TIDMISP
Investec Structured Products Calculus VCT plc
Annual Report & Accounts
Period ended 28 February 2011
The full Annual Report and Accounts can be accessed via the following websites:
www.calculuscapital.com and www.investecstructuredproducts.com or by contacting
the Company Secretary on telephone 01392 477500.
Investment Objective
The Company's principal objectives for investors are to:
* invest in a portfolio of Venture Capital Investments and Structured Products:
- to provide investment returns to maximise annual dividends; and
- to fund a special dividend or cash offer in year 6 sufficient to bring
distributions per share to 70p;
* generate returns from a portfolio of Venture Capital Investments that will
provide attractive long-term returns within a tax efficient vehicle beyond an
interim return date;
* review the appropriate level of dividends annually to take account of
investment returns achieved and future prospects; and
* maintain VCT status to enable qualifying investors to retain their income tax
relief of up to 30 per cent. on the initial investment and receive tax-free
dividends and capital growth.
Full details of the Company's investment policy can be found below.
Financial Review
13 Months to
28 February 2011
Total return
Total return GBP308,000
Total return per ordinary share 8.3p
Revenue
Net loss after tax GBP(112,000)
Revenue return per ordinary share (3.0)p
Dividend
Recommended final dividend 5.25p
As at 28 February 2011
Assets (investments valued at bid market prices)
Net assets GBP4,836,000
Net asset value ("NAV") per ordinary share 102.1p
Mid market quotation
Ordinary shares 99.5p
Discount to bid price NAV (2.5)%
As at
30 April
2011
Unaudited net asset value per ordinary share 102.9p
Unaudited net asset value per C ordinary share 93.8p
Chairman's Statement
I am delighted to present your Company's results for the period ended 28
February 2011. The Investec Structured Products Calculus VCT plc is a tax
efficient listed company which aims to address shareholder needs for:
? attractive tax free dividends;
? a clear strategy for returning capital;
? downside protection through the Structured Products portfolio and investment
in lower risk VCT qualifying companies with a high percentage of investments in
loan stock and preference shares; and
? low annual management fees.
The Company, which launched in March 2010, is a joint venture between Investec
Structured Products (part of Investec Plc which is a member of the FTSE 100)
and Calculus Capital, and brings together both Investment Managers' award
winning expertise in their respective fields of structured products and venture
capital.
Despite launching late in the 2009/10 tax year, the Company nevertheless raised
a creditable GBP3.87 million (before expenses) in the initial ordinary share
offer before it closed in April 2010. Following shareholder approval, a further
ordinary share offer was launched in September 2010, and raised GBP0.92 million
(before expenses) before closing in December 2010. Most recently, a C share
offer was launched in January 2011 and raised GBP1.92 million (before expenses),
closing at the end of April 2011. To date, the Company has raised a net total
of GBP6.46 million. Your Board and Investment Managers committed GBP1.18 million of
this total, demonstrating their confidence in the Company and the product
offering. The additional fundraisings undertaken have further increased the
size of the Company over which the annual running costs can be spread and will
provide greater opportunities for diversification.
After the close of the initial offer in April 2010, the two Investment Managers
began implementation of the Company's investment plans. Investec has invested
approximately GBP2.4 million in a range of Structured Products of varying
durations and counterparties to date, and Calculus Capital has made three
Qualifying Investments (one of which has been made since the period end),
totalling approximately GBP0.9 million.
The net asset value per ordinary share was 102.1p as at 28 February 2011 and
has subsequently risen to 102.9p as at 30 April 2011. Since 5 May 2010, when we
invested in the first Structured Product, the FTSE 100 index level is up 12 per
cent. (up to 28 February 2011), making the Company one of the best performing
of its 2010/11 peer group. Your Board and Investment Managers are encouraged by
the performance of the Company to date and believe it is well placed to make
further progress in the forthcoming year.
Structured Products Portfolio
Our non-qualifying investments are managed by Investec Structured Products. As
at 28 February 2011, your Company held a portfolio of six Structured Products
based on the FTSE 100 Index. The products differ by duration and counterparty,
in order to minimise risk and create a diversified portfolio of investments.
New funds raised under the C share offer will be used to buy additional Structured
Products. Up to 20 per cent. of the Structured Products portfolio of the
C shares fund will be able to be invested in other indices besides the
FTSE 100 Index.
Venture Capital Investments
Calculus Capital manages the portfolio of Venture Capital Investments made by
the Company. It is intended that approximately 75 per cent. of the Company's
funds will be invested over a three year period in a diversified portfolio of
holdings in unquoted VCT qualifying companies. In order to achieve this, there
will be a phased reduction in the Structured Products portfolio and a
corresponding increase in the portfolio of Venture Capital Investments.
In July 2010, the Company made its first VCT Qualifying Investment, investing
GBP250,000 in Terrain Energy Limited ("Terrain"), as part of a GBP750,000
fundraising round. Terrain was established in October 2009 to develop a
portfolio of onshore oil and gas production and development interests in areas
of low political risk, with the current focus being the UK. The portfolio of
licences, all of which are located in the UK, includes currently oil producing,
scheduled for near term production, appraisal and exploration projects. An
additional GBP50,000 was invested after the period end in Terrain.
In November 2010, the Company invested GBP299,377 in Abingdon based Lime
Technology Limited ("Lime"). Lime was founded in 2002 and is a leader in
renewable lime and hemp based building products for the mainstream construction
industry. Lime produces Tradical® Hemcrete® which is a negative carbon
bio-composite product comprised of hemp and a lime based binder. Through its
subsidiary, Hemp Technology, the company controls the hemp supply chain from
seed to finished wall.
A more detailed analysis of the investment portfolios can be found in the
respective Investment Managers' Reviews that follow this statement.
Dividend
In line with our aim to provide a regular tax free dividend stream, the
Directors are pleased to propose a final dividend of 5.25p per ordinary share
which, subject to shareholder approval, will be paid on 29 July 2011 to
ordinary shareholders on the register on 3 June 2011.
Board Changes
Christopher Wightman stepped down as a Director and as Chairman of the Company
on 10 February 2011 in order to concentrate on his other business commitments.
On behalf of the Board, I would like to thank Chris for the experience he
brought and the commitment he made to the Company from its launch.
I am pleased to introduce Kate Cornish-Bowden as a new non-executive Director
of the Company. Kate was appointed on 10 February 2011. She brings with her a
wealth of experience from her time at Morgan Stanley and the Board welcomes her
to the Company.
Ian Wohlman will be retiring as a Director at the Annual General Meeting. I
would like to thank Ian for all his assistance since the launch of the Company.
Developments Since the Period End
Since the period end, the Company has issued 1,931,095 C shares under the C
share offer, raising GBP1,920,500. The Investment Managers are reviewing investment
opportunities and it is expected that the first investment of the C shares fund
in Structured Products will be made shortly.
In addition, a further two Qualifying Investments have been made since the
balance sheet date. In March an additional GBP50,000 was invested in Terrain and
GBP300,000 was invested in MicroEnergy Services Limited in early April. Further
details of these investments are contained in the Investment Manager's Review
(Qualifying Investments).
Outlook
Promising and entrepreneurial unquoted companies of the kind backed by the
Investec Structured Products Calculus VCT are a key element in the country's
economic recovery, as demonstrated by moves in the Chancellor's recent budget
statement to increase investment in such companies. The decline in provision of
other forms of funding for promising companies, such as bank finance or an
active smaller companies Initial Public Offering market, also provide an
attractive investment scenario. Your Board and Investment Managers believe your
Company is well placed to take advantage of these opportunities, in particular
at a time when valuations remain low by historic standards.
Michael O'Higgins
Chairman
23 May 2011
Investment Manager's Review (Qualifying Investments)
Portfolio Developments
Calculus Capital Limited manages the portfolio of Venture Capital Investments
made by the Company. It is intended that approximately 75 per cent. of the
Company's funds will be invested over a three year period in a diversified
portfolio of holdings in unquoted VCT qualifying companies.
During the period under review, the Company completed two Qualifying
Investments in unquoted companies, Terrain Energy Limited ("Terrain") and Lime
Technology Limited ("Lime").
Terrain Energy Limited
In July 2010, the Company invested GBP250,000 in Terrain, of which GBP50,000 was in
ordinary shares and GBP200,000 was in the form of 7 per cent. long-term loan
stock. Terrain was established in October 2009 to develop a portfolio of
onshore oil and gas production and development assets, predominantly in the UK.
The portfolio of licences, all of which are located in the UK, includes
currently oil producing, scheduled for near term production, appraisal and
exploration projects.
Oil is currently produced from the Keddington field on the East Midlands
licence (PEDL005) and the ongoing evaluation of this field is expected to lead
to increased field production and revenues during 2011. Terrain holds a 15 per
cent. interest in the PEDL005, with 75 per cent. owned by Egdon Resources plc
and 10 per cent. by Alba Resources Limited, a wholly owned subsidiary of
Nautical Petroleum plc. The field also produces large volumes of gas and the
use of the gas for electricity generation and export to the grid is under
evaluation. Drilling of an additional well commenced after the period end in
early April 2011, and this well is designed to increase total field production
at a time of high oil prices and also to provide additional reservoir
information in an untested part of the field to enable an investment decision
to be taken on the scale of the proposed gas to electricity generation project.
