TIDMVICT
RNS Number : 2734G
Victory VCT PLC
10 May 2011
ViCTory VCT PLC
Annual Report and Financial Statements
for the year ended 31 January 2011
The Report and Financial Statements for the year ended 31
January 2011 and the Notice of Annual General Meeting will be
posted to shareholders around 16 May 2011 and is available in
electronic format for download on Amati Global Investors website
www.amatiglobal.com.
Copies of the Report and Financial Statements will be submitted
to the UK Listing Authority's National Storage Mechanism and will
shortly be available at www.hemscott.com/nsm.do.
OVERVIEW
Highlights
-- NAV per share increase for the year of 12.9%.
-- NAV plus cumulative dividends of 57.26p per share at 31
January 2011. This includes cumulative dividends paid to date of
9.75p per share.
-- Proposed final dividend of 2.0p per share.
Corporate objective
The objective of ViCTory VCT PLC (the "Company") is to provide
shareholders with an attractive and competitive investment return
from a portfolio of companies whose shares are primarily traded on
the Alternative Investment Market ("AIM"). The Manager's continuing
objective is to manage the current portfolio so as to maximise
returns for investors for the qualifying period and beyond.
Fund performance
Total NAV return since inception assuming re-invested dividends
up to 31 January 2011 was -44.05%. Over this period the FTSE AIM
All-Share total return index has shown a return of -28.31%.
Key data
31/01/10
31/01/11 Restated*
------------------------------------------------- ----------- -----------
Total Net Asset Value ("NAV") GBP20.7m GBP18.3m
Shares in issue 43,557,324 43,557,324
NAV per share 47.5p 42.1p
Share price 40.5p 32.8p
Market capitalisation GBP17.6m GBP14.3m
Share price discount to NAV 14.7% 22.1%
Total return for the year (assuming re-invested
dividends) 12.9% -5.3%
FTSE AIM All-Share total return index 42.2% 67.0%
Total expense ratio 2.9% 3.2%
Dividends declared during the year 2.0p -
------------------------------------------------- ----------- -----------
*Restated - see Note 12.
Dividends declared since
launch
------------------------- ---------- -----------
Ordinary share
Total Cumulative
dividends dividends
declared declared
Year ended 31 January p p
------------------------- ---------- -----------
2002 1.70 1.70
2003 0.80 2.50
2004 0.25 2.75
2005 0.50 3.25
2006 0.00 3.25
2007 2.00 5.25
2008 4.00 9.25
2009 0.50 9.75
2010 0.00 9.75
2011 proposed 2.00 11.75
------------------------- ---------- -----------
Table of investor returns to 31 January 2011
NAV total FTSE AIM
NAV total return with All-Share
return
with dividends total
dividends not return
Launch date re-invested re-invested index
---------------------- -------------- ------------ ------------ ----------
29 January
ViCTory VCT 2001 (44.05)% (39.73)% (28.31)%
Singer & Friedlander 28 September
AIM VCT 1998 (70.72)% (42.02)% 22.97%
Singer & Friedlander 29 February
AIM 2 VCT 2000 (57.12)% (52.51)% (62.04)%
Singer & Friedlander
AIM 3 VCT ('C'
shares) 4 April 2005 (38.63)% (35.38)% (7.59)%
---------------------- -------------- ------------ ------------ ----------
BOARD REVIEW OF THE YEAR
Company Overview
The Board is pleased to report that the many changes made in the
year under review have resulted in an encouraging start to
rebuilding the Company's net assets and improving the outlook for
our shareholders:
-- The Company's net asset value per share has increased from
42.1p to 47.5p - an increase of approximately 12.9%
-- The Company's share price has risen from 32.8p to 40.5p - an
increase of approximately 23.5%
-- A dividend of 2.0p per share will be recommended to the
Company's annual general meeting - the last dividend paid to our
shareholders was 0.5p per share in respect of the year ended 31
January 2009
In welcoming this upturn in the Company's performance, the Board
is fully aware that much remains to be done. However, the Directors
are considerably more optimistic than we were a year ago.
Investment Performance
The most significant changes made in the year were the
appointment of a new fund manager, Amati Global Investors
("Amati"), and shareholder adoption of a revised investment
mandate. Both changes have made a telling contribution to the
Company's strengthened net asset position.
Amati has already made considerable progress with the
restructuring of the investment portfolio. Although completion of
the restructuring will necessarily take some time yet - it depends
on finding buyers for unwanted holdings and on sourcing suitable
new VCT qualifying investments - the work done to date is reaping
benefits. A comparison of the actual portfolio performance with how
the portfolio would have performed if it had been unaltered from
the date Amati started, 22 March 2010, (after deducting the
expenses net of income for the year) reveals that the actual net
asset value per share is some 10% higher than it would have been
for the unaltered portfolio.
The benefit of revising the investment mandate was to allow
greater flexibility in making non-qualifying investments so that
the non-qualifying portfolio could be restructured to give the
Company access to investments which could not be included in the
qualifying portfolio.
A full report on the Company's investment performance over the
year is given in the Fund Manager's Review.
Financial Performance
The Board has already commented on the growth in the Company's
net assets over the year. The Company also made a pleasing return
to profitability posting a profit on ordinary activities after tax
of GBP2.362million, comprising a capital profit of GBP2.471 million
and a revenue loss of GBP0.109million. These results produced a
revenue loss per share of (0.25)p and a capital return per share of
5.67p.
The principal driver of the improved results was a marked upturn
in the performance of the Company's investment portfolio with a
modest contribution coming from a reduction in the annual
expenses.
In the Half-Yearly Report's Board Review, the Board signaled its
determination to resume paying dividends at the earliest possible
point. It is therefore pleasing to report that a final dividend of
2.0p per share will be recommended to the annual general
meeting.
Corporate Matters
Another of the changes made in the year was the appointment of
PKF (UK) LLP ("PKF") as the Company's auditors. Discussion about
the treatment of the merger reserve has resulted in a refinement of
the transfer between distributable and non-distributable reserves
which was reported in the half-yearly report. There was also
agreement that the Company's financial statements covering the
period from 1 August 2008 to 31 January 2010 did not report
sufficient distributable reserves to permit share buybacks during
that period but would have done so had the accounting treatment now
reported for the merger reserve been reflected from the date of the
merger in 2006 of the three Singer & Friedlander AIM VCTs.
Consequently, the buybacks effected in that period between the
Company and the brokers (who had bought the shares from the
Company's shareholders) are deemed void under company law. This
position will be rectified following the publication of this annual
report. Meanwhile, the accounting treatment of the prevailing
status of the buybacks as at 31 January 2011 has necessitated the
reintroduction to the accounts of the shares which were the subject
of the void buybacks and the inclusion in the Company's balance
sheet as at 31 January 2011 of a corresponding debtor due from the
brokers which participated in the buybacks. The impact of these
changes is shown in the Notes to the Accounts at Note 9 (debtor for
the cost of the void share buy backs), Note 11 (an increase in the
called up share capital) and Note 12 (the restatement of opening
reserves and share capital). In summary, they have produced a
reduction in net asset value per share - a reduction, however,
which is temporary and will disappear with the reversal of these
changes immediately after the publication of the annual report.
Outlook
The principal focus of the year ending 31 January 2012 will be
the continued restructuring of the Company's investment portfolio.
Amati has made a solid start to this major task in its first ten
months and is committed to delivering shareholder value.
The Board is also determined to ensure that you are given every
opportunity to be fully informed about the Company's progress.
Amati maintains an informative website for the Company -
www.amatiglobal.com - on which monthly investment updates,
performance information, and all relevant documentation can be
found; also, please do not hesitate to contact the Company
Secretary on 0131 243 7215 if you have any queries or use the
dedicated email enqury service which is available through
vct-enquiries@amatiglobal.com.
Thank you for your support.
Christopher Moorsom (Chairman)
James Hambro
Mike Killingley
David Page
Directors of ViCTory VCT PLC
9 May 2011
FUND MANAGER'S REVIEW
Market review
The underlying tone of the UK stock market throughout the period
under review to 31 January 2011 has been that of continued recovery
from the deep shocks which arose out of the financial crisis of
2008-9. The "V" shaped recovery that we have witnessed has been
driven by expansionary policies of an extraordinary nature across
developed economies. The market rose strongly from February to a
short term peak in April, when confidence was dented by the
government debt crises in Greece and Ireland, liquidity tightening
in China, and question marks over the pace of economic recovery in
the US and Europe. After retracing all of the year's earlier gains,
reaching a low at the end of June, confidence returned after
European governments sent a clear message that they would act to
prevent default on government debt within the Eurozone, and
investors' attention reverted to the strong pace of recovery in
global business. With corporate profits generally running ahead of
expectations during the last six months of the period, against a
backdrop of very low interest rates in most developed economies,
the market rose strongly through to the end of January 2011.
The change of government at the May elections marked the end of
a political dynasty in New Labour, and the start of something
unknown to most of us previously, coalition government. The new
government has taken on the unenviable political challenge of
addressing the chronic budget deficit which had been built up
progressively during the previous five years. The Chancellor made
it clear with an early Emergency Budget that fiscal policy would
swing firmly away from public spending excess, towards austerity
and cut-backs. The scale of the deficit, however, means that the
required cut-backs are on a huge scale, just in order to eliminate
the so-called 'structural' portion of the deficit, which is that
part which is expected to remain even at the top of an economic
cycle. In seeking to tackle this early on, rather than postponing
the painful decisions until later, the UK is something of an
exception in the G7. This has fuelled debate about whether the US
approach of continuing to pump liquidity into the banking system
(through the second round of Quantitative Easing, known as "QE2")
and continuing with the tax cuts of the previous administration
(effectively simply ignoring the mounting deficits) may in fact be
a preferable approach. However, advocates for postponing cuts have
tended to be dismissive of the profound risks involved in such a
policy. Our view is that these risks should not be contemplated by
countries which do not have the benefit of printing the world's
reserve currency. This has been explored in detail in a lucid paper
entitled 'Easy Policies Today, Rude Awakening Tomorrow' which forms
Chapter 1 of the Barclays Capital Equity Gilt Study 2011 ("the
Equity Gilt Study"). Given the national importance and contested
nature of this debate, we have included our analysis of UK fiscal
policy as an appendix to this report.
Performance
The total return for the year to 31 January 2011 was 12.9%,
which compares to a rise in the FTSE AIM All-Share Total Return
Index of 42.2%. Once again the performance of AIM was significantly
boosted by its large exposure to resources companies, which have
proven to be the hottest area of the market during this recovery
phase. This has been driven by the rapid return to growth of
Chinese demand, and a large scale programme of acquisition and
investment by Chinese state-owned companies in natural resource
projects around the world, including those managed by a number of
AIM quoted companies. The RBS HGSC Index 2011 study written by
Elroy Dimson and Paul Marsh published an analysis showing that the
FTSE AIM All-Share Index would have risen by 21% less than it did
during 2010 if resources stocks were excluded. By way of comparison
the FTSE All-Share Total Return Index rose by 18.1% during the
period, and the FTSE SmallCap Total Return Index rose by 19.3%. In
the past ViCTory has had little or no exposure to the natural
resources sector. During the year a number of investments in the
sector were made, but the portfolio will always be heavily
under-weight compared to AIM as a whole, in virtue of the fact that
qualifying investments in the sector are rare. Nearly all of the
positive performance for both the portfolio and the benchmark index
came in the second half. There has been a large amount of activity
in the portfolio during the period, as outlined below, and the bulk
of the costs of restructuring have now been paid, with the benefits
starting to show in the second half.
The largest positive contributions came from some of the biggest
qualifying holdings: Synergy Health, which rose by 43.1%, Tikit
Group, which rose by 85.6%, Prezzo, which rose by 64.9%, and Lo-Q,
which rose by 61.8%. These stocks, which have been in the portfolio
for a long time, now provide a very solid core to the qualifying
portfolio, although Synergy Health, having moved to the main
market, is now approaching the point at which it will become
non-qualifying. Positive performances from stocks which we added as
new holdings during the year included Entertainment One, which rose
by 147.8%, Sterling Resources, which rose by 43.1%, Asian Citrus
Holdings, which rose by 52.0%, and Egdon Resources, which rose by
56.0%. The strength of these price moves gives testament to the
pick-up in market sentiment during the year, as well as strong
trading conditions for these individual companies.
On the negative side Connaught, one of the largest holdings in
the portfolio at the start of the year, went into administration.
As reported at the half-year we sold the holding at an average
price of 216p per share prior to its demise, but this was still
31.2% down on the start of the period. Green Compliance, a holding
to which we added during the year, has also fallen sharply, and is
currently languishing. However, this is due to a stock overhang,
and not any weakness in trading, and we expect this to be resolved
in due course. Mediwatch, has been highly illiquid throughout the
year, and despite trying we were unable to sell the holding before
the company produced a poor trading update. This was a substantial
position in the portfolio at the start of the year, which has
fallen by 58.3%. We have been reducing it continually throughout
the period, and it is no-longer a significant holding.
Transactions
Amati was appointed as Manager on 22 March 2010, and since
taking this on Douglas Lawson and I have undertaken an extensive
restructuring of the portfolio, with the aim of selling out of
holdings we regard as low quality, re-building the qualifying
portfolio with relatively more mature companies, and introducing a
non-qualifying investment strategy which has the potential to
produce a more well-balanced overall portfolio, providing exposure
to the most attractive global investment themes that we can
identify amongst UK quoted small and mid-sized companies.
Qualifying portfolio
There has been a dearth of VCT qualifying IPO activity on AIM
for the last two years. As such, our new qualifying investments
relied mostly on secondary offerings by companies well known to us.
This approach has the benefit that the companies involved are those
we have known for some time, and are now well past the IPO stage of
development. We invested a total of GBP2.45m in qualifying
companies over the year. GBP1.1m of this was invested in the four
months that we managed the portfolio during the first half. These
investments included: Egdon Resources, an oil and gas company with
a collection of onshore UK assets, and some further afield;
Bglobal, which designs, installs and manages smart meters; and
Fulcrum Utility Services, which provides engineering and project
management for unregulated gas connections to the grid (those over
23 metres from the gas distribution network). We are pleased with
the progress that each of these businesses have made since we
invested. The investments we made during the second half were all
made in November. These encompassed four companies:IS Pharma, a
European speciality pharma business; Tristel, a manufacturer of
infection and contamination control products; Corac Group, a
company commercialising the technology for a downhole gas
compressor; and Ubisense Trading, a private company due to float
later this year, which develops, manufactures and sells real time
location systems for a wide range of manufacturing applications. IS
Pharma has recently been bid for by Sinclair Pharma in an all paper
transaction. If the deal goes ahead the holding will become
non-qualifying after two years as Sinclair Pharma is fully listed
in London. The combined entity will be capitalised at over
GBP125m.
Having made a good level of new qualifying investments we had
the scope to sell down a significant number of qualifying holdings
raising just over GBP4.34m in total. We sold companies that we
regarded as over-leveraged, too small to be quoted, or too high
risk, targeting natural points of liquidity wherever possible, and
seeking not to put pressure on the share prices. The proceeds were
deployed into the new qualifying holdings outlined above, and into
bolstering the non-qualifying portfolio. Investments we sold
include Arcontech Group, Autoclenz Holdings, Avisen Corporation,
Conexion Media Group, Connaught, Cyan, First Artist, Freshwater UK,
LiDCO Group, Lipoxen, Optimisa, Petards Group, The Real Good Food
Company, SocialGo, Synchronica, and Tanfield Group. This has taken
us a long way through the restructuring programme, with a
relatively small number of material holdings left that we will look
to replace over time.
Non-qualifying portfolio
Following the change of investment mandate voted on by
shareholders in July, we sold down the holdings in UK Government
bonds, from which we realised GBP4.13m in total during the year,
and began to build up a diverse non-qualifying portfolio, spending
a total of GBP6.60m in the period. We have also sold GBP1.99m of
non-qualifying stocks during the year, some GBP0.45m of which were
disposals of legacy holdings, such as Advanced Power Components,
Connaught, and Parseq (formerly Intelligent Environments Group),
and the remainder being holdings purchased by us earlier in the
year and then sold at a profit. These included a number of oil and
gas stocks: Bowleven, Cove Energy, Gulfsands Petroleum, and
Rockhopper; as well as NCC Group, the network security testing and
software escrow business.
