Final Results
Pennine AIM VCT 6 plc
Final Results for the year ended 30 September2008
FINANCIAL HIGHLIGHTS
2008 2007
pence pence
Net asset value (per share) 76.40 92.00
Cumulative distributions paid since launch 2.15 0.90
Total return (net asset value plus cumulative 78.55 92.90
distributions paid)
Final proposed dividend (per share) 1.00 1.25
CHAIRMAN'S STATEMENT
It is disappointing but unsurprising to report that the global
financial turmoil and its sharp negative impact on stock market
prices has been a significant influence on your Company's performance
over the year ended 30 September 2008.
Net Asset Value
At 30 September 2008, the Company's Net Asset Value per share ("NAV")
stood at 76.40p, a decrease of 14.35p (15.6%) over the year after
taking into account the dividend of 1.25p per share paid, and a
decrease of 5.70p (6.9%) since the half year of 31 March 2008.
Venture capital investments
During the year, the Company invested �7.5 million in VCT-qualifying
investments, such that, at 30 September 2008, 71% of the portfolio
was held in qualifying companies, thereby meeting the requirement for
VCTs to hold over 70% of the Company's funds in such investments. At
the year-end the portfolio was valued at �13.0 million.
Almost all the AIM-quoted and PLUS -quoted investments lost value
over the year, primarily as a result of the general stock market
conditions, producing unrealised losses of �3.7 million (equivalent
to 13.8p per share). One investment, RC Group Holdings plc, was
disposed of during the year realising a loss of �7,000.
The majority of the Company's venture capital portfolio is focussed
on AIM-quoted investments. However, it also includes a significant
number of unquoted businesses. Several of the unquoted businesses,
namely Cadbury House Limited, Hoole Hall Country Club Limited, Hoole
Hall Spa and Leisure Limited, The Thames Club Limited and West Tower
Holdings Limited, own substantial fixed assets which, to some extent,
underpin their valuations and are not directly impacted by stock
market fluctuations. Each of these investments continued to be held
at values equal to original cost at the year end. One unquoted
investment, Double Take Portraits Limited was revalued downwards by
�282,000 after it raised additional funds at a lower price than the
original investment.
Further details of the Company's venture capital investments,
including additions, disposals and performance during the year, are
contained within the Investment Manager's report and Review of
Investments below.
Listed fixed income securities
During the period, one of the gilts held by the Company matured, the
proceeds of which were used to provide funds for new qualifying
investments. The Company still holds one gilt investment, which at
the period end had a value of �6.5 million. The unrealised gain on
the portfolio arising in the year was �107,000 and the realised gain
thereon was �2,000.
Results and dividend
The loss on activities after taxation for the year was �3,812,000
(2007: loss �155,000) comprising a revenue profit of �272,000 and a
capital loss of �4,084,000.
The Board is proposing to pay a revenue dividend of 1.0p per share on
5 March 2009 to Shareholders on the register at the close of business
on 6 February 2009. The dividend is subject to Shareholder approval
at the Annual General Meeting ("AGM").
Articles of Association
At the forthcoming AGM, the Board will seek Shareholder approval to
update the Company's Articles of Association. Resolution 8, which is
a special resolution, proposes the adoption of new Articles of
Association which incorporate a number of changes which are required
as a result of the implementation of the Companies Act 2006. An
explanation of the proposed changes is provided within the Report of
the Directors.
Share buybacks
During the year the Company purchased 63,000 of its own shares for
cancellation, in order to provide an exit for investors, at a price
of 77.0p per share.
The Board has reviewed the Company's share buyback policy in light of
the current market conditions and the Company's likely future cash
requirements. As set out in the original prospectus, the Company
intends to return a total of 30p per share to Shareholders by 31 July
2009. To generate these funds, the Company will need to realise some
of its AIM-quoted or unquoted investments. With very weak liquidity
currently in the AIM market and significant disposals only generally
possible at substantial discounts to the quoted share prices, the
Board has decided to suspend its share buyback policy for the time
being in order to preserve cash. The Board does not expect to
purchase any of the Company's shares before 31 July 2009 at which
time it will review the policy.