Further development of the rest of the portfolio is also planned for later in
2011 including the restart of oil production at the Kirklington licence
(PEDL203) and at the Dukes Wood licence (PEDL118), both of which are also in
the East Midlands. Terrain holds a 25 per cent. interest in each of these
licences.
After the period end, Terrain acquired a 10 per cent. interest in an
exploration licence in Northern Ireland (PL/10 Central Larne - Lough Neagh
Basin) in a farm out arrangement from Infrastrata plc which retains a 30 per
cent. interest. Other participants include IS E&P Limited with 40 per cent. and
Nautical Petroleum plc with 20 per cent. The licence covers 663 square
kilometres with permitted development rights for drilling an exploration well.
The main prospect is a conventional gas play with a gross reserve potential of
2,800 billion cubic feet.
After the period end, the Company invested a further GBP50,000 as ordinary equity
at GBP1.28 per share as part of a total fundraising of GBP750,000. The fundraising
was part of a funding programme intended to give Terrain visibility over its
funding needs to meet development, appraisal and exploration commitments until
the end of 2012.
As a relatively new company, Terrain has not yet filed statutory accounts.
Latest Audited Results Investment Information
No statutory accounts have been filed Total cost GBP250,000
Income recognised in period GBP8,921
Valuation basis: Fair value based on
cost of investment, supported by
discounted cash flow and comparable
company analysis Total valuation GBP257,142
Voting rights* 1.77%
* Other funds managed by Calculus Capital have an interest in this company and
have a combined equity holding of 24.96 per cent. This follows the additional
investment in Terrain in March 2011.
Lime Technology Limited
Lime, based in Abingdon, was founded in 2002, and is a leader in renewable lime
and hemp based building products for the mainstream construction industry. Lime
produces Tradical® Hemcrete® which is a negative carbon bio-composite product
comprised of hemp and a lime based binder. Through its subsidiary, Hemp
Technology, the company controls the hemp supply chain from seed to finished
wall.
GBP299,377 was invested in Lime in November 2010 (GBP49,377 in equity shares and
GBP250,000 in 7 per cent. long-term loan stock). The investment in the equity
shares represents 0.47 per cent. of fully diluted total shares. The total
funding round in Lime was GBP2.6 million and, of this, Calculus Capital's EIS
funds invested approximately GBP1.28 million.
Regulatory compliance with the Code for Sustainable Homes is a key driver in
bringing the company's products into the mainstream construction industry.
Developers of commercial buildings are also under pressure to build more
responsibly. Hemcrete® exhibits excellent thermal properties, ideal for
creating comfortable buildings which meet the higher level Code for Sustainable
Homes and BREEAM ("BRE Environmental Assessment Method") excellent standards.
Tradical® Hemcrete® has been specified in two sustainable housing developments
and in the new Adnams distribution centre, a temperature controlled warehouse
for the Wine Society and Marks & Spencer's Cheshire Oaks store.
As a small company, Lime is exempt from filing full accounts.
Latest Audited Results Investment Information
Period ended 4 November 2010 Total cost GBP299,377
Net assets GBP1,358,275 Income recognised in period GBP5,561
Valuation basis: Fair value based on
cost of investment Total valuation GBP299,377
Voting rights* 0.49%
* Other funds managed by Calculus Capital have an interest in this company and
had a combined equity holding of 12.12 per cent.
As at the period end, GBP549,377 had been invested in qualifying holdings
representing approximately 12.1 per cent. of the net funds raised.
Developments Since the Period End
Since the period end, as described above, the Company has invested a further
GBP50,000 in ordinary equity in Terrain as part of a fundraising programme
intended to give Terrain visibility over its funding needs to meet development,
appraisal and exploration commitments until the end of 2012.
Additionally, in early April, GBP300,000 was invested in MicroEnergy Services
Limited ("MicroEnergy"). MicroEnergy is a company set up to acquire renewable,
microgeneration facilities, including (but not limited to) wind, anaerobic
digestion, hydro and micro CHP (Combined Heat and Power). MicroEnergy is
currently in negotiations to acquire its first renewable energy assets. The
investment was provided as GBP150,000 as ordinary equity and GBP150,000 in the form
of long-term loan stock with a coupon of 7 per cent. The total funding round
was GBP1,950,000 which was provided from funds managed or advised by Calculus
Capital and the Company's equity interest following this fundraising was 8.7
per cent.
Outlook
The Company continues to build a diversified portfolio of good quality
Qualifying Investments which the Investment Manager believes will deliver
sustained long-term performance. We believe that the current market remains
attractive for investment in qualifying unquoted companies, as access to
finance for such companies remains tight and economic conditions have lowered
valuations to more realistic levels.
Calculus Capital Limited
23 May 2011
Investment Manager's Review (Structured Products)
In line with the Company's strategy set out in the original Offer document, a
large percentage of the cash raised has been used to build a portfolio of
Structured Products. The portfolio of Structured Products has been constructed
with different issuers and differing maturity periods to minimise risk and
create a diversified portfolio. The FTSE 100 Initial Index Levels for these
investments range from 4,805.75 to 5,341.93.
All of the Structured Product investments to date have potential returns that
are by way of a fixed amount payable as long as the Final Index Level is higher
than the Initial Index Level (e.g. for the Abbey National Treasury Services
Structured Product the fixed amount is 85 per cent. (plus 100 per cent. of the
initial notional amount) if the Final Index Level is higher than the Initial
Index Level of 4,940.68). All of the products have capital at risk on a
one-to-one basis if the FTSE 100 falls by more than 50 per cent. at any time
during the term and fails to recover at maturity such that the Final Index
Level is below the Initial Index Level.
There have been no new investments made into the Structured Products portfolio
since the last reporting period. As at 28 February 2011 the Structured Products
portfolio was valued at GBP2,882,000, and the FTSE 100 closing level on this day
was 5994.01.
The Investment Manager constantly reviews the portfolio of investments to
assess asset allocation and the need to realise investments.
Structured Products Portfolio as at 28 February 2011
FTSE 100 Price Valuation
Initial as at 28 as at 28 Return/
Index Notional Purchase February February Capital
Issuer Strike Maturity Level Investment Price Cost 2011 2011 at Risk
Date Date ("CAR")*
The Royal 05/05/ 12/05/ 5,341.93 GBP275,000 GBP0.9600 GBP264,000 GBP1.0729 GBP295,048 162.5%
Bank of 2010 2015 if FTSE
Scotland 100**
higher;
CAR if
FTSE
100
falls
by more
than
50%
Investec 14/05/ 19/11/ 5,262.85 GBP500,000 GBP0.9791 GBP489,550 GBP1.1636 GBP581,786 185% if
Bank 2010 2015 FTSE
100**
higher;
CAR if
FTSE
100
falls
by more
than
50%
Santander 25/05/ 18/11/ 4,940.68 GBP350,000 GBP0.9898 GBP346,430 GBP1.2654 GBP442,890 185% if
Global 2010 2015 FTSE
Banking 100**
and higher;
Markets CAR if
(Abbey FTSE
National 100
Treasury falls
Services) by more
than
50%
* Capital at Risk ("CAR") is explained in note 16.
The above investments have been designed to meet the 43.75p per ordinary share
interim return by 14 December 2015. A total of GBP1,099,980 (24.20 per cent. of
net monies raised) was invested in the above Structured Products. Assuming no
issuer defaults and if the FTSE 100 Final Index Level is higher than the
Initial Index Level, then these investments will return GBP2,019,375, equivalent
to 42.62p per ordinary share.
FTSE 100 Price Valuation
Initial as at 28 as at 28 Return/
Index Notional Purchase February February Capital
Issuer Strike Maturity Level Investment Price Cost 2011 2011 at Risk
Date Date ("CAR")
Nomura 28/05/ 20/02/ 5,188.43 GBP350,000 GBP0.9800 GBP343,000 GBP1.1572 GBP405,020 137% if
Bank 2010 2013 FTSE
International 100**
higher;
CAR if
FTSE
100
falls
by more
than
50%
Morgan 10/06/ 17/12/ 5,132.50 GBP500,000 GBP1.0000 GBP500,000 GBP1.1544 GBP577,200 134% if
Stanley 2010 2012 FTSE
100**
higher;
CAR if
FTSE
100
falls
by more
than
50%
HSBC Bank 01/07/ 06/07/ 4,805.75 GBP500,000 GBP1.0000 GBP500,000 GBP1.1591 GBP579,550 125.1%
2010 2012 if FTSE
100**
higher;
CAR if
FTSE
100
falls
by more
than
50%
The above investments mature prior to year 3 and target an average return of
13.15 per cent. per annum. These investments may be sold prior to maturity if
it is deemed that a greater return can be made by Calculus Capital in
Qualifying Investments.
** The Final Index Level is calculated using 'averaging', meaning that we take
the average of the closing levels of the FTSE 100 on each Business Day over the
2 - 6 months of the Structured Product plan term (the length of the averaging
period may differ for each plan). The use of averaging to calculate the return
can reduce adverse effects of a falling market or sudden market falls shortly
before maturity. Equally, it can reduce the benefits of an increasing market or
sudden market rises shortly before maturity.
