TIDMEDV
Elderstreet VCT plc
Final Results (correction)
28 April 2017
The announcement released by Elderstreet VCT plc entitled "Final
Results" on 27 April at 5:17pm incorrectly stated the record date for
the dividend as 20 May 2017.
The announcement should have shown the correct record date of 19 May
2017.
The remainder of the announcement is unchanged.
The full corrected text of the announcement is as follows: -
FINANCIAL SUMMARY
2016 2015
pence pence
Net asset value per share ("NAV") 62.8 70.6
Cumulative dividends paid since launch 96.0 91.0
Total return (NAV plus cumulative dividends paid per
share) 158.8 161.6
Dividends in respect of financial year ended 31 December
2016
Interim dividend paid per share 2.5 2.5
Special dividend paid per share - 5.0
Final dividend per share (payable on 30 June 2017) 1.5 2.5
4.0 10.0
CHAIRMAN'S STATEMENT
I am pleased to present the Company's Annual Report for the year ended
31 December 2016.
It has been a year with significant developments for your Company. In
November we announced that the Company's manager, Elderstreet
Investments, had negotiated a significant co-investment agreement with
Draper Esprit, a leading venture capital provider in the high-growth
technology sector, which will lead to sharing deal flow, management
experience and investment opportunities going forward. Draper Esprit
also acquired a 30% stake in Elderstreet Investments, with an option to
purchase the remainder of the company in the future. The Board is fully
supportive of this arrangement which subsequently allowed the Company to
successfully launch a major new fundraising. The Company now has a
significant level of new funds available to take advantage of the flow
of new opportunities and, over the coming years, we expect to see the
portfolio become refocussed on sectors that can deliver high growth.
Net asset value and results
At 31 December 2016, the Company's Net Asset Value per share ("NAV")
stood at 62.8p, which represents a fall of 2.8p (3.9%) over the year
after adding back dividends of 5.0p per share which were paid during the
year.
The total return to Shareholders who invested at the launch of the
Company in 1998 (NAV plus cumulative dividends) now stands at 158.8p
compared to the original cost (net of income tax relief) of 80.0p per
share.
The loss on ordinary activities after taxation for the year was GBP1.0
million (2015: GBP3.4 million profit), comprising a revenue return of
GBP222,000 (2015: GBP262,000) and a capital loss of GBP1.3 million
(2015: GBP3.1 million return).
Venture capital investments
In terms of new investment activity, the Company invested a total of
GBP1.4 million in two existing portfolio companies; Concorde and
AngloINFO.
One new Company was added to the portfolio during the year. An
investment of GBP499,000 was made into Ridee Limited, which trades as
Jinn, a fast growing 24/7 last mile urban logistics and delivery
platform that allows users to order anything they want from local stores
and restaurants.
During the year, the Company also benefitted from further deferred
proceeds of GBP440,000 from Wessex Advanced Switching Products Limited,
the investment was sold in 2014. There were a small number of other
disposals which brought total net realised gains for the year to
GBP432,000.
At the year end, the Company held a portfolio of 23 venture capital
investments valued at GBP19.2 million, with the vast majority of value
held in the top ten investments.
In reviewing the investment valuations at the year end, the Board made a
number of valuation adjustments to the unquoted investments. The main
movements are summarised as follows; Lyalvale Express Limited was
increased by GBP571,000 as the investment continues to exceed
expectations and Fords Packaging Topco Limited was uplifted by
GBP556,000, following strong results in the past period. These
increases were offset by a GBP1.3 million write down in the value of
Baldwin & Francis Limited, a manufacturer of equipment for the mining,
rail, oil and gas industries. The company generally works on large
contracts, and delays to a number of new orders has significantly
impacted the business.
The management of Lyalvale Property Limited had been optimistic that
planning permission would be obtained in respect of some development
land that it owns. Unfortunately, ultimately planning permission was not
granted and this has resulted in a write down of GBP786,000. The
valuation of Ridee Limited has also been reduced by GBP149,000.
