TIDMPUMD
Puma VCT IV plc
Final Results for the Year Ended 28 February 2011
Highlights
* Successful disposals and realisations during the year enabling a substantial
return of capital.
* Dividends of 36p paid during the year, with a further 1.5p paid out in May
2011 - these bring total dividends since launch to 48.5p.
* Fully diluted NAV per share was 56.19p at year end. This represents a 1.7
per cent increase for the year after adjusting for the dividends paid in the
year.
* As envisaged in the original Prospectus, resolutions will be put forward for
a winding up of the VCT at the end of its planned life.
Enquiries
Shore Capital 020 7408 4090
Graham Shore
Buchanan Communications 020 7466 5000
Richard Oldworth
Jeremy Garcia
Helen Chan
Chairman's Statement
Introduction
I am pleased to report upon a successful year for the VCT in which it achieved
major progress in fulfilling its objectives. The VCT was launched and began
investing in Spring 2006, with a planned life of five years. In this, its fifth
year, a large element of the unquoted qualifying investments was realised
successfully and the process of returning capital to investors advanced
significantly.
The investment environment
During the year the Company held a mixed portfolio of secured loans and equity
in qualifying unquoted companies and qualifying AiM stocks, together with
property related stocks and absolute return funds. 2010/11 was a volatile year
for equity markets; despite rallies at the start of the year, a sharp correction
in May 2010 reminded investors that the developed world was still recovering
from the full effects of the financial crisis.
Backed by a surge in commodity prices, resource-related small stocks performed
well, with the AiM all share up 42 per cent for the year; however UK-related
stocks of the kind accessible to VCTs saw little of this upside as liquidity
measures implemented by governments failed to filter through to the consumer. A
reduction in corporation tax for small companies should allow these companies to
improve their net earnings but liquidity still remains an issue.
As discussed above, the VCT made significant realisations during the year. The
proceeds funded significant dividends of 36 pence during the year. Together
with dividends paid to shareholders in previous years, total cash returned to
shareholders who initially received higher rate tax relief is now 88.5 pence,
comprising 48.5 pence in dividends and 40 pence in tax relief.
Residual net assets at the year-end were 56.19 pence per share. This NAV,
together with dividends paid, showed a 1.7 per cent increase in the year. Most
elements of the portfolio contributed to this return, in particular the
Company's hedge funds (which did well), bonds and bond funds (which also
performed well during the year and were realised by the year end), and the
qualifying loans.
Venture capital and other qualifying investments
During the year the Company realised several of its unquoted qualifying holdings
in anticipation of the expected wind-up timetable of the VCT whilst maintaining
its minimum qualifying investment percentage of 70 per cent. The realisations
included returns of capital from Forward Internet Group Limited ("Forward"),
Bond Contracting Limited ("Bond") and Telford Homes plc. These were
respectively a partial return of capital, a near total redemption, and in the
case of Telford Homes, a full redemption from its investment, which generated a
total return of 8.76 per cent per annum. Forward and Bond are discussed further
in the Investment Manager's report.
Four other qualifying unquoted holdings entered into a limited liability
partnership together. The limited liability partnership project is also
discussed in the Investment Manager's report.
Anticipating the winding-up of the VCT, the Investment Manager has continued to
sell the AiM listed qualifying holdings. This has been and continues to be
carefully managed to balance the need to return good value on these stocks with
the slow trading volumes of turbulent markets.
Non-qualifying investments
The Company's absolute return positions all performed well in the year. Since
investment in December 2006, the BlackRock UK Emerging Companies Fund has
returned 88 per cent for the Company, representing capital appreciation of
GBP700,000. In March 2010, the Company invested GBP250,000 into Bluebay Macro, a
global macro hedge fund, which returned 18 per cent to the end of the period.
I am pleased to report that non-qualifying holdings realised during the year
generated income of GBP30,000 plus gains of GBP150,000 on an investment cost of
GBP6,800,000, a total return of 2.6 per cent over the year.
Results and dividends
The VCT generated a total return after tax of GBP306,000, equating to a return per
share of 1.56 pence from the combination of a recovering market and gains from
successful realisations. The Board does not propose a final dividend, but
anticipates further dividends as the assets are realised.
Annual General Meeting and Proposal to Wind-Up the VCT
The Annual General Meeting of the VCT will be held at Bond Street House, 14
Clifford Street, London, W1S 4JU on 17 August 2011 at 10am. Notice of the
Annual General Meeting and Form of Proxy will be inserted within the annual
accounts.
The Company has now just passed its fifth year. In accordance with the plans
set out in the Company's 2006 Prospectus, the Board expects to convene a general
meeting of the Company in the autumn of this year, at which resolutions will be
proposed to place the Company into members' solvent liquidation. If these are
passed, liquidators will be appointed and the Company will seek to de-list from
the London Stock Exchange.
Once such resolutions have been passed by shareholders, for a maximum period of
three years the VCT is permitted to depart from the 70 per cent qualifying rule
whilst retaining its status of tax free distribution to UK taxpayers. The
intention is to return the balance of the capital in an orderly way, with
disposals timed appropriately to enable further substantial distributions by the
end of 2011.
Sir Aubrey Brocklebank Bt
Chairman
30 June 2011
Investment Manager's Report
Overall Performance
In its fifth year, the Company took good strides towards achieving its
objectives, by maintaining its qualifying status and returning capital to
shareholders through the realisation of a number of its qualifying investments.
2010 was a mixed year for equity markets. Further quantitative easing and
continued low interest rates had positive affects but growth was slower than
predicted in the developed world reflecting concerns over sovereign wealth and
stagnant labour and housing markets in both the UK and USA.
The Company returned 36 pence per share to shareholders in the year and has
since paid out a further 1.5 pence in May 2011, bringing total cash returned to
shareholders to 48.5 pence per share and leaving a residual NAV of 56.19 pence
per share at the year end. This has been achieved despite the dramatic
turbulence of the five year period in which the VCT has operated.
Qualifying Investments - unquoted
As discussed in the Chairman's statement, the un-quoted qualifying portfolio
performed well during the year, with a number of realisations and strong
financial performance.
The VCT had invested a total of GBP2.02 million in two companies which were
subsequently acquired by Forward Internet Group Limited (formerly Traffic Broker
Limited) ("Forward"). I am pleased to report on a very successful year for
Forward. Forward more than doubled its turnover in 2010 and enjoyed strong
growth in turnover and profitability, with net assets of GBP19.8m and GBP10.8m of
cash at 31 December 2010. The Company received a partial redemption of its loan
to Forward of GBP500,000 in June 2010, received a further GBP500,000 in May 2011 and
expects to receive the balance on schedule. The return on this Investment is
running at 6.42 per cent per annum.
In January 2010 Bond Contracting Limited successfully completed its contract to
construct a 141 bed hotel on the outskirts of Winchester and the hotel was sold
to an operator of a number of Holiday Inns. Bond Contracting repaid the loan
notes held by the fund and paid a substantial dividend to the VCT. As a result,
we now have only a small equity holding remaining which, following the entry of
Bond Contracting into members' voluntary liquidation, should be realised later
this year.
Bruton Services Limited, Kingly Services Limited, Pollen Services Limited and
Saville Services Limited (into which the VCT invested GBP1 million respectively),
entered into a limited liability partnership (the "LLP") in February 2011 for
the purpose of pooling their respective resources. Since formation, the LLP has
agreed terms, subject to contract, on an opportunity to provide contracting
services over the coming months of c. GBP2 million and is in discussions regarding
a second opportunity of c. GBP6m.
Qualifying Investments - quoted
The Company did not make additional qualifying investments into AiM quoted
companies during the year, concentrating on the maximum realisation of value
from its remaining positions. Liquidity remains the issue in these stocks
despite some encouraging results. Slower than expected economic growth continues
in the UK as the coalition government has introduced higher taxes and spending
cuts in an effort to reduce the budget deficit.
As at the year end, the Company held positions in Vertu Motors plc ("Vertu"),
Sports Media Group plc ("Sports Media") and Clarity Commerce Solutions plc
("Clarity"). After year end, the Company has realised its holding in Vertu
while regrettably, Sports Media is now of zero value. Clarity is a global
supplier of end to end software solutions for the entertainment, hospitality and
leisure sectors. Clarity has a good business and a trade sale is a possible
exit. We will continue to monitor the position closely, with a view to an
optimal realisation when the opportunity arises.
The Company remained fully qualified for the period as set out within the HMRC
VCT guidelines.
Non-qualifying investments
During the year the non-qualifying portfolio contributed positively to overall
performance. We traded out of our positions in single name bonds and bond funds,
in order to take profit for the Company and reduce risk following gains in a
number of these positions. Trading in these positions was active during the
year; by way of example, the Company took a position in Man Group in February
2010 and sold it in August 2010, generating an IRR of 19.09 per cent and a total
return of 9.07 per cent.
In March 2010, we added one hedge fund position, Bluebay Macro. The fund is a
global macro hedge fund which utilises a flexible mandate and highly active
investment approach in an attempt to capitalise on trends across global markets.
As indicated in the Chairman's statement, the fund has performed well since our
investment, with a return of 21 per cent to date.
We retain a position in BlackRock UK Emerging Companies Fund, an equity fund
which has delivered positive returns in all market environments and in the Puma
Absolute Return Fund, a Fund of Funds which gives the Company exposure to a
portfolio of diversified hedge funds with reduced volatility. Both produced
positive returns.
Investment Strategy
We continue to focus on improving the liquidity of the portfolio wherever
possible whilst maintaining an appropriate risk adjusted return. The successful
realisations and subsequent distributions to shareholders this year combined
with the returns achieved have proved this strategy so far. The objective
remains to achieve an orderly winding up of the VCT's assets at the end of its
life, subject to shareholder approval.
Shore Capital Limited
30 June 2011
Investment Portfolio Summary
As at 28 February 2011
Valuation Original Cost Gain/(Loss) Valuation as
Investment GBP'000 GBP'000 GBP'000 % of NAV
=-------------------------------------------------------------------------------
Qualifying Investments -
Unquoted
Bond Contracting Limited *** 8 394 (386) 0%
Bruton Services Limited 981 1,000 (19) 9%
Forward Internet Group
Limited (formerly
Traffic Broker Limited) 1,500 1,500 - 14%
Kingly Services Limited 981 1,000 (19) 9%
Pollen Services Limited 981 1,000 (19) 9%
Saville Services Limited 981 1,000 (19) 9%
Qualifying Investments -
Quoted
Clarity Commerce
Solutions plc 110 230 (120) 1%
Sport Media Group plc **** 7 493 (486) 0%
Vertu Motors plc 223 500 (277) 2%
---------------------------------------------------
Total Qualifying
Investments 5,772 7,117 (1,345) 53%
---------------------------------------------------
Non - Qualifying
Investments - Unquoted
BlueBay Macro ** 295 250 45 3%
INVU 250 250 - 2%
Non - Qualifying
Investments - Quoted
Blackrock UK Emerging
Cos Hedge Fund Limited * 1,499 800 699 14%
Puma Absolute Return
Fund Limited * 743 675 68 7%
St Peter Port Capital
Limited 504 700 (196) 5%
The Hotel Corporation
plc 292 423 (131) 3%
---------------------------------------------------
Total Non - Qualifying
Investments 3,583 3,098 485 34%
---------------------------------------------------
Total investments 9,355 10,215 (860) 86%
Net current assets and
liabilities 1,609 1,609 - 15%
---------------------------------------------------
Net assets 10,964 11,824 (860) 100%
Of the investments held at 28 February 2011 68 per cent (2010 - 73 per cent) are
incorporated in England and Wales, 27 per cent (2010 - 22 per cent) in the
Cayman Islands and 5 per cent (2010 - 3 per cent) in the rest of the world.
