LONDON--(BUSINESS WIRE)--
INGENIOUS ENTERTAINMENT VCT 2 PLC (“the Company”)
STATEMENT OF ANNUAL RESULTS
For the year ended 31 December 2011
CHAIRMAN’S STATEMENT
I am delighted to present the Company’s fourth Annual Report and Accounts covering the year to 31 December 2011 (the Reporting Period).
Overview of Activities
The Company has now completed its investment strategy and is fully invested under the VCT regulations for both its Ordinary and C Share classes.
The Company continued to actively source and review investment opportunities during this Reporting Period for the C, D, E and F Share classes. In total the Company made three investments across the C, D, E and F Share classes during the Reporting Period. Details of all investments can be found in the Manager’s Review.
The highlight of the year was undoubtedly the Rewind Festival held in Henley-on-Thames in late August, which sold out its full capacity for the first time. The follow-on investment is Rewind North which took place at Scone Palace in Perth for the first time. The festival was also extremely well received and is no doubt set to repeat the commercial success of the original Henley festival.
A number of the Company’s other investments such as the London Electronic Dance Festival, Golf Live, the XOYO live venue and the Let’s Dance television format also made their mark in 2011 and all appear set to become key contributors to the success of the Company.
Fund Raising
In November 2011, the Ingenious Entertainment VCTs launched the G Share Offer for subscription. As at 21 March 2012, the Ingenious Entertainment VCTs received applications amounting to over £3 million of G Shares in respect of this Offer. No G Shares had been allotted as at 31 December 2011. The Ingenious Entertainment VCTs have now raised in excess of £54 million through their six share classes. The G Share Offer may remain open for subscription until 31 August 2012.
The E and F Share Offers were open for subscription until 29 July 2011. During the year under review, £2.8 million worth of E Shares and £1.6 million worth of F Shares were allotted in the Company under the E and F Share Offers respectively.
Results
The Ordinary Shares, C Shares, D Shares, E Shares and F Shares are accounted for as separate pools of funds necessitating separate reporting.
The Company’s losses arose mainly as a result of overheads exceeding any investment income received during the year. The Directors and the Manager believe that the commercial investment portfolio remains robust. The Company’s strategy of generating venture capital style returns from the ‘risk’ element of each investment should be realised in the longer term as the investments mature. This will be achieved by retaining a strong level of downside protection through contractual arrangements that guarantee cash backed minimum revenues to commercially protect at least 70% of each investment. The Directors and the Manager have taken a prudent approach in the valuation of investments with the view that it takes at least two to three years to build brand awareness. They remain positive about the future performance and the long term outlook of the Company.
The Ordinary Shares made a loss on ordinary activities of £144,000 (31 December 2010: loss of £105,000). The C Shares made a loss of £84,000 (31 December 2010: loss of £66,000). The D Shares made a loss of £128,000 (31 December 2010: loss of £163,000). The E Shares made a loss of £72,000 (31 December 2010: no E Shares allotted). The F Shares made a loss of £37,000 (31 December 2010: no F Shares allotted).
The net asset value per Ordinary Share at 31 December 2011 was 81.2 pence (31 December 2010: 87.6 pence) although this is after the deduction of the dividend of 5.0 pence per share in the Reporting Period and the deduction of a 5.0 pence per share dividend in the year to 31 December 2010. The net asset value as at 31 December 2011 including distributions was therefore 91.2 pence per Ordinary Share (31 December 2010: 92.6 pence).
The net asset value per C Share at 31 December 2011 was 76.4 pence (31 December 2010: 84.4 pence) although this is after the deduction of the dividend of 5.0 pence per share in the Reporting Period and the deduction of a 5.0 pence per share dividend in the year to 31 December 2010. The net asset value as at 31 December 2011 including distributions was therefore 86.4 pence per C Share (31 December 2010: 89.4 pence).
The net asset value per D Share at 31 December 2011 was 86.0 pence (31 December 2010: 92.9 pence) although this is after the deduction of the dividend of 5.0 pence per share in the Reporting Period (31 December 2010: Nil pence). The net asset value as at 31 December 2011 including distributions was therefore 91.0 pence per D Share (31 December 2010: 92.9 pence).
The net asset value per E Share at 31 December 2011 was 93.1 pence (31 December 2010: no E Shares allotted). No dividends have been paid to date.
The net asset value per F Share at 31 December 2011 was 93.3 pence (31 December 2010: no F Shares allotted). No dividends have been paid to date.
Outlook
Clearly the economic environment remains as challenging as it has been over the last few years. With the stock markets in a state of flux, I am delighted to report that the live sector remains robust in spite of the pressures that remain in terms of discretionary spend.
The current investment portfolio shows positive signs of delivering good upside across a number of its current investments.
Paul Gregg
Chairman
28 March 2012
MANAGER’S REVIEW
Investment Objective
The Company’s main objective is to invest in companies established to create and bring to market live events and premium entertainment content which will provide Shareholders with an attractive return. This strategy will aim to maximise the opportunities for making tax-free dividends to Shareholders from both the actual income received and capital profits on the sale of investments in Investee Companies or their assets.
Festivals
Rewind Festival & Rewind North (rebranded from 80s Rewind Festival & 80s Rewind North)
Entertainment VCT 2 Investment amount (Rewind Festival): £272,598
(£545,196 across the Ingenious Entertainment VCTs)
(£693,196 across the Ingenious Live VCTs)
Entertainment VCT 2 Investment amount (Rewind North): £500,000
(£1,000,000 across the Ingenious Entertainment VCTs)
In December 2008, the Company, alongside The Rival Organisation, co-promoted Rewind Festival, a two-day music festival in Henley-on-Thames. The 2010 festival which was held in August 2010 experienced an impressive increase in both attendance figures and, consequently, profitability with a total audience of over 35,000 across both days. Highlights included performances by Boy George and Tony Hadley.
The 2011 festival was held between 19 and 21 August 2011 and was a complete sell out (20,000 per day capacity). Highlights this year included Village People and The Human League and we are delighted that Rewind has very quickly established itself as the country’s leading celebration of 80s music.
The enormous success of Rewind in the South of England has given rise to the opportunity to create a second festival and in October 2010, the Entertainment VCTs made a fresh investment in order to co-promote Rewind North, which has taken place for the first time between 29 and 31 July 2011 at Scone Palace in Perthshire, Scotland. The festival had a star studded line up including The Human League and Tony Hadley among the twenty plus acts appearing across the weekend. Tickets for this event have sold in a similar manner to the pattern established by the Henley festival in its first year and we believe that this is a good opportunity to strengthen the Rewind brand within the UK.
London Electronic Dance (LED) Festival
Entertainment VCT 2 Investment amount: £500,000
(£1,000,000 across the Ingenious Entertainment VCTs)
In August 2010 the Ingenious Entertainment VCTs agreed to co-promote the LED Festival in partnership with AEG Live, Cream and Loudsound.
This year the festival hosted performances by some of the world’s top dance acts including Deadmau5, Calvin Harris, Zane Lowe and many more. The show attracted over 23,000 people and generated a profit in excess of £200,000 for the Investee Company. The promoters feel that the LED brand is now very well positioned and has quickly established itself as London’s leading electronic dance festival.
We, The People & Shakedown Festivals
Entertainment VCT 2 Investment amount: £750,000
(£1,500,000 across the Ingenious Entertainment VCTs)
In February 2011 the Ingenious Entertainment VCTs invested £1,500,000 in Venn Music Limited to stage and promote two new music festivals. These innovative festivals are managed by Venn director Matt Priest, who worked as an executive at Radio One for 10 years.
The first Venn festival, We, The People, took place in the centre of Bristol on 4 and 5 June 2011 and attracted nearly 15,000 attendees over the two days. The headliners included popular dance acts Chase and Status and a final farewell performance from The Streets as well as many other leading artists and local favourites.
Shakedown festival was held in September 2011 and saw over 10,000 people attend what was a very well received festival. We believe that Shakedown has every opportunity to become ‘Brighton’s festival’.
The Manager is confident that at least one of these festivals has the potential to establish itself a place in the festival calendar. Each festival has strong local partners and takes place in an area where there are currently very few direct competitors.
Love Supreme Jazz Festival
Entertainment VCT 2 Investment amount £1,000,000
(£2,000,000 across the Ingenious Entertainment VCTs)
In December 2011, the Entertainment VCTs teamed up with Jazz FM and Neapolitan Music to co-promote what will be the UK’s only camping Jazz festival, the Love Supreme Jazz Festival. The event is planned for July 2013.
Exhibitions
Golf Live
Entertainment VCT 2 Investment amount: £275,000
(£550,000 across the Ingenious Entertainment VCTs)
(£550,000 across the Ingenious Live VCTs)
Golf Live is a three day interactive golf event which was staged at The London Golf Club between 18 and 20 May 2011. IMG, manager to a large number of leading golfers, has also invested into the event. The long term aim is to roll the event out to further prestigious golf courses around the world and it has already attracted sponsorship partners of the quality of O2, Jaguar, Turkish Airlines and the European Golf Tour. The event represents a highly creative way of bringing the sports and exhibition markets closely together.
In 2011, Golf Live was hosted by the 2010 Ryder Cup captain, Colin Montgomerie, alongside many other stars from within the world of golf. The event was extremely well received by both the corporate partners as well as the paying public. Its audience satisfaction rating was the highest that Brand Events, our highly experienced co-promotion partners, had ever received for one of their events.
The partners were delighted with the financial performance of the event in its second year whereby it broke even. They feel very confident that Golf Live is poised to move into profitability during the 2012 event which is to be held on 18 to 20 May 2012 and will once again feature Colin Montgomerie, as well as Gary Player and an array of golfing talent still to be announced. The anticipated international roll-out of the brand is also likely to commence next year.
Titans of Cricket
Entertainment VCT 2 Investment amount: £1,000,000
(£2,000,000 across the Ingenious Entertainment VCTs)
In June 2011 an investment of £2,000,000 was made by the Ingenious Entertainment VCTs into This Is Cricket Limited to promote a new sports event, Titans of Cricket.
Titans of Cricket takes the best of Twenty20, the Indian Premier League and World Cup Cricket and combines them in a new show that demonstrates the skills of some of the world’s top cricketing stars both past and present including Freddie Flintoff and Sanath Jayasuriya. The first event took place at the O2 in London in October 2011 and attracted 8,000 fans. Although it made a loss, the Manager feels that the format is one that could well establish itself firmly in the cricket calendar in a similar way to that achieved by Golf Live in the world of golf.
