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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Acuity Grwth C | LSE:AQ2C | London | Ordinary Share | GB00B2NJD973 | C SHS 1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 75.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMAQT2 TIDMAQ2C RNS Number : 2122E Acuity VCT 2 PLC 16 December 2009 ? ACUITY VCT 2 PLC Final Results for the Year Ended 30 September 2009 In accordance with DTR 6.3.5 the Final Results of Acuity VCT 2 Plc for the year ended 30 September 2009 are made available below. The full Annual Report and Accounts can be accessed via the website www.acuitycapital.co.uk References in this announcement to Acuity VCT 2 Plc have been abbreviated to "the Company" or "the Fund". References to the Investment Manager, Acuity Capital Management Limited, have been abbreviated to "Acuity Capital". +---------------------------------------------+------------------+----------+ | Financial Highlights | | | +---------------------------------------------+------------------+----------+ | Ordinary Shares | | | +---------------------------------------------+------------------+----------+ | Year ended 30 September | 2009 | 2008 | +---------------------------------------------+------------------+----------+ | Net assets | GBP28.0m | GBP29.6m | +---------------------------------------------+------------------+----------+ | Net asset value per Ordinary Share | 88.5p | 93.6p | +---------------------------------------------+------------------+----------+ | Dividend paid per Ordinary Share | 0.0p | 2.0p | +---------------------------------------------+------------------+----------+ | Cumulative return to Ordinary Shareholders | | | | since launch | | | +---------------------------------------------+------------------+----------+ | Dividends paid per Ordinary Share | 4.5p | 4.5p | +---------------------------------------------+------------------+----------+ | Net asset value plus dividends paid per | 93.0p | 98.1p | | Ordinary Share | | | +---------------------------------------------+------------------+----------+ +-----------------------------------------------------+----------+---------+ | C Shares | | | +-----------------------------------------------------+----------+---------+ | Year ended 30 September | 2009 | 2008 | +-----------------------------------------------------+----------+---------+ | Net assets | GBP0.7m | GBP0.7m | +-----------------------------------------------------+----------+---------+ | Net asset value per C Share | 86.7p | 89.5p | +-----------------------------------------------------+----------+---------+ | Dividend paid per C Share | 0.0p | 0.0p | +-----------------------------------------------------+----------+---------+ | Cumulative return to C Shareholders since launch | | | +-----------------------------------------------------+----------+---------+ | Dividends paid per C Share | 0.0p | 0.0p | +-----------------------------------------------------+----------+---------+ | Net asset value plus dividends paid per C Share | 86.7p | 89.5p | +-----------------------------------------------------+----------+---------+ +--------------------------------+-----------------------------------------------+ | Key Dates:- | 16 December 2009 | | Results Announced | Wednesday 24 February 2010 at 10.15am | | Annual General Meeting | Paternoster House, 65 St Paul's Churchyard, | | Venue | London, EC4M 8AB | | | | +--------------------------------+-----------------------------------------------+ CHAIRMAN'S STATEMENT Overview During the year to 30 September 2009 the FTSE All Share Index increased by 7% and the AIM market by 3%, with sharp falls in the first half followed by a dramatic rebound. Ordinary Shares As at 30 September 2009 the Net Asset Value (NAV) per ordinary share was 88.5p. When cumulative dividends of 4.5p are included, the total was 93.0p per ordinary share, some 1 ½% less than the starting total of the Fund. In such a volatile year, the management's priority was to support its portfolio companies without neglecting any opportunities that arose. Throughout the period the Company met the 70% VCT qualifying investment test. C Shares As at 30 September 2009 the NAV per C Share was 86.7p, a decline of 3% over the year. The C Share pool continues to hold GBP0.5m in cash. As the VCT qualifying tests are measured on the Company's overall position, the C Shares comfortably meet those tests. Co-Investment As a result of co-investing alongside the other two VCTs managed by Acuity Capital, the ability to support portfolio companies has been enhanced at a time when access to capital has often been the decisive factor for companies' survival. Portfolio Activity During the year the Fund invested GBP3.6m of the ordinary share pool of capital. Details of these transactions are in the Investment Manager's review. To finance these investments, the Company sold most of its holding in Electra Private Equity Plc, a fund associated with the Investment Manager. As at 30 September 2009 this investment, together with an investment in CF Acuity Real Active Management Fund, stood at GBP0.3m (30 September 2008: GBP4.2m). At year end the Company had a cash balance of 0.4m. Merger of the Company with Acuity VCT Plc The boards of Acuity VCT Plc and Acuity VCT 2 Plc (which are both managed by the Investment Manager) are pleased to announce that they have reached agreement in principle on terms to merge the companies, subject to approval by shareholders of both companies, to achieve cost savings for the benefit of all shareholders. The intention is that this proposed Merger will be completed pursuant to a s.110 scheme of reconstruction under the Insolvency Act 1986. The assets and liabilities of Acuity VCT Plc would be transferred to the Company in consideration for new Acuity VCT 2 Plc Ordinary Shares. These would be issued to Acuity VCT Plc Shareholders on a relative NAV basis. Such a merger on this basis would be outside the provisions of The City Code on Takeovers and Mergers. Formal proposals will be forwarded to shareholders of both VCTs shortly. The main purpose of the proposed Merger is to create a single larger VCT that will bring a number of benefits to both sets of shareholders: * a reduction in the annual running costs of the combined VCT compared with the total annual runningcosts of the separate VCTs;
* the creation of a single VCT with a larger capital base over which to spread administration, regulatory andmanagement costs;
* participation in a larger VCT with a more diversified portfolio, thereby spreading the portfolio risk across abroader range of investments and
businesses; * increased potential to pay dividends and to reinstate a buy-back programme; and * greater flexibility in meeting the qualifying VCT requirements. If the shareholders of both VCTs approve the Merger, it is proposed that the enlarged Acuity VCT 2 Plc will be renamed Acuity Growth VCT Plc. Dividend Although no dividends were paid in the year, total dividends paid to date to ordinary shareholders have been 4.5p. Share buy backs In the light of market conditions, the Board suspended the buy back programme as of 1 October 2008. The Board will continue to monitor the position closely and will restore buy backs as and when conditions allow. In particular, the Board will pay close attention to available liquidity, which should be enhanced if shareholders approve the proposed Merger. To facilitate a share buy back programme and to act as a market maker in the shares, the Company has appointed Matrix Corporate Capital LLP as corporate broker. It will take steps to reduce the difference between the price paid under the buy back programme and the price received by a selling shareholder, as well as matching buyers and sellers of the shares. The Company is unable to buy shares directly from shareholders. If an investor wishes to sell shares, please contact Matrix Corporate Capital on 0203 206 7176. Top Up Offer Shareholders will also be invited to participate in a Top Up Offer to improve the overall liquidity of the enlarged VCT and to take advantage of more favourable investment conditions. The Board will be writing to shareholders early next year with details of the Offer. Self Invested Pension Plan (SIPP) service Working with Cavendish Ware, the Investment Manager has arranged for shareholders to have the opportunity to place their VCT shares in a SIPP, which offers additional tax benefits. It should be noted that moving VCT shares into a SIPP is treated as a disposal for tax purposes, and so has implications for investors sheltering CGT gains or whose VCTs have not yet reached the end of the minimum holding period for income tax relief. Details of this service are being sent to shareholders alongside this report. Shareholder Communication If shareholders have any general queries, they should contact the Investment Manager by telephone or email. The Investment Manager's website provides information on Acuity Capital and the Fund. As the Investment Manager is keen to increase communication with shareholders, its website (www.acuitycapital.co.uk) will include regular investment updates. Shareholders are encouraged to register their email addresses with the Investment Manager if they have not already done so. We would encourage shareholders to come to the Annual General Meeting on 24 February 2010, when two of your portfolio companies will make presentations. Over time, we intend to stage similar occasions for all the Company's principal investments, giving shareholders a better insight into the potential of the Company's portfolio. Risks Risks associated with the Company are set out in detail in the Report of the Directors' and in Note 20 of the Notes to the Accounts. The Board recognises that opportunities for selling both quoted and unquoted investments may have been reduced by recent volatility in the financial markets. In addition, the fair market value of its unquoted holdings may also suffer by reference to comparable quoted companies and publicly announced transactions. However, the Company considers that the portfolio has insignificant exchange risk and minor credit or interest rate risk. Outlook As the UK economy starts to recover, it will help to ease the challenges faced by smaller companies. With careful and supportive management, the portfolio should be able to regain momentum. Rupert Pennant-Rea Chairman 15 December 2009 INVESTMENT STRATEGY Investment Objective In accordance with the Prospectus dated 6 October 2004, the Company's objective is to achieve capital gains and maximise UK tax-free income to its shareholders from dividends and capital distributions. It is intended that this objective is to be achieved by investing the majority of the Company's funds in a portfolio of Qualifying Investments as described under "Investment Strategy" below. Investment Strategy The Company offers investors the opportunity to gain access to the venture capital market. The investment focus of the Investment Manager has been to seek out established companies, most of whom are cash positive, in preference to early stage opportunities. In addition, investments are normally structured as a mixture of equity and loan stock. The loan stock represents the majority of the finance provided. Typically, funds managed by Acuity Capital own a significant percentage of the equity of the investee companies. This investment focus, combined with a diversified sector strategy and the typical investment structure, will, in the opinion of the Directors, contribute materially to reducing the overall risk of investing in smaller companies. As at 30 September 2009, the Company has invested in 23 qualifying companies and 4 non-qualifying companies that have been selected for their growth potential and in a further five qualifying companies which are preparing to trade. The Directors believe that current economic conditions favour opportunistic investment and the use of companies preparing to trade allows for the acquisition of qualifying trades on the most advantageous terms as they are permitted an additional 18 months in which to identify the trades. As at 30 September 2009, the Company has no bank indebtedness. The Directors do not wish the Company to be restricted by having a fixed limit on what exposure to gearing it may have, apart from the restriction in the Company's Articles, which limits borrowing to an amount equal to its adjusted capital and reserves. Co-investment The Company also invests alongside the other Acuity VCTs which enables shareholders to participate in larger unquoted transactions, which tend to have a lower risk profile than smaller venture capital investments. Qualifying Investments The Company intends to invest in companies that it believes have a high growth potential. In the Directors' opinion, each of these companies should generally reflect the following criteria: * A well defined business plan and ability to demonstrate strong demand for its products or services; * Products or services that can be supplied at sustainable high margins and be cash generative; * Objectives of management and shareholders to be similarly aligned; * Adequate capital resources or access to further resources to achieve the targets set out in the business plan; and * High calibre management teams. The Company seeks to invest in a diversified portfolio of unquoted, PLUS traded and AIM quoted companies and will not specialise unduly in any particular industry sector. Unquoted investments will typically be in companies where the Company believes that there are reasonable prospects of an exit through a trade sale or flotation in the medium term. There are no criteria set by the Directors regarding the size of the target companies, except, with respect to each specific pool of capital, that an investee company's gross assets must comply with current UK VCT legislation. Investments in start-up companies where, in the opinion of the Company, levels of risk are unacceptably high, in particular the technology sector, will generally be avoided. As at 30 September 2009, the Company has invested approximately 89% of its net assets by valuation in a total of 22 qualifying companies. The average investment size at cost is GBP0.9m. Non-Qualifying Investments Associated Funds As at 30 September 2009, 1% of total assets by valuation of the Company was invested in CF Acuity Real Active Management Fund. Cash Management In addition to investments held in associated funds, as at 30 September 2009, 3% of its net funds by valuation of the Company were invested in cash deposits to provide immediate liquidity, pending suitable qualifying investments being identified. Risk Management Since the Company is flexible with regard to those areas in which it invests, it aims to achieve a significant degree of diversification and to spread risk by investing in unquoted, PLUS traded and AIM quoted companies. In addition, there is no emphasis on any particular industry sector and even the non-qualifying investments have quite a high level of in-built diversification. The Company is restricted to investing no more than 15% of the value of its total assets at the time of investment in any one individual qualifying investment or non-qualifying investment. Investment Portfolio Ordinary Shares The investment classification by value expressed as a percentage of the net assets of the ordinary share pool as at 30 September 2009 was as follows: By Sector +-------------------------+------------+ | Business Services | 26% | +-------------------------+------------+ | Consumer | 18% | +-------------------------+------------+ | Media | 27% | +-------------------------+------------+ | Manufacturing | 29% | +-------------------------+------------+ By Asset Type +-------------------------+------------+ | Unquoted - Loan Stock | 38% | +-------------------------+------------+ | Unquoted - Ordinary and | 48% | | Preference shares | | +-------------------------+------------+ | Accrued Income | 5% | +-------------------------+------------+ | AIM | 4% | +-------------------------+------------+ | Creditors | 3% | +-------------------------+------------+ | Associated Funds | 1% | +-------------------------+------------+ | Cash | 1% | +-------------------------+------------+ By Time Investments Held +-------------------------+------------+ | Between 1 and 3 years | 78% | +-------------------------+------------+ | Between 3 and 5 years | 21% | +-------------------------+------------+ | Over 5 years | 1% | +-------------------------+------------+ C Shares As at 30 September 2009, GBP0.2m had been invested in ordinary shares in a qualifying trade, Connect2Media, and the remainder was held in cash. INVESTMENT MANAGER'S REVIEW As set out in the Investment Strategy, our aim has been to concentrate our investments in unquoted companies with significant existing revenues and profits and to seek to add value through organic growth and "buy & build" strategies. Access to these types of investment is enhanced through co-investing with the other Acuity VCTs. Ordinary Shares During the year the main portfolio uplifts were in five unquoted companies where your Company's holdings increased in value. These were The Fin Machine Company, Loseley Dairy Ice Cream, Amber Taverns, Factory Media and Financial News Publishing. The largest uplifts were The Fin Machine Company, Loseley Dairy Ice Cream and Amber Taverns with a respective increase in value of GBP1.1m each. In addition, Factory Media increased in value by GBP0.7m and Financial News Publishing by a net GBP0.4m. A supplier of capital equipment used to manufacture heat exchangers in the automotive and air conditioning industries, The Fin Machine Company has entered its new financial year with an order book representing 65% of budgeted revenues. In 2009, the business opened a new factory in China and has benefited from increased margins and greater access to a market with growth rates of over 8% p.a. The potential for the company is significant with long-term forecasts representing an increase in sales of over 100%. You may recall that the Company had invested in Hill Station, the AIM listed company, which was forced into administration in October 2008. However, we decided that the business was worth supporting as a private equity investment and, investing alongside its sister VCTs, the Company invested a total GBP0.8m to acquire the assets and business from the Administrator, rename the business Loseley Dairy Ice Cream, and support its development. We are pleased to note that Loseley is beginning to show substantial traction which has allowed an increase in its value over the year. We are hopeful that Loseley will attract considerable levels of new business from the major retailers and a full recovery of the Company's lost investment in Hill Station. Over the year, Amber Taverns, memorably described by its chairman as the "Aldi and Lidl of the pub market", acquired a portfolio of 23 pubs at distressed prices and so increased the number of pubs under management after the sale of 8 unwanted units to a net 45. The acquisition of the additional pubs has been a success with the retained units responding well to Amber Tavern's management with its emphasis on the supply of competitively priced beer and a welcoming modern décor in depressed or city centre locations. With its original portfolio matching its budget, the overall performance of the company supported an increase in value. The strategy of investing heavily in Factory Media, a publisher of extreme sports titles, digital offering through its central website, www.mpora.com, as well as individual title websites, has reaped the benefits over the year with total digital traffic now exceeding 1.7 million monthly unique users from a comparison figure of 0.4 million last year. This break through in traffic has permitted a substantial increase in the business' value. During the second half of the year, we also took the decision to support the restructuring of a long held investment called Sanastro Limited by placing the business into administration and taking the calculated but successful risk of backing the management with an offer to the Administrator. As a result, the Company has increased materially its ownership of the business and seen a significant reduction in the business' cost basis while the trading performance of the business has not only not been damaged but seen an improvement. The new business, renamed Financial News Publishing, provides newsletters and organises conferences to the financial sector on such topics as prepaid cards, asset leasing and accounting issues. After writing off the holding value of