21 Mar 2017 18:28
FINANCIAL HIGHLIGHTS
Ordinary Shares | Year ended 31 December 2016 |
NAV as at 31 December 2016 | 32.5p |
Cumulative dividends paid to 31 December 2016 | 37.5p |
Accumulated shareholder valueÙ | 70.0p |
Recommended Final Dividend | 2.0p |
Ù Accumulated shareholder value represents net asset value per share plus cumulative dividends paid per share since inception.
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| As at 28 February 2017* |
Unaudited net asset value per share† | 32.6p |
* Being the latest practicable date prior to publication. † Including current year revenue.
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CHAIRMAN'S STATEMENT
The Company's results for the year ended 31 December 2016 were mainly affected by falls in the share prices of two AIM quoted qualifying stocks, Genedrive plc and Scancell Holdings plc ("Scancell"). This is disappointing as the falls in their share prices mask a year of considerable progress for these companies. Net asset value per share at the year end was 32.5 pence compared to 39.3 pence for the prior year. Of this decline, 3.5 pence reflected the dividends paid in the year. The remainder of the fall of 3.3 pence per share was largely attributable to a decline in the share prices of the Genedrive plc and Scancell. Net asset value per share (excluding dividends paid in the period) rose slightly in the second half of the year and, overall, I believe it to have been a year of progress for many of the companies in the portfolio.
Investment performance (Qualifying Investments)
The Company continues to meet its requirements to qualify as a VCT. Our qualifying investments are managed by Calculus Capital Limited and are in a combination of unquoted and AIM companies.
During the year, the Company made six new qualifying investments. In January 2016, £100,000 was invested in Arcis Biotechnology Holdings Limited ("Arcis"). Arcis is a Cheshire based, research and development ("R&D"), company which has used its technology platform to develop innovative products in the DNA extraction, agriculture and hygiene markets. In April 2016, the Company invested £150,000 in a developer of novel therapeutic vaccines for treating cancer, Scancell. In September 2016, the Company invested £100,000 in drug discovery and development company, C4X Discovery Holdings plc. In December 2016, the Company invested in three new companies. £100,000 was invested in Air Leisure Group Limited (trading as "Jumptastic"), an operator of trampoline parks across the UK and Europe. Another £100,000 was invested in Origin Broadband Limited ("Origin"), a Yorkshire-based provider of internet and telephone services. Finally, before the year end, £100,000 was invested in Weeding Technologies Limited, a cleantech company whose technology treats weeds and moss.
Dryden Human Capital Group Limited's equity was written down to nil at the year end, impacting net asset value by approximately 0.4 pence per share, ahead of the sale of the company in January 2017 in which the Company recovered the value of its loan stock. RMS Europe Limited and Terrain Energy Limited were both written down by approximately 10 per cent in the period, reflecting tougher trading conditions.
The Company successfully exited its holding in Human Race Group Limited in September 2016, achieving a return of 32%.
A more detailed analysis of investment performance can be found in the Investment Manager's Review that follows this statement.
Investment performance (Non-Qualifying Investments)
Our non-qualifying investments comprise holdings in the Neptune Income Fund, the Neptune Quarterly Income Fund and liquidity funds. Our investments in the Neptune Income Fund rose by 9 per cent but declined in the Neptune Quarterly Income Fund by 4 per cent over the year.
At the year end, the Company held £50,000 in the Aberdeen Global Liquidity Fund, £103,000 in the Fidelity Liquidity Fund, and £175,000 in the liquidity fund held with Goldman Sachs Asset Management.
Share buyback
During the year the Company purchased 100,000 shares for cancellation. In line with its policy of returning cash to shareholders, the Company may carry out limited share buybacks in the future if it considers it to be in the best of interests of all shareholders.
Board changes
In view of the fact that I have served as Chairman of your Company since its launch in 2004, I have decided to retire from the Board at the forthcoming AGM to be held on 22nd June 2017. In the meantime a number of candidates are currently being considered for my replacement as Chairman and we expect to be able to make an announcement in the coming weeks.
Dividends
The Company paid the 2015 final dividend of 2 pence per share in June 2016 and an interim dividend for 2016 of 1.5 pence per share in October 2016. The total dividends paid to an ordinary shareholder to date are 37.5p.
The directors are pleased to propose a final dividend for 2016 of 2 pence per Ordinary Share which, subject to shareholder approval, will be payable on 30 June 2017 to shareholders on the register on 26 May 2017.
In addition your board is considering strategic options for the Company which may lead to proposals involving a significant return of capital to shareholders. We look forward to providing you with more information over the coming months.
Outlook
The UK economy remains strong though it is difficult to assess what impact the commencement of formal 'Brexit' negotiations may have. However, the outlook for young growing companies remains positive and should support future growth in the portfolio and provide opportunities for new investment.
Philip Stephens Chairman
21 March 2017
INVESTMENT MANAGER'S REVIEW (QUALIFYING INVESTMENTS)
Calculus Capital Limited manages the Company's qualifying portfolio. The Company invests in a diversified portfolio of UK growth companies, whether unquoted or traded on AIM.
Portfolio developments
At the year end, the portfolio of qualifying investments comprised 14 companies, made up of both unquoted and AIM stocks. The fall in the Net Asset Value was largely attributable to a decline in the share price of AIM quoted holding, Genedrive. This was due to an overhang of stock in the market, representing about 5% of Genedrive's total equity, from several institutions which did not participate in the fundraising in July 2016. These shares were placed with other institutions in February 2017 but the placing served to push down the share price further. Two new quoted investments were made in the year, in C4X Discovery plc and Scancell Holdings plc, both quoted on AIM. Scancell's price has decreased by 15 per cent compared to cost. This is disappointing as each of these companies showed underlying progress during the year under review which is detailed later in the report.
The unquoted portfolio declined in value by 7 per cent, largely because RMS Europe Limited and Terrain Energy Limited, the two largest holdings in the portfolio, were both written down by 10 per due to more adverse trading conditions in 2016. Four new qualifying investments were made during the year, Arcis, Jumptastic, Weeding Technologies and Origin. The section on unquoted portfolio companies in this report contains further information.
Quoted portfolio Genedrive plc ("Genedrive")
Genedrive®, a next-generation Point of Care molecular diagnostic system, provides a low cost, rapid, simple to use and robust platform for the diagnosis of infectious diseases. The company is making progress towards realising the potential of the Genedrive® platform in a range of applications through own programmes and partnerships. Progress continues to be made with the Hepatitis C (HCV) test and the company is targeting submission for CE Marking by the end of March based on highly encouraging performance results. End user sales in India for the TB assay have been slow mainly due to sample preparation issues for the test in field that are unique to the TB assay. In January, Genedrive announced that the US Department of Defense was starting field trials of a handheld, rapid biohazard identifier developed by Genedrive.
C4X Discovery Holdings plc ("C4X")
In September, the Company invested £100,000 in C4X as part of a £3 million equity investment by funds managed by Calculus Capital Limited. C4X is an innovative company in the discovery, design and development of small molecule drugs. The company was spun out of the University of Manchester in July 2007. During 2016, the company enhanced its drug discovery engine through acquisitions and continued to broaden its portfolio of proprietary drug programmes. The acquisitions (Adorial Limited's innovative target discovery platform technology, Taxonomy3, and Molplex Limited's pioneering chemoinformatics and artificial intelligence software platform) combine with C4X's drug discovery and rational molecule optimisation technology platform, Conformetrix, to create a state-of-the-art drug discovery engine. Approximately two-thirds of new drugs originate from smaller biotech companies. C4XD continues to build and progress its pipeline of programmes in a variety of therapeutic areas including addiction, diabetes, inflammatory diseases and cancer. The company has collaborations in place with the University of Oxford Structural Genomics Consortium and Evotec AG.
