TIDMDIV0
Downing Income VCT plc
Final results for the eighteen months ended 31 August 2012
FINANCIAL SUMMARY
31 Aug 2012 28 Feb 2011
Pence Pence
Net asset value per share ("NAV") 34.0 55.0
Cumulative dividends paid 26.0 20.0
-------------- -------------
Total return (net asset value plus cumulative 60.0 75.0
distributions paid)
-------------- -------------
18 months to 12 months to
31 Aug 2012 28 Feb 2011
Dividends in respect of the financial period
Interim dividend per share 2.0 -
Proposed final dividend per share 2.0 4.0
-------------- -------------
4.0 4.0
-------------- -------------
CHAIRMAN'S STATEMENT
Since the last Annual Report, the Company has undergone a number of changes. On
1 March 2012 Downing LLP was appointed as the new investment manager, the
Company changed its name from Framlington AIM VCT 2 plc to Downing Income VCT
plc, and the year end was changed such that this report covers the 18 month
period from 1 March 2011 to 31 August 2012.
Change of Manager
As Shareholders will be aware, in light of the generally disappointing
performance of the AIM market in recent years, the Board undertook a strategic
review to determine possible future options for the Company. One of the
conclusions of this process was that a reduced exposure to the AIM market was
desirable. The Board held discussions with a number of potential managers and
ultimately appointed Downing which was able to offer significant experience in
AIM-quoted and unquoted VCT investing, along with other benefits.
In the negotiations with Downing, the Board was able to secure a lower
management fee than the Company had paid its previous manager and Downing also
agreed to bear all the costs of the change of manager and some other costs.
Immediately following the appointment, the Board agreed a new strategy with
Downing, with the objective of balancing the portfolio between AIM-quoted and
unquoted investments and, in respect of the AIM-quoted investments, seeking to
focus on those where Downing has a significant holding and can exert some
influence over the business. Further details of Downing's approach and the
progress made to date are set out in the Investment Manager's Report.
Net asset value, results and dividend
The desired change in the investment portfolio following the change of strategy
is a gradual process, consequently the Company remained heavily exposed to the
AIM market throughout the period under review.
In that time, the AIM market index lost more than 25% of its value and the
Company's portfolio valuation also declined substantially with generally
depressed share prices across the portfolio. Overall the portfolio experienced
losses of GBP4.25 million of which only GBP355,000 was represented by realised
investments. The scale and timing of the fall in asset value is all the more
disappointing to report because the losses arise largely from investments made
under the original investment strategy, whilst the new strategy focuses more
on privately owned companies with the objective of providing greater stability
in valuations and more predictability of outcome when taken across the portfolio
as a whole.
As at 31 August 2012, the NAV stood at 34.0p per share, a reduction of 15.0p per
share since the last year end of 28 February 2011 after adjusting for dividends
of 6.0p per share paid in the period.
The loss on ordinary activities after taxation for the period recorded in the
Income Statement was GBP4.5 million, comprising a revenue loss of GBP10,000 and a
capital loss of GBP4.5 million.
The Company paid an interim dividend of 2.0p on 31 August 2012 to Shareholders
on the register at 6 July 2012. A final dividend of 2.0p per share is proposed
to be paid, subject to Shareholder approval at the forthcoming AGM, on 15
February 2013 to Shareholders on the register at 18 January 2013.
Investment activity
The portfolio was managed by AXA Framlington ("AXA") for the first twelve months
of the period. Under AXA's management, the Company invested in a number of AIM
placings at a total cost of GBP2.2 million. The Company also disposed of holdings
with total proceeds of GBP4.0 million, realising net losses of GBP13,000.
Since Downing took over as Manager, the Company has raised proceeds of GBP2.4
million from disposals or part disposals of 20 investments as part of the re-
balancing exercise. GBP1.4 million of these funds were reinvested in four new
investments, two of which are unquoted.
Further details of the Company's investment activities since Downing's
appointment, including the performance of the portfolio, are set out within the
Investment Manager's Report and Review of Investments.
Share Realisation and Reinvestment Programme ("SRRP")
Shareholders will be aware that the Company launched an SRRP which allows
Shareholders to obtain a further 30% income tax relief on the current value of
their investment on the basis that they continue to hold their shares for a
further five years.
The scheme is expected to close on 21 February 2013 with the substitute shares
to be issued shortly after that.
Share buybacks
From time to time, the Company has purchased its own shares that become
available in the market. During the period, the Company repurchased 1,101,158
shares for an average consideration of 32.9p per share and representing 3.7% of
the issued share capital. These shares were subsequently cancelled.
In due course, and following the closure of the SRRP, the Board intends to
introduce a more formal share buyback policy to ensure that there is liquidity
in the market for the Company's shares for those Shareholders that need it.
Duration of the Company
In line with the Company's Articles of Association, at the 2013 AGM the Company
is required to put a resolution to Shareholders on the continuation of the
Company as a Venture Capital Trust. The Board considers that it is in the best
interest of Shareholders that the Company continue as a Venture Capital Trust.
