INVESTEC STRUCTURED PRODUCTS CALCULUS VCT PLC
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED 28 FEBRUARY 2014
The full Annual Report and Accounts can be accessed via the following websites:
www.calculuscapital.com and www.investecstructuredproducts.com or by contacting
the Company Secretary on telephone 01392 477500.
INVESTMENT OBJECTIVE
The Company's principal objectives for investors are to:
• invest in a portfolio of Venture Capital Investments and Structured Products
that will provide investment returns that are sufficient to allow the Company
to maximise annual dividends and pay an interim return either by way of a
special dividend or cash offer for shares on or before an interim return date;
• generate sufficient returns from a portfolio of Venture Capital Investments
that will provide attractive long-term returns within a tax efficient vehicle
beyond an interim return date;
• review the appropriate level of dividends annually to take account of
investment returns achieved and future prospects; and
• maintain VCT status to enable qualifying investors to retain their income tax
relief of up to 30 per cent. on the initial investment and receive tax-free
dividends and capital growth.
Full details of the Company's investment policy can be found below.
FINANCIAL REVIEW
Ordinary Share Fund
12 Months to 12 Months to
28 February 28 February
2014 2013
Total return
Total return £199,000 £309,000
Total return per ordinary share 4.2p 6.5p
Revenue
Net loss after tax (£44,000) (£46,000)
Revenue return per ordinary share (0.9)p (1.0)p
Dividend
Recommended final dividend 5.25p 5.25p
As at As at
28 February 28 February
2014 2013
Assets (investments valued at
bid market prices)
Net assets £4,512,000 £4,562,000
Net asset value ("NAV")
per ordinary share 95.2p 96.3p
Mid market quotation
Ordinary shares 85.5p 92.5p
Discount to NAV (10.2)% (3.9)%
C Share Fund 12 Months to 12 Months to
28 February 28 February
2014 2013
Total return
Total return £47,000 £104,000
Total return per C share 2.4p 5.4p
Revenue
Net loss after tax (£25,000) (£35,000)
Revenue return per C share (1.3)p (1.8)p
Dividend
Recommended final dividend 4.5p 4.5p
As at As at
28 February 28 February
2014 2013
Assets (investments valued at
bid market prices)
Net assets £1,765,000 £1,805,000
NAV per C share 91.4p 93.5p
Mid market quotation
C shares 90.0p 90.0p
Discount to NAV (1.5)% (3.7)%
STRATEGIC REPORT
The Strategic Report has been prepared in accordance with the requirements of
Section 414A of the Companies Act 2006 (the "Act"). Its purpose is to inform
members of the Company and help them assess how the Directors have performed
their legal duty under Section 172 of the Act, to promote the success of the
Company.
CHAIRMAN'S STATEMENT
I am delighted to present your Company's results for the year ended
28 February 2014. The Investec Structured Products Calculus VCT plc is a
tax efficient listed company which aims to address shareholder needs for:
• attractive tax-free dividends;
• a clear strategy for returning capital;
• downside protection through the Structured Products portfolio and investment
in lower risk VCT qualifying companies with a high percentage of investments in
loan stock and preference shares; and
• low annual management fees.
The Company, which launched in March 2010, is a joint venture between Investec
Structured Products (part of Investec Plc) and Calculus Capital Limited, and
brings together both Managers' award winning expertise in their respective
fields of structured products and venture capital.
During the year, the majority of investments have been in qualifying growth
companies of which only a proportion can be invested in loan stocks and
redeemable preference shares which generate an income. The remainder of the
investments have been in Structured Products which do not provide income but
generate a capital return. Consequently, the Company has shown a negative
revenue return and a strong positive capital return to produce an overall
positive return in line with expectations.
The net asset value per ordinary share was 95.2 pence as at 28 February 2014
compared to 96.3 pence as at 28 February 2013. This is after paying a dividend
to ordinary shareholders in 2013 of 5.25 pence per share.
The net asset value per C share was 91.4 pence as at 28 February 2014 compared
to 93.5 pence as at 28 February 2013. This is after paying a dividend to
C shareholders in 2013 of 4.5 pence per share.
The net asset values have subsequently risen to 95.5 pence per ordinary share
and 93.6 pence per C share as at 30 April 2014.
Your Board and Managers are encouraged by the performance of the Company to
date and believe it is well placed to make further progress in the forthcoming
year.
Structured Products Portfolio
Our non-Qualifying Investments are managed by Investec Structured Products.
As at 28 February 2014, the Ordinary Share Fund held a portfolio of three
Structured Products and the C Share Fund held one Structured Product based on
the FTSE 100 Index. The products differ by duration and counterparty in order
to minimise risk and create a diversified portfolio of investments. Up to 20
per cent. of the Structured Products portfolio of the C Share Fund will be able
to be invested in other indices besides the FTSE 100 Index.
The Structured Products portfolio continues to perform well. As at 28 February
2014, the FTSE 100 was trading at 6,809.7. This means that while the level of
the FTSE 100 will change, if all of the Structured Products in both the
Ordinary Share Fund and C Share Fund were to mature at this level, they would
yield the maximum payoff for investors in each share fund.
Venture Capital Investments
Calculus Capital manages the portfolio of VCT Qualifying Investments made by
the Company. During the year, the Ordinary Share Fund redeemed £200,000 loan
stock in Terrain Energy. Qualifying investments were made in eight companies on
behalf of the C Share Fund totalling £657,200 and the Company has now met its
requirement for the combined Ordinary and C share portfolios to be at least 70
per cent. invested in Qualifying Investments by 28 February 2014.
A detailed analysis of the new investments and the investment performance can
be found in the Investment Manager's Review that follows this statement.
Dividend
In line with our aim to provide a regular tax-free dividend stream, the
Directors are pleased to propose a final dividend of 5.25 pence per ordinary
share and 4.5 pence per C share which, subject to shareholder approval, will be
paid on 24 July 2014 to shareholders on the register on 30 May 2014. This will
take cumulative dividends paid to 21.0p per Ordinary share and 13.5 pence per
C Share. The Board continues to manage the Company to seek to generate the
returns that will enable it to meet the special dividend objectives set out in
the original offer document.
Developments since the Year End
Since the year end, the Company has realised £150,000 from the redemption of
MicroEnergy loan stock held in the Ordinary Share Fund. In addition, in March
2014, Horizon Discovery, one of the investments held by the C Share Fund, was
admitted to trading on the London Stock Exchange's AIM market and it is
currently trading at approximately double the Company's cost of investment.
Changes to the Annual Report
You will note there have been some changes to your Company's Annual Report this
year. These are the results of new narrative reporting requirements that have
now come into effect. There is now a Strategic Report, which contains many of
the disclosures previously contained within the Business Review section of the
Directors' Report, and a new Director's Remuneration Report. In relation to the
latter, shareholders will be asked to vote on both the Director's Remuneration
Policy and the Directors' Remuneration Report at the forthcoming Annual General
Meeting.
Alternative Investment Fund Managers' Directive ("AIFMD")
AIFMD was conceived to address a perceived regulatory gap to protect investors
and is intended to provide a harmonised regulatory and supervisory framework
throughout the European Union for regulating Alternative Investment Funds.
Although it was principally aimed at private equity and hedge funds, investment
trusts and venture capital trusts are also required to comply.
AIFMD was implemented by the UK on 22 July 2013, with existing investment
companies, such as your Company, having until 22 July 2014 to comply fully with
the requirements. Calculus Capital Limited has been appointed as the
Alternative Investment Fund Manager of the Company.
Annual General Meeting
We hope that as many shareholders as possible will attend the Company's Annual
General Meeting, which will be held at 11.00 am on Tuesday, 1 July 2014 at the
offices of Investec Structured Products, 2 Gresham Street, London, EC2V 7QP.
Outlook
We believe that the Company's strategy, in respect of both its Structured
Products portfolio and Qualifying Investments portfolio, is proving effective.
The success of the Structured Products portfolio, thus far, has provided the
basis for tax-free dividend returns to shareholders whilst enabling the
construction of a portfolio of Qualifying Investments to generate longer-term
returns. The Company had achieved its required level of 70 per cent. invested
in Qualifying Investments by 28 February 2014. This calculation covers both the
Ordinary Share Fund and the C Share Fund but is calculated for the Company as a
whole. The rate of investment in new Qualifying Investments is, therefore,
likely to lessen going forward.
There is growing evidence that the recovery in the UK economy is taking hold
although, clearly, it remains fragile in some sectors and geographic regions.
The economic background is, therefore, more supportive for an uplift in value
over time in the qualifying portfolio than it has been hitherto. We believe the
portfolio is well placed to take advantage of the recovery going forward. The
Investment Manager's 'hands on' style should also help to develop and, in some
cases, protect value and contribute to the delivery of future returns to
shareholders.
Michael O'Higgins
Chairman
19 May 2014
INVESTMENT MANAGER'S REVIEW
(Qualifying Investments)
Portfolio Developments
Calculus Capital Limited manages the portfolio of Qualifying Investments made
by the Company. To maintain its qualifying status as a Venture Capital Trust,
the Company needs to be at least 70 per cent. invested in qualifying securities
by the end of the relevant third accounting period. At 28 February 2014, the
qualifying percentage for the Company was 71.8 per cent.
During the year under review, the Company completed Qualifying Investments in
eight unquoted companies as shown below:
Amount Amount
Invested by Invested by
Ordinary C Shares
Shares
Company Sector £ £
Hampshire Cosmetics Limited Consumer staples 150,000
Horizon Discovery Limited Renewable energy 50,000
Pico's Limited (trading as Benito's Hat) Leisure 50,004
Quai Administration Services Limited Business support services 150,158
Scancell Holdings plc Biotechnology 100,000
Secure Electrans Limited Information technology 12,000 25,000
Terrain Energy Limited Oil and gas exploration and production 4,999
The One Place Capital Limited Information Technology 127,000
(trading as Money Dashboard)
New Holdings
Pico's Limited ("Benito's Hat")
In May 2013, an investment of £50,004 was made in Benito's Hat by the C Share
Fund. Benito's Hat is a Mexican-themed, fast casual restaurant business with
plans to expand in central London. Offering tailor-made burritos, tacos, salads
and a range of specials, Benito's Hat provides an authentic experience and
high-quality food, at an affordable price point. The brand has a devoted
customer following and has won many accolades from food critics.
Since investment, new outlets have been opened at Farringdon and Leadenhall
Street.
Ordinary C
Share Share
2013 Fund Fund
Latest Unaudited Results £'000 Investment Information £'000 £'000
Year ended 31 Jul
Turnover 2,962 Total cost - 50
Pre-tax loss (10) Income recognised in year - -
Net assets 2,100 Equity valuation - 64
Loan stock valuation - -
Valuation basis: Price of latest investment in the company Total valuation - 64
Voting rights - 1.2%
Horizon Discovery Limited ("Horizon")
In May 2013, the C Share Fund made a £50,000 investment into Horizon.
Horizon is one of the leading genomic biotechnology companies in Europe with a
customer base comprising many hundreds of biotechnology, diagnostic and
pharmaceutical companies, and academic research institutes.
Horizon is a pioneer in 'translational genomics' with a scalable platform
consisting of genome-editing tools and derived products and services, which
enable life sciences research, drug discovery and development. It has an
international base, reaching c.800 customers, comprising global leaders in
industrial pharmaceutical/biotech and academic research institutions and has
been ranked as one of the fastest growing biotechnology companies in Europe by
Deloitte.
Horizon has been able to grow with limited investment via licensed drug
discovery programmes giving access to significant revenue milestones. Calculus
Capital invested in May 2013 as part of a pre-IPO funding round. Funds raised
allowed the company to further develop its proprietary genome editing platform,
"GENESIS™".
The financial results for the period to 31 December 2013 reflect an increase in
product revenue, service revenue and leveraged R&D (including licensing deals
with strategic partners). The company continues to invest in R&D in connection
with the expansion of its cell line 'library'.
Ordinary C
Share Share
2013 2012 Fund Fund
Latest Audited Results £'000 £'000 Investment Information £'000 £'000
Year ended 31 Dec 31 Dec
Turnover 6,640 3,860 Total cost - 50
Pre-tax loss (3,040) (5,610) Income recognised in year - -
Net assets 7,860 4,340 Equity valuation - 50
Loan stock valuation - -
Valuation basis: Discounted cash flow and comparable companies Total valuation - 50
Voting rights - 0.1%
Scancell Holdings plc
In August 2013, an investment by the C Share Fund was made into Scancell of
£100,000.
Scancell was founded in 1997 by Professor Lindy Durrant and IPO'd on AIM in
July 2010. Scancell is developing novel immunotherapies for the treatment of
cancer based on its ImmunoBody and Moditope technology platforms. Initial
results from the Phase 1 trials of Scancell's novel immunotherapeutic melanoma
vaccine, SCIB1 look very promising. Funds raised will provide working capital
for the completion of the SCIB1 Phase 1/2 trials.
The recent fundraising will also be used to commence work on the pre-clinical
development of the first Moditope immunotherapy product. The Moditope
technology produces cancer killing cells that destroy tumours, in mice, without
toxicity and it is believed that Moditope epitopes can be used to develop
immunotherapies for the treatment of a range of cancer tumours including,
ovarian, breast and lung cancers.
Exit will likely be through a trade sale to a major pharmaceutical company with
appropriate oncology expertise who can complete development of Scancell's
products and take them through Phase III clinical trials. David Evans,
Scancell's Chairman, has a long track record of steering life sciences
companies to successful exits.
Ordinary C
Share Share
2013 2012 Fund Fund
Latest Audited Results £'000 £'000 Investment Information £'000 £'000
Year ended 30 Apr 30 Apr
Turnover - - Total cost - 100
Pre-tax loss (2,250) (1,930) Income recognised in year - -
Net assets 5,090 1,671 Equity valuation - 144
Loan stock valuation - -
Valuation basis: AIM traded Total valuation - 144
Voting rights - 0.2%
The One Place Capital Limited ("Money Dashboard")
An investment of £127,000 equity was made by the C Share Fund in November 2013.
Founded in 2009, Money Dashboard is a free web-based application which empowers
consumers to take control of their finances. By using Money Dashboard a
consumer is able to view all of their internet enabled current accounts,
savings accounts and credit cards in one secure place, providing the true view
of their financial lives. Transaction data is sorted into easily understood
categories and, by using the simple charts and graphs, consumers can see where
their money is going and budget for the future.
The rise in the cost-of-living within the UK is increasing consumer demand for
value, control and transparency in the management of their finances. Money
Dashboard is well placed to help satisfy this demand.