Investec Structured Products
23 May 2011
Investment Portfolio
as at 28 February 2011
Net assets
% of net assets
Structured Products 60%
Unquoted - loan stock 9%
Unquoted - ordinary and preference 2%
shares
Unquoted - liquidity funds 21%
Net current assets 8%
100%
Sector
% of portfolio
Structured Products 64%
Unquoted - Qualifying Investments 12%
Unquoted - other non-Qualifying 24%
Investments
100%
Book Cost Valuation % of Net % of
Company Nature of GBP'000 GBP'000 Assets Portfolio
Business
Structured Products
Investec Bank Banking 490 582 12% 13%
The Royal Bank of Banking 264 295 6% 6%
Scotland
Santander Global Banking 346 443 9% 10%
Banking and Markets
(Abbey National
Treasury Services)
Nomura Bank Banking 343 405 9% 9%
International
Morgan Stanley Banking 500 577 12% 13%
HSBC Bank Banking 500 580 12% 13%
Total Structured 2,443 2,882 60% 64%
Products
Qualifying
Investments
Terrain Energy Onshore oil 250 257 5% 6%
Limited and gas
production
Lime Technology Construction 299 299 6% 6%
Limited
Total Qualifying 549 556 11% 12%
Investments
Other non-Qualifying
Investments
Fidelity Liquidity Liquidity fund 350 350 7% 8%
Fund
Goldman Sachs Liquidity fund 350 350 7% 8%
Liquidity Fund
Scottish Widows Liquidity fund 350 350 7% 8%
Liquidity Fund
Total Other 1,050 1,050 21% 24%
non-Qualifying
Investments
Total Investments 4,042 4,488 92% 100%
Net Current Assets
less Creditors due after
one year 348 8%
Net Assets 4,836 100%
Board of Directors
Michael O'Higgins (Chairman)*
Kate Cornish-Bowden*
John Glencross
Steve Meeks
Mark Rayward (Audit Committee Chairman)*
Philip Swatman*
Ian Wohlman
* independent of the Investment Managers
Investment Managers
Calculus Capital
Calculus Capital Limited is the Venture Capital Investments portfolio manager
(VCT Qualifying Investments).
Investec Structured Products
Investec Structured Products (a trading name of Investec Bank plc) is the
Structured Products portfolio manager (non VCT Qualifying Investments).
Business Review
Activities and status
The Company is registered as a public limited company and incorporated in
England and Wales with registration number 07142153. Its shares have a premium
listing and are traded on the London Stock Exchange.
The Company carries on business as a venture capital trust and its affairs are
conducted in a manner to satisfy the conditions to enable it to obtain approval
as a venture capital trust under sections 258-332 of the Income Tax Act 2007
("ITA 2007"). Details of the Company's investment policy are set out below.
During the period, the Company was an investment company under section 833 of
the Companies Act 2006. On 18 May 2011 investment company status was revoked.
This was done in order to allow the Company to pay dividends to shareholders
using the special reserve, which had been created on the cancellation of the
share premium account on 20 October 2010.
This Business Review should be read in conjunction with the Chairman's
Statement, the Investment Managers' Reviews and the portfolio analysis.
Performance
The Board reviews performance by reference to a number of key performance
indicators ("KPIs") and considers that the most relevant KPIs are those that
communicate the financial performance and strength of the Company as a whole:
- total return per share
- net asset value per share
- share price and discount/premium to net asset value
Further KPIs are those which show the Company's position in relation to the VCT
tests which it is required to meet in order to meet and maintain its VCT
status. These tests are set out in the full Annual Report and Accounts. The
Company has received provisional approval as a VCT from HM Revenue & Customs.
All the relevant VCT qualifying tests were met throughout the period.
The total return (after tax) for the period ended 28 February 2011 attributable
to the ordinary shareholders was GBP308,000.
The fair value of the Company's investments at 28 February 2011 was GBP4.5
million.
The financial performance of the Company is set out below:
Period Ended
28 February
2011
Total return per ordinary share 8.3p
NAV per ordinary share 102.1p
Ordinary share price 99.5p
Ordinary share price discount to NAV 2.5%
Dividend
The Directors are recommending a final dividend of 5.25p per ordinary share.
Subject to approval by shareholders at the Annual General Meeting, this
dividend will be paid on 29 July 2011 to ordinary shareholders on the register
on 3 June 2011.
Share capital
The issued share capital on incorporation was 20 ordinary shares of 1p each. A
total of 4,738,443 ordinary shares, with an aggregate nominal value of GBP47,384
and a total consideration of GBP4,787,269, were issued during the year, as
follows:
* 3,867,897 ordinary shares were issued at 100p per share under the Offer for
Subscription dated 3 March 2010.
* a further ordinary share offer was launched on 20 September 2010 and the
following shares were issued:
- 115,830 ordinary shares at 103.6p per share on 5 October 2010
- 226,446 ordinary shares at 105.3p per share 2 November 2010
- 89,292 ordinary shares at 105.8p per share on 16 November 2010
- 18,250 ordinary shares at 105.2p per share on 30 November 2010
- 420,728 ordinary shares at 106.3p per share on 13 December 2010
5,000,000 redeemable non-voting shares of 1p each were issued to Investec
Structured Products, an investment manager of the Company, on 10 February 2010
to enable the Company to register as a public limited company. These shares
were redeemed in full on 29 June 2010.
At the year end, the issued share capital comprised 4,738,463 ordinary shares.
No shares are held in treasury.
An offer for subscription for C ordinary shares of 1p each ("C shares") was
launched in January 2011 and the following shares have been issued since the
period end:
- 1,644,826 C shares at 100p per share on 1 April 2011
- 187,679 C shares at 100p per share on 5 April 2011
- 98,590 C shares at 100p per share on 4 May 2011
The ordinary shares and C shares have equal voting rights, and at general
meetings of the Company, holders are entitled to one vote on a show of hands
and on a poll to one vote for every share held.
At the date of this report, the issued share capital comprises 4,738,463
ordinary shares (representing 71.05 per cent. of total voting rights) and
1,931,095 C shares (representing 28.95 per cent. of total voting rights).
There are no restrictions concerning the transfer of securities in the Company;
no special rights with regard to control attached to securities; no agreements
between holders of securities regarding their transfer known to the Company;
and no agreements which the Company is party to that might affect its control
following a successful takeover bid.
The authority to issue or buy back the Company's shares and amendment of the
Company's Articles of Association require a relevant resolution to be passed by
shareholders. At the General Meeting held on 6 September 2010, the Directors
were granted authority to allot ordinary and C shares up to an aggregate
nominal amount of GBP165,000 and GBP275,000 respectively. They were also authorised
to issue for cash (without rights of pre-emption applying) and buyback both
ordinary and C shares. The Board's proposals for the renewal of the authorities
to issue and buyback shares are set out in the full Annual Report and Accounts.
Investment policy
Asset allocation
It was intended that approximately 75 per cent. of the monies raised by the
Company would be invested within 60 days in a portfolio of Structured Products.
The balance would be used to meet initial costs and invested in cash or near
cash assets (as directed by the Board) and would be available to invest in
Venture Capital Investments, as well as to fund ongoing expenses.
In order to qualify as a VCT, at least 70 per cent. of the Company's assets
must be invested in Venture Capital Investments within approximately three
years. Thus, in respect of monies raised from time to time, there will be a
phased reduction in the Structured Products portfolio and corresponding build
up in the portfolio of Venture Capital Investments to achieve and maintain this
70 per cent. threshold along the following lines:
Average Exposure per Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6+
Structured Products and cash/ 85% 75% 35% 25% 25% 0%
near cash
Venture Capital Investments 15% 25% 65% 75% 75% 100%
Note: the investment allocation set out above is only an estimate and the
actual allocation will depend on market conditions, the level of opportunities
and the comparative rates of returns available from Venture Capital Investments
and Structured Products.
The combination of Venture Capital Investments and the Structured Products will
be designed to produce ongoing capital gains and income that will be sufficient
to maximise both annual dividends for the first five years from funds being
raised and an interim return by an interim return date by way of a special
dividend or cash tender offer for shares. After the interim return date, unless
Investec Structured Products are requested to make further investments in
Structured Products, the relevant fund will be left with a portfolio of Venture
Capital Investments managed by Calculus Capital with a view to maximising
longer term returns. Such returns will then be dependent, both in terms of
amount and timing, on the performance of the Venture Capital Investments but
with the intention to source exits as soon as possible.
The portfolio of Structured Products will be constructed with different issuers
and differing maturity periods to minimise risk and create a diversified
portfolio. The maximum exposure to any one issuer will be limited to 15 per
cent. of the assets of the Company at the time of investment. Structured
Products can and may be sold before their maturity date if required for the
purposes of making Venture Capital Investments and Investec Structured Products
have agreed to make a market in the Structured Products, should this be
required by the Company.
The intention for the portfolio of Venture Capital Investments is to build a
diverse portfolio of primarily established unquoted companies across different
industries. In order to generate income and where it is felt it would enhance
shareholder return, investments may be structured to include loan stock and/or
redeemable preference shares as well as ordinary equity. It is intended that
the amount invested in any one sector and any one company will be no more than
approximately 20 per cent. and 10 per cent. respectively of the Venture Capital
Investments portfolio (in both cases at the date of investment).
