Last checked at 
8 Mar 2010 17:53
Maven Income and Growth VCT 3 PLC
Annual Financial Report for the year ended 30 November 2009
The Directors announce the audited Annual Financial Report for the year ended 30 November 2009 as follows.
The economic downturn precipitated by the events in the credit markets of the latter half of 2007 has persisted throughout the reporting period but, despite this, capital markets have recovered at least some of the value that they lost in earlier periods.
The majority of the portfolio is invested in private companies which remain largely unaffected in economic value by the sharp changes we have witnessed in equity-related indices, although our valuations of them have to reflect the lower ratings put on comparable quoted companies. Our unlisted portfolio has weathered the economic downturn comparatively well although earnings in a few cases have inevitably come under some pressure. The majority of investee companies have managed their cash within their existing facilities and in most cases have continued steadily to reduce their net borrowings to conservative and manageable levels. There have been only a few cases where additional funding has had to be provided by the Company.
Despite the continuing economic difficulties and general lack of activity in the M&A market, the Manager successfully concluded the profitable disposal of two unlisted investments during the year.
The major features of the year are:
·; Total Return on Ordinary shares 95.85p per share at year end, up 1.3% over the year
·; Net Asset Value (NAV) of Ordinary shares at year end of 77.4p per share
·; Two successful exits from unlisted companies during the year contributing net gains of 3.0p per Ordinary share.
·; Net realised losses from AIM stocks of 0.6p per Ordinary share for the year
·; Final Dividend proposed of 2.5p per Ordinary share, making 4.0p for the year
Performance
The Total Return per Ordinary Share at 30 November 2009 was 95.85p, an increase of 1.3% over the equivalent figure at November 2008. This was achieved substantially by a gain of 3.0p per share derived from the successful disposal of Funeral Services Partnership and Cyclotech, the latter at 3.2 times cost, set against a modest loss on the disposal of some AIM listed holdings. There was little opportunity to trade AIM stocks but net losses of £165,000 arose from disposals where little upside was perceived or the exit was forced by corporate activity. The values of holdings in six unquoted companies were written down by your Board in response to the adverse economic climate, principally in Countcar and THL Midlands, partly countered by a modest increase in the valuation of Oliver Kay. On AIM we saw a modest recovery in the value of the portfolio.
The most important measure for a VCT is the total return, being the long term record of dividend payments out of income and capital gains combined with the current NAV. In the short term, the NAV on its own is a less important measure of the performance as the underlying investments are long-term in nature and not readily realisable.
Your Board has been concerned about the wide discount to NAV in the Company's share price following the downturn in financial markets, and we have decided to take some measures to narrow it. We have appointed a new broker, Shore Capital, to stimulate more activity in the market, and a modest improvement in share price has been achieved. However, we consider the reduced level of discount still to be too wide and we propose shortly to reintroduce a modest buyback programme in the expectation of balancing the discount at a level which will be fairer to those shareholders wishing to dispose of their shares. We expect also to be able to preserve the overall value of the Trust through the occasional issue of new shares at NAV such as the Maven VCTs' linked offer, launched in January and open until April.
Looking forward, we believe that the impending increase in the top rate of Income Tax to 50% will further enhance the attractions of tax-free income from VCTs for high earners and help further to improve market liquidity as investors come to recognise traded VCT shares as a useful and relatively reliable source of yield.
Dividends
The Company paid an interim dividend of 1.5p per share to Shareholders on 25 August 2009. The Board is now proposing a final dividend of 2.5p per Ordinary Share to be paid on 26 May 2010 to shareholders on the register on 7 May 2010. Since the Company's launch, and after receipt of the final dividend, Ordinary shareholders will have received 20.95p per share in tax-free dividends. The effect of paying the proposed final dividend of 2.5p per share will be to reduce the NAV to 74.9p per share.
For investors in the original offers of Ordinary Shares and C Ordinary Shares, in order to calculate the yield on the effective cost of investment it is necessary to take account of both the initial tax relief available at the time of investment and the tax relief on dividends paid. For investors in the original Ordinary Share issue who pay tax at the higher rate of 40%, the 2009 dividend of 4.0p per share is equivalent to a yield of 6.7% once the initial tax relief of 20% is taken into account. When the new 50% rate of tax is introduced in April this year, a 4p dividend will represent a yield of 7.8% and on a similar basis.
Investors in the original offer of C Ordinary Shares, which have been converted to Ordinary shares, also need to take account of the conversion factor of 1.185 in order to determine the yield on their effective cost of investment. At a 40% higher rate of tax, a 4p dividend represents a yield of 10.5% to a shareholder who invested in the original C share issue; when the 50% rate of tax is implemented, that yield will rise to 12.4%.
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| Investors in Ordinary share issue | Investors in C Ordinary share issue | ||
| 40% tax | 50% tax | 40% tax | 50% tax | |
| Dividend of 4.0p per Ord share, taking account of C share conversion |
4.0p
|
4.74p*
| ||
| Gross dividend equivalent | 5.3p | 6.3p | 6.3p | 7.4p |
| Effective cost of investment per share after initial tax relief |
80p** |
60p*** | ||
| Yield on effective cost of investment **** | 6.7% | 7.8% | 10.5% | 12.4% |
* Dividend per Ordinary share multiplied by conversion factor of 1.185
** 100p issue price less 20% initial tax relief
*** 100p issue price less 40% initial tax relief
**** Gross dividend equivalent divided by effective cost of investment after initial tax relief
VCT Qualifying Status
The Company is required to meet the 70% qualifying and other tests on a continuous basis. The Board regularly reviews the status of the criteria that have to be met to continue to qualify as a VCT and I am pleased to confirm that all tests continue to be met.
