RNS Number:3930X
Equity Pre-IPO Investments Ltd
30 May 2007
Equity Pre-IPO Investments Limited
Annual Report
Equity Pre-IPO Investments Limited (the 'Company' or 'Pre IPO') is pleased to
announce its results for the year ending 31 December 2006.
Directors' Report
We are delighted to present this annual report to shareholders for the year
ended 31 December 2006 for Equity Pre-IPO Investments Limited ("Pre-IPO" or the
"Company"). We have also included some unaudited information for the period
from 31 December 2006 to 15 May 2007 in order to ensure that shareholders are
provided with as much up to date information as is practical.
Net Asset Value
We have set out in the table below the progression of our Net Asset Value ("NAV
") per share since 1 January 2005.
Date 31 December 2004
(audited)
NAV 14.46p
Date 31 March 30 June 30 September 2005 31 December 2005
2005 2005
NAV (unaudited) (unaudited) (unaudited) (audited)
28.14p 28.13p 39.69p 44.19p
Date 31 March 30 June 30 September 2006 31 December 2006
2006 2006
NAV (unaudited) (unaudited) (unaudited) (audited)
44.68p 42.27p 42.73p 55.37p
Date 31 March 2007 15 May
2007
NAV (unaudited) (unaudited)
55.54p 55.56p
This table shows that for the year to 31 December 2006 we achieved an increase
in the NAV of the Company of approximately 25% (2005: 206%). Whilst the current
increase in NAV is substantially less than that achieved in 2005 we are pleased
with this performance. The Company has now increased its NAV by approximately
283% from 31 December 2004 to 31 December 2006.
The calendar year of 2006 can be characterised by a concentration on our
existing portfolio of investee companies in an effort to ensure that they were
all progressing towards an exit by Pre-IPO. The stock market was volatile in
terms of its attitude towards new companies coming to the market and over the
year as a whole the AIM All Share index returned an absolute return of just
0.8%. This poor performance of the AIM market and the generally negative
attitude of institutional investors towards many AIM flotations added a
significant element of potential risk to the growth of companies. We therefore
took the view that our investee companies should not seek to secure their
financial requirements solely from a flotation as this would risk the continued
financial well-being of a company on the highly changeable views of the market.
The consequence of this is that whilst our NAV has progressed well over the year
there have been less flotations of our investee companies than targeted at the
beginning of the year.
The investment strategy of Pre-IPO is such that changes in the NAV tend to be
sporadic, with re-valuations of portfolio companies driven by material events
that happen occasionally. This is demonstrated by the large up-lifts that
occurred in the NAV during 2005 being followed by little change during the first
three quarters of 2006 and then by another material uplift in the final quarter
of 2006. We believe that the Company's investment portfolio is well positioned
to benefit from a number of further material re-valuations during the course of
2007 but these will continue to be sporadic events. We expect that the progress
achieved since the incorporation of the Company in terms of increase in the NAV
can be maintained during 2007.
Fund Raising
We have not raised any new funds during the course of 2006 and, therefore, the
total equity funds raised by the Company since its incorporation remains at a
total of #4,609,638 (before costs). This compares to the total net assets of
the Company as at 31 December 2006 of #7,329,586 and is an increase on total
gross equity funds invested of approximately 59%.
At the time of the Company's admission to trading on AIM in February 2005 we
announced that we had signed an option agreement under the terms of which the
Company had the opportunity to raise a total of #4.0 million for the issue of
new shares in Pre-IPO. This option was exercisable in two parts, with half the
total due to be exercised during the period 24 October 2005 to 23 November 2005
and the remaining half during the period 24 April 2006 to 23 May 2006. We
announced in our annual report for the period to 31 December 2005 that we had
decided not to exercise the first part of the option because the share price was
so low that it would have been highly dilutive to our existing shareholders.
Similarly, we did not exercise the second half of the option for the same reason
and therefore the entire option has now lapsed.
We continue to operate Pre-IPO with limited levels of uninvested cash. This
means that we often have to either turn down or scale back the investments made
by Pre-IPO because there is little or no cash available for investment at the
time. We therefore believe that it would be in the Company's and shareholders'
best interests if we are able to raise further funds. During 2006 we made some
limited use of debt finance but because, in general, our investments are in
unquoted companies and, as a result, are not regarded as suitable debt security
by banks, we do not believe that this method of raising funds is a viable and
long term method of increasing funds available for investment. We have
therefore concluded that we need to raise further equity capital for the Company
in the near future and will continue to discuss this issue with the Company's
advisors.
