logo
  Join        Login             Stock Quote

BARONSMEAD VCT 2 PLC - Correction : Annual Financial Report

Monday, November 19, 2012 12:39 PM


Baronsmead VCT 2 plc

The Baronsmead VCT 2 plc Annual Financial Report announcement released at 16:05 on 16 November 2012 incorrectly stated that:

- the net asset value of 95.15 pence contained in the table in the Chairman’s statement was the value as at 1 October 2012 whereas this should have stated that this was the value as at 1 October 2011.

- the record date in respect of the final dividend as outlined in the Report of the Directors was 7 December 2012 whereas the correct record date should have been stated as 4 January 2013.

The correction is included in the full text of the announcement below.

Annual report and accounts for the year ended 30 September 2012

Investment Objective

Baronsmead VCT 2 is a tax efficient listed company which aims to achieve long-term investment returns for private investors, including tax free dividends.

Investment Policy

* To invest primarily in a diverse portfolio of UK growth businesses, whether unquoted or traded on AIM.

* Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value.

Further details on investment policy and risk management are contained in the Report of the Directors in the Company's 2012 Annual Report and Accounts.

Dividend policy

The Board of Baronsmead VCT 2 aims to sustain a minimum annual dividend level at an average of 6.5p per Ordinary Share, mindful of the need to maintain net asset value. The ability to meet these twin objectives depends significantly on the level and timing of profitable realisations and cannot be guaranteed. There will be variations in the amounts of dividends paid year on year.

Since launch, the average annual tax free dividend paid to Shareholders has been 6.4p per share (equivalent to a pre-tax return of 8.5p per Ordinary Share for a higher rate taxpayer). For Shareholders who claimed tax reliefs of 20 per cent, 30 per cent or 40 per cent, their returns would have been higher.

Financial Headlines

* + 8.9% - Net asset value ("NAV") per share increased 8.9 per cent to 103.6p in the twelve months ended 30 September 2012, before deduction of the interim dividend of 2.5p.

* 7.5p - Tax free dividends totalled 7.5p for the year to 30 September 2012, including the proposed final dividend of 5.0p.

* 8.3% - Tax free annual dividend yield of 8.3 per cent and gross annual yield of 11.1 per cent.

* 252.0p - NAV total return to shareholders for every 100.0p invested at launch.

Chairman's Statement
INVESTMENT PERFORMANCE
Results

In the year to 30 September 2012, the net asset value ("NAV") grew by 8.45p per share (8.9 per cent) to 103.60p before payment of dividends. This growth (together with reserves accumulated from successful realisations) has enabled us to recommend a final dividend of 5p making a total of 7.5p for the year

                                                     Pence per
                                                      ordinary
                                                         share
NAV as at 1 October 2011                                 95.15
Valuation uplift (8.9 per cent)                           8.45
                                                        103.60
Interim dividend paid on 15 June 2012                    (2.50)
Proposed final dividend of 5.0p, payable after
shareholder approval, on 18 Jan 2013                     (5.00)
NAV as at 30 September 2012 assuming final
dividend paid                                            96.10
 

We continue to be very satisfied with the management provided by ISIS. They have created a valuable portfolio of investments and this has enabled us to pay good dividends in a period in which investment returns more generally have been depressed. We are proud of our dividend record which has provided shareholders with an average tax free dividend of 7.9p per share for the last 10 years. With a share price of 90p per share this is equivalent to a tax free yield of 8.8 per cent (11.7 per cent for higher rate tax payers). Compared with the returns achievable on deposits and many other investments in the current market place this is outstanding.

Our policy is to invest in growth companies. It is pleasing to report that, despite a weak economy, lack of bank finance and a recession in the euro zone our top ten investments (representing 51 per cent by value of the portfolio) have delivered an outstanding 18 per cent average annual growth in profits over the last three years. Indeed the overall portfolio (of 71 companies) is in good health with 8.5 per cent showing steady or better progress.

The value of the unquoted and AIM portions of the portfolio, increased by 8 per cent and 19 per cent during the year. The largest gains came from the investments in Independent Living Services and IDOX, which both increased in value by some £1.7 million in the last year.

I am also delighted to report that, in November 2011, Baronsmead VCT 2 and Baronsmead VCT 3 were jointly voted VCT of the year at the Investment Trust Awards 2011. The judging process was based on a mixture of a quantitative assessment of investment performance and a qualitative assessment of the fund manager. This year Baronsmead VCT 2, Baronsmead VCT 3 as well as Baronsmead VCT 4 have been short listed for the same award.

LONGER TERM INVESTMENT PERFORMANCE

The Company is a generalist investor and our investment objective and the investment and dividend policies are aimed at producing consistent returns over the long-term.

The NAV total return over the last ten years has been 222.8p (before taxation benefits) for each 100p invested compared with an average of 166.3p for the VCT generalist sector as a whole (source AIC). Over the same period, cumulative tax free dividends paid to shareholders, including the proposed final dividend of 5.0p, amount to 7.9p per share (equivalent to 10.5p for a higher rate taxpayer). This is before taking account of the initial income tax relief available on subscription.

Over the same period, the FTSE All-Share Index grew to 235.7p using the same metrics, but this comparison takes no account of the restricted nature of VCT investments or the benefit of tax reliefs available to investors in VCTs.

FUND RAISING AND SHAREHOLDER OPPORTUNITIES

Our top up offer in February 2012 generated proceeds of £3.9 million net of expenses. We expect to make a further prospectus offer for subscription shortly seeking to raise net proceeds of approximately £5 million.

In deciding how much to raise the Directors have considered the level of cash that will be required by the Company for investment over the next few years as well as the need to maintain sufficient liquidity to pay dividends and costs.

Since inception the Board has, as a service to shareholders, maintained a buy back policy to acquire shares through the market, generally at a 10 per cent discount to NAV. The level of such buy backs has, in recent years, been small (0.75 million shares or 1 per cent of shares in issue last year). The Directors have decided that in an effort to minimise the discount between the share price and the NAV and increase the attractiveness of the Company's shares the Company will in future endeavour to buy back shares at a 5 per cent discount to NAV. This will also enable those shareholders who sell their shares to achieve a return closer to net asset value.

This new share buy back policy will be kept under continuous review based on the number of shares bought back and may be subject to revision. Shares will be bought back depending on market conditions at the time and only where the Directors believe they will be in the best interests of shareholders as a whole.

ANNUAL GENERAL MEETING

I look forward to meeting as many shareholders as possible at our 15th Annual General Meeting to be held on Thursday 10 January 2013 at the Plaisterers' Hall, One London Wall, EC2Y 5JU. Proceedings for the day commence at 11:00am with presentations from the Manager and an investee company followed by lunch before the AGM at 1:30pm, which is expected to finish at 2:00pm.

OUTLOOK

As anticipated in my half-yearly report the continued scarcity of bank debt in the UK and concerns regarding the stability of the European Union has resulted in both uncertain and slower growth for the UK economy generally.

Against this backdrop it is good to report that there has been steady growth across many of the portfolio companies as witnessed by the `top ten' investees showing excellent increases in turnover and more importantly in profits. The relatively low levels of debt in our portfolio companies should enable them to be more resilient if trading conditions remain uncertain.

Government continues to talk about helping smaller companies such as those in our portfolio. However the burden of regulation and the difficulty of raising capital for growth remains a problem for investees. VCTs have an excellent record of generating growth by investing in well managed companies, but proposed restrictions on fund raising (by the FSA in particular) threaten this well proven source of capital. Small companies are the large employers of the future and they need more equity investment rather than more bank borrowing. What is needed is fiscal and regulatory encouragement for individuals and others so that equity investment in any small growing company is made desirable.

The Company will continue to seek out and invest in growing businesses and further enhance our excellent portfolio.

Clive Parritt
Chairman
16 November 2012
Manager's Review

The progress made by the Company's investees has been creditable given the ongoing economic uncertainty during the period under review. The portfolio has overall performed very well. It is pleasing to see a pickup in new investment, particularly in unquoted Private Equity.

PORTFOLIO REVIEW

Overview

The net assets of £72 million were invested as follows:

                                             Number   Annual
                                     % of        of   return
Asset class                  NAV      NAV investees        %
Unquoted             £36,720,000       51        25        8
Quoted               £22,276,000       30        46       19

Wood Street Microcap £4,183,000 6 33 8 Cash and near cash £9,254,000 13 n/a n/a

During the year in total there were;

- New investments of £9.14 million in eleven new companies and six follow ons;

- Divestments of £2.38 million from eight full investments and a partial loan realisation.

Each quarter the direction of general trading and profitability of all investee companies is recorded so that the Board can monitor the overall health and trajectory of the portfolio. At 30 September 2012, 87 per cent of the 71 companies in the quoted and unquoted portfolio were progressing steadily or better.

Unquoted Private Equity

The unquoted portfolio has again performed well and there has been an increase in unquoted values of 8 per cent. The unquoted portion of the portfolio is valued using a consistent process every three months which the Board oversees and approves. Almost all of the value creation in unquoted investments has come from operational improvements (revenue and margin growth), rather than financial leverage. For example, external bank debt within the top ten investments on average is only 0.7 times earnings, which is very low within the Private Equity arena.

The sale of TVC Group to the Economist Group realised £1.32 million.

Quoted (AIM traded and other listed investments)

There has also been a significant uplift in the quoted portfolio of 19 per cent partially reflecting a positive re-rating of the small cap sector in the first quarter of 2012. This recovery has been helpful to the quoted portfolio following several years of headwinds from a challenging AIM market environment and weak share prices.

