RNS Number : 8002X
Equity Pre-IPO Investments Ltd
30 June 2008
30 June 2008
EQUITY PRE-IPO INVESTMENTS LIMITED
("Pre IPO" or the "Company")
AUDITED RESULTS FOR THE 12 MONTH PERIOD ENDED 31 DECEMBER 2007
Equity Pre-IPO Investments Limited (AIM: EIL), the strategic pre-IPO investment company, today announces its final results for the
twelve month period ended 31 December 2007.
For further information please contact:
Equity Pre-IPO Investments Limited Martin Shires +44 (0)1481 751 000
Paul Schreibke
Noble & Company Limited John Riddell +44 (0)20 7763 2200
GTH Media Relations Toby Hall +44 (0)20 7153 8039
Christian Pickel +44 (0)20 7153 8036
DIRECTORS' REPORT
We are pleased to present this annual report to shareholders for the year ended 31 December 2007 for Equity Pre-IPO Investments Limited
("Pre-IPO" or the "Company"). We have also included some unaudited information for the period from 31 December 2007 to 21 May 2008 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 per share ("NAV") from 31 March 2005, the first quarter end
date following the Company's admission to trading on AIM on 24 February 2005, to 31 December 2007.
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 30 June 30 September 2007 31 December 2007
2007 2007
NAV (unaudited) (unaudited) (unaudited) (audited)
55.54p 54.72p 55.18 p 28.56p
This table shows that for the majority of the year to 31 December 2007 the NAV remained relatively constant at around 55p. As a result
of events affecting four of the Company's investments, we have taken the prudent view to make provisions against these investments in the
year end accounts. We are obviously disappointed that these events have had such a material impact on the Company's NAV, however we believe
that the portfolio will deliver increases in NAV during the course of 2008 and beyond.
Overall, the calendar year of 2007 has been a very testing one for the Company. In our annual report for the year to 31 December 2006
we stated that our target for 2007 was the flotation of two of our investee companies. We did in fact achieve an exit from two investee
companies during 2007 but one was already quoted at the beginning of the year and the other was via a trade sale. The investee company that
was the subject of a trade sale was Combimeer N.V. where we achieved the exit with a profit on amount invested of 37%. The targeted
flotation of two other portfolio companies did not occur despite both the companies appointing financial advisors and undertaking thorough
due diligence exercises in preparation for their flotations. Both companies were due to float in the last quarter of 2007 but the prevailing
difficult market conditions, particularly for smaller companies, meant that this did not occur. These two companies have only recently
undertaken alternative corporate fund-raising transactions, the effect of which is to materially reduce Pre-IPO's carrying values of these two companies.
The environment for the provision of finance for smaller companies has been unfavourable for many months which has caused us to hold
many investments for longer than we have in the past. We have also held a number of unquoted investments for longer than the 18 months
within which we normally aim to exit from those investments. It has also meant that our investee companies have been unable to turn to the
public markets to obtain their next round of growth finance and therefore, in many cases, this responsibility has fallen to their existing
investors, including Pre-IPO. As a consequence, we have reviewed the valuations of our unquoted portfolio with this sentiment as a backdrop,
resulting in a prudent and cautious year end valuation of all of our investments. The effect of this is that for the first time since the
Company was incorporated, we are reporting a reduction in our NAV for a financial year to 28.56 pence (31 December 2006: 55.37 pence).
However, we do hope to achieve flotations and/or exits or partial exits from a number of our investments during the current year at materially higher levels.
Fund Raising
We have not raised any new funds during the course of 2007 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 2007
of �3,781,183.
We continue to operate Pre-IPO with limited levels of uninvested cash. As we have not achieved as many exits as planned, we have had
little cash reserves available for new investments and unfortunately therefore we have had to turn down new investment opportunities.
Pre-IPO's focus has instead been on achieving exits from its current investments through either trade sales or flotations.
Investment Strategy
Pre-IPO's investment strategy remains 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 18 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;
and
* Whether or not there are satisfactory prospects for Pre-IPO to exit the investment once a flotation has been achieved.
We began 2007 with one quoted investment and five unquoted investments. During the course of the year, we achieved two complete exits:
one being the quoted investment, through the sale of shares in the market; and the other being one of the unquoted investments through a
trade sale. We invested in two new unquoted companies in early August, as well as making further investments in support of the existing
portfolio. As a result, at the year end, we had a total of six unquoted investments.
One of the benefits of Pre-IPO's focus on supporting its existing investments rather than making new investments, which has been driven
by the lack of investable funds, has been the gaining of a more detailed knowledge of, and consequently more input into, the day to day
running of a number of the investee companies. This has led us to believe that, whilst many of the valuations of the companies have suffered
in the short term, as businesses, they have become significantly stronger and more resilient entities as a direct result of Pre-IPO's
influence. We therefore feel that when sentiments in the markets do improve and the appetite for IPO's returns, the portfolio companies will
be in a very strong position to capitalise.
