Annual Report • Mar 31, 2013
Annual Report
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British Smaller Companies VCT plc was launched in 1996 and has a diverse portfolio of 29 unquoted and AIM quoted investments reducing exposure to particular markets and individual companies. The Company to date has in total disposed of 46 investments generating capital proceeds of £25.5 million. The current investment portfolio has an audited valuation of £27.6 million as at 31 March 2013.
British Smaller Companies VCT plc ("the Company") is managed by YFM Private Equity Limited ("the Fund Manager") which is a wholly owned subsidiary of YFM Equity Partners Limited and is authorised and regulated by the Financial Conduct Authority (formerly the Financial Services Authority). YFM Equity Partners Limited is part of the GLE Group of Companies.
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.
The Company invests in UK businesses across a range of sectors including but not limited to Industrial, Healthcare, Software and Consumer Products in VCT qualifying and non-qualifying unquoted and AIM quoted securities. The current legislation governing VCTs requires that at least 70 per cent by value of its holdings must be in 'qualifying holdings'. The maximum value that the Company may hold in a single
investment is 15 per cent of the Company's investment value at the time of investment. Although the majority of investments will normally be in equities, preference shares and loan stock may also be subscribed for, thereby spreading risk and enhancing yields.
Further details of the Company's investment policy can be found in the Directors' Report on page 39.
Your Board remains committed to achieving the objective of paying a consistent dividend stream where possible. This is dependent upon both the level of realisations and the investment income that the Company is able to make or generate in any one period.
The tax free nature of a VCT is of particular benefit for qualifying Shareholders as there is no income tax payable on the dividends received, or need to declare them in a tax return. This means that qualifying Shareholders in British Smaller Companies VCT plc who are higher rate tax payers do not have to pay income tax on the dividends they receive from the Company.
In recent years the rate of discount to Net Asset Value at which ordinary shares are bought back has been set at no more than 15 per cent. Following a review of this policy the Board is pleased to advise that, from 11 June 2013, the rate of discount at which ordinary shares will be bought back is targeted to be no more than 10 per cent.
Share buy-backs enable Shareholders to obtain some liquidity in an otherwise illiquid market when there is a need to dispose of stock. This policy is kept under active review to ensure that any decisions taken are in the interests of Shareholders as a whole.
The Company operates a dividend reinvestment scheme which gives Shareholders the opportunity to re-invest any cash dividends. Currently dividends are re-invested at a 5 per cent discount to the latest reported Net Asset Value as at the date the dividend is paid (adjusted for the relevant dividend if this Net Asset Value does not already recognise the dividend). Any dividends that are re-invested by qualifying Shareholders are eligible for income tax relief at 30 per cent of the amount invested subject to an annual investment limit of £200,000.
Financial Highlights 3 Financial Summary 4
Business Review Chairman's Statement 6 Fund Manager's Review 10 Valuation of Investments 27
Directors 28 Directors' Report 29 Directors' Remuneration Report 41
Auditor's Report Independent Auditor's Report 43
| Statement of | |
|---|---|
| Comprehensive Income | 44 |
| Balance Sheet | 45 |
| Statement of Changes | |
| in Equity | 46 |
| Statement of Cash Flows | 48 |
| Notes to the | |
| Financial Statements | 49 |
| Notice of the | |
|---|---|
| Annual General Meeting | 66 |
| Form of Proxy | 69 |
| Advisers to the Company | 71 |
Your Company's Total Return has increased by 2.4 pence per ordinary share from 178.8 pence per ordinary share to 181.2 pence per ordinary share since 31 March 2012 which includes cumulative dividends paid of 84.2 pence per ordinary share.
2.4% Net Asset Value Increase of 2.4 per cent
Your Company has continued to make progress this year with an overall increase above the opening Net Asset Value ("NAV") of 2.4 per cent. In the year NAV increased by 2.4 pence per ordinary share from 99.6 pence per ordinary share at 31 March 2012 to 102.0 pence per ordinary share at 31 March 2013, out of which dividends totalling 5.0 pence per ordinary share were paid resulting in a year end NAV of 97.0 pence per ordinary share.
The underlying growth in the investment portfolio was £1.0 million, representing a 4.1 per cent increase. This included £0.3 million of unrealised value growth and £0.7 million of profit on disposals.
Dividends paid and proposed in respect of the year to 31 March 2013 have been increased to 6.5 pence per ordinary share. These comprise an interim dividend of 2.0 pence per ordinary share paid on 14 January 2013 as well as an increased final dividend of 3.5 pence per ordinary share proposed by the Board. In addition, following the disposal of Fishawack Limited and Tikit Group plc, the Board is declaring a special dividend of 1.0 pence per ordinary share which will be paid at the same time as the final dividend.The average dividend paid over the five years to 31 March 2013 is 5.25 pence per ordinary share before taking account of the special dividend in respect of the partial disposal of GO Outdoors of 18.0 pence per ordinary share paid in August 2011.
Shareholders who subscribed in the Company's first fundraising round for the 1995/96 and 1996/97 Tax Year have received 84.2 pence per ordinary share of dividends to date with the Total Return of 181.2 pence per ordinary share representing an 81.2 per cent uplift on their original investment. Taking account of the original 20 per cent upfront tax relief this return increases to 126.5 per cent. The annualised return for Shareholders in each fundraising round is set out on page 5.
| Year ended 31 March 2013 |
Year ended 31 March 2012 |
Year ended 31 March 2011 |
Year ended 31 March 2010 |
Year ended 31 March 2009 |
|
|---|---|---|---|---|---|
| Income | £1,323,000 | £1,236,000 | £1,174,000 | £1,129,000 | £1,173,000 |
| Profit (loss) before and after taxation | £1,123,000 | £1,064,000 | £10,373,000 | £4,202,000 | £(3,266,000) |
| Profit (loss) per ordinary share | 2.78p | 2.92p | 31.38p | 13.65p | (10.62)p |
| Dividend per ordinary share paid in the year | 5.0p | 23.0p | 6.25p | 5.0p | 5.0p |
| Cumulative dividend paid per ordinary share | 84.2p | 79.2p | 56.2p | 50.0p | 45.0p |
| Net assets attributed to ordinary shares | £42,089,000 | £37,894,000 | £41,172,000 | £29,008,000 | £26,400,000 |
| Net Asset Value per ordinary share | 97.0p | 99.6p | 120.0p | 94.4p | 85.7p |
| Total Return per ordinary share | 181.2p | 178.8p | 176.2p | 144.4p | 130.7p |
The chart below shows the Five Year Total Shareholder Return of your Company, calculated by reference to the Net Asset Value per ordinary share plus cumulative dividends paid per ordinary share.
The table below shows the Total Return on each fundraising round per ordinary share and the Total Return if a Shareholder had opted to participate in the Company's DRIS. The cumulative dividends, Total Return and IRR figures in this table exclude the benefits of all tax reliefs.
| Fundraising Round 5 | Offer price | Offer price net of tax |
Net Asset Value at 31 March 2013 |
Cumulative dividends paid since fundraising1 |
Total Return since fundraising1 |
Total Return since fundraising with participation in the DRIS 1&2 |
IRR (excluding DRIS) 4 |
|---|---|---|---|---|---|---|---|
| Pence | Pence | Pence | Pence | Pence | Pence | % | |
| 1995/96 & 1996/97 Tax Years | 100.00 | 80.00 | 97.00 | 84.20 | 181.20 | 200.57 | 4.6 |
| 1996/97 & 1997/98 Tax Years | 100.00 | 80.00 | 97.00 | 83.14 | 180.14 | 199.50 | 4.7 |
| 1997/98 & 1998/99 Tax Years | 105.00 | 84.00 | 97.00 | 79.64 | 176.64 | 196.00 | 4.4 |
| 2004/05 Tax Year (C share)3 | 99.50 | 59.70 | 109.10 | 55.89 | 164.99 | 178.86 | 7.3 |
| 2005/06 Tax Year | 100.00 | 60.00 | 97.00 | 53.75 | 150.75 | 165.90 | 7.3 |
| 2006/07 & 2007/08 Tax Years | 102.50 | 71.75 | 97.00 | 49.25 | 146.25 | 158.27 | 7.2 |
| 2007/08 & 2008/09 Tax Years | 106.25 | 74.38 | 97.00 | 44.25 | 141.25 | 150.34 | 6.8 |
| 2009/10 & 2010/11 Tax Years | 97.25 | 68.08 | 97.00 | 34.25 | 131.25 | 135.28 | 12.4 |
| 2010/11 & 2011/12 Tax Years | 128.00 | 89.60 | 97.00 | 28.00 | 125.00 | 126.77 | (1.5) |
| 2011/2012 Tax Year | 99.75 | 69.83 | 97.00 | 5.00 | 102.00 | 102.07 | 2.5 |
The table below shows, for a Shareholder investing £10,000 in each fundraising round of the Company, the Total Return since that fundraising round and the Total Return if the Shareholder had opted to participate in the Company's DRIS since the scheme's inception in 2004. The cumulative dividends and Total Return figures in this table exclude the benefits of all tax reliefs.
| Fundraising Round 5 | Subscription | Subscription net of tax |
Net Asset Value at 31 March 2013 |
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 Years | 10,000 | 8,000 | 9,700 | 8,420 | 18,120 | 20,057 |
| 1996/97 & 1997/98 Tax Years | 10,000 | 8,000 | 9,700 | 8,314 | 18,014 | 19,950 |
| 1997/98 & 1998/99 Tax Years | 10,000 | 8,000 | 9,238 | 7,585 | 16,823 | 18,667 |
| 2004/05 and 2005/06 Tax Year (C share)3 | 10,000 | 6,000 | 10,964 | 5,617 | 16,581 | 17,976 |
| 2005/06 Tax Year | 10,000 | 6,000 | 9,700 | 5,375 | 15,075 | 16,590 |
| 2006/07 & 2007/08 Tax Years | 10,000 | 7,000 | 9,463 | 4,805 | 14,268 | 15,441 |
| 2007/08 & 2008/09 Tax Years | 10,000 | 7,000 | 9,129 | 4,165 | 13,294 | 14,150 |
| 2009/10 & 2010/11 Tax Years | 10,000 | 7,000 | 9,974 | 3,522 | 13,496 | 13,910 |
| 2010/11 & 2011/12 Tax Years | 10,000 | 7,000 | 7,578 | 2,188 | 9,766 | 9,904 |
| 2011/12 Tax Year | 10,000 | 7,000 | 9,724 | 501 | 10,225 | 10,232 |
This assumes that at the time of investment the tax relief given on the investment was not 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, and is stated after issue costs of between 4.75 per cent and 5.5 per cent.
The tables above show the offer price and Total Return for each fundraising round. As some of the fundraising rounds straddle the end of the tax year a Shareholder may have invested in two separate fundraising rounds under the same tax year. For example, under the 2009/10 and 2010/11 Tax Year round shares were issued on 5 April 2011 (the 2010/11 Tax Year) and 4 May 2011 (the 2011/12 Tax Year). The subsequent 2011/12 Tax Year round issued shares on 20 March 2012 which also fell into the 2011/12 Tax Year, although issued almost 10 months later than those on 4 May 2011. To accommodate this some tax years appear twice in the table.
I am pleased to report another year of progress for your Company with Total Return (Net Asset Value plus cumulative dividends) rising by 2.4 pence per ordinary share over the year to 31 March 2013. This equates to an increase of 2.4 per cent on the opening Net Asset Value, a good result in the context of continuing economic uncertainty. As a comparison, the FTSE® AIM All-Share Index dropped by 8.2 per cent over the same period.
6 British Smaller Companies VCT plc
I am delighted to report that your Company has been ranked as a top five performer over the last three, five and ten years as reported by Citywire (Source: Citywire data as at 24 April 2013 – based on NAV performance).
The movement in Net Asset Value per ordinary share and the dividends paid in the year are summarised in the table below.
The Net Asset Value increased by 2.4 pence per ordinary share prior to the payment of dividends totalling 5.0 pence per ordinary share during the year. The chart on page 4 of these Financial Statements shows in greater detail the movement in Total Return, Net Asset Value and dividends paid over time.
At 31 March 2013 cash, fixed term deposits and government securities amounted to £14.6 million; 34.7 per cent of the Company's Net Asset Value. The gilt and fixed term security portfolio has remained stable over the year.
| Pence per ordinary share | ||
|---|---|---|
| 31 March 2012 Net increase in portfolio Other increase in value |
1.9 0.4 |
99.6 |
| Net increase in value | 2.3 | |
| Buy-back of shares | 0.3 | |
| Issue costs of new ordinary shares | (0.2) | |
| Dividends paid | (5.0) | |
| 31 March 2013 | 97.0 |
In accordance with the terms of the investment management agreement (the details of which are set out on page 40) an incentive fee of £0.03 million is payable to YFM Private Equity Limited.
This payment is linked to achieving both a consistent and increasing dividend (with the target dividend, below which no incentive fee is payable, adjusted for RPI annually) as well as maintaining growth in the Net Asset Value above a hurdle.
The net gain on the investment portfolio was £1.0 million, an increase of 4.1 per cent on the opening 31 March 2012 portfolio value of £24.2 million. This comprises profit on disposals of £0.7 million and an increase in the residual portfolio value of £0.3 million after allowing for the impact of investments and disposals. The residual portfolio value increase results from valuation growth of 4 per cent in unquoted investments and a fall in value of 18 per cent in respect of quoted securities.
Good progress has been made by a number of our portfolio businesses which have seen profits grow despite the challenging economic environment, with the largest value gains being from DisplayPlan Holdings Limited and President Engineering Group Ltd, which increased by £1.7 million and £0.6 million respectively.
There are currently twenty-nine (2012: twenty-nine) companies in the portfolio of which twenty are unquoted and nine are quoted, with eight traded on AIM and one on the ISDX Growth Market. The current value of the unquoted portfolio is £24.7 million, whilst the quoted portfolio is valued at £2.9 million – these represent 89.4 per cent and 10.6 per cent of the total portfolio respectively.
