INGENIOUS

Pillar 3 Disclosure

INTRODUCTION

In 2007 and 2008, the Financial Services Authority's (FSA) new General Prudential Sourcebook and Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU) rules came into effect, implementing the Capital Requirements Directive (CRD), which is the common framework for implementing Basel II in the European Union. These rules are built on 3 pillars:

Pillar 1 - Minimum capital requirements;
Pillar 2 - Rules for the Supervisory Review Process, including the Internal Capital Adequacy Assessment Process (ICAAP);
Pillar 3 - Rules for the disclosure of risk and capital management, including capital adequacy.
The following is Ingenious Asset Management Limited's (IAM) Pillar 3 disclosure in accordance with the requirements of the FSA's Rules.

DATE OF DISCLOSURE

This disclosure is based on IAM's financial position as at 5 April 2009.

SCOPE OF APPLICATION

IAM¹ is a wholly owned subsidiary of Ingenious Media Limited (IM). IM is a wholly owned subsidiary of Ingenious Media Holdings plc (IMH). Neither IM nor IMH are considered to be a Financial Holding Company or a Parent Institution (as defined in the FSA Rules), nor are they a subsidiary of such an entity. IAM is neither consolidated with, nor deducted from IM for prudential purposes in accordance with CRD². IAM does not have any subsidiary undertakings subject to the CRD.

RISK MANAGEMENT

The risk management process can be summarised in terms of the following constituent elements:



Department Heads are responsible for identifying and assessing risk in their business areas and reporting such information to the Compliance Department.

The Board of IAM is responsible for establishing the risk management strategy for IAM and overseeing the overall risk infrastructure. The Audit Committee of IMH has oversight of the risk management strategy and risk infrastructure. All reports to the Audit Committee are reviewed and findings are further reported to the Board of IMH on a periodic basis.

The Board of IMH has the ultimate responsibility for monitoring the group's risk exposure and setting risk appetite. The Board of IMH decides on policies for risk management and the Board of IAM and the Audit Committee of IMH approve the internal capital adequacy assessment. All policies are reviewed at least annually.

Decisions on risks identified in IAM will be made in the context of the group's risk appetite (i.e. the level of risk tolerance which the Board is prepared to accommodate) and with reference to an inherent risk score.

Once a decision has been made, a mitigation plan of one or more activities will be constructed and implemented. This will have the effect of reducing either the likelihood of the risk occurring or the severity of the consequence to a lower level or residual risk. For a mitigation plan to be deemed effective, the residual risk must be acceptable to the senior management of IAM in light of the stated risk appetite.

The Board of IMH has concluded that if all of the inherent risks within the businesses are satisfactorily mitigated and no further action can be taken to reduce the risk further, then the Board is happy to tolerate the level of residual risk which remains. Having identified and assessed the risk factors, the results of the assessment have been plotted on a risk heat map. The majority of the residual risks are considered to be low or medium in terms of likelihood and consequence.

The following risks have been identified as material for the purposes of this disclosure:

Strategic Risk is the failure of the business to execute its business strategy. This may be as a result of changes in the business environment and the lack of responsiveness to those changes, or due to inappropriate or improper implementation of business decisions. Asset Management partially mitigates this risk via a formal annual budgeting process, which is complemented by a monthly review of management accounts. IAM submits the forthcoming year's monthly budgeted profit and loss, cash flow and capital resources requirements to the Board of IMH for further review. The assumptions underlying these calculations are formally reviewed at least quarterly during the reforecasting process. The strategic and financial performance of Asset Management is reviewed at the monthly Executive Committee meetings and quarterly at the full Board meetings.

Within Ventures robust procedures are in place relating to the investment processes around private equity investment activities, including review and approval of any investment recommendations by an Investment Committee. Additionally, detailed operational meetings take place with input from senior management and the Board of IAM to discuss and address strategic issues on a regular basis, in addition to the monthly Executive Committee meetings and quarterly full IMH Board meetings.

Liquidity Risk is the potential that IAM will be unable to meet obligations as they become due and payable. IAM's current funding arrangements are secured by an Expenditure Agreement with IM under which IM, as IAM's parent, agrees to protect the interest of its investment by bearing certain expenses of IAM until such time that IAM has sufficient resources to bear recharges for these expenses. Without this support, IAM may be forced either to find a third party investor to inject additional capital or to be sold as a going concern. IAM has the continued full support of IM and IMH in terms of funding.