Shareholders will be aware of the SRRP proposals discussed above. In order to
ensure that the participants in the proposed SRRP are able to hold their shares
for at least five years after the transaction, the Board is proposing that the
requirement in the Articles for the resolution to continue as venture capital
trust is put to shareholders at every third AGM be removed. A resolution to this
effect will be put to Shareholders at the General Meeting following the AGM on
7 February 2013. Full details are in the circular issued in respect of the SRRP
proposals.
Annual General Meeting
The next AGM of the Company will be held at 10 Lower Grosvenor Place, London
SW1W 0EN at 2:30p.m. on 7 February 2013.
Four items of special business are proposed: an ordinary resolution relating to
the continuation of the Company as a Venture Capital Trust; one ordinary and one
special resolution in relation to the allotment of shares; and a special
resolution to renew the authority to allow the Company to make market purchases
of the Company's shares.
Outlook
In appointing a new Manager, starting to implement the new strategy, and
offering an SRRP, the Board believes that it has made progress in seeking to
improve performance for investors; indeed, in recent months the Company's
performance has stabilised. As the Company is effectively fully invested and
liquidity in many AIM stocks is weak, the task of fully rebalancing the
portfolio is likely to take some time.
The Board recognises that, with net assets now less than GBP10 million, the
Company is relatively small for a VCT and a further reduction in size may start
to increase the burden of fixed running costs to an unreasonable level. The
possibilities of fundraising and/or seeking a merger with one or more other VCTs
are being reviewed with the Manager. I will write to Shareholders in due course
if there are any developments to these ends before the half yearly report to 28
February 2013.
Chris Marsh
Chairman
INVESTMENT MANAGER'S REPORT
Downing assumed the Investment Management mandate of the Company on 1 March
2012.
The purpose of the following report is:
* To further explain our investment style and process;
* To disclose our performance over the period; and
* To discuss our rationale behind any significant new
investments/divestments.
Investment style and process
The stock market in general can be fairly inefficient for smaller companies and
there can be overreaction to disappointing news. This is compounded further for
the types of companies in which the Company invests by three factors;
1. The poor quality and volume of research available for potential investors.
The availability of research for companies within the larger capitalisations of
the UK stock market is very good. There are sometimes 5-10 analysts covering
each company, creating an independent network of researchers. Conversely,
research on smaller companies is often scarce, non-independent and not
sufficiently detailed.
Research is often written by the house broker who is potentially conflicted as
they are paid agents of the company. Therefore little, if any, independent
analysis is available to investors in small companies.
2. The lack of institutional money allocated to this segment of the market.
The market for smaller companies has suffered from continuous capital outflows
over the last five years. In the current environment, the charge that an
investment manager can ascribe per annum in order to run the Company (the annual
management charge) is under pressure and so the Company only increases
profitability by increasing 'funds under management' ("FUM"). In general, the
greater the FUM, the larger the investee company must be in order to make a
meaningful investment. If you run a fund with GBP500 million under management, it
would not be economic or efficient to consider investing in a company with a GBP10
million market capitalisation, no matter how undervalued it might be.
3. Venture Capital Trusts facing restrictions on the companies in which they
invest.
Adding this constraint to the inefficiencies of the market highlighted above,
the universe of companies in which your Company can invest therefore becomes
smaller.
How does Downing cope with the restrictions and inefficiencies of investment in
small companies from VCT funds?
Downing views the inefficiencies in the small company markets as an opportunity.
The ability of the Company to invest in both quoted and unquoted companies helps
address the issue of the lack of availability of good qualifying AIM
investments. Our immediate challenges are to improve the performance and focus
of the existing portfolio and seek liquidity to allow the Company to invest in
qualifying unquoted assets, and selectively add to the quoted investments where
appropriate.
We ignore the markets as an arbiter of value and rely upon our own proprietary
research to determine value. We will never speculatively "punt" in the hope that
a stock provides a short term gain, we will only invest once we have conviction
in the quality of the business, the management team and the price we are paying.
Our first job is to seek out companies that can consistently generate a high
return on invested capital ("ROIC") over the long term. In order to do this we
require a process for screening. We ensure that the company is qualifying for
VCT purposes then start our filter to remove candidates that possess too many of
the following negative attributes;
* Companies within a sector/area that we do not understand or cannot predict;
* Low historic ROIC;
* Commodity type products with little to no pricing power;
* Dependency on a small group of customers;
* Low barriers to market entry;
* High gearing: relative to assets and earnings; and
* High fixed cost base relative to secure revenue.
We then analyse the operations, the sector that the company operates in, and the
business' ecosystem. This knowledge can be assimilated through various ways
including; annual reports, regulatory reports (such as from the OFT), Mintel
reports, competitors' annual reports and discussion with competitors, past
employees, suppliers and customers.
Having established the above, we then look to understand the board and the
executive team, their integrity and ability to allocate capital together with
any incentive packages issued. Generally, CEOs feel that they are paid by
reference to market capitalisation and judged against EPS growth. We want them
to focus on the returns generated by invested capital and we consequently look
for management teams with significant (by their standards) 'skin in the game'.