The Board and its Investment Managers review the portfolio of investments on a
regular basis to assess asset allocation and the need to realise investments to
meet the Company's objectives or maintain VCT status. Where investment
opportunities arise in one asset class which conflicts with assets held or
opportunities in another asset class, the Board will make the investment/
divestment decision.
Under its Articles of Association, the Company has the ability to borrow a
maximum amount equal to 25 per cent. of the aggregate amount paid on all shares
issued by the Company (together with any share premium thereon). The Board will
consider borrowing if it is in the shareholders' interests to do so. In
particular, because the Board intends to minimise cash balances, the Company
may borrow on a short-term to medium-term basis (in particular, against
Structured Products) for cashflow purposes and to facilitate the payment of
dividends and expenses in the early years.
The Company will not vary the investment objective or the investment policy, to
any material extent, without the approval of shareholders. The Company intends
to be a generalist VCT investing in a wide range of sectors.
Risk diversification
The Board controls the overall risk of the Company. Calculus Capital will
ensure the Company has exposure to a diversified range of Venture Capital
Investments from different sectors. Investec Structured Products will ensure
the Company has exposure to a diversified range of Structured Products. The
Board believes that investment in these two asset classes provides further
diversification.
Co-investment policy
Calculus Capital has a co-investment policy between its various funds whereby
investment allocations are generally offered to each party in proportion to
their respective funds available for investment, subject to: (i) a priority
being given to any of the funds in order to maintain their tax status; (ii) the
time horizon of the investment opportunity being compatible with the exit
strategy of each fund; and (iii) the risk/reward profile of the investment
opportunity being compatible with the target return for each fund. The terms of
the investments may differ between the parties. In the event of any conflicts
between the parties, the issues will be resolved at the discretion of the
independent Directors, designated members and committees. It is not intended
that the Company will co-invest with Directors or members of the Calculus
Capital management team (including family members).
In respect of the Venture Capital Investments, funds attributable to separate
share classes will co-invest (i.e. pro rata allocation per fund, unless one of
the funds has a pre-existing investment where the incumbent fund will have
priority, or as otherwise approved by the Board). Any potential conflict of
interest arising will be resolved on a basis which the Board believes to be
equitable and in the best interests of all shareholders. A co-investment policy
is not considered necessary for the Structured Products.
Policy on Qualifying Investments
Calculus Capital follows a disciplined investment approach which focuses on
investing in more mature unquoted companies where the risk of capital loss is
reduced and prospects for exit enhanced, typically by the cash generative
characteristics and/or strong asset bases of the investee companies. Calculus
Capital, therefore, intends to:
* Invest in a diversified portfolio from a range of different sectors.
* Focus on companies which are cash generative and/or with a strong asset base.
* Structure investments to include loans and preference shares where it is felt
this would enhance shareholder return.
* Invest in companies which operate in sectors with a high degree of
predictability and a defensible market position.
* Invest in companies which can benefit both from the capital provided by
Calculus Capital but also from the many years of operating and financial
experience of the Calculus Capital team.
It is intended that the Venture Capital Investments portfolio will be spread
across a number of investments and the amount invested in any one sector and
any one company will be no more than approximately 20 per cent. and 10 per
cent. respectively (in both cases at the date of investment).
VCT regulation
The Company's investment policy is designed to ensure that it will meet, and
continue to meet, the requirements for approved VCT status from HM Revenue &
Customs. Amongst other conditions, the Company may not invest more than 15 per
cent. (by value at the time of investment) of its investments in a single
company and must have at least 70 per cent. by value of its investments
throughout the period in shares or securities in qualifying holdings, of which
30 per cent. by value must be ordinary shares which carry no preferential
rights ("eligible shares"). For funds raised from 6 April 2011, the requirement
for 30 per cent. to be invested in eligible shares was increased to 70 per
cent.
Principal risks and uncertainties facing the Company
The Company is exposed to a variety of risks. The principal financial risks and
the Company's policies for managing these risks and the policy and practice
with regard to financial instruments are summarised in note 16 to the Accounts.
The Board has also identified the following additional risks and uncertainties:
Loss of approval as a venture capital trust and other regulatory breaches
The Company has received provisional approval as a VCT under ITA 2007. Failure
to meet and maintain the qualifying requirements for VCT status could result in
the loss of tax reliefs previously obtained, resulting in adverse tax
consequences for investors, including a requirement to repay the income tax
relief obtained, and could also cause the Company to lose its exemption from
corporation tax on chargeable gains.
The Board receives regular updates from the Managers and financial information
is produced on a monthly basis. The Board has appointed an independent adviser
to monitor and advise on the Company's compliance with the VCT rules.
The Company is subject to compliance with the Companies Act 2006, the rules of
the UK Listing Authority and ITA 2007. A breach of any of these could lead to
suspension of the listing of the Company's shares on the London Stock Exchange
and/or financial penalties, with the resulting reputational implications.
Venture Capital Investments
There are restrictions regarding the type of companies in which the Company may
invest and there is no guarantee that suitable investment opportunities will be
identified.
Investment in unquoted companies, AIM-traded and PLUS Markets-traded companies
involves a higher degree of risk than investment in companies traded on the
main market of the London Stock Exchange. These companies may not be freely
marketable and realisations of such investments can be difficult and can take a
considerable amount of time. There may also be constraints imposed upon the
Company with respect to realisations in order to maintain its VCT status which
may restrict the Company's ability to obtain the maximum value from its
investments.
Calculus Capital has been appointed to manage the Qualifying Investments
portfolio, and has extensive experience of investing in this type of
investment. Regular reports are provided to the Board.
Risks attaching to investment in Structured Products
Structured Products are subject to market fluctuations and the Company may lose
some or all of its investment. In the event of a long-term decline in the FTSE
100 Index (or, in the case of the C shares fund when investment commences, in
such other index as this fund may be invested), there will be no gains from the
Structured Products. In the event of a fall in the relevant Index of more than
50 per cent. at any time during the Structured Product term, and where the
Final Index Level is below the Initial Index Level, there will be losses on the
Structured Products.
There may not be a liquid market in the Structured Products and there may never
be two competitive market makers, making it difficult for the Company to
realise its investment. Risk is increased further where there is a single
market maker who is also the issuer of the Structured Product. Investec
Structured Products has agreed to make a market in the Structured Products,
should this be required by the Company.
Factors which may influence the market value of Structured Products include
interest rates, changes in the method of calculating the relevant underlying
index from to time and market expectations regarding the future performance of
the relevant underlying index, its composition and such Structured Products.
Investec Structured Products has been appointed to manage the Structured
Products portfolio for its expertise in these types of financial products.
Restrictions have been agreed with Investec Structured Products relating to
approved counterparties and maximum exposure to any one counterparty.
Liquidity/marketability risk
Due to the holding period required to maintain up-front tax reliefs, there is a
limited secondary market for VCT shares and investors may therefore find it
difficult to realise their investments. As a result, the market price of the
shares may not fully reflect, and will tend to be at a discount to, the
underlying net asset value. The level of discount may also be exacerbated by
the availability of income tax relief on the issue of new VCT shares. The Board
recognises this difficulty, and has taken powers to buy back shares, which
could be used to enable investors to realise investments.
Changes to legislation/taxation
Changes in legislation or tax rates concerning VCTs in general, and Venture
Capital Investments and qualifying trades in particular, may limit the number
of new Venture Capital Investment opportunities, and thereby adversely affect
the ability of the Company to achieve or maintain VCT status, and/or reduce the
level of returns which would otherwise have been achievable.
Engagement of third party advisers
The Company has no employees and relies on services provided by third parties.
The Board has appointed Calculus Capital as Investment Manager of the
Qualifying Investments portfolio and Investec Structured Products as Investment
Manager of the Structured Products portfolio. Capita Sinclair Henderson Limited
provides administration, accounting and company secretarial services, and
Rensburg Sheppards act as custodian.
C shares versus ordinary shares
The assets relating to the C shares will be managed and accounted for
separately from the assets attributable to the ordinary shares. However, a
number of company regulations and VCT requirements are assessed at company
level and, therefore, the performance of one fund may impact adversely on the
other. The Board will monitor both the performance of each separate fund as
well as requirements at a company level to reduce the risk of this occurring.
Future developments
The Directors believe that the Company is well placed to make progress during
2011.
Corporate social responsibility
The Company has no employees and the Board is comprised entirely of
non-executive Directors. Day to day management of the Company's business is
delegated to the Investment Managers and the Company itself has no
environmental, social or community policies. In carrying out its activities and
in relationships with suppliers, the Company aims to conduct itself
responsibly, ethically and fairly.
The full Annual Report and Accounts contain the following statements regarding
responsibility for the Accounts.
Directors' Responsibilities Statement
Statement of Directors' Responsibilities in respect of the Annual Report and
the Accounts
The Directors are responsible for preparing the Annual Report and the Accounts
in accordance with applicable law and regulations.
Company law requires the Directors to prepare Accounts for each financial year.
