RENN UNIVERSAL GROWTH INVESTMENT TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 MARCH 2013
The full annual Report and Financial Statements for the year ended 31 March
2013 can be accessed via the Company's website: www.renaissanceusgrowth.co.uk
or by contacting the Company Secretary by telephone on 01392 477651.
The Company's investment objective
Until 17 April 2013, the Company's investment objective and policy were as
follows:
Investment objective
The objective of the Company is to achieve capital growth and to outperform its
benchmark, the Russell 2000 Index.
Investment policy
Investments are made primarily in securities issued by companies listed, quoted
or domiciled in the US and Canada. These securities include, inter alia,
privately placed common stock, preferred stock, convertible debentures and
warrants, and may also include securities traded on an exchange. The companies
in which investments are made would generally be regarded as belonging to the
category of companies with `micro' stock market capitalisations at the time of
purchase, typically those companies with market capitalisations below $1 billion.
From time to time, the Company also invests in securities in unlisted
US companies with similar characteristics. Although there are no limits set by
the Board on the proportion which may be invested in unlisted securities, it is
expected that such exposure will not exceed 25% over a prolonged period.
The Company is able to invest its assets in businesses which generate sales and
earnings outside the US so the Company may have significant economic exposure
to markets or economies outside North America.
The Board sets no specific limits on sector weights, or on the number of
securities which may be held, although no investment will be made that would
represent more than 15% of the value of the Company's total investments at the
time of purchase. The Board reviews the investments at each Board meeting to
ensure that diversification is adequate for a portfolio of this type.
The Company is permitted by its Articles of Association to borrow up to 30% of
its net assets, and may do so on an opportunistic basis determined by the
availability of investment opportunities.
A large proportion of the Company's investments will be, by their very nature,
less readily marketable than equities in general.
The Company invests on a long only basis, and does not currently intend to
hedge its non UK currency exposure back into Sterling.
The Company's policy is not to invest in UK listed investment companies,
including investment trusts.
On 17 April 2013, following approval by shareholders, the Company's investment
objective and policy were updated. The current investment objective and policy
of the Company are set out below:
Investment objective
To conduct an orderly realisation of the assets of the Company, to be effected
in a manner that seeks to achieve a balance between returning cash to
shareholders promptly and maximising the value of the Company's portfolio.
Investment policy
The Company's investments will be realised in an orderly manner (that is, with
a view to achieving a balance between returning cash to shareholders promptly
and maximising the value of the Company's portfolio).
The Company may not make any new investments save that (a) subject to Board
approval, further investment may be made into existing investments in order to
preserve the value of such investments; and (b) realised cash may be invested
in liquid cash-equivalent securities, denominated in Sterling, including
short-dated corporate bonds, government bonds, cash funds, or bank cash
deposits pending its return to shareholders in accordance with the Company's
investment objective.
No more than 10% of the Company's total assets may be invested in any single
cash equivalent instrument or placed on deposit with any single institution
except that this limit does not apply to investment in government bonds, which
shall be unconstrained.
The Company may not employ gearing.
The Company will continue to comply with the restrictions imposed by the
Listing Rules in force from time to time.
Company Summary
Management company RENN Capital Group, Inc.
Total net assets and shareholders' £57,252,000 as at 31 March 2013.
funds
Market capitalisation £40,892,000 as at 31 March 2013.
Capital structure 17,437,979 Ordinary 25p shares.
Total voting rights 17,437,979.
Continuation vote On 17 April 2013, the Company's Articles of
Association were amended to require the next
continuation vote to be passed by
shareholders in 2015 and at every third
annual general meeting thereafter.
Management fee Until 17 April 2013, the Manager received a
fee calculated at a rate of 0.125% of the
total net assets of the Company per month,
payable quarterly in arrears.
From 17 April 2013, the Manager receives a
fixed fee of $90,000 per month. A
performance fee may also be payable as
described in the Report of the Directors
below and Note 3 to the accounts.
Secretarial fee The Company Secretary receives an annual fee
of £83,000. This fee is subject to an annual
adjustment based on the UK Retail Price
Index ("RPI").
ISA status The Company is fully eligible for inclusion
in ISAs.
AIC The Company is a member of the Association
of Investment Companies.
Summary of results and financial highlights
Year ended Year ended
31 March 31 March %
2013 2012 change
Total net assets £57,252,000 £60,423,000 (5.25)
Net asset value ("NAV") per Ordinary share 328.32 335.23 (2.06)
- pence
- US cents 498.54 535.61 (6.92)
Mid-market price per Ordinary share 234.50p 195.00p 20.26
Discount to NAV 28.58% 41.83% 13.25
Net revenue return after taxation £(1,145,000) £(1,811,000) -
Revenue return per Ordinary share (6.47)p (9.87)p -
Costs of running the Company*
- Manager's fee £746,000 £720,000 3.61
- Other expenses £465,000 £498,000 (6.63)
- Performance fee (see Note 3) £(175,000)‡ £889,000 n/a
As a percentage of average net assets*
- Manager's fee 1.38% 1.44% (0.06)
- Other expenses 0.86% 1.00% (0.14)
Exchange rate - US Dollar/Sterling 1.51845 1.59775 (4.96)
S&P 500 Index (Total Return) 2,770.05 2,430.68 13.96
S&P 500 Index (Total Return) - Sterling
adjusted 1,823.72 1,520.03 19.98
Russell 2000 Index (Total Return) 4,385.95 3,771.10 16.30
Russell 2000 Index (Total Return) -
Sterling adjusted 2,887.58 2,358.26 22.45
High Date Low Date
Mid-market price per Ordinary 246.00p 06/02/13 195.00p 18/05/12
share
NAV per Ordinary share - pence† 328.44p 28/03/13 277.90p 19/12/12
Discount to NAV† 37.61% 18/05/12 17.61% 08/02/13
* Calculated in accordance with the AIC recommended methodology for the
calculation of `Ongoing Charges' issued in May 2012.
‡ There is no performance fee payable for the year ended 31 March 2013. The fee
for the year ended 31 March 2012 was reduced from £889,000 to £714,000
following an amendment to the benchmark index.
† Including current period revenue.
Chairman's statement
Shareholders Vote to Liquidate the Company
On 17 April 2013, at a General Meeting, the shareholders voted to liquidate the
Company over a two-year period. Your Board, with advice from Winterflood
Investment Trusts, recommended the proposals as being in the best interest of
the shareholders. The proposals contained three main points:
1. To modify the investment objective and policy of the Company with a view to
realising the Company's assets in an orderly manner that achieves a balance
between returning cash to shareholders promptly and maximising the value of
the Company's portfolio holdings.
The objective is to provide a substantial payout by the first quarter of 2014
and to finish the liquidation by the first quarter of 2015. The Investment
Manager is now actively working to achieve this objective.
2. To amend the Articles of Association such that the Company continues as an
investment trust until 2015. This gives a two-year time frame for the
wind-down. A continuation vote at this year's AGM will not be necessary
since this was deferred to 2015 at the April General Meeting.
3. To amend the terms of the Investment Management Agreement between the
Company and the Investment Manager in order to reflect the modification of
the Company's investment objective and policy to better align the interests
of the Shareholders and the Investment Manager during the managed wind-down
period.
In the document presented to shareholders for the vote of 17 April 2013,
complete details of the proposals were set out, a copy of which can be obtained
from the Company Secretary.
During the liquidation process, no new investments will be made by the
Investment Manager, save with the express prior permission of the Board, and
then only where such investment is necessary to protect the value of a holding.
The Board will meet regularly to review progress in implementing the Company's
new investment objective and policy.
Review of the Year
As at 31 March 2013, the net asset value was 328.32 pence per share versus
335.23 pence on 31 March 2012, a decline of 2.06% versus a gain of 22.45% for
the Russell 2000. The Manager outperformed the benchmark Russell 2000 in 2012
and has done so long-term; however, it did not do so for 2013. The price
appreciation since inception 16.75 years ago has been 236.26% for the Company
versus 180.78% for the Russell 2000. In total return terms, with dividends
reinvested, the return was 261.72% for the Company versus 251.98% for the
Russell 2000. Over a long period, the Russell 2000 has been one of the best
performing US indices. We are pleased that the Company has been successful over
its lifetime.
Discount to Net Asset Value
One of the reasons for liquidating the portfolio is to eliminate the
substantial discount to net asset value. While we cannot predict what the
ultimate realised value will be, the Investment Manager believes there is
considerable potential for capital appreciation in the portfolio.
Portfolio Comments
The Investment Manager will comment later on the major holdings but I will
highlight a few points here.
AnchorFree, Inc. is the Company's most important holding and comprises more
than 30% of the portfolio. The company is in an interesting technological niche
and has been growing rapidly which is one reason, we believe, why Goldman Sachs
invested $52 million in AnchorFree in May 2012. We took advantage of this and
reduced our interest in AnchorFree, raising $5.3 million (£3.3 million) in
cash, realising a $4.9 million gain. An independent valuation commissioned by
the Board in March 2013 reinforced the view that the current carrying value
remains appropriate; therefore, no adjustment has been made to the valuation in
the current financial year. Our Manager believes that AnchorFree could be an
attractive acquisition candidate, or could go public. Historically, liquidity
has always been a function of "being right." There is usually a good market for
a company growing as rapidly as AnchorFree.
In last year's Annual Report, we pointed out that large positions have always
been part of the Company's history. In the past, the Manager has been
successful in helping companies realise value for shareholders through mergers.
Laserscope, of some years past, was a good example. The company was sold to
American Medical Corporation at a substantial premium over our cost. During the
current year, this expertise was again visible: the Investment Manager assisted
in merging two sizable portfolio holdings with other companies to realise large
gains. Access Plans was sold to Aon and PHC, Inc. to Acadia Healthcare, both at
a significant premium to cost. As the portfolio is sold, we would expect value
to be created through this sort of transaction, and would also note that the
Investment Manager has experience in liquidating portfolios such as the
Company's in the open market. This record gives your Board confidence that the
Company's goals will be achieved.
Your Board will be monitoring these efforts and keeping you informed of the
progress. We appreciate shareholder approval of the wind-down proposals and
look forward to a satisfactory concluding chapter in the life of your Company.