Live Venues
XOYO
Entertainment VCT 2 Investment amount: £400,000
(£800,000 across the Ingenious Entertainment VCTs)
In March 2010, an investment of £800,000 was made with Assorted Works Limited to open a new live venue in Shoreditch, East London. XOYO is a 900 capacity live entertainment venue split over two floors. It programs, books and promotes an exciting range of live music, club nights, visual art and other creative media events. XOYO has a prime location in Shoreditch, the hub of London’s music, art and party scene. Recent events included performances by chart stars such as Miss Dynamite, Sophie Ellis Bextor & Emeli Sandé.
Since its opening in late 2010, the venue has had extremely positive cash flow and attendance figures. The shareholders are extremely pleased with the progress of the venue and plan to extend its daytime activities to allow the venue to act as a pop-up gallery space displaying a range of contemporary art. It is also hoped that the success of the first venue will lead to an extension of the XOYO brand in due course.
Jetstream Live Events
Entertainment VCT 2 Investment amount: £1,000,000
(£2,000,000 across the Ingenious Entertainment VCTs)
(£2,000,000 across the Ingenious Live VCTs)
In December 2010, the Ingenious Entertainment VCTs agreed with the directors of Apollo Resorts and Leisure Limited (the Apollo Group) to invest further funding into Jetstream Events Limited to co-promote potential new projects in similar ‘seaside’ opportunities to the Live VCTs’ co-promotion of the Scarborough Open Air Theatre. There are a number of potential ventures that are currently under discussion in venues such as Yarmouth, Blackpool, Brighton, as well as a variety of 2012 Olympics based opportunities.
Jongleurs Comedy Live
Entertainment VCT 2 Investment amount: £1,000,000
(£2,000,000 across the Ingenious Entertainment VCTs)
In October 2010 an investment of £2,000,000 was made by the Ingenious Entertainment VCTs into Jongleurs Comedy Live Limited to promote a variety of comedy events.
In June 2011 it was agreed that the partners had differing views as to the direction of the company and an agreement was entered into that will ultimately see the Ingenious Entertainment VCTs withdraw from the investment with the original capital fully returned to them.
Television Format and Distribution
Let’s Dance
Entertainment VCT 2 Investment amount: £500,000
(£1,000,000 across the Ingenious Entertainment VCTs)
(£1,000,000 across the Ingenious Live VCTs)
In January 2009, £2,000,000 was invested across both the Ingenious Live and Entertainment VCTs to back the television dance format Let’s Dance. This was the second co-investment between the Ingenious Live and Entertainment VCTs.
For the past three years BBC One has commissioned Whizz Kid Entertainment to produce this hugely popular celebrity-led series for both Comic Relief and Sports Relief. In 2011 the programme was aired to over 8.3 million viewers and enjoyed the prime time Saturday night slot on BBC One. Following the ratings success of the UK series, the Let’s Dance format has been sold and aired in a number of different countries including Germany, the Netherlands, Sweden, Russia, Slovakia and Indonesia.
The series has also been re-commissioned for a fourth UK series to be aired in 2012 and, as a result of this success, the international sales agents for both the US (William Morris) and the Rest of the World (Fremantle) are continuing to push forward with the international sale of the format. Our financial forecasts show that the format revenues already generated will at least cover the investment made and the Manager is hopeful that there will be some upside in the investment in future years.
Digital Rights Group
Entertainment VCT 2 Investment amount: £1,000,000
(£2,000,000 across the Ingenious Entertainment VCTs)
In June 2009, the Ingenious Entertainment VCTs agreed with independent television distributor Digital Rights Group Limited (DRG or DRG Group) to jointly acquire, market and distribute a series of television programmes.
DRG is the leading independent distributor of content in the UK with various brands in the DRG Group supporting all genres including drama, comedy, reality and other TV formats. DRG has worked on shows as diverse as The Inbetweeners, Kingdom starring Stephen Fry, the Martin Clunes drama Doc Martin, Australian series Sea Patrol, a wide variety of children’s programmes and factual documentaries. The investment has generated a small positive return for the Company.
SuperVision Media
Entertainment VCT 2 Investment amount: £1,000,000
(£2,000,000 across the Ingenious Entertainment VCTs)
In August 2010, an investment was made in SuperVision Media to co-promote and co-distribute alternative content. SuperVision Media is one of the leading owners and distributors of alternative content for cinemas around the globe in both the sport and entertainment fields. Their aim is to provide people with experiences that are the next best thing to being at the event whilst screening live, uninterrupted content, mainly in 3D format, accompanied by surround sound.
In July 2010 SuperVision Media distributed the Football World Cup in 3D and was also very involved in the screening of Wimbledon 2011 in cinemas both in the UK and internationally. The company has also secured the exclusive rights to screen Michael Flatley’s Lord of The Dance in 3D, which was screened in major cinema chains across the US, UK, and Europe in March 2011. In addition, the company also distributed theatrical content during the autumn of 2011 and has a strong pipeline of opportunities in place as it moves into 2012.
Supervision Media made a loss in its first period of trading under this agreement, but the Manager believes that digital content will begin to firmly establish itself in the theatrical marketplace over the course of the next three years.
Saturn Explosion
Entertainment VCT 2 Investment amount: £1,000,000
(£2,000,000 across Ingenious Entertainment VCTs)
In December 2010, the Ingenious Entertainment VCTs agreed with the directors of SuperVision Media to form a new company, Saturn Explosion Limited, to carry on the trade of the production, promotion and exploitation of alternative digital content (including, but not limited to, event based entertainment and sport content such as music concerts, festivals, theatrical productions and live sporting events) across a range of media including television and cinema.
The purpose of this funding was to acquire content that could be exploited across the various platforms but whereby any investment would be underpinned by minimum revenues through third party advances from distributors as well as potential payments by sponsorship partners wishing to be connected with the content.
The Manager has considered a number of potential investment opportunities over the last 12 months, but has yet to agree appropriate terms on any of these.
Contact
If you have any questions on this review or would like to speak with a member of the management team, please do not hesitate to contact us on 0207 319 4000.
Ingenious Ventures
28 March 2012
BUSINESS REVIEW
The purpose of this review is to provide Shareholders with a summary setting out the business objectives of the Company, the Board’s strategy to achieve those objectives, the risks faced, the regulatory environment and the key performance indicators (KPIs) used to measure performance.
1. Strategy for Achieving Objectives
Ingenious Entertainment VCT 2 plc is a tax efficient company listed on The London Stock Exchange.
The investment objective is to achieve a combination of a high degree of downside protection in an otherwise potentially high risk proposition and long-term capital growth, maximising distributions in order to take advantage of tax-free dividends.
The Board has delegated day-to-day investment management and administration of the Company to the Manager under the terms of a management agreement.
The Manager’s review provides a review of the investment portfolio and the market outlook.
2. Investment Policy
The Company’s investment policy is to focus on investing in companies established to create and bring to market live events and premium entertainment content. These investments should be Qualifying Investments for the purposes of the VCT legislation. Each Share class of each of the Ingenious Entertainment VCTs (the VCTs) represents a separate pool of capital and each such pool has its own separate performance record and dividend history.
For the Ordinary Shares, C Shares, D Shares and E Shares, the Manager intends to balance the risk profile by investing no more than 30% of the respective funds raised under the respective Offers in a blend of low risk money market open ended investment companies (OEICs) (which are Non-qualifying for the purposes of VCT legislation) and at least 70% of funds raised in VCT qualifying media content investments.
In respect of the F Shares, the Manager will deploy no more than 30% of the funds in a balanced multi-asset management portfolio (which is Non-qualifying for the purposes of VCT legislation) and at least 70% of funds raised in VCT qualifying media content investments.
In respect of the G Shares, the Manager will deploy no more than 30% of the funds in a blend of low risk money market funds (which are Non-qualifying for the purposes of VCT legislation) and at least 70% of funds raised in VCT qualifying media content investments.
The investment policy for VCT qualifying media content investments is the same for all share classes, and is based upon a rigorous selection process, together with a funding structure and minimum revenue contractual arrangements specifically designed to offer investors downside protection whilst preserving the considerable upside potential of the live events and entertainment content within the portfolio.
Asset Allocation
The Manager will focus on investing in companies producing live events or creating branded entertainment content with a view to achieving a broad allocation of the VCTs’ assets across the entertainment sector. Investments could include the production and promotion of a theatrical show or the launch of a music festival, the development and exploitation of new formats or the creation of online or mobile games. The Manager’s objective will be to identify projects in which the VCTs can participate in the revenues and in the capital value of the content once the market is established.
Ordinary Shares, C Shares and D Shares
The Directors believe that pending deployment into Qualifying Investments, funds should be deployed in a low risk, liquid investment, which also provides moderate returns to VCT Shareholders. The Manager intends to invest such capital raised in the Ordinary Share Offer, the C Share Offer and the D Share Offer and not deployed in Qualifying Investments in a number of low risk money market OEICs with a rating of at least AAAm (S&P) or Aaa/MR1+ (Moody’s) or, where the fund is not rated by these agencies, the average credit quality of the portfolio is not less than AA+ (S&P).
E Shares
Of the funds raised from the E Share Offer, at least 70% will be invested in Qualifying Investments (companies in the media and entertainment sector). The remaining 30% of the funds raised by the E Share Offer will be retained in a blend of low risk money market OEICs throughout the life of the VCT, creating a lower risk profile for the E Shares than for the F Shares.
F Shares
Of the funds raised from the F Share Offer, at least 70% will be invested in Qualifying Investments (companies in the media and entertainment sector). The remaining 30% of the funds raised by the F Share Offer will be retained in a balanced multi-asset management portfolio throughout the life of the VCT.
G Shares
Of the funds raised from the G Share Offer, at least 70% will be invested in Qualifying Investments (companies in the media and entertainment sector). The remaining 30% of the funds raised by the G Share Offer will be retained in a blend of low risk money market OEICs and other investments including, but not limited to, cash deposits, money market funds, fixed interest securities, secured loans, corporate bonds, and corporate bond funds throughout the life of the VCT.
Diversification
The Manager will seek to diversify the risk of Qualifying Investments through investment in media content and live events chosen from a broad spectrum of opportunities in the media and entertainment sector. However, the principal focus will be on the quality of the proposition, the experience of the production partner and the returns that can be generated. There is, therefore, no limitation on investments in any specific segment of the entertainment sector. There will, however, be restrictions on the size of investments (both Qualifying Investments and other investments) made by the VCTs as set out in the VCT Status and Maximum Exposures paragraph below.
Risk Mitigation
The following risk mitigation strategies will be utilised by the Investee Companies, and in common with industry practice:
- Each Investee Company will be required to put into place pre-sales or similar minimum revenue arrangements providing for the Investee Company to receive at least 70% of the VCTs’ investment (Base Revenues).