Percentages have been calculated on the valuation of the assets at the reporting
date.
All quoted investments are listed on AiM with the exception of those noted
below:
* Listed on the Irish Stock Exchange.
**Traded directly through investment manager of the investee fund.
*** During the year Bond Contracting appointed liquidators beginning
orderly winding up procedures. In December 2010 a large proportion of the
capital was distributed by the liquidators (see note 9(e)) leaving a small
balance.
****Carrying value at year end, subsequently written down to zero.
At the period end the Company held GBP743,000 (4%) of Class B units of the Puma
Absolute Return Fund Limited (PARF). The Investment Manager of PARF is also
Shore Capital Limited ("Shore Capital"). The Company receives a full rebate of
management and performance fees charged through PARF to avoid the double
charging of fees.
A detailed analysis of the loan stock holdings is provided in note 18.
Bruton Services Limited ("Bruton),Kingly Services Limited ("Kingly"), Pollen
Services Limited ("Pollen") and Saville Services Limited ("Saville") are wholly
owned and Bond Contracting Limited is majority owned by VCTs managed by Shore
Capital, Graham Shore is a Director of all of these companies.
Significant Investments
Bond Contracting Limited
Source of financial
data - Last filed
Cost ( GBP'000): 394 accounts: 30/04/10
Investment comprises: Turnover ( GBP'000): 8,631
Ordinary shares Loss before tax
( GBP'000): 394 ( GBP'000): (749)
Debt ( GBP'000): - Retained loss ( GBP'000): (1,000)
Valuation method: Net Assets Net assets ( GBP'000): 999
Valuation ( GBP'000): 8 Earnings per share (p) (0.00)
Income received by the
Company from this
holding in the year Dividends per share
( GBP'000): - (p) -
Proportion of equity
held: 20%
Bond Contracting Limited entered into a contract to construct a 141 bedroom
hotel near Winchester. Having secured planning permission construction began in
October 2008 and was completed and the hotel sold in the first quarter of 2010.
Voting rights are pari passu to the equity held.
Bruton Services Limited
Source of financial
data - Last filed
Cost ( GBP'000): 1,000 accounts: 28/02/10
Investment comprises: Turnover ( GBP'000): -
Ordinary shares Loss before tax
( GBP'000): 250 ( GBP'000): (24)
Retained Loss
Debt ( GBP'000): 750 ( GBP'000): (24)
Valuation method: Net Assets Net assets ( GBP'000): 476
Valuation ( GBP'000): 981 Earnings per share (p) -
Income received by the
Company from this
holding in the year Dividends per share
( GBP'000): 19 (p) -
Proportion of equity
held: 50%
Bruton Services Limited was incorporated in February 2009 and has been actively
pursuing opportunities for significant qualifying business. On 23 February 2011
Bruton entered into a limited liability partnership with Saville, Kingly and
Pollen Services Limited for the purposes of combining their respective resources
going forward. Voting rights are pari passu to the equity held.
Forward Internet Group Limited (formerly Traffic Broker Limited)
Source of financial
data - Last filed
Cost ( GBP'000): 1,500 accounts: 31/12/09
Investment
comprises: Turnover ( GBP'000): 72,304
Ordinary shares Profit before tax
( GBP'000): 300 ( GBP'000): 11,319
Retained Profit
Debt ( GBP'000): 1,200 ( GBP'000): 8,154
Valuation method: Price of recent
investment Net assets ( GBP'000): 12,052
Earnings per share
Valuation ( GBP'000): 1,500 (p) 9.06
Income received by
the Company from
this holding in the Dividends per share
year ( GBP'000): 117 (p) 6.67
Proportion of
equity held: 4%
Forward Internet Group Limited (formerly Traffic Broker Limited) is an agency
specialising in paid online search and affiliate marketing. The company has
grown to become an award-winning agency specialising in fully integrated online
solutions and continues to innovate in the online advertising space. Voting
rights are pari passu to the equity held.
Significant Investments (continued)
Kingly Services Limited
Source of financial
data - Last filed
Cost ( GBP'000): 1,000 accounts: 28/02/10
Investment comprises: Turnover ( GBP'000): -
Ordinary shares Loss before tax
( GBP'000): 250 ( GBP'000): (24)
Retained Loss
Debt ( GBP'000): 750 ( GBP'000): (24)
Valuation method: Net Assets Net assets ( GBP'000): 476
Valuation ( GBP'000): 981 Earnings per share (p) -
Income received by the
Company from this
holding in the year Dividends per share
( GBP'000): 19 (p) -
Proportion of equity
held: 50%
Kingly Services Limited was incorporated in February 2009 and has been actively
pursuing opportunities for significant qualifying business. On 23 February 2011
Kingly entered into a limited liability partnership with Saville, Bruton and
Pollen Services Limited for the purposes of combining their respective resources
going forward. Voting rights are pari passu to the equity held.
Pollen Services Limited
Source of financial
data - Last filed
Cost ( GBP'000): 1,000 accounts: 28/02/10
Investment comprises: Turnover ( GBP'000): -
Ordinary shares Loss before tax
( GBP'000): 250 ( GBP'000): (24)
Retained Loss
Debt ( GBP'000): 750 ( GBP'000): (24)
Valuation method: Net Assets Net assets ( GBP'000): 476
Valuation ( GBP'000): 981 Earnings per share (p) -
Income received by the
Company from this
holding in the year Dividends per share
( GBP'000): 19 (p) -
Proportion of equity
held: 50%
Pollen Services Limited was incorporated in February 2009 and has been actively
pursuing opportunities for significant qualifying business. On 23 February 2011
Pollen entered into a limited liability partnership with Saville, Bruton and
Kingly Services Limited for the purposes of combining their respective resources
going forward. Voting rights are pari passu to the equity held.
Saville Services Limited
Source of financial
data - Last filed
Cost ( GBP'000): 1,000 accounts: 28/02/10
Investment comprises: Turnover ( GBP'000): -
Ordinary shares Loss before tax
( GBP'000): 250 ( GBP'000): (24)
Retained Loss
Debt ( GBP'000): 750 ( GBP'000): (24)
Valuation method: Net Assets Net assets ( GBP'000): 476
Valuation ( GBP'000): 981 Earnings per share (p) -
Income received by the
Company from this
holding in the year Dividends per share
( GBP'000): 19 (p) -
Proportion of equity
held: 50%
Saville Services Limited was incorporated in February 2009 and has been actively
pursuing opportunities for significant qualifying business. On 23 February 2011
Saville entered into a limited liability partnership with Pollen, Bruton and
Kingly Services Limited for the purposes of combining their respective resources
going forward. Voting rights are pari passu to the equity held.
Significant Investments (continued)
Puma Absolute Return Fund Limited
Source of financial
data - Last filed
Cost ( GBP'000): 675 accounts: 30/04/10
Investment comprises: Turnover ($'000): 5,268
Class B shares Profit before tax
( GBP'000): 675 ($'000): 4,599
Retained Profit
Debt ( GBP'000): - ($'000): 4,599
Valuation method: NAV per share Net assets ($'000): 38,238
Earnings per share
Valuation ( GBP'000): 743 (p) n/a
Income received by the
Company from this
holding in the year Dividends per share
( GBP'000): - (p) -
Proportion of equity
held: 4%
Puma Absolute Return Fund Limited is an absolute return fund managed by Shore
Capital, investing across a range of third party investment managers. It
diversifies its portfolio across a number of different investment styles.
Management fees charged to PARF by Shore Capital Limited in respect of funds
invested by a Puma VCT in PARF are rebated to that VCT to avoid double charging.
Directors' Biographies
Sir Aubrey Brocklebank Bt, (Chairman) (59)
After qualifying as a Chartered Accountant Sir Aubrey worked for Guinness Mahon
from 1981 to 1986, initially in its corporate finance department before
assisting in the establishment of a specialist development capital department.
From 1986 to 1990 he was a director of Venture Founders Limited, managing a GBP12
million venture capital fund, which had been raised to invest in early stage
ventures. He managed the Avon Enterprise Fund (a venture capital fund of circa
GBP4.5 million investing in approximately 20 companies) from 1990 until all
investments had been realised in 1997. He chairs two other VCT's Hargreave Hale
Aim VCT 1 plc and Downing Planned Exit VCT 2011plc and has sat on the boards of
a further six. He is and has also been a director of a number of companies, some
of which are, or have been, quoted on AiM.
Adam Teeger (45)
Adam is a founder partner of Ethemba Capital LLP, a specialist emerging markets
focussed private equity fund advisor. Over the past four years he has been
actively involved in advising on both buy-out and development capital
transactions in multiple countries including Egypt, Croatia, Israel, Macedonia,
Montenegro, and Turkey. Prior to joining Ethemba Capital LLP, he was a director
of Shore Capital, the asset management arm of Shore Capital Group Limited, with
a particular focus on growth capital and private equity opportunities. He has
had previous experience of the venture capital trust sector and was actively
involved in the development, launch and management of the first four venture
capital trusts launched by Shore Capital (Puma VCT and Puma VCT II in early
2005 and Puma VCT III and IV in 2006). As such he is very familiar with the
particular investment strategy, approach and focus of the Puma VCTs. Adam
started his career as a banking lawyer with Clifford Chance in London and
Amsterdam and is admitted as a solicitor in the UK.
Graham Shore (55)
Graham is a former partner of Touche Ross (now Deloitte LLP) and was responsible
for the London practice advising the telecommunications and new media
industries. At Touche Ross he undertook strategic and economic assignments for a
wide range of clients including appraisals of venture capital opportunities. In
1990, Graham joined Shore Capital as Managing Director, and has been involved in
managing the Puma VCTs and other venture capital funds managed by Shore Capital
including evaluating new deals for the funds and representing the funds with
investee companies. Graham has been involved with AIM since its inception as
both a corporate financier and investor and with private equity for more than
20 years. He is a director of the other Puma VCTs and St. Peter Port Capital
Limited.
