Final Results for the year ended 31 December 2009

RNS Number : 2444J

Rapid Realisations Fund Limited

26 March 2010

 

26 March 2010

 

Rapid Realisations Fund Limited

 

Final Results for the year ended 31 December 2009

 

Rapid Realisations Fund Limited (the "Company" or "Rapid"), the AIM quoted investment company today announces its audited results for the year ended 31 December 2009 (the "Period").

 

Financial Highlights

 

·; Net Asset Value per share at 31 December 2009 of 104.78p.

·; Cash and cash equivalents as at 31 December 2009 of circa £18.4 million.

·; Deficit for the year of £166,037.

·; Follow on commitments of circa £8.2 million.

·; Completed 3 new investments totalling circa £4.7 million.

·; Completed 5 follow on investments totalling circa £3.5 million.

·; Purchased over 2.1 million of the Company's own shares at an average price of 83p each.

 

Since the year end

 

·; RRF has made follow on investments totalling £0.4 million to fund the continued growth of 2 investee companies and has received circa £0.8 million by way of a loan repayment.

 

Commenting, Peter Tom, Chairman:

 

"Whilst there are now some tentative signs that the economy is emerging from recession, 2009 was a particularly challenging year for small and medium sized businesses based in both the UK and abroad. I am therefore happy to report that the Net Asset Value ("NAV") per share has remained stable throughout the year and as at 31 December 2009 the NAV per share stood at 104.78p. This is slightly higher than the prior year and some 5.4% higher than the last published NAV per share at 30 September 2009.

 

During the year the Company has made 3 new investments and 5 follow on investments totaling circa £8.2 million and due to the continuing restricted availability of credit and general economic uncertainty has seen an increase in demand for the type of growth capital funding solutions provided by the Company.

 

I reported last year that whilst we were focused on investing in companies with significant growth and upside potential, we were also relatively defensive in our choice of investments. Against a backdrop of significant volatility in the financial markets and the global recession this investment strategy was continued in 2009. I am pleased that this investment strategy has delivered such a solid NAV performance but am disappointed that this is not reflected in the Company's current share price. The Board is focused on increasing the share price and have therefore approved a share buy back program. The Company will use surplus cash reserves to repurchase shares up to the maximum number for which approval was obtained at the Company's last AGM. Further, the Board will seek a renewal of the approval to make further share buy backs from surplus cash at this year's AGM.

 

In my interim report 6 months ago I also highlighted that achieving exits for our investments was likely to be more challenging than when the Company listed. This remains the case and therefore the fund manager continues to focus on strategically positioning the Company's investments to be attractive as trade disposals and on creating companies that have sufficient critical mass to be attractive to the stock market. I am pleased with the progress the fund manager has made in this area and with the development of the Company's investment portfolio in 2009. The portfolio contains some excellent companies and I am confident that over the next 12 to 18 months we can exit some of these companies at significant premiums to the original cost of investment. The Board will consider the appropriateness of further share buy backs at the time that the proceeds from these realisations are received."

 

 

Investment Highlights

During the year to December 2009 RRF made 3 new investments with a combined investment value of circa £4.7 million;

 

Information Prophets Ltdprovides specialist software and consultancy services in relation to energy efficiency, compliance and reduction of carbon emissions. The company has made progress in developing their software product since RRF's investment in Q1 2009 and is now well positioned to increase their share of this expanding energy compliance market.

 

Infinity SDC Ltd design, build and operate secure data centres primarily for customers in the financial services and government sectors. The company has put together a highly regarded management team who have one of the most extensive knowledge bases of electrical and telecoms infrastructure outside the major utilities.

 

Green Compliance Plc. During the year Green CO2 (an existing investee company) reversed into Wyatt Group Plc, an AIM quoted company providing employment advice and associated services. In December 2009 the company sold this employment business, strengthened the management team via the appointment of John Prowse as Chief Executive Officer (former Managing Director of Connaught plc's compliance business) and raised circa £10 million via a share placing to fund a buy and build strategy in the blue collar compliance market focusing on sectors including water hygiene, pest control and fire protection.

 

During the year to December 2009 RRF made 5 follow on investments totalling circa £3.5 million in existing investee companies.

 

DDM Europe AG buy and collect distressed consumer debt in Eastern Europe. The company, led by its strong management team who have an excellent track record in this market, made significant progress during 2009; during the year DDM acquired a number of distressed debt portfolios across multiple Eastern European countries. The pipeline of portfolio acquisition opportunities continues to grow and the company's strong free cash flow and remaining availability of the funding line provided by RRF mean the company has the financial resources to continue to acquire portfolios and expand in 2010.

 

Deep Blue Restaurants Limited is one of the largest operators of fish and chip shops in the sector. The company successfully rebranded 4 stores during the year and the estate is now fully rebranded. The rebranding program was funded by the proceeds of an equity fundraise which was completed in July 2009. RRF took up their pro rata entitlement in the rights issue in addition to making a further equity investment at that time.

 

Enegi Oil Plc is an independent oil and gas group operating in Atlantic Canada which listed on AIM and the Bourse de Luxembourg in March 2008. Following the low flow volumes encountered in the company's Garden Hill South well in 2008, oil production was considered uneconomic and drilling was suspended. However, following the successful restructuring of the company's liabilities and raising of £2.8 million of equity in 2009 the company has reopened the well and continues to investigate ways to bring the well into continuous production.

 

Take 2 Film Holdings Ltd hires out camera and lighting equipment and provides associated services and products to production companies making dramas, features, commercials, promotional videos and corporate in-house shorts. In Q1 2009 RRF and management made an additional investment in the company to support the working capital needs and continued expansion of the business. The company also successfully refinanced over 80% of its finance lease liabilities on more favourable terms during the year and the resultant increase in free cash flows have provided the platform from which the company will continue to expand its camera and lighting asset base and South African operation during 2010.

 

Taylormade Betting Ltd is an independent bookmaker chain in the North West of England. During the year Taylormade continued its rapid expansion increasing the number of units it operates from 16 to 22. This rapid expansion was funded in part by the successful conclusion of an equity fundraise in Q1 2009 in which RRF participated. This fundraise was concluded at a company valuation representing a 61% premium to the value at which RRF originally invested.

In addition to the 8 investee companies highlighted above which were either new investments in the year or received follow on investments, the Fund also has a further 9 investee companies whose activities and development during the year are summarised below.

 

Barburrito Ltd is a Mexican fast-casual food business operating from 3 sites in the North West of England. Under the stewardship of Chairman Richard O'Sullivan (who founded and grew Millie's Cookies to over 100 sites before selling out to Compass Group) the company has made excellent progress in 2009; the operational procedures and systems required for the successful execution of a swift but tightly controlled roll out plan have been implemented. Finding the right premises in the right locations for new restaurants has been challenging and whilst no new stores were opened during 2009, the pipeline of target sites is now very strong. The company expects to open a minimum of 3 new sites in 2010 and construction on the first of these started in January 2010. We are confident that demand for this type of fast-casual Mexican food is growing and that the business has an excellent management team that will deliver excellent results.

 

Dynamic IT Management Services Ltd are the leading provider of trade notification software to the foreign exchange and OTC markets. The company's innovative TradeSTP deal notification software is deployed in most major global FX trading banks and electronic dealing venues. Logicscope have made excellent progress in 2009 and are now focusing on expanding sales and marketing capacity in the UK and across Europe.

 

Daily Internet Plc is a UK domain name and internet hosting provider, providing SME customers with a one-stop shop for all their internet requirements. The company is led by a first class management team who have extensive experience in this industry and a record of successfully growing and selling an internet hosting business. The company has made excellent progress during 2009 launching a number of new services, improving customer retention rates and improving operational efficiencies. Daily Internet Plc are focused on continuing to increase the number of customers in 2010.

 

Just Car Clinics Plc is the UK's second-largest independent chain of collision repair centres, specialising in motor collision repair and accident damage rectification for cars, vans and motorbikes. The group currently carries out collision repairs to around 45,000 vehicles every year as well as providing a wide range of additional services. The company now operates 25 repair centres and are looking to acquire further sites in a fast-consolidating market worth in the region of £5.4 billion per annum. Just Car Clinics Plc is an AIM quoted company.