A number of the Company's investments are quoted on AIM and experienced
significant movements over the year. The investment in Fulcrum Utility
Services Limited increased in value by GBP1 million, Access Intelligence
plc fell by GBP299,000, Interquest Group plc by GBP188,000 and Proxama
plc by GBP276,000.
Overall the portfolio had net unrealised losses for the year of 1.3
million.
Fixed interest investments
The Company held a small portfolio of fixed interest investments which
is managed by Smith & Williamson Investment Management Limited. The
portfolio, valued at GBP1.6 million at the year end, generated
investment income of GBP17,000 during the year and unrealised capital
gains of GBP9,000 were recognised.
The remaining investments in the fixed interest portfolio was sold after
year end for GBP1.6 million.
Management
As mentioned above, in November it was announced that Draper Esprit plc,
a leading AIM quoted venture capital firm, had acquired a stake in
Elderstreet Investments Limited, the Company's investment manager. At
the same time, Elderstreet Investments put in place a co-investment
agreement with Draper Esprit plc, which will provide the VCT with the
benefit of deal flow and the considerable management experience of
Draper Esprit.
The Draper Esprit team has been involved in investing over GBP800
million into more than 200 technology businesses and also in creating
businesses with a total aggregate value of over GBP6.4 billion of which
over GBP5 billion has been exited. Draper Esprit currently manages
institutional and EIS funds so is already familiar with many of the
restrictions that apply to VCT investments.
The Board believes that Draper Esprit will bring considerable benefits
to the VCT and looks forwards to working with them as the VCT moves into
a new phase.
Fundraising activities
As discussed above, in December 2016, the Company launched a new offer
for subscription seeking to raise up to a total of GBP10 million, with
an option to increase the maximum level to GBP20 million. The offer has
been well received by investors and, to date, has raised GBP15 million
and allotted 21.7 million shares at an average share price of 64.99p.
Dividends
In recent years the Board has targeted annual dividends of between 4 and
5 pence per share. In view of the significant level of new funds raised
in the fundraising and the expected steady shift of the portfolio
towards less mature investments, the Board expects that annual dividends
will be slightly reduced over the coming years and has set a revised
target of between 3 and 4 pence per share. The Board believes that the
upsides of having a larger asset base and greater exposure to the
potentially high growth investments that Draper Esprit can introduce
outweighs any short term potential reduction compared to the historic
yields.
With this in mind, the Board is proposing a final dividend of 1.5p per
share to be paid on 30 June 2017 to Shareholders on the register at 19
May 2017. This will bring total dividends paid in respect of the year to
4.0p (2015: 10.0p), equivalent to a yield for a 40% tax payer of 10.9%
p.a. based on the share price at the date of this report.
Share buybacks
The Company operates a policy of buying in shares that become available
in the market at a discount of approximately 7.5% to the latest
published NAV.
During the year the Company purchased a total of 217,500 shares at an
average price of 63.6p per share.
Any Shareholders who are considering selling their shares will need to
use a stockbroker. Such Shareholders should ask their stockbroker to
register their interest in selling their shares with Shore Capital.
Auditors
In accordance with new regulations, the Company is obliged to review its
auditors and undertake a competitive tender process at least every 10
years.
As BDO (and its predecessor firm) has been the Company's auditor for the
last 10 years, the Audit Committee has undertaken such a review this
year.
The Audit Committee approached four audit firms seeking proposals to be
considered for appointment as the Company's auditors. Two formal
proposals were considered and ultimately the Committee decided to
re-appoint BDO, the existing auditors. The Committee is satisfied that
BDO has suitable experience and resources to provide a good quality
audit service and have indicated that future audit fees will be
maintained at a reasonable level. A proposal for their re-appointment
will be put to Shareholders at the forthcoming AGM.
Year end and Company name
In view of the changes to the management, the Board is considering
changing the Company's year end from 31 December to 31 March to align it
better with other Draper Esprit funds. We will update Shareholders as
and when any final decision is made. The Board is also giving
consideration to whether it might be appropriate to change the Company's
name in due course. In order to give the Board some flexibility to this
end, a resolution will be proposed at the forthcoming AGM to amend the
Articles of Association to give the Board the power to change the
Company name without the requirement for a Shareholder Circular.