Ordinary C
Share Share
2013 2012 Fund Fund
Latest Unaudited Results £'000 £'000 Investment Information £'000 £'000
Year ended 31 May 31 May
Turnover - - Total cost - 127
Pre-tax loss (1,100) (530) Income recognised in year - -
Net liabilities (300) (530) Equity valuation - 127
Loan stock valuation - -
Valuation basis: Cost Total valuation - 127
Voting rights - 1.9%
Quai Administration Services Limited ("Quai")
In February 2014, an investment by the C Share Portfolio was made into Quai of
£150,158. Quai provides white-label administration services for high-volume
personal savings products. Quai's proprietary technology platform provides
automated administration, straight through processing, online web access and
multi-currency portfolio management services. It allows the company to
administer many thousands of individual savings plans at a fraction of the cost
incurred by established insurance companies and wealth managers, making it an
ideal outsourcing partner.
Recent legal and regulatory changes such as auto-enrolment and the Retail
Distribution Review are changing the way large insurers, banks and other
providers offer savings products to UK consumers. Mass distribution of
individual savings plans is pressuring providers into offering high-volume,
low-margin schemes. Established providers will be increasingly forced to choose
whether to build a bespoke in-house system to administer mass-market products
or to outsource. Founded in 2011 by a team of industry experts who previously
led the savings and investment administration business of BNP Paribas in the
UK, Quai is seeking to benefit from these changes in the UK savings market.
Ordinary C
Share Share
2013 2012 Fund Fund
Latest Unaudited Results £'000 £'000 Investment Information £'000 £'000
Year ended 31 Oct 31 Oct*
Turnover 442 83 Total cost - 150
Pre-tax loss (1,048) (1,326) Income recognised in year - -
Net liabilities (1,513) (1,617) Equity valuation - 150
Loan stock valuation - -
Valuation basis: Cost Total valuation - 150
Voting rights** - 3.4%
* Seven months to 31 October 2012.
**Other funds managed by Calculus Capital have combined voting rights of
41.6 per cent.
Existing Holdings
AnTech Limited ("AnTech")
Founded in 1994, Exeter based AnTech is a specialist engineering design and
manufacturing company providing a range of products to the upstream oil and gas
industry.
AnTech has developed a new generation of directional drilling tools which
provide the platform for a step-change transformation in the manner and
efficiency in which oil and gas wells can be drilled with coil tubing.
Ordinary C
Share Share
2013 2012 Fund Fund
Latest Audited Results £'000 £'000 Investment Information £'000 £'000
Year ended 31 Aug 31 Aug
Turnover 1,615 1,548 Total cost 270 -
Pre-tax profit 180 230 Income recognised in year 13 -
Net assets 5,173 1,291 Equity valuation 105 -
Loan stock valuation 150 -
Valuation basis: Comparable companies Total valuation 255 -
Voting rights 1.2% -
Brigantes Energy Limited ("Brigantes") and Corfe Energy Limited ("Corfe")
Brigantes and Corfe (details of which follow) were initially intended to be one
investment but were split for structural efficiency reasons. Brigantes and
Corfe were originally each established to hold certain oil and gas exploration
assets and spun out from InfraStrata Plc.
Brigantes
Brigantes acquired an interest in InfraStrata's Northern Ireland exploration
assets. Recently released results of a study on the PL1/10 prospects, carried
out by Merlin Energy Resources, indicates the un-risked prospective resource of
the licence to be as much as 450 million barrels of recoverable oil (112.5
million barrels net to Brigantes after the farm out), if all structures
identified are successful. The first well will target potential resources of 40
million barrels (10 million barrels net to Brigantes after farm out). An
exploration well is planned for the first quarter of 2014.
Ordinary C
Share Share
2013 2012 Fund Fund
Latest Audited Results £'000 £'000 Investment Information £'000 £'000
Year ended 31 Jul 31 Jul
Turnover 86 69 Total cost 125 -
Pre-tax loss (154) (920) Income recognised in year - -
Net (liabilities)/assets (979) 1,131 Equity valuation 320 -
Loan stock valuation - -
Valuation basis: Prospective resources Total valuation 320 -
Voting rights* 3.3% -
* Other funds managed by Calculus Capital have combined voting rights of 25.6 per cent.
Corfe
Corfe acquired an interest in InfraStrata's exploration assets in Southern
England. Since March 2013, Corfe has held a number of conventional and
unconventional licence interests in Southern England including a 25% working
interest in UK onshore licences lying immediately west of the giant Wytch Farm
oil field. The combination of Corfe's onshore and offshore blocks puts the
company in a strong position to evaluate and benefit from the conventional and
shale oil and gas potential of the area to the west and south of Wytch Farm.
Gas has been proven in both conventional and shale reservoirs in the Dorset
play area. It also represents a rare opportunity to invest directly in the
emerging shale gas play in Europe. Oil giant Total's recent acquisition of
shale interests in the UK shows the growing industry interest in unconventional
energy. Corfe will seek to sell into industry demand for assets rather than
develop the opportunities itself.
Ordinary C
Share Share
2013 2012 Fund Fund
Latest Audited Results £'000 £'000 Investment Information £'000 £'000
Year ended 31 Jul 31 Jul
Turnover 86 69 Total cost 75 -
Pre-tax loss (245) (64) Income recognised in year - -
Net assets 1,764 2,006 Equity valuation 137 -
Loan stock valuation - -
Valuation basis: Prospective resources Total valuation 137 -
Voting rights 2.0% -
Dryden Human Capital Group Limited ("Dryden")
Dryden is headquartered in the UK and specialises in the actuarial, insurance
and compliance recruitment sector with significant operations in London and
Hong Kong, and smaller offices in Mumbai, Sydney and New York.
The group consists of four major brands: Darwin Rhodes, a specialist recruiter
operating globally in the niche areas of the insurance and finance sectors;
Edison Morgan, the Asia-based executive search brand servicing the insurance
and asset management sectors; Drake Fleming, a multi–sector HR, change and
business transformation recruitment business; and Baker Noble, a private wealth
and asset management recruitment brand.
At present, Hong Kong is performing to plan but London is showing significant
underperformance and may require further restructuring.
The financial statements for 2013 show negative net assets resulting from a
requirement by the auditors to show 'A' Ordinary shares and 'B' Ordinary shares
as debt despite them being Ordinary shares. This also gives an odd result to
the calculation and is an accounting treatment with which we do not concur.
Ordinary C
Share Share
2013 2012 Fund Fund
Latest Audited Results(group) £'000 £'000 Investment Information £'000 £'000
Year ended 31 Mar 31 Mar
Turnover 7,088 9,822 Total cost 100 -
Pre-tax (loss)/profit (1,470)* 290 Income recognised in year - -
Net (liabilities)/assets (2,281) 1,166 Equity valuation 14 -
Loan stock valuation - -
Valuation basis: Earnings multiple Total valuation 14 -
Voting rights 0.9% -
* pre-exceptional items.
Hampshire Cosmetics Limited ("Hampshire")
In December 2013, a further investment of £50,000 equity and £100,000 loan
stock was made by the C Share Fund.
Founded in the 1970s, Hampshire is an established company which develops and
manufactures a comprehensive range of products covering fragrances, body
treatments, skincare and shampoos. The business and trade and assets have been
acquired by a management team that has previously been backed by Calculus
Capital in a successful investment.
The original investment in December 2012 was part of a turnaround led by an
experienced management buy-in team. This has progressed well to date, with an
improvement in revenue and profitability. Performance has in fact been ahead
of plans, and the company moved significantly into profitability for the year
to December 2013. This has been achieved through management's focus on
high-quality customer delivery, margin and cashflow.
In the year ahead the key objectives for the business are to grow and diversify
further the revenue base. This will be facilitated by the investment made in
December 2013 to fund a small bolt-on investment.
In addition, the company has undertaken a strategic review of the market and
has also identified additional opportunities for further product
diversification and margin improvement. Some of the identified strategies will
be implemented during the coming year, as well as delivering further cost
improvements from the capital investment already undertaken.
Ordinary C
Share Share
2013 2012 Fund Fund
Latest Unaudited Results £'000 £'000 Investment Information £'000 £'000
Year ended 31 Dec 31 Dec
Turnover 24,045 21,250 Total cost 250 150
Pre-tax profit/(loss) 918 (668) Income recognised in year 12 2
Net assets 2,592 1,773 Equity valuation 127 52
Loan stock valuation 150 100
Valuation basis: Price of recent transaction Total valuation 277 152
Voting rights* 4.5% 1.8%
* Other funds managed by Calculus Capital have combined voting rights of 0.9 per cent.
Human Race Group Limited ("Human Race")
Human Race owns and delivers over 58 events in triathlon, cycling, running,
duathlon, aquathlon and open water swimming for over 100,000 participants of
all abilities and ages.
The group had a successful year with like for like improvements in participant
numbers and 'net promoter scores' (a key metric for measuring customer
satisfaction). Events have been delivered well in testing weather and
environmental conditions, with only one event having to be postponed due to
poor weather. Financial performance for 2013 has been largely in line with
forecasts. The group made a modest loss for the year to 31 December 2013. This
was largely due to continued investment in growing events to maturity and a loss of event
entry fees through refunds as a result of the postponed event. Continuous work goes on to
ensure entry numbers continue to build across each event and a number of new marketing
initiatives (physical, online and through partner channels) will be implemented throughout 2014.
The management team have built a motivated workforce and put in place the
infrastructure necessary to develop and successfully run a growing portfolio of
events.
Ordinary C
Share Share
2013 2012* Fund Fund
Latest Unaudited Results (group) £'000 £'000 Investment Information £'000 £'000
Year ended 31 Dec 31 Dec
Turnover 2,713 3,196 Total cost 300 150
Pre-tax loss (48) (23) Income recognised in year 16 8
Net assets 2,053 2,329 Equity valuation 87 43
Loan stock valuation 200 100
Valuation basis: Sales multiple Total valuation 287 143
Voting rights 1.9% 1.0%
* Estimated consolidation of financial results
Secure Electrans Limited ("Secure")
In April 2013, £20,000 was invested in Secure, of which £12,000 was loan stock
for the Ordinary Share Fund and £8,000 was loan stock for the C Share Fund. In
May 2013, a further £17,000 of loan stock was invested in by the C Share Fund.
Secure is a UK based payments technology company. Its HomePay™ solution
replicates the retail chip and pin experience for other card transactions.
Secure Electrans' solution and back end system supports secure, low cost, chip
and pin payment facilities for small and medium sized businesses - particularly
businesses requiring a high degree of mobility (e.g. plumbers, window cleaners
and hairdressers), card not present transactions on different devices (e.g.
computers, tablets and mobile phone), prepaid smart energy meters and eGov
Services as local and national government move more of their services online.
Global interest in chip and pin solutions for online transactions has increased
significantly in the past year. The United States was the last major market to
embrace chip and pin, having moved rapidly in this direction after significant
losses of credit card information by major US retailers such as Target and
Neiman Marcus. Notwithstanding the level of interest in Secure Electrans'
products in its market, the company was unable to demonstrate adequate
visibility over future working capital needs and full provision has been made
against the value of our equity investment. We continue to value the loan stock
at par as we believe there to be value in the intellectual property.
Ordinary C
Share Share
2012 2011 Fund Fund
Latest Audited Results £'000 £'000 Investment Information £'000 £'000
Year ended 31 Dec 31 Dec
Turnover 61 111 Total cost 112 75
Pre-tax loss (2,384) (2,469) Income recognised in year 1 2
Net (liabilities)/assets (40) 259 Equity valuation - -
Loan stock valuation 12 25
Valuation basis: Recoverable amount Total valuation 12 25
Voting rights 0.4% 0.2%
Tollan Energy Limited ("Tollan")
Tollan has been set up to generate electricity from renewable micro-generation
facilities. In February 2013, Tollan entered into an agreement to acquire a
portfolio of installed solar PV panels on residential and commercial roofs in
Northern Ireland and will benefit from Northern Ireland Renewable Obligation
Certificates ("NIROCs").
Tollan outsources operations, maintenance support and billing and cash
collection services. The developer has experience in this sector having,
amongst other renewable projects, carried out the repairs and maintenance to
the 7,000 asset portfolio of Homesun prior to its sale to Aviva.
The systems will be provided at no cost to the homeowners. Tollan's revenues
will come from two sources, both of which are inflation protected, being
directly linked to RPI. Firstly, there is the Government backed NIROC for every
unit of electricity generated. Under the current NIROC regime, solar
installations of less than 50kW per site receive 4 NIROCs per mega watt of
electricity generated indexed for 20 years. Secondly, there is the export
tariff for any surplus electricity not used by the homeowner that is exported
to the grid.
As at 31 March 2014, 167 systems had been installed (0.9MW). It is anticipated
that the portfolio will comprise of approximately 1.6MW in total. All systems
are due to be installed prior to the end of the 2014 calendar year.
No financial information is currently available.
Ordinary C
Share Share
Fund Fund
Investment Information £'000 £'000
No results available.
Total cost 360 -
Income recognised in year 17 -
Equity valuation 150 -
Valuation basis: Cost Loan stock valuation 210 -
Total valuation 360 -
Voting rights 6.4% -
Venn Life Science Holdings plc ("Venn")
Venn is a Clinical Research Organisation ("CRO") with operations in France, the
Netherlands, Ireland and a branch office in Switzerland. The company's near
term objective is the consolidation of a number of small European CROs to build
a mid-sized CRO focused on the European market, offering clients a full
service, multi-centred capability in Phase II-IV trials across a range of
principal disease areas.
Ordinary C
Share Share
2012 2011 Fund Fund
Latest Audited Results (group) £'000 £'000 Investment Information £'000 £'000
Year ended 31 Dec 31 Dec
Turnover 2,670 2,870 Total cost 120 80
Pre-tax (loss)/profit (930) 1,030 Income recognised in year - -
Net assets 2,050 110 Equity valuation 88 59
Loan stock valuation - -
Valuation basis: AIM traded Total valuation 88 59
Voting rights* 2.0% 1.3%
* Other funds managed by Calculus Capital have combined voting rights of 9.1 per cent.
Terrain Energy Limited ("Terrain")
In August 2013, an additional investment of £5,000 was made in Terrain by the C
Share Fund. A total of £200,000 of loan stock held by the Ordinary Share Fund
was redeemed during 2013.
Terrain Energy is an oil and gas exploration and production company with
licence interests in the East Midlands, Surrey, Northern Ireland and Germany.
Terrain has interests in ten petroleum licences: Keddington, Kirklington, Dukes
Wood, Kelham Hills and Burton on the Wolds in the East Midlands, Larne and a
licence offshore to the north of Larne in Northern Ireland, Brockham in Surrey
and Bruckmuhl and Starnberger See in Germany. Terrain is currently producing
from wells at Keddington and Brockham. On average, 80 barrels of oil per day
(bopd) and 100,000 standard cubic feet of gas per day are being produced
(gross).
