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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Loudwater | LSE:LWT | London | Ordinary Share | GG00B1LT5C96 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 2.55 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jun 2019 to Jun 2024
TIDMLWT
RNS Number : 7781M
Loudwater Trust Limited
20 September 2012
20 September 2012
Loudwater Trust Limited ('the Company')
Unaudited Interim Report & Accounts for the Six Month Period
Ended 30(th) June 2012
The Company is pleased to announce the publication of its Unaudited Interim Report & Accounts for the six month period ended 30(th) June 2012.
The Unaudited Interim Report & Accounts will be posted to shareholders shortly and can be downloaded from the Company's website at www.loudwatertrust.com.
Highlights from the Unaudited Interim Report & Accounts for the six month period ended 30(th) June 2012:
-- Net Asset Value as at 30 June 2012 of GBP48.5 million, or 80.5 pence per share.
-- Significant increase over 31 December 2011 NAV of GBP32.25 million, or 53.48 pence per share; largely as a result of the markup in Agraquest, which was disposed of after the period end.
-- A total of 7.23 pence per share returned during the period following partial disposals achieved during the year
-- The Company's pro forma NAV as at June 30 2012 of GBP25.0 million, adjusted for the GBP23.49 million of cash returned to shareholders in September following the Agraquest disposal.
-- To date the Company has returned some GBP45.9 million of capital to shareholders, equating to a total value for current NAV plus cash returned of GBP70.9 million or 94.5 pence per share.
-- The portfolio consists of investments in four companies, several residual earn-out or loan type instruments and modest cash and equivalents.
-- The company has disposed of two investments subject to retentions and part of a third. Two companies are currently in exit processes and two are working towards either IPO's or trade-sales which are targeted to occur within the next one to two years.
-- In the period under review the Company sold its investment in City Financial Investment Company for a consideration of GBP2.75m, sold its equity investment in Corero Network Security Plc for GBP1.9m and sold its minority equity interest in Somethin' Else Sound Directions Limited for a consideration of GBP0.5m.
-- Board changes as a result of resignation of Lord Flight, Edward Forwood, Robert Fearis and Roger Le Tissier, and Rhys Davies being appointed as Non-executive Chairman.
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Loudwater Investment Partners Limited
Charles Somerset +44(0)20 3372 6400
Panmure Gordon (UK) Limited
Andrew Potts +44(0)20 7886 2500
Summary of Investment Objective
The Company was established to provide Shareholders with an attractive rate of return on their investment, primarily through investing in companies which were likely to achieve an IPO or a sale within a short term time horizon and through a small number of investments in companies that were already listed.
In September 2008, the Company announced that, in the light of the then deteriorating economic environment and the lack of a visible time frame for exits, it would return some capital to Shareholders by way of a tender offer and would make appropriate changes in the Company's structure and investing policy as described below.
Summary of Investing Policy
As part of the 2008 Tender Offer, the Company adopted a new investing policy of not making investments in new companies. If the Board, advised by its Investment Advisor, considers that it will be attractive to recapitalise the Company and make new investments, the Board will seek Shareholder approval to amend the investing policy.
For the Company's full Investing Policy please see pages 8 - 10.
Performance Statistics
Date Net Asset Value Cash Returned Net Asset Value
+ Cash Returned
GBP PPS* GBP GBP PPS**
29 January
2007 74,250,000 99.00 - 74,250,000 99.00
31 March 2007 74,732,000 99.64 - 74,732,000 99.64
30 June 2007 75,462,000 100.62 - 75,462,000 100.62
30 September
2007 75,269,000 100.36 - 75,269,000 100.36
31 December
2007 73,767,000 98.36 - 73,767,000 98.36
31 March 2008 73,959,000 98.61 - 73,959,000 98.61
30 June 2008 69,581,000 92.78 - 69,581,000 92.77
30 September
2008 70,324,000 93.77 - 70,324,000 93.77
31 December
2008 53,985,000 89.63 13,847,000 67,832,000 90.44
31 March 2009 54,303,000 90.16 13,847,000 68,150,000 90.87
30 June 2009 49,331,000 81.90 13,847,000 63,178,000 84.24
30 September
2009 48,198,000 80.02 13,847,000 62,045,000 82.73
31 December
2009 45,242,000 75.11 13,847,000 59,089,000 78.79
31 March 2010 42,330,000 70.28 13,847,000 56,177,000 74.90
30 June 2010 42,506,000 70.57 13,847,000 56,353,000 75.14
30 September
2010 40,641,000 67.47 13,847,000 54,488,000 72.65
31 December
2010 40,382,000 67.04 13,847,000 54,229,000 72.31
31 March 2011 39,351,000 65.33 13,847,000 53,199,000 70.93
30 June 2011 35,037,000 58.17 18,063,000 53,100,000 70.80
30 September
2011 32,842,000 54.52 18,063,000 50,905,000 67.87
31 December
2011 32,211,000 53.48 18,063,000 50,275,000 67.03
31 March 2012 27,076,000 44.95 22,418,000 49,494,000 65.99
30 June 2012 48,480,000 80.49 22,418,000 70,898,000 94.53
*Pence per Ordinary Share; note that number of Ordinary Shares in issuance was reduced from 75,000,000 to 60,232,855 following the share buy-back in November 2008.
**Pence per Ordinary Share; this assumes that the number of Ordinary Shares in issuance is held constant at 75,000,000.
Chairman's Statement
Period ended 30 June 2012
I am pleased to report on the performance of Loudwater Trust Limited (the "Company" or "Loudwater") for the period ended 30 June 2012.
On 24 March 2011, Damille Investments Limited ("Damille") acquired 27.6% of the share capital of the Company. My fellow director at Damille, Brett Miller, and I joined the Loudwater Board on 20 May 2011. On 27 April 2012, Lord Flight, Edward Forwood, Robert Fearis and Roger Le Tissier resigned from the Board, leaving myself, Brett Miller and Christopher Fish as directors. I have been appointed non-executive Chairman, replacing Lord Flight. On 5 July 2012 Damille acquired a further 1.7% of the share capital of the Company, taking its total shareholding to 29.3%.
As Damille is a substantial shareholder in the Company, myself and Brett Miller are not deemed to be independent directors, whereas Chris Fish is deemed to be an independent director. Since the Board as a whole is therefore not deemed to be independent of Damille, the Company and Damille have entered into a relationship agreement, which states that at all times the Company will be capable of acting independently of Damille and/or its directors and officers and that any transactions will take place at arm's length and on a normal commercial basis.
We would like to put on record our appreciation for the contribution made by the recently retired directors to the Loudwater Board and in working with Loudwater through its initial investment phase, and latterly in the realisation phase.
In accordance with the investment objective adopted by the Company in November 2008, the Company continues to manage the orderly realisation of its investment portfolio with the aim of maximising the return of invested capital to shareholders within a reasonable timeframe.
In 2012, the Company has made excellent progress against this objective. In the period under review, the Company sold two investments and sold part of a third, following which some GBP4.4 million or 7.2 pence per share was returned to shareholders.
In August 2012, the Company successfully completed the disposal of its shareholding in AgraQuest, Inc. to Bayer Cropscience LLC, a subsidiary of Bayer AG, for initial cash consideration of approximately GBP27.3 million, which compared to the Company's carrying value for this investment as at 31 March 2012 of GBP6.8 million and an investment cost of GBP4.8 million. Following this event, the Company returned a further GBP23.5 million or 39.0 pence per share to shareholders in September 2012.
The Net Asset Value ("NAV") was GBP48.5 million or 80.5 pence per share as at 30 June 2012 and GBP25.0 million or 41.5 pence per share on a pro forma basis, adjusted for the cash distribution in September. To date the Company has returned GBP45.9 million of capital to shareholders, or 61.2 pence per share, based on 75 million shares issued on admission to trading on AIM in January 2007. The total of NAV plus cash returned is GBP70.9 million or 94.5 pence per share, calculated on the same basis.
The Board of Directors continues to work closely with the Investment Advisor to maximise further realisations. Discussions in relation to further realisations are on-going and we look forward to announcing further realisations and returning further funds to shareholders in due course.
Rhys Davies
Chairman
Loudwater Trust Limited
20 September 2012
Investment Advisor's Report
Period ended 30 June 2012
Overview
In the period under review, we successfully achieved substantial disposals of investments in two portfolio companies and a partial disposal of an investment in a third, following which some GBP4.4 million or 7.2 pence per share was returned to shareholders.
After the period end, in August 2012, Bayer Cropscience LLC, a subsidiary of Bayer AG, completed the acquisition of AgraQuest, Inc. for a purchase price of US$425 million plus milestone payments. For our shareholding in the company we received initial cash consideration of approximately GBP27.3 million, following which a further GBP23.5 million or 39.0 pence per share was returned to shareholders in September 2012.
The NAV was GBP48.5 million or 80.5 pence per share as at 30 June 2012 and GBP25.0 million or 41.5 pence per share on a pro forma basis, adjusting for the cash distribution in September. To date the Company has returned GBP45.9 million of capital to shareholders, or 61.2 pence per share, based on 75 million shares issued on admission to trading on AIM in January 2007. The total of NAV plus cash returned is GBP70.9 million or 94.5 pence per share, calculated on the same basis.
This represents a cumulative, after cost performance of -5% over the life of the Company to date, compared to a fall of -38% in the FTSE Small Cap (excluding investments trusts) index over the same period.
30 June 2012 30 June 2012 pro forma*****
------------------------ --------------------------------
GBPm pps1* pps2** GBPm pps1* pps2**
Investments*** 46.5 77.2 19.7 32.7
Cash held in escrow*** 0.2 0.3 2.9 4.9
Available cash and equivalents**** 1.8 3.0 2.4 3.9
------------------------------------ ------- ------ ------- ---------- --------- ---------
Total NAV 48.5 80.5 64.6 25.0 41.5 33.3
------------------------------------ ------- ------ ------- ---------- --------- ---------
Cash returned (22.4) (29.9) (45.9) (61.2)
------------------------------------ ------- ------ ------- ---------- --------- ---------
NAV + cash returned 70.9 94.5 70.9 94.5
------------------------------------ ------- ------ ------- ---------- --------- ---------
*Based on 60,252,855 shares outstanding as at 30 June 2012.
**Based on 75,000,000 shares issued on admission to AIM in January 2007.
***Includes contingent earn-out payments or escrow deposits held at estimated fair value.
****Includes cash at bank, other receivables net of payables and accrued interest due from loan note investments.
***** Reflects 30 June 2012 position adjusted for return of GBP23.49 million of cash to shareholders in September 2012, following receipt of proceeds from sale of investment in AgraQuest.