Over the three years to 30 September 2012, the approach in quoted investments has been to concentrate on making fewer AIM investments and becoming a more engaged shareholder where possible and appropriate. This has taken time to implement as only a small minority of AIM companies qualify for VCT purposes. The average size by value of the investments in the portfolio in September 2009 was £246,000 but this had nearly doubled to £484,000 by September 2012.

Realisations of £737,000 came from realising seven AIM-traded companies, three through trade sales (Clarity Commerce Solutions plc, Stagecoach Theatre Arts plc and Prologic plc); two through market sales (Real Good Food Company plc and Nakama Group plc) and two written off (Colliers International UK and Adventis Group). The latter five were mainly legacy companies that were valued below cost and were divested largely to reduce the tail of older and poorer performing investments.

Wood Street

Wood Street Microcap Investment Fund ("Wood Street") was established by ISIS in May 2009 to provide flexibility for the Baronsmead VCTs to invest in generally larger and more liquid non VCT qualifying AIM and Small Cap opportunities. At 30 September 2012, Baronsmead VCT 2 had invested £3.5 million into Wood Street. At the year end Wood Street was invested in a portfolio of 33 companies and the Baronsmead VCT 2 investment was valued at £4.2 million. Wood Street generated an increase of 8 per cent over the year.

During the year, a further investment of £1 million was made into Wood Street. The Manager receives no additional fee for managing this fund.

Liquid assets (cash and near cash)

Baronsmead VCT 2 had cash and near cash resources of approximately £9.3 million at the year-end. This asset class is conservatively managed to take minimal or no capital risk.

In addition, investments within the Wood Street fund are expected to be relatively more liquid than other investments as covered in the section above. This gives the Manager the possibility of realising cash from Wood Street should this ever be required to supplement liquid assets.

Unquoted Investments

During the year £6.60 million was invested in unquoted companies. The principal unquoted investments were:

* Independent Community Care Management ("ICCM") is a care business based in Kettering. It is a leading provider of homecare to individuals with complex long-term spinal and neurological conditions. This is a specialist healthcare business where the Manager has experience, most recently from the investment in Active Assistance which was successfully realised in 2010. The investment will help build infrastructure and capacity to grow the business.

* Happy Days Consultancy, a children's nursery business, is based in the South West of the UK. The business has 17 sites already and the investment will help accelerate growth in new sites. This is a sector that the Manager has invested in before with a successful investment in Kidsunlimited which was realised in 2008.

* Pho Holdings is a group of traditional Vietnamese restaurants based in London. The Pho sites are informal, fast casual environments, specialising in Vietnam's national dish of Pho, a tasty and nutritious noodle soup. Pho was awarded `Best Emerging Concept' at this year's Retailer of the Year Awards. The first Pho location opened on St. John Street, Clerkenwell, London, in June 2005 and the group now has a total of seven sites across London and the South East. The new investment enables the team to open new sites, but with each site retaining a unique and independent feel.

* Impetus Holdings is a specialist business consultancy, supplying sales and after sales support services to the automotive industry. The business delivers a diverse range of programmes and projects for vehicle manufacturers, with much of their work taking place within dealerships and national sales companies. Impetus Holdings has achieved strong growth in recent years with revenues increasing by 50 per cent since 2010. Clients include VW, Land Rover, Audi, Toyota, BMW, Citroen, Fiat, Ford and Jaguar. Approximately 15 per cent of work is delivered outside of the UK. The investment by ISIS will support the business in its continued expansion into new markets, building on the strong presence established in the UK and further development of new services to clients.

Top Ten investments

The average investment value of the top ten companies held by Baronsmead VCT 2 is £3 million per company. As these investments are normally held by the other four Baronsmead VCTs, the total managed by ISIS in each investee is significantly larger than this, which enables ISIS to dedicate significant resource to manage each investment and its progress. The top ten investees employ some 2,600 people which is an increase of 22 per cent over the last year. They have grown their turnover and profits by some 18 per cent annually for the last three years. Each of the top ten companies is described in more detail below.

Investment Management

ISIS continues to invest in its skills and capacity with over 40 of its total team of 60 devoted to investment management across all its investing activities. Its focus is on generating strong investment returns from its portfolio through a mixture of intelligent investment selection and hands on portfolio management. Its ability to select good investments owes much to its in depth sector research and specialisation and to its strong origination team that help the team to generate proprietary deal flow. Its investments are supported from the outset by an experienced internal value enhancement team together with a panel of proven Operating Partners who work exclusively with ISIS to assist management teams to deliver both strategic development and operational efficiencies. They have enabled ISIS to build a strong track record of producing consistent returns from its unquoted investments.

ISIS has pursued a strategy of sector specialisation over the past fourteen years and in that time its executives have developed in-depth knowledge of these sectors and valuable networks of contacts which have enabled it to capitalise on opportunities that have presented themselves in an ever changing environment. Its key sectors are:

 * Business Services
 * Financial Services
 * Consumer Markets
 * Healthcare & Education
 * Energy & Environmental

* Technology, Media & Telecommunications

ISIS' Operating Partners are all proven executives with a track record within the portfolio. Some are experienced Chairmen to lead change within investees. Others have deep functional experience including Sales, IT, Talent Management and Finance. This is an important additional resource on top of the experience of the ISIS executives to support investments made by the fund.

OUTLOOK

A number of commentators believe that the UK economy is unlikely to experience significant growth in the next decade. At this stage of the recovery, this is hard to dispute and it is a fair working assumption for investors.

However, many of our portfolio companies and their management teams are now more experienced at handling the economic uncertainties, including managing their growth and operations in a tougher environment than in previous decades. Low bank borrowings within the portfolio give them robust financial structures.

ISIS is an active investment manager who partners with our investees to help them to grow revenue and earnings whilst continuing to enhance customer service and build resilient businesses with good momentum. Our intention is to seek out the best opportunities where growth is driven by innovation and gaining market share through differentiation rather than relying on favourable economic growth. We continue to be confident that good levels of performance can be maintained through the ongoing challenging environment.

ISIS EP LLP
Investment Manager
16 November 2012

Summary Investment Portfolio

Investment Classification at 30 September 2012

Sector*                  Percentage
 
Business Services               34%
Technology, Media &
Telecommunications
("TMT")                         31%
Consumer Markets                19%
Healthcare &
Education                       14%
Financial Services               2%
 

* at 30 September 2012 valuation.

Total Assets*            Percentage
 
Unquoted - loan
stock                           36%
AIM, listed &
collective
investment vehicles             36%
Unquoted - ordinary
and preference                  15%
Listed interest
bearing securities               8%
Net current assets
principally cash                 5%
 

* at 30 September 2012 valuation

Time Investments         Percentage
Held*
 
Less than 1 year                16%
Between 1 and 3                 17%
years
Between 3 and 5                 15%
years
Greater than 5                  52%
years
 

* at 30 September 2012 valuation.

Table of Investments and Realisations

Investments in the year
                                                                     Book Cost
Company                    Location           Sector        Activity   (£'000)
Unquoted investments
New

Independent Community Kettering Healthcare & High acuity Care Management Limited

             Education        care for home
                                                     based care
                                                     users               1,346

Impetus Holdings Limited London Business Automotive

                                    Services         consultancy and
                                                     outsourced
                                                     service
                                                     provider            1,075
Consumer Investment      London     Business         Company seeking
Partners Limited                    Services         to acquire
                                                     businesses in
                                                     the business
                                                     services sector     1,000
Riccal Investments       London     Consumer Markets Company seeking
Limited                                              to acquire
                                                     businesses in
                                                     the consumer
                                                     markets sector      1,000
Pho Holdings Limited     London     Consumer Markets Restaurant
                                                     group
                                                     specialising in
                                                     Vietnamese
                                                     street food           987
Happy Days Consultancy   Newquay    Healthcare &     Provider of
Limited                             Education        nursery based
                                                     childcare in
                                                     Cornwall &
                                                     Plymouth across
                                                     16 settings           833
Follow on
Crew Clothing Holdings   London     Consumer Markets Multi-channel
Limited                                              clothing
                                                     retailer              360
Total unquoted
investments                                                              6,601
AIM-traded & listed
investments
New
TLA Worldwide plc        London     Business         Baseball sports
                                    Services         management and
                                                     marketing
                                                     business              620
Zattikka plc             London     TMT*             Online games
                                                     development           316
Inspired Energy plc      Kirkham    Business         Energy
                                    Services         procurement
                                                     consultancy
                                                     services              300
Paragon Entertainment    London     Consumer Markets Visitor
Limited                                              attraction
                                                     business              200
GB Group plc             Chester    TMT*             ID verification
                                                     and data
                                                     solutions             150
 
Follow on
Dods (Group) plc         London     TMT*             Political
                                                     information and
                                                     communication         678
Electric Word plc        London     TMT*             Business to
                                                     business
                                                     publisher              80
Accumuli plc             Salford    TMT*             Managed IT
                                                     security               76
FFastFill plc            London     TMT*             Trading
                                                     platform
                                                     software
                                                     provider               62
                         Rossendale Business         Dispute
Driver Group plc                    Services         resolution             61
Total AIM-traded & listed
investments                                                       2,543
Collective investment
vehicle
Follow on
Wood Street Microcap
Investment Fund                                                   1,000
Total collective investment
vehicle                                                           1,000
Total investments in the
year                                                             10,144
 

* Technology, Media & Telecommunications ("TMT").