Two exploration wells are planned in 2014 on the Larne and Burton on the Wolds
licences. Should the Larne well be a success, it would be game changing for the
company as 450 million barrels of prospective resources have been mapped in the
area (45 million barrels net to Terrain). Also, this would greatly increase the
likelihood of finding commercial oil reserves in the 27th Offshore Round
licence to the north of Larne which was awarded by DECC to the joint venture
partners in early 2014 (Terrain owns 20%).
Terrain's strengths lie in the quality of its management team; its mix of
production, development and exploration assets which reduces risk; the size of
its reserves, especially prospective resources, which are due to be drilled in
the near future; and that it has sufficient cash to meet its commitments.
Ordinary C
Share Share
2012 2011 Fund Fund
Latest Audited Results £'000 £'000 Investment Information £'000 £'000
Year ended 31 Dec 31 Dec
Turnover 246 308 Total cost 100 95
Pre-tax loss (66) (72) Income recognised in year 5 3
Net assets 3,670 3,435 Equity valuation 164 76
Loan stock valuation - 45
Valuation basis: Reserves multiple Total valuation 164 121
Voting rights 1.3% 0.6%
MicroEnergy Generation Services Limited ("MicroEnergy")
MicroEnergy owns a portfolio of small onshore wind turbines.
As at 31 December 2013, 153 turbines had been installed in East Anglia and
Yorkshire. The portfolio will provide MicroEnergy with sufficient scale to
mitigate against concerns of poor short-term performance at any particular
site. The revenues from the fleet of installed turbines come from two sources,
both of which are inflation protected, being directly linked to RPI. Firstly,
there is the Government backed feed-in tariff ("FIT") paid by the electricity
suppliers for every kilowatt of electricity generated for twenty years.
Secondly, there is the export tariff for any surplus electricity not used by
the site owner that is exported to the grid.
Ordinary C
Share Share
2013 2012* Fund Fund
Latest Audited Results(group) £'000 £'000 Investment Information £'000 £'000
Year ended 31 Mar 31 Mar
Turnover 117 7 Total cost 300 -
Pre-tax loss (84) (107) Income recognised in year 10 -
Net assets 2,739 1,623 Equity valuation 138 -
Loan stock valuation 150 -
Valuation basis: Discounted cashflow Total valuation 288 -
Voting rights** 5.1% -
* The financials in the period from 11 February 2011 to 31 March 2012 have not been audited.
** Other funds managed by Calculus Capital have combined voting rights of 5.8 per cent.
Lime Technology Limited ("Lime Technology")
The construction sector was one of the last sectors in the UK to show signs of
recovery. It is now showing evidence of recovery, but from a low base. Lime
Technology now comprises three main activities: Render and Mortars; a building
systems division; and, in 2013, the group established an external wall
insulation ("EWI") division to address the need for insulation for the stock of
existing (poorly insulated) pre-1980s houses. Lime Technology's proprietary
mortars were used in the renovation of St Pancras Station and, although used in
'new build', are most appropriate to the renovation and preservation of older
buildings. This division is performing well but we believe it is capable of
better performance. Lime Technology's building systems division recently won a
sizeable contract from a large pharmaceutical company for a new building. Lime
Technology's zero carbon panels were also used in the external wall
construction of M&S' new superstore at Cheshire Oaks, the largest outside of
Marble Arch, and in the construction of the Science Museum's new 'large object'
archive at Wroughton, near Swindon. Lime Technology's prefabricated panels are
classed as 'zero carbon' and show superior performance compared to comparable
products in terms of temperature, moisture control and fire resistance. For
example, a 20 degree change in the external temperature changes the internal
temperature by one degree over 32 hours. The recently launched EWI division has
a reached an average monthly run rate of about £400k-£500k per month from a
zero base over the last twelve months. New management, appointed in January, is
undertaking a number of reviews to improve operational efficiency in areas such
as gross margin control, factory efficiency and improved tendering.
Ordinary C
Share Share
2013* 2012 Fund Fund
Latest Audited Results(group) £'000 £'000 Investment Information £'000 £'000
Year ended 31 Oct 31 Oct
Turnover 5,254 5,997 Total cost 307 -
Pre-tax loss (6,985) (2,055) Income recognised in year 20 -
Net liabilities (584) (499) Equity valuation 8 -
Loan stock valuation 250 -
Valuation basis: Comparable companies Total valuation 258 -
Voting rights 0.2% -
* The Lime Technology Group accounts are not required to be audited. These figures are derived from
the Lime Technology Limited, Hemcrete Projects Limited and Hemp Technology Limited accounts which
have been audited.
Metropolitan Safe Custody Limited ("Metropolitan")
Metropolitan provides safe custody services to many thousands of customers. The
company currently runs two safe custody sites, one in Knightsbridge (BRO), the
other in St. Johns Wood (SJW). These two vaults are amongst the largest of
their type in the country. In addition to maximising space efficiency at these
sites, investment is being made to increase unit and revenue capacity and to
upgrade facilities. When the company's major 5-year capital expenditure
programme is completed at the end of 2015, Metropolitan will have two top class
vaults with outstanding facilities and systems. Additional customers add little
to operating costs at the existing sites, and most of any additional income is
forecast to fall straight to the bottom line. A number of the high street
banks are withdrawing from the safe custody market, driven by their desire to
focus on core activities and the closure of high street branches. As a result,
many of the customers who previously stored goods with their local bank, have
been looking for alternative provision. This is resulting in an increase in
market share amongst the independent safe deposit providers.
Year Period*
ended ended Ordinary C
30 June 30 June Share Share
2013 2012 Fund Fund
Latest Audited Results(group) £'000 £'000 Investment Information £'000 £'000
Turnover 1,612 491 Total cost 190 90
Pre-tax profit 197 111 Income recognised in year 8 4
Net assets 4,238 4,118 Equity valuation 129 58
Loan stock valuation 100 50
Valuation basis: Comparable companies Total valuation 229 108
Voting rights 2.2% 1.0%
* In 2012 the results of Metropolitan's principal trading subsidiary,
Metropolitan Safe Deposits Limited, were only consolidated from 2 February 2012.
The audited 12 month turnover for Metropolitan Safe Deposits Limited, was £1,390,000.
Qualifying Investments
No additional Qualifying Investments have been made since the year end.
Developments since the Year End
On 24 March 2014, Horizon raised £40m new equity in a private placing prior to
IPO. Horizon was admitted to trading on the London Stock Exchange's AIM market
at a price of 180 pence per share on 27 March 2014. This compares with the
Company's cost price of 87.26 pence. Horizon aims to become the global No1 in
translational genomics research tools, and a leader in the implementation of
personalised medicine.
There have been no further developments since the year end.
Outlook
The UK economy has shown recent signs of recovery from the low growth years
post-recession, although concerns about productivity remain. In this context,
we believe that the investments in the portfolio are well placed and can show
good returns in the medium to longer term.
Calculus Capital Limited
19 May 2014
Investment Manager's Review
(Structured Products)
Our non-Qualifying Investments are managed by Investec Structured Products. As
at the date of this report, the Company held a portfolio of Structured Products
based on the FTSE 100 Index. The products differ by duration and counterparty.
In line with the Company's strategy set out in the original offer documents,
part of the initial cash raised has been used to build a portfolio of
Structured Products. The portfolio of Structured Products was constructed with
different issuers and differing maturity periods to minimise risk and create a
diversified portfolio. The majority of this portfolio has now reached full term
and paid a positive return, with all products which have reached full term
paying their maximum return. The recent changes are listed below.
In the Ordinary Share Fund, this year the small £50,000 holding in the Abbey
National product was sold early (21 June 2013) to help with cash flow,
returning £59,500. All other products left in the portfolio are now maturating
in 2015. Currently the FTSE 100 is above all of these strike levels; the
highest strike level in the portfolio is now 5,341.93.
The C Share Fund is smaller and the Abbey National product matured on 5
February 2014, paying a 26% return on the £200,000 notional investment. There
is now one product in the C share portfolio left which is due to mature in
2017; the strike of this is 5,246.99.
The continued strong performance of the FTSE 100 has supported valuations in
the Structured Products portfolio. The FTSE 100 has remained far above all of
the products' strike levels. As at 28 February 2014, the FTSE 100 was at
6,809.70. Over the past year, 5 year swap rates have increased slightly and
volatility has remained low, mainly due to the improvements in the UK economy
as a whole.
No new investments were made in Structured Products during the period.
The Structured Products will achieve their target return subject to the Final
Index Level of the FTSE 100 being higher than the Initial Index Level. The
capital is at risk on a one-for-one basis ("CAR") if the FTSE 100 Index falls
more than 50 per cent at any time during the investment term and fails to fully
recover at maturity such that the Final Index Level is below the Initial Index
Level. As at 28 February 2014, the following investments had been made in
Structured Products:
Ordinary Share Fund:
FTSE 100
Initial Price as at
Strike Index Notional Purchase 28 February Maturity Return/Capital
Issuer Date Level Investment Price 2014 Date at Risk(CAR)
The Royal
Bank of
Scotland plc 05/05/2010 5,341.93 £275,000 £0.96 £1.5530 12/05/2015 162.5% if FTSE 100
higher*; CAR if FTSE
100 falls more than 50%
Investec Bank
plc 14/05/2010 5,262.85 £500,000 £0.98 £1.6985 19/11/2015 185% if FTSE 100 higher*;
CAR if FTSE 100 falls more
than 50%
Abbey
National
Treasury
Services 25/05/2010 4,940.68 £350,000 £0.99 £1.7348 18/11/2015 185% if FTSE 100 higher*;
CAR if FTSE 100 falls more
than 50%
Matured/sold FTSE 100
Initial
Index Price at Maturity
Strike Level at Notional Purchase Maturity/ Date/Date Return/Capital
Issuer Date Maturity Investment Price Sale Sold at Risk(CAR)
HSBC Bank plc 01/07/2010 4,805.75 £500,000 £1.00 Returned 06/07/2012 125.1% if FTSE 100
£1.2510 higher*; CAR if FTSE 100
falls more than 50%
The Royal
Bank of
Scotland plc 18/03/2011 5,718.13 £50,000 £1.00 Returned 19/03/2012 Autocallable 10.5% p.a.;
£1.1050 CAR if FTSE 100 falls
more than 50%
Nomura Bank
International
** 28/05/2010 5,188.43 £350,000 £0.98 Sold at 30/03/2012 137% if FTSE 100 higher*;
£1.2625 CAR if FTSE 100 falls
more than 50%
Morgan
Stanley
International 10/06/2010 5,132.50 £500,000 £1.00 Sold at 31/10/2012 134% if FTSE 100 higher*;
£1.3224 CAR if FTSE 100 falls
more than 50%
Abbey
National
Treasury
Services 03/08/2011 5,584.51 £50,000 £1.00 Sold at 21/06/2013 126% if FTSE 100 higher*;
£1.1900 CAR if FTSE 100 falls
more than 50%
The total valuation of the amount invested in Structured Products in the
Ordinary Share Fund as at 28 February 2014 was £1,883,498.
C Share Fund:
FTSE 100
Initial Price as at
Strike Index Notional Purchase 28 February Maturity Return/Capital
Issuer Date Level Investment Price 2014 Date at Risk(CAR)
Investec
Bank plc 05/08/2011 5,246.99 £328,000 £1.00 £1.5325 10/03/2017 182% if FTSE 100 higher*;
CAR if FTSE 100 falls more
than 50%
Matured FTSE 100
Initial
Index
Strike Level at Notional Purchase Price at Maturity Return/Capital
Issuer Date Maturity Investment Price Maturity Date at Risk(CAR)
The Royal
Bank of
Scotland plc 18/03/2011 5,718.13 £200,000 £1.00 Returned 19/03/2012 Autocallable 10.5% p.a.;
£1.1050 CAR if FTSE 100
falls more than 50%
Nomura Bank
International
** 28/05/2010 5,188.43 £350,000 £1.2625 Returned 20/02/2013 137% if FTSE 100 higher*;
£1.3700 CAR if FTSE 100
falls more than 50%
Abbey
National
Treasury
Services 03/08/2011 5,584.51 £200,000 £1.00 Returned 05/02/2014 126% if FTSE 100 higher*;
£1.2600 CAR if FTSE 100 falls
more than 50%
The total valuation of the amount invested in Structured Products in the C Share Fund
as at 28 February 2014 was £502,655.
* The Final Index Level is calculated using 'averaging', meaning that the
average of the closing levels of the FTSE 100 is taken on each Business Day
over the last 2-6 months of the Structured Product plan term (the length of the
averaging period differs for each plan). The use of averaging to calculate the
return can reduce adverse effects of a falling market or sudden market falls
shortly before maturity. Equally, it can reduce the benefits of an increasing
market or sudden market rises shortly before maturity.
** The Nomura Structured Product was sold prior to maturity with a return on
initial investment of 28.8 per cent. This was sold to the C Share Fund.