Under that law they have elected to prepare the Accounts in accordance with
United Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable laws). Under company law the Directors must
not approve the Accounts unless they are satisfied that they give a true and
fair view of the state of affairs and profit or loss of the Company for that
period.
In preparing these Accounts, 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 UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the Accounts; and
* prepare the Accounts on the going concern basis unless it is inappropriate to
presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the Accounts comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Directors' Report (including Business Review), Directors'
Remuneration Report and Corporate Governance Statement that comply with that
law and those regulations, and for ensuring that the Annual Report includes
information required by the Listing Rules of the Financial Services Authority.
In so far as each of the Directors is aware:
* there is no relevant audit information of which the Company's Auditor is
unaware; and
* the Directors have taken all steps that they ought to have taken to make
themselves aware of any relevant audit information and to establish that the
Auditor is aware of that information.
The Accounts are published on the www.calculuscapital.com website, which is a
website maintained by one of the Company's Investment Managers, Calculus
Capital Limited. The maintenance and integrity of the website maintained by
Calculus Capital Limited is, so far as it relates to the Company, the
responsibility of Calculus Capital Limited. The work carried out by the Auditor
does not involve consideration of the maintenance and integrity of this website
and accordingly, the Auditor accepts no responsibility for any changes that
have occurred to the Accounts since they were initially presented on the
website. Visitors to the website need to be aware that legislation in the
United Kingdom covering the preparation and dissemination of the Accounts may
differ from legislation in their jurisdiction.
We confirm that to the best of our knowledge:
* the Accounts, prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
* the Annual Report 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.
On behalf of the Board
Michael O'Higgins
Chairman
23 May 2011
Non-Statutory Accounts
The financial information set out below does not constitute the Company's
statutory accounts for the period ended 28 February 2011 but is derived from
those accounts. Statutory accounts for 2011 will be delivered to the Registrar
of Companies in due course. The Auditor has reported on those accounts; their
report was (i) unqualified, (ii) did not include a reference to any matters to
which the Auditor drew attention by way of emphasis without qualifying their
report and (ii) did not contain a statement under Section 498 (2) or (3) of the
Companies Act 2006. The text of the Auditor's report can be found in the
Company's full Annual Report and Accounts at www.calculuscapital.com.
Income Statement
for the period from 1 February 2010 to 28 February 2011
Period Ended 28 February 2011
Revenue Capital Total
Return Return
Note GBP'000 GBP'000 GBP'000
Investment holding gains 8 - 446 446
Income 2 20 - 20
Investment management fee 3 (9) (26) (35)
Other operating expenses 4 (123) - (123)
(Loss)/profit on ordinary (112) 420 308
activities before taxation
Taxation on ordinary activities 5 - - -
(Loss)/profit on ordinary (112) 420 308
activities after taxation
Return per ordinary share - basic 7 (3.0)p 11.3p 8.3p
The total column of this statement represents the Company's Income Statement.
The supplementary revenue return and capital return columns are both prepared
in accordance with the Association of Investment Companies ("AIC") Statement of
Recommended Practice ("SORP").
No operations were acquired or discontinued during the period.
All items in the above statement derive from continuing operations.
There were no recognised gains or losses other than those passing through the
Income Statement.
The notes form an integral part of these Accounts.
Reconciliation of Movements in Shareholders' Funds for the period
from 1 February 2010 to 28 February 2011
Share Capital Capital
Share Premium Special Reserve Reserve Revenue
Capital Account Reserve Realised Unrealised Reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
For the period to 28
February 2011
1 February 2010 - - - - - - -
(Loss)/profit for the - - - (26) 446 (112) 308
period
Issue of redeemable 50 - - - - - 50
non-voting shares
Redemption of redeemable (50) - - - - - (50)
non-voting shares
Increase in share 47 4,740 - - - - 4,787
capital in issue
Expenses of share issues - (259) - - - - (259)
Share premium cancelled - (3,729) 3,729 - - - -
during period
28 February 2011 47 752 3,729 (26) 446 (112) 4,836
The notes form an integral part of these Accounts.
Balance Sheet
as at 28 February 2011
28 February
2011
Note GBP'000
Fixed assets
Investments designated at fair value through profit or 8 4,488
loss
Current assets
Debtors 9 214
Cash at bank and on deposit 326
540
Creditors: amounts falling due within one year
Creditors 10 (176)
(176)
Net current assets 364
Non-current liabilities
IFA trail commission (16)
Total net assets 4,836
Capital and reserve
Called-up share capital 11 47
Share premium account 12 752
Special reserve 12 3,729
Capital reserve - realised 12 (26)
Capital reserve - unrealised 12 446
Revenue reserve 12 (112)
Equity shareholders' funds 4,836
Net asset value per ordinary share 13 102.1p
These Accounts were approved by the Board of Directors and were authorised for
issue on 23 May 2011 and were signed on its behalf:
Michael O'Higgins
Chairman
Registered No. 07142153 England & Wales
The notes form an integral part of these Accounts.
Cash Flow Statement
for the period from 1 February 2010 to 28 February 2011
Period Ended
28 February
2011
Note GBP'000
Operating activities
Investment income received 7
Deposit interest received 6
Investment management fees (24)
Other cash payments (169)
Cash expended from operations 14 (180)
Cash flow from investing activities
Purchase of investments (4,042)
Net cash outflow from investing activities (4,042)
Net cash outflow before financing (4,222)
Cash flow from financing activities
Redeemable non-voting shares issued 50
Redemption of redeemable non-voting shares (50)
Shares issued 4,787
Expenses of share issues (239)
Net cash inflow from financing activities 4,548
Increase in cash at bank and on deposit 326
The notes form an integral part of these Accounts.
Notes to the Accounts
1. Accounting Policies
Basis of accounting
These Accounts cover the 13 month period from incorporation on 1 February 2010
to 28 February 2011, and have been prepared under the historical cost
convention, except for the valuation of financial assets at fair value through
profit or loss, in accordance with UK Generally Accepted Accounting Practice
("UK GAAP").
In determining the analysis of total income and expenses as between capital
return and revenue return, the Directors have followed the guidance contained
in the AIC SORP, as revised in 2009, and on the assumption that the Company
maintains VCT status.
The Company's Accounts are presented in Sterling.
Investments at fair value through profit or loss
The Company aims to invest in a portfolio of Structured Products and Venture
Capital Investments that will provide sufficient total returns to allow the
Company to pay annual dividends and provide long-term capital returns for
investors. As a result, all investments held by the Company are designated,
upon initial recognition, as held at fair value through profit or loss, in
accordance with Financial Reporting Standard 26 'Financial Instruments:
Recognition and Measurement'. The Company manages and evaluates the performance
of these investments on a fair value basis in accordance with its investment
strategy, and information about the portfolio is provided internally on this
basis to the Board. Fair value is the amount for which an asset can be
exchanged between knowledgeable, willing parties in an arm's length
transaction. Investments held at fair value through profit or loss are
initially recognised at cost, being the consideration given and excluding
transaction or other dealing costs associated with the investment, which are
expensed and included in the capital column of the Income Statement.
Subsequently, investments are measured at fair value, with gains and losses on
investments recognised in the Income Statement and allocated to capital. All
purchases and sales of investments are accounted for on the trade date basis.
For investments actively traded in organised financial markets, fair value is
generally determined by reference to quoted market bid, or last, prices
depending on the convention of the exchange on which the investment is quoted,
at the close of business on the Balance Sheet date.
Structured Products are valued by reference to the FTSE 100 Index with mid
prices for the Structured Products provided by the product issuers. An
adjustment is made to these prices to take into account any bid/offer spreads
prevalent in the market at each valuation date. These spreads are either
determined by the issuer or recommended by the Structured Products Manager,
Investec Structured Products (a trading name of Investec Bank plc).
Returns are linked to the FTSE 100 Index by way of a fixed return that is
payable as long as the Final Index Level is no lower than the Initial Index
Level (Final Index Level and Initial Index Level being the closing (or average
closing) level of the FTSE 100 Index at the end of the relevant Index
Calculation Period (being the relevant period over which the Initial and Final
Index Levels are determined in accordance with the terms of the Structured
Product) for a Structured Product). All of the investments in Structured
Products in respect of the ordinary shares fund will either be capital
protected or capital at risk on a one-to-one basis where the FTSE 100 Index
falls by more than 50 per cent. and the Final Index Level is below the Initial
Index Level. If the FTSE 100 Index does fall by more than 50 per cent. at any
time during the investment period and fails to recover at maturity, the capital
will be at risk on a maximum one-to-one basis (i.e. if the FTSE 100 Index falls
by more than 50 per cent. during the investment period and on maturity is down
25 per cent., capital within that Structured Product will be reduced by 25 per
cent.).
The majority of the Structured Products are designed to produce capital
appreciation.
Unquoted investments are valued using an appropriate valuation technique so as
to establish what the transaction price would have been at the Balance Sheet
date. Such investments are valued in accordance with the International Private
Equity and Venture Capital Association ("IPEVCA") guidelines. Primary
indicators of fair value are derived from earnings multiples, recent arm's
length market transactions, net assets or, where appropriate, at cost for
recent investments or the valuation as at the previous reporting date.
