RNS Number:4075S
Ingenious Music VCT PLC
15 April 2008
INGENIOUS MUSIC VCT plc (the "Company")
Annual Financial Report
For the year ended 31 January 2008
CHAIRMAN'S STATEMENT
It is with pleasure that I present to you the Company's third annual report and
accounts covering the 12 months to 31 January 2008 (the "reporting period").
Overview of Activities
We are pleased to confirm that the Company has, since the last reporting period,
now fully invested its �15 million fund, with 70% of net funds raised having
been invested in VCT qualifying companies. This confirms the Company's status as
a Venture Capital Trust which ensures that our shareholders will benefit from
the income and capital gains tax relief available. Full investment of the fund
follows the completion of two further investments made during the reporting
period which we mentioned in the Company's last interim report: The Sirens and
the contribution to Real World for discretionary investment across a portfolio
of artists. The two further investments brought the total number of investments
to sixteen.
Please refer to the Manager's Review for a more detailed description of the
Company's investment activities, following this statement.
Results
The reporting period has been dominated by new investments, with �3.2 million
invested and committed to qualifying investments. The Company made a loss on
ordinary activities of �1.5 million in the year to 31 January 2008, which is
largely represented by the write down of certain investments where the Manager
estimates that only the minimum guaranteed income levels of 70% of cost will be
achieved. The Company's net asset value moved in line with the operating loss,
from 94.8 pence (2007) to 85.1 pence per share. The directors do not recommend
the payment of a dividend in respect of the reporting period.
Outlook
The Company has however, some very exciting album releases due in the current
year from some of the biggest players in the industry, from our investments such
as The Prodigy, UB40, and Peter Gabriel, as well as a number of albums through
the Real World label system.
I would like to take this opportunity to thank all shareholders for their
continued support of the Company and I look forward to seeing those of you that
are able to attend the AGM, scheduled for 15 May 2008.
Patrick McKenna
Chairman
14 April 2008
MANAGER'S REVIEW
Investment Objective
The investment objective of the Company is to provide shareholders with an
attractive return from investments in a portfolio of music companies that will
be engaged in the creation, development and exploitation of IP rights.
The reporting period has seen strong deal flow throughout, resulting in the
Company's funds being fully invested, with 70% of net funds raised having been
invested in VCT qualifying companies. We have focused our efforts throughout the
reporting period on identifying projects that we believe support the development
of exciting acts, with the potential to deliver strong returns for our
investors.
Investments made post July 2007
The Company joined forces with its sister fund Ingenious Music VCT 2 plc in the
two qualifying investments for the period, which saw deals close successfully
for The Sirens and Peter Gabriel's Real World Recordings, in the form of
investment across a portfolio of artists. The deals left the �15 million fund
fully invested as a result.
The Sirens
The Company agreed with Kitchenware Records Limited on the 17 August 2007 to
form a new joint venture company H.I.T Trade Limited to release the second album
of 3 piece girl band The Sirens, investing �269,875, as its fifth qualifying
investment for the reporting period. The investment went towards the funding of
recording and artists fees, marketing and promotions, band advances, and other
costs.
About The Sirens
The Sirens were first formed in the late 1990s and were signed by Kitchenware in
2002. Their first single, Things Are Getting Better became a big club hit and
they released the album Control Freaks, which saw the girls enjoy success in the
UK, Europe and Japan. Their second album, La La Land, sees the band moving into
the mainstream, writing and recording in Los Angeles with producers Wayne
Rodrigues (Natasha Bedingfield), Justin Trugman (Eminem, Janet Jackson) and
DeeKay (Lemar, Misteeq). The album will be mixed by Dave Pensado, noted for his
hits with Christina Aguilera and the Black Eyed Peas.
Real World Recordings Limited - Label Deal
The Company, as its sixth qualifying investment for the reporting period,
invested �513,000 and joined forces with Real World Productions to form the new
joint venture company Real World Recordings Limited, which subsequently left the
VCT fully invested. The funds will be used to support production and marketing
related costs.
About Real World Productions
Real World Productions was launched by Peter Gabriel and WOMAD in 1989 to
provide talented artists from around the world with state-of-the-art recording
facilities and audiences beyond their geographic region. Artists include: The
Blind Boys of Alabama, Nusrat Fateh Ali Khan, Afro Celt Sound System and Sheila
Chandra. Since then, the company has achieved considerable success with sales of
nearly six million albums, with 15 of the albums breaking the 100,000 units
barrier.
Howling Bells - Investment update
The Company had previously invested in Independiente Music Ventures - Embrace
Ltd. Due to technical difficulties, Embrace were not able to finish their
recording commitment. The Manager instead reached an agreement on 12 January
2008 to form a joint venture company Independiente Music Ventures - Howling
Bells Limited to release the second studio album by Australian Band The Howling
Bells, who have toured with The Killers, The Editors and Placebo.
PORTFOLIO UPDATES
The portfolio investments existing at the beginning of the reporting period are
in various stages of production and release.
Martina Topley
Martina has finished recording her album with Gorillaz producer, Dangermouse
which is due to release in May 2008, with the first singles due for release in
March and April. Martina also has tour dates confirmed for April where she will
support Morcheeba with their European tour in May 2008. At the time this report
went to press, Martina had just performed for BBC with Jools Holland and Radio 2
- Dermot O'Leary.
Travis
The album The Boy With No Name was released in May 2007 and has sold in excess
of 140,000 units and reached number 4 in the charts. Three singles have been
released to date, and the band also completed their UK tour at the end of 2007.
Passenger
IE Music are releasing a third single in March, with the band already having
received Radio 2 C-list status well ahead of schedule. Passenger played the
popular South by South West festival on 14 March 2008.
Peter Gabriel
Peter Gabriel is in the middle of recording his album, with the release date to
be confirmed.
David Ford
David toured America in his lead up to the South by South West festival, which
he played on 13 March 2008. David will continue to tour America right through to
30 April 2008, and has his new single due for release in April 2008.
The Prodigy
The Prodigy continues to record their album which is due for release in 2008.
The band has also been confirmed as the headlining act for Gatecrasher festival
in May and T-in-the-Park festival in July.
Blackbud
Blackbud are currently recording their album which has an expected release date
of September 2008.
UB40
UB40's next album is being recorded and has a planned release for May 2008. You
may recall reading that lead singer Ali Campbell has announced his departure
from the band. It is therefore likely that this will be UB40's last album
featuring Ali Campbell vocals.
Outlook
It has been reported that spending on recorded music will rise at a 2.3 percent
compound annual rate to USD40 billion in 2011, from USD36 billion in 2006. There
is an expectation of declines in the physical sale of CD's during the next five
years, where estimates have been published that physical unit sales will fall at
a 7.2 percent compound annual rate to 700 million in 2011 from more than 1
billion in 2006.