The Company's remaining portfolio consists of investments in four companies, which together account for approximately 65% of the NAV, several residual loan or earn-out type instruments and a modest reserve of cash. Two companies are currently in exit processes and two are working towards either IPO's or trade-sales which are targeted to occur within the next one to two years.
The timing and feasibility of exits are, of course, highly dependent on market conditions which, at this time, remain poor and particularly hard to predict. In light of these conditions, it is the Company's valuation policy not to write up the value of any assets, unless there is a clear basis for doing so, evidenced, for example, by the announcement of a binding offer from either an acquirer or a new investor.
Investment Highlights during the Period
In the period under review, the following events took place:
-- In January 2012, the sale of the Company's investment in City Financial Investment Company for consideration of GBP2.75 million, comprising cash proceeds of GBP2.5 million and preferred ordinary shares valued at GBP250,000.
-- In March 2012, the sale of the Company's equity interest in Corero Network Security Plc, comprising approximately 4.4 million ordinary shares sold for cash proceeds of GBP1.9 million.
-- In May 2012, the sale of a minority equity interest representing part of the Company's shareholding in Somethin' Else Sound Directions Limited to the management team for cash consideration of GBP450,000.
Investment Advisor's Report (continued)
Period ended 30 June 2012
Investment Highlight following the Period - Disposal of Investment in AgraQuest, Inc.
In August 2012, Bayer Cropscience LLC, a subsidiary of Bayer AG, completed the acquisition of AgraQuest, Inc. for a purchase price of US$425 million plus milestone payments. For its shareholding in AgraQuest, the Company received an initial cash consideration of approximately GBP27.3 million. This compared to the Company's carrying value for this investment as at 31 March 2012 of GBP6.8 million and an investment cost of GBP4.8 million.
Of the initial cash consideration, approximately GBP3.3 million is currently held in escrow for a period against potential indemnification claims. Of this amount, approximately GBP1.8 million is currently held in escrow against future indemnification claims up to February 2014 and a further GBP1.5 million up to April 2016. In addition to the initial cash consideration, there is contingent consideration payable should AgraQuest achieve certain performance milestones in future years, at certain periods up to the financial year ending December 2016. The maximum contingent consideration that could be due to the Company is GBP3.5 million.
We are very pleased to be able to report the success of this investment to shareholders, as it represents an important milestone for the Company. Compared to an investment cost of GBP4.8 million, the initial cash consideration represents return on investment of approximately 570% and an IRR of 45%.
Returns of Capital
In the year to 30 June 2012, the Company made the following returns of cash shareholders:
-- In February, the return of GBP2.5 million or 4.15 pence per share. -- In March, the return of GBP1.854 million or 3.08 pence per share.
These distributions brought the total cash returned by the Company to a total of GBP22.4 million as at 30 June 2012. Following the end of the period under review, the following distribution was made:
-- In September 2012, the return of GBP23.49 million or 39.0 pence per share.
This further distribution brought the total cash returned by the Company to a total of GBP45.9 million or 61.2 pence per share based on 75 million shares issued on admission to trading on AIM in January 2007.
Portfolio Update
The Company's had a pro forma NAV as at 30 June 2012 (adjusted for the GBP23.49 million of cash returned to shareholders in September) of GBP25.0 million or 41.5 pence per share. This NAV is comprised as follows:
-- Four portfolio company investments (representing approximately 65% of NAV). Of these, two are substantial investments in companies, both of which have achieved significant revenue growth since the time of the Company's investment, are operating profitably and are working towards either IPO's or trade sales that are targeted to occur within the next one to two years. The other two are smaller investments in two companies, both of which are either in or approaching exit processes.
-- Residual earn-out or loan-type instruments (representing approximately 15% of NAV). These are instruments left over from the sale of previously held company investments, including contingent earn-out payments from AgraQuest carried at an estimation of fair value, a secured loan earning 8% interest with a maturity date of March 2014 held in a subsidiary of Corero Network Security plc and a small number of preference shares in City Financial Investment Company Limited.
-- Cash and equivalents (representing approximately 20% of NAV). Of this amount, approximately half comprises cash held in secured escrow deposits and the other half cash reserved for future fund costs and contingencies.
As the portfolio has developed to a stage where, at any one time, one or more companies are likely to be in discussions with potential acquirers, merger partners or investors, the Investment Advisor considers that it is not in the best interests of the Company or shareholders to disclose individual holding values or the percentage ownership of portfolio companies.
Whilst the economic climate of the past few years has been a difficult one in which to build businesses, we are encouraged by the progress that that our remaining portfolio companies have made. Further details are provided in the next section.
Investment Advisor's Report (continued)
Period ended 30 June 2012
Portfolio Companies
Antenova Limited (Cambridge, UK) - www.antenova.com
Antenova is a developer and supplier of antennae components for mobile handsets, portable devices and laptop computers. Antenova has developed a range of patented IP which enables it to develop antennae and radio modules which allow multiple signals (e.g. 3G, GPRS, GPS, Bluetooth, Wi-Fi) to be combined in very small components whilst maintaining high performance. Manufacture is carried out by contract manufacturers in Asia.
Despite challenging market conditions over the last few years, the company sees consumer demand strengthening in the longer term, driven in part by the increased use of smart phones and tablet PC's and the roll-out of 4G networks.
The Engine Group Limited (London, UK) - www.theenginegroup.com
Engine is a substantial marketing and communications group based in the UK. The company is led by WCRS co-founder Peter Scott, who established Engine following the management buyout of WCRS from Havas in 2004. The group is comprised of eleven partner companies in the UK, two in the US and one in Asia. Engine provides services spanning across advertising agency, PR, brand consultancy, direct marketing and digital consultancy and serves a host of blue chip clients.
Engine had a challenging first half of 2011 due to an unfortunate confluence of difficult trading conditions, the loss of a major client (News of the World) and other unexpected or one-off type events. Although the company recovered strongly in the second half of the year, results for the year as a whole fell substantially short of target with revenues of GBP82.9 million (2010: GBP73.9 million) and adjusted EBITDA of GBP11.3 million (2010: GBP14.6 million).
Despite these challenges, the company continued to make strategic progress, including its first acquisition in the Chinese market, as well as two further acquisitions in the UK. In contrast to 2011, Engine has had a good start to 2012 and has won a number of significant new accounts including Boots No7, Yell and Virgin Atlantic.
Glimmerglass Networks Inc. (Hayward, California) - www.glimmerglass.org
Glimmerglass is the market leader in the design and supply of intelligent optical systems, based on large scale MEMs (Micro-Electro-Mechanical) switching technology, for fibre optic networks. These switches enable up to 200 light beams to be switched on a 'many-to-many' basis. The company's technology enables network operators remotely to create, monitor and protect light paths and take intelligent control of fibre optic network connections. Glimmerglass is an established supplier to a number of large telecom carriers, who install these systems at key nodes within their fibre optic networks, and to a growing number of cyber security agencies worldwide.
In 2011 the company significantly expanded its presence in the cyber security market and has built a large pipeline of business to drive revenue growth into 2012 and beyond. In addition, the company continues to develop its service offering with new software and other system capabilities.
Somethin' Else Limited (London, UK) - www.somethinelse.com
Somethin' Else is cross-platform media production company and the largest independent radio producer in the UK with programmes such as Jazz on 3, Gardeners' Question Time and the '606' Programme. The company is a growing producer of digital media and manages performers such as Jeremy Kyle and JK & Joel through its talent management agency. The company has won many distinctions including Bafta and Sony Radio Academy awards.
Somethin' Else has achieved substantial revenue growth over the last two years. In particular, the company has been successful in growing the digital side of the business and has delivered a number of flagship projects. The company is largest supplier of radio content to the BBC and continues to develop this long-term relationship.
Investment Advisor's Report (continued)
Period ended 30 June 2012
Other Investments
AgraQuest Inc. (Davis, California) - www.agraquest.com
AgraQuest is a world leading bio-technology company that develops and manufactures natural pest management products for agricultural and horticultural markets.
In August 2012, the Company sold its shareholding in AgraQuest to Bayer Cropscience LLC, a subsidiary of Bayer AG, for initial cash consideration of GBP27.3 million. Of this amount, approximately GBP1.8 million is currently held in escrow against future indemnification claims up to February 2014 and a further GBP1.5 million up to April 2016.
In addition there is contingent consideration payable should AgraQuest achieve certain performance milestones in future years, at certain periods up to the financial year ending December 2016. The maximum contingent consideration that could be due to Loudwater is GBP3.5 million.
Corero Network Security Plc (Rickmansworth, UK) - www.corero.com (acquirer of Top Layer Networks)
Corero is an AIM listed network security business that acquired Top Layer Networks from the Company and another investor in March 2011. In consideration for its share of the business, the Company received approximately US$7.5 million, comprised of 4.4 million Corero shares (US$3.1 million at 45p per share), loan notes with a value of US$2.7 million and cash of US$1.7 million.
In February 2012, the Company's shares in Corero were placed as part of an equity fundraising by Corero for 43 pence per share or GBP1.9 million in aggregate.
The Company continues to hold loan notes with original face value of US$2.7 million, generating interest at 8% per annum which is accrued and added to the principal amount on a bi-annual basis. The consideration loan notes are repayable in March 2014 but can be repaid prior to the repayment date without penalty at the election of Corero.
City Financial Investment Company Limited (London, UK) - www.cityfinancial.co.uk
City Financial a London based fund management firm that is responsible for a portfolio of funds including multi-manager absolute return, strategic fixed income and UK equity funds.
In January 2012, the Company sold its investment, which represented a non-controlling equity interest, to City Financial itself, for consideration of GBP2.75 million. Loudwater received cash proceeds of GBP2.5 million, together with preferred ordinary shares valued at GBP250,000.
Richard Wyatt & Edward Forwood
Loudwater Investment Partners Limited
20 September 2012
Investing Policy
Investment Objective
The Company's investment objective on admission to trading on AIM in January 2007 was to provide shareholders with an attractive rate of return on their investment, primarily through investing in companies which were likely to achieve an initial public offering ("IPO") or a sale within a short term time horizon, and through a small number of investments in companies that were already listed.