 

Kolar Gold Plc is a joint venture between financiers and mining experts specifically established to acquire, redevelop and reopen Kolar Gold Fields mine in India which was closed in 2001. The company intends to bid for the mine in a joint venture with the Indian workers, in order to extract the 11m oz of gold that remain in the mine.

 

Keycom Plc is a market leader in the delivery of value added communications services to students and key workers in the NHS and Ministry of Defence. Since RRF's investment Keycom has completed 2 acquisitions and the company now delivers services to over 70 separate geographic locations and more than 50,000 customers.

 

Providence Resources Plc is quoted on both AIM and the Irish Enterprise Exchange and is an international, upstream oil and gas production and exploration company currently actively involved in Ireland, UK, Nigeria and the Gulf of Mexico. The company's portfolio is well diversified geographically and is also well balanced between production, appraisal and exploration assets. During the year the company has also acquired interests in two gas fields off the shore of Ireland thereby adding gas storage capability to its operations. Providence's financial position was strengthened during the year by the arrangement of a new US$100 million bank facility and a £14.3 million equity fund raising. RRF has invested in Providence's unquoted convertible bonds maturing in July 2012 paying a coupon of 12% per annum.

 

Service Solutions Group Ltd provides insurance claim management services and repairs. 2009 has been a year of tremendous development for the group; they have made significant investment in the development of multiple new revenue streams which are expected to deliver material increases in profit in 2010/11.

 

WDScott Ltd is a specialist performance improvement consultancy business with its main operations in the UK and Australia. 2009 has been a challenging year for the group as traditionally many of the company's customers have operated in the financial services sector. The company is currently concluding a restructuring of the business which will provide a solid platform for future growth.

 

Whilst trading conditions in the wider economy remain challenging we are happy with the development of RRF's portfolio of investments. Further, whilst the defensive nature of the Fund's investments has provided protection against the worst effects of the current downturn, a number of our investee companies have significant upside potential.

 

Copies of the annual report will be sent to shareholders shortly and will be available for a period of one month to the public at the offices of Cenkos Fund Managers Limited at 6.7.8 Tokenhouse Yard, London, EC2R 7AS and will be available at the Company's website www.rapidrealisations.com.

 

 

 

 

 

 

 

 

 

 

Enquiries:

 

Steve Charnock

Cenkos Fund Managers Limited +44 (0)7770 363 683

Fund Manager [email protected] 

 

Philip Secrett

Grant Thornton Corporate Finance +44 (0) 20 7383 5100

Nominated Adviser [email protected]

 

Notes to Editors:

Rapid Realisations Fund Limited ("Rapid") is a closed ended investment fund listed on the AIM market of the London Stock Exchange (AIM). The fund is managed by Cenkos Fund Managers Limited.

 

 

INVESTMENT OBJECTIVE POLICY

The Investment Manager believes that a large number of private companies can be successfully prepared for IPO or trade sale by investing time, financial expertise and money.

 

It is the Company's policy to invest in companies that are profitable or close to profitability. These companies will also typically need capital for one or more of the following reasons:

 

§ to finance a roll out strategy;

§ to finance a consolidation strategy;

§ to finance the recruitment of new employees;

§ to replace a retiring owner-manager, or early stage investors; and/or

§ where a company has failed to float because of timing.

 

Each business in which the Company invests will, in the opinion of the Investment Manager, be capable of achieving a realisation either through a sale or by listing of its shares on a stock exchange within 6 to 36 months of an investment by the Company.

 

Unless the Board otherwise determines, there will be no geographical or sectoral restrictions upon the Company's investments, save that the prior consent of the Board will be required before investments will be made outside the UK. Generally, the Company will seek not to invest more than 15 per cent. of the Company's NAV to any single investment, or more than 15 per cent. of the Company's NAV in special situations (such as investments in companies that are already listed), in each case at the time of investment, although such limits may be increased to 30 per cent. in certain cases where the Board deems appropriate on the advice of Cenkos Fund Managers.

 

The Directors may exercise the powers of the Company to borrow money and to give security over its assets. The Company may borrow funds secured on its investments if the Board (with the advice of Cenkos Fund Managers) considers that satisfactory opportunities for investment arise at a time when the Company is close to being Fully Invested. In any event, borrowings will be limited to 25 per cent. of the Company's last announced NAV at the time of draw down.

 

The Directors intend to generate returns for Shareholders through both capital appreciation and dividend income growth. The amount of any dividend will be determined by the Board, which will aim to distribute such funds as are considered to be surplus to the Company's requirements, having regard for the investment opportunities available (and after taking into account all costs, liabilities and expenses of the Company, including accrued performance fees of Cenkos Fund Managers). Distributions to Shareholders will usually take the form of dividends, although they may also take the form of a tender offer by the Company for Ordinary Shares.

 

UPDATE ON INVESTMENT OBJECTIVE POLICY

The Company is currently focusing on realising the investments that have been made to date. These investments were made in line with the Company's stated investment policy.

 

Statement of Financial Position

 

As at 31 December 2009

 

	Notes	31 December 2009		31 December 2008
		£		£
Investments	2 & 6
Fair value through profit or loss		22,499,107		19,086,705
Loans and receivables		17,353,653		14,699,815
Total investments		39,852,760		33,786,520
Current assets
Current Investments:
Loans and receivables	6	1,955,000		755,000
Other receivables	7	579,884		600,750
Cash and cash equivalents	8	18,364,927		28,526,345
Amounts receivable on open forward foreign exchange contracts	12(d)	407,340		-
		21,307,151		29,882,095
Current liabilities
Other payables	9	382,634		1,264,703
Amounts payable on open forward foreign exchange contracts	12(d)	316,860		-
		699,494		1,264,703
Net current assets		18,652,657		27,862,392
Total net assets		60,460,417		62,403,912
Equity attributable to Ordinary Shareholders
Reserves		60,460,417		62,543,512
Treasury Shares	10	-		(139,600)
Total Equity		60,460,417		62,403,912
Net asset value per Ordinary Share	11	1.0478		1.0428

 

 

The financial statements on pages 12 to 36 were approved at a meeting of the Board of Directors held on

25 March 2010.

 

The accompanying notes form an integral part of these financial statements.

Statement of Total Comprehensive Income

 

For the year ended 31 December 2009

 

	Notes	31 December 2009		31 December 2008
		£		£
Income	2
Bank interest		282,489		2,180,222
Commission income		39,900		193,500
Loan note interest		2,146,963		700,336
Dividend income		42,431		15,063
Other investment income		111,099		45,706
Net realised gains on fair value through profit or loss investments	6	-		208,274
Movement in net unrealised gain on fair value through profit or loss investments	6	1,677		203,657
Movement in net unrealised foreign exchange (losses)/gains on loan investments	6	(711,910)	-	1,693,730
Movement on net unrealised gain on open forward foreign currency contracts	12(d)	90,480		-
Foreign exchange (losses)/gains		(260,080)		740,022
Total income		1,743,049		5,980,510
Expenses
Investment management fee	3	1,218,356		814,340
Performance fee	3	(231,000)		923,999
Administration fee	3	91,118		92,858
Custodian fee	3	18,094		18,572
Loan note interest written off	13	478,310		-
Transaction expenses		99,605		181,379
Directors' fees and expenses	4	108,101		115,851
Auditor's remuneration		44,120		24,577
Legal and professional fees		51,629		121,422
Withholding tax on dividend income		1,506		1,506
Bank interest paid		1,395		867
Other expenses		27,852		18,004
Total expenses		1,909,086		2,313,375
Net (loss)/income from operations		(166,037)		3,667,135
Other comprehensive income
Issue costs on issuance of Ordinary Shares		-		(13,626)
Total Comprehensive net (loss)/income for the year		(166,037)		3,653,509
(Deficit)/earnings per Ordinary Share	5	(0.003)		0.061

 

The results from the current and prior years are derived from continuing operations.

 

The accompanying notes form part of these financial statements.