During the year ended 31 March 2013 the Company completed eight investments totalling £5.2 million. This comprised two new investments in unquoted companies, five follow-on investments into existing portfolio companies and one re-investment into an acquisition vehicle.
During the year the Company received proceeds of £2.8 million on three full disposals and two partial disposals, including scheduled loan repayments. They contributed a profit of £0.7 million on both the cost and opening value, including a small profit on sales from the gilt portfolio.
19 July 2013
The Annual General Meeting of the Company will be held at 12.00 noon on 19 July 2013 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 66.
Your Board remains committed to achieving an increasing dividend stream over time.
Dividends paid in the year comprise a final dividend of 3.0 pence per ordinary share in respect of the year ended 31 March 2012 and an interim dividend of 2.0 pence per ordinary share in respect of the financial year just ended, totalling 5.0 pence per ordinary share. This represents 5 per cent of the opening Net Asset Value per ordinary share, bringing the cumulative dividends paid to 84.2 pence per ordinary share.
The Board is pleased to propose a final dividend of 3.5 pence per ordinary share payable in August 2013, representing a 0.5 pence increase on last year. In addition, following the realisation of investments in Fishawack Limited and Tikit Group plc, the Board is also declaring the payment of a 1.0 pence per ordinary share special dividend (payable at the same time as the final dividend).
The final dividend is subject to approval by Shareholders at the Annual General Meeting and, together with the special dividend, will be paid on 13 August 2013 to Shareholders on the register at 12 July 2013.
The Company operates a DRIS, which gives Shareholders the opportunity to re-invest any cash dividends as described on page 2. The DRIS is open to all Shareholders, including those who invested under the recent joint Offer.
Following an offer for subscription launched on 6 March 2012 your Board is pleased to
announce that, during the month the offer was open, gross proceeds of £2.6 million were raised.
The recent changes to UK legislation implemented with effect from 6 April 2012 have increased the ability of Venture Capital Trusts to invest in growing British businesses. This, combined with the restricted supply of other forms of finance, make an attractive investment environment for those investors, such as VCTs, that are able to take a medium term view.
The Company therefore sought to increase further its investment capacity, through a joint offer with British Smaller Companies VCT2 plc launched on 16 November 2012 ("the Offer"). The Offer was fully subscribed and closed on 30 April 2013 with the Company raising a total of £10.3 million, before costs.
In recent years the rate of discount to Net Asset Value at which ordinary shares are bought back has been set at no more than 15 per cent.
Following a review of this policy the Board is pleased to advise that the rate of discount at which ordinary shares will be bought back is targeted to be no more than 10 per cent.
Your Board remains committed to enhancing Shareholder communications. Our 18th Shareholder Workshop was held at Lord's Cricket Ground in London on 6 February 2013 with approximately 200 Shareholders attending.
Presentations at the workshop were made by David Hall (on behalf of the Company's Fund Manager, YFM Private Equity Limited), as well as the managing directors of investee companies Selima Limited (Wayne
Blakemore) and DisplayPlan Holdings Limited (Scott Morris) and independent analyst and commentator Martin Churchill.
The Board is now seeing a marked increase in good quality investment opportunities for the Company and is well placed to capitalise on these, following recent fundraisings.
In total £0.2 million has already been invested since the year end in:
In addition, a further £5.5 million of investment submissions have been approved by the Board pending satisfactory fulfilment of investment criteria.
The £1.3 million of non-qualifying loans to Seven Technologies Holdings Limited have been repaid as part of the funding package for the proposed acquisition of Datong plc.
Susequent to the year end the Company allotted 6,400,143 new ordinary shares of 10.0 pence each, receiving gross proceeds of £6.2 million. Details of these allotments are as set out in note 11 on page 60 of these Financial Statements. In total the Company raised net proceeds of £9.8 million under the joint Offer.
It is encouraging to see another year where trading improvements across much of the portfolio have fed through into increased valuations.
Many companies have taken opportunities to improve efficiency and capitalise on market changes resulting from the uncertain economic conditions.
Your Company is well placed both to add to the diversity of its investment portfolio and to continue to support existing portfolio companies as they seek to expand organically and through selective acquisitions.
The Board believes that the upcoming period is likely to present good investment opportunities, both for existing portfolio businesses and for new investments and this can already be seen clearly in the increasing investment rates.
The relaxation of some 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 in order to be in a strong position to take advantage of these as they arise.
The strong long-term track record of your Company provides an excellent platform for future fundraising and investment activity.
I would like to again thank all Shareholders for their continued support, which we greatly value.
Helen Sinclair Chairman 11 June 2013
This year the Company has significantly increased its investment capacity to take advantage of further investment opportunities over the coming months, with £11.3 million of net funds raised since 31 March 2012. Although still unpredictable the last few months have delivered some excellent opportunities to invest in good growing businesses at attractive prices, evidenced by the investments completed or approved by the Board since the year end. This has been helped by the increase to £5.0 million in the amount that can now be invested in companies by Venture Capital Trusts and Enterprise Investment Schemes. Following recent fundraisings the Company is now well placed to select the best opportunities and to take advantage of strong investment opportunities.
In spite of a continuation of the challenging economic environment, there has been considerable further progress made by many of the businesses in the Company's portfolio during the year. The overall value gain from the portfolio was £1.0 million, an increase of 4.1 per cent on the opening 31 March 2012 portfolio value, which comprises profit on disposals during the year of £0.7 million and an increase in the residual portfolio value of £0.3 million.
In addition to financial performance some strong progress has been made during the year to position many of the portfolio companies for future value growth. These include the following:
| Quoted and unquoted portfolio £000 |
Deferred proceeds £000 |
Total £000 |
||
|---|---|---|---|---|
| 1 April 2012 Additions Proceeds Valuation changes Unquoted Quoted Profit on disposal Value growth |
811 (544) 687 |
24,200 5,213 (2,807) 954 |
– – – – – – 4 |
24,200 5,213 (2,807) 958 |
| 31 March 2013 | 27,560 | 4 | 27,564 |
| Unquoted Investments: | £000 |
|---|---|
| Non Qualifying Qualifying |
753 23,884 24,637 |
| AIM/ISDX Growth Market Listed Investments: | £000 |
| Non Qualifying Qualifying |
770 2,153 2,923 |
| Total Investments | 27,560 |
| New Investments: | £million |
|---|---|
| Seven Technologies Holdings Limited Insider Technologies (Holdings) Limited |
2.52 1.17 |
| Re-invested: | £million |
| Fairlight Bridge Limited | 1.00 |
| Follow-on Investments: | £million |
| Vianet Group plc Hargreaves Services plc Lightmain Company Limited PowerOasis Limited Dryden Human Capital Group Limited Bagel Nash Group Limited (capitalised interest) |
0.24 0.10 0.08 0.05 0.03 0.02 |
| Total | 5.21 |
Overall the portfolio remains well funded and positioned for value growth even if current difficult economic conditions continue. The underlying value growth of the opening quoted and unquoted portfolio was £1.0 million after adjusting for new investments and cash proceeds.
The £0.8 million increase in value of the unquoted portfolio relates largely to the following significant movements:
The quoted portfolio decrease of £0.5 million was due to a general negative swing across the markets but also affected by a small number of bigger changes. K3 Business Technology Group plc saw a value drop of £0.3 million following a difficult year for its core retail customer base, whilst Hargreaves Services plc saw a £0.2 million value fall following operational issues at its Maltby coal mine. These were offset by a value gain of £0.2 million in
Mattioli Woods plc which weathered the Retail Distribution Review and is now projecting sales growth.
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 of the Financial Statements on page 56.
During the year the Company made a total of eight investments (£5.2 million), comprising two new investments in the unquoted portfolio, one re-investment into an acquisition vehicle and five follow-on investments into existing companies. New investments were made as follows:
The five follow-on investments totalled £0.5 million with the most significant being a £0.2 million investment into Vianet Group plc, a leading provider of remote monitoring software to the brewing, fuel supply and vending sectors.
In the year to 31 March 2013 the Company made a number of significant full and partial disposals from both the quoted AIM and unquoted investment portfolio, generating over £2.8 million in cash proceeds. This has
resulted in £0.7 million of profit in excess of opening value in the year, and profit on cost of £0.7 million.
The three most significant disposals from the unquoted portfolio were:
Partial realisations of £0.2 million in total were also achieved from quoted EKF Diagnostics Holdings plc and Straight plc. "YFM has been a strong partner through a period of significant change and was ultimately instrumental in enabling us all to achieve this successful result".
Chairman of Primal Pictures
"YFM have been very supportive investors, helping us transform our business from being a UK only medical communications agency to an international player supporting its clients on a global basis".
Founding director of Fishawack
The year under review has seen a continuation of some of the previous challenging market conditions and management teams now pragmatically expect these conditions to continue for some time to come. However, in spite of this, further value growth has been achieved in the year as these small businesses push ahead with clear growth strategies and rapidly increase market share. The portfolio is becoming increasingly diverse, and well-funded to deliver further value gains over the coming years.
Cash reserves remain strong after the successful fundraising, so the Company is well-placed to take advantage of the increasing investment opportunities, continue to support the portfolio and maintain consistent and growing dividend levels.
| Net proceeds from sale of investments £000 |
Cost of investment £000 |
Profit on cost £000 |
Opening value 1 April 2012 £000 |
Profit on opening value £000 |
|
|---|---|---|---|---|---|
| Sale of investments | 2,807 | 2,172 | 635 | 2,120 | 687 |
| Fixed income securities | 901 | 858 | 43 | 893 | 8 |
| Total cash proceeds | 3,708 | 3,030 | 678 | 3,013 | 695 |
| Deferred proceeds accrued | 4 | n/a | 4 | n/a | 4 |
| Total cash and deferred proceeds | 3,712 | 3,030 | 682 | 3,013 | 699 |
| Page No. |
Name of Company | Date of Initial Investment |
Location | Industry Sector |
Current Cost |
Proceeds to Date* |
Investment Valuation at 31 March |
Return to Date |
|---|---|---|---|---|---|---|---|---|
| £000 | £000 | 2013 £000 |
£000 | |||||
| Current Investments | ||||||||
| Unquoted Portfolio | ||||||||
| 16 | GO Outdoors Limited | May-98 | Sheffield | Retail | 113 | 6,995 | 4,955 | 11,950 |
| 17 | President Engineering Group Ltd | Sep-10 | Sheffield | Manufacturing | 1,000 | – | 3,281 | 3,281 |
| 17 | DisplayPlan Holdings Limited | Feb-10 | Baldock, Herts | Retail | 1,300 | – | 3,042 | 3,042 |
| 19 | Seven Technologies Holdings Limited |
Apr-12 | Belfast | Telecommunications | 2,302 | 222 | 2,335 | 2,557 |
| 18 | Deep-Secure Ltd | Dec-09 | Malvern | Software | 1,000 | – | 1,940 | 1,940 |
| 18 | Waterfall Services Limited | Feb-07 | Warrington | Support Services | 767 | 233 | 1,736 | 1,969 |
| 19 | Insider Technologies (Holdings) Limited |
Aug-12 | Manchester | Software | 1,170 | – | 1,208 | 1,208 |
| 19 | Fairlight Bridge Limited | Apr-12 | Midlands | Turnaround Services | 1,000 | – | 1,000 | 1,000 |
| 19 | Harvey Jones Holdings Limited | May-07 | London | Consumer Retail | 777 | – | 836 | 836 |
| 20 | RMS Group Holdings Limited | Jul-07 | Goole | Industrial | 180 | 897 | 726 | 1,623 |
| 20 | Harris Hill Holdings Limited | Jun-07 | Kingston-upon-Thames | Recruitment | 600 | – | 701 | 701 |
| 20 | Selima Limited | Mar-12 | Sheffield | Software | 600 | – | 699 | 699 |
| 21 | Bluebell Telecom Group Limited | Sep-10 | Newcastle | Telecommunications | 500 | – | 608 | 608 |
| 21 | Bagel Nash Group Limited | Jul-11 | Leeds | Food Retail | 628 | – | 600 | 600 |
| 21 | PowerOasis Limited | Nov-11 | Swindon | Energy Infrastructure | 425 | – | 425 | 425 |
| 22 | Dryden Human Capital Group Limited |
Apr-08 | London | Recruitment | 523 | – | 204 | 204 |
| 22 | Cambridge Cognition Holdings plc (formerly Cambridge Cognition Limited) |
May-02 | Cambridge | Healthcare | 325 | – | 192 | 192 |
| 23 | Lightmain Company Limited | Mar-10 | Rotherham | Manufacturing | 676 | – | 75 | 75 |
| 23 | Ellfin Home Care Limited | Dec-07 | Oldham | Healthcare | 823 | – | 74 | 74 |
| 23 | TeraView Limited | Dec-11 | Cambridge | Electronics | 375 | – | – | – |
| Quoted Portfolio | ||||||||
| 24 | Mattioli Woods plc | Nov-05 | Leicester | Support Services | 326 | – | 691 | 691 |
| 24 | Hargreaves Services plc | Dec-07 | Durham | Manufacturing | 416 | 330 | 635 | 965 |
| 24 | Pressure Technologies plc | Jun-07 | Sheffield | Manufacturing | 425 | – | 468 | 468 |
| 25 | EKF Diagnostics Holdings plc | Jul-10 | London | Medical Instruments | 252 | 226 | 394 | 620 |
| 25 | Vianet Group plc | Oct-06 | Stockton-on-Tees | Business Services | 404 | – | 326 | 326 |
| 25 | K3 Business Technology Group plc | Apr-08 | Manchester | Software | 402 | – | 285 | 285 |
| 26 | Woodspeen Training Group plc | Dec-10 | London | Training Provider | 250 | – | 73 | 73 |
| 26 | Straight plc | Feb-04 | Leeds | Industrial | 116 | 171 | 27 | 198 |
| 26 | Belgravium Technologies plc | Oct-05 | Bradford | Software | 165 | 22 | 24 | 46 |
| 17,840 | 9,096 | 27,560 | 36,656 | |||||
| Full disposals since March 2002 | 16,546 | 22,271 | – | 22,271 | ||||
| Full disposals prior to March 2002 | 6,394 | 3,246 | – | 3,246 | ||||
| Total | 40,780 | 34,613 | 27,560 | 62,173 |
* Proceeds include premiums and profits on loan repayments and preference redemptions.