- Each Investee Company will engage the services of an experienced producer or promoter with a proven track record in bringing media projects to market and delivering the returns targeted by the VCTs.
- Each Investee Company will be required, where appropriate, to obtain relevant insurance policies in order to protect against normal industry risks. After completion of its first project, each Investee Company may seek to undertake further projects (with at least the same level of downside protection) from its existing cash-flows. However, Investee Companies will not be permitted to undertake further projects which could reduce the Base Revenues generated from its first project. Each Investee Company will be expected to realise the capital value of its rights and goodwill after five years. This investment policy should ensure a high degree of downside protection whilst preserving the considerable upside potential of the premium media content within the portfolio.
Funding Structure, Gearing and Contractual Arrangements
Each Qualifying Company in which the VCTs invests will have been formed for the purpose of engaging in the production and exploitation of premium media content or a live event.
In respect of the funds raised by the Company prior to 6 April 2011 under the Ordinary Share Offer, the C Share Offer, the D Share Offer, the E Share Offer and the F Share Offer, the VCTs’ policy has been to invest in Qualifying Companies by subscribing for a minimum of 30% of its investment in share capital and the remaining amount through loan stock instruments. However, changes introduced by the Finance Act (No. 3) 2010 mean that for funds raised on or after 6 April 2011 the VCT will instead invest a minimum of 70% of its investment in share capital and the remaining amount through loan stock instruments.
The VCTs will have a non-controlling interest in each Investee Company and other shareholders may include, amongst others, promoters, record labels, game developers and charities. It is expected that the initial capital provided by the VCTs will be sufficient to cover the Investee Company’s budgeted costs of creating and bringing to market the initial project.
The VCTs can invest, under current VCT legislation, up to £1 million each (and, therefore, £2 million in aggregate) per tax year in any one Investee Company and will always co-invest on equal terms pro rata to the capital in each VCT. This should have the advantage of enabling the VCTs to co-invest in larger projects than if one VCT was investing by itself. The VCTs will not borrow money in relation to their activities.
Liquidity
As was the case with each of the Ordinary Share Offer, the C Share Offer, the D Share Offer, the E Share Offer and the F Share Offer, each of the VCTs intends to create a G Share reserve which will enable it to make share buy-backs in the market, subject to liquidity restraints. The VCTs will operate a discount policy for repurchasing Shares, which will be determined by the Boards of the VCTs at their discretion.
The VCTs intend to return funds to Shareholders after five years if Shareholders so desire. In any event, the Articles of each of the VCTs currently contain a provision requiring the Directors to propose an ordinary resolution at the tenth AGM of the VCTs to continue the life of the VCTs. If any such resolution is not passed, the Directors will draw up proposals for the re-organisation, reconstruction or voluntary winding up of the VCTs for consideration of members at a general meeting on a date not more than nine months after such general meeting. Implementation of such proposals will require the approval of Shareholders by special resolution.
VCT Status and Maximum Exposures
In order to obtain venture capital trust status, the VCTs must be approved by HMRC. The conditions which must be satisfied to obtain and retain such status include the following restrictions on the maximum exposure of each VCT:
- no holding in a company will represent more than 15% by value of each VCT’s total investments; and
- each VCT is limited to investing up to £1 million per Investee Company in any one tax year or in any six month period straddling two tax years.
The limits stated in the policy above in relation to the percentage amount of the funds invested in Qualifying Investments and Non-qualifying Investments will need to be met within the three year VCT investment period in accordance with the VCT qualifying rules. The Boards of the VCTs do not intend to vary the VCTs’ investment policy, however, should a material change in the investment policy (including the conditions above) be deemed appropriate this will be completed with Shareholders’ approval and in accordance with the Listing Rules.
3. Principal Risks, Risk Management and Regulatory Environment
The Board believes that the principal risks faced by the Company are:
- Investment and strategic – the performance of an investment in an event is tied to a certain degree to the fortunes of the industry generally. In particular, there is a risk that the Company will not identify opportunities where the commercial success of the live event or created branded content is sufficient to earn revenues over and above the minimum contractual income negotiated.
- Loss of approved status as a Venture Capital Trust – the Company must comply with section 274 of the ITA which allows it to be exempted from capital gains tax on investment gains realised by Shareholders. Any breach of these rules may lead to the Company losing its approval as a VCT, qualifying Shareholders who have not held their shares for the designated holding period would have to repay the income tax relief they obtained and future dividends paid by the Company would become subject to tax. The Company would also lose its exemption from corporation tax on capital gains.
- Regulatory – the Company is required to comply with the Act, the rules of the UK Listing Authority and United Kingdom Accounting Standards. Breach of any of these regulatory rules might lead to suspension of the Company’s Stock Exchange listing, financial penalties or a qualified audit report.
- Financial – inadequate internal controls might lead to misappropriation of assets. Inappropriate accounting policies might lead to misreporting or breaches of regulations.
- External inherent risks - the Company’s investments will be in unquoted companies which by their nature involve a higher degree of risk than investment in the main market due to the fact there is no liquid market and may, therefore, be difficult to realise. Furthermore, there may be further constraints imposed on realisations because of the requirement to satisfy certain conditions necessary for the Company to maintain its VCT status (such as the obligation to have at least 70% by value of its investments in qualifying holdings by the beginning of the accounting period commencing three years after provisional VCT approval).
The Board seeks to mitigate the internal risks by setting clear policies, including establishing a funding structure which provides for minimum revenues equivalent to at least 70% of the investment, regular reviews of performance, monitoring progress and compliance. Details of the Company’s internal controls are contained in the Corporate Governance Report.
4. Key Performance Indicators (KPIs)
The primary key performance indicator on which the Board assesses the performance of the Manager in meeting the Company’s objective is the change in net asset value per share.
A review of the Company’s performance during the year, the position of the Company at the year end and the outlook for the coming year are contained within the Chairman’s Statement and the Manager’s Review.
INCOME STATEMENT
for the year ended 31 December 2011
|
Year ended 31 December 2011 |
Year ended 31 December 2010 |
|||||||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||||||||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||||
| Gain on disposal of investments | - | 91 | 91 | - | 211 | 211 | ||||||||
| Decrease in fair value of investments held | - | (282) | (282) | - | (244) | (244) | ||||||||
| Investment income | 2 | 297 | - | 297 | 208 | - | 208 | |||||||
| Arrangement fees | 3 | (49) | - | (49) | (74) | - | (74) | |||||||
| Investment management fees | 4 | (174) | (174) | (348) | (140) | (140) | (280) | |||||||
| Other expenses | 5 | (174) | - | (174) | (155) | - | (155) | |||||||
| Loss on ordinary activities before taxation | (100) | (365) | (465) | (161) | (173) | (334) | ||||||||
| Tax on ordinary activities | 6 | - | - | - | - | - | - | |||||||
| Loss attributable to equity shareholders | (100) | (365) | (465) | (161) | (173) | (334) | ||||||||
| Basic and diluted return per share (pence) | ||||||||||||||
| Ordinary Share | 7 | 1.2 | (2.6) | (1.4) | 0.3 | (1.3) | (1.0) | |||||||
| C Share | 7 | (1.0) | (2.0) | (3.0) | (1.8) | (0.5) | (2.3) | |||||||
| D Share | 7 | (1.3) | (0.6) | (1.9) | (3.0) | (0.4) | (3.4) | |||||||
| E Share | 7 | (3.1) | (0.3) | (3.4) | - | - | - | |||||||
| F Share | 7 | (3.3) | 0.2 | (3.1) | - | - | - | |||||||
The Company has no recognised gains and losses other than those disclosed above.
The total column is the Income Statement of the Company for the year. The supplementary capital and revenue columns are prepared following guidance published by the Association of Investment Companies (AIC).
All operations are considered to be continuing.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
for the year ended 31 December 2011
|
|
Year ended
31 December 2011 £'000 |
Year ended
31 December 2010 £'000 |
||
| Opening shareholders’ funds | 17,569 | 12,135 | ||
| Capital subscribed | 4,418 | 6,714 | ||
| Issue costs | (194) | (295) | ||
| Dividends | (988) | (651) | ||
| Loss for the year | (465) | (334) | ||
| Closing shareholders’ funds | 20,340 | 17,569 |
The accompanying notes form an integral part of these financial statements.
NON-STATUTORY ANALYSIS BETWEEN THE ORDINARY, C, D, E AND F SHARE FUNDS (UNAUDITED)
INCOME STATEMENT
for the year ended 31 December 2011
| Ordinary Shares | C Shares | |||||||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||
| Gain on disposal of investments | - | 55 | 55 | - | 16 | 16 | ||||||||
| Decrease in fair value of investments held | - | (245) | (245) | - | (53) | (53) | ||||||||
| Investment income | 257 | - | 257 | 24 | - | 24 | ||||||||
| Arrangement fees | - | - | - | - | - | - | ||||||||
| Investment management fees | (74) | (74) | (148) | (20) | (20) | (40) | ||||||||
| Other expenses | (63) | - | (63) | (31) | - | (31) | ||||||||
| Profit/(loss) on ordinary activities before taxation | 120 | (264) | (144) | (27) | (57) | (84) | ||||||||
| Tax on ordinary activities | - | - | - | - | - | - | ||||||||
| Profit/(loss) attributable to equity shareholders | 120 | (264) | (144) | (27) | (57) | (84) | ||||||||
| Basic and diluted return per share (pence) | 1.2 | (2.6) | (1.4) | (1.0) | (2.0) | (3.0) | ||||||||
The Company has no recognised gains and losses other than those disclosed above.
The total column is the Income Statement per Share class for the year. The supplementary capital and revenue columns are prepared following guidance published by the Association of Investment Companies (AIC).
| D Shares | E Shares | |||||||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||
| Gain on disposal of investments | - | 18 | 18 | - | 2 | 2 | ||||||||
| (Decrease)/increase in fair value of investments held | - | (3) | (3) | - | 8 | 8 | ||||||||
| Investment income | 16 | - | 16 | - | - | - | ||||||||
| Arrangement fees | - | - | - | (32) | - | (32) | ||||||||
| Investment management fees | (54) | (54) | (108) | (17) | (17) | (34) | ||||||||
| Other expenses | (51) | - | (51) | (16) | - | (16) | ||||||||
| Loss on ordinary activities before taxation | (89) | (39) | (128) | (65) | (7) | (72) | ||||||||
| Tax on ordinary activities | - | - | - | - | - | - | ||||||||
| Loss attributable to equity shareholders | (89) | (39) | (128) | (65) | (7) | (72) | ||||||||
| Basic and diluted return per share (pence) | (1.3) | (0.6) | (1.9) | (3.1) | (0.3) | (3.4) | ||||||||
The Company has no recognised gains and losses other than those disclosed above.
