Final Results

RNS Number : 0542O

Bluehone AIM VCT2 PLC

27 February 2009

 



To:        Company Announcements

From:    Bluehone AiM VCT2 plc

Date:     27 February 2009

Investment Objective

To provide shareholders with a tax efficient means of gaining long term capital growth and an attractive dividend stream. 

Ordinary Shares

• Net asset value total return of -53.6% for the year

C Shares

• Net asset value total return of -41.0% for the year

The Chairman, Gordon Brough, said:

Background

The credit crisis, which emerged in August 2007 and continued into 2008, worsened significantly in the autumn of last year and has resulted in a severe deterioration in global economic activity, together with the likelihood of a deep recession in the UK. For much of last year equity markets have been in turmoil as investors have had to come to terms with progressively worsening news and governments and central banks have sought to avert the collapse of the financial system itself. During this period there have been few safe havens for investors and most asset classes have suffered sharp falls to their valuations. This has been particularly evident in the smaller company end of the investment spectrum which has experienced bouts of indiscriminate selling and low levels of liquidity, combining to push share prices down to worryingly low levels. 

As a result 2008 witnessed the worst investment environment in the AiM market since its inception in 1995. The FTSE AiM index fell by 61.8% over the year, with most of that fall occurring in the second half of the period as the sell off of small companies accelerated. Following a fall in commodity prices, the resource sector, to which AiM has a large exposure, saw a reversal in its fortunes, which had a significant impact on the performance of the AiM Index. However, the malaise in UK small companies generally was evidenced by the performance of the FTSE SmallCap Index which fell 51.9% over the period. 

Performance

This was a most difficult environment in which to manage a portfolio of small AiM companies, particularly within the tight restrictions imposed on a VCT by taxation rules. I am disappointed to report that despite having held up well at the interim stage, the Company's Net Asset Value (NAV) fell dramatically during the second half of the year. It proved impossible to avoid the pressures affecting the wider market and deteriorating conditions generally contributed towards the fall in the NAV with few holdings showing positive returns. The NAV per Ordinary share decreased by 55.6% over the year, from 72.8p per share to 32.3p per share (after taking into account the interim dividend of 1.0 p per share). The NAV of the 'C' Shares also suffered during the period, falling by 41.5% from 95.7p to 56.5p. The major disappointment during the second half was the performance of Portland Gas, our largest holding, which fell significantly.

Merger

Following the successful merger between Bluehone AiM VCT2 and Bluehone AiM VCT in July 2008 the two respective portfolios were combined. The enlarged portfolio comprises 85 individual holdings, 36 of which were common to both portfolios prior to the merger. 

As a result of the market conditions, the expense savings as a percentage of the NAV were not as high as anticipated. In light of this, the Managers have proposed to charge their reduced fee of 1.5 per cent of net assets per annum until the year end rather than July 2009, unless there is a significant recovery in the market. 

Portfolio Developments

After the merger, the largest holding in both funds, Portland Gas, accounted for 31.2 per cent of the portfolio. Portland Gas, (which demerged from Egdon Resources in January 2008), had been a significant positive contributor to the performance of the Company in recent years with some profits being taken along the way and returned to shareholders via distributions. The valuation increased significantly in the first half of the year, resulting in a large exposure. I reported at the interim stage that the company had been successful in obtaining planning permission for the construction of a new gas storage facility deep under Portland harbour. This was followed by the company receiving authorisation from the Department for Business, Enterprise and Regulatory Reform (BERR) to construct a 37 kilometre gas pipeline to connect its facility with the National Transmission System. The attainment of planning permission was a major, although not unexpected, achievement by the company's management given the sensitive nature of the project and the fact that it occurs within a Unesco World Heritage Site. Once built and at full capacity the facility will be one of the largest of its type storing 1000 million cubic metres of gas and able to supply the equivalent of 1 per cent of the UK's annual demand for gas.  

Given Portland's potential as a strategically important gas storage facility, it was of great surprise and considerable disappointment that, following the deterioration in the credit markets, Portland announced in November that it had been unable to reach a satisfactory conclusion to its joint venture funding negotiations. It had been the Manager's intention to take profits from the holding as each of the milestones was reached. However, whilst some shares were sold earlier in the year, there was not sufficient liquidity in the market at the prevailing share price to divest a significant part of the holding. As it made up such a large part of the portfolio, the fall in the value of Portland had a disproportionate impact on the NAV. Nevertheless, your Manager remains convinced Portland is a valuable company with an exciting future not currently being reflected in its share price and as such believes it should remain in the portfolio. 

