TIDMPAV
PENNINE AIM VCT PLC
REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 JANUARY 2009
FINANCIAL HIGHLIGHTS & HISTORIC SUMMARY
ORDINARY SHARES
Year Year
Ended Ended
31-Jan-09 31-Jan-08
Net asset value ("NAV") (per share) 33.6p 54.7p
Cumulative distributions paid since launch 88.1p 85.1p
Total return (NAV plus cumulative distributions 121.7p 139.8p
paid)
Distributions paid during the year 3.0p 3.0p
'D' SHARES
Year Year
Ended Ended
31-Jan-09 31-Jan-08
NAV (per share) 86.4p 93.1p
Cumulative distributions paid since 'D' Share 1.0p -
offer
Total return (NAV plus cumulative distributions 87.4p 93.1p
paid)
Distributions paid during the year 1.0p -
CHAIRMAN'S STATEMENT
I present the Report and Accounts for the year ended 31 January
2009. Market conditions have deteriorated further during the year,
having a significant negative effect on the performance of the
Ordinary Share pool.
Net Asset Value
The net asset value ("NAV") per Ordinary Share at the year-end stood
at 33.6p, a fall of 18.1p (or 33.1%) over the year after adjusting
for the dividend of 3.0p per share that was paid during the year.
The 'D' Shares continue to hold a significant portion of their funds
in fixed interest investments and structured products. Consequently
the fall in the NAV per 'D' Share was significantly less. At the
year-end it stood at 86.4p, a fall of 5.7p (or 6.1%) over the year
after adjusting for the dividend of 1.0p per share that was paid
during the year.
Venture capital investments
During the year, the Company made GBP376,000 of new venture capital
investments in the Ordinary Share pool and GBP463,000 in the 'D' Share
pool.
At the year end, the Ordinary Share portfolio comprised 41
investments which were valued at GBP3.0 million. The lack of market
confidence was demonstrated by the fact that only one of the Ordinary
share pool's quoted investments did not lose value over the year. The
portfolio generated unrealised losses of GBP2.3 million and realised
losses of GBP15,000 over the year.
At the year end, the 'D' Share portfolio comprised 11 investments
which were valued at GBP733,000. The portfolio generated unrealised
losses of GBP119,000 during the year.
Details of the Company's venture capital investments, including
additions, disposals and performance, are set out within the
Investment Manager's report and Review of Investments.
Listed fixed income and other investments
The Ordinary Share pool holds a non-qualifying portfolio which
includes a holding in two gilt edged stocks and holdings in four
hedge funds, into which GBP758,000 was invested during the year. The
portfolio had a value of GBP1.1 million at the year end and showed an
unrealised loss of GBP80,000.
The 'D' Share pool holds a non-qualifying portfolio comprising of two
gilt edged stocks and an investment in a FTSE index tracker, into
which GBP1.2 million was invested during the year, and was valued at
GBP1.7 million at the year end. The portfolio produced an unrealised
loss of GBP20,000 over the year.
Results and dividends
The total return on ordinary activities for the year was as follows:
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Ordinary Shares (3) (2,403) (2,406)
'D' Shares (2) (162) (164)
(5) (2,565) (2,570)
As a result of the falls in NAV over the last 12 months or so, the
Company does not now have sufficient reserves to enable it to be able
to pay a final dividend. In order to rectify this, the Company is
proposing to cancel its remaining Share Premium account and convert
it into a Special Reserve which will be distributable. The
cancellation of the share premium account requires Shareholder
approval, and then Court approval. Shareholder approval will be
sought by Resolution 6 at the forthcoming AGM. Assuming Shareholder
approval is received at the AGM, the Board will seek Court approval,
a process which may take several weeks, after which the Board will be
able to consider the resumption of the payment of dividends.
Share buybacks
The Company has in the past operated a policy of buying its own
shares for cancellation when they became available in the market. As
mentioned above the Company does not currently have sufficient
distributable reserves and is unable to make further market purchases
of its shares for the time being. Once the Share Premium
cancellation process is complete, the Board will consider resuming
share buybacks.
In order to give the Board flexibility to resume share buybacks in
due course, a special resolution is being put to Shareholders at the
forthcoming AGM to give the Company authority to make market purchase
of its shares.
