INVESTEC STRUCTURED PRODUCTS CALCULUS VCT PLC
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED 28 FEBRUARY 2013
INVESTMENT OBJECTIVE
The Company's principal objectives for investors are to:
• invest in a portfolio of Venture Capital Investments and Structured Products
that will provide investment returns that are sufficient to allow the Company
to maximise annual dividends and pay an interim return either by way of a
special dividend or cash offer for shares on or before an interim return date;
• generate sufficient 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
Ordinary Share Fund
12 Months to 12 Months to
28 February 29 February
2013 2012
Total return
Total return £309,000 (£80,000)
Total return per ordinary share 6.5p (1.7)p
Revenue
Net loss after tax (£46,000) (£71,000)
Revenue return per ordinary share (1.0)p (1.5)p
Dividend
Recommended final dividend 5.25p 5.25p
As at As at
28 29
February February
2013 2012
Assets (investments valued at bid market
prices)
Net assets £4,562,000 £4,501,000
Net asset value ("NAV") per ordinary share 96.3p 95.0p
Mid market quotation
Ordinary shares 92.5p 97.5p
(Discount)/premium to NAV (3.9)% 2.6%
C Share Fund
12 Months to 11 Months to
28 February 29 February
2013 2012*
Total return
Total return £104,000 (£33,000)
Total return per C share 5.4p (1.7)p
Revenue
Net loss after tax (£35,000) (£45,000)
Revenue return per C share (1.8)p (2.3)p
Dividend
Recommended final dividend 4.5p 4.5p
As at As at
28 29
February February
2013 2012
Assets (investments valued at bid market
prices)
Net assets £1,805,000 £1,788,000
NAV per C share 93.5p 92.6p
Mid market quotation
C shares 90.0p 94.0p
(Discount)/premium to NAV (3.7)% 1.5%
* The C shares were issued in three tranches, on 1 April 2011, 5 April
2011 and 4 May 2011.
CHAIRMAN'S STATEMENT
I am delighted to present your Company's results for the year ended 28 February
2013. The Investec Structured Products Calculus VCT plc (the "Company") 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) and Calculus Capital Limited, and
brings together both Managers' award winning expertise in their respective
fields of Structured Products and Venture Capital.
During the year, the majority of investments have been in Structured Products
which do not produce an income but generate a capital return. The remainder of
the investments are in qualifying growth companies of which only a proportion
can be invested in loan stocks and redeemable preference shares which generate
an income. Consequently, the Company has shown a negative revenue return and a
strong positive capital return to produce an overall positive return in line
with expectations.
The net asset value per ordinary share was 96.3 pence as at 28 February 2013
compared to 95.0 pence as at 29 February 2012. This is after paying a dividend
to ordinary shareholders in 2012 of 5.25 pence per share.
The net asset value per C share was 93.5
pence as at 28 February 2013
compared to 92.6 pence as at
29 February 2012. This is after
paying a dividend to C shareholders in 2012 of 4.50 pence per share.
The net asset values have subsequently risen to 99.7 pence per ordinary share and 93.7 pence per C share as at 30 April 2013.
Your Board and 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 2013, the Ordinary Share Fund held a portfolio of four
Structured Products and the C Share Fund held a portfolio of two 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. Up to 20 per cent. of the Structured Products portfolio of the C
Share Fund will be able to be invested in other indices besides the FTSE 100
Index.
The Structured Products portfolio continues to perform well. As at 28 February
2013 the FTSE 100 was trading at 6,360.8. This means that while the level of
the FTSE 100 will change, if all of the Structured Products in both the
Ordinary Share Fund and C Share Fund were to mature at this level, they would
yield the maximum payoff for investors in each share fund.
Venture Capital Investments
Calculus Capital manages the portfolio of VCT Qualifying Investments made by
the Company. During the year the Company made 11 Qualifying Investments for the
Ordinary Share Fund, investing a total of £1,700,000 and the Company has now
met its requirement for the Ordinary Share Fund portfolio to be at least 70 per
cent. invested in Qualifying Investments by 28 February 2013. The Company also
made four Qualifying Investments totalling £280,000 for the C Share Fund. The
combined portfolio is required to be 70 per cent. invested in qualifying
holdings by 28 February 2014.
A detailed analysis of the new investments and the investment
performance can be found in the Investment Manager's Review that
follows 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 5.25 pence per ordinary
share and 4.5 pence per C share which, subject to shareholder approval, will be
paid on 31 July 2013 to ordinary shareholders and C shareholders on the
register on 24 May 2013. This will take dividends paid to date to 15.75 pence
per ordinary share and 9.0 pence per C share.
Developments since the Year End
Since the year end a further £50,000 has been invested for the C Share Fund in
Benito's Hat, a Mexican-themed fast casual restaurant business. Horizon
Discovery Limited, a translational genomics company, also received a £50,000
investment from the C Share Fund in mid-May.
Outlook
We believe that the Company's strategy is proving effective. The success of
the Structured Products portfolio thus far provides the basis for dividend
returns to shareholders whilst enabling the construction of a portfolio of
companies to generate longer-term returns. Calculus Capital continues to find
that there are a number of attractive investment opportunities available to
the
Company.
Michael O'Higgins
Chairman
22 May 2013
INVESTMENT MANAGER'S REVIEW
(Qualifying Investments)
Portfolio Developments
Calculus Capital Limited manages the portfolio of Qualifying Investments made
by the Company. To maintain its qualifying status as a Venture Capital Trust,
each of the Ordinary Share Fund and the C Share Fund needs to be at least 70
per cent. invested in qualifying securities by the end of the relevant third
accounting period. The relevant date for the ordinary shares was 28 February
2013 at which date the qualifying percentage for the ordinary shares was 71.4
per cent. The relevant date for the C shares is 28 February 2014.
During the year under review, the Company completed Qualifying
Investments in nine unquoted companies as shown below:
Amount
Invested Amount
by Invested
Ordinary by
Shares C Shares
Company Sector £ £
AnTech Limited Oil services 270,000 -
Brigantes Energy Limited Oil & gas exploration & production 125,000 -
Corfe Energy Limited Oil & gas exploration & production 75,000 -
Dryden Human Capital Group Limited Business services 100,035 -
Hampshire Cosmetics Limited Manufacturing 250,000 -
Human Race Group Limited Sports and leisure 300,000 150,000
Secure Electrans Limited Information technology 100,000 50,000
Tollan Energy Renewable energy 360,000 -
Venn Life Science Holdings plc Healthcare 120,033 80,000
New Holdings
AnTech Limited ("AnTech")
In late January 2013, £270,000 was invested in AnTech by the Ordinary Share
Fund, of which £120,000 was ordinary equity and £150,000 was loan stock.
Founded in 1994, Exeter based AnTech is a specialist engineering design and
manufacturing company providing a range of products to the upstream oil and gas
industry. The investment was made to support the roll-out of a new generation
of directional drilling tools, primarily for use in wells drilled using coiled
tubing. Coiled tubing drilling provides a lower cost approach to drilling
shallower wells. The investment has been made in conjunction with an equity
investment of £2 million by Saudi Aramco Equity Ventures, the venture
investment arm of Saudi Aramco, the world's largest oil company measured by oil
production and reserves. Thus, VCT (and EIS) investment has acted as a catalyst
to secure significant inward investment by a major non-UK corporate.
Ordinary C
Share Share
2012 2011 Fund Fund
Latest Audited Results £'000 £'000 Investment Information
£'000 £'000
Year ended 31 Aug 31 Aug
Turnover 1,548 1,188 Total cost 270 -
Pre-tax profit 230 223 Income recognised in year/period 1 -
Net assets 1,291 967 Equity valuation 120 -
Valuation basis: Cost Loan stock valuation 150 -
Total valuation 270 -
Voting rights* 1.1% -
* Other funds managed by Calculus Capital have combined voting rights of 16.8
per cent.
Brigantes Energy Limited ("Brigantes") and Corfe Energy Limited
("Corfe")
Brigantes and Corfe (details of which follow) were initially
intended to be one investment but were split for structural
efficiency reasons.
Brigantes and Corfe were originally each established to hold certain oil and
gas exploration assets and spun out from InfraStrata Plc. Brigantes acquired an
interest in InfraStrata's Northern Ireland exploration assets and Corfe
acquired an interest in InfraStrata's exploration assets in Southern England.
Brigantes
In September 2011, Brigantes completed the purchase of a 5 per cent. working
interest in UK onshore licence PEDL 070 which contains the producing Avington
oil field. The field produces at an average rate of 60-70 bpd (barrels per day)
and Brigantes' share in this field has entitled it to a total of 1,068.6
barrels since 1 June 2011. Brigantes' main prospect is a 40 per cent. working
interest in the Northern Ireland onshore licence PL1/10 at Larne. Significant
P50 prospective resources of 450 million barrels have been identified should
all structures prove to be successful. An exploration well is planned for early
2014. The company has also participated at a 10 per cent. interest level in a
Cairn Energy led licence application under the 27th Offshore Licensing Round in
May. The results of this should be known within the next few months.
Ordinary C
Share Share
2012 2011 Fund Fund
Latest Audited Results £'000 £'000 Investment Information £'000 £'000
Year ended 31 Jul 31 Jul
Turnover 70 15 Total cost 125 -
Pre-tax loss (920) (126) Income recognised in year/period - -
Net assets 1,131 1,310 Equity valuation 140 -
Valuation basis: Prospective resources Loan stock valuation
- -
Total valuation 140 -
Voting rights* 3.3% -
* Other funds managed by Calculus Capital have combined voting rights of 26.6
per cent.