In putting together the non-qualifying portfolio we have sought
to introduce attractive themes to the portfolio which will not be
accessible in the qualifying holdings, mostly in the form of
companies which are significantly larger and more liquid than would
normally be found in a qualifying investment. A particular aim has
been to incorporate exposure to the growth of the Chinese and
Indian domestic economies. We have achieved this through an
investment in Asian Citrus Holdings, China's largest independent
orange grower; the convertible loan notes we acquired in China Food
Company, a Chinese soy sauce producer; Sorbic International, a
Chinese sorbic acid manufacturer; and participation in the IPO of
Skil Ports & Logistics, an Indian port infrastructure company.
Other holdings purchased include, Anglo Pacific Group, which owns a
large portfolio of mining royalties as well as some equity
investments in mining companies; Advanced Medical Solutions Group,
an advanced woundcare business which has recently launched a key
new product in the US; Elementis, and mid-cap specialty chemicals
company; Hargreaves Services, a diverse UK energy business focussed
on coal mining, trading and logistics; and RPC Group, the leading
European manufacturer of rigid plastic containers.
VCT objectives
The recent UK Budget has proposed some changes to the VCT
legislation which we regard as very helpful for AIM VCTs, including
the raising of the gross assets test for qualifying investments
back to GBP15m, from its current level of GBP7m, and rebasing the
restriction on employee numbers to 250 from the current level of
50. These will only come into effect from 6 April 2012, and then
only if the changes are approved by Brussels in relation to the EU
State Aid rules. Whilst the rule changes probably won't affect
ViCTory because all of the funds raised operate under old VCT
rules, which include the GBP15m gross assets test, and no
limitation on the numbers of employees, they could serve to bring
back a flow of new funds to the industry, which would be good for
stimulating new deal activity.
Outlook
Having staged an impressive V-shaped recovery from the despair
of early 2009, the global economy remains in an expansionary phase,
but the risks during the next part of the current business cycle
are increased through financial imbalances in some key western
economies. In Europe it is becoming accepted as a given that
further bailouts will be needed within the Eurozone. If this is
limited to Ireland and Portugal it would be a good result. In the
longer run, for the reasons discussed above in relation to the UK,
current US fiscal policy is raising future risks. Bill Gross, the
co-founder of Pacific Investment Management (PIMCO), and manager of
the world's largest bond fund, has recently been cited as being a
seller of US Treasuries, on the grounds that the US has unrecorded
debt of $75 trillion, or 500% of GDP. This figure is not directly
comparable to any of those quoted in relation to the UK, as it
includes future obligations under Social Security, Medicare and
Medicaid. It is therefore akin to trying to capitalise all future
costs of Social Security and the NHS in the UK. However, it does
underscore the increased risks which result from refusing either to
raise taxes or cut spending, and politically it is becoming hard to
see how either will be accomplished in the US any time soon. In the
short term, however, this policy is allowing the recovery to pick
up speed.
For all the talk over the past few months from certain
strategists suggesting that the time was right to bring assets back
from emerging markets to invest in developed markets once again we
don't see much reason to do so, and two of our favoured investment
themes are little changed from a year ago, namely exposure to the
growth of Far Eastern economies, and the scarce natural resources
that the development of these economies will consume. The Equity
Gilt Study this year also contains a compelling chapter on emerging
markets, which argues that the resilience that they showed during
the credit crunch hails the start of a major change of perspective
in relation at least to the top tier of this group. It seems no
longer the case that a crisis in one emerging market will trigger
the flight of capital from the whole asset class. This leads to a
re-appraisal of anticipated outperformance in the future as
delivering better performance on risk-adjusted returns. It is
notable that in the authors' analysis of the top ten markets for
risk-adjusted anticipated returns, six of the countries cited are
in South East Asia.
The restructuring of ViCTory's portfolio has been reflecting
these investment themes already, and, although the process is not
complete, we believe that the portfolio has been strengthened a
good deal over the last year, and that this is starting to show
through in terms of performance.
Dr Paul Jourdan
CEO and Founder
Amati Global Investors
9 May 2011
Appendix: Review of UK Fiscal Policy
Table 1 below set out some raw data of the history of UK budgets
over the last 10 years, drawn from various government sources,
whilst table 2 set out the figures for net government debt, GDP
growth, and inflation. This has to be the starting point for the
debate about the subject of fiscal policy, but often it doesn't
make it into the discussion.
Table 1: UK Government Budgets 2001-11
Actual
Gov't Real Gov't Real Budget Budget Movement
in net
public
Spending Growth Receipts Growth Balance Balance finances
as % of
GBPbn % GBPbn % GBPbn GDP GBPbn
2001/2 394 398 4 0.4% -3
2002/3 418 3.89% 407 0.1% -11 -1.1% -32
2003/4 456 6.29% 428 2.4% -28 -2.6% -36
2004/5 488 4.82% 455 4.1% -33 -2.9% -41
2005/6 519 4.05% 487 4.7% -32 -2.6% -40
2006/7 552 3.46% 516 3.1% -36 -2.8% -36
2007/8 587 3.14% 553 4.0% -34 -2.5% -29
2008/9 618 0.98% 575 -0.3% -43 -3.0% -79
2009/10 671 6.58% 496 -15.7% -175 -12.2% -153
2010/11 704 0.12% 541 4.3% -163 -11.6%
2010/11* 697 -0.93% 548 5.7% -149 -10.6% -144
2011/12 710 589 -121 -8.0%
* 2010 Emergency budget in June 2010 in which the coalition
government revisted the plan of the previous administration,
re-orientating policy towards cuts, and increasing taxation.
Sources: HM Treasury, and Office for National Statistics. Real
growth is calculated as nominal growth minus the RPIX figure for
inflation.
Table 2: UK Inflation, Government Debt, GDP and Interest Rates
(all data as at end March)
Government Government
Net Debt Net Debt Net Debt Net Debt
Excluding Including Excluding Including
Bank
Inflation Interventions Interventions Interventions Interventions Base
End as % of as % of
March RPIX GBPbn GBPbn GDP GDP Rates
2001 1.9% 311 311 31.5% 30.6% 5.75%
2002 2.3% 314 314 30.4% 29.3% 4.00%
2003 3.0% 346 346 31.7% 30.5% 3.75%
2004 2.1% 382 382 33.0% 31.8% 4.00%
2005 2.4% 422 422 34.7% 33.8% 4.75%
2006 2.1% 462 462 36.3% 34.9% 4.50%
2007 3.9% 498 498 36.9% 35.7% 5.25%
2008 3.5% 527 622 37.1% 43.7% 5.25%
2009 2.2% 606 2,039 42.3% 142.1% 0.50%
2010 4.8% 760 2,194 54.1%* 156.3% 0.50%
2011 5.4% 903 2,239 59.5% 148.5% 0.50%
Source: Office for National Statistics ("ONS").
*The IMF calculates a markedly higher figure for this: 68.8% for
2010, with an estimate of 74% for 2011.
Definition: This is the money which the government spent on
maintaining the solvency of the public sector banks, on depositor
compensation, and on Bank of England schemes. These are all
described as 'temporary effects', and so are accounted for as
exceptional and excluded from the normalised figures.
As can be seen in Table 1 we have to go back ten years to see
the last budgeted surplus in the UK. The principle much vaunted by
the government at the time was that the budget would be balanced
over a business cycle as a whole. Thus government expenditure was
increased ahead of income during the threatened recession of
2002-2003 which arose in the aftermath of the 'dotcom' boom, and
real GDP growth of over 3% was achieved between 2002 and 2004.
However, from 2005 onwards, as the business cycle continued to
strengthen around the world, UK fiscal policy abandoned any notion
of balancing over a cycle, continuing with an aggressive expansion
of spending ahead of revenue growth. At the same time this
expansionary policy was met with faltering real GDP growth,
suggesting that the rise in spending was not well targeted or
controlled. This expansionary policy also led to asset bubbles,
most particularly in property. Around 2007 the belief was
widespread in the UK, particularly it seems amongst lending
institutions, that property could only rise in value. Even ignoring
the international dimension of the credit crunch, UK banks at this
point were set for a nasty fall. As the financial crisis took hold
UK public finances were disastrously unprepared, with the budget
deficit ballooning from GBP43bn in 2008 to GBP175bn in 2009,
excluding the cost of financial interventions. The Equity Gilt
Study includes an estimate of how big a change to the budget
balance will be required in order to stabilise the debt position by
2015, assuming that increases in expenditure arise only from
changing demographics. The calculations are based on 'underlying'
primary balances which are adjusted to compensate for cyclical
factors and one-off capital expenses. This aims to isolate the
so-called 'structural' deficit, which is that element which will be
present even at the top of a market cycle. On this basis the
structural deficit in 2010 was calculated as being equal to 5% of
GDP, compared to the actual budget deficit of 11.1%. To reduce this
structural deficit to zero by 2015 after taking into account of the
likely demographic impact on expenditure, the UK need to improve
its budget balance by 5.9% of GDP. For the US this is 8.4%, whilst
for Germany it is 2.4%.
There are a number of factors which make this task more
difficult. First there is likely to be considerable pressure for
interest rates to rise in advanced economies. This is in part
because they have been held artificially low for much of the past
two years as investors sought the safe haven of government bonds,
base rates were cut to 0.5% in an attempt to stimulate the economy,
and then Quantitative Easing created a massive new buyer of
government debt in the form of the Bank of England. But there is
also the factor that elevated debt levels may push investors to
charge a higher risk premium, as has been seen with devastating
effects in the peripheral countries of the Eurozone. It is easy to
be complacent about this risk, but once the trend to higher
interest rates begins, it can quickly expose excessive government
leverage, and become self-reinforcing, in that the problems become
more acute with each rise, thus in turn pushing up rates further.
This is the gauntlet that any fiscal policy must run, and
ultimately the reason why budget cuts now are likely to be less
damaging in the medium term than a policy which attempts to deliver
higher growth by spending more now. If credibility with investors
is lost in relation to stabilising the deficit, then disaster could
strike very quickly.
Second, growth in advanced economies is likely to disappoint. On
the one hand the enormous fiscal consolidation required to
stabilise the budget will itself weigh on near-term growth and
increase unemployment (albeit that it is beneficial for growth in
the longer term). On the other hand some of the fastest growing
areas of the economy before the crisis, such as finance, retail and
construction, are now shrinking. In addition the 'baby boomer'
generation in the UK is approaching the age of retirement, and as
this starts to happen the growth in the working population will
fall, and the percentage of the population in work will start to
decline. This pattern is repeated across most developed markets,
and is strongest in Italy, Germany and Japan. It is also a factor
in many emerging markets.
Third, inflationary pressures from outside the UK look set to
rise. Some of the factors which have held inflation low for the
past two decades, such as the move to low cost manufacturing in
emerging markets, have played out, and now form the basis of new
inflationary factors as the newly urbanised populations in China,
India and elsewhere, begin to demand both higher wages and an
increasing supply of commodities to support the rapid growth of
their economies.
Fourth, whilst the net debt to GDP ratio for March 2011 of
around 59.9% sounds high but not catastrophic, the ONS figures for
net government debt in the UK are presented in the manner that one
would expect any over-leveraged company to present figures to
investors whose confidence they were wishing to maintain. They
present a best case scenario, both for the current situation and on
the forecasts. As noted at the foot of the table the IMF shows much
higher figures for net debt excluding the cost of financial
intervention, and ONS figures themselves show that net debt
including the cost of financial interventions as being 148% of GDP
as at end March 2010. Even this figure itself doesn't allow for
capitalising future state pension liabilities, or future
obligations under PFI contracts, which are taken 'off balance
sheet'. It also makes no reference to the huge balance sheets
effectively under-written by the government in the majority-owned
UK banks, which will have the effect of magnifying any debt crisis,
if one does emerge in the UK. This is to say that UK public debt
now casts a long shadow over the economy, and the risks it presents
are much higher than they might at first appear.
Our conclusion at this point is to note that the phrase
'irrational exuberance' which Alan Greenspan applied famously to
markets during the dotcom boom, could also be applied to policy
makers in the first decade of this century. In the world of
uncertainty and increased vulnerability which follows in the wake
of the financial crisis, policy making needs to be set much more
prudently than it has been in recent years, and we are therefore
supportive of the fiscal stance taken by the Coalition
Government.
INVESTMENT PORTFOLIO
as at 31 January 2011
% of
Number of Book cost Valuation Fund shares
in
FTSE Sector shares GBP GBP % issue
----------------------- ----------- ----------- ----------- ------ -------
Oil & Gas 556,651 779,253 3.8
----------------------- ----------- ----------- ----------- ------ -------
DEO Petroleum plc(@) 403,518 181,583 215,882 1.1 0.9
Egdon Resources
plc(*@) 1,648,000 206,006 321,360 1.5 1.3
Sterling Resources
Ltd(@) 89,135 169,062 242,011 1.2 0.0
Basic materials 786,520 892,425 4.3
----------------------- ----------- ----------- ----------- ------ -------
Anglo Pacific Group
plc(@) 160,000 461,703 535,200 2.6 0.1
Elementis plc(@) 275,000 324,817 357,225 1.7 0.1
Industrials 5,999,874 4,863,126 23.5
----------------------- ----------- ----------- ----------- ------ -------
AssetCo plc 682,459 508,413 423,125 2.0 0.8
Avingtrans plc(*) 503,333 528,333 261,733 1.3 2.0
Bglobal plc(*@) 674,117 256,164 215,717 1.1 0.7
Corac Group plc(*@) 1,240,962 186,144 179,939 0.9 0.5
Gooch & Housego plc(@) 40,048 192,909 204,245 1.0 0.2
Green Compliance
plc(@) 43,210,000 440,231 496,915 2.4 2.4
Hargreaves Services
plc(@) 57,000 369,133 511,290 2.5 0.2
Hightex Group plc(*) 2,750,000 192,503 192,500 0.9 1.5
ILX Group plc(*) 890,000 426,300 213,600 1.0 3.3
Quadnetics Group
plc(*) 136,588 341,381 228,102 1.1 0.8
RPC Group plc(@) 120,970 305,893 326,014 1.6 0.1
RTC Group plc(*) 537,500 220,375 37,625 0.2 6.0
Savile Group plc(*) 600,000 402,000 150,000 0.7 4.0
SKIL Ports & Logistics
Ltd(@) 95,452 238,630 234,812 1.1 0.2
Sportsweb.com(*#) 58,688 352,128 316,915 1.5 11.4
Symphony Environmental
Technologies plc(*) 2,680,770 428,379 388,712 1.9 2.3
Zytronic plc(*) 215,126 610,958 481,882 2.3 1.5
Consumer goods 1,778,487 2,284,311 11.0
----------------------- ----------- ----------- ----------- ------ -------
Asian Citrus Holdings
Ltd(@) 834,000 408,496 633,840 3.1 0.1
China Food Company plc
Convertible 8% Loan
Note(#@) 624 624,000 692,966 3.2 32.8
New Britain Palm Oil
Ltd(@) 57,000 342,142 512,715 2.5 0.0
Sorbic International
Convertible 10% Loan
Stock(#@) 196 196,000 205,085 1.0 14.0
Supergroup plc(@) 15,667 207,849 239,705 1.2 -
Health care 2,971,699 3,224,125 15.6
----------------------- ----------- ----------- ----------- ------ -------
Advanced Medical
Solutions Group
plc(@) 430,000 295,886 301,000 1.5 0.3
Chromogenex plc(*#@) 150,000 13,875 1,950 - 0.2
IS Pharma plc(*@) 531,667 425,334 451,917 2.2 1.0
Kiotech International
plc(@) 579,710 402,001 463,768 2.2 3.2
Mediwatch plc(*) 9,523,833 929,716 238,096 1.1 6.8
Omega Diagnostics
Group plc(*) 1,000,000 200,000 145,000 0.7 1.2
Synergy Health plc(*) 125,200 189,887 1,107,394 5.4 0.2
Tristel plc(*@) 903,509 515,000 515,000 2.5 2.3
----------------------- ----------- ----------- ----------- ------ -------
Consumer services 7,158,603 3,680,008 17.8
----------------------- ----------- ----------- ----------- ------ -------
Cello Group plc(*) 225,000 257,625 135,000 0.7 0.4
Conexion Media Group
plc(*) 1,080,883 183,750 10,809 0.1 1.4
Coolabi plc(*) 2,585,883 361,506 148,688 0.7 4.7
Dods Group plc
(formerly Huveaux
plc)(*) 2,000,000 595,868 175,000 0.9 1.3
Ebiquity plc(*) 345,500 729,005 321,315 1.6 0.6
Entertainment One
Ltd(@) 336,538 225,932 558,653 2.7 0.2
Expansys plc(*@) 775,000 449,500 29,062 0.1 0.1
Fuse 8 plc (formerly
Award International
Holdings)(*) 20,999 209,990 6,300 - 0.2
Imagesound Ltd(*#) 1,250,000 92,188 - - 2.0
Just Car Clinics Group
plc(*) 281,955 95,865 155,075 0.7 2.1
Lilestone Holdings
Limited(*#) 1,616,786 1,238,655 - - 1.6
Lo-Q plc 748,500 748,656 920,655 4.4 4.6
Ovidia Investments(*#) 134,307 518,312 - - 0.4
Prezzo plc(*) 1,341,510 150,618 741,179 3.6 0.6
Skywest Airlines(@) 734,000 146,488 220,200 1.1 0.4
Tasty plc(*) 779,688 540,377 194,922 0.9 1.6
UBC Media Group plc(*) 2,296,384 614,268 63,150 0.3 1.3
----------------------- ----------- ----------- ----------- ------ -------
Financials 847,428 1,037,897 5.0
----------------------- ----------- ----------- ----------- ------ -------
Fulcrum Utility
Services Ltd(*@) 5,167,557 620,193 852,647 4.1 3.3
London Capital Group
Holdings plc(@) 190,000 227,235 185,250 0.9 0.5
Technology 1,811,510 2,453,691 11.9
----------------------- ----------- ----------- ----------- ------ -------
Camaxys(#) 1,592,656 254,825 - - 8.8
IDOX plc(*@) 3,606,667 270,500 550,017 2.7 1.1
NCC Group(@) 70,000 289,297 428,400 2.1 0.2
Parseq plc (formerly
Intelligent
Environments
Group)(*) 4,039,075 116,123 302,931 1.5 0.9
Promethean World
plc(@) 225,000 292,577 131,625 0.6 0.1
Tikit Group plc 348,326 400,869 853,399 4.1 2.4
Ubisense Trading
Ltd(*#@) 127,428 187,319 187,319 0.9 1.1
Total investments 21,910,772 19,214,836 92.9
----------------------- ----------- ----------- ----------- ------ -------
Net current assets 1,477,169 7.1
----------------------- ----------- ----------- ----------- ------ -------
Net assets 21,910,772 20,692,005 100.0
----------------------- ----------- ----------- ----------- ------ -------
* Qualifying holdings.
