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MavIncGroVCT4 (MAV4)

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Monday 14 March, 2011

MavIncGroVCT4

Annual Financial Report

RNS Number : 9197C
Maven Income & Growth VCT 4 PLC
14 March 2011
 



Maven Income and Growth VCT 4 PLC

 

Annual Financial Report for the year ended 31 December 2010

 

Chairman's Statement

 

 

I am pleased to report that during the year to 31 December 2010 your Company achieved positive returns for shareholders, and maintained its policy of paying regular dividends against a backdrop of uncertainty and challenging economic conditions.

 

Global stock markets have recovered from the depths of the credit crisis in 2008, and the FTSE 100 Index rose above 6000 by the end of December 2010. Although some companies were cutting dividends, many blue chip companies were able to provide a healthy yield to their shareholders, in stark contrast with low interest rates. However, the macro-economic indicators were mixed. Growth in the UK continued modestly, consumer debt remained high, and concern about inflation rose.

 

The major highlights of the year are:

 

• Total return on Ordinary shares of 112.0p per share at 31 December 2010, up 9.3% over the year

• Net asset value (NAV) of Ordinary shares at the year end of 95.7p p per share

• Total return on S Shares of 103.85 p per share at 31 December 2010, up 4.4% over the year

• NAV of S Shares at the year end of 97.3p per share

• Final dividends proposed of 2.5p per Ordinary Share and 0.5p per S Share.

 

 

Performance

 

The NAV total return per Ordinary Share at 31 December 2010 was 112.0p, an increase of 9.3% over the equivalent figure at 31 December 2009, while for the S Share  it was 103.85p, an increase of 4.4% and reflecting the differing mix of the two portfolios. At 31 December 2010, the NAV per Ordinary Share was 95.7p and the NAV per S Share was 97.3p.

 

NAV total return is generally regarded as the most meaningful performance measure for a VCT, representing the long term record of dividend payments out of income and capital gains combined with the current NAV. The NAV in isolation is a less important measure, as the underlying investments are long-term in nature and not readily realisable.

 

 

Dividends

 

It is the Company's policy to pay regular dividends to investors out of revenue and realised capital gains.

 

The Board is proposing a final dividend of 2.5p per Ordinary share and 0.5p per S share to be paid on 27 May 2011 to shareholders on the register on 6 May 2011. Including the interim dividends paid in September 2010, the total tax-free yield for the year is 5.8% on the net cost to Ordinary shareholders and 2.1% to S shareholders. Since the Company's launch, and after receipt of the proposed final dividend, Ordinary shareholders and S shareholders will have received 18.8p and 7.05p respectively in tax-free dividends.

 

 

Investment strategy

 

Our investment strategy is to build a large and diversified portfolio of holdings in profitable and income-yielding later stage private companies. The Manager is introduced to a continuous and varied flow of potential opportunities through its UK-wide regional office network. The Company leverages these resources to gain access, at attractive entry multiples, to well managed businesses in a range of sectors. Investments are mainly in the form of secured loan stock and offer high yields from the outset.

 

The Board and the Manager have concluded that the potential returns available from AIM and PLUS quoted investments are too uncertain: there is poor liquidity in many stocks and little or no dividend yield in comparison with private equity investments.  As is evident from the realisations achieved over the past 12 months, the Manager is looking to realise the AIM portfolio selectively for value and redeploy the proceeds into investments in mature, income-producing private companies.

 

The Listing Rules require your Board to ensure that this report includes information on the investment policy, including a description of the asset mix, the spread of risk and maximum exposures. This information is contained in the Directors' Report and in the various tabular analyses of the portfolio.

 

 

Portfolio developments

 

The portfolio is now invested in 62 unquoted companies. Seven new investments and seven follow-on investments were completed during the financial year. The Manager has also invested in three unlisted companies that are looking to acquire target businesses in specific sectors.

 

I am pleased to report that our portfolio companies are currently trading either satisfactorily or better than plan, and the cash generative nature of most of our investee companies leads us to be optimistic about their future trading prospects. The increasing maturity of a number of holdings is leading to the emergence of M&A interest from potential trade buyers, and the Manager is currently working on the potential realisation of several portfolio holdings.

 

 

Valuation process

 

Investments in unquoted companies are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Investments quoted or traded on a recognised stock exchange, including the Alternative Investment Market (AIM), are valued at their bid prices.

 

 

VCT qualifying status

 

The Company is required to meet the 70% qualifying test and other VCT regulatory criteria continuously. The Board regularly reviews the Company's performance in relation to these criteria and I am pleased to confirm that they have been met throughout the year.

 

 

Principal risks and uncertainties

 

The Board has reviewed the principal risks and uncertainties facing the Company for the financial year. In order to reduce its exposure to investment risk, the Company has invested in a broadly-based portfolio of unlisted and AIM/PLUS quoted companies in the United Kingdom

 

 

Recovery of VAT

 

I am pleased to announce that the Board received and accepted an offer from the previous manager, Aberdeen Asset Managers Limited, to refund £94,898 which represented all of the VAT charged on investment management fees for the period from 1 October 2005 to 31 August 2008. This offer was accepted, subject to wholly reserving the Company's rights in respect of sums not repaid in respect of earlier periods. The amount received has been recognised within the financial statements and allocated to revenue and capital in accordance with the underlying accounting policy.

