TIDMLWT
RNS Number : 6002E
Loudwater Trust Limited
13 May 2013
Loudwater Trust Limited ('the Company')
Annual Report & Accounts as at 31(st) December 2012
The Company is pleased to announce the publication of its Annual
Report & Accounts for the year ended 31(st) December 2012.
The Annual Report & Accounts will be posted to shareholders
shortly and can be downloaded from the Company's website at
www.loudwatertrust.com.
Highlights from the Annual Report & Accounts as at 31(st)
December 2012:
-- Net Asset Value of GBP21.5 million, or 35.7p per share.
-- GBP27.8 million of cash returned to shareholders during the
year, equivalent to 46p per share
-- Completed the sale of its shareholding in AgraQuest Inc. to
Bayer Cropscience LLC, a subsidiary of Bayer AG, for initial cash
consideration of approximately GBP27.3 million, which compared to
the Company's carrying value for this investment as at 31 March
2012 of GBP6.8 million and an investment cost of GBP4.8
million.
-- Remaining portfolio consists of three portfolio company
investments, of which these account for approximately 57% of the
NAV, two of which have achieved significant revenue growth and are
working towards IPO's or trade sales targeted to occur within the
next one to two years.
-- One portfolio company (Antenova) which has sold its principal
trading business shortly after the year end and is due to return
cash to the Company by March 2014.
-- Residual earn-outs (estimated outcomes), loan-type
instruments and amounts held in escrow accounts represent
approximately 28% of NAV.
-- To date the Company has returned GBP45.9 million of capital
to shareholders, equating to a total value as at 31 December 2012,
for NAV plus cash returned of GBP67.4 million or 89.89p per share,
based on 75,000,000 shares issued on admission to trading on AIM in
January 2007.
-- No assets have been written up in value. The Investment
Advisor is, however, greatly encouraged by the progress made by
remaining investee companies.
For further information
Loudwater Investment Partners Limited
Edward Forwood +44(0)20 3372 6400
Panmure Gordon (UK) Limited
Andrew Potts +44(0)20 7459 3600
SUMMARY OF INVESTMENT OBJECTIVE
The Company was established to provide Shareholders with an
attractive rate of return on their investment, primarily through
investing in companies which were likely to achieve an IPO or a
sale within a short term time horizon and through a small number of
investments in companies that were already listed.
In September 2008, the Company announced that, in the light of
the then deteriorating economic environment and the lack of a
visible time frame for exits, it would return some capital to
Shareholders by way of a tender offer and would make appropriate
changes in the Company's structure and investing policy as
described below.
SUMMARY OF INVESTING POLICY
As part of the 2008 Tender Offer, the Company adopted a new
investing policy of not making investments in new companies. If the
Board, advised by its Investment Advisor, considers that it will be
attractive to recapitalise the Company and make new investments,
the Board will seek Shareholder approval to amend the investing
policy.
For the Company's full Investing Policy please see pages 9 -
11.
PERFORMANCE STATISTICS
Date Net Asset Value Cash Returned Net Asset Value + Cash Returned
GBP PPS* GBP GBP PPS**
29 January 2007 74,250,000 99.00 - 74,250,000 99.00
31 March 2007 74,732,000 99.64 - 74,732,000 99.64
30 June 2007 75,462,000 100.62 - 75,462,000 100.62
30 September 2007 75,269,000 100.36 - 75,269,000 100.36
31 December 2007 73,767,000 98.36 - 73,767,000 98.36
31 March 2008 73,959,000 98.61 - 73,959,000 98.61
30 June 2008 69,581,000 92.78 - 69,581,000 92.77
30 September 2008 70,324,000 93.77 - 70,324,000 93.77
31 December 2008 53,985,000 89.63 13,847,000 67,832,000 90.44
31 March 2009 54,303,000 90.16 13,847,000 68,150,000 90.87
30 June 2009 49,331,000 81.90 13,847,000 63,178,000 84.24
30 September 2009 48,198,000 80.02 13,847,000 62,045,000 82.73
31 December 2009 45,242,000 75.11 13,847,000 59,089,000 78.79
31 March 2010 42,330,000 70.28 13,847,000 56,177,000 74.90
30 June 2010 42,506,000 70.57 13,847,000 56,353,000 75.14
30 September 2010 40,641,000 67.47 13,847,000 54,488,000 72.65
31 December 2010 40,382,000 67.04 13,847,000 54,229,000 72.31
31 March 2011 39,351,000 65.33 13,847,000 53,199,000 70.93
30 June 2011 35,037,000 58.17 18,063,000 53,100,000 70.80
30 September 2011 32,842,000 54.52 18,063,000 50,905,000 67.87
31 December 2011 32,211,000 53.48 18,063,000 50,275,000 67.03
31 March 2012 27,076,000 44.95 22,418,000 49,494,000 65.99
30 June 2012 48,480,000 80.49 22,418,000 70,898,000 94.53
30 September 2012 24,180,000 40.14 45,909,000 70,089,000 93.45
31 December 2012 21,504,000 35.70 45,909,000 67,413,000 89.89
*Pence per Ordinary Share; note that number of Ordinary Shares
in issuance was reduced from 75,000,000 to 60,232,855 following the
Ordinary Share buy-back in November 2008.
**Pence per Ordinary Share; this assumes that the number of
Ordinary Shares in issuance is held constant at 75,000,000.
CHAIRMAN'S STATEMENT
Year ended 31 December 2012
I am pleased to report on the performance of Loudwater Trust
Limited (the "Company" or Loudwater") for the year ended 31
December 2012.
The Company continues to manage the orderly realisation of its
investment portfolio with the aim of maximising the return of
invested capital to shareholders within a reasonable timeframe, in
accordance with the investment objective adopted by the Company in
November 2008.
The highlight of the year was the sale by the Company in August
2012 of its shareholding in AgraQuest Inc. to Bayer Cropscience
LLC, a subsidiary of Bayer AG, for initial cash consideration of
approximately GBP27.3 million, which compared to the Company's
carrying value for this investment as at 31 March 2012 of GBP6.8
million and an investment cost of GBP4.8 million. Following this
event, the Company returned a further GBP23.5 million or 39.0 pence
per share to shareholders in September 2012.
Earlier in the year the Company sold its investment in City
Financial, its remaining equity interest in Corero Networks and a
minority interest in Somethin' Else Sound Directions Limited.
Shortly after the year end the Company announced the disposal by
one of its investments, Antenova, of its core business to a large
US software company. The Company's share of these proceeds will be
some GBP1 million. Because of standard warranty provisions, this
cash is not likely to be returned to the Company prior to March
2014. The Company is also expecting the sale of the residual
business of Antenova which may lead to a further modest uplift in
NAV.
The board is cognisant of the fantastic job done by the
Investment Advisor, Loudwater Investment Partners Limited, on the
portfolio and the excellent exit obtained by them for our
shareholding in Agraquest (which was sold far in excess of the
company's then carrying value). The board is also aware that no new
incentive arrangements were put in place to incentivise the
Investment Advisor at the time that the Company changed its
investment policy to one of realising assets and returning cash to
shareholders. Under the existing Investment Management Agreement,
which carries a stiff hurdle rate and typical high water mark
provisions, no performance fee is payable. Nevertheless, the board
wishes to propose at the forthcoming AGM that shareholders approve
a one-off bonus payment of GBP250,000 to the Investment Advisor in
recognition of their efforts and success particularly in connection
with the Agraquest exit. Damille Investments Limited, of which
Brett Miller and myself are the executive directors, intends to
vote in favour of this resolution in respect of the 17,650,000
ordinary shares held by them.
The total amount of cash returned to shareholders in the year to
31 December 2012 amounts to GBP27.8 million. To date the Company
has returned GBP45.9 million of capital to shareholders, or 61.2
pence per share, based on 75 million shares issued on admission to
trading on AIM in January 2007. The total of NAV plus cash returned
is GBP67.4 million or 89.9 pence per share, calculated on the same
basis. This has fallen from 94.5p as at 30 June 2012, resulting
principally from the write down in the carrying value of a UK based
investment. The Company's Net Asset Value ("NAV") was GBP21.5
million or 35.7 pence per share as at 31 December 2012. The NAV at
31 March 2013 is expected to be announced within 14 days.
The Board proposes to return a further 1.5p per share by way of
a bonus issue of B shares to shareholders pro rata to shareholders'
existing holdings of ordinary shares in the capital of the Company.
The B shares will be issued to shareholders on the Company's
register on the record date of 24 May 2013 and will have an ex-date
of 22 May 2013.
Following their issue, the Directors are expected to consider
the redemption of the issued B shares on or around 28 May 2013. A
subsequent announcement will then be released confirming the
decision of the Board.
Following the approval of Shareholders at an extraordinary
general meeting on 5 November 2008, there will be a continuation
vote at the annual general meeting of the Company to be held to
consider the financial statements for the financial period ended 31
December 2013 (or any accounting period substituted for it). This
is expected to take place in May 2014. Accordingly, the Board of
Directors and the Investment Adviser are considering options to
enable the sale of the remaining portfolio and return of the
proceeds to shareholders. Discussions are taking place with a
number of parties with a view to a sale of the remaining assets,
but there can be no assurance at this stage that these discussions
will lead to a disposal.
The Board of Directors continues to work closely with the
Investment Advisor to maximise further realisations. Discussions in
relation to further realisations are on-going and we look forward
to announcing further realisations and returning further funds to
shareholders in due course.
Rhys Davies
Chairman
Loudwater Trust Limited
10 May 2013
INVESTMENT ADVISOR'S REPORT
Year ended 31 December 2012
Overview
In the period under review, we successfully achieved substantial
disposals of investments in three portfolio companies and a partial
disposal of an investment in a fourth. A total of GBP27.4 million
was returned to shareholders during the year.
We were pleased to announce in August 2012, that Bayer
Cropscience LLC, a subsidiary of Bayer AG, completed the
acquisition of AgraQuest, Inc. for a total purchase price of US$425
million plus milestone payments. For our shareholding in the
company we received initial cash consideration of approximately
GBP27.3 million, following which a further GBP23.5 million or 39.0
pence per share was returned to shareholders in September 2012.
The purchase of AgraQuest by Bayer for up to $425 million is the
most significant transaction to date in the emerging
bio-agriculture industry. AgraQuest, as a division of Bayer, is
likely to become the global market leader in providing biological
alternatives to chemical pesticides and herald a significant
beneficial change in world food production.
The NAV was GBP21.5 million or 35.7 pence per share as at 31
December 2012. To date the Company has returned GBP45.9 million of
capital to shareholders, or 61.2 pence per share, based on 75
million shares issued on admission to trading on AIM in January
2007. The total of NAV plus cash returned is GBP67.4 million or
89.9 pence per share, calculated on the same basis.
This represents a cumulative, after cost performance of -5% over
the life of the Company to date, compared to a fall of 20% in the
FTSE Small Cap (excluding investments trusts) index over the same
period.
We continue to work with our portfolio companies with the
objective of achieving the orderly realisation of the investment
portfolio within a reasonable timeframe.
The timing and feasibility of exits are, of course, highly
dependent on market conditions which, at this time, remain poor and
particularly hard to predict. In light of these conditions and in
line with fair value estimation as further explain in the notes to
the financial statements, the Company will not write up the value
of any assets, unless there is a clear basis for doing so,
evidenced, for example, by the announcement of a binding offer from
either an acquirer or a new investor.
Disposals and other events
In the period under review, the following disposals took
place:
-- In January 2012, the sale of the Company's investment in City
Financial Investment Company for consideration of GBP2.75 million,
comprising cash proceeds of GBP2.5 million and preferred ordinary
shares valued at GBP250,000.
-- In March 2012, the sale of the Company's equity interest in
Corero Network Security Plc, comprising approximately 4.4 million
ordinary shares sold for cash proceeds of GBP1.9 million.
-- In May 2012, the sale of a substantial minority equity
interest representing part of the Company's shareholding in
Somethin' Else Sound Directions Limited to the management team for
cash consideration of GBP450,000.
-- In August 2012, Bayer Cropscience LLC, a subsidiary of Bayer
AG, completed the acquisition of AgraQuest, Inc. for a purchase
price of US$425 million plus milestone payments. For its
shareholding in AgraQuest, the Company received an initial cash
consideration of approximately GBP27.3 million. This compared to
the Company's carrying value for this investment as at 31 March
2012 of GBP6.8 million and an investment cost of GBP4.8
million.
Of the initial cash consideration, approximately GBP3.3 million
is currently held in escrow for a period against potential
indemnification claims. Of this amount, approximately GBP1.8
million is currently held in escrow against future indemnification
claims up to February 2014 and a further GBP1.5 million up to April
2016. In addition to the initial cash consideration, there is
contingent consideration payable should AgraQuest achieve certain
performance milestones in future years. The final potential payment
is in respect of the financial year ending December 2016. The
maximum contingent consideration that could be due to the Company
is GBP3.5 million.
We are very pleased to be able to report the success of this
investment to shareholders, as it represents an important milestone
for the Company. Compared to an investment cost of GBP4.8 million,
the initial cash consideration represents return on investment of
approximately 570% and an IRR of 45%.
-- In November 2012, City Financial redeemed the outstanding
GBP250,000 preference shares and the Company received GBP250,004 in
cash.