Realisations in the year
                                                     30
                                              September      Realised
                                        First      2011 profit/(loss)       Overall
                                   Investment valuation          this      Multiple
Company                                  date     £'000  period £'000        Return
Unquoted
realisations
                        Full trade
TVC Group Limited             sale     Jul 08       766           558             ^
MLS Limited         Loan repayment     Jul 06       320             0          1.00
Total unquoted
realisations                                      1,086           558
AIM-traded & listed
realisations
Stagecoach Theatre      Full trade
Arts plc                      sale     Feb 01       153           140          0.70
                        Full trade
Prologic plc                  sale     Jun 04       103            48          0.49
Real Good Food         Full market
Company (The) plc             sale     Dec 03       218            40          0.42
Clarity Commerce        Full trade
Solutions plc                 sale     Oct 09        26             6          0.63
                       Full market
Nakama Group plc              sale     Dec 96         5            (1)         0.02
Adventis Group plc     Written off     Jun 04        22           (22)         0.00
Colliers
International UK
plc                    Written off     Jul 01        27           (27)         0.00
Total AIM-traded &
listed realisations                                 554           184
Total realisations
in the year                                       1,640          742†
 
^ Not disclosed.

† Proceeds of £8,000 were also received in respect of Getting Personal Limited, which had been sold in the year ended 30 September 2011.

Ten Largest Investments

The top ten investments by current value at 30 September 2012 illustrate the diversity and size of investee companies within the portfolio. This financial information is taken from publicly available information, which has been audited by the auditors of the investee companies..

1. - NEXUS VECHILE HOLDINGS LIMITED - Leeds

All ISIS EP LLP managed funds

First Investment:   February 2008
Total Cost:         £9,500,000
Total equity held:  57.38%
 

Baronsmead VCT 2 only

Cost:               £2,367,000
Valuation:          £4,721,000
Valuation basis:    Earnings Multiple
% of equity held:   12.62%
 
Year ended 30                  2011           2010
September
                          £ million      £ million
Sales:                         38.3           33.5
EBITA:                          4.3            4.0
Profit before tax:              1.4            1.3
Net Assets:                     1.7            0.8
 
No. of Employees:                90             73
 
(Source: Nexus Vehicle Holdings Limited, Report and Financial Statements
2011).

2. - IDOX PLC - London
All ISIS EP LLP managed funds
First Investment:   May 2002
Total Cost:         £3,015,000
Total equity held:  9.52%
 

Baronsmead VCT 2 only

Cost:               £1,038,000
Valuation:          £4,215,000
Valuation basis:    Bid Price
% of equity held:   3.19%
 
Year ended 31                  2011           2010
October                   £ million      £ million
Sales:                         38.6           31.3
EBITA:                          9.5            7.5
Profit before tax:              5.6            4.9
Net Assets:                    34.4           31.0
 
No. of Employees                363            332
 

(Source: IDOX Plc, Directors' Report and Financial Statements 31 October 2011)

3. CABLECOM NETWORKING HOLDINGS LIMITED - Clevedon

All ISIS EP LLP managed funds

First Investment:  May 2007
Total Cost:        £5,600,000
Total equity held: 48.00%
 

Baronsmead VCT 2 only

Cost:              £1,381,000
Valuation:         £4,131,000
Valuation basis:   Earnings Multiple
% of equity held:  10.56%
 
Year ended 30                  2011           2010
September                 £ million      £ million
Sales:                         12.2            8.2
EBITA:                          1.4            0.9
Loss before tax:               (0.2)          (0.5)
Net Assets:                     0.3            0.5
 
No. of Employees                 61             52
 

(Source: CableCom Networking Holdings Limited, Report and Financial Statement 30 September 2011)

4. CREW CLOTHING HOLDINGS LIMITED - London

All ISIS EP LLP managed funds

First Investment:  November 2006
Total Cost:        £5,395,000
Total equity held: 25.51%
 

Baronsmead VCT 2 only

Cost:             £1,344,000
Valuation:        £3,049,000
Valuation basis:  Earnings Multiple
% of equity held: 6.08%
 
Year ended 30                  2011           2010
October                   £ million      £ million
Sales:                         40.7           34.6
EBITA:                          3.3            2.7
Profit before tax:              2.8            2.0
Net Assets:                     5.7            3.8
 
No. of Employees:               311            284
 

(Source: Crew Clothing Holdings Limited, Consolidated Financial Statements 30 October 2011)

5. KAFEVEND HOLDINGS LIMITED - Crawley

All ISIS EP LLP managed funds

First Investment:  October 2005
Total Cost:        £5,024,000
Total equity held: 66.50%
 

Baronsmead VCT 2 only

Cost:             £1,252,000
Valuation:        £2,908,000
Valuation basis:  Earnings Multiple
% of equity held: 15.79%
 
Year ended 30                  2011           2010
September                 £ million      £ million
Sales:                         18.4           15.6
EBITA:                          1.9            2.0
Profit before tax:              0.6            0.8
Net Assets:                     1.5            1.2
 
No. of Employees:               105             95
 

(Source: Kafevend Holdings Limited, audited Directors' Report and Financial Statements 30 September 2011)

6. INDEPENDENT LIVING SERVICES LIMITED - Aberdeen

All ISIS EP LLP managed funds

First Investment:  September 2005
Total Cost:        £5,829,000
Total equity held: 65.68%
 

Baronsmead VCT 2 only

Cost:             £1,599,000
Valuation:        £2,705,000
Valuation basis:  Earnings Multiple
% of equity held: 16.18%
 
Year ended 30                  2011           2010
September                 £ million      £ million
Sales:                         11.5           10.1
EBITA:                         (0.7)          (0.8)
Loss before tax:               (0.9)          (1.1)
Net Assets:                     0.4            3.1
 
No. of Employees:               836            705
 

(Source: Independent Living Services Limited, Directors' Report and Financial Statements 30 September 2011)

7. FISHER OUTDOOR LEISURE HOLDINGS LIMITED - St. Albans

All ISIS EP LLP managed funds

First Investment:  June 2006
Total Cost:        £5,700,000
Total equity held: 44.00%
 

Baronsmead VCT 2 only

Cost:             £1,423,000
Valuation:        £2,329,000
Valuation basis:  Earnings Multiple
% of equity held: 10.45%
 
Year ended 31 July          20111          20102
                        £ million      £ million
Sales:                       43.6           26.5
EBITA:                        2.7            2.3
Profit before tax:            0.0            0.7
Net Assets:                   1.2            1.4
 
No. of Employees:             110             96
 

(Source: Fisher Outdoor Leisure Holdings Limited, Directors' Report and Financial Statements 31 July 2011)

1. 12 month period ending 31 January 2010.

2. 18 month period ending 31 July 2011. The Company changed its year end from 31 January to 31 July.

8. CSC (WORLD) LIMITED - Pudsey, Leeds

All ISIS EP LLP managed funds

First Investment:   January 2008
Total Cost:         £6,450,000
Total equity held:  40.03%
 

Baronsmead VCT 2 only

Cost:               £1,606,000
Valuation:          £2,295,000
Valuation basis:    Earnings Multiple
% of equity held:   8.81%
 

Year ended 31 March           2011           2010
                         £ million      £ million
Sales:                         7.9            7.3
EBITA:                         2.4            2.3
Loss before tax:              (0.5)          (0.4)
Net Liabilities:              (2.0)          (1.3)
 
No. of Employees                59             58
 

(Source: Cobco 867 Limited, Report and Financial Statements 31 March 2012)

9. STAFFLINE GROUP PLC - Nottingham

All ISIS EP LLP managed funds
First Investment:   July 2000
Total Cost:         £498,000
Total equity held:  8.38%
 
Baronsmead VCT 2 only
Cost:               £249,000
Valuation:          £2,129,000
Valuation basis:    Bid Price
% of equity held:   4.19%
 
Year ended 31                  2011           2010
December                  £ million      £ million
Sales:                        288.3          206.2
EBITA:                         10.3            7.8
Profit before tax:              7.5            7.0
Net Assets:                    34.9           30.5
 
No. of Employees:               498            319
 

(Source: Staffline Recruitment Limited, Report and Financial Statements 31 December 2011)

10. VALLDATA GROUP LIMITED - Melksham

All ISIS EP LLP managed funds

First Investment:   January 2011
Total Cost:         £6,475,000
Total equity held:  39.84%
 

Baronsmead VCT 2 only

Cost:               £1,616,000
Valuation:          £1,769,000
Valuation basis:    Earnings Multiple
% of equity held:   8.76%
 
Year ended 31 March           2012           2011
                         £ million      £ million
Sales:                         7.1            6.3
EBITA:                         0.8            0.9
Profit before tax:             0.7            0.8
Net Assets:                    0.8            0.6
 
No. of Employees:              137            126
 

(Source: Valldata Services Limited, Report and Financial Statements 31 March 2012)

Extract from Report of the Directors

The Chairman's statement and the Corporate Governance Statement from part of the report of the Directors

Results and Dividends

The Directors present the fifteenth Report and audited financial statements of the Company for the year ended 30 September 2012.

Ordinary Shares                                    £'000

Profit on ordinary activities after taxation 5,964

 
Interim dividend of 2.5p per ordinary share
paid on 15 June 2012                              (1,804)
 
Total dividends paid during the year              (1,804)
 

Subject to approval at the forthcoming Annual General Meeting the final proposed dividend in respect of the year ended 30 September 2012 of 5.0p per ordinary share will be paid on 18 January 2013 to shareholders recorded on the register on 4 January 2013.