| Name of Company | Investment valuation at 31 March 2012 £000 |
Disposals proceeds £000 |
Additions £000 |
Valuation gains (losses) including profits (losses) on disposal £000 |
Investment valuation at 31 March 2013 £000 |
|---|---|---|---|---|---|
| Current Investments | |||||
| GO Outdoors Limited | 5,504 | – | – | (549) | 4,955 |
| President Engineering Group Ltd | 2,687 | – | – | 594 | 3,281 |
| Deep-Secure Ltd | 2,298 | – | – | (358) | 1,940 |
| Waterfall Services Limited | 1,503 | – | – | 233 | 1,736 |
| DisplayPlan Holdings Limited | 1,300 | – | – | 1,742 | 3,042 |
| Fishawack Limited | 896 | (1,303) | – | 407 | – |
| Harvey Jones Holdings Limited | 783 | – | – | 53 | 836 |
| Lightmain Company Limited | 686 | – | 76 | (687) | 75 |
| Harris Hill Holdings Limited | 653 | – | – | 48 | 701 |
| Bagel Nash Group Limited | 611 | – | 17 | (28) | 600 |
| Other unquoted investments | 3,558 | (809) | 4,779 | (57) | 7,471 |
| Quoted investments | 3,721 | (695) | 341 | (444) | 2,923 |
| Total | 24,200 | (2,807) | 5,213 | 954 | 27,560 |
This section describes the business of the active companies in the portfolio in order of valuation at 31 March 2013 as detailed on page 14. The Company's voting rights in an investee company are the same as the percentage of equity held for each investment detailed.
| Cost: Valuation: Dates of investment: Equity held: |
£113,000 £4,955,000 May 1998, March 2002 and April 2007 14.09% |
|
|---|---|---|
| Valuation basis: Dividends received: |
Earnings multiple £nil (2012: £297,911) |
|
| 52 weeks ended | 27 Jan 2013 £million |
29 Jan 2012 £million |
| Sales EBITDA pre exceptionals Profit (loss) before tax Retained profits Net assets |
170.98 9.44 1.49 3.31 4.41 |
143.67 8.46 (2.56) 1.57 2.67 |
Sheffield www.gooutdoors.co.uk
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 four stores in the year, taking the total number of outlets to forty three, with another opening soon. The £28.0 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 one-third of the Company's investment.
| Cost: | £1,000,000 | |
|---|---|---|
| Valuation: | £3,281,000 | |
| Date of investment: | September 2010 | |
| Equity held: | 20.00% | |
| Valuation basis: | Earnings multiple | |
| Interest: | £81,000 (2012: £81,000) | |
| Year ended 31 October | 2012 | 2011 |
| £million | £million | |
| Sales | 19.58 | 15.98 |
| EBITA | 4.01 | 2.78 |
| Profit before tax | 2.21 | 1.95 |
| Retained profits | 2.41 | 1.23 |
| Net assets | 2.57 | 1.42 |
| Cost: | £1,300,000 |
|---|---|
| Valuation: | £3,042,000 |
| 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: | £117,000 (2012: £25,644) |
Year ended 31 December 2011
(2010: 13 months ended 30 November)
| 2011 | 2010 | |
|---|---|---|
| £million | £million | |
| Sales | 16.19 | 13.11 |
| Profit before taxation | 1.78 | 0.08 |
| EBITA | 1.78 | 0.08 |
| Retained profits | 2.13 | 0.81 |
| Net assets | 2.14 | 0.82 |
The financial results above are for the DisplayPlan business acquired through the management buy-out.
Sheffield www.conflow.com / www.bestobellvalves.com
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.
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 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 stands in high street retail stores.
| Cost: | £2,302,000 |
|---|---|
| Valuation: | £2,335,000 |
| Date of investment: | April 2012 |
| Equity held: | 6.25% |
Valuation basis: Price of recent investment, reviewed for change in fair value Interest: £116,647 (2012: nil)
Following the buy-out of the existing company Seven Technologies Limited in April 2012 the first set of audited financial statements are not yet due.
Deep-Secure Ltd
| Cost: Valuation: Date of investment: Equity held: Valuation basis: Interest: |
£1,000,000 £1,940,000 December 2009 14.29% Earnings multiple £108,000 (2012: £72,195) |
|
|---|---|---|
| Year ended 31 December | 2011 | 2010 |
| £million | £million | |
| Sales | 3.72 | 2.61 |
| EBITA | 1.50 | 0.64 |
| Profit (loss) before taxation | 0.24 | (0.50) |
| Retained losses | (0.26) | (0.50) |
| Net assets (liabilities) | 0.14 | (0.12) |
| Cost: | £767,000 | |
|---|---|---|
| Valuation: | £1,736,000 | |
| Date of investment: | February 2007 | |
| Equity held: | 19.53% | |
| Valuation basis: | Earnings multiple | |
| Dividends received: | £nil (2012: £17,452) | |
| Interest: | £nil (2012: £60,128 ) | |
| Year ended 31 March | 2012 | 2011 |
| £million | £million | |
| Sales | 46.47 | 43.26 |
| EBITA | 1.58 | 2.10 |
| Profit before tax | 0.86 | 1.30 |
| Retained profits | 1.44 | 1.57 |
| Net assets | 2.73 | 2.45 |
Belfast www.seventechnologies.co.uk
Seven Technologies is a fast growing specialist engineering business based in Northern Ireland operating in the development and manufacture of bespoke electronics and communications
applications for operation in inhospitable environments. The strategy is to maintain the impressive expansion to date through increasing the Company's international presence and significantly growing average contract sizes, in what is now a significant international market for its products.
On 10 May 2013 Seven Technologies announced it had made an offer to acquire Datong plc. This acquisition will enable Seven to expand its product range and significantly extend its international customer base. The deal will be funded by a mixture of new equity from existing shareholders and bank debt, with the Company's existing non-qualifying loans being refinanced.
Deep-Secure's market leading products protect against threats to IT security through 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 the main customers being international governments, cross border forces and defence companies. Profit levels have grown strongly since the Company's investment in 2009.
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.
| Cost: | £1,170,000 |
|---|---|
| Valuation: | £1,208,000 |
| Date of investment: | August 2012 |
| Equity held: | 25.80% |
| Valuation basis: | Price of recent investment, |
| reviewed for change in fair value | |
| Interest: | £54,741 (2012: n/a) |
Following the buyout of the existing company (Insider Technologies Limited) in June 2012 the first set of audited financial statements for Insider Technologies (Holdings) Limited are not yet due.
Insider Technologies is an established provider of monitoring and scheduling software to the financial services and national security sectors. The Company backed the buyout of the business
introducing new senior management to complement the existing team, who also invested in the deal. The strategy is to increase the sales focus and roll out existing and new complementary products in the UK and overseas.
Manchester
www.insidertech.co.uk
| Cost: | £1,000,000 |
|---|---|
| Valuation: | £1,000,000 |
| Date of investment: | April 2012 |
| Equity held: | 50.00% |
| Valuation basis: | Price of recent investment, |
| reviewed for change in fair value | |
| Interest: | £nil |
The first set of audited financial statements for Fairlight Bridge Limited is not yet due.
| Cost: | £777,000 | |
|---|---|---|
| Valuation: | £836,000 | |
| Date of investment: | May 2007 | |
| Equity held: | 6.88% | |
| Valuation basis: | Earnings multiple | |
| Interest: | £82,850 (2012: £69,943) | |
| Year ended 31 December | 2011 | 2010 |
| £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 |
Fairlight Bridge was formed to provide investment in SME businesses whose performance is in need of improvement. It is particularly focused on the Midlands and South
West regions. With links to banks and other lenders it is well placed to expand its activities in turnaround management. Managing director Peter Bridge has previously run several engineering groups and has a successful track record of leading performance improvements within a range of private equity backed businesses.
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 27 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: | £180,000 | |
|---|---|---|
| Valuation: | £726,000 | |
| Dates of investment: | July 2007 and August 2008 | |
| Equity held: | 8.10% | |
| Valuation basis: | Earnings multiple | |
| Interest: | n/a (2012: £41,134) | |
| 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 |
| Cost: Valuation: Date of investment: Equity held: Valuation basis: Interest: |
£600,000 £701,000 June 2007 10.70% Earnings multiple £43,987 (2012: £46,200) |
|
|---|---|---|
| Year ended 31 March | 2012 | 2011 |
| £million | £million | |
| Sales | 4.80 | 4.35 |
| EBITA | 0.50 | 0.49 |
| Loss before tax | (0.15) | (0.21) |
| Retained losses | (2.62) | (2.39) |
| Net liabilities | (2.14) | (1.91) |
| £699,000 | |
|---|---|
| March 2012 | |
| 12.50% | |
| Earnings multiple | |
| £43,200 (2011: £2,604) | |
| 2011 £million |
2010 £million |
| 0.77 0.77 |
0.64 0.64 |
| £600,000 |
Selima Limited has a small company exemption from filing full financial statements at Companies House.
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 has used the tough economic conditions to consolidate their market position and have now repaid the original loan instrument in full.
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.
Selima is headquartered in Sheffield and 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 was made to expand the business including improvements to services for new and existing clients and the introduction of new, innovative products.
| Cost: | £500,000 | |
|---|---|---|
| Valuation: | £608,000 | |
| Date of investment: | September 2010 | |
| Equity held: | 6.75% | |
| Valuation basis: | Earnings multiple | |
| Interest: | £35,005 (2012: £35,005) | |
| Year ended 30 April | 2012 | 2011 |
| £million | £million | |
| Sales | 13.59 | 7.02 |
| EBITA | 2.37 | 0.90 |
| Profit (loss) before tax | 0.34 | (0.17) |
| Retained losses | (0.23) | (0.27) |
| Net assets | 4.68 | 4.58 |
| Cost: | £628,000 |
|---|---|
| Valuation: | £600,000 |
| Date of investment: | July 2011 |
| Equity held: | 6.80% |
| Valuation basis: | Price of recent investment, |
| reviewed for change in fair value | |
| Interest: | £56,160 (2012: £39,113) |
| Year ended 30 April | 2012 |
| £million | |
| Sales | 3.56 |
| EBITA | 0.33 |
| Loss before tax | (0.26) |
| Retained losses | (0.28) |
| Net assets | 0.45 |
The results shown above are the first for the consolidated business since the buy-in.
| Cost: Valuation: Dates of investment: Equity held: Valuation basis: |
£425,000 £425,000 November 2011 and March 2013 2.40% Price of recent investment, reviewed for change in fair value |
|
|---|---|---|
| Year ended 31 January | 2012 £million |
2011 £million |
| Sales LBITA Loss before tax Retained losses Net assets |
2.73 (2.12) (2.12) (4.65) 3.20 |
1.05 (1.57) (1.57) (2.98) 0.68 |
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. The revised strategy now focuses on expanding the more specialist inbound call activities, targeting a small number of niche sectors.
Leeds www.bagelnash.com
Bagel Nash is an established operator with a 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. The Company backed an experienced team to undertake a management buy-in in July 2011 and value growth is predominantly expected to come from a retail rollout strategy.
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 significantly improving network availability.
| Cost: | £523,000 | |
|---|---|---|
| Valuation: | £204,000 | |
| Dates of investment: | April 2008, April 2011 and | |
| February 2013 | ||
| Equity held: | 7.77% | |
| Valuation basis: | Earnings multiple | |
| Dividends received: | £nil (2012: £30,316) | |
| Year ended 31 March | 2012 | 2011 |
| £million | £million | |
| Sales | 9.82 | 9.36 |
| EBITA | 0.57 | 1.17 |
| Profit before tax | 0.29 | 1.02 |
| Retained profits (losses) | 0.15 | (1.13) |
| Net assets | 5.14 | 3.88 |
The figures given for 2011 are for the underlying business for which Dryden Human Capital Group Limited is now the holding company.
London www.drydenhumancapital.com
Dryden Human Capital is an international recruitment firm specialising in the actuarial, insurance and compliance markets. Recent market conditions have been challenging due to a
slowdown in economic growth and a delay in implementation of new regulatory standards for the insurance industry. However actions have been taken to address this and the strong brand and geographic diversity will also assist in withstanding these pressures.
| Cost: Valuation: Date of investment: Equity held: Valuation basis: |
£325,000 £192,000 May 2002 3.30% Sales multiple |
|
|---|---|---|
| Year ended 31 December | 2011 £million |
2010 £million |
| Sales EBITA (Loss) profit before tax Retained losses Net liabilities |
5.87 0.05 (0.16) (6.33) (0.41) |
4.83 0.98 0.74 (6.17) (0.25) |
The figures given are for the Cambridge Cognition Limited business before flotation.
