Talisman First Venture Capital Trust PLC

 

The Directors announce the final results for the year ended 31 March 2010.

 

Performance

 

The Net Asset Value (NAV) per Ordinary Share at 31 March 2010 was 45.1p compared with 39.7p at 31 March 2009. This represents an increase of 13.6% over the year. The change in the value of the investment portfolio is analysed in the Summary of Portfolio Performance on page 10 of the Annual Report.

 

It is worth noting that the Company gained access to a number of high quality opportunities during the year. These included the public-to-private acquisition of LitComp plc, a transaction led by the Manager over a 15 month period, and participation in the syndicate which acquired the general insurer, esure, from Lloyds Banking Group. In addition, two new later stage oil and gas assets were secured via the Manager's longstanding presence in the energy services market.

 

In addition to the uplift in NAV, the liquidity of the fund also improved by £323,000 due to increased income generated by the private equity holdings and the net cash inflow from investment activity arising from the receipt of proceeds of two significant realisations during the year. The overdraft facility has been repaid in full and, as a result, there has been a corresponding decrease in finance costs from the previous year.

 

The underlying performance of the businesses in the AIM portfolio has also improved as market conditions recovered. This has been reflected in upward share price movements throughout the year. The Manager has taken the opportunity to sell holdings where it was perceived that there was limited future upside, while in other cases sales were enforced by other corporate events.

 

Dividends

 

The Board is not proposing payment of a dividend, because the Company does not currently have reserves from which to make such a distribution. Although reserves may be created by further realisations of investments above their cost, alongside a continuing improvement in the level of revenue receipts, the cancellation of the share premium account will also assist in the payment of future dividends, as set out later in this statement. The Company has also revoked investment company status to enable the distributions of gains arising on the disposals of investments, subject to the approval of the Board.

 

Investment strategy

 

The prime objective is to continue to build a diversified portfolio of private company holdings that will provide strong levels of yield, while maintaining an exposure to complementary investments in attractive AIM quoted companies with sufficient scale. A key element of the investment strategy is to complete transactions which fulfil VCT qualifying criteria so that the Company continues to meet all of the regulatory requirements necessary to preserve its VCT qualifying status.

 

Valuation process

 

Investments held by Talisman First Venture Capital Trust in private companies are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Investments quoted or traded on a recognised stock exchange, including the PLUS Market and the Alternative Investment Market (AIM), are valued at their bid price.

 

Realisations and portfolio developments

 

Further details of disposals and unrealised valuation movements can be found in the tables in the Investment Manager's Review on page 8, and in the Summary of Portfolio Performance on page 10, of the Annual Report.

 

Gains totalling £103,000 over the cost of the investment were achieved from realisations of unlisted investments during the course of the year while gains of £25,000 were realised on disposals of AIM investments. Compared to the March 2009 valuations unrealised gains on the unlisted portfolio of £18,000 were recognised and unrealised gains amounting to £81,000 arose on the AIM/PLUS portfolio as the markets improved during the year.

 

The Manager

 

Following the management buy-out from Aberdeen Asset Management PLC, completed by the senior members of the Manager's team in June 2009, the Company novated the investment management agreement to Maven Capital Partners UK LLP (Maven), as the entire investment team previously responsible for managing the Company had migrated to Maven.

 

Recovery of VAT

 

The Company is entitled to recover VAT paid on management fees for the period from inception until October 2008, when a European Court ruling dictated that such fees were exempt from VAT. The previous manager, Aberdeen Asset Managers, has recently offered to refund £56,501 representing the VAT charged on management fees for the period from 1 October 2005 to 1 October 2008. The Board has accepted this offer and the amount, which was received on 7 June 2010, has been recognised in the Financial Statements.

 

Co-investment schemes

 

A co-investment scheme which allows executive members of the Manager to invest alongside the Company continued to operate during the year. The scheme operates through a nominee company which invests alongside the Company in each and every transaction made by the Company, including any follow-on investments. The scheme more closely aligns the interests of the executives and the Company's Shareholders, while providing an incentive to enable the Manager to retain the existing skills and capacity of the Manager's investment team in a highly competitive market.

 

Similarly, the Manager operates a separate scheme that allows high net worth individuals, as defined by Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001, to invest alongside its clients; the independent Directors may opt to participate in this.

 

VCT qualifying status

 

The Company has to continuously meet certain criteria for it to remain qualified as a Venture Capital Trust. The Board regularly reviews the Company's compliance with these criteria and is pleased to confirm that all tests continue to be met.