The fall in the share price of a number of the larger holdings within the portfolio also contributed to the overall contraction in the NAV and these included Bond International, Jelf Group, Buildstore, Tanfield, U4EA and Quadnetics. What little positive news there was occurred mainly during the first half of the year when the Company benefited from the takeovers of BBI Holdings and Tellings Golden Miller, as well as the realisation of investments in Hartest Group and Gladstone. Profits were taken on part of the investments held in Jelf Group and Portland Gas. Total proceeds from disposals amounted to £3 million. Optare, the UK's third largest bus manufacturer, was added to the portfolio as a new holding and six other fund raisings by portfolio companies were supported during the year. These comprised: Secure Electrans; Cambridge Sensors; IS Pharma; Formjet; Clarity and Servoca. Investments made into the portfolio amounted to £840,000 and were almost all during the first half of the year, after which time companies generally have found it increasingly difficult to raise further capital as the equity markets deteriorated. 

Earnings and Dividends

Earnings for the period from the ordinary share pool amounted to a profit of £146,000 and for the 'C' share pool a loss of £1,000 and as in the past the Board is not in the position to recommend a final income dividend for either class of share. 

Adverse market conditions made it progressively more difficult to generate capital profits from the portfolio and those that were achieved occurred mainly in the first half of the year. As a result and following the takeover of BBI Holdings the Board declared an interim distribution of 1.0p per share which was paid to Ordinary shareholders in August 2008. It continues to be the Board's belief that distributions are the most effective and fairest way of returning capital as they are received by all shareholders. However, the substantial fall in the Company's asset value combined with the current poor stock market conditions makes it unattractive at present to further realise investments. In light of this the Board is not in a position to recommend a final capital distribution for the year. The Board will continue to encourage your Manager to realise investments when market conditions are more conducive, which will facilitate future capital distributions. Since launch ordinary shareholders have received 18.5p per share in income and capital distributions. 

As the capital return of the 'C' share pool has been negative since launch, there are no distributable reserves available for a capital distribution. Since launch 'C' shareholders have received 3.0p per share in income and capital distributions.

During the year a total of 76,062 ordinary shares were issued under the Dividend Reinvestment Scheme.

C Shares

The investment programme for the 'C' share portfolio was largely complete as we entered 2008 and as a result only two new holdings were added in the period - Essentially Group and Optare. The 'C' share portfolio was also adversely affected by the deterioration in the markets and most investments suffered a fall in their valuations. Of particular note were: Discovery Leisure, the UK's leading specialist caravan retailer, which experienced tougher trading conditions; Servoca, the public sector outsourcing and recruitment solutions provider, which reported it was a year behind with its business plan and still loss making. Infonic, the document management and analysis software company also suffered after having to take on expensive debt in order to fund growth at a time when recourse to the equity markets was not an option. It was also disappointing to have to write off the investment in Landround after its bank withdrew its borrowing facility. The portfolio now comprises 30 individual VCT qualifying holdings. 

The 'C' share fund raising closed in April 2006 and is now approaching its third anniversary. There are two options available to 'C' shareholders which are to convert their holding into ordinary shares and remain invested in the Company or to realise their investment in 'C' shares by means of a tender offer, allowing 'C' shareholders the opportunity to tender up to 100 per cent of their holdings. This will, however, be subject to the approval of all shareholders (including ordinary shareholders). The proportion of the 'C' share pool owned by the tendering shareholders would be transferred to a separate pool of assets and sold in the market on a best execution basis and the proceeds distributed to tendering shareholders thereafter, less a 5 per cent liquidation fee. The liquidation fee would be for the benefit of all shareholders. The option shareholders ultimately choose should be made in light of their own particular financial circumstances and the Directors would urge shareholders to take appropriate independent financial advice. However, it is the Board's opinion that selling assets in the current market conditions and the cost of a tender offer, relative to the size of the pool of assets, may prove counter productive to preserving shareholder value. It therefore recommends shareholders to convert their 'C' shares into ordinary shares at this time. Resolution 11 on the Notice of AGM invites shareholders to vote on the tender offer. It is intended that the C share conversion will take place in November 2009.