The Company acquired an aggregate of 483,584 Ordinary Shares during
the year at an average price of 43.8p per Share, which was generally
a 10% discount to the latest NAV. These shares were subsequently
cancelled.
VCT Status
The Company continues to meet the requirements as set out in the VCT
regulations.
Annual General Meeting
The next AGM of the Company will be held at 159 New Bond Street,
London W1Y 9PA at 11.30 a.m. on 14 July 2009.
Two items of special business are being proposed at the meeting to
renew the authority to allow the Company to make market purchases of
the Company's shares and to cancel the Company's Share Premium
account.
Outlook
Conditions remain very difficult for your Company. The AIM market
is now very illiquid and investor confidence in small companies
remains abysmal.
Both share pools now have a reasonable level of exposure to a variety
of different investments including fixed interest investments, hedge
funds, structured products and unquoted businesses which own
substantial fixed assets. The Board feels that the prospects for a
strong recovery of the AIM market in the short term are remote. By
holding a more diversified portfolio the Company may be able to
stabilise its performance and start to develop a strategy to rebuild
shareholder value in the medium to long term.
Hugh Gillespie
Chairman
INVESTMENT MANAGER'S REPORT
We present an overview of the investment management activities for
the year ended 31 January 2009.
The last twelve months has been a challenging period for equity
markets and a particularly torrid time for the smaller companies
market. UK smaller companies share prices have been under pressure
since the autumn of 2007 when credit markets started to tighten in
response to defaults in the US sub prime market. A readjustment of
risk throughout 2008 saw investors taking a more cautious stance
towards smaller companies. The worst falls in share prices occurred
in the second half of the year as the financial crisis intensified
with the effects of the credit crunch spreading to the wider economy,
resulting in the UK economy going into recession in the fourth
quarter. It is not unusual at this stage of the economic cycle to
see investors shy away from small companies. The falls have been
exacerbated by poor liquidity and compounded by forced sellers as
smaller company funds such as unit trusts experienced redemptions,
necessitating sales of their underlying investments into an already
weak AIM share market.
For the record, the FTSE 100 shares index showed a fall over the year
of 29.4%, whilst the FTSE Small Cap Index fell 42.9% and the AIM
Index declined 58.2%.
Pennine AIM VCT made a number of new and some follow-on investments
over the year.
IS Pharma plc is a specialist pharmaceutical and medical devices
company focussed on hospital critical care, neurology and oncology.
In April 2008, the company raised GBP10 million to acquire Speciality
European Pharma International. Pennine AIM VCT D share invested
GBP100,000 at 77p a share.
Tristel plc is an infection and contamination control business
providing products based on its patented chlorine dioxide chemistry.
In March 2008 the company raised GBP1 million to assist with its
continuing product development programme and for working capital.
Pennine AIM VCT D Share invested GBP61,500 at 41p a share.
FSG Security plc provides manned guarding services to corporate
customers. In 2004 Pennine AIM VCT made a small initial investment
of GBP10,000 with a further investment of GBP90,000 in 2006. In May 2008
Pennine AIM VCT invested an additional GBP100,000 at 25p a share.
These monies helped with the funding of the acquisition of Guardian
Facilities, a manned guarding business based in Worthing.
Hill Station plc is an ice cream manufacturer based in Cwmbran.
Pennine AIM VCT made its initial investment of GBP250,000 in 2005 and
has supported the company on three subsequent occasions with equity
and loan stock totalling nearly GBP275,000. By late summer 2008 it was
clear that the company had not solved its difficulties and would not
survive the winter months without a further injection of cash. Given
the fragile state of the business, Pennine AIM VCT together with
other investors declined to support the rescue plan and the company
was placed into administration in early October 2008.
Keycom plc is a communications service provider to the UK's tertiary
education sector. In February 2008, in order to secure funding from
new investors, Pennine AIM VCT's loan and GBP40,419 of accrued interest
was converted into shares. Since the conversion, the company has
raised GBP1.6 million in February 2008, GBP580,000 in June and a further
GBP4.4 million in September 2008 to complete two acquisitions.
Forward Media Limited operates local commercial radio stations.
Pennine AIM VCT provided GBP16,550 to replace working capital which had
previously come from other sources.