 

Distributable reserve

 

Following approval by the Shareholders on 1 February 2011, the Board is seeking to cancel the Company's share premium account and capital redemption reserve. The purpose of the cancellation is to provide the Company with greater flexibility in returning funds to Shareholders, whether through the payment of dividends, share buy-backs or other means.

 

 

Linked Offer

 

At the start of the year, the Company participated in a successful linked VCT top-up offer with the other three Maven Income and Growth VCTs. The Board has decided to raise further top-up funds through a similar linked offer by the same four VCTs. Investors will benefit from up to 30% income tax relief on their subscriptions for one or both of the tax years 2010/11 and 2011/12.

 

The second Maven Linked VCT Offer aims to raise £6.4 million in new funds for the four participating VCTs without incurring the higher costs associated with a full prospectus, which will enable the Company to make further private company investments at a time when the Manager is experiencing significant levels of deal flow across its UK office network. The Company's share of these funds, up to £77,982 will also enable it to spread its costs over a larger asset base to the benefit of all shareholders.

 

 

Co-investment scheme

 

The co-investment scheme, which enables executive members of the Manager to invest alongside the Company, continued in operation during the year. The scheme operates through a nominee company which invests in each and every transaction, including any follow-on investments. The scheme more closely aligns the interests of the executives and the Company's shareholders while enabling the Manager to retain the skills and capacity of its investment team in a highly competitive market.

 

 

Outlook

 

Some uncertainty remains, both globally and in the UK, about the medium-term outlook for the economy. The economic indicators point to modest growth in a climate of reduced government spending and higher taxation on private consumption, and some commentators are still concerned about the risk of a return to recession.

 

Whilst the outlook for the UK undoubtedly remains challenging, your Company continues to invest in later stage, high-yielding UK businesses, with strong balance sheets and robust business models. Many of our investments are counter-cyclical, in defensive sectors, and have a significant global dimension to their business activities.

 

The Board is encouraged by the range and quality of deal flow that the Manager is seeing throughout the UK, where one of the effects of the credit crisis is an increase in the range of companies seeking capital from alternative sources such as VCT managers. Although recent economic conditions have suppressed merger and acquisitions activity, the Manager is now seeing a number of attractive trade and private equity approaches. The Board is confident that the Company will continue to meet its investment objectives and produce returns for shareholders that are consistent with those objectives.

 

 

Investment Manager's Review

 

Overview

 

The Manager ('Maven') operates from five UK regional offices in Glasgow, London, Aberdeen, Manchester and Birmingham and is introduced to a large number of potential transactions every year, mainly from a range of contacts across the corporate finance and business community. In terms of asset selection Maven employs a highly selective process, investing only in private companies which meet strict quality criteria, where access can be gained at attractive entry prices under investment structures which produce income to VCT client funds from the outset.  Maven actively avoids businesses at an early stage of their development, where the company has significant external borrowings, or where the trading activity is overly reliant on a concentrated customer base or a single product.

 

Post-investment, Maven executives remain closely involved in the strategic direction of each portfolio company, and actively work with the executive management to ensure the business realises its full potential and ultimately achieves the best possible returns on exit, normally through a trade sale.

 

During the year the strength and quality of this approach was recognised by industry professionals. In July Maven won the BVCA London & Southeast Portfolio Company Management Award for Exit Team of the Year, for the successful sale of Cyclotech in November 2009. This award acknowledged the quality of managers in supporting fast growing and innovative companies in the most challenging of economic times.

 

In November Maven was named Small Buyout House of the Year 2010 at the unquote British Private Equity Awards, as judged by corporate finance and private equity professionals across the UK, which recognised managers who demonstrated strategic vision and consistently high standards across their wider investment activity.

 

 

Investment Activity

 

During the year ended 31 December 2010 the Maven team completed seven new significant private equity investments, and seven follow-on investments in existing portfolio companies.  Maven also invested in three new companies established to seek out acquisitions in a range of sectors where our investments executives have relevant industry knowledge and awareness of suitable target investments. At the year end, the portfolio stood at 62 unlisted and AIM investments at a total cost of £12.2 million.

 

The following new investments have been completed during the year.