Corfe
In September 2011, Corfe also completed the purchase of a 5 per cent. working
interest in the UK onshore licence PEDL 070 which contains the Avington oil
field, with its interest commencing from 1 June 2011. The field produces at an
average 60-70 bpd and Corfe's share in this field has entitled it to a total of
1,068.6 barrels since 1 June 2011.
In February, Corfe entered into an agreement with Egdon Resources plc and
Celtique Energie Limited in relation to UK onshore licence PEDL 201. Under the
terms of this agreement, Corfe will earn a 12.5 per cent. interest and test
drilling is planned to commence in early 2013. Initially a relatively shallow
oil prospect will be drilled, but the hope is that there will be reserves of up
to 3.2 million barrels. The InfraStrata bidding group, in which Corfe is
involved, has recently been awarded the P1918 licence over blocks 97/14, 97/15
and 98/11 under the 26th Offshore Licensing Round. Under the terms of the
agreement, Corfe is entitled to be assigned a 12 per cent. interest in these
blocks.
Ordinary C
Share Share
2012 2011 Fund Fund
Latest Audited Results £'000 £'000 Investment Information £'000 £'000
Year ended 31 Jul 31 Jul
Turnover 40 15 Total cost 75 -
Pre-tax profit 64 107 Income recognised in year/period - -
Net assets 2,006 1,329 Equity valuation 96 -
Valuation basis: Prospective resources Loan stock valuation
- -
Total valuation 96 -
Voting rights* 2.0% -
* Other funds managed by Calculus Capital have combined voting rights of 27.3
per cent.
Dryden Human Capital Group Limited ("Dryden")
Dryden is a global professional services recruitment and executive search
group. Dryden's first business commenced operations in 1996 and it is now one
of the leading international groups within the professional services
recruitment market. Headquartered in the UK, it specialises in the actuarial,
insurance and compliance recruitment sector and operates out of London, Zurich,
Mumbai, Shanghai, Hong Kong, Sydney and New York. The group comprises of five
businesses: Darwin Rhodes, a specialist recruiter operating globally within
niche areas of the insurance and finance sectors; Drake Fleming, an executive
search and recruitment consultancy specialising in HR, change and business
transformation; Edison Morgan, a retained, executive search firm operating in
the insurance and asset management sectors; Baker Noble, a search and selection
consultancy specialising in senior appointments within private and
institutional investment management; and MGM Search, an international search
and selection consultancy specialising in recruitment and resourcing solutions
for the professional staffing sector.
In April 2012, the group appointed a new CEO with extensive experience in the
recruitment industry and the Asia Pacific markets. In addition, the group has
invested in its team, with several new senior employees principally to
continue the growth of the business in Asia Pacific. The group's recent focus
has been to develop existing businesses and potentially add complementary
professional service business lines. It has done this through the newly
launched Drake Fleming human resources, change management and business
transformation business. Dryden has also invested in improved technical
equipment across the business, providing a good platform for growth.
As part of a larger fund-raising in February 2013, the Ordinary Share Fund made
an investment of £100,000 in the equity to help finance this development.
Calculus Capital knows the business well, with our EIS funds having invested in
the group in 2011.
Ordinary C
Share Share
2012 2011 Fund Fund
Latest Audited Results (group) £'000 £'000 Investment Information
£'000 £'000
(11 month) year ended 31 Mar 31 Mar
Turnover 9,822 9,367 Total cost 100 -
Pre-tax profit 291 1,224 Income recognised in year/period - -
Net assets 5,143 4,313 Equity valuation 100 -
Valuation basis: Cost Loan stock valuation - -
Total valuation 100 -
Voting rights* 2.9% -
* Other funds managed by Calculus Capital have combined voting rights of 17.1
per cent.
Hampshire Cosmetics Limited ("Hampshire")
In December 2012, £250,000 was
invested in Hampshire by the
Ordinary Share Fund, of which £100,000 was ordinary equity and
£150,000 was loan stock. Founded in the 1970s, Hampshire is an established company which
develops and manufactures a comprehensive range of products
covering fragrances, body treatments, skincare and shampoos. The
business, trade and assets have been acquired by a management team
that has previously been backed by Calculus Capital in a successful
investment.
Ordinary C
Share Share
2012 2011 Fund Fund
Latest Audited Results £'000 £'000 Investment Information £'000 £'000
Year ended 31 Mar 31 Mar
Turnover 16,535 18,599 Total cost 250 -
Pre-tax (loss)/profit (668) 428 Income recognised in
year/period
2 -
Net assets 1,357 4,000 Equity valuation 100 -
Valuation basis: Cost Loan stock valuation 150 -
Total valuation 250 -
Voting rights* 4.6% -
* Other funds managed by Calculus Capital have combined voting rights of 80.4
per cent.
Human Race Group Limited ("Human Race") (formerly Participate
Sport)
In April 2012, £175,000 was invested in Human Race by the Ordinary Share Fund,
of which £100,000 was ordinary equity and £75,000 was 8 per cent. five year
loan stock. The C Share Fund made an investment of £75,000, of which £50,000
was ordinary equity and £25,000 was loan stock. Following the increases in
allowable investment limits, a follow on investment of £125,000 in 8 per cent.
five year loan stock was made by the Ordinary Share Fund in July 2012. The C
Share Fund also made a £75,000 follow on investment of 8 per cent. five year
loan stock at this time. Human Race is the UK's largest and most diverse mass
participation sports events company.
Human Race owns and delivers over 58 events in triathlon, cycling, running,
duathlon, aquathlon and open water swimming for over 100,000 participants of
all abilities and ages.
Ordinary C
Share Share
2012 Fund Fund
Latest Audited Results (group) £'000 Investment Information
£'000 £'000
Year ended 31 Dec
Turnover 3,196 Total cost 300 150
Pre-tax profit 22 Income recognised in year/period 11 5
Net assets 2,032 Equity valuation 100 50
Valuation basis: Discounted cash flow and Loan stock valuation 200 100
earnings multiple using comparable
companies analysis Total valuation 300 150
Voting rights 1.86% 0.91%
Secure Electrans Limited ("Secure")
Secure, founded in 2000, develops internationally patented systems that provide
solutions to card payment fraud for 'card not present' ("CNP") transactions.
The adoption of chip and pin technology in retail environments has specifically
reduced instore card fraud which has migrated to CNP transactions. Secure's
solution takes chip and pin technology from the retail sector and applies it to
internet-based CNP transactions. The company has developed an end-to-end
payment and security infrastructure which incorporates chip and pin and has
received certification from leading industry bodies and participants. In April
2012, the Ordinary Share Fund made an equity investment of £100,000 and the C
Share Fund invested £50,000 in equity.
Ordinary C
Share Share
2012 2011 Fund Fund
Latest Audited Results £'000 £'000 Investment Information £'000 £'000
Year ended 31 Dec 31 Dec
Turnover 61 111 Total cost 100 50
Pre-tax loss (1,953) (2,146) Income recognised in year/period - -
Net assets (34) 259 Equity valuation 100 50
Valuation basis: Cost Loan stock valuation - -
Total valuation 100 50
Voting rights* 0.46% 0.23
* Other funds managed by Calculus Capital have combined voting rights of 14.5
per cent.
Tollan Energy Limited ("Tollan")
In late January 2013, £300,000 was invested in Tollan by the Ordinary Share
Fund, of which £150,000 was ordinary equity and £150,000 was loan stock. A
£60,000 follow on investment was made by the Ordinary Share Fund in February
2013, all of which was loan stock. Tollan has been set up to generate
electricity from renewable micro-generation facilities. In February 2013,
Tollan entered into an agreement to acquire a portfolio of installed solar PV
panels on residential and commercial roofs in Northern Ireland and will benefit
from Northern Ireland Renewable Obligation Certificates ("NIROCs").
Ordinary
Share C Share
Fund Fund
Latest Audited Results Investment Information £'000 £'000
No results available
Total cost 360 -
Income recognised in year/period 1 -
Equity valuation 150 -
Valuation basis: Cost Loan stock valuation 210 -
Total valuation 360 -
Voting rights* 6.38% -
Venn Life Science Holdings plc (formerly Armscote Investment
Company Plc) ("Venn")
In December 2012, £120,000 was invested as ordinary equity in Venn by the
Ordinary Share Fund, and £80,000 by the C Share Fund. Venn is a Clinical
Research Organisation ("CRO") with operations in France, the Netherlands and
Ireland and a branch office in Switzerland. The Company's near-term objective
is the consolidation of a number of small European CROs to build a mid-sized
CRO focused on the European market, offering clients a full service,
multi-centred capability in Phase II-IV trials across a range of principal
disease areas.
Ordinary C
Share Share
Fund Fund
Latest Audited Results Investment Information £'000 £'000
No results available
Total cost 120 80
Income recognised in year/period - -
Equity valuation 120 80
Valuation basis: Bid Loan stock valuation - -
Total valuation 120 80
Voting rights* 1.99% 1.33%
* Other funds managed by Calculus Capital have combined voting rights of 9.1
per cent.
Existing Holdings
Terrain Energy Limited ("Terrain")
Terrain was established in October 2009 to develop a portfolio of onshore oil
and gas production and development assets, predominantly in the UK. Terrain has
interests in six petroleum licences: Keddington, Kirklington, Dukes Wood,
Kelham Hills and Burton on the Wolds in the East Midlands and Larne in Northern
Ireland. Terrain is currently producing from wells at Keddington, Dukes Wood
and Kirklington. On average 60 barrels of oil and 300,000 standard cubic feet
of gas per day are being produced (gross). The company is currently in
negotiations with several parties to acquire interests in additional onshore UK
producing licences. In January, the company appointed Steve Jenkins as
non-executive chairman. Steve was previously Chief Executive of Nautical
Petroleum which was acquired by Cairn Energy in 2012. The company's most
exciting prospect is the PL1/10 licence located in the Larne-Lough Neagh Basin,
onshore Northern Ireland. It is estimated that the licence contains a total
unrisked P50 prospective resource of 450 million barrels of oil should all
structures prove to be successful (45 million barrels net to Terrain). An
appraisal well is planned for early 2014.
