Final Results

LONDON--(BUSINESS WIRE)--

INGENIOUS ENTERTAINMENT VCT 2 PLC (“the Company”)

STATEMENT OF ANNUAL RESULTS

For the year ended 31 December 2015

Chairman’s Statement

I am delighted to present the Company’s eighth Annual Report and Accounts covering the year to 31 December 2015 (the Reporting Period).

Overview of Activities

In December 2014, the Company cancelled all of its C Shares and completed the full distribution of capital in relation to those shares in January 2015.

The Company has now completed its investment strategy and is fully invested under the VCT regulations for its D, E, F and G Share classes. The Company needs to make one final investment for its H Share class in 2016. The Manager will also focus upon maximising the returns from the investments.

The Company continued to actively source and review investment opportunities during this Reporting Period for the H Share class. In total, the Company made five investments during the Reporting Period. Details of all investments can be found in the Manager’s Review.

During the Reporting Period two live events were undertaken by two of the Company’s Investee Companies. Liverpool Sound City took place from 22 to 24 May 2015 with a new ‘Festival style’ format that was held in the Docklands area of Liverpool.

Field Day 2015 was staged on 7 and 8 June 2015 and once again delivered both increased attendances and increased profits from the year before. In June 2015, the Company accepted an offer to acquire its 15% stake in Waxarch Limited (the Investee Company that stages Field Day). The purchase price agreed was at a six times multiple of the event’s 2015 profits. The deal completed in September 2015. The capital growth over the life of the investment equates to an unaudited six pence per share uplift for the D Share class (a three pence per share uplift since the previous valuation as at 31 December 2014) and an unaudited three pence per share uplift for each of the E and F Share classes (in each case an unaudited one pence per share uplift since the previous valuation as at 31 December 2014).

The D Share class reached its five year anniversary on 30 July 2015. It is the Directors’ intention to distribute any residual funds remaining in this share class shortly.

Fund Raising

The Company raised no further funds during the Reporting Period.

Results

The C Shares (cancelled in year ended 31 December 2014), D Shares, E Shares, F Shares, G Shares and H Shares are accounted for as separate pools of funds necessitating separate non-statutory reporting.

The Company continues with its core strategy of blending high levels of downside protection with its attempt to drive positive returns from the investment portfolio. The Directors and the Manager have also maintained their prudent approach in the valuation of investments with the view that it takes at least two to three years to build brand awareness in the live entertainment sector. They remain cautiously optimistic about the future performance and the long term outlook of the Company.

The C Shares were cancelled during the year ended 31 December 2014 and therefore had no profit or loss to report (31 December 2014: loss of £47,000). D Shares made a loss of £153,000 (31 December 2014: loss of £13,000). The E Shares made a loss of £100,000 (31 December 2014: profit of £7,000). The F Shares made a loss of £60,000 (31 December 2014: loss of £6,000). The G Shares made a loss of £264,000 (31 December 2014: loss of £69,000). The H Shares made a loss of £41,000 (31 December 2014: loss of £16,000).

The net asset value per D Share at 31 December 2015 was 2.0 pence (31 December 2014: 64.3 pence) although this is after the deduction of the dividend of 60.0 pence per Share in the Reporting Period and the deduction of a total of 20.0 pence per Share of dividends in previous years. The net asset value as at 31 December 2015 including distributions was therefore 82.0 pence per D Share (31 December 2014: 84.3 pence).

The net asset value per E Share at 31 December 2015 was 63.7 pence (31 December 2014: 72.2 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 total of 15.0 pence per Share of dividends in previous years. The net asset value as at 31 December 2015 including distributions was therefore 83.7 pence per E Share (31 December 2014: 87.2 pence).

The net asset value per F Share at 31 December 2015 was 65.9 pence (31 December 2014: 74.7 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 total of 15.0 pence per Share of dividends in previous years. The net asset value as at 31 December 2015 including distributions was therefore 85.9 pence per F Share (31 December 2014: 89.7 pence).

The net asset value per G Share at 31 December 2015 was 67.2 pence (31 December 2014: 79.7 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 total of 10.0 pence per Share dividends in the previous years. The net asset value as at 31 December 2015 including distributions was therefore 82.2 pence per G Share (31 December 2014: 89.7 pence).

The net asset value per H Share at 31 December 2015 was 81.4 pence (31 December 2014: 87.9 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 previous year The net asset value as at 31 December 2015 including distributions was therefore 91.4 pence per H Share (31 December 2014: 92.9 pence).

Legislative and Regulatory Developments

The recent changes to the VCT rules are not expected to have a significant impact on the operation of the Company.

Outlook

Live entertainment continues to appeal to customers as an experience that is completely unique to the individual. When this appeal is combined with enjoying the live experience with other likeminded participants, then it is easy to understand why those events that can create their own ‘niche’ will continue to thrive whatever the economy may throw at them.

The ‘season’ has once again begun with Glastonbury selling out in record time. All of the events that the Company has on sale are currently ahead of forecast and the Board does not believe that any of these events will be adversely affected by any of the economic uncertainty that currently exists.

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.

Manager’s Review

A summary of the Company’s investments, their individual valuations and the split between the various share classes as of 31 December 2015 is shown below:

	Total £'000	D Shares £'000	E Shares £'000	F Shares £'000	G Shares £'000	H Shares £'000
Festivals
Liverpool Sound City
(Cost £600,000: £1,200,000 across the Ingenious Entertainment VCTs)	110	110	-	-	-	-
Love Supreme Jazz Festival
(Cost £750,063: £1,500,126 across the Ingenious Entertainment VCTs)	749	-	444	305	-	-
Just For London Comedy Festival
(Cost £875,000: £1,750,000 across the Ingenious Entertainment VCTs)	875	-	320	180	-	375
London Flower Show
(Cost £250,000: £500,000 across the Ingenious Entertainment VCTs)	250	-	-	-	-	250
As One In The Park Festival
(Cost £660,000: £1,320,000 across the Ingenious Entertainment VCTs)	520	-	335	185	-	-
The Zoo Project Festival
(Cost £300,000: £600,000 across the Ingenious Entertainment VCTs)	300	-	-	-	300	-
SWG Power Limited
(Cost £250,000: £500,000 across the Ingenious Entertainment VCTs)	250	-	-	-	-	250
Seasonal Events
Winterville Events Limited
(Cost £500,000: £1,000,000 across the Ingenious Entertainment VCTs)	328	-	-	-	328	-
Content Exploitation
FM3 2013 Limited
(Cost £700,000: £1,400,000 across the Ingenious Entertainment VCTs)	700	-	-	-	700	-
Live Venues
Event Spaces
(Cost £625,000: £1,250,000 across the Ingenious Entertainment VCTs)	625	-	-	-	625	-
Genius Star Limited
(Cost £375,000: £750,000 across the Ingenious Entertainment VCTs)	375	-	-	-	-	375
Counterculture Bars Limited
(Cost £250,000: £500,000 across the Ingenious Entertainment VCTs)	250	-	-	-	-	250
Total investments	5,332	110	1,099	670	1,953	1,500