Investec Structured Products
19 May 2014
INVESTMENT PORTFOLIO
AS AT 28 FEBRUARY 2014
Ordinary Share Fund
Net Assets % of Net Assets
Structured Products 41%
Unquoted - loan stock 27%
Unquoted - ordinary and preference shares 32%
Unquoted - liquidity funds 0%
Net current assets 0%
100%
Sector % of Portfolio
Structured Products 41%
Unquoted - Qualifying Investments 59%
Unquoted - other non-Qualifying Investments 0%
100%
Nature of Book Cost Valuation % of Net % of
Company Business £'000 £'000 Assets Portfolio
Structured Products
Investec Bank plc Banking 490 849 19% 19%
Abbey National Treasury
Services Banking 346 607 13% 13%
The Royal Bank
of Scotland plc Banking 264 427 10% 9%
Total Structured Products 1,100 1,883 42% 41%
Qualifying Investments
Tollan Energy Limited Energy 360 360 8% 8%
Brigantes Energy Limited Oil and gas
exploration
and
production 125 320 7% 7%
MicroEnergy Generation
Services Limited Energy 300 288 6% 6%
Human Race Group Limited Leisure 300 287 6% 6%
Hampshire Cosmetics
Limited Cosmetics 250 277 6% 6%
Lime Technology Limited Construction 307 258 6% 6%
AnTech Limited Oil services 270 255 6% 6%
Metropolitan Safe Custody Safe
Limited depository
services 190 229 5% 5%
Terrain Energy Limited Onshore oil
and gas
production 100 164 4% 4%
Corfe Energy Limited Oil and gas
exploration
and
production 75 137 3% 3%
Venn Life Sciences Clinical
Holdings plc research 120 88 2% 2%
Dryden Human Capital Human
Group Limited resources 100 14 - -
Secure Electrans Limited E-commerce
security 112 12 - -
Heritage House Limited Publishing and
media services 127 - - -
Total Qualifying
Investments 2,736 2,689 59% 59%
Other non-Qualifying
Investments
Scottish Widows Liquidity
Liquidity Fund fund 1 1 - -
Total Other non-Qualifying
Investments 1 1 - -
Total Investments 3,837 4,573 101% 100%
Net Current Liabilities
less Creditors due after
one year (61) (1)%
Net Assets 4,512 100%
C Share Fund
Net Assets % of Net Assets
Structured Products 28%
Unquoted - loan stock 18%
Unquoted - ordinary and preference shares 47%
Unquoted - liquidity funds 0%
Net current assets 7%
100%
Sector % of Portfolio
Structured Products 31%
Unquoted - Qualifying Investments 69%
Unquoted - other non-Qualifying Investments 0%
100%
Book % of
Nature of Cost Valuation Net % of
Company Business £'000 £'000 Assets Portfolio
Structured Products
Investec Bank plc Banking 328 503 28% 31%
Total Structured Products 328 503 28% 31%
Qualifying Investments
Hampshire Cosmetics
Limited Cosmetics 150 152 9% 9%
Quai Administration
Services Limited Technology 150 150 9% 9%
Scancell Holdings Plc Biotech 100 144 8% 9%
Human Race Group Limited Leisure 150 143 8% 9%
The One Place Capital Personal
Limited finance 127 127 7% 8%
Terrain Energy Limited Onshore oil and
gas production 95 121 7% 7%
Metropolitan Safe Safe depository
Custody Limited services 90 108 6% 6%
Pico's Limited Leisure 50 64 4% 4%
Venn Life Sciences Clinical
Holdings plc research 80 59 3% 4%
Horizon Discovery
Limited Biotechnology 50 50 3% 3%
Secure Electrans Limited E-commerce
security 75 25 1% 1%
Heritage House Limited Publishing and
media services 64 - - -
Total Qualifying
Investments 1,181 1,143 65% 69%
Other non-Qualifying
Investments
Fidelity Liquidity Fund Liquidity fund - - - -
Scottish Widows Liquidity
Fund Liquidity fund 1 1 - -
Total Other
non-Qualifying
Investments 1 1 - -
Total Investments 1,510 1,647 93% 100%
Net Current Assets less
Creditors due after one
year 118 7%
Net Assets 1,765 100%
OTHER STATUTORY INFORMATION
Company Activities and Status
The Company is registered as a public limited company and incorporated in
England and Wales with registration number 07142153. Its shares have a premium
listing and are traded on the London Stock Exchange.
The Company's business model is to conduct business as a venture capital trust
("VCT"). Company affairs are conducted in a manner to satisfy the conditions to
enable it to obtain approval as a VCT under sections 258-332 of the Income Tax
Act 2007 ("ITA 2007").
On incorporation, the Company was an investment company under section 833 of
the Companies Act 2006. On 18 May 2011, investment company status was revoked
by the Company. This was done in order to allow the Company to pay dividends to
shareholders using the special reserve (a distributable capital reserve), which
had been created on the cancellation of the share premium account on 20 October
2010.
Company Strategy, Objectives and Business model
The Company's principal objectives for investors are to:
* invest in a portfolio of Venture Capital Investments and Structured
Products that will provide investment returns that are sufficient to allow
the Company to maximise annual dividends and pay an interim return either
by way of a special dividend or cash offer for shares on or before an
interim return date;
* generate sufficient returns from a portfolio of Venture Capital Investments
that will provide attractive long-term returns within a tax efficient
vehicle beyond an interim return date;
* review the appropriate level of dividends annually to take account of
investment returns achieved and future prospects; and
* maintain VCT status to enable qualifying investors to retain their income
tax relief of up to 30 per cent. on the initial investment and receive
tax-free dividends and capital growth.
Investment policy
It is intended that approximately 75 per cent. of the monies raised by the
Company will be invested within 60 days in a portfolio of Structured Products.
The balance will be used to meet initial costs and invested in cash or near
cash assets (as directed by the Board) and will be available to invest in
Venture Capital Investments and to fund ongoing expenses.
In order to qualify as a VCT, at least 70 per cent. of the Company's assets
must be invested in Venture Capital Investments within approximately three
years. Thus there will be a phased reduction in the Structured Products
portfolio and corresponding build up in the portfolio of Venture Capital
Investments to achieve and maintain this 70 per cent. threshold along the lines
set out in the table below:
Average Exposure per Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6+
Structured Products and
cash/near cash 85% 75% 35% 25% 25% 0%
Venture Capital Investments 15% 25% 65% 75% 75% 100%
Note: the investment allocation set out above is only an estimate and the
actual allocation will depend on market conditions, the level of opportunities
and the comparative rates of returns available from Venture Capital Investments
and Structured Products.
The combination of Venture Capital Investments and the Structured Products will
be designed to produce ongoing capital gains and income that will be sufficient
to maximise both annual dividends for the first five years from funds being
raised and an interim return by an interim return date by way of a special
dividend or cash tender offer for shares. After the interim return date, unless
Investec Structured Products are requested to make further investments in
Structured Products, the relevant fund will be left with a portfolio of Venture
Capital Investments managed by Calculus Capital with a view to maximising
long-term returns. Such returns will then be dependent, both in terms of amount
and timing, on the performance of the Venture Capital Investments, but with the
intention to source exits as soon as possible.
The portfolio of Structured Products will be constructed with different issuers
and differing maturity periods to minimise risk and create a diversified
portfolio. The Structured Products may also be collateralised whereby notes are
issued by one issuer (such as Investec Bank plc) but with the underlying
investment risk being linked to more than one issuer (as approved by the Board)
reducing insolvency risks, creating diversity and potentially increasing
returns for shareholders. If the Company invests in a collateralised Structured
Product, the amount of the exposure to an underlying issuer will be taken into
account when reviewing investments for diversification. The maximum exposure to
any one issuer (or underlying issuer) will be limited, in aggregate, to 15 per
cent. of the assets of the Company at the time of investment. Structured
Products can and may be sold before their maturity date if required for the
purposes of making Venture Capital Investments and Investec Structured Products
have agreed to make a market in the Structured Products, should this be
required by the Company.
The intention for the portfolio of Venture Capital Investments is to build a
diverse portfolio of primarily established unquoted companies across different
industries. In order to generate income and where it is felt it would enhance
shareholder return, investments may be structured to include loan stock and/or
redeemable preference shares as well as ordinary equity. It is intended that
the amount invested in any one sector and any one company will be no more than
approximately 20 per cent. and 10 per cent. respectively of the Venture Capital
Investments portfolio (in both cases at the date of the investment).
The Board and its Managers review the portfolio of investments on a regular
basis to assess asset allocation and the need to realise investments to meet
the Company's objectives or maintain VCT status. Where investment opportunities
arise in one asset class which conflicts with assets held or opportunities in
another asset class, the Board will make the investment/divestment decision.
Under its Articles, the Company has the ability to borrow a maximum amount
equal to 25 per cent. of the gross assets of the Company. The Board will
consider borrowing if it is in the shareholders' interests to do so. In
particular, because the Board intends to minimise cash balances, the Company
may borrow on a short-term to medium-term basis (in particular, against
Structured Products) for cashflow purposes and to facilitate the payment of
dividends and expenses in the early years.
The Company will not vary the investment objective or the investment policy, to
any material extent, without the approval of shareholders. The Company intends
to be a generalist VCT investing in a wide range of sectors.
Risk diversification
The Board controls the overall risk of the Company. Calculus Capital will
ensure the Company has exposure to a diversified range of Venture Capital
Investments from different sectors. Investec Structured Products will ensure
the Company has exposure to a diversified range of Structured Products. The
Board believes that investment in these two asset classes provides further
diversification.
Co-investment policy
Calculus Capital has a co-investment policy between its various funds whereby
investment allocations are generally offered to each party in proportion to
their respective funds available for investment, subject to: (i) a priority
being given to any of the funds in order to maintain their tax status; (ii) the
time horizon of the investment opportunity being compatible with the exit
strategy of each fund; and (iii) the risk/reward profile of the investment
opportunity being compatible with the target return for each fund. The terms of
the investments may differ between the parties. In the event of any conflicts
between the parties, the issues will be resolved at the discretion of the
independent Directors, designated members and committees. It is not intended
that the Company will co-invest with directors or members of the Calculus
Capital management team (including family members).
In respect of the Venture Capital Investments, funds attributable to separate
share classes will co-invest (i.e. pro rata allocation per fund, unless one of
the funds has a pre-existing investment where the incumbent fund will have
priority, or as otherwise approved by the Board). Any potential conflict of
interest arising will be resolved on a basis which the Board believes to be
equitable and in the best interests of all shareholders. A co-investment policy
is not considered necessary for the Structured Products.
Policy on Qualifying Investments
Calculus Capital follows a disciplined investment approach which focuses on
investing in more mature unquoted companies where the risk of capital loss is
reduced and prospects for exit enhanced, typically by the cash generative
characteristics and/or strong asset bases of the investee companies. Calculus
Capital, therefore, intends to:
• invest in a diversified portfolio from a range of different sectors;
• focus on companies which are cash generative and/or with a strong asset base;
• structure investments to include loans and preference shares where it is felt
this would enhance shareholder return;
• invest in companies which operate in sectors with a high degree of
predictability and a defensible market position; and
• invest in companies which can benefit both from the capital provided by
Calculus Capital but also from the many years of operating and financial
experience of the Calculus Capital team.
It is intended that the Venture Capital Investments portfolio will be spread
across a number of investments and the amount invested in any one sector and
any one company will be no more than approximately 20 per cent. and 10 per
cent. respectively (in both cases at the date of investment).
VCT regulation
The Company's investment policy is designed to ensure that it will meet, and
continue to meet, the requirements for approved VCT status from HM Revenue &
Customs. Amongst other conditions, the Company may not invest more than 15 per
cent. (by value at the time of investment) of its investments in a single
company and must have at least 70 per cent. by value of its investments
throughout the period in shares or securities in qualifying holdings, of which
30 per cent. by value must be ordinary shares which carry no preferential
rights ("eligible shares"). For funds raised from 6 April 2011, the requirement
for 30 per cent. to be invested in eligible shares was increased to 70 per
cent.
Performance
The Board reviews performance by reference to a number of key performance
indicators ("KPIs") and considers that the most relevant KPIs are those that
communicate the financial performance and strength of the Company as a whole,
being;
- total return per share
- net asset value per share
- share price and discount/premium to net asset value
The financial performance of the Company is set out below:
Year Ended Year Ended
28 February 28 February
2014 2013
Ordinary Share Fund
Fair value portfolio valuation £4.6m £4.5m
Total return after tax £199,000 £309,000
Total return per ordinary share 4.2p 6.5p
NAV per ordinary share 95.2p 96.3p
Ordinary share price 85.5p 92.5p
Ordinary share price discount to NAV (10.2)% (3.9)%
C Share Fund
Fair value portfolio valuation £1.6m £1.3m
Total return after tax £47,000 £104,000
Total return per C share 2.4p 5.4p
NAV per C share 91.4p 93.5p
C share price 90.p 90.0p
C share price discount to NAV (1.5)% (3.7)%
Further KPIs are those which show the Company's position in relation to the VCT
tests which it is required to meet in order to meet and maintain its VCT
status. A summary of these tests is set out in the full Annual Report. The
Company has received provisional approval as a VCT from HM Revenue & Customs.
To maintain its qualifying status as a Venture Capital Trust, the Company as a
whole needs to be at least 70 per cent. invested in Qualifying Investments by
the end of the relevant third accounting period. At 28 February 2014, the
qualifying percentage for the Company was 71.8 per cent.
Principal Risks and Uncertainties Facing the Company
The Company is exposed to a variety of risks. The principal financial risks and
the Company's policies for managing these risks and the policy and practice
with regard to financial instruments are summarised in note 15 to the Accounts.
The Board has also identified the following additional risks and uncertainties:
Loss of approval as a venture capital trust and other regulatory breaches
The Company has received provisional approval as a VCT under ITA 2007. Failure
to meet and maintain the qualifying requirements for VCT status could result in
the loss of tax reliefs previously obtained, resulting in adverse tax
consequences for investors, including a requirement to repay the income tax
relief obtained, and could also cause the Company to lose its exemption from
corporation tax on chargeable gains.
The Board receives regular updates from the Managers and financial information
is produced on a monthly basis. The Board has appointed an independent adviser
to monitor and advise on the Company's compliance with the VCT rules.
The Company is subject to compliance with the Companies Act 2006, the rules of
the UK Listing Authority and ITA 2007. A breach of any of these could lead to
suspension of the listing of the Company's shares on the London Stock Exchange
and/or financial penalties, with the resulting reputational implications.
Venture Capital Investments
There are restrictions regarding the type of companies in which the Company may
invest and there is no guarantee that suitable investment opportunities will be
identified.
Investment in unquoted companies and AIM-traded companies involves a higher
degree of risk than investment in companies traded on the main market of the
London Stock Exchange. These companies may not be freely marketable and
realisations of such investments can be difficult and can take a considerable
amount of time. There may also be constraints imposed upon the Company with
respect to realisations in order to maintain its VCT status which may restrict
the Company's ability to obtain the maximum value from its investments.
Calculus Capital has been appointed to manage the Qualifying Investments
portfolio, and has extensive experience of investing in this type of
investment. Regular reports are provided to the Board.
Risks attaching to investment in Structured Products
Structured Products are subject to market fluctuations and the Company may lose
some or all of its investment. In the event of a long-term decline in the FTSE
100 Index, or, in the case of the C Share Fund, in such other index as this
fund may be invested, there will be no gains from the Structured Products. In
the event of a fall in the relevant index of more than 50 per cent. at any time
during the Structured Product term, and where the Final Index Level is below
the Initial Index Level, there will be losses on the Structured Products.
There may not be a liquid market in the Structured Products and there may never
be two competitive market makers, making it difficult for the Company to
realise its investment. Risk is increased further where there is a single
market maker who is also the issuer of the Structured Product. Investec
Structured Products has agreed to make a market in the Structured Products,
should this be required by the Company.
Factors which may influence the market value of Structured Products include
interest rates, changes in the method of calculating the relevant underlying
index from time to time and market expectations regarding the future
performance of the relevant underlying index, its composition and such
Structured Products.
Investec Structured Products has been appointed to manage the Structured
Products portfolio for its expertise in these types of financial products.
Restrictions have been agreed with Investec Structured Products relating to
approved counterparties and maximum exposure to any one counterparty.
Liquidity/marketability risk
Due to the holding period required to maintain up-front tax reliefs, there is a
limited secondary market for VCT shares and investors may therefore find it
difficult to realise their investments. As a result, the market price of the
shares may not fully reflect, and will tend to be at a discount to, the
underlying net asset value. The level of discount may also be exacerbated by
the availability of income tax relief on the issue of new VCT shares. The Board
recognises this difficulty, and has taken powers to buy back shares, which
could be used to enable investors to realise investments.