These disposals amount to a total of GBP31 million (based on our
estimate of fair value) for the year with GBP27.1 million in cash
and the balance expected to be received in escrow amounts and
earn-outs.
Following the year end, the following has taken place:
-- In January 2013, we announced the sale by one of our
portfolio companies, Antenova, of its principal trading business to
a major US software business. This should result in the return of
in excess of GBP1m in the first half of next year, the return of
cash being the result of an extended warranty period. This
investment was valued at GBP340,000 in the previous NAV. Management
of this company are in the process of examining options with
respect to the disposal of its remaining business activity. It is
likely that this will take place within the next six months and
such disposal may result in a modest further uplift in NAV.
-- Glimmerglass elected to repay a two year note early. The
Company, therefore, received $700,000 in principal and interest of
US$153,831 in May 2013. As part of the loan consideration, the
Company acquired warrants which carry the right to purchase
US$350,000 of further shares at a price which is some 10% higher
than the current carrying value of this investment.
-- Terms have been agreed to lend GBP500,000 to one of our
portfolio companies. This loan is secured on substantial assets,
carries a 9% coupon and on maturity returns the coupon and two
times the principal. The IRR on this loan is some 30%.
Returns of Capital
In the year to 31 December 2012, the Company made the following
returns of cash to shareholders:
-- In February, the return of GBP2.5 million or 4.15 pence per share.
-- In March, the return of GBP1.855 million or 3.08 pence per share.
-- In September, the return of GBP23.49 million or 39.0 pence per share.
These further distributions brought the total cash returned by
the Company to a total of GBP45.9 million or 61.2 pence per share
based on 75 million shares issued on admission to trading on AIM in
January 2007.
Portfolio Update
The Company has a NAV of GBP21.5 million as at 31 December 2012
or 35.7 pence per share. This NAV is comprised as follows:
-- Three portfolio company investments (representing
approximately 58% of NAV). Of these, two are substantial
investments in companies, both of which have achieved significant
revenue growth since the time of the Company's investment, are
operating profitably and are working towards either IPO's or trade
sales that are targeted to occur within the next one to two years.
The other one is a smaller investment, which is in an exit
process.
-- One portfolio company (Antenova) which has sold its principal
trading business shortly after the year end and is due to return
cash to the Company by March 2014 (representing approximately 5% of
NAV).
-- Residual earn-outs (estimated outcomes), loan-type
instruments and amounts held in escrow accounts represent
approximately 28% of NAV. These are amounts remaining from the sale
of previously held Company investments, including contingent
earn-out payments and escrow amounts from AgraQuest carried at an
estimation of fair value and a secured loan earning 8% interest
with a maturity date of March 2014 held in a subsidiary of Corero
Network Security Plc.
-- Cash, net of accrued costs, represents some 9% of the portfolio.
We have decided to write down the value of one of the portfolio
companies by some GBP1.65m to reflect the difficult trading
environment in which this company operates. However we are hopeful
that a recovery in this environment will result in an uplift before
this investment is realised.
As the portfolio has developed to a stage where, at any one
time, one or more companies are likely to be in discussions with
potential acquirers, merger partners or investors, the Investment
Advisor considers that it is not in the best interests of the
Company or shareholders to disclose individual holding values or
the percentage ownership of portfolio companies.
Whilst the economic climate of the past few years has been a
difficult one in which to build businesses, we are encouraged by
the progress that that our remaining portfolio companies have made.
Further details are provided in the next section.
Portfolio Companies
Antenova Limited (Cambridge, UK) - www.antenova.com
Antenova announced in January 2013, the sale of its principal
business of designing and manufacturing under contract antennae for
mobile handsets, portable devices and laptop computers. The
proceeds of this sale for Loudwater are likely to exceed GBP1m
compared to the previous carrying value of GBP340,000, but proceeds
are not likely to be distributed by Antenova prior to March 2014,
because of an extended warranty which formed part of the business
sale agreement.
The remaining business is small and the board of Antenova are
considering a number of alternatives with regard to its future.
This may result in modest further proceeds for Loudwater in due
course.
The Engine Group Limited (London, UK) -
www.theenginegroup.com
Engine is a substantial marketing and communications group based
in the UK. The company is led by WCRS co-founder Peter Scott, who
established Engine following the management buyout of WCRS from
Havas in 2004. The group is comprised of eleven partner companies
in the UK, two in the US and one in Asia. Engine provides services
spanning across advertising agency, PR, brand consultancy, direct
marketing and digital consultancy and serves a host of blue chip
clients.
Engine continued to feel the effect of poor economic conditions
in the UK in 2012, but still grew revenues by 8.5% to GBP90.8
million. Adjusted EBITDA was flat at GBP11.3 million. 2013 has
started on a more optimistic note as evidenced by the strong share
price performance of its listed peer group. Trading is on budget in
the first quarter of 2013 and a return to the company's trend
growth level is forecast.
Glimmerglass Networks Inc. (Hayward, California) -
www.glimmerglass.com
Glimmerglass is the market leader in the design and supply of
intelligent optical systems, based on large scale MEMs
(Micro-Electro-Mechanical) switching technology, for fibre optic
networks. Whilst Glimmerglass's principal focus has been the supply
of large switches to telecoms carriers and ISP's, an increasing
development focus has been on the Company's new "CyberSweep"
solution.
"CyberSweep(TM) enables Cyber Security organizations to extract
actionable information from the flood of data on persons of
interest, known and unknown targets, anticipated and known threats.
The rapid adoption of new media and social networking applications
elevates the challenge to effectively and efficiently capture and
deliver Actionable Information."
Glimmerglass experienced good revenue growth in 2012 and had its
first full year of profitability.
Somethin' Else Limited (London, UK) - www.somethinelse.com
Somethin' Else is cross-platform media production company and
the largest independent radio producer in the UK with programmes
such as Jazz on 3, Gardeners' Question Time and the '606'
Programme. The company is a growing producer of digital media and
manages performers such as Jeremy Kyle and JK & Joel through
its talent management agency. The company has won many distinctions
including Bafta and Sony Radio Academy awards.
The company achieved modest revenue growth in 2012, with margin
pressure reducing profits by some 10%. The company is forecasting
further modest growth in 2013.
In April 2013, the company achieved the sale and leaseback of
its trading premises. This leaves the company with a substantial
cash balance.
Other Investments
AgraQuest Inc. (Davis, California) - www.agraquest.com
In August 2012, the Company sold its shareholding in AgraQuest
to Bayer Cropscience LLC, a subsidiary of Bayer AG, for initial
cash consideration of GBP27.3 million. Of this amount,
approximately GBP1.8 million is currently held in escrow against
future indemnification claims up to February 2014 and a further
GBP1.5 million up to April 2016.
In addition there is contingent consideration payable should
AgraQuest achieve certain performance milestones in future years,
at certain periods up to the financial year ending December 2016.
The maximum contingent consideration that could be due to Loudwater
is GBP3.5 million.
Corero Network Security Plc (Rickmansworth, UK) -
www.corero.com(acquirer of Top Layer Networks)
Corero is an AIM listed network security business that acquired
Top Layer Networks from the Company and another investor in March
2011. In consideration for its share of the business, the Company
received approximately US$7.5 million, comprised of 4.4 million
Corero shares (US$3.1 million at 45p per share), loan notes with a
value of US$2.7 million and cash of US$1.7 million.
In February 2012, the Company's shares in Corero were placed as
part of an equity fundraising by Corero for 43 pence per share or
GBP1.9 million in aggregate.
The Company continues to hold loan notes with original face
value of US$2.7 million, generating interest at 8% per annum which
is accrued and added to the principal amount on a bi-annual basis.
The consideration loan notes are repayable in March 2014 but can be
repaid prior to the repayment date without penalty at the election
of Corero.
Though loss making, Corero is making good progress in both of
its divisions and in February 2013 raised a further GBP4 million
through the issue of new shares.
City Financial Investment Company Limited (London, UK) -
www.cityfinancial.co.uk
City Financial a London based fund management firm that is
responsible for a portfolio of funds including multi-manager
absolute return, strategic fixed income and UK equity funds.
In January 2012, the Company sold its investment, which
represented a non-controlling equity interest, to City Financial
itself, for consideration of GBP2.75 million. Loudwater received
cash proceeds of GBP2.5 million, together with preferred ordinary
shares valued at GBP250,000. These were redeemed in November 2012
for cash at face value.
Richard Wyatt & Edward Forwood
Loudwater Investment Partners Limited
10 May 2013
INVESTING POLICY
Investment Objective
The Company's investment objective on admission to trading on
AIM in January 2007 was to provide Shareholders with an attractive
rate of return on their investment, primarily through investing in
companies which were likely to achieve an initial public offering
("IPO") or a sale within a short term time horizon, and through a
small number of investments in companies that were already
listed.
Following the approval of Shareholders at an extraordinary
general meeting on 5 November 2008, the Company made the following
key changes to its investment objective:
-- The Company will not make any new investments other than
follow-ons. Remaining capital will be reserved for follow-on
investments in existing portfolio companies where the Investment
Advisor believes further funding is required.
-- Cash proceeds from realisations in full following the exit of
a portfolio investment will be distributed to Shareholders, subject
to the retention of sufficient cash for follow-on investments in
existing portfolio companies where the Investment Advisor believes
further funding is required.
New Investments
The Company will not make any investments in new portfolio
companies, apart from follow-on investments in existing portfolio
companies.
Whether investments will be active or passive investments
Investments in portfolio companies are passive in nature but
managed on an active basis.
The Investment Advisor formally monitors each of the Company's
investments on an ongoing basis. Whilst the Company would usually
require a right to a board seat or observer status, this right
would generally only be exercised in the event of problems in the
investee company or if the Company owns a significant equity
holding in the investee company.
Holding period for investments
At admission to trading on AIM in January 2007, the Company's
policy was to invest in companies which were likely to achieve a
listing or realisation within six to twenty-four months.
Furthermore, the Company wished to invest in businesses which would
achieve an acceptable level of market capitalisation if they were
listed on a public market. As such the Company's policy was not to
invest in early stage or start-up situations, and instead it would
focus on investing in companies which had achieved suitable levels
of revenues and were either profitable or close to achieving
profitability at the time of investment.
In light of the deteriorating economic environment towards the
end of 2008, the Board, as advised by the Investment Advisor,
believed that exit timeframes for potential new investments and the
existing portfolio would be longer than previously envisaged.
Moreover, whilst attractive returns were anticipated from the
existing investment portfolio, some were likely to need further
funding before an exit could be achieved. As a result, the
investment objective and policy of the Company was amended and
approved by Shareholders in November 2008.
Spread of investments and maximum exposure limits
On admission to trading on AIM in January 2007, it was the
Company's intention to use the net proceeds of the placing of circa
GBP74 million to build an initial portfolio of investments in at
least 15 companies.
The Company also stated that it would not seek to invest (or
commit to invest) more than 10 per cent. of the Company's gross
assets in any single investment at the time of investment (or
commitment), although such limit was able to be exceeded in certain
cases where the Board deemed it appropriate on the advice of the
Investment Advisor.
Typically, investments in pre-IPO opportunities were to be made
by way of a convertible loan note that would convert on an exit
event at a discount to the relevant exit price. The loans may also
have an attached equity interest in the form of a warrant or option
over shares. However, a proportion, not envisaged to exceed 25 per
cent. of the net asset value of the portfolio, would be in
investments made at a fixed price. This was necessary in order to
capture attractive pre-IPO opportunities that are not available
with a loan note security.
In addition, the Company was able to invest in companies that
were already listed. These investments were to be made on an
opportunistic basis and were expected to represent a small number
of the Company's transactions, not exceeding 15 per cent. of the
total net asset value of the Company. As investee companies achieve
successful listings, however, the net asset value attributable to
holdings in listed companies may be substantial.
The Shareholders resolved at an extraordinary general meeting on
5 November 2008 that the Company would not make investments in any
new portfolio companies, and that funds would be reserved for
follow-on investments in existing portfolio companies. Accordingly,
the Company will not be able to increase the spread of investments
beyond its investment in 4 investee companies as at 31 December
2012 (31 December 2011: 8 investee companies).
Policies in relation to gearing and foreign currency hedging
The Directors may exercise the powers of the Company to borrow
money and to give security over its assets.
The Company may borrow funds secured on its investments if the
Board, as advised by the Investment Advisor, considers that
satisfactory opportunities for follow-on investment arise at a time
when the Company is close to being fully invested. In any event,
borrowings will be limited to 50 per cent. of the value of the
Company's investments at the time of draw down.
The Company may be indirectly exposed to the effects of gearing
to the extent that investee companies have outstanding borrowings.
The Company may use currency hedging to reduce the impact of
currency fluctuations of assets held in currencies other than
sterling. However, given the stage of the Company's investments,
this is highly unlikely.
The Company may invest a proportion of its assets in underlying
investments denominated in currencies other than sterling. In an
attempt to reduce the impact on the ordinary shares of currency
fluctuations and the volatility of returns which may result from
such currency exposure, the Company will have the flexibility to
hedge the appropriate proportions of the Company's assets against
sterling through the use of foreign exchange transactions and
currency derivatives. Currency hedging will be for the purposes of
efficient portfolio management only and the Company has no
intention of using currency hedging for the purposes of currency
speculation for its own account.