Retention and Concentration Risk relates to any single exposure or group of exposures with the potential to produce losses large enough to threaten a company's health or ability to maintain its core operations. Central to Asset Management's success is therefore the retention of existing clients and acquisition of additional clients. The Asset Management division does not have a significant exposure to any particular group of clients and given current high levels of client retention it is considered unlikely that Asset Management could lose a significant volume of clients resulting in a high concentration risk of the remaining clients. Efforts continue to be made to increase the value of funds under management.

Ventures manages a diverse pool of investments on behalf of the private equity fund from start ups to more established companies across the media sector. Retention risk is mitigated through contractual provisions in agreements with underlying investments to reduce the impact to the fund. Consequently if one underlying investment fails or terminates this will not result in the failure of the overall fund.

Operational Risk is the risk of loss resulting from inadequacies or failings in terms of internal processes, people, systems, or external events. IAM mitigates these risks through:

• Ongoing communication by the IMH Board and Audit Committee to IAM of the importance of maintaining strong internal controls;
• Apportionment of responsibility amongst management to ensure the provision of appropriate oversight;
• A risk based monitoring plan, the outcomes of which are reported to the Board and the Audit Committee;
• A training program appropriate to the needs of the organisation;
• Robust policies and procedures in respect of regulatory compliance, anti-money laundering and finance;
• Regular maintenance of IT systems, upgrades when necessary and regular contact with the business so that IT systems remain relevant; and
• Considering risk management during the objective setting and evaluation process for people.

Market Risk is the risk to earnings and capital arising from adverse movements in financial instruments in the trading book. This risk can arise from market-making, dealing and position-taking. IAM does not have a trading book and only invests the company's assets in cash. As such IAM's only exposure to market risk arises via investments in liquid bank deposits. This risk is mitigated by ensuring all bank deposits are held with approved counterparties on agreed terms. Asset Management regularly monitors the liquidity of these investments.

Credit Risk is the risk of loss due to a debtor's or counterparty's non-payment of a loan or line of credit. IAM does not extend credit to clients. Counterparty credit risk is mitigated via the terms and conditions of individual confidential agreements.

CAPITAL RESOURCES³

At 5 April 2009, IAM held £3,133,000 of Tier 1 capital in the form of share capital and audited reserves. IAM is not required to and does not hold Tier 2 and 3 capital. There are no other items or deductions.

The company's Pillar 1 capital resource requirement is the higher of the base capital requirement and the variable capital resource requirement, as detailed in the table below.

Requirement	Details
Base capital requirement	€50,000
Variable capital resource requirement	The higher of: (1) The sum of the Credit Risk Capital Requirement (£360,000) and the Market Risk Capital Requirement (£0)4; or (2) The Fixed Overheads Requirement5 (£1,408,000)

Therefore, at 5 April 2009 IAM's variable capital resource requirement (and hence, its Pillar 1 capital resource requirement) is £1,408,000.

As such, the regulatory capital base of IAM is in excess of the capital resources requirement.

INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS (ICAAP)

IAM assesses the adequacy of its capital resources on an annual basis through the ICAAP.

Through the ICAAP IAM:

• Carries out assessments of the capital that it considers adequate to cover the nature and level of the risks to which it is or might be exposed, including stress and scenario testing. The reviews are based on a subjective assessment of consequence and likelihood;
• Identifies the major sources of risk to its ability to meet its liabilities as they fall due;
• Ensures that the processes, strategies and systems required by Pillar 2, and used in its ICAAP, are both comprehensive and proportionate to the nature, scale and complexity of IAM's activities; and
• Maintains a documented ICAAP.

The Pillar 2 capital requirement is the minimum amount of capital calculated through the ICAAP process to address the risks identified. The most significant risks have been identified and prioritised to establish which risks are the most likely to cause the company to require additional capital. The IAM Pillar 2 capital requirement has been calculated as £500,000. As this amount is less than the Pillar 1 capital requirement calculated above, the Pillar 1 capital requirement is the minimum regulatory capital required to be held by IAM.

In conclusion, IAM is sufficiently capitalised for the risks to which it is exposed.

¹ IAM comprises an asset management division (Asset Management) and a private equity business (Ventures). IAM is authorised and regulated by the Financial Services Authority and is subject to the CRD.
² IAM is included in the consolidated accounts of IMH.
³ With the exception of the base capital requirement, all figures are reported to the nearest £1,000.
⁴ Market and Credit risk capital requirement disclosures in respect of IAM are not considered to be material, and have been omitted in accordance with the FSA Rules. The disclosures are not considered material as IAM's capital requirement is the Fixed Overheads Requirement.
⁵ The Fixed Overheads Requirement is calculated as 13 weeks' expenditure (excluding certain discretionary expenses) based on the most recent accounts.