Following the approval of shareholders at an extraordinary general meeting on 5 November 2008, the Company made the following key changes to its investment objective:
-- The Company will not make any new investments other than follow-ons. Remaining capital will be reserved for follow-on investments in existing portfolio companies where the Investment Advisor believes further funding is required.
-- Cash proceeds from realisations in full following the exit of a portfolio investment will be distributed to shareholders, subject to the retention of sufficient cash for follow-on investments in existing portfolio companies where the Investment Advisor believes further funding is required.
Assets or Companies in which the Company can invest
The Company will not make any investments in new portfolio companies, apart from follow-on investments in existing portfolio companies.
As and when economic and market uncertainties have receded and the IPO markets for smaller companies show signs of improvement, the Board will review the options of either recapitalising the Company and resuming investment activity or initiating an orderly disposal of the portfolio and the return of all capital to shareholders.
Whether investments will be active or passive investments
Investments in portfolio companies are passive in nature but managed on an active basis.
The Investment Advisor formally monitors each of the Company's investments on an ongoing basis. Whilst the Company would usually require a right to a board seat or observer status, this right would generally only be exercised in the event of problems in the investee company or if the Company owns a significant equity holding in the investee company.
Holding period for investments
At admission to trading on AIM in January 2007, the Company's policy was to invest in companies which were likely to achieve a listing or realisation within six to twenty-four months. Furthermore, the Company wished to invest in businesses which would achieve an acceptable level of market capitalisation if they were listed on a public market. As such the Company's policy was not to invest in early stage or start-up situations, and instead it would focus on investing in companies which had achieved suitable levels of revenues and were either profitable or close to achieving profitability at the time of investment.
In light of the deteriorating economic environment towards the end of 2008, the Board, as advised by the Investment Advisor, believed that exit timeframes for potential new investments and the existing portfolio would be longer than previously envisaged. Moreover, whilst attractive returns were anticipated from the existing investment portfolio, some were likely to need further funding before an exit could be achieved. As a result, the investment objective and policy of the Company was amended and approved by shareholders in November 2008. It was therefore difficult to determine the timing of exits at this stage.
Spread of investments and maximum exposure limits
On admission to trading on AIM in January 2007, it was the Company's intention to use the net proceeds of the placing of circa GBP74 million to build an initial portfolio of investments in at least 15 companies.
The Company also stated that it would not seek to invest (or commit to invest) more than 10 per cent. of the Company's gross assets in any single investment at the time of investment (or commitment), although such limit was able to be exceeded in certain cases where the Board deemed it appropriate on the advice of the Investment Advisor.
Investing Policy (continued)
Spread of investments and maximum exposure limits (continued)
Typically, investments in pre-IPO opportunities were to be made by way of a convertible loan note that would convert on an exit event at a discount to the relevant exit price. The loans may also have an attached equity interest in the form of a warrant or option over shares. However, a proportion, not envisaged to exceed 25 per cent. of the net asset value of the portfolio, would be in investments made at a fixed price. This was necessary in order to capture attractive pre-IPO opportunities that are not available with a loan note security.
In addition, the Company was able to invest in companies that were already listed. These investments were made on an opportunistic basis and represented a small number of the Company's transactions, not exceeding 15 per cent. of the total net asset value of the Company. As investee companies achieve successful listings, however, the net asset value attributable to holdings in listed companies may be substantial.
The shareholders resolved at an extraordinary general meeting on 5 November 2008 that the Company would not make investments in any new portfolio companies, and that funds would be reserved for follow-on investments in existing portfolio companies. Accordingly, the Company will not be able to increase the spread of investments beyond its investment in 7 investee companies as at 30 June 2012 (31 December 2011: 8 investee companies).
Policy in relation to gearing
The Directors may exercise the powers of the Company to borrow money and to give security over its assets.
The Company may borrow funds secured on its investments if the Board, as advised by the Investment Advisor, considers that satisfactory opportunities for follow-on investment arise at a time when the Company is close to being fully invested. In any event, borrowings will be limited to 50 per cent. of the value of the Company's investments at the time of draw down.
The Company may be indirectly exposed to the effects of gearing to the extent that investee companies have outstanding borrowings.
The Company may invest a proportion of its assets in underlying investments denominated in currencies other than sterling. In an attempt to reduce the impact on the ordinary shares of currency fluctuations and the volatility of returns which may result from such currency exposure, the Company will have the flexibility to hedge the appropriate proportions of the Company's assets against sterling through the use of foreign exchange transactions and currency derivatives. Currency hedging will be for the purposes of efficient portfolio management only and the Company has no intention of using currency hedging for the purposes of currency speculation for its own account.
Policy in relation to cross-holdings
The Company does not have a formal policy on cross-holdings. However, the Company's policy is not to make any investments in new portfolio companies, apart from follow-on investments in existing portfolio companies.
The Company's policy for investments in companies that are already listed, which include closed-ended investment funds, is that they will be made on an opportunistic basis and are expected to represent a small number of the Company's transactions, not exceeding 15 per cent. of the total net asset value of the Company. As investee companies achieve successful listings, however, the net asset value attributable to holdings in listed companies may be substantial.
Investing Restrictions
Following the approval of shareholders at an extraordinary general meeting on 5 November 2008, the Company no longer intends to make any investments in new portfolio companies. Remaining capital will be reserved for follow-on investments in existing portfolio companies where the Investment Advisor believes further funding is required.
Whilst there are no restrictions on the ability of the Company to take controlling stakes in portfolio companies, the Company ensures that there is sufficient separation between the Company and each portfolio company through the right to a Board seat or Board observer status in only a non-executive capacity.
Investing Policy (continued)
Investing Restrictions (continued)
In addition, the Company also ensures that there is sufficient separation between each portfolio company by ensuring that there is no:
-- cross-financing, including the provision of undertakings or security for borrowings from one portfolio company to another;
-- common treasury functions; or
-- sharing of operations.
Other than these restrictions set out above, and the requirement to invest in accordance with its investing policy, there are no other investing restrictions.
Returns and Distribution Policy
It is anticipated that returns from the Company's investment portfolio will be in the form of capital upon realisation or sale of its investee companies, rather than from dividends.
At the extraordinary general meeting on 5 November 2008, it was resolved that the cash proceeds of realisation in full following the exit of a portfolio investment would be returned to shareholders, subject to the retention of sufficient cash for follow-on investments in existing portfolio companies where the Investment Advisor believes that further funding is required. Whilst it is not possible to determine the timing of exits, the Board, advised by the Investment Advisor, will seek to return capital to shareholders when appropriate.
Life of the Company
The Company was established with an indefinite life. Following the approval of shareholders at an extraordinary general meeting on 5 November 2008, there will be a continuation vote at the annual general meeting of the Company to be held to consider the accounts for the financial period ended 31 December 2013 (or any accounting period substituted for it). It is further proposed that if any such continuation vote is passed, that a similar continuation vote will be proposed at every second annual general meeting thereafter. If at any time a continuation vote is not passed, the Directors will be required to formulate proposals to wind up the Company.
Unaudited Statement of Financial Position
As at 30 June 2012
Notes Audited
Unaudited 31 December 2011 Unaudited
30 June 2012 30 June 2011
---------------------------------------------------------- ------- -------------- ----------------- --------------
GBP GBP GBP
Non-current assets
Financial assets at fair value through profit or loss: 2 & 6
Designated at fair value through profit or loss upon
initial recognition:
Equity investments 42,626,104 25,968,530 30,478,566
Compound debt investments* 2,432,813 2,355,083 1,751,052
Other short term investment** - 152,577 793,454
-------------- ----------------- --------------
Total designated at fair value through profit or loss upon
initial recognition 45,058,917 28,476,190 33,023,072
-------------- ----------------- --------------
Current assets:
Financial assets at fair value through profit or loss:
Designated at fair value through profit or loss upon
initial recognition:
Equity investment held for sale 7 1,550,150 2,000,000 -
Other receivables 8 22,443 7,541 28,845
Cash and cash equivalents 9 1,888,407 1,762,408 2,006,784
-------------- ----------------- --------------
3,461,000 3,769,949 2,035,629
-------------- ----------------- --------------
Total Assets 48,519,917 32,246,139 35,058,701
-------------- ----------------- --------------
Liabilities
Financial liabilities measured at amortised cost:
Other payables*** 10 40,052 34,851 21,783
Total net assets 48,479,865 32,211,288 35,036,918
============== ================= ==============
Equity attributable to equity holders
Distributable reserve 11 51,935,149 56,289,984 56,289,984
Revenue reserve 12 (3,455,284) (24,078,696) (21,253,066)
Total equity 48,479,865 32,211,288 35,036,918
============== ================= ==============
Net asset value per Ordinary Share (GBP) 13 0.8049 0.5348 0.5817
============== ================= ==============
* Compound debt investments comprise secured loan notes, including accrued simple interest.
** Other short term investment in the comparative year is a fixed cash deposit with a maturity of longer than 3 months from the reporting date.
*** Creditors and accruals.
The accompanying notes form an integral part of these financial statements.
Unaudited Statement of Comprehensive Income
For the period ended 30 June 2012
Unaudited Unaudited
1 January 1 January
Notes 2012 2011
To To
30 June 2012 30 June 2011
----------------------------- ------- ------------- -------------
GBP GBP
Income
Interest income from
cash and cash equivalents 7,817 12,466
Other income - 26,847
Total income 7,817 39,313
------------- -------------
Expenses
Investment Advisor's
fee 3 296,435 398,666
Administration fee 3 29,248 37,887
Directors' fees and
expenses 4 65,195 54,572
Auditor's remuneration 12,902 13,537
Legal and professional* 14,732 78,124
Other expenses** 81,890 33,025
Total expenses 500,402 615,811
------------- -------------
Net loss before investment
result (492,585) (576,498)
Movement in net unrealised
gains on investments
at fair value through
profit or loss 6 22,845,826 6,704,625
Movement in net unrealised
gains on investment
held for sale at fair
value through profit
or loss 7 1,232,563 -
Net realised loss on
disposal of investments
at fair value through
profit or loss 6 (2,951,132) (6,925,620)
Net foreign exchange
losses*** 2b (11,260) (91,357)
Bad debt provision**** - (239,581)
Profit/(loss) for the
financial period 20,623,412 (1,128,431)
------------- -------------
Other comprehensive - -
income
Total comprehensive
income/(loss) for the
period 12 20,623,412 (1,128,431)
============= =============
Earnings/(loss) per
Ordinary Share (GBP) 5 0.3424 (0.0187)
============= =============
*Includes costs associated with the returns of capital.