Once a company has progressed fully through our identification process, we
create a valuation range. We look to buy or hold equity at a price that returns
our initial investment in a worst case scenario and offers at least 15% returns
within our other valuation ranges. We are very patient in waiting for the stock
market to offer us the opportunity to buy equity within these companies at a
price that gives us these risk/reward odds and are long term investors.
It is challenging to drive performance from a large number of small holdings, as
is typical of the portfolio of the Fund. We have been implementing the
investment process detailed above on the Company and seek to arrive at a smaller
focused pool of AIM investments that we will have fully reviewed and that meet
our criteria. We will carefully dispose of those that do not meet our strict
criteria but will not do so hastily, as we aim to achieve the best possible
prices and valuations for these companies. Meanwhile, we are adding unquoted
yielding assets to the portfolio which should aid the Company's ability to pay
regular (tax free) dividends.
Downing is making some progress in this strategy and has partly/fully divested
in circa twenty companies since 1 March 2012, raising proceeds of GBP2.4 million
and invested GBP1.4 million in two quoted holdings and two unquoted holdings which
are discussed later in this report.
Performance for the period
In the 18 months to 31 August 2012, the NAV fell from 55.0p to 34.0p (27.2%).
Since taking over management of the Company, the NAV has fallen by 6.5%, after
taking account of the 2.0p dividend paid in August 2012.
Major movements in the period include Craneware, which saw a fall in value of
GBP343,000 as it announced delays in its sale of software into the US healthcare
market. This negative share price movement has been partially negated by
subsequent announcements that trading has improved. Craneware has long term
contracts with major health trusts in the USA and is a key part of the insurance
claim process. We continue to believe Craneware is a good company and will
monitor its valuation in relation to contract news.
Other contributors to negative performance were AFC Energy (down GBP405,000), Theo
Fennell (down GBP215,000), 3D Diagnostics (down GBP292,000) and a complete loss on
the investment, made in June 2011, in Music Festivals ( GBP250,000). There may be
an opportunity to recoup some losses in Theo Fennell, which is now in offer
discussions with a potential acquirer; however, the outlook for 3D Diagnostics
is less optimistic as they have been turned into an investment company with its
core technology division, which operated in the dental market, being closed.
Music Festivals suffered as its summer festivals competed with the Olympics and
high debt levels. The company was placed into administration during September
and any equity value is lost.
The unquoted investment in London Italian Restaurants was also marked down by
GBP329,000, as a result of weak trading at the company's restaurants, although it
was able to repay GBP437,500 to the VCT during the period in redeeming part of its
loan stock.
There were a few bright spots to talk about in the portfolio; Cohort, the
supplier of support for the defence industry, saw its share price partially
recover and this had a positive impact of GBP146,000; while Angle increased by
GBP86,000 over the period.
The general underperformance of the portfolio can clearly be attributed to a few
larger holdings, however, across the board the portfolio performance was very
disappointing and is reflective of challenging trading within the underlying
companies against a difficult macro-economic backdrop.
However, progress to achieve the focused approach that Downing aims to deploy
with this Fund is making good headway. The vast majority of investee companies
have been met and evaluated and are in our diligence process. Those that do not
fit our criteria are being sold into liquidity, however, we are never forced
sellers of stock and will be patient. A small handful of illiquid legacy stocks
could continue to dampen performance, however, we are confident that, over the
longer term, liquidity will be achieved and the stronger attributes of the core
holdings will outweigh any downside from poor legacy holdings.
Portfolio Activity
Quoted Portfolio
Aside from the disposal program already discussed, two new quoted holdings were
added to the portfolio.
The Company made a GBP361,000 investment into Ludorum plc, into both equity and
yielding 7.5% Loan Stock in the company. Ludorum owns the Intellectual Property
of "Chuggington", which is a popular under-fives TV programme set in the
fictional village of Chuggington and is focused on its trains. It is shown in
over 170 territories and has consistently been rated as a top title for its
demographic. TOMY, the Japanese manufacturer and distributor of children's toys,
holds the "Master Toy" licence for Chuggington, which allows TOMY to manufacture
and distribute the toys worldwide. Over $150m of merchandising has been sold
since launch of the toy only 2 years ago.
Ludorum is a company that is familiar to Downing. Downing-managed funds and
associated parties hold nearly 14% of the equity in Ludorum and half of the loan
stock, alongside DC Thomson. This loan stock confers some investor rights
including limiting the ability of the company to raise additional debt and the
right to a board position. This allows Downing to exert some influence over the
cost base and future strategy for the company, ultimately working with
management to drive shareholder returns. This is typical of our investment focus
and style where we seek to take larger, more influential holdings, once we have
completed our diligence.
The coming twelve months are very important for Ludorum as TOMY launch two new
product lines, Plarail and Stacktrack. We believe that the traction that the
company has already got with its young audience, combined with the strength and
power of TOMY, gives this IP inherent value which protects the downside at our
entry price while providing upside on the basis of new product launches.
In addition, the Company took a small equity holding ( GBP65,000) in Universe Group
Plc which is one of Europe's largest providers of loyalty, payment and forecourt
technology. They have on-going maintenance and support agreements with all of
the UK's major forecourt retailers, including Asda and Morrisons. The Company
has also made an investment after the year end of GBP40,000 in Universe loan stock
which confers some investor rights.