Sanastro, we have been able to increase the value of the Company's holding in Financial News Publishing by GBP0.4 million. On the downward side, Target Entertainment Group saw a decrease in value of GBP0.9m. There was also a reduction in value of GBP0.7m in the net holding value of Future Noise Music (formerly the business of Acrobat Music Group). Unfortunately the year also saw a full provision being made of GBP1.0m against the investment in Emote Games. Target Entertainment Group, one of the UK's leading television producers and distributors, benefited from the production of the 7th season of Foyle's War but the overall TV industry was weak leading to a lower than expected performance in Target's distribution division. While expected to generate revenues of over GBP20m, we reduced its holding value until we can see a rebound in the TV industry. In order to secure the Company's investment with a fixed charge over its music catalogue, we restructured Acrobat Music Group with the business emerging as Future Noise Music. The business also saw a decrease in its revenues as the failure of Woolworths and Zavvi severely effected its historic distribution channels. The company has worked hard at establishing new channels and signing new artists, and we are hopeful that much of the value in the business can be recovered. We also made a full provision against the investment in Emote Games came as a result of its inability to secure additional financing from other investors, despite positive early data on the acceptance of its online game, The Hunter. Unfortunately the estimated rates of growth did not materialise in the necessary time frame and an expected US distribution deal was not secured. As noted in the Chairman's statement, we sold almost the Company's entire holding in Electra Private Equity plc over the year to provide liquidity and support the investments made into unquoted companies. Portfolio Summary +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Investments | Cost | Cost | Valuation | Valuation | Combined | Combined | % of | | At 30 | | | Ord. | C Shares | Total | Valuation | Portfolio | | September | Ord. | C | Shares | GBP'000 | GBP'000 | | by | | 2009 | Shares | Shares | GBP'000 | | | movement | Value | | | GBP'000 | GBP'000 | | | | in the | | | | | | | | | year | | | | | | | | | GBP'000 | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Acuity | 100 | - | 82 | - | 82 | (18) | 0.3 | | Business | | | | | | | | | Services | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Acuity Energy | 100 | - | 82 | - | 82 | (18) | 0.3 | | | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Acuity | 100 | - | 87 | - | 87 | (13) | 0.3 | | Manufacturing | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Acuity Rights | 100 | - | 77 | - | 77 | (23) | 0.3 | | | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Acuity | 100 | - | 82 | - | 82 | (18) | 0.3 | | Support | | | | | | | | | Services | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Amber Taverns | 750 | - | 2,511 | - | 2,511 | 1,082 | 9.3 | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Brand | 1,511 | - | 1,488 | - | 1,488 | (23) | 5.5 | | Acquisitions | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | CF Acuity | 246 | - | 223 | - | 223 | 2 | 0.8 | | Real Active | | | | | | | | | Management | | | | | | | | | Fund | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Connect2Media | 1,276 | 200 | 1,403 | 220 | 1,623 | 128 | 6.0 | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Defaqto | 2,405 | - | 2,786 | - | 2,786 | (451) | 10.3 | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Electra | 92 | - | 122 | - | 122 | (1) | 0.5 | | Private | | | | | | | | | Equity Plc | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Emote Games | 1,173 | 23 | - | - | - | (1,043) | 0.0 | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Factory Media | 1,925 | - | 2,850 | - | 2,850 | 721 | 10.6 | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | The Fin | 2,150 | - | 5,814 | - | 5,814 | 1,115 | 21.5 | | Machine | | | | | | | | | Company | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Financial | 116 | - | 755 | - | 755 | 732 | 2.8 | | News | | | | | | | | | Publishing | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Future Noise | 796 | - | 766 | - | 766 | (30) | 2.8 | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Jelf Group | 250 | - | 142 | - | 142 | (229) | 0.5 | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Keycom | 496 | - | 153 | - | 153 | (51) | 0.6 | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Loseley Dairy | 900 | - | 1,947 | - | 1,947 | 1,047 | 7.2 | | Ice Cream | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | MA Hubbards | 800 | - | 186 | - | 186 | (241) | 0.7 | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Managed | 888 | - | 169 | - | 169 | 18 | 0.7 | | Support | | | | | | | | | Services | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Mount Engineering | 391 | - | 324 | - | 324 | (22) | 1.2 | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Munro Global | 1,615 | - | 2,085 | - | 2,085 | (7) | 7.7 | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Red Reef | 813 | - | 559 | - | 559 | (254) | 2.1 | | Media | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Sports Media | 500 | - | 27 | - | 27 | (80) | 0.1 | | Group | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Target | 2,000 | - | 1,467 | - | 1,467 | (923) | 5.4 | | Entertainment | | | | | | | | | Group | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Zamano | 750 | - | 577 | - | 577 | 30 | 2.2 | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Total | 22,343 | 223 | 26,764 | 220 | 26,984 | 1,430 | 100.00 | | Investments | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Other Assets | | | | | | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Cash | | | 391 | 469 | 860 | | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ | Total | 27,155 | 689 | 27,844 | | +-------------------+---------+---------+-----------+-----------+----------+-----------+-----------+ INVESTMENT MANAGER The Fund's investments are managed by Acuity Capital. Acuity Capital was established in 1981 and is authorised and regulated by the Financial Services Authority. Acuity Capital has considerable expertise in quoted and unquoted investments and has a well developed deal flow, including unquoted company proposals that originate from its own contacts and network, pre-float finance opportunities and broker led AIM flotations. Acuity Capital is also the Investment Manager of Acuity VCT Plc, Acuity VCT 3 Plc and CF Acuity Real Active Management Fund, the successor fund to Electra Active Management Plc. The Investment Manager has established an Investment Committee comprising three Acuity Capital executives and two independent members. The independent members of the Investment Committee are Angela Lane and Tony Everett. After 18 years working in private equity at 3i, Angela's final role was as a partner in 3i's Growth Capital business managing the UK Portfolio. Tony has a background as an entrepreneur and business owner and acts as a consultant to Fleming Family and Partners Private Equity. In addition, the Investment Committee is chaired by Hugh Mumford, a senior executive of Electra Partners Group. The Investment Committee meets as required to consider and review investment proposals. CO-INVESTMENT ARRANGEMENTS WITH OTHER ACUITY VCTS The Directors welcome the fact that the Investment Manager has five VCT pools of funds, Acuity VCT Plc Ordinary Share pool, Acuity VCT Plc 'C' Share pool, Acuity VCT 2 Plc Ordinary Share pool, Acuity VCT 2 Plc 'C' Share pool and Acuity VCT 3 Plc (together "the Acuity VCTs"), it can use for co-investment. This allows each fund to spread its investment risk and gain access to larger investments than it could do on its own. Where a co-investment opportunity arises between the Company and one or more of the other funds, the Company will invest in an agreed and consistent proportion, on the same terms and in the same securities as the funds with which it co-invests. Costs associated with any such investment will be borne by each fund pro-rata to its investment. In more detail, the Board has adopted a set of guidelines on its co-investment arrangements with the Acuity VCTs and the Investment Manager as follows:- * Other than as set out below, investments will be allocated between the Company and the Acuity VCTs by reference to the size of each fund and to each fund's available cash resources. * Where an opportunity arises for a second or subsequent round of investment in a company in which one of the Acuity VCTs has invested at an earlier stage, the fund holding the existing investment will have a preferential right to take up any pro-rata entitlement it may have in the new financing round. The amount it invests on this basis will not be taken into account in determining its co-investment share thereafter. * The Company will make an investment in which one or more of the Acuity VCTs have existing investments only when the Board considers that to be in the best interests of the Company. * Any potential conflict of interest in a proposed investment by one or more of the Acuity VCTs will be referred by the Investment Manager to the Board of the Company and the other relevant Boards. * In the event of a possible conflict of interest between the Investment Manager and the Company, the matter will be decided by those Directors who are independent of the Investment Manager. The Board of the Company acknowledges that the Investment Manager may occasionally recommend an allocation of investments on a different basis from the one described above. For example, an exception may be made to ensure that one or more of the Company, Acuity VCT Plc or Acuity VCT 3 Plc maintain their status as a HMRC approved VCT, or in the interests of balancing their portfolios. A different basis may also be necessary to meet the requirements of potential investee companies. In these cases the Directors may use their judgement. LARGEST 10 INVESTMENTS The Fin Machine Company +-------------------------+----------------+----------------------+--------+--------+ | Cost | GBP2,150,000 | Audited Financial | | | | | | Information | | | +-------------------------+----------------+----------------------+--------+--------+ | Valuation | GBP5,814,000 | Year Ended 30 | 2008 | 2007 | | | | September | GBPm | GBPm | | | | | | | +-------------------------+----------------+----------------------+--------+--------+ | Basis of Valuation | EV/EBITDA | Sales | 19.5 | 17.0 | | | Multiple | | | | +-------------------------+----------------+----------------------+--------+--------+ | Equity held | 19.5% | Profit before tax | 2.8 | 1.0 | +-------------------------+----------------+----------------------+--------+--------+ | Business | Specialist | Retained profit | 2.1 | 0.7 | | | Engineering | | | | +-------------------------+----------------+----------------------+--------+--------+ | Other Acuity Funds | Acuity VCT, | Net assets | 4.4 | 2.3 | | Investing | Acuity VCT 3 | | | | +-------------------------+----------------+----------------------+--------+--------+ Factory Media +-------------------------+----------------+----------------------+--------+--------+ | Cost | GBP1,925,000 | Audited Financial | | | | | | Information | | | +-------------------------+----------------+----------------------+--------+--------+ | Valuation | GBP2,850,000 | Year Ended 31 | 2008 | 2007 | | | | December | GBPm | GBPm | | | | | | | +-------------------------+----------------+----------------------+--------+--------+ | Basis of Valuation | EV/Sales | Sales | 8.4 | 7.5 | | | Multiple | | | | +-------------------------+----------------+----------------------+--------+--------+ | Equity held | 24.9% | Loss before tax | (0.5) | (0.3) | +-------------------------+----------------+----------------------+--------+--------+ | Business | Sports | Retained loss | (0.5) | (0.3) | | | Publishing | | | | | | Company | | | | +-------------------------+----------------+----------------------+--------+--------+ | Other Acuity Funds | Acuity VCT 3 | Net | (0.2) | 0.3 | | Investing | | (liabilities)/assets | | | +-------------------------+----------------+----------------------+--------+--------+ Defaqto Group +-------------------------+----------------+----------------------+--------+--------+ | Cost | GBP2,405,000 | Audited Financial | | | | | | Information | | | +-------------------------+----------------+----------------------+--------+--------+ | Valuation | GBP2,786,000 | Year Ended 31 March | 2009 | 2008 | | | | | GBPm | GBPm | | | | | | | +-------------------------+----------------+----------------------+--------+--------+ | Basis of Valuation | EV/Sales | Sales | 8.3 | 7.8 | | | Multiple | | | | +-------------------------+----------------+----------------------+--------+--------+ | Equity held | 16.4% | Loss before tax | (0.4) | (1.8) | +-------------------------+----------------+----------------------+--------+--------+ | Business | Financial | Retained loss | (0.5) | (1.7) | | | product data | | | | | | provider | | | | +-------------------------+----------------+----------------------+--------+--------+ | Other Acuity Funds | Acuity VCT, | Net liabilities | (8.1) | (7.9) | | Investing | Acuity VCT 3 | | | | +-------------------------+----------------+----------------------+--------+--------+ Amber Taverns +-------------------------+----------------+----------------------+--------+--------+ | Cost | GBP750,000 | Audited Financial | | | | | | Information | | | +-------------------------+----------------+----------------------+--------+--------+ | Valuation | GBP2,511,000 | Year Ended 31 | 2009 | 2008 | | | | January | GBPm | GBPm | | | | | | | +-------------------------+----------------+----------------------+--------+--------+ | Basis of Valuation | EV/Sales | Sales | 7.0 | 3.7 | | | Multiple | | | | +-------------------------+----------------+----------------------+--------+--------+ | Equity held | 16.5% | Profit before tax | 0.1 | 0.0 | +-------------------------+----------------+----------------------+--------+--------+ | Business | Pub Chain | Loss after tax | 0.0 | (0.1) | +-------------------------+----------------+----------------------+--------+--------+ | Other Acuity Funds | Acuity VCT, | Net assets | 0.6 | 0.6 | | Investing | Acuity VCT 3 | | | | +-------------------------+----------------+----------------------+--------+--------+ Munro Global +-------------------------+----------------+----------------------+--------+--------+ | Cost | GBP1,615,000 | Audited Financial | | | | | | Information | | | +-------------------------+----------------+----------------------+--------+--------+ | Valuation | GBP2,085,000 | Year Ended 31 July | 2008 | 2007 | | | | | GBPm | GBPm | | | | | | | +-------------------------+----------------+----------------------+--------+--------+ | Basis of Valuation | EV/EBITDA | Sales | 10.2 | 8.0 | | | Multiple | | | | +-------------------------+----------------+----------------------+--------+--------+ | Equity held | 24.8% | Profit before tax | 0.0 | 0.1 | +-------------------------+----------------+----------------------+--------+--------+ | Business | Market | Profit after tax | 0.0 | 0.1 | | | Research | | | | | | Company | | | | +-------------------------+----------------+----------------------+--------+--------+ | Other Acuity Funds | Acuity VCT 3 | Net assets | 0.6 | 0.6 | | Investing | | | | | +-------------------------+----------------+----------------------+--------+--------+ Loseley Dairy Ice Cream +-------------------------+----------------+----------------------+--------+--------+ | Cost | GBP900,000 | No Audited Financial | | | | | | Information yet | | | | | | produced | | | +-------------------------+----------------+----------------------+--------+--------+ | Valuation | GBP1,947,000 | | | | +-------------------------+----------------+----------------------+--------+--------+ | Basis of Valuation | EV/Sales | | | | | | Multiple | | | | +-------------------------+----------------+----------------------+--------+--------+ | Equity held | 34.6% | | | | +-------------------------+----------------+----------------------+--------+--------+ | Business | Fine Ice Cream | | | | | | Manufacturer | | | | +-------------------------+----------------+----------------------+--------+--------+ | Other Acuity Funds | Acuity VCT, | | | | | Investing | Acuity VCT 3 | | | | +-------------------------+----------------+----------------------+--------+--------+ Connect2Media +------------------------+------------------+----------------------+--------+ | Cost | GBP1,476,000 | Audited Financial | | | | | Information | | +------------------------+------------------+----------------------+--------+ | Valuation | GBP1,623,000 | Period 16 June 2008 | 2008 | | | | to 31 December 2008 | GBPm | +------------------------+------------------+----------------------+--------+ | Basis of Valuation | EV/Sales | Sales | 2.4 | | | Multiple | | | +------------------------+------------------+----------------------+--------+ | Equity held | 12.9% | Loss before tax | (0.7) | +------------------------+------------------+----------------------+--------+ | Business | Developer and | Retained loss | (0.7) | | | global publisher | | | | | and distributor | | | | | for digital | | | | | entertainment | | | +------------------------+------------------+----------------------+--------+ | Other Acuity Funds | Acuity VCT, | Net assets | 3.8 | | Investing | Acuity VCT 3 | | | +------------------------+------------------+----------------------+--------+ Brand Acquisitions +-------------------------+----------------+----------------------+--------+--------+ | Cost | GBP1,511,000 | Audited Financial | | | | | | Information | | | +-------------------------+----------------+----------------------+--------+--------+ | Valuation | GBP1,488,000 | Period Ended 31 | Year | 3 | | | | January | ended | months | | | | | 2009 | ended | | | | | GBPm | 2008 | | | | | | GBPm | +-------------------------+----------------+----------------------+--------+--------+ | Basis of Valuation | EV/EBITDA | Sales | 11.3 | 1.1 | | | Multiple | | | | +-------------------------+----------------+----------------------+--------+--------+ | Equity held | 16.6% | Profit/(Loss) before | 0.3 | (0.3) | | | | tax | | | +-------------------------+----------------+----------------------+--------+--------+ | Business | Branded | Profit/(loss) after | 0.2 | (0.2) | | | Menswear | tax | | | +-------------------------+----------------+----------------------+--------+--------+ | Other Acuity Funds | Acuity VCT, | Net | 0.7 | (0.5) | | Investing | Acuity VCT 3 | assets/(liabilities) | | | +-------------------------+----------------+----------------------+--------+--------+ Target Entertainment Group +-------------------------+----------------+----------------------+--------+--------+ | Cost | GBP2,000,000 | Audited Financial | | | | | | Information | | | +-------------------------+----------------+----------------------+--------+--------+ | Valuation | GBP1,467,000 | Year Ended 31 | 2007 | 2006 | | | | December | GBPm | GBPm | | | | | | | +-------------------------+----------------+----------------------+--------+--------+ | Basis of Valuation | EV/Sales | Sales | 17.1 | 10.3 | | | Multiple | | | | +-------------------------+----------------+----------------------+--------+--------+ | Equity held | 13.3% | Loss before tax | (0.5) | (0.3) | +-------------------------+----------------+----------------------+--------+--------+ | Business | Television | Retained loss | (0.3) | (0.4) | | | Distribution | | | | | | Company | | | | +-------------------------+----------------+----------------------+--------+--------+ | Other Acuity Funds | Acuity VCT, | Net liabilities | (0.5) | (1.8) | | Investing | Acuity VCT 3 | | | | +-------------------------+----------------+----------------------+--------+--------+ Future Noise +------------------------+------------------+--------------------+ | Cost | GBP796,000 | No Audited | | | | Financial | | | | Information yet | | | | produced | +------------------------+------------------+--------------------+ | Valuation | GBP766,000 | | +------------------------+------------------+--------------------+ | Basis of Valuation | EV/Sales | | | | Multiple | | +------------------------+------------------+--------------------+ | Equity held | 42.5% | | +------------------------+------------------+--------------------+ | Business | Music Master | | | | Rights | | +------------------------+------------------+--------------------+ | Other Acuity