Statement of Changes in Equity

 

For the year ended 31 December 2009

 

		31 December 2009
		Reserves
	Notes	Revenue Reserve	Distributable Reserve	Treasury Shares	Total
		£	£	£	£
Balance at 1 January 2009		4,879,443	57,664,069	(139,600)	62,403,912
Total comprehensive net loss for the year		(166,037)	-	-	(166,037)
Transaction with owners, recorded directly in equity:
Transfer out of distributable reserve	10	-	(1,917,058)	-	(1,917,058)
Repurchase of Ordinary Shares - held as Treasury Shares	10	-	-	(1,777,458)	(1,777,458)
Cancellation of Ordinary Shares - held as Treasury Shares	10	-	-	1,917,058	1,917,058
		-	(1,917,058)	139,600	(1,777,458)
Balance carried forward		4,713,406	55,747,011	-	60,460,417

 

 

For the year ended 31 December 2008

 

		31 December 2008
		Reserves
	Notes	Revenue Reserve	Distributable Reserve	Treasury Shares	Total
		£	£	£	£
Balance at 1 January 2008		1,212,308	57,677,695	-	58,890,003
Total comprehensive net income for the year		3,653,509	-	-	3,653,509
Transaction with owners, recorded directly in equity:
Transfer to / (out of) distributable reserve	10	13,626	(13,626)	-	-
Repurchase of Ordinary Shares - held as Treasury Shares	10	-	-	(139,600)	(139,600)
		13,626	(13,626)	(139,600)	(139,600)
Balance carried forward		4,879,443	57,664,069	(139,600)	62,403,912

 

 

The accompanying notes form part of these financial statements.

Statement of Cash Flows

 

For the year ended 31 December 2009

 

	Notes	31 December 2009		31 December 2008
		£		£
Cash flows used in operating activities
Commission received		39,900		193,500
Loan note interest received		1,609,418		197,100
Dividend income received		42,431		15,063
Other investment income		158,701		276,392
Operating expenses paid		(2,351,418)		(1,364,898)
Withholding tax on dividend income paid		(1,506)		(1,506)
Net cash used in operating activities		(502,474)		(684,349)
Cash flows used in investing activities
Amounts paid for purchases of investments		(8,176,914)		(29,772,772)
Amounts received from sales of investments		-		408,274
Amounts received on loan repayments		200,000		-
Net Cash used in investing activities		(7,976,914)		(29,364,498)
Cash flows from financing activities
Bank interest received		356,903		2,526,004
Bank interest paid		(1,395)		(867)
Issue costs on issuance of Ordinary Shares		-		(13,626)
Repurchase of Ordinary Shares - held as Treasury Shares		(1,777,458)		(139,600)
Net cash from financing activities		(1,421,950)		2,371,911
Net (decrease)/increase in cash and cash equivalents		(9,901,338)		(27,676,936)
Cash and cash equivalents at start of year		28,526,345		55,463,259
Effect of foreign exchange rate changes on cash and cash equivalents		(260,080)		740,022
Cash and cash equivalents, end of year	8	18,364,927		28,526,345

 

 

Cash and cash equivalents comprise the following amounts:
Bank deposits		18,364,927		28,526,345
		18,364,927		28,526,345

 

 

 

 

 

The accompanying notes form part of these financial statements.

 

Notes to the Financial Statements

Year ended 31 December 2009

 

1. The Company:

The Company is a closed-ended investment company and was registered with limited liability in Guernsey on 12 July 2007. The Company commenced business on 2 August 2007 when the Ordinary Shares of the Company were admitted to trading on AIM.

 

The Company is currently focusing on realising the investments that have been made to date. These investments were made in line with the Company's stated investment policy.

 

2. Principal Accounting Policies:

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company's financial statements:

 

(a) Basis of Preparation:

 

(i) General

The financial statements of the Company, which give a true and fair view, have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by, or adopted by, the International Accounting Standards Board (the "IASB"), interpretations issued by the International Financial Reporting Interpretations Committee and comply with the Companies (Guernsey) Law, 2008 and the Listing Rules of the UK Listing Authority.

 

The financial statements have been prepared on the historical cost basis except for investments and derivative financial instruments which are measured at fair value.

 

(ii) Judgements and estimates

The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results could differ from such estimates.

 

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate was revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

 

The most critical judgements, apart from those involving estimates, that management has made in the process of applying the Company's accounting policies and that have the most significant effect on the amounts recognised in the financial statements are the functional currency of the Company (see note 2(d)(i)) and the fair value of investments designated to be at fair value through profit or loss (see note 2(e)(i)). The valuation methods/techniques used by the Company in valuing financial instruments involve critical judgements to be made and therefore the actual value of financial instruments could differ significantly from the value disclosed in these financial statements.

 

(iii) IFRS

 

New standards and interpretations adopted

The Company has adopted the following new and amended accounting standards effective 1 January 2009:

 

·; Determination and presentation of operating segments  

The Company has adopted IFRS 8 as of 1 January 2009, which requires a "management approach", under which segment information is presented on the same basis as that used for internal reporting purposes.

 

The Board has considered the requirements of IFRS8. The Board, as a whole, has been determined as constituting the chief operating decision maker ("CODM") of the Company.

 

The Board is charged with setting the Company's investment strategy in accordance with the Prospectus. They have delegated the day to day Investment Management of the Company to the Investment Manager, under the terms set out in the Investment Management Agreement, but the Board retains the responsibility to ensure that adequate resources of the Company are directed in accordance with their decisions. All investment recommendations made by the Investment Manager are reviewed by the Board for compliance with the policies and legal responsibilities of the Directors and the provisions of the Prospectus. Only after such reviews have been satisfactorily conducted will the Board approve the investment recommendations. The Board therefore retains full responsibility for the allocation decisions made on an ongoing basis. Pursuant to the terms of the Investment Management Agreement the Investment Manager is obliged to comply with the investment strategy detailed in the Prospectus. This strategy sets out guidelines for proposed investments and the procedures that the Investment Manager is required to follow in dealing with the Company's assets. These guidelines and procedures are regularly reviewed and can be altered by the Board if it considers it appropriate to do so.

 

The key measure of performance used by the Board in its capacity as CODM, is to assess the Company's performance and to allocate resources based on the total return of each individual investment within the Company's portfolio, as opposed to geographic regions. As a result, the Board is of the view that the Company is engaged in a single segment of business, being investment in companies in "pre-IPO" and other late stage situations with a view to arbitraging differences in public and private company valuations. Therefore, no reconciliation is required between the measure of gains or losses used by the Board and that contained in these financial statements.

 

·; Presentation of financial statements

The Company applies revised IAS 1 Presentation of Financial Statements (2007), which became effective as of 1 January 2009. As a result, the Company presents in the Statement of Changes in Equity all owner changes in equity, whereas all non-owner changes in equity are presented in the Statement of Total Comprehensive Income.

 

Comparative information has been re-presented so that it also is in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on NAV per share.

 

·; Disclosures pertaining to fair values and liquidity risk for financial instruments

The Company has applied Improving Disclosures about Financial Instruments (Amendments to IFRS 7), issued in March 2009, that require enhanced disclosures about fair value measurements and liquidity risk in respect of financial instruments.

 

The amendments require that fair value measurement disclosures use a three-level fair value hierarchy that reflects the significance of the inputs used in measuring fair values of financial instruments. Specific disclosures are required when fair value measurements are categorised as Level 3 (significant unobservable inputs) in the fair value hierarchy. The amendments require that any significant transfers between Level 1 and Level 2 of the fair value hierarchy be disclosed separately, distinguishing between transfers into and out of each level. Furthermore, changes in valuation techniques from one period to another, including the reasons therefore, are required to be disclosed for each class of financial instruments.

 

Revised disclosures in respect of fair values of financial instruments are included in note 12.

 

·; Disclosures pertaining to fair values and liquidity risk for financial instruments, continued

Further, the definition of liquidity risk has been amended and it is now defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.

 

The amendments require disclosure of a maturity analysis for non-derivative and derivative financial liabilities, but contractual maturities are required to be disclosed for derivative financial liabilities only when contractual maturities are essential for an understanding of the timing of cash flows. For issued financial guarantee contracts, the amendments require the maximum amount of the guarantee to be disclosed in the earliest period in which the guarantee could be called.

 

Revised disclosures in respect of liquidity risk are included in note 13.