**Includes Nomad fees, transaction costs, marketing expenses, other professional fees and costs associated with capital returns.
***Represents foreign exchange losses in respect of US$ reserves, US$ cash and cash equivalents, creditors and debtors.
****Represents a bad debt provision taken against the Pentadyne escrow deposit as described in our report for 2010.
The results from the current and prior periods are derived from continuing operations.
The accompanying notes form an integral part of these financial statements.
Unaudited Statement of Changes in Equity
For the period ended 30 June 2012
Unaudited Unaudited
1 January 1 January
Notes 2011 201
To To
30 June 2011 30 June 2011
-------------------------- ------- ------------- -------------
GBP GBP
Balance brought forward 32,211,288 40,381,694
Total comprehensive
income/(loss) for the
period 20,623,412 (1,128,431)
Capital distribution
paid in the period 11 (4,354,835) (4,216,345)
Balance carried forward 48,479,865 35,036,918
============= =============
The accompanying notes form an integral part of these financial statements.
Unaudited Statement of Cash Flows
For the period ended 30 June 2012
Unaudited Unaudited
1 January 1 January
Notes 2012 2011
To To
30 June 2012 30 June 2011
------------------------------ ------- ------------- -------------
GBP GBP
Cash flows from operating
activities
Net loss before investment
result (492,585) (576,498)
Adjusted for:
Bank interest (7,817) (12,466)
Bad debt provision - (326,010)
(Increase)/decrease
in other receivables (14,686) 1,892
Increase/(decrease)
in other payables 5,201 (126,296)
Purchase of investments - (837,200)
Proceeds from sale of
investments 4,994,380 2,913,353
Net cash from operating
activities 4,484,493 1,036,775
------------- -------------
Cash flows used in financing
activities
Bank interest received 7,601 12,665
Capital distribution
paid 11 (4,354,835) (4,216,345)
Net cash used in financing
activities (4,347,234) (4,203,680)
------------- -------------
Net increase/(decrease)
in cash and cash equivalents 137,259 (3,166,905)
Cash and cash equivalents,
start of the period 1,762,408 5,265,044
Effect of exchange rate
changes during the period (11,260) (91,357)
------------- -------------
Cash and cash equivalents,
end of the period* 9 1,888,407 2,006,784
============= =============
Cash and cash equivalents
comprise the following
amounts:
Bank deposits 91,888,407 2,006,784
1,888,407 2,006,784
========= =========
*Cash and cash equivalents at the end of the period ended 30 June 2011 exclude fixed cash deposits with a maturity of longer than 3 months from the reporting date. As at 30 June 2012, fixed cash deposits with a maturity of longer than 3 months from the reporting date of GBPnil (30 June 2011: GBP0.8 million) are categorised as "other short term investments" in these financial statements.
The accompanying notes form an integral part of these financial statements.
Notes to the Financial Statements
For the period ended 30 June 2012
The Company
The Company is a Guernsey registered closed-ended investment company and was registered with limited liability in Guernsey on 11 January 2007. The Company commenced business on 29 January 2007 when the Ordinary Shares of the Company were admitted to trading on AIM.
The Company is an Authorised Closed-Ended Investment Scheme and is subject to the Authorised Closed-Ended Investment Scheme Rules 2008.
The Company was established to provide Shareholders with an attractive rate of return on their investment, primarily through investing in companies which were likely to achieve an IPO or a sale within a short term time horizon and through a small number of investments in companies that were already listed. Refer to pages 8 to 10 for full details of the Company's investing policy.
The Company made its last investment in a new opportunity, AgraQuest, Inc. in October 2007. By early 2008, the Investment Advisor was becoming increasingly aware that equity values were under pressure and that opportunities for exit by IPO or trade sale were weakening.
Significant Accounting Policies
In preparing the Financial Statements, the significant judgments made by the Directors in applying the Company's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the audited financial statements as at and for the year ended 31 December 2011.
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company's financial statements:
(a) Basis of Preparation
(i) Statement of compliance
The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS"), which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee ("IASC") and adopted by the European Union that remain in effect.
The financial statements of the Company have been prepared under the historical cost convention modified by the revaluation of investments and assets and liabilities at fair value through profit or loss, and in accordance with IFRS and the Companies (Guernsey) Law, 2008.
(ii) Judgements and estimates
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results could differ from such estimates.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate was revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
The most critical judgements, apart from those involving estimates, that management has made in the process of applying the Company's accounting policies and that have the most significant effect on the amounts recognised in the financial statements, are the functional currency of the Company (see note 2(b)(i)) and the fair value of investments designated to be at fair value through profit or loss (see note 2(f)).
2. Significant Accounting Policies (continued)
(iii) IFRS
Significant new standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not yet effective for the current year, and have not been applied in preparing these Financial Statements. None of these will have a significant effect on the Financial Statements of the Company, with the exception of the following:
-- IFRS 9 Financial Instruments, published on 12 November 2009 (effective 1 January 2015) as part of phase I of the IASB's comprehensive project to replace IAS 39, deals with classification and measurement of financial assets. The requirements of this standard represent a significant change from the existing requirements in IAS 39 in respect of financial assets. The standard contains two primary measurement categories for financial assets: amortised cost and fair value. A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset's contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be measured at fair value.
The standard eliminates the existing IAS 39 categories of held to maturity, available for sale and loans and receivables. For an investment in an equity instrument which is not held for trading, the standard permits an irrevocable election, on initial recognition, on an individual share-by-share basis, to present all fair value changes from the investment in other comprehensive income. No amount recognised in other comprehensive income would ever be reclassified to profit or loss at a later date. However, dividends on such investments are recognised in profit or loss, rather than other comprehensive income unless they clearly represent a partial recovery of the cost of the investment. Investments in equity instruments in respect of which an entity does not elect to present fair value changes in other comprehensive income would be measured at fair value with changes in fair value recognised in profit or loss.
The standard requires that derivatives embedded in contracts with a host that is a financial asset within the scope of the standard are not separated; instead the hybrid financial instrument is assessed in its entirety as to whether it should be measured at amortised cost or fair value.
The Directors' are currently in the process of evaluating the potential effect of this standard. The standard is not expected to have a significant impact on the financial statements since the majority of the Company's financial assets are designated at fair value through profit or loss. The amendments will become mandatory for the Company's 31 December 2016 annual financial statements.
-- IFRS 10 Consolidated Financial Statements, IFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation - Special Purpose Entities. It introduces a new, principle-based definition of control which will apply to all investees to determine the scope of consolidation.
-- IFRS 13 Fair Value Measurement, currently, guidance on measuring fair value is distributed across many IFRS. Some standards contain limited guidance and others quite extensive guidance that is not always consistent. IFRS 13 has been developed to remedy this problem, by:
1) establishing a single source of guidance for all fair value measurements; 2) clarifying the definition of fair value and related guidance; and 3) enhancing disclosures about fair value measurements
The fair value measurement framework is based on a core principle that defines fair value as an exit price, whilst retaining the exchange price notion contained in the existing definition of fair value in IFRS.
2. Significant Accounting Policies (continued)
(iii) IFRS (continued)
Significant new standards and interpretations not yet adopted (continued)
-- IFRS 13 Fair Value Measurement (continued)
The standard also clarifies that fair value is based on a transaction taking place in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. The principal market is the market with the greatest volume and level of activity for the asset or liability.
For liabilities, the standard provides extensive guidance to deal with the problematic issue of measuring the fair value of a liability in the absence of a quoted price in an active market to transfer an identical liability.
Proposed disclosures in the new standard will increase transparency about fair value measurements, including the valuation techniques and inputs used to measure fair value.
The Directors believe that other pronouncements, which are in issue but not yet operative or adopted by the Company, will not have a material impact on the financial statements of the Company.
(b) Foreign Currency
(i) Functional and Presentation Currency
The Company's investors are mainly from the UK, with the share price of the Ordinary Shares denominated in sterling. The primary activity of the Company is to offer UK investors an attractive return on their investment, primarily through investing in companies which are likely to achieve an IPO or a sale within a short term time horizon and through a small number of investment companies that are already listed. The performance of the Company is measured and reported to investors in sterling. The Directors consider sterling to be the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements are presented in sterling, which is the Company's functional and presentation currency.
(ii) Transactions and Balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss. Translation differences on non-monetary financial assets and liabilities such as equities at fair value through profit or loss are recognised in other comprehensive income.
(c) Income
Bank interest, investment income and loan stock interest are included in the financial statements on an accruals basis.
(d) Financial Instruments
Financial assets and financial liabilities are recognised in the Unaudited Statement of Financial Position when the Company becomes a party in the contractual provisions of the instrument.
(i) Financial assets
The classification of financial assets at initial recognition depends on the purpose for which the financial assets were acquired and their characteristics.
All financial assets are initially recognised at fair value. All purchases of financial assets are recorded at trade date, this being the date on which the Company became party to the contractual requirement of the financial asset.
The Company's financial assets are categorised as financial assets at fair value through profit or loss and loans and receivables. Unless otherwise indicated the carrying amounts of the Company's financial assets approximate to their fair values. Gains and losses arising from changes in the fair value of financial assets classified as fair value through profit or loss are recognised in the Unaudited Statement of Comprehensive Income.
2. Significant Accounting Policies (continued)
(d) Financial Instruments (continued)
(i) Financial assets (continued)
Loans and receivable assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They principally comprise trade and other receivables, but also incorporate other types of contractual monetary assets. They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition and subsequently carried at amortised cost plus using the effective interest rate method, less provisions for impairment. The effect of discounting on these financial instruments is not considered to be material.
A financial asset (in whole or in part) is derecognised either:
-- When the Company has transferred substantially all the risk and rewards of ownership;
-- When it has not retained substantially all the risk and rewards and when it no longer has control over the asset or a portion of the asset; or
-- When the contractual right to receive cash flow has expired.
(ii) Financial liabilities
The classification of financial liabilities at initial recognition depends on the purpose for which the financial liability was issued and its characteristics.
All financial liabilities are initially recognised at fair value net of transaction costs incurred. All purchases of financial liabilities are recorded on trade date, this being the date on which the Company becomes party to the contractual requirements of the financial liability. Unless otherwise indicated the carrying amounts of the Company's financial liabilities approximate to their fair values.
Financial liabilities include trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost. The effect of amortising these liabilities using the effective interest rate method is nil.