Report of the Directors
The Directors present their annual report and the audited financial statements
of the Company for the year to 28 February 2011.
Principal Activities and Status
The principal activity of the Company is the making of investments in qualifying
and non-qualifying holdings of shares or securities. The Company is an
investment company within the meaning of Section 833 of the Companies Act 2006.
The Company was granted provisional approval by the Inland Revenue under Section
274 of the Income and Corporation Taxes Act 2007 as a Venture Capital Trust. The
Directors have managed, and continue to manage, the Company's affairs in such a
manner as to comply with Section 274 of the Income and Corporation Taxes Act
2007.
The Company has no employees (other than the Directors).
The Company's ordinary shares of 1p each have been listed on the Official List
of the UK Listing Authority since 19 May 2006.
Investment Policy
Puma VCT IV plc seeks to achieve its overall investment objective (of
proactively managing the assets of the fund with an emphasis on realising gains
in the medium term) to maximise distributions from capital gains and income
generated by the Company's assets. It intends to do so whilst maintaining its
qualifying status as a VCT, by pursuing the following Investment Policy:
Asset Mix
The Company may invest in a mix of qualifying and non-qualifying assets. The
qualifying investments may be quoted on AiM/OFEX/Irish Stock Exchange or be
unquoted companies. The Company may invest in a diversified portfolio of growth
oriented qualifying companies which seek to raise new capital on flotation or by
way of a secondary issue. The Company has the ability to structure deals to
invest in private companies with an asset-backed focus to reduce potential
capital loss. Since 29 February 2009, the Company must have had in excess of
70% of its assets invested in qualifying investments as defined for VCT
purposes.
The portfolio of non-qualifying investments is being managed with the intention
of generating a positive return. Subject to the Investment Manager's view from
time to time of desirable asset allocation it comprises quoted and unquoted
investments (direct or indirect) in cash or cash equivalents, bonds, equities,
vehicles investing in property and a portfolio of hedge funds.
A full text of the Company's investment policy can be found within the Company's
prospectus at www.shorecap.co.uk.
Principal risks and uncertainties
The principal risks facing the company relate to its investment activities and
include market price risk, interest rate risk, credit risk, foreign currency
risk and liquidity risk. An explanation of these risks and how they are managed
is contained in note 18 to the financial statements. Additional risks faced by
the company are as follows:
Investment Risk - Inappropriate stock selection leading to underperformance in
absolute and relative terms is a risk which the Investment Manager and the Board
mitigates by reviewing performance throughout the year and formally at Board
meetings. There is also a regular review of the investment mandate and long
term investment strategy by the Board and monitoring of whether the Company
should change its investment strategy.
Regulatory Risk - the Company operates in a complex regulatory environment and
faces a number of related risks. A breach of s274 of the Income Tax Act 2007
could result in the Company being subject to capital gains on the sale of
investments. A breach of the VCT Regulations could result in the loss of VCT
status and consequent loss of tax relief currently available to shareholders.
Serious breach of other regulations, such as the UKLA Listing rules and
the Companies Act 2006 could lead to suspension from the Stock Exchange. The
board receives quarterly reports in order to monitor compliance with
regulations.
Risk Management
The Company's asset mix includes a large proportion of the Company's assets held
in unquoted investments. These investments are not publicly traded and there is
not a liquid market for them, and therefore these investments may be difficult
to realise. The Company may also find it difficult to realise some of the quoted
investments held in its portfolio in the current market conditions.
Report of the Directors (continued)
The Company manages its investment risk within the restrictions of maintaining
its qualifying VCT status by using the following methods:
* the active monitoring of its investments by the Investment Manager and the
Board;
* seeking Board representation associated with each investment, if possible;
* seeking to hold larger investment stakes by co-investing with other
companies managed by the Investment Manager, so as to gain more influence
over the investment;
* ensuring a spread of investments is achieved.
Gearing
The Company has the authority to borrow up to 25% of the amount received on the
issued share capital but there are currently no plans to take advantage of this
authority.
Results and dividends
The results for the financial year are set out on page 24. There were four
interim dividends paid out during the year as the Company realised some of its
qualifying holdings, 7p was paid on 28 May 2010, 10p on 23 June 2010, 7p on 17
September 2010 and a further 12p on 31 December 2010. The Directors do not
propose a final dividend (2010 - nil). It is the aim of the Directors to
maximise tax free distributions to shareholders by way of dividends paid out of
income received from investments and capital gains received following successful
realisations.
Business Review and Future Developments
The Company's business review and developments are set out in the Chairman's
Statement and the Investment Manager's Report on pages 3 to 6.
Key performance indicators
At each board meeting, the Directors consider a number of performance measures
to assess the Company's success in meeting its objectives. The Board believes
the Company's key performance indicators are movement in NAV, Total Return and
dividends payable per share. The Board considers that the Company has no non
financial key performance indicators. In addition, the Board considers the
Company's compliance with the Venture Capital Trust Regulations to ensure that
it will maintain its VCT status. The performance of the Company's portfolios and
specific investments is discussed in the Chairman's Statement and Investment
Managers Report on pages 3 to 6.
Environmental and social policy
As a VCT the Company is a pure investment company and therefore has no trading
activities. Due to this the Company does not have a policy on either
environmental or social and community issues.
Capital Structure
The authorised and issued share capital of the Company is detailed in note 13 of
these accounts.
During the year ended 28 February 2011, the Company issued no new shares.
Share capital, rights attaching to the shares and restrictions on voting and
transfer
Ordinary shares are freely transferable in both certificated and non-
certificated form and can be transferred by means of the CREST system. There are
no restrictions on the transfer of any fully paid up share.
With respect to voting rights the shares rank pari passu as to rights to attend
and vote at any general meeting of the Company. The Companies' major
shareholders do not have differing voting rights.
Full details of the rights and restrictions attached to the share capital as
required by the Takeover Directive are contained within the Company's prospectus
which can be found at www.shorecap.co.uk.
Repurchase of Ordinary shares
Although the Ordinary Shares are traded on the London Stock Exchange, there is
likely an illiquid market and Shareholders may find it difficult to sell their
Ordinary Shares in the market. In order to try to improve the liquidity in the
Ordinary Shares, the Board may establish a buy back policy whereby the Company
will purchase Ordinary Shares for cancellation. However there are currently no
plans to establish such a policy.
Directors
During the year David Brock tendered his resignation from the Board of the
Company with effect from Wednesday, 15 September 2010 in order to comply
with Listing Rule 15.2.11 once the transitional provisions set out in LR
TR1.2-3 expire. David continues as Chairman of Puma VCT III plc, which shares a
parallel investment strategy with the Company. The Company wishes to thank David
for his contribution to the Company during his period as Chairman and wishes him
well for the future.
The Board of the Company is pleased to announce that Adam Teeger has been
appointed as a non-executive director.
Report of the Directors (continued)
The Directors of the Company during the year and their beneficial interests in
the issued ordinary shares of the Company at 1 March 2010 and 28 February 2011
were as follows:
1p ordinary shares
28 February 2011 28 February 2010
Sir A T Brocklebank Bt, ACA (Chairman) 5,000 5,000
D M Brock - resigned 15 September 2010 5,000 5,000
Adam Teeger - appointed 15 September 2010 - -
Graham Shore - -
All of the Directors' share interests shown above were held beneficially. No
options over the share capital of the Company have been granted to the
Directors. There have been no changes in the holdings of the Directors since the
year end.
Graham Shore is also a director of Puma VCT plc, Puma VCT II plc, Puma VCT IV
plc, Puma VCT V plc, Puma High Income VCT plc and Puma VCT VII, VCTs to which
Shore Capital is also the Investment Manager.
Investment management, administration and performance fees
The Company has delegated the investment management of the portfolio to Shore
Capital. The principal terms of the Company's management agreement with Shore
Capital as applicable during the year ended 28 February 2011, are set out in
note 3 of the financial statements.
The Company has delegated company secretarial and other accounting and
administrative support to Shore Capital Fund Administration Services Limited for
an aggregate annual fee of 0.35 per cent of the Net Asset Value of the Fund at
each quarter end, payable quarterly in arrears.
The annual running costs of the Company, for the year, are subject to a cap of
3.5 per cent of the Company's net assets at the year end.
Shore Capital and members of the investment management team will be entitled to
a performance related incentive of 20 per cent of the aggregate excess on any
amounts realised by the Company in excess of GBP1 per Ordinary Share, and
Shareholders will be entitled to the balance. This incentive will only be
exercisable once the holders of Ordinary Shares have received distributions of
GBP1 per share (whether capital or income). The performance incentive structure
provides a strong incentive for the Investment Manager to ensure that the
Company performs well, enabling the Board to approve distributions as high and
as soon as possible.
The performance incentive has been satisfied through the issue of Loan Notes to
a nominee on behalf of the Investment Manager's group and employees of and
persons related to the investment management team. In the event that
distributions attributable to the Ordinary Shares of GBP1 per share have been made
the Loan Notes will convert into sufficient Ordinary Shares to represent 20 per
cent of the enlarged number of Ordinary Shares.
The performance fee has been expensed in accordance with FRS 20 for share based
payments (see notes 1 and 4).
It is the Directors opinion that the continued appointment of the Investment
Manager, Shore Capital, on the terms agreed is in the best interest of the
shareholders as a whole. The Investment Manager has a proven track record in VCT
management and currently manages over GBP60 million of VCT funds and has a strong
network within the industry.
VCT status monitoring
The Company has appointed PricewaterhouseCoopers LLP to advise it on compliance
with VCT requirements, including evaluation of investment opportunities, as
appropriate, and regular review of the portfolio. Although
PricewaterhouseCoopers LLP work closely with the Investment Manager, they report
directly to the Board.
Compliance with the VCT regulations (as described in the Investment Policy) for
the year under review is summarised as follows:
Position at 28 Feb 2011
1. The Company holds at least 70% of its investments in
qualifying companies, 81.21%
2. At least 30% of the Company's qualifying investments
are held in "eligible shares"; 44.17%
3. No investment constitutes more than 15% of the
Company's portfolio at time of investment; Complied
4. The Company's income for each financial year is
derived wholly or mainly from shares and securities; 92.66%
5. The Company distributes sufficient revenue dividends
to ensure that not more than 15% of the income from
shares and securities in any one year is retained;
and Complied
6. A maximum unit size of GBP1 million in each VCT
qualifying investment (per tax year). Complied
Report of the Directors (continued)
Creditor payment policy
The Company's payment policy for the forthcoming year is to ensure settlement of
suppliers' invoices in accordance with their standard terms. As at 28 February
2011 and 28 February 2010 there were nil days' billing from the suppliers of
services outstanding.
