RNS Number:5134M
Electra Kingsway VCT 3 Plc
24 January 2008
Electra Kingsway VCT 3 Plc ("the Company" or "the Fund")
Unaudited Preliminary Results for the year ended 30 September 2007
Financial Highlights
Year ended 30 September 2007 2006
Net assets �35.4m �34.8m
Net asset value per ordinary share 101.0p 99.2p
Dividend paid per ordinary share 1.5p -
Cumulative return to shareholders since launch
Dividends paid per ordinary share 1.5p -
Net asset value plus dividends paid per ordinary share 102.5p 99.2p
The Board has declared an interim dividend of 1.0p per ordinary share, in
respect of the year to 30 September 2008, which will be paid on 14 March 2008 to
ordinary shareholders on the Register of Members at the close of business on 1
February 2008.
A copy of the Chairman's Statement, Investment Manager's Report and Unaudited
Preliminary Announcement are attached.
This unaudited preliminary announcement for the year ended 30 September 2007
does not constitute the statutory financial statements of the Company for the
year ended 30 September 2007 within the meaning of Section 240 of the Companies
Act 1985. Those financial statements have not yet been delivered to the
Registrar of Companies, nor have they been reported upon yet by the auditors.
The Report and Accounts will be sent to shareholders in January 2008 and will
thereafter be available from the Company's registered office at Paternoster
House, 65 St Paul's Churchyard, London EC4M 8AB. The Annual General Meeting
will be held on 5 March 2008 at 1.00pm at the registered office address as
stated above.
For further information:
Nick Ross, Electra Kingsway VCT 3 Plc: 0207 214 4200
Investment Objective
The Company's objective is to achieve long term capital gains and tax free
dividends to its shareholders. This will be achieved by investing the majority
of the Company's funds in a portfolio of qualifying investments. Venture Capital
Trusts allow investors significant tax benefits provided that the Fund complies
with the VCT investment rules. These rules are designed to encourage venture
capital investment in smaller companies.
Investment Strategy
The strategy is to invest in a portfolio of qualifying unquoted and AIM listed
companies which are well diversified by sector focus. As these investments
mature, the Investment Manager will seek to sell them at a capital profit and
distribute the uplift as a dividend. The original capital will be reinvested
into new qualifying companies. This strategy should ensure long term capital
growth and a regular flow of dividends to shareholders.
The Fund will co-invest alongside the other Electra Kingsway VCTs, which will
enable shareholders to participate in larger unquoted transactions, which tend
to have a lower risk profile than smaller venture capital investments. The
majority of unquoted investments are structured in such a way as to give the
Fund downside protection with significant voting rights.
The Fund will also invest approximately 30% of its assets in a combination of
two managed funds: Electra Private Equity and Electra Active Management. These
funds enable further portfolio diversification.
Qualifying Investments
Qualifying companies tend to be small companies that have higher risk profiles
than larger well established companies. The Investment Manager seeks to reduce
the risk of investing in these by selecting companies that are well managed and
have a proven and sustainable business plan. Investments are also selected on
the basis of their potential to deliver long term capital growth. This often
entails building companies through organic growth and bolt on acquisitions. The
holding period for investment is typically five years after which time it would
be hoped to achieve a profitable exit.
Chairman's Statement
Overview
I am pleased to present the second annual report on your Company and confirm
continued good progress in both the growth of net assets and the investment in
qualifying companies. As at 30 September 2007 the net asset value per ordinary
share was 101.0p, which when combined with cumulative dividends paid,
represented a total return per ordinary share of 102.5p. This is an uplift of
8.5 % over the starting net asset value of the Fund and an increase of 1.7% in
the year. An interim dividend of 1.5p per ordinary share was paid to
shareholders on 7 August 2007.
The level of investment activity remains encouraging and the Board is confident
that the Fund is well positioned to meet the 70% investment test by 30 September
2008. The investment portfolio currently comprises investments in 18 qualifying
investments with an additional unquoted investment made after the year end. The
qualifying portfolio remains heavily weighted towards unquoted investments as
indicated in the Prospectus. The Fund benefits from co-investing alongside the
other two VCTs managed by Electra Quoted Management. In particular, by
co-investing, your Fund is able to invest in larger more profitable unquoted
companies where the risk profile is more attractive.