VAT on Management Fees

Following the European Court of Justice ruling in June 2007 that investment trusts should be regarded as special investment funds, management fees paid by the Company are no longer subject to VAT.

The Managers and the previous Managers, F&C, have been liaising with HM Revenue and Customs to recover on the Company's behalf VAT paid in the past on investment management fees. During the twelve months ended 30 November 2008 the Company recovered VAT of £487,000 in respect of the period since February 2005. The accounts for the year include a provision for the recovery of VAT of a further £592,000 in respect of the period from the Company's launch in December 2000 to February 2005. The Company expects to receive interest of £156,000 on the VAT recovered. This has been allocated between revenue and capital and provides an enhancement of 2.2p per ordinary share to the net asset value and 2.8p to the revenue earnings per ordinary share.  There is an enhancement of 0.7p per C share to the net asset value and 0.7p to the revenue earnings per C share. 

It is the intention of the Board to return some of the VAT refund to shareholders via a distribution; however, it will first be necessary to get shareholder approval to cancel the share premium account which arose as a result of the recent merger, creating a distributable reserve. Resolution 10 on the Notice of AGM invites shareholders to vote in favour of cancelling the share premium account.

Change in Broker and Discount

As a consequence of the failure of the Icelandic banking sector in November 2008 the Company's broker Landsbanki was put into administration and ceased to make a market in the Company's shares. In January 2009 the Board appointed Teathers as your Company's new broker and it has commenced making a market in the shares. Teathers includes members of the team that previously looked after the Company whilst at Landsbanki. Unfortunately in the interim when the Company was without a broker the discount between the share price and the NAV widened considerably and stood at 41.2 per cent at the year end.

The Board renewed its authority to buy back, as well as issue, a proportion of the Company's shares at last year's AGM held in March 2008. During the year 150,000 shares were bought back from the market for cancellation. The Directors will make market purchases of the Company's shares at their own discretion subject to this being in the interests of the remaining shareholders and the Company having sufficient funds available, which do not need to be retained for investment purposes. However, I am sure shareholders will understand that the current state of the stock market is not particularly helpful in this regard.

Board Changes

As a result of the merger, two changes to the composition of the Board have been made with Robert Catto retiring from the Board and Gordon Harvey, the Chairman of Bluehone AiM VCT, joining. I would like to thank Robert for his dedicated service and valued contribution to the Company since its launch in 2000 and to wish him well for the future. I would also like to welcome Gordon to the Board.

Outlook

As we enter 2009 the prospects for the UK economy do not look encouraging and it would appear likely we are now facing a deep recession. The visibility of corporate earnings will remain generally difficult to predict and the lack of available credit from banks will put pressures on companies' routine working capital requirements. Even well capitalised companies may find the economic conditions challenging with few sectors of the economy being immune to the downturn. It must be hoped that the combination of monetary easing through a sharp reduction in interest rates, together with fiscal stimulation through an increase in government spending, will have the desired effect to shorten the downturn and ultimately return the economy to health. In the meantime, this is a hostile environment to be invested in smaller companies and positive returns will be hard to come by as the recession persists. However, following the major fall in the stock markets last year one would also hope that much of the anticipated earnings weakness has already been priced into current valuations which now appear to be extremely low and attractive from an historic perspective.

Bluehone AIM VCT2 has already suffered greatly in this painful bear market. With a portfolio of its size it will inevitably have some more investments which disappoint. However, the portfolio also contains a number of interesting, well managed, financially sound smaller companies that should weather the current maelstrom and I hope these will be recognised by the market when the investment environment eventually improves.

Gordon Brough

Chairman

Enquiries:

Robert Mitchell / Sally Mills

Bluehone Investors LLP

Investment Managers                       Tel: [phone]

Scott Macrae

F&C Asset Management plc

Secretaries                                     Tel:  [phone]

Audited Income Statement

for the year ended 30 November 2008

	Ordinary Shares
	2008	2008	2008
	Revenue	Capital	Total
	£'000	£'000	£'000
Profit on realisation of investments	-	451	451
Change in fair value of investments	-	(19,871)	(19,871)
Income	256	116	372
Investment management fee	(130)	(392)	(522)
VAT on management fees refund	265	795	1,060
Other expenses	(245)	-	(245)
	-----------	-----------	-----------
Profit / (loss) on ordinary activities before taxation	146	(18,901)	(18,755)
Tax on ordinary activities	-	-	-
	----------	-----------	-----------
Profit / (loss) on ordinary activities after taxation	146	(18,901)	(18,755)
	----------	----------	-----------
Return per ordinary share	0.33p ______	(42.69p) ______	(42.36p) _____

