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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Ingenious Music | LSE:IGM | London | Ordinary Share | GB00B05L0J61 | ORD 1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 67.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
RNS Number:4075S Ingenious Music VCT PLC 15 April 2008 INGENIOUS MUSIC VCT plc (the "Company") Annual Financial Report For the year ended 31 January 2008 CHAIRMAN'S STATEMENT It is with pleasure that I present to you the Company's third annual report and accounts covering the 12 months to 31 January 2008 (the "reporting period"). Overview of Activities We are pleased to confirm that the Company has, since the last reporting period, now fully invested its £15 million fund, with 70% of net funds raised having been invested in VCT qualifying companies. This confirms the Company's status as a Venture Capital Trust which ensures that our shareholders will benefit from the income and capital gains tax relief available. Full investment of the fund follows the completion of two further investments made during the reporting period which we mentioned in the Company's last interim report: The Sirens and the contribution to Real World for discretionary investment across a portfolio of artists. The two further investments brought the total number of investments to sixteen. Please refer to the Manager's Review for a more detailed description of the Company's investment activities, following this statement. Results The reporting period has been dominated by new investments, with £3.2 million invested and committed to qualifying investments. The Company made a loss on ordinary activities of £1.5 million in the year to 31 January 2008, which is largely represented by the write down of certain investments where the Manager estimates that only the minimum guaranteed income levels of 70% of cost will be achieved. The Company's net asset value moved in line with the operating loss, from 94.8 pence (2007) to 85.1 pence per share. The directors do not recommend the payment of a dividend in respect of the reporting period. Outlook The Company has however, some very exciting album releases due in the current year from some of the biggest players in the industry, from our investments such as The Prodigy, UB40, and Peter Gabriel, as well as a number of albums through the Real World label system. I would like to take this opportunity to thank all shareholders for their continued support of the Company and I look forward to seeing those of you that are able to attend the AGM, scheduled for 15 May 2008. Patrick McKenna Chairman 14 April 2008 MANAGER'S REVIEW Investment Objective The investment objective of the Company is to provide shareholders with an attractive return from investments in a portfolio of music companies that will be engaged in the creation, development and exploitation of IP rights. The reporting period has seen strong deal flow throughout, resulting in the Company's funds being fully invested, with 70% of net funds raised having been invested in VCT qualifying companies. We have focused our efforts throughout the reporting period on identifying projects that we believe support the development of exciting acts, with the potential to deliver strong returns for our investors. Investments made post July 2007 The Company joined forces with its sister fund Ingenious Music VCT 2 plc in the two qualifying investments for the period, which saw deals close successfully for The Sirens and Peter Gabriel's Real World Recordings, in the form of investment across a portfolio of artists. The deals left the £15 million fund fully invested as a result. The Sirens The Company agreed with Kitchenware Records Limited on the 17 August 2007 to form a new joint venture company H.I.T Trade Limited to release the second album of 3 piece girl band The Sirens, investing £269,875, as its fifth qualifying investment for the reporting period. The investment went towards the funding of recording and artists fees, marketing and promotions, band advances, and other costs. About The Sirens The Sirens were first formed in the late 1990s and were signed by Kitchenware in 2002. Their first single, Things Are Getting Better became a big club hit and they released the album Control Freaks, which saw the girls enjoy success in the UK, Europe and Japan. Their second album, La La Land, sees the band moving into the mainstream, writing and recording in Los Angeles with producers Wayne Rodrigues (Natasha Bedingfield), Justin Trugman (Eminem, Janet Jackson) and DeeKay (Lemar, Misteeq). The album will be mixed by Dave Pensado, noted for his hits with Christina Aguilera and the Black Eyed Peas. Real World Recordings Limited - Label Deal The Company, as its sixth qualifying investment for the reporting period, invested £513,000 and joined forces with Real World Productions to form the new joint venture company Real World Recordings Limited, which subsequently left the VCT fully invested. The funds will be used to support production and marketing related costs. About Real World Productions Real World Productions was launched by Peter Gabriel and WOMAD in 1989 to provide talented artists from around the world with state-of-the-art recording facilities and audiences beyond their geographic region. Artists include: The Blind Boys of Alabama, Nusrat Fateh Ali Khan, Afro Celt Sound System and Sheila Chandra. Since then, the company has achieved considerable success with sales of nearly six million albums, with 15 of the albums breaking the 100,000 units barrier. Howling Bells - Investment update The Company had previously invested in Independiente Music Ventures - Embrace Ltd. Due to technical difficulties, Embrace were not able to finish their recording commitment. The Manager instead reached an agreement on 12 January 2008 to form a joint venture company Independiente Music Ventures - Howling Bells Limited to release the second studio album by Australian Band The Howling Bells, who have toured with The Killers, The Editors and Placebo. PORTFOLIO UPDATES The portfolio investments existing at the beginning of the reporting period are in various stages of production and release. Martina Topley Martina has finished recording her album with Gorillaz producer, Dangermouse which is due to release in May 2008, with the first singles due for release in March and April. Martina also has tour dates confirmed for April where she will support Morcheeba with their European tour in May 2008. At the time this report went to press, Martina had just performed for BBC with Jools Holland and Radio 2 - Dermot O'Leary. Travis The album The Boy With No Name was released in May 2007 and has sold in excess of 140,000 units and reached number 4 in the charts. Three singles have been released to date, and the band also completed their UK tour at the end of 2007. Passenger IE Music are releasing a third single in March, with the band already having received Radio 2 C-list status well ahead of schedule. Passenger played the popular South by South West festival on 14 March 2008. Peter Gabriel Peter Gabriel is in the middle of recording his album, with the release date to be confirmed. David Ford David toured America in his lead up to the South by South West festival, which he played on 13 March 2008. David will continue to tour America right through to 30 April 2008, and has his new single due for release in April 2008. The Prodigy The Prodigy continues to record their album which is due for release in 2008. The band has also been confirmed as the headlining act for Gatecrasher festival in May and T-in-the-Park festival in July. Blackbud Blackbud are currently recording