Investment Strategy
Pre-IPO's stated investment strategy is to achieve capital growth for
shareholders through the purchase, holding and sale of minority stakes in other
companies. We intend to invest only in companies which are currently unquoted
but which we believe will achieve either a flotation on a Recognised Investment
Exchange or Exchange Regulated Market in Europe or a trade sale up to eighteen
months from the time of Pre-IPO's investment. Potential investments are
evaluated from a wide variety of industry sectors which are based upon the
recommendations of an Investment Advisory Panel.
Investment decisions will normally take into account the following key factors:
* The size of the investments in relation to Pre-IPO's assets;
* Whether or not the investment cost appears to be at a discount to the
actual or potential valuation of the investee company;
* Whether or not there is a proven management team in place or available
for the investee company;
* Whether the investee company's financial and other resources, future
trading prospects, visibility of earnings, cash flow forecasts and on-going
working capital requirements are satisfactory;
* Whether or not there are satisfactory prospects for the investee
company to achieve a flotation within a reasonable timeframe;
* Whether or not there are satisfactory prospects for Pre-IPO to exit
the investment once a flotation has been achieved.
In our annual report for the period to 31 December 2005 we stated that we had a
total of nine investments, of which three had achieved a flotation and six
remained unquoted. We set ourselves a target for 2006 of achieving the complete
exit from at least two of our then held quoted companies and the flotation of at
least three of our then held six unquoted companies. During the course of 2006
we in fact achieved an exit from all three of the quoted investments that we
held at the beginning of 2006, which raised proceeds of #2,150,921 (2005:
#960,948) and the flotation of one of our unquoted investments. In addition two
of our unquoted investments have privately raised further equity funds at a
materially higher valuation than that invested by Pre-IPO. We had planned for
both these companies to be floated during 2006 but the brokers appointed
concluded that the volatility of the market meant that it was safer to raise
money privately rather than as a part of a flotation. The aggregate sums raised
for these two private placings was approximately #15 million and so we are
delighted that both these companies are now well financed. We will continue to
assist these companies as needed and remain optimistic that they will achieve a
flotation in the near future. We also participated in a small rights issue by
another of our unquoted companies which was undertaken at the same valuation at
which we originally invested.
The result of this activity is that we ended 2006 with a portfolio of one quoted
investment and five unquoted investments. Since the year end we completed a new
investment in January 2007 totalling approximately #480,000 and we also
completed the exit from our one quoted investment. Therefore as of 15 May 2007
our investment portfolio was made up of six unquoted investments and no quoted
investments.
The limitation on new investments made by Pre-IPO during 2006 is something that
we believe has not yet been to the detriment of the investment portfolio as we
have been able to focus on our existing investments and the management of our
current portfolio. We believe however that it is essential that further new
investments are made during 2007 in order that the portfolio of companies
remains vibrant and that there is a constant flow of new investments, flotations
and exits. We do not believe, however, that we can only rely upon exiting from
existing investments in order to generate funds for new investments - the timing
of an exit from an investment will rarely coincide with an investment into a new
company, with both often having a very unpredictable time line. We do therefore
believe that it is important for the continued success of the Company for
further funds to be made available for investment purposes.
Our focus for 2007 is the partial or complete exit from companies within our
portfolio, the raising of additional finance for investment and, assuming that
we are able to raise further capital, the subsequent increase in the number of
portfolio companies. We have targeted the flotation of at least two companies
from the portfolio during 2007 and would like to increase the number of
investments within the portfolio to ten. We are currently holding detailed
discussions with two unquoted companies regarding an investment by Pre-IPO. We
very much hope that these discussions will be successful and that Pre-IPO will
have sufficient funds to follow through with an investment into these companies.
This will, however, depend upon the companies having a realistic view of their
current valuation, confirmation of the companies' desire to float, completion of
the due diligence exercise and Pre-IPO having raised additional capital or
having exited from existing investments.
