RNS Number : 8044X
Equity Special Situations Limited
30 June 2008
EQUITY SPECIAL SITUATIONS LIMITED
("ESS" or the "Company"),
FINAL AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
Equity Special Situations Limited (AIM: EQS), the strategic investment company, today announces its final results for the year ended 31
December 2007.
FINANCIAL HIGHLIGHTS
* Net gains on investments: �10.91 million for 2007 against �0.01 million for 2006;
* Net return on ordinary activities after taxation: �7.50 million compared to a loss of �0.86 million in 2006;
* Basic earnings per share for year: 52.96 pence against a loss of 6.36 pence for 2006.
INVESTEE COMPANY HIGHLIGHTS
* STM Group plc ("STM"): floated on AIM in March 2007, raising �7.5 million;
* Syndicate Asset Management plc: ("Syndicate") assets under management grown to over �5.5 billion through both organic growth and
acquisitions;
* Avarae Global Coins: �6.0 million raised through placing in August 2007.
POST PERIOD HIGHLIGHTS
* �8.65 million of new equity funds raised in the first half of 2008;
* Strategic investment made in Conister Financial Group plc ("Conister"), the Isle of Man private banking and financial services
group.
Peter Griffin, Executive Director of the Company, commented:
"The Directors believe that, despite difficult market conditions in the second half of 2007, we've had a strong year in 2007. In 2007,
the Company reaped the benefits of investments made in previous years in its infrastructure, the raising of its profile and the broadening
its network of contacts and business referrals.
With the successful IPO of STM in March 2007, we believe we have been able to demonstrate our ability to continue building on the
success achieved through the creation and flotation of Syndicate. We are likewise delighted to have concluded our the strategic investment
in Conister post period which provides us with direct exposure to the benefits that private banking can offer the clients of other
investments within our portfolio. We look forward to working closely with Conister's management in the coming months.
The impact of the credit crunch has, without doubt, had a negative effect on the stock market and particularly the share prices and
liquidities of the small cap stocks. Like the vast majority of investment companies, this has had a detrimental effect on the recent
carrying value of ESS's portfolio. However, I'm pleased to report that most, if not all, of our investee companies appear to be operating in
line with expectations and, we believe that, the recent downward pressures on their share prices is temporary. Indeed, a number of the
portfolio companies are well positioned to take advantage of consolidation opportunities that are created by these challenging times. We
therefore remain cautiously optimistic about the future."
- ends -
For further information please contact:
Equity Special Situations Limited Peter Griffin +44 (0)1481 751 000
Noble & Company Limited John Riddell +44 (0)20 7763 2200
GTH Media Relations Toby Hall +44 (0)20 7153 8039
Christian Pickel +44 (0)20 7153 8036
Directors' Report
Introduction
We are pleased to present this annual report to our shareholders. The following pages show the financial performance of Equity Special
Situations Limited (the "Group" or "ESS" or, the "Company") for the financial year to 31 December 2007. We have also included some post
year-end unaudited summary information in order to ensure that shareholders are provided with as up to date information as is practical.
2007 was a strong year for ESS, with �10.91 million of net gains on investments (2006: �0.01 million), contributing to a net return on
ordinary activities after taxation of �7.50 million (2006: loss of �0.86 million). Basic EPS for the year was 52.96 pence (2006: loss of
6.36 pence). Subsequent to the year end, the Company increased its shareholder base through two placings of, in aggregate, 4,423,077 new
shares at �1.95 each, raising �8.625 million (before expenses) and also 2,042,705 new shares in exchange for a reciprocal strategic
investment in the Company by Conister Financial Group plc ("CFG").
Investment Strategy
2007 was, in many ways not dissimilar to 2005 (when ESS made net returns of �12.76 million) in that it was the year in which the
benefits of actions and initiatives carried out in the previous 12 months were realised as gains and profits. As anticipated at the outset,
returns from investments in "special situations" were always going to be relatively lumpy, being dependent on exits out of significant
holdings, however, I'm pleased to report that we delivered a robust set of results in 2007, in spite of difficult trading conditions,
particularly in the latter part of the year.
Our investment strategy is to achieve long term capital growth for shareholders through the purchase, holding and sale of significant
minority stakes in companies and investment funds. We aim to exploit special situations and seek out opportunities and companies which we
believe will provide a material uplift in the value of ESS. We often combine an initial investment into a company with the provision of
management and administrative support, particularly when we are helping in the creation of a new company that is pursuing, for example, a
consolidation strategy. Good examples of this strategy are Syndicate Asset Management plc ("Syndicate") and STM Group plc ("STM"), both of
which have produced (and we expect to continue to produce) material uplifts in value for ESS.
There are a number of general investment criteria that the Group looks for when researching possible investee companies, however, the
most important elements that we focus on are the strength of the incumbent management team and also their underlying strategy for the
investee company. The sectors that ESS has had, and continues to have, an interest in are deliberately broad. Since its admission to AIM in
August 2004, ESS has held investments in such sectors as financial services, healthcare, alternative assets, property, retail, resources and
support services. As at the end of 2007, ESS held investments in 14 companies, nine of which were in financial services, two in retail, two
in healthcare and one in alternative assets. The Group also holds one property via its wholly owned subsidiary, ESS Property Investments
Limited. In the Group's previous annual and interim reports to shareholders, we've commented that a majority of the most interesting
investment opportunities that we review are businesses that operate in the financial services sector within the EU and I'm pleased to report that this focus on financial services continued throughout
2007 and into 2008. The recent announcement of a strategic investment by CFG into ESS and of ESS taking a 9.9 per cent. stake in CFG is a
demonstration of this focus.
Investee Companies
By a significant margin, ESS's largest holding by value remains that of Syndicate Asset Management plc which, at 31 December 2007,
represented approximately 66 per cent. of the Group's investment assets (2006: 66 per cent.). The next two largest investments by value are
STM, which represented 9.6 per cent. at the end of the year (2006: nil) and Noble Investments (UK) plc ("Noble"), which represented 6 per
cent. of ESS's investment assets at the year end (2006: 11 per cent.). A summary of a selection of six of the investments held by ESS is set
out below:
Syndicate Asset Management plc ("Syndicate")
Syndicate, the specialist fund management group created by ESS in 2005 and subsequently spun out and floated on AIM in September 2005,
had an extremely successful 2007 operationally. It has continued to build its funds under management both organically and through
acquisition, completing the acquisitions of EPIC Investment Partners Limited in January 2007 and Insight Investment Management (C.I.)
Limited in May 2007, which took its assets under management to over �5.5 billion. ESS remains a strongly supportive shareholder of
Syndicate, having subscribed for additional new shares during 2007. At the year end, ESS held 28.08 per cent. of Syndicate.
Avarae Global Coins plc ("Avarae")
Avarae is a numismatic investment company operating and registered in Isle of Man which intends to achieve long term capital growth
through the purchase, holding and resale of rare and antique coins. ESS was the cornerstone investor in Avarae when it was admitted to
trading on AIM in May 2006, raising �5.0 million and currently holds 14.6 per cent. of Avarae (having been diluted down from 24.5 per cent.
at the beginning of 2007 through further fund raisings). Avarae raised a further �6.0 million in August 2007, taking its aggregate funds
raised to date to more than �12.5 million. We believe that Avarae represents a unique opportunity for an investor to diversity his portfolio
through investing in an alternative asset class (rare coins) without the need to be an expert in the field of numismatics. Furthermore, rare
coins often have an underlying intrinsic value (gold, silver etc) and have also, historically, been proven to appreciate in value by
approximately 10 per cent, per annum.
Noble Investments (UK) plc ("Noble")
Noble is now believed to be the largest and most important dealer and auctioneer of rare and antique coins in the UK. Noble floated on
AIM in October 2003 and in November 2005 made the strategically significant acquisition of A.H.Baldwin & Sons in which ESS was the largest
equity provider at that time. As at 31 December 2007, ESS held approximately 10.8 per cent. of Noble's issued share capital, having been
diluted down from 11.2 per cent. at the beginning of the year through secondary fundraisings. Noble recently released its results for the
half year ended 29 February 2008 in which it reported turnover for the period of approximately �4.6 million and a profit before tax of �0.8
million.
Fashion Brands Collections B.V. ("Fashion Brands")
Fashion Brands is a Dutch based private company which holds the exclusive rights to operate ELLE branded stores throughout Europe and
the Middle East selling ELLE'S day wear collection, pr-a-porter. Fashion Brands was granted the rights from Hachette Filipacchi Presse SA
("HFP"), the Paris based ultimate owner of ELLE magazine worldwide. ELLE is amongst the world's largest fashion magazines, with 39 editions
printed globally of which 24 are printed in Europe and the Middle East. HFP has been extremely successful in leveraging the strength of the
ELLE brand in related markets having granted approximately 150 licences and generating some $1.0 billion consumer turnover.