Part qualifying holdings.
# Unquoted holdings.
@ These investments are also held by other funds managed by
Amati.
All holdings are in ordinary shares unless otherwise stated.
As at the year end, the percentage of the Company's portfolio
held in qualifying holdings for the purposes of Section 274 of the
Income and Corporation Taxes Act 2007 is 82.29%.
Sector Allocation as at 31 January 2011
Fund
FTSE Sector %
-------------------- ------
Industrials 23.5
Consumer services 17.8
Health care 15.6
Technology 11.9
Consumer goods 11.0
Financials 5.0
Basic materials 4.3
Oil & Gas 3.8
Net current assets 7.1
100.0
-------------------- ------
TOP TEN INVESTMENTS
as at 31 January 2011
Synergy Health plc
------------------------------------------------------------------------------
Sector Health care
----------------------- -------------- -------------------------------------
Market capitalisation GBP486.7m Year to 31 March 2010 GBP million
----------------------- -------------- ----------------------- ------------
Cost GBP189,887 Profit before tax 24.5
----------------------- -------------- ----------------------- ------------
Valuation GBP1,107,394 Profit after tax 22.1
----------------------- -------------- ----------------------- ------------
Valuation basis Bid price Net assets 266.4
----------------------- -------------- ----------------------- ------------
Income recognised
in year GBP24,000
----------------------- -------------- ----------------------- ------------
Synergy Health provides healthcare related services to customers
worldwide. The company's main activities are decontamination,
which is operated on an outsourced and managed basis for reprocessing
surgical and re-usable hospital equipment; sterilisation, which
operates through the Isotron brand, to sterilise single use
medical products; healthcare solutions, which provides a wide
range of products for infection prevention and control, patient
hygiene, surgical and wound care; laboratory services, which
provides health screening and clinical pathology support; and
linen management.
------------------------------------------------------------------------------
Lo-Q plc
------------------------------------------------------------------------------
Sector Consumer services
----------------------- -------------- -------------------------------------
Year to 31 October
Market capitalisation GBP20.0m 2010 GBP million
----------------------- -------------- ----------------------- ------------
Cost GBP748,656 Profit before tax 2.3
----------------------- -------------- ----------------------- ------------
Valuation GBP920,655 Profit after tax 1.9
----------------------- -------------- ----------------------- ------------
Valuation basis Bid price Net assets 7.3
----------------------- -------------- ----------------------- ------------
Income recognised
in year GBPnil
----------------------- -------------- ----------------------- ------------
Lo-Q designs, installs and operates systems that reduce queuing
times for visitors to theme parks. The first installation was
installed in 2001 in the Six Flags Over Georgia park near Atlanta
and the company registered over 5 million users in 2009. The
solution, which is now available in 18 theme parks, can be operated
through a mobile phone or a handheld device or wristband which
is rented at the park. The revenue share agreement offers a
very attractive and low risk incremental revenue stream to the
park operator.
------------------------------------------------------------------------------
Tikit Group plc
------------------------------------------------------------------------------
Sector Technology
----------------------- -------------- -------------------------------------
Year to 31 December
Market capitalisation GBP36.1m 2010 GBP million
----------------------- -------------- ----------------------- ------------
Cost GBP400,869 Profit before tax 2.9
----------------------- -------------- ----------------------- ------------
Valuation GBP853,399 Profit after tax 2.2
----------------------- -------------- ----------------------- ------------
Valuation basis Bid price Net assets 16.2
----------------------- -------------- ----------------------- ------------
Income recognised
in year GBP21,000
----------------------- -------------- ----------------------- ------------
Tikit is a leading provider of IT consultancy, software services
and technology to legal and accounting firms. The company operates
through 3 principal divisions - Managed Services, which provides
clients with a fully outsourced IT service; Software, which
sells 3(rd) party and proprietary software solutions; and Consultancy,
which provides clients with project based IT expertise. The
group's revenues are increasingly moving towards higher margin
proprietary software and software bundles consisting of own
and 3(rd) party software that offer all the functionality required
by legal firms.
------------------------------------------------------------------------------
Fulcrum Utility Services Limited
------------------------------------------------------------------------------
Sector Financials
----------------------- -------------- -------------------------------------
Market capitalisation GBP25.5m Year to 31 March 2010 GBP million
----------------------- -------------- ----------------------- ------------
Cost GBP620,193 Loss before tax (16.7)
----------------------- -------------- ----------------------- ------------
Valuation GBP852,647 Loss after tax (12.1)
----------------------- -------------- ----------------------- ------------
Valuation basis Bid price Net liabilities (16.4)
----------------------- -------------- ----------------------- ------------
Income recognised
in year GBPnil
----------------------- -------------- ----------------------- ------------
Fulcrum was formerly a division of National Grid before reversing
into Marwyn Capital 1 Limited, an AIM listed cash shell. The
company designs and manages gas connections to large scale projects
such as Heathrow's Terminal 5 and to smaller scale commercial
projects. In over 50 years, the company has connected an average
of 140,000 properties to the national gas distribution network
each year. Fulcrum is also a licensed Independent Gas Transporter,
operating pipelines connecting over 16,000 properties to the
gas mains. The management team has significant industry experience
and is implementing a turnaround strategy based on growth in
market share, improved operational efficiency and cost control.
------------------------------------------------------------------------------
Prezzo plc
------------------------------------------------------------------------------
Sector Consumer services
----------------------- -------------- -------------------------------------
Year to 27 December
Market capitalisation GBP125.0m 2009 GBP million
----------------------- -------------- ----------------------- ------------
Cost GBP150,618 Profit before tax 10.2
----------------------- -------------- ----------------------- ------------
Valuation GBP741,179 Profit after tax 6.8
----------------------- -------------- ----------------------- ------------
Valuation basis Bid price Net assets 57.3
----------------------- -------------- ----------------------- ------------
Income recognised
in year GBP3,000
----------------------- -------------- ----------------------- ------------
Prezzo is a branded restaurant operator offering a contemporary
menu with an Italian flavour. Prezzo opened 7 new restaurants
in the first half of 2010 and has several more developments
in the pipeline, including a freehold site in Bishop's Stortford
and planned openings in Aberdeen, Glasgow and Milton Keynes.
In addition to this, following the acquisition of Caffe Uno
Brasseries in 2010, the company added 11 leasehold sites to
its estate and now operates from 145 restaurants in total.
------------------------------------------------------------------------------
China Food Company plc 8% Convertible Loan Note
------------------------------------------------------------------------------
Sector Consumer goods
----------------------- -------------- -------------------------------------
Year to 31 December
Market capitalisation GBP37.9m 2010 GBP million
----------------------- -------------- ----------------------- ------------
Cost GBP624,000 Profit before tax 3.8
----------------------- -------------- ----------------------- ------------
Valuation GBP692,966 Profit after tax 2.3
----------------------- -------------- ----------------------- ------------
Discounted
Valuation basis cash flow Net assets 34.5
----------------------- -------------- ----------------------- ------------
Income recognised
in year GBP30,000
----------------------- -------------- ----------------------- ------------
China Food Company is based in Weifang in Shandong province,
China where it manufactures and distributes soya sauce and other
condiments and animal feeds. The company recently completed
the construction of a modern, state of the art soya sauce facility,
which increases the company's condiments production capability
to 50,000 tonnes, representing a 50% increase in existing capacity.
The new factory has already filled half of its new silos for
fermentation and has opened six for testing and production.
China Food's products are distributed through major food retailers
such as Tesco, Wal Mart and Carrefour.
------------------------------------------------------------------------------
Asian Citrus Holdings Limited
------------------------------------------------------------------------------
Sector Consumer goods
----------------------- -------------- -------------------------------------
Market capitalisation GBP922.1m Year to 30 June 2010 GBP million
----------------------- -------------- ----------------------- ------------
Cost GBP408,496 Profit before tax 57.8
----------------------- -------------- ----------------------- ------------
Valuation GBP633,840 Profit after tax 57.6
----------------------- -------------- ----------------------- ------------
Valuation basis Bid price Net assets 375.9
----------------------- -------------- ----------------------- ------------
Income recognised
in year GBP10,000
----------------------- -------------- ----------------------- ------------
Asian Citrus is the largest orange plantation owner and operator
in China. The company has three plantations - one is fully developed
with approximately 1.3 million orange trees; the second is fully
planted with 1.6 million orange trees; and another has been
cleared and planting has commenced. Asian Citrus recently expanded
into the concentrated juice market with the acquisition of a
92% interest in Beihai Perfuming Garden Juice Company and intends
to expand production through the construction of a new facility
by the end of 2011.
------------------------------------------------------------------------------
Entertainment One Limited
------------------------------------------------------------------------------
Sector Consumer services
----------------------- -------------- -------------------------------------
Market capitalisation GBP279.4m Year to 31 March 2010 GBP million
----------------------- -------------- ----------------------- ------------
Cost GBP225,932 Profit before tax 6.9
----------------------- -------------- ----------------------- ------------
Valuation GBP558,653 Profit after tax 6.6
----------------------- -------------- ----------------------- ------------
Valuation basis Bid price Net assets 164.0
----------------------- -------------- ----------------------- ------------
Income recognised
in year GBPnil
----------------------- -------------- ----------------------- ------------
Entertainment One is an independent entertainment content owner
that acquires film and television rights to exploit in all media
in over 180 countries. The company also owns distribution channels
to retailers where it can capture additional margin and improve
the delivery of products to customers. It has two divisions
- Entertainment, which acquires and exploits filmed entertainment
rights and produces TV content; and Distribution. The company
has enjoyed notable successes recently with properties such
as Peppa Pig and The Twilight Saga: Eclipse.
------------------------------------------------------------------------------
IDOX plc
------------------------------------------------------------------------------
Sector Technology
----------------------- -------------- -------------------------------------
Year to 31 October
Market capitalisation GBP60.3m 2010 GBP million
----------------------- -------------- ----------------------- ------------
Cost GBP270,500 Profit before tax 4.9
----------------------- -------------- ----------------------- ------------
Valuation GBP550,017 Retained profit 3.6
----------------------- -------------- ----------------------- ------------
Valuation basis Bid price Net assets 31.0
----------------------- -------------- ----------------------- ------------
Income recognised
in year GBP8,000
----------------------- -------------- ----------------------- ------------
IDOX is a leading provider of software and services to the UK
public sector. It is the leading applications provider to local
government for core functions relating to land, people and property,
for example planning systems and election management software.
Over 90% of UK local authorities are customers of IDOX. The
group's products enable local authorities to manage information
and knowledge and documents and content. The company recently
acquired McLaren Software, which provides document management
applications to the oil and gas, mining, utilities, pharmaceuticals
and transport sectors.
------------------------------------------------------------------------------
Anglo Pacific Group plc
------------------------------------------------------------------------------
Sector Basic materials
----------------------- -------------- -------------------------------------
Year to 31 December
Market capitalisation GBP363.8m 2010 GBP million
----------------------- -------------- ----------------------- ------------
Cost GBP461,703 Profit before tax 65.8
----------------------- -------------- ----------------------- ------------
Valuation GBP535,200 Retained profit 56.3
----------------------- -------------- ----------------------- ------------
Valuation basis Bid price Net assets 345.9
----------------------- -------------- ----------------------- ------------
Income recognised GBP6,000
in year
----------------------- --------------------------------------- ------------
Anglo Pacific owns mining and exploration interests in coal,
uranium, gold, diamond, base metals and oil and gas. The continuing
demand for raw materials driven by the Asian economies has led
to a significant rise in commodity prices, which have been beneficial
for Anglo Pacific's royalty and mining interests. The group's
strategy is focused on securing new royalties through the acquisition
of further mining interests.
------------------------------------------------------------------------------
BOARD OF DIRECTORS
Christopher Moorsom(Chairman) has more than 40 years experience
in the financial services industry and is a member of the
Securities Institute. In 1969 he became a partner of B S Stock, a
Bristol firm of stockbrokers. He later became managing director of
Albert E Sharp, joint managing director of Gerrard and was chairman
of Gerrard Investment Funds. He is currently chairman of The Bath
Building Society and a director of the Royal Welsh College of Music
and Drama. He is a trustee of several charities and has recently
served as a director of Weston Area NHS Trust, Northern Races Ltd,
Bath Racecourse Ltd and Chepstow Racecourse Ltd.
James Hambro is chairman of J O Hambro Capital Management
Limited. He has over 25 years' experience in the merchant banking
and investment management industry. He was a founder shareholder in
1986 of the J O Hambro Group and former managing director of J O
Hambro Magan & Company Limited. He is also chairman of Hansteen
Holdings Plc, a director of Primary Health Properties Plc and a
number of other companies.
Mike Killingley is non-executive chairman of Beale plc and a
non-executive director of AIM-quoted Falkland Islands Holdings plc.
