Annual Report • Mar 31, 2012
Annual Report
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| Page | Page | ||
|---|---|---|---|
| Financial Highlights | 3 | Independent Auditor's Report | 40 |
| Financial Summary | 4 | Statement of Comprehensive Income | 41 |
| Chairman's Statement | 6 | Balance Sheet | 42 |
| Fund Manager's Review | 9 | Statement of Changes in Equity | 43 |
| Valuation of Investments | 24 | Statement of Cash Flows | 44 |
| Directors | 25 | Notes to the Financial Statements | 45 |
| Directors' Report | 26 | Notice of the Annual General Meeting | 63 |
| Directors' Remuneration Report | 38 | Advisers to the Company | 67 |
The Company's investments have typically involved funding for management buy-outs and buy-ins, acquisition funding and business development. The investment policy of the Company is to create a portfolio that blends a mix of businesses operating in traditional industries with those that offer opportunities in the development and application of innovation. As at 31 March 2012 the Company had a portfolio of 30 investments, with a cost of £15.3 million and an audited valuation of £24.2 million.
| Results Announced | 14 June 2012 | Annual General Meeting | 20 July 2012 |
|---|---|---|---|
| Ex-dividend Date | 11 July 2012 | Dividend Paid | 17 August 2012 |
| Record Date | 13 July 2012 |
Your Company's Total Return has increased by 2.6 pence per Ordinary share from 176.2 pence per Ordinary share to 178.8 pence per Ordinary share since March 2011 which includes cumulative dividends paid of 79.2 pence per Ordinary share.
Following the excellent performance last year, your Company has continued to make progress this year with an overall increase above the opening Net Asset Value of 2.2%. In the year the valuation increased by 2.6 pence per Ordinary share from 120.0 pence per Ordinary share at 31 March 2011 to 122.6 pence per Ordinary share, out of which dividends totalling 23.0 pence per Ordinary share were paid resulting in a year end Net Asset Value of 99.6 pence per Ordinary share.
The underlying growth in the investment portfolio was £2.16 million, representing a 7.2% increase. This included £0.07 million of unrealised value growth and £2.09 million profit on disposals.
The total dividend for the year is proposed to be 23.0 pence per Ordinary share which includes a special dividend of 18.0 pence per Ordinary share paid in August 2011 following the partial realisation of the investment in GO Outdoors Limited, an interim dividend of 2.0 pence per Ordinary share paid in September 2011 and a final proposed dividend of 3.0 pence per Ordinary share payable in August 2012.
Shareholders who subscribed in the first round following the Company's first offer have received 79.2 pence per Ordinary share of dividends to date with the Total Return of 178.8 pence per Ordinary share representing a 78.8% uplift on their original investment. Taking account of the original 20% upfront tax relief this return increases to 123.5%.
At the beginning of the financial year, the Company partially realised its investment in GO Outdoors Limited. The sale generated £6.5 million of proceeds, which represented an uplift of £2.1 million on the 31 March 2011 valuation. The Company retains a significant residual investment alongside the new investment partner.
| Year ended 31 March 2012 |
Year ended 31 March 2011 |
Year ended 31 March 2010 |
Year ended 31 March 2009 |
Year ended 31 March 2008 |
|
|---|---|---|---|---|---|
| Income | £1,236,000 | £1,174,000 | £1,129,000 | £1,173,000 | £1,035,000 |
| Profit (loss) before and after taxation | £1,064,000 | £10,373,000 | £4,202,000 | £(3,266,000) | £2,205,000 |
| Profit (loss) per Ordinary share | 2.92p | 31.38p | 13.65p | (10.62)p | 8.51p |
| Dividend per Ordinary share paid in the year | 23.0p | 6.25p | 5.0p | 5.0p | 5.0p |
| Cumulative dividend paid per Ordinary share | 79.2p | 56.2p | 50.0p | 45.0p | 40.0p |
| Net assets attributed to Ordinary shares | £37,894,000 | £41,172,000 | £29,008,000 | £26,400,000 | £26,198,000 |
| Net Asset Value per Ordinary share | 99.6p | 120.0p | 94.4p | 85.7p | 102.1p |
| Total Return per Ordinary share | 178.8p | 176.2p | 144.4p | 130.7p | 142.1p |
The chart below shows how the Total Shareholder Return of your Company, calculated by reference to the Net Asset Value per Ordinary share plus cumulative dividends paid per Ordinary share has developed over the years since the Company's inception.
| Revenue | Capital | Total* | |
|---|---|---|---|
| Dividends paid to 31 March 2012 (pence) | 60.4 | 18.8 | 79.2 |
*Excluding final dividend proposed of 3.0 pence per Ordinary share which will be paid out of revenue
The table below shows the Total Return on each fundraising round per Ordinary share.
| Offer price | Offer price net of tax |
Net Asset Value at 31 March 2012 |
Cumulative dividends paid since fundraisings1 |
Total Return since fundraisings1 |
Total Return since fundraisings with participation in the DRIS 1&2 |
IRR 4 | |
|---|---|---|---|---|---|---|---|
| Pence | Pence | Pence | Pence | Pence | Pence | % | |
| 1995/96 & 1996/97 Tax Year | 100.00 | 80.00 | 99.60 | 79.20 | 178.80 | 190.05 | 4.50% |
| 1996/97 & 1997/98 Tax Year | 100.00 | 80.00 | 99.60 | 78.10 | 177.74 | 188.98 | 4.80% |
| 1997/98 & 1998/99 Tax Year | 105.00 | 84.00 | 99.60 | 74.60 | 174.24 | 185.48 | 4.40% |
| 2004/05 Tax Year (C share3 ) |
99.50 | 59.70 | 112.02 | 50.30 | 162.29 | 180.48 | 7.80% |
| 2005/06 Tax Year | 100.00 | 60.00 | 99.60 | 48.80 | 148.35 | 160.08 | 7.90% |
| 2006/07 & 2007/08 Tax Year | 102.50 | 71.75 | 99.60 | 44.30 | 143.85 | 152.86 | 7.90% |
| 2007/08 & 2008/09 Tax Year | 106.25 | 74.38 | 99.60 | 39.30 | 138.85 | 145.34 | 7.70% |
| 2009/10 & 2010/11 Tax Year | 97.25 | 68.08 | 99.60 | 29.30 | 128.85 | 131.09 | 16.70% |
| 2010/11 & 2011/12 Tax Year | 128.00 | 89.60 | 99.60 | 23.00 | 122.60 | 122.60 | (5.10%)5 |
| 2012 Tax Year | 99.75 | 69.83 | 99.60 | 0.00 | 99.60 | 99.60 | n/a |
The table below shows the example of a Shareholder who invested £3,000 in the first round. Total Return is equivalent to £5,364, or £5,701 if the Shareholder had opted to participate in the Company's dividend reinvestment scheme since the scheme's inception. The Dividend and Total Return figures in this table exclude the benefits of all tax reliefs.
| Subscription | Subscription net of tax |
Net Asset Value at 31 March 2012 |
Cumulative dividends paid since fundraising1 |
Total Return since fundraising1 |
Total Return since fundraising with participation in the DRIS 1&2 |
|
|---|---|---|---|---|---|---|
| £ | £ | £ | £ | £ | £ | |
| 1995/96 & 1996/97 Tax Year | 3,000 | 2,400 | 2,988 | 2,376 | 5,364 | 5,701 |
This assumes that at the time of investment the tax relief given on the investment was not also invested in shares of the Company.
Assuming that all dividends were invested under the terms of the current DRIS.
NAV has been adjusted for conversion of C Shares into Ordinary shares in May 2007.
The IRR calculation has been performed using the Offer price and based on the issue date of 5 April (in the earlier tax year if two years are given) in all cases.
The IRR on this fundraising results primarily from issue costs of 5.5%.
I am pleased to present to Shareholders the Annual Report of the Company for the year ended 31 March 2012.
Your Company has followed the excellent performance of 2011 with further progress this year. Total Return (Net Asset Value plus cumulative dividends) rose by 2.6 pence per Ordinary share (1.5%) over the 12 months to 31 March 2012 to 178.8 pence per Ordinary share (176.2 pence per Ordinary share at 31 March 2011). This value gain compares to a reduction in the FTSE SmallCap® Index of 3.2% and the FTSE AiM All-Share® Index of 11.7% over the same period. I am delighted to report that the Company has maintained its position as the top performing Venture Capital Trust over a 3 year period to date as reported by Citywire. The Company was also voted VCT of the Year by Investor Allstars and GO Outdoors was voted VCT Deal of the Year by unquote".
This continued positive progress was achieved against the backdrop of another challenging year for the UK economy, with the escalating debt crisis in the Eurozone and consumers feeling the pinch of the UK Government's austerity measures. However, many of the portfolio companies have benefited from improved efficiencies following tough measures to control costs in recent years and have managed to make good progress during the year. In spite of the significant market uncertainties over the past few years, entrepreneurial management teams continue to plan and invest for the future and with banks still reluctant to lend we are seeing a marked increase in the volume of investment opportunities, which is expected to continue in the year ahead. It is with this in mind that the Board increased the Company's investment capacity via the recent offer for subscription for Ordinary shares which raised a net total of £2.5 million.
Dividends paid in the year totalled 23.0 pence per Ordinary share (19.2% of 31 March 2011 Net Asset Value per Ordinary share) which included a special dividend of 18.0 pence per Ordinary share following the partial disposal of the investment in GO Outdoors Limited in April 2011. Following payment of the dividends the Net Asset Value is 99.6 pence per Ordinary share at 31 March 2012 (120.0 pence per Ordinary share at 31 March 2011). Your Board is recommending that the usual underlying annual dividend of 5.0 pence per Ordinary share is maintained by way of a final dividend of 3.0 pence per Ordinary share in respect of the year to 31 March 2012 (2011: 3.0 pence). If approved, this dividend will be paid on 17 August 2012 to Shareholders on the register at 13 July 2012. The final dividend has not been recognised in the accounts under IFRS as the contractual obligation did not exist at the balance sheet date.
Your Board will maintain its policy of seeking to improve on this underlying dividend as and when profitable cash realisations allow.
Over the year to 31 March 2012 the total capital value growth from the opening portfolio was £2.16 million, or 7.2%, made up of £0.07 million of unrealised value growth and £2.09 million profit on disposals. Of the profit on disposals, £2.07 million is attributed to the partial disposal of roughly one third of the Company's holding in GO Outdoors Limited to 3i Group plc for £6.54 million. Although net unrealised growth is small, significant progress has been made across the portfolio, most notably security software provider Deep-Secure Ltd increased in value by £1.21 million and niche manufacturer President Engineering Group Limited increased in value by £1.69 million, both recording strong profit growth. Uplifts were also noted in respect of port operator RMS Group Holdings Limited (up £0.22 million) and recruitment specialist Harris Hill Limited (up £0.19 million). These and other value gains were offset by a £3.56 million reduction in the residual investment valuation of GO Outdoors Limited as a result of a downturn in the retail sector, although the medium term prospects for this investment still look strong.
The stockmarkets have been quite volatile during the year but the quoted investment portfolio finished the year with an overall value reduction of only £0.06 million. Significant gains were seen on coal services and logistics group Hargreaves Services plc (up £0.17 million), medical diagnostics group EKF Diagnostics Holdings plc (up £0.13 million) and business software services provider Tikit Group plc (up £0.10 million).
The year to 31 March 2012 saw an increase in investment activity with a total of £2.53 million invested (£2.21 million in the year to 31 March 2011 excluding the £0.75 million further investment into acquisition vehicle Adex Bridge Investments Limited). This included four new investments totalling £1.97 million and four further investments totalling £0.26 million. In addition a further £0.30 million was invested into North Western Investments Limited to fund the buy-out of Displayplan Holdings Limited.
The four new investments were:
There have been a number of disposals during the year, the most notable being the partial disposal of the Company's investment in GO Outdoors Limited to 3i Group plc in April 2011. The Company received proceeds of £6.54 million representing a profit of £2.07 million compared to the previous carrying value and a profit of £6.49 million compared to the original cost of the investment. This allowed the Company to return to its Shareholders a tax free special dividend of 18.0 pence per Ordinary share. The Company has a residual 14.09% shareholding in GO Outdoors Limited. Continued strong levels of profit enabled the remaining preference shares in Waterfall Services Limited to be redeemed (£0.23 million) and RMS Group Holdings Limited to repay the remaining shareholder loan (£0.36 million). Further disposals were made across a number of AiM quoted companies including
Hargreaves Services plc, Tikit Group plc, Patsystems plc, Belgravium Technologies plc and Straight plc. The sale of AiM shares during the year generated £0.56 million of proceeds, a gain of £0.02 million above the previous carrying value and delivered a profit of £0.12 million compared to original cost.
The year also saw the disposal of acquisition vehicle Adex Bridge Investments Limited which reinvested its £1.75 million value into specialist engineering group Seven Technologies Limited just after the 31 March 2012 year end. The £1.0 million loan to 4G Capital Limited was also repaid in the period, recovering proceeds after costs marginally under the £1.0 million carrying value.
In total proceeds of £10.4 million were received, generating a profit on previous carrying values of £2.09 million and representing a £6.60 million gain on original cost.
The portfolio also generated income during the year of £0.93 million (2011: £0.72 million) from interest and dividend payments, resulting in a total portfolio return for the year before administrative fees of £3.09 million (2011: £11.28 million).
The result for the financial year ended 31 March 2012 was a pre-tax profit of £1.06 million which comprised profits in respect of capital and revenue of £0.32 million and £0.74 million respectively, as compared to a pre-tax profit of £10.37 million in 2011 (which comprised a capital profit of £9.67 million and a revenue profit of £0.70 million).
The movement in Net Asset Value in the year has been:
| Pence per Ordinary share | |
|---|---|
| 31 March 2011 | 120.0 |
| Total increase in the year | 2.6 |
| 122.6 | |
| Dividends paid in year | (23.0) |
| 31 March 2012 | 99.6 |
Cash and cash equivalents, fixed term bonds and gilt investments at the end of the year amounted to £14.87 million, representing 39.2% of Net Asset Value (2011: £11.65 million representing 28.3% of Net Asset Value). A further £1.4 million of net proceeds were received after the year end in respect of the successful fundraising offer noted below.
Under the incentive scheme to reward the Fund Manager a payment of £1,415,058 (equivalent to 3.7 pence per Ordinary share) is to be made in respect of the year ended 31 March 2012. This has been fully accrued in the accounts and payment will be made following the Annual General Meeting on 20 July 2012.
At the beginning of the year the Company increased its investment capacity through a linked offer with British Smaller Companies VCT2 plc launched in December 2010. During the financial year a total of 1,421,329 new Ordinary shares (at 128 pence per Ordinary share) were issued relating to this linked offer. Taking into account the shares issued prior to the 31 March 2011 year end the total new funds raised by the Company under the linked offer amounted to £4.41 million.
Towards the end of the financial year, the Company increased its investment capacity further through an Offer for Subscription of up to 3,788,310 new Ordinary shares at a price of 99.75 pence per Ordinary share. I am pleased to report that on 20 March 2012 the Company allotted 1,080,772 new Ordinary shares and shortly following the year end, on 5 April 2012, a further 1,531,778 new Ordinary shares were allotted, with the Company raising net proceeds totalling £2.5 million.
The additional investment capacity will enable the Company to take advantage of attractive investment opportunities that are expected to arise over the coming years.
Your Board continues to support the Shareholder workshops run by the Company's Fund Manager, YFM Private Equity Limited, where investors are invited to meet members of the Board, representatives from the Fund Manager and the Chief Executives of one or more of our investee companies. We were delighted to welcome over 150 Shareholders to the most recent workshop held on 9 February 2012 at the Royal College of Surgeons. Your Board continues to remain committed to these events which we believe are useful in increasing Shareholders' awareness of the Company's activities.
The Board also remains committed to the objective of achieving a consistent dividend stream. This policy has been continued with your Board proposing that a final dividend of 3.0 pence per Ordinary share be paid on 17 August 2012 to Shareholders on the register as at 13 July 2012.
Your Board continues to promote the Company's dividend reinvestment scheme ("DRIS"). Your Board believes that the combination of achieving a consistent dividend, growth in Net Asset Value and tax relief on reinvested dividends remains an attractive investment proposition. During the year a total of 1.43 million new Ordinary shares were issued under the scheme. This represented 16.4% of the dividends paid (20% excluding the special dividend).
During the year, the Company purchased a total of 199,200 Ordinary shares at an average price of 91.21 pence per Ordinary share (2011: 778,448 shares at an average price of 88.73 pence per Ordinary share). The existing buy-back authority currently expires on 20 July 2012 and is proposed to be extended by 3 years or until the date of the 2015 Annual General Meeting, whichever is the earlier. A resolution to this effect will be proposed at the Company's Annual General Meeting this year.
The Annual General Meeting of the Company will be held at 12:00 noon on 20 July 2012 at 33 St James Square, London, SW1Y 4JS. Full details of the agenda for this meeting are included in the Notice of the Annual General Meeting on page 63.
Venture Capital Trusts have had a positive influence and benefit on the flow of capital to the UK's smaller businesses and it is welcome that this has been recognised by the current UK Government.
Following the issue of the Draft Finance Bill 2012 on 29 March 2012 investments undertaken by the Company will be subject to new legislation.
Following EU approval welcome changes have been made to the "qualifying company" limits effective from 6 April 2012 subject to the granting of Royal Assent. These are summarised as follows:
Funds raised by VCTs after 5 April 2012 may not be used to finance buyouts or otherwise to acquire existing shares.
The Company does not have any funds to which the buy-outs rule applies, with all funds raised on or prior to 5 April 2012.
These changes are expected to significantly increase the level and scale of investment opportunities available to the Company over the coming years.
On 3 April 2012 the Company invested £2.5 million into the Northern Ireland based specialist engineering group Seven Technologies Limited. Also on 3 April 2012 £1.0 million was invested into the acquisition vehicle Fairlight Bridge Limited, focused on turnaround opportunities in and around the Midlands.
On 5 April 2012 the Company allotted 1,531,778 new Ordinary shares of 10 pence each at a price of 99.75 pence per Ordinary share in respect of valid subscriptions received and accepted by the Company on or after 21 March 2012 and by 11:00 am on Thursday 5 April 2012 pursuant to the Offer for Subscription ("the Offer") launched on 6 March 2012. In total the Company raised net proceeds of £2.5 million under the Offer, which closed on 5 April 2012.
It is encouraging to see many portfolio businesses reporting improved results feeding through to increased valuations. The portfolio remains well funded with many companies having taken the opportunity to improve efficiency and capitalising on market changes resulting from the uncertain economic conditions. This Company is well placed both to add to the diversity of its investment portfolio and continue to support existing portfolio companies as they seek to expand organically and through selective acquisitions.
The Board believes that the upcoming period is again likely to present good investment opportunities, both for existing portfolio businesses and for new investments. It is pleasing that in the new financial year we are already reporting an increase in investment activity and the Fund Manager is seeing an increase in new investment enquiry levels. The relaxation of the restrictions governing VCT qualifying investments is also expected to increase the number and scale of attractive opportunities over the coming years. It was with this in mind that we increased the investment capacity of the Company so as to be in a strong position to take advantage of good opportunities as they arise. The strong long-term track record of the Company now provides an excellent platform for future fund raising and investment activity.
I would like to take this opportunity to thank all Shareholders for their continued support, which we greatly value.