Unquoted Portfolio
The Company invested GBP400,000 into Vulcan Renewables Limited, which is a new
company developing an anaerobic digestion plant near Doncaster. The plant is
managed by Future Biogas Limited who have developed and operate two other
anaerobic digestion plants in which Downing VCTs are invested. The anaerobic
digestion process converts energy crops, such as maize, into bio-methane gas by
a process of fermentation. In this case, the gas will be treated and then fed
into the national gas grid. The plant is expected to qualify under the Renewable
Heat Incentive scheme which the UK Government has set up to encourage the uptake
of renewable heat technologies among householders, communities and businesses.
As a result, Vulcan should receive a tariff based on the amount of gas injected
into the grid, which will be paid for 20 years and increase annually with RPI.
In order to secure the maize being used as feedstock, Vulcan is renting
approximately 2,000 acres of land from local farmers under cropping licences and
will engage contract farmers to grow maize on the land. The plant is currently
under construction and is expected to be operational by the end of next summer.
The Company's investment in Vulcan is a combination of equity, qualifying loan
notes, and non-qualifying loan notes, which is intended to provide a yield and a
share in the upside. We are seeking further qualifying investments of this
nature.
The Company also made a non-qualifying loan of GBP600,000 to Baron House
Developments LLP ("Baron House"). This was part of a loan to enable Baron House
to acquire a building in central Newcastle, which has the potential to be
converted into a hotel. The loan is secured by a first charge on the land and
buildings and the Company is entitled to interest and a share in any development
profit from the scheme.
Summary
The change of emphasis of the portfolio into a blend of unquoted and quoted
holdings has made some early progress. There has been an immediate focus on
retaining those existing portfolio companies that should drive performance, with
efforts to seek liquidity on those that are now not core holdings. The pipeline
of yielding unquoted assets is strong and we expect to report that this momentum
to focus and add yielding assets has continued by the time of the release of the
half yearly report to 28 February 2013.
Downing LLP
REVIEW OF INVESTMENTS
Portfolio of investments
The following investments, all of which are incorporated in England and Wales,
were held at 31 August 2012:
Valuation % of
movement portfolio
Cost Valuation in period by value
GBP'000 GBP'000 GBP'000
Top ten venture capital investments
Locale Enterprises Limited * 540 735 70 7.9%
Vianet Group plc 835 683 13 7.3%
Baron House Developments LLP * 600 600 - 6.4%
Craneware plc 173 439 (343) 4.7%
Vulcan Renewables Limited * 400 400 - 4.3%
Ludorum plc 361 346 (16) 3.7%
Anpario plc 251 345 26 3.7%
Plastics Capital plc 500 335 (65) 3.6%
Cohort plc 364 318 146 3.4%
Digital Barriers plc 177 271 (80) 2.9%
-------------------------------------
4,201 4,472 (249) 47.9%
-------------------------------------
Other venture capital investments
Vertu Motors plc 500 265 40 2.8%
Manroy plc 325 252 (160) 2.7%
AFC Energy plc 106 242 (405) 2.6%
Pressure Technologies plc 248 240 (93) 2.6%
Brady plc 145 234 42 2.5%
Angle plc 219 226 86 2.4%
Photonstar LED Group plc 378 219 (27) 2.3%
Instem plc 261 216 (109) 2.3%
Energetix Group plc 274 212 21 2.3%
Tristel plc 309 194 (169) 2.1%
Tangent Communications plc 350 189 27 2.0%
Avacta Group plc 250 175 (183) 1.9%
Surface Transforms plc 250 162 (44) 1.7%
Plethora Solutions Holdings plc 250 134 (68) 1.4%
Dillistone Group plc 113 126 - 1.4%
Norman Broadbent plc 250 123 (127) 1.3%
Active Risk Group plc 162 114 (67) 1.2%
Corero Network Security plc 144 114 14 1.2%
London Italian Restaurants Limited * 563 109 (329) 1.2%
Tawa plc 334 107 (72) 1.1%
Hasgrove plc 250 97 (32) 1.0%
PHSC plc 219 91 29 1.0%
Cyan Holdings plc 655 64 (57) 0.7%
Hightex Group plc 213 63 (143) 0.7%
Universe Group plc 65 56 (8) 0.6%
Theo Fennell plc 233 55 (215) 0.6%
Porta Communications plc 85 55 (30) 0.6%
Corac Group plc 315 53 (64) 0.6%
Wheelsure Holdings plc ** 140 47 (68) 0.5%
Getech Group plc 40 45 20 0.5%
VSA Capital Group plc 200 43 (143) 0.5%
Bglobal plc 214 38 (119) 0.4%
Frontier IP Group plc 150 36 (114) 0.4%
Accumuli plc 225 34 9 0.4%
Savile Group plc 201 33 (23) 0.3%
Imagelinx plc 450 32 (126) 0.3%
Concha plc 248 22 (102) 0.2%
Suretrack Monitoring plc 230 21 (142) 0.2%
3D Diagnostic Imaging plc 300 8 (292) 0.1%
Travelzest plc 100 4 (6) -
Consolidated General Minerals plc * 111 - (23) -