 

 

 

Investment

Date

Sector

Investment cost £'000




Ordinary shares

S Ordinary shares

Unlisted










Ailsa Craig Limited

Oct 2010

Basic Materials

             -  

           199

Atlantic Foods Group Limited

Oct 2010

Consumer Goods

             -  

           130

Attraction World Holdings Limited

Dec 2010

Basic Materials

           165

           124

Beckford Capital Limited

May 2010

Consumer Goods

           160

           160

Blackford Capital Limited

May 2010

Consumer Goods

             -  

           200

Camwatch Limited

Dec 2010

Telecommunications

             60

             34

CHS Engineering Services Limited

Dec 2010

Basic Materials

           152

           114

Countcar Limited (trading as Aberdeen Tool and Rental Holdings Limited)

Oct 2010

Oil and Gas

             42

             24

Flexlife Group Limited

Oct 2010

Oil and Gas

           199

           134

Lawrence Recycling & Waste Management Limited

Apr 2010

Basic Materials

             54

             36

Lemac No. 1 Limited (trading as John McGavigans Limited)

Dec 2010

Consumer Goods

             50

             40

Riverdale Publishing Limited*

Feb 2010

Basic Materials

             25

             -  

Staffa Capital Limited

Nov 2010

Consumer Goods

             -  

           200

TC Communications Holdings Limited

May 2010

Basic Materials

             40

             25

Torridon Capital Limited

Jan 2010

Financials

           253

           198

Tosca Penta Investments Limited (trading as esure Holdings Limited)

Feb 2010

Financials

             88

             87

Venmar Limited (trading as XPD8 Solutions Limited)

Jun 2010

Oil and Gas

           109

           124

Others



              4

             -  

Total Unlisted investment



        1,401

        1,829






Total



        1,401

        1,829

 

*The transfer to Riverdale was in settlement of a guarantee to support deferred consideration liabilities.

 

Maven Income and Growth VCT 4 has co-invested in some or all of the above transactions with Maven Income and Growth VCT, Maven Income and Growth VCT 2, Maven Income and Growth VCT 3, Talisman First Venture Capital Trust and Ortus VCT. The Company is expected to continue to co-invest with these as well as other Maven clients, which offers the advantage that in aggregate the funds are able to underwrite a wider range and larger size of transaction than would be the case on a stand-alone basis.

 

 

Portfolio Developments

 

Seven new substantial unlisted investments were added to the portfolio during the year:

 

·     Torridon Capital, the holding company of LitComp plc, a highly profitable specialist insurance business which has a market leading position in the rapidly expanding After the Event Insurance market, where Maven led one of the first public-to-private acquisitions by a mainstream VCT manager

 

·     esure, one of the largest and pioneering online providers of general and motor insurance in the UK, and with a portfolio of high profile insurance brands; Maven client funds participated in the syndicate which funded the acquisition from Lloyds Banking Group Plc

 

·     Venmar, the holding company for XPD8 Solutions, a highly profitable asset integrity business operating in a defensive sub-sector of the energy services industry, providing asset maintenance solutions to a blue-chip international customer base

 

·     Flexlife, an award winning flexible pipe specialist, which employs patented ultrasonic scanning technology to provide sub-sea asset integrity solutions to energy sector clients at a time when their global market places ever greater emphasis on maintaining critical infrastructure and sustained field production

 

·     Attraction World Holdings, which offers ticketing solutions to the worldwide travel sector, enjoys exclusive trading partnerships with key UK travel organisations and provides travel agents with integrated access to the ticketing systems of major global theme parks

 

·     CHS Engineering Services, a leading provider of condition monitoring and maintenance services to domestic and international airport terminal operators and major clients in the distribution and materials handling sector

 

·     McGavigans, a manufacturer and supplier of decorative assemblies and interior parts to global automotive manufacturers, with a significant share of the Western European market and a strategy to establish a low cost manufacturing operation in China, where it can leverage the overseas experience of its management team to serve the wider Asian markets.

 

In addition, repayments of loan stock were received from some of the investee companies as shown on the table on page 12.

 

In respect of AIM holdings, the Manager has continued its policy of structured exits. An overall net gain of £152,000 was achieved from this part of the portfolio, including the impact of a disposal where a security was written off the register, and instances where Maven had lost confidence in a specific holding or where a mandatory sale process or bid was in evidence. There was no effect on the NAV as realisations were achieved at close to carrying values. 

 

Investments in the unlisted portfolio are generally trading well and increased valuations have been achieved where appropriate.

 

Outlook

 

The underlying investment portfolio has seen a significant diversification and improvement over the past two years, with an emphasis on identifying and investing in later stage private companies with attractive yield characteristics. There is significant demand for this type of asset by providers of alternative capital, and the market for private equity transactions has become more competitive notwithstanding the shortage of capital available from more traditional sources.  In this operating environment Maven will leverage its UK network and experience to continue to construct a high quality and income producing portfolio of assets diversified across a range of sectors on behalf of its VCT client investors.

