services through a collection of websites. The
company has built a database of over 23 million members in 39 countries.
Cupid's sites cater to a variety of audiences of different ages, cultures and
social interests. Cupid began trading on AIM in June 2010.
Kiotech International plc
Sector Health care
Market capitalisation GBP13.9m Preliminary results to 31 GBP
December 2010 million
Cost GBP550,005 Profit before tax 1.5
Valuation GBP454,350 Profit after tax 1.3
Valuation basis Bid price Net assets 14.8
Income for year GBP7,000
Kiotech supplies natural feed additives to enhance health, growth and
sustainability in agriculture and aquaculture. The company has consolidated its
production facilities into a modern feed additive plant at Manton Wood, the
site of Optivite, which was acquired by Kiotech to add scale and distribution
capability. Along with further investment at this site, this move has
facilitated efficiencies and provides a stronger platform for growth and margin
improvement.
BrainJuicer Group plc
Sector Consumer services
Market capitalisation GBP31.8m Final results to 31 December GBP
2010 million
Cost GBP189,000 Profit before tax 2.2
Valuation GBP446,250 Profit after tax 1.5
Valuation basis Bid price Net assets 4.3
Income for year GBPnil
BrainJuicer is an international marketing consultancy. The company provides
consumer-driven insights to 11 of the world's top 20 consumer goods companies.
Between 2006 and 2010, Brainjuicer has achieved compound annual revenue growth
of 37% and compound annual operating profit growth of 47%. The company's tools
give their clients a more productive and in-depth understanding of consumer
behaviour.
Asian Citrus Holdings Limited
Sector Consumer goods
Market capitalisation GBP650.0m Preliminary results to 30 June GBP
2010 million
Cost GBP450,218 Profit before tax 57.8
Valuation GBP423,776 Profit after tax 57.6
Valuation basis Bid price Net assets 375.9
Income for year GBPnil
Asian Citrus is the largest orange plantation owner and operator in China. The
company has three plantations: one is fully developed with approximately 1.3
million orange trees; the second is fully planted with 1.6 million orange
trees; and another has been cleared and planting has commenced. Asian Citrus
recently expanded into the concentrated juice market with the acquisition of a
92% interest in Beihai Perfuming Garden Juice Company and intends to expand
production through the construction of a new facility by the end of 2011.
Futura Medical plc
Sector Health care
Market capitalisation GBP57.6m Preliminary results to 31 GBP
December 2010 million
Cost GBP150,000 Loss before tax (1.3)
Valuation GBP397,500 Loss after tax (1.1)
Valuation basis Bid price Net assets 0.9
Income for year GBPnil
Futura Medical is a pharmaceuticals group specializing in over-the counter
("OTC") products for sexual healthcare and pain relief management. The company
has developed a portfolio of products and has successfully signed three
licensing agreements with major pharmaceuticals companies.
Anglo Pacific Group plc
Sector Basic materials
Market capitalisation GBP339.7m Preliminary results to 31 GBP
December 2010 million
Cost GBP352,899 Profit before tax 65.8
Valuation GBP340,562 Profit after tax 56.3
Valuation basis Bid price Net assets 345.9
Income for year GBP4,000
Anglo Pacific owns mining and exploration interests in coal, uranium, gold,
diamond, base metals and oil and gas. The continuing demand for raw materials
driven by the Asian economies has led to a significant rise in commodity
prices, which have been beneficial for Anglo Pacific's royalty and mining
interests. The group's strategy is focused on securing new royalties through
the acquisition of further mining interests.
BOARD OF DIRECTORS
Julian Avery is Chairman of the Company. He is a solicitor and was chief
executive of Wellington Underwriting plc until September 2004. He was
non-executive director of Aspen Insurance Holdings Limited until May 2007 and
chairman of Equity Insurance Group until its acquisition by the Australian
insurance group, IAG in January 2007. He is currently a non-executive director
of Warner Estate Holdings plc and Charles Taylor Consulting plc. He is senior
adviser to Fenchurch Advisory Partners and is also a Trustee and Treasurer of
the Butler Trust and chairman of St Michael's Hospice, Hastings.
Professor James MacLeod is a Chartered Accountant. He was partner of Ernst &
Young from 1973 to 1998. He is a director of British Assets Trust plc, the
Scottish Investment Trust plc and Invesco Perpetual Recovery Trust 2011 plc. He
was a professor at the Edinburgh University Law School. He is Chairman of the
Audit Committee.
Richard Martin is currently strategy adviser to T. Bailey Asset Management
Limited, a fund of funds investment manager, having been chief investment
officer for nine years. He is chairman of F&C Managed Portfolio Trust plc and a
director of Montanaro European Smaller Companies Trust plc and a director of
Aurora Investment Trust plc as well as adviser to various family groups. He is
the designated Senior Independent Director.
Christopher Macdonald is chief executive officer of Brooks Macdonald Group plc,
a private client listed fund management group. He is also a director of Brooks
Macdonald Asset Management Limited, Brooks Macdonald Financial Consulting
Limited, Brooks Macdonald Asset Management (Tunbridge Wells) Limited and
Braemar Group Limited.
DIRECTORS' REPORT AND BUSINESS REVIEW
The directors submit their Annual Report and Financial Statements on the
affairs of the Company for the year ended 31 May 2011. The Corporate Governance
Statement on pages 23 to 26 forms part of the Directors' Report.
Results and Dividends
The total profit on ordinary activities after taxation for the year was GBP
2,032,000 and 4.67p per share (31 May 2010: GBP92,000 and 0.21p per share). An
interim dividend of 2.0p per share was paid on 11 March 2011.
The Board is recommending a second interim dividend of 3p per share for the
year ended 31 May 2011 payable on 14 October 2011 to shareholders on the
register at 16 September 2011.
A review of the Company's performance during the financial year, the position
of the Company at the year end and the outlook for the coming year is contained
within the Chairman's Statement and the Fund Manager's Review on pages 2 to 7.
A graph of the performance of the growth of the Company's net asset value total
return (assuming dividends re-invested) compared with FTSE AIM All-Share total
return index is shown on page 1.
Company Business
The Articles state that the Directors will, at the annual general meeting of
the Company in 2011, arrange for an ordinary resolution to be proposed to the
effect that the Company shall continue in being as a venture capital trust. If
such a resolution is not passed, the Directors will, within nine months of the
meeting, convene an extraordinary general meeting of the Company at which a
special resolution will be proposed requiring that the Company be wound up
voluntarily. The Directors will be entitled to make proposals at the same time
for the reconstruction of the Company provided such proposal would provide the
shareholders with the opportunity to realise their investment in the Company.
Issue and Buy Back of Shares
During the financial year and since the financial year end, no shares have been
bought back or allotted.
Business Review
The Business Review has been prepared in accordance with the requirements of
Section 417 of the Companies Act 2006 and best practice. The purpose of this
review is to provide shareholders with a summary of the business objectives of
the Company, the Board's strategy to achieve those objectives, the risks faced,
the regulatory environment and the key performance indicators used to measure
performance.
Key Performance Indicators
The Board monitors on a regular basis a number of key performance indicators,
the main ones being:
* Net asset value total return to shareholders (the aggregate of net asset
value and cumulative dividends paid to shareholders). See graph on page 1.
* Dividend distributions. See dividend table on page 1.
* Share price.
* Total expense ratio. See key data on page 1.
Principal Activity and Status
The Company was incorporated in England & Wales, registered number 5121438 and
is registered as a public limited company under the Companies Act 2006. The
directors have managed and intend to continue to manage the Company's affairs
in such a manner as to continue to qualify as a Venture Capital Trust. It has
received full approval as a Venture Capital Trust from HM Revenue & Customs for
the year ended 31 May 2010. A review of the Company's business during the
period is contained in the Chairman's Statement and Fund Manager's Review.
Investment Objective
The objective of the Company is to provide a tax free dividend return to
shareholders primarily through the realisation of capital gains while
maintaining the capital value of the shares. The Company is managed as a VCT in
order that shareholders may benefit from the tax reliefs available.
Investment Policy
The intention is that substantially all of the funds will be invested in a
spread of AIM-traded stocks and unquoted companies, with approximately 80% of
the Company's Qualifying Holdings comprising AIM-traded stocks, subject to
availability of suitable investment opportunities and market conditions. The
remaining investments will be split between PLUS Markets' stocks, fully listed
stocks, AIM-traded non-qualifying stocks and unquoted companies and cash.
The Manager adopts an active investment strategy and seeks to moderate risk by
careful stock selection and portfolio construction. The Manager tends to invest
relatively small amounts across a range of companies, to achieve the
appropriate balance between risk and reward for the portfolio.
Investment Limits
The Board has prescribed other limits on investment policy, including:
* no investment will exceed 12.5% of gross assets when it is made;
* the Company will not invest more than 15% of the Company's gross assets in
collective investment schemes or investment companies; and
* borrowings are limited to 15% of gross assets.
Investment Style
The investment manager follows an active investment process, utilising its
research experience and commercial contacts relevant to the UK smaller
companies stock markets. Its aim is to find companies which are appropriately
financed, well managed, and which have a strong business which the Manager
believes will enable earnings to grow faster than the overall economy.
Co-investment Allocation
The Manager acts as fund manager or adviser to two other clients with similar
investment mandates to the Company. Investment opportunities identified as
suitable for the Company may also be suitable for other clients. As a regulated
entity, the Manager has in place procedures by which it ensures compliance with
Financial Services Authority regulations governing equality of treatment for
different clients and, subject always to the provisions of these regulations,
the Manager seeks to ensure that the Company is not disadvantaged in relation
to any other fund or entity managed or advised by the Manager. The Manager's
written allocation policy is reviewed at least annually and amended as
appropriate.
In managing the portfolio, the Manager may combine orders for the Company with
those of its other clients.
Management
The Board has delegated the management of the investment portfolio to the
Manager and the Manager also provides or procures the provision of company
secretarial and administrative services to the Company.
Principal Risks and Uncertainties
The Board considers that the Company faces the following major risks and
uncertainties:
Investment Risk
A substantial portion of the Company's investments are in small AIM traded
companies and unquoted companies. By their nature these investments involve a
higher degree of risk than investment in larger fully listed companies. These
companies tend to have limited product lines and niche markets. They can be
reliant on a few key individuals. They can be dependent on securing further
financing. In addition, the liquidity, the ability to sell the shares quickly,
of these shares can be low and the share prices volatile.