Ernest Fenton
Chairman
14 June 2013
Manager's review
Introduction
Following the establishment of the new investment policy and objective on
17 April 2013, the focus of the Manager has shifted towards the realisation of the
portfolio within the next two years - a time frame which we believe will allow
us to maximise the value inherent in many of the holdings. Several of the
positions will be sold in the open market over the next several months as and
when the opportunities arise, while others will require more active involvement
by the Manager in structuring and executing transactions (such as mergers or
sales) on a case-by-case basis. It is fortunate that in many of these companies
the Manager is represented on the Board and has influence over the process. The
Manager has begun to consider which holdings might be sold in this way rather
than in the open market. Not surprisingly, this type of transaction can
sometimes have a long gestation period, and several of these positions are
unlikely to be sold in time to contribute to the distribution we expect to make
in the first quarter of 2014.
Top Ten Holdings
AnchorFree, Inc. (Private): 31.8% of net assets, Primary Industry Group:
Internet Software & Services.
AnchorFree is the world's leading advertising-supported virtual private
network. Over 100 million people have downloaded Hotspot Shield to protect
their identity. The company now has a platform for mobile devices of all kinds.
Revenues come from advertising as well as from subscription services. In May
2012, Goldman Sachs invested $52 million in AnchorFree. We believe the company
could be acquired or go public.
iSatori Technologies, Inc. (OTCBB: IFIT): 11.5% of net assets, Primary Industry
Group: Personal Products.
iSatori Technologies is a developer and marketer of scientifically engineered
nutritional supplements focusing upon specific markets, including weight loss
and sports nutrition. The company has launched a number of new products in
recent months in both weight loss and nutritional supplements. In 2013, the
company entered the mass market, i.e., Walgreen's, etc. and is optimistic about
the potential here. The company has a goal of reaching sales of $25-$50 million
over the next several years versus $10 million in 2012.
Cover-All Technologies (AMEX: COVR): 11.1% of net assets, Primary Industry
Group: Application Software.
Cover-All Technologies provides software solutions for insurance companies,
agents and brokers. The company has a new suite of software products and
recently announced a major contract with one of the largest insurance companies
in the world. Due to this, the company has indicated a very good first quarter.
With its `deep' product line, we believe Cover-All could be an acquisition
candidate.
Points International (NASDAQ: PCOM): 7.3% of net assets, Primary Industry
Group: Internet Software & Services.
Points International provides various e-commerce and technology services to
loyalty programme operators in the United States, Europe and Canada. The
company recently reported a very positive year in 2012 and provided strong 2013
guidance on revenue and earnings.
Plures Technologies, Inc. (OTCBB: MANY): 7.0% of net assets, Primary Industry
Group: Semiconductors.
Plures Technologies engages in the development, engineering and manufacture of
micro electrical mechanical systems. Thus far, all of the company's revenue has
come from its foundry business, but management is working on proprietary new
products which, we believe, could elevate the firm to the next level. Since the
year end, and with the approval of the Directors, the Company has invested new
capital into Plures amounting to $2.1 million out of a total financing package
of $5.2 million, with the goal of allowing time to finish the product
development cycle and so secure its future.
Bovie Medical Corp. (AMEX: BVX): 6.1% of net assets, Primary Industry Group:
Healthcare Equipment.
Bovie Medical engages in the development, manufacture and marketing of
electrosurgical generators and disposables. The company recently reported
progress on its revolutionary surgical system, J-Plasma. This system could
transform Bovie and make it an attractive candidate for major surgical
companies.
Flamel Technologies Ltd (NASDAQ: FLML): 4.0% of net assets, Primary Industry
Group: Pharmaceuticals.
Flamel Technologies engages in the development and commercialisation of
controlled release therapeutic products. The company is transforming itself
into a high margin specialty pharmaceutical company that could boost revenues
dramatically. In May 2013, the US Food and Drug Administration ("FDA") is
expected to approve a new drug for use in hospitals. The company's time release
technology has new uses in painkiller medicine under new FDA regulations.
Hollysys Automation Technologies Ltd (NASDAQ: HOLI): 2.8% of net assets,
Primary Industry Group: Electronic Equipment & Instruments.
Hollysys Automation Technologies provides automation and control technologies
to the industrial, railway, subway and nuclear industries of China and
south-east Asia. The company continues to make progress growing revenues and
earnings as it expands its presence in China and south-east Asia evidenced by
its recent $73 million acquisition of Singapore and Malaysia based Bond
Corporation Pte. Ltd.
DXP Enterprises, Inc. (NASDAQ: DXPE): 1.8% of net assets, Primary Industry
Group: Wholesale Industrial Equipment.
DXP Enterprises engages in distributing maintenance, repair and operating
products, equipment and services to industrial customers in the United States.
The company continues to make progress reflected in recently reported fourth
quarter and annual earnings gains of 51% and 62%, respectively.
Titan Machinery, Inc. (NASDAQ: TITN): 1.6% of net assets, Primary Industry
Group: Specialty Retail.
Titan Machinery owns and operates a network of full service agricultural and
construction equipment stores in the United States and Europe. The company
continues to make progress reflected in recently reported fourth quarter and
annual revenue gains of 29% and 33%, respectively.
Other holdings
13 companies representing 8.3% of assets consist of holdings in healthcare,
pharmaceuticals, consumer electronics, apparel, oil and gas, and advertising.
Conclusion
Your Manager has begun the process of realising value from the portfolio and is
on target to return substantial cash to shareholders in the first quarter of
2014. As explained earlier, while many holdings are sufficiently liquid to
allow open market sales, others either are not or have other characteristics
which will require a structural solution. The Manager has experience of
liquidating portfolios using both techniques and is optimistic that the
prospects for profitable realisation are good.
Core Holdings & Asset Allocation
At 31 March 2013, the top ten holdings made up 91% of the portfolio.
Top ten holdings at 31 March 2013 and 31 March 2012
% of Net % of Net
31 March 2013 Assets 31 March 2012 Assets
AnchorFree 31.8 AnchorFree 34.1
iSatori 11.5 Cover-All Technologies 19.0
Cover-All Technologies 11.1 iSatori (formerly
Integrated Security
Systems) 6.6
Points International 7.3 Acadia Healthcare 6.3
Plures Technologies 7.0 Plures Technologies 6.0
Bovie Medical Corporation 6.1 Fushi Copperweld 4.3
Flamel Technologies 4.0 Bovie Medical Corporation 4.0
Hollysys Automation Access Plans 4.0
Technologies 2.8 Points International 3.6
DXP Enterprises 1.8 Hollysys Automation
Titan Machinery 1.6 Technologies 2.2
Russell Cleveland
RENN Capital Group, Inc.
14 June 2013
Investment portfolio
as at 31 March 2013
Book
cost Fair value % of net
Sector US$'000 US$'000 £'000 assets
Corporate investments
US unlisted convertible
debentures
Oil and gas
PetroHunter Energy exploration 2,100 305 201 0.35
Pipeline Data Business services 1,500 597 393 0.69
Total US unlisted
convertible debentures 3,600 902 594 1.04
US unlisted loan notes
Plures Technologies Semiconductors 1,637 1,143 753 1.32
Total US unlisted loan
notes 1,637 1,143 753 1.32
US unlisted convertible
preference shares
Wireless
AnchorFree communications 2,162 27,613 18,185 31.76
iSatori Personal products 75 3 2 -
Plures Technologies Semiconductors 4,347 2,758 1,816 3.17
Total US unlisted
convertible preference
shares† 6,584 30,374 20,003 34.93
US listed Chinese
warrants
Plastec Technologies Plastic products - 6 4 -
Total US listed Chinese
warrants - 6 4 -
US listed Canadian
equities
Points International Internet software 2,537 6,372 4,196 7.33
Total US listed Canadian
equities 2,537 6,372 4,196 7.33
US listed Chinese
equities
Information
Cogo technology 1,083 594 391 0.68
Hollysys Automation Electronic
Technologies equipment 1,187 2,469 1,626 2.84
Plastec Technologies Plastic products 1,030 625 412 0.72
Electronic
SGOCO Technology equipment 2,000 351 231 0.40
Electronic
SinoHub components 4,932 74 49 0.09
Skystar
Bio-Pharmaceutical Pharmaceuticals 2,277 1,023 674 1.18
Tiger Media (formerly
SearchMedia Holdings) Advertising 2,422 590 389 0.68
Total US listed Chinese
equities 14,931 5,726 3,772 6.59
US listed French
equities
Flamel Technologies Pharmaceuticals 3,774 3,440 2,265 3.96
Total US listed French
equities 3,774 3,440 2,265 3.96
US unlisted warrants
Plures Technologies Semiconductors - 1,139 750 1.31
Total US unlisted
warrants - 1,139 750 1.31
US listed equities
Bovie Medical Healthcare
Corporation services 3,767 5,280 3,477 6.07
Cantel Medical Healthcare
Corporation equipment 1,020 1,142 752 1.31
Clothing and
Charles & Colvard accessories 777 772 508 0.89
Information
Cover-All Technologies technology 5,051 9,619 6,335 11.07
Trading companies
DXP Enterprises & distributors 1,022 1,569 1,033 1.80
Commercial
Global Axcess services 2,061 244 161 0.28
Hemobiotech Biotechnology 1,984 55 36 0.06
iSatori Personal products 9,562 9,968 6,565 11.47
Oil and gas
PetroHunter Energy exploration 202 23 15 0.03
Plures Technologies Semiconductors 3,037 1,054 694 1.21
Trading companies
Titan Machinery & distributors 1,038 1,389 915 1.60
Consumer
ZAGG electronics 1,048 874 576 1.01
Total US listed equities 30,569 31,989 21,067 36.80
Total corporate
investments 63,632 81,091 53,404 93.28
Net current assets 6,516 4,291 7.49
Provision for
liabilities (673) (443) (0.77)
Net assets 86,934 57,252 100.00
† Unlisted convertible preference shares and warrants convert into unlisted
common stocks.
Unlisted warrant investments are valued at fair value using the Black Scholes
methodology, which includes a time value which is calculated and added to the
intrinsic value to arrive at a total valuation for each warrant.
The Black Scholes methodology requires certain assumptions to be made around
the volatility of the underlying shares to which the warrants subscribe.
The valuation of unlisted warrants at 31 March 2013 of £754,000 is made up of
the intrinsic value of £753,000 and a time value of £1,000.