Policy in relation to cross-holdings
The Company does not have a formal policy on cross-holdings.
However, the Company's policy is not to make any investments in new
portfolio companies, apart from follow-on investments in existing
portfolio companies.
The Company's policy for investments in companies that are
already listed, which include closed-ended investment funds, is
that they will be made on an opportunistic basis and are expected
to represent a small number of the Company's transactions, not
exceeding 15 per cent. of the total net asset value of the Company.
As investee companies achieve successful listings, however, the net
asset value attributable to holdings in listed companies may be
substantial.
Investing Restrictions
Following the approval of Shareholders at an extraordinary
general meeting on 5 November 2008, the Company no longer intends
to make any investments in new portfolio companies. Remaining
capital will be reserved for follow-on investments in existing
portfolio companies where the Investment Advisor believes further
funding is required.
Whilst there are no restrictions on the ability of the Company
to take controlling stakes in portfolio companies, the Company
ensures that there is sufficient separation between the Company and
each portfolio company through the right to a Board seat or Board
observer status in only a non-executive capacity.
In addition, the Company also ensures that there is sufficient
separation between each portfolio company by ensuring that there is
no:
-- cross-financing, including the provision of undertakings or
security for borrowings from one portfolio company to another;
-- common treasury functions; or
-- sharing of operations.
Other than these restrictions set out above, and the requirement
to invest in accordance with its investing policy, there are no
other investing restrictions.
Returns and Distribution Policy
It is anticipated that returns from the Company's investment
portfolio will be in the form of capital upon realisation or sale
of its investee companies, rather than from dividends.
At the extraordinary general meeting on 5 November 2008, it was
resolved that the cash proceeds of realisation in full following
the exit of a portfolio investment would be returned to
Shareholders, subject to the retention of sufficient cash for
follow-on investments in existing portfolio companies where the
Investment Advisor believes that further funding is required.
Whilst it is not possible to determine the timing of exits, the
Board, advised by the Investment Advisor, will seek to return
capital to Shareholders when appropriate.
Life of the Company
The Company was established with an indefinite life. Following
the approval of Shareholders at an extraordinary general meeting on
5 November 2008, there will be a continuation vote at the annual
general meeting of the Company to be held to consider the financial
statements for the financial period ended 31 December 2013 (or any
accounting period substituted for it). It is further proposed that
if any such continuation vote is passed, that a similar
continuation vote will be proposed at every second annual general
meeting thereafter. If at any time a continuation vote is not
passed, the Directors will be required to formulate proposals to
wind up the Company.
BOARD OF DIRECTORS
The Directors of the Company, all of whom are non-executive, are
as follows:
Rhys Davies (Chairman) is a general partner of Damille Partners,
which he established in October 2008 with Brett Miller (with each
holding a 50 per cent. partnership interest).Rhys is also an
executive director of Damille Partners Limited, Damille Investments
Limited and Damille Investments II Limited. He also presently
serves as the non-executive chairman of EIH plc, an AIM quoted Isle
of Man registered investment company. Rhys also presently serves as
the executive chairman of China Growth Opportunities Limited, an
AIM quoted Guernsey registered investment company. Rhys has served
on the Board of the Company since May 2011.
Christopher Fish is a resident of Guernsey and is a director of
four UK listed funds as well as three Guernsey based financial
companies. During the past 35 years he has held executive positions
as director of the Royal Bank of Canada (Channel Islands) Limited
and as the Americas Offshore Head of Coutts where he was
responsible for the Bahamas, Bermuda, Cayman and Uruguay offices.
In 1997 he was appointed the Senior Client Partner for Coutts
Offshore before taking up the position of Managing Director of
Close International Private Banking in 1999 from where he retired
in 2005. Chris has served on the Board of the Company since its
flotation on AIM in January 2007.
Brett Miller is a general partner of Damille Partners, which he
established in October 2008 with Rhys Davies (with each holding a
50 per cent. partnership interest). Brett is also an executive
director of Damille Partners Limited, Damille Investments Limited
and Damille Investments II Limited. Brett also presently serves as
a non-executive director of EIH plc, an AIM quoted Isle of Man
registered investment company and of Pactolus Hungarian Property
PLC, an AIM quoted property fund. Brett has served on the Board of
the Company since May 2011.
REPORT OF THE DIRECTORS
The Directors of Loudwater Trust Limited ("the Company") are
pleased to present their annual report and audited financial
statements for the year ended 31 December 2012.
The Company
The Company is a Guernsey closed-ended investment company,
registered with limited liability incorporated in Guernsey on 11
January 2007 and is governed by the provisions of the Companies
(Guernsey) Law, 2008. The Company commenced business on 29 January
2007 when the Ordinary Shares of the Company were admitted to
trading on AIM.
The Company is an Authorised Closed-ended Investment Scheme and
is subject to the Authorised Closed-ended Investment Scheme Rules
2008.
Investment Objectives and Policy
The Company's investment objectives and policy are detailed on
pages 9 - 11.
Results and Dividends
The results for the year are set out in the Statement of
Comprehensive Income on page 23.
The dividend policy of the Company is disclosed in note 17 to
the financial statements. The Directors do not recommend the
payment of a dividend for the year ended 31 December 2012 (31
December 2011: GBPnil).
Non Consolidation of Glimmerglass and Somethin' Else Financial
Statements
Under IFRS, the Group is required to consolidate the results and
financial position of the two controlled investments in these
financial statements. However, following discussions with the
Group's advisors, the Directors have chosen not to present
consolidated statements, but to carry the holding as an investment
at fair value through profit or loss. This decision has been taken
as it is the Directors' opinion that consolidating and presenting
results of a technology design and supply company and a media
production company would not be useful or meaningful to current
investors, and that non consolidation would avoid both delay and an
increase in the cost of accounting and auditing.
The effect of non consolidation results in the auditor's opinion
of these financial statements being qualified for this reason.
Future of the Company and going concern
In accordance with Article 128(c) of the Company's Articles of
Incorporation, at the annual general meeting of the Company to be
held to consider the accounts for the financial period ending 31
December 2013 an ordinary resolution shall be proposed that the
Company shall continue in existence. If that resolution is not
passed, the Directors are required to formulate proposals to be put
to members to wind up the Company. If the resolution to continue in
existence is passed, a similar ordinary resolution will be proposed
at every second annual general meeting thereafter.
While the Directors cannot be certain what the results of the
vote on the above detailed resolution will be or on the timeframes
on portfolio investment exits and subsequent distributions to
Shareholders, the financial statements are prepared on a going
concern basis supported by the Directors' current assessment of the
Company's ability to pay its debts as they fall due for the
foreseeable future and ongoing shareholder interest in the
continuation of the Company.
In line with the Investment Objective, detailed on pages 9-11,
as approved by Shareholders at an extraordinary general meeting on
5 November 2008, the Company will not make any new investments
other than follow-on investments where appropriate. The Board and
the Investment Advisor will be committed to distributing as much of
the available cash to Shareholders following realisations in full
on the exit of portfolio investments.
Business Review
A review of the business and prospects is contained in detail in
the Investment Advisor's Report on pages 5 to 8.
Annual General Meeting
The notice for the Annual General Meeting of the Company, which
is to be held on 20 June 2013 at 10am, along with the Form of Proxy
for use at the meeting is enclosed with this document.
Members of the Board will be in attendance at the AGM and will
be available to answer shareholder questions.
Buy Back of Ordinary Shares and Authority to Buy Back Ordinary
Shares
By way of an ordinary resolution passed at the Annual General
Meeting of the Company on 20 June 2012, the Company took authority
to make market purchases of Ordinary Shares of no par value
("Ordinary Shares"), provided that the maximum number of Ordinary
Shares authorised to be purchased shall be 14.99 per cent of the
issued Share Capital of the Company. Unless previously varied,
revoked or renewed such authority will expire on 31 December 2013
or, if earlier, at the conclusion of the Annual General Meeting of
the Company in 2013, save that the Company may prior to such
expiry, enter into a contract to purchase Ordinary Shares pursuant
to any such contract.
The minimum price which may be paid for an Ordinary Share
pursuant to such authority is one penny and the maximum price which
may be paid for an Ordinary Share is 105 per cent of the average of
the middle market quotations (as derived from the Daily Official
List) of the Ordinary Shares for the five business days immediately
preceding the date on which the Ordinary Share is purchased.
The Company did not acquire or cancel any Ordinary Shares during
the year ended 31 December 2012 (31 December 2011: nil).
At the Annual General Meeting on 20 June 2011, the Shareholders
approved the Capital Return Scheme, whereby a bonus issue of new,
fully paid, redeemable B Shares ("B shares") is issued to
Shareholders pro rata in proportion to Shareholders' existing
holdings of Ordinary Shares on the relevant record date. These B
shares are expected to be redeemed by the Company shortly after
they are issued with the redemptions paid in cash as a return of
capital. See note 13 in these financial statements for further
details.
During the year ended 31 December 2012, the capital returned to
Shareholders through the Capital Return Scheme was approximately
GBP27.8 million (31 December 2011: GBP4.2 million).
Substantial Shareholdings
As of 25 April 2013, being the latest practicable date prior to
the publication of these Financial Statements, the Company has been
notified of the following shareholdings in excess of 5% of the
issued Share Capital:
31 December 2012
Name No. of Ordinary Shares Percentage
------------------------------- ----------------------- -----------
Damille Investments 17,650,000 29.30%
Weiss Asset Management 16,288,000 27.04%
Moore Capital Management 5,925,000 9.84%
Lansdowne Partners 5,920,002 9.83%
Fidelity Worldwide Investment 3,701,400 6.15%
Directors
The Directors, all of whom are non-executive Directors, are as
listed on page 12. Mr Brett Miller and Mr Rhys Davies were
appointed on 20 May 2011, all other Directors were appointed on
incorporation. On 27 April 2012, Lord Flight, Edward Forwood,
Robert Fearis and Roger Le Tissier resigned from the Board of
Directors with immediate effect.
None of the Directors has a service contract with the Company
and no such contracts are proposed. Details of the Directors' fees
are shown in note 5.
Directors' interests
As at 31 December 2012, the interests of the Directors who held
office during the year and their families are set out below:
31 December 2012 31 December 2011
Ordinary Shares Ordinary Shares
------------------ -----------------
Brett Miller - -
Rhys Davies - -
Christopher Fish - -
Lord Flight* N/A 80,000
Edward Forwood* N/A 400,000
Roger Le Tissier* N/A -
Robert Fearis* N/A -
*Resigned 27(th) April 2012
There were no changes in the interests of the Directors since
the year end to the date of this report.
Statement of Directors' Responsibilities
The Companies (Guernsey) Law, 2008 requires Directors to prepare
financial statements for each financial year which 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 and are in accordance with
applicable laws. In preparing these financial statements the
Directors are required to:
-- Select suitable accounting policies and apply them consistently;
-- Make judgements and estimates that are reasonable and prudent;
-- State whether applicable accounting standards have been
followed subject to any material departures disclosed and explained
in the financial statements; and
-- Prepare the financial statements on a 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 which disclose with reasonable accuracy at any time the
financial position of the Company to enable them to ensure that the
financial statements have been prepared in accordance with the
Companies (Guernsey) Law, 2008 and the Company's principal
documents. 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 confirm that they have complied with these
requirements in preparing the financial statements.
So far as the Directors are aware, there is no relevant audit
information of which the Company's auditor is unaware, having taken
all steps the Directors ought to have taken to make themselves
aware of any relevant audit information and to establish that the
Company's auditor is aware of that information.
The Investment Advisor
Loudwater Investment Partners Limited was appointed Investment
Advisor to the Company pursuant to an Investment Advisory Agreement
dated 24 January 2007 (the "Investment Advisory Agreement"),
between the Company and the Investment Advisor. Under this
agreement the Investment Advisor is responsible for sourcing,
evaluating, negotiating, completing and monitoring investments on
behalf of the Company, subject to overall supervision of the
Company's Directors. The Investment Advisor also advises the Board
on the proposed divestment of investments and gives effect to their
implementation.
The Investment Advisory Agreement shall continue in force until
the Annual General Meeting of the Company to be held to consider
the accounts for the financial period ended 31 December 2013 (or
any accounting period substituted for it) at which point there will
be a continuation vote to consider whether to increase the life of
the Company. If any such continuation vote is passed the Investment
Advisory Agreement is then renewable by continuation vote on every
anniversary of the date of execution of the Investment Advisory
Agreement. The Investment Advisory Agreement may be terminated
earlier upon certain breaches of the Investment Advisory Agreement
or the insolvency or receivership of either party or if the
Investment Advisor ceases to be qualified to act as such.
The Administrator
Praxis Fund Services Limited has been appointed Administrator to
the Company pursuant to an Administration Agreement dated 24
January 2007 (the "Administration Agreement"), between the
Administrator and the Company. The Administrator has also been
appointed to act as Secretary of the Company. Under this agreement
the Administrator will be responsible for certain administrative
duties in accordance with the Administration Agreement.
The Administration Agreement may be terminated by either party
on not less than 3 months written notice, or earlier upon certain
breaches of the Administration Agreement or the insolvency or
receivership of either party or if the Administrator ceases to be
qualified to act as such.