Investee Companies
The investment portfolio that we currently hold (as of 15 May 2007) is as
follows:
Pinnacle Plus Limited ("Pinnacle")
Pinnacle was established in 2003 and specialises in providing Airport Ground
Support Equipment Operators, Maintainers and Fleet Managers ("GSE's") with a
range of decision support information services. Pinnacle's services are
designed to help GSE's to manage their equipment assets more effectively,
improve operational efficiency and reduce costs. Pinnacle provides a range of
services which provide GSE's with key management and performance information,
enabling them to better manage user access, locate equipment, monitor vehicle
usage and fleet utilisation, view fuel and de-icing tank levels as well as
reduce equipment damages. Customers include KLM Equipment Services, Martinair
and Menzies at Schiphol in Amsterdam and Air France Services at London Heathrow.
(Web site address: www.pinnacle-air.com)
In our annual report for the period to 31 December 2005 we highlighted our
investment into Pinnacle as an example of the investments made by Pre-IPO. We
also stated that we hoped to be able achieve a flotation for this company during
the course of 2006. Whilst the company has continued to win new long term
contracts this process has taken longer than was expected. We therefore
concluded that a flotation during 2006 would have been inappropriate. We remain
confident about the prospects of this company and are confident that our
investment in this company, which remains valued at cost, will show a material
uplift in the future.
Altair Financial Services International PLC ("Altair")
Altair is a provider of global prepaid solutions, headquartered in London with
subsidiary companies in USA and Antigua and banking and processing relationships
in Europe, USA and throughout the Latin America and Caribbean regions. Altair
was incorporated in 2005 to bring together the technology, business knowledge
and investment of a group of people and companies based in Europe and the USA.
Altair is a company that provides mobile money and financial solutions utilising
traditional and non traditional banking media. The company specialises in
telephone cash management and movement, prepaid technologies and money share.
Altair is a global provider of prepaid, stored value card solutions and closed
loop systems with enhanced functionality. Altair offers prepaid card programs
to companies and individuals using MasterCard(R) and VISATM products. To
enhance these programs Altair utilises the Internet and mobile phone to provide
an online and mobile e-wallet and payment system. The Altair system is able to
store and manage value using mobile phones and a prepaid card can be attached to
the account to allow ATM withdrawals. The provision of a prepaid card allows the
account to be used in a 'traditional' retail environment. (Web site address:
www.altair-financial.com)
Lorega Limited ("Lorega")
Originally established in 1983 as a claims consultancy service for businesses,
Lorega has now grown in to a leading provider of products and services focused
on making the claims process easier for private clients and commercial insurance
customers. Today Lorega is best known as the pioneer of Loss Recovery Insurance,
which is now sold by over 200 UK brokers. This unique class of insurance is
designed to give the policyholder access to professional help without incurring
the cost of expensive fees where the value of the claim exceeds #5,000. (Web
site address: www.lorega.com)
Combimeer N.V. ("Combimeer")
Combimeer provides a range of financial products to the Dutch retail market
place that are based upon low cost structures, transparent products and
flexibility. The Combimeer products are particularly suitable for the
re-investment of, for example, single premium insurances, annuities and
pensions; deferred single premium insurances, annuities and stamrecht (a Dutch
financial construction for golden handshakes in the form of deferred life
annuity insurance). (Website address: www.combimeer.nl)
Radioscape plc ("Radioscape")
Founded in 1996, RadioScape has become a world leader in software solutions for
Digital Radio. The company's pioneering approach gives it the flexibility to add
innovation and rapidly incorporate changes to suit evolving standards. The
company has continued to enhance its broadcast system products, which has
enabled it to address the emerging Mobile TV market based on the DMB standard.
RadioScape uses its unique Software Defined Digital Radio approach to ensure
that it can offer customers the latest features and greatest flexibility in its
product offerings. It has leveraged its unique, end-to-end systems knowledge to
become a world leader in Digital Radio broadcasting, advanced multi-standard
Digital Radio modules, and Mobile TV. (Web site address: www.radioscape.com)
There is one further portfolio company that has asked us to keep our investment
confidential at this stage.