However, digital distribution will become the largest distribution stream in
2010. As digital distribution expands, it will contribute more to overall
growth, while a declining physical distribution market will have less of an
impact.
The Company has ensured that investee companies will benefit from this shift to
digital distribution by participating in such revenue streams.
Ingenious Ventures
14 April 2008
DIRECTORS' REPORT
The Directors submit their report and the audited financial statements for the
year from 1 February 2007 to 31 January 2008.
1. Principal Activity, VCT & Investment Company Status
The principal activity of the Company is to invest in value-added creation,
development and exploitation of music-related intellectual property rights. A
fair review of the Company's business during the year and an indication of
likely future developments are contained in the Chairman's Statement, Manager's
Review and the Business Review.
The Directors have managed the affairs of the Company with the intention of
maintaining its status as an approved VCT for the purposes of section 274 of the
ITA. The Company was not at any time up to the date of this report a "close
company" within the meaning of section 414 of the ICTA. The Company is an
investment company as defined in section 266 of the Companies Act 1985.
2. Directors and Directors' Interests
All directors served throughout the year.
As at 31 January 2008, the interests of the Directors in the issued ordinary
share capital of the Company were as follows:
+----------------+-----------------------------+------------------------+-+
|Name | Number of Shares as at 31| % of issued ordinary| |
| | January 2008| share capital| |
+----------------+-----------------------------+------------------------+-+
|Patrick McKenna*| 500,001| 3.3| |
+----------------+-----------------------------+------------------------+-+
|Charles Peel | 400,001| 2.7| |
+----------------+-----------------------------+------------------------+-+
|Roger Ames | 200,000| 1.3| |
+----------------+-----------------------------+------------------------+-+
|Kenneth Thompson| 50,000| 0.3| |
|** | | | |
+----------------+-----------------------------+------------------------+-+
|Total | 1,150,002| 7.6| |
+----------------+-----------------------------+------------------------+-+
|* Includes 100,000 shares held by Patrick McKenna's wife,
Margaret McKenna |
| |
|** Includes 10,000 shares held by Kenneth Thompson's wife, Linda Thompson|
| |
| |
+-------------------------------------------------------------------------+
Except for one subscriber share acquired by each of Patrick McKenna and Charles
Peel on 17 November 2004, the Directors and, where relevant, their spouses
subscribed for the above interests during the period of Offer and on the terms
set out in the Prospectus. There have been no changes to the above interests
between 31 January 2007 and the date of this report. All interests are
beneficial.
3. Major Interests in Shares
As at the date of this report, the Company is aware that the following
Shareholders had an interest of 3% or more of the issued share capital of the
Company.
+--------------------------------+------------------+-------------------+
|Investor |Number of ordinary| % of issued share|
| | shares| capital|
+--------------------------------+------------------+-------------------+
|Chase Nominees Limited | 2,828,150| 10.7|
+--------------------------------+------------------+-------------------+
|HSBC Global Custody Nominee (UK)| 1,560,720| 5.9|
|Limited | | |
+--------------------------------+------------------+-------------------+
4. Capital
Details of the Company's capital are provided in note 12 to the financial
statements. All shares carry equal voting rights.
5. VCT Status Monitoring
The Company has appointed PwC to advise it on compliance with relevant VCT
legislation. PwC advises on each proposed investment as required and regularly
reviews the Company's investment portfolio. PwC works closely with Ingenious
Ventures in monitoring the Company's VCT status but reports directly to the
Board.
6. Re-Appointment of Auditors
A resolution to re-appoint Grant Thornton UK LLP as auditors to the Company will
be put to the Shareholders at the AGM.
7. Indemnities
Pursuant to the Articles, and to the extent permitted by the Companies Act 2006,
every Director or other officer and auditor of the Company is entitled to be
indemnified out of the assets of the Company against all liabilities which he
may incur in the execution of his office.
In certain circumstances, Directors or other officers of the Company are also
entitled to be indemnified out of the assets of the Company against liabilities
incurred by them in defending proceedings brought against them.
The above indemnities have been in force throughout the period under review and
all non-executive Directors are covered by Directors & Officers liability
insurance and this will continue to remain in force.
8. Policy and Practice on the Payment of Creditors
The Company's policy is to settle terms of payment with suppliers when agreeing
the terms of each transaction, to ensure that suppliers are made aware of the
terms of payment and to abide by the terms thereof. Trade creditor days of the
Company as at 31 January 2008, calculated in accordance with the requirements of
the Companies Act, were 7 days (2007: 20 days). This represents the ratio,
expressed in days, between the amounts invoiced to the Company in the period by
its suppliers and the amounts due, at the year end, to trade creditors falling
due for payment within one year.
9. Financial Risk Management
Details of the Company's financial instruments and risk management policies and
objectives are provided in note 15 to the financial statements.
10. Management Agreement
The Management Agreement is dated 14 January 2005, and allows for the Manager to
assume responsibility for the continuous management of the VCT's portfolio of
investments and provide administrative services. In return for its services the
Manager is paid an annual portfolio management fee, a performance-related
incentive fee (details of which can be found in the Prospectus), and an annual
administration fee of �35,000 plus VAT.
The portfolio management fee was 2.0 percent of the Company's Net Asset Value
plus VAT for the 12 months to 31 January 2007, and is 2.5 percent per annum
thereafter.
The Management Agreement runs for a minimum period of three years, terminable by
either party at any time thereafter if both parties agree in writing or by one
year's prior written notice. In the event that the Management Agreement is
terminated (unless by reason of the Manager's default), a one-off fee will be
payable by the Company to the Manager equivalent to 2.5 percent of the Company's
Net Asset Value at the date of termination.
The Board have reviewed the performance of the Manager and are satisfied that
the continued appointment of the Manager on the terms agreed is in the best
interests of the Shareholders and the Company.
11. Business Review
The Directors have included their business review.
12. Directors' Responsibility
The Directors are responsible for preparing the annual report and the financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have elected to prepare financial
statements in accordance with United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice). The financial statements are
required by law to give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period.
In preparing these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and estimates that are reasonable and prudent;
* state whether applicable United Kingdom accounting standards have been
followed, subject to any material departures disclosed and explained in the
financial statements; and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The Directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the
Companies Acts. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors who held office at the date of approval of this Directors' Report
confirm that, so far as they are each aware, there is no relevant audit
information of which the Company's auditors are unaware; and each Director has
taken all the steps that they ought to have taken as a Director to make
themselves aware of any relevant audit information and to establish that the
Company's auditors are aware of that information.
After due and careful consideration, the Directors believe that the Company has
adequate resources for the foreseeable future and that it is appropriate to
apply the going concern basis in the preparation of the Company's financial
statements.