Going concern
After making enquiries the Directors believe that it is appropriate to continue
to apply the going concern basis in preparing the financial statements. This is
appropriate as cash reserves are significantly greater than the anticipated
average annual running costs of the Company. Given the nature of the assets held
it is considered that these can be realised with sufficient ease to provide any
additional cash which may be required to enable the Company to meet its
liabilities as they fall due for payment. The directors have considered a period
of 12 months from the date of this report for the purposes of determining the
company's going concern status which has been assessed in accordance with the
guidance issued by the Financial Reporting Council.
Financial Instruments
The material risks arising from the Company's financial instruments are market
price risk, credit risk, liquidity risk, foreign exchange risk and interest rate
risk. The Board reviews and agrees policies for managing each of these risks and
these are summarised in note 18. These policies have remained unchanged since
the beginning of the financial year. As a venture capital trust, it is the
Company's specific business to evaluate and control the investment risk in its
portfolio.
Substantial Shareholdings
As at 28 February 2011 and at the date of this report, the Company was not aware
of any beneficial interest exceeding 3 per cent of any class of the issued share
capital.
Third Party Indemnity Provision for Directors
Qualifying third party indemnity provision was in place for the benefit of all
directors of the Company.
Annual General Meeting
The Annual General Meeting of the Company will be held at Bond Street House, 14
Clifford Street, London, W1S 4JU on 17 August at 10.00am. Notice of the Annual
General Meeting and Form of Proxy are inserted within this document.
Auditor
The Directors resolved that Baker Tilly UK Audit LLP be re-appointed as auditor
in accordance with the provisions of the Companies Act 2006, s489. Baker Tilly
UK Audit LLP has indicated its willingness to continue in office.
Statement as to Disclosure of Information to Auditor
The Directors in office at the date of this report have confirmed that, as far
as they are aware, there is no relevant information of which the auditor is
unaware. Each of the Directors have confirmed that they have taken all the steps
that they ought to have taken as Directors in order to make themselves aware of
any relevant audit information and to establish that it has been communicated to
the auditor.
Statement of Directors' responsibilities
The directors are responsible for preparing the Report of the Directors', the
Directors' Remuneration Report, the separate Corporate Governance Statement and
the financial statements in accordance with applicable law and regulations.
Company law and the Disclosure and Transparency Rules require the directors to
prepare financial statements for each financial year. Under that law the
directors have elected to prepare the financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable law). Under company law the directors must not approve
the financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Company and of the profit or loss of
the Company for that period. In preparing those financial statements, the
directors are required to:
a. select suitable accounting policies and then apply them consistently;
b. make judgements and estimates that are reasonable and prudent;
c. state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
d. prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the company's transactions and disclose with
reasonable accuracy at any time the financial position of the company and enable
them to ensure that the financial statements and the Directors' Remuneration
Report comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
Report of the Directors (continued)
Each of the directors, whose names and functions are listed in the Directors
Biography on page 11 confirms that, to the best of each persons' knowledge:
a. the financial statements, prepared in accordance with United Kingdom
Generally Accepted Accounting Practice, give a true and fair
view of the assets, liabilities, financial position and profit of the
company; and
b. the Chairman's Statement, Investment Manager's Report and Report of
the Directors commencing on page 3 include a fair review of the development and
performance of the business and the position of the company together with a
description of the principal risks and uncertainties that it faces.
Electronic publication
The financial statements are published on www.shorecap.co.uk, a website
maintained by the Investment Manager, Shore Capital. Legislation in the United
Kingdom regulating the preparation and dissemination of the financial statements
may differ from legislation in other jurisdictions.
The directors are responsible for ensuring the Report of the Directors and other
information included in the Annual Report includes information required by the
Listing Rules of the Financial Services Authority.
By order of the Board
Eliot Kaye
Company Secretary
30 June 2011
Directors' Remuneration Report
This report is prepared in accordance with Schedule 420-422 of the Companies Act
2006. A resolution to approve this report will be put to the members at the
Annual General Meeting to be held on 17 August 2011.
Directors' Remuneration Policy
The Board as a whole considers Directors' remuneration and, as such, a
Remuneration Committee has not been
established. The Board's policy is that the remuneration of non-executive
Directors should reflect time spent and the responsibilities borne by the
Directors on the Company's affairs and should be sufficient to enable candidates
of high calibre to be recruited. Directors' fees payable during the year
totalled GBP22,000 (including social security costs) as set out in note 5.
The Directors' contracts are discussed in point (g) in the Corporate Governance
Statement on page 21.
Brief biographical notes on the directors are given on page 11.
Directors' Remuneration
The Directors received emoluments as detailed below:
Unaudited Current Audited Audited
Annual Fee 2011 2010
GBP GBP GBP
Sir A T Brocklebank Bt, ACA (Chairman) 18,000 10,125 7,500
D M Brock - resigned 15 September 2010 - 4,500 6,000
A Teeger - appointed 15 September 2010 15,000 6,100
G Shore * - - -
33,000 20,725 13,500
* No fees have been paid to Graham Shore, reflecting his position as an
executive director of the Investment Manager, Shore Capital.
These are the total emoluments, there is no pension or share option scheme.
2012 Remuneration
The remuneration levels for the forthcoming year are expected to be at the
annual levels shown in the table above. The Directors shall be paid by the
Company all travelling, hotel and other expenses they may incur in attending
meetings of the Directors or general meetings or otherwise in connection with
the discharge of their duties.
Directors' and Officers' liability insurance cover is held by the Company in
respect of the Directors.
On 5 December 2005, the non-executive Directors were appointed for a period of
twelve months after which either party must give three calendar months' notice
to end the contract. On 15 September 2010 Adam Teeger was appointed on the same
terms.
Directors' Remuneration Report (continued)
Performance Graph
The following chart represents the Company's performance since trading commenced
and compares the rebased Net Asset Value to a rebased FTSE AiM Allshare Index
which has been chosen as a comparison as it best represents the spread of
investments held by the Company. This has been rebased to 100 at 6 April 2006,
the effective start of operations for the Company.
On behalf of the Board
Sir Aubrey Brocklebank Bt
Chairman
30 June 2011
Corporate Governance Statement
The Directors support the relevant principles of the Combined Code issued in
June 2008 and published on the Financial Reporting Council's Website
(www.frc.org.uk), being the principles of good governance and the code of best
practice, as set out in Section 1 of the FRC Combined Code. Due to the VCT being
a limited life vehicle some areas of the Code have not been complied with, these
are set out in the Compliance Statement below.
The Board
The Company has a Board comprising three non-executive Directors. All of the
Directors are independent as defined by the Combined Code except for Graham
Shore as a result of his holding a Directorship of the Investment Manager. The
Board considers that all Directors have sufficient experience to be able to
exercise proper judgement within the meaning of the Combined Code. The Board has
appointed Sir Aubrey Brocklebank as the senior independent Director who is also
the Chairman. Biographical details of all Board members are shown on page 11.
Adam Teeger is to retire at the forthcoming Annual General Meeting and, being
eligible, offer himself for re-election. The remainder of the Board believe
that he has made valuable contributions since his appointment and remains
committed to his role. The Board therefore recommends that shareholders re-elect
Adam Teeger at the forthcoming AGM. The Board did not use an external search
consultant to search for candidates or advertise this position.
Full Board meetings take place quarterly and additional meetings are held as
required to address specific issues. The board has a formal schedule of matters
specifically reserved for its decision. These include:
* considering recommendations from the Investment Manager,
* making all decisions concerning the acquisition or disposal of qualifying
investments,
* reviewing, annually, the terms of engagement of all third party advisers
(including investment managers and administrators),
* performing the role of Audit Committee (including reviewing the Company's
published financial statements, reviewing internal control and risk
management systems and monitoring the external Auditors independence,
objectivity and the effectiveness of the audit process).
The attendance of individual Directors at full Board meetings during the year
were as follows:
Scheduled Board meetings
Sir A T Brocklebank Bt 4/4
D M Brock - resigned on 15 September 2010 2/4
Adam Teeger - appointed on 15 September 2010 2/4
G B Shore 4/4
The Board has also established procedures whereby Directors wishing to do so in
the furtherance of their duties may take independent professional advice at the
Company's expense.
All Directors have access to the advice and services of the Company Secretary.
The Company Secretary provides the Board with full information on the Company's
assets and liabilities and other relevant information requested by the Chairman,
in advance of each Board meeting.
The Board has not appointed a nominations committee, audit committee or
remuneration committee as they consider the Board to be small and it comprises
wholly non-executive Directors. Appointments of new Directors, audit matters
and Directors' remuneration are dealt with by the full Board.
During the year the Board reviewed the independence of the external auditor and
recommended that they be re-appointed. The Directors receive written
confirmation each year of the auditor's independence. They also considered the
need for an internal audit function and concluded that this function would not
be an appropriate control for a venture capital trust.
The Board reviewed Directors' remuneration during the year. Details of the
specific levels of remuneration to each director are set out in the Directors'
Remuneration Report on page 17, and this is subject to shareholder approval.
Relations with shareholders
Shareholders have the opportunity to meet representatives of the Investment
Management team and the Board at the AGM. The Board is also happy to respond to
any written queries made by shareholders during the course of the year, or to
meet with shareholders if so requested. In addition to the formal business of
the AGM, representatives of the Investment Management team and the Board are
available to answer any questions a shareholder may have.
Separate resolutions are proposed at the AGM on each substantially separate
issue. The Registrars collate proxy votes and the results (together with the
proxy forms) are forwarded to the Company Secretary immediately prior to the
AGM. In order to comply with the Combined Code, proxy votes are announced at the
AGM, following each vote on a show of hands, except in the event of a poll being
called. The notice of the next AGM and proxy form are at the end of this
document.
Corporate Governance Statement (continued)
Financial Reporting
The Directors' statement of responsibilities for preparing the accounts is set
out in the Report of the Directors on page 15, and a statement by the auditors
about their reporting responsibilities is set out in the Auditor's Report on
page 22.
Internal control
The Company has adopted an Internal Control Manual ("Manual"), which has been
compiled in order to comply with the Combined Code. The Manual is designed to
provide reasonable, but not absolute, assurance against material misstatement or
loss, which it achieves by detailing the perceived risks and controls to
mitigate them. The Board is responsible for ensuring that the procedures to be
followed by the advisers and themselves are in place, and review the
effectiveness of the Manual on an annual basis to ensure that the controls
remain relevant and were in operation throughout the year. The Board will
implement additional controls when new risks are perceived and update the Manual
as appropriate.
16
Although the Board is ultimately responsible for safeguarding the assets of the
Company, the Board has delegated, through written agreements, the day-to-day
operation of the Company to the following advisers:
Administration Shore Capital Fund Administration Services
Limited
Investment Management Shore Capital
Shore Capital identifies the investment opportunities for the consideration of
the Board who ultimately make the decision whether to proceed with that
opportunity. Shore Capital monitors the portfolio of investments and makes
recommendations to the Board in terms of suggested disposals and further
acquisitions.
