TIDMLWT
RNS Number : 8680O
Loudwater Trust Limited
26 September 2011
26 September 2011
Loudwater Trust Limited ('the Company')
Unaudited Interim Report & Accounts for the Six Month
Period
Ended 30(th) June 2011
The Company is pleased to announce the publication of its
Unaudited Interim Report & Accounts for the six month period
ended 30(th) June 2011.
The Unaudited Interim Report & Accounts will be posted to
shareholders shortly and can be downloaded from the Company's
website at www.loudwatertrust.com.
Highlights from the Unaudited Interim Report & Accounts for
the six month period ended 30(th) June 2011:
-- Net Asset Value of GBP35.04 million, or 58.17 pence per
share.
-- Marginal decrease over the period from NAV of GBP40.38
million, or 67.04 pence per share at 31(st) December 2010,
adjusting for the return of GBP4.22 million or 7.00 pence per share
in June 2011.
-- To date the Company has returned some GBP18.07 million of
capital to shareholders, equating to a total value for current NAV
plus cash returned of GBP53.10 million or 70.80 pence per
share.
-- Remaining portfolio consists of investments in six private
companies and one listed company.
-- Five out of the six portfolio companies are forecasting sales
growth in 2011, although several have had to revise their operating
plans. The sixth company is making progress in new markets and has
a stronger pipeline of business in 2012.
-- Deterioration in economic outlook since 30(th) June is likely
to pose challenges for some companies in respect of trading
conditions and achievable exit valuations. The Investment Advisor
has started a process to review certain holding values in the
portfolio and expects modest write-downs, to be reflected in the
calculation of the 30(th) September NAV, which is expected to be
finalised in late October.
-- Company has commenced a disposal process for two companies
which the Investment Advisor believes should achieve sales this
year; two companies are considering the possibility of IPO's in
2012; and two are positioning themselves for trade sales. The
timing and feasibility of exits are highly dependent on market
conditions which, at this time, remain poor and particularly hard
to predict.
-- As at 30(th) June 2011, the Company had investments of
GBP32.2 million and GBP2.8 million of cash and other assets.
-- After the return of GBP4.2 million of capital, total losses
for the period of GBP1.2 million include GBP0.4 million of foreign
exchange movement and GBP0.9 million of fund operating costs; with
an offsetting net gain of GBP0.1 million from the sale of Top
Layer.
For further information
Loudwater Investment Partners
Limited
Charles Somerset +44(0)20 3372 6400
Panmure Gordon (UK) Limited
Andrew Potts +44(0)20 7459 3600
Full Unaudited Interim Report & Accounts for the Six Month
Period ended 30(th) June 2011:
Summary of Investment Objective
The Company was established to provide Shareholders with an
attractive rate of return on their investment, primarily through
investing in companies which were likely to achieve an IPO or a
sale within a short term time horizon and through a small number of
investments in companies that were already listed.
In September 2008, the Company announced that, in the light of
the then deteriorating economic environment and the lack of a
visible time frame for exits, it would return some capital to
Shareholders by way of a tender offer and would make appropriate
changes in the Company's structure and investing policy as
described below.
Summary of Investing Policy
As part of the 2008 Tender Offer, the Company adopted a new
investing policy of not making investments in new companies. If the
Board, advised by its Investment Advisor, considers that it will be
attractive to recapitalise the Company and make new investments,
the Board will seek Shareholder approval to amend the investing
policy.
For the Company's full Investing Policy please see pages 10 -
12.
Performance Statistics
Net Asset Value + Cash
Date Net Asset Value Cash Returned Returned
GBP PPS* GBP GBP PPS**
29th January
2007 74,250,000 99.00 - 74,250,000 99.00
31st March 2007 74,732,000 99.64 - 74,732,000 99.64
30th June 2007 75,462,000 100.62 - 75,462,000 100.62
30th September
2007 75,269,000 100.36 - 75,269,000 100.36
31st December
2007 73,767,000 98.36 - 73,767,000 98.36
31st March 2008 73,959,000 98.61 - 73,959,000 98.61
30th June 2008 69,581,000 92.78 - 69,581,000 92.77
30th September
2008 70,324,000 93.77 - 70,324,000 93.77
31st December
2008 53,985,000 89.63 13,847,000 67,832,000 90.44
31st March 2009 54,303,000 90.16 13,847,000 68,150,000 90.87
30th June 2009 49,331,000 81.90 13,847,000 63,178,000 84.24
30th September
2009 48,198,000 80.02 13,847,000 62,045,000 82.73
31st December
2009 45,242,000 75.11 13,847,000 59,089,000 78.79
31st March 2010 42,330,000 70.28 13,847,000 56,177,000 74.90
30th June 2010 42,506,000 70.57 13,847,000 56,353,000 75.14
30th September
2010 40,641,000 67.47 13,847,000 54,488,000 72.65
31st December
2010 40,382,000 67.04 13,847,000 54,229,000 72.31
31st March 2011 39,351,000 65.33 13,847,000 53,199,000 70.93
30th June 2011 35,037,000 58.17 18,063,000 53,100,000 70.80
*Pence per ordinary share; note that number of shares in
issuance was reduced from 75,000,000 to 60,232,855 following the
share buy-back in November 2008.
**Pence per ordinary share; this assumes that the number of
shares in issuance is held constant at 75,000,000.
Chairman's Statement
Period ended 30 June 2011
In my last statement in the Company's Annual Report and Accounts
for 2010, I announced that following a series of realisations and
part realisations, the Company would return GBP4,216,000,
representing 7.0 pence per share, to shareholders. I am pleased to
report that this return of capital took place on 21 June, 2011.
This distribution was made in accordance with the Company's
policy of distributing the cash proceeds from realisations, and as
the Company achieves exits for its remaining portfolio companies,
further distributions should follow.
Since the Annual Report and Accounts were published on 23 May,
2011, we have seen a maelstrom of bad economic news about the
slowdown in the world economy and the possibility of renewed
Western contraction. In the UK, where output remains close to 4%
below its level at the start of the recession in 2008, the recovery
looks to be faltering as the simultaneous deleveraging of both
private and public sectors weighs on aggregate demand. Meanwhile in
mainland Europe, the threats of a government debt default and even
the break-up of the single currency zone, appear increasingly
real.
For the Company's remaining investments, this economic
deterioration poses challenges. In certain markets, trading
conditions have already become noticeably tougher, with pressure on
both sales volumes and on pricing. Credit conditions and
opportunities for other fundraising options have also worsened.
The Net Asset Value ("NAV") at 30 June, 2011 was 58.17 pence per
share, representing a marginal decrease from 67.04 pence per share
at 31 December, 2010, prior to the return of 7.0 pence per share in
June.
Whilst we are comfortable with the progress made to date by all
seven of the remaining portfolio companies, we have felt it prudent
to re-examine certain holding values, taking into account the
effect of changes in market conditions and the economic outlook
since 30 June. The Investment Advisor has not yet completed this
process, but does expect to propose modest write-downs for some of
the portfolio companies, to be reflected in the calculation of the
30 September NAV, which should be finalised in late October.
The Company has investments in six private companies and one
listed company. With regard to these private companies, we have
commenced a disposal process for two which the Investment Advisor
believes should achieve sales this year; two are considering the
possibility of IPO's in 2012; and two are positioning themselves
for possible trade sales.
Whilst the timing and feasibility of exits are highly dependent
on market conditions, we believe strongly in the quality of the
underlying businesses and are hopeful that successful exits should
be achievable in all cases within a reasonable timeframe.
Lord Flight
Loudwater Trust Limited
23 September 2011
Investment Advisor's Report
Period ended 30 June 2011
There were several significant events that took place in the
first few months of 2011 and were announced in the Company's Annual
Report and Accounts for 2010 which were published on 23 May, 2011.
These included:
- In March, 2011, the sale of Top Layer Networks to AIM listed
Corero plc for a maximum consideration of USD15.3 million (GBP9.5
million) of which the Company received USD7.5 million (GBP4.6
million) in the form of a mixture of Corero shares, loan notes and
cash.
- In March, 2011, the release of an initial tranche of GBP0.9
million from an escrow deposit held as collateral for a performance
bond associated with a project undertaken by former investee
company Pentadyne.
Following the cash receipts from these events, as well as other
cash receipts from realisations that took place prior to 31
December, 2010, the Company announced the return of some
GBP4,216,000 or 7.0 pence per share in cash to shareholders.
We are pleased to report that this return of capital was
effected on 21 June, 2011.
This was the second return of capital to shareholders undertaken
by the Company, following the return of GBP13,847,000 in November,
2008. In the total the Company has returned some GBP18,063,000 of
cash equivalent to 24.3% of the Net Asset Value ("NAV") of
GBP74,250,000 of the Company following its IPO on 29(th) January,
2007.
The NAV at 30 June, 2011 (after the return of GBP4,216,000 of
capital) was GBP35,037,000 or 58.17 pence per share compared to
GBP40,382,000 or 67.04 pence per share at 31 December, 2010.
Of this 8.9 pence per share reduction: 7.0p represents the
return of capital to shareholders; 0.7p represents foreign exchange
movement on portfolio investments; 0.4p represents a bad debt
provision taken against the Pentadyne escrow deposit as described
in our report for 2010; and 1.1p came from non-investment related
movement in cash which includes management fees, other fund
expenses and foreign exchange movement on USD reserves; with
offsetting gains of 0.2p reflecting the net adjustment for the sale
of Top Layer from the holding value at 31 December, 2010 to the
effective consideration value at 30 June, 2011 (taking into account
the market share price at this time); and 0.1p of accrued
interest.
Since the publication of the Annual Report and Accounts, the
following notable event has taken place:
- On 03 August, 2011, the Company made a follow-on investment of
USD0.7 million (GBP0.4 million) in Glimmerglass as part of an
internal financing round of USD2.0 million to strengthen working
capital. Whilst Glimmerglass has seen challenging conditions in its
legacy markets, the company is starting to see the benefits of a
new strategic direction, and has a strong pipeline of business in
new high margin markets.
More detail on developments at each portfolio company is
provided on pages 7-9.
Over the summer months we have also seen a significant
deterioration in the macroeconomic environment. As a consequence,
we have started a process to review certain holding values, taking
account of the potential impact of recent events on the outlook for
trading conditions and achievable exit valuations.
We have not yet completed this process, but do expect to propose
modest write-downs for some of the portfolio companies, to be
reflected in the calculation of the 30 September NAV, which we
expect to finalise in late October.
Portfolio Update
The Company's remaining portfolio consists of investments in six
private companies and one listed company.
Whilst the economic climate of the past three years has been a
difficult one in which to build businesses, we have been encouraged
by the progress that these companies have made.
Investment Advisor's Report (continued)
Period ended 30 June 2011
All of the companies have grown in scale over the period of our
investment, in some cases doubling or even trebling in size.
Since the summer of 2011 we have seen a marked deterioration in
economic sentiment start to impact more heavily on trading
conditions in a number of markets. Whilst as a consequence, several
of our companies have had to revise their operating plans for the
year, all except one are still expecting to achieve growth over the
course of the year.