Festivals

Liverpool Sound City Limited

In March 2012, the Entertainment VCTs made an investment into Liverpool Sound City Limited. This company has, for a number of years, been producing and promoting the Sound City concept which combines the best elements of a music festival, conference and expo across an entire city centre.

Liverpool Sound City is a 3 day international music, media and technology conference and live arts and music festival. The company has also organised international events in both New York and Abu Dhabi and plans to further expand the brand worldwide.

Liverpool Sound City has now held three main UK events since the Company made its investment. The May 2015 event was very well received by the press and public with a great impressive bill with headline performances from Belle and Sebastian, The Vaccines and The Flaming Lips. As a result, the company made a small profit for the year ended 30 June 2015, although the 30 June 2015 audited accounts show an accumulated loss position of £109k, spread across 2012 through to 2015.

All in all, however, the Company’s Board believe that the Investee Company has now stabilised in terms of its control environment, has a better informed and effective commercial decision-making team, and that beneficial changes have been implemented to the business model which should enable the Sound City product to generate greater profits.

The business model changes focused on moving the main festival out of multiple venues, and into a dedicated festival site in the centre of Liverpool. This ensured no revenue leakage in respect of entry fees and bar income, and also better defined the brand as an urban music festival experience.

Love Supreme Jazz Festival

Initial Funding was in December 2011 with further funding in December 2013.

In December 2011, the Entertainment VCTs teamed up with Jazz FM and Neapolitan Music to invest in a company to co-promote the Love Supreme Jazz Festival.

The first event, which took place in July 2013, was loss making, but this outcome was very much anticipated as new event brands take time to generate full customer awareness. The July 2014 event very much reinforced this view by delivering a profit of £78,000.

The 2015 event took place on the 3-5 July, sold 9,000 tickets per day and it was a very successful show with headline performances from Van Morrison and Chaka Khan and supported by great heritage acts such as Lisa Stansfield, Neneh Cherry, Candi Staton as well as a host of international jazz artists such as Hugh Masekela, Ginger Baker, Larry Graham, Terrance Blanchard and Diane Reeves.

Tickets for the 2016 show are ahead of forecast.

Just For London Comedy Festival

In October 2014, the Ingenious Entertainment VCTs invested in a company to co-promote the Just For London Comedy Festival.

A licence has been granted by Camden Council for hosting the event in Russell Square in London in conjunction with Logan Hall which is a 933 capacity venue part of UCL and the Camden Centre in Kings Cross.

The first event is to be held on 13-24 July 2016 and planning is well under way with regards to booking talent, marketing and the general branding of the show.

London Flower Show

In December 2015 an investment of £500,000 was made into The London Flower Show Limited to promote the annual event, The London Flower Show.

The first event is due to be held in September 2016 in Osterley Park and will run for four days. The event will aim to exploit the established market for flower shows and will aim to attract keen and novice gardeners as well as those looking for a picturesque day of food, entertainment, flowers, plants and all things you would find in a garden. The 2016 event will host indoor and outdoor activities including a garden competition, a village fete style food offering, live music, a vintage funfair as well as a range of flower and garden themed traders.

The revenue model for LFS is built on four primary pillars: ticketing revenue, pitch fees from exhibitors, pitch fees from food traders and bar revenue. As the event grows LFS will look to develop other revenue streams such as corporate hospitality and sponsorship. LFS has secured the services of RHS Chelsea Flower Show Gold Medal Winning Garden Designer Nigel Gibson to curate the garden competition, and to ensure a high level of horticultural activity which will attract dedicated gardening enthusiasts.

As One In The Park Festival

In February 2012 an investment of £1,320,000 was made into Saturn Star Limited to create a new gay and alternative lifestyle festival called As One In The Park, which was held in Victoria Park in May 2013.

Although well received by critics, the audience of 6,000 was significantly below the numbers anticipated and the event incurred a significant loss which has been taken into account in the valuation of the investment.

The Zoo Project Festival

In March 2014, the Ingenious Entertainment VCTs invested in a company to co-promote The Zoo Project Festival.

The festival promoters have, over the course of 2012 and 2013, established a strong festival brand with a core following and although it was very well received by the press and public, the attendance levels were disappointing and the event incurred a loss in the region of £37k.

The Manager is currently reviewing future options for the brand.

SWG Power Limited

In November 2015 an investment of £500,000 was made into SWG Power Limited which has been established to provide power to festivals, conferences and exhibitions.

The company has been established to act as a service provider supplying power to the festival, exhibition, conference and live event market. The company will aim to exploit the growing market for festivals and live events and will look to sign multi-year deals with events to provide a reliable source of income.

The company will use a portion of the investment to purchase new assets to enable the company to tender for power contracts.

During the ‘build’ of events, the purchased assets will be brought to the respective event sites to provide power for the event (e.g. for stage lighting, sound systems and back office) and to power individual traders and exhibitors working at the event, for which the company will receive supplementary income to the tendered amount with the event promoter.

Revenues will be generated in the form of equipment hire, service fees for staff operating the equipment and maintaining the equipment on site, and a mark-up on fuel costs charged to traders on the event site.

Seasonal Events

Winterville Events Limited

In September 2014, an investment of £1,000,000 was made by the Ingenious Entertainment VCTs into Winterville Events Limited to promote an annual Christmas based event - Winterville.

The first event took place in Victoria Park in East London and ran for the duration of December 2014. Winterville hosted indoor and outdoor activities including an ice rink, a live pantomime production, a vintage fun fair, themed food stalls, bars selling craft ales, beer and cider, a roller disco and a spiegeltent staging both comedy and live music for all age groups.