their album which has an expected release date of September 2008. UB40 UB40's next album is being recorded and has a planned release for May 2008. You may recall reading that lead singer Ali Campbell has announced his departure from the band. It is therefore likely that this will be UB40's last album featuring Ali Campbell vocals. Outlook It has been reported that spending on recorded music will rise at a 2.3 percent compound annual rate to USD40 billion in 2011, from USD36 billion in 2006. There is an expectation of declines in the physical sale of CD's during the next five years, where estimates have been published that physical unit sales will fall at a 7.2 percent compound annual rate to 700 million in 2011 from more than 1 billion in 2006. However, digital distribution will become the largest distribution stream in 2010. As digital distribution expands, it will contribute more to overall growth, while a declining physical distribution market will have less of an impact. The Company has ensured that investee companies will benefit from this shift to digital distribution by participating in such revenue streams. Ingenious Ventures 14 April 2008 DIRECTORS' REPORT The Directors submit their report and the audited financial statements for the year from 1 February 2007 to 31 January 2008. 1. Principal Activity, VCT & Investment Company Status The principal activity of the Company is to invest in value-added creation, development and exploitation of music-related intellectual property rights. A fair review of the Company's business during the year and an indication of likely future developments are contained in the Chairman's Statement, Manager's Review and the Business Review. The Directors have managed the affairs of the Company with the intention of maintaining its status as an approved VCT for the purposes of section 274 of the ITA. The Company was not at any time up to the date of this report a "close company" within the meaning of section 414 of the ICTA. The Company is an investment company as defined in section 266 of the Companies Act 1985. 2. Directors and Directors' Interests All directors served throughout the year. As at 31 January 2008, the interests of the Directors in the issued ordinary share capital of the Company were as follows: +----------------+-----------------------------+------------------------+-+ |Name | Number of Shares as at 31| % of issued ordinary| | | | January 2008| share capital| | +----------------+-----------------------------+------------------------+-+ |Patrick McKenna*| 500,001| 3.3| | +----------------+-----------------------------+------------------------+-+ |Charles Peel | 400,001| 2.7| | +----------------+-----------------------------+------------------------+-+ |Roger Ames | 200,000| 1.3| | +----------------+-----------------------------+------------------------+-+ |Kenneth Thompson| 50,000| 0.3| | |** | | | | +----------------+-----------------------------+------------------------+-+ |Total | 1,150,002| 7.6| | +----------------+-----------------------------+------------------------+-+ |* Includes 100,000 shares held by Patrick McKenna's wife, Margaret McKenna | | | |** Includes 10,000 shares held by Kenneth Thompson's wife, Linda Thompson| | | | | +-------------------------------------------------------------------------+ Except for one subscriber share acquired by each of Patrick McKenna and Charles Peel on 17 November 2004, the Directors and, where relevant, their spouses subscribed for the above interests during the period of Offer and on the terms set out in the Prospectus. There have been no changes to the above interests between 31 January 2007 and the date of this report. All interests are beneficial. 3. Major Interests in Shares As at the date of this report, the Company is aware that the following Shareholders had an interest of 3% or more of the issued share capital of the Company. +--------------------------------+------------------+-------------------+ |Investor |Number of ordinary| % of issued share| | | shares| capital| +--------------------------------+------------------+-------------------+ |Chase Nominees Limited | 2,828,150| 10.7| +--------------------------------+------------------+-------------------+ |HSBC Global Custody Nominee (UK)| 1,560,720| 5.9| |Limited | | | +--------------------------------+------------------+-------------------+ 4. Capital Details of the Company's capital are provided in note 12 to the financial statements. All shares carry equal voting rights. 5. VCT Status Monitoring The Company has appointed PwC to advise it on compliance with relevant VCT legislation. PwC advises on each proposed investment as required and regularly reviews the Company's investment portfolio. PwC works closely with Ingenious Ventures in monitoring the Company's VCT status but reports directly to the Board. 6. Re-Appointment of Auditors A resolution to re-appoint Grant Thornton UK LLP as auditors to the Company will be put to the Shareholders at the AGM. 7. Indemnities Pursuant to the Articles, and to the extent permitted by the Companies Act 2006, every Director or other officer and auditor of the Company is entitled to be indemnified out of the assets of the Company against all liabilities which he may incur in the execution of his office. In certain circumstances, Directors or other officers of the Company are also entitled to be indemnified out of the assets of the Company against liabilities incurred by them in defending proceedings brought against them. The above indemnities have been in force throughout the period under review and all non-executive Directors are covered by Directors & Officers liability insurance and this will continue to remain in force. 8. Policy and Practice on the Payment of Creditors The Company's policy is to settle terms of payment with suppliers when agreeing the terms of each transaction, to ensure that suppliers are made aware of the terms of payment and to abide by the terms thereof. Trade creditor days of the Company as at 31 January 2008, calculated in accordance with the requirements of the Companies Act, were 7 days (2007: 20 days). This represents the ratio, expressed in days, between the amounts invoiced to the Company in the period by its suppliers and the amounts due, at the year end, to trade creditors falling due for payment within one year. 9. Financial Risk Management Details of the Company's financial instruments and risk management policies and objectives are provided in note 15 to the financial statements. 10. Management Agreement The Management Agreement is dated 14 January 2005, and allows for the Manager to assume responsibility for the continuous management of the VCT's portfolio of investments and provide administrative services. In return for its services the Manager is paid an annual portfolio management fee, a performance-related incentive fee (details of which can be found in the Prospectus), and an annual administration fee of £35,000 plus VAT. The portfolio management fee was 2.0 percent of the Company's Net Asset Value plus VAT for the 12 months to 31 January 2007, and is 2.5 percent per annum thereafter. The Management Agreement runs for a minimum period of three years, terminable by either party at any time thereafter if both parties agree in writing or by one year's prior written notice. In the event that the Management Agreement is terminated (unless by reason of the Manager's default), a one-off fee will be payable by the Company to the Manager equivalent to 2.5 percent of the Company's Net Asset Value at the date of termination. The Board have reviewed the performance of the Manager and are satisfied that the continued appointment of the Manager on the terms agreed is in the best interests of the Shareholders and the Company. 