Shore Capital Fund Administration Services Limited is engaged to carry out the
accounting function and manages the retention of physical custody of the
documents of title relating to unquoted investments through a custodian. Quoted
investments are held in Crest. Shore Capital Fund Administration Services
Limited regularly reconciles the client asset register with the physical
documents.
The Directors confirm that they have established a continuing process throughout
the year and up to the date of this report for identifying, evaluating and
managing the significant potential risks faced by the Company, and have reviewed
the effectiveness of the internal control systems. As part of this process, an
annual review of the internal control systems is carried out in accordance with
the Financial Reporting Council guidelines for internal control.
Internal control systems include: production and review of monthly bank and
management accounts. All outflows made from the VCT's accounts require the
authority of two signatories from Shore Capital, the Investment Manager. The VCT
is subject to a full annual audit and the Investment Manager is subject to
regular review by the Shore Capital Compliance Department.
Going Concern
After making enquiries the Directors believe that it is appropriate to continue
to apply the going concern basis in preparing the financial statements. This is
appropriate as cash reserves are significantly greater than the anticipated
average annual running costs of the Company. Given the nature of the assets held
it is considered that these can be realised with sufficient ease to provide any
additional cash which may be required to enable the Company to meet its
liabilities as they fall due for payment. The directors have considered a period
of 12 months from the date of this report for the purposes of determining the
company's going concern status which has been assessed in accordance with the
guidance issued by the Financial Reporting Council.
Compliance statement
The Listing Rules require the Board to report on compliance with the forty-eight
Combined Code provisions throughout the accounting year. With the exception of
the items outlined below, the Company has complied throughout the accounting
year ended 28 February 2011 with the provisions set out in Section 1 of the
Combined Code. Due to the special nature of the Company being a VCT, the
following provisions of the Combined Code have not been complied with:
a) Provision A1-3 - Due to the size of the Board, they feel it unnecessary to
formalise procedures to appraise the Chairman's performance, as the Board deem
it appropriate to address matters as they arise.
b) Provision A3-3 - Due to the size of the board, the role of Chairman and
senior independent Director are both performed by Aubrey Brocklebank. The
recommendation is for the senior independent Director and Chairman to be
separate positions on the Board.
c) Provision A5-1 - New directors do not receive a full, formal and tailored
induction on joining the Board because matters are addressed on an individual
basis as they arise. Also the Company has no major shareholders so shareholders
are not given the opportunity to meet any new non-executive directors at a
specific meeting other than the annual general meeting.
d) Provision A6-1 - Due to the size of the Board, a formal performance
evaluation of the Board, its committees and the individual Directors has not
been undertaken. Specific performance issues are dealt with as they arise.
Corporate Governance Statement (continued)
e) Provisions C3-1 to C3-6 - Due to the size of the Board, the Company did not
have a formal audit committee. The Directors do not consider it necessary to
appoint an audit committee as the majority of the Board consists of independent
non-executive Directors. The Directors consider that the role and responsibility
of the audit committee as set-out in provisions C3-1 to C3-6 have been adopted
by the full board. Relevant matters were dealt with by the full Board.
f) Provisions A4-1 to A4-3 & A4-6, B2-1 to B2-2, - Due to the size of the Board
and because there are no executive directors or senior management, the Company
did not have a formal nominations committee, or remuneration committee. During
the year one board member has resigned and another has been appointed, changes
to the Directors remuneration are detailed on page 17.
g) Provision A7-2 - On 5 December 2005 (27 June 2008 for G Shore and 15
September 2010 for C Ring), the Directors were appointed for a period of twelve
months after which either party must give three calendar months' notice to end
the contract. The recommendation of the Combined Code is for fixed term
renewable contracts. This is deemed unnecessary by the Board because all
Directors are subject to re-election at the first AGM and from that point
forward by rotation at least every three years.
Independent Auditor's Report
to the Members of Puma VCT IV plc
We have audited the financial statements on pages 24 to 43. The financial
reporting framework that has been applied in their preparation is applicable law
and United Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice).
This report is made solely to the company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As more fully explained in the Directors' Responsibilities Statement set out on
page 15, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the financial statements in
accordance with applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing Practices
Board's (APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on
the APB's website at www.frc.org.uk/apb/scope/private.cfm.
Opinion on the financial statements
In our opinion the financial statements:
* give a true and fair view of the state of the company's affairs as at 28
February 2011 and of its total return for the year then ended;
* have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
* have been prepared in accordance with the requirements of the Companies Act
2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
* the part of the Directors' Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
* the information given in the Report of the Directors' for the financial year
for which the financial statements are prepared is consistent with the
financial statements.
* the information given in the Corporate Governance Statement set out on pages
19 to 21 in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Rules
and Transparency Rules Sourcebook issued by the Financial Services
Authority (information about internal control and risk management systems in
relation to financial reporting process and about share capital structures)
is consistent with the financial statements.
Independent Auditor's Report (continued)
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our
opinion:
* adequate accounting records have not been kept, or returns adequate for our
audit have not been received from branches not visited by us; or
* the financial statements and the part of the Directors' Remuneration Report
to be audited are not in agreement with the accounting records and returns;
or
* certain disclosures of directors' remuneration specified by law are not
made; or
* we have not received all the information and explanations we require for our
audit; or
* a Corporate Governance Statement has not been prepared by the Company.
Under the Listing Rules we are required to review:
* the directors' statement, set out on page 15, in relation to going concern;
* the part of the Corporate Governance Statement on pages 19 to 21 relating to
the company's compliance with the nine provisions of the June 2008 Combined
Code specified for our review; and
* certain elements of the report to shareholders by the Board on directors'
remuneration.
RICHARD WHITE (Senior Statutory Auditor)
For and on behalf of BAKER TILLY UK AUDIT LLP, Statutory Auditor
Chartered Accountants
25 Farringdon Street
London EC4A 4AB
30 June 2011
Income Statement
For the year ended 28 February 2011
For the year to| For the year to
28 February 2011| 28 February 2010
|
Revenue Capital Total|Revenue Capital Total
Note GBP'000 GBP'000 GBP'000| GBP'000 GBP'000 GBP'000
|
|
Gains on investments 9(c) - 314 314| - 625 625
|
Income 2 394 - 394| 606 - 606
|
|
|
394 314 708| 606 625 1,231
|
|
|
|
|
Investment management fees 3 66 197 263| 63 188 251
|
Other expenses 5 135 - 135| 105 - 105
|
|
|
201 197 398| 168 188 356
|
|
|
Return on ordinary |
activities before taxation 193 117 310| 438 437 875
|
Tax on ordinary activities 6 (40) 36 (4)| (84) 40 (44)
|
|
|
Return after taxation |
attributable to equity |
shareholders 153 153 306| 354 477 831
|
|
|
|
|
Basic and diluted return per |
Ordinary Share (pence) 7 0.78p 0.78p 1.56p| 1.81p 2.44p 4.25 p
|
|
The total column represents the profit and loss account and the revenue and
capital columns are supplementary information.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the year.
No separate Statement of Total Recognised Gains and Losses is presented as all
gains and losses are included in the Income Statement.
The accompanying notes on pages 28 to 43 are an integral part of the financial
statements.
Balance Sheet
As at 28 February 2011
As at As at
28 February 28 February
Note 2011 2010
GBP'000 GBP'000
Fixed Assets
Investments 9(a) 9,355 14,847
Current Assets
Debtors 10 123 297
Cash at bank and in hand 1,580 2,704
1,703 3,001
Creditors - amounts falling due within 11
one year (93) (165)
Net Current Assets 1,610 2,836
Total Assets less Current Liabilities 10,965 17,683
Creditors - amounts falling due after
more than one year 12
(including convertible debt) (1) (1)
Net Assets 10,964 17,682
Capital and Reserves
Called up share capital 13 195 195
Capital reserve - realised 14 (931) (1,147)
Capital reserve - unrealised 14 (871) (808)
Revenue reserve 14 12,571 19,442
Equity Shareholders' Funds 10,964 17,682
Basic and Diluted Net Asset Value per
Ordinary Share 15 56.19p 90.62p
The financial statements were approved and authorised for issue by the Board of
Directors on 30 June 2011
and were signed on their behalf by:
Sir Aubrey Brocklebank Bt
Chairman
30 June 2011
The accompanying notes on pages 28 to 43 are an integral part of the financial
statements.
Cash Flow Statement
For the year ended 28 February 2011
For the year For the year
to to
28 February 28 February
Note 2011 2010
GBP'000 GBP'000
Operating activities
Interest income received 411 716
Dividend income received 20 21
Investment management fees paid (176) (371)
Directors fees paid (21) (14)
Other expenses paid (117) (88)
Net cash inflow from operating activities 16 117 264
Equity dividend paid (7,024) (488)
Taxation (48) (15)
Capital expenditure and financial
investment
Purchase of investments (1,377) (3,596)
Proceeds from sale of investments 7,214 6,279
Acquisition costs (7) (21)
Net realised gain on forward foreign
exchange contracts 1 17
Net cash inflow from capital expenditure
and financial investment 5,831 2,679
Cash (outflow)/inflow in the year (1,124) 2,440
Reconciliation of net cash flow to movement
in net funds
(Decrease)/ Increase in cash for the year (1,124) 2,440
Net funds at start of the year 2,704 264
Net funds at the year 1,580 2,704
The accompanying notes on pages 28 to 43 are an integral part of the financial
statements.
Reconciliation of Movements in Shareholders' Funds
For the year ended 28 February 2011
For the year to 28 February 2011
Called up Capital Capital
share reserve- reserve- Revenue
capital realised unrealised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 March 2010 195 (1,147) (808) 19,442 17,682
Return/(loss)
after taxation
attributable to
equity
shareholders - 216 (63) 153 306
Equity dividend
paid - - - (7,024) (7,024)
--------------------------------------------------------------
At 28 February
2011 195 (931) (871) 12,571 10,964
For the year to 28 February 2010
Called up Capital Capital
share reserve- reserve- Revenue
capital realised unrealised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 March 2009 195 (640) (1,792) 19,576 17,339
Return/(loss)
after taxation
attributable to
equity
shareholders - (507) 984 354 831
Equity dividend
paid - - - (488) (488)
--------------------------------------------------------------
At 28 February
2010 195 (1,147) (808) 19,442 17,682
The accompanying notes on pages 28 to 43 are an integral part of the financial
statements.
Notes to the Accounts
For the year ended 28 February 2011
1.Accounting Policies
Basis of Accounting
The financial statements have been prepared under the historical cost
convention, modified to include the revaluation of investments held at fair
value, and in accordance with UK Generally Accepted Accounting Practice ("UK
GAAP") and the Statement of Recommended Practice, 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts ("SORP") revised in 2009.