Principal Activity and Status

The Company is registered in England as a Public Limited Company (Registration number 03504214). The Directors have managed, and intend to continue to manage, the Company's affairs in such a manner as to comply with Section 274 of the Income Tax Act 2007 which grants approval as a VCT.

Business Review

The Business Review has been prepared in accordance with the requirements of Section 417 of the Companies Act 2006 and best practice. The purpose of this review is to provide shareholders with a summary setting out the business objectives of the Company, the Board's strategy to achieve those objectives, the risks faced, the regulatory environment and the key performance indicators ("KPIs") used to measure performance.

Strategy for achieving objectives

Baronsmead VCT 2 plc is a tax efficient Company listed on the London Stock Exchange's main market for listed securities.

Investment Objective

The investment objective of the Company is to achieve long-term investment returns for private investors, including tax-free dividends.

Investment Policy

The Company's investment policy is to invest primarily in a diverse portfolio of UK growth businesses, whether unquoted or traded on AIM.

Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value.

Investment securities

The Company invests in a range of securities including, but not limited to, ordinary and preference shares, loan stock, convertible securities, and interest bearing securities as well as cash. Unquoted investments are usually structured as a combination of ordinary shares and loan stock, while AIM investments are primarily held in ordinary shares. Pending investment in unquoted and AIM-traded securities, cash is primarily held in interest bearing accounts, money market open ended investment companies ("OEICs"), UK gilts and Treasury bills.

UK companies

Investments are primarily made in companies which are substantially based in the UK, although many of these investees will trade overseas.

VCT regulation

The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HM Revenue and Customs. Amongst other conditions, the Company may not invest more than 15 per cent. by value of its investments calculated in accordance with Section 278 of the Income Tax Act 2007 (as amended) ("VCT Value") in a single company or group of companies and must have at least 70 per cent. of its investments by VCT Value throughout the period in shares and securities comprised in qualifying holdings. At least 70 per cent by VCT Value of qualifying holdings must be in "eligible shares", which are ordinary shares which have no preferential rights to assets on a winding up and no rights to be redeemed, but may have certain preferential rights to dividends. For funds raised before 6 April 2011, at least 30 per cent by VCT Value of qualifying holdings must be in "eligible shares" which are ordinary shares which do not carry any rights to be redeemed or preferential rights to dividends or to assets on a winding up. At least 10 per cent of each qualifying investment must be in "eligible shares".

The companies in which investments are made must have no more than £15 million of gross assets at the time of investment to be classed as a VCT qualifying holding.

Asset mix

The Company aims to be at least 90 per cent. invested in growth businesses, subject always to the quality of investment opportunities and the timing of realisations. Any uninvested funds are held in cash and interest bearing securities. It is intended that at least 75 per cent. of any funds raised by the Company will be invested in VCT qualifying investments.

Risk diversification and maximum exposures

Risk is spread by investing in a number of different businesses within different qualifying industry sectors using a mixture of securities. Generally no more than £2.5 million, at cost, is invested in the same company. The value of an individual investment is expected to increase over time as a result of trading progress and a continuous assessment is made of its suitability for sale.

Investment style

Investments are selected in the expectation that the application of private equity disciplines, including an active management style for unquoted companies, will enhance value and enable profits to be realised from planned exits.

Co-investment

The Company aims to invest in larger more mature unquoted and AIM companies and to achieve this it invests alongside the other Baronsmead VCTs. Currently ISIS EP LLP ("the Manager") and its executive members and certain staff are mandated to invest in unquoteds alongside the Company on terms which align the interests of shareholders and the Manager. Further details about the Co-investment scheme can be found in the 2012 Annual Report & Accounts.

Borrowing powers

The Company's Articles permit borrowing to give a degree of investment flexibility. The Company's policy is to use borrowing for short term liquidity purposes only up to a maximum of 25 per cent of gross assets.

Management

The Board has delegated the management of the investment portfolio to the Manager. The Manager also provides or procures the provision of company secretarial, administrative, accounting and custodian services to the Company.

The Manager has adopted a `top-down, sector-driven' approach to identifying and evaluating potential investment opportunities, by assessing a forward view of firstly the business environment, then the sector and finally the specific potential investment opportunity. Based on its research, the Manager has selected a number of sectors that it believes will offer attractive growth prospects and investment opportunities. Diversification is also achieved by spreading investments across different asset classes and making investments for a variety of different periods.

The Manager's Review above provides a review of the investment portfolio and of market conditions during the year.

Principal risks, risk management and regulatory environment

The Board believes that the principal risks faced by the Company are:

- Economic risk - events such as an economic recession and movement in interest rates could affect smaller companies' valuations.

- Loss of approval as a Venture Capital Trust - the Company must comply with Section 274 of the Income Tax Act 2007 which allows it to be exempted from capital gains tax on capital gains. Any breach of these rules may lead to the Company losing its approval as a VCT, qualifying shareholders who have not held their shares for the designated holding period having to repay the income tax relief they obtained and future dividends paid by the Company becoming subject to tax. The Company would also lose its exemption from corporation tax on capital gains.

- Investment and strategic - an inappropriate strategy, poor asset allocation or consistent weak stock selection might lead to under performance and poor returns to shareholders. Therefore the Company's investment strategy is periodically reviewed by the Board which considers at each meeting the performance of the investment portfolio.

- Regulatory - the Company is required to comply with the Companies Act 2006, the rules of the UK Listing Authority and United Kingdom Accounting Standards. Breach of any of these might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report. General changes in legislation, regulations or government policy could significantly influence the decisions of investors or impact upon the markets in which the Company invests.

- Reputational - inadequate or failed controls might result in breaches of regulations or loss of shareholder trust.

- Operational - failure of the Manager's and administrator's accounting systems or disruption to its business might lead to an inability to provide accurate reporting and monitoring.

- Financial - the Board has identified the Company's principal financial risks which are set out in the notes to the Financial Statements below. Inadequate controls might lead to misappropriation of assets. Inappropriate accounting policies might lead to misreporting or breaches of regulations.

- Market Risk - investment in AIM traded and unquoted companies by nature involve a higher degree of risk than investment in companies traded on the main market. In particular, smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals. In addition, the market for stock in smaller companies is often less liquid than that for stock in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock.

- Liquidity Risk - the Company's investments may be difficult to realise. The fact that a share is traded on AIM does not guarantee its liquidity. The spread between the buying and selling price of such shares may be wide and thus the price used for valuation may not be achievable.

- Competitive Risk - retention of key personnel of the Manager is vital to the success of the Company. Appropriate incentives are in place to ensure retention of such personnel.

The Board seeks to mitigate the internal risks by setting policy, regular review of performance, enforcement of contractual obligations and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies rigorously the principles detailed in the FRC's Internal Controls: Guidance to Directors.

Details of the Company's internal controls are contained in the Corporate Governance section of the Company's Annual Report for the year ended 30 September 2012.

Performance and key performance indicators ("KPIs")

The Board expects the Manager to deliver a performance which meets the objective of achieving NAV total return which is in the top quartile of generalist VCTs. A review of the Company's performance during the financial period, the position of the Company at the year end and the outlook for the coming year is contained within the Chairman's statement above.

The Board assesses the performance of the Manager in meeting the Company's objective against the primary KPIs highlighted on pages 1 to 3 of this Report and Accounts.

Issue and Buy-Back of Shares

As a result of a top-up offer on 20 February 2012 the Company allotted 4,077,587 ordinary shares at a price of 101.40p representing 5.0 per cent of the then issued share capital with an aggregate nominal value of £407,758.70 raising £4,135,000 of new funds in total. The terms of issue were set out in the Offer document dated 12 January 2012 and the offer price was set on 20 February 2012.

The Company also bought back 744,913 ordinary shares with a nominal value of 10p each to be held in treasury, representing an aggregate cost of £651,7 79. No shares were sold from treasury during the period. Shares will not be sold from treasury at a discount wider than the discount prevailing at the time the shares were initially bought back by the Company. The Company holds 9,218,819 ordinary shares in treasury representing 11.40 per cent of the issued share capital as at 16 November 2012. This was the maximum number of shares held in treasury during the year.

Directors

Biographies of the Directors are shown in the 2012 Annual Report and Accounts.

Ms McComb, having been elected at the Annual General Meeting in 2012, will not retire at the forthcoming Annual General Meeting.

Mr Goldring will, in accordance with the Articles of Association, retire by rotation and submit himself for re-election at the forthcoming Annual General Meeting.

As explained in more detail under Corporate Governance and in accordance with the provisions of the AIC Code of Corporate Governance, the Board has agreed that Directors who have held office for more than nine years will retire annually. Accordingly, as Mr Parritt and Mrs Nott have held office for a period of more than nine years, they will retire at the forthcoming Annual General Meeting of the Company and, being eligible, offer themselves for re-election. Mrs Nott who is a director of Baronsmead VCT 3 plc and Baronsmead VCT 5 plc is also required to seek annual re-election under the terms of the UKLA's Listing Rules.

The Board confirms that, following formal performance evaluations, the performance of each of the Directors continues to be effective and demonstrates commitment to the role; the Board believes that it is therefore in the best interests of shareholders that these Directors be re-elected.