Reconciliation of Movement in Ordinary Shareholders' Funds

for the year ended 30 November 2008

			2008
			£'000
Opening shareholders' funds			27,863
Loss for the year			(18,755)
Increase in share capital			10,267
Expenses of merger			(162)
Purchase of shares			(77)
Dividends paid			(1,242)
Closing shareholders' funds			17,894
			-----------

Audited Income Statement

for the year ended 30 November 2008

	C Shares
	2008	2008	2008
	Revenue	Capital	Total
	£'000	£'000	£'000
Profit on realisation of investments	-	36	36
Change in fair value of investments	-	(1,171)	(1,171)
Income	33	1	34
Investment management fee	(12)	(38)	(50)
VAT on management fees refund	5	14	19
Other expenses	(27)	-	(27)
	----------	-----------	-----------
Loss on ordinary activities before taxation	(1)	(1,158)	(1,159)
Tax on ordinary activities	-	-	-
	----------	-----------	-----------
Loss on ordinary activities after taxation	(1)	(1,158)	(1,159)
	----------	----------	-----------
Return per C share	(0.03p) ______	(39.22p) ______	(39.25p) _____

Reconciliation of Movement in C Shareholders' Funds

for the year ended 30 November 2008

			2008
			£'000
Opening shareholders' funds			2,824
Loss for the period			(1,159)
			-----------
Closing shareholders' funds			1,665
			-----------

Audited Income Statement

for the year ended 30 November 2008

	Total
	2008	2008	2008
	Revenue	Capital	Total
	£'000	£'000	£'000
Profit on realisation of investments	-	487	487
Change in fair value of investments	-	(21,042)	(21,042)
Income	289	117	406
Investment management fee	(142)	(430)	(572)
Investment management fees refund	270	809	1,079
Other expenses	(272)	-	(272)
	----------	-----------	-----------
Profit / (loss) on ordinary activities before taxation	145	(20,059)	(19,914)
Tax on ordinary activities	-	-	-
	----------	-----------	-----------
Profit / (loss) on ordinary activities after taxation	145	(20,059)	(19,914)
	----------	----------	-----------

Reconciliation of Movement in Total Shareholders' Funds

for the year ended 30 November 2008

			2008
			£'000
Opening shareholders' funds			30,687
Loss for the year			(19,914)
Increase in share capital			10,267
Expenses of merger			(162)
Purchase of shares			(77)
Dividends paid			(1,242)
			-----------
Closing shareholders' funds			19,559
			-----------

Audited Income Statement

for the year ended 30 November 2007

	Ordinary Shares
	2007	2007	2007
	Revenue	Capital	Total
	£'000	£'000	£'000
Profit on realisation of investments	-	2,218	2,218
Change in fair value of investments	-	(5,481)	(5,481)
Income	224	-	224
Investment management fee	(199)	(596)	(795)
Other expenses	(258)	-	(258)
	-----------	-----------	-----------
Loss on ordinary activities before taxation	(233)	(3,859)	(4,092)
Tax on ordinary activities	-	-	-
	----------	-----------	-----------
Loss on ordinary activities after taxation	(233)	(3,859)	(4,092)
	----------	----------	-----------
Return per ordinary share	(0.60p) ______	(9.86p) ______	(10.46p) _____

Reconciliation of Movement in Ordinary Shareholders' Funds

for the year ended 30 November 2007

			2007
			£'000
Opening shareholders' funds			35,057
Loss for the year			(4,092)
Increase in share capital			52
Purchase of shares			(1,690)
Dividends paid			(1,464)
			-----------
Closing shareholders' funds			27,863
			-----------

Audited Income Statement

for the year ended 30 November 2007

	C Shares
	2007	2007	2007
	Revenue	Capital	Total
	£'000	£'000	£'000
Profit on realisation of investments	-	14	14
Change in fair value of investments	-	(136)	(136)
Income	54	-	54
Investment management fee	(18)	(54)	(72)
Other expenses	(25)	-	(25)
	----------	-----------	-----------
Profit/(loss) on ordinary activities before taxation	11	(176)	(165)
Tax on ordinary activities	-	-	-
	----------	-----------	-----------
Profit/(loss) on ordinary activities after taxation	11	(176)	(165)
	----------	----------	-----------
Return per C share	0.37p ______	(5.96p) ______	(5.59p) _____

