BCAP.L Regulatory News (BCAP)

30 July 2014

BETTER CAPITAL PCC LIMITED

(the "Company")

FINAL RESULTS UPDATE

Better Capital PCC Limited is pleased to announce its 2014 final results for both the 2009 Cell and the 2012 Cell.

2009 Cell Final Results

- £210.0 million total capital raised

- £26.5 million/12.6 per cent. cumulative distributions to date

- 26.9 per cent. value growth combined NAV and distribution since inception

- 6 platform acquisitions

- 1 new bolt-on acquisition in the financial year

- 10 bolt-on acquisitions since inception

* Based on the weighted average issue price of ordinary shares and net of share issue costs.

2012 Cell Final Results

- £355.5 million total capital raised

- £347.4 million net proceeds invested in Fund II

- £207.5 million/59.7 per cent. committed to date

- 3 platform acquisitions at 31 March 2014

- 1 further acquisition completed post 31 March 2014

- 7.96 per cent. increase in NAV (net of issue costs) since inception

* Based on the issue price of ordinary shares and net of share issue costs.

Chairman's Statement

On 4 February 2014, the Company issued a Trading Statement in accordance with the FCA Disclosure and Transparency Rule 4.3. The Statement indicated that trading at two of the more material portfolio companies in Fund I had been significantly below expectations in recent months. It further indicated that this could have a significant effect on the largely multiple based net asset value of the 2009 Cell as at 31 March 2014. Additional context was provided in the Interim Management Statement issued on 17 February 2014.

In the ensuing period, the Fund I GP and its Consultant, Better Capital LLP, have devoted significant resources to improving the underperforming portfolio companies. Considerable changes have been implemented across the board - including management changes both in the portfolio companies and in the Consultant's operating team where there had also been underperformance, and have resulted in considerable improvement. Further progress is expected in the coming months.

The Board is pleased to report on the successful fundraising last summer through the issuance of new shares in the 2012 Cell. Net proceeds from the fundraising of £181.9 million were invested into Fund II in August 2013, giving total undrawn commitments in Fund II of £232.7 million at 19 August 2013. Fund II has since deployed £97.5 million, leaving undrawn commitments of £139.9 million.

OfficeTeam and Spicers transactions

On 24 July 2014, the Board was informed of Fund II's acquisition of OfficeTeam for a consideration of £80.0 million, on a debt-free basis. OfficeTeam is a leading UK supplier of office products and services, with audited operating group revenues and pre-exceptional EBITDA of £142 million and £13 million respectively in the year to 31 December 2013. The acquisition of OfficeTeam capitalises on the strategic opportunity created by the macro factors operating in the office supplies sector and provides a platform to drive further consolidation in the sector.

Against this backdrop, on 28 July 2014, Fund II through a wholly owned Guernsey special purpose vehicle acquired the issued share capital in BECAP Spicers (Guernsey) Limited, a special purpose vehicle wholly owned by Fund I, trading as Spicers; a further capital restructure will follow. Although both Spicers and OfficeTeam are now within the same corporate group, the businesses will continue to trade and operate separately.

The Board of the Company and the General Partners of both Funds have been mindful of the possible conflicts in such a transaction.

The most important issue was to demonstrate a fair division of ownership between the Funds. Given Fund II's completion of the OfficeTeam acquisition a few days back, attributing its cost as value for a transaction was demonstrably sensible. Much careful review has taken place to arrive at a valuation of Fund I's investment in Spicers for the Company's 31 March 2014 accounts. The valuation of £6.1 million based upon asset valuations, together with the £5.0 million recent loan from Fund I, will be used to arrive at the ratio between the Funds and the resulting ownership will be 11.5 per cent. of the economic interest to Fund I and 88.5 per cent. to Fund II. Both ownerships will be subject to dilution by management in due course. Both Funds will be entirely pari-passu in the instruments they hold. The above mentioned loan to Spicers from Fund I is being subsumed into this transaction.

Due to the potential for conflict arising as a result of this transaction, the General Partners of both Funds I and II have sought advice. Having given the advice thorough and due consideration, the General Partners of both Funds I and II are comfortable that the commercial justification of an OfficeTeam and Spicers transaction should benefit the investors of both Funds I and II proportionately.

The rationale of this transaction is set out further in the Fund II GP report.

2009 Cell

Overview

The NAV, including distributions of £26.5 million (12.6 per cent. of funds raised), fell by £31.2 million (10.7 per cent.) in the year, representing a decline of £32.4 million (11.1 per cent.) since the Interim Report. The Fund I portfolio carrying value declined by £32.6 million (12.5 per cent.), a decline of £41.4 million (15.3 per cent.) since the Interim Report, largely due to the write-down in Spicers. This has, to an extent, been offset by the release of the Carry Provision, £7.2 million (£8.6 million in the Interim Report) and by a write up in Gardner of £39.0 million (£24.3 million since the Interim Report).

Net cash in the 2009 Cell fell by £0.5 million in the year to £0.2 million. On 30 April 2014, Fund I repaid £0.5 million of its loan from the 2009 Cell to provide working capital for the Company for a period of at least 18 months.

Investment activities

The investment period for Fund I ended on 31 December 2012. Uninvested cash may now only be invested in the portfolio companies to support working capital, restructuring or the acquisition of bolt-ons. Four portfolio companies received further investments totalling £8.8 million in the year. Santia acquired First Order Red Limited, an asbestos consultancy business, while Calyx Managed Services, Omnico and Fairline received injections to fund their on-going needs.

Fund I also received repayments and interest income totalling £6.7 million in the year, with the majority coming from Gardner, Santia and Spicers.

The Board was informed of the disposal of Vivat Direct Limited, trading as Reader's Digest UK, on 14 February 2014 to a strategic trade buyer for a nominal sum - a very disappointing outcome.

Post balance sheet events

In May 2014, Spicers received a £5.0 million investment to fund its working capital. The Fund II GP (whose main Limited Partners are Jon Moulton, Mark Aldridge and Nick Sanders) provided Fund I with a £2.5 million loan to support the transaction. On 28 July 2014, Fund I disposed its interest in BECAP Spicers (Guernsey) Limited to BECAP12 SPV 15 Limited, a Guernsey special purpose vehicle controlled by Fund II. It is intended that the outstanding loan notes in Spicers will be converted to equity, loan notes and loans in BECAP12 SPV 15 Limited such that Fund I ends up with 11.5 per cent. of the economics of the combined group.

Gardner has repaid another £1.0 million to Fund I. The total repaid in the business's current financial year to 31 August 2014 is £5.2 million with good prospects for further repayments in the very near term.

Portfolio

The Board of the Company has been given a comprehensive update from the Fund I GP, whose views are set out further in the Fund I GP report.

Spicers has had a very disappointing period. The operational problems experienced in Spicers were largely due to a poorly executed move to Smethwick and inadequate systems which resulted in poor service delivery to customers. Declining sales meant that the business faced cash constraints due to limited availability on its asset based lending facility and this had an impact on the availability of credit insurance for Spicers' suppliers. However, there has been improved optimism in the recent weeks. Senior management has been replaced and Nick Sanders is operating in the capacity of executive chair. A new CEO has been in place for eight weeks.

As a consequence of the much greater uncertainty and in the absence of any corporate transaction at 31 March 2014, Spicers has been valued on a realisable asset basis. Although Spicers has been very disappointing, it is worth mentioning that the combination of repayments, interest receipts and the residual value has to date provided a 10 per cent. IRR in the 25 month period of ownership under Fund I.

In the Interim Management Statement, we communicated concerns on the delayed uptake of a key customer programme for Gardner which would have had an impact on current year EBITDA profitability. These concerns were valid; however, this programme remains well received by end customers and the prospects are now improving again. In a further move which has bolstered the company, Nick Sanders from the Consultant, has now assumed the role of executive chairman in January 2014. He has made good progress accelerating profitable growth and positioning the business for a medium term exit. The Board is encouraged by the progress demonstrated under Mr Sanders' leadership and the £5.2 million repayment of Fund I's investment in the past few months. The total investment outstanding is £35.4 million.

The fortunes of the Calyx Group, comprising Calyx Managed Services and m-hance Group, have improved. Following poor performance in 2013, both companies are showing good profitable growth in 2014. m-hance clearly has considerable potential to improve its performance further and order intake is particularly encouraging.

The Board has been advised that the foundations for growth are now largely in place for Santia. The focus in the current financial year to 31 January 2015 is to maximise profitable growth and to demonstrate the strong run-rate which is vital for exit. Santia is also expected to distribute a significant amount to Fund I during the year ahead. So far, progress in 2014 has been satisfactory.

Omnico has also made some good progress over the year, particularly with its mobile Point of Sale offerings. In recent months, the business has acquired a number of high profile clients including a cornerstone global client operating in the luxury retail sector; beating stiff competition in the process. Conversely, trading in its Hardware Division has been below expectations and is now a major focus. The plan involves rolling out a suite of new hardware products over the next 18 months with considerable strengthening of management relating to these products. Omnico is capable of much better profitability and this is expected to materialise in the coming year.

Last year the Company reported subdued sales for Fairline boats due to reduced global demand and a surfeit of boat stocks. These difficulties were compounded by restrictions on dealer financing and production issues on the new Targa 48 range. These issues are now substantially resolved. The market decline has ended and retail sales to end customers are slowly growing. Dealer stock levels are now very low and dealer purchasing activity is improving. The main challenge for the business is to drive greater productivity in its manufacturing. Poor production planning, especially on the new mixed model line in Corby had resulted in excess labour overtime and wastage, both of which are now being actively addressed after a further management change.

2012 Cell

Overview

In line with the intent stated in the Company's prospectus dated 19 December 2011, the Company's 2012 Cell took on a second round of fundraising in the summer of 2013. Gross proceeds of £185.6 million were raised through the issuance of 176,738,625 new 2012 Cell shares issued at 105.0 pence per share, a 2.1 per cent. premium to NAV. Proceeds, net of issuance cost, of £181.9 million were invested into Fund II on 19 August 2013.

