Close Brothers Venture Capital Trust PLC Report & Accounts for the year to 31 March 2005 The new Express by Holiday Inn at Stansted Airport developed by Kew Green VCT (Stansted) Limited Barleycroft Care Home in Romford The Bell Hotel in Sandwich recently acquired by The Place Sandwich VCT Limited The Bear Hotel in Hungerford recently acquired by The Bear Hungerford Limited CLOSE BROTHERS VENTURE CAPITAL TRUST PLC CONTENTS Page 2 3 4 5 Directors and administration Investment objectives Financial highlights and financial calendar Chairman’s statement 7 The Board of Directors 8 9 The Manager The portfolio of investments 18 Report of the Directors 21 Statement of corporate governance 23 Directors’ remuneration report 25 Independent auditors’ report 27 Statement of total return 28 Balance sheet 29 Cash flow statement 30 Notes to the financial statements 40 Notice of meeting 1 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC DIRECTORS AND ADMINISTRATION Company number 3142609 Directors D J Watkins MBA (Harvard), Chairman (US citizen) R M Davidson J M B L Kerr ACMA J G T Thornton MBA, FCA Investment Manager Close Venture Management Limited 4 Crown Place London EC2A 4BT Tel: 020 7422 7830 Secretary and Registered Office C Kinnear Registrar 10 Crown Place London EC2A 4FT Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4BR Tel: 0870 162 3100 Auditors Deloitte & Touche LLP London Safe Custodians RBSI Custody Bank Ltd Liberte House 19-23 La Motte Street St Helier Jersey JE4 5RL Capita Trust Company Ltd Guildhall House 81-87 Gresham Street London EC2V 7QE 2 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC INVESTMENT OBJECTIVES Close Brothers Venture Capital Trust PLC (“Close Brothers VCT” or “the Company”) is a venture capital trust which raised a total of £39.7 million through an issue of Ordinary Shares in the spring of 1996 and through an issue of ‘C’ Shares in the following year. The Company offers tax-paying investors substantial tax benefits at the time of investment, on payment of dividends and on the ultimate disposal of the investment. Its investment strategy is to minimise the risk to investors whilst maintaining an attractive yield. This is achieved as follows: • qualifying unquoted investments are predominantly in specially-formed companies which provide a high level of asset backing for the capital value of the investment; • Close Brothers VCT invests alongside selected partners with proven experience in the sectors concerned; • • • investments are normally structured as a mixture of equity and loan stock. The loan stock represents the majority of the finance provided, and is secured on the assets of the investee company. Funds managed or advised by Close Venture Management Limited typically own 50 per cent. of the equity of the investee company; other than the loan stock issued to funds managed or advised by Close Venture Management Limited and, in certain circumstances, temporary bridging finance prior to further investment by funds managed or advised by Close Venture Management Limited, investee companies do not normally have external borrowings; and a clear strategy for the realisation of each qualifying unquoted investment within five years or shortly thereafter is identified from the outset. 3 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC FINANCIAL HIGHLIGHTS Dividends per ordinary share (pence) Revenue return per ordinary share (pence) Capital return per ordinary share (pence) Net asset value per ordinary share (pence) Shareholder value created per share since launch: Year ended 31 March Year ended 31 March 2005 9.00 5.87 5.91 2004 8.50 5.60 7.10 115.89 113.11 Ordinary shares ‘C’ shares (Pence) (Pence) Gross revenue dividends for the year ended 31 March 1997 Gross revenue dividends for the year ended 31 March 1998 Gross interim dividends and net final dividend for the year ended 31 March 1999 Net revenue and capital dividends for the year ended 31 March 2000 Net revenue and capital dividends for the year ended 31 March 2001 Net revenue dividends for the year ended 31 March 2002 Net revenue and capital dividends for the year ended 31 March 2003 Net revenue and capital dividends for the year ended 31 March 2004 Net revenue and capital dividends for the year ended 31 March 2005 Total dividends paid or declared to date Net asset value Total return to 31 March 2005 5.00 6.00 7.75 8.55 7.50 7.50 8.00 8.50 9.00 67.80 115.89 183.69 – 5.00 6.25 4.50 7.50 7.50 8.00 8.50 9.00 56.25 115.89 172.14 Notes: i) Dividends paid before 5 April 1999 were paid to qualifying shareholders inclusive of the associated tax credit. The dividends for the year to 31 March 1999 were maximised in order to take advantage of this tax credit. ii) A capital dividend of 2.55 pence in the year to 31 March 2000 enabled the Ordinary Shares and the ‘C’ Shares to merge on an equal basis. iii) Revenue dividends to date amount to 55.30 pence for holders of original Ordinary Shares and 46.30 pence for holders of original ‘C’ Shares. iv) Capital dividends to date amount to 12.50 pence for holders of original Ordinary Shares and 9.95 pence for holders of original ‘C’ Shares. v) All dividends paid by the Company are free of income tax. It is an Inland Revenue requirement that dividend vouchers indicate the tax element should dividends have been subject to income tax. Investors should ignore this figure on their dividend voucher and need not disclose any income they receive from a VCT on their tax return. vi) The net asset value of the Company is not its share price as quoted on the official list of the London Stock Exchange. The share price of the Company can be found in the Investment Companies section of the Financial Times on a daily basis. FINANCIAL CALENDAR Ex date for dividend Record date for final dividend Annual General Meeting Posting of dividend cheques in respect of the final dividend Announcement of interim results for the six months ended 30 September 2005 Payment of interim dividend 4 15 June 2005 17 June 2005 11 July 2005 14 July 2005 December 2005 January 2006 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC CHAIRMAN’S STATEMENT Introduction The progress of your Company’s investment portfolio during the year has continued to be encouraging. As well as the sale of the five homes for people with learning disabilities for a profit of £4.0 million on cost of £9.9 million, as referred to in last year’s statement, the Company also sold its investment in the Odyssey Glory Mill health and fitness club outside Beaconsfield for a profit of £1.3 million on a cost of £4.5 million. The disposals have enabled the Company’s total dividend to be increased from last year’s 8.50 pence per share to 9.00 pence per share for the year to 31 March 2005. Investments of £3.4 million have been made in five new companies, together with follow on investments of £3.9 million in four existing investee companies. As a result of the disposals, the realised capital reserve now stands at £3.5 million with the reserve for unrealised appreciation amounting to a further £3.5 million. Your Company’s net asset value per share has risen by a further 2.4 per cent. to 115.89 pence per share. The capital return of 5.91 pence per share combined with the revenue return, has resulted in an overall return of 11.78 pence per share for the year. This builds on strong returns over the previous years and your Company has now paid or declared total dividends since launch for the Ordinary Shares and ‘C’ Shares (now converted) amounting to 67.80 pence and 56.25 pence per share respectively. The performance of the market value of the Ordinary Shares against the FTSE 100, with dividends reinvested, in both cases, is shown below. Close Brothers VCT FTSE Index h t w o r G e g a t n e c r e P 150 120 90 60 30 0 -30 149.0 58.0 01/97 07/97 01/98 07/98 01/99 07/99 01/00 07/00 01/01 07/01 01/02 07/02 01/03 07/03 01/04 07/04 From 21 November 1996 to 31 March 2005 Review of Investments Our key investment areas continue to be the hotel, care home, leisure and residential property development sectors. In the hotel sector, we have seen an uplift in the valuation of our investment in the Days Hotel in the Mailbox development in Birmingham over the course of the year and are currently preparing to re-brand the hotel as a Ramada which should enhance the hotel’s profitability. The new 183 bedroom Stansted 5 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC CHAIRMAN’S STATEMENT (continued) Express by Holiday Inn hotel at Stansted Airport is now open and trading to date has been very encouraging, leading to an increase of £1.1 million in the valuation of the Company’s investment. Recently the Company has made two additional investments in the sector, in The Place Sandwich Limited, which acquired the Bell Hotel in Sandwich in January, and The Bear Hungerford Limited, which acquired the historic Bear Hotel in Hungerford in March of this year. Both of these latter hotels are undergoing significant refurbishment. In the care home sector the very successful sale of our five homes for people with learning disabilities in East Anglia was completed in April 2004 and was mentioned in my last statement. The newly built 80 bed nursing home in Romford owned by Barleycroft Care Home Limited opened in January of this year and is filling swiftly. Meanwhile performance at the 75 bed home in Dover owned by Applecroft Care Home Limited is continuing to improve. Further opportunities in the care home sector are currently under negotiation. In the leisure sector, the most significant event was the successful disposal in December 2004 of the Company’s investment in Odyssey Glory Mill Limited which built and operated a health and fitness club outside Beaconsfield. This generated a capital profit of £1.3 million on total cost of £4.5 million as well as a running return in excess of 10 per cent. per annum. In the cinema arena, profits at the Cambridge Arts Picturehouse were lower than the previous year but the recent independent valuation of the cinema increased as the impact of a new cinema in Cambridge was less than originally feared. The performance of the Liverpool Picturehouse at FACT continued to improve and the Company has invested £0.9 million as part of a £2.5 million investment in CS (Greenwich) Limited, which is undertaking the redevelopment of a cinema in Greenwich, London, expected to re-open in September of this year. The Bold Pub Company Limited, in which the Company invested a further £1 million during the course of the year, has shown continued progress, now owning 27 pubs, principally in the North West of England. Meanwhile new investments have been made in The Independent Pub Company (VCT) Limited, which