By order of the Board
Susan Ford
Company Secretary
14 April 2008
BUSINESS REVIEW
The purpose of this review is to provide shareholders with a summary setting out
the business objectives of the Company, the Board's strategy to achieve those
objectives, the risks faced, the regulatory environment and the key performance
indicators (KPIs) used to measure performance.
1. Strategy for Achieving Objectives
Ingenious Music VCT plc is a tax efficient company listed on The London Stock
Exchange.
The investment policy of the Company is to invest in a portfolio of music
companies that will be engaged in the value-added creation, development and
exploitation of music-related intellectual property rights.
The investment objective is to achieve a combination of a high degree of
downside protection in an otherwise potentially high risk proposition and
long-term capital growth, maximising distributions in order to take advantage of
tax-free dividends.
The Board has delegated day-to-day investment management and administration of
the Company to the Manager under the terms of the Investment Management and
Administration Agreement.
The Manager's review provides a review of the investment portfolio and the
market outlook.
2. Investment Policy
The Company uses the Manager's extensive network of record companies, artist
management companies, independent record producers and music publishers to
locate emerging and established bands and artists who will be assisted in
developing their careers by investment in value added creation, development and
exploitation of their intellectual property rights. The principal rights owned
by investee companies include some or all of: recording, publishing,
merchandising/image and internet/digital media. The Company co-invests alongside
a number of parties. Investment only takes place once a record company has
agreed to promote and distribute the artist's recordings.
In order to mitigate risk, the Company has only invested in an Investee Company
where the Investee Company has been successful in negotiating a contract that
provides for minimum royalty payments equivalent to at least 70 per cent of the
Company's investment.
Although the existence of a recording contract does not in itself guarantee
overall financial success it is an opportunity afforded to those comparatively
few aspiring talents who are perceived to have strong consumer appeal and
evidences the overall quality and upside potential of the talent that the
Company invests in.
The initial capital required by an Investee Company is provided by the Company.
The majority of this initial capital is provided through loan finance which
should provide additional capital protection.
The Company has the flexibility to retain up to 30 percent of its assets in
non-qualifying investments which the Directors believe should provide a
significant degree of downside protection whilst preserving the upside potential
of the investments within the portfolio.
At 31 January 2008 the Company had made investments in 16 qualifying companies,
with contractual arrangements that provides for the Investee Company to receive
minimum royalty payments equivalent to at least 70 per cent of the Company's
investment, and that have been approved by the Manager's Investment Committee.
3. Principal Risks, Risk Management and Regulatory Environment
The Board believes that the principal risks faced by the Company are:
* Investment and strategic - an investment in the recorded music sector is
tied to a certain degree to the fortunes of that industry generally. In
particular, there is a risk that the Company will not identify opportunities
where the Artists' success is sufficient to earn royalties over and above
minimum contractual income negotiated.
* Loss of approval as a Venture Capital Trust - the Company must comply
with section 274 of the ITA which allows it to be exempted from capital
gains tax on investment gains realised by shareholders. Any breach of these
rules may lead to the Company losing its approval as a VCT, qualifying
shareholders who have not held their shares for the designated holding
period having to repay the income tax relief they obtained and future
dividends paid by the Company becoming subject to tax. The Company would
also lose its exemption from corporation tax on capital gains.
* Regulatory - the Company is required to comply with the Companies Acts,
the rules of the UK Listing Authority and United Kingdom Accounting
Standards. Breach of any of these regulatory rules might lead to suspension
of the Company's Stock Exchange listing, financial penalties or a qualified
audit report.
* Financial - inadequate internal controls might lead to misappropriation
of assets. Inappropriate accounting policies might lead to misreporting or
breaches of regulations.
* External inherent risks - The Company's investments are in unquoted
companies which by their nature involve a higher degree of risk than
investment in the main market due to the fact there is no liquid market and
may, therefore, be difficult to realise. Furthermore, there may be further
constraints imposed on realisations because of the requirement to satisfy
certain conditions necessary for the Company to maintain its VCT status
(such as the obligation to have at least 70 per cent. by value of its
investments in qualifying holdings).
The Board seeks to mitigate the internal risks by setting clear policies,
including establishing a funding structure which provides for minimum royalty
payments equivalent to at least 70 per cent of the investment, regular reviews
of performance, monitoring progress and compliance. Details of the Company's
internal controls are contained in the Corporate Governance.
4. Key Performance Indicators (KPIs)
The primary key performance indicator on which the Board assesses the
performance of the Manager in meeting the Company's objective is the change in
Net Asset Value per share.
A review of the Company's performance during the period, the position of the
Company at the year end and the outlook for the coming year is contained within
the Chairman's Statement and Manager's Review.
INVESTMENT PORTFOLIO
The Heights Recording Limited
Artist: The Heights
Date of investment: Jan-06
Total invested: �200,000
Valuation: �140,000
Valuation basis: Fair value - Latest Available
Information
Percentage of equity held: 49.90%
Independiente Music Ventures - MTB Limited
Artist: Martina Topley-Bird
Date of investment: Jun-06
Total invested: �1,000,000
Valuation: �1,000,000
Valuation basis: Fair value - Price of Recent Investment
Percentage of equity held: 49.90%
Independiente Music Ventures - Travis Limited
Artist: Travis
Date of investment: Jul-06
Total invested: �1,500,451
Valuation: �1,050,000
Valuation basis: Fair value - Latest Available Information
Percentage of equity held: 24.95%
GR8 Pop Trading Limited
Artist: Indiana Gregg
Date of investment: Nov-06
Total invested: �417,000
Valuation: �291,900
Valuation basis: Fair value - Latest Available Information
Percentage of equity held: 24.95%
Funwood Music Limited
Artist: Apartment
Date of investment: Nov-06
Total invested: �227,647
Valuation: �159,353
Valuation basis: Fair value - Latest Available Information
Percentage of equity held: 24.95%
Genius Music Limited
Artist: Passenger (formally known as Mike
Rosenberg Band)
Date of investment: Nov-06
Total invested: �660,725
Valuation: �462,507
Valuation basis: Fair value - Latest Available Information
Percentage of equity held: 24.95%
High Level Recording Limited
Artist: Peter Gabriel
Date of investment: Jan-07
Total invested: �1,000,000
Valuation: �1,000,000
Valuation basis: Fair value - Price of Recent Investment
Percentage of equity held: 24.95%
Independiente Music Ventures - David Ford Limited*
Artist: David Ford
Date of investment: Jan-07
Total invested: �387,500
Valuation: �271,250
Valuation basis: Fair value - Latest Available
Information
Percentage of equity held: 24.95%
Independiente Music Ventures - Howling Bells
Limited*
Artist: Howling Bells
Date of investment: Jan-07
Total invested: �1,000,000
Valuation: �1,000,000
Valuation basis: Fair value - Price of Recent Investment
Percentage of equity held: 24.95%
Cooking Vinyl Ventures Prodigy Limited*
Artist: Prodigy
Date of investment: Jan-07
Total invested: �1,056,817
Valuation: �1,056,817
Valuation basis: Fair value - Price of Recent Investment
Percentage of equity held: 24.95%
Jolly Rodger Recordings Limited
Artist: Vatican DC
Date of investment: Feb-07
Total invested: �276,530
Valuation: �193,571
Valuation basis: Fair value - Latest Available Information
Percentage of equity held: 24.95%
Independiente Music Ventures - Ulrich Schnauss
Limited
Artist: Ulrich
Schnauss
Date of investment: Mar-07
Total invested: �221,875
Valuation: �155,312
Valuation basis: Fair value - Latest Available Information
Percentage of equity held: 24.95%
Independiente Music Ventures - Blackbud Limited*
Artist: Blackbud
Date of investment: Jun-07
Total invested: �584,375
Valuation: �584,375
Valuation basis: Fair value - Price of Recent Investment
Percentage of equity held: 24.95%
Reflex Licensing Limited*
Artist: UB40
Date of investment: Jul-07
Total invested: �471,765
Valuation: �471,765
Valuation basis: Fair value - Price of Recent Investment
Percentage of equity held: 24.95%
H.I.T. Trade Limited
Artist: Sirens
Date of investment: Aug-07
Total invested: �269,875
Valuation: �269,875
Valuation basis: Fair value - Price of Recent Investment
Percentage of equity held: 24.95%
Real World Recordings Limited*
Artist: Various
Date of investment: Oct-07
Total invested: �513,000
Valuation: �513,000
Valuation basis: Fair value - Price of Recent Investment
Percentage of equity held: 25.60%
TOTAL INVESTMENTS
Total invested: �9,787,560
Valuation: �8,619,725
* The company has recently been incorporated and had not yet filed audited
accounts.