Income
Dividends receivable on equity shares are recognised as revenue on the date on
which the shares or units are marked as ex-dividend. Where no ex-dividend date
is available, the revenue is recognised when the Company's right to receive it
has been established.
Interest receivable from fixed income securities is recognised using the
effective interest rate method. Interest receivable on bank deposits is
included in the Accounts on an accruals basis.
The gains and losses arising on investments in Structured Products are
allocated between revenue and capital according to the nature of each
Structured Product. This is dependent on the extent to which the return on the
Structured Product is capital or revenue based.
Other revenue is credited to the revenue column of the Income Statement when
the Company's right to receive the revenue has been established.
Expenses
All expenses are accounted for on an accruals basis. Expenses are charged to
the Income Statement as follows:
* expenses, except as stated below, are charged to the revenue column of the
Income Statement;
* expenses incurred in the acquisition or disposal of an investment are taken
to the capital column of the Income Statement;
* expenses are charged to the capital column of the Income Statement where a
connection with the maintenance or enhancement of the value of the investments
can be demonstrated. In this respect management fees have been allocated 75 per
cent. to the capital column and 25 per cent. to the revenue column of the
Income Statement, being in line with the Board's expected long-term split of
returns, in the form of capital gains and revenue respectively, from the
investment portfolio of the Company; and
* expenses associated with the issue of shares are deducted from the share
premium account. Annual IFA trail commission to 14 December 2015 has been
provided for in the Accounts as, due to the nature of the fund, it is probable
that this will be payable. The commission is apportioned between current and
non-current liabilities.
Expenses incurred by the Company in excess of the agreed cap, currently 3 per
cent. of the gross amount raised from the offer for subscription of ordinary
shares for the 2009/2010 and 2010/2011 tax years (excluding irrecoverable VAT,
annual trail commission and performance incentive fees), can be clawed back
from Investec Structured Products until 14 December 2015 (the interim return
date for the ordinary shares). Any claw back is treated as a credit against the
expenses of the Company.
Investment management and performance fees
Calculus Capital, as Investment Manager of the VCT qualifying portfolio, will
receive an annual investment management fee of an amount equivalent to 1.0 per
cent. of the net assets of the Company.
Investec Structured Products, as Investment Manager of the Structured Products
portfolio, will not receive any annual management fees from the Company.
Investec Structured Products is entitled to an arrangement fee from the
providers of Structured Products as detailed in note 17.
The Investment Managers will each receive a performance incentive fee payable
in cash of an amount equal to 10 per cent. of dividends and distributions paid
(including the relevant distribution being offered) to holders of ordinary
shares over and above 105 pence per ordinary share (this being a 50 per cent.
return on an initial net investment of 70 pence per ordinary share taking into
account upfront income tax relief)provided holders of ordinary shares have
received or been offered an interim return of at least 70 pence per share for
payment on or before 14 December 2015. Such performance incentive fees will be
paid within 10 business days of the date of payment of the relevant dividend or
distribution.
Capital reserve
The capital return component of the return for the period is taken to the
non-distributable capital reserves within the Reconciliation of Movements in
Shareholders' Funds.
Taxation
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the Balance Sheet date where transactions or
events that result in an obligation to pay more tax in the future have occurred
at the Balance Sheet date. This is subject to deferred tax assets only being
recognised if it is considered more likely than not that there will be suitable
profits from which the future reversals of the underlying timing differences
can be deducted. Timing differences are differences between the Company's
taxable profits and its results as stated in the Accounts.
Deferred tax is measured at the average tax rates that are expected to apply in
the periods in which the timing differences are expected to reverse, based on
tax rates and laws that have been enacted or substantially enacted by the
Balance Sheet date. Deferred tax is measured on a non-discounted basis.
No taxation liability arises on gains from sales of fixed asset investments by
the Company by virtue of its Venture Capital Trust status. However, the net
revenue (excluding UK dividend income) accruing to the Company is liable to
corporation tax at the prevailing rates.
Dividends
Dividends to shareholders are accounted for in the period in which they are
paid or approved in general meetings. Dividends payable to equity shareholders
are recognised in the Reconciliation of Movements in Shareholders' Funds when
they are paid, or have been approved by shareholders in the case of a final
dividend and become a liability of the Company.
2. Income
Period Ended
28 February
2011
GBP'000
UK unfranked loan stock interest 14
Bank interest 6
20
Total income comprises:
Interest 20
20
3. Management Fee
Period Ended 28 February 2011
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Investment management fee 9 26 35
No performance fee was paid during the period.
4. Other Expenses
Period Ended
28 February
2011
GBP'000
Directors' fees 73
Secretarial and accounting fees 60
Auditor's remuneration - audit services 17
- interim review 13
- reporting accountant on launch 10
- reporting accountant on issue of ordinary shares 7
- tax 5
Other 123
Clawback of expenses in excess of 3% cap (185)
123
Further details of Directors' fees can be found in the Directors' Remuneration
Report in the full Annual Report and Accounts.
5. Taxation
Period Ended 28 February 2011
Revenue Capital Total
GBP'000 GBP'000 GBP'000
(Loss)/profit on ordinary activities before tax (112) 420 308
Theoretical tax at UK Corporation Tax rate of 28% (31) 118 87
Timing differences: Loss not recognised, carried 31 - 31
forward
Effects of non-taxable gains/(losses) - (118) (118)
Tax on (loss)/profit for the year - - -
6. Dividends
Period Ended
28 February
2011
GBP'000
Proposed final dividend: 5.25 p per 249
ordinary share
The above dividend is proposed by the Company and is subject to approval by
shareholders at the forthcoming Annual General Meeting. This proposed dividend
has not been included as a liability in these Accounts.
7. Return per Ordinary Share
Period Ended 28 February 2011
Revenue Capital Total
pence pence pence
Return per ordinary share (3.0) 11.3 8.3
Revenue return per ordinary share is based on the net revenue loss on ordinary
activities after taxation of GBP112,000, and on 3,721,530 ordinary shares, being
the weighted average number of ordinary shares in issue during the period.
Capital return per ordinary share is based on the net capital gain for the
period of GBP420,000, and on 3,721,530 ordinary shares, being the weighted
average number of ordinary shares in issue during the period.
Total return per ordinary share is based on the net gain for the period of
GBP308,000, and on 3,721,530 ordinary shares, being the weighted average number of
ordinary shares in issue during the period.
8. Investments
Period Ended 28 February 2011
Structured
Products Unquoted Other
Investments Investments Investments Total
GBP'000 GBP'000 GBP'000 GBP'000
Movements in period:
Purchases at cost 2,443 549 1,050 4,042
Increase in unrealised appreciation 439 7 - 446
Closing valuation 2,882 556 1,050 4,488
Closing bookcost 2,443 549 1,050 4,042
Closing unrealised appreciation 439 7 - 446
2,882 556 1,050 4,488
Note 16 provides a detailed analysis of investments held at fair value through
profit and loss in accordance with Financial Reporting Standard 29 'Financial
Instruments: Disclosures'.
During the period the Company incurred no transaction costs on purchases in
respect of ordinary shareholder activities.
9. Debtors
Period Ended
28 February
2011
GBP'000
Prepayments and accrued income 29
Clawback of expenses in excess of 3% cap 185
214
10. Creditors
Period Ended
28 February
2011
GBP'000
IFA trail commission 4
Management fees 10
Audit fees 17
Directors' fees 13
Administration fees 10
Other creditors 122
176
11. Share Capital
28 February 2011
Number GBP'000
Ordinary shares of 1p each
As at 1 February 2010 20 -
Issue of ordinary shares 4,738,443 47
4,738,463 47
Redeemable non-voting shares of 1p each
As at 1 February 2010 - -
Issue of redeemable shares 5,000,000 50
Redemption of redeemable shares (5,000,000) (50)
- -
The Company was incorporated on 1 February 2010 with 20 subscriber shares.
Under the Articles of Association, a resolution for the continuation of the
Company as a Venture Capital Trust will be proposed at the Annual General
Meeting falling after the tenth anniversary of the last allotment (from time to
time) of shares in the Company and thereafter at five-yearly intervals.
12. Reserves
Share Capital Capital
Premium Special Reserve Reserve Revenue
Account Reserve Realised Unrealised Reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Premium on issue of 4,740 - - - -
ordinary shares
Cancellation of share (3,729) 3,729 - - -
premium
Expenses of share issues (259) - - - -
Unrealised net increase - - - 446 -
in value of investments
Management fee - - (26) - -
capitalisation net of
associated tax
Revenue return on - - - - (112)
ordinary activities
after tax
Closing balance 752 3,729 (26) 446 (112)
During the period, the Company was an investment company under section 833 of
the Companies Act 2006. On 18 May 2011 investment company status was revoked.
This was done in order to pay dividends to shareholders using the Special
Reserve.
The Special Reserve was created by the cancellation of Share Premium on 20
October 2010. The Special Reserve is a distributable reserve created to be used
by the Company inter alia to write off losses, fund market purchases of its own
ordinary shares, make distributions and/or for other corporate purposes.