The Board recognises that, for the time being, this decision is
likely to make it difficult for any Shareholders to dispose of their
shares. However, it considers that this move is in the best interests
of Shareholders as a whole.
As the Board may decide to resume its share buyback policy at an
appropriate time, a special resolution is proposed for the
forthcoming AGM to give authority for the Company to purchase its own
shares.
Annual General Meeting
The Company's next AGM will be held at 159 New Bond Street, London,
W1S 2UD at 2.30 pm on 3 March 2009.
Two items of Special Business are being proposed at the meeting to
update the Articles of Association and to renew the authority to
allow the Company to make market purchases of the Company's shares.
Outlook
Since the year end the global financial crisis has deepened and fears
of a recession look likely to be fulfilled. The FTSE AIM All-Share
index has fallen by more than 25% since 30 September 2008 and, at 31
October 2008, the Company's NAV had fallen to 73.4p.
As a VCT, the Company is restricted in its investment strategy,
particularly in that it must continue to hold at least 70% of its
funds in VCT qualifying investments. The Investment Manager is
limited in action it can take to reduce exposure to the volatile
markets so it is unlikely that improved performance will occur before
stock market conditions begin to recover. However, the Board is
confident that the Company will be able to meet its goal of returning
30p per share to Shareholders by 31 July 2009, after which investors
will have received 70p per share (including initial income tax
relief) against the original cost of �1 per share.
Christopher Powell
Chairman
INVESTMENT MANAGER'S REPORT
We present an overview of the investment management activities for
the year ended 30 September 2008.
Market commentary
The last twelve months has been a challenging time for equity markets
and a particularly torrid time for the smaller companies market. UK
smaller company share prices have been under pressure since credit
markets tightened in response to defaults in the US sub-prime market
and Northern Rock's rescue in the autumn of 2007. Since then matters
have got worse. A readjustment of risk throughout the last year saw
investors taking a more cautious stance towards smaller companies.
The worst falls in share prices occurred from mid June as the banking
crisis intensified with a shortage of credit hitting companies with
leveraged balance sheets. Investors also had to contend with rising
inflation and a deteriorating economic outlook hitting retail
consumer confidence.
For the record, the FTSE 100 Share Index showed a fall over the year
of 24.1% whilst the FTSE small cap index fell 35.7% and the AIM index
declined 44.3%.
As is usual in the economic cycle, when the economy turns down, it
takes some time for the sellers of businesses to accept lower
valuations either through outright sales or stock market flotation.
With a stand off between the prices buyers were prepared to pay and
sellers accept, there was a sharp reduction in the number of
companies coming to AIM and seeking funding at realistic valuations.
Portfolio additions
To meet our requirement to invest 70% of the Company's fund in
qualifying investments by 30 September 2008 �7.5 million was invested
in the period in new and follow-on investments. In the light of the
deteriorating economy, we invested �2.6 million of this into
asset-backed unquoted investments. A schedule of the additions
during the year is shown below and a synopsis on each follows:
AIM -quoted investments
Animal Care Group plc supplies pharmaceutical and other premium
products and services to the veterinary industry. It also provides
quality livestock products to agricultural retailers. Ritchey, an
existing Plus Markets company, acquired Animal Care Ltd for up to �14
million from the Genus Group following which the company was renamed
and moved to AIM. Pennine AIM VCT 6 plc invested �500,000 at 55p a
share.
Boomerang Plus plc is an independent television producer with a
strong business in Welsh language productions for S4C. The group was
founded in 1994 and admitted to AIM in November 2007 when it raised
�3 million to pay down debt and provide working capital and funding
for future acquisition opportunities. Pennine AIM VCT 6 plc
initially invested �675,000 at 158p a share.
Fishworks plc is a seafood restaurant chain, operating restaurants
with traditional on-site fishmongers and cookery schools. In
November 2007, the company raised �2.3 million to fund the opening of
new sites and accelerate the process of turning around
under-performing existing sites. Pennine AIM VCT 6 plc invested
�288,000 at 6p a share.