Hoole Hall Country Club Limited is a country club hotel and spa with
conferencing and banqueting facilities located in Chester. In 2007
Pennine AIM VCT invested GBP200,000 and the D share invested GBP50,000 to
help fund the acquisition and refurbishment of the site. In May 2008
your Company's Ordinary share pool and the D share pool each put
GBP11,000 of equity and GBP39,000 by way of 4.15% convertible loan notes,
into a separate company, Hoole Hall Spa and Leisure Limited to fund
the construction of a new health club and spa at the site.
The Thames Club Limited owns a health and fitness club based in
Staines. This is an unquoted investment in which Pennine AIM VCT D
Share invested GBP100,000 to help fund the purchase.
The top ten holdings in the Ordinary share pool now account for 53%
of the value of the portfolio. Connaught plc remains the largest
holding in the portfolio despite our selling, at a substantial
profit, GBP230,000 worth of shares. The company has continued to gain
market share in a fragmented but buoyant social housing servicing
industry. They have also benefited from their presence in the
compliance market where local authorities are increasingly looking to
consolidate into fewer service providers.
Synergy Health plc moved to the Official List in the summer of 2008.
Shortly afterwards it issued a disappointing trading update due to
some short term cost pressures. The company has a strong business
model, particularly in the area of decontamination and we expect the
company to remain an attractive investment. Spice plc also moved
from the AIM market to the Official List (main market),
Cadbury House Limited has traded well and to budget whilst the
building works and refurbishment at Hoole Hall have gone well with
planning permission granted for a further 30 bedrooms to bring the
total to 140 bedrooms. The hotel has now been badged DoubleTree® by
Hilton which will allow the company to benefit from the brand
recognition and Hilton's powerful internet reservation system.
A partial sale was undertaken in Aero Inventory plc to raise GBP76,000,
realising a profit of GBP59,000. Although the company has long term
contracts the share price has fallen back on the expectation that the
global economic downturn will result in fewer aircraft needing to be
serviced. Despite being heavily focused on the financial sector FDM
Group plc, with its specialist IT personnel, has since the date of
Pennine AIM VCT's year end reported a strong set of profit figures
with substantial cash on the balance sheet.
In August 2007 Clerkenwell Ventures plc raised GBP26 million to add to
the GBP4 million which had been raised at their original flotation on
AIM in 2004. Its strategy had been to acquire restaurant businesses.
Although a number of potential acquisitions had been considered, no
businesses had been acquired due to inflated restaurant valuations
which did not recognise the poor outlook for consumer spending. As a
result of not investing the money raised, the investment became non
qualifying for VCT investment. Since Pennine AIM VCT's year end,
Clerkenwell has returned to shareholders GBP27 million of its near GBP30
million of cash. This has resulted in an increase in the valuation
for the year as perversely the shares had been trading at a
substantial discount to cash. Ludorum plc has successfully delivered
to the BBC its first series of Chuggington, an animated weekday
programme of train adventures for children.
Whilst some of the falls in the share prices have been due to a
general severe mark down in valuations for smaller companies, other
falls have been due to investor concerns. This has particularly been
the case for companies with relatively high debt positions, often
faced with the prospect of having to renegotiate with a reluctant
bank looking to rebuild its own lending margins through tougher
lending terms. This coupled with the general poor economic outlook
has hit consumer related companies, with falls in The Clapham House
Group plc, Pubs and Bars plc and Media Square plc. For Media Square
plc any benefits gained from the reorganisation plan currently being
executed are being more than offset by lower advertising spend.
Despite contract wins and directors' share purchases, the share price
of AT Communications plc has remained under pressure due to
relatively high debt levels. A more positive statement from the
company announcing a fall in borrowing and an predicting a further
reduction in 2009 has seen a small improvement in the share price
since Pennine AIM VCT's year end.
The downturn in construction work particularly in the Middle East
coupled with an increased pension fund deficit due to falling stock
markets saw Interserve lose value over the period. The company does
have a strong asset backing from its Private Finance Initiative (PFI)
holdings and a strong pipeline of projects. Neutrahealth saw its
share price fall following a profits warning due to pressure on sales
of their vitamins, minerals and supplements business and increase
costs. Their largest shareholder, Elder Pharmaceuticals has stated
that it is considering its options concerning the company that may or
may not involve an offer.
Waterline, the kitchen business, suffered from lower demand,
undertook a cost cutting exercise, and delisted from AIM. Around a
third of all companies on AIM have a market capitalisation of less
than GBP5 million. With profits under pressure and one of the primary
reasons for being on AIM, that of being able to access funding from
potential investors, not currently available, we are seeing an
increasing number of companies considering delisting and saving the
costs of being quoted.