He was a senior partner with KPMG, chartered accountants, from 1988
until retiring from the firm in 1998 and is a former non-executive
chairman of Southern Vectis plc, Conder Environmental plc and
Advanced Technology (UK) plc. He is also treasurer of the
University of Southampton.
David Page was from 1976 to 1993 a major shareholder in the
largest franchisee of Pizza Express. In 1993 his franchise group
merged with the franchisor at the same time as an IPO. David was
appointed CEO of Pizza Express on flotation and chairman in 1996.
In 2003 he founded and was chairman of the Clapham House Group plc
which acquired and operated a number of restaurant brands; the
Clapham House Group plc floated on AIM in November 2003. David is a
non-executive director of Young & Co's Brewery Plc, an AIM
quoted company.
DIRECTORS' REPORT AND BUSINESS REVIEW
The directors submit their Annual Report and Financial
Statements on the affairs of the Company for the year ended 31
January 2011. The Corporate Governance Statement forms part of the
Directors' Report.
Results and Dividends
The total profit on ordinary activities after taxation for the
year attributable to shareholders was GBP2,362,000, equivalent to a
return of 5.42p per share (31 January 2010 loss: GBP972,000
equivalent to a loss of 2.23p per share restated).
The Board is recommending a final dividend of 2.0p per share for
the year ended 31 January 2011.
A review of the Company's performance during the financial year,
the position of the Company at the year end and the outlook for the
coming year is contained within the Board review and in the Fund
Manager's Review.
No shares in the Company were allotted or legally bought back in
the year to 31 January 2011. From 30 January 2009 the Company
contracted to make market purchases of some 3,240,564 shares for
cash (see Note 11). Unfortunately, and unbeknown to the directors
of the Company at the time, the Company's accounts did not disclose
sufficient distributable reserves out of which to effect such
purchases. Accordingly, under company legislation, such purchases
were void transactions. Therefore, these financial statements
provide for a debtor equivalent to the total purchase price of
those shares, and the Company's issued share capital at the year
end has been adjusted to include those shares so unlawfully
purchased (the impact of these changes is shown in the Notes to the
Accounts at Note 9, Note 11 and Note 12). Following the publication
of the financial statements, at which point the Company's accounts
will disclose adequate distributable reserves, these share
purchases will be effected, the amount owed by those same
shareholders being offset by the purchase, and the Company's share
capital reduced accordingly. This is also discussed in the Board
Review.
Business Review
The Business Review has been prepared in accordance with the
requirements of Section 417 of the Companies Act 2006 and best
practice. The purpose of this review is to provide shareholders
with a summary of the business objectives of the Company, the
board's strategy to achieve those objectives, the risks faced, the
regulatory environment and the key performance indicators used to
measure performance.
Key Performance Indicators
The board monitors on a regular basis a number of key
performance indicators, the main ones being:
-- Net asset value and total return to shareholders (the
aggregate of net asset value and cumulative dividends paid to
shareholders).
-- Dividend distributions. See table of investor returns.
-- Share price.
-- Total expense ratio. See key data.
Principal Activity and Status
The Company is registered as a public limited company under
registration number 04138683 England. The directors have managed
and intend to continue to manage the Company's affairs in such a
manner as to comply with section 274 of the Income Tax Act 2007 and
it has received full approval as a Venture Capital Trust from HM
Revenue & Customs for the year ended 31 January 2010. A review
of the Company's business during the period is contained in the
Board Review and Fund Manager's Review.
Strategy for Achieving Objectives
ViCTory VCT PLC is a tax efficient venture capital trust listed
on the London Stock Exchange. The Company is managed in order that
shareholders may benefit from the potentially substantial tax
reliefs available to venture capital trusts.
Investment Policy
Investment Objective
The Investment objectives of the Company are to generate tax
free capital gains and income on investors' funds through
investment primarily in AIM-traded companies whilst mitigating risk
appropriately within the framework of the structural requirements
imposed on all VCTs.
Risk Diversification
Portfolio risk will be mitigated through appropriate
diversification of holdings within the relevant portfolio. Within
the 3 year VCT investment period for each pool of Ordinary Shares,
the Company intends to have invested between 70 and 85 per cent. in
Qualifying Investments (AIM/PLUS Market listed or to be listed
companies, or companies that are likely to be the subject of a sale
within 24 months), 0 to 30 per cent. in non-Qualifying Investments
(companies quoted in London on the LSE or AIM or likely to be
quoted in London within 12 months or companies likely to be the
subject of a trade sale within 24 months) and 0 to 30 per cent. in
cash, cash equivalents, government and investment grade bonds.
Asset Allocation
The Manager intends that by the date from which all funds raised
are required to meet the VCT qualifying rules, the Company's
investment profile will be approximately:
(i) Between 70 and 85 per cent. in Qualifying Investments,
whether equity or non-equity securities in (a) companies traded on
AIM or on PLUS Markets, or (b) companies likely to seek a quotation
on AIM or on PLUS Markets within a 24 month period, or (c) likely
to be the subject of a trade sale within a 24 month period. The
issues in which the Company will invest (whether equity or
non-equity securities, in AIM or PLUS Markets traded companies)
will be either secondary offerings by existing AIM-traded companies
or primary offerings when a company is admitted to trading on AIM
for the first time;
(ii) Between 0 and 30 per cent. in non-qualifying investments in
small and mid-sized companies where such companies are either (a)
quoted in London (b) likely to seek a quotation in London within a
24 month period, or (c) likely to be the subject of a trade sale
within a 24 months period;
(iii) Between 0 and 30 per cent. in cash or cash equivalents
(including money market funds) or government or investment grade
bonds.
In accordance with the conditions for eligibility as an
investment company under the Companies Act 2006, any holdings by
the Company in shares or other securities in a company will not
represent more than 15 per cent. by value of the Company's
investments.
While Qualifying investments are being sourced, the assets of
the portfolio which are not in Qualifying Companies will be
actively invested by the Manager in a combination of the above
(always ensuring that no more than 15 per cent. of the Company's
funds are invested in any one entity).
Borrowing Policy
The Company may, within the limits set out in its Articles of
Association, utilise borrowings to provide flexibility in its
investment and dividend policies. The Articles allow the Company to
borrow up to an amount equal to its adjusted capital and reserves
(as defined in the Articles). The Board will restrict the
borrowings of the Company to an amount which will not, without the
previous sanction of an ordinary resolution of the Company, exceed
an amount equal to 25% of the adjusted capital and reserves. There
were no borrowings at the year end.
VCT Regulation
The Company's investment policy is designed to ensure that it
meets the requirements of HM Revenue & Customs to qualify and
to maintain approval as a VCT. HM Revenue & Customs VCT
regulations state that the Company must, within three years of
raising funds, maintain at least 70% by value of its investments in
shares or securities comprised in qualifying holdings, of which 30%
by value must be ordinary shares which carry no preferential
rights. In addition, it may not invest more than 15% of its
investments in a single company and it must have at least 10% by
value of its total investments in any qualifying company in
qualifying shares approved by HM Revenue & Customs. To be
classed as a VCT qualifying holding, companies in which investments
are made must have no more than GBP15 million of gross assets at
the time of investment (or GBP7 million if the funds being invested
were raised after 5 April 2006).
A number of changes were made to the rules for VCTs in the 2007
Budget. The cash element of disposals of qualifying investments are
treated as occurring six months later for the purpose of
maintaining the 70% qualifying holding condition. Money raised in
future tax years will only be able to be invested in companies with
less than 50 employees and not more than GBP2m can be invested in a
company by venture capital schemes within one year.
EU State Aid approval for VCT tax reliefs was received on 29
April 2009, subject to the following four further changes, which
came into force under the Finance Act 2010 from 6 April 2011:
1) Territorial rules were relaxed, such that companies are only
required to have a 'permanent establishment' in the UK;
2) 'Enterprises in difficulty' are excluded from qualifying;
3) 49% of total funds raised have to be in ordinary shares (up
from 21%); and
4) VCTs are allowed to list on any 'European Union Regulated
Market'.
In the March 2011 budget statement the government has announced
its intention to reverse several of the changes to the qualifying
tests from the Finance Act 2007, including allowing up to GBP10m to
be invested in a company from VCT and EIS investors in any one
year, raising the gross assets test prior to investment from GBP7m
up to GBP15m, and increasing the limit on the number of employees
that an investee company may have at the point of investment from
50 up to 250. At the same time it was indicated that companies
which are in receipt of Feed-In-Tariffs (or equivalent) will no
longer be eligible to receive VCT funding, with certain provisions
applied to the timing of introducing this change.
Management
The board has delegated the management of the investment
portfolio to the Manager and the Manager also provides or procures
the provision of company secretarial and administrative services to
the Company.
Principal Risks and Uncertainties
The board considers that the Company faces the following major
risks and uncertainties:
Investment Risk
A substantial portion of the Company's investments are in small
AIM traded companies as well as some unquoted companies. By their
nature these investments involve a higher degree of risk than
investment in larger fully listed companies. These companies tend
to have limited product lines and niche markets. They can be
reliant on a few key individuals. They can be dependent on securing
further financing. In addition, the liquidity of these shares can
be low and the share prices volatile.
To reduce the risk, the board places reliance upon the skills
and expertise of the Manager and its strong track record for
investing in this segment of the market. Investments are actively
and regularly monitored by the Manager and the board receives
detailed reports on the portfolio in addition to the Manager's
report at regular board meetings. The Manager also seeks to limit
these risks through building a highly diversified portfolio with
companies in different sectors and markets at different stages of
development.
Venture Capital Trust Approval Risk
The current approval as a venture capital trust allows investors
to take advantage of income tax reliefs on initial investment and
ongoing tax-free capital gains and dividend income. Failure to meet
the qualifying requirements could result in investors losing the
income tax relief on initial investment and loss of tax relief on
any tax-free income or capital gains received. In addition, failure
to meet the qualifying requirements could result in a loss of
listing of the shares.
To reduce this risk, the board has appointed the Manager which
has significant experience in venture capital trust management, and
is used to operating within the requirements of the venture capital
trust legislation. In addition, to provide further formal
reassurance, the board has appointed PricewaterhouseCoopers LLP
("PwC") as taxation adviser to the Company. PwC reports every six
months to the board to confirm independently compliance with the
venture capital legislation, to highlight areas of risk and to
inform on changes in legislation.
Compliance Risk
The Company is listed on the London Stock Exchange and is
required to comply with the rules of the UK Listing Authority, as
well as with the Companies Acts, Accounting Standards and other
legislation. Failure to comply with these regulations could result
in a delisting of the Company's shares, or other penalties under
the Companies Acts or from financial reporting oversight
bodies.
Board members and the Manager have considerable experience of
operating at senior levels within quoted businesses. In addition,
the board and the Manager receive regular updates on new regulation
from the auditor, lawyers and other professional bodies.
Internal Control Risk
Failures in key controls, within the board or within the
Manager's business could put assets of the Company at risk or
result in reduced or inaccurate information being passed to the
board or to shareholders.
By its nature, as a venture capital trust, the Company is
exposed to market price risk, credit risk, liquidity risk and
interest rate risk. The Company's policies for managing these risks
are outlined in full in notes 22 to 25 to the financial
statements.
The Company is financed through equity.
Economic Risk
Events such as economic recession and movement in interest rates
can affect investor sentiment towards liquidity risk, and hence
have a negative impact on the valuation of smaller companies. The
Manager seeks to mitigate this risk by seeking to adopt a suitable
investment style for the current point in the business cycle, and
to diversify the exposure to geographic end markets.
Reputational Risk
Inadequate or failed controls might result in breaches of
regulations or loss of shareholder trust. Details of the Company's
internal controls are in the Statement of Corporate Governance.
Operational Risk
Failure of the Manager's, or other contracted third parties',
accounting systems or disruption to their businesses might lead to
an inability to provide accurate reporting and monitoring. The
Manager regularly reviews the performance of third party suppliers
at monthly management meetings and quarterly board meetings of the
Manager.
Liquidity Risk
The Company's investments may be difficult to realise. As a
closed-ended vehicle the Company does have the long-term funding
appropriate to making investments in illiquid companies. However,
if the underlying investee companies run into difficulties then
their shares can become illiquid for protracted periods of time. In
these circumstances the Manager would work with the investee
company and its advisors to seek appropriate solutions.
Market Risk
Investment in AIM-traded, PLUS-traded and unquoted companies, by
its nature, involves a higher degree of risk than investment in
companies on the main market. In particular, smaller companies
often have limited product lines, markets or financial resources
and may be dependent for their management on a smaller number of
key individuals. At times of adverse market sentiment the shares of
small companies can become very difficult to sell, and values can
fall rapidly. The Company's closed-end structure is important in
this regard, in that it is less likely to become a forced seller at
such points. The Company's investment policy also allows the
Manager to invest in much larger more liquid companies through
non-qualifying holdings. These can provide liquidity in times of
market adversity.
The board seeks to mitigate the internal risks by setting
policy, regular reviews of performance, enforcement of contractual
obligations and monitoring progress and compliance. Details of the
Company's internal controls are in the Statement of Corporate
Governance.
Directors
The biographies of directors are included in these financial
statements. The terms of the directors' appointment and replacement
are set out in the Statement of Corporate Governance.
The directors who held office during the year and their
interests in the shares of the Company (including beneficial and
family interests) were:
31 January 2011 31 January 2010
Shares held Shares held
--------------------- ---------------- ----------------
Christopher Moorsom 65,741 22,741
David Page 38,309 5,689
James Hambro 31,926 22,136
Mike Killingley 40,725 27,225
There have been no changes in the holdings of the directors
between 31 January 2011 and the date of this report.
Details of their remuneration are set out in the directors'
remuneration report.
Companies Act 2006 Disclosures
The board recognises the requirement under Section 417(5) of the
Act to detail information about environmental matters (including
the impact of the Company's business on the environment), any
Company employees and social and community issues; including
information about any policies it has in relation to these matters
and effectiveness of these policies. As the Company has no
employees or policies in these matters this requirement does not
apply.
Share Capital
The Company has an authorised share capital of 100,000,000
ordinary shares of 5p each, of which 43,557,324 were legally in
issue at the year end (see Note 11).
The rights and obligations attaching to the Company's ordinary
shares are set out in the Company's Articles of Association, copies
of which can be obtained from Companies House. The holders of
ordinary shares are entitled to receive dividends when declared, to
receive the Company's report and accounts, to attend and speak at
general meetings, to appoint proxies and to exercise voting rights.
There are no restrictions on the voting rights attaching to the
Company's shares or the transfer of securities in the Company.
Management Agreement
Amati Global Investors were appointed as Manager to the Company
on 22 March 2010. Under an Investment Management and Administration
Agreement ("IMA") dated 22 March 2010 the Manager has agreed to
manage the investments and other assets of the Company on a
discretionary basis subject to the overall policy of the directors.
The Company will pay to the Manager under the terms of the IMA a
fee of 1.75% of the net asset value of the Company in arrears.
Until 22 March 2010 the Company's investment manager was
Williams de Broe Limited, a subsidiary of The Evolution Group PLC.
Following a period of disappointing performance and having
conducted a review of VCT managers, the Board was pleased to
appoint Amati Global Investors Limited as the new investment
manager.
Administration Arrangements
Under the IMA, the Manager has also agreed to provide certain
portfolio management, secretarial and administration services for
the Company. A fee of GBP65,000 per annum is payable by the Company
to the Manager for these services, subject to an annual increase in
line with the retail prices index. The fee for the year ended 31
January 2011 is GBP65,000. These services are subject to
termination by either party of 12 months' notice.
Fund Manager's Engagement
The board regularly appraises the performance and effectiveness
of the managerial and secretarial arrangements of the Company. As
part of this process, the board will consider the arrangements for
the provision of investment management and other services to the
Company on an ongoing basis and a formal review is conducted
annually. In the opinion of the board, the continuing appointment
of the Manager, on the terms agreed, is in the interests of the
shareholders. The directors are satisfied that the Manager will
continue to manage the Company in a way which will enable the
Company to achieve its objectives.
Details of the principal investments made by the Company are
shown in the portfolio of investments.