IS Pharma plc is a specialist pharmaceutical and medical devices
company focused on hospital critical care, neurology and oncology.
In April 2008, the company raised �10 million to acquire Speciality
European Pharma International. Pennine AIM VCT 6 plc initially
invested �688,000 at 77p a share.
Ludorum plc came to AIM in 2006 with a strategy to develop
entertainment related intellectual property ("IP") and manage the
commercial exploits of the IP rights. In November 2007, the company
raised �1.3 million for the further development of its animated
series, Chuggington. Pennine AIM VCT 6 plc invested �125,000 at 100p
a share.
Plastics Capital plc is a specialist plastics products manufacturer
operating in niche markets. The company raised �16.2 million to
restructure its balance sheet and pay down debt which had been
accrued from previous acquisitions. The company came to AIM in
December 2007 and Pennine AIM VCT 6 plc initially invested �694,000
at 100p a share.
Servoca plc is a provider of specialist out-sourced solutions to
police forces, local and national government, law firms and companies
throughout the private sector. The company provides specialist
expertise to manage investigations, support law enforcement projects
and assist in areas of organisation risk. In April 2008, they raised
�1.9 million to help fund the acquisition of Academics which supplies
qualified teachers, teaching assistants and nursery staff to primary
schools, secondary schools and further education colleges. Pennine
AIM VCT 6 plc initially invested �750,000 at 30p per 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 �1 million for working capital and
to assist with its continuing product development programme. Pennine
AIM VCT 6 plc initially invested �308,000 at 41p a share.
Unquoted investments
FSG Security plc provides manned guarding services to corporate
customers. In 2006 Pennine AIM VCT 6 plc provided an initial
investment of �250,000. In May 2008 your Company invested a further
�360,000 at 25p a share and �40,000 into a 9% convertible loan note.
These monies helped with the funding of the acquisition of Guardian
Facilities, a manned guarding business based in Worthing.
Keycom plc is a communications service provider focussed on the UK's
tertiary education market. In February 2008, in order to secure
funding from new investors, Pennine AIM VCT 6 plc's loan (totalling
�810,000) together with �121,000 of accrued loan stock interest was
converted into shares at an average price of 4p per share. In
conjunction with the conversion, the company raised �1.6 million in
February 2008 and has since completed two acquisitions and raised
�4.4 million in September 2008.
Cadbury House Limited is a country club set in 14 acres close to
Bristol airport. Following redevelopment of the hotel and spa,
trading has been strong and the company undertook a re-structuring to
bring in some new investors. Pennine AIM VCT 6 plc invested �1
million, of which �210,000 is in a 12.5% secured loan and �630,000 is
in a secured zero coupon convertible loan note with an enhanced
redemption premium attached.
Double Take Portraits Limited is a leading photographic studio
business. Pennine AIM VCT 6 plc originally invested in October 2006
with further monies provided during 2007 to assist with the financing
of the opening of a new studio in Manchester. Additional working
capital has been required to allow the business to continue to grow.
In March 2008, the existing convertible loans were converted into
equity enabling the company to attract further investment from
existing and new investors. Pennine AIM VCT 6 invested �320,000 of
which �250,000 is in a 7% convertible loan.
Hoole Hall Country Club Limited is a country club hotel and spa with
conferencing and banqueting facilities located on the Chester ring
road. In 2007 Pennine AIM VCT 6 invested �1 million to help fund the
acquisition and refurbishment. In May 2008, your Company made a
further investment of �750,000, by way of equity and a �585,000 4.15%
convertible loan note, 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 is a health and fitness club based in
Staines. This is an unquoted investment in which Pennine AIM VCT 6
plc invested �350,000.
West Tower Holdings Limited is a small country house hotel located
south of Ormskirk. This is an unquoted investment and Pennine AIM VCT
6 plc invested �50,000 into equity and �450,000 into a secured zero
coupon convertible loan note with an enhanced redemption premium
attached.
Portfolio performance
Against a weak stock market and particularly weak AIM market, there
were only a few investments that showed a positive contribution to
the portfolio, although others have seen their share prices hold up
relatively well.