Changes to legislation/taxation
Changes in legislation or tax rates concerning VCTs in general, and Venture
Capital Investments and qualifying trades in particular, may limit the number
of new Venture Capital Investment opportunities, and thereby adversely affect
the ability of the Company to achieve or maintain VCT status, and/or reduce the
level of returns which would otherwise have been achievable.
Engagement of third party advisers
The Company has no employees and relies on services provided by third parties.
The Board has appointed Calculus Capital as Investment Manager of the
Qualifying Investments portfolio and Investec Structured Products as Investment
Manager of the Structured Products portfolio. Capita Sinclair Henderson Limited
provides administration, accounting and company secretarial services, and
Investec Wealth & Investments acts as custodian.
C shares versus ordinary shares
The assets relating to the C shares are managed and accounted for separately
from the assets attributable to the ordinary shares. However, a number of
company regulations and VCT requirements are assessed at company level and,
therefore, the performance of one fund may impact adversely on the other. The
Board monitors both the performance of each separate fund as well as
requirements at a company level to reduce the risk of this occurring.
Employees, Environmental, Human rights and Community Issues
The Company has no employees and the Board is comprised entirely of
non-executive Directors. Day-to-day management of the Company's business is
delegated to the Investment Managers (details of the respective management
agreements are set out in the Directors' Report in the full Annual Report) and
the Company itself has no environmental, human rights, or community policies.
In carrying out its activities and in relationships with suppliers, the Company
aims to conduct itself responsibly, ethically and fairly.
Gender Diversity
The Board of Directors comprised of three male Directors and one female
Director during, and at the end of, the year to 28 February 2014.
On behalf of the Board
Michael O'Higgins
Chairman
19 May 2014
Directors
The Directors who held office during the course of the period were as follows:
Michael O'Higgins (Chairman)*
Kate Cornish-Bowden*
John Glencross
Steve Meeks*
* Independent of the Investment Managers.
Investment Managers
Calculus Capital
Calculus Capital Limited is the Venture Capital Investments portfolio manager
(VCT Qualifying Investments).
Investec Structured Products
Investec Structured Products (a trading name of Investec Bank plc) is the
Structured Products portfolio manager (non VCT Qualifying Investments).
EXTRACTS FROM THE DIRECTORS' REPORT
Share Capital
At the year end and at the date of this report, the issued share capital
comprised 4,738,463 ordinary shares (representing 71.05 per cent. of total
voting rights and of the total share capital) and 1,931,095 C shares
(representing 28.95 per cent. of total voting rights and of the total share
capital). No shares were held in Treasury.
At the Annual General Meeting held on 17 July 2012, the Directors were granted
authority to allot shares up to an aggregate nominal amount of £206,700, and
this authority will expire at the Annual General Meeting to be held in 2017.
The Directors were also authorised to issue shares for cash (without rights of
pre-emption applying) (i) up to £100,000 of each class of share by way of offer
for subscription and (ii) up to 10 per cent. of each class of share for general
purposes and to buy back up to 14.99 per cent. of each of the ordinary and C
shares in issue. No shares have been issued or bought back during the period.
The Board's proposals for the renewal of these authorities are detailed in the
full Annual Report.
Going Concern
After making enquiries, and having reviewed the portfolio, balance sheet and
projected income and expenditure for the next twelve months, the Directors have
a reasonable expectation that the Company has adequate resources to continue in
operation for the foreseeable future. The Directors have therefore adopted the
going concern basis in preparing the Accounts.
The full Annual Report and Accounts contains the following statements regarding
responsibility for the Accounts.
DIRECTORS' RESPONSIBILITIES STATEMENT
Statement of Directors' Responsibilities in respect of the Annual Report and
the Accounts
The Directors are responsible for preparing the Annual Report and the Accounts
in accordance with applicable law and regulations.
Company law requires the Directors to prepare Accounts for each financial year.
Under that law they have elected to prepare the Accounts in accordance with
United Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable laws). Under company law the Directors must
not approve the Accounts unless they are satisfied that they give a true and
fair view of the state of affairs and profit or loss of the Company for that
period.
In preparing these Accounts, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and accounting estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the Accounts; and
• prepare the Accounts on the going concern basis unless it is inappropriate to
presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the Accounts comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration Report
and Corporate Governance Statement that comply with that law and those
regulations, and for ensuring that the Annual Report includes information
required by the Listing Rules of the Financial Conduct Authority.
The Accounts are published on the www.calculuscapital.com website, which is a
website maintained by one of the Company's Investment Managers, Calculus
Capital. The maintenance and integrity of the website maintained by Calculus
Capital is, so far as it relates to the Company, the responsibility of Calculus
Capital. The work carried out by the Auditor does not involve consideration of
the maintenance and integrity of this website and accordingly, the Auditor
accepts no responsibility for any changes that have occurred to the Accounts
since they were initially presented on the website. Visitors to the website
need to be aware that legislation in the United Kingdom covering the
preparation and dissemination of the Accounts may differ from legislation in
their jurisdiction.
We confirm that to the best of our knowledge:
• the Accounts, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
• the Annual Report includes a fair review of the development and
performance of the business and the position of the Company together with a
description of the principal risks and uncertainties that it faces.
On behalf of the Board
Michael O'Higgins
Chairman
19 May 2014
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the year ended 28 February 2014 and the year ended 29
February 2013 but is derived from those accounts. Statutory accounts for 2013
have been delivered to the Registrar of Companies, and those for 2014 will be
delivered in due course. The Auditor has reported on those accounts; their
report was (i) unqualified, (ii) did not include a reference to any matters to
which the Auditor drew attention by way of emphasis without qualifying their
report and (ii) did not contain a statement under Section 498 (2) or (3) of the
Companies Act 2006. The text of the Auditor's report can be found in the
Company's full Annual Report and Accounts at www.calculuscapital.com.
Income Statement
for the year ended 28 February 2014
Year Ended Year Ended
28 February 2014 28 February 2013
Revenue Capital Revenue Capital
Return Return Total Return Return Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Ordinary Share Fund
Investment holding gains/(losses) 8 - 267 267 - (3) (3)
Gain on disposal of investments 8 - 10 10 - 391 391
Income 2 74 - 74 71 - 71
Investment management fee 3 (11) (34) (45) (11) (33) (44)
Other operating expenses 4 (107) - (107) (106) - (106)
(Loss)/profit on ordinary activities before
taxation (44) 243 199 (46) 355 309
Taxation on ordinary activities 5 - - - - - -
(Loss)/profit for the year (44) 243 199 (46) 355 309
Basic and diluted earnings per ordinary share 7 (0.9)p 5.1p 4.2p (1.0)p 7.5p 6.5p
C Share Fund
Investment holding gains 8 - 33 33 - 80 80
Gain on disposal of investments 8 - 52 52 - 72 72
Income 2 22 - 22 13 - 13
Investment management fee 3 (4) (13) (17) (4) (13) (17)
Other operating expenses 4 (43) - (43) (44) - (44)
(Loss)/profit on ordinary activities before
taxation (25) 72 47 (35) 139 104
Taxation on ordinary activities 5 - - - - - -
(Loss)/profit for the year (25) 72 47 (35) 139 104
Basic and diluted earnings per C share 7 (1.3)p 3.7p 2.4p (1.8)p 7.2p 5.4p
The total column of these statements represents the Income Statement of the
Ordinary Share Fund and C Share Fund.
The supplementary revenue return and capital return columns are both prepared
in accordance with the Association of Investment Companies' ("AIC") Statement
of Recommended Practice ("SORP").
No operations were acquired or discontinued during the year.
All items in the above statement derive from continuing operations.
There were no recognised gains or losses other than those passing through the
Income Statement.
The notes form an integral part of these Accounts.
Income Statement (continued)
for the year ended 28 February 2014
Year Ended Year Ended
28 February 2014 28 February 2013
Revenue Capital Revenue Capital
Return Return Total Return Return Total
Total Note £'000 £'000 £'000 £'000 £'000 £'000
Investment holding gains 8 - 300 300 - 77 77
Gain on disposal of investments 8 - 62 62 - 463 463
Income 2 96 - 96 84 - 84
Investment management fee 3 (15) (47) (62) (15) (46) (61)
Other operating expenses 4 (150) - (150) (150) - (150)
(Loss)/profit on ordinary activities before
taxation (69) 315 246 (81) 494 413
Taxation on ordinary activities 5 - - - - - -
(Loss)/profit for the year (69) 315 246 (81) 494 413
Basic and diluted earnings per ordinary share 7 (0.9)p 5.1p 4.2p (1.0)p 7.5p 6.5p
Basic and diluted earnings per C share 7 (1.3)p 3.7p 2.4p (1.8)p 7.2p 5.4p
The total column of this statement represents the Company's Income Statement.
The supplementary revenue return and capital return columns are both prepared
in accordance with the AIC's SORP.
No operations were acquired or discontinued during the year.
All items in the above statement derive from continuing operations.
There were no recognised gains or losses other than those passing through the
Income Statement.
The notes form an integral part of these Accounts
Reconciliation of Movements in Shareholders' Funds
for the year ended 28 February 2014
Capital Capital
Share Special Reserve Reserve Revenue
Capital Reserve Realised Unrealised Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Ordinary Share Fund
For the year ended 28 February 2014
1 March 2013 47 3,978 297 469 (229) 4,562
Investment holding gains - - - 267 - 267
Gain on disposal of investments - - 10 - - 10
Management fee allocated to capital - - (34) - - (34)
Revenue return on ordinary activities after tax - - - - (44) (44)
Dividend paid - (249) - - - (249)
28 February 2014 47 3,729 273 736 (273) 4,512
For the year ended 28 February 2013
1 March 2012 47 4,226 (61) 472 (183) 4,501
Change in accrual of IFA trail commission - 1 - - - 1
Investment holding losses - - - (3) - (3)
Gain on disposal of investments - - 391 - - 391
Management fee allocated to capital - - (33) - - (33)
Revenue return on ordinary activities after tax - - - - (46) (46)
Dividend paid - (249) - - - (249)
28 February 2013 47 3,978 297 469 (229) 4,562
The notes form an integral part of these Accounts.
Reconciliation of Movements in Shareholders' Funds (continued)
for the year ended 28 February 2014
Capital Capital
Share Special Reserve Reserve Revenue
Capital Reserve Realised Unrealised Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
C Share Fund
For the year ended 28 February 2014
1 March 2013 19 1,715 47 104 (80) 1,805
Investment holding gains - - - 33 - 33
Gain on disposal of investments - - 52 - - 52
Management fee allocated to capital - - (13) - - (13)
Revenue return on ordinary activities after tax - - - - (25) (25)
Dividend paid - (87) - - - (87)
28 February 2014 19 1,628 86 137 (105) 1,765
For the year ended 28 February 2013
1 March 2012 19 1,802 (12) 24 (45) 1,788
Investment holding gains - - - 80 - 80
Gain on disposal of investments - - 72 - - 72
Management fee allocated to capital - - (13) - - (13)
Revenue return on ordinary activities after tax - - - - (35) (35)
Dividend paid - (87) - - - (87)
28 February 2013 19 1,715 47 104 (80) 1,805
The notes form an integral part of these Accounts.
Reconciliation of Movements in Shareholders' Funds (continued)
for the year ended 28 February 2014
Capital Capital
Share Special Reserve Reserve Revenue
Capital Reserve Realised Unrealised Reserve Total
Total £'000 £'000 £'000 £'000 £'000 £'000
For the year ended 28 February 2014
1 March 2013 66 5,693 344 573 (309) 6,367
Investment holding gains - - - 300 - 300
Gain on disposal of investments - - 62 - - 62
Management fee allocated to capital - - (47) - - (47)
Revenue return on ordinary activities after tax - - - - (69) (69)
Dividend paid - (336) - - - (336)
28 February 2014 66 5,357 359 873 (378) 6,277
For the year ended 28 February 2013
1 March 2012 66 6,028 (73) 496 (228) 6,289
Change in accrual of IFA trail commission - 1 - - - 1
Investment holding gains - - - 77 - 77
Gain on disposal of investments - - 463 - - 463
Management fee allocated to capital - - (46) - - (46)
Revenue return on ordinary activities after tax - - - - (81) (81)
Dividend paid - (336) - - - (336)
28 February 2013 66 5,693 344 573 (309) 6,367
The notes form an integral part of these Accounts.
Balance Sheet
as at 28 February 2014
28 February 28 February
2014 2013
Note £'000 £'000
Ordinary Share Fund
Fixed assets
Investments 8 4,573 4,545
Current assets
Debtors 9 73 110
Cash at bank and on deposit - 4
73 114
Creditors: amount falling due within one
year
Creditors 10 (107) (87)
Bank overdraft (22) -
(129) (87)
Net current (liabilities)/assets (56) 27
Non-current liabilities
IFA trail commission (5) (10)
Net assets 4,512 4,562
Capital and reserves
Called-up share capital 11 47 47
Special reserve 3,729 3,978
Capital reserve - realised 273 297
Capital reserve - unrealised 736 469
Revenue reserve (273) (229)
Equity shareholders' funds 4,512 4,562
Net asset value
per ordinary share - basic 12 95.2p 96.3p
The notes form an integral part of these Accounts.
Balance Sheet (continued)
as at 28 February 2014
28 February 28 February
2014 2013
Note £'000 £'000
C Share Fund
Fixed assets
Investments 8 1,647 1,258
Current assets
Debtors 9 29 35
Cash at bank and on deposit 130 556
159 591
Creditors: amount falling due within
one year
Creditors 10 (36) (36)
Net current assets 123 555
Non-current liabilities
IFA trail commission (5) (8)
Net assets 1,765 1,805
Capital and reserves
Called-up share capital 11 19 19
Special reserve 1,628 1,715
Capital reserve - realised 86 47
Capital reserve - unrealised 137 104
Revenue reserve (105) (80)
Equity shareholders' funds 1,765 1,805
Net asset value per C share - basic 12 91.4p 93.5p
The notes form an integral part of these Accounts.
Balance Sheet (continued)
as at 28 February 2014
28 February 28 February
2014 2013
Note £'000 £'000
Total
Fixed assets
Investments 8 6,220 5,803
Current assets
Debtors 9 102 145
Cash at bank and on deposit 130 560
232 705
Creditors: amounts falling due within
one year
Creditors 10 (143) (123)
Bank overdraft (22) -
(165) (123)
Net current assets 67 582
Non-current liabilities
IFA trail commission (10) (18)
Net assets 6,277 6,367
Capital and reserves
Called-up share capital 66 66
Special reserve 5,357 5,693
Capital reserve - realised 359 344
Capital reserve - unrealised 873 573
Revenue reserve (378) (309)
Equity shareholders' funds 6,277 6,367
Net asset value
per ordinary share - basic 12 95.2p 96.3p
Net asset value per C share - basic 12 91.4p 93.5p
These Accounts were approved by the Board of Directors of Investec Structured
Products Calculus VCT plc and were authorised for issue on 19 May 2014 and were
signed on its behalf by:
Michael O'Higgins
Chairman
Registered No. 07142153 England & Wales
The notes form an integral part of these Accounts.