Invocas Group plc * 76 - (5) -
Music Festivals plc 250 - (250) -
Rivington Street Holdings plc * 136 - (100) -
Welby Holdings plc * 400 - (28) -
-------------------------------------
10,937 4,550 (3,655) 48.6%
-------------------------------------
15,138 9,022 (3,904) 96.5%
-------- -----------
Cash at bank and in hand 325 3.5%
----------- ----------
Total investments 9,347 100.0%
----------- ----------
All venture capital investments are listed on AIM unless otherwise stated
* Unquoted
** Quoted on the ISDX trading facility ("ISDX")(formerly PLUS)
Additions in the 18 months to 31 August 2012
GBP'000
During 12 months to 29 February 2012:
Market purchases
3D Diagnostic Imaging plc 100
Active Risk Group plc 62
Angle plc 100
Byotrol plc 75
Cyan Holdings plc 55
Dillistone Group plc 75
Futura Medical plc 250
Hightex Group plc 12
Manroy plc 75
Music Festivals plc 250
Norman Broadbent plc 250
Photonstar LED Group plc 100
Plethora Solutions Holdings plc 200
Porta Communications plc 85
Suretrack Monitoring plc 30
Wheelsure Holdings plc 40
Acquisitions following a takeover
Sinclair IS Pharma plc * 493
--------
2,252
--------
Period from 1 March 2012 to 31 August 2012
Market purchases
Ludorum plc 361
Universe Group plc 65
Other sundry investments 4
Unquoted investments
Baron House Developments LLP 600
Vulcan Renewables Limited 400
--------
1,430
--------
3,682
--------
* Shares received in consideration on the takeover of IS Pharma plc
Disposals in the 18 months to 31 August 2012
Realised Profit/
MV at gain/(loss) (loss)
Cost 01/03/11 * Proceeds in period vs cost
During 12 months to 29 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
February 2012:
AFC Energy plc 3 20 24 4 21
Air Partner plc 83 50 39 (11) (44)
Allied Domecq Financial
Services plc 1,470 1,492 1,513 21 43
Alterian plc 54 45 24 (21) (30)
Angle plc 15 5 11 6 (4)
Chime Communications plc 366 268 254 (14) (112)
Craneware plc 94 376 359 (17) 265
GTL Resources plc 112 56 48 (8) (64)
INVU plc 160 4 4 - (156)
IS Pharma plc (takeover by
Sinclair IS Pharma plc) 397 491 493 2 96
Optismia plc 197 5 36 31 (161)
Powerflute Oyj plc 273 35 37 2 (236)
Tarsus Group plc 15 14 13 (1) (2)
Full and partial redemptions:
London Italian Restaurants
Limited 438 438 438 - -
Treasury 4.5% 2011 stock 756 750 750 - (6)
Administrations/liquidations
and dissolutions:
Aero Inventory plc 28 - - - (28)
Argentvive plc 300 - - - (300)
Bioganix plc 253 - - - (253)
Cashbox plc 250 - - - (250)
Hat Pin plc 291 - - - (291)
Hexagon Human Capital plc 553 - - - (553)
Premier Direct Group plc 151 - - - (151)
Relax Group plc 150 - - - (150)
Rok plc 73 - - - (73)
Sport Media Group plc 500 7 - (7) (500)
--------------------------------------------------
6,982 4,056 4,043 (13) (2,939)
--------------------------------------------------
Period from 1 March 2012 to
31 August 2012:
AFC Energy plc 31 186 67 (119) 36
Byotrol plc 602 183 125 (58) (477)
Cohort plc 11 3 5 2 (6)
Corac Group plc 7 2 1 (1) (6)
Craneware plc 58 260 186 (74) 128
Digital Barriers plc 22 44 34 (10) 12
EKF Diagnostics plc 350 572 651 79 301
Energetix Group plc 87 56 56 - (31)
Futura Medical plc 250 250 338 88 88
Getech plc 35 22 40 18 5
Green Compliance plc 250 150 73 (77) (177)
Instem plc 48 60 44 (16) (4)
Lidco Group plc 95 88 81 (7) (14)
Managed Support Services plc 505 50 1 (49) (504)
Nanoco Group plc 250 166 149 (17) (101)
Photonstar LED Group plc 291 16 16 - (275)
Pure Wafer plc 326 29 15 (14) (311)
Sinclair IS Pharma plc 493 493 395 (98) (98)
Vertu Motors plc 300 135 150 15 (150)
T. Clarke plc 25 9 5 (4) (20)
--------------------------------------------------
4,036 2,774 2,432 (342) (1,604)
--------------------------------------------------
11,018 6,830 6,475 (355) (4,543)
--------------------------------------------------
* Adjusted for purchases in the period
Statement of Directors' responsibilities
The Directors are responsible for preparing the Report of the Directors, the
Directors' Remuneration 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 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).
Under company law the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs
of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and accounting estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial
statements; and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions, to disclose with
reasonable accuracy at any time the financial position of the Company and to
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors 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 the financial
statements and other information included in annual reports may differ from
legislation in other jurisdictions.