Excluding the net proceeds from the second fundraising, NAV growth over the year was £19.0 million - entirely attributable to Everest, providing a year-on-year NAV growth of 7.96 per cent.

Investment activities

During the year, Fund II acquired City Link for a nominal sum from Rentokil Initial plc. £40.0 million was invested to provide momentum to City Link's turnaround programme.

Jaeger also received £13.9 million over the course of the year (of which £7.5 million was invested since the Interim Report). The investment was to support the business's capital expenditure across its properties, improvement to its website and on-going operations.

It is anticipated that both City Link and Jaeger will require further funding to complete their respective turnaround and investment plans.

Post balance sheet events

On 24 July 2014, Fund II through one of its UK special purpose vehicles, Macsco 73 Limited acquired a majority equity stake in Project Oliver Topco Limited, which together with its subsidiaries trade as OfficeTeam, on a debt free basis for a consideration of £80.0 million. The General Partner of Fund II has committed £90.0 million towards this investment to finance its acquisition and restructuring initiatives.

On 28 July 2014, Fund II through its Guernsey special purpose vehicle, BECAP12 SPV 15 Limited acquired the entire issued share capital of BECAP Spicers (UK) Limited.

Portfolio

The Board of the Company has also received a detailed briefing on the Fund II portfolio from the Fund II GP.

Everest continues to progress well. Audited results for the year ended 31 December 2013 showed a solid improvement in its underlying EBITDA profitability (£6.9 million vs. loss of £2.2 million in the 40 weeks to 31 December 2012). The business is also cash generative. It expects to return in excess of £5.0 million to Fund II imminently.

New management has now been in place for almost a year in Jaeger. In May 2014 a showcase preview of the 'Autumn/Winter 2014' collection (the first collection under the new team's full ownership) was well received by industry critics. The business has also received other noteworthy media coverage, primarily through celebrity/royalty product endorsements and reports of job creation as Jaeger brings manufacturing back onshore. As previously communicated, the improvement in product appeal and brand awareness takes time to build.

City Link was acquired in April 2013 and is still very much in the restructuring phase. The business has been busily engaged in a number of large scale projects with the primary focus on driving improved customer service whilst reducing its cost base. To date, City Link has undertaken three major IT programmes, 12 depot closures, pay and conditions negotiations as well as pricing initiatives. Significant progress has been achieved; however, some of the reduction in depots and other changes have been executed too quickly causing a shortfall in operational performance with subsequent delays and costs. There is still a lot to be done but a good level of profitability should be visible within the next year.

Deal flow

Over the year, the Consultant has logged 439 deals (prior year: 346), of which 47 per cent. were deals originating from the UK, 26 per cent. from Germany and 12 per cent. from Ireland. Better Capital has begun operating in Germany, establishing market contacts and experiencing good deal flow in the past 12 months. The level of activity experienced in Germany has encouraged the Consultant to establish a permanent presence and recruit staff locally. To this end, Dr Ben Moldenhauer was recruited to lead Better Capital GmbH. A presence on the ground has been established in Munich and has been in operation since early May. The Consultant is convinced that there is a significant opportunity within Germany and some other European countries. The German base provides the opportunity to explore these opportunities in more depth.

Whilst the level of introductions in the UK remains broadly consistent with prior periods, there have been few transactions which the Fund II GP has deemed appropriate for Fund II to consummate. The policy remains that only transactions which can be undertaken on terms which the Fund II GP feels appropriate will be pursued further.

Outlook

The strengthening in the Better Capital Operations team continues and there will be a continuation of the rigorous focus on some of the weaker performing portfolio companies. The Board of the Company recognises that Fund I is going through a difficult period and that this has affected shareholder confidence; however, the Board is encouraged by the steps taken by the General Partner of Fund I to remedy this.

Richard Crowder

Chairman

29 July 2013

Enquiries:

Better Capital PCC Limited +44 (0)1481 716 000

Richard Crowder (Chairman)

Laurence McNairn (Administrator and Company Secretary)

Numis Securities Limited (Corporate Broker & Financial Adviser) +44 (0)20 7260 1000

Nathan Brown

Oliver Hardy

Powerscourt (Public Relations Adviser) +44 (0) 20 7250 1446

Carmen Murray

Justin Griffith

Report of the Directors

The Directors hereby submit the annual report and audited financial statements for each of the Company, the 2009 Cell and the 2012 Cell for the year ended 31 March 2014.

Principal Activities

There are currently two protected cells, being the 2009 Cell and the 2012 Cell as described in the Background and further informationsection of this document.

The principal activity of the Company is to act as a feeder fund through each Cell and pursue an investment objective which aims to generate attractive total returns by means of a policy of investing (2009 Cell through Fund I and 2012 Cell through Fund II) in a portfolio of distressed businesses, such returns being expected to accrue largely through capital growth.

Following the investment by the Cells into the Funds, the Funds invest in distressed businesses, though Special Purpose Vehicles. The Fund GPs are the investment managers to the respective Fund and have overall responsibility for the management and administration of the business and affairs of the Funds, including the management of its investments and as such the Cells have no control over the investments made by the Funds.

Business Review

A review of the Company's business and its likely future development is provided in the Chairman's Statement above. The underlying investments of the Funds are reviewed in the relevant General Partner's Report for Fund I and Fund II in the respective 2009 Cell and 2012 Cell financial statements below.

Results and Distribution

The Company

The results of the Company for the year are shown in the audited statement of comprehensive income.

2009 Cell

The results of the 2009 Cell for the year are shown in the audited statement of comprehensive income.

The Net Asset Value of the 2009 Cell as at 31 March 2014 was £233.6 million (2013: £277.2 million).

During the year the 2009 Cell made its second distribution of capital of £12.4 million (2013: £14.1 million to shareholders of the 2009 Cell as at the ex-date of 3 April 2013. The distribution consisted of a payment of 6.0 pence (2013: 6.8 pence) per ordinary share payable in cash from the 2009 Cell's share capital account and has been treated as a reduction of capital.

The two capital distributions (reductions of share capital) to date for the 2009 Cell total £26.5 million, being 12.6 per cent. of funds raised.

2012 Cell

The results of the 2012 Cell for the year are shown in the audited statement of comprehensive income.

No distributions were paid in the year ended 31 March 2014 for the 2012 Cell.

The Net Asset Value of the 2012 Cell as at 31 March 2014 was £375.6 million (2013: £174.7 million).

Annual General Meetings

The Annual General Meetings of the Company and the Cells will be held on 5 September 2014 at Lefebvre Place, Lefebvre Street, St Peter Port, Guernsey. The AGM of the 2009 Cell will be held at 10.00 am. The AGM of the 2012 Cell will be held at 10.15 am or, if later, immediately following the conclusion of the AGM of the 2009 Cell. The AGM of the Company will be held at 10.30 am or, if later, immediately following the conclusion of the AGM of the 2012 Cell. Details of the resolutions to be proposed at the AGMs, together with explanations, appear in the Notices of Meetings which are being sent to Shareholders at the same time as this annual report.

Members of the Board, including the Chairman and the audit committee chairman, will be in attendance at the AGMs and will be available to answer shareholder questions.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the annual report and the financial statements for each financial year which give a true and fair view of the state of affairs of the Company, the 2009 Cell and the 2012 Cell and of the respective result for the year then ended, in accordance with applicable Guernsey law and IFRS as adopted by the European Union. In preparing these financial statements the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

· prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping proper accounting records which disclose, with reasonable accuracy at any time, the financial position of the Company and its Cells and which enable them to ensure that the financial statements comply with the Companies Law. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud, error and non-compliance with law and regulations.

The Directors confirm that, so far as they are aware, there is no information relevant to the audit of which the Company's auditor is unaware. The Directors also confirm that, they have taken all steps they ought to have taken as Directors to make themselves aware of any information relevant to the audit and to establish that the Company's auditor is aware of that information.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website (www.bettercapital.gg); the work carried out by the auditor does not involve considerations of these matters and, accordingly, the auditor accepts no responsibility for any change that may have occurred to the Financial Statements.

Responsibility Statement of the Directors' in respect of the Annual Report

Each of the Directors, whose names are set out in this Report of the Directors section of the Annual Report, confirms that, to the best of their knowledge:

· the Financial Statements, prepared in accordance with IFRS as adopted by the EU 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 faced; and

· The Directors confirm that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and

Listing Requirements

Throughout the period since being admitted to the Official List maintained by the FCA, the Company has complied with the Listing Rules.

Corporate Governance Statement 

The Board recognises the value of sound corporate governance and, in particular, has regard to the requirements of the UK Code (available from the Financial Reporting Council's website, www.frc.org.uk).

The Board monitors developments in corporate governance to ensure the Board remains aligned with best practice especially with respect to the increased focus on diversity. The Board acknowledges the importance of diversity, including gender, for the effective functioning of the Board and commits to supporting diversity in the boardroom. It is the Board's ongoing aspiration to have a well-diversified representation. The Board also values diversity of business skills and experience because Directors with diverse skills sets, capabilities and experience gained from different geographical backgrounds enhance the Board by bringing a wide range of perspectives to the Company.

The Company's prospectus dated 19 December 2011 stated that the Company was, and intended to continue to be, in compliance with the UK Code. The Company is a member of the AIC and the Board of the Company has accordingly considered, and resolved to follow, the principles and recommendations of the AIC Code by reference to the AIC Guide (both available from the AIC's website, www.theaic.co.uk). A new version of the AIC Code was published in February 2013 which is aligned with the UK Code and the Board reports against the new version of the AIC Code.

On 28 September 2012, the FRC announced an updated version of the UK Code. Further to this, on 22 January 2013, the FRC provided the AIC with an updated endorsement letter to cover the latest edition of the AIC Code. The endorsement confirms that by following the AIC Guide investment company boards should fully meet their obligations in relation to the UK Code and paragraph LR9.8.6 of the Listing Rules.