Helen Sinclair Chairman 13 June 2012
| Name of Company | Date of Initial Investment |
Location | Industry Sector |
Original Cost £000 |
Realised Proceeds to Date* £000 |
Investment Valuation at 31 March 2012 £000 |
Returns to Date £000 |
|---|---|---|---|---|---|---|---|
| Current Investments | |||||||
| GO Outdoors Limited | May-98 | Sheffield | Consumer Products | 556 | 6,995 | 5,504 | 12,499 |
| President Engineering Group Ltd | Sep-10 | Sheffield | Manufacturing | 1,000 | – | 2,687 | 2,687 |
| Deep-Secure Ltd | Dec-09 | Malvern | Software | 1,000 | – | 2,298 | 2,298 |
| Waterfall Services Limited | Feb-07 | Warrington | Support Services | 1,000 | 233 | 1,503 | 1,736 |
| Displayplan Holdings Limited (formerly North Western Investments Limited) |
Feb-10 | Baldock, Herts | Retail | 1,300 | – | 1,300 | 1,300 |
| Fishawack Limited | Jan-08 | Knutsford | Communications | 878 | – | 896 | 896 |
| Harvey Jones Holdings Limited | May-07 | London | Manufacturing | 777 | – | 783 | 783 |
| Hargreaves Services plc | Dec-07 | Durham | Manufacturing | 469 | 330 | 757 | 1,087 |
| Lightmain Company Limited | Mar-10 | Rotherham | Manufacturing | 600 | – | 686 | 686 |
| Harris Hill Holdings Limited | Jun-07 | Kingston-upon-Thames Recruitment | 600 | – | 653 | 653 | |
| Bagel Nash Group Limited | Jul-11 | Leeds | Food Retail | 611 | – | 611 | 611 |
| Bluebell Telecom Group Limited | Sep-10 | Newcastle | Telecommunications | 500 | – | 608 | 608 |
| Selima Limited | Mar-12 | Sheffield | Software | 600 | – | 600 | 600 |
| K3 Business Technology Group plc | Apr-08 | Manchester | Software | 402 | – | 585 | 585 |
| EKF Diagnostics Holdings plc | Jul-10 | London | Pharmaceuticals | 366 | 105 | 536 | 641 |
| Pressure Technologies plc | Jun-07 | Sheffield | Industrial | 425 | – | 454 | 454 |
| Mattioli Woods plc | Nov-05 | Leicester | Support Services | 326 | – | 449 | 449 |
| Tikit Group plc | Jun-01 | London | Software | 226 | 187 | 438 | 625 |
| Primal Pictures Limited | Mar-01 | London | Healthcare | 500 | 93 | 406 | 499 |
| RMS Group Holdings Limited | Jul-07 | Goole | Industrial | 1,050 | 897 | 405 | 1,302 |
| PowerOasis Limited | Nov-11 | Swindon | Telecommunications | 375 | – | 375 | 375 |
| TeraView Limited | Dec-11 | Cambridge | Electronics | 375 | – | 375 | 375 |
| Cambridge Cognition Limited | May-02 | Cambridge | Software | 325 | – | 330 | 330 |
| Dryden Human Capital Group Limited (formerly Darwin Rhodes Group Limited) |
Apr-08 | London | Recruitment | 488 | – | 319 | 319 |
| Woodspeen Training Group plc | Dec-10 | London | Training Provider | 250 | – | 165 | 165 |
| Vianet Group plc (formerly Brulines Group plc) |
Oct-06 | Stockton-on- Tees | Software | 163 | – | 140 | 140 |
| Ellfin Home Care Limited | Dec-07 | Oldham | Healthcare | 823 | – | 139 | 139 |
| Straight plc | Feb-04 | Leeds | Industrial | 341 | 139 | 107 | 246 |
| Belgravium Technologies plc | Oct-05 | Bradford | Software | 200 | 22 | 91 | 113 |
| 4G Capital Limited | Mar-10 | North-West | Software | 1,000 | 984 | – | 984 |
| 17,526 | 9,985 | 24,200 | 34,185 | ||||
| Full disposals since March 2002 | 13,942 | 18,572 | – | 18,572 | |||
| Full disposals prior to March 2002 | 6,394 | 3,246 | – | 3,246 | |||
| Total | 37,862 | 31,803 | 24,200 | 56,003 |
*Proceeds include premiums and profits on loan repayments and preference redemptions
| Name of Company | Investment Valuation at 31 March 2011 £000 |
Disposals £000 |
Additions £000 |
Valuation gains (losses) £000 |
Investment Valuation at 31 March 2012 £000 |
|---|---|---|---|---|---|
| Current Investments | |||||
| GO Outdoors Limited | 13,521 | (4,461) | – | (3,556) | 5,504 |
| President Engineering Group Ltd | 1,000 | – | – | 1,687 | 2,687 |
| Deep-Secure Ltd | 1,092 | – | – | 1,206 | 2,298 |
| Waterfall Services Limited | 1,821 | (233) | – | (85) | 1,503 |
| Displayplan Holdings Limited (formerly North Western Investments Limited) |
1,000 | – | 300 | – | 1,300 |
| Fishawack Limited | 811 | – | 103 | (18) | 896 |
| Harvey Jones Holdings Limited | 699 | – | – | 84 | 783 |
| Hargreaves Services plc | 869 | (283) | – | 171 | 757 |
| Lightmain Company Limited | 569 | – | – | 117 | 686 |
| Harris Hill Holdings Limited | 465 | – | – | 188 | 653 |
| Bagel Nash Group Limited | – | – | 611 | – | 611 |
| Bluebell Telecom Group Limited | 500 | – | – | 108 | 608 |
| Selima Limited | – | – | 600 | – | 600 |
| Other investments | 7,599 | (3,368) | 911 | 172 | 5,314 |
| Total Movement | 29,946 | (8,345) | 2,525 | 74 | 24,200 |
This section describes the business of the active companies in the portfolio in order of valuation at 31 March 2012. The Company's voting rights in an investee company are the same as the percentage of equity held for each investment detailed below.
| Cost Valuation Dates of investment Equity held Valuation basis Dividends received |
£113,492 £5,504,000 May 1998, March 2002 and April 2007 14.09% Earnings multiple £297,911 (2011: £190,606) |
|
|---|---|---|
| 52 weeks ended 30 January | 30 Jan 2011 | 30 Jan 2010 |
| (2010: 53 weeks ended) | £million | £million |
| Sales | 115.24 | 75.43 |
| EBITDA | 6.14 | 4.95 |
| Profit before tax | 5.20 | 4.25 |
| Retained profits | 8.55 | 4.89 |
| Net assets | 12.93 | 10.32 |
| Cost Valuation Date of investment Equity held Valuation basis Interest |
£1,000,000 £2,687,000 September 2010 20.00% Earnings multiple £81,000 (2011: £37,966) |
|
|---|---|---|
| Year ended 31 October | 2011 £million |
|
| Sales EBITA Profit before tax Retained profits Net assets |
15.98 2.78 1.95 1.23 1.42 |
| Cost Valuation Date of investment Equity held Valuation basis Interest |
£1,000,000 £2,298,000 December 2009 12.86% Earnings multiple £72,195 (2011: 54,000) |
|
|---|---|---|
| Year ended 31 December | 2011 £million |
2010 £million |
| Sales EBITA Profit (loss) before taxation Retained losses Net assets (liabilities) |
3.72 1.5 0.24 (0.26) 0.14 |
2.61 0.63 (0.50) (0.50) (0.12) |
GO Outdoors is a retailer of outdoor clothing and equipment. The original investment of £500,000 in May 1998 supported the buy-out with a second investment in March 2002 to support the company's first acquisition. The company has continued its expansion opening a further ten stores in the year to January 2012, taking the total number of outlets to thirty nine. The £28 million investment from 3i plc in April 2011 was in part to fund a continuation of the rollout of this successful retail concept while at the same time purchasing approximately onethird of the Company's investment.
President Engineering is a niche manufacturer of branded engineering products sold through agents to a diverse international customer base. The company produces mining safety systems sold into developed and developing economies under the Conflow brand and also cryogenic valves sold to the oil and gas sector under the Bestobell brand. The Company backed a management buy-out by the existing management team. Since that time the company has been extremely successful in continuing the international development of its brands supported by strong underlying market growth.
Deep-Secure's market leading products protect against threats to IT security via high security network border gateway technology, which enables customers to maintain network separation and apply content inspection so as to defend sensitive and protected information from intruders. As working practices change and more information is shared electronically, increasing levels of exposure to leakage and attack demands more businesses rely on higher levels of security to protect their data, with main customers being international governments, cross border forces and defence sectors. Profit levels have grown strongly since the Company's investment in 2009.
Sheffield
www.gooutdoors.co.uk
| Cost Valuation Date of investment Equity held Valuation basis Dividends received Interest |
£766,795 £1,503,000 February 2007 19.53% Earnings multiple £17,452 (2011: 23,333) £60,128 (2011: 53,333) |
|
|---|---|---|
| Year ended 31 March | 2011 £million |
2010 £million |
| Sales EBITA Profit before tax Retained profits Net assets |
43.26 2.10 1.30 1.57 2.45 |
36.33 1.65 0.85 0.83 1.59 |
Waterfall is a contract caterer specialising in the care home sector. Since the original investment in 2007 the company has expanded its original catering services business from supplying residential and care homes to supplying the educational market. There has been both organic and acquisitive growth which has broadened and diversified the customer base with significant progress being made in expanding the services provided to both the education and care home sectors.
Baldock, Herts www.displayplan.com
Warrington
www.caterplus.co.uk
| Cost | £1,300,000 | |||
|---|---|---|---|---|
| Valuation | £1,300,000 | |||
| Dates of investment | February 2010 and January 2012 | |||
| Equity held | 22.75% | |||
| Valuation basis | Price of recent investment, | |||
| reviewed for change in fair value | ||||
| Interest | £25,644 (2011: £nil) | |||
| 13 months ended 31 December 2010 (2009: 12 months ended 30 November) |
||||
| 2010 | 2009 | |||
| £million | £million |
| 13.11 | 11.86 |
|---|---|
| 0.08 | (0.03) |
| 0.08 | (0.03) |
| 0.81 | 0.76 |
| 0.82 | 0.77 |
The financial results above are for the Displayplan business acquired through the management buy-out.
In January 2012 a further investment of £0.3 million was made into North Western Investments Limited to support the management buy-out of Displayplan Holdings Limited. Displayplan Holdings Limited provides a complete retail display consultancy service from concept through design and sourcing to finished product delivery to established branded product manufacturers and UK retailers. Typical products include bespoke point of purchase (POP) stands in high street retail stores.
| Cost Valuation Dates of investment Equity held Valuation basis Interest |
£878,260 £896,000 January 2008, December 2009, May 2010 and June 2011 8.39% Earnings multiple £7,556 (2011: £53,815) |
|
|---|---|---|
| Year ended 31 March | 2011 £million |
2010 £million |
| Sales EBITA Loss before tax Retained losses Net liabilities |
7.87 0.95 (0.15) (1.11) (0.34) |
4.60 0.66 (0.44) (0.82) (0.19) |
Fishawack is an established specialist healthcare communications agency focusing on the medical sector, with a strong reputation for providing specialist communications consultancy services for many of the world's top global pharmaceutical companies. Three acquisitions have been made, of its US partner, a UK medical communications business and a Swiss based medical communications business. This has significantly increased its international reach and service capacity as well as broadening its customer base. Fishawack continues to seek further sales growth, both organically and through acquisition.
| Cost Valuation Date of investment Equity held Valuation basis Interest |
£777,143 £783,000 May 2007 6.88% Earnings multiple £69,943 (2011: £69,943) |
|
|---|---|---|
| Year ended | 2011 | 2010 |
| 31 December | £million | £million |
| Sales | 12.24 | 10.87 |
| EBITA | 0.99 | 0.98 |
| Profit before tax | 0.28 | 0.27 |
| Retained profits | 0.20 | 0.09 |
| Net assets | 0.74 | 0.63 |
London www.harveyjones.com
Harvey Jones is a manufacturer/retailer of kitchen furniture. The business has a manufacturing facility in the UK and stores in London and affluent provincial towns and cities principally in the South of England. Its strong brand positioning has helped Harvey Jones to maintain volumes through the economic downturn. The business has continued to selectively open new stores increasing its footprint to 24 from 10 at the time of investment. This increased market share coupled with a low level of gearing positions Harvey Jones well to benefit as market conditions improve.
| Cost Valuation Dates of investment Equity held Valuation basis Dividends received |
£316,460 £757,000 December 2007, January, February and March 2008 0.23% Quoted bid price £12,540 (2011: 13,277) |
|
|---|---|---|
| Year ended 31 May | 2011 £million |
2010 |
| Sales EBITA Profit before tax Retained profits Net assets |
552.26 46.65 36.93 74.16 114.65 |
£million 459.78 38.83 30.72 51.81 89.78 |
Durham www.hargreavesservices.co.uk
In the years following its foundation in 1994 Hargreaves Services established itself as the largest independent bulk haulage company in Britain. The group has a national network of depots and facilities, and specialises in supplying and processing carbon-based minerals. It expanded into energy trading in mainland Europe and operates two collieries and a coke plant. The planning consent received in 2011 to begin production at the Tower Colliery in Wales was a significant step and should underpin further profit growth. Hargreaves Services issued a trading update on 28 May 2012 pertaining to an expected reduction in the 2012/13 profits of between £12 million and £16 million following an incident at Maltby.
| Cost Valuation Date of investment Equity held Valuation basis Interest |
£600,000 £686,000 March 2010 30.00% Earnings multiple £53,718 (2011: £53,670) |
|
|---|---|---|
| Year ended 30 September | 2010 £million |
2009 £million |
| Retained profits Net assets |
1.16 1.16 |
0.96 0.96 |
Lightmain Company Limited has a small company exemption from filing full financial statements at Companies House.
Lightmain is a manufacturer and installer of playground equipment and multi-user games areas across the UK. The business has a reputation for quality and an established customer base which provides visibility of forward orders. Although the company has some exposure to local authority spending reviews it also generates significant revenues from other sources.
| Cost Valuation Date of investment Equity held Valuation basis Interest |
£600,000 £653,000 June 2007 10.70% Earnings multiple £46,200 (2011: £43,987) |
|
|---|---|---|
| Year ended 31 March | 2011 | 2010 |
| £million | £million | |
| Sales | 4.35 | 3.34 |
| EBITA | 0.49 | 0.03 |
| Loss before tax | (0.21) | (0.78) |
| Retained losses | (2.39) | (2.12) |
| Net liabilities | (1.91) | (1.64) |
Harris Hill is a niche recruitment business with a strong reputation for providing excellent permanent and temporary recruitment solutions to the charity and not-for-profit sectors. Whilst market conditions have been difficult over recent years at the level of earnings before interest, tax and amortisation the business has remained profitable and has seen a recovery in sales and profits since 2009.
| Cost Valuation Date of investment Equity held Valuation basis |
£611,000 £611,000 July 2011 6.80% Price of recent investment, reviewed for change in fair value |
|
|---|---|---|
| Interest | £39,113 (2011: £nil) | |
| Year ended 30 April | 2011 £million |
2010 £million |
| Sales EBITA Profit before tax Retained profits Net assets |
n/a n/a n/a 1.28 1.28 |
n/a n/a n/a 1.10 1.10 |
Leeds www.bagelnash.com
Bagel Nash is an established operator chain of 11 espresso and bagel bars in Leeds, Manchester, York and Huddersfield and also runs a bakery supplying products to its own stores and the UK wholesale trade. An experienced team completed the buyin during July 2011 and value growth is expected via a retail rollout strategy.
| Cost | £500,000 | |
|---|---|---|
| Valuation | £608,000 | |
| Date of investment | September 2010 | |
| Equity held | 6.75% | |
| Valuation basis | Earnings multiple | |
| Interest | £35,005 (2011: £20,420) | |
| Year ended 30 April | 2011 | |
| £million | ||
| Sales | 7.00 | |
| EBITA | 0.90 | |
| Loss before tax | (0.17) | |
| Retained losses | (0.27) | |
| Net assets | 4.58 | |
Bluebell is a telecommunications service provider that aggregates a range of services including fixed line, mobile and data to UK businesses. The Company's investment in 2010 was made to fund the acquisition of Callstream, which has been successfully integrated, and a further acquisition of Worldwide ISDN was completed in 2011.
| Cost | £600,000 |
|---|---|
| Valuation | £600,000 |
| Date of investment | March 2012 |
| Equity held | 12.50% |
| Valuation basis | Price of recent investment, |
| reviewed for change in fair value | |
| Interest | £2,604 (2011: £nil) |
The first set of audited financial statements for Selima Limited following the investment by the Company is not yet due.
Selima which is headquartered in Sheffield with over 40 staff, was established in 1983. Selima has considerable experience of deploying comprehensive payroll, HR and expenses solutions and bureau services that save organisations significant sums of money. Selima's customers include Bristol City Council, Young's Brewery and Greater Manchester Police. The investment will primarily be used for expanding the business including improvements to services for new and existing clients and the introduction of new, innovative products.
| Cost | £402,094 | |
|---|---|---|
| Valuation | £585,000 | |
| Date of investment | April 2008 | |
| Equity held | 1.05% | |
| Valuation basis | Quoted bid price | |
| Dividends received | £2,250 (2011: £2,250) | |
| For the year ended 30 June 2011 and the | ||
| 18 months ended 30 June 2010 | ||
| 2011 | 2010 | |
| £million | £million | |
| Sales | 52.80 | 59.78 |
| 8.64 | ||
| EBITA | 9.05 | |
| Profit before tax | 4.91 | 4.77 |
| Retained profits | 15.81 | 11.33 |
Net assets 82.91 63.41
Manchester www.k3btg.com
Sheffield
www.selima.co.uk
K3 provides software-based supply chain management solutions to the manufacturing and retail sectors, and its Microsoft-based product range has continued to take market share from more established providers. Growth in internet retailing has helped offset recent weakness in sales to traditional retailers and recurring revenue is an increasingly large proportion of turnover.
| Cost Valuation Dates of investment Equity held Valuation basis |
£313,492 £536,000 July 2010 and June 2011 0.75% Quoted bid price |
|
|---|---|---|
| Year ended 31 December | 2011 | 2010 |
| £million | £million | |
| Sales | 21.66 | 6.48 |
| EBITA (LBITA) | 0.28 | (1.12) |
| Loss before tax | (2.36) | (2.09) |
| Retained losses | (5.66) | (3.69) |
| Net assets | 58.73 | 35.98 |
London www.ekf-diagnostic.de
EKF is a provider of a wide range of diagnostic needs in clinical care, blood donor services and dialysis centres, recreation institutes, sports medicine and industrial applications. EKF's name consists of the first three letters of German words, Entwicklung (development), Konstruktion (construction) and Fertigung (production), which are the main business divisions. EKF is well funded and has made some good acquisitions and commercial progress.
| Cost Valuation Dates of investment Equity held Valuation basis Dividends received |
£425,421 £454,000 June and July 2007 2.50% Quoted bid price £20,414 (2011: £20,414) |
|
|---|---|---|
| Year ended 1 October | 2011 | 2010 |
| (2010: 2 October) | £million | £million |
| Sales | 23.13 | 21.71 |
| EBITA | 1.03 | 3.69 |
| Profit before tax | 0.58 | 3.51 |
| Retained profits | 9.61 | 10.00 |
| Net assets | 15.54 | 15.91 |
Pressure Technologies was admitted to AiM in June 2007. It specialises in the manufacture of ultra-large high pressure cylinders for the offshore oil and gas industry but is increasingly diversifying through acquisitions into other sectors, such as biogas and defence. The balance sheet remains ungeared with £2-3 million of surplus cash.
| £325,922 £449,000 November 2005, February, March and October 2006 and July 2007 1.36% |
|
|---|---|
| £12,700 (2011: £11,221) | |
| 2011 | 2010 |
| £million | £million |
| 15.36 | 13.68 |
| 4.87 | 4.59 |
| 4.55 | 4.27 |
| 12.87 | 10.34 |
| 22.10 | 18.98 |
| Quoted bid price |
Leicester www.mattioli-woods.com
Mattioli Woods provides pensions consultancy and administration services primarily to owner-managers, senior executives and professional persons. The Group's key activities include complex pensions consultancy, the provision of Self-Invested Personal Pensions ("SIPP") and Small Self-Administered Pension Schemes ("SSAS"). The company operates a fee-driven model and is well positioned to take advantage of regulatory changes in its market.
| Cost Valuation Dates of investment |
£150,109 £438,000 June 2001, March and November 2006, January and April 2007 |
|
|---|---|---|
| Equity held | 0.88% | |
| Valuation basis | Quoted bid price | |
| Dividends received | £10,680 (2011: £11,959) | |
| Year ended 31 December | 2011 £million |
2010 £million |
| Sales | 26.35 | 26.88 |
| EBITA | 4.45 | 3.43 |
| Profit before tax | 3.52 | 2.95 |
| Retained profits | 11.92 | 9.69 |
| Net assets | 18.17 | 16.16 |
Tikit Group is a provider of consultancy services and software solutions principally to the IT departments of top law firms. The company provides a range of document and knowledge management tools to the majority of the top 50 UK legal practices. The business, which is ungeared, has continued to perform strongly with the business model transitioning to a higher proportion of recurring revenues.
| Cost Valuation Date of investment Equity held Valuation basis |
£467,792 £406,000 March 2001 3.90% Earnings multiple |
|
|---|---|---|
| Year ended 31 December | 2010 | 2009 Restated |
| Sales EBITA Profit before tax Retained losses Net liabilities |
£million 3.30 0.37 0.69 (3.84) (1.07) |
£million 2.54 0.62 0.30 (4.52) (1.12) |
Primal Pictures has developed a complete range of high quality anatomical CD-ROMs aimed at healthcare professionals, ranging from medical students to orthopaedic surgeons. Images derived from X-ray, magnetic resonance and other scan data have enabled the production of a completely authentic anatomical model of the human body. The company has significantly expanded its business development activities to a range of healthcare and education markets, also developing recurring licence revenues from reseller partners.
| Cost Valuation Dates of investment Equity held Valuation basis Interest |
£180,044 £405,000 July 2007 and August 2008 8.10% Earnings multiple £41,134 (2011: £65,346) |
|
|---|---|---|
| Year ended 31 December | 2011 | 2010 |
| £million | £million | |
| Sales | 27.66 | 25.46 |
| EBITDA | 2.79 | 2.64 |
| Profit before tax | 0.99 | 0.61 |
| Retained profits (losses) | 0.76 | (0.03) |
| Net assets | 5.43 | 4.65 |
Goole www.rms-europe.co.uk
RMS operates from six sites on the Humber estuary handling around 2 million tonnes of cargo a year. RMS has continued to broaden its range of customer services and expand its operations along the Humber estuary. Whilst dependent on the overall level of commodity movements, the financing structure of the company has been defensively constructed giving it a competitive advantage over others in its sector. The team have used the tough economic conditions to consolidate their market position and have now repaid the original loan instrument in full.
| Cost Valuation Date of investment Equity held Valuation basis |
£375,000 £375,000 November 2011 2.70% Price of recent investment, reviewed for change in fair value |
|
|---|---|---|
| Year ended 31 January | 2011 £million |
2010 £million |
| Sales EBITA Profit before tax Retained losses Net assets |
n/a n/a n/a (2.98) 0.68 |
n/a n/a n/a (1.57) 0.17 |
PowerOasis Limited has a small company exemption from filing full financial statements at Companies House.
