Neptune-Calculus Income & Growth Regulatory News (NEP)

RNS Number : 8931I

Neptune-Calculus Income &Growth VCT

19 March 2010

 

Neptune-Calculus Income and Growth VCT plc

 

Financial highlights

Ordinary Shares			Year ended 31 December 2009
Return per share			(0.2)p
Net asset value per share			78.1p
Cumulative dividends paid			9.0p
Recommended final dividend			2.0p
			As at 28 February 2010*
Unaudited net asset value per share♦			77.1p
*Being the latest practicable date prior to publication. ♦ Including current year revenue.

I am pleased to present your Company's results for the year ended 31 December 2009. The UK economy shrunk by almost 5 per cent over the year and the recent recession has been the longest since modern records began in 1955. Whilst these tough economic conditions have impacted upon overall performance, we have still been able to pay dividends amounting to a total of 2 pence during the year whilst maintaining net assets per Ordinary Share. Net assets per Ordinary Share as at 31 December 2009 were 78.1p compared with 77.9p as at 31 December 2008.

 

Our qualifying investments are managed by Calculus Capital Limited and are in a combination of AIM and unquoted companies.

 

The quoted portfolio, composed primarily of AIM companies, has shown an overall improvement in value over the year. At 31 December 2009, it was valued at £2,343,658 compared with £2,098,637 as at 31 December 2008, and we made a £120,000 follow-on investment in Managed Support Services during the year. The FTSE AIM-All Share index increased by nearly 66 per cent over the year, comfortably outperforming the FTSE 100 index, but it should be noted that much of this rise was driven by the mining and natural resource sector and in general these companies are not VCT qualifying.

 

Performance on an individual basis across the portfolio has been mixed. Whilst EpiStem Holdings continues to perform well, both FSG Security and Relax Group entered administration during the second half of the year. We made only one additional quoted investment in the qualifying portfolio during 2009, in Managed Support Services, reflecting the Investment Manager's cautious stance.

 

There has been a slight decline in the value of the unquoted portfolio on a like-for-like basis, falling by 4 per cent over the year. All of our unquoted companies have experienced tough market conditions over the past twelve months and only one of these has reported positive earnings momentum. We base our unquoted valuations on those of similar quoted companies and, whilst the prevailing multiples for comparable companies have been rising, reduced earnings compared with 2008 together with conservative budgets for 2010 have offset this in some instances.

 

We made one new investment in the unquoted portfolio during the year, in Terrain Energy, and further details of this investment are included in the Qualifying Investment Manager's Review. In addition, Cagney joined the portfolio when it delisted from AIM in September. Although Pharmasmart entered administration in early December and we wrote off our loan stock of £75,000, the remainder of the loan stocks and preference shares have retained their value over the year.

 

Our non-qualifying investments are managed by Neptune Investment Management and comprise holdings in the Neptune Income Fund and Neptune Quarterly Income Fund as well as £1.1 million held in cash funds. The Neptune Funds have benefited from the stock market recovery and increased in value by 16 per cent over the year. Both funds have a bias towards the financials sector and this sector has been one of the main drivers of the market rally since March 2009.

 

Now that the VCT is approaching full investment, Neptune's role as non-qualifying investment manager is coming to an end. The Company has given Neptune twelve months' written notice of its intention to terminate its appointment as non-qualifying Investment Manager to the Company. There is, however, no proposal at present to reduce the Company's holdings in either the Neptune Income Fund or the Neptune Quarterly Income Fund once the notice period expires at the end of this year.

 

A more detailed analysis of investment performance and of the new investments made during the year can be found in the respective Investment Managers' Reviews that follow this statement.

 

As mentioned in the half-yearly report, all of the Company's C Shares were converted into Ordinary Shares on 30 April 2009 and the Ordinary Share portfolio and C Share portfolio were combined at that date. The Company now only has Ordinary Shares in issue and the performance of these shares reflects the performance of the enlarged portfolio.

In line with our policy of maximising tax-free dividends to shareholders, the Directors are pleased to propose a final dividend of 2 pence per Ordinary Share which, subject to shareholder approval, will be payable on 4 June 2010 to all shareholders. The record date for the dividend is 7 May 2010.

Following the decision by HM Revenue & Customs to exempt VCTs from VAT on management fees, the Company has acted to recover VAT which had been paid on management fees. A refund of £68,665 was received in 2008 from Calculus Capital, and I am pleased to report that in November 2009 the Company received a VAT refund of £14,792 from Neptune Investment Management. Following these receipts, no further VAT refunds are expected.

Although official statistics suggest that the UK economy returned to growth in the final quarter of 2009, it is likely that any recovery will be fragile. With this in mind, we will continue to take a cautious approach to new investment during 2010. We are however seeing a range of interesting opportunities in the unquoted sector and it is our intention to focus new investment activity in this area over the coming months.

 

Philip Stephens

19 March 2010

 

Calculus Capital advises the Company in respect of qualifying investments made by the Company. The investment focus of the Investment Manager has been to seek out established companies, most of which are cash positive, in preference to early stage companies.

 

The 'small cap' market has recovered well over the year following the significant falls of 2008. The FTSE AIM All-Share index increased by 66 per cent during 2009, significantly outperforming the FTSE 100, which only rose by 22 per cent over the same period. This recovery has, however, not been mirrored by the underlying performance of the UK economy and this apparent disconnect means that the reality for most UK focused companies is that conditions remain tough. 

 

At the year end, the portfolio of qualifying investments comprised 22 companies, made up of both AIM quoted and unquoted stocks. The overall qualifying percentage (calculated on an HM Revenue & Customs basis) at the end of December 2009 was 77.6 per cent. Given the challenging economic environment, we have taken a disciplined and selective approach to investment since the beginning of the year. 

 

The following investments were made during 2009:

 

Company	Activities	Type of investment	Nature of investment	Amount invested
Managed Support Services plc	Maintenance services for air conditioning systems	Equity	Follow on	£120,000
Terrain Energy Limited	Oil and gas production	Equity	New	£410,000

 

In February, we participated in a £6 million fundraising by Managed Support Services to enable its management to exploit acquisition opportunities at a depressed stage in the business cycle. Managed Support Services subsequently acquired London based Delrac Services at the beginning of May, and this was followed in December by the £3.7 million acquisition of the Status Buildings Services Group, which has annualised turnover of about £8 million and provides technical building services to customers across the South East.