The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to investment companies such as the Company. The Board considers that reporting against the principles and recommendations of the AIC Code, by reference to the AIC Guide (which incorporates the UK Code), provides better information to shareholders.

The UK Code includes provisions relating to:

· the role of the chief executive;

· executive directors' remuneration; and

· the need for an internal audit function.

The Company has complied with the recommendations of the AIC Code and the relevant provisions of Section 1 of the UK Code, except as set out below.

For the reasons set out in the AIC Guide, and in the preamble to the UK Code, the Board considers these provisions are not relevant to the position of the Company which delegates most day-to-day functions to third parties. The Company does not have a chief executive or any executive directors, employees or internal operationsand has therefore not reported further in respect of these provisions. The need for an internal audit function is discussed in the Audit Committee Report.

Except as disclosed in the following paragraphs, the Company has complied throughout the year with the provisions of the AIC Code.

· Principle 1 of the AIC Code states a Board should consider appointing one independent non-executive Director to be the Senior Independent Director. The Board, having taken into account its small size and that the Chairman and two of the other three Directors are each similarly independent and non-executive, considers it unnecessary to appoint such a senior independent Director. All members of the Board are available to shareholders if they have unresolved concerns.

· Principle 6 of the AIC Code states Directors should consider the diversity of the Board, including gender. The Board will consider diversity when a vacancy arises.

Pursuant to the GFSC Code, companies which report in line with the UK Code or the AIC Code are deemed to meet the GFSC Code.

The Funds themselves are not subject to any code of corporate governance. However, the Funds act through the Fund GPs which in turn act through Fund GP Companies which are licensed under the POI Law. As POI Licensees the boards of the Fund GP Companies have regard to the GFSC Code, which sets out the general responsibilities of the boards of the Fund GP Companies and includes proposals to deal with risk management, internal control procedures, the duties of directors, the composition of the Boards of the Fund GP Companies and self-assessment. The Fund GP Companies are managed in a manner which complies with the GFSC Code.

The Board

The Directors of the Company at the date of this report are Richard Crowder (Chairman), Richard Battey, Philip Bowman and Jon Moulton. On 28 June 2013, Mr Mark Huntley resigned as a director of the Company, on that date Mr Jon Moulton was appointed as a director of the Company. Messrs Crowder, Battey and Bowman were appointed upon incorporation of the Company on 24 November 2009 and all submitted themselves for re-election at the first annual general meeting of the Company. Any Director who has been appointed by the Board since the last general meeting or who held office at the time of the two preceding annual general meetings and who did not retire at either of them must offer himself for reappointment by the members. Messrs Crowder, Battey and Bowman are required to submit themselves for re-election at the AGM of the Company. Mr Moulton, as a director of the Fund I GP Company and the Fund II GP Company is subject to annual re-election in accordance with the listing rules.

Any director who has held office with the Company, other than employment or executive office, for a continuous period of nine years or more at the date of the meeting, shall retire from office and may offer himself for reappointment by the members. However, the Company will consider whether there is any risk that such director might reasonably be deemed to have lost independence through such long service. At such time, any director would be subject to annual re-election by the shareholders. The Management Engagement, Nomination and Remuneration Committee shall take the lead in any discussions relating to the appointment or re-appointment of directors.

The Board are of the opinion that those directors proposed for re-election should be re-elected because they have the appropriate skills and experience to continue to serve the Company.

The Board meets on at least a quarterly basis. The dates for each scheduled meeting are planned at the beginning of the year and confirmed in writing in accordance with the Company's articles of incorporation. Meetings for urgent issues may be and are convened at short notice if all directors are informed. In addition to formal Board and/or committee meetings and, to the extent practicable and appropriate, the Directors maintain close contact with each other, the Consultant and the Administrator, by email and conference calls and with the directors of the Fund I GP Company and Fund II GP Company for the purpose of keeping themselves informed about Fund I's and Fund II's activities. The Board requires information to be supplied in a timely manner by the respective general partner of Fund I and Fund II, the Consultant, the Administrator and other advisors in a form and of a quality appropriate to enable it to discharge its duties.

The Company has adopted a share dealing code for the Board and will seek to ensure compliance by the Board and relevant personnel of the Consultant, the Fund I GP and the Fund II GP with the terms of the share dealing code. The share dealing code is compliant with the Model Code for Directors' Dealings contained in the Listing Rules.

Directors' Remuneration

During the year to 31 March 2014 the Directors' remuneration was paid as follows (of which £52,000 (2013: £52,000) was outstanding at the year end):

31 March 2014

31 March 2013

1 Directors' expenses for the year of £2,000 were also paid during the year.

2 Other remuneration paid to each Director was in respect of additional services rendered in relation to the fund raising in 2012 Cell and totalled £17,500. These were included within share capital as costs of raising capital within the 2012 Cell.

3 On 28 June 2013, Mr Mark Huntley resigned as a director of the Company.

4 On 28 June 2013, Mr Jon Moulton was appointed as a director of the Company; Mr Moulton waived his fee until 31 December 2013.

All of the Directors are non-executive. The Board considers Messrs Crowder, Battey and Bowman as independent of the Fund I GP and Fund II GP and free from any business or other relationship that could materially interfere with the exercise of their independent judgment. The Board as a whole is independent of the Consultant, the Fund I GP and the Fund II GP. Mr Moulton is a director of the Fund I GP Company and the Fund II GP Company and is therefore not considered to be independent.

The Chairman of the Board must be independent and is appointed in accordance with the Company's articles of incorporation. Mr Crowder is considered to be independent because he:

· has no current or historical employment with the Consultant;

· has no current directorships in any other entities for which the Consultant provides consultancy services; and

· is not an executive of a self-managed company or an ex-employee who has left the executive team of a self-managed company within the last five years.

Duties and Responsibilities

The Board has overall responsibility for maximising the Company's success by directing and supervising the affairs of the business and meeting the appropriate interests of shareholders and relevant stakeholders, while enhancing the value of the Company and also ensuring the protection of investors. A summary of the Board's responsibilities is as follows:

· statutory obligations and public disclosure;

· strategic matters and financial reporting;

· risk assessment and management including reporting, compliance, governance, monitoring and control; and

· other matters having a material effect on the Company.

The Board is responsible to shareholders for the overall management of the Company. The Board has adopted a Schedule of Matters Reserved for the Board which set out the particular duties of the Board, which demonstrates the seriousness with which it takes its fiduciary responsibilities. Such reserved powers include decisions relating to the determination of investment policy and approval of changes in strategy, capital structure, statutory obligations and public disclosure, and entering into any material contracts by the Company.

The Directors have access to the advice and services of the Administrator, who is responsible to the Board for ensuring that Board procedures are followed and that it complies with Guernsey Law and applicable rules and regulations of the GFSC and the LSE. Where necessary, in carrying out their duties, the Directors may seek independent legal or other professional advice and services at the expense of the Company. As a result of the use of professional service providers and the nature of the Company's operations, the Company does not have any employees.

The Company maintains appropriate Directors' and Officers' liability insurance in respect of legal action against its Directors on an on-going basis. Suitable insurance is in place, having been renewed on 12 January 2014.

The Board's responsibilities for the Annual Report are set out in the Directors' Responsibilities Statement below. The Board is also responsible for issuing appropriate half-yearly financial reports, interim management statements and other price-sensitive public reports.

The primary focus at board meetings is to review investment performance and associated matters such as asset allocation, share price discount/premium management, investor relations, peer group information, gearing and industry issues.

The attendance record of the Directors for the year is set out below:

* Mr Moulton is not a member of either the Audit Committee or the Management Nomination and Remuneration Committee.

**Mr Huntley resigned as a director of the Company on 28 June 2013.

Directors

Richard Crowder - Chairman - Guernsey resident (aged 64)

Richard Crowder holds a range of non-executive directorships and consultancy appointments. He works with a wide range of investment styles and portfolios as well as being a director of a variety of family companies where he acts as the offshore adviser/director. In his early career, he worked as an investment manager with Ivory & Sime in Edinburgh and as a head of investment research with W.I. Carr in the Far East. He undertook a wide range of responsibilities for Schroders in London and the Far East, culminating in the roles of Managing Director for Schroders' Singapore associate and a Director of J. Henry Schroder Wagg & Co. Limited. Having then worked as Chairman of Smith New Court Far East and Director of Smith New Court plc, Mr Crowder was the founding Managing Director of Schroders' Channel Islands subsidiary from 1991 until he became a full time non-executive director and consultant in 2000. He is a member of the Securities & Investment Institute. Mr Crowder was appointed as a Director on 24 November 2009.

Richard Battey - Non-executive Director - Guernsey resident (aged 62)

Richard Battey is a non-executive director of a number of investment companies including AcenciA Debt Strategies Limited (UK listed), Juridica Investments Limited (AIM listed), NB Global Floating Rate Income Fund Limited (UK listed), Princess Private Equity Holding Limited (UK listed) and Prospect Japan Fund Limited (UK listed). For each of these five companies he is Chairman of the Audit Committee. He is a Fellow of the Institute of Chartered Accountants in England and Wales having qualified with Baker Sutton & Co. in London in 1977. He joined the Schroder Group in December 1977 and worked first in London with J. Henry Schroder Wagg & Co. Limited and Schroder Investment Management in financial and management accounting roles and then in Guernsey helping to build Schroders' offshore private banking business. Richard was a director of Schroders (C.I.) Limited in Guernsey from April 1994 to December 2004 where he served as Finance Director and Chief Operating Officer. He was a director of a number of the Schroder Group's Guernsey companies covering banking, investment management, trusts, insurance and private equity administration retiring from his last Schroder directorship in December 2008. He was formerly Chief Financial Officer of CanArgo Energy Corporation (May 2005 to July 2006), which was engaged in oil and gas exploration and production in Georgia and Kazakhstan. Mr Battey was appointed as a Director on 24 November 2009.