Report of the Directors
The Directors present their report and accounts for the year ended 31 March
2013. The Company was incorporated on 19 January 1996 and commenced trading on
29 May 1996.
Business reviewBusiness of the Company
The Company is an investment company in accordance with the provisions of
Section 833 of the Companies Act 2006. The Directors do not envisage any change
in the Company's activity in the future.
The principal activity of the Company is to conduct business as an investment
trust. The Company has received written approval from HM Revenue & Customs
("HMRC") as an authorised investment trust, under Sections 1158/1159 of the
Corporation Tax Act 2010 ("Sections 1158/1159"), for the year ended 31 March
2012. Under the new regime for obtaining and retaining investment trust status,
applicable to the Company from 1 April 2012, an application for approval as an
authorised investment trust under Sections 1158/1159, has been made by the
Company and accepted by HMRC. Accordingly, the Company will be treated as an
investment trust company for accounting periods commencing on or after 1 April
2012 and for each subsequent accounting period, subject to there being no
subsequent serious breaches of the regulations. The Directors of the Company
will endeavour to continue to satisfy the requirements of the new regime and
maintain its investment trust status.
The Company's status as an investment trust allows it to obtain an exemption
from paying taxes on the profits made from the sale of its investments.
Investment trusts offer a number of advantages for investors, including access
to investment opportunities that might not be open to private investors and to
professional stock selection skills at low cost.
The Company's shares are listed on the premium segment of the Official List of
the UK Listing Authority and traded on the Main Market of the London Stock
Exchange.
On 20 March 2013, the Company announced that, subject to shareholders'
approval, it planned to proceed with a managed wind-down of its investment
activities and to make an initial return of capital to shareholders by the
first quarter of 2014.
At the General Meeting held on 17 April 2013, the shareholders approved the
proposals:
* to modify the investment objective and policy of the Company with a view to
realising the Company's assets in an orderly manner that achieves a balance
between returning cash to shareholders promptly and maximising the value of
the Company's portfolio holdings;
* to amend the Articles of Association such that the next continuation vote
be proposed at the annual general meeting of the Company to be held in 2015
and at every third subsequent annual general meeting; and
* to amend the terms of the Investment Management Agreement between the
Company and the Investment Manager in order to reflect the modification of
the Company's investment objective and policy and to better align the
interests of the shareholders and the Investment Manager during the managed
wind-down period.
Results and dividend
The results for the year are set out in the Income statement. The Directors do
not recommend that a dividend be paid in respect of the year ended 31 March
2013 (2012: nil).
Analysis of performance and position
For the year ended 31 March 2013, the Company's benchmark was the Russell 2000
and, therefore, this was the primary key performance indicator for the Company.
This section of the business review also considers the Company's performance in
terms of other indices, its annual return, its discount to net asset value and
gains and losses seen within the portfolio during the year.
For the year ended 31 March 2013, the net asset value return of the Company,
measured in US Dollar, fell by 6.92% compared to a rise of 16.30% for the
Russell 2000. The net asset value return of the Company, measured in Sterling,
fell by 2.06% compared to a rise of 22.45% for the Russell 2000. Since
inception, the Sterling annualised return was 7.98% against the Russell 2000
annualised return of 7.80%.
The underlying discount to NAV fell during the year. The discount ranged from a
low of 17.61% on 8 February 2013 to a high of 37.61% on 18 May 2012, averaging
25.66% for the year. As at 31 March 2013, the Company's shares traded at a
discount of 28.58% compared to 41.83% as at 31 March 2012.
During the year, the Company realised gains and losses in several portfolio
companies. The result was a net realised gain of approximately £2.7 million. As
at 31 March 2013, the Company had no gearing.
The Investment Manager employs a `bottom-up' investment approach that focuses
on individual companies rather than sectors. Thus, the Company's performance is
tied more to an individual company's success than to sectors.
As at 31 March 2013, the Company's three largest holdings were AnchorFree,
iSatori and Cover-All Technologies representing approximately 32%, 12% and 11%
of net assets, respectively.
Further details of the Manager's investment approach and the performance for
the year are included in the Chairman's statement and the Manager's review.
Subsequent events and future developments
Since the year end, with the Directors' approval, the Company has invested
$2.1 million in Plures Technologies, Inc. We believe that this new capital
would give Plures the opportunity to complete its product development and test
its commercially viability.
There have not been any other significant events subsequent to the year end,
nor is the Board aware of any potential developments that are likely to have a
significant impact on the Company.
Principal risks associated with the Company
Risks associated with investing in the Company include, but are not limited to,
liquidity/marketability risk, interest rate risk, foreign currency risk,
country risk, market price and discount volatility risk, risk associated with
non-compliance with Sections 1158/1159, credit risk, risks associated with the
engagement of third parties, risk that shareholders will not vote in favour of
the continuation of the Company, valuation risk and concentration risk.
Liquidity/marketability risk
The Company is exposed to the US equity markets and could therefore be affected
by a decline in the US equity markets as a whole. Furthermore, a large
proportion of the stocks in which the Company invests are, by their very
nature, less readily marketable than, for example, blue-chip UK equities, and
the Company may hold significant ownership stakes. Additionally, the returns
associated with specific investment styles are cyclical and it is possible that
the Manager's investment style could fall out of favour. The Manager is
committed to investing in small and micro-cap companies and attempts to manage
liquidity risk by monitoring the trading volume of the stocks in which the
Company invests. The Board closely monitors the performance of the Company
through quarterly Board meetings and the review of monthly management accounts.
The Manager monitors the value of the Company's underlying securities on a
daily basis.
Interest rate risk
Bond prices and interest rates are inversely correlated. Thus, when interest
rates increase, the price of a bond with a fixed coupon will decline.
Alternatively, when interest rates decline, the price of a bond with a fixed
coupon will increase. The Company is invested primarily in equities, but it
does hold some fixed income securities, most of which are convertible to common
stock (equity). The benefit of a convertible debenture is that, if a portfolio
company becomes troubled, the Company is protected through its position as a
creditor. Alternatively, if the portfolio company performs well, the Company
can participate in the upside by converting to common stock. Nonetheless, the
Manager monitors interest rate risk on a regular basis.
Foreign currency risk
The Company invests in US stocks and its assets are therefore subject to
fluctuations in the US Dollar: Sterling exchange rate. It is not the Company's
policy to hedge the currency risk between the US Dollar and Sterling. The
Manager does not actively manage currency risk. As the portfolio is liquidated,
the proceeds will be converted to Sterling.
Country risk
In addition to the US, the Company has financial exposure to the Chinese
economy. Although China is rapidly growing, it is still a volatile part of the
world and therefore the Company is exposed to risks in this economy.
Market price risk and discount volatility
Since the Company invests in financial instruments, market price risk is
inherent in these investments. The Company itself, being a closed-end fund,
generally trades at a discount to its net asset value. The magnitude of this
discount fluctuates daily and can vary significantly. Thus, for a given period
of time, it is possible that the market price could decrease despite an
increase in the Company's net asset value. The Directors review the Company's
discount levels on a twice weekly basis and can use the Company's powers to buy
back shares should it be thought appropriate to do so.
The Directors also retain a Corporate Broker that can be consulted, if
necessary. Furthermore, the Company seeks to manage discount volatility through
active communication with its shareholders.
Compliance with Sections 1158/1159
If the Company did not comply with the provisions of Sections 1158/1159, it
would lose its investment trust status. In order to minimise this risk, the
Directors, the Manager and the Company Secretary monitor the Company's
compliance with the key criteria of Sections 1158/1159 on a monthly basis. On a
quarterly basis, compliance with these provisions is discussed in detail
between the Board and the Manager and, furthermore, the Manager provides the
Board with a quarterly assurance that, to the best of its knowledge, the
provisions of Sections 1158/1159 relating to investments have been adhered to
during the period. The Board gives no assurance that the Company will comply
with Sections 1158/1159.
Credit risk
The Company invests in debentures. It is possible that such investee companies
might default on these debentures or wind-up prior to their repayment. The
Board does not consider this to be a major risk to the Company overall, as a
diversified portfolio is maintained. Nonetheless, the Manager monitors the
credit risk of the Company's portfolio companies on an on-going basis.
Risks associated with the engagement of third parties
There are a number of potential operational risks associated with the fact that
third parties undertake the Company's administration and custody of assets.
Most seriously, there is the risk that third parties could fail to ensure
compliance with statutory requirements, such as the Companies Act 2006 and the
rules of the London Stock Exchange.
The Board regularly reviews the performance of the companies providing services
to the Company. As part of the review, the Board considers the regular
assurances provided from those companies that the appropriate controls are in
place to mitigate risks relating to services undertaken on behalf of the
Company.
Risk associated with the continuation vote
The Company's Articles of Association were amended at the General Meeting held
on 17 April 2013 to require a continuation vote every three years. The next
continuation vote will be held in 2015. Should the continuation vote not be
passed, the illiquid nature of some of the Company's investments means that it
is likely to take a considerable length of time to dispose of the portfolio in
its entirety.
Through the Manager, the Company's Broker and the website, the Board ensures
that regular communication regarding the Company's performance and long-term
direction is maintained with shareholders, whose opinions are duly considered
by the Board.
Valuation risk
The Directors take responsibility for the valuation of a number of holdings
which are unlisted. The valuations are the result of a range of valuation
techniques described in Note 1 to the accounts and do involve elements of
judgement which may mean that the values recognised in the event of a sale
might be significantly different from those used in the accounts.
Concentration risk
The portfolio of the company is concentrated in a few investee companies, with
the top five investments representing nearly 70% of the net assets.
Concentration in a small number of holdings can leave the Company more exposed
to liquidity problems and market losses. The insolvency or other business
failure of any one or more of these main portfolio positions could have a
material effect on the Company, its operations and ability to achieve its
objectives.
As the Company progresses with its new objective to realise its assets in order
to return cash to shareholders, the degree of concentration is likely to
increase. This could impact the Company's ability to comply with the
requirement under Sections 1158/1159 to spread investment risk with a
diversified portfolio. The Board and the Manager will be monitoring the
concentration risk on an ongoing basis.
Further information on risk
Further information regarding certain of these risks is included in Note 16 to
the accounts: Analysis of financial assets and liabilities. Information
regarding the Company's risk review procedures may also be found under
`Internal control review' in the full Annual Report.