DIRECTORS' REMUNERATION REPORT
This report has been prepared by the Directors in accordance with the
requirements of Schedule 7A to the Companies Act 1985. A resolution to approve
the report will be proposed at the AGM. The law requires the Company's auditors
to audit certain information included in this report. Where disclosures have
been audited, they are indicated as such. The auditors' opinion is included in
their report.
1. Directors' Remuneration Policy
Pursuant to the Articles, the aggregate fees of the Directors are capped at
�100,000 per annum. The fees payable to non-executive Directors reflect their
expertise, responsibilities and time spent on Company matters. In determining
the level of non-executive remuneration, market equivalents are considered in
comparison to the overall activities and size of the Company. Subject to the
Articles, the Directors intend to continue to operate this remuneration policy
for the forthcoming financial year and thereafter.
2. Appointment Letters
Each Director has executed an appointment letter which provides that he is to
receive an annual fee equal to �15,000 per annum and to be reimbursed for any
reasonable out-of-pocket expenses. These appointment letters state that a
Director shall remain in office unless he: resigns as a director; is removed
from his office by the Board or the members of the Company; or becomes
prohibited by law from being a director.
The appointment letters do not provide for compensation upon early termination
of appointment. There are no set minimum notice periods in the Directors'
appointment letters but all Directors are subject to retirement by rotation.
None of the Directors has a service contract.
3. Directors' Remuneration
The following table shows a breakdown of the remuneration of individual
Directors (exclusive of National Insurance Contributions):
Year ended 31 January 2008
Director Fees
�'000
Patrick McKenna 15
Roger Ames 15
Charles Peel 15
Kenneth Thompson 15
60
No expenses were paid to any Director in the period. The Company does not grant
share options, long-term incentive schemes or retirement benefits to any
Director. No contributions are made on behalf of the Directors to any pension
scheme. No Director has received any bonuses, taxable expenses, compensation for
loss of office or non-cash benefits for the period ended 31 January 2008. In
respect of this period, the Company has purchased (and continues to maintain)
liability insurance covering the Directors and officers of the Company.
This sub-paragraph 4 has been audited by Grant Thornton UK LLP.
4. Shareholder Approval
This Directors' Remuneration Report will be put to the Shareholders for their
approval at the AGM.
By order of the Board
Susan Ford
Company Secretary
14 April 2008
CORPORATE GOVERNANCE REPORT
The Company is committed to maintaining the highest standards of corporate
governance. The Directors seek to comply with the Combined Code to the extent
that it is proportionate and relevant to: (i) the size and nature of the Company
and its operations; and (ii) the Company's particular board and management
structure as a VCT. On this basis, the Directors believe that, during the period
under review, the Company has complied with the provisions of the 2006 Combined
Code except as explained below.
1. Board Composition
The Board is comprised of four non-executive directors of which Charles Peel and
Kenneth Thompson are considered to be independent.
Patrick McKenna, the Company's Chairman, is also the Chairman of Ingenious
Ventures Limited, a wholly owned subsidiary of Ingenious Media plc that is
controlled by Patrick McKenna. Patrick is also Chairman of Ingenious Music VCT 2
plc, the Ingenious Live VCTs, and a Director of the Ingenious Entertainment VCTs
and is not, therefore, considered to be independent.
Roger Ames is a non-executive director of Ingenious Music VCT 2 plc and is also
not considered to be independent.
However, the Board believes that the directorships of Patrick McKenna and Roger
Ames allow for enhanced communication between the Company and the Manager as
well as closer supervision of the Manager's performance and of the allocation of
investments between the Company and Ingenious Music VCT 2 plc. The Directors
therefore believe that these directorships are advantageous to, and do not
affect the well balanced nature of, the Board.
2. Board Appointments
Directors are not appointed for specified terms. The Board believes that, in the
circumstances of the Company, the contribution of a non-executive director is
enhanced by longer, continuous service. However, in accordance with the
Company's articles of association and the Combined Code, Kenneth Thompson and
Roger Ames will retire from office and seek re-appointment at the AGM.
The Directors' terms of appointment may be inspected by shareholders at the
Company's registered office during normal business hours and at the AGM.
To date, no formal performance evaluation of the Directors or the Board has been
undertaken. Specific performance issues will be dealt with as and when they
arise. No performance issues arose during the period under review and the Board
considers that the individual performance of each of the Directors continues to
be effective and to demonstrate their commitment to the role. The Board
therefore recommends that Kenneth Thompson and Roger Ames be re-appointed.
No senior independent director has been appointed due to the relatively small
size of the Board. However, this will be reviewed during the next financial year
and appropriate action taken if this is deemed appropriate.
3. Board Proceedings
The following table sets out the number of Board meetings held during the period
and the number of meetings attended by each Director:
Attended Possible
Patrick McKenna 3 3
Charles Peel 3 3
Kenneth Thompson 3 3
Roger Ames 1 3
The Manager provides the Board with appropriate information in a timely manner
prior to all Board proceedings and at such other times as may be required by the
Directors.