 

In early October, £410,000 was invested in Terrain Energy, a company established by Calculus Capital to develop a portfolio of onshore oil and gas producing assets in the UK. On 14 October, Terrain Energy acquired its first interests from Egdon Resources plc (whose non-executive Chairman is also your Chairman), which comprise a balanced portfolio of exploration, development and production interests, all located in the East Midlands. The portfolio contains interests in the producing oil fields of Keddington and Kirklington, the formerly producing field at Eakring-Dukes Wood and the gas prospect at North Somercotes. Eakring-Dukes Wood was the UK's first oil field to be commercially developed by BP in the 1940s and plans are advanced to rejuvenate it. 

 

The section on unquoted portfolio companies of the Annual Report and Accounts contains further information on Terrain Energy and several of the larger unquoted investments within the qualifying portfolio.

 

The overall value of the quoted portfolio rose during the year, even though Relax Group and FSG Security entered administration. The best quoted performer continues to be EpiStem Holdings, the Manchester based life sciences company. Following the announcement of the major collaborative agreement with Novartis in March, EpiStem Holdings posted its maiden post tax profit in the year to 30 June 2009 and, as of 26 February 2010, its shares had risen to a bid price of 410 pence. 

 

Pressure Technologies, a manufacturer of seamless steel gas cylinders, has also performed well in recent months. The company achieved solid results for the financial year to 3 October 2009 in spite of difficult market conditions, with revenues increasing by over ten per cent to £26.2 million. At the end of its financial year, the company had cash balances of £7.9 million and in February 2010 it acquired Cardiff based Al-Met Limited for a maximum consideration of £2.25m. Al-Met is a niche manufacturer of precision engineered valve wear parts used in the oil and gas industries and fits well with Pressure Technologies' diversification strategy.

 

In December, Portland Gas changed its name to Infrastrata to allow the 'Portland Gas' name to remain with the Portland project via a subsidiary company. The Portland project is the company's proposed £456 million gas storage facility in Portland, Dorset and, once operational, it will be the largest onshore gas storage facility in the UK. The original funding exercise last year fell victim to the credit crunch, but construction eventually began at the start of August. Furthermore, the European Investment Bank, which supports energy diversification and security at EU level, announced in November 2009 that it had placed the project under appraisal.

 

There have been some disappointments within the quoted portfolio. Both FSG Security and Relax Group entered administration during the second half of the year after being unable to secure further finance following working capital pressures. Cagney decided that the minimal benefits of an AIM quotation did not merit the expense of having a public market quotation and it delisted from AIM in September. We have taken a conservative approach to valuation in fully writing down the fair value of the holding, but the company is profitable, has sales of approximately £10 million and is well regarded. Time will tell if our valuation is overly cautious.

 

The unquoted portfolio has shown mixed performance during the year. Waterfall Services, the outsourced catering group, is performing extremely well, and in December won a contract worth £6 million with a large care provider in London and the South East. Waterfall Services is projected to achieve a turnover increase of over 25 per cent on the previous year. The free school meals pilot with Durham County Council has been a success with uptake close to 85 per cent and the group is targeting further growth in its core education and healthcare sectors. We have increased our valuation accordingly. 

 

The rates dispute between the Valuation Office Agency and UK port operators (including RMS Group Holdings) now looks as though it will not be solved until after the general election. As mentioned in the half-yearly report, our valuation of RMS Group Holdings is conservative and allows for the effect of a higher rates charge as well as the backdated liability. There has been a further modest reduction in fair value as the group has suffered from reduced volumes in the downturn, but there are now some signs of improvement.

 

Pharmasmart carried out a major cost cutting exercise during the year, but this was unable to keep pace with the fall in revenues brought about by consolidation within the pharmaceutical industry and the associated recruitment freezes. Pharmasmart entered administration at the beginning of December and we have written off our remaining loan stock. 

 

Triage Holdings and Heritage House Media have struggled in challenging markets. Both have suffered from the loss of key staff, whilst Triage Holdings has lost work as some customers took repairs in house. Heritage House Media had a very slow start to the year with the uncertainty surrounding visitor numbers at many UK attractions and it did not recover from this as venues looked to run down existing stocks. As a result we have reduced the fair value of our investment in Triage Holdings and maintained our previous write down against the equity of Heritage House Media, but we remain hopeful that 2010 will bring better market conditions for both companies.

 

Since the year end, the Company has invested a further £126,000 in Heritage House Media as part of a £600,000 fundraising to provide additional working capital.

 

In addition, Hexagon Human Capital entered administration on 12 March after struggling with difficult trading conditions during 2009.

Our intention in 2010 is to focus any new investment on mature unquoted companies, which by their nature are less risky than seed or early stage investments. We believe that compared to a portfolio primarily invested in AIM quoted stocks, such unquoted companies offer better value, the scope to exert greater influence and the opportunity to conduct stronger due diligence and better scrutinise performance. The current market is an attractive one for investment as many smaller companies are struggling to access finance and the weakened economy has lowered valuations to realistic levels.

 

John Glencross

Calculus Capital Limited

19 March 2010

 

The Neptune-Calculus Income and Growth VCT invests in the Neptune Income Fund and the Neptune Quarterly Income Fund. As a guide to the portfolio's performance, the Neptune Income Fund and Neptune Quarterly Income Fund posted returns of 23.16 per cent and 24.25 per cent respectively for the twelve months under review. By comparison, the FTSE All-Share Index returned 30.12% over the same period.*

The first three months of 2009 were challenging for the UK market, with the FTSE All-Share Index delivering its seventh consecutive quarter of negative returns. However, after hitting a new low in early March, the FTSE All-Share saw a marked change of tone, with a strong recovery in economically-cyclical areas and a sell-off in defensive sectors. This sector rotation was driven by a number of factors: less negative economic indicators (e.g. Purchasing Managers Indices, US housing starts), increasingly aggressive quantitative easing by the US and UK central banks, further UK interest rate cuts and some optimism emerging from the G20 talks.