Cambridge Cognition is a cognitive test development company specialising in computerised psychological testing of a wide variety of mental health conditions. It received
Cambridge www.camcog.com
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. On 18 April 2013 the company floated on AIM, raising £5.0 million to support the development of point of care diagnostic applications.
| Cost: | £676,000 | |
|---|---|---|
| Valuation: | £75,000 | |
| Dates of investment: | March 2010 and December 2012 | |
| Equity held: | 33.00% | |
| Valuation basis: | Price of recent investment, | |
| reviewed for changes in fair value | ||
| Interest: | £54,851 (2012: £53,718) | |
| Year ended 30 September | 2011 | 2010 |
| £million | £million | |
| Retained profits | 1.47 | 1.16 |
| Net assets | 1.47 | 1.16 |
Lightmain Company Limited has a small company exemption from filing full financial statements at Companies House.
| Cost: | £823,000 | |
|---|---|---|
| Valuation: | £74,000 | |
| Dates of investment: | December 2007, October 2008 and | |
| June 2010 | ||
| Equity held: | 16.02% | |
| Valuation basis: | Earnings multiple | |
| Year ended 31 October | 2011 | 2010 |
| £million | £million | |
| Sales | 3.72 | 3.89 |
| EBITA | 0.03 | 0.24 |
| Loss before tax | (0.76) | (0.52) |
| Retained losses | (1.38) | (0.63) |
| Net liabilities | (0.79) | (0.04) |
| Cost: Valuation: Date of investment: Equity held: Valuation basis: |
£375,000 £nil December 2011 7.50% Price of recent investment, reviewed for change in fair value |
|
|---|---|---|
| Year ended 30 April | 2012 £million |
2011 £million |
| Sales LBITA Loss before tax Retained losses Net assets (liabilities) |
1.85 (1.53) (2.48) (34.34) 0.48 |
2.95 (0.86) (5.75) (32.01) (17.92) |
Rotherham www.lightmain.co.uk
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.
Oldham www.ellfin.com
Ellfin Home Care provides home care services to both public and private clients. The company was established as a vehicle to acquire, over a five year period, a number of home care businesses forming a group based in the North West of England. To date two acquisitions have been completed.
TeraView is a pioneer and leader in Terahertz diagnostic and inspection systems and solutions. The investment was made to accelerate the growth of its semiconductor, industrial and
analytical business in Asia, the US and the EU. The business has struggled to achieve commercial traction but continues to generate strong interest from trade partners in its technology.
| Cost: | £326,000 | |
|---|---|---|
| Valuation: | £691,000 | |
| Dates of investment: | November 2005, February, March | |
| and October 2006 and July 2007 | ||
| Equity held: | 1.35% | |
| Valuation basis: | Quoted bid price | |
| Dividends received: | £14,870 (2012: £12,700) | |
| Year ended 31 May | 2012 | 2011 |
| £million | £million | |
| Sales | 20.48 | 15.36 |
| EBITA | 4.84 | 4.87 |
| Profit before tax | 4.18 | 4.55 |
| Retained profits | 15.02 | 12.87 |
| Net assets | 25.47 | 22.10 |
| Cost: Valuation: Dates of investment: Equity held: Valuation basis: Dividends received: |
£416,000 £635,000 December 2007, January, February and March 2008 and July 2012 0.28% Quoted bid price £15,501 (2012: £12,540) |
|
|---|---|---|
| Year ended 31 May | 2012 £million |
2011 £million |
| Sales EBITA Profit before tax Retained profits Net assets |
688.26 53.87 43.12 97.80 136.36 |
552.26 46.65 36.93 74.16 114.65 |
| Cost: Valuation: Dates of investment: |
£425,000 £468,000 June and July 2007 |
|
|---|---|---|
| Equity held: | 2.50% | |
| Valuation basis: | Quoted bid price | |
| Dividends received: | £21,265 (2012: £20,414) | |
| Year ended 29 September | 2012 | 2011 |
| (2011: 1 October) | £million | £million |
| Sales | 30.44 | 23.13 |
| EBITA | 2.24 | 1.03 |
| Profit before tax | 1.78 | 0.58 |
| Retained profits | 10.10 | 9.61 |
| Net assets | 16.06 | 15.54 |
Leicester www.mattioli-woods.com
Mattioli Woods provides pensions consultancy and administration services primarily to ownermanagers, 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 group operates a fee-driven model which has reacted well following the implementation of the Retail Distribution Review in January 2013.
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, operating 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. Following operational issues in 2012 the decision was taken to close all mining activities at Maltby to focus instead on surface mining activities. On 10 May 2013 Hargreaves Services confirmed that it had been named by the liquidators of the Scottish Coal Company Limited as the preferred bidder for certain assets.
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 £2.7 million of surplus cash.
| Cost: Valuation: Dates of investment: Equity held: Valuation basis: |
£252,000 £394,000 July 2010 and June 2011 0.57% Quoted bid price |
|
|---|---|---|
| Year ended 31 December | 2012 | 2011 |
| £million | £million | |
| Sales | 26.06 | 21.66 |
| EBITA | 3.28 | 0.28 |
| Loss before tax | (0.20) | (2.36) |
| Retained losses | (3.00) | (5.66) |
| Net assets | 39.43 | 37.43 |
| Cost: | £404,000 | |
|---|---|---|
| Valuation: | £326,000 | |
| Dates of investment: | October 2006, July 2007 and | |
| July 2012 | ||
| Equity held: | 1.36% | |
| Valuation basis: | Quoted bid price | |
| Dividends received: | £20,640 (2012: £7,464) | |
| Year ended 31 March | 2012 | 2011 |
| £million | £million | |
| 22.98 | ||
| Sales | 24.28 | |
| EBITA | 3.35 | 3.75 |
| Profit before tax | 2.34 | 3.03 |
| Retained profits | 9.73 | 9.01 |
| Net assets | 23.22 | 22.44 |
| Cost: Valuation: Date of investment: Equity held: Valuation basis: Dividends received: |
£402,000 £285,000 April 2008 1.05% Quoted bid price £3,001 (2012: £2,250) |
|
|---|---|---|
| Year ended 30 June | ||
| 2012 | 2011 | |
| £million | £million | |
| Sales | 67.96 | 52.80 |
| EBITA | 10.94 | 8.64 |
| Profit before tax | 6.04 | 4.91 |
| Retained profits | 21.35 | 15.81 |
| Net assets | 46.91 | 37.24 |
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.
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. The pub chains continue to struggle, leading Vianet to diversify into related markets, such as petrol forecourts and vending machines. Dividend yield remains strong.
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 to partially offset recent weakness in sales to traditional retailers. Following contract deferrals due to weakness in the retail sector K3 recently completed a new issue of shares in order to accelerate its plans to reduce borrowing levels.
| Cost: Valuation: Date of investment: Equity held: Valuation basis: |
£250,000 £73,000 December 2010 3.90% Quoted bid price |
|
|---|---|---|
| 16 months ended 31 July 2012 | 2012 | 2011 |
| (year ended 31 March 2011) | £million | £million |
| Sales | 6.55 | 5.71 |
| LBITA | (1.16) | (1.08) |
| Loss before tax | (1.42) | (1.26) |
| Retained losses | (2.27) | (1.00) |
| Net assets | 4.68 | 5.86 |
| Cost: Valuation: Dates of investment: Equity held: Valuation basis: Dividends received: |
£116,000 £27,000 February 2004, January, March and November 2005 and May 2006 0.91% Quoted bid price £nil (2012: £5,792) |
|
|---|---|---|
| Year ended 31 December | 2011 £million |
2010 |
| Sales (LBITA) EBITA (Loss) profit before tax Retained profits Net assets |
27.98 (0.52) (0.79) 2.23 9.77 |
£million 30.66 1.67 1.47 2.77 10.29 |
| Cost: Valuation: Date of investment: Equity held: Valuation basis: Dividends received: |
£165,000 £24,000 October 2005 1.17% Quoted bid price £1,179 (2012: £nil) |
|
|---|---|---|
| Year ended 31 December | 2012 | 2011 |
| £million | £million | |
| Sales | 8.67 | 11.16 |
| EBITA | 0.43 | 1.18 |
| Profit before tax | 0.28 | 1.02 |
| Retained profits | 1.05 | 0.82 |
| Net assets | 11.13 | 10.90 |
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. Market conditions have been challenging for the last few years with high youth unemployment and margin pressures caused by government cuts, but the business remains focused on its long term strategy.
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.
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.
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.
Earnings multiple. A multiple that is appropriate and reasonable, given the risk profile and earnings growth prospects of the underlying company, is applied to the maintainable earnings of that company. The multiple is adjusted to reflect any risk associated with lack of marketability and to take account of the differences between the investee company and the benchmark company or companies.
Net assets. The value of the business is derived by using appropriate measures to value the assets and liabilities of the investee company.
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 one of the methodologies above will be used to value the investment. No methodology other than active market bid price has been applied as at 31 March 2013.
| Name | Background and Experience |
|---|---|
| Helen Sinclair Chairman | Helen has an MA in Economics from the University of Cambridge 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 (now Mobeus) in 2000 raising Mobeus Income & Growth 2 VCT plc (formerly Matrix e-Ventures VCT plc). She subsequently became managing director of Matrix Private Equity Limited 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, Mobeus Income & Growth 4 VCT plc, Spark Ventures plc and Downing Income VCT 4 plc. |
| Philip 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 a senior adviser in corporate finance at LCF Edmond de Rothschild Securities Limited and is a non-executive director of Wallem Group Limited, a Cayman Islands registered company based in Hong Kong, and Downing Absolute Income VCT 1 plc. |
KHM Secretarial Services Limited Old Cathedral Vicarage St James Row Sheffield S1 1XA
St Martins House 210-212 Chapeltown Road Leeds LS7 4HZ
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 2013.
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.
The Board believes that the principal risks faced by the Company are:
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 39) and a diversified portfolio operating in a range of sectors. The Fund Manager actively monitors investee performance which provides quality information for the 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 and peer group activity. 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 company.
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.
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 31.
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.
The Fund Manager has procedures in place to ensure recurring Listing Rules requirements are met and actively consults with brokers, solicitors and external compliance advisers as appropriate. The key controls around compliance are explained on page 38.
Inadequate or failed controls might result in breaches of regulations or loss of Shareholder trust.
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, relating to coinvestments with other funds managed by the Fund Manager, have been agreed between the Fund Manager and the Company. Advice is sought from external advisers 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 companies traded on AIM / the ISDX Growth Market 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 the ISDX Growth Market 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.
Mitigation
The key controls around financial reporting are described on page 38.
The Fund Manager has a documented disaster recovery plan.
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.
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 38 and further information on exposure to risks associated with financial instruments is given in note 19a of the Financial Statements.
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 way of reference to the Share Price Total Return for approximately 60 Generalist VCTs as published by the Association of Investment Companies. This is the Company's stated benchmark index. A comparison of this Total Return over the last five years is shown in the Directors' Remuneration Report on page 42.
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 share capital to be listed on a regulated European market (the Company has been in the Official List on the London Stock Exchange throughout the period), there are five further tests that VCTs must meet following an initial provisional period:
The Company's income in the period must be derived wholly or mainly (at least 70 per cent) from shares or securities. The Company complied with this test in the period, with 90.9 per cent (2012: 71.6 per cent) of income being derived from such sources.
The Company must not retain more than 15 per cent of its income from shares and securities. The Company complied with this test in the period, with income of £nil (2012: £nil) retained in the period.
At least 70 per cent 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 throughout the period, with 74.3 per cent (2012: 74.6 per cent) of value as at 31 March 2013 being in qualifying holdings.
At least 30 per cent of the Company's qualifying holdings must be represented throughout the period by holdings of nonpreferential ordinary shares. The Company complied with this test throughout the period, with 53.8 per cent (2012: 57.1 per cent) of value as at 31 March 2013 being in holdings of non-preferential ordinary shares.
The value of any one investment, at any time in the period, has not represented more than 15 per cent 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 7.6 per cent (2012: 5.3 per cent).
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.
For monies raised from 6 April 2011 onwards the eligible shares test highlighted above increases to at least 70 per cent of qualifying holdings that must be represented by eligible shares. In addition, monies raised from share issues from 6 April 2012 onwards are not permitted to be used in transactions involving the acquisition of shares. There is now also an annual limit for each investee company which provides that they may not raise more than £5.0 million of state aid investment (including VCTs) in the 12 months ending on the date of each investment. The Board and Fund Manager are mindful of these additional FICO requirements and of balancing investments to ensure continued compliance.
The Board can confirm that during the period and to date 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 per cent 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 and the average Net Asset Value of the Company is above the adjusted target of 93.4 pence per ordinary share. These thresholds have been met in the current and previous years with £38,678 (2012: £1,557,336) being provided within trade and other payables at the year end. 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 44. The profit before and after taxation for the year amounted to £1,123,000 (2012: £1,064,000).
During the year the Company paid a total of £1,959,000 worth of dividends totalling 5.0 pence per ordinary share. Details of these can be found in note 5 of the Financial Statements on page 53.
The directors recommend the payment of a final dividend of 3.5 pence per ordinary share (2012: 3.0 pence). In addition, following the disposal of Fishawack Limited and Tikit Group plc, a special dividend of 1.0 pence per ordinary share has also been declared. A resolution concerning the approval of the final dividend will be proposed at the Annual General Meeting to be held on 19 July 2013 and, if approved, both dividends will be paid on 13 August 2013 to Shareholders on the register on 12 July 2013.
The Net Asset Value per ordinary share at 31 March 2013 was 97.0 pence (2012: 99.6 pence).The transfer to and from reserves is given in the Statement of Changes in Equity on page 46.
It has come to the Board's attention that there has been a technical breach of Companies Act legislation in respect of the special dividends (amounting to £6.4 million) paid on 22 August 2011 following the partial disposal of the Company's investment in GO Outdoors Limited in April 2011. Although the Company had sufficient distributable reserves shown in its management accounts to make this dividend payment, and the profit on the investment had been realised, these additional distributable reserves were not technically available to satisfy the payment of the dividends until the Company had prepared and filed interim accounts with the Registrar of Companies.
The Company has received external legal advice that this matter can be rectified by the passing of certain resolutions which the Company will put to Shareholders at a general meeting in July 2013, notice of which will be circulated separately. These Financial Statements have been drawn up on the basis that the position is regularised by these proposed resolutions. The proposals do not affect the results of the Company for the years to 31 March 2013 or 31 March 2012, its net assets at 31 March 2013 or 31 March 2012, or its ability to pay future dividends.
As shown in note 11 of the Financial Statements, the Company has only one class of share, being ordinary shares of 10.0 pence each.
In accordance with the Company's stated buy-back policy the Company purchased during the year, under the existing authority granted by Shareholders at the Annual General Meeting on 20 July 2012, ordinary shares of 10.0 pence each in the market (as disclosed in the table below) for aggregate consideration of £705,523. These shares are held in treasury.