The cost of our existing investments (as of 15 May 2007) was #4,233,137, (as of
31 December 2006, #5,419,539). This investment portfolio has been re-valued to
#7,354,122 using the valuation principals for unquoted companies set out in the
International Private Equity and Venture Capital Valuation Guidelines (published
June 2005, amended October 2006) by the European Private Equity and Venture
Capital Association. This uplift in the valuation of our current portfolio by
67% has occurred because we have re-valued three of our investments, all of
which have been upwards. All three re-valuations are due to recent third party
fund raisings at a value that is higher than our investment valuation. The
other three companies within the portfolio remain valued at cost.
This uplift in the valuation of certain of our unquoted investee companies has
resulted in over 60% of the Company's assets being accounted for by one third of
the investee companies. The fact that these companies remain unquoted means
that there is currently little opportunity to realise any of these investments
at this stage. In addition there can be no assurance that the current
valuations of the investee companies will be those that are achieved if any exit
from these investments occurs in the future.
Share Price
Our share price began 2006 at 35 pence and rose to a high of 45.5 pence in June
2006. Unfortunately the price then slipped back to a new all time low of 25
pence and has since then recovered slightly to close the year at 29 pence. This
share price performance and the low market liquidity of the shares has been a
continual disappointment to us. We are currently discussing with our nominated
advisor and broker how to increase liquidity and to try to encourage the market
price of the shares to be more aligned to the net asset value of the Company.
Previous marketing efforts that we have undertaken have had very limited success
with institutional investors wanting to see a proven track record before
investing. We are hopeful that we have now developed a sufficient track record
and that this will result in an increasing interest in Pre-IPO and an increase
in market liquidity.
Outlook
The Directors believe that Pre-IPO has made good progress in the increase in the
NAV and the development of the portfolio of investments. We believe that
further material rises in the NAV can be expected during the course of 2007. In
addition the pipeline of potential new investments remains strong and therefore
we remain confident about the future.
Directors and their Interests
The Directors of the Company during the year were:
Martin Shires BSc (Econ), ACA, TEP
Paul Matthew Schreibke BSocSc, CTA, TEP
Jonathan David Freeman BA (Hons), MBA
Ian Geoffrey Clarke (alternate director for Paul Matthew Schreibke)
James Grant Howitt (alternate director for Martin Shires)
None of the Directors who held office at the end of the financial year had any
interest in the share capital or share options of the Company, nor does any
person connected with the Directors have any such interests, whether beneficial
or non-beneficial.
Substantial Shareholdings
At 31 December 2006 and 15 May 2007, the issued share capital of the Company was
13,237,235 ordinary shares of 1 pence each.
We have conducted a limited investigation into the underlying holders of 3% or
more of our share capital. It is not presently a requirement of the Company's
Articles of Association that shareholders must notify the Company if they own
shares representing 3% or more of the issued share capital, (a resolution to
amend the Articles of Association to include such a provision will be prepared
at the next Annual General Meeting). Furthermore, there is no authority for the
Company to issue an equivalent to a 212 Notice. Therefore the combination of
the use of nominee accounts (which the CREST settlement system encourages) and
no 212 Notice equivalent means that it can be difficult to track the ownership
of the Company's shares. As far as we are aware, as at 31 December 2006, the
following shareholders held 3% or more of the Company's share capital:
Number of Percentage of issued
ordinary shares ordinary share capital
Jon Olafsson 3,753,500 28.36%
Equity Special Situations Limited 2,968,052 22.42%
Cobra Capital Limited 997,500 7.54%
W T Lamb Investments Limited 662,400 5.00%
Newton Nominees Limited 639,022 4.83%
Share Option Plan
A discretionary Share Option Plan ("Plan") was adopted by the Board prior to the
admission of the Company to AIM on 18 February 2005. A summary of the draft
terms of the Plan were provided in the admission to trading on AIM document.
The Board formally adopted the terms of the Plan as were set out in the AIM
Admission document on 16 May 2007 however no options have yet been awarded under
the Plan.
Relationship with Shareholders
The Directors seek to build a mutual understanding of objectives between the
Company and its shareholders. The Company reports formally to shareholders in
its interim and annual reports setting out details of its activities. In
addition, the Company keeps shareholders informed of events and progress during
the year through the issue of press releases. The Directors meet with
institutional shareholders following interim and final results, as required.
The Company also maintains company information on its website -
www.equitypreipo.com. Shareholders have the opportunity to meet the Board at
the Annual General Meeting ("AGM"). The Board is also happy to respond to any
written queries made by shareholders during the course of the year.