We therefore began to rotate gradually both the Income and the Quarterly Income funds' portfolios in order to participate in the market's recovery, selling some of the more defensive, less cyclical stocks. This saw us meaningfully increase our exposure to the financials sector, including banks, for the first time in close to two years. We also added a number of real estate investment trusts (REITS), including British Land and Land Securities. Distributing 90 per cent of their taxable income to shareholders, these REITS provided a steady stream of income. Additionally, being heavily leveraged into the economic cycle, they were in a strong position for capital appreciation, particularly given the distressed valuations at which we purchased them.

Another notable holding was Davis Service Group, the FTSE 250-listed industrial group held in the Quarterly Income Fund's portfolio. This stock sold off heavily in 2008 and we bought it at a very attractive valuation. With the market's strong performance, we have made a very good profit here whilst its dividend yield has been a steady generator of income. Our industry analysis also highlighted copper as one of the more attractive areas in the materials space, leading to both funds buying Antofagasta, which paid a special dividend in 2009.

Other strong performers included insurers Prudential and Legal & General¹, the latter having been subject to bid speculation towards the end of the third quarter, pushing up its price. Our holdings in the high quality banks with large emerging markets exposure, HSBC and Standard Chartered, were also strong contributors to the performance of the funds.

As we approached the end of 2009, the summer's optimism continued pushing the market through new highs, although the rally became increasingly narrow, driven by the weak dollar again pushing up commodity prices. Crucially, monetary policy remained accommodative and, although growth remains anaemic amongst Western economies, the market was reassured by continued exceptional stimulus measures. The market did, however, begin to concentrate on visibility and quality of earnings, backing those companies with inherent pricing power, such as those in the commodities and utilities sectors.

Within utilities, the completion of the final regulatory price-setting review of the water companies removed uncertainty and added momentum to the sub-sector. Therefore, following our in-house sector research, we sold Scottish & Southern in favour of United Utilities, a stock where we felt that the bad news was priced in and the valuation was attractive. Conversely, regulatory concerns overshadowed financials which, after two consecutive quarters of significant outperformance, lagged in the final months of 2009. Having participated in the sector's rally from March 2009 through select stocks, we booked some profits in the sector in the fourth quarter and reduced our overall financials exposure.

The final months of 2009 also saw sector rotation into larger capitalisation companies as the market began to discount an uncertain domestic outlook for 2010. The Neptune Income Fund benefited from its continued bias towards the FTSE 100 and companies we hold such as Compass Group and Diageo were amongst the best performers. The Neptune Quarterly Fund, on the other hand, took profits in some of its FTSE 250 holdings to make space for larger capitalisation companies. Additionally, both funds continued to use part of their overseas allocation to gain further exposure to favoured stocks.

Looking to 2010, the FTSE 100's strength is likely to continue, yet we believe that this will disguise a much wider range of outcomes across the market than in 2009 and that there will be a need to pick both sectors and stocks very carefully. If 2009 was a year of high returns across the board, we believe 2010 will reward more selective sector and stock picking. 

 

We believe that dividend yields will form a large component of total return this year - as historically they have done - and hence the Neptune Income and Quarterly Income funds, with their selective focus on genuine income-generating stocks, will be in a strong position to maintain their long-term track records.

 

Robin Geffen

Neptune Investment Management Limited

19 March 2010

 

*Source: Lipper, A Accumulation share class cumulative performance, no initial charges, net income reinvested to 31.12.09. The performance of other share classes may differ. Past performance is not a guide for future performance.

 

¹Prudential was held in both the Neptune Income and the Quarterly Income funds. Legal & General was held in the Income Fund only.

 

The above Investment Manager's Review (non-qualifying investments) has been prepared for Neptune-Calculus Income and Growth VCT only and should not be relied upon by parties seeking to make their own investments. This review may contain analysts' personal recommendations and as such this review is deemed to be impartial research. We do not undertake to advise anyone other than Neptune-Calculus Income and Growth VCT as to any change of our views. Neptune Investment Management Limited is authorised and regulated by the Financial Services Authority.

 

INVESTMENT PORTFOLIO

The ten largest holdings by value are included below:   As at 31 December 2009
Percentage
	Cost	Valuation	of portfolio
	£	£	%
AIM investments (quoted equity)
EpiStem Holdings plc*	251,261	869,301	9.0
Other AIM investments*	4,095,995	1,474,357	15.3
Unquoted equity investments
RMS Group Holdings Limited*	100,044	479,048	5.0
Triage Holdings Limited	48,000	216,480	2.2
Waterfall Services Limited	50,129	353,670	3.7
Terrain Energy Limited	410,000	410,000	4.3
Heritage House Media Limited	147,369	-	-
Other unquoted equity investments	825,000	-	-
Unquoted preference shares
Triage Holdings Limited preference shares	357,720	357,720	3.7
Waterfall Services Limited preference shares	116,667	116,667	1.2
Unquoted bonds
Heritage House Media Limited loan stockƗ	942,546	942,546	9.8
RMS Group Holdings Limited loan stock	400,000	400,000	4.2
Waterfall Services Limited loan stock	333,333	333,333	3.5
Triage Holdings Limited loan stock	74,280	74,280	0.8
Other unquoted loan stocks	120,000	45,000	0.5
Non-qualifying equity investments and loan stockƗ*	(238,100)	(234,084)	(2.4)
Total qualifying investments	8,034,244	5,838,318	60.8
Quoted funds
Neptune Quarterly Income Fund Income Units	1,249,318	1,185,367	12.3
The Neptune Income Fund Income A Class	1,260,819	1,208,000	12.6
Unquoted funds
Fidelity Sterling Fund distributing shares class A	619,308	619,308	6.5
SWIP Global Liquidity Fund	500,000	500,000	5.2
GS Sterling Liquid Reserves	17,344	17,344	0.2
Non-qualifying equity investments and loan stockƗ*	238,100	234,084	2.4
Total non-qualifying investments	3,884,889	3,764,103	39.2
Total investments	11,919,133	9,602,421	100.0

 

Ɨ The valuation of Heritage House Media Limited loan stock includes £229,388 of rolled up interest which is non-qualifying.

 

* The valuations of certain investments include small purchases made which are non-qualifying investments. They cost £8,712 and are valued at £4,696.