The D share issue has invested slowly with only GBP311,500 invested
into four VCT qualifying investments over the year. Falling asset
prices and company valuations has led us to pursue a cautious
investment programme. The cash has been profitably invested in very
short dated Gilts. The Barclays Bank FTSE 155% structured product
shows a fall of only 5% despite the near 30% fall of the FTSE 100.
The capital is protected at 100p a share and will be repaid in
February 2012.
Outlook
The economic newsflow continues to be poor with company profits under
pressure. For many companies, expansion plans are on hold as they
look to weather this downturn. Companies with leveraged balance
sheets are looking to reduce debt through the conservation of cash,
meaning possible dividend cuts, and where possible, fund raising from
investors, although for most smaller companies there is little
investor demand. It is though worth noting an increasing number of
director share purchases in their own companies. This is perhaps a
sign that the depressed valuations of smaller companies reflect a
great deal of pessimism and the confirmation of the real value they
offer for the patient investor. Smaller companies may remain
friendless for some time but, when credit markets ease, trade buyers
may well appear should share prices not start to pre-empt a turn for
the better in the economic cycle.
Rathbone Investment Management Limited
REVIEW OF INVESTMENTS
Portfolio of investments
The following investments, all of which are incorporated in England
and Wales, were held at 31 January 2009:
Ordinary Share Pool
Valuation
movement % of
Cost Valuation in year portfolio
GBP'000 GBP'000 GBP'000 by value
Top ten venture capital
investments
(by value)
Connaught plc *** 40 546 (19) 12.6%
Spice plc *** 249 354 (39) 8.1%
Cadbury House Limited * 289 289 - 6.6%
Hoole Hall Country Club 200 200 - 4.6%
Holdings Limited *
Synergy Health plc *** 145 195 (123) 4.5%
Aero Inventory plc 230 193 (209) 4.4%
FDM Group plc 200 192 (85) 4.4%
Clerkenwell Ventures plc 176 141 23 3.2%
Interserve plc *** 101 118 (133) 2.7%
Supporta plc 302 93 (80) 2.1%
1,932 2,321 (665) 53.2%
Other venture capital
investments
RFTRAQ Limited * 167 68 (67) 1.5%
Ludorum plc 65 66 1 1.5%
AT Communications plc 222 64 (106) 1.5%
Straight plc 179 56 (27) 1.3%
Neutrahealth plc 216 51 (108) 1.2%
Hoole Hall Spa and Leisure 50 50 - 1.2%
Limited *
Huveaux plc 145 41 (29) 0.9%
Sanastro plc * 200 35 (34) 0.8%
The Clapham House Group plc 42 33 (53) 0.8%
Quadnetics Group plc 100 33 (42) 0.8%
Forest Support Services plc 90 32 (18) 0.7%
Keycom plc ** 236 30 (50) 0.7%
Colliers CRE plc 193 26 (49) 0.6%
FSG Security plc ** 100 19 (51) 0.4%
Pubs 'n' Bars plc 322 19 (145) 0.4%
1st Dental Laboratories plc 100 17 (24) 0.4%
Carecapital plc 100 17 (49) 0.4%
Forward Media Limited * 389 17 (67) 0.4%
Media Square plc 242 16 (96) 0.4%
Daniel Stewart Securities plc 61 9 (22) 0.2%
@UK plc 300 6 (25) 0.1%
Waterline plc * 244 5 (77) 0.1%
The Real Good Food Company plc 91 1 (9) -
Cellcast plc 194 1 (6) -
Chariot (UK) plc + 125 - - -
Cytomyx Holdings plc + 200 - - -
Dipford Group plc + 245 - (39) -
Hill Station plc + 525 - (270) -
Maverick Entertainment Group 150 - (102) -
plc +
Real Affinity plc + 180 - - -
The Longmead Group plc + 254 - (32) -
5,727 712 (1,596) 16.3%
Listed fixed income securities
Treasury 4% Stock 07/03/09 346 349 3 8.0%