Where possible the Annual Report is sent to shareholders at least 20 working
days before the AGM. Directors are required to attend AGMs of the Company
unless unable to do so for personal reasons or due to pressing commercial
commitments. Shareholders are given the opportunity to vote on each separate
issue. The Company counts all proxy votes and will indicate the level of
proxies lodged on each resolution, after it has been dealt with by a show of
hands.
Dividends
No dividends have been paid or are proposed.
Auditors
A resolution to reappoint BDO Novus Limited as auditors will be proposed at the
next Annual General Meeting.
Directors' Service Contracts
The Company entered into an open ended services agreement with Fortis Fund
Services (Guernsey) which include the provision of the services of M Shires and
P M Schreibke as executive directors on a time-cost basis, with a 3 months
notice period. A service agreement exists between the Company and Jonathan
Freeman with a 3 month notice period.
The Company has also entered into a research and consultancy agreement with
Combined Management Services Limited ("CMS") as disclosed in Note 14 of the
accounts. J D Freeman is a director of CMS and owns 50% of the shares of CMS.
The above fees do not include reimbursed expenditure.
Directors' Remuneration
The emoluments of the individual Directors for the year were as follows:
Director Salary or Fees
M Shires nil
P M Schreibke nil
J D Freeman #20,000
The fees for the non-executive Director are determined in accordance with
Article 99 of the Articles of Association of the Company. Non-executive
Directors are not eligible for bonuses, pension benefits, share options, long
term incentive schemes or other benefits.
No pension scheme contributions or other retirement benefit contributions were
paid.
There are no share option contracts or long term incentive schemes held by the
Directors.
No Director has any interest in any contract to which the Company is a party
except for the contracts between the Company and Fortis Fund Services (Guernsey)
Limited and the Company and Combined Management Services Limited, as disclosed
elsewhere.
30 May 2007
STATEMENT OF TOTAL RETURN
FOR THE YEAR ENDING 31 DECEMBER 2006
For the year ended 31 December 2006 For the year ended 31 December 2005
GAINS ON Note Revenue # Capital Total Revenue # Capital Total
INVESTMENTS # # # #
Net realised gains - 115,845 115,845 - 321,296 321,296
Net unrealised - 1,759,775 1,759,775 - 1,590,650 1,590,650
gains
- 1,875,620 1,875,620 - 1,911,946 1,911,946
INCOME 2
Investment Income - - - 3,238 - 3,238
Loan interest 432 - 432 - - -
received
Bank interest 1,477 - 1,477 25,050 - 25,052
1,909 - 1,909 28,288 - 28,288
EXPENDITURE 2
Directors' fees 20,000 - 20,000 16,666 - 16,666
Administration fees 49,498 - 49,498 44,650 - 44,650
Professional fees 42,832 14,609 57,441 - 72,932 72,932
AIM admission - - - 238,081 - 238,081
expenses
Consultancy fees 14 - 171,961 171,961 - 117,651 117,651
Audit fee 9,300 - 9,300 3,000 - 3,000
Bank charges and 2,074 - 2,074 2,550 - 2,550
interest
Interest - other 2,124 - 2,124 - - -
Commissions paid 3,288 - 3,288 - - -
Sundry expenses - - - 1,430 - 1,430
Regulatory and 18,046 - 18,046 13,767 - 13,767
registration fees
147,162 186,570 333,732 320,144 190,583 510,727
NET RETURN ON
ORDINARY ACTIVITIES
FOR THE FINANCIAL
YEAR (145,253) 1,689,050 1,543,797 (291,856) 1,721,363 1,429,507
Return per share: 6 (1.10) 12.76 11.66 (2.85) 16.81 13.96
basic and diluted
(pence)
All revenue and capital items in the above statement derive from continuing
operations.
No operations were acquired or discontinued during the year.
A reconciliation of movements in shareholders' funds is set out in note 13 to
the financial statements.
The notes form an integral part of these financial statements.