Fashion Brands designs and manufactures two ELLE collections per year for sale through its growing network of own-brand stores and also
through its wholesale business. Fashion Brands is expected to have 14 stores open in Europe by the end of the year. ELLE branded stores are
either wholly owned by Fashion Brands or operated by sub-licencees. ESS currently holds 13.3 per cent. of Fashion Brands' issued share
capital.
STM Group plc ("STM")
STM is a consolidator operating in the international corporate and trustee service provider market ("CTSP"). The market for CTSPs is
growing strongly and there are compelling reasons for consolidation, such as: ever increasing regulation and compliance; the provisions of
the Sarbannes-Oxley Act; the need for more sophisticated products; and the fact that a large proportion of the existing CTSPs are owner
managed with their founders approaching the age of retirement. STM is uniquely positioned in that it is the only pure play quoted CTSP with
a stated buy and build strategy, enabling it to offer potential vendors quoted shares as consideration in order to align their ongoing focus
with that of STM.
ESS provided STM's initial seed capital and input into its strategy up to the time that it floated on AIM in March 2007 at the same time
raising �7.5 million from institutional and other investors. STM floated at 50 pence per share and as at 31 December 2007 was trading with a
bid price of 68 pence. ESS held 19.9 per cent. of STM at the year end.
Conister Financial Group plc ("CFG")
Since the year end, ESS has taken a strategic stake of 9.9 per cent. in CFG, the fast growing Isle of Man based bank and financial
services group. CFG comprises two principal trading divisions: Conister Trust - the banking division that was formed in the Isle of Man in
1935 that specialises in providing finance for personal and business use; and TransSend - the recently created prepaid card division. We
have been working on obtaining a significant stake in a private bank for almost nine months now and we are delighted to have concluded a
deal with CFG. We expect to work closely with CFG's management going forward in generating interesting business proposals for them from our
existing portfolio companies and from other companies that join us in the future.
Financial Review
In 2007, the Group reaped the benefits of investments made in previous years in its infrastructure, the raising of its profile and the
broadening of its network of contacts and business referrals. It has also, for the first time, made significant use of new leverage
facilities in order to provide further funds for investment. Key events during the year included the flotation on AIM of STM and the
continued provision of financial support to existing portfolio investments, particularly Syndicate and Avarae. ESS's shareholding in
Syndicate increased during the course of the year from approximately 22.4 per cent. at the beginning of the year to approximately 28.08 per
cent. at the end of the year, primarily through participation in placings of new shares by Syndicate to fund its acquisitions. Syndicate's
share price increased by some 50 per cent. during the course of 2007, from 65.5 pence to 98 pence, although it has fallen back to around 87
pence as at 15 June 2008, following profit taking.
Accordingly, for the year ended 2007, ESS recorded net gains on investments of �10.91 million (2006: �0.01 million) and a net return
after taxation on ordinary activities of �7.5 million (2006: loss �0.86 million). The majority of the gains were on the back of increases in
the share price of quoted investments over the course of the year, notably Syndicate and STM. Costs for the year were �3.6 million (2006:
�0.9 million), which comprised administration and consultancy costs, as well as financing charges and interest of, in aggregate, �1.9
million, or 52 per cent. of total costs for the year. This represents a consistent use of debt from that of the first half of 2007, when
total interest and financing costs were �0.67 million, or 55 per cent. of total costs for that period.
The value of the Group's investment portfolio was �51.45 million at the end of 2007, more than doubling from �24.81 million at the
beginning of the year. Investments in quoted small and mid-cap stocks continue to dominate the investments held, accounting for more than
�50.02 million of the portfolio at the year end.
Available cash at the year end was �4.45 million (2006: �6.1 million) and the significant use of new leverage facilities during the year
meant that net debt at the year end increased to �27.3 million from �5.86 million.
The Group's net asset value per share ("NAV") increased by more than 40 per cent. from 135.49 pence at the start of 2007 to 190.02 pence
at the year end. The NAV has since fallen back from this level during the first half of 2008 as a result of decreases in the share prices of
a number of the Group's quoted investments. Overall, we are pleased with the performance of the Group's NAV since its admission to trading
on AIM, which has significantly out performed the AIM All Shares index over the same period.
Funding
No new equity funds were raised during 2007, however, as previously announced, we were pleased to raise an aggregate of �8.625 million
of new equity funds in the first half of 2008, primarily from new investors. We are delighted to have been able to broaden our shareholder
base in this way and warmly welcome our new shareholders. ESS has now raised a total of �16.9 million in equity finance during its lifetime
which, together with the use of debt facilities has enabled us to hold investments valued in excess of �51.4 million at the end of 2007.
We've previously announced in our annual and interim reports that, as the asset base of the Group grew, we believed that the Group could
tolerate a significant proportion of debt. This strategy was crucial during 2007 as it allowed ESS to continue to take advantage of
profitable investment opportunities without the need to make early realisations of existing investments beforehand. We continually monitor
ESS's level of debt and believe that we have a robust asset base to secure against the existing borrowings.
Outlook
The Directors consider that 2007 was a good year for the Group, despite the difficult market conditions in the second half of the year.
The Board remains under no illusions that a large part of the Group's success to date has been down to the creation and flotation of
Syndicate, however we believe that we have now proved that ESS can build upon this with the successful IPO in March 2007 of STM.
The impact of the credit crunch has, without doubt, had a negative effect on the stock market and particularly the share prices and
liquidities of the small cap stocks. Like the vast majority of investment companies, this has had a detrimental effect on the recent
carrying value of ESS's portfolio. However, I'm pleased to report that most, if not all, of our investee companies appear to be operating in
line with expectations and, we believe that, the recent downward pressures on their share prices is temporary. Indeed, a number of the
portfolio companies are well positioned to take advantage of consolidation opportunities that are created by these challenging times.
Save for the strategic investment in CFG, the first half of 2008 has been a relatively quiet one as regards completing any significant
transactions which could result in a material contribution to 2008's profits. However we have been extremely busy identifying and reviewing
potential transactions and consolidation opportunities, some of which we hope will come to fruition in the second half of the year.
Finally, I'd like to again welcome our new shareholders to the Company and, notwithstanding the difficulties in the wider economy, we
remain cautiously optimistic about the future.
Board of Directors
Peter Griffin (aged49)
Executive Director
Michael Cahill (aged 49)
Executive Director
Directors and their Interests
The Directors of the Company during the year were:
Peter Francis Griffin BA (Hons), FCA, TEP (Christopher Roger Sharman as alternate)
Michael Thomas Cahill, ACIS (Ian Geoffrey Clarke as alternate)
None of the Directors who held office at the end of the financial year had any interest in the share capital or share options of the
Company, nor does any person connected with the Directors have any such interests, whether beneficial or non-beneficial.
Substantial Shareholdings
At 31 December 2007 the issued share capital of the Company was 14,167,604 ordinary shares of 1 pence each.
Under Guernsey Company law shareholders are not required to notify a company of their interests in shares, however, the Articles of
Association give power to the directors to serve notice on members or other persons who may have an interest in the Company's shares to
disclose their interest in the Company's shares. Although to date no such notices have been issued. We have however, conducted a limited
investigation into the underlying holders of 3% or more of our share capital and have also received some notifications from shareholders.
Given this information so far as we are aware, as at 31 December 2007, the following shareholders held 3% or more of the Company's share
capital:
Number of Percentage of issued ordinary share capital
ordinary
shares
Newton Nominees Limited 3,199,980 22.59%
Jon Olafsson 2,945,569 20.79%
Jan Geertman 2,943,761 20.78%
Man Financial Limited 481,500 3.40%
Share Option Plan
A discretionary Share Option Plan ("Plan") was adopted by the Board prior to the admission of the Company to AIM on 16 August 2004. A
summary of the draft terms of the Plan were provided in the admission to trading on AIM document.
During the year to 31 December 2007, a total of 600,000 (2006: 480,000) options were granted to consultants to the Group in lieu of
fees. Further information is set out in note 20.
Portfolio Risk
The Group's assets comprise mainly investments in smaller, quoted and unquoted businesses which, by their nature, tend to be more
fragile than larger, longer established businesses. In addition these investee companies are under-going significant change and therefore
they are usually exposed to greater risks than more stable businesses. The Group's unquoted investments in particular may therefore change
in nature quickly with such changes not being immediately reflected in the Group's valuation of the investment. In addition, some of the
quoted investments and the majority of the unquoted investments may be difficult to realise and there is therefore a risk that the Group may
not be able to exit from an investment at the current valuation or at all.
Results and Dividends
The results of the Group and the Company for the year are set out below. No dividends have been paid or are proposed.
Activities
The Company was incorporated on 16 July 2004 and was admitted to trading on AIM on 16 August 2004.