A financial liability (in whole or in part) is derecognised when the Company has extinguished its contractual obligations, it expires or is cancelled. Any gain or loss on derecognition is taken to the Unaudited Statement of Comprehensive Income.
(e) Impairment of financial assets
Financial assets are assessed at each reporting date to determine whether there is any objective evidence that they are impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impaired loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are recognised in the Unaudited Statement of Comprehensive Income.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. The reversal is recognised in the Unaudited Statement of Comprehensive Income.
2. Significant Accounting Policies (continued) (f) Investments
(i) Classification
Investments have been designated as fair value through profit or loss in accordance with IAS 39 (Revised) "Financial Instruments: Recognition and Measurement". Investments include quoted investments, unquoted investments, compound financial instruments and fixed cash deposits which have a maturity of greater than 3 months after the period end date. These fixed cash deposits are included in the Unaudited Statement of Financial Position as other short term investments.
Investments designated at fair value through profit or loss at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Company's documented investment strategy with the exception of fixed cash deposits which is held at cost which is deemed to be their fair value. The Company's policy is for the Investment Advisor and the Board of Directors to evaluate the information about these investments on a fair value basis together with other related financial information.
Warrant investments meet the definition of "Derivatives" under IAS 39 and have been designated as held for trading in accordance with IAS 39 (Revised) "Financial Instruments: Recognition and Measurement". They are accounted for as fair value through profit or loss.
(ii) Measurement
Investments at fair value through profit or loss are initially recognised at fair value. Transaction costs are expensed in the Unaudited Statement of Comprehensive Income. Subsequent to initial recognition, all investments at fair value through profit or loss are measured at fair value. Realised and unrealised gains and losses arising on 'investments at fair value through profit or loss' are presented in the Unaudited Statement of Comprehensive Income in the period in which they arise. Interest income from debt investments at fair value through profit or loss is recognised in the Unaudited Statement of Comprehensive Income within interest income using the effective interest method. Dividend income from equity investments at fair value through profit or loss is recognised in the Unaudited Statement of Comprehensive Income within dividend income when the Company's right to receive payments is established.
Classification of Fair Value Measurements
The amendment to IFRS 7, effective 1 January 2009, requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
-- Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
-- Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); and
-- Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, the measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement considering factors specific to the asset or liability.
The determination of what constitutes "observable" requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
2. Significant Accounting Policies (continued)
(g) Investments (continued)
(iii) Recognition/derecognition
All regular way purchases and sales of investments are recognised on trade date - the date on which the Company commits to purchase or sell the investment. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.
(iv) Fair value estimation
Quoted investments at fair value through profit or loss are valued at the bid price on the relevant stock exchange, discounted, where necessary, to reflect any lack of liquidity.
Unquoted investments at fair value through profit or loss are valued in accordance with the International Private Equity and Venture Capital valuation guidelines.
Unquoted debt investments are carried at fair value in accordance with the International Private Equity and Venture Capital valuation guidelines.
(g) Expenses
Expenses are accounted for on an accruals basis.
(h) Cash and Cash Equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits having a maturity of less than 3 months and highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purposes of the Unaudited Statement of Cash Flows, cash and cash equivalents consist of cash in hand, deposits in bank which have a maturity of less than 3 months and overdrafts.
(i) Determination and presentation of operating segments
IFRS 8 requires a "management approach", under which segment information is presented on the same basis as that used for internal reporting purposes.
The key measure of performance used by the Board in its capacity of Chief Operating Decision Maker ("CODM") is to assess the Company's performance and to allocate resources based on the total return of each individual investment within the Company's portfolio, as opposed to geographic regions. As a result, the Board is of the view that the Company is engaged in a single segment of business, being investment in companies which were likely to achieve an IPO or a sale within a short term time horizon and through a small number of investments in companies that were already listed. Therefore, no reconciliation is required between the measure of gains or losses used by the Board and that contained in these financial statements.
The Company receives no revenues from external customers.
3. Related Parties
Change of Directors
On 27 April 2012, Lord Flight, Robert Fearis, Edward Forwood and Roger Le Tissier retired from the Board of Directors with immediate effect. Rhys Davies was appointed non-executive Chairman, replacing Lord Flight.
Robert Fearis, who was a Director of the Company, is also a shareholder in, and a director of, Praxis Holdings Limited, the holding company of the Administrator. Roger Le Tissier, who was a Director of the Company, is a director of Capita Registrars (Guernsey) Limited, the Company's Registrar, and a partner in Ogier, the Guernsey Advocate to the Company. Edward Forwood who was a Director of the Company, is a shareholder in, and is the Managing Director of, the Investment Advisor.
3. Related Parties (continued)
Brett Miller and Rhys Davies are Directors of the Company and are shareholders in, and directors of, Damille Investments Limited ("Damille"), a 29.3% shareholder in the Company. Due to Damille being a substantial shareholder, Brett Miller and Rhys Davies are not deemed to be independent Directors. Damille has entered into a relationship agreement between the Company and Damille such that at all times the Company is capable of acting independently of Damillle and/or its directors and that any transactions between themselves and any member of the Company are at arm's length and on a normal commercial basis.
Christopher Fish is an independent Director. Lord Flight was also an independent Director.
The Company is responsible for the continuing fees of the Investment Advisor, Administrator and the Registrar in accordance with the Investment Advisory, Administration and Registrar Agreements dated 24 January 2007.
Investment Advisory Agreement
Pursuant to the provisions of the Investment Advisory Agreement, the Investment Advisor is entitled to receive a management fee during the period at 2.0% per annum of the net asset value of the Company, payable quarterly in advance. As at 30 June 2012, the Investment Advisory fee creditor was GBPnil (31 December 2011: GBPnil & 30 June 2011: GBPnil).
Performance Fee
The Investment Advisor is also entitled to a performance fee calculated by taking an amount equal to 20% of the adjusted closing net asset value (NAV) per Ordinary Share over the opening NAV per Ordinary Share, (where the adjusted NAV is the NAV of the Company excluding any liability for accrued performance fees and after adding back any dividends declared or paid during the performance period), such that the Company and the Investment Advisor share all profits in the ratio of 80% and 20% respectively. The Investment Advisor will become entitled to a performance fee in respect of a performance period only if the adjusted closing NAV per Ordinary Share at the end of the relevant performance period exceeds the opening NAV per Ordinary Share at the start of the relevant period increased by a hurdle amount of 7.5%. The first performance period began on Admission and ended on 31 December 2007. Each subsequent performance period is a period of one financial year. As at 30 June 2012, the performance fee creditor was GBPnil (31 December 2011: GBPnil & 30 June 2011: GBPnil).
City Financial Limited
On 30 November 2009, Loudwater Investment Partners Limited was appointed to manage City Financial's UK Select Alpha Fund (now renamed City Financial UK Equity Income Fund). Assets under management are some GBP16.5 million and Loudwater Investment Partners Limited receives a fee of 0.75% of AUM per annum for this service.
Administration Agreement
Pursuant to the provisions of the Administration Agreement, Praxis Fund Services Limited is entitled to receive a standard administration fee of GBP26,250 per annum together with a fee for company secretarial services charged on a time basis. As at 30 June 2012, the administration fee creditor was GBP14,490 (31 December 2011: GBP13,451 & 30 June 2011: GBPnil).
Registrar Agreement
Pursuant to the provisions of the Registrar Agreement, Capita Registrars (Guernsey) Limited is entitled to a standard fee of GBP3,500 per annum together with a per deal fee per shareholder transaction. As at 30 June 2012, the registrar fee creditor was GBP2,296 (31 December 2011: GBP1,764 & 30 June 2011: GBPnil).
Nominated Advisor & Broker Fees
Pursuant to the provisions of the Engagement Letter dated 9 November 2007, as subsequently amended, Panmure Gordon (UK) Limited is entitled to a standard fee of GBP30,000 per annum for acting as nominated advisor and broker.
As at 30 June 2012, the Nominated Advisor and Broker fee creditor was GBPnil (31 December 2011: GBPnil & 30 June 2011: GBPnil).
4. Directors' Fees, Expenses & Interests
Each of the Directors has entered into an agreement with the Company providing for them to act as a non-executive director of the Company. Their annual fees, excluding all reasonable expenses incurred in the course of their duties which will be reimbursed by the Company are as follows:
30 June 2012 30 June 2011
Annual Fee Annual Fee
------------- -------------
GBP GBP
Brett Miller 9,000 Nil
Rhys Davies 9,000 Nil
Christopher Fish 18,000 18,000
Lord Flight* 30,000 30,000
Edward Forwood* Nil Nil
Roger Le Tissier* 18,000 18,000
Robert Fearis* 18,000 18,000
The total Directors' fees and expenses charged to the Unaudited Statement of Comprehensive Income during the period was GBP65,195 (30 June 2011: GBP54,572) of which GBPnil remained outstanding at 30 June 2012 (31 December 2011: GBPnil & 30 June 2011: GBPnil).
On 5 September 2012, the Board resolved to increase Rhys Davies's annual Director fee to GBP30,000 per annum as Chairman and to increase Brett Miller's annual Director fee to GBP18,000 per annum with effect from 1 July 2012.
The interests of the Directors and their families who held office during the period are set out below:
30 June 2012 30 June 2011
Ordinary Shares Ordinary Shares
---------------- ----------------
No. No.
Brett Miller(1) - -
Rhys Davies(1) - -
Christopher Fish - -
Lord Flight* 80,000 80,000
Edward Forwood* 400,000 400,000
Roger Le Tissier* - -
Robert Fearis* - -
*resigned 27 April 2012
On 27 April 2012, Lord Flight, Edward Forwood, Roger Le Tissier and Robert Fearis resigned as Directors of the Company. On this date Rhys Davies was also appointed as non-executive Chairman of the Company, replacing Lord Flight.
(1) Brett Miller and Rhys Davies are Directors of the Company and shareholders in, and directors of, Damille Investments Limited, a 29.3% shareholder in the Company.
There were no other changes in the interests of the Directors prior to the date of this report.
5. Earnings/(loss) per Ordinary Share
Earnings per Ordinary Share is based on the return for the period of GBP20,623,412 (period ended 30 June 2011: GBP1,128,431 loss) and on a weighted average number of Ordinary Shares in issue during the year of 60,232,855 (30 June 2011: 60,232,855).