Under the existing authority, which expires on the earlier of 20 July 2015, or at the conclusion of the Annual General Meeting held in 2015, the Company has the power to purchase shares up to 14.99 per cent of the Company's issued ordinary share capital as at 13 June 2012, being 5,930,868 ordinary shares.
The directors have unconditional authority to allot shares in the Company or to grant rights to subscribe for or to convert any security into ordinary shares in the Company until 18 March 2014 in connection with the following:
In addition, the directors have a separate unconditional authority to allot ordinary shares in the Company in connection with the Company's dividend re-investment scheme until 11 January 2016.
During the year to 31 March 2013 a total of 6,212,225 ordinary shares were issued, of which 445,427 were issued under the Company's dividend re-investment scheme. Subsequent to the year end the Company allotted ordinary shares under the joint Offer with British Smaller Companies VCT2 plc and also in response to an application by an individual Shareholder. Further details are given in note 11 on page 60.
| Date | Number of ordinary shares of 10p bought-back |
Percentage of issued share capital at that date |
Consideration paid per ordinary share (pence) |
|---|---|---|---|
| 14 June 2012 | 301,493 | 0.76% | 85.00 |
| 29 June 2012 | 52,614 | 0.13% | 85.00 |
| 21 November 2012 | 333,603 | 0.85% | 80.35 |
| 28 March 2013 | 167,463 | 0.38% | 81.50 |
In order to ensure the directors retain the authority to allot ordinary shares in the Company (other than pursuant to its dividend re-investment scheme) until the Annual General Meeting in 2014, it is recommended that the authority to allot shares is renewed at the Annual General Meeting for up to an aggregate nominal amount representing approximately 10 per cent 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 re-investment scheme, being revoked.
Resolutions are also proposed at the Annual General Meeting to extend the life of the dividend re-investment scheme (and the authority of the directors to allot shares pursuant to the scheme) until 2018.
On 13 March 2013, the amount standing to the credit of the share premium account as at 5 May 2011 was cancelled pursuant to an order of court following the passing of a special resolution. The credit arising of £21,063,637 has been transferred to a Special Reserve, which shall be applied in any manner in which the Company's profits available for distribution are able to be applied.
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:
to issue or buy-back the Company's shares are contained in the Articles of Association of the Company and the Companies Act 2006;
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 22 (2012: 21).
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 2013, their interests and contracts of significance are set out in the Directors' Remuneration Report on pages 41 to 42.
The directors are not aware of any substantial shareholdings representing 3 per cent or more of the Company's issued share capital as at 31 March 2013 and the date of this Report.
Grant Thornton UK LLP have indicated their willingness to continue in office and a resolution concerning their reappointment will be proposed at the Annual General Meeting.
Shareholders will find the Notice of the Annual General Meeting on pages 66 to 68.
The business of the meeting includes a resolution (Resolution 8) to be proposed to authorise the directors to issue and allot new ordinary shares up to an aggregate nominal amount representing approximately 10 per cent of the ordinary share capital of the Company in issue at 11 June 2013 and a special resolution (Resolution 12) proposed to empower the directors to allot ordinary shares up to an aggregate nominal amount representing approximately 10 per cent of the issued ordinary share capital of the Company as at 11 June 2013, without regard to any rights of pre-emption on the part of the existing Shareholders.
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.
Resolution 10 is proposed to continue the Company's dividend re-investment scheme until the beginning of the Annual General Meeting in 2018. The Company's dividend re-investment scheme currently terminates on 11 January 2016 and this proposed extension of its life will ensure its expiry coincides with the duration of the Company.
Resolution 11 is proposed to authorise the directors to issue and allot new ordinary shares pursuant to the dividend re-investment scheme up to an aggregate nominal amount of £700,000, representing approximately 14 per cent of the ordinary share capital of the Company in issue as at Corporate Governance
11 June 2013. This resolution will replace the existing authority the directors have to allot shares pursuant to the dividend re-investment scheme to reflect a new maximum number of shares which are permitted to be allotted under the authority,
A special resolution is also included (Resolution 13) to empower the directors to allot shares pursuant to the dividend reinvestment scheme authority contained in Resolution 11 without regard to any rights of pre-emption on the part of existing Shareholders.
Also included is an ordinary resolution (Resolution 9) to authorise the Company to communicate with Shareholders by electronic means (for example by email or by publishing the information on a website). At the current time (and subject to the passing of this resolution) there is no intention to implement this form of communication and before doing so the Company will write to Shareholders individually to request their personal consent to send information and otherwise communicate with them by electronic means. If any Shareholder does not wish to consent the Company will continue to send information and otherwise communicate with them by post.
The directors believe that the proposed resolutions are in the interest of Shareholders and accordingly recommend Shareholders to vote in favour of each resolution.
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 22 May 2013 the Company completed an investment of £0.2 million into AB Dynamics plc, a business that designs, manufactures
and supplies vehicle testing technology. On 3 April 2013 the Company invested a further £0.02 million into GO Outdoors Limited.
The £1.3 million of non-qualifying loans to Seven Technologies Holdings Limited have been repaid as part of the funding package for the proposed acquisition of Datong plc.
Subsequent to the year end, the Company allotted ordinary shares under the joint Offer with British Smaller Companies VCT2 plc, as detailed in note 11 to the Financial Statements on page 60.
On 18 April 2013 Cambridge Cognition Limited, now Cambridge Cognition Holdings plc, successfully listed on AIM raising £5.0 million.
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 Conduct 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 and 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, that:
The Board is committed to the principle and application of sound corporate governance and confirms that the Company has taken steps, appropriate to a Venture Capital Trust and relevant to its size and operational complexity, to comply with The UK Corporate Governance Code, June 2010 (the "Code", a copy of which can be found on the website of the Financial Reporting Council at www.frc.org.uk).
The Listing Rules of the UK Listing Authority require the Board to report on compliance with the provisions of The UK Corporate Governance Code and the Directors' Report and the Directors' Remuneration Report describe how the principles identified in the Code have been applied during the year, except where disclosed below.
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 nonexecutive director and the presumption concerning the Chairman's independence. In addition, although 21 days' clear notice of the Annual General Meeting has been given to Shareholders, the Company has not complied with the recommendation by the Code to give 20 business days' notice due to restrictions imposed by the timetabling of the AGM.
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 28) of all directors including the Chairman are assessed by the Board both on appointment and as changes arise. The only significant change to the directors' commitments during the year has been that the Chairman has stepped down from the board of Octopus Eclipse VCT3 plc.
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. During the year Mr P S Cammerman has been a related party to two of the Company's quoted portfolio companies as set out in note 17 of the Financial Statements and has been on the Board for more than nine years. The Board considers that Mr P S Cammerman remains a committed and independent nonexecutive 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 P S Cammerman has no voting rights in the 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 28.
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. 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.
The Board is committed to ensuring that the Company is run in the most effective manner. Consequently the Board monitors the diversity of all directors to ensure an appropriate level of experience and qualification.
The Board believes in the value and importance of diversity in the boardroom but does not consider that it is appropriate or in the best interests of the Company and its Shareholders to set prescriptive targets for gender or nationality on the Board.
Diversity of thought, experience, and approach are all important and the directors will always seek to appoint on merit against objective criteria.
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, it is the Board's policy that a director's appointment will run for a term of a year until the next Annual General Meeting. Subject to the performance evaluation carried out each year, the Board will agree whether it is appropriate for the director to seek a further 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.
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 Ms H Sinclair, Mr C W E R Buchan and Mr P S Cammerman at this year's Annual General Meeting, because of their commitment, experience and continued 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 eight formal Board meetings, two Audit Committee meetings, five Allotment Committee meetings, nine Investment Committee meetings, one Remuneration Committee meeting and two General meetings. The directors met via telephone conference on two other occasions.
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 financial year ended 31 March 2013. 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 other directors being proposed for re-election continues to be effective and that they continue 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 strong commitment to the role.
During the year the Remuneration Committee consisted of three directors who were considered by the Board to be independent of the Fund Manager, being Ms H Sinclair, Mr P S Cammerman and Mr C W E R Buchan. The Chairman of the Board acted as the Chairman of the Remuneration Committee. The Committee met once in the year. The Remuneration Committee reviewed the Company's remuneration policy so as to determine and agree the remuneration to be paid to each director of the Company and was responsible for the production of the Directors' Remuneration Report which may be found on pages 41 and 42.
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.
Following the end of the financial year the Board has decided to combine the Remuneration Committee with the Nominations Committee to form a Nominations and Remuneration Committee, details of which may be found on page 37.
| Meetings attended | Ms H Sinclair | Mr P S Cammerman | Mr C W E R Buchan |
|---|---|---|---|
| Board meetings | 8 | 8 | 8 |
| Audit Committee meetings | 2 | 2 | 2 |
| Allotment Committee meetings | 5 | 1 | 1 |
| Investment Committee meetings | 9 | 9 | 9 |
| Remuneration Committee meetings | 1 | 1 | 1 |
| General meetings | 2 | 2 | 2 |
| Telephone conferences | 2 | 2 | 2 |
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 page 38.
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 quoted investment, the Fund Manager in conjunction with the Chairman 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 www.yfmep.com.
During the year the Company had a Nominations Committee which consisted of Ms H Sinclair, Mr P S Cammerman and Mr C W E R Buchan, all of whom were considered by the Board to be independent of the Fund Manager. The Chairman of the Board acted as Chairman of the Committee, save in the event the Committee was to meet 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.
Following the end of the financial year the Board has decided to combine the Remuneration Committee with the Nominations Committee to form a Nominations and Remuneration Committee. The new committee consists of three directors who are considered to be independent of the Fund Manager, this currently being Ms H Sinclair, Mr P S Cammerman and Mr C W E R Buchan. Mr C W E R Buchan is the Chairman of the Committee. New terms of reference are being produced which will in due course be available for inspection on request at the Company's registered office 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 an annual newsletter, the daily publication of the Company's share price and the publication for the two quarters of the year where an Annual or Interim Report is not issued (30 June and 31 December), through the London Stock Exchange, of the Net Asset Value of the Company together with a factsheet detailing developments for the Company in that quarter.
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 28.
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 28. 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, as varied by agreements dated 1 July 2009 and 16 November 2012, the executive functions of the Company have been subcontracted 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:
• the Board receives copies of the Company's management accounts on a regular basis showing comparisons with budget. These include a report by the Fund Manager with a review of performance. Additional information is supplied on request.
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 2013 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 at least bi-annually 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 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 directors have declared any conflicts or potential conflicts of interest to the Board which has the authority to authorise such situations if appropriate. The Company Secretary maintains the Register of Directors' Interests which is reviewed quarterly by the Board, when changes are notified, and the directors advise the Company Secretary and the Board as soon as they become aware of any conflicts of interest. Directors who have conflicts of interest which have been approved by the Board do not take part in discussions or decisions which relate to any of their conflicts.
The Company has adopted a zero tolerance approach to bribery. The following is a summary of its policy:
• it is the Company's policy to conduct all of its business in an honest and ethical manner. The Company is committed to acting professionally, fairly and with integrity in all its business dealings and relationships;
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 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 £10.3 million of gross funds being raised via the joint Offer with British Smaller Companies VCT2 plc.
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 and with this in mind have sought to further increase the investment capacity of the Company this year.
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 objective of the Company is to achieve long term investment returns for private investors, including tax free dividends.
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 year the Company has targeted investments in UK businesses across a range of sectors including but not limited to Industrial, Telecommunications, Software and IT, Healthcare, Retail and Consumer products in VCT qualifying and nonqualifying unquoted and AIM quoted securities. 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 investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HM Revenue and Customs. Investments are made in accordance with the VCT legislation outlined on page 31.
The Company funds its investment programme out of its own resources and has no borrowing facilities for this purpose.
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. Co-investments are detailed in note 7 to the Financial Statements on pages 57 and 58.
The Board has delegated the management of the investment portfolio to the Fund Manager. 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 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.
The Company will on occasion, in accordance with VCT legislation, invest surplus liquid resources in a portfolio of Government stocks or other similar fixed interest securities. Reporting to the Fund Manager, these securities are managed by Brewin Dolphin on a discretionary basis and the Board receives regular reports on the make-up and market valuation of the portfolio. At the year end £2.5 million of Government stock was held in this fund. In addition the Fund Manager also invests surplus funds in fixed rate bank deposits. At the year end £1.5 million was held with Lloyds TSB plc.
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 27 of this Annual Report. Investments in fixed interest 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 fixed interest Government stocks 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 2013 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 Conduct 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 per cent of the amount by which dividends paid in the relevant accounting period exceed 4.0 pence per ordinary share (increasing in line with
RPI) once cumulative dividends of 10.0 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 94.0 pence per ordinary share, as adjusted for the impact of share issues and buy-backs.
No payment can be made in respect of the year to 31 March 2013 under the Incentive Agreement unless the average Net Asset Value of the Company is above the adjusted target of 93.4 pence per ordinary share and in addition at least 4.6 pence per ordinary share in dividends has been paid to Shareholders. Payment is made 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 per cent is payable in the first accounting period after such an event, 55 per cent in the second, 35 per cent in the third and nothing is payable thereafter. The maximum fee payable in any twelve month period cannot exceed an amount which would represent 25 per cent or more of the Net Asset Value or market capitalisation of the Company.
In the year ended 31 March 2013, £38,678 has accrued to the Fund Manager under the Incentive Agreement (31 March 2012: £1,415,361).
This Report was approved by the Board on 11 June 2013 and signed on its behalf by:
Helen Sinclair Chairman British Smaller Companies VCT plc Registered number 03134749
Directors' Remuneration Report
The directors of the Company and their beneficial interests in the share capital of the Company (including those of immediate family members) at 31 March 2013 are shown in Table A. None of the directors held any options to acquire additional shares at the year end (other than the shares allotted to Mr C W E R Buchan following the year end pursuant to the joint Offer), as shown in Table B.