Dividend
The Board has declared an interim dividend of 1.0p per ordinary share, in
respect of the year to 30 September 2008, that will be paid on 14 March 2008 to
ordinary shareholders on the Register of Members at the close of business on 1
February 2008.
Portfolio Activity
In the period under review a further �8.7m was invested in qualifying companies
with additional commitments made to certain investments which are following a
buy and build strategy in consolidating sectors. More details of these are
provided in the Investment Manager's report. The portfolio is starting to become
well diversified by sector and business activity. A number of portfolio
companies have reported good initial trading results which is an encouraging
indication of further progress to come. In addition to the qualifying
investments the portfolio comprises investments in two funds, Electra Private
Equity and Electra Active Management. Electra Private Equity reported impressive
results with a net asset increase of 29.5% at its year end. The Company's cash
balance which is placed in sterling liquidity funds and bank accounts stands at
�15.6m.
Share Buybacks
During the period the Company acquired 19,187 shares for cancellation. This was
in line with the Company's stated buyback policy of buying back at a 10%
discount to the last published net asset value subject to a limit approved by
shareholders. Should any shareholder wish to sell their shares they should
contact the Investment Manager.
The Investment Manager
In 2007, the investment management team established a limited liability
partnership ("LLP") called Acuity Capital LLP, which is owned by members of the
management team. The team is in negotiations to acquire, from Electra Partners
Group, a majority interest in Electra Quoted Management, the Investment Manager
of the Company. The Board believes that this will be beneficial to shareholders
as it will enable the Investment Manager to incentivise existing employees and
recruit high calibre individuals to the team. Acuity Capital will maintain
close ties with the Electra Partners Group.
In order to reflect the formation of Acuity Capital LLP, the Board recommends to
shareholders that the name of your Fund be changed to Acuity VCT 3 Plc. A
resolution will be put to shareholders at the next AGM.
Shareholder Communication
Should shareholders have any general queries, they should contact the Investment
Manager by telephone or by email. In addition the Investment Manager's website
provides information on the Investment Manager and the Fund, together with
historical information on strategy and investments as well as the Company's
accounts.
Outlook
Shareholders will, I am sure, be aware of the current uncertainty in financial
markets which is expected to lead to some weakness in equity markets and
therefore AIM investments. However, the Fund has made a good early start with
the Investment Manager investing in a diversified range of companies with strong
growth potential. The Investment Manager reports a healthy deal flow and the
Board is therefore confident of meeting the required VCT qualification tests by
30 September 2008.
Stuart Stradling, Chairman
Investment Manager's Review
The investment objective is to invest 80% of the Company's assets in qualifying
investments. The majority of these will be in unquoted companies with a specific
focus on profitable established companies with good growth opportunities. In
particular the Investment Manager seeks to enhance the value of some of its
investments through a buy and build strategy. Investments will typically be
characterised as Management Buy Outs (MBOs), Buy-in Management Buy-outs (BIMBOs)
and expansion capital. In addition the Investment Manager continues to look for
interesting opportunities in the AIM market looking for a combination of under
priced companies with good growth prospects.
During the year the main portfolio uplifts were in two unquoted companies that
were increased in value in line with improving fundamentals; these were Gyro and
Munro Global. The only material valuation decreases were Worthington Nicholls,
which floated on AIM, and Defaqto. Despite having performed strongly post
flotation, Worthington Nicholls became a casualty of poor internal controls and
overtrading. We took some profits, however the shares have since fallen sharply
as confidence evaporated. Management changes have been implemented which should
enable confidence to be restored. A decrease in Defaqto's valuation was made
to reflect a change in its strategy which we have fully supported, given we
believe it will result in a better positioned and ultimately more valuable
company.