Reconciliation of Movement in C Shareholders' Funds

for the year ended 30 November 2007

			2007
			£'000
Opening shareholders' funds			3,079
Loss for the period			(165)
Dividends paid			(90)
			-----------
Closing shareholders' funds			2,824
			-----------

Audited Income Statement

for the year ended 30 November 2007

	Total
	2007	2007	2007
	Revenue	Capital	Total
	£'000	£'000	£'000
Profit on realisation of investments	-	2,232	2,232
Change in fair value of investments	-	(5,617)	(5,617)
Income	278	-	278
Investment management fee	(217)	(650)	(867)
Other expenses	(283)	-	(283)
	----------	-----------	-----------
Loss on ordinary activities before taxation	(222)	(4,035)	(4,257)
Tax on ordinary activities	-	-	-
	----------	-----------	-----------
Loss on ordinary activities after taxation	(222)	(4,035)	(4,257)
	----------	----------	-----------

Reconciliation of Movement in Total Shareholders' Funds

for the year ended 30 November 2007

			2007
			£'000
Opening shareholders' funds			38,136
Loss for the year			(4,257)
Increase in share capital			52
Purchase of shares			(1,690)
Dividends paid			(1,554)
			-----------
Closing shareholders' funds			30,687
			-----------

Audited Balance Sheet
	As at
	30 November 2008
	Ordinary shares	C shares	Total
	£'000	£'000	£'000
Fixed assets
Investments	17,011	1,647	18,658
Current assets
Debtors	811	16	827
Cash at bank and on deposit	207	14	221
	______	______	_____
	1,018	30	1,048
Creditors (amounts falling due within one year)	(135)	(12)	(147)
	______	______	_____
Net assets less current liabilities	88	18	901
	______	______	_____
Total assets less current liabilities	17,894	1,665	19,559
	______	______	_____
Financed by:
Equity shareholders' funds	17,894	1,665	19,559
	______	______	_____
Net asset value per share:	32.32p	56.47p
Number of shares in issue at the balance sheet date	55,370,992	2,950,085

Audited Balance Sheet
	As at
	30 November 2007
	Ordinary shares	C shares	Total
	£'000	£'000	£'000
Fixed assets
Investments	27,601	2,804	30,405
Current assets
Debtors	63	6	69
Cash at bank and on deposit	330	35	365
	______	______	_____
	393	41	434
Creditors (amounts falling due within one year)	(131)	(21)	(152)
	______	______	_____
Net assets less current liabilities	262	20	282
	______	______	_____
Total assets less current liabilities	27,863	2,824	30,687
	______	______	_____
Financed by:
Equity shareholders' funds	27,863	2,824	30,687
	______	______	_____
Net asset value per share:	72.76p	95.73p
Number of shares in issue at the balance sheet date	38,296,588	2,950,085

Summarised Audited Statement of Cash Flows

	Year to 30 November 2008
	Ordinary shares	C  shares	Total
	£'000	£'000	£'000
Net cash outflow from operating activities	(135)	(43)	(178)
Taxation received	-	-	-
Capital expenditure and financial investment	1,376	22	1,398
Equity dividends paid	(1,224)	-	(1,224)
	-----------	-----------	-----------
Net cash inflow/(outflow) before financing	17	(21)	(4)
Financing	(140)	-	(140)
	-----------	-----------	-----------
Decrease in cash	(123)	(21)	(144)
	-----------	-----------	-----------
Reconciliation of net cash flow to movement in net cash
Decrease in cash	(123)	(21)	(144)
Opening cash	330	35	365
	-----------	-----------	-----------
Net cash at 30 November 2008	207	14	221
	-----------	-----------	-----------

Reconciliation of net revenue before taxation to net cash inflow from operating activities

Loss on ordinary activities before taxation	(18,755)	(1,159)	(19,914)
Changes in fair value of investments	(451)	(36)	(487)
Unrealised losses on investments	19,871	1,171	21,042
(Increase)/decrease in debtors	(768)	(10)	(778)
Decrease in creditors	(32)	(9)	(41)
	-----------	-----------	-----------
Net cash outflow from operating activities	(135)	(43)	(178)
	-----------	-----------	-----------