6. Investments at Fair Value Through Profit or Loss
30 June 2012 31 December 2011 30 June 2011
--------------- ------------------ ---------------
GBP GBP GBP
Listed investments - 1,891,953 -
Unlisted investments 45,058,917 26,431,660 32,229,618
Other short term investment* - 152,577 793,454
--------------- ------------------ ---------------
45,058,917 28,476,190 33,023,072
=============== ================== ===============
Movement in net unrealised gain on investments at fair 1 January 2012 1 January 2011 1 January 2011
value through profit or loss: To To To
30 June 2012 31 December 2011 30 June 2011
--------------- ------------------ ---------------
GBP GBP GBP
Simple interest receivable on convertible loan notes 28,638 (989,259) (1,014,936)
Interest receivable on other short term investments - (408) 1,344
Other unrealised gains on investments 22,817,188 6,638,569 7,718,217
--------------- ------------------ ---------------
22,845,826 5,648,902 6,704,625
=============== ================== ===============
Net realised loss on disposal of investments at fair
value through profit or loss:
Simple interest receivable on convertible loan notes 72,350 1,185,886 1,114,049
Realised losses on investments (3,023,482) (8,012,822) (8,039,669)
--------------- ------------------ ---------------
(2,951,132) (6,826,936) (6,925,620)
=============== ================== ===============
*Other short term investment is a fixed cash deposit with a maturity of longer than 3 months from the reporting date.
7. Investment classified as held for sale
30 June 2012 31 December 2011 30 June 2011
--------------- ------------------ ---------------
GBP GBP GBP
Equity Investment held for sale 1,550,150 2,000,000 -
1,550,150 2,000,000 -
=============== ================== ===============
Movement in net unrealised gain on investments held for 1 January 2012 1 January 2011 1 January 2011
sale at fair value through profit To To To
or loss: 30 June 2012 31 December 2011 30 June 2011
--------------- ------------------ ---------------
GBP GBP GBP
Unrealised gain/(loss) on equity investment held for sale 1,232,563 (1,350,000) -
1,232,563 (1,350,000) -
=============== ================== ===============
At the date of approval of these interim financial statements, the Investment Advisor is working with the management team of a portfolio company to develop a structure for a phased buyout of the Fund's investment in its entirety. This investment has been classified as held for sale in the Unaudited Statement of Financial Position.
8. Other Receivables
30 June 2012 31 December 2011 30 June 2011
------------- ----------------- -------------
GBP GBP GBP
Bank interest receivable 1,153 936 -
Prepayments 21,290 6,605 28,845
------------- ----------------- -------------
22,443 7,541 28,845
============= ================= =============
The Directors consider that the carrying amount of other receivables approximates fair value. The Company's exposure to credit risk related to other receivables is disclosed in note 14.
9. Cash and Cash Equivalents
30 June 2012 31 December 2011 30 June 2011
------------- ----------------- -------------
GBP GBP GBP
Cash at bank 1,737,423 1,762,408 2,006,784
Fixed deposit < 3 months 150,984 - -
------------- ----------------- -------------
1,888,407 1,762,408 2,006,784
============= ================= =============
Total cash and deposits amount to GBP1.89 million (31 December 2011: GBP1.91 million & 30 June 2011: GBP2.8 million), being GBP1.89 million (31 December 2011: GBP1.76 million & 30 June 2011: GBP2 million) cash and cash equivalents and GBPnil (31 December 2011: GBP0.15 million & 30 June 2011: GBP0.8 million) in note 6, Other short term investment.
The Company's exposure to interest rate risk and sensitivity analysis for financial assets and liabilities are disclosed in note 15.
10. Other Payables
30 June 2012 31 December 2011 30 June 2011
------------- ----------------- -------------
GBP GBP GBP
Administration fee 14,490 13,451 -
Registrar's fee 2,296 1,764 2,495
Audit fee 13,152 17,200 7,052
Letter of credit obligation* - - 9,651
Corero deposit claim creditor 9,191 - -
Sundry 923 2,436 2,585
------------- ----------------- -------------
40,052 34,851 21,783
============= ================= =============
*Relates to Pentadyne Letter of Credit bad debt provision.
The Company's exposure to liquidity risk related to other payables is disclosed in note 15.
The Directors consider that the carrying amount of other payables approximates fair value.
11. Share Capital & Distributable Reserve
30 June 2012,
31 December
2011
Authorised Share Capital &
30 June 2011
-------------
GBP
Unlimited Shares of no par value
that may be issued as Ordinary Shares -
=============
1 January 2012 1 January 2011 1 January 2010
To To To
Share Capital 30 June 2012 31 December 2011 30 June 2010
-------------- ----------------- --------------
GBP GBP GBP
Allotted, issued and fully paid Shares:
-------------- ----------------- --------------
Brought forward & carried forward - - -
============== ================= ==============
As at 30 June 2012, there were 60,232,855 shares in issue (31 December 2011 & 30 June 2011: 60,232,855).
1 January 2012 1 January 2011 1 January 2011
To To To
Distributable Reserve 30 June 2012 31 December 2011 30 June 2011
-------------- ----------------- --------------
GBP GBP GBP
Brought forward 56,289,984 60,506,329 60,506,329
Capital distribution paid (4,354,835) (4,216,345) (4,216,345)
-------------- ----------------- --------------
Carried forward 51,935,149 56,289,984 56,289,984
============== ================= ==============
11. Share Capital & Distributable Reserve (continued)
The authorised share capital of the Company on incorporation was divided into an unlimited number of Shares of no par value which upon issue, for cash or otherwise, the Directors may categorise as Ordinary Shares or otherwise. The Company's Articles of Association confer pre-emption rights to Shareholders in the event of any issue of shares which would increase the issued share capital by 25 per cent. or more.
Subject to the provisions of the Law and without prejudice to any rights attaching to any existing Shares or to the provisions of the Articles, any share in the Company may be issued with or have attached thereto such preferred, deferred, conversion or other special rights, or such restrictions whether in regard to dividend, return of capital, voting, conversion or otherwise as the Company may from time to time by ordinary resolution determine or, subject to or in default of any such direction, as the Directors may determine.
The Company may issue fractions of Shares and any such fractional Shares shall rank pari passu in all respects with the other shares issued by the Company.
The initial offering of the Ordinary Shares was at a price of GBP1.00 per Ordinary Share.
On 16 January 2007, the holders of the Subscriber Shares in the Company passed a written resolution approving the cancellation of the entire amount which stood to the credit of the share premium account immediately after the Placing, conditionally upon the issue of the Shares and the payment in full thereof and with approval of the Royal Court. The cancellation was confirmed by the Royal Court on 27 April 2007.
During the period the Company made a capital return by way of bonus issue of B shares. The capital returned to shareholders was GBP4.4 million, equating to approximately 7.23 pence per Ordinary Share, and included the cash element received from the part disposals of City Financial Investment Company Limited and Corero Network Security plc.
12. Revenue Reserve
1 January 2012 1 January 2011 1 January 2011
To To To
30 June 2012 31 December 2011 30 June 2011
-------------- ----------------- --------------
GBP GBP GBP
Retained revenue reserve brought forward (24,078,696) (20,124,635) (20,124,635)
Total comprehensive income/(loss) for the period/year 20,623,412 (3,954,061) (1,128,431)
-------------- ----------------- --------------
Retained revenue reserve carried forward (3,455,284) (24,078,696) (21,253,066)
============== ================= ==============
13. Net Asset Value per Ordinary Share
The net asset value per Ordinary Share is based on the net assets attributable to equity shareholders of GBP48,479,865 (31 December 2011: GBP32,211,288 & 30 June 2011: GBP35,036,918) and on the year end number of Ordinary Shares in issue of 60,232,855 (31 December 2011: 60,232,855 & 30 June 2011: 60,232,855).
14. Financial Instruments
(a) Significant accounting policies:
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of its financial assets and financial liabilities are disclosed in note 2 to these financial statements.
(b) Categories of financial assets:
Financial instruments are made up of quoted and unquoted investments, fixed cash deposits of greater than 3 months maturity classified as investments at fair value through profit or loss, cash and cash equivalents and other receivables excluding prepayments. As at 30 June 2012, the fair value of the Company's financial assets was GBP48,498,627 (31 December 2011: GBP32,239,535 & 30 June 2011: GBP35,058,701). This was 100.04% (31 December 2011: 100.09% & 30 June 2011: 100.06%) of net assets attributable to equity shareholders.
There are no financial liabilities other than other payables as disclosed in note 10.
(c) Derivatives:
In accordance with the Company's scheme particulars the Company may invest in derivatives or forward foreign exchange contracts for the purpose of efficient portfolio management. No such forward foreign exchange contracts were held during the period ended 30 June 2012 (31 December 2011: GBPnil & 30 June 2011: GBPnil). As at 30 June 2012, the Company held one warrant derivative contract investment, which was valued at GBPnil. (31 December 2011 & 30 June 2011: one contract valued at GBPnil).
A warrant is a derivative financial instrument which gives the right, but not the obligation to buy a specific amount of a given stock, at a specified price (strike price) on a specific date. The fair value of the warrants are classified as financial assets at fair value through profit or loss, as disclosed in note (b) above. The warrants for underlying unlisted equities are valued at GBPnil in accordance with the International Private Equity and Venture Capital valuation guidelines.
15. Financial Risk Management
Strategy in using Financial Instruments
The Company's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance.
The Company's investment objective was to provide shareholders with an attractive return on their investment, primarily through investing in companies which were likely to achieve an IPO or a sale within a short term time horizon and through a small number of investment companies that were already listed.
In September 2008, the Company announced that, in the light of the deteriorating economic environment and the lack of a visible time frame for exits, it would return some capital to Shareholders by way of a tender offer and would make appropriate changes in the Company's structure and investment policy as described in the Tender Offer document and in note 1.
Market Price Risk
All securities investments present a risk of loss of capital. The Investment Advisor moderates this risk through a careful selection of securities and other financial instruments within specified limits. The maximum risk resulting from financial instruments is determined by the fair value of the financial instruments. The Company's portfolio and investment strategy is reviewed continuously by the Investment Advisor and on a quarterly basis by the Board.