Our focus for 2008 is the partial or complete exit from companies within our portfolio and, assuming that we are able to achieve exits,
making new investments in high quality opportunities that have potential for realisation in the short to medium term. We remain hopeful that
we will be able to exit from at least three companies in 2008 through either sales to the current management teams, flotations later in the
year, or by trade sale. There is also the possibility that a fourth company will be able to become publicly listed or be bought by an
existing public company in a trade sale. However, given the uncertain market conditions it is difficult to determine when these will be able
to be achieved.
Investee Companies
The investment portfolio that we currently hold (as of 21 May 2008) 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
("GSEs") with a range of decision support information services. Pinnacle's services are designed to help GSEs to manage their equipment
assets more effectively, improve operational efficiency and reduce costs. Pinnacle provides a range of services which provide GSEs 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.
Pinnacle was one of the companies whose flotation was aborted at the end of last year due to adverse market conditions. We understand
from Pinnacle's management that they are currently in advanced discussions with a third party to sell Pinnacle in a share for share
transaction. It is anticipated that the purchaser will provide the necessary working capital needed to take Pinnacle through to
profitability. However, we also understand that the valuation being attributed to the equity of Pinnacle, pursuant to this trade sale, is
significantly below the level at which Pre-IPO invested in Pinnacle in early 2006. Accordingly, we have taken the prudent step and revised
downwards Pre-IPO's year end carrying value of its investment in Pinnacle to that of the anticipated sale value. (Web site address:
www.pinnacle-air.com).
Altair Financial Services International PLC ("Altair")
Altair utilises industry-proven architecture and a state-of-the-art low cost processing platform to provide bespoke white labelled
prepaid card programs with enhanced functionality, in association with either MasterCard� or Visa and issuing banks globally.
The prepaid cards provided by Altair can be used to make purchases and to access cash from ATMs at over 24 million locations wherever
MasterCard or Visa is accepted. The card holder can manage their funds using a prepaid card due to Altair's proprietary Internet and SMS
text functionality, Altair Mobile Payment System.
Like Pinnacle, Altair was the other Pre-IPO investment expected to float at the end of 2007. Altair is still in its aggressive growth
phase and therefore still investing large amounts of development and infrastructure capital. Accordingly, in order to maintain its growth
rate, and with access to the public markets predominantly closed for high growth technology companies, Altair recently announced an open
offer to its shareholders to raise up to �5.3 million of new funds ("Open Offer"). The Open Offer is being undertaken at a significantly
reduced per-share valuation to that of previous material external funding rounds that Altair undertook in 2006 and 2007 and, as a
consequence, we have decided that it's prudent to revalue Pre-IPO's year-end holding in Altair to the Open Offer price. This downward
revaluation is the largest single contributory factor to Pre-IPO's reduced year-end NAV, however we continue to have every confidence that,
with this additional funding secured, Altair will now be able to achieve a successful flotation later in the year. (Web site address: www.altair-financial.com).
Lorega Limited ("Lorega").
Lorega was established in 1983 as a claims consultancy service for businesses and has now grown into a leading provider of products and
services focused on making the claims process easier for private clients and commercial insurance customers. It employs 70 independent
Chartered Loss Adjusters who work on behalf of insurance brokers' clients to prepare and negotiate claims against insurance companies in
relation to property and business interruption claims (commercial) or contents and buildings claims (household). Lorega's loss recovery
insurance service is now sold by over 300 brokers.
Lorega continues to perform to its management's expectations and is expected to report record profit levels in the year to March 2008.
As a result, we have not revalued this investment at the year end. Indeed, we have previously had indications from Lorega's management that
they may look to undertake a share buy-back programme during 2008 which could result in a material realisation of a proportion of this
investment for Pre-IPO, however there can be no certainty of the outcome at this stage. (Web site address: www.lorega.com).
RadioScape plc ("RadioScape")
Founded in 1996, RadioScape provides software and hardware solutions to manufacturers of digital radios and broadcasters of content for
the digital radio market. 2007 was a tough year for RadioScape with a number of factors contributing to RadioScape not achieving its 2007
forecasts. Specifically, UK retail unit growth fell short of industry forecasts resulting in fewer of RadioScape's units being sold; the
timing for the replacement digital standard to the AM wavelength (DRM) is still uncertain after trials in several countries; and mobile TV
standards remain fragmented with Europe and the US adopting different standards.
RadioScape announced a business restructuring in late 2007, with the intention to move towards higher margin product design business and
reducing the dependency on DAB. RadioScape anticipated making some significant cost and headcount reductions in order to reach profitability
in 2008.
Pre-IPO invested in RadioScape in late 2006 as part of RadioScape's �5.5 million fundraising when the company had plans to float in the
first quarter of 2007 at a significant uplift in valuation. However a number of unforeseen events, including an unsolicited approach for
RadioScape, resulted in the float being delayed until the second half of 2007, whereupon the prevailing difficult market conditions caused
the IPO to be aborted. Accordingly, we have concluded that, whilst RadioScape could be floated towards the end of the current financial
year, the valuation is likely to be considerably lower than previously predicted and as a result we have reduced Pre-IPO's carrying value in
this company by more than 70% from that at the time of its last fundraising. (Web site address: www.radioscape.com).