The principal activity of the Company is that of achieving capital growth for its shareholders through the purchase, holding and sale of
minority stakes in companies and investment funds, which are or which are expected shortly to be, quoted on recognised investment exchanges
(including Exchange Regulated Markets) in Europe, the US and Canada. Our investment strategy remains as set out in our Admission document,
dated 10 August 2004, which is available on the Company's website - www.equityspecialsituations.com.
Directors' Remuneration Report
Policy on Directors' Fees
The Board's policy is that the level of remuneration should be sufficient to attract and retain the Directors needed to oversee properly
the Group and to reflect the specific circumstances of the Group, the duties and responsibilities of the Directors and the value and amount
of time committed to the Group's affairs. It is intended that this policy will continue for the year ending 31 December 2008 and subsequent
years.
Directors' Fees
The Board considers at least annually the level of the Directors' fees, in accordance with the Combined Code on Corporate Governance.
The Company Secretary provides information on the levels of Directors' fees to the Board in advance of each review.
The Board concluded following the review of the level of Directors' fees for the forthcoming year that the amounts should remain
unchanged at present.
Directors' Service Contracts
The Company entered into an open ended services agreement with Fortis Fund Services (Guernsey) Limited which includes the provision of
the services of P F Griffin and M T Cahill as executive directors on a time-cost basis, with a 3 months notice period.
Directors' Remuneration
The emoluments of the individual Directors for the year were as follows:
Director Salary or Fees
P F Griffin nil
M T Cahill nil
No pension scheme contributions or other retirement benefit contributions were paid.
There are no share option contracts or long term incentive schemes held by the Directors.
No Director has any interest in any contract to which the Group is a party except for the contracts between the Group and Fortis Fund
Services (Guernsey) Limited.
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
For the year ended For the year ended
31 December 2007 31 December 2006
Note Revenue Capital Total Revenue Capital Total
� � � � � �
INCOME
Rental Income 4 20,120 - 20,120 - - -
Interest Income 5 138,845 - 138,845 19,151 - 19,151
Dividends receivable 63,664 - - 63,664 10,000 - 10,000
Net gains on financial assets
at
fair value through profit or 6 - 10,914,924 10,914,924 - 11,398 11,398
loss
TOTAL NET INCOME 222,629 10,914,924 11,137,553 29,151 11,398 - 40,549
EXPENSES
Administration fees 127,551 - 127,551 75,876 - 75,876
Professional fees 147,037 9,959 156,996 37,044 27,750 64,794
Consultancy fees 19 - 1,300,375 1,300,375 - 469,588 469,588
Audit fee 16,550 - 16,550 11,740 - 11,740
Commissions 79,883 - 79,883 35,316 - 35,316
Registration and regulatory 47,270 - 47,270 38,698 - 38,698
expenses
Other operating expenses 5,935 - 5,935 6,048 - 6,048
TOTAL OPERATING EXPENSES 424,226 1,310,334 1,734,560 204,722 497,338 702,060
OPERATING PROFIT/(LOSS) 2(f) (201,597) 9,604,590 9,402,993 (175,571) (485,940) (661,511)
Finance costs 7 (1,900,457) - (1,900,457) (195,489) - (195,489)
PROFIT/(LOSS) BEFORE TAX (2,102,054) 9,604,590 - 7,502,536 (371,060) (485,940) - (857,000)
Taxation 8 - - - - - -
PROFIT/(LOSS) AFTER TAX (2,102,054) 9,604,590 - 7,502,536 (371,060) (485,940) - (857,000)
Earnings per share
- basic (pence per share) 9 52.96 (6.36)
- diluted (pence per share) 9 52.92 (6.36)
The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS.
The Revenue and Capital columns are supplied as supplementary information permitted under IFRS.
All items in the above statement derive from continuing operations.
All income is attributable to the equity holders of the parent company. There are no minority interests.
The accompanying notes form an integral part of this statement.
CONSOLIDATED BALANCE SHEET
31 DECEMBER 2007
Note 31 December 2007 31 December 2006
NON-CURRENT ASSETS
Investment property 11 286,168 -
Investments at fair value through profit or loss 6 51,159,648 24,806,725
51,445,816 24,806,725
CURRENT ASSETS
Cash and cash equivalents 4,453,469 6,099,053
Loans receivable 12 2,774,622 331,874
Other debtors and receivables 105,958 20,000
7,334,049 6,450,927
TOTAL ASSETS 58,779,865 31,257,652
CURRENT LIABILITIES
Loans and overdrafts 13 10,615,837 2,192,645
Liabilities under investment contracts 14 21,127,678 9,780,962
Other creditors and accruals 115,108 88,223
TOTAL LIABILITIES 31,858,623 12,061,830
NET ASSETS � 26,921,242 � 19,195,822
EQUITY
Share capital 15 141,676 141,676
Share premium account 16 8,145,464 8,145,464
Capital reserve
- Realised 16 (2,311,790) (454,423)
- Unrealised 16 23,565,286 12,103,329
Share option reserve 16 242,676 19,792
Retained earnings 16 (2,862,070) (760,016)
TOTAL EQUITY � 26,921,242 � 19,195,822
Net asset value per share (pence per share) 17 190.02 135.49
The financial statements were approved by the Board of Directors and authorised for issue on 29 June 2008.
The accompanying notes form an integral part of this statement.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2007
Share capital Share premium Capital reserve - Capital reserve - Share option reserve Retained
earnings Total
realised unrealised
� � � � � �
�
As at 1 January 2007 141,676 8,145,464 (454,423) 12,103,329 19,792
(760,016) 19,195,822
Profit/(loss) for the year - - (1,822,306) 11,426,896 -
(2,102,054) 7,502,536
Total recognised income and - - (1,822,306) 11,426,896 -
(2,102,054) 7,502,536
expenses for the year
-
Transfer to realised reserves - - (35,061) 35,061 -
- -
on disposal of investments
-
Share based payments - - - - 222,884
- 222,884
As at 31 December 2007 141,676 8,145,464 (2,311,790) 23,565,286 242,676
(2,862,070) 26,921,242
For the year ended 31 December 2006
Share capital Share premium Capital reserve - Capital reserve - Share option reserve Retained
earnings Total
realised unrealised
� � � � � �
�
As at 1 January 2006 104,279 3,182,861 (366,446) 12,501,292 -
(388,956) 15,033,030
Profit/(loss) for the year - - (121,279) (364,661) -
(371,060) (857,000)
-
Total recognised income and - - (121,279) (364,661) -
(371,060) (857,000)
expenses for the year
-
Transfer to realised reserves - - 33,302 (33,302) -
- -
on disposal of investments
-
-
Issue of new shares 37,397 4,962,603 - - -
- 5,000,000
-
Share based payments - - - - 19,792
- 19,792
As at 31 December 2006 141,676 8,145,464 (454,423) 12,103,329 19,792
(760,016) 19,195,822
The accompanying notes form an integral part of this statement.
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
Year ended Year ended
31 December 2007 31 December 2006
Cash flows from operating activities
Profit/(loss) for the year 7,502,536 (857,000)
Adjustments for:
Interest income (138,845) (19,151)
Dividends receivable (63,664) (10,000)
Interest payable 1,864,496 195,489
Share based payments 222,884 19,792
9,387,407 (670,870)
Net gains on financial assets at fair value through profit or loss (10,914,924) (11,398)
Net decrease/(increase) in other receivables 18,051 (20,000)
Net increase in other payables 26,886 55,637
Cash used in operations (1,482,580) (646,631)
Interest received 167,770 19,151
Dividends received 63,664 10,000
Interest paid (1,963,477) (194,614)
Net cash used in operating activities (3,214,623) (812,094)
Cash flows from investing activities
Acquisition of investment property (286,168) -
Proceeds on disposal of investments 20,522,500 1,279,667
Purchase of investments (35,994,453) (6,081,286)
Loans receivable advanced (1,208,729) (331,874)
Net cash used in investing activities (16,966,850) (5,133,493)
Cash flows from financing activities
Loans payable received 16,301,997 10,980,962
Short term financing received 2,233,892 992,601
Proceeds from issue of shares - 26,846
Net cash generated from financing activities 18,535,889 12,000,409
Net (decrease)/increase in cash and cash equivalents (1,645,584) 6,054,822
Cash and cash equivalents at 1 January 6,099,053 44,231
Cash and cash equivalents at 31 December 4,453,469 6,099,053
The accompanying notes form an integral part of this statement.