Treasury 8% Stock 2009 342 345 3 8.0%
688 694 6 16.0%
Other investments
Bluecrest Allblue Fund LD ORD 183 202 10 4.7%
NPV
Goldman Sachs Dynamic Opp. LD 182 122 (75) 2.8%
NPV
Barlcays Bank plc GAM Diversity 108 93 (13) 2.1%
Tracker
Signet Global Fixed Inc 20 12 (8) 0.3%
Strategy LD NPV
493 429 (86) 9.9%
Total investments 8,840 4,156 (2,341) 95.4%
Cash at bank and in hand 199 4.6%
4,355 100.0%
'D' Share pool
Valuation
movement % of
Cost Valuation in year portfolio by
GBP'000 GBP'000 GBP'000 value
Top ten venture capital
investments
(by value)
Animalcare Group plc 101 137 35 5.7%
Cadbury House Limited * 100 100 - 4.1%
The Thames Club Limited * 100 100 - 4.1%
IS Pharma plc 100 83 (17) 3.4%
Clerkenwell Ventures plc 85 68 11 2.8%
Tristel plc 63 55 (8) 2.3%
Hoole Hall Country Club 50 50 - 2.1%
Holdings Limited *
Hoole Hall Spa and Leisure 50 50 - 2.1%
Limited *
Ludorum plc 35 36 1 1.5%
Plastics Capital plc 100 30 (65) 1.2%
784 709 (43) 29.3%
Other venture capital
investments
FSG Security plc 100 24 (76) 1.0%
Listed fixed income
securities
Treasury 4% Stock 07/03/09 593 599 5 24.7%
Treasury 8% Stock 2009 589 594 5 24.5%
1,182 1,193 10 49.2%
Protected Plan
Barclays Bank FTSE 155% 531 494 (30) 20.3%
16/03/2012
Total investments 2,597 2,420 (139) 99.8%
Cash at bank and in hand 7 0.2%
2,427 100.0%
All venture capital investments are listed on AIM unless otherwise
stated
* Unlisted ** Quoted on the
PLUS market *** Quoted on London Stock Exchange full list
+ In administration
Investment Movements for the year ended 31 January 2009
ADDITIONS Ordinary
Share 'D' Share
Pool Pool Total
GBP'000 GBP'000 GBP'000
Investments in Secondary AIM/PLUS Market
Issues
IS Pharma plc - 101 101
Tristel plc - 62 62
- 163 163
Follow on Investments
FSG Security plc - 100 100
Hill Station plc 67 - 67
Keycom plc 41 - 41
108 100 208
Unlisted investments
Forward Media Limited 16 - 16
Hoole Hall Spa and Leisure Limited 50 50 100
The Thames Club Limited - 100 100
Sundry investments 2 - 2
68 150 218
Restructuring
Hoole Hall Country Club Holdings Limited 200 50 250
Listed fixed income securities
Treasury 4% Stock 07/03/2009 346 593 939
Treasury 8% Stock 2009 342 589 931
688 1,182 1,870
Other quoted investments
Bluecrest Allblue Fund LD ORD NPV 25 - 25
Goldman Sachs Dynamic Opp. LD NPV 25 - 25
Signet Global Fixed Inc Strategy LD NPV 20 - 20
70 - 70
Total additions 1,134 1,645 2,779
DISPOSALS Profit/
MV at (loss) Realised
Cost 01/02/08* Proceeds vs cost gain/(loss)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Ordinary Share Pool
Restructuring
Hoole Hall Country Club 200 200 200 - -
Limited
Full disposals
Payzone plc 41 23 3 (38) (20)
Partial disposals
Aero Inventory 17 76 76 59 -
Connaught plc 17 224 230 213 6
Daniel Stewart 11 7 6 (5) (1)
Securities plc
Liquidations
Disperse Group plc 250 - - (250) -
Shopcreator Limited 250 - - (250) -
Listed fixed income
investments
Treasury 5% Stock 2008 1,437 1,437 1,437 - -
2,223 1,967 1,952 (271) (15)
'D' Share Pool
Restructuring
Hoole Hall Country Club 50 50 50 - -
Limited
Listed fixed income
investments
Treasury 5% Stock 2008 1,645 1,645 1,645 - -
1,695 1,695 1,695 - -
Total disposals 3,918 3,662 3,647 (271) (15)
* Adjusted for purchases in the year
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report, the
Directors Remuneration Report, and the financial statements in
accordance with applicable law and regulations.