Investment Strategy
The economic downturn has had a significant effect on the markets, the most relevant for a VCT being constraints of bank debt to provide leverage to help finance smaller company transactions. Notwithstanding this wider market malaise, the Company continues to see good opportunities for investment on terms which offer strong yield characteristics. Our strategy is therefore to continue to build the portfolio of private companies with only limited investment in the AIM market where returns have been volatile and liquidity remains poor. As our Company is not subject to the more stringent regulations more recently affecting VCTs the Manager intends to continue to structure the majority of investments using income producing, secured loan stock instruments. This has the dual advantage of providing security for part of the investment and generating yield for distribution to shareholders.
Additional information on investment policy, including statements concerning asset mix, the spread of risk and maximum exposures is contained in the Directors' Report.
Valuation Process
Investments held by Maven Income and Growth VCT 3 in unquoted companies are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Investments quoted or traded on a recognised stock exchange including the Alternative Investment Market (AIM) are valued at bid price.
Portfolio Developments
Details of all investments and divestments during the course of the year are shown in the tables on pages 9 and 11. Subsequent to the year-end the Company has made a further unquoted sale and a part-disposal on AIM. The former was sold at its carrying value and the latter for a small profit.
Since the year-end, the Company has invested £298,000 in Intercede (Scotland) 1 Limited, which designs and supplies rig control and monitoring systems, and £250,000 in Tosca Penta Insurance LP, a limited partnership that acquired the esure group of companies, whose portfolio of insurance brands includes esure, Sheilas' Wheels and GoCompare.com. The Company has also participated in the equity financing of the acquisition of Litcomp Plc by Torridon Capital, the bidco set up to facilitate the transaction, and has two new major unquoted investments under negotiation on terms which are considered to be more attractive than those available before the difficulties in the credit markets emerged. The Company has more than sufficient cash resources in hand for this purpose. However, if the Manager continues to identify good quality and yield bearing opportunities for further investment, the Board may elect to take advantage on a selective basis of its ability to borrow up to 15% of Net Asset Value in pursuit of the investment strategy.
The Manager and Change of Company Name
Following the management buy-out of Aberdeen Asset Management's VCT business by its management team in June 2009 the Company novated the Investment Management Agreement to Maven Capital Partners UK LLP, the new partnership established by the Manager to succeed Aberdeen Asset Management. As a consequence, the shareholders agreed on 24 November 2009 to change the name of the Company from Aberdeen Growth Opportunities VCT to Maven Income and Growth VCT 3.
Recovery of VAT
We continue our efforts to recover from Aberdeen Asset Managers ("AAM") the VAT paid on management fees for the period from inception of the Company to October 2008, when a European Court ruling dictated that such fees were exempt from VAT. AAM have so far declined to refund any of the tax paid, on the basis that they have first to complete a wider negotiation of their VAT affairs with HMRC. Whilst this continues to be a source of some frustration to Manager and Board alike we have no reason to believe that the sum of £193,000 accrued in last year's accounts is at risk, and we expect in due course to recover at least this amount for the Company.
Co-Investment Scheme of the Manager
The co-investment scheme which allows executive members of the Manager to invest alongside the Company continued in operation during the year. The scheme operates through a nominee company which invests alongside the Company in each and every transaction made by the Company, including any follow-on investments. The scheme more closely aligns the interests of the executives and the Company's shareholders while providing an incentive to enable the Manager to retain the existing skills and capacity of the Manager's investment team in a competitive market.
The Future
The Manager remains committed to sourcing and structuring new private company transactions which offer attractive entry prices and strong yield characteristics with the clear objective of maximising the revenue and capital profits available to distribute to shareholders. The existing portfolio is highly diversified by both value and sector exposure and consequently is well positioned to benefit from improvement in the economy as the UK emerges from recession. History has shown that investments made during the latter stages of an economic downturn have gone on to provide superior returns and your Board looks forward with confidence to the future.
Investment Manager's Review
Investment Activity
During the year ended 30 November 2009, private company transactions were available at more advantageous entry prices than in recent years. Seven significant unlisted investments were completed and a total of £2.97 million was invested. At the year end, the portfolio stood at 73 unlisted and AIM investments at a total cost of £18.2 million.