Ordinary C
Share Share
2011 2010 Fund Fund
Latest Audited Results £'000 £'000 Investment Information £'000 £'000
Year ended 31 Dec 31 Dec
Turnover 308 271 Total cost 300 90
Pre-tax loss (72) (158) Income recognised in year/period 14 3
Net assets 3,435 1,953 Equity valuation 113 47
Loan stock valuation 200 45
Valuation basis: Discounted cash flow and Total valuation 312 93
comparable companies analysis
Voting rights* 2.5% 1.1%
* Other funds managed by Calculus Capital have combined voting rights of 19.3
per cent.
MicroEnergy Generation Services Limited ("MicroEnergy")
MicroEnergy owns a portfolio of small onshore wind turbines.
As at 31 March 2013, 154 turbines had been installed in East Anglia and
Yorkshire (out of the entire fleet of 160 turbines). The portfolio will provide
MicroEnergy with sufficient scale to mitigate against concerns of poor
short-term performance at any particular site. The revenues from the fleet of
installed turbines come from two sources, both of which are inflation
protected, being directly linked to RPI. Firstly there is the Government backed
feed-in tariff ("FIT") paid by the electricity suppliers for every kilowatt of
electricity generated for twenty years. Secondly there is the export tariff for
any surplus electricity not used by the site owner that is exported to the
grid.
Ordinary C
Share Share
2011 Fund Fund
Latest Audited Results £'000 Investment Information £'000 £'000
Year ended 31 Mar
Turnover 7 Total cost 300 -
Pre-tax loss (107) Income recognised in year/period 10 -
Net assets 1,623 Equity valuation 150 -
Valuation basis: Last price paid Loan stock valuation
150 -
Total valuation 300 -
Voting rights* 5.1% -
* Other funds managed by Calculus Capital have combined voting rights of 5.8
per cent.
Lime Technology Limited ("Lime Technology")
The group comprises three main activities. 'Projects' which supplies panels for
external wall construction. The main product is Hembuild which is sustainable
and thermally efficient and is constructed of lime, hemp and linseed. Hembuild
was recently used in the construction of the Science Museum's archives in the
West of England. Lime Technology supplies proprietary lime mortars and renders
and has an External Wall Insulation ("EWI") business which addresses the
insulation needs of the older existing housing stock. Hemp Technology operates
a fibre processing plant for hemp and linseed, thus giving Lime Technology
visibility over its supply chain from field to construction site. More
recently, new markets, including the paper and automotive sectors have been
developed. The group is going through a turnaround phase with a new management
team, product lines and direction. Whilst the building products industry
remains depressed, the 'green' sector shows a modest upward trend.
Ordinary C
Share Share
2012 2011 Fund Fund
Latest Audited Results (group) £'000 £'000 Investment information
£'000 £'000
Year ended 31 Oct 31 Oct
Turnover 5,997 4,507 Total cost 307 -
Pre-tax loss (2,055) (2,020) Income recognised in year/period 20 -
Net assets (499) (157) Equity valuation 8 -
Valuation basis: Last price paid Loan stock valuation
250 -
Total valuation 258 -
Voting rights* 0.2% -
* Other funds managed by Calculus Capital have combined voting rights of 3.9
per cent.
Metropolitan Safe Custody Limited ("Metropolitan") (formerly
Viscount Safe Custody Services Limited)
Metropolitan provides safe custody services in central London. In February
2012, Calculus Capital invested £1.85m in Metropolitan. Metropolitan currently
runs two safe custody sites, one in Knightsbridge, the other in St. Johns
Wood. These profitable, stable businesses serve around 4,500 customers
providing access to the vaults seven days a week. In June this year,
Metropolitan purchased the trade and certain assets of London Safe Deposit
("LSD"), one of the oldest providers in Central London, which had closed due to
the redevelopment of its site.
Ordinary C
Share Share
2012 2011 Fund Fund
Latest Audited Results £'000 £'000 Investment Information £'000 £'000
Year ended 30 Jun 30 Jun
Turnover 1,447 1,330 Total cost 190 90
Pre-tax profit 270 240 Income recognised in year/period 8 4
Net assets 4,118 800 Equity valuation 103 46
Loan stock valuation 100 50
Valuation basis: Discounted cash flow and Total valuation
203 96
earnings multiple
Voting rights* 2.0% 0.9%
*Other funds managed by Calculus Capital have combined voting rights of 35.3
per cent.
Qualifying Investments
At the beginning of May 2013, £50,000 was invested in Benito's Hat, a
Mexican-themed fast casual restaurant. This investment will fund the roll-out
of restaurant openings to reach new customers across London and the UK. In
mid-May, a further £50,000 was invested in Horizon Discovery Limited, a
translational genomics company. Both of these investments were for the C Share
Fund.
Developments since the Year End
There have been no significant developments since the year end
other than those disclosed above.
Outlook
Although the UK remains in a low growth environment and many high profile
companies have found conditions challenging, we believe that the investments in
the portfolio are well placed and can show good returns in the medium to longer
term.
Calculus Capital Limited
22 May 2013
Investment Manager's Review
(Structured Products)
Our non-Qualifying Investments are managed by Investec Structured Products. As
at the date of this report, the Company held a portfolio of Structured Products
based on the FTSE 100 Index. The products differ by duration and counterparty.
In line with the Company's strategy set out in the original offer documents,
part of the initial cash raised has been used to build a portfolio of
Structured Products. The portfolio of Structured Products was constructed with
different issuers and differing maturity periods to minimise risk and create a
diversified portfolio. Part of this portfolio has now reached full term; all
products purchased which have reached maturity have returned their maximum
payoff. The recent changes are listed below.
Over the last year, two of the investments reached full term within the
Ordinary Share Fund: the HSBC investment matured on 6 July 2012 paying a 25.1
per cent. return, and the RBS Autocallable matured on 19 March 2012, paying
10.5 per cent. The Morgan Stanley product was sold on 31 October 2012 at a
price of 132.2 per cent., resulting in a positive return of £161,200 on the
original £500,000 investment. The product was sold to release cash flow for
further Qualifying Investments.
Within the C Share Fund, the RBS Autocallable, paying 10.5 per cent., matured
on 19 March 2012, paying out fully. The Nomura product, which was bought from
the Ordinary Share Fund, matured on 20 February 2013, paying a return of 8.5
per cent. over the 11 months that the product was held.
The strong performance of the FTSE 100 has supported valuations in the
Structured Products portfolio. The FTSE 100 has rallied since the New Year and
is far above all of the products' strike levels. The highest strike level
remaining in both the Ordinary and C Share Funds is 5,584.5 and as at 28
February the FTSE 100 was 6,360.8. Over the past three months, swap rates have
remained low and market volatility has declined.
No new investments were made in Structured Products during the
period.
The Structured Products will achieve their target return subject to the Final
Index Level of the FTSE 100 being higher than the Initial Index Level. The
capital is at risk on a one-for-one basis ("CAR") if the FTSE 100 Index falls
more than 50 per cent at any time during the investment term and fails to fully
recover at maturity such that the Final Index Level is below the Initial Index
Level. As at 28 February 2013, the following investments had been made in
Structured Products:
Ordinary Share Fund:
FTSE 100
Strike Initial Notional Purchase Price as at Maturity Return/Capital at Risk
Issuer Date Index Level Investment Price 28 February Date (CAR)
2013
The Royal 05/05/ 5,341.93 £275,000 £0.96 £1.3977 12/05/ 162.5% if FTSE 100*
Bank of 2010 2015 higher; CAR if FTSE 100
Scotland plc
falls more than 50%
Investec Bank 14/05/ 5,262.85 £500,000 £0.98 £1.4740 19/11/ 185% if FTSE 100* higher;
plc 2010 2015 CAR if FTSE 100 falls more
than 50%
Abbey 25/05/ 4,940.68 £350,000 £0.99 £1.5789 18/11/ 185% if FTSE 100* higher;
National 2010 2015 CAR if FTSE 100 falls more
Treasury than 50%
Services
Abbey 03/08/ 5,584.51 £50,000 £1.00 £1.1954 05/02/ 126% if FTSE 100* higher;
National 2011 2014 CAR if FTSE 100 falls more
Treasury than 50%
Services
Matured/sold
FTSE 100
Initial Index Price at Maturity
Strike Level at Notional Purchase Maturity/ Date/Date Return/Capital at Risk
Issuer Date Maturity Investment Price Sale Sold (CAR)
HSBC Bank plc 01/07/ 4,805.75 £500,000 £1.00 £1.2510 06/07/
125.1% if FTSE 100*
2010 2012 higher; CAR if FTSE 100
falls more than 50%
The Royal 18/03/ 5,718.13 £50,000 £1.00 £1.1050 19/03/ Autocallable 10.5% p.a.;
Bank of 2011 2012 CAR if FTSE 100 falls
Scotland plc more than 50%
Nomura Bank 28/05/ 5,188.43 £350,000 £0.98 £1.2625 30/03/ 137% if FTSE 100* higher;
International 2010 2012 CAR if FTSE 100 falls
** more than 50%
Morgan 10/06/ 5,132.50 £500,000 £1.00 £1.3224 31/10/ 134% if FTSE 100* higher;
Stanley 2010 2012 CAR if FTSE 100 falls
International more than 50%
The total valuation of the amount invested in Structured
Products in the Ordinary Share Fund as at 28
February 2013 was £1,733,752.