Philip Bowman - Non-executive Director - UK resident (aged 61)

Philip Bowman became Chief Executive of Smiths Group plc in December 2007. He previously held the positions of Chief Executive at Scottish Power plc from early 2006 until mid 2007 and Chief Executive at Allied Domecq plc between 1999 and 2005. Mr Bowman is currently the senior independent director of Burberry Group plc and a director of Berry Bros. & Rudd Limited. In 1977 Mr Bowman qualified as a Chartered Accountant with the Institute of Chartered Accountants in England and Wales while employed at Price Waterhouse. Past board appointments include British Sky Broadcasting Group plc, Scottish & Newcastle Group plc and Coles Myer Limited as well as Chairman of Liberty plc and Coral Eurobet plc. His earlier career includes five years as a director of Bass plc (now Mitchells & Butler plc and Intercontinental Hotel Group plc), where he held the roles of Chief Financial Officer and subsequently Chief Executive of Bass Taverns. Mr Bowman is an Australian national and was appointed as a Director on 24 November 2009.

Jon Moulton - Non-executive Director - Guernsey resident (aged 63)

Jon Moulton is a Fellow of the Institute for Turnaround and a Corporate Financier in the Institute of Chartered Accountants in England and Wales. Mr Moulton is the audit committee chairman of Bacit Limited, chairman of FinnCap, the stockbroker and a member of the Advisory Board of UK government's £3.2 billion UK Regional Growth Fund. Mr Moulton is also a Director and Chairman of the Channel Islands Securities Exchange. Between 1997 and September 2009, he was the Managing Partner and founder of Alchemy Partners. From 1972 to 1978, Mr Moulton was a Manager at Coopers & Lybrand, in Liverpool where he specialised in computer audit and corporate insolvency. He then worked in the M&A group of Coopers & Lybrand in New York for two years before moving to Citicorp Venture Capital, initially in New York and then, from 1981, in London where he was a Managing Director in the LBOs and venture capital group, and a member of the French and German Investment Committees. From 1985 to 1994, he was the Managing Partner and founder of Schroder Ventures, where he focused on LBOs and venture capital, and was a member of the French and German Investment Committees. Between 1994 and 1997, Mr Moulton was the Director in charge of LBOs at Apax Partners. Mr Moulton is resident in Guernsey.

Shareholdings of the Directors

Directors of the Company and their beneficial interests in the 2009 Shares and the 2012 Shares as at 31 March 2014 are detailed below:

2009 Cell

* Per cent. holding is given on one for one share holding basis rather than on voting rights.

2012 Cell

* Per cent. holding is given on one for one share holding basis rather than on voting rights.

There have been no changes to the Directors' shareholdings since 31 March 2014.

Committees of the Board

Audit committee

The Company has an Audit Committee with formally delegated duties and responsibilities within written terms of reference. Further information on the Audit Committee is included in the Report of the Audit Committee.

Management Engagement, Nomination and Remuneration Committee

On 29 February 2012, the Board established a management engagement, nomination and remuneration committee (the "MNR Committee"). The MNR Committee is chaired by Philip Bowman. The MNR Committee currently consists of Philip Bowman, Richard Battey and Richard Crowder. Any non-executive Directors who are not considered independent do not take part in the MNR Committee's deliberations regarding remuneration levels. The MNR Committee meets at least once a year pursuant to its terms of reference which are available on the Company's website (www.bettercapital.gg).

Regarding management engagement, the MNR Committee provides a formal mechanism for the review of the performance of the Company's advisors. It carries out this review through consideration of a number of objective and subjective criteria and through a review of the terms and conditions of the advisors' appointments with the aim of evaluating performance, identifying any weaknesses and ensuring value for money for the Company's shareholders.

Regarding nomination, the MNR Committee's remit is to review regularly the structure, size and composition of the Board, to give full consideration to succession planning for Directors, to keep under review the leadership needs of the Company and be responsible for identifying and nominating for the approval of the Board, candidates to fill Board vacancies as and when they arise. The Board believes that, as a whole, it comprises an appropriate balance of skills, experience and knowledge. The Board also believes that diversity of experience and approach, including gender diversity, amongst board members is of great importance and it is the Company's policy to give careful consideration to issues of board balance and diversity when making new appointments. With any new Director appointment to the Board, induction training will be provided.

Performance and Evaluation

Regarding remuneration, the MNR Committee determines and agrees with the Board the remuneration of the Company's Chairman and non-executive Directors and in determining such remuneration, takes into account all factors which it deems necessary including any relevant legal requirements, the provisions and recommendations in the AIC Code, the Listing Rules and associated guidance.

In accordance with Principle 7 of the AIC Code, the Board is required to undertake a formal and rigorous evaluation of its performance on an annual basis. Such an evaluation of the performance of the Board as a whole and the Chairman was carried out under the mandate of the MNR Committee and in the form of self-appraisal questionnaires and a detailed discussion of the outcomes. The Directors believe that the current mix of skills, experience, ages and length of service of the Directors is appropriate to the requirements of the Company. With any new director appointment to the Board, consideration will be given as to whether an induction process is necessary.

Internal Control and Financial Reporting

The Directors acknowledge that they are responsible for establishing and maintaining the Company's system of internal control and reviewing its effectiveness. Internal control systems are designed to manage rather than eliminate the failure to achieve business objectives and can only provide reasonable but not absolute assurance against material misstatements or loss. The Directors review all controls including operations, compliance and risk management. The key procedures which have been established to provide internal control are:

• The Board monitors the actions of the Fund I GP, the Fund II GP and undertakings of their common Consultant at regular board meetings and is given frequent updates on developments arising from the operations and strategic direction of the underlying investee companies. The Board has also delegated administration and company secretarial services to the Administrator; however, it retains accountability for all functions it delegates.

• The Board clearly defines the duties and responsibilities of the Company's agents and advisors and appointments are made by the Board after due and careful consideration. The Board monitors the ongoing performance of such agents and advisors and will continue to do so primarily through the management engagement, nomination and remuneration committee.

• The Fund I GP, Fund II GP and Administrator together maintain a system of internal control on which they report to the Board. The Board has reviewed the need for an internal audit function and has decided that the systems and procedures employed by the Fund I GP, Fund II GP and Administrator, including the Administrator's own internal controls and procedures, provide sufficient assurance that a sound system of risk management and internal control, which safeguards shareholders' investment and the Company's assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary.

The systems of control referred to above are designed to ensure effectiveness and efficient operation, internal control and compliance with laws and regulations. In establishing the systems of internal control, regard is paid to the materiality of relevant risks, the likelihood of costs being incurred and costs of control. It follows therefore that the systems of internal control can only provide reasonable but not absolute assurance against the risk of material misstatement or loss.

Dealings with shareholders

The Board welcomes shareholders' views and places great importance on communication with its shareholders. The Company's annual general meeting provides a forum for shareholders to meet and discuss issues with the Directors of the Company. The Chairman and other directors are also available to meet with shareholders at other times, if required. In addition, the Company maintains a website which contains comprehensive information (www.bettercapital.gg), including company notifications, share information, financial reports, investment objectives and policy, investor contacts and information on the Board and corporate governance.

Major Shareholders

As at 28 May 2014, insofar as is known to the Company, the following persons were interested, directly or indirectly, in 5 per cent. or more of the 2009 Shares and 2012 Shares in issue:

2009 Cell

2012 Cell

Other than the 100 Core Shares issued to the Better Capital Purpose Trust as part of the Conversion, the Directors confirm that there are no securities in issue that carry special rights with regards to the control of the Company. The Core Shares have no voting rights for so long as Cell Shares are in issue.

The Company's issued share capital consists of 206,780,952 shares in the 2009 Cell and 346,600,520 shares in the 2012 Cell. Under the Company's articles of incorporation, at any general meeting of the Company:

• each holder of 2009 Shares who is present in person shall have one vote and on a poll the vote shall be weighted where a vote cast in relation to each 2009 Share shall count as 1.1096 towards the total number of votes cast; and

• each holder of 2012 Shares who is present in person shall have one vote and on a poll the vote shall be weighted where a vote cast in relation to each 2012 Share shall count as 0.9770 towards the total number of votes cast.

The figure which may be used by the Shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, Better Capital PCC Limited under the FCA's Disclosure and Transparency Rules, is the aggregate of the number of votes capable of being cast on a poll, namely 395,399,215. This is calculated as the sum of the 2009 Shares (206,780,952) multiplied by 1.1096 plus the 2012 Shares (346,600,520) multiplied by 0.9770.

Similarly, to calculate the numerator, Shareholders should multiply their holding of 2009 Shares by 1.1096 and multiply their holding of 2012 Shares by 0.9770. The sum of those calculations will result in the relevant number of voting rights for the numerator.

Directors' Authority to Issue Shares

2009 Cell

At an Extraordinary General Meeting of the Company held on 11 January 2012, the shareholders resolved by Special Resolution, to grant the Directors the power to issue up to five per cent. of the aggregate 2009 Shares admitted to trading on the LSE,free of restrictions under the Articles, which would otherwise require the Company first to offer the new 2009 Shares to the current holders of the 2009 Shares. In any rolling three-year period, the Company will not issue more than 7.5 per cent. of the 2009 Shares.

This power expired on the conclusion of the annual general meeting of the Company held on 31 July 2012 and was not renewed. No 2009 Shares were issued in this year.

2012 Cell

At an Extraordinary General Meeting of the Company held on 11 January 2012, the shareholders resolved by Special Resolution, to grant the Directors the power to issue up to five per cent. of the aggregate 2012 Shares admitted to trading on the LSE,free of restrictions under the Articles, which would otherwise require the Company first to offer the new 2012 Shares to the current holders of the 2012 Shares. In any rolling three-year period, the Company will not issue more than 7.5 per cent. of the 2012 Shares. This power expired on the conclusion of the annual general meeting of the Company held on 31 July 2012.

The Board renewed this authority at the Annual General Meeting of the Company held on 31 July 2013. This power shall (unless previously revoked, varied or renewed by the Company) expire on the conclusion of the annual general meeting of the Company to be held on 5 September 2014. The Board proposes to renew this authority at the annual general meeting of the Company to be held on 5 September 2014.