15. Financial Risk Management (continued)
Market Price Risk (continued)
The Company's exposure to market price risk arises from uncertainties about future prices of its investments. This risk is managed through diversification of the investment portfolio. Generally the Company will seek not to invest (or commit to invest) more than 10% of the Company's gross assets to any single investment at the time of investment (or commitment), although such limit may be exceeded in certain cases where the Board deems appropriate on the advice of the Investment Advisor. Typically, investments in pre-IPO opportunities will be made by way of a convertible loan note that will convert on an exit event at a discount to the relevant exit price. The loans may also have an attached equity interest in the form of a warrant. However, a proportion of investments will be made at a fixed price. This is necessary in order to capture attractive pre-IPO opportunities that are not available with a loan note security. In addition, the Company may invest in companies that are already listed. These investments will be made on an opportunistic basis and are expected to represent a small number of the Company's transactions not exceeding 15% of the net asset value of the Company. As investee companies achieve successful listings, however, the net asset value attributable to holdings in listed companies may be substantial.
At 30 June 2012, the Company's market risk is affected by three main components: changes in actual market prices, interest rate and foreign currency movements. Interest rate and foreign currency movements are covered below. A 25% increase in the value of investments, with all other variables held constant, would bring about a GBP11,652,267 or 24.02% (31 December 2011: GBP7,580,904 or 23.53% & 30 June 2011: GBP8,057,405 or 23.00%) increase in net assets attributable to equity shareholders. If the value of investments had been 25% lower, with all other variables held constant, net assets attributable to equity shareholders would have fallen by GBP11,652,267 or 24.02% (31 December 2011: GBP7,580,904 or 23.53% & 30 June 2011: GBP8,057,405 or 23.00%).
Interest Rate Risk
The Company is exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial instruments and future cash flows.
The table below summarises the Company's exposure to interest rate risk by the earlier of contractual maturities:
At 30 June Weighted Less than 1 1 - 3 months 1 - 3 No fixed Total
2012 average month years maturity
effective
interest rate
------------------- ---------------- ---------------- ------------- ------------ ----------------- -----------
% GBP GBP GBP GBP GBP
Assets:
Fixed
interest
rate
unlisted
debt
securities 8.76 - - 2,333,016 - 2,333,016
Fixed
interest
rate cash at
bank 0.00 - 150,984 - - 150,984
Floating
interest
rate cash at
bank 0.80 1,737,423 - - - 1,737,423
Non-interest
bearing - 1,153 - - 44,276,051 44,277,204
---------------- ------------- ------------ ----------------- -----------
Total assets
excluding
prepayments 1,738,576 150,984 2,333,016 44,276,051 48,498,627
================ ============= ============ ================= ===========
Liabilities:
Non-interest
bearing - - - - 40,052 40,052
---------------- ------------- ------------ ----------------- -----------
Total
liabilities - - - 40,052 40,052
================ ============= ============ ================= ===========
15. Financial Risk Management (continued)
Interest Rate Risk (continued)
At 31 Weighted Less than 1 3 months - 1 1 - 3 No fixed Total
December average month year years maturity
2011 effective
interest rate
------------------- --------------- --------------- ---------------- ------------ ---------------- -----------
% GBP GBP GBP GBP GBP
Assets:
Fixed
interest
rate
unlisted
debt
securities 8.79 - - 2,283,924 - 2,283,924
Fixed
interest
rate cash at
bank 0.00 - 152,577 - - 152,577
Floating
interest
rate cash at
bank 0.62 1,762,408 - - - 1,762,408
Non-interest
bearing - 936 - - 28,039,691 28,040,627
--------------- ---------------- ------------ ---------------- -----------
Total assets
excluding
prepayments 1,763,344 152,577 2,283,924 28,039,691 32,239,536
=============== ================ ============ ================ ===========
Liabilities:
Non-interest
bearing - - - - 34,851 34,851
--------------- ---------------- ------------ ---------------- -----------
Total
liabilities - - - 34,851 34,851
=============== ================ ============ ================ ===========
At 30 June Weighted Less than 1 3 months - 1 1 - 3 No fixed Total
2011 average month year years maturity
effective
interest rate
-------------------- --------------- ---------------- ---------------- ------------ ---------------- -----------
% GBP GBP GBP GBP
Assets:
Fixed
interest
rate
unlisted
debt
securities 5.59 - 791,701 1,705,570 - 2,497,271
Floating
interest
rate cash at
bank 0.37 1,859,055 - - - 1,859,055
Non-interest
bearing 0.00 176,574 1,753 - 30,524,048 30,702,375
---------------- ---------------- ------------ ---------------- -----------
Total assets
excluding
prepayments 2,035,629 793,454 1,705,570 30,524,048 35,058,701
================ ================ ============ ================ ===========
Liabilities:
Non-interest
bearing - - - 21,783 21,783
---------------- ---------------- ------------ ---------------- -----------
Total
liabilities - - - 21,783 21,783
================ ================ ============ ================ ===========
The sensitivity analyses below have been determined based on the Company's exposure to interest rates for interest bearing assets and liabilities (included in the interest rate exposure table above) at the period end date and the stipulated change taking place at the beginning of the financial period and held constant through the reporting period in the case of instruments that have floating rates.
A 250 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management's assessment of the possible change in interest rates.
If interest rates had been 250 basis points higher, for assets and liabilities as at 30 June 2012 that are subject to changing interest rates, and all other variables were held constant, the Company's increase in net assets attributable to equity holders for the period ended 30 June 2012 would have been an increase of GBP43,436 (31 December 2011: GBP44,060 & 30 June 2011: GBP4,647) due to the increase in the interest earned on the Company's cash balances.
15. Financial Risk Management (continued)
Interest Rate Risk (continued)
If interest rates had been 250 basis points lower, for assets and liabilities as at 30 June 2012 that are subject to changing interest rates, and all other variables were held constant, the Company's increase in net assets attributable to equity holders for the period ended 30 June 2012 would have been a decrease of GBP13,899 (31 December 2011: GBP10,927 & 30 June 2011: GBP4,647) due to the decrease in the interest earned on the Company's cash balances.
The Company's sensitivity to interest rates has decreased during the current period as the Company has invested its capital into its investments thereby reducing its cash balances that are interest bearing.
Foreign Currency Risk
Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The Company's assets may be invested in securities and other investments that are denominated in currencies different to the reporting currency. Accordingly, the value of an investment may be affected favourably or unfavourably by fluctuations in exchange rates. The Company may, through forward foreign exchange contracts, hedge its exposure back to sterling but has not done so during the financial period.
Currency Exposure
A proportion of the net assets of the Company are denominated in currencies other than sterling. The carrying amounts of these assets and liabilities are as follows:
Assets Liabilities
30 June 2012 30 June 2012
------------ ------------
GBP GBP
Sterling 8,679,089 40,052
US Dollars 39,840,829 -
Equity attributable to Ordinary
Shareholders 48,519,918 40,052
============ ============
Assets Liabilities
31 December 31 December
2011 2011
----------- -----------
GBP GBP
Sterling 12,454,676 34,851
US Dollars 19,791,463 -
Equity attributable to Ordinary
Shareholders 32,246,139 34,851
=========== ===========
Assets Liabilities
30 June 2011 30 June 2011
------------ ------------
GBP GBP
Sterling 15,987,986 21,783
US Dollars 19,070,715 -
Equity attributable to Ordinary
Shareholders 35,058,701 21,783
============ ============
The Company is exposed to US Dollar currency risk.
The sensitivity analysis below has been determined based on the sensitivity of the Company's outstanding foreign currency denominated financial assets and liabilities to a 25% increase / decrease in the Sterling against US Dollar, translated at the period end date.
15. Financial Risk Management (continued)
Foreign Currency Risk (continued)
25% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management's assessment of the possible change in foreign exchange rates.
As at 30 June 2012, if Sterling had weakened by 25% against the US Dollar, with all other variables held constant, the increase in net assets attributable to equity shareholders would have been GBP9,960,207 or 20.55% (31 December 2011: GBP4,947,866 or 15.36% & 30 June 2011: GBP4,767,679 or 13.61%) higher. Conversely, if Sterling had strengthened by 25% against the US Dollar, with all other variables held constant, the increase in net assets attributable to equity shareholders would have been GBP9,960,207 or 20.55% (31 December 2011: GBP4,947,866 or 15.36% & 30 June 2011: GBP4,767,679 or 13.61%) lower.
Credit and Liquidity Risk
Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company. The maximum exposure to credit risk that the Company faces is equal to the fair value of the financial instruments held by the Company.
Liquidity risk is the risk that the Company will encounter in realising assets or otherwise raising funds to meet financial commitments. Refer to the interest rate risk table for a detailed maturity analysis of the Company's assets and liabilities. All the fixed deposits held by the Company mature within 1 year.
The Board, advised by the Investment Advisor, has made changes to the Company's investing policy and, in particular, the Company will make no further investments in new portfolio companies for the time being.
The Company manages the credit risk of third party borrowers by regularly reviewing their underlying performance.
Classification of Fair Value Measurements
The following table analyses, within the fair value hierarchy, the Company's financial assets (by class) measured at fair value at 30 June 2012:
Fair Value as at 30 June
2012
Level Level Level Total
1 2 3
-------- ------ ----------- -----------
GBP GBP GBP GBP
Designated at fair
value through profit
or loss upon initial
recognition:
Equity investments - - 44,176,254 44,176,254
Compound debt investments - - 2,432,813 2,432,813
Other short term investment* 150,984 - - 150,984
-------- ------ ----------- -----------
150,984 - 46,609,067 46,760,051
======== ====== =========== ===========
Fair Value as at 31 December
2011
Level Level Level Total
1 2 3
-------- ---------- ----------- -----------
GBP GBP GBP GBP
Designated at fair
value through profit
or loss upon initial
recognition:
Equity investments - 1,891,953 26,076,577 27,968,530
Compound debt investments - - 2,355,083 2,355,083
Other short term investment* 152,577 - - 152,577
-------- ---------- ----------- -----------
152,577 1,891,953 28,431,660 30,476,190
======== ========== =========== ===========
15. Financial Risk Management (continued)
Classification of Fair Value Measurements (continued)
Fair Value as at 30 June
2011
Level Level Level Total
1 2 3
---------- ------ ----------- -----------
GBP GBP GBP GBP
Designated at fair
value through profit
or loss upon initial
recognition:
Equity investments 1,715,957 - 28,762,609 30,478,566
Compound debt investments - - 1,751,052 1,751,052
Other short term investment* 793,454 - - 793,454
---------- ------ ----------- -----------
2,509,411 - 30,513,661 33,023,072
========== ====== =========== ===========
*Other short term investment is a fixed cash deposit with a maturity of longer than 3 months from the reporting date.
Investments whose values are based on quoted market prices in active markets, and are therefore classified within level 1, include active listed equities and fixed cash deposits with a maturity of longer than 3 months from the reporting date. The Company does not adjust the quoted price for these instruments.