Four are trading at or close to profitability, and whilst the
cash position remains tight in several cases, only one company is
currently planning a significant fundraising, and this is to fund
one or more acquisitions.
In the case of the two companies that are not currently at or
close to profitability, only one is forecasting a large loss in
2010, as a result of its continued investment in its development
pipeline, and both should have sufficient cash available to achieve
profitability.
In respect of exits, we are currently engaged in a disposal
process for two out of the six private companies, which should
achieve sales in 2011. Of the others, two are considering the
possibility of IPO's in 2012; and two are positioning themselves
for possible trade sales.
The timing and feasibility of exits are, of course, highly
dependent on market conditions which, at this time, remain poor and
particularly hard to predict.
Further details of the progress made by each of the portfolio
companies are provided at the end of this report.
Portfolio Analysis
Some statistics on our portfolio and an analysis of movements
during the period are set out in the following tables. The
Company's investments are valued in accordance with the accounting
policies disclosed in note 2 to these financial statements.
The Company's assets comprise the following categories: -
30 June 2011 31 December 2010
GBPm % GBPm %
Convertible loans - - 2.8 7%
Non-convertible loans 1.7 5% - -
Equity investments with a liquidation
preference 19.1 55% 20.0 49%
Ordinary equity investments 9.7 27% 9.7 24%
Listed equity 1.7 5% - -
Total investments in portfolio
companies 32.2 92% 32.5 80%
Interest due from portfolio companies - - 1.1 3%
Funds held in escrow* 0.9 3% 1.8 4%
Fixed deposit > 3 month maturity - - - -
Cash and cash equivalents 1.9 5% 5.3 13%
Other receivables, net of payables - - (0.2) -
Deposits and cash net of payables 1.9 5% 5.1 13%
Rounding - - (0.1) -
Total 35.0 100% 40.4 100%
*Includes GBP0.8 million representing the final tranche of
collateral for the Pentadyne performance bond (due to be released
imminently) and GBP0.1 million of cash consideration from the sale
of Top Layer (due to be released in September 2012).
Investment Advisor's Report (continued)
Period ended 30 June 2011
Portfolio Update (continued)
30 June 2011 31 December 2010
Carrying % of Net Carrying % of Net
Investments Value (GBPm) Assets Value (GBPm) Assets
US 17.4 50% 19.4 48%
UK 14.8 42% 13.1 32%
Total
investments
in portfolio
companies 32.2 92% 32.5 80%
Cash and
interest
debtor* 2.8 8% 7.9 20%
Total 35.0 100% 40.4 100%
*Includes GBP0.0 million (rounded-down from GBP0.045 million)
(31 December 2010: GBP1.1 million) of loan interest due from
portfolio companies.
As the portfolio has developed to a stage where, at any one
time, one or more companies are likely to be in discussions with
potential acquirers, merger partners or investors, the Investment
Advisor considers that it is not in the best interests of the
Company or shareholders to disclose individual holding values or
the percentage ownership of portfolio companies.
The movement in net assets during the period can be analysed as
follows: -
GBPm Pence per share
Net assets as at 31 December 2010 40.4 67.0
Add
Accrued simple interest* 0.0 0.1
NAV adjustments for exited investments** 0.3 0.5
Less
Foreign exchange losses on investments (0.4) (0.7)
Market movements on listed shares*** (0.2) (0.3)
Investment related movements in cash
Follow-on investments - -
Exited investments (at carrying value)**** (1.0) (1.7)
Cash impact of follow-on/exit 1.0 1.7
Cash distribution (4.2) (7.0)
Non-investment related movement in cash and other
receivables/payables***** (0.9) (1.5)
Rounding - 0.1
Net assets as at 30 June 2011 35.0 58.2
*Corero loan notes (rounded down from GBP0.045 million).
**Net adjustment from Top Layer holding value at 31 December
2010 to maximum consideration received from sale to Corero on 03
March 2011.
***Movement in Corero shareholding value from maximum
consideration received on 03 March 2011 to market value (at bid
price) on 30 June 2011.
****Cash component of Top Layer consideration.
*****Includes management fee, other fund expenses, final
Pentadyne LoC bad debt provision (GBP0.2 million) and FX movement
on USD reserves.
Investment Advisor's Report (continued)
Period ended 30 June 2011
Portfolio Companies
AgraQuest Inc. (Davis, California) - www.agraquest.com
AgraQuest is a world leading bio-technology company which
develops and manufactures natural pest management products for
agricultural and horticultural markets. There is a global trend,
currently led by the European Union, to ban an increasing range of
chemicals which may be used by food producers for crop
protection.
Building on to its established fungicide business, the company
is working to expand its product range and develop new applications
in areas such as bio-fumigants and seed treatment. In bringing
these products to market, AgraQuest partners with a number of the
world's leading agricultural companies.
AgraQuest had a strong 2011 first half and finished the six
months to June 2011 ahead of plan and showing revenue growth of
over 20% compared to the same period in the previous year.
International sales contributed significantly to this
outperformance. North American fungicide sales were also ahead of
budget.
The company continues to make significant advances on the
research and development side of the business both independently
and in collaboration with several leading agricultural
companies.
In March 2011, AgraQuest completed a new fundraising of USD17.7
million. These funds will enable the company to continue to invest
in building sales and expanding its development pipeline in
preparation for an exit. At the same time as this new fundraising,
the company announced the appointment of Robert Shapiro, the former
Chairman and CEO of Monsanto, as a Non-Executive Director.
Antenova Limited (Cambridge, UK) - www.antenova.com
Antenova is a developer and supplier of antenna components for
mobile handsets, portable devices and laptop computers. Antenova
has developed a range of patented IP which enables it to develop
antennae and radio modules which allow multiple signals (e.g. 3G,
GPRS, GPS, Bluetooth, Wi-Fi) to be combined in very small
components whilst maintaining high performance. Manufacture is
carried out by contract manufacturers in Asia.
Despite some difficult trading conditions in the first half of
the year, the Antenova is still forecasting sales growth in 2011.
Looking forwards, the Antenova sees a strengthening in market
demand, driven in part by the increased use of smart phones and
tablet PC's and the roll-out of 4G networks.
City Financial Investment Company Limited (London, UK) -
www.cityfinancial.co.uk
City Financial is an established London based fund management
firm that was acquired in January 2006 by an experienced team from
Invesco UK. The Company financed City Financial's significant
expansion by acquisition in 2007. City Financial is responsible for
a portfolio of gilt, global bond, and multi-manager absolute return
funds.
City Financial has continued to grow in 2011 with the
acquisition of two new funds taking the total assets under
management to around GBP280m. The company now has a portfolio of
eight funds which includes a new Asian fund of hedge funds that was
successfully launched in 2010.
Whilst the company has made good progress since the time of our
original investment, the timeframe required to grow this business
to a level of significant scale, is likely to be lengthy.
Management is currently exploring options to refinance the
Loudwater preferred equity investment.
Investment Advisor's Report (continued)
Period ended 30 June 2011
Portfolio Companies (continued)
Corero Network Security Plc (Rickmansworth, UK) - www.corero.com
(acquirer of Top Layer Networks)
Corero is an AIM listed network security solutions business that
acquired Top Layer Networks from the Company and another investor
in March 2011. Corero's market capitalisation as at 21 September
2011 was GBP18.8 million. Subsequent to this transaction, the
Company holds Corero shares, loan notes and a portion of the cash
consideration paid at closing which is held in escrow until
September 2012.
Corero Network Security ("CNS"), the fully owned subsidiary of
the Corero group that was previously Top Layer Networks, is a
developer of network security solutions positioned at the top-end
of the Intrusion Prevention Solution ("IPS") market. Its
appliance-based products protect critical IT systems of large
enterprises and service providers in real-time from the losses and
risks associated with cyber threats including undesired access,
malicious content, and rate-based (e.g. flooding) attacks. The
company has won many industry awards for its IPS products and has a
large customer base including Chevron, Vodafone and Camelot.
Corero Business Systems, the other division within the Corero
group, serves the business and education sector in the UK by
delivering powerful, dynamic modular accounting and business
management software and services.
Corero has recently announced its interim results for the first
half of 2011 which included group revenues of GBP4.6 million, an
operating profit of GBP0.14 million and a loss before tax
(excluding exceptional items) of GBP0.05 million. At CNS, which
contributed GBP2.7 million of revenues, there has been a
substantial amount of restructuring and new sales hires. This is
expected to translate into increased levels of new business later
on in 2011 and into 2012.
Looking forwards, Corero's strategy is to build, through organic
growth and acquisition, a multi-service security business selling
to mid-market and enterprise customers through international sales
channels.
The Engine Group Limited (London, UK) -
www.theenginegroup.com
Engine is a substantial marketing and communications group based
in the UK. The company is headed up by WCRS co-founder Peter Scott,
who established Engine following the management buyout of WCRS from
Havas in April 2004. The group is comprised of twelve partner
companies in the UK and a further two companies in the US that have
been acquired by Engine's recently created US subsidiary.
Engine provides services spanning across advertising agency, PR,
brand consultancy, direct marketing and digital consultancy and
serves a host of blue chip clients including Aviva, BMW,
GlaxoSmithKline, Santander, Sky and Unilever.
Engine performed strongly in 2010 and delivered revenue growth
of over 20% in the year. In 2011, the company has continued to make
progress in building the business, despite a more challenging
background in terms of market conditions.
In this environment, the diversity of the Engine model has
provided a level of robustness and certain parts of the business,
for example social media, are performing particularly well.
In the US, the two recently acquired companies, Deep Focus and
Noise, continue to make progress and are expected to build further
momentum in the second half of the year.
Investment Advisor's Report (continued)
Period ended 30 June 2011
Portfolio Companies (continued)
Glimmerglass Networks Inc. (Hayward, California) -
www.glimmerglass.org
Glimmerglass is the market leader in the design and supply of
large scale MEMs (Micro-Electro-Mechanical) optical switches for
fibre optic networks and systems. Each switch allows up to 200
light beams to be switched on a 'many-to-many' basis. This
technology allows telecom carriers, data centres, and government
agencies remotely to create, monitor and protect light paths/fibre
connections. Glimmerglass has a global presence with its products
deployed in many regions with rapidly growing bandwidth demand.
Whilst trading conditions have remained challenging in
Glimmerglass's traditional network carrier markets, the company has
been focusing its efforts on expanding the intelligence or "cyber
security" side of the business.
Glimmerglass has made significant progress in developing new
customers in this market, both through its own independent efforts
and in collaboration with a number of leading cyber security
specialists. The company has a strong pipeline of business which is
forecast to drive revenue growth in the latter part of 2011 and
into 2012.
In addition the company has been developing new products and
services to expand its intelligent optical system offering, which
will provide a further degree of upside through new sales to its
existing customer base.