Cash Flow Statement
for the year ended 28 February 2014
28 February 28 February
2014 2013
Note £'000 £'000
Ordinary Share Fund
Operating activities
Investment income received 104 56
Deposit interest received - 2
Investment management fees (22) (22)
Other cash payments (103) (85)
Cash expended from operating activities 13 (21) (49)
Cash flow from investing activities
Purchase of investments (12) (1,700)
Sale of investments 261 1,978
Net cash flow from investing activities 249 278
Equity dividend paid (249) (249)
Net cash flow before financing (21) (20)
Cash flow from financing activities
Expenses of share issues (5) (4)
Net cash flow from financing activities (5) (4)
Decrease in cash at bank and on deposit (26) (24)
Analysis of changes in cash at bank and on deposit
Beginning of year 4 28
Net cash decrease (26) (24)
As at 28 February (22) 4
The notes form an integral part of these Accounts.
Cash Flow Statement (continued)
for the year ended 28 February 2014
Year Ended Year Ended
28 February 28 February
2014 2013
Note £'000 £'000
C Share Fund
Operating activities
Investment income received 22 8
Deposit interest received 1 -
Investment management fees (17) (9)
Other cash payments (38) (20)
Cash expended from operating activities 13 (32) (21)
Cash flow from investing activities
Purchase of investments (657) (722)
Sale of investments 353 1,307
Net cash flow from investing activities (304) 585
Equity dividend paid (87) (87)
Net cash flow before financing (423) 477
Cash flow from financing activities
Expenses of share issues (3) (25)
Net cash flow from financing activities (3) (25)
(Decrease)/increase in cash at bank and on deposit (426) 452
Analysis of changes in cash at bank and on deposit
Beginning of year 556 104
Net cash (decrease)/increase (426) 452
As at 28 February 130 556
The notes form an integral part of these Accounts.
Cash Flow Statement (continued)
for the year ended 28 February 2014
Year Ended Year Ended
28 February 28 February
2014 2013
Note £'000 £'000
Total
Operating activities
Investment income received 126 64
Deposit interest received 1 2
Investment management fees (39) (31)
Other cash payments (141) (105)
Cash expended from operating activities 13 (53) (70)
Cash flow from investing activities
Purchase of investments (669) (2,422)
Sale of investments 614 3,285
Net cash flow from investing activities (55) 863
Equity dividend paid (336) (336)
Net cash flow before financing (444) 457
Cash flow from financing activities
Expenses of share issues (8) (29)
Net cash flow from financing activities (8) (29)
(Decrease)/increase in cash at bank and on deposit (452) 428
Analysis of changes in cash at bank and on deposit
Beginning of year 560 132
Net cash (decrease)/increase (452) 428
As at 28 February 108 560
The notes form an integral part of these Accounts.
NOTES TO THE ACCOUNTS
Accounting Policies
Basis of accounting
These Accounts cover the 12 month period 1 March 2013 to 28 February 2014, and
have been prepared under the historical cost convention, except for the
valuation of financial assets at fair value through profit or loss, in
accordance with UK Generally Accepted Accounting Practice ("UK GAAP") and the
AIC SORP issued in January 2009. These Accounts are prepared on the going
concern basis.
In determining the analysis of total income and expenses as between capital
return and revenue return, the Directors have followed the guidance contained
in the AIC SORP, and on the assumption that the Company maintains VCT status.
Expenses are allocated between the Ordinary Share Fund and the C Share Fund on
the basis of the ratio of the number of shares held by the respective fund to
the total number of ordinary and C shares where the expense is a shared
expense. Where expenses are not shared in this proportion, they are applied on
the basis of the most accurate method.
The Ordinary Share Fund and C Share Fund share bank accounts. Each funds' share
of the bank accounts is based on actual receipts and payments. These cash flows
are allocated according to the accounting policy for income and expenses
respectively.
The Company has not prepared consolidated accounts and has accounted for its
subsidiary, Investec SPV Limited, as an investment on the grounds that its
results are immaterial to the Company. Investec SPV Limited was dissolved in
March 2014 as it was no longer required.
The Company's Accounts are presented in Sterling.
Investments at fair value through profit or loss
The Company aims to invest in portfolios of Structured Products and Venture
Capital Investments that will provide sufficient total returns to allow the
Company to pay annual dividends and provide long-term capital returns for
investors. As a result, all investments held by the Company are designated,
upon initial recognition, as held at fair value through profit or loss, in
accordance with Financial Reporting Standard 26 'Financial Instruments:
Recognition and Measurement' and the AIC SORP. The Company manages and
evaluates the performance of these investments on a fair value basis in
accordance with its investment strategy, and information about the portfolio is
provided internally on this basis to the Board. Fair value is the amount for
which an asset can be exchanged between knowledgeable, willing parties in an
arm's length transaction. Investments held at fair value through profit or loss
are initially recognised at cost, being the consideration given and excluding
transaction or other dealing costs associated with the investment, which are
expensed and included in the capital column of the Income Statement.
Subsequently, investments are measured at fair value, with gains and losses on
investments recognised in the Income Statement and allocated to capital. All
purchases and sales of investments are accounted for on trade date basis.
For investments actively traded in organised financial markets, fair value is
generally determined by reference to quoted market bid, or last, prices,
depending on the convention of the exchange on which the investment is quoted,
at the close of business on the Balance Sheet date.
Structured Products are valued by reference to the FTSE 100 Index, with mid
prices for the Structured Products provided by the product issuers. An
adjustment is made to these prices to take into account any bid/offer spreads
prevalent in the market at each valuation date. These spreads are either
determined by the issuer or recommended by the Structured Products Manager,
Investec Structured Products (a trading name of Investec Bank plc).
Unquoted investments are valued using an appropriate valuation technique so as
to establish what the transaction price would have been at the Balance Sheet
date. Such investments are valued in accordance with the International Private
Equity and Venture Capital Association ("IPEV") guidelines. Primary indicators
of fair value are derived from earnings multiples, recent arm's length market
transactions, net assets or, where appropriate, at cost for recent investments
or the discounted cash flow valuation as at the previous reporting date.
Income
Dividends receivable on equity shares are recognised as revenue on the date on
which the shares or units are marked as ex-dividend. Where no ex-dividend date
is available, the revenue is recognised when the Company's right to receive it
has been established.
Interest receivable from fixed income securities is recognised using the
effective interest rate method. Interest receivable on bank deposits is
included in the Accounts on an accruals basis.
The gains and losses arising on investments in Structured Products are
allocated between revenue and capital according to the nature of each
Structured Product. This is dependent on the extent to which the return on the
Structured Product is capital or revenue based.
Other revenue is credited to the revenue column of the Income Statement when
the Company's right to receive the revenue has been established.
Expenses
All expenses are accounted for on an accruals basis. Expenses are charged to
the Income Statement as follows:
• expenses, except as stated below, are charged to the revenue column of the
Income Statement;
• expenses incurred on the acquisition or disposal of an investment are taken
to the capital column of the Income Statement;
• expenses are charged to the capital column of the Income Statement where a
connection with the maintenance or enhancement of the value of the investments
can be demonstrated. In this respect management fees have been allocated 75 per
cent. to the capital column and 25 per cent. to the revenue column of the
Income Statement, being in line with the Board's expected long-term split of
returns, in the form of capital gains and revenue respectively, from the
investment portfolio of the Company; and
• expenses associated with the issue of shares are deducted from the share
premium account. Annual IFA trail commission covering a five year period since
share allotment has been provided for in the Accounts as, due to the nature of
the Company, it is probable that this will be payable. The commission is
apportioned between current and non-current liabilities.
Expenses incurred by the Company in excess of the agreed cap, currently 3 per
cent. of the gross amount raised from the offer for subscription of ordinary
shares and C shares respectively for the 2009/2010, 2010/2011 and 2011/2012 tax
years (excluding irrecoverable VAT, annual trail commission and performance
incentive fees), can be clawed back from Investec Structured Products until the
Ordinary Share Interim Return Date. Any clawback is treated as a credit against
the expenses of the Company.
Investment management and performance fees
Calculus Capital, as Investment Manager of the VCT qualifying portfolio,
receives an annual investment management fee of an amount equivalent to 1.0 per
cent. of the net assets of the respective share fund.
Investec Structured Products, as Investment Manager of the Structured Products
portfolio, does not receive any annual management fees from the Company.
Investec Structured Products is entitled to an arrangement fee from the
providers of Structured Products as detailed in note 17.
The Investment Managers will each receive a performance incentive fee payable
in cash of an amount equal to 10 per cent. of dividends and distributions paid
(including the relevant distribution being offered) to holders of ordinary
shares over and above 105p per ordinary share (this being a 50 per cent. return
on an initial net investment of 70p per ordinary share taking into account
upfront income tax relief) provided holders of ordinary shares have received or
been offered an interim return of at least 70p per share for payment on or
before 14 December 2015. Such performance incentive fees will be paid within 10
business days of the date of payment of the relevant dividend or distribution.
For the C Share Fund, Investec Structured Products and Calculus Capital will be
entitled to performance incentive fees as set out below:
• 10 per cent. of C Shareholder Proceeds in excess of 105p up to and including
Proceeds of 115p per C share, such amount to be paid within ten business days
of the date of payment of the relevant dividend or distribution pursuant to
which a return of 115p per C share is satisfied; and
• 10 per cent. of C Shareholder Proceeds in excess of 115p per C share, such
amounts to be paid within ten business days of the date of payment of the
relevant dividend or distribution;
provided in each case that C shareholders have received or been offered the C
Share Interim Return of at least 70p per C share on or before 14 March 2017 and
at least a further 45p per C share having being received or offered for payment
on or before the 14 March 2019.
Capital reserve
The capital return component of the return for the year is taken to the
non-distributable capital reserves and the unrealised capital component of the
return for the year is taken to the non-distributable capital reserves within
the Reconciliation of Movements in Shareholders' Funds.
Special reserve
The special reserve was created by the cancellation of the Ordinary Share
Fund's share premium account on 20 October 2010. A further cancellation of the
share premium account occurred on 23 November 2011 for both the Ordinary Share
Fund and C Share Fund. The special reserve is a distributable reserve created
to be used by the Company inter alia to write off losses, fund market purchases
of its own ordinary and C shares, make distributions and/or for other corporate
purposes.
The Company was formerly an investment company under section 833 of the
Companies Act 2006. On 18 May 2011, investment company status was revoked by
the Company. This was done in order to allow the Company to pay dividends to
shareholders using the special reserve.
Taxation
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the Balance Sheet date where transactions or
events that result in an obligation to pay more tax in the future have occurred
at the Balance Sheet date. This is subject to deferred tax assets only being
recognised if it is considered more likely than not that there will be suitable
profits from which the future reversals of the underlying timing differences
can be deducted. Timing differences are differences between the Company's
taxable profits and its results as stated in the Accounts.
Deferred tax is measured at the average tax rates that are expected to apply in
the periods in which the timing differences are expected to reverse, based on
tax rates and laws that have been enacted or substantially enacted by the
Balance Sheet date. Deferred tax is measured on a non-discounted basis.
No taxation liability arises on gains from sales of fixed asset investments by
the Company by virtue of its VCT status. However, the net revenue (excluding UK
dividend income) accruing to the Company is liable to corporation tax at the
prevailing rates.
Dividends
Dividends to shareholders are accounted for in the period in which they are
paid or approved in general meetings. Dividends payable to equity shareholders
are recognised in the Reconciliation of Movements in Shareholders' Funds when
they are paid, or have been approved by shareholders in the case of a final
dividend and become a liability of the Company.
2. Income
Year Ended Year Ended
28 February 28 February
2014 2013
£'000 £'000
Ordinary Share Fund
UK dividends 2 -
UK unfranked loan stock interest 58 68
Liquidity fund interest - 1
Redemption premium 12 -
Bank interest - 2
Commission fees received 2 -
74 71
Total income comprises:
Interest 70 71
Dividends 2 -
Other income 2 -
74 71
C Share Fund
UK dividends 1 -
UK unfranked loan stock interest 19 12
Liquidity fund interest - 1
Bank interest 1 -
Commission fees received 1 -
22 13
Total income comprises:
Interest 20 13
Dividends 1 -
Other income 1 -
22 13
Total
UK dividends 3 -
UK unfranked loan stock interest 77 80
Liquidity fund interest - 2
Redemption premium 12 -
Bank interest 1 2
Commission fees received 3 -
96 84
Total income comprises:
Interest 90 84
Dividends 3 -
Other income 3 -
96 84
3. Management Fee
Year Ended Year Ended
28 February 2014 28 February 2013
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Ordinary Share Fund
Investment management fee 11 34 45 11 33 44
C Share Fund
Investment management fee 4 13 17 4 13 17
Total
Investment management fee 15 47 62 15 46 61
No performance fee was paid during the year.
4. Other Expenses
Year Ended Year Ended
28 February 28 February
2014 2013
£'000 £'000
Ordinary Share Fund
Directors' fees 35 47
Secretarial and accounting fees 59 59
Auditor's remuneration
- audit services 14 15
- tax compliance services 4 4
Other 52 43
Clawback of expenses in excess of 3% cap repayable
from the Manager (57) (62)
107 106
C Share Fund
Directors' fees 15 19
Secretarial and accounting fees 24 24
Auditor's remuneration
- audit services 6 6
- tax compliance services 2 2
Other 19 21
Clawback of expenses in excess of 3% cap repayable
from the Manager (23) (28)
43 44
Total
Directors' fees 50 66
Secretarial and accounting fees 83 83
Auditor's remuneration
- audit services 20 21
- tax compliance services 6 6
Other 71 64
Clawback of expenses in excess of 3% cap repayable
from the Manager (80) (90)
150 150
Further details of Directors' fees can be found in the Directors' Remuneration
Report in the full Annual Report.