During the year the Fund invested in the following qualifying companies:
Gyro International is a specialist brand and marketing agency with a strong
business-to-business focus. It has a blue chip client list with customers such
as Oracle, Sun Microsystems and Sony. The company originally raised �2.5m to
fund the buy-out of one of the two founder partners. More recently the company
raised additional funds to finance three significant acquisitions and the
company is now rated as the leading B to B agency in the UK.
Factory Media specialises in action sports magazines in areas that include
surfing, snowboarding and BMX biking. The strategy is to build up a portfolio of
action sports titles and enhance the company's digital platform.
Zamano is a leading provider of mobile services in the UK, Australia and
Ireland. It enables business partners to deliver mobile content and
interactivity via 3G, SMS, MMS, WAP and IVR. It provides a highly scalable and
robust messaging platform, connecting into all UK, Irish and Australian
operators, a range of highly interactive mobile applications and powerful
reporting tools. We had followed the company as a potential unquoted investment
however the board eventually opted to float on AIM.
Emote Games is a specialist cross platform publisher of interactive gaming
content. Founder & CEO Morgan O'Rahilly is one of the gaming industry's most
respected executives, having previously been the CEO of Ifone, the UK's most
successful mobile games publisher. The video games industry is entering another
cycle of growth driven by new games hardware releases from Microsoft, Nintendo
and Sony. Within the industry, one of the fastest growing segments is networked
gaming, where players have the ability to play against each other remotely using
the internet and mobile networks.
Target is one of the UK's leading television distributors with an established
international infrastructure. The UK independent TV production sector has become
more attractive as recent legislative changes have increased the IP rights
available to independent producers. These changes have acted as a catalyst for
consolidation within the sector as companies have developed more diversified
rights portfolios and sought increased economies of scale.
Mount Engineering floated on AIM in 2007. It specialises in the manufacture and
supply of thread converting adaptors and reducers that are "Ex Certified", which
means that they have been certified for use in potentially explosive or
hazardous areas. The products provide a method of insulating and protecting
electrical wiring and installations in hazardous areas such as oil refineries
where a stray spark from an electrical installation could have dramatic
consequences.
Sport Media Group sells digital media content through mobile telephones via the
internet to mobile customers of major UK network operators and users of leading
UK internet key search engines. In 2007 the company acquired Sport Newspapers
which made strong commercial logic as it merged a content provider with a strong
digital distribution platform.
Acrobat Group is an established vehicle set up to acquire and exploit music
master rights. Master rights are created when a composition is recorded and are
usually assigned to the financier of the recording for the life of copyright
(typically 95 years). Owners of master rights, most often record companies, are
entitled to royalties from the sale of their recordings (via CD or digital
download) as well as clearance fees for the use of recordings in audio-visual
productions. They also derive revenues from licensing recordings for
exploitation by third parties.
The Fin Machine Company was a transaction completed after the year end through
Kingsway Generalist Limited. The company is a market leading manufacturer and
supplier of capital equipment used to manufacture heat exchangers in the
automotive industry. The company has shown good historic growth rates and has a
significant further opportunity in the air conditioning market. The transaction
was structured as a Buy-in Management Buy-out with the management team having a
significant equity holding.