New ordinary shares were subscribed for and allotted on 31 December 2012 to Ms H Sinclair and Mr P S Cammerman
pursuant to the joint Offer with British Smaller Companies VCT2 plc. Mr C W E R Buchan also subscribed for new ordinary shares under the same Offer and these shares were allotted on 30 April 2013, subsequent to the year end. During the year new ordinary shares were allotted to Mr C W E R Buchan pursuant to the dividend re-investment scheme. Details are shown in Table B.
Brief biographical notes on the directors are given on page 28. 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 inTable C,
Number of ordinary shares 31 March 31 March
Directors and their Interests Table A
| 2013 | 2012 | |
|---|---|---|
| Ms H Sinclair | 17,004 | 13,407 |
| Mr P S Cammerman | 44,614 | 41,017 |
| Mr C W E R Buchan | 2,082 | 1,972 |
Number of ordinary shares subscribed for and allotted During the year ended 31 March 2013 Since 31 March 2013 Under the DRIS Pursuant to Pursuant to the Joint Offer the Joint Offer Ms H Sinclair – 3,597 – Mr P S Cammerman – 3,597 – Mr C W E R Buchan 110 – 3,481
| 2013 £ |
2012 £ |
|
|---|---|---|
| Ms H Sinclair | 35,000 | 35,000 |
| Mr P S Cammerman | 20,000 | 20,000 |
| Mr C W E R Buchan | 20,000 | 20,000 |
| 75,000 | 75,000 |
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 36.
The Company had no employees in either year.
Total directors' remuneration for the year amounted to £75,000 (2012: £75,000) all of which was paid to three (2012: three) 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 are shown in Table C.
There are no executive directors (2012: 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 on the Company's affairs and the responsibility borne by the directors 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 2013 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 graph opposite shows a comparison over the last five years of the movements in both the Company's Share Price Total Return (assuming all dividends are re-invested) and the Share Price Total Return for approximately 60 Generalist VCTs as published by the Association of Investment Companies. The directors consider this to be the most appropriate published index on which to report on comparative performance.
Changes in the Company's Net Asset Value Total Return are included on the graph as the Board believes this gives a fairer representation of the Company's long term value to Shareholders. Net Asset Value Total Return is calculated by reference to the Net Asset Value and cumulative dividends paid (see note 13 of these Financial Statements) excluding tax reliefs received by Shareholders.
This Report was approved by the Board on 11 June 2013 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 2013, 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 (IFRSs) 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 34, 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 11 June 2013
For the year ended 31 March 2013
| 2013 | 2012 | ||||||
|---|---|---|---|---|---|---|---|
| Notes | Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
|
| Gain on disposal of investments | 7 | – | 699 | 699 | – | 2,178 | 2,178 |
| Gains on investments held at fair value | 7 | – | 233 | 233 | – | 166 | 166 |
| Income | 2 | 1,323 | – | 1,323 | 1,236 | – | 1,236 |
| Administrative expenses: | 3 | ||||||
| Fund management fee | (188) | (564) | (752) | (201) | (604) | (805) | |
| Incentive fee | – | (39) | (39) | – | (1,415) | (1,415) | |
| Other expenses | (341) | – | (341) | (296) | – | (296) | |
| (529) | (603) | (1,132) | (497) | (2,019) | (2,516) | ||
| Profit before taxation | 794 | 329 | 1,123 | 739 | 325 | 1,064 | |
| Taxation | 4 | (138) | 138 | – | (64) | 64 | – |
| Profit for the year | 656 | 467 | 1,123 | 675 | 389 | 1,064 | |
| Total comprehensive income for the year | 656 | 467 | 1,123 | 675 | 389 | 1,064 | |
| Basic and diluted earnings per ordinary share | 6 | 1.62p | 1.16p | 2.78p | 1.85p | 1.07p | 2.92p |
The accompanying notes on pages 49 to 65 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. 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.
Balance Sheet At 31 March 2013
| Notes | 2013 £000 |
2012 £000 |
|
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Investments | 27,560 | 24,200 | |
| Fixed income government securities | 2,474 | 2,499 | |
| Financial assets at fair value through profit or loss | 7 | 30,034 | 26,699 |
| Current assets | |||
| Trade and other receivables | 8 | 197 | 532 |
| Cash on fixed term deposit | 1,500 | 5,000 | |
| Cash and cash equivalents | 9 | 10,669 | 7,372 |
| 12,366 | 12,904 | ||
| Liabilities | |||
| Current liabilities | |||
| Trade and other payables | 10 | (311) | (1,709) |
| Net current assets | 12,055 | 11,195 | |
| Net assets | 42,089 | 37,894 | |
| Shareholders' equity | |||
| Share capital | 11 | 4,661 | 4,039 |
| Share premium account | 7,236 | 23,176 | |
| Capital redemption reserve | 221 | 221 | |
| Treasury share reserve | (2,753) | (2,048) | |
| Capital reserve | 218 | – | |
| Investment holding gains | 7,681 | 7,432 | |
| Special reserve | 23,462 | 2,408 | |
| Revenue reserve | 1,363 | 2,666 | |
| Total Shareholders' equity | 42,089 | 37,894 | |
| Basic and diluted Net Asset Value per ordinary share | 12 | 97.0p | 99.6p |
The accompanying notes on pages 49 to 65 are an integral part of these Financial Statements.
The Financial Statements were approved and authorised for issue by the Board on 11 June 2013 and were signed on its behalf by:
Helen Sinclair Chairman
For the year ended 31 March 2013
| Share capital |
Share account |
Capital premium redemption reserve |
Treasury share reserve |
reserve | Capital Investment holding gains (losses) |
Special reserve |
Revenue reserve |
Total equity |
|
|---|---|---|---|---|---|---|---|---|---|
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| 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 | – | – | – | – | – | – | – | 675 | 675 |
| Capital expenses | – | – | – | – | (1,955) | – | – | – | (1,955) |
| Gain on investments held at fair value | – | – | – | – | – | 166 | – | – | 166 |
| Gain on disposal of investments in the year | – | – | – | – | 2,178 | – | – | – | 2,178 |
| Total comprehensive income for the year | – | – | – | – | 223 | 166 | – | 675 | 1,064 |
| Issue of share capital | 250 | 2,647 | – | – | – | – | – | – | 2,897 |
| Issue costs* | – | (173) | – | – | – | – | – | – | (173) |
| Issue of shares – DRIS | 143 | 1,210 | – | – | – | – | – | – | 1,353 |
| Purchase of own shares | – | – | – | (182) | – | – | – | – | (182) |
| Dividends | – | – | – | – | (4,365) | – | – | (3,872) | (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 |
| Revenue return for the year | – | – | – | – | – | – | – | 656 | 656 |
| Capital expenses | – | – | – | – | (465) | – | – | – | (465) |
| Gain on investments held at fair value | – | – | – | – | - | 233 | – | – | 233 |
| Gain on disposal of investments in the year | – | – | – | – | 699 | – | – | – | 699 |
| Total comprehensive income for the year | – | – | – | – | 234 | 233 | – | 656 | 1,123 |
| Issue of share capital | 577 | 5,091 | – | – | – | – | – | – | 5,668 |
| Issue costs* | – | (323) | – | – | – | – | – | – | (323) |
| Issue of shares – DRIS | 45 | 356 | – | – | – | – | – | – | 401 |
| Purchase of own shares | – | – | – | (705) | – | – | – | – | (705) |
| Dividends | – | – | – | – | – | – | – | (1,959) | (1,959) |
| Total transactions with owners | 622 | 5,124 | – | (705) | – | – | – | (1,959) | 3,082 |
| Reduction in share premium account | – | (21,064) | – | – | – | – | 21,064 | – | – |
| Reduction in share premium account expenses | – | – | – | – | – | – | (10) | – | (10) |
| Realisation of prior year investment | |||||||||
| holding losses | – | – | – | – | (16) | 16 | – | – | – |
| Balance at 31 March 2013 | 4,661 | 7,236 | 221 | (2,753) | 218 | 7,681 | 23,462 | 1,363 | 42,089 |
The accompanying notes on pages 49 to 65 are an integral part of these Financial Statements.
*Issue costs include both fundraising costs and expenses incurred from the Company's dividend re-investment scheme.
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 non-distributable 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. Following the approval of the Court and the passing of a special resolution the amount standing to the credit of the share premium account at 5 May 2011 was cancelled and transferred to the special reserve on 13 March 2013.
The special reserve, capital reserve, revenue reserve and treasury reserve are all included when determining distributable reserves. These reserves total £22,290,000 (2012: £3,026,000) representing an increase of £19,264,000 (2012: £3,007,000 decrease) during the year. This change arises from the profit in the year of £890,000 (2012: £898,000), a transfer of valuation losses from the investment holding reserve of £16,000 (2012: £4,514,000 transfer of valuation profits), dividends of £1,959,000 (2012: £8,237,000), transfer of £21,054,000 (2012: £nil) on the reduction in share premium (net of expenses) and the purchase of own ordinary shares of £705,000 (2012: £182,000). The directors also take into account the level of the investment holding gains (losses) reserve and the future requirements of the Company when determining the level of dividend payments.
For the year ended 31 March 2013
| Notes | 2013 £000 |
2012 £000 |
|
|---|---|---|---|
| Net cash outflow from operating activities | 14 | (1,098) | (111) |
| Cash flows from investing activities | |||
| Cash maturing from (placed on) fixed term deposit | 3,500 | (5,000) | |
| Purchase of financial assets at fair value through profit or loss | 7 | (6,097) | (3,000) |
| Proceeds from sale of financial assets at fair value through profit or loss | 7 | 3,801 | 17,024 |
| Net cash from investing activities | 1,204 | 9,024 | |
| Cash flows from (used in) financing activities | |||
| Issue of ordinary shares | 5,668 | 2,897 | |
| Cost of ordinary share issue | (349) | (178) | |
| Purchase of own ordinary shares | (569) | (490) | |
| Share premium reduction costs | (1) | – | |
| Dividends paid | 5 | (1,558) | (6,884) |
| Net cash from (used in) financing activities | 3,191 | (4,655) | |
| Net increase in cash and cash equivalents | 3,297 | 4,258 | |
| Cash and cash equivalents at the beginning of the year | 7,372 | 3,114 | |
| Cash and cash equivalents at the end of the year | 9, 15 | 10,669 | 7,372 |
The accompanying notes on pages 49 to 65 are an integral part of these Financial Statements.
For the year ended 31 March 2013
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 2012 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 the new standards IFRS 10, IFRS 12 and IFRS 13 in addition to amendments to IFRS 1, IFRS 7, IFRS 9, IAS 1, IAS 19, IAS 27, IAS 28 and IAS 32. 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 fixed income securities are classified at fair value through profit or loss under the criteria given above. 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 December 2012. A detailed explanation of the valuation policies of the Company is included on page 27.
Although the Company holds more than 20 per cent 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 per cent 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. Therefore 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 daily on an effective rate 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.
Tax relief is allocated to Capital using a marginal basis.
Cash and cash equivalents include cash at hand as this meets 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, allocated to this reserve in accordance with the above policy. Also included are capital dividends paid to Shareholders.
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. Following the approval of the Court and the passing of a special resolution the amount standing to the credit of the share premium account at 5 May 2011 was cancelled and transferred to the special reserve on 13 March 2013. 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 dividends are recognised when approved by Shareholders in general meetings.
In accordance with IFRS 8 'Operating segments' and the criteria for aggregating reportable segments, segmental reporting has been determined by the directors based on reports reviewed by the Board. 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 Board uses its judgement to select a variety of methods and makes assumptions that are mainly based on market conditions at each balance sheet date.
| 2013 £000 |
2012N £000 |
|
|---|---|---|
| Dividends from unquoted companies Dividends from quoted companies |
20 87 |
353 69 |
| Interest on loans to unquoted companies Fixed interest Government securities |
107 1,017 58 |
422 506 155 |
| Income from investments held at fair value through profit or loss Interest on deposits |
1,182 141 |
1,083 153 |
| 1,323 | 1,236 |
| 2013 £000 |
2012 £000 |
|
|---|---|---|
| Fund management fee | 752 | 805 |
| Other expenses: | ||
| Administration fee | 56 | 54 |
| Incentive fee | 39 | 1,415 |
| Directors' remuneration (comprises only short term benefits including social security contributions) | 81 | 83 |
| Auditor's remuneration – audit fees (excluding irrecoverable VAT) | 18 | 17 |
| General expenses | 186 | 142 |
| 1,132 | 2,516 |
No fees are payable to the auditor in respect of other services (2012: £nil).
In line with the Association of Investment Companies (AIC's) recommended methodology, the Company's "ongoing charges percentage", calculated as the Annualised ongoing charges (excluding irrecoverable VAT and trail commission)/Annualised undiluted Net Asset Value, in the period is currently 2.7 per cent (2012: 2.6 per cent).
This methodology replaced the Total Expense Ratio (TER%) in June 2012 as the AIC's recommended operational expenses benchmark.
The Total Expense Ratio (TER%), calculated as the total fund costs (less trail commission and irrecoverable VAT)/ Total Net Assets, is currently set at 3.25 per cent. The TER% for the year to 31 March 2013 is 2.5 per cent (31 March 2012: 2.8 per cent).
YFM Private Equity Limited provides fund management services to the Company under a subscription rights agreement dated 28 February 1996 ("Subscription Rights Agreement") as varied by agreements dated 1 July 2009 and 16 November 2012. 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 fund management fee and administrative and secretarial fees payable to YFM Private Equity Limited in the year was £808,000 (2012: £859,000). The excess expenses during the year payable to the Company from YFM Private Equity Limited amounted to £nil (2012: £nil).
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 per cent of the amount by which dividends paid in the relevant accounting period exceed 4.0 pence per ordinary share (increasing in line with RPI) once cumulative dividends of 10.0 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 94.0 pence per ordinary share, as adjusted for the impact of share issues and buy-backs.