5. Taxation
Year Ended Year Ended
28 February 2014 28 February 2013
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Ordinary Share Fund
(Loss)/profit on ordinary
activities before tax (44) 243 199 (46) 355 309
Theoretical tax at UK Corporation
Tax rate of 23.1% (2013: 24.2%) (10) 56 46 (11) 86 75
Timing differences: loss not
recognised, carried forward 10 8 18 11 8 19
Effects of non-taxable gains - (64) (64) - (94) (94)
Tax charge - - - - - -
C Share Fund
(Loss)/profit on ordinary
activities before tax (25) 72 47 (35) 139 104
Theoretical tax at UK Corporation
Tax rate of 23.1% (2013: 24.2%) (6) 17 11 (9) 34 25
Timing differences: loss not
recognised, carried forward 6 3 9 9 3 12
Effects of non-taxable gains - (20) (20) - (37) (37)
Tax charge - - - - - -
Total
(Loss)/profit on ordinary
activities before tax (69) 315 246 (81) 494 413
Theoretical tax at UK Corporation
Tax rate of 23.1% (2013: 24.2%) (16) 73 57 (20) 120 100
Timing differences: loss not
recognised, carried forward 16 11 27 20 11 31
Effects of non-taxable gains - (84) (84) - (131) (131)
Tax charge - - - - - -
At 28 February 2014, the Company had £443,343 (28 February 2013: £428,064) of
excess management expenses to carry forward against future taxable profits.
The Company's deferred tax asset of £93,102 (28 February 2013: £103,591) has
not been recognised due to the fact that it is unlikely the excess management
expenses will be set off in the foreseeable future.
6. Dividends
Year Ended Year Ended
28 February 28 February
2014 2013
£'000 £'000
Ordinary Share Fund
Declared and paid: 5.25p per ordinary share in respect of the
year ended 28 February 2013 (2012: 5.25p) 249 249
Proposed final dividend: 5.25p per ordinary share in respect
of the year ended 28 February 2014 (2013: 5.25p) 249 249
C Share Fund
Declared and paid: 4.5p per C share in respect of the year
ended 28 February 2013 (2012: 4.5p) 87 87
Proposed final dividend: 4.5p per C share in respect of the
year ended 28 February 2014 (2013: 4.5p) 87 87
The proposed dividends are subject to approval by shareholders at the
forthcoming Annual General Meeting and have not been included as a liability in
these Accounts.
7. Return per Share
Year Ended Year Ended
28 February 2014 28 February 2013
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Return per ordinary share (0.9) 5.1 4.2 (1.0) 7.5 6.5
Return per C share (1.3) 3.7 2.4 (1.8) 7.2 5.4
Ordinary Share Fund
Revenue return per ordinary share is based on the net revenue loss on ordinary
activities after taxation of £44,000 (28 February 2013: £46,000) and on
4,738,463 ordinary shares (28 February 2013: 4,738,463), being the weighted
average number of ordinary shares in issue during the year.
Capital return per ordinary share is based on the net capital gain for the year
of £243,000 (28 February 2013: £355,000) and on 4,738,463 ordinary shares (28
February 2013: 4,738,463), being the weighted average number of ordinary shares
in issue during the year.
Total return per ordinary share is based on the total gain on ordinary
activities after taxation of £199,000 (28 February 2013: £309,000) and on
4,738,463 ordinary shares (28 February 2013: 4,738,463), being the weighted
average number of ordinary shares in issue during the year.
C Share Fund
Revenue return per C share is based on the net revenue loss on ordinary
activities after taxation of £25,000 (28 February 2013: £35,000) and on
1,931,095 C shares (28 February 2013: 1,931,095), being the weighted average
number of C shares in issue during the year.
Capital return per C share is based on the net capital gain for the year of
£72,000 (28 February 2013: £139,000) and on 1,931,095 C shares (28 February
2013: 1,931,095), being the weighted average number of C shares in issue during
the year.
Total return per C share is based on the total gain for the year of £47,000 (28
February 2013: £104,000) and on 1,931,095 C shares (28 February 2013:
1,931,095), being the weighted average number of C shares in issue during the
year.
8. Investments
Year Ended 28 February 2014
Structured
Product Unquoted Other
Investments Investments Investments Total
£'000 £'000 £'000 £'000
Ordinary Share Fund
Opening bookcost 1,150 2,924 2 4,076
Opening investment holding gains/
(losses) 584 (115) - 469
Opening valuation 1,734 2,809 2 4,545
Movements in year:
Purchases at cost - 12 - 12
Sales proceeds (60) (200) (1) (261)
Realised gains on sales 10 - - 10
Increase/decrease in investment
holding gains/(losses) 199 68 - 267
Movements in year 149 (120) (1) (28)
Closing valuation 1,883 2,689 1 4,573
Closing bookcost 1,100 2,736 1 3,837
Closing investment holding gains/
(losses) 783 (47) - 736
Closing valuation 1,883 2,689 1 4,573
Unquoted investments include unquoted shares valued at £nil (2013: £nil) in the
Company's subsidiary, Investec SPV. These shares cost £1,834, resulting in an
unrealised loss of £1,834 (2013: £1,834).
C Share Fund
Opening bookcost 528 524 102 1,154
Opening investment holding gains/
(losses) 159 (55) - 104
Opening valuation 687 469 102 1,258
Movements in year:
Purchases at cost - 657 - 657
Sales proceeds (252) - (101) (353)
Realised gains on sales 52 - - 52
Increase/decrease in investment holding
gains/(losses) 16 17 - 33
Movements in year (184) 674 (101) 389
Closing valuation 503 1,143 1 1,647
Closing bookcost 328 1,181 1 1,510
Closing investment holding
gains/(losses) 175 (38) - 137
Closing valuation 503 1,143 1 1,647
Unquoted investments include unquoted shares valued at £nil (2013: £nil) in the
Company's subsidiary, Investec SPV. The shares cost £917, resulting in an
unrealised loss of £917 (2013: £917).
Year Ended 28 February 2014
Structured
Product Unquoted Other
Investments Investments Investments Total
Total
Opening bookcost 1,678 3,448 104 5,230
Opening investment holding gains/
(losses) 743 (170) - 573
Opening valuation 2,421 3,278 104 5,803
Movements in year:
Purchases at cost - 669 - 669
Sales proceeds (312) (200) (102) (614)
Realised gains on sales 62 - - 62
Increase/decrease in investment
holding gains/(losses) 215 85 - 300
Movements in year (35) 554 (102) 417
Closing valuation 2,386 3,832 2 6,220
Closing bookcost 1,428 3,917 2 5,347
Closing investment holding gains/
(losses) 958 (85) - 873
Closing valuation 2,386 3,832 2 6,220
Note 15 provides a detailed analysis of investments held at fair value through
profit and loss in accordance with Financial Reporting Standard 29 'Financial
Instruments: Disclosures'.
During the year the Company incurred no transaction costs on purchases in
respect of ordinary shareholder activities or C shareholder activities.
Investec SPV was incorporated on 29 November 2011 and dissolved on 25 March
2014. As at 28 February 2014, Investec SPV had share capital of £2,751
(2013: £2,751) and a revenue deficit of £2,751 (2013: deficit of £2,751), valuing
Investec SPV at £nil.
9. Debtors
Year Ended Year Ended
28 February 28 February
2014 2013
£'000 £'000
Ordinary Share Fund
Prepayments and accrued income 16 48
Clawback of expenses in excess of 3% cap payable by the Manager 57 62
73 110
C Share Fund
Prepayments and accrued income 6 7
Clawback of expenses in excess of 3% cap payable by the Manager 23 28
29 35
Year Ended Year Ended
28 February 28 February
2014 2013
£'000 £'000
Total
Prepayments and accrued income 22 55
Clawback of expenses in excess of 3% cap payable by the Manager 80 90
102 145
10. Creditors
Year Ended Year Ended
28 February 28 February
2014 2013
£'000 £'000
Ordinary Share Fund
IFA trail commission 5 5
Management fees 56 33
Audit fees 17 16
Directors' fees 6 6
Administration fees 5 5
Other creditors 18 22
107 87
C Share Fund
IFA trail commission 2 2
Management fees 13 13
Audit fees 7 7
Directors' fees 2 2
Administration fees 2 2
Other creditors 10 10
36 36
Total
IFA trail commission 7 7
Management fees 69 46
Audit fees 24 23
Directors' fees 8 8
Administration fees 7 7
Other creditors 28 32
143 123
11. Share Capital
28 February 2014 28 February 2013
Number £'000 Number £'000
Ordinary Share Fund
Number of shares in issue 4,738,463 47 4,738,463 47
C Share Fund
Number of shares in issue 1,931,095 19 1,931,095 19
Under the Articles of Association, a resolution for the continuation of the
Company as a VCT will be proposed at the Annual General Meeting falling after
the tenth anniversary of the last allotment (from time to time) of shares in
the Company and thereafter at five-yearly intervals.
12. Net Asset Value per Share
28 February 28 February
2014 2013
Ordinary Share Fund
Net asset value per ordinary share 95.2p 96.3p
The basic net asset value per ordinary share is based on net assets (including
current period revenue) of £4,512,000 (28 February 2013: £4,562,000) and on
4,738,463 ordinary shares (28 February 2013: 4,738,463), being the number of
ordinary shares in issue at the end of the year.
C Share Fund
Net asset value per C share 91.4p 93.5p
The basic net asset value per C share is based on net assets (including current
period revenue) of £1,765,000 (28 February 2013: £1,805,000) and on 1,931,095 C
shares (28 February 2013: 1,931,095), being the number of C shares in issue at
the end of the year.
13. Reconciliation of Net Profit before Tax to Cash Expended from Operating
Activities
Year Ended Year Ended
28 February 28 February
2014 2013
£'000 £'000
Ordinary Share Fund
Profit on ordinary activities before tax 199 309
Gains on investments (277) (388)
Decrease in debtors 37 9
Increase in creditors 20 21
Cash expended from operating activities (21) (49)
C Share Fund
Profit on ordinary activities before tax 47 104
Gains on investments (85) (152)
Decrease in debtors 6 16
Increase in creditors - 11
Cash expended from operating activities (32) (21)
Total
Profit on ordinary activities before tax 246 413
Gains on investments (362) (540)
Decrease in debtors 43 25
Increase in creditors 20 32
Cash expended from operating activities (53) (70)
14. Financial Commitments
At 28 February 2014 the Company did not have any financial commitments which
had not been accrued for.
15. Financial Instruments
The Company's objective is to produce ongoing capital gains and income that
will provide investment returns sufficient to maximise annual dividends and to
fund a special dividend or cash offer in year 6 sufficient to bring
distributions per share to 70p.
In order to qualify as a VCT, at least 70 per cent. (the "Qualifying
Percentage") of the Company's investments must be invested in Venture Capital
Investments within approximately three years of the relevant funds being
raised. Thus, there will be a phased reduction in the Structured Products
portfolio and corresponding build up in the portfolio of Venture Capital
Investments to achieve and maintain this 70 per cent. threshold along the
following lines:
Average Exposure per Year Year Year Year Year Year Year
1 2 3 4 5 6+
Structured Products and cash/near cash
assets 85% 75% 35% 25% 25% 0%
Venture Capital Investments 15% 25% 65% 75% 75% 100%
The Qualifying Percentage is, in general, calculated by reference to the latest
price paid by the Company for its investments rather than market value. By 28
February 2014, the Company had achieved the Qualifying Percentage. At that
date, by market value, the Company's investment portfolio comprised 38 per
cent. Structured Products and 62 per cent. Qualifying Investments. This is
split 41 per cent. and 59 per cent. for the ordinary share portfolio and 31 per
cent. and 69 per cent. for the C share portfolio.
The Company's financial instruments comprise securities and cash and liquid
resources that arise directly from the Company's operations.
The principal risks the Company faces in its portfolio management activities
are:
● Market price risk
● Credit risk
● Liquidity risk
The Company does not have exposure to foreign currency risk.
With many years' experience of managing the risks involved in investing in
Structured Products and Venture Capital Investments respectively, both the
Investec Structured Products team and the Calculus Capital team, together with
the Board, have designed the Company's structure and its investment strategy to
reduce risk as much as possible. The policies for managing these risks are
summarised below and have been applied throughout the period under review.
Market price risk
Structured Products
The return and valuation of the Company's investments in Structured Products is
currently linked to the FTSE 100 Index by way of a fixed return that is payable
as long as the Final Index Level is no lower than the Initial Index Level.
All of the current investments in Structured Products will either be capital
protected or capital at risk on a one-to-one basis where the FTSE 100 Index
falls by more than 50 per cent. and the Final Index Level is below the Initial
Index Level. If the FTSE 100 Index does fall by more than 50 per cent. at any
time during the investment period and fails to recover at maturity, the capital
will be at risk on a maximum one-to-one basis (Capital at Risk ("CAR")) (e.g.
if the FTSE 100 Index falls by more than 50 per cent. during the investment
period and on maturity is down 25 per cent., capital within that Structured
Product will be reduced by 25 per cent.). The tables in the Investment
Manager's Review (Structured Products) above provide details of the Initial
Index Level at the date of investment and the maturity date for each of the
Structured Products. On 28 February 2014, the FTSE 100 Index closed at
6,809.70. By 16 May 2014, being the last practicable date prior to the
publication of these Accounts, the Index had increased 0.7 per cent. to close
at 6,855.81.
The Final Index Level is calculated using 'averaging', meaning that the average
is taken of the closing levels of the FTSE 100 on each business day over the
last two to six months of the Structured Product plan term (the length of the
averaging period differs for each plan).
The Investment Manager of the Structured Products portfolio and the Board
review this risk on a regular basis. The use of averaging to calculate the
return can reduce adverse effects of a falling market or sudden market falls
shortly before maturity. Equally, it can reduce the benefits of an increasing
market or sudden market rises shortly before maturity.
As at 28 February 2014, the Company's investments in Structured Products were
valued at £2,386,000 (Ordinary Share Fund: £1,883,000; C Share Fund: £503,000).
A 10 per cent. increase in the level of the FTSE 100 Index at 28 February 2014,
given that all other variables remained constant, would have increased net
assets by £79,652 (Ordinary Share Fund: £51,711; C Share Fund: £29,941). A 10
per cent. decrease would have reduced net assets by £140,610 (Ordinary Share
Fund: £99,357; C Share Fund: £41,253). If the net assets had been higher by
£79,652 throughout the year, then the investment management fee due to Calculus
Capital would have been increased by £796 (Ordinary Share Fund: £517; C Share
Fund: £279); if the net assets had been lower by £140,610 lower throughout the
year, then the investment management fee due to Calculus Capital would have
decreased by £1,406 (Ordinary Share Fund: £994; C Share Fund: £412).
In recent years, the performance of the FTSE 100 Index has been volatile and
the Directors consider that an increase or decrease in the aggregate value of
investments by 10 per cent. or more is reasonably possible.
Qualifying Investments
Market risk embodies the potential for losses and includes interest rate risk
and price risk.
The management of market price risk is part of the investment management
process. The portfolio is managed in accordance with policies in place as
described in more detail in the Chairman's Statement and Investment Manager's
Review (Qualifying Investments).
The Company's strategy on the management of investment risk is driven by the
Company's investment objective as outlined above. Investments in unquoted
companies and AIM-traded companies, by their nature, involve a higher degree of
risk than investments in the main market. Some of that risk can be mitigated by
diversifying the portfolio across business sectors and asset classes.
