Half-yearly report
Pennine Downing AIM VCT 2 plc
Half Yearly Financial Report for the six months ended 31 August 2008
RECENT PERFORMANCE SUMMARY
31 Aug 2008 29 Feb 2008 31 Aug 2007
pence pence pence
Net asset value per Ordinary 42.4 55.0 82.2
share
Cumulative distributions per 27.0 23.5 13.5
Ordinary share
Total return per Ordinary 69.4 78.5 95.7
share
CHAIRMAN'S STATEMENT
The current worldwide financial turmoil and its impact on stock
markets has, unsurprisingly, been a major factor in your Company's
performance over the six-months ended 31 August 2008. With a
significant proportion of its funds invested in AIM-quoted companies,
the Company has been exposed to the falling share prices and reduced
liquidity experienced by much of the AIM market over the period.
Net Asset Value
As at 31 August 2008, the Company's Net Asset Value per share ("NAV")
stood at 42.4p, a decrease of 9.1p (16.5%) since 29 February 2008
(after adjusting for the 3.5p dividend paid in the period).
Venture capital investments
The Company had a low level of investment activity in the period.
Two new investments and two follow-on investments were made at a
total cost of �654,000. Both of the new investments were in unquoted
businesses which own substantial assets. The Board feels that, in
the current climate, this type of investment can provide more
stability than AIM-quoted investments.
The Company also made a small number of part disposals generating
proceeds of �680,000.
Of the investments held throughout the period, those quoted on AIM
almost all showed falls in value over the period. Overall the
venture capital portfolio produced realised gains of �58,000 and
unrealised losses of �2,125,000.
Full details of the portfolio together with the additions and
disposals in the period are shown below.
Fixed income and other investments
The Company continued to hold a small portfolio of fixed income
securities and unit trusts. During the period, the Company purchased
one bond fund at a cost of �149,000. At the period end, the
portfolio was valued at �1,232,000 and suffered unrealised losses of
�54,000 for the six months.
Results and dividend
The loss on activities after taxation for the period was �2,196,000,
comprising a revenue loss of �2,000 and a capital loss of �2,194,000.
In line with the Company's normal practice, no interim dividend will
be paid.
Repurchase of shares
In recent years, to ensure liquidity for Shareholders, the Company
has operated a policy of buying in its own shares that become
available in the market at a 10% discount to the NAV. The Board
notes that a significant number of VCTs now undertake share buyback
at discounts well in excess of this. The Board however intends to
continue with this policy for the time being, but will regularly
review the policy in light of market conditions and its impact on the
liquidity of the fund.
During the period, the Company purchased 349,954 Ordinary shares at
prices varying between 47.5p and 39.0p per share. These shares were
subsequently cancelled.
Directorate
For personal reasons, Brian Beverley decided to step down as a
non-executive director on 21 October 2008. The other directors and I
would like to thank Brian for his valuable contribution since the
Company's launch in 2001 and wish him well for the future.
Risk and uncertainties
Under the Disclosure and Transparency Directive, the Board is now
required, in the Company's half year results, to report on principal
risks and uncertainties facing the Company over the remainder of the
financial year.
The Board has concluded that the key risks are:
(i) investment risk associated with investing in young businesses;
(ii) investment risk arising from market volatility; and
(iii) failure to maintain approval as a VCT.
In the case of (i) and (ii) the Board is satisfied with the Company's
approach to these risks. As an AIM-focused VCT, the Company, by
definition, has significant exposure to the relatively immature
businesses quoted on AIM. However, by seeking to hold a
well-diversified portfolio of businesses with strong management
teams, the impact of falling markets and challenging economic
conditions should be mitigated as much as possible given the
Company's status as a VCT and its investment policy.
The Company's compliance with the VCT regulations is continually
monitored by the Administrator, who regularly reports to the Board on
the current position. The Company also retains
PricewaterhouseCoopers to provide regular reviews and advice in this
area. The Board considers that this approach reduces the risk of a
breach of the VCT regulations to a minimal level.
Outlook
Since the period end, there has been a further escalation of the
global financial crisis, with rescues of major financial institutions
and government interventions in the financial services sector. These
conditions have continued to harm the performance of the AIM market.
At 30 September, the Company's NAV had fallen to 38.4p per share.
There is much uncertainty as to how economic conditions will progress
over the coming months, however it seems unlikely that there will be
any significant recovery during the remainder of the Company's
financial year. Although the Company does have a reasonably
well-diversified portfolio and holds a number of unquoted
investments, which tend to be less volatile, it is possible that
further falls in value could be seen before markets recover.