To reduce the risk, the Board places reliance upon the skills and expertise of
the Manager and its track record of investing in this segment of the market. In
addition, the Manager operates a formal and structured investment process,
which includes an investment committee. Investments are actively and regularly
monitored by the Manager and the Board receives detailed reports on each
investment at board meetings. The Manager also seeks to limit these risks
through building a highly diversified portfolio with companies in different
sectors and markets at different stages of development.
Venture Capital Trust Approval Risk
The approval as a VCT allows investors to take advantage of income tax reliefs
on initial investment and ongoing tax-free capital gains and dividend income.
Failure to meet the requirements of the VCT legislation could result in
investors losing some or all of their tax reliefs.
To reduce this risk, the Board has appointed the Manager which has experience
in venture capital trust management, and is accustomed to operating within the
requirements of the venture capital trust legislation. In addition, to provide
further formal reassurance, the Board has appointed PricewaterhouseCoopers LLP
("PwC") as taxation adviser to the Company. PwC reports every six months to the
Board to confirm compliance with the venture capital legislation, to highlight
areas of risk and to inform on changes in legislation.
Compliance Risk
The Company is listed on the London Stock Exchange and is required to comply
with the rules of the UK Listing Authority, as well as with the Companies Acts,
Accounting Standards and other legislation. Failure to comply with these
regulations could result in a delisting of the Company's shares, or penalties
under the Companies Acts or from financial reporting oversight bodies.
Board members and the Manager have considerable experience in operating at
senior levels within quoted businesses. In addition, the Board and the Manager
receive regular updates on new regulations from professional advisers.
Internal Control Risk
Failures in key controls within the Board or within the Manager's business
could put assets of the Company at risk or result in reduced or inaccurate
information being passed to the Board or to shareholders.
By its nature as a venture capital trust, the Company is exposed to market
price risk, credit risk, liquidity risk and interest rate risk. The Company's
policies for managing these risks are outlined in full in notes 21 to 24 to the
financial statements on pages 43 to 45.
Economic Risk
Events such as economic recession and movement in interest rates can affect
investor sentiment towards liquidity risk, and hence have a negative impact on
the valuation of smaller companies. The Manager seeks to mitigate this risk by
seeking to adopt a suitable investment style, and to diversify the exposure to
geographic markets.
Reputational Risk
Inadequate or failed controls might result in breaches of regulations or loss
of shareholder trust. The audit committee reviews the Manager's internal
controls bi-annually.
Operational Risk
Failure of the Manager's, or other contracted third parties', accounting
systems or disruption to their businesses might lead to an inability to provide
accurate reporting and monitoring. The Manager regularly reviews the
performance of third party suppliers at monthly management meetings and
quarterly board meetings of the Manager.
Market Risk
Investment in AIM-traded, PLUS-traded and unquoted companies, by its nature,
involves a higher degree of risk than investment in companies on the main
market. In particular, smaller companies often have limited product lines,
markets or financial resources and may be dependent for their management on a
smaller number of key individuals. At times of adverse market sentiment the
shares of small companies can become very difficult to sell, and values can
fall rapidly. The Company's closed-end structure is quite important in this
regard, in that it is less likely to become a forced seller at such points. The
Company's investment policy also allows the Manager to invest in much larger
more liquid companies through non-qualifying holdings. These can provide
liquidity in times of market adversity.
The Board seeks to mitigate the internal risks by setting policy, regular
reviews of performance, enforcement of contractual obligations and monitoring
progress and compliance. Details of the Company's internal controls are on page
25.
Directors
The biographies of directors are shown on page 15. The terms of a director's
appointment are set out in the Statement of Corporate Governance on page 23.
The directors who held office during the year and their interests in the shares
of the Company (all of which are owned beneficially) were:
31 May 2011 31 May 2010
Shares held Shares held
Julian Avery 81,310 81,310
Christopher Macdonald 29,660 29,660
Professor James MacLeod 27,825 27,825
Richard Martin 23,388 23,388
There have been no changes in the holdings of the directors between 31 May 2011
and the date of this report.
Details of their remuneration are set out in the directors' remuneration report
on page 28.
Companies Act 2006 Environmental Disclosures
The Board recognises the requirement under Section 417(5) of the Act to detail
information about environmental matters (including the impact of the Company's
business on the environment), any Company employees and social and community
issues; including information about any policies it has in relation to these
matters and effectiveness of these policies. As the Company has no employees or
policies in these matters this requirement does not apply.
Share Capital
The Company has an authorised share capital of 100,000,000 ordinary shares of
10p each, of which 43,526,171 were in issue at the year end.
The rights and obligations attaching to the Company's ordinary shares are set
out in the Company's Articles of Association, copies of which can be obtained
from Companies House. The holders of ordinary shares are entitled to receive
dividends when declared, to receive the Company's report and accounts, to
attend and speak at general meetings, to appoint proxies and to exercise voting
rights. There are no restrictions on the voting rights attaching to the
Company's shares or the transfer of securities in the Company.
Management Agreement
Until 11 February 2011 the fund manager ("Manager") for the Company was Invesco
Asset Management Limited ("IAML"). Under an agreement dated 11 June 2004, IAML
received an investment management fee, calculated and paid quarterly in arrears
at a rate of 0.5% of the Company's market capitalisation.
Amati Global Investors was appointed as Manager to the Company on 11 February
2011. Under an Investment Management and Administration Agreement ("IMA") dated
11 February 2011 the Manager has agreed to manage the investments of the
Company on a discretionary basis subject to the overall policy of the
directors. The Company will pay to the Manager in arrears under the terms of
the IMA a quarterly fee of 0.4375% of the net asset value of the Company.
It is VCT industry practice to reward exceptional performance of a fund manager
by payment to the fund manager of performance fees. The performance fee is
calculated at the end of each performance period and becomes payable upon
publication of the preliminary results of the Company for that performance
period. The first such performance period commenced on 11 February 2011.
Thereafter performance periods correspond to the Company's half yearly
financial periods. The last period for which a performance fee is payable will
be from the penultimate performance fee date to the date of termination of the
IMA.
It is the Board's intention that performance fees are allocated 100% to
capital. No performance fee is due for the year ended 31 May 2011.
Administration Arrangements
Under the IMA, the Manager has also agreed to provide certain portfolio
management, secretarial and administration services for the Company. A fee of GBP
65,000 per annum is payable by the Company to the Manager for these services,
subject to an annual increase in line with the retail prices index. These
services are subject to termination by either party on 12 months' notice.
Fund Manager's Appointment
The Board regularly appraises the performance and effectiveness of the
managerial and secretarial arrangements of the Company. As part of this
process, the Board will consider the arrangements for the provision of
investment management and other services to the Company on an ongoing basis and
a formal review is conducted annually. In the opinion of the Board, the
continuing appointment of the Manager, on the terms agreed, is in the interests
of shareholders.
Details of the principal investments made by the Company are shown in the
portfolio of investments on pages 8 and 9.
The ratio of the Company's expenses for the year ended 31 May 2011 as a
proportion of the net assets of the Company was 3.0%.
Supplier Payment Policy
The Company's policy is to pay all suppliers' invoices in accordance with
agreed terms. The trade creditors as at 31 May 2011 were GBPnil (31 May 2010: GBP
nil).
Auditor
A resolution to re-appoint Ernst & Young LLP as auditor will be proposed at the
forthcoming annual general meeting.
Substantial Shareholdings
At the date of this report there was no individual shareholding exceeding 3% of
the issued ordinary share capital.
Accountability and audit
The directors' responsibility statement in respect of the financial statements
is set out on page 22 of this report. The independent auditor's report is set
out on page 29 of this report. The directors who were in office on the date of
approval of these Financial Statements have confirmed that, as far as they were
aware, there is no relevant audit information of which the auditors are
unaware. Each of the directors has taken all the steps which he ought to have
taken as director in order to make himself aware of any relevant audit
information which has been communicated to the auditors.
Annual General Meeting
The annual general meeting will be held at the offices of Howard Kennedy, 19
Cavendish Square, London W1A 2AW on 30 November 2011 at 10.30 am. The notice of
meeting is set out on pages 46 and 47 of this Annual Report and a proxy form is
included. The following denotes the business to take place:
Ordinary business
Resolution 1: Approval of the Annual Report
Shareholders will be asked to receive the directors' report and financial
statements for the financial year ended 31 May 2011, together with the
independent auditor's report thereon.
Resolution 2: Approval of the Directors' Remuneration Report
Company law requires the directors to produce a directors' remuneration report
for each relevant financial year and shareholders are invited to approve that
report for the financial year ended 31 May 2011 which is set out in full on
pages 27 and 28 of this Annual Report. The directors' remuneration report
includes details of the remuneration paid to directors and the Company's
remuneration policy for its directors.
Resolutions 3 and 4: Re-appointment of auditor
These resolutions provide for the reappointment of Ernst & Young LLP as auditor
to the Company to hold office from the conclusion of the annual general meeting
until the conclusion of the next annual general meeting at which accounts are
laid before the Company and to authorise the directors to fix the auditor's
remuneration.
Resolution 5: Re-election of Julian Avery
Julian Avery will retire by rotation, and being eligible, offers himself for
re-election.
Resolution 6: Re-election of Christopher Macdonald
Christopher Macdonald will retire by rotation, and being eligible, offers
himself for re-election.
Special Business
Resolution 7: Continuation of the Company as a venture capital trust
The Articles state that the directors propose an ordinary resolution to the
effect that the Company shall continue in being as a venture capital trust.
If this resolution is not passed, the directors will, within nine months of the
meeting, convene an extraordinary general meeting of the Company at which a
special resolution will be proposed requiring that the Company be wound up
voluntarily.
Shareholders will appreciate that the Board have announced on 7 July 2011 that
the Company is in discussion with a view to a merger of the company with
ViCTory VCT PLC, and it is anticipated that shareholders will have the
opportunity to vote on these merger proposals before the Annual General Meeting
at a separate General Meeting. If shareholders approve the merger at that
General Meeting, then it is the intention of the directors that this resolution
will not be put before the Annual General Meeting, but if the merger proposals
are not approved by Shareholders, then it would be the directors' intention to
write to shareholders well before the date of the Annual General Meeting with
their recommendation and proposals as to whether or not they consider that the
continuation of the Company as a venture capital trust is in the best interest
of shareholders as a whole.