COMPANY INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
For the year ended For the year ended
31 December 2007 31 December 2006
Note Revenue Capital Total Revenue Capital Total
� � � � � �
INCOME
Interest income 5 138,778 - 138,778 19,151 - 19,151
Dividends receivable 63,664 - - 63,664 10,000 - 10,000
Net gains on financial assets
at
fair value through profit or 6 - 10,914,924 10,914,924 - 11,398 11,398
loss
TOTAL NET INCOME 202,442 10,914,924 11,117,366 29,151 11,398 40,549
EXPENSES
Administration fees 122,117 - 122,117 75,876 - 75,876
Professional fees 146,320 9,959 156,279 37,044 27,750 64,794
Consultancy fees 19 - 1,300,375 1,300,375 - 469,588 469,588
Audit fee 16,550 - 16,550 11,740 - 11,740
Commissions 79,883 - 79,883 35,316 - 35,316
Registration and regulatory 47,270 - 47,270 38,698 - 38,698
expenses
Other operating expenses 5,169 - 5,169 6,048 - 6,048
TOTAL OPERATING EXPENSES 417,309 1,310,334 1,727,643 204,722 497,338 702,060
OPERATING PROFIT/(LOSS) 2(f) (214,867) 9,604,590 9,389,723 (175,571) (485,940) (661,511)
Finance costs 7 (1,901,435) - (1,901,435) (195,489) - (195,489)
PROFIT/(LOSS) BEFORE TAX (2,116,302) 9,604,590 7,488,288 (371,060) (485,940) (857,000)
Taxation 8 - - - - - -
PROFIT/(LOSS) AFTER TAX (2,116,302) 9,604,590 7,488,288 (371,060) (485,940) (857,000)
The total column of this statement represents the Company's Income Statement, prepared in accordance with IFRS.
The Revenue and Capital columns are supplied as supplementary information permitted under IFRS.
All items in the above statement derive from continuing operations.
The accompanying notes form an integral part of this statement.
COMPANY BALANCE SHEET
31 DECEMBER 2007
Note 31 December 2007 31 December 2006
NON-CURRENT ASSETS
Investments in subsidiary undertakings 10 2 4
Investments at fair value through profit or loss 6 51,159,648 24,806,725
51,159,650 24,806,729
CURRENT ASSETS
Cash and cash equivalents 4,437,260 6,099,053
Loans receivable 12 3,063,725 331,874
Other debtors and prepayments 104,006 19,996
7,604,991 6,450,923
TOTAL ASSETS 58,764,641 31,257,652
CURRENT LIABILITIES
Loans and overdrafts 13 10,615,837 2,192,645
Liabilities under investment contracts 14 21,127,678 9,780,962
Other creditors and accruals 114,132 88,223
TOTAL LIABILITIES 31,857,647 12,061,830
NET ASSETS � 26,906,994 EUR 19,195,822
EQUITY
Share capital 15 141,676 141,676
Share premium account 16 8,145,464 8,145,464
Capital reserve
- Realised 16 (2,312,790) (454,423)
- Unrealised 16 23,565,286 12,103,329
Share option reserve 16 242,676 19,792
Retained earnings 16 (2,875,318) (760,016)
TOTAL EQUITY � 26,906,994 � 19,195,822
The financial statements were approved by the Board of Directors and authorised for issue on 29 June 2008.
The accompanying notes form an integral part of this statement.
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2007
Share capital Share premium Capital reserve - Capital reserve - Share option reserve Revenue
reserve Total
realised unrealised
� � � � � �
�
As at 1 January 2007 141,676 8,145,464 (454,423) 12,103,329 19,792
(760,016) 19,195,822
Profit/(loss) for the year - - (1,823,306) 11,426,896 -
(2,115,302) 7,488,288
Total recognised income and - - (1,823,306) 11,426,896 -
(2,115,302) 7,488,288
expenses for the year
Transfer to realised reserves - - (35,061) 35,061 -
- -
on disposal of investments
-
Share based payments - - - - 222,884
- 222,884
As at 31 December 2007 141,676 8,145,464 (2,312,790) 23,565,286 242,676
(2,875,318) 26,906,994
For the year ended 31 December 2006
Share capital Share premium Capital reserve - Capital reserve - Share option reserve Retained
earnings Total
realised unrealised
� � � � � �
�
As at 1 January 2006 104,279 3,182,861 (366,446) 12,501,292 -
(388,956) 15,033,030
Profit/(loss) for the year - - (121,279) (364,661) -
(371,060) (857,000)
-
Total recognised income and - - (121,279) (364,661) -
(371,060) (857,000)
expenses for the year
-
Transfer to realised reserves - - 33,302 (33,302)
- -
on disposal of investments
-
-
Issue of new shares 37,397 4,962,603 - - -
- 5,000,000
-
Share based payments - - - - 19,792
- 19,792
As at 31 December 2006 141,676 8,145,464 (454,423) 12,103,329 19,792
(760,016) 19,195,822
The accompanying notes form an integral part of this statement.
COMPANY CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
Year ended Year ended
31 December 2007 31 December 2006
Cash flows from operating activities
Profit/(loss) for the year 7,488,288 (857,000)
Adjustments for:
Interest income (138,778) (19,151)
Dividends receivable (63,664) (10,000)
Interest payable 1,864,496 195,489
Share based payments 222,884 19,792
9,373,226 (670,870)
Net gains on financial assets at fair value through profit or (10,914,924) (11,398)
loss
Net decrease/(increase) in other receivables 19,999 (20,000)
Net increase in other payables 25,909 55,637
Cash used in operations (1,495,790) (646,631)
Interest received 167,706 19,151
Dividends received 63,664 10,000
Interest paid (1,963,477) (194,614)
Net cash used in operating activities (3,227,897) (812,094)
Cash flows from investing activities
Proceeds on disposal of investments 20,522,500 1,279,667
Purchase of investments (35,994,453) (6,081,286)
Loans receivable advanced (1,497,832) (331,874)
Net cash used in investing activities (16,969,785) (5,133,493)
Cash flows from financing activities
Loans payable received 16,301,997 10,980,962
Short term financing received 2,233,892 992,601
Proceeds from issue of shares - 26,846
Net cash generated from financing activities 18,535,889 12,000,409
Net decrease)/increase in cash and cash equivalents (1,661,793) 6,054,822
Cash and cash equivalents at 1 January 6,099,053 44,231
Cash and cash equivalents at 31 December 4,437,260 6,099,053
The accompanying notes form an integral part of this statement.
NOTES TO THE FINANCIAL STATEMENTS
31 DECEMBER 2007
1. GENERAL INFORMATION
The Company is a limited liability, closed-ended investment company incorporated in Guernsey. The address of the Registered
Office is given on page 2. The nature of the Group's activities are outlined in the Director's report on pages 3 to 11. The Financial
Statements were approved and authorised for issue on 29 June 2008.
2. ACCOUNTING POLICIES
The principal accounting policies, all of which have been applied consistently throughout the year, are set out below.
(a) BASIS OF PREPARATION
The financial statements of the Group and the Company have been prepared in accordance with International Financial Reporting
Standards,International Accounting Standards and Interpretations (collectively "IFRS") issued by the International Accounting StandardsBoard
("IASB").
First time adoption of IFRS
The financial statements for the year ended 31 December 2006 were prepared under UK GAAP and, therefore, the date of
transition to IFRS for the Group and the Company is 1 January 2007. The IFRS accounting policies set out herein have been applied
retrospectively to the opening balance sheet as at 1 January 2006 and all subsequent periods.
The change from preparing the financial statements in accordance with UK GAAP to preparing the financial statements in
accordance with IFRS has impacted the type and amount of disclosures made in these financial statements, but has had no
impact on the reported profits or financial position of the Company. In accordance with the transitional requirements of IFRS 1,
the Company has provided full comparative information.
Adoption of new standards
In the current year the Group has adopted IFRS 7 Financial Instruments: Disclosures which is effective for annual reporting
periods beginning on or after 1 January 2007, and the related amendment to IAS 1 Presentation of Financial Statements.
Standards and interpretations in issue and not yet effective
At the date of authorisation of these financial statements, the following standards and interpretations, which have not been
applied in these financial statements, were in issue but not yet effective:-
New Standards
IFRS 8: operating segments - for accounting periods commencing on or after 1 January 2009.
Revised and amended Standards
IFRS 2: Share based payments - for accounting periods commencing on or after 1 January 2009.
IFRS 3: Business combinations - for accounting periods commencing on or after 1 July 2009.
IFRS 5: Non-current assets held for sale and discontinued operations - for accounting periods commencing on or after 1 July 2009.
IAS 1: Presentation of financial statements - for accounting periods commencing on or after 1 January 2009.
IAS 23: Borrowing costs - for accounting periods commencing on or after 1 January 2009.
IAS 27: Consolidated and separate financial statements - for accounting periods commencing on or after 1 July 2009.
IAS 28: Investments in associates - for accounting periods commencing on or after 1 July 2009.
IAS 29: Financial reporting in hyperinflationary economies - for accounting periods commencing on or after 1 January 2009.
IAS 31: Interest in joint ventures - for accounting periods commencing on or after 1 July 2009.
IAS 32: Financial instruments: Presentation - for accounting periods commencing on or after 1 January 2009.
IAS 36: Impairment of assets - for accounting periods commencing on or after 1 January 2009.
IAS 38: Intangible assets - for accounting periods commencing on or after 1 January 2009.