Funds | Acuity VCT, | | | Investing | Acuity VCT 3 | | +------------------------+------------------+--------------------+ Note:- In many cases, the qualifying investment is made substantially in the form of loan notes which both carry a high interest rate and are treated as debt for statutory purposes. Shareholders should therefore be advised that often the investee companies report both retained losses and net liabilities as a result. BOARD OF DIRECTORS Rupert Pennant-Rea, Chairman Appointed a Director on 7 September 2004. He is a former Deputy Governor of the Bank of England and Editor of The Economist. He is currently Chairman of Henderson and a Director of Go-Ahead and a number of other companies. He is Chairman of the Nomination Committee. David Donnelly* Appointed a Director on 7 September 2004. He is Chairman of Caithness Petroleum. Previously he was CEO of the Private Equity business of Fleming Family & Partners. Previous directorships included Highland Participants (Chairman and Chief Executive), a listed exploration company and R&W Hawthorn Leslie & Co (Executive Director), a publicly quoted shipbuilding and repair company. He was formerly a member of the London Stock Exchange. He is Chairman of the Remuneration Committee. Catrina Holme* Appointed a Director on 26 February 2009. She has had extensive experience in the venture capital and private equity industry. Initially a private equity lawyer, she has held both Executive, Non-Executive and Investment roles in the sector. Previously a member of Cazenove Private Equity and Partner at DFJEsprit, she is currently a Venture Partner at Fidelity Ventures and runs a consulting business, Investor Inside, working with technology companies to maximise their investment success. Nicholas Ross Appointed a Director on 7 September 2004. He is a founding member of Acuity Capital LLP, prior to the Management buy-out he had been at Electra Quoted Management since 1993. Previously he had several years in investment analysis and fund management. He has been responsible for the launch of the three Acuity VCT funds. He is a Managing Partner of Acuity Capital LLP and a Director of Acuity Capital and all three Acuity VCT funds. He also sits on a number of investee company boards. David Sebire* Appointed a Director on 7 September 2004. He is a Chartered Accountant with extensive industrial and corporate finance experience. Previous chairmanships have included Bridport, PTS and Clearspeed Technology. He is Chairman of PegasusBridge Fund Management and a number of private companies. He has been nominated the Senior Independent Director under the Combined Code on Corporate Governance and is additionally Chairman of the Audit Committee. All Directors are also Directors of Acuity VCT. * Member of the Audit, Remuneration and Nomination Committees REPORT OF THE DIRECTORS To the Members of Acuity VCT 2 Plc The Directors present the audited Accounts of the Company for the year ended 30 September 2009 and their Report on its affairs. Investment Company Status Throughout the year under review the Company was an investment company as defined under Section 833 of the Companies Act 2006 VCT Status HM Revenue and Customs has granted the Company approval under Section 274 of the Income Tax Act 2007 (ITA 2007) as a VCT, the approval being effective from the first day on which the Company's ordinary shares were listed on the London Stock Exchange (being 3 December 2004). The Board continues to direct the affairs of the Company to enable it to maintain approval as a VCT. Business Review Objective and Investment Strategy A review of the Company's Objective and Investment Strategy is detailed above in this announcement. Current and Future Development A review of the main features of the year is contained in the Chairman's Statement and the Investment Manager's Review. The Board regularly reviews the development and strategic direction of the Company. The Board's main focus continues to be on the Company's long-term investment return. Attention is paid to the integrity and success of an investment process and on factors which may have an impact on this approach. Due regard is given to the marketing and promotion of the Company, including effective communication with shareholders and other external parties. Social, Community, Employee and Environmental Issues In carrying out its activities and in relationships with the community, the Company aims to conduct itself responsibly, ethically and fairly. The Company has no employees and the Board is comprised entirely of Non-Executive Directors. The Company has no direct impact on the environment, however, the Company believes that it is in the shareholders interests to consider environmental, social and ethical factors when selecting and retaining investments. Further details of how the Company views socially responsible investment is set out below in this announcement. Performance A detailed review of performance during the year under review is contained in the Investment Manager's Review above in this announcement. A number of performance measures are considered by the Board and Investment Manager in assessing the Company's success in achieving its objectives. The key performance indicators ('KPIs') used to measure the progress and performance of the Company are established industry measures and are as follows:- * The movement in net asset value per share * The movement in share price * The movement of net asset value and share price performance compared to the FTSE All-Share Index Details of the KPIs are shown in the Financial Highlights and through a graph comparing the Company's total return on a share price and net asset value basis over the period since shares were first issued with the FTSE All-Share Index total return over the same period as set out in the Directors' Remuneration Report. The Board recognises that it is in the long term interests of shareholders to reduce discount volatility and believes that the prime driver of discounts over the longer term is performance. As outlined in the Report of the Directors, the Board intends to seek renewal of its annual share buy-back authority at the Company's Annual General Meeting in 2010. As noted in the Chairman's Statement, due to the recent market turbulence, the Board has temporarily suspended the share buy back programme but are monitoring the position closely and will restore share buy backs when conditions allow. Risk Management Since the Company is flexible with regard to those areas in which it invests, it aims to achieve a significant degree of diversification and to spread risk by investing in unquoted, PLUS traded and AIM quoted companies. In addition, there is no emphasis on any particular industry sector and even the non-qualifying investments have quite a high level of in-built diversification. The Company is restricted to investing no more than 15% of the value of its total assets at the time of investment in any one individual qualifying investment or non-qualifying investment. The key risks facing the Company include Market Risk, Interest Rate Risk, Credit Risk and Liquidity Risk as further detailed in Note 20 of the Notes to the Accounts. In addition the Company is also focused on the following key risks:- Macroeconomic risks The performance of the Company's underlying investment portfolio is principally influenced by a combination of economic growth, interest rates, the availability of well-priced debt finance, the number of active trade and private equity buyers and the level of merger and acquisition activity. All of these factors have an impact on the Company's ability to invest and on the Company's ability to exit from its underlying portfolio or on the levels of profitability achieved on exit. Long-term strategic risk The Company is subject to the risk that its long-term strategy and its level of performance fails to meet the expectations of its shareholders. The Company constantly monitors the level of discount of its Net Asset Value to its share price and considers the most effective methodologies to keep this at a minimum including its share buy-back policy. The Company has in the last year repurchased shares within parameters set by the Board and subject to shareholder authority. In addition the Company regularly reviews its Objectives and Investment Strategy in light of prevailing investor sentiment to ensure the Company remains attractive to its shareholders Government policy and regulation risk The Company carries on business as a VCT under section 274 of the Income Tax Act 2007 (ITA 2007). Continuation of this status is subject to the Company directing its affairs in line with the relevant requirements of the legislation. Anticipated and actual changes in government policy and related tax treatment of VCTs are closely monitored, as are other changes which could affect results of operations or financial position. Acuity Capital is an authorised person under the Financial Services and Markets Act 2000 and regulated by the FSA. Changes to the regulatory framework under which Acuity Capital operates are closely monitored by Acuity Capital and reported upon as necessary by Acuity Capital to the Company. Socially Responsible Investment The Company believes that high standards of corporate social responsibility ('CSR') make good business sense and have the potential to protect and enhance investment returns. Consequently, the investment process takes social, environmental and ethical issues into account when, in the Company's view, these have a material impact on either investment risk or return. The Company recognises and supports the view that social, environmental and ethical best practice should be encouraged. It favours investing in companies committed to high standards of CSR and to the principles of sustainable development. The Company does not screen out companies from its investment universe purely on the grounds of poor social, environmental or ethical performance. Instead, it adopts a positive engagement approach whereby, if it is appropriate, it discusses these issues with the management of the companies in which it invests. The information gathered during these meetings is used both to assist the Company's investment decisions and also to encourage investee company management to improve procedures and attitudes. The Company strongly believes that this is the most effective way to improve the CSR polices of the businesses in which it invests and the Board endorses this view. Investment risks The Company operates in a very competitive market. Changes in the number of market participants, the availability of funds within the market, the pricing of assets, or in the ability of Acuity Capital to access deals on a proprietary basis, could have a significant effect on the Company's competitive position and on the sustainability of returns. In order to source and execute good quality investments the Company is primarily dependent on Acuity Capital having the ability to attract and retain people with the requisite investment experience and whose compensation is in line with the Company's objectives. Once invested, the performance of the Company's portfolio is dependent upon a range of factors. These include but are not limited to: (i) the quality of the initial investment decision described above; (ii) the ability of the portfolio company to execute successfully its business strategy; and (iii) actual outcomes against the key assumptions underlying the portfolio company's financial projections. Any one of these factors could have an impact on the valuation of a portfolio company and upon the Company's ability to make a profitable exit from the investment within the desired timeframe. A rigorous process is put in place by Acuity Capital for managing the relationship with each investee company for the period prior to anticipated realisation. This includes regular asset reviews and, in many cases, board representation by one of Acuity Capital's executives. The Company reviews both the performance of Acuity Capital and its incentive arrangements on a regular basis to ensure that both are appropriate to the objectives of the Company. Operational risks The Company's investment management, custody of assets and all administrative systems are provided or arranged for the Company by Acuity Capital. Therefore the Company is exposed to a range of operational risks at Acuity Capital which can arise from inadequate or failed processes, people and systems or from external factors affecting these. The Company's system of internal control mainly comprises the monitoring of the services provided by Acuity Capital, including the operating controls established by them to ensure they meet the Company's business objectives. This is further detailed below in this announcement. Share Capital The current authorised share capital of the Company is GBP1,125,000 divided into 85 million ordinary shares of 1p each, 25 million C Shares of 1p each and 25 million deferred shares of 0.1p each. The ordinary shares and C Shares have voting rights attached, holders are entitled to receive notice of and attend shareholder meetings and to receive dividends once declared and approved. The other rights and obligations attaching to the ordinary shares, C Shares and deferred shares are set out in the Company's Articles of Association. The Company did not issue any ordinary shares, C Shares or deferred shares during the year under review. Authority to make Market Purchases of Shares At the Annual General Meeting of the Company held on 26 February 2009, authority was given to make market purchases of up to 3,162,631 of the Company's issued ordinary share capital and up to 77,758 of the Company's issued C Share capital. To date, no C Shares have been repurchased for cancellation. The Company does not hold any shares in treasury. Accordingly, at 30 September 2009, authority remained to repurchase a further 3,162,631 ordinary shares and 77,758 C Shares. At 30 September 2009 a total of 31,626,320 (2008: 31,626,320) ordinary shares of 1p each (representing 98% of the total issued share capital) and 777,589 (2008: 777,589) C Shares of 1p each (representing 2% of the total issued share capital) were in issue. Results and Dividend Revenue returns/(losses) attributable to Ordinary shareholders amounted to GBP56,000 (2008: GBP131,000) and the Revenue returns attributable to C Shareholders amounted GBP(10,000) (2008: GBP(7,000)). Capital (losses)/returns attributable to ordinary shareholders amounted to GBP(1,685,000) (2008: GBP(2,209,000)) and to C Share shareholders of GBP(12,000) (2008: GBP(7,000)). The Directors do not recommend the payment of a final dividend in respect of the year ended 30 September 2009 (2008: GBPnil). Directors The current Directors of the Company are listed above in this announcement. Mr RL Pennant-Rea, Mr DJ Donnelly, Mr NRW Ross and Mr DJ Sebire all served as Directors throughout the financial year ended 30 September 2009. Mr M Broke resigned during the year and Ms C Holme was appointed on the same day. Ms C Holme and Mr N Ross will retire at the Annual General Meeting in 2010 and, being eligible, offer themselves for re-election. Short biographical details of all the Directors are provided above in this announcement. Following performance appraisals of all of the Directors, details of which are to be found below in this announcement, the Board considers that the performance of each Director retiring at the Annual General Meeting and offering himself for re-election continues to be effective and that each Director continues to show commitment to his role. Accordingly, the Board recommends that those Directors retiring at the Annual General Meeting in 2010 and offering themselves for re-election be re-elected. Directors' Interests The beneficial interests of the Directors in the ordinary shares of the Company are shown below. Save as disclosed, no Director had any notifiable interest in the securities of the Company. No Director bought or sold any ordinary shares or any C Shares of the Company during the year under review. There have been no changes in the interests of any of the Directors in the ordinary shares of the Company between 1 October 2009 and 15 December 2009. No options over shares in the capital of the Company have been granted to the Directors. +----------------+---------------------+------------------------+ | 30 September 2009 | 1 October 2008 | | Ordinary Shares of 1p | Ordinary Shares of 1p | | each | each | +--------------------------------------+------------------------+ | RL Pennant-Rea | 102,000 | 102,500 | | DJ Donnelly | - | - | | C Holme | - | - | | NRW Ross* | 103,100 | 103,100 | | DJ Sebire | - | - | +----------------+---------------------+------------------------+ No Director holds C Shares in the Company. * NRW Ross also has an interest in GBP6,332 of the 4% Loan Notes issued by the Company. Directors' Remuneration Report An Ordinary Resolution to approve the Directors' Remuneration Report will be put to the Annual General Meeting in 2010. Contracts with Directors No Director has a service contract with the Company. As a result of being a Partner of Acuity Capital LLP, Mr NRW Ross is deemed to have an interest in the Management Contract between the Company and Acuity Capital. Directors' and Officers' Liability Insurance Directors' and Officers' Liability Insurance is maintained on behalf of the Directors in respect of their positions as Directors of the Company. Substantial Shareholders At 15 December 2009 the Directors had not been notified of any interests of 3% or more in the Company's issued share capital. Independent Auditors A resolution to appoint KPMG Audit Plc as Auditors to the Company will be proposed at the Annual General Meeting in 2010. A separate resolution will be proposed at the Annual General Meeting in 2010 authorising the Directors to fix the remuneration of the Auditors. The Directors confirm that so far as each Director is aware, there is no relevant audit information of which the Company's auditors are unaware and that each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company's auditors are aware of that information. Creditor Payment Policy The Company agrees the terms of payment with its suppliers when agreeing the terms of each agreement. Suppliers are aware of the terms of payment and the Company abides by the terms of payment. The Company's average creditor payment period at 30 September 2009 was one day. Investment Manager Acuity Capital Management Limited was the Investment Manager of the Company during the year under review. The Board regularly reviews the performance of the Investment Manager and as a result believes the continuing appointment of the Investment Manager on the terms agreed is in the interests of the Company's shareholders as a whole. Management Fees and Arrangements Acuity Capital was appointed as Investment Manager under an agreement dated 6 October 2004, later superseded by an updated Management Agreement dated 18 October 2007. The agreement is for an initial period of five years and thereafter until terminated by not less than one year's notice. Fees are paid quarterly in arrears, as a percentage of net assets (less a rebate of fees suffered in investments in funds managed by Acuity Capital), at the following annual rates: Period ended 30 June 2005 1.5% Year ended 30 June 2006 2.0% Year ended 30 June 2007 and thereafter 2.5% Annual running expenses of the Fund are capped at 3.6% of the net asset value as at 30 September 2009. Any excess will be reduced against the management fee payable to the Investment Manager. Incentive Schemes Certain persons engaged in, the business of the Investment Manager will be entitled to receive a performance fee based upon returns to shareholders of both Ordinary and C Shares. The incentives are designed to encourage significant dividend payments to shareholders and a Net Asset Value performance that would equate to a historic top quartile industry ranking, before any performance fee payment is made. Therefore, if, by the end of a financial year, aggregate distributions of 30p per share have been declared and if the Performance Value, which is equal to the Net Asset Value plus distributions, at that date exceeds 130p per share, then the beneficiaries will be entitled to a performance fee equal to 20% of the excess of such Performance Value over 100p per share. If, on a subsequent financial year end, the performance of the Company falls short of the performance of the Company on the previous financial year end, the beneficiaries will not be entitled to any incentive. If, on a subsequent financial year end, the