Statement as to disclosure of information to Auditor
The Directors in office at the date of this report have confirmed, as far as
they are aware, that there is no relevant audit information of which the Auditor
is unaware. Each of the Directors has confirmed that they have taken all the
steps that they ought to have taken as Directors in order to make themselves
aware of any relevant audit information and to establish that it has been
communicated to the Auditor.
INCOME STATEMENT
for the period ended 31 August 2012
18 months to 12 months to
31 August 2012 28 February 2011
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 291 - 291 353 - 353
Net (losses)/gains on - (4,259) (4,259) - 2,086 2,086
investments
------------------------- ----------------------
291 (4,259) (3,968) 353 2,086 2,439
Investment management fees (66) (197) (263) (78) (234) (312)
Other expenses (235) (1) (236) (184) - (184)
------------------------- ----------------------
(Loss)/return on ordinary
activities before taxation (10) (4,457) (4,467) 91 1,852 1,943
Taxation - - - - - -
------------------------- ----------------------
(Loss)/return attributable to
equity shareholders (10) (4,457) (4,467) 91 1,852 1,943
------------------------- ----------------------
(Loss)/return per share - (15.4p) (15.4p) 0.3p 6.2p 6.5p
The 'Total' column within the Income Statement represents the profit and loss
account of the Company. No operations were acquired or discontinued during the
period.
A Statement of Total Recognised Gains and Losses has not been prepared as all
gains and losses are recognised in the Income Statement shown above.
Other than revaluation movements arising on investments held at fair value
through the profit and loss, there were no differences between the
return/deficit as stated above and on a historical cost basis.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the period ended 31 August 2012
18 months to 12 months to
31 August 28 February
2012 2011
GBP'000 GBP'000
Opening Shareholders' funds 16,222 15,672
Shares issued under dividend re-investment scheme - 69
Purchase of own shares (365) (267)
Total recognised (losses)/gains for the period (4,467) 1,943
Dividends paid (1,731) (1,195)
-------------- -------------
Closing Shareholders' funds 9,659 16,222
-------------- -------------
BALANCE SHEET
as at 31 August 2012
31 August 28 February
2012 2011
GBP'000 GBP'000
Fixed assets
Investments 9,022 16,074
------------- --------------
Current assets
Debtors 354 115
Cash at bank and in hand 325 125
------------- --------------
679 240
Creditors: amounts falling due within one year (42) (92)
------------- --------------
Net current assets 637 148
------------- --------------
Net assets 9,659 16,222
------------- --------------
Capital and reserves
Called up share capital 2,839 2,949
Capital redemption reserve 277 167
Share premium account 122 122
Special reserve 8,312 19,176
Capital reserve - realised - -
Capital reserve - unrealised (2,002) (6,401)
Revenue reserve 111 209
------------- --------------
Total equity shareholders' funds 9,659 16,222
------------- --------------
Basic and diluted net asset value per share 34.0p 55.0p
CASH FLOW STATEMENT
for the period ended 31 August 2012
18 months to 12 months to
31 August 28 February
2012 2011
GBP'000 GBP'000
Net cash outflow from operating activities and
returns on investments (170) (107)
-------------- -------------
Capital expenditure
Payments to acquire investments (3,982) (3,531)
Receipts from sale of investments 6,460 4,426
-------------- -------------
Net cash inflow from capital expenditure 2,478 895
-------------- -------------
Equity dividends paid (1,743) (1,126)
-------------- -------------
Net cash inflow/(outflow) before financing 565 (338)
Financing
Purchase of own shares (365) (268)
-------------- -------------
Net cash outflow from financing (365) (268)
-------------- -------------
Increase/(decrease) in cash 200 (606)
-------------- -------------
NOTES TO THE ACCOUNTS
for the period ended 31 August 2012
1. Accounting policies
Basis of accounting
The Company has prepared its financial statements under UK Generally Accepted
Accounting Practice and in accordance with the Statement of Recommended Practice
"Financial Statements of Investment Trust Companies and Venture Capital Trusts"
January 2009 ("SORP").
The financial statements are prepared under the historical cost convention
except for the revaluation of certain financial instruments.
The Company implements new Financial Reporting Standards issued by the Financial
Reporting Council when required.
Presentation of income statement
In order to better reflect the activities of a Venture Capital Trust and in
accordance with guidance issued by the Association of Investment Companies
("AIC"), supplementary information which analyses the income statement between
items of a revenue and capital nature has been presented alongside the income
statement. The net revenue is the measure the Directors believe appropriate in
assessing the Company's compliance with certain requirements set out in Part 6
of the Income Tax Act 2007.
Investments
Venture capital investments are designated as "fair value through profit or
loss" assets due to investments being managed and performance evaluated on a
fair value basis. A financial asset is designated within this category if it is
both acquired and managed on a fair value basis, with a view to selling after a
period of time, in accordance with the Company's documented investment policy.
The fair value of an investment upon acquisition is deemed to be cost.
Thereafter, investments are measured at fair value in accordance with the
International Private Equity and Venture Capital Valuation Guidelines ("IPEV")
together with FRS 26.
Listed fixed income investments and investments quoted on recognised stock
markets are measured using bid prices.