Interest is earned on cash balances and money market funds and is linked to the
banks' variable deposit rates. The Board does not consider interest rate risk
to be material. Interest rates do not materially impact upon the value of the
Qualifying Investments. The main risk arising on the loan stock instruments is
credit risk. The Company does not have any interest bearing liabilities.
As required by Financial Reporting Standard 29 'Financial Instruments:
Disclosures' (the "Standard") an analysis of financial assets and liabilities,
which identifies the risk of the Company's holding of such items, is provided.
The Company's financial assets comprise equity, loan stock, cash and debtors.
The interest rate profile of the Company's financial assets is given in the
table below:
As at 28 February 2014 As at 28 February 2013
Fair Value Cash Flow Fair Value Cash Flow
Interest Interest Interest Interest
Rate Rate Rate Rate
Risk Risk Risk Risk
£'000 £'000 £'000 £'000
Ordinary Share Fund
Loan stock 1,222 - 1,410 -
Money market funds - 1 - 2
Cash - - - 4
1,222 1 1,410 6
C Share Fund
Loan stock 320 - 195 -
Money market funds - 1 - 102
Cash - 130 - 556
320 131 195 658
Total
Loan stock 1,542 - 1,605 -
Money market funds - 2 - 104
Cash - 130 - 560
1,542 132 1,605 664
The variable rate is based on the banks' deposit rate, and applies to cash
balances held and the money market funds. The benchmark rate which determines
the interest payments received on interest bearing cash balances is the Bank of
England base rate, which was 0.5 per cent. as at 28 February 2014.
Any movement in interest rates is deemed to have an insignificant effect on the
Structured Products.
b) Credit risk
Structured Products
The failure of a counterparty to discharge its obligations under a transaction
could result in the Company suffering a loss. In its role as the Investment
Manager of the Structured Products portfolio and to diversify counterparty
risk, Investec Structured Products will only invest in Structured Products
issued by approved issuers. In addition, the maximum exposure to any one
counterparty (or underlying counterparty) will be limited to 15 per cent. of
the assets of the Company at the time of investment.
Credit risk is the risk that the counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with the
Company. The Investment Manager has in place a monitoring procedure in respect
of counterparty risk which is reviewed on an ongoing basis. The carrying amount
of financial assets best represents the maximum credit risk exposure at the
Balance Sheet date.
As at 28 February 2014, the Company's credit risk exposure, by credit rating of
the Structured Product issuer, was as follows:
28 February 2014 28 February 2013
Credit Risk Rating
(Moody's unless
otherwise indicated) £'000 % of Portfolio £'000 % of Portfolio
Ordinary Share Fund
A2 607 13.3% 612 13.5%
A3 - - 384 8.4%
Baa1 427 9.3% - -
Baa3 849 18.6% 738 16.2%
1,883 41.2% 1,734 38.1%
C Share Fund
A2 - - 239 19.0%
Baa3 503 30.5% 448 35.6%
503 30.5% 687 54.6%
Total
A2 607 9.8% 851 14.7%
A3 - - 384 6.6%
Baa1 427 6.9% - -
Baa3 1,352 21.7% 1,186 20.4%
2,386 38.4% 2,421 41.7%
Qualifying Investments
Where an investment is made in loan stock issued by an unquoted company, it is
made as part of an overall equity and debt package. The recoverability of the
debt is assessed as part of the overall investment process and is then
monitored on an ongoing basis by the Investment Manager who reports to the
Board on any recoverability issues.
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 high credit
quality of the brokers used. The Board monitors the quality of service provided
by the brokers used to further mitigate this risk.
All the assets of the Company which are traded on AIM are held by Investec
Wealth & Investments, 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 and the Investment Manager
monitor the Company's risk by reviewing the custodian's internal control
reports.
c) Liquidity risk
The Company's liquidity risk is managed on an ongoing basis by the Investment
Managers. The Company's overall liquidity risks are monitored on a quarterly
basis by the Board.
The Company maintains sufficient investments in cash and readily realisable
securities to pay accounts payable and accrued expenses as they fall due.
Structured Products
If Structured Products are redeemed before the end of the term, the Company may
get back less than the amount originally invested. The value of the Structured
Products will be determined by the price at which the investments can actually
be sold on the relevant dealing date. The Board does not consider this risk to
be significant as the planned investment periods in Structured Products will
range from six months to five and a half years and there is a planned
transition from Structured Products to Qualifying Investments as detailed
earlier in this note.
There may not be a liquid market in the Structured Products and there may never
be two competitive market makers, making it difficult for the Company to
realise its investment. Risk is increased further where there is a single
market maker who is also the issuer. The Board has sought to mitigate this risk
by only investing in approved issuers of Structured Products, and by limiting
exposure to any one issuer (or underlying issuer).
Qualifying Investments
The Company's financial instruments include investments in unlisted equity
investments which are not traded in an organised public market and which may be
illiquid. As a result, the Company may not be able to realise quickly some of
its investments at an amount close to their fair value in order to meet its
liquidity requirements, or to respond to specific events such as deterioration
in the creditworthiness of any particular issuer.
The Board seeks to ensure that an appropriate proportion of the Company's
investment portfolio is invested in cash and readily realisable assets, which
are sufficient to meet any funding commitments that may arise.
Under its Articles of Association, the Company has the ability to borrow a
maximum amount equal to 25 per cent. of its gross assets. As at 28 February
2014 the Company had no borrowings.
d) Capital management
The capital structure of the Company consists of cash held and shareholders'
equity. Capital is managed to ensure the Company has adequate resources to
continue as a going concern, and to maximise the income and capital return to
its shareholders, while maintaining a capital base to allow the Company to
operate effectively in the market place and sustain future development of the
business. To this end the Company may use gearing to achieve its objectives.
The Company's assets and borrowing levels are reviewed regularly by the Board.
e) Fair value hierarchy
Investments held at fair value through profit and loss are valued in accordance
with IPEV guidelines.
The valuation method used will be the most appropriate valuation methodology
for an investment within its market, with regard to the financial health of the
investment and the IPEV guidelines.
As required by the Standard, an analysis of financial assets and liabilities,
which identifies the risk of the Company's holding of such items, is provided.
The Standard requires an analysis of investments carried at fair value based on
the reliability and significance of the information used to measure their fair
value. In order to provide further information on the valuation techniques used
to measure assets carried at fair value, we have categorised the measurement
basis into a "fair value hierarchy" as follows:
- Quoted market prices in active markets - "Level 1"
Inputs to Level 1 fair values are quoted prices in active markets for identical
assets. An active market is one in which transactions occur with sufficient
frequency and volume to provide pricing information on an ongoing basis. The
Company's investments in AIM quoted equities and money market funds are
recognised within this category.
- Valued using models with significant observable market parameters - "Level 2"
Inputs to Level 2 fair values are inputs other than quoted prices included
within Level 1 that are observable for the asset, either directly or
indirectly. The Company's investments in Structured Products are classified
within this category.
- Valued using models with significant unobservable market parameters - "Level 3"
Inputs to Level 3 fair values are unobservable inputs for the asset.
Unobservable inputs may have been used to measure fair value to the extent that
observable inputs are not available, thereby allowing for situations in which
there is little, if any, market activity for the asset at the measurement date
(or market information for the inputs to any valuation models). As such,
unobservable inputs reflect the assumptions the Company considers that market
participants would use in pricing the asset. The Company's unquoted equities
and loan stock are classified within this category. As explained in note 1,
unquoted investments are valued in accordance with the IPEV guidelines.
The table below shows movements in the assets measured at fair value based on
Level 3 valuation techniques for which any significant input is not based on
observable market data. During the year there were no transfers between Levels
1, 2 or 3.
Ordinary Share Fund
Financial Assets at Fair Value through Profit or Loss
At 28 February 2014
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Structured Products - 1,883 - 1,883
Unquoted equity - - 1,379 1,379
Quoted equity 88 - - 88
Money market funds 1 - - 1
Loan stock - - 1,222 1,222
89 1,883 2,601 4,573
Financial Assets at Fair Value through Profit or Loss
At 28 February 2013
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Structured Products - 1,734 - 1,734
Unquoted equity - - 1,399 1,399
Money market funds 2 - - 2
Loan stock - - 1,410 1,410
2 1,734 2,809 4,545
C Share Fund
Financial Assets at Fair Value through Profit or Loss
At 28 February 2014
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Structured Products - 503 - 503
Unquoted equity - - 620 620
Quoted equity 203 - - 203
Money market funds 1 - - 1
Loan stock - - 320 320
204 503 940 1,647
Financial Assets at Fair Value through Profit or Loss
At 28 February 2013
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Structured Products - 687 - 687
Unquoted equity - - 274 274
Money market funds 102 - - 102
Loan stock - - 195 195
102 687 469 1,258
Total
Financial Assets at Fair Value through Profit or Loss
At 28 February 2014
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Structured Products - 2,386 - 2,386
Unquoted equity - - 1,999 1,999
Quoted equity 291 - - 291
Money market funds 2 - - 2
Loan stock - - 1,542 1,542
293 2,386 3,541 6,220
Financial Assets at Fair Value through Profit or Loss
At 28 February 2013
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Structured Products - 2,421 - 2,421
Unquoted equity - - 1,673 1,673
Money market funds 104 - - 104
Loan stock - - 1,605 1,605
104 2,421 3,278 5,803
The Standard requires disclosure, by class of financial instruments, if the
effect of changing one or more inputs to reasonably possible alternative
assumptions would result in a significant change to the fair value measurement.
The information used in determination of the fair value of Level 3 investments
is chosen with reference to the specific underlying circumstances and position
of the investee company. The portfolio has been reviewed and both downside and
upside reasonable possible alternative assumptions have been identified and
applied to the valuation of the unquoted investments.
Applying the downside alternatives, the value of the unquoted investment
portfolio for the Ordinary Share Fund would be £124,948 or 4.8 per cent. lower
(2013: £121,399 or 4.3 per cent. lower), for the C Share Fund would be £61,252
or 6.5 per cent. lower (2013: £31,964 or 6.8 per cent. lower), and in total it
would be £186,200 or 5.3 per cent. lower (2013: £153,363 or 4.7 per cent.
lower). Using the upside alternatives, the value of the unquoted investment
portfolio for the Ordinary Share Fund would be increased by £106,133 or 4.1 per
cent. (2013: £132,073 or 4.7 per cent.), for the C Share Fund it would be
increased by £40,879 or 4.4 per cent. (2013: £28,918 or 6.2 per cent.), and in
total it would be increased by £147,012 or 4.2 per cent. (2013: £160,991 or 4.9
per cent.).
16. Transactions with Related Parties
John Glencross, a Director of the Company, is considered to be a related party
due to his position as Chief Executive and a director of Calculus Capital, one
of the Company's Investment Managers. He does not receive any remuneration from
the Company. He is a director of Terrain and Lime Technology and stepped down
from the board of Human Race during the period, companies in which the Company
has invested. Fees for the provision of Mr Glencross as a director of these
companies are paid to Calculus Capital, as disclosed in note 17.
17. Transactions with Investment Managers
Investec Structured Products, an Investment Manager to the Company, is entitled
to a performance incentive fee. Investec Structured Products will receive an
arrangement fee of 0.75 per cent. of the amount invested in each Structured
Product. This arrangement fee shall be paid to Investec Structured Products by
the issuer of the relevant Structured Product. No arrangement fee will be paid
to Investec Structured Products in respect of any decision to invest in
Investec-issued Structured Products. Investec Structured Products has agreed
not to earn an annual management fee from the Company.
As at 28 February 2014, £80,000 (2013: £90,000) was owed by Investec Structured
Products as claw back of costs in excess of the agreed expenses cap of 3 per
cent. (£57,000 to the Ordinary Share Fund and £23,000 to the C Share Fund).
Calculus Capital receives an investment management fee from the Company. For
the year ended 28 February 2014, fees of £62,000 (2013: £61,000) were payable
to Calculus Capital (£45,000 payable by the Ordinary Share Fund and £17,000 by
the C Share Fund), of which £nil (2013: £46,000) was outstanding as at 28
February 2014.
No incentive fee accrued to either Investment Manager during the year
(2013:£nil).
Calculus Capital receives an annual fee from Terrain, Lime Technology, AnTech,
Hampshire, Metropolitan, Money Dashboard and Human Race for the provision of a
director, as well as an annual monitoring fee which also covers the provision
of certain administrative support services. In the year ended 28 February 2014,
the amount payable to Calculus Capital which was attributable to the investment
made by the Company was £2,291 (2013: £3,951) from Terrain, £2,112
(2013: £5,695) from Lime Technology, £2,455 (2013: £nil) from AnTech, £2,167
(2013: £112) from Hampshire, £1,201 (2013: £2,899) from Metropolitan, £186
(2013: £nil) from Money Dashboard and £3,665 (2013: £2,662) from Human Race
(all excludingVAT).
Calculus Capital receives an annual monitoring fee from MicroEnergy and Tollan
which covers the provision of certain administrative support services. In the
year ended 28 February 2014, the amount payable to Calculus Capital that was
attributable to the investment made by the Company was £2,097 (2013: £2,728)
from MicroEnergy and £2,813 (2013: £nil) from Tollan (excluding VAT).
Calculus Capital receives an annual fee from Brigantes, Corfe, Benito's Hat and
Dryden for the provision of a director. The amount payable to Calculus Capital
in the year ended 28 February 2014 which was attributable to the investment
made by the Company was £734 (2013: £378) from Brigantes, £435 (2013: £223)
from Corfe, £374 (2013: £nil) from Benito's Hat and £1,186 (2013: £nil) from
Dryden (excluding VAT).
In the year ended 28 February 2014, Calculus Capital received arrangement fees
as a result of the Company's new investments. Calculus Capital received an
arrangement fee of £1,500 (2013: £nil) from Benito's Hat, £3,810 (2013: £nil)
from Money Dashboard, £4,504 (2013: £nil) from Quai, £1,850 (2013: £7,500) from
Secure Electrans, £2,000 (2013: £nil) from Scancell and £150 (2013: £nil) from
Terrain.
ANNUAL GENERAL MEETING
This year's Annual General Meeting of the Company will be held at the offices
of Investec Structured Products, 2 Gresham Street London EC2V 7QP on 1 July
2014 at 11.00 am.
For further information, please contact:
Investment Manager to the Structured Products Portfolio
Investec Structured Products
Gary Dale
Telephone: 020 7597 4065
Investment Manager to the Venture Capital Portfolio
Calculus Capital Limited
Susan McDonald
Telephone: 020 7493 4940
National Storage Mechanism
A copy of the Annual Report and Accounts will be submitted shortly to the
National Storage Mechanism ("NSM") and will be available for inspection at the
NSM, which is situated at: www.morningstar.co.uk/uk/NSM
ENDS
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.