performance of the Company exceeds the previous financial year's performance of the Company, the beneficiaries will be entitled to 20% of such excess. To give effect to this performance fee, Loan Notes have been issued by the Company to certain persons engaged in the business of the Investment Manager. No Loan Notes have been issued directly to the Investment Manager. Further details of the terms of the Loan Notes are set out in Note 13 of the accounts. At 30 September 2009, there was no amount due under this incentive scheme. Going Concern The Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Accounts as the Company has adequate resources to continue in operational existence for the foreseeable future. The board took into consideration cashflow forecasts and that there was no debt at the year end when arriving at this conclusion. Annual General Meeting The Annual General Meeting of the Company will be held on 24 February 2010. In addition to the ordinary business, the following special business will be considered:- Authority to allot shares: Resolution 7 An Ordinary Resolution will be proposed at the Annual General meeting in 2010 to grant the Directors authority under section 551 of the Companies Act 2006 to allot shares up to a maximum aggregate nominal value of GBP108,013.08 being one third of the nominal value of the issued share capital of the Company at the date of this Directors' Report. The authority will expire at the conclusion of the Company's Annual General Meeting in 2011. This Ordinary Resolution will also remove the concept of an authorised share capital from the Company's articles of association, in accordance with the provisions of the Companies Act 2006. Apart from the top up offer referred to above in this anouncement, the Directors have no present intention of exercising this authority. The Directors recommend shareholders to vote in favour of this Ordinary Resolution. Disapplication of pre-emption rights: Resolution 8 A Special Resolution will be proposed at the Annual General Meeting in 2010 to grant the Directors authority to allot equity securities for cash without first offering the securities to existing shareholders in connection with the allotment of up to 10% of the nominal value of the issued share capital of the Company from time to time. The Directors' authority under this resolution will expire at the conclusion of the Company's Annual General Meeting in 2011. The Directors recommend shareholders to vote in favour of this Special Resolution. Authority to Make Market Purchases of Shares: Resolution 9 As set out in the Chairman's Statement, in the interest of all the Company's shareholders the Board suspended the Company's buy back programme temporarily because of the exceptional economic circumstances. Nevertheless the Board wishes to have in place the authority to purchase the Company's own shares so that the buy back programme can be re-instated as and when conditions permit. Accordingly, a Special Resolution will be proposed to renew, for one year, the Board's authority to make market purchases of ordinary shares and/or C Shares provided that such authority is limited to the purchase of 14.9% of the issued ordinary share capital and/or 14.9% of the issued C Share capital of the Company from time to time, subject to the constraints set out in the Special Resolution. Should any shares be purchased under this authority, it is the intention of the Board that they be cancelled and not held as treasury shares. The Directors do not intend to use this authority to purchase shares unless this would result in an increase in the net asset value per ordinary and/or C Share as applicable and would be in the best interests of shareholders generally. The Directors recommend shareholders to vote in favour of this Special Resolution. Corporate Governance Arrangements in respect of corporate governance, appropriate to a venture capital trust, have been made by the Board. The Board has considered the principles and recommendations of the Association of Investment Companies' Code of Corporate Governance issued in March 2009 ('AIC Code') by reference to the AIC Corporate Governance Guide for Investment Companies ('AIC Guide'). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in Section 1 of the Combined Code on Corporate Governance issued by the Financial Reporting Council ('FRC') ('the Combined Code'), as well as setting out additional principles and recommendations on issues which are of specific relevance to the Company. The FRC confirmed in February 2009 that it remained their view that the AIC Guide was appropriate and that investment companies may report against the AIC Code. The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the Combined Code) will provide better information to shareholders. Except as disclosed below, the Company complied throughout the year with the recommendations of the AIC Code and the relevant provisions of Section 1 of the Combined Code. Since all the Directors are non-executive the provisions of the Combined Code in respect of the role of the chief executive are not relevant to the Company and, likewise, the provisions of the Combined Code relating to Directors' remuneration are not relevant except in so far as they relate specifically to non-executive Directors. For the reasons set out in the AIC Guide, and in the preamble to the Combined Code, the Board considers that these provisions are not relevant to the Company, being an externally managed venture capital trust. The Company has therefore not reported further in respect of these provisions. The Directors confirm that during the year under review the Company has complied with Section 1 of the Combined Code on Corporate Governance ("the Code") issued by the Financial Reporting Council in June 2008. Directors' Attendance at Scheduled Meetings of the Board and Committees of the Board +-------------+------+----------+------+----------+------+----------+------+----------+ | | Board | Audit | AGM/EGM | Nomination | | | | Committee | | Committee | +-------------+-----------------+-----------------+-----------------+-----------------+ | |Held |Attended |Held |Attended |Held |Attended |Held |Attended | +-------------+------+----------+------+----------+------+----------+------+----------+ | Rupert | 4 | 4 | 2 | 2 | 2 | 2 | 1 | 1 | | Pennant-Rea | | | | | | | | | +-------------+------+----------+------+----------+------+----------+------+----------+ | Michael | 4 | 2 | 2 | 1 | 2 | 1 | n/a | n/a | | Broke | | | | | | | | | +-------------+------+----------+------+----------+------+----------+------+----------+ | David | 4 | 3 | 2 | 2 | 2 | 2 | 1 | 1 | | Donnelly | | | | | | | | | +-------------+------+----------+------+----------+------+----------+------+----------+ | Catrina | 4 | 2 | 2 | 1 | 2 | 2 | n/a | n/a | | Holme | | | | | | | | | +-------------+------+----------+------+----------+------+----------+------+----------+ | Nick | 4 | 4 | 2 | 2 | 2 | 2 | 1 | 1 | | Ross | | | | | | | | | +-------------+------+----------+------+----------+------+----------+------+----------+ | David | 4 | 3 | 2 | 2 | 2 | 2 | 1 | 1 | | Sebire | | | | | | | | | +-------------+------+----------+------+----------+------+----------+------+----------+ In addition, a number of Directors attended further Board meetings at short notice to address specific issues. The Board of Directors The Board, which meets regularly, comprised five Directors at 30 September 2009, all of whom were non-executive. All of the Directors who held office at 30 September 2009, apart from Mr NRW Ross, have been considered by the Board to be independent from the Investment Manager. The Board has nominated Mr DJ Sebire as the Senior Independent Director. All of the Directors of the Company are also Directors of Acuity VCT Plc which was launched in 2001 and which is also managed by Acuity Capital. The Board has considered the question of the independence of each Director in light of the Code's provisions on that subject. The Board believes that each of the Company's Directors, apart from Mr NRW Ross, continues to be wholly independent under the Code notwithstanding the cross-directorships detailed above. Independence is a state of mind and the character and judgement which accompany this are distinct from and, in the Board's opinion, are not compromised by having cross directorships with other Directors. The Board has agreed a schedule of matters reserved for its specific approval, which includes a regular review of the Company's Management Agreement with Acuity Capital, together with the monitoring of the performance thereunder. The Management Agreement sets out the matters over which Acuity Capital has authority in accordance with the policies and directions of the Board. The Board Meetings consider as appropriate such matters as overall strategy, investment performance, share price performance, share price discount and communication with shareholders. The Board considers that it meets sufficiently regularly to discharge its duties effectively. The numbers of scheduled meetings of the Board and the Audit Committee are shown in the table above. All of the Directors attended the Annual General Meeting. The Board receives information that it considers to be sufficient and appropriate to enable it to discharge its duties. Each Director receives board papers several days in advance of each scheduled Board meeting and is able to consider in detail the Company's performance and any issues to be discussed at the relevant meeting. The Directors believe that the Board has the balance, skills and experience which enable it to provide effective strategic leadership and proper governance of the Company. Information about the Directors, including their relevant experience, can be found above in this announcement. Performance Appraisal The Board carried out a formal appraisal process of its own and of its Committees' operation and performance during the year under review. This was implemented by means of questionnaires circulated to the Directors, the results of which were then reviewed by the Board. Issues covered included board composition, meeting arrangements and communication. The process was considered by the Board to be constructive in identifying areas for improving the functioning and performance of the Board and of its Committees. The Board concluded that its performance and that of its Committees was satisfactory. The Chairman carried out a formal appraisal of each of the Directors during the year under review and the Board, under the leadership of the Senior Independent Director, similarly appraised the Chairman. Relevant matters considered included the attendance and participation at Board and Committee meetings, commitment to Board activities and the effectiveness of the contribution made by the relevant Director. As a result of this process the Chairman has confirmed that the performance of each of the Directors being proposed for re-election continues to be effective and that each of them continues to show commitment to his role. The Senior Independent Director has also confirmed the continuing effectiveness and commitment of the Chairman. Re-election of Directors In accordance with the Code's provisions or the Company's Articles, Ms C Holme and Mr NRW Ross will retire at the Annual General Meeting to be held in 2010 and offer themselves for re-election. Mr MHA Broke has retired. Independent Professional Advice Individual Directors may seek independent professional advice in furtherance of their duties at the Company's expense within certain parameters. All Directors have access to the advice and services of the Company Secretary. Any appointment or removal of the Company Secretary would be a matter for consideration by the entire Board. The Audit Committee The Board has an Audit Committee established in compliance with the Code. It comprises all the Directors other than the Chairman of the Board and Mr NRW Ross, with Mr DJ Sebire as Chairman of the Committee. The Board has taken note of the suggestion that at least one member of the Committee should have recent and relevant experience and is satisfied that the Committee is properly constituted in this respect. Its authority and duties are clearly defined in its written terms of reference which is available on Acuity Capital's website. The Committee's Responsibilities include: * monitoring and reviewing the integrity of the financial statements, the internal financial controls and the independence, objectivity and effectiveness of the external auditors; * making recommendations to the Board in relation to the appointment of the external auditors and approving the remuneration and terms of their engagement; * developing and implementing the Company's policy on the provision of non-audit services by the external auditors; * reviewing the arrangements in place within Acuity Capital whereby their staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters insofar as they may affect the Company and * considering annually whether there is a need for the Company to have its own internal audit function. The Committee has reviewed the provision of non-audit services provided by the external auditors and believes them to be cost effective and not an impediment to the external auditors' objectivity and independence. It has been agreed that all non-audit work to be carried out by the external auditors, must be approved by the Audit Committee and that any special projects must be approved in advance. The Committee annually reviews the performance of KPMG Audit Plc, the Company's external auditor. In doing so, the Committee considers a range of factors including the quality of service, the auditor's specialist expertise and the level of audit fees. There are no contractual obligations restricting the choice of external auditor. Under Company Law the reappointment of the external auditor is subject to shareholder approval at the AGM. Internal Audit Following the review carried out by the Audit Committee as to whether there is a need for the Company to have its own internal audit function, the Board has considered and continues to believe that the internal control systems in place within Acuity Capital provide sufficient assurance that a sound system of internal control, which safeguards shareholders' investment and the Company's assets is maintained. An internal audit function, specific to the Company, is therefore considered unnecessary. The Remuneration Committee During the year under review the Remuneration Committee comprised all the Directors of the Company other than the Chairman of the Board and Mr NRW Ross, with Mr DJ Donnelly as Chairman of the Committee. There were no meetings of the Remuneration Committee during the year. The Committee has written terms of reference which are available on Acuity Capital's website. Full details of its role are set out in the Directors' Remuneration Report. The standard directors fees were unchanged during the year and therefore no meeting was held. The Nomination Committee The Nomination Committee meets on an ad hoc basis to consider suitable candidates for appointment as Director. It comprises all the Directors apart from Mr NRW Ross, with Mr RL Pennant-Rea as Chairman of the Committee. The board considered several candidates and after conducting interviews, the Nomination Committee unanimously agreed to appoint Ms C Holme as a director on 26 February 2009. The Committee has written terms of reference which are available on Acuity Capital's website. The Committee is responsible for identifying and nominating, for the approval of the Board, candidates to fill board vacancies to maintain a balanced Board. Letters of appointment, which specify the terms of appointment, are issued to new Directors. The current Directors of the Company were appointed with regard to their independence, suitability for the position and their experience in related business areas. Induction and Training New Directors are provided with an induction programme which is tailored to the particular circumstances of the appointee and which includes being briefed fully about the Company by the Chairman and senior executives of Acuity Capital. Following appointment, Directors continue to receive other relevant training and advice as necessary to enable them to discharge their duties. The Company's Relationship with its Shareholders The Company places great importance on communication with the Company's shareholders. In addition to the Annual and Interim Reports, shareholders will be sent regular newsletters from the Investment Manager. At the Annual General Meeting all shareholders are welcome to attend and have the opportunity to put questions to the Board. The notice of the Annual General Meeting and related papers are sent to shareholders at least 20 working days before the meeting. A separate resolution is proposed on each substantially separate issue including the annual report and accounts. All proxy votes are counted and, except where a poll is called, the level of proxies lodged for each resolution is announced at the Meeting and is published on Acuity Capital's website. The Chairman and the Senior Independent Director can always be contacted either through the Company Secretary or care of the Company's registered office at Paternoster House, 65 St Paul's Churchyard, London EC4M 8AB. Internal Control The Code requires the Directors to review the effectiveness of the Company's system of internal control and report to shareholders that they have done so. The Code extended the earlier reporting requirements and now includes financial, operational and compliance controls and risk management. The Board confirms that it has an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place throughout the year and has continued since the year end and up to the date of this report. It is reviewed at regular intervals by the Board and accords with the Financial Reporting Council's 'Internal Control: Revised Guidance for Directors on the Combined Code'. The Board is responsible for the Company's system of internal control and it has reviewed its effectiveness for the year ended 30 September 2009. The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. Since investment management, custody of assets and all administrative services are provided or arranged for the Company by Acuity Capital, the Company's system of internal control mainly comprises the monitoring of services provided by Acuity Capital, including the operating controls established by them, to ensure they meet the Company's business objectives. The key elements designed to provide effective internal control for the Company are as follows: * Financial Reporting - Regular and comprehensive review by the Board of key investment and financial data including management accounts, revenue projections, analyses of transactions and performance comparisons. * Investment Strategy - Agreement by the Board of the Company's investment strategy and monitoring of all large investments. * Management Agreements - The Board regularly monitors the performance of Acuity Capital to ensure that the Company's assets and affairs are managed in accordance with the guidelines determined by the Board. * Investment Performance - The investment transactions and performance of the Company's assets and affairs are managed in accordance with the guidelines determined by the Board. * Management Systems - Acuity Capital's system of internal control includes clear lines of responsibility, delegated authority, control procedures and systems. Acuity Capital's compliance department monitors compliance with the Financial Services Authority rules. The Board keeps under review the effectiveness of the Company's system of internal control by monitoring the operation of key controls of Acuity Capital as follows: * The Board reviews the terms of the Management Agreement and receives regular reports from Acuity Capital executives. * The Board reviews the certificates provided by Acuity Capital on a six monthly basis, verifying compliance with documented controls. Voting Policy The Company's investee companies are principally a mixture of quoted and unquoted companies in which the Company is a significant shareholder and the Company is usually a party to all issues requiring shareholder approval. The Company has given discretionary voting power to Acuity Capital to vote on its behalf. Acuity Capital's voting policy as agent for the Company has adopted and applies the Statement of Principles drawn up by the Institutional Shareholders Committee when it considers these in its reasonable judgement to best serve the financial interests of the Company's shareholders. Acuity Capital's voting policy has been reviewed and endorsed by the Board. Acuity Capital Management Limited Secretary Registered Office: Paternoster House 65 St Paul's Churchyard London EC4M 8AB 15 December 2009 Statement of Directors' Responsibilities in respect of the Annual Report, the Directors Remuneration Report and the Financial Statements The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). The Financial Statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these Financial Statements, the Directors are required to: * select suitable accounting policies and then apply them consistently; * make judgements and estimates that are reasonable and prudent; * state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and * 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 proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its Financial Statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Directors' Report and Directors' Remuneration Report that complies with that law and those regulations. The accounts of the Company are published on www.acuitycapital.co.uk which is a website maintained by the Company's Investment Manager, Acuity Capital. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Management Company's website. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions. In accordance with the FSA's Disclosure and Transparency Rules, the Directors confirm to the best of their knowledge that:- (a)the accounts, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and (b)the Report of the Directors includes a fair review of the development and performance of the business and position of the Company together with a description of the principal risks and uncertainties that it faces. By order of the Board of Directors Rupert Pennant-Rea, Chairman Registered Office: Paternoster House 65 St Paul's Churchyard London EC4M 8AB 15 December 2009 Directors' Remuneration Report The Directors submit this report in accordance with the requirements of Schedule 3 of the Small Companies and Groups (Accounts and Directors' report) Regulations 2008. An Ordinary Resolution for the approval of this report will be put to members at the forthcoming Annual General Meeting. The law requires the Company's Auditors to audit certain of the disclosures provided. Where disclosures have been audited they are indicated as such. Remuneration Committee During the year under review the Remuneration Committee comprised all the Directors of the Company other than the Chairman of the Board and Mr NRW Ross. Mr DJ Donnelly was Chairman of the Remuneration Committee throughout the year. It was not necessary to hold any meetings of the Committee during the year. There was no change to the remuneration of the Directors during the year. The current annual fee rates are GBP20,000 for the Chairman and GBP15,000 for each of the Directors, apart from Mr DJ Sebire who is paid an additional GBP5,000 per annum in respect of further duties undertaken in relation to the production of the Company's Report and Accounts, and Mr NRW Ross who receives no remuneration from the Company. During the year, in anticipation of the proposed Merger set out in the Chairman's Statement, the Remuneration Committee were provided with preliminary advice from Opus Executive Partners in respect of current levels of Directors' remuneration. Policy of Directors Remuneration Subject to the overall limit of the aggregate remuneration of the Directors set out in the Articles of Association of the Company as may from time to time be determined by an Ordinary Resolution of the Company, the Remuneration Committee's policy is that remuneration of non-executive Directors should be sufficient to attract and retain the Directors needed to oversee the Company and reflect the specific circumstances of the Company, the duties and responsibilities of the Directors and the value and amount of time committed to the Company's affairs. Non-executive Directors are not eligible to receive bonuses, pension benefits, share options and other benefits. Directors' Service Contracts None of the Directors has a service contract with the Company. No arrangements have been entered into between the Company and the Directors to entitle any of the Directors for compensation for loss of office. Performance Graph Pursuant to the Directors' Remuneration Report Regulations 2002, the Company is required to show a graph of total shareholder return against a suitable benchmark index in its Directors' Remuneration Report for the last five financial years. The table below shows the Company's performance being measured in terms of its Total Shareholder Return and its Net Asset Value per share since the date on which the shares were first issued, being 25 November 2004, against the Total Shareholder Return of the FTSE All-Share Index. The table has incorporated the change in net asset value per share because changes in net asset value per share relative to the FTSE All-Share Index are an important indicator of the performance of the Company's assets. The Directors consider that since the Company invests in a broad range of commercial sectors, the FTSE All-Share Index is the most appropriate index against which to compare the Company's performance. Acuity VCT 2 Share Price Total Return v Acuity VCT 2 Net Asset Value v FTSE All-Share Index (Total Return) - Ordinary and C Share +-------------------+-------------------+-------------------+-------------------+ | Date | NAV Total Return | FTSE All-Share | Share Price | | | (gross dividend) | Index | | | | | Total Return | | +-------------------+-------------------+-------------------+-------------------+ | 25/11/2004 | 100.00 | 100.00 | 100.00 | +-------------------+-------------------+-------------------+-------------------+ | 31/03/2005 | 94.67 | 102.21 | 100.00 | +-------------------+-------------------+-------------------+-------------------+ | 30/09/2005 | 96.96 | 113.61 | 90.00 | +-------------------+-------------------+-------------------+-------------------+ | 31/03/2006 | 100.70 | 131.09 | 88.00 | +-------------------+-------------------+-------------------+-------------------+ | 30/09/2006 | 109.02 | 133.91 | 87.00 | +-------------------+-------------------+-------------------+-------------------+ | 31/03/2007 | 121.59 | 143.08 | 92.00 | +-------------------+-------------------+-------------------+-------------------+ | 30/09/2007 | 103.30 | 147.28 | 108.00 | +-------------------+-------------------+-------------------+-------------------+ | 31/03/2008 | 96.60 | 132.18 | 95.00 | +-------------------+-------------------+-------------------+-------------------+ | 30/09/2008 | 93.50 | 107.04 | 75.00 | +-------------------+-------------------+-------------------+-------------------+ | 31/03/2009 | 80.00 | 84.61 | 45.00 | +-------------------+-------------------+-------------------+-------------------+ | 30/09/2009 | 88.55 | 112.35 | 38.00 | +-------------------+-------------------+-------------------+-------------------+ Directors' Remuneration for the Year (audited) The Directors who served during the year received the following emoluments in the form of fees: +-----------------------------------------+-----------------+------------------+ | For the year ended | For the year | | 30 September 2009 | ended 30 | | GBP'000 | September 2008 | | | GBP'000 | +-----------------------------------------------------------+------------------+ | RL Pennant-Rea(Chairman & joint highest | 20 | 20 | | paid Director) | 8 | 15 | | M Broke (resigned 26 February 2009) | 15 | 15 | | DJ Donnelly | 7 | - | | Catrina Holme (appointed 26 February | - | - | | 2009) | 20 | 20 | | NRW Ross | | | | DJ Sebire (Joint highest paid Director) | | | +-----------------------------------------+-----------------+------------------+ | Total | 70 | 70 | +-----------------------------------------+-----------------+------------------+ As a former executive of the Electra Partners Group and as a current executive of Acuity Capital, NRW Ross has an interest in the Management Contract between the Company and Acuity Capital (formerly Electra Quoted Management). NRW Ross has waived his right to receive directors fees from the Company. By order of the Board of Directors Mr DJ Donnelly, Chairman of the Remuneration Committee, Registered Office: Paternoster House, 65 St Paul's Churchyard. London EC4M 8AB 15 December 2009 Income Statement +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | For | | Ordinary Shares | C Shares | Total | | the | | | | | | year | | | | | | ended | | | | | | 30 | | | | | | September | | | | | | 2009 | | | | | +----------------+--------+-----------------------------+-----------------------------+-----------------------------+ | | | Revenue | Capital | Total | Revenue | Capital | Total | Revenue | Capital | Total | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | Notes | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Realised | 9 | - | (94) | (94) | - | - | - | - | (94) | (94) | | (losses) | | | | | | | | | | | | on | | | | | | | | | | | | investments | | | | | | | | | | | | sold | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Investment | 9 | - | (1,139) | (1,139) | - | (3) | (3) | - | (1,142) | (1,142) | | holding | | | | | | | | | | | | gains/(losses) | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Income | 1 | 563 | - | 563 | - | - | - | 563 | - | 563 | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Recoverable | 2 | 32 | 98 | 130 | - | - | - | 32 | 98 | 130 | | VAT | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | 595 | (1,135) | (540) | - | (3) | (3) | 595 | (1,138) | (543) | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Investment | 2 | (217) | (620) | (837) | (4) | (13) | (17) | (221) | (633) | (854) | | management | | | | | | | | | | | | fees | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Other | 3 | (265) | 45 | (220) | (5) | 4 | (1) | (270) | 49 | (221) | | expenses | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | (482) | (575) | (1,057) | (9) | (9) | (18) | (491) | (584) | (1,075) | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Return/(Loss) | | | | | | | | | | | | on Ordinary | | | | | | | | | | | | Activities | | | | | | | | | | | | before | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | interest | | 113 | (1,710) | (1,597) | (9) | (12) | (21) | 104 | (1,722) | (1,618) | | and | | | | | | | | | | | | Taxation | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Finance | 4 | (32) | - | (32) | (1) | - | (1) | (33) | - | (33) | | Cost | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Return/(Loss) | | | | | | | | | | | | on Ordinary | | | | | | | | | | | | Activities | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | before | | 81 | (1,710) | (1,629) | (10) | (12) | (22) | 71 | (1,722) | (1,651) | | taxation | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Tax on | 6 | (25) | 25 | - | - | - | - | (25) | 25 | - | | ordinary | | | | | | | | | | | | activities | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Net | | | | | | | | | | | | Return/(Loss) | | | | | | | | | | | | on Ordinary | | | | | | | | | | | | Activities | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | after | | 56 | (1,685) | (1,629) | (10) | (12) | (22) | 46 | (1,697) | (1,651) | | Taxation | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Return/(Loss) | | | | | | | | | | | | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | per | 7 | 0.2p | (5.4)p | (5.2)p | (1.3)p | (1.5)p | (2.8)p | | | | | Share | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ The total column of this statement represents the Company's Income Statement, prepared in accordance with UK GAAP. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year. A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement. Income Statement +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | For | | Ordinary shares | C Shares | Total | | the | | | | | | year | | | | | | ended | | | | | +----------------+--------+-----------------------------+-----------------------------+-----------------------------+ | 30 | | Revenue | Capital | Total | Revenue | Capital | Total | Revenue | Capital | Total | | September | | | | | | | | | | | | 2008 | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | Notes | GBP000 | GBP000 | GBP000 | GBP000 | GBP000 | GBP000 | GBP000 | GBP000 | GBP000 | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Realised | | | | | | | | | | | | (losses) | | - | (996) | (996) | - | - | - | - | (996) | (996) | | on | | | | | | | | | | | | investments | | | | | | | | | | | | sold | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Investment | | | | | | | | | | | | holding | | - | (839) | (839) | - | - | - | - | (839) | (839) | | gains/(losses) | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Income | 1 | 781 | - | 781 | - | - | - | 781 | - | 781 | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | 781 | (1,835) | (1,054) | - | - | - | 781 | (1,835) | (1,054) | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Investment | | | | | | | | | | | | management | 2 | (197) | (592) | (789) | (3) | (8) | (11) | (200) | (600) | (800) | | fees | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Other | 3 | (293) | 100 | (193) | (3) | - | (3) | (296) | 100 | (196) | | expenses | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | (490) | (492) | (982) | (6) | (8) | (14) | (496) | (500) | (996) | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Return/(Loss) | | | | | | | | | | | | on Ordinary | | | | | | | | | | | | Activities | | | | | | | | | | | | before | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | interest | | | | | | | | | | | | and | | 291 | (2,327) | (2,036) | (6) | (8) | (14) | 285 | (2,335) | (2,050) | | Taxation | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Finance | 4 | (42) | - | (42) | - | - | - | (42) | - | (42) | | Cost | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Return/(Loss) | | | | | | | | | | | | on Ordinary | | | | | | | | | | | | Activities | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | before | | 249 | (2,327) | (2,078) | (6) | (8) | (14) | 243 | (2,335) | (2,092) | | taxation | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Tax on | | | | | | | | | | | | ordinary | 6 | (118) | 118 | - | (1) | 1 | - | (119) | 119 | - | | activities | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Net | | | | | | | | | | | | Return/(Loss) | | | | | | | | | | | | on Ordinary | | | | | | | | | | | | Activities | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | after | | 131 | (2,209) | (2,078) | (7) | (7) | (14) | 124 | (2,216) | (2,092) | | Taxation | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | Return/(Loss) | | | | | | | | | | | | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | per | | | | | | | | | | | | Ordinary | 7 | 0.4p | (6.7)p | (6.3)p | (0.9)p | (0.9)p | (1.8)p | | | | | Share | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | | | +----------------+--------+---------+---------+---------+---------+---------+---------+---------+---------+---------+ Reconciliation of Movements in Shareholders' Funds +-----------------------------+----------+---------+---------+----------+---------+---------+ | | For the year ended 30 | For the year ended 30 | | | September 2009 | September 2008 | +-----------------------------+------------------------------+------------------------------+ | | Ordinary | C | Total | Ordinary | C | Total | | | Shares | Shares | GBP'000 | Shares | Shares | GBP'000 | | | GBP'000 | GBP'000 | | GBP'000 | GBP'000 | | | | | | | | | | +-----------------------------+----------+---------+---------+----------+---------+---------+ | Total Return on Ordinary | (1,629) | (22) | (1,651) | (2,078) | (14) | (2,092) | | Activities after Taxation | - | - | - | (668) | - | (668) | | Dividends on Ordinary | - | - | - | (1,848) | - | (1,848) | | Shares | - | - | - | - | (14) | (14) | | Repurchase of Ordinary | - | - | - | - | 724 | 724 | | Shares | | | | | | | | Share issue expenses | | | | | | | | Issue of C Shares | | | | | | | +-----------------------------+----------+---------+---------+----------+---------+---------+ | Movements in Total | (1,629) | (22) | (1,651) | (4,594) | 696 | (3,898) | | Shareholders' Funds | | | | | | | | | | | | | | | +-----------------------------+----------+---------+---------+----------+---------+---------+ | Total Shareholders' Funds | 29,611 | 696 | 30,307 | 34,205 | - | 34,205 | | at start of year | | | | | | | +-----------------------------+----------+---------+---------+----------+---------+---------+ | Total Shareholders' Funds | 27,982 | 674 | 28,656 | 29,611 | 696 | 30,307 | | at the end of the Year | | | | | | | +-----------------------------+----------+---------+---------+----------+---------+---------+ Balance Sheet +------------------------+-------+------------+---------+---------+------------+---------+---------+ | | | As at 30 September 2009 | As at 30 September 2008 | +------------------------+-------+--------------------------------+--------------------------------+ | | Notes | Ordinary | C | Total | Ordinary | C | Total | | | | Shares | Shares | GBP'000 | Shares | Shares | GBP'000 | | | | GBP'000 | GBP'000 | | GBP'000 | GBP'000 | | +------------------------+-------+------------+---------+---------+------------+---------+---------+ | Fixed Assets | 9 | 26,764 | 220 | 26,984 | 27,560 | 200 | 27,760 | | Investments held at | | | | | | | | | fair value | | | | | | | | +------------------------+-------+------------+---------+---------+------------+---------+---------+ | Current Assets | 10 | 1,610 | 2 | 1,612 | 1,284 | - | 1,284 | | Debtors | 11 | - | - | - | 210 | - | 210 | | Other investments | | 391 | 469 | 860 | 1,101 | 520 | 1,621 | | Cash at Bank | | | | | | | | | | | | | | | | | +------------------------+-------+------------+---------+---------+------------+---------+---------+ | | | 2,001 | 471 | 2,472 | 2,595 | 520 | 3,115 | +------------------------+-------+------------+---------+---------+------------+---------+---------+ | Current Liabilities | 12 | 441 | 4 | 445 | 119 | 12 | 131 | | Creditors: amounts | | | | | | | | | falling due within one | | | | | | | | | year | | | | | | | | | | | | | | | | | +------------------------+-------+------------+---------+---------+------------+---------+---------+ | Net Current Assets | | 1,560 | 467 | 2,027 | 2,476 | 508 | 2,984 | +------------------------+-------+------------+---------+---------+------------+---------+---------+ | Total assets less | 13 | 28,324 | 687 | 29,011 | 30,036 | 708 | 30,744 | | current liabilities | | 342 | 13 | 355 | 425 | 12 | 437 | | Creditors: amounts | | | | | | | | | falling due after more | | | | | | | | | than one year | | | | | | | | | | | | | | | | | +------------------------+-------+------------+---------+---------+------------+---------+---------+ | Net Assets | | 27,982 | 674 | 28,656 | 29,611 | 696 | 30,307 | | | | | | | | | | +------------------------+-------+------------+---------+---------+------------+---------+---------+ | Capital and Reserves | 15 | 317 | 8 | 325 | 317 | 8 | 325 | | Called-up share | 16 | - | 702 | 702 | - | 702 | 702 | | capital | 16 | 29,089 | - | 29,089 | 29,089 | - | 29,089 | | Share Premium | 16 | 25 | - | 25 | 25 | - | 25 | | Special Reserve | 16 | (1,805) | (19) | (1,824) | (120) | (7) | (127) | | Capital redemption | 16 | 356 | (17) | 339 | 300 | (7) | 293 | | reserve | | | | | | | | | Capital reserve | | | | | | | | | Revenue reserve | | | | | | | | | | | | | | | | | +------------------------+-------+------------+---------+---------+------------+---------+---------+ | Total Equity | | 27,982 | 674 | 28,656 | 29,611 | 696 | 30,307 | | Shareholders' Funds | | | | | | | | | | | | | | | | | +------------------------+-------+------------+---------+---------+------------+---------+---------+ | Net Asset Value per | | 88.5 | 86.7 | | 93.6 | 89.5 | | | Share | | | | | | | | | | | | | | | | | +------------------------+-------+------------+---------+---------+------------+---------+---------+ | Number of Shares in | | 31,626,320 | 777,589 | | 31,626,320 | 777,589 | | | issue at end of year | | | | | | | | | | | | | | | | | +------------------------+-------+------------+---------+---------+------------+---------+---------+ The Financial Statements were approved and authorised for issue by the Board of Directors on 15 December 2009 and were signed on their behalf by: RL Pennant-Rea Chairman Cash Flow Statement +-----------------------------------+--------+-----------+-----------+-----------+-----------+-----------+-----------+ | | | For the year ended 30 September | For the year ended 30 September | | | | 2009 | 2008 | +-----------------------------------+--------+-----------------------------------+-----------------------------------+ | | Notes | Ordinary | C Shares | Total | Ordinary | C Shares | Total | | | | Shares | GBP000 | GBP000 | Shares | GBP000 | GBP000 | | | | GBP000 | | | GBP000 | | | +-----------------------------------+--------+-----------+-----------+-----------+-----------+-----------+-----------+ | Operating Activities | | | | | | | | | | | | | | | | | | Investment income received | | 11 | - | 11 | 317 | - | 317 | | Bank deposit interest received | | 6 | - | 6 | 52 | - | 52 | | Investment management fees paid | | (460) | (23) | (483) | (905) | - | (905) | | Other cash payments | | (351) | (5) | (356) | (435) | (4) | (439) | | Other income (VAT Rebate) | | 140 | - | 140 | - | - | - | | | | | | | | | | +-----------------------------------+--------+-----------+-----------+-----------+-----------+-----------+-----------+ | Net Cash Outflow from Operating | 18 | (654) | (28) | (682) | (971) | (4) | (975) | | Activities | | | | | | | | | | | | | | | | | | Capital Expenditure and Financial | | | | | | | | | Investment | | | | | | | | | | | | | | | | | | Investing Activities | | | | | | | | | Purchase of investments | | (2,821) | (23) | (2,844) | (9,469) | (200) | (9,669) | | Sale of investments | | 2,384 | - | 2,384 | 12,541 | - | 12,541 | | Co-investment receipt/(payment) | | | | | | | | | to related party | | 167 | - | 167 | (167) | - | (167) | | | | | | | | | | +-----------------------------------+--------+-----------+-----------+-----------+-----------+-----------+-----------+ | Net Cash Inflow/(Outflow) from | | | | | | | | | Investing Activities | | (270) | (23) | (293) | 2,905 | (200) | 2,705 | | | | | | | | | | | Equity Dividends Paid | | - | - | - | (668) | - | (668) | | | | | | | | | | +-----------------------------------+--------+-----------+-----------+-----------+-----------+-----------+-----------+ | | | | | | | | | | Cash Inflow/(Outflow) before | | | | | | | | | Financing and Management of | | (924) | (51) | (975) | 1,266 | (204) | 1,062 | | Liquid Resources | | | | | | | | | | | | | | | | | +-----------------------------------+--------+-----------+-----------+-----------+-----------+-----------+-----------+ | Management of Liquid Resources | | | | | | | | | | | | | | | | | | Sales of current asset | | 214 | - | 214 | 135 | - | 135 | | investments | | | | | | | | | | | | | | | | | +-----------------------------------+--------+-----------+-----------+-----------+-----------+-----------+-----------+ | Net Cash Inflow from Management | | | | | | | | | of Liquid Resources | | - | - | - | 135 | - | 135 | | | | | | | | | | | Financing | | | | | | | | | Issue of shares | | - | - | - | - | 778 | 778 | | Share issue expenses | | - | - | - | - | (54) | (54) | | Repurchase of ordinary shares | | - | - | - | (1,848) | - | (1,848) | | | | | | | | | | +-----------------------------------+--------+-----------+-----------+-----------+-----------+-----------+-----------+ | Net Cash (Outflow)/Inflow from | | | | | | | | | Financing | | - | - | - | (1,848) | 724 | (1,124) | | | | | | | | | | +-----------------------------------+--------+-----------+-----------+-----------+-----------+-----------+-----------+ | (Decrease)/Increase in Cash for | | | | | | | | | the Year | 19 | (710) | (51) | (761) | (447) | 520 | 73 | | | | | | | | | | +-----------------------------------+--------+-----------+-----------+-----------+-----------+-----------+-----------+ Statement of Accounting Policies Basis of Accounting The accounts are prepared on a going concern basis and on the historical cost basis of accounting, modified to include the revaluation of fixed asset investments, in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice (UK GAAP) and the Statement of Recommended Practice for Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies in December 2005 and revised in January 2009 (the "SORP"). In order to reflect the activities of an investment company, supplementary information which analyses the financial statements between items of a revenue and capital nature has been presented alongside the financial statements. In analysing total income between capital and revenue returns, the Directors have followed the guidance contained in the SORP. The management fee is allocated between revenue and capital in accordance with the Board's expected long term split of returns, and other expenses are charged to capital only to the extent that a clear connection with the maintenance or enhancement of the value of investments can be demonstrated. A summary of the principal accounting policies, all of which have been applied consistently throughout the current year, follows: Investments Purchases and sales of quoted investments are recognised on the trade date where a contract exists whose terms require delivery within a timeframe determined by the relevant market. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional. Investments are designated at fair value through profit and loss on investments recognised (described in the Accounts as investments held at fair value) and are subsequently measured at reporting dates at fair value. The fair value of direct unquoted investments is calculated in accordance with the Principles of Valuation of Investments below. Changes in the fair value of investments are recognised in the income statement through the capital account. Quoted Investments Quoted investments are stated at the bid market prices on the balance sheet date without discount. Unquoted Investments Unquoted investments are held at fair value through profit or loss. The fair value is calculated in accordance with International Private Equity and Venture Capital Valuation Guidelines issued in September 2009 following the methodology outlined below. Principles of Valuation of Investments General In valuing investments, the Directors follow the principles recommended in the International Private Equity and Venture Capital Valuation Guidelines issued in September 2009. Investments are valued at fair value at the reporting date. Fair value represents the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction. In estimating fair value, the Directors use a methodology which is appropriate in light of the nature, facts and circumstances of the investment. Methodologies are applied consistently from one period to another except where a change results in a better estimate of fair value. Because of the inherent uncertainties in estimating the value of private equity investments, the Directors exercise appropriate prudence in applying the various methodologies. As part of the valuation process, the proposed valuations are reviewed by the independent members of the Investment Committee before being examined by the auditors and then approved by the Directors. Unquoted Investments The principal methodologies applied in valuing unquoted investments, including PLUS investments (a UK market focussed on small and medium companies which the Directors do not regard as an active market with sufficient liquidity), include the following: - Earnings multiple - Price of recent investment - Net assets In applying the Earnings Multiple methodology, the Directors apply a market based multiple that is appropriate and reasonable to the maintainable earnings of the company. In the majority of cases the Enterprise Value of the underlying business is derived by the use of an Earnings before Interest, Tax and Depreciation multiple applied to current year's earnings where these can be forecast with a reasonable degree of certainty and are deemed to represent the best estimate of maintainable earnings. Where this is not the case, historic earnings will generally be used in their place. In the case of unquoted investments, fair value is established by using measurements of value such as price of recent transaction, earnings multiple and net assets; where no reliable fair value can be estimated using such techniques. Where a recent investment has been made, either by the Company or by a third party in one of Company's investments, this price will be used as the estimate of fair value from the date on which the investment was made. One of the principal methodologies, as above, may be used at any time if this is deemed to provide a better assessment of the fair value of the investment. Unquoted investments may be subject to an impairment adjustment to valuation where necessary. The fair value of an investment in a company will be arrived at through the following process: * The Enterprise Value of the underlying business will be calculated using one of the above methodologies; * The Enterprise Value of the underlying business will then be adjusted for surplus assets or excess liabilities to arrive at an Enterprise Value for the company; and * The valuation of the Company's investment will be calculated from the Enterprise Value for the company after deduction of prior ranking debt and other financial instruments and an appropriate discount. In terms of the discount, this will normally be in the range of 10-30% (in steps of 5%) applied to the comparable multiple of the company. The amount of the discount is a question of judgement and will reflect several factors including the ability of the Company to influence the timing and nature of any realisation. Where the Company has the ability to influence an exit, or is part of a syndicate of like-minded investors who initiate the exit, a smaller discount will be applied. This may vary according to market and investee company circumstances. Where the likelihood of an exit is high, the discount is likely to be lower. Where there is no ability to initiate an exit and exit is not under discussion, the discount is likely to be higher. In cases where no exit is contemplated by controlling shareholders, the investment may be valued by discounting the cash flow from the investment itself. Although the Company holds more than 20% of the equity of certain companies, it is considered that the investments are held as part of the investment portfolio. Accordingly, and as permitted by FRS 9 'Associates and joint ventures', their value to the Company lies in their marketable value as part of that portfolio. It is not considered that any of the holdings represent investments in associated undertakings. Under FRS 2 'Accounting for subsidiary undertakings' control is presumed to exist when the parent owns, directly or indirectly more than half of the voting power by a number of means. The Company does not hold more than 50% of the equity of any of the companies within the portfolio. In addition, it does not control any of the companies held as part of the investment portfolio. It is not considered that any of the holdings represent investments in subsidiary undertakings. Income Dividends receivable from equity investments are brought into account on the ex-dividend date or, where no ex-dividend date is quoted, are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity investments and on debt securities are recognised on an effective interest rate basis. Where there is reasonable doubt that a return, which falls within the accounting period, will actually be received by the Company, the recognition of the return is deferred until the reasonable doubt has been removed. Interest receivable on cash deposits is accounted for on an accruals basis. Expenses All expenses are accounted for on an accruals basis. Expenses are charged through the revenue account except for expenses in connection with the disposal of fixed asset investments, which are deducted from the disposal proceeds of the investment and investment management and incentive fees which are dealt with below. A split of expenses is made between Ordinary and C Shares in proportion to the Net Asset Value. Investment Management and Incentive Fees The investment management fees for the Investment Manager's services are charged 25% to the revenue account and 75% to the capital account. This is in line with the Board's long-term expected split of returns from the investment portfolio of the Company. Incentive fees are fully charged to the capital account. The incentive fee on realisations in the period is charged to the realised capital reserve and the incentive fee provision in respect of unrealised value growth in the portfolio is charged to the unrealised capital reserve. Revenue and Capital Reserves The revenue return in the Income Statement is taken to the revenue reserve. Gains and losses on the realisation of investments are taken to the realised capital reserve. Gains and losses arising from changes in fair value are considered to be realised only to the extent that they are readily convertible to cash in full at the balance sheet date. Otherwise Gains and Losses are treated as unrealised. Taxation The tax effects of different items in the Income Statement are allocated between capital and revenue on the same basis as the particular item to which they relate using the Company's effective rate of tax for the accounting period. Due to the Company's status as a venture capital trust and the continued intention to meet the conditions required to comply with Section 274 of the Income Tax Act 2007 (ITA 2007), no provision for taxation is required in respect of any realised or unrealised appreciation of the Company's investments. Deferred tax is provided on all timing differences that have originated but not reversed by the balance sheet date. Deferred tax assets are only recognised to the extent that they are recoverable. Dividends Payable Dividend distributions to shareholders are recognised as a liability in the period in which they are paid in respect of interim dividends or when approved by members in respect of final dividends. Foreign Currency The Company does not hold any assets or liabilities denominated in foreign currencies at the year end. Trail Commission The fair value of trail commission payable on new share issues is estimated on the date the new shares are issued based on the net asset value of the trust at that time, an estimate of annualised growth in NAV over the life of the contract and an appropriate discount rate. Subsequent to initial recognition, changes in the value of the creditor arising through the unwinding of the discount rate are recognised in the revenue column of the Income Statement and movements in the value of the creditor resulting from changes in assumptions are recognised in the capital column of the Income Statement. C Shares Unless and until C Shares are converted into Ordinary Shares, all investments and returns attributable to this class of share will be accounted separately for ordinary shares identifiable from the existing Ordinary Shares. All residual expenses will be allocated on the basis of total funds raised for each class of share. 1 Income +-----------------------+---+----------+---------+---------+-----------------+---------+---------+ | | | As at 30 September | As at 30 September 2008 | | | | 2009 | | +-----------------------+---+------------------------------+-------------------------------------+ | | | Ordinary | C | Total | Ordinary | C | Total | | | | Shares | Shares | GBP'000 | Shares | Shares | GBP'000 | | | | GBP'000 | GBP'000 | | GBP'000 | GBP'000 | | +-----------------------+---+----------+---------+---------+-----------------+---------+---------+ | Franked investment | | - | - | - | 204 | - | 204 | | income* | | 3 | - | 3 | 58 | - | 58 | | Income from liquidity | | 543 | - | 543 | 467 | - | 467 | | funds# | | 6 | - | 6 | 52 | - | 52 | | Unfranked investment | | 11 | | 11 | - | - | - | | income* | | | | | | | | | Investment from bank | | | | | | | | | deposits# | | | | | | | | | Interest on | | | | | | | | | recoverable VAT# | | | | | | | | +-----------------------+---+----------+---------+---------+-----------------+---------+---------+ | | | 563 | - | 563 | 781 | - | 781 | +-----------------------+---+----------+---------+---------+-----------------+---------+---------+ *Denotes income arising from investments designated as fair value through the profit or loss on initial recognition. #Denotes Income arising on financial assets not designated as fair value through profit or loss. 2 Investment Manager's Fees +-----------------------+----+-------------+---------+---------+-----------------+---------+---------+ | | | As at 30 September | As at 30 September 2008 | | | | 2009 | | +-----------------------+----+---------------------------------+-------------------------------------+ | | | Revenue | Capital | Total | Revenue | Capital | Total | | | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +-----------------------+----+-------------+---------+---------+-----------------+---------+---------+ | Ordinary Shares | | | | | | | | +-----------------------+----+-------------+---------+---------+-----------------+---------+---------+ | Acuity Capital | | 217 | 620 | 837 | 197 | 592 | 789 | | | | | | | | | | +-----------------------+----+-------------+---------+---------+-----------------+---------+---------+ | C Shares | | | | | | | | +-----------------------+----+-------------+---------+---------+-----------------+---------+---------+ | Acuity Capital | | 4 | 13 | 17 | 3 | 8 | 11 | | | | | | | | | | +-----------------------+----+-------------+---------+---------+-----------------+---------+---------+ | Total | | 221 | 633 | 854 | 200 | 600 | 800 | | | | | | | | | | +-----------------------+----+-------------+---------+---------+-----------------+---------+---------+ The Management Fee includes irrecoverable VAT of GBPNil (2008: GBP119,000). Acuity Capital also received an administration fee of GBP70,000 (2008: GBP66,000), net of VAT, which increases each year in line with RPI. The administration fee is included in the administration expenses of GBP156,000 in Note 3. HM Revenue & Customs has accepted that under European Union VAT law the exemption of VCT management fees from VAT should have applied from January 1990 onwards and has indicated that claims may be made for repayment of VAT previously suffered by VCTs on management fees, subject to such claims being limited to a period of three years prior to the date of claim. During the year ended 30 September 2009 the Company received a repayment of GBP130,000 in respect of VAT previously suffered on management fees and this amount has been recognised as a separate credit in the income statement, allocated between revenue and capital return in the same proportion as that in which the irrecoverable VAT was originally charged. The directors also agreed that the Investment Manager would be refunded for the reduction in Management fees paid during the same period as disclosed above. Annual running expenses of the Fund are capped at 3.6% of the net asset value as of 30 September 2009. Any excess will be reduced against the management fee payable to the Investment Manager. An exceptional payment of GBP140,000 was made to the Investment Manager in respect of unpaid Management Fees for past periods on receipt of the VAT repayment referred to above. Management Fees and Arrangements Acuity Capital was appointed as Investment Manager under an agreement dated 6 October 2004, later superseded by an updated Management Agreement dated 18 October 2007. The Agreement is for an initial period of five years and thereafter until terminated by not less than one year's notice to expire at any time after the initial period. Fees for Ordinary and C Share pools are paid quarterly in advance, as a percentage of net assets (less a rebate of fees suffered in the investment in CF Real Active Management which is managed by Acuity Capital), at the following annual rates: Period ended 30 June 2005 1.5% Year ended 30 June 2006 2.0% Year ended 30 June 2007 and thereafter 2.5% Incentive Schemes Ordinary Shares The Investment Manager will receive a performance fee based on returns to Ordinary shareholders. If the Company's net asset value per share in a relevant calculation period increases so that it exceeds GBP1, less the value of distributions per share plus notional interest at 7% per annum compounded annually, the Investment Manager will receive 20% of the excess. For ordinary shares the first period expired on 30 September 2004. Subsequent periods are of one year's duration. In the event that the performance of the Company falls short of the target in any period the shortfall must be made up before the Investment Manager is entitled to a performance fee for subsequent periods. C Shares Certain employees of, and persons engaged in, the business of the Investment Manager, will be entitled to receive a performance fee based upon returns to shareholders. The incentives are designed to encourage significant dividend payments to shareholders and a NAV performance that would equate to a historic top decile industry ranking, before any performance fee payment is made. Therefore, if by the end of a financial year, aggregate distributions of 30p per share have been declared and if the Performance Value, which is equal to the Net Asset Value plus distributions, at that date exceeds 130p per share, then the beneficiaries will be entitled to an incentive equal to 20% of the excess of such Performance Value over 100p per share. If, on a subsequent financial year end, the performance of the Company falls short of the performance of the Company on the previous financial year end, the beneficiaries will not be entitled to any incentive. If, on a subsequent financial year end, the performance of the Company exceeds the previous performance of the Company, the beneficiaries will be entitled to 20% of such excess. At 30 September 2009 there was no amount due under the incentive schemes. 