Resolution 8: Renewal of authority for directors to allot shares
Shareholders will be asked to renew the directors' authority to allot unissued
ordinary shares in the Company up to an aggregate nominal value of GBP5,647,383
which represents the balance of the unissued share capital at 13 September
2011.
Resolution 8 seeks to renew this authority. Whilst the directors have no
current plans to utilise the authority, the resolution provides the Company
with the flexibility to issue shares going forward. This authority will expire
on the earlier of the next annual general meeting in 2012 and the date which is
15 months after the date on which this resolution is passed. As at 13 September
2011 the Company did not hold any shares in treasury.
Resolution 9: Renewal of authority for directors to disapply pre-emption rights
in respect of their authority to allot shares
Shareholders will be asked to renew the directors' authority to disapply
pre-emption rights in respect of their authority to allot unissued ordinary
shares of the Company up to an aggregate nominal value of GBP5,647,383 which
represents the balance of the unissued share capital as at 13 September 2011.
If the directors wish to allot any of the unissued ordinary shares for cash
they must, in the first instance, offer them to existing shareholders in
proportion to their shareholding. There may be occasions, however, when the
directors will need the flexibility to finance business opportunities by the
issue of ordinary shares without a pre-emptive offer to existing shareholders.
The general authority sought under Resolution 10 will expire on the earlier of
the date of the next annual general meeting of the Company in 2012 and the date
which is 15 months after the date on which this resolution is passed.
Special Business
Resolution 10: Renewal of authority for the Company to purchase its own shares
The directors consider that the Company should have the ability to make market
purchases of its ordinary shares in the market for cancellation. A special
resolution will be proposed at the annual general meeting seeking authority for
the Company to purchase up to 14.99% of the issued share capital as at the date
of the annual general meeting. This authority will expire on the earlier of the
date of the Company's annual general meeting to be held in 2012 and the date
which is 18 months after the date on which this resolution is passed.
By order of the board
The City Partnership (UK) Limited
Company Secretary
13 September 2011
STATEMENT OF DIRECTORS' RESPONSIBILITIES
in respect of the Annual Report and the Financial Statements
The directors are responsible for preparing the directors' report, the
directors' remuneration report and the financial statements in accordance with
applicable law and regulations. They are also responsible for ensuring that the
annual report includes information required by the Listing Rules of the
Financial Services Authority.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law).
Under company law the directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for that
period. In preparing these financial statements the directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and estimates that are reasonable and prudent;
* state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
* prepare the financial statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the company and
enable them to ensure that the financial statements comply with company law.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and other
irregularities. The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the company's website.
The directors confirm, to the best of their knowledge:
* that the financial statements, which have been prepared in accordance with
UK Generally Accepted Accounting Practice, give a true and fair view of the
assets, liabilities, financial position and profit of the Company; and
* that the management report included within the Board review, Fund Manager's
review and Directors' report and business review includes a fair review of
the development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
The names and functions of all the directors are stated on page 15.
Electronic Publication
The annual financial report is published on http://www.amatiglobal.com/
avct2_literature.php which is the Company's website maintained by the Company's
Manager. The work carried out by the Auditors does not involve consideration of
the maintenance and integrity of this website and accordingly, the Auditors
accept no responsibility for any changes that have occurred to the financial
statements since they were initially presented on the website. Visitors to the
website need to be aware that legislation in the United Kingdom governing the
preparation and dissemination of the financial statements may differ from
legislation in other jurisdictions.
STATEMENT OF CORPORATE GOVERNANCE
Background
The Board of Amati VCT 2 plc has considered the principles and recommendations
of the Association of Investment Companies' Code of Corporate Governance ("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, as well as
setting out additional principles and recommendations on issues which are of
specific relevance to the Company.
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.
The Company has complied with the recommendations of the AIC Code and the
relevant provisions of Section 1 of the Combined Code except as set out below.
The Combined Code includes provisions relating to:
* the role of the chief executive
* executive directors' remuneration
* the need for an internal audit function
For the reasons set out in the AIC Guide, and in the preamble to the Combined
Code, the Board considers these provisions are not relevant to the position of
the Company, being an externally managed investment company. The Company has
therefore not reported further in respect of these provisions.
Board of Directors
The Company has a board of four directors, all of whom the Board regards as
independent of the Manager. The chairman is Julian Avery. Richard Martin is the
Senior Independent Director and is available to shareholders who have concerns
which have not been resolved through the normal channels of Chairman or Manager
or for which such contact is inappropriate. Biographical details of all
directors are shown on page 15.
The Company has an investment in Brooks Macdonald Group, of which Christopher
Macdonald is chief executive officer. The Board has concluded that the
independence of Christopher Macdonald is not compromised by this relationship.
All directors are subject to re-election by shareholders at the first general
meeting after their appointment and to further re-election thereafter at three
year intervals.
Directors' retirement and re-election are subject to the Articles of
Association and the AIC Code of Corporate Governance. At the forthcoming annual
general meeting Julian Avery and Christopher Macdonald will retire by rotation
and stand for re-election. As they have both acted in the interests of the
Company throughout the period of their appointment and demonstrated commitment
to their roles the Board recommends they be re-elected at the annual general
meeting.
No director has a contract of service with the Company. All of the directors
have been provided with letters of appointment which are available for
inspection by shareholders immediately before and after the Company's annual
general meeting.
Directors are provided with key information on the Company's activities
including regulatory and statutory requirements and internal controls by the
Manager. The Manager, in the absence of explicit instructions from the Board,
is empowered to exercise discretion in the use of the Company's voting rights.
All shareholdings are voted, where practical, in accordance with the Manager's
own corporate governance policy, which is to seek to maximise shareholder value
by constructive use of votes at company meetings and by endeavouring to use its
influence as an investor with a principled approach to corporate governance.
The Board has direct access to secretarial advice and compliance services
through the company secretary, who is responsible for ensuring that board
procedures are followed and applicable procedures complied with.
All directors are able to take independent professional advice in furtherance
of their duties if necessary. In accordance with the AIC Code, the Company has
in place directors' and officers' liability insurance. On appointment any new
director will be given a comprehensive introduction to the Company's business
including meeting the Company's key advisers.
When directors have concerns that cannot be resolved about the running of the
Company or a proposed action, they are asked to ensure that their concerns are
recorded in a board minute. On resignation, a director who has any such
concerns is encouraged to provide a written statement to the Chairman, for
circulation to the Board.
The Board is responsible to shareholders for the proper management of the
Company and meets at least quarterly. The AIC Code states that the Board should
have a formal schedule of matters specifically reserved to it for decision, to
ensure that it has firm direction and control of the Company. This is achieved
by a management agreement between the Company and the Manager, which sets out
the matters over which the Manager has authority and the limits above which
board approval must be sought. All other matters including strategy, investment
and dividend policies, gearing and corporate governance proceedings are
reserved for the approval of the Board of directors.
All the directors are equally responsible for the proper conduct of the
Company's affairs. In addition, the directors are responsible for ensuring that
the policies and operations are in the best interests of the Company's
shareholders and that the best interests of creditors and suppliers to the
Company are properly considered.
The chairman and the company secretary establish the agenda for each board
meeting. The necessary papers for each meeting are distributed well in advance
of the meeting ensuring all directors receive accurate, timely and clear
information.
Independence of Directors
The Board regularly reviews the independence of each director and of the Board
as a whole. The Board believes that each director has demonstrated that he is
independent in character and judgment and there are no relationships or
circumstances which could affect their objectivity.
Board Performance
During the year, the performance of the Board, audit committee and individual
directors was evaluated through an assessment process led by the Senior
Independent Director who also considered the independence of the directors and
concluded that he considered all directors to be independent.
The directors seek to ensure that the Board has an appropriate balance of
skills, experience and length of service. The biographies of the directors
shown on page 15 demonstrate the wide range of investment, commercial and
professional experience that they contribute. The size and composition of the
Board and its committees is considered adequate for the effective governance of
the Company.
Audit Committee
The audit committee comprises Professor James MacLeod (chairman), Christopher
Macdonald and Richard Martin.
The audit committee has written terms of reference which clearly define its
responsibilities and duties. The terms of reference are reviewed annually to
ensure compliance with best practice and the AIC Code. Committee members
believe that collectively they have recent and relevant financial experience to
fulfil the role required. The terms of reference of the audit committee,
including its role and authority are available via the Manager's website at
www.amatiglobal.com.
The audit committee is responsible to the Board for reviewing each aspect of
the financial reporting process; systems of internal control and the management
of financial risks; the audit process; relationships with external auditors and
the Company's process for monitoring compliance with laws and regulations.
The audit committee meets twice a year to review the Annual and Half-yearly
reports before submission to the Board. The audit committee reviews the
services of the auditor on an annual basis and recommends the services of Ernst
& Young LLP to the shareholders in view of the firm's extensive experience in
auditing venture capital trusts. The audit committee reviews the auditors'
independence, objectivity and effectiveness, the quality of the services of all
the services of all service providers to the Company and, together with the
Manager, reviews the Company's compliance with financial reporting and
regulatory requirements. The audit committee also monitors the services of the
auditor in respect of non-audit work.
Nomination Committee
As the Board is small and consists of non-executive directors and in view of
the nature of a venture capital trust company it has been decided that a
nomination committee does not need to be formed. The appointment of new
directors is decided by the whole Board. There have been no new appointments
during the financial year to 31 May 2011 or to the date of this report.
Remuneration Committee
Where a venture capital trust company has no executive directors, the Combined
Code principles relating to directors' remuneration do not apply and as such no
remuneration committee has been appointed. The remuneration of the directors is
reviewed by the whole board although no director is involved in setting his own
remuneration.
Board and Committee Meetings
The following table sets out the directors' attendance at full board and
committee meetings held during the year ended 31 May 2011.
Board meetings Audit Committee
Meetings
Director held attended held attended
Julian Avery 4 4 2 2*
Christopher Macdonald 4 3 2 0
Professor James MacLeod 4 4 2 2
Richard Martin 4 4 2 2
*Julian Avery is not a member of the Audit Committee. However, he attended the
Audit Committee Meetings at the invitation of the Chairman of the Audit
Committee.
The Board is in regular contact with the Manager between board meetings.