Summarised Audited Statement of Cash Flows

	Year to 30 November 2007
	Ordinary shares	C  shares	Total
	£'000	£'000	£'000
Net cash outflow from operating activities	(861)	(9)	(870)
Taxation received	-	-	-
Capital expenditure and financial investment	4,095	89	4,184
Equity dividends paid	(1,464)	(89)	(1,553)
	-----------	-----------	-----------
Net cash inflow/(outflow) before financing	1,770	(9)	1,761
Financing	(1,638)	-	(1,638)
	-----------	-----------	-----------
Increase/(decrease) in cash	132	(9)	123
	-----------	-----------	-----------
Reconciliation of net cash flow to movement in net cash
Increase/(decrease) in cash	132	(9)	123
Opening cash	198	44	242
	-----------	-----------	-----------
Net cash at 30 November 2007	330	35	365
	-----------	-----------	-----------

Reconciliation of net revenue before taxation to net cash inflow from operating activities

Loss on ordinary activities before taxation	(4,092)	(165)	(4,257)
Profit on realisation of investments	(2,218)	(14)	(2,232)
Unrealised losses on investments	5,481	136	5,617
(Increase)/decrease in debtors	(16)	32	16
(Decrease)/increase in creditors	(16)	2	(14)
	-----------	-----------	-----------
Net cash outflow from operating activities	(861)	(9)	(870)
	-----------	-----------	-----------

  Principal risks, risk management and regulatory environment

The Board believes that the principal risks faced by the Company are:

• Loss of approval as a Venture Capital Trust - the Company must comply with Section 274 of the Income Taxes Act 2008 which allows it to be exempted from capital gains tax on investment gains. Any breach of these rules may lead to the Company losing its approval as a VCT with qualifying shareholders who have not held their shares for the designated holding period having to repay the income tax relief they obtained and future dividends paid by the Company becoming subject to tax. The Company would also lose its exemption from tax on capital gains.

• Investment and strategic - inappropriate strategy, poor asset allocation or consistent weak stock selection might lead to under performance and poor returns to shareholders.

• Regulatory - the Company is required to comply with the Companies Acts, the rules of the UK Listing Authority and United Kingdom Accounting Standards. Breach of any of these regulatory rules might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.

• Reputational - inadequate or failed controls might result in breaches of regulations or loss of shareholder trust.

• Operational - failure of the administrator's accounting systems or disruption to its business might lead to an inability to provide accurate reporting and monitoring.

• Financial - inadequate controls might lead to misappropriation of assets, inappropriate accounting policies might to misreporting or breaches of regulations.

• Market Risk - Investment in AiM-traded, PLUS-traded and unquoted companies, by its nature, involves a higher degree of risk than investment in companies traded on the main market. In particular, smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals. In addition, the market for stock in smaller companies is often less liquid than that for stock in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock.

• Liquidity Risk - The Company's investments may be difficult to realise. The fact that a share is traded on AiM does not guarantee its liquidity.

The Board seeks to mitigate and manage these risks by setting policy, regular review of performance, enforcement of contractual obligations and monitoring progressing and compliance. In the mitigation and management of these risks, the Board applies the principles detailed in the internal control guidance issued by the Financial Reporting Council.

Statement of Directors Responsibility in Respect of the Annual Financial Report

In accordance with Chapter 4 of the Disclosure and Transparency Rules, we confirm that to the best of our knowledge, in respect of the Annual Report for the year ended 30 November 2008, of which this statement of results is an extract:

• The financial statements have been prepared in accordance with applicable UK Accounting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;

• The Annual Report includes a fair review of the important events that have occurred during the financial year and their impact on the financial statements;

• The Annual Report includes a description of the Company's principal risks and uncertainties; and

• The Annual Report includes details of related party transactions that have taken place during the financial year.

On behalf of the Board

G Brough

Director

27 February 2009 

Notes

 

1. Financial instruments

 

The Company’s financial instruments comprise equity and fixed interest investments, cash balances and liquid resources. The Company holds financial assets to invest in accordance with its investment policy, in UK companies raising new share capital predominately on AiM.

 

Fixed asset investments held are valued at bid market prices or Directors’ valuation which equate to their fair values. The fair value of all other financial assets and liabilities is represented by their carrying value in the Balance Sheet. Short term debtors and creditors are excluded from disclosure as allowed by FRS 13.