C Share Fund:
FTSE 100
Strike Initial Notional Purchase Price as at Maturity Return/Capital at Risk
Issuer Date Index Level Investment Price 28 February Date (CAR)
2013
Investec Bank 05/08/ 5,246.99 £328,000 £1.00 £1.3661 10/03/ 182% if FTSE 100* higher;
plc 2011 2017 CAR if FTSE 100 falls more
than 50%
Abbey 03/08/ 5,584.51 £200,000 £1.00 £1.1954 05/02/ 126% if FTSE 100* higher;
National 2011 2014 CAR if falls more than 50%
Treasury
Services
Matured/sold
FTSE 100 Initial Maturity
Strike Index Level at Notional Purchase Price at Date/Date Return/Capital at Risk
Issuer Date Maturity Investment Price Maturity/ Sold (CAR)
Sale
The Royal 18/03/ 5,718.13 £200,000 £1.00 £1.1050 19/03/ Autocallable 10.5% p.a.;
Bank of 2011 2012 CAR if FTSE 100 falls
Scotland plc more than 50%
Nomura Bank 28/05/ 5,188.43 £350,000 £1.2625 £1.3700 20/02/ 137% if FTSE 100*
International 2010 2013 higher; CAR if FTSE 100
falls more than 50%
The total valuation of the amount invested in Structured
Products in the C Share Fund as at 28
February 2013 was £687,147.
*The Final Index Level is calculated using 'averaging', meaning that the
average of the closing levels of the FTSE 100 is taken on each Business Day
over the last 2-6 months of the Structured Product plan term (the length of the
averaging period differs 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.
** The Nomura Structured Product was sold prior to maturity with
a return on initial investment of 28.8 per cent. This was sold to
the C Share Fund.
Investec Structured Products
22 May 2013
INVESTMENT PORTFOLIO
AS AT 28 FEBRUARY 2013
Ordinary Share Fund
Net assets % of Net Assets
Structured Products 38%
Unquoted - loan stock 31%
Unquoted - ordinary and preference shares 31%
Unquoted - liquidity funds 0%
Net current assets 0%
100%
Sector % of Portfolio
Structured Products 38%
Unquoted - Qualifying Investments 62%
Unquoted - other non-Qualifying Investments 0%
100%
Book % of
Nature of Cost Valuation Net % of
Company Business £'000 £'000 Assets Portfolio
Structured Products
Investec Bank plc Banking 490 738 16% 16%
Abbey National
Treasury Services Banking 396 612 14% 14%
The Royal Bank of
Scotland plc Banking 264 384 8% 8%
Total Structured
Products 1,150 1,734 38% 38%
Qualifying Investments
Tollan Energy Limited Energy 360 360 8% 8%
Terrain Energy Limited Onshore oil and
gas production 300 312 8% 8%
Human Race Group
Limited Leisure 300 300 7% 7%
MicroEnergy Services
Limited Energy 300 300 7% 7%
AnTech Limited Oil services 270 270 7% 7%
Lime Technology
Limited Construction 307 258 6% 6%
Hampshire Cosmetics
Limited Cosmetics 250 250 5% 5%
Safe depository
Metropolitan Limited services 190 203 4% 4%
Oil and gas
Brigantes Energy exploration and
Limited production 125 140 2% 2%
Venn Life Sciences Clinical
Holdings plc research 120 120 2% 2%
Dryden Human Capital
Group Limited Human resources 100 100 2% 2%
Secure Electrans E-commerce
Limited security 100 100 2% 2%
Oil and gas
exploration and
Corfe Energy Limited production 75 96 2% 2%
Publishing and
Heritage House Limited media services 127 - - -
Total Qualifying
Investments 2,924 2,809 62% 62%
Other non-Qualifying
Investments
Fidelity Liquidity
Fund Liquidity fund 1 1 - -
Scottish Widows
Liquidity Fund Liquidity fund 1 1 - -
Total Other
non-Qualifying
Investments 2 2 - -
Total Investments 4,076 4,545 100% 100%
Net Current Assets
less Creditors due
after one year 17 -
Net Assets 4,562 100%
C Share Fund
Net assets % of Net Assets
Structured Products 38%
Unquoted - loan stock 11%
Unquoted - ordinary and preference shares 15%
Unquoted - liquidity funds 6%
Net current assets 30%
100%
Sector % of Portfolio
Structured Products 55%
Unquoted - Qualifying Investments 37%
Unquoted - other non-Qualifying Investments 8%
100%
Book % of
Nature of Cost Valuation Net % of
Company Business £'000 £'000 Assets Portfolio
Structured Products
Investec Bank plc Banking 328 448 25% 36%
Abbey National Treasury
Services Banking 200 239 13% 19%
Total Structured
Products 528 687 38% 55%
Qualifying Investments
Human Race Group Limited Leisure 150 150 9% 12%
Safe
depository
Metropolitan Limited services 90 96 5% 8%
Terrain Energy Limited Onshore oil
and gas
production 90 93 5% 7%
Venn Life Sciences Clinical
Holdings plc research 80 80 4% 6%
E-commerce
Secure Electrans Limited security 50 50 3% 4%
Publishing and
Heritage House Limited media services 64 - - -
524 469 26% 37%
Other non-Qualifying
Investments
Fidelity Liquidity Fund Liquidity fund 101 101 6% 8%
Scottish Widows
Liquidity Fund Liquidity fund 1 1 - -
Total Other
non-Qualifying
Investments 102 102 6% 8%
Total Investments 1,154 1,258 70% 100%
Net Current Assets less
Creditors due after one
year 547 30%
Net Assets 1,805 100%
Board of Directors
The Board comprises four non-executive Directors, three of whom are independent
of the Investment Managers. John Glencross is Chief Executive and a director of
Calculus Capital, and is accordingly not independent. The Board has substantial
experience of venture capital businesses and overall responsibility for the
Company's affairs, including determining the investment policy of the Company.
Michael O'Higgins - Chairman*
Kate Cornish-Bowden*
John Glencross
Steve Meeks *
* 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).
EXTRACTS FROM THE DIRECTORS' REPORT
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
("VCT") and its affairs are conducted in a manner to satisfy the
conditions to enable it to obtain approval as a VCT under sections
258-332 of the Income Tax Act 2007 ("ITA 2007"). Details of the
Company's investment policy are set out below.
On incorporation, the Company was an investment company under section 833 of
the Companies Act 2006. On 18 May 2011 investment company status was revoked by
the Company. This was done in order to allow the Company to pay dividends to
shareholders using the special reserve (a distributable capital 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 above.
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 maintain its VCT status. These
tests are set out in the full Annual Report. The Company has received
provisional approval as a VCT from HM Revenue & Customs.
The financial performance of the Company is set out below:
28 February 29 February
2013 2012
Ordinary Share Fund
Fair value portfolio valuation £4.5m £4.4m
Total return/(loss) (after tax) £309,000 (£80,000)
Total return/(loss) per ordinary
share 6.5p (1.7)p
NAV per ordinary share 96.3p 95.0p
Ordinary share price 92.5p 97.5p
Ordinary share price (discount)/
premium to NAV (3.9)% 2.6%
C Share Fund
Fair value portfolio valuation £1.3m £1.7m
Total return/(loss) (after tax) £104,000 (£33,000)
Total return/loss per C share 5.4p (1.7)p
NAV per C share 93.5p 92.6p
C share price 90.0p 94.0p
C share price (discount)/premium to
NAV (3.7)% 1.5%
To maintain its qualifying status as a VCT, each of the Ordinary Share Fund and
the C Share Fund needs to be at least 70 per cent. invested in Qualifying
Investments by the end of the relevant third accounting period. The relevant
date for the ordinary shares was 28 February 2013, at which date the qualifying
percentage was 71.4 per cent. The relevant date for the C shares is 28 February
2014; the qualifying percentage for the C shares as at 28 February 2013 was
30.8 per cent.
Dividend
The Directors are recommending final dividends of 5.25p per ordinary share and
4.5p per C share. Subject to approval by shareholders at the Annual General
Meeting, these dividends will be paid on 24 July 2013 to shareholders on the
register on 31 May 2013.
Share capital
At the year end and at the date of this report, the issued share
capital comprised 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). No shares were held in
Treasury.
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.
There are no restrictions concerning the transfer of securities in the Company;
no restrictions on voting rights; 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 to which the Company is
party 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 Annual General Meeting held on 17 July 2012, the Directors were granted
authority to allot shares up to an aggregate nominal amount of £206,700, and
this authority will expire at the Annual General Meeting to be held in 2017.
The Directors were also authorised to issue shares for cash (without rights of
pre-emption applying) (i) up to £100,000 of each class of share by way of offer
for subscription and (ii) up to 10 per cent. of each class of share for general
purposes, and to buy back up to 14.99 per cent. of each of the ordinary and C
shares in issue. The Board's proposals for the renewal of these authorities are
detailed in the full Annual Report.
Investment policy
At launch, 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 being used to meet initial costs and invested in cash or
near cash assets (as directed by the Board) and will be available to invest in
Venture Capital Investments and 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 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/near
cash 85% 75% 35% 25% 25% 0%
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 is 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
long-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 Structured Products may also be collateralised whereby notes are
issued by one issuer (such as Investec Bank plc) but with the underlying
investment risk being linked to more than one issuer (as approved by the Board)
reducing insolvency risks, creating diversity and potentially increasing
returns for shareholders. If the Company invests in a collateralised Structured
Product, the amount of the exposure to an underlying issuer will be taken into
account when reviewing investments for diversification. The maximum exposure to
any one issuer (or underlying issuer) will be limited, in aggregate, 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
has 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 the investment).
The Board and its 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, the Company has the ability to borrow a
maximum amount equal to 25 per cent. of the gross assets of the
Company. 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; and
• 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 15 to the Accounts.