Relations with Shareholders
The Company welcomes the views of shareholders and places great importance on
communication with its shareholders. Shareholders have the opportunity to meet
the Board at the annual general meeting. All shareholders are welcome to attend
the meeting and to ask questions of the directors. The Board is also happy to
respond to any written queries made by shareholders during the course of the
year. All communication from shareholders is recorded and reviewed by the Board
to ensure that shareholder enquiries are promptly and adequately resolved.
The notice of the annual general meeting accompanies this annual report, which
is sent to shareholders. Separate resolutions are proposed for each substantive
issue. The Board and representatives of the Manager are available to answer any
questions shareholders may have.
The Company also communicates with shareholders through annual and half-yearly
reports, which appear on the Company's website (http://www.amatiglobal.com/
avct2_literature.php) and through the interim management statements. The Board
as a whole approves the terms of the Chairman's Statement and Fund Manager's
Review which form part of these reports in order to ensure that they present a
balanced and understandable assessment of the Company's position.
Internal Control
The Board acknowledges that it is responsible for the Company's internal
controls and for reviewing their effectiveness. In accordance with the AIC
Code, the Board has established an ongoing process for identifying, evaluating
and managing the significant risks faced by the Company. Internal controls are
designed to manage the particular needs of the Company and the risks to which
it is exposed. The Manager's internal control systems aim to ensure the
maintenance of proper accounting records, the reliability of the financial
information upon which business decisions are made and which is used for
publication, and that the assets of the Company are safeguarded. They can by
their nature only provide reasonable and not absolute assurance against
material misstatement or loss. The financial controls operated by the Board
include the authorisation of the investment strategy and regular reviews of the
results and investment performance.
The Board has delegated contractually to third parties, as set out on page 19,
the management of the investment portfolio, the custodial services, including
the safeguarding of the assets, the day-to-day accounting, company secretarial
and administration requirements and registration services.
Each of these contracts was entered into after full and proper consideration by
the Board of the quality and cost of services offered. The Board receives and
considers regular reports from the Manager. Ad hoc reports and information are
supplied to the Board as required. It remains the role of the Board to keep
under review the terms of the management agreement with the Manager.
An annual review of the Manager's control systems is carried out which covers
consideration of the key risks in three major areas: corporate strategy and
compliance with laws and regulations; financial management and company
reporting and relationships with service providers. Each risk is considered
with regard to the controls exercised at board level, reporting by service
providers and controls relied upon by the Board. The company secretary reviews
the annual statutory accounts to ensure compliance with Companies Acts and the
AIC Code. The principal features of the internal controls which the Company has
in place in respect of financial reporting include segregation of duties
between the review and approval of unquoted investment valuations and the
recording of these valuations in the accounting records, bank reconciliations
are carried out on a monthly basis and the audit committee reviews financial
information prior to its publication.
Whistle Blowing
The Board has considered arrangements by which staff of the Manager or the
company secretary may, in confidence, raise concerns within their respective
organisations about possible improprieties in matters of financial reporting or
other matters. It has concluded that adequate arrangements are in place for
proportionate and independent investigation of such matters, and where
necessary, for appropriate follow-up action to be taken within their respective
organisations.
Going Concern
The Company has adequate resources to continue in business for the foreseeable
future. However, due to the proposed merger with ViCTory VCT PLC, the directors
believe it is probable that the Company will not continue in the foreseeable
future in its current legal form. Thus the directors believe it is not
appropriate to continue to apply the going concern basis in preparing the
financial statements and, therefore, the financial statements have been
prepared on a break-up basis.
Listing Rule Disclosures DTR 7.2.6
The Company has one class of share, ordinary shares, which carry no right to
fixed income. Details of the Company's share capital, including the number of
shares authorised and allotted and rights attached to such shares are set out
in the Directors' Report and Business Review on page 19.
There were no shareholders with a significant holding as at the year end and
the date of this report.
The Company may by ordinary resolution appoint any person who is willing to act
as a Director, either to fill a vacancy or as an additional Director. Each
Director is to be appointed by separate resolution.
The Company may by special resolution make amendment to the Company's Articles
of Association.
The authority to allot securities (in accordance with section 551 of the
Companies Act 2006) and to re-purchase its own shares was renewed at the AGM
held on 12 October 2010 and a resolution to renew these authorities will be put
to shareholders at the AGM to be held on 30 November 2011.
Julian Avery
Chairman
13 September 2011
DIRECTORS' REMUNERATION REPORT
Introduction
The Board has prepared this report in accordance with the requirements of the
Companies Act 2006 and The Large and Medium-sized Company and Groups (Accounts
and Reports) Regulations 2008. An ordinary resolution for the approval of this
report will be put to the members at the forthcoming annual general meeting.
The law requires that the Company's auditor should audit certain disclosures.
Where disclosures have been audited, they are indicated as such. The auditor's
opinion is included in the Independent Auditor's Report on page 29.
Policy on Directors' Fees
The Board's policy is that the remuneration of directors should reflect the
experience of the Board as a whole, be fair and comparable with that of other
companies that are similar in size and nature to the Company and have similar
objectives and structures. Furthermore, the level of remuneration should be
sufficient to attract and retain the directors required to oversee effectively
the Company and to 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 the intention of the Board that,
unless any revision to this policy is deemed necessary, this policy will
continue to apply in the forthcoming and subsequent financial years.
The fees for the directors are set within maximum limits determined from time
to time by the Company in general meeting. At present, the maximum aggregate
remuneration is as contained in the Company's Articles, which limit the fees
payable to the directors to GBP100,000 per annum in aggregate. The directors are
not eligible for bonuses, pension benefits, share options, long-term incentive
schemes or other benefits.
Directors' Service Contracts
No director has a contract of service with the Company. All of the directors
have been provided with letters of appointment. The letters of appointment
provide that directors are appointed for a period of up to three years and are
subject to re-election by shareholders at the first annual general meeting
after their appointment. Thereafter they must retire at intervals of no more
than three years. Their re-election is subject to shareholder approval. The
letters of appointment are available for inspection on request. Any director
who has served on the Board for more than nine years will submit himself for
re-election annually. There is no period of notice to be given to terminate an
appointment and no provision for compensation upon early termination of
appointment.
The following table shows, for each director, the original appointment date and
the annual general meeting ("AGM") at which they may stand for re-election.
Director Date of original Due date for
appointment re-election
Julian Avery 1 June 2004 2011 AGM
Christopher Macdonald 1 June 2004 2011 AGM
Professor James MacLeod 1 June 2004 2012 AGM
Richard Martin 1 June 2004 2012 AGM
Company Performance
The graph below compares the change in the Company's share price total return
assuming dividends re-invested to the FTSE AIM All-Share total return index for
the period from the launch of the Company.
Directors' Remuneration (audited)
2011 2010
Director GBP GBP
Julian Avery (Chairman) 22,000 22,000
Christopher Macdonald 14,000 14,000
Professor James MacLeod (Chairman of the Audit Committee) 16,000 16,000
Richard Martin 14,000 14,000
66,000 66,000
None of the directors received any other remuneration during the year.
No element of the directors' remuneration is performance related. The Company
has not awarded any share options or long-term performance incentives to any of
the directors.
On behalf of the board
Julian Avery
Chairman
13 September 2011
REPORT OF THE INDEPENDENT AUDITOR
to the members of Amati VCT 2 plc
We have audited the financial statements of Amati VCT 2 plc for the year ended
31 May 2011 which comprise the income statement, the reconciliation of
movements in shareholders' funds, the balance sheet, the cash flow statement,
and the related notes 1 to 26. The financial reporting framework that has been
applied in their preparation is applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted Accounting Practice). The
financial statements have been prepared under the break-up basis.
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we are
required to state to them in an auditors' report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
Respective Responsibilities of Directors and Auditors
As explained more fully in the Directors' Responsibility Statement set out on
page 22, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our
responsibility is to audit the financial statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's Ethical
Standards for Auditors.
Scope of the Audit of Financial Statements
An audit involves obtaining evidence about the amount and disclosures in the
financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or
error. This includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant accounting
estimates made by the directors; and the overall presentation of the financial
statements. In addition, we read all the financial and non-financial
information in the financial statements to identify material inconsistencies
with the audited financial statements. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications for our
report.
Opinion of Financial Statements
In our opinion the financial statements:
* give a true and fair view of the state of the Company's affairs as at 31
May 2011 and of its profit for the year then ended;
* have been properly prepared in accordance with United Kingdom's Generally
Accepted Accounting Practice; and
* have been prepared in accordance with the requirements of the Companies Act
2006.
Opinion on Other Matters Prescribed by the Companies Act 2006
In our opinion:
* the part of the Directors' Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
* the information given in the Report of the Directors for the financial year
for which the financial statements are prepared is consistent with the
financial statements
Matters on which we are required to report by exception
We have nothing to report in respect of the following.
Under the Companies Act 2006 we are required to report to you if, in our
opinion:
* adequate accounting records have not been kept or returns adequate for our
audit have not been received by us; or
* the financial statements and the part of the Directors' Remuneration Report
to be audited are not in agreement with the accounting records and returns;
or
* certain disclosures of directors' remuneration specified by law are not
made; or
* we have not received all the information and explanations we require for
our audit.
Under the Listing Rules we are required to review:
* the directors' statement, set out on page 25, in relation to going concern;
and
* the parts of the Corporate Governance Statement relating to the Company's
compliance with the nine provisions of the 2008 Combined Code specified for
our review; and
* certain elements of the report to shareholders by the Board on directors'
remuneration.
Julian Young (Senior Statutory Auditor)
for and on behalf of
Ernst & Young LLP
Statutory Auditor
London
13 September 2011
INCOME STATEMENT
for the year ended 31 May 2011
Note 2011 2011 2011 2010 2010 2010
Revenue Capital Total Revenue Capital Total
Return
Return Return Return Return Return
GBP'000
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gain on investments 7 - 2,347 2,347 - 324 324
Income 2 102 - 102 139 - 139
Investment 3 (46) (136) (182) (42) (124) (166)
management fee
Other expenses 4 (225) (10) (235) (190) (15) (205)
Return on ordinary (169) 2,201 2,032 (93) 185 92
activities before
taxation
Taxation on 5 - - - - - -
ordinary activities
Return on ordinary (169) 2,201 2,032 (93) 185 92
activities after
taxation
Return per Ordinary 6 (0.39)p 5.06p 4.67p (0.21)p 0.42p 0.21p
share
The total column is the profit and loss account of the Company, with the
revenue and capital columns representing supplementary information under the
Statement of Recommended Practice, `Financial Statements of Investment Trust
Companies and Venture Capital Trusts' ("SORP") revised in January 2009.