The following new investments have been completed during the year.
| Investment | Date | Sector | Investment cost £'000 | Website |
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| Unlisted |
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| Adler and Allan | Jul-09 | Chemicals | 106 | www.adlerandallan.co.uk |
| Ailsa Craig Capital | Nov-09 | Diversified Industrials | 249 | no website available |
| Dalglen (1150) trading as Walker Technical Resources | Jun-09 | Oil and Gas | 487 | www.wtr.mk.com |
| Dunning Capital | Nov-09 | Information Technology | 249 | no website available |
| Lawrence Recycling and Waste Management | Jan-09 | Support Services | 622 | www.lawrenceskiphire.co.uk |
| Shiskine Capital | Nov-09 | Transport | 249 | no website available |
| Steminic | Dec-08 | Oil and Gas | 112 | www.msis.uk.com |
| Westway Services | Jun-09 | Support Services | 547 | www.westwaycooling.co.uk |
| Others |
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| 198 |
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| Total Unlisted investment |
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| 2,819 |
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| Total AIM/PLUS investment |
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| 165 |
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| Total |
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| 2,984 |
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Since 30 November 2009, one further new investment into an established and highly profitable oil & gas service company has been completed where the Company has subscribed £0.3 million. The Manager has also announced its first ever public to private transaction, forming Torridon Capital Limited to buy Litcomp PLC, a quoted insurance business listed on AIM, and an investment in Tosca Penta Insurance LP, the vehicle which acquired the esure group of companies. The Manager also has several other well priced and defensive transactions under advanced negotiation, all of which offer an attractive running yield.
The well publicised difficulties in the credit markets have created an environment where attractive private companies are seeking funds from alternative sources, and generalist VCTs are well placed to benefit from this changing market dynamic. Maven operates a national network of private equity offices and believes this regional presence allows it to source some of the best investment opportunities available in the UK in this defined market space.
The Manager will continue to reduce the Company's exposure to AIM, where returns have proved to be volatile and liquidity uncertain. Consequently, as liquidity and pricing permits, it is expected that the AIM portfolio will be reduced and realised proceeds will be reinvested in higher yielding private company transactions where historically more predictable and better returns have been achieved by the Manager across its UK network.
Maven Income and Growth VCT 3 has co-invested with Maven Income and Growth VCT, Maven Income and Growth VCT 2, Maven Income and Growth VCT 4, Talisman First Venture Capital Trust and Ortus VCT (formerly Guinness Flight Venture Capital Trust) in some or all of the above transactions and is expected to continue to do so with these as well as other clients of the Manager. The advantage is that, together, the funds are able to underwrite a wider range and size of transaction than would be the case on a stand alone basis.
Portfolio Developments
There were two successful realisations from the unlisted portfolio during the year; Funeral Services Partnership was sold for proceeds of £975,000 plus income and redemption premium amounting to £319,000 paid on exit which compares favourably to the cost of £845,000. The investment produced income and proceeds totalling 1.53 times cost, resulting in an overall gain of £449,000. In addition, clients of Maven (including the Company) retained a non dilutive stake in the business which is set to benefit from substantial investment from its new owners as it seeks to become one of the largest independent operators of funeral services in the UK.
Silkwater Holdings (which traded as Cyclotech) was also sold for proceeds of £1,101,000, including income over the life of the investment of £17,000 thereby achieving a healthy overall return of 3.2 times cost and an overall gain of £880,000. In the case of Cyclotech a commercial agreement has been reached with the multinational purchaser whereby the vendors (including the Company) may receive further consideration related to the level of future revenues.
In addition to the above, reflecting the increasing maturity of the unlisted portfolio, repayments of loan stock were received from a number of investee companies as shown on the table on page 11. Two companies which had previously been fully written down in earlier years were struck off the Register during the year resulting in a realised loss but this had no effect on the stated NAV.
Opportunities to invest in new IPOs on the AIM Market were significantly reduced during the year and no such investments were made. The opportunity was taken to sell holdings where the Manager perceived limited future upside while in other cases sales were enforced by other corporate events. The AIM quoted businesses in which we are invested are generally continuing to trade profitably and in line with expectations but, in a number of cases their market values bear little or no relation to their underlying profit and cash generation capability.
Outlook
The early signs are that the assets acquired in 2009 will prove to be high quality additions to the portfolio, both in terms of yield and medium term capital gain. Current market conditions are also likely to prevail as debt remains scarce, helping to drive down prices for private company assets. The reduced availability of bank debt for smaller companies remains a significant challenge as it is a critical element in enabling maturing companies to grow their business at a greater rate than would otherwise be achievable.
As economic conditions gradually improve we expect to see an increasing number of investment opportunities in private companies. We will continue to select only those companies which are well managed, sensibly priced and capable of providing a premium yield together with the prospects of a capital gain in the medium to longer term.