Fashion Brands Collections B.V. ("Fashion Brands")
Fashion Brands is a Dutch based private company which holds the exclusive rights to operate ELLE branded stores throughout Europe and
the Middle East selling ELLE's day wear collection, "pret-a-porter". Fashion Brands was granted the rights from Hachette Filipacchi Presse
SA ("HFP"), the Paris based ultimate owner of ELLE magazine worldwide. ELLE is amongst the world's largest fashion magazines, with 39
editions printed across 5 continents with 21 million readers. HFP continues to be extremely successful in leveraging the strength of the
ELLE brand in related markets.
Fashion Brands began operations in 2005 and today has a total of 8 stores open and operational across Europe, 5 in Netherlands and one
in each of Sweden, Spain and Romania. Fashion Brands designs the bi-annual collections in-house with its team of talented and up and coming
designers and outsources its manufacturing to high quality third parties. ELLE branded stores are operated both by the company itself and by
sub-licencees of Fashion Brands and are obliged to only sell clothing designed by Fashion Brands.
Pre-IPO invested in Fashion Brands on 5 August 2007 as part of a larger fundraising by the company. However, due to the emergence of
weaker economic data, particularly in the retail sector since that date, we have again taken a prudent view to revalue downwards this
investment, despite our belief that it is on track operationally and is expected to open a further 4 ELLE branded stores this year.
As previously disclosed there is one further portfolio company that has asked us to keep our investment confidential at this stage.
Valuation of portfolio
The cost of our existing investments as of 31 December 2007 was �4,469,217, (as of 31 December 2006 �4,419,538). This investment
portfolio has been re-valued to �4,093,423 as at 31 December 2007 (NAV 28.56 pence) and as at 21 May 2008 was �4,116,736 (unaudited) (NAV
28.72 pence). The valuation principles used are as 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.
Share Price
Our share price began 2007 at 29 pence and rose to a high of 36 pence slipping back again to finish the year at 26 pence. During 2007
our share price has fluctuated between 21 pence and 36 pence per share. This share price performance and the low market liquidity of the
shares has been a continual disappointment to us, although is not wholly unexpected, given the current weak demand for small cap stocks in
the capital markets.
Outlook
The Directors believe that the investment portfolio held by Pre-IPO, whilst having its carrying value significantly reduced at the year
end, offers great potential for significant uplifts in the asset value of the Company in the future. This is, however, tempered by the
current poor market conditions and the lack of capital available to the Company.
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 2007 and 21 May 2008, 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 a requirement of both
the Company's Articles of Association and the AIM Rules for Companies that shareholders must notify the Company if they own shares
representing 3% or more of the issued share capital. However, there is no authority for the Company to issue an equivalent to a Notice under
section 212 of the UK Companies Act 1985 ("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 2007, the following shareholders held 3% or more of the Company's share capital:
Number of Percentage of issued ordinary share capital
ordinary
shares
Jon Olafsson 3,970,500 29.99%
Equity Special Situations 3,323,052 25.10%
Limited
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. On 16 May 2007, the Board formally
adopted the finalised Plan which was set up on the basis of the draft terms in the AIM Admission document.
In an effort to preserve cash the Board has, where it is considered appropriate, awarded options over the Company's shares to
consultants to the Company rather than pay fees to them for work carried out. On 30 May 2007 Kenneth West was granted options exercisable
over 50,000 Ordinary Shares for services provided to the Company as a member of the Investment Advisory Panel. On 1 June 2007 options
exercisable over 750,000 Ordinary Shares were issued to a number of third party consultants used by Pre-IPO during the course of the
previous 12 months. The award of these options were in lieu of fees that would otherwise have to have been paid using Pre-IPO's limited cash
resources. The exercise price of all these options is 26 pence per share which was the mid-price of the shares at the time the options were
awarded. These were the first options awarded by the Company and so there are currently options over a total of 800,000 shares in issue as
of 31 December 2007 (31 December 2006: nil).
The Board intends to continue to award options to consultants in place of fees when appropriate but has decided that it would not be
appropriate to award any of its directors such options.
Dividends
No dividends have been paid or are proposed.
STATEMENT OF TOTAL RETURNFOR THE YEAR ENDED 31 DECEMBER For the year ended For the year
ended
2007
31 December 2007 31
December 2006
Note Revenue Capital Total Revenue Capital
Total
� � � � �
�
(LOSSES)/GAINS ON INVESTMENTS
Net (losses)/gains on investments at
fair value through profit or loss 3 - (3,279,261) (3,279,261) - 1,875,620
1,875,620
Unrealised gain on foreign
exchange 14,163 - 14,163 - -
-
14,163 (3,279,261) (3,265,098) - 1,875,620
1,875,620
INCOME 1(c)
Commission received 1,200 - 1,200 - -
-
Interest income 4 22,219 - 22,219 1,909 -
1,909
23,419 - 23,419 1,909 -
1,909
EXPENDITURE 1(b)
Directors' fees 20,000 - 20,000 20,000 -
20,000
Administration fees 43,530 - 43,530 49,498 -
49,498
Professional fees 26,738 10,667 37,405 42,832 14,609
57,441
Consultancy fees - 183,768 183,768 - 171,961
171,961
Audit fee 12,930 - 12,930 9,300 -
9,300
Interest charged 20,418 - 20,418 4,198 -
4,198
Commission paid 3,256 - 3,256 3,288 -
3,288
Regulatory and registration fees 19,097 - 19,097 18,046 -
18,046
145,969 194,435 340,404 147,162 186,570
333,732
(LOSS)/PROFIT ON ORDINARY
ACTIVITIES FOR THE FINANCIAL
YEAR (108,387) (3,473,696) (3,582,083) (145,253) 1,689,050
1,543,797
Earnings per share: 6
- basic (pence per share) (0.82) (26.24) (27.06) (1.10) 12.76
11.66
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 15 to the financial statements.