PowerOasis is a leader in power management and energy efficiency solutions for wireless operators. It has developed an innovative wireless network power management software platform that remotely monitors, controls and manages the supply of power to base station sites that lack a reliable electricity grid in the Middle East and Africa. PowerOasis is an energy partner for two of the world's largest network equipment providers and some of the world's largest mobile telecom operators, which use PowerOasis technology to reduce the operating cost of power while dramatically improving network availability.
| Cost Valuation Date of investment Equity held Valuation basis |
£375,000 £375,000 December 2011 7.50% Price of recent investment, reviewed for change in fair value |
|
|---|---|---|
| Year ended 30 April | 2011 £million |
2010 £million |
| Sales LBITA Loss before tax Retained losses Net liabilities |
2.95 (0.86) (5.75) (32.01) (18.72) |
2.12 (1.01) (5.63) (26.49) (13.26) |
Teraview is a pioneer and leader in Terahertz diagnostic and inspection systems and solutions. The investment will allow TeraView to accelerate the growth of its semiconductor, industrial and analytical business in Asia, the US and the EU. Key areas for focus include sales and marketing in Asia, as well as further product development in its semiconductor inspection market and enhancement of support and collaborations with existing customers.
| Cost Valuation Date of investment Equity held Valuation basis |
£325,000 £330,000 May 2002 3.30% Price of recent investment, reviewed for change in fair value |
|
|---|---|---|
| Year ended 31 December | 2010 | 2009 |
| £million | £million | |
| Sales | 4.83 | 3.31 |
| EBITA (LBITA) | 0.98 | (0.30) |
| Loss before tax | (0.74) | (0.52) |
| Retained losses | (6.17) | (6.91) |
| Net liabilities | (0.25) | (0.80) |
Cambridge Cognition is a cognitive test development company specialising in computerised psychological testing of a wide variety of mental health conditions. It received funding from a range of investors to assist with commercialising its intellectual property. A profitable business model has been established providing its tests for use in evaluating clinical trials.
| Cost Valuation Dates of investment Equity held Valuation basis Dividends received |
£488,160 £319,000 April 2008 and April 2011 7.90% Earnings multiple £30,316 (2011: £nil) |
|
|---|---|---|
| Year ended 31 March | 2011 £million |
2010 £million |
| Sales EBITA (LBITA) Profit (loss) before tax Retained losses Net assets |
9.36 1.17 1.02 (1.13) 3.88 |
4.95 (0.44) (0.58) (1.89) 3.19 |
Dryden Human Capital is an international recruitment firm specialising in the actuarial, insurance and compliance markets. Whilst there have been significant pressures on the financial services sector, the breadth of its activities both in terms of sectors and geographic diversity have assisted in managing these pressures. The business has no debt. Market conditions in recent months have improved significantly since early 2010.
| Cost Valuation Date of investment Equity held Valuation basis |
£249,966 £165,000 December 2010 3.90% Quoted bid price |
|
|---|---|---|
| Year ended 31 March | 2011 £million |
2010 £million |
| Sales (LBITA) EBITA (Loss) profit before tax Retained (losses) profits Net assets |
5.71 (1.08) (1.26) (1.00) 5.86 |
5.11 0.80 0.62 0.44 4.74 |
Woodspeen Training was incorporated in November 2007 with the aim of creating a substantial UK vocational training business principally by acquiring existing businesses providing Government sponsored and/or privately funded vocational training. Woodspeen expects "Apprenticeships" and "Foundation Learning" to be a major growth area in the future as the school leaving age is raised. 16-18 Apprenticeships will be an alternative to those children, at the age of 16, who do not wish to continue in formal academic education.
| Cost Valuation Dates of investment Equity held Valuation basis Dividends received |
£162,530 £140,000 October 2006 and July 2007 0.47% Quoted bid price £7,464 (2011: £5,165) |
|
|---|---|---|
| Year ended 31 March | 2011 | 2010 |
| £million | £million | |
| Sales | 24.28 | 19.83 |
| EBITA | 3.93 | 4.50 |
| Profit before tax | 3.20 | 4.03 |
| Retained profits | 9.00 7.64 |
|
| Net assets | 22.44 | 21.04 |
Stockton-on-Tees www.vianet.co.uk
Vianet Group is the leading provider of volume and revenue protection systems for draught alcoholic drinks for the UK licensed on-trade. The company has consolidated its market leading position and continues to seek to expand its service and product offering. Dividend yield remains strong, but the pub chains continue to struggle, leading Vianet to diversify into related markets, such as petrol forecourts.
| Cost | £823,167 | |
|---|---|---|
| Valuation | £139,000 | |
| Dates of investment | December 2007, October 2008 and | |
| June 2010 | ||
| Equity held | 16.02% | |
| Valuation basis | Earnings multiple | |
| Dividends received | £nil (2011: £nil) | |
| Interest | £nil (2011: (£42,870)) | |
| 12 months ended 31 October | 2010 | 2009 |
| £million | £million | |
| Sales | 3.89 | 4.36 |
| EBITA | 0.24 | 0.65 |
| Loss before tax | (0.52) | (0.02) |
| Retained losses | (0.63) | (0.09) |
| Net (liabilities) assets | (0.04) | 0.48 |
Straight plc
| Cost Valuation Dates of investment Equity held Valuation basis |
£224,778 £107,000 February 2004, January, March and November 2005 and May 2006 1.83% Quoted bid price |
|
|---|---|---|
| Dividends received | £5,792 (2011: £4,991) | |
| Year ended 31 December | 2011 £million |
2010 £million |
| Sales (LBITA) EBITA (Loss) profit before tax Retained profits Net assets |
27.98 (0.52) (0.79) 2.23 9.77 |
30.66 1.67 1.47 2.77 10.29 |
Leeds www.straight.co.uk
Straight is a provider of environmental products and services and is the UK's leading supplier of recycling containers. The group has expanded through acquisitions in its supply chain which it believes strengthens its position in the UK market. Results continue to demonstrate recovery.
| Cost Valuation Date of investment Equity held Valuation basis Dividends received |
£165,000 £91,000 October 2005 1.17% Quoted bid price £nil (2011: £nil) |
|
|---|---|---|
| Year ended 31 December | 2011 | 2010 |
| £million | £million | |
| Sales | 11.16 | 8.20 |
| EBITA | 1.18 | 0.63 |
| Profit before tax | 1.02 | 0.43 |
| Retained profits (losses) | 0.82 | (0.06) |
| Net assets | 10.90 | 10.02 |
Belgravium is a computer design and manufacturing company, specialising in mobile computers for the logistics, fuel and aviation markets. The Company invested to support the acquisition of the complementary Touchstar Technologies. The core markets in aviation have been extremely challenging for some time and new models have been slow to establish.
This year follows the excellent results for 2011 which saw the strongest overall return on opening value since the Company was first established in 1995. It is pleasing to report that further progress has been made in the year to 31 March 2012 with completion of the partial disposal of the investment in GO Outdoors Limited and strong profit growth achieved by several other portfolio businesses.
In spite of the macro-economic environment continuing to present challenges, several portfolio businesses still achieved strong results. Most notably, niche engineering group President Engineering Group Ltd completed the first year since the Company's investment with profits well ahead of budget. Specialist IT communications supplier Deep-Secure Ltd saw profits double in the year to 31 December 2011 compared to the previous year. Further growth in volumes and profits at logistics and stevedoring group, RMS Group Holdings Limited, enabled all of the remaining loan to be repaid early. The Company was also able to profitably dispose of approximately one third of its holding in Hargreaves Services plc.
Investment activity levels are starting to pick up and the Company has made four new investments during the year, together with four follow on investments to support existing companies in the portfolio.
Cash and cash equivalents, fixed term bonds and gilt investments at 31 March 2012 were £14.87 million, representing 39.2% of net assets. This compares to £11.65 million and 28.3% at 31 March 2011. A further £1.4 million of net proceeds was received by the Company following the year end in respect of the offer for subscription launched by the Company on 6 March 2012, providing additional liquidity. The Company remains in a strong cash position to meet anticipated future investment opportunities.
Overall this year has seen general progress made across the whole portfolio against the backdrop of tough economic conditions including the Euro-region sovereign debt crisis and the implementation of UK austerity measures. UK GDP growth is widely forecast to be low for some years to come. However, for investors capable of taking a medium term view over 5-10 years, these conditions present a backdrop for some good investment opportunities, with the banks still reluctant to lend. Having taken tough steps to reduce costs and cut unprofitable activities over recent years many of the portfolio businesses saw improved revenues during the year which combined with improved efficiency levels, resulted in good profit improvements. The portfolio remains well funded and positioned for further value growth as economic conditions slowly improve and current strategies are implemented to capitalise on the changing market conditions.
Overall, the quoted and unquoted portfolio decreased by £5.75 million to a total of £24.20 million at 31 March 2012 (£29.95 million at 31 March 2011). Netting off the new investment of £2.53 million and the value of investments sold of £8.34 million, the net portfolio value increased over the year by £0.07 million. This breaks down into an increase of £0.13 million in the unquoted portfolio and a decrease of £0.06 million in the quoted portfolio.
| Total portfolio £000 |
|
|---|---|
| Opening value | 29,946 |
| Additions | 2,525 |
| Valuation changes | |
| – Unquoted | 134 |
| – Quoted | (60) |
| Value sold | (8,345) |
| 31 March 2012 | 24,200 |
Following the £6.54 million partial disposal of roughly a third of the Company's holding in outdoor retail group GO Outdoors Limited, the valuation of the residual holding reduced by £3.56 million. This fall, which equates to a drop of 39%, is a result of the general downturn in the retail sector which has reduced earnings multiples used in the valuation calculation. Although still at a healthy level, profits were below budget and also impacted by aggressive cost cutting at competitor Blacks Leisure Group plc which eventually went into administration in January 2012. Following its UK rollout plan GO Outdoors opened ten new stores during the year and the prospects for value growth remain strong over the medium term. Given the reduction in the valuation of GO Outdoors, the overall growth in unrealised value over the year demonstrates the strong performance by many other unquoted portfolio investments.
As mentioned above, significant unrealised value gains were made in Deep-Secure Ltd (up £1.21 million) and President Engineering Group Ltd (up £1.69 million) following strong profit growth. Other significant value movements include port operator RMS Group Holdings Limited (up £0.22 million), recruitment specialist Harris Hill Holdings Limited (up £0.19 million), telecommunications service provider Bluebell Telecom Group Limited (up £0.11 million) and playground equipment manufacturer Lightmain Company Limited (up £0.12 million). Apart from the value fall in GO Outdoors Limited, only three other unquoted investments saw values fall and none by significant levels. It is particularly encouraging to see several of the cyclical businesses seeing profit improvement and we hope this continues as market conditions improve further.
The quoted portfolio has remained relatively stable overall. Key unrealised improvements were achieved at coal services and logistics group Hargreaves Services plc (up £0.17 million), medical diagnostics group EKF Diagnostics Holdings plc (up £0.13 million) and business software service provider Tikit Group plc (up £0.10 million), although the residual value of the holding in Hargreaves Services plc has fallen back since the year end.
In accordance with IFRS 7 a sensitivity analysis has been undertaken on the assumptions used to value investments in unquoted companies. The outcome of this sensitivity analysis can be found in note 7 on page 52 and note 19 on page 59.
The investment portfolio held at the year end can be analysed into the following categories:
| AiM Listed Investments | |
|---|---|
| Non Qualifying | £1.19 million |
| Qualifying | £2.53 million |
| £3.72 million | |
| Unquoted Investments | |
| Non Qualifying | £ 0.90 million |
| Qualifying | £19.58 million |
| £20.48 million | |
| Total Investments | £24.20 million |
An increase in investment activity levels has been experienced, and it is hoped that this will continue in the year ahead. During the year investments were made in eight companies:
| £million | |
|---|---|
| New Investments | |
| Bagel Nash Group Limited | 0.61 |
| PowerOasis Limited | 0.38 |
| TeraView Limited | 0.38 |
| Selima Limited | 0.60 |
| Follow-on Investments | |
| Dryden Human Capital Group Limited (formerly Darwin Rhodes Group Limited) |
0.04 |
| Fishawack Limited | 0.10 |
| EKF Diagnostics Holdings plc | 0.12 |
| Displayplan Holdings Limited | 0.30 |
| (formerly North Western Investments Limited) | |
| Total | 2.53 |
During the year new investments were made in four businesses. In July 2011 the Company invested £0.61 million, alongside a further £0.41 million from British Smaller Companies VCT2 plc, to support a proven management team in the buy-in of Bagel Nash Group Limited, a bakery and successful espresso and bagel retail chain. The strategy is to roll out the proven retail proposition across the North of England. In November 2011 the Company invested £0.38 million into PowerOasis Limited, a specialist provider of off grid power solutions for operators of mobile phone base stations. In December 2011 the Company invested £0.38 million into TeraView Limited, a company specialising in the provision of innovative testing processes to the electronics sector. In March 2012 the Company backed the management buy-out of payroll and HR software group Selima Limited with an investment of £0.60 million.
The Company also made four further investments into its existing unquoted and quoted portfolios. In April 2011 £0.04 million was invested into niche international recruitment consultant, Dryden Human Capital Group Limited (formerly Darwin Rhodes Group Limited), to fund a shareholder restructuring alongside investment from new institutional co-investment partner Calculus Capital. In June 2011 £0.10 million was invested into specialist healthcare communications company Fishawack Limited to fund the acquisition of a Swiss competitor. Also in June 2011 £0.12 million was invested into AiM quoted diagnostics healthcare group, EKF Diagnostics Holdings plc to help to fund the acquisition of a US based diagnostics group. In January 2012 the Company completed an overall investment of £1.30 million into Displayplan Holdings Limited, providing retailers and branded goods manufacturers with point-of-sale display fixtures, through its acquisition vehicle North Western Investments Limited, into which the Company had previously invested £1.00 million. We will continue to invest into the portfolio where we see good opportunities for value growth, either via the provision of working capital, funding portfolio businesses to make acquisitions or enabling a restructuring of existing shareholdings.
Following the year end £2.50 million was invested into specialist engineering group Seven Technologies Limited based in Northern Ireland. £1.00 million was also invested into Fairlight Bridge Limited, backing successful interim manager Peter Bridge to look for turnaround opportunities in and around the Midlands region.
April 2011 saw the Company's most significant disposal to date. The partial realisation of the investment in GO Outdoors Limited to 3i plc realised cash proceeds of £6.54 million and allowed the Company to return this to its Shareholders in the form of an 18.0 pence per Ordinary share special dividend. The Company has a residual 14.09% shareholding in GO Outdoors Limited. This deal was awarded VCT Deal of the Year by unquote".
In addition to the partial disposal above, the Company received proceeds of £3.9 million comprising: £3.1 million of loan repayments and preference redemptions and £0.8 million from other portfolio companies.
Over the course of the year £0.33 million has been received from the sale of shares in AiM-listed Hargreaves Services plc, recognising a profit of £0.05 million compared to previous carrying value and a profit of £0.18 million compared to original cost.
The Company's residual investment in AiM-listed Patsystems plc was disposed of in January 2012 for £0.12 million, realising a small loss. The Company also disposed of shares in Belgravium Technologies plc and Straight plc for £0.02 million and generating a small gain. The sale of shares in AiM-listed Tikit Group plc realised proceeds of £0.09 million, £0.02 million in excess of previous carrying value and at a £0.06 million premium to the original cost of the shares.
Also, in March 2012, the Company disposed of its investments in 4G Capital Limited and Adex Bridge Investments Limited. This resulted in £0.90 million and £1.58 million of loans being repaid and £0.08 million and £0.17 million of equity being returned respectively.
The £3.1 million of cash returned from loan repayments and preference redemptions also includes £0.23 million from Waterfall Services Limited in respect of the redemption of preference shares and the £0.36 million early loan repayment from RMS Group Holdings Limited. In addition Denison Mayes Group Limited made the final repayment on the small residual loan.
Overall cash proceeds received during the year amounted to £10.4 million representing a £6.60 million profit on original cost and an uplift of £2.08 million on the previous carrying value. Together with the £0.09 million gain from the sale of gilt investments, this takes the total gain on disposal of investments during the reporting period to £2.98 million.
The chart in the Financial Summary on page 4 shows how the Total Return of the Company, calculated by reference to the Net Asset Value per Ordinary share plus cumulative dividends paid per Ordinary share has developed over the years since the Company's inception.
The year under review has seen a continuation of the difficult market conditions of recent years. In spite of this many of the portfolio companies have been able to deliver improved results. We would hope to see this trend continue as economic conditions begin to improve.
Whilst the year ahead will be challenging we are optimistic about the Company's ability to take advantage of the upcoming opportunities. The hesitant approach from the banks and changes in EU restrictions on qualifying investments should both lead to an increase in the volume and scale of investment opportunities in the year ahead.
The Company's cash reserves have been boosted further by the recent Offer for Subscription. After taking account of the proposed final dividend of 3.0p per Ordinary share this leaves the Company with strong cash reserves to support the portfolio, take advantage of good investment opportunities and continue to pay an attractive dividend.