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). 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 profit or loss of the Company for that period. In
preparing those financial statements, the Directors are required to:
* select suitable accounting policies and then apply
them consistently;
* make judgements and estimates that are reasonable and
prudent;
* state whether 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 also required by the Disclosure and Transparency
Rules of the Financial Services Authority to include a management
report containing a fair review of the business and a description of
the principal risks and uncertainties facing the company.
The Directors are responsible for keeping proper accounting records
which disclose with reasonable accuracy at any time the financial
position of the Company and to enable them to ensure that the
financial statements, and the Directors Remuneration Report, comply
with the requirements of the Companies Act 1985. 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.
Directors' statement pursuant to the Disclosure and Transparency
Rules
Each of the Directors confirms that, to the best of each person's
knowledge:
* the financial statements, prepared in accordance with United
Kingdom Generally Accepted Accounting Practice, give a true and
fair view of the assets, liabilities, financial position and loss
of the Company; and
* the Directors' Report contained in the Annual Report
includes a fair review of the development and performance of the
business and the position of the company together with a
description of the principal risks and uncertainties that it faces.
Statement as to disclosure of information to Auditors
The Directors in office at the date of the report have confirmed
that, as far as they are aware, there is no relevant audit
information of which the Auditors are unaware. Each of the Directors
have 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 Auditors.
By Order of the Board
Grant Whitehouse
Kings Scholars House
230 Vauxhall Bridge Road
London SW1V 1AU
INCOME STATEMENT
for the year ended 31 January 2009
Company position
2009 2008
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 234 - 234 339 - 339
Losses on investments - (2,495) (2,495) - (1,352) (1,352)
234 (2,495) (2,261) 339 (1,352) (1,013)
Investment management (22) (68) (90) (49) (147) (196)
fees
Other expenses (216) (3) (219) (204) (10) (214)
Return on ordinary
activities (4) (2,566) (2,570) 86 (1,509) (1,423)
before tax
Tax on ordinary (1) 1 - (9) 9 -
activities
Return attributable
to equity (5) (2,565) (2,570) 77 (1,500) (1,423)
Shareholders
Basic and diluted
return per - (18.0p) (18.0p) 0.3p (10.2p) (9.9p)
Ordinary Share
Basic and diluted
return per (0.1p) (5.7p) (5.8p) 1.5p (3.0p) (1.5p)
'D' Share
Split as:
Ordinary Shares
2009 2008
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 162 - 162 233 - 233
Losses on investments - (2,356) (2,356) - (1,303) (1,303)
162 (2,356) (2,194) 233 (1,303) (1,070)
Investment management (15) (46) (61) (38) (115) (153)
fees
Other expenses (150) (1) (151) (156) (5) (161)
Return on ordinary
activities (3) (2,403) (2,406) 39 (1,423) (1,384)
before tax
Tax on ordinary - - - - - -
activities
Return attributable
to equity (3) (2,403) (2,406) 39 (1,423) (1,384)
Shareholders
'D' Shares
2009 2008
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 72 - 72 106 - 106
Losses on investments - (139) (139) - (49) (49)
72 (139) (67) 106 (49) 57
Investment management (7) (22) (29) (11) (32) (43)
fees
Other expenses (66) (2) (68) (48) (5) (53)
Return on ordinary
activities (1) (163) (164) 47 (86) (39)
before tax
Tax on ordinary (1) 1 - (9) 9 -
activities
Return attributable to
equity (2) (162) (164) 38 (77) (39)
Shareholders
The revenue and capital movements in the year for the Ordinary Shares
and 'D' Shares relate to continuing operations. The total column
within the Income Statement represents the profit and loss account of
the Company.