Status of Taxation
The Income Tax Authority of Guernsey has granted the Company
exemption from Guernsey income tax under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance, 1989 and the income of the Company
may be distributed or accumulated without deduction of Guernsey
income tax. Exemption under the above mentioned Ordinance entails
payment by the Company of an annual fee of GBP600. It should be
noted, however, that interest and dividend income accruing from the
Company's investments may be subject to withholding tax in the
country of origin. With effect from 1 January 2008, the standard
rate of income tax for most companies in Guernsey is zero per cent.
Tax Exempt status continues to exist and the Company has been
granted this status for 2012 and 2013.
The Company has not suffered any withholding tax in the year (31
December 2011: GBPnil).
Corporate Governance
Compliance
The Board note and have considered the principles and
recommendations of the Finance Sector Code of Corporate Governance
issued by the Guernsey Financial Services Commission (the "Guernsey
Code"), which became effective on 1 January 2012, the principles
and recommendations of the UK Corporate Governance Code issued by
the Financial Reporting Council in September 2012 and applicable
for accounting periods beginning on or after 1 October 2012 (the
"UK Code"), and the principles and recommendations of the AIC Code
of Corporate Governance issued by the AIC in October 2010 (the "AIC
Code").
As a Guernsey incorporated company, which is also governed by
the AIM Rules for Companies, it is not a requirement for the
Company to comply with the UK Code. However, the Directors place a
high degree of importance on ensuring that high standards of
corporate governance are maintained and have considered the
principles and recommendations of the AIC Code by reference to the
AIC Corporate Governance Guide for investment companies ("AIC
Guide"). The AIC Code, as explained in the AIC Guide, addresses all
the principles set out in the UK Code and Guernsey Code.
Furthermore, the Directors have considered the effectiveness of
their corporate governance practices and are satisfied with their
degree of compliance with the principles laid out in the AIC Code
in the context of the nature, scale and complexity of the Company's
business.
As at 31 December 2012, the Company complied substantially with
the relevant provisions of the AIC Code (save with regard to the
following provisions listed below) and it is the intention of the
Board that the Company will comply with those provisions (save with
regard to the following provisions listed below) throughout the
year ending 31 December 2013:
-- The role of the Chief Executive: The Board considers that the
post of chief executive officer is not relevant for the Company as
this role has effectively been delegated to the Investment Advisor
under the terms of the Investment Advisory Agreement.
-- The appointment of a Senior Independent Director: Following
the board restructuring that took place on 27 April 2012,
Christopher Fish has been appointed the Senior Independent
Director.
-- Executive Directors' remuneration: As the Board has no
executive Directors, it is not required to comply with the
principles of the Code in respect of executive Directors'
remuneration and does not have a Remuneration Committee.
-- Establishment of Nomination Committee: Since all of the
Directors are non-executive, the Board does not consider it
necessary to establish a Nomination Committee. The Board as a whole
monitors performance and plans for succession of the Board, either
through Board meetings or, if appropriate, through the use of an
appropriately constituted committee.
-- Role of the Chairman: As a representative of the Company's
Substantial Shareholder, Damille Investments Limited ("Damille"),
Rhys Davies is considered not to be independent.
-- Independence of Directors: Representing Damille, Brett Miller
and Rhys Davies are considered not to be independent. Damille has
entered into a relationship agreement with the Company such that at
all times the Company is capable of acting independently of Damille
and/or its directors and that any transactions between themselves
and any member of the Company are at arm's length and on a normal
commercial basis.
-- Internal audit function: The Board has reviewed the need for
an internal audit function, as recommended by the Code. Due to the
size of the Company and the delegation of day-to-day operations to
regulated service providers, an internal audit function is not
considered necessary. The Directors consider annually whether a
function equivalent to an internal audit is needed and will
continue to monitor its systems of internal controls in order to
provide assurance that they operate as intended.
The Board
As at 31 December 2012, the Board consisted of three members,
all of whom are non-executive.
The Directors recognise the importance of succession planning
for company boards and review the composition of the Board
annually. However, the Board is of the view that length of service
will not necessarily compromise the independence or contribution of
directors of an investment company where continuity and experience
can be a benefit to the board. Furthermore, the Board agrees with
the view expressed in the AIC Code that long serving Directors
should not be prevented from forming part of an independent
majority or from acting as Chairman. Consequently no limit has been
imposed on the overall length of service of the Directors.
With the exception of Mr Miller and Mr Davies, all other
Directors, who held office during the year, were initially
appointed to the Board on 11 January 2007 and a third of them
retired, and sought reappointment at each annual general meeting
("AGM"). At the AGM held on 20 June 2012, Mr Fish retired by
rotation under the articles of incorporation, and was then
re-elected by Shareholders. On 27 April 2012, Lord Flight, Edward
Forwood, Robert Fearis and Roger Le Tissier resigned from the Board
of Directors with immediate effect. As a result, the remaining
Directors are Christopher Fish, Brett Miller and Rhys Davies. Mr
Davies was appointed non-executive Chairman, replacing Lord Flight
on 27 April 2012. As Mr Miller and Mr Davies are representatives of
Damille Investments Limited, as at 31 December 2012 a 29.8%
Shareholder in the Company, they are not deemed to be independent
directors. The Board as a whole is therefore not deemed to be
independent of Damille Investments Limited. At the Company's next
AGM, an ordinary resolution will be proposed to seek the
reappointment of Mr Davies to retire by rotation, under the
articles of incorporation.
The Directors believe that the Board has a balance of skills and
experience which enable it to provide effective strategic
leadership and proper governance of the Company.
The Board has contractually delegated external agencies for the
management of the investment portfolio, the custodial services and
the day to day accounting and company secretarial requirements.
Each of these contracts was only entered into after proper
consideration by the Management Engagement Committee or the
Board.
Although no formal training is given to Directors, the Directors
are kept up to date on various matters such as Corporate Governance
issues through bulletins and training materials provided from time
to time by the Company Secretary, the AIC and other professional
firms.
The Directors meet on a quarterly basis ("Management" meetings
per the table below) and at other unscheduled times ("Ad hoc"
meetings per the table below) when necessary to assess Company
operations and the setting and monitoring of investment strategy
and investment performance. At such meetings, the Board receives
from the Administrator and Investment Advisor a full report on the
Company's holdings and performance. The Board gives directions to
the Investment Advisor as to the investment objectives and
limitations, and receives reports in relation to the financial
position of the Company and the custody of its assets.
Directors' and Officers' Liability Insurance
The Company maintains insurance in respect of directors' and
officers' liability in relation to their acts on behalf of the
Company. Suitable insurance is in place, having been renewed on 2
March 2012 and subsequently renewed on 2 March 2013.
Board Committees
Audit Committee
An Audit Committee has been appointed and is responsible for
reviewing and monitoring internal financial control systems and
risk management systems on which the Company is reliant,
considering the annual financial statements and audit report,
considering the appointment and remuneration of the Company's
auditor and monitoring and reviewing annually their independence,
objectivity, effectiveness and qualifications. The Audit Committee
has performed reviews of the internal financial control systems and
risk management systems during the year. The Audit Committee is
satisfied with the internal financial control systems of the
Company. The Audit Committee ordinarily meets at least twice a
year. Following the Board restructuring on 27 April 2012, the Board
as a whole will be responsible for the functions and duties of the
Audit Committee.
Management Engagement Committee
The Management Engagement Committee has been formed to review
the performance of the Investment Advisor in relation to the
provision of management services to the Company and to ensure that
the terms of the Investment Advisory Agreement are competitive and
sensible for Shareholders. The duties of the Management Engagement
Committee also include reviewing the performance of the Nominated
Advisor, the Administrator and the Registrar and ensuring the terms
of their remuneration remain competitive and sensible for
Shareholders. Following the Board restructuring on 27 April 2012,
the Board as a whole will be responsible for the functions and
duties of the Management Engagement Committee.
Remuneration and Nomination Committees
Since all of the Directors are non-executive, the Board does not
consider it necessary to establish remuneration or nomination
committees.
Meetings
The table below, details the attendance at Board and Committee
meetings during the year:
Board*
Management Ad hoc
Rhys Davies 2 8
Christopher Fish 2 7
Brett Miller 2 7
Lord Flight** 1 1
Edward Forwood** 1 1
Robert Fearis** 2 3
Roger Le Tissier** 1 1
*10 Board meetings have been held during the year ended 31
December 2012
** Resigned on 27 April 2012.
Internal controls
The Directors are responsible for overseeing the effectiveness
of the internal financial control systems of the Company, which are
designed to ensure proper accounting records are maintained, that
the financial information on which the business decisions are made
and which is issued for publication is reliable, and that the
assets of the Company are safeguarded. Such a system of internal
financial controls can only provide reasonable and not absolute
assurance against misstatement or loss.
The Board has reviewed the Company's internal control
procedures. These internal controls are implemented by the
Company's two main service providers, the Investment Advisor and
the Administrator. The Company contacts each service provider on an
annual basis to seek confirmation that each service provider had
effective controls in place to control the risks associated with
the services that they are contracted to provide to the Company.
The Board is satisfied with the internal controls of the
Company.
The Board does not consider it appropriate to directly implement
social, ethical and environmental policies within an investment
company investing in financial instruments. However, the Board
acknowledges that in addition to financial, legal and market due
diligence, the Investment Advisor's investment appraisal includes a
rigorous assessment of a potential Investee Company's social,
ethical and environmental policies, and therefore the Investment
Advisor monitors such policies and practices following any
investment.
The Board has considered non-financial areas of risk such as
disaster recovery and investment management, staffing levels within
the service providers and considers adequate arrangements to be in
place.
Anti-bribery and corruption
The Board acknowledges that the Company's international
operations may give rise to possible claims of bribery and
corruption. In consideration of the recently enacted UK Bribery
Act, at the date of this report the Board had conducted an
assessment of the perceived risks to the Company arising from
bribery and corruption to identify aspects of business which may be
improved to mitigate such risks. The Board has adopted a zero
tolerance policy towards bribery and has reiterated its commitment
to carry out business fairly, honestly and openly.
Shareholder views
The Board regularly monitors the Shareholder profile of the
Company. All Shareholders have the opportunity, and are encouraged,
to attend the Company AGM at which members of the Board are
available in person to meet Shareholders and answer questions. In
addition, the Company's Investment Advisor and Corporate Broker
maintain regular contact with major Shareholders and report
regularly to the Board on Shareholder views.
Auditor
BDO Limited were appointed as auditor of the Company and are
eligible for re-appointment at the forthcoming Annual General
Meeting.
On behalf of the Board of Directors
Director: Brett Miller
10 May 2013
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OFLOUDWATER TRUST
LIMITED
We have audited the financial statements of Loudwater Trust
Limited for the year ended 31 December 2012 which comprise the
Statement of Financial Position, the Statement of Comprehensive
Income, the Statement of Changes in Equity, the Statement of Cash
Flows and the related notes 1 to 20. The financial reporting
framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (IFRS) as
adopted by the European Union.
This report is made solely to the company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work is 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 the Directors and Auditor
As explained more fully in the Directors' Responsibilities
Statement within the Directors' Report, the Directors are
responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
(APB's) Ethical Standards for Auditors.
We believe that the audit evidence that we have obtained is
sufficient and appropriate to provide a basis for our qualified
audit opinion.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the financial statements. In addition, we
read all the financial and non--financial information in the annual
report to identify material inconsistencies with the audited
financial statements. If we become aware of any apparent
misstatements or inconsistencies we consider the implications for
our report.
Basis for qualified opinion on the financial statements
As explained in note 2(a)(i) to the financial statements, the
company has accounted for the controlled investments at fair value
through profit or loss, instead of consolidating them in accordance
with IAS 27 "Consolidated and Separate Financial Statements". The
effect of not consolidating the two controlled investments has not
been determined.
Qualified opinion on financial statements
In our opinion, except for the effects of the matter described
in the Basis for Qualified Opinion paragraph, the financial
statements:
-- give a true and fair view of the state of the company's
affairs as at 31 December 2012 and of its profit for the year then
ended;
-- have been properly prepared in accordance with IFRS as adopted by the European Union; and
-- have been properly prepared in accordance with the Companies (Guernsey) Law, 2008.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- proper accounting records have not been kept by the company; or
-- the financial statements are not in agreement with the accounting records; or
-- we have failed to obtain all the information and
explanations, which, to the best of our knowledge and belief, are
necessary for the purposes of our audit.