All of the Directors have access to the advice and services of Susan Ford, the
Company Secretary, and the Manager's investment team. The Directors may also
take independent professional advice at the Company's expense where necessary in
the furtherance of their duties and responsibilities.
4. Board Responsibilities
The Board has delegated day-to-day investment management and administration of
the Company to the Manager under the terms of the Investment Management and
Administration Agreement. The Board retains overall responsibility for the
Company's affairs, including the determination of its investment policy.
The Board believes that terms of this delegation are clearly defined and provide
a healthy balance between: (i) maintaining supervision over the Manager's
activities; and (ii) allowing the Manager to effectively source and implement
appropriate qualifying investments in fulfilment of the Company's investment
policy.
The Board, therefore, does not believe that it is necessary to adopt a specific
schedule of reserved matters over and above the terms of the Investment
Management and Administration agreement which are currently in force.
5. Board Committees
The Directors have not appointed a nominations committee as they consider that
this would be disproportionate to the size of the Board. Appointments of any new
directors will be determined by the full Board.
The Board has not appointed an audit committee as it is currently considered
appropriate to refer all audit matters to the full Board for review and
approval. The need for an audit committee will be kept under review by the Board
particularly as the size of the investment portfolio increases or if required to
do so as a result of regulatory requirements.
No remuneration committee has been appointed by the Board on the basis that the
Company has no executive directors, employees or share incentive plans. No
individual Director is involved in setting his own level of remuneration.
6. Relations with Shareholders and the AGM
The Board places great importance on maintaining effective communication with
Shareholders. The AGM, which will be held on 22 May 2008, will be an opportunity
for shareholders to meet with both the Board and the Manager in order to discuss
the Company's progress. Participation at the meeting is therefore encouraged.
7. Internal Controls
The Board is responsible for supervising the Company's system of internal
control operated by Ingenious Ventures and for reviewing its effectiveness. The
Board, in conjunction with the Manager, has therefore established an ongoing
process for identifying, evaluating and managing the significant risks faced by
the Company. This process has been in place for the period under review and up
to the date of approval of the Annual Report & Accounts and accords with the
Financial Reporting Council's 'Internal Control: Revised Guidance for Directors
on the Combined Code' issued in October 2005.
The significant risks facing the Company, along with the internal controls
operated by the Manager, are reviewed half-yearly by the Board. The particular
focus of the reviews was on ensuring that the internal controls operated by the
Manager continued to mitigate these significant risks in a manner which was
satisfactory to the Board.
The Board will continue to conduct half-yearly reviews based on "by-exception"
reports provided by the Manager.
In summary, the Company's system of internal controls involves the following key
elements:
* the Manager prepares management accounts which provide the Board with a
regular overview of the progress and performance of the Company and its
investment portfolio;
* all investment decisions are approved by the Manager's investment team
and communicated to the Board on a quarterly basis;
* the Manager monitors the qualifying status of each qualifying holding in
conjunction with PwC who report to the Board twice annually on the Company's
VCT status and advise on each investment proposal as appropriate; and
* the Manager continuously monitors the Company's progress and promptly
informs the Board of any material developments as and when they occur.
The Board believes that the above procedures represent a sound system of
internal control for the safeguarding of the shareholders' investment and the
Company's assets.
It should be noted, however, that this system of internal control is designed to
manage rather than eliminate the risk of failure to achieve the Company's
business objectives and can only provide reasonable and not absolute assurance
against material misstatement or loss.
8. Internal Audit Function
The Company does not have an internal audit function. The Board believes that
such a function would be disproportionate to the size of the Company. However,
this will be reviewed during the next financial year and appropriate action
taken if this is deemed appropriate.
9. Going Concern
Under the Combined Code the directors are required to satisfy themselves that it
is reasonable to presume the Company is a going concern.
After making enquiries, and on the strength of its balance sheet, the directors
are of the opinion that the Company has adequate resources to continue its
operational activities for the foreseeable future. The board is therefore of the
opinion that the going concern basis should be adopted in the preparation of the
financial statements.
10. Auditor Independence
The Board considers the scope and effectiveness of the Company's external
auditors. The Company's auditors, Grant Thornton UK LLP also provide non-audit
advice to the Company. These services relate to corporate tax compliance
assistance and do not, in the Board's opinion, compromise the independence of
Grant Thornton UK LLP's audit team.
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF INGENIOUS MUSIC VCT PLC
We have audited the financial statements (the ''financial statements'') of
Ingenious Music VCT plc for the year ended 31 January 2008 which comprise the
income statement, reconciliation of movements in shareholders' funds, the
balance sheet, the cash flow statement and notes 1 to 18. These financial
statements have been prepared under the accounting policies set out therein. We
have also audited the information in the Directors' Remuneration Report that is
described as having been audited.
This report is made solely to the company's members, as a body, in accordance
with Section 235 of the Companies Act 1985. Our audit work has been undertaken
so that we might state to the company's members those matters we are required to
state to them in an auditor's report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company's members as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report, the Directors'
Remuneration Report and the financial statements in accordance with United
Kingdom law and Accounting Standards (United Kingdom Generally Accepted
Accounting Practice) are set out in the Statement of Directors'
Responsibilities.
Our responsibility is to audit the financial statements and the part of the
Directors' Remuneration Report to be audited in accordance with relevant legal
and regulatory requirements and International Standards on Auditing (UK and
Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view and whether the financial statements and the part of the
Directors' Remuneration Report to be audited have been properly prepared in
accordance with the Companies Act 1985. We also report to you whether in our
opinion the information given in the Directors' Report is consistent with the
financial statements. The information given in the Directors' Report includes
that specific information presented in the Business Review that is cross
referred to the Business Review section of the Directors' Report.
In addition we report to you if, in our opinion, the company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding
directors' remuneration and other transactions is not disclosed.
We review whether the Corporate Governance Statement reflects the company's
compliance with the nine provisions of the 2006 Combined Code specified for our
review by the Listing Rules of the Financial Services Authority, and we report
if it does not. We are not required to consider whether the board's statements
on internal control cover all risks and controls, or form an opinion on the
effectiveness of the company's corporate governance procedures or its risk and
control procedures.
We read other information contained in the Annual Report and consider whether it
is consistent with the audited financial statements. The other information
comprises only the Chairman's Statement, Manager's Review, the Directors'
Report, Business Review, Investment Portfolio Schedule and the unaudited part of
the Directors' Remuneration Report. We consider the implications for our report
if we become aware of any apparent misstatements or material inconsistencies
with the financial statements. Our responsibilities do not extend to any other
information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements and the part of the Directors'
Remuneration Report to be audited. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
and the part of the Directors' Remuneration Report to be audited are free from
material misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements and the part of the
Directors' Remuneration Report to be audited.