| Realisations made during the year |
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| Date first invested | Complete/ Partial Exit | Cost of shares disposed of | Value at 30 November 2008 | Sales Proceeds | Realised Gain /Loss | Gain/(Loss) over November 2008 value |
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| £'000 | £'000 | £'000 | £'000 | £'000 |
| Unlisted |
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| Silkwater (Cyclotech) | 2009 | Complete | 398 | 553 | 1,101 | 703 | 548 |
| Energy Services Investment Company | 2009 | Complete | 547 | 547 | 547 | - | - |
| Funeral Services Partnership | 2009 | Complete | 846 | 1,011 | 975 | 129 | (36) |
| Lime Investments | 2007 | Complete | 74 | 74 | 75 | 1 | 1 |
| Westway Services | 2009 | Partial | 67 | 67 | 67 | - | - |
| Others |
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| 659 | 130 | 136 | (523) | 6 |
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| 2,591 | 2,382 | 2,901 | 310 | 519 |
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| AIM |
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| Avanti Communications | 2009 | Partial | 112 | 114 | 198 | 86 | 84 |
| Concateno | 2009 | Complete | 438 | 400 | 521 | 83 | 121 |
| Craneware | 2007 | Complete | 74 | 119 | 120 | 46 | 1 |
| Essentially | 2007 | Complete | 231 | 118 | 147 | (84) | 29 |
| Gold Frost | 2006 | Complete | 130 | 28 | 26 | (104) | (2) |
| Invocas | 2006 | Complete | 84 | 16 | 25 | (59) | 9 |
| Optare | 2007 | Complete | 132 | 78 | 33 | (99) | (45) |
| Relax Group | 2006 | Complete | 51 | 7 | 9 | (42) | 2 |
| Others |
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| 20 | 18 | 28 | 8 | 10 |
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| 1,272 | 898 | 1,107 | (165) | 209 |
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| Total |
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| 3,863 | 3,280 | 4,008 | 145 | 728 |
| Income Statement |
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| For the year ended 30 November 2009 |
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| Revenue | Capital | Total |
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| Notes | £'000 | £'000 | £'000 |
| Gain on investments | 8 | - | 76 | 76 |
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| Income from investments | 2 | 1,088 | - | 1,088 |
| Other income | 2 | 14 | - | 14 |
| Investment management fees | 3 | (106) | (426) | (532) |
| Other expenses | 4 | (262) | - | (262) |
| Net return/(loss) on ordinary activities |
| 734 | (350) | 384 |
| before taxation |
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| Tax on ordinary activities | 5 | (144) | 89 | (55) |
| Return attributable to equity shareholders | 7 | 590 | (261) | 329 |
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| Return per Ordinary share (pence) |
| 2.15 | (0.95) | 1.20 |
A Statement of Total Recognised Gains and Losses has not been prepared, as all gains and
losses are recognised in the Income Statement.
All items in the above statement are derived from continuing operations. The Company has
only one class of business and derives its income from investments made in shares, securities and bank deposits.
The total column of this Statement is the Profit and Loss Account of the Company.
Reconciliation of Movements in Shareholders' Funds
| For the year ended 30 November 2009 |
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| 'C' |
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| Ordinary | Ordinary |
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| Shares | Shares | Total |
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| Notes | £'000 | £'000 | £'000 |
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| Opening Shareholders' funds |
| 7,830 | 14,240 | 22,070 |
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| Movements in the year |
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| C Ordinary Share conversion into Ordinary Shares | 14,240 | (14,240) | - | |
| Total return for the year |
| 329 | - | 329 |
| Dividends paid - revenue | 6 | (962) | - | (962) |
| Dividends paid - capital | 6 | (193) |
| (193) |
| Closing Shareholders' funds |
| 21,244 | - | 21,244 |
Income Statement
For the year ended 30 November 2008
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| Ordinary shares | 'C' Ordinary shares | Total | ||||||
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| Revenue | Capital | Total | Revenue | Capital | Total | Revenue | Capital | Total |
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| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Loss on investments | 8 | - | (2,103) | (2,103) | - | (201) | (201) | - | (2,304) | (2,304) |
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| Income from investments | 2 | 403 | - | 403 | 702 | - | 702 | 1,105 | - | 1,105 |
| Other income | 2 | 23 | - | 23 | 20 | - | 20 | 43 | - | 43 |
| Investment management fees | 3 | (37) | (147) | (184) | (63) | (252) | (315) | (100) | (399) | (499) |
| Other expenses | 4 | (139) | - | (139) | (135) | - | (135) | (274) | - | (274) |
| Net return/(loss) on ordinary activities before taxation |
| 250 | (2,250) | (2,000) | 524 | (453) | 71 | 774 | (2,703) | (1,929) |
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| Tax on ordinary activities | 5 | (47) | 47 | - | (99) | 59 | (40) | (146) | 106 | (40) |
| Return attributable to equity shareholders | 7 | 203 | (2,203) | (2,000) | 425 | (394) | 31 | 628 | (2,597) | (1,969) |
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| Return per Ordinary share (pence) |
| 2.08 | (22.61) | (20.53) | 2.84 | (2.63) | 0.21 |
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A Statement of Total Recognised Gains and Losses has not been prepared, as all gains and losses are recognised in the Income Statement.
All items in the above statement are derived from continuing operations. The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.
The total column of this Statement is the Profit and Loss Account of the Company.