 

 

 

 

Realisations

 




Ordinary Share

S Ordinary Share


Date

first invested

Complete/ Partial

Exit

Cost of shares disposed of

Sales Proceeds

Realised

 Gain/

Loss

Cost of

shares disposed of

Sales Proceeds

Realised Gain/

Loss




£'000

£'000

£'000

£'000

£'000

£'000

Unlisted









Ailsa Craig Capital Limited

2009

Partial

-

-

-

179

179

-

Armannoch Investments Limited

2008

Complete

225

225

               -  

        125

        125

            -  

Atlantic Foods Group Limited

2008

Partial

-

-

               -  

          19

          21

             2

Cyclotech Limited

2007

Complete

           -  

10

10

          -  

            5

             5

Torridon Capital Limited

2010

Partial

150

150

               -  

        110

        110

            -  

Valkyrie Capital Limited

2008

Complete

225

225

               -  

        125

        125

            -  

Westway Services Limited

2009

Partial

18

18

               -  

          18

          18

            -  













618

628

10

576

583

7










AIM









Animalcare  PLC

2008

Complete

           -  

           -  

               -  

          94

        179

           85

Avanti Communications Group PLC

2004

Complete

          18

          47

              29

          -  

          -  

            -  

Brookwell Limited

2008

Partial

            4

            2

                (2)

          -  

          -  

            -  

Melorio PLC

2007

Complete

        148

        228

              80

          90

        139

           49

Mount Engineering PLC

2007

Complete

        124

        144

              20

          35

          41

             6

OPG Power Ventures PLC

2008

Partial

            2

            3

                1

            2

            3

             1

Software Radio Technology PLC

2005

Partial

        127

        175

              48

          -  

          -  

            -  

Others



        314

        173

   (141)

          25

            1

(24)













737

772

35

246

363

117










Total



1,355

1,400

45

822

946

124

 

Included in 'Others' is the legacy AIM security, Elevation Events, which was struck off the Register during the year resulting in a realised loss of £100,000. This had no effect on the NAV as a full provision had been made in earlier years.

 

 

 

 

 

 

INCOME STATEMENT








For the year ended 31 December 2010





























Ordinary Shares

 S Ordinary Shares

TOTAL














Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Gains on investments

8

              -

         799

         799

              -

         278

278

              -

       1,077

      1,077

Income from investments

2

         229

 -

         229

         121

 -

121

         350

 -

         350

Other income

2

              -

 -

             -

              -

 -

             -

              -

 -

             -

Investment management fees

3

(14)

(57)

(71)

          (14)

          (55)

(69)

          (28)

(112)

(140)

Other expenses

4

(201)

              -

(201)

        (122)

              -

(122)

        (323)

              -

        (323)

Net Return on ordinary activities before taxation


           14

         742

         756

          (15)

         223

         208

            (1)

         965

         964












Tax on ordinary activities

5

            (1)

             1

             -

              -

              -

             -

            (1)

             1

             -

Return attributable to equity shareholders


           13

         743

         756

          (15)

         223

         208

            (2)

         966

964























Earnings per share (pence)


0.2

          9.0

          9.2

         (0.3)

          4.5

4.2

         (0.1)

        13.5

        13.4

 

A Statement of Total Recognised Gains and Losses has not been prepared, as all gains and losses are

recognised in the Income Statement.


All items in the above statement are derived from continuing operations.  The Company has only one class of 

business and derives its income from investments made in shares, securities and bank deposits.


The total column of this statement is the Profit and Loss Account of the Company.

 

 

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS





For the year ended 31 December 2010







Ordinary Shares


S Ordinary Shares


TOTAL


£'000


£'000


£'000









Opening Shareholders' funds


      6,996



      4,693


    11,689

Net return for year


         756



         208


         964

Net proceeds of share issue


         605



             -


         605

Repurchase and cancellation of shares


          (98)



         (26)


        (124)

Dividends paid - revenue


          (42)



         (25)


         (67)

Dividends paid - capital


        (253)



         (49)


        (302)

Closing Shareholders' funds


      7,964



      4,801


    12,765

 

 

 

INCOME STATEMENT




For the year ended 31 December 2009















Ordinary Shares

 S Ordinary Shares

TOTAL














Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Gains on investments

8

              -

         459

         459

              -

           56

          56

              -

         515

         515

Income from investments

2

         355

 -

         355

         206

 -

         206

         561

 -

         561

Other income

2

             6

 -

            6

             2

 -

            2

             8

 -

            8

Investment management fees

3

(24)

(95)

(119)

          (16)

          (66)

(82)

          (40)

(161)

(201)

Other expenses

4

(127)

              -

(127)

          (95)

              -

(95)

        (222)

              -

        (222)

Net Return on ordinary activities before taxation


         210

         364

         574

           97

          (10)

          87

         307

         354

         661












Tax on ordinary activities

5

(42)

           20

(22)

          (19)

           14

           (5)

(61)

           34

         (27)

Return attributable to equity shareholders


         168

         384

         552

           78

             4

          82

         246

         388

         634























Earnings per share (pence)


          2.1

          4.9

          7.0

          1.6

            -  

         1.6

          3.7

          4.9

         8.6

 

A Statement of Total Recognised Gains and Losses has not been prepared, as all gains and losses are

recognised in the Income Statement.


All items in the above statement are derived from continuing operations.  The Company has only one class of 

business and derives its income from investments made in shares, securities and bank deposits.


The total column of this statement is the Profit and Loss Account of the Company.