The ratio of the Company's expenses for the year ended 31
January 2011 as a proportion of the net assets of the Company was
2.9% (31 January 2010: 3.2% restated).
Supplier Payment Policy
The Company's policy is to pay all suppliers' invoices in
accordance with agreed terms. The trade creditors as at 31 January
2011 were GBPnil (31 January 2010: GBPnil).
VCT Status Adviser
The Company has retained PwC to advise it on compliance with VCT
requirements. PwC reviews new investment opportunities, as
appropriate, and reviews regularly the investment portfolio of the
Company. PwC works closely with the Manager but reports directly to
the board.
Auditor
PwC resigned as auditor to the Company on 12 January 2011.
Following a review of audit service providers led by Mike
Killingley, chairman of the audit committee, the audit committee
recommended to the Board the appointment of PKF (UK) LLP as
auditor. The Board recommends the services of PKF (UK) LLP to
shareholders and a resolution to appoint PKF (UK) LLP as auditor
will be proposed at the forthcoming annual general meeting.
Substantial Shareholdings
At the date of this report there was no individual shareholding
exceeding 3% of the issued ordinary share capital.
Accountability and Audit
The statement of directors' responsibilities is set out in this
report. The independent auditor's report is set out in this report.
The directors who were in office on the date of approval of these
Annual Report and Financial Statements have confirmed that, as far
as they were aware, there is no relevant audit information of which
the auditor is unaware. Each of the directors has taken all the
steps they ought to have taken as directors in order to make
themselves aware of any relevant audit information and to establish
that it has been communicated to the auditor.
Annual General Meeting
The annual general meeting will be held at the offices of J O
Hambro Capital Management Limited, Ground Floor, Ryder Court, 14
Ryder Street, London SW1Y 6OB on Tuesday 14 June 2011 at 11.30 am.
The notice of meeting is set out in this Annual Report and a proxy
form is included. The following denotes the business to take
place:
Ordinary business
Resolution 1: Approval of the Annual Report
Shareholders will be asked to receive the directors' report and
financial statements for the financial year ended 31 January 2011,
together with the independent auditor's report thereon.
Resolution 2: Approval of the Directors' Remuneration Report
Under Regulation 11 and Schedule 8 of the Large and Medium Sized
Companies and Groups (Accounts and Reports) Regulations 2008, the
Company is required to produce a directors' remuneration report for
each relevant financial year and shareholders are invited to
approve that report for the financial year ended 31 January 2011
which is set out in full in this Annual Report. The directors'
remuneration report includes details of the remuneration paid to
directors and the Company's remuneration policy for its directors.
The vote on this Resolution is advisory and no aspect of an
individual director's entitlement to remuneration is condition upon
the passing of this Resolution.
Resolution 3: Approval of a final dividend of 2.0p per share
Shareholders will be asked to approve a final dividend of 2.0p
per share payable to shareholders on the register at 24 June
2011.
Resolutions 4 and 5: Appointment of auditor
These resolutions provide for the appointment of PKF(UK) LLP as
auditor to the Company to hold office from the conclusion of the
annual general meeting until the conclusion of the next annual
general meeting at which accounts are laid before the Company and
to authorise the directors to fix the auditor's remuneration.
Resolution 6: Re-election of Mr C J L Moorsom
Mr Christopher Moorsom will retire by rotation, and being
eligible, offers himself for re-election.
Resolution 7: Re-election of Mr D Page
Mr David Page will retire by rotation, and being eligible,
offers himself for re-election.
Special business
Resolution 8: Renewal of authority for directors to allot
shares
Shareholders will be asked to renew the directors' authority to
allot unissued ordinary shares in the Company up to an aggregate
nominal value of GBP2,822,133 which represents the balance of the
unissued share capital at 6 May 2011. Shareholders last granted
such general authority to the directors at the annual general
meeting of the Company on 15 June 2010.
Resolution 8 seeks to renew this authority. Whilst the directors
have no current plans to utilise the authority, the resolution
provides the Company with the flexibility to issue shares going
forward. This authority will expire on the earlier of the next
annual general meeting in 2012 and the date which is 15 months
after the date on which this resolution is passed. As at 6 May 2011
the Company did not hold any shares in treasury.
Resolution 9: Renewal of authority for directors to disapply
pre-emption rights in respect of their authority to allot
shares
Shareholders will be asked to renew the directors' authority to
disapply pre-emption rights in respect of their authority to allot
unissued ordinary shares of the Company up to an aggregate nominal
value of GBP2,822,133 which represents the balance of the unissued
share capital as at 6 May 2011.
If the directors wish to allot any of the unissued ordinary
shares for cash they must, in the first instance, offer them to
existing shareholders in proportion to their shareholding. There
may be occasions, however, when the directors will need the
flexibility to finance business opportunities by the issue of
ordinary shares without a pre-emptive offer to existing
shareholders. Shareholders last granted authority to directors to
disapply pre-emptive rights at the annual general meeting of the
Company on 15 June 2010. The general authority sought under
Resolution 9 will expire on the earlier of the date of the next
annual general meeting of the Company in 2012 and the date which is
15 months after the date on which this resolution is passed.
Special Business
Resolution 10: Renewal of authority for the Company to purchase
its own shares
The directors are aware that there is an illiquid market in the
Company's shares and that at 6 May 2011 the shares are trading
below net asset value. The directors therefore consider that the
Company should have the ability to make market purchases of its
ordinary shares in the market for cancellation. A special
resolution will be proposed at the annual general meeting seeking
authority for the Company to purchase up to 14.99% of the issued
share capital as at the date of the annual general meeting. This
authority will expire on the earlier of the date of the Company's
annual general meeting to be held in 2012 and the date which is 18
months after the date on which this resolution is passed. It is the
directors' intention to seek to renew this general authority
annually, and more frequently if required.
By order of the board
The City Partnership (UK) Limited
Company Secretary
9 May 2011
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the directors'
report, the directors' remuneration report and the financial
statements in accordance with applicable law and regulations. They
are also responsible for ensuring that the annual report includes
information required by the Listing Rules of the Financial Services
Authority.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have elected to prepare the financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law) . Under company
law the directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state
of affairs of the Company and of the profit or loss of the Company
for that period. In preparing these financial statements the
directors are required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgments and estimates that are reasonable and
prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company's website. Legislation in the United Kingdom governing the
preparation and dissemination of the financial statements and other
information included in annual reports may differ from legislation
in other jurisdictions.
The directors confirm, to the best of their knowledge:
-- that the financial statements, which have been prepared in
accordance with UK Generally Accepted Accounting Practice, give a
true and fair view of the assets, liabilities, financial position
and profit of the Company; and
-- that the management report included within the Board review,
Fund Manager's review and Directors' report and business review
includes a fair review of the development and performance of the
business and the position of the Company, together with a
description of the principal risks and uncertainties that it
faces.
The names and functions of all the directors are stated in these
financial statements.
STATEMENT OF CORPORATE GOVERNANCE
Background
The board of ViCTory VCT PLC has considered the principles and
recommendations of the AIC Code of Corporate Governance ("AIC
Code") by reference to the AIC Corporate Governance Guide for
Investment Companies ("AIC Guide"). The AIC Code, as explained by
the AIC Guide, addresses all the principles set out in Section 1 of
the Combined Code, as well as setting out additional principles and
recommendations on issues which are of specific relevance to the
Company.
The board considers that reporting against the principles and
recommendations of the AIC Code, and by reference to the AIC Guide
(which incorporates the Combined Code), will provide better
information to shareholders.
The Company has complied with the recommendations of the AIC
Code and the relevant provisions of Section 1 of the Combined Code
except as set out below.
The UK Corporate Governance Code includes provisions relating
to:
-- the role of the chief executive
-- executive directors' remuneration
-- the need for an internal audit function
For the reasons set out in the AIC Guide, and in the preamble to
the Combined Code, the board considers these provisions are not
relevant to the position of the Company, being an externally
managed investment company. The Company has therefore not reported
further in respect of these provisions
Board of Directors
The Company has a board of four directors, all of whom are
considered independent non-executive directors under the AIC Code.
The chairman is Christopher Moorsom. James Hambro has held the
position of Senior Independent Director throughout the year. In
this role, James Hambro along with the Chairman are recognised as
the senior board members to whom concerns can be conveyed.
Biographical details of all directors are shown in these financial
statements.
All directors are subject to re-election by shareholders at the
first opportunity after their appointment and to further
re-election thereafter at three year intervals.
Directors' retirement and re-election are subject to the
Articles of Association and the AIC Code of Corporate Governance.
At the forthcoming annual general meeting Christopher Moorsom and
David Page will retire by rotation and stand for re-election. As
both directors have acted in the interests of the Company
throughout the period of their appointment and demonstrated
commitment to their roles the board recommends they be re-elected
at the annual general meeting.
No director has a contract of service with the Company. All of
the directors have been provided with letters of appointment which
are available for inspection by shareholders immediately before and
after the Company's annual general meeting.
Directors are provided with key information on the Company's
activities including regulatory and statutory requirements and
internal controls by the Manager. The Manager, in the absence of
explicit instructions from the board, is empowered to exercise
discretion in the use of the Company's voting rights. All
shareholdings are voted, where practical, in accordance with the
Manager's own corporate governance policy, which is to seek to
maximise shareholder value by constructive use of votes at company
meetings and by endeavouring to use its influence as an investor
with a principled approach to corporate governance. The board has
direct access to secretarial advice and compliance services through
the company secretary, who is responsible for ensuring that board
procedures are followed and applicable procedures complied
with.
All directors are able to take independent professional advice
in furtherance of their duties if necessary. In accordance with the
AIC Code, the Company has in place directors' and officers'
liability insurance. On appointment any new director will be given
a comprehensive introduction to the Company's business including
meeting the Company's key advisers.
When directors have concerns that cannot be resolved about the
running of the Company or a proposed action, they are asked to
ensure that their concerns are recorded in a board minute. On
resignation, a director who has any such concerns is encouraged to
provide a written statement to the Chairman, for circulation to the
board.
The board is responsible to shareholders for the proper
management of the Company and meets at least quarterly. The AIC
Code states that the board should have a formal schedule of matters
specifically reserved to it for decision, to ensure that it has
firm direction and control of the Company. This is achieved by a
management agreement between the Company and the Manager, which
sets out the matters over which the Manager has authority and the
limits above which board approval must be sought. All other matters
including strategy, investment and dividend policies, gearing and
corporate governance proceedings are reserved for the approval of
the board of directors.
All the directors are equally responsible for the proper conduct
of the Company's affairs. In addition, the directors are
responsible for ensuring that the policies and operations are in
the best interests of all the Company's shareholders and that the
best interests of creditors and suppliers to the Company are
properly considered.
The chairman and the company secretary establish the agenda for
each board meeting. The necessary papers for each meeting are
distributed well in advance of each meeting ensuring all directors
receive accurate, timely and clear information.
Independence of Directors
The board regularly reviews the independence of each director
and of the board as a whole. The board believes that each director
has demonstrated that he is independent in character and judgment
and there are no relationships or circumstances which could affect
their objectivity.
Board Performance
During the year, the performance of the board, committees and
individual directors was evaluated through an assessment process
led by the Chairman.
The directors seek to ensure that the board has an appropriate
balance of skills, experience and length of service. The
biographies of the directors demonstrate the wide range of
investment, commercial and professional experience that they
contribute. The size and composition of the board and its
committees is considered adequate for the effective governance of
the Company.
Board Committees
Copies of the terms of reference of the Company's board
committees are available from the company secretary and can be
found on Amati's website: www.amatiglobal.com.
Audit Committee
A fully constituted committee of the board of directors is
established to perform the duties set out below and to report on
those matters to the board.
-- to monitor the integrity of the Company's financial
statements and any formal announcements relating to the Company's
financial performance, reviewing significant financial reporting
judgements contained in them.
-- to review the Company's financial reporting, internal control
and risk management procedures.
-- to make recommendations to the board for it to put to
shareholders for their approval at the AGM, in relation to the
appointment, re-appointment and removal of the external auditor and
to approve the remuneration and terms of engagement of the external
auditor.
-- to review and monitor the external auditor's independence and
objectivity and the effectiveness of the audit process, taking into
consideration relevant UK professional and regulatory
requirements.
-- to develop and implement policy on the engagement of the
external auditor to supply non-audit services, taking into account
relevant ethical guidance regarding the provision of non-audit
services by the external audit firm.
-- to report to the board, identifying any matters in respect of
which it considers that action or improvement is needed and making
recommendations as to the steps to be taken.
-- to review the Manager's arrangements for "whistleblowing" so
that the committee might satisfy itself as to the adequacy of the
Manager's arrangements for its staff to raise concerns about
possible improprieties of financial reporting or otherwise
-- the chairman shall attend the AGM of the Company prepared to
respond to any shareholder questions on the committee's
activities.
The audit committee comprises Mike Killingley (chairman),
Christopher Moorsom, James Hambro and David Page. Christopher
Moorsom is an independent non-executive director therefore under
the AIC Code it is considered appropriate that he be a member of
the audit committee.
The audit committee meets twice a year to review the Annual and
Half-yearly Statements before submission to the Board. The audit
committee reviews the services of the auditor on an annual basis
and recommends the services of PKF (UK) LLP to the shareholders in
view of the firm's extensive experience in auditing Venture Capital
Trusts. PKF (UK) LLP were appointed as auditor during the year
following a competitive tender process led by the chairman of the
audit committee.
Due to the size of the Board it is considered appropriate that
all Directors be members of the audit committee.
Nomination Committee
As the Board is small and consists of non-executive directors
and in view of the nature of a Venture Capital Trust Company it has
been decided that a Nomination Committee does not need to be
formed. The appointment of new directors is decided by the whole
Board. There have been no new appointments during the financial
year to 31 January 2011 or to the date of this report.
Remuneration Committee
As stated in the Directors' Remuneration Report on pages -- and
-- where a Venture Capital Trust Company has no executive
directors, the Combined Code principles relating to directors'
remuneration do not apply and as such no Remuneration Committee has
been appointed. The remuneration of the directors is reviewed by
the whole board although no director is involved in setting his own
remuneration.
Board and Committee Meetings
The following table sets out the directors' attendance at full
board and committee meetings held during the year ended 31 January
2011.
Audit Committee
Board meetings Meetings
Director held attended held attended
--------------------- ------ --------- ------ ----------
Christopher Moorsom 4 4 2 2
James Hambro 4 3 2 1
Mike Killingley 4 4 2 2
David Page 4 4 2 2
--------------------- ------ --------- ------ ----------
The board is in regular contact with the Manager between board
meetings.
Relations with Shareholders
The Company welcomes the views of shareholders and places great
importance on communication with its shareholders. Shareholders
have the opportunity to meet the board at the annual general
meeting. All shareholders are welcome to attend the meeting and to
ask questions of the directors. The board is also happy to respond
to any written queries made by shareholders during the course of
the year. All communication from shareholders is recorded and
reviewed by the board to ensure that shareholder enquiries are
promptly and adequately resolved.
The notice of the annual general meeting accompanies this annual
report, which is sent to shareholders. A separate resolution is
proposed for each substantive issue. The board and representatives
of the Manager are available to answer any questions shareholders
may have.
The Company also communicates with shareholders through annual
and half-yearly reports, which appear on the Company's website
(http://www.amatiglobal.com/vict_literature.php) and through the
interim management statements. The board as a whole approves the
terms of the Board review and Fund Manager's Review which form part
of these reports in order to ensure that they present a balanced
and understandable assessment of the Company's position.
Internal Control
The board acknowledges that it is responsible for the Company's
internal control systems and for reviewing their effectiveness. In
accordance with the AIC Code, the board has established an ongoing
process for identifying, evaluating and managing the significant
risks faced by the Company. Internal controls are designed to
manage the particular needs of the Company and the risks to which
it is exposed. The internal control systems aim to ensure the
maintenance of proper accounting records, the reliability of the
financial information upon which business decisions are made and
which is used for publication, and that the assets of the Company
are safeguarded. They can by their nature only provide reasonable
and not absolute assurance against material misstatement or loss.
The financial controls operated by the board include the
authorisation of the investment strategy and regular reviews of the
results and investment performance.
The board has delegated contractually to third parties the
management of the investment portfolio, the custodial services,
including the safeguarding of the assets, the day-to-day
accounting, company secretarial and administration requirements and
registration services.
Each of these contracts was entered into after full and proper
consideration by the board of the quality and cost of services
offered. The board receives and considers regular reports from the
Manager. Ad hoc reports and information are supplied to the board
as required. It remains the role of the board to keep under review
the terms of the management agreement with the Manager.
An annual review of the control systems is carried out which
covers consideration of the key risks in three major areas:
corporate strategy and compliance with laws and regulations;
financial management and company reporting and relationships with
service providers. Each risk is considered with regard to the
controls exercised at board level, reporting by service providers
and controls relied upon by the board. The company secretary
reviews the annual statutory accounts to ensure compliance with
Companies Acts and the AIC Code. The principal features of the
internal control systems which the Company has in place in respect
of financial reporting include segregation of duties between the
review and approval of unquoted investment valuations and the
recording of these valuations in the accounting records, bank
reconciliations are carried out on a monthly basis and the audit
committee reviews financial information prior to its
publication.
Whistle Blowing
The board has considered arrangements by which staff of the
Manager or the company secretary may, in confidence, raise concerns
within their respective organisations about possible improprieties
in matters of financial reporting or other matters. It has
concluded that adequate arrangements are in place for proportionate
and independent investigation of such matters, and where necessary,
for appropriate follow-up action to be taken within their
respective organisations.
Going Concern
In accordance with FRC Guidance for directors on going concern
and liquidity risk the directors are of the opinion that, at the
time of approving the financial statements, the Company has
adequate resources to continue in business for the foreseeable
future. In reaching this conclusion the Directors took into account
the nature of the Company's business and Investment Policy, its
risk management policies, the diversification of its portfolio, the
cash holdings and the liquidity of non-qualifying investments. The
Company's business activities, together with the factors likely to
affect its future development, performance and position are set out
in the Directors' Report and Business Review. As a consequence, the
directors believe that the Company is well placed to manage its
business risks successfully. The directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. Thus the
directors believe it is appropriate to continue to apply the going
concern basis in preparing the financial statements.
Listing Rule Disclosures DTR 7.2.6
The Company has one class of share, ordinary shares, which carry
no right to fixed income. Details of the Company's share capital,
including the number of shares authorised and allotted and rights
attached to such shares are set out in the Directors' Report and
Business Review.
There were no shareholders with a significant holding as at the
year end and the date of this report.
The Company may by ordinary resolution appoint any person who is
willing to act as a Director, either to fill a vacancy or as an
additional Director. Each Director is to be appointed by separate
resolution.
The Company may by special resolution make amendment to the
Company's Articles of Association,
The authority to allot securities (in accordance with section
551 of the Companies Act 2006) and to re-purchase its own issued
share capital was renewed at the AGM held in 2010 and these
authorities will be renewed again at the AGM to be held on 14 June
2011.
C J L Moorsom
Chairman
9 May 2011
DIRECTORS' REMUNERATION REPORT
Introduction
The board has prepared this report in accordance with the
requirements of the Companies Act 2006 and The Large and
Medium-sized Company and Groups (Accounts and Reports) Regulations
2008. An ordinary resolution for the approval of this report will
be put to the members at the forthcoming annual general
meeting.
The law requires that the Company's auditor audit certain
disclosures. Where disclosures have been audited, they are
indicated as such. The auditor's opinion is included in the
Independent Auditor's Report.
Policy on Directors' Fees
The board's policy is that the remuneration of directors should
reflect the experience of the board as a whole, be fair and
comparable with that of other companies that are similar in size
and nature to the Company and have similar objectives and
structures. Furthermore, the level of remuneration should be
sufficient to attract and retain the directors required to oversee
effectively the Company and to reflect the specific circumstances
of the Company, the duties and responsibilities of the directors
and the value and amount of time committed to the Company's
affairs. It is the intention of the board that, unless any revision
to this policy is deemed necessary, this policy will continue to
apply in the forthcoming and subsequent financial years.
The fees for the directors are set within maximum limits
determined from time to time by the Company in general meeting. At
present, the maximum aggregate remuneration is as contained in the
Company's Articles, which limit the fees payable to the directors
to GBP90,000 per annum in aggregate. The directors are not eligible
for bonuses, pension benefits, share options, long-term incentive
schemes or other benefits.
Directors' Service Contracts
No director has a contract of service with the Company. All of
the directors have been provided with letters of appointment. The
letters of appointment provide that directors are appointed for a
period of up to three years and are subject to re-election by
shareholders at the first annual general meeting after their
appointment. Thereafter they must retire at intervals of no more
than three years. Their re-election is subject to shareholder
approval. The letters of appointment are available for inspection
on request. Any director who has served on the board for more than
nine years will submit themselves for re-election annually. There
is no period of notice to be given to terminate the letters of
appointment and no provision for compensation upon early
termination of appointment.
The following table shows, for each director, the original
appointment date and the annual general meeting (AGM) at which they
may stand for re-election.
Director Date of original appointment Due date for re-election
-------------------- ----------------------------- -------------------------
Christopher Moorsom 12 June 2003 2011 AGM
James Hambro 22 February 2006 2012 AGM
Mike Killingley 22 February 2006 2012 AGM
David Page 1 August 2004 2011 AGM
-------------------- ----------------------------- -------------------------
Directors' Remuneration (Audited)
2011 2010
Director GBP GBP
----------------------------------------------- ------- -------
Christopher Moorsom 18,000 18,000
James Hambro 15,000 15,000
Mike Killingley 15,000 15,000
David Page 15,000 15,000
Dominic Wheatley (resigned 15 September 2009) - 9,375
----------------------------------------------- ------- -------
63,000 72,375
----------------------------------------------- ------- -------
The fees in respect of James Hambro are paid to charity.
None of the directors received any other remuneration during the
year.
No element of the directors' remuneration is performance
related. The Company has not awarded any share options or long-term
performance incentives to any of the directors.
On behalf of the Board
C J L Moorsom
Chairman
9 May 2011
INDEPENDENT AUDITOR'S REPORT
to the Members of ViCTory VCT PLC
We have audited the financial statements of ViCTory VCT PLC for
the year ended 31 January 2011 which comprise the income statement,
the reconciliation of movements in shareholders' funds, the balance
sheet, the cash flow statement and the related notes. The financial
reporting framework that has been applied in their preparation is
applicable law and United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice).
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of directors and auditor
As explained more fully in the statement of directors'
responsibilities, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit the financial
statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board's Ethical Standards for
Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the financial statements. In addition, we
read all the financial and non-financial information in the annual
report to identify material inconsistencies with the audited
financial statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Opinion on financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the company's
affairs as at 31 January 2011 and of its profit for the year then
ended;
-- have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
-- have been prepared in accordance with the requirements of the
Companies Act 2006.
Opinion on other matters prescribed by the Companies Act
2006
In our opinion :
-- the part of the directors' remuneration report to be audited
has been properly prepared in accordance with the Companies Act
2006;
-- the information given in the directors' report for the
financial year for which the financial statements are prepared is
consistent with the financial statements; and
-- the information given in the corporate governance statement
in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Rules
and Transparency Rules sourcebook issued by the Financial Services
Authority (information about internal control and risk management
systems in relation to financial reporting processes and about
share capital structures) is consistent with the financial
statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
-- adequate accounting records have not been kept, or returns
adequate for our audit have not been received from branches not
visited by us; or
-- the financial statements and the part of the directors'
remuneration report to be audited are not in agreement with the
accounting records and returns; or
-- certain disclosures of directors' remuneration specified by
law are not made; or
-- we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
-- the directors' statement, in relation to going concern;
and
-- the part of the corporate governance statement relating to
the company's compliance with the nine provisions of the June 2008
Combined Code specified for our review.
Rosemary Clarke (Senior statutory auditor)
for and on behalf of
PKF (UK) LLP, Statutory auditor
London, UK
9 May 2011
INCOME STATEMENT
for the year ended 31 January 2011
2010 2010 2010
2011 2011 2011 Revenue Capital Total
Revenue Capital Total GBP'000 GBP'000 GBP'000
Notes GBP'000 GBP'000 GBP'000 Restated* Restated* Restated*
--------------- ------ -------- -------- -------- ---------- ---------- ----------
Return/(loss)
on
investments 8 - 2,710 2,710 - (724) (724)
--------------- ------ -------- -------- -------- ---------- ---------- ----------
Income 2 248 - 248 342 - 342
--------------- ------ -------- -------- -------- ---------- ---------- ----------
Investment
management
fee 3 (80) (239) (319) (72) (216) (288)
--------------- ------ -------- -------- -------- ---------- ---------- ----------
Other expenses 5 (277) - (277) (302) - (302)
--------------- ------ -------- -------- -------- ---------- ---------- ----------
Profit/(loss)
on ordinary
activities
before
taxation (109) 2,471 2,362 (32) (940) (972)
--------------- ------ -------- -------- -------- ---------- ---------- ----------
Taxation on
ordinary
activities 6 - - - - - -
--------------- ------ -------- -------- -------- ---------- ---------- ----------
Profit/(loss)
on ordinary
activities
after
taxation (109) 2,471 2,362 (32) (940) (972)
--------------- ------ -------- -------- -------- ---------- ---------- ----------
Basic and
diluted
(loss)/return
per Ordinary
share 7 (0.25)p 5.67p 5.42p (0.07)p (2.16)p (2.23)p
--------------- ------ -------- -------- -------- ---------- ---------- ----------
The total column is the profit and loss account of the Company,
with the revenue and capital columns representing supplementary
information under the Statement of Recommended Practice, 'Financial
Statements of Investment Trust Companies and Venture Capital
Trusts' ("SORP") revised in January 2009.
All revenue and capital items derive from continuing
operations.
No operations were acquired or discontinued during the year.
There were no other recognised gains or losses in the year.
The difference between the reported return on ordinary
activities before tax and the historical profit is due to the fair
value movement on investments. As a result a note on historical
cost profit and loss has not been prepared.
*Restated - see note 12.
The notes form part of these financial statements.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 January 2011
2010
2011 GBP'000
GBP'000 Restated
-------------------------------------------- --------- ----------
Opening shareholders' funds (as previously
stated) 18,330 19,198
-------------------------------------------- --------- ----------
Prior period adjustment - 104
-------------------------------------------- --------- ----------
Opening shareholders' funds (restated) 18,330 19,302
-------------------------------------------- --------- ----------
Profit/(loss) for the year 2,362 (972)
-------------------------------------------- --------- ----------
Closing shareholders' funds 20,692 18,330
-------------------------------------------- --------- ----------
*Restated - see note 12.
The accompanying notes are an integral part of the
statement.
BALANCE SHEET
as at 31 January 2011
2010
2011 GBP'000
Note GBP'000 Restated*
------------------------------------------- ----- --------- -----------
Fixed assets
------------------------------------------- ----- --------- -----------
Investments held at fair value 8 19,215 17,895
------------------------------------------- ----- --------- -----------
Current assets
------------------------------------------- ----- --------- -----------
Debtors 9 1,381 595
------------------------------------------- ----- --------- -----------
Cash at bank 249 1
------------------------------------------- ----- --------- -----------
1,630 596
------------------------------------------- ----- --------- -----------
Current liabilities
------------------------------------------- ----- --------- -----------
Bank overdraft - (25)
------------------------------------------- ----- --------- -----------
Creditors: amounts falling due within one
year 10 (153) (136)
------------------------------------------- ----- --------- -----------
(153) (161)
------------------------------------------- ----- --------- -----------
Net current assets 1,477 435
------------------------------------------- ----- --------- -----------
Total assets less current liabilities 20,692 18,330
------------------------------------------- ----- --------- -----------
Capital and reserves
------------------------------------------- ----- --------- -----------
Called up share capital** 11 2,178 2,178
------------------------------------------- ----- --------- -----------
Share premium account** 12 2,955 2,955
------------------------------------------- ----- --------- -----------
Merger reserve** 12 3,286 4,757
------------------------------------------- ----- --------- -----------
Special reserve 12 18,217 18,217
------------------------------------------- ----- --------- -----------
Capital redemption reserve** 12 558 558
------------------------------------------- ----- --------- -----------
Capital reserve 12 (6,626) (10,568)
------------------------------------------- ----- --------- -----------
Revenue reserve 12 124 233
------------------------------------------- ----- --------- -----------
Equity shareholders' funds 20,692 18,330
------------------------------------------- ----- --------- -----------
Net asset value per share 13 47.51p 42.08p
------------------------------------------- ----- --------- -----------
* Restated - see note 12.
** These reserves are not distributable.
The financial statements were approved and authorised for issue
by the board of directors on 9 May 2011 and were signed on its
behalf by
C J L Moorsom
Chairman
Company Number 04138683
The accompanying notes are an integral part of the balance
sheet.
CASH FLOW STATEMENT
for the year ended 31 January 2011
2011 2010
Note GBP'000 GBP'000
--------------------------------------------- ----- -------- --------
Operating activities
--------------------------------------------- ----- -------- --------
Investment income received 275 339
--------------------------------------------- ----- -------- --------
Deposit interest received - 1
--------------------------------------------- ----- -------- --------
Investment management fees (256) (290)
--------------------------------------------- ----- -------- --------
Other operating costs (312) (331)
--------------------------------------------- ----- -------- --------
Net cash outflow from operating activities 15 (293) (281)
--------------------------------------------- ----- -------- --------
Financial investment
--------------------------------------------- ----- -------- --------
Purchase of investments (9,057) (7,836)
--------------------------------------------- ----- -------- --------
Disposals of investments 10,198 6,516
--------------------------------------------- ----- -------- --------
Net cash inflow/(outflow) from financial
investment 1,141 (1,320)
--------------------------------------------- ----- -------- --------
Net cash inflow/(outflow) before financing 848 (1,601)
--------------------------------------------- ----- -------- --------
Financing
--------------------------------------------- ----- -------- --------
Share buy backs (see note 12) (575) (423)
--------------------------------------------- ----- -------- --------
Net cash outflow from financing (575) (423)
--------------------------------------------- ----- -------- --------
Increase/(decrease) in cash 273 (2,024)
--------------------------------------------- ----- -------- --------
Reconciliation of net cash flow to movement
in net cash
--------------------------------------------- ----- -------- --------
Net cash at 1 February (24) 2,000
--------------------------------------------- ----- -------- --------
Net cash at 31 January 249 (24)
--------------------------------------------- ----- -------- --------
Increase/(decrease) in cash during the
year 273 (2,024)
--------------------------------------------- ----- -------- --------
The accompanying notes are an integral part of the
statement.
NOTES TO THE FINANCIAL STATEMENTS
1 Accounting Policies
Basis of Accounting
The financial statements have been prepared under the historical
cost convention, modified to include a revaluation of fixed asset
investments, and in accordance with applicable Accounting Standards
and law in the United Kingdom and with the SORP.
Income
Dividends on quoted shares are recognised as income on the date
that the related investments are marked ex dividend and, where no
dividend date is quoted, when the Company's right to receive
payment is established.
Fixed returns on non-equity shares and debt securities are
recognised on a time apportionment basis so as to reflect the
effective yield, provided there is no reasonable doubt that payment
will be received in due course. Interest receivable is included in
the accounts on an accruals basis.
Expenses
All expenses are accounted for on an accruals basis. In respect
of the analysis between revenue and capital items presented within
the income statement, all expenses have been prescribed as revenue
items except as follows:
-- Expenses are split and presented partly as capital items
where a connection with the maintenance or enhancement of the value
of the investments held can be demonstrated, and accordingly the
investment management fee is currently allocated 25% to revenue and
75% to capital, which reflects the directors' expected long-term
view of the nature of the investment returns of the Company.
-- Performance fees are paid 100% from capital.
Issue Costs
Issue costs are deducted from the share premium account.
Taxation
Deferred taxation is recognised in respect of all timing
differences that have originated but not reversed at the balance
sheet date. Deferred tax assets are only recognised when they arise
from timing differences where recovery in the foreseeable future is
regarded as more likely than not. Timing differences are
differences arising between the Company's taxable profits and its
results as stated in the financial statements which are capable of
reversal in one or more subsequent periods.
Current tax is expected tax payable on the taxable income for
the period, using tax rates enacted or substantively enacted at the
balance sheet date and any adjustment to tax payable in respect of
previous years. The tax effect of different items of expenditure is
allocated between revenue and capital on the same basis as a
particular item to which it relates, using the Company's effective
rate of tax, as applied to those items allocated to revenue, for
the accounting period.
Investments
Investments are designated on initial recognition as Fair Value
through Profit and Loss and are measured at subsequent reporting
dates at fair value.
Gains and losses arising from changes in fair value are
considered to be realised to the extent that they are readily
convertible to cash in full at the balance sheet date.
Those venture capital investments that may be termed associated
undertakings are carried at fair value as determined by the
directors in accordance with the Company's normal policy as these
investments are held as part of the Company's portfolio with a view
to the ultimate realisation of capital gains. Carrying investments
at fair value is specifically permitted under Financial Reporting
Standard 9 "Associates and Joint Ventures", where venture capital
entities hold investments as part of a portfolio.
In respect of investments that are traded on AIM or PLUS, these
are generally valued at bid prices at close of business on the
Balance sheet date, in accordance with FRS 26.
Unquoted investments are shown at fair value as assessed by the
directors in accordance with International Private Equity Venture
Capital Valuation ("IPEV") guidelines. Valuations of unquoted
investments are reviewed quarterly:
-- where a company is well established after the date of
investment the shares may be valued by using the most appropriate
methodology recommended by the IPEV guidelines, including earnings
multiples, net assets, discounted cashflows and industry valuation
benchmarks.
-- alternatively where a value is indicated by a material
arms-length transaction by a third party in the shares of the
company the valuation will normally be based on this.
Convertible loan stock instruments are valued using a discounted
cash flow calculation of the underlying host loan instrument and by
valuing the option at fair value using an appropriate option
valuation model.
Realised and unrealised surpluses or deficits on the disposal of
investments, the revaluation of investments and permanent
impairments in the value of investments are taken to the capital
reserve.
Financial Instruments
The Company classifies financial instruments, or their component
parts, on initial recognition as a financial asset, a financial
liability or an equity instrument in accordance with the substance
of the contractual arrangement. Financial instruments are
recognised on trade date when the Company becomes a party to the
contractual provisions of the instrument. Financial instruments are
recognised initially at fair value plus, in the case of a financial
instrument not at fair value through profit and loss, transaction
costs that are directly attributable to the acquisition or issue of
the financial instrument.
Financial instruments are derecognised on the trade date when
the Company is no longer a party to the contractual provisions of
the instrument.
Foreign Currency
Foreign currency assets and liabilities are translated into
sterling at the exchange rates ruling at the balance sheet date.
Transactions during the year are converted into sterling at the
rates ruling at the time the transactions are executed. All
exchange differences are reflected in the income statement.
Trade Debtors
Trade debtors are stated at their original invoiced value, as
the difference that would be recognised from discounting future
cash receipts over the short credit period is not considered to be
material. Trade receivables are reduced by appropriate allowances
for estimated irrecoverable amounts. Interest on overdue trade
receivables is recognised as it accrues.
Trade Creditors
Trade creditors are stated at their original invoiced value, as
the difference that would be recognised from discounting future
cash payments over the short payment period is not considered to be
material.
Share Based Payments
In accordance with FRS20: Share Based Payments, an expense is
recognised in the financial statements relating to the value of the
share options awarded to Singer & Friedlander Investment
Management Limited under the arrangements agreed on the merger of
the Company with AIM and AIM2.
The accounting charge is based on the fair value of each grant.
The fair value of Singer & Friedlander Investment Management
Limited's option is determined at the date of grant and is expensed
on a straight-line basis over the vesting period based on the
Company's estimate of shares that will eventually vest. In the case
of the options granted, fair value is measured by a Black-Scholes
pricing model, further details of which are set out in note 4. Any
deemed provision is transferred to a share options reserve.
2 Income
Year to Year to
31 January 31 January
2011 2010
GBP'000 GBP'000
----------------------------------- ----------- -----------
Income:
----------------------------------- ----------- -----------
Dividends from UK companies 152 151
----------------------------------- ----------- -----------
Dividends from overseas companies 14 -
----------------------------------- ----------- -----------
UK loan stock interest 82 191
----------------------------------- ----------- -----------
248 342
----------------------------------- ----------- -----------
3 Investment Management Fees
The Manager provides investment management and secretarial
services to the Company under an investment management agreement.
Details of this agreement are included in these financial
statements.
Investment management fees for the year were as follows:
Year to Year to
31 January 31 January
2011 2010
GBP'000 GBP'000
------------------------------------------------- ----------- -----------
Due to the Manager by the Company at 1 February 23 25
------------------------------------------------- ----------- -----------
Management fee charge to revenue and capital
for the year 319 288
------------------------------------------------- ----------- -----------
Fees paid to the Manager during the year (256) (290)
------------------------------------------------- ----------- -----------
Due to the Manager by the Company at 31 January 86 23
------------------------------------------------- ----------- -----------
4 Singer & Friedlander's option
In accordance with the arrangements agreed on the merger of the
Company with Singer & Friedlander AIM VCT and Singer &
Friedlander AIM2 VCT, Singer & Friedlander Investment
Management Limited were granted an option which provides that if by
the date of payment of the final dividend in respect of the
ordinary shares for the Company's accounting year ending 31 January
2013 cumulative dividends declared and paid on each ordinary share
(by reference to a record date after the merger) exceed a return of
8 per cent (compounded annually) of the net asset value per
ordinary share they will be entitled to subscribe at par for such
number of additional ordinary shares as shall in aggregate be equal
to 15% of ordinary shares in the Company as enlarged by such
subscriptions. If this target dividend rate will have been achieved
by the payment of dividends in 2014 and 2015 Singer &
Friedlander Investment Management Limited will be entitled to
subscribe for such number of additional ordinary shares as shall in
aggregate be equal to 12.5% (2014) and 10% (2015) of ordinary
shares in the Company as enlarged by such subscriptions.
This right is a share based payment under FRS20.
The value of dividends paid since the merger is 6.5p. In order
to exceed the targeted return which triggers Singer &
Friedlander Investment Management Limited's entitlement to
subscribe for additional shares, a further 40.7p of dividends would
require payment by 31 January 2013. Regardless of performance over
this period, the Directors would not sanction this level of
dividend within this period and thus do not foresee any
circumstances under which the option would crystalise. The option
is therefore valued at nil (31 January 2010: nil).
5 Other Expenses
Year to Year to
31 January 31 January
2011 2010
GBP'000 GBP'000
--------------------------------------------- ----------- -----------
Directors' remuneration 63 72
--------------------------------------------- ----------- -----------
Auditor's remuneration - audit of statutory
financial statements 17 35
--------------------------------------------- ----------- -----------
Auditors' remuneration - other services - 10
--------------------------------------------- ----------- -----------
Administration and secretarial services 69 79
--------------------------------------------- ----------- -----------
Other expenses 128 106
--------------------------------------------- ----------- -----------
277 302
--------------------------------------------- ----------- -----------
The Company has no employees other than directors.
Details of directors' remuneration are provided in the audited
section of the directors' remuneration report.
Auditor's remuneration in the year ended 31 January 2011 relates
to the current auditor, PKF (UK) LLP, and in the year ended 31
January 2010 relates to the previous auditor, PwC.
There are no charges for non audit services provided by the
current auditor in the year ended 31 January 2011 relating to tax
compliance work and advice as these are provided by the previous
auditor. The board reviews the nature and extent of non audit
services to ensure that independence is maintained.
6 Tax on Ordinary Activities
6a Analysis of credit for the year
Year to Year to
31 January 31 January
2011 2010
GBP'000 GBP'000
--------------------- ----------- -----------
Charge for the year - -
--------------------- ----------- -----------
The income statement shows the tax credit allocated between
revenue and capital.
6b Factors affecting the tax charge for the year
Year to Year to
31 January 31 January
2011 2010
GBP'000 GBP'000
--------------------------------------------- ----------- -----------
Profit on ordinary activities before
taxation 2,362 (972)
--------------------------------------------- ----------- -----------
Corporation tax at standard rate of 28% 661 (272)
--------------------------------------------- ----------- -----------
Effect of:
--------------------------------------------- ----------- -----------
Movement in excess management expenses 130 107
--------------------------------------------- ----------- -----------
Non-taxable UK dividends (43) (42)
--------------------------------------------- ----------- -----------
Non-taxable (gains)/losses on investments (748) 203
--------------------------------------------- ----------- -----------
Expenses disallowable for taxation purposes - 4
--------------------------------------------- ----------- -----------
Tax charge for the year (note 6a) - -
--------------------------------------------- ----------- -----------
Due to the Company's tax status as an approved Venture Capital
Trust, deferred tax has not been provided on any net capital gains
arising on the disposal of investments as such gains are not
taxable.
No deferred tax asset has been recognised on surplus expenses
carried forward as it is not envisaged that any such tax will be
recovered in the foreseeable future. The amount of carried forward
losses is GBP909,000 (31 January 2010: GBP779,000).
7 Return per Share
The revenue return per share is based on the net loss on
ordinary activities after taxation of GBP109,000 (31 January 2010:
GBP32,000) and on 43,557,324 (31 January 2010: 43,557,324 restated)
shares, being the weighted average number of shares in issue during
the year. The capital return per share is based on the profit on
ordinary activities after taxation of GBP2,471,000 (31 January
2010: loss of GBP940,000) and on 43,557,324 (31 January 2010:
43,557,324 restated) shares, being the weighted average number of
shares in issue during the year. There is no dilutive effect on the
return per share for outstanding convertible securities (as
explained in note 4) therefore considered to be no difference
between the basic and diluted return per share.
8 Investments
Quoted Unquoted
investments investments Total
GBP'000 GBP'000 GBP'000
--------------------------------------- ------------ ------------ ---------
Cost at 1 February 2010 (as previously
stated) 24,430 16,153 40,583
--------------------------------------- ------------ ------------ ---------
Restatement* - (13,280) (13,280)
--------------------------------------- ------------ ------------ ---------
Cost as at 1 February 2010 (restated) 24,430 2,873 27,303
--------------------------------------- ------------ ------------ ---------
Purchases 8,050 1,008 9,058
--------------------------------------- ------------ ------------ ---------
Disposals - proceeds received (10,409) (46) (10,455)
----------- -------------------------- ------------ ------------ ---------
- realised gains on disposal 283 28 311
-------------------------------------- ------------ ------------ ---------
- realisation of revaluation
movements from previous years (3,921) (385) (4,306)
-------------------------------------- ------------ ------------ ---------
Cost at 31 January 2011 18,433 3,478 21,911
--------------------------------------- ------------ ------------ ---------
Unrealised losses at 1 February 2010
(as previously stated) (6,871) (15,817) (22,688)
--------------------------------------- ------------ ------------ ---------
Restatement* - 13,280 13,280
--------------------------------------- ------------ ------------ ---------
Unrealised losses at 1 February 2010
(restated) (6,871) (2,537) (9,408)
--------------------------------------- ------------ ------------ ---------
Unrealised gains on investments during
the year 2,327 79 2,406
--------------------------------------- ------------ ------------ ---------
Realisation of revaluation movements 3,921 385 4,306
--------------------------------------- ------------ ------------ ---------
Unrealised losses at 31 January 2011 (623) (2,073) (2,696)
--------------------------------------- ------------ ------------ ---------
Valuation at 1 February 2010 17,559 336 17,895
--------------------------------------- ------------ ------------ ---------
Valuation at 31 January 2011 17,810 1,405 19,215
--------------------------------------- ------------ ------------ ---------
Equity shares 17,810 507 18,317
--------------------------------------- ------------ ------------ ---------
Loan stock - 898 898
--------------------------------------- ------------ ------------ ---------
Total investments at valuation 17,810 1,405 19,215
--------------------------------------- ------------ ------------ ---------
2011 2010
GBP'000
GBP'000 Restated*
------------------------------------------------------- -------- -----------
Realised gains/(losses) on disposal 311 (5,124)
------------------------------------------------------- -------- -----------
Amortisation of discount on fixed interest securities (82) -
------------------------------------------------------- -------- -----------
Unrealised gains on investments during the year 2,406 4,425
------------------------------------------------------- -------- -----------
Amortisation of discount on fixed interest securities 75 (25)
------------------------------------------------------- -------- -----------
Net gain/(loss) on investments 2,710 (724)
------------------------------------------------------- -------- -----------
*Restatement - 22 investments which had been included at nil
value in previous periods are now considered to be permanently
impaired. A restatement has been made to reflect losses, totalling
GBP13,280,000, realised in previous years.
Transaction Costs
During the year the Company incurred transaction costs of
GBP32,000 (31 January 2010: GBP3,000) and GBP9,000 (31 January
2010: GBPnil) on purchases and sales of investments respectively.
These amounts are included in the gains/(losses) on investments as
disclosed in the income statement.
9 Debtors
2011 2010
GBP'000
GBP'000 Restated*
--------------------------------- -------- -----------
Receivable for investments sold 257 -
--------------------------------- -------- -----------
Prepayments and accrued income 21 68
--------------------------------- -------- -----------
Other debtors - share buy backs 1,103 527
--------------------------------- -------- -----------
1,381 595
--------------------------------- -------- -----------
*Restated - see Note 12.
10 Creditors: Amounts Falling due within One Year
2011 2010
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Related party payables - investment management fees 86 23
----------------------------------------------------- -------- --------
Other creditors 67 113
----------------------------------------------------- -------- --------
153 136
----------------------------------------------------- -------- --------
11 Called Up Share Capital
2011 2010
Number GBP'000
Ordinary shares (5p shares) Number GBP'000 Restated* Restated*
----------------------------- ----------- -------- ----------- -----------
Allotted, issued and fully
paid at 1 February (as
previously stated) 43,557,324 2,178 41,958,437 2,098
----------------------------- ----------- -------- ----------- -----------
Prior period adjustment
2009 378,384 19
----------------------------- ----------- -------- ----------- -----------
Allotted, issued and fully
paid at 1 February
(restated) 43,557,324 2,178 42,336,821 2,117
----------------------------- ----------- -------- ----------- -----------
Prior period adjustment
2010 - - 1,220,503 61
----------------------------- ----------- -------- ----------- -----------
At 31 January 43,557,324 2,178 43,557,324 2,178
----------------------------- ----------- -------- ----------- -----------
*Restated - see note 12.
12 Reserves
Capital
Share Share Merger Special redemption Capital Revenue Total
capital** premium** reserve** reserve reserve** reserve reserve reserves
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ---------- ---------- ---------- -------- ----------- --------- -------- ---------
At 1 February
2010 (as
previously
stated) 2,098 2,955 16,493 17,690 638 (22,304) 233 17,803
---------------- ---------- ---------- ---------- -------- ----------- --------- -------- ---------
Prior period
adjustment 80 - (11,736) 527 (80) 11,736 - 527
---------------- ---------- ---------- ---------- -------- ----------- --------- -------- ---------
At 1 February
2010
(restated) 2,178 2,955 4,757 18,217 558 (10,568) 233 18,330
---------------- ---------- ---------- ---------- -------- ----------- --------- -------- ---------
Transfer of
merger
investment
disposals - - (1,471) - - 1,471 - -
---------------- ---------- ---------- ---------- -------- ----------- --------- -------- ---------
Profit/(loss)
for the year - - - - 2,471 (109) 2,362
---------------- ---------- ---------- ---------- -------- ----------- --------- -------- ---------
At 31 January
2011 2,178 2,955 3,286 18,217 558 (6,626) 124 20,692
---------------- ---------- ---------- ---------- -------- ----------- --------- -------- ---------
*Restatement - During the year it was identified that buybacks
totalling 3,240,564 shares had not been carried out in accordance
with the Companies Act. Under section 692(2) of the Companies Act
2006 a buyback of shares must be financed from distributable
reserves. The relevant accounts filed for 31 January 2009 and 31
January 2010 did not show sufficient distributable reserves under
section 836 and therefore the buybacks have been reversed. The
effect of this on prior years is to restate share capital and the
capital redemption reserve by GBP80,000 and increase the special
reserve by the cost of these buybacks, being GBP527,000. The
payments made in respect of the illegal buybacks in each respective
year are shown in the cash flow statements.The cost of all of the
illegal buybacks undertaken is shown as a debtor which will be
recovered once these financial statements are filed demonstrating
sufficient distributable reserves, allowing the buybacks to be
reinstated.