13. Net Asset Value per Share
Period Ended
28 February
2011
GBP'000
Total net assets GBP4,836,000
Number of shares in issue 4,738,463
Net asset value per ordinary share 102.1p
The basic net asset value per ordinary share is based on net assets (including
current period revenue) of GBP4,836,000 and on 4,738,463 ordinary shares, being
the number of ordinary shares in issue at the end of the period.
14. Reconciliation of Net Profit before Tax to Cash Expended from Operating
Activities
Period Ended
28 February
2011
GBP'000
Profit on ordinary activities before taxation 308
Gains on investments (446)
Increase in debtors (214)
Increase in creditors 172
Cash expended from operating activities (180)
The increase in creditors shown above does not agree with the movement shown in
the Balance Sheet principally because of the effect of the short-term liability
for trail commission of GBP4,000 included in creditors at the year end, which is
not part of operating activities.
15. Financial Commitments
At 28 February 2011 the Company did not have any financial commitments which
had not been accrued for.
16. Financial Instruments
The Company's objective is to create two portfolios to produce ongoing capital
gains and income that will provide investment returns sufficient to maximise
annual dividends and to fund a special dividend or cash offer in year 6
sufficient to bring distributions per share to 70p.
Initially, a minimum of 66.5 per cent. of the monies raised by the Company has
been invested in a portfolio of Structured Products. The balance has been
invested in cash or near cash assets (as directed by the Board) and it will
then be available to invest in Venture Capital Investments, as well as to fund
expenses.
In order to qualify as a VCT, at least 70 per cent. of the Company's
investments must be invested in Venture Capital Investments within
approximately three years of the relevant funds being raised. Thus, there will
be a phased reduction in the Structured Products portfolio and corresponding
build up in the portfolio of Venture Capital Investments to achieve and
maintain this 70 per cent. threshold along the following lines:
Average Exposure per Year 1 Year 2 Year 3 Year 4 Year 5 Year 6+
Year
Structured Products and 85% 75% 35% 25% 25% 0%
cash/near cash assets
Venture Capital 15% 25% 65% 75% 75% 100%
Investments
As at 28 February 2011, the Company's investment portfolio comprised 64 per
cent. Structured Products and 12 per cent. Qualifying Investments, by market
value.
The Company's financial instruments comprise securities and cash and liquid
resources that arise directly from the Company's operations.
The principal risks the Company faces in its portfolio management activities
are:
* Market price risk
* Credit risk
* Liquidity risk
The Company does not have exposure to foreign currency risk.
With many years experience of managing the risks involved in investing in
Structured Products and Venture Capital Investments respectively, both the
Investec Structured Products team and the Calculus Capital team, together with
the Board, have designed the Company's structure and its investment strategy to
reduce risk as much as possible. The policies for managing these risks are
summarised below and have been applied throughout the period under review.
a) Market price risk
Structured Products
The return and valuation of the Company's investments in Structured Products is
linked to the FTSE 100 Index by way of a fixed return that is payable as long
as the Final Index Level is no lower than the Initial Index Level.
All of the investments in Structured Products in respect of the ordinary shares
fund will either be capital protected or capital at risk on a one-to-one basis
where the FTSE 100 Index falls by more than 50 per cent. and the Final Index
Level is below the Initial Index Level. If the FTSE 100 Index does fall by more
than 50 per cent. at any time during the investment period and fails to recover
at maturity, the capital will be at risk on a maximum one-to-one basis (Capital
at Risk ("CAR")) (eg if the FTSE 100 Index falls by more than 50 per cent.
during the investment period and on maturity is down 25 per cent., capital
within that Structured Product will be reduced by 25 per cent.). The table
below provides details of the Initial Index Level at the date of investment and
the maturity date for each of the Structured Products. As at 28 February 2011,
the FTSE 100 Index closed at 5,994.0. As at 19 May 2011 being the last
practical date prior to the publication of these Accounts, the Index had
increased 0.6 per cent. to close at 5,956.0.
Initial
Strike Index Maturity
Issuer Date Level Date Return/CAR
The Royal Bank of Scotland 05/05/ 5,341.93 12/05/ 162.5% if FTSE 100
2010 2015 higher; CAR if FTSE
100 falls by more
than 50%
Investec Bank 14/05/ 5,262.85 19/11/ 185% if FTSE 100
2010 2015 higher; CAR if FTSE
100 falls by more
than 50%
Santander Global Banking 25/05/ 4,940.68 18/11/ 185% if FTSE 100
and Markets (Abbey National 2010 2015 higher; CAR if FTSE
Treasury Services) 100 falls by more
than 50%
Nomura Bank International 28/05/ 5,188.43 20/02/ 137% if FTSE 100
2010 2013 higher; CAR if FTSE
100 falls by more
than 50%
Morgan Stanley 10/06/ 5,132.50 17/12/ 134% if FTSE 100
2010 2012 higher; CAR if FTSE
100 falls by more
than 50%
HSBC Bank 01/07/ 4,805.75 06/07/ 125.1% if FTSE 100
2010 2012 higher; CAR if FTSE
100 falls by more
than 50%
The Final Index Level is calculated using 'averaging', meaning that the average
is taken of the closing levels of the FTSE 100 on each Business Day over the
last two to six months of the Structured Product plan term (the length of the
averaging period differs for each plan).
The Investment Manager of the Structured Products portfolio and the Board
review this risk on a regular basis and the use of averaging to calculate the
return can reduce adverse effects of a falling market or sudden market falls
shortly before maturity. Equally, it can reduce the benefits of an increasing
market or sudden market rises shortly before maturity.
As at 28 February 2011, the value of the Company's investments in Structured
Products was valued at GBP2,882,000. A 10 per cent. increase in the level of the
FTSE 100 Index, at 28 February 2011 given that all other variables remained
constant, would have increased net assets by GBP158,000. A 10 per cent. decrease
would have reduced net assets by GBP211,000. A 10 per cent. increase would
increase the investment management fee due to Calculus Capital by GBP1,185; a 10
per cent. decrease would reduce the fee by GBP1,582.
In recent years, the performance of the FTSE 100 Index has been volatile and
the Directors consider that an increase or decrease in the aggregate value of
investments by 10 per cent. or more is reasonably possible.
Qualifying Investments
Market risk embodies the potential for losses and includes interest rate risk
and price risk.
The management of market price risk is part of the investment management
process. The portfolio is managed in accordance with policies in place as
described in more detail in the Chairman's Statement and Investment Manager's
Review (Qualifying Investments).
The Company's strategy on the management of investment risk is driven by the
Company's investment objective as outlined above. Investments in unquoted
companies, AIM-traded and PLUS Markets-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.
Interest is earned on cash balances and money market funds and is linked to the
banks' variable deposit rates. The Board does not consider interest rate risk
to be material. Interest rates do not materially impact upon the value of the
Qualifying Investments as the investee companies have no external debt and the
loan stock instruments contain fixed interest rates. The main risk arising on
the loan stock instruments is credit risk. The Company does not have any
interest bearing liabilities.
As required by Financial Reporting Standard 29 'Financial Instruments:
Disclosures' (the "Standard") an analysis of financial assets and liabilities,
which identifies the risk of the Company's holding of such items is provided.
The Company's financial assets comprise equity, loan stock, cash and debtors.
The interest rate profile of the Company's financial assets is given in the
table below:
As at 28 February 2011
Fair Value Cash Flow
Interest Interest
Rate Risk Rate Risk
GBP'000 GBP'000
Loan stock 450 -
Money market funds - 1,050
Cash - 326
450 1,376
The variable rate is based on the banks' deposit rate, and applies to cash
balances held and the money market funds. The benchmark rate which determines
the interest payments received on interest bearing cash balances is the Bank of
England base rate which was 0.5 per cent. as at 28 February 2011.
Any movement in interest rates is deemed to have an insignifi cant effect on
the Structured Products.
b) Credit risk
Structured Products
The failure of a counterparty to discharge its obligations under a transaction
could result in the Company suffering a loss. In its role as the Investment
Manager of the Structured Products portfolio and to diversify counterparty
risk, Investec Structured Products will only invest in Structured Products
issued by approved issuers. In addition, the maximum exposure to any one
counterparty will be limited to 15 per cent. of the assets of the Company at
the time of investment.
As at 28 February 2011, the Company's credit risk exposure, by credit rating of
the Structured Product issuer, was as follows:
28 February 2011
Credit Risk Rating % of
(Moody's unless otherwise indicated) GBP'000 Portfolio
A2 577 12.9%
Aa2 580 13.0%
Aa3 738 16.5%
A - (Standard & Poor's) 405 9.0%
Baa3 582 13.0%
2,882 64.4%
Qualifying Investments
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 Investment Manager has in place a monitoring procedure in respect
of counterparty risk which is reviewed on an ongoing basis. The carrying amount
of financial assets best represents the maximum credit risk exposure at the
balance sheet date.
Where an investment is made in loan stock issued by an unquoted company, it is
made as part of an overall equity and debt package. The recoverability of the
debt is assessed as part of the overall investment process and is then
monitored on an ongoing basis by the Investment Manager who reports to the
Board on any recoverability issues.