 

 

 

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS




For the year ended 31 December 2009







Ordinary Shares

S Ordinary Shares


TOTAL


£'000

£'000


£'000








Opening Shareholders' funds


      6,647


      4,750


    11,397

Net Return for year


         552


          82


         634

Repurchase and cancellation of shares


          (23)


             -


         (23)

Dividends paid - revenue


        (180)


        (139)


        (319)

Dividends paid - capital


             -


             -


             -

Closing Shareholders' funds


      6,996


      4,693


    11,689

 

 

 

 

 

BALANCE SHEET




As at 31 December 2010









31 December 2010

31 December 2009











Ordinary

 S Ordinary


Ordinary

 S Ordinary




Shares

 Shares

 Total

Shares

 Shares

 Total


 Notes

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

Fixed assets








Investments at fair value through profit or loss

8

              6,956

              4,002

            10,958

              6,156

              2,841

              8,997









Current assets








Debtors

10

                167

                  78

                245

                163

                  65

                228

Cash and overnight deposits


                890

                753

              1,643

                756

              1,832

              2,588



              1,057

                831

              1,888

                919

              1,897

              2,816

Creditors: amounts falling due within one year

11

                 (49)

                 (32)

                 (81)

                 (79)

                 (45)

               (124)

Net current assets


              1,008

                799

              1,807

                840

              1,852

              2,692

Total net assets


              7,964

              4,801

            12,765

              6,996

              4,693

            11,689

















Capital and reserves








Called up share capital

12

                832

                494

              1,326

                780

                497

              1,277

Share premium

13

                538

              4,227

              4,765

                     -

              4,227

              4,227

Distributable reserve

13

              6,539

                 (26)

              6,513

              6,637

                     -

              6,637

Capital Redemption Reserve

13

                  19

                    3

                  22

                    4

                     -

                    4

Capital reserves - realised

13

              1,085

                106

              1,191

              1,349

                  86

              1,435

Capital reserves - unrealised

13

             (1,236)

                 (38)

(1,274)       

             (1,990)

               (192)

             (2,182)

Revenue reserve

13

                187

                  35

                222

                216

                  75

                291

Net assets attributable to ordinary Shareholders


              7,964

              4,801

            12,765

              6,996

              4,693

            11,689









Net asset value per ordinary share (pence)

14

               95.7

               97.3


               89.7

               94.4


 

 

The Financial Statements of Maven Income and Growth VCT 4 PLC, registered number 272568, were approved and authorised for issue by the Board of Directors and were signed on its behalf by:


Ian Cormack

Director

11 March 2011

 

 

 

 

CASH FLOW STATEMENT







For the year ended 31 December 2010






















Year to 31 December 2010

Year to 31 December 2009











Ordinary

S Ordinary


Ordinary

S Ordinary




Shares

Shares

Total

Shares

Shares

Total



£'000

£'000

£'000

£'000

£'000

£'000

Operating activities








Investment income received


                 226

                 109

                 335

                 397

                 268

665

Deposit interest received


                     -

                     -

                     -

                    8

                    3

11

Investment management fees paid


                 (82)

                 (77)

                (159)

                 (90)

                 (62)

                (152)

Secretarial fees paid


                 (48)

                 (33)

                 (81)

                 (34)

                 (25)

                 (59)

Cash paid to and on behalf of Directors


                 (39)

                 (26)

                 (65)

                 (38)

                 (27)

                 (65)

Other cash payments


                (111)

                 (63)

                (174)

                 (52)

                 (37)

                 (89)

Net cash (outflow)/inflow from operating activities


                 (54)

                 (90)

                (144)

                 191

                 120

                 311









Taxation








Corporation tax


                 (22)

                   (5)

                 (27)

                 (12)

                 (15)

                 (27)









Financial investment








Purchase of investments


             (1,401)

             (1,829)

             (3,230)

             (1,617)

             (1,028)

             (2,645)

Sale of investments


              1,399

                 945

              2,344

              2,121

              2,804

              4,925

Net cash (outflow)/inflow from financial investment


                   (2)

                (884)

                (886)

                 504

              1,776

              2,280









Equity dividends paid


                (295)

                 (74)

                (369)

                (180)

                (139)

                (319)









Net cash (outflow)/inflow before financing


                (373)

             (1,053)

             (1,426)

                 503

              1,742

              2,245









Financing








Issue of Ordinary Shares


605

                     -

                 605

                     -

                     -

                     -

Repurchase of Ordinary Shares


                 (98)

                 (26)

                (124)

                 (23)

                     -

                 (23)









Net cash inflow/(outflow) from financing


                 507

                 (26)

                 481

                 (23)

                     -

                 (23)

Increase/(decrease) in cash


                 134

             (1,079)

                (945)

                 480

              1,742

              2,222

 

 

 

 

Principal risks and uncertainties 

The principal risks facing the Company relate to its investment activities and include market price, interest rate, liquidity and credit risks. An explanation of these risks and how they are managed is contained in Note 18 to the financial statements on pages 50 to 53. Additional risks faced by the Company, and the mitigation approach adopted by the Board, are as follows: 

(i)     investment objective: The Board's aim is to maximise absolute returns to shareholders while managing risk by ensuring an appropriate diversification of investments
(ii)    investment policy: inappropriate stock selection, leading to underperformance in absolute and relative terms, is a risk which the Manager mitigates by operating within investment guidelines and regularly monitoring performance against the peer group
(iii)   discount volatility: due to lack of liquidity in the secondary market, venture capital trust shares tend to trade at discounts to net asset values which the Board seeks to manage by making purchases of shares in the market from time to time 
(iv)    regulatory risk: the Company operates in a complex regulatory environment and faces a number of related risks. A breach of section 274 of the Income Tax Act 2007 could result in the Company's being subject to capital gains tax on the sale of its investments. 