The Board has also identified the following additional risks and
uncertainties:
Loss of approval as a VCT 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 Share Fund, 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 time 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
Investec Wealth & Investments acts as custodian.
C shares versus ordinary shares
The assets relating to the C shares are 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 monitors the performance of each separate fund as well as requirements at
a company level to reduce the risk of this occurring.
Future developments
As set out in the Chairman's Statement, the Directors believe that the
Company's strategy is proving effective. The success of the Structured Products
portfolio thus far provides the basis for dividend returns to shareholders
whilst enabling the construction of a portfolio of companies to generate
longer-term returns. Calculus Capital continues to find that there are a number
of attractive investment opportunities available to the Company.
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 (details of the respective management
agreements are set out in the full Annual Report) 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.
GOING CONCERN
After making enquiries, in view of the liquidity of the Structured Products
portfolio, and having reviewed the portfolio, balance sheet and projected
income and expenditure for the next twelve months, the Directors have a
reasonable expectation that the Company has adequate resources to continue in
operation for the foreseeable future. The Directors have therefore adopted the
going concern basis in preparing the Accounts.
The full Annual Report and Accounts contains 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 accounting estimates that are reasonable
and prudent;
• state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the 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 Conduct Authority.
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 this website 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
22 May 2013
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the year ended 28 February 2013 and the year ended 29
February 2012 but is derived from those accounts. Statutory accounts for 2012
have been delivered to the Registrar of Companies, and those for 2013 will be
delivered 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 year ended 28 February 2013
Year Ended 28 February 2013 Year Ended 29 February 2012
Revenue Capital Revenue Capital
Return Return Total Return Return Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Ordinary Share Fund
Investment holding (losses)/gains 8 - (3)
(3) - 26 26
Gain on disposal of investments 8 - 391 391 - - -
Income 2 71 - 71 48 - 48
Investment management fee 3 (11) (33) (44) (12) (35) (47)
Other operating expenses
4 (106) - (106) (107) - (107)
(Loss)/profit on ordinary activities
before tax (46) 355
309 (71) (9) (80)
Taxation on ordinary activities 5 - -
- - - -
(Loss)/profit for the year (46) 355 309 (71) (9) (80)
Basic and diluted earnings per ordinary
share 7 (1.0)p 7.5p 6.5p (1.5)p (0.2)p (1.7)p
C Share Fund
Investment holding gains 8 - 80 80 - 24 24
Gain on disposal of investments 8 - 72 72 - - -
Income 2 13 - 13 7 - 7
Investment management fee 3 (4) (13) (17) (4) (12) (16)
Other operating expenses 4 (44) - (44) (48) - (48)
(Loss)/profit on ordinary activities
before tax (35) 139
104 (45) 12 (33)
Taxation on ordinary activities 5 - -
- - - -
(Loss)/profit for the year (35) 139 104 (45) (12) (33)
Basic and diluted earnings per C share 7 (1.8)p 7.2p
5.4p (2.3)p 0.6p (1.7)p
The total column of these statements represents the Income
Statement of the Ordinary Share Fund and C Share Fund.
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 year.
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.
Year Ended 28 February 2013 Year Ended 29 February 2012
Revenue Capital Revenue Capital
Return Return Total Return Return Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Total
Investment holding gains 8 - 77 77 - 50 50
Gain on disposal of investments 8 - 463
463 - - -
Income 2 84 - 84 55 - 55
Investment management fee 3 (15) (46) (61) (16) (47) (63)
Other operating expenses 4 (150) - (150) (155) - (155)
(Loss)/profit on ordinary activities before tax (81) 494 413
(116) 3 (113)
Taxation on ordinary activities 5 - -
- - - -
(Loss)/profit for the year (81) 494
413 (116) 3 (113)
Basic and diluted earnings per ordinary share 7 (1.0)p 7.5p 6.5p
(1.5)p (0.2)p (1.7)p
Basic and diluted earnings per C share 7 (1.8)p 7.2p
5.4p (2.3)p 0.6p (1.7)p
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 AIC's SORP.
No operations were acquired or discontinued during the year.
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 year
ended 28 February 2013
Share Capital Capital
Share Premium Special Reserve Reserve Revenue
Capital Account Reserve Realised Unrealised Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Ordinary Share Fund
For the year ended 28 February 2013
1 March 2012 47 - 4,226 (61) 472 (183) 4,501
Change in accrual of IFA trail commission - - 1
- - - 1
Investment holding losses - - - - (3) - (3)
Gain on disposal of investments - - - 391 - - 391
Management fee allocated to capital - - -
(33) - - (33)
Revenue return on ordinary activities after tax - - -
- - (46) (46)
Dividend paid - - (249) - - - (249)
Closing balance 47 - 3,978 297 469 (229) 4,562
For the year ended 29 February 2012
1 March 2011 47 752 3,729 (26) 446 (112) 4,836
Cancellation of share premium - (747) 747 - - - -
Expenses of share issue - (5) (1) - - - (6)
Investment holding gains - - - - 26 - 26
Management fee allocated to capital - - -
(35) - - (35)
Revenue return on ordinary activities after tax - - -
- - (71) (71)
Dividend paid - - (249) - - - (249)
29 February 2012 47 - 4,226 (61) 472 (183) 4,501
The notes form an integral part of these Accounts.
Share Capital Capital
Share Premium Special Reserve Reserve Revenue
Capital Account Reserve
Realised Unrealised Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
C Share Fund
For the year ended 28 February 2013
1 March 2012 19 - 1,802 (12) 24 (45) 1,788
Investment
holding gains - - - - 80 - 80
Gain on
disposal of
investments - - - 72 - - 72
Management fee
allocated to
capital - - - (13) - - (13)
Revenue return
on ordinary
activities
after tax - - - - - (35) (35)
Dividend paid - - (87) - - - (87)
Closing balance 19 - 1,715 47 104 (80) 1,805
For the year ended 29 February 2012
1 March 2011 - - - - - - -
Increase in share capital in issue 19 1,912 - - - - 1,931
Cancellation of share premium - (1,802) 1,802
- - - -
Expenses of share issue - (110) - - - - (110)
Investment holding gains - - - - 24 - 24
Management fee allocated to capital - - -
(12) - - (12)
Revenue return on ordinary activities - - -
- - (45) (45)
after tax
29 February 2012 19 - 1,802 (12) 24 (45) 1,788
The notes form an integral part of these Accounts.
Share Capital Capital
Share Premium Special Reserve Reserve Revenue
Capital Account Reserve Realised Unrealised Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Total
For the year ended
28 February 2013
1 March 2012 66 - 6,028 (73) 496 (228) 6,289
Change in
accrual of IFA
trail
commission - - 1 - - - 1
Investment
holding gains - - - - 77 - 77
Gain on
disposal of
investments - - - 463 - - 463
Management fee
allocated to
capital - - - (46) - - (46)
Revenue return
on ordinary
activities
after tax - - - - - (81) (81)
Dividend paid - - (336) - - - (336)
Closing balance 66 - 5,693 344 573 (309) 6,367
For the year
ended 29
February 2012
1 March 2011 47 752 3,729 (26) 446 (112) 4,836
Increase in 19 1,912 - - - - 1,931
share capital
in issue
Cancellation of - (2,549) 2,549 - - - -
share premium
Expenses of - (115) (1) - - - (116)
share issue
Investment - - - - 50 - 50
holding gains
Management fee - - - (47) - - (47)
allocated to
capital
Revenue return - - - - - (116) (116)
on ordinary
activities
after tax
Dividend paid - - (249) - - - (249)
29 February 66 - 6,028 (73) 496 (228) 6,289
2012
The notes form an integral part of these Accounts.
Balance Sheet
as at 28 February 2013
28 February 29 February
2013 2012
Note £'000 £'000
Ordinary Share Fund
Fixed assets
Investments 8 4,545 4,435
Current assets
Debtors 9 110 119
Cash at bank and on deposit 4 28
114 147
Creditors: amounts falling due within one
year
Creditors 10 (87) (66)
Net current assets 27 81
Non-current liabilities
IFA trail commission (10) (15)
Total net assets 4,562 4,501
Capital and reserves
Called-up share capital 11 47 47
Share premium account - -
Special reserve 3,978 4,226
Capital reserve - realised 297
(61)
Capital reserve - unrealised 469 472
Revenue reserve (229) (183)
Equity shareholders' funds 4,562 4,501
Net asset value per ordinary share -
basic 12 96.3p
95.0p
The notes form an integral part of these Accounts.
28 February 29 February
2013 2012
Note £'000 £'000
C Share Fund
Fixed assets
Investments 8 1,258 1,691
Current assets
Debtors 9 35 51
Cash at bank and on deposit 556 104
591 155
Creditors: amounts falling due within
one year
Creditors 10 (36) (48)
Net current assets 555 107
Non-current liabilities
IFA trail commission (8) (10)
Net assets 1,805 1,788
Capital and reserves
Called-up share capital 11 19 19
Share premium account - -
Special reserve 1,715 1,802
Capital reserve - realised 47 (12)
Capital reserve - unrealised 104 24
Revenue reserve (80) (45)
Equity shareholders' funds 1,805 1,788
Net asset value per C share - basic 12 93.5p 92.6p
The notes form an integral part of these Accounts.