has acquired the Pelican public house outside Hungerford, and Churchill Taverns VCT Limited, which has acquired and refurbished Ye Three Fyshes public house in Turvey, outside Bedford. In the residential development sector, which is restricted to 20 per cent. of the portfolio, we continue to have four companies established with separate developers. Slower than anticipated sales progress and some unforeseen additional costs have led us to make a provision against the holding value of one of these, but dividends were received from the remaining three companies during the course of the year, with further dividends anticipated in the current year, in addition to the running return provided by the loan stock from all four. Results and Dividend As at 31 March 2005 the net asset value was £41.6 million or 115.9 pence per share, which compares with a net asset value at 31 March 2004 of £40.6 million or 113.1 pence per ordinary share. Net revenue income before taxation was £2.9 million (2004: £2.8 million), out of which the Company paid an interim revenue dividend of 2.80 pence per share. The Company also had sufficient capital profits to pay an interim capital dividend of 1.45 pence per share. The board now proposes a final revenue dividend of 2.95 pence per share and a final capital dividend of 1.80 pence per share, resulting in total revenue dividends for the year of 5.75 pence and total capital dividends of 3.25 pence, or 9.00 pence per share in total (2004: total dividends of 8.50 pence per share). The final dividends for the year ended 31 March 2005 will be paid on 14 July 2005 to shareholders registered on 17 June 2005. David Watkins Chairman 9 June 2005 6 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC THE BOARD OF DIRECTORS The following are the Directors of the Company, all of whom operate in a non-executive capacity: David Watkins MBA (Harvard), Chairman (60). From 1972 until 1991 he worked at Goldman Sachs, where he was Head of Euromarkets Syndication and Head of the European Real Estate Department. He subsequently joined Mountleigh Group PLC where he worked as a director for 12 months on the restructuring of the business. Until late 1995 he worked at Baring Securities Limited as Head of Equity Capital Markets - London, before leaving to join Capital Risk Strategies (UK) Limited, a consultancy formed to provide risk management solutions to large corporations. From 1985 to 1990 he was a director of the Association of International Bond Dealers, and from 1986 to 1990 was a member of the Council of the London Stock Exchange. He is currently a Director of Close Income & Growth VCT PLC and a number of private UK companies. Roderick Davidson (67). He joined B S Stock & Co, stockbrokers in Bristol in 1960, becoming a partner in 1965 and managing director of Stock Beech & Co. Limited in 1985. In 1990 he joined Albert E Sharp where he managed investment portfolios on behalf of pension funds, charitable trusts and private investors. He retired in the spring of 1998. He is chairman of Close Brothers Development VCT PLC. John Kerr ACMA (62). John Kerr has worked as a venture capitalist and also in manufacturing and service industries. He held a number of finance and general management posts in the UK and USA, before joining SUMIT Equity Ventures, an independent Midlands based venture capital company, where he was managing director from 1985 to 1992. He then became chief executive of Price & Pierce Limited, which acted as the UK agent for overseas producers of forestry products, before leaving in 1997 to become finance director of Ambion Brick, a building material company bought out from Ibstock PLC. After retiring in 2002, he now works as a consultant. He is also a Director of Close Income & Growth VCT PLC. Jonathan Thornton MBA, FCA (58). He retired as a director of Close Brothers Group plc in 1998. In 1984 he was responsible for establishing Close Brothers Private Equity. Prior to this he worked for both 3i plc and Cinven. He is a director of Close Brothers Development VCT PLC. 7 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC THE MANAGER Close Venture Management Limited, which is authorised and regulated by the Financial Services Authority, is the Manager of Close Brothers Venture Capital Trust PLC. In addition to Close Brothers VCT, it manages a further seven VCTs: Close Brothers Protected VCT PLC, which raised £27.9 million in 1997, co-invests alongside Close Brothers Venture Capital Trust PLC; Close Brothers Development VCT PLC, which raised £14.6 million in 1999 and a further £11.5 million in 2002/3 and £7.0 million in 2003/4 to provide development capital to unquoted companies; Close Technology & General VCT which has raised £14.3 million to invest in both ‘old economy’ and ‘new economy’ businesses; Close Income & Growth VCT which raised £45.3 million in 2004/5 to invest in higher growth companies and asset-based businesses in the leisure sector and spin outs from Brunel University; and three existing Murray VCTs formerly managed by Aberdeen Asset Management Limited. Close Venture Management Limited also manages Bamboo Investments PLC, which specialises in technology investments and acts as investment adviser to the Healthcare and Leisure Property Fund PLC, which co-invests in asset-based businesses alongside Close Brothers Venture Capital Trust PLC. Close Venture Management won the “Best VCT Provider” category in the Professional Adviser Awards 2005. The Manager’s ultimate parent company is Close Brothers Group plc, a substantial independent merchant banking group incorporated in the United Kingdom and listed on the London Stock Exchange. Close Brothers Group has extensive experience in asset-based finance over a range of specialised lending activities. The following are specifically responsible for the management and administration of the VCTs managed by Close Venture Management, including Close Brothers Venture Capital Trust PLC: Patrick Reeve MA, ACA (45). He qualified as a chartered accountant with Deloitte Haskins & Sells before joining Cazenove & Co where he spent three years in the corporate finance department. He joined the Close Brothers Group in 1989, initially in the development capital subsidiary, where he was a director specialising in the financing of smaller unquoted companies. He joined the corporate finance division in 1991, where he was also a director. He established Close Venture Management with the launch of Close Brothers Venture Capital Trust PLC in the spring of 1996. Henry Stanford MA, ACA (40). He qualified as a chartered accountant with Arthur Andersen before joining the corporate finance division of the Close Brothers Group in 1992. He became an assistant director in 1996 and transferred to Close Venture Management in 1998 to concentrate on VCT investment. Will Fraser-Allen BA (Hons), ACA (34), qualified as a chartered accountant with Cooper Lancaster Brewers in 1996 before specialising in corporate finance and investigation. He joined Close Venture Management in 2001. Emil Gigov BA (Hons), ACA (35), qualified as a chartered accountant with KPMG in 1997 and subsequently worked in KPMG’s corporate finance division working on the media, marketing and leisure sectors. He joined Close Venture Management in 2000. David Gudgin BSc (Hons), ACMA (32), after working for ICL from 1993 to 1999 where he qualified as an accountant, he joined 3i Plc as an investment manager based in London and Amsterdam. In 2002 he joined Foursome Investments, the venture capital arm of the Englehorn family, responsible for investing an evergreen fund of US$80 million, before joining Close Venture Management Limited in 2005. Robert Whitby-Smith BA (Hons), MSI, ACA (30), qualified as a chartered accountant with KPMG in their corporate finance division. From 2000 to early 2005 he worked in the UK corporate finance departments of Credit Suisse First Boston and subsequently ING Barings, where he was a vice president. He joined Close Venture Management Limited in 2005. Ed Lascelles BA (Hons) (29), joined the corporate broking department of Charterhouse Securities in 1998 focusing on primary and secondary equity fundraisings. He then moved to the corporate finance department of ING Barings in 2000, retaining his focus on smaller UK companies. He joined Close Venture Management Limited in 2004. Mark Toomey BA (Hons) (28), after graduating from The London School of Economics with a degree in Geography and Economics, he joined Lee & Allen Consulting focusing on forensic accounting. He joined Close Venture Management Limited in 2001. 8 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC THE PORTFOLIO OF INVESTMENTS The following is a summary of qualifying investments at 31 March 2005, comprising amounts invested and scheduled for investment, and after including the revaluations referred to in the Chairman’s statement above: 4,600 3,000 1,000 1,000 9,600 1,925 2,000 3,925 180 1,210 200 900 1,260 Sector and investment Hotels Premier VCT (Mailbox) Limited Kew Green VCT (Stansted) Limited The Place Sandwich VCT Limited The Bear Hungerford Limited Total investment in the hotel sector Care Homes Applecroft Care Home Limited Barleycroft Care Home Limited Total investment in the care home sector Leisure Churchill Taverns VCT Limited City Screen (Cambridge) Limited City Screen (Liverpool) Limited CS (Greenwich) Limited The Bold Pub Company Limited The Independent Pub Company VCT Limited Residential property development Chase Midland VCT Limited Country & Metropolitan VCT Limited Prime VCT Limited Youngs VCT Limited Total investment in the residential property development sector Valuation Valuation Reserved Investment Cumulative 31 March 31 March Valuation for at cost revaluation £’000 £’000 2005 £’000 2004 movement investment £’000 £’000 £’000 2,200 1,101 – – 6,800 4,101 1,000 1,000 5,688 2,000 1,112 1,101 – – – – – 2,000 – 700 3,301 12,901 7,688 2,213 2,700 – – – – 295 (22) – 36 1,925 2,000 1,000 1,000 3,925 2,000 180 – – – – – 1,505 1,336 169 178 900 1,296 180 – 260 – 275 275 – – – – – – – – – – – – (2) – 36 – 203 – – (100) – 1,600 3,000 2,200 1,200 – – (100) – 1,600 3,000 2,100 1,200 1,600 3,000 2,200 1,200 8,000 (100) 7,900 8,000 (100) Total investment in the leisure sector 4,040 309 4,349 1,776 290 – 290 – Total qualifying investments 25,565 3,510 29,075 19,464 2,316 2,975 9 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC THE PORTFOLIO OF INVESTMENTS (continued) HOTELS 1. Kew Green VCT (Stansted) Limited Kew Green VCT (Stansted) was established to develop and operate a limited service hotel under the “Express by Holiday Inn” brand at Stansted Airport. The hotel opened in January 2005 and initial trading has been very