Further details of the Manager's investment approach and the performance for
the year are included in the Chairman's statement and the Manager's review.
Corporate social responsibility
The Company does not have any employees and the Board is comprised solely of
non-executive Directors. As an investment company, the Company does not have
any direct impact on the environment. In carrying out its activities and in
relationships with suppliers and stakeholders, the Company aims to conduct
itself responsibly, ethically and fairly. The Company does not have anything
further to report on environmental, employee, social or community matters.
Share capital
At 31 March 2013, the Company's issued share capital comprised 17,437,979
Ordinary shares. 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.
The total voting rights of the Company at 31 March 2013 were 17,437,979.
No shares were issued during the year.
During the year ended 31 March 2013, the Company purchased in the market
586,614 Ordinary shares (with a nominal value of £146,653.50) for cancellation,
at a total cost of £1,313,000. This represented 3.25% of the issued share
capital at 31 March 2012.
At the annual general meeting held on 26 July 2012, the Company was granted
authority to purchase up to 14.99% of the Company's Ordinary shares in issue
amounting to 2,680,960 Ordinary shares. As at 13 June 2013, the Company may
purchase up to 2,094,346 Ordinary shares under the existing authority. This
authority will expire at the 2013 Annual General Meeting.
Management agreement
The Company's investments are managed by RENN Capital Group, Inc. under an
agreement dated 17 May 1996, as amended. For the year ended 31 March 2013, the
management fee is calculated at the rate of 0.125% per calendar month of the
net asset value of the Company and is payable quarterly in arrears. No
management fee is payable on any cash or near cash investments held by the
Company. RENN Capital Group, Inc. is also entitled to an annual performance fee
equivalent to 20% of the amount by which the net asset value of the Company at
the year end, together with gross dividends paid or distributions made, exceeds
the net asset value of the Company at the preceding financial year and as
increased or decreased in line with the movement in the Russell 2000 Index over
the same period. No performance fee will be payable in respect of any year
where the net asset value is less than either the placing price or the net
asset value at the end of the preceding financial year.
Pursuant to the Side Letter to the Investment Management Agreement dated
19 March 2013 and following the approval of the shareholders at the General
Meeting held on 17 April 2013, the Manager will be paid a fixed monthly fee of
$90,000. In case the realisation of the Company's assets is ongoing after
19 March 2015, the Board and Manager will review the fixed monthly fee; this fee
would also be renegotiated on the appointment of liquidators to the Company.
Under the revised terms, the hurdle for the achievement of any performance fee
will be a cash amount which must be returned to shareholders before a
performance fee can be earned (the "Cash Hurdle"). The Cash Hurdle will be the
audited NAV as at 31 March 2013 plus a notional accrual (the "Accrual"), which
will reflect the time value of money between 17 April 2013 and actual returns
of cash in excess of the Cash Hurdle. The Manager will be entitled to 10% of
any amounts returned to shareholders in excess of the Cash Hurdle (including
the Accrual). The Company and the Manager have agreed that the opening Cash
Hurdle will be the audited NAV as at 31 March 2013, in Sterling terms, and the
Accrual will be 8% per annum (compound) calculated on the opening Cash Hurdle.
The total performance fee payable will be capped at an amount equivalent to 10%
of the NAV as at 31 March 2013.
The management agreement may be terminated by either party giving to the other
not less than twelve months' notice in writing at any time. No additional
compensation is payable to the Manager in the event of termination.
Further details of the Manager's fees are given in Note 3 to the accounts.
Appointment of RENN Capital Group, Inc. as Manager
Through the Management Engagement Committee, the independent Directors keep
under review the performance of the Manager. In the opinion of the Directors,
the continuing appointment of RENN Capital Group, Inc. as Manager, on the terms
outlined in the Management Agreement dated 17 May 1996, as amended, is in the
best interests of shareholders as a whole.
GOING CONCERN
Following due consideration of the Company's financial position, its
obligations and review of future forecasts, the Directors are of the opinion
that it remains appropriate to presume that the Company will continue in
business for the foreseeable future. Accordingly they have continued to adopt
the going concern basis in preparing the accounts.
The Company is currently in a two-year process of realising its assets and will
hold its next continuation vote in 2015.
Management report
UK Listed Companies are required by the FCA's Disclosure and Transparency Rules
to include a management report within their annual financial report.
The information required by the management report, for the purpose of these
rules, is comprised of that contained in the Chairman's statement, the
Manager's review and the Report of the Directors above. Therefore no separate
management report has been included.
The Financial Statements have been reviewed by the Company's Auditor.
Statement of Directors' responsibilities in respect of the Annual Report and
the financial statements
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
Company Law requires the Directors to prepare financial statements for each
financial year. Under that law, they have elected to prepare the financial
statements in accordance with UK Accounting Standards and applicable law (UK
Generally Accepted Accounting Practice).
Under Company Law, the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for that
period. In preparing these financial statements, the Directors are required to:
● select suitable accounting policies and then apply them consistently;
● make judgements and estimates that are reasonable and prudent;
● state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements;
and
● prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006 and the listing rules of the UK Listing Authority. They have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Directors' Report, Directors' Remuneration Report and Corporate
Governance Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors' responsibility statement under the Disclosure and Transparency Rules
The Directors confirm that, to the best of their knowledge and belief:
* the financial statements, prepared in accordance with UK Generally Accepted
Accounting Practice, give a true and fair view of the assets, liabilities,
financial position and return of the Company; and
* the Annual Report includes a fair review of the development and performance
of the Company, together with a description of the principal risks and
uncertainties faced.
On behalf of the Board
Ernest Fenton
Chairman
14 June 2013
Non-Statutory Accounts
The financial information set out below does not constitute the Company's
statutory accounts for the period ended 31 March 2013 but is derived from those
accounts. Statutory accounts for 2013 will be delivered to the Registrar of
Companies in due course. The Auditor has reported on those accounts; their
report was (i) unqualified, (ii) did not include a reference to any matters to
which the Auditor drew attention by way of emphasis without qualifying their
report, and (iii) 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.renaissanceusgrowth.co.uk.
Income statement
for the year ended 31 March 2013
2013 2012
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on
investments at fair value
through profit or loss 7 - (913) (913) - 5,618 5,618
Exchange gains on capital
items 7 - 22 22 - 141 141
Income 2 231 - 231 151 - 151
Investment management fee 3 (746) - (746) (720) - (720)
Investment management
performance fee 3 - 175 175 - (889) (889)
Other expenses 4 (621) - (621) (1,241) - (1,241)
Return before finance
costs and taxation (1,136) (716) (1,852) (1,810) 4,870 3,060
Interest payable - - - (1) - (1)
Return after finance costs
and before taxation (1,136) (716) (1,852) (1,811) 4,870 3,059
Taxation on ordinary
activities 5 (9) - (9) - - -
Return on ordinary
activities after taxation (1,145) (716) (1,861) (1,811) 4,870 3,059
for the financial year
pence pence pence pence pence pence
Return per Ordinary share 6 (6.47) (4.04) (10.51) (9.87) 26.54 16.67
The total column of this statement is the profit and loss account of the
Company. The supplementary revenue return and capital return columns have been
prepared in accordance with the AIC's SORP. Revenue and capital return per
share figures shown are also supplementary information.
All revenue and capital items in the above statement derive from continuing
activities.
There are no recognised gains and losses other than those reflected in the
Income statement for the year, accordingly no statement of recognised gains and
losses has been prepared.
The notes below form part of these accounts.
Reconciliation of movements in shareholders' funds
for the year ended 31 March 2013
Share Capital
Share premium redemption Special Capital Revenue
capital account reserve reserve* reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 1 April 2012 4,506 5,995 825 4,008 50,875 (5,786) 60,423
Decrease in
investment holding
gains† - - - - (3,599) - (3,599)
Net gains on sales
of investments† - - - - 2,686 - 2,686
Exchange gains on
currency and capital
items† - - - - 22 - 22
Cost of share
repurchase (147) - 147 (1,313) - - (1,313)
Refund of share
repurchase
commissions - - - 3 - - 3
Investment
management
performance fee - - - - 175 - 175
Retained revenue
return for the year - - - - - (1,145) (1,145)
As at 31 March 2013 4,359 5,995 972 2,698 50,159 (6,931) 57,252
Share Capital
Share premium redemption Special Capital Revenue
capital account reserve reserve* reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 1 April 2011 4,665 5,995 666 5,208 46,005 (3,975) 58,564
Increase in
investment holding
gains† - - - - 3,761 - 3,761
Net gains on sales
of investments† - - - - 1,857 - 1,857
Exchange gains on
currency and capital
items† - - - - 141 - 141
Cost of share
repurchase (159) - 159 (1,200) - - (1,200)
Investment
management
performance fee - - - - (889) - (889)
Retained revenue
return for the year - - - - - (1,811) (1,811)
As at 31 March 2012 4,506 5,995 825 4,008 50,875 (5,786) 60,423
* The special reserve was created in September 1998, following a transfer from
the share premium account, to enable the Company to purchase its own shares.
† See Note 7 for further details.
The notes below form part of these accounts.
Balance sheet
as at 31 March 2013
2013 2012
Notes £'000 £'000
Fixed assets
Investments at fair value through profit
or loss 7 53,404 60,888
Current assets
Debtors 8 473 312
Cash at bank 4,181 751
4,654 1,063
Creditors - amounts falling due within one
year
Creditors and accruals 9 (363) (1,240)
(363) (1,240)
Net current assets/(liabilities) 4,291 (177)
Total assets less current liabilities 57,695 60,711
Provision for liabilities and charges
Provision for bad debt 10 (443) (288)
Total net assets 57,252 60,423
Share capital and reserves
Called up share capital 4,359 4,506
Share premium account 5,995 5,995
Capital redemption reserve 972 825
Special reserve 2,698 4,008
Capital reserve 50,159 50,875
Revenue reserve (6,931) (5,786)
Equity shareholders' funds 57,252 60,423
Net asset value per Ordinary share 14 328.32p 335.23p
These accounts were approved by the Board of Directors on 14 June 2013 and
signed on its behalf by:
Ernest Fenton
Chairman
RENN Universal Growth Investment Trust PLC
Company number: 3150876
The notes below form part of these accounts.