Naturally we will ensure that any decision to change the Company's name
is communicated to all Shareholders at that time.
Annual General Meeting ("AGM")
The next AGM of the Company will be held on 23 June 2017 at 20 Garrick
Street, London, WC2E 9BT at 11:00 a.m.
Notice of the meeting is at the end of this document. Four items of
Special Business are proposed; one ordinary resolution and two special
resolutions in relation to the allotment of shares and share buybacks
and one special resolution in respect of the amendments to the Articles
of Association described above.
Outlook
A small number of setbacks in the portfolio have held back performance
over the last year. However, the majority of the portfolio has performed
reasonably well and the portfolio continues to include a number of
investments that have prospects to deliver good outcomes for
Shareholders.
With a significant level of new funds now available to invest, we expect
to see a higher level of investment activity over the coming year and a
number of new companies being introduced into the portfolio by Draper
Esprit. The ongoing impact of the new VCT regulations and the expected
dealflow from Draper Esprit is likely to result in a gradual increase in
the risk profile of the portfolio over time. However, we believe that
the enhanced management team and resources provide an excellent
foundation for this new phase of the Company and have the potential to
continue delivering the levels of performance that Shareholders have
benefitted from in recent years.
David Brock
Chairman
26 April 2017
INVESTMENT MANAGER'S REPORT
Over the year the Company recorded a decrease in the total return of
2.8p (net asset value including cumulative dividends), from 161.6p to
158.8p including paying dividends of 5.0p per share. NAV per share
decreased from 70.6p to 62.8p.
During the year, we invested GBP1.9 million as we continued to support
the existing portfolio companies, and completed one new investment. Two
follow-ons were made into Concorde Solutions Limited, and AngloINFO
Limited, and one new investment was completed into Ridee Limited. The
core portfolio has had a mixed performance.
Since the period end, the planning permission for Lyalvale Property
Limited, which was sent to central government level for a decision, was
declined post the year-end. This has resulted in a reduction of
valuation of GBP786,000. Baldwin & Francis Limited ("BFH") has also
suffered a decline in trading as orders that were expected to be
received have been delayed. BFH operates in the rail, oil and gas, and
mining markets, the latter two of which are still suffering from the
decline in commodity prices. Your Manager has taken action to turn
around the decline and made a provision of GBP1.3 million against the
valuation.
On a positive note trading has performed better than expected in Fords
Packaging Topco Limited ("Fords") and Lyalvale Express Limited which
have been valued up by GBP556,000 and GBP571,000 respectively.
We flagged in last years' report that Fords innovation and investment in
R&D could lead to better future trading performance. We have seen this
come through in record orders for new machines as they enter their
2017/18 trading year. Post the year end Fords repaid the Elderstreet VCT
loan and is now debt free.
A new investment of GBP499,000 was made into Ridee Limited (trading as
Jinn (www.jinnapp.com), a digital platform operating in the fast growing
but competitive space of last mile delivery from restaurants and local
stores.
A further investment of GBP750,000 was made in Concorde in April 2016 to
support the further development of the business, which made progress
following that funding round and since the year end has been sold
generating proceeds slightly in excess of the year end carrying value.
Further follow-on investments totalling GBP643,000 were made into
AngloINFO Limited during the year. The launch of the new website has
taken longer than expected but a new mobile compliant digital platform
is now live and the short to medium term target is to get the company to
breakeven. We continue to believe that the business has reasonable
growth prospects.
The highlight of the AIM portfolio was our investment in Fulcrum Utility
Services Limited which rose by GBP1 million year on year as the company
reported six monthly pre-tax profits of GBP3.1 million versus GBP1.6
million in the previous year.
Access Intelligence plc continues to successfully integrate the business
acquired in 2015.
Generally, it is worth noting that in nine out of the top ten companies
by value at 31 December 2016 the Manager has at least one board seat or
observer rights and is very actively involved with these businesses.
Escrow payments from two exits were received in the year totalling
GBP1.9 million, of which GBP1.5 million was recognised in 2015 in
relation to Smart Education Limited.