IAS 39: Financial instruments: Recognition and measurement - for accounting periods commencing on or after 1 January 2009.
IAS 40: Investment property - for accounting periods commencing on or after 1 January 2009.
IAS 41: Agriculture - for accounting periods commencing on or after 1 January 2009.
Interpretations
IFRIC 12: Service concession arrangements - for accounting periods commencing on or after 1 January 2008
IFRIC 13: Customer loyalty programmes - for accounting periods commencing on or after 1 July 2008.
IFRIC 14: IAS 19-The limit on a defined benefit asset, minimum funding requirements and other interpretation - for accounting periods
commencing on or after 1 January 2008.
The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the
financial statements of the Group and the Company when the relevant Standards and Interpretations come into effect.
(b) PRESENTATION OF INCOME STATEMENT
In order to better reflect the activities of an investment company and in accordance with guidance issued by the Association of
Investment Companies ("AIC"), supplementary information which analyses the income statement between items of a revenue
and capital nature has been presented alongside the income statement.
(c) BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial statements of the Company and the subsidiaries controlled by the
Company, made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating
policies of an investee entity, so as to obtain benefit from its activities.
(d) REVENUE RECOGNITION
Dividends receivable from equity investments are recognised on the ex-dividend date. Dividends receivable from equity investments where
no ex-dividend date is quoted are recognised when the Company's right to receive payment is established.
Interest receivable on cash deposits is accounted for using the effective interest rate method.
Rental income from the investment property leased out under an operating lease is recognised in the income statement on a straight line
basis over the term of the lease. Rental revenues are accounted for on an accruals basis.
(e) EXPENDITURE
All expenses are accounted for on an accruals basis.
Expenses that are directly attributable to the management of investments are allocated directly to capital in the Income Statement. With
the Directors' long term target for returns on investments being entirely capital gain there is no requirement to apportion these expenses
between revenue and capital.
Borrowing costs are recognised in the income statement in the period in which they are incurred.
(f) OPERATING PROFIT
i) Company
Operating profit includes interest income, dividend income and net gains on financial assets at fair value through profit or loss as
reduced by administrative expenses and operating costs and excludes finance costs.
ii) Group
Operating profit includes rental income, interest income, dividend income and net gains on financial assets at fair value through profit
or loss as reduced by administrative expenses and operating costs and excludes finance costs.
(g) FOREIGN CURRENCY
The Directors have considered the primary economic environment of the Company and considered the currency in which the original finance
was raised and ultimately what currency would be returned to investors on a break up basis. The directors have also considered the currency
to which the underlying investments are exposed. On balance, the directors believe sterling best represents the functional currency of the
Company. Sterling is also the presentational currency.
Assets and liabilities denominated in currencies other than sterling have been translated into sterling at the rates of exchange ruling
at the balance sheet date. Transactions during the period have been translated at the rates of exchange ruling at the date of the
transaction.
(h) SEGMENTAL REPORTING
The directors are of the opinion that the Group is engaged in a single segment of business, that being of investment. It operates in a
single geographical segment (Europe).
(i) SHARE BASED PAYMENTS
The Company has applied the requirements of IFRS 2: Share-based Payments.
The Company makes equity-settled share-based payments to certain consultants. Equity-settled share based payments are measured at fair
value as at the date of grant. The fair value determined at grant date is expensed on a straight line basis over the vesting period based
on the Company's estimate of shares that will eventually vest. Further details of how the fair value of share based payments is determined
are shown in note 20.
(j) INVESTMENT PROPERTY
Investment property, which is property held to earn rentals and/or for capital appreciation is initially recognised at cost, being the
fair value of consideration given including related transaction costs. After initial recognition, the investment property continues to be
carried at cost.
(k) LEASING
The Group's property is leased out under an operating lease and is included in investment property in the balance sheet.
(l) INVESTMENTS IN SUBSIDIARY UNDERTAKINGS
Investments in subsidiary undertakings are initially recognised and subsequently carried at cost in the company's financial statements
less, where appropriate, provisions for impairment.
(m) FINANCIAL INSTRUMENTS
The Group's financial instruments fall into the categories discussed below with the allocation depending to an extent on the purpose for
which the asset was acquired. Unless otherwise indicated, the carrying amounts of the Group's financial instruments are a reasonable
approximation of their fair values.
(i) Financial assets at fair value through profit or loss
These consist of investments that are classified as "fair value through profit or loss". These financial assets are designated by the
Board of Directors at fair value through profit or loss at inception.
Classification
Financial assets designated at fair value through profit or loss at inception are those that are managed and their performance evaluated
on a fair value basis in accordance with the Group's documented investment strategy. The Group's policy is for the Board of Directors to
evaluate the information about these financial assets on a fair value basis together with other related financial information.
Recognition
Purchases and sales of investments are recognised on the trade date or the date on which the Group commits to purchase or sell the
investment. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Group has
transferred substantially all risks and rewards of ownership.
Measurement
Financial assets at fair value through profit or loss are initially recognised at fair value. Transaction costs are expensed in the
income statement. Subsequent to initial recognition, all financial assets at fair value through profit or loss are measured at fair value.
Gains and losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are
presented in the Income Statement in the period in which they arise.
Fair value estimation
Quoted investments are valued at bid price at the balance sheet date.
Unlisted investments are valued by the Board according to the valuation principles of the European Private Equity and Venture Capital
Association as set out in the International Private Equity and Venture Capital Valuation Guidelines (Published June 2005, amended October
2006) and accordingly are stated at the value of their latest third party funding. Where no third party funding has taken place, they are
valued at cost, less a provision for impairment when necessary.
Realised gains or losses on the disposal of investments are taken to the capital reserve - realised. Unrealised gains or losses on
revaluation of investments are taken to the capital reserve - unrealised.
(ii) Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They
consist of loans receivable, debtors and other receivables and cash and cash equivalents, but also incorporate other types of contractual
monetary assets. They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition or
issue and subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The effect of
discounting on these financial instruments is not considered to be material.
Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the
counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms
receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected
cash flows associated with the impaired receivable.
(iii) Financial liabilities measured at amortised cost
These include;
� other creditors and accruals which are initially recognised at fair value and subsequently carried at amortised cost using the
effective interest method.
� loans payable, overdrafts and liabilities under investment contracts are initially recognised at fair value net of attributable
transaction costs incurred. Interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate
method. Interest free loans are initially recognised at fair value and subsequently measured at amortised cost.
(iv) Share capital
Financial instruments issued by the Company are treated as equity only to the extent that they do not meet the definition of a financial
liability. The Company's ordinary shares are classified as equity investments. For the purpose of the disclosure given in note 22, the Group
carries its share capital, share premium, and all other reserves as equity.
The Company is not subject to any externally imposed capital requirements.
(v) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right
to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability
simultaneously.
(vi) Effective interest rate method
The effective interest rate method is a method of calculating the amortised cost of a financial asset or financial liability and of
allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period,
to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Company
estimates cash flows considering all contractual terms of the financial instruments but does not consider future credit losses. The
calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective
interest rate, including transaction costs and all other premiums or discounts.
3. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS
The Directors make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom
equal the related actual results. 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 discussed below.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
Fair value of unlisted investments
Unlisted investments are valued by the Board according to the valuation principles of the European Private Equity and Venture Capital
Association as set out in the International Private Equity and Venture Capital Valuation Guidelines (Published June 2005, amended October
2006).
Because of the inherent uncertainty associated with the valuation of such investments and the absence of a liquid market, these fair
values may differ from the realisable values, and differences could be material.
Share based payments
The Group operates an equity settled share based remuneration scheme for consultants, who undertake activities similar to those that
would be expected from employees. Consultants services received and the corresponding increase in equity are measured by reference to the
fair value of equity instruments at the date of the grant. The fair value of the share options is estimated using a binomial formula model
on the date of the grant based on certain assumptions. Those assumptions include among others, the expected volatility and expected life of
the options. Further details are given in note 20.
4. RENTAL INCOME
The Group leases out its investment property under an operating lease agreement.
At the balance sheet date, using the exchange rate prevailing at the balance sheet date, the Group had contracted with the tenant for
the following future minimum lease payments.
Within one year 23,459
In the second to fifth years (inclusive) 87,971
After five years -
Total � 111,430
5. INTEREST INCOME
31 December 2006
31 December 2007 Consolidated
Consolidated Company and Company
Bank interest 96,123 96,056 11,815
Fair value adjustment on recognition
of interest free loan (209,065) (209,065) -
Loan interest 251,787 251,787 7,336
Total � 138,845 � 138,778 � 19,151
The above interest income arises from financial assets classified as loans and receivables (including cash and cash equivalents) and has
been calculated using the effective interest rate method.
6. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
31 December 2006
31 December 2007 Consolidated
Consolidated Company and Company
Designated at fair value through profit or loss
- Listed equity securities 50,024,150 50,024,150 24,294,931
- Unlisted investments 1,135,498 1,135,498 511,794
Total investments at fair value through profit or loss � 51,159,648 � 51,159,648 � 24,806,725
Changes in fair value of investments
at fair value through profit or loss.
- Realised (511,972) (511,972) 376,059
- Unrealised 11,426,896 11,426,896 (364,661)
Net gains � 10,914,924 � 10,914,924 � 11,398
Investments with a value of �50,024,150 are provided as security for the facilities disclosed in notes 13 and 14.
7. FINANCE COSTS
31 December 2006
31 December 2007 Consolidated
Consolidated Company and Company
Loss on foreign exchange 35,961 36,939 43
Interest on liabilities under investment contracts 1,266,792 1,266,792 110,957
Bank overdraft interest 290,630 290,630 20,227
Bank charges 11,382 11,382 8,729
Fair value adjustment on recognition
of interest free loan (209,065) (209,065) -
Loan interest 504,757 504,757 55,533
Total � 1,900,457 � 1,901,435 � 195,489
The above interest expense arise on financial liabilities measured at amortised cost using the effective interest rate method.
8. TAXATION
The company has been granted exempt status under the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989, and is therefore. The company
has been granted exempt status under the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989, and is therefore subject to the payment of an
annual fee which is currently �600.
9. EARNINGS PER SHARE
The calculation of basic and diluted earnings per share is as follows;
31 December 2007 31 December 2006
Consolidated Consolidated
Earnings
Earnings for the purpose of basic and diluted earnings per share being
net profit attributable to equity holders of the parent � 7,502,536 � (857,000)
Number of shares
Weighted average number of ordinary shares for the purposes of basic 14,167,604 13,481,136
earnings per share
Effect of dilutive potential of share options 8,427 -
Weighted average number of ordinary shares for the purposes of diluted
earnings per share 14,176,031 13,481,136
Subsequent to the year end, the Company issued 6,465,782 new shares.
The Group has 480,000 share options which could potentially dilute basic earnings per share in the future.
10. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS
31 December 2007 31 December 2006
At 1 January 4 -
Incorporated in year - 4
Additional investment in year 2,632,571 -
Transferred to investments at fair value
through profit or loss. (2,632,573) -
At 31 December � 2 � 4
During the year STM Limited was floated on AIM and as a result the company was no longer under the control of the Company.
As at 31 December 2007 the Company held 100% of the ordinary shares of ESS Property Investments Limited, a company incorporated in
Guernsey.
The Group's investment property is held by its subsidiary undertaking.
11. INVESTMENT PROPERTY
31 December 2006
31 December 2007 Consolidated
Consolidated Company and Company
Cost of investment property at 1 January - - -
Acquisitions during the year at cost 286,168 - -
Cost of investment property at 31 December � 286,168 � - � -
As the property was acquired during the year, the Directors consider the cost to be an approximation of fair value, and as such no
professional valuation has been undertaken.
12. LOANS RECEIVABLE
31 December 2006
31 December 2007 Consolidated
Consolidated Company and Company
Loans to investee companies 2,185,794 2,185,794 45,000
Loan to subsidiary - 289,103 -
Other loans 588,828 588,828 286,874
� 2,774,622 � 3,063,725 � 331,874
�1,234,019 of loans to investee companies is unsecured and interest free. 33.33% of the loan was due for repayment on 31 December 2007,
with the remainder repayable on 31 December 2008. Subsequent to the year end the loan has been restructured to an interest bearing loan, due
within one year.
�866,775 of loans to investee companies is unsecured and bears interest at 15%. The loans were repayable by 31 March 2008 but the
Company is currently in negotiations with the borrower to restructure the terms.
�85,000 of loans to investee companies, is unsecured, bears interest at 6% and was repayable on 3 April 2008. This loan was not repaid
as at that date, and the company is currently in negotiations with the borrower to restructure terms.
�73,770 of other loans bears interest at 15% per annum, is secured and is repayable on demand.
�75,000 of other loans is unsecured, repayable on demand and bears interest at 3% per annum above the UK base rate.
�440,054 of other loans is unsecured, repayable on demand and bears interest at 3% per annum above the EURO base rate.
The loan to subsidiary is unsecured, interest free and repayable on demand.
13. LOANS AND OVERDRAFTS
31 December 2006
31 December 2007 Consolidated
Consolidated Company and Company
Bank and broker 3,226,537 3,226,537 992,645
overdrafts
Bank loan 4,590,281 4,590,281 -
Other loans 2,799,019 2,799,019 1,200,000
� 10,615,837 � 10,615,837 2,192,645
The bank and broker overdrafts are unsecured and repayable on demand.
The bank loan is secured via charge on listed investments with a value of �15,330,946, bears interest at LIBOR+3% and was
repayable on 15 March 2008. Subsequent to the year end the facility agreement was extended and is now repayable on 16 March 2009.
�1,565,000 of other loans are secured via a charge on listed investments with a value of �2,880,000, bears interest at 15% and was
repayable on 15 January 2008. On this date the loan was extended to a repayable on demand basis.
�1,234,019 of other loans is unsecured and interest free. 33.33% of the loan was due for repayment on 31 December
2007, with the remainder repayable on 31 December 2008. Subsequent to the year end the loan has been restructured to an interest bearing
loan, due within one year.
14. LIABILITIES UNDER INVESTMENT CONTRACTS
At 31 December 2007 the Company had liabilities under Contracts for Difference (CFD) amounting to �21,127,678 (December 2006:
�9,780,962) secured against quoted investments valued at �31,813,204 and cash balances of �4,326,958. Financing charges, commissions and
other associated costs vary from contract to contract.
15. SHARE CAPITAL
31 December 2007 31 December 2006
Authorised
50,000,000 ordinary shares of �0.01 each � 500,000 � 500,000
Allotted and fully paid
14,167,604 ordinary shares of �0.01 each � 141,676 � 141,676
The Company has one class of ordinary shares which carry no right to fixed income.
Of the authorised share capital 980,000 (2006: 480,000) ordinary shares are reserved for options (note 20).
16. RESERVES
The movements in the reserves for the Group and the Company are shown on pages 17 and 21 respectively.
Capital reserve - realised
The Capital reserve - realised contains any gains or losses on the disposal of investments.
Capital reserve - unrealised
The Capital reserve - unrealised contains any unrealised gains or losses on revaluation of investments.
Share option reserve
The balance on this reserve represents the amount of share based payments expensed in relation to options issued, to be credited to
share capital and share premium, upon the exercise of options or credited to retained reserves, should options lapse.
Retained earnings
Any surplus or deficit arising from net profit or loss after tax is taken to this reserve, which may be utilised for the payment of
dividends.
Share premium
The share premium account contains the amounts subscribed for share capital in excess of the nominal value of shares issued.
17. NET ASSET VALUE PER SHARE
The calculation of net asset value is based on the consolidated net assets of �26,921,242 (2006: �19,195,822) and on the ordinary shares
in issue of 14,167,604 (2006: 14,167,604) at the balance sheet date.
18. SIGNIFICANT NON-CASH TRANSACTIONS
During the year, a loan payable of �1,330,000 which was subsequently lent onwards, to an investee company, was not settled in cash, but
instead the loan provider advanced the monies direct to the investee company. In the prior year the Company received stock in quoted
companies amounting to �4,652,279 and in an unquoted company amounting to �250,000 in satisfaction of an issue of ordinary shares. In
addition a loan payable of �70,000 and associated loan interest payable of �875 was set against consideration for new shares issued in the
year.
19. MATERIAL CONTRACTS
The Company has entered into a services agreement with Combined Management Services Limited ("CMS") under the terms of
which CMS agreed to provide research, consultancy, office management and administration services to the Company. The agreement provides
for 'a fixed fee' of �125,000 per annum plus an additional monthly fee based on the net asset value of the Group as follows;
�2.5 m to �7.5m - 2.50%
�7.5 m to �12.5m - 2.25%
�12.5 m to �17.5m - 2.00%
�17.5 m to �22.5m - 1.75%
�22.5 and above - 1.60%
A total of �948,162 has been paid to CMS for the year to 31 December 2007 (�315,340 for the year to 31 December 2006) and is included
within Consultancy fees.
20. SHARE BASED PAYMENTS
At 31 December 2007 the number of ordinary shares of 1 pence each subject to options granted under the Company's Share Option Plan
were:
Exercise Exercise At January Granted Options Options At 31 Exercisable 31
Period Price per 2007 during year exercised lapsed December December
Share No. No. No. No. 2007 No. 2007 No.
19 October 2006 to 175 pence 480,000 Nil Nil Nil 480,000 480,000
19 October 2016
7 November 2007 to 175 pence Nil 500,000 Nil Nil 500,000 500,000
7 November 2017
7 November 2007 to 175 pence Nil 100,000 Nil (100,000) Nil Nil
1 December 2007
480,000 600,000 Nil (100,000) 980,000 980,000
The weighted average exercise price of all share options is 175.00p (2006: 175.00p).