David Hall YFM Private Equity Limited 13 June 2012
Financial assets are initially measured at fair value. The best estimate of the initial fair value of a financial asset that is either quoted or not quoted in an active market is the transaction price (i.e. cost).
The International Private Equity and Venture Capital (IPEVC) Valuation Guidelines ("the Guidelines") identify six of the most widely used valuation methodologies for unquoted investments. The Guidelines advocate that the best valuation methodologies are those that draw on external, objective market based data in order to derive a fair value.
Discounted cash flows and industry valuation benchmarks are only likely to be reliable as the main basis of estimating fair value in limited situations. Their main use is to support valuations derived using other methodologies and for assessing reductions in fair value.
Where an independent third party valuation exists, this will be used as the basis to derive the gross attributable enterprise value of the company. In other cases, the most suitable valuation technique, as set out above, is used to determine this value. This value is then apportioned appropriately to reflect the respective amounts accruing to each financial instrument holder in the event of a sale at that level at the reporting date.
Unquoted investments held in the form of loan investments are valued at fair value using the appropriate methodologies as used for valuing equity investments, primarily being price of recent investment and earnings multiple.
Quoted investments are valued at active market bid price. An active market is defined as one where transactions take place regularly with sufficient volume and frequency to determine price on an ongoing basis. Where the Company judges that the level of trading does not meet these requirements an illiquidity discount is applied. No such discount has been considered necessary as at 31 March 2012.
Name Responsibilities
Chairman
Non-executive director
Non-executive director
Helen Sinclair Helen has an MA in Economics from Cambridge University and an MBA from INSEAD Business School. After working in investment banking Helen spent nearly eight years at 3i plc focusing on MBO and growth capital investments. She later co-founded Matrix Private Equity raising a successful technology fund, the Matrix Venture Fund VCT plc. She subsequently became Managing Director of Matrix Private Equity before moving to take on a portfolio of non-executive director roles in 2005. She is currently a non-executive director of The Income & Growth VCT plc, Matrix Income & Growth 4 VCT plc, Spark Ventures plc, Downing Income VCT 4 plc and Octopus Eclipse VCT 3 plc.
Philip Simon Cammerman Philip has an engineering degree from Imperial College and an MBA from Stanford University. He has over 20 years of industrial experience in engineering and technology orientated industries and has worked in both the USA and the UK. He has spent the last 26 years in the venture capital industry and was Chairman of YFM Private Equity Limited and a director of YFM Group (Holdings) Limited until he retired in April 2008. He has been responsible for a wide range of venture capital deals in a variety of industries including software, computer maintenance, engineering, printing, safety equipment, design and textiles. He is a non-executive director of Pressure Technologies plc and Hargreave Hale AiM VCT 2 plc. He has been a director of the Company since its establishment as a venture capital trust.
Edward Buchan Edward is a Fellow of the Institute of Chartered Accountants in England and Wales, starting his career with Deloitte before moving to Hill Samuel Bank Limited where he became Head of Corporate Finance and a member of the Bank Executive Committee. He subsequently joined Close Brothers Corporate Finance Limited and then West LB Panmure, specialising in the transport and logistics industry sectors. He is currently Managing Director, Corporate Finance at LCF Edmond de Rothschild Securities Limited and is a non-executive director of Wallem Group Limited and Downing Absolute Income VCT 1 plc.
KHM Secretarial Services Limited Old Cathedral Vicarage St. James Row Sheffield S1 1AX
Registered No: 03612770
The directors present their report and audited financial statements of British Smaller Companies VCT plc ("the Company") for the year ended 31 March 2012.
The Company is a public limited company incorporated and domiciled in the United Kingdom. The address of the registered office and principal place of business is Saint Martins House, 210-212 Chapeltown Road, Leeds, LS7 4HZ.
The Company has its primary, and sole, listing on the London Stock Exchange.
The Company operates as a venture capital trust ("VCT") and has been approved by HM Revenue & Customs as an authorised VCT under Chapter 3 Part 6 of the Income Tax Act 2007. It is the directors' intention to continue to manage the Company's affairs in such a manner as to comply with Chapter 3 Part 6 of the Income Tax Act 2007.
As in previous years, a review of the Company's activities over the past twelve months and the outlook for future developments are included within the Chairman's Statement and Fund Manager's Review. The Company, in common with the VCT industry, did not have any employees during the year. The business and administrative duties of the Company are contracted to the Fund Manager, YFM Private Equity Limited, with the Board retaining the key decision matters for approval. The Board manages the business affairs of the Company through regular management reports from its Fund Manager and, through this process, ensures that it has sufficient resources to carry out its functions and meet its strategic objectives.
The Board seeks to mitigate its internal risks by setting policy, regularly reviewing performance and monitoring progress and compliance. In mitigation and management of these risks, the Board applies rigorously the principles detailed in section C.2: "Risk Management & Internal Control" of The UK Corporate Governance Code issued by the Financial Reporting Council in June 2010. Details of the Company's internal controls are contained in the Corporate Governance and Internal Control sections on page 31 and further information on exposure to risks associated with financial instruments is given in note 19a of the financial statements.
The Board believes that the principal risks faced by the Company are as shown in the table:
Events such as recession and interest rate fluctuations could affect smaller companies' performance and valuations. As well as the response to 'Investment and Strategic' risk below the Company has a clear investment policy (page 35) and a diversified portfolio operating in a range of sectors.
The Fund Manager actively monitors investee performance which provides quality information for their monthly review of the portfolio.
Inappropriate strategy, poor asset allocation or consistently weak stock allocation may lead to under performance and poor returns to Shareholders. The quality of enquiries, investments, investee company management teams and monitoring, and the risk of not identifying investee under performance might also lead to under performance and poor returns to Shareholders.
The Board reviews strategy annually. At each of the (at least) quarterly Board meetings the directors review the appropriateness of the Company's objectives and stated strategy in response to changes in the operating environment, peer group activity and performance against the Company's stated benchmark indicator. The Fund Manager carries out due diligence on potential investee companies and their management teams and utilises external reports where appropriate to assess the viability of investee businesses before investing. Wherever possible a non-executive director will be appointed to the board of the investee.
The Company must comply with Chapter 3 Part 6 of the Income Tax Act 2007 which allows it to be exempted from capital gains tax on investment gains. 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 having to repay the income tax relief they obtained and future dividends paid by the Company becoming subject to tax. The Company would also lose its exemption from corporation tax on capital gains.
The Company is required to comply with the Companies Act 2006, the rules of the UK Listing Authority and International Financial Reporting Standards as adopted by the European Union ('IFRSs'). Breach of any of these might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.
Inadequate or failed controls might result in breaches of regulations or loss of Shareholder trust.
One of the Key Performance Indicators monitored by the Company is its compliance with legislative tests. Details of how the Company manages these requirements can be found under the heading 'Compliance with VCT Legislative Tests' on page 28.
The Fund Manager has procedures in place to ensure recurring Listing Rules requirements are met and actively consults with brokers, solicitors and external compliance advisors as appropriate. The key controls around the Companies Act 2006 and IFRS are explained on page 34.
The Board is comprised of directors with suitable experience and qualifications who report annually to the Shareholders on their independence. The Fund Manager is well-respected with a proven track record and has a formal recruitment process to employ experienced investment staff. Allocation Rules have been agreed between the Fund Manager and the Company, and no personal co-investments are permitted. Advice is sought from external advisors where required. Both the Company and the Fund Manager maintain appropriate insurances.
Failure of the Fund Manager's accounting systems or disruption to its business might lead to an inability to provide accurate reporting and monitoring.
Inadequate controls might lead to misappropriation of assets. Inappropriate accounting policies might lead to misreporting or breaches of regulations.
Lack of liquidity in both the venture capital and public markets. Investment in AiM-traded, PLUS and unquoted companies, by their nature, involve a higher degree of risk than investment in companies trading on the main market. In particular, smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals. The fact that a share is traded on AiM or PLUS does not guarantee its liquidity. The spread between the buying and selling price of such shares may be wide and thus the price used for valuation may not be achievable. In addition, the market for stock in smaller companies is often less liquid than that for stock in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock.
The Fund Manager has a documented disaster recovery plan.
The key controls around financial reporting and controls are described on page 34.
Overall liquidity risks are monitored on an ongoing basis by the Fund Manager and on a quarterly basis by the Board. Sufficient investments in cash and fixed income securities are maintained to pay expenses as they fall due.
The Company monitors a number of Key Performance Indicators as detailed below:
The recognised measurement of financial performance in the VCT industry is that of Total Return (expressed in pence per share) calculated by adding the total cumulative dividends (inclusive of any recoverable tax credits) paid to Shareholders from the date the Company is launched to the current reporting date to the Net Asset Value at that date.
The chart showing the Total Return of your Company is included within the financial summary on page 4. An additional table analysing Total Return by each fundraising of the Company can be found on page 5.
The evaluation of comparative success of the Company's Total Return is by reference to the net cost of investment for the founder eligible Shareholders which was 80 pence per Ordinary share (100p net of 20% basic tax relief) and by comparison to the FTSE All-Share Index® over that same period. This is the Company's stated benchmark index. A comparison of this return is shown in the Directors' Remuneration Report.
The main business risk facing the Company is the retention of VCT qualifying status. Under Chapter 3 Part 6 of the Income Tax Act 2007, in addition to the requirement for a VCT's ordinary capital to be listed in the Official List on the London Stock Exchange throughout the period, there are five further tests that VCTs must meet following the initial three year provisional period:
The Company's income in the period must be derived wholly or mainly (70%+) from shares or securities. The Company complied with this test in the period, with 89.1% (2011: 98.8%) of income being derived from such sources.
The Company must not retain more than 15% of its income from shares and securities. The Company complied with this test in the period, with 100% (2011: 100%) of income being distributed in the period.
At least 70% by value of the Company's investments must be represented throughout the period by shares or securities comprised in qualifying holdings of the investee companies. The Company complied with this test with 74.6% (2011: 73.0%) of value being in qualifying holdings.
At least 30% of the Company's qualifying holdings must be represented throughout the period by holdings of non-preferential Ordinary shares. The Company complied with this test with 57.1% (2011: 50.6%) of value being in holdings of non-preferential Ordinary shares.
The value of any one investment has, at any time in the period, not represented more than 15% of the Company's total investment value. This is calculated at the time of investment and further additions and therefore cannot be breached passively. The Company has complied with this test with the highest such value being 5.3% (2011: 5.1%).
The Board receives regular reports on compliance with the VCT legislative tests from its Fund Manager. In addition the Board receives formal reports from its VCT Status Adviser, PricewaterhouseCoopers LLP, twice a year.
The Board can confirm that during the period all of the VCT legislative tests have been met.
Under the Incentive Agreement dated 7 July 2009 ("the Incentive Agreement") the Fund Manager will receive an incentive payment equal to 20% of the amount by which dividends paid in the relevant accounting period exceed 4.0 pence per Ordinary share (increased in line with RPI) once cumulative dividends of 10.0 pence per Ordinary share from 1 April 2009 have been paid. This threshold has been met in the current year. Further details can be found in note 3 of the Financial Statements.
The Statement of Comprehensive Income for the year is set out on page 41. The profit after taxation for the year amounted to £1,064,000 (2011: £10,373,000). The revenue profit for the year amounted to £675,000 (2011: £616,000). The capital profit for the year amounted to £389,000 (2011: £9,757,000).
The directors recommend the payment of a final dividend of 3.0 pence per Ordinary share (2011: 3.0 pence) which will be paid on 17 August 2012 to Shareholders on the register on 13 July 2012. A resolution to this effect will be proposed at the Annual General Meeting to be held on 20 July 2012.
The Net Asset Value per Ordinary share at 31 March 2012 was 99.6 pence (2011: 120.0 pence).The transfer to and from reserves is given in the Statement of Changes in Equity on page 43.
As shown in note 11 of the Financial Statements, the Company has only one class of shares, being Ordinary shares of 10 pence each.
The Company continues to operate a share buy-back policy to enable Shareholders to obtain some liquidity in an otherwise illiquid market where there is a need to dispose of their stock. This policy is kept under review to ensure that any decisions taken are in the best interests of Shareholders as a whole. In accordance with this policy the Company purchased during the year, under existing authority granted by the Shareholders, Ordinary shares of 10 pence each in the market (as disclosed in the table below) for aggregate consideration amounting to £181,694. These Ordinary shares are held in treasury.
| Date | Number of Ordinary shares of 10p bought- back |
% of issued share capital at that date |
Consideration paid per Ordinary share |
|---|---|---|---|
| 20 September 2011 | 46,020 | 0.12% | 92.75p |
| 19 December 2011 | 153,180 | 0.41% | 90.75p |
Under the existing authority, which expires on 20 July 2012, the Company has the power to purchase Ordinary shares up to 14.99% of the Company's issued Ordinary share capital as at 13 June 2011. This authority is recommended for renewal at this year's Annual General Meeting.
The directors have unconditional authority to allot, grant rights to subscribe for or to convert security into Ordinary shares in the Company up to an aggregate nominal amount of £378,831 (being 10% of the Company's issued Ordinary share capital as at 13 June 2011) until 20 July 2012.
In addition, the directors have a separate unconditional authority to allot Ordinary shares in the Company in connection with the Company's Dividend Reinvestment Scheme until 11 January 2016.
In order to ensure the directors retain the authority to allot Ordinary shares in the Company (other than pursuant to its Dividend Reinvestment Scheme) until the Annual General Meeting in 2013, it is recommended that the authority to allot Ordinary shares for cash is renewed at the Annual General Meeting for up to an aggregate nominal amount of £395,655 representing approximately 10% of the issued Ordinary share capital of the Company (as at the date of the Notice of Annual General Meeting), with all existing authorities to allot, other than the existing authority to allot pursuant to the Company's Dividend Reinvestment Scheme, being revoked.
In the year the Company allotted 1,421,329 new Ordinary shares in respect of the linked offer with British Smaller Companies VCT2 plc, and 1,080,772 new Ordinary shares pursuant to the Offer for Subscription for the tax year 2011/2012 ("the Offer"). A further 1,430,339 new Ordinary shares were allotted in respect of its Dividend Reinvestment Scheme. On 5 April 2012 the Company allotted 1,531,778 new Ordinary shares at a price of 99.75 pence per Ordinary share in respect of valid subscriptions received and accepted by the Company on or after 21 March 2012 and by 11:00am on Thursday 5 April 2012 pursuant to the Offer launched on 6 March 2012. The total of new Ordinary shares issued under the Offer was 2,612,550, raising net funds of £2.5 million.
The following information has been disclosed in accordance with Schedule 7 of the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008:
The Company's payment policy is to agree terms of payment before business is transacted and to settle accounts in accordance with those terms. Although the Company has no trade payables at the year end, the average number of payable days during the year was 21 (2011: 20).
The Board is considering a European Union directive concerning hedge fund and private equity fund managers which was approved by the European Parliament in November 2010 and adopted by the Council of the European Union in May 2011. Further secondary legislation is to be introduced over a two year transition period and insofar as the proposals affect the Company the directors will report further once the full impact of the directive becomes clear.
The Company seeks to ensure that its business is conducted in a manner that is responsible to the environment. The management and administration of the Company is undertaken by the Fund Manager. YFM Private Equity Limited recognises the importance of its environmental responsibilities, monitors its impact on the environment and implements policies to reduce any damage that might be caused by its activities. Initiatives designed to minimise the Company's impact on the environment include recycling and reducing energy consumption. Given the size and nature of the Company's activities and the fact that it has no employees, the Board considers there is limited scope to develop and implement social and community policies. No charitable or political donations have been made in either year.
The directors of the Company at 31 March 2012, their interests and contracts of significance are set out in the Directors' Remuneration Report on pages 38 to 39.
The directors are not aware of any substantial shareholdings representing 3% or more of the Company's issued share capital at the date of this report.
Grant Thornton UK LLP has indicated its willingness to continue in office and a resolution concerning its reappointment will be proposed at the Annual General Meeting.
Shareholders will find the Notice of the Annual General Meeting on page 63 of these Financial Statements.
The business of the meeting includes a resolution (Resolution 6) to be proposed to authorise the directors to issue and allot new Ordinary shares up to an aggregate nominal amount of £395,655 representing approximately 10% of the Ordinary share capital of the Company in issue at the date of the Notice of Annual General Meeting. The directors believe this to be in the Company's interest as from time to time the Company is approached by persons interested in purchasing new Ordinary shares and if so authorised the directors will be able to respond positively to such applications.
Also included is a special resolution (Resolution 7) proposed to empower the directors to allot Ordinary shares up to an aggregate nominal amount of 10% of the issued Ordinary share capital of the Company as at the date of the Notice of Annual General Meeting, without regard to any rights of pre-emption on the part of the existing Shareholders.
In addition, a special resolution is proposed to renew the existing share buy-back authority which expires on 20 July 2012 (Ordinary shares purchased under this authority may be placed in treasury) and the authority for this is contained in Resolution 8.
The Company has retained PricewaterhouseCoopers LLP to advise it on compliance with the legislative requirements for VCTs. PricewaterhouseCoopers LLP reviews new investment opportunities as appropriate and carries out regular reviews of the Company's investment portfolio under the instruction of the Fund Manager to ensure legislative requirements are properly assessed.
On 3 April 2012 the Company completed an investment of £2.5 million into Seven Technologies Limited, a Northern Irish engineering business that specialises in developing and manufacturing bespoke electronics and communications applications for operation in inhospitable environments for a wide range of international clients.
Also, on 3 April 2012 the Company completed an investment of £1.0 million into Fairlight Bridge Limited to back a highly experienced manager to invest in underperforming and turnaround situations particularly in the Midlands area.
On 5 April 2012 the Company allotted Ordinary shares under the Offer, as detailed under "Buy-Back and Issue of Ordinary Shares" on page 29.
The directors are responsible for preparing the Directors' Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Services Authority.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements the directors are required to:
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The financial statements are published at www.yfmep.com, which is a website maintained by the Company's Fund Manager. The work carried out by the auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.
The directors confirm that so far as each director is aware, there is no relevant audit information of which the Company's auditor is unaware; and that each of the directors has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
The directors confirm, to the best of their knowledge:
The Board is committed to the principle and application of sound corporate governance and confirms that the Company has taken appropriate steps, relevant to its size and operational complexity, to comply with The UK Corporate Governance Code, June 2010 (a copy of which can be found on the website of the Financial Reporting Council at www.frc.org.uk).
The Board has complied throughout the year, and up to the date of this report, with The UK Corporate Governance Code, except for those provisions relating to the appointment of a chief executive and a recognised senior independent non-executive director and the presumption concerning the Chairman's independence (see 'Board Composition' opposite). The Company has also not complied with the recommendation to give 20 business days' notice of the Annual General Meeting.
A management agreement between the Company and YFM Private Equity Limited sets out the matters over which the Fund Manager has authority. This includes management of the Company's assets and the provision of accounting, company secretarial administration and some marketing services. All other matters are reserved for the approval of the Board. A formal schedule of matters reserved to the Board for decision has been approved. This includes determination and monitoring of the Company's investment objectives and policy and its future strategic direction, gearing policy, management of the capital structure, appointment and removal of third party service providers, review of key investment and financial data and the Company's corporate governance and risk control arrangements.
The Board meets at least quarterly and additional meetings are arranged as necessary. Full and timely information is provided to the Board to enable it to function effectively and to allow the directors to discharge their responsibilities.
The significant directorships and time commitments (as disclosed on page 25) of all directors including the Chairman are assessed by the Board both on appointment and as changes arise. The Chairman was appointed as a non-executive director for Octopus Eclipse VCT 3 plc in October 2011 at which time the Board determined that the appointment would have no impact on the fulfilment of her commitments to the Company.
There is an agreed procedure for directors to take independent professional advice if necessary and at the Company's expense. This is in addition to the access that every director has to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that applicable rules and regulations are complied with and that Board procedures are followed. The Company indemnifies its directors and officers and has purchased insurance to cover its directors. Neither the insurance nor the indemnity provide cover if the director has acted fraudulently or dishonestly.