Scancell Holdings plc ("Scancell")
Scancell is developing two distinct immune-oncology platforms, ImmunoBody® and Moditope®, each with broad applications. Both platforms are targeting multi-billion dollar markets. SCIB1 (based on the ImmunoBody® platform) has achieved unprecedented survival rates in a phase I/II clinical trial covering twenty patients for malignant melanoma. The initial results show survival and progression free data well beyond established norms. A phase II combination trial of SCIB1 together with Keytruda, a checkpoint inhibitor, will commence out of Massachusetts General Hospital in Boston and include Harvard Medical School, MD Anderson, Memorial Sloan Kettering and the Division of Medical Oncology at University of Colorado. The two drugs work in different ways and Keytruda is relatively toxic whilst SCIB-1 is far less so on evidence to date. It is believed that a combination treatment of the two drugs will significantly increase the success rate in the treatment of advanced melanoma beyond current norms without significant additional toxicity. A phase I trial for Modi-1 (based on the Moditope® platform) targeting triple negative breast cancer, osteosarcoma and ovarian cancer is scheduled for 2018. The scientific principle behind Moditope® is autophagy which is the hitherto obscure area of medical research which was the subject of this year's Nobel Prize for Medicine. Scancell is also developing SCIB2 (based on the ImmunoBody® platform) for the treatment of non-small cell lung cancer (NSCLC) in combination with a checkpoint inhibitor. In January 2017, Scancell announced a collaboration with The Addario Lung Cancer Medical Institute and the Bonnie J. Addario Lung Cancer Foundation to evaluate the use of SCIB2 to treat NSCLC.
Unquoted portfolio Arcis Biotechnology Holdings Limited ("Arcis")
Arcis has developed an innovative DNA extraction process which is on the cusp of commercialisation.
DNA extraction, essentially opening cells to allow access to their DNA without damaging them, is a necessary preliminary step before DNA analysis and sequencing can be performed. Over the last 20 years, there have been huge advances in DNA analysis and sequencing, but little change in DNA extraction protocols, which are slow and cumbersome. Arcis' extraction process is much faster and simpler, and also offers a much higher level of DNA stabilisation. This enhanced stabilisation is important in dislodging long established laboratory procedures and, potentially very significantly, it extends to stabilisation of RNA which other processes cannot do (because RNA, which performs an information carrying role in a cell, is inherently less stable than DNA).
During 2016, Arcis' initial products, targeting both human and infectious disease DNA extraction, have undergone external validation with a number of companies and key opinion leaders and achieved CE-mark certification. In early 2017, heads of terms were signed with the first customer to include Arcis' products in their diagnostic devices, and some sales direct to end-users commenced.
From the same technology platform, Arcis has created two crop and turf yield improvement products. These are on the market and making a positive contribution, but do not have the same potential as DNA extraction and are considered non-strategic assets. The company is also working on the development of a novel biopesticide to treat nematodes. As its components are naturally occurring (rather than chemical) and trials to date have exceeded expectations, this product may have significant potential, although it is at a relatively early stage of development.
Dryden Human Capital Group Limited ("Dryden")
Dryden is a specialist actuarial, insurance and compliance recruitment company which was sold in January 2017. The value of the equity was written off in 2016 impacting the Company's net asset value by 0.4 pence per share, but the Company received a repayment of loan stock.
Air Leisure Limited ("Jumptastic")
In the period under review, the Company made a new unquoted investment of £100,000 in Jumptastic as part of a
£3m equity investment by funds managed by Calculus Capital Limited. Jumptastic operates trampoline parks in the UK and Continental Europe. Its first site opened in Gloucester in October 2015, trading under the brand name Jumptastic. This site incorporates 90 interlinked trampolines and has traded profitably since inception. The company's second site opened in Copenhagen, Denmark in January 2017 and the team have a strong pipeline of potential sites identified across Scandinavia which they will look to open in 2017.
MicroEnergy Generation Services Limited ("MicroEnergy")
MicroEnergy owns and operates a fleet of 166 small onshore wind turbines (5kW) installed on land in East Anglia and Yorkshire. Revenues from the fleet of turbines come from two sources, both of which are inflation protected, being directly linked to RPI. First, there is the Government backed feed-in tariff (FIT) paid by the electricity suppliers for every kilowatt of electricity generated for twenty years. Secondly, there is an export tariff for any surplus electricity not used by the site owner that is exported to the grid. The valuation of MicroEnergy has been reduced as changes to legislation means that it is likely that business rates will now be payable on the installations. MicroEnergy has appointed an adviser to assist with its sale - expected to be in the first half of 2017.
Origin Broadband Limited ("Origin")
The Company invested £100,000 in Origin in December, a provider of internet and phone services, based in Yorkshire. Since launch in 2011, when it acquired for no cost part of the Digital Europe network built with EU and government funding which Digital Europe was proposing to close, Origin has developed its own infrastructure and now has the sixth largest broadband network in the UK measured by points of presence. As an operator of its own physical network, Origin is able to deal directly with Openreach, the BT division that maintains the UK's main telecoms network. This gives the company greater control over the underlying circuits and equipment; allowing it to provide a better service level than a pure reseller and making it easier to give commitments on speed. The company's core network is composed of over 50 points of presence, together with diverse network links to locations including Manchester, London and datacentres including Telecity North and Telecity 8/9 Harbour Exchange.
Origin is seen as an agile alternative to the unwieldy corporate giants, with a focus on providing faster broadband speeds, a competitive pricing model and first-class customer service. More and more businesses are moving to cloud computing and the need for excellent 24/7 support is an important factor when choosing a provider. Likewise, consumers are using ever increasing amounts of data and require fast/superfast broadband services. Current clients include Amazon - where Origin is the preferred provider for all new warehouse and corporate sites, NHS Sheffield and various UK universities.
Funds managed by Calculus Capital Limited invested £3 million in Origin of which £100,000 came from the Company.
RMS Europe Limited ("RMS")
RMS provides port services from six locations on the Humber Estuary, the UK's busiest trading estuary. Trading conditions throughout 2016 were challenging and the implications of Brexit have created some uncertainty about future trade between the UK and continental Europe. Despite this, RMS achieved increased turnover and profitability in the year. This holding is showing a significant return on cost and will be sold when the right opportunity arises.
Solab Group Limited ("Solab") (formerly Hampshire Cosmetics)
Solab is a long established manufacturer of fragrances, shampoos and skincare products for third party customers, including Penhaligon's and Philip Kingsley. Its cosmetics business has been affected by a significant reduction in volumes from its largest customer, The Body Shop, as a result of L'Oreal's decision to in-source manufacturing to French factories following its acquisition of The Body Shop. New business from third parties is beginning to replace lost turnover, although Solab has also had success in growing existing customer accounts. In January 2017, L'Oreal announced the intention to sell The Body Shop. It is too early to say whether this represents an opportunity for Solab to win back business.
Terrain Energy Limited ("Terrain")
Terrain has interests in eleven petroleum licences: Keddington, Kirklington, Dukes Wood, Burton on the Wolds, Whisby and Louth in the East Midlands, Larne in Northern Ireland, Brockham and Lidsey in the Weald Basin and Egmating and Starnberger See in Germany. The Whisby-6 well was successfully drilled in 2016 and encountered a good oil-saturated basal sandstone with initial production of 168 barrels of oil per day ("bopd") (of which Terrain receives 85%). The operator is currently working to optimise production from this well following a waxing issue. The company is producing from wells at Keddington and Whisby; Brockham and Lidsey are currently shut-in pending drilling or, in the case of Brockham, analysis of recent drilling results. A new well at Lidsey is due to be drilled in 2017, with Keddington and Louth to follow in 2018. Terrain sold half of its interest in the Brockham licence to Angus Energy (the operator) in December
2016 (reducing Terrain's interest to 10%) in return for a cash consideration and carrying Terrain's remaining interest in the licence for the costs associated with the new side track. Angus has the option for a similar transaction in relation to Lidsey which would mean Terrain's costs would also be carried for this well. From the evidence so far, the drilling at Brockham appears to indicate a similar structure to the oil bearing Kimmeridge sections in the nearby Horse Hill-1 well (this well produced over 1600bopd on test). Oil and gas shows have also been found in the underlying Corallian structure. A geothermal well at Holzkirchen, which is on the Egmating licence, drilled in 2016 encountered overpressured gas which had to be flared for 4 days before the well was brought back under control. This could be a significant discovery on Terrain's licence - interpretation of the limited data available to date suggests the potential for as much as 75BCF of gas to be present at approximately 4000 metres (equivalent to approximately 10 million barrels of oil). A first well on the Larne licence targeting the Woodburn prospect was drilled in May/June 2016, but did not encounter any hydrocarbon accumulation. The data collected in the well is being evaluated to decide where to focus future exploration activity in the basin.
Weeding Technologies Limited ("Weedingtech")
Weedingtech is a cleantech company focused on replacing toxic herbicides, particularly in the municipal market, but with potential in the agricultural and domestic markets. Weedingtech's technology treats weed and moss using environmentally friendly hot foam (which keeps the heat on long enough to kill the weed or moss) rather than herbicides such as Glyphosate.