Statement of cash flows
for the year ended 31 March 2013
2013 2012
Notes £'000 £'000
Operating activities
Investment income received 63 6
Deposit interest received 7 3
Other income received - 8
Investment management fees paid (738) (754)
Investment management performance fee
paid (714) -
Secretarial fees paid (73) (77)
VAT recovered on secretarial fees - 54
Other cash payments (378) (386)
Net cash outflow from operating
activities 12 (1,833) (1,146)
Taxation
Irrecoverable overseas tax (9) -
Total taxation paid (9) -
Capital expenditure and financial
investment
Purchases of investments (7,316) (5,697)
Sales of investments 13,881 7,408
Net cash inflow from capital expenditure
and financial investment 6,565 1,711
Financing
Repurchase of Ordinary shares for
cancellation (1,313) (1,200)
Repurchase commissions refunded 3 -
Loan margin repayment - (241)
Net cash outflow from financing (1,310) (1,441)
Increase/(decrease) in cash 13 3,413 (876)
The notes below form part of these accounts.
Notes to the accounts
for the year ended 31 March 2013
1 ACCOUNTING POLICIES
Basis of preparation
The accounts are prepared under the historical cost convention, as modified by
the revaluation of fixed asset investments, and in accordance with applicable
accounting standards in the United Kingdom and with the Statement of
Recommended Practice ("SORP") regarding the Financial Statements of Investment
Trust Companies and Venture Capital Trusts, issued by the Association of
Investment Companies ("AIC") in January 2009. All the Company's activities are
continuing. The accounts are prepared on the going concern basis.
Investments
Financial assets are designated by the Company as at fair value through profit
or loss. Purchases and sales of financial assets are recognised on the trade
date, which is when the Company commits to purchase or sell the assets.
After initial recognition, the Company measures financial assets designated as
at fair value through profit or loss, at fair values without any deduction for
transaction costs it may incur on their disposal. The fair value of quoted
financial assets is their last traded price at the balance sheet date, unless
liquidity constraints or other factors require a Directors' valuation, as
described below.
Unlisted investments are valued by the Directors as follows:
● Where possible, unlisted equity investments are included at fair value based
on the last arm's length transaction that has taken place in the security held
by the Company. This price is reviewed by the Directors at year end to ensure
that there has not been a significant alteration in the market or stock
specific conditions since the transaction date that would make the use of the
transaction price insufficiently recent. Third party valuations may be
commissioned where the Board believes it to be appropriate.
● Unlisted convertible debentures investments and unlisted convertible
preferred stock of companies with a quoted common stock are valued by reference
to the fair value of the underlying equity of the investments only if
conversion terms are satisfied. When the conditions are satisfied, the closing
last traded price of the common stock is used to value the position.
● For ordinary unlisted debentures, an estimate of the fair value is derived
based on a discounted cashflow analysis. In performing the analysis, the
Directors estimate the cashflows they expect to arise from holding the
investment. The Directors also estimate an appropriate discount factor to apply
to the investment. The Directors then estimate the fair value of the investment
based on the expected cashflows and the discount factor they have identified.
● Unlisted warrant investments are valued at fair value using the Black Scholes
methodology which includes a time value which is calculated and added to the
intrinsic value to arrive at a total valuation for each warrant. The Black
Scholes pricing formula requires five inputs: (i) stock price, (ii) exercise
price, (iii) time to expiration, (iv) volatility and (v) interest rates. The
stock price, exercise price and time to maturity are straightforward inputs.
The interest rate is a risk-free rate represented by the yield on a US Treasury
security for a term that corresponds to the time to expiration of the subject
warrant.
The application of the Black Scholes methodology requires certain assumptions
to be made around the volatility of the underlying shares to which the warrants
subscribe. The Directors have agreed that the Company use the 100 day
volatility measure of the Russell 2000 Index to give the best reflection of
fair value.
The intrinsic value is calculated by reference to the quoted price of the
investment into which the warrant will convert and the conversion price for
each warrant.
Investment transactions are recognised on the date that they are traded.
Realised gains and losses arising from the sale of investments, and gains and
losses arising from changes in the fair value of financial assets held at fair
value through profit or loss, are included in the Income statement in the
period in which they arise. Gains and losses arising from changes in the fair
value of financial assets classified as at fair value through profit or loss
include interest income.
Gains and losses arising from changes in the fair value of financial assets are
considered to be realised to the extent that they are readily convertible to
cash, without accepting adverse terms, at the balance sheet date. Fair value
gains on unlisted investments are not considered to be readily convertible to
cash and therefore treated as unrealised. The treatment of listed investments
is dependent upon the individual circumstances of each holding.
There is a degree of uncertainty in determining the fair values ascribed to the
unlisted investments held by the Company and the Directors have used their
judgement in determining the most appropriate methodology and valuation for
each unlisted investment. These estimates may differ significantly to the
values that might have been used if an active market existed.
Where investments in a company have been valued at nil, the loss has been
charged to the capital reserve. Other than as stated above, any unrealised
profits and losses are taken directly to the capital reserve. Any realised
profits and losses arising on the disposal of investments are also taken
directly to the capital reserve.
Income recognition
Dividends receivable on quoted shares are included in the accounts when the
investments concerned are quoted `ex-dividend'.
Dividends receivable on such shares where no ex-dividend date is quoted are
brought into account when the Company's right to receive payment is
established. The fixed return on a debt security is recognised on a time
apportionment basis so as to reflect the effective yield on the debt security.
Interest receivable is included on an accruals basis.
The ordinary element of stocks received in lieu of dividends is recognised as
income of the Company. Any enhancement above the equivalent value of the cash
dividend that would have been receivable is treated as a capital gain on the
associated investment.
Management expenses and finance costs
Management expenses and finance costs are allocated in full to the revenue
account. The investment management performance fee, which is based on capital
performance, is charged to capital (see Note 3).
Foreign currency
Transactions denominated in foreign currencies are converted to Sterling at the
actual exchange rate as at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the year end are reported at
the rate of exchange at the balance sheet date. Any gain or loss arising from a
change in exchange rate subsequent to the date of the transaction is included
as an exchange gain or loss in the capital reserve or the revenue account
depending on whether the gain or loss is of a capital or revenue nature.
Taxation
No taxation liability arises on gains from sales of fixed asset investments
made by the Company by reason of its investment trust status. However, the net
revenue (excluding UK dividend income and overseas dividend income from 1 July
2009) accruing to the Company is liable to corporation tax at the prevailing
rates.
The payment of taxation is deferred or accelerated because of timing
differences between the treatment of certain items for accounting and taxation
purposes. Full provision for deferred taxation is made under the liability
method, without discounting, on all timing differences that have arisen but not
reversed by the balance sheet date, unless such provision is not permitted by
FRS 19: Deferred Tax.
Capital reserve
The following are accounted for in this reserve:
- gains and losses on the realisation of investments*;
- changes in fair value of investments held which are readily convertible to
cash, without accepting adverse terms*;
- realised exchange differences of a capital nature*;
- other capital charges and credits charged or credited to this account in
accordance with the above policies*;
- changes in fair value investments held which are not readily convertible to
cash, without accepting adverse terms;
- unrealised exchange differences of a capital nature.
* Items classified as distributable to shareholders for the purpose of
purchasing the Company's own shares for cancellation.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business, being investment business. The Company invests primarily
in companies listed, quoted or domiciled in the US and Canada. Geographical
analysis of the portfolio is shown above.
2 INCOME
2013 2012
£'000 £'000
Income from US investments
Convertible debenture stocks - unlisted 161 139
Convertible preference shares - unlisted - -
Equity shares - listed 63 -
224 139
Other income
Bank interest receivable 7 4
Interest on VAT refund - 8
Total income 231 151
Total income comprises:
Dividends from financial assets designated at fair value
through profit or loss 63 -
Interest from financial assets designated at fair value
through profit or loss 161 139
Deposit interest from financial assets not at fair value
through profit or loss 7 12
231 151
3 INVESTMENT MANAGEMENT FEE
2013 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management
fee 746 - 746 720 - 720
Investment management
performance fee - - - - 889 889
Adjustment to prior year
performance fee - (175) (175) - - -
Investment management services are provided by RENN Capital Group, Inc., whose
fees were calculated at 0.125% per calendar month of the total net assets of
the Company as adjusted for any uninvested cash or `near cash' investments. As
at 31 March 2013, the Company held no investments in US Treasury Bills (2012:
nil) and cash at bank of £4,181,000 (2012: £751,000).
Pursuant to the Side Letter to the Investment Management Agreement dated
19 March 2013 and following the approval of the shareholders at the General
Meeting held on 17 April 2013, the Manager will be paid a fixed monthly fee of
$90,000.
The Manager is also entitled to a performance fee in accordance with the
provisions of the management agreement, the calculation of which is described
in the Report of the Directors. No performance fee is due in respect of the
year ended 31 March 2013 (2012: £889,000).
Prior to the payment of the performance fee of £889,000 for the year to
31 March 2012, a further review of the fee was performed and it was identified
that the incorrect benchmark index had been used in the calculation process.
This oversight is applicable to the financial year ended 31 March 2012 only.
The recalculation of the performance fee resulted in it being revised to
£714,000, a reduction of £175,000. This adjustment is reflected within the
Income Statement.
The fee of £714,000 was paid to the Manager on 3 August 2012.
The Board and Manager had agreed that part of the 31 March 2012 performance fee
that related to the revaluation of AnchorFree would be subject to a claw-back
should the share price of that company decline over the year to 31 March 2013.
The share price did not decline and the possibility of a claw-back has now
lapsed.
4 OTHER EXPENSES
2013 2012
£'000 £'000
Secretarial services 80 77
Auditor's remuneration 37 39
Directors' remuneration 117 117
Other expenses 232 211
Provision for bad debt/income written off 155 797
621 1,241
Total fees paid to the auditors for the year, all of
which were charged to revenue, comprised:
Audit services - statutory audit - current year 32 34
Tax services - compliance services 5 5
37 39
The Directors do not consider that the provision of non-audit work to the
Company affects the independence of the Auditor.
