TIDMDPV6
Downing Planned Exit VCT 6 plc
Final results for the year ended 31 January 2014
31 Jan 31 Jan
Performance summary 2014 2013
Pence Pence
Net asset value per share 63.10 68.20
Cumulative distributions per share 13.75 9.75
Total return per share 76.85 77.95
CHAIRMAN'S STATEMENT
Introduction
I present the Company's Annual Report and Accounts for the year ended 31
January 2014.
Following the Share Realisation and Reinvestment Programme ("SRRP") that
completed in 2013, the Board has managed the Company with two groups of
shareholders in mind; those shareholders that have effectively committed
to stay invested in the Company until at least 2017 and those that wish
to exit at the earliest opportunity ("Exiting Shareholders"). During the
year, there were a number of investment realisations which allowed the
Company to undertake its first tender offer to return funds to Exiting
Shareholders.
Net asset value and results
The net asset value per Ordinary Share ("NAV") at 31 January 2014 stood
at 63.1p. This represents a small decrease of 1.1p per share (1.6%) over
the year (after adjusting for the dividends of 4.0p per share paid
during the year and based on shares in issue at the year end).
The loss on activities after taxation for the year was GBP66,000 (2013:
GBP610,000) comprising a revenue surplus of GBP5,000 (2013: GBP21,000)
and a capital loss of GBP71,000 (2013: GBP631,000).
Portfolio activity and investment valuations
During the year, the Company achieved four main investment realisations,
generating proceeds of GBP2.2 million and realised gains of GBP124,000.
In respect of the remaining portfolio, the Board undertook a review of
the investments at the year end and made two valuation adjustments. The
prospects of a recovery of value from Coast Constructors Limited appears
to be fading and the Board decided it prudent to make a full provision
of GBP125,000 against the investment. The other adjustment was a
provision of GBP70,000 against the investment in The Thames Club Limited,
where progress has continued to be slow and the business suffered
further disruption from flooding at the start of 2014. Net unrealised
losses therefore stood at GBP195,000 for the year.
Dividends
In line with the intention set out in the documentation issued with the
SRRP, a final dividend of 4.0p per share is proposed to be paid on 25
July 2014 to Shareholders on the register at the close of business on 20
June 2014.
Tender Offer
Using the proceeds from the realisations noted above, the Company
launched a tender offer in December in order to return funds to those
Shareholders seeking to exit from their investment at the earliest
opportunity.
The tender offer was fully subscribed with 3,087,899 shares being
acquired at a price of 63.82p per share and all applications being
fulfilled in full.
The Board is conscious that some Shareholders that had been expected to
tender shares (by virtue of not participating in the SRRP) did not do
so. The Board will therefore give consideration to undertaking a further
tender offer in due course when further realisations have been achieved.
The Board will also consider undertaking a small level of share buybacks
in the market, subject to the Company continuing to hold a satisfactory
level of liquid funds. The Board anticipates that any such purchases
will, subject to Listing Rules, be undertaken at a small discount to net
asset value.
Annual General Meeting
The Company's seventh Annual General Meeting ("AGM") will be held at
Downing LLP, Fifth Floor, Ergon House, Horseferry Road, London, SW1P 2AL
at 11.00 a.m. on 23 July 2014.
One item of special business is proposed at the AGM in respect of the
authority to buy in shares as noted above.
Outlook
The Company now holds a portfolio with much of the value concentrated in
the investments in Hoole Hall and Cadbury House. The underlying
businesses of these investments are performing satisfactorily, although
the market for these types of assets currently remains reasonably
limited. As the general economy recovers, we may see the market
strengthen and provide the prospect of some capital growth before an
exit is sought.
Following the tender offer, the Company now has net assets of less than
GBP4 million. As the size of the VCT decreases further, the burden of
the fixed running costs will increase. The Manager currently provides a
cap on running costs at 2.9% of net assets per annum so Shareholders
have some protection against costs increasing excessively. However, the
Board believes that a merger with one or more other VCTs may provide
some healthy benefits to Shareholders and is investigating what options
might be available. Should there be any firm news of any such proposals,
I will communicate with Shareholders at that time.
Hugh Gillespie
Chairman
INVESTMENT MANAGER'S REPORT
Introduction
The Company has worked through the year to realise investments in order
to return funds to those Shareholders that currently wish to exit.
Reasonable progress has been made to this end although further
realisations are being sought. A fair proportion of remaining portfolio
is expected to be held longer term in respect of those Shareholders that
participated in the Share Realisation and Reinvestment Scheme who are
effectively committed to hold their investment until at least 2017.