 

New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2009, and have not been applied in preparing these financial statements. None of these will have an effect on the financial statements of the Company, with the exception of the following:

 

·; IFRS 9 Financial Instruments, published on 12 November 2009 as part of phase I of the IASB's comprehensive project to replace IAS 39, deals with classification and measurement of financial assets. The requirements of this standard represent a significant change from the existing requirements in IAS 39 in respect of financial assets. The standard contains two primary measurement categories for financial assets: amortised cost and fair value. A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset's contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be measured at fair value. The standard eliminates the existing IAS 39 categories of held to maturity, available for sale and loans and receivables. For an investment in an equity instrument which is not held for trading, the standard permits an irrevocable election, on initial recognition, on an individual share-by-share basis, to present all fair value changes from the investment in other comprehensive income. No amount recognised in other comprehensive income would ever be reclassified to profit or loss at a later date. However, dividends on such investments are recognised in profit or loss, rather than other comprehensive income unless they clearly represent a partial recovery of the cost of the investment. Investments in equity instruments in respect of which an entity does not elect to present fair value changes in other comprehensive income would be measured at fair value with changes in fair value recognised in profit or loss.

 

The standard requires that derivatives embedded in contracts with a host that is a financial asset within the scope of the standard are not separated; instead the hybrid financial instrument is assessed in its entirety as to whether it should be measured at amortised cost or fair value.

 

The standard is effective for annual periods beginning on or after 1 January 2013. Earlier application is permitted.

 

The Company is currently in the process of evaluating the potential effect of this standard on the Company's financial statements.

 

·; Amendments to IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items clarifies the application of existing principles that determine whether specific risks or portions of cash flows are eligible for designation in a hedging relationship. The amendments will become mandatory for the Company's 2010 financial statements, with retrospective application required. The amendments are not expected to have a significant impact on the Company's financial statements.

 

(iv) Going concern:

Based on the consideration of assets and the business nature of the Company the Directors, following enquiry, believe the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they consider it appropriate to adopt the going concern basis of preparation for these financial statements.

 

(b) Income:

Bank interest income is classified as finance income in the Statement of Total Comprehensive Income and is recognised on an accruals basis at the gross amount receivable. Other investment income, commission income, dividend income are included in the financial statements on an accruals basis.

 

Interest on loans receivable is recognised in the Statement of Total Comprehensive Income based on coupon interest rates which was determined to approximate market interest rates.

 

(c) Foreign Currency:

(i) Functional and Presentation Currency

The Company's investors are mainly from the UK, with the subscriptions and redemptions of the Ordinary Shares denominated in sterling. The primary activity of the Company is to offer UK investors with an attractive return on their investment, primarily through investing in companies which are likely to achieve an IPO or a sale within a short term time horizon and through a small number of investment companies that are already listed. The performance of the Company is measured and reported to investors in sterling. The Directors consider sterling as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements are presented in sterling, which is the Company's functional and presentation currency.

 

(ii) Transactions and Balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Total Comprehensive Income. Translation differences on non-monetary financial assets and liabilities such as equities at fair value through profit or loss are recognised in the Statement of Total Comprehensive Income. The Company holds investments denominated in Euro at the reporting date, and has entered in forward foreign currency contract to hedge the exchange rate risk arising from future cash flows on these investments. The fair value of the forward foreign currency contracts are included in amounts receivable on open forward foreign currency contracts on the Statement of Financial Position and is shown in detail in note 12(d) to these financial statements.

 

(d) Financial Instruments:

Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Company becomes a party in the contractual provisions of the instrument.

 

(i) Financial Assets

The classification of financial assets at initial recognition depends on the purpose for which the financial asset was acquired and its characteristics.

 

All financial assets are initially recognised at fair value. All purchases of financial assets are recorded at trade date, being the date on which the Company became party to the contractual requirement of the financial asset.

 

The Company's financial assets are categorised as financial assets at fair value through profit or loss. Unless otherwise indicated the carrying amounts of the Company's financial assets approximate to their fair values. Gains and losses arising from changes in the fair value of financial assets classified as fair value through profit or loss are recognised in the Statement of Total Comprehensive Income.

 

A financial asset (in whole or in part) is derecognised either:

·; when the Company has transferred substantially all the risk and rewards of ownership;

·; when it has not retained substantially all the risk and rewards and when it no longer has control over the asset or a portion of the asset; or

·; when the contractual right to receive cash flow has expired.

 

(ii) Financial Liabilities

The classification of financial liabilities at initial recognition depends on the purpose for which the financial liability was issued and its characteristics.

 

All financial liabilities are initially recognised at fair value net of transaction costs incurred. All purchases of financial liabilities are recorded on trade date, being the date on which the Company becomes party to the contractual requirements of the financial liability. Unless otherwise indicated the carrying amounts of the Company's financial liabilities approximate to their fair values.

 

Financial liabilities measured at amortised cost include trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.

 

A financial liability (in whole or in part) is derecognised when the Company has extinguished its contractual obligations, it expires or is cancelled. Any gain or loss on derecognition is taken to the Statement of Total Comprehensive Income.

 

(e) Investments:

The Company's investments comprise of loans, equities, warrants and convertible loan notes.

 

(i) Classification

Equities have been designated as fair value through profit or loss in accordance with IAS 39 (Revised) "Financial Instruments: Recognition and Measurement".

 

Warrant investments meet the definition of "Derivatives" under IAS 39 and have been designated as held for trading in accordance with IAS 39 (Revised) "Financial Instruments: Recognition and Measurement". They are accounted for as fair value through profit or loss.

 

Investments in convertible loan notes have been designated as loans and receivables in accordance with IAS 39 (Revised) "Financial Instruments: Recognition and Measurement".

 

(ii) Measurement

Equities and warrants are initially recognised at fair value. Transaction costs are expensed in the Statement of Total Comprehensive Income. Subsequent to initial recognition, equities and warrants are measured at fair value. Realised gains and losses on disposal of investments, where the disposal proceeds are higher/lower than the book cost of the investment are presented in the Statement of Total Comprehensive Income in the year in which they arise. Unrealised gains and losses arising on the fair value of investments are presented in the Statement of Total Comprehensive Income in the year in which they arise. Dividend income, if any, from equity investments is recognised in the Statement of Total Comprehensive Income within dividend income when the Company's right to receive payments is established.

 

Convertible loan notes are initially recognised at fair value less any directly attributable transaction cost. Subsequent to initial recognition, loans are measured at amortised cost using the effective interest rate method.

 

(iii) Fair Value Estimation

Quoted investments at fair value through profit or loss are valued at the bid price on the relevant stock exchange and discounted, where necessary, to reflect any legal restrictions.

 

Unquoted investments are valued in accordance with the International Private Equity and Venture Capital valuation guidelines. Typically investments in unquoted companies are made by way of a package of instruments, for example a convertible loan note or outright purchase of shares which also has an attached equity interest in the form of a warrant or option of shares. In these circumstances the Directors are of the opinion that it is not possible to attribute a fair value to each of the separate components of the total investment in that company and therefore the Directors fair value the investment package as a whole.

 

(iii) Fair Value Estimation, continued

Warrant values are calculated using the International Private Equity and Venture Capital valuation guidelines.

 

Loans are valued at amortised cost and reviewed for impairment in accordance with IAS 39.

 

 

(iv) Recognition/derecognition

All regular way purchases and sales of investments are recognised on trade date - the date on which the Company commits to purchase or sell the investment. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.

 

(f) Impairment of Financial Assets:

Financial assets are assessed at each reporting date to determine whether there is any objective evidence that they are impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

 

An impaired loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

 

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

 

All impairment losses, if any, are recognised in the Statement of Total Comprehensive Income.

 

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. The reversal is recognised in the Statement of Total Comprehensive Income.

 

(g) Expenses:

Expenses are accounted for on an accruals basis.

 

(h) Cash and Cash Equivalents:

Cash and cash equivalents are defined as cash in hand, demand deposits and highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of bank deposits, overdrafts and money market equivalents.

 

(i) Treasury Shares:

Where the Company purchases its own Ordinary Share capital, the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs, are included in equity attributable to the Company's equity holders.

 

(j) Non-Consolidation of Investments:

IAS 27 "Consolidated and Separate Financial Statements" requires a company to prepare and present a set of consolidated financial statements for a group of entities under the control of a parent. Ordinarily control is the legal power to govern the financial and operating policies of an underlying investment company so as to obtain benefits from its activities.

 

In assessing control, the Company has taken into consideration the following:

 

·; potential voting rights that currently are exercisable;

·; whether the remaining voting rights are spread across numerous other shareholdings/few significant shareholdings;

·; ability of the Company to exercise significant influence over an underlying investment company; and

·; whether or not the Company and an underlying investment company have common key management personnel.