For the 2015 event, the Ingenious Entertainment VCTs and partners Marcus Weedon and Darren Guerin joined forces with AEG Live to utilise AEG’s experience in this market (AEG have promoted four Winter Wonderlands in Hyde Park and a winter season in Dublin).

Unfortunately, due to the wettest December on record and the impact of an average event in 2014 culminating in the loss of customers to the 2015 event, the show has made substantial losses in the region of £565k of which the VCTs are responsible for 33.33%.

Content Exploitation

FM3 2013 Limited

In March 2014, an investment of £1,400,000 was made by the Ingenious Entertainment VCTs into FM3 2013 Limited to film festival and live event content.

The Ingenious Entertainment VCTs joined forces with Blink TV, a production and distribution company specialising in filming live entertainment content. The company will look to deliver five core revenue streams through the exploitation of music festival content, namely commissioned productions, distribution, advertising, brand activation and online video channel creation.

Live Venues

Event Spaces

In December 2014, an investment of £1,250,000 was made by the Ingenious Entertainment VCTs into Event Spaces Limited to promote a wide range of events to be hosted from a semi-permanent events structure situated in London.

A large semi-permanent structure was purchased that is currently situated on the Pontoon Dock site. The Pontoon Dock project has however been put on hold due to unresolvable issues with the land owner over the length of time the site could be leased for.

As a result the structure has been sold and the partners are looking for a new location to host events.

Genius Star Limited

In December 2015 an investment of £750,000 was made into Genius Star Limited to operate a multi-purpose bar/kitchen and live venue.

The Entertainment VCTs have teamed up with Electric Star Ltd which is the company run by Rob Star who runs 4 successful multi-purpose bar/kitchen style venues in East London and Kings Cross.

The concept is to create a multi-faceted and vibrant space which will capitalise on the premises’ location and experience of the partners. The venue will serve as a functioning bar and kitchen, and a multi-purpose event space for promoted, co-promoted and externally hired activities. These activities will include musical performances, theatre, spoken word, yoga, corporate hire and product launches.

Counterculture Bars Limited

In September 2015 an investment of £500,000 was made into Counterculture Bars Limited to operate the multi-purpose bar/kitchen and live venue, ‘Haunt’ in Stoke Newington with Alexander Brooks.

Alex has spent two years looking in London for the right venue to launch his concept and has secured for the company a 15 year lease at this prime location on Stoke Newington Road.

The concept is to create a multi-faceted and vibrant space which will capitalise on the premises’ location and experience of the partners. The venue will serve as a functioning bar and kitchen, and a multi-purpose event space for promoted, co-promoted and externally hired activities. These activities will include musical performances, theatre, spoken word, yoga, corporate hire and product launches.

STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2015

		Year ended 31 December 2015			Year ended 31 December 2014
		Revenue	Capital	Total	Revenue	Capital	Total
	Note	£'000	£'000	£'000	£'000	£'000	£'000
Gain on disposal of investments	11	-	103	103	-	64	64
Increase/(decrease) in fair value of investments held		-	(484)	(484)	-	28	28
Investment income	2	128	-	128	203	-	203
Arrangement fees	3	-	-	-	-	-	-
Investment management fees	4	(92)	(92)	(184)	(121)	(121)	(242)
Other expenses	5	(181)	-	(181)	(197)	-	(197)
Loss on ordinary activities before taxation		(145)	(473)	(618)	(115)	(29)	(144)
Tax on ordinary activities	6	-	-	-	-	-	-
Total comprehensive income attributable to equity Shareholders		(145)	(473)	(618)	(115)	(29)	(144)
Basic and diluted return per share (pence)
D Share	7	(0.0)	(2.2)	(2.3)	0.3	(0.5)	(0.2)
E Share	7	(0.8)	(2.7)	(3.5)	0.3	-	0.3
F Share	7	(1.0)	(2.9)	(3.8)	(0.3)	(0.1)	(0.4)
G Share	7	(1.3)	(6.2)	(7.5)	(1.5)	(0.5)	(2.0)
H Share	7	(2.2)	0.6	(1.5)	(2.2)	1.6	(0.6)

The total column represents the profit and loss account of the Company for the year.

All revenue and capital items in the above statement derive from continuing operations.

NON-STATUTORY ANALYSIS BETWEEN THE D, E, F, G AND H SHARE FUNDS (UNAUDITED)

STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2015

	D Shares			E Shares
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gain/(loss) on disposal of investments	-	35	35	-	13	13
(Decrease)/increase in fair value of investments held	-	(163)	(163)	-	(74)	(74)
Investment income	55	-	55	29	-	29
Arrangement fees	-	-	-	-	-	-
Investment management fees	(22)	(22)	(44)	(16)	(17)	(33)
Other expenses	(36)	-	(36)	(35)	-	(35)
Loss on ordinary activities before taxation	(3)	(150)	(153)	(22)	(78)	(100)
Tax on ordinary activities	-	-	-	-	-	-
Total comprehensive income attributable to equity Shareholders	(3)	(150)	(153)	(22)	(78)	(100)
Basic and diluted return per share (pence)	(0.0)	(2.2)	(2.2)	(0.8)	(2.7)	(3.5)

	F Shares			G Shares
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gain on disposal of investments	-	13	13	-	2	2
Decrease in fair value of investments held	-	(48)	(48)	-	(198)	(198)
Investment income	16	-	16	25	-	25
Arrangement fees	-	-	-	-	-	-
Investment management fees	(10)	(10)	(20)	(23)	(23)	(46)
Other expenses	(21)	-	(21)	(47)	-	(47)
Loss on ordinary activities before taxation	(15)	(45)	(60)	(45)	(219)	(264)
Tax on ordinary activities	-	-	-	-	-	-
Total comprehensive income attributable to equity Shareholders	(15)	(45)	(60)	(45)	(219)	(264)
Basic and diluted return per share (pence)	(0.9)	(2.9)	(3.8)	(1.3)	(6.2)	(7.5)

	H Shares
	Revenue	Capital	Total
	£'000	£'000	£'000
Gain on disposal of investments	-	39	39
Decrease in fair value of investments held	-	(2)	(2)
Investment income	2	-	2
Arrangement fees	-	-	-
Investment management fees	(19)	(20)	(39)
Other expenses	(41)	-	(41)
Loss on ordinary activities before taxation	(58)	17	(41)
Tax on ordinary activities	-	-	-
Total comprehensive income attributable to equity Shareholders	(58)	17	(41)
Basic and diluted return per share (pence)	(2.2)	0.6	(1.5)

The Total column represents the profit and loss account per Share class for the year.