 

Articles of Association

 

Following the final implementation of the Companies Act 2006, it is advisable to bring the Company's Articles of Association up to date. A Resolution to amend the Company's Articles of Association will be put to the Annual General Meeting and the appendix to the Notice of Annual General Meeting explains the proposed changes.

 

Share premium account and distributable reserve

 

To date, the Company has been unable to pay dividends to Shareholders or buy back shares for cancellation due to previously incurred losses, both capital and revenue, and the lack of a distributable reserve.

 

While the Company is now capable of producing a revenue surplus on an annual basis and its portfolio now contains some assets that are capable of generating meaningful capital gains on disposal, dividends can only be paid out of distributable reserves and the purchase of shares by the Company can only be funded through distributable reserves or the proceeds of a fresh issue of shares made for that purpose. Subject to the approval of Shareholders and clearance by the Companies Court, the Board considers it sensible to cancel the share premium account to give the Company greater flexibility in returning funds to Shareholders, whether through the payment of dividends, share buy-backs or other means.

 

In a Circular to Shareholders, enclosed with the Annual Report, the Board has set out proposals for the cancellation of the share premium account and recommends that Shareholders support these proposals at the General Meeting to be held on 1 September 2010. If the proposals are approved, the Company will seek to have the cancellation of the share premium account and the creation

of a special distributable reserve confirmed by the Companies Court.

  

Outlook and future strategy

 

The primary focus will be to continue to grow the number of unquoted holdings in profitable and yield producing private companies. Despite the impact of the recession, the NAV has proved resilient in recent years and the Board is very encouraged by the increasing breadth in the portfolio, as well as the income being generated from these assets.

 

AIM has improved over the reporting period, but new IPOs are in short supply and liquidity remains difficult. Shareholders can, therefore, anticipate a continuing focus on realising the AIM portfolio unless there is a specific higher value exit potential for those companies through an M&A process identifiable by the Manager in the short to medium term.

 

One of the effects of the recent economic difficulties and the lack of liquidity in the banking market has been to increase the range and quality of companies seeking capital from generalist VCTs. While the Board notes the quality of new deal flow that the Manager is currently seeing across its UK regional network, increased competition appears to be re-emerging for later stage private equity transactions. These market trends and conditions are expected to persist for some time and the Manager will remain focussed on acquiring well priced and proven companies capable of generating an attractive paid yield from the outset. Overall, your Company is well placed to continue its recent upward trends in Net Asset Value and revenue generation and has sufficient cash to participate in suitable new transactions.

 

Talisman First Venture Capital Trust PLC Income Statement For the year ended 31 March 2010
	Year ended 31 March 2010			Year ended 31 March 2009
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments	-	276	276	-	(390)	(390)
Income	99	-	99	105	-	105
Investment management fees	(8)	(32)	(40)	(21)	(84)	(105)
Finance costs	-	-	-	(2)	(6)	(8)
Other expenses	(46)	-	(46)	(42)	-	(42)
Net return/(loss) on ordinary activities before taxation	45	244	289	40	(480)	(440)
Tax on ordinary activities	(7)	7	-	(1)	1	-
Return attributable to equity shareholders	38	251	289	39	(479)	(440)
Earnings per share (pence)	0.7p	4.7p	5.4p	0.7p	(9.0p)	(8.3p)

 

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement.

 

All items in the above statement are derived from continuing operations. The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.

 

The total column of this statement is the Profit and Loss Account of the Company.

 

Talisman First Venture Capital Trust PLC Reconciliation Of Movements In Shareholders' Funds For the year ended 31 March 2010
	Year ended 31 March 2010	Year ended 31 March 2009
	£'000	£'000
Opening Shareholders' funds	2,107	2,547
Return attributable to Equity Shareholders	289	(440)
Closing Shareholders' funds	2,396	2,107

 

 

 

 

Talisman First Venture Capital Trust PLC Balance Sheet As at 31 March 2010
	31 March 2010		31 March 2009
	£'000	£'000	£'000	£'000
Fixed assets
Investments at fair value through profit or loss		1,944		2,081
Current assets
Debtors	171		68
Cash and overnight deposits	301		14
	472		82
Creditors
Amounts falling due within one year	20		20
Bank overdraft	-		36
	20		56
Net current assets		452		26
Net assets		2,396		2,107
Capital and reserves
Called up share capital		2,655		2,655
Share premium account		2,389		2,389
Capital reserve - realised		(754)		(857)
Capital reserve - unrealised		(981)		(1,129)
Revenue reserve		(913)		(951)
Net assets attributable to Ordinary Shareholders		2,396		2,107
Net Asset Value per Ordinary Share (pence)		45.1		39.7

