Core VCT II plc ("the Company")
Half-Yearly Report for the six months ended 30 June 2008
Investment Objective
Core VCT II plc ("Core VCT II", "the Company" or "the Fund") is a tax efficient
listed company which aims to achieve long-term capital and income growth and to
distribute tax free dividends comprising realised gains and investors' capital
investment.
Investment approach
We invest management buyout and development capital, typically in:
* Established, private companies, which show:
*
+ Sufficient operating critical mass, with an established economic model.
+ Quality management teams with the key skills in place to deliver a
well-defined business model.
* Amounts of �3 - �8 million in companies valued at �5 - �25 million
Fund structure
Core VCT II is structured as follows:-
* No Annual Management fees
Only when Shareholders have received the first 60 pence of distributions, which
together with an assumed 40 pence of initial tax relief will have realised them
100 pence, will the Manager start to be entitled to 30% of distributions from
the Fund (for further information please see Note 1d) to the Accounts below) .
* Maximise distributions of income and capital
Core VCT II has a policy to distribute all proceeds from realised investments.
The Company has no fixed life but intends to naturally liquidate and distribute
its assets over time. The Manager's incentives are structured to align their
interests in delivering this liquidity for Shareholders as well as maximising
overall investment performance.
Investment Policy
Core VCT II intends to achieve its overall Investment Objective, consistent
with maintaining its qualifying status as a VCT, by pursuing the following
Investment Policy:-
* Asset allocation
The Company may invest all of its assets into private companies. These
investments are unquoted, and include, but are not limited to, Management
Buy-Outs (MBOs) and Development Capital for expansion or acquisition funding
for established companies. After 31 December 2008, the Company must have in
excess of 70% of its assets invested in Qualifying Investments as defined for
VCT purposes.
However, due to the nature of completing and realising such investments, and
the need to maintain some liquid reserves, there will inevitably be periods
when a proportion of its assets are not held in Unquoted Investments.
* Risk management
The Company's Asset Allocation includes a potentially large proportion of the
Company's assets to be held in Unquoted Investments. These investments are not
publicly traded and there is not a liquid market for them, and therefore these
investments may be difficult to realise.
The Company manages its investment risk within the restrictions of maintaining
its qualifying VCT status by using a number of methods commonly used in the
Private Equity industry, including :-
* The active monitoring of its investments by the Manager;
* Seeking the agreement of various rights associated with each investment,
such as board representation, information rights, and veto rights;
* Seeking to hold larger investment stakes by co-investing with other funds
managed by the Manager, so as to gain more significant influence in the
investment and to facilitate investing in larger companies which may reduce
the risk compared to investing in smaller companies.
* Ensuring a spread of investments is achieved.
The Company has no fixed life but intends to realise its assets over time, and
distribute all proceeds (net of costs) from its realised investments. This
process will naturally result in each retained investment representing an
increased proportion of the remaining net assets of the Company.
* Gearing
The Company has the authority to borrow up to the amount paid on the issued
share capital and the amount standing to the credit of the reserves of the
Company but does not ordinarily take advantage of this authority.
As is common in the Private Equity industry, in many cases the Company makes
investments into Unquoted Companies which have, or may have, substantial
borrowings from third party lenders.
Performance Summary
Ordinary Shares 30 June 2008 30 June 2007 31 December 2007
Net asset value per share 95.94 pence 99.45 pence 102.55 pence
Total return to date per share1 99.44 pence 100.95 pence 104.05 pence
Share price (mid-market) 61.50 pence 90.00 pence 90.00 pence
Earnings per share (4.62) pence 3.72 pence 6.82 pence
Cumulative dividends paid per 3.50 pence 1.50 pence 1.50 pence
share since inception
B shares 30 June 2008 30 June 2007 31 December 2007
Net asset value per share 0.01 pence 0.01 pence 0.01 pence
Total return to date per share1 0.01 pence 0.01 pence 0.01 pence
Share price (mid-market) 3.50 pence 3.50 pence 3.50 pence
Earnings per share 0.00 pence 0.00 pence 0.00 pence
Dividends per share 0.00 pence 0.00 pence 0.00 pence
1 Total return per share comprises closing net asset value per share plus
cumulative dividends per share paid to date.