No payment can be made in respect of the year to 31 March 2013 under the Incentive Agreement unless the average Net Asset Value of the Company is above the adjusted target of 93.4 pence per ordinary share and in addition at least 4.6 pence per ordinary share in dividends has been paid to Shareholders. Payment is made five 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 and £38,678 (2012: £1,557,336) has been provided within trade and other payables. The incentive fee is payable following the Annual General Meeting on 19 July 2013.
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 per cent is payable in the first accounting period after such an event, 55 per cent in the second, 35 per cent 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 per cent or more of the Net Asset Value or market capitalisation of the Company.
Under the terms of the offer for subscription launched on 6 March 2012, YFM Private Equity Limited was entitled to 4.75 per cent of gross subscriptions (before any early investment incentive and re-investment of intermediary commission), which amounted to £123,786 in total, with £72,578 in the year to 31 March 2013.
Under the terms of the joint Offer with British Smaller Companies VCT2 plc launched on 16 November 2012 (which closed on 30 April 2013), YFM Private Equity Limited was entitled to 5.5 per cent of gross subscriptions (before any early investment incentive and re-investment of intermediary commission) for all applications on or before 28 December 2012. After this date YFM Private Equity Limited was entitled to 5.5 per cent of gross subscriptions from execution brokers and 3.5 per cent of gross subscriptions for applications directly from applicants or through intermediaries offering financial advice. This amounted to £512,814 in total, with £227,685 in the year to 31 March 2013.
YFM Private Equity met all costs and expenses arising from these offers out of these fees, including any early investment incentive and any payment or re-investment of initial intermediary commission (excluding permissible trail commission, which will continue to be met by the Company).
| 2013 | 2012 | |||||
|---|---|---|---|---|---|---|
| Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
|
| Profit before taxation | 794 | 329 | 1,123 | 739 | 325 | 1,064 |
| Profit before taxation multiplied by standard small | ||||||
| company rate of corporation tax in the UK of 20% | 159 | 66 | 225 | 148 | 65 | 213 |
| Effect of: | ||||||
| UK dividends received | (21) | – | (21) | (84) | – | (84) |
| Non taxable profits on investments | – | (187) | (187) | – | (469) | (469) |
| Excess management expenses | – | (17) | (17) | – | 340 | 340 |
| Tax charge (credit) | 138 | (138) | – | 64 | (64) | – |
The Company has no provided or unprovided deferred tax liability in either year.
Deferred tax assets of £617,507 (2012: £634,307) calculated at 20 per cent in respect of unrelieved management expenses of £3,087,537 as at 31 March 2013 (31 March 2012: £3,171,537) 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 to 31 March:
| 2013 | 2012 | |||||
|---|---|---|---|---|---|---|
| Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
|
| Final dividend for the year ended 31 March 2012 of 3.0p per ordinary share (2012: 3.0p per ordinary share) |
1,176 | – | 1,176 | 1,072 | – | 1,072 |
| Special dividend of 18.0p per ordinary share paid on 22 August 2011 |
– | – | – | 2,064 | 4,365 | 6,429 |
| Interim dividend of 2.0p per ordinary share (2012: 2.0p per ordinary share) |
783 | – | 783 | 736 | – | 736 |
| 1,959 | – | 1,959 | 3,872 | 4,365 | 8,237 | |
| Shares issued under the DRIS | (401) | (1,353) | ||||
| Dividends paid in the Statement of Cash Flows | 1,558 | 6,884 |
The final dividend of 3.0 pence per ordinary share in respect of the year to 31 March 2012 was paid on 17 August 2012 to Shareholders on the register at 13 July 2012.
The interim dividend of 2.0 pence per ordinary share was paid on 14 January 2013 to Shareholders on the register at 14 December 2012.
A final dividend of 3.5 pence per ordinary share in respect of the year to 31 March 2013 has been proposed, and a special dividend of 1.0 pence per ordinary share, amounting to £2.2 million, has been declared by the Board. These dividends have not been recognised in the year ended 31 March 2013 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 £1,123,000 (2012: £1,064,000) and 40,389,708 (2012: 36,441,889) 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 £656,000 (2012: £675,000) and 40,389,708 (2012: 36,441,889) 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 £467,000 (2012: £389,000) and 40,389,708 (2012: 36,441,889) ordinary shares being the weighted average number of ordinary shares in issue during the year.
During the year the Company issued 6,212,225 new ordinary shares. The Company also repurchased 855,173 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 6,400,143 new ordinary shares (note 11). If these ordinary shares had been issued on 31 March 2013 the weighted average number of ordinary shares in issue during the year would have been 40,407,171 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 (2012: none) .The change in fair value for the current and previous year is recognised through profit or loss.
Movements in investments at fair value through profit or loss during the year to 31 March 2013 are summarised as follows:
| IFRS 7 measurement classification | Level 3* | Level 1 | Level 1 | ||
|---|---|---|---|---|---|
| Unquoted | Quoted | Total | Fixed | Total | |
| Investments | Equity | Quoted and | Income | Investments | |
| Investments | Unquoted | Securities | |||
| £000 | £000 | £000 | £000 | £000 | |
| Opening cost | 11,781 | 3,529 | 15,310 | 2,383 | 17,693 |
| Opening valuation gain | 8,698 | 192 | 8,890 | 116 | 9,006 |
| Opening fair value at 1 April 2012 | 20,479 | 3,721 | 24,200 | 2,499 | 26,699 |
| Additions at cost | 4,854 | 341 | 5,195 | 902 | 6,097 |
| Capitalised interest | 18 | – | 18 | – | 18 |
| Disposal proceeds | (2,112) | (695) | (2,807) | (901) | (3,708) |
| Net profit on disposal* | 587 | 100 | 687 | 8 | 695 |
| Change in fair value | 811 | (544) | 267 | (34) | 233 |
| Closing fair value at 31 March 2013 | 24,637 | 2,923 | 27,560 | 2,474 | 30,034 |
| Closing cost | 15,084 | 3,366 | 18,450 | 2,427 | 20,877 |
| Closing valuation gain (loss) | 9,553 | (443) | 9,110 | 47 | 9,157 |
| Closing fair value at 31 March 2013 | 24,637 | 2,923 | 27,560 | 2,474 | 30,034 |
All of the changes in fair value during the year related to assets held at the year end.
*The net profit on disposal in the table above is £695,000 whereas that shown in the Statement of Comprehensive Income and the table at the bottom of page 56 is £699,000. The difference comprises deferred proceeds of £4,000 in respect of assets which have been disposed and are not included within the investment portfolio at the year end.
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 | Quoted | Total | Fixed | Total | |
| Investments | Equity | Quoted and | Income | Investments | |
| Investments | Unquoted | Securities | |||
| £000 | £000 | £000 | £000 | £000 | |
| Opening cost | 12,762 | 3,855 | 16,617 | 8,511 | 25,128 |
| Opening valuation gain | 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 | 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 31 March 2012.
The movements in Level 1 and Level 3 instruments, as defined earlier in this note, are summarised below.
| 2013 | 2012 | |||||
|---|---|---|---|---|---|---|
| Level 1 £000 |
Level 3 £000 |
Total £000 |
Level 1 £000 |
Level 3 £000 |
Total £000 |
|
| Opening fair value at 1 April 2012 | 6,220 | 20,479 | 26,699 | 12,737 | 25,746 | 38,483 |
| Additions at cost Capitalised interest |
1,243 – |
4,854 18 |
6,097 18 |
602 – |
2,398 11 |
3,000 11 |
| Disposal proceeds Net profit on disposal |
(1,596) 108 |
(2,112) 587 |
(3,708) 695 |
(7,268) 117 |
(9,871) 2,061 |
(17,139) 2,178 |
| Change in fair value | (578) | 811 | 233 | 32 | 134 | 166 |
| Closing fair value at 31 March 2013 | 5,397 | 24,637 | 30,034 | 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 portfolio has been reviewed and both downside and upside possible alternatives have been identified and applied to the valuation of each of the unquoted investments. Applying the downside alternatives the value of the unquoted investments would be £2,706,000 (11.0 per cent) lower. Using the upside alternative the value would be increased by £3,748,000 (15.2 per cent).
The total of fair value adjustments below cost made against unquoted investments at 31 March 2013 amounted to £1,655,000 (2012: £248,000).
There have been no individual fair value adjustments downwards during the year that exceeded five per cent of the total assets of the Company (2012: downwards revaluation of the investment in GO Outdoors Limited totalling £3.56 million representing 9.0 per cent of total assets of the Company at 31 March 2012).
Fixed income securities comprise 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 £000 |
Cost £000 |
Opening carrying value as at 1 April 2012 £000 |
Profit (loss) on disposal £000 |
|
|---|---|---|---|---|
| Fishawack Limited | 1,303 | 878 | 896 | 407 |
| Primal Pictures Limited | 588 | 468 | 406 | 182 |
| Tikit Group plc* | 541 | 150 | 438 | 103 |
| EKF Diagnostics Holdings Limited | 121 | 62 | 106 | 15 |
| Seven Technologies Holdings Limited | 222 | 222 | 222 | - |
| Straight plc* | 32 | 109 | 52 | (20) |
| 2,807 | 1,889 | 2,120 | 687 | |
| Deferred proceeds: | ||||
| Primal Pictures Limited | 4 | – | – | 4 |
| Total proceeds from quoted and unquoted investments Fixed income securities |
2,811 901 |
1,889 858 |
2,120 893 |
691 8 |
| Total | 3,712 | 2,747 | 3,013 | 699 |
*Designates AIM quoted company
The following disposals took place in 2012 (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 | 8,435 | 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.
At 31 March 2013 the Company held a significant holding of at least 20 per cent 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 |
|---|---|---|---|---|
| Bagel Nash Group Limited | Food Retail | 39,428 | 6.80% | 33.20% |
| Dryden Human Capital Group Limited | Recruitment | 80,408 | 7.77% | 34.87% |
| Deep-Secure Ltd | Software | 100,000 | 16.29% | 57.00% |
| DisplayPlan Holdings Limited | Retail | 2,340 | 22.75% | 12.25% |
| Ellfin Home Care Limited | Healthcare | 71,089 | 16.02% | 57.96% |
| Fairlight Bridge Limited | Turnaround | 2 | 50.00% | – |
| Harris Hill Holdings Limited | Recruitment | 65,714 | 10.70% | 26.80% |
| Harvey Jones Holdings Limited | Consumer Retail | 77,715 | 6.88% | 23.24% |
| Insider Technologies (Holdings) Limited | Software | 289,800 | 25.80% | 17.20% |
| Lightmain Company Limited | Manufacturing | 1,178,575 | 33.00% | – |
| President Engineering Group Ltd | Manufacturing | 200 | 20.00% | – |
| RMS Group Holdings Limited | Industrial | 153,293 | 8.10% | 23.40% |
| Seven Technologies Holdings Limited | Manufacturing | 500,000 | 6.25% | 20.83% |
| 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, and other fund managers which are also part of the YFM Equity Partners Limited group.
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 per cent 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. Furthermore, certain portfolio companies have been invested in by funds managed by other fund managers within YFM Equity Partners Limited. Details of these investments are summarised below. The amounts shown below are the net cost of investments as at 31 March 2013 and exclude those companies which are in receivership or liquidation.
| British Smaller Companies EIS Fund |
Yorkshire and Humber Equity Fund No. 1 L.P. |
The Capital Fund No. 1 L.P. |
The Partnership Investment Equity Fund Limited Partnership |
British Smaller Companies VCT2 plc |
North West Business Investment Scheme |
The Chandos Fund LP |
Total managed at cost in other funds |
|
|---|---|---|---|---|---|---|---|---|
| £000 | £000 | £000 | £000 | |||||
| Bagel Nash Group Limited | – | – | – | – | 419 | – | 2,618 | 3,037 |
| Bluebell Telecom Group Limited | – | – | – | – | 500 | – | – | 500 |
| Vianet Group plc | – | – | – | – | 242 | – | – | 242 |
| Cambridge Cognition Holdings plc | – | – | – | – | 240 | – | – | 240 |
| (formerly Cambridge Cognition Limited) | ||||||||
| Dryden Human Capital Group Limited | 167 | – | 643 | – | – | – | 1,118 | 1,928 |
| Deep-Secure Ltd | – | – | – | – | 500 | – | 2,000 | 2,500 |
| DisplayPlan Holdings Limited | – | – | – | – | 700 | – | – | 700 |
| EKF Diagnostics Holdings plc | – | – | 299 | – | – | – | – | 299 |
| Ellfin Home Care Limited | – | – | – | – | 317 | 886 | 1,774 | 2,977 |
| Harris Hill Holdings Limited | – | – | – | – | – | – | 1,500 | 1,500 |
| Harvey Jones Holdings Limited | – | – | – | – | 389 | – | 2,234 | 2,623 |
| Insider Technologies (Holdings) Limited | – | – | – | – | 780 | – | – | 780 |
| PowerOasis Limited | – | – | – | – | 567 | – | 1,133 | 1,700 |
| Pressure Technologies plc | – | 12 | – | – | 300 | – | – | 312 |
| RMS Group Holdings Limited | – | – | – | 200 | 70 | – | 250 | 520 |
| Selima Limited | – | – | – | – | 300 | – | – | 300 |
| Seven Technologies Holdings Limited | – | – | – | – | 1,151 | – | 2,833 | 3,984 |
| TeraView Limited | – | – | – | – | 375 | – | – | 375 |
| Waterfall Services Limited | – | – | – | – | 192 | – | – | 192 |
| 2013 £000 |
2012 £000 |
|
|---|---|---|
| Amounts receivable within one year: | ||
| Trade receivables | 72 | 72 |
| Prepayments and accrued income | 125 | 460 |
| 197 | 532 | |
| Allowance for credit losses on trade receivables: | ||
| Allowances as at 1 April | – | 82 |
| Release – credited to Statement of Comprehensive Income | – | (82) |
| Additions – charged to Statement of Comprehensive Income | – | – |
| Allowances as at 31 March | – | – |
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 2013 no trade receivables were past due but not impaired (2012: £nil).