Reconciliation of Movements in Shareholders' Funds
For the year ended 30 November 2008
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| 'C' |
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| Ordinary | Ordinary |
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| Shares | Shares | Total |
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| Notes | £'000 | £'000 | £'000 |
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| Opening Shareholders' funds | 10,001 | 14,538 | 24,539 | |
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| Movements in the year |
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| Total profit for the year |
| (2,000) | 31 | (1,969) |
| Dividends paid - revenue | 6 | (171) | (329) | (500) |
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| Closing Shareholders' funds | 7,830 | 14,240 | 22,070 | |
Balance Sheet
As at 30 November 2009
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| 30 November 2009 | 30 November 2008 | ||
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| Ordinary shares | 'C' Ordinary shares | Total |
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| Notes | £'000 | £'000 | £'000 | £'000 |
| Fixed assets |
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| Investments at fair value through profit or loss | 8 | 18,180 | 7,408 | 13,716 | 21,124 |
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| Current assets |
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| Debtors | 10 | 1,879 | 358 | 556 | 914 |
| Cash and overnight deposits |
| 1,287 | 102 | 40 | 142 |
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| 3,166 | 460 | 596 | 1,056 |
| Creditors: amounts falling due within one year | 11 | (102) | (38) | (72) | (110) |
| Net current assets |
| 3,064 | 422 | 524 | 946 |
| Total net assets |
| 21,244 | 7,830 | 14,240 | 22,070 |
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| Capital and reserves |
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| Called up share capital | 12 | 2,746 | 974 | 1,495 | 2,469 |
| Share premium | 13 | 17,396 | 4,685 | 12,711 | 17,396 |
| Distributable reserve | 13 | 3,371 | 3,648 | - | 3,648 |
| Capital redemption reserve | 13 | 73 | 73 | - | 73 |
| Capital reserve - realised | 13 | 289 | 1,027 | (358) | 669 |
| Capital reserve - unrealised | 13 | (3,201) | (2,954) | (173) | (3,127) |
| Revenue reserve | 13 | 570 | 377 | 565 | 942 |
| Equity shareholders' interest |
| 21,244 | 7,830 | 14,240 | 22,070 |
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| Net asset value per ordinary share (pence) | 14 | 77.4 | 80.4 | 95.2 |
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The accompanying notes are an integral part of the financial statements.
The financial statements of Maven Income and Growth VCT 3 PLC, registered number 4283350, were approved by the Board of Directors and were signed on its behalf by:
Gregor Michie
Director
5 March 2010
Cash Flow Statement
For the year ended 30 November 2009
| For the year ended 30 November 2009 |
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| Year ended | Year ended | ||
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| 30 November 2009 | 30 November 2008 | ||
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| Ordinary shares | 'C' Ordinary shares | Total |
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| Notes | £'000 | £'000 | £'000 | £'000 |
| Operating activities |
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| Investment income received |
| 1,297 | 374 | 559 | 933 |
| Deposit interest received |
| 15 | 25 | 21 | 46 |
| Investment management fees paid |
| (532) | (328) | (500) | (828) |
| Secretarial fees paid |
| (85) | (42) | (60) | (102) |
| Cash paid to and on behalf of Directors |
| (89) | (25) | (34) | (59) |
| Other cash payments |
| (102) | (51) | (106) | (157) |
| Net cash inflow/(outflow) from operating activities | 15 | 504 | (47) | (120) | (167) |
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| Taxation |
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| Corporation tax |
| (32) | - | - | - |
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| Financial investment |
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| Purchase of investments |
| (3,982) | (2,790) | (7,947) | (10,737) |
| Sale of investments |
| 5,810 | 2,595 | 7,113 | 9,708 |
| Net cash inflow/(outflow) from financial investment |
| 1,828 | (195) | (834) | (1,029) |
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| Equity dividends paid |
| (1,155) | (171) | (329) | (500) |
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| Net cash inflow/(outflow) from financing |
| 1,145 | (413) | (1,283) | (1,696) |
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| Increase/(decrease) in cash | 16 | 1,145 | (413) | (1,283) | (1,696) |
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Notes to the Financial Statements
For the year ended 30 November 2009
| 1. | Accounting Policies - UK Generally Accepted Accounting Practice |
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| (a) | Basis of preparation |
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| The financial statements have been prepared in accordance with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' (the SORP) issued in January 2009. The disclosures on Going Concern on page 28 of the Directors' Report form part of these financial statements. | ||||||||||||
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| (b) | Income |
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| Dividends receivable on equity shares are treated as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available, dividends receivable on or before the year end are treated as revenue for the year. Provision is made for any dividends not expected to be received. The fixed returns on debt securities and non-equity shares are recognised on a time apportionment basis so as to reflect the effective interest rate on the debt securities and shares. Provision is made for any fixed income not expected to be received. Interest receivable from cash and short term deposits and interest payable are accrued to the end of the year. | ||||||||||||
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| (c) | Expenses |
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| All expenses are accounted for on an accruals basis and charged through the Income Statement. Expenses are charged through the revenue account except as follows: | ||||||||||||
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| - | expenses which are incidental to the acquisition and disposal of an investment are charged to capital; and | |||||||||||
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| - | expenses are charged to realised capital reserves where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect the investment management fee has been allocated 20% to revenue and 80% to realised capital reserves to reflect the Company's investment policy and prospective income and capital growth. | |||||||||||
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| (d) | Taxation |
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| Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the balance sheet date. This is subject to deferred tax assets being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods. | ||||||||||||
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| Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or subsequently enacted at the balance sheet date. | ||||||||||||
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| The tax effect of different items of income/gain and expenditure/loss is allocated between capital reserves and revenue account on the same basis as the particular item to which it relates using the Company's effective rate of tax for the period. | ||||||||||||
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| (e) | Investments |
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| In valuing unlisted investments the Directors follow the criteria set out below. These procedures comply with the revised International Private Equity and Venture Capital Valuation Guidelines for the valuation of private equity and venture capital investments. Investments are recognised at their trade date and are valued at fair value, which represents the Directors' view of the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction. This does not assume that the underlying business is saleable at the reporting date or that its current shareholders have an intention to sell their holding in the near future. | ||||||||||||