The interests of the Directors in the shares of the Company, at the
beginning and at the end of the year, or date of appointment, if later, were
as follows:
                  30 September 2012 30 September 2011
                           Ordinary          Ordinary
                         shares 10p        Shares 10p
Clive Parritt                87,729            85,316
Gillian Nott                 48,462            48,462
Howard Goldring              10,157                 -
Christina McComb             20,315                 -
Total shares held           166,663           133,778
 

There have been no changes in the holdings of the Directors between 30 September 2012 and 16 November 2012.

No Director has a service contract with the Company.

All Directors are members of the Audit, Management Engagement and Remuneration and Nomination Committees.

The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditors are unaware; and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Directors' Professional Development

When a new director is appointed he or she is provided with an induction programme that is held by the Manager. Directors are also provided on a regular basis with key information on the Company's policies, regulatory and statutory requirements and internal controls. Changes affecting directors' responsibilities are advised to the Board as they arise. Directors also regularly participate in industry seminars.

Management

ISIS EP LLP manages the investments for the Company. The liquid assets within the portfolio (being cash, gilts and other assets, which are not categorised as venture capital investments for the purpose of the FSA's rules) have been managed by FPPE LLP. This is a limited partnership, which is authorised and regulated by the FSA and which has the same controlling members as the Manager. The Manager has continued to act as the Manager of the Company and as the Investment Manager of the Company's illiquid assets (being all AIM-traded and other venture capital investments).

The Manager also provides or procures the provision of secretarial, administrative and custodian services to the Company. The management agreement may be terminated at any date by either party giving twelve months' notice of termination. Under the management agreement, the Manager receives a fee of 2.0 per cent per annum of the net assets of the Company. If the management agreement is terminated, the Manager is only entitled to the management fees paid to it and any interest due on unpaid fees.

In addition, the Manager receives an annual secretarial and accounting fee of £36,380 (linked to the movement in the UK Retail Price Index ("RPI")), subject to annual review, plus a variable fee of 0.125 per cent of the net assets of the Company which exceed £5 million. The annual secretarial and accounting fee is subject to a maximum of £105,634 per annum (linked to the movement in RPI) subject to annual review.

Annual running costs are capped at 3.5 per cent of the net assets of the Company (excluding any performance fee payable to the Manager and irrecoverable VAT), any excess being refunded by the Manager by way of an adjustment to its management fee. The running cost as at 30 September 2012 was 2.49 per cent.

It is the Board's opinion that the continuing appointment of ISIS EP LLP on the terms agreed is in the best interests of shareholders as a whole. The Board believes that the knowledge and experience accumulated by the Manager in the period since the launch of the first Baronsmead VCT in 1995 is reflected in processes which are designed to find, manage and realise good quality growth businesses.

Directors' Indemnity

Directors and officers' liability insurance cover is in place in respect of the Directors. The Company's Articles of Association provide, subject to the provisions of UK legislation, an indemnity for directors in respect of costs which they may incur relating to the defence of any proceedings brought against them arising out of their positions as directors, in which they are acquitted or judgement is given in their favour by the Court.

Save for such indemnity provisions in the Company's Articles of Association and in the Directors' letters of appointment, there are no qualifying third party indemnity provisions.

Co-investment Scheme

The Co-investment Scheme was introduced in November 2004. Members of the Manager's investment team invest their own capital into a proportion of the ordinary shares of each and every unquoted investment made by the Baronsmead VCTs. The shares held by the members of the Co-investment Scheme in any portfolio company can only be sold at the same time as the investment held by the Baronsmead VCTs is sold. In addition, any prior ranking financial instruments, such as loan stock, held by the Baronsmead VCTs have to be repaid in full together with the agreed priority annual return before any gain accrues to the ordinary shares. This ensures that the Baronsmead VCTs achieve a good priority return before profits accrue to the Co-investment Scheme.

The Board is keen to ensure that the Manager continues to have one of the best investment teams in the VCT and private equity market place and considers the scheme to be essential in order to attract, retain and incentivise the best talent. The scheme is in line with current market practice in the private equity industry and the Board believes that it aligns the interests of the Manager with those of the Baronsmead VCTs since executives have to invest their own capital in every unquoted transaction and cannot decide selectively in which investments to participate. In addition the co-investment only delivers a return after each VCT has realised a priority return built into the structure.

The executives participating in the Co-investment Scheme subscribe jointly for a proportion (currently 12%) of the ordinary shares available to the Baronsmead VCTs in each unquoted investment. The level of participation was increased from 5% in 2007 when the Manager's performance fee was reduced from 20% to its current level of 10%.

Since the formation of the scheme in 2004, 52 executives have invested a total of £696k in 32 companies. At 30 September 2012 nine of these investments have been realised generating proceeds of £81m for the Baronsmead VCTs and £4.7m for the Co-investment Scheme. For Baronsmead VCT 2 the average money multiple on these nine realisations was 2.3 times cost. Had the co-investment shares been held instead by the Baronsmead VCTs that money multiple would have been 2.44 times cost. Over the period of eight years (based upon the current number of shares in issue) this equates to approximately 1.6p a share.

The Board reviews the operation of the Co-investment Scheme at each quarterly valuation meeting. The Co-investment Scheme was also independently reviewed during the period by Singer Capital Markets who confirmed that the investments were compliant with the Co-investment Scheme rules.

Performance Incentive

A performance fee will not be payable to the Manager until the total return on shareholders' funds exceeds an annual threshold of base rate plus 2 per cent calculated on a compound basis. To the extent that the total return exceeds the threshold of base rate plus 2 per cent on shareholders' funds compounded over the relevant period then a performance fee will be paid to the Manager of 10 per cent. The amount of any performance fee which is paid in an accounting period shall be capped at 5 per cent of shareholders' funds for that period.

ISIS Equity Partners - Advisory Fees

During the year to 30 September 2012, ISIS EP LLP received income of £130,300 (2011: £37,500) from investee companies in connection with advisory fees and incurred abort fees of £58,901 (2011: £15,246), with respect to investments attributable to Baronsmead VCT 2.

VCT Status Adviser

The Company has retained PricewaterhouseCoopers LLP ("PwC") as their VCT Tax Status Advisers to advise it on compliance with VCT requirements. PwC review new investment opportunities, as appropriate, and review regularly the investment portfolio of the Company. PwC work closely with the Manager but report directly to the Board.

Creditor Payment Policy

The Company's payment policy is to settle investment transactions in accordance with market practice and to ensure settlement of supplier invoices in accordance with stated terms. At 30 September 2012, there were no outstanding supplier invoices (2011: none).

Environment

The Company seeks to conduct its affairs responsibly and environmental factors are, where appropriate, taken into consideration with regard to investment decisions.

Substantial Interests in Share Capital

At 16 November 2012 the Company was not aware of any beneficial interests exceeding 3 per cent of the ordinary share capital in circulation.

Going Concern

After making enquires, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion the Directors have considered the liquidity of the Company and its ability to meet obligations as they fall due for a period of at least twelve months from the date that these financial statements were approved. As at 30 September 2012 the Company held cash balances & investments in UK Gilts and Money Market Funds with a combined value of £9,404,000. Cash flow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the share buyback programme and dividend policy. The Company has no external loan finance in place and therefore is not exposed to any gearing covenants.


By Order of the Board,
ISIS EP LLP
Secretary
100 Wood Street
London EC2V 7AN
16 November 2012

Statement of Directors' Responsibilities

Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Standards and applicable law (UK Generally Accepted Accounting Practice).

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

* select suitable accounting policies and then apply them consistently;

* make judgments and estimates that are reasonable and prudent;

* state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

* prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Visitors to the website should be aware that legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors in respect of the Annual Financial Report

We confirm that to the best of our knowledge:

- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

- the Annual Report of the Directors includes a fair review of the development and performance of the business and the position of the issuer together with a description of the principal risks and uncertainties that they face.

On behalf of the Board,
Clive A Parritt
Chairman
16 November 2012

Non-Statutory Accounts

The financial information set out below does not constitute the Company's statutory accounts for the years ended 30 September 2012 and 2011 but is derived from those accounts. Statutory accounts for 2011 have been delivered to the Registrar of Companies, and those for 2012 will be delivered in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Accounts at www.baronsmeadvct2.co.uk.

Income Statement

For the year ended 30 September 2012

                                     2012                    2011
                            Revenue Capital  Total  Revenue Capital  Total
                     Notes   £'000   £'000   £'000   £'000   £'000   £'000
 
Unrealised gains on
investments            8       -     5,842   5,842      -     3,346   3,346
Realised gains on
investments            8       -       750     750      -     2,865   2,865
Income                 2     1,101       -   1,101  2,425         -   2,425
Investment
management fee         3     (337)  (1,011) (1,348)  (323)     (970) (1,293)
Other expenses         4     (381)       -    (381)  (368)        -    (368)
 
Profit on ordinary
activities before
taxation                      383    5,581   5,964   1,734   5,241   6,975
Taxation on ordinary
activities             5     (16)     16       -     (379)     379       -
 
Profit on ordinary
activities after
taxation                      367    5,597   5,964   1,355   5,620   6,975
 
Return per ordinary
share: Basic           7     0.52p    7.93p   8.45p   1.98p   8.21p  10.19p
 

The `Total' column of this statement is the profit and loss account of the Company.

All revenue and capital items in this statement derive from continuing operations.

No operations were acquired or discontinued in the year.