Unaudited Portfolio Summary
Valuation Movement
Cost at Valuation at In year ended % of Portfolio
30 September 2007 30 September 2007 30 September 2007 by Value
�'000 �'000 �'000
Ten Largest Qualifying Investments
Munro Global Limited 1,615 2,083 468 10.06
Gyro International Limited 1,000 2,080 1,080 10.05
Factory Media Limited 1,925 1,925 - 9.30
Defaqto Group Limited 1,150 1,525 (667) 7.37
Target Entertainment Group Limited 1,000 1,000 - 4.83
Acrobat Group Limited 1,000 1,000 - 4.83
Zamano Plc 750 789 39 3.81
Mount Engineering Plc 759 716 (43) 3.46
Jelf Group Plc 250 562 137 2.71
Sport Media Group Plc 500 473 (27) 2.28
Other qualifying investments 1,945 1,474 (817) 7.12
11,894 13,627 170 65.82
Non-Qualifying Investments
Electra Private Equity Plc 5,151 6,636 1,304 32.05
Electra Active Management Plc 500 442 (27) 2.13
5,651 7,078 1,277 34.18
17,545 20,705 1,447 100.00
Other Assets
Liquidity Funds 14,075
Cash 1,550
Total 36,330
Ten Largest Qualifying Investments
Munro Global Limited Period from 11 August 2005 to
28 February 2006
Cost �1,615,000 �'m
Valuation �2,083,000 Sales 0.0
Basis of Valuation Earnings multiple Profit before tax 0.0
Equity held 24.79% Retained profit 0.0
Business Market research company Net assets 0.0
The company has changed its accounting reference date and the most recent set of
accounts are not yet available
Gyro International Limited Year ended October 2006
Cost �1,000,00 �'m
Valuation �2,080,000 Sales 24.8
Basis of Valuation Earnings multiple Profit before tax 1.5
Equity held 4.18% Retained profit 1.0
Business Business to business creative Net assets 5.8
agency
Factory Media Limited Period from 15 June to 31 2006
December
Cost �1,925,000 �'m
Valuation �1,925,000 Sales 0.6
Basis of Valuation Recent purchase price Loss before tax (0.1)
Equity held 24.99% Retained loss (0.1)
Business Sports publishing company Net assets 0.5
Defaqto Group Limited Year ended March 2007
Cost �1,150,000 �'m
Valuation �1,525,000 Sales 4.7
Basis of Valuation Earnings mulitple Loss before tax (6.2)
Equity held 8.54% Retained loss (6.2)
Business Financial product data Net liabilities (6.2)
provider
Target Entertainment Limited Year ended December 2006
Cost �1,000,000 �'m
Valuation �1,000,000 Sales 10.3
Basis of Valuation Recent purchase price Loss before tax (0.3)
Equity held 13.33% Retained loss (0.4)
Business Television distribution Net liabilities (1.8)
company
Target Entertainment Group Limited is the parent company of Target Entertainment
Limited and has not yet produced any annual accounts.
Acrobat Group Limited Year ended December 2006
Cost �1,000,000 �'m
Valuation �1,000,000 Sales 0.0
Basis of Valuation Recent purchase price Profit before tax 0.0
Equity held 21.20% Retained profit 0.0
Business Games, production, finance, Net assets 0.0
trying to buy master rights
The company was dormant during the period to 31 December 2006 and its most
recent set of accounts have yet to be published.
Zamano Plc Year ended December 2006
Cost �750,000 �'m
Valuation �789,000 Sales 9.3
Basis of Valuation Bid price Profit before tax 1.6
Equity held 2.72% Retained profit 1.4
Business Premium SMS mobile products Net assets 6.0
and services
Mount Engineering Plc
Cost �759,000 No audited accounts yet
produced
Valuation �716,00
Basis of Valuation Bid price
Equity held 4.44%
Business Specialist engineering
manufacturer and distributor
Jelf Group Plc Year ended September 2006
Cost �250,000 �'m
Valuation �562,000 Sales 25.1
Basis of Valuation Bid price Profit before tax 2.1
Equity held 0.92% Retained profit 1.2
Business Full service financial Net assets 16.3
consultancy
Sport Media Group Plc Year ended July 2007
Cost �500,000 �'m
Valuation �473,000 Sales 11.4
Basis of Valuation Bid price Profit before tax 5.3
Equity held 0.69% Retained profit 0.9
Business Distributor of adult content Net assets 4.8
via mobile phone and internet
Note:-
In many cases, a qualifying investment is made substantially in the form of loan
notes which both carry a high interest rate and are treated as debt for
statutory audit purposes. Shareholders should therefore be advised that often
the investee companies report both retained losses and net liabilities as a
result of the structure of the investment.
Equity held percentages are calculated on an undiluted basis.
Year ended financial figures of investee companies are derived from the latest
available financial statements of each investee company audited by respective
company auditors except Acrobat Group Ltd. The financial figures for these
companies which are exempt from filing audited accounts are derived from
unaudited accounts filed with Companies House.