Investment activity
The Company began the year with GBP5.3m of investments and ended the
year with GBP3.2m spread across a portfolio of 11 investments. During
the year, the Company made no new investments and generated divestment
proceeds of GBP2.2m. One investment underwent a reorganisation with
Moebius Two Limited effectively taking over the activities of Crossco
(1135) Limited, generating proceeds of GBP793,000 for the Company as
part of the transaction.
The portfolio returned income of GBP242,000 (2013: GBP265,000) in the
year and a net revenue return of GBP5,000 (2013: GBP21,000) after
expenses and tax; (or 0.1p) return per share. This return was reduced by
a GBP71,000 (2013: GBP631,000) capital loss (or 0.9p per share) owing to
the decrease in value of two investments whose performance was below
expectations. The resulting total loss of 0.8p per share (2013: 6.9p)
for the year (based on average shares in issue during the year).
Portfolio valuation
Whilst the majority of the portfolio performed in line with expectations,
the net GBP195,000 valuation reduction in the year arose on two
investments: GBP125,000 in Coast Constructors Limited and GBP70,000 in
The Thames Club Limited.
A further decrease in value of GBP125,000 in Coast Constructors Limited
was made during the year. Coast Constructors has completed the building
of a hotel and apartment complex near Salcombe in South Devon. The
construction was plagued by delays and significant cost overruns,
resulting in the original management team being removed from the project
and replaced with a more experienced developer. Whilst sales of the
units of property have now begun, it is unlikely that any significant
recovery will be made as third party funding has had to be brought in
which ranks ahead of this investment. Although there is still the
possibility of some recovery, the value of the investment has prudently
been reduced to nil.
The investment in The Thames Club Limited was written down by GBP70,000
at the year end following disappointing 2013 trading results which were
below budget. A new management team was appointed last year and has been
working hard to increase membership numbers at the club whilst keeping a
tight control on costs. Whilst the business is considerably behind plan,
we believe that it is making progress and has the potential to recover
some of the lost ground over time.
Outlook
Over the coming year, we will be seeking to realise further funds from
the portfolio to allow the remainder of Shareholders that are expected
to wish to exit to do so. The Company will then be left with the core of
investments that are likely to be held longer term. We will continue to
work closely with each of the remaining portfolio companies to try to
ensure that the growth potential which some of the investments exhibit
is fulfilled.
Downing Managers 6 Limited
Portfolio of investments
The following investments, all of which are incorporated in England and
Wales, were held at 31 January 2014:
Valuation
movement % of
Cost Valuation in year portfolio
GBP'000 GBP'000 GBP'000
Qualifying investments
Hoole Hall Country Club Holdings
Limited 750 818 - 23.6%
Cadbury House Holdings Limited 654 771 - 22.3%
Hoole Hall Spa and Leisure Club
Limited 563 613 - 17.7%
The Thames Club Limited* 1,125 280 (70) 8.1%
Gatewales Limited 242 242 - 7.0%
Coast Constructors Limited 933 - (125) 0.0%
4,267 2,724 (195) 78.7%
Non-qualifying investments
Snow Hill Developments LLP 250 250 - 7.2%
Moebius Two Limited 127 127 - 3.7%
Fenkle Street LLP 38 38 - 1.1%
Vermont Developments Limited 451 25 - 0.7%
Aminghurst Limited 207 - - 0.0%
1,073 440 - 12.7%
Total 5,340 3,164 (195) 91.4%
Cash at bank and in hand 295 8.6%
Total investments 3,459 100.0%
* partially non-qualifying investment
Investment movements for the year ended 31 January 2014
ADDITIONS
GBP'000
Non-qualifying investments
Moebius Two Limited 157
DISPOSALS
Realised
Valuation at Gain Gain
Cost 01/02/13** Proceeds vs. cost in the year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Qualifying
investments
Crossco (1135)
Limited -
Kingsclere
Nurseries 665 753 793 128 40
Cadbury House
Holdings Limited 647 647 647 - -
Gatewales Limited 438 508 508 70 -
1,750 1,908 1,948 198 40
Non-qualifying
investments
The Meredith Pub
Group Limited 120 120 144 24 24
Moebius Two Limited 30 30 60 30 30
Brunswick Associates
Limited - - 30 30 30
150 150 234 84 84
1,900 2,058 2,182 282 124
** adjusted for purchases in the year
Directors' responsibilities statement
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 Conduct 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 judgements 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.
In addition, each of the Directors considers that the Annual Report,
taken as a whole, is fair, balanced and understandable and provides the
information necessary for Shareholders to assess the Company's
performance, business model and strategy.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Manager'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.