BALANCE SHEET
31 DECEMBER 2007
Note 31 December 2007 31 December 2006
FIXED ASSETS
Investments at fair value through profit or 3 4,093,423 7,270,739
loss
CURRENT ASSETS
Loans receivable 8 230,000 -
Other debtors and prepayments 21,202 -
Cash and cash equivalents 6,651 77,504
257,853 77,504
CREDITORS - AMOUNTS FALLING
DUE WITHIN ONE YEAR
Loans payable 9 (496,269) -
Other creditors and accruals 10 (73,824) (18,657)
(570,093)
NET CURRENT ASSETS (312,240) 58,847
TOTAL ASSETS LESS CURRENT LIABILITIES � 3,781,183 � 7,329,586
CAPITAL AND RESERVES
CALLED UP SHARE CAPITAL 12 132,372 132,372
SHARE PREMIUM ACCOUNT 13 4,254,872 4,254,872
CAPITAL RESERVE
REALISED 14 520,093 546,843
UNREALISED 14 (595,745) 2,851,201
SHARE OPTION RESERVE 14 33,680 -
REVENUE RESERVE 14 (564,089) (455,702)
SHAREHOLDERS' FUNDS 15 � 3,781,183 � 7,329,586
Net asset value per share 7 28.56 55.37
(pence per share)
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
For the year ended For the year ended
Notes 31 December 2007 31 December 2006
Net cash outflow from operating activities 11 (235,176) (341,344)
Investing activities:
Purchase of unquoted investments (1,466,394) (1,833,741)
Proceeds from disposals of quoted investments 985,498 2,150,921
Proceeds from disposals of unquoted investments 378,950 -
Loans receivable advanced (230,000) -
Net cash (outflow)/inflow from financial investment (331,946) 317,180
Financing:
Loans payable received 496,269 -
Net cash inflow from financing 496,269 -
Decrease in cash for the year � (70,853) � (24,164)
RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN CASH
AND CASH EQUIVALENTS
Decrease in cash resources for the year (70,853) (24,164)
Cash inflow from increase in debt finance (496,269) -
Change in net debt resulting from cash flows (567,122) (24,164)
Opening funds brought forward 77,504 101,668
Closing net (debt)/funds carried forward 11 � (489,618) � 77,504
NOTES TO THE FINANCIAL STATEMENTS
31 DECEMBER 2007
1. 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 United Kingdom 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) ADOPTION OF NEW STANDARDS
In the current year, the Company has adopted FRS 29: Financial Instruments: Disclosures which is effective for annual reporting periods
beginning on or after 1 January 2007. The impact of the adoption of FRS 29 has been to expand the disclosures provided in the financial
statements regarding the Company's financial instruments (see note 19).
(c) INCOME
Dividends receivable from 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 using the effective interest rate method.
(d) FOREIGN CURRENCY
The Directors have considered the primary economic environment of the Company and considered the currency in which the original finance
was raised and ultimately what currency would be returned to investors on a break up basis. The directors have also considered the currency
to which the underlying investments are exposed. On balance, the directors believe sterling best represents the functional currency of the
Company. Sterling is also the presentational currency.
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.
(e) FINANCIAL INSTRUMENTS
The Company's financial instruments fall into the categories discussed below with the allocation depending to an extent on the purpose
for which the asset was acquired. Unless otherwise indicated, the carrying amounts of the Company's financial instruments are a reasonable
approximation of their fair values.
(i) Investments held at fair value through profit or loss Classification
All investments are classified as "fair value through profit or loss". These financial assets are designated by the Board of Directors
at fair value through profit or loss at inception.
Financial assets designated at fair value through profit or loss at inception are those that are managed and their performance evaluated
on a fair value basis in accordance with the Company's documented investment strategy. The Company's policy is for the Board of Directors to
evaluate the information about these financial assets on a fair value basis together with other related financial information.
Recognition
Purchases and sales of investments are recognised on the trade date or the date on which the Company commits to purchase or sell the
investment. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
Measurement
Financial assets at fair value through profit or loss are initially recognised at fair value. Transaction costs are expensed in the
income statement. Subsequent to initial recognition, all financial assets at fair value through profit or loss are measured at fair value.
Gains and losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are
presented in the statement of total return in the period in which they arise.
Fair value estimation
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.
Because of the inherent uncertainty associated with the valuation of such investments and the absence of a liquid market, these fair
values may differ from the realisable values, and differences could be material. 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.
(ii) Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They
consist of loans receivable, other debtors and cash and cash equivalents, but also incorporate other types of contractual monetary assets.