Increasingly, governments and regulators around the world are considering, or are already, banning the use of certain chemical herbicides (e.g. glyphosate, as used in Roundup, which studies have shown to be potentially carcinogenic) amid concerns about the risks they pose to human health and the environment. Globally, the herbicide market is estimated to grow at 6% a year to reach $31bn by 2020 (Allied Market Research, October 2014), with glyphosate accounting for around three quarters of the total. As such there is huge potential for herbicide-free alternatives to increase their share as concerns around glyphosate grow.
Funds managed by Calculus Capital Limited invested £3m into Weedingtech in December 2016 of which £100,000 came from the Company.
Developments since the year end
Other than disclosed, there have been no developments since the year end.
John Glencross
Calculus Capital Limited 21 March 2017
INVESTMENT PORTFOLIO
The ten largest holdings by value are included below:
Cost | Valuation | Percentage | |
£'000 | £'000 | % | |
AIM investments (quoted equity) | |||
Genedrive plc* | 251 | 111 | 3.04% |
Scancell Holdings plc | 150 | 128 | 3.51% |
Other AIM investments* | 551 | 94 | 2.58% |
Unquoted equity investments | |||
Arcis Biotechnology Holdings Limited | 100 | 110 | 3.02% |
RMS Europe Limited | 100 | 537 | 14.73% |
Solab Group Limited equity | 35 | 46 | 1.26% |
Terrain Energy Limited | 414 | 726 | 19.92% |
Other unquoted equity investments* | 433 | 326 | 8.94% |
Unquoted loan notes | |||
Solab Group Limited loan notes | 215 | 215 | 5.90% |
Other unquoted loan notes† | 25 | 25 | 0.69% |
Non-qualifying equity investments* | (9) | (6) | (0.16)% |
Total qualifying investments | 2,265 | 2,312 | 63.43% |
Quoted funds | |||
Neptune Income Fund Income A Class | 444 | 521 | 14.29% |
Neptune Quarterly Income Fund Income Units | 431 | 477 | 13.09% |
Goldman Sachs Liquidity Fund | 175 | 175 | 4.80% |
Fidelity Sterling Liquidity fund | 103 | 103 | 2.83% |
Other quoted funds | 51 | 51 | 1.40% |
Non-qualifying equity investments* | 9 | 6 | 0.16% |
Total non-qualifying investments | 1,214 | 1,333 | 36.57% |
Total investments | 3,478 | 3,645 | 100.00% |
* The valuations of certain investments include small purchases made which are non-qualifying investments. These cost £9,000 and are valued at
£5,750.
UNQUOTED PORTFOLIO COMPANIES
The following unquoted investments are included in the investment portfolio at the balance sheet date. Further details of these companies are provided below:
Arcis Biotechnology Holdings Limited Agri-sciences
Latest audited results (group): | £'000 | £'000 | Investment information: | £'000 |
Year ended 31 July | 2016 | 2015 | Total cost | 100 |
Turnover | 184 | 281 | Income recognised in year | - |
Pre-tax loss | 1,768 | 1,098 | Equity valuation | 110 |
Net Assets | 1,352 | 498 | Voting rights | 0.7 per cent |
Valuation basis: Discounted cash flow |
Other funds managed by Calculus Capital Limited have invested in this Company and have combined voting rights of
36.4 per cent.
RMS Europe Limited Operator of Port Facilities
Latest audited results: | £'000 | £'000 | Investment information: | £'000 |
Period ended 31 December | 2016 | 2015 | Total cost | 100 |
Turnover | 27,435 | 29,223 | Income recognised in year | - |
Profit after tax | 642 | 775 | Equity valuation | 537 |
Net Assets | 9,081 | 8,880 | Loan stock valuation | - |
Valuation basis: Expected sale price | Voting rights | 1.0 per cent |
Solab Group Limited Cosmetics Manufacturing
Latest audited results (group): | £'000 | £'000 | Investment information: | £'000 |
Period ended 31 Dec | 2015 | 2014 | Total cost | 250 |
Turnover | 21,912 | 26,021 | Income recognised in year | 16 |
Profit after tax | (330) | 181 | Equity valuation | 46 |
Net Assets | 2,474 | 2,691 | Loan stock valuation | 215 |
Valuation basis: Discounted cash flow and multiples | Voting rights | 1.2 per cent | ||
Other funds managed by Calculus Capital Limited have invested in this Company and have combined voting rights of
6.3 per cent.
Terrain Energy Limited Oil and Gas Production
Latest audited results: | £'000 | £'000 | Investment information: | £'000 |
Year ended 31 December | 2015 | 2014 | Total cost | 414 |
Turnover | 108 | 205 | Income recognised in year | - |
Pre-tax loss | 595 | 635 | Equity valuation | 726 |
Net Assets | 6,038 | 6,617 | Voting rights | 5.7 per cent |
Valuation basis: Reserves multiple & DCF | ||||
Other funds managed by Calculus Capital Limited have invested in this company and have combined voting rights of
4.9 per cent.
STRATEGIC REPORT
This report has been prepared by the directors in accordance with the requirements of Section 414A of the Companies Act 2006.
Activities, status and investment objective
The Company is a VCT listed on the London Stock Exchange. The principal activity of the Company is investing in unquoted or AIM traded companies in the UK with the objective of generating long term capital growth and tax free dividends for investors. The Company is managed as a VCT in order that shareholders may benefit from the tax reliefs available.
Business model
The Board of directors is responsible for the overall stewardship of the Company including investment, dividend, borrowing and purchase of own shares policies, corporate strategy and governance and risk management. All the directors, whose details are set out on page 14 of the Report and Accounts, are non-executive. The Board has appointed Calculus Capital Limited to manage its qualifying portfolio and to provide certain administrative services. Details of the management agreement are set out under "Management" in the Directors' Report. Calculus Capital Limited engages with companies invested in by the Company on corporate governance matters to encourage good practice. This includes engagement on significant social and environmental issues where these may impact shareholder value.
Alternative Investment Funds Directive (AIFMD)
The AIFMD regulates the management of alternative investment funds, including VCTs. The VCT is externally managed under the AIFMD by Calculus Capital Limited which is a small authorised Alternative Investment Fund Manager.
Investment and co-investment policies
The investment policy is to invest approximately 75 per cent of the Company's funds in a diversified portfolio of holdings in qualifying investments, whether unquoted or traded on AIM. Investments are made selectively across a diverse range of sectors in companies which have the potential to generate growth and enhance their value. The balance of approximately 25 per cent of the Company's funds can be invested in a combination of Neptune Income Funds, a portfolio of income generating UK quoted shares, and money market instruments.
The Company may co-invest with other funds managed and advised by Calculus Capital Limited. The allocation between different funds takes into account such factors as the funds available for investment and the time horizon of these funds, the size of a potential investment, and the existing sector exposure of the various funds.
Policy on qualifying investments
The qualifying investments in a particular company may be made in equity shares, loan stocks and/or preference shares where it is felt this would enhance shareholder return. It is intended that no one company shall represent more than 10 per cent of the portfolio and no sector shall represent more than 20 per cent of the total portfolio, in both cases at the date of investment. The Company's policy is not to invest in start-up or seed capital situations. To meet the requirements of a VCT qualifying investment, at least 10 per cent by value of the total investments in any one qualifying company must be in ordinary shares which carry no preferential rights. In addition, the companies in which qualifying investments are made must be UK companies that have no more than £15 million of gross assets at the time of investment (or £7 million if the funds being invested were raised after 5 April 2006). There are also restrictions on the age of the qualifying company and on the total amount of funds it can raise.
VCT regulation
The Company's investment policy is designed to ensure that it continues to meet the requirements for approved VCT status. Amongst other conditions, the Company may not invest more than 15 per cent, by value at the time of investment, in a single company and must have at least 70 per cent by value of its investments throughout the period in shares or securities in qualifying holdings, of which 30 per cent by value must be ordinary shares which carry no preferential rights.