encouraging. Date of initial investment: Operating partner: Amount invested at 31 March 2005: Further amount reserved for investment: Proportion of share capital and voting rights held: 27% March 2003 Kew Green Hotels Limited £3.00 million £2.00 million Latest audited financial information 31 August 2004 Turnover for the year Loss before taxation for the year Accumulated retained losses Net assets £’000 – 14 16 1,978 Close Brothers Protected VCT PLC and Healthcare & Leisure Property Fund PLC, which are also managed or advised by Close Venture Management had invested at 31 March 2005 £2 million and £0.5 million respectively in the company. Subsequently Close Brothers Venture Capital Trust PLC and Close Brothers Protected VCT PLC have each invested a further £1 million. The investment is valued based upon the company’s net asset value as adjusted for the revaluation of the hotel as provided by an independent valuer at the year end. This has led to an uplift in the valuation of £1.1 million over its original cost. 2. Premier VCT (Mailbox) Limited This company was formed to build and operate a 90 room hotel operating under the “Days Inn” brand at the Mailbox development in the centre of Birmingham. It opened in April 2001 and has since been rebranded as a “Days Hotel”. It is further proposing to rebrand as a “Ramada” hotel. December 1999 Date of initial investment: Hospitality Management International Ltd Operating partner: £4.60 million Amount invested at 31 March 2005: Nil Further amount reserved for investment: Proportion of share capital and voting rights held: 43% Latest audited financial information 30 June 2004 Turnover for the year Loss before taxation for the year Accumulated retained losses Net assets £’000 1,786 3 218 779 In the year to 30 June 2004 the company made an operating profit before management fees, depreciation and interest of approximately £793,000. Healthcare & Leisure Property Fund PLC, which is advised by Close Venture Management, has invested £750,000 in the company. The investment is valued based upon the company’s net asset value as adjusted for the revaluation of the hotel as provided by an independent valuer at the year end. On this basis the valuation of your Company’s investment has increased by £2.2 million over its original cost. 10 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC THE PORTFOLIO OF INVESTMENTS (continued) 3. The Bear Hungerford Limited This company was formed to acquire the historic 41 room Bear Hotel in Hungerford. The hotel was acquired in March 2005 and a refurbishment programme has commenced. Date of initial investment: Operating partner: Amount invested at 31 March 2005: Further amount reserved for investment: Proportion of share capital and voting rights held: 20% March 2005 The Considered Hotel Company Limited £1.0 million £0.7 million As a newly incorporated company, The Bear Hungerford Limited has not yet filed audited accounts. Close Brothers Protected VCT PLC and Healthcare & Leisure Property Fund PLC, which are also managed or advised by Close Venture Management had invested at 31 March 2005 £950,000 and £600,000 respectively in the company. The investment is valued at cost in view of the recent nature of the investment. 4. The Place Sandwich VCT Limited This company was formed to acquire and operate the 33 room Bell Hotel in Sandwich. The hotel was acquired in January 2005 and refurbishment is currently taking place. January 2005 Date of initial investment: WAW Leisure Limited Operating partner: £1.00 million Amount invested at 31 March 2005: Further amount reserved for investment: Nil Proportion of share capital and voting rights held: 25% As a newly incorporated company, The Place Sandwich Limited has not yet filed audited accounts. Close Brothers Protected VCT PLC and Healthcare & Leisure Property Fund PLC, which are also managed or advised by Close Venture Management had invested at 31 March 2005 £550,000 and £450,000 respectively in the company. The investment is valued at cost in view of the recent nature of the investment. 11 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC THE PORTFOLIO OF INVESTMENTS (continued) CARE HOMES 5. Applecroft Care Home Limited Applecroft Care Home was formed to acquire an existing 75 bed nursing home in Dover. The acquisition took place in January 2004 and performance has been steadily improving. Date of initial investment: Operating partner: Amount invested at 31 March 2005: Further amount reserved for investment: Proportion of share capital and voting rights held: 23% August 2003 Festival Care Homes Limited £1.93 million Nil Latest audited financial information 31 December 2004 Turnover for the year Loss before taxation for the year Accumulated retained losses Net assets £’000 1,422 328 258 930 In the 17 month period to 31 December 2004 the company made an operating profit before management fees, depreciation and interest of approximately £158,000. Close Brothers Protected VCT PLC and Healthcare & Leisure Property Fund PLC, which are also managed or advised by Close Venture Management had invested at 31 March 2005 £1.925 million and £0.35 million respectively in the company. The investment is valued at cost based upon an independent third party valuation. 6. Barleycroft Care Home Limited Barleycroft Care Home was formed to develop an 80 bed nursing home in Romford which opened in January 2005 and initial performance has been encouraging. Date of initial investment: Operating partner: Amount invested at 31 March 2005: Further amount reserved for investment: Proportion of share capital and voting rights held: 23% October 2003 Festival Care Homes Limited £2.00 million £0.28 million Latest audited financial information 31 December 2004 Turnover for the year Loss before taxation for the year Accumulated retained losses Net assets £’000 – 459 372 848 Close Brothers Protected VCT PLC and Healthcare & Leisure Property Fund PLC, which are also managed or advised by Close Venture Management had invested at 31 March 2005 £2.0 million and £0.35 million respectively in the company. The investment is valued at cost based upon an independent third party valuation. 12 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC THE PORTFOLIO OF INVESTMENTS (continued) LEISURE 7. Churchill Taverns VCT Limited The company was formed to acquire “Ye Three Fyshes” public house in the village of Turvey, near Bedford, which had previously ceased trading. The pub has recently reopened. Date of initial investment: Operating partner: Amount invested at 31 March 2005: Further amount reserved for investment: Proportion of share capital and voting rights held: 14% January 2005 Churchill Taverns Limited £0.2 million Nil As a newly incorporated company, Churchill Taverns VCT Limited has not yet filed audited accounts. Close Brothers Protected VCT PLC, Close Brothers Development VCT PLC, Close Technology & General VCT PLC, Close Income & Growth VCT PLC and Healthcare & Leisure Property Fund PLC, which are all managed or advised by Close Venture Management, have invested £100,000, £165,000, £45,000, £66,000 and £70,000 respectively. The investment is valued at cost in view of the recent nature of the investment. 8. City Screen (Cambridge) Limited The company was formed to develop and operate a three screen “art-house” cinema in the centre of Cambridge. The cinema opened in August 1999. Close Brothers Venture Capital Trust PLC has charged management fees of £240,000 to date in addition to its running return of approximately 10 per cent. from loan stock. Date of initial investment: Operating partner: Amount invested at 31 March 2005: Further amount reserved for investment: Proportion of share capital and voting rights held: 50% July 1999 City Screen Limited £1.21 million Nil Latest audited financial information 31 December 2004 Turnover for the year Loss before taxation for the year Accumulated retained losses Net assets £’000 1,429 92 381 (18) In the year to 31 December 2004 the company made an operating profit before management fees, depreciation and interest of approximately £332,000. The investment is valued based upon the company’s net asset value as adjusted for the revaluation of the cinema as provided by an independent valuer at the year end. On this basis the valuation of your Company’s investment has increased by approximately £0.3 million over its original cost. 13 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC THE PORTFOLIO OF INVESTMENTS (continued) 9. City Screen (Liverpool) Limited The company was formed to develop and operate a three screen “art-house” cinema in the FACT centre in Liverpool. The cinema commenced trading in February 2003 but a temporary structural issue led to the three screens closing in April 2003. The cinema became fully operational again in November 2003. Date of initial investment: Operating partner: Amount invested at 31 March 2005: Further amount reserved for investment: Proportion of share capital and voting rights held: 18% November 2002 City Screen Limited £0.2 million Nil Latest audited financial information 31 December 2004 Turnover for the year Loss before taxation for the year Accumulated retained losses Net assets £’000 985 68 233 15 In the year to 31 December 2004 the company made an operating profit before management fees, depreciation and interest of approximately £62,000. Close Brothers Protected VCT PLC, Close Brothers Development VCT PLC and Close Technology & General VCT PLC, which are all managed by Close Venture Management, have invested £250,000, £50,000 and £50,000 respectively. The investment is valued based upon the company’s net asset value as adjusted for the revaluation of the cinema as provided by an independent valuer at the year end. On this basis the valuation of your Company’s investment has been reduced by approximately £22,000 from its original cost. 10. The Bold Pub Company Limited The company was formed to acquire a group of 10 freehold and long leasehold pubs in the North West of England. It has subsequently acquired a further 17 public houses in the region, taking the total in the portfolio to 27. Date of initial investment: Operating partner: Amount invested at 31 March 2005: Further amount reserved for investment: Proportion of share capital and voting rights held: 12% February 2004 The Pub Support Company Limited £1.26 million Nil As a newly incorporated company, The Bold Pub Company Limited has not yet filed audited accounts. Close Brothers Protected VCT PLC, Close Brothers Development VCT PLC, Close Technology & General VCT PLC and Close Income & Growth VCT PLC, which are all managed by Close Venture Management, have invested £930,000, £1,670,000, £500,000 and £350,000 respectively. The initial investments were revalued upon the basis of independent valuations at the time of the most recent investment resulting in an increase in valuation of approximately £36,000. The most recent investment has been held at cost. 14 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC THE PORTFOLIO OF INVESTMENTS (continued) 11. The Independent Pub Company (VCT) Limited The company was formed to acquire the “Pelican” public house outside Hungerford. Date of initial investment: Operating partner: Amount invested at 31 March 2005: Further amount reserved for investment: Proportion of share capital and voting rights held: 12% December 2004 The Independent Pub Company Limited £0.29 million Nil As a newly incorporated company, The Independent Pub Company VCT Limited has not yet filed audited accounts. Close Brothers Protected VCT PLC, Close Brothers Development VCT PLC, Close Technology & General VCT PLC, Close Income & Growth VCT PLC and Healthcare & Leisure Property Fund PLC, which are all managed or advised by Close Venture Management, have invested £200,000, £290,000, £120,000, £150,000 and £150,000 respectively. The investment is valued at cost in view of the recent nature of the investment. 