The Board consists of three non-executive directors including the Chairman, all of whom are regarded by the Board as independent and also as independent of the Company's Fund Manager. Mr P S Cammerman is a related party to three of the Company's quoted portfolio companies as set out in note 17 and has been on the Board for more than nine years. The Board considers that Mr P S Cammerman remains a committed and independent non-executive director given, but not limited to, the following; the companies' listed status, their incidental contribution to the Company's overall portfolio, the fact that Mr PS Cammerman has no voting rights in these companies and the minimal level of his shareholding. The independence of the Chairman was assessed upon her appointment. Although The UK Corporate Governance Code presumes that the chairman of a company is deemed not to be an independent director, the remaining directors, having considered the nature of the role in the Company, are satisfied that Helen Sinclair fulfils the criteria for independence as a non-executive director. The directors have a breadth of investment, business and financial skills and experience relevant to the Company's business and provide a balance of power and authority including recent and relevant financial experience. Brief biographical details of each director are set out on page 25.
A review of Board composition and balance is included as part of the annual performance evaluation of the Board, details of which are given below.
There are no executive officers of the Company as its executive functions (detailed on page 34) are delegated to the Fund Manager in line with standard industry practice. Given the structure of the Board and the fact that the Company's administration is conducted by YFM Private Equity Limited, the Company has not appointed a chief executive officer or a senior independent non-executive director. In addition, the directors consider that the role of a senior independent non-executive director is taken on by all of the directors. Shareholders are therefore able to approach any director with any queries they may have.
The Chairman is responsible for leadership of the Board. In particular, she ensures the effective operation of the Board and its committees, in conformity with the highest standards of corporate governance, and sets the agenda, style and tone of Board discussions to promote constructive debate and effective decision-making. She also ensures effective communication with Shareholders, and with the other directors, is responsible for developing the Company's strategy and evaluating the performance of the Company's Fund Manager on an annual basis.
Directors are initially appointed until the following Annual General Meeting when, under the Company's Articles of Association, it is required that they be elected by Shareholders. Thereafter, a director's appointment will run for a term of three years. Subject to the performance evaluation carried out each year, the Board will agree whether it is appropriate for the director to seek an additional term. The Board does not believe that length of service in itself necessarily disqualifies a director from seeking re-election but, when making a recommendation, the Board will take into account the ongoing requirements of The UK Corporate Governance Code, including the need to refresh the Board and its Committees. Any director who has served for a period of more than nine years will stand for annual reelection thereafter.
The Board seeks to maintain a balance of skills and the directors are satisfied that as currently composed the balance of experience and skills of the individual directors is appropriate for the Company, in particular with regard to investment appraisal and investment risk management.
The terms and conditions of directors' appointments are set out in formal letters of appointment, copies of which are available for inspection on request at the Company's registered office and at the Annual General Meeting. There are no set minimum notice periods for Ms H Sinclair or Mr P S Cammerman, though Mr C W E R Buchan's appointment is terminable by him or the Company on three months' notice.
The directors recommend the re-election of Mr P S Cammerman who retires by virtue of service for more than nine years, because of his commitment, experience and contribution to the Company.
The Board delegates certain responsibilities and functions to Committees. Directors who are not members of Committees may attend at the invitation of the Chairman.
The table below details the number and function of the meetings attended by each director. There were no Nominations Committee meetings held during the year.
During the year there were four formal Board meetings, two Audit Committee meetings, three Allotment Committee meetings, eleven Investment Committee meetings, one Remuneration Committee meeting and one General meeting. The directors met via telephone conference on seven other occasions.
| Meetings attended | Ms H Sinclair |
Mr P S Cammerman |
Mr C W E R Buchan |
|---|---|---|---|
| Board meetings | 4 | 4 | 4 |
| Audit Committee meetings | 2 | 2 | 2 |
| Allotment Committee meetings | 3 | 1 | 1 |
| Investment Committee meetings | 10 | 11 | 11 |
| Remuneration Committee meetings | 1 | 1 | 1 |
| General meetings | 1 | 1 | 1 |
| Telephone conferences | 7 | 5 | 7 |
| Total | 28 | 25 | 27 |
On appointment, the Fund Manager and Company Secretary provide all directors with induction training. Thereafter, regular briefings are provided on changes in regulatory requirements that affect the Company and directors. Directors are encouraged to attend industry and other seminars covering issues and developments relevant to VCTs.
The performance of the Board has been evaluated in respect of the current financial year. The Board, led by the Chairman, has conducted a performance evaluation to determine whether it and individual directors are functioning effectively.
The factors taken into account were based on the relevant provisions of The UK Corporate Governance Code and included attendance and participation at Board and Committee meetings, commitment to Board activities and the effectiveness of their contribution. Particular attention is paid to those directors who are due for re-election. The results of the overall evaluation process are communicated to the Board. Performance evaluation continues to be conducted on an annual basis.
The Chairman has confirmed that the performance of the director being proposed for re-election continues to be effective and that he continues to show commitment to the role. The independent directors have similarly appraised the performance of the Chairman. They considered that the performance of Ms H Sinclair continues to be effective and that she continues to demonstrate a commitment to the role.
The Remuneration Committee consists of three directors who are considered by the Board to be independent of the Fund Manager, this currently being Ms H Sinclair, Mr P S Cammerman and Mr C W E R Buchan. The Chairman of the Board acts as the Chairman of the Remuneration Committee. The Committee meets at least once a year. The Remuneration Committee reviews the Company's remuneration policy so as to determine and agree the remuneration to be paid to each director of the Company. It is responsible for the production of the Directors' Remuneration Report which may be found on pages 38 and 39.
The Remuneration Committee has written terms of reference which define clearly its responsibilities, copies of which are available for inspection on request at the Company's registered office and at the Annual General Meeting and on the Fund Manager's website at www.yfmep.com.
The Audit Committee consists of Ms H Sinclair, Mr P S Cammerman and Mr C W E R Buchan and meets at least twice a year. The directors consider that it is appropriate that the Chairman of the Committee should be Mr C W E R Buchan. The members of the Committee consider that they have the requisite skills and experience to fulfil the responsibilities of the Committee.
The Audit Committee reviews the actions and judgements of management in relation to the interim and annual financial statements and the Company's compliance with The UK Corporate Governance Code. It reviews the terms of the management agreement and examines the effectiveness of the Company's internal control systems, receives information from the Fund Manager's compliance department and reviews the scope and results of the external audit, its cost effectiveness and the independence and objectivity of the external auditor.
Representatives of the Company's auditor attend the Audit Committee meeting at which the draft Annual Report and financial statements are considered. The directors' statement on the Company's system of internal control is set out on pages 34 and 35.
The Audit Committee considers the independence and objectivity of the auditor on an annual basis. The Audit Committee considers that the independence and objectivity of the auditor has not been impaired or compromised.
As a consequence of these activities the Audit Committee recommends the reappointment of Grant Thornton UK LLP as independent auditor at the Annual General Meeting.
The Audit Committee has written terms of reference which define clearly its responsibilities, copies of which are available for inspection on request at the Company's registered office and at the Annual General Meeting and on the website of the Fund Manager at www.yfmep.com.
The Investment Committee currently consists of Ms H Sinclair, Mr P S Cammerman and Mr C W E R Buchan. The Chairman of the Committee is Mr P S Cammerman.
The Investment Committee is authorised to make investment decisions (including new investment, further investment, variation and realisation decisions) on behalf of the Board. Where an urgent decision is required in respect of a potential new AiM investment, the Fund Manager in conjunction with the Chairman of the Committee is permitted to make a decision up to an investment level of £250,000, provided that papers have first been circulated to at least the Chairman of the Committee. With regard to the realisation of AiM holdings, the Fund Manager is authorised to implement the Company's existing strategy for the holding in question within parameters previously agreed by the directors.
The Investment Committee has written terms of reference which define clearly its responsibilities, copies of which are available for inspection on request at the Company's registered office and at the Annual General Meeting and on the Fund Manager's website at yfmep.com.
The Company has a Nominations Committee which consists of Ms H Sinclair, Mr P S Cammerman and Mr C W E R Buchan all of whom are considered by the Board to be independent of the Fund Manager. The Chairman of the Board acts as Chairman of the Committee, save when the Committee meets to consider a successor to the Chairmanship.
In considering appointments to the Board, the Nominations Committee takes into account the ongoing requirements of the Company and the need to have a balance of skills and experience within the Board.
The Nominations Committee has written terms of reference which define clearly its responsibilities, copies of which are available for inspection on request at the Company's registered office and at the Annual General Meeting and on the Fund Manager's website at www.yfmep.com.
The Company has an Allotment Committee which consists of the directors who are considered by the Board to be independent of the Fund Manager. The quorum for Committee meetings is one director, unless otherwise determined by the Board.
The Committee considers and, if appropriate, authorises the allotment of shares. The Committee ensures that the total number of shares to be issued does not exceed the authority given by Shareholders. There are no written terms of reference.
The Board regularly monitors the Shareholder profile of the Company. It aims to provide Shareholders with a full understanding of the Company's activities and performance, and reports formally to Shareholders twice a year by way of the Annual Report and the Interim Report. This is supplemented by the quarterly publication, through the London Stock Exchange, of the Net Asset Value of the Company, and the daily publication of the Company's share price. Following a limited survey of Shareholders in early 2012 the Company will be distributing further information in order to keep Shareholders up to date on its performance on a more regular basis. This information will consist of an annual newsletter and, in addition, a factsheet for the two quarters of the year (30 June and 31 December) where an Annual or Interim Report is not issued.
All Shareholders have the opportunity, and are encouraged, to attend the Company's Annual General Meeting at which the directors and representatives of the Fund Manager are available in person to meet with and answer Shareholders' questions. In addition, representatives of the Fund Manager periodically hold Shareholder workshops which review the Company's performance and industry developments, and which give Shareholders a further opportunity to meet members of the Board and Chief Executives of some of the investee companies. During the year, the Company's Fund Manager has held regular discussions with Shareholders. The directors are made fully aware of Shareholders' views. The Chairman and directors make themselves available, as and when required, to address Shareholder queries.
The directors may be contacted through the Company Secretary whose details are shown on page 25.
The Company's Annual Report is published in time to give Shareholders at least 21 clear days' notice of the Annual General Meeting. Shareholders wishing to raise questions in advance of the meeting are encouraged to write to the Company Secretary at the address shown on page 25. Separate resolutions are proposed for each separate issue. Proxy votes will be counted and the results announced at the Annual General Meeting for and against for each resolution.
Under an agreement dated 28 February 1996, the executive functions of the Company have been sub-contracted to YFM Private Equity Limited. The Board receives operational and financial reports on the current state of the business and on appropriate strategic, financial, operational and compliance issues. These matters include, but are not limited to:
regular reviews of compliance with the VCT regulations to retain status;
the Audit Committee reviews the internal control procedures adopted by the Fund Manager and the Board approves annual budgets prepared by the Fund Manager; and
The Board confirms the procedures to implement the guidance detailed in section C.2: "Risk Management & Internal Control" of The UK Corporate Governance Code issued by the Financial Reporting Council in June 2010 in terms of maintaining sound risk management and internal control systems were in place throughout the year ended 31 March 2012 and up to the date of this report.
The Board acknowledges that it is responsible for overseeing the Company's system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.
The Board arranges its meeting agenda so that risk management and internal control is considered on a regular basis and a full risk and control assessment takes place no less frequently than twice a year. There is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place for longer than the year under review and up to the date of approval of the Annual Report. The process is formally reviewed biannually by the Board. However, due to the size and nature of the Company, the Board has concluded that it is not necessary at this stage to set up an internal audit function. This decision will be kept under review. The directors are satisfied that the systems of risk management that they have introduced are sufficient to comply with the terms of the Turnbull Guidance (being the Internal Control Guidance for Directors).
In particular the Board, together with the Audit Committee, is responsible for overseeing and reviewing internal controls concerning financial reporting. In addition to those controls sub-contracted as listed above the following controls have been in place throughout the year:
The Board has reviewed the effectiveness of the Company's systems of internal control and risk management systems for the year to the date of this report. The Board is of the opinion that the Company's systems of internal financial and other controls are appropriate to the nature of its business activities and methods of operation given the size of the Company.
The Company delegates responsibility for monitoring its investments to its Fund Manager whose policy, which has been noted by the Board, is as follows:
YFM Private Equity Limited is committed to introducing corporate governance standards into the companies in which its clients invest. With this in mind, the Company's investment agreements contain contractual terms specifying the required frequency of management Board meetings and of annual Shareholders' meetings, and for representation at such meetings through YFM Private Equity Limited. In addition, provision is made for the preparation of regular and timely management information to facilitate the monitoring of investee company performance in accordance with the best practice in the private equity sector.
The Company's business activities, liquidity position and factors likely to affect its future development, performance and position are set out in the Chairman's Statement and Fund Manager's Review. In addition notes 19 and 20 of the Financial Statements describe the Company's objectives, policies and processes for managing capital, its financial risk management objectives, details of its financial instruments, and its exposures to credit and liquidity risk.
The Company has considerable financial resources, a carefully controlled cost base and investments across various industry sectors. In addition, following the year end the Company further increased its investment capabilities with £1.5 million funds being raised via the Offer which closed on 5 April 2012 (taking the total net funds raised during the Offer to £2.5 million). The directors believe these factors have placed the Company in a strong position to take advantage of new investment opportunities despite the uncertain economic outlook.
The directors have carefully considered the issue of going concern and are satisfied that the Company has sufficient resources to meet its obligations for a period of at least 12 months from the date of signing these financial statements. The directors therefore believe that it is appropriate to continue to apply the going concern basis of accounting in preparing the financial statements.
The investment policy of the Company is to create a portfolio that blends a mix of companies operating in traditional industries with those that offer opportunities in the development and application of innovation.
During the coming year the Company will invest in UK businesses across a range of sectors including but not limited to Industrial, Healthcare, Software and Consumer Products in VCT qualifying securities and AiM and PLUS traded securities which, under the current legislation governing VCTs, requires that at least 70% by value of its holdings must be in 'qualifying holdings'. The maximum by value that the Company may hold in a single investment is 15% at the time of initial or subsequent investment. Although the majority of investments will be in equities, in appropriate circumstances, preference shares and loan stock may be subscribed for thereby spreading risk and enhancing yields.
The Company funds its investment programme out of its own resources and has no borrowing facilities for this purpose.
Following the issue of the Draft Finance Bill 2012 on 29 March 2012 investments undertaken by the Company will be subject to new legislation.
In addition to the above investment criteria following EU approval (subject to the granting of Royal Assent), changes have been made to the "qualifying company" limits effective from 6 April 2012. These are summarised as follows:
Funds raised by VCTs after 5 April 2012 may not be used to finance buyouts or otherwise to acquire existing shares. The Company does not have any funds to which the buy-outs rule applies.
Such changes to the current legislation should increase the number of potential new investments available to the Company and help further diversify its portfolio.
Typically the Company invests alongside other venture capital funds, such syndication spreading investment risk. Details of the amounts invested in individual companies are set out in the Fund Manager's Review which accompanies this Annual Report.
The Fund Manager is responsible for the sourcing and screening of initial enquiries, carrying out suitable due diligence investigations and making submissions to the Board regarding potential investments. Once approved, further due diligence is carried out as necessary and HM Revenue & Customs clearance is obtained for approval as a qualifying VCT investment.
The Board has set aside an amount of up to 20% of funds available for investment to be invested in AiM quoted companies that meet the Company's investment criteria.
The Board reserves to itself the taking of all investment decisions save in the making of certain investments up to £250,000 in companies whose shares are to be traded on AiM and where the decision is required urgently, in which case the Chairman may act in consultation with the Fund Manager, provided that papers have first been circulated to at least the Chairman of the Company's Investment Committee. The Board also reserves to itself the taking of all divestment decisions save as regards the disposal of the Company's holding in AiM portfolio companies for which the Board has developed a strategy with the objective of maximising the opportunities to achieve profitable disposals whilst at the same time maintaining balance in the overall composition of the AiM portfolio. The strategy is operated by the Fund Manager.
The Board regularly monitors the performance of the portfolio and the investment targets set by the relevant VCT legislation. Reports are received from the Fund Manager as to the trading and financial position of each investee company and members of the investment team regularly attend Board meetings. Monitoring reports are also received at each Board meeting on compliance with VCT investment targets so that the Board can ensure that the status of the Company is maintained and take corrective action where appropriate.
In the opinion of the directors the continuing appointment of YFM Private Equity Limited as Fund Manager is in the interests of the Shareholders as a whole, in view of its experience in managing VCTs and in making and exiting investments of the kind falling within the Company's investment policy.
Prior to the investment of funds in suitable qualifying companies, the liquid assets of the Company are primarily invested in a portfolio of Government stocks or other similar fixed interest securities. Reporting to the Fund Manager, the portfolio is managed by Brewin Dolphin Securities Limited on a discretionary basis. The Board receives regular reports on the make-up and market valuation of this portfolio.
The Company will on occasion, in accordance with VCT legislation, invest surplus liquid resources in an AAA rated liquidity fund, which invests in a pool of highly rated money market securities. The Board receives regular reports on the diversity and return of the fund's portfolio. At the year end £nil was held in this fund, £6,370,845 was deposited in an interest bearing account with Royal Bank of Scotland Plc and a further £5,000,000 was held in a fixed term account with Lloyds TSB, maturing in August 2012.
Further information on financial instruments is provided in Note 19 to the Financial Statements, including disclosure of the financial risk management objectives and policies.
Investments made in suitable qualifying holdings will predominantly comprise Ordinary shares with, in some instances, either fixed rate coupon preference shares, unsecured loan stocks or debenture loans. Each investment is valued in accordance with the policy set out on page 24 of this Annual Report. Investments in fixed interest Government securities are valued at their market value as at the Balance Sheet date.
The Company invests in financial assets to comply with the VCT legislation and provide capital growth for Shareholders that can eventually be distributed by way of dividends. Unquoted venture capital investments normally take a number of years to mature and are, by nature, illiquid. Therefore gains on disposals of these investments are a medium to long-term aim.
Due to the structure of certain investments, preference share redemptions and loan stock repayments may become due during the term of the investment. These are usually at fixed dates, although in some instances the investee company has the option of repaying earlier. In some instances the redemption carries a premium repayment.
Where appropriate, the Board will invest relatively small amounts in new share issues of AiM quoted companies for small minority holdings. Due to the existence of a quoted share price, opportunities to realise these investments will occur on a more frequent basis than for unquoted investments. When making investments in AiM quoted companies it is the Board's intention to hold that investment for the medium-term to achieve capital growth for the Shareholders. However, the Board regularly reviews these investments so that opportunities for disposal can be acted upon at the most appropriate time.
Investments in Government stocks or other similar fixed interest securities are held solely for the purpose of liquidity whilst waiting for suitable qualifying investment opportunities to arise. Therefore, trading in these stocks is determined mainly by the demand for venture capital funds.
Details of financial assets held at 31 March 2012 can be found in the Fund Manager's Review and notes 7 and 19 to these Financial Statements.
YFM Private Equity Limited has acted as Fund Manager and performed administrative and secretarial duties for the Company since 28 February 1996. The principal terms of the agreement are set out in note 3 to the Financial Statements. YFM Private Equity Limited is authorised and regulated by the Financial Services Authority.
Following approval of the relevant resolution at the Annual General Meeting of the Company held in August 2009 the incentive scheme set out in the Subscription Rights Agreement dated 28 February 1996 was replaced by a revised incentive agreement dated 7 July 2009 ("the Incentive Agreement"). Under the Incentive Agreement the Fund Manager will receive an incentive payment equal to 20% of the amount by which dividends paid in the relevant accounting period exceed 4 pence per Ordinary share (increasing in line with RPI) once cumulative dividends of 10 pence per Ordinary share from 1 April 2009 have been paid. These incentive payments are subject to cumulative shortfalls in any prior accounting periods being made up and the average Net Asset Value per Ordinary share in the relevant accounting period being not less than 94 pence per Ordinary share as adjusted for the impact of share issues and buy-backs.