All revenue and capital items derive from continuing operations.
No operations were acquired or discontinued during the year.
There were no other recognised gains or losses in the year.
The notes on pages 34 to 45 form part of these financial statements.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 May 2011
2011 2010
GBP'000 GBP'000
Opening shareholders' funds 13,881 15,965
Profit for the year 2,032 92
IFA commission credit 39 -
Dividends paid (2,176) (2,176)
Closing shareholders' funds 13,776 13,881
The notes on pages 34 to 45 form part of these financial statements.
BALANCE SHEET
as at 31 May 2011
Note 2011 2010
GBP'000 GBP'000
Fixed assets
Investments held at fair value 7 - 13,222
Current assets
Investments held at fair value 7 11,637 -
Debtors 8 42 95
Cash at bank 2,442 1
Investments - liquidity funds - 1,005
Total current assets 14,121 1,101
Current liabilities
Creditors: amounts falling due within one year 9 (345) (353)
Net current assets 13,776 748
Total assets less current liabilities 13,776 13,970
Provisions
Trail commission 10a - (89)
Deferred management fee 10b - -
Net assets 13,776 13,881
Capital and reserves
Called up share capital* 11 4,353 4,353
Share premium account* 12 39 -
Special reserve 12 30,921 33,097
Capital redemption reserve* 12 23 23
Capital reserve 12 (21,316) (23,517)
Revenue reserve 12 (244) (75)
Equity shareholders' funds 13,776 13,881
Net asset value per share 13 31.65p 31.89p
* These reserves are not distributable.
The financial statements on pages 30 to 45 were approved and authorised for
issue by the Board of directors on 13 September 2011 and were signed on its
behalf by
Julian Avery
Chairman
Company Number 5121438
The notes on pages 34 to 45 form part of these financial statements.
CASH FLOW STATEMENT
for the year ended 31 May 2011
2011 2010
Note GBP'000 GBP'000
Operating activities
Investment income received 107 159
Other interest received - 22
Investment management fees (168) (180)
Other operating costs (207) (199)
Net cash outflow from operating activities 15 (268) (198)
Financial investment
Purchase of investments (2,715) (1,389)
Sale of liquidity funds 1,005 65
Disposals of investments 6,657 3,750
Net cash inflow from financial investment 4,947 2,426
Equity Dividends paid
Payment of dividends (2,176) (2,176)
Net cash inflow before financing 2,503 52
Financing
Trail commissions paid to IFAs (62) (60)
Net cash outflow from financing (62) (60)
Increase/(decrease) in cash 2,441 (8)
Reconciliation of net cash flow to movement in net
cash
Net cash at 1 June 1 9
Net cash at 31 May 2,442 1
Increase/(decrease) in cash during the year 2,441 (8)
The notes on pages 34 to 45 form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
1 Accounting Policies
Basis of Accounting
The financial statements have been prepared in accordance with applicable
United Kingdom Accounting Standards and with the Statement of Recommended
Practice ("SORP") Financial Statements of Investment Trust Companies and
Venture Capital Trusts, issued by the Association of Investment Companies in
January 2009.
As it is probable that the Company will not continue in the foreseeable future
in its current legal form, the financial statements have been prepared on a
break-up basis. As a consequence, in these financial statements:
* all assets and liabilities are classified as current;
* quoted investments continue to be stated at their bid price;
* unquoted/illiquid investments continue to be valued on the basis shown
below; and
* no provision has been made for break-up costs as these cannot be reliably
estimated at this stage.
Income Statement
The revenue column of the income statement includes all income and expenses
other than the proportion of the management fee charged to capital and other
capital expenses. The capital statement accounts for the realised profit and
loss on investments, increases and decreases in the valuation of investments,
the proportion of the management fee charged to capital and other capital
expenses (including VCT monitoring fees).
Income
Dividends on quoted shares are recognised as income on the date that the
related investments are marked ex dividend. Where no dividend date is quoted,
income is recognised when the Company's right to receive payment is
established.
Income from fixed interest securities, other investment income and deposit
income are included on an accruals basis provided there is no reasonable doubt
that payment will be received in due course.
Expenses
All expenses have been charged to revenue except as follows:
The investment management fee is currently allocated 25% to revenue and 75% to
capital, reflecting the directors' view of the long term investment returns of
the Company. VCT monitoring fees are allocated wholly to capital. Performance
fees are charged to capital.
Issue Costs
Issue costs were deducted from the share premium account.
Taxation
Deferred taxation is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date. Deferred tax assets are
only recognised when they arise from timing differences where recovery in the
foreseeable future is regarded as probable. Timing differences are differences
arising between the Company's taxable profits and its results as stated in the
financial statements which are capable of reversal in one or more subsequent
periods. There was no deferred tax at the year end.
Current tax is expected tax payable on the taxable income for the period, using
tax rates enacted or substantively enacted at the balance sheet date and any
adjustment to tax payable in respect of previous years. The tax effect of
different items of expenditure is allocated between revenue and capital on the
same basis as a particular item to which it relates, using the Company's
effective rate of tax, as applied to those items allocated to revenue, for the
accounting period. No tax was payable on the profit in the year.
Trail Commissions
Under the IMA dated 11 February 2011 the Manager is now responsible for payment
of trail commission to IFAs.
Investments
Quoted investments are valued at cost on acquisition and are measured at
subsequent reporting dates at fair value, generally being the bid price for the
stock.
Gains and losses arising from changes in fair value are considered to be
realised to the extent that they are readily convertible to cash in full at the
balance sheet date.
Those venture capital investments that may be termed associated undertakings
are carried at fair value as determined by the directors in accordance with the
Company's normal policy and are not equity accounted as required by the
Companies Act 2006. The directors consider that, as these investments are held
as part of the Company's portfolio with a view to the ultimate realisation of
capital gains, equity accounting would not give a true and fair view of the
Company's interests in these investments. Quantification of the effect of this
departure is not practicable. Carrying investments at fair value is
specifically permitted under Financial Reporting Standard 9 "Associates and
Joint Ventures", where venture capital entities hold investments as part of a
portfolio. At the year end, the Company has no holdings that are considered to
be associates or joint ventures.
Fair values for unquoted investments are established by using various valuation
techniques in accordance with International Private Equity Venture Capital
Valuation ("IPEV") guidelines published in September 2009. These may include
recent arm's length transactions, applying profit multiples (with appropriate
discounts) of samples of comparable quoted companies, discounted cash flow
analysis and option pricing models. Where a valuation technique commonly used
by market participants to price the instrument has been demonstrated to provide
reliable estimates of prices obtained in actual market transactions, that
technique is utilised. Valuations of unquoted investments are reviewed
quarterly by the Board.
Convertible loan stock instruments are valued using a discounted cash flow
calculation of the underlying loan instrument and by valuing the option at fair
value. The fair value of each option is calculated using assumptions which the
Manager believes to be prudent.
Realised surpluses or deficits on the disposal of investments and investment
holding gains or losses on the revaluation of investments and permanent
impairments in the value of investments are taken to capital.
Financial Instruments
The Company classifies a financial instrument, or their component parts, on
initial recognition as a financial asset, a financial liability, or an equity
instrument in accordance with the substance of the contractual arrangement.
Financial instruments are recognised on the date when the Company becomes a
party to the contractual provisions of the instrument. Financial instruments
are recognised initially at fair value plus, in the case of a financial
instrument not at fair value through profit and loss, transaction costs that
are directly attributable to the acquisition or issue of the financial
instrument.
Financial instruments are derecognised on the date when the Company is no
longer a party to the contractual provisions of the instrument.
Foreign Currency
Foreign currency assets and liabilities are translated into sterling at the
exchange rates ruling at the balance sheet date. Transactions during the year
are converted into sterling at the rates ruling at the time the transactions
are executed. All exchange differences are reflected in the income statement
and, depending on the nature of the gain or loss, are allocated to either
revenue or capital.
Trade Debtors and Creditors
Trade debtors and creditors are stated at their original invoiced value.
2 Income
Year to Year to
31 May 31 May
2011 2010
GBP'000 GBP'000
Dividends from UK companies 99 131
Dividends from overseas companies 3 8
102 139
3 Investment Management Fees
The Manager provides investment management and secretarial services to the
Company under an investment management agreement. Details of this agreement are
given on page 19.
Investment management fees for the year were as follows:
Year to 31 May 2011 Year to 31 May 2010
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Management fee for the year 46 136 182 42 124 166
46 136 182 42 124 166
At 31 May 2011, GBP60,000 was due to the Manager by the Company for investment
management fees (31 May 2010: GBP46,000).
Performance fee
A formula is used in order to arrive at the amount of the total performance fee
based on the Company's starting NAV as at 9 February 2011 of 31.46p per share
("Starting NAV per share"), the weighted average NAV per share of any
subsequent share offer or pool, and the relevant performance hurdles. Returns
are defined by comparing the Starting NAV per share and the weighted average
NAV per share adjusted for prior dividends ("Returns"). When the IMA was
approved there was one pool and the formula allows for the creation of further
pools, referred to as additional pools. The ordinary shares issued under any
subsequent offer will each form separate pools for this purpose. At 31 May 2011
there remained one pool.
The principle followed is that no performance fees are payable on the first 20%
of Returns from the Starting NAV per share (which is 6.29p, so the minimum
threshold for NAV plus dividends paid is 37.75p), and that the Returns from
each pool are also subject to a hurdle rate test of 8% simple interest. In
addition, fees are only paid where the Returns are sustained for at least six
months. The fee itself is based on 20% of the Returns per share in excess of
the first 20% of Returns, multiplied by the number of shares in pools which
have passed the 8% hurdle rate, less any previous performance fees paid.
4 Other Expenses
Year to 31 May 2011 Year to 31 May 2010
Revenue Capital Total GBP Revenue Capital Total
'000
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Directors 66 - 66 66 - 66
remuneration
Auditor's 27 - 27 26 - 26
remuneration
Administration and 16 - 16 - - -
secretarial services
Other expenses 116 10 126 98 15 113
225 10 235 190 15 205
The Company has no employees.
Details of directors' remuneration are provided in the directors' remuneration
report on pages 27 and 28.