Long term viability of the Company
In assessing the long term viability of the Company, the directors have had regard to the guidance issued by the Financial Reporting Council. The directors have assessed the prospects of the Company for a period of three years, which was selected because the Company's strategic review covers a three-year period. The Board's three-year strategic review considers the Company's income and expenses, dividend policy, liquid investments and ability to make realisations of qualifying investments. These projections are subject to sensitivity analysis which involves flexing a number of the main assumptions underlying the forecast both individually and in unison. Where appropriate, this analysis is carried out to evaluate the potential impact of the Group's principal risks actually occurring. Based on the results of this analysis, the directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment. The principal assumptions used are as follows: i) Calculus Capital Limited pays any expenses in excess of 3.5 per cent of net asset value as set out on page 16 of the Report and Accounts; ii) the level of dividends paid are at the discretion of the Board; iii) the Company's liquid investments which include cash, money market instruments and Neptune funds can be realised as permitted by the Company's investment policy; iv) the illiquid nature of the qualifying portfolio. The Company has a continuation vote in 2018 and the directors have also looked at the projections were shareholders not to vote for the Company to continue. Based on the results of this analysis, the directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due.
In making this statement the Board carried out a robust assessment of the principal risks facing the Company including those that might threaten its business model, future performance, solvency or liquidity.
Borrowing powers
To give a degree of investment flexibility and to meet short term liquidity requirements, borrowing is permitted by the Company's Articles of a sum which does not exceed 10 per cent of the Company's share capital and reserves. The Company has not utilised these powers to date and does not plan to utilise this ability at the current time.
Principal risks and uncertainties and management of risk
The Company is exposed to a variety of risks and the principal risks identified by the Board are noted below.
- Regulatory
The Company is required at all times to observe the conditions within the Income Tax Act 2007 for the maintenance of approved VCT status. This involves compliance with a number of tests which, if not met, could result in the loss of a number of tax reliefs which are currently available to both the Company and its shareholders under its VCT status. The tests are under continual review by Calculus Capital Limited, the administrator and (qualifying) investment manager of the Company. The Board keeps these matters under continual review through the provision of monthly management information and quarterly board meetings. The Board has also retained the services of a VCT consultant to undertake an independent monitoring role.
- Investment and liquidity risk
The majority of the Company's investments are in small and medium size companies as these meet the VCT qualifying holdings rules. These companies may not be publicly traded or freely marketable and realisations of such investments can be difficult and can take a considerable amount of time. They also, by their nature, tend to carry higher risk than a larger or longer established business. This risk is in part mitigated by diversifying the investments and maintaining around 25 per cent of the Company's portfolio in liquid assets to enable any short term cash requirements to be met. Calculus Capital Limited further mitigates this risk by considering exit strategy at the time of making investments.
- Market price risk
In addition, the Company is subject to other price risk constituting uncertainty about the future prices of financial instruments held by the Company. This risk is in part mitigated by diversifying the Company's portfolio. The Company has invested in loan stocks and as a result is subject to credit risk. Credit risk is also included within market risk. The Company mitigates this risk through the regular monitoring of financial performance of investee companies by Calculus Capital Limited.
- Other risks
The majority of the loan stocks are fixed rate so the Board does not consider interest rate risk to be material. The Company has no exposure to foreign currency risk, nor does it have any interest bearing liabilities. Further comment is provided on the financial instruments risks of the Company in note 18 to the financial statements.
The Board regularly reviews the risks the business faces and their potential impact on the Company. The Board monitors the Company's performance through the use of regular financial information and administrator and management reports.
Key performance indicators
The key performance indicators are those that communicate the financial performance and strength of the Company as a whole; these being principally the net asset value per Ordinary Share. Further key performance indicators are those which show the Company's position in relation to the VCT tests which it is required to meet to maintain its VCT status.
The performance measures for the year are included in the Financial Highlights on page 1 and reported on in the Chairman's statement on page 2 of the Report and Accounts.
Key strategic issues considered during the year
The key strategic issues considered during the year were:
The performance of the Company
The value and nature of investments made and realised during the year to ensure these were in accordance with the investment policy and/or whether any changes should be proposed to the investment policy.
The Investment Manager's Review (Qualifying Investments) on pages 4 to 7 of the Report and Accounts provides commentary on the performance of the Company during the year.
The level of dividends paid and proposed
The Board considered the level of dividends to be proposed, and the use of proceeds arising from the sale of one of the Company's investments.
Employees, environmental, human rights and community issues
The Company has no employees and the Board comprises entirely non-executive directors. Day-to-day management of the Company's business is delegated to the investment managers (details of the management agreement is set out in the Directors' Report) and the Company itself has no environmental, human rights, or community policies. In carrying out its activities and in relationships with suppliers, the Company aims to conduct itself responsibly, ethically and fairly.
Gender diversity
The Board believes that diversity of experience and approach, including gender diversity, amongst board members is of great importance and the Board gives careful consideration to issues of board balance and diversity when considering the composition of the Board and making new appointments.
Statement regarding Annual Report and Accounts
The directors consider that taken as a whole, the Annual Report and Accounts is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
By order of the Board
Lesley Watkins Company Secretary
21 March 2017
DIRECTORS' RESPONSIBILITIES STATEMENT
The directors are responsible for preparing the Annual Financial Report and the Company's 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 to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company for that period. In preparing these financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the 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 adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the remuneration report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The directors are responsible for the 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.
The financial statements are published on the www.calculuscapital.com website, which is a website maintained by the Company's investment manager, Calculus Capital Limited. The maintenance and integrity of the website maintained by Calculus Capital Limited is, so far as it relates to the Company, the responsibility of Calculus Capital Limited. The work carried out by the auditor does not involve consideration of the maintenance and integrity of this website and accordingly, the auditors accept no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom covering the preparation and dissemination of the financial statements may differ from legislation in their own jurisdiction.
We confirm that, to the best of our knowledge: (a) the financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and deficit of the Company; and
(b) the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
On behalf of the Board
Philip Stephens Chairman
21 March 2017
INCOME STATEMENT
For the year ended 31 December 2016
Year ended 31 December 2016 | Year ended 31 December 2015 | ||||||||||||
Revenue | Capital | Total | Revenue | Capital | Total | ||||||||
Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||
(Losses)/gains on investments at fair value |
9 |
- |
(325) |
(325) |
- |
(389) |
(389) | ||||||
Investment income | 3 | 77 | - | 77 | 114 | - | 114 | ||||||
Investment management fee | 4 | - | - | - | (4) | (11) | (15) | ||||||
Other expenses | 5 | (127) | - | (127) | (141) | - | (141) | ||||||
Deficit before taxation | (50) | (325) | (375) | (31) | (400) | (431) | |||||||
Taxation | 6 | - | - | - | - | - | - | ||||||
Deficit attributable to Ordinary shareholders |
(50) |
(325) |
(375) |
(31) |
(400) |
(431) | |||||||
Deficit per Ordinary Share | 8 | (0.45 | )p (2.89 | )p (3.34 | )p (0.27 | )p (3.54 | )p (3.81 | )p | |||||
The total column is the profit and loss account of the Company. The revenue and capital columns are provided as supplementary information in accordance with the AIC SORP.
All items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.
There is no other comprehensive income as there were no other gains and losses.
The notes to the financial statements on pages 35 to 48 of the financial statements form an integral part of this statement.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2016
Share capital |
Special reserve | Capital redemption reserve |
Capital reserves |
Revenue reserve |
Total | ||
Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
For the year ended 31 December 2016 | |||||||
1 January 2016 | 1,131 | 7,395 | 510 | (4,505) | (85) | 4,446 | |
Net deficit after taxation for the year | (325) | (50) | (375) | ||||
Shares bought back for cancellation | 13 | (10) | (40) | 10 | (40) | ||
Dividends paid | 7 | (392) | (392) | ||||
31 December 2016 | 1,121 | 6,963 | 520 | (4,830) | (135) | (3,639) | |
For the year ended 31 December 2015 | |||||||
1 January 2015 | 1,131 | 8,356 | 510 | (4,105) | (54) | 5,838 | |
Net deficit after taxation for the year | - | - | - | (400) | (31) | (431) | |
Dividends paid | 7 | - | (961) | - | - | - | (961) |
31 December 2015 | 1,131 | 7,395 | 510 | (4,505) | (85) | 4,446 | |
The notes to the financial statements on pages 35 to 48 of the financial statements form an integral part of this statement.