No payment can be made under the Incentive Agreement until the adjusted Net Asset Value of the Company has increased to 93.5 pence per Ordinary share and in addition at least 10 pence per Ordinary share in dividends has been paid to Shareholders. If any incentive payment is due it is paid five business days after the relevant Annual General Meeting at which the audited accounts are presented to Shareholders.
There are also provisions for a compensatory fee in circumstances where the Company is taken over or the Incentive Agreement is terminated, which is calculated as a percentage of the fee that would otherwise be payable under the Incentive Agreement by reference to the accounting period following its termination. In this instance 80% is payable in the first accounting period after such an event, 55% in the second, 35% in the third and nothing is payable thereafter. The maximum fee payable in any 12 month period cannot exceed an amount which would represent 25% or more of the Net Asset Value or market capitalisation of the Company.
In the year ended 31 March 2012 £1,415,058 has accrued to the Fund Manager under the Incentive Agreement (31 March 2011: £142,278).
This report was approved by the Board on 13 June 2012 and signed on its behalf by:
Helen Sinclair Chairman
The directors of the Company at 31 March 2012 and their beneficial interests in the share capital of the Company (including those of immediate family members) were as follows:
| Number of Ordinary shares at | ||||||
|---|---|---|---|---|---|---|
| 31 March 2012 |
31 March 2011 |
|||||
| Ms H Sinclair | 13,407 | 13,407 | ||||
| Mr P S Cammerman | 41,017 | 35,880 | ||||
| Mr C W E R Buchan | 1,972 | 1,972 |
None of the directors has subscribed for further shares since the year end. None of the directors held any options to acquire additional shares at the year end.
Brief biographical notes on the directors are given on page 25. In accordance with the Company's Listing Particulars, no director has a contract of service with the Company that entitles him or her to any benefit other than the remuneration disclosed below, and no contract subsisted during or at the end of the year in which any director was materially interested and which was significant in relation to the Company's business. The Company does not offer compensation for loss of office when a director leaves office. Further information on the contracts of service are given on page 32.
The Company had no employees in either year.
Total directors' remuneration for the year amounted to £75,000 (2011: £85,538) all of which was paid to three (2011: five) individuals for services as directors and none of which was paid to third parties in respect of directors' services.
The total fees paid in respect of individual directors who served during the year were as follows:
| 2012 £ |
2011 £ |
|
|---|---|---|
| Ms H Sinclair | 35,000 | 35,000 |
| Mr P S Cammerman | 20,000 | 20,000 |
| Mr C W E R Buchan | 20,000 | 10,538 |
| Mr R Last | – | 10,000 |
| Mr R M Pettigrew | – | 10,000 |
| 75,000 | 85,538 |
There are no executive directors (2011: none).
It is the Company's policy not to provide any performance emoluments, benefits in kind, any other emoluments or pension contributions to any director. No directors are, or have previously been, entitled to shares under any share option or long-term incentive schemes.
The 'Basic Remuneration' section is the only part of the Directors' Remuneration Report subject to audit. All other sections are not subject to audit.
The Board's policy is that the remuneration of non-executive directors should reflect time spent and the responsibility borne by the directors on the Company's affairs and should be sufficient to enable candidates of a high calibre to be recruited. The levels of directors' fees paid by the Company for the year ended 31 March 2012 were agreed during the year.
The Company's policy is to pay directors monthly, to them personally or to a third party as requested by the director.
The graphs show a comparison between the Company's total Shareholder return compared with the companies in the FTSE All-Share® Index from the date of flotation to 31 March 2012. The directors consider this to be the most appropriate published index on which to report on comparative performance.
The first graph looks at the value, calculated by reference to the Net Asset Value and cumulative dividends paid (see note 13) of £100 invested in the Company's shares, excluding tax relief received on this investment, with the value of £100 invested in the FTSE All-Share® Index over the same period. The calculation assumes that any dividends have been paid and not reinvested in shares of the Company.
The second graph displays the share price return from the date of flotation in 1996 to 31 March 2012 compared to the FTSE All-Share® Index. It shows that at 31 March 2012 a hypothetical £100 invested in the Company at the time of its listing on the London Stock Exchange would have generated a Total Return of £241 compared with £161 if invested in the FTSE All-Share® Index. This assumes that at the time of flotation the tax relief given on that £100 investment was also invested in shares of the Company. Therefore this graph shows the share price return based on the initial investment of £100 purchasing 125 shares at £0.80 each, rather than 100 shares at £1.00 each. Furthermore the calculation of share price return assumes that any dividends received have been reinvested in the Company's shares at the prevailing quoted share price at the end of the financial period to which the dividends relate.
Net Asset Value Return
This report was approved by the Board on 13 June 2012 and signed on its behalf by:
Helen Sinclair Chairman
We have audited the financial statements of British Smaller Companies VCT plc for the year ended 31 March 2012, which comprise the Statement of Comprehensive Income, the Balance Sheet, the Statement of Changes in Equity, the Statement of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the European Union.
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the Statement of Directors' Responsibilities set out on page 30, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.
A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.
In our opinion the financial statements:
In our opinion:
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Under the Listing Rules, we are required to review:
Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Sheffield 13 June 2012
For the year ended 31 March 2012
| 2012 | 2011 | |||||||
|---|---|---|---|---|---|---|---|---|
| Notes | Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
||
| Gain on disposal of investments | 7 | – | 2,178 | 2,178 | – | 19 | 19 | |
| Gains on investments held at fair value | 7 | – | 166 | 166 | – | 10,254 | 10,254 | |
| Income | 2 | 1,236 | – | 1,236 | 1,174 | – | 1,174 | |
| Administrative expenses: | 3 | |||||||
| Fund management fee | (201) | (604) | (805) | (153) | (460) | (613) | ||
| Incentive fee | – | (1,415) | (1,415) | – | (142) | (142) | ||
| Other expenses | (296) | – | (296) | (319) | – | (319) | ||
| (497) | (2,019) | (2,516) | (472) | (602) | (1,074) | |||
| Profit before taxation | 739 | 325 | 1,064 | 702 | 9,671 | 10,373 | ||
| Taxation | 4 | (64) | 64 | – | (86) | 86 | – | |
| Profit for the year | 675 | 389 | 1,064 | 616 | 9,757 | 10,373 | ||
| Total comprehensive income for the year | 675 | 389 | 1,064 | 616 | 9,757 | 10,373 | ||
| Basic and diluted earnings per Ordinary share | 6 | 1.85p | 1.07p | 2.92p | 1.86p | 29.52p | 31.38p |
The accompanying notes on pages 45 to 62 are an integral part of these financial statements.
The Total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards as adopted by the European Union ('IFRSs'). The supplementary Revenue and Capital columns are prepared under the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('SORP') 2009 published by the Association of Investment Companies.
| Notes | 2012 £000 |
2011 £000 |
|
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Investments | 24,200 | 29,946 | |
| Fixed income government securities | 2,499 | 8,537 | |
| Financial assets at fair value through profit or loss | 7 | 26,699 | 38,483 |
| Current assets | |||
| Trade and other receivables | 8 | 532 | 359 |
| Cash on fixed term deposit | 5,000 | – | |
| Cash and cash equivalents | 9 | 7,372 | 3,114 |
| 12,904 | 3,473 | ||
| Liabilities | |||
| Current liabilities | |||
| Trade and other payables | 10 | (1,709) | (784) |
| Net current assets | 11,195 | 2,689 | |
| Net assets | 37,894 | 41,172 | |
| Shareholders' equity | |||
| Share capital | 11 | 4,039 | 3,646 |
| Share premium account | 23,176 | 19,492 | |
| Capital redemption reserve | 221 | 221 | |
| Treasury share reserve | (2,048) | (1,866) | |
| Capital reserve | – | (372) | |
| Investment holding gains (losses) reserve | 7,432 | 11,780 | |
| Special reserve | 2,408 | 2,408 | |
| Revenue reserve | 2,666 | 5,863 | |
| Total Shareholders' equity | 37,894 | 41,172 | |
| Basic and diluted Net Asset Value per Ordinary share | 12 | 99.6p | 120.0p |
The accompanying notes on pages 45 to 62 are an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board on 13 June 2012 and were signed on its behalf by:
Helen Sinclair Chairman
For the year ended 31 March 2012
| Share capital |
Share account |
Capital premium redemption reserve |
Treasury share reserve |
Capital reserve |
Investment holding gains |
Special reserve |
Revenue reserve |
Total equity |
||
|---|---|---|---|---|---|---|---|---|---|---|
| £000 | £000 | £000 | £000 | £000 | (losses) £000 |
£000 | £000 | £000 | ||
| Balance at 31 March 2010 | 3,212 | 15,398 | 221 | (1,175) | 93 | 1,558 | 2,408 | 7,293 | 29,008 | |
| Revenue return for the year Capital expenses Gain on investments held at fair value Gain on disposal of investments in the year |
– – – – |
– – – – |
– – – – |
– – – – |
– (516) – 19 |
– – 10,254 – |
– – – – |
616 – – – |
616 (516) 10,254 19 |
|
| Total comprehensive income for the year | – | – | – | – | (497) | 10,254 | – | 616 | 10,373 | |
| Issue of share capital Issue costs Issue of share capital – DRIS Purchase of own Ordinary shares Dividends |
407 – 27 – – |
4,030 (149) 213 – – |
– – – – – |
– – – (691) – |
– – – – – |
– – – – – |
– – – – – |
– – – – (2,046) |
4,437 (149) 240 (691) (2,046) |
|
| Total transactions with owners | 434 | 4,094 | – | (691) | – | – | – | (2,046) | 1,791 | |
| Realisation of prior year investment holding gains |
– | – | – | – | 32 | (32) | – | – | – | |
| Balance at 31 March 2011 | 3,646 | 19,492 | 221 | (1,866) | (372) | 11,780 | 2,408 | 5,863 | 41,172 | |
| Revenue return for the year Capital expenses Gain on investments held at fair value Gain on disposal of investments in the year |
– – – – |
– – – – |
– – – – |
– – – – |
– (1,955) – 2,178 |
– – 166 – |
– – – – |
675 – – – |
675 (1,955) 166 2,178 |
|
| Total comprehensive income for the year | – | – | – | – | 223 | 166 | – | 675 | 1,064 | |
| Issue of share capital Issue costs Issue of share capital – DRIS Purchase of own Ordinary shares Dividends |
250 – 143 – – |
2,647 (173) 1,210 – – |
– – – – – |
– – – (182) – |
– – – – (4,365) |
– – – – – |
– – – – – |
– – – – (3,872) |
2,897 (173) 1,353 (182) (8,237) |
|
| Total transactions with owners | 393 | 3,684 | – | (182) | (4,365) | – | – | (3,872) | (4,342) | |
| Realisation of prior year investment holding gains |
– | – | – | – | 4,514 | (4,514) | – | – | – | |
| Balance at 31 March 2012 | 4,039 | 23,176 | 221 | (2,048) | – | 7,432 | 2,408 | 2,666 | 37,894 |
The accompanying notes on pages 45 to 62 are an integral part of these financial statements.
The treasury share reserve was created for the purchase and holding of the Company's own shares. The capital redemption reserve was created for the purchase and cancellation of the Company's own shares.
The capital reserve includes gains and losses compared to cost on the disposal of investments, capital expenses, together with the related taxation effect and capital dividends paid to Shareholders.
The investment holding gains (losses) reserve includes increases and decreases in the valuation of investments held at fair value. This is a nondistributable reserve.
The special reserve was created following approval of the Court and a resolution of the Shareholders passed on 16 July 1999 to cancel the Company's share premium account.
The special reserve, capital reserve, revenue reserve and treasury reserve are all distributable reserves. These reserves total £3,026,000 (2011: £6,033,000) representing a decrease of £3,007,000 (2011: £2,586,000 decrease) during the year. This change arises from the profit in the year of £898,000 (2011: £119,000), a movement in the investment gains (losses) reserve of £4,514,000 (2011: £32,000), dividends of £8,237,000 (2011: £2,046,000) and the purchase of own Ordinary shares of £182,000 (2011: £691,000). The directors also take into account the level of the investment holding gains (losses) reserve when determining the level of dividend payments.
For the year ended 31 March 2012
| Notes | 2012 £000 |
2011 £000 |
|
|---|---|---|---|
| Net cash (outflow) inflow from operating activities | 14 | (111) | 717 |
| Cash flows from (used in) investing activities | |||
| Cash placed on fixed term deposit | (5,000) | – | |
| Purchase of financial assets at fair value through profit or loss | 7 | (3,000) | (6,802) |
| Proceeds from sale of financial assets at fair value through profit or loss | 7 | 17,024 | 5,588 |
| Net cash from (used in) investing activities | 9,024 | (1,214) | |
| Cash flows (used in) from financing activities | |||
| Issue of Ordinary shares | 2,897 | 4,677 | |
| Cost of Ordinary share issue | (178) | (149) | |
| Purchase of own Ordinary shares | (490) | (691) | |
| Dividends paid | 5 | (6,884) | (2,046) |
| Net cash (used in) from financing activities | (4,655) | 1,791 | |
| Net increase in cash and cash equivalents | 4,258 | 1,294 | |
| Cash and cash equivalents at the beginning of the year | 3,114 | 1,820 | |
| Cash and cash equivalents at the end of the year | 9, 15 | 7,372 | 3,114 |
The accompanying notes on pages 45 to 62 are an integral part of these financial statements.
For the year ended 31 March 2012
The accounts have been prepared on a going concern basis and in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European Union and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements have been prepared under the historical cost convention as modified by the measurement of investments including quoted Government Securities at fair value through profit or loss.
The accounts have been prepared in compliance with the recommendations set out in the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the Association of Investment Companies in January 2009 (SORP) to the extent that they do not conflict with IFRSs as adopted by the European Union.
The financial statements are prepared in accordance with IFRSs and interpretations in force at the reporting date. None of the standards and amendments to standards mandatory for the first time for the financial year commencing 1 April 2011 have had an impact on the preparation of the financial statements.
Other standards and interpretations have been issued which will be effective for future reporting periods but have not been adopted early in these financial statements. These include IFRS 9, IFRS 10, IFRS 11, IFRS 12, IFRS 13 and IFRIC 20. A full impact assessment has not yet been completed in order to assess whether these new standards will have a material impact on the financial statements.
Financial assets designated as at fair value through profit or loss at inception are those that are managed and whose performance is evaluated on a fair value basis, in accordance with the documented investment strategy of the Company. Information about these financial assets is provided internally on a fair value basis to the Company's key management. The Company's investment strategy is to invest cash resources in venture capital investments as part of the Company's long-term capital growth strategy. Consequently, all investments are classified as held at fair value through profit or loss.
Investments in quoted Government and other fixed income securities are classified at fair value through profit or loss under the criteria given above. They are classified as Non-current assets as they do not meet the definition in IAS 7 'Statement of cash flows' of short-term highly liquid investments that are readily convertible into known amounts of cash and subject to insignificant risk of change in value. These are valued at market bid prices.
Transaction costs on purchases are expensed immediately through the Statement of Comprehensive Income.
All investments are measured at fair value with gains and losses arising from changes in fair value being included in the Statement of Comprehensive Income as gains or losses on investments held at fair value.
Quoted investments are valued at market bid prices.
Unquoted investments are valued in accordance with IAS 39 'Financial instruments: Recognition and Measurement' and, where appropriate, the International Private Equity and Venture Capital (IPEVC) Valuation Guidelines issued in August 2010. A detailed explanation of the valuation policies of the Company is included on page 24.
Although the Company holds more than 20% of the equity of certain companies, it is considered that the investments are held as part of the investment portfolio, and their value to the Company lies in their marketable value as part of that portfolio, so none represent investments in associated undertakings. These investments are therefore not accounted for using equity accounting, as permitted by IAS 28 'Investments in associates' and IAS 31 'Financial reporting of interest in joint ventures', which give exemptions from equity accounting for venture capital organisations.
Under IAS 27 'Consolidated and separate financial statements' control is presumed to exist when the parent owns, directly or indirectly, more than half of the voting power by a number of means. The Company does not hold more than 50% of the equity of any of the companies within the portfolio. In addition, the Company does not control any of the companies held as part of the investment portfolio. It is not considered that any of the holdings represent investments in subsidiary undertakings.
Dividend income on unquoted equity shares is recognised at the time when the right to the income is established. Interest on loan stock and dividends on preference shares are accrued on a daily basis. Provision is made against this income where recovery is doubtful. Where interest or a redemption premium is payable at redemption then it is only recognised as income once receipt is reasonably certain. Until this point it is accrued daily and included within the capital valuation of the investment (and thus classified under "Gain or loss on investments held at fair value" in the Statement of Comprehensive Income).
Expenses are accounted for on an accruals basis. Expenses are charged through the Revenue column of the Statement of Comprehensive Income, except for fund management and incentive fees. Of the fund management fees 75 per cent are instead allocated to the Capital column of the Statement of Comprehensive Income, to the extent that these relate to an enhancement in the value of the investments and in line with the Board's expectation that over the long term 75 per cent of the Company's investment returns will be in the form of capital gains. The incentive fee payable to the Fund Manager (as set out in note 3) is charged wholly through the Capital column.
Cash and cash equivalents include cash at hand and any investments held in high quality AAA rated liquidity funds. These funds are classified under cash equivalents as they meet the definition in IAS 7 'Statement of cash flows' of a short term highly liquid investment that is readily convertible into known amounts of cash and subject to insignificant risk of change in value.
Cash balances held in fixed term deposits are not classified as cash and cash equivalents as they do not meet the definition in IAS 7 'Statement of cash flows' of short-term highly liquid investments.
Cash flows classified as "operating activities" for the purposes of the Statement of Cash Flows are those arising from the Revenue column of the Income Statement, together with the items in the Capital column that do not fall to be easily classified under the headings for "Investing Activities" given by IAS 7 'Statement of cash flows', being management and incentive fees payable to the Fund Manager. The Capital cash flows relating to acquisition and disposal of investments are presented under "investing activities" in the Statement of Cash Flows in line with both the requirements of IAS 7 and the positioning given to these headings by general practice in the industry.
This reserve includes gains and losses compared to cost on the disposal of investments and expenses, together with the related taxation effect, charged to this reserve in accordance with the above policy. Also included are capital dividends paid to Shareholders.
Tax relief is allocated to the capital reserve using a marginal basis.
This reserve includes increases and decreases in the valuation of investments held at fair value.
The special reserve was created following the passing of a resolution of the Shareholders on 16 July 1999 and the approval of the Court to cancel the Company's share premium account. The special reserve is a distributable reserve and is available for other corporate purposes of the Company.
Due to the Company's status as a venture capital trust and the continued intention to meet the conditions required to comply with Chapter 3 Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company's investments which arises.
Deferred tax is recognised on all temporary differences that have originated, but not reversed, by the balance sheet date.
Deferred tax assets are only recognised to the extent that they are regarded as recoverable. Deferred tax is calculated at the tax rates that are expected to apply when the asset is realised.
Dividends payable are recognised only when an obligation exists. Interim dividends are recognised when paid and final and special dividends are recognised when approved by Shareholders in general meetings.
In accordance with IFRS 8 'Operating segments' and the criteria for aggregating reportable segments the directors are of the opinion that the Company has engaged in a single reportable segment of investing in UK-based equity and debt securities external to the Company. Therefore no additional segmental reporting is provided.
The preparation of financial statements in conformity with generally accepted accounting practice requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are those used to determine the fair value of investments at fair value through profit or loss.
The fair value of investments at fair value through profit or loss is determined by using valuation techniques. As explained above, the Company uses its judgement to select a variety of methods and makes assumptions that are mainly based on market conditions at each balance sheet date. Further information on the sensivities of these techniques is given in note 7 and note 19.