CHARTERED ACCOUNTANTS
BDO Limited
Place du Pré
Rue du Pré
St Peter Port
Guernsey, GY1 3LL
10 May 2013
STATEMENT OF FINANCIAL POSITION
As at 31 December 2012
Notes 31 December 2012 31 December 2011
----------------------------------------------------- ----- ---------------- -----------------
GBP GBP
Non-current assets
Investments at fair value through profit or loss 8 10,290,730 25,968,530
Other receivables 10 5,674,509 2,355,083
15,965,239 28,323,613
---------------- -----------------
Current assets
Investments held for sale 9 2,705,150 2,000,000
Other receivables 10 780,952 160,118
Cash and cash equivalents 11 2,109,461 1,762,408
---------------- -----------------
5,595,563 3,922,526
---------------- -----------------
Total Assets 21,560,802 32,246,139
---------------- -----------------
Liabilities
Financial liabilities measured at amortised cost
Other payables 12 56,410 34,851
Total net assets 21,504,392 32,211,288
================ =================
Represented by equity attributable to equity holders
Share capital 13 - -
Distributable reserve 13 28,444,336 56,289,984
Revenue reserve 14 (6,939,944) (24,078,696)
Total equity 21,504,392 32,211,288
================ =================
Net asset value per Ordinary Share (GBP) 15 0.3570 0.5348
================ =================
The financial statements on pages 22 to 43 were approved by the
Board of Directors and authorised for issue on 10 May 2013. They
were signed on its behalf by:
Director: Brett Miller
The notes on pages 26 to 43 form an integral part of these
financial statements.
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2012
Year ended Year ended
Notes 31 December 2012 31 December 2011
----------------------------------------------------------------------- ------- ----------------- -----------------
GBP GBP
Income
Interest income from cash and cash equivalents 7 25,082 17,983
Total income 25,082 17,983
----------------- -----------------
Expenses
Investment Advisor's fee 4 659,731 738,060
Administration fee 4 51,248 65,840
Directors' fees and expenses 5 123,752 116,439
Auditor's remuneration 25,900 27,800
Legal and professional 20,028 105,947
Other professional advisers 54,417 51,227
Other expenses 18,110 46,819
Total expenses 953,186 1,152,132
----------------- -----------------
Net loss before investment result (928,104) (1,134,149)
Net gains/(losses) on investments at fair value through profit or loss 8 18,035,176 (1,374,253)
Movement in net unrealised losses on investments held for sale at fair
value through profit
or loss 9 - (1,350,000)
Interest on loan notes 7 205,378 196,219
Net foreign exchange losses 2b (173,698) (62,264)
Bad debt expense - (229,614)
Profit/(loss) for the financial year 14 17,138,752 (3,954,061)
----------------- -----------------
Other comprehensive income - -
Total comprehensive income/(loss) for the year 17,138,752 (3,954,061)
================= =================
Earnings/(loss) per Ordinary Share (GBP) 6 0.2845 (0.0656)
================= =================
The results from the current and prior years are derived from
continuing operations.
The notes on pages 26 to 43 form an integral part of these
financial statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2012
Share Distributable Revenue Total
Notes capital reserve reserve Equity
---------------------------------------- ----- ------- ------------- ------------ ------------
GBP GBP GBP GBP
For the year ended 31 December 2012
At 31 December 2011 - 56,289,984 (24,078,696) 32,211,288
Profit for the year - - 17,138,752 17,138,752
Other comprehensive income - - - -
Total comprehensive income for the year - - 17,138,752 17,138,752
------- ------------- ------------ ------------
Transactions with owners
Capital distributions paid in the year 13 - (27,845,648) - (27,845,648)
Total transactions with owners - (27,845,648) - (27,845,648)
------- ------------- ------------ ------------
At 31 December 2012 - 28,444,336 (6,939,944) 21,504,392
======= ============= ============ ============
Share Distributable Revenue Total
capital reserve reserve Equity
--------------------------------------- ----- ------- ------------- ------------ -----------
Notes GBP GBP GBP GBP
For the year ended 31 December 2011
At 31 December 2010 - 60,506,329 (20,124,635) 40,381,694
Loss for the year - - (3,954,061) (3,954,061)
Other comprehensive income - - - -
Total comprehensive loss for the year - - (3,954,061 (3,954,061
------- ------------- ------------ -----------
Transactions with owners
Capital distributions paid in the year 13 - (4,216,345) - (4,216,345)
Total transactions with owners - (4,216,345) - (4,216,345)
------- ------------- ------------ -----------
At 31 December 2011 - 56,289,984 (24,078,696) 32,211,288
======= ============= ============ ===========
The notes on pages 26 to 43 form an integral part of these
financial statements.
STATEMENT OF CASH FLOWS
For the year ended 31 December 2012
Year ended Year ended
Notes 31 December 2012 31 December 2011
----------------------------------------------------- ------- ----------------- -----------------
GBP GBP
Cash flows from operating activities
Net loss before investment result (928,104) (1,134,149)
Adjusted for:
Bank interest receivable (25,082) (17,983)
(Increase)/decrease in other receivables (2,158) 24,132
Increase/(decrease) in other payables 21,559 (199,657)
Purchase of other short term investments (2,688,002) (624,204)
Proceeds from sale of investments 31,963,594 2,710,588
Bank interest received 24,592 17,246
Net cash from operating activities 28,366,399 775,973
----------------- -----------------
Cash flows used in financing activities
Capital distributions paid 13 (27,845,648) (4,216,345)
Net cash used in financing activities (27,845,648) (4,216,345)
----------------- -----------------
Net increase/(decrease) in cash and cash equivalents 520,751 (3,440,372)
Cash and cash equivalents at the start of the year 1,762,408 5,265,044
Effect of exchange rate changes during the year (173,698) (62,264)
----------------- -----------------
Cash and cash equivalents at the end of the year 11 2,109,461 1,762,408
================= =================
The notes on pages 26 to 43 form an integral part of these
financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2012
1. The Company
The Company is a Guernsey closed-ended investment company and
was registered with limited liability in Guernsey on 11 January
2007. The Company commenced business on 29 January 2007 when the
Ordinary Shares of the Company were admitted to trading on AIM.
The Company is an Authorised Closed-Ended Investment Scheme and
is subject to the Authorised Closed-Ended Investment Scheme Rules
2008.
The Company was established to provide Shareholders with an
attractive rate of return on their investment, primarily through
investing in companies which were likely to achieve an IPO or a
sale within a short term time horizon and through a small number of
investments in companies that were already listed. Refer to pages 9
to 11 for full details of the Company's investing policy.
2. Significant Accounting Policies
The following accounting policies have been applied consistently
in dealing with items which are considered material in relation to
the Company's financial statements:
(a) Basis of preparation
(i) Statement of compliance
The financial statements of the Company have been prepared in
accordance with International Financial Reporting Standards
("IFRS") as endorsed by the European Union, except that the Company
has accounted for two controlled investments at fair value through
profit or loss, instead of consolidating these investments as
required by IAS 27 Consolidated and Separate Financial Statements.
If consolidated, the financial statements would present financial
information about the company and its controlled investments as a
single economic entity to show the economic resources controlled by
the group, the obligations of the group and the results the group
achieves with its resources. IFRS include standards and
interpretations approved by the International Accounting Standards
Board ("IASB"), and International Accounting Standards ("IAS") and
Standing Interpretations Committee interpretations approved by the
International Accounting Standards Committee ("IASC") and adopted
by the European Union that remain in effect.
The financial statements of the Company have been prepared under
the historical cost convention modified by the revaluation of
investments and assets and liabilities at fair value through profit
or loss, and in accordance with IFRS, except non consolidation, and
the Companies (Guernsey) Law, 2008.
(ii) IFRS
New accounting policies effective and adopted
There are no new standards effective for the current year which
are relevant to the Company's operations.
At the date of approval of these financial statements, the
following standards and interpretations, which have not been
applied in these financial statements, were in issue but not yet
effective:
-- IFRS 10, "Consolidated Financial Statements" (effective for
periods commencing on or after 1 January 2013);
-- IFRS 11, "Joint arrangements" (effective for periods
commencing on or after 1 January 2013);
-- IFRS 12, "Disclosure of Interest in Other Entities"
(effective for periods commencing on or after 1 January 2013);
-- IFRS 13, "Fair Value Measurement" (effective for periods
commencing on or after 1 January 2013);
-- IFRS 9,"Financial Instruments - Classification and
Measurement" (effective for periods commencing on or after 1
January 2015);
The board is currently considering the impact of the above
standards.
(b) Foreign Currency
(i) Functional and presentation currency
The Company's investors are mainly from the UK, with the share
price of the Ordinary Shares denominated in Sterling. The primary
activity of the Company is to offer UK investors an attractive
return on their investment, primarily through investing in
companies which are likely to achieve an IPO or a sale within a
short term time horizon and through a small number of investment
companies that are already listed. The performance of the Company
is measured and reported to investors in sterling. The Directors
consider sterling to be the currency that most faithfully
represents the economic effects of the underlying transactions,
events and conditions. The financial statements are presented in
sterling, which is the Company's functional and presentation
currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at
period-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in Statement of
Comprehensive Income.
(c) Financial instruments
Financial assets and financial liabilities are recognised in the
Company's Statement of Financial Position when the Company becomes
a party to the contractual provisions of the instrument. Financial
assets and financial liabilities are only offset and the net amount
reported in the Statement of Financial Position and Statement of
Comprehensive Income when there is a currently enforceable legal
right to offset the recognised amounts and the Company intends to
settle on a net basis or realise the asset and liability
simultaneously.
(d) Financial assets
The classification of financial assets at initial recognition
depends on the purpose for which the financial assets were acquired
and their characteristics.
All financial assets are initially recognised at fair value.
Financial assets are recognised on the Company's Statement of
Financial Position when the Company becomes party to the
contractual provisions of the financial asset.
The Company's financial assets are categorised as investments at
fair value through profit or loss and loans and receivables. Unless
otherwise indicated the carrying amounts of the Company's financial
assets approximate to their fair values.
A financial asset (in whole or in part) is derecognised
either:
-- When the Company has transferred substantially all the risk and rewards of ownership;
-- When it has not retained substantially all the risk and
rewards and when it no longer has control over the asset or a
portion of the asset; or
-- When the contractual right to receive cash flow has expired.
(e) Investments
(i) Classification
Investments have been designated as fair value through profit or
loss in accordance with IAS 39 (Revised) "Financial Instruments:
Recognition and Measurement". Investments include quoted
investments and unquoted investments.
Investments 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
Investment Advisor and the Board of Directors to evaluate the
information about these investments on a fair value basis together
with other related financial information.
Warrant investments meet the definition of "Derivatives" under
IAS 39 and have been designated as held for trading in accordance
with IAS 39 (Revised) "Financial Instruments: Recognition and
Measurement". They are accounted for at fair value through profit
or loss.
(ii) Measurement
Investments at fair value through profit or loss are initially
recognised at fair value. Transaction costs are expensed in the
Statement of Comprehensive Income. Subsequent to initial
recognition, all investments at fair value through profit or loss
are measured at fair value. Realised and unrealised gains and
losses arising on 'investments at fair value through profit or
loss' are presented in the Statement of Comprehensive Income in the
period in which they arise. Interest income from debt investments
at fair value through profit or loss is recognised in the Statement
of Comprehensive Income within interest income using the effective
interest method. Dividend income from equity investments at fair
value through profit or loss is recognised in the Statement of
Comprehensive Income within dividend income when the Company's
right to receive payments is established.
(iii) Classification of fair value measurements
IFRS 7 requires the Company to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
has the following levels:
-- Quoted prices (unadjusted) in active markets for identical
assets or liabilities (level 1);
-- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level
2); and
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (level
3).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, the measurement is a level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement considering factors
specific to the asset or liability.
The determination of what constitutes "observable" requires
significant judgement by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
(iv) Recognition/derecognition
Purchases and sales of investments are recognised on trade date
- 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.
(v) Fair value estimation
Fair value estimation is derived in accordance with the
International Private Equity and Venture Capital valuation
guidelines ("IPEV valuations"). A summary of the more relevant
aspects of IPEV valuations is set out below:
Quoted (listed) investments - where an active market exists for
the security, the value is stated at the bid price on the last
trading day in the period. Marketability discounts should generally
not be applied unless there is some contractual, governmental or
other legally enforceable restriction preventing realisation at the
reporting date.
Unquoted investments - are carried at such fair value as the
Directors and investment Advisor consider appropriate given the
performance of each investee company and after taking account of
the effect of dilution, the exercise of ratchets, options or other
incentive schemes. Methodologies used in arriving at the fair value
include prices of recent investment, discounted cost, earnings
multiples, net assets, discounted cash flows analysis and industry
valuation benchmarks.
(v) Fair value estimation (continued)
Notwithstanding the above, the variety of valuation basis
adopted and quality of management information provided by the
underlying investee company means there are inherent difficulties
in determining the value of these investments. Amounts realised on
the sale of these investments will differ from the values reflected
in these financial statements and the difference may be
significant.
(vi) Investments held for sale
Investments held for sale must be available for immediate sale
in its present condition; management must be committed to and have
initiated a plan to sell the asset (and such a plan is unlikely to
have significant changes made to it or be withdrawn); an active
programme to locate a buyer has been initiated; the asset is being
marketed at a reasonable price in relation to its fair value, and
the asset is expected to sell within twelve months. Investments
that are classified as held for sale are measured at fair
value.
(f) Loans and receivables
Loans and receivable assets are non-derivative financial assets
with fixed or determinable payments that are not quoted in an
active market. They principally comprise trade and other
receivables, 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
and subsequently carried at amortised cost plus using the effective
interest rate method, less provisions for impairment. The effect of
discounting on these financial instruments is not considered to be
material.