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.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 January 2009
2009 2008
Ordinary 'D' Ordinary 'D'
Shares Shares Total Shares Shares Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening Shareholders' 7,422 2,641 10,063 9,627 - 9,627
funds
Proceeds from share - - - - 2,836 2,836
issue
Share issue costs - - - - (156) (156)
Purchase of own (213) - (213) (401) - (401)
shares
Total recognised
losses (2,406) (164) (2,570) (1,384) (39) (1,423)
for the year
Distributions paid (400) (28) (428) (420) - (420)
Closing Shareholders' 4,403 2,449 6,852 7,422 2,641 10,063
funds
BALANCE SHEET
as at 31 January 2009
2009 2008
Ordinary 'D' Ordinary 'D'
Shares Shares Total Shares Shares Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fixed assets
Investments 4,156 2,420 6,576 7,331 2,608 9,939
Current assets
Debtors 76 40 116 124 37 161
Cash at bank and in 199 12 211 28 22 50
hand
275 52 327 152 59 211
Creditors: amounts
falling (28) (23) (51) (61) (26) (87)
due within one
year
Net current assets 247 29 276 91 33 124
Net assets 4,403 2,449 6,852 7,422 2,641 10,063
Capital and reserves
Called up share 1,308 284 1,592 1,357 284 1,641
capital
Capital redemption 299 - 299 250 - 250
reserve
Special reserve - 2,396 2,396 - - -
Share premium account 4,984 - 4,984 4,984 2,396 7,380
Capital reserve - 1,786 (62) 1,724 2,471 (39) 2,432
realised
Investment holding (4,684) (177) (4,861) (2,600) (38) (2,638)
losses
Revenue reserve (478) 8 (470) (441) 38 (403)
Merger reserve 1,188 - 1,188 1,401 - 1,401
Total equity
Shareholders' 4,403 2,449 6,852 7,422 2,641 10,063
funds
Basic and diluted net
asset 33.6p 86.4p 54.7p 93.1p
value per Share
CASH FLOW STATEMENT
for the year ended 31 January 2009
2009 2008
Ordinary 'D' Ordinary 'D'
Shares Shares Total Shares Shares Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net cash outflow
from (39) (32) (71) (165) (1) (166)
operating
activities
Capital expenditure
Purchase of (1,133) (1,646) (2,779) (4,529) (4,782) (9,311)
investments
Disposal of 1,951 1,696 3,647 4,773 2,125 6,898
investments
Net cash
inflow/(outflow) 818 50 868 244 (2,657) (2,413)
from capital
expenditure
Equity (400) (28) (428) (420) - (420)
distributions paid
Net cash inflow/
(outflow) 379 (10) 369 (341) (2,658) (2,999)
before financing
Financing
Proceeds from share - - - (82) 2,836 2,754
issue
Share issue costs - - - - (156) (156)
Purchase of own (208) - (208) (449) - (449)
shares
Net cash
(outflow)/inflow (208) - (208) (531) 2,680 2,149
from financing
Increase/(decrease)
in cash 171 (10) 161 (872) 22 (850)
NOTES TO THE ACCOUNTS
for the year ended 31 January 2009
1. Accounting policies
Basis of accounting
The Company has prepared its financial statements under UK Generally
Accepted Accounting Practice ("UK GAAP") 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 ("FRS")
issued by the Accounting Standards Board when required. No new
standards were issued for implementation for the year under review.
The Association of Investment Companies issued a new SORP in January
2009 which has been adopted for these financial statements. No
comparative restatements have been required as a result of the
implementation of the new SORP.
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 FRS26.
Listed fixed income investments, hedge funds, investments quoted on
AIM and those traded on the PLUS Market are measured using bid prices
in accordance with the IPEV.
In respect of unlisted instruments, fair value is established by
using the IPEV. 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;
* Earnings multiple;
* Net assets;
* Discounted cash flows or earnings (of 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 or liquidation
the loss on the investment, although not physically disposed of, is
treated as being realised.
Gains and losses arising from changes in fair value are included in
the income statement as a capital item and transaction costs on
acquisition or disposal of the investment are expensed.
It is not the Company's policy to exercise either significant or
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.
Income
Dividend income from investments is recognised when the Shareholders'
rights to receive payment has 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.
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 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 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 is recognised on a
non-discounted basis.
Other debtors and other creditors
Other debtors (including accrued income) and other creditors are
initially recognised at fair value and subsequently measured at
amortised cost using the effective interest method.
Share issue costs
Share issue costs have been deducted from the share premium account.
2. Return per Share
Ordinary 'D'
Shares Shares
Return per Share based on:
Net revenue loss for the financial year 3 2
(GBP'000)
Weighted average number of Shares in issue 13,322,120 2,836,269
Capital return per Share based on:
Net capital loss for the financial year 2,403 162
(GBP'000)
Weighted average number of Shares in issue 13,322,120 2,836,269
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on return per share class in
issue. The return per share disclosed therefore represents both
basic and diluted return per share class in issue.