 

 

  

Talisman First Venture Capital Trust PLC Cash Flow Statement For the Year ended 31 March 2010
	Year ended 31 March 2010		Year ended 31 March 2009
	£'000	£'000	£'000	£'000
Operating activities
Investment income received	112		89
Deposit interest received	-		2
Investment management fees paid	(96)		(133)
Other cash payments	(46)		(36)
Net cash outflow from operating activities		(30)		(78)
Taxation
Corporation tax		-		-
Financial investment
Purchase of investments	(371)		(202)
Sale of investments	724		504
Net cash inflow from financial investment		353		302
Equity dividends paid		-		-
Net cash inflow before financing		323		224
Financing
Bank overdraft interest paid	-		(8)
Net cash outflow from financing		-		(8)
Increase in cash		323		216

 

Accounting Policies

 

(a) Basis of preparation

 

The Financial Statements have been prepared in accordance with applicable accounting standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' (the SORP) issued in January 2009. The disclosures on going concern on page 22 of the Annual Report form part of these Financial Statements.

 

(b) Income

 

Dividends receivable on equity shares are treated as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available, dividends receivable on or before the year end are treated as revenue for the year. Provision is made for any dividends not expected to be received. The fixed returns on debt securities and non-equity shares are recognised on a time apportionment basis so as to reflect the effective interest rate on the debt securities and shares. Provision is made for any fixed income not expected to be received. Interest receivable from cash and short term deposits and interest payable are accrued to the end of the year.

 

(c) Expenses

 

All expenses are accounted for on an accruals basis. Expenses are charged through the revenue account except as follows:

 

·      expenses which are incidental to the acquisition and disposal of an investment are charged to capital; and

 

·      expenses are charged to realised capital reserves where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect the investment management fee, performance fee and finance costs have been allocated 20% to revenue and 80% to realised capital reserves to reflect the Company's investment policy and prospective income and capital growth.

 

(d) 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 in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the balance sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the Financial Statements which are capable of reversal in one or more subsequent periods.

 

Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or subsequently enacted at the balance sheet date.

 

The tax effect of different items of income/gain and expenditure/loss is allocated between capital reserves and revenue account on the same basis as the particular item to which it relates using the Company's effective rate of tax for the period.

 

(e) Investments

 

In valuing unlisted investments the Directors follow the criteria set out below. These procedures comply with the revised International Private Equity and Venture Capital Valuation Guidelines for the valuation of private equity and venture capital investments. Investments are recognised at their trade date and are valued at fair value, which represent the Directors' view of the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction. This does not assume that the underlying business is saleable at the reporting date or that its current shareholders have an intention to sell their holding in the near future.

 

A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.

 

 

1.   For investments completed within the 12 months prior to the reporting date and those at an early stage in their development, fair value is determined using the Price of Recent Investment Method, except that adjustments are made when there has been a material change in the trading circumstances of the company or a substantial movement in the relevant sector of the stock market.

 

2.   Whenever practical, recent investments will be valued by reference to a material arm's length transaction or a quoted price.

 

3.   Mature companies are valued by applying a multiple to their fully taxed prospective earnings to determine the enterprise value of the company.

 

3.1        To obtain a valuation of the total ordinary share capital held by management and the institutional investors, the value of third party debt, institutional loan stock, debentures and preference share capital is deducted from the enterprise value. The effect of any performance related mechanisms is taken into account when determining the value of ordinary share capital.

 

3.2        Preference shares, debentures and loan stock are valued using the Price of Recent Investment Method. When a redemption premium has accrued, this will only be valued if there is reasonable prospect of it being paid. Preference shares which carry a right to convert into ordinary share capital are valued at the higher of the Price of Recent Investment Method basis and the price/earnings basis, both described above.

 

4.   Where there is evidence of impairment, a provision may be taken against the previous valuation of the investment.

 

5.   In the absence of evidence of a deterioration, or strong defensible evidence of an increase in value, the fair value is determined to be that reported at the previous balance sheet date.

 

6.   All unlisted investments are valued individually by the Manager's Portfolio Management Team. The resultant valuations are subject to detailed scrutiny and approval by the Directors of the Company.

 

7.   In accordance with normal market practice, investments listed on the Alternative Investment Market or a recognised stock exchange are valued at their bid market price.