Directors' statement pursuant to the Disclosure Rules and Transparency
Rules
Each of the Directors confirms that, to the best of each person's
knowledge:
* the financial statements, which have been prepared in accordance with
UK Generally Accepted Accounting Practice, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the
Company; and
* the management report included within the Chairman's Statement,
Strategic Report, Report of the Directors, Investment Manager's Report
and Review of Investments 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.
By order of the Board
Grant Whitehouse
Company Secretary of Downing Planned Exit VCT 6 plc
INCOME STATEMENT
for the year ended 31 January 2014
2014 2013
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 242 - 242 265 - 265
Net loss on investments - (71) (71) - (631) (631)
242 (71) 171 265 (631) (366)
Investment management
fees (27) - (27) (64) - (64)
Other expenses (206) - (206) (164) - (164)
Return/(loss) on
ordinary activities
before tax 9 (71) (62) 37 (631) (594)
Tax on ordinary
activities (4) - (4) (16) - (16)
(Loss)/return
attributable to equity
shareholders 5 (71) (66) 21 (631) (610)
Basic and diluted
(loss)/return per
Ordinary Share 0.1p (0.9p) (0.8p) 0.2p (7.1p) (6.9p)
All Revenue and Capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the year. 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 noted
above.
Other than revaluation movements arising on investments held at fair
value through profit and loss, there were no differences between the
return/loss as stated above and at historical cost.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
2014 2013
GBP'000 GBP'000
Opening Shareholders' funds 5,935 6,775
Purchase of shares (through tender offer for current
year) (1,982) (2,763)
Proceeds from share issue - 2,708
Total recognised losses for the year (66) (610)
Dividends paid (348) (175)
Closing Shareholders' funds 3,539 5,935
BALANCE SHEET as at 31 January 2014
2014 2013
(as restated*)
GBP'000 GBP'000 GBP'000 GBP'000
Fixed assets
Investments 3,164 5,260
Current assets
Debtors 163 196
Cash at bank and in hand 295 633
458 829
Creditors: amounts falling due
within one year (83) (154)
Net current assets 375 675
Net assets 3,539 5,935
Capital and reserves
Called up Ordinary Share capital 6 9
Deferred Share capital 16 16
Capital redemption reserve 8 5
Share premium account 167 167
Special reserve 5,403 7,784
Revaluation reserve (1,243) (2,292)
Capital reserve - realised (919) 150
Revenue reserve 101 96
Total equity shareholders' funds 3,539 5,935
Basic and diluted net asset value 63.1p 68.2p
per Ordinary Share
CASH FLOW STATEMENT for the year ended 31 January 2014
2014 2013
GBP'000 GBP'000
Net cash (outflow)/inflow from operating activities (20) 106
Taxation
Corporation tax paid (13) (5)
Capital expenditure
Purchase of investments (157) (50)
Proceeds from disposal of investments 2,182 544
Net cash inflow from capital expenditure 2,025 494
Equity dividends paid (348) (175)
Net cash inflow before financing 1,644 420
Financing
Purchase of own shares - (2,763)
Purchase of shares through tender offer (1,982) -
Proceeds from share issue - 2,732
Net cash outflow from financing (1,982) (31)
(Decrease)/Increase in cash (338) 389
NOTES
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" revised January 2009 ("SORP").
The financial statements are prepared under the historical cost
convention except for certain financial instruments measured at fair
value and on the basis that it is not necessary to prepare consolidated
accounts.
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 the SORP, supplementary information which
analyses the Income Statement between items of a revenue and capital
nature has been presented alongside the Income Statement. The revenue
return 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.
Comparative figures
The comparative figures have been restated to reflect a prior year
adjustment to the reserves.
Investments
All 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.
For unquoted investments, fair value is established using the IPEV
guidelines. The valuation methodologies for unquoted entities 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 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.
Gains and losses arising from changes in fair value are included in the
Income Statement for the year as a capital item and transaction costs on
acquisition or disposal of the investment are expensed.
Where an investee company has gone into receivership, liquidation or
administration (where there is little likelihood of recovery), the loss
on the investment, although not physically disposed of, is treated as
being realised.
It is not the Company's policy to exercise significant influence over
investee companies. Therefore, the results of these companies are not
incorporated into the Income Statement except to the extent of any
income accrued. This is in accordance with the SORP, which does not
require portfolio investments to be accounted for using the equity
method of accounting.
2. Basic and diluted return per share
Weighted average Revenue Capital
number of shares in issue return loss
Return per share is calculated on the following: GBP'000 GBP'000
Year ended 31 January 2014 Ordinary Shares 8,366,341 5 (71)
Year ended 31 January 2013 Ordinary Shares 8,801,809 21 (631)
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on the return per Ordinary Share.
The return per share disclosed therefore represents both basic and
diluted return per Ordinary Share.