There are no recognised gains or losses other than those disclosed in the Income Statement, therefore a separate statement of total recognised gains or losses has not been prepared

Reconciliation of Movements in Shareholders' Funds

For the year ended 30 September 2012

                                               2012    2011
                                      Note    £'000   £'000
 
Opening shareholders' funds                  64,999  63,673
Profit for the year                           5,964   6,975

Gross proceeds of share issues 11/12 4,135 2,111 Purchase of shares for treasury 12 (652) (813) Expenses of share issue and buybacks 12 (199) (78) Other costs charged to capital 12 (10) - Dividends paid

                         6     (1,804) (6,869)
 
Closing shareholders' funds                  72,433  64,999
 

The accompanying notes are an integral part of these statements.

Balance Sheet
As at 30 September 2012
                                                 2012    2011
                                        Notes   £'000   £'000
 
Fixed assets
Investments                               8    69,118  64,330
 
Current assets
Debtors                                   9       310     586
Cash at bank                                      465     542
Cash on deposit                                 3,000       -
                                                3,775   1,128
 
Creditors (amounts falling due within     10     (460)   (459)
one year)
 
Net current assets                              3,315     669
 
Net assets                                     72,433  64,999
 
Capital and reserves
Called-up share capital                   11    8,087   7,679
Share premium account                     12    3,531  14,404
Capital redemption reserve                12        -   9,254
Capital reserve                           12   47,452  28,849
Revaluation reserve                       12   12,742   4,559
Revenue reserve                           12      621     254
 
Equity shareholders' funds                13   72,433  64,999
 
Net asset value per share
- Basic                                   13  101.10p  95.15p
- Treasury                                13   99.83p  94.16p
 

The financial statements were approved by the Board of Directors on 16 November 2012 and were signed on its behalf by:

CLIVE A PARRITT FCA (Chairman)

Cash Flow Statement

For the year ended 30 September 2012

                                                   2012     2011
                                        Notes     £'000    £'000
 
Operating activities
Investment income received                        1,343    2,082
Deposit interest received                             6        -
Other interest received                               -       63
Investment management fees paid                  (1,311)  (1,286)
Other cash payments                                (375)    (371)
 
Net cash (outflow)/inflow from            15       (337)     488

operating activities

 
Capital expenditure and financial
investment
Purchases of investments                        (99,024) (52,054)
Disposals of investments                        100,857   55,846
Net cash inflow from capital
expenditure and financial investment              1,833    3,792
 

Dividends

Equity dividends paid                            (1,804)  (6,869)
 
Net cash outflow before financing                  (308)  (2,589)
 

Financing

Gross proceeds of share issues                    4,135    2,111
Purchase of shares for treasury                    (695)    (770)
Expenses on share issue and buybacks               (199)     (78)
Other costs charged to capital                      (10)       -
 
Net cash inflow from financing                    3,231    1,263
 
Increase/(decrease) in cash at bank and           2,923   (1,326)

on deposit in the year

 
Reconciliation of net cash flow to
movement in net cash at bank and on
deposit
Increase/(decrease) in cash at bank on            2,923  (1,326)

deposit

Opening cash at bank and on deposit                 542    1,868
 

Closing cash at bank and on deposit 14 3,465 542

The accompanying notes are an integral part of the financial statements.

Notes to the Accounts
1. Accounting polices
(a) Basis of accounting

These financial statements have been prepared under UK Generally Accepted Accounting Practice ("UK GAAP") and in accordance with the Statement of Recommended Practice ("SORP") for investment trust companies and venture capital trusts issued by the Association of Investment Companies ("AIC") in January 2009 and on the assumption that the Company maintains VCT status.

The Company is no longer an investment company as defined by Section 833 of the Companies Act 2006, as investment company status was revoked on 10 March 2003 in order to permit the distribution of capital profits.

The principal accounting policies adopted are set out below.

Presentation of the Income Statement

In order to better reflect the activities of a VCT and in accordance with the SORP, supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. Net Revenue is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 274 of the Income Tax Act 2007.

(b) Valuation of investments

Purchases or sales of investments are recognised at the date of transaction.

Investments are valued at fair value. For AIM traded & listed securities this is either bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted.

In respect of unquoted investments, these are valued at fair value by the Directors using methodology which is consistent with the International Private Equity and Venture Capital Valuation ("IPEV") guidelines. This means investments are valued using an earnings multiple, which has a discount or premium applied which adjusts for points of difference to appropriate stock market or comparable transaction multiples. Alternative methods of valuation will include application of an arm's length third party valuation, a provision on cost or a net asset value basis.

Gains and losses arising from changes in the fair value of the investments are included in the Income Statement for the period as a capital item. Transaction costs on acquisition are included within the initial recognition and the profit or loss on disposal is calculated net of transaction costs on disposal.

(c) Income

Interest income on loan stock and dividends on preference shares are accrued on a daily basis. Provision is made against this income where recovery is doubtful. Where the terms of unquoted loan stocks only require interest or a redemption premium to be paid on redemption, the interest and redemption premium is recognised as income once redemption is reasonably certain. Until such date interest is accrued daily and included within the valuation of the investment.

Income from fixed interest securities and deposit interest is included on an effective interest rate basis.

Dividends on quoted shares are recognised as income on the date that the related investments are marked ex dividend and where no dividend date is quoted, when the Company's right to receive payment is established.

(d) Expenses

All expenses are recorded on an accruals basis.

(e) Revenue/capital

The revenue column of the Income Statement includes all income and expenses. The capital column accounts for the realised and unrealised profit and loss on investments and the proportion of management fee charged to capital.

(f) Issue costs

Issue costs are deducted from the share premium account.

(g) Deferred taxation

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

(h) Capital reserves
(i) Capital Reserve

Gains and losses on realisation of investments of a capital nature are dealt with in this reserve. Purchase of the Company's own shares to be either held in treasury or cancelled are also funded from this reserve. 75 per cent of management fees are allocated to the capital reserve in accordance with the Board's expected split between long term income and capital returns.

(ii) Revaluation Reserve

Changes in fair value of investments are dealt with in this reserve.

2. Income
                                                   2012     2011
                                                  £'000    £'000
 
Income from investments†
UK franked                                          323      331
UK unfranked                                        710    1,502
UK unfranked - reinvested                            29        -
Redemption premium                                   33      528
                                                  1,095    2,361
Other income††
Deposit Interest                                      6        1
Other income                                          -       63
 
Total income                                      1,101    2,425
 
Total income comprises:
Dividends                                           323      333
Interest                                            778    2,092
 
                                                  1,101    2,425
 
Income from investments:
AIM-traded & listed securities                      344      347
Unquoted securities                                 751    2,014
 
                                                  1,095    2,361
 

† All investments have been designated at fair value through profit or loss on initial recognition, therefore all investment income arises on investments at fair value through profit or loss.

†† Other income on financial assets not designated fair value through profit
or loss.

3. Investment management fee
                                                   2012    2011
                                                  £'000   £'000
 
Investment management fee                         1,348   1,293
Performance fee                                       -       -
 
                                                  1,348   1,293
 

For the purposes of the revenue and capital columns in the income statement, the management fee has been allocated 25 per cent to revenue and 75 per cent to capital, in line with the Board's expected long term return in the form of income and capital gains respectively from the Company's investment portfolio.

The management agreement may be terminated by either party giving twelve months notice of termination. The Manager, ISIS EP LLP, receives a fee of 2 per cent per annum of the net assets of the Company, calculated and payable on a quarterly basis.

The Manager is entitled to a performance fee if at the end of any calculation period, the total return on shareholders' funds, exceeds the threshold of UK base rate plus 2 per cent on shareholders' funds (calculated on a compound basis). The Manager is entitled to 10 per cent of the excess. The amount of any performance fee which is paid in respect of a calculation period shall be capped at 5 per cent of shareholders' funds at the end of the period.

In addition, the Manager receives an annual secretarial and accounting fee of £36,380 (linked to the movement in the UK Retail Price Index ("RPI")), subject to annual review, plus a variable fee of 0.125 per cent of the net assets of the Company which exceed £5 million. The annual secretarial and accounting fee is subject to a maximum of £105,634 per annum (linked to the movement in RPI) subject to annual review. It is chargeable 100 per cent to revenue.

Amounts payable to the Manager at the year end are disclosed in note 10.

4. Other expenses
                                                                2012    2011
                                                               £'000   £'000
 
Directors' fees                                                   78      69
Secretarial and accounting fees                                  125     121

Remuneration of the auditors and their associates: - audit

                                                           22      21

- other services supplied pursuant to legislation (interim 5 5 review) - other services supplied relating to taxation

                    11       5
Other                                                            140     147
 
                                                                 381     368
 

The Chairman received £26,000 per annum (2011: £24,750). Each of the other Directors received £17,325 per annum (2011: £16,500).

Charges for other services provided by the auditors in the year ended 30 September 2012 were in relation to the interim reviews and tax compliance work (including iXBRL). The Audit Committee reviews the nature and extent of non-audit services to ensure that independence is maintained. The Directors consider that the auditors were best placed to provide such services.

All figures include irrecoverable VAT, where applicable. The Company is not registered for VAT.

5. Tax on ordinary activities

5a. Analysis of charge for the year

                                                   2012    2011
                                                  £'000   £'000
 
UK corporation tax                                    -       -
 

The income statement shows the tax change allocated between revenue and capital.