On the corporate front, your Manager, with the support of the VCT Board,
sold a minority stake to Draper Esprit plc, who also have an option to
acquire 100% in the future.
Draper Esprit is one of the leading venture capital investors involved
in the creation, funding and development of high-growth technology
businesses with an emphasis on digital technologies in the UK, the
Republic of Ireland and Europe. Draper Esprit floated on the AIM market
in June 2016 and at the time of writing has a market capitalisation of
GBP144.7 million. The Manager has agreed a significant co-investment
agreement with Draper Esprit to share deal flow, management experience,
and investment opportunities going forward.
We are delighted to report that the new fundraising round of GBP10
million for this season is performing well and a further over allotment
of GBP10 million has been released. At the time of writing this new
fundraising had raised GBP15 million.
In summary, although there have been mixed results in the core portfolio
over the year, we remain cautiously optimistic, and confident, given the
co-investment agreement with Draper Esprit, that we can find suitable
new opportunities to invest in and refresh the portfolio.
Elderstreet Investments Limited
26 April 2017
REVIEW OF INVESTMENTS
Portfolio of investments
The following investments were held at 31 December 2016. All companies
are registered in England and Wales, with the exception of Fulcrum
Utility Services Limited which is registered in the Cayman Islands.
Valuation
movement % of portfolio
Cost Valuation in year by value
GBP'000 GBP'000 GBP'000
Ten largest venture capital
investments (by value)
Lyalvale Express Limited 1,915 3,903 571 16.9%
Fords Packaging Topco
Limited 2,883 3,795 556 16.4%
Access Intelligence plc * 2,333 2,989 (128) 13.0%
Fulcrum Utility Services
Limited * 500 2,146 1,000 9.3%
AngloINFO Limited 2,277 1,569 (299) 6.8%
Concorde Solutions Limited 1,650 1,525 (142) 6.6%
Baldwin & Francis Limited 1,534 912 (1,340) 4.0%
Macranet Limited 863 863 - 3.7%
Ridee Limited 499 350 (149) 1.5%
Cashfac plc 260 328 - 1.4%
14,714 18,380 69 79.6%
Other venture capital
investments
Servoca plc * 333 228 (96) 1.0%
Interquest Group plc * 226 156 (188) 0.7%
Lyalvale Property Limited 300 128 (786) 0.6%
Proxama plc* 860 123 (276) 0.5%
Uvenco UK plc * 1,326 72 (18) 0.3%
Sift Digital Limited 125 48 (8) 0.2%
Sift Limited 125 42 (14) 0.2%
SparesFinder Limited 103 34 - 0.1%
The Kellan Group plc * 657 7 (4) 0.0%
Infoserve Group plc 127 - - -
The National Solicitors
Network Limited 501 - - -
The QSS Group Limited 268 - - -
RB Sport & Leisure Holdings
plc 188 - - -
5,139 838 (1,390) 3.6%
Fixed income securities
United Kingdom 1.25% Gilt
22/07/2018 892 925 8 4.0%
United Kingdom 1.00% Gilt
07/09/2017 614 616 1 2.7%
S&W Investment Funds Cash
Fund 10 10 - 0.0%
1,516 1,551 9 6.7%
21,369 20,769 (1,312) 89.9%
Cash at bank and in hand 2,302 10.1%
Total investments 23,071 100.0%
All venture capital investments are unquoted unless otherwise stated
* Quoted on AIM
Investment movements for the year ended 31 December 2016
ADDITIONS
GBP'000
Venture capital investments
Concorde Solutions Limited 750
AngloINFO Limited 643
Ridee Limited 499
1,892
DISPOSALS
Value at Profit
Cost 01/01/16 Proceeds vs cost Realised profit
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Retention
proceeds
Wessex Advanced
Switching
Products
Limited - - 440 440 440
Smart Education
Limited - - 5 5 5
- - 445 445 445
Directors' responsibilities statement
The Directors are responsible for preparing the Report of the Directors,
the Strategic Report, 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), including Financial Reporting Standard
102, the financial reporting standard applicable in the UK and Republic
of Ireland (FRS102). 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 the financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments 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;
and
-- prepare a director's report, a strategic report and director's
remuneration report which comply with the requirements of the Companies
Act 2006.