 

(f) Fair value measurement

 

Fair value is defined as the price that the Company would receive upon selling an investment in a timely transaction to an independent buyer in the principal or the most advantageous market of the investment. A three-tier hierarchy has been established to maximise the use of observable market data and minimise the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on best information available in the circumstances.

 

The three-tier hierarchy of inputs is summarised in the three broad levels listed below:

 

·      Level 1 - quoted prices in active markets for identical investments;

 

·      Level 2 - other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk etc); and

 

·      Level 3 - significant unobservable inputs (including the Company's own assumptions in determining the fair value of investments).

 

(g) Gains and losses in investments

 

When the Company sells or revalues its investments during the year, any gains or losses arising are credited/charged to the Income Statement.

 

Movements in reserves

 

	Share premium account	Capital reserve - realised	Capital reserve - unrealised	Revenue reserve
	£'000	£'000	£'000	£'000
At 31 March 2009	2,389	(857)	(1,129)	(951)
Net return on ordinary activities	-	103	148	38
At 31 March 2010	2,389	(754)	(981)	(913)

 

Returns per Ordinary Share

 

The returns per Ordinary Share are based on the following figures:

 

	Year ended	Year ended
	31 March 2010	31 March 2009
Weighted average number of Ordinary Shares in issue	5,309,102	5,309,102
Revenue return	£38,000	£39,000
Capital return	£251,000	(£479,000)
Total return	£289,000	(£440,000)

 

Net Asset Value per Ordinary Share

 

Net Asset Value per Ordinary Share as at 31 March 2010 has been calculated using the number of Ordinary Shares in issue at that date of 5,309,102 (2009: 5,309,102).

 

Principal risks and uncertainties

 

The principal risks and uncertainties facing the Company relate to its investment activities and include market price, interest rate and liquidity risk. An explanation of these risks and how they are managed is contained in Note 18 to the Financial Statements.

 

Additional risks faced by the Company, and the mitigation approach adopted by the Board, are as follows:

 

·      investment objective: the Board's aim is to maximise returns to Shareholders while managing risk by ensuring an appropriate diversification of investments;

 

·      investment policy: inappropriate stock selection leading to underperformance in absolute and relative terms is a risk which the Manager mitigates by operating within investment guidelines and regularly monitoring performance against the peer group. The regulations affecting Venture Capital Trusts are central to the Company's investment policy;

 

·      discount volatility: due to lack of liquidity in the secondary market, venture capital trust shares tend to trade at discounts to their net asset values and can be subject to influence by market volatility; and

 

·      regulatory risk: the Company operates in a complex regulatory environment and faces a number of related risks. A breach of Section 274 of the Income Tax Act 2007 could result in the Company being subject to capital gains tax on the sale of its investments. A breach of the VCT Regulations could result in the loss of VCT status and a consequent loss of tax reliefs currently, or previously, available to Shareholders. A serious breach of other regulations, such as the UKLA Listing Rules or the Companies Act, could lead to suspension of trading in the Company's shares at the Stock Exchange and reputational damage.

 

The Board receives quarterly reports from the Manager in order to monitor compliance with regulations.

At least twice each year the Board considers all of the above risks and the measures in place to manage them.

 

  

Other information

 

The Annual General Meeting of the Company will be held on 1 September 2010, commencing at 11.00 a.m.

 

This Announcement has been prepared on the same basis as the Annual Report and Financial Statements for the year ended 31 March 2009. The Annual Report and Financial Statements for the year ended 31 March 2010 will be filed with the Registrar of Companies and issued to Shareholders in due course.

 

The financial information contained within this Announcement does not constitute the Company's statutory Financial Statements as defined in the Companies Act 2006. The statutory Financial Statements for the year ended 31 March 2009 have been delivered to the Registrar of Companies and contained an audit report which was unqualified and did not constitute statements under Sections 237(2) or (3) of the Companies Act 1985.

 

Copies of this announcement will be available to the public at the office of Maven Capital Partners UK LLP, 149 St Vincent Street, Glasgow G2 5NW; at the registered office of the Company, 9-13 St. Andrew Street, London EC4A 3AF; and on the Company's website at: www.mavencp.com/talismanfirst

 

Directors' responsibility statement

 

The Directors believe that, to the best of their knowledge:

 

·      the Financial Statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities and financial position and profit or loss of the Company as at 31 March 2010 and for the year to that date; and

 

·      the Directors' Report includes a fair review of the development and performance of the Company, together with a description of the principal risks and uncertainties that it faces.

 

By Order of the Board

Maven Capital Partners UK LLP

Secretary

 

23 July 2010