11. Business Review The Directors have included their business review. 12. Directors' Responsibility 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 the directors have elected to prepare financial statements in accordance with United Kingdom Accounting Standards (United Kingdom 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 judgments and estimates that are reasonable and prudent; * state whether applicable United Kingdom 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 the financial statements comply with the Companies Acts. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditors are unaware; and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information. After due and careful consideration, the Directors believe that the Company has adequate resources for the foreseeable future and that it is appropriate to apply the going concern basis in the preparation of the Company's financial statements. By order of the Board Susan Ford Company Secretary 14 April 2008 BUSINESS REVIEW The purpose of this review is to provide shareholders with a summary setting out the business objectives of the Company, the Board's strategy to achieve those objectives, the risks faced, the regulatory environment and the key performance indicators (KPIs) used to measure performance. 1. Strategy for Achieving Objectives Ingenious Music VCT plc is a tax efficient company listed on The London Stock Exchange. The investment policy of the Company is to invest in a portfolio of music companies that will be engaged in the value-added creation, development and exploitation of music-related intellectual property rights. The investment objective is to achieve a combination of a high degree of downside protection in an otherwise potentially high risk proposition and long-term capital growth, maximising distributions in order to take advantage of tax-free dividends. The Board has delegated day-to-day investment management and administration of the Company to the Manager under the terms of the Investment Management and Administration Agreement. The Manager's review provides a review of the investment portfolio and the market outlook. 2. Investment Policy The Company uses the Manager's extensive network of record companies, artist management companies, independent record producers and music publishers to locate emerging and established bands and artists who will be assisted in developing their careers by investment in value added creation, development and exploitation of their intellectual property rights. The principal rights owned by investee companies include some or all of: recording, publishing, merchandising/image and internet/digital media. The Company co-invests alongside a number of parties. Investment only takes place once a record company has agreed to promote and distribute the artist's recordings. In order to mitigate risk, the Company has only invested in an Investee Company where the Investee Company has been successful in negotiating a contract that provides for minimum royalty payments equivalent to at least 70 per cent of the Company's investment. Although the existence of a recording contract does not in itself guarantee overall financial success it is an opportunity afforded to those comparatively few aspiring talents who are perceived to have strong consumer appeal and evidences the overall quality and upside potential of the talent that the Company invests in. The initial capital required by an Investee Company is provided by the Company. The majority of this initial capital is provided through loan finance which should provide additional capital protection. The Company has the flexibility to retain up to 30 percent of its assets in non-qualifying investments which the Directors believe should provide a significant degree of downside protection whilst preserving the upside potential of the investments within the portfolio. At 31 January 2008 the Company had made investments in 16 qualifying companies, with contractual arrangements that provides for the Investee Company to receive minimum royalty payments equivalent to at least 70 per cent of the Company's investment, and that have been approved by the Manager's Investment Committee. 3. Principal Risks, Risk Management and Regulatory Environment The Board believes that the principal risks faced by the Company are: * Investment and strategic - an investment in the recorded music sector is tied to a certain degree to the fortunes of that industry generally. In particular, there is a risk that the Company will not identify opportunities where the Artists' success is sufficient to earn royalties over and above minimum contractual income negotiated. * Loss of approval as a Venture Capital Trust - the Company must comply with section 274 of the ITA which allows it to be exempted from capital gains tax on investment gains realised by shareholders. Any breach of these rules may lead to the Company losing its approval as a VCT, qualifying shareholders who have not held their shares for the designated holding period having to repay the income tax relief they obtained and future dividends paid by the Company becoming subject to tax. The Company would also lose its exemption from corporation tax on capital gains. * Regulatory - the Company is required to comply with the Companies Acts, the rules of the UK Listing Authority and United Kingdom Accounting Standards. Breach of any of these regulatory rules might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report. * Financial - inadequate internal controls might lead to misappropriation of assets. Inappropriate accounting policies might lead to misreporting or breaches of regulations. * External inherent risks - The Company's investments are in unquoted companies which by their nature involve a higher degree of risk than investment in the main market due to the fact there is no liquid market and may, therefore, be difficult to realise. Furthermore, there may be further constraints imposed on realisations because of the requirement to satisfy certain conditions necessary for the Company to maintain its VCT status (such as the obligation to have at least 70 per cent. by value of its investments in qualifying holdings). The Board seeks to mitigate the internal risks by setting clear policies, including establishing a funding structure which provides for minimum royalty payments equivalent to at least 70 per cent of the investment, regular reviews of performance, monitoring progress and compliance. Details of the Company's internal controls are contained in the Corporate Governance. 