Although the Directors have not used, and have no current intention to use, this authority the Board reserves the right to utilise it in circumstances deemed appropriate.

Directors' Authority to Buy Back Shares

The current authority of the Company to make market purchases of up to a maximum of 14.99 per cent. of the issued 2009 Share Capital and/or 2012 Share Capital is renewable annually and was last authorised at the Annual General Meetings held on the 31 July 2013. At the Annual General Meetings to take place on 5 September 2014 the Company will seek to renew such authority in respect of the 2009 Shares and the 2012 Shares. Any buy back of 2009 Shares and/or 2012 Shares will be made subject to Guernsey law and within any guidelines established from time to time by the Board and the making and timing of any buy backs will be at the absolute discretion of the Board and not at the option of the Shareholders. Purchases of 2009 Shares and/or 2012 Shares will only be made through the market for cash at prices below the prevailing Net Asset Value of the 2009 Shares and/or 2012 Shares (as last calculated) where the Directors believe such purchases will enhance shareholder value. Such purchases will also only be made in accordance with the Listing Rules of the UK Listing Authority which provide that the price to be paid must not be more than 5 per cent. above the average of the middle market quotations for the 2009 Shares and/or 2012 Shares for the five business days before the shares are purchased unless previously advised to shareholders.

In accordance with the Company's Articles of Incorporation and Guernsey law up to 10 per cent. of the Company's shares may be held as treasury shares. The Company has not held any shares in treasury at any time.

Articles of Incorporation

The Company's Articles may only be amended by special resolution of the shareholders and if the amendment affects the rights of the holders of shares of a particular cell, by a separate resolution of such holders only.

Change of control

There are no agreements that the Company considers significant and to which the Company is party that would take effect, alter or terminate upon change of control of the Company following a takeover bid.

Principal risks and uncertainties

The Company's assets consist of investments, through Funds I and II, in portfolios of businesses which have significant operating issues and may have associated financial distress, with a primary focus on businesses which have significant activities within the United Kingdom and Ireland. Its principal risks are therefore related to market conditions in general, but also the particular circumstance of the businesses in which it is invested. The Consultant to the Funds seeks to mitigate these risks through active asset management initiatives and carrying out due diligence work on potential targets before entering into any investments.

Each Director is aware of the risks inherent in the Company's business and understands the importance of identifying, evaluating and monitoring these risks. The Board has adopted procedures and controls that enable it to manage these risks within acceptable limits and to meet all of its legal and regulatory obligations.

The Board considers the process for identifying, evaluating and managing any significant risks faced by the Company and by each of the 2009 Cell and 2012 Cell on an on-going basis and these risks are reported and discussed at Board Meetings. It ensures that effective controls are in place to mitigate these risks and that a satisfactory compliance regime exists to ensure all applicable local and international laws and regulations are upheld. In light of recent market volatility and economic turmoil, particular attention has been given to the effectiveness of controls to monitor liquidity risk, asset values and counterparty exposure.

The financial risks of the Company, the 2009 Cell and 2012 Cell are discussed in Note 12 to the financial statements.

The Company's other risk factors are fully discussed in the Company's prospectuses, available on the Company's website (www.bettercapital.gg) and should be reviewed by shareholders.

Going Concern

After making enquires and given the nature of the Company, Fund I and its investments and Fund II and its investments, the Directors are satisfied that it is appropriate to continue to adopt the going concern basis in preparing the financial statements, and, after due consideration, the Directors consider that the Company is able to continue for the foreseeable future.

By order of the Board

Richard Crowder

Chairman

29 July 2014

Report of the Audit Committee

The Audit Committee has been in operation throughout the year. The Audit Committee, chaired by Richard Battey, operates within clearly defined terms of reference (which are available from the Company's website, www.bettercapital.gg) which include all matters indicated by Disclosure and Transparency Rule 7.1 and the AIC Code. Its other members are Richard Crowder and Philip Bowman. Only independent directors can serve on the Audit Committee and members of the Audit Committee must have no links with the Company's external auditor and must be independent of the Consultant, the Fund I GP and the Fund II GP. The identity of the chairman of the Audit Committee is reviewed on an annual basis and the membership of the Audit Committee and its terms of reference are kept under review. The chairman of the Audit Committee must be a non-UK tax resident. The Audit Committee meets no less than twice a year in Guernsey, and meets the external auditor at least once a year in Guernsey. The Audit Committee met three times in the year to 31 March 2014.

The Board has taken note of the requirement that at least one member of the Committee should have recent and relevant financial experience and is satisfied that the Committee is properly constituted in that respect, with all members being highly experienced and, in particular two members having a backgrounds as chartered accountants.

The duties of the Audit Committee in discharging its responsibilities include reviewing the Annual Report and Audited Financial Statements and Interim Financial Report, the valuation of the Company's investment portfolio, the system of internal controls, and the terms of appointment of the auditor together with their remuneration. It is also the formal forum through which the auditor's report to the Board of Directors and shall meet not less than twice a year and at such other times as the Audit Committee Chairman shall require. Theobjectivity of the auditor is reviewed by the Audit Committee which also reviews the terms under which the external auditor is appointed to perform non-audit services and the fees paid to them or their affiliated firms overseas.

The Audit Committee also reviews, considers and, if thought appropriate, recommends for the purposes of the Company's financial statements, 2009 Cell's financial statements and 2012 Cell's financial statements, valuations prepared by the Fund I GP and Fund II GP in respect of the investments of Fund I and Fund II. It also receives and reviews reports from the Fund I GP and the Fund II GP.

The main duties of the Audit Committee are:

· giving full consideration and recommending to the Board for approval of the contents of the half yearly and annual financial statements and reviewing the external auditor's report thereon;

· reviewing the scope, results, cost effectiveness, independence and objectivity of the external auditor;

· reviewing the draft valuation of the Company's investments in the Funds prepared by the Fund GPs, and making a recommendation to the Board on the valuation of the Company's investments;

· reviewing and recommending to the Board for approval of the audit, audit related and non-audit fees payable to the external auditor and the terms of their engagement;

· reviewing and approving the external auditor's plan for the following financial year;

· reviewing the appropriateness of the Company's accounting policies; and

· ensuring the standards and adequacy of the internal control systems.

In addition, the Audit Committee advises the Board on whether the Annual Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

The Audit Committee is required to report its findings to the Board, identifying any matters on which it considers that action or improvement is needed, and make recommendations on the steps to be taken.

The external auditor is invited to attend the Audit Committee meetings at which the annual and interim accounts are considered and at which they have the opportunity to meet with the Committee without representatives of the Consultant being present at least once a year.

Financial Reporting

The primary role of the Audit Committee in relation to the financial reporting is to review with the Administrator, Consultant and the auditor the appropriateness of the half-year and Annual Financial Statements, concentrating on, amongst other matters:

· the quality and acceptability of accounting policies and practices;

· the clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements;

· material areas in which significant judgements have been applied or there has been discussion with both the Consultant and the auditor;

· whether the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and

· any correspondence from regulators in relation to our financial reporting.

To aid its review, the Audit Committee considers reports from the Consultant and GPs of the underlying funds and also reports from the auditor on the outcomes of their half-year review and annual audit. The Audit Committee supports BDO Limited in displaying the necessary professional scepticism their role requires.

Meetings

The Committee has met on three occasions during the year. The matters discussed at those meetings were:

· the draft valuation of the Company's investments in the Funds prepared by the Fund GPs, and the recommendation to the Board on the valuation of the Company's investments;

· review and approval of the audit plan of the external auditor;

· discussion and approval of the fee for the external audit;

· detailed review of the annual report and recommendation for approval by the Board;

· detailed review of the interim report and recommendation for approval by the Board;

· assessment of the effectiveness of the external audit process as described below; and

· review of the Company's key risks and internal controls.

Primary Area of Judgement

The Audit Committee determined that the key risk of misstatement of the Company's and Cell's financial statements related to the valuation of investments at fair value through profit and loss, in the context of the judgements necessary to evaluate current fair values.

As outlined in Note 4 to the financial statements, the total carrying value of financial assets at fair value at 31 March 2014 was £607.4 million. Market quotations are not available for these financial assets such that the value of the Company's investments in the Funds are based on the value of the Company's limited partner capital and loan accounts within each Fund, which itself is based on the value of the relevant underlying investee companies as determined by the General Partner of each Fund.

The valuation process and methodology were discussed with the Fund GPs with input from the Consultant and with the auditor at board meetings held on 19 June 2014 and 18 July 2014. The Consultant carries out a valuation semi-annually for the Fund GPs. In turn the Fund GPs provide valuations of each Cell's investment in the relevant Fund.

The Audit Committee has reviewed the Consultant's work. The Consultant confirmed to the Audit Committee that the valuation methodology had been applied consistently during the year and that the auditor's work had not identified any errors or inconsistencies that were material in the context of the financial statements as a whole.

The auditor explained the results of their review of the valuations, including their challenge of management's underlying projections, the economic assumptions and multiples used. On the basis of their audit work, there were no adjustments proposed that were material in the context of the financial statements as a whole.

Internal audit

The Audit Committee shall consider at least once a year whether or not there is a need for an internal audit function. Currently, the Audit Committee does not consider there to be a need for an internal audit function, given that there are no employees in the Company and all outsourced functions are with parties who have their own internal controls and procedures.

Appointment of the External Auditor

BDO Limited has been the Company's external auditor since the Company's inception. The lead audit director, Justin Hallett, has not changed during that period, but Mr Hallett will be replaced in the year ended 31 March 2016 in accordance with normal audit director rotation arrangements.

The Audit Committee has noted the revisions to the UK Code introduced by the FRC in September 2012 and the AIC Code issued in February 2013, in particular, the recommendation in each, to put the external audit out to tender at least every ten years.