Serious breach of other regulations, such as the UKLA Listing rules and the Companies Act 2006, could lead to suspension from the Stock Exchange and reputational damage. The board receives quarterly reports from the Manager in order to monitor compliance with regulations. 

The Board considers all risks and the measures in place to manage them and monitors their management twice each year.

 

Derivatives and other financial instruments:

The Company's financial instruments comprise equity and fixed interest investments, cash balances and debtors and creditors that arise directly from its operations, for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company holds financial assets in accordance with its investment policy of investing mainly in a portfolio of VCT qualifying unquoted an AIM quoted securities. The Company may not enter into derivative transactions in the form of forward foreign currency contracts, futures and options without the written permission of the Directors.  No derivative transactions were entered into during the period.


The main risks the Company faces from its financial instruments are (i) market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rates, (ii) interest rate risk, (iii) liquidity risk and (iv) credit risk.  In line with the Company's investment objective, the portfolio comprises only sterling currency securities and therefore has no direct exposure to foreign currency risk.


The Manager's policies for managing these risks are summarised below and have been applied throughout the period.  The numerical disclosures below exclude short-term debtors and creditors which are included in the balance sheet at fair value.


Market price risk

The Company's investment portfolio is exposed to market price fluctuations, which are monitored by the Manager in pursuance of the investment objective as set out on page 19.  Adherence to investment guidelines and to investment and borrowing policies set out in the management agreement mitigates the risk of excessive exposure to any particular type of security or issuer.  These powers and guidelines include the requirement to invest in a minimum of 30 companies across a range of industrial and service sectors at varying stages of development, to closely monitor the progress of these companies and to appoint a non-executive director to the board of each company. Further information on the investment portfolio (including sector concentration and deal type analysis) is set out in the Analysis of Unlisted and AIM Portfolio, Investment Manager's Review, Summary of Investment Changes, Investment Portfolio Summary and Largest Unlisted and AIM Investments on pages 9 to 12.


Interest rate risk

Ordinary Shares as at 31 December 2010:

The unlisted fixed interest assets have a weighted average life of 2.8 years (2009: 2.9 years) and weighted average interest rate of 8.45% (2009: 8.34%).  The non-interest bearing assets represent the equity element of the portfolio.  All assets and liabilities of the fund are included in the balance sheet at fair value.


It is the Directors' opinion that the carrying amounts of these financial assets represent the maximum credit risk exposure at the balance sheet date.


The interest rate which determines the interest received on cash balances is the bank base rate.

 

S Ordinary Shares at 31 December 2010:

The unlisted fixed interest assets have a weighted average life of 3.2 years (2009: 3.3 years) and a weighted average interest rate of 8.20% (2009: 8.25%).  The non-interest bearing assets represent the equity element of the portfolio.  All assets and liabilities of the fund are included in the balance sheet at fair value.


It is the Directors opinion that the carrying amounts of these financial assets represent the maximum credit risk exposure at the balance sheet date.


The interest rate which determines the interest received on cash balances is the bank base rate.

 

 

Liquidity risk

Unlisted investments may not be readily realisable and therefore a portfolio of listed assets and cash is held to offset this liquidity risk.  Note 8 details the three-tier hierarchy of inputs used as at 31 December 2010 in valuing the Company's investments carried at fair value.


The company, generally, does not hold significant cash balances and any cash held is with reputable banks with high quality external credit ratings.


 

Credit risk

This is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company.

 

All fixed interest assets which are traded on a recognised exchange and all the Company's cash balances are held by JP Morgan Chase (JPM), the Company's custodian.  Should the credit quality or the financial position of JPM deteriorate significantly the Manager will move these assets to another financial institution.

 

The manager evaluates credit risk on unlisted debt securities and financial commitments and guarantees prior to investment, and as part of the ongoing monitoring of investments.  In doing this, it takes into account the extent and quality of any security held.  Typically, unlisted debt securities have a fixed charge over the assets of the investee company in order to mitigate the gross credit risk.  The manager receives management accounts from investee companies, and members of the investment management team sit on the boards of investee companies; this allows the close identification, monitoring and management of investment specific credit risk.

 

There were no significant concentrations of credit risk to counterparties at 31 December 2010 or 31 December 2009.


Price risk sensitivity

 

The following details the Company's sensitivity to a 10% increase or decrease in the market prices of listed or AIM/PLUS quoted securities, with 10% being the Manager's assessment of a reasonable possible change in market prices.