NON-STATUTORY ANALYSIS BETWEEN THE D, E, F, G AND H SHARE FUNDS (UNAUDITED)

STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2014

	D Shares			E Shares
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gain on disposal of investments	-	8	8	-	(8)	(8)
(Decrease)/Increase in fair value of investments held	-	(6)	(6)	-	26	26
Investment income	116	-	116	49	-	49
Arrangement fees	-	-	-	-	-	-
Investment management fees	(38)	(38)	(76)	(18)	(18)	(36)
Other expenses	(55)	-	(55)	(24)	-	(24)
Loss on ordinary activities before taxation	23	(36)	(13)	7	-	7
Tax on ordinary activities	-	-	-	-	-	-
Total comprehensive income attributable to equity Shareholders	23	(36)	(13)	7	-	7
Basic and diluted return per share (pence)	0.3	(0.5)	(0.2)	0.3	-	0.3

	F Shares				G Shares
	Revenue	Capital	Total		Revenue	Capital	Total
	£'000	£'000	£'000		£'000	£'000	£'000
Gain/(loss) on disposal of investments	-	14	14		-	61	61
(Decrease)/Increase in fair value of investments held	-	(4)	(4)		-	(51)	(51)
Investment income	23	-	23		11	-	11
Arrangement fees	-	-	-		-	-	-
Investment management fees	(11)	(11)	(22)		(26)	(26)	(52)
Other expenses	(17)	-	(17)		(38)	-	(38)
Loss on ordinary activities before taxation	(5)	(1)	(6)		(53)	(16)	(69)
Tax on ordinary activities	-	-	-	-	-	-	-
Total comprehensive income attributable to equity Shareholders	(5)	(1)	(6)		(53)	(16)	(69)
Basic and diluted return per share (pence)	(0.3)	(0.1)	(0.4)		(1.5)	(0.5)	(2.0)

	H Shares
	Revenue	Capital	Total
	£'000	£'000	£'000
Loss on disposal of investments	-	(5)	(5)
Increase in fair value of investments held	-	68	68
Investment income	-	-	-
Arrangement fees	-	-	-
Investment management fees	(21)	(21)	(42)
Other expenses	(37)	-	(37)
Loss on ordinary activities before taxation	(58)	42	(16)
Tax on ordinary activities	-	-	-
Total comprehensive income attributable to equity Shareholders	(58)	42	(16)
Basic and diluted return per share (pence)	(2.2)	1.6	(0.6)

The Total column represents the profit and loss account per Share class for the year.

BALANCE SHEET

as at 31 December 2015

	Note	31 December 2015 £'000	31 December 2014 £'000
Fixed assets
Qualifying Investments held at fair value	8	5,332	8,280
Current assets
Debtors	10	28	22
Non-qualifying Investments held at fair value	11	1,038	4,396
Cash at bank and in hand		1,219	54
		2,285	4,472
Creditors: amounts falling due within one year	12	(109)	(54)
Net current assets		2,176	4,418
Net assets		7,508	12,698
Capital and reserves
Called-up share capital	13	174	174
Share premium account	13	-	-
Other reserve account		9,734	14,923
Capital reserve		(1,239)	(1,304)
Revenue reserve		(1,161)	(1,095)
Shareholders’ funds		7,508	12,698
Net asset value per D Share	14	2.0	64.3
Net asset value per E Share	14	63.7	72.2
Net asset value per F Share	14	65.9	74.7
Net asset value per G Share	14	67.2	79.7
Net asset value per H Share	14	81.4	87.9

The accompanying notes form an integral part of these financial statements.

The financial statements were approved by the Board of Directors on 13 April 2016.

Paul Gregg

Chairman

NON-STATUTORY ANALYSIS BETWEEN THE D, E, F, G AND H SHARE FUNDS (UNAUDITED)

BALANCE SHEET

as at 31 December 2015

	D Shares £'000	E Shares £'000	F Shares £'000	G Shares £'000	H Shares £'000
Fixed assets
Qualifying Investments	110	1,099	670	1,953	1,500
Current assets
Debtors	-	28	-	-	-
Non-qualifying Investments	-	243	183	420	192
Cash at bank and in hand	59	486	192	1	481
	59	757	375	421	673
Creditors: amounts falling due within one year	(36)	(47)	(9)	(9)	(8)
Net current assets	23	710	366	412	665
Net assets	133	1,809	1,036	2,365	2,165
Capital and reserves
Called-up share capital	68	28	16	35	27
Share premium account	-	-	-	-	-
Other reserve account	961	2,125	1,171	2,800	2,238
Capital reserve	(640)	(181)	(39)	(220)	69
Revenue reserve	(256)	(163)	(112)	(250)	(169)
Shareholders’ funds	133	1,809	1,036	2,365	2,165
Net asset value excluding distributions to date (pence per share)	2.0	63.7	65.9	67.2	81.4
Net asset value including distributions to date (pence per share)	82.0	83.7	85.9	82.2	91.4

NON-STATUTORY ANALYSIS BETWEEN THE D, E, F, G AND H SHARE FUNDS (UNAUDITED)

BALANCE SHEET

as at 31 December 2014

	D Shares £'000	E Shares £'000	F Shares £'000	G Shares £'000	H Shares £'000
Fixed assets
Qualifying Investments	3,660	1,602	893	2,125	-
Current assets
Debtors	22	-	-	-	-
Non-qualifying Investments	637	451	282	683	2,343
Cash at bank and in hand	39	6	1	1	1
	698	457	283	684	2,344
Creditors: amounts falling due within one year	(29)	(5)	(3)	(6)	(5)
Net current assets	669	452	280	678	2,339
Net assets	4,329	2,054	1,173	2,803	2,339
Capital and reserves
Called-up share capital	68	28	16	35	27
Share premium account	-	-	-	-	-
Other reserve account	5,003	2,267	1,250	2,976	2,371
Capital reserve	(489)	(103)	5	(2)	51
Revenue reserve	(253)	(138)	(98)	(206)	(110)
Shareholders’ funds	4,329	2,054	1,173	2,803	2,339
Net asset value excluding distributions to date (pence per share)	64.3	72.2	74.7	79.7	87.9
Net asset value including distributions to date (pence per share)	84.3	87.2	89.7	89.7	92.9