Craneware plc has seen its share price rise over 50% with the
company gaining new business providing their revenue cycle software
solutions to assist US hospitals in reducing billing errors. The
unquoted investments within the portfolio have generally faired well,
including Cadbury House Limited, Blanc Brasseries Holdings plc and
First Care Limited, as have some of the AIM investments. An
increasing number of pub chains using Brulines Group plc to dispense
monitoring equipment, enabled the group to show another year of
profits growth. The shares of Tristel plc have held up, with its
disinfectant products experiencing double digit sales growth amongst
UK hospitals. In late September 2008, earlier than expected, BBC2
began the daily weekday showing of Chuggington, an animated series
for children, produced by Ludorum plc.
There have been bid approaches for several of our companies including
Concateno plc, Travelzest plc and Boomerang Plus plc, although to
date none of these approaches have concluded in a takeover being
announced.
Whilst some of the falls in share prices have been due to poor
trading others have been as a result of concerns on debt and the
economic outlook. Amongst those that have announced poor trading is
Sport Media Group plc, who, despite a re-launch in April 2008, has
seen falls in circulation and concerns over advertising revenues.
Although Shieldtech plc has seen some recent improvement in body
armour sales, their annual figures were depressed as a result of a
delay in orders from the police force due to a revision of ballistics
standards issued by the Home Office.
The Kellan Group plc (formerly Berkeley Scott Group plc) continues to
invest in growing its brands to become a significant force in
recruitment, however the deteriorating market place has reduced the
visibility of their earnings. Shrinking company marketing budgets
are also likely to hit the profitability of advertising companies and
The Mission Marketing Group plc is expected to be no exception.
MyHome International plc had been a successful investment with some
shares sold at a profit in the previous year. The company continued
to make acquisitions, including the ChipsAway Group in October 2007,
which Pennine AIM VCT 6 plc declined to support. In July 2008, the
company breached some of the covenants on its debt and their bank
called in the loan. The shares were suspended from AIM and, in early
September, the company was placed into administration. This resulted
in the Company's holding being devalued to �nil from an opening
market value at the beginning of the year of �476,000.
In August 2007, Clerkenwell Ventures plc raised �26 million to
pursue the acquisition of restaurant businesses. Although a number
of potential acquisitions have been considered, owing to over
inflated valuations, no purchases have yet been made. As a result of
not investing the money raised within the required time limit, the
investment has become non-qualifying for VCT purposes. The
indiscriminate fall in the shares puts them at a substantial discount
to the cash held on their balance sheet.
Uninvested cash
The cash in Pennine AIM VCT 6 which is not yet invested in qualifying
investments was, throughout the year, held in either cash or short
dated gilts, as was the money not required to be invested in
qualifying investments. As at your year end �7.3million, or 36% of
the fund, was held in cash or short dated gilts.
Outlook
The economy is expected to deteriorate further with consumers under
pressure and company profits likely to fall. Although it is
difficult to predict with any certainty how much of this expected bad
news has been priced into equities, in the case of smaller companies
there has been such a de-rating that there is real value for the
patient investor. Small companies remain friendless but, as credit
markets ease, trade buyers could appear should share prices not start
to pre-empt the turn for the better in the economic cycle.
With a broad spread of investments across many different industries,
the portfolio is fairly diversified. We believe Pennine AIM VCT 6
plc is well positioned to benefit when sentiment changes towards
smaller companies.
Rathbone Investment Management Limited
REVIEW OF INVESTMENTS
Portfolio of investments (by value)
The following investments, all of which are incorporated in England
and Wales, with the exception of RC Group (Holdings) plc which is
incorporated in Hong Kong, were held at 30 September 2008.