3 Other Expenses +----------------------+---+----------+---------+---------+---------------+---------+---------+ | | | As at 30 September 2009 | As at 30 September 2008 | +----------------------+---+------------------------------+-----------------------------------+ | | | Ordinary | C | | Ordinary | C | | | | | Shares | Shares | Total | Shares | Shares | Total | | | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +----------------------+---+----------+---------+---------+---------------+---------+---------+ | Directors' | | 68 | 2 | 70 | 69 | 1 | 70 | | remuneration | | 7 | - | 7 | 5 | - | 5 | | Employer's NIC | | | | | | | | | Auditors' fees | | | | | | | | | Audit:- | | 20 | - | 20 | 19 | - | 19 | | KPMG | | - | - | - | 4 | - | 4 | | PwC | | 15 | - | 15 | 13 | - | 13 | | Non audit:- | | 2 | - | 2 | 1 | - | 1 | | PwC - Tax Services | | (45) | | (49) | (100) | - | (100) | | KPMG - Other | | 153 | (4) | 156 | 182 | 2 | 184 | | services | | | 3 | | | | | | Re-estimation of | | | | | | | | | trail commission | | | | | | | | | creditor | | | | | | | | | Administration | | | | | | | | | expenses | | | | | | | | +----------------------+---+----------+---------+---------+---------------+---------+---------+ | | | 220 | 1 | 221 | 193 | 3 | 196 | | | | | | | | | | +----------------------+---+----------+---------+---------+---------------+---------+---------+ In addition to the audit fees above, an amount of GBP8,000 was settled by Acuity Capital in relation to the period to 30 September 2008. 4 Finance Cost +------------------------+--+----------+---------+---------+---------------+---------+---------+ | | | As at 30 September 2009 | As at 30 September 2008 | +------------------------+--+------------------------------+-----------------------------------+ | | | Ordinary | C | | Ordinary | C | | | | | Shares | Shares | Total | Shares | Shares | Total | | | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +------------------------+--+----------+---------+---------+---------------+---------+---------+ | Deferred trail | | | | | | | | | commission expense | | 32 | 1 | 33 | 42 | - | 42 | | amortisation | | | | | | | | | | | | | | | | | +------------------------+--+----------+---------+---------+---------------+---------+---------+ | | | 32 | 1 | 33 | 42 | - | 42 | | | | | | | | | | +------------------------+--+----------+---------+---------+---------------+---------+---------+ 5 Directors' Remuneration Details of Directors' remuneration are shown in the table in the "Directors Remuneration for the Year" section of the Directors' Remuneration Report. The Company had no employees or employee costs in 2009 (2008: GBPnil). 6 Taxation of Ordinary Activities +------------------------+--+----------+---------+---------+---------------+---------+---------+ | | | As at 30 September 2009 | As at 30 September 2008 | +------------------------+--+------------------------------+-----------------------------------+ | | | Ordinary | C | | Ordinary | C | | | | | Shares | Shares | Total | Shares | Shares | Total | | | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +------------------------+--+----------+---------+---------+---------------+---------+---------+ | Analysis of charge in | | | | | | | | | the period | | | | | | | | | | | | | | | | | | Current tax: | | | | | | | | | UK Corporation tax at | | - | - | - | - | - | - | | 21% (2008: 20.5%) | | | | | | | | | | | | | | | | | +------------------------+--+----------+---------+---------+---------------+---------+---------+ | Total Current Tax | | - | - | - | - | - | - | | | | | | | | | | +------------------------+--+----------+---------+---------+---------------+---------+---------+ | | | | | | | | | | Factors affecting tax | | | | | | | | | charge for the period | | | | | | | | | Loss on ordinary | | (1,629) | (22) | (1,651) | (2,178) | (14) | (2,192) | | activities before tax | | | | | | | | +------------------------+--+----------+---------+---------+---------------+---------+---------+ | Revenue return | | | | | | | | | multiplied by | | (342) | (5) | (347) | (436) | (3) | (439) | | corporate tax rate | | | | | | | | | Effects of: | | - | - | - | (41) | - | (41) | | Dividend income not | | (3) | - | (3) | (15) | - | (15) | | subject to tax | | | | | | | | | Expenses not | | 259 | 1 | 260 | (168) | - | (168) | | deductible for tax | | 86 | 4 | 90 | 660 | 3 | 663 | | purposes | | | | | | | | | Unrealised | | | | | | | | | (losses)/gains on | | | | | | | | | investments | | | | | | | | | Unutilised tax losses | | | | | | | | | arising in the year | | | | | | | | +------------------------+--+----------+---------+---------+---------------+---------+---------+ | | | | | | | | | | Total Current Tax | | - | - | - | - | - | - | +------------------------+--+----------+---------+---------+---------------+---------+---------+ In light of the Company's status as a venture capital trust and the Directors' intention to continue to meet the conditions necessary to obtain such approval in the foreseeable future, the Company has not provided for deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. There is no unprovided deferred tax liability at 30 September 2009. There has been no recognition of an ordinary share deferred tax asset on ordinary shares of GBP570,000 (2008: GBP161,000), and on C shares of GBP7,000 (2008: GBP2,000), as the Directors do not anticipate these being used. 7 Return per Ordinary and C Share The revenue (loss)/return per ordinary share is based on the net revenue from ordinary activities after taxation of GBP56,000 (2008: GBP131,000) and on 31,626,320 (2008: 33,169,313) ordinary shares, being the weighted average number of ordinary shares in issue during the year. The capital loss per ordinary share is based on net capital losses of GBP1,685,000 (2008: GBP2,209,000) and on 31,626,320 (2008: 33,169,313) ordinary shares, being the weighted average number of ordinary shares in issue during the year. The revenue return per C Share is based on the net revenue losses from ordinary activities after taxation of GBP10,000 (2008: GBP7,000) and on 777,589 (2008: 771,571) C Shares, being the weighted average number of ordinary shares in issue during the year. The capital loss per C Share is based on net capital losses of GBP12,000 (2008: GBP7,000) and on 777,589 (2008: 771,571) C Shares, being the weighted average number of C Shares in issue during the year. 8 Dividend +------------------------+--+---------+---------+---------+---------------+---------+---------+ | | | As at 30 September 2009 | As at 30 September 2008 | +------------------------+--+-----------------------------+-----------------------------------+ | Ordinary Shares | | Revenue | Capital | Total | Revenue | Capital | Total | | | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +------------------------+--+---------+---------+---------+---------------+---------+---------+ | | | | | | | | | | Recognised as | | | | | | | | | distribution in the | | | | | | | | | financial statements | | | | | | | | | for the year | | - | - | - | 337 | - | 337 | | | | | | | | | | | First interim paid - | | | | | | | | | GBPnil (2008: 1.0p) | | - | - | - | 331 | - | 331 | | per share | | | | | | | | | | | | | | | | | | Second interim paid - | | | | | | | | | GBPnil (2008: 1.0p) | | | | | | | | | per share | | | | | | | | +------------------------+--+---------+---------+---------+---------------+---------+---------+ | Total | | - | - | - | 668 | - | 668 | | | | | | | | | | +------------------------+--+---------+---------+---------+---------------+---------+---------+ +------------------------+--+---------+---------+---------+---------------+---------+--------------+ | | | As at 30 September 2009 | As at 30 September 2008 | +------------------------+--+-----------------------------+----------------------------------------+ | Ordinary Shares | | Revenue | Capital | Total | Revenue | Capital | Total | | | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +------------------------+--+---------+---------+---------+---------------+---------+--------------+ | | | | | | | | | | Paid and proposed in | | | | | | | | | respect for the period | | | | | | | | | | | | | | | | | | First interim paid - | | - | - | - | 337 | - | 337 | | GBPnil (2008: 1.0p) | | | | | | | | | per share | | | | | | | | | | | - | - | - | 331 | - | 331 | | Second interim paid - | | | | | | | | | GBPnil (2008: 1.0p) | | | | | | | | | per share | | | | | | | | +------------------------+--+---------+---------+---------+---------------+---------+--------------+ | Total | | - | - | - | 668 | - | 668 | | | | | | | | | | +------------------------+--+---------+---------+---------+---------------+---------+--------------+ There have been no dividends paid to C Share shareholders. 9 Investments +----------------------+---------+----------+---------+------------+--------------+---------+ | | Qualifying Investments | Non-qualifying | | | | | Investments | | | | | | | +----------------------+------------------------------+---------------------------+---------+ | Ordinary Shares | | | | | Closed-ended | | | | Traded | | | Open-ended | Investment | | | | on | | Traded | Investment | Company | | | | PLUS | Unquoted | on | Company | GBP'000 | Total | | | GBP'000 | GBP'000 | AIM | GBP'000 | | GBP'000 | | | | | GBP'000 | | | | +----------------------+---------+----------+---------+------------+--------------+---------+ | Costs at 1 October | 496 | 18,047 | 4,439 | 1,063 | 2,370 | 26,415 | | 2008 | | | | | | | | Investment holdings | (293) | 3,657 | (2,915) | (107) | 803 | 1,145 | | gains/(losses) at 1 | | | | | | | | October 2008 | | | | | | | | | | | | | | | +----------------------+---------+----------+---------+------------+--------------+---------+ | Valuation at 1 | 203 | 21,704 | 1,524 | 956 | 3,173 | 27,560 | | October 2008 | | | | | | | | | | | | | | | +----------------------+---------+----------+---------+------------+--------------+---------+ | Purchases at cost | - | 3,584 | - | - | - | 3,584 | | | | | | | | | | Proceeds from sales | - | (763) | (56) | (638) | (1,690) | (3,147) | | | | | | | | | | Realised | - | (1,000) | 56 | 395 | 455 | (94) | | losses/(gains) in | | | | | | | | year | - | (1,137) | (1,661) | (574) | (1,043) | (4,415) | | Unrealised losses | | | | | | | | realised during the | | | | | | | | year | (51) | 2,637 | 1,379 | 85 | (774) | 3,276 | | | | | | | | | | Investment holding | | | | | | | | (losses)/ gains in | | | | | | | | year | | | | | | | | | | | | | | | +----------------------+---------+----------+---------+------------+--------------+---------+ | Valuation at 30 | 152 | 25,025 | 1,242 | 224 | 121 | 26,764 | | September 2009 | | | | | | | | | | | | | | | +----------------------+---------+----------+---------+------------+--------------+---------+ | Cost at 30 September | 496 | 18,731 | 2,778 | 246 | 92 | 22,343 | | 2009 | | | | | | | | | | | | | | | | Investment holdings | (344) | 6,294 | (1,536) | (22) | 29 | 4,421 | | (losses)/ gains at | | | | | | | | 30 September 2009 | | | | | | | | | | | | | | | +----------------------+---------+----------+---------+------------+--------------+---------+ | Valuation at 30 | 152 | 25,025 | 1,242 | 224 | 121 | 26,764 | | September 2009 | | | | | | | | | | | | | | | +----------------------+---------+----------+---------+------------+--------------+---------+ The purchases and sales proceeds figures above include transaction costs of GBPnil (2008: GBPnil) and GBP5,000 (2008: GBP4,000) respectively. All investments are designated as fair value through profit or loss on initial recognition; therefore all gains and losses arise on investments designated as fair value through profit or loss. +-------------------------------------------------------------+-------------------+-------------------+ | | Qualifying | | | Investments | | | | +-------------------------------------------------------------+---------------------------------------+ | C Shares | Unquoted | Total | | | GBP'000 | GBP'000 | +-------------------------------------------------------------+-------------------+-------------------+ | Costs at 1 October 2008 | 200 | 200 | | Investment holding gains/(losses) at 1 October 2008 | - | - | | | | | +-------------------------------------------------------------+-------------------+-------------------+ | Valuation at 1 October 2008 | 200 | 200 | | | | | +-------------------------------------------------------------+-------------------+-------------------+ | Purchases at cost | 23 | 23 | | | | | +-------------------------------------------------------------+-------------------+-------------------+ | Investment holding loss in period | (3) | (3) | | | | | +-------------------------------------------------------------+-------------------+-------------------+ | Valuation at 30 September 2009 | 220 | 220 | | | | | +-------------------------------------------------------------+-------------------+-------------------+ | Cost at 30 September 2009 | 223 | 223 | | Investment holding losses at 30 September 2009 | (3) | (3) | | | | | +-------------------------------------------------------------+-------------------+-------------------+ | Valuation at 30 September 2009 | 220 | 220 | | | | | +-------------------------------------------------------------+-------------------+-------------------+ 10 Debtors +-----------------------+--+----------+---------+---------+-------------+---------+---------+ | | | As at 30 September 2009 | As at 30 September 2008 | +-----------------------+--+------------------------------+---------------------------------+ | | | Ordinary | C | | Ordinary | C | | | | | Shares | Shares | Total | Shares | Shares | Total | | | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | +-----------------------+--+----------+---------+---------+-------------+---------+---------+ | Amounts receivable | | | | | | | | | within one year: | | | | | | | | | Receivable on Loan | | - | - | - | 8 | - | 8 | | Notes issue | | - | - | - | 167 | - | 167 | | Related party asset | | 5 | 2 | 7 | 34 | - | 34 | | Other debtors | | | | | | | | | | | | | | | | | | Amounts receivable | | | | | | | | | after one year: | | 1,605 | - | 1,605 | 1,075 | - | 1,075 | | Accrued income | | | | | | | | | | | | | | | | | +-----------------------+--+----------+---------+---------+-------------+---------+---------+ | | | 1,610 | 2 | 1,612 | 1,284 | - | 1,284 | | | | | | | | | | +-----------------------+--+----------+---------+---------+-------------+---------+---------+ 11 Other Investments +------------------------+--+-----------------+-----------------+-----------------+-------------------+-----------------+-------------------+ | | | As at 30 September 2009 | As at 30 September 2008 | +------------------------+--+-----------------------------------------------------+---------------------------------------------------------+ | | | Ordinary | C | Total | Ordinary | C | Total | | | | Shares | Shares | GBP'000 | Shares | Shares | GBP'000 | | | | GBP'000 | GBP'000 | | GBP'000 | GBP'000 | | +------------------------+--+-----------------+-----------------+-----------------+-------------------+-----------------+-------------------+ | Liquidity Funds | | - | - | - | 210 | - | 210 | | | | | | | | | | +------------------------+--+-----------------+-----------------+-----------------+-------------------+-----------------+-------------------+ | | | - | - | - | 210 | - | 210 | +------------------------+--+-----------------+-----------------+-----------------+-------------------+-----------------+-------------------+ 12 Creditors: amounts falling due within one year +------------------------+--+-------------------+-----------------+-------------------+-------------------+------------------+-------------------+ | | | As at 30 September 2009 | As at 30 September 2008 | +------------------------+--+---------------------------------------------------------+----------------------------------------------------------+ | | | Ordinary | C | Total | Ordinary | C | Total | | | | Shares | Shares | GBP'000 | Shares | Shares | GBP'000 | | | | GBP'000 | GBP'000 | | GBP'000 | GBP'000 | | +------------------------+--+-------------------+-----------------+-------------------+-------------------+------------------+-------------------+ | Due to Acuity Capital | | 336 | 4 | 340 | - | 10 | 10 | | Deferred trail | | 70 | - | 70 | 74 | 2 | 76 | | commission expenses | | 35 | - | 35 | 40 | - | 40 | | Accrued expenses | | - | - | - | 5 | - | 5 | | Other creditors | | | | | | | | | | | | | | | | | +------------------------+--+-------------------+-----------------+-------------------+-------------------+------------------+-------------------+ | | | 441 | 4 | 445 | 119 | 12 | 131 | +------------------------+--+-------------------+-----------------+-------------------+-------------------+------------------+-------------------+ 13 Creditors: amounts falling due after one year +------------------------+--+-------------------+------------------+-------------------+-------------------+------------------+-------------------+ | | | As at 30 September 2009 | As at 30 September 2008 | +------------------------+--+----------------------------------------------------------+----------------------------------------------------------+ | | | Ordinary | C | Total | Ordinary | C | Total | | | | Shares | Shares | GBP'000 | Shares | Shares | GBP'000 | | | | GBP'000 | GBP'000 | | GBP'000 | GBP'000 | | +------------------------+--+-------------------+------------------+-------------------+-------------------+------------------+-------------------+ | Unsecured 4% Loan | | 21 | - | 21 | 21 | - | 21 | | Notes | | 321 | 13 | 334 | 404 | 12 | 416 | | Issued up to 30 | | | | | | | | | September 2009 | | | | | | | | | Deferred trail | | | | | | | | | commission expenses | | | | | | | | | | | | | | | | | +------------------------+--+-------------------+------------------+-------------------+-------------------+------------------+-------------------+ | Issued at 30 September | | 342 | 13 | 355 | 425 | 12 | 437 | | 2009 | | | | | | | | | | | | | | | | | +------------------------+--+-------------------+------------------+-------------------+-------------------+------------------+-------------------+ The Loan Notes are redeemable in certain circumstances at par including the termination of the Investment Management Agreement with the Investment Manager. They carry a 4% interest coupon and also the right to additional interest payments under the terms of the incentive schemes set out in Note 2 to the Financial Statements. 14 Significant Interests At 30 September 2009 the Company held significant investments, amounting to 3% or more of the equity capital in the following companies:- +---------------------+------------+------------+-------------+-------------+------------+ | | Equity | Equity | Investments | Total | Percentage | | | Investment | Investment | Loan Stock | Investments | Of | | | (Ordinary | (C Shares) | And | GBP'000 | Investee | | | Shares) | GBP'000 | Preference | | Company's | | | GBP'000 | | Shares | | Total | | | | | GBP'000 | | Equity | | | | | | | % | +---------------------+------------+------------+-------------+-------------+------------+ | Future Noise | 796 | - | - | 796 | 42.5 | | Loseley Dairy Ice | 95 | - | 805 | 900 | 34.6 | | Cream | 225 | - | 575 | 800 | 25.0 | | Ma Hubbards | 192 | - | 1,733 | 1,925 | 25.0 | | Factory Media | 162 | - | 1,453 | 1,615 | 24.8 | | Munro | 27 | - | 89 | 116 | 21.7 | | Financial News | 215 | - | 1,935 | 2,150 | 19.5 | | Publishing | 200 | - | 1,311 | 1,511 | 16.6 | | The Fin Machine | 241 | - | 2,164 | 2,405 | 16.4 | | Company | 309 | - | 504 | 813 | 14.4 | | Brand Acquisitions | 229 | - | 944 | 1,173 | 13.7 | | Ltd | 533 | - | 1,467 | 2,000 | 13.3 | | Defaqto | 225 | - | 525 | 750 | 13.2 | | Red Reef Media Ltd | 1,276 | 200 | - | 1,476 | 13.0 | | Emote Games | 750 | - | - | 750 | 3.9 | | Target Group | | | | | | | Amber Taverns | | | | | | | Connect 2 Play | | | | | | | Zamano | | | | | | | | | | | | | +---------------------+------------+------------+-------------+-------------+------------+ It is considered that, as permitted by FRS 9 "Associates and Joint Ventures", the above investments are held as part of an investment portfolio and that, accordingly, their value to the Company lies in their marketable value as part of its portfolio. The percentages shown are the undiluted holdings of each investee company. In view of this, it is not considered that the above represent investments in associated undertakings. The above companies are incorporated in the United Kingdom, except for Zamano, which is incorporated in the Republic of Ireland. 