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 Company'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.
The maintenance and integrity of the Company's website is the
responsibility of the Directors. The Directors' responsibility also
extends to the ongoing integrity of the financial statements contained
therein.
By order of the Board
Grant Whitehouse
Secretary of Elderstreet VCT plc
26 April 2017
INCOME STATEMENT
for the year ended 31 December 2016
2016 2015
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 603 - 603 688 - 688
Gains on investments - (867) (867) - 3,906 3,906
603 (867) (264) 688 3,906 4,594
Investment management fees (125) (375) (500) (118) (354) (472)
Performance incentive fees - - - - (454) (454)
Other expenses (256) (13) (269) (308) (6) (314)
Return/(Loss) on ordinary activities before tax 222 (1,255) (1,033) 262 3,092 3,354
Tax on total comprehensive income and ordinary
activities - - - - - - -
Return/(Loss) attributable to equity shareholders,
being total comprehensive income for the year 222 (1,255) (1,033) 262 3,092 3,354
Basic and diluted return/(loss) per share 0.6p (3.6p) (3.0p) 0.8p 9.0p 9.8p
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 Statement of Total Comprehensive Income of the Company prepared in
accordance with Financial Reporting Standards ("FRS102"). The
supplementary revenue and capital return columns are prepared in
accordance with the Statement of Recommended Practice issued in November
2014 by the Association of Investment Companies ("AIC SORP").
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2016
Called
up Capital Capital Capital
share Redemption Share Merger Special reserve reserve Revenue
capital reserve premium reserve reserve - unrealised - realised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
For the year ended 31 December 2016
At 1 January
2016 1,733 474 3,743 1,828 2,629 4,433 9,132 486 24,458
Total
comprehensive
income - - - - - (1,312) 57 222 (1,033)
Transfer
between
reserves - - - - (423) 40 383 - -
Transactions
with owners
Issue of new
shares 130 - 1,709 - - - - - 1,839
Share issue
costs - - - - (9) - - - (9)
Purchase of
own shares (11) 11 - - (139) - - - (139)
Dividends paid - - - - - - (1,484) (372) (1,856)
At 31 December
2016 1,852 485 5,452 1,828 2,058 3,161 8,088 336 23,260
For the year ended 31 December 2015
At 1 January
2015 1,678 465 2,908 1,882 2,991 4,908 8,713 224 23,769
Total
comprehensive
income - - - - - 3,152 (60) 262 3,354
Realisation of
revaluations
from prior
years - - - - - (3,627) 3,627 - -
Transfer
between
reserves - - - (54) (239) - 293 - -
Transactions
with owners
Issue of new
shares 45 - 596 - - - - - 641
Issue of new
shares under
DRIS* 19 - 239 - - - - - 258
Share issue
costs - - - - (9) - - - (9)
Purchase of
own shares (9) 9 - - (114) - - - (114)
Dividends paid - - - - - - (3,441) - (3,441)
At 31 December
2015 1,733 474 3,743 1,828 2,629 4,433 9,132 486 24,458
*Dividend Reinvestment Scheme
BALANCE SHEET
at 31 December 2016
2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Fixed assets
Investments 20,769 20,189
Current assets
Debtors 342 1,757
Cash at bank and in hand 2,302 3,113
2,644 4,870
Creditors: amounts falling due
within one year (153) (601)
Net current assets 2,491 4,269
Net assets 23,260 24,458
Capital and reserves
Called up share capital 1,852 1,733
Capital redemption reserve 485 474
Share premium 5,452 3,743
Merger reserve 1,828 1,828
Special reserve 2,058 2,629
Capital reserve - unrealised 3,161 4,433
Capital reserve - realised 8,088 9,132
Revenue reserve 336 486
Total equity shareholders' funds 23,260 24,458
Basic and diluted net asset value 62.8p 70.6p
per share
STATEMENT OF CASH FLOWS
for the year ended 31 December 2016
2016 2015
GBP'000 GBP'000
Cash flow from operating activities
(Loss)/profit on ordinary activities before taxation (1,033) 3,354
Losses/gains on investments 867 (3,906)
Decrease/(increase) in debtors 1,415 (20)
Decrease in creditors (448) (185)
Net cash inflow/(outflow) from operating activities 801 (757)
Cash flow from investing activities
Purchase of investments (1,892) (2,677)
Proceeds from disposal of investments 445 7,509
Net cash (outflow)/inflow from investing activities (1,447) 4,832
Cash flow for financing activities
Equity dividends paid (1,856) (3,183)
Proceeds from share issue 1,830 773
Purchase of own shares (139) (114)
Net cash outflow from financing activities (165) (2,524)
Net (Decrease)/increase in cash (811) 1,551
Cash and cash equivalents at start of year 3,113 1,562
Cash and cash equivalents at end of year 2,302 3,113
Cash and cash equivalents comprise
Cash at bank and in hand 2,302 3,113
Total cash and cash equivalents 2,302 3,113
NOTES TO THE ACCOUNTS