 

The Company has three investments where the Company has significant equity holdings (circa 49%), however the shareholder base of these investments are made up of very few other shareholders. In the Directors opinion the Company does not have legal control of the underlying investment companies and therefore has not consolidated the results of these investments into the results of the Company.

 

(k) Segment Information

Information on realised gains and losses derived from sales of investments are disclosed in note 6.

 

The Company is domiciled in Guernsey. All of the Company's income from investments is from underlying funds that are incorporated in countries other than Guernsey.

 

The Company has no assets classified as non-current assets and has a highly diversified portfolio of investments, no single investment accounts for any of the Company's income.

 

The Company also has a highly diversified shareholder population however one individual investor owns more than 10% of the issued capital of the Company.

 

3. Related Parties & Material Agreements:

The Company is responsible for the continuing fees of the Investment Manager, Administrator, Registrar and the Custodian in accordance with the Investment Management, Administration, Registrar and Custodian Agreements.

 

Investment Management Agreement

Pursuant to the provisions of the Investment Management Agreement, the Investment Manager is entitled to receive an advisory fee during the year at 1.0% per annum of the net asset value ("NAV") of the Company, increasing to 2.0% per annum when 50% of the net proceeds of the Placing have been invested (this threshold was reached on 23 September 2008). This fee is paid quarterly in advance based on the prior quarter end NAV, with a top up payment payable in arrears once the current quarter end NAV is finalised. For the year ended 31 December 2009 the investment management fee expense was £1,218,356 (31 December 2008: £814,340). As at 31 December 2009 the investment management fee creditor was £38,029 (31 December 2008: £43,819).

 

The Investment Manager is also entitled to a performance fee for a relevant accounting period when the following two tests are met:

 

§ If the adjusted closing NAV per Ordinary Share (where the adjusted NAV is the NAV of the Company excluding any liability for accrued management and performance fees and after adding back any dividends declared or paid during the performance period) exceeds the opening NAV per Ordinary Share by a hurdle rate equivalent to 7.5% per annum (the "Hurdle NAV per Ordinary Share"); and

 

§ If the adjusted closing NAV per Ordinary Share is higher than the highest previously recorded opening NAV per Ordinary Share as reduced by the sum of all dividends and distributions per Ordinary Share (including distributions of capital) since the date such highest opening NAV per Ordinary Share was established (the "High Watermark").

 

 

Investment Management Agreement, continued

Once entitled to a performance fee for a relevant accounting period the fee is payable, in arrears, by reference to the amount the adjusted closing NAV per Ordinary Share exceeds either (i) the opening NAV per Ordinary Share, (where the adjusted NAV is the NAV of the Company excluding any liability for accrued performance fees and after adding back any dividends declared or paid during the performance period), or (ii) where the High Watermark exceeds the Hurdle NAV per Ordinary Share for the relevant accounting period.

 

The performance fee is calculated by taking an amount equal to 20% of the NAV increase per Ordinary Share in that relevant accounting period, multiplied by the time weighted average of the total number of Ordinary Shares in issue for the relevant accounting period. The first performance period began on Admission and ended on 31 December 2007. Each subsequent performance period is a period of one financial year. For the year ended 31 December 2009 the performance fee expense was £nil (31 December 2008: £923,999). As at 31 December 2009 the performance fee creditor was £nil (31 December 2008: £923,999).

 

The Investment Manager has agreed to waive the payment of 25% of the performance fee due as at 31 December 2008. This has resulted in a write-back of £231,000 to the Statement of Total Comprehensive Income for performance fees recognised during the year ended 31 December 2008.

 

Administration Agreement

Pursuant to the provisions of the Administration Agreement, Praxis Fund Services Limited is entitled to receive an administration fee during the year of 0.15% per annum of the net asset value of the Company, subject to an annual minimum of £60,000 applied on a quarterly basis, calculated and paid quarterly in arrears. For the year ended 31 December 2009 the administration fee expense was £91,118 (31 December 2008: £92,858). As at 31 December 2009 the administration fee creditor was £22,884 (31 December 2008: £23,958).

 

Registrar Agreement

Pursuant to the provisions of the Registrar Agreement, Capita Registrars (Guernsey) Limited is entitled to a fee of £5,000 per annum together with a per deal fee per shareholder transaction. For the year ended 31 December 2009 the registrar fee expense was £10,632 (31 December 2008: £5,932). As at 31 December 2009 the registrar fee creditor was £2,016 (31 December 2008: £nil).

 

Custodian Agreement

Pursuant to the provisions of the Custodian Agreement, Cenkos Channel Islands Limited is entitled to receive custodian fee during the year of 0.03% per annum of the net asset value of the Company, subject to an annual minimum of £15,000 applied on a quarterly basis. For the year ended 31 December 2009 the custodian fee expense was £18,094 (31 December 2008: £18,572).As at 31 December 2009 the custodian fee creditor was £4,577 (31 December 2008: £4,792).

 

Susie Farnon, a Director of the Company is also a non-executive director of the Custodian.

 

Loan Arrangement and Management Fees

The Company has provided a loan facility to one investee company of up to EUR9,500,000. As at 31 December 2009 the Company had lent EUR5,500,000 in four tranches. At the time of providing each tranche of funding, the Company received an arrangement fee equating to 5% of the loan principal. For the year ended 31 December 2009 the arrangement fee received was £45,780 (31 December 2008: £12,584) The Company also receives an annual Management Fee in advance of 2%.

 

Transaction In Own Shares

On 5 May 2009 the Company purchased 655,000 of it's own Ordinary shares at 83p each. As a result of this transaction, the Company held 810,000 Ordinary Shares in treasury.

 

On 2 July 2009 the Company purchased 1,150,000 of it's own Ordinary shares at 83p each. As a result of this transaction, the Company held 1,960,000 Ordinary Shares in treasury.

 

On 28 September 2009 the Company purchased 338,555 of it's own Ordinary shares at 82.5p each. As a result of this transaction, the Company held 2,298,555 Ordinary Shares in treasury.

 

On 30 September 2009 the Company cancelled the 2,298,555 Ordinary Shares of the Company that were held in treasury. As a result of this transaction the Company had 57,701,445 Ordinary Shares in issue.

 

Directors' Interest

The interests of the Directors, who held office during the year, and their families are set out below:

 

	31 December 2009		31 December 2008
	Ordinary Shares		Ordinary Shares
Peter Tom	50,000		50,000
Robert Holt	50,000		50,000
Susie Farnon	*100,000		*100,000

 

* 50,000 of which are held by the executors of an estate of which Susie Farnon is one of several ultimate beneficiaries. Susie Farnon is also an executor of the estate.

 

There were no changes in the interests of the Directors prior to the date of this report.

 

No Director, other than those listed above, and no connected person of any Director has any interest, the existence of which is known to, or could with reasonable diligence be ascertained by that Director, whether or not held through another party, in the share capital of the Company.

 

4. Directors' Fees:

Each of the Directors has entered into an agreement with the Company providing for them to act as a non-executive director of the Company. Their annual fees, pro-rate for periods less than one year, excluding all reasonable expenses incurred in the course of their duties which will be reimbursed by the Company are as follows:

 

	31 December 2009		31 December 2008
	Annual Fee		Annual Fee
	£		£
Peter Tom	50,000		50,000
Robert Holt	25,000		25,000
Susie Farnon	25,000		25,000

 

5. (Deficit)/earnings per Ordinary Share:

Deficit per Ordinary Share for the year ended 31 December 2009 was 0.3p (31 December 2008: earnings per Ordinary Share 6.1p). Deficit per Ordinary Share is based on the net deficit from operations for the year of £166,037 (31 December 2008: return of £3,667,135) and on a weighted average of 58,760,012 (31 December 2008: 59,908,151) Ordinary Shares in issue.