CASH FLOW STATEMENT

for the year ended 31 December 2015

		31 December 2015	31 December 2014
	Note	£'000	£'000
Cash Flows from Operating Activities   Loss for the year		(618)	(144)
Adjustments for:
Accrued investment income		(128)	(203)
Gain on disposal of investments		(103)	(64)
Decrease/ (increase) in fair value of investments held		484	(28)
Decrease / (increase) in debtors and prepayments		(6)	17
Increase in other creditors and accruals		55	(27)
Net cash used in operating activities		(316)	(449)
Cash flows from Investing Activities
Purchase of Investments held at fair value	8	(1,500)	(2,804)
Proceeds on disposal of Qualifying Investments	11	4,144	1,840
Proceeds from sale of bonds and similar investments		3,409	3,941
Net cash from investing activities		6,053	2,977
Cash flows from financing activities
Dividends paid		(4,572)	(2,629)
Net cash used in financing activities		(4,572)	(2,629)
Net increase/(decrease) in cash and cash equivalents		1,165	(101)
Opening cash and cash equivalents		54	155
Closing cash and cash equivalents		1,219	54

Cash and cash equivalents comprise cash in hand and cash at bank.

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

for the year ended 31 December 2015

	Share Capital	Other reserve	Capital reserve	Revenue reserve	Total reserves
	£'000	£'000	£'000	£'000	£'000
At 1 January 2014	174	17,524	(1,275)	(980)	15,443
Cancellation of C Shares		28	-	-	28
Dividends paid	-	(2,629)	-	-	(2,629)
Gain on disposal of investments	-	-	64	-	64
Increase in fair value of investments held	-	-	28	-	28
Investment income	-	-	-	203	203
Investment management fees	-	-	(121)	(121)	(242)
Other expenses	-	-	-	(197)	(197)
At 31 December 2014	174	14,923	(1,304)	(1,095)	12,698
Elimination of reserves for Ordinary and C Shares		(1,056)	766	290	-
Dividends paid	-	(4,572)	-	-	(4,572)
Gain on disposal of investments	-	-	103	-	103
Decrease in fair value of investments held	-	-	(484)	-	(484)
Investment income	-	-	-	128	128
Investment management fees	-	-	(92)	(92)	(184)
Other expenses	-	-	-	(181)	(181)
At 31 December 2015	174	9,295	(1,011)	(950)	7,508

The capital reserve includes realised investment holding losses of £185,000 (31 December 2014: £387,000) and unrealised investment holding losses of £388,000 (31 December 2014: £917,000).

The other reserve was created from the cancellation of the share premium on all Shares issued by the Company, which was done in order to create a distributable reserve.

The revenue reserve includes all current and prior period retained profits and losses which do not relate to realised and unrealised investment losses. The other reserve, capital reserve and revenue reserve accounts are the distributable reserves of the Company.

During the year ended 31 December 2015 the following dividend payments were made on 26 February 2015 (unless otherwise stated):

	31 December 2015	31 December 2014
	£'000	£'000
Ordinary Share	-	102
C Share	-	1,660
D Share (includes £2,694,000 paid on 23 September 2015)	4,042	337
E Share	142	142
F Share	79	79
G Share	176	176
H Share	133	133
Total Dividends Paid	4,572	2,629

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2015

1. Accounting Policies

a) Company Information

Ingenious Entertainment VCT 2 plc is a venture capitalist trust company domiciled in the United Kingdom and incorporated in England on 10 October 2007. The address of the registered office is 15 Golden Square, London, W1F 9JG.

b) Statement of Compliance

Basis of Accounting

The financial statements for the Reporting Period have been prepared in compliance with UK Generally Accepted Accounting Practice, including Financial Reporting Standard 102 – ‘The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland’ (‘FRS 102’), with the Companies Act 2006 and with the Statement of Recommended Practice entitled “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (the SORP 2014) (with the exception of paragraph 82 of the SORP 2014 regarding detailed disclosure of financial and operational performance of the Company’s unquoted investments due to their confidential nature) which was issued in November 2014.

The comparative figures are for the year 1 January 2014 to 31 December 2014.

The financial statements have been prepared on a going concern basis under the historical cost convention, except for the measurement at fair value for Qualifying and Non-qualifying Investments. The principal accounting policies have remained materially unchanged from those set out in the Company’s 2014 Annual Report and Accounts. However, there have been slight revisions as a result of the adoption of FRS 102 and the SORP 2014.

This is the first year in which the financial statements have been prepared under FRS 102. As a result, the statement of cash flows has been updated to comply with the format of FRS 102.

FRS 102 sections 11 and 12 have been adopted with regards to the Company’s financial instruments.

The financial statements are presented in Sterling (£).

Key sources of economic uncertainty:

Many of the Company’s financial instruments are measured at fair value in the balance sheet and it is usually possible to determine their fair values within a reasonable range of estimates.

For the majority of the Company’s financial instruments, such as unlisted securities, fair value is derived from using valuation techniques, as recommended by International Private Equity and Venture Capital Valuation Guidelines (IPEVC). Fair value estimates are made at a specific point in time, based on market conditions and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgements (e.g. interest rates, volatility, estimated cash flows) and therefore cannot be determined with precision.

c) 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. In accordance with FRS 102 investments by the Company are held at fair value through profit and loss.

International Private Equity and Venture Capital Valuation Guidelines

Unquoted investments, including equity and loan investments, are stated at fair value through profit and loss and are valued in accordance with the IPEVC Guidelines and FRS 102. Investments are initially recognised at cost. The value of investments is subsequently re-measured to current fair value, as estimated by the Directors. Gains or losses arising from the revaluation of investments are taken directly to the Statement of Comprehensive Income. 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 of an investment, the Manager will apply a methodology that is appropriate for 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 methodology most applicable to the Company’s investments is:

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.

Non-qualifying Investments - OEICs

The Company’s Non-qualifying Investments in interest bearing money market OEICs are valued at fair value which is bid price.

Gains and losses arising from changes in the fair value of Qualifying and Non-qualifying Investments are recognised as part of the capital return within the Statement of Comprehensive Income 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 Statement of Comprehensive Income.

d) Investment Income

Interest income is recognised in the Statement of Comprehensive Income under the effective interest method.