Unaudited Income Statement
For the year ended For the period ended
30 September 2007 30 September 2006
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Realised gains on investments - 196 196 - - -
Unrealised gains on investments - 1,447 1,447 - 1,757 1,757
Income 1,440 - 1,440 668 - 668
1,440 1,643 3,083 668 1,757 2,425
Investment management fees (234) (701) (935) (115) (343) (458)
Other expenses (238) - (238) (307) - (307)
(472) (701) (1,173) (422) (343) (765)
Return on Ordinary Activities before Taxation 968 942 1,910 246 1,414 1,660
Tax on ordinary activities (170) 136 (34) - - -
Return on Ordinary Activities after Taxation 798 1,078 1,876 246 1,414 1,660
Basic and Diluted Return per Ordinary Share 2.3p 3.1p 5.4p 1.4p 7.9p 9.3p
The total column of this statement represents the Company's Income Statement,
prepared in accordance with UK GAAP. The revenue return and capital return
columns are supplementary to this and are prepared under guidance published by
the Association of Investment Companies. All revenue and capital items in the
above statement derive from continuing operations. No operations were acquired
or discontinued in the year. A Statement of Total Recognised Gains and Losses is
not required as all gains and losses of the Company have been reflected in the
above statement.
Unaudited Reconciliation of Movements in Shareholders' Funds
For the year ended For the period ended
30 September 2007 30 September 2006
�'000 �'000
Total Return on Ordinary Activities after Taxation 1,876 1,660
Ordinary shares issued - 35,089
Repurchase of ordinary shares (19) -
Preference shares issued - 50
Repurchase of preference shares - (50)
Dividend payment on ordinary shares (526) -
Share issue expenses charged to share premium account (714) (1,930)
Movements in Shareholders' Funds 617 34,819
Shareholders' Funds at start of Year 34,819 -
Shareholders' Funds at the end of the Year 35,436 34,819
Unaudited Balance Sheet
As at 30 September 2007 As at 30 September 2006
�'000 �'000 �'000 �'000
Fixed Assets
Investments held at fair value 20,705 10,683
Current Assets
Debtors 258 102
Other investments 14,075 24,275
Cash at bank 1,557 114
15,890 24,521
Current Liabilities
Creditors: amounts falling due within one
year 458 329
458 329
Net Current Assets 15,432 24,192
Total assets less current liabilities 36,137 34,875
Creditors: amounts falling due
after more than one year 701 56
Net Assets 35,436 34,819
Capital and Reserves
Called-up share capital 351 351
Share premium 32,007 32,808
Realised capital reserve (668) (343)
Unrealised capital reserve 3,160 1,757
Revenue reserve 586 246
Total Shareholders' Funds 35,436 34,819
Net Asset Value per Ordinary Share 101.0p 99.2p
As at 30 September 2007 As at 30 September 2006
Number of Shares in issue at end of the
year 35,069,648 35,088,835
Unaudited Cash Flow Statement
For the year ended For the period ended
30 September 2007 30 September 2006
�'000 �'000 �'000 �'000
Operating Activities
Investment income received 1,274 512
Bank deposit interest received 41 54
Investment management fees paid (871) (254)
Other cash payments (233) (182)
Net Cash Inflow from Operating Activities 211 130
Capital Expenditure and Financial
Investment
Purchases of investments (8,731) (8,926)
Sale of investments 352 -
Net Cash Outflow from Capital Expenditure
and Financial Investment (8,379) (8,926)
Equity Dividends Paid
(526) -
Cash Outflow before Financing
and Management of Liquid Resources (8,694) (8,796)
Management of Liquid Resources
Sales/(Purchases) of current asset
investments 10,200 (24,275)
Net Cash Inflow/(Outflow) from Management
of
Liquid Resources 10,200 (24,275)
Financing
Issue of shares - 35,089
Expenses of the issue of shares (88) (1,930)
Repurchase of shares (5) -
Issue of loan notes - 56
Net Cash (Outflow)/Inflow from Financing (93) 33,215
Increase in Cash for the Period 1,413 144
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
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