Somethin' Else Limited (London, UK) - www.somethinelse.com
Somethin' Else is cross-platform media production company and
the largest independent radio producer in the UK with programmes
such as Jazz on 3, Gardeners' Question Time and the '606'
Programme. The company also produces visual and interactive
entertainment (including web media, games and mobile content) and
manages performers such as Jeremy Kyle and JK & Joel through
its talent management agency. The company has won many awards
including Bafta and Sony Radio Academy.
Somethin' Else completed a strong financial year ending 31 March
2011 and achieved revenue growth of over 20%. The digital side of
the business was one of the key drivers of this growth and over the
course of the year the company delivered two large digital
projects. One of these flagship projects was an online educational
platform for Channel 4 called Superme (http://www.playsuperme.com/)
which is targeted at tackling teenage mental health issues and
combines games, video media and quizzes in a new creative
format.
The company saw continued strength in its core BBC radio
business and in addition to renewing a number of its long-standing
commissions, won a significant new contract for the '606' Programme
for Radio 5 Live.
Somethin' Else is a profitable business and the Investment
Advisor is engaged with management in developing a strategy to
achieve an exit.
Richard Wyatt & Edward Forwood
Loudwater Investment Partners Limited
23 September 2011
Investing Policy
Investment Objective
The Company's investment objective on admission to trading on
AIM in January 2007 was to provide shareholders with an attractive
rate of return on their investment, primarily through investing in
companies which were likely to achieve an initial public offering
("IPO") or a sale within a short term time horizon, and through a
small number of investments in companies that were already
listed.
Following the approval of shareholders at an extraordinary
general meeting on 5 November 2008, the Company made the following
key changes to its investment objective:
-- The Company will not make any new investments other than
follow-ons. Remaining capital will be reserved for follow-on
investments in existing portfolio companies where the Investment
Advisor believes further funding is required.
-- Cash proceeds from realisations in full following the exit of
a portfolio investment will be distributed to shareholders, subject
to the retention of sufficient cash for follow-on investments in
existing portfolio companies where the Investment Advisor believes
further funding is required.
Assets or Companies in which the Company can invest
The Company will not make any investments in new portfolio
companies, apart from follow-on investments in existing portfolio
companies.
As and when economic and market uncertainties have receded and
the IPO markets for smaller companies show signs of improvement,
the Board will review the options of either recapitalising the
Company and resuming investment activity or initiating an orderly
disposal of the portfolio and the return of all capital to
shareholders.
Whether investments will be active or passive investments
Investments in portfolio companies are passive in nature but
managed on an active basis.
The Investment Advisor formally monitors each of the Company's
investments on an ongoing basis. Whilst the Company would usually
require a right to a board seat or observer status, this right
would generally only be exercised in the event of problems in the
investee company or if the Company owns a significant equity
holding in the investee company.
Holding period for investments
At admission to trading on AIM in January 2007, the Company's
policy was to invest in companies which were likely to achieve a
listing or realisation within six to twenty-four months.
Furthermore, the Company wished to invest in businesses which would
achieve an acceptable level of market capitalisation if they were
listed on a public market. As such the Company's policy was not to
invest in early stage or start-up situations, and instead it would
focus on investing in companies which had achieved suitable levels
of revenues and were either profitable or close to achieving
profitability at the time of investment.
In light of the deteriorating economic environment towards the
end of 2008, the Board, as advised by the Investment Advisor,
believed that exit timeframes for potential new investments and the
existing portfolio would be longer than previously envisaged.
Moreover, whilst attractive returns were anticipated from the
existing investment portfolio, some were likely to need further
funding before an exit could be achieved. As a result, the
investment objective and policy of the Company was amended and
approved by shareholders in November 2008. It is therefore
difficult to determine the timing of exits at this stage.
Spread of investments and maximum exposure limits
On admission to trading on AIM in January 2007, it was the
Company's intention to use the net proceeds of the placing of circa
GBP74 million to build an initial portfolio of investments in at
least 15 companies.
The Company also stated that it would not seek to invest (or
commit to invest) more than 10 per cent. of the Company's gross
assets in any single investment at the time of investment (or
commitment), although such limit was able to be exceeded in certain
cases where the Board deemed it appropriate on the advice of the
Investment Advisor.
Investing Policy, continued
Spread of investments and maximum exposure limits, continued
Typically, investments in pre-IPO opportunities were to be made
by way of a convertible loan note that would convert on an exit
event at a discount to the relevant exit price. The loans may also
have an attached equity interest in the form of a warrant or option
over shares. However, a proportion, not envisaged to exceed 25 per
cent. of the net asset value of the portfolio, would be in
investments made at a fixed price. This was necessary in order to
capture attractive pre-IPO opportunities that are not available
with a loan note security.
In addition, the Company was able to invest in companies that
were already listed. These investments were to be made on an
opportunistic basis and were expected to represent a small number
of the Company's transactions, not exceeding 15 per cent. of the
total net asset value of the Company. As investee companies achieve
successful listings, however, the net asset value attributable to
holdings in listed companies may be substantial.
The shareholders resolved at an extraordinary general meeting on
5 November 2008 that the Company would not make investments in any
new portfolio companies, and that funds would be reserved for
follow-on investments in existing portfolio companies. Accordingly,
the Company will not be able to increase the spread of investments
beyond its current investment in 8 investee companies (31 December
2010: 8 investee companies).
Policy in relation to gearing
The Directors may exercise the powers of the Company to borrow
money and to give security over its assets.
The Company may borrow funds secured on its investments if the
Board, as advised by the Investment Advisor, considers that
satisfactory opportunities for follow-on investment arise at a time
when the Company is close to being fully invested. In any event,
borrowings will be limited to 50 per cent. of the value of the
Company's investments at the time of draw down.
The Company may be indirectly exposed to the effects of gearing
to the extent that investee companies have outstanding
borrowings.
The Company may invest a proportion of its assets in underlying
investments denominated in currencies other than sterling. In an
attempt to reduce the impact on the ordinary shares of currency
fluctuations and the volatility of returns which may result from
such currency exposure, the Company will have the flexibility to
hedge the appropriate proportions of the Company's assets against
sterling through the use of foreign exchange transactions and
currency derivatives. Currency hedging will be for the purposes of
efficient portfolio management only and the Company has no
intention of using currency hedging for the purposes of currency
speculation for its own account.
Policy in relation to cross-holdings
The Company does not have a formal policy on cross-holdings.
However, the Company's policy is not to make any investments in new
portfolio companies, apart from follow-on investments in existing
portfolio companies.
The Company's policy for investments in companies that are
already listed, which include closed-ended investment funds, is
that they will be made on an opportunistic basis and are expected
to represent a small number of the Company's transactions, not
exceeding 15 per cent. of the total net asset value of the Company.
As investee companies achieve successful listings, however, the net
asset value attributable to holdings in listed companies may be
substantial.
Investing Restrictions
Following the approval of shareholders at an extraordinary
general meeting on 5 November 2008, the Company no longer intends
to make any investments in new portfolio companies. Remaining
capital will be reserved for follow-on investments in existing
portfolio companies where the Investment Advisor believes further
funding is required.
Whilst there are no restrictions on the ability of the Company
to take controlling stakes in portfolio companies, the Company
ensures that there is sufficient separation between the Company and
each portfolio company through the right to a Board seat or Board
observer status in only a non-executive capacity.
Investing Policy, continued
Investing Restrictions, continued
In addition, the Company also ensures that there is sufficient
separation between each portfolio company by ensuring that there is
no:
-- cross-financing, including the provision of undertakings or
security for borrowings from one portfolio company to another;
-- common treasury functions; or
-- sharing of operations.
Other than these restrictions set out above, and the requirement
to invest in accordance with its investing policy, there are no
other investing restrictions.
Returns and Distribution Policy
It is anticipated that returns from the Company's investment
portfolio will be in the form of capital upon realisation or sale
of its investee companies, rather than from dividends.
At the extraordinary general meeting on 5 November 2008, it was
resolved that the cash proceeds of realisation in full following
the exit of a portfolio investment would be returned to
shareholders, subject to the retention of sufficient cash for
follow-on investments in existing portfolio companies where the
Investment Advisor believes that further funding is required.
Whilst it is not possible to determine the timing of exits, the
Board, advised by the Investment Advisor, will seek to return
capital to shareholders when appropriate.
Life of the Company
The Company was established with an indefinite life. Following
the approval of shareholders at an extraordinary general meeting on
5 November 2008, there will be a continuation vote at the annual
general meeting of the Company to be held to consider the accounts
for the financial period ended 31 December 2013 (or any accounting
period substituted for it). It is further proposed that if any such
continuation vote is passed, that a similar continuation vote will
be proposed at every second annual general meeting thereafter. If
at any time a continuation vote is not passed, the Directors will
be required to formulate proposals to wind up the Company.
Unaudited Statement of Financial Position
As at 30 June 2011
Unaudited Audited Unaudited
Notes 30 June 2011 31 December 2010 30 June 2010
---------------------- ----- ------------- ----------------- -------------
GBP GBP GBP
Assets
Financial assets at
fair value through
profit or loss: 2 & 6
Designated at fair
value through profit
or loss upon initial
recognition:
Equity investments 30,478,566 29,699,648 33,006,872
Compound debt
investments* 1,751,052 3,846,736 3,933,924
Other short term
investment** 793,454 1,773,838 3,106,103
------------- ----------------- -------------
Total designated at
fair value through
profit or loss upon
initial recognition 33,023,072 35,320,222 40,046,899
------------- ----------------- -------------
Loans and receivables:
Other receivables 7 28,845 30,936 20,936
Cash and cash
equivalents 8 2,006,784 5,265,044 2,577,954
------------- ----------------- -------------
2,035,629 5,295,980 2,598,890
------------- ----------------- -------------
Total Assets 35,058,701 40,616,202 42,645,789
------------- ----------------- -------------
Liabilities
Financial liabilities
measured at amortised
cost:
Other payables*** 9 21,783 234,508 139,868
Total net assets 35,036,918 40,381,694 42,505,921
============= ================= =============
Equity attributable to
equity holders
Distributable reserve 10 56,289,984 60,506,329 60,506,329
Revenue reserve 11 (21,253,066) (20,124,635) (18,000,408)
Total equity 35,036,918 40,381,694 42,505,921
============= ================= =============
Net asset value per
Ordinary Share (GBP) 12 0.5817 0.6704 0.7057
* Compound debt investments comprise secured loan notes,
including accrued simple interest.
** Other short term investment is a fixed cash deposit with a
maturity of longer than 3 months from the reporting date.
*** Creditors and accruals.
The notes on pages 17 to 35 form an integral part of these
financial statements.