28 February 29 February
2013 2012
Note £'000 £'000
Total
Fixed assets
Investments 8 5,803 6,126
Current assets
Debtors 9 145 170
Cash at bank and on deposit 560 132
705 302
Creditors: amounts falling due within one
year
Creditors 10 (123) (114)
Net current assets 582 188
Non-current liabilities
IFA trail commission (18) (25)
Total net assets 6,367 6,289
Capital and reserves
Called-up share capital 11 66 66
Share premium account - -
Special reserve 5,693 6,028
Capital reserve - realised 344 (73)
Capital reserve - unrealised 573
496
Revenue reserve (309) (228)
Equity shareholders' funds 6,367 6,289
Net asset value per ordinary share - basic 12 96.3p
95.0p
Net asset value per C share - basic 12 93.5p
92.6p
These Accounts were approved by the Board of Directors of Investec Structured
Products Calculus VCT plc and were authorised for issue on 22 May 2013 and
were
signed on its behalf by:
Michael O'Higgins
Chairman
Registered No. 07142153 England & Wales
The notes form an integral part of these Accounts.
Cash Flow Statement
for the year ended 28 February 2013
28 February 29 February
2013 2012
Note £'000 £'000
Ordinary Share Fund
Operating activities
Investment income received 56 24
Deposit interest received 2 2
Investment management fees (22) (46)
Other cash payments (85) (104)
Cash expended from operations 13 (49) (124)
Cash flow from investing activities
Purchase of investments (1,700) (755)
Sale of investments 1,978 855
Net cash flow from investing activities 278 80
Net cash flow before financing 229 (44)
Cash flow from financing activities
Expenses of share issues (4) (5)
Net cash flow from financing activities (4) (5)
Equity dividend paid (249) (249)
Decrease in cash at bank and on deposit (24) (298)
The notes form an integral part of these Accounts.
Year Ended Year Ended
28 February 29 February
2013 2012
Note £'000 £'000
C Share Fund
Operating activities
Investment income received 8 4
Deposit interest received - -
Investment management fees (9) (12)
Other cash payments (20) (79)
Cash expended from operations 13 (21) (87)
Cash flow from investing activities
Purchase of investments (722) (2,594)
Sale of investments 1,307 928
Net cash flow from investing activities 585 (1,666)
Net cash flow before financing 564 (1,753)
Cash flow from financing activities
Shares issued - 1,931
Expenses of share issues (25) (74)
Net cash flow from financing activities (25) 1,857
Equity dividend paid (87) -
Increase in cash at bank and on deposit 452 104
The notes form an integral part of these Accounts.
Year Ended Year Ended
28 February 29 February
2013 2012
Note £'000 £'000
Total
Operating activities
Investment income received 64 28
Deposit interest received 2 2
Investment management fees (31) (58)
Other cash payments (105) (183)
Cash expended from operations 13 (70) (211)
Cash flow from investing activities
Purchase of investments (2,422) (3,369)
Sale of investments 3,285 1,783
Net cash flow from investing activities 863
(1,586)
Net cash flow before financing 793
(1,797)
Cash flow from financing activities
Shares issued - 1,931
Expenses of share issues (29) (79)
Net cash flow from financing activities (29) 1,852
Equity dividend paid (336) (249)
Increase/(decrease) in cash at bank and on deposit 428
(194)
The notes form an integral part of these Accounts.
NOTES TO THE ACCOUNTS
1. Accounting Policies
Basis of accounting
These Accounts cover the 12 month period 1 March 2012 to 28 February 2013, 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") and the
Statement of Recommended Practice, Financial Statements of Investment Trust
Companies and Venture Capital Trusts ("the SORP") issued by the Association of
Investment Trust Companies ("AIC") in January 2009. These Accounts are prepared
on the going concern basis.
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.
Expenses are allocated between the Ordinary Share Fund and the C Share Fund on
the basis of the ratio of the number of shares held by the respective fund to
the total number of ordinary and C shares where the expense is a shared
expense. Where expenses are not shared in this proportion, they are applied on
the basis of the most accurate method.
The Ordinary Share Fund and C Share Fund share bank accounts. Each funds' share
of the bank accounts is based on actual receipts and payments. These cash flows
are allocated according to the accounting policy for income and expenses
respectively.
The Company has not prepared consolidated accounts and has
accounted for its subsidiary, Investec SPV Limited, as an
investment on the grounds that its results are immaterial to the
Company.
The Company's Accounts are presented in Sterling.
Investments at fair value through profit or loss
The Company aims to invest in portfolios 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' and the AIC SORP. 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 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 midprices 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).
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 discounted cash flow 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 on 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 covering a five year period since
share allotment has been provided for in the Accounts as, due to the nature of
the Company, 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 and C shares respectively for the 2009/2010, 2010/2011 and 2011/2012 tax
years (excluding irrecoverable VAT, annual trail commission and performance
incentive fees), can be clawed back from Investec Structured Products until the
Ordinary Share Interim Return Date. Any clawback 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, receives an annual investment management fee of an
amount equivalent to 1.0 per cent. of the net assets of the
respective share fund.
Investec Structured Products, as Investment Manager of the
Structured Products portfolio, does 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.
For the C Shares Fund, Investec Structured Products and Calculus
Capital will be entitled to performance incentive fees as set out
below:
* 10 per cent. of C Shareholder Proceeds in excess of 105p up to and including
Proceeds of 115p per C share, such amount to be paid within ten business days
of the date of payment of the relevant dividend or distribution pursuant to
which a return of 115p per C share is satisfied; and
* 10 per cent. of C Shareholder Proceeds in excess of 115p per C
share, such amounts to be paid within ten business days of the date
of payment of the relevant dividend or distribution;
provided in each case that C shareholders have received or been offered the C
Share Interim Return of at least 70p per C share on or before 14 March 2017 and
at least a further 45p per C share having being received or offered for payment
on or before the 14 March 2019.
Capital reserve
The capital return component of the return for the year is taken
to the non-distributable capital reserves within the Reconciliation
of Movements in Shareholders' Funds.
Special reserve
The special reserve was created by the cancellation of the Ordinary Share
Fund's share premium account on 20 October 2010. A further cancellation of the
share premium account occurred on 23 November 2011 for both the Ordinary Share
Fund and C Share Fund. 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 and C shares, make distributions and/or for other corporate
purposes.
The Company was formerly an investment company under section 833
of the Companies Act 2006. On 18 May
2011 investment company status was revoked by the Company.
This was done in order to allow the Company to pay dividends to
shareholders using the special reserve.
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
Year Ended Year Ended
28 February 29 February
2013 2012
£'000 £'000
Ordinary Share Fund
UK unfranked loan stock interest 68 44
Liquidity fund interest 1 2
Bank interest 2 2
71 48
Total income comprises:
Interest 71 48
71 48
C Share Fund
UK unfranked loan stock interest 12 4
Liquidity fund interest 1 3
13 7
Total income comprises:
Interest 13 7
13 7
Total
UK unfranked loan stock interest 80 48
Liquidity fund interest 2 5
Bank interest 2 2
84 55
Total income comprises:
Interest 84 55
84 55
3. Management Fee
Year Ended Year Ended
28 February 2013 29 February 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Ordinary Share Fund
Investment management fee 11 33 44 12 35 47
C Share Fund
Investment management fee 4 13 17 4 12 16
Total
Investment management fee 15 46 61 16 47 63
No performance fee was paid during the year.
4. Other Expenses
Year Ended Year Ended
28 February 29 February
2013 2012
£'000 £'000
Ordinary Share Fund
Directors' fees 47 60
Secretarial and accounting fees 59 57
Auditor's remuneration
- audit services 15 14
- taxation compliance services 3 3
Other 44 54
Clawback of expenses in excess of 3% cap (62) (81)
106 107
C Share Fund
Directors' fees 19 20
Secretarial and accounting fees 24 19
Auditor's remuneration
- audit services 6 5
- taxation compliance services 1 1
Other 22 52
Clawback of expenses in excess of 3% cap (28) (49)
44 48
Year Ended Year Ended
28 February 29 February
2013 2012
£'000 £'000
Total
Directors' fees 66 80
Secretarial and accounting fees 83 76
Auditor's remuneration
- audit services 21 19
- taxation compliance services 4 4
Other 66 106
Clawback of expenses in excess of 3% cap (90) (130)
150 155
Further details of Directors' fees can be found in the
Directors' Remuneration Report in the full Annual Report.
5. Taxation
Year Ended 28 February Year Ended 29 February
2013 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Ordinary Share Fund
(Loss)/profit on ordinary
activities before tax (46) 355 309 (71) (9) (80)
Theoretical tax at UK
Corporation Tax rate of 24.2%
(2012: 26.5%) (11) 86 75 (19) (2) (21)
Timing differences: Loss not
recognised, carried forward 11 8 19 19 9 28
Effects of non-taxable gains - (94) (94) - (7) (7)
Tax on (loss)/profit for the
period - - - - - -
C Share Fund
(Loss)/profit on ordinary
activities before tax (35) 139 104 (45) 12 (33)
Theoretical tax at UK
Corporation Tax rate of 24.2%
(2012: 26.5%) (9) 34 25 (12) 3 (9)
Timing differences: Loss not
recognised, carried forward 9 3 12 12 3 15
Effects of non-taxable gains - (37) (37) - (6) (6)
Tax on (loss)/profit for the
period - - - - - -
Total
(Loss)/profit on ordinary
activities before tax (81) 494 413 (112) 420 308
Theoretical tax at UK
Corporation Tax rate of 24.2%
(2012: 26.5%) (20) 120 100 (31) 118 87
Timing differences: Loss not
recognised, carried forward 20 11 31 31
31
Effects of non-taxable gains - (131) (131) - (118) (118)
Tax on (loss)/profit for the
period - - - - - -
At 28 February 2013, the Company
had £428,064 (29 February 2012:
£298,783) of excess management expenses to carry forward against
future taxable profits.
The Company's deferred tax asset of £103,591 (29 February 2012: £73,202) has
not been recognised due to the fact that it is unlikely the excess management
expenses will be set off in the foreseeable future.