 

6. Investments:

Fair Value Through Profit or Loss Investments:	31 December 2009		31 December 2008
	£		£
Investments listed on recognised investment exchanges	7,092,221		6,045,522
Unlisted investments	15,406,886		13,041,183
	22,499,107		19,086,705
Book cost brought forward	18,828,176		2,836,048
Purchases	3,410,725		16,012,128
Conversion of loan stock to equity	-		180,000
Sales	-		(408,274)
Net realised gain on fair value through profit or loss investments	-		208,274
Book cost carried forward	22,238,901		18,828,176
Net unrealised gains on fair value through profit or loss investments brought forward	258,529		54,872
Movement in net unrealised gains on fair value through profit or loss investments	1,677		203,657
Net unrealised gains on fair value through profit or loss investments carried forward	260,206		258,529
Fair value carried forward	22,499,107		19,086,705

 

Loans and Receivables:	31 December 2009		31 December 2008
	£		£
Loans > 1 year	17,353,653		14,699,815
Loans < 1 year	1,955,000		755,000
	19,308,653		15,454,815
Book cost brought forward	13,761,085		180,000
Loan advanced	4,765,748		13,761,085
Conversion of loan stock to equity	-		(180,000)
Loan repayments	(200,000)		-
Book cost carried forward	18,326,833		13,761,085
Net unrealised foreign exchange gains on loans investments brought forward	1,693,730		-
Movement in net unrealised foreign exchange (losses)/gains on loans investments	(711,910)		1,693,730
Net unrealised foreign exchange gains on loans investments carried forward	981,820		1,693,730
Fair value carried forward	19,308,653		15,454,815

 

Total Investments:	31 December 2009		31 December 2008
	£		£
Investments listed on recognised investment exchanges*	7,092,221		6,045,522
Unlisted investments	15,406,886		13,041,183
Loans	19,308,653		15,454,815
	41,807,760		34,541,520
Book cost brought forward	32,589,261		3,016,048
Purchases of investment	3,410,725		16,012,128
Loans advanced	4,765,748		13,761,085
Sales of investments	-		(408,274)
Loan repayments	(200,000)		-
Net realised gain on fair value through profit or loss investments	-		208,274
Book cost carried forward	40,565,734		32,589,261
Net unrealised gains on investments brought forward	1,952,259		54,872
Movement in net unrealised (losses)/gains on fair value through profit or loss investments	1,677		203,657
Movement in net unrealised foreign exchange (losses)/gains on loans investments	(711,910)		1,693,730
Net unrealised gains on fair value through profit or loss investments carried forward	1,242,026		1,952,259
Fair value carried forward	41,807,760		34,541,520

*representing 11.73% (31 December 2008: 9.69%) of Total Net Assets

 

One company in which the Company held an investment as at 31 December 2009, has the ability to call an extra EUR4.5m (31 December 2008: EUR5.5m) of loans from the Company by way of follow-on investment.

 

All warrant investments, classified as "Held for Trading Investments", are value at nil cost in accordance with IAS 39.

 

7. Other Receivables:

	31 December 2009		31 December 2008
	£		£
Bank interest receivable	7,653		82,067
Loan note interest receivable*	565,255		506,019
Prepayments	6,976		12,664
	579,884		600,750

 

*Loan note interest receivable is shown net of Accrued loan interest written off amounting to £478,310 (31 December 2008: £nil).

 

The Directors consider that the carrying amount of other receivables approximates fair value.

 

8. Cash and Cash Equivalents:

	31 December 2009		31 December 2008
	£		£
Cash at bank	18,364,927		28,526,345

 

Of the cash and cash equivalents £2,940,322 (31 December 2008: £4,386,118) is held with Goldman Sachs deposits and money market funds. The full amount is available on demand.

 

9. Other Payables:

	31 December 2009		31 December 2008
	£		£
Management fee	38,029		43,819
Performance fee	-		923,999
Fees received in advance	278,288		230,686
Administration fee	22,884		23,958
Custodian fee	4,577		4,792
Due to broker	-		441
NOMAD fee	-		6,250
Audit fee	35,000		24,000
Registrar's fee	2,016		-
Other payables	1,570		6,758
	382,634		1,264,703

 

The Directors consider that the carrying amount of other payables approximates fair value.

 

10. Share Capital:

	31 December 2009  & 31 December 2008
Authorised Share Capital	£
Unlimited Shares of no par value that may be issued as Ordinary Shares	-
	-

 

No allotted, issued and fully paid shares were issued or paid for during the year ended 31 December 2009 (31 December 2008: Issued £13,626, transferred from distributable reserve £13,626).

 

On 18 July 2007 the holders of the Subscriber Shares, Praxis Nominees Limited and Praxis Fund Services Limited, passed a written resolution approving the cancellation of the entire amount which stood to the credit of the share premium account immediately after the Placing, conditionally upon the issue of the Ordinary Shares and the payment in full thereof and with respect to any further issue of Ordinary Shares. The cancellation was confirmed by the Royal Court on 23 November 2007. The cancelled share premium of £57,677,695 was transferred to the distributable reserve.

 

By a resolution dated 18 July 2007 the holders of the Subscriber Shares in the Company granted the Company the authority to make market purchases of up to 14.99% of its own issued Ordinary Shares following the conclusion of the Placing. This authority expired at the earlier of the date 18 months following the passing of such resolution and the conclusion of the first annual general meeting of the Company. A renewal of the authority to make purchases of Ordinary Shares was passed at the last annual general meeting, held on 14 July 2009, and will be sought from Shareholders at each subsequent annual general meeting of the Company. As at 31 December 2009 the Company held none (31 December 2008: 155,000) of its own Ordinary Shares in treasury with 57,701,445 Ordinary Shares remaining in the market (31 December 2008: 59,845,000).

 

	31 December 2009		31 December 2008
Treasury Shares	£		£
Brought forward - 155,000 Treasury Shares	139,600		139,600
Repurchases - 2,143,555 Treasury Shares	1,777,458		-
Cancellations - 2,298,555 Treasury Shares	(1,917,058)		-
	-		139,600

 

 

11. Net Asset Value per Ordinary Share:

The net asset value per Ordinary Share as at 31 December 2009 is 104.78p (31 December 2008: 104.28p). The net asset value per Ordinary Share is based on the net assets attributable to equity ordinary shareholders of £60,460,417 (31 December 2008: £62,403,912) and on the year end number of Ordinary Shares in issue of 57,701,445 (31 December 2008: 59,845,000).

 

12. Financial Instruments:

 

(a) Significant accounting policies:

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of its financial assets, including convertible loan notes, and financial liabilities are disclosed in note 2 to these financial statements.

 

(b) Categories of financial instruments:

Financial instruments comprise equities, warrants, convertible loan notes and cash and cash equivalents. The warrants are derivative instruments and have been classified as held for trading and are accounted for as fair value through profit or loss. Investments in convertible loan notes have been classified as loans and receivables. All other financial instruments have been classified as fair value through profit or loss. As at 31 December 2009, the fair value of the Company's financial assets was £60,172,687 (31 December 2008: £63,067,865). This was 99.52% (31 December 2008: 101.06%) of net assets attributable to equity shareholders.

 

	31 December 2009		31 December 2008
	Fair Value	Percentage of net assets attributable to holders of Ordinary Shares	Fair Value	Percentage of net assets attributable to holders of Ordinary Shares
Assets	£	%	£	%
Financial assets at fair value through profit or loss:
Listed equity securities	7,092,221	11.73	6,045,522	9.69
Unlisted equity securities	15,406,886	25.47	13,041,183	20.90
	22,499,107	37.20	19,086,705	30.59
Held for trading	-	-	-	-
Loans and receivables*:
Loans	19,308,653	31.94	15,454,815	24.77
Cash and cash equivalents	18,364,927	30.38	28,526,345	45.71
	60,172,687	99.52	63,067,865	101.06

 

* Amortised cost is not considered to be materially different from fair value

 

There are no financial liabilities.

 

Fair values versus carrying amounts

The Directors consider that the carrying amount of financial instruments is equal to fair value.

 

 

(b) Categories of financial instruments, continued:

 

Classification of Fair Value Measurements

The Company adopted the amendment to IFRS 7, effective 1 January 2009. This requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

 

·; Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);

·; Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); and

·; Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

 

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, the measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

 

The determination of what constitutes "observable" requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

 

The following table analyses within the fair value hierarchy the Company's financial assets (by class) measured at fair value at 31 December 2009:

 

	Fair Value as at 31 December 2009
	Level 1	Level 2	Level 3	Total
	£	£	£	£
Fair value through profit or loss	7,052,221	40,000	15,406,886	22,499,107
Held for trading	-	-	-	-
Loans and receivables	-		19,308,653	19,308,653
	7,052,221	40,000	34,715,539	41,807,760

Investments whose values are based on quoted market prices in active markets, and therefore classified within level 1, include active listed equities. No adjustments are made to the quoted price for these instruments.