The total column is the Income Statement per Share class for the year. The supplementary capital and revenue columns are prepared following guidance published by the Association of Investment Companies (AIC).
| F Shares | ||||||
| Revenue | Capital | Total | ||||
| £'000 | £'000 | £'000 | ||||
| Gain on disposal of investments | - | - | - | |||
| Increase in fair value of investments held | - | 11 | 11 | |||
| Investment income | - | - | - | |||
| Arrangement fees | (17) | - | (17) | |||
| Investment management fees | (9) | (9) | (18) | |||
| Other expenses | (13) | - | (13) | |||
| (Loss)/profit on ordinary activities before taxation | (39) | 2 | (37) | |||
| Tax on ordinary activities | - | - | - | |||
| (Loss)/profit attributable to equity shareholders | (39) | 2 | (37) | |||
| Basic and diluted return per share (pence) | (3.3) | 0.2 | (3.1) | |||
The Company has no recognised gains and losses other than those disclosed above.
The total column is the Income Statement per Share class for the year. The supplementary capital and revenue columns are prepared following guidance published by the Association of Investment Companies (AIC).
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS’ FUNDS (UNAUDITED)
for the year ended 31 December 2011
| Ordinary Shares | C Shares | |||
| £'000 | £'000 | |||
| Opening shareholders’ funds | 8,940 | 2,373 | ||
| Capital subscribed | - | - | ||
| Issue costs | - | - | ||
| Dividends | (510) | (141) | ||
| Loss for the year | (144) | (84) | ||
| Closing shareholders’ funds | 8,286 | 2,148 | ||
| D Shares | E Shares | |||
| £'000 | £'000 | |||
| Opening shareholders’ funds | 6,256 | - | ||
| Capital subscribed | - | 2,846 | ||
| Issue costs | - | (125) | ||
| Dividends | (337) | - | ||
| Loss for the year | (128) | (72) | ||
| Closing shareholders’ funds | 5,791 | 2,649 | ||
| F Shares | ||||
| £'000 | ||||
| Opening shareholders’ funds | - | |||
| Capital subscribed | 1,572 | |||
| Issue costs | (69) | |||
| Dividends | - | |||
| Loss for the year | (37) | |||
| Closing shareholders’ funds | 1,466 | |||
NON-STATUTORY ANALYSIS BETWEEN THE ORDINARY, C, D, E AND F SHARE FUNDS (UNAUDITED)
INCOME STATEMENT
for the year ended 31 December 2010
| Ordinary Shares | C Shares | |||||||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||
| Gain on disposal of investments | - | 202 | 202 | - | 7 | 7 | ||||||||
| Decrease in fair value of investments held | - | (260) | (260) | - | (1) | (1) | ||||||||
| Investment income | 203 | - | 203 | 5 | - | 5 | ||||||||
| Arrangement fees | - | - | - | - | - | - | ||||||||
| Investment management fees | (81) | (81) | (162) | (22) | (22) | (44) | ||||||||
| Other expenses | (88) | - | (88) | (33) | - | (33) | ||||||||
| Profit/(loss) on ordinary activities before taxation | 34 | (139) | (105) | (50) | (16) | (66) | ||||||||
| Tax on ordinary activities | - | - | - | - | - | - | ||||||||
| Profit/(loss) attributable to equity shareholders | 34 | (139) | (105) | (50) | (16) | (66) | ||||||||
| Basic and diluted return per share (pence) | 0.3 | (1.3) | (1.0) | (1.8) | (0.5) | (2.3) | ||||||||
The Company has no recognised gains and losses other than those disclosed above.
The total column is the Income Statement per Share class for the year. The supplementary capital and revenue columns are prepared following guidance published by the Association of Investment Companies (AIC).
| D Shares | E Shares | |||||||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||
| Gain on disposal of investments | - | 2 | 2 | - | - | - | ||||||||
| Increase in fair value of investments held | - | 17 | 17 | - | - | - | ||||||||
| Investment income | - | - | - | - | - | - | ||||||||
| Arrangement fees | (74) | - | (74) | - | - | - | ||||||||
| Investment management fees | (37) | (37) | (74) | - | - | - | ||||||||
| Other expenses | (34) | - | (34) | - | - | - | ||||||||
| - | - | - | ||||||||||||
| - | - | - | ||||||||||||
| Loss on ordinary activities before taxation | (145) | (18) | (163) | - | - | - | ||||||||
| Tax on ordinary activities | - | - | - | - | - | - | ||||||||
| - | - | - | ||||||||||||
| - | - | - | ||||||||||||
| Loss attributable to equity shareholders | (145) | (18) | (163) | - | - | - | ||||||||
| - | - | - | ||||||||||||
| - | - | - | ||||||||||||
| Basic and diluted return per share (pence) | (3.0) | (0.4) | (3.4) | - | - | - | ||||||||
The Company has no recognised gains and losses other than those disclosed above.
The total column is the Income Statement per Share class for the year. The supplementary capital and revenue columns are prepared following guidance published by the Association of Investment Companies (AIC).
| F Shares | ||||||
| Revenue | Capital | Total | ||||
| £'000 | £'000 | £'000 | ||||
| Gain on disposal of investments | - | - | - | |||
| (Decrease)/increase in fair value of investments held | - | - | - | |||
| Investment income | - | - | - | |||
| Arrangement fees | - | - | - | |||
| Investment management fees | - | - | - | |||
| Other expenses | - | - | - | |||
| - | - | - | ||||
| - | - | - | ||||
| Profit/(loss) on ordinary activities before taxation | - | - | - | |||
| Tax on ordinary activities | - | - | - | |||
| - | - | - | ||||
| - | - | - | ||||
| Profit/(loss) attributable to equity shareholders | - | - | - | |||
| - | - | - | ||||
| - | - | - | ||||
| Basic and diluted return per share (pence) | - | - | - | |||
The Company has no recognised gains and losses other than those disclosed above.
The total column is the Income Statement per Share class for the year. The supplementary capital and revenue columns are prepared following guidance published by the Association of Investment Companies (AIC).
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS’ FUNDS (UNAUDITED)
for the year ended 31 December 2010
| Ordinary Shares | C Shares | |||
| £'000 | £'000 | |||
| Opening shareholders’ funds | 9,555 | 2,580 | ||
| Capital subscribed | - | - | ||
| Issue costs | - | - | ||
| Dividends | (510) | (141) | ||
| Loss for the year | (105) | (66) | ||
| Closing shareholders’ funds | 8,940 | 2,373 | ||
| D Shares | E Shares | |||
| £'000 | £'000 | |||
| Opening shareholders’ funds | - | - | ||
| Capital subscribed | 6,714 | - | ||
| Issue costs | (295) | - | ||
| Dividends | - | - | ||
| Loss for the year | (163) | - | ||
| Closing shareholders’ funds | 6,256 | - | ||
| F Shares | ||||
| £'000 | ||||
| Opening shareholders’ funds | - | |||
| Capital subscribed | - | |||
| Issue costs | - | |||
| Dividends | - | |||
| Loss for the year | - | |||
| Closing shareholders’ funds | - | |||
BALANCE SHEET
as at 31 December 2011
| 31 December 2011 | 31 December 2010 | |||||
| Note | £'000 | £'000 | ||||
| Fixed assets | ||||||
| Qualifying Investments | 8 | 10,309 | 7,670 | |||
| Current assets | ||||||
| Debtors | 10 | 80 | 81 | |||
| Non-qualifying Investments | 11 | 9,823 | 9,753 | |||
| Cash at bank and in hand | 181 | 149 | ||||
| 10,084 | 9,983 | |||||
| Creditors: amounts falling due within one year | 12 | (53) | (84) | |||
| Net current assets | 10,031 | 9,899 | ||||
| Net assets | 20,340 | 17,569 | ||||
| Capital and reserves | ||||||
| Called-up share capital | 13 | 242 | 198 | |||
| Share premium account | 14 | - | 6,351 | |||
| Other reserve account | 14 | 21,158 | 11,615 | |||
| Capital reserve | 14 | (353) | 12 | |||
| Revenue reserve | 14 | (707) | (607) | |||
|
|
||||||
| Shareholders’ funds | 20,340 | 17,569 | ||||
| Net asset value per Ordinary Share | 15 | 81.2 | 87.6 | |||
| Net asset value per C Share | 15 | 76.4 | 84.4 | |||
| Net asset value per D Share | 15 | 86.0 | 92.9 | |||
| Net asset value per E Share | 15 | 93.1 | - | |||
| Net asset value per F Share | 15 | 93.3 | - | |||
The accompanying notes form an integral part of these financial statements.
The financial statements were approved by the Board of Directors on 28 March 2012.