Valuation
movement
Cost Valuation in year % of
�'000 �'000 �'000 portfolio
Ten largest venture
capital investments (by
value)
Cadbury House Limited * 1,000 1,000 - 4.9%
Hoole Hall Country Club 1,000 1,000 - 4.9%
Limited *
Hoole Hall Spa and 750 750 - 3.7%
Leisure Limited *
Boomerang Plus plc 676 736 60 3.6%
Double Take Portraits 895 613 (282) 3.0%
Limited *
IS Pharma plc 689 582 (107) 2.9%
Servoca plc 751 575 (176) 2.8%
Concateno plc 378 555 (58) 2.7%
Craneware plc 302 542 184 2.7%
West Tower Holdings 500 500 - 2.5%
Limited *
6,941 6,853 (379) 33.7%
Other venture capital
investments
Animal Care Group plc 500 482 (18) 2.4%
Keycom plc 946 465 (267) 2.3%
Clerkenwell Ventures plc 600 432 (208) 2.1%
Plastics Capital plc 695 417 (278) 2.1%
FSG Security plc ** 650 404 (180) 2.0%
Travelzest plc 501 382 (167) 1.9%
First Care Limited * 375 375 - 1.8%
The Thames Club Limited * 350 350 - 1.7%
The Kellan Group plc 750 319 (469) 1.6%
(formerly Berkeley Scott
Group plc)
Tristel plc 309 316 7 1.6%
Hasgrove plc 352 278 (141) 1.4%
Blanc Brasseries Holdings 275 275 - 1.4%
plc *
Zamano plc 376 274 (121) 1.4%
The Mission Marketing 502 251 (355) 1.2%
Group plc
Brulines Group plc 195 230 19 1.1%
Telephonetics plc 415 171 15 0.8%
Fishworks plc 288 144 (144) 0.7%
Universe Group plc 309 143 (165) 0.7%
Ludorum plc 125 131 6 0.6%
Sheildtech plc 501 100 (320) 0.5%
IDOX plc 47 61 3 0.3%
Sport Media Group plc 250 55 (188) 0.3%
NetServices plc 375 33 (30) 0.2%
Relax Group plc (formerly 150 21 (58) 0.1%
Debts.Co.UK plc)
Accuma Group plc 351 6 (33) -
Chariot (UK) plc *** 250 - - -
MyHome International plc 187 - (476) -
***
Telephone Maintenance 251 - - -
Group plc ***
10,875 6,115 (3,568) 30.2%
Listed fixed income
securities
Treasury 4% 07/03/2009 6,305 6,452 107 31.8%
Sub-total 24,121 19,420 (3,840) 95.7%
Cash at bank and in hand 870 4.3%
Total investments 20,290 100.0%
All investments are quoted on AIM unless otherwise stated.
Key:
* Unquoted ** Traded on the PLUS Market ***
Delisted
Investment movements for the year ended 30 September 2008
ADDITIONS
Total
�'000
Investments in Secondary AIM/ PLUS Market Issues
Animal Care Group plc 500
Boomerang Plus plc 676
Fishworks plc 288
IS Pharma plc 689
Ludorum plc 125
Plastics Capital plc 695
Servoca plc 751
Tristel plc 309
4,033
Follow on investments
FSG Security plc Plus Market 400
Keycom plc Plus Market 121
Sundry investments 3
524
Unquoted investments
Cadbury House Limited 1,000
Double Take Portraits Limited 320
Hoole Hall Spa and Leisure Limited 750
The Thames Club Limited 350
West Tower Holdings Limited 500
2,920
Total investments 7,477
DISPOSALS
Profit/ Realised
MV at (loss) vs gain/
Cost 30/09/07 Proceeds cost (loss)
�'000 �'000 �'000 �'000 �'000
Full disposals
RC Group (Holdings) plc 59 97 90 31 (7)
Listed fixed income
securities
Treasury 5% Stock 07/03/08 7,020 6,992 6,994 (26) 2
Treasury 4% Stock 59 59 59 - -
07/03/2009
Total venture capital 7,138 7,148 7,143 5 (5)
investments
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual 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;
* 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 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 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. The
Directors are responsible for ensuring that the Report of the
Directors and other information included in the Annual Report is
prepared in accordance with company law in the United Kingdom. They
are also responsible for ensuring that the Annual Report includes
information required by the Listing Rules of the Financial Services
Authority.