 

Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within level 2. As level 2 investments may include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

 

Investments classified within level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments include corporate compound debt instruments and unquoted equity instruments which the Company values in accordance with the International Private Equity and Venture Capital valuation guidelines. The Company considers liquidity, credit and other market risk factors.

 

Classification of Fair Value Measurements, continued

The table below provides a reconciliation from brought forward to carried forward balances of financial instruments categorised under level 3:

 

	31 December 2009
Assets at Fair Value based on Level 3:	Equity investments	Loan  investments	Total
	£	£	£
Fair value brought forward	13,041,177	15,454,815	28,495,992
Purchases	1,355,725	-	1,355,725
Loans advanced	-	4,765,748	4,765,748
Loan repayments	-	(200,000)	(200,000)
Movement in net unrealised foreign exchange (losses)/gains on loans investments	-	(711,910)	(711,910)
Movement in net unrealised gains on fair value through profit or loss investments	1,009,984	-	1,009,984
Fair value carried forward	15,406,886	19,308,653	34,715,539

 

(c) Net gains and losses on financial assets:

Year ended 31 December 2009:	Movement in net unrealised (losses)/gains	Net realised gains on disposals
	£	£
Financial assets at fair value through profit or loss:
Listed equity securities	(1,008,200)	-
Unlisted equity securities	1,009,877	-
	1,677	-
Loans and receivables:
Loans	(711,910)	-
	(710,233)	-

 

Year ended 31 December 2008	Movement in net unrealised (losses)/gains	Net realised gains on disposals
	£	£
Financial assets at fair value through profit or loss:
Listed equity securities	(2,361,740)	208,274
Unlisted equity securities	2,565,397	-
	203,657	208,274
Loans and receivables:
Loans	1,693,730	-
	1,897,387	208,274

 

(d) Derivatives:

In accordance with the Company's scheme particulars the Company may invest in derivatives or forward foreign exchange contracts for the purpose of efficient portfolio management.

 

Warrants

The following table details the Company's investments in warrant derivative contracts, by maturity, outstanding as at 31 December 2009.

 

	31 December 2009		31 December 2008
Maturity	No. Held	Fair Value	No. Held	Fair Value
		£		£
< 1 year	2	-	1	-
1-2 years	-	-	2	-
Total	2	-	3	-

 

A warrant is a derivative financial instrument which gives the right, but not the obligation to buy a specific amount of a given stock, at a specified price (strike price) on a specific date. The fair value of the warrants are classified as financial assets at fair value through profit or loss, as disclosed in note (b) above. The warrants for underlying unlisted equities are valued in accordance with the International Private Equity and Venture Capital valuation guidelines.

 

Forward foreign currency swaps

 

As at 31 December 2009, the Company had the following open forward foreign currency contracts (31 December 2008: none):

 

Purchase Currency	Contractual Amount	Sale Currency	Contractual Amount	Maturity Date	Fair Value
					£
GBP	13,716,000	EUR	15,000,000	1/4/2010	407,340
EUR	15,000,000	GBP	13,626,000	1/4/2010	(316,860)
					90,480

 

In accordance with the Company's scheme particulars the Company may invest in forward foreign exchange contracts for the purpose of efficient portfolio management. As there is no assurance that these hedges will be effective in achieving offsetting changes in the cash flows attributable to the currency risk on these specific foreign currency payments it is the policy of the Company not to apply hedge accounting.

 

13. Financial Risk Management:

 

Strategy in Using Financial Instruments:

The Company's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance.

 

The Company is currently focusing on realising the investments that have been made to date. These investments were made in line with the Company's stated investment policy.

 

 

Market Price Risk:

Market price risk results mainly from the uncertainty about future prices of financial instruments held. It represents the potential loss the Company may suffer through holding market positions in the face of price movements and changes in interest rates or foreign exchange rates, with the maximum risk resulting from financial instruments being determined by the fair value of the financial instruments.

 

All securities investments present a risk of loss of capital. The Investment Adviser moderates this risk through a careful selection of securities and other financial instruments within specified limits. The maximum risk resulting from financial instruments is determined by the fair value of the financial instruments. The Company's portfolio and investment strategy is reviewed continuously by the Investment Adviser and the Investment Manager and on a quarterly basis by the Board.

 

The Company's exposure to market price risk arises from uncertainties about future prices of its investments. This risk is managed through diversification of the investment portfolio. It is the Company's intention to build a portfolio of investments which is diversified by both sector and stage of development. Generally the Company will seek not to invest (or commit to invest) more than 15% of the Company's net assets in any single investment at the time of investment (or commitment), or more than 15% of the Company's net assets in special situations (such as investments in companies already listed) at the time of investment (or commitment), although such limit may be increased to 30% in certain cases where the Board deems appropriate on the advice of the Investment Manager.

 

At 31 December 2009, the Company's market risk is affected by three main components: changes in actual market prices, interest rate and foreign currency movements. Interest rate and foreign currency movements are shown below. A 10% increase in the value of investments, with all other variables held constant, would bring about a 6.91% (31 December 2008: 5.54%) increase in net assets attributable to equity shareholders. If the value of investments had been 10% lower, with all other variables held constant, net assets attributable to equity shareholders would have fallen by 6.91% (31 December 2008: 5.54%). Whilst these sensitivity percentages show the Company's overall sensitivity to price movements, it does not reflect the leveraged nature of the derivative financial instruments held by the Company. Warrants by their nature will be disproportionately sensitive to changes in the value of the underlying equity instrument and therefore a 10% increase / decrease in the value of the equity instrument could result in a significantly greater than 10% increase / decrease in the value of the respective derivative instrument.

 

Interest Rate Risk:

The Company is exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial instruments and future cash flows. The Company is exposed to interest rate risk as it's cash and cash equivalents are invested at short term rates. All the Company's loan instruments have fixed rate coupons and therefore are not exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates. The Investment Manager manages the Company's exposure to interest rate risk daily in accordance with the Company's investment objectives and policies. The Company's overall exposure to interest rate risk is monitored on a quarterly basis by the Board of Directors.

 

The table below summarises the Company's exposure to interest rate risks.

 

	At 31 December 2009		31 December 2008
	Weighted average effective interest rate	Total	Weighted average effective interest rate	Total
		£		£
Assets
Fixed interest rate unquoted debt securities	11.94%	19,308,653	11.78%	15,454,815
Cash at bank	0.40%	18,364,927	3.07%	28,526,345
Non-interest bearing	-	23,486,331	-	19,687,455
Total assets		61,159,911		63,668,615
Liabilities
Non-interest bearing	-	699,494	-	1,264,703
Total liabilities		699,494		1,264,703

 

The sensitivity analyses below have been determined based on the Company's exposure to interest rates for interest bearing assets and liabilities (included in the interest rate exposure table above) at the year end date and the stipulated change taking place at the beginning of the financial period and held constant through the reporting period in the case of instruments that have floating rates.

 

A 200 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management's assessment of the possible change in interest rates.

 

If interest rates had been 200 basis points higher and all other variables were held constant, the Company's increase in net assets attributable to Ordinary shareholders for the year ended 31 December 2009 would have been an increase of £367,299 (31 December 2008: £570,527) due to the increase in the interest earned on the Company's cash balances.

 

If interest rates had been 200 basis points lower and all other variables were held constant, the Company's increase in net assets attributable to Ordinary shareholders for the year ended 31 December 2009 would have been a decrease of £73,460 (31 December 2008: £570,527) due to the decrease in the interest earned on the Company's cash balances.

 

The Company's sensitivity to interest rates has decreased during the current year as the Company has invested its capital into its investments thereby reducing its cash balances that are interest bearing.

 

Foreign Currency Risk:

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

 

Accordingly, without foreign currency hedging in place, the Company is at high risk that the value of an investment portfolio may be significantly affected favourably or unfavourably by fluctuations in exchange rates. The Company has the ability to manage this risk through forward foreign exchange contracts to hedge its exposure back to sterling (see note 12(d) for details of currency hedging in place as at 31 December 2009).