Income Statement
In order to better reflect the activities of a Venture Capital Trust and in
accordance with guidance issued by the Association of Investment Companies
("AIC"), supplementary information which analyses the income statement between
items of a revenue and capital nature has been presented alongside the income
statement. The net revenue of GBP153,000 (2010 - GBP354,000) as per the Income
Statement on page 24 is the measure that the Directors believe appropriate in
assessing the Company's compliance with certain requirements set out in s274 of
the Income Tax Act 2007.
Investments
All investments have been designated as fair value through profit or loss, and
are initially measured at cost which is the best estimate of fair value. A
financial asset is designated in this category if acquired to be both managed
and its performance is evaluated on a fair value basis with a view to selling
after a period of time in accordance with a documented risk management or
investment strategy. All investments held by the Company have been managed in
accordance to the investment policy set out on page 6. Thereafter the
investments are measured at subsequent reporting dates at fair value. Listed
investments and investments traded on AiM are stated at bid price at the
reporting date. Hedge funds are valued at their respective quoted Net Asset
Values per share at the reporting date. Unlisted investments are stated at
Directors' valuation with reference to the International Private Equity and
Venture Capital Valuation Guidelines ("IPEVC") and in accordance with FRS26
"Financial Instruments: Recognition and measurement":
* Investments which have been made within the last twelve months or the
investee company is in the early stage of development will usually be valued
at the price of recent investment except where the company's performance
against plan is significantly different from expectations on which the
investment was made in which case a different valuation methodology will be
adopted.
* Investments may be valued by applying a suitable price-earnings ratio to
that company's historical post tax earnings. The ratio used is based on a
comparable listed company or sector but discounted to reflect lack of
marketability. Alternative methods of valuation include net asset value
where such factors apply that make this or alternative methods more
appropriate.
Realised surpluses or deficits on the disposal of investments are taken to
realised capital reserves, and unrealised surpluses and deficits on the
revaluation of investment are taken to unrealised capital reserves.
It is not the Company's policy to exercise either significant or controlling
influence over investee companies. Therefore the results of the companies are
not incorporated into the revenue account except to the extent of any income
accrued. This is in accordance with the SORP that does not require portfolio
investments to be accounted for using the equity method.
Cash at bank and in hand
Cash at bank and in hand comprises of cash on hand and demand deposits.
Equity instruments
Equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a
residual interest in the assets of the company after deducting all of its
liabilities. Equity instruments issued by the company are recorded at proceeds
received net of issue costs.
Income
Dividends receivable on listed equity shares are brought into account on the ex-
dividend date. Dividends receivable on unlisted equity shares are brought into
account when the Company's right to receive payment is established and there is
no reasonable doubt that payment will be received. Interest receivable is
recognised wholly as a revenue item on an accruals basis.
Notes to the Accounts
For the year ended 28 February 2011
1. Accounting Policies (continued)
Performance fees
Upon its inception, the Company negotiated performance fees payable to the
Investment Manager, Shore Capital at 20 per cent of the aggregate excess on any
amounts realised by the Company in excess of GBP1 per Ordinary Share. This
incentive will only be exercisable once the holders of Ordinary Shares have
received distributions of GBP1 per share. The payment of this performance fee will
be effected through an equity-settled share-based payment.
FRS 20 Share-Based Payment requires the recognition of an expense in respect of
share-based payments in exchange for goods or services. Entities are required
to measure the goods or services received at their fair value, unless that fair
value cannot be estimated reliably in which case that fair value should be
estimated by reference to the fair value of the equity instruments granted.
The fair value of the share-based payment is calculated by reference to the fair
value of the performance fees accrued at the balance sheet date.
At each balance sheet date, the Company estimates that fair value by reference
to the excess of the net asset value, adjusted for dividends paid, over GBP1 per
share in issue at the balance sheet date. The Company recognises the impact of
the change in shares to be issued in the Income Statement with a corresponding
adjustment to equity.
Expenses
All expenses (inclusive of VAT) are accounted for on an accruals basis. Expenses
are charged wholly to revenue, with the exception of:
* expenses incidental to the acquisition or disposal of an investment which
are charged to capital; and
* the investment management fee, 75 per cent of which has been charged to
capital to reflect an element which is, in the directors' opinion,
attributable to the maintenance or enhancement of the value of the Company's
investments in accordance with the boards expected long-term split of
return; and
* the performance fee which is allocated proportionally to revenue and capital
based on the respective contributions to the Net Asset Value.
Taxation
Corporation tax is applied to profits chargeable to corporation tax, if any, at
the applicable rate for the year. The tax effect of different items of
income/gain and expenditure/loss is allocated between capital and revenue return
on the marginal basis as recommended by the SORP.
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date, where transactions or
events that result in an obligation to pay more, or right to pay less, tax in
future have occurred at the balance sheet date. This is subject to deferred tax
assets only being recognised if it is considered more likely than not that there
will be suitable taxable profits from which the future reversal of the
underlying timing differences can be deducted. Timing differences are
differences arising between the Company's taxable profits and its results as
stated in the financial statements which are capable of reversal in one or more
subsequent years. Deferred tax is measured on a non-discounted basis at the tax
rates that are expected to apply in the years in which timing differences are
expected to reverse, based on tax rates and laws enacted or substantively
enacted at the balance sheet date.
Foreign exchange
Transactions denominated in foreign currencies are translated into Sterling at
the rates ruling at the dates that they occurred. Assets and liabilities
denominated in a foreign currency are translated at the appropriate foreign
exchange rate ruling at the balance sheet date. Translation differences are
recorded as unrealised foreign exchange losses or gains and taken to the Income
Statement.
Notes to the Accounts
For the year ended 28 February 2011
1. Accounting Policies (continued)
Forward contracts and hedging
The Company enters into forward contracts for the sale of foreign currencies in
order to hedge its exposure to fluctuations in currency rates in respect of some
of its investments. These forward contracts are recorded at fair value through
profit and loss. Any foreign exchange gain or loss is recorded by the Company
in the Capital Reserve - unrealised until settled. Once realised, the gain or
loss is taken to the Capital Reserve - realised.
Reserves
Realised losses and gains on investments and foreign exchange transactions,
transaction costs, the capital element of the management fee and taxation are
taken through the Income Statement and recognised in the Capital Reserve -
Realised on the Balance sheet. Unrealised losses and gains on investments and
foreign exchange transactions and the capital element of the performance fee are
also taken through the Income Statement and recognised in the Capital Reserve -
Unrealised. The performance fee to be effected through share-based payment is
taken to the Other Reserve and the total revenue gain or loss on the Income
Statement is taken to the Revenue Reserve.
Debtors
Debtors include accrued income which is recognised at amortised cost, equivalent
to the fair value of the expected balance receivable.
Dividends
Dividends payable are recognised as distributions in the financial statements
when the Company's liability to make payment has been established. The liability
is established when the dividends proposed by the Board are approved by the
Shareholders.
2.Income
Year to
28 February 2011 Year to 28 February 2010
GBP'000 GBP'000
Income from investments
Loan stock interest 343 543
Dividend income 20 21
Investment fee rebate - 16
Other income - 17
363 597
Other income
Bank deposit interest 31 2
Interest on VAT recovered - 7
Total income 394 606
3.Investment Management Fees
Year to Year to
28 February 2011 28 February 2010
GBP'000 GBP'000
Shore Capital Limited 282 372
Investment fee rebate (19) -
VAT recovered - (121)
________________ ________________
263 251
Shore Capital has been appointed as the Investment Manager of the
Company for an initial period of five years, which can be terminated by not less
than twelve months' notice, given at any time by either party, on or after the
fifth anniversary. The board is satisfied with the performance of the Investment
Manager. Under the terms of this agreement Shore Capital will be paid an annual
fee of 2 per cent of the Net Asset Value payable quarterly in arrears calculated
on the relevant quarter end NAV of the Company. These fees are capped, the
Investment Manager has agreed to reduce its fee (if necessary to nothing) to
contain total annual costs (excluding performance fee) to within 3.5 per cent of
Net Asset Value. Total annual costs this year were 2.8% of the year end Net
Asset Value (2010 - 2%).
Notes to the Accounts
For the year ended 28 February 2011
4. Performance Fees
Year to Year to 28 February
28 February 2011 2010
GBP'000 GBP'000
Shore Capital Limited - -
5. Other expenses
Year to Year to 28 February
28 February 2011 2010
GBP'000 GBP'000
Administration - Shore Capital Fund 49 44
Administration Services Limited
Directors' remuneration 21 14
Social security costs 1 -
Auditor's remuneration for statutory audit 13 14
Insurance 2 2
Legal and professional fees 24 9
FSA, LSE and registrar fees 16 15
Custody charges 1 -
Other expenses 8 7
135 105
Shore Capital Fund Administration Services Limited provides administrative
services to the Company for an aggregate annual fee of 0.35 per cent of the Net
Asset Value of the Fund, payable quarterly in arrears.
The total fees paid or payable (excluding VAT and employers NIC) in respect of
individual Directors for the year are detailed in the Directors' Remuneration
Report commencing on page 17. The Company had no employees (other than
Directors) during the year. The average number of non-executive Directors during
the year was 3 (2010 - 3).
Notes to the Accounts
For the year ended 28 February 2011
6.Tax on Ordinary Activities
Year to 28 February 2011 Year to 28 February
GBP'000 2010
GBP'000
UK corporation tax charged to (40) (84)
revenue reserve
UK corporation tax credited to 36 40
capital reserve
(a) UK corporation tax charge (4) (44)
for the year
(b) Factors affecting tax
charge for the year
Total return on ordinary
activities before taxation 310 875
Tax charge calculated on total
return/loss on ordinary
activities before taxation at the
applicable rate of 21% (2010 -
21%) 65 184
Effects of:
Non taxable UK dividend income (4) (7)
Tax charge relating to prior 4 -
period
Non taxable capital income (25) (93)
Capital expenses in year (36) (40)
Total current tax charge 4 44
The income statement shows the tax charge allocated to revenue and capital.
Capital returns are not included as VCTs are exempt from tax on realised capital
gains subject that they comply and continue to comply with the VCT regulations.
No provision for deferred tax has been made in the current accounting period
although the Company has a deferred tax asset of GBP5,000 (2010 - Nil) arising
from excess management charges of GBP24,000 (2010 - Nil). No deferred tax assets
have been recognised as the timing of their recovery cannot be foreseen with any
certainty. Due to the Company's status as a Venture Capital Trust and the
intention to continue meeting the conditions required to obtain approval in the
foreseeable future, the Company has not provided deferred tax on any capital
gains and losses arising on the revaluation or disposal of investments.
7. Basic and diluted return per Ordinary Share
Year ended 28 February 2011 Year ended 28 February 2010
Revenue Capital Total Revenue Capital Total
Return for
the year 153,000 153,000 306,000 354,000 477,000 831,000
Weighted
average
number of
shares 19,511,624 19,511,624 19,511,624 19,511,624 19,511,624 19,511,624
Return per
Ordinary
Share 0.78p 0.78p 1.56p 1.81p 2.44p 4.25p
The total return per ordinary share is the sum of the revenue return and capital
return.