4. Key Performance Indicators (KPIs) The primary key performance indicator on which the Board assesses the performance of the Manager in meeting the Company's objective is the change in Net Asset Value per share. A review of the Company's performance during the period, the position of the Company at the year end and the outlook for the coming year is contained within the Chairman's Statement and Manager's Review. INVESTMENT PORTFOLIO The Heights Recording Limited Artist: The Heights Date of investment: Jan-06 Total invested: £200,000 Valuation: £140,000 Valuation basis: Fair value - Latest Available Information Percentage of equity held: 49.90% Independiente Music Ventures - MTB Limited Artist: Martina Topley-Bird Date of investment: Jun-06 Total invested: £1,000,000 Valuation: £1,000,000 Valuation basis: Fair value - Price of Recent Investment Percentage of equity held: 49.90% Independiente Music Ventures - Travis Limited Artist: Travis Date of investment: Jul-06 Total invested: £1,500,451 Valuation: £1,050,000 Valuation basis: Fair value - Latest Available Information Percentage of equity held: 24.95% GR8 Pop Trading Limited Artist: Indiana Gregg Date of investment: Nov-06 Total invested: £417,000 Valuation: £291,900 Valuation basis: Fair value - Latest Available Information Percentage of equity held: 24.95% Funwood Music Limited Artist: Apartment Date of investment: Nov-06 Total invested: £227,647 Valuation: £159,353 Valuation basis: Fair value - Latest Available Information Percentage of equity held: 24.95% Genius Music Limited Artist: Passenger (formally known as Mike Rosenberg Band) Date of investment: Nov-06 Total invested: £660,725 Valuation: £462,507 Valuation basis: Fair value - Latest Available Information Percentage of equity held: 24.95% High Level Recording Limited Artist: Peter Gabriel Date of investment: Jan-07 Total invested: £1,000,000 Valuation: £1,000,000 Valuation basis: Fair value - Price of Recent Investment Percentage of equity held: 24.95% Independiente Music Ventures - David Ford Limited* Artist: David Ford Date of investment: Jan-07 Total invested: £387,500 Valuation: £271,250 Valuation basis: Fair value - Latest Available Information Percentage of equity held: 24.95% Independiente Music Ventures - Howling Bells Limited* Artist: Howling Bells Date of investment: Jan-07 Total invested: £1,000,000 Valuation: £1,000,000 Valuation basis: Fair value - Price of Recent Investment Percentage of equity held: 24.95% Cooking Vinyl Ventures Prodigy Limited* Artist: Prodigy Date of investment: Jan-07 Total invested: £1,056,817 Valuation: £1,056,817 Valuation basis: Fair value - Price of Recent Investment Percentage of equity held: 24.95% Jolly Rodger Recordings Limited Artist: Vatican DC Date of investment: Feb-07 Total invested: £276,530 Valuation: £193,571 Valuation basis: Fair value - Latest Available Information Percentage of equity held: 24.95% Independiente Music Ventures - Ulrich Schnauss Limited Artist: Ulrich Schnauss Date of investment: Mar-07 Total invested: £221,875 Valuation: £155,312 Valuation basis: Fair value - Latest Available Information Percentage of equity held: 24.95% Independiente Music Ventures - Blackbud Limited* Artist: Blackbud Date of investment: Jun-07 Total invested: £584,375 Valuation: £584,375 Valuation basis: Fair value - Price of Recent Investment Percentage of equity held: 24.95% Reflex Licensing Limited* Artist: UB40 Date of investment: Jul-07 Total invested: £471,765 Valuation: £471,765 Valuation basis: Fair value - Price of Recent Investment Percentage of equity held: 24.95% H.I.T. Trade Limited Artist: Sirens Date of investment: Aug-07 Total invested: £269,875 Valuation: £269,875 Valuation basis: Fair value - Price of Recent Investment Percentage of equity held: 24.95% Real World Recordings Limited* Artist: Various Date of investment: Oct-07 Total invested: £513,000 Valuation: £513,000 Valuation basis: Fair value - Price of Recent Investment Percentage of equity held: 25.60% TOTAL INVESTMENTS Total invested: £9,787,560 Valuation: £8,619,725 * The company has recently been incorporated and had not yet filed audited accounts. DIRECTORS' REMUNERATION REPORT This report has been prepared by the Directors in accordance with the requirements of Schedule 7A to the Companies Act 1985. A resolution to approve the report will be proposed at the AGM. The law requires the Company's auditors to audit certain information included in this report. Where disclosures have been audited, they are indicated as such. The auditors' opinion is included in their report. 1. Directors' Remuneration Policy Pursuant to the Articles, the aggregate fees of the Directors are capped at £100,000 per annum. The fees payable to non-executive Directors reflect their expertise, responsibilities and time spent on Company matters. In determining the level of non-executive remuneration, market equivalents are considered in comparison to the overall activities and size of the Company. Subject to the Articles, the Directors intend to continue to operate this remuneration policy for the forthcoming financial year and thereafter. 2. Appointment Letters Each Director has executed an appointment letter which provides that he is to receive an annual fee equal to £15,000 per annum and to be reimbursed for any reasonable out-of-pocket expenses. These appointment letters state that a Director shall remain in office unless he: resigns as a director; is removed from his office by the Board or the members of the Company; or becomes prohibited by law from being a director. The appointment letters do not provide for compensation upon early termination of appointment. There are no set minimum notice periods in the Directors' appointment letters but all Directors are subject to retirement by rotation. None of the Directors has a service contract. 3. Directors' Remuneration The following table shows a breakdown of the remuneration of individual Directors (exclusive of National Insurance Contributions): Year ended 31 January 2008 Director Fees £'000 Patrick McKenna 15 Roger Ames 15 Charles Peel 15 Kenneth Thompson 15 60 No expenses were paid to any Director in the period. The Company does not grant share options, long-term incentive schemes or retirement benefits to any Director. No contributions are made on behalf of the Directors to any pension scheme. No Director has received any bonuses, taxable expenses, compensation for loss of office or non-cash benefits for the period ended 31 January 2008. In respect of this period, the Company has purchased (and continues to maintain) liability insurance covering the Directors and officers of the Company. This sub-paragraph 4 has been audited by Grant Thornton UK LLP. 4. Shareholder Approval This Directors' Remuneration Report will be put to the Shareholders for their approval at the AGM. By order of the Board Susan Ford Company Secretary 14 April 2008 CORPORATE GOVERNANCE REPORT The Company is committed to maintaining the highest standards of corporate governance. The Directors seek to comply with the Combined Code to the extent that it is proportionate and relevant to: (i) the size and nature of the Company and its operations; and (ii) the Company's particular board and management structure as a VCT. On this basis, the Directors believe that, during the period under review, the Company has complied with the provisions of the 2006 Combined Code except as explained below. 1. Board Composition The Board is comprised of four non-executive directors of which Charles Peel and Kenneth Thompson are considered to be independent. Patrick McKenna, the Company's Chairman, is also the Chairman of Ingenious Ventures Limited, a wholly owned subsidiary of Ingenious Media plc that is controlled by Patrick McKenna. Patrick is also Chairman of Ingenious Music VCT 2 plc, the Ingenious Live VCTs, and a Director of the Ingenious Entertainment VCTs and is not, therefore, considered to be independent. Roger Ames is a non-executive director of Ingenious Music VCT 2 plc and is also not considered to be independent. However, the Board believes that the directorships of Patrick McKenna and Roger Ames allow for enhanced communication between the Company and the Manager as well as closer supervision of the Manager's performance and of the allocation of investments between the Company and Ingenious Music VCT 2 plc. The Directors therefore believe that these directorships are advantageous to, and do not affect the well balanced nature of, the Board. 