Under the effective interest method:

The interest income in a period equals the carrying amount of the loan at the beginning of a period multiplied by the effective interest rate for that period.

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 effective interest rate is determined on the basis of the carrying amount of the loan at initial recognition.

In accordance with FRS 102, when calculating the effective interest rate, the Company estimates cash flows considering all contractual terms of the loans (e.g. prepayments) and known credit losses that have been incurred, but it does not consider possible future credit losses not yet incurred. The main impact for the Company in that regard is the estimation of any loan note premiums.

When calculating the effective interest rate, the Company amortises any related fees, finance charges received, transaction costs and other premiums or discounts over the expected life of the loan. However, the Company uses a shorter period if that is the period to which the fees, finance charges paid or received, transaction costs, premiums or discounts relate.

e) Dividend Income

Dividend income is recognised in the Statement of Comprehensive Income once it is declared by the Investee Companies.

f) Expenses

All expenses are accounted for on an accruals basis. Expenses are charged to the revenue account within the Statement of Comprehensive Income except that:

• expenses which are incidental to the acquisition or disposal of an investment are charged to capital in the Statement of Comprehensive Income 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.

General expenses were paid for by the D Share class until 5 August 2015 and from 6 August 2015 by the E Share class and have been recharged on a quarterly basis to the other Share classes based on the proportional net asset value per Share class as at the last day of the previous quarter.

g) Taxation

Current tax is recognised for the amount of income tax payable in respect of the taxable profit for the current or past reporting periods using the tax rates and laws that that have been enacted or substantively enacted by the reporting date.

Deferred tax is recognised in respect of all timing differences at the reporting date, except as otherwise indicated. Timing differences are differences between taxable profits and total comprehensive income as stated in the financial statements that arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in financial statements. Deferred tax assets are only recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.

Deferred tax is calculated using the tax rates and laws that that have been enacted or substantively enacted by the reporting date that are expected to apply to the reversal of the timing difference.

h) D Shares, E Shares, F Shares, G Shares and H Shares

The Company had five Share classes up to 31 December 2015: D Shares, E Shares, F Shares, G Shares and H 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.

2. Investment Income

	2015 £'000	2014 £'000
Dividend income from Qualifying Investments	-	29
Loan note interest from Qualifying Investments	-	38
Loan note premium from Qualifying Investments (note 8)	128	136
	128	203

3. Arrangement Fees

	2015 £'000	2014 £'000
Arrangement fees	-	-

Since there were no share offers made during the year (nor in the year ended 31 December 2014) no arrangement fees were incurred.

4. Investment Management Fees

	2015	2015	2015	2014	2014	2014
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment management fees	92	92	184	121	121	242

For the purposes of the revenue and capital columns in the Statement of Comprehensive Income, 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

	2015	2015	2015	2014	2014	2014
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Directors’ remuneration (excluding employer’s national insurance)	38	-	38	38	-	38
Auditor’s remuneration
- Audit fees 2015	21	-	21	17	-	17
Legal and professional fees	10	-	10	21	-	21
Other administration expense	112	-	112	121	-	121
	181	-	181	197	-	197

The Company is not registered for VAT. Fees payable to the Company’s auditor for the audit of the Company’s financial statements are £16,500 (31 December 2014: £14,125) excluding VAT. Further details on the Directors’ fee disclosures are given in the Directors’ Remuneration Report.

6. Tax Charge on Ordinary Activities

	2015	2015	2015	2014	2014	2014
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Loss on ordinary activities before tax	(145)	(473)	(618)	(115)	(29)	(144)
Loss on ordinary activities by tax rate 20.247% (31 December 2014: 21.493%)	(29)	(96)	(125)	(25)	(6)	(31)
Adjustments:
Non-taxable (gains)/losses on investments	-	77	77	-	(20)	(20)
Disallowed expenses		19	19	2	26	28
Unutilised losses for the current year	29	-	29	29	-	29
UK dividends not taxable	-	-	-	(6)	-	(6)
	-	-	-	-	-	-

As the Company is a VCT its capital gains are not taxable.

At 31 December 2015 the Company had surplus management expenses of £1,229,000 (31 December 2014: £1,087,000). A deferred tax asset has not been recognised in respect of these surplus management expenses as the future taxable income of the Company cannot 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

C Shares	2015	2015	2015	2014	2014	2014
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Loss on ordinary activities before taxation	-	-	-	(29)	(18)	(47)
Weighted average Shares in issue (number)	-	-	-	2,695,092	2,695,092	2,695,092
Profit/(loss) attributable per Share (pence)	-	-	-	(1.1)	(0.7)	(1.8)
D Shares	2015	2015	2015	2014	2014	2014
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Loss)/ gain on ordinary activities before taxation	(3)	(150)	(153)	23	(36)	(13)
Weighted average Shares in issue (number)	6,735,624	6,735,624	6,735,624	6,735,624	6,735,624	6,735,624
Profit/(loss) attributable per Share (pence)	(0.0)	(2.2)	(2.3)	0.3	(0.5)	(0.2)
E Shares	2015	2015	2015	2014	2014	2014
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Loss)/ gain on ordinary activities before taxation	(22)	(78)	(100)	7	-	7
Weighted average Shares in issue (number)	2,846,122	2,846,122	2,846,122	2,846,122	2,846,122	2,846,122
Profit/(loss) attributable per Share (pence)	(0.8)	(2.7)	(3.5)	0.3	-	0.3
F Shares	2015	2015	2015	2014	2014	2014
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Loss on ordinary activities before taxation	(15)	(45)	(60)	(5)	(1)	(6)
Weighted average Shares in issue (number)	1,572,095	1,572,095	1,572,095	1,572,095	1,572,095	1,572,095
Loss attributable per Share (pence)	(1.0)	(2.9)	(3.9)	(0.3)	(0.1)	(0.4)
G Shares	2015	2015	2015	2014	2014	2014
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Loss on ordinary activities before taxation	(45)	(219)	(264)	(53)	(16)	(69)
Weighted average Shares in issue (number)	3,518,044	3,518,044	3,518,044	3,518,044	3,518,044	3,518,044
(Loss)/profit attributable per Share (pence)	(1.3)	(6.2)	(7.5)	(1.5)	(0.5)	(2.0)
H Shares	2015	2015	2015	2014	2014	2014
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Loss)/ gain on ordinary activities before taxation	(58)	17	(41)	(58)	42	(16)
Weighted average Shares in issue (number)	2,660,842	2,660,842	2,660,842	2,660,842	2,660,842	2,660,842
(Loss)/profit attributable per Share (pence)	(2.2)	0.6	(1.6)	(2.2)	1.6	(0.6)