They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition or issue and
subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The effect of discounting on
these financial instruments is not considered to be material.
Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the
counterparty or default or significant delay in payment) that the Company will be unable to collect all of the amounts due under the terms
receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected
cash flows associated with the impaired receivable.
(iii) Financial liabilities measured at amortised cost
These include:
� other creditors and accruals which are initially recognised at fair value and subsequently carried at amortised cost using the
effective interest method.
� loans payable which are initially recognised at fair value net of attributable transaction costs incurred. Such interest bearing
liabilities are subsequently measured at amortised cost using the effective interest rate method. Other creditors and accruals primarily
comprise of amounts outstanding for ongoing costs. The Company has a financial risk management procedure in place to ensure that all
payables are paid within the credit timeframe.
(iv) Share capital
Financial instruments issued by the Company are treated as equity only to the extent that they do not meet the definition of a financial
liability.
(v) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right
to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability
simultaneously.
(vi) Effective interest rate method
The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of
allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period,
to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Company
estimates cash flows considering all contractual terms of the financial instruments but does not consider future credit losses. The
calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective
interest rate, including transaction costs and all other premiums or discounts.
(f) EXPENDITURE
All expenses are accounted for on an accruals basis. 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.
(g) SHARE BASED PAYMENTS
The Company has applied the requirements of FRS 20: Share-based Payments. The Company makes equity-settled share-based payments to
certain consultants. Equity-settled share based payments are measured at fair value as at the date of grant. The fair value determined at
grant date is expensed on a straight line basis over the vesting period based on the Company's estimate of shares that will eventually vest.
Further details of how the fair value of share based payments is determined are shown in note 18.
2. 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.
3. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
31 December 2007 31 December 2006
Designated at fair value through profit or loss
- Listed equity securities - 918,000
- Unlisted investments 4,093,423 6,352,739
Total investments at fair value through profit or loss � 4,093,423 � 7,270,739
Changes in fair value of financial assets
at fair value through profit or loss.
- Realised 169,980 115,845
- Unrealised (3,449,241) 1,759,775
� (3,279,261) � 1,875,620
4. INTEREST INCOME
31 December 2007 31 December 2006
Bank interest 2,892 1,477
Loan interest 19,327 432
Total � 22,219 � 1,909
The above interest income arises from financial assets classified as loans and receivables (including cash and cash equivalents) and has
been calculated using the effective interest rate method.
5. INTEREST EXPENSE
31 December 2007 31 December 2006
Bank interest and charges 1,630 2,074
Loan interest 18,788 2,124
Total � 20,418 � 4,198
The above interest expense arise on financial liabilities measured at amortised cost using the effective interest rate method.
6. EARNINGS PER SHARE
The calculation of basic earnings per share is based on the net return on ordinary activities after tax for the year and on 13,237,235 (
2006: 13,237,235) shares being the weighted average number of shares in issue during the year.
FRS 22: "Earnings Per Share" defines dilution as a reduction in earnings per share or as an increase in loss per share. When calculating
the dilutive earnings per share for the year the loss decreased. Accordingly the diluted loss per share is not disclosed as per FRS 22. The
Company has 800,000 share options in issue which could potentially dilute basic earnings per share in the future.
7. NET ASSET VALUE PER SHARE
The calculation of net asset value per share is based on the net assets of �3,781,183 ( 2006: �7,329,586) and on the ordinary shares in
issue of 13,237,235 ( 2006: 13,237,235) at the balance sheet date.
8. LOANS RECEIVABLE
31 December 2007 31 December 2006
Loan to investee company � 230,000 � -
An amount of �80,000 bears interest at 18% per annum, is unsecured and was repayable on or before 21 May 2007. The remaining balance of
�150,000 bears interest at 18% per annum, is unsecured and was due for repayment on or before 15 December 2007.
Both loans are past due and the directors are currently restructuring the debt repayment arrangements, including all outstanding
interest. Accordingly, the directors have not made provision for impairment.
9. LOANS PAYABLE
31 December 2007 31 December 2006
EUR loan 421,269 -
GBP Loan 75,000 -
� 496,269 � -
The EUR loan payable is unsecured, repayable on demand and bears interest at 3% per annum above the EUR base rate. The GBP loan payable
is unsecured, repayable on demand and bears interest at 3% above the UK base rate.