Unaudited Statement of Comprehensive Income
For the period ended 30 June 2011
Unaudited Unaudited
1 January 2011 1 January 2010
To To
Notes 30 June 2010 30 June 2010
------------------------------------- ----- --------------- ---------------
GBP GBP
Income
Interest income from cash and cash
equivalents 12,466 12,635
Bad debt provision* (239,581) (151,848)
Other income 26,847 -
Total income (200,268) (139,213)
--------------- ---------------
Expenses
Investment Advisor's fee 3 398,666 437,863
Administration fee 3 37,887 24,449
Directors' fees and expenses 4 54,572 57,466
Auditor's remuneration 13,537 11,410
Legal and professional** 78,124 28,353
Other expenses*** 33,025 15,904
Total expenses 615,811 575,445
--------------- ---------------
Net loss before investment result (816,079) (714,658)
Movement in net unrealised losses
on investments at fair value through
profit or loss**** 6 6,704,625 (1,656,571)
Net realised loss on disposal of
investments at fair value through
profit or loss**** 6 (6,925,620) (707,043)
Net foreign exchange
(losses)/gains***** 2b (91,357) 342,026
Loss for the financial period (1,128,431) (2,736,246)
--------------- ---------------
Other comprehensive income - -
Total comprehensive loss for the
period 11 (1,128,431) (2,736,246)
=============== ===============
Loss per Ordinary Share (GBP) 5 (0.0187) (0.045)
=============== ===============
* Represents a bad debt provision taken against the Pentadyne
escrow deposit as described in our report for 2010.
**Includes costs associated with the return of capital in June
2011.
***Includes Nomad fees, transaction costs, marketing expenses,
other professional fees and costs associated with the return of
capital in June 2011.
****Note 6 includes a breakdown of these line items to enable
reconciliation with the Portfolio Summary table in the Investment
Advisor's Report.
******Represents foreign exchange gains/(losses) in respect of
USD reserves, creditors and debtors.
The results from the current and prior periods are derived from
continuing operations.
The notes on pages 17 to 35 form part of these financial
statements.
Unaudited Statement of Changes in Equity
For the period ended 30 June 2011
Unaudited Unaudited
1 January 2011 1 January 2010
To To
Notes 30 June 2011 30 June 2010
--------------------------------- ------ --------------- ---------------
GBP GBP
Balance brought forward 40,381,694 45,242,167
Total comprehensive loss for the
period (1,128,431) (2,736,246)
Capital distribution paid in the
period (4,216,345) -
Balance carried forward 35,036,918 42,505,921
=============== ===============
The notes on pages 17 to 35 form part of these financial
statements.
Unaudited Statement of Cash Flows
For the period ended 30 June 2011
Unaudited Unaudited
1 January 2011 1 January 2010
To To
Notes 30 June 2011 30 June 2010
------------------------------------- ----- --------------- ---------------
GBP GBP
Cash flows from/(used in) operating
activities
Net loss before investment result (816,079) (714,658)
Adjusted for:
Bank interest (12,466) (12,635)
Decrease/(increase) in other
receivables 1,892 (17,647)
(Decrease)/increase in other payables (212,725) 8,862
Purchase of investments* (837,200) (3,096,402)
Proceeds from sale of investments* 2,913,353 2,754,056
Net cash from/(used in) operating
activities 1,036,775 (1,078,424)
--------------- ---------------
Cash flows (used in)/from financing
activities
Bank interest received 12,665 44,188
Capital distribution paid (4,216,345) -
Net cash (used in)/from financing
activities (4,203,680) 44,188
--------------- ---------------
Net decrease in cash and cash
equivalents (3,166,905) (1,034,236)
Cash and cash equivalents, start
of the period 5,265,044 3,270,164
Effect of exchange rate changes
during the period (91,357) 342,026
--------------- ---------------
Cash and cash equivalents, end of
the period** 8 2,006,784 2,577,954
=============== ===============
Cash and cash equivalents comprise
the following amounts:
Bank deposits 82,006,784 2,577,954
2,006,784 2,577,954
========= =========
*In the period to 30 June 2011, purchase of investments
comprised of GBP0.8 million of reinvestment of short term fixed
deposits. Proceeds from sale of investments comprised GBP1.1
million from the sale of company investments (GBP3.5 million sales
of company investments is non-cash movements on merger/transfer)
and GBP1.8 million from the maturing of short term fixed
deposits.
**Cash and cash equivalents at the end of the period exclude
fixed cash deposits with a maturity of longer than 3 months from
the reporting date. As at 30 June 2011 fixed cash deposits with a
maturity of longer than 3 months from the reporting date of GBP0.8
million (31 December 2010: GBP1.8 million) are categorised as
"other short term investments" in these financial statements.
The notes on pages 17 to 35 form part of these financial
statements.
1. The Company
The Company is a Guernsey registered closed-ended investment
company and was registered with limited liability in Guernsey on 11
January 2007. The Company commenced business on 29 January 2007
when the Ordinary Shares of the Company were admitted to trading on
AIM.
The Company is an Authorised Closed-Ended Investment Scheme and
is subject to the Authorised Closed-Ended Investment Scheme Rules
2008.
The Company was established to provide Shareholders with an
attractive rate of return on their investment, primarily through
investing in companies which were likely to achieve an IPO or a
sale within a short term time horizon and through a small number of
investments in companies that were already listed. Refer to pages
10 to 12 for full details of the Company's investing policy.
The Company made its last investment in a new opportunity,
AgraQuest, Inc. in October 2007. By early 2008, the Investment
Advisor was becoming increasingly aware that equity values were
under pressure and that opportunities for exit by IPO or trade sale
were weakening.
2. Significant Accounting Policies
In preparing the Financial Statements, the significant judgments
made by the Directors in applying the Company's accounting policies
and the key sources of estimation uncertainty were the same as
those that applied to the audited financial statements as at and
for the year ended 31 December 2010.
New accounting policies effective and adopted
There are no new standards effective for the current periods
which are relevant to the Company's operations.
At the date of authorisation of these Financial Statements, the
following standards and interpretations, which have not been
applied in these Financial Statements, were in issue but not yet
effective:
-- IAS 12 (amended), "Income Taxes" (effective for periods
commencing on or after 1 January 2012);
-- IFRS 7 (amended), '"Financial Instruments: Disclosures"
(effective for periods commencing on or after 1 July 2011);
-- IFRS 9,"Financial Instruments - Classification and
Measurement" (effective for periods commencing on or after 1
January 2013);
-- IFRS 10, "Consolidated Financial Statements" (effective for
periods commencing on or after 1 January 2013);
-- IFRS 11, "Joint arrangements" (effective for periods
commencing on or after 1 January 2013);
-- IFRS 12, "Disclosure of Interest in Other Entities"
(effective for periods commencing on or after 1 January 2013);
-- IFRS 13, "Fair Value Measurement" (effective for periods
commencing on or after 1 January 2013);
None of these will have an effect on the Financial Statements of
the Company, with the exception of IFRS 9 "Financial Instruments -
Classification and Measurement" which is not expected to affect the
financial position of the Company but may require additional
disclosure in future financial statements.
2. Significant Accounting Policies, continued
The following accounting policies have been applied consistently
in dealing with items which are considered material in relation to
the Company's financial statements:
(a) Basis of Preparation
(i) Statement of compliance
The interim financial statements of the Company (the "financial
statements") have been prepared in accordance with IAS 34 [as
adopted by the EU] "Interim Financial Reporting".
The financial statements have been prepared under the historical
cost convention modified by the revaluation of investments and
assets and liabilities at fair value through profit or loss, and in
accordance with IFRS and the Companies (Guernsey) Law, 2008.
(ii) Judgements and estimates
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results could differ
from such estimates.
The estimates and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimate was revised if the revision
affects only that period or in the period of the revision and
future periods if the revision affects both current and future
periods.
The most critical judgements, apart from those involving
estimates, that management has made in the process of applying the
Company's accounting policies and that have the most significant
effect on the amounts recognised in the financial statements, are
the functional currency of the Company (see note 2(b)(i)) and the
fair value of investments designated to be at fair value through
profit or loss (see note 2(f)).
(b) Foreign Currency
(i) Functional and Presentation Currency
The Company's investors are mainly from the UK, with the share
price of the Ordinary Shares denominated in sterling. The primary
activity of the Company is to offer UK investors with an attractive
return on their investment, primarily through investing in
companies which are likely to achieve an IPO or a sale within a
short term time horizon and through a small number of investment
companies that are already listed. The performance of the Company
is measured and reported to investors in sterling. The Directors
consider sterling to be the currency that most faithfully
represents the economic effects of the underlying transactions,
events and conditions. The financial statements are presented in
sterling, which is the Company's functional and presentation
currency.
(ii) Transactions and Balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at
period-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the profit and
loss. Translation differences on non-monetary financial assets and
liabilities such as equities at fair value through profit or loss
are recognised in other comprehensive income.
(c) Income
Bank interest, investment income and loan stock interest are
included in the financial statements on an accruals basis.
2. Significant Accounting Policies, continued
(d) Financial Instruments
Financial assets and financial liabilities are recognised in the
Statement of Financial Position when the Company becomes a party in
the contractual provisions of the instrument.
(i) Financial assets
The classification of financial assets at initial recognition
depends on the purpose for which the financial assets were acquired
and their characteristics.
All financial assets are initially recognised at fair value. All
purchases of financial assets are recorded at trade date, this
being the date on which the Company became party to the contractual
requirement of the financial asset.
The Company's financial assets are categorised as financial
assets at fair value through profit or loss and loans and
receivables. Unless otherwise indicated the carrying amounts of the
Company's financial assets approximate to their fair values. Gains
and losses arising from changes in the fair value of financial
assets classified as fair value through profit or loss are
recognised in the Statement of Comprehensive Income.
Loans and receivable assets are non-derivative financial assets
with fixed or determinable payments that are not quoted in an
active market. They principally comprise trade and other
receivables, but also incorporate other types of contractual
monetary assets. They are initially recognised at fair value plus
transaction costs that are directly attributable to the acquisition
and subsequently carried at amortised cost plus using the effective
interest rate method, less provisions for impairment. The effect of
discounting on these financial instruments is not considered to be
material.
A financial asset (in whole or in part) is derecognised
either:
-- When the Company has transferred substantially all the risk
and rewards of ownership;
-- When it has not retained substantially all the risk and
rewards and when it no longer has control over the asset or a
portion of the asset; or
-- When the contractual right to receive cash flow has
expired.
(d) Financial Instruments, continued
(ii) Financial liabilities
The classification of financial liabilities at initial
recognition depends on the purpose for which the financial
liability was issued and its characteristics.
All financial liabilities are initially recognised at fair value
net of transaction costs incurred. All purchases of financial
liabilities are recorded on trade date, this being the date on
which the Company becomes party to the contractual requirements of
the financial liability. Unless otherwise indicated the carrying
amounts of the Company's financial liabilities approximate to their
fair values.
Financial liabilities include trade payables and other
short-term monetary liabilities, which are initially recognised at
fair value and subsequently carried at amortised cost. The effect
of amortising these liabilities using the effective interest rate
method is nil.
A financial liability (in whole or in part) is derecognised when
the Company has extinguished its contractual obligations, it
expires or is cancelled. Any gain or loss on derecognition is taken
to the Statement of Comprehensive Income.