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| 1. | For investments completed within the 12 months prior to the reporting date and those at an early stage in their development, fair value is determined using the Price of recent Investment Method, except that adjustments are made when there has been a material change in the trading circumstances of the company or a substantial movement in the relevant sector of the stock market. | |||||||||||
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| 2. | Whenever practical, recent investments will be valued by reference to a material arm's length transaction or a quoted price. | |||||||||||
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| 3. | Mature companies are valued by applying a multiple to their fully taxed prospective earnings to determine the enterprise value of the company. | |||||||||||
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| 3.1 | To obtain a valuation of the total ordinary share capital held by management and the institutional investors, the value of third party debt, institutional loan stock, debentures and preference share capital is deducted from the enterprise value. The effect of any performance related mechanisms is taken into account when determining the value of the ordinary share capital. | ||||||||||
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| 3.2 | Preference shares, debentures and loan stock are valued using the Price of Recent Investment Method. When a redemption premium has accrued, this will be valued only if there is a reasonable prospect of it being paid. Preference shares which carry a right to convert into ordinary share capital are valued at the higher of the price of recent investment method basis and the price/earnings basis, both described above. | ||||||||||
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| 4. | Where there is evidence of impairment, a provision may be taken against the previous valuation of the investment. | |||||||||||
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| 5. | In the absence of evidence of deterioration, or strong defensible evidence of an increase in value, the fair value is determined to be that reported at the previous balance sheet date. | |||||||||||
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| 6. | All unlisted investments are valued individually by Maven Capital Partners' Portfolio Management Team. The resultant valuations are subject to detailed scrutiny and approval by the Directors of the Company. | |||||||||||
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| 7. | In accordance with normal market practice, investments listed on the Alternative Investment Market or a recognised stock exchange are valued at their bid market value. | |||||||||||
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| (f) Fair Value Measurement | |||||||||||||
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| Fair value is defined as the price that the Company would receive upon selling an investment in a timely transaction to an independent buyer in the principal or the most advantageous market of the investment. A three-tier hierarchy has been established to maximise the use of observable market data and minimise the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would us in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would us in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on best information available in the circumstances.
The three-tier hierarchy of inputs is summarised in the three broad levels listed below.
- Level 1 - quoted priced in active markets for identical investments - Level 2 - other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc) - Level 3 - significant unobservable inputs (including the Company's own assumptions in determining the fair value of investments)
(g) Gains and losses on investments When the Company sells or re-values its investments during the year, any gains or losses arising are credited/charged to the Income Statement. | |||||||||||||
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| Share |
| Capital | Capital | Capital |
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| premium | Distributable | redemption | reserve | reserve | Revenue |
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| account | reserve | reserve | realised | unrealised | reserve |
| 13 | Reserves | £'000 | £'000 | £000 | £'000 | £'000 | £'000 |
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| At 30 November 2008 - Ordinary shares | 4,685 | 3,648 | 73 | 1,027 | (2,954) | 377 |
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| - C Ordinary shares | 12,711 | - | - | (358) | (173) | 565 |
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| 17,396 | 3,648 | 73 | 669 | (3,127) | 942 |
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| Conversion of C Ordinary shares | - | (276) | - | - | - | - |
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| Share buy backs | - | (1) | - | - | - | - |
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| Gains on sales of investments | - | - | - | 150 | - | - |
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| Net decrease in value of investments | - | - | - | - | (74) | - |
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| Investment management fees | - | - | - | (426) | - | - |
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| Tax effect of capital items | - | - | - | 89 | - | - |
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| Retained net revenue for year | - | - | - | - | - | 590 |
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| Dividends paid | - | - | - | (193) | - | (962) |
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| At 30 November 2009 | 17,396 | 3,371 | 73 | 289 | (3,201) | 570 |
| 7 | Return per ordinary share | Year ended | Year ended | ||
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| The returns per share have been based on the following figures: | 30 November 2009 | 30 November 2008 | ||
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| Ordinary Shares | 'C' Ordinary shares | Total |
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| Weighted average number of ordinary shares | 27,460,383 | 9,744,243 | 14,954,494 | 24,698,737 |
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| Revenue return | £590,000 | £203,000 | £425,000 | £628,000 |
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| Capital return | (£261,000) | (£2,203,000) | (£394,000) | (£2,597,000) |
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| Total return | £329,000 | (£2,000,000) | £31,000 | (£1,969,000) |
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| 30 November 2009 |
| 30 November 2009 | ||
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| Ordinary Shares |
| C' Ordinary Shares | ||
| 12 | Share capital |
| Number | £'000 |
| Number | £'000 |
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| At 30 November the authorised share capital comprised: |
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| allotted, issued and fully paid: |
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| Ordinary shares of 10p each |
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| Balance brought forward 30 November 2008 | 9,744,243 | 974 |
| 14,954,494 | 1,495 | |
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| C ordinary shares converted into ordinary shares on 28 February 2009 |
| 14,954,494 | 1,495 |
| (14,954,494) | (1,495) |
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| Ordinary shares issued on conversion |
| 2,766,646 | 277 |
| - | - |
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| Ordinary shares repurchased during the period | (5,000) | - |
| - | - | |
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| 27,460,383 | 2,746 |
| - | - |
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| Unissued unclassified shares of 10p each |
| 47,494,111 | 4,749 |
| 5,045,506 | 505 |
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| 74,954,494 | 7,495 |
| 5,045,506 | 505 |
14 Net asset value per Ordinary share
|
| 30 November 2009 | 30 November 2008 | ||||
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| Ordinary shares | Ordinary shares | 'C' Ordinary shares | |||
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| Net asset | Net asset | Net asset | Net asset | Net asset | Net asset |
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| value per | value | value per | value | value per | value |
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| share | attributable | share | attributable | share | attributable |
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| p | £'000 | p | £'000 | p | £'000 |
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| 77.4 | 21,244 | 80.4 | 7,830 | 95.2 | 14,240 |
The number of shares used in the above calculation is set out in note 12.