for the year ended 31 December 2016
1. Accounting policies
General information
Elderstreet VCT plc ("the Company") is a venture capital trust
established under the legislation introduced in the Finance Act 1995 and
is domiciled in the United Kingdom and incorporated in England and
Wales. The Company is a premium listed entity on the London Stock
Exchange.
Basis of accounting
The Company has prepared its financial statements in accordance with the
Financial Reporting Standard 102 ("FRS102") and in accordance with the
Statement of Recommended Practice "Financial Statements of Investment
Trust Companies and Venture Capital Trusts" issued November 2014
("SORP"). The Company implements new Financial Reporting Standards
issued by the Financial Reporting Council when required. There were no
new Standards issued during the year.
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 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
Investments are designated as "fair value through profit or loss" assets,
upon acquisition, 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, with a view to selling
after a period of time, in accordance with the Company's documented
investment policy.
Judgement in applying accounting policies and key sources of estimation
uncertainty
Of the Company's assets measured at fair value, it is possible to
determine their fair values within a reasonable range of estimates. 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 FRS102 sections 11 and 12.
Listed fixed income investments and investments quoted on AIM and the
Main Market are measured using bid prices in accordance with the IPEV.
For unquoted instruments, fair value is established using the IPEV. 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.
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. Permanent impairments in the value of investments are
deemed to be realised losses and held within the Capital Reserve -
Realised.
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 expensed.
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 and FRS102 sections
14 and 15 that do not require portfolio investments to be accounted for
using the equity method of accounting.
Income
Dividend income from investments is recognised when the Shareholders'
rights to receive payment have been established, normally the
ex-dividend date.
Interest income is accrued on a timely 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 as a capital item.
-- 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. The Company has adopted the policy
of allocating investment manager's fees, 75% to capital and 25% to
revenue as permitted by the SORP. The allocation is in line with the
Board's expectation of long term returns from the Company's investments
in the form of capital gains and income respectively.
-- Performance incentive fees arising are treated as a capital item.
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
which arise.
Deferred taxation is not discounted and 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 current tax rates and
law. 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.
Other debtors and other creditors
Other debtors (including accrued income) and other creditors are
included within the accounts at amortised cost.
Issue costs
Issue costs in relation to the shares issued are deducted from the
special reserve account.
2. Basic and diluted return per share
2016 2015
Return per share based on:
Net revenue return for the financial year (GBP'000) 222 262
Net capital (losses)/gains for the financial year
(GBP'000) (1,255) 3,092
Total return for the financial year (GBP'000) (1,033) 3,354
Weighted average number of shares in issue 35,214,342 34,356,056
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on return per share. The return per
share disclosed, therefore, represents both basic and diluted return per
share.
3. Basic and diluted return per share
2016 2015
Shares in issue Net asset value Net asset value
Pence Pence
2016 2015 per share GBP'000 per share GBP'000
Ordinary
Shares 37,034,366 34,660,694 62.8 23,260 70.6 24,458
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on net asset value per share. The
net asset value per share disclosed therefore represents both basic and
diluted net asset value per 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:
-- Market risks;
-- Credit risk; and
-- 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 that may arise on the investments it holds in
accordance with its investment policy. The management of these
investment 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 investment risks to which the Company is exposed are:
-- Investment price risk; and
-- Interest rate risk.