6. Dividends
Year Year
Ended Ended
28 29
February February
2013 2012
£'000 £'000
Ordinary Share Fund
Declared and paid: 5.25p per ordinary share in respect of the
year ended 29 February 2012 (2012: 5.25p) 249
249
Proposed final dividend: 5.25p per ordinary share in respect
of the year ended 28 February 2013 249
249
C Share Fund
Declared and paid: 4.5p per C share in respect of the period
ended 29 February 2012 87 -
Proposed final dividend: 4.5p per C share in respect of the
year ended 28 February 2013 (2012: 4.5p) 87
87
The proposed dividends are subject to approval by shareholders at the
forthcoming Annual General Meeting and have not been included as a liability in
these Accounts.
7. Return per Share
Year Ended Year Ended
28 February 2013 29 February 2012
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Return per ordinary share (1.0) 7.5 6.5 (1.5) (0.2) (1.7)
Return per C share (1.8) 7.2 5.4 (2.3) 0.6 (1.7)
Ordinary Share Fund
Revenue return per ordinary share is based on the net revenue
loss on ordinary activities after taxation of £46,000 (29 February 2012: £71,000) and on 4,738,463
ordinary shares (29 February 2012:
4,738,463), being the weighted average number of ordinary shares in
issue during the year.
Capital return per ordinary share is based on the net capital gain for the year
of £355,000 (29 February 2012: £9,000 loss) and on 4,738,463 ordinary shares
(29 February 2012: 4,738,463), being the weighted average number of ordinary
shares in issue during the year.
Total return per ordinary share is based on the total gain on
ordinary activities after taxation of £309,000 (29 February 2012: £80,000 loss) and on 4,738,463
ordinary shares (29 February 2012:
4,738,463), being the weighted average number of ordinary shares in
issue during the year.
C Share Fund
Revenue return per C share is based on the net revenue loss on
ordinary activities after taxation of £35,000 (29 February 2012: £45,000) and on 1,931,095 C
shares (29 February 2012: 1,919,142),
being the weighted average number of C shares in issue during the
year.
Capital return per C share is based on the net capital gain for
the year of
£139,000 (29 February 2012: £12,000) and on 1,931,095 C shares (29 February
2012: 1,919,142), being the weighted average number of C shares in issue during
the year.
Total return per C share is based on the total gain for the year of £104,000
(29 February 2012: £33,000 loss) and on 1,931,095 C shares (29 February 2012:
1,919,142), being the weighted average number of C shares in issue during the
year.
8. Investments
Year Ended 28 February 2013
Structured
Product Unquoted Other
Investments Investments Investments Total
£'000 £'000 £'000 £'000
Ordinary Share Fund
Opening bookcost 2,543 1,224 196 3,963
Opening unrealised appreciation/
(depreciation) 613 (141) - 472
Opening valuation 3,156 1,083 196 4,435
Movements in year:
Purchases at cost - 1,700 - 1,700
Sales proceeds (1,784) - (194) (1,978)
Realised gains on sales 391 - - 391
(Decrease)/increase in unrealised
appreciation (29) 26 - (3)
Movements in year (1,422) 1,726 (194) 110
Closing valuation 1,734 2,809 2 4,545
Closing bookcost 1,150 2,924 2 4,076
Closing investment holding gains/
(losses) 584 (115) - 469
1,734 2,809 2 4,545
Unquoted investments include unquoted shares valued at £nil (2012: £nil) in the
Company's subsidiary, Investec SPV. These shares cost £1,834, resulting in an
unrealised loss of £1,834 (2012: £1,834).
Year Ended 28 February 2013
Structured
Product Unquoted Other
Investments Investments Investments Total
£'000 £'000 £'000 £'000
C Share Fund
Opening bookcost 850 244 573 1,667
Opening unrealised
appreciation/
(depreciation) 85 (61) - 24
Opening valuation 935 183 573 1,691
Movements in year:
Purchases at cost 442 280 - 722
Sales proceeds (836) - (471) (1,307)
Realised gains on sales 72 - - 72
Increase in unrealised
appreciation 74 6 - 80
Movements in year (248) 286 (471) (433)
Closing valuation 687 469 102 1,258
Closing bookcost 528 524 102 1,154
Closing investment
holding gains/(losses) 159 (55) - 104
687 469 102 1,258
Unquoted investments include unquoted shares valued at £nil
(2012: £nil) in the Company's subsidiary, Investec SPV. The shares
cost £917, resulting in an unrealised loss of £917 (2012:
£917).
Year Ended 28 February 2013
Structured
Product Unquoted Other
Investments Investments Investments Total
£'000 £'000 £'000 £'000
Total
Opening bookcost 3,393 1,468 769 5,630
Opening unrealised appreciation/
(depreciation) 698 (202) - 496
Opening valuation 4,091 1,266 769 6,126
Movements in year:
Purchases at cost 442 1,980 - 2,422
Sales proceeds (2,620) - (665) (3,285)
Realised gains on sales 463 - - 463
Increase in unrealised appreciation 45 32 -
77
Movements in year (1,670) 2,012 (665) (323)
Closing valuation 2,421 3,278 104 5,803
Closing bookcost 1,678 3,448 104 5,230
Closing investment holding gains/
(losses) 743 (170) - 573
2,421 3,278 104 5,803
Note 15 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 year the Company incurred no transaction costs on
purchases in respect of ordinary shareholder activities or C
shareholder activities.
Investec SPV was incorporated on 29 November 2011. As at 28 February 2013,
Investec SPV had share capital of £2,751 (2012: £2,751) and deficit and net
loss of £2,751 (2012: £2,751) (note: this essentially values Investec SPV
at £
nil).
9. Debtors
Year Ended Year Ended
28 February 29 February
2013 2012
£'000 £'000
Ordinary Share Fund
Prepayments and accrued income 48 38
Clawback of expenses in excess of 3% cap 62 81
110 119
C Share Fund
Prepayments and accrued income 7 2
Clawback of expenses in excess of 3% cap 28 49
35 51
Total
Prepayments and accrued income 55 40
Clawback of expenses in excess of 3% cap 90 130
145 170
10. Creditors
Year Ended Year Ended
28 February 29 February
2013 2012
£'000 £'000
Ordinary Share Fund
IFA trail commission 5 5
Management fees 33 11
Audit fees 16 14
Directors' fees 6 9
Administration fees 5 5
Other creditors 22 22
87 66
C Share Fund
IFA trail commission 2 2
Management fees 13 4
Audit fees 7 6
Directors' fees 2 4
Administration fees 2 2
Other creditors 10 30
36 48
Total
IFA trail commission 7 7
Management fees 46 15
Audit fees 23 20
Directors' fees 8 13
Administration fees 7 7
Other creditors 32 52
123 114
11. Share Capital
28 February 2013 29 February 2012
Number £'000 Number £'000
Ordinary Share Fund
Number of shares in issue 4,738,463 47 4,738,463 47
C Share Fund
1 March 1,931,095 19 - -
Shares issued in year - - 1,931,095 19
Number of shares in issue 1,931,095 19 1,931,095 19
Under the Articles of Association, a resolution for the continuation of the
Company as a VCT 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. Net Asset Value per Share
28 February 29 February
2013 2012
Ordinary Share Fund
Net asset value per ordinary share 96.3p 95.0p
The basic net asset value per ordinary share is based on net assets (including
current period revenue) of £4,562,000 (29 February 2012: £4,501,000) and on
4,738,463 ordinary shares (29 February 2012: 4,738,463), being the number of
ordinary shares in issue at the end of the year.
28 February 29 February
2013 2012
C Share Fund
Net asset value per C share 93.5p 92.6p
The basic net asset value per C share is based on net assets (including current
period revenue) of £1,805,000 (29 February 2012: £1,788,000) and on 1,931,095 C
shares (29 February 2012: 1,931,095), being the number of C shares in issue at
the end of the year.
13. Reconciliation of Net (Loss)/Profit before Tax to Cash Expended from
Operating Activities
Year Ended Year Ended
28 February 29 February
2013 2012
£'000 £'000
Ordinary Share Fund
Gain/(loss) on ordinary activities before taxation 309 (80)
Gains on investments (388) (26)
Income reinvested - (1)
Decrease in debtors 9 95
Increase/(decrease) in creditors 21 (112)
Cash expended from operating activities (49) (124)
C Share Fund
Gain/(loss) on ordinary activities before taxation 104 (33)
Gains on investments (152) (24)
Income reinvested - (1)
Decrease/(increase) in debtors 16 (51)
Increase in creditors 11 22
Cash expended from operating activities (21) (87)
The movement in the prior year creditors shown above does not agree with the
movement shown in the Balance Sheet principally because of the effect of the
liability for share issue expenses of £23,000 as at 29 February 2012 (28
February 2013: £nil) which are not part of operating activities.
Year Ended Year Ended
28 February 29 February
2013 2012
£'000 £'000
Total
Gain/(loss) on ordinary activities before taxation 413 (113)
Gains on investments (540) (50)
Income reinvested - (2)
Decrease in debtors 25 44
Increase/(decrease) in creditors 32 (90)
Cash expended from operating activities (70) (211)
The movement in the prior year creditors shown above does not agree with the
movement shown in the Balance Sheet principally because of the effect of the
liability for share issue expenses of £23,000 as at 29 February 2012 which are
not part of operating activities.
14. Financial Commitments
At 28 February 2013 the Company
did not have any financial commitments which had not been accrued
for.
15. Financial Instruments
The Company's objective is 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 70 pence.
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 Year Year Year Year Year Year
1 2 3 4 5 6+
Structured Products and cash/near cash
assets 85% 75% 35% 25% 25% 0%
Venture Capital Investments 15% 25% 65% 75% 75% 100%
As at 28 February 2013, the Company's investment portfolio comprised 42 per
cent. Structured Products and 56 per cent. Qualifying Investments, by market
value. This is split 38 per cent. and 62 per cent. for the ordinary share
portfolio and 55 per cent. and 37 per cent. for the C share portfolio. To note,
the above does not equate to the qualifying percentage for VCT shares. This is
detailed in the Business Review above.