Auditor's remuneration can be broken down into:
Year to 31 May 2011 Year to 31 May 2010
Revenue Capital Total GBP Revenue Capital Total
'000
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Audit of statutory 22 - 22 22 - 22
financial statements
Amounts paid to the 5 - 5 4 - 4
auditor for tax
services
27 - 27 26 - 26
Charges for non audit services provided by the auditor relate to tax compliance
work and advice.
5 Tax on Ordinary Activities
5a Analysis of credit for the year
Year to Year to
31 May 31 May
2011 2010
GBP'000 GBP'000
Tax payable for the year - -
5b Factors affecting the tax charge for the year
Year to Year to
31 May 31 May
2011 2010
GBP'000 GBP'000
Profit on ordinary activities before taxation 2,032 92
Theoretical tax at UK corporation tax rate of 563 26
27.7% (31 May 2010: 28%)
Effect of:
Non-taxable income (27) (37)
Gain on investments not taxable (650) (91)
Expenses in excess of taxable income 114 101
Disallowed expenses - 1
Tax charge for the year (note 5a) - -
No deferred tax asset has been recognised on surplus expenses carried forward
as it is not envisaged that any such tax will be recovered in the foreseeable
future. The amount of carried forward expenses is GBP3,304,000 (31 May 2010: GBP
2,889,000).
6 Return per Share
The revenue return per share is based on the negative revenue return of GBP
169,000 (31 May 2010: GBP93,000) and on 43,526,171 (31 May 2010: 43,526,171)
shares, being the weighted average number of shares in issue during the year.
The capital return per share is based on the capital return of GBP2,201,000 (31
May 2010: GBP185,000) and on 43,526,171 (31 May 2010: 43,526,171) shares, being
the weighted average number of shares in issue during the year. The total
return per share is based on the total return of GBP2,032,000 (31 May 2010: GBP
92,000) and on 43,526,171 (31 May 2010: 43,526,171) shares, being the weighted
average number of shares in issue during the year.
7 Investments
Quoted Unquoted
investments investments Total
GBP'000 GBP'000 GBP'000
Cost at 1 June 2010 25,627 4,747 30,374
Transfers between quoted and unquoted (198) 198 -
Purchases 3,170 - 3,170
Disposals - proceeds received (5,321) (1,781) (7,102)
- realised gains on disposal 717 255 972
- realisation of revaluation (10,099) (2,296) (12,395)
movements from previous years
Cost at 31 May 2011 13,896 1,123 15,019
Unrealised losses at 1 June 2010 (14,500) (2,652) (17,152)
Unrealised gains on investments during the 1,362 13 1,375
year
Realisation of revaluation movements from 10,099 2,296 12,395
previous years
Unrealised losses at 31 May 2011 (3,039) (343) (3,382)
Valuation at 1 June 2010 11,127 2,095 13,222
Valuation at 31 May 2011 10,857 780 11,637
Equity shares 10,542 680 11,222
Preference shares 315 100 415
Total investments at valuation 10,857 780 11,637
2011 2010
GBP'000 GBP'000
Realised gains/(losses) on disposal 972 (1,861)
Unrealised gains on investments during the year 1,375 2,185
Net gain on investments 2,347 324
Transaction Costs
During the year the Company incurred transaction costs of GBP11,000 and GBP6,000 on
purchases and sales of investments respectively. These amounts are included in
the gain on investments as disclosed in the income statement.
8 Debtors
2011 2010
GBP'000 GBP'000
Receivable for investments sold 28 68
Prepayments and accrued income 14 27
42 95
9 Creditors: Amounts Falling Due Within One Year
2011 2010
GBP'000 GBP'000
Payable for investments bought 155 185
Related party payables (due to Manager) 60 46
Trail commission payable for period to 1 March 2011 37 49
Other creditors 93 73
345 353
10 Provisions
a Trail commission
The following provision relates to trail commission on the initial issue of the
ordinary shares.
2011 2010
GBP'000 GBP'000
Opening provision 89 149
Charge for the year (50) (60)
Credit to the share premium account* (39) -
Closing provision - 89
*Trail commission was payable by the Companyuntil 1 March 2011 but under the
IMA dated 11 February 2011 the Manager is now responsible for payment of trail
commission to IFAs.
The Company paid trail commission to IFAs provided that the IFA continued to
act for the Shareholder and the Shareholder continued to hold the ordinary
shares. Trail commission was based on 0.375% per annum of the amount invested
by the Shareholder and was payable on the first and each subsequent anniversary
up to and including the sixth anniversary of the date of allotment of ordinary
shares to the Shareholder. Trail commission was not paid to the extent that the
cumulative trail commission would exceed 2.25% of the initial net asset value
per share.
b Deferred management fee
The following provision related to the deferred management fee under the
previous investment management agreement. There is no deferred management fee
under the IMA dated 11 February 2011.
2011 2010
GBP'000 GBP'000
Opening provision - 19
Amount released - (19)
Closing provision - -
11 Called Up Share Capital
2011 2010
Ordinary shares (10p shares) Number GBP'000 Number GBP'000
Allotted, issued and fully paid at 1 June and 43,526,171 4,353 43,526,171 4,353
31 May
12 Reserves
Capital
Share Share Special redemption Capital Revenue Total
capital premium reserve reserve* reserve reserve reserves
* *
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 June 2010 4,353 - 33,097 23 (23,517) (75) 13,881
Profit/(loss) for - - - - 2,201 (169) 2,032
the year
IFA commission - 39 - - - - 39
credit
Dividends paid - - (2,176) - - - (2,176)
At 31 May 2011 4,353 39 30,921 23 (21,316) (244) 13,776
*These reserves are not distributable.
The realised and unrealised Capital Reserves have been amalgamated under the
revised SORP, as there is no requirement to show realised and unrealised
reserves separately.
At 31 May 2011, the capital reserve constitutes realised losses of GBP17,934,000
(31 May 2010: GBP6,365,000) and unrealised losses of GBP3,382,000 (31 May 2010: GBP
17,152,000).
Distributable reserves comprise the special reserve, the revenue reserve and
the capital reserve. At 31 May 2011, the amount of reserves deemed
distributable is GBP9,361,000 (31 May 2010: GBP9,505,000), a net movement in the
period of negative GBP144,000. The net movement is comprised of profit on
ordinary activities in the income statement of GBP2,032,000 less the dividends
paid of GBP2,176,000.
A second interim dividend for the year ended 31 May 2011 of 3p per share has
been declared to be paid on 14 October 2011 to shareholders on the register at
16 September 2011.
13 Net Asset Value per Ordinary Share
The calculation of net asset value per share at 31 May 2011 is based on net
assets of GBP13,776,000 (31 May 2010: GBP13,881,000) divided by the 43,526,171 (31
May 2010: 43,526,171) shares in issue at the year end.
14 Analysis of Changes in Cash
2011 2010
GBP'000 GBP'000
At 1 June 1 9
Increase/(decrease) in cash 2,441 (8)
At 31 May 2,442 1
15 Reconciliation of Profit on Ordinary Activities Before Taxation to Net Cash
Outflow from Operating Activities
2011 2010
GBP'000 GBP'000
Profit on ordinary activities before taxation 2,032 92
Net gain on investments (2,347) (324)
Increase/(decrease) in creditors, excluding corporation tax 34 (5)
payable
Decrease in debtors 13 39
Net cash outflow from operating activities (268) (198)
16 Significant Interests
The Company has the following significant interests (amounting to an investment
of 3% or more of the equity capital of an undertaking):
Nominal % held
Inditherm plc 4,000,000 7.8
Publishing Technology plc 362,500 4.3
Kiotech International plc 590,065 3.3
Brookwell Limited Redeemable Preference 484,841 3.0
Antenova Limited 2,181,435 3.0
17 Unquoted Investments
During the year the material disposals of unquoted investments were:
* At 31 May 2010, the Company held 14,039 shares in Oxford Nanopore
Technologies at a cost of GBP550,000 and valuation of GBP1,027,000. During the
year ended 31 May 2011, the Company realised this investment for GBP
1,283,000.
* At 31 May 2010, the Company held 125,000 shares in A J Bell at a cost of GBP
251,000 and valuation of GBP500,000. During the year ended 31 May 2011, the
Company realised this investment for GBP500,000.
During the year there were no material acquisitions of unquoted investments.
18 Post Balance Sheet Events
The following transactions have taken place between 31 May 2011 and the date of
this report:
* On 7 July 2011 the Company announced that it has entered discussions
regarding a possible merger of the Company with ViCTory VCT PLC.
19 Related Parties
The Company holds 90,000 shares in Brooks Macdonald Group, of which Christopher
Macdonald is chief executive officer. Christopher Macdonald holds 1,003,308
shares in Brooks Macdonald Group in his own name.
The Company retains Amati Global Investors Limited to act as its Manager.
Details of the agreement with the Manager are set out on page 19.
Save as disclosed in this paragraph there is no conflict of interest between
the Company, the duties of the Directors and their interests.
20 Financial Instruments
The Company's financial instruments comprise equity and fixed interest
investments, cash balances and liquid resources including debtors and
creditors. The Company holds financial assets in accordance with its investment
policy to invest in qualifying investments predominantly in AIM traded
companies or companies to be traded on AIM.
Investments (see note 7) are valued at fair value. For quoted securities this
is the bid price. Unquoted investments are valued by the directors using rules
consistent with International Private Equity Venture Capital Valuation
guidelines. The fair value of all other financial assets and liabilities is
represented by their carrying value in the balance sheet.
The Company's investing activities expose it to various types of risk that are
associated with the financial instruments and markets in which it invests. The
most important types of financial risk to which the Company is exposed are
market risk, credit risk and liquidity risk. The nature and extent of the
financial instruments outstanding at the balance sheet date and the risk
management policies employed by the Company are discussed below.
In order to provide further information on the valuation techniques used to
measure assets carried at fair value, the measurement basis has been
categorised into a "fair value hierarchy" as follows:
FRS 29 "Financial Instruments: Disclosures" is applicable for reporting periods
beginning on or after 1 January 2009. The three levels set out in FRS 29 are:
Level 1 - fair value based on quoted prices in active markets for identical
assets.
Level 2 - fair values based on valuation techniques using observable inputs
other than quoted prices within Level 1.
Level 3 - fair values based on valuation techniques using inputs that are not
based on observable market data.
Categorisation within this hierarchy is determined on the basis of the lowest
level input that is significant to the fair value measurement of each relevant
asset/liability.