As of 31 March 2013, trade receivables of £nil (2012: £nil) were impaired and provided for.
The maximum exposure to credit risk at the reporting date in respect of trade and other receivables is £160,000 (2012: £194,000). The Company does not hold any collateral as security. The carrying amounts of the Company's trade and other receivables are denominated in sterling.
| 2013 £000 |
2012 £000 |
|
|---|---|---|
| Cash in transit for post year end investment Cash at bank |
24 10,645 |
1,000 6,372 |
| 10,669 | 7,372 |
| 2013 £000 |
2012 £000 |
|
|---|---|---|
| Amounts payable within one year: | ||
| Accrued expenses | 132 | 152 |
| Incentive fee | 39 | 1,557 |
| Other creditors | 140 | – |
| 311 | 1,709 |
| 2013 | 2012 | |||
|---|---|---|---|---|
| Authorised £000 |
Allotted, Called-up and Fully paid £000 |
Authorised £000 |
Allotted, Called-up and Fully paid £000 |
|
| Ordinary shares of 10.0 pence each Authorised: 165,000,000 (2012: 165,000,000) Issued: 46,606,430 (2012: 40,394,205) |
16,500 | 4,661 | 16,500 | 4,039 |
The movements in the year were as follows:
| Price | Date | Number of shares |
Share Capital £000 |
||
|---|---|---|---|---|---|
| Total as at 1 April 2012 | 40,394,205 | 4,039 | |||
| Issue of shares | Fundraising | 99.75 pence | 5 April 2012 | 1,531,778 | 153 |
| Issue of shares | DRIS | 91.77 pence | 17 August 2012 | 261,760 | 26 |
| Issue of shares | Fundraising | 97.75 pence | 31 December 2012 | 4,235,020 | 424 |
| Issue of shares | DRIS | 87.57 pence | 14 January 2013 | 183,667 | 19 |
| As at 31 March 2013 (including treasury shares) 46,606,430 |
4,661 |
During the year the Company purchased 855,173 (2012: 199,200) 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 3,215,658 (2012: 2,360,485) treasury shares have been included in calculating the number of ordinary shares in issue, and excluded in calculating the number of ordinary shares with voting rights in issue, at 31 March 2013 and 31 March 2012.
Between the year end and the date of these Financial Statements the Company allotted new ordinary shares of 10.0 pence each at the prices set out below pursuant to the joint Offer for subscription made by the Company and British Smaller Companies VCT2 plc. The allotment on 9 May 2013 was made in response to an application by an individual Shareholder that was received by the Company after the close of the Offer on 30 April 2013, the allotment therefore being outside of the Offer.
| Date Number of ordinary shares |
Offer price |
|---|---|
| 5 April 2013 2,929,326 |
97.75 |
| 5 April 2013 2,730,385 |
95.75 |
| 30 April 2013 559,278 |
97.75 |
| 30 April 2013 155,045 |
95.75 |
| 9 May 2013 26,109 |
95.75 |
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 £42,089,000 (2012: £37,894,000) and 43,390,772 (2012: 38,033,720) ordinary shares with voting rights in issue at the year end, excluding treasury shares.
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 84.2 pence per ordinary share (2012: 79.2 pence per ordinary share) plus the Net Asset Value as calculated in note 12.
| 2013 | 2012 | |
|---|---|---|
| £000 | £000 | |
| Profit before taxation | 1,123 | 1,064 |
| Decrease (increase) in trade and other receivables | 246 | (59) |
| (Decrease) increase in trade and other payables | (1,517) | 1,239 |
| Profit on disposal of investments in the year | (699) | (2,178) |
| Profit on investments held at fair value | (233) | (166) |
| Capitalised interest | (18) | (11) |
| Net cash outflow from operating activities | (1,098) | (111) |
Profit before taxation above includes the following cash movements:
| 2013 £000 |
2012 £000 |
|
|---|---|---|
| Dividends received | 81 | 422 |
| Interest received – interest from fixed income securities – deposit interest |
59 198 |
198 73 |
| Total interest | 257 | 271 |
The principal non-cash transaction is the issue of shares under the Company's dividend re-investment scheme. The Statement of Cash Flows shows dividends paid of £1,558,000 which differs from the total in note 5 by £401,000, which is the dividend satisfied through the issue of new ordinary shares under this scheme.
| 31 March 2012 |
Cash flow |
Other non cash changes |
31 March 2013 |
|
|---|---|---|---|---|
| £000 | £000 | £000 | £000 | |
| Cash and cash equivalents | 7,372 | 3,297 | – | 10,669 |
At 31 March 2013 there were no investments that had been approved which have not been reflected in these accounts (2012: one investment of £900,000), and had not completed since the year end. In addition to the two new investments in note 18, since the year end four further investments totalling £5,533,000 have been approved by the Board (2012: one further investment of £600,000).
YFM Equity Partners Limited (formerly YFM Group Limited), the parent company of YFM Private Equity Limited, the Fund Manager to the Company, held an investment in Primal Pictures Limited, an investee company of the Company. On 13 August 2012 YFM Equity Partners Limited disposed of its holding in Primal Pictures Limited for which it received £71,000 and is entitled to £3,937 of deferred proceeds in the 12 months following the sale.
Mr P S Cammerman is a non-executive director of Pressure Technologies plc. During the year he received £23,000 (2012: £18,000) from Pressure Technologies plc in respect of his services. He also holds a 0.25 per cent equity stake in Pressure Technologies plc and during the year he held a 0.004 per cent stake in Straight plc, which he disposed of in March 2013.
Information on any transactions between the Company and the directors during the year can be found in the Directors' Remuneration Report. Information on transactions between the Company and the Fund Manager can be found in note 3.
On 22 May 2013 the Company completed an investment of £0.2 million into AB Dynamics plc, a business that designs, manufactures and supplies vehicle testing technology. On 3 April 2013 the Company invested a further £0.02 million into GO Outdoors Limited.
The £1.3 million of non-qualifying loans to Seven Technologies Holdings Limited have been repaid as part of the funding package for the proposed acquisition of Datong plc.
Subsequent to the year end, the Company allotted ordinary shares under the joint Offer with British Smaller Companies VCT2 plc, as detailed in note 11 to the Financial Statements on page 60.
On 18 April 2013 Cambridge Cognition Limited, now Cambridge Cognition Holdings plc, successfully listed on AIM raising £5.0 million.
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 27. 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 or fixed rate Government securities 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:
| 2013 | 2012 | ||||
|---|---|---|---|---|---|
| Loans and receivables |
Assets at fair value through profit or loss |
Loans and receivables |
Assets at fair value through profit or loss |
||
| £000 | £000 | £000 | £000 | ||
| Non-current assets Financial assets at fair value through profit or loss |
– | 30,034 | – | 26,699 | |
| Current assets | |||||
| Cash and cash equivalents Cash on fixed term deposit |
10,669 1,500 |
– – |
7,372 5,000 |
– – |
|
| Trade and other receivables | 72 | – | 72 | – | |
| Other assets – not financial instruments | 12,241 125 |
30,034 – |
12,444 460 |
26,699 – |
|
| 12,366 | 30,034 | 12,904 | 26,699 |
| 2013 | 2012 | |
|---|---|---|
| Other | Other | |
| financial | financial | |
| liabilities | liabilities | |
| £000 | £000 | |
| Trade and other payables | 311 | 1,709 |
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 per cent of the total cost of investments and 25 per cent of total Net Asset Value. The Board seeks to invest in counter-cyclical stocks where these are identified.
Of the Company's equity investments, 17 per cent are quoted on AIM® (2012: 24 per cent). A 5 per cent increase in stock prices as at 31 March 2013 would have increased the net assets attributable to the Company's Shareholders and the total profit for the year by £146,000 (2012: £186,000). 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.
Of the Company's equity investments, 83 per cent are in unquoted companies held at fair value (2012: 76 per cent). 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 27. Those using an earnings multiple methodology include judgements regarding the level of discount applied to that multiple. A 10 per cent 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 £2,702,000 (6.4 per cent 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 the same amount.
The largest single concentration of risk relates to the Company's investment in GO Outdoors Limited which constitutes 11.8 per cent (2012: 14.5 per cent) 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 2.3 per cent (2012: 2.2 per cent) of the total value of net assets.
The Company's venture capital investments include £10,150,000 (2012: £8,240,000) of loan stock in unquoted companies. The majority of this loan stock at 31 March 2013 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 £900,000 (2012: none) of its loan stock portfolio.
The Company holds a number of fixed income 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 one year.
| 2013 | 2012 | |||||
|---|---|---|---|---|---|---|
| Weighted | Weighted | Weighted | Weighted | |||
| average | average | average | average | |||
| interest rate | time for | interest rate | time for | |||
| which rate | which rate | |||||
| is fixed | is fixed | |||||
| £000 | % | Months | £000 | % | Months | |
| Fixed rate loan stock | 9,250 | 10.5 | 37 | 8,240 | 11.02 | 39 |
| Fixed income securities | 2,474 | 2.5 | 31 | 2,499 | 2.40 | 33 |
| Cash on fixed term deposit | 1,500 | 1.4 | 2 | 5,000 | 2.50 | 5 |
| Combined | 13,224 | 7.7 | 32 | 15,739 | 6.84 | 27 |
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 £24,867,000 (2012: £23,305,000) 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. 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 Nplus1 Singer Advisory LLP, 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:
| 2013 £000 | 2012 £000 | |||||
|---|---|---|---|---|---|---|
| <1 year | 1-2 years | 2-5 years | <1 year | 1-2 years | 2-5 years | |
| Unquoted loan investments | 3,703 | 574 | 6,296 | 2,218 | 634 | 5,366 |
The past due maturity dates of the loan stock portfolio are as follows:
| 2013 £000 | 2012 £000 | |||||
|---|---|---|---|---|---|---|
| 1-2 months | 3-6 months | > 6 months | 1-2 months | 3-6 months | > 6 months | |
| Interest | 13 | 13 | 14 | 47 | – | – |
| Capital | - | 790 | 667 | – | 667 | – |
All amounts where loan stock is overdue are subject to ongoing negotiations as to the rescheduling of capital repayments.
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 and bank interest deposit accounts. Investments in Government stocks 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. Of the Company's assets 25.3 per cent (2012: 19.5 per cent) are in the form of liquid cash and cash equivalents. There are no undrawn committed borrowing facilities at either year end. The Company does not have a material liability as at the year end.
Detailed valuation policies in respect of the investment portfolio are set out on page 27. Where investments are in quoted stocks, fair value is set at market price. 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 change in fair value: 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 based on the perceived market interest in that company or sector and on any benefit that may be observed by holding a significant shareholding or superior rights.
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 2013 was £42.1 million (2012: £37.9 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 of the Annual General Meeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR ATTENTION. If you are in any doubt about the action to be taken, you should immediately consult with your bank manager, stockbroker, solicitor, accountant or other appropriate independent adviser authorised pursuant to the Financial Services and Markets Act 2000. If you have sold or otherwise transferred all of your shares in British Smaller Companies VCT plc, please send this document and accompanying documents as soon as possible to the purchaser or transferee or to the stockbroker, independent financial adviser or other person through whom the sale or transfer was effected for delivery to the purchaser or transferee.
NOTICE IS HEREBY GIVEN that the ANNUAL GENERAL MEETING of the Company will be held at 33 St James Square, London, SW1Y 4JS on 19 July 2013 at 12.00 noon for the following purposes:
To consider and, if thought fit, pass the following resolutions:
Secretary 11 June 2013
Registered office: Saint Martins House, 210-212 Chapeltown Road, Leeds LS7 4HZ
Information regarding the Annual General Meeting, including the information required by section 311A of the Companies Act 2006, is available from www.yfmep.com
certified copy of such power or authority) must be included with the revocation notice. The revocation notice must be received by Capita Registrars Limited before the Annual General Meeting or the holding of a poll subsequently thereto. If a member attempts to revoke his or her proxy appointment but the revocation is received after the time specified then, subject to Note (d) directly below, the proxy appointment will remain valid.
To be used at the Annual General Meeting of the Company
to be held at 33 St James Square, London, SW1Y 4JS on 19 July 2013 at 12.00 noon
| 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 19 July 2013 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 proxy 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 RESOLUTIONS | |||
| 1. To receive the Annual Report and Accounts |
|||
| 2. To approve a final dividend of 3.5 pence per ordinary share |
|||
| 3. To approve the Directors' Remuneration Report |
|||
| 4. To re-elect Ms H Sinclair as a director |
|||
| 5. To re-elect Mr C W E R Buchan as a director |
|||
| 6. To re-elect Mr P S Cammerman as a director |
|||
| 7. To re-appoint Grant Thornton UK LLP as auditor |
|||
| 8. To grant authority to allot shares (other than pursuant to the dividend re-investment scheme) |
|||
| 9. To authorise the Company to communicate with members by electronic means |
|||
| 10. To continue the dividend re-investment scheme for a further period | |||
| 11. To grant authority to allot shares pursuant to the dividend re-investment scheme for a further period |
|||
| SPECIAL RESOLUTIONS | |||
| 12. To authorise the directors to waive pre-emption rights in relation to the allotment of shares (other than pursuant to the dividend re-investment scheme) |
|||
| 13. To authorise the directors to waive pre-emption rights in relation to the allotment of shares pursuant to the dividend re-investment scheme for a further period |
Signature Dated 2013
Please refer to notes overleaf.
Please complete, detach and return the Form of Proxy in the pre-paid envelope provided.
hlw Keeble Hawson LLP Protection House 16-17 East Parade Leeds LS1 2BR
Nplus1 Singer Advisory LLP 1 Bartholomew Lane London EC2N 2AX
Brewin Dolphin Securities Limited 34 Lisbon Street Leeds LS1 4LX
Grant Thornton UK LLP 2 Broadfield Court Sheffield S8 0XF
PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH
The Royal Bank of Scotland plc 27 Park Row Leeds LS1 5QB
40 Spring Gardens Manchester M2 1EN
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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