 

Currency Exposure:

Some of the net assets of the Company are denominated in currencies other than Sterling. The carrying amounts of these assets and liabilities are as follows (these assets and liabilities do not include amounts receivable/payable on open forward foreign currency contracts and are pre currency hedging exposures):

 

	31 December 2009
	Assets	Liabilities	Net	Hedge*	Net Hedged
	£	£	£	£	£
Australia Dollar	415,960	-	415,960	-	415,960
British Pound	40,690,776	(104,346)	40,586,430	-	40,586,430
Euro	19,645,835	(278,288)	19,367,547	-	19,367,547
	60,752,571	(382,634)	60,369,937	-	60,369,937

 

	31 December 2008
	Assets	Liabilities	Net	Hedge	Net Hedged
	£	£	£	£	£
Australia Dollar	1,201,519	-	1,201,519	-	1,201,519
British Pound	43,037,249	(1,078,271)	41,958,978	-	41,958,978
Euro	19,429,847	(186,432)	19,243,415	-	19,243,415
	63,668,615	(1,264,703)	62,403,912	-	62,403,912

 

*Although the Company hedged its exposure to Euro during the year, as at 31 December 2009 the Company closed out this hedge resulting in a net unhedged exposure as detailed above. As a result of closing out the hedge the Company will realise a gain of £90,480. This gain will crystalise on 1 April 2010.

 

The Company is exposed to Euro and Australian Dollar currency risk. The Company has the ability to manage this risk through forward foreign exchange contracts to minimise the impact of any currency movements.

 

The sensitivity analysis below has been determined based on the sensitivity of the Company's outstanding foreign currency denominated financial assets and liabilities to a 20% increase / decrease in the Sterling against Australian Dollar and Euro, translated at the statement of financial positions date.

 

The following details the Company's sensitivity to a 20% increase / decrease in foreign currency rates. 20% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management's assessment of the possible change in foreign exchange rates.

 

As at 31 December 2009 if Sterling had weakened by 20% against the Australian Dollar and Euro, with all other variables held constant, the increase in net assets attributable to Ordinary Shares would have been 6.54% (31 December 2008: 6.61%) lower. Conversely, if Sterling had strengthened by 20% against the Australian Dollar and Euro, with all other variables held constant, the decrease in net assets attributable to Ordinary Shares would have been 6.54% (31 December 2008: 6.61%) higher.

 

Liquidity Risk:

Liquidity risk is the risk that the Company will encounter in realising assets or otherwise raising funds to meet financial commitments.

 

It is the aim of the Company to invest in companies which are likely to achieve a listing or realisation within six to thirty-six months.

 

Maturity Analysis:

The table below shows the maturity analysis of the Company's assets and liabilities as at 31 December 2009:

 

At 31 December 2009	Less than 1 month	1-12 months	1-3 years	3-5 years	No fixed maturity	Total
		£	£	£	£	£
Assets
Fixed interest rate unquoted debt securities*	-	1,955,000	5,676,275	11,677,378	-	19,308,653
Cash at bank	18,364,927	-	-	-	-	18,364,927
Non-interest bearing	443,942	543,282	-	-	22,499,107	23,486,331
Total assets	18,808,869	2,498,282	5,676,275	11,677,378	22,499,107	61,159,911
Liabilities
Non-interest bearing	-	-	-	-	699,494	699,494
Total liabilities	-	-	-	-	699,494	699,494

 

 

At 31 December 2008	Less than 1 month	1-12 months	1-3 years	3-5 years	No fixed maturity	Total
	£	£	£	£	£	£
Assets
Fixed interest rate unquoted debt securities*	-	755,000	9,857,962	4,841,853	-	15,454,815
Cash at bank	14,278,560	14,247,785	-	-	-	28,526,345
Non-interest bearing	352,855	235,232	-	-	19,099,368	19,687,455
Total assets	14,631,415	15,238,017	9,857,962	4,841,853	19,099,368	63,668,615
Liabilities
Non-interest bearing	-	-	-	-	1,264,703	1,264,703
Total liabilities	-	-	-	-	1,264,703	1,264,703

*Although the convertible loan note has an indicated redemption date written into the loan agreements, this redemption date is based on the planned event date. The actual event date is not known, therefore for maturity analysis purposes the convertible loan has been categorised as "No fixed maturity".

 

Credit Risk:

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company.

 

To the extent the Company's invests in customised financial instruments or non-UK securities, the Company takes the risk of non-performance by the other party to the contract. This risk may include credit risk of the counterparty and the risk of settlement default. This risk may differ materially from those entailed in UK exchange-traded transactions which generally are supported by guarantees of clearing organisations, daily marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries. Transactions entered directly between two counterparties generally do not benefit from such protections and expose the parties to the risk of counterparty default. In addition, there are risks involved in dealing with the custodians or brokers who settle trades particularly with respect to non-UK investments.

 

At the reporting date financial assets exposed to credit risk include loan instruments and derivatives disclosed in note 12 to these financial statements. It is the opinion of the Board of Directors that the maximum exposure to credit risk that the Company faces is equal to the carrying value of these financial instruments held by the Company.

 

The loan instruments are private loans with the underlying counterparties and as such do not have associated agency credit ratings. To mitigate the credit risk on these loan instruments the Directors consider impairment on an ongoing basis also taking into consideration the results of any reviews performed by the Investment Manager. As at 31 December 2009, no impairment charges (31 December 2008: £nil) had been recognised in the Statement of Total Comprehensive Income (see note 2(f)). However £478,310 of loan interest receivable for the year end 31 December 2009 had been written off to the Statement of Total Comprehensive Income (31 December 2008: £nil).

 

The credit risk on cash transactions and transactions involving derivative financial instruments is mitigated by transacting with counterparties that are regulated entities subject to prudential supervision, or with high credit-ratings assigned by international credit-rating agencies.

 

In accordance with the investment restrictions as described in its Placing Document, the Company will generally not invest more than 15% of its total net assets in any one underlying company (calculated at the time of any relevant investment being made).

 

As at 31 December 2009, the following amounts on debt instruments were past due:

 

	31 December 2009		31 December 2008
	£		£
Principal default	-		-
Interest default*	478,310		-

 

*As at 31 December 2009 the interest owed on debt instruments that was either past due or not considered recoverable and had been written off as "loan interest receivable written off" in the Statement of Total Comprehensive Income.

 

Concentration Risk

Concentration risk may arise if the Company's investments are concentrated in a low number of investments each representing a relatively large percentage of the Company's net assets. While the Investment Manager will attempt to spread the Company's assets among a number of investments in accordance with the investment policies adopted by the Company, at times the Company may hold a relatively small number of investments each representing a relatively large portion of the Company's net assets. Losses incurred in such investments could have a materially adverse effect on the Company's overall financial condition. Whilst the Company's portfolio is diversified in terms of the companies in which it invests, the investment portfolio of the Company may be subject to more rapid change in value than would be the case if the Company were required to maintain a wider diversification among types of securities, countries and industry groups.

 

14. Dividend:

The Directors do not recommend the payment of a dividend for the year ended 31 December 2009 (31 December 2008: £nil).

 

15. Taxation:

The Income Tax Authority of Guernsey has granted the Company exemption from Guernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and the income of the Company may be distributed or accumulated without deduction of Guernsey income tax. Exemption under the above mentioned Ordinance entails payment by the Company of an annual fee of £600 each. It should be noted, however, that interest and dividend income accruing from the Company's investments may be subject to withholding tax in the country of origin.

 

The Company has suffered £1,506 withholding tax during the year (31 December 2008: £1,506).

 

 16. Capital Management:

The Directors may excerise the powers of the Company to borrow money and to give security over its assets. The Company may borrow funds secured on its investments if the Board (with the advice of Cenkos Fund Manager Limited) considers that satisfactory opportunities for investment arise at a time when the Company is close to being fully invested. In any event, borrowing will be limited to 25 per cent. of the Company's last announced NAV at the time of draw down. The Company may also be indirectly exposed to the effects of gearing to the extent that investee companies have outstanding borrowings.

 

The Company has been granted authority to make market purchases of up to 14.99% of its own Ordinary Shares. Any such purchases require shareholders approval.

 

The Company has the ability to apply to the Financial Services Authority for a Placing and Offer to increase the size of the Company through further share issuance.

 

17. Post Year End Events:

Since the year end the Company has made investments totaling circa £0.4 million by way of follow on investments and received circa £0.8 million by way of a loan repayment

 

There are no significant post year end events that require disclosure in these financial statements.

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