2. Board Appointments Directors are not appointed for specified terms. The Board believes that, in the circumstances of the Company, the contribution of a non-executive director is enhanced by longer, continuous service. However, in accordance with the Company's articles of association and the Combined Code, Kenneth Thompson and Roger Ames will retire from office and seek re-appointment at the AGM. The Directors' terms of appointment may be inspected by shareholders at the Company's registered office during normal business hours and at the AGM. To date, no formal performance evaluation of the Directors or the Board has been undertaken. Specific performance issues will be dealt with as and when they arise. No performance issues arose during the period under review and the Board considers that the individual performance of each of the Directors continues to be effective and to demonstrate their commitment to the role. The Board therefore recommends that Kenneth Thompson and Roger Ames be re-appointed. No senior independent director has been appointed due to the relatively small size of the Board. However, this will be reviewed during the next financial year and appropriate action taken if this is deemed appropriate. 3. Board Proceedings The following table sets out the number of Board meetings held during the period and the number of meetings attended by each Director: Attended Possible Patrick McKenna 3 3 Charles Peel 3 3 Kenneth Thompson 3 3 Roger Ames 1 3 The Manager provides the Board with appropriate information in a timely manner prior to all Board proceedings and at such other times as may be required by the Directors. All of the Directors have access to the advice and services of Susan Ford, the Company Secretary, and the Manager's investment team. The Directors may also take independent professional advice at the Company's expense where necessary in the furtherance of their duties and responsibilities. 4. Board Responsibilities The Board has delegated day-to-day investment management and administration of the Company to the Manager under the terms of the Investment Management and Administration Agreement. The Board retains overall responsibility for the Company's affairs, including the determination of its investment policy. The Board believes that terms of this delegation are clearly defined and provide a healthy balance between: (i) maintaining supervision over the Manager's activities; and (ii) allowing the Manager to effectively source and implement appropriate qualifying investments in fulfilment of the Company's investment policy. The Board, therefore, does not believe that it is necessary to adopt a specific schedule of reserved matters over and above the terms of the Investment Management and Administration agreement which are currently in force. 5. Board Committees The Directors have not appointed a nominations committee as they consider that this would be disproportionate to the size of the Board. Appointments of any new directors will be determined by the full Board. The Board has not appointed an audit committee as it is currently considered appropriate to refer all audit matters to the full Board for review and approval. The need for an audit committee will be kept under review by the Board particularly as the size of the investment portfolio increases or if required to do so as a result of regulatory requirements. No remuneration committee has been appointed by the Board on the basis that the Company has no executive directors, employees or share incentive plans. No individual Director is involved in setting his own level of remuneration. 6. Relations with Shareholders and the AGM The Board places great importance on maintaining effective communication with Shareholders. The AGM, which will be held on 22 May 2008, will be an opportunity for shareholders to meet with both the Board and the Manager in order to discuss the Company's progress. Participation at the meeting is therefore encouraged. 7. Internal Controls The Board is responsible for supervising the Company's system of internal control operated by Ingenious Ventures and for reviewing its effectiveness. The Board, in conjunction with the Manager, has therefore established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place for the period under review and up to the date of approval of the Annual Report & Accounts and accords with the Financial Reporting Council's 'Internal Control: Revised Guidance for Directors on the Combined Code' issued in October 2005. The significant risks facing the Company, along with the internal controls operated by the Manager, are reviewed half-yearly by the Board. The particular focus of the reviews was on ensuring that the internal controls operated by the Manager continued to mitigate these significant risks in a manner which was satisfactory to the Board. The Board will continue to conduct half-yearly reviews based on "by-exception" reports provided by the Manager. In summary, the Company's system of internal controls involves the following key elements: * the Manager prepares management accounts which provide the Board with a regular overview of the progress and performance of the Company and its investment portfolio; * all investment decisions are approved by the Manager's investment team and communicated to the Board on a quarterly basis; * the Manager monitors the qualifying status of each qualifying holding in conjunction with PwC who report to the Board twice annually on the Company's VCT status and advise on each investment proposal as appropriate; and * the Manager continuously monitors the Company's progress and promptly informs the Board of any material developments as and when they occur. The Board believes that the above procedures represent a sound system of internal control for the safeguarding of the shareholders' investment and the Company's assets. It should be noted, however, that this system of internal control is designed to manage rather than eliminate the risk of failure to achieve the Company's business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. 8. Internal Audit Function The Company does not have an internal audit function. The Board believes that such a function would be disproportionate to the size of the Company. However, this will be reviewed during the next financial year and appropriate action taken if this is deemed appropriate. 9. Going Concern Under the Combined Code the directors are required to satisfy themselves that it is reasonable to presume the Company is a going concern. After making enquiries, and on the strength of its balance sheet, the directors are of the opinion that the Company has adequate resources to continue its operational activities for the foreseeable future. The board is therefore of the opinion that the going concern basis should be adopted in the preparation of the financial statements. 10. Auditor Independence The Board considers the scope and effectiveness of the Company's external auditors. The Company's auditors, Grant Thornton UK LLP also provide non-audit advice to the Company. These services relate to corporate tax compliance assistance and do not, in the Board's opinion, compromise the independence of Grant Thornton UK LLP's audit team. REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF INGENIOUS MUSIC VCT PLC We have audited the financial statements (the ''financial statements'') of Ingenious Music VCT plc for the year ended 31 January 2008 which comprise the income statement, reconciliation of movements in shareholders' funds, the balance sheet, the cash flow statement and notes 1 to 18. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors' Remuneration Report that is described as having been audited. This report is made solely to the company's members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with United Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors' Responsibilities. Our responsibility is to audit the financial statements and the part of the Directors' Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors' Report is consistent with the financial statements. The information given in the Directors' Report includes that specific information presented in the Business Review that is cross referred to the Business Review section of the Directors' Report. In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. We review whether the Corporate Governance Statement reflects the company's compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the company's corporate governance procedures or its risk and control procedures. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Chairman's Statement, Manager's Review, the Directors' Report, Business Review, Investment Portfolio Schedule and the unaudited part of the Directors' Remuneration Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors' Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors' Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors' Remuneration Report to be audited. Opinion In our opinion: * the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the company's affairs as at 31 January 2008 and of its loss for the period then ended; * the financial statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985; and * the information given in the Directors' Report is consistent with the financial statements. GRANT THORNTON UK LLP REGISTERED AUDITOR CHARTERED ACCOUNTANTS London 14 April 2008 INCOME STATEMENT for the year ended 31 January 2008 2008 2008 2008 2007 2007 2007 Revenue Capital Total Revenue Capital Total Note £'000 £'000 £'000 £'000 £'000 £'000 Gain on disposal of - 148 148 - 96 96 investments (Decrease)/increase in - (1,051) (1,051) - 234 234 fair value of investments held Investment income 2 13 11 24 125 55 180 Investment management 3 (196) (196) (392) (170) (170) (340) fees Other expenses 4 (188) (8) (196) (190) (38) (228) Loss on ordinary (371) (1,096) (1,467) (235) 177 (58) activities before taxation Tax on ordinary 5 - - - - - - activities Loss attributable to (371) (1,096) (1,467) (235) 177 (58) equity shareholders Basic and diluted 6 (2.46) (7.26) (9.72) (1.56) 1.17 (0.39) return per share (pence) The Company has no recognised gains and losses other than those disclosed above. The total column is the profit and loss for the period. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the year ended 31 January 2008 2008 2007 £'000 £'000 Opening shareholders' funds 14,312 14,370 Loss attributable to equity shareholders for (1,467) (58) the period Closing shareholders' funds 12,845 14,312 The accompanying notes form an integral part of these financial statements. BALANCE SHEET As at 31 January 2008 2008 2007 Note £'000 £'000 Fixed assets Qualifying investments 7 8,620 6,593 Current assets Debtors 9 7 10 Non-Qualifying investments 10 4,246 7,414 Cash at bank and in hand 13 2,026 Creditors: amounts falling due within one year 11 (41) (1,731) Net current assets 4,225 7,719 Net assets 12,845 14,312 Capital and reserves Called-up share capital 12 151 151 Share premium account 13 6,867 6,867 Other reserve account 13 7,471 7,471 Capital reserves Realized 13 (189) (144) unrealised 13 (785) 266 Revenue reserve 13 (670) (299) Equity shareholders' funds 12,845 14,312 Net asset value (pence per share) 14 85.1 94.8 The financial statements were approved by the Board of Directors on 14 April 2008. Signed on behalf of the Board of Directors: Patrick McKenna Chairman CASH FLOW STATEMENT for the year ended 31 January 2008 2008 2007 £'000 £'000 Net cash outflow from operating activities (551) (540) Capital expenditure and financial investment Purchase of qualifying investments (4,894) (4,693) Purchase of non-qualifying investments (1,126) (12,549) Disposal of non-qualifying investments 4,558 6,997 Net cash outflow from capital expenditure and financial (1,462) (10,245) investment (Decrease)/Increase in cash (2,013) (10,785) Reconciliation of Loss Before Taxation to Net Cash Flow from Operating Activities £'000 £'000 Loss on ordinary activities before taxation (1,467) (58) Gain on disposal of investments (148) (96) Decrease/(Increase) in fair value of 1,051 (234) investments held Decrease/(Increase) in receivables 3 146 Increase/(Decrease) in payables 10 (298) Net cash outflow from operating activities (551) (540) Reconciliation of Net Cash Flow to Movement in Net Funds £'000 £'000 Opening cash balances 2,026 12,811 Net cash (outflow)/inflow (2,013) (10,785) Closing cash balances 13 2,026 The accompanying notes form an integral part of these financial statements. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 January 2008 1. Accounting policies (a) Basis of Accounting The financial statements for the year ended 31 January 2008 have been prepared in accordance with UK Generally Accepted Accounting Practice, and with the Statement of Recommended Practice (the SORP) entitled "Financial Statements of Investment Trust Companies" which was issued in January 2003 and revised in December 2005. The Company's accounting policies are unchanged compared with the prior year, except for the adoption of FRS 29 'Financial Instruments: Disclosures' which came into effect on 1 January 2007 These financial statements have been prepared on the historical cost basis, except for the measurement at fair value of investments. (b) Valuation of Investments The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. All investments are designated at fair value, using the basis of valuation set out below. Investee Companies Unquoted investments including equity and loan investments are stated at fair value in accordance with the International Private Equity and Venture Capital Guidelines and Financial Reporting Standard 26 "Financial Instruments Measurement" (FRS 26). They are designated at fair value through profit and loss in accordance with FRS 26. Investments that are held as part of the Company's investment portfolio are carried at fair value even though the Company may have significant influence over these investee companies. This treatment is permitted by Financial Reporting Standard 9 "Associates and Joint Ventures" which allows investment trusts to be exempt from preparing consolidated financial statements. The International Private Equity and Venture Capital Guidelines set out six permissible valuation methodologies, of these the two methodologies most applicable to the VCT investments are: 1 - Price of recent investment. Where the investment being valued was made recently, its cost will generally provide a good indication of value. It is generally considered that this would only apply for a limited period, in practice a period of up to a year is often applied as the long stop date for such a valuation. In relation to the VCT investments, investments are generally held at cost until the album is either released or at such point at which new information provides more guidance as to the likely fair value of the investment. 