The objectivity of the auditor is reviewed by the Audit Committee which also reviews the terms under which the external auditor may be appointed to perform non-audit services. The Audit Committee reviews the scope and results of the audit, its cost effectiveness and the independence and objectivity of the auditor, with particular regard to any non-audit work that the auditor may undertake and the level of fees associated to this non-audit work. In order to safeguard auditor independence and objectivity, the Audit Committee ensures that any other advisory and/or consulting services provided by the external auditor does not conflict with its statutory audit responsibilities. Advisory and/or consulting services will generally only cover reviews of interim financial statements, tax compliance and capital raising work. Any non-audit services conducted by the auditor outside of these areas require the consent of the Audit Committee before being initiated.

The external auditor may not undertake any work for the Company in respect of the following matters - preparation of the financial statements, preparation of valuations used in financial statements, provision of investment advice, taking management decisions or advocacy work in adversarial situations.

Notwithstanding the aforementioned services the Audit Committee considers BDO Limited to be independent of the Company and that the provision of such non-audit services is not a threat to the objectivity and independence of the conduct of the audit.

To fulfil its responsibility regarding the independence of the external auditor, the Audit Committee considered:

- changes in audit personnel in the audit plan for the current year;

- a report from the external auditor describing its arrangements to identify, report and manage any conflicts of interest; and

- the extent of non-audit services provided by the external auditor.

To assess the effectiveness of the external auditor, the committee reviewed:

- the external auditor's fulfilment of the agreed audit plan and variations from it;

- reports highlighting the major issues that arose during the course of the audit; and

- feedback from the Fund I GP, Fund II GP and the Consultant evaluating the performance of the audit team.

The Audit Committee is satisfied with BDO Limited's effectiveness and independence as auditor having considered the degree of diligence and professional scepticism demonstrated by them. As such, the committee has not considered it necessary this year to conduct a tender process for the appointment of its auditor. Having carried out the review described above and having satisfied itself that the external auditor remains independent and effective, the Audit Committee has recommended to the Board that BDO Limited be reappointed as auditor for the year ending 31 March 2015.

On behalf of the Audit Committee

Richard Battey

Chairman of the Audit Committee

29 July 2014

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF

BETTER CAPITAL PCC LIMITED

Opinion on the financial statements

In our opinion the financial statements:

· give a true and fair view of the state of the company's affairs as at 31 March 2014 and of its loss for the year then ended;

· have been properly prepared in accordance with IFRSs as adopted by the European Union; and

· have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.

We have audited the financial statements of Better Capital PCC Limited for the year ended 31 March 2014 which comprise the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of Changes in Equity, the Statement of Cash Flows and the related Notes 1 to 14. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the company's members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work is undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of the directors and auditor

As explained more fully in the Directors' Responsibilities Statement within the Directors' Report, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council's Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non‑financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Our application of materiality

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. For planning, we consider materiality to be the level by which misstatement individually or in aggregate, including omissions, could influence the economic decisions of the relevant users. Performance materiality is set to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements in the financial statements exceeds materiality for the financial statements as a whole. Misstatements may be considered material for reasons other than size as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements.

Based on our professional judgment, we determined planning materiality for the financial statements as a whole to be £6,200,000 which is based on a level of 1.5 per cent. of total assets, excluding uninvested cash in Fund II. On the basis of our risk assessment, together with our assessment of the company's control environment, our professional judgment is that performance materiality for the financial statements is 75 per cent. of planning materiality.

International Standards on Auditing (UK & Ireland) also allow the auditor to set a lower materiality for particular classes of transaction, balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. In this context, we set a lower level of materiality to apply to income distributions and expenses. We determined materiality for this area to be £62,000.

We agreed with the Audit Committee that we would report all audit differences in excess of £62,000, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

Overview of the scope of our audit

The Company is a limited liability Guernsey registered closed ended investment company established as a Protected Cell Company. The company consists of two Cells that each invest in a Limited Partnership. Each Limited Partnership holds a portfolio of distressed businesses, which are managed by the Consultant on behalf of the respective General Partner, and cash on account for working capital and further investment.

The financial statements, which remain the responsibility of the Directors, are prepared on their behalf by the Company Administrator, Heritage International Fund Managers Limited.

In establishing our overall audit approach we assessed the risk of material misstatement taking into account the likelihood, nature and potential magnitude of any misstatement. As part of this risk assessment we considered the Company's interaction with the General Partners, Consultant and the Administrator. We assessed the control environment in place at the Consultant and the Company Administrator to the extent that it was relevant to our audit. Following this assessment, we applied professional judgement to determine the extent of testing required over each balance in the financial statements.

Our assessment of risks of material misstatement and an overview of the scope of our audit

In arriving at our audit opinion above on the financial statements, the risk of material misstatement that had the greatest effect on our audit was the valuation of the investments in Limited Partnerships.

The value of the investments in the Limited Partnerships are based on the value of the Limited Partner capital and loan accounts within each Limited Partnership as reported by the respective General Partner.

Given the significance of the valuation of the Limited Partnerships we obtained and audited the significant components of the underlying limited partnerships which formed the capital and loan accounts. The most significant component of which is the underlying investments.

This risk is further discussed in the Audit Committee report.

Underlying investments

As detailed in the summary of accounting policies in Note 2 and the audit committee report, the underlying investee companies, which are unquoted entities, are measured at fair value, which is established in accordance with the International Private Equity and Venture Capital Valuation Guidelines by using measurements of value such as price of recent orderly transactions, earnings multiples and net assets.

There is a significant risk over the valuations of these investments and this is one of the key judgemental areas that our audit focussed on.

Our procedures included:

· enquiry of the consultant to document and assess the design and implementation of the investment valuation processes and controls in place;

· challenging the Consultant on key judgements affecting investee company valuations in the context of observed industry best practice and the provisions of the International Private Equity and Venture Capital Valuation Guidelines.

· In particular, we focused on the appropriateness of the valuation basis selected as well as the underlying assumptions, such as discount factors, and the choice of benchmark for earnings multiples.

· We compared key underlying financial data inputs to external sources and investee company audited accounts and management information as applicable. We challenged the assumptions around sustainability of earnings based on the plans of the investee companies and whether these are achievable.

· Where a recent transaction is used to value any holding, we obtained an understanding of the circumstances surrounding those transactions and whether they were considered to be on an arms-length basis and suitable as an input into a valuation.

· Our work included consideration of events which occurred subsequent to the year end up until the date of this audit report; attending the year end audit committee meeting where we assessed the effectiveness of the audit committee's challenge and approval of unlisted investment valuations.

Matters on which we are required to report by exception

We have nothing to report in respect of the following:‑

Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:

· materially inconsistent with the information in the audited financial statements; or

· apparently materially incorrect based on, or materially inconsistent with, our knowledge of the company acquired during the course of performing our audit; or

· is otherwise misleading.

In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the directors' statement that they consider the annual report to be fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed.

Under the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

· proper accounting records have not been kept by the company; or

· the financial statements are not in agreement with the accounting records; or

· we have failed to obtain all the information and explanations, which, to the best of our knowledge and belief, are necessary for the purposes of our audit.

Under the Listing Rules we are required to review:

· the part of the Corporate Governance Statement relating to the company's compliance with the nine provisions of the UK Corporate Governance Code specified for our review.

Justin Marc Hallett FCA

For and on behalf of BDO Limited

Chartered Accountants and Recognised Auditor

Place du Pré

Rue du Pré

St Peter Port

Guernsey

29 July 2014

Statement of Financial Position

As at 31 March 2014

The audited financial statements of the Company were approved and authorised for issue by the Board of Directors on 29July 2014 and signed on their behalf by:

Richard Crowder Richard Battey

Chairman Director

Notes 1 to 14 form an integral part of the Company financial statements.

Statement of Comprehensive Income

For the year ended 31 March 2014

All activities derive from continuing operations.

Notes 1 to 14 form an integral part of the Company financial statements.

Statement of Changes in Equity

For the year ended 31 March 2014

Notes 1 to 14 form an integral part of the Company financial statements.

Statement of Cash Flows

For the year ended 31 March 2014

Notes 1 to 14 form an integral part of the Company financial statements.

Notes to the Audited Financial Statements

For the year ended 31 March 2014

1. General information

Better Capital PCC Limited (formerly Better Capital Limited) was a non-cellular company limited by shares, which was incorporated on 24 November 2009 in Guernsey and which, by special resolution of its members, converted to a protected cell company on 12 January 2012 and on that same day changed its name.  It has an unlimited life and is registered with the Commission as a Registered Closed-ended Collective Investment Scheme pursuant to the POI Law.

The registered office of the Company is Heritage Hall, PO Box 225, Le Marchant Street, St Peter Port, Guernsey, GY1 4HY.

The Company maintains a separate cell account for each class of shares, to which the capital proceeds of issue and the income arising from the investment of these proceeds in the respective Fund are credited, and against which the expenses allocated are charged. In any redemption, shareholders are only entitled to their proportion of the net assets held in the cell relating to the particular shares.

The Company currently has two cells: 2009 Cell and 2012 Cell. The financial results for each cell can be found in the relevant section below.

Further information regarding the background of the Company is detailed in the Company Background and further information section.

2. Accounting policies

Basis of preparation

The financial statements for the year ended 31 March 2014 have been prepared in accordance with EU Adopted IFRS and with the provisions of the Companies (Guernsey) Law, 2008.

The principal accounting policies adopted are set out below.

Standards, interpretations and amendments to published standards adopted in the period

IFRS 13 Fair Value Measurement, which has only impacted disclosures (Notes 4 & 5), is mandatory for accounting periods beginning on or after 1 January 2013 and has been adopted in the financial statements:

New and revised standards

At the date of authorisation of these financial statements, the following standards and interpretations, which have not been applied in these financial statements, were issued but not yet effective (and in some cases had not yet been adopted by the EU) and are relevant to the financial statements of the Company:

· IFRS 9: Financial Instruments - IFRS 9 replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. The Company will adopt IFRS 9 no later than the accounting period beginning on or after 1 January 2018 (still to be endorsed). This is not expected to have a material effect on the financial statements.