2. Significant Accounting Policies, continued
(e) Impairment of financial assets
Financial assets are assessed at each reporting date to
determine whether there is any objective evidence that they are
impaired. A financial asset is considered to be impaired if
objective evidence indicates that one or more events have had a
negative effect on the estimated future cash flows of that
asset.
An impaired loss in respect of a financial asset measured at
amortised cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows
discounted at the original effective interest rate.
Individually significant financial assets are tested for
impairment on an individual basis. The remaining financial assets
are assessed collectively in groups that share similar credit risk
characteristics.
All impairment losses are recognised in the Statement of
Comprehensive Income.
An impairment loss is reversed if the reversal can be related
objectively to an event occurring after the impairment loss was
recognised. The reversal is recognised in the Statement of
Comprehensive Income.
(f) Investments
(i) Classification
Investments have been designated as fair value through profit or
loss in accordance with IAS 39 (Revised) "Financial Instruments:
Recognition and Measurement". Investments include quoted
investments, unquoted investments, compound financial instruments
and fixed cash deposits which have a maturity of greater than 3
months after the period end date. These fixed cash deposits are
included in the Statement of Financial Position as other short term
investments.
Investments designated at fair value through profit or loss at
inception are those that are managed and their performance
evaluated on a fair value basis in accordance with the Company's
documented investment strategy with the exception of fixed cash
deposits which is held at cost which is deemed to be there fair
value. The Company's policy is for the Investment Advisor and the
Board of Directors to evaluate the information about these
investments on a fair value basis together with other related
financial information.
Warrant investments meet the definition of "Derivatives" under
IAS 39 and have been designated as held for trading in accordance
with IAS 39 (Revised) "Financial Instruments: Recognition and
Measurement". They are accounted for as fair value through profit
or loss.
(ii) Measurement
Investments at fair value through profit or loss are initially
recognised at fair value. Transaction costs are expensed in the
Statement of Comprehensive Income. Subsequent to initial
recognition, all investments at fair value through profit or loss
are measured at fair value. Realised and unrealised gains and
losses arising on 'investments at fair value through profit or
loss' are presented in the Statement of Comprehensive Income in the
period in which they arise. Interest income from debt investments
at fair value through profit or loss is recognised in the Statement
of Comprehensive Income within interest income using the effective
interest method. Dividend income from equity investments at fair
value through profit or loss is recognised in the Statement of
Comprehensive Income within dividend income when the Company's
right to receive payments is established.
2. Significant Accounting Policies, continued
(f) Investments, continued
Classification of Fair Value Measurements
The amendment to IFRS 7, effective 1 January 2009, requires the
Company to classify fair value measurements using a fair value
hierarchy that reflects the significance of the inputs used in
making the measurements. The fair value hierarchy has the following
levels:
-- Quoted prices (unadjusted) in active markets for identical
assets or liabilities (level 1);
-- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level
2); and
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (level
3).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, the measurement is a level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement considering factors
specific to the asset or liability.
The determination of what constitutes "observable" requires
significant judgement by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
(iii) Recognition/derecognition
All regular way purchases and sales of investments are
recognised on trade date - the date on which the Company commits to
purchase or sell the investment. Investments are derecognised when
the rights to receive cash flows from the investments have expired
or the Company has transferred substantially all risks and rewards
of ownership.
(iv) Fair value estimation
Quoted investments at fair value through profit or loss are
valued at the bid price on the relevant stock exchange, discounted,
where necessary, to reflect any lack of liquidity.
Unquoted investments at fair value through profit or loss are
valued in accordance with the International Private Equity and
Venture Capital valuation guidelines.
Unquoted debt investments are carried at fair value in
accordance with the International Private Equity and Venture
Capital valuation guidelines.
(g) Expenses
Expenses are accounted for on an accruals basis.
(h) Cash and Cash Equivalents
Cash and cash equivalents are defined as cash in hand, demand
deposits having a maturity of less than 3 months and highly liquid
investments readily convertible to known amounts of cash and
subject to insignificant risk of changes in value. For the purposes
of the Statement of Cash Flows, cash and cash equivalents consist
of cash in hand, deposits in bank which have a maturity of less
than 3 months and overdrafts.
2. Significant Accounting Policies, continued
(i) Determination and presentation of operating segments
IFRS 8 requires a "management approach", under which segment
information is presented on the same basis as that used for
internal reporting purposes.
The key measure of performance used by the Board in its capacity
of Chief Operating Decision Maker ("CODM") is to assess the
Company's performance and to allocate resources based on the total
return of each individual investment within the Company's
portfolio, as opposed to geographic regions. As a result, the Board
is of the view that the Company is engaged in a single segment of
business, being investment in companies which were likely to
achieve an IPO or a sale within a short term time horizon and
through a small number of investments in companies that were
already listed. Therefore, no reconciliation is required between
the measure of gains or losses used by the Board and that contained
in these financial statements.
The Company receives no revenues from external customers.
3. Related Parties
Robert Fearis is a Director of the Company and a shareholder in,
and a director of, Praxis Holdings Limited, the holding company of
the Administrator. Roger Le Tissier is a director of Capita
Registrars (Guernsey) Limited, the Company's Registrar, and a
partner in Ogier, the Guernsey Advocate to the Company. Edward
Forwood is a Director of the Company, and a shareholder, in and the
Managing Director, of the Investment Advisor. Brett Miller and Rhys
Davis are Directors of the Company and shareholders in, and
directors of, Damille Investments Limited a 27.64% shareholder in
the Company.
Lord Flight and Christopher Fish are independent Directors.
The Company is responsible for the continuing fees of the
Investment Advisor, Administrator and the Registrar in accordance
with the Investment Advisory, Administration and Registrar
Agreements dated 24 January 2007.
Investment Advisory Agreement
Pursuant to the provisions of the Investment Advisory Agreement,
the Investment Advisor is entitled to receive a management fee
during the year at 2.0% per annum of the net asset value of the
Company, payable quarterly in advance. As at 30 June 11, the
Investment Advisory fee creditor was GBPnil (31 December 2010:
GBPnil & 30 June 2010: GBPnil).
Performance Fee
The Investment Advisor is also entitled to a performance fee
calculated by taking an amount equal to 20% of the adjusted closing
net asset value (NAV) per Ordinary Share over the opening NAV per
Ordinary Share, (where the adjusted NAV is the NAV of the Company
excluding any liability for accrued performance fees and after
adding back any dividends declared or paid during the performance
period), such that the Company and the Investment Manager share all
profits in the ratio of 80% and 20% respectively. The Investment
Advisor will become entitled to a performance fee in respect of a
performance period only if the adjusted closing NAV per Ordinary
Share at the end of the relevant performance period exceeds the
opening NAV per Ordinary Share at the start of the relevant period
increased by a hurdle amount of 7.5%. The first performance period
began on Admission and ended on 31 December 2007. Each subsequent
performance period is a period of one financial year. As at 30 June
2011, the performance fee creditor was GBPnil (31 December 2010:
GBPnil & 30 June 2010: GBPnil).
City Financial Limited
On 30 November 2009, Loudwater Investment Partners Limited was
appointed to manage City Financial's UK Select Alpha Fund (now
renamed City Financial UK Equity Income Fund). Assets under
management are some GBP12.9 million and Loudwater Investment
Partners Limited receives a fee of 0.75% of AUM per annum for this
service.
3. Related Parties, continued
Letter of Credit
The Company has provided funds which are held as collateral for
a letter of credit provided in support of a performance bond which
a portfolio company has provided in support of a major contract. At
30 June 2011, the funds held in escrow amount to US$1.3 million.
The Company pays a fee of 0.5% per annum to a subsidiary of Lloyds
Banking Group plc for providing the letter of credit which supports
the performance bond. Lloyds Banking Group plc is the ultimate
holding company of Uberior Equity Limited which owns 22.05% of the
shares in the Company.
Administration Agreement
Pursuant to the provisions of the Administration Agreement,
Praxis Fund Services Limited is entitled to receive a standard
administration fee of GBP26,250 per annum together with a fee for
company secretarial services charged on a time basis. As at 30 June
2011 the administration fee creditor was GBPnil (31 December 2010:
GBP9,580 & 30 June 2010: GBP12,687).
Registrar Agreement
Pursuant to the provisions of the Registrar Agreement, Capita
Registrars (Guernsey) Limited is entitled to a standard fee of
GBP3,500 per annum together with a per deal fee per shareholder
transaction. As at 30 June 2011 the registrar fee creditor was
GBP2,495 (31 December 2010: GBP1,764 & 30 June 2010:
GBP1,348).
Nominated Advisor & Broker Fees
Pursuant to the provisions of the Engagement Letter dated 9
November 2007, as subsequently amended, Panmure Gordon (UK) Limited
is entitled to a standard fee of GBP30,000 per annum for acting as
nominated advisor and broker.
As at 30 June 2011 the Nominated Advisor and Broker fee creditor
was GBPnil (31 December 2010: GBPnil & 30 June 2010:
GBPnil).
4. Directors' Fees & Interests
Each of the Directors has entered into an agreement with the
Company providing for them to act as a non-executive director of
the Company. Their annual fees, excluding all reasonable expenses
incurred in the course of their duties which will be reimbursed by
the Company are as follows:
Annual Fee
-----------
GBP
Lord Flight 30,000
Edward Forwood Nil
Brett Miller 9,000
Rhys Davis 9,000
Roger Le Tissier 18,000
Christopher Fish 18,000
Robert Fearis 18,000
The total Directors' fees and expenses charged to the Statement
of Comprehensive Income during the period was GBP54,572 (31
December 2010: GBP106,404 & 30 June 2010: GBP57,466) of which
GBPnil remained outstanding at 30 June 2011 (31 December 2010:
GBPnil & 30 June 2010).
4. Directors' Fees & Interests, continued
The interests of the Directors and their families who held
office during the period are set out below:
Ordinary Shares
----------------
No.
Lord Flight 80,000
Edward Forwood 400,000
Brett Miller -
Rhys Davis -
Roger Le Tissier -
Christopher Fish -
Robert Fearis -
There were no changes in the interests of the Directors prior to
the date of this report.
5. Loss per Ordinary Share
Loss per Ordinary Share is based on the loss for the period of
GBP1,128,431 (period ended 30 June 2010: GBP2,736,246 loss) and on
a weighted average number of Ordinary Shares of 60,232,855 (period
ended 30 June 2010: 60,232,855).