BALANCE SHEET
31 DECEMBER 2006
Note 31 December 2006 31 December 2005
FIXED ASSETS
Quoted investments 4 918,000 2,054,118
Unquoted investments 5 6,352,739 3,722,050
7,270,739 5,776,168
CURRENT ASSETS
Cash at bank and broker 77,504 101,668
CREDITORS - AMOUNTS FALLING
DUE WITHIN ONE YEAR
Sundry creditors 8 (18,657) (28,178)
NET CURRENT ASSETS 58,847 73,490
TOTAL ASSETS LESS CURRENT #7,329,586 #5,849,658
LIABILITIES
CAPITAL AND RESERVES
CALLED UP SHARE CAPITAL 10 132,372 132,372
SHARE PREMIUM ACCOUNT 11 4,254,872 4,254,872
CAPITAL RESERVE
REALISED 12 546,843 130,713
UNREALISED 12 2,851,201 1,642,150
REVENUE RESERVE 12 (455,702) (310,449)
SHAREHOLDERS FUNDS 13 #7,329,586 #5,849,658
Net asset value per share 7 55.37p 44.19p
The notes form an integral part of these financial statements.
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2006
Note For the year ended 31 For the year ended 31
December 2006 December 2005
Net cash outflow from operating activities 9 (341,344) (459,511)
Investing activities:
Purchase of quoted investments - (451,999)
Purchase of unquoted investments (1,833,741) (2,796,893)
Proceeds from disposals of quoted investments 2,150,921 960,948
Net cash inflow/ (outflow) from investing 317,180 (2,287,944)
activities
Financing:
Issue of own shares - 2,859,860
Commission on new share issues - (22,394)
Net cash inflow from financing - 2,837,466
(Decrease) / increase in cash for the year # (24,164) # 90,011
RECONCILLIATION OF NET CASHFLOW TO MOVEMENT IN
NET FUNDS
(Decrease) / increase in cash for the year (24,164) 90,011
Opening net funds 101,668 11,657
Closing net funds #77,504 #101,668
The notes form an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
31 DECEMBER 2006
1. SIGNIFICANT NEW FINANCIAL REPORTING STANDARDS
FRS 26 requires that listed investments are valued at bid price, whereas
previously, listed investments were valued at middle market price. The Company
has applied the transitional provisions of FRS 26 and has not restated the
comparative figures for this change in accounting policy. Had the entity
restated the comparative figures the investments held at 31 December 2005 would
have been valued on a bid basis which would have resulted in the reported total
assets at that date being reduced by #63,869.
In accordance with the transitional provisions of FRS 26 the adjustments between
the value of investments at the prior balance sheet date and the opening balance
sheet at the start of this financial period has been treated as an adjustment
against the Company's opening reserves - see note 13.
2. ACCOUNTING POLICIES
a) CONVENTION
The financial statements have been prepared under the historical cost
convention, modified to include the revaluation of investments and in accordance
with applicable accounting standards and with the Statement of Recommended
Practice "Financial Statements of Investment Trust Companies" issued by The
Association of Investment Trust Companies in December 2005. The principal
accounting policies which the Directors have adopted within that convention are
set out below.
b) INCOME
Dividends receivable from quoted equity investments are recognised on the
ex-dividend date. Dividends receivable from equity investments where no
ex-dividend date is quoted are recognised when the Company's right to receive
payment is established. Interest receivable on cash deposits is accounted for
on an accruals basis.
c) FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies other than sterling
have been translated into sterling at the rates of exchange ruling at the
balance sheet date. Transactions during the period have been translated at the
rates of exchange ruling at the date of the transaction.
d) VALUATION OF INVESTMENTS
Quoted investments are valued at bid price.
Unquoted investments are valued by the Board according to the valuation
principles of the European Private Equity and Venture Capital Association as set
out in the International Private Equity and Venture Capital Valuation Guidelines
(published June 2005, amended October 2006) and accordingly are stated at the
value of their latest third party funding. Where no third party funding has
taken place, they are valued at cost, less a provision for impairment when
necessary.
Realised gains or losses on the disposal of investments are taken to the capital
reserve - realised. Unrealised gains or losses on revaluation of investments
are taken to the capital reserve - unrealised.
e) EXPENDITURE
All expenses are accounted for on an accruals basis. Expenses are charged
through the Statement of Total Return except where the expense is incidental to
the acquisition or disposal of an investment in which case the expense is added
to the cost of the investment or deducted from the sale proceeds.
Expenses that are directly attributable to the management of investments are
allocated directly to capital in the Statement of Total Return. With the
Directors' long term target for returns on investments being entirely capital
gain there is no requirement to apportion these expenses between revenue and
capital.