(g) Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand
deposits having a original maturity of less than 3 months and
highly liquid investments readily convertible to known amounts of
cash and subject to insignificant risk of changes in value. For the
purposes of the Statement of Cash Flows, cash and cash equivalents
consist of cash in hand, deposits in bank which have an original
maturity of less than 3 months and overdrafts.
(h) Impairment of loans and receivables
Financial assets are assessed at each reporting date to
determine whether there is any objective evidence that they are
impaired. A financial asset is considered to be impaired if
objective evidence indicates that one or more events have had a
negative effect on the estimated future cash flows of that
asset.
An impaired loss in respect of a financial asset measured at
amortised cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows
discounted at the original effective interest rate.
Individually significant financial assets are tested for
impairment on an individual basis. The remaining financial assets
are assessed collectively in groups that share similar credit risk
characteristics.
All impairment losses are recognised in the Statement of
Comprehensive Income.
An impairment loss is reversed if the reversal can be related
objectively to an event occurring after the impairment loss was
recognised. The reversal is recognised in the Statement of
Comprehensive Income.
(i) Financial liabilities
The classification of financial liabilities at initial
recognition depends on the purpose for which the financial
liability was issued and its characteristics.
All financial liabilities are initially recognised at fair value
net of transaction costs incurred. All purchases of financial
liabilities are recorded on trade date, this being the date on
which the Company becomes party to the contractual requirements of
the financial liability. Unless otherwise indicated the carrying
amounts of the Company's financial liabilities approximate to their
fair values.
Financial liabilities include other payables.
A financial liability (in whole or in part) is derecognised when
the Company has extinguished its contractual obligations, it
expires or is cancelled. Any gain or loss on derecognition is taken
to the Statement of Comprehensive Income.
(j) Other payables
Other payables are initially recognised at fair value and
subsequently carried at amortised cost.
(k) Equity
An equity instrument is any contract that evidences a residual
interest in the assets of the Company after deducting all of its
liabilities. Equity is recorded at the proceeds received, net of
issue costs.
(l) Income
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial
asset to the asset's net carrying amount.
(m) Expenses
All expenses are accounted for on an accruals basis and are
presented as revenue items except for expenses that are incidental
to the disposal of an investment which are deducted from the
disposal proceeds.
(n) Determination and presentation of operating segments
IFRS 8 requires a "management approach", under which segment
information is presented on the same basis as that used for
internal reporting purposes.
The key measure of performance used by the Board in its capacity
of Chief Operating Decision Maker ("CODM") is to assess the
Company's performance and to allocate resources based on the total
return of each individual investment within the Company's
portfolio, as opposed to geographic regions. As a result, the Board
is of the view that the Company is engaged in a single segment of
business, being investment in companies which were likely to
achieve an IPO or a sale within a short term time horizon and
through a small number of investments in companies that were
already listed. Therefore, no reconciliation is required between
the measure of gains or losses used by the Board and that contained
in these financial statements.
The Company receives no revenues from external customers.
3. Critical Accounting Judgements and Estimates
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results could differ
from such estimates.
The estimates and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimate was revised if the revision
affects only that period or in the period of the revision and
future periods if the revision affects both current and future
periods.
Critical judgements in applying accounting policies:
(a) Investments
The value of the Company's investments are based on the value of
the investee companies as determined by the Investment Advisor.
When valuing the investee companies, the Investment Advisor reviews
information provided by the underlying investee companies and
applies widely recognised valuation methods such as price of recent
investment, discounted cost, earnings multiple analysis, discounted
cash flow method and third party valuation to estimate a fair value
as at the date of the Statement of Financial Position. The variety
of valuation bases adopted, quality of management information
provided by the underlying investee companies and the lack of
liquid markets for the investments mean that there are inherent
difficulties in determining the fair value of these investments
that cannot be eliminated. Therefore the amounts realised on the
sale of investments will differ from the fair values reflected in
these financial statements and the differences may be
significant.
(b) Investment held for sale
The Board determines that an investment is held for sale if it
is available for immediate sale in its present condition; there is
a plan to sell the asset; an active programme to locate a buyer has
been initiated; the asset is being marketed at a reasonable price
in relation to its fair value, and the asset is expected to sell
within twelve months.
(c) Sales proceeds receivable
These represent receivables for securities sold that have been
contracted for but not yet settled. These are initially recognised
at fair value and subsequently measured at amortised cost using the
effective interest method less provision for impairment. In August
2012, the Company sold its shareholding in AgraQuest for initial
cash consideration of GBP27.3 million. Under the terms of the sale
agreement, the maximum additional consideration the Company could
receive is GBP6.6 million based on outcomes of certain milestones
and escrow terms. However the Board have estimated the expected
cashflows and have provided for approximately GBP1.8 million held
currently held in escrow against future indemnification claims up
to February 2014 and a further GBP1.5 million up to April 2016.
(d) Recoverability of loan notes
The Board and investment advisor have undertaken an impairment
review of these loans and, taking into consideration the
performance, financial position and subsequent ability of the
associated companies to settle the loans and interest payments as
they fall due and have determined no impairment is required.
(e) Going concern
The financial position of the Company and its cash flows are set
out on pages 22 to 25 of the Financial Statements. Note 16 to the
financial statements includes the Company's policies and process
for managing its capital and its financial risk management
objectives in accordance with the Companies investment objectives.
Exposure to credit risk and liquidity risk are also disclosed.
As detailed in the Report of the Directors, at the annual
general meeting of the Company to be held to consider the accounts
for the financial period ending 31 December 2013 an ordinary
resolution shall be proposed that the Company shall continue in
existence. If that resolution is not passed, the Directors are
required to formulate proposals to be put to members to wind up the
Company. If the resolution to continue in existence is passed, a
similar ordinary resolution will be proposed at every second annual
general meeting thereafter.
(e) Going concern (continued)
In line with Investment Objective, detailed on page 9, as
approved by Shareholders at an extraordinary general meeting on 5
November 2008, the Company will not make any new investments other
than follow-on investments where appropriate. The Board and the
Investment Advisor will be committed to distributing as much of the
available cash to Shareholders following realisations in full on
the exit of portfolio investments.
While the Directors cannot be certain what the results of the
vote on the above detailed resolution will be or on the timeframes
on portfolio investment exits and subsequent distributions to
Shareholders, the financial statements are prepared on a going
concern basis supported by the Directors' current assessment of the
Company's ability to pay its debts as they fall due for the
foreseeable future and on-going shareholder interest in the
continuation of the Company.
4. Related Parties
Robert Fearis, a former Director of the Company, is a
shareholder in, and a director of, Praxis Holdings Limited, the
holding company of the Administrator. Roger Le Tissier, a former
Director of the Company, is a director of Capita Registrars
(Guernsey) Limited, the Company's Registrar, and a partner in
Ogier, the Guernsey Advocate to the Company. Edward Forwood, a
former Director of the Company, is a shareholder in, and the
Managing Director of the Investment Advisor. Brett Miller and Rhys
Davies are Directors of the Company and shareholders in, and
directors of, Damille Investments Limited, as at 31 December 2012 a
29.3% Shareholder in the Company.
Christopher Fish is an independent Director.
The Company is responsible for the continuing fees of the
Investment Advisor, Administrator and the Registrar in accordance
with the Investment Advisory, Administration and Registrar
Agreements dated 24 January 2007.
Investment Advisory Agreement
Pursuant to the provisions of the Investment Advisory Agreement,
the Investment Advisor is entitled to receive a management fee
during the year at 2.0% per annum of the net asset value of the
Company, payable quarterly in advance. As at 31 December 2012, the
Investment Advisory fee payable was GBPnil (31 December 2011:
GBPnil). For the year ended 31 December 2012, the investment
advisory fee expense was GBP659,731 (31 December 2011:
GBP738,060).
The Investment Advisor is also entitled to a performance fee
calculated by taking an amount equal to 20% of the adjusted closing
net asset value (NAV) per Ordinary Share over the opening NAV per
Ordinary Share, (where the adjusted NAV is the NAV of the Company
excluding any liability for accrued performance fees and after
adding back any dividends or distributions of capital declared or
paid during the performance period), such that the Company and the
Investment Manager share all profits in the ratio of 80% and 20%
respectively. The Investment Advisor will become entitled to a
performance fee in respect of a performance period only if the
adjusted closing NAV per Ordinary Share at the end of the relevant
performance period exceeds the opening NAV per Ordinary Share at
the start of the relevant period increased by a hurdle amount of
7.5% and if the adjusted closing NAV exceeds the "High Watermark".
The High Watermark is the highest previously recorded Opening NAV
as reduced by the sum of all dividends and distributions per share
since such highest opening NAV per share was established, but not
reduced by dividends and distributions of capital made in the
current performance year.. The first performance period began on
Admission and ended on 31 December 2007. Each subsequent
performance period is a period of one financial year
City Financial Limited
On 30 November 2009, Loudwater Investment Partners Limited was
appointed to manage City Financial's UK Select Alpha Fund (now
renamed City Financial UK Equity Income Fund). Assets under
management are GBP18.9 million and Loudwater Investment Partners
Limited receives a fee of 0.75% of AUM per annum for this service.
The Company's interest in City Financial Limited was disposed of
during the year ended 31 December 2012.
Administration Agreement
Pursuant to the provisions of the Administration Agreement,
Praxis Fund Services Limited is entitled to receive a standard
administration fee of GBP26,250 per annum together with a fee for
company secretarial services charged on a time basis. As at 31
December 2012, the administration fee payable was GBP7,710 (31
December 2011: GBP13,451). For the year ended 31 December 2012, the
administration fee expense was GBP51,248 (31 December 2011:
GBP65,840).
Registrar Agreement
Pursuant to the provisions of the Registrar Agreement, Capita
Registrars (Guernsey) Limited is entitled to a standard fee of
GBP3,500 per annum together with a per deal fee per Shareholder
transaction. As at 31 December 2012, the registrar fee payable was
GBP2,000 (31 December 2011: GBP1,764). For the year ended 31
December 2012, the registrar fee expense was GBP24,417 (31 December
2011: GBP11,227).
Nominated Advisor & Broker Fees
Pursuant to the provisions of the Engagement Letter dated 9
November 2007, as subsequently amended, Panmure Gordon (UK) Limited
is entitled to a standard fee of GBP30,000 per annum for acting as
nominated advisor and broker.
As at 31 December 2012, the Nominated Advisor and Broker fee
payable was GBPnil (31 December 2011: GBPnil). For the year ended
31 December 2012, the Nominated Advisor and Broker fee expense was
GBP30,000 (31 December 2011: GBP40,000).
5. Directors' Fees & Interests
Each of the Directors who served during the year had entered
into an agreement with the Company providing for them to act as a
non-executive Director of the Company. Their annual fees, excluding
all reasonable expenses incurred in the course of performing their
duties which will be reimbursed by the Company, are as follows:
31 December 2012 31 December 2011
Annual Fee Actual Fee Annual Fee Actual Fee
----------- ----------- ----------- -----------
GBP GBP GBP GBP
Rhys Davies** 30,000 19,500 9,000 5,500
Christopher Fish 18,000 18,000 18,000 18,000
Brett Miller** 18,000 13,500 9,000 5,500
Lord Flight* 30,000 17,500 30,000 30,000
Edward Forwood* Nil Nil Nil Nil
Roger Le Tissier* 18,000 10,500 18,000 18,000
Robert Fearis* 18,000 10,500 18,000 18,000
*resigned 27 April 2012
**Increase in annual fee effective 1 July 2012.
In addition to the above GBP34,252 (31 December 2011: GBP21,439)
of expenses, including D&O insurance, were paid in relation to
the Directors.
The total Directors' fees and expenses charged to the Statement
of Comprehensive Income during the year was GBP123,752 (31 December
2011: GBP116,439) of which GBP23,943 remained outstanding at 31
December 2012 (31 December 2011: GBPnil).
The interests of the Directors and their families who held
office during the year are set out below:
31 December 2012 31 December 2011
Ordinary Shares Ordinary Shares
------------------ -----------------
No. No.
Rhys Davies - -
Christopher Fish - -
Brett Miller - -
Lord Flight N/A 80,000
Edward Forwood N/A 400,000
Roger Le Tissier N/A -
Robert Fearis N/A -
There were no other changes in the interests of the Directors
prior to the date of this report.
On 27 April 2012, Lord Flight, Edward Forwood, Roger Le Tissier
and Robert Fearis resigned as Directors of the Company. Rhys Davies
was also appointed as non-executive Chairman of the Company,
replacing Lord Flight on the same date.
6. Basic and Diluted Earnings/(Loss) per Ordinary Share
Basic and diluted earnings/(loss) per Ordinary Share is based on
the income for the year and on a weighted average number of
Ordinary Shares in issue during the year.
31 December 2012 31 December 2011
---------------- ----------------
Number of Number of
Ordinary Shares Ordinary Shares
Weighted average number of Ordinary Shares 60,232,855 60,232,855
---------------- ----------------
Total comprehensive income/(loss) 17,138,752 (3,954,061)
---------------- ----------------
Basic and diluted earnings/(loss) per Ordinary Share 0.2845p (0.0656)p
---------------- ----------------
The weighted average number of Ordinary Shares as at 31 December
2012 is based on the number of Ordinary Shares in issue during the
year under review, as detailed in note 13.