12. CS (Greenwich) Limited The company was formed to acquire and redevelop a redundant cinema in Greenwich. It is expected to open a five screen “art-house” cinema in September 2005. Date of initial investment: Operating partner: Amount invested at 31 March 2005: Further amount reserved for investment: Proportion of share capital and voting rights held: 18% September 2004 City Screen Limited £0.90 million Nil As a newly incorporated company, CS (Greenwich) Limited has not yet filed audited accounts. Close Brothers Protected VCT PLC, Close Brothers Development VCT PLC, Close Technology & General VCT PLC and Healthcare & Leisure Property Fund PLC, which are all managed or advised by Close Venture Management, have invested £370,000, £760,000, £100,000 and £370,000 respectively. The investment is valued at cost on the basis that the cinema has yet to start trading. 15 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC THE PORTFOLIO OF INVESTMENTS (continued) RESIDENTIAL DEVELOPMENT 13. Chase Midland VCT Limited The company is currently undertaking its seventh development, comprising six houses in the Walmley, Sutton Coldfield area of Birmingham. Construction is nearing completion. Date of initial investment: Developer partner: Amount invested at 31 March 2005: Further amount reserved for investment: Proportion of share capital and voting rights held: 50% March 1997 Chase Midland Plc £1.60 million Nil Latest audited financial information 30 June 2004 Turnover for the year Profit before taxation for the year Accumulated retained profits Net assets £’000 1,758 172 63 783 The investment is valued at cost in view of the fact that Chase Midland VCT is a residential property development company and distributes all its profits by way of dividend. 14. Country & Metropolitan VCT Limited The company is close to completing construction of its eleventh development, of 23 apartments in Shipley, and it has acquired a further site, for the construction of 12 apartments in Nottingham. Date of initial investment: Developer partner: Amount invested at 31 March 2005: Further amount reserved for investment: Proportion of share capital and voting rights held: 43% November 1996 Country & Metropolitan Plc (recently acquired by Gladedale Holdings plc) £3.00 million Nil Latest audited financial information 30 June 2004 Turnover for the year Profit before taxation for the year Accumulated retained profits Net assets £’000 2,632 192 10 1,580 Healthcare & Leisure Property Fund PLC, which is advised by Close Venture Management, has invested £500,000 in the company. The investment is valued at cost in view of the fact that Country & Metropolitan VCT is a residential property development company and distributes all its profits by way of dividend. 16 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC THE PORTFOLIO OF INVESTMENTS (continued) 15. Prime VCT Limited This company has developed a 12 apartment scheme in Hertford and is currently in the marketing phase with 8 apartments sold or reserved to date. The company is proposing to acquire a follow on site in Bristol. Date of initial investment: Developer partner: Amount invested at 31 March 2005: Further amount reserved for investment: Proportion of share capital and voting rights held: 50% September 1996 Prime Residential Limited £2.20 million Nil Latest audited financial information 30 September 2004 Turnover for the year Profit before taxation for the year Accumulated retained losses Net assets £’000 354 19 24 976 In light of additional unforeseen construction costs, delays and slower than anticipated sales, leading to higher interest payments to your Company, a provision of £100,000 has been made against the cost of the investment. 16. Youngs VCT Limited The company has two apartments remaining at its 11 apartment scheme at Lee-on-the-Solent, overlooking the Isle of Wight, and has exchanged contracts on five of the 19 apartments in Southampton, where construction is not scheduled to complete until October 2005. Date of initial investment: Developer partner: Amount invested at 31 March 2005: Further amount reserved for investment: Proportion of share capital and voting rights held: 25% March 2000 Youngs Developments Ltd £1.20 million Nil Latest audited financial information 31 December 2004 Turnover for the year Profit before taxation for the year Accumulated retained profits Net assets £’000 2,755 240 5 1,077 Close Brothers Protected VCT PLC and Healthcare & Leisure Property Fund PLC, which are managed or advised by Close Venture Management, have invested £1 million and £160,000 respectively in the company. The investment is valued at cost in view of the fact that Youngs VCT is a residential property development company and distributes all its profits by way of dividend. 17 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC REPORT OF THE DIRECTORS The Directors submit the Report and Accounts of the Company for the year to 31 March 2005. Principal Activity and Status The principal activity of the Company is that of a venture capital trust. It was approved by the Inland Revenue as a venture capital trust in accordance with Section 842 of the Income and Corporation Taxes Act 1988 and in the opinion of the Directors, the Company has subsequently conducted its affairs so as to enable it to continue to obtain such approval. Approval for the year ended 31 March 2005 is subject to review should there be any subsequent enquiry under corporation tax self assessment. The Company is not a close company for taxation purposes. Details of the principal investments made by the Company are given above in the review of the portfolio of investments. A review of the Company’s business during the year is contained in the Chairman’s Statement. The Company is no longer an investment company as defined in Section 266 of the Companies Act 1985. The Company revoked its investment company status on 11 May 2000 to enable the Company to pay dividends from realised capital profits. Results and Dividends Revenue return attributable to shareholders for the year ended 31 March 2005 Net interim revenue dividend of 2.80 pence per share paid on 7 January 2005 Net final revenue dividend of 2.95 pence per share payable on 14 July 2005 Revenue transferred to reserves Realised capital return attributable to shareholders for the year ended 31 March 2005 Prior year unrealised return realised in the year Unrealised capital return attributable to shareholders for the year ended 31 March 2005 Realised capital loss attributable to shareholders on expenses for the year ended 31 March 2005 Net interim capital dividend of 1.45 pence per share paid on 7 January 2005 Net final capital dividend of 1.80 pence per share payable on 14 July 2005 Capital transferred to reserves Total transferred to reserves Purchase of Own Shares £’000 2,106 (1,005) (1,058) 43 5,354 (4,985) 2,315 (563) (520) (646) 955 998 The purchase of shares by the Company is intended, inter alia, to provide a market for the shares and thereby to reduce the discount at which shares may trade. Since any purchases are made at a discount to net asset value at the time of purchase, the net asset value per share of the remaining shares in issue should increase. During the financial year under review the Company did not purchase any of its shares for cancellation. Directors The Directors who held office throughout the year, and their interests in the shares of the Company (together with those of their immediate family) were: D J Watkins R M Davidson J M B L Kerr J G T Thornton No Director has a service contract with the Company. The Company does not have any employees. All Directors are members of the Audit Committee 18 31 March 2005 31 March 2004 Shares held Shares held 10,000 5,000 13,109 36,218 10,000 5,000 13,109 31,218 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC REPORT OF THE DIRECTORS (continued) Management Agreement The Company and Close Venture Management Limited (“the Manager”) entered into a management agreement for an initial fixed period to 3 April 2000 which may now be terminated by either party on 12 months’ notice. Under this agreement, the Manager also provides secretarial and administrative services to the Company. The management agreement is subject to earlier termination in the event of certain breaches or on the insolvency of either party. The following fees are payable to the Manager by the Company under the terms of the agreement: • Non-Qualifying Investments A fee equal to 0.50 per cent. of funds invested in non-qualifying investments. • Qualifying Investments A fee equal to 1.8 per cent. of funds invested in qualifying investments. • Secretarial and administrative services A fee of £34,509 per annum, plus VAT, rising annually in line with the Retail Prices Index. The Manager is also entitled to an arrangement fee, payable by each company in which the Company invests, in the region of two per cent. on each investment made. New Management Performance Incentive Following shareholder approval at the AGM on 26 July 2004, a new performance incentive to reward the Manager for the strong performance of the Company is now in existence. The Directors proposed that the new performance incentive should retain the key principles of the prior performance incentive, and be an 8 per cent. share of the excess return above the hurdle rate, paid out annually in cash as an addition to the management fee. The hurdle rate is set at an annual return of 5 per cent. per annum, representing dividends