Signed on behalf of the Board of Directors:
Paul Gregg
Chairman
NON-STATUTORY ANALYSIS BETWEEN THE ORDINARY, C, D, E AND F SHARE FUNDS (UNAUDITED)
BALANCE SHEET
As at 31 December 2011
| Ordinary | C | D | E | F | ||||||
| Shares | Shares | Shares | Shares | Shares | ||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| Fixed assets | ||||||||||
| Qualifying Investments | 6,632 | 1,727 | 1,700 | 125 | 125 | |||||
| Current assets | ||||||||||
| Debtors | 80 | - | - | - | - | |||||
| Non-qualifying Investments | 1,588 | 374 | 4,090 | 2,478 | 1,293 | |||||
| Cash at bank and in hand | 21 | 51 | 8 | 51 | 50 | |||||
| 1,689 | 425 | 4,098 | 2,529 | 1,343 | ||||||
| Creditors: amounts falling due within one year | (35) | (4) | (7) | (5) | (2) | |||||
| Net current assets | 1,654 | 421 | 4,091 | 2,524 | 1,341 | |||||
| Net assets | 8,286 | 2,148 | 5,791 | 2,649 | 1,466 | |||||
| Capital and reserves | ||||||||||
| Called-up share capital | 102 | 28 | 68 | 28 | 16 | |||||
| Share premium account | - | - | - | - | - | |||||
| Other reserve account | 8,611 | 2,353 | 6,014 | 2,693 | 1,487 | |||||
| Capital reserve | (212) | (79) | (57) | (7) | 2 | |||||
| Revenue reserve | (215) | (154) | (234) | (65) | (39) | |||||
| Shareholders’ funds | 8,286 | 2,148 | 5,791 | 2,649 | 1,466 | |||||
| Net asset value excluding distributions to date (pence per share) | 81.2 | 76.4 | 86.0 | 93.1 | 93.3 | |||||
| Net asset value including distributions to date (pence per share) | 91.2 | 86.4 | 91.0 | 93.1 | 93.3 | |||||
NON-STATUTORY ANALYSIS BETWEEN THE ORDINARY, C, D, E AND F SHARE FUNDS (UNAUDITED)
BALANCE SHEET
As at 31 December 2010
| Ordinary | C | D | E | F | |||||||
| Shares | Shares | Shares | Shares | Shares | |||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | |||||||
| Fixed assets | |||||||||||
| Qualifying Investments | 6,698 | 972 | - | - | - | ||||||
| Current assets | |||||||||||
| Debtors | 59 | - | 22 | - | - | ||||||
| Non-qualifying Investments | 2,135 | 1,369 | 6,249 | - | - | ||||||
| Cash at bank and in hand | 73 | 35 | 41 | - | - | ||||||
| 2,267 | 1,404 | 6,312 | - | - | |||||||
| Creditors: amounts falling due within one year | (25) | (3) | (56) | - | - | ||||||
| Net current assets | 2,242 | 1,401 | 6,256 | - | - | ||||||
| Net assets | 8,940 | 2,373 | 6,256 | - | - | ||||||
| Capital and reserves | |||||||||||
| Called-up share capital | 102 | 28 | 68 | - | - | ||||||
| Share premium account | - | - | 6,351 | - | - | ||||||
| Other reserve account | 9,121 | 2,494 | - | - | - | ||||||
| Capital reserve | 52 | (22) | (18) | - | - | ||||||
| Revenue reserve | (335) | (127) | (145) | - | - | ||||||
| Shareholders’ funds | 8,940 | 2,373 | 6,256 | - | - | ||||||
| Net asset value excluding distributions to date (pence per share) | 87.6 | 84.4 | 92.9 | - | - | ||||||
| Net asset value including distributions to date (pence per share) | 92.6 | 89.4 | 92.9 | - | - | ||||||
The Company had no E Shares or F Shares in issue during the year ended 31 December 2010.
CASH FLOW STATEMENT
for the year ended 31 December 2011
| 31 December 2011 | 31 December 2010 | |||||
| Note | £'000 | £'000 | ||||
| Net cash outflow from operating activities | (477) | (290) | ||||
| Financial investment | ||||||
| Purchase of Qualifying Investments | 8 | (2,750) | (5,525) | |||
| Return of Qualifying Investments | 8 | 119 | - | |||
| Net cash outflow from financial investment | (2,631) | (5,525) | ||||
| Management of liquid resources | ||||||
| Purchase of Non-qualifying Investments | 11 | (6,999) | (9,661) | |||
| Disposal of Non-qualifying Investments | 11 | 6,903 | 9,788 | |||
| Net cash (outflow)/inflow from liquid resources | (96) | 127 | ||||
|
|
||||||
| Financing | ||||||
| Issue of Shares | 4,418 | 6,714 | ||||
| Issue costs of Shares | 14 | (194) | (295) | |||
| Net cash inflow from financing | 4,224 | 6,419 | ||||
| Dividends | ||||||
| Payment of dividends | 14 | (988) | (651) | |||
| Net cash outflow from dividends | (988) | (651) | ||||
| Increase in cash | 32 | 80 | ||||
Reconciliation of loss before taxation to net cash flow from operating activities
|
2011
£'000 |
2010
£'000 |
|||||||
| Loss on ordinary activities before taxation | (465) | (334) | ||||||
| Decrease in fair value of investments held | 282 | 244 | ||||||
| Investment income | (264) | (192) | ||||||
| Decrease/(increase) in receivables | 1 | (50) | ||||||
| (Decrease)/increase in payables | (31) | 42 | ||||||
| Net cash outflow from operating activities | (477) | (290) | ||||||
Reconciliation of net cash flow to movement in net funds
|
2011
£'000 |
2010
£'000 |
|||||||||
| Opening cash balances | 149 | 69 | ||||||||
| Net cash inflow | 32 | 80 | ||||||||
| Closing cash balances | 181 | 149 | ||||||||
Total net funds comprises cash of £181k (Ordinary Shares: £21k; C Shares: £51k, D Shares £8k, E Shares £51k and F Shares £50k) and Non-qualifying Investments of £9,823k (Ordinary Shares: £1,588k; C Shares: £374k, D Shares: £4,090k, E Shares: £2,478k and F Shares: £1,293k). The accompanying notes form an integral part of these financial statements.
NON-STATUTORY ANALYSIS BETWEEN THE ORDINARY, C, D, E AND F SHARE FUNDS (UNAUDITED)
CASH FLOW STATEMENT
for the year ended 31 December 2011
| Ordinary | C | D | E | F | ||||||
| Shares | Shares | Shares | Shares | Shares | ||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| Net cash outflow from operating activities | (140) | (48) | (168) | (75) | (46) | |||||
| Financial investment | ||||||||||
| Purchase of Qualifying Investments | - | (800) | (1,700) | (125) | (125) | |||||
| Return of Qualifying Investments | 97 | 22 | - | - | - | |||||
| Net cash inflow/(outflow) from financial investment | 97 | (778) | (1,700) | (125) | (125) | |||||
| Management of liquid resources | ||||||||||
| Purchase of Non-qualifying Investments | (1,583) | (372) | (551) | (2,846) | (1,647) | |||||
| Disposal of Non-qualifying Investments | 2,084 | 1,355 | 2,723 | 376 | 365 | |||||
| Net cash inflow/(outflow) from liquid resources | 501 | 983 | 2,172 | (2,470) | (1,282) | |||||
| Financing | ||||||||||
| Issue of Shares | - | - | - | 2,846 | 1,572 | |||||
| Issue costs of Shares | - | - | - | (125) | (69) | |||||
| Net cash inflow from financing | - | - | - | 2,721 | 1,503 | |||||
| Dividends | ||||||||||
| Payment of dividends | (510) | (141) | (337) | - | - | |||||
| Net cash outflow from dividends | (510) | (141) | (337) | - | - | |||||
| (Decrease)/increase in cash | (52) | 16 | (33) | 51 | 50 | |||||
Reconciliation of loss before taxation to net cash flow from operating activities
| £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| Loss on ordinary activities before taxation | (144) | (84) | (128) | (72) | (37) | |||||
| Decrease/(increase) in fair value of investments held | 245 | 53 | 3 | (8) | (11) | |||||
| Investment income | (230) | (18) | (16) | - | - | |||||
| (Increase)/decrease in receivables | (21) | - | 22 | - | - | |||||
| Increase/(decrease) in payables | 10 | 1 | (49) | 5 | 2 | |||||
| Net cash outflow from operating activities | (140) | (48) | (168) | (75) | (46) | |||||
Reconciliation of net cash flow to movement in net funds
| £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| Opening cash balances | 73 | 35 | 41 | - | - | |||||
| Net cash (outflow)/inflow | (52) | 16 | (33) | 51 | 50 | |||||
| Closing cash balances | 21 | 51 | 8 | 51 | 50 | |||||
NON-STATUTORY ANALYSIS BETWEEN THE ORDINARY, C, D, E AND F SHARE FUNDS (UNAUDITED)
CASH FLOW STATEMENT
for the year ended 31 December 2010
| Ordinary | C | D | E | F | ||||||
| Shares | Shares | Shares | Shares | Shares | ||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| Net cash outflow from operating activities | (76) | (68) | (146) | - | - | |||||
| Financial investment | ||||||||||
| Purchase of Qualifying Investments | (4,553) | (972) | - | - | - | |||||
| Return of Qualifying Investments | - | - | - | - | - | |||||
| Net cash outflow from financial investment | (4,553) | (972) | - | - | - | |||||
| Management of liquid resources | ||||||||||
| Purchase of Non-qualifying Investments | (1,762) | (564) | (7,335) | - | - | |||||
| Disposal of Non-qualifying Investments | 6,928 | 1,757 | 1,103 | - | - | |||||
| Net cash inflow/(outflow) from liquid resources | 5,166 | 1,193 | (6,232) | - | - | |||||
| Financing | ||||||||||
| Issue of Shares | - | - | 6,714 | - | - | |||||
| Issue costs of Shares | - | - | (295) | - | - | |||||
| - | ||||||||||
| Net cash inflow from financing | - | - | 6,419 | - | - | |||||
| Dividends | ||||||||||
| Payment of dividends | (510) | (141) | - | - | - | |||||
| Net cash outflow from dividends | (510) | (141) | - | - | - | |||||
| Increase in cash | 27 | 12 | 41 | - | - | |||||
Reconciliation of loss before taxation to net cash flow from operating activities
| £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| Loss on ordinary activities before taxation | (105) | (66) | (163) | - | - | |||||
| Decrease/(increase) in fair value of investments held | 260 | 1 | (17) | - | - | |||||
| Investment income | (187) | (5) | - | - | - | |||||
| (Increase)/decrease in receivables | (33) | 5 | (22) | - | - | |||||
| (Decrease)/increase in payables | (11) | (3) | 56 | - | - | |||||
| Net cash outflow from operating activities | (76) | (68) | (146) | - | - | |||||
Reconciliation of net cash flow to movement in net funds
| £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| Opening cash balances | 46 | 23 | - | - | - | |||||
| Net cash inflow | 27 | 12 | 41 | - | - | |||||
| Closing cash balances | 73 | 35 | 41 | - | - | |||||
The Company had no E Shares or F Shares in issue during the year ended 31 December 2010.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2011
1. Accounting Policies
a) Basis of Accounting
The financial statements for the Reporting Period have been prepared in compliance with UK Generally Accepted Accounting Practice, and with the Statement of Recommended Practice (the SORP) entitled “Financial Statements of Investment Trust Companies and Venture Capital Trusts” which was issued in January 2009.
The comparative figures are for the year 1 January 2010 to 31 December 2010.
The financial statements have been prepared on a going concern basis under the historical cost convention, except for the measurement at fair value for investments. The principal accounting policies have remained unchanged from those set out in the Company’s 2010 Annual Report and Accounts.
b) Valuation of Investments
The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. As set out in the Prospectus all investments are designated at fair value.
International Private Equity and Venture Capital Valuation Guidelines
Unquoted investments, including equity and loan investments, are designated at fair value and valued in accordance with the International Private Equity and Venture Capital Guidelines and Financial Reporting Standard 26 “Financial Instruments: Recognition and Measurement” (FRS 26). Investments are initially recognised at cost. The investments are subsequently re-measured at fair value, as estimated by the Directors with prudence and good faith. Investment holding gains or losses arising from the revaluation of investments are taken directly to the Income Statement. Fair value is determined as follows:
- Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.