STATEMENT OF FINANCIAL POSITION
As at 31 December 2016
Year ended 31 December 2016 | Year ended 31 December 2015 | ||
Note | £'000 | £'000 | |
Fixed Assets | |||
Investments at fair value through profit or loss | 9 | 3,645 | 4,085 |
Current Assets | |||
Debtors | 11 | 25 | 34 |
Cash at bank | 37 | 392 | |
62 | 426 | ||
Creditors: Amounts falling due within one year | |||
Creditors | 12 | (68) | (65) |
Net Current Assets | (6) | 361 | |
Net Assets | 3,639 | 4,446 | |
Represented by:
CALLED UP SHARE CAPITAL AND RESERVES
Share capital | 13 | 1,121 | 1,131 |
Special reserve | 14 | 6,963 | 7,395 |
Capital redemption reserve | 14 | 520 | 510 |
Capital reserve | 14 | (4,830) | (4,505) |
Revenue reserve | 14 | (135) | (85) |
Total Ordinary shareholders' funds | 3,639 | 4,446 | |
Net asset value per Ordinary Share | 15 | 32.46p | 39.31p |
The notes to the financial statements on pages 35 to 48 of the financial statements form an integral part of this statement.
The financial statements on pages 31 to 48 were approved by the Board of directors on and were signed on its behalf by: Philip Stephens
Director
21 March 2017
STATEMENT OF CASH FLOWS
For the year ended 31 December 2016
Year ended 31 December 2016 | Year ended 31 December 2015 | ||
Note | £'000 | £'000 | |
Cash flows from operating activities | |||
Investment income received | 82 | 108 | |
Investment management fees refunded/(paid) | 7 | (67) | |
Administration fees paid | (12) | (26) | |
Other cash payments | (115) | (116) | |
Net cash used in operating activities | 16 | (38) | (101) |
Cash flows from investing activities | |||
Purchase of investments | (651) | (975) | |
Sale of investments | 766 | 450 | |
Net cash inflow/(outflow) from investing activities | 115 | (525) | |
Cash flows from financing activities | |||
Equity dividends paid | 7 | (392) | (961) |
Purchase of own shares | (40) | - | |
Net cash used in financing activities | (432) | (961) | |
Decrease in cash and cash equivalents | (355) | (1,587) | |
Cash and cash equivalents at the beginning of the year | 392 | 1,979 | |
Cash and cash equivalents at the end of the year | 37 | 392 | |
The notes to the financial statements on pages 35 to 48 of the financial statements form an integral part of this statement.
NOTES TO THE FINANCIAL STATEMENTS
1 Company information
The Company is incorporated in England and Wales and operates under the Companies Act 2006 (the Act) and the regulations made under the Act as a public company limited by shares, with registered number 05300876. The registered office of the Company is 104 Park Street London W1K 6NF.
2 Basis of preparation
Basis of accounting
The financial statements have been prepared on a basis compliant with applicable United Kingdom accounting standards, including Financial Reporting Standard 102 - The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland ('FRS102') and with the Act. The directors have prepared the financial statements on a basis compliant with the recommendations of the Statement of Recommended Practice November 2014 ("the SORP") updated in January 2017 for Investment Trust Companies and Venture Capital Trusts produced by the Association of Investment Companies ("AIC").
The financial statements are presented in Sterling (£).
Going concern
After reviewing the Company's forecasts and projections, the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least 12 months from the date of signing this report. The Company therefore continues to prepare its financial statements on the going concern basis and on the basis that its VCT status will continue to be met.
Significant judgements and estimates
Preparations of the financial statements requires management to make significant judgements and estimates. The items in the financial statements where these judgements and estimates have been made are in the valuation of unquoted investments. The valuation methodologies used when valuing unquoted investments provide a range of possible values. Judgements are used to estimate where in the range the fair value lies. The sensitivity analysis in note 18 demonstrates the impact on the portfolio of applying alternative values in the upside and downside.
As at 31 December 2016 the value of unquoted investments included within the Company's investment portfolio was
£1,984,720 (2015: £2,193,518). These investments are valued in accordance with the accounting policy disclosed under note 9 investments.
Principal accounting policies
Investments
The Company has adopted FRS 102 sections 11 and 12 for the recognition of financial instruments. The Company's business is investing in financial assets with a view to profiting from their total return in the form of increases in fair value. Fair value is the amount for which an asset can be exchanged between knowledgeable, willing parties in an arm's length transaction. The Company manages and evaluates the performance of these investments on a fair value basis in accordance with its investment strategy, and information about the investments is provided on this basis to the Board of directors.
Investments held at fair value through profit or loss are initially recognised at fair value, being the consideration given and excluding transaction or other dealing costs associated with the investment, which are expensed and included in the capital column of the Income Statement.
After initial recognition, investments, which are classified as at fair value through profit or loss, are measured at fair value. Gains or losses on investments classified as at fair value through profit or loss are recognised in the capital column of the Income Statement, and allocated to the capital reserve - other, and capital reserve - investment holding loss as appropriate.
Aggregate transaction and dealing costs included in disposals and additions are disclosed in note 9 to the financial statements. All purchases and sales of quoted investments are accounted for on the trade date basis. All purchases and sales of unquoted investments are accounted for on the date that the sale and purchase agreement becomes unconditional.
For quoted investments and money market instruments fair value is established by reference to bid, or last, market prices depending on the convention of the exchange on which the investment is quoted at the close of business on the balance sheet date.
Unquoted investments are valued using an appropriate valuation technique so as to establish what the transaction price would have been at the balance sheet date. Such investments are valued in accordance with the International Private Equity and Venture Capital ("IPEVC") guidelines. Primary indicators of fair value are derived from earnings or sales multiples, using discounted cash flows, recent arm's length market transactions by independent third parties, from net assets, or where appropriate, at price of recent investments.
Premiums on loan stock investments and preference shares are accrued at fair value when the Company has the right to receive the premium and expects to do so. Redemption premiums are allocated to the revenue column of the Income Statement.
Cash and cash equivalents
Cash comprises cash on hand and demand deposits. Cash equivalents does not include liquidity fund investments as the Company does not consider the risk associated with changes in value to be insignificant.
Debtors Short term debtors are measured at transaction price, less any impairment.
Creditors Short term trade creditors are measured at the transaction price.
Income
Dividends receivable on equity shares and on unquoted funds are recognised as income on the date on which the shares or units are marked as ex-dividend. Where no ex-dividend date is available, the income is recognised when the Company's right to receive it has been established.
Interest income on loan stock and dividends on preference shares are accrued on a daily basis. Provision is made against this income where recovery is doubtful.
Interest receivable from fixed income securities is recognised using the effective interest rate method. Interest receivable on bank deposits is included in the financial statements on an accruals basis.
Other income is credited to the revenue column of the Income Statement when the Company's right to receive the income is established.
Expenses
All expenses are accounted for on an accruals basis. Expenses are charged through revenue in the Income Statement except as follows:
- costs which are incidental to the acquisition or disposal of an investment are taken to the capital column of the Income Statement;
- expenses are charged to the capital column in the Income Statement where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect investment management fees have been allocated 75 per cent to the capital column and 25 per cent to the revenue column in the Income Statement, being in line with the Board's expected long-term split of returns, in the form of capital gains and revenue respectively, from the investment portfolio of the Company;
- expenses associated with the issue of shares are deducted from the share premium account.
Reserves Special reserve
The special reserve was created by a reduction in the share premium account by order of the High Court. It can be used for the repurchase of the Company's ordinary shares and for the payment of dividends.
In accordance with the AIC SORP, the consideration paid for shares bought for cancellation is shown as a reduction of the special reserve.
Capital redemption reserve
The capital redemption reserve accounts for amounts by which the issued capital is diminished through the repurchase of the Company's own shares.
Capital reserve - other
The following are accounted for in this reserve:
- gains and losses on disposal of investments;
- transaction costs which are incidental to the acquisition of investments;
- 75% of investment management fee expenses, together with any related tax effect, is charged to the capital column of the Income Statement in accordance with the above policies; and
- 100% of performance incentive fees. Capital reserve - investment holding loss
The following are accounted for in this reserve:
- movements in the fair value of investments held at the year end. Revenue reserve
The revenue reserve represents the balance of revenue retained within the Company after the payment of any dividends.
Taxation
Under FRS 102, deferred tax must be recognised in respect of all timing differences that have originated but not reversed at the reporting date where transactions or events that result in an obligation to pay more tax in the future have occurred at the reporting date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversals of the underlying timing differences can be deducted. Timing differences are differences between the Company's taxable profits and its results as stated in the financial statements.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.
No taxation liability arises on gains from sales of fixed asset investments by the Company by virtue of its venture capital trust status. However, the net revenue (excluding UK dividend income) accruing to the Company is liable to corporation tax at the prevailing rates.
Any tax relief obtained in respect of management fees allocated to capital is reflected in the capital reserve - other and a corresponding amount is charged against revenue. The relief is the amount by which corporation tax payable is reduced as a result of capital expenses.