paid and growth in share value, on the preceding year’s share value. Share value will continue to be calculated as the average of: (i) the net asset value per Share at the end of the relevant financial year, and (ii) the average mid-market price of a Share, between the date of the preliminary announcement of the results for the relevant financial year and the AGM at which the accounts are presented to Shareholders. The amounts payable under the new performance incentive will be limited to the extent that, over any two year period, the aggregate total amount payable under the new incentive and the ongoing management fees may not exceed 5 per cent. of the Company’s gross asset value at the relevant period end. Incentive fees will be paid out on annual basis, following the AGM. Both the total return and the hurdle rate will be cumulative from the inception of the new scheme, with any shortfall resulting in payments not being made until performance catches up. The outstanding Management fees and Management performance fee as at 31 March 2005 amount to approximately £485,000. Auditors A resolution to re-appoint Deloitte & Touche LLP will be proposed at the forthcoming Annual General Meeting. Substantial Interests As at 9 June 2005 the Company was not aware of any beneficial interest exceeding 3 per cent. of the issued share capital. Statement of Directors’ Responsibilities United Kingdom company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company as at the end of the financial year and of the profit or loss of the Company for that period. In preparing those financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • • state whether all applicable accounting standards have been followed; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. 19 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC REPORT OF THE DIRECTORS (continued) The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for the system of internal control, for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors confirm that applicable accounting standards have been followed in the financial statements accompanying this report. Annual General Meeting The Annual General Meeting will be held at 10 Crown Place, London EC2A 4FT at 10.30 a.m. on 11 July 2005. The notice of the Annual General Meeting is at the end of this document. A resolution will be proposed as special business at the Annual General Meeting for the following purpose: Purchase of Own Shares A resolution concerning Special Business, number 5 in the notice of meeting, will renew the authority to purchase in the market and cancel up to 3,587,822 of the Company’s issued shares (equivalent to 10 per cent. of the share capital currently in issue). Purchases of shares will be made within guidelines established from time to time by the Board, but only if it is considered that such purchases would be to the advantage of the Company and its shareholders taken as a whole. Purchases will only be made in the market for cash at prices below the prevailing net asset value per Ordinary Share. Under the rules of the London Stock Exchange the maximum price which can be paid by the Company is 5 per cent. above the average of the relevant market value of the shares for the five business days preceding the purchase. Shares which are purchased will be cancelled. In making purchases the Company will deal only with member firms of the London Stock Exchange. Purchases of shares will be funded from distributable reserves. To the extent that the Company purchases shares at a discount to net asset value, the net asset value of the remaining shares in issue will increase. Supplier payment policy The Company’s policy is to pay all supplier invoices within 30 days of the invoice date, or as otherwise agreed. There were no overdue trade creditors at 31 March 2005 (2004: £nil). By Order of the Board C Kinnear Secretary 10 Crown Place London EC2A 4FT 9 June 2005 20 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC STATEMENT OF CORPORATE GOVERNANCE Background The Financial Services Authority requires all listed companies to disclose how they have applied the principles and complied with the provisions of the Combined Code issued by the Financial Reporting Council (“FRC”) in July 2003 (“the Code”). Application of the Principles of the Code The Board attaches importance to matters set out in the Code and applies its principles. However, as a venture capital trust company, most of the Company’s day-to-day responsibilities are delegated to third parties and the Directors are all non-executive. Thus, not all the provisions of the Code are directly applicable to the Company. Board of Directors The Board consists solely of non-executive Directors. Mr Watkins is the Chairman and senior independent Director. Messrs Davidson, Kerr and Thornton are also independent Directors. The Directors have a range of business and financial skills which are relevant to the Company. All Directors are able to take independent professional advice in furtherance of their duties if necessary. In accordance with the Combined Code, the Company has in place Directors & Officers insurance. The Board met four times during the year ended 31 March 2005 with all of the Directors having attended each meeting. The Chairman ensures that all Directors receive in a timely manner all relevant management, regulatory and financial information. The Board receives and considers reports regularly from the Manager and other key advisers and ad hoc reports and information are supplied to the Board as required. The Board has a formal schedule of matters reserved for it and the agreement between the Company and its Manager sets out the matters over which the Manager has authority and limits beyond which Board approval must be sought, these include the following: The Manager has authority over management of the investment portfolio, the organisation of custodial services, accounting, secretarial and administrative services. The main issues reserved for the Board include: • • • • • the consideration and approval of future developments or changes to the investment policy including risk and asset allocation; consideration of corporate strategy; approval of the appropriate dividend to be paid to shareholders; the appointment, evaluation, removal and remuneration of the Manager; the performance of the Company including monitoring of the discount of the net asset value and the share price; and • monitoring shareholder profile and considering shareholder communications. Directors’ Performance Evaluation The Board takes corporate governance very seriously. Performance of the Board and the Directors is assessed on the following: • • attendance at Board and Committee meetings; and the contribution made by individual Directors at Board and Committee meetings. Remuneration Committee Since the Company has no executive directors, with Mr Watkins as Chairman, the detailed Directors’ Remuneration disclosure requirements set out in Listing Rules 12.43A(a), 12.43A(b) and 12.43A(c) as they relate to Combined Code Provisions B.1 to B.2, B1.1 to B1.6, and B2.1 to B2.4 are not relevant. 21 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC STATEMENT OF CORPORATE GOVERNANCE (continued) Audit Committee The Audit Committee consists of all Directors of which Mr Kerr is Chairman. In accordance with the Code, the members of the Audit Committee have recent and relevant financial experience. The Committee met twice during the year ended 31 March 2005; all members attended. Written terms of reference have been constituted for the Audit Committee, these are: • • • providing an overview of the Company’s accounting policies and financial reporting; considering the effectiveness of the Company’s internal controls; to monitor the integrity of the financial statements of the Company; • meeting the Company’s external auditors twice yearly, approving their appointment, reappointment and providing an ongoing review of auditor independence and objectivity; • meeting with the Head of Internal Audit when appropriate; and • the Audit Committee also undertakes the duties of the Engagement Committee, and therefore also reviews all matters arising under the management agreement. Nomination Committee A Nomination Committee has not been formed as the size of the Board does not warrant its formulation. Internal Control The Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process is subject to regular review by the Board and accords with the Internal Control Guidance for Directors on the Combined Code published in September 1999 (“the Turnbull guidance”). The Board is responsible for the Company’s system of internal control and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate the risks of failure to achieve the Company’s business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board, assisted by the Manager, undertakes an annual review of the Company’s business risks. The Board receives each year from the Manager a formal report which details the steps taken to monitor the areas of risk, including those that are not directly the responsibility of the Manager, and which reports the details of any known internal control failures. Steps will continue to be taken to embed the system of internal control and risk management into the operations and culture of the Company and its key suppliers, and to deal with areas of improvement which come to management’s and the Board’s attention. The Company does not have an internal audit function but it does have access to the internal audit department of Close Brothers Group which reports on the Manager’s activities. The Board will continue to monitor its system of internal control in order to provide assurance that it operates as intended. Going Concern After making reasonable enquiries the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors have adopted the going concern basis in preparing the accounts. Statement of Compliance The Directors consider that the Company has complied throughout the year ended 31 March 2005 with all the relevant provisions set out in the Code. The Company continues to comply with the Code as at the date of this report. 