 

At 31 December 2010, if market prices of AIM/PLUS quoted securities had been 10% higher or lower and with all other variables held constant, the increase or decrease in net assets attributable to Ordinary Shareholders for the year would have been £71,000 (2009: £123,516) due to the change on valuation of financial assets at fair value through profit or loss.

 

At 31 December 2010, if market prices of listed or AIM/PLUS quoted securities had been 10% higher or lower and with all other variables held constant, the increase or decrease in net assets attributable to  S Ordinary Shareholders for the year would have been £16,200 (2009: £52,200) due to the change on valuation of financial assets at fair value through profit or loss.

 

At 31 December 2010, 78.4% (2009: 70.3%) comprised investments in unquoted companies held at fair value attributable to Ordinary Shareholders.  The valuation methods used by the Company include cost and realisable value. Therefore, it is not considered meaningful to provide a sensitivity analysis on the net asset position and total return for the year due to the fact any such movements would be immaterial to users of financial statements.

 

At 31 December 2010, 79.9% (2009: 49.4%) comprised investments in unquoted companies held at fair value attributable to S Ordinary Shareholders.  The valuation methods used by the Company include cost and realisable value. Therefore, it is not considered meaningful to provide a sensitivity analysis on the net asset position and total return for the year due to the fact any such movements would be immaterial to users of financial statements.

 

 
 Statement of Directors' Responsibility in Respect of the Annual Financial Report
 

The directors are responsible for preparing the Annual Report, Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The financial statements are required by law to give a true and fair view of the state of affairs of the company and of the net return of the company for that period. In preparing these financial statements, the directors are required to: 
•    select suitable accounting policies and then apply them consistently
•    make judgments and estimates that are reasonable and prudent
•    state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements
•    prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. 
The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
 
Responsibility of the Directors in respect of the Annual Financial Report
We confirm that, to the best of our knowledge, the financial statements, prepared in accordance with the applicable set of accounting standards and set out on pages 35 to 53, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company; and the Directors' Report, set out on pages 20 to 29, includes a fair review of the developments and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that they face

 

 

 

 

 

Notes

   1

Accounting Policies - UK Generally Accepted Accounting Practice

 (a)

Basis of preparation


The Financial Statements have been prepared under the historical cost convention modified to include the revaluation of investments and in accordance with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' (the SORP) issued in January 2009.

 (b)

Income


Dividends receivable on equity shares and unit trusts are treated as revenue for the period on an ex-dividend basis.   Where no ex-dividend date is available dividends receivable on or before the year end are treated as revenue for the period. Provision is made for any dividends not expected to be received.  The fixed returns on debt securities and non-equity shares are recognised on a time apportionment basis so as to reflect the effective interest rate on the debt securities and shares.  Provision is made for any fixed income not expected to be received.  Interest receivable from cash and short term deposits and interest payable are accrued to the end of the year.

 (c)

Expenses


All expenses are accounted for on an accruals basis and charged to the income statement.  Expenses are charged through the revenue account except as follows:


- expenses which are incidental to the acquisition and disposal of an investment are charged to capital; and


- expenses are charged to realised capital reserves where a connection with the maintenance or enhancement of the value of the investments can be demonstrated.  In this respect the investment management fee has been allocated 20% to revenue and 80% to realised capital reserves to reflect the Company's investment policy and prospective income and capital growth.


- share issue costs are charged to the share premium account.


- expenses are allocated between the original pool or the S share pool depending on the nature of the expense.

 (d)

Taxation


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




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




The tax effect of different items of income/gain and expenditure/loss is allocated between capital reserves and revenue account on the same basis as the particular item to which it relates using the Company's effective rate of tax for the period.



 (e)

Investments




In valuing unlisted investments the Directors follow the criteria set out below. These procedures comply with the revised International Private Equity and Venture Capital Valuation Guidelines for the valuation of private equity and venture capital investments. Investments are recognised at their trade date and are designated by the directors as fair value through profit and loss. At subsequent reporting dates, investments are valued at fair value, which represent the Directors' view of the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction. This does not assume that the underlying business is saleable at the reporting date or that its current shareholders have an intention to sell their holding in the near future.


 

A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.




1. For Investments completed within the 12 months prior to the reporting date and those at an early stage in their development, fair value is determined using the Price of Recent Investment Method, except that adjustments are made when there has been a material change in the trading circumstances of the company or a substantial movement in the relevant sector of the stock market.


 

2. Whenever practical, recent investments will be valued by reference to a material arm's length


transaction or a quoted price.


 

3. Mature companies are valued by applying a multiple to their fully taxed prospective earnings to 


determine the enterprise value of the company.




3.1   To obtain a valuation of the total ordinary share capital held by management and


         the institutional investors, the value of third party debt, institutional loan stock, debentures     and preference share capital is deducted from the enterprise value. The effect of any performance related mechanisms is taken into account when determining the value of the ordinary share capital.