5b. Factors affecting tax charge for the year

The tax charge for the year is lower than the standard rate of corporation tax in the UK for a company. The differences are explained below:

                                      2012                    2011
                             Revenue Capital  Total  Revenue Capital  Total
                              £'000   £'000   £'000   £'000   £'000   £'000
 
Profit on ordinary
activities before taxation     383    5,581   5,964   1,734   5,241    6,975
 
Corporation tax at 26 per
cent (2011: 27 per cent)       100    1,451   1,551     468    1,415   1,883
Effect of:
Non-taxable dividend income    (84)      -      (84)    (89)      -      (89)
Non-taxable gains                -   (1,714) (1,714)      -   (1,676) (1,676)
Losses carried
forward/(utilised)               -      247     247       -     (118)   (118)
 
Tax charge/(credit) for the
year (note 5a)                  16      (16)      -     379     (379)      -
 

At 30 September 2012 the Company had surplus management expenses of £1,785,618 (2011: £ 834,592) which have not been recognised as a deferred tax asset. This is because the Company is not expected to generate taxable income in a future period in excess of the deductible expenses of that future period and, accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus expenses. Due to the Company's status as a VCT, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

6. Dividends
                                      2012                  2011
                             Revenue Capital Total Revenue Capital Total
                              £'000   £'000  £'000  £'000   £'000  £'000
 
Amounts recognised as
distributions to equity
holders in the year:
For the year ended 30
September 2012
- interim dividend of 2.5p
per ordinary share paid on
15 June 2012                    -     1,804  1,804    -       -      -
For the year ended 30
September 2011
- First interim dividend of
2.5p per ordinary share paid
on 17 June 2011                 -       -      -     515    1,200  1,715
- Second interim dividend of
4.5p per ordinary share paid
on 29 September 2011            -       -      -    1,299   1,778  3,077
For the year end 30
September 2010
- Final dividend of 3.0p per
ordinary share paid on 14
January 2011                    -       -      -     692    1,385  2,077
                                -     1,804  1,804  2,506   4,363  6,869
 
7. Returns per share

The 8.45p return per ordinary share (2011: 10.19p) is based on the net profit on ordinary activities after taxation of £5,964,000 (2011: £6,975,000) and on 70,544,594 ordinary shares (2011: 68,443,702), being the weighted average number of shares in circulation during the year.

8. Investments

All investments are designated fair value through profit or loss at initial recognition, therefore all gains and losses arise on investments designated as fair value through profit or loss.

Financial Reporting Standard 29 `Financial Instruments: Disclosures' (the Standard) requires an analysis of investments valued at fair value based on the reliability and significance of the information used to measure their fair value. The level is determined by the lowest (that is the least reliable or independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

* Level 1 - investment prices quoted in an active market.

* Level 2 - investments whose fair value is based directly on observable current market prices or indirectly being derived from market prices.

* Level 3 - investments whose fair value is determined using a valuation technique based on assumptions that are not supported by observable current market prices or based on observable market data.

                                                              2012    2011
                                                             £'000   £'000
 
Level 1
Listed interest bearing securities                           5,939  15,498
Investments traded on AIM                                   20,750  15,448
Investments listed on LSE                                    1,526   1,516
 
                                                            28,215  32,462
 
Level 2
Collective investment vehicle (Wood Street Microcap          4,183   2,863
Investment Fund)
 
Level 3
Unquoted investments                                        36,720  29,005
 
                                                            69,118  64,330
                                                              2012    2011
                                                             £'000   £'000
Equity shares                                               37,154  29,441
Loan notes                                                  25,947  19,391
Preference shares                                               78       -
Fixed income securities                                      5,939  15,498
 
                                                            69,118  64,330
 
                                             Level 1           Level 2  Level 3
                             Listed interest         Listed Collective
                                     bearing  Traded     on investment
                                  securities  on AIM    LSE    vehicle Unquoted     Total
                                       £'000   £'000  £'000      £'000    £'000     £'000
 
Opening book cost                     15,498  17,222  1,536      2,525   22,990    59,771
Opening unrealised
(depreciation)/appreciation                -  (1,774)   (20)       338    6,015     4,559
 
Opening valuation                     15,498  15,448  1,516      2,863   29,005    64,330
 
Movements in the year:
Purchases at cost                     88,909   2,543      -      1,000    6,601    99,053
Sales - proceeds                     (98,468)   (737)     -          -   (1,652) (100,857)
- realised gains on sales                  -     184      -          -      566       750
Unrealised losses realised
during the year                            -  (1,874)     -          -     (467)   (2,341)
Increase in unrealised
appreciation                               -   5,186     10        320    2,667     8,183
Closing valuation                      5,939  20,750  1,526      4,183   36,720    69,118
Closing book cost                      5,939  17,338  1,536      3,525   28,038    56,376
Closing unrealised
appreciation/(depreciation)                -   3,412   (10)        658    8,682    12,742
                                       5,939  20,750  1,526      4,183   36,720    69,118
 

During the year the Company incurred brokerage costs on purchases of £1,100 (2011: £3,100) and brokerage costs of sales of £nil (2011: £2,500) in respect of ordinary shareholder interests.

The gains and losses included in the above table have all been recognised in the income statement above

The Standard requires disclosure, by class of financial instruments, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. The information used in determination of the fair value of Level 3 investments is chosen with reference to the specific underlying circumstances and position of the investee company. The portfolio has been reviewed and both downside and upside reasonable possible alternatives have been identified and applied to the valuation of each of the unquoted investments. The inputs flexed in determining the reasonably possible alternative assumptions include the earnings stream and marketability discount. Applying the downside alternatives the value of the unquoted investments would be £2.14 million or 5.84 per cent lower. Using the upside alternative the value would be increased by £2.57 million or 7.00 per cent.

9. Debtors
                                                   2012    2011
                                                  £'000   £'000
 
Prepayments and accrued income                      310     586
                                                    310     586
 

10. Creditors (amounts falling due within one year)

                                                                2012    2011
                                                               £'000   £'000
 

Management, performance, secretarial and accounting fees due to the Manager

                                               397     357
Amounts due to brokers (for buybacks)                              -      43
Other creditors                                                   63      59
                                                                 460     459
 

11. Called-up share capital

Allotted, called-up and fully paid:

                                                                          £'000

Ordinary shares

76,789,184 ordinary shares of 10p each listed at 30 September 2011 7,679

4,077,587 ordinary shares of 10p each issued during the year                408

80,866,771 ordinary shares of 10p each listed at 30 September 2012 8,087

8,473,906 ordinary shares of 10p each held in treasury at 30 September (847) 2011

744,913 ordinary shares of 10p each repurchased during the year and (75) held in treasury

9,218,819 ordinary shares of 10p each held in treasury at 30 September (922) 2012

71,647,952 ordinary shares of 10p each in circulation at 30 September 7,165 2012

As at 16 November 2012 the Company's issued share capital was 80,866,771 ordinary shares, of which 9,218,819 shares were held in treasury. The number of shares in circulation was 71,647,952 ordinary shares carrying one vote each.

Treasury shares

The Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 came into force on 1 December 2003 and allowed the Company to hold shares acquired by way of market purchase as treasury shares, rather than having to cancel them. Shareholders have previously approved a resolution permitting the Company to issue shares from treasury at a discount to the prevailing NAV if the Board considers it in the best interests of the Company to do so. However, treasury shares will not be sold at a discount wider than the discount prevailing at the time the shares were initially bought back by the Company. It is the Board's intention only to use the mechanism of re-issuing treasury shares when demand for the Company's shares is greater than the supply available in the market place. Such issues would be captured under the terms of the Prospectus Directive and subject to the annual cap of €5 million on funds raised before requiring a full prospectus, although they would not be considered by HM Revenue & Customs to be new shares entitling the purchaser to initial income tax relief.

The Company does not have any externally imposed capital requirements.

Where shares are bought back but not cancelled the share capital remains unchanged. The NAV is calculated by using the number of shares in issue less those bought back and held in treasury.


12. Reserves
                               Share    Capital
                             premium redemption Capital Revaluation Revenue
                             account    reserve reserve     reserve reserve
                               £'000      £'000   £'000       £'000   £'000
 
At 1 October 2011             14,404      9,254  28,849       4,559     254
Cancellation of share
premium and capital
redemption reserve          (14,404)    (9,254)  23,658           -       -
Costs relating to the
cancellation of share
premium and capital
redemption reserve                 -          -    (10)           -       -
Gross proceeds of shares
issues                         3,727          -       -           -       -
Purchase of shares for
treasury                           -          -    (652)          -       -
Expenses of share issue and
buy backs                      (196)          -     (3)           -       -
Reallocation of prior year
unrealised gains                   -          - (2,341)       2,341       -
Realised on disposal of
investments*                       -          -     750           -       -
Net increase in value of
investments*                       -          -       -       5,842       -
Management fee capitalised*        -          - (1,011)           -       -
Taxation relief from
capital expenses*                  -          -      16           -       -
Revenue return on ordinary
activities after taxation*         -          -       -                 367
Dividends paid in the year         -          -  (1,804)          -       -
 
At 30 September 2012           3,531          -  47,452      12,742     621
 

At 30 September 2012, reserves distributable by way of dividend amounted to £48,073,000 (2011: £27,309,000) comprising the capital reserve and revenue reserve less the net unrealised loss on those investments whose prices are quoted in an active market and deemed readily realisable.

* The total of these items is £5,964,000, which agrees to the total profit on ordinary activities after taxation above.