There are no dilutive potential D, E, F, G and H 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

	2015 £'000	2014 £'000
Unquoted investments	5,332	8,280
Equity shares	2,844	2,959
Unsecured loan notes	2,488	5,321
	5,332	8,280
Qualifying Investments
	2015 £'000	2014 £'000
Opening valuation	8,280	7,228
Purchases at cost	1,500	2,625
Return of investment	(4,092)	(1,729)
Fair value adjustment	(356)	156
Closing valuation	5,332	8,280

Included in the valuation above is an equal and opposite fair value gain and fair value loss amounting to £128,000 (31 December 2014: £136,000). This represents the accounting treatment of the guaranteed loan note premium. The £128,000 (31 December 2014: £136,000) is included in the Statement of Comprehensive Income under Investment Income (refer to note 2).

9. Significant Interests

The Company has interests of 3%, or greater, of the nominal value of the allotted shares in the following Investee Companies incorporated in the United Kingdom as at 31 December 2015:

Trading Companies	% class and share type	% voting rights
CLS Concerts Limited	50.00% A Ordinary	16.67%
Dance Floor Limited	50.00% A Ordinary	12.48%
Event Spaces Limited	50.00% A Ordinary	22.50%
FM3 2013 Limited	50.00% A Ordinary	20.00%
The London Flower Show Limited	50.00% A Ordinary	22.50%
Just For London Limited	50.00% A Ordinary	16.67%
Liverpool Sound City Limited	50.00% A Ordinary	15.00%
Love Supreme Festival Limited	50.00% A Ordinary	12.50%
Saturn Star Limited	50.00% A Ordinary	20.00%
Genius Star Limited	50.00% A Ordinary	25.00%
Counterculture Bars Limited	50.00% A Ordinary	14.48%
SWG Power Limited	50.00% A Ordinary	22.50%
Winterville Events Limited	50.00% A Ordinary	15.00%
The Zoo Project Festival Limited	50.00% A Ordinary	18.75%

As permitted by FRS 102, the above investments in associated undertakings are held at fair value with changes in fair value recognised in profit or loss.

10. Debtors

	2015	2014
	£'000	£'000
Prepayments and accrued income	28	22

11. Current Asset Investments

	2015	2014
	£'000	£'000
Funds held in listed money market OEICs	1,035	4,393
Investment in Investee Companies	3	3
	1,038	4,396
Non-Qualifying Investments
	2015 £'000	2014 £'000
Opening valuation	4,396	8,130
Purchases at cost – listed money market OEICs	-	179
Disposal proceeds - listed money market OEICs	(3,267)	(3,919)
Unrealised change in value - listed money market OEICs	(91)	6
Closing valuation	1,038	4,396

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.

Analysis of Realised Gain or Loss on Disposal of Unquoted Investments

Unquoted Investments	Gain/ (Loss) £000	Proceeds £000	2015 Carrying Value £000	2014 Carrying Value £000
Titans of Sport Limited	-	667	667	757
Venn Music Festival Ltd	-	680	680	857
Liverpool Sound City Limited	-	420	420	538
Love Supreme Festival Limited	-	375	375	375
Waxarch Limited	52	2,002	1,950	1,755
Realised gains on unquoted investments	52	4,144	4,092	4,282
Unrealised loss on disposal of unquoted investments	(91)
Realised gains on quoted investments	142
Total realised gains on investments	103

12. Creditors: Amounts Falling Due Within One Year

	2015	2014
	£'000	£'000
Trade creditors	21	1
Accruals	88	53
	109	54

13. Called-up Share Capital

	2015	2014
Allotted, called-up and fully paid	£'000	£'000
6,735,624 D Shares 1p each	68	68
2,846,122 E Shares 1p each	28	28
1,572,095 F Shares 1p each	16	16
3,518,044 G Shares 1p each	35	35
2,660,842 H Shares 1p each	27	27
	174	174

In the year ended 31 December 2014, the High Court of Justice of England and Wales made an order sanctioning the resolutions passed by the Company in general and class meetings held on 27 November 2014 by which the Company’s Shareholders approved the reduction of the Company’s share capital by the cancellation and extinguishment of all of its C Shares of 1p each.

In the year ended 31 December 2013, the High Court of Justice of England and Wales made an order sanctioning the resolutions passed by the Company in general and class meetings held on 28 November 2013 by which the Company’s Shareholders approved the reduction of the Company’s share capital by the cancellation and extinguishment of all of its Ordinary Shares of 1p each.

In the year ended 31 December 2013, 2,660,842 H Shares were issued and allotted in accordance with the terms of the relevant Prospectus. Share issue costs amounted to £81,000 of which £65,000 have been set off against the Share premium account.

In the year ended 31 December 2012, 3,518,044 G Shares were issued and allotted in accordance with the terms of the relevant Prospectus. Share issue costs amounted to £194,000 of which £155,000 have been set off against the Share premium account.

In the year ended 31 December 2011, 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 £157,000 and £86,000 respectively of which £125,000 and £69,000 have been set off against the Share premium account.

In the year ended 31 December 2010, 6,785,624 D Shares were issued and allotted in accordance with the terms of the relevant Prospectus. 6,735,624 D Shares were fully paid at that year end. Share issue costs amounting to £295,000 have been set off against the Share premium account.

D Shares, E Shares, F Shares, G Shares and H Shares rank pari passu with each other in terms of voting and other rights. The entire issued D, E, F, G and H Share capital of the Company has been admitted to the official list maintained by the Financial Conduct Authority and to trading on the London Stock Exchange.