6. Investments at Fair Value Through Profit or Loss
30 June 2011 31 December 2010 30 June 2010
--------------- ------------------ ---------------
GBP GBP
Unlisted
investments* 32,229,618 33,546,384 36,940,796
Other short term
investment** 793,454 1,773,838 3,106,103
--------------- ------------------ ---------------
33,023,072 35,320,222 40,046,899
=============== ================== ===============
Movement in net
unrealised loss
on investments at
fair value 1 January 2011 1 January 2010 1 January 2010
through profit or To To To
loss: 30 June 2011 31 December 2010 30 June 2010
--------------- ------------------ ---------------
GBP GBP
Payment in kind
interest ("PIK")
receivable on
convertible loan
notes - (652,510) (652,510)
Simple interest
receivable on
convertible loan
notes*** (1,014,936) (1,004,514) (1,041,681)
Interest
receivable on
other short term
investments 1,344 (868) 8,425
Other unrealised
losses on
investments**** 7,718,217 (702,696) 29,195
--------------- ------------------ ---------------
6,704,625 (2,360,588) (1,656,571)
=============== ================== ===============
Net realised loss
on disposal of
investments at
fair value
through profit or
loss:
Payment in kind
interest
receivable on
convertible loan
notes - 787,927 787,928
Simple interest
receivable on
convertible loan
notes*** 1,114,049 1,445,809 1,445,809
Realised losses
on
investments**** (8,039,669) (3,592,525) (2,940,780)
--------------- ------------------ ---------------
(6,925,620) (1,358,789) (707,043)
=============== ================== ===============
6. Investments at Fair Value Through Profit or Loss,
continued
*Included within the fair value of unlisted investments as at 30
June 2011 is GBPnil (31 December 2010: GBPnil) of accrued payment
in kind interest.
**Other short term investment is a fixed cash deposit with a
maturity of longer than 3 months from the reporting date.
***During the period ended 30 June 2011, the movement in
unrealised simple interest includes GBP0.0 million of simple
interest earned during the period (represented in the Portfolio
Summary table in the Investment Advisor's Report) less GBP1.0
million of simple interest which crystallised during the period.
The movement in realised simple interest represents GBP1.1 million
of simple interest which crystallised during the period which
includes GBP0.1 million of interest which is restated as having
accrued prior to 31 December 2010 (31 December 2010: the movement
in unrealised simple interest represents GBP0.4 million of simple
interest earned during the period less GBP1.4 million of simple
interest which crystallised on conversion to equity in the
year).
****During the period ended 30 June 2011, the movement in
unrealised losses on investments includes GBP(0.4) million of
foreign exchange losses and GBP(0.2) million of market movement on
listed shares (both respectively represented in the Portfolio
Summary table in the Investment Advisor's Report), less a
reclassification of GBP(8.3) million relating to unrealised losses
from prior periods that crystallised during the period (31 December
2010: the movement in other unrealised losses on investments
includes GBP0.3 million of foreign exchange gains, GBP(3.8) million
of write-downs of current non-listed investments, and a GBP(0.6)
million write-down of two exited investments plus GBP(0.1) million
of additional PIK interest write down, less a reclassification of
GBP(3.6) million relating to unrealised losses from prior periods
that crystallised during 2010).
*****During the period ended 30 June 2011, the movement in
realised losses on investments includes a GBP0.3 million NAV
adjustment for an exited investment (represented in the Portfolio
Summary table in the Investment Advisor's Report) plus a
reclassification of GBP(8.3) million relating to unrealised losses
from prior periods that crystallised during the period (31 December
2010: the movement in realised losses on investments includes a
reclassification of GBP(3.6) million relating to unrealised losses
from prior periods that crystallised during 2010).
As disclosed in note 3, the Company has provided funds to
support a standby letter of credit on behalf of a portfolio company
which has provided a performance bond in support of a major
contract. The standby letter of credit is supported by a fixed cash
deposit of US$1,270,918 (31 December 2010: US$2,768,679 & 30
June 2010: US$2,743,368) held with Lloyds TSB Bank PLC. This fixed
cash deposit matures in greater than 3 months after the Company's
year end and is included within 'Other Short Term Investments' in
the Statement of Financial Position. An amount of US$1.5 million
has been called from this fixed cash deposit in the period as a
result of a failure of the portfolio company to perform under the
contract.
7. Other Receivables
30 June 2011 31 December 2010 30 June 2010
------------- ----------------- -------------
GBP GBP GBP
Bank interest
receivable - 199 363
Prepayments 28,845 30,737 20,573
------------- ----------------- -------------
28,845 30,936 20,936
============= ================= =============
The Directors consider that the carrying amount of other
receivables approximates fair value. The Company's exposure to
credit risk related to other receivables is disclosed in note
14.
8. Cash and Cash Equivalents
30 June 2011 31 December 2010 30 June 2010
------------- ----------------- -------------
GBP GBP
Cash at bank 2,006,784 2,996,992 44,222
Fixed deposits
(maturity <3 months) - 2,268,052 2,533,732
------------- ----------------- -------------
2,006,784 5,265,044 2,577,954
============= ================= =============
Total cash and deposits amount to GBP2.8 million (31 December
2010: GBP7.04 million & 30 June 2010: GBP5.68 million), being
GBP2 million (31 December 2010: GBP5.27 million & 30 June 2010:
GBP2.58 million) cash and cash equivalents and GBP0.8 million (31
December 2010: GBP1.77 million & 30 June 2010: GBP3.10 million)
in note 6, Other short term investment.
The Company's exposure to interest rate risk and sensitivity
analysis for financial assets and liabilities are disclosed in note
14.
9. Other Payables
30 June 2011 31 December 2010 30 June 2010
------------- ----------------- -------------
GBP GBP
Administration fee - 9,580 12,687
Interest due on
purchase of Initial
Portfolio* - 105,504 110,212
Registrar's fee 2,495 1,764 1,348
Audit fee 7,052 16,750 8,241
Letter of credit
obligation** 9,651 96,080 4,500
Sundry 2,585 4,830 2,880
------------- ----------------- -------------
21,783 234,508 139,868
============= ================= =============
*Relates to Top Layer interest owed back to Panmure Capital
Partners and settled on the sale of the company.
**Relates to Pentadyne LoC bad debt provision.
The Company's exposure to liquidity risk related to other
payables is disclosed in note 14.
The Directors consider that the carrying amount of other
payables approximates fair value.
10. Share Capital & Distributable Reserve
Authorised Share Capital 30 June 2011,
31 December
2010
&
30 June 2010
-------------
GBP
Unlimited Shares of no par value that may be -
issued as Ordinary Shares
=============
Share Capital 1 January 2011 1 January 2010 1 January 2010
To To To
30 June 2011 31 December 2010 30 June 2010
-------------- ----------------- --------------
GBP GBP GBP
Allotted, issued and
fully paid Shares:
Brought forward & - - -
carried forward
============== ================= ==============
As at 30 June 2011, there were 60,232,855 shares in issue (31
December 2010: 60,232,855 & 30 June 2010: 60,232,855).
1 January 2010 1 January 2010 1 January 2010
To To To
Distributable Reserve 30 June 2010 31 December 2010 30 June 2010
-------------- ----------------- --------------
GBP GBP GBP
Brought forward 60,506,329 60,506,329 60,506,329
Capital distribution
paid (4,216,345) - -
============== ================= ==============
Carried forward 56,289,984 60,506,329 60,506,329
============== ================= ==============
The authorised share capital of the Company on incorporation was
divided into an unlimited number of Shares of no par value which
upon issue, for cash or otherwise, the Directors may categorise as
Ordinary Shares or otherwise. The Company's Articles of Association
confer pre-emption rights to Shareholders in the event of any issue
of shares which would increase the issued share capital by 25 per
cent. or more.
10. Share Capital & Distributable Reserve, continued
Subject to the provisions of the Law and without prejudice to
any rights attaching to any existing Shares or to the provisions of
the Articles, any share in the Company may be issued with or have
attached thereto such preferred, deferred, conversion or other
special rights, or such restrictions whether in regard to dividend,
return of capital, voting, conversion or otherwise as the Company
may from time to time by ordinary resolution determine or, subject
to or in default of any such direction, as the Directors may
determine.
The Company may issue fractions of Shares and any such
fractional Shares shall rank pari passu in all respects with the
other shares issued by the Company.
The initial offering of the Ordinary Shares was at a price of
GBP1.00 per Ordinary Share.
On 16 January 2007 the holders of the Subscriber Shares in the
Company passed a written resolution approving the cancellation of
the entire amount which stood to the credit of the share premium
account immediately after the Placing, conditionally upon the issue
of the Shares and the payment in full thereof and with approval of
the Royal Court. The cancellation was confirmed by the Royal Court
on 27 April 2007.
In the period the Company made a capital return by way of bonus
issue of B shares. The capital returned to shareholders was GBP4.2
million, equating to approximately 7.0 pence per share, and
included the cash element received from the disposal of Top Layer
Networks.
11. Revenue Reserve
1 January 2011 1 January 2010 1 January 2010
To To To
30 June 2011 31 December 2010 30 June 2010
-------------- ----------------- --------------
GBP GBP GBP
Retained revenue
reserve brought
forward (20,124,635) (15,264,162) (15,264,162)
Total comprehensive
loss for the year (1,128,431) (4,860,473) (2,736,246)
-------------- ----------------- --------------
Retained revenue
reserve carried
forward (21,253,066) (20,124,635) (18,000,408)
============== ================= ==============
12. Net Asset Value per Ordinary Share
The net asset value per Ordinary Share is based on the net
assets attributable to equity shareholders of GBP35,036,918 (31
December 2010: GBP40,381,694 & 30 June 2010: GBP42,505,921) and
on the period/year end number of Ordinary Shares in issue of
60,232,855 (31 December 2010 & 30 June 2010: 60,232,855).
13. Financial Instruments
(a) Significant accounting policies:
Details of the significant accounting policies and methods
adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are
recognised, in respect of its financial assets and financial
liabilities are disclosed in note 2 to these financial
statements.
13. Financial Instruments, continued
(b) Categories of financial instruments:
Financial instruments are made up of quoted and unquoted
investments, fixed cash deposits of greater than 3 months maturity
classified as investments at fair value through profit or loss,
cash and cash equivalents and other receivables excluding
prepayments. As at 30 June 2011, the fair value of the Company's
financial instruments was GBP33,023,072 (31 December 2010:
GBP40,585,465 & 30 June 2010: GBP40,046,899). This was 94.25%
(31 December 2010: 100.50% & 30 June 2010: 94.21%) of net
assets attributable to equity shareholders.
There are no financial liabilities other than other payables as
disclosed in note 9.
(c) Derivatives:
In accordance with the Company's scheme particulars the Company
may invest in derivatives or forward foreign exchange contracts for
the purpose of efficient portfolio management. No such forward
foreign exchange contracts were held during the period ended 30
June 2011 (31 December 2010 & 30 June 2010: GBPnil). As at 30
June 2011 the Company held one warrant derivative contract
investment, which was valued at GBPnil.
Warrants
30 June 2010 31 December 2010 30 June 2010
Maturity Fair Value Fair Value Fair Value
------------- ----------------- -------------
GBP GBP GBP
No fixed - - -
maturity*and
total
============= ================= =============
* the warrants had no fixed maturity date as the underlying
investment is unlisted. Once the underlying investment lists the
warrant is valid for 2 year from IPO.
A warrant is a derivative financial instrument which gives the
right, but not the obligation to buy a specific amount of a given
stock, at a specified price (strike price) on a specific date. The
fair value of the warrants are classified as financial assets at
fair value through profit or loss, as disclosed in note (b) above.