In aggregate, the following unquoted investments are included in the ten largest holdings by value within the investment portfolio at the balance sheet date. Further details of these companies (based on the latest published accounts) are provided below:

Heritage House Media Limited		Publishing and Media Services
Heritage House Media is based near Norwich, and provides publishing and media services to the heritage, UK visitor attraction and disability markets. It is the largest supplier of guidebooks and promotional material to UK stately homes and is the publisher of Hudson's Historic Houses & Gardens. As a small company, Heritage House Media is exempt from filing full accounts.
Latest audited results:	£'000		Investment information:	£'000
18 month period to 30 September 2008			Total cost	1,090
Net Assets	(1)		Income recognised in year	135
Valuation basis: Fair value			Equity valuation	-
			Loan stock valuation	943
			Voting rights	14.4 per cent

 

RMS Group Holdings Limited					Operator of Port Facilities
RMS Group Holdings is a Humberside based port operator, and provides customers with shipping, stevedoring and storage warehousing. The group also has a national logistics division.
Latest audited results (group):	£'000	£'000		Investment information:			£'000
Year ended 31 December	2008	2007*		Total cost			500
Turnover	31,398	13,397		Income recognised in year			48
Pre-tax (loss)/profit	(2)	102		Equity valuation		479
Net Assets	5,159	5,534		Loan stock valuation		400
Valuation basis: Earnings Multiple				Voting rights		4.9 per cent
* 2007 comparatives are for a five month period.

 

Waterfall Services Limited					Catering and Support Services
Waterfall Services provides catering and support services to the aged care, welfare and education markets. In 2008, the company acquired Taylor Shaw, an independent caterer with a strong foothold in the education market, and now employs over 1,600 people.
Latest audited results (group):	£'000	£'000		Investment information:		£'000
Year ended 31 March	2009	2008		Total cost		500
Turnover	28,415	11,068		Income recognised in year		38
Pre-tax profit	441	266		Equity valuation		354
Net Assets	1,099	518		Preference shares valuation		117
				Loan stock valuation		333
Valuation basis: Earnings Multiple				Voting rights		9.0 per cent

 

 

Triage Holdings Limited							IT Repairs
Triage Holdings provides IT repair and refurbishment services and auto identification solutions to customers. The group has headquarters in Stevenage, but operates repair centres in several other locations across the UK.
Latest audited results (group):	£'000			£'000		Investment information:		£'000
Year ended 31 December	2008			2007*		Total cost		480
Turnover	12,394			9,676		Income recognised in year		27
Pre-tax profit	565		337			Equity valuation		216
Net Assets	863		784			Preference shares valuation		358
						Loan stock valuation		74
Valuation basis: Earnings Multiple						Voting rights		7.0 per cent
* 2007 comparatives are for a nine month period.
Terrain Energy Limited					Oil and Gas Production
Terrain Energy was established by Calculus Capital Limited in 2009 to develop a portfolio of onshore oil and gas producing assets in the UK. A total of £1.62 million was invested in the company with £410,000 coming from the Neptune-Calculus Income and Growth VCT. Two EIS Funds under the management or advice of Calculus Capital Limited co-invested as part of the transaction. In October 2009, Terrain Energy signed an agreement to acquire its first interests, which comprise a balanced portfolio of exploration, development and production interests from Egdon Resources plc for an initial consideration of £450,000 with a further £237,500 based on achieving agreed milestones. Philip Stephens is non-executive Chairman of both Neptune-Calculus Income and Growth VCT and Egdon Resources plc. The interests are all located in the East Midlands and comprise a 15 per cent share in Petroleum Exploration Development License 005 (Keddington and North Somercotes) and 25 per cent interests in PEDL203 (Kirklington), PEDL118 (Eakring-Dukes Wood) and PEDL206 (Kelham Hills and Caunton). The fields at Keddington and Kirklington are currently producing oil, and plans are advanced to rejuvenate the formerly producing field at Eakring-Dukes Wood, which was the UK's first oil field to be commercially developed by BP in the 1940s. The exploration interests at Kelham Hills and North Somercotes are currently under evaluation. As a new company, Terrain Energy has not yet filed statutory accounts.
Latest audited results:					Investment information:		£'000
No statutory accounts have been filed					Total cost		410
					Income recognised in year				-
					Equity valuation		410
					Voting rights		25.3 per cent
Valuation basis: Fair value based on cost of recent investment
Other funds managed by Calculus Capital Limited have invested in this company and have a combined equity holding of 35.9 per cent.

 

The Company is exposed to a variety of risks and the principal risks identified by the Board are noted below.

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 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.

The majority of the Company's investments will ultimately be in small and medium size companies as VCT qualifying holdings. 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.

In addition, the Company is subject to market risk constituting uncertainty about the future prices of financial instruments held by the Company. The Company has also invested in loan stocks and as a result is subject to credit risk. 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 risks of the Company in note 20.

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.

All of the Company's 8,776,764 C Shares were converted into Ordinary Shares on 30 April 2009. The conversion was made on the basis of the respective net asset values of the C Shares and Ordinary Shares as at 31 December 2008. The C Share Conversion Ratio, calculated in accordance with the Articles of Association of the Company was 0.9457 of an Ordinary Share for every one C Share, resulting in the issue of 8,300,185 Ordinary Shares. This is shown in note 13.

Company law in the United Kingdom requires the Directors to prepare accounts for each financial year, which give a true and fair view of the state of affairs of the Company and of the return of the Company for that period. In preparing these accounts, the Directors have:

• selected suitable accounting policies and applied them consistently;

• made judgments and estimates that are reasonable and prudent;

• followed applicable United Kingdom accounting standards; and

• prepared the accounts on the going concern basis.

The Directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the accounts comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for ensuring that the Directors' Report and other information included in the Annual Report is prepared in accordance with company law in the United Kingdom. They are also responsible for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Services Authority.

The accounts are published on the www.calculuscapital.com website, which is a website maintained by the Company's Qualifying 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 auditors 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 accounts since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of the accounts may differ from legislation in their jurisdiction.

 

We confirm that to the best of our knowledge that:

§ the accounts, 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

§ the Directors' Report includes a fair review of the development, performance and financial position of the Company together with a description of the principal risks and uncertainties that it faces.