The Company has undertaken sensitivity analysis on its financial
instruments, split into the relevant component parts, taking into
consideration the economic climate at the time of review in order to
ascertain the appropriate risk allocation.
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 investment price movements in respect
of quoted investments and also changes in the fair value of unquoted
investments that it holds.
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 and on liquidity funds at rates based on the
underlying investments. Investments in loan notes and fixed interest
investments attract interest predominately at fixed rates. A summary of
the interest rate profile of the Company's investments is shown below.
Interest rate risk profile of financial assets and financial liabilities
There are three levels of interest which are attributable to the
financial instruments as follows:
-- "Fixed rate" assets represent investments with predetermined yield
targets and comprise fixed interest and loan note investments.
-- "Floating rate" assets predominantly bear interest at rates linked to
Bank of England base rate and comprise cash at bank and Cash Trust
investments.
-- "No interest rate" assets do not attract interest and comprise equity
investments, loans and receivables (excluding cash at bank) and other
financial liabilities.
The Company monitors the level of income received from fixed, floating
and non-interest 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.
The Bank of England base rate decreased from 0.5% per annum to 0.25% per
annum on 4 August 2016. Any potential change in the base rate, at the
current level, would have an immaterial impact on the net assets and
total return of the Company.
Credit risk
Credit risk is the risk that a 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 notes in investee companies, investments in fixed income
securities, cash deposits and debtors.
The Manager manages credit risk in respect of loan notes with a similar
approach as described under market 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 level of security is a key means of
managing credit risk. Similarly, the management of credit risk
associated interest, dividends and other receivables is covered within
the investment management procedures.
Cash is mainly held at Royal Bank of Scotland plc, with a balance also
maintained at Bank of Scotland plc, both of which are A-rated financial
institutions and ultimately part-owned by the UK Government.
Consequently, the Directors consider that the risk profile associated
with cash deposits is low.
There have been no changes in fair value during the year that can be
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. The Company normally has a relatively
low level of creditors (2016: GBP153,000, 2015: GBP428,000) and has no
borrowings. The Company always holds sufficient levels of funds as cash
and readily realisable investments 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
Michael Jackson is a Director of Elderstreet Investments Limited which
provides investment management services to the Company. During the year,
GBP500,000 (2015: GBP472,000) was due in respect of these services. No
performance incentive fees were due to Elderstreet Investments Limited
in respect of the year under review (2015: GBP454,000). GBP454,000 was
outstanding at 31 December 2015.
Nicholas Lewis is a partner of Downing LLP which provides administration
services to the Company. During the year, GBP50,000 (2015: GBP50,000)
was due to Downing LLP in respect of these services.
During 2015, as a result of changes to the VCT rules, the Company was
unable to convert its existing loans in Uvenco UK plc (formerly
SnackTime plc). Following advice from specialist VCT advisors, the
Company sold the loans to the Investment Manager, who converted the
loans into equity. Under the terms of the transaction, the Company is
due sums equal to 75% of any disposal proceeds that the Investment
manager may receive on the shares arising from the conversion. The
market value of those shares decreased by GBP17,000 and accordingly the
debtor due from the Investment Manager was reduced in 2016 by GBP12,697,
being 75% of the value adjustment.
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 December 2016,
but has been extracted from the statutory financial statements for the
year ended 31 December 2016, which were approved by the Board of
Directors on 27 April 2017 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 s498(2) and (3) of the Companies Act 2006.
The statutory accounts for the year ended 31 December 2015 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 December 2016 will be printed and posted to shareholders
shortly. Copies will also be available to the public at the registered
office of the Company at Ergon House, Horseferry Road, London, SW1P 2AL
and will be available for download from www.downing.co.uk.
This announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq 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: Elderstreet VCT plc via Globenewswire
(END) Dow Jones Newswires
April 28, 2017 05:27 ET (09:27 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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