The warrants for underlying unlisted equities are valued at GBPnil
in accordance with the International Private Equity and Venture
Capital valuation guidelines.
14. Financial Risk Management
Strategy in using Financial Instruments
The Company's activities expose it to a variety of financial
risks: market risk (including currency risk, fair value interest
rate risk, cash flow interest rate risk and price risk), credit
risk and liquidity risk. The Company's overall risk management
program focuses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the Company's
financial performance.
The Company's investment objective was to provide shareholders
with an attractive return on their investment, primarily through
investing in companies which were likely to achieve an IPO or a
sale within a short term time horizon and through a small number of
investment companies that were already listed.
In September 2008, the Company announced that, in the light of
the deteriorating economic environment and the lack of a visible
time frame for exits, it would return some capital to Shareholders
by way of a tender offer and would make appropriate changes in the
Company's structure and investment policy as described in the
Tender Offer document and in note 1.
Market Price Risk
All securities investments present a risk of loss of capital.
The Investment Advisor moderates this risk through a careful
selection of securities and other financial instruments within
specified limits. The maximum risk resulting from financial
instruments is determined by the fair value of the financial
instruments. The Company's portfolio and investment strategy is
reviewed continuously by the Investment Advisor and on a quarterly
basis by the Board.
14. Financial Risk Management, continued
Market Price Risk, continued
The Company's exposure to market price risk arises from
uncertainties about future prices of its investments. This risk is
managed through diversification of the investment portfolio.
Generally the Company will seek not to invest (or commit to invest)
more than 10% of the Company's gross assets to any single
investment at the time of investment (or commitment), although such
limit may be exceeded in certain cases where the Board deems
appropriate on the advice of the Investment Advisor. Typically,
investments in pre-IPO opportunities will be made by way of a
convertible loan note that will convert on an exit event at a
discount to the relevant exit price. The loans may also have an
attached equity interest in the form of a warrant. However, a
proportion of investments will be made at a fixed price. This is
necessary in order to capture attractive pre-IPO opportunities that
are not available with a loan note security. In addition, the
Company may invest in companies that are already listed. These
investments will be made on an opportunistic basis and are expected
to represent a small number of the Company's transactions not
exceeding 15% of the net asset value of the Company. As investee
companies achieve successful listings, however, the net asset value
attributable to holdings in listed companies may be
substantial.
At 30 June 2011, the Company's market risk is affected by three
main components: changes in actual market prices, interest rate and
foreign currency movements. Interest rate and foreign currency
movements are covered below. A 25% increase in the value of
investments, with all other variables held constant, would bring
about a GBP8,057,405 or 23.00% (31 December 2010: GBP8,830,055 or
21.87% & 30 June 2010: 10,011,725 or 23.55%) increase in net
assets attributable to equity shareholders. If the value of
investments had been 25% lower, with all other variables held
constant, net assets attributable to equity shareholders would have
fallen by GBP8,057,405 or 23.00% (31 December 2010: GBP8,830,055 or
21.87% & 30 June 2010: 10,011,725 or 23.55%).
Interest Rate Risk
The Company is exposed to risks associated with the effects of
fluctuations in the prevailing levels of market interest rates on
its financial instruments and future cash flows.
The table below summarises the Company's exposure to interest
rate risk by the earlier of contractual maturities:
Weighted
average 3
effective months
At 30 June interest Less than - 1 1 - 3 No fixed
2011 rate 1 month year years maturity Total
-------------------- ---------- ---------- -------- ---------- ----------- -----------
% GBP GBP GBP GBP
Assets:
Fixed
interest
rate
unlisted
debt
securities 5.59 - 791,701 1,705,570 - 2,497,271
Floating
interest
rate cash at
bank 0.37 1,859,055 - - - 1,859,055
Non-interest
bearing 0 176,574 1,753 - 30,524,048 30,702,375
---------- -------- ---------- ----------- -----------
Total assets
excluding
prepayments 2,035,629 793,454 1,705,570 30,524,048 35,058,701
========== ======== ========== =========== ===========
Liabilities:
Non-interest
bearing - - - 21,783 21,783
---------- -------- ---------- ----------- -----------
Total
liabilities - - - 21,783 21,783
========== ======== ========== =========== ===========
14. Financial Risk Management, continued
Interest Rate Risk, continued
Weighted
average
At 31 effective
December interest Less than 3 months No fixed
2010 rate 1 month - 1 year maturity Total
-------------------- ---------- ---------- ---------- ----------- -----------
% GBP GBP GBP GBP
Assets:
Fixed
interest
rate
unlisted
debt
securities 7.00 - 1,773,430 2,786,318 4,559,748
Fixed
interest
rate cash at
bank 0.17 2,268,052 - - 2,268,052
Floating
interest
rate cash at
bank 0.31 2,996,992 - - 2,996,992
Non-interest
bearing - 199 408 30,760,066 30,760,673
---------- ---------- ----------- -----------
Total assets
excluding
prepayments 5,295,980 1,773,838 33,546,384 40,585,465
========== ========== =========== ===========
Liabilities:
Non-interest
bearing - - - 234,508 234,508
---------- ---------- ----------- -----------
Total
liabilities - - 234,508 234,508
========== ========== =========== ===========
Weighted
average
effective
At 30 June interest Less than 1-3 3 months No fixed
2010 rate 1 month months - 1 year maturity Total
-------------------- ---------- ---------- -------- ---------- ----------- -----------
% GBP GBP GBP GBP GBP
Assets
Fixed
interest
rate
unlisted
debt
securities 5.89 - - 3,096,402 2,910,672 6,007,074
Fixed
interest
rate cash at
bank 0.36 2,087,726 446,006 - - 2,553,732
Floating
interest
rate cash at
bank 0.10 44,222 - - - 44,222
Non-interest
bearing - 20,936 - 9,701 34,030,124 34,060,760
---------- -------- ---------- ----------- -----------
Total assets
excluding
prepayments 2,152,884 446,006 3,106,103 36,940,796 42,645,789
========== ======== ========== =========== ===========
Liabilities
Non-interest
bearing - - - - 139,868 139,868
---------- -------- ---------- ----------- -----------
Total
liabilities - - - 139,868 139,868
========== ======== ========== =========== ===========
The sensitivity analyses below have been determined based on the
Company's exposure to interest rates for interest bearing assets
and liabilities (included in the interest rate exposure table
above) at the period end date and the stipulated change taking
place at the beginning of the financial period and held constant
through the reporting period in the case of instruments that have
floating rates.
14. Financial Risk Management, continued
Interest Rate Risk, continued
A 250 basis point increase or decrease is used when reporting
interest rate risk internally to key management personnel and
represents management's assessment of the possible change in
interest rates.
If interest rates had been 250 basis points higher, for assets
and liabilities as at 30 June 2011 that are subject to changing
interest rates, and all other variables were held constant, the
Company's increase in net assets attributable to equity holders for
the period ended 30 June 2011 would have been an increase of
GBP4,647 (31 December 2010: GBP74,925 & 30 June 2010: GBP553)
due to the increase in the interest earned on the Company's cash
balances.
If interest rates had been 250 basis points lower, for assets
and liabilities as at 30 June 2011 that are subject to changing
interest rates, and all other variables were held constant, the
Company's increase in net assets attributable to equity holders for
the period ended 30 June 2011 would have been a decrease of
GBP4,647 (31 December 2010: GBP9,291 & 30 June 2010: GBP22) due
to the decrease in the interest earned on the Company's cash
balances.
The Company's sensitivity to interest rates has decreased during
the current period as the Company has invested its capital into its
investments thereby reducing its cash balances that are interest
bearing.
Foreign Currency Risk
Foreign currency risk is the risk that the fair value of future
cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates.
The Company's assets may be invested in securities and other
investments that are denominated in currencies different to the
reporting currency. Accordingly, the value of an investment may be
affected favourably or unfavourably by fluctuations in exchange
rates. The Company may, through forward foreign exchange contracts,
hedge its exposure back to sterling but has not done so during the
financial period.
Currency Exposure
A proportion of the net assets of the Company are denominated in
currencies other than sterling. The carrying amounts of these
assets and liabilities are as follows:
Assets Liabilities
30 June 2011 30 June 2011
------------ ------------
GBP GBP
Sterling 15,987,986 21,783
US Dollars 19,070,715 -
Equity attributable to Ordinary Shareholders 35,058,701 21,783
============ ============
Assets Liabilities
31 December 31 December
2010 2010
----------- -----------
GBP GBP
Sterling 17,641,468 129,004
US Dollars 22,943,997 105,504
Equity attributable to Ordinary Shareholders 40,585,465 234,508
=========== ===========
14. Financial Risk Management, continued
Currency Exposure, continued
Assets Liabilities
30 June 2010 30 June 2010
------------ ------------
GBP GBP
Sterling 18,714,611 29,656
US Dollars 23,931,178 110,212
Equity attributable to Ordinary Shareholders 42,645,789 139,868
============ ============
The Company is exposed to US Dollar currency risk.
The sensitivity analysis below has been determined based on the
sensitivity of the Company's outstanding foreign currency
denominated financial assets and liabilities to a 25% increase /
decrease in the Sterling against US Dollar, translated at the
period end date.
25% is the sensitivity rate used when reporting foreign currency
risk internally to key management personnel and represents
management's assessment of the possible change in foreign exchange
rates.
As at 30 June 2011 if Sterling had weakened by 25% against the
US Dollar, with all other variables held constant, the increase in
net assets attributable to equity shareholders would have been
GBP4,767,679 or 13.61% (31 December 2010: GBP5,709,623 or 14.14%
& 30 June 2010: GBP5,955,241 or 14.01%) higher. Conversely, if
Sterling had strengthened by 25% against the US Dollar, with all
other variables held constant, the increase in net assets
attributable to equity shareholders would have been GBP4,767,679 or
13.61% (31 December 2010: GBP5,709,623 or 14.14% & 30 June
2010: GBP5,955,241 or 14.01%) lower.
Credit and Liquidity Risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company. The maximum exposure to credit risk that the
Company faces is equal to the fair value of the financial
instruments held by the Company.
Liquidity risk is the risk that the Company will encounter in
realising assets or otherwise raising funds to meet financial
commitments. Refer to the interest rate risk table for a detailed
maturity analysis of the Company's assets and liabilities. All the
fixed deposits held by the Company mature within 1 year.
The Board, advised by the Investment Advisor, has made changes
to the Company's investing policy and, in particular, the Company
will make no further investments in new portfolio companies for the
time being.
The Company manages the credit risk of third party borrowers by
regularly reviewing their underlying performance.