Opinion
In our opinion:
* the financial statements give a true and fair view, in accordance with
United Kingdom Generally Accepted Accounting Practice, of the state of the
company's affairs as at 31 January 2008 and of its loss for the period then
ended;
* the financial statements and the part of the Directors' Remuneration
Report to be audited have been properly prepared in accordance with the
Companies Act 1985; and
* the information given in the Directors' Report is consistent with the
financial statements.
GRANT THORNTON UK LLP
REGISTERED AUDITOR
CHARTERED ACCOUNTANTS
London
14 April 2008
INCOME STATEMENT
for the year ended 31 January 2008
2008 2008 2008 2007 2007 2007
Revenue Capital Total Revenue Capital Total
Note �'000 �'000 �'000 �'000 �'000 �'000
Gain on disposal of - 148 148 - 96 96
investments
(Decrease)/increase in - (1,051) (1,051) - 234 234
fair value of
investments held
Investment income 2 13 11 24 125 55 180
Investment management 3 (196) (196) (392) (170) (170) (340)
fees
Other expenses 4 (188) (8) (196) (190) (38) (228)
Loss on ordinary (371) (1,096) (1,467) (235) 177 (58)
activities before
taxation
Tax on ordinary 5 - - - - - -
activities
Loss attributable to (371) (1,096) (1,467) (235) 177 (58)
equity shareholders
Basic and diluted 6 (2.46) (7.26) (9.72) (1.56) 1.17 (0.39)
return per share
(pence)
The Company has no recognised gains and losses other than those disclosed above.
The total column is the profit and loss for the period.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 January 2008
2008 2007
�'000 �'000
Opening shareholders' funds 14,312 14,370
Loss attributable to equity shareholders for (1,467) (58)
the period
Closing shareholders' funds 12,845 14,312
The accompanying notes form an integral part of these financial statements.
BALANCE SHEET
As at 31 January 2008
2008 2007
Note �'000 �'000
Fixed assets
Qualifying investments 7 8,620 6,593
Current assets
Debtors 9 7 10
Non-Qualifying investments 10 4,246 7,414
Cash at bank and in hand 13 2,026
Creditors: amounts falling due within one year 11 (41) (1,731)
Net current assets 4,225 7,719
Net assets 12,845 14,312
Capital and reserves
Called-up share capital 12 151 151
Share premium account 13 6,867 6,867
Other reserve account 13 7,471 7,471
Capital reserves
Realized 13 (189) (144)
unrealised 13 (785) 266
Revenue reserve 13 (670) (299)
Equity shareholders' funds 12,845 14,312
Net asset value (pence per share) 14 85.1 94.8
The financial statements were approved by the Board of Directors on 14 April
2008.
Signed on behalf of the Board of Directors:
Patrick McKenna
Chairman
CASH FLOW STATEMENT
for the year ended 31 January 2008
2008 2007
�'000 �'000
Net cash outflow from operating activities (551) (540)
Capital expenditure and financial
investment
Purchase of qualifying investments (4,894) (4,693)
Purchase of non-qualifying investments (1,126) (12,549)
Disposal of non-qualifying investments 4,558 6,997
Net cash outflow from capital expenditure and financial (1,462) (10,245)
investment
(Decrease)/Increase in cash (2,013) (10,785)
Reconciliation of Loss Before Taxation to Net Cash Flow from Operating
Activities
�'000 �'000
Loss on ordinary activities before taxation (1,467) (58)
Gain on disposal of investments (148) (96)
Decrease/(Increase) in fair value of 1,051 (234)
investments held
Decrease/(Increase) in receivables 3 146
Increase/(Decrease) in payables 10 (298)
Net cash outflow from operating activities (551) (540)
Reconciliation of Net Cash Flow to Movement in Net
Funds
�'000 �'000
Opening cash balances 2,026 12,811
Net cash (outflow)/inflow (2,013) (10,785)
Closing cash balances 13 2,026
The accompanying notes form an integral part of these
financial statements.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 January 2008
1. Accounting policies
(a) Basis of Accounting
The financial statements for the year ended 31 January 2008 have been prepared
in accordance with UK Generally Accepted Accounting Practice, and with the
Statement of Recommended Practice (the SORP) entitled "Financial Statements of
Investment Trust Companies" which was issued in January 2003 and revised in
December 2005.
The Company's accounting policies are unchanged compared with the prior year,
except for the adoption of FRS 29 'Financial Instruments: Disclosures' which
came into effect on 1 January 2007
These financial statements have been prepared on the historical cost basis,
except for the measurement at fair value of investments.
(b) Valuation of Investments
The Company's business is investing in financial assets with a view to profiting
from their total return in the form of income and capital growth. All
investments are designated at fair value, using the basis of valuation set out
below.
Investee Companies
Unquoted investments including equity and loan investments are stated at fair
value in accordance with the International Private Equity and Venture Capital
Guidelines and Financial Reporting Standard 26 "Financial Instruments
Measurement" (FRS 26). They are designated at fair value through profit and loss
in accordance with FRS 26.
Investments that are held as part of the Company's investment portfolio are
carried at fair value even though the Company may have significant influence
over these investee companies. This treatment is permitted by Financial
Reporting Standard 9 "Associates and Joint Ventures" which allows investment
trusts to be exempt from preparing consolidated financial statements.
The International Private Equity and Venture Capital Guidelines set out six
permissible valuation methodologies, of these the two methodologies most
applicable to the VCT investments are:
1 - Price of recent investment. Where the investment being valued was made
recently, its cost will generally provide a good indication of value. It is
generally considered that this would only apply for a limited period, in
practice a period of up to a year is often applied as the long stop date for
such a valuation. In relation to the VCT investments, investments are generally
held at cost until the album is either released or at such point at which new
information provides more guidance as to the likely fair value of the
investment.
2 - Discounted cash flows/earnings of the underlying business, calculating the
net present value of expected future cashflows of the investee companies. In
relation to the VCT investments, anticipating future cashflows in excess of the
guaranteed amounts would clearly require highly subjective judgements to be made
in the early stage of each investment and therefore would not be an appropriate
methodology to apply in the early stage of the investment.
The adopted approach fair values the investments at the "price of recent
investment" (i.e. cost) until album release or further information provides
better guidance as to fair value. Subsequently, the portfolio of investments is
fair valued on the discounted cash flow/earnings basis using the latest
available information following the release of the artists' records/albums.
If it is not considered likely that an investment will return to the Company an
amount in excess of the contractually guaranteed 70 percent of total investment,
the fair value of the investment will be written down to 70 percent of the cost
of the investment.
The valuation of investments and, in particular, investments in bands and
artists is inherently subjective, due to the exercising of critical accounting
estimates and judgments. The directors have adopted a valuation policy that they
believe most appropriately reflects the fair value of such investments and
compliance with the International Private Equity and Venture Capital Guidelines.