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Income from investments: | ||
| – Dividends from unquoted companies | 353 | 214 |
| – Dividends from quoted companies | 69 | 75 |
| 422 | 289 | |
| – Interest on loans to unquoted companies | 506 | 435 |
| – Fixed interest Government securities | 155 | 436 |
| Income from investments held at fair value through profit or loss | 1,083 | 1,160 |
| Interest on deposits | 153 | 14 |
| 1,236 | 1,174 |
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Fund management fee | 805 | 613 |
| Incentive fee | 1,415 | 142 |
| Other expenses: | ||
| – Administration fee | 54 | 51 |
| – Directors' remuneration (comprises only short-term benefits including social security contributions) | 83 | 94 |
| – Auditor's remuneration – audit fees (excluding irrecoverable VAT) | 17 | 16 |
| – General expenses | 142 | 158 |
| 2,516 | 1,074 |
No fees are payable to the auditor in respect of other services supplied pursuant to legislation (2011: £nil).
YFM Private Equity Limited provides fund management services to the Company under a subscription rights agreement dated 28 February 1996 ("Subscription Rights Agreement"). The agreement may be terminated by not less than 12 months' notice given by either party at any time. No notice has been issued to or by YFM Private Equity Limited terminating the contract as at the date of this report.
The key features of the agreement are:
The total remuneration payable to YFM Private Equity Limited in the year was £859,000 (2011: £664,000).
The details of directors' remuneration are set out in the Directors' Remuneration Report on page 38 under the heading "Basic Remuneration (audited)".
Following approval of the relevant resolution at the Annual General Meeting of the Company held in August 2009, the incentive scheme set out in the Subscription Rights Agreement was replaced by a revised incentive agreement dated 7 July 2009 ("the Incentive Agreement"). Under the Incentive Agreement the Fund Manager will receive an incentive payment equal to 20% of the amount by which dividends paid in the relevant accounting period exceed 4 pence per Ordinary share once cumulative dividends of 10 pence per Ordinary share from 1 April 2009 have been paid. These incentive payments are also subject to cumulative shortfalls in any prior accounting periods being made up and the average Net Asset Value per Ordinary share in the relevant accounting period being not less than 94 pence per Ordinary share as adjusted for the impact of share issues and buy-backs.
No payment can be made under the Incentive Agreement until the Net Asset Value of the Company has increased to 93.5 pence per share and in addition at least 10 pence per Ordinary share in dividends has been paid to Shareholders. Payment is made 5 business days after the relevant Annual General Meeting at which the audited accounts are presented to Shareholders.
Both in the current and prior year, the Fund Manager had achieved its adjusted targets of 93.5 and 94.1 pence per Ordinary share respectively and £1,557,000 (of which £142,000 relates to the year ended 31 March 2011) has been provided within trade and other payables. The incentive fee is payable following the Annual General Meeting on 20 July 2012.
There are also provisions for a compensatory fee in circumstances where the Company is taken over or the Incentive Agreement is terminated, which is calculated as a percentage of the fee that would otherwise be payable under the Incentive Agreement by reference to the accounting period following its termination. In this instance 80% is payable in the first accounting period after such an event, 55% in the second, 35% in the third and nothing is payable thereafter. The maximum fee payable in any 12 month period cannot exceed an amount which would represent 25% or more of the Net Asset Value or market capitalisation of the Company.
| 2012 | ||||||
|---|---|---|---|---|---|---|
| Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
|
| Profit before taxation | 739 | 325 | 1,064 | 702 | 9,671 | 10,373 |
| Profit before taxation multiplied by standard small | ||||||
| company rate of corporation tax in UK of 20% | 148 | 65 | 213 | 147 | 2,031 | 2,178 |
| Effect of: | ||||||
| UK dividends received | (84) | – | (84) | (61) | – | (61) |
| Non taxable profits on investments | – | (469) | (469) | – | (2,157) | (2,157) |
| Excess management expenses | – | 340 | 340 | – | 40 | 40 |
| Tax charge (credit) | 64 | (64) | – | 86 | (86) | – |
The Company has no provided or unprovided deferred tax liability in either year.
Deferred tax assets of £635,000 (2011: £295,000) calculated at 20% in respect of unrelieved management expenses (£3.2 million as at 31 March 2012) have not been recognised as the directors do not currently believe that it is probable that sufficient taxable profits will be available against which the assets can be recovered.
Due to the Company's status as a venture capital trust, and the continued intention to meet the conditions required to comply with Chapter 3 Part 6 of the Income Tax Act 2007, the Company has not provided for deferred tax on any capital gains or losses arising on the revaluation or realisation of investments.
Amounts recognised as distributions to equity holders in the year:
| 2012 | 2011 | ||||||
|---|---|---|---|---|---|---|---|
| Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
||
| Final dividend for the year ended 31 March 2011 of 3.0p per Ordinary share paid on 22 August 2011 (2011: 3.0p per Ordinary share) |
1,072 | – | 1,072 | 983 | – | 983 | |
| Special dividend 18.0p per Ordinary share paid on 22 August 2011 (2011: 1.25p per Ordinary share) |
2,064 | 4,365 | 6,429 | 410 | – | 410 | |
| Interim dividend 2.0p per Ordinary Share paid on 20 January 2012 (2011: 2.0p per Ordinary share) |
736 | – | 736 | 653 | – | 653 | |
| 3,872 | 4,365 | 8,237 | 2,046 | – | 2,046 | ||
| Shares issued under the DRIS | (1,353) | ||||||
| Dividends paid in Statement of Cash Flows | 6,884 |
The interim dividend of 2.0 pence per Ordinary share was paid on 20 January 2012 to Shareholders on the register at 23 December 2011.
The special dividend of 18.0 pence per Ordinary share was paid on 22 August 2011 to Shareholders on the register at 22 July 2011.
A final dividend of 3.0 pence per Ordinary share in respect of the year to 31 March 2012, amounting to £1,187,000, has been proposed. This has not been recognised in the year ended 31 March 2012 as the obligation did not exist at the balance sheet date.
The basic and diluted earnings per Ordinary share is based on the profit after tax attributable to equity Shareholders of £1,064,000 (2011: £10,373,000) and 36,441,889 (2011: 33,051,075) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.
The basic and diluted revenue return per Ordinary share is based on the revenue profit for the year attributable to equity Shareholders after tax of £675,000 (2011: £616,000) and 36,441,889 (2011: 33,051,075) Ordinary shares being the weighted average number of Ordinary shares in issue during the year.
The basic and diluted capital return per Ordinary share is based on the capital profit for the year after tax attributable to equity Shareholders of £389,000 (2011: £9,757,000) and 36,441,889 (2011: 33,051,075) Ordinary shares being the weighted average number of Ordinary shares in issue during the year.
During the year the Company issued 3,932,440 new Ordinary shares. The Company also repurchased 199,200 of its own Ordinary shares, which are held in treasury.
Treasury shares have been excluded in calculating the weighted average number of Ordinary shares during the year. The Company has no securities that would have a dilutive effect in either period and hence the basic and diluted earnings per Ordinary share are the same.
After the year end the Company issued 1,531,778 new Ordinary shares (note 18). If these Ordinary shares had been issued on 31 March 2012 the weighted average number of Ordinary shares in issue during the year would have been 36,446,034 and there would have been no change in the basic and diluted earnings per Ordinary share figures shown at the foot of the Statement of Comprehensive Income.
IFRS 7, in respect of financial instruments that are measured in the balance sheet at fair value, requires disclosure of fair value measurements by level within the following fair value measurement hierarchy:
There have been no transfers between these classifications in the period (2011: none) and the movement in Level 3 instruments is disaggregated below. The change in fair value for the current and previous year is recognised through profit or loss.
All items held as fair value through profit or loss were designated as such upon initial recognition. Movements in investments at fair value through profit or loss during the year to 31 March 2012 are summarised as follows:
| IFRS 7 measurement classification | Level 3 | Level 1 | Level 1 | ||
|---|---|---|---|---|---|
| Unquoted Investments £000 |
Quoted Equity Investments £000 |
Total Quoted and Unquoted £000 |
Fixed Income Securities £000 |
Total Investments £000 |
|
| Opening cost | 12,762 | 3,855 | 16,617 | 8,511 | 25,128 |
| Opening valuation gain (loss) | 12,984 | 345 | 13,329 | 26 | 13,355 |
| Opening fair value at 1 April 2011 | 25,746 | 4,200 | 29,946 | 8,537 | 38,483 |
| Additions at cost | 2,398 | 116 | 2,514 | 486 | 3,000 |
| Capitalised interest | 11 | – | 11 | – | 11 |
| Disposal proceeds | (9,871) | (559) | (10,430) | (6,709) | (17,139) |
| Net profit on disposal | 2,061 | 24 | 2,085 | 93 | 2,178 |
| Change in fair value on assets held at 31 March 2012 | 134 | (60) | 74 | 92 | 166 |
| Closing fair value at 31 March 2012 | 20,479 | 3,721 | 24,200 | 2,499 | 26,699 |
| Closing cost | 11,781 | 3,529 | 15,310 | 2,383 | 17,693 |
| Closing valuation gain | 8,698 | 192 | 8,890 | 116 | 9,006 |
| Closing fair value at 31 March 2012 | 20,479 | 3,721 | 24,200 | 2,499 | 26,699 |
All of the changes in fair value during the year related to assets held at the year end.
Movements in investments at fair value through profit or loss during the year to 31 March 2011 are summarised as follows:
| IFRS 7 measurement classification | Level 3 | Level 1 | Level 1 | ||
|---|---|---|---|---|---|
| Unquoted Investments £000 |
Quoted Equity Investments £000 |
Total Quoted and Unquoted £000 |
Fixed Income Securities £000 |
Total Investments £000 |
|
| Opening cost | 12,705 | 3,427 | 16,132 | 9,548 | 25,680 |
| Opening valuation gain (loss) | 672 | 452 | 1,124 | 192 | 1,316 |
| Opening fair value at 1 April 2010 | 13,377 | 3,879 | 17,256 | 9,740 | 26,996 |
| Additions at cost | 2,462 | 499 | 2,961 | 3,841 | 6,802 |
| Disposal proceeds | (557) | (274) | (831) | (4,757) | (5,588) |
| Net profit (loss) on disposal | 93 | 93 | 186 | (167) | 19 |
| Change in fair value on assets held at 31 March 2011 | 10,371 | 3 | 10,374 | (120) | 10,254 |
| Closing fair value at 31 March 2011 | 25,746 | 4,200 | 29,946 | 8,537 | 38,483 |
| Closing cost | 12,762 | 3,855 | 16,617 | 8,511 | 25,128 |
| Closing valuation gain | 12,984 | 345 | 13,329 | 26 | 13,355 |
| Closing fair value at 31 March 2011 | 25,746 | 4,200 | 29,946 | 8,537 | 38,483 |
All of the changes in fair value during the year related to assets held at 31 March 2011.
The movements in Level 1 and Level 3 instruments, as defined earlier in this note, are summarised below.
| Level 1 £000 |
Level 3 £000 |
Total £000 |
|
|---|---|---|---|
| Opening fair value at 1 April 2011 | 12,737 | 25,746 | 38,483 |
| Additions at cost | 602 | 2,398 | 3,000 |
| Capitalised interest | – | 11 | 11 |
| Disposal proceeds | (7,268) | (9,871) | (17,139) |
| Net profit on disposal | 117 | 2,061 | 2,178 |
| Change in fair value in the year on assets held at 31 March 2012 | 32 | 134 | 166 |
| Closing fair value at 31 March 2012 | 6,220 | 20,479 | 26,699 |
Level 3 valuations include assumptions based on non-observable market data, such as discounts applied either to reflect change in fair value of financial assets held at the price of recent investment, or to adjust earnings multiples.
The standard requires disclosure, by class of financial instruments, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. The unquoted portfolio (Level 3 under the hierarchy above) contains investments where the circumstance and position of the investee company have to be considered in selecting from a range of values for inputs such as earnings multiple, marketability discounts etc. Both downside and upside possible alternatives to these inputs have been identified from these ranges and applied to the valuation of each of the unquoted investments. Applying the downside alternatives the value of the unquoted investments would be £3,488,000 (16.0%) lower. Using the upside alternative the value would be increased by £3,737,000 (18.0%).
The total of fair value adjustments below cost made against unquoted investments at 31 March 2012 amounted to £248,000 (2011: £231,000).
The downwards revaluation of the investment in GO Outdoors Limited totalling £3.56 million represented 9.0% of total assets of the Company at 31 March 2012. There have been no other individual fair value adjustments downwards during the year which exceeded 5% of the total assets of the Company (2011: none).
Fixed income securities are primarily UK Government stocks and are classified as financial assets at fair value through profit or loss. Their use is as temporary holdings until capital investment opportunities arise.
The following disposals took place in the year (all companies are unquoted except where otherwise indicated):
| Net proceeds from sale |
Cost | Opening carrying value as at 1 April 2011 |
Profit (loss) on disposal |
|
|---|---|---|---|---|
| £000 | £000 | £000 | £000 | |
| GO Outdoors Limited | 6,536 | 42 | 4,461 | 2,075 |
| Adex Bridge Limited | 1,753 | 1,750 | 1,750 | 3 |
| 4G Capital Limited | 984 | 1,000 | 1,000 | (16) |
| RMS Group Holdings Limited | 360 | 360 | 360 | – |
| Hargreaves Services plc* | 329 | 152 | 283 | 46 |
| Waterfall Services Limited | 233 | 233 | 233 | – |
| Patsystems plc* | 115 | 222 | 172 | (57) |
| Tikit Group plc* | 92 | 31 | 69 | 23 |
| Belgravium Technologies plc* | 22 | 35 | 11 | 11 |
| Straight plc* | 1 | 1 | 1 | – |
| Denison Mayes Group Limited | 5 | 5 | 5 | – |
| Total proceeds from quoted and unquoted investments | 10,430 | 3,831 | 8,345 | 2,085 |
| Fixed income securities | 6,709 | 6,614 | 6,616 | 93 |
| Total | 17,139 | 10,445 | 14,961 | 2,178 |
*Designates AiM quoted company.
The following disposals took place in 2011 (all companies are unquoted except where otherwise indicated):
| Net proceeds from sale |
Cost | Opening carrying value as at 1 April 2010 |
Profit (loss) on disposal |
|
|---|---|---|---|---|
| £000 | £000 | £000 | £000 | |
| RMS Group Holdings Limited | 477 | 450 | 383 | 94 |
| EKF Diagnostics Holdings plc* | 105 | 53 | 53 | 52 |
| Tikit Group plc* | 95 | 45 | 57 | 38 |
| Straight plc* | 74 | 75 | 71 | 3 |
| Primal Pictures Limited | 31 | 11 | 31 | - |
| Freshroast Coffee Co. Limited | 29 | 5 | 30 | (1) |
| Denison Mayes Group Limited | 20 | 20 | 20 | - |
| Total | 831 | 659 | 645 | 186 |
*Designates AiM quoted company.
At 31 March 2012 the Company held a significant holding of at least 20% of the issued ordinary share capital, either individually or alongside commonly managed funds, in the following companies:
| Company | Principal activity | No. of shares | Percentage of class held by the Company |
Percentage of class held by commonly managed funds |
|---|---|---|---|---|
| 4G Capital Limited | Software | 2 | 50.00% | – |
| Bagel Nash Group Limited | Food retail | 39,428 | 6.80% | 33.20% |
| Dryden Human Capital Group Limited (formerly Darwin Rhodes Group Limited) | Recruitment | 68,918 | 7.90% | 32.50% |
| Deep-Secure Ltd | Software | 100,000 | 12.86% | 32.14% |
| Ellfin Home Care Limited | Healthcare | 71,089 | 16.02% | 57.96% |
| Fishawack Limited | Communications | 67,626 | 8.39% | 34.36% |
| Harris Hill Holdings Limited | Recruitment | 65,714 | 10.70% | 26.80% |
| Harvey Jones Holdings Limited | Manufacturing | 77,715 | 6.88% | 23.24% |
| Lightmain Company Limited | Manufacturing | 642,860 | 30.00% | – |
| Displayplan Holdings Limited (formerly North Western Investments Limited) | Retail | 2,340 | 22.75% | 12.25% |
| President Engineering Group Ltd | Manufacturing | 200 | 20.00% | – |
| Primal Pictures Limited | Healthcare | 79,680 | 3.90% | 17.18% |
| RMS Group Holdings Limited | Industrial | 153,293 | 8.10% | 14.40% |
| Waterfall Services Limited | Support Services | 100,010 | 19.53% | 4.88% |
Commonly managed funds refer to those funds also under the management of YFM Private Equity Limited, the Fund Manager to the Company, both on a discretionary and a non-discretionary basis.
In a number of cases the issued ordinary share capital of an investee company is split into different classes of shares and thus the percentages given above do not necessarily represent the Company's (or other commonly managed funds') percentage holding of an investee company's total equity. The Company does not hold more than 50% of the equity of any company in the investment portfolio, either on its own or in conjunction with other commonly managed funds.
YFM Private Equity Limited, the Company's Fund Manager, also acts as fund manager to certain other funds under its management that have invested in some of the companies within the current portfolio of the Company. Details of these investments are summarised below. The amounts shown below are the net cost of investments as at 31 March 2012 and exclude those companies which are in receivership or liquidation.
| British Smaller Companies VCT2 plc |
North West Business Investment Scheme |
The Chandos Fund |
Total | Total for this Company |
|
|---|---|---|---|---|---|
| £000 | £000 | £000 | £000 | £000 | |
| Bagel Nash Group Limited | 408 | – | 2,548 | 2,956 | 611 |
| Bluebell Telecom Group Limited | 500 | – | – | 500 | 500 |
| Vianet Group plc (formerly Brulines Group plc) | 81 | – | – | 81 | 163 |
| Cambridge Cognition Limited | 240 | – | – | 240 | 325 |
| Dryden Human Capital Group Limited (formerly Darwin Rhodes Group Limited) | – | – | 1,045 | 1,045 | 488 |
| Deep-Secure Ltd | 500 | – | 2,000 | 2,500 | 1,000 |
| Displayplan Holdings Ltd (formerly North Western Investments Limited) | 700 | – | – | 700 | 1,300 |
| Ellfin Home Care Limited | 317 | 1,098 | 1,774 | 3,189 | 823 |
| Fishawack Limited | – | – | 3,597 | 3,597 | 878 |
| Harris Hill Holdings Limited | – | – | 2,349 | 2,349 | 600 |
| Harvey Jones Holdings Limited | 389 | – | 2,234 | 2,623 | 777 |
| K3 Business Technology Group plc | – | 316 | – | 316 | 402 |
| PowerOasis Limited | 500 | – | 1,000 | 1,500 | 375 |
| Pressure Technologies plc | 300 | – | – | 300 | 425 |
| Primal Pictures Limited | 961 | – | – | 961 | 468 |
| RMS Group Holdings Limited | 408 | – | 250 | 658 | 180 |
| Selima Limited | 300 | – | – | 300 | 600 |
| TeraView Limited | 375 | – | – | 375 | 375 |
| Waterfall Services Limited | 483 | – | – | 483 | 767 |
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Amounts receivable within one year: | ||
| Trade receivables | 72 | 149 |
| Less: Allowances for credit losses on trade receivables | – | (82) |
| Prepayments and accrued income | 460 | 292 |
| 532 | 359 | |
| Allowance for credit losses on trade receivables: | ||
| Allowances as at 1 April | 82 | 80 |
| Release – credited to Statement of Comprehensive Income | (82) | – |
| Additions – charged to Statement of Comprehensive Income | – | 2 |
| Allowances as at 31 March | – | 82 |
Trade receivables are assessed for reduction in fair value when older than 90 days or when there is reasonable doubt that payment will be received in due course. As of 31 March 2012 no trade receivables were past due but not impaired (2011: £67,000). The ageing analysis of these trade receivables is as follows:
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| 1 – 3 months 3 – 6 months |
– – |
67 – |
| More than 6 months | – | – |
As of 31 March 2012, trade receivables of £nil (2011: £82,000) were impaired and provided for. The ageing of these receivables is as follows:
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| 1 – 3 months | – | – |
| 3 – 6 months | – | 18 |
| 6 – 12 months | – | 64 |
| More than 12 months | – | – |
The carrying amounts of the Company's trade and other receivables are denominated in sterling.