INCOME STATEMENT
for the year ended 30 September2008
2008 2007
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Income 722 - 722 927 - 927
Losses on - (3,845) (3,845) - (312) (312)
investments
722 (3,845) (3,123) 927 (312) 615
Investment (104) (313) (417) (112) (336) (448)
management
fees
Other (258) (1) (259) (273) - (273)
expenses
Return/(loss)
on ordinary
activities
before tax 360 (4,159) (3,799) 542 (648) (106)
Tax on (88) 75 (13) (154) 105 (49)
ordinary
activities
Return/(loss)
attributable
to equity
shareholders 272 (4,084) (3,812) 388 (543) (155)
Basic and
diluted 1.0p (15.3p) (14.3p) 1.4p (2.0p) (0.6p)
return/(loss)
per share
All Revenue and Capital items in the above statement derive from
continuing operations and represent one geographical and business
segment. 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 shown above.
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
for the year ended 30 September 2008
2008 2007
�'000 �'000
Opening shareholders' funds 24,527 24,922
Purchase of own shares (49) -
Total recognised losses for the year (3,812) (155)
Dividend (333) (240)
Closing shareholders' funds 20,333 24,527
The accompanying notes are an integral part of these financial
statements.
BALANCE SHEET
as at 30 September 2008
2008 2007
�'000 �'000 �'000 �'000
Fixed Assets
Investments 19,420 22,931
Current assets
Debtors 145 93
Cash at bank and in hand 870 1,646
1,015 1,739
Creditors: amounts falling due within (102) (143)
one year
Net current assets 913 1,596
Net assets 20,333 24,527
Capital and reserves
Called up share capital 266 267
Capital redemption reserve 1 -
Special reserve 24,247 24,561
Capital reserve - realised 191 161
Capital reserve - unrealised (4,701) (852)
Revenue reserve 329 390
Equity shareholders' funds 20,333 24,527
Basic and diluted net asset value per 76.4p 92.0p
share
CASH FLOW STATEMENT
for the year ended 30 September 2008
2008 2007
�'000 �'000
Net cash (outflow)/inflow from operating (11) 163
activities
Taxation (49) (35)
Capital expenditure
Purchase of investments (7,477) (13,229)
Sale of investments 7,143 387
Net cash outflow from capital expenditure (334) (12,842)
Equity dividends paid (333) (240)
Net cash outflow before financing (727) (12,954)
Financing
Purchase of own shares (49) -
Net cash outflow from financing (49) -
Decrease in cash (776) (12,954)
NOTES
1. Basis of Accounting/Accounting policies
The Company has prepared the financial information 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") and has used the
historical cost convention except for the revaluation of certain
financial instruments.
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 Section
274 Income Tax Act 2007.
2. Return per ordinary share
Revenue return per ordinary share is based on the net revenue after
taxation of �272,000 (2007: �388,000), in respect of 26,632,099
(2007: 26,669,102) ordinary shares, being the weighted average number
of ordinary shares in issue during the year.
Capital return per ordinary share is based on the net capital loss
for the financial year of �4,084,000 (2007: �543,000), in respect of
26,632,099 (2007: 26,669,102) ordinary shares, being the weighted
average number of ordinary shares in issue during the year.
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on return per Ordinary share.
The return per share disclosed therefore represents both the basic
and diluted return per Ordinary share.
3. Net asset value per ordinary share
2008 2007
Net asset Net asset
value value
per share Net asset per share Net asset
value value
Pence �'000 Pence �'000
Ordinary 76.4 20,333 92.0 24,527
shares
Net asset value per ordinary share is based on net assets at the year
end, and on 26,606,102 (2007: 26,669,102) ordinary shares, being the
number of ordinary shares in issue at the year end.
4. Principal financial risks
As a Venture Capital Trust ("VCT"), the majority of the Company's
assets are represented by financial instruments which are held as
part of the investment portfolio. In order to ensure continued
compliance with relevant VCT regulation and to be in a position to
deliver the long term capital growth which is part of the Company's
investment objective, the Board is very much aware of the need to
manage and mitigate the risks associated with the financial
instruments held within the investment portfolio.