3. TAXATION
The Company has been granted exempt status under the Income Tax (Exempt Bodies)
(Guernsey) Ordinance 1989, and is therefore subject to the payment of an annual
fee which is currently #600.
4. QUOTED INVESTMENTS
31 December 2006 31 December 2005
At cost #920,246 # 1,503,395
At market value #918,000 #2,054,118
5. UNQUOTED INVESTMENTS
31 December 2006 31 December 2005
At cost #3,499,293 #2,630,623
At Directors Valuation #6,352,739 #3,722,050
6. EARNINGS PER SHARE
The calculation of basic earnings per share is based on the net return on
ordinary activities for the financial year and on 13,237,235 (2005: 10,238,759)
shares being the weighted average number of shares in issue during the year.
The calculation of diluted earnings per share is based on the net return on
ordinary activities for the financial year and on 13,237,235 (2005: 10,238,759)
shares being the weighted average number of shares in issue during the year
adjusted for any dilutive effect of the share options (see note 16).
7. NET ASSET VALUE
The calculation of net asset value is based on the net assets of #7,329,586
(2005: #5,849,658) and on the ordinary shares in issue of 13,237,235 (2005:
13,237,235) at the balance sheet date.
8. SUNDRY
31 December 2006 31 December 2006
Audit fees 4,650 3,000
Consultancy/directors fees - 14,717
Professional fees 7,500 1,520
Administration fees 6,507 8,941
#18,657 #28,178
9. CASH FLOW NOTES
(i) Reconciliation of revenue return to operating cashflow
For the year ended 31 For the year ended 31
December 2006 December 2005
Net revenue return on ordinary activities for the (145,253) (291,856)
financial year
Expenses charged to capital (186,570) (190,583)
(Decrease)/increase in creditors (9,521) 22,928
Net cash outflow from operating activities #(341,344) # (459,511)
(ii) Material non-cash transactions
During the year ended 31 December 2005 the Company received stock in an unquoted
company amounting to #890,778 in satisfaction of an issue of ordinary shares.
The proceeds from issues of ordinary shares during 2005 were received net of
commission amounting to #200,000.
10. CALLED UP SHARE CAPITAL
31 December 2006 31 December 2005
Authorised
50,000,000 ordinary shares of #0.01 each #500,000 #500,000
Allotted and fully paid
13,237,235 ordinary shares of #0.01 #132,372 #132,372
11. SHARE PREMIUM ACCOUNT
As at 1 January 2006 and at 31 December 2006 # 4,254,872
12 RESERVES
Capital Reserve - Capital Revenue Total
Realised Reserve - Reserve
Unrealised
Balance at 1 January 2006 130,713 1,642,150 (310,449) 1,462,414
Impact of implementation of FRS 26 - (63,869) - (63,869)
(note 1)
Net return for the financial year (70,725) 1,759,775 (145,253) 1,543,797
Transfer from unrealised reserves to
realised reserves on disposal of
investments 486,855 (486,855) - -
Balance at 31 December 2006 # 546,843 2,851,201 (455,702) 2,942,342
13. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
For the year end 31 For the year end 31
December 2006 December 2005
Net return for the financial year 1,543,797 1,429,507
Impact of implementation of FRS 26 (note 1) (63,869) -
1,479,928 1,429,507
New share capital subscribed - 3,728,244
Net addition to shareholders' funds 1,479,928 5,157,751
Opening shareholders' funds 5,849,658 691,907
Closing shareholders' funds #7,329,586 #5,849,658
14. RELATED PARTY TRANSACTIONS
On 9 February 2005 and as disclosed in the AIM Admission document dated 18
February 2005, Combined Management Services Limited ("CMS") entered into a
services agreement with the Company under the terms of which CMS agreed to
provide research, consultancy, office management and administration services to
the Investment Advisory Panel.
A total of #101,601 (2005: #81,183) has been paid to CMS for the year to 31
December 2006, which amount is included in Consultancy fees in the Statement of
Total Return. Jonathan Freeman owns 50% of CMS.
15. FINANCIAL INSTRUMENTS
(i) Management of risk
The Company's financial instruments comprise:
- Equity shares that are held in accordance with the Company's investment
objective as set out in the Director's Statement
- Cash and short term debtors and creditors that arise directly from the
Company's operations.