· IFRS 10: Consolidated financial statements - IFRS 10 provides additional guidance to assist in the determination of control where this is difficult to assess. The Company intends to adopt IFRS 10 in the next accounting period. No impact is expected due to the structure of the Company's investments. This is not expected to have a material effect on the financial statements.

· IFRS 12: Disclosure of Interests in Other Entities - the Directors are currently making a detailed assessment of the impact that IFRS 12 will have on the Company's financial statements.

The Company has not adopted early any standards, amendments and interpretations to existing standards that have been published and will be mandatory for the Company's accounting periods beginning on or after 1 April 2014 or later periods.

Foreign currencies

The functional currency of the Company is Pounds Sterling reflecting the primary economic environment in which the Company operates.

The presentation currency for financial reporting purposes is Pounds Sterling.

Financial instruments

Financial assets and financial liabilities are recognised in the Company's statement of financial position when the Company becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are only offset and the net amount reported in the statement of financial position and statement of comprehensive income when there is a currently enforceable legal right to offset the recognised amounts and the Company intends to settle on a net basis or realise the asset and liability simultaneously.

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 requirements of the financial asset.

The Company's financial assets comprise of only loans and receivables and investments held at fair value through profit or loss.

a) Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They principally comprise trade and other receivables and cash and cash equivalents. They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition, and subsequently carried at amortised cost using the effective interest rate method, less provisions for impairment. The effect of discounting on these financial instruments is not considered to be material.

b) Investments at fair value through profit or loss

i. Classification

The Company's investments in Fund I and Fund II are accounted for as financial assets rather than consolidated as the Company has no substantive removal rights over the General Partner and the wide ranging discretion in respect of the investments made by those funds. The investments in Fund I and Fund II were designated as financial assets at fair value through profit or loss on initial recognition as this is the way in which the Company manages and evaluates the performance of those assets. As described further in Notes 4 & 5 the Company has invested its funds into Funds I and II with the principal objective of benefiting from capital gains arising from the Funds' activities in investing in and turning round distressed businesses.

ii. Recognition

Purchases and sales of investments are recognised on the trade date - the date on which the Company commits to purchase or sell the investment.

iii. Measurement

The investments in Fund I and Fund II were initially recognised at cost, being the fair value of consideration given.

Investments treated as "financial assets at fair value through profit or loss" are subsequently measured at fair value. Fair value is defined as the amount for which an asset could be exchanged between knowledgeable willing parties in an arms length transaction.

iv. Fair value estimation

The valuation techniques used are detailed in Note 5.

c) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments with an original maturity of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

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 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.

The Company's financial liabilities consist of only financial liabilities measured at amortised cost.

Capital

Financial instruments issued by the Company are treated as equity if the holder has only a residual interest in the assets of the Company after the deduction of all liabilities. The Company's shares are classified as equity instruments.

The Company considers its capital to comprise the 2009 Shares, 2012 Shares, Core Shares, share capital and retained earnings. There has been no change in what the Company considers to be capital since incorporation other than as part of the Conversion to a PCC. The Company is not subject to any externally imposed capital requirements.

Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from proceeds and include those incurred in connection with the placing and admission which include fees payable under the Placing Agreement, legal costs and any other applicable expenses.

Income

Interest income is recognised on a time apportioned basis using the effective interest method.

Income distributions

Income distributions are recognised when the Company becomes entitled to those receipts.

Other expenses

Other expenses are accounted for on an accruals basis.

Going concern

After making appropriate enquiries, the Directors have a reasonable expectation that the Company, and in turn Fund I and Fund II, have adequate resources to continue in operational existence for the foreseeable future and do not consider there to be any threat to the going concern status of the Company. For this reason, they continue to adopt the going concern basis in preparing these financial statements.

Critical accounting judgment and estimation uncertainty

Use of estimates and judgements

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.

The critical accounting judgment and estimation uncertainty for the 2009 Cell and 2012 Cell are stated in the respective 2009 Cell and 2012 Cell financial statements below.

Taxation

The Company and Cells are exempt from taxation in Guernsey and are charged an annual exemption fee of £600.

3. Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors, as a whole. The key measure of performance used by the Board to assess the Company's performance and to allocate resources is the total return on the Company's net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.

For management purposes, the Company is organised into two main operating segments, being the 2009 Cell and the 2012 Cell. Full details of the 2009 Cell's and 2012 Cell's results are shown in the respective 2009 Cell and 2012 Cell financial statements below.

4. Investment in Limited Partnerships

Total Investment:

The movement in fair value is derived from the fair value movements in the underlying investments held by Fund I and Fund II, net of income and expenses of Fund I and Fund II and their related special purpose vehicles.

The outstanding loans do not incur interest. The loans are expected to be repaid by way of distributions from the Funds. The Company is not entitled to demand repayment of the outstanding loans, however, the General Partner may, upon request by the Company, repay to the Company any amount of the outstanding loan; during the year £12.4 million was repaid to the Company by Fund I (2013: £12.8 million).

Distributions receivable from the Funds in the year amounted to £0.8 million (2013: £0.8 million), of which £0.8 million (2013: £0.8 million) remains outstanding at the year end, which have been allocated as income based on discretionary allocation powers of the respective General Partners of the Funds as set out in the respective Limited Partnership Agreements.

In the financial statements of the Company, the fair value of the investments in limited partnerships are adjusted to reflect the fair value of the Cell's attributable valuation of net assets within Fund I and Fund II, as seen in more detail in Note 5.

5. Fair Value

The level in the fair value hierarchy within which the financial assets or financial liabilities are categorised is determined on the basis of the lowest level input that is significant to the fair value measurement.

Financial assets and financial liabilities are classified in their entirety into only one of the three levels.

The fair value hierarchy has the following levels:

- Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities.

- Level 2 - inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

- Level 3 - inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

The only financial instruments carried at fair value are the investments which are fair valued at each reporting date.

The Company's investments have been classified within Level 3 as they have unobservable inputs and are not traded. Amounts classified under Level 3 for the period are £233,442,000 for Fund I (31 March 2013: £276,667,000) and £373,973,000 for Fund II (31 March 2013: £173,423,000), much of which was cash held by Fund II, £222.9 million (2013: £99.0 million).

Transfers during the year

There have been no transfers between levels. Due to the nature of the investments, they are always expected to be classified under Level 3.

Valuation techniques

The value of the Cells investments in the Funds is based on the value of each Cell's limited partner capital and loan accounts within each Fund. This is based on the components within the Funds, principally the value of the underlying investee companies. Any fluctuation in the value of the underlying investee companies will directly impact on the value of the Company's investment in the Funds.

When valuing the underlying investee companies, the GPs of each Fund reviews information provided by the underlying investee companies and other business partners and applies IPEV methodologies, to estimate a fair value as at the date of the statement of financial position.

Initially acquisitions are valued at price of recent investment. Once maintainable earnings can be identified the preferred method of valuation is the earnings multiple valuation technique, where a multiple that is an appropriate and reasonable indicator of value (given the size, risk profile and earnings growth prospects of the underlying company) is applied to the maintainable earnings of the company. Occasionally other methods, as deemed suitable by the GPs, may be used, such as revenue or gross profit multiples, net assets, break-up value or discounted cash flows.

The Board reviews and considers the fair value arrived at by the GPs before incorporating into the fair value of the investment adopted by the Company. The variety of valuation bases adopted, quality of management information provided by the underlying investee companies and the lack of liquid markets for the investments mean that there are inherent difficulties in determining the fair value of these investments that cannot be eliminated. Therefore the amounts realised on the sale of investments may differ from the fair values reflected in these financial statements and the differences may be significant.

Where the price of recent investment is determined to be the most appropriate methodology the transactional price will be that of the investment by Fund I or Fund II. The Omnico, Jaeger and City Link investments are carried at the price of recent investment. Due to the position in the turnaround cycle of these investee companies, interest receivable on loans advanced by the Funds will only be recognised when it is deemed more likely than not that the interest will be paid. As at 31 March 2014 such unrecognised interest receivable amounted to £16.6 million (31 March 2013: £2.1 million) (Note 2 - Investments in Fund I and Fund II).

The significant unobservable inputs in the 2009 Cell and in the 2012 Cell are shown in the respective 2009 Cell and 2012 Cell financial statements below.

6. Cash and cash equivalents

These comprise cash held by the Company and short-term bank deposits available on demand. The carrying amounts of these assets approximate their fair value.

Interest income of £6,000 (2013: £8,000) arose from assets classified as loans and receivables (including cash and cash equivalents) and has been calculated using the effective interest rate method. There are no other gains or losses on loans and receivables other than the interest income.

There is no interest payable and therefore the interest income represents the total interest income and interest expense for financial assets or financial liabilities that are not at fair value through profit or loss.

7. Trade and other receivables

There are no past due or impaired receivable balances outstanding at the year end. The Directors consider that the carrying value of trade and other receivables approximate their fair value.

In outstanding debtors at the year end £0.8 million (2013: £0.8 million) relates to income distributions receivable from the Funds (Note 2).

8. Trade and other payables

Trade and other payables principally comprise amounts accrued in respect of costs incurred in the normal course of business. The carrying amount of trade payables approximates to their fair value. The Company's management seeks to ensure that the payables are paid within the credit time frames.

There are no gains or losses on financial liabilities measured at amortised cost.

9. Share capital

Core Shares

Year ended 31 March 2014

Year ended 31 March 2013

Cell Shares

Year ended 31 March 2014

Year ended 31 March 2013

Authorised:

The Cells are authorised to issue unlimited shares at nil par value.

During the year the 2009 Cell made a second distribution of capital of 6.0 pence per ordinary share to Shareholders of the 2009 Cell as at the ex-date of 3 April 2013. In line with the first distribution, this distribution of £12.4 million will be treated by the Company as a reduction of share capital. The distribution was paid on 19 April 2013.

The two capital distributions (reductions of share capital) announced to date for the 2009 Cell total £26.5 million, being 12.6 per cent. of funds raised.

On 13 August 2013 a total of 176,738,625 shares were issued in 2012 Cell under the Firm Placing and Placing and Open Offer raising gross proceeds of £185.6 million. Following Admission the Better Capital 2012 Cell consisted of 346,600,520 shares.