Classification of Fair Value Measurements
The following table analyses, within the fair value hierarchy,
the Company's financial assets (by class) measured at fair value at
30 June 2011:
Fair Value as at 30 June 2011
Level
1 Level 2 Level 3 Total
---------- -------- ----------- -----------
GBP GBP GBP GBP
Designated at fair value
through profit or loss
upon initial recognition:
Equity investments 1,715,958 - 28,762,609 30,478,566
Compound debt investments - - 1,751,052 1,751,052
Other short term
investment* 793,454 - - 793,454
---------- -------- ----------- -----------
2,509,411 - 30,513,661 33,023,072
========== ======== =========== ===========
14. Financial Risk Management, continued
Classification of Fair Value Measurements, continued
Fair Value as at 31 December 2010
Level
1 Level 2 Level 3 Total
---------- -------- ----------- -----------
GBP GBP GBP GBP
Designated at fair value
through profit or loss
upon initial recognition:
Equity investments - - 29,699,648 29,699,648
Compound debt investments - - 3,846,736 3,846,736
Other short term
investment* 1,773,838 - - 1,773,838
---------- -------- ----------- -----------
1,773,838 - 33,546,384 35,320,222
========== ======== =========== ===========
Fair Value as at 30 June 2010
Level
1 Level 2 Level 3 Total
---------- -------- ----------- -----------
GBP GBP GBP GBP
Designated at fair value
through profit or loss
upon initial recognition:
Equity investments - - 33,006,872 33,006,872
Compound debt investments - - 3,933,924 3,933,924
Other short term
investment* 3,106,103 - - 3,106,103
---------- -------- ----------- -----------
3,106,103 - 36,940,796 40,046,899
========== ======== =========== ===========
*Other short term investment is a fixed cash deposit with a
maturity of longer than 3 months from the reporting date.
Investments whose values are based on quoted market prices in
active markets, and are therefore classified within level 1,
include active listed equities and fixed cash deposits with a
maturity of longer than 3 months from the reporting date. The
Company does not adjust the quoted price for these instruments.
Financial instruments that trade in markets that are not
considered to be active but are valued based on quoted market
prices, dealer quotations or alternative pricing sources supported
by observable inputs are classified within level 2. As level 2
investments may include positions that are not traded in active
markets and/or are subject to transfer restrictions, valuations may
be adjusted to reflect illiquidity and/or non-transferability,
which are generally based on available market information. None of
the Company's investments are categorised as level 2 financial
assets.
Investments classified within level 3 have significant
unobservable inputs, as they trade infrequently. Level 3
instruments include corporate compound debt instruments and
unquoted equity instruments which the Company values in accordance
with the International Private Equity and Venture Capital valuation
guidelines. There have been no effects of changes in significant
unobservable assumptions that will result in a material change to
the investment values. The Company considers liquidity, credit and
other market risk factors.
The table below provides a reconciliation from brought forward
to carried forward balances of financial instruments categorised
under level 3:
1 January 2011 To 30 June 2011
Assets at Fair Value Compound debt
based on Level 3: Equity investments investments Total
------------------- -------------- ------------
GBP GBP GBP
Fair value brought
forward 29,699,648 3,846,736 33,546,384
Purchases or
conversions* 1,879,892 1,677,152 3,557,044
Sales or conversions (846,922) (3,804,549) (4,651,471)
Net realised loss on
fair value through
profit or loss
investments (6,736,418) (189,202) (6,925,620)
Movement in net
unrealised losses
on fair value
through profit or
loss investments 6,482,367 220,914 6,703,281
------------------- -------------- ------------
Fair value carried
forward 30,478,567 1,751,051 32,229,618
=================== ============== ============
14. Financial Risk Management, continued
Classification of Fair Value Measurements, continued
1 January 2010 To 31 December 2010
Assets at Fair
Value based on Compound debt
Level 3: Equity investments investments Total
------------------- -------------- -------------
GBP GBP GBP
Fair value brought
forward 24,606,225 14,644,110 39,250,335
Purchases or
conversions* 12,167,965 - 12,167,965
Sales or
conversions (4,058,779) (8,711,321) (12,770,100)
Net realised
(loss)/gain on
fair value through
profit or loss
investments (2,848,524) 787,927 (2,060,597)
Movement in net
unrealised losses
on fair value
through profit or
loss investments (167,239) (2,873,980) (3,041,219)
------------------- -------------- -------------
Fair value carried
forward 29,699,648 3,846,736 33,546,384
=================== ============== =============
1 January 2010 To 30 June 2010
Assets at Fair
Value based on Compound debt
Level 3: Equity investments investments Total
------------------- -------------- -------------
GBP GBP GBP
Fair value brought
forward 24,606,225 14,644,110 39,250,335
Purchases or
conversions* 12,167,710 - 12,167,710
Sales or
conversions* (2,010,580) (8,711,321) (10,721,901)
Net realised gain
on fair value
through profit or
loss investments (2,196,780) 787,927 (1,408,853)
Movement in net
unrealised gains
on fair value
through profit or
loss investments 440,297 (2,786,792) (2,346,495)
------------------- -------------- -------------
Fair value carried
forward 33,006,872 3,933,924 36,940,796
=================== ============== =============
*30 June 2011 includes GBP3.6 million of non-cash movements on
transfers of loan notes and equity (31 December 2010: Includes
GBP8.7 million loan conversions into equity, GBP2.0 million equity
restructures, and GBP1.4 million simple interest conversions into
equity).
Capital Management
The Company monitors "adjusted capital" which comprises all
components of equity (i.e. distributable and revenue reserves). The
Company's objectives when maintaining capital are:
-- to safeguard the Company's ability to continue as a going
concern, so that it can continue to provide returns for
shareholders and benefits for other stakeholders; and
-- to provide an adequate return to shareholders by pricing
products and services commensurately with the level of risk.
The Directors set and manage the amount of capital required in
proportion to risk. The Directors may exercise the powers of the
Company to borrow money and to give security over its assets. The
Company may borrow funds secured on its investments if the Board
(with the advice the Investment Advisor) considers that
satisfactory opportunities for investment arise at a time when the
Company is close to being fully invested. In any event, borrowing
will be limited to 50 per cent. of the Company's investments at the
time of draw down. The Company may also be indirectly exposed to
the effects of gearing to the extent that investee companies have
outstanding borrowings.
The Company has been granted authority to make market purchases
of up to 14.99% of its own Ordinary Shares. Any such purchases
require shareholders approval.
The Company has the ability to apply to the Financial Services
Authority for a Placing and Offer to increase the size of the
Company through further share issuance.
As at 30 June 2011, 31 December 2010 and 30 June 2010 the
Company had no borrowings and held none of its own shares in
treasury.
15. Dividends
Following the approval of shareholders at an extraordinary
general meeting on 5 November 2008, the Directors intend to
distribute cash proceeds of realisations in full following
disposals of portfolio investments, subject to the retention of
sufficient cash for follow-on investments in existing portfolio
companies and after taking into account all costs, liabilities and
expenses of the Company. Such distributions shall be made by share
buy-back or dividend from time to time as the Directors consider
economic and appropriate.
For the period ended 30 June 2011 the realised losses of the
Company that had physically been received were as follows: -
1 January 2011 1 January 2010
To To
30 June 2011 30 June 2010
--------------- ---------------
GBP GBP
Total comprehensive loss for the
period (1,128,635) (2,736,246)
Add back:
Movement in net unrealised losses (6,704,625) 1,656,571
Adjusted realised loss for
distribution for the period (7,833,260) (1,079,675)
=============== ===============
The Directors do not recommend the payment of a dividend for the
period ended 30 June 2011 (30 June 2010: GBPnil).
In the period a capital distribution was paid to shareholders of
GBP4,216,345 (30 June 2010: GBPnil)
16. Taxation
The Income Tax Authority of Guernsey has granted the Company
exemption from Guernsey income tax under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance, 1989 and the income of the Company
may be distributed or accumulated without deduction of Guernsey
income tax. Exemption under the above mentioned Ordinance entails
payment by the Company of an annual fee of GBP600. It should be
noted, however, that interest and dividend income accruing from the
Company's investments may be subject to withholding tax in the
country of origin. With effect from 1 January 2008 the standard
rate of income tax for most companies in Guernsey is zero per cent.
Tax Exempt status continues to exist and the Company has been
granted this status for 2011.
The Company has not suffered any withholding tax in the period
(30 June 2010: GBPnil).
Investors other than Guernsey residents are not subject to any
tax in Guernsey in respect of any Ordinary Shares owned by them.
Guernsey income tax will not be deducted from dividends (if any)
payable in respect of Ordinary Shares held by or on behalf of
residents of Guernsey. However, the Company will be obliged to
furnish such particulars of any distributions as may be required by
the Director of Income Tax. No other deductions will be made in
respect of tax.
No withholding tax is payable in Guernsey in respect of Ordinary
Shares held by person's resident outside Guernsey.
17. Post Period End Events
There are no other post period end events that require
disclosure in these financial statements.
Directors & Advisors
Directors: Lord Flight (Chairman)
Robert Fearis
Christopher Fish
Edward Forwood
Roger Le Tissier
Rhys Davies
Brett Miller
Administrator Designated Manager, Secretary, Praxis Fund
Services Limited Tel: +44 (0)1481 737 600
Provider of Safe Custody & Registered Office: Sarnia House
Fax: +44(0)1481 749 829
Le Truchot www.pfs.gg
St Peter Port
Guernsey, GY1 4NA
Registrar: Capita Registrars (Guernsey) Limited
2(nd) Floor, No.1 Le Truchot
St Peter Port
Guernsey, GY1 4AE
Investment Advisor & Promoter: Loudwater Investment Partners
Limited Tel: +44 (0)20 3372 6400
Little Tufton House Fax: +44(0)20 7222 2991
3 Dean Trench Street
London, SW1P 3HB www.loudwaterpartners.com
Share dealing:
Shares can be purchased or sold through your usual
stockbroker.
Sources of further information:
The Company's Ordinary Shares are quoted on the AIM market of
the London Stock Exchange. Information updates are available on the
Company from the Investment Advisor's website
www.loudwaterpartners.com.
Key Dates:
Company's year end 31 December 2011
Annual results announced By 31 May 2012
Company's half-year 30 June 2012
Interim results announced By 30 September 2012
Frequency of NAV publication:
The Company's net asset value is released to the Stock Exchange
quarterly.
Auditors: BDO Limited
PO Box 180, Place du Pre
Rue du Pre, St Peter Port
Guernsey, GY1 3LL
Nominated Advisor & Broker: Panmure Gordon (UK) Limited
Moorgate Hall
155 Morgate
London, EC2M 6XB
Guernsey Advocates: Ogier
Ogier House
St Julian's Avenue
St Peter Port
Guernsey, GY1 1WA
Bankers: Lloyds TSB Offshore Limited
Corporate Banking
PO Box 123
Sarnia House
Le Truchot
St Peter Port
Guernsey, GY1 4EF
Barclays Private Clients International Limited
PO Box 41
Le Marchant House
St Peter Port
Guernsey, GY1 3BE
English Solicitors: Berwin Leighton Paisner LLP
Adelaide House
London Bridge
London, EC4R 9HA
Company Number: 46213 (Registered in Guernsey)
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR KMGZLKFVGMZM
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