Chairman's Statement
Results
The Net Asset Value (NAV) total return per Ordinary Share was 99.44p as at 30
June 2008, comprising a NAV per Ordinary Share of 95.94p and cumulative
dividends paid of 3.50p per Ordinary Share. This is a decrease over the Total
Return to 31 December 2007 of 4.43%. A deficit of �761,731 was made during the
six month period. A substantial element of this was attributable to a deficit
of �451,386 incurred upon the assets managed by Credit Suisse, and a deficit of
�321,808 representing the net movement on the unquoted qualifying investment
portfolio.
Investments-qualifying investment portfolio
The Manager's Review refers in more detail to the investment programme
generally and the prospects of the investment portfolio. The investment
portfolio now comprises seven investments with a cost of �7.15 million and a
valuation of �7.99 million, and as at 30 June 2008 the Fund was approximately
50% invested compared to the requirement to be 70% invested by 31 December 2008
for VCT purposes. Plans are advanced to exceed the 70% requirement before 31
December 2008.
Although we are seeing good trading performance in most of the portfolio, we
have not increased the valuation of any investment since the year end given the
negative sentiment in the equity markets. In addition, we have chosen to
decrease the valuation of two of the investments below cost. This portfolio is
still relatively young, and whilst the current climate will produce challenges
it will also present acquisition opportunities for companies in the portfolio.
Investments - assets managed by Credit Suisse
As noted above, this part of the portfolio incurred a deficit of �451,386 in
the period. The performance is below expectations and there is an ongoing
review of this with Credit Suisse. In the meantime, the investments made by
Credit Suisse are subject to additional monitoring to ensure that a strategy
leading to unanticipated levels of loss due to market volatility is not, as far
as possible, repeated.
Dividends
Core VCT II is structured to maximise distributions of both capital and income
to Shareholders over the life of the Company. After 31 December 2008, we will
also be working towards returning the proportion of the Fund we do not intend
to invest into unquoted private equity investments, whilst having due regard to
the requirements of the investment portfolio and the working capital needs of
the Fund. Cumulative distributions to date total 3.50p per share.
Developments at the Manager
Core Capital LLP ("Core Capital" or "the Manager") has announced a new UK-wide
business partnership with Aberdeen Asset Management plc ("Aberdeen"). This
alliance is aimed at providing a wider pool of transaction opportunities to
Core Capital, and facilitating in the completion of larger investments both of
which should bring benefits to investors. In addition, Aberdeen will administer
the Core VCTs from 1 July 2008, and we hope that shareholders will benefit from
improvements in our communications in future. Further information on this
important development is contained in the Managers' Review.
Information for Shareholders
The Board supports open communication with investors and welcomes any comments
or questions you may have. As a result of Aberdeen's appointment as
administrator and company secretary, new contact details are provided at the
end of this Statement.
Share price
Both the Ordinary Shares (CR2) and the B Shares (CR2B) are fully listed shares.
Prices are available on www.londonstockexchange.com and the Ordinary Share
price is published daily in the Financial Times. Shareholders are reminded that
their holding of B Shares forms an integral part of their investment along with
their holding of Ordinary Shares.
We are conscious that the mid price of the shares is at a discount to the Net
Asset Value. This discount has widened over recent months, as it has for many
other VCTs, which simply reflects the lack of liquidity in the secondary
market. In addition, whilst Core VCT II is able to buy back shares, we are not
anticipating making any share buy backs over the coming months so that we are
best placed as a Fund to maximise distributions made to all shareholders, as
referred to above. We would also remind shareholders that we view the NAV Total
Return, rather than the share price, as the preferred measure of performance,
as it encompasses the value of the current portfolio and the amount of cash
distributed to shareholders over the life of their investment.