Andrew Griffiths
Chairman
INCOME STATEMENT
for the six months ended 31 August 2008
Six months ended
31 Aug 2008
Revenue Capital Total
�'000 �'000 �'000
Income 162 - 162
Net losses on investments - (2,121) (2,121)
162 (2,121) (1,959)
Investment management fees (24) (72) (96)
Other expenses (see note 5) (140) (1) (141)
Return on ordinary activities (2) (2,194) (2,196)
Taxation - - -
Return attributable to equity (2) (2,194) (2,196)
shareholders
Return per Ordinary share - (9.1p) (9.1p)
Six months ended Year ended
31 Aug 2007 29 Feb 2008
Revenue Capital Total Total
�'000 �'000 �'000 �'000
Income 100 - 100 310
Net losses on investments - (104) (104) (1,303)
100 (104) (4) (993)
Investment management fees (21) (62) (83) (168)
Other expenses (see note 5) (94) - (94) (194)
Return on ordinary activities (15) (166) (181) (1,355)
Taxation - - - -
Return attributable to equity (15) (166) (181) (1,355)
shareholders
Return per Ordinary share (0.1p) (1.5p) (1.6p) (10.7p)
All Revenue and Capital items in the above statement derive from
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 within the Income
Statement as noted above.
UNAUDITED SUMMARISED BALANCE SHEET
as at 31 August 2008
31 Aug 2008 31 Aug 2007 29 Feb 2008
�'000 �'000 �'000
Investments 10,002 7,484 12,000
Current assets
Debtors 45 575 116
Cash at bank and in hand 132 978 1,326
177 1,553 1,442
Less: Creditors falling due (51) (36) (118)
within one year
Net current assets 126 1,517 1,324
Net assets 10,128 9,001 13,324
Capital and reserves
Called up share capital 1,193 547 1,211
Capital redemption reserve 157 79 139
Share premium 6,506 - 6,506
Special reserve 6,907 6,762 7,473
Capital reserve - realised 276 1,789 962
Capital reserve - unrealised (4,734) 36 (2,792)
Revenue reserve (177) (212) (175)
Total equity shareholders' 10,128 9,001 13,324
funds
Net asset value per share 42.4p 82.2p 55.0p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
31 Aug 2008 31 Aug 2007 29 Feb 2008
�'000 �'000 �'000
Opening shareholders' funds 13,324 9,182 9,182
Issue of share capital on - - 7,381
acquisition
Share issue costs - - (151)
Repurchase of own shares (156) - (638)
Total recognised losses for (2,196) (181) (1,355)
the period
Distributions paid in the (844) - (1,095)
period
Closing shareholders' funds 10,128 9,001 13,324
UNAUDITED CASH FLOW STATEMENT
for the six months ended 31 August 2008
Six Six
months months Year
ended ended ended
31 Aug 31 Aug 29 Feb
2008 2007 2008
Note �'000 �'000 �'000
Cash outflow from operating
activities and returns on investments 1 (34) (84) (15)
Capital expenditure
Purchase of investments (789) (200) (2,624)
Disposal of investments 680 956 5,412
Net cash (outflow)/ inflow from (109) 756 2,788
capital expenditure
Acquisitions
Cash acquired - - 2,124
Payment of acquisition cost creditor
acquired as a result of merger - - (225)
Payment of dividend creditor acquired
as a result of merger - - (1,831)
- - 68
Equity dividends paid (848) - (1,095)
Net cash (outflow)/inflow before (991) 672 1,746
financing
Financing
Share issue costs (41) - (98)
Purchase of own shares (162) (34) (662)
Net cash outflow from financing (203) (34) (760)
(Decrease)/ increase in cash 2 (1,194) 638 986
Notes to the cash flow statement:
1 Cash flow from operating
activities and returns on investments
Loss on activities before taxation (2,196) (181) (1,355)
Losses on investments 2,121 104 2,790
Negative goodwill - - (1,487)
Decrease in other debtors 61 8 50
Increase in accruals and deferred (20) (15) (13)
income
Net cash outflow from operating (34) (84) (15)
activities
2 Analysis of net funds
Beginning of period 1,326 340 340
Net cash (outflow)/inflow (1,194) 638 986
End of period 132 978 1,326
SUMMARY OF INVESTMENT PORTFOLIO
as at 31 August 2008
Unrealised
gain/(loss) in % of
Cost Valuation the period portfolio
�'000 �'000 �'000 by value
Top twenty venture
capital investments
Synergy Health plc *** 622 1,070 177 10.6%
Aero Inventory plc 860 616 (258) 6.1%
Glisten plc 246 532 (266) 5.3%
Nu Nu plc * 469 518 - 5.1%
Spice plc *** 398 490 86 4.8%
Elektron plc 459 462 (211) 4.6%
Cadbury House Limited * 461 461 - 4.5%
SPC International Limited 361 361 - 3.6%
*
Hoole Hall Spa and 300 300 - 3.0%
Leisure Limited *
AT Communications plc 391 265 (74) 2.6%
The Thames Club Limited * 250 250 - 2.5%
Supporta plc 406 248 (10) 2.4%
Clerkenwell Ventures 276 243 9 2.4%
Group plc
RFTRAQ Limited * 401 225 - 2.2%
Pennant International 308 223 (100) 2.2%
Group plc
Interserve plc *** 213 199 (2) 2.0%
FSG Security plc ** 500 180 (67) 1.8%
Neutrahealth plc 230 173 (65) 1.7%
Ludorum plc 164 160 (5) 1.6%
1st Dental Laboratories 316 149 (40) 1.5%
plc
7,631 7,125 (826) 70.5%
Other venture capital 6,093 1,645 (1,299) 16.0%
investments
Other investments 1,012 1,232 (54) 12.2%
Total investments 14,736 10,002 (2,179) 98.7%
Cash at bank and in hand 132 1.3%
Total 10,134 100.0%
All venture capital investments are quoted on AIM unless otherwise
stated.