- In estimating the fair value for an investment, the Manager will apply a methodology that is appropriate in light of the nature, facts and circumstances of the investment and its materiality in the context of the total investment portfolio and will use reasonable assumptions and estimations.
- An appropriate methodology incorporates available information about all factors that are likely to materially affect the fair value of the investment. The valuation methodologies are applied consistently from period to period, except where a change would result in a better estimate of fair value. Any changes in valuation methodologies will be clearly disclosed in the financial statements.
The most widely used methodologies are listed below. In assessing which methodology is appropriate, the Directors are predisposed towards those methodologies that draw upon market-based measures of risk and return.
- Price of recent investment
- Discounted cash flows/earnings multiple
- Net assets
- Available market prices
Of these the two methodologies most applicable to the Company’s investments are:
1 - Price of recent investment
Where the investment being valued was made recently, its cost will generally provide a good indication of value. It is generally considered that this would only apply for a limited period; in practice a period up to the start of the first live event or entertainment content which forms the investment is often applied as the long stop date for such a valuation.
2 - Discounted cash flows/earnings of the underlying business
Investments can be valued by calculating the net present value of expected future cashflows of the Investee Companies. In relation to the Company’s investments, anticipating future cashflows in excess of the guaranteed amounts would clearly require highly subjective judgements to be made in the early stage of each investment and therefore would not be an appropriate methodology to apply in the early stage of the investment.
In the period prior to the second live event or entertainment content it is considered appropriate to use the price paid for the recent investment as the latest available information. Thereafter, the portfolio of investments is fair valued on the discounted cash flow/earnings basis using the latest available information on the performance of the live event or entertainment content. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the Income Statement in the period in which they arise.
As a result of the above basis of valuation, there is significant judgement associated with the valuation of investments.
Non-qualifying Investments - OEICs
The Company’s Non-qualifying Investments in interest bearing money market OEICs are valued at fair value which is mid price. They have been designated as fair value through profit and loss for the purposes of FRS 26.
Gains and losses arising from changes in fair value of Qualifying and Non-qualifying Investments are recognised as part of the capital return within the Income Statement and allocated to the realised or unrealised capital reserve as appropriate. Transaction costs attributable to the acquisition or disposal of investments are charged to capital within the Income Statement.
c) Investment Income
Interest income is recognised in the Income Statement under the effective interest rate method. The effective interest rate is the rate required to discount the expected future income streams over the life of the loan to its initial carrying amount. The main impact for the Company in that regard is the accounting treatment of the loan note premiums. Where those loan note premiums are charged in lieu of higher interest then they should be credited to income over the life of the advance to the extent those premiums are anticipated to be collected.
d) Dividend Income
Dividend income is recognised in the Income Statement once it is declared by the Investee Companies.
e) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged to the revenue account within the Income Statement except that:
- expenses which are incidental to the acquisition or disposal of an investment are charged to capital in the Income Statement as incurred;
- expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated; and
- the management fee has been allocated 50% to revenue and 50% to capital, which represents the split of the Company’s long term returns.
f) Deferred Taxation
Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more, or a right to pay less, tax in the future have occurred at the balance sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company’s taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods.
g) Ordinary Shares, C Shares, D Shares, E Shares, F Shares and G Shares
The Company has six classes of Shares; Ordinary Shares, C Shares, D Shares, E Shares, F Shares and G Shares. Each Share class has a separate pool of income and expenses as well as assets and liabilities attributable to it. All Share classes rank pari passu with each other in terms of voting and other rights. No G Shares had been allotted as at 31 December 2011.
2. Investment Income
|
2011
£'000 |
2010
£'000 |
|||||||
| Bank deposit interest | 1 | - | ||||||
| Dividend income from Qualifying Investments | 10 | 8 | ||||||
| Loan note interest from Qualifying Investments | 286 | 200 | ||||||
| 297 | 208 | |||||||
3. Arrangement Fees
|
2011
£'000 |
2010
£'000 |
|||||||||||||||||||||||
| Arrangement fees | 49 | 74 | ||||||||||||||||||||||
All costs arising out of the relevant E and F Share Offers (included in 2011), and D Share Offer (included in 2010), including listing expenses and commissions, were incurred by Ingenious Media Investments Limited and a fee of 5.5% of the gross proceeds of the relevant Offer was paid in consideration of the service provided. The Directors believe that 80% of these fees relate directly to the raising of capital and have classified this proportion as issue costs. In accordance with Company law, the issue costs have been deducted from the share premium account. The remaining 20% reflected above has been taken to revenue.
4. Investment Management Fees
| 2011 | 2011 | 2011 | 2010 | 2010 | 2010 | |||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||
| Investment management fees | 174 | 174 | 348 | 140 | 140 | 280 | ||||||||
For the purposes of the revenue and capital columns in the Income Statement, the management fee has been allocated 50% to revenue and 50% to capital, which represents the split of the Company’s long term returns.
5. Other Expenses
| 2011 | 2011 | 2011 | 2010 | 2010 | 2010 | |||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||
| Directors’ remuneration (excluding employer’s national insurance) | 38 | - | 38 | 38 | - | 38 | ||||||||
| Auditors’ remuneration | ||||||||||||||
| - Audit fees | 13 | - | 13 | 13 | - | 13 | ||||||||
| - Non-audit fees | 4 | - | 4 | - | - | - | ||||||||
| Legal and professional fees | 10 | - | 10 | 16 | - | 16 | ||||||||
| Other administration expense | 108 | - | 108 | 85 | - | 85 | ||||||||
| Irrecoverable VAT | 1 | - | 1 | 3 | - | 3 | ||||||||
| 174 | - | 174 | 155 | - | 155 | |||||||||
The Company is not registered for VAT. Fees payable to the Company’s auditor for the audit of the Company’s financial statements are £13k (31 December 2010: £13k) excluding VAT. Further details on the Directors’ fee disclosures are given in the Directors’ Remuneration Report.
6. Tax Charge on Ordinary Activities
| 2011 | 2011 | 2011 | 2010 | 2010 | 2010 | |||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||
| Loss on ordinary activities before tax | (100) | (365) | (465) | (161) | (173) | (334) | ||||||||
| Loss on ordinary activities by tax rate 26.5% (31 December 2010: 28%) | (27) | (97) | (124) | (45) | (48) | (93) | ||||||||
| Adjustments: | ||||||||||||||
| Non taxable losses on investments | - | 51 | 51 | - | 9 | 9 | ||||||||
| Disallowed expenses | 1 | 46 | 47 | 1 | 42 | 43 | ||||||||
| Unutilised losses for the current year | 29 | - | 29 | 46 | (3) | 43 | ||||||||
| UK dividends not taxable | (3) | - | (3) | (2) | - | (2) | ||||||||
| - | - | - | - | - | - | |||||||||
As the Company is a VCT its capital gains are not taxable.
At 31 December 2011 the Company had surplus management expenses of £710k (31 December 2010: £602k). A deferred tax asset has not been recognised in respect of these surplus management expenses as the future taxable income of the Company can not be predicted with reasonable certainty. Due to the Company’s status as a VCT, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future the Company does not recognise deferred tax on any capital gains or losses which arise on the revaluation of investments.
7. Basic and Diluted Return per Share
| Ordinary Shares | 2011 | 2011 | 2011 | 2010 | 2010 | 2010 | ||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||
| Profit/(loss) on ordinary activities after taxation | 120 | (264) | (144) | 34 | (139) | (105) | ||||||||
| Weighted average shares in issue (number) | 10,205,011 | 10,205,011 | 10,205,011 | 10,205,011 | 10,205,011 | 10,205,011 | ||||||||
| Profit/(loss) attributable per share (pence) | 1.2 | (2.6) | (1.4) | 0.3 | (1.3) | (1.0) | ||||||||
| C Shares | 2011 | 2011 | 2011 | 2010 | 2010 | 2010 | ||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||
| Loss on ordinary activities after taxation | (27) | (57) | (84) | (50) | (16) | (66) | ||||||||
| Weighted average shares in issue (number) | 2,810,596 | 2,810,596 | 2,810,596 | 2,810,596 | 2,810,596 | 2,810,596 | ||||||||
| Loss attributable per share (pence) | (1.0) | (2.0) | (3.0) | (1.8) | (0.5) | (2.3) | ||||||||
| D Shares | 2011 | 2011 | 2011 | 2010 | 2010 | 2010 | ||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||
| Loss on ordinary activities after taxation | (89) | (39) | (128) | (145) | (18) | (163) | ||||||||
| Weighted average shares in issue (number) | 6,735,624 | 6,735,624 | 6,735,624 | 4,773,028 | 4,773,028 | 4,773,028 | ||||||||
| Loss attributable per share (pence) | (1.3) | (0.6) | (1.9) | (3.0) | (0.4) | (3.4) | ||||||||
| E Shares | 2011 | 2011 | 2011 | 2010 | 2010 | 2010 | ||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||
| Loss on ordinary activities after taxation | (65) | (7) | (72) | - | - | - | ||||||||
| Weighted average shares in issue (number) | 2,123,163 | 2,123,163 | 2,123,163 | - | - | - | ||||||||
| Loss attributable per share (pence) | (3.1) | (0.3) | (3.4) | - | - | - | ||||||||
| F Shares | 2011 | 2011 | 2011 | 2010 | 2010 | 2010 | ||||||||
|
Revenue
£'000 |
Capital
£'000 |
Total
£'000 |
Revenue
£'000 |
Capital
£'000 |
Total
£'000 |
|||||||||
| (Loss)/profit on ordinary activities after taxation | (39) | 2 | (37) | - | - | - | ||||||||
| Weighted average shares in issue (number) | 1,184,388 | 1,184,388 | 1,184,388 | - | - | - | ||||||||
| (Loss)/profit attributable per share (pence) | (3.3) | 0.2 | (3.1) | - | - | - | ||||||||
There are no dilutive potential Ordinary, C, D, E or F Shares, including convertible instruments, options or contingent share agreements in issue for the Company. The basic return per Share is therefore the same as the diluted return per Share.