 

On behalf of the Board

 

John Glencross

Director

19 March 2010

INCOME STATEMENT

for the year ended 31 December 2009
			Year ended			Year ended
		31 December 2009			31 December 2008
		Revenue	Capital	Total	Revenue	Capital	Total
	Note	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments at fair value	8	-	191	191	-	(2,444)	(2,444)
Income	2	417	-	417	449	-	449
Investment management fee	3	(48)	(145)	(193)	(60)	(180)	(240)
VAT recovered	3	4	11	15	17	52	69
Other expenses	4	(157)	-	(157)	(166)	-	(166)
Return/(deficit) on ordinary activities before finance charges and taxation		216	57	273	240	(2,572)	(2,332)
Finance charges		(50)	(235)	(285)	(158)	1,720	1,562
Taxation on ordinary activities	5	(15)	12	(3)	(5)	-	(5)
Return/(deficit) attributable to Ordinary shareholders		151	(166)	(15)	77	(852)	(775)
Return per Ordinary Share	7	1.56p	(1.71)p	(0.15)p	1.91p	(21.12)p	(19.21)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 statement of recognised gains and losses as there were no other gains and losses.

The relevant accompanying notes are an integral part of this statement.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

for the year ended 31 December 2009
	Share	Share	Special	Capital	Revenue
	capital	premium	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
For the year 1 January 2009 to 31 December 2009
1 January 2009	410	281	3,187	(759)	77	3,196
C Share conversion	830	350	7,097	(1,729)	209	6,757
Net (deficit)/return after taxation for the year	-	-	-	(166)	151	(15)
Dividends paid	-	-	(13)	-	(235)	(248)
31 December 2009	1,240	631	10,271	(2,654)	202	9,690
For the year 1 January 2008 to 31 December 2008
1 January 2008 (as previously stated)	1,218	21	10,284	(130)	108	11,501
Restatement of prior years	(839)	-	(7,097)	230	(74)	(7,780)
1 January 2008 (restated)	379	21	3,187	100	34	3,721
Issue of shares	31	277	-	-	-	308
Expenses of share issue	-	(17)	-	-	-	(17)
Net (deficit)/return after taxation for the year	-	-	-	(852)	77	(775)
Dividends paid	-	-	-	(7)	(34)	(41)
31 December 2008	410	281	3,187	(759)	77	3,196

The relevant accompanying notes are an integral part of this statement.

 

BALANCE SHEET

as at 31 December 2009
			31 December	31 December
			2009	2008
	Note		£'000	£'000
Fixed Assets
Investments at fair value through profit or loss	8		9,602	9,236
Current Assets
Debtors	10		33	69
Cash at bank			170	549
			203	618
Creditors: Amounts falling due within one year
Creditors	11	(115)		(186)
Liability to the C Share Fund	12	-		(6,472)
		(115)		(6,658)
Net Current Assets/(Liabilities)		88		(6,040)
Net Assets		9,690		3,196
Represented by:
CALLED UP SHARE CAPITAL AND RESERVES
Share capital	13		1,240	410
Share premium	14		631	281
Special reserve	14		10,271	3,187
Capital reserve - other	14		(337)	129
Capital reserve - investment holding loss	14		(2,317)	(888)
Revenue reserve	14		202	77
Total Ordinary shareholders' funds			9,690	3,196
Net asset value per Ordinary Share	15		78.14p	77.94p

The relevant accompanying notes are an integral part of this statement

CASH FLOW STATEMENT

for the year ended 31 December 2009
		Year ended 31 December 2009	Year ended 31 December  2008
	Note	£'000	£'000
Operating activities
Investment income received		265	328
Deposit income received		1	27
Other income received		1	3
Investment management fees paid		(201)	(64)
Administration fees paid		(40)	(27)
Other cash payments		(139)	(137)
Net cash (outflow)/inflow from operating activities	16	(113)	130
Investing activities
Purchase of investments		(531)	(2,447)
Sale of investments		500	2,103
Net cash outflow from investing activities		(31)	(344)
Equity dividends paid		(248)	(41)
Financing
Distributions made to C Shareholders		-	(87)
Net proceeds from C Share issue		6	334
Net proceeds from Ordinary Share issue		7	284
Net cash inflow from financing		13	531
(Decrease)/increase in cash	17	(379)	276

The accounts have been prepared under the historical cost convention, except for the valuation of investments at fair value, and in accordance with applicable UK accounting standards. The Directors have prepared the accounts on a basis compliant with the recommendations of theStatement of Recommended Practice January 2003, revised January 2009 ("the SORP") for Investment Trust Companies and Venture Capital Trusts produced by the Association of Investment Companies ("AIC"). During the year the Company adopted the amendments to FRS 29 'Financial Instruments: Disclosures'. The adoption of these amendments had no impact on the net results or net assets of the Company.

As 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, financial assets are designated as fair value through profit or loss on initial recognition in accordance with FRS 26. 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 fair value through profit or loss, are measured at fair value. Gains or losses on investments classified as 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.

Transaction and dealing costs, showing the total amounts included in disposals and additions are disclosed in note 8 to the accounts, as recommended by the SORP.

All purchases and sales of investments are accounted for on the trade date basis.

 

For quoted investments 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.

Unquoted investments are valued using an appropriate valuation technique so as to establish what the transaction price would have been at the balance sheet date. Such investments are valued in accordance with the International Private Equity and Venture Capital Association (''IPEVCA'') guidelines. Primary indicators of fair value are derived from earnings multiples, recent arm's length market transactions, net assets, or where appropriate, at cost for recent investments or the valuation as at the previous reporting date.

Those venture capital investments that may be termed associated undertakings are not equity accounted for and are carried at fair value as determined by the Directors in accordance with the Company's accounting policy, as required by FRS 9 "Associates and Joint Ventures", where venture capital entities hold investments as part of an investment portfolio.

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 receivable from fixed income securities is recognised using the effective interest rate method.

Interest receivable on bank deposits is included in the accounts on an accruals basis.

Other income is credited to the revenue column of the Income Statement when the Company's right to receive the income is established.

All expenses are accounted for on an accruals basis. Expenses are charged through revenue in the Income Statement except as follows:

• expenses 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 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 income respectively, from the investment portfolio of the Company;

• expenses associated with the issue of shares are deducted from the Share premium account.

Capital reserve - other

The following are accounted for in this reserve:

• gains and losses on disposal of investments; and

• expenses, together with the related tax effect, charged to this account in accordance with the above policies.