The merger reserve is a non-distributable reserve and was
created when the company merged with Singer & Friedlander AIM
VCT and Singer & Friedlander AIM 2 VCT in February 2006. It
reflected the excess of the value of the investments acquired over
the nominal value of the ordinary shares issued. Following a
review, and in accordance with ICAEW Technical guidance on
distributable profits (Tech 2/10), it was identified that the
merger reserve should have been released to the realised capital
reserve as the assets acquired as a consequence of the merger were
subsequently disposed of or permanently impaired. Consequently, the
opening merger reserve and realised capital reserve have been
restated in prior years by GBP11,736,000 in respect of assets
disposed of or impaired in prior years. A further transfer of
GBP1,471,000 from the merger reserve to the realised capital
reserve has been made in the current year.
In addition to the restatements in the share capital and
reserves noted above, the restatements also affected the total
shareholders' funds, ordinary shares in issue, net asset value and
return per share figures reported in the previous accounts, which
are now restated accordingly.
**These reserves are not distributable.
The realised and unrealised Capital reserve have been
amalgamated under the revised SORP, as there is no requirement to
show realised and unrealised separately.
At 31 January 2011, the capital reserve constitutes realised
losses of GBP3,930,000 (31 January 2010: GBP1,085,000 restated) and
investment holding losses of GBP2,696,000 (31 January 2010:
GBP9,483,000 restated).
Distributable reserves comprise the special reserve, the revenue
reserve and the capital reserve. At 31 January 2011, the amount of
reserves deemed distributable is GBP11,715,000 (31 January 2010:
GBP7,882,000 restated), a net movement in the period of
GBP3,833,000. The net movement is comprised of the gain on ordinary
activities in the income statement of GBP2,362,000, plus the
transfer of investment losses to the merger reserve of
GBP1,471,000.
13 Net Asset Value per Ordinary Share
The calculation of net asset value per share at 31 January 2011
is based on net assets of GBP20,692,000 (31 January 2010:
GBP18,330,000 restated) divided by the 43,557,324 (31 January 2010:
43,557,324 restated) shares in issue at the year end. There is no
dilutive effect on the net asset value per share for outstanding
convertible securities (as explained in note 4) therefore
considered to be no difference between the basic and diluted net
asset value per share.
14 Analysis of Changes in Cash
2011 2010
GBP'000 GBP'000
----------------------------- -------- --------
At 1 February (24) 2,000
----------------------------- -------- --------
Increase/(decrease) in cash 273 (2,024)
----------------------------- -------- --------
At 31 January 249 (24)
----------------------------- -------- --------
15 Reconciliation of profit/(loss) on Ordinary Activities Before
Taxation to Net Cash Outflow from Operating Activities
2011 2010
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
Profit/(loss) on ordinary activities before taxation 2,362 (972)
--------------------------------------------------------- -------- --------
Net (gains)/losses on investments (2,710) 724
--------------------------------------------------------- -------- --------
Increase/(decrease) in creditors, excluding corporation
tax payable 16 (21)
--------------------------------------------------------- -------- --------
Decrease in debtors 46 13
--------------------------------------------------------- -------- --------
Amortisation of discount on fixed interest securities (7) (25)
--------------------------------------------------------- -------- --------
Net cash outflow from operating activities (293) (281)
--------------------------------------------------------- -------- --------
16 Significant Interests
The Company has the following significant interests (amounting
to an investment of 3% or more of the equity capital of an
undertaking):
Nominal % held
---------------------------------- ---------- -------
Sportsweb.com 58,688 11.4
---------------------------------- ---------- -------
Mediwatch plc 9,523,833 6.8
---------------------------------- ---------- -------
RTC Group plc 537,500 6.0
---------------------------------- ---------- -------
Coolabi plc 2,585,883 4.7
---------------------------------- ---------- -------
Lo-Q plc 748,500 4.6
---------------------------------- ---------- -------
Savile Group plc 600,000 4.0
---------------------------------- ---------- -------
Fulcrum Utility Services Limited 5,167,557 3.3
---------------------------------- ---------- -------
ILX Group plc 890,000 3.3
---------------------------------- ---------- -------
Kiotech International plc 579,710 3.2
---------------------------------- ---------- -------
17 Unquoted investments
During the year the Company made the following material
disposals and write-offs of unquoted investments:
At 31 January 2010 the Company held 18,000 shares in Optimisa at
a cost of GBP403,000 and valuation of GBP19,000. During the year
ended 31 January 2011 the Company fully realised this investment
for GBP46,000.
18 Post Balance Sheet Events
No significant transactions have taken place between 31 January
2011 and the date of this report:
19 Segmental Analysis
The operations of the Company comprise one activity undertaken
wholly in the United Kingdom.
20 Investment in subsidiary
The Company has a subsidiary, Singer & Friedlander AIM 3 VCT
Limited, created for the purpose of keeping the Singer &
Friedlander AIM 3 VCT PLC name. The issued share capital is 1 share
with the nominal value of GBP1 and is 100% owned by ViCTory VCT
PLC. There have been no transactions in this company during the
year. Under section 405 of the Companies Act 2006 this subsidiary
undertaking is excluded from these financial statements as its
inclusion is not material for the purpose of giving a true and fair
view. The financial statements present only information about the
Company as an individual undertaking.
21 Financial Instruments
The Company's financial instruments comprise equity and fixed
interest investments, cash balances and liquid resources including
debtors and creditors. The Company holds financial assets in
accordance with its investment policy to invest in qualifying
investments predominantly in AIM traded companies or companies to
be traded on AIM.
Classification of financial instruments
The Company held the following categories of financial
instruments at 31 January:
2011 2011 2010 2010
---------------------------- ------------- -------- ------------- --------
(Fair (Fair
(Book value) value) (Book value) value)
---------------------------- ------------- -------- ------------- --------
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------- -------- ------------- --------
Assets at fair value
through profit and loss
---------------------------- ------------- -------- ------------- --------
Investment portfolio 19,215 19,215 17,895 17,895
---------------------------- ------------- -------- ------------- --------
Loans and receivables
---------------------------- ------------- -------- ------------- --------
Receivable for investments
sold 257 257 - -
---------------------------- ------------- -------- ------------- --------
Accrued income and other
debtors 1,124 1,124 595 595
---------------------------- ------------- -------- ------------- --------
Cash at bank 249 249 1 1
---------------------------- ------------- -------- ------------- --------
Liabilities measured at
amortised cost
---------------------------- ------------- -------- ------------- --------
Bank overdraft - - (25) (25)
---------------------------- ------------- -------- ------------- --------
Accrued expenses (153) (153) (136) (136)
---------------------------- ------------- -------- ------------- --------
Total for financial
instruments 20,692 20,692 18,330 18,330
---------------------------- ------------- -------- ------------- --------
Total net assets 20,692 20,692 18,330 18,330
---------------------------- ------------- -------- ------------- --------
Fixed asset investments (see note 8) are valued at fair value.
For quoted securities this is generally the bid price. In respect
of unquoted investments, these are valued by the directors using
rules consistent with IPEV guidelines. The fair value of all other
financial assets and liabilities is represented by their carrying
value in the balance sheet.
The Company's investing activities expose it to various types of
risk that are associated with the financial instruments and markets
in which it invests. The most important types of financial risk to
which the Company is exposed are market risk, credit risk and
liquidity risk. The nature and extent of the financial instruments
outstanding at the balance sheet date and the risk management
policies employed by the Company are discussed below.
In order to provide further information on the valuation
techniques used to measure assets carried at fair value, the
measurement basis has been categorised into a "fair value
hierarchy" as follows:
- Quoted market prices in active markets - "Level 1"
Inputs to Level 1 fair values are quoted prices in active
markets. An active market is one in which transactions occur with
sufficient frequency and volume to provide pricing information on
an ongoing basis. The Company's investments classified within this
category are AIM traded companies and fully listed companies.
- Valued using models with significant observable market
parameters - "Level 2"
Inputs to Level 2 fair values are inputs other than quoted
prices included within Level 1 that are observable for the asset,
either directly or indirectly.
- Valued using models with significant unobservable market
parameters - "Level 3"
Inputs to Level 3 fair values are unobservable inputs for the
asset. Unobservable inputs may have been used to measure fair value
to the extent that observable inputs are not available, thereby
allowing for situations in which there is little, if any, market
activity for the asset at the measurement date (or market
information for the inputs to any valuation models). As such,
unobservable inputs reflect the assumptions the Company considers
that market participants would use in pricing the asset. The
Company's unquoted equities and loan stock are classified within
this category. As explained in note 1, unquoted investments are
valued in accordance with the International Private Equity and
Venture Capital Association ("IPEV") guidelines. Changing one or
more inputs for Level 3 assets could have a significant impact on
the valuation.
Financial assets at fair value
At 31 January 2011
Year ended 31 January Year ended 31 January
2011 2010
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Ordinary
shares 17,810 - 507 18,317 13,432 - 336 13,768
Loan stock
investments - - 898 898 4,027 100 - 4,127
-------- -------- -------- -------- -------- -------- -------- --------
17,810 - 1,405 19,215 17,459 100 336 17,895
Level 3 financial assets at fair value
At 31 January 2011
Year ended 31 January Year ended 31 January
2011 2010
Ordinary Loan Ordinary Loan
shares stock Total Shares stock Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening balance
at 1 February
2010 336 - 336 1,556 100 1,656
Transfers to
Level 3 (see
details
below) - - - 3,287 - 3,287
Purchases 189 819 1,008 - 160 160
Sales (46) - (46) - - -
Total net
gains/(losses)
recognised in
the income
statement 28 79 107 (4,507) (260) (4,767)
Closing balance
at 31 January
2011 507 898 1,405 336 - 336
22 Market Risk
Market risk arises from uncertainty about the future prices of
financial instruments held in accordance with the Company's
investment objectives. It represents the potential loss that the
Company might suffer through holding positions in the face of
market investments.
The Company's strategy on the management of investment risk is
driven by the Company's investment objective as outlined in the
corporate objective. The management of market risk is part of the
investment management process. The Board seeks to mitigate the
internal risks by setting policy, regular reviews of performance,
enforcement of contractual obligations and monitoring progress and
compliance with an awareness of the effects of adverse price
movements through detailed and continuing analysis, with an
objective of maximising overall returns to shareholders.
Investments in unquoted stocks and AIM traded companies, by their
nature, involve a higher degree of risk than investments in the
main market. Some of that risk can be mitigated by diversifying the
portfolio across business sectors and asset classes. The Company's
overall market positions are monitored by the board on a quarterly
basis.
Details of the Company's investments at the balance sheet date
are disclosed in the Investment Portfolio.
As at 31 January 2011 92.7% (31 January 2010: 98.1%) of the
Company's investments are traded on AIM or fully listed. A 10%
increase in stock prices as at 31 January 2011 would have increased
the net assets attributable to the Company's shareholders and the
total profit for the year by GBP1,781,000 (31 January 2010:
GBP1,755,000); an equal change in the opposite direction would have
decreased the net assets attributable to the Company's shareholders
and the total profit for the year by an equal amount.
As at 31 January 2011 7.3% (31 January 2010: 1.9%) of the
Company's investments are in unquoted companies held at fair value.
A 10% increase in the valuations of unquoted investments at 31
January 2011 would have increased the net assets attributable to
the Company's shareholders and the total profit for the year by
GBP140,500 (31 January 2010: GBP34,000); an equal change in the
opposite direction would have decreased the net assets attributable
to the Company's shareholders and the total profit for the year by
an equal amount.
23 Interest Rate Risk
Fixed rate
Two of the Company's financial assets are interest bearing at a
fixed rate. As a result, the Company is subject to exposure to fair
value interest rate risk due to fluctuations in the prevailing
levels of market interest rates, however the impact of a reasonable
movement in interest rates would not be significant to the net
assets and profit for the year.
The total current market value of these stocks is GBP898,000,
the weighted average interest rate is 6.2% and the average period
to maturity is 1 year.
24 Credit Risk
Credit risk is the risk that the counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Company. This is deemed not to be a
material risk. The carrying amount of financial assets best
represents the maximum credit risk exposure at the balance sheet
date. At 31 January 2011, the financial assets exposed to credit
risk amounted to GBP12,528,000 (31 January 2010: GBP596,000).
Credit risk on the unquoted loan stock held within unlisted
investments is considered to be part of market risk.
Credit risk arising on transactions with brokers relates to
transactions awaiting settlement. Risk relating to unsettled
transactions is considered to be small due to the short settlement
period involved, the high credit quality of the brokers used and
the fact that almost all transactions are on a 'delivery versus
payment' basis. The Manager monitors the quality of service
provided by the brokers used to further mitigate this risk.
All the assets of the Company which are traded on AIM are held
by Bank of New York Nominees, the Company's custodian. Bankruptcy
or insolvency of the custodian may cause the Company's rights with
respect to securities held by the custodian to be delayed or
limited.
At 31 January 2011, substantially all of the cash held by the
Company was held by The Bank of New York. Bankruptcy or insolvency
of this institution may cause the Company's rights with respect to
the cash held by it to be delayed or limited. . Should the credit
quality or the financial position of this institution deteriorate
significantly the Company has the ability to move the cash at short
notice.
There were no significant concentrations of credit risk to
counterparties at 31 January 2011 or 31 January 2010.
25 Liquidity Risk
The Company's financial instruments include investments in
unlisted equity investments which are not traded in an organised
public market and which generally may be illiquid. As a result, the
Company may not be able to liquidate quickly some of its
investments in these instruments at an amount close to their fair
value in order to meet its liquidity requirements, or to respond to
specific events such as deterioration in the creditworthiness of
any particular issuer. The proportion of the portfolio invested in
unlisted equity investments is not considered significant given the
amount of investments in readily realisable securities.
The Company's liquidity risk is managed on an ongoing basis by
the Manager in accordance with policies and procedures in place as
described in the Directors' Report and Business Review. The
Company's overall liquidity risks are monitored on a quarterly
basis by the board.
The Company maintains sufficient investments in cash and readily
realisable securities to pay accounts payable and accrued expenses.
At 31 January 2011, these investments were valued at GBP5,702,000
(31 January 2010: GBP5,762,000).
26 Capital Management Policies and Procedures
The Company's capital management objectives are:
-- to ensure that it will be able to continue as a going
concern;
-- to satisfy the relevant HMRC requirements; and
-- to maximise the income and capital return to its
shareholders.
As a VCT, the Company must have, within 3 years of raising its
capital, at least 70% by value of its investments in VCT qualifying
holdings, which are relatively high risk UK smaller companies. In
satisfying this requirement, the Company's capital management scope
is restricted. The Company does have the option of maintaining or
adjusting its capital structure by varying dividends, returning
capital to shareholders, issuing new shares or selling assets to
maintain a certain level of liquidity. There has been no change in
the objectives, policies or processes for managing capital from the
previous year.
The Board, with the assistance of the Manager, monitors and
reviews the broad structure of the Company's capital on an ongoing
basis. This review includes:
-- the need to buy back equity shares for cancellation, which
takes account of the difference between the net asset value per
share and the share price (ie the premium or discount);
-- the need for new issues of shares; and
-- the extent to which revenue in excess of that which is to be
distributed should be retained.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR GGURWAUPGURU
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