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 or PLUS Markets are held
by Rensburg Sheppards, 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. The Board and the Investment Manager
monitor the Company's risk by reviewing the custodian's internal control
reports.
c) Liquidity risk
The Company's liquidity risk is managed on an ongoing basis by the Investment
Managers. 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 as they fall due.
Structured Products
If Structured Products are redeemed before the end of the term, the Company may
get back less than the amount originally invested. The value of the Structured
Products will be determined by the price at which the investments can actually
be sold on the relevant dealing date. The Board does not consider this risk to
be significant as the planned investment periods in Structured Products will
range from six months to five and a half years and there is a planned
transition from Structured Products to Qualifying Investments as detailed
earlier in this note.
There may not be a liquid market in the Structured Products and there may never
be two competitive market makers, making it difficult for the Company to
realise its investment. Risk is increased further where there is a single
market maker who is also the issuer. The Board has sought to mitigate this risk
by only investing in approved issuers of Structured Products, and by limiting
exposure to any one issuer.
The Board seeks to ensure that an appropriate proportion of the Company's
investment portfolio is invested in cash and readily realisable assets, which
are sufficient to meet any funding commitments that may arise.
Under its Articles of Association, the Company has the ability to borrow a
maximum amount equal to 25 per cent. of the aggregate amount paid on all shares
issued by the Company (together with any share premium thereon). As at 28
February 2011 the Company had no borrowings.
Qualifying Investments
The Company's financial instruments include investments in unlisted equity
investments which are not traded in an organised public market and which may be
illiquid. As a result, the Company may not be able to realise quickly some of
its investments at an amount close to their fair value in order to meet its
liquidity requirements, or to respond to specific events such as deterioration
in the creditworthiness of any particular issuer.
d) Capital management
The capital structure of the Company consists of cash held and shareholders'
equity. Capital is managed to ensure the Company has adequate resources to
continue as a going concern, and to maximise the income and capital return to
its shareholders, while maintaining a capital base to allow the Company to
operate effectively in the market place and sustain future development of the
business. To this end the Company may use gearing to achieve its objectives.
The Company's assets and borrowing levels are reviewed regularly by the Board.
e) Fair value hierarchy
Investments held at fair value through profit and loss are valued in accordance
with IPEVCA guidelines.
The valuation method used will be the most appropriate valuation methodology
for an investment within its market, with regard to the financial health of the
investment and the IPEVCA guidelines.
As required by the Standard an analysis of financial assets and liabilities,
which identifies the risk of the Company's holding of such items, is provided.
The Standard requires an analysis of investments carried at fair value based on
the reliability and significance of the information used to measure their fair
value. In order to provide further information on the valuation techniques used
to measure assets carried at fair value, we have categorised the measurement
basis into a "fair value hierarchy" as follows:
- Quoted market prices in active markets - "Level 1"
Inputs to Level 1 fair values are quoted prices in active markets for identical
assets. An active market is one in which transactions occur with sufficient
frequency and volume to provide pricing information on an ongoing basis. The
Company's investments in money market funds are recognised within this
category.
- Valued using models with significant observable market parameters - "Level 2"
Inputs to Level 2 fair values are inputs other than quoted prices included
within Level 1 that are observable for the asset, either directly or
indirectly. The Company's investments in Structured Products are classified
within this category.
- Valued using models with significant unobservable market parameters - "Level
3"
Inputs to Level 3 fair values are unobservable inputs for the asset.
Unobservable inputs may have been used to measure fair value to the extent that
observable inputs are not available, thereby allowing for situations in which
there is little, if any, market activity for the asset at the measurement date
(or market information for the inputs to any valuation models). As such,
unobservable inputs reflect the assumptions the Company considers that market
participants would use in pricing the asset. The Company's unquoted equities
and loan stock are classified within this category. As explained in note 1,
unquoted investments are valued in accordance with the IPEVCA guidelines.
The table below shows movements in the assets measured at fair value based on
Level 3 valuation techniques for which any significant input is not based on
observable market data. During the period there were no transfers between
levels 1, 2 or 3.
Financial Assets at Fair Value through Profit or Loss
At 28 February 2011
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Structured Products - 2,882 - 2,882
Unquoted equity - - 106 106
Money market funds 1,050 - - 1,050
Loan stock - - 450 450
1,050 2,882 556 4,488
The Standard requires disclosure, by class of financial instruments, if the
effect of changing one or more inputs to reasonably possible alternative
assumptions would result in a significant change to the fair value measurement.
The information used in determination of the fair value of Level 3 investments
is chosen with reference to the specific underlying circumstances and position
of the investee company. The portfolio has been reviewed and both downside and
upside reasonable possible alternative assumptions have been identified and
applied to the valuation of the unquoted investments. For Terrain, the assumed
oil price used within the valuation model has been increased/decreased by 10
per cent. Applying the downside alternatives, the value of the unquoted
investment portfolio would be GBP8,928 or 1.6 per cent. lower. Using the upside
alternatives, the value of the unquoted investment portfolio would be increased
by GBP8,482 or 1.5 per cent.
17. Related Party Transactions
Investec Structured Products is a related party in respect of its appointment
as an Investment Manager to the Company and is entitled to a performance
incentive fee. Investec Structured Products will receive an arrangement fee of
0.75 per cent. of the amount invested in each Structured Product. This
arrangement fee shall be paid to Investec Structured Products by the issuer of
the relevant Structured Product. No arrangement fee will be paid to Investec
Structured Products in respect of any decision to invest in Investec-issued
Structured Products. Investec Structured Products has agreed not to earn an
annual management fee from the Company.
As at 28 February 2011, GBP81,000 was payable to Investec Structured Products in
relation to the initial fee of 5 per cent. of the gross funds raised pursuant
to the original ordinary share offer. In addition, GBP185,000 was owed by
Investec Structured Products as claw back of costs in excess of the agreed
expenses cap of 3 per cent.
Calculus Capital is regarded as a related party in respect of its appointment
as an Investment Manager to the Company. For the period ended 28 February 2011,
fees of GBP35,000 were payable to Calculus Capital, of which GBP10,000 were
outstanding as at 28 February 2011. Calculus Capital is also entitled to a
performance incentive fee.
John Glencross, a Director of the Company, has an interest in Calculus Capital
and is a director of Terrain Energy Limited and Lime Technology Limited,
companies in which the Company has invested.
In the period ended 28 February 2011, Calculus Capital received an arrangement
fee of GBP7,500 as a result of the Company's investment in Terrain Energy
Limited. Calculus Capital also receives an annual fee from Terrain Energy
Limited for the provision of John Glencross as a director, as well as an annual
monitoring fee which also covers the provision of certain administrative
support services. In the period ended 28 February 2011, the amount paid to
Calculus Capital which was attributable to the investment made by the Company
was GBP2,713 (excluding VAT).
In the period ended 28 February 2011, Calculus Capital received an arrangement
fee of GBP8,233 as a result of the Company's investment in Lime Technology
Limited. Calculus Capital also receives an annual fee from Lime Technology
Limited for the provision of John Glencross as a director, as well as an annual
monitoring fee. In the period ended 28 February 2011, the amount paid to
Calculus Capital which was attributable to the investment made by the Company
was GBP1,626 (excluding VAT).
No incentive fee accrued to either Investment Manager during the period.
The following Directors are considered to be related parties due to their
connection with one of the Investment Managers: Ian Wohlman is a director of
Investec Bank plc (of which Investec Structured Products is a trading
division), and John Glencross is a director of Calculus Capital. Both Directors
have agreed not to receive any remuneration from the Company. Steven Meeks
received consulting fees from Investec Bank plc during the period.
Ian Wohlman applied for GBP30,000 of C shares under the offer for subscription
launched in January 2011. 30,000 C shares were allotted to Mr Wohlman on 1
April 2011 at a price of 100p per C share.
Kate Cornish-Bowden subscribed for GBP10,000 of C shares under the offer for
subscription. 10,000 C shares were allotted to Ms Cornish-Bowden on 4 May 2011
at a price of 100p per C share.
18. Post Balance Sheet Events
In January 2011 an offer for subscription for C shares was launched. Since the
period end the following shares have been issued:
- 1,644,826 C shares at 100p per share on 1 April 2011.
- 187,679 C shares at 100p per share on 5 April 2011.
- 98,590 C shares at 100p per share on 4 May 2011.
The offer for subscription closed on 30 April 2011.
Please refer to 'Developments Since the Period End' in the Chairman's Statement
for details of investments made post year end.
Annual General Meeting and Separate Class Meetings
The Company's Annual General Meeting will be held at the offices of Investec
Structured Products, 2 Gresham Street, London EC2V 7QP at 11.00 am on Thursday,
30 June 2011. It will be followed by separate class meetings of the holders of
ordinary shares and C shares.
For further information, please contact:
Investment Manager to the Structured Products Portfolio
Investec Structured Products
Gary Dale
Telephone: 020 7597 4065
Investment Manager to the Venture Capital Portfolio
Calculus Capital Limited
Susan McDonald
Telephone: 020 7493 4940
National Storage Mechanism
A copy of the Annual Report and Financial Statements will be submitted shortly
to the National Storage Mechanism ("NSM") and will be available for inspection
at the NSM, which is situated at: www.hemscott.com/nsm.do.
ENDS
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.
END
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