There are no instruments in issue that could potentially dilute
earnings per Ordinary Share in future years.
7. Net Gains and Losses on Loans and Receivables
31 December 2012 31 December 2011
----------------- -----------------
GBP GBP
On cash and cash equivalents 25,082 17,983
On loan notes 205,378 196,219
----------------- -----------------
Total interest income 230,460 214,202
----------------- -----------------
Bad debt expenses - (229,614)
Net gains/(losses) on loans and receivables 230,460 (15,412)
================= =================
8. Investments at Fair Value Through Profit or Loss
31 December 2012 31 December 2011
------------------ ------------------
GBP GBP
Listed investments - 1,891,953
Unlisted investments 10,290,730 24,076,577
10,290,730 25,968,530
================== ==================
Year ended Year ended
31 December 2012 31 December 2011
------------------ ------------------
GBP GBP
Movement in unrealised (losses)/gains on investments (791,405) 6,638,569
Realised gains/(losses) on investments 18,826,581 (8,012,822)
------------------ ------------------
Net gains/(losses) on investments held at fair value through profit or
loss 18,035,176 (1,374,253)
================== ==================
9. Equity Investment Classified as Held for Sale
31 December 2012 31 December 2011
------------------ ------------------
GBP GBP
Equity investments held for sale 2,705,150 2,000,000
2,705,150 2,000,000
================== ==================
Movement in net unrealised gain/(loss) on investments held for sale at 1 January 2012 1 January 2011
fair value through To To
profit or loss: 31 December 2012 31 December 2011
------------------ ------------------
GBP GBP
Movement in unrealised loss on equity investment held for sale - (1,350,000)
------------------ ------------------
- (1,350,000)
================== ==================
At the year end there are two investments held for sale.
Firstly, an investment with a carrying value of GBP1,155,000 which
was sold in January 2013. The carrying value has been derived based
on the expected sales proceeds taking into account amounts held in
escrow and subject to certain conditions.
The second investment is where the Investment Advisor is working
with the management team of the portfolio company to develop a
structure for a phased buyout of the Fund's investment in its
entirety. A portion was sold during 2012 with the remainder
expected during 2013.
Movement on held for sale investments are detailed within note
16 on page 42.
10. Other Receivables
31 December 2012 31 December 2011
----------------- -----------------
GBP GBP
Current
Investment sales proceeds 263,268 -
Loan note 430,637 -
Loan note interest 76,856 -
Other debtors - 152,577
Bank interest receivable 1,427 936
Prepayments 8,764 6,605
----------------- -----------------
780,952 160,118
----------------- -----------------
Non-current
Investment sales proceeds 3,725,590 -
Loan note 1,684,374 2,211,897
Loan note interest 264,545 143,186
----------------- -----------------
5,674,509 2,355,083
----------------- -----------------
Total receivables 6,455,461 2,515,201
================= =================
The investment sales proceeds are based on the Directors best
estimate of outcome of certain escrow events and milestones being
met (note 3c). The Directors have also reviewed the carrying value
of loan notes for impairment based on future recoverability (note
3d).
The Directors consider that the carrying amount of other
receivables approximates fair value. The Company's exposure to
credit risk related to other receivables is disclosed in note
16.
11. Cash and Cash Equivalents
31 December 2012 31 December 2011
----------------- -----------------
GBP GBP
Cash at bank 2,109,461 1,762,408
2,109,461 1,762,408
================= =================
The Company's exposure to interest rate risk and sensitivity
analysis for financial assets and liabilities are disclosed in note
16.
12. Other Payables
31 December 2012 31 December 2011
----------------- -----------------
GBP GBP
Directors' fees and expenses 23,943 -
Audit fee 17,375 17,200
Administration fee 7,710 13,451
Registrar's fee 2,000 1,764
Sundry 5,382 2,436
----------------- -----------------
56,410 34,851
================= =================
The Company's exposure to liquidity risk related to other
payables is disclosed in note 16.
The Directors consider that the carrying amount of other
payables approximates fair value.
13. Share Capital & Distributable Reserve
31 December
2012
Authorised Share Capital &
31 December
2011
------------
GBP
Unlimited Shares of no par value
that may be issued as Ordinary Shares -
============
1 January 2012 1 January 2011
To To
Share Capital 31 December 2012 31 December 2011
----------------- -----------------
Allotted, issued and fully paid Shares:
Brought forward & carried forward GBP- GBP-
================= =================
Ordinary Shares brought forward and carried forward 60,232,855 60,232,855
================= =================
1 January 2012 1 January 2011
To To
Distributable Reserve 31 December 2012 31 December 2011
----------------- -----------------
GBP GBP
Brought forward 56,289,984 60,506,329
Capital distributions paid (27,845,648) (4,216,345)
----------------- -----------------
Carried forward 28,444,336 56,289,984
================= =================
The authorised share capital of the Company on incorporation was
divided into an unlimited number of Shares of no par value which
upon issue, for cash or otherwise, the Directors may categorise as
Ordinary Shares or otherwise. The Company's Articles of Association
confer pre-emption rights to Shareholders in the event of any issue
of shares which would increase the issued share capital by 25 per
cent. or more.
Subject to the provisions of the Law and without prejudice to
any rights attaching to any existing Shares or to the provisions of
the Articles, any share in the Company may be issued with or have
attached thereto such preferred, deferred, conversion or other
special rights, or such restrictions whether in regard to dividend,
return of capital, voting, conversion or otherwise as the Company
may from time to time by ordinary resolution determine or, subject
to or in default of any such direction, as the Directors may
determine.
The Company may issue fractions of shares and any such
fractional shares shall rank pari passu in all respects with the
other shares issued by the Company.
The initial offering of the Ordinary Shares was at a price of
GBP1.00 per Ordinary Share.
On 16 January 2007, the holders of the Ordinary Shares in the
Company passed a written resolution approving the cancellation of
the entire amount which stood to the credit of the share premium
account immediately after the Placing, conditionally upon the issue
of the Shares and the payment in full thereof and with approval of
the Royal Court. The cancellation was confirmed by the Royal Court
on 27 April 2007. The cancelled share premium was transferred to
the Distributable Reserve.
The Distributable Reserve may be applied in any manner in which
the Company's profits available for distribution are able to be
applied, including purchase of the Company's own Shares and the
payment of capital distributions through the Capital Return Scheme
as detailed below.
At the Annual General Meeting on 20 June 2011, the Shareholders
approved the Capital Return Scheme whereby, a bonus issue of new,
fully paid, redeemable B Shares ("B shares") is issued to
Shareholders pro rata in proportion to Shareholders' existing
holdings of Ordinary Shares on the relevant record date. These B
shares are expected to be redeemed by the Company shortly after
they are issued with the redemptions paid in cash as a return of
capital. Whilst it is not possible to determine the timing of
exits, the Board, advised by the Investment Advisor, will seek to
return capital to Shareholders through the Capital Return Scheme
when appropriate upon the realisation of investments.
During the year 2011, the Company made a capital return by way
of bonus issue of B shares. The capital returned to Shareholders
was GBP4.2 million, equating to approximately 7.0 pence per B
share, and included the cash element received from the disposal of
Top Layer Networks.
On 10 February 2012, by way of bonus issue of B shares, the
Company made a capital return of GBP2.5 million to Shareholders,
equating to approximately 4.15 pence per B share held. This capital
return was made following the sale of the Company's investment in
City Financial Investment Company Limited.
On 30 March 2012, by way of bonus issue of B shares, the Company
made a capital return of GBP1.9 million to Shareholders, equating
to approximately 3.08 pence per B share held. This capital return
was made following the sale of the Company's listed shares in
Corero Network Security Plc.
On 10 September 2012, by way of bonus issue of B shares, the
Company made a capital return of GBP23.49 million to Shareholders,
equating to 39.0 pence per B share held. This capital return was
made following the sale of the Company's shares in AgraQuest,
Inc.
14. Revenue Reserve
1 January 2012 1 January 2011
To To
31 December 2012 31 December 2011
----------------- -----------------
GBP GBP
Retained revenue reserve brought forward (24,078,696) (20,124,635)
Total comprehensive income/(loss) for the year 17,138,752 (3,954,061)
----------------- -----------------
Retained revenue reserve carried forward (6,939,944) (24,078,696)
================= =================
15. Net Asset Value per Ordinary Share
The net asset value per Ordinary Share is based on the net
assets attributable to equity Shareholders of GBP21,504,392 (31
December 2011: GBP32,211,288) and on the year end number of
Ordinary Shares in issue of 60,232,855 (31 December 2011:
60,232,855).
16. Financial Risk Management
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
program focuses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the Company's
financial performance.
The Company's investment objective was to provide Shareholders
with an attractive return on their investment, primarily through
investing in companies which were likely to achieve an IPO or a
sale within a short term time horizon and through a small number of
investment companies that were already listed.
Categories of financial instruments 31 December 2012 31 December 2011
---------------- ----------------
GBP GBP
Financial assets
At fair value through profit or loss ("FVTPL")
* Investments 10,290,730 25,968,530
* Held for sale 2,705,150 2,000,000
Loans and receivables
* Other receivables (excluding prepayments) 6,446,697 2,508,596
* Cash and cash equivalents 2,109,461 1,762,408
---------------- ----------------
Total assets 21,552,038 32,239,534
================ ================
Financial liabilities
Financial liabilities at amortised cost
* Accruals and other payables 56,410 34,851
---------------- ----------------
Total liabilities 56,410 34,851
================ ================
Market Price Risk
All securities investments present a risk of loss of capital.
The Investment Advisor moderated this risk through a careful
selection of securities and other financial instruments within
specified limits. The maximum risk resulting from financial
instruments is determined by the fair value of the financial
instruments. The Company's portfolio and investment strategy is
reviewed continuously by the Investment Advisor and on a quarterly
basis by the Board.
The Company's exposure to market price risk arises from
uncertainties about future prices of its investments. This risk is
managed through diversification of the investment portfolio.
Generally the Company will seek not to invest (or commit to invest)
more than 10% of the Company's gross assets to any single
investment at the time of investment (or commitment), although such
limit may be exceeded in certain cases where the Board deems
appropriate on the advice of the Investment Advisor. Typically,
investments in pre-IPO opportunities will be made by way of a
convertible loan note that will convert on an exit event at a
discount to the relevant exit price. The loans may also have an
attached equity interest in the form of a warrant. However, a
proportion of investments will be made at a fixed price. This is
necessary in order to capture attractive pre-IPO opportunities that
are not available with a loan note security. In addition, the
Company may invest in companies that are already listed. These
investments will be made on an opportunistic basis and are expected
to represent a small number of the Company's transactions not
exceeding 15% of the net asset value of the Company. As investee
companies achieve successful listings, however, the net asset value
attributable to holdings in listed companies may be
substantial.
At 31 December 2012, the Company's market risk is affected by
three main components: changes in actual market prices, interest
rate and foreign currency movements. Interest rate and foreign
currency movements are covered below. A 25% increase in the value
of investments, with all other variables held constant, would bring
about a GBP3,248,970 or 15.11% (31 December 2011: GBP6,992,133 or
21.71%) increase in net assets attributable to equity Shareholders.
If the value of investments had been 25% lower, with all other
variables held constant, net assets attributable to equity
Shareholders would have fallen by GBP3,248,970 or 15.11% (31
December 2011: GBP6,992,133 or 21.71%).
Interest Rate Risk
The Company is exposed to risks associated with the effects of
fluctuations in the prevailing levels of market interest rates on
its financial instruments and future cash flows. The table below
summarises the Company's exposure to interest rate risk by the
earlier of contractual maturities:
At 31 December WAEIR* Less than 3 months 1 - 3 years 3 - 5 years No fixed maturity Total
2012 1 month - 1 year
------------------------ ------- ---------- ---------- ------------ ------------ ------------------ -----------
% GBP GBP GBP GBP GBP GBP
Assets:
Fixed interest
rate loan notes 8.81 - 507,493 1,948,919 - - 2,456,412
Fixed interest
rate sales
proceeds 0.00 - - 2,824,283 1,164,575 - 3,988,858
Floating interest
rate cash at bank 0.78 2,109,461 - - - - 2,109,461
Non-interest
bearing - 1,427 - - - 12,995,880 12,997,307
---------- ---------- ------------ ------------ ------------------ -----------
Total assets
excluding
prepayments 2,110,888 507,493 4,773,202 1,164,575 12,995,880 21,552,038
========== ========== ============ ============ ================== ===========
Liabilities:
Non-interest
bearing - 56,410 - - - - 56,410
---------- ---------- ------------ ------------ ------------------ -----------
Total liabilities 56,410 - - - - 56,410
========== ========== ============ ============ ================== ===========
At 31 December 2011 WAEIR* Less than 1 month 3 months 1 - 3 years No fixed maturity Total
- 1 year
------------------------------ ------- ------------------ ---------- ------------ ------------------ -----------
% GBP GBP GBP GBP GBP
Assets:
Fixed interest rate loan
notes 8.79 - - 2,355,083 - 2,355,083
Fixed interest rate
other receivables 0.00 - 152,577 - - 152,577
Floating interest rate
cash at bank 0.62 1,762,408 - - - 1,762,408
Non-interest bearing - 938 - - 27,968,530 27,969,468
------------------ ---------- ------------ ------------------ -----------
Total assets excluding
prepayments 1,763,344 152,577 2,355,083 27,968,530 32,239,536
================== ========== ============ ================== ===========
Liabilities:
Non-interest bearing - 34,851 - - - 34,851
------------------ ---------- ------------ ------------------ -----------
Total liabilities 34,851 - - - 34,851
================== ========== ============ ================== ===========
*Weighted average effective interest rate
The sensitivity analyses below have been determined based on the
Company's exposure to interest rates for interest bearing assets
and liabilities (included in the interest rate exposure table
above) at the period end date and the stipulated change taking
place at the beginning of the financial period and held constant
through the reporting period in the case of instruments that have
floating rates.