14. Net Asset Value per Share Excluding Distributions to Date

	2015	2014
Net assets attributable to D Shareholders (£'000)	133	4,329
D Shares in issue (number)	6,735,624	6,735,624
Net asset value per D Share (pence)	2.0	64.3
	2015	2014
Net assets attributable to E Shareholders (£'000)	1,813	2,054
E Shares in issue (number)	2,846,122	2,846,122
Net asset value per E Share (pence)	63.7	72.2
	2015	2014
Net assets attributable to F Shareholders (£'000)	1,036	1,173
F Shares in issue (number)	1,572,095	1,572,095
Net asset value per F Share (pence)	65.9	74.7
	2015	2014
Net assets attributable to G Shareholders (£'000)	2,365	2,803
G Shares in issue (number)	3,518,044	3,518,044
Net asset value per G Share (pence)	67.2	79.7
	2015	2014
Net assets attributable to H Shareholders (£'000)	2,165	2, 339
H Shares in issue (number)	2,660,842	2,660,842
Net asset value per H Share (pence)	81.4	87.9

15. 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 bid 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

		2015 £'000	2014 £'000
Listed money market OEICs (note 11)	Level 1	1,035	4,393
Investment in investee companies (note 11)	Level 3	3	3
Unquoted investments (note 8)	Level 3	5,332	8,280
		6,370	12,676

Level 3 investments include a £8,000 revaluation loss on Liverpool Sound City Limited, a £53,000 revaluation loss on Titans of Sport Ltd during the year, a £141,000 revaluation loss on Saturn Star during the year, a £177,000 revaluation loss on Venn during the year and a £173,000 loss on Winterville during the year.

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. Level 3 unquoted investments have been valued at fair value. Fair value is estimated by assessing the financial performance of the Company’s investee and adjusting upwards or writing down the cost of the Company’s investment using IVCA valuation techniques as described in note 1(c) - 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 Company measures risk by assessing the impact that each risk parameter will have on the profitability of the Company, or in the case of liquidity risk, by assessing the impact that any given factor will reduce the likelihood of the Company being able to meet its financial liabilities as they fall due. 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 credit risk, 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 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 £1,038,000 (31 December 2014: £4,393,000). 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 2015 (31 December 2014: 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 2015	31 December 2014
	£'000 +/- 50 basis points	£'000 +/- 50 basis points
Impact on loss on ordinary activities for the year before taxation and total equity	5	31

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 £2,488,000 (31 December 2014: £5,321,000) 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 £2,488,000 (31 December 2014: £5,321,000) unsecured loan notes are mostly 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.

16. Related Party Transactions

a) 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 Board approved a deed of novation which, with effect from 6 April 2012, novated the management agreement so that Ingenious Capital Management Limited, of which Patrick McKenna is a director, replaced Ingenious Asset Management Limited as Manager to the Company. Ingenious Capital Management Limited, trading as Ingenious Ventures, undertakes the same duties as Ingenious Asset Management Limited and, save for the change of name of the Manager, there has been no other change to the terms of the management agreement. The reason for this change was to effect an administrative reorganisation within the Ingenious Group.

The Manager, as per the investment management agreement, receives a management fee of 0.4375% of the net asset value per Share class, payable quarterly in advance. In aggregate, this amounted to £184,000 as at 31 December 2015 (31 December 2014: £242,000). The Manager also charges an administration fee of £71,000 (31 December 2014: £88,000) per annum (adjusted for inflation and additional Share classes, if any) and irrecoverable VAT.

b) 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.

c) 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 create and invest in a new company, Counter Culture Bars Limited, to operate a multi-purpose bar/Kitchen and live venue. In September 2015 the Company invested £250,000 for a total of 14.28% of the equity in Counter Culture Bars Limited. Ingenious Entertainment VCT 1 plc invested £250,000 for 14.28% of the equity in Counter Culture Bars Limited. The investment was made in the H Share class.

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 a new company, Just for London Limited, to create a new comedy festival in Central London. In October 2014 the Company invested £500,000 for a total of 16.67% of the equity in Just for London Limited. Ingenious Entertainment VCT 1 plc invested £375,000 for a total of 16.67% of the equity in Just for London Limited. The investment was made in the E, F and H Share classes.

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 a new company, SWG Power Limited, to provide power to festivals, conferences and exhibitions. In November 2015 the Company invested £250,000 for a total of 22.50% of the equity in SWG Power Limited. Ingenious Entertainment VCT 1 plc invested £250,000 for a total of 22.50% of the equity in SWG Power Limited The investment was made in the H Share class.

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 create and invest in a new company, Genius Star Limited, to operate a multi-purpose bar/kitchen and live venue. In December 2015 the Company invested £375,000 for a total of 25% of the equity in Genius Star Limited. Ingenious Entertainment VCT 1 plc invested £375,000 for 25% of the equity in Genius Star Limited. The investment was made in the H Share class.

g) 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 create and invest in a new company, The London Flower Show Limited, to promote the annual event, The London Flower Show. In December 2015 the Company invested £250,000 for a total of 22.50% of the equity in The London Flower Show Limited. Ingenious Entertainment VCT 1 plc invested £250,000 for 22.50% of the equity in The London Flower Show Limited. The investment was made in the H Share class.

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.

		2015	2015	2014	2014
Entity	Note	Expenditure paid £'000	Amounts due £'000	Expenditure paid £'000	Amounts due £'000
Ingenious Capital Management Limited
- Investment management fee	a	184	-	242	-
- Administration fee	a	71	-	88	-

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 £137,000 excluding VAT (31 December 2014: £122,000), have been invoiced to the Investee Companies in the period of which £45,000 remained outstanding as at 31 December 2015 (31 December 2014: £38,000).

17. Events After the Balance Sheet Date

a) The Company declared an interim dividend of 20.0 pence per E Share on 11 February 2016 (2014: 5.0 pence). The dividend was paid on 18 March 2016 by way of a capital distribution reducing the Company’s other reserves.

b) The Company declared an interim dividend of 20.0 pence per F Share on 11 February 2016 (2014: 5.0 pence). The dividend was paid on 18 March 2016 by way of a capital distribution reducing the Company’s other reserves.

c) The Company declared an interim dividend of 5.0 pence per G Share on 11 February 2016 (2014: 5.0 pence). The dividend was paid on 18 March 2016 by way of a capital distribution reducing the Company’s other reserves.

d) The Company declared an interim dividend of 5.0 pence per H Share on 11 February 2016 (2014: 5.0 pence). The dividend was paid on 18 March 2016 by way of a capital distribution reducing the Company’s other reserves.

18. 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 2015 was £7,508,000 (31 December 2014: £12,698,000).

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 cancellation of C Shares 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 £50,000 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.

Category Code: FR

Sequence Number: 521187

Time of Receipt (offset from UTC): 20160414T131813+0100