22 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC DIRECTORS’ REMUNERATION REPORT Introduction This report is submitted in accordance with the Directors’ Remuneration Report Regulations 2002 in respect of the year ended 31 March 2005. Remuneration Committee Since the Company has no executive Directors and consists solely of non-executive Directors, a remuneration committee is not warranted. Directors’ Remuneration Policy The Company’s policy is that fees payable to non-executive Directors should reflect their expertise, responsibilities and time spent on Company matters. In determining the level of non-executive remuneration market equivalents are considered in comparison to the overall activities and size of the Company. The maximum level of non-executive directors’ remuneration is fixed by the Company’s Articles of Association, amendment to which is by way of a special resolution subject to ratification by shareholders. The Articles of Association provide for aggregate non-executive Directors’ fees not to exceed £70,000 per annum. Performance Graph The graph below shows the performance of Close Brothers Venture Capital Trust PLC’s share price against the FTSE 100 Index, in both instances with dividends reinvested, over the last seven years. The directors consider this to be the most appropriate benchmark. There are no options, issued or exercisable, in the Company which would distort the graphical representation below. Close Brothers VCT FTSE Index h t w o r G e g a t n e c r e P 150 120 90 60 30 0 -30 149.0 58.0 01/97 07/97 01/98 07/98 01/99 07/99 01/00 07/00 01/01 07/01 01/02 07/02 01/03 07/03 01/04 07/04 From 21 November 1996 to 31 March 2005 Service contracts No Director has a service contract with the Company. 23 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC DIRECTORS’ REMUNERATION REPORT (continued) Directors’ Remuneration The following items have been audited: The following table shows a breakdown of the remuneration of individual Directors, exclusive of National Insurance or VAT: David Watkins Roderick Davidson John Kerr Jonathan Thornton Year ended 31 March 2005 Year ended 31 March 2004 Fees Expenses £’000 £’000 Total £’000 Fees Expenses £’000 £’000 Total £’000 17 17 17 17 68 – – – – – 17 17 17 17 68 16 16 16 16 64 – – – – – 16 16 16 16 64 The Company does not confer any share options, long term incentives or retirement benefits to any director, nor does it make a contribution to any pension scheme on behalf of the Directors. Roderick Davidson and John Kerr are remunerated personally. Jonathan Thornton’s services are provided by Jonathan Thornton Limited. David Watkins services were provided by Shippan Point LLC. In addition to Directors’ remuneration, the Company pays annual premiums in respect of Directors’ liability insurance. By Order of the Board C Kinnear Secretary 9 June 2005 24 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC INDEPENDENT AUDITORS’ REPORT to the Members of Close Brothers Venture Capital Trust PLC We have audited the financial statements of Close Brothers Venture Capital Trust PLC for the year ended 31 March 2005 which comprise the statement of total return, the balance sheet, the cash flow statement and the related notes 1 to 24. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the part of the Directors’ remuneration report that is described as having been audited. This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective Responsibilities of Directors and Auditors As described in the statement of Directors’ responsibilities, the Company’s Directors are responsible for the preparation of the financial statements in accordance with applicable United Kingdom law and accounting standards. They are also responsible for the preparation of the other information contained in the annual report including the Directors’ remuneration report. Our responsibility is to audit the financial statements and the part of the Directors’ remuneration report described as having been audited in accordance with relevant United Kingdom legal and regulatory requirements and auditing standards. We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors’ remuneration report described as having been audited have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors’ report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors’ remuneration and transactions with the Company is not disclosed. We review whether the corporate governance statement reflects the Company's compliance with the seven provisions of the Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Company's corporate governance procedures or its risk and control procedures. We read the Directors’ report and the other information contained in the annual report for the above year as described in the contents section including the unaudited part of the Directors’ remuneration report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Basis of Audit Opinion We conducted our audit in accordance with United Kingdom auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors’ remuneration report described as having been audited. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the circumstances of the Company, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors’ remuneration report described as having been audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors’ remuneration report described as having been audited. 25 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC INDEPENDENT AUDITORS’ REPORT (continued) Opinion In our opinion: • • the financial statements give a true and fair view of the state of affairs of the Company as at 31 March 2005 and its total return for the year then ended; and the financial statements and part of the Directors’ remuneration report described as having been audited have been properly prepared in accordance with the Companies Act 1985. Deloitte & Touche LLP Chartered Accountants and Registered Auditors London 9 June 2005 Note to those who access this document by electronic means The maintenance and integrity of the Close Second AIM VCT PLC information, contained on the Close Ventures website is the responsibility of the Directors; the work carried out by the Auditors does not involve consideration of these matters and accordingly, the Auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 26 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC STATEMENT OF TOTAL RETURN for the year to 31 March 2005 Year ended 31 March 2005 Year ended 31 March 2004 Revenue Capital Note £’000 £’000 Total £’000 Revenue Capital £’000 £’000 Total £’000 Gains on investments Investment income Investment management fees Administration expenses Return on ordinary activities before interest and tax Finance charge Return on ordinary activities before tax Tax on ordinary activities Return attributable to shareholders Distributions 2 3 4 5 7 8 9 – 2,684 2,684 – 2,971 2,971 3,384 – 3,384 3,438 – 3,438 (263) (788) (1,051) (419) (478) (897) (232) – (232) (151) (131) (282) 2,889 1,896 4,785 2,868 2,362 5,230 (5) (16) (21) (54) – (54) 2,884 1,880 4,764 2,814 2,362 5,176 (778) 241 (537) (802) 183 (619) 2,106 2,121 4,227 2,012 2,545 4,557 (2,063) (1,166) (3,229) (1,633) (1,417) (3,050) Transfer to reserves 43 955 998 379 1,128 1,507 Return per share (pence) 10 5.87 5.91 11.78 5.60 7.10 12.70 All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year. The accompanying notes on pages 30 to 39 form an integral part of these financial statements. 27 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC BALANCE SHEET as at 31 March 2005 Fixed asset investments Qualifying: Scheduled for investment Less: uninvested Net qualifying investments to date Non-qualifying investments 31 March 31 March 2005 £’000 2004 £’000 Note 32,050 (2,975) 29,075 2 44,230 (5,340) 38,890 – Total fixed asset investments 11 29,077 38,890 Current assets Debtors and accrued income Cash at banks Creditors: due within one year Net current assets 13 20 267 14,737 225 5,735 15,004 5,960 14 (2,500) (3,269) 12,504 2,691 Creditors: due after one year 15 – (1,000) Total assets Shareholders funds Ordinary share capital Special reserve Capital redemption reserve Capital reserves: realised unrealised Revenue reserve Total shareholders’ funds 41,581 40,581 16 17 17 17 17 17,939 14,110 1,914 3,478 3,510 630 17,939 14,110 1,914 222 5,811 585 18 41,581 40,581 Net asset value (pence per share) 18 115.89 113.11 The financial statements on pages 27 to 39 were approved by the Board of Directors on 9 June 2005. Signed on behalf of the Board of Directors David Watkins Chairman 28 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC CASH FLOW STATEMENT for the year ended 31 March 2005 Operating activities Investment income Dividend income Deposit interest Other income Investment management fees paid Administrative expenses paid Year ended Year ended 31 March 31 March Note 2005 £’000 2004 £’000 2,693 197 433 13 (1,284) (218) 3,189 208 287 - (923) (202) Net cash inflow from operating activities 21 1,834 2,559 Servicing of finance Finance interest Taxation UK corporation tax paid VAT (paid)/repaid Capital expenditure and financial investment Purchase of qualifying investments Purchase of non-qualifying investments Disposal of qualifying investments Disposal of non-qualifying investments (31) (53) (743) (53) (150) 1 (7,295) (388) 19,739 386 (4,428) – 89 100 Net cash inflow/(outflow) from investing activities 12,442 (4,239) Equity dividends paid Revenue dividends paid on ordinary shares Capital dividends paid on ordinary shares Net cash inflow/(outflow) before financing Financing Redemption of equity net of expenses Repayment of loan facilities Net cash outflow from financing Increase/(decrease) in cash 29 (1,632) (1,865) (2,332) (610) 9,952 (4,824) – (950) (92) – (950) (92) 9,002 (4,916) CLOSE BROTHERS VENTURE CAPITAL TRUST PLC NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2005 1. Accounting policies Accounting convention The financial statements are prepared under the historical cost convention, modified by the revaluation of certain investments. True and fair override The Company is no longer an investment company within the meaning of s266, Companies Act 1985. However, it conducts its affairs as a venture capital trust for taxation purposes under s842AA of the Income and Corporation Taxes Act 1988. The financial statements are prepared in accordance with applicable United Kingdom law and accounting standards and with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies” (SORP) issued in January 2003. The absence of Section 266 status does not preclude the Company from presenting its financial statements in accordance with the AITC SORP, furthermore the Directors consider it appropriate to continue to present the financial statements in accordance with the SORP. Under the SORP, the financial performance of the trust is presented in a statement of total return in which the revenue column is the profit and loss account of the company. The revenue column excludes certain capital items, which, since the Company is no longer an investment company, the Companies Act 1985 would ordinarily require to be included in the profit and loss account: net profits on disposal of investments, calculated by reference to