8. Fixed Asset Investments
|
2011
£'000 |
2010
£'000 |
|||||
| Unquoted investments | 10,309 | 7,670 | ||||
| Equity shares | 2,733 | 2,177 | ||||
| Unsecured loan notes | 7,576 | 5,493 | ||||
| 10,309 | 7,670 | |||||
| Qualifying Investments | ||||||
|
2011
£'000 |
2010
£'000 |
|||||
| Opening valuation | 7,670 | 2,048 | ||||
| Purchases at cost | 2,750 | 5,525 | ||||
| Return of investment | (119) | - | ||||
| Fair value adjustment | 8 | 97 | ||||
| Closing valuation | 10,309 | 7,670 | ||||
Included in the valuation above is an equal and opposite fair value gain and fair value loss amounting to £269k (31 December 2010: £192k). This represents the accounting treatment of the guaranteed loan note premium. The £269k is included in the Income Statement under Investment Income (refer to note 2).
9. Significant Interests
The Company has interests of 10% or greater than 10% of the nominal value of the allotted shares in the following Investee Companies incorporated in the United Kingdom as at 31 December 2011:
| Trading Companies | % class and share type | % voting rights | ||||||
| Jetstream Events Limited | 24.95% A Ordinary | 24.95% | ||||||
| Essential Experience Limited | 24.95% A Ordinary | 24.95% | ||||||
| Crystal Star Limited | 24.95% A Ordinary | 24.95% | ||||||
| Saturn Explosion Limited | 16.66% A Ordinary | 16.66% | ||||||
| DRG Media Assets Limited | 24.95% A Ordinary | 24.95% | ||||||
| Dance Floor Limited | 12.48% A Ordinary | 12.48% | ||||||
| Golfmania Limited | 12.48% A Ordinary | 12.48% | ||||||
| Into The Groove Limited | 10.99% A Ordinary | 10.99% | ||||||
| CLS Concerts Limited | 16.67% A Ordinary | 16.67% | ||||||
| Supervision Media Holdings Limited | 10.00% A Ordinary | 10.00% | ||||||
| Jongleurs Comedy Live Limited | 20.00% A Ordinary | 20.00% | ||||||
| Venn Music Limited | 15.00% A Ordinary | 15.00% | ||||||
| This is Cricket Limited | 15.00% A Ordinary | 15.00% | ||||||
| Love Supreme Festival Limited | 12.50% A Ordinary | 12.50% | ||||||
It is considered that, as permitted by FRS 9, “Associates and Joint Ventures”, the above investments are held as part of an investment portfolio, and that, accordingly, their value to the Company lies in their marketable value as part of that portfolio. In view of this, it is not considered that any of the above represents investments in associated undertakings.
| Dormant Companies | % class and share type | % voting rights | ||||||
| Tremor Events Limited | 100% A Ordinary | 100% | ||||||
| Jam Festival Limited (formerly Electric Venues Limited) | 100% A Ordinary | 100% | ||||||
| Diamond Ventures Limited | 100% A Ordinary | 100% | ||||||
| Callisto Moon Limited | 100% A Ordinary | 100% | ||||||
| Mercury Events Limited | 100% A Ordinary | 100% | ||||||
| Moda Events Limited | 100% A Ordinary | 100% | ||||||
| Neptune Nine Limited | 100% A Ordinary | 100% | ||||||
| Oscar Moment Limited | 100% A Ordinary | 100% | ||||||
| Saturn Six Limited | 100% A Ordinary | 100% | ||||||
| Solar Experience Limited | 100% A Ordinary | 100% | ||||||
| Total Definition Limited | 100% A Ordinary | 100% | ||||||
The investments made by the Company are part of its portfolio of investments and the table above includes all portfolio investments.
The Company is not required to prepare consolidated accounts as any remaining amounts in the above dormant companies are immaterial.
10. Debtors
| 2011 | 2010 | |||||||||
| £'000 | £'000 | |||||||||
| Trade debtors | 19 | 22 | ||||||||
| Prepayments and accrued income | 61 | 59 | ||||||||
| 80 | 81 | |||||||||
11. Current Asset Investments
| 2011 | 2010 | |||||||
| £'000 | £'000 | |||||||
| Funds held in listed money market OEICs | 9,823 | 9,753 | ||||||
| Non-Qualifying Investments | ||||||||
|
2011
£'000 |
2010
£'000 |
|||||||
| Opening valuation | 9,753 | 10,029 | ||||||
| Purchases at cost | 6,999 | 9,661 | ||||||
| Disposal proceeds | (6,903) | (9,788) | ||||||
| Unrealised change in value of investment | (26) | (149) | ||||||
| Closing valuation | 9,823 | 9,753 | ||||||
In order to safeguard the capital available for investment in Qualifying Investments and balance this with the need to provide good returns to investors, available funds from the net proceeds are invested in appropriate securities (money market OEICs) until required for Qualifying Investment purposes.
12. Creditors: Amounts Falling Due Within One Year
| 2011 | 2010 | |||||||||
| £'000 | £'000 | |||||||||
| Trade creditors | 24 | 10 | ||||||||
| Accruals and deferred income | 29 | 74 | ||||||||
| 53 | 84 | |||||||||
13. Called-up Share Capital
| 2011 | 2010 | ||||||
| Allotted, called-up and fully paid | £'000 | £'000 | |||||
| 10,205,011 Ordinary Shares 1p each | 102 | 102 | |||||
| 2,810,596 C Shares 1p each | 28 | 28 | |||||
| 6,735,624 D Shares 1p each | 68 | 68 | |||||
| 2,846,122 E Shares 1p each | 28 | - | |||||
| 1,572,095 F Shares 1p each | 16 | - | |||||
| 242 | 198 | ||||||
In the current year, 2,846,122 E Shares and 1,572,095 F Shares were issued and allotted in accordance with the terms of the relevant Prospectus. Share issue costs amounted to £157k and £86k respectively of which £125k and £69k have been set off against the share proceeds.
In the prior year, 6,785,624 D Shares were issued and allotted in accordance with the terms of the relevant Prospectus of which 6,735,624 D Shares were fully paid at that year end. Share issue costs amounting to £295k have been set off against the share proceeds.
In the year ended 31 December 2009, 2,810,596 C Shares were issued and allotted in accordance with the terms of the relevant Prospectus. Share issue costs amounting to £121k have been set off against the share proceeds.
In the period ended 31 December 2008, 10,205,010 Ordinary Shares were issued and allotted in accordance with the terms of the relevant Prospectus. The one subscriber share created upon incorporation was issued at par. Share issue costs amounting to £448k have been set off against the share proceeds.
Ordinary Shares, C Shares, D Shares, E Shares and F Shares rank pari passu with each other in terms of voting and other rights. The entire issued Ordinary, C, D, E and F share capital of the Company has been admitted to the official list maintained by the Financial Services Authority and to trading on the London Stock Exchange.
|
|
Number of E
Shares allotted and fully paid |
Aggregate value of share premium allotted
£'000 |
Aggregate share premium net of issue costs
£'000 |
|||
| 22 March 2011 | 1,412,218 | 1,398 | 1,337 | |||
| 5 April 2011 | 1,300,717 | 1,288 | 1,230 | |||
| 4 August 2011 | 133,187 | 132 | 126 | |||
| 2,846,122 | 2,818 | 2,693 | ||||
|
|
Number of F
Shares allotted and fully paid |
Aggregate value of share premium allotted £'000 |
Aggregate share premium net of issue costs
£'000 |
|||
| 22 March 2011 | 997,628 | 987 | 944 | |||
| 5 April 2011 | 510,806 | 506 | 483 | |||
| 4 August 2011 | 63,661 | 63 | 60 | |||
| 1,572,095 | 1,556 | 1,487 | ||||
14. Reserves
| Share premium | Other reserve | Capital reserve | Revenue reserve | Total reserves | ||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| At 1 January 2011 | 6,351 | 11,615 | 12 | (607) | 17,371 | |||||
| Issue of equity | 4,374 | - | - | - | 4,374 | |||||
| Dividends paid | - | (988) | - | - | (988) | |||||
| Reduction of share premium account | (10,531) | 10,531 | - | - | - | |||||
| Gain on disposal of investments | - | - | 91 | - | 91 | |||||
| Decrease in fair value of investments held | - | - | (282) | - | (282) | |||||
| Investment income | - | - | - | 297 | 297 | |||||
| Arrangement fees | (194) | - | - | (49) | (243) | |||||
| Investment management fees | - | - | (174) | (174) | (348) | |||||
| Other expenses | - | - | - | (174) | (174) | |||||
| At 31 December 2011 | - | 21,158 | (353) | (707) | 20,098 | |||||
The capital reserve includes realised investment holding losses of £84k and unrealised investment holding losses of £269k. The other reserve, capital reserve and revenue reserve accounts are the only distributable reserves of the Company.
On 11 February 2011, the Company paid dividends amounting to £510k on Ordinary Shares (13 April 2010: £510k) and £141k on C Shares (28 May 2010: £141k). On 31 August 2011, the Company paid dividends amounting to £337k on D Shares (31 December 2010: £Nil).
15. Net Asset Value Per Share Excluding Distributions to Date
| 2011 | 2010 | |||
| Net assets attributable to Ordinary Shareholders (£'000) | 8,286 | 8,940 | ||
| Ordinary Shares in issue (number) | 10,205,011 | 10,205,011 | ||
| Net asset value per Ordinary Share (pence) | 81.2 | 87.6 | ||
| 2011 | 2010 | |||
| Net assets attributable to C Shareholders (£'000) | 2,148 | 2,373 | ||
| C Shares in issue (number) | 2,810,596 | 2,810,596 | ||
| Net asset value per C Share (pence) | 76.4 | 84.4 | ||
| 2011 | 2010 | |||
| Net assets attributable to D Shareholders (£'000) | 5,791 | 6,256 | ||
| D Shares in issue (number) | 6,735,624 | 6,735,624 | ||
| Net asset value per D Share (pence) | 86.0 | 92.9 | ||
| 2011 | 2010 | |||
| Net assets attributable to E Shareholders (£'000) | 2,649 | - | ||
| E Shares in issue (number) | 2,846,122 | - | ||
| Net asset value per E Share (pence) | 93.1 | - | ||
| 2011 | 2010 | |||
| Net assets attributable to F Shareholders (£'000) | 1,466 | - | ||
| F Shares in issue (number) | 1,572,095 | - | ||
| Net asset value per F Share (pence) | 93.3 | - | ||
16. Financial Instruments and Risk Management
The Company’s financial instruments comprise equity and floating rate debt investments in unquoted companies, cash balances and listed money market OEICs. The Company holds financial assets in accordance with its investment policy.
Fixed asset investments (see note 8) are valued at fair value. For quoted securities included in current asset Non-qualifying Investments, this is mid price. In respect of unquoted investments, these are fair valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. The fair value of all other financial assets and liabilities is represented by their carrying value on the Balance Sheet.