10. OTHER CREDITORS AND ACCRUALS
31 December 2007 31 December 2006
Audit fees 10,000 4,650
Consultancy / director's fees 7,150 -
Professional fees 22,425 1,875
Interest payable 18,788 -
Nomad fees 1,875 5,625
Registrar fees 4,393 -
Administration fees 8,973 6,507
Sundry creditors 220 -
� 73,824 � 18,657
11. CASH FLOW NOTE
(a) Reconciliation of revenue return to operating cahflow
31 December 2007 31 December 2006
Net revenue return on ordinary activities
for the year (108,387) (145,253)
Expenses charged to capital (194,435) (186,570)
Increase in debtors (1,875) -
Increase/(decrease) in creditors 36,380 (9,521)
Share based payments 33,680 -
Loan interest paid 18,788 -
Loan interest received (19,327) -
Net cash outflow from operating activities � (235,176) � (341,344)
(b) Analysis of net debt
At 1 January 2007 Cashflow At 31 December 2007
Cash and cash equivalents 77,504 (70,853) 6,651
Loan payable - (496,269) (496,269)
� 77,504 � (567,122) � (489,618)
12. CALLED UP SHARE CAPITAL
31 December 2007 31 December 2006
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 each � 132,372 � 132,372
13. SHARE PREMIUM ACCOUNT
As at 1 January 2007 and at 31 December 2007 � 4,254,872
14. RESERVES
Capital Capital Share Revenue Total
Reserve Reserve Option Reserve
- Realised - Unrealised Reserve
Balance at 1 January 2007 546,843 2,851,201 - (455,702) 2,942,342
Net return for the financial year (24,455) (3,449,241) - (108,387) (3,582,083)
Transfer from unrealised reserves to realised
reserves on disposal of investments (2,295) 2,295 - -
Value of options granted during the year
(note 18) - - 33,680 - 33,680
Balance at 31 December 2007 � 520,093 � (595,745) � 33,680 � (564,089) � (606,061)
15. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
31 December 2007 31 December 2006
Net return for the financial year (3,582,083) 1,543,797
Impact of implementation of FRS 26 - (63,869)
(3,582,083) 1,479,928
Effect of share based payments in the year 33,680 -
Net (reduction)/addition to shareholders funds (3,548,403) 1,479,928
Opening shareholders' funds 7,329,586 5,849,658
Closing shareholders' funds � 3,781,183 � 7,329,586
16. 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 �100,147 has been paid to CMS for the year to 31 December 2007 (�101,601 for the year to 31 December 2006). Jonathan Freeman
is a director of, and owns 50% of, CMS.
17. CONTROLLING PARTY
The issued share capital of the Company is owned by numerous parties and, therefore, in the opinion of the Directors, there is no
ultimate controlling party of the Company as defined by FRS 8: Related Party Disclosures
18. SHARE OPTIONS
At 31 December 2007 the number of ordinary shares of 1 pence each subject to options granted under the Company's Share Option Plan
were:
Exercise Exercise 01-Jan Grants Options 31-Dec 31-Dec
Period Price per 2007 during year exercised 2007 2007
Share No. No. No. No. No.
Exercisable
30 November 2007 - 26.0 pence - 50,000 - 50,000 50,000
30 May 2017
1 December 2007 - 26.0 pence - 750,000 - 750,000 750,000
1 June 2017
- 800,000 - 800,000 800,000
There were no market conditions within the terms of the grant of options. The main vesting condition for all the options awarded was
that the consultant remained contracted to the Company at the date of exercise.
The Binomial formula is the option pricing model applied to the grant of all options in respect of calculating the fair value of the
options.
For the granting of options during the year ended 31 December 2007, the following inputs to the Binomial formula have been used:
Year ended
31 December 2007
Number of shares under option 800,000
Share price at grant 26.0 pence
Option exercise price 26.0 pence
Expected life of options 3.5 years
Expected volatility 23.70%
Risk free rate 5.66% p.a.
Grant date 50,000 on 30 May 2007
750,000 on 1 June 2007
Fair value per share option 4.21 pence
Total charge over the vesting period 33,680.00
The share-based remuneration charge comprises:
Year ended Year ended
31 December 2007 31 December 2006
Share-based payments �33,680 �Nil
The charge is included within consultancy fees within the Statement of Total Return.
19. FINANCIAL INSTRUMENTS
In common with other businesses, the Company is exposed to risks that arise from its use of financial instruments. This note describes
the Company's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative
information in respect of these risks is presented throughout these financial statements.
There have been no substantive changes in the Company's exposure to financial instrument risks, its objectives, policies and processes
for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.
(a) Strategy in using financial instruments
The Company's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk,
cash flow interest rate risk and price risk), credit risk and liquidity risk. The Company's overall risk management programme focuses on
the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance.
The Company will invest in companies which are unquoted or trading on the OFEX market at the time of the investment and where the
Directors believe that a flotation is likely to be achieved by the company within eighteen months of an investment by the Company. Investee
companies will be located in Europe.
The objective is to provide long term capital growth by exploiting the valuation differential between privately held companies and those
that are publicly traded.
Investments
All of the Company's intended investments present the risk of a loss of capital. Such investments are subject to investment-specific
price fluctuations as well as to macro economic, market and industry-specific conditions including, but not limited to, international
economic conditions, international financial policies and performance, governmental events and changes in laws. Moreover, the Company may
only have a limited ability to vary its investments in response to changing economic, financial and investment conditions.