their previous carrying amount or permanent diminution in value of investments, management expenses charged to capital less tax relief thereon and the distribution of capital profits. The presentation adopted enables the Company to report in a manner consistent with the sector within which it operates. The Directors therefore consider that these departures from the specific provisions of Schedule 4 of the Companies Act 1985 relating to the form and content of financial statements for companies other than investment companies and these departures from accounting standards are necessary to give a true and fair view. The departures have no effect on the total return or balance sheet. The particular accounting policies adopted are described below. Capital reserves Realised reserves The following are accounted for in this reserve: - gains and losses on the realisation of investments; - expenses and finance costs, together with the related taxation effect; and - realised gains and losses on transactions undertaken to hedge an exposure of a capital nature. Unrealised reserve The following are accounted for in this reserve: - increases and decreases in the valuation of investments held at the year end; and - unrealised gains and losses on transactions undertaken to hedge an exposure of a capital nature. Special reserve This reserve is distributable and is primarily used for the cancellation of the Company’s share capital. Investments Unquoted investments are stated at a valuation determined by the directors as supported, where appropriate, by independent professional valuations and in accordance with the revised British Venture Capital Association (BVCA) guidelines. The unrealised depreciation or appreciation on the valuation of investments is dealt with in the unrealised reserve and gains and losses arising on the disposal of investments are dealt with in the realised capital reserve. 30 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC NOTES TO THE FINANCIAL STATEMENTS (continued) It is not the Company’s policy to exercise controlling or significant influence over investee companies. Therefore the results of these companies are not incorporated into the revenue account. Income and expenses All income and expenses are treated on the accruals basis and dividend income (other than on non-equity shares) is included in revenue when the investment is quoted ex-dividend. The fixed returns on non-equity shares and on debt securities are recognised on a time apportionment basis. Income received is treated in accordance with Financial Reporting Standard No. 16. Management expenses As of 1 April 2004, the Board of Directors has changed the allocation of management fees to capital from 50 per cent. to 75 per cent., representing the proportion of the investment management fee attributable to the enhancement of the value of the investments of the Company. The balance is charged to the revenue account. This does not represent a change in accounting policy but reflects the Board’s expected long-term split of returns, in the form of capital gains and income respectively. Management performance incentive In line with management expenses, 75 per cent. of the management performance incentive fee, representing the proportion of the investment management fee attributable to the enhancement of the value of the investments of the Company, has been charged to capital reserves, net of corporation tax. The balance is charged to the revenue account. Taxation Deferred taxation is considered in accordance with FRS 19 on timing differences that result in an obligation at the balance sheet date to pay more tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the financial statements. The specific nature of the taxation of VCTs means that it is unlikely any deferred tax will arise. The directors have considered the requirements of FRS 19 and do not believe any provision should be made. Finance interest Finance interest is capitalised in the same proportion as management fees, representing the proportion attributable to the enhancement of the value of the investments of the Company. This has been charged to capital reserves, net of corporation tax, the balance being charged to the revenue account. This represents a departure from the policy adopted in the previous year, where all finance interest was charged to the revenue account, following the introduction of the revised SORP. In accordance with the SORP, the comparative figures do not need to be restated. 2. Gains on investments Realised gains Unrealised gains Total Year ended Year ended 31 March 31 March 2005 £’000 369 2,315 2,684 2004 £’000 21 2,950 2,971 31 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC NOTES TO THE FINANCIAL STATEMENTS (continued) 3. Income Income from qualifying shares and securities UK franked investment income UK unfranked investment income Other income Non-qualifying income Bank deposit interest Other income Total income Total income comprises Dividends Interest Other Total income Year ended Year ended 31 March 31 March 2005 £’000 170 2,558 172 2,900 442 42 484 3,384 170 3,000 214 3,384 2004 £’000 160 2,880 108 3,148 290 – 290 3,438 160 3,170 108 3,438 4. Investment management fees Investment management fee Performance incentive fee provision Total Year ended 31 March 2005 Year ended 31 March 2004 Revenue Capital £’000 £’000 185 78 263 555 233 788 Total £’000 741 310 1,051 Revenue Capital £’000 £’000 384 35 419 384 94 478 Total £’000 768 129 897 Further details of the management agreement under which the investment management fee is paid are given in the Report of the Directors. 5. Expenses Year ended Year ended 31 March 31 March 2005 £’000 41 70 21 20 80 232 2004 £’000 40 66 26 20 130 282 Secretarial and administrative fee Directors' fees Auditors' remuneration - audit fees Amortisation of loan facility fees Other expenses Total expenses 32 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC NOTES TO THE FINANCIAL STATEMENTS (continued) 6. Directors' fees Directors' fees National insurance and VAT Total The amounts represent those paid on behalf of Directors during the year. 7. Finance charge Loan interest Year ended Year ended 31 March 31 March 2005 £’000 2004 £’000 68 2 70 64 2 66 Year ended Year ended 31 March 31 March 2005 £’000 21 2004 £’000 54 Interest payable under the facility provided by The Royal Bank of Scotland plc is based upon six month LIBOR, plus 1.5% per annum on the amount advanced from the date of draw down. 8. Tax on ordinary activities UK Corporation tax at 30% Tax attributable to capital expenses Year ended 31 March 2005 Year ended 31 March 2004 Revenue Capital £’000 £’000 537 241 778 – (241) (241) Total £’000 537 – 537 Revenue Capital £’000 £’000 619 183 802 – (183) (183) Total £’000 619 – 619 2,884 865 Return before taxation UK corporation tax at 30% Factors affecting the tax charge: (42) Tax refund in respect of prior years – Capital gains not subject to taxation Non-taxable income (50) Tax attributable to capitalised expenses 241 (236) Excess management expenses Tax charge for the year 778 1,880 564 4,764 1,429 2,814 844 2,362 709 5,176 1,553 – (805) – (241) 241 (241) (42) (805) (50) – 5 537 – – (48) 183 (177) 802 – (892) – (183) 183 (183) – (892) (48) – 6 619 Notes (i) Venture Capital Trusts are not subject to corporation tax on capital gains. (ii) Tax relief on expenses charged to capital has been determined by allocating tax relief to all expenses proportionately by reference to the applicable corporation tax rate of 30% and allocating the relief in the same ratio as expenses between revenue and capital. (iii) No deferred tax asset or liability has arisen in the year. (iv) Tax is provided at the current rate of 30 per cent. 33 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC NOTES TO THE FINANCIAL STATEMENTS (continued) 9. Dividends on equity shares Interim Revenue dividend of 2.80p per share (2004: 2.80p) Capital dividend of 1.45p per share (2004: 3.95p) Final Revenue dividend of 2.95p per share (2004: 1.75p) Capital dividend of 1.80p per share (2004: nil) Total Year ended Year ended 31 March 31 March 2005 £’000 1,005 520 1,058 646 3,229 2004 £’000 1,005 1,417 628 – 3,050 10. Equity return per share Return attributable to equity shares (£’000) Weighted average shares in issue (number) Return attributable per equity share (pence) Year ended 31 March 2005 Year ended 31 March 2004 Revenue Capital Total Revenue Capital Total 2,106 2,121 4,227 2,012 2,545 4,557 35,878,228 35,878,228 35,878,228 35,878,228 35,878,228 35,878,228 5.87 5.91 11.78 5.60 7.10 12.70 Revenue return per share is based on the net revenue on ordinary activities after taxation but before deduction of dividends and other appropriations of £2,105,000 (2004: £2,012,000) in respect of 35,878,228 (2004: weighted average of 35,878,228 shares in issue) shares, being the weighted average number of shares in issue during the year. Capital return per ordinary share is based on net capital profit for the financial year of £2,121,000 (2004: £2,545,000), based on the same number of shares as for revenue return shown above. 