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.

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future have occurred at the balance sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversals of the underlying timing differences can be deducted. Timing differences are differences between the Company's taxable profits and its results as stated in the accounts.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.

No taxation liability arises on gains from sales of fixed asset investments by the Company by virtue of its 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.

Dividends to shareholders are accounted for in the period in which they are paid or approved in general meetings.

Dividends payable to equity shareholders are recognised in the Reconciliation of Movements in Shareholders' Funds when they are paid, or have been approved by shareholders in the case of a final dividend and become a liability of the Company.

 

2 Income

	Year ended	Year ended
	31 December 2009	31 December 2008
	£'000	£'000
Income from listed investments
UK dividend income	139	195
Unfranked investment income	21	28
Dividends reinvested	9	22
	169	245
Income from unlisted investments
Unfranked investment income	112	99
Interest reinvested	135	74
	247	173
Other income
Bank interest	-	28
Interest on VAT recovered	1	3
	1	31
Total income	417	449
Total income comprises
Dividends	211	245
Interest	206	204
	417	449

 

3 Investment management fee

	Year ended 31 December 2009			Year ended 31 December 2008
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment management fee	48	145	193	53	157	210
Irrecoverable VAT	-	-	-	7	23	30
VAT recovered	(4)	(11)	(15)	(17)	(52)	(69)
	44	134	178	43	128	171

For the year ended 31 December 2009, the Investment Managers did not waive any of their fees (2008: £1,993 on the Ordinary Share Fund and £21,728 on the C Share Fund). At 31 December 2009, there was £72,386 outstanding payable to the Investment Managers (31 December 2008: £37,809 in respect of the Ordinary Share Fund and £57,321 in respect of the C Share Fund). 

Following the decision by HM Revenue & Customs to exempt VCTs from VAT on management fees, the Company has acted to recover VAT which had been paid on management fees. A refund of £68,665 was received in 2008 from Calculus Capital, and in November 2009 the Company received a VAT refund of £14,792 from Neptune Investment Management.

 

4 Other expenses

	Year ended	Year ended
	31 December 2009	31 December 2008
	£'000	£'000
Fees payable to the Company's auditor for the audit of the Company's individual accounts	17	19
Fees payable to the Company's auditor for other services:
Other services relating to taxation	4	4
Other services	5	3
Directors' remuneration and social security contributions	41	41
Other expenses	90	99
	157	166

 

5 Taxation on ordinary activities

			Year ended						Year ended
	31 December 2009						31 December 2008
		Revenue		Capital	Total	Revenue		Capital		Total
		£'000		£'000	£'000	£'000		£'000		£'000
UK Corporation Tax		12		(12)	-	-		-		-
Irrecoverable income tax on unfranked investment income		3		-	3	5		-		5
Total current tax charge/(credit)		15		(12)	3	5		-		5
Return/(deficit) on ordinary activities before taxation:		216		57	273	240		(2,572)		(2,332)
Return/(deficit) on ordinary activities multiplied by Corporation Tax at 28% (2008: 28.5%)		60		16	76	69		(733)		(664)
Effect of:
UK dividends not chargeable to tax		(51)		-	(51)	(59)		-		(59)
Non-taxable (gains)/losses		-		(53)	(53)	-		696		696
Disallowable expenses for tax purposes		3		-	3	-		-		-
Excess expenses for the period		-		25	25	(10)		37		27
Irrecoverable income tax on unfranked investment income		3		-	3	5		-		5
Total current tax charge/(credit)		15		(12)	3	5		-		5

At 31 December 2009, the Company had £675,438 (31 December 2008: £585,556) of excess management expenses to carry forward against future taxable profits.

6 Dividends

	Year ended		Year ended
	31 December  2009		31 December 2008
	£'000		£'000
Declared and paid:
2008 Final dividend: 1.0p (2007: nil) per eligible Ordinary Share post conversion		124	-
2009 Interim dividend: 1.0p (2008: 1.0p) per eligible Ordinary Share post conversion (2008: Ordinary and C Share)		124	128
		248	128
Proposed:
2009 Final dividend: 2.0p (2008: 1.0p) per eligible Ordinary Share post conversion		248	124

The Company paid an interim dividend on 19 October 2009 of 1p per Ordinary Share (2008: 1p). The Directors are proposing a final dividend of 2p per Ordinary Share in respect of the year ended 31 December 2009 (2008: 1p per Ordinary Share and 1p per C Share). Subject to shareholder approval, the dividend will be paid on 4 June 2010 to shareholders on the register on 7 May 2010.

7 Return per Share

			Year ended		Year ended
		31 December 2009			31 December 2008
	Revenue	Capital	Total	Revenue	Capital Total
	pence	pence	pence	pence	pence pence
Ordinary Share	1.56	(1.71)	(0.15)	1.91	(21.12) (19.21)

Revenue return per Ordinary Share is based on the net revenue on ordinary activities attributable to the Ordinary Shares of £151,000 (31 December 2008: £77,000) and on 9,694,903 (31 December 2008: 4,034,196) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year.

Capital return per Ordinary Share is based on the net capital deficit for the year of £166,000 (31 December 2008: £852,000) and on 9,694,903 (31 December 2008: 4,034,196) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year.

Total return per Ordinary Share is based on the total deficit on ordinary activities attributable to the Ordinary Shares of £15,000 (31 December 2008: £775,000) and on 9,694,903 (31 December 2008: 4,034,196) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year.

 

8 Investments at fair value through profit or loss

	31 December 2009	31 December 2008
	£'000	£'000
AIM investments	2,344	2,098
Other investments quoted on a recognised exchange	2,393	2,056
Unquoted and money market investments	4,865	5,082
	9,602	9,236
	£'000	£'000
Opening book cost	11,744	11,519
Opening investment holding losses	(2,508)	(279)
Opening valuation	9,236	11,240
Movements in the year:
Purchases at cost	675	2,627
Sales - proceeds	(500)	(2,187)
- realised losses on sales	-	(215)
Movement in investment holding losses	191	(2,229)
Closing valuation	9,602	9,236
Closing book cost	11,919	11,744
Closing investment holding losses	(2,317)	(2,508)
Closing valuation	9,602	9,236
	£'000	£'000
Loss on disposal of investments	-	(215)
Movement in investment holding losses	191	(2,229)
Total gains/(losses) on investments	191	(2,444)

Note 20 to the accounts provides a detailed analysis of investments held at fair value through profit and loss in accordance with Financial Reporting Standard 29 'Financial Instruments: Disclosures'.