Dividends
Dividends to shareholders are accounted for in the year in which they are paid or approved in general meetings. Dividends payable to equity shareholders are recognised in the Statement of Changes in Equity when they are paid, or have been approved by shareholders in the case of a final dividend and become a liability of the Company.
Share buybacks
Where shares are purchased for cancellation, the consideration paid, including any directly attributable incremental costs, is deducted from distributable reserves. As required by the Companies Act 2006, the equivalent of the nominal value of shares cancelled is transferred to capital redemption reserve.
3 Income
Year ended 31 December 2016 | Year ended 31 December 2015 | |
£'000 | £'000 | |
Income from quoted investments | ||
UK dividend income | 31 | 52 |
Unfranked investment income | - | - |
31 | 52 | |
Income from unquoted investments | ||
Unfranked investment income | 46 | 62 |
46 | 62 | |
Total income | 77 | 114 |
Total income comprises | ||
Dividends | 31 | 52 |
Interest | 46 | 62 |
Total income | 77 | 114 |
All income arose in the United Kingdom.
The Board considered operating segments and considered there to be one, that of investing in financial assets.
4 Investment management fee
Year ended 31 December 2016 | Year ended 31 December 2015 | |||||
Revenue | Capital | Total | Revenue | Capital | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Investment management fee | 15 | 47 | 62 | 21 | 62 | 83 |
Claw back of excess expenses | (15) | (47) | (62) | (17) | (51) | (68) |
- | - | - | 4 | 11 | 15 | |
Administration fee | 12 | - | 12 | 17 | - | 17 |
Claw back of excess expenses | (12) | - | (12) | - | - | - |
- | - | - | 17 | - | 17 | |
Expense contribution from the manager | (6) | - | (6) | - | - | - |
Total (due from)/due to the Manager | (6) | - | (6) | 21 | 11 | 32 |
For the year ended 31 December 2016, Calculus Capital Limited waived £61,828 (2015: £68,455) of its fees relating to investment management, and £12,366 (2015: nil) of its fees relating to administration. A further expense contribution of
£6,144 (2015: nil) was made by Calculus Capital Limited to the Company. At 31 December 2016, there was £6,144 due to the Company from Calculus Capital Limited (31 December 2015: due to Calculus Capital Limited £5,259). Details of the terms and conditions of the investment management agreement are set out under "Management" in the Directors' Report.
5 Deficit before taxation
The deficit before taxation is stated after: | Year ended 31 December 2016 | Year ended 31 December 2015 |
£'000 | £'000 | |
Fees payable to the Company's auditor for the audit of the Company's individual accounts |
23 |
22 |
Fees payable to the Company's auditor for other services: | ||
Tax compliance services | - | 7 |
Directors' remuneration and social security contributions | 29 | 26 |
Expenses contribution from the manager | (6) | - |
Other expenses | 81 | 86 |
127 | 141 | |
Further details of directors' remuneration can be found in the Directors' Remuneration Report.
6 Taxation
Year ended 31 December 2016 | Year ended 31 December 2015 | |||||
Revenue | Capital | Total | Revenue | Capital | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
UK Corporation Tax | - | - | - | - | - | - |
The tax assessed for the year is lower than the standard rate of corporation tax In the United Kingdom at 20% (2015: 20.25%) The differences are explained as follows | ||||||
Deficit before taxation: | (50) | (325) | (375) | (31) | (400) | (431) |
Deficit multiplied by Corporation Tax at 20% (2015: 20.25%) |
(10) |
(65) |
(75) |
(6) |
(81) |
(87) |
Effect of: | ||||||
UK dividends not chargeable to tax | (6) | - | (6) | (11) | - | (11) |
Non-taxable losses | 65 | 65 | - | 79 | 79 | |
Excess expenses for the year | 16 | - | 16 | 17 | 2 | 19 |
Total tax charge | - | - | - | - | - | - |
The corporation tax rate remained at 20% throughout 2016.
At 31 December 2016, the Company had £1,516,639 (31 December 2015: £1,437,541) of excess management expenses to carry forward against future taxable profits. The deferred tax asset of £257,829 (31 December 2015: £259,974) has not been recognised due to the fact that it is unlikely the excess management fees will be set off in the foreseeable future.
7 Dividends
Year ended 31 December 2016 | Year ended 31 December 2015 | |
£'000 | £'000 | |
Paid during the year: | ||
2015 Special dividend: nil (2014: 5.0p) per Ordinary Share | - | 565 |
2015 Final dividend: 2.0p (2014: 2.0p) per Ordinary Share | 224 | 226 |
2016 Interim dividend: 1.5p (2015: 1.5p) per Ordinary Share | 168 | 170 |
392 | 961 | |
Declared post year end: | ||
2016 Final dividend: 2.0p (2015: 2.0p) per Ordinary Share | 224 | 226 |
The Company paid a final dividend in June 2016 of 2.0p per Ordinary Share (2015: 2.0p) and an interim dividend in October 2016 of 1.5p per Ordinary Share (2015:1.5p). The directors are proposing a final dividend of 2.0p per Ordinary Share in respect of the year ended 31 December 2016 (2015: 2.0p). Subject to shareholder approval, this dividend will be paid on 30 June 2017 to shareholders on the register on 31 May 2017.
8 Basic and diluted earnings per share
Year ended 31 December 2016 | Year ended 31 December 2015 | ||||||
Revenue | Capital | Total | Revenue | Capital | Total | ||
pence | pence | pence | pence | pence | pence | ||
Ordinary Share | (0.45 | (2.89)p | (3.34)p | (0.27)p | (3.54)p | (3.81 | )p |
Basic and diluted earnings per Ordinary Share is based on the net revenue deficit attributable to the Ordinary Shares of
£50,442 (2015: deficit of £29,939) and on 11,232,367 (31 December 2015: 11,311,329) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year.
Basic and diluted capital deficit per Ordinary Share is based on the net capital deficit for the year of £325,015 (2015: return of £400,614) and on 11,232,367 (31 December 2015: 11,311,329) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year.
Basic and diluted total deficit per Ordinary Share is based on the total deficit attributable to the Ordinary Shares of
£375,457 (2015: return of £430,553) and on 11,232,367 (31 December 2015: 11,311,329) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year.
As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share.
9 Investments at fair value through profit or loss
Year Ended 31 December 2016 | Year Ended 31 December 2015 | |
£'000 | £'000 | |
AIM investments | 333 | 236 |
Quoted Neptune income funds | 998 | 978 |
Unquoted investments | 1,985 | 2,193 |
Money market instruments | 329 | 678 |
3,645 | 4,085 | |
£'000 | £'000 | |
Opening book cost | 5,422 | 5,414 |
Opening investment holding losses | (1,337) | (1,465) |
Opening valuation | 4,085 | 3,949 |
Movements in the year: | ||
Purchases at cost | 651 | 975 |
Sales - proceeds | (766) | (450) |
- realised losses on sales | (1,828) | (517) |
Movement in investment holding losses | 1,503 | 128 |
Closing valuation | 3,645 | 4,085 |
Closing book cost | 3,479 | 5,422 |
Closing unrealised gains/(losses) | 166 | (1,337) |
Closing valuation | 3,645 | 4,085 |
£'000 | £'000 | |
Loss on disposal of investments | (1,828) | (517) |
Movement in investment holding gains | 1,503 | 128 |
Total losses on investments | (325) | (389) |
In the year to 31 December 2016, Dryden Human Capital Group Limited was written down by £50,000 as it was sold for no return to equity shareholders in January 2017. Terrain Energy Limited and RMS Europe Limited were written down by
£49,521 and £62,171 respectively due to adverse trading conditions. The holding in Human Race Group Limited which cost £400,000 was sold for £429,744.
There have not been any transaction costs in the year to 31 December 2016, nor in the year to 31 December 2015. Note 18 to the financial statements provides a detailed analysis of investments held at fair value through profit or loss.