15 Called Up Share Capital +----------------------------+------------+------------+------------+------------+ | | | 2009 | | 2008 | +----------------------------+------------+------------+------------+------------+ | | Number | GBP'000 | Number | GBP'000 | +----------------------------+------------+------------+------------+------------+ | Authorised | 85,000,000 | 850 | 85,000,000 | 850 | | Ordinary Shares of 1p each | | | | | +----------------------------+------------+------------+------------+------------+ | | 85,000,000 | 850 | 85,000,000 | 850 | +----------------------------+------------+------------+------------+------------+ +----------------------------+------------+------------+------------+------------+ | | | 2009 | | 2008 | +----------------------------+------------+------------+------------+------------+ | | Number | GBP'000 | Number | GBP'000 | +----------------------------+------------+------------+------------+------------+ | Authorised | 25,000,000 | 25 | 25,000,000 | 250 | | C Shares of 1p each | | | | | +----------------------------+------------+------------+------------+------------+ | | 25,000,000 | 25 | 25,000,000 | 250 | +----------------------------+------------+------------+------------+------------+ +----------------------------+------------+------------+------------+------------+ | | | 2009 | | 2008 | +----------------------------+------------+------------+------------+------------+ | | Number | GBP'000 | Number | GBP'000 | +----------------------------+------------+------------+------------+------------+ | Authorised | 25,000,000 | 25 | 25,000,000 | 25 | | Deferred Shares of 0.1p | | | | | | each | | | | | +----------------------------+------------+------------+------------+------------+ | | 25,000,000 | 25 | 25,000,000 | 25 | +----------------------------+------------+------------+------------+------------+ +----------------------------+------------+------------+-------------+------------+ | | | 2009 | | 2008 | +----------------------------+------------+------------+-------------+------------+ | | Number | GBP'000 | Number | GBP'000 | +----------------------------+------------+------------+-------------+------------+ | Issued: | 31,626,320 | 317 | 33,926,696 | 340 | | At 1 October 2008 | | | | | | | | | | | +----------------------------+------------+------------+-------------+------------+ | Ordinary Shares of 1p each | - | - | (2,300,376) | (23) | | repurchased during the | | | | | | year | | | | | +----------------------------+------------+------------+-------------+------------+ | At 30 September 2009 | 31,626,320 | 317 | 31,626,320 | 317 | +----------------------------+------------+------------+-------------+------------+ +----------------------------+------------+------------+------------+------------+ | | | 2009 | | 2008 | +----------------------------+------------+------------+------------+------------+ | | Number | GBP'000 | Number | GBP'000 | +----------------------------+------------+------------+------------+------------+ | Issued: | 777,589 | 8 | - | - | | At 1 October 2008 | - | - | 777,589 | 8 | | C Shares of 1p each issued | | | | | | during the year | | | | | +----------------------------+------------+------------+------------+------------+ | At 30 September 2009 | 777,589 | 8 | 777,589 | 8 | +----------------------------+------------+------------+------------+------------+ +----------------------------+------------+------------+------------+------------+ | Issued: | - | - | - | - | | At 1 October 2008 | - | - | - | - | | Deferred Shares of 0.1p | | | | | | each issued during the | | | | | | year | | | | | +----------------------------+------------+------------+------------+------------+ | At 30 September 2009 | - | - | - | - | +----------------------------+------------+------------+------------+------------+ To date, no C Shares have been repurchased for cancellation. The Company does not hold any shares in treasury. During the year, the Company did not issue any shares. C Shares C Share issues are used for fund raisings by the Company in order to enable shares to be issued at a consistent price to all applicants, rather than by reference to a net asset value per share which may fluctuate over the period of the offer; and ensure that existing ordinary shareholders are not disadvantaged by the dilution of a mature investment portfolio through a large injection of cash and near cash assets. Management of Capital The Capital of the Company is managed in accordance with the Company's investment objective, detailed in the Investment Strategy. The Company does not have any externally imposed capital requirements. 16 Reserves +------------------------------+----------------------+------------------+----------------------+-------------------+ | Ordinary Shares | Special | Capital | Capital | Revenue | | | Reserve | Redemption | Reserve | Reserve | | | (Distributable) | Reserve | (Non | (Distributable) | | | GBP'000 | (Non | distributable) | | | | | distributable) | GBP'000 | GBP'000 | | | | GBP'000 | | | +------------------------------+----------------------+------------------+----------------------+-------------------+ | As at 1 October 2008 | | | (120) | | | Loss on disposal on | 29,089 | 25 | | 300 | | investments | - | - | (94) | - | | Investment holding losses | - | - | | - | | | | | ( | | | | | | 1,139) | | | | | | | | +------------------------------+----------------------+------------------+----------------------+-------------------+ | Investment management fees | - | - | (497) | - | | charged to capital account | | | | | | (net of tax and VAT | | | | | | recoverable) | | | | | +------------------------------+----------------------+------------------+----------------------+-------------------+ | Re-estimation of trail | - | - | 45 | - | | commission creditor charged | - | - | - | 56 | | to capital account | | | | | | Retained revenue for the | | | | | | year | | | | | | | | | | | +------------------------------+----------------------+------------------+----------------------+-------------------+ | Valuation at 30 September | 29,089 | 25 | (1,805) | 356 | | 2009 | | | | | | | | | | | +------------------------------+----------------------+------------------+----------------------+-------------------+ As at 30 September 2009, reserves distributable by way of a dividend amounted to GBP29,445,000 (2008: GBP29,389,000), comprising the revenue reserve and special reserve. +------------------------------+-----------------+-------------------+--------------------+--------------------+ | C Shares | Special | Share | Capital | Revenue | | | Reserve | Premium | Reserve | Reserve | | | GBP'000 | GBP'000 | (Non | (Distributable) | | | | | distributable) | | | | | | GBP'000 | GBP'000 | +------------------------------+-----------------+-------------------+--------------------+--------------------+ | As at 1 October 2008 | - | 702 | (7) | (7) | +------------------------------+-----------------+-------------------+--------------------+--------------------+ | Investment management fees | - | - | (13) | - | | charged to capital account | - | - | (3) | - | | (net of tax relief) | | | | | | Decrease In unrealised | | | | | | appreciation | | | | | +------------------------------+-----------------+-------------------+--------------------+--------------------+ | Deferred share issue expense | - | - | 4 | - | | Dividends | - | - | - | - | | Retained revenue for the | - | - | - | (10) | | year | | | | | | | | | | | +------------------------------+-----------------+-------------------+--------------------+--------------------+ | Valuation at 30 September | - | 702 | (19) | (17) | | 2009 | | | | | | | | | | | +------------------------------+-----------------+-------------------+--------------------+--------------------+ As at 30 September 2009 there were no reserves available to distribute as a dividend (2008: nil). 17 Net Asset Value per Ordinary Share Net asset value per Ordinary Share is based on net assets of GBP27,982,000 at 30 September 2009 (2008: GBP29,611,000), and on 31,626,320 (2008: 31,626,320) Ordinary Shares, being the number of ordinary shares in issue on that date. Net asset value per C Share is based on net assets of GBP674,000 at 30 September 2009 (2008: GBP696,000), and on 777,589 (2008: 777,589) C Shares, being the number of C Shares in issue on that date. 18 Reconciliation of Net Revenue on Ordinary Activities Before Taxation to Net Cash Outflow from Operating Activities +------------------------+--+----------+---------+---------+------------+---------+---------+ | | | As at 30 September 2009 | As at 30 September 2008 | +------------------------+--+------------------------------+--------------------------------+ | | | Ordinary | C | Total | Ordinary | C | Total | | | | Shares | Shares | GBP'000 | Shares | Shares | GBP'000 | | | | GBP'000 | GBP'000 | | GBP'000 | GBP'000 | | +------------------------+--+----------+---------+---------+------------+---------+---------+ | Return on ordinary | | (1,597) | (21) | (1,618) | (2,036) | (14) | (2,050) | | activities before | | 1,233 | 3 | 1,236 | 1,835 | - | 1,835 | | finance costs and | | (45) | - | (45) | (100) | - | (100) | | taxation | | (493) | (2) | (495) | (612) | - | (612) | | (Losses)/gains in | | 248 | (8) | 240 | (58) | 10 | (48) | | investments | | | | | | | | | Non cash movements | | | | | | | | | Increase in debtors | | | | | | | | | Increase/(decrease) in | | | | | | | | | creditors and accruals | | | | | | | | | | | | | | | | | +------------------------+--+----------+---------+---------+------------+---------+---------+ | Net cash outflow from | | (654) | (28) | (682) | (971) | (4) | (975) | | operating activities | | | | | | | | | | | | | | | | | +------------------------+--+----------+---------+---------+------------+---------+---------+ 19 Analysis of Changes in Cash +------------------------+--+----------+---------+---------+------+------+---------+---------+ | | | As at 30 September 2009 | As at 30 September | | | | | 2008 | +------------------------+--+-------------------------------------+--------------------------+ | | | Ordinary | C | Total | Ordinary | C | Total | | | | Shares | Shares | GBP'000 | Shares | Shares | GBP'000 | | | | GBP'000 | GBP'000 | | GBP'000 | GBP'000 | | +------------------------+--+----------+---------+---------+-------------+---------+---------+ | At beginning of period | | 1,101 | 520 | 1,621 | 1,548 | - | 1,548 | | Net cash | | (710) | (51) | (761) | (447) | 520 | 73 | | (outflow)/inflow | | | | | | | | | | | | | | | | | +------------------------+--+----------+---------+---------+-------------+---------+---------+ | At 30 September | | 391 | 469 | 860 | 1,101 | 520 | 1,621 | | | | | | | | | | +------------------------+--+----------+---------+---------+------+------+---------+---------+ 20 Financial Instruments Market Risk: Market Risk incorporates the possibility for losses and gains from investments and encompasses interest rate risk and price risk. Investment risk management is governed by the Investment Strategy of these accounts and Market Risk is within that process. On a regular basis the Investment Manager monitors the Company's market risk, in accordance with policies and procedures documented in the Report of the Directors. The Board meets regularly to review the Fund's market position. Details of the nature of the Company's investment portfolio at the balance sheet date can be found within the Portfolio Summary. The constituent parts of those investments can be found in the table below. The investment note, Note 9, details the split between listed and unlisted investments, which shows that at the balance sheet date 7% was invested in quoted stocks (2008: 21%). A 5% increase in the bid price of quoted stocks as at the Balance Sheet date would have increased net assets and the total return for the year by GBP87,000 (2008: GBP292,000); an equivalent change in the opposite direction would have reduced net assets and the total return for the year by the same amount. A 5% increase in the value of unquoted investments held at the Balance Sheet date would have increased net assets and the total return for the year by GBP1,262,000 (2008:GBP1,095,000); an equivalent change in the opposite direction would have reduced net asset and the total return for the year by the same amount. Interest Rate Risk: A proportion of the Company's financial assets are interest bearing, earning a fixed or a variable rate. Therefore, the Company has exposure to fair value Interest Rate risk due to fluctuations in the market interest rates. The interest rate risk profile of the Company's financial assets at 30 September 2009 was: +---------------------+-----------+-----------+-----------+---------+----------+----------+ | | Financial | Fixed | Variable | Total | Weighted | Weighted | | | Assets on | Rate | Rate | GBP'000 | Average | Average | | | which no | Financial | Financial | | Interest | Period | | | Interest | Assets | Assets | | Rates | for | | | Paid | GBP'000 | GBP'000 | | % | which | | | GBP'000 | | | | | rate is | | | | | | | | fixed | | | | | | | | (Years) | +---------------------+-----------+-----------+-----------+---------+----------+----------+ | Ordinary Shares | 15,077 | - | - | 15,077 | - | - | | Equity shares | - | 860 | - | 860 | 8.7 | - | | Non equity shares | - | 10,827 | - | 10,827 | 8.6 | 2.6 | | Loan stock | - | - | - | - | - | - | | Liquidity Funds | - | - | 391 | 391 | 2.0 | - | | Cash | 1,610 | - | - | 1,610 | - | - | | Debtors | | | | | | | +---------------------+-----------+-----------+-----------+---------+----------+----------+ | C Shares | 220 | - | - | 220 | - | - | | Equity shares | - | - | - | - | - | - | | Non equity shares | - | - | - | - | - | - | | Loan stock | - | - | - | - | - | - | | Liquidity Funds | - | - | 469 | 469 | 2.0 | - | | Cash | 2 | - | - | 2 | - | - | | Debtors | | | | | | | +---------------------+-----------+-----------+-----------+---------+----------+----------+ | Total | 16,909 | 11,687 | 860 | 29,456 | - | - | | | | | | | | | +---------------------+-----------+-----------+-----------+---------+----------+----------+ The only financial liabilities are the unsecured Loan Notes of GBP21,000 which carry a 4% coupon and trail commission creditor of GBP404,000. The interest rate risk profile of the Company's financial assets at 30 September 2008 was: +---------------------+-----------+-----------+-----------+---------+----------+----------+ | | Financial | Fixed | Variable | Total | Weighted | Weighted | | | Assets on | Rate | Rate | GBP'000 | Average | Average | | | which no | Financial | Financial | | Interest | Period | | | Interest | Assets | Assets | | Rates | for | | | Paid | GBP'000 | GBP'000 | | % | which | | | GBP'000 | | | | | rate is | | | | | | | | fixed | | | | | | | | (Years) | +---------------------+-----------+-----------+-----------+---------+----------+----------+ | Ordinary Shares | 14,234 | - | - | 14,234 | - | - | | Equity shares | - | 1,486 | - | 1,486 | 8.0 | - | | Non equity shares | - | 11,040 | 800 | 11,840 | 8.3 | 3.6 | | Loan stock | - | - | 210 | 210 | 5.5 | - | | Liquidity Funds | - | - | 1,101 | 1,101 | 3.5 | - | | Cash | 1,284 | - | - | 1,284 | - | - | | Debtors | | | | | | | +---------------------+-----------+-----------+-----------+---------+----------+----------+ | C Shares | 200 | - | - | 200 | - | - | | Equity shares | - | - | - | - | - | - | | Non equity shares | - | - | 520 | 520 | - | - | | Cash | | | | | | | +---------------------+-----------+-----------+-----------+---------+----------+----------+ | Total | 15,718 | 12,526 | 2,631 | 30,875 | - | - | | | | | | | | | +---------------------+-----------+-----------+-----------+---------+----------+----------+ The only financial liabilities are the unsecured Loan Notes of GBP21,000 (2008: GBP21,000) which carry a 4% coupon and trail commission creditor of GBP492,000. Fixed Rate Assets: Represent investments with predetermined yield targets. The fixed rate investments are held for the medium term and have a predetermined interest rate, in-line with their risk profile. Therefore a change of 25 basis points in the interest rate at the balance sheet date would not have a significant impact on the company's net assets. Variable Rate Assets: Represent investments with interest rates linked, by formula, to utilisation of company by investee companies. Credit Risk: Credit risk is the risk that a counterparty to a financial instrument is unable to discharge an obligation or commitment entered into with the Company. The Investment Manager has in place a monitoring procedure in respect of counterparty risk which is monitored on an ongoing basis. The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date. At the reporting date, the Company's financial assets exposed to credit risk amounted to the following: +------------------------------------------+--------------------+---------------+ | Credit Risk | 2009 | 2008 | | | GBP'000 | GBP'000 | +------------------------------------------+--------------------+---------------+ | Investments in fixed interest | 11,687 | 12,526 | | instruments | | | +------------------------------------------+--------------------+---------------+ | Investments in variable interest | 860 | 2,631 | | instruments (including cash) | | | +------------------------------------------+--------------------+---------------+ | Interest, dividends and other | 1,612 | 1,284 | | receivables | | | +------------------------------------------+--------------------+---------------+ Credit risk on fixed interest instruments which are solely comprised of loan stock is part of the Company's venture capital procedures and are managed within the main investment management procedures. Credit risk arising on floating rate instruments is mitigated by investing in money market companies managed by JP Morgan and Scottish Widows. The board regularly reviews this strategy and in accordance with that review has decided to transfer those funds to HSBC Bank Plc post year end. All the assets of the Company which are traded on a recognised exchange are held in a secured facility on site. This mitigates the risk of a third party custodian going into liquidation or becoming bankrupt. Liquidity risk: The liquidity risk is the risk that the Company might encounter difficulty in meeting its obligations arising from holding financial instruments. The Company's financial instruments also include investments in unlisted equity investments which are not traded in an organised public Market and which generally may be illiquid. As a result, the Company may not be able to liquidate quickly some of its investments in these instruments at an amount close to their value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer. The Company's liquidity risk is managed on an ongoing basis by the Investment Manager as presented in the Report of the Directors. The Company maintains sufficient investments in cash to pay all accounts payable and accrued expenses as they become due. 21 Post Balance Sheet Events There were no significant post balance sheet events. 22 Geographical Analysis The operations of the Company are wholly in the United Kingdom. 23 Transactions with the Investment Manager During the year ended 30 September 2009 fees payable to Acuity Capital, the Investment Manager, totalled GBP924,000 (2008: GBP866,000). At 30 September 2009, the Company owed GBP340,000 (2008: GBP10,000) to the Investment Manager. Details of the Investment Manager's fee arrangements are included in Note 2. This information is provided by RNS The company news service from the London Stock Exchange END FR FQLFFKLBLFBB
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