The valuation techniques used by the Company are explained in the accounting
policies note. Unquoted investments are all deemed to be Level 3 as described
above. Quoted investments have been reviewed on a stock-by-stock basis and have
been shown in Level 1 where there is an active market. Quoted investments where
the market is not active, that is where the Company's holding would take more
than 60 days to realise based on average market turnover, have been shown in
Level 2.
Financial assets at fair value
At 31 May 2011
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Ordinary shares 7,877 2,665 680 11,222
Preference shares 315 - 100 415
8,192 2,665 780 11,637
Level 3 financial assets at fair value
At 31 May 2011
Ordinary Preference Loan
shares shares Stock Total
GBP'000 GBP'000 GBP'000 GBP'000
Opening balance at 1 June 2010 1,995 100 - 2,095
Disposals - proceeds (1,782) - - (1,782)
Disposals - realised losses on (6,965) - (465) (7,430)
disposal
Unrealised gains on investments in the 7,432 - 465 7,897
year
Closing balance at 31 May 2011 680 100 - 780
AJ Bell and Oxford Nanopore were included within Level 3 assets as 31 May 2010
and were sold during the year under review.
Changing one or more inputs to other reasonable alternative input assumptions
would not have a significant impact on the valuation reported in the accounts.
Level 3 financial assets at fair value
At 31 May 2010
Ordinary Preference Loan
shares shares Stock Total
GBP'000 GBP'000 GBP'000 GBP'000
Opening balance at 1 June 2009 2,886 100 - 2,986
Transfers to Level 1 (854) - - (854)
Disposals - proceeds (206) - - (206)
Disposals - realised gains on disposal 55 - - 55
Unrealised gains on investments in the 114 - - 114
year
Closing balance at 31 May 2010 1,995 100 - 2,095
21 Market Risk
Market risk covers the potential for losses, interest rate risk and price risk.
The Company's strategy on the management of investment risk is driven by the
Company's investment objective as outlined in the corporate objective on page
1. The management of market risk is part of the investment management process.
The portfolio is managed in accordance with policies and procedures in place as
described in more detail in the Directors' Report and Business Review on pages
16 to 21, with an awareness of the effects of adverse price movements through
detailed and continuing analysis, with an objective of maximising overall
returns to shareholders. Investments in unquoted stocks and AIM traded
companies, by their nature, involve a higher degree of risk than investments in
the main market. Some of that risk can be mitigated by diversifying the
portfolio across business sectors and asset classes. The Company's overall
market positions are monitored by the Board on a quarterly basis.
Details of the Company's investments at the balance sheet date are disclosed in
the Investment Portfolio on pages 8 and 9.
Of the Company's investments, 93.3% are traded on AIM or fully listed (31 May
2010: 84.2%). A 10% increase in stock prices as at 31 May 2011 would have
increased the net assets attributable to the Company's shareholders and the
total profit for the year by GBP1,086,000 (31 May 2010: GBP1,113,000); an equal
change in the opposite direction would have decreased the net assets
attributable to the Company's shareholders and the total profit for the year by
an equal amount.
Of the Company's investments, 6.7% are in unquoted companies held at fair value
(31 May 2010: 15.8%). A 10% increase in the valuations of unquoted investments
at 31 May 2011 would have increased the net assets attributable to the
Company's shareholders and the total profit for the year by GBP78,000 (31 May
2010: GBP209,000); an equal change in the opposite direction would have decreased
the net assets attributable to the Company's shareholders and the total profit
for the year by an equal amount.
22 Interest Rate Risk
Fixed rate
None of the Company's financial assets are interest bearing at a fixed rate. As
a result, the Company is not subject to exposure to fair value interest rate
risk due to fluctuations in the prevailing levels of market interest rates.
Floating rate
Any cash balances held by the Company are subject to floating rates. A change
in interest rates would therefore have had a minimal impact. At 31 May 2011,
the overdraft balance was GBPnil (31 May 2010: GBPnil).
23 Credit Risk
Credit risk is the risk that the counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with the
Company. The Manager has in place a monitoring procedure in respect of
counterparty risk which is revised on an ongoing basis. The carrying amount of
financial assets best represents the maximum credit risk exposure at the
balance sheet date. At 31 May 2011, the financial assets exposed to credit risk
amounted to GBP42,000 (31 May 2010: GBP95,000).
Credit risk arising on transactions with brokers relates to transactions
awaiting settlement. Risk relating to unsettled transactions is considered to
be small due to the short settlement period involved and the high credit
quality of the brokers used. The Board monitors the quality of service provided
by the brokers used to further mitigate this risk.
All the assets of the Company which are traded on AIM are held by Bank of New
York Nominees, the Company's custodian. Bankruptcy or insolvency of the
custodian may cause the Company's rights with respect to securities held by the
custodian to be delayed or limited.
At 31 May 2011, substantially all of the cash held by the Company was held by
The Bank of New York. Bankruptcy or insolvency of this institution may cause
the Company's rights with respect to the cash held by it to be delayed or
limited. Should the credit quality or the financial position of this
institution deteriorate significantly the Company has the ability to move the
cash at short notice.
There were no significant concentrations of credit risk to counterparties at 31
May 2011 or 31 May 2010.
24 Liquidity Risk
The Company's financial instruments include investments in unlisted equity
investments which are not traded on a recognised stock exchange and which
generally may be illiquid. As a result, the Company may not be able to sell
quickly some of its investments in these instruments at an amount close to
their fair value.
The Company's liquidity risk is managed on an ongoing basis by the Manager in
accordance with policies and procedures in place as described in the Directors'
Report and Business Review on pages 16 to 21. The Company's overall liquidity
risks are monitored on a quarterly basis by the Board.
The Company maintains sufficient investments in cash and readily realisable
securities to pay accounts payable and accrued expenses. At 31 May 2011, these
investments were valued at GBP2,442,000 (31 May 2010: GBP1,006,000).
25 Capital Management Policies and Procedures
The Company's capital is as disclosed in the balance sheet and is managed on a
basis consistent with its investment objective and policies, as disclosed in
the Directors' Report. The principal risks and their management are disclosed
above.
26 Dividends paid
2011 2010
GBP'000 GBP'000
Final dividend for the year ended 31 May 2010 of 3.00p per 1,306 -
Ordinary share - paid on 22 October 2010
Interim dividend for the year ended 31 May 2011 of 2.00p 870 -
per Ordinary share - paid on 11 March 2011
Final dividend for the year ended 31 May 2009 of 3.00p per - 1,306
Ordinary share - paid on 23 October 2009
Interim dividend for the year ended 31 May 2010 of 2.00p - 870
per Ordinary share - paid on 12 March 2010
2,176 2,176
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the annual general meeting of Amati VCT 2 plc (the
"Company") will be held on 30 November 2011 at 10.30am at the offices of Howard
Kennedy, 19 Cavendish Square, London W1A 2AW for the transaction of the
following business:
Ordinary Business
To consider, and if thought fit, to pass the following Resolutions 1 to 8 as
Ordinary Resolutions of the Company:
Ordinary Resolutions
1. "To receive and adopt the Directors' Report and financial statements of the
Company for the financial year ended 31 May 2011 together with the
Independent Auditor's Report thereon."
2. "To approve the Directors' Remuneration Report for the financial year ended
31 May 2011."
3. "To re-appoint Ernst & Young LLP of 1 More London Place, London SE1 2AF as
auditor of the Company from the conclusion of the Meeting until the
conclusion of the next annual general meeting of the Company to be held in
2012 at which financial statements are laid before the Company."
4. "To authorise the directors to fix the remuneration of the auditor."
5. "To re-elect Julian Avery, as a director of the Company, who is retiring by
rotation."
6. "To re-elect Christopher Macdonald as a director of the Company, who is
retiring by rotation."
SPECIAL BUSINESS
To consider, and if thought fit, to pass the following Resolutions, Resolution
7 and 8 as Ordinary Resolutions and Resolutions 9 and 10 as Special Resolutions
of the Company:
Ordinary Resolution
7. "To approve the continuation of the Company as a venture capital trust."
8. "THAT in substitution for any existing authority under section 551 of the
Companies Act 2006, as amended (the "Act") but without prejudice to the
exercise of any such authority prior to the date of the passing of this
Resolution the Board be and is hereby generally and unconditionally
authorised to exercise all the powers of the Company to allot ordinary
shares of 10p each ("Ordinary Shares") up to an aggregate nominal amount of
GBP5,647,383 during the period commencing on the passing of this Resolution
and expiring on the earlier of the date of the annual general meeting of
the Company to be held in 2012 and the date which is 18 months after the
date on which this Resolution is passed, (unless previously revoked, varied
or extended by the Company in general meeting), save that the Company may
before such expiry make an offer or agreement which would or might require
relevant securities to be allotted after such expiry and the board may
allot relevant securities in pursuance of such an offer or agreement as if
the authority conferred hereby had not expired.
Special Resolutions
9. "THAT in substitution for any existing authority under section 570 and 573
of the Act but without prejudice to the exercise of any such authority
prior to the date of the passing of this Resolution the Board be and is
hereby generally and unconditionally empowered, pursuant to section 561(1)
of the Act, to allot Ordinary Shares for cash pursuant to the authority
conferred by Resolution 7 above as if subsection 561(1) of the Act did not
apply to any such allotment, up to an aggregate nominal amount of GBP
5,647,383. The authority hereby conferred shall (unless previously renewed
or revoked) expire on the earlier of the annual general meeting of the
Company to be held in 2012 and the date that is 18 months after the date on
which this Resolution is passed."
10. "THAT the Company be and is hereby generally and unconditionally authorised
to make market purchases within the meaning of Section 693(4) of the Act,
of the Ordinary Shares on such terms and in such manner as the directors of
the Company may determine provided that:
i. the maximum aggregate number of Ordinary Shares hereby authorised to be
purchased represents approximately 10% of the issued ordinary share capital
of the Company as at the date of the annual general meeting;
ii. the minimum price which may be paid for an Ordinary Share is 10p per share,
the nominal amount thereof;
iii. the maximum price (exclusive of expenses) which may be paid for an
Ordinary Share shall be the higher of not more than (i) 5% above the
average of the middle market quotations for an Ordinary Share on The London
Stock Exchange Daily Official List for the five business days immediately
preceding the day on which that Ordinary Share is purchased and (ii) the
higher of the last independent trade and the highest current bid on The
London Stock Exchange;
iv. the authority hereby conferred shall (unless previously renewed, varied or
revoked) expire on the earlier of the annual general meeting of the Company
to be held in 2012 and the date which is 18 months after the date on which
this Resolution is passed; and
v. the Company may make a contract or contracts to purchase its own Ordinary
Shares under this authority before the expiry of the authority which will
or may be executed wholly or partly after the expiry of the authority, and
the Company may make a purchase in pursuance of any such contract or
contracts as if the authority conferred hereby had not expired."