A 250 basis point increase or decrease is used when reporting
interest rate risk internally to key management personnel and
represents management's assessment of the possible change in
interest rates.
If interest rates had been 250 basis points higher, for assets
and liabilities as at 31 December 2012 that are subject to changing
interest rates, and all other variables were held constant, the
Company's increase in net assets attributable to equity holders for
the year ended 31 December 2012 would have been an increase of
GBP52,737 (31 December 2011: GBP44,060) due to the increase in the
interest earned on the Company's cash balances.
At 31 December 2012, as the weighted average effective interest
rate for assets and liabilities as at 31 December 2012 that are
subject to changing interest rates was at 0.78% (31 December 2011:
0.62%) the maximum that interest rates could reduce is by 78 basis
points (31 December 2011: 62 basis points). Therefore if interest
rates had been 78 basis points lower (31 December 2011: 62 basis
points), for assets and liabilities as at 31 December 2012 that are
subject to changing interest rates, and all other variables were
held constant, the Company's increase in net assets attributable to
equity holders for the year ended 31 December 2012 would have been
a decrease of GBP16,454 (31 December 2011: GBP10,927) due to the
decrease in the interest earned on the Company's cash balances.
Foreign Currency Risk
Foreign currency risk is the risk that the fair value of future
cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates.
The Company's assets may be invested in securities and other
investments that are denominated in currencies different to the
reporting currency. Accordingly, the value of an investment may be
affected favourably or unfavourably by fluctuations in exchange
rates. The Company may, through forward foreign exchange contracts,
hedge its exposure back to sterling but has not done so during the
financial period.
Currency Exposure
A significant proportion of the net assets of the Company are
denominated in currencies other than sterling. The carrying amounts
of these assets and liabilities are as follows:
Assets Liabilities
31 December 31 December
2012 2012
----------- -----------
GBP GBP
Sterling 6,206,295 56,410
US Dollars 15,354,507 -
Equity attributable to Ordinary
Shareholders 21,560,802 56,410
=========== ===========
Assets Liabilities
31 December 31 December
2011 2011
----------- -----------
GBP GBP
Sterling 12,454,676 34,851
US Dollars 19,791,463 -
Equity attributable to Ordinary
Shareholders 32,246,139 34,851
=========== ===========
The Company is exposed to US Dollar currency risk.
The sensitivity analysis below has been determined based on the
sensitivity of the Company's outstanding foreign currency
denominated financial assets and liabilities to a 25% increase /
decrease in the Sterling against US Dollar, translated at the
period end date.
25% is the sensitivity rate used when reporting foreign currency
risk internally to key management personnel and represents
management's assessment of the possible change in foreign exchange
rates.
As at 31 December 2012, if Sterling had weakened by 25% against
the US Dollar, with all other variables held constant, the increase
in net assets attributable to equity Shareholders would have been
GBP3,838,627 or 17.80% (31 December 2011: GBP4,947,866 or 15.36%)
higher. Conversely, if Sterling had strengthened by 25% against the
US Dollar, with all other variables held constant, the increase in
net assets attributable to equity Shareholders would have been
GBP3,838,627 or 17.80% (31 December 2011: GBP4,947,866 or 15.36%)
lower.
Credit Risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company. The maximum exposure to credit risk that the
Company faces is equal to the fair value of the financial
instruments held by the Company.
The Company manages the credit risk of third party borrowers by
regularly reviewing their underlying performance.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter in
realising assets or otherwise raising funds to meet financial
commitments. Refer to the interest rate risk table for a detailed
maturity analysis of the Company's assets and liabilities. All the
fixed deposits held by the Company mature within 1 year.
The Investment Advisor regularly monitors the Company's
liquidity position, and the Board of Directors reviews it on a
regular basis. The Company maintains a significant cash and cash
equivalents balance in order meet on-going financial commitments as
they fall due and as per the Statement of Financial Position
current assets are significantly higher than current
liabilities.
Classification of Fair Value Measurements
The following table analyses, within the fair value hierarchy,
the Company's financial assets (by class) measured at fair value at
31 December 2012:
Fair Value as at 31 December
2012
Level Level Level Total
1 2 3
------- ------- ----------- -----------
GBP GBP GBP GBP
Designated at fair
value through profit
or loss upon initial
recognition:
Investments - - 10,290,730 10,290,730
Held for sale investments - - 2,705,150 2,705,150
------- ------- ----------- -----------
- - 12,995,880 12,995,880
======= ======================================= =========== ===========
Fair Value as at 31 December
2011
Level Level Level Total
1 2 3
---------- ------ ----------- -----------
GBP GBP GBP GBP
Designated at fair
value through profit
or loss upon initial
recognition:
Investments 1,891,952 - 24,076,678 25,968,630
Held for sale investments - - 2,000,000 2,000,000
---------- ------ ----------- -----------
1,891,952 - 26,076,678 27,968,630
========== ====== =========== ===========
The table below provides a reconciliation from brought forward
to carried forward balances of financial instruments categorised
under level 3:
1 January 2012 To 31 December 2012
Assets at Fair Value categorised as Level 3: Investments Held for sale investments Total
------------- -------------------------- -------------
GBP
Fair value brought forward 24,076,578 2,000,000 26,076,578
Purchases or conversions - -
Sales or conversions (30,884,158) (449,850) (31,334,008)
Net gain on fair value through profit or loss
investments 18,253,310 - 18,253,310
Transfers (1,155,000) 1,155,000 -
------------- -------------------------- -------------
Fair value carried forward 10,290,730 2,705,150 12,995,880
============= ========================== =============
1 January 2011 To 31 December 2011
Assets at Fair Value categorised as Level 3: Investments Held for sale investments Total
-------------- -------------------------- --------------
GBP
Fair value brought forward 29,699,646 - 29,699,646
Purchases or conversions - - -
Sales or conversions (846,920) - (846,920)
Net gain on fair value through profit or loss
investments (1,426,148) (1,350,000) (2,776,148)
Transfers (3,350,000) 3,350,000 -
-------------- -------------------------- --------------
Fair value carried forward 24,076,578 2,000,000 26,076,578
============== ========================== ==============
Capital Management
The Company monitors "adjusted capital" which comprise all
components of equity (i.e. Distributable and Revenue reserves). The
Company's objectives when maintaining capital are:
-- to safeguard the Company's ability to continue as a going
concern, so that it can continue to provide returns for
Shareholders and benefits for other stakeholders; and
-- to provide an adequate return to Shareholders by pricing
products and services commensurately with the level of risk.
The Directors set and manage the amount of capital required in
proportion to risk. The Directors may exercise the powers of the
Company to borrow money and to give security over its assets. The
Company may borrow funds secured on its investments if the Board
(with the advice the Investment Advisor) considers that
satisfactory opportunities for investment arise at a time when the
Company is close to being fully invested. In any event, borrowing
will be limited to 50 per cent. of the Company's investments at the
time of draw down. The Company may also be indirectly exposed to
the effects of gearing to the extent that investee companies have
outstanding borrowings.
The Company has been granted authority to make market purchases
of up to 14.99% of its own Ordinary Shares.
As at 31 December 2012 and 31 December 2011, the Company had no
borrowings and held none of its own shares in treasury.
In accordance with the Company's Investing Policy, cash proceeds
from realisation in full following the exit of a portfolio
investment are returned to Shareholders, subject to the retention
of sufficient cash for follow-on investments in existing portfolio
companies where the Investment Advisor believes that further
funding is required and operating expenses of the Company. At the
Annual General Meeting on 20 June 2011, the Shareholders approved
the Capital Return Scheme whereby, a bonus issue of new, fully
paid, redeemable B Shares ("B shares") are issued to Shareholders
pro rata in proportion to Shareholders' existing holdings of
Ordinary Shares on the relevant record date. These B shares are
expected to be redeemed by the Company shortly after they are
issued with the redemptions paid in cash as a return of capital.
Whilst it is not possible to determine the timing of exits, the
Board, advised by the Investment Advisor, will seek to return
capital to Shareholders through the Capital Return Scheme when
appropriate upon the realisation of investments.
16. Dividends
Following the approval of Shareholders at an extraordinary
general meeting on 5 November 2008, the Directors intend to
distribute cash proceeds of realisations in full following
disposals of portfolio investments, subject to the retention of
sufficient cash for follow-on investments in existing portfolio
companies and after taking into account all costs, liabilities and
expenses of the Company. Such distributions shall be made by share
buy-back or dividend from time to time as the Directors consider
economic and appropriate.
For the year ended 31 December 2012, the realised gains of the
Company that had physically been received were as follows:
1 January 1 January
2012 2011
To To
31 December 31 December
2012 2011
------------- --------------
GBP GBP
Total comprehensive income/(loss)
for the year 17,138,752 (3,954,061)
Add/(less):
Movement in net unrealised
losses/(gains) 787,623 (4,298,902)
Adjusted realised gains/(losses)
for distribution for the
year 17,926,375 (8,252,963)
============= ==============
The Directors do not recommend the payment of a dividend for the
year ended 31 December 2012 (31 December 2011: GBPnil).
During the year capital distributions were paid to Shareholders
totalling GBP27,845,648 (31 December 2011: GBP4,216,345).
17. Taxation
The Income Tax Authority of Guernsey has granted the Company
exemption from Guernsey income tax and the income of the Company
may be distributed or accumulated without deduction of Guernsey
income tax. The exemption mentioned above entails payment by the
Company of an annual fee of GBP600. It should be noted, however,
that interest and dividend income accruing from the Company's
investments may be subject to withholding tax in the country of
origin. With effect from 1 January 2008, the standard rate of
income tax for most companies in Guernsey is zero per cent. Tax
Exempt status continues to exist and the Company has been granted
this status for 2012 and 2013.
The Company has not suffered any withholding tax in the year (31
December 2011: GBPnil).
18. Contingent liabilities
The Company has no contingent liabilities at the reporting
date.
19. Post Year End Events
Please refer to the Investment Advisor's Report (page 6) for a
summary of the post year end events.
There were no other significant post year end events that
require disclosure in these financial statements other than those
listed on page 6.
DIRECTORS & ADVISORS
Directors:
Rhys Davies (appointed non-executive Chairman on 27 April
2012)
Christopher Fish
Brett Miller
Lord Flight (Chairman) (resigned on 27 April 2012)
Robert Fearis (resigned on 27 April 2012)
Edward Forwood (resigned on 27 April 2012)
Roger Le Tissier (resigned on 27 April 2012)
Administrator, Designated Manager, Secretary, Praxis Fund
Services Limited Tel: +44 (0)1481 737 600
Provider of Safe Custody & Registered Office: Sarnia House Fax: +44(0)1481 749 829
Le Truchot www.pfs.gg
St Peter Port
Guernsey, GY1 4NA
Registrar: Capita Registrars (Guernsey) Limited
2(nd) Floor, No.1 Le Truchot
St Peter Port
Guernsey, GY1 4AE
Investment Advisor & Promoter: Loudwater Investment Partners
Limited Tel: +44 (0)20 3372 6400
Little Tufton House Fax: +44(0)20 7222 2991
3 Dean Trench Street
London, SW1P 3HB www.loudwaterpartners.com
Share dealing:
Ordinary Shares can be purchased or sold through your usual
stockbroker.
Sources of further information:
The Company's Ordinary Shares are quoted on the AIM market of
the London Stock Exchange. Information updates are available on the
Company from the Investment Advisor's website
www.loudwaterpartners.com.
Key Dates:
Company's year end 31 December 2012
Annual results announced By 31 May 2013
Company's half-year 30 June 2013
Interim results announced By 30 September 2013
Frequency of NAV publication:
The Company's net asset value is released to the Stock Exchange
quarterly.
Auditor: BDO Limited
PO Box 180, Place du Pré
Rue du Pré, St Peter Port
Guernsey, GY1 3LL
Nominated Advisor & Broker: Panmure Gordon (UK) Limited
One New Change
London, EC4M 9AF
Guernsey Advocates: Ogier
Ogier House
St Julian's Avenue
St Peter Port
Guernsey, GY1 1WA
Bankers: Lloyds TSB Offshore Limited
Corporate Banking
PO Box 123
Sarnia House
Le Truchot
St Peter Port
Guernsey, GY1 4EF
Barclays Private Clients International Limited
PO Box 41
Le Marchant House
St Peter Port
Guernsey, GY1 3BE
English Solicitors: Berwin Leighton Paisner LLP
Adelaide House
London Bridge
London, EC4R 9HA
Company Number: 46213 (Registered in Guernsey)
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR NKNDPPBKDNPD
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