Open Ended Investment Companies
The Company's investments in interest bearing money market open ended investment
companies (OEIC's) are valued at fair value, which is deemed to be
mark-to-market. They have been designated as fair value through profit and loss
for the purposes of FRS 26.
Gains and losses arising from changes in fair value of qualifying and
non-qualifying investments are recognised as part of the capital return within
the income statement and allocated to the realised or unrealised capital reserve
as appropriate. Transaction costs attributable to the acquisition or disposal of
investments are charged to the capital return within the income statement.
(c) Investment Income
Interest income is included on an accruals basis using the effective interest
method.
(d) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged to the
revenue account within the income statement except that:
* expenses which are incidental to the acquisition or disposal of an
investment are charged to capital in the income statement as incurred; and
* expenses are split and presented partly as capital items where a
connection with the maintenance or enhancement of the value of the
investments held can be demonstrated.
(e) Deferred Taxation
Deferred taxation is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more, or a right to pay less, tax in
the future have occurred at the balance sheet date. This is subject to deferred
tax assets only being recognised if it is considered more likely than not that
there will be suitable profits from which the future reversal of the underlying
timing differences can be deducted. Timing differences are differences arising
between the Company's taxable profits and its results as stated in the financial
statements which are capable of reversal in one or more subsequent periods.
2. Investment Income
2008 2007
�'000 �'000
Bank deposit interest 13 125
Reinvested interest from OEICs 11 55
24 180
3. Investment Management Fee
2008 2008 2008 2007 2007 2007
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Investment management 167 167 334 145 145 290
fee
Irrecoverable VAT 29 29 58 25 25 50
196 196 392 170 170 340
For the purposes of the revenue and capital columns in the income statement, the
management fee has been allocated 50% to revenue and 50% to capital, which
represents the proportion of the fee attributable to the management of the
investments of the Company.
4. Other Expenses
2008 2008 2008 2007 2007 2007
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Directors' 66 - 66 65 - 65
remuneration
(including Employer's
National Insurance)
Auditor's remuneration
- Fees payable to 19 - 19 15 - 15
company's auditors for
the audit of the
Company's financial
statements statements
- Tax services 3 - 3 1 - 1
- Other Services 2 - 2 - - -
Legal & professional 3 8 11 4 38 42
fees
Other administration 95 - 95 105 - 105
expense
188 8 196 190 38 228
All figures include irrecoverable VAT, where applicable. The company is not
registered for VAT. Fees payable to the company's auditor for the audit of the
company's financial statements are �16k excluding VAT. Further details on the
Directors' fee disclosures are given in the Directors' Remuneration Report.
5. Tax Charge on Ordinary Activities
2008 2008 2008 2007 2007 2007
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Loss on ordinary (371) (1,096) (1,467) (235) 177 (58)
activities before tax
Loss on ordinary (111) (329) (440) (70) 53 (17)
activities by tax
rate (30%)
Adjustments:
Non taxable losses/ - 271 271 - (80) (80)
(gains) on
investments
Non taxable income - (4) (4) - (8) (8)
Disallowed expenses 1 2 3 4 10 14
Unutilised losses for 110 60 170 66 25 91
the current period
- - - - - -
As the Company is a VCT its capital gains are not taxable.
At 31 January 2008 the Company had surplus management expenses of �1,099,000
which have not been recognised as a deferred tax asset. This is due to the fact
future taxable income cannot be predicted with reasonable certainty. Due to the
Company's status as a VCT, and the intention to continue meeting the conditions
for approval in the foreseeable future, the Company does not provide deferred
tax on any capital gains or losses which arise on the revaluation of
investments.
6. Basic and Diluted Return per Share
2008 2008 2008 2007 2007 2007
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
(Loss)/Profit (371) (1,096) (1,467) (235) 177 (58)
on ordinary
activities
after taxation
(�'000)
Weighted 15,093,281 15,093,281 15,093,281 15,093,281 15,093,281 15,093,281
average shares
in issue
(number)
(Loss)/Profit (2.46) (7.26) (9.72) (1.56) 1.17p (0.39)
attributable
per share
(pence)
There are no dilutive potential ordinary shares, including convertible
instruments, options or contingent share agreements in issue for the Company.
The basic return per share is therefore the same as the diluted return per
share.
7. Fixed Asset Investments
2008 2007
�'000 �'000
Unquoted investments 8,620 6,593
Equity shares 1,769 1,978
Unsecured loan notes 6,851 4,615
8,620 6,593
Qualifying
Investments
�'000 �'000
Opening valuation 6,593 200
Purchases at cost 3,194 6,393
Fair value adjustment (1,167) -
Closing valuation 8,620 6,593
8. Significant Interests
The Company has interests of greater than 20% of the nominal value of the
allotted shares of the following investee companies incorporated in the United
Kingdom as at 31 January 2008:
% class and % voting
share type rights
The Heights Recording Limited 49.90% A 49.90%
Ordinary
Independiente Music Ventures - MTB 49.90% A 49.90%
Limited Ordinary
Independiente Music Ventures - 24.95% A 24.95%
Travis Limited Ordinary
GR8 Pop Trading Limited 24.95% A 24.95%
Ordinary
Funwood Music Limited 24.95% A 24.95%
Ordinary
Genius Music Limited 24.95% A 24.95%
Ordinary
High Level Recording Limited 24.95% A 24.95%
Ordinary
Independiente Music Ventures - David 24.95% A 24.95%
Ford Limited Ordinary
Independiente Music Ventures - 24.95% A 24.95%
Howling Bells Limited Ordinary
Cooking Vinyl Ventures Prodigy 24.95% A 24.95%
Limited Ordinary
H.I.T. Trade Limited 24.95% A 24.95%
Ordinary
Independiente Music Ventures - 24.95% A 24.95%
Blackbud Limited Ordinary
Independiente Music Ventures - 24.95% A 24.95%
Ulrich Schnauss Limited Ordinary
Jolly Roger Recordings Limited 24.95% A 24.95%
Ordinary
Real World Recordings Limited 25.60% A 25.60%
Ordinary
Reflex Licensing Limited 24.95% A 24.95%
Ordinary
The investments made by the Company are part of its portfolio of investments. As
a VCT, the Company values those investments at fair value in accordance with FRS
26.
9. Debtors
2008 2007
�'000 �'000
Prepayments and accrued income 6 9
Trade debtors 1 1
7 10
10. Current Asset Investment
2008 2007
�'000 �'000
Funds held in listed money market instruments 4,246 7,414
Non-Qualifying
Investments
�'000 �'000
Opening valuation 7,414 1,532
Purchases at cost 1,126 12,549
Disposal proceeds (4,558) (6,997)
Realised gains on 148 96
disposal
Unrealised change in value of 116 234
investment
Closing valuation and book cost 4,246 7,414
In order to safeguard the capital available for investment in Qualifying
Investments and balance this with the need to provide good returns to investors,
available funds from the net proceeds are invested in appropriate securities
(money market securities and cash funds) until required for Qualifying
Investment purposes.