The management of these risks starts with the application of a clear
investment strategy which has been developed by the Board, which
comprises of experienced investment professionals. Furthermore, the
Board has appointed an experienced investment manager to whom they
have communicated the Company's investment strategy and whose
remuneration is linked to the achievement of that strategy. The
Investment Managers report regularly to the Board on performance, and
to facilitate the direct Board involvement with key decisions, on
whether or not to invest, disinvest and the nature, terms and the
security of investments being made.
In assessing the risk profile of its investment portfolio, the Board
has identified four principal classes of investment which are
analysed within Note 9. All such financial investments are "fair
value through the profit and loss account" and are recognised as such
on initial recognition.
In addition to its investment portfolio, the VCT holds cash balances
with two of the main UK banks and the Investment Manager. The
Directors consider that by splitting the cash balances between the
banks and the Investment Manager, the risk profile associated with
cash deposits is low, and thus the carrying value in the financial
statements is a close approximation of its fair value.
A review of the specific financial risks faced by the Company
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
changing income and the return for the year by �8,000, equivalent to
a 2.4% 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 30 September 2008, the net unrealised loss on
the quoted portfolios (AIM-quoted, PLUS-quoted and Non-qualifying
investments) was �3.9 million (2007: �351,000).
The investments the Company holds are, in the main, 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.
The Company's sensitivity to fluctuations in the share prices of its
quoted investments (AIM-quoted and Plus-quoted but excluding listed
fixed interest investments) is summarised below. A 50% fall in the
share price in each of the quoted investments held by the Company
would have an effect as follows:
Impact on
Risk Impact on NAV per
exposure Net Assets share
�'000 �'000 Pence
50% fall in quoted stocks 8,104 (4,032) (15.2)
As the majority of the Company's unquoted investments are classed as
"asset backed", a fall in shares prices generally would have a lesser
impact on the valuation of the unquoted portfolio. A 25% fall in the
valuations in each of the unquoted investments held by the Company
would have an effect as follows:
Impact on
Risk Impact on NAV per
exposure Net Assets share
�'000 �'000 Pence
25% fall in unquoted investment 4,864 (1,225) (4.6)
valuations
The Company also has exposure to variations in the price of its
non-qualifying investment. As the investment is a government gilt,
such securities are subject to lower price fluctuations. A 2.5% fall
in the valuation of these assets held by the Company would have the
following impact:
Impact on
Risk Impact on NAV per
exposure Net Assets share
�'000 �'000 Pence
2.5% fall in value of
non-qualifying investments 6,452 (161) (0.6)
(government gilt)
In each case, the impact of such changes on the return for the year
would be that same as that on Net Assets and NAV per share.
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's financial assets that are
exposed to credit risk are summarised as follows:
2008 2007
�'000 �'000
Fixed assets investments
Investments in listed fixed interest investments 6,452 13,397
Investments in loan stocks 3,152 987
Loans and receivables
Cash and cash equivalents 870 1,646
Interest, dividends and other receivables 135 83
10,609 16,113
The carrying values of financial assets best represent the maximum
credit risk exposure at the balance sheet date.
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 investment and are managed within the main
investment management procedures.
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
The Company has appointed Downing Management Services Limited, a
company in which Nicholas Lewis is a Director, to provide accounting,
secretarial and administrative services for an annual fee of 0.5% of
gross funds raised under the prospectus (not to exceed �60,000) (plus
VAT and RPI). During the year �76,000 (2007: �73,000) was due in
respect of administration fees to Downing Management Services
Limited. No amounts were outstanding at either year end.
During the year, the Company invested �121,000 in Keycom plc, a
company in which Roger Jeynes is a director, through the conversion
of accrued loan stock interest. During 2007 �425,000 was invested in
Keycom plc.
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 30 September
2008, but has been extracted from the statutory financial statements
for the year ended 30 September 2008, which were approved by the
Board of Directors on 23 December 2008 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 30 September 2007 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 30 September 2008 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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