Outlook
The current economic and investment outlook is very uncertain, with sentiment
poor and liquidity, especially from banks, tightening. Our investments cannot
be immune from these economic pressures, although the active management that
goes into the portfolio is reaping benefits. A patient approach to completing
new investments should result in lower prices being paid, and our existing
investments should be able to take advantage of these conditions through
completing acquisitions on attractive terms.
Peter Smaill
Chairman
28 August 2008
Principal Risks and Uncertainties
The Company's assets consist of unquoted investments, securities, cash and
liquid resources. Its principal risks are therefore market risk, credit risk
and liquidity risk. Other risks faced by the Company include economic risks,
the loss of approval as a Venture Capital Trust, failure to comply with other
regulatory requirements, and broader risks such as reputational, operational
and financial risks. These risks, and the way in which they are managed, are
described in more detail in the Annual Report for the year ended 31 December
2007, in note 18 to the accounts. The Company's principal risks and
uncertainties have not changed materially since the date of that report and it
is not envisaged that there will be any changes to the risks and uncertainties
in the remaining six months of the financial year.
Related Party Transactions
Details of related party transactions in accordance with Disclosure and
Transparency Rule 4.2.8 can be found in Note 12 to the Accounts below.
Responsibility Statement
The Directors confirm that to the best of their knowledge:
a. the condensed set of financial statements have been prepared under the fair
value rules of the Companies Act 1985, applicable accounting standards, ASB
Statement on Half-Yearly Financial Reporting and the 2003 Statement of
Recommended Practice "Financial Statements of Investment Trust Companies",
revised December 2005, and give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company, as
required by Disclosure & Transparency Rule 4.2.4; and
b. the interim management report includes a fair review of the information
required by Disclosure & Transparency Rules 4.2.7 - 8 in accordance with
Disclosure & Transparency Rule 4.2.10.
For and on behalf of the Board:
Peter Smaill
Chairman
Co-investment scheme of the Manager
A co-investment scheme has been agreed with the Manager for implementation
during the coming year which will allow executives and members of the Manager
to invest alongside the Company. The Directors believe that the scheme will
further the alignment of interests of the executives and the Company's
shareholders by creating a mechanism for executives to make an investment in
each transaction alongside the Company. In addition, the adoption of such a
scheme brings Core Capital into line with several other leading VCT managers,
and such a scheme is becoming an accepted incentive mechanism to enable the
Manager to attract and retain high quality investment executives in a highly
competitive market.
The scheme will operate through a nominee which will facilitate the investment
alongside the Company in unquoted investments, including any follow-on
investments. In an unlisted investment, the transaction will normally be
structured such that 70% to 90% of the investment is by way of fixed interest
instrument, loan note, or preferred instrument, and 30% to 10% in ordinary
shares. The amount which will be invested by the nominee company is fixed at up
to 5% of the value of the ordinary shares which are available to the Company.