On 31 July 2013, at the Annual General Meeting, the Shareholders of the 2009 Cell and the 2012 Cell approved by ordinary resolution the re-designation of the 2009 Cell and 2012 Cell shares to par value of £1 (31 March 2013: nil par value).

Principal members of Better Capital LLP, the appointed Consultant to the Fund I GP and Fund II GP, which act as General Partners to Fund I and Fund II, respectively, hold investments in the Company in accordance with the terms of the Prospectus. At the year end, those members held the following proportions of shares:

*Shareholding is held through a discretionary trust in favour of Nick Sanders' children

10. Retained earnings

Any surplus/deficit arising from the net profit/loss for that period is taken to the revenue reserve which may be utilised for payment of dividends.

11. Related party transactions

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the party in making financial or operational decisions. The Directors are responsible for overall control, management and supervision of the Company's affairs and are responsible for the overall implementation of the investment objective and policy of the Company.

Directors

The Company has four non-executive Directors, all independent of the Administrator. Mr Moulton is also a director of BECAP GP Limited, the general partner of the Fund I GP and BECAP12 GP Limited, the general partner of the Fund II GP.

Annual remuneration terms for each Director are as follows: the Chairman receives £60,000, the chairman of the audit committee receives £52,500, the chairman of the management engagement, nomination and remuneration committee receives £50,000 and the other non-executive director receives £45,000.

Directors' fees and expenses for the year to 31 March 2014 amounted to £187,000 (2013: £208,000), of which £52,000 (2013: £52,000) was outstanding at the year end.

The Director's also received additional fees totalling £17,500 in respect of additional services rendered on the fund raising for 2012 Cell. The additional Director's fees have been taken to the share capital account.

Administrator

The Administrator ("HIFM") has been appointed to provide day to day administration and secretarial services to the Company as set out in the Administration Agreement.

Prior to Conversion, in consideration for its services, the Administrator received an annual fee of 0.10 per cent. of the net asset value (subject to a minimum of £75,000 and a maximum of £175,000), for administration, company secretarial and corporate governance services.

After the Conversion to the PCC, the Administrator receives an annual fee, subject to an overall cap of £250,000 per annum as a whole, of

i) an ad valorem fee of 0.10 per cent. of the Net Asset Value per annum of the first £100.0 million and 0.05 per cent. thereafter of each of 2009 Cell and 2012 Cell subject to a minimum fee of £75,000 per annum per Cell; and

ii) a fee of £5,000 per annum in respect of the Core.

HIFM also receives £5,000 per annum and £2,500 per annum for the provision of the Company's Compliance Officer and Money Laundering Reporting Officer respectively.

HIFM also receives £5,000 per annum for the provision of the client relationship director fee.

These fees shall apply from the date of Conversion and shall remain in force for a period of 24 months thereafter before becoming eligible for review between the parties.

All reasonable costs and expenses incurred by the Administrator in accordance with this Agreement are reimbursed to the Administrator quarterly in arrears.

During the year, the Company incurred administration fees of £265,000 (2013: £250,000) apportioned on a NAV basis between the Cells. £67,000 (2013: £63,000) remained outstanding as at the year end.

12. Financial risk management

Financial risk management objectives

The Company's investing activities, through Fund I and Fund II and their special purpose vehicles, intentionally expose it to various types of risk that are associated with the investee companies in which it invests in order to generate returns in accordance with its investment policy and objectives. The most important types of financial risk to which the Company is exposed are market risk, liquidity risk and credit risk. The Board of Directors has overall responsibility for the determination of the Company's risk management and sets policy to manage that risk at an acceptable level to achieve those objectives. The policy and process for measuring and mitigating each of the main risks are described below.

The Corporate Broker and the Administrator provide information to the Company which allows it to monitor and manage financial risks relating to its operations through internal risk reports which analyse exposures by degree and magnitude of risks. The Corporate Broker and the Administrator report to the Board on a quarterly basis.

Categories of financial instruments

Capital risk management

The Company's objectives when managing capital are to safeguard the Company's abilityto continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an effectivecapital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company may; return capital to shareholders, adjust the amount of distributions paid to shareholders, issue new shares or sell assets to reduce debt.

During the year ended 31 March 2014, the Company had no borrowings other than trade and other payables (2013: £nil). The Company had sufficient cash and cash equivalents to pay these as they fell due.

Market risk

Market risk includes price risk, foreign currency risk and interest rate risk.

(a) Price risk

Price risk arises from uncertainty about future prices of financial investments held. The Company invests through Fund I and Fund II. The underlying investments held by Fund I and Fund II present a potential risk of loss of capital to the Funds and hence to the Company.

The Funds are exposed to a variety of risks which may have an impact on the carrying value of the Company's investment in the Funds. The Funds' risk factors are addressed below.

· The Funds' investments are not traded in an active market but are indirectly exposed to market price risk arising from uncertainties about future values of the investments held. The underlying investments of the Funds vary as to industry sector, level of distress, geographic distribution of operations and size, all of which may impact the susceptibility of their valuation to uncertainty.

This risk is managed by an investment strategy that diversifies the investments in terms of geography, financing stage or industry and through careful selection of investments within the specified limits of the relevant investment policy. The investments are monitored on a regular basis by the Fund GPs.

In accordance with the Company's accounting policies the investments in the Funds, and indirectly the investments in investee companies through special purpose vehicles, have been valued at fair value.

Sensitivity analysis has been undertaken in respect of those investment valuations applying earnings multiples. See the Cells Note 5.

· Concentration in an investment portfolio can have opposing effects on the credit risk of a portfolio.

A low number of investments in a portfolio, or high concentration, reduces risk due to better knowledge and information whilst a higher portfolio concentration in a certain sector of; industry, level of distress, geographic distribution of operations or size increases sector concentration and the risk of the portfolio.

Conversely a high number of investments and lower concentration can reduce the credit risk of the portfolio but may limit availability of resources and flexibility.

The level of analytical sophistication, both financial and legal, necessary for successful investment in businesses experiencing significant operating issues and associated financial distress is unusually high. Accordingly the Funds each have a low number of investments and thus a high concentration. This allows sufficient resources to be allocated to each investment.

The Fund GPs monitor the concentration of each investment in each of the Funds to ensure compliance with their investment policies.

In Fund I no single investment will be more than 20 per cent. of Fund I Total Commitments.

In Fund II no single investment will be more than 30 per cent. of Fund II Total Commitments..

· The Funds' indirect foreign currency risk, primarily with the Euro and United States Dollar, arising from the overseas operations of the underlying portfolio investments. The investee companies' management monitor options for hedging against adverse exchange rate movements. The clear majority of the transactions made by the Funds have been denominated in Sterling and accordingly the Fund GPs do not consider foreign exchange risk to be significant at this stage.

· The Funds' underlying investments are dynamic in nature and the Funds aim to maintain flexibility in funding by keeping sufficient liquidity in cash and cash equivalents which may be invested on a temporary basis in:

· cash or cash equivalents, money market instruments, bonds, commercial paper or other debt obligations with banks or other counterparties having a "single A" or higher credit rating as determined by any reputable rating agency selected by the Fund GPs; and

· any "government and public securities" as defined for the purposes of the FCA Rules.

The aggregate amount deposited or invested with any single such bank or other counterparty (including their associates) or in government and public securities of any single issue, shall not exceed £35.0 million for Fund I and £50.0 million for Fund II.

As at 31 March 2014, £227.9 million (2013: £120.3 million) or 36.1 per cent. (2013: 31.5 per cent.) of the Funds financial assets were cash balances held on deposit with several A, or higher rated, banks.

The Funds do not follow an over-commitment policy.

(a) Foreign currency risk

The Company has no direct foreign currency risk since all assets and transactions to date have been denominated in Sterling, the Company's functional and reporting currency.

(b) Interest Rate Risk

The Company's exposure to interest rate risk relates to the Company's cash and cash equivalents. The Company is subject to risk due to fluctuations in the prevailing levels of market interest rates. Any excess cash and cash equivalents are invested at short-term market interest rates. As at the date of the statement of financial position the majority of the Company's cash and cash equivalents were held on interest bearing fixed deposit accounts.

The Company has no other interest-bearing assets or liabilities as at the reporting date. As a consequence, the Company is only exposed to variable market interest rate risk. The Board does not expect any significant change in interest rates that would have a material impact on the financial performance of the Company in the near future.

Liquidity risk

Ultimate responsibility for liquidity risk management rests with the Board of Directors.

Liquidity risk is defined as the risk that the Company may not be able to settle or meet its obligations on time or at a reasonable price.

The Company adopts a prudent approach to liquidity management and through the preparation of budgets and cash flow forecasts maintains sufficient cash reserves to meet its obligations.

Financial liabilities consist of trade and other payables.

The following table details the Company's expected maturity for its financial liabilities: 

Credit risk

Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Company.

The Company's principal financial assets are the investments in Fund I and Fund II and as a consequence the Company has a significant credit risk if the Funds fail.

The carrying value of the investment in Fund I as at 31 March 2014 was £233.4 million (2013: £276.7 million).

The carrying value of the investment in Fund II as at 31 March 2014 was £374.0 million (2013: £173.4 million).

Financial assets mainly consist of cash and cash equivalents and investments at fair value through profit or loss. The Company's risk on liquid funds is minimised because the Funds can only deposit monies with institutions with a minimum credit rating of "single A". The Company mitigates its credit risk exposure on investments at fair value through profit or loss by the exercise of due diligence on the counterparties of Funds and their General Partners. The investment risk is managed by an investment strategy that diversifies the investments in terms of financing stage, industry or time.

The investment objectives, policy and restrictions of the Funds are set out in their respective Partnership Agreements and cannot be varied without an amendment to the relevant Partnership Agreement, which would require the consent of all the Partners including the Company.

The table below shows the material cash balances and the credit rating for the counterparties used at the year end date:

The Company's maximum exposure to loss of capital at the year end is shown below: