Albion Venture Capital Trust PLC
Annual Report 2008

Plain-text annual report

Annual Report and Financial Statements for the year ended 31 March 2008 Close Brothers Close Brothers Venture Capital Trust PLC Venture Capital Trust PLC 212217 Venture_Cap_cov.indd 1 212217 Venture_Cap_cov.indd 1 9/7/08 16:20:45 9/7/08 16:20:45 Contents Page 2 4 5 7 8 9 Financial Highlights Investment Objectives and Financial Calendar Chairman’s Statement The Board of Directors The Manager Portfolio of Investments 11 Portfolio Companies 15 Directors’ Report and Business Review 24 Statement of Corporate Governance 28 Directors’ Remuneration Report 29 Independent Auditors’ Report 30 Income Statement and Note of Historical Cost Profits and Losses 31 Balance Sheet 32 Reconciliation of Movement in Shareholders’ Funds 33 Cash Flow Statement 34 Notes to the Financial Statements 46 Company Information 47 Notice of Meeting Close Brothers Venture Capital Trust PLC 1 Financial Highlights + 158.5% Ordinary net asset value total return growth (with 10.0p Tax free dividend per share for the year to 31 March 2008. dividends reinvested) since launch (April 1996) to 31 March 2008. 109.9p Net asset value per share at 31 March 2008. (0.3p) Total negative return per share for the year ended 31 March 2008. Ordinary Shares Net Asset Value return growth relative to the FTSE All-Share Index (in both cases with dividends reinvested) % h t w o r g n r u t e r V A N 180 160 140 120 100 80 60 40 20 0 -20 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Ordinary Shares total NAV return Source: Close Ventures Limited FTSE AII-Share Index total return 2 Close Brothers Venture Capital Trust PLC Financial Highlights continued Ordinary Share Price return growth relative to the FTSE All-Share Index (in both cases with dividends reinvested) % h t w o r g n r u t e r e c i r P e r a h S 180 160 140 120 100 80 60 40 20 0 -20 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Ordinary Shares total return FTSE AII-Share Index total return Source: Close Ventures Limited Total shareholder net asset value return to 31 March 2008: Gross revenue dividends paid during the year ended 31 March 1997 Gross revenue dividends paid during the year ended 31 March 1998 Gross interim dividends and net final dividend paid during the year ended 31 March 1999 Net revenue and capital dividends paid during the year ended 31 March 2000 Net revenue and capital dividends paid during the year ended 31 March 2001 Net revenue dividends paid during the year ended 31 March 2002 Net revenue and capital dividends paid during the year ended 31 March 2003 Net revenue and capital dividends paid during the year ended 31 March 2004 Net revenue and capital dividends paid during the year ended 31 March 2005 Net revenue and capital dividends paid during the year ended 31 March 2006 Net revenue and capital dividends paid during the year ended 31 March 2007 Net revenue and capital dividends paid during the year ended 31 March 2008 Total dividends paid to 31 March 2008 Net asset value as at 31 March 2008 Total shareholder net asset value return to 31 March 2008 Ordinary shares (pence) 2.00 5.20 11.05 3.00 8.55 7.60 7.70 8.20 9.75 11.75 10.00 10.00 –––––––––––– 94.80 109.94 –––––––––––– 204.74 –––––––––––––––––––––––– ‘C’ shares (pence) – 2.00 8.75 2.70 4.80 7.60 7.70 8.20 9.75 11.75 10.00 10.00 –––––––––––– 83.25 109.94 –––––––––––– 193.19 –––––––––––––––––––––––– In addition to the above dividends, the Company will pay a first dividend from realised capital gains of 5 pence per share on 15 August 2008 to shareholders on the register at 18 July 2008. Notes • • • • 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. 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. 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. 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. Close Brothers Venture Capital Trust PLC 3 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 C Shares merged with the Ordinary Shares in 2001. 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 Ventures 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 Ventures Limited and, in certain circumstances, temporary bridging finance prior to further investment by funds managed or advised by Close Ventures 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. Financial Calendar Annual General Meeting 2 September 2008 Announcement of interim results for the six months ended 30 September 2008 November 2008 Record date for first dividend Payment of first dividend Payment of second dividend 18 July 2008 15 August 2008 January 2009 4 Close Brothers Venture Capital Trust PLC Chairman’s Statement Introduction The financial performance for the year to 31 March 2008 was subdued, with a negative total return of 0.3 pence per share, compared with a positive total return of 13.7 pence for 2007 and 7.5 pence for 2006. This was principally caused by the slow down in consumer spending adversely affecting both the trading in our pub investments and the property sales within our residential development companies while the decline in property values generally led to a reduction in the value of our successful hotel at Stansted airport. These in turn affected both the capital value of our portfolio and the income received from our investments. In line with the Company’s objective, dividends of 10 pence per share were paid in the year, resulting in a fall in asset value to 109.9 pence per share. Investment progress and performance Some £3.5 million was invested into new and existing asset- based investee companies. The biggest investment was £1 million in Sky Hotel Heathrow Limited to purchase The Stanwell Hall Hotel, a 19 bedroom hotel close to Heathrow’s Terminal Five and also to extend it to 53 bedrooms, with a further £2.2 million reserved for investment. We disposed of our investment in The Bold Pub Company Limited, realising a profit of £603,000 on the investment of £1.39 million, in addition to a running yield of over 10% on funds invested. We also part-disposed of our investment in The Pelican Inn Limited, realising a loss of £127,000 on our cost of £359,000. fitness clubs saw continued strong growth Trading in all of our hotels continues to improve as actions taken by their management have more than offset the effects of a slowing economy, generally leading to increases in valuations. Despite strong trading performance, the third party valuation for the Stansted hotel has fallen, however, in line with sections of the commercial property market. Our cinemas are performing well, while our newly-opened health and in membership. Against this, our pub investments saw markedly tougher trading as a result of reduced consumer spending and the effects of the smoking ban. In addition, we are in the process of reducing our exposure to the residential development market, where we have seen a sharp decline in sales; of the total £7.7 million that the Company has invested in that sector, currently around 40 per cent. is now in the form of cash, and we see this proportion increasing further over the next few months. The following is the sector split of the portfolio by valuation as at 31 March 2008: Residential Development 19% Cash and Cash Equivalents 17% Cinemas and Other Leisure 9% Health & Fitness Clubs 7% Pubs 4% Hotels 44% Source: Close Ventures Limited Risks, uncertainties and prospects The key risk continues to be the outlook for the UK economy which, while currently still growing, is being affected by the unease in the wholesale financial and housing markets. While this has had an overall adverse effect on asset values, we believe that the resulting shortage of available bank finance will give rise to additional investment opportunities for a cash rich fund like ourselves. This is because your Company’s policy of providing both equity and debt finance, without the use of external borrowings, not only reduces the risk to the existing portfolio, but also makes our form of investment more attractive at a time when banks are reducing their lending activities. Further detailed analysis of the other risks and uncertainties facing the business are shown in the Directors’ Report and Business Review on page 17. New opportunities in progress include a psychiatric hospital in the South Downs, north of Portsmouth, where we have already exchanged contracts subject to planning. This would take the VCT back into the healthcare sector, which we left two years ago, following the sale of our final two care homes in Romford and Dover. We are reviewing our options for our substantial investment in the Stansted hotel; if we decide to sell the investment, the profit that would arise would underpin our dividend objective and provide liquidity for further investment. Close Brothers Venture Capital Trust PLC 5 Chairman’s Statement continued Dividend Reinvestment Scheme I draw to shareholders’ attention a Dividend Reinvestment Scheme whereby shareholders may elect to reinvest the whole of the dividend due for payment on 15 August 2008 by subscribing for New Ordinary Shares. Benefits to individual shareholders arising on participating in the Dividend Reinvestment Scheme include: ● ● ● income tax relief on the reinvestment at the rate of 30 per cent. (VCT investments cannot exceed £200,000 in one tax year to be able to obtain this relief and new shares need to be held for at least five years); any gains arising on disposal of shares in a VCT will be exempt from tax (any loss will not be an allowable capital loss); and any future dividends on the new shares are not subject to income tax. The Circular dated 10 July 2008 which is enclosed with this Annual Report and Financial Statements, ‘Introduction of a Dividend Reinvestment Scheme’, details the mechanics of this Scheme. Proposed change to the Company’s Articles of Association At the Annual General Meeting, a special resolution will be proposed to adopt new Articles (the “New Articles”) in order to update the Company’s existing Articles of Association (the “Current Articles”) and to take account of the changes that have been brought into force by the Companies Act 2006. Whilst the Company will be incorporating the new provisions of the Companies Act 2006 in relation to electronic and/or website communications, it does not yet intend to communicate with its shareholders via such means. A further resolution will be proposed to enable the Directors to manage the conflicts of interest as permitted by the Companies Act 2006 and which will come into force on 1 October 2008 or such later date as section 175 of the Companies Act 2006 provides. The Directors are proposing a resolution to allow Directors to approve actual or potential conflicts situations, should it be in the Company’s best interests to do so, and to allow conflicts of interest to be dealt with in a similar way to the current position. A summary of the principal changes that are proposed to be made to the Current Articles by resolutions 11 and 12 is contained in the Directors’ Report and Business Review on page 20. Results and dividends As at 31 March 2008, the net asset value was £39.2 million or 109.9 pence per share compared to £43.1 million or 120.2 pence per share as at 31 March 2007. Revenue return after taxation was £1.5 million for the period compared to £2.0 million for the year to 31 March 2007. The Board now declares a first dividend of 5 pence per share. The dividend will be paid on 15 August 2008 to shareholders on the register on 18 July 2008. This is in line with the Board’s objective of paying out a dividend of 10 pence per share per annum, subject to the availability of realised capital and revenue reserves. Jonathan Thornton Director 10 July 2008 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. (63) MBA David Watkins (Harvard), Chairman (appointed 9 February 1996). From 1972 until 1991, David Watkins worked for Goldman Sachs, where he was head of Euromarkets Syndication and Head of European Real Estate. He subsequently joined Mountleigh Group PLC where he worked as a director on the restructuring of the business prior to it being placed into administration. Until late 1995, he worked at Baring Securities Limited as Head of Equity Capital Markets – London, before leaving ultimately to become Chief Financial Officer and one of the principal shareholders of his current company, The Distinguished Programs Group LLC, an insurance distribution and underwriting group. From 1986 to 1990 he was a member of the Council of the London Stock Exchange. He is currently a director of Close Income & Growth VCT PLC (which is managed by Close Ventures Limited) and a number of private UK companies. John Kerr (65) ACMA (appointed 9 February 1996). 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 materials 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 (which is managed by Close Ventures Limited). Jonathan Thornton (61) MBA, FCA (appointed 9 February 1996). Jonathan Thornton 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 (which is managed by Close Ventures Limited). Jeff Warren (60) ACCA (appointed 2 October 2007). Jeff Warren has 30 years financial management experience, including high level corporate governance and regulatory environment experience. He held the post of CFO of Bristol and West Building Society from 1992. Following the acquisition of Bristol and West by Bank of Ireland, he was appointed CEO of Bristol and West PLC in 1999, and subsequently also took responsibility for the Bank of Ireland UK Branch network. In 2003 he moved to take on a role at Group level in Dublin, as Group Chief Development Officer, reporting to the Bank of Ireland CEO. In 2004 he returned to the UK to develop a career as a non-executive director. Close Brothers Venture Capital Trust PLC 7 The Manager Close Ventures Limited, is authorised and regulated by the Financial Services Authority and is the Manager of Close Brothers Venture Capital Trust PLC. In addition to Close Brothers Venture Capital Trust PLC, it manages a further six venture capital trusts, and has currently total funds under management of approximately £255 million. The Manager’s ultimate parent company is Close Brothers Group plc, an independent merchant banking group incorporated in Great Britain and listed on the London Stock Exchange. following are specifically The the management and administration of the VCTs managed by Close Ventures Limited, including Close Brothers Venture Capital Trust PLC. responsible for Patrick Reeve, (48), MA, ACA, 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 Close Brothers Group plc 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 Ventures Limited with the launch of Close Brothers Venture Capital Trust PLC in the spring of 1996. He is a director of Close Brothers Protected VCT PLC, Close Income & Growth VCT PLC, Close Enterprise VCT PLC and Close Technology & General VCT PLC, all managed by Close Ventures Limited. Isabel Dolan, (43), BSc (Hons), ACA, MBA, is Operations Director of Close Ventures Limited having previously been Finance Director for a number of unquoted companies. From 1993-1997 she was Head of Recoveries at the Specialised Lending Services of the Royal Bank of Scotland plc and from 1997-2001 she was a Portfolio Director at 3i plc. She joined Close Ventures Limited in 2005. Dr Andrew Elder, (37), MA, FRCS. After qualifying as a in surgeon he practised neurosurgery before joining the Boston Consulting Group as a consultant in 2001, specialising in healthcare strategy. He joined Close Ventures Limited in 2005. for six years, specialising Will Fraser-Allen, (37), BA (Hons), ACA, qualified as a chartered accountant with Cooper Lancaster Brewers in finance and 1996 before specialising investigation. He joined Close Ventures Limited in 2001. in corporate 8 Close Brothers Venture Capital Trust PLC Emil Gigov, (37), BA (Hons), ACA, 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 Ventures Limited in 2000. David Gudgin, (36), BSc (Hons), ACMA, 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 Ventures Limited in 2005. Michael Kaplan, (31), BA, MBA. After graduating from the University of Washington in 1999 with a BA in International Finance, he joined Marakon Associates as an analyst. In 2000, he became the Chief Financial Officer of Widevine Technologies, a security software company based in Seattle. Then, after graduation with an MBA from INSEAD, in 2004 he joined the Boston Consulting Group focusing on the retail and financial services industries. He joined Close Ventures Limited in 2007. Ed Lascelles, (32), BA (Hons), 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 Ventures Limited in 2004. Henry Stanford, (43), MA, ACA, qualified as a chartered accountant with Arthur Andersen before joining the corporate finance division of Close Brothers Group plc in 1992. He transferred to Close Ventures Limited in 1998 to focus on VCT investment. Robert Whitby-Smith, (33), BA (Hons), MSI, ACA, 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 Ventures Limited in 2005. Marco Yu (30), MPhil, MA, MRICS, qualified as a chartered surveyor in 2004. From 2002 to 2005, he worked at Bouygues (UK), developing cost management systems for PFI schemes, before moving to EC Harris in 2005, where he advised senior lenders on large capital projects. He joined Close Ventures Limited in 2007. Portfolio of Investments The following is a summary of investments as at 31 March 2008: At 31 March 2008 At 31 March 2007 % voting rights Cumulative movement Total Cumulative movement in carrying/ carrying/ Investment in Total % of CVL* Investment voting managed rights companies at cost £’000 Qualifying Investments Hotels Kew Green VCT (Stansted) Limited The Crown Hotel Harrogate Limited The Bear Hungerford Limited The Place Sandwich VCT Limited Sky Hotel Heathrow Limited The Charnwood Pub Company (Hotels) Limited Churchill Taverns (Hotels) Limited Total investment in the hotel sector Pubs Churchill Taverns VCT Limited Bravo Inns Limited The Dunedin Pub Company VCT Limited GB Pub Company VCT Limited The Charnwood Pub Company Limited Novello Pub Limited Pelican Inn Limited The Bold Pub Company Limited Total investment in the pub sector Cinemas and other leisure City Screen (Cambridge) Limited CS (Greenwich) Limited CS (Brixton) Limited Premier Leisure (Suffolk) Limited City Screen (Liverpool) Limited CS (Exeter) Limited CS (Norwich) Limited Total investment in the cinema and other leisure sector Health and fitness clubs The Weybridge Club Limited Kensington Health Club Limited Towerbridge Health Club Limited River Bourne Health Club Limited Total investment in the health and fitness club sector 28.2 15.6 26.1 25.0 16.7 17.5 25.5 5.7 5.1 4.3 17.5 4.1 6.5 – – 50.0 18.3 6.4 4.7 18.1 6.6 3.1 8.8 6.1 5.5 3.5 Residential property development G&K Smart Developments VCT Limited Prime VCT Limited Chase Midland VCT Limited Youngs VCT Limited 42.9 50.0 38.1 25.4 Total investment in the residential property development sector fair value £’000 3,863 (521) (251) 84 8 (257) (212) fair value £’000 at carrying/ carrying/ cost £’000 fair value fair value £’000 £’000 8,863 2,379 1,837 1,334 1,008 881 638 5,000 2,000 2,088 1,250 – 1,138 – 4,031 (394) (473) 16 – (65) – 9,031 1,606 1,615 1,266 – 1,073 – 5,000 2,900 2,088 1,250 1,000 1,138 850 14,226 2,714 16,940 11,476 3,115 14,591 485 450 215 245 160 184 4 – (86) (121) (7) (68) (36) (64) – – 399 329 208 177 124 120 4 – 325 – 215 240 160 184 359 1,390 23 – (30) (29) 16 (63) (94) 332 348 – 185 211 176 121 265 1,722 1,743 (382) 1,361 2,873 155 3,028 1,210 1,005 250 380 200 100 50 468 (23) 25 (108) 53 (22) 3 1,678 982 275 272 253 78 53 1,210 1,005 250 380 200 100 – 501 (84) 20 5 123 10 – 1,711 921 270 385 323 110 – 3,195 396 3,591 3,145 575 3,720 1,330 1,100 344 70 83 14 44 7 1,413 1,114 388 77 1,330 1,000 344 70 60 9 70 1 1,390 1,009 414 71 2,844 148 2,992 2,744 140 2,884 3,000 2,200 1,600 1,200 - (300) (38) – 3,000 1,900 1,562 1,200 3,000 2,200 1,600 1,200 13 30 (2) – 3,013 2,230 1,598 1,200 8,000 (338) 7,662 8,000 41 8,041 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 – – 50.0 50.0 50.0 45.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 Total qualifying investments 30,008 2,538 32,546 28,238 4,026 32,264 Included in this movement is net capital appreciation of equity instruments amounting to £2,196,000 (2007: £3,737,000) and an increase in carrying value of £342,000 (2007: £289,000) for loans and receivables. Close Brothers Venture Capital Trust PLC 9 Portfolio of Investments (continued) Non-qualifying Investments Nationwide FRN 07/06/2010 Total investments At 31 March 2008 At 31 March 2007 Cumulative movement Total Cumulative movement in carrying/ carrying/ Investment in Total Investment at cost £’000 1,497 fair value £’000 fair value £’000 (22) 1,475 at carrying/ carrying/ cost £’000 – fair value fair value £’000 £’000 – – 31,505 2,516 34,021 28,238 4,026 32,264 This movement comprises net capital depreciation of floating rate note instruments amounting to £22,000. * CVL is Close Ventures Limited 10 Close Brothers Venture Capital Trust PLC Portfolio Companies The top ten qualifying investments by total aggregate value of equity and loan stock are as follows (unquoted loan stock held by investments is classified as loans and receivables in accordance with FRS 26 and are carried at amortised cost using the effective interest rate): Kew Green VCT (Stansted) Limited The company was established to develop and operate a limited service hotel under the “Express by Holiday Inn” brand at Stansted Airport on a 125 year lease. The 183 bedroom hotel opened in January 2005 with a 71 room extension opening in 2007. Trading has been strong. Latest audited results – year to 31 August 2007 £’000 4,586 201 90 3,005 Net asset value supported by third party valuation www.expressstandstedairport.co.uk Turnover Profit before tax Profit after tax Net assets Basis of equity valuation: Website: Investment at value Equity Loan stock Voting rights £’000 5,296 3,567 28.2 per cent. G&K Smart Developments VCT Limited (formerly Country and Metropolitan VCT Limited) This company is a residential property development company formed in 1996. It has undertaken a series of successful residential developments in the North of England and is currently undertaking a development of 10 houses and 6 apartments near Bradford and a development of 9 houses to the south of Leeds. Latest audited results – year to 31 December 2006 £’000 1,030 (137) (96) 1,536 Cost (reviewed for impairment) Turnover Loss before tax Loss after tax Net assets Basis of equity valuation: Investment at value Equity Loan stock Voting rights £’000 1,350 1,650 42.9 per cent. Close Brothers Venture Capital Trust PLC 11 Portfolio Companies continued The Crown Hotel Harrogate Limited The company owns and operates the historic 108 bedroom Crown Hotel in Harrogate, Yorkshire, which has just finished an 18 month refurbishment programme. Trading has been steadily improving as a result of an improved product and tighter management. Latest audited results – year to 1 April 2007 £’000 1,508 (1,622) (1,622) 293 Net asset value supported by third party valuation www.crownhotelharrogate.com Turnover Loss before tax Loss after tax Net assets Basis of equity valuation: Website: Investment at value Equity Loan stock Voting rights Prime VCT Limited £’000 304 2,075 15.6 per cent. The company is a residential development company formed in 1996. Its most recent development is a 10 apartment site beside the River Avon in Bristol; 5 have now been sold with the balance awaiting sale in a difficult market. Latest audited results – year to 30 September 2006 As a small company, Prime VCT is exempt from filing full accounts. £’000 590 Cost (reviewed for impairment) Net assets Basis of equity valuation: Investment at value Equity Loan stock Voting rights The Bear Hungerford Limited The company was formed to acquire the historic 41 bedroom Bear Hotel in Hungerford. This hotel was acquired in 2005 and a refurbishment programme has taken place. Trading continues to improve following the enhancement of the facilities and a strong performance by the current management. Latest audited results – year to 31 March 2007 £’000 1,350 (511) (511) (228) Net asset value supported by third party valuation www.thebearhotelhungerford.co.uk Turnover Loss before tax Loss after tax Net assets Basis of equity valuation: Website: Investment at value Equity Loan stock Voting rights 12 Close Brothers Venture Capital Trust PLC £’000 690 1,210 50.0 per cent. £’000 259 1,578 26.1 per cent. Portfolio Companies continued City Screen (Cambridge) Limited The company was formed to develop and operate a three screen ”art house” cinema in the centre of Cambridge on a 34 year lease. The cinema opened in August 1999 and continues to perform strongly in a competitive market. Latest audited results – year to 31 December 2007 £’000 1,464 (142) (142) 1,278 Net asset value supported by third party valuation www.picturehouses.co.uk Turnover Loss before tax Loss after tax Net assets Basis of equity valuation: Website: Investment at value Equity Loan stock Voting rights The Place Sandwich VCT Limited The company owns the freehold of the 34 bedroom, Bell Hotel at Sandwich in Kent. Following refurbishment, the hotel has been performing strongly. Latest audited results – year to 30 June 2007 £’000 1,169 (241) (241) 324 Net asset value supported by third party valuation www.bellhotelsandwich.co.uk Turnover Loss before tax Loss after tax Net assets Basis of equity valuation: Website: Investment at value Equity Loan stock Voting rights £’000 649 1,029 50.0 per cent. £’000 454 880 25.0 per cent. Chase Midland VCT Limited The company is a residential development company formed in 1997, and has undertaken a number of successful developments. Over the last year it has completed a very successful development of 2 houses in Warwickshire but sales at a development of 7 apartments in Nottingham have been slow. Latest audited results – year to 30 June 2007 £’000 244 (167) (119) 836 Cost (reviewed for impairment) Turnover Loss before tax Loss after tax Net assets Basis of equity valuation: Investment at value Equity Loan stock Voting rights £’000 682 880 38.1 per cent. Close Brothers Venture Capital Trust PLC 13 Portfolio Companies continued The Weybridge Club Limited The company bought a 30 acre freehold site near to the centre of Weybridge, Surrey, which it developed into a premium health and fitness club and which opened in May 2007. Membership is currently building up well. Latest audited results – year to 31 August 2006 £’000 £nil (42) (42) 1,002 Net asset value supported by third party valuation www.theweybridgeclub.com Turnover Loss before tax Loss after tax Net assets Basis of equity valuation: Website: Investment at value Equity Loan stock Voting rights Youngs VCT Limited £’000 347 1,066 8.8 per cent. Youngs VCT Limited is a residential property development company. It has successfully completed five developments along the south coast. Following completion of the last development it will be wound down and the proceeds returned to the shareholders. Latest audited results – year to 30 June 2007 £’000 1,710 233 188 1,202 Cost (reviewed for impairment) Turnover Profit before tax Profit after tax Net assets Basis of equity valuation: Investment at value Equity Loan stock Voting rights £’000 540 660 25.4 per cent. Net assets of investee companies where a recent third party valuation has taken place may have a higher valuation in Close Brothers Venture Capital Trust PLC accounts than in their own in cases where the investee company does not have a policy of revaluing their fixed assets. 14 Close Brothers Venture Capital Trust PLC Directors’ Report and Business Review The Directors submit their Annual Report and the audited Financial Statements on the affairs of Close Brothers Venture Capital Trust PLC (the “Company”) for the year ended 31 March 2008. BUSINESS REVIEW Principal activity and status The principal activity of the Company is that of a venture capital trust. It has been provisionally approved by HM Revenue & Customs as a venture capital trust in accordance with Part 6 of the Income Taxes Act 2007 and in the opinion of the Directors, the Company has conducted its affairs so as to enable it to continue to mantain such approval. Approval for the year ended 31 March 2008 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. 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 15 May 2000 in order for the Company to pay dividends from realised capital profits. The Company is listed on The London Stock Exchange. Under current tax legislation, shares in the Company provide tax-free capital growth and income distribution, in addition to the tax reliefs some investors would have obtained when they invested in fundraisings. Capital structure Details of the authorised and issued share capital, together with details of the movements in the Company’s issued share capital during the year are shown in note 15. The Company’s share capital comprises Ordinary shares. The Ordinary shares are designed for individuals who are professionally advised private investors seeking, over the long term, investment exposure to a diversified portfolio of unquoted investments spread over a number of sectors which produce a regular and predictable source of income combined with the prospect of longer term capital growth. All shares rank pari passu for dividend and voting purposes. Each Ordinary share is entitled to one vote. The Directors are not aware of any restrictions on the transfer of shares or on voting rights. Dividend Reinvestment Scheme The Company is introducing a Dividend Reinvestment Scheme whereby shareholders may elect to reinvest the whole of the dividend to be paid on 15 August 2008, and future dividends, by subscribing for New Ordinary Shares. Benefits to individual shareholders arising on participating in the Dividend Reinvestment Scheme include: ● ● ● income tax relief on the reinvestment at the rate of 30 per cent. (VCT investments cannot exceed £200,000 in one tax year to be able to obtain this relief and new shares need to be held for at least five years); any gains arising on disposal of shares in a VCT will be exempt from tax (any loss will not be an allowable capital loss); and any future dividends on the new shares are not subject to income tax. The Circular dated 10 July 2008 which is enclosed with this Annual Report and Financial Statements, ‘Introduction of a Dividend Reinvestment Scheme’, details the mechanics of this Scheme. Investment policy The Company’s investment strategy is to provide investors with a regular and predictable source of dividend income combined with the prospect of long term capital growth through allowing investors the opportunity to participate in a balanced portfolio of asset-backed businesses. The Company’s investment portfolio will thus be structured to provide a balance between income and capital growth for the longer term. The Portfolio is designed to provide stability and income whilst still maintaining the potential for capital growth. In order to maintain status under Venture Capital Trust legislation, the following tests must be met; (1) (2) (3) (4) (5) the Company’s income must be derived wholly or mainly from shares and securities; at least 70 per cent. of the HM Revenue & Customs value of its investments must have been represented throughout the year by shares or securities that are classified as ‘qualifying holdings’; at least 30 per cent. by HM Revenue & Customs value of its total qualifying holdings must have been represented throughout the year by holdings of ‘eligible shares’; at no time in the year must the Company’s holdings in any one company (other than another VCT) have exceeded 15 per cent. by HM Revenue & Customs value of its investments; the Company must not have retained greater than 15 per cent. of its income earned in the period from shares and securities; Close Brothers Venture Capital Trust PLC 15 Directors’ Report and Business Review continued (6) (7) eligible shares must comprise at least 10 per cent. by value of the total of the shares and securities that the Company holds in any one investee company; and the Company’s shares, throughout the period must have been listed in the Official List of the London Stock Exchange. These tests drive a spread of investment risk through disallowing holdings of more than 15 per cent. in one investee company. The tests have been carried out and independently reviewed for the year ended 31 March 2008. The Company has complied with all of these tests and continues to do so. ‘Qualifying holdings’, for Close Brothers Venture Capital Trust PLC include shares or securities (including loans with a five year or greater maturity period) in companies which operate a ‘qualifying trade’ wholly or mainly in the United Kingdom. ‘Qualifying trade’ excludes, amongst other sectors, dealing in property or shares and securities, insurance, banking and agriculture. Details of the sectors in which the Company is invested in can be found in the pie chart on page 5 of the Chairman’s Statement. Investee company gross assets must not exceed £15 million immediately prior to the investment and £16 million immediately thereafter and there is an annual investment limit of £1 million in each company. As defined by the Articles of Association, the Company’s maximum exposure in relation to gearing is restricted to 10 per cent. of the adjusted share capital and reserves. As at 31 March 2008, the Company’s maximum permitted exposure was £3,918,000 (2007: £4,312,000) and its actual short term and long term gearing at this date was £nil (2007: £nil). The Directors do not currently have any intention to utilise long term gearing. The Company has delegated the investment management of the portfolio to Close Ventures Limited, a subsidiary of Close Brothers Group plc, which is authorised and regulated by the Financial Services Authority. Close Ventures Limited also provides company secretarial and other accounting and administrative support to the Company. Further details regarding the terms of engagement of the Manager are shown on page 19. Results and dividends Net revenue return for the year ended 31 March 2008 Revenue dividend of 1.85p per share paid 5 April 2007 Revenue dividend of 2.50p per share paid 4 January 2008 Transferred to revenue reserve Net capital loss for the period ended 31 March 2008 Capital dividend of 3.15p per share paid 5 April 2007 Capital dividend of 2.50p per share paid 4 January 2008 Transferred to capital reserve Net assets as at 31 March 2008 Net asset value per share as at 31 March 2008 £’000 1,503 (663) (897) –––––––––––– (57) –––––––––––––––––––––––– (1,605) (1,131) (897) –––––––––––– (3,633) –––––––––––––––––––––––– 39,175 –––––––––––––––––––––––– 109.9p –––––––––––––––––––––––– The Company paid dividends of 10.0 pence per share during the year ended 31 March 2008. As described in the Chairman’s Statement, the Board has declared a dividend of 5 pence per share to be paid out of realised capital gains, payable on 15 August 2008 to shareholders on the register as at 18 July 2008. Details of the principal investments made by the Company are shown in the Portfolio of Investments on page 9. A detailed review of the Company’s business during the period and future prospects is contained in the Chairman’s Statement on page 5. Details of significant events which have occurred since the end of the financial year are listed in note 20. As shown in the Company’s Income Statement on page 30 of the financial statements, the investment income has decreased slightly in the year to £2,443,000 (2007: £2,997,000) as a result of the disposal of the high yielding investment in The Bold Pub Company and interest being suspended on certain loan stocks. Revenue return to equity holders was £1,503,000 (2007: £2,010,000). The Directors do not foresee any major changes in the activity undertaken by the Company in the current year. The Company continues with its objective to invest in unquoted companies throughout the United Kingdom with a view to providing both capital growth and a reliable dividend income to shareholders over the long term. The capital return for the year was a loss of £1,605,000 the (2007: profit £2,899,000), primarily as a result of capitalisation of management fees and the unrealised write down on investment values at the year end. 16 Close Brothers Venture Capital Trust PLC Directors’ Report and Business Review continued The total negative return per share was 0.3 pence per share (2007: profit 13.7 return pence per share). capital trust purposes, are more fragile than larger, long established businesses. The Balance Sheet on page 31 of the financial statements shows that the net asset value per share has decreased to 109.9 pence per share from 120.2 pence per share in 2007, primarily as a result of the payment of 10.0 pence per share dividends during the year. This also reflects capitalisation of management fees and the unrealised devaluation of eight investments during the period. Cash flow for the business has been negative in the year, reflecting the payment of dividends, purchase of qualifying and non-qualifying investments and the purchase of own shares. Key Performance Indicators The graph on page 2 shows Close Brothers Venture Capital Trust PLC’s net asset value return growth against the FTSE All-Share Index return growth, in both instances with dividends reinvested. 2. The total expense ratio for the period to 31 March 2008 was 3.3 per cent. (2007: 2.6 per cent.). This increase is largely due to the one off cost of producing the circular for the previous Annual General Meeting and the fall in the net assets from the prior year. The Company operates a policy of buying back shares either for cancellation or for holding in Treasury. The Manager has an objective of maintaining the discount of the share price to net asset value at around 10 per cent. The Company repurchased 244,546 Ordinary shares (2007: nil shares) for Treasury during the year at a cost of £251,916 (2007: £nil) representing 0.68 per cent. of the share capital as at 1 April 2007. In the Directors’ view, there are no other non-financial performance indicators materially relevant to the business. Principal risks and uncertainties In addition to the current economic risks outlined in the Chairman’s Statement, the Board considers that the Company faces the following major risks and uncertainties: 3. 1. Investment risk This is the risk of investment in poor quality assets which reduces the capital and income returns to shareholders, and negatively the Company’s reputation. By nature, smaller unquoted businesses, such as those that qualify for venture impacts on To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and their strong track record for investing in this segment of the market. In addition, the Manager operates a formal and structured investment process, which includes an Investment Committee, comprising investment professionals from the Manager and senior investment personnel from within the Close Brothers Group plc. The Manager also invites comments from all non- executive Directors on investments discussed at Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on investee company boards) and the Board receives detailed reports on each investment as part of the Manager’s report at quarterly board meetings. Venture Capital Trust approval risk The current approval as a venture capital trust allows investors to take advantage of tax reliefs on initial investment and ongoing tax free capital gains and dividend income. Failure to meet the qualifying requirements could result in investors losing the tax relief on initial investment and loss of tax relief on any tax free income or capital gains received. In addition, failure to meet the qualifying requirements could result in a loss of listing of the shares. To reduce this risk, the Board has appointed the Manager, who has significant experience in venture capital trust management, and is used to operating within the requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed Ernst & Young LLP as its taxation advisors. Ernst & Young LLP, report quarterly to the Board to independently confirm compliance with the venture capital trust legislation, to highlight areas of risk and to inform on changes in legislation. Compliance risk The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company’s shares, or other penalties under the Companies Act or from financial reporting oversight bodies. Close Brothers Venture Capital Trust PLC 17 Directors’ Report and Business Review continued Board members and the Manager have considerable experience of operating at senior levels within quoted businesses. In addition, the Board and the Manager receive regular updates on new regulation from its auditors, lawyers and other professional bodies. 4. Internal control risk Failures in key controls, within the Board or within the Manager’s business, could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. Environment The management and administration of Close Brothers Venture Capital Trust PLC is undertaken by the Manager. Close Ventures Limited recognises the importance of its environmental responsibilities, monitors its impact on the environment, and designs and implements policies to reduce any damage that might be caused by its activities. Initiatives designed to minimise the Company’s impact on the environment reducing energy consumption as shown in the financial statements of Close Ventures Limited. recycling and include The Audit Committee meets with the Head of Internal Audit from Close Brothers Group plc at least once a year, receiving a report regarding the last formal internal audit performed on the Manager, and providing the opportunity for the Audit Committee to ask specific and detailed questions. The Manager has a comprehensive business continuity plan in place in the event that operational continuity is threatened. Further details regarding the Board’s management and review of the the Company’s implementation of the Turnbull guidance are detailed on page 26. controls through internal Measures are in place to mitigate information risk in order integrity, availability and confidentiality of information used within the business. to ensure the 5. 6. Reliance upon third parties risk The Company is reliant upon the services of Close Ventures Limited for the provision of investment management and administrative functions. There are provisions within the Management agreement for the change of Manager under certain circumstances (for more detail, see the Management agreement paragraph on page 19). In addition, the Manager has demonstrated to the Board that there is no undue reliance placed upon any one individual within Close Ventures Limited, or its parent company Close Brothers Group plc. Financial risks By its nature, as a venture capital trust, the Company is exposed to investment risk, credit risk and liquidity risk. The Company’s policies for managing these risks and its financial instruments are outlined in full in note 19 to the financial statements. The Company is financed through equity and does not have any borrowings. 18 Close Brothers Venture Capital Trust PLC Employees The Company is managed by Close Ventures Limited and hence has no employees, other than directors. 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) are shown below: D J Watkins J M B L Kerr J G T Thornton Jeff Warren* Roderick Davidson** 31 March 2008 10,000 13,109 61,218 10,000 – 31 March 2007 10,000 13,109 41,218 – 9,000 * Jeff Warren was appointed a Director of the Company on 2 October 2007. ** Roderick Davidson retired as a Director of the Company on 31 December 2007. There has been no change in the above since 31 March 2008. No Director has a service contract with the Company. All Directors are members of the Audit Committee, of which John Kerr is Chairman. No options over the share capital, long term incentive or retirement benefits of the Company have been granted to Directors personally, nor does the Company make a contribution to any pension scheme on behalf of the Directors. Directors’ retirement and re-election is subject to the Articles of Association and the AIC Code on Corporate Governance. David Watkins, John Kerr, Jonathan Thornton and Jeff Warren will all retire and offer themselves for re-election at the forthcoming Annual General Meeting. Further details can be found in the Statement of Corporate Governance on page 24. Directors’ Report and Business Review continued Management agreement The Company and Close Ventures Limited entered into a Management agreement on 13 February 1996, with a supplementary agreement signed on 29 June 2007, which may be terminated by either party on 12 months’ notice. Under this agreement, the Manager also provides secretarial the Company. The and administrative services Management agreement is subject to earlier termination in the event of certain breaches or on the insolvency of either party. Under the terms of the Management agreement, the Manager is paid an annual fee equal to 2 per cent. (plus any applicable VAT) of the net asset value of the Company. The fee is payable quarterly in arrears. to In addition, an annual secretarial and administrative fee of £37,489 (plus VAT) increased annually by RPI is payable to the Manager. In line with common practice, the Manager is also entitled to an arrangement fee, payable by each investee company, of approximately 2 per cent. on each investment made. Management Performance Incentive In order to provide the Manager with an incentive to maximise the return to investors, the Company has entered into a management performance incentive arrangement with the Manager. Under the incentive arrangement, the Company will pay an incentive fee to the Manager of an amount equal to 8 per cent. of the excess total return above 5 per cent. per annum, paid out annually in cash as an addition to the management fee. Any shortfall of the target return will be carried forward into subsequent periods and the incentive fee will only be paid once all previous and current target returns have been met. No management performance incentive fee is payable for the year ending 31 March 2008. Evaluation of the Manager The Board has evaluated the performance of the Manager based on the returns generated by the Company, the long term prospects of the current investments, a review of the Management agreement and the services provided therein, and benchmarking the performance of the Manager to other service providers. The Board believes that it is in the interests of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year. Valuation of investments As described in note 2 of the financial statements, the unquoted equity investments held by the Company are valued at fair value through profit or loss in accordance with the International Private Equity and Venture Capital Valuation Guidelines. These Guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. Unquoted investments are valued on the basis of forward looking estimates and judgements about the business itself, its market and the environment in which it operates, together with the state of the mergers and acquisitions market, stock market conditions and other factors. In making these judgements the valuation takes into account all known material facts up to the date of approval of the financial statements by the Board. Unquoted loan stock is valued at amortised cost. Investment and co-investment The Company co-invests with other venture capital trusts and funds managed or advised by Close Ventures Limited. Allocation of investments is on the basis of an allocation agreement which is based, inter alia, on the ratio of funds available for investment. Auditors During the year, the Board, advised by the Audit Committee, decided to put the audit of the Company out to tender. Following a formal selection process which considered expertise within the VCT market, depth of expertise within the audit firm and value for money, the Board have appointed PKF (UK) LLP as auditors to fill the casual vacancy. As a result of this process Deloitte & Touche have formally resigned as auditors. A resolution to re-appoint PKF (UK) LLP as the Company’s auditors will be proposed at the forthcoming Annual General Meeting. Substantial interests As at 31 March 2008 and at the date of this report, the Company was aware that JM Finn Nominees Limited had a beneficial interest of 7.73 per cent. of the issued ordinary share capital. Supplier payment policy The Company’s policy is to pay all supplier invoices within 30 days of the invoice date, or as otherwise agreed. Creditor days for the year were nil. There were no overdue trade creditors at 31 March 2008. Annual General Meeting The Annual General Meeting will be held at 10 Crown Place, London, EC2A 4FT at 12 noon on 2 September 2008. The notice of the Annual General Meeting is at the end of this document. The proxy form enclosed with this Annual Report and Financial Statements permits shareholders to disclose votes ‘for’, ‘against’, ‘withheld’ and ‘discretionary’. A ‘vote Close Brothers Venture Capital Trust PLC 19 Directors’ Report and Business Review continued withheld’ is not a vote in law and will not be counted in the proportion of the votes for and against the resolution. Summary of proxies lodged at the Annual General Meeting will be published at www.closeventures.co.uk within the ‘Our Funds’ section by clicking on Close Brothers Venture Capital Trust PLC. Resolutions relating to the following items of special business will be proposed at the forthcoming Annual General Meeting for which shareholder approval is required in order to comply either with the Companies Act or the Listing Rules of the Financial Services Authority. Power to allot shares Ordinary resolution number 9 will request the authority to allot up to 10 per cent. of the share capital of the Company (excluding shares held in Treasury) as at 10 July 2008. The Directors do not currently have any intention to allot shares, with the exception of the Dividend Reinvestment Scheme and reissuing Treasury shares where it is in the Company’s interest to do so. Dis-application of pre-emption rights Special resolution number 10 will request the authority to disapply pre-emption rights in circumstances of a rights or other pre-emptive issue, in connection with the Dividend Reinvestment Scheme, and otherwise, for the allotment of up to 5 per cent. of share capital in Ordinary resolution number 9. Purchase of own shares Special resolution number 11 will request the authority to purchase an aggregate of 14.99 per cent. of the shares in issue subject to the provisions shown in the notice of the meeting attached to the back of the financial statements. Shares bought back under this authority may be cancelled and up to 10 per cent. can be held in Treasury. The Board believes that it is helpful for the Company to continue to have the flexibility to buy its own shares and this resolution seeks authority from shareholders to do so. This resolution would renew the 2007 authority, which was in similar terms. As stated in note 15, the Company holds 244,546 shares in Treasury representing 0.68 per cent. of the share capital as at 31 March 2008. All were purchased during the year. The minimum repurchase price will be the nominal value of the shares from time to time and, in accordance with the Listing Rules, the maximum repurchase price will be the higher of: a) 105 per cent. of the average of the middle 20 Close Brothers Venture Capital Trust PLC market quotations for a share, as derived from the Daily Official List of the London Stock Exchange for the five business days immediately preceding the day on which that share is purchased; and b) the higher of the price of the last independent trade in the shares and the highest then current independent bid for the shares on the London Stock Exchange. The Board will only authorise repurchases of Treasury shares at prices representing a discount to the NAV per share which would have the effect of enhancing the NAV per share for remaining holders. Treasury shares Under the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003, shares purchased by the Company out of distributable profits can be held as Treasury shares, which may then be cancelled or sold for cash. The authority sought by special resolution number 11 is intended to apply equally to shares to be held by the Company as Treasury shares in accordance with the Regulations. At the Annual General Meeting, resolutions as described above will be proposed that the Directors will be authorised to allot relevant securities in accordance with section 80 of the Companies Act 1985 (the “Act”) and to be empowered to allot equity securities for cash in accordance with section 95 of the Act. Again, these replace existing authorities and powers which allow the Directors to sell Treasury shares at a price not less than that at which they were purchased. Changes to the Company’s Articles of Association At the Annual General Meeting, special resolution number 12 will be proposed to adopt new Articles of Association (the “New Articles”) in order to update the Company’s existing Articles of Association (the “Current Articles”) and to implement changes that have been brought into force by the Companies Act 2006. A further special resolution ‘special resolution number 13’ will be proposed to enable the Company to manage potential conflicts in accordance with provisions that will come into force on 1 October 2008 or such later date as section 175 of Companies Act 2006 provides. The principal changes introduced in the New Articles are set out below. Other changes, which are of a minor, technical or clarifying nature and also some more minor changes which merely reflect changes made by the Companies Act 2006 have not been noted below. A copy of the New Articles showing all the changes to the Current Articles will be available for inspection at the Company’s registered office from the date of the Notice during normal business hours until the conclusion of the Annual General Meeting and at the place of the Annual General Meeting for at least 15 minutes prior to the Annual General Meeting until its conclusion. Directors’ Report and Business Review continued Principal changes to the Company’s Articles of Association 1. in Articles which duplicate statutory provisions Provisions in the Current Articles which duplicate statutory provisions already contained the Companies Act 2006 are being removed in line with the approach advocated by the Government that a company’s constitution ought not to duplicate the statutory provisions contained in the Companies Act 2006. This includes, for example, provisions as to the form of resolutions, variation of class rights, the requirement to keep accounting records and provisions regarding the period of notice required to convene general meetings. The main changes being made to reflect this approach are detailed below. 2. 3. 4. 5. Form of resolution Under the Companies Act 2006, the concept of an extraordinary resolution has been abolished. As a result, requirements under the Current Articles for an extraordinary resolution will be replaced in the New Articles by the requirement for a special resolution. The Current Articles enable members to act by written resolution. Under the Companies Act 2006 public companies can no longer pass written resolutions. These provisions are, therefore, being removed in the New Articles. Variation of class rights The Current Articles contain provisions regarding the variation of class rights. The proceedings and specific quorum requirements for a meeting convened to vary class rights are contained in the Companies Act 2006. The relevant provisions are, therefore, being amended in the New Articles. Convening general meetings The provisions in the Current Articles dealing with the convening of general meetings and the length of notice required to convene general meetings are being amended to conform with the revised notice periods set out in the new provisions of the Companies Act 2006. In particular a general meeting to consider a special resolution can be convened on 14 days’ notice whereas previously 21 days’ notice was required. Votes of members Under the Companies Act 2006 proxies are entitled to vote on a show of hands whereas under the Current Articles proxies are only entitled to vote on a poll. The time limits for the appointment or termination of a proxy appointment have been altered by the Companies Act 6. 2006 so that they must be received no later than 48 hours before the meeting or, in the case of a poll taken more than 48 hours after the meeting, more than 24 hours before the time for the taking of a poll, with weekends and bank holidays being permitted to be excluded for this purpose. A company’s articles cannot shorten these time limits by specifying that they should be received before the time limits provided for in the Companies Act 2006. Multiple proxies may be appointed provided that each proxy is appointed to exercise the rights attached to a different share held by the shareholder. The New Articles are being amended to reflect all of these new provisions. Conflicts of interest The Companies Act 2006 sets out directors’ general duties which largely codify the existing law but with some changes. Under the Companies Act, from 1 October 2008, a director must avoid a situation where he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict with the company’s interests. The requirement is very broad and could apply, for example, if a director becomes a director of another company or a trustee of another organisation. The Companies Act 2006 allows directors of public companies to authorise conflicts and potential conflicts, where appropriate, and where the articles of association contain a provision to this effect. The Companies Act 2006 also allows the articles of association to contain other provisions for dealing with directors’ conflicts of interest to avoid a breach of duty. The New Articles give the directors authority to approve such situations and to include other provisions to allow conflicts of interest to be dealt with in a similar way to the current position. There are safeguards which will apply when directors decide whether to authorise a conflict or potential conflict. First, only directors who have no interest in the matter being considered will be able to take the relevant decision, and secondly, in taking the decision the directors must act in a way they consider, in good faith, will be most likely to promote the company’s success. The directors will be able to impose limits or conditions when giving authorisation if they think this is appropriate. relating to confidential It is also proposed that the New Articles should contain information, provisions attendance at board meetings and availability of board papers to protect a director being in breach of duty if a conflict of interest or potential conflict of interest arises. These provisions will only apply where the position Close Brothers Venture Capital Trust PLC 21 Directors’ Report and Business Review continued 7. 8. 9. giving rise to the potential conflict has previously been authorised by the directors. It is the Board’s intention to report annually on the Company’s procedures for ensuring that the Board’s powers of authorisation of conflicts are operated effectively and that the procedures have been followed. Notice of board meetings Under the Current Articles, when a director is abroad he can request that notice of directors’ meetings are sent to him at a specified address and if he does not do so he is not entitled to receive notice while he is away. This provision is being removed, as modern communications mean that there may be no particular obstacle to giving notice to a director who is abroad. It is being replaced with a more general provision that a director is treated as having waived his entitlement to notice, unless he supplies the Company with the information necessary to ensure that he receives notice of a meeting before it takes place. Records to be kept The provision in the Current Articles requiring the Board to keep accounting records is being amended to refer to the relevant provisions of the Companies Act 2006. the Company Electronic and web communications Provisions of the Companies Act 2006 which came into force in January 2007 enable companies to communicate with members by electronic and/or website communications. The New Articles continue to allow communications to members in electronic form and, in addition, they also permit the Company to take advantage of the new provisions relating to website communications. Before can communicate with a member by means of website communication, the relevant member must be asked individually by the Company to agree that the Company may send or supply documents or information to him by means of a website, and the Company must either have received a positive response or have received no response within the period of 28 days beginning with the date on which the request was sent. The Company will notify the member (either in writing, or by other permitted means) when a relevant document or information is placed on the website and a member can always request a hard copy version of the document or information. Whilst the Company will be incorporating the new provisions of the Companies Act 2006 in relation to electronic and/or website communications, it does not yet intend to communicate with its Shareholders via such means. If and at such time as the Company deems it appropriate 22 Close Brothers Venture Capital Trust PLC to communicate with Shareholders via electronic and/or website communications, it shall write to Shareholders, as described above, regarding such use. 10. Directors’ indemnities and loans to fund expenditure to fund expenditure The Companies Act 2006 has in some areas widened the scope of the powers of a company to indemnify directors and in connection with certain actions against directors. The existing exemption allowing a company to provide money for the purpose of funding a director’s defence in court proceedings now expressly covers regulatory proceedings and applies to associated companies. incurred Recommendation Your Board believes that the resolutions above are in the best interests of the Company and its Shareholders as a whole and, accordingly, unanimously recommends that you vote in favour of the resolutions. Statement of Directors’ responsibilities The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Services Authority. Company law requires the Directors to prepare such financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the income statement of the Company for the year. In preparing these 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. 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 Directors’ Report and Business Review continued 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. We confirm to the best of our knowledge: ● ● The financial statements, prepared in accordance with UK GAAP, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and The Directors’ report includes a fair review of the development and performance of the business and the position of the Company, together with a position of the risks and uncertainties they face. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. ● ● In the case of the persons who are Directors of the Company at the date of approval of this report: so far as each of the Directors are aware, there is no relevant audit information (as defined in the Companies Act 1985) of which the Company’s auditors are unaware; and each of the Directors has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information (as defined) and to establish that the Company’s auditors are aware of that information. This disclosure is given and should be interpreted in accordance with the provisions of s234ZA of the Companies Act 1985. By Order of the Board Close Ventures Limited Company Secretary 10 Crown Place London, EC2A 4FT 10 July 2008 Close Brothers Venture Capital Trust PLC 23 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”) and updated in June 2006. The Board of Close Brothers Venture Capital Trust PLC has also considered the principles and recommendations of the AIC Code of Corporate Governance (“AIC Code”) by reference to the AIC Corporate Governance Guide for Investment Companies (“AIC Guide”). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in Section 1 of the Combined Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to Close Brothers Venture Capital Trust PLC. The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the Combined Code), will provide better information to shareholders. The Company has complied with the recommendations of the AIC Code and the relevant provisions of Section 1 of the Combined Code, except as set out below. 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. David Watkins, John Kerr and Jonathan Thornton have been directors of the Company for more than nine years. The Board does not consider that a Director’s length of service reduces their ability to act independently of the Manager. The Directors have a range of business and financial skills which are extremely relevant to the Company; these are described in the Board of Directors section of this Report, on page 7. Directors are provided with key information on the Company’s activities, including regulatory and statutory requirements, and internal controls, by the Manager. The Board has direct access to secretarial advice and compliance services by the Manager, who is responsible for ensuring that Board procedures are followed and applicable procedures complied with. 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’ Liability Insurance. The Board met four times during the period as part of its regular programme of Board meetings. All of the Directors 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. Board of Directors The Board consists solely of non-executive directors. Since all Directors are non-executive and day-to-day management responsibilities are sub-contracted to the Manager, the Company does not have a Chief Executive Officer. The Manager has authority over the management of the investment portfolio, the organisation of custodial services, accounting, secretarial and administrative services. The main issues reserved for the Board include: David Watkins is the Chairman and Senior Independent Director. David Watkins, John Kerr and Jonathan Thornton are directors of other funds managed by Close Ventures Limited. Under the Listing Rules, with effect from October 2010 the Company will be required to have an independent Chairman and a majority of independent Directors where, to be independent, a Director cannot serve on the Board of more than one Company managed by the Manager. The Board is keeping this under review and will report on this in future periods. ● ● ● ● ● ● 24 Close Brothers Venture Capital Trust PLC the consideration and approval of future developments or changes to the investment policy, including risk and asset allocation; consideration of corporate strategy; application of the principles of the Combined Code, corporate governance and internal control; review of sub-committee recommendations, including the the appointment and remuneration of auditors; approval of the appropriate dividend to be paid to shareholders; the appointment, remuneration of the Manager; to shareholders recommendation evaluation, removal and for Statement of Corporate Governance continued ● ● 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. Committees’ and Directors’ performance evaluation Performance of the Board and the Directors is assessed on the following: ● ● ● attendance at Board and Committee meetings; the contribution made by individual Directors at, and outside of, Board and Committee meetings; and completion of a detailed internal assessment process and annual performance evaluation conducted by the Chairman. The Board believes that it has the right balance of independence, skills, experience and knowledge for the effective governance of the Company, Directors’ retirement and re-election is subject to the Articles of Association and the AIC Code on Corporate Governance. David Watkins, John Kerr and Jonathan Thornton have been directors for more than nine years, and in accordance with the AIC Code will all retire and offer themselves for re-election at the forthcoming Annual General Meeting, and annually thereafter. Jeff Warren was appointed a Director of the Company on 2 October 2007, and in accordance with the Articles of Association will retire and offer himself for re-election at the forthcoming Annual General Meeting. As a result of the performance evaluation process, the Directors are effective and demonstrate strong commitment to the role; on this basis, the Board believes it to be in the best interests of the Company to reappoint these Directors at the forthcoming Annual General Meeting. Remuneration committee Since the Company has no executive directors, 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. Audit Committee The Audit Committee consists of all Directors. John Kerr is Chairman of the Audit Committee. 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 2008 and all members attended. Written terms of reference have been constituted for the Audit Committee, these are as follows: ● ● ● ● ● ● ● ● ● their appointment, review of auditor providing an overview of the Company’s accounting policies and financial reporting; considering and reviewing the effectiveness of the Company’s internal controls and risk management systems; monitoring the integrity of the financial statements of the Company and any formal announcements relating to the Company’s financial performance, reviewing significant financial reporting judgements contained in them; meeting the Company’s external auditors annually, approving reappointment, remuneration, terms of engagement and providing an ongoing independence and objectivity; developing and implementing a policy for the supply of non-audit services by the external auditors; meeting with the Head of Internal Audit of Close Brothers Group plc when appropriate; ensuring that all Directors of the Company, and staff of the Manager feel able to raise issues of serious concern with the Chairman of the Audit Committee, and that these issues, where raised, are subject to proportionate and independent investigation, and appropriate action; reporting to the Board, identifying any matters in respect of which action or improvement is needed and recommending appropriate steps to be taken; and undertaking the duties of the Engagement Committee, and therefore reviewing the performance of the Manager and all matters arising under the Management agreement. During the year under review, the Committee discharged the responsibilities described above. Its activities included: ● ● ● ● formally reviewing the final report and accounts, the interim report, and the associated announcements, with particular focus on the main areas requiring judgement and on critical accounting policies; reviewing the effectiveness of the internal controls system and examination of the Internal Controls Report produced by the Manager; meeting with the Head of Internal Audit of Close Brothers Group plc; meeting with the external auditors and reviewing their findings; Close Brothers Venture Capital Trust PLC 25 Statement of Corporate Governance continued ● ● undertaking a tender process for the provision of audit services to the Company, evaluating the tenders, and recommending the re-appointment of PKF (UK) LLP to the Board with a view to their reappointment at the Annual General Meeting; and reviewing the performance of the Manager and making recommendations regarding their re-appointment to the Board. Nomination Committee The Nomination Committee consists of all Directors, with David Watkins as Chairman. The terms of reference of the Nomination Committee are to evaluate the balance of skills, experience and time commitment of the current Board members and make recommendations to the Board as and when a particular appointment arises. The Nomination Committee appointed Jeff Warren as a Director of the Company on 2 October 2007. Jeff Warren was appointed from a short list of candidates considered by the Committee. The Directors and Manager felt that they had the appropriate industry contacts to select and appoint the most qualified person for the vacancy on the Board, being aware of the costs associated with employing a Director. In considering the appointment, the Committee were mindful of experience, proven ability at working at senior levels within Boards, and knowledge of the SME and property sector in which the Company invests. It is the policy of the Company that all of the Directors are nominated for re-election every three years and that Directors’ who have serviced the Company for nine years are subject to annual re-election. All Directors will be proposed for re-election at the forthcoming Annual General Meeting. The terms and conditions of Directors’ appointment are available for inspection at the Annual General Meeting. Internal Control In accordance with principle C.2 of the Combined Code, the Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place throughout the year and continues to be subject to regular review by the Board in accordance with the Internal Control Guidance for Directors in the Combined Code published in September 1999 and updated in 2005 (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’s monitoring covers all controls, including financial, operational and compliance controls, and risk management. 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 are, and 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 the Manager’s and the Board’s attention. The Board has also performed a specific assessment for the purpose of this Annual Report. This assessment considers all significant aspects of internal control arising during the period. The Audit Committee assists the Board in discharging its review responsibilities. As the Board has delegated the investment management and administration to Close Ventures Limited, the Board feels that it is not necessary to have its own internal audit function. Instead, the Board has continual access to the internal audit department of Close Brothers Group plc, which undertakes periodic examination of the business processes and controls environment at Close Ventures Limited, and ensures that any recommendations to implement improvements in controls are carried out. The internal audit department of Close Brothers Group plc reports formally to the Board on an annual basis. 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. Relationships with shareholders The Company’s Annual General Meeting on 2 September 2008 will be used as an opportunity to communicate with investors. The Board and the Chairman of the Audit Committee will be available to answer questions at the Annual General Meeting. At the Annual General Meeting, the level of proxies lodged on each resolution, the balance for and against the resolution, and the number of votes withheld, will be announced after the resolution has been voted on by a show of hands. 26 Close Brothers Venture Capital Trust PLC Statement of Corporate Governance continued The Annual General Meeting will also include a presentation from the Manager on the portfolio and on the Company, and a presentation from an investee company. Shareholders are able to access the latest information on the Company via the Close Ventures Limited website www.closeventures.co.uk under the “Our Funds” section. Any enquiries relating to shareholdings and share certificates or changes to personal details can be directed to Capita Registrars plc: Tel: 0871 664 0300 (calls cost 10p per minute plus network extras) Email: ssd@capitaregistrars.com Specific enquiries relating to the performance of the Fund should be directed to Close Ventures Limited: Tel: 020 7422 7830 Email: enquiries@closeventures.co.uk The company’s share buy-back programme operates in the market through brokers. In order to sell shares, as they are quoted on the London Stock Exchange, investors should approach a broker to undertake the sale. Banks may be able to assist shareholders with a referral to a broker within their banking group. the requirement Statement of compliance With to have a the exception of Remuneration Committee, the Directors consider that the Company has complied throughout the period ended 31 March 2008 with all the relevant provisions set out in Section 1 of the Code, and with the AIC Code of Corporate Governance. The Company continues to comply with the Code as at the date of this report. Close Brothers Venture Capital Trust PLC 27 Directors’ Remuneration Report Service contracts None of the Directors has a service contract with the Company. Directors’ remuneration The following items have been audited. The following table shows an analysis of the remuneration of individual directors, exclusive of National Insurance or VAT: David Watkins John Kerr Jonathan Thornton Jeff Warren Roderick Davidson 2008 Fees £’000 20.0 20.0 20.0 10.0 15.0 –––––––––––– 85.0 –––––––––––––––––––––––– 2007 Fees £’000 17.5 17.5 17.5 – 17.5 –––––––––––– 70.0 –––––––––––––––––––––––– As agreed by Shareholders at the Annual General Meeting on 4 August 2007, the maximum limit for Director remuneration under the Articles of Association has been increased to £100,000 from £70,000 per annum. 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. Each Director of the Company was remunerated personally, save Mr Thornton, who was remunerated through J Thornton Limited. In addition to Directors’ remuneration, the Company pays annual premiums in respect of Directors’ & Officers’ Liability Insurance of £13,000. By Order of the Board Close Ventures Limited Company Secretary 10 Crown Place London, EC2A 4FT 10 July 2008 Introduction This report is submitted in accordance with Schedule 7a to the Companies Act 1985. The report also meets the relevant rules of the Listing Rules of the Financial Services Authority and describes how the Board has applied the principles relating to the Director’s remuneration. As required by the Act, a resolution to approve the report will be proposed at the Annual General Meeting. UNAUDITED INFORMATION Remuneration Committee Since the Company consists solely of non-executive Directors, a Remuneration Committee is not considered necessary. 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, not to exceed £100,000 per annum; amendment to this is by way of a special resolution subject to ratification by shareholders. Performance graph The graph that follows shows Close Brothers Venture Capital Trust PLC’s share price growth against the FTSE All-Share Index growth, in both instances with dividends reinvested. The Directors consider this to be the most appropriate benchmark. Investors should however be reminded that shares in VCTs generally trade at a discount to the actual net asset value of the Company. There are no options, issued or exercisable, in the Company which would distort the graphical representation that follows: Ordinary Share Price return growth relative to the FTSE All-Share Index (in both cases with dividends reinvested) % h t w o r g n r u t e r e c i r P e r a h S 180 160 140 120 100 80 60 40 20 0 -20 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Ordinary Shares total return FTSE AII-Share Index total return 28 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 2008 which comprise the Income Statement, the Balance Sheet, the Reconciliation of Movement in Shareholders’ Funds, the Cash Flow Statement and the related notes. The Financial Statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited. This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an 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 The Directors’ Responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the Financial Statements in accordance with applicable law and United Kingdom accounting standards (‘United Kingdom Generally Accepted Accounting Practice’) are set out in the Directors’ Responsibilities Statement. Our responsibility is to audit the Financial Statements and the part of the Directors’ Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the Financial Statements give a true and fair view and whether the Financial Statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors’ Report is consistent with the Financial Statements. The information in the Directors’ Report includes that specific information presented in the Chairman’s Statement that is cross referenced from the business review section of the Directors’ Report. In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors’ remuneration and other transactions is not disclosed. We review whether the Statement of Corporate Governance reflects the company’s compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the company’s corporate governance procedures or its risk and control procedures. We read other information contained in the Annual Report and consider whether it is consistent with the audited Financial Statements. The other information comprises only the Chairman’s Statement, Portfolio of Investments, Portfolio Companies, Directors’ Report and Business Review, Statement of Corporate Governance and the unaudited part of the Directors’ Remuneration Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Financial Statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Financial Statements and the part of the Directors’ Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the Financial Statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the Financial Statements and the part of the Directors’ Remuneration Report to be audited. Opinion In our opinion: ● the Financial Statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the company’s affairs as at 31 March 2008 and of its loss for the year then ended; the Financial Statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985; and the information given in the Directors’ Report is consistent with the Financial Statements. ● ● PKF (UK) LLP Registered Auditors London, UK 10 July 2008 Close Brothers Venture Capital Trust PLC 29 Income Statement Year ended 31 March 2008 Year ended 31 March 2007 (Losses)/gains on investments Investment income Investment management fees Other expenses Return/(loss) on ordinary activities before tax Tax (charge)/credit on ordinary activities Return/(loss) attributable to shareholders Basic and diluted return per share (pence) (excluding Treasury shares) 3 4 5 6 8 Revenue Capital Note £’000 £’000 – (1,081) 2,443 (250) – (749) Total £’000 (1,081) 2,443 (999) Revenue Capital £’000 £’000 – 3,374 2,997 (232) – (678) Total £’000 3,374 2,997 (910) (289) –––––––––– – –––––––––– (289) –––––––––– (220) –––––––––– – –––––––––– (220) –––––––––– 1,904 (1,830) 74 2,545 2,696 5,241 (401) –––––––––– 225 –––––––––– (176) –––––––––– (535) –––––––––– 203 –––––––––– (332) –––––––––– 1,503 –––––––––––––––––––– (1,605) –––––––––––––––––––– (102) –––––––––––––––––––– 2,010 –––––––––––––––––––– 2,899 –––––––––––––––––––– 4,909 –––––––––––––––––––– 10 4.2 –––––––––– (4.5) –––––––––– (0.3) –––––––––– 5.6 –––––––––– 8.1 –––––––––– 13.7 –––––––––– The total column of this Income Statement represents the profit and loss account of the Company. The supplementary revenue and capital columns have been prepared in accordance with the Association of Investment Trust Companies’ Statement of Recommended Practice. The accompanying notes on pages 34 to 45 form an integral part of these financial statements. All revenue and capital items in the above statement derive from continuing operations. There are no recognised gains or losses other than the results for the year disclosed above. Accordingly a statement of total recognised gains and losses is not required. Note of Historical Cost Profits and Losses Return on ordinary activities before taxation Add back: unrealised losses on investments Historical cost return on ordinary activities before taxation Historical cost (loss)/return for the year after taxation and dividends 31 March 31 March 2008 £’000 74 1,563 –––––––––––– 1,637 –––––––––––– (2,127) –––––––––––– 2007 £’000 5,241 712 –––––––––––– 5,953 –––––––––––– 2,033 –––––––––––– 30 Close Brothers Venture Capital Trust PLC Balance Sheet Fixed asset investments Qualifying Non-qualifying Total fixed asset investments Current assets Debtors Cash at bank Creditors: amounts falling due within one year Net current assets Net assets Capital and reserves Called up share capital Special reserve Capital redemption reserve Realised capital reserve Unrealised capital reserve Own treasury shares reserve Revenue reserve Shareholders’ funds 31 March 31 March 2008 £’000 2007 £’000 Note 11 13 17 14 15 32,546 1,475 –––––––––––– 34,021 94 5,409 –––––––––––– 5,503 (349) –––––––––––– 5,154 –––––––––––– 39,175 –––––––––––– 17,939 14,110 1,914 1,952 2,174 (252) 1,338 –––––––––––– 39,175 –––––––––––– 109.9 –––––––––––– 32,264 – –––––––––––– 32,264 180 11,066 –––––––––––– 11,246 (394) –––––––––––– 10,852 –––––––––––– 43,116 –––––––––––– 17,939 14,110 1,914 4,021 3,737 – 1,395 –––––––––––– 43,116 –––––––––––– 120.2 –––––––––––– Net asset value per share (pence) excluding Treasury shares 16 The accompanying notes on pages 34 to 45 form an integral part of these financial statements. These financial statements were approved by the Board of Directors, and authorised for issue on 10 July 2008 and were signed on its behalf by Jonathan Thornton Director Close Brothers Venture Capital Trust PLC 31 Reconciliation of Movement in Shareholders’ Funds Own Called-up Capital treasury Realised Unrealised share Special redemption share capital reserve reserve reserve £’000 £’000 £’000 £’000 capital reserve £’000 capital Revenue reserve reserve £’000 £’000 Total £’000 As at 31 March 2007 17,939 14,110 1,914 – 4,021 3,737 1,395 43,116 Purchase of own shares for Treasury Net realised gains on investments in the year Capitalised investment management and performance fees (net of tax) Movement in unrealised appreciation Revenue return attributable to shareholders Dividends paid As at 31 March 2008 – – – – – – – – – – – – – – – (252) – – – – – 482 (523) – – – – – (1,563) – – – – (252) 482 (523) (1,563) – 1,503 1,503 – –––––––––– 17,939 –––––––––––––––––––– – –––––––––– 14,110 –––––––––––––––––––– – –––––––––– 1,914 –––––––––––––––––––– – –––––––––– (2,028) –––––––––– – –––––––––– (1,560) –––––––––– (3,588) –––––––––– (252) –––––––––––––––––––– 1,952 –––––––––––––––––––– 2,174 –––––––––––––––––––– 1,338 –––––––––––––––––––– 39,175 –––––––––––––––––––– Own Called-up Capital treasury Realised Unrealised share Special redemption share capital reserve reserve reserve £’000 £’000 £’000 £’000 capital reserve £’000 capital Revenue reserve reserve £’000 £’000 Total £’000 As at 31 March 2006 17,939 14,110 1,914 Net realised gain on investments in the year Capitalised investment management and performance fees (net of tax) Movement in unrealised appreciation Revenue return attributable to shareholders Dividends paid As at 31 March 2007 – – – – – – – – – – – – – – – – – 2,204 4,449 1,179 41,795 4,086 (475) – – – – (712) – – – 4,086 (475) (712) – 2,010 2,010 – –––––––––– 17,939 –––––––––––––––––––– – –––––––––– 14,110 –––––––––––––––––––– – –––––––––– 1,914 –––––––––––––––––––– – –––––––––– – –––––––––––––––––––– (1,794) –––––––––– – –––––––––– (1,794) –––––––––– (3,588) –––––––––– 4,021 –––––––––––––––––––– 3,737 –––––––––––––––––––– 1,395 –––––––––––––––––––– 43,116 –––––––––––––––––––– 32 Close Brothers Venture Capital Trust PLC Cash Flow Statement Note Operating activities Investment income received Dividend income received Deposit interest received Other income Investment management fees paid Administrative expenses paid Net cash inflow from operating activities 18 Taxation UK corporation tax paid Capital expenditure and financial investments Purchase of investments Disposal of investments Net cash (outflow)/inflow from investing activities Equity dividends paid Dividends paid on ordinary shares Net cash (outflow)/inflow before financing Financing Purchase of own shares for Treasury Net cash (outflow) from financing Cash (outflow)/inflow in the year 9 17 Year to 31 March 2008 £’000 1,845 – 479 143 (1,079) (279) –––––––––––– 1,109 (155) –––––––––––– (155) (5,011) 2,240 –––––––––––– (2,771) (3,588) –––––––––––– (5,405) –––––––––––– (252) –––––––––––– (252) –––––––––––– (5,657) –––––––––––– Year to 31 March 2007 £’000 2,410 4 302 – (798) (235) –––––––––––– 1,683 (447) –––––––––––– (447) (5,343) 12,919 –––––––––––– 7,576 (3,588) –––––––––––– 5,224 –––––––––––– – –––––––––––– – –––––––––––– 5,224 –––––––––––– Close Brothers Venture Capital Trust PLC 33 Notes to the Financial Statements 1. 2. Accounting convention The financial statements have been prepared in accordance with the historical cost convention, modified to include the revaluation of investments, 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 by the Association of Investment Trust Companies (“AITC”) in January 2003 and revised in December 2005. Accounting policies have been applied consistently in current and prior periods. Accounting policies Investments Quoted and unquoted equity investments In accordance with FRS 26 “Financial Instruments: Recognition and Measurement”, quoted and unquoted equity investments are designated as fair value through profit or loss (“FVTPL”). Unquoted investments’ fair value is determined by the Directors in accordance with the International Private Equity and Venture Capital Valuation Guidelines (IPEVCV guidelines). Fair value movements on equity investments and gains and losses arising on the disposal of investments are reflected in the capital column of the Income Statement in accordance with the AITC SORP. Realised gains or losses on the sale of investments will be reflected in the realised capital reserve, and unrealised gains or losses arising from the revaluation of investments will be reflected in the unrealised capital reserve. Unquoted loan stock Unquoted loan stock is classified as loans and receivables in accordance with FRS 26 and carried at amortised cost using the Effective Interest Rate method (“EIR”) less impairment. Movements in the amortised cost relating to interest income are reflected in the revenue column of the Income Statement, and hence are reflected in the Revenue reserve, and movements in respect of capital provisions are reflected in the capital column of the Income Statement, and are reflected in the Realised capital reserve following sale, or in the Unrealised capital reserve on revaluation. Loan stocks which are not impaired or past due are considered fully performing in terms of contractual interest and capital repayments and the Board does not consider that there is a current likelihood of a shortfall on security cover for these assets. For unquoted loan stock, the amount of the impairment is the difference between the asset’s carrying value and the present value of estimated future cash flows, discounted at the effective interest rate. Floating rate notes In accordance with FRS 26 “Financial Instruments: Recognition and Measurement”, floating rate notes are designated as fair value through profit or loss (“FVTPL”). Floating rate notes are valued at market bid price at the balance sheet date. Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment. 34 Close Brothers Venture Capital Trust PLC Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the Revenue reserve when a share becomes ex-dividend. Loan stock accrued interest is recognised in the Balance Sheet as part of the carrying value of the loans and receivables at the end of each reporting period. It is not the Company’s policy to exercise control or significant influence over investee companies. Therefore in accordance with the exemptions under FRS 9 “Associates and joint ventures”, those undertakings in which the Company holds more than 20 per cent. of the equity are not regarded as associated undertakings. Investment income Unquoted equity income Dividend income is included in revenue when the investment is quoted ex-dividend. Unquoted Loan stock income The fixed returns on non-equity shares and debt securities are recognised on a time apportionment basis using an effective interest rate over the life of the financial instrument. Bank interest income Interest income is recognised on an accruals basis using the rate of interest agreed with the bank. Floating rate note income Floating rate note income is recognised on an accruals basis using the interest rate applicable to the floating rate note at that time. Investment management fees and other expenses All expenses have been accounted for on an accruals basis. Expenses are charged through the Revenue account except the following which are charged through the Realised capital reserve: ● ● 75 per cent. of Management fees are allocated to the capital account to the extent that these relate to an enhancement in the value of the investments. This is in line with the Board’s expectation that over the long term 75 per cent. of the Company’s investment returns will be in the form of capital gains; and expenses which are incidental to the purchase or disposal of an investment are charged through the Realised capital reserve. Taxation Taxation is applied on a current basis in accordance with FRS 16 “Current tax”. Taxation associated with capital expenses is applied in accordance with the SORP. In accordance with FRS 19 “Deferred tax”, deferred taxation is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax or a right to pay less 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. Notes to the Financial Statements continued 2. Accounting policies (continued) Taxation (continued) Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Unrealised capital reserves The following are disclosed in this reserve: The specific nature of taxation of venture capital trusts means that it is unlikely that any deferred tax will arise. The Directors have considered the requirements of FRS 19 and do not believe that any provision should be made. Performance incentive fee In the event that a performance incentive fee crystallises, the fee will be allocated between Revenue and Realised capital reserves based upon the proportion to which the calculation of the fee is attributable to revenue and capital returns. Reserves Realised capital reserves The following are disclosed in this reserve: ● ● ● gains and losses compared to cost on the realisation of investments; expenses, together with the related taxation effect, charged in accordance with the above policies; and dividends paid to equity holders. ● increases and decreases investments against cost held at the year end; and the valuation of in Special reserve The cancellation of the share premium account has created a special reserve that can be used to fund market purchases and subsequent cancellation of own shares and for other distributable purposes. Capital redemption reserve This reserve accounts for amounts by which the issued share capital is diminished through the repurchase of the Company’s own shares. Own treasury shares held reserve This reserve accounts for amounts by which the distributable reserves of the Company are diminished through the repurchase of the Company’s own shares for Treasury. Dividends In accordance with FRS 21 “Events after the balance sheet date”, dividends declared by the Company are accounted for in the period in which the dividend has been paid or approved by shareholders in an Annual General Meeting. Close Brothers Venture Capital Trust PLC 35 Notes to the Financial Statements continued 3. (Losses)/gains on investments Unrealised losses on investments held at fair value through profit and loss account Unrealised impairments on investments held at amortised cost Unrealised losses sub-total Realised gains on investments held at fair value through profit and loss account Realised gains sub-total Cost of disposal Investments valued on amortised cost basis are unquoted loan stock investments. 4. Investment income Income recognised on investments held at fair value through profit and loss UK dividend income Floating rate note interest Bank deposit interest Other income Income recognised on investments held at amortised cost Return on loan stock investments Year ended 31 March 2008 £’000 (1,543) (20) –––––––––––––– (1,563) 482 –––––––––––––– 482 – –––––––––––––– – –––––––––––––– (1,081) –––––––––––––– Year ended 31 March 2008 £’000 – 61 390 95 –––––––––––––– 546 1,897 –––––––––––––– 2,443 –––––––––––––– Year ended 31 March 2007 £’000 (687) (25) –––––––––––––– (712) 4,111 –––––––––––––– 4,111 (25) –––––––––––––– (25) –––––––––––––– 3,374 –––––––––––––– Year ended 31 March 2007 £’000 5 – 318 128 –––––––––––––– 451 2,546 –––––––––––––– 2,997 –––––––––––––– Interest income on impaired investments at 31 March 2008 amounted to £10,000 (2007: £1,000). These investments are held at amortised cost. 5. Investment management fees Year ended 31 March 2008 Capital £’000 Revenue £’000 Investment management fee 250 749 Year ended 31 March 2007 Total £’000 999 Revenue £’000 232 Capital £’000 678 Total £’000 910 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Total management fees for the year ended 31 March 2008 include irrecoverable VAT amounting to approximately £149,000 (2007: £135,000). Further details of the Management agreement under which the investment management fee is paid are given in the Report of the Directors on page 19. Included in the above is £27,000 of performance incentive fee in respect of the previous year. 36 Close Brothers Venture Capital Trust PLC Notes to the Financial Statements continued 6. Other expenses Directors’ fees Audit fees Other Year ended 31 March 2008 £’000 93 25 171 –––––––––––––– 289 –––––––––––––– Year ended 31 March 2007 £’000 76 21 123 –––––––––––––– 220 –––––––––––––– £23,000 of the audit fees referred to above relate to PKF (UK) LLP, the current auditors. Administration fees of £44,000, including VAT (2007: £43,000) were paid by the Company in the year to Close Ventures Limited. 7. Directors’ fees The amounts paid to Directors during the year are as follows: Directors’ fees National Insurance and/or VAT Year ended 31 March 2008 £’000 85 8 –––––––––––––– 93 –––––––––––––– Year ended 31 March 2007 £’000 70 6 –––––––––––––– 76 –––––––––––––– Further information regarding Directors’ remuneration can be found on the Directors’ Remuneration Report on page 28. Close Brothers Venture Capital Trust PLC 37 Notes to the Financial Statements continued 8. Tax charge/(credit) on ordinary activities UK Corporation tax Tax attributable to capital expenses Year ended 31 March 2008 Capital £’000 Year ended 31 March 2007 Total £’000 Revenue £’000 Capital £’000 Total £’000 – (225) ––––––––––––– (225) ––––––––––––– 176 – ––––––––––––– 176 ––––––––––––– 332 203 ––––––––––––– 535 ––––––––––––– – (203) ––––––––––––– (203) ––––––––––––– 332 – ––––––––––––– 332 ––––––––––––– Revenue £’000 176 225 ––––––––––––– 401 ––––––––––––– The tax charge for the year is lower than the standard rate of corporation tax of 30 per cent. The differences are explained below. Year ended 31 March 2008 Capital £’000 Revenue £’000 Year ended 31 March 2007 Total £’000 Revenue £’000 Capital £’000 Total £’000 Return on ordinary activities before taxation Tax on profit at the standard rate Factors affecting the charge: Consortium relief in respect of prior years Accrual in respect of previous accounting periods Capital losses not subject to taxation Tax attributable to capitalised expenses Expenses charged to capital Non-taxable income 1,904 ––––––––––––– 571 (1,830) ––––––––––––– (549) 74 ––––––––––––– 22 2,545 ––––––––––––– 763 2,696 ––––––––––––– 808 5,241 ––––––––––––– 1,571 (170) – (170) (230) – – 225 (225) – ––––––––––––– 401 ––––––––––––– – 324 (225) 225 – ––––––––––––– (225) ––––––––––––– – 324 – – – ––––––––––––– 176 ––––––––––––– 3 – 203 (203) (1) ––––––––––––– 535 ––––––––––––– – – (1,011) (203) 203 – ––––––––––––– (203) ––––––––––––– (230) 3 (1,011) – – (1) ––––––––––––– 332 ––––––––––––– Notes (i) (ii) Venture Capital Trusts are not subject to corporation tax on capital gains. Tax relief on expenses charged to capital has been determined by allocating tax relief to expenses by reference to the applicable corporation tax rate of 30 per cent. and allocating the relief between revenue and capital in accordance with the SORP. (iii) No deferred tax asset or liability has arisen in the year. 9. Dividends First dividend paid on 4 August 2006 – 5 pence per share Second dividend paid on 5 January 2007 – 5 pence per share First dividend paid on 5 April 2007 – 5 pence per share Second dividend paid on 4 January 2008 – 5 pence per share Year ended 31 March 2008 Capital £’000 Revenue £’000 Year ended 31 March 2007 Total £’000 Revenue £’000 Capital £’000 – – – – – – 663 1,131 1,794 897 897 – 897 897 – Total £’000 1,794 1,794 – 897 ––––––––––––– 1,560 ––––––––––––– 897 ––––––––––––– 2,028 ––––––––––––– 1,794 ––––––––––––– 3,588 ––––––––––––– – ––––––––––––– 1,794 ––––––––––––– – ––––––––––––– 1,794 ––––––––––––– – ––––––––––––– 3,588 ––––––––––––– In addition to the dividends summarised above, the Directors have declared a first dividend of 5 pence per share to be paid on 15 August 2008 to shareholders on the register as at 18 July 2008. 38 Close Brothers Venture Capital Trust PLC Notes to the Financial Statements continued 10. Basic and diluted return per share Year ended 31 March 2008 Capital pence Revenue pence Year ended 31 March 2007 Total pence Revenue pence Capital pence Total pence Ordinary shares 4.2 –––––––––––––– (4.5) –––––––––––––– (0.3) –––––––––––––– 5.6 –––––––––––––– 8.1 –––––––––––––– 13.7 –––––––––––––– Revenue return per share is based upon the net revenue return attributable to shareholders for the year of £1,503,000 (2007: £2,010,000) in respect of the weighted average number of shares in issue during the year, being 35,807,404 (2007: 35,878,228). Capital return per share is based upon the net capital loss attributable to shareholders for the year of £1,605,000 (2007: profit £2,899,000) in respect of the same weighted average number of shares as for the revenue return above. 11. Fixed asset investments Qualifying equity investments Qualifying loan stock investments Non-qualifying floating rate note Total Opening valuation as at 1 April 2007 Purchases at cost Disposal proceeds Realised gains Movement in loan stock carrying value Unrealised depreciation Closing valuation as at 31 March 2008 Movement in loan stock carrying value Opening accumulated movement in loan stock carrying value Movement in loan stock carrying value Closing accumulated movement in loan stock carrying value Movement in unrealised gains/(losses) Opening accumulated unrealised gains Unrealised movement on disposals Movement in unrealised losses Closing accumulated unrealised gains/(losses) Historic cost basis Opening book cost Purchases at cost Sales at cost Closing book cost 31 March 2008 £’000 12,202 20,344 1,475 –––––––––––––– 34,021 –––––––––––––– Qualifying £’000 Non-qualifying £’000 32,264 3,514 (2,226) 482 53 (1,541) –––––––––––––– 32,546 –––––––––––––– 289 53 –––––––––––––– 342 –––––––––––––– 3,737 (229) (1,312) –––––––––––––– 2,196 –––––––––––––– 28,238 3,514 (1,744) –––––––––––––– 30,008 –––––––––––––– – 1,497 – – – (22) –––––––––––––– 1,475 –––––––––––––– – – –––––––––––––– – –––––––––––––– – – (22) –––––––––––––– (22) –––––––––––––– – 1,497 – –––––––––––––– 1,497 –––––––––––––– 31 March 2007 £’000 13,258 19,006 – –––––––––––––– 32,264 –––––––––––––– Total £’000 32,264 5,011 (2,226) 482 53 (1,563) –––––––––––––– 34,021 –––––––––––––– 289 53 –––––––––––––– 342 –––––––––––––– 3,737 (229) (1,334) –––––––––––––– 2,174 –––––––––––––– 28,238 5,011 (1,744) –––––––––––––– 31,505 –––––––––––––– Fixed asset investments held at fair value through the profit and loss account total £13,677,000 (2007: £13,258,000). Investments held at amortised cost total £20,344,000 (2007: £19,006,000). There has been no re-designation of fixed asset investments during the period. There has been one material disposal in the year of The Bold Pub Company Limited. The net disposal proceeds were £1,993,000 with cost of £1,390,000 and an opening carrying value as at 1 April 2007, of £1,722,000. The disposal proceeds per the Cash Flow Statement do not agree to the disposal proceeds above because amounts received in respect of the Barleycroft disposal in the prior year are not included in the above as it was a debtor in 2007, though included in the Cash Flow Statement as the cash was received in the current financial year. Close Brothers Venture Capital Trust PLC 39 Notes to the Financial Statements continued 11. Fixed asset investments (continued) Fixed asset investment class valuation methodologies Loan stocks using a fixed interest rate total £20,344,000 (2007: £19,006,000). The Directors believe that the current carrying value of loan stock is not materially different (valued using amortised cost) to fair value. The Company does not hold any assets as the result of the enforcement of security during the period, and believes that the carrying values for both impaired and past due assets are covered by the value of security held for these loan stock investments. Unquoted equity investments are valued in accordance with the IPEVCV guidelines as follows; Investment methodology Cost (reviewed for impairment) Net asset value Total Year ended 31 March 2008 £’000 3,663 8,539 –––––––––––––– 12,202 –––––––––––––– Year ended 31 March 2007 £’000 4,080 9,178 –––––––––––––– 13,258 –––––––––––––– The equity investments held had the following movements between valuation methodologies between 31 March 2007 and 31 March 2008: Change in investment methodology (2007 to 2008) Cost (reviewed for impairment) to net asset value Value as at 31 March 2008 £’000 391 Explanatory note Cost was used as the best approximation to fair value for the first year of investment In the absence of a more appropriate valuation methodology, investments held for less than 12 months are valued at cost. Thereafter, the valuation will move to the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEVCV Guidelines. The Directors believe that, within these parameters, there are no reasonable possible alternative methods of valuation of the investments as at 31 March 2008, other than those used. 12. Significant interests The Company has interests of greater than 20 per cent. in the nominal value of the allotted shares of any class of shares in the investee companies as at 31 March 2008 as described below: Company Country of incorporation Principal activity Great Britain Prime VCT Limited City Screen (Cambridge) Limited Great Britain G&K Smart Developments VCT Limited Great Britain Great Britain Chase Midland VCT Limited Great Britain Kew Green VCT (Stansted) Limited The Bear Hungerford Limited Great Britain Churchill Taverns (Hotel) VCT Limited Great Britain Youngs VCT Limited The Place Sandwich VCT Limited Great Britain Great Britain Residential property developer Art House Cinema Residential property developer Residential property developer Ownership and operation of the Express by Holiday Inn, Stansted Airport Ownership and operation of The Bear Hotel, Hungerford Ownership and operation of The Lion Hotel, Buckden Residential property developer Ownership and operation of The Bell Hotel, Sandwich % class and share type 50.0% Ordinary shares 50.0% Ordinary shares 42.9% Ordinary shares 38.1% Ordinary shares 28.2% Ordinary shares % total voting rights 50.0% 50.0% 42.9% 38.1% 28.2% 26.1% Ordinary shares 26.1% 25.5% Ordinary shares 25.5% 25.4% Ordinary shares 25.0% Ordinary shares 25.4% 25.0% As permitted by FRS 9, the investments listed above are held as part of an investment portfolio, and their value to the Company is through their marketable value as part of a portfolio of investments. Therefore these investments are not considered to be associated undertakings. 40 Close Brothers Venture Capital Trust PLC Notes to the Financial Statements continued 13. Debtors Other debtors Prepayments and accrued income Corporation tax debtor The Directors consider that the carrying amount of debtors approximates their fair value. 14. Creditors: amounts falling due within one year VAT Other creditors and accruals The Directors consider that the carrying amount of creditors approximates their fair value. 15. Called up share capital Authorised 68,000,000 Ordinary shares of 50p each (2007: 68,000,000) Allotted, called up and fully paid 35,878,229 Ordinary shares of 50p each (2007: 35,878,229) Allotted, called up and fully paid excluding Treasury shares 35,633,683 Ordinary shares of 50p each (2007: 35,878,229) Year ended 31 March 2008 £’000 35 13 46 –––––––––––––– 94 –––––––––––––– Year ended 31 March 2008 £’000 11 338 –––––––––––––– 349 –––––––––––––– Year ended 31 March 2007 £’000 90 24 66 –––––––––––––– 180 –––––––––––––– Year ended 31 March 2007 £’000 17 377 –––––––––––––– 394 –––––––––––––– Year ended 31 March 2008 £’000 Year ended 31 March 2007 £’000 34,000 –––––––––––––– 34,000 –––––––––––––– 17,939 –––––––––––––– 17,939 –––––––––––––– 17,817 –––––––––––––– 17,939 –––––––––––––– The Company repurchased 244,546 Ordinary shares (2007: nil shares) for Treasury during the year at a cost of £251,916 (2007: £nil) representing 0.68 per cent. of the issued share capital at 31 March 2008. 16. Net asset value per share Net asset value per share Year ended 31 March 2008 pence Year ended 31 March 2007 pence 109.9 –––––––––––––– 120.2 –––––––––––––– The net asset value per share at the year end is calculated in accordance with the Articles of Association and is based upon net assets of £39,175,000 (2007: £43,116,000) and the total shares in issue at 31 March 2008 (less the Treasury shares) of 35,633,683 (2007: 35,878,229). Close Brothers Venture Capital Trust PLC 41 Notes to the Financial Statements continued 17. Analysis of changes in cash during the year Beginning of the year Net cash (outflow)/inflow Year ended 31 March 2008 £’000 11,066 (5,657) –––––––––––––– 5,409 –––––––––––––– Year ended 31 March 2007 £’000 5,842 5,224 –––––––––––––– 11,066 –––––––––––––– 18. Reconciliation of revenue return on ordinary activities before taxation to net cash inflow from operating activities Revenue return on ordinary activities before taxation Investment management fees charged to capital Performance fees charged to capital Movement in accrued amortised loan stock interest Decrease/(increase) in debtors (Decrease)/increase in creditors Net cash inflow from operating activities Year ended 31 March 2008 £’000 1,904 (749) – (53) 53 (46) –––––––––––––– 1,109 –––––––––––––– Year ended 31 March 2007 £’000 2,545 (585) (93) (195) (83) 94 –––––––––––––– 1,683 –––––––––––––– 19. Capital and financial instruments risk management The Company’s capital and financial assets comprise equity and loan stock investments in unquoted companies, cash balances and short term debtors and creditors which arise from its operations. The main purpose of these financial instruments is to generate revenue and capital appreciation for the Company’s operations. The Company has no gearing or other financial liabilities apart from short term creditors. The Company does not use any derivatives for the management of its balance sheet. The principal risks arising from the Company’s operations are: • • • Investment (or market) risk (which comprises investment price and cash flow interest rate risk); credit risk; and liquidity risk. The Board regularly reviews and agrees policies for managing each of these risks. There have been no changes in the nature of the risks that the Company has faced during the past year, and apart from where noted below, there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised as follows: Investment risk As a venture capital trust, it is the Company’s specific nature to evaluate and control the investment risk of its portfolio in unquoted investments, details of which are shown on page 9. Investment risk is the exposure of the Company to the revaluation and devaluation of investments. The main driver of investment risk is the operational and financial performance of the investee company. The Manager receives management accounts from investee companies, and members of the investment management team often sit on the boards of unquoted investee companies; this enables the close identification, monitoring and management of investment risk. The Manager and the Board formally review investment risk (which includes market price risk), both at the time of initial investment and at quarterly Board meetings. The Board monitors the prices at which sales of investments are made to ensure that profits to the Company are maximised and that valuations of investments retained within the portfolio appear sufficiently prudent and realistic compared to prices being achieved in the market for sales of unquoted investments. The maximum investment risk as at the balance sheet date is the value of the fixed asset investment portfolio which is £34,021,000 (2007: £32,264,000). Fixed asset investments form 87 per cent. of the net asset value as at 31 March 2008 (2007: 75 per cent.). More details regarding the classification of fixed asset investments are shown in Note 11. 42 Close Brothers Venture Capital Trust PLC Notes to the Financial Statements continued 19. Capital and financial instruments risk management (continued) Investment price risk Investment price risk is the risk that the fair value of future investment cash flows will fluctuate due to factors specific to an investment instrument or to a market in similar instruments. To mitigate the investment price risk for the Company as a whole, the strategy of the Company is to invest in a broad spread of industries with approximately two-thirds of the unquoted investments comprising debt securities, which, owing to the structure of their yield and the fact that they are usually secured, have a lower level of price volatility than equity. Details of the industries in which investments have been made are contained in the Portfolio of Investments section on page 9 and in the Chairman’s Statement. In accordance with the International Private Equity and Venture Capital Valuation Guidelines, in the absence of a more appropriate methodolgy, investments held for less than 12 months are valued at cost. Thereafter, the valuation will move to the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEVCV Guidelines. The Directors believe that, within these parameters, there are no reasonable possible alternative methods of valuation of the investments as at 31 March 2008. The Board considers that the value of equity investments is sensitive to a 5 per cent. change. The impact of a 5 per cent. change has been selected as this is considered reasonable given the current level of volatility observed both on a historical basis and future expectations. The sensitivity to a 5 per cent. increase or decrease in the equity valuation (keeping all other variables constant) would be an increase or decrease in net asset value and return for the year of £610,000 (2007: £660,000). Cash flow interest rate risk It is the Company’s policy to accept a degree of interest rate risk on its financial assets through the effect of interest rate changes. On the basis of the Company’s analysis, it is estimated that a fall of one percentage point in all interest rates would have reduced net assets and return before tax for the year by approximately £81,000 (2007: £86,000). The weighted average interest rate applied to the Company’s fixed rate assets during the year was approximately 14 per cent. (2007: 16 per cent.). The weighted average period to maturity for the fixed rate assets is approximately one year (2007: two years). Credit risk Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its debtors, investment in unquoted loan stock, and through the holding of floating rate notes or cash on deposit with banks. The Manager evaluates credit risk on loan stock instruments prior to investment, and as part of its ongoing monitoring of investments. In doing this, it takes into account the extent and quality of any security held. Typically loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the investee company in order to mitigate the gross credit risk. The Manager receives management accounts from investee companies, and members of the investment management team often sit on the boards of unquoted investee companies; this enables the close identification, monitoring and management of investment-specific credit risk. Bank deposits and floating rate notes are held with banks which have a Moody’s credit rating of at least ‘A’. Since the year end, the Company has adopted an informal policy of maintaining a counterparty threshold of a maximum of 20 per cent. of net asset value for any one banking or floating rate note counterparty. The Manager and the Board formally review credit risk (including debtors) and other risks, both at the time of initial investment and at quarterly Board meetings. The Company’s total gross credit risk as at 31 March 2008 is limited to £20,344,000 (2007: £19,006,000) of unquoted loan stock instruments, £5,409,000 (2007: £11,066,000) cash deposits with banks and £1,475,000 (2007: £nil) of floating rate notes. The cash held by the Company is held with the Royal Bank of Scotland plc, BNP Paribas Securities Services Custody Bank Limited and Bank of Scotland plc. Credit risk on cash transactions is mitigated by transacting with counterparties that are regulated entities subject to prudential supervision, with high credit ratings assigned by international credit-rating agencies. Liquidity risk Liquid assets are held as cash on current account, cash on deposit or short term money market account and as floating rate notes. Under the terms of its Articles, the Company has the ability to borrow up to 10 per cent. of its net assets, which amounts to £3,918,000 (2007: £4,312,000) as at 31 March 2008. Close Brothers Venture Capital Trust PLC 43 Notes to the Financial Statements continued 19. Capital and financial instruments risk management (continued) Liquidity risk (continued) The Company has no committed borrowing facilities as at 31 March 2008 (2007: £nil) and had cash balances of £5,409,000 (2007: £11,066,000). The main cash outflows are for new investments which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis as part of its review of management accounts and forecasts. All the Company’s financial liabilities are short term in nature and total £349,000 (2007: £394,000) for the year to 31 March 2008. In view of this, the Board considers that the Company is subject to low liquidity risk. Foreign currency exposure risk As at 31 March 2008, the Company has no foreign currency exposure. Fair values of financial assets and financial liabilities All the Company’s financial assets and liabilities as at 31 March 2008 are stated at fair value through profit and loss as determined by the Directors, with the exception of loans and receivables included within investments, which are carried at amortised cost, in accordance with FRS 26. The Directors believe that the current carrying value of loan stock (valued using amortised cost) is not materially different to the fair value. There are no financial liabilities other than creditors (see note 2 of the financial statements for accounting policies). The Company’s financial liabilities are all non-interest bearing. It is the Directors’ opinion that the fair value of the financial liabilities approximates to the book value and all are payable within one year and that the Company is subject to low financial risk as a result of its nil gearing and strong cash balances. The Company’s financial assets and liabilities at 31 March 2008, all