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.
Market price risk
Structured Products
The return and valuation of the Company's investments in Structured Products is
currently 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 current investments in Structured Products 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")) (e.g.
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 tables in the Investment
Manager's Review (Structured Products) above provide details of the Initial
Index Level at the date of investment and the maturity date for each of the
Structured Products. On 28 February 2013, the FTSE 100 Index closed at
6,360.81. By 20 May 2013 being the last practicable date prior to the
publication of these Accounts, the Index had increased by 6.2 per cent. to
close at 6,755.63.
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. 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 2013, the Company's investments in Structured Products were
valued at £2,421,000 (Ordinary Share Fund: £1,734,000; C Share Fund: £687,000).
A 10 per cent. increase in the level of the FTSE 100 Index at 28 February 2013,
given that all other variables remained constant, would have increased net
assets by £132,842 (Ordinary Share Fund: £85,900; C Share Fund: £46,942). A 10
per cent. decrease would have reduced net assets by £185,050 (Ordinary Share
Fund: £122,154; C Share Fund: £62,897). A 10 per cent. increase would increase
the investment management fee due to Calculus Capital by £1,328 (Ordinary Share
Fund: £859; C Share Fund: £469); a 10 per cent. decrease would reduce the fee
by £1,851 (Ordinary Share Fund: £1,222; C Share Fund: £629).
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. 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 2013 As at 29 February 2012
Fair Value Cash Flow Fair Value Cash Flow
Interest Interest Interest Interest
Rate Rate Rate Rate
Risk Risk Risk Risk
£'000 £'000 £'000 £'000
Ordinary Share Fund
Loan stock 1,410 - 700 -
Money market funds - 2 - 196
Cash - 4 - 28
1,410 6 700 224
C Share Fund
Loan stock 195 - 95 -
Money market funds - 102 - 573
Cash - 556 - 104
195 658 95 677
Total
Loan stock 1,605 - 795 -
Money market funds - 104 - 769
Cash - 560 - 132
1,605 664 795 901
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 2013.
Any movement in interest rates is deemed to have an
insignificant 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 (or underlying counterparty) will be limited to 15 per cent. of
the assets of the Company at the time of investment.
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.
Qualifying Investments
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 Investec Wealth & Investments, 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.
As at 28 February 2013, the
Company's credit risk exposure, by credit rating of the Structured
Product issuer, was as follows:
Credit Risk Rating 28 February 2013 29 February 2012
(Moody's unless otherwise indicated) £'000 % of Portfolio £'000 % of Portfolio
Ordinary Share Fund
A1 - - 518 11.7%
A2 612 13.5% 978 22.1%
Aa2 - - 611 13.8%
A3 384 8.4% - -
A - (Standard & Poor's) - - 437 9.9%
Baa3 738 16.2% 612 13.8%
1,734 38.1% 3,156 71.3%
Credit Risk Rating 28 February 2013 29 February 2012
(Moody's unless otherwise indicated) % of % of
£'000 Portfolio £'000 Portfolio
C Share Fund
A1 - - 207 12.2%
A2 239 19.0% 213 12.6%
Baa3 448 35.8% 515 30.5%
687 54.8% 935 55.3%
Credit Risk Rating 28 February 2013 29 February 2012
(Moody's unless otherwise indicated) £'000 % of Portfolio £'000 % of Portfolio
Total
A1 - - 725 11.8%
A2 851 14.7% 1,191 19.4%
Aa2 - - 611 10.0%
A3 384 6.6% - -
A - (Standard & Poor's) - - 37 7.1%
Baa3 1,186 20.4% 1,127 18.4%
2,421 41.7% 4,091 66.7%
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 (or underlying issuer).
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.
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 its gross
assets. As at 28 February 2013 the
Company had no borrowings.
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 year there were no transfers between Levels
1, 2 or 3.
Ordinary Share Fund
Financial Assets at Fair Value through Profit or Loss
At 28 February 2013
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Structured Products - 1,734 - 1,734
Unquoted equity - - 1,399 1,399
Money market funds 2 - - 2
Loan stock - - 1,410 1,410
2 1,734 2,809 4,545
Financial Assets at Fair Value through Profit or Loss
At 29 February 2012
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Structured Products - 3,156 - 3,156
Unquoted equity - - 383 383
Money market funds 196 - - 196
Loan stock - - 700 700
196 3,156 1,083 4,435
C Share Fund
Financial Assets at Fair Value through Profit or Loss
At 28 February 2013
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Structured Products - 687 - 687
Unquoted equity - - 274 274
Money market funds 102 - - 102
Loan stock - - 195 195
102 687 469 1,258
Financial Assets at Fair Value through Profit or Loss
At 29 February 2012
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Structured Products - 935 - 935
Unquoted equity - - 88 88
Money market funds 573 - - 573
Loan stock - - 95 95
573 935 183 1,691
Total
Financial Assets at Fair Value through Profit or Loss
At 28 February 2013
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Structured Products - 2,421 - 2,421
Unquoted equity - - 1,673 1,673
Money market funds 104 - - 104
Loan stock - - 1,605 1,605
104 2,421 3,278 5,803
Financial Assets at Fair Value through Profit or Loss
At 29 February 2012
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Structured Products - 4,091 - 4,091
Unquoted equity - - 471 471
Money market funds 769 - - 769
Loan stock - - 795 795
769 4,091 1,266 6,126
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.
Applying the downside alternatives, the value of the unquoted investment
portfolio for the Ordinary Share Fund would be £121,399 or 4.3 per cent. lower
(2012: £21,601 or 2.0 per cent. lower), for the C Share Fund it would be
£31,964 or 6.8 per cent. lower (2012: £6,211 or 3.4 per cent. lower), and in
total it would be £153,363 or 4.7 per cent. lower (2012: £27,812 or 2.2 per
cent. lower).
Using the upside alternatives, the value of the unquoted investment portfolio
for the Ordinary Share Fund would be increased by £132,073 or 4.7 per cent.
(2012: £19,581 or 1.8 per cent.), for the C Share Fund it would be increased by
£28,918 or 6.2 per cent. (2012: £6,900 or 3.8 per cent.), and in total it would
be increased by £160,991 or 4.9 per cent. (2012: £26,481 or 21.0 per cent.).
16. Transactions with Related Parties
John Glencross is considered to be a related party due to his position as Chief
Executive and a director of Calculus Capital, one of the Company's Investment
Managers. He does not receive any remuneration from the Company. He is a
director of Terrain, Lime Technology and Human Race, companies in which the
Company has invested.
17. Transactions with Investment Managers
Investec Structured Products, an Investment Manager to the Company, 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 2013, £nil was payable by the C Share Fund (2012: £23,000) 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, £90,000 (2012: £130,000) was owed by Investec Structured Products as
claw back of costs in excess of the agreed expenses cap of 3 per cent. (£62,000
to the Ordinary Share Fund and £28,000 to the C Share Fund).
Calculus Capital, an Investment Manager to the Company, is also entitled to a
performance incentive fee. For the year ended 28 February 2013, fees of £61,000
(2012: £63,000) were payable to Calculus Capital (£44,000 payable by the
Ordinary Share Fund and £17,000 by the C Share Fund), of which £46,000 (2012:
£15,000) were outstanding (£33,000 by the Ordinary Share Fund and £13,000 by the
C Share Fund) as at 28 February 2013.
No incentive fee accrued to either Investment Manager during the
year (2012: £nil).
Calculus Capital receives an annual fee from Terrain, Lime Technology and
Metropolitan for the provision of a director, as well as an annual monitoring
fee which also covers the provision of certain administrative support services.
Calculus Capital also receives an annual monitoring fee from MicroEnergy. In
the year ended 28 February 2013, the amount payable to Calculus Capital which
was attributable to the investment made by the Company was £3,951 (2012:
£3,542) from Terrain, £5,695 (2012: £3,865) from Lime Technology, £2,899 (2012:
£220) from Metropolitan and £2,728 (2012: £2,833) from MicroEnergy (all
excluding VAT).
Calculus Capital receives an annual fee from Brigantes and Corfe
for the provision of a director. The amount payable to Calculus
Capital in the year ended 28 February
2013 which was attributable to the investment made by the
Company was £378 (2012: £nil) from Brigantes and £223 (2012: £nil)
from Corfe (excluding VAT).
In the year ended 28 February 2013, Calculus Capital received arrangement fees
as a result of the Company's new investments. Calculus Capital received an
arrangement fee of £8,100 (2012: £nil) as a result of the Company's investment
in AnTech, £3,001 (2012: £nil) for the investment in Dryden, £7,500 (2012:
£nil) for the investment in Secure Electrans Limited and £10,800 (2012: £nil)
for the investment in Tollan.
In the year ended 28 February 2013, Calculus Capital received an arrangement
fee of £7,501 (2012: £nil) as a result of the Company's investment in
Hampshire. Calculus Capital also receives an annual fee from Hampshire for
monitoring services and for the provision of a director. In the year ended 28
February 2013, the amount paid to Calculus Capital which was attributable to
the investment made by the Company was £112 (2012: £nil).
In the year ended 28 February 2013, Calculus Capital received an arrangement
fee of £13,500 (2012: £nil) as a result of the Company's investment in Human
Race. Calculus Capital also receives an annual fee from Human Race for
monitoring services and for the provision of a director. In the year ended 28
February 2013, the amount paid to Calculus Capital which was attributable to
the investment made by the Company was £2,662 (2012: £nil).
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 Tuesday,
2 July 2013. 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.morningstar.co.uk/uk/NSM
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.