On 2 November 2011, the share premium account and capital redemption reserve were cancelled by an Order of Court following the passing of a Special Resolution. The credit arising has been applied in crediting a special reserve, within the capital reserve, which shall be able to be applied in any manner in which the Company's profits available for distribution (as determined in accordance with section 649 of the Companies Act 2006) are able to be applied.

13. Net asset value per share

The net asset value per share and the net asset values attributable to the ordinary shares at the year end are calculated in accordance with their entitlements in the Articles of Association and were as follows:

                             Number of shares   Net asset value per  Net asset value 
                                                 share attributable     attributable
                              2012       2011          2012    2011      2012   2011
                            number     number         pence   pence     £'000  £'000
 

Ordinary shares (basic) 71,647,952 68,315,278 101.10 95.15 72,433 64,999

Ordinary shares 80,866,771 76,789,184 99.83 94.16 80,730 72,308 (treasury)

Basic net asset value per share is based on net assets at the year end, and on 71,647,952 (2011: 68,315,278) ordinary shares, being the respective number of shares in circulation at the year end.

The treasury net asset value per share as at 30 September 2012 included ordinary shares held in treasury valued at the mid share price of 90.00p at 30 September 2012 (2011: 86.25p).

14. Analysis of changes in cash

                                                   2012    2011
                                                  £'000   £'000
 
Beginning of year                                   542   1,868
Net cash inflow/(outflow)                         2,923  (1,326)
As at 30 September 2012                           3,465     542
 

15. Reconciliation of profit on ordinary activities before taxation to net cash (outflow)/inflow from operating activities

                                                        2012    2011
                                                       £'000   £'000
 

Profit on ordinary activities before taxation 5,964 6,975 Gains on investments

                                  (6,592) (6,211)
Decrease/(increase) in debtors                           276    (279)
Increase in creditors                                     44       3
Income reinvested                                        (29)      -

Net cash (outflow)/inflow from operating activities (337) 488

16. Contingencies, guarantees and financial commitments

There were no contingencies, guarantees or financial commitments of the Company as at 30 September 2012 (2011: nil).

17. Significant interests

There are no interests of 20 per cent or more of any class of share capital in any underlying holdings in investee companies.

Further information on the significant interests is disclosed above.

18. Financial instruments and associated risks

The Company's financial instruments comprise equity and fixed interest investments, cash balances and liquid resources. The Company holds financial assets in accordance with its investment policy to invest in a diverse portfolio of established and profitable UK unquoted companies and companies raising new share capital on AIM.

Fixed asset investments held (see note 8) are valued at fair value. For quoted securities this is either bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted. In respect of unquoted investments, these are fair valued by the Directors (using rules consistent with IPEV guidelines). The fair value of all other financial assets and liabilities is represented by their carrying value in the Balance sheet.

The Company's investing activities expose it to various types of risk that are associated with financial instruments and markets in which it invests. The most important types of financial risk to which the Company is exposed are market risk, credit risk and liquidity risk. The nature and extent of the financial instruments held at the balance sheet date and the risk management policies employed by the Company are discussed in notes 19 to 22.

19. Market risk

Market risk embodies the potential for both loss and gains and includes interest rate risk and price risk.

The Company's strategy on the management of investment risk is driven by the Company's investment objective as outlined in note 18. The management of market risk is part of the investment management process and is typical of private equity investment. The portfolio is managed in accordance with policies and procedures in place as described in more detail in the Report of the Directors, with an awareness of the effects of adverse price movements through detailed and continuing analysis, with an objective of maximising overall returns to shareholders. Investments in unquoted stocks and AIM traded companies, by their nature, involve a higher degree of risk than investments in the main market. Some of that risk can be mitigated by diversifying the portfolio across business sectors and asset classes. The Company's overall market positions are monitored by the Board on a quarterly basis.

Details of the Company investment portfolio at the balance sheet date are disclosed in the schedule of investments set out above. An analysis of investments between debt and equity instruments is disclosed in note 8.

38 per cent (2011: 26 per cent) of the Company's investments are listed on the London Stock Exchange, traded on AIM or invested through Wood Street Microcap Fund. A 5 per cent increase in stock prices as at 30 September 2012 would have increased the net assets attributable to the Company's shareholders and the total profit for the year by £1,323,000 (2011: £848,000); an equal change in the opposite direction would have decreased the net assets attributable to the Company's shareholders and the total profit for the year by an equal amount.

53 per cent (2011: 45 per cent) of the Company's investments are in unquoted companies held at fair value. Valuation methodology includes the application of earnings multiples derived from either listed companies with similar characteristics or recent comparable transactions. Therefore the value of the unquoted element of the portfolio may also be indirectly affected by price movements on the listed exchanges. A 5 per cent increase in the valuations of unquoted investments at 30 September 2012 would have increased the net assets attributable to the Company's shareholders and the total profit for the year by £1,836,000 (2011: £1,450,000); an equal change in the opposite direction would have decreased the net assets attributable to the Company's shareholders and the total profit for the year by an equal amount.

20. Interest rate risk

At 30 September 2012 £4,699,000 (2011: £9,498,000) fixed rate securities were held by the Company. As a result, the Company is subject to exposure to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates. However the effect of these interest rate changes is not materially significant.

At 30 September 2012 £25,947,000 (2011: £19,391,000) fixed rate loan notes were held by the Company. The weighted average coupon rate for the loan note securities is 9.41 per cent as at 30 September 2012 (2011: 9.59 per cent). Due to the complexity of the instruments and uncertainty surrounding timing of redemption the weighted average time for which the rate is fixed has not been calculated.

The table below summarises weighted average effective interest rates for the other fixed interest-bearing financial instruments:

Fixed Rate
                                 2012                          2011
                         Total Weighted   Weighted     Total Weighted   Weighted
                         fixed  average    average     fixed  average    average
                          rate interest   time for      rate interest   time for
                     portfolio     rate which rate portfolio     rate which rate
                         £'000        %   is fixed     £'000        %   is fixed
                                              days                          days
Fixed rate
Fixed interest           4,699     0.18         10     9,498     0.43          3
instruments
 
Floating rate

When the Company retains cash balances, the majority of cash is ordinarily held on interest bearing deposit accounts and, where appropriate, within an interest bearing money market open ended investment company ("OEIC"). The benchmark rate which determines the interest payments received on interest bearing cash balances is the bank base rate which was 0.5 per cent as at 30 September 2012 (2011: 0.5 per cent).

                                                   2012    2011
                                                  £'000   £'000
Floating rate
Floating rate instruments ("OEIC")                1,240   6,000
Cash at bank                                        465     542
Cash on deposit                                   3,000       -
                                                  4,705   6,542
 
21. Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Investment Manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date.

At the reporting date, the Company's financial assets exposed to credit risk
amounted to the following:
                                                   2012    2011
                                                  £'000   £'000
 
Investments in fixed rate instruments             4,699   9,498

Investments in floating rate instruments 1,240 6,000 Cash at bank

                                        465     542
Cash on deposit                                   3,000       -
Interest, dividends and other receivables           310     586
                                                  9,714  16,626
 

Credit risk arising on unquoted loan notes are considered in conjunction with the associated equity investment in the portfolio company.

Credit risk arising on fixed interest instruments is mitigated by investing in UK Government Stock.

Credit risk arising on floating rate instruments is mitigated by investing in money market open ended investment companies managed by BlackRock and JP Morgan Chase ("JPM"). Credit risk on unquoted loan stock held within unlisted investments is considered to be part of market risk as disclosed in note 19.

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the high credit quality of the brokers used. The Board monitors the quality of service provided by the brokers used to further mitigate this risk.

All assets of the Company which are traded on a recognised exchange are held by JPM, the Company's custodian. The Board monitors the Company's risk by reviewing the custodian's internal controls reports as described in the Corporate Governance section in the 2012 Annual Report and Accounts.

The cash held by the Company is held by JPM and Lloyds TSB. The Board monitors the Company's risk by reviewing regularly the internal control reports of these banks. Should the credit quality or the financial position of either bank deteriorate significantly the Investment Manager will seek to move the cash holdings to another bank.

There were no significant concentrations of credit risk to counterparties at 30 September 2012 or 30 September 2011. No individual investment exceeded 6.5 per cent of the net assets attributable to the Company's shareholders at 30 September 2012 (2011: 14.6 per cent).

22. Liquidity risk

The Company's financial instruments include investments in unquoted companies which are not traded in an organised public market as well as AIM-traded equity investments both of which generally may be illiquid. As a result, the Company may not be able to liquidate quickly some of its investments in these instruments at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer.

The Company's liquidity risk is managed on an ongoing basis by the Investment Manager in accordance with policies and procedures in place as described in the Report of the Directors above. The Company's overall liquidity risks are monitored on a quarterly basis by the Board.

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses.

At 30 September 2012 these investments were valued at £9,404,000 (2011: £16,040,000).


23. Related parties

Related party transactions include Management, Secretarial, Accounting and Performance fees payable to the Manager, ISIS EP LLP, as disclosed in notes 3, 4 and 10, and fees paid to the Directors as disclosed in note 4. In addition, the Manager operates a Co-investment Scheme, detailed in the Report of the Directors detailed above, whereby employees of the Manager are entitled to participate in all unquoted investments alongside the Company.

Annual General Meeting

The Company's Annual General Meeting will be held on Thursday, 10 January 2013 at 1:30pm at the Plaisters' Hall, One London Wall, EC2Y 5JU.

END

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

(Source: PR Newswire )
(Source: Quotemedia)

Advertisement
Advertisement



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.