By order of the board Registered office:
The City Partnership (UK) Limited Thistle House, 21 Thistle Street
Secretary Edinburgh EH2 1DF
13 September 2011
Notes
1. A member entitled to attend and vote at the AGM is entitled to appoint one
or more proxies to attend, speak and vote in his stead. Where more than one
proxy is appointed, each proxy must be appointed to exercise the rights
attached to a different share or shares. A proxy need not be a member of
the Company. In order to be valid an appointment of proxy must be returned
by one of the following methods:
* in hard copy form by post, by courier or by hand to The City Partnership
(UK) Limited, c/o Share Registrars, Suite E, First Floor, 9 Lion and Lamb
Yard, Farnham, Surrey GU9 7LL; or
* in the case of CREST members, by utilising the CREST electronic proxy
appointment service in accordance with the procedures set out below
* and in each case to be received not less than 48 hours before the time of
the meeting.
2. CREST members who wish to appoint a proxy or proxies by utilising the CREST
electronic proxy appointment service may do so by utilising the procedures
described in the CREST manual. CREST Personal Members or other CREST
sponsored members, and those CREST members who have appointed a voting
service provider(s), should refer to their CREST sponsor or voting service
provider(s), who will be able to take the appropriate action on their
behalf. In order for a proxy appointment made by means of CREST to be
valid, the appropriate CREST message (a "CREST Proxy Instruction") must be
properly authenticated in accordance with Euroclear UK & Ireland Limited's
specifications and must contain the information required for such
instructions, as described in the CREST Manual. The message, regardless of
whether it relates to the appointment of a proxy or to an amendment of the
instruction given to a previously appointed proxy must, in order to be
valid, be transmitted so as to be received by the issuer's agent (ID 7RA36)
by the latest time(s) for receipt of proxy appointments specified in this
document. For this purpose, the time of receipt will be taken to be the
time (as determined by the time stamp applied to the message by the CREST
Applications Host) from which the issuer's agent is able to retrieve the
message by enquiry to CREST in the manner prescribed by CREST. After this
time any change of instructions to proxies through CREST should be
communicated to the appointee through other means. The Company may treat as
invalid a CREST Proxy Instruction in the circumstances set out in
Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
CREST members and, where applicable, their CREST sponsors or voting service
providers should note that Euroclear UK & Ireland Limited does not make
available special procedures in CREST for any particular messages. Normal
system timings and limitations will therefore apply in relation to the
input of CREST Proxy Instructions. It is the responsibility of the CREST
member concerned to take or, if the CREST member concerned to take or, if
the CREST member is a CREST personal member or sponsored member or has
appointed a voting service provider(s), to procure that his CREST sponsor
or voting service provider(s) take(s), such action as shall be necessary to
ensure that a message is transmitted by means of the CREST system by any
particular time. In this connection, CREST members and, where applicable,
their CREST sponsors or voting service providers are referred, in
particular, to those sections of the CREST Manual concerning practical
limitations of the CREST system and timings. The CREST Manual can be
reviewed at www.euroclear.com/CREST.
3. A form of appointment of proxy is enclosed. Appointment of a proxy (whether
by completion of a form of appointment of proxy, or other instrument
appointing a proxy or any CREST Proxy Instruction) does not prevent a
member from attending and voting at this meeting.
To be effective, the form of appointment of proxy, duly completed and executed,
together with any power of attorney or other authority under which it is signed
(or a notarially certified copy thereof) must be lodged at The City Partnership
(UK) Limited, c/o Share Registrars, Suite E, First Floor, 9 Lion and Lamb Yard,
Farnham, Surrey GU9 7LL, by not later than 10.30am on 28 November 2011.
4. A person entered on the Register of Members at close of business on 28
November 2011 ("a member") is entitled to attend and vote at the Meeting
pursuant to Regulation 41 of the Uncertificated Securities Regulations
2001. Any changes to the Register of Members after such time and date shall
be disregarded in determining the rights of any person to attend and/or
vote at the Meeting. If the Meeting is adjourned, entitlement to attend and
vote at the adjourned meeting, and the number of votes which may be cast
thereat, will be determined by reference to the Company's register of
members 48 hours before the time fixed for the adjourned meeting.
5. The Letters of Appointment for directors will be available at the AGM for
at least 15 minutes prior to and during the Meeting.
6. A copy of the Articles of Association are available for inspection at the
Registered Office of the Company during normal business hours on any
business day (excluding public holidays) until the close of the AGM and
will also be available at the AGM for at least 15 minutes prior to and
during the Meeting.
7. Any person to whom this notice is sent who is a person nominated under
section 146 of the Companies Act 2006 to enjoy information rights (a
"Nominated Person") may have a right, under an agreement between him/her
and the member by whom he/she was nominated, to be appointed (or to have
someone else appointed) as a proxy for the Meeting. If a Nominated Person
has no such proxy appointment right or does not wish to exercise it, he/she
may, under any such agreement, have a right to give instructions to the
shareholder as to the exercise of voting rights.
The statement of the above rights of the shareholders in relation to the
appointment of proxies does not apply to Nominated Persons. Those rights can
only be exercised by shareholders of the Company.
8. Any corporation which is a member can appoint one or more corporate
representatives who may exercise on its behalf all of its powers as a
member provided that they do not do so in relation to the same shares.
9. Any member attending the AGM has the right to ask questions. The Company
must cause to be answered any such question relating to the business being
dealt with at the AGM but no such answer need be given if (a) to do so
would interfere unduly with the preparation for the AGM or involve the
disclosure of confidential information, (b) the answer has already been
given on a website in the form of an answer to a question, or (c) it is
undesirable in the interests of the Company or the good order of the AGM
that the question be answered.
10. You may not use any electronic address (within the meaning of section 333
(4) of the Companies Act 2006) provided in this Notice (or in any related
documents including the proxy form) to communicate with the Company for any
purposes other than those expressly stated.
11. As at 13 September 2011 (being the last business day prior to the
publication of this Notice) the Company's issued share capital consists of
43,526,171 shares of 10p each, carrying one vote each at an annual general
meeting of the Company. Therefore, the total voting rights in the Company
as at 13 September 2011 are 43,526,171.
12. Shareholders should note that it is possible that, pursuant to requests
made by members of the Company under section 527 of the Companies Act 2006
(the "2006 Act"), the Company may be required to publish on a website a
statement setting out any matter relating to: (i) the audit of the
Company's accounts (including the auditor's report and the conduct of the
audit) that are to be laid before the Annual General Meeting for the
financial year beginning on 1 June 2010; or (ii) any circumstance connected
with an auditor of the Company appointed for the financial year beginning
on 1 June 2010 ceasing to hold office since the previous meeting at which
annual accounts and reports were laid in accordance with section 437 of the
Companies Act 2006 (in each case) that the members propose to raise at the
relevant Annual General Meeting. The Company may not require the members
requesting any such website publication to pay its expenses in complying
with sections 527 or 528 of the 2006 Act. Where the Company is required to
place a statement on a website under section 527 of the 2006 Act, it must
forward the statement to the Company's auditor not later than the time when
it makes the statement available on the website. The business which may be
dealt with at the Annual General Meeting includes any statement that the
Company has been required under section 527 of the Companies Act 2006 to
publish on a website.
SHAREHOLDER INFORMATION
....................................................................................................................................
Share Price
The Company's shares are listed on the London Stock Exchange. The mid-price of
the Company's shares is given daily in the Financial Times in the Investment
Companies section of the London Share Service.
Share certificates in the name of Invesco Perpetual AIM VCT plc will remain
valid and do not need to be changed.
Net Asset Value per Share
The Company's net asset value per share as at 31 May 2011 was 31.65p. The
Company normally announces its net asset value on a weekly basis. Net asset
value per share information can be found on the Amati Global Investors'
website: http://www.amatiglobal.com/avct2.php
Financial Calendar
September 2011 Annual report for the year ended 31May 2011 to be circulated to
shareholders
October 2011 Interim management statement released
15 November 2011 Annual general meeting
January 2012 Half-yearly Report for the six months ending 30 November 2011 to
be circulated to shareholders
April 2012 Interim management statement released
31 May 2012 Year end
Annual General Meeting
The annual general meeting of the Company will be held on 30 November 2011 at
10.30am at the offices of Howard Kennedy, 19 Cavendish Square, London W1A 2AW.
The notice of the meeting, together with the enclosed proxy form, is included
on pages 46 and 47 of this report. Proxy forms should be completed in
accordance with the instructions printed thereon and sent to arrive at The City
Partnership (UK) Limited, c/o Share Registrars, Suite E, First Floor, 9 Lion
and Lamb Yard, Farnham, Surrey GU9 7LL 48 hours before the time appointed for
the meeting.
CORPORATE INFORMATION
....................................................................................................................................
Directors Registrar (until 16 Registrar (from 19
September 2011) September 2011)
Julian Avery Capita Registrars The City Partnership
(UK) Limited
Professor James MacLeod The Registry c/o Share Registrars
Christopher Macdonald 34 Beckenham Road Suite E, First Floor
Richard Martin Beckenham 9 Lion and Lamb Yard
Kent Farnham
all of: BR3 4TU Surrey GU9 7LL
27/28 Eastcastle Street
London Auditor
W1W Ernst & Young LLP
Registered Auditor
Secretary 1 More London Place
The City Partnership (UK) London
Limited
Thistle House, 21 Thistle SE1 2AF
Street
Edinburgh
EH2 1DF Solicitors
Telephone: 0131 2437210 Dickson Minto W.S
Email: 16 Charlotte Square
vct-enquiries@amatiglobal.com
20 Castle Terrace
Fund Manager Edinburgh
Amati Global Investors EH2 4DF
Limited
76 George Street
Edinburgh Bankers
EH2 3BU The Bank of New York
Mellon
London Branch
VCT Tax Adviser 160 Queen Victoria Street
PricewaterhouseCoopers LLP London
1 Embankment Place EC4V 4LA
London
WC2N 6RH
END
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