The valuation methodologies for unlisted instruments used by the IPEV to
ascertain the fair value of an investment are as follows:
* Price of recent investment;
* Multiples;
* Net assets;
* Discounted cash flows or earnings (of the underlying business);
* Discounted cash flows (from the investment); and
* Industry valuation benchmarks.
The methodology applied takes account of the nature, facts and circumstances of
the individual investment and uses reasonable data, market inputs, assumptions
and estimates in order to ascertain fair value.
Where an investee company has gone into receivership, liquidation, or
administration where there is little likelihood of a recovery, the loss on the
investment, although not physically disposed of, is treated as a disposal.
Permanent impairments in the value of investments are deemed to be realised
losses and held within the Capital Reserve - Realised.
Gains and losses arising from changes in fair value during the year are included
in the income statement as a capital item.
It is not the Company's policy to exercise controlling influence over investee
companies. Therefore, the results of these companies are not incorporated into
the revenue account except to the extent of any income accrued. This is in
accordance with the SORP that does not require portfolio investments to be
accounted for using the equity method of accounting.
In respect of disclosures required by the SORP for the 10 largest investments
held by the Company, the most recent publicly available accounts information,
either as filed at Companies House, or announced to the London Stock Exchange,
is disclosed. In the case of unlisted investments, this may be abbreviated
information only.
Income
Dividend income from investments is recognised when the Shareholders' rights to
receive payment have been established, normally the ex-dividend date.
Interest income is accrued on a time apportioned basis, by reference to the
principal outstanding and at the effective interest rate applicable and only
where there is reasonable certainty of collection in the foreseeable future.
Expenses
All expenses are accounted for on an accruals basis. In respect of the analysis
between revenue and capital items presented within the income statement, all
expenses have been presented as revenue items except as follows:
* Expenses which are incidental to the acquisition of an investment are
deducted from the Capital Account.
* Expenses which are incidental to the disposal of an investment are deducted
from the disposal proceeds of the investment.
* Expenses are split and presented partly as capital items where a connection
with the maintenance or enhancement of the value of the investments held can
be demonstrated and accordingly the investment management fee and finance
costs have been allocated 25% to revenue and 75% to capital, in order to
reflect the Directors' expected long-term view of the nature of the
investment returns of the Company.
Taxation
The tax effects on different items in the Income Statement are allocated between
capital and revenue on the same basis as the particular item to which they
relate using the Company's effective rate of tax for the accounting period.
Due to the Company's status as a Venture Capital Trust and the continued
intention to meet the conditions required to comply with Part 6 of the Income
Tax Act 2007, no provision for taxation is required in respect of any realised
or unrealised appreciation of the Company's investments.
Deferred taxation is not discounted and 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 the obligations or rights crystallise based on tax rates and law enacted or
substantively enacted at the balance sheet date. 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 accounts.
Deferred tax assets are only recognised if it is expected that future taxable
profits will be available to utilise such assets and are recognised on a non-
discounted basis.
Other debtors and other creditors
Other debtors (including accrued income) and other creditors are included within
the accounts at cost.
Segmental reporting
The Company only has one class of business and one market.
2. Return per share
18 months to 12 months to
31 August 28 February
2012 2011
Return per share based on:
Net revenue (loss)/return for the financial period (10) 91
( GBP'000)
-------------- -------------
Capital return per share based on:
Net capital (loss)/gain for the financial period (4,457) 1,852
( GBP'000)
-------------- -------------
Weighted average number of shares in issue 29,003,509 29,717,908
-------------- -------------
As the Company has not issued any convertible securities or share options, there
is no dilutive effect on return per share. The return per share disclosed
therefore represents both basic and diluted return per share.
3. Net asset value per share
31 August 2012 28 February 2011
Shares in issue Net asset value Net asset value
Pence Pence
31 August 28 February per share per share
2012 2011 GBP'000 GBP'000
Ordinary Shares 28,385,141 28,986,299 34.0p 9,659 55.0p 16,222
As the Company has not issued any convertible securities or share options, there
is no dilutive effect on net asset value per class of share in issue. The net
asset value per share disclosed therefore represents both basic and diluted net
asset value per class of share in issue.
4. Principal risks
The Company's investment activities expose the Company to a number of risks
associated with financial instruments and the sectors in which the Company
invests. The principal financial risks arising from the Company's operations
are:
* Investment risks;
* Credit risk; and
* Liquidity risk.
The Board regularly reviews these risks and the policies in place for managing
them. There have been no significant changes to the nature of the risks that the
Company is exposed to over the period and there have also been no significant
changes to the policies for managing those risks during the period.
The risk management policies used by the Company in respect of the principal
financial risks and a review of the financial instruments held at the period end
are provided below:
Investment risks
As a Venture Capital Trust, the Company is exposed to investment risks in the
form of potential losses and gains that may arise on the investments it holds in
accordance with its investment policy. The management of these investment risks
is a fundamental part of the investment activities undertaken by the Manager and
overseen by the Board. The Manager monitors investments through regular contact
with management of investee companies and regularly reviewing management
accounts and other available financial information and, in respect of unquoted
investments, attendance at investee company board meetings. This enables the
Manager to manage the investment risk in respect of individual investments and
with respect to the quoted investments, make appropriate decisions as to whether
to hold, buy or sell. Investment risk is also mitigated by holding a diversified
portfolio spread across various business sectors and asset classes.