Notes to the Accounts
For the year ended 28 February 2011
8. Dividends
Year ended
28 February 2011 Year ended 28 February 2010
GBP'000 GBP'000
Paid in year
2009 Final revenue dividend - 488
May 2010 interim dividend 1,366 -
June 2010 interim dividend 1,951 -
September 2010 interim dividend 1,366 -
December 2010 interim dividend 2,341 -
7,024 488
Post year end, the directors approved interim dividends of 7p, paid on 23 March
2011, and 1.5p, paid on 24 May 2011, these have not been included as a liability
in these statements. The directors do not propose a final dividend (2010 final -
Nil).
9. Investments
Historic Cost Market Value Historic Cost Market Value
as 28 February as 28 February as at 28 as at 28
(a) Summary 2011 2011 February 2010 February 2010
GBP'000 GBP'000 GBP'000 GBP'000
Qualifying venture
capital
investments 7,117 5,772 10,678 9,699
Non - qualifying
investments 3,098 3,583 4,965 5,148
10,215 9,355 15,643 14,847
Venture capital Hedge funds & equity
(b) Movements in investments investments Total
investments GBP'000 GBP'000 GBP'000
Opening book cost at 28
February 2010 10,678 4,966 15,644
Unrealised (losses)/gains
at 28 February 2010 (979) 182 (797)
Valuation at 28 February
2010 9,699 5,148 14,847
Purchases at cost - 1,377 1,377
Disposals - proceeds (3,820) (3,394) (7,214)
- realised net gains on
disposal 259 149 408
Reversal of unrealised
losses/(gains) on
investments b/fwd (63) (78) (141)
Unrealised (losses)/gains
on revaluation of
investments at year end (303) 381 78)
Valuation at 28 February
2011 5,772 3,583 9,355
Book cost at 28 February
2011 7,117 3,098 10,215
Net unrealised
(losses)/gains at 28
February 2011 (1,345) 485 (860)
Valuation at 28 February
2011 5,772 3,583 9,355
Notes to the Accounts
For the year ended 28 February 2011
9. Investments (continued)
(c) Gains/(losses) on investments
The gains/(losses) on investments for the year shown in the Income Statement on
page 24 is analysed
as follows:
Year to 28 February 2011 Year to 28 February
GBP'000 2010
GBP'000
Realised gains/(losses) on disposal 374 (428)
Foreign exchange gain - realised 14 90
Foreign exchange losses -
unrealised on forward foreign
exchange contracts - (9)
Foreign exchange losses - - (108)
unrealised on investments
Transaction costs (7) (21)
Net unrealised (losses)/gains on
revaluation in respect of
investments held at the year-end (67) 1,101
314 625
Market Value Historic Cost Market Value
Historic Cost as at 28 as at 28 as at 28
(d) Quoted and as at 28 February 2011 February 2010 February 2010
unquoted February 2011 GBP'000 GBP'000 GBP'000
investments GBP'000
Quoted investments 3,821 3,378 6,565 5,989
Unquoted
investments 6,394 5,977 9,078 8,858
10,215 9,355 15,643 14,847
Market Value as at
(e) Disposals of unquoted Net disposal proceeds Cost 28 February 2010
investments in the year GBP'000 GBP'000 GBP'000
Stocklight Ltd 1,042 985 985
Forward internet Group Ltd (part
redemption of loan notes) 500 500 2,000
Bond Contracting Ltd (part
redemption) 189 394 194
1,731 1,879 3,179
It is not the Company's policy to exercise either significant or controlling
influence over investee companies.
10. Debtors
2011 2010
GBP'000 GBP'000
Prepayments and accrued income 123 297
_________ ________
123 297
Notes to the Accounts
For the year ended 28 February 2011
11. Creditors - amounts falling due within one year
2011 2010
GBP'000 GBP'000
Fair value of forward foreign exchange contracts - (9)
Accrued management and administration costs (93) (156)
(93) (165)
Included in creditors above is the fair value of the forward foreign exchange
contracts held to hedge the Company's foreign currency denominated assets (see
Note 1).
2011 2010
GBP'000 GBP'000
Assets Liabilities Assets Liabilities
Forward foreign exchange contracts - $ USD - - - (9)
- - - (9)
12. Creditors - amounts falling due after more than
one year (including convertible debt)
2011 2010
GBP'000 GBP'000
Loan Notes (1) (1)
On 28 December, 2005, the Company issued Loan Notes in the amount of GBP1,000 to a
nominee on behalf of the Investment Manager's group and employees of and persons
related to the investment management team. The Loan Notes accrue interest of 5
per cent per annum.
Shore Capital and members of the investment management team will be entitled to
a performance related incentive of 20 per cent of the aggregate excess on any
amounts realised by the Company in excess of GBP1 per Ordinary Share, and
Shareholders will be entitled to the balance. This incentive will only be
payable once the holders of Ordinary Shares have received distributions of GBP1
per share (whether capital or income). The performance incentive structure
provides a strong incentive for the Investment Manager to ensure that the
Company performs well, enabling the Board to approve distributions as high and
as soon as possible.
In the event that distributions to the holders of Ordinary Shares totalling GBP1
per share have been made the Loan Notes will convert into sufficient Ordinary
Shares to represent 20 per cent of the enlarged number of Ordinary Shares.
No performance fee is currently payable as the Ordinary Shares have not received
enough distributions to date. However, when the total return is greater than
GBP1, a performance fee will be expensed in accordance with FRS 20 Share-based
Payment. Also, a diluted NAV per share will be calculated to reflect the impact
of this conversion (see page 32).
Notes to the Accounts
For the year ended 28 February 2011
13. Called Up Share Capital
2011 2010
GBP'000 GBP'000
Authorised:
35,000,000 ordinary shares of 1p each (2010: 35,000,000) 350 350
Allotted and fully paid:
19,511,624 ordinary shares of 1p each (2010: 19,511,624) 195 195
The Company did not issue any shares during the year to 28 February 2011.
14. Capital and Reserves
Capital Capital
reserve- reserve- Revenue
realised unrealised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 March 2010 (1,147) (808) 19,442 17,487
Net gains on
realisation of
investments 370 - - 370
Foreign exchange gain
realised 14 - - 14
Net unrealised gains
on revaluation of
investments, forward
foreign exchange
contracts and cash - (63) - (63)
Transaction costs (7) - - (7)
Management fees
charged to capital (202) - - (202)
Retained net revenue
for the year - - 153 153
Taxation relief on
capital expenses 41 - - 41
Equity dividend paid - - (7,024) (7,024)
-----------------------------------------------------------
Balance at 28
February 2011 (931) (871) 12,571 10,769
-----------------------------------------------------------
Distributable reserves comprise: Capital reserve-realised, Capital reserve
unrealised and the Revenue reserve. At the year end there were GBP10,769,000 (2010
- GBP17,487,000) of reserves available for distribution. The Capital reserve-
realised shows gains/(losses) that have been realised in the year due to the
sale of investments and related costs. The Capital reserve-unrealised shows the
gains/(losses) on investments still held by the company not yet realised by an
asset sale.
Notes to the Accounts
For the year ended 28 February 2011
15. Net Asset Value per Ordinary Share
2011 2010
Basic Diluted Basic Diluted
Net assets ( GBP) 10,964,000 10,964,000 17,682,000 17,682,000
Number of Ordinary Shares 19,511,624 19,511,624 19,511,624 19,511,624
Net Assets Value per Ordinary
Share (p) 56.19p 56.19p 90.62p 90.62p
16. Reconciliation of total return on ordinary activities before taxation
to net cash inflow from operating activities
2011 2010
GBP'000 GBP'000
Total return before taxation 310 876
Gains on investments (314) (625)
Decrease in debtors 139 10
(Decrease)/increase in creditors (18) 3
Net cash inflow from operating activities 117 264
17. Analysis of Changes in Net Funds
2011 2010
GBP'000 GBP'000
Beginning of year 2,704 264
Net cash (outflow)/inflow (1,124) 2,440
As at year end 1,580 2,704
Notes to the Accounts
For the year ended 28 February 2011
18. Financial Instruments
The Company's financial instruments comprise its investments, cash balances,
debtors and certain creditors. Fixed Asset investments held are valued at Bid
market prices, Net Asset Value, discounted cashflow or at the price of recent
investment in accordance with IPEVC guidelines (see note 1). The fair value of
all of the Company's financial assets and liabilities is represented by the
carrying value in the Balance Sheet. The Company held the following categories
of financial instruments, all of which are included in the balance sheet at fair
value at 28 February 2011:
Year ended
28 February Year to 28 February
2011 2010
GBP'000 GBP'000
Assets at fair value through profit or loss
Investments managed through Shore Capital 9,355 14,847
Limited
Loans and receivables
Cash at bank and in hand 1,580 2,704
Interest, dividends and other receivables 123 297
Other financial liabilities
Financial liabilities measured at amortised (94) (166)
cost
10,964 17,682
Management of risk
The main risks the Company faces from its financial instruments in the current
and prior year are market price risk, being the risk that the value of
investment holdings will fluctuate as a result of changes in market prices
caused by factors other than interest rate or currency movements, liquidity
risk, Credit risk, foreign currency risk and interest rate risk. The Board
regularly reviews and agrees policies for managing each of these risks. The
Board's policies for managing these risks are summarised below and have been
applied throughout the year.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail
to discharge an obligation or commitment that it has entered into with the
Company. The Investment Manager monitors counterparty risk which is monitored on
an ongoing basis. The carrying amounts of financial assets best represents the
maximum credit risk exposure at the balance sheet date. The Company's financial
assets maximum exposure to credit risk is as follows:
2011 2010
GBP'000 GBP'000
Investments in fixed interest instruments 1,450 4,775
Investments in floating rate instruments 3,000 3,000
Cash and cash equivalents 1,580 2,704
Interest, dividends and other receivables 123 297
6,153 10,776
The Investment Manager evaluates credit risk on loan stock instruments prior to
investment, and as part of its ongoing monitoring of investments. The loan stock
instruments have a first or second charge over the assets of the investee
company. Credit risk arising on fixed interest instruments is mitigated by
close involvement with the management of the investee companies along with
review of their trading results and the quality of the asset backing of the
financial instruments.
Credit risk arising on floating rate instruments is mitigated by investing into
vehicles upon which the Investment Manager, Shore Capital, has board
representation.
All the quoted assets and EUR1,358,000 of the total cash balance of EUR1,580,000 of
the Company are held by Pershing Securities Limited, the Company's custodian and
a company regulated by the Financial Services Authority. The cash balances are
held on accounts segregated from the assets of the custodian with third party
international banks. Bankruptcy or insolvency of the custodian may cause the
Company's rights with respect to securities held by the custodian to be delayed
or limited. The Board monitors the Company's risk by reviewing the custodian's
internal control reports.