Included within the total amount for Non-Qualifying Investments, �1.6m has been
invested in the Ingenious Enhanced Cash Fund managed by Ingenious Asset
Management.
11. Creditors: Amounts Falling Due Within One Year
2008 2007
�'000 �'000
Trade creditors 13 1
Accruals and deferred income 28 30
Amounts due to investee company - 1,700
41 1,731
12. Called-Up Share Capital
2008 2007
Authorised �'000 �'000
35,000,000 ordinary shares 1p each 350 350
Allotted, called-up and fully paid
15,093,283 ordinary shares 1p each 151 151
13. Reserves
Share Other Capital Capital Revenue Total
premium reserve realised unrealised reserve reserves
�'000 �'000 �'000 �'000 �'000 �'000
At 1 February 2007 6,867 7,471 (144) 266 (299) 14,161
Gain on disposal of - - 148 - - 148
investments
Decrease in fair value - - - (1,051) - (1,051)
of investments held
Investment income - - 11 - 13 24
Investment management - - (196) (196) (392)
fees
Other expenses - - (8) - (188) (196)
At 31 January 2008 6,867 7,471 (189) (785) (670) 12,694
14. Net Asset Value Per Share
31 January 31 January
2008
2007
Net assets attributable to 12,845 14,312
shareholders (�'000)
Shares in issue (number) 15,093,283 15,093,283
Net asset value per share (pence) 85.1 94.8
15. Financial Instruments and Risk Management
The Company's financial instruments comprise equity and floating rate debt
investments in unquoted companies, cash balances and listed money market
instruments. The Company holds financial assets in accordance with its
investment policy.
Fixed asset investments (see note 7) are valued at fair value. For quoted
securities included in current asset non qualifying investments, this is bid
price. In respect of unquoted investments, these are fair valued in accordance
with the International Private Equity and Venture Capital Valuation Guidelines.
The fair value of all other financial assets and liabilities is represented by
their carrying value on the Balance Sheet.
The Company's investing activities expose it to various types of risk that are
associated with the financial instruments and markets in which it invests. The
most important types of financial risk to which the Company is exposed are:
* Market risk;
* Interest rate risk;
* Credit risk; and
* Liquidity risk
The nature and extent of the financial instruments outstanding at the balance
sheet date and the risk management policies employed by the Company are
discussed below:
a) Market risk
Market risk embodies the potential for both losses and gains and includes
interest rate risk and price risk.
The Company's strategy on the management of investment risk is driven by the
Company's investment objective. Investments in unquoted companies, by their
nature, involve a higher degree of risk than investments in larger "blue chip"
companies.
The risk of loss in value is managed through careful selection in accordance
with a formalised investment decision process, with each investment proposal
evaluated by the investment committee as part of the due diligence stage. The
Company's investment policy can be found in the Business Review. The risk is
also managed through continuous monitoring of the performance of investments and
changes in their risk profile.
b) Interest rate risk
Some of the Company's financial assets are interest bearing, all of which are at
floating rates. As a result, the Company is subject to exposure to interest rate
risk due to fluctuations in the prevailing levels of market interest rate.
When the Company retains cash balances, the majority of cash is held within an
interest bearing money market open ended investment company (OEIC), being the
�4,246k Non-Qualifying Investments amount on the Balance Sheet (2007: �7,414k).
The benchmark rate which determines the interest payments received on interest
bearing cash balances and debt investments in unquoted companies is the bank
base rate which was 5.5 per cent as at 31 January 2008 (31 January 2007: 4.95
per cent).
The following table illustrates the sensitivity of the loss on ordinary
activities for the year before taxation and total equity to a change in interest
rates of 50 basis points, with effect from the beginning of the year. These
changes are considered to be reasonably possible based on observation of current
market conditions. The calculations are based on the Company's Non-qualifying
investments held at each balance date. All other variables are held constant.
31 January 31 January
2008 2007
� '000 � '000
+/- 50 basis +/- 50 basis
points points
Profit on ordinary activities for the
year before taxation
Total Equity 21 47
c) 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.
Whilst the Company is exposed to credit risk due to its �6,851k unsecured loan
note instruments (2007: �4,615k), this risk is mitigated by the Company
requiring that minimum royalty arrangements are in place prior to the investment
as set out in the Company's investment policy. In addition, and in accordance
with the Company's monitoring procedure, the Manager, closely monitors progress
(including financial expenditure) against the investee companies' agreed
business plans.
d) Liquidity risk
The Company's financial instruments include equity and debt investments in
unquoted companies, 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 investment in these instruments at an amount close to fair
value.
The Company maintains sufficient reserves of cash and readily realisable
marketable securities to meet its liquidity requirements at all times
16. Contingencies, Guarantees and Financial Commitments
There is currently interest income accruing on the unsecured loan note
instruments at a rate of 6.5 per cent, being 1 per cent over the bank base rate
which was 5.5 per cent as at 31 January 2008, totalling �466,223.17 (2007:
�72,235.68). The repayment of this interest is contingent on future profits
being derived by the investee companies, which currently can not be determined
with any certainty, therefore the Directors have not provided for it in the
financial statements.
17. Related Party Transactions
The Company has appointed Ingenious Ventures Limited, a company in which Patrick
McKenna is a director, to provide investment management and administrative
services. Ingenious Ventures Limited is a wholly owned subsidiary within the
Ingenious Group which is controlled by Patrick McKenna.
During the period the Company has carried out a number of transactions with the
above-mentioned related parties in the normal course of the business and on an
arm's length basis:
2008 2008 2007 2007
Entity Expenditure Amounts Expenditure Amounts
paid due paid due
�'000 �'000 �'000 �'000
Ingenious Ventures
Limited
- Investment management 392 - 340 -
fee
- Administration fee 43 - 42 -
Ingenious Media Consulting Limited, a company in which Patrick McKenna is a
director, has entered into consultancy agreements with each of the investee
companies to provide management services. For the provision of such services,
consulting fees totalling �88,205.20 including VAT (2007: �742,860), have been
invoiced in the year, none of which remains outstanding as at 31 January 2008.
The funds invested in OEICs, are managed by Ingenious Asset Management Limited,
a company in which Patrick McKenna is a director. Ingenious Asset Management is
a wholly owned subsidiary within the Ingenious Group which is controlled by
Patrick McKenna. Patrick McKenna is a director of The Young Vic (a registered
charity) which holds 0.2% of the equity in each of the investee companies.
18. Events after the Balance Sheet date
On 1 March 2008 the Investment Management and Administration agreement between
the Company and Ingenious Ventures Limited was novated to Ingenious Asset
Management Limited.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FKPKPPBKDPQD
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