5 TAXATION ON ORDINARY ACTIVITIES
2013 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(a) Analysis of charge in
year:
Based on net return for
the year
Overseas tax suffered 9 - 9 - - -
(b) Factors affecting the current tax charge:
The tax assessed on the net return for the year is different to the standard
rate of corporation tax of 24% (2012: 26%). The differences are reconciled
below:
2013 2012
£'000 £'000
Return on ordinary activities before tax (1,852) 3,059
Theoretical tax at UK corporation tax rate of 24% (2012: 26%) (445) 795
Effects of:
Losses/(gains) on investments and exchange gains on capital
items 172 (1,497)
Expenses not deductible for tax purposes - 13
Foreign dividends that are not taxable (15) -
Irrecoverable overseas tax 9 -
Excess management expenses for tax purposes 288 689
Total current tax charge 9 -
The Company is subject to corporation tax at 24% (2012: 26%). However, the
available tax deductible expenses (including substantial brought forward
amounts) exceed the taxable income of the Company and, as a result, there is no
UK tax charge (2012: £nil), other than withholding tax suffered on foreign
dividends receipts.
At 31 March 2013, the Company had unrelieved losses for tax purposes of
£15,431,000 (2012: £14,233,000) which have not been recognised as a deferred tax
asset. This is because the Company is not expected to generate taxable income
in future periods in excess of the deductible expenses of those future periods
and, accordingly, it is unlikely that the Company will be able to reduce future
tax liabilities through the use of existing surplus expenses.
The Company carries out its activities as an investment trust and the intention
is to continue meeting the conditions required to obtain approval in the
foreseeable future. Therefore, the Company has not provided deferred tax on any
capital gains and losses arising on the revaluation or disposal of investments.
6 RETURN PER ORDINARY SHARE
2013 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Basic (6.47) (4.04) (10.51) (9.87) 26.54 16.67
Revenue return per Ordinary share is based on the net return on ordinary
activities after taxation of £(1,145,000) (2012: £(1,811,000)) and on
17,703,174 (2012: 18,348,241) Ordinary shares, being the average number of
Ordinary shares in issue during the year.
Capital return per Ordinary share is based on a net capital return for the year
of £(716,000) (2012: gain £4,870,000), and on 17,703,174 (2012: 18,348,241)
Ordinary shares, being the average number of Ordinary shares in issue during
the year.
7 INVESTMENTS
2013 2012
£'000 £'000
a) Investment portfolio summary
Listed investments
- Equities 31,300 36,560
- Warrants 4 5
Unlisted investments
- Equities - -
- Convertible debenture stocks 594 571
- Loan notes 753 -
- Convertible preference shares 20,003 23,455
- Warrants 750 297
53,404 60,888
Listed equities make up 59% (2012: 60%) of the total portfolio and 55% (2012:
61%) of the net assets.
For the purpose of the investment policy section concerning the exposure to
unlisted securities not being expected to exceed 25% the Manager excludes
Convertible debenture stocks and Warrants as these investments are readily
convertible into listed equity.
The Manager has procedures in place to ensure this exposure does not exceed 25%
for any prolonged period, although the Manager's ability to bring the
percentage down will depend on a number of circumstances many of which are
beyond its control.
2013
Listed Unlisted Total
£'000 £'000 £'000
b) Analysis of investment portfolio movements
Opening book cost 32,901 8,555 41,456
Opening investment holding gains 3,664 15,768 19,432
Opening valuation 36,565 24,323 60,888
Movements in the year:
Purchases at cost 6,271 1,034 7,305
Sales
- Proceeds (10,540) (3,336) (13,876)
- Realised gains on sales 4,370 3,166 7,536
- Realised losses on write-offs (2,266) (2,584) (4,850)
Decrease in investment holding gains (3,096) (503) 3,599)
Closing valuation 31,304 22,100 53,404
Closing book cost 30,736 6,835 37,571
Closing investment holding gains 568 15,265 15,833
31,304 22,100 53,404
During the year, the Company incurred transaction costs of £33,000 (2012:
£19,000) on purchases of investments and £64,000 (2012: £48,000) on sales of
investments. These are included within losses on investments in the Income
statement.
2013 2012
c) Analysis of capital gains and losses £'000 £'000
Net (losses)/gains on investments designated at fair
value through profit or loss on initial recognition
Net realised gains on sales/ write-offs 2,686 1,857
(Decrease)/increase in investment holding gains (3,599) 3,761
(913) 5,618
Exchange gains on capital items 22 141
d) Fair value gains and losses
With effect from 1 April 2008, changes in fair value of investments which are
readily convertible to cash, without accepting adverse terms, at the balance
sheet date are considered to be realised. Fair value gains on unlisted
investments are not treated as readily convertible to cash, whereas the
treatment of fair value gains on listed investments depends on the individual
circumstances of each investment.
During the year, the Company's investment in AnchorFree was partially sold,
raising $5,274,000 (£3,336,000) in cash, realising gains of £3,166,000. The
valuation remains unchanged from last year at $6.19 per share.
The Company has also invested $1,637,000 (£1,034,000) into Plures Technologies
2% Promissory Notes.
The Company's investments in AuraSound, Dynamic Green Energy, Healthzone and
Murdoch Security & Investigations were written off during the year, realising
losses of £1,019,000, £1,963,000, £1,247,000 and £621,000, respectively. Other
than those stated, there were no other material changes to unlisted
investments.
e) Unlisted securities
Details of material investments in unlisted securities are as follows:
Carrying Carrying Net Latest Profit/
value at value at income accounts Aggregate (loss)
Total 31 March 31 March from for year capital and after tax
Investment cost 2013 2012 investment end reserves for year
£'000 £'000 £'000 £'000 US$ US$
AnchorFree
Convertible
preference 1,117 18,185 20,584 - 31/03/2012 n/a† n/a†
Douyan Printing
Warrants - - - - 31/03/2010 195,461,020 25,559,930
Hemobiotech
Warrants - - - - 31/12/2009 (618,000) (2,339,000)
iSatori
Convertible
preference 45 2 1 - 31/12/2012 3,295,676 (1,029,901)
Warrants - - - - 31/12/2012 3,295,676 (1,029,901)
PetroHunter
Energy
Convertible
debenture 1,026 201 197 155* 30/06/2012 (74,008,630) (1,674,303)
Warrants - - - - 30/06/2012 (74,008,630) (1,674,303)
Pipeline Data
Convertible
debenture 825 393 374 - 31/03/2009 (11,268,680) (36,498,630)
Plures
Technologies
Loan notes 1,034 753 - 6 31/12/2012 (307,511) (4,301,205)
Convertible
preference 2,788 1,816 2,870 - 31/12/2012 (307,511) (4,301,205)
Warrants - 750 - - 31/12/2012 (307,511) (4,301,205)
Sinohub
Warrants - - - - 31/03/2012 85,425,000 913,000
† Private company - Information not available to the public domain.
* against which a 100% provision has been taken.
f) Significant interests
The following are investments in which the Company has an interest exceeding
20% of the nominal value of that class in the investee company.
Investment Country of Class of capital % of class
registration held
Plures Technologies US Convertible Preferred 81.8
Series B Convertible
AnchorFree US Preferred 40.2
PetroHunter Energy US 8.5% Convertible Debenture 30.2
Cover-All Technologies US Common stock 29.3
iSatori US Common stock 21.0
The Company holds more than 20% of the common stock of Cover-All Technologies.
The investment in this company is not held on a long-term basis and although it
is greater than 20%, the value to the Company is the marketable value, as a
part of the overall investment portfolio. Accordingly, it has not been
accounted for as an associate company.
In addition to the above, the Company has a holding of 3% or more that is
material in the context of the accounts in the following investments:
Investment Country of Class of capital % of class
registration held
Hemobiotech US Common stock 13.0
Plures Technologies US Common stock 9.4
Series A Convertible 7%
AnchorFree US Preferred 9.1
Bovie Medical Corporation US Common stock 9.0
Global Axcess US Common stock 8.9
Skystar
Bio-Pharmaceutical US Common stock 7.7
SinoHub US Common stock 7.4
iSatori US Convertible 9% Preferred 4.2
Pipeline Data US 8% Convertible Debenture 4.0
A full listing of the investment portfolio is provided above.
8 DEBTORS - amounts falling due within one year
2013 2012
£'000 £'000
Accrued income 450 288
Prepayments and other debtors 23 24
473 312
The carrying amount for prepayments, accrued income and dividends receivable
disclosed above reasonably approximates to its fair value at the year end and
is expected to be realised within a year from the balance sheet date.
9 CREDITORS - amounts falling due within one year
2013 2012
£'000 £'000
Accruals 363 1,229
Due to purchases of investments - 11
363 1,240
At 31 March 2013, £14,000 was due for payment to the Company Secretary (2012:
£6,000).
At 31 March 2013, £193,000 was due for payment to the Manager (2012: £186,000)
in respect of investment management fees and £nil (2012: £889,000) in respect
of the performance fee.
The carrying amount for accruals and deferred income disclosed above reasonably
approximates to its fair value at the year end and is expected to be realised
within a year from the balance sheet date.
10 PROVISION FOR LIABILITIES AND CHARGES
2013 2012
£'000 £'000
Provision for bad debt 443 288
443 288
A provision has been made for 100% (2012: 100%) of the Company's debtor of
PetroHunter 8.5% convertible debenture interest, on the grounds of uncertainty
that full payment will be received.
11 CALLED UP SHARE CAPITAL
2013 2012
£'000 £'000
Allotted, called up and fully paid:
17,437,979 (2012: 18,024,593) Ordinary shares of 25p 4,359 4,506
each
During the year, the Company repurchased a total of 586,614 Ordinary shares,
for cancellation, at an average cost of £2.23 per share and a total
consideration of £1,313,000 (including stamp duty and commission).
The Company does not have any externally imposed capital requirements.
The capital of the Company is managed in accordance with its investment policy
in pursuit of its investment objective.