  3.2   Preference shares, debentures and loan stock are valued using the Price of Recent Investment Method. When a redemption premium has accrued, this will only be valued if there is a reasonable prospect of it being paid. Preference shares which carry a right to convert into ordinary share capital are valued at the higher of the Price of Recent Investment Method basis and the price/earnings basis, both described above.


 

4. Where there is evidence of impairment, a provision may be taken against the previous valuation of the investment.




 5. In the absence of evidence of a deterioration, or strong defensible evidence of an increase in value, the fair value is determined to be that reported at the previous balance sheet date.


 

 6. All unlisted investments are valued individually by the Manager. The resultant valuations are subject to detailed scrutiny and approval by the Directors of the Company.


 

7. In accordance with normal market practice, investments listed on the Alternative Investment Market or a recognised stock exchange are valued at their bid market price.

 

(f)

Fair Value Measurement


Fair value is defined as the price that the Company would receive upon selling an investment in a timely transaction to an independent buyer in the principal or the most advantageous market of the investment.  A three-tier hierarchy has been established to maximise the use of observable market data and minimise the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes.  Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique.  Inputs may be observable or unobservable.


 

Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on best information available in the circumstances.


 

The three-tier hierarchy of inputs is summarised in the three board levels listed below:




   Level 1 - quoted prices in active markets for identical investments


   Level 2 - other significant observable inputs (included quoted prices for similar investments,      interest rates, prepayment speeds, credit risk etc).


   Level 3 - significant unobservable inputs (including the Company's own assumptions in determining the fair value of investments).

 (g)

 Gains and losses on investments


 When the company sells or revalues its investments during the year, any gains or losses arising are credited/charged to the Income Statement.

 

 

 

 

 

  

 

 


Year ended

Year ended


31 December 2010

31 December 2009

7 Return per ordinary share







The returns per share have been based on the following

Ordinary

S Ordinary


Ordinary

S Ordinary


figures:

 Shares

Shares

 Total

 Shares

Shares

 Total








Weighted average number of ordinary shares

8,243,192

    4,937,304

13,180,496

7,834,599

      4,972,459

12,807,058








Revenue return

£13,000

(£15,000)

-

£168,000

£78,000

£246,000

Capital return

£743,000

£223,000

£966,000

£384,000

£4,000

£388,000

Total Return

£756,000

£208,000

£966,000

£552,000

£82,000

£634,000

 

 

 

 


31 December 2010

31 December 2009


 Ordinary Shares

 S Ordinary Shares

 Ordinary Shares

 S Ordinary Shares

12 Share capital

Number

£'000

Number

£'000

Number

£'000

Number

£'000

At 31 December the authorised share capital comprised:









allotted, issued and fully paid:









Ordinary shares of 10p each









Balance brought forward

7,798,296

780

4,972,459

497

7,835,163

784

4,972,459

497

Repurchased and cancelled in year

        (152,065)

                 (15)

       (36,450)

               (3)

         (36,867)

                  (4)

                     -

               -


7,646,231

765

4,936,009

494

7,798,296

780

4,972,459

497

Issued during the period

676,899

67

                  -

                  -

                    -

                     -

                     -

               -


8,323,130

832

4,936,009

494

7,798,296

780

4,972,459

497

 

 

 

 

 

 

 

 

14 Net asset value per ordinary share

The net asset value per share and the net asset value attributable to the ordinary shares at the period end

calculated in accordance with the Articles of Association were as follows:

 

 


31 December 2010

31 December 2009











Ordinary Shares

 S Ordinary Shares

Ordinary Shares

 S Ordinary Shares











 Net asset 

 Net asset

 Net asset 

 Net asset

 Net asset 

 Net asset

 Net asset 

 Net asset


 value per

 value

 value per

 value

 value per

 value

 value per

 value


 share

 attributable

 share

 attributable

 share

 attributable

 share

 attributable


 p

 £'000

 p

 £'000

 p

 £'000

 p

 £'000










Ordinary shares

                95.7

             7,964

               97.3

                4,801

               89.7

             6,996

           94.4

             4,693

 

 

Other information

 

This announcement has been prepared on the same basis as the Annual Report and Financial Statements for the year ended 31 December 2010. The Annual Report and Financial Statements for the year ended 31 December 2010 will be filed with the Registrar of Companies and issued to Shareholders in due course. References to page numbers and notes to the financial statements are references to the Annual Report and Financial Statements for the year ended 31 December 2010.

 

The financial information contained within this announcement does not constitute the Company's statutory Financial Statements as defined in the Companies Act 2006. The statutory Financial Statements for the year ended 31 December 2009 have been delivered to the Registrar of Companies and contained an audit report which was unqualified.

 

Copies of this announcement and of the Annual Report and Financial Statements for the year ended 31 December 2010 will be available at the registered office:149 St Vincent Street, Glasgow, G2 5NW, and on the Company's website at www.mavencp.com/migvct4.

 

By order of the Board

 

Maven Capital Partners UK LLP

Secretary

 

14 March 2011

 

ENDS

 

Neither the content of the Company's website nor the contents of any website accessible from hyperlinks on the company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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