| 18 | Derivatives and other financial instruments |
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|
The Company's financial instruments comprise securities and other investments, cash balances and debtors and creditors that arise directly from its operations, for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company may not enter into derivative transactions in the form of forward foreign currency contracts, futures and options without the written permission of the Directors. No derivative transactions were entered into during the period. The purpose of these financial instruments is efficient portfolio management. |
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|
| The main risks the Company faces from its financial instruments are (i) market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rates, (ii) interest rate risk, (iii) liquidity risk and (iv) credit rate risk. In line with the Company's investment objective, the portfolio comprises only sterling currency securities and therefore has no exposure to foreign currency risk. |
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|
| The Manager's policies for managing these risks are summarised below and have been applied throughout the period. The numerical disclosures below exclude short-term debtors and creditors.
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| Market price risk |
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|
|
The Company's investment portfolio is exposed to market fluctuations, which are monitored by the Manager in pursuance of the investment objective as set out on page x. Adherence to investment guidelines and to investment and borrowing policies set out in the management agreement mitigates the risk of excessive exposure to any particular type of security or issuer. These powers and guidelines include the requirement to invest in up to 50 companies across a range of industrial and service sectors at varying stages of development, to closely monitor the progress of these companies and to appoint a non executive director to the board of each company. Further information on the investment portfolio is set out in the Investment Manager's Review on pages 9 to 11. | |||||||||||
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| Price risk sensitivity | |||||||||||
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|
The following details the Company's sensitivity to a 10% increase and decrease in the market prices of AIM/PLUS quoted securities, with 10% being the Manager's assessment of a reasonably possible change in market prices. | |||||||||||
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At 30 November 2009, if market prices of listed AIM/PLUS quoted securities had been 10% higher or lower with all other variables held constant, the increase or decrease in net assets attributable to Shareholders for the year would have been £244,000 (2008:£318,000), due to the change in valuation of financial assets at fair value through profit or loss. | |||||||||||
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At 30 November 2009, 62.3% (2008: 74.9%) comprised investments in unquoted companies held at fair value. The valuation methods used by the Company include cost and realisable value. Therefore, it is not considered meaningful to provide a sensitivity analysis on the net asset position and total return for the year due to the fact any such movements would be immaterial to users of financial statements. | |||||||||||
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|
Interest rate risk |
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| Some of the Company's financial assets are interest bearing, some of which are at fixed rates and some at variable. As a result, the Company is subject to exposure to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates. | |||||||||||
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| The interest rate risk profile of financial assets at the balance sheet date was as follows: |
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| At 30 November 2009 | Fixed |
| Floating |
| Non- interest |
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| Interest |
| rate |
| bearing |
| |||
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| Sterling |
| £'000 |
| £'000 |
| £'000 |
| ||||
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| Listed |
| 2,514 |
| - |
| - |
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| AIM/PLUS |
| - |
| - |
| 2,438 |
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| Unlisted |
| 10,519 |
| - |
| 2,709 |
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| Cash |
| - |
| 1,287 |
| - |
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| 13,033 |
| 1,287 |
| 5,147 |
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| At 30 November 2008 | Fixed |
| Floating |
| Non- interest |
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| Interest |
| rate |
| bearing |
| |||
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| Sterling |
| £'000 |
| £'000 |
| £'000 |
| ||||
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| Listed |
| 4,569 |
| - |
| - |
| ||||
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| AIM/PLUS |
| - |
| - |
| 6,442 |
| ||||
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| Unlisted |
| 10,165 |
| - |
| - |
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| Cash |
| - |
| 142 |
| - |
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| 14,734 |
| 142 |
| 6,442 |
| |||
| The listed fixed interest assets have a weighted average life of 0.08 years (2008: 0.73 years) and an average interest rate of 5.75% (2008: 4.99%) per annum. The unlisted fixed interest assets have a weighted average life of 3.16 years (2008: 3.98 years) and weighted average interest rate of 8.42% (2008: 8.80%) per annum. Floating rate assets are cash balances held in interest bearing accounts. The interest rate received on the interest bearing cash balances was nil (2008: 2%)The non-interest bearing assets represent the equity element of the portfolio. All assets and liabilities of the Company are included in the balance sheet at fair value. |
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| Maturity profile |
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| The interest rate profile of the Company's financial assets at the balance sheet date was as follows: |
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| Within | Within | Within | Within | Within | More than |
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|
| 1 year | 1-2 years | 2-3 years | 3-4 years | 4-5 years | 5 years | Total |