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within level 2. As level 2 investments may include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. None of the Company's investments are categorised as level 2 financial assets.
Investments classified within level 3 have significant unobservable inputs, as they trade infrequently.
Level 3 instruments include corporate compound debt instruments and unquoted equity instruments which the Company values in accordance with the International Private Equity and Venture Capital valuation guidelines. There have been no effects of changes in significant unobservable assumptions that will result in a material change to the investment values. The Company considers liquidity, credit and other market risk factors.
The table below provides a reconciliation from brought forward to carried forward balances of financial instruments categorised under level 3:
1 January 2012 To 30 June
2012
Assets at Fair Value Equity Compound
based on Level 3: investments debt investments Total
-------------- ------------------ --------------
GBP GBP GBP
Fair value brought forward 26,076,578 2,355,083 28,431,661
Purchases or conversions - 72,350 72,350
Sales or conversions (2,949,850) (72,350) (3,022,200)
Net realised (loss)/gain
on fair value through
profit or loss investments (3,035,544) 72,350 (2,963,194)
Movement in net unrealised
gains on fair value
through profit or loss
investments 24,085,070 5,380 24,090,450
-------------- ------------------ --------------
Fair value carried forward 44,176,254 2,432,813 46,609,067
============== ================== ==============
15. Financial Risk Management (continued)
Classification of Fair Value Measurements (continued)
1 January 2011 To 31 December
2011
Assets at Fair Value Equity Compound
based on Level 3: investments debt investments Total
-------------- ------------------ --------------
GBP GBP GBP
Fair value brought forward 29,699,648 3,846,736 33,546,384
Purchases or conversions - 2,175,117 2,175,117
Sales or conversions (846,921) (3,876,387) (4,723,308)
Net realised loss on
fair value through profit
or loss investments (6,736,419) (117,363) (6,853,782)
Movement in net unrealised
gains on fair value
through profit or loss
investments 3,960,270 326,980 4,287,250
-------------- ------------------ --------------
Fair value carried forward 26,076,578 2,355,083 28,431,661
============== ================== ==============
1 January 2011 To 30 June
2011
Assets at Fair Value Equity Compound
based on Level 3: investments debt investments Total
-------------- ------------------ --------------
GBP GBP GBP
Fair value brought forward 29,699,648 3,846,736 33,546,384
Purchases or conversions 1,879,892 1,677,152 3,557,044
Sales or conversions (846,922) (3,804,549) (4,651,471)
Net realised (loss)/gain
on fair value through
profit or loss investments (6,736,418) (189,202) (6,925,620)
Movement in net unrealised
losses on fair value
through profit or loss
investments 6,482,367 220,914 6,703,281
-------------- ------------------ --------------
Fair value carried forward 30,478,567 1,751,051 32,229,618
============== ================== ==============
Capital Management
The Company monitors "adjusted capital" which comprises all components of equity (i.e. distributable and revenue reserves). The Company's objectives when maintaining capital are:
-- to safeguard the Company's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and
-- to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.
The Directors set and manage the amount of capital required in proportion to risk. The Directors may exercise the powers of the Company to borrow money and to give security over its assets. The Company may borrow funds secured on its investments if the Board (with the advice the Investment Advisor) considers that satisfactory opportunities for investment arise at a time when the Company is close to being fully invested. In any event, borrowing will be limited to 50 per cent. of the Company's investments at the time of draw down. The Company may also be indirectly exposed to the effects of gearing to the extent that investee companies have outstanding borrowings.
The Company has been granted authority to make market purchases of up to 14.99% of its own Ordinary Shares. Any such purchases require shareholders approval.
The Company has the ability to apply to the Financial Services Authority for a Placing and Offer to increase the size of the Company through further share issuance.
As at 30 June 2012, 31 December 2011 and 30 June 2011, the Company had no borrowings and held none of its own shares in treasury.
15. Financial Risk Management (continued)
Capital Management (continued)
In accordance with the Company's Investing Policy, cash proceeds from realisation in full following the exit of a portfolio investment are returned to shareholders, subject to the retention of sufficient cash for follow-on investments in existing portfolio companies where the Investment Advisor believes that further funding is required and operating expenses of the Fund. At the Annual General Meeting on 20 June 2011, the shareholders approved the Capital Return Scheme whereby, a bonus issue of new, fully paid, redeemable B Shares ("B shares") is issued to Shareholders pro rata in proportion to Shareholders' existing holdings of Ordinary Shares on the relevant record date. These B shares are expected to be redeemed by the Company shortly after they are issued with the redemptions paid in cash as a return of capital. Whilst it is not possible to determine the timing of exits, the Board, advised by the Investment Advisor, will seek to return capital to shareholders through the Capital Return Scheme when appropriate upon the realisation of investments.
16. Dividends
Following the approval of shareholders at an extraordinary general meeting on 5 November 2008, the Directors intend to distribute cash proceeds of realisations in full following disposals of portfolio investments, subject to the retention of sufficient cash for follow-on investments in existing portfolio companies and after taking into account all costs, liabilities and expenses of the Company. Such distributions shall be made by share buy-back or dividend from time to time as the Directors consider economic and appropriate.
For the period ended 30 June 2012, the realised losses of the Company that had physically been incurred were as follows:
1 January 1 January
2012 2011
To To
30 June 2012 30 June 2011
-------------- --------------
GBP GBP
Total comprehensive income/(loss)
for the period 20,623,411 (1,128,635)
Less:
Movement in net unrealised
gains (24,078,389) (6,704,625)
Adjusted realised loss
for distribution for the
period (3,454,978) (7,833,260)
============== ==============
The Directors do not recommend the payment of a dividend for the period ended 30 June 2012 (30 June 2011:GBPnil).
During the period a capital distribution was paid to shareholders of GBP4,354,835 (30 June 2011: GBP4,216,345).
17. Taxation
The Income Tax Authority of Guernsey has granted the Company exemption from Guernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and the income of the Company may be distributed or accumulated without deduction of Guernsey income tax. Exemption under the above mentioned Ordinance entails payment by the Company of an annual fee of GBP600. It should be noted, however, that interest and dividend income accruing from the Company's investments may be subject to withholding tax in the country of origin. With effect from 1 January 2008 the standard rate of income tax for most companies in Guernsey is zero per cent. Tax Exempt status continues to exist and the Company has been granted this status for 2011 and 2012.
The Company has not suffered any withholding tax in the period (30 June 2011: GBPnil).
Investors other than Guernsey residents are not subject to any tax in Guernsey in respect of any Ordinary Shares owned by them. Guernsey income tax will not be deducted from dividends (if any) payable in respect of Ordinary Shares held by or on behalf of residents of Guernsey. However, the Company will be obliged to furnish such particulars of any distributions as may be required by the Director of Income Tax. No other deductions will be made in respect of tax.
No withholding tax is payable in Guernsey in respect of Ordinary Shares held by person's resident outside Guernsey.
18. Post Period End Events
On 4 July 2012, the Company announced the conditional disposal of its shareholdings in AgraQuest for an initial cash consideration of approximately GBP27.3 million or 45.4 pence per share.
On 5 July 2012, Damille Investments Limited acquired 1,000,000 Ordinary Shares of the Company at a price of 55.16p per Ordinary Share. As a result of this purchase Damille Investment Limited currently holds 17,650,000 Ordinary Shares, representing 29.3 per cent of the issued share capital of the Company.
On 17 August 2012, the Company announced the completion of the disposal of its shareholding in AgraQuest Inc to Bayer Cropscience LLC, a subsidiary of Bayer AG. Initial cash consideration of approximately GBP24 million or 39.9 pence per Company share was received.
On 10 September 2012, by way of bonus issue of B shares, the Company made a capital return of GBP23.49 million to shareholders, equating to 39 pence per B share held. This capital return was made following the sale of the Company's shares in AgraQuest as detailed above.
There are no other significant post period end events that require disclosure in these Financial Statements.
Directors & Advisors (as at 20 September 2012)
Directors: Christopher Fish
Rhys Davies (appointed non-executive Chairman on 27 April 2012)
Brett Miller
Lord Flight (Chairman) (resigned on 27 April 2012)
Edward Forwood (resigned on 27 April 2012)
Robert Fearis (resigned on 27 April 2012)
Roger Le Tissier (resigned on 27 April 2012)
Administrator Designated Manager, Secretary, Praxis Fund Services Limited Tel: +44 (0)1481 737 600
Provider of Safe Custody & Registered Office: Sarnia House Fax: +44(0)1481 749 829
Le Truchot www.pfs.gg
St Peter Port
Guernsey, GY1 4NA
Registrar: Capita Registrars (Guernsey) Limited
2(nd) Floor, No.1 Le Truchot
St Peter Port
Guernsey, GY1 4AE
Investment Advisor & Promoter: Loudwater Investment Partners Limited Tel: +44 (0)20 3372 6400
Little Tufton House Fax: +44(0)20 7222 2991
3 Dean Trench Street
London, SW1P 3HB www.loudwaterpartners.com
Share dealing:
Ordinary Shares can be purchased or sold through your usual stockbroker.
Sources of further information:
The Company's Ordinary Shares are quoted on the AIM market of the London Stock Exchange. Information updates are available on the Company from the Investment Advisor's website www.loudwaterpartners.com.
Key Dates:
Company's year end 31 December 2012 Annual results announced By 31 May 2013 Company's half-year 30 June 2013 Interim results announced By 30 September 2013
Frequency of NAV publication:
The Company's net asset value is released to the London Stock Exchange quarterly.
Auditors: BDO Limited
PO Box 180, Place du Pré
Rue du Pré, St Peter Port
Guernsey, GY1 3LL
Nominated Advisor & Broker: Panmure Gordon (UK) Limited
One New Change
London, EC4F 9AF
Guernsey Advocates: Ogier
Ogier House
St Julian's Avenue
St Peter Port
Guernsey, GY1 1WA
Bankers: Lloyds TSB Offshore Limited
Corporate Banking
PO Box 123
Sarnia House
Le Truchot
St Peter Port
Guernsey, GY1 4EF
Barclays Private Clients International Limited
PO Box 41
Le Marchant House
St Peter Port
Guernsey, GY1 3BE
English Solicitors: Berwin Leighton Paisner LLP
Adelaide House
London Bridge
London, EC4R 9HA
Company Number: 46213 (Registered in Guernsey)
This information is provided by RNS
The company news service from the London Stock Exchange
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