2 - Discounted cash flows/earnings of the underlying business, calculating the net present value of expected future cashflows of the investee companies. In relation to the VCT investments, anticipating future cashflows in excess of the guaranteed amounts would clearly require highly subjective judgements to be made in the early stage of each investment and therefore would not be an appropriate methodology to apply in the early stage of the investment. The adopted approach fair values the investments at the "price of recent investment" (i.e. cost) until album release or further information provides better guidance as to fair value. Subsequently, the portfolio of investments is fair valued on the discounted cash flow/earnings basis using the latest available information following the release of the artists' records/albums. If it is not considered likely that an investment will return to the Company an amount in excess of the contractually guaranteed 70 percent of total investment, the fair value of the investment will be written down to 70 percent of the cost of the investment. The valuation of investments and, in particular, investments in bands and artists is inherently subjective, due to the exercising of critical accounting estimates and judgments. The directors have adopted a valuation policy that they believe most appropriately reflects the fair value of such investments and compliance with the International Private Equity and Venture Capital Guidelines. Open Ended Investment Companies The Company's investments in interest bearing money market open ended investment companies (OEIC's) are valued at fair value, which is deemed to be mark-to-market. They have been designated as fair value through profit and loss for the purposes of FRS 26. Gains and losses arising from changes in fair value of qualifying and non-qualifying investments are recognised as part of the capital return within the income statement and allocated to the realised or unrealised capital reserve as appropriate. Transaction costs attributable to the acquisition or disposal of investments are charged to the capital return within the income statement. (c) Investment Income Interest income is included on an accruals basis using the effective interest method. (d) Expenses All expenses are accounted for on an accruals basis. Expenses are charged to the revenue account within the income statement except that: * expenses which are incidental to the acquisition or disposal of an investment are charged to capital in the income statement as incurred; and * expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. (e) Deferred Taxation Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more, or a right to pay less, tax in the future have occurred at the balance sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods. 2. Investment Income 2008 2007 £'000 £'000 Bank deposit interest 13 125 Reinvested interest from OEICs 11 55 24 180 3. Investment Management Fee 2008 2008 2008 2007 2007 2007 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investment management 167 167 334 145 145 290 fee Irrecoverable VAT 29 29 58 25 25 50 196 196 392 170 170 340 For the purposes of the revenue and capital columns in the income statement, the management fee has been allocated 50% to revenue and 50% to capital, which represents the proportion of the fee attributable to the management of the investments of the Company. 4. Other Expenses 2008 2008 2008 2007 2007 2007 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Directors' 66 - 66 65 - 65 remuneration (including Employer's National Insurance) Auditor's remuneration - Fees payable to 19 - 19 15 - 15 company's auditors for the audit of the Company's financial statements statements - Tax services 3 - 3 1 - 1 - Other Services 2 - 2 - - - Legal & professional 3 8 11 4 38 42 fees Other administration 95 - 95 105 - 105 expense 188 8 196 190 38 228 All figures include irrecoverable VAT, where applicable. The company is not registered for VAT. Fees payable to the company's auditor for the audit of the company's financial statements are £16k excluding VAT. Further details on the Directors' fee disclosures are given in the Directors' Remuneration Report. 5. Tax Charge on Ordinary Activities 2008 2008 2008 2007 2007 2007 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Loss on ordinary (371) (1,096) (1,467) (235) 177 (58) activities before tax Loss on ordinary (111) (329) (440) (70) 53 (17) activities by tax rate (30%) Adjustments: Non taxable losses/ - 271 271 - (80) (80) (gains) on investments Non taxable income - (4) (4) - (8) (8) Disallowed expenses 1 2 3 4 10 14 Unutilised losses for 110 60 170 66 25 91 the current period - - - - - - As the Company is a VCT its capital gains are not taxable. At 31 January 2008 the Company had surplus management expenses of £1,099,000 which have not been recognised as a deferred tax asset. This is due to the fact future taxable income cannot be predicted with reasonable certainty. Due to the Company's status as a VCT, and the intention to continue meeting the conditions for approval in the foreseeable future, the Company does not provide deferred tax on any capital gains or losses which arise on the revaluation of investments. 6. Basic and Diluted Return per Share 2008 2008 2008 2007 2007 2007 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 (Loss)/Profit (371) (1,096) (1,467) (235) 177 (58) on ordinary activities after taxation (£'000) Weighted 15,093,281 15,093,281 15,093,281 15,093,281 15,093,281 15,093,281 average shares in issue (number) (Loss)/Profit (2.46) (7.26) (9.72) (1.56) 1.17p (0.39) attributable per share (pence) There are no dilutive potential ordinary shares, including convertible instruments, options or contingent share agreements in issue for the Company. The basic return per share is therefore the same as the diluted return per share. 7. Fixed Asset Investments 2008 2007 £'000 £'000 Unquoted investments 8,620 6,593 Equity shares 1,769 1,978 Unsecured loan notes 6,851 4,615 8,620 6,593 Qualifying Investments £'000 £'000 Opening valuation 6,593 200 Purchases at cost 3,194 6,393 Fair value adjustment (1,167) - Closing valuation 8,620 6,593 8. Significant Interests The Company has interests of greater than 20% of the nominal value of the allotted shares of the following investee companies incorporated in the United Kingdom as at 31 January 2008: % class and % voting share type rights The Heights Recording Limited 49.90% A 49.90% Ordinary Independiente Music Ventures - MTB 49.90% A 49.90% Limited Ordinary Independiente Music Ventures - 24.95% A 24.95% Travis Limited Ordinary GR8 Pop Trading Limited 24.95% A 24.95% Ordinary Funwood Music Limited 24.95% A 24.95% Ordinary Genius Music Limited 24.95% A 24.95% Ordinary High Level Recording Limited 24.95% A 24.95% Ordinary Independiente Music Ventures - David 24.95% A 24.95% Ford Limited Ordinary Independiente Music Ventures - 24.95% A 24.95% Howling Bells Limited Ordinary Cooking Vinyl Ventures Prodigy 24.95% A 24.95% Limited Ordinary H.I.T. Trade Limited 24.95% A 24.95% Ordinary Independiente Music Ventures - 24.95% A 24.95% Blackbud Limited Ordinary Independiente Music Ventures - 24.95% A 24.95% Ulrich Schnauss Limited Ordinary Jolly Roger Recordings Limited 24.95% A 24.95% Ordinary Real World Recordings Limited 25.60% A 25.60% Ordinary Reflex Licensing Limited 24.95% A 24.95% Ordinary The investments made by the Company are part of its portfolio of investments. As a VCT, the Company values those investments at fair value in accordance with FRS 26. 9. Debtors 2008 2007 £'000 £'000 Prepayments and accrued income 6 9 Trade debtors 1 1 7 10 10. Current Asset Investment 2008 2007 £'000 £'000 Funds held in listed money market instruments 4,246 7,414 Non-Qualifying Investments £'000 £'000 Opening valuation 7,414 1,532 Purchases at cost 1,126 12,549 Disposal proceeds (4,558) (6,997) Realised gains on 148 96 disposal Unrealised change in value of 116 234 investment Closing valuation and book cost 4,246 7,414 In order to safeguard the capital available for investment in Qualifying Investments and balance this with the need to provide good returns to investors, available funds from the net proceeds are invested in appropriate securities (money market securities and cash funds) until required for Qualifying Investment purposes. Included within the total amount for Non-Qualifying Investments, £1.6m has been invested in the Ingenious Enhanced Cash Fund managed by Ingenious Asset Management. 