The success of the Company will be dependent upon, inter alia, the identification, making, management and realisation of suitable
investments. There can be no guarantee that such investments can or will be made or that such investments will be successful. Poor
performance by an investment could severely affect the Net Asset Value per share. In particular, investors should note that:-
� Shareholders will not have an opportunity to evaluate for themselves the relevant economic, financial and other information regarding
the investments to be made by the Directors and, accordingly, will be dependent on the judgement and ability of the Directors in investing
and managing the assets of the Company. No assurance can be given that the Directors will be successful in making suitable investments or
that, if such investments are made, the investment objectives will be achieved;
� the Company is likely in most cases to have minority interests in the companies, partnerships and ventures in which it invests and
may be unable to exercise control over the operations of such companies, partnerships and ventures or control over any exit, or timing of
any exit, by other investors in such companies, partnerships or ventures;
� the management of the investee companies targeted by the Directors may not always welcome proactive shareholder involvement and may
be resistant to change;
� the Company may be unable to effect an investment in an identified opportunity and, in particular, resources ofthe Company may be
expended investigating potential projects which are subsequently rejected as being unsuitable;
� the Company may dispose of investments in certain circumstances and may be required to give representations and warranties about
those investments and to pay damages to the extent that such representations and warranties turn out to be inaccurate or other terms of
sale are breached;
� an investee company's competitors may develop or market technologies that are more effective or less expensive than those developed
or marketed by the investee company, or that would render the invests company's technology or business model obsolete or uncompetitive;
� the Company cannot guarantee that the value of investments as reported from time to time will in fact be realised; and
� although the Directors will use all due care and diligence when implementing the investment strategy, the situation may arise whereby
an investee company does not proceed with a successful IPO. In such instance, the Company may find it difficult to achieve an exit, or may
do so at a loss to the initial investment, or may lose the entirety of its investment.
Investments in small unquoted companies
The Company's investment portfolio will comprise interests predominantly in unquoted private companies and companies with an AIM
listing which may be difficult to value and/or realise. Investment in the securities of smaller companies may involve greater risks than is
customarily associated with investments in larger, more established companies. In particular, such companies may have limited product
offerings, markets or resources and may be dependent on a small number of key individuals.
Concentration risk
It is possible that certain investments will represent a significant proportion of the Company's total assets. As a result, the impact
on the Company's performance and the potential returns to investors will be adversely affected to a greater degree if anyone of those
investments were to perform badly than would be the case if the Company's portfolio of investments was more diversified.
At 31 December 2007 the overall investment allocation was entirely in unquoted investments.
(b) Market risk
The Company operates in a competitive market for investment opportunities. While the Directors consider the Pre-IPO market to be an
attractive area for investment, it is nonetheless likely that the Directors will encounter competition for target investments from investors
many of which will have significantly greater resources than the Company. There can be no assurance that these competitive pressures will
not have a material adverse effect on the Company's business, financial condition and results of operations. As a result of this
competition, the Directors may not be able to take advantage of attractive investment opportunities from time to time. Furthermore the
Directors can offer no assurance that they will be able to identify and make investments that are consistent with the Company's investment
strategy.
i) Interest rate risk
The majority of the Company's financial assets and liabilities are non-interest bearing. As result, the Company is not subject to
significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. Any cash and cash equivalents are
invested at short-term market interest rates.
The Company's interest-bearing financial assets and liabilities expose it to risks associated with the effects of fluctuations in the
prevailing levels of market interest rates on its financial position and cash flows.
The table below summarises the Company's exposure to interest rate risks.
Non-Interest Variable Fixed
Bearing Interest Interest Total
As at 31 December 2007
Assets
Investments at fair value through profit or loss 4,093,423 - - 4,093,423
Loans receivable - - 230,000 230,000
Other debtors 21,202 - - 21,202
Cash and cash equivalents - 6,651 - 6,651
Total financial assets � 4,114,625 � 6,651 � 230,000 � 4,351,276
Liabilities
Loan payable - (496,269) - (496,269)
Sundry creditors and accruals (73,824) - - (73,824)
Total financial liabilities � (73,824) � (496,269) � - � (570,093)
The terms, including the interest rate of the loans receivable and loans payable are disclosed in notes 8 and 9 respectively.
Non-Interest Variable Fixed
Bearing Interest Interest Total
As at 31 December 2006
Assets
Investments at fair value through profit or loss 7,270,739 - - 7,270,739
Cash and cash equivalents - 77,504 - 77,504
Total financial assets � 7,270,739 � 77,504 � - � 7,348,243
Liabilities
Sundry creditors and accruals (18,657) - - (18,657)
Total financial liabilities � (18,657) � - � - � (18,657)
At 31 December 2007, should interest rates rise by 25 basis points with all other variables remaining constant, the decrease in net
assets attributable to shareholders for the year would amount to approximately �1,224 (2006: �194 increase) arising substantially from the
increase in interest expense. If interest rates decrease by 25 basis points, the increase in net assets attributable to shareholders would
amount to approximately �1,224 (2006: �194 decrease). At the Balance Sheet date, the Company does not hold any debt securities.
The Directors are permitted to utilise overdraft facilities towards the achievement of the Company's investment objectives. As at the
Balance Sheet date, no overdraft facility has been negotiated or utilised.
ii) Hedging and currency risk
The Company's investments are expected to be denominated in pounds sterling. The Directors may invest in opportunities other than
sterling and may, through forward foreign exchange contracts, hedge its exposure back to sterling. While hedging may attempt to reduce
currency risk, it is not possible to hedge fully or perfectly against currency fluctuations. Accordingly investors may, at certain times, be
exposed to exchange rate risks between sterling and other currencies, such that if the value of other currencies falls relative to sterling,
the Company's assets will, in sterling terms be worth less.
