USA - Equities (7.12%, 2010:
7.90%)
Bionostics Holdings Limited 3,000,000 1,310,077 2.34
Bionostics Holdings Limited
Preference Shares 3,000,000 935,769 1.67
EOriginal Inc Series B Shares 12,513 - -
Nastor Investments Limited
Preference Shares 2,284,752 1,425,334 2.55
Tagos 500,000 311,923 0.56
----------- ---------------
3,983,103 7.12
USA - Warrants (Nil 2010: Nil)
EOriginal Inc Warrants 562 - -
ICarbon Corp Warrants 245,092 - -
----------- ---------------
- -
Total unlisted investments 9,518,017 17.03
----------- ---------------
Total investments 54,466,584 97.47
----------- -------
Cash 880,745 1.57
Other net assets 534,566 0.96
Total net assets 55,881,895 100.00
----------- -------
DIRECTORS' REPORT
The Directors are pleased to present their Report and
consolidated Financial Statements of the Company for the year ended
31 March 2011.
Business review
A review of the Company's activities is given in the Corporate
Summary on page 2, the Chairman's statement on page 4 and the
Investment Adviser's report on page 5. This includes a review of
the business of the Company and its principal activities, likely
future developments of the business, dividends policy and details
of the buyback of shares for cancellation during the year by the
Company. The Company's investment policy and its approach to
achieving the investment policy and managing the associated risks
are set out below and in note 19 to the Consolidated Financial
Statements. The Key Performance Indicators for the Company
including NAV performance, share price performance and benchmark
performance are contained within the Chairman's statement and the
Investment Adviser's report.
The current Directors, Messrs N Cayzer, S Cabessa, W Chatila, R
Evans, C Hannaway (resigned on 31(st) December 2010), C Mills, J
Radziwill and J Grace (appointed on 8(th) March 2011) were the only
Directors in office during the year.
The Company does not make political donations or expenditures
and has not made any donations for charitable purposes during the
year and in common with other investment funds, the Company has no
employees. Directors' and Officers' liability insurance cover has
been maintained throughout the year at the expense of the
Company.
Investment policy
The Company principally invests in small and mid-size quoted and
unquoted companies in the United Kingdom and United States. The
Investment Manager targets companies that have fundamentally strong
business models but where there may be specific factors which are
constraining the maximisation or realisation of shareholder value,
which may be realised through the pursuit of an activist
shareholder agenda by the Investment Manager. Dividend income is a
secondary consideration when making investment decisions.
Achieving the Investment Policy
The investment approach of the Investment Manager is
characterised by a rigorous focus on research and financial
analysis of potential investee companies so that a thorough
understanding of their business models is gained prior to
investment. Comprehensive due diligence, including one or more
meetings with management as well as site visits, are standard
procedure before shares are acquired.
Typically the portfolio will comprise of 40 to 60 holdings (but
without restricting the Company from holding a more or less
concentrated portfolio in the future).
The Company may invest in derivatives, financial instruments,
money market instruments and currencies solely for the purpose of
efficient portfolio management (i.e. solely for the purpose of
reducing, transferring or eliminating investment risk in the
Company's investments, including any technique or instrument used
to provide protection against exchange and credit risks).
The Investment Manager expects the Company's assets will
normally be fully invested. However, during periods in which
changes in economic conditions or other factors so warrant, the
Company may reduce its exposure to securities and increase its
position in cash and money market instruments.
A detailed description of the investment process and risk
controls employed by the Manager is disclosed in Note 19 to the
consolidated financial statements. A comprehensive analysis of the
Company's portfolio is disclosed on pages 5 to 9 including a
description of the ten largest equity investments. At the year end
the Company's portfolio consisted of 55 holdings. The top 10
holdings represented 59.58% of total net assets.
The Board is responsible for determining the gearing strategy
for the Company. Gearing is used selectively to leverage the
Company's portfolio in order to enhance returns where and to the
extent this is considered
appropriate to do so. Borrowings are short term and particular
care is taken to ensure that any bank covenants
permit maximum flexibility of investment policy.
The Company may only make material changes to its investment
policies with the approval of Shareholders (in the form of an
ordinary resolution).
Investment Restrictions
The Company has adopted the following policies:
(a) it will not invest in securities carrying unlimited
liability;
(b) short selling for the purpose of efficient portfolio
management will be permitted provided that the aggregate value of
the securities subject to a contract for sale that has not been
settled and which are not owned by the Company shall not exceed 20
per cent. of the Net Asset Value; in addition, the Company may
engage in uncollateralised stock lending on normal commercial terms
with counterparties whose ordinary business includes
uncollateralised stock lending provided that the aggregate exposure
of the Company to any single counterparty shall not exceed 20 per
cent. of the Net Asset Value;
(c) it will not take legal or management control of investments
in its portfolio;
(d) it will not buy or sell commodities or commodity contracts
or real estate or interests in real estate although it may purchase
and sell securities which are secured by real estate or commodities
and securities of companies which invest in or deal in real estate
commodities;
(e) it will not invest or lend more than 20 per cent of its
assets in securities of any one company or single issuer;
(f) it will not invest more than 35 per cent of its assets in
securities not listed or quoted on any
recognised stock exchange;
(g) it will not invest in any company where the investment would
result in the company holding more than 10 per cent. of the issued
share capital of that company or any class of that share capital,
unless that company constitutes a trading company (for the purposes
or the relevant United Kingdom legislation) in which case the
company may not make any investment that would result in its
holding 50 per cent. or more of the issued share capital of that
company or of any class of that share capital;
(h) it will not invest more than 5 per cent. of its assets in
units of unit trusts or shares or other forms of participation in
managed open-ended investment vehicles;
(i) the Company may use options, foreign exchange transactions
on the forward market, futures and contracts for differences for
the purpose of efficient portfolio management provided that:
(1) in the case of options, this is done on a covered basis;
(2) in the case of futures and forward foreign exchange
transactions, the face value of all such contracts does not exceed
100 per cent. of the Net Asset Value of the Company; or
(3) in the case of contracts for difference (including stock
index future or options) the face value of all such contracts does
not exceed 100 per cent. of Net Asset Value of the Company. None of
these restrictions, however, require the realisation of any assets
of the Company where any restriction is breached as a result of an
event outside the control of the Investment Manager which occurs
after the investment is made, but no further relevant assets may be
acquired by the Company until the relevant restriction can again be
complied with. In the event of any breach of these investment
restrictions, the Board will as soon as practicable make an
announcement on a Regulatory Information Service and subsequently
write to Shareholders if appropriate; and
(j) the Company will ensure gearing does not exceed 20% of net
assets.
CORPORATE GOVERNANCE
Introduction
The Board is accountable to shareholders for the governance of
the company's affairs. Paragraph 9.8.6 of the UK Listing Rules
requires all listed companies to disclose how they have applied the
principles and complied with the provisions of the 2008 Combined
Code. As an investment company, most of the Company's day-to-day
responsibilities are delegated to third parties, the Company has no
employees and the Directors are all non-executive. Therefore, not
all of the provisions of the 2008 Combined Code are directly
applicable to the Company.
The Directors believe that during the year under review they
have complied with the provisions of the Combined Code, insofar as
they apply to the Company's business.
In May 2010, the FRC published the new UK Corporate Governance
Code which applies to accounting periods commencing on or after
29(th) June 2010 and will therefore be applicable to the Company
for the year ended 31(st) March 2012.
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