The maximum exposure to credit risk at the reporting date in respect of trade and other receivables is £194,000 (2011: £175,000). The Company does not hold any collateral as security. The carrying amounts of the Company's trade and other receivables are denominated in sterling.
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Cash in escrow Cash at bank |
1,000 6,372 |
– 3,114 |
| 7,372 | 3,114 |
A further £5,000,000 is held in a fixed term account maturing in August 2012. As this asset matures in greater than three months from the balance sheet date it does not meet the definition of cash and cash equivalents and has been shown as a current asset on the face of the balance sheet.
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Amounts payable within one year: | ||
| Accrued expenses | 152 | 332 |
| Incentive fee | 1,557 | 142 |
| Other creditors | – | 310 |
| 1,709 | 784 |
| 2012 | 2011 | |||
|---|---|---|---|---|
| Authorised £000 |
Allotted, Called-up and Fully paid £000 |
Authorised £000 |
Allotted, Called-up and Fully paid £000 |
|
| Ordinary shares of 10 pence each Authorised: 165,000,000 (2011: 165,000,000) Issued: 40,394,205 (2011: 36,461,765) |
16,500 | 4,039 | 16,500 | 3,646 |
The movements in the year were as follows:
| Date | Number | Share Capital £000 |
|
|---|---|---|---|
| Total as at 1 April 2011 | 36,461,765 | 3,646 | |
| Issue of Ordinary shares | 5 April 2011 | 1,038,195 | 104 |
| Issue of Ordinary shares | 4 May 2011 | 383,134 | 38 |
| Issue of Ordinary shares | 22 August 2011 | 1,277,941 | 128 |
| Issue of Ordinary shares | 20 January 2012 | 152,398 | 15 |
| Issue of Ordinary shares | 20 March 2012 | 1,080,772 | 108 |
| As at 31 March 2012 (including treasury shares) | 40,394,205 | 4,039 |
During the year the Company purchased 199,200 (2011: 778,448) of its own Ordinary shares and these are held on the balance sheet in the treasury share reserve. Full details of the share purchases are set out in the Directors' Report under the heading 'Buy-Back and Issue of Ordinary Shares'. The treasury shares have been included in calculating the number of Ordinary shares in issue at 31 March 2012.
The capital and assets of the Company shall on winding-up or a return of capital (otherwise than on a purchase by the Company of any of its shares) be divided amongst the Shareholders pro rata according to the nominal capital paid up on their holdings of shares.
The basic and diluted Net Asset Value per Ordinary share is calculated on attributable assets of £37,894,000 (2011: £41,172,000) and 38,033,720 (2011: 34,300,480) Ordinary shares in issue at the year end, excluding treasury shares.
The 2,360,485 (2011: 2,161,285) treasury shares have been excluded in calculating the number of Ordinary shares in issue at 31 March 2012. The Company has no securities that would have a dilutive effect in either period and hence the basic and diluted Net Asset Values per Ordinary share are the same.
The Total Return per Ordinary share is calculated on cumulative dividends paid of 79.2 pence per Ordinary share (2011: 56.2 pence per Ordinary share) plus the Net Asset Value as calculated per note 12.
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Profit before taxation | 1,064 | 10,373 |
| (Increase) decrease in trade and other receivables | (59) | 1,696 |
| Increase (decrease) in trade and other payables | 1,239 | (1,079) |
| Profit on disposal of investments in the year | (2,178) | (19) |
| Profit on investments held at fair value | (166) | (10,254) |
| Capitalised interest | (11) | – |
| Net cash (outflow) inflow from operating activities | (111) | 717 |
Profit before taxation above includes the following cash movements:
| 2012 £000 |
2011 £000 |
|
|---|---|---|
| Dividends received | 422 | 289 |
| Interest received – interest from fixed income securities – deposit interest |
198 73 |
476 13 |
| Total interest | 271 | 489 |
The principal non-cash transaction is the issue of shares under the Company's dividend reinvestment scheme. The Statement of Cash Flows shows dividends paid of £6,884,000 which differs from the total in note 4 by £1,353,000, which is the dividend satisfied through the issue of new Ordinary shares under this scheme.
| 31 March 2011 |
Cash flow |
Other non cash changes |
31 March 2012 |
|
|---|---|---|---|---|
| £000 | £000 | £000 | £000 | |
| Cash and cash equivalents | 3,114 | 4,258 | – | 7,372 |
At 31 March 2012 there was one investment of £900,000 that had been approved which has not been reflected in these accounts (2011: none), and has not completed since the year end. In addition to the two investments in note 18, since the year end one further investment of £600,000 has been approved by the Board (2011: £280,000).
YFM Equity Partners Limited (formerly YFM Group Limited), the parent company of YFM Private Equity Limited, the Fund Manager to the Company, holds an investment in Primal Pictures Limited, an investee company of the Company. At 31 March 2012, YFM Equity Partners' investment in Primal Pictures Limited was valued at £36,879 (2011: £29,161).
Mr Cammerman is a non-executive director of Pressure Technologies plc. During the year Mr Cammerman received £18,000 (2011: £15,925) from Pressure Technologies plc in respect of his services. Mr Cammerman holds a 0.25% equity stake in Pressure Technologies plc, and a 0.004% stake in Straight plc. Mr Cammerman is also a director and 2.1% shareholder of Howmac plc, which holds a 0.02% stake in Hargreaves Services plc.
Information on any transactions between the Company and the directors during the year can be found in the Directors' Remuneration Report on page 38. Information on transactions between the Company and the Fund Manager can be found in note 3.
On 3 April 2012 the Company completed an investment of £2.5 million into Seven Technologies Limited, a Northern Irish engineering business that specialises in developing and manufacturing bespoke electronics and communications applications for operation in inhospitable environments for a wide range of international clients.
Also, on 3 April 2012 the Company completed an investment of £1.0 million into Fairlight Bridge Limited to back a highly experienced manager to invest in underperforming and turnaround situations particularly in the Midlands area.
On 5 April 2012 the Company allotted 1,531,778 new Ordinary shares of 10 pence each at a price of 99.75 pence per Ordinary share in respect of valid subscriptions received and accepted by the Company on or after 21 March 2012 and by 11:00am on Thursday 5 April 2012 pursuant to the Offer for Subscription launched on 6 March 2012.
The Company has no derivative financial instruments and has no financial asset or liability for which hedge accounting has been used in either year. The Company classifies its financial assets as either fair value through profit or loss or loans and receivables.
The investments are valued in accordance with the policy stated on page 24. It is the directors' opinion that the carrying value of trade receivables and trade payables approximates their fair value. Therefore, the directors consider all assets to be carried at a valuation which equates to fair value.
Investments are made in a combination of equity, fixed rate and variable rate financial instruments so as to comply with VCT legislation and provide potential future capital growth. Surplus funds are held in bank deposits, fixed rate Government Securities, fixed term bonds or in high quality AAA rated liquidity funds until suitable qualifying investment opportunities arise.
In accordance with IAS 39, the Company has reviewed all contracts for embedded derivatives that are required to be separately accounted for if they do not meet certain criteria set out in the standard. No embedded derivatives have been identified by the Company.
The accounting policies for financial instruments have been applied to the items below:
| 2012 | 2011 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Loans and Assets at receivables fair value through profit |
Loans and receivables |
or loss | Assets at fair value through profit or loss |
||||||
| £000 | £000 | £000 | £000 | ||||||
| Assets | |||||||||
| Cash and cash equivalents | 7,372 | – | 3,114 | – | |||||
| Fixed term bond | 5,000 | – | – | – | |||||
| Trade and other receivables | 194 | – | 175 | – | |||||
| Financial assets at fair value through profit or loss | – 26,699 |
– | 38,483 | ||||||
| Total financial instruments | 12,566 | 26,699 | 3,289 | 38,483 |
| 2012 Other financial liabilities £000 |
2011 Other financial liabilities £000 |
|
|---|---|---|
| Liabilities Trade and other payables |
1,709 | 784 |
Assets classified as fair value through profit or loss were designated as such upon initial recognition. The Company has not reclassified financial assets between any of the categories detailed in IAS 39, either in current or prior periods.
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, 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. There have been no changes since last year in the objectives, policies and processes for managing and measuring risks facing the Company.
The Company invests in new and expanding businesses, the shares of which may not be traded on the stock market. Consequently, exposure to market factors, in relation to many investments, stems from market based measures that may be used to value unlisted investments.
The market also defines the value at which investments may be sold. Returns are therefore maximised when investments are bought or sold at appropriate times in the economic cycle.
Market price risk arises from uncertainty about the future prices of financial instruments held in accordance with the Company's investment objectives. It represents the potential loss that the Company might suffer through holding market positions in the face of market movements. In addition, the ability of the Company to purchase or sell investments is also constrained by requirements set down for VCTs.
To manage price risk arising from investments in equity securities, the Company diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Board. Exposure to any one stock is limited to 20% of the total cost of investments and 25% of total Net Asset Value. The Board seeks to invest in counter-cyclical stocks where these are identified.
Of the Company's equity investments, 15% are quoted on AiM (2011: 20%). A 5% increase in stock prices as at 31 March 2012 would have increased the net assets attributable to the Company's Shareholders and the total profit for the year by £186,000 (2011: £630,000). An equal change in the opposite direction would have decreased the net assets attributable to the Company's Shareholders and the total profit for the year by an equal amount.
76.6% of the Company's equity investments are in unquoted companies held at fair value (2011: 80%). The valuation methodology for these investments includes the application of externally produced FTSE multiples. Therefore the value of the unquoted element of the portfolio is also indirectly affected by price movements on the listed market. Investments have been valued in line with the valuation guidelines described on page 24. Those using an earnings multiple methodology include judgements regarding the level of discount applied to that multiple. A 10% decrease in the discount applied would have increased the net assets attributable to the Company's Shareholders and the total profit for the year by £1,586,000 (4.2% of net assets). A change in the opposite direction would have decreased net assets attributable to the Company's Shareholders and the total profit for the year by £1,624,000 (4.3% of net assets).
Other valuations are valued at the price of recent investment, reviewed and discounted where the fair value of the investment no longer equates to the cost of the recent investment. As at 31 March 2012 no discounts have been applied and hence no separate sensitivity analysis showing the impact of any change to the discount is presented.
The largest single concentration of risk relates to the Company's investment in GO Outdoors Limited which constitutes 14.5% (2011: 32.8%) of the net assets attributable to the Company's Shareholders. The Board seeks to mitigate this risk by diversifying the portfolio and monitors the status of all investments on an ongoing basis. The average investment, excluding those that have had their fair value reduced to nil, is 2.2% (2011: 2.5%) of the value of net assets.
The Company's venture capital investments include £8,240,000 (2011: £8,892,000) of loan stock in unquoted companies. All of this loan stock at 31 March 2012 is at fixed rates to guard against fluctuations in interest rates. As a result the Company is exposed to cash flow interest rate risk on none (2011: 10.1%) of its loan stock portfolio.
The Company holds a number of fixed income (including Government) securities. The value of such holdings is inversely linked to movements in market interest rates and as such this portfolio is subject to fair value interest rate risk. The Board believes this risk to be satisfactorily mitigated through the portfolio's active management on which it receives regular reports, together with the make-up and market valuation of this portfolio.
The Company has some exposure to interest rates as a result of interest earned on bank deposits.
Other financial assets (being accrued income) and other financial liabilities (being accrued expenses) attract no interest and have an expected maturity date of less than 1 year.
| 2012 | 2011 | |||||
|---|---|---|---|---|---|---|
| Weighted | Weighted | Weighted | Weighted | |||
| average | average | average | average | |||
| interest rate | time for | interest rate | time for | |||
| which rate is fixed |
which rate is fixed |
|||||
| £000 | % | Months | £000 | % | Months | |
| Fixed rate loan stock | 8,240 | 11.02% | 39 | 6,629 | 14.56% | 24 |
| Fixed Income Securities | 2,499 | 2.40% | 33 | 8,537 | 3.52% | 33 |
| Cash on fixed term deposit | 5,000 | 2.50% | 5 | – | – | – |
| Combined | 15,739 | 6.84% | 27 | 15,166 | 5.97% | 32 |
The Company has no significant exposure to exchange rate risk.
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Fund Manager has in place a monitoring procedure in respect of credit risk which is reviewed on an ongoing basis. The carrying amounts of financial assets excluding equity investments total £23,305,000 (2011: £20,718,000) which best represents the maximum credit risk exposure at the balance sheet date.
Credit risk arising on fixed interest instruments is mitigated by investing in UK Government Stock and high quality corporate bonds. The Company does not invest in floating rate instruments other than, on occasion, unquoted loan stock.
Credit risk on unquoted loan stock held within unlisted investments is considered to be part of market risk as disclosed above.
The fair value of the loans and receivables is not regarded as having changed due to the changes in credit risk in either year.
Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the high credit quality of the brokers used. The Board monitors the quality of service provided by the brokers used to further mitigate this risk. All the assets of the Company which are traded on a recognised exchange are held by Singer Capital Markets Limited, the Company's stockbroker. Bankruptcy or insolvency of the broker may cause the Company's rights with respect to securities held by the broker to be delayed or limited. The Fund Manager monitors the Company's risk by reviewing the broker's internal control reports on a regular basis.
The cash held by the Company is held across a number of banks to spread the risk. Bankruptcy or insolvency of these banks may cause the Company's rights with respect to the cash held by the bank to be delayed or limited. The bank and broker (for the gilts) used by the Company are large and reputable. Should the credit quality or the financial position of the banks or fund deteriorate significantly the Fund Manager, gilt and money market managers will move the cash holdings to another bank or fund.
The maturities of the loan stock portfolio are as follows:
| 2012 £000 | 2011 £000 | |||||
|---|---|---|---|---|---|---|
| <1 year | 1-2 years | 2-5 years | <1 year | 1-2 years | 2-5 years | |
| Unquoted loan investments | 2,218 | 634 | 5,366 | 5 | 2,405 | 6,482 |
The past due maturity dates of the loan stock portfolio are as follows:
| 2012 £000 | 2011 £000 | |||||
|---|---|---|---|---|---|---|
| 1-2 months | 3-6 months | > 6 months | 1-2 months | 3-6 months | > 6 months | |
| Interest | 47 | – | – | – | – | – |
| Capital repayment | 667 | – | – | – | 223 | – |
The risk to the Company relates to liabilities which fall due within one year. These liabilities are deemed immaterial and as such the risk associated with them is minimal.
The Company needs to retain enough liquid resources to support the financing needs of its investment businesses. To meet this aim the Company places its surplus funds in a mixture of Government gilts, high quality corporate bonds and high interest deposit accounts. The Company's listed securities are considered to be readily realisable as they relate solely to UK Government stock, which is widely traded. Investments in Government stocks and liquidity funds are held for the purpose of liquidity whilst waiting for suitable qualifying investment opportunities to arise.
The Company's liquidity risk is managed on an ongoing basis by the Fund Manager in accordance with policies and procedures in place. The cash requirements of the Company in respect of each investment are assessed at monthly portfolio meetings.
The Company's overall liquidity risks are monitored on a quarterly basis by the Board. The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses. 19.5% (2011: 7.6%) of the Company's assets are in the form of liquid cash and cash equivalents. There are no undrawn committed borrowing facilities at either year end. The Company's largest liability at the year end is the accrued incentive fee of £1.56 million which will be paid out of the Company's cash reserves following the Annual General Meeting.
Detailed valuation policies in respect of the investment portfolio are set out on page 24. Where investments are in quoted stocks, fair value is set at market price, discounted if appropriate. Non-quoted investments are valued in line with International Private Equity and Venture Capital ("IPEVC") valuation guidelines. The primary methods used, and the key assumptions relating to them, are:
Price of recent investment, reviewed for fair value changes – The cost of the investment, adjusted for background factors specific to the investment, is taken as a reasonable assessment of fair value for a period of up to one year. During this period performance against budget is monitored for evidence of changes to this initial fair value. Valuations may be re-based following substantial investment by a third party when this offers evidence that there has been a change to fair value.
Earnings multiple – The appropriate sector FTSE multiples are used as a market-based indication of the enterprise value of an investment company. A discount is applied to the multiple by the Fund Manager to reflect the smaller size of companies in the portfolio compared to quoted companies.
Although permitted by the IPEVC valuation guidelines, other valuation methods have not been used in the year.
The Company's objectives when managing capital are:
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 March 2012 was £37.9 million (2011: £41.2 million).
In order to maintain or adjust its capital structure the Company may adjust the amount of dividends paid to Shareholders, return capital to Shareholders, issue new shares or sell assets.
There have been no changes in the capital management objectives or the capital structure of the business from the previous year. The Company is not subject to any externally imposed capital requirements.
NOTICE IS HEREBY GIVEN that the ANNUAL GENERAL MEETING of the Company will be held at 33 St James Square, London, SW1Y 4JS on 20 July 2012 at 12:00 noon for the following purposes:
To consider and, if thought fit, pass the following resolutions:
(v) the Company may make a contract or contracts to purchase Ordinary shares under this authority before the expiry of the authority which will or may be executed wholly or partly after the expiry of the authority, and may make a purchase of Ordinary shares in pursuance of any such contract or contracts.
Secretary
13 June 2012
Registered office: Saint Martins House, 210-212 Chapeltown Road, Leeds LS7 4HZ
Information regarding the Annual General Meeting, including the information required by section 311 of the Companies Act 2006, is available from www.yfmep.com
| I/We | being a member/members of the above named |
|---|---|
| Company entitled to attend and vote at the Annual General Meeting of the Company hereby appoint the Chairman of the Annual General | |
| Meeting or (see notes (2), (3) and (4)) | of |
as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on 20 July 2012 at 12:00 noon and at any adjournment thereof.
Number of Ordinary shares proxy is appointed over
Please tick here if this proxy is one of multiple appointments being made (see note 2)
My/our proxy is to vote on the resolutions as indicated below. Please indicate with an 'x' how you wish your vote to be cast. If no voting indication is given, your proxy will vote or abstain from voting on the resolutions at their discretion.
| FOR | AGAINST | WITHHELD | |
|---|---|---|---|
| Ordinary Business ORDINARY RESOLUTIONS |
|||
| 1. To receive the Annual Report and Accounts |
|||
| 2. To approve a final dividend of 3.0 pence per Ordinary share |
|||
| 3. To approve the Directors' Remuneration Report |
|||
| 4. To re-elect Mr P S Cammerman as a director |
|||
| 5. To re-appoint Grant Thornton UK LLP as auditor |
|||
| 6. To grant authority to allot shares (other than pursuant to the Dividend Reinvestment Scheme) |
|||
| Special Business SPECIAL RESOLUTIONS |
|||
| 7. To authorise the directors to waive pre-emption rights in relation to the allotment of shares (other than pursuant to the Dividend Reinvestment Scheme) |
|||
| 8. To authorise the Company to make purchases of its own Ordinary shares |
|||
| Signature | Dated | 2012 | |
|---|---|---|---|
To be used at the Annual General Meeting of the Company to be held at 33 St James Square, London, SW1Y 4JS on 20 July 2012 at 12:00 noon
Please complete, detach and return the Form of Proxy in the pre-paid envelope provided.
YFM Private Equity Limited Saint Martins House 210-212 Chapeltown Road Leeds LS7 4HZ
The Registry 34 Beckenham Road Beckenham Kent BR3 4TU
hlw Keeble Hawson LLP Protection House 16-17 East Parade Leeds LS1 2BR
Singer Capital Markets One Hanover Street London W1S 1AX
Grant Thornton UK LLP 2 Broadfield Court Sheffield S8 0XF
WC2N 6RH
The Royal Bank of Scotland plc 27 Park Row Leeds LS1 5QB
KHM Secretarial Services Limited Old Cathedral Vicarage St James Row Sheffield S1 1XA
| Saint Martins House | T: 0113 294 5000 |
|---|---|
| 210-212 Chapeltown Road | F: 0113 294 5002 |
| Leeds LS7 4HZ | E: [email protected] |
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