The weighted average exercise price of the exercisable share options is 175.00p (2006: 175.00p).
The weighted average calculated life of all share options is 9.83 years (2006: 9.81 years).
There were no market conditions within the terms of the grant of the options. The main vesting condition for all the options awarded was
that the consultant remained contracted to the Company at the date of exercise.
The Binomial formula is the option pricing model applied to the grant of all options in respect of calculating the fair value of the
options.
The reason for using a fair value derived from fair value of the options granted as opposed to fair value of the services provided is
that the consultancy agreements do not contain specific delivery requirements or contractual hours. Accordingly the Directors consider the
consultants' contracts to be similar to those of employees.
The following inputs to the Binomial formula have been used in calculating the fair value of options granted:
Year ended 31 Year ended 31
December 2007 December 2006
Share price at grant 175 p 145 p
Option exercise price 175 p 175 p
Expected life of options 3.5 years 3.5 years
Expected volatility 33.20% 12.47%
Risk free rate 4.90% p.a. 4.92% p.a.
Grant date 7 November 2007 19 October 2006
Fair value per share option 36.66 p 12.37 p
Total charge over the vesting period �183,300 �59,376
The share-based remuneration charge comprises:
Year ended Year ended
31 December 2007 31 December 2006
Share based payments in respect of 2006 options 39,584 19,792
Share based payments in respect of 2007 options 183,300 -
� 222,884 � 19,792
The charge is included within consultancy fees within the Income statement.
21. EVENTS AFTER BALANCE SHEET DATE
On 22 February 2008 the Company issued 2,307,693 new ordinary shares of 1 pence each at a premium of 194 pence per share, raising
proceeds of approximately �4.5 million. The shares issued rank pari-passu with the existing shares in issue.
On 21 April 2008 the Company issued 2,115,384 new ordinary shares of 1 pence each at a premium of 194 pence per share, raising proceeds
of approximately �4.1 million. The shares issued rank pari-passu with the existing shares in issue.
On 23 June 2008 the Company agreed to acquire a 9.9% interest in Conister Financial Group plc, for a consideration of approximately �4.5
million. This consideration was satisfied by the issue of 2,042,705 new ordinary shares of 1 pence each in the Company at a premium of 217
pence per share. The shares issued rank pari-passu with the existing shares in issue.
22. FINANCIAL INSTRUMENTS
In common with other businesses, the Group and Company is exposed to risks that arise from its use of financial instruments. This note
describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative
information in respect of these risks is presented throughout these financial statements.
There have been no substantive changes in the Group and Company's exposure to financial instrument risks, its objectives, policies and
processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.
(a) Strategy in using financial instruments
The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk,
cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.
The Group will invest in companies which are quoted on a recognised European stock exchange in accordance with the Investment Strategy
as set out in the Directors' Report. The Group will also invest in companies which are unquoted at the time of the investment and where the
Directors believe that a flotation is likely to be achieved by the company within eighteen months of an investment by the Group. Investee
companies will be located in Europe. The objective with these investments is to provide long term capital growth by exploiting the valuation
differential between privately held companies and those who are publicly traded.
Investments
All of the Group's intended investments present the risk of a loss of capital. Such investments are subject to investment-specific price
fluctuations as well as to macro-economic, market and industry-specific conditions including, but not limited to, international economic
conditions, international financial policies and performance, governmental events and changes in laws. Moreover, the Group may only have a
limited ability to vary its investments in response to changing economic, financial and investment conditions.
The success of the Group will be dependent upon, inter alia, the identification, making, management and realisation of suitable
investments. There can be no guarantee that such investments can or will be made or that such investments will be successful. Poor
performance by an investment could severely affect the Net Asset Value per share. In particular, investors should note that:-
� Shareholders will not have an opportunity to evaluate for themselves the relevant economic, financial and other information regarding
the investments to be made by the Directors and, accordingly, will be dependent on the judgement and ability of the Directors in investing
and managing the assets of the Group. No assurance can be given that the Directors will be successful in making suitable investments or
that, if such investments are made, the investment objectives will be achieved;
� the Group is likely in most cases to have minority interests in the companies, partnerships and ventures in which it invests and may
be unable to exercise control over the operations of such companies, partnerships and ventures or control over any exit, or timing of any
exit, by other investors in such companies, partnerships or ventures;
� the management of the investee companies targeted by the Directors may not always welcome proactive shareholder involvement and may be
resistant to change;
� the Group may be unable to effect an investment in an identified opportunity and, in particular, resources of the Group may be
expended investigating potential projects which are subsequently rejected as being unsuitable;
� the Group may dispose of investments in certain circumstances and may be required to give representations and warranties about those
investments and to pay damages to the extent that such representations and warranties turn out to be inaccurate or other terms of sale are
breached;
� an investee company's competitors may develop or market technologies that are more effective or less expensive than those developed or
marketed by the investee company, or that would render the investee company's technology or business model obsolete or uncompetitive;
� the Group cannot guarantee that the value of investments as reported from time to time will in fact be realised; and
� although the Directors will use all due care and diligence when implementing the investment strategy, the situation may arise whereby
an investee company does not proceed with a successful IPO. In such instance, the Group may find it difficult to achieve an exit, or may do
so at a loss to the initial investment, or may lose the entirety of its investment.
Investments in small unquoted companies
The Group's investment portfolio comprises interests in investments which include unquoted private companies and companies with an AIM
listing which may be difficult to value and/or realise. Investment in the securities of smaller companies may involve greater risks than is
customarily associated with investments in larger, more established companies. In particular, such companies may have limited product
offerings, markets or resources and may be dependent on a small number of key individuals.
Concentration risk
It is possible that certain investments will represent a significant proportion of the Group's total assets. As a result, the impact on
the Group's performance and the potential returns to investors will be adversely affected to a greater degree if any one of those
investments were to perform badly than would be the case if the Group's portfolio of investments was more diversified.
(b) Market risk
The Group operates in a competitive market for investment opportunities. While the Directors consider the Pre-IPO market to be an
attractive area for investment, it is nonetheless likely that the Directors will encounter competition for target investments from investors
many of which will have significantly greater resources than the Group. There can be no assurance that these competitive pressures will not
have a material adverse effect on the Group's business, financial condition and results of operations. As a result of this competition, the
Directors may not be able to take advantage of attractive investment opportunities from time to time. Furthermore the Directors can offer no
assurance that they will be able to identify and make investments that are consistent with the Group's investment strategy.
i) Interest rate risk
The Group's and Company's interest bearing financial assets and liabilities expose it to risks due to fluctuations in the prevailing
levels of market interest rates on its financial position and cash flows.
The tables below summarise the Group's and Company's exposure to interest rate risks.
Fixed Non-
Variable interest interest
31/12/2007 - Consolidated interest rate rate bearing Total
� � � �
Assets
Investments at fair value - - 51,159,648 51,159,648
through profit or loss
Cash and cash equivalents 4,453,469 - - 4,453,469
Loans receivable 515,056 1,025,545 1,234,021 2,774,622
Other debtors and receivables - - 105,958 105,958
Total assets 4,968,525 1,025,545 52,499,627 58,493,697
Liabilities
Loans and overdrafts 7,816,818 1,565,000 1,234,019 10,615,837
Liabilities under investment contracts 21,127,678 - - 21,127,678
Other creditors and accruals - - 115,108 115,108
Total liabilities 28,944,496 1,565,000 1,349,127 31,858,623
At 31 December 2007, should interest rates rise by 25 basis points with all other variables remaining constant, the decrease in net
assets attributable to shareholders for the year would amount to approximately �59,940 (2006: �11,686 increase) arising substantially from
the increase in interest expense. If interest rates decrease by 25 basis points, the increase in net assets attributable to shareholders
would amount to approximately �59,940 (2006: �11,686 decrease).
Fixed Non-
Variable interest interest
31/12/2007 - Company interest rate rate bearing Total
� � � �
Assets
Investments at fair value - - 51,159,648 51,159,648
through profit or loss
Cash and cash equivalents 4,437,260 - - 4,437,260
Loans receivable 515,056 1,025,545 1,523,124 3,063,725
Other debtors and receivables - - 104,006 104,006
Total assets 4,952,316 1,025,545 52,786,778 58,764,639
Liabilities
Loans and overdrafts 7,816,818 1,565,000 1,234,019 10,615,837
Liabilities under investment contracts 21,127,678 - - 21,127,678
Other creditors and accruals - - 114,132 114,132
Total liabilities 28,944,496 1,565,000 1,348,151 31,857,647
At 31 December 2007, should interest rates rise by 25 basis points with all other variables remaining constant, the decrease in net
assets attributable to shareholders for the year would amount to approximately �59,980 (2006: �11,686 increase) arising substantially from
the increase in interest expense. If interest rates decrease by 25 basis points, the increase in net assets attributable to shareholders
would amount to approximately �59,980 (2006: �11,686 decrease).