denominated in pounds sterling, consist of the following: 31 March 2008 31 March 2007 Fixed rate £’000 – 20,344 – – – – Floating rate £’000 – – – – 5,409 1,475 Non interest bearing £’000 12,202 – 94 (349) – – Total £’000 12,202 20,344 94 (349) 5,409 1,475 Fixed rate £’000 – 19,006 – – – – Floating rate £’000 – – – – 9,066 – Non interest bearing £’000 13,258 – 180 (394) 2,000 – Total £’000 13,258 19,006 180 (394) 11,066 – ––––––––––– 20,344 ––––––––––– ––––––––––– 6,884 ––––––––––– ––––––––––– 11,947 ––––––––––– ––––––––––– 39,175 ––––––––––– ––––––––––– 19,006 ––––––––––– ––––––––––– 9,066 ––––––––––– ––––––––––– 15,044 ––––––––––– ––––––––––– 43,116 ––––––––––– Equity Loan stock Debtors Current liabilities Cash FRN Total net assets The carrying value of loan stock investments held at amortised cost at 31 March 2008 is as follows: Fully performing loan stock £’000 Renegotiated loan stock £’000 Past due(i) loan stock £’000 Impaired loan stock £’000 Total £’000 Less than one year 1-2 years 2-3 years 3-5 years 7,009 2,861 4,403 6,071 –––––––––––––– 20,344 –––––––––––––– (i) Interest of £67,000 is overdue on this Loan Stock in one company, as a result of a temporary timing difference. All outstanding amounts as at 31 March 2008 had been repaid by 30 April 2008. – – 86 38 –––––––––––––– 124 –––––––––––––– 1,869 1,518 3,150 3,135 –––––––––––––– 9,672 –––––––––––––– 1,442 704 707 714 –––––––––––––– 3,567 –––––––––––––– 3,698 639 460 2,184 –––––––––––––– 6,981 –––––––––––––– Total The carrying value of loan stock investments held at amortised cost as at 31 March 2007 is as follows: Less than one year 1-2 years 2-3 years 3-5 years Total Fully performing loan stock £’000 5,648 899 2,159 4,287 –––––––––––––– 12,993 –––––––––––––– Renegotiated loan stock £’000 660 – 1,400 3,567 –––––––––––––– 5,627 –––––––––––––– Past due loan stock £’000 – – – – –––––––––––––– – –––––––––––––– Impaired loan stock £’000 – – – 386 –––––––––––––– 386 –––––––––––––– Total £’000 6,308 899 3,559 8,240 –––––––––––––– 19,006 –––––––––––––– 44 Close Brothers Venture Capital Trust PLC Notes to the Financial Statements continued 20. Post balance sheet events Since 31 March 2008 the Company has completed the following investments: ● ● ● Further investment in Sky Hotel Heathrow Limited of £1,000,000 on 7 April 2008 Investment in Droxford Hospital Limited of £312,500 on 9 May 2008 Two further investments in The Crown Hotel Harrogate Limited of £100,000 each on 2 and 7 April 2008 21. Contingencies, guarantees and financial commitments The Company has given a number of guarantees to The Royal Bank of Scotland plc and the National Westminster Bank plc in respect of the borrowings of investee companies. As at 31 March 2008, the maximum exposure under these guarantees amounted to £nil (2007: £600,000). These guarantees are secured by third party charges of deposit granted to The Royal Bank of Scotland plc and the National Westminster Bank plc over specific bank accounts with balances of £nil (2007: £600,000). 22. Related party transactions The Manager, Close Ventures Limited, is considered to be a related party by virtue of the fact that it is party to a Management agreement from the Company (details disclosed on page 19 of this report). During the year, services of a total value of £1,043,000 (2007: £910,000) were purchased by the Company from Close Ventures Limited, this includes £972,000 investment management fee, £27,000 performance incentive fee under-accrued in the prior year and £44,000 administration fee. At the financial year end, the amount due to Close Ventures Limited disclosed as accruals and deferred income was £241,000 (2007: £310,000). Buy-backs of shares during the year were transacted through Winterflood Securities Limited, a subsidiary of Close Brothers Group plc. A total of 244,546 shares were purchased for Treasury at an average price of 102.5 pence per share. Close Brothers Venture Capital Trust PLC 45 Company Information Company Number 3142609 Directors D J Watkins MBA (Harvard), Chairman (US citizen) J M B L Kerr ACMA J G T Thornton MBA, FCA J Warren ACCA Company secretary and registered office Close Ventures Limited 10 Crown Place London, EC2A 4FT Manager Registrar and shareholders’ helpline Close Ventures Limited 10 Crown Place London, EC2A 4FT Tel: 020 7422 7830 Fax: 020 7422 7849 Website: www.closeventures.co.uk Email: enquiries@closeventures.co.uk Capita Registrars Limited Northern House Penistone Road Fenay Bridge Huddersfield, HD8 0LA Tel: 0871 664 0300 (calls cost 10p per minute plus network extras) Email: ssd@capitaregistrars.com Custodian Auditors Taxation adviser Legal advisers Capita Trust Company Limited Phoenix House 7th Floor 18 King William Street London, EC4N 7HE PKF (UK) LLP Farringdon Place 20 Farringdon Road London, EC1M 3AP Ernst & Young LLP 1 More London Place London, SE1 2AF Berwin Leighton Paisner Adelaide House London Bridge London, EC4R 9HA Close Brothers Venture Capital Trust PLC is a member of the Association of Investment Companies. 46 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 (the “Company”) will be held at 12.00 noon on 2 September 2008 at 10 Crown Place, London, EC2A 4FT for the purpose of dealing with the following business, of which items 10 to 13 are special business. Ordinary Business To consider and if thought fit, pass the following resolution numbers 1 to 9 as ordinary resolutions: 1. 2. 3. 4. 5. 6. 7. 8. 9. To receive and adopt the Company’s accounts and the reports of the Directors and auditors for the year ended 31 March 2008. To appoint PKF (UK) LLP as auditors of the Company from the conclusion of the meeting to the conclusion of the next meeting at which accounts are to be laid. To authorise the Directors to agree the auditors’ remuneration. To approve the Directors’ Remuneration Report for the year ended 31 March 2008. To re-elect David Watkins as a Director of the Company. To re-elect John Kerr as a Director of the Company. To re-elect Jonathan Thornton as a Director of the Company. To re-elect Jeff Warren as a Director of the Company. That the Directors be generally and unconditionally authorised in accordance with section 80 of the Companies Act 1985 (the “Act”) to exercise all powers of the Company to allot relevant securities (within the meaning of section 80(2) of the Act) up to a maximum aggregate nominal amount of £1,793,911 (which comprises 10 per cent. of the Company’s ordinary share capital) such authority to expire on 2 March 2010, but so that the Company may, before the expiry of such period, make an offer or agreement which would or might require relevant securities to be allotted after the expiry of such period, and the Directors may allot relevant securities pursuant to such an offer or agreement as if the authority had not expired; and all unexercised authorities previously granted to the Directors to allot relevant securities be, and are hereby, revoked. Special Business 10. To consider and, if thought fit, pass the following resolution as a special resolution: That subject to and conditional on the passing of resolution number 9, the Directors be empowered, pursuant to section 95 of the Act, to allot equity securities (within the meaning of section 94 (2) to section 94 (3A) of the Act) for cash pursuant to the authority conferred by resolution number 9 as if section 89(1) of the Act did not apply to any such allotment, provided that this power shall be limited to the allotment of equity securities; (a) in connection with an offer of such securities by way of rights issue, open offer or other offer of securities in favour of the holders of shares on the register of members at such record date as the Directors shall determine where the equity securities respectively attributable to the interest of the shareholder are proportionate (as nearly as may be) to the respective numbers of shares held by them on any such record date, subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with treasury shares, fractional entitlements or legal or practical problems arising under the laws of any overseas territory or the requirements of any regulatory body or stock exchange by virtue of shares being represented by depository receipts or any other matter whatsoever; (b) in connection with any Dividend Reinvestment scheme introduced and operated by the Company; and Close Brothers Venture Capital Trust PLC 47 Notice of Meeting continued (c) otherwise than pursuant to the sub-paragraphs clause 10(a) and (b) above, up to an aggregate nominal amount of £896,956 (equal to 5 per cent. of the Company’s ordinary share capital); and shall expire on 2 March 2010, save that the Company may, before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of any such offer or agreement as if the power had not expired. In this resolution, “rights issue” means an offer of equity securities open for acceptance for a period fixed by the directors to holders on the register on a fixed record date in proportion as nearly as may be to their respective holdings, but subject to such exclusions or other arrangements as the directors may deem necessary or expedient to deal with any fractional entitlements or legal or practical difficulties under the laws of, or the requirement of any recognised regulatory body or any stock exchange in, any territory. This power applies in relation to a sale of shares which is an allotment of equity securities by virtue of section 94(3A) of the Act as if in the first paragraph of the resolution the words “pursuant to the authority conferred by resolution number 9” were omitted. 11. To consider and, if thought fit, pass the following resolution which will be proposed as a special resolution: That the Company be generally and unconditionally authorised to make one or more market purchases (within the meaning of Section 163(3) of the Act) of Ordinary Shares of 50 pence each in the capital of the Company (“Ordinary Shares”) on such terms as the Directors think fit, and where such shares are held as Treasury shares, the Company may use them for the purposes set out in section 162D of the Act, including for the purpose of its employee share schemes, provided that; (a) the maximum aggregate number of shares hereby authorised to be purchased is 5,378,146 Ordinary Shares (representing approximately 14.99 per cent of the issued Ordinary share capital respectively); (b) the minimum price, exclusive of any expenses, which may be paid for an Ordinary Share is 50p; (c) (d) (e) the maximum price, exclusive of any expenses, that may be paid for each Ordinary Share is an amount equal to the higher of (a) 105 per cent. of the average of the middle market quotations as derived from the London Stock Exchange Daily Official List, for a share over the five business days immediately preceding the date on which the Ordinary Share is purchased; and (b) the amount stipulated by Article 5(i) of the Buyback and Stabilisation Regulation 2003; this authority hereby conferred shall, unless previously revoked or varied, expire 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 the Company may make a contract or contracts to purchase Ordinary 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 Ordinary Shares in pursuance of any such contract or contracts. Under the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003, shares purchased by the Company out of distributable profits can be held as Treasury shares, which may then be cancelled or sold for cash. The authority sought by this special resolution number 11 is intended to apply equally to shares to be held by the Company as Treasury shares in accordance with the Regulations. The Directors seek authority to sell Treasury shares at a price not less than that at which they were purchased. 12. To consider and, if thought fit pass the following resolution as a special resolution: That, with immediate effect, the Articles of Association of the Company contained in the document produced to the Annual General Meeting (and signed by the Chairman for the purposes of identification) be adopted as the articles of association of the Company in substitution for, and to the exclusion of, the Current Articles. 48 Close Brothers Venture Capital Trust PLC Notice of Meeting continued 13. To consider and, if thought fit pass the following resolution as a special resolution: That, subject to resolution 12 set out in this Notice of the Annual General Meeting of the Company convened for 4 August 2008 being passed and with effect on and from 1 October 2008 or such later date as section 175 of the Companies Act 2006 shall be brought into force (i) article 93 of the New Articles adopted pursuant to resolution 11 be deleted in its entirety and articles 93 and 94 as set out in the document produced to the Annual General Meeting (and signed by the Chairman for the purposes of identification) be substituted therefor and the remaining articles be re- numbered and (ii) article 101 of the New Articles adopted pursuant to resolution 12 be deleted in its entirety and article 102 as set out in the document produced to the Annual General Meeting (and signed by the Chairman for the purposes of identification) be substituted therefor. BY ORDER OF THE BOARD Close Ventures Limited Company Secretary Registered Office 10 Crown Place, London, EC2A 4FT 10 July 2008 Notes 1. 2. 3. 4. 5. 6. This Notice is being sent to all members and to any person nominated by a member of the Company under section 146 of the Companies Act 2006 to enjoy information rights. Only holders of Ordinary Shares, or their duly appointed representatives, are entitled to attend, vote and speak at the meeting. A member so entitled may appoint (a) proxy(ies), who need not be (a) member(s), to attend, speak and vote on his/her behalf. A proxy form is enclosed with this Notice. To be valid a proxy appointment must reach the office of the Company’s Registrars, Capita Registrars The Registry, 34 Beckenham Road, Beckenham, BR3 4TU not less than 48 hours before the time fixed for the meeting or any adjournment thereof. The right to appoint a proxy does not apply to persons whose shares are held on their behalf by another person and who have been nominated to receive communications from the Company in accordance with section 146 Companies Act 2006 (“nominated persons”). Nominated persons may have a right under an agreement with the registered member who hold shares on their behalf to be appointed (or to have someone else appointed) as a proxy. Alternatively, if nominated persons do not have such a right, or do not wish to exercise it, they may have a right under such an agreement to give instructions to the person holding the shares as to the exercise of voting rights. The Company, pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, specifies that only those members on the register of members of the Company as at 12.00 pm on 31 August 2008 (or, if the meeting is adjourned, members on the register of members not later than 48 hours before the time fixed for the adjourned meeting) are entitled to attend and vote at the meeting in respect of the shares registered in their names at that time. Subsequent changes to the register shall be disregarded in determining the rights of any person to attend and vote at the meeting. Copies of contracts of service and letters of appointment between the Directors and the Company will be available for inspection at the Registered Office of the Company during normal business hours from the date of this Notice until the conclusion of the meeting, and at the place of the meeting for at least 15 minutes prior to the meeting until its conclusion. In addition, a copy of the new and the revised articles of association will be available for inspection at the Company’s registered office from the date of this Notice until the conclusion of the meeting, and at the place of the meeting for at least 15 minutes prior to the meeting until its conclusion. Members should note that it is possible that, pursuant to requests made by members of the Company under section 527 of the Companies Act 2006, the Company may be required to publish on a website a statement setting out any matter relating to: (i) the audit of the Company’s accounts (including the auditor’s report and the conduct of the audit) that are to be laid before the meeting; or (ii) any circumstances connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid in accordance with section 437 of the Companies Act 2006. The Company may not require the members requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the Companies Act 2006. Where the Company is required to place a statement on a website under section 527 of the Companies Act 2006, it must forward the statement to the Company ’s auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the meeting includes any statement that the Company has been required under section 527 of the Companies Act 2006 to publish on a website. Close Brothers Venture Capital Trust PLC 49 Perivan Financial Print 212217 Close Brothers Venture Capital Trust PLC 212217 Venture_Cap_cov.indd 2 212217 Venture_Cap_cov.indd 2 9/7/08 16:20:56 9/7/08 16:20:56 

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