* Unquoted
** Quoted on the PLUS market
*** Listed on London Stock Exchange Main Market
SUMMARY OF INVESTMENT MOVEMENTS
for the six months ended 31 August 2008
Additions �'000
Venture capital investments
Forward Media Limited (Unquoted) 21
Hill Station plc 83
Hoole Hall Spa and Leisure Limited (Unquoted) 300
The Thames Club Limited (Unquoted) 250
Fixed income and other investments
Henderson Strategic Bond I Inc Fund 149
803
Disposals
Market
value at Gain/ Total
1 March Disposal (loss) in Realised
Cost 2008 proceeds period gain
�'000 �'000 �'000 �'000 �'000
Venture capital
investments
Aero Inventory plc 220 224 202 (18) (22)
Breaking Views Limited 19 19 24 5 5
Chelford Group plc 217 220 287 70 67
Conder Environmental plc 35 30 5 (30) (25)
DC Interact Limited - - 1 1 1
Hartest Holdings plc 369 129 161 (208) 32
860 622 680 (180) 58
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. The unaudited half yearly financial results cover the six months
to 31 August 2008 and have been prepared in accordance with the
accounting policies set out in the statutory accounts for the year
ended 29 February 2008 which were prepared under UK Generally
Accepted Accounting Practice ("UK GAAP") and in accordance with the
Statement of Recommended Practice "Financial Statements of Investment
Trust Companies" revised December 2005 ("SORP").
2. All revenue and capital items in the income statement derive from
continuing operations.
3. The Company has only one class of business and derives its income
from investments made in shares, securities and bank deposits.
4. The comparative figures were in respect of the period ended 31
August 2007 and the year ended 29 February 2008 respectively.
5. Other expenses includes a charge of �24,000 in respect of a
provision for doubtful debt against loan stock interest which was
recognised by the Company in the previous accounting period
6. Return per share for the period has been calculated on 24,101,120
shares, being the weighted average number of shares in issue during
the period.
7. NAV per share for the period has been calculated on 23,869,324
shares, being the number of shares in issue at the period end.
8. Dividends
31 August 2008 29 Feb
2008
Revenue Capital Total Total
Pence �'000 �'000 �'000 �'000
Paid in period
2008 Final 3.5 - 844 844 -
2008 Special distribution 10.0 - - - 1,095
- 844 844 1,095
9. Reserves
Capital Capital Capital
Share redemption Special reserve reserve Revenue
premium reserve reserve - - reserve
realised unrealised
�'000 �'000 �'000 �'000 �'000 �'000
At 1 March 2008 6,506 139 7,473 962 (2,792) (175)
Shares - 18 (156) - - -
repurchased
Expenses charged
to capital - - - (73) - -
Net
gains/(losses) - - - 58 (2,179) -
on investments
Realisation of
revaluations - - - (237) 237 -
from previous
years
Transfer between - - (410) 410 - -
reserves
Distributions - - - (844) - -
paid in period
Retained net - - - - - (2)
revenue loss
At 31 August 6,506 157 6,907 276 (4,734) (177)
2008
The special reserve, capital reserve - realised and revenue reserve
are all distributable reserves.
10. The unaudited financial statements set out herein do not
constitute statutory accounts within the meaning of Section 240 of
the Companies Act 1985 and have not been delivered to the Registrar
of Companies. The figures for the year ended 29 February 2008 have
been extracted from the financial statements for that year, which
have been delivered to the Registrar of Companies; the auditors'
report on those financial statements was unqualified.
11. The Directors confirm that, to the best of their knowledge, the
half-yearly financial statements have been prepared in accordance
with the "Statement: Half-Yearly Financial Reports" issued by the UK
Accounting Standards Board and the half-yearly financial report
includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements, and a description of the principal risks
and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period, and any changes in the related party transactions
described in the last annual report that could do so.
12. Copies of the unaudited half yearly financial results will be
sent to shareholders shortly. Further copies can be obtained from the
Company's Registered Office 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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