The main risks arising from the Company's financial instruments are due to
fluctuations in market prices, foreign exchange rates and interest rates. The
Board regularly reviews and agrees policies for managing each of these risks and
they are summarised below. These policies have remained constant throughout the
period under review.
Market price risk
Market price risk arises mainly from uncertainty about the future prices of
financial instruments used in the Company's operations. It represents the
potential loss the Company might suffer through holding market positions in the
face of price movements and movements in exchange rates. The Company's assets
comprise mainly investments in smaller, unquoted businesses which, by their
nature, tend to be more fragile than larger, longer established businesses. In
addition these investments may include fast-growing companies undergoing
significant change which are, therefore, usually exposed to greater risks than
lower growth businesses. The Company's unquoted investments may therefore
change in nature quickly with such changes not being reflected in the Company's
valuation of investment.
It is the Board's policy to hold an appropriate spread of investments in the
portfolio in order to reduce risk arising from factors specific to a particular
country or sector. The allocation of assets to international markets and stock
selection are other factors which act to reduce market price risk. The
Investment Advisory Panel monitor market prices throughout the year and report
to the Board, which meets regularly to consider investment strategy.
Foreign currency risk
The Company's total return and net assets can be significantly affected by
fluctuations in foreign currency exchange rates because a portion of the
Company's assets and revenue are denominated in currencies other than sterling.
The Board carefully monitors the Company's exposure to exchange risk and if it
feels it necessary will utilise appropriate hedging strategies.
Liquidity risk
Liquidity risk is the risk that the Company will encounter in realising assets
or otherwise raising funds to meet its financial commitments. The Company's
assets comprise mainly investments in smaller, unquoted businesses which, by
their nature are difficult to realise. There is therefore a risk that the
Company may not be able to exit from an investment to meet a financial liability
or to fund further investment, when such an opportunity arises. Accordingly the
Company is generally unable to use its non-cash assets to fund the Company's
on-going activities until an exit can be achieved. The Directors carefully
monitor the on-going working capital requirements of the Company and seek to
ensure that there are sufficient cash resources to meet the liabilities of the
Company as they arise.
Credit risk
The Company places funds with authorised deposit takers from time to time and is
therefore potentially at risk from the failure of any such institution of which
it is a creditor. The Company expects to place any deposits on a short term
basis and where possible with more than one institution to reduce its credit
risk.
(ii) Interest rate risk of financial assets
The majority of the Company's financial assets are equity shares and other
investments which neither pay interest nor have a stated maturity date.
(iii) Currency exposure
A portion of the financial assets of the Company are denominated in currencies
other than sterling with the effect that the net assets and total return can be
significantly affected by currency movements.
Currency Investments Cash at bank Total
31 December 2006 Euro #276,470 - #276,470
USD - #371 #371
31 December 2005 Euro #173,300 - #173,300
USD - #3,238 #3,238
(iv) Fair values of financial assets
All of the financial assets of the Company are held at fair value, as shown in
notes 4 and 5.
16. SHARE OPTIONS
The Company had an option agreement with Danemead Limited ("Danemead") under
which Danemead had to procure the subscription of a total of #4.0 million for
the issue of new shares in Pre-IPO, with half the total due to be procured
during the period 24 October 2005 to 23 November 2005 and the remaining half
during the period 24 April 2006 to 23 May 2006. The Company announced in the
annual report for the year to 31 December 2005 that it did not exercise the
first part of the option. With the Company's share price remaining at low
levels it was concluded that it was in the best interests of our existing
shareholders not to exercise the second part of the option. Accordingly the
Danemead option has now lapsed.
Copies of the Annual Report for the year ended 31 December 2006 are being sent to shareholders. Further copies will be
available from the Company Secretary's office:
Cosign Limited, Martello Court, Admiral Park, St Peter Port, Guernsey, GY1 3HB.
For further information, please contact:
Martin Shires, Director Tel: +44 (0) 1481 751 000
Paul Schreibke, Director Tel: +44 (0) 1481 751 000
Jonathan Freeman, non-executive Director Tel: +44 (0) 1600 750 432
This information is provided by RNS
The company news service from the London Stock Exchange
END
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