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
Pharmasmart Limited	Ordinary 5p	1,033,333	3.1%
Terrain Energy Limited	Ordinary £1	410,000	25.3%

 

10 Debtors

	31 December 2009	31 December 2008
	£'000	£'000
Accrued income	21	24
Other debtors and prepayments	12	45
	33	69

11 Creditors - amounts falling due within one year

	31 December 2009	31 December 2008
	£'000	£'000
Accruals and other creditors	115	186

 

12 Liability to the C Share Fund

	31 December 2009	31 December 2008
	£'000	£'000
Amount due to the C Share Fund	-	6,472

In the report and accounts for the year ended 31 December 2008, and in accordance with the technical interpretation of FRS 25, the C Shares were classed as debt, not equity, as they were convertible into a variable number of Ordinary Shares and were therefore shown as a liability of the Company. As a result of the conversion of the C Shares into Ordinary Shares on 30 April 2009, and as explained in note 13 below, there is no longer a C share liability in existence.

The finance charge shown in the Income Statement represents the deficit attributable to the C shareholders up to the date of conversion of the C Shares into Ordinary Shares.

 

Ordinary Shares
Issued and fully paid:	31 December 2009		31 December 2008
Ordinary Shares of 10p each	Number	£'000	Number	£'000
As at 1 January	4,100,806	410	3,793,562	379
Issue of shares	-	-	307,244	31
C Share conversion	8,300,185	830	-	-
As at 31 December	12,400,991	1,240	4,100,806	410
C Shares (converted into Ordinary Shares on 30 April 2009)
Issued and fully paid:	31 December 2009		31 December 2008
C Shares of 10p each	Number	£'000	Number	£'000
As at 1 January	8,776,764	878	8,393,209	839
Issue of shares	-	-	383,555	39
C Share conversion	(8,776,764)	(878)	-	-
As at 31 December	-	-	8,776,764	878

On April 30 2009, all of the 8,776,764 C Shares of 10p each in the Company were converted into Ordinary Shares of 10p each in the Company on the basis of 0.9457 Ordinary Shares for each C Share, resulting in the issue of 8,300,185 Ordinary Shares. The total number of Ordinary Shares in issue post conversion of the C Shares and as at 31 December 2009 is 12,400,991. There are now no C Shares in issue.

 

14 Reserves

	Share premium account	Special reserve	Capital reserve - other	Capital reserve - investment holding loss	Revenue reserve
	£'000	£'000	£'000	£'000	£'000
At 1 January 2009	281	3,187	129	(888)	77
C Share conversion	350	7,097	(376)	(1,353)	209
Movement in investment holding losses	-	-	-	191	-
Investment management fee charged to capital	-	-	(145)	-	-
VAT recovered credited to capital	-	-	11	-	-
Finance charges charged to capital	-	-	32	(267)	-
Dividends	-	(13)	-	-	(235)
Tax relief on expenses charged to capital	-	-	12	-	-
Retained net revenue for the year	-	-	-	-	151
At 31 December 2009	631	10,271	(337)	(2,317)	202

 

The Special reserve has been 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.

 

15 Net asset value per share

	31 December 2009	31 December 2008
	pence	pence
Ordinary Shares of 10p each	78.14	77.94

 

The basic net asset value per Ordinary Share is based on net assets (including current period revenue) of £9,690,000 (31 December 2008: £3,196,000) and on 12,400,991 (31 December 2008: 4,100,806) Ordinary Shares, being the number of Ordinary Shares in issue at the end of the year.

 

16 Reconciliation of net return/(deficit) before finance charges and taxation to net cash (outflow)/inflow from operating activities

	Year ended 31 December 2009	Year ended 31 December 2008
	£'000	£'000
Net return/(deficit) before finance charges and taxation	273	(2,332)
Net capital (return)/deficit	(57)	2,572
Decrease/(increase) in prepayments and accrued income	23	(3)
(Decrease)/increase in creditors	(71)	122
Investment management fee charged to capital	(145)	(180)
VAT recovered credited to capital	11	52
Income reinvested	(144)	(96)
Taxation	(3)	(5)
Net cash (outflow)/inflow from operating activities	(113)	130

 

17 Reconciliation of net cash flow to movement in net funds

	Year ended 31 December 2009	Year ended 31 December 2008
	£'000	£'000
(Decrease)/increase in cash in year	(379)	276
Net funds at beginning of year	549	273
Net funds at end of year	170	549

 

Included within the £379,000 decrease in cash for the year are receipts from the Investment Managers of £6,706 and £5,575 in respect of the 2008 Ordinary and C Share top up offers. The receipts represent the excess expenses of the offers which were borne by the Investment Managers.

 

18 Analysis of changes in net funds

	At 1 January 2009	Cash flows	At 31 December 2009
	£'000	£'000	£'000
Cash at bank	549	(379)	170

At 31 December 2009 and 2008 the Company did not have any financial commitments which had not been accrued.

 

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 over a three year period 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. The Company does not invest in start-up or seed capital situations. 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 and money market instruments.

 

The Company's financial instruments comprise securities, cash balances and debtors and creditors that arise from its operations.

 

The Company has no exposure to foreign currency risk.

 

The principal risks the Company faces in its portfolio management activities are:

- Market risk (including interest rate and price risk)

- Liquidity risk

- Credit 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.

 

Market 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. These risks are monitored by the Investment Managers on a regular basis and the Board at meetings with the Investment Managers.

 

The Board reviews each investment purchase in the qualifying portfolio to ensure that any acquisition allows the Company to maintain an appropriate spread of market 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 risk.

 

The Company does not have any interest bearing liabilities. Interest is earned on cash balances 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 with the main risk on these investments being credit risk.

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. The amounts invested in equity shares, loan stocks and cash is also set out therein.

 

The total value of the Company's investments at 31 December 2009 was £9,602,421. A 10 per cent increase/(decrease) in the aggregate value of these investments would have increased/(decreased) the net assets of the Company by £960,242. This represents 10 per cent of the net assets of the Company at 31 December 2009. An increase/(decrease) of £960,242 in the net assets of the Company would increase/(decrease) investment management fees payable to the Investment Managers for the 2010 financial year by £22,086, subject to the 3.5 per cent annual expenses cap.