 

The main risks that the Company races arising from its financial instruments are:

 

(i)         market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency rate movements;

(ii)         Interest rate risks, being the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates;

(iii)        credit risk, being the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company; and

(iv)        liquidity risk, being the risk that the Company may not be able to liquidate its investments quickly enough to meet its ongoing financial commitments.

 

Market price risk

The Company’s strategy for managing investment risk is determined with regard to the Company’s investment objective. The management of market risk is part of the investment management process and is a central feature of venture capital investment. The Company’s portfolio is managed in accordance with the policies and procedures described in the corporate governance statement having regard to the possible effects of adverse price movements, with the objective of maximising overall returns to shareholders. Investments in unquoted companies, by their nature usually involve a higher degree of risk than investments in companies quoted on a recognised stock exchange, though the risk can be mitigated to a certain extent by diversifying the portfolio across business sectors and asset classes. The overall disposition of the Company’s assets is monitored by the Board on a quarterly basis.

 

Interest rate risk

 

When the Company retails cash balances the majority of the cash is held in deposit accounts. The benchmark rate which determines the interest payments received on cash balances is the bank base rate for the relevant currency for each deposit.

 

 

Credit Risk

 

Credit risk is the risk that a counterpart to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The carrying amount of financial assets best represents the maximum credit risk exposure at the balance sheet date.

 

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the diversity of counterparties used.

 

All the assets of the Company which are traded on a recognised exchange are held by JPMorgan Chase Bank, the Company’s custodian. Bankruptcy or insolvency of the custodian may cause the Company’s rights with respect to securities held by the custodian to be delayed or limited. The Board monitors the Company’s risk by reviewing the custodian’s internal control reports. The Managers have in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis.

 

The credit risk on liquid funds is controlled because the counterparties are banks with high credit ratings, rated AA or higher, assigned by international credit rating agencies. Bankruptcy or insolvency of such financial institutions may cause the Company’s ability to access cash placed on deposit to be delayed, limited or lost.

 

As at 30 November 2008 the Company had cash on deposit of £221,000 with a single counterparty. There were no other material concentrations of credit risk to counterparties at 30 November 2008 or 30 November 2007.

 

Liquidity risk

 

The Company’s liquidity risk is managed on an ongoing basis by the Managers.

 

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and expenses. 

 

2.         The audited results which cover the year to 30 November 2008 have been prepared under UK Generally Accepted Accounting Practice (UK GAAP) and on the assumption that the Company maintains VCT status.

 

The Company is no longer an investment Company as defined by Section 266 of the Companies Act 1985, as Investment Company status was revoked in order to permit the distribution of capital profits.

 

Where presentational guidance set out in the Statement of Recommended Practice (SORP), revised December 2005, for Investment Trusts issued by the Association of Investment Companies (AIC) in January 2003 is consistent with the requirements of UK GAAP, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

 

In order to better reflect the activities of a VCT and in accordance with the SORP, supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. The Net Revenue is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Section 274 of the Taxes Act 2007.

 

 

3.         There were 55,370,992 ordinary shares in issue at 30 November 2008 (30 November 2007:38,296,588). 
17,224,404 ordinary shares were issued during the year. The Company bought back 150,000 ordinary shares 
during the year. 

 

C share issue

There were 2,950,085 in issue at 30 November 2008 and 2007.

 

4.         Ordinary shares

Returns for the year to 30 November 2008 are based on a weighted average of 44,274,717 (30 November 2007: 39,115,512) ordinary shares in issue during the year.

 

            C shares

            Returns for the year to 30 November 2008 are based on a weighted average of 2,950,085 (30 November 2006: 2,950,085) C shares in issue during the year.

 

5.         These are not full accounts in terms of Section 240 of the Companies Act 1985. Full audited accounts for the year to 30 November 2007 have been lodged with the Registrar of Companies. The annual report for the year to 30 November 2008 will be sent to shareholders shortly and will then be available for inspection at F&C Asset Management plc, Exchange House, Primrose Street, London, EC2A 2NY, the registered office of the Company. Both the audited accounts for the year to 30 November 2007 and 30 November 2008 contain unqualified audit reports.

 

6.         The Annual General Meeting will be held on 30 March 2009 at 3pm.

 

 

 

END

 

 

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