11. Investments Qualifying investments Non-qualifying investments Valuation basis Opening valuation Additions at cost Disposals: proceeds realised gains on disposal Unrealised movement 34 Year ended Year ended 31 March 31 March 2004 £’000 38,890 – 38,890 2005 £’000 29,075 2 29,077 Non- Qualifying qualifying £’000 £’000 Total £’000 38,890 7,295 (19,803) 5,363 (2,670) – 388 (386) – – 38,890 7,683 (20,189) 5,363 (2,670) CLOSE BROTHERS VENTURE CAPITAL TRUST PLC NOTES TO THE FINANCIAL STATEMENTS (continued) Closing valuation 11. Investments (continued) Unrealised gains/(losses) Opening unrealised gains/(losses) Unrealised movement Closing unrealised gains/(losses) Historic cost basis Opening book cost Additions at cost Disposals at cost Closing book cost 12. Significant interests 29,075 2 29,077 Non- Qualifying qualifying £’000 £’000 Total £’000 6,180 (2,670) 3,510 32,710 7,295 (14,440) 25,565 – – – 6,180 (2,670) 3,510 – 388 (386) 32,710 7,683 (14,826) 2 25,567 Details of investments in which the company has a material interest in the nominal value of the allotted shares of any class, or of the net assets at 31 March 2005, are as follows. Greater detail of each investment is given in the Portfolio of investments on pages 10 to 17. Name of Undertaking Country of operation Description of Percentage and incorporation shares held Applecroft Care Home Limited Barleycroft Care Home Limited Chase Midland VCT Limited Churchill Taverns VCT Limited City Screen (Cambridge) Limited City Screen (Liverpool) Limited Country & Metropolitan VCT Limited CS (Greenwich) Limited Kew Green VCT (Stansted) Limited Premier VCT (Mailbox) Limited Prime VCT Limited The Bear Hungerford Limited The Bold Pub Company Limited The Independent Pub Company (VCT) Limited The Place Sandwich VCT Limited Youngs VCT Limited Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Ordinary shares Ordinary shares Ordinary shares Ordinary shares Ordinary shares Ordinary shares Ordinary shares Ordinary shares Ordinary shares Ordinary shares Ordinary shares Ordinary shares Ordinary shares Ordinary shares Ordinary shares Ordinary shares 13. Debtors held 23% 23% 50% 14% 50% 18% 43% 18% 27% 43% 50% 20% 12% 12% 25% 25% Year ended Year ended 31 March 31 March 2005 £’000 202 65 267 2004 £’000 157 68 225 Prepayments and accrued income Other debtors Total 35 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC NOTES TO THE FINANCIAL STATEMENTS (continued) 14. Creditors: amounts due within one year UK corporation tax VAT Proposed dividend Operating creditors and accruals Other creditors Total 15. Creditors: amounts due after one year RBS loan facility 16. Called up share capital Authorised 68,000,000 shares of 50p each (2004: 68,000,000) Allotted, called up and fully paid 35,878,228 shares of 50p each (2004: 35,878,228) 17. Reserves Year ended Year ended 31 March 31 March 2005 £’000 183 27 1,704 574 12 2,500 2004 £’000 389 50 1,973 819 38 3,269 Year ended Year ended 31 March 31 March 2005 £’000 2004 £’000 – 1,000 Year ended Year ended 31 March 31 March 2005 £’000 2004 £’000 34,000 34,000 17,939 17,939 Opening reserves Capitalised fees and expenses Realisation of prior year performance provision Tax effect of capitalised fees and expenses Realisation of investments Realisation of previous year's revaluation Increase in unrealised appreciation Distributions Total shareholder return before management fees, financing and taxation Special Capital Capital Capital Revenue Total reserve redemption realised unrealised reserve reserves £’000 14,110 – £’000 1,914 – – – – – – – – – – – – – – – £’000 222 (804) £’000 5,811 – (369) 369 241 369 – – 4,985 – (1,166) (4,985) 2,315 – £’000 £’000 585 804 – (241) – – – (2,063) 22,642 – – – 369 – 2,315 (3,229) – – 1,545 1,545 Closing reserves 14,110 1,914 3,478 3,510 630 23,642 36 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC NOTES TO THE FINANCIAL STATEMENTS (continued) 18. Net asset value per share The net asset value per share and the net asset values at the year end calculated in accordance with the Articles of Association were as follows: Net assets attributable to shareholders (£’000) Ordinary shares of 50p in issue (number) Net asset value per share (pence) 31 March 31 March 2005 2004 41,581 40,581 35,878,228 35,878,228 115.89 113.11 The movements during the year of the assets attributable to ordinary shareholders were as follows: Movement attributable to the net asset value Opening net assets Share capital purchased for cancellation Total return for the year Dividends appropriated Closing net assets attributable to shareholders 31 March 31 March 2005 £’000 2004 £’000 40,581 0 4,229 (3,229) 39,075 (1) 4,557 (3,050) 41,581 40,581 Net asset value per share is based on net assets at the year end, and on 35,878,228 shares, being the number of shares in issue at the year end. 19. Reconciliation of movement in shareholders' funds 31 March 31 March 2005 £’000 40,581 – 4,229 (3,229) 2004 £’000 39,075 (1) 4,557 (3,050) 41,581 40,581 31 March 31 March 2005 £’000 5,735 9,002 2004 £’000 10,651 (4,916) 14,737 5,735 Opening shareholders' funds Consideration for share purchases Total return to shareholders before dividends Dividends Closing shareholders' funds 20. Analysis of changes in cash during the year Opening cash balances Net cash inflow/(outflow) Closing cash balances 37 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC NOTES TO THE FINANCIAL STATEMENTS (continued) 21. Reconciliation of net revenue before finance costs and taxation to net cash flow from operating activities 31 March 31 March Net revenue before finance costs and taxation Investment management fees charged to capital Performance incentive fees charged to capital Other expenses charged to capital (Increase)/decrease in operating debtors (Decrease)/increase in operating creditors Amortisation of finance fees Net cash inflow from operating activities 2005 £’000 2,889 (555) (233) 0 (13) (274) 20 1,834 2004 £’000 2,868 (384) (94) (131) 247 33 20 2,559 22. Financial instruments and risk management The Company’s financial instruments comprise investments in unquoted companies cash and liquid resources. The main purpose of these financial instruments is to generate revenue and capital appreciation for the Company’s operations. Investments in unquoted companies comprise equity and fixed rate loan stock. The principal risks arising from the Company’s operations are: • • interest rate risk; and investment risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. These policies have remained unchanged since the beginning of the financial year. Interest rate risk The Company’s policy is to accept a degree of interest rate risk on non-qualifying investments. On the basis of the Company’s analysis, it is estimated that a fall of one percentage point in interest rates would have reduced profit before tax to 31 March 2005 by approximately 3 per cent. (2004: 3 per cent.). Investment risk As a venture capital trust, it is the Company’s specific business to evaluate and control the investment risk in its portfolio of unquoted companies, the results of which are detailed in the Chairman’s statement. 38 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC NOTES TO THE FINANCIAL STATEMENTS (continued) 22. Financial instruments and risk management (continued) Financial assets The Company’s interest rate risk on its financial assets is as follows: 31 March 2005 Fixed rate £’000 Floating rate £’000 No interest £’000 Total £’000 31 March 2004 Fixed rate £’000 Floating rate £’000 No interest £’000 Total £’000 Sterling 17,657 9,850 14,074 41,581 22,659 5,735 12,187 40,581 • Fixed rate assets bear interest at rates based on predetermined yield targets. The weighted average interest rate at 31 March 2005 was 13.6% (2004: 13.6%). • Floating rate assets bear interest at rates based predominantly on base rates. • The weighted average period to maturity for the fixed rate assets is approximately 3 years. Financial liabilities The Company’s financial liabilities comprise the guarantees detailed in note 23 below. Currency exposure As at 31 March 2005, the Company has no foreign currency exposures (2004: £nil). Borrowing facilities The Company has a £5 million committed draw down borrowing facility with The Royal Bank of Scotland plc as at 31 March 2005 (2004: £5 million). Fair values of financial assets and financial liabilities All the Company’s financial assets and liabilities as at 31 March 2005 are stated in accordance with the revised BVCA guidelines which in the directors’ opinion represent a fair value. See note 1 to the financial statements. 23. Contingencies, guarantees and financial commitments There are no contingencies, guarantees and financial commitments of the Company at the year end which have not been accrued for, except those funds scheduled for investment as detailed in the asset-based portfolio summary. There is a guarantee to The Royal Bank of Scotland plc relating to Kew Green VCT (Stansted) Limited. As at 31 March 2005 this amounted to £2.25 million. This has subsequently reduced to £1 million. 24. Post balance sheet events The following disposals and investments have occurred since 31 March 2005: • On 5 April 2005, £150,000 was invested in Weybridge Health Club Limited. • On 7 April 2005, a further £275,000 was invested in Barleycroft Care Home Limited. • On 12 April 2005, a further £1 million was invested in Kew Green VCT (Stansted) Limited. 39 CLOSE BROTHERS VENTURE CAPITAL TRUST PLC NOTICE OF MEETING Notice is hereby given that the Annual General Meeting of Close Brothers Venture Capital Trust PLC will be held at 10.30 a.m. on Monday 11 July 2005 at 10 Crown Place, London EC2A 4FT for the purpose of dealing with the following business, of which item 5 is special business. Ordinary Business 1. To receive and adopt the accounts and the reports of the Directors and Auditors for the year ended 31 March 2005. 2. To approve the Directors’ remuneration report. 3. To reappoint Deloitte & Touche LLP as auditors for the ensuing year and to authorise the directors to fix their remuneration. 4. To declare a net final revenue dividend of 2.95 pence per share and a net final capital dividend of 1.80 pence per share payable to Shareholders on the register at the close of business on 17 June 2005. Special Business To consider and, if thought fit, pass the following resolution which will be proposed as a Special Resolution: 5. That the Company be generally and unconditionally authorised to make one or more market purchases (within the meaning of Section 163(3) of the Companies Act 1985) of Ordinary Shares of 50p in the capital of the Company (“Shares”) provided that: (a) the maximum aggregate number of Shares authorised to be purchased is 3,587,822 (representing approximately 10 per cent of the issued share capital); (b) the minimum price which may be paid for a Share is 50p; (c) the maximum price which may be paid for a Share is an amount equal to 5 per cent above the average of the middle market quotations for an Ordinary Share in the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which that Share is purchased; (d) this authority expires at the conclusion of the next Annual General Meeting of the Company or eighteen months from the date of the passing of this resolution whichever is earlier; and (e) the Company may make a contract or contracts to purchase Shares under this authority before the expiry of the authority which will or may be executed wholly or partly after the expiry of the authority, and may make a purchase of Shares in pursuance of any such contract or contracts. By the order of the Board C Kinnear Secretary Registered Office 10 Crown Place, London EC2A 4FT 9 June 2005 Notes 1. A shareholder entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and, on a poll, to vote in his or her stead. Such proxy need not be a member of the Company. 2. A form of proxy is enclosed and to be valid must be lodged with the Registrars of the Company not less than forty-eight hours before the time fixed for the meeting. 3. The register of interests of directors kept by the Company in accordance with Section 325 of the Companies Act 1985 will be open for inspection at the meeting. 4. No director has a contract of service with the Company. 40 Close Brothers Venture Capital Trust PLC