Substantially all of the Company's remaining cash and cash equivalents are held
by the Company is held by a large double AA- rated U.K. bank. Bankruptcy or
insolvency of the bank may cause the Company's rights with respect to the
receipt of cash held to be delayed or limited. The Board monitors the Company's
risk by reviewing regularly the financial position of the bank and should it
deteriorate
18. Financial Instruments (continued)
significantly the Investment Manager will, on instruction of the Board, move the
cash holdings to another bank.
Credit risk associated with interest, dividends and other receivables are
predominantly covered by the investment management procedures.
Market price risk
Market price risk arises mainly from uncertainty about future prices of
financial instruments held by the Company. It represents the potential loss the
Company might suffer through holding market positions or unquoted investments in
the face of price movements. The Investment Manager actively monitors market
prices throughout the year and reports to the Board, which meets regularly in
order to consider investment strategy.
The Company's strategy on the management of investment risk is driven by the
Company's investment policy as outlined in the Report of the Directors on page
12. The management of market price risk is part of the investment management
process. The portfolio is managed with an awareness of the effects of adverse
price movements through detailed and continuing analysis, with an objective of
maximising overall returns to shareholders.
Investments in unquoted investments pose higher price risk than quoted
investments. Some of that risk can be mitigated by close involvement with the
management of the investee companies along with review of their trading results
to produce a conservative and accurate valuation.
Investments in AiM traded companies, by their nature, involve a higher degree of
risk than investments in the main market. Some of that risk can be mitigated by
diversifying the portfolio across business sectors and asset classes. The
Company's overall market positions are monitored by the Board on a quarterly
basis.
Investments in hedge funds can have a perception of high market price risk. The
Company's strategy in respect of hedge funds is to invest in funds that have
underlying positions that are liquid and independently marked-to-market.
12 per cent of the Company's investments are in equities traded on AiM, listed
on the London Stock Exchange or other similar exchanges, 24 per cent are
unquoted hedge funds. 3 per cent of the Company's investments are unquoted hedge
funds and 61 per cent are unquoted equity and loan note investments.
The table below outlines the individual impact valuation of the investments of a
5 per cent change to quoted stocks, quoted hedge funds and unquoted investments.
The change outlines the potential increase or decrease in net assets
attributable to the Company's shareholders and the total return for the year.
2011 2010
GBP'000 GBP'000
Quoted stocks +/- 57 81
Quoted bonds and bond funds +/- - 38
Quoted hedge funds +/- 112 180
Unquoted hedge funds +/- 15 -
Unquoted investments +/- 284 443
468 742
Liquidity risk
The unquoted holdings consisted of four equity investments and seven loan notes.
By their nature, unquoted investments may not be readily realisable, the board
considers exit strategies for these investments throughout the year for which
they are held. The portfolio of quoted hedge funds and equities is held to
offset the liquidity risk associated with unquoted investments. As at the year
end, the Company had no borrowings other than loan notes amounting to GBP1,000
(see note 12).
Notes to the Accounts
For the year ended 28 February 2011
18. Financial Instruments (continued)
The Company's financial instruments include investments in AiM-traded companies,
which by their nature, involve a higher degree of risk than investments in the
main market. As a result, the Company may not be able to liquidate quickly some
of these investments at an amount close to their fair value in order to meet its
liquidity requirements.
The Company's hedge funds are considered to be readily realisable as they are
redeemable at monthly stated NAVs.
The Company's liquidity risk associated with investments is managed on an
ongoing basis by the Investment Manager in conjunction with the Directors and in
accordance with policies and procedures in place as described in the Report of
the Directors. The Company's overall liquidity risks are monitored on a
quarterly basis by the Board.
The Company maintains sufficient investments in cash and readily realisable
securities to pay accounts payable and accrued expenses. At 28 February 2011
these investments were valued at GBP4,958,000 (2010: GBP8,504,000).
Fair value interest rate risk
The benchmark that determines the interest paid or received on the current
account is the Bank of England base rate, which was 0.5 per cent at 28 February
2011. All of the loan stock investments are unquoted and hence not subject to
market movements as a result of interest rate movements.
At the year end and throughout the year, the Company's only liability subject to
fair value interest rate risk were the Loan Notes of GBP1,000 at 5.0 per cent (see
note 12).
Cash flow interest rate risk
The Company has exposure to interest rate movements primarily through its cash
deposit which tracks the Bank of England base rate, the loan notes held with
Bruton, Kingly, Pollen and Saville Services are also subject to movements in the
base rate. During the year, the Company earned interest income from holdings
in commercial paper and cash with its custodian, Pershing Securities Limited.
The benchmark that determines the interest paid or received on the current
account is the Bank of England base rate, which was 0.5 per cent at 28 February
2011.
Notes to the Accounts
For the year ended 28 February 2011
18. Financial Instruments (continued)
Interest rate risk profile of financial assets
The Company's financial assets, other than the fixed interest loan stock
investments noted above and non-interest bearing investments, are floating rate.
The following analysis sets out the interest rate risk of the Company's
financial assets.
Average Period until 2011 2010
interest rate maturity GBP'000 GBP'000
Cash at bank Floating rate 1,580 2,704
* 0.9%
Bruton Services Floating rate 9 years 750 750
loan note 2.5%
Kingly Services Floating rate 2.5% 9 years 750 750
loan note
Pollen Services Floating rate 2.5% 9 years 750 750
loan note
Saville Services Floating rate 2.5% 9 years 750 750
loan note
Forward Internet Fixed rate 8.125% 4 years 1,200 2,000
Group loan note
Invu Ltd Fixed rate 8% 3 months 250 -
Telford Homes Redeemed 8.88% 4 years - 1,888
loan note
Stocklight loan Redeemed 1 month - 591
stock 9%
Stocklight loan Redeemed 1 month - 296
stock D units 13.33%
Balance of assets Non-interest 5,028 7,369
bearing
* Benchmark rate is Bank of England base rate, 11,058 17,848
0.5% at the year end
The non-interest bearing assets include investments in hedge funds and equity
instruments that have no fixed dividend or interest rate.
An increase of 1 point in UK base rate as at the reporting date would have
increased the net assets attributable to the Company's shareholders and
decreased the total return for the year by GBP60,000 (2010: increased the net
assets and profit by GBP67,000). A decrease of 1 per cent would have had an equal
but opposite effect.
None of the loan stocks held by the Company are convertible.
Foreign currency risk
The reporting currency of the Company is Sterling. However, the Company holds
two Euro denominated investments as well as U.S. Dollar and Euro cash accounts.
As at the year end, the Sterling equivalent value of such foreign investments
amounted to GBPnil (2010 - GBP437,000) representing nil per cent (2010 - 2 per cent)
of the Company's net assets as at that date.
The Group enters into forward contracts for the sale of foreign currencies in
order to hedge its exposure to fluctuations in currency rates in respect of
these holdings. These forward contracts are recorded at fair value through
profit and loss and any change in value is taken to the capital account. Loss on
unrealised forward contracts at year-end were GBPnil (2010 - profit of GBP9,000) and
are recorded in the Capital Reserve - unrealised. The notional principal
amounts of the outstanding forward foreign currency exchange contracts at 28
February 2011 were GBPnil (2010 - GBP434,000).
Notes to the Accounts
For the year ended 28 February 2011
18.Financial Instruments (continued)
Fair value hierarchy
Fair values have been measured at the end of the reporting period as follows:-
Financial assets at
fair Level 1 Level 2 Level 3
value through profit 'Quoted 'Observable 'Unobservable
and loss prices' inputs' inputs' Total
As at 1 March 2010 5,446 543 8,858 14,847
Purchases at cost 877 250 250 1,377
Disposals proceeds (3,265) (538) (3,411) (7,214)
Realised net gains 168 11 229 408
on disposal
Unrealised
gains/(losses) on
revaluation of
investments at year
end 152 29 (244) (63)
As at 28 February 3,378 295 5,682 9,355
2011
Financial assets and liabilities measured at fair value are disclosed using a
fair value hierarchy that reflects the significance of the inputs used in making
the fair value measurements, as follows:-
* Level 1 - Unadjusted quoted prices in active markets for identical asset or
liabilities ('quoted prices');
* Level 2 - Inputs (other than quoted prices in active markets for identical
assets or liabilities) that are directly or indirectly observable for the
asset or liability ('observable inputs'); or
* Level 3 - Inputs that are not based on observable market data ('unobservable
inputs').
The Level 3 investments have been valued at the price of recent investment, Net
Asset Value or discounted cashflow based on post year end redemptions in line
with the Company's accounting policies and IPEVC guidelines.
19. Capital management
The Company's objectives when managing 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 to provide an adequate return to shareholders by
allocating its capital to assets commensurate with the level of risk.
By its nature, the Company has an amount of capital, at least 70% (as measured
under the tax legislation) of which is and must be, and remain, invested in the
relatively high risk asset class of small UK companies within three years of
that capital being subscribed.
The Company accordingly has limited scope to manage its capital structure in the
light of changes in economic conditions and the risk characteristics of the
underlying assets. Subject to this overall constraint upon changing the capital
structure, the Company may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares, or sell assets if so required
to maintain a level of liquidity to remain a going concern.
The Board has the opportunity to consider levels of gearing, however, there are
no current plans to do so. It regards the net assets of the Company as the
Company's capital, as the level of liabilities is small and the management of it
is not directly related to managing the return to shareholders. There has been
no change in this approach from the previous year.
20.Contingencies, Guarantees and Financial Commitments
There were no commitments, contingencies or guarantees of the Company at the
year-end.
Notes to the Accounts
For the year ended 28 February 2011
21.Controlling Party and Related Party Transactions
In the opinion of the Directors there is no immediate or ultimate controlling
party.
The Company has appointed Shore Capital, a company of which Graham Shore is a
director, to provide investment management services. During the year GBP263,000
(2010 - GBP251,000) was due in respect of investment management fees. The balance
owing to Shore Capital at year-end was GBP42,000 (2010 - GBP57,000).
The Company has appointed Shore Capital Fund Administration Services Limited, a
related company to Shore Capital, to provide accounting, secretarial and
administrative services. During the year GBP49,000 (2010 - GBP44,000) was due in
respect of these services. The balance owing to Shore Capital Fund
Administration Services Limited at year-end was GBP7,000 (2010 - GBP10,000).
At the year-end the Company was due GBP48,471 from Puma VCT III plc due to
redemption proceeds from a collective investment having been paid in total into
Puma VCT III plc. This sum was transferred to the Company on 7 March 2011.
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: PUMA VCT IV PLC via Thomson Reuters ONE
[HUG#1527385]
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