The key investment risks to which the Company is exposed are:
* Investment price risk; and
* Interest rate risk.
The Company has undertaken sensitivity analysis on its financial instruments,
split into the relevant component parts, taking into consideration the economic
climate at the time of review in order to ascertain the appropriate risk
allocation.
Investment price risk
Investment price risk arises from uncertainty about the future prices and
valuations of financial instruments held in accordance with the Company's
investment objectives. It represents the potential loss that the Company might
suffer through investment price movements in respect of quoted investments and
also changes in the fair value of unquoted investments that it holds.
Interest rate risk
The Company accepts exposure to interest rate risk on floating-rate financial
assets through the effect of changes in prevailing interest rates. The Company
receives interest on its cash deposits at a rate agreed with its bankers.
Investments in loan stock and fixed interest investments attract interest
predominately at fixed rates. A summary of the interest rate profile of the
Company's investments is shown below.
Interest rate profile of financial assets and financial liabilities
There are three levels of interest which are attributable to the financial
instruments as follows:
* "Fixed rate" assets represent investments with predetermined yield targets
and comprise fixed interest and loan note investments.
* "Floating rate" assets predominantly bear interest at rates linked to Bank
of England base rate and comprise cash at bank.
* "No interest rate" assets do not attract interest and comprise equity
investments, non-interest bearing convertible loan notes, loans and
receivables (excluding cash at bank) and other financial liabilities.
The Company monitors the level of income received from fixed, floating and non
interest rate assets and, if appropriate, may make adjustments to the allocation
between the categories, in particular, should this be required to ensure
compliance with the VCT regulations.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument is unable
to discharge a commitment to the Company made under that instrument. The Company
is exposed to credit risk through its holdings of loan stock in investee
companies, investments in listed fixed interest investments, cash deposits and
debtors.
The Manager manages credit risk in respect of loan stock with a similar approach
as described under Investment risks above. In addition the credit risk is
partially mitigated by registering floating charges over the assets of certain
investee companies. The strength of this security in each case is dependent on
the nature of the investee companies business and its identifiable assets. The
level of security is a key means of managing credit risk. Similarly the
management of credit risk associated trades awaiting settlement, interest,
dividends and other receivables is covered within the investment management
procedures.
Cash is mainly held at Royal Bank of Scotland plc, which is an A-rated financial
institution and is also ultimately part-owned by the UK Government.
Consequently, the Directors consider that the risk profile associated with cash
deposits is low.
There have been no changes in fair value during the periods that are directly
attributable to changes in credit risk.
Liquidity risk
Liquidity risk is the risk that the Company encounters difficulties in meeting
obligations associated with its financial liabilities. Liquidity risk may also
arise from either the inability to sell financial instruments when required at
their fair values or from the inability to generate cash inflows as required.
The Company usually has a relatively low level of creditors (31 August 2012:
GBP42,000, 28 February 2011: GBP92,000) and has no borrowings. The Company holds
sufficient levels of funds as cash and readily realisable investments in order
to meet expenses and other cash outflows as they arise. For these reasons, the
Board believes that the Company's exposure to liquidity risk is minimal.
The Company's liquidity risk is managed by the Manager in line with guidance
agreed with the Board and is reviewed by the Board at regular intervals.
5. Related party transactions
Chrysalis VCT Admin Limited, a Company in which Chris Kay is a Director,
received GBP18,000 in the period for consultancy services provided by Chris Kay in
relation to the change of Manager.
ANNOUNCEMENT BASED ON AUDITED ACCOUNTS
The financial information set out in this announcement does not constitute the
Company's statutory financial statements in accordance with section 434
Companies Act 2006 for the eighteen months ended 31 August 2012, but has been
extracted from the statutory financial statements for the eighteen months ended
31 August 2012, which were approved by the Board of Directors on 18 December
2012 and will be delivered to the Registrar of Companies following the Company's
Annual General Meeting. The Independent Auditor's Report on those financial
statements was unqualified and did not contain any emphasis of matter nor
statements under s498(2) and (3) of the Companies Act 2006.
The statutory accounts for the year ended 28 February 2011 have been delivered
to the Registrar of Companies and received an Independent Auditors report which
was unqualified and did not contain any emphasis of matter nor statements under
s 498(2) and (3) of the Companies Act 2006.
A copy of the full annual report and financial statements for the eighteen
months ended 31 August 2012 will be printed and posted to shareholders shortly.
Copies will also be available to the public at the registered office of the
Company at 10 Lower Grosvenor Place, London, SW1W 0EN and will be available for
download from www.downing.co.uk.
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Downing Income VCT plc via Thomson Reuters ONE
[HUG#1665961]
Down. Vct (LSE:DIVO)
Gráfico Histórico do Ativo
De Mai 2024 até Jun 2024
Down. Vct (LSE:DIVO)
Gráfico Histórico do Ativo
De Jun 2023 até Jun 2024