 

In current market conditions, an increase/(decrease) in the aggregate values of investments by 10 per cent is reasonably possible.

The investments the Company holds includes AIM quoted securities where the liquidity is generally below that of securities listed/quoted in the main market and 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.

Although the Company's AIM quoted investments and unquoted investments are less liquid than securities listed on the London Stock Exchange, the Board 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.

The failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. The Board does not consider this risk to be significant. 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 total exposure to loan stocks is set out below.

As required by Financial Reporting Standard 29 'Financial Instruments: Disclosures' (the Standard) an analysis of financial assets and liabilities, which identifies the risk of the Company's holding of such items is provided. The Company's financial assets comprise equity and preference shares, loan stock, cash and debtors.

The interest rate profile of the Company's financial assets is given in the table below:

 

	As at 31 December 2009			As at 31 December 2008
	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	1,795	-		1,735	-
Money market funds	-	1,137		-	1,628
Cash	-	170		-	549
	1,795	1,307		1,735	2,177

 

The variable rate is based on the banks' deposit rate.

The Standard requires an analysis of investments carried at fair value based on the reliability and significance of the information used to measure their fair value. In order to provide further information on the valuation techniques used to measure assets carried at fair value, we have categorised the measurement basis into a "fair value hierarchy" as follows:

- Quoted market prices in active markets - "Level 1"

Inputs to Level 1 fair values are quoted prices in active markets for identical assets. An active market is one in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The Company's investments in AIM quoted equities, money market funds and the quoted Neptune funds are classified within this category.

- Valued using models with significant observable market parameters - "Level 2"

Inputs to Level 2 fair values are inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly. The Company has no investments classified within this category.

 - Valued using models with significant unobservable market parameters - "Level 3"

Inputs to Level 3 fair values are unobservable inputs for the asset. Unobservable inputs may have been used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset at the measurement date (or market information for the inputs to any valuation models). As such, unobservable inputs reflect the assumptions the Company considers that market participants would use in pricing the asset. The Company's unquoted equities, preference shares and loan stock are classified within this category. As explained in note 1, unquoted investments are valued in accordance with the International Private Equity and Venture Capital Association ("IPEVCA") guidelines.

Financial assets at fair value through profit or loss At 31 December 2009
	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
Equity investments	2,344	-	1,459	3,803
Fixed interest investments	-	-	1,795	1,795
Preference share investments	-	-	474	474
Money market funds	1,137	-	-	1,137
Other investments	2,393	-	-	2,393
	5,874	-	3,728	9,602

The table below shows movements in the assets measured at fair value based on Level 3 valuation techniques for which any significant input is not based on observable market data.

Level 3 financial assets at fair value through profit or loss At 31 December 2009
	Equity investments	Preference share investments	Fixed interest investments	Total
	£'000	£'000	£'000	£'000
Opening balance at 1 January 2009	1,245	474	1,735	3,454
Purchases	410	-	-	410
Interest reinvested	-	-	135	135
Transfers into Level 3	3	-	-	3
Total net losses recognised in the Income Statement	(199)	-	(75)	(274)
Closing balance at 31 December 2009	1,459	474	1,795	3,728

 

Transfers into Level 3 relates to Cagney plc, which was previously categorised in Level 1. Cagney plc became a Level 3 financial asset when it delisted from AIM in September 2009.

 

The Standard also requires disclosure, by class of financial instruments, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. The information used in determination of the fair value of Level 3 investments is chosen with reference to the specific underlying circumstances and position of the investee company. The portfolio has been reviewed and both downside and upside reasonable possible alternative assumptions have been identified and applied to the valuation of each of the unquoted investments. Applying the downside alternatives the value of the unquoted investment portfolio would be £272,000 or 7.3 per cent lower. Using the upside alternatives the value of the unquoted investment portfolio would be increased by £240,000 or 6.5 per cent.

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 11. No interest is paid on these liabilities.

All assets and liabilities are carried at fair value.

 

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 Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period. As a public company, the Company is subject to the externally imposed capital requirement to have a minimum share capital of £50,000, and, as outlined in note 14, is able to make distributions out of the aggregate of its Revenue reserve, Special reserve and Capital reserves.

The Company's investments are managed by Calculus Capital Limited and Neptune Investment Management Limited. John Glencross, a Director of the Company, has an interest in Calculus Capital Limited. The amounts paid to the Managers are disclosed in note 3. Calculus Capital Limited also acts as administrator to the Company and received a fee of £28,974 (31 December 2008: £35,082).

In the year to 31 December 2009, Calculus Capital Limited received an arrangement fee of £3,900 as a result of the Company's investment in Heritage House Media and a corporate finance fee of 3 per cent of the amount invested by the Company in Terrain Energy, a company of which John Glencross became a director as a consequence of the investment. This corporate finance fee equated to £12,300.

In February 2010, Calculus Capital Limited received a further arrangement fee of £3,790 as a result of the Company's follow-on investment in Heritage House Media.

As mentioned in the Directors' Report, 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.

The Company has invested in The Neptune Income Fund Income A Class and in the Neptune Quarterly Income Fund Income Units. Details of these investments are set out below. Neptune Investment Management charges an annual fee of 1.6 per cent on these investments. As a result of the C Share conversion, all of the investments are now attributable to the Ordinary Shares only.

	31 December 2009			31 December 2008
			£	£
Neptune Income Fund Income Class A
Investment at cost			1,260,819	1,260,819
Valuation at 31 December			1,208,000	1,034,115
Neptune Quarterly Income Fund Income Units
Investment at cost			1,249,318	1,249,318
Valuation at 31 December			1,185,367	1,021,266

These are not full accounts in terms of Section 434 of the Companies Act 2006. Full audited accounts for the year ended 31 December 2008 have been lodged with the Registrar of Companies. The Report and Accounts for the year ended 31 December 2009 will be sent 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 the www.calculuscapital.com, a website maintained by the Company's Qualifying Investment Manager, Calculus Capital Limited. The audited accounts for the year ended 31 December 2009 contain an unqualified audit report.

 

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