Fair Value Hierarchy
| 2011 | 2010 | |||||
| £'000 | £'000 | |||||
| Listed money market OEICs (note 11) | Level 1 | 9,823 | 9,753 | |||
| Unquoted investments (note 8) | Level 3 | 10,309 | 7,670 | |||
| 20,132 | 17,423 | |||||
Level 3 investments include a £94k revaluation gain on Into The Groove Limited, a revaluation loss of £81k on Supervision Media Limited and a £5k write off on The Apple Cart Festival Limited during the year.
In accordance with FRS 29, “Financial Instruments: Disclosures”, the above table provides an analysis of these investments based on the fair value hierarchy described below which reflects the reliability and significance of the information used to measure their fair value:
- Level 1 - investments with quoted prices in active markets;
- Level 2 - investments whose fair value is based directly on observable market prices or is indirectly drawn from observable market prices; and
- Level 3 - investments whose fair value is determined using a valuation technique based on assumptions that are not supported by observable current market prices or are not based on observable market data.
The valuation techniques used by the Company are explained in note 1 of the accounting policies.
Risk Management
The Company’s investing activities expose it to various types of risk that are associated with the financial instruments and markets in which it invests. The most important types of financial risk to which the Company is exposed are:
- Market risk;
- Interest rate risk;
- Credit risk; and
- Liquidity risk.
The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Company are discussed below:
a) Market Risk
Market risk embodies the potential for both losses and gains and includes interest rate risk and price risk.
The Company’s strategy on the management of investment risk is driven by the Company’s investment objective. Investments in unquoted companies, by their nature, involve a higher degree of risk than investments in larger “blue chip” companies.
The risk of loss in value is managed through careful selection in accordance with a formalised investment decision process, with each investment proposal evaluated by the Investment Committee as part of the due diligence stage.
The Company’s investment policy can be found in the Business Review. The risk is also managed through continuous monitoring of the performance of investments and changes in their risk profile.
b) Interest Rate Risk
Some of the Company’s financial assets are interest bearing, all of which are at floating rates. As a result, the Company is subject to exposure to interest rate risk due to fluctuations in the prevailing levels of market interest rate.
When the Company retains cash balances, the majority of cash is held within interest bearing money market OEICs. This is the Non-qualifying Investments amount on the Balance Sheet of £9,823k (31 December 2010: £9,753k). The benchmark rate which determines the interest payments received on interest bearing cash balances and debt investments in unquoted companies is the bank base rate which was 0.5% as at 31 December 2011 (31 December 2010: 0.5%).
The following table illustrates the sensitivity of the impact on ordinary activities for the year before taxation and total equity to a change in interest rates of 50 basis points, with effect from the beginning of the year. These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on the Company’s Non-qualifying Investments held at each balance sheet date. All other variables are held constant.
| 31 December 2011 | 31 December 2010 | |||||||||||
|
£'000
+/- 50 basis points |
£'000
+/- 50 basis points |
|||||||||||
| Impact on loss on ordinary activities for the year | ||||||||||||
| before taxation and total equity | 49 | 49 | ||||||||||
c) Credit Risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company.
Whilst the Company is exposed to credit risk due to its £7,576k (31 December 2010: £5,493k) unsecured loan note instruments, this risk is mitigated by the Company requiring that minimum royalty arrangements are in place prior to the investment as set out in the Company’s investment policy. In addition, and in accordance with the Company’s monitoring procedure, the Manager closely monitors progress (including financial expenditure) against the Investee Companies’ agreed business plans.
The £7,576k (31 December 2010: £5,493k) unsecured loan notes are the contractually agreed 70% of initial investments.
d) Liquidity Risk
The Company’s financial instruments include equity and debt investments in unquoted companies, which are not traded in an organised public market and which generally may be illiquid. As a result, the Company may not be able to liquidate quickly some of its investment in these instruments at an amount close to fair value.
The Company maintains sufficient reserves of cash and readily realisable marketable securities to meet its liquidity requirements at all times. No numerical disclosures have been provided in respect of liquidity risk as this is not considered to be material.
17. Contingent Assets
There is currently interest income accruing on the unsecured loan note instruments at a rate of 4.5% (31 December 2010: 4.5%), being 4% over the bank base rate which was 0.5% as at 31 December 2011 (31 December 2010: 0.5%), totalling £165k (31 December 2010: £38k). The repayment of this interest is not deemed recoverable based on current profits being derived by the Investee Companies, which currently can not be determined with any certainty, therefore the Directors have not recognised it in the financial statements.
18. Related Party Transactions
a) The Company has appointed Ingenious Media Investments Limited, a company of which Patrick McKenna is a director, to be its promoter. Ingenious Media Investments Limited is a wholly-owned subsidiary within the Ingenious Media Holdings plc group of companies (the Ingenious Group) which is controlled by Patrick McKenna. During the Reporting Period, the Company paid Ingenious Media Investments Limited a fee of 5.5% of the gross proceeds of the E and F Share Offer, amounting to £243k (31 December 2010: D Share fee amounting to £369k) which was paid in consideration for services provided as promoter. The fee of 5.5% of the gross proceeds of the G Share Offer will become payable upon the allotment of the G Shares which starts in 2012.
b) Ingenious Ventures Limited was the Company’s investment manager until 28 February 2008, when the investment management agreement was novated to Ingenious Asset Management Limited, and Ingenious Ventures became a trading division of Ingenious Asset Management Limited. Patrick McKenna is a director of Ingenious Asset Management Limited which is a subsidiary within the Ingenious Group, which is controlled by Patrick McKenna.
The Manager, as per the investment management agreement, receives a management fee of 0.4375% of the net asset value payable quarterly in advance. This amounted to £348k as at 31 December 2011 (31 December 2010: £280k). The Manager also charges an administration fee of £69k (31 December 2010: £53k) per annum and irrecoverable VAT.
c) The funds invested in OEICs are managed by Ingenious Asset Management Limited of which Patrick McKenna is a director. Ingenious Asset Management Limited is a subsidiary of the Ingenious Group, which is controlled by Patrick McKenna. There is no fee associated with this transaction.
d) Patrick McKenna is a director and a shareholder of Ingenious Entertainment VCT 1 plc. The Company and Ingenious Entertainment VCT 1 plc have agreed to invest in an existing company, Venn Music Limited, to promote two live music festivals called We, The People and Shakedown. In February 2011 the Company invested £750k for a total of 15.00% of the equity in Venn Music Limited. Ingenious Entertainment VCT 1 plc invested £750k for 15.00% of the equity in Venn Music Limited.
The investment of £750k in Venn Music Limited is a joint investment between the C Shares (£225k) and the D Shares (£525k).
e) Patrick McKenna is a director and a shareholder of Ingenious Entertainment VCT 1 plc. The Company and Ingenious Entertainment VCT 1 plc have agreed to invest in an existing company, This is Cricket Limited, to promote a new sports event called Titans of Cricket. In June 2011 the Company invested £1 million for a total of 15.00% of the equity in This is Cricket Limited. Ingenious Entertainment VCT 1 plc invested £1 million for 15.00% of the equity in This is Cricket Limited.
The investment of £1 million in This is Cricket Limited is a joint investment between the C Shares (£200k) and the D Shares (£800k).
f) Patrick McKenna is a director and a shareholder of Ingenious Entertainment VCT 1 plc. The Company and Ingenious Entertainment VCT 1 plc have agreed to invest in an existing company, Love Supreme Festival Limited, to promote a live jazz music festival called Love Supreme Jazz Festival. In December 2011 the Company invested £1 million for a total of 12.50% of the equity in Love Supreme Festival Limited. Ingenious Entertainment VCT 1 plc invested £1 million for 12.50% of the equity in Love Supreme Festival Limited.
The investment of £1 million in Love Supreme Festival Limited is a joint investment between the C Shares (£375k), D Shares (£375k), E Shares (£125k) and F Shares (£125k).
During the year the Company has entered into transactions with the above-mentioned related parties in the normal course of business and on an arm’s length basis as listed in the table below.
| 2011 | 2011 | 2010 | 2010 | |||||||
| Entity | Note |
Expenditure paid
£'000 |
Amounts due
£'000 |
Expenditure
paid £'000 |
Amounts due £'000 |
|||||
| Ingenious Media Investments Limited | ||||||||||
| - Arrangement fee | a | 243 | - | 369 | - | |||||
| Ingenious Asset Management Limited | ||||||||||
| - Investment management fee | b | 348 | - | 280 | - | |||||
| - Administration fee | b | 69 | - | 53 | - | |||||
| - Irrecoverable VAT | 4 | - | - | 3 | ||||||
Transactions Between Related Parties
Ingenious Media Consulting Limited, a company which is a wholly-owned subsidiary in the Ingenious Group, which is controlled by Patrick McKenna, has entered into consultancy agreements with each of the Company’s Investee Companies to provide management services. For the provision of such services, consulting fees totalling £172k excluding VAT (31 December 2010: £89k), have been invoiced in the period of which £50k remains outstanding as at 31 December 2011 (31 December 2010: £Nil).
19. Events After the Balance Sheet Date
The Company declared an interim dividend of 5.0 pence per Ordinary Share on 2 February 2012 (2011: 5.0 pence). The dividend was paid on 24 February 2012 by way of a capital distribution reducing the Company’s other reserves.
The Company declared an interim dividend of 5.0 pence per C Share on 2 February 2012 (2011: 5.0 pence). The dividend was paid on 24 February 2012 by way of a capital distribution reducing the Company’s other reserves.
The Company declared an interim dividend of 5.0 pence per D Share on 2 February 2012 (2011: Nil pence). The dividend was paid on 24 February 2012 by way of a capital distribution reducing the Company’s other reserves.
20. Capital Management
The capital management objectives of the Company are:
- To safeguard its ability to continue as a going concern so that it can continue to provide returns to Shareholders.
- To ensure sufficient liquid resources are available to meet the funding requirements of its investments and to fund new investments where identified.
The Company has no external debt; consequently all capital is represented by the value of share capital, distributable and other reserves. Total shareholder equity at 31 December 2011 was £20,340k (31 December 2010: £17,569k).
In order to maintain or adjust its capital structure the Company may adjust the amount of dividends paid to the Shareholders, return capital to Shareholders, issue new shares or sell assets.
There have been no changes to the capital management objectives of the business from the previous period.
The capital structure of the Company was changed by the issue of E & F Shares (see note 13) during the year.
The Company is subject to the following externally imposed capital requirements:
- As a public company Ingenious Entertainment VCT 2 plc must have a minimum of £50k of share capital.
The level of dividends may be influenced by the need to comply with the VCT legislation which states that no more than 15% of income from shares and securities may be retained.