3. Net asset value per Share
2009 2008
Shares in issue Net asset value Net asset value
2009 2008 Pence GBP'000 Pence GBP'000
per per
Share Share
Ordinary Shares 13,086,372 13,569,956 33.6p 4,403 54.7p 7,422
'D' Shares 2,836,269 2,836,269 86.4p 2,449 93.1p 2,641
6,852 10,063
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 financial risks
The principle financial risks are as follows:
Market risks
The key market risks to which the Company is exposed are interest
rate risk and market price risk.
Interest rate risk
The Company receives interest on cash deposits at a rate agreed with
its banker, while investments in loan stock and fixed interest
investments predominately attract interest at fixed rates. A summary
of the interest rate profile of the Company's investments is shown in
Note 17. As the Company must comply with the VCT regulations,
increases in interest rates could lead to a potential breach of these
regulations as the proportion of the Company's income from sources
other than shares and securities could exceed the required level.
The Company therefore monitors the level of income received from
fixed, floating and non interest bearing assets to ensure that the
regulations are not breached. The Company has reviewed the financial
impact of the interest rate risk, with 1.0% change in base rate (i.e.
reducing base rate to nil) changing income and the return for the
year by GBP10,000 equivalent to an 11.3% impact on overall income
receivable by the Company. Such a change would have an immaterial
impact on Net Asset Value.
Market price risk
Market price risk arises from uncertainty about the future prices of
financial instruments held in accordance with the Company's
investment objectives. It represents the potential loss that the
Company might suffer through holding market positions in the face of
market movements. At 31 January 2009, the net unrealised loss on the
quoted portfolios (Full list, AIM-quoted, PLUS-quoted and
non-qualifying investments) was GBP2.6 million (2008: GBP1.5 million).
The investments the Company holds are, in comparison to the Main
Market, thinly traded (due to being traded on the AIM and Plus
Markets) and, as such, the prices are more volatile than those of
more widely traded, full list, securities. In addition, the ability
of the Company to realise the investments at their carrying value may
at times not be possible if there are no willing purchasers. The
ability of the Company to purchase or sell investments is also
constrained by the requirements set down for VCTs.
The Board considers each investment purchase to ensure that an
acquisition will enable the Company to continue to have an
appropriate spread of market risk and that an appropriate risk reward
profile is maintained.
It is not the Company's policy to use derivative instruments to
mitigate market risk, as the Board believes that the effectiveness of
such instruments does not justify the cost involved.
Credit risk
Credit risk is the risk that the counterparty to a financial
instrument is unable to discharge a commitment to the Company made
under that instrument. Credit risk in respect of investments in
listed fixed interest investments is minimised by investing in UK
Government Stocks.
Investments in loan stocks comprise a fundamental part of the
Company's venture capital investments, therefore credit risk in
respect of these assets is managed within the main investment
management procedures.
Credit risk in respect of interest, dividends and other receivables
are predominantly covered within the investment management
procedures.
Liquidity risk
Liquidity risk is the risk that the Company encounters difficulties
in meeting obligations associated with its financial liabilities. As
the Company only ever has a very low level of creditors and has no
borrowings, the Board believes that the Company's exposure to
liquidity risk is minimal.
5. Related party transactions
Nicholas Lewis is a director of Downing Management Services Limited
("DMS") who act as Administration Manager to the Company. During the
year GBP55,000 (2008: GBP79,000) was due to DMS in respect of these
services of which GBP7,000 remained outstanding at the year end (2008:
GBP6,000). GBP34,000 (2008: GBP4,000) was repayable to the Company by DMS
in respect of the expenses cap arising during the year.
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 year ended 31 January
2009, but has been extracted from the statutory financial statements
for the year ended 31 January 2009, which were approved by the Board
of Directors on 28 May 2009 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 s 498(2) and (3) of the Companies Act 2006.
The statutory accounts for the year ended 31 January 2008 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 S237(2) or (3) of the
Companies Act 1985.
A copy of the full annual report and financial statements for the
year ended 31 January 2009 will be printed and posted to shareholders
shortly. Copies will also be available to the public at the
registered office of the Company at Kings Scholars House, 230
Vauxhall Bridge Road, London SW1V 1AU and will be available for
download from www.downing.co.uk.
=--END OF MESSAGE---
This announcement was originally distributed by Hugin. The issuer is
solely responsible for the content of this announcement.
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