11. Creditors: Amounts Falling Due Within One Year 2008 2007 £'000 £'000 Trade creditors 13 1 Accruals and deferred income 28 30 Amounts due to investee company - 1,700 41 1,731 12. Called-Up Share Capital 2008 2007 Authorised £'000 £'000 35,000,000 ordinary shares 1p each 350 350 Allotted, called-up and fully paid 15,093,283 ordinary shares 1p each 151 151 13. Reserves Share Other Capital Capital Revenue Total premium reserve realised unrealised reserve reserves £'000 £'000 £'000 £'000 £'000 £'000 At 1 February 2007 6,867 7,471 (144) 266 (299) 14,161 Gain on disposal of - - 148 - - 148 investments Decrease in fair value - - - (1,051) - (1,051) of investments held Investment income - - 11 - 13 24 Investment management - - (196) (196) (392) fees Other expenses - - (8) - (188) (196) At 31 January 2008 6,867 7,471 (189) (785) (670) 12,694 14. Net Asset Value Per Share 31 January 31 January 2008 2007 Net assets attributable to 12,845 14,312 shareholders (£'000) Shares in issue (number) 15,093,283 15,093,283 Net asset value per share (pence) 85.1 94.8 15. Financial Instruments and Risk Management The Company's financial instruments comprise equity and floating rate debt investments in unquoted companies, cash balances and listed money market instruments. The Company holds financial assets in accordance with its investment policy. Fixed asset investments (see note 7) are valued at fair value. For quoted securities included in current asset non qualifying investments, this is bid price. In respect of unquoted investments, these are fair valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. The fair value of all other financial assets and liabilities is represented by their carrying value on the Balance Sheet. The Company's investing activities expose it to various types of risk that are associated with the financial instruments and markets in which it invests. The most important types of financial risk to which the Company is exposed are: * Market risk; * Interest rate risk; * Credit risk; and * Liquidity risk The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Company are discussed below: a) Market risk Market risk embodies the potential for both losses and gains and includes interest rate risk and price risk. The Company's strategy on the management of investment risk is driven by the Company's investment objective. Investments in unquoted companies, by their nature, involve a higher degree of risk than investments in larger "blue chip" companies. The risk of loss in value is managed through careful selection in accordance with a formalised investment decision process, with each investment proposal evaluated by the investment committee as part of the due diligence stage. The Company's investment policy can be found in the Business Review. The risk is also managed through continuous monitoring of the performance of investments and changes in their risk profile. b) Interest rate risk Some of the Company's financial assets are interest bearing, all of which are at floating rates. As a result, the Company is subject to exposure to interest rate risk due to fluctuations in the prevailing levels of market interest rate. When the Company retains cash balances, the majority of cash is held within an interest bearing money market open ended investment company (OEIC), being the £4,246k Non-Qualifying Investments amount on the Balance Sheet (2007: £7,414k). The benchmark rate which determines the interest payments received on interest bearing cash balances and debt investments in unquoted companies is the bank base rate which was 5.5 per cent as at 31 January 2008 (31 January 2007: 4.95 per cent). The following table illustrates the sensitivity of the loss on ordinary activities for the year before taxation and total equity to a change in interest rates of 50 basis points, with effect from the beginning of the year. These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on the Company's Non-qualifying investments held at each balance date. All other variables are held constant. 31 January 31 January 2008 2007 £ '000 £ '000 +/- 50 basis +/- 50 basis points points Profit on ordinary activities for the year before taxation Total Equity 21 47 c) Credit risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the company. Whilst the Company is exposed to credit risk due to its £6,851k unsecured loan note instruments (2007: £4,615k), this risk is mitigated by the Company requiring that minimum royalty arrangements are in place prior to the investment as set out in the Company's investment policy. In addition, and in accordance with the Company's monitoring procedure, the Manager, closely monitors progress (including financial expenditure) against the investee companies' agreed business plans. d) Liquidity risk The Company's financial instruments include equity and debt investments in unquoted companies, 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 investment in these instruments at an amount close to fair value. The Company maintains sufficient reserves of cash and readily realisable marketable securities to meet its liquidity requirements at all times 16. Contingencies, Guarantees and Financial Commitments There is currently interest income accruing on the unsecured loan note instruments at a rate of 6.5 per cent, being 1 per cent over the bank base rate which was 5.5 per cent as at 31 January 2008, totalling £466,223.17 (2007: £72,235.68). The repayment of this interest is contingent on future profits being derived by the investee companies, which currently can not be determined with any certainty, therefore the Directors have not provided for it in the financial statements. 17. Related Party Transactions The Company has appointed Ingenious Ventures Limited, a company in which Patrick McKenna is a director, to provide investment management and administrative services. Ingenious Ventures Limited is a wholly owned subsidiary within the Ingenious Group which is controlled by Patrick McKenna. During the period the Company has carried out a number of transactions with the above-mentioned related parties in the normal course of the business and on an arm's length basis: 2008 2008 2007 2007 Entity Expenditure Amounts Expenditure Amounts paid due paid due £'000 £'000 £'000 £'000 Ingenious Ventures Limited - Investment management 392 - 340 - fee - Administration fee 43 - 42 - Ingenious Media Consulting Limited, a company in which Patrick McKenna is a director, has entered into consultancy agreements with each of the investee companies to provide management services. For the provision of such services, consulting fees totalling £88,205.20 including VAT (2007: £742,860), have been invoiced in the year, none of which remains outstanding as at 31 January 2008. The funds invested in OEICs, are managed by Ingenious Asset Management Limited, a company in which Patrick McKenna is a director. Ingenious Asset Management is a wholly owned subsidiary within the Ingenious Group which is controlled by Patrick McKenna. Patrick McKenna is a director of The Young Vic (a registered charity) which holds 0.2% of the equity in each of the investee companies. 18. Events after the Balance Sheet date On 1 March 2008 the Investment Management and Administration agreement between the Company and Ingenious Ventures Limited was novated to Ingenious Asset Management Limited. This information is provided by RNS The company news service from the London Stock Exchange END FR FKPKPPBKDPQD
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