10 Significant interests
The Company had the following interests of 3 per cent or more in the share capital of its portfolio companies:
Class of shares | Number held | Proportion of class held | |
Terrain Energy Limited | Ordinary £1 | 412,677 | 5.7% |
RMS Europe Limited | Ordinary £1 | 85,166 | 4.5% |
11 Debtors
Year Ended 31 December 2016 | Year Ended 31 December 2015 | |
£'000 | £'000 | |
Accrued income | 15 | 10 |
Other debtors and prepayments | 10 | 24 |
25 | 34 |
12 Creditors - amounts falling due within one year
Year Ended 31 December 2016 | Year Ended 31 December 2015 | |
£'000 | £'000 | |
Accruals and other creditors | 68 | 65 |
13 Called up share capital Ordinary Shares
Issued and fully paid: | Year Ended 31 December 2016 | Year Ended 31 December 2015 | ||
Ordinary Shares of 10p each | Number | £'000 | Number | £'000 |
As at 1 January | 11,311,329 | 1,131 | 11,311,329 | 1,131 |
Buy back of shares for cancellation | (100,000) | (10) | - | - |
As at 31 December | 11,211,329 | 1,121 | 11,311,329 | 1,131 |
During the year the Company purchased for cancellation 100,000 Ordinary Shares of 10p (2015:nil) at a price of 39 pence per share. The consideration was £39,000 (2015:nil) including stamp duty.
14 Reserves
Special reserve |
Capital redemption reserve |
Capital reserve - other | Capital reserve - investment holding loss |
Revenue reserve | |
£'000 | £'000 | £'000 | £'000 | £'000 | |
At 1 January 2016 | 7,395 | 510 | (3,168) | (1,337) | (85) |
Loss on sales | - | - | (1,828) | - | - |
Movement in investment holding losses |
- |
- |
- |
1,503 |
- |
Investment management fee charged to capital |
- |
- |
- |
- |
- |
Shares bought back for cancellation | (40) | 10 | - | - | - |
Dividends paid | (392) | - | - | - | - |
Retained net loss for the year | - | - | - | - | (50) |
At 31 December 2016 | 6,963 | 520 | (4,996) | 166 | (135) |
The Special reserve was created to (i) create a distributable reserve which can be used by the Company to fund purchases of its own shares; (ii) to enable the Company to offset the effects of any future unrealised losses on future dividends payable in respect of shares; and (iii) since the Company revoked its status as an investment company, for any other purpose. The Company is therefore able to make distributions out of the aggregate of its Revenue reserve, Special reserve and Capital reserves, excluding any gains arising on the valuation of unquoted investments.
15 Net asset value per share
Year Ended 31 December 2016 | Year Ended 31 December 2015 | |
pence | pence | |
Ordinary Shares of 10p each | 32.46 | 39.31 |
The basic and diluted net asset value per Ordinary Share is based on net assets (including current year revenue) of
£3,639,000 (31 December 2015: £4,446,002) and on 11,211,329 (31 December 2015: 11,311,329) Ordinary Shares, being the number of Ordinary Shares in issue at the end of the year.
16 Reconciliation of net (deficit)/return before finance charges and taxation to net cash outflow
from operating activities
Year ended 31 December 2016 | Year ended 31 December 2015 | |
£'000 | £'000 | |
Net deficit before finance charges and taxation | (375) | (431) |
Net capital deficit/(return) | 325 | 400 |
(Increase)/decrease in debtors | 9 | (13) |
(Decrease)/ increase in creditors | 3 | (46) |
Investment management fee charged to capital | - | (11) |
Net cash outflow from operating activities | (38) | (101) |
17 Financial commitments
At 31 December 2016 and 2015 the Company did not have any financial commitments which had not been accrued.
18 Financial Risk Management
The objective of the Company is to generate long term capital growth and tax free dividends for investors. The investment policy is to invest approximately 75 per cent of the Company's funds in a diversified portfolio of holdings in qualifying investments, whether unquoted or traded on AIM. Investments are made selectively across a diverse range of sectors in companies which have the potential to generate growth and enhance their value. The investments in a particular company may be made in loan stocks or preference shares as well as equity shares where it is felt this would enhance shareholder return. In accordance with the Company's risk averse approach, the investment manager will only invest when it believes it has identified the right investment opportunity. The balance of approximately 25 per cent of the Company's funds can be invested in a combination of Neptune income funds, a portfolio of similar income generating UK listed shares and money market instruments.
The ten largest holdings by value and the amounts invested in quoted equity, unquoted equity, unquoted bonds, unquoted preference shares, quoted funds and unquoted funds are set out in the Investment Portfolio, on page 8 of the Report and Accounts.
The Company's financial instruments comprise securities, cash balances and debtors and creditors that arise from its operations.
The Company has no direct exposure to foreign currency risk.
The principal risks the Company faces in its portfolio management activities are:
- Market price risk
- Interest rate risk
- Liquidity risk
The investment manager's policies for managing these risks are summarised below and have been applied throughout the year. The Board keeps the risks under continual review through the provision of monthly management information and quarterly board meetings.
(i) Market price risk
Market price risk arises from uncertainty about the future prices of financial instruments held in accordance with the Company's investment objectives. It represents the potential loss that the Company might suffer through holding market positions in the face of market movements. This risk is monitored by the investment manager on a regular basis and by the Board at meetings with the investment manager.
The Board reviews each investment purchase in the qualifying portfolio to ensure that any acquisition allows the Company to maintain an appropriate spread of other price risk and that it falls within the VCT qualifying criteria at the time of purchase. It considers the associated business risks of each investment. These include, but are not restricted to, the industry sector, management expertise and financial stability of each company.
The Company does not use derivative instruments to hedge against market price risk. The maximum potential exposure to market price risk is the value of the investment portfolio as at 31 December 2016 of £3,645,000 (31 December 2015:
£4,085,000).
The Board believes that the Company's assets are mainly exposed to market price risk, as the Company holds most of its assets in the form of investments in VCT qualifying small UK companies whose equity shares are either quoted or valued by reference to the share prices of quoted comparable companies and are thus subject to market movements. The Board considers that investments in loan stock and/or preference shares may also be sensitive to changes in quoted share prices as the value of these financial instruments can be determined with reference to the enterprise value of the investee company which may be based on the value of quoted comparable companies.
The table below shows the impact upon return and net asset value per share if there were to be a 10 per cent (31 December 2015: 10 per cent) movement in overall share prices, and assumes:
- that each of the shares and the Neptune funds held by the Company produces an overall movement of 10 per cent, and
- the values of the loan stocks and liquidity funds are not affected by a market movement of this size, and
- that the actual portfolio of investments held by the Company is perfectly correlated to this overall movement in share prices. Shareholders should however note that this level of correlation is highly unlikely in reality.
If overall share prices fell/rose by 10 per cent (2015: 10 per cent), with all other variables other than investment management fees held constant:
Year Ended 31 December 2016
Return and net assets
Year Ended 31 December 2015
Return and net assets
£'000 £'000
(Decrease)/increase in return (297)/297 (271) /271 (Decrease)/increase in net asset value per Ordinary Share (2.74)p/2.74p (2.40) p/2.40p
A decrease of £296,821 (31 December 2015: £271,354) in the net assets of the Company would have increased the manager's contribution to expenses by £10,766 (31 December 2015: £9,497). An increase of £296,821 (31 December 2015: £271,354) would have increased the investment management and admin fees payable by £4,622 (31 December 2015: £9,497) and reduced the expenses contribution to nil (31 December 2015:nil).
The impact of a change of 10 per cent has been selected, as in current market conditions, an increase/(decrease) in the aggregate values of investments in shares and Neptune funds by 10 per cent is reasonably possible based on historical changes that have been observed.
The Board considers credit risk to be part of market risk. The failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. The Company manages this risk by ensuring that where an investment is made in an unquoted loan, it is made as part of the overall equity and debt package. The recoverability of the debt is assessed as part of the overall investment process and is then monitored on an ongoing basis by the investment manager who reports to the Board on any recoverability issues. It also ensures that cash at bank is held only with reputable banks with high quality external credit ratings. None of the Company's financial assets are secured by collateral or other credit enhancements. The maximum exposure to credit risk as at 31 December 2016 was £3,707,000 (31 December 2015: £4,511,000).
All quoted shares of the Company which are traded on a recognised exchange are held by Reyker Securities plc, the Company's custodian. The Board regularly monitors the Company's risk by reviewing assessments of the custodian submitted by the investment manager.
(ii) Interest rate risk
Interest is earned on cash balances and money market funds and is linked to the banks' variable deposit rates. The Board does not consider interest rate risk to be material. Interest rate risk arising on loan stock instruments is not considered significant, as the main risks on these investments are credit risk and market price risk. The interest rate earned on the loan stock instruments has been disclosed below:
Effective Interest rate on 31 December 2016 % | |
Solab Group Limited | 12.0 |
Dryden Human Capital Group Limited | 15.0 |
On 31 December 2016, there was £8,507 (2015:£4,747) in loan stock interest overdue from Dryden Human Capital Group Limited.