| ||||||||||||||||||||||||||||
| At 30 November 2009 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
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| Fixed interest |
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| Listed |
| 2,514 | - | - | - | - | - | 2,514 |
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| Unlisted |
| 2,048 | 1,054 | 1,691 | 735 | 3,411 | 1,580 | 10,519 |
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| 4,562 | 1,054 | 1,691 | 735 | 3,411 | 1,580 | 13,033 |
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| Within | Within | Within | Within | Within | More than |
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|
|
| 1 year | 1-2 years | 2-3 years | 3-4 years | 4-5 years | 5 years | Total |
| ||||||||||||||||||||||||||||
| At 30 November 2008 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| |||||||||||||||||||||||||||||
| Fixed interest |
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|
|
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|
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| |||||||||||||||||||||||||||||
| Listed |
| 4,569 | - | - | - | - | - | 4,569 |
| ||||||||||||||||||||||||||||
| Unlisted |
| 1,366 | 17 | 1,055 | 3,359 | 780 | 3,516 | 10,093 |
| ||||||||||||||||||||||||||||
|
|
| 5,935 | 17 | 1,055 | 3,359 | 780 | 3,516 | 14,662 |
| ||||||||||||||||||||||||||||
| Within "more than 5 years" there is a figure of £73,000 (2008: £73,000) in respect of preference shares which have no redemption date. It is the Directors' opinion that the carrying amounts of these financial assets represent the maximum credit risk exposure at the balance sheet date. |
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| Liquidity risk |
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|
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| ||||||||||||||||||||||||||||||
| This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company's financial instruments include unlisted and AIM/PLUS traded investments which are not traded in an organised public market and which generally may be illiquid. As a result, the Company may not be able to liquidate quickly some of its investments at an amount close to their fair value in order to meet its liquidity requirements. Note 8 details the three-tier hierarchy of inputs used as at 30 November 2009 in valuing the Company's investments carried at fair value. |
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| ||||||||||||||||||||||||||||
| The Company's investment policy ensures that the Company has sufficient investment in cash and readily realisable securities to meet its ongoing obligations. At 30 November 2009 these investments were valued at £2,514,000 (2008: £4,569,000). |
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| ||||||||||||||||||||||||||||
| The Company has the power to take out borrowings, which gives it access to additional funding when required. |
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| Credit risk
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| |||||||||||||||||||||||||||||
| This is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. |
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| |||||||||||||||||||||||||||
| The Company's financial assets exposed to credit risk amounted to the following : |
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| ||||||||||||||||||||||||||||||||
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| 30 November 2009 |
|
| 30 November 2008 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| £'000 |
|
| £'000 |
| ||||||||||||||||||||||||||
|
|
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|
|
|
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|
|
|
| ||||||||||||||||||||||||||
| Investments in fixed interest instruments |
|
|
| 2,514 |
|
| 4,569 |
| |||||||||||||||||||||||||||||
| Cash and cash equivalents |
|
|
|
| 1,287 |
|
| 142 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| 3,801 |
|
| 4,711 |
| ||||||||||||||||||||||||||
| Credit risk arising on fixed interest instruments is mitigated by investing in UK Government Stock. |
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| |||||||||||||||||||||||||||||
| All assets which are traded on a recognised exchange and all the Company's cash balances are held by JP Morgan Chase (JPM), the Company's custodian. Should the credit quality or the financial position of JPM deteriorate significantly the Manager will move these assets to another financial institution. |
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| |||||||||||||||||||||||||||||
| There were no significant concentrations of credit risk to counterparties at 30 November 2009 or 30 November 2008. |
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| |||||||||||||||||||||||||||||||||||
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report, Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the net return of the Company for that period. In preparing these financial statements the Directors are required to:
- Select suitable accounting policies and then apply them consistently;
- Make judgments and estimates that are reasonable and prudent;
- State whether applicable UK Accounting Standards have been followed, subject to any
- material departures disclosed and explained in the financial statements;
- Prepare the financial statements on the 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 that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Other information
This announcement has been prepared on the same basis as the Annual Report and Financial Statements for the year ended 30 November 2009. The Annual Report and Financial Statements for the year ended 30 November 2009 will be filed with the Registrar of Companies and issued to Shareholders in due course.
The financial information contained within this announcement does not constitute the Company's statutory Financial Statements as defined in the Companies Act 2006. The statutory Financial Statements for the year ended 30 November 2008 have been delivered to the Registrar of Companies and contained an audit report which was unqualified.
Copies of this announcement and of the Annual Report and Financial Statements for the year ended 30 November 2009 will be available to the public at the office of Maven Capital Partners, 149 St Vincent Street, Glasgow; at the registered office of the Company, 9-13 St Andrew Street, London, and on the Company's website at www.mavencp.com/migvct3.
By order of the Board
Maven Capital Partners UK LLP
Secretary
5 March 2010