12 RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION TO NET CASH
OUTFLOW FROM OPERATING ACTIVITIES
2013 2012
£'000 £'000
Net return before finance costs and taxation (1,852) 3,060
Net capital return 716 (4,870)
Increase in provision for bad debts 155 210
Decrease in creditors and accruals (691) (10)
(Increase)/decrease in prepayments and accrued income (161) 464
(1,833) (1,146)
13 RECONCILIATION OF NET CASH FLOW TO NET FUNDS
2013 2012
£'000 £'000
Increase/(decrease) in cash in the year 3,413 (876)
Effect of exchange rate movements 17 64
Movement in net funds 3,430 (812)
Net funds at beginning of year 751 1,563
Net funds at end of year 4,181 751
Net funds are comprised as follows:
2013 2012
£'000 £'000
Cash at bank 4,181 751
Net funds at 31 March 4,181 751
14 NET ASSET VALUE PER ORDINARY SHARE
The basic net asset value per Ordinary share is based on net assets of
£57,252,000 (2012: £60,423,000) and on 17,437,979 (2012: 18,024,593) Ordinary
shares, being the number of shares in issue at the year end.
There are no dilutive elements or potentially dilutive elements in existence at
the year end (2012: none).
15 COMMITMENTS AND CONTINGENT LIABILITIES
At 31 March 2013, there were no outstanding commitments or contingent
liabilities (2012: none).
16 ANALYSIS OF FINANCIAL ASSETS AND LIABILITIES
As detailed on the first page of this report, the primary investment objective
of the Company is to conduct an orderly realisation of the assets of the
Company, to be effected in a manner that seeks to achieve a balance between
returning cash to shareholders promptly and maximising the value of the
Company's portfolio.
The Company's principal financial instruments comprise securities, warrants,
other investments, bank deposits and bank borrowings which are held to achieve
its investment objective and to manage the Company's funding and liquidity
requirements. The Company has other financial assets and liabilities such as
debtors and creditors that arise from its operations, for example sales and
purchases of securities awaiting settlement and debtors of accrued income.
The nature and extent of the financial instruments outstanding at the balance
sheet date and the risk management policies employed by the Company are
discussed below.
The principal risks the Company faces through the holding of financial
instruments are:
* market risk, comprising currency risk, interest rate risk and other price
risk; and
* liquidity/ marketability risk.
The Company does not enter into derivative contracts.
The Manager monitors the financial risks affecting the Company on a daily
basis. The Directors receive financial information on a monthly basis which is
used to identify and monitor risk.
As required by FRS 29: Financial Instruments: Disclosure, an analysis of
financial assets and liabilities, which identifies the risk to the Company of
holding such items, is given below.
Market risk
The Company's strategy on the management of investment risk is driven by the
Company's investment objective. The Manager monitors the financial risks
affecting the Company on a daily basis in accordance with the policies and
procedures in place. The Board manages the market price risks inherent in the
investment portfolio by ensuring full and timely access to relevant information
from the Investment Manager. The Board meets regularly and at each meeting
reviews the investment performance, the investment portfolio and the rationale
for the current investment positioning to ensure consistency with the Company's
objectives and investment policies. The portfolio does not seek to reproduce
the Russell 2000 Index. Investments are selected based upon the merits of
individual companies and therefore the portfolio may well diverge from the
short-term fluctuations of the benchmark.
Financial assets
All financial assets are stated in Sterling and disclosed at fair value through
profit or loss. Analysis of the Company's investment portfolio is given above.
Further details of warrants held are given below.
Intrinsic Time Total Expiry
value value value date
£'000 £'000 £'000
Duoyuan Printing - - - 30/06/2013
Hemobiotech - - - 09/07/2013
iSatori - - - 01/06/2014
PetroHunter Energy - - - 31/12/2014
Plastec Technologies - - 4* 18/11/2014
Plures Technologies 749 1 750 24/05/2017
SinoHub - - - 10/09/2013
Value at 31 March 2013 749 1 754
As discussed in the accounting policies of the Company in Note 1, unquoted
warrants are valued at fair value using the Black Scholes methodology, which
includes a time value which is calculated and added to the intrinsic value to
arrive at the total valuation for each warrant.
The method of valuing the fixed asset investments is discussed in the
accounting policies of the Company in Note 1.
* The fair value attributable to Plastec Technologies warrants is the quoted
market price and therefore there is no need to use the Black Scholes
methodology.
Foreign currency risk
Due to the Company's holdings being wholly overseas, the Company is also
exposed to the risk of movement in the Sterling/ Dollar exchange rate. The
Company does not, nor does it intend to, hedge the portfolio against any
movement in the exchange rate.
The Manager monitors the exposure to foreign currencies on a daily basis and
reports to the Directors on a regular basis. The Manager measures the risk to
the Company of the foreign currency exposure by considering the effect on the
Company's net asset value and income of a movement in the rates of exchange to
which the Company's assets, liabilities, income and expenses are exposed.
The Company settles its investment transactions from its bank accounts in US
Dollars. In the year ended 31 March 2013, exchange gains of £22,000 (2012:
gains of £141,000) relating to currency, have been taken to the capital
reserve.
The primary currency risk is between Sterling and US Dollar. The fund also
invests in US listed companies with operations in China and therefore has
exposure to the Renminbi. This exposure to the Renminbi is an indirect exposure
through holding US listed investments.
The Directors consider currency risk, but have stated in their investment
objective that it is not their intention to hedge currency risk between the US
Dollar and Sterling.
The Manager's risk assessment policy is reflected in its investment strategy.
In order to protect against inflation and grow capital the fund invests in
small companies that it believes will grow into larger companies, with the
intention of increasing the value of the investment.
The currency profile of the Company's financial assets at 31 March was as
follows:
Other
Investment current Financial Financial
As at 31 March 2013 portfolio Cash assets assets liabilities
£'000 £'000 £'000 £'000 £'000
Sterling - 117 23 140 145
US Dollar 49,208 4,064 450 53,722 661
Canada Dollar 4,196 - - 4,196 -
53,404 4,181 473 58,058 806
Other
Investment current Financial Financial
As at 31 March 2012 portfolio Cash assets assets liabilities
£'000 £'000 £'000 £'000 £'000
Sterling - 260 24 284 135
US Dollar 58,688 491 288 59,467 1,393
Canada Dollar 2,200 - - 2,200 -
60,888 751 312 61,951 1,528
The Company has a total exposure as a percentage of net assets to US Dollar of
93% (2012: 96%) and Canadian Dollar of 7% (2012: 4%).
Sensitivity analysis
At 31 March 2013, had Sterling strengthened by 10% in relation to the US
Dollar, with all other variables held constant, the net assets attributable to
shareholders and the return for the year would have decreased by £4,824,000
(2012: £5,279,000). A 10% weakening of Sterling against the US Dollar would
have resulted in an equal but opposite effect.
Interest rate risk
The Company's portfolio is partially invested in interest bearing securities of
various types (as set out below). At the time of investing, interest rates are
fixed and as long as the security concerned remains unimpaired, cash flows will
not be affected by movements in long-term interest rates. The Company also
holds cash in the short term, which it invests in money market accounts. The
interest rate received on these holdings is based on short-term interest rates.
The Company's interest rate risk is managed on a daily basis by the Investment
Manager in accordance with policies and procedures in place. The overall
interest rate risks are monitored on a regular basis by the Directors.
The cash held at Frost National Bank is invested in an institutional high
quality commercial paper fund with a very low maturity structure which subjects
the vehicle to reinvestment risk but immunises the fund from intermediate and
long-term interest rate risk.
The Directors consider interest rate risk as part of their overall assessment
of risk in the portfolio. The interest rate profile of the Company's fixed
interest financial assets at 31 March was as follows:
Weighted
Weighted average
average period for
interest which rates
Value Value rate are fixed
US$'000 £'000 % (years)
As at 31 March 2013
US unlisted convertible debentures 902 594 0.3 -
US unlisted loan notes 1,144 753 0.1 0.2
US unlisted convertible preference
shares 30,374 20,003 - -
As at 31 March 2012
US unlisted convertible debentures 912 571 0.3 -
US unlisted loan notes - - - -
US unlisted convertible preference
shares 37,475 23,455 - -
The maturity profile of assets held in the portfolio at 31 March was as
follows:
2013 2012
£'000 £'000
Within one year 393 374
Within one to two years 201 -
Within two to three years - 197
Within three to four years - -
Within four to five years 753 -
More than five years - -
1,347 571
Investments with no maturity dates 52,057 60,317
Net funds at end of year 53,404 60,888
The remaining current assets of the Company of £4,654,000 (2012: £1,063,000)
have no maturity date.
The Company finances its operations through equity, retained profits and bank
borrowings (see Note 10). The change in the fair value of financial liabilities
during the year was not related to the credit risk profile.
The interest rate risk profile of the Company's financial liabilities as at
31 March 2013 is as follows:
Period until
Total maturity
£'000 (years)
Financial liabilities upon which no interest is paid 363 -
The interest rate risk profile of the Company's financial liabilities as at
31 March 2012 was as follows:
Period
Amount until
drawn Total maturity
£'000 (years)
Financial liabilities upon which no interest
is paid - 1,240 -
The maturity profile of the company's financial liabilities is as follows:
As at As at
31 March 2013 31 March 2012
£'000 £'000
In one year or less 363 1,240
In more than one year but no more than two
years - -
In more than two years but no more than five
years - -
363 1,240
Sensitivity analysis
A change in interest rates would have some impact on the fair value of warrants
and debt instruments but the quantum of the impact is not easily measured.
Other price risk
Other price risk is the risk that the value of the instrument will fluctuate as
a result of changes in market prices (other than those arising from currency
risk or interest rate risk) and represents the potential loss the Company may
suffer in the light of adverse market price movements. Since the Company
invests in financial instruments, this risk is inherent. The Company will
always face uncertainty as to the future price of the financial instruments in
which it is invested. The price of certain unquoted stocks is also affected by
their relative illiquidity (see below).
The Board of Directors manage this risk by ensuring full and timely access to
relevant information from the Investment Manager. The Directors monitor
compliance with the Company's objectives and are directly responsible for
investment strategy and asset allocation.
The investment strategy of the fund is a "bottom-up" approach, meaning the fund
invests on the merits of each company rather than a "top-down" approach which
endeavours to have certain percentages of assets in given sectors.
See the Manager's review above for discussion of investments made during the
year. The method of valuing the investments is discussed in the accounting
policies above.
Sensitivity analysis
A 10% increase in the market value of investments at 31 March 2013 would have
increased net assets attributable to shareholders by £5,340,000 (2012: £
6,089,000). An equal change in the opposite direction would have decreased the
net assets attributable to shareholders by an equal but opposite amount.
Liquidity risk
The investments made by the Company are in smaller US companies. Although at
the year end, 55% of the portfolio (2012: 60%) is held in listed equity
securities (see Note 7), it should be recognised that the Company is exposed to
liquidity risk as many of the portfolio holdings are relatively illiquid. The
Manager could be unable to sell due to lack of trading volume. Any forced sales
are likely to generate significantly lower proceeds than the valuations in the
portfolio shown above.
Most investments, micro capitalisation and private placements in public equities
investing involve liquidity risk. Most often the lack of liquidity is a function
of the individual holding not meeting its business objectives. If a given company
becomes successful, liquidity typically increases, when individual holdings fail,
valuation and liquidity can decline to zero.
Credit risk
The carrying amounts of financial assets including cash balances best represent
the maximum credit risk exposure of the Company as at the balance sheet date.
The Company is exposed to credit risk by way of its debenture loan notes and
preference shares in the portfolio and any interest outstanding thereon, but
the Directors do not consider there to be a major risk of material default on
these items. They do recognise however, that from time to time, default might
occur.
The Company's investments are held on its behalf by the Company's custodian
Frost National Bank, acting as agent. Bankruptcy or insolvency of the custodian
may cause the Company's rights with respect to securities held by the custodian
to be delayed. The Board monitors the Company's risk by reviewing the
custodian's internal controls report.
The banks at which cash are held are kept under constant review.
Investment transactions are carried out with a large number of brokers whose
creditworthiness is reviewed by the Investment Manager. Transactions are
ordinarily undertaken on a delivery versus payment basis whereby the Company's
custodian bank ensures that the counterparty to any transaction entered into by
the Company has delivered on its obligations before any transfer of cash or
securities away from the Company is completed.
The Company has the benefit of being a closed-end fund where assets do not need
to be liquidated in order to meet redemptions.
The following table shows a breakdown of all financial assets susceptible to
credit risk:
2013 2012
£'000 £'000
US unlisted convertible debentures:
PetroHunter Energy 201 197
Pipeline Data 393 374
Total US unlisted convertible debentures 594 571
US unlisted loan notes:
Plures Technologies 753 -
Total US unlisted loan notes 753 -
US unlisted convertible preference shares:
AnchorFree 18,185 20,584
iSatori 2 1
Plures Technologies 1,816 2,870
Total US unlisted convertible preference shares 20,003 23,455
Debtors 473 312
Cash 4,181 751
26,004 25,089
Financial liabilities
The Company finances its operations primarily through equity and retained
profits, although trade creditors and accruals arise from its operations. At 31
March 2013, all financial liabilities are due within one year and are stated at
fair value.
Fair value hierarchy disclosures
The Company has adopted the amendment to FRS 29, effective 1 January 2009. This
requires the Company to classify fair value measurements using a fair value
hierarchy that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy consists of the following three levels:
* Level 1 - Quoted prices (unadjusted) in active markets for identical assets
or liabilities.
An active market is a market in which transactions for the asset or liability
occur with sufficient frequency and volume on an ongoing basis such that quoted
prices reflect prices at which an orderly transaction would take place between
market participants at the measurement date. Quoted prices provided by external
pricing services, brokers and vendors are included in Level 1, if they reflect
actual and regularly occurring market transactions on an arm's length basis.
* Level 2 - Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (that is, as prices)
or indirectly (that is, derived from prices).
Level 2 inputs include the following:
* quoted prices for similar (i.e., not identical) assets in active markets.
* quoted prices for identical or similar assets or liabilities in markets
that are not active. Characteristics of an inactive market include a
significant decline in the volume and level of trading activity, the
available prices vary significantly over time or among market participants
or the prices are not current.
* inputs other than quoted prices that are observable for the asset (for
example, interest rates and yield curves observable at commonly quoted
intervals).
* inputs that are derived principally from, or corroborated by, observable
market data by correlation or other means (market-corroborated inputs).
* Level 3 - Inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement in its entirety. For
this purpose, the significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses observable inputs
that require significant adjustment based on unobservable inputs, that
measurement is a Level 3 measurement. Assessing the significance of a
particular input to the fair value measurement in its entirety requires
judgement, considering factors specific to the asset or liability.
The determination of what constitutes `observable' requires significant
judgement by the Company. The Company considers observable data to be the price
of investments actively traded in organised financial markets, fair value is
generally determined by reference to Stock Exchange quoted market bid prices at
the close of business on the balance sheet date, without adjustment for
transaction costs necessary to realise the asset.
The table below sets out fair value measurements of financial assets in
accordance with the FRS 29 fair value hierarchy system:
Financial assets at fair value
through profit or loss at Total Level 1 Level 2 Level 3
31 March 2013 £'000 £'000 £'000 £'000
Equity investments 31,300 29,963 - 1,337
Convertible debenture shares 594 - - 594
Loan notes 753 - - 753
Convertible preference shares 20,003 2 - 20,001
Warrants 754 - 1 753
Total 53,404 29,965 1 23,438
Financial assets at fair value
through profit or loss at Total Level 1 Level 2 Level 3
31 March 2012 £'000 £'000 £'000 £'000
Equity investments 36,560 34,862 - 1,698
Convertible debenture shares 571 - - 571
Loan notes - - - -
Convertible preference shares 23,455 1 - 23,454
Warrants 302 - 297 5
Total 60,888 34,863 297 25,728
There are no other financial assets or liabilities other than those disclosed
above. Trade receivables consist purely of accrued income and prepayments and
trade payables consist purely of accruals and are not restated at fair value.
Cash is also not restated at fair value.
Investments whose values are based on quoted market prices in active markets,
and therefore classified within Level 1, include active listed equities. The
Company does not adjust the quoted price for these instruments.
Financial instruments that trade in markets that are not considered to be
active but are valued based on quoted market prices, dealer quotations or
alternative pricing sources supported by observable inputs are classified
within Level 2. As Level 2 investments include positions that are not traded in
active markets and/or are subject to transfer restrictions, valuations may be
adjusted to reflect illiquidity and/or non-transferability, which are generally
based on available market information.
Investments classified within Level 3 have significant unobservable inputs.
Level 3 instruments include private equity and corporate debt securities. As
observable prices are not available for these securities, the Company has used
valuation techniques to derive the fair value. In respect of unquoted
instruments, or where the market for a financial instrument is not active, fair
value is established by using recognised valuation methodologies, in accordance
with International Private Equity and Venture Capital ("IPEVC") Valuation
Guidelines. New investments are initially carried at cost, for a limited
period, being the price of the most recent investment in the investee. This is
in accordance with IPEVC Guidelines as the cost of recent investments will
generally provide a good indication of fair value. Fair value is the amount for
which an asset could be exchanged between knowledgeable, willing parties in an
arm's length transaction.
There were transfers from Level 3 to 1 amounting to £nil (2012: £1,659,000) for
the year ended 31 March 2013.
The following table presents the movement in Level 3 instruments for the period
ended 31 March 2013 and 31 March 2012:
At 31 March 2013
Company Convertible Convertible
Equity debenture Loan preference
Total investments shares notes shares Warrants
£'000 £'000 £'000 £'000 £'000 £'000
Opening balance 25,728 1,698 571 - 23,454 5
Purchases 1,352 318 - 1,034 - -
Sales - proceeds (3,336) - - - (3,336) -
Total gains/
(losses) for the
year included in
the Income
statement (306) (679) 23 (281) (117) 748
Closing balance 23,438 1,337 594 753 20,001 753
At 31 March 2012
Company Convertible Convertible
Equity debenture Loan preference
Total investments shares notes shares Warrants
£'000 £'000 £'000 £'000 £'000 £'000
Opening balance 17,579 3,629 1,285 2,495 10,145 25
Purchases 2,682 1,756 - 926 - -
Sales - proceeds (337) - (256) (81) - -
Transfers (1,659) (3,520) - (926) 2,787 -
Total gains/
(losses) for the
year included in
the Income
statement 7,463 (167) (458) (2,414) 10,522 (20)
Closing balance 25,728 1,698 571 - 23,454 5
The Directors are required under FRS 29 to provide further information on
holdings categorised as Level 3 in the table above to illustrate a range of
values for these positions which might be obtainable in certain circumstances.
The holdings categorised by the Directors as Level 3 are as follows:
AnchorFree Plastec Technologies
PetroHunter Energy Plures Technologies
Pipeline Data SGOCO Technology
The Directors show the holdings at what they believe to be fair value of £23.4 million.
There is clearly considerable uncertainty as to whether this valuation could be realised
in all market circumstances. Values realised on sale could be lower or higher than fair
value. The most significant inputs used to derive the various valuations are the
operational forecasts and the discount rate applied to future cash flows.
17 RELATED PARTY TRANSACTIONS
Mr Russell Cleveland, President and CEO of RENN Capital Group, Inc. is
considered a related party due to his directorship of AnchorFree, Inc.,
Cover-All Technologies, Inc., and iSatori, Inc. Details of the Company's
holdings in these investments are disclosed in the Manager's review and in the
Investment portfolio above. At the year end, accrued interest of £nil (2011:
£nil) was due from these holdings.
Of these directorships, Mr Cleveland received fees from Cover-All Technologies,
Inc. amounting to $22,000 and stock awards of $29,000 (2012: fees $22,000 and
stock awards $29,000). Mr Eric Stephens, Vice President of RENN Capital Group,
Inc., is considered a related party due to his directorship of Plures
Technologies, Inc. from which he received fees amounting to $500 and stock
awards of $56,343.
RENN Capital Group, Inc. pay RP&C International an amount equal to 0.5% of the
net asset value of the Company each year and 5% of any incentive fee received
from the Company. The fees are compensation for management and advisory
services rendered to RENN Capital Group, Inc.
18 POST BALANCE SHEET EVENTS
Since the year end, the Company has invested a further $2,122,000 in Plures
Technologies via the 2% Promissory Note.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held at the offices of the
Association of Investment Companies, 9th Floor, 24 Chiswell Street, London
EC1Y 4YY at 12.00 noon on Tuesday, 30 July 2013.
The notice of this meeting can be found in the Annual Report and Accounts at
www.renaissanceusgrowth.co.uk
National Storage Mechanism
A copy of the Annual Report and Accounts will be submitted shortly to the
National Storage Mechanism ("NSM") and will be available for inspection at the
NSM, which is situated at: http://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.