There is an element of judgement in the choice of assumptions for
unquoted investments and it is possible that, if different assumptions
were used, different valuations could have been attributed to certain of
the VCT's investments.
FRS 29 requires disclosure to be made of the possible effect of changing
one or more of the inputs to reasonable possible alternative valuation
assumptions where this would result in a significant change in the fair
value of the Level 3 investments. There is an element of judgement in
the choice of assumptions for unquoted investments and it is possible
that, if different assumptions were used, different valuations could
have been attributed to some of the Company's investments.
The Board and the Investment Manager believe that the valuations as at
31 January 2014 reflect the most appropriate assumptions at the date,
giving due regard to all information available from each investee
company. Valuations are subject to fluctuations in market conditions and
the sensitivity of the Company to such changes is shown within note 17.
3. Basic and diluted net asset value per share
2014 2013
Shares in issue Net asset value Net asset value
Pence Pence
2014 2013 per share GBP'000 per share GBP'000
Ordinary
Shares 5,616,842 8,704,741 63.1 3,539 68.2 5,935
As the Company has not issued any convertible shares or share options,
there is no dilutive net asset value per Ordinary Share. The net asset
value per share disclosed therefore represents both the basic and
diluted return per Ordinary Share.
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
* 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 year and there have
also been no significant changes to the policies for managing those
risks during the year.
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 year end are provided below:
Investment risks
As a VCT, 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 market
risks is a fundamental part of investment activities undertaken by the
Investment Manager and overseen by the Board. The Manager monitors
investments through regular contact with management of investee
companies, regular review of management accounts and other financial
information and attendance at investee company board meetings. This
enables the Manager to manage the investment risk in respect of
individual investments. Investment risk is also mitigated by holding a
diversified portfolio spread across various business sectors and asset
classes.
The key market risks to which the Company is exposed are:
Investment price risk
Interest rate risk
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 changes in the fair value of unquoted
investments that it holds.
At 31 January 2014, the unquoted portfolio was valued at GBP3,164,000.
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 attract interest
predominately at fixed rates. A summary of the interest rate profile of
the Company's investments is shown below.
There are three categories in respect of interest which are attributable
to the financial instruments held by the Company as follows:
"Fixed rate" assets represent investments with predetermined yield
targets and comprise certain loan note investments and
Preference Shares;
"Floating rate" assets predominantly bear interest at rates linked to
Bank of England base rate or LIBOR and comprise cash at bank
and liquidity fund investments and certain loan note investments; and
"No interest rate" assets do not attract interest and comprise equity
investments, certain loan note investments, loans and receivables
(excluding cash at bank) and other financial liabilities.
The Company monitors the level of income received from fixed and
floating 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.
It is estimated that an increase of 1% in interest rates would have
increased total return before taxation for the year by GBP2,000. As the
Bank of England base rate stood at 0.5% per annum throughout the year,
it is not believed that a reduction from this level is likely.
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. The Company is exposed to credit risk through its holdings
of loan stock in investee companies, investments in liquidity funds,
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 company's
business and its identifiable assets. The management of credit risk
associated interest, dividends and other receivables is covered within
the investment management procedures. The level of security is a key
means of managing credit risk.
Cash is held by Bank of Scotland plc and Royal Bank of Scotland plc,
both of which are A-rated financial institutions and both also
ultimately part-owned by the UK Government. Consequently, the Directors
consider that the credit risk associated with cash deposits is low.
There have been no changes in fair value during the year 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. As the Company has a relatively low
level of creditors, being GBP83,000 (2013: GBP154,000) and has no
borrowings, the Board believes that the Company's exposure to liquidity
risk is low. The Company always holds sufficient levels of funds as cash
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 Investment Manager in
line with guidance agreed with the Board and is reviewed by the Board at
regular intervals.
5. Related party transactions
Downing Managers 6 Limited ("DM6"), a wholly owned subsidiary, is the
Company's Investment Manager. Details of the agreement with DM6 are
included in note 3. During the year ended 31 January 2014, GBP27,000
(2013: GBP64,000) was payable to DM6. Additionally, DM6 provides
accounting, secretarial and administrative services for an annual fee of
GBP40,000 (plus RPI) per annum. During the year ended 31 January 2014,
GBP49,000 (2013: GBP47,000) was due in respect of administration fees.
At the year end, a balance of GBP22,000 (2013: GBP38,000) was due to
DM6.
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 2014,
but has been extracted from the statutory financial statements for the
year ended 31 January 2014 which were approved by the Board of Directors
on 22 May 2014 and will be delivered to the Registrar of Companies. 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 2013 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 year
ended 31 January 2014 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 NASDAQ OMX Corporate Solutions on
behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Downing Planned Exit VCT 6 PLC via Globenewswire
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