Fixed Non-
Variable Interest interest
31/12/2006 - Consolidated and Company interest rate rate bearing Total
� � � �
Assets
Investments at fair value - - 24,806,725 24,806,725
through profit or loss
Cash and cash equivalents 6,099,053 - - 6,099,053
Loans receivable - 331,874 331,874
Other debtors and receivables - - 20,000 20,000
Total assets 6,099,053 - 25,158,599 31,257,652
Liabilities
Loans and overdrafts 992,645 1,200,000 - 2,192,645
Liabilities under investment contracts 9,780,962 - - 9,780,962
Other creditors and accruals - - 88,223 88,223
Total liabilities 10,773,607 1,200,000 88,223 12,061,830
At the Balance Sheet date, the Group does not hold any debt securities.
The Directors are permitted to utilise overdraft facilities towards the achievement of the Group's investment objectives.
ii) Hedging and currency risk
The Group's and Company's investments are expected to be denominated in pounds sterling. The Directors may invest in opportunities other
than sterling and may, through forward foreign exchange contracts, hedge its exposure back to sterling. While hedging may attempt to reduce
currency risk, it is not possible to hedge fully or perfectly against currency fluctuations. Accordingly investors may, at certain times, be
exposed to exchange rate risks between sterling and other currencies, such that if the value of other currencies falls relative to sterling,
the Group's assets will, in sterling terms be worth less.
The Group held no hedging instruments during the years ended 31 December 2007 and 31 December 2006.
The Group holds assets denominated in currencies other than pounds sterling, the functional currency. It is therefore exposed to
currency risk, as the value of assets denominated in other currencies will fluctuate due to changes in exchange rates.
The table below summarises the Group's foreign currency exposure:
Analysis of assets and liabilities in currencies other than sterling
31 December 2007 31 December 2006
Consolidated Company Consolidated and Company
Currency Value � % of net assets Value � % of net assets Value % of net assets
�
Financial assets
Euro - Unlisted investments 610,499 2.27% 610,499 2.27% - 0.00%
Icelandic Kroner - Unlisted investments - 0.00% - 0.00% 214,294 1.12%
Euro - Cash at bank 25,422 0.09% 9,213 0.03% - 0.00%
USD - Cash at bank 760 0.00% 760 0.00% - 0.00%
Euro - Loans receivable 1,380,601 5.13% 1,380,601 5.13% - 0.00%
Euro - Other debtors and receivables 67,317 0.25% 65,362 0.24% - 0.00%
Financial liabilities
Euro - overdrafts - 0.00% - 0.00% 188 0.00%
Euro - loans payable 763,011 2.83% 763,011 2.84% - 0.00%
Group
At 31 December 2007, had the exchange rate between the Euro and sterling increased or decreased by 5% with all other variables held
constant, the increase or decrease respectively in net assets attributable to shareholders would amount to approximately �66,041 (2006:
�10).
Company
At 31 December 2007, had the exchange rate between the Euro and sterling increased or decreased by 5% with all other variables held
constant, the increase or decrease respectively in net assets attributable to shareholders would amount to approximately �65,133 (2006:
�10).
iii) Other price risk
Other price risk is the risk that value of an instrument will fluctuate as a result of changes in market prices (other than those
arising from currency risk or interest rate risk), whether caused by factors specific to an individual investment, its issuer or all factors
affecting all instruments traded in the market.
As the majority of the Group's financial instruments are carried at fair value with changes in value recognised in the Statement of
Total Return, all changes in market conditions will directly affect net investment income.
The table below details the breakdown of the investment assets held by the Group.
31 December 2007 31 December 2006
Consolidated Company Consolidated and Company
Value % of Net Value % of Net Value % of Net
� Assets � Assets � Assets
Investment assets
Investment property 286,168 1.06% - - - -
Equity investments:
� Listed equities 50,024,150 185.82% 50,024,150 185.92% 24,294,931 126.56%
� Unlisted equities 1,135,498 4.22% 1,135,498 4.22% 511,794 2.67%
51,445,816 51,159,648 24,806,725
At the year end the Group held listed and unlisted equity investments and investment property. A 5% increase in the fair value of all
equity investments at 31 December 2007 would have increased the net assets attributable to shareholders by �2,557,982; an equal change in
the opposite direction would have decreased the net assets attributable to shareholders by an equal but opposite amount.
(c) Liquidity risk
The Group's and Company's financial instruments include unlisted equity instruments, all of which are not traded in an organised public
market and which generally may be illiquid. As a result, the Group and Company may not be able to liquidate quickly some or all of its
investments in these instruments at an amount close to their fair value in order to meet its liquidity requirements.
The Group has a procedure to manage liquidity risk whereby the board meets regularly to review investment holdings and current and
anticipated levels of financial liabilities. Where liquidity of the investments within the portfolio is believed to be at a level which may
adversely affect the Group's ability to service its financial obligations, the board will consider taking action to improve cash flow, which
may include utilising bank overdrafts or other credit arrangements.
The table below details the contractual, undiscounted cash flows of the Group's financial liabilities
31/12/2007 - Consolidated
Less than 1-3 3 months No stated
1 month months to 1 year maturity
Financial liabilities
Loans and overdrafts 4,791,537 5,001,621 822,679 -
Liabilities under investment contracts - - - 21,127,678
Other creditors and accruals 115,108 - - -
� 4,906,645 � 5,001,621 � 822,679 � 21,127,678
31/12/2007 - Company
Less than 1-3 3 months No stated
1 month months to 1 year maturity
Financial liabilities
Loans and overdrafts 4,791,537 5,001,621 822,679 -
Liabilities under investment contracts - - - 21,127,678
Other creditors and accruals 114,132 - - -
� 4,905,669 � 5,001,621 � 822,679 � 21,127,678
31/12/2006 - Consolidated and Company
Less than 1-3 3 months No stated
1 month months to 1 year maturity
Financial liabilities
Loans and overdrafts 2,192,645 - - -
Liabilities under investment contracts - - - 9,780,962
Other creditors and accruals 88,223 - - -
� 2,280,868 - - � 9,780,962
The gross nominal outflow disclosed above is the contractual, undiscounted cash flow on the financial liability or commitment.
(d) Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has
entered into with the Group and Company.
The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date. This relates also to
the financial assets carried at amortised cost, as they have a short term to maturity.
At the reporting date, the Group's financial assets exposed to credit risk amounted to the following:
31 December 2007 31 December 2006
Consolidated
Consolidated Company and Company
Cash and cash equivalents 4,453,469 4,437,260 6,099,053
Loans receivable 2,774,622 3,063,725 331,874
Other debtors and receivables 105,958 104,006 20,000
Total � 7,334,049 � 7,604,991 � 6,450,927
Amounts in the above table are based on the carrying value of all accounts.
The Group and Company have a procedure to manage credit risk whereby the board meets regularly to review credit positions. The Group and
Company have the following financial assets;
i) Cash and cash equivalents
The Group and Company has concentration of credit risk arising from its bank holdings of cash and cash equivalents, from time to time.
To manage this exposure, the Group and Company have a policy of maintaining its cash and cash equivalents with counterparties that have a
credit listing of at least A from independent rating agencies. Given this high credit rating, the Directors do not expect any counterparty
to fail.
ii) Loans receivable
The details of the loans are disclosed in note 12.
iii) Other debtors and receivables
In the event of default by a debtor, or in respect of amounts due relating to other receivables, the Group will incur additional costs,
including legal expenses to recover amounts due. The Group has no significant credit risk as there is no exposure with one significant
counterparty. The Group did not recognise any impairment during the year and there were no receivables that were past due.
(e) Capital
The Company's capital management objectives are;
- to ensure that it will be able to continue as a going concern, and
- to maximise the total return to its equity shareholders primarily through the capital appreciation of its investments.
The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis including current and future levels of
gearing.
The Company's objectives, policies and processes for managing capital remain unchanged from the previous year.
The gearing ratios at 31 December 2007 and 31 December 2006 were as follows;
31 December 2007 31 December 2006
Consolidated
Consolidated Company and Company
Total borrowings 31,743,515 31,743,515 11,973,607
Less cash and cash equivalents (4,453,469) (4,437,260) (6,099,053)
Net debt 27,290,046 27,306,255 5,874,554
Total equity 26,921,242 26,906,994 19,195,822
Total capital 54,211,288 54,213,249 25,070,376
Gearing ratio 50.34% 50.37% 23.43%
Copies of the Annual Report for the year ended 31 December 2007 are being sent to shareholders. Further copies will be available from
the Company Secretary's office: Fortis Fund Services (Guernsey) Limited, Martello Court, Admiral Park, St Peter Port, Guernsey, GY1 3HB.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR MGGZVNLMGRZM
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