The Company does not have any interest bearing liabilities.
An analysis of financial assets and liabilities, which identifies the risk of the Company's holding of such items is provided. The Company's financial assets comprise equity and preference shares, loan stock, cash and debtors. The interest rate profile of the Company's financial assets is given in the table below:
Year Ended 31 December 2016 | Year Ended 31 December 2015 | |||
Fair value interest rate risk | Cash flow interest rate risk | Fair value interest rate risk | Cash flow interest rate risk | |
£'000 | £'000 | £'000 | £'000 | |
Loan stock | 240 | - | 599 | - |
Money market funds | - | 329 | - | 678 |
Cash | - | 37 | - | 392 |
240 | 366 | 599 | 1,070 | |
The variable rate is based on the banks' deposit rate, and applies to cash balances held and the money market funds. The benchmark rate which determines the interest payments received on interest bearing cash balances is the Bank of England base rate which was 0.25 per cent as at 31 December 2016 (31 December 2015: 0.5 per cent).
(iii) Liquidity risk
The investments the Company holds include AIM quoted securities where the liquidity is generally below that of securities listed/quoted on the main market and it also holds unquoted investments where there is no ready market for the securities. The ability of the Company to realise positions may therefore be restricted when there are no willing purchasers.
The Board, which monitors the Company's overall liquidity risk, seeks to ensure that an appropriate proportion of the Company's investment portfolio is invested in cash and readily realisable securities, which are sufficient to meet any funding commitments that may arise.
At 31 December 2016, the Company held £1,364,000 (31 December 2015: £2,048,000) in cash and readily realisable securities (including the investments in the Neptune Income Fund and Neptune Quarterly Income Fund) to pay accounts payable and accrued expenses.
Fair value hierarchy Investments held at fair value through profit and loss are valued in accordance with IPEVC guidelines as follows:
Valuation Methodology | Year ended 31 December 2016 | Year ended 31 December 2015 |
£'000 | £'000 | |
Quoted market bid price | 1,660 | 1,892 |
Expected recoverable amount | 240 | 59 |
Discounted cash flow | 719 | 27 |
Earnings multiple | - | 599 |
Recent investment price | 300 | - |
Sales multiple | - | 475 |
Precedent transaction multiple | - | 257 |
Reserves multiple | 726 | 776 |
3,645 | 4,085 |
The valuation method used will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEVCA guidelines.
In order to provide further information on the valuation techniques used to measure assets carried at fair value, the measurement bases are categorised into a "fair value hierarchy" as follows:
- Quoted market prices in active markets - "Level 1"
Inputs to Level 1 fair values are quoted prices for identical asset in an active market. Quoted in an active market in this context means quoted prices are readily and regularly available and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted price is usually the current bid price. The Company's investments in AIM quoted equities, money market funds and the quoted Neptune funds are classified within this category.
- Valued using models with significant observable market inputs - "Level 2"
Inputs to Level 2 fair values are inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly. The Company has no investments classified within this category.
- Valued using models with significant unobservable market inputs - "Level 3"
Inputs to Level 3 fair values are unobservable inputs for the asset. Unobservable inputs may have been used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset at the measurement date (or market information for the inputs to any valuation models). As such, unobservable inputs reflect the assumptions the Company considers that market participants would use in pricing the asset. The Company's unquoted equities, preference shares and loan stock are classified within this category. As explained in note 1, unquoted investments are valued in accordance with the IPEVCA guidelines.
Financial assets at fair value through profit or loss for year ended 31 December 2016 | ||||
Level 1 | Level 2 | Level 3 | Total | |
£'000 | £'000 | £'000 | £'000 | |
Equity investments | 333 | - | 1,745 | 2,078 |
Fixed interest investments | - | - | 240 | 240 |
Preference share investments | - | - | - | - |
Money market funds | 329 | - | - | 329 |
Quoted Neptune income funds | 998 | - | - | 998 |
1,660 | - | 1,985 | 3,645 | |
Financial assets at fair value through profit or loss for year ended 31 December 2015 | ||||
Level 1 | Level 2 | Level 3 | Total | |
£'000 | £'000 | £'000 | £'000 | |
Equity investments | 236 | - | 1,595 | 1,831 |
Fixed interest investments | - | - | 598 | 598 |
Preference share investments | - | - | - | - |
Money market funds | 678 | - | - | 678 |
Quoted Neptune income funds | 978 | - | - | 978 |
1,892 | - | 2,193 | 4,085 | |
In order to maintain disclosures in line with prior year, the Company has early adopted the changes to FRS 102 published by the FRC in March 2016.
In valuing the unquoted portfolio, the inputs include the discount rate used when performing the discounted cash flow analysis and the multiple applied in universal transaction and comparable company analysis. The portfolio has been reviewed and both downside and upside reasonable possible alternative assumptions have been identified and applied to the valuation of each of the unquoted investments. Applying the downside alternatives the value of the unquoted investment portfolio would be £86,293 (31 December 2015: £565,003) or 7.9 per cent (31 December 2015: 25.8 per cent) lower. Using the upside alternatives the value of the unquoted investment portfolio would be increased by £96,225 (31 December 2015: £715,134) or 8.9 per cent (31 December 2015: 32.6 per cent) higher.
Financial liabilities
The Company finances its operations through its issued share capital and existing reserves. The only financial liabilities of the Company are creditors all of which are sterling denominated and are due within one year. The creditors are disclosed in note 12. No interest is paid on these liabilities.
Capital management policies and procedures
The Company's capital management objectives are to ensure that it will be able to continue as a going concern and to maximise the income and capital return to its Ordinary shareholders.
The Board, with the assistance of the investment manager monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the planned level of gearing, which takes account of the Manager's views on the market; the need for new issues of equity shares; and the extent to which revenue in excess of that which is required to be distributed should be retained. The capital of the Company is made up of called up share capital and reserves as detailed on the statement of financial position on page 33 of the Report and Accounts.
19 Related Party Transactions
Calculus Capital Limited receives an investment manager's fee from the Company. As disclosed in Note 4, for the year ended 31 December 2016, Calculus Capital Limited waived £61,826 (2015: £68,455) of its fees, and contributed a further £6,144 (2015: nil) towards the expenses of the Company. At 31 December 2016, there was £6,144 due back from Calculus Capital Limited (31 December 2015: due to Calculus Capital Limited £5,259).
20 Other Transactions with the Investment Manager
The Company's qualifying investments are managed by Calculus Capital Limited. John Glencross, a director of the Company, has an interest in Calculus Capital Limited and is a director of Terrain Energy Limited.
Calculus Capital Limited receives annual fees for monitoring and for the provision of a director from Terrain Energy Limited, Human Race Group Limited and Solab Group Limited. Calculus Capital Limited receives a monitoring fee from Arcis Biotechnology Holdings Limited and MicroEnergy Generation Services Limited. Calculus Capital Limited also received a fee from Terrain Energy Limited for office support services. In the year to 31 December 2016, Calculus Capital Limited received an arrangement fee relating to the investment of funds managed by it in Arcis Biotechnology Holdings Limited.
In the year ended 31 December 2016, the amount payable to Calculus Capital Limited which was attributable to the investment in the Company was £nil (2015: £700) for Dryden Human Capital Group Limited, £1,205 (2015: £nil) from Arcis Biotechnology Holdings Limited, £1,170 (2015: £829) for Solab Group Limited, £2,409 (2015: £3,178) from Human Race Group Limited, £2,503 (2015: £2,681) from Terrain Energy Limited and £311 (2015: £954) from MicroEnergy Generation Services Limited (all excluding VAT).
Nature of financial Information
These are not full accounts in terms of Section 434 of the Companies Act 2006. Full accounts for the year ended 31 December 2015 have been lodged with the Registrar of Companies. The Annual Report and Financial Statements for the year ended 31 December 2016 and the Notice of Annual General Meeting will be posted to shareholders shortly and will be available for inspection at 104 Park Street, London, W1K 6NF, the Company's registered office, and will be published on www.calculuscapital.com, a website maintained by the Company's Investment Manager, Calculus Capital Limited. A copy of the Annual Report and Financial Statements will also be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: http://www.morningstar.co.uk/uk/NSM.
The audited financial statements for the year ended 31 December 2016 contain an unqualified audit report.
Page numbers and cross-references in this announcement refer to page numbers and cross-references in the Annual Report and Financial Statements for the year ended December 2016.