The Company held no hedging instruments during the years ended 31 December 2007 and 31 December 2006. The Company holds assets
denominated in currencies other than pounds sterling, the functional currency. It is therefore exposed to currency risk, as the value of
assets denominated in other currencies will fluctuate due to changes in exchange rates.
The table below summarises the Company's foreign currency exposure:
ii) Hedging and currency risk (continued)
Analysis of assets and liabilities in currencies other than sterling
31 December 2007
Currency Value � % of net assets
Financial assets
Euro - Unlisted investments 734,484 19.42%
Euro - Cash at bank 765 0.02%
USD - Cash at bank 215 0.01%
Financial liabilities
Euro - Loans payable (421,269) 11.14%
31 December 2006
Currency Value � % of net assets
Euro - Unlisted investments 276,470 3.77%
USD - Cash at bank 371 0.01%
At 31 December 2007, had the exchange rate between the Euro and sterling increased or decreased by 5% with all other variables held
constant, the increase or decrease respectively in net assets attributable to shareholders would amount to approximately �15,699 (2006:
�13,824).
At 31 December 2007, had the exchange rate between the US Dollar and sterling increased or decreased by 5% with all other variables held
constant, the increase or decrease respectively in net assets attributable to shareholders would amount to approximately �11 (2006: �19).
iii) Other price risk
Other price risk is the risk that value of an instrument will fluctuate as a result of changes in market prices (other than those
arising from currency risk or interest rate risk), whether caused by factors specific to an individual investment, its issuer or all factors
affecting all instruments traded in the market.
As the majority of the Company's financial instruments are carried at fair value with changes in value recognised in the Statement of
Total Return, all changes in market conditions will directly affect net investment income.
The table below details the breakdown of the investment assets held by the Company
31 December 2007 31 December 2006
Value % of Net Value % of Net
� Assets � Assets
Investment assets
Equity investments:
� Listed equities - - 918,000 12.52%
� Unlisted equities 4,093,623 108.26% 6,332,739 86.67%
Investment liabilities
At the year end the equity investments held by the Company were all unlisted. A 5% increase in the fair value of all investments at 31
December 2007 would have increased the net assets attributable to shareholders by �204,671: an equal change in the opposite direction would
have decreased the net assets attributable to shareholders by an equal but opposite amount.
(c) Liquidity risk
The Company's financial instruments include unlisted equity instruments, some of which are not traded in an organised public market and
which generally may be illiquid. As a result, the Company may not be able to liquidate quickly some of its investments in these instruments
at an amount close to their fair value in order to meet its liquidity requirements.
The Company has a procedure to manage liquidity risk whereby the board meet regularly to review investment holdings and current and
anticipated levels of financial liabilities. Where liquidity of the investments within the portfolio is believed to be at a level which may
adversely affect the Company's ability to service its financial obligations, the board will consider taking action to improve cash flow,
which may include utilising bank overdrafts or other credit arrangements.
The table below details the contractual, undiscounted cash flows of the Company's financial liabilities
31 December 2007
Less than 1-3 3 months No stated
1 month months to 1 year maturity
All amounts stated in GBP
Financial liabilities
Loans payable 496,269 - - -
Sundry creditors and accruals (55,036) - - -
� 441,233 � - � - � -
31 December 2006
Less than 1-3 3 months No stated
1 month months to 1 year maturity
All amounts stated in GBP
Financial liabilities
Accrued expenses � (18,657) � - � - � -
The gross nominal outflow disclosed above is the contractual, undiscounted cash flow on the financial liability or commitment.
d) Credit risk
Credit risk 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.
The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date. This relates also to
the financial assets carried at amortised cost, as they have a short term to maturity.
At the reporting date, the Company's financial assets exposed to credit risk amounted to the following:
31 December 31 December
2007 2006
Loans receivable 230,000 -
Other debtors 21,202 -
Cash and cash equivalents 6,651 77,504
Total � 257,853 � 77,504
Amounts in the above table are based on the carrying value of all accounts.
The Company has a procedure to manage credit risk whereby the board meets regularly to review credit positions. The Company has the
following financial assets;
i) Loans receivable
The details of the loan are disclosed in the note 8 to the financial statements. Both loans are past due and the directors are currently
restructuring the debt repayment arrangements, including all outstanding interest. Accordingly, the directors consider the loans to be
recoverable in full and have not made a provision for impairment.
i) Other debtors
In the event of default by a debtor, or in respect of amounts due relating to other receivables, the Company will incurr additional
costs, including legal expenses to recover amounts due. The Company has no significant credit risk as there is no exposure with one
significant counterparty. The Company did not recognise any impairment during the year and there were no other receivables that were past
due.
ii) Cash and cash equivalents
The Company has concentration of credit risk arising from its bank holdings of cash and cash equivalents, from time to time. To manage
this exposure, the Company has a policy of maintaining its cash and cash equivalents with counterparties that have a credit listing of at
least A from independent rating agencies. Given this high credit rating, the directors do not expect any counterparty to fail.
Copies of the Annual Report for the year ended 31 December 2007 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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