Investment Portfolio Summary
as at 30 June 2008
Date of Book cost Valuation % of net
initial assets by
investment value
�'000 �'000
Qualifying investments
(unquoted)
Kelway Holdings Limited November 2006 1,744 2,868 18.0%
IT Services
Colway Limited (trading as May 2006 1,000 1,462 9.2%
London Graphic Centre)
Office and graphics supplies
Blanc Brasseries Holdings plc April 2006 1,000 1,172 7.4%
Premium casual dining
brasseries
Pureleaf Limited (Baxter January 2006 1,819 1,229 7.8%
International)
Removal company
SPL Services Limited July 2007 1,217 912 5.8%
Specialist courier company
focusing on the medical
industry
Adapt Group Limited (formerly June 2006 124 162 1.0%
Highpitch Limited)
Internet connections and
co-location services
------------ ------------- ------------
Total qualifying investments 6,904 7,805 49.2% 1
Non-qualifying investments
Kelway Holdings Limited June 2008 208 146 0.9%
IT Services
Augentius Fund Administration October 2006 35 35 0.3%
LLP
Fund administrator
Core Holdings I Limited2 March 2007 997 1,014 6.4%
Core Holdings II Limited2 March 2007 973 926 5.9%
Core Holdings III Limited2 March 2007 989 922 5.8%
Short-dated variable rate 2,762 2,749 17.4%
securities
Listed securities 466 311 2.0%
Funds and trusts 227 141 0.9%
------------ ------------- ------------
Total non-qualifying 6,657 6,244 39.6%
investments
------------ ------------- ------------
Total investments 13,561 14,049 88.8%
------------ ------------- ------------
Current assets 1,867 11.8%
Current liabilities (86) (0.6%)
------------ ------------- ------------
Net assets 15,830 100.0%
------------ ------------- ------------
1 Book value of total qualifying investments represents 49.2% of the total book
value of investments. The VCT investment tests are measured broadly on original
cost of investments, including cash balances, and this gives the figure of
approximately 50% quoted in the Chairman's Statement above and the Manager's
Review below in relation to progress towards achieving a minimum of 70% of
total investments invested in qualifying investments from 31 December 2008
onwards.
2 The Core Holdings companies have been set up for the purpose of acquiring
future investments.
Manager's Review
Investment Highlights
* The investment portfolio now comprises seven investments with a cost of �
7.15 million and a value of �7.99 million;
* The Fund was approximately 50% invested in qualifying companies as at 30
June 2008;
* Trading is meeting or exceeding our expectations in most businesses in the
investment portfolio. Valuations, however, have not been increased,
reflecting the uncertainty in the equity and other markets; and
* Core Capital has announced a new partnership with Aberdeen, giving us
access to additional funds and investment opportunities, and an enhanced
administrative and support infrastructure.
New Investments
Since early 2007, we have taken a cautious and patient approach in assessing
potential new investment opportunities, anticipating that economic conditions
would worsen, as we are now seeing. We have not yet seen the prices sought for
established businesses falling sufficiently to fully reflect these conditions,
and accordingly have completed no new investments this year; however, deal
volumes are significantly down, and pricing will follow. We anticipate that
2009 will be a more attractive year in which to make new investments.
Matching these timescales to the investment requirements of VCTs does require
careful planning, and in particular we have plans in place to exceed the 70%
investment requirement before 31 December 2008.
Existing Investments
Overall, we are pleased with the current trading and prospects of most of the
investments in the portfolio, although we are vigilant to problems that might
arise as the economic climate worsens. We have made no material increases in
the valuations of any of the investments, but have made a provision against one
investment, SPL Services, reflecting the weaker short term trading being
experienced. Conversely, we anticipate that there will be attractive
acquisition opportunities available over the next 12-18 months or so, and we
are working to continue to ensure that certain of the existing investments are
well placed to take advantage.
Given the relatively young average age of the investments, we are not planning
any realisations and we would expect the current climate to delay the timeframe
for achieving attractive exits.
Although we have completed no new investments in the period, we have invested a
further �489k into three existing investments.
Each investment is described below:
* Kelway Holdings Limited
Cost �1,952,000, Valuation �3,014,000
Kelway is a fast growing IT reseller targeting organisations with 250 to 1,000
employees. Since the date of our investment, turnover has increased to �97
million in the year ended 31 March 2008. This reflects the successful
completion and integration of a major acquisition completed last year and the
strong overall performance of the business. This business has the capacity to
make further acquisitions and has a low overall level of bank gearing.
* Blanc Brasseries Holdings plc
Cost �1,000,000, Valuation �1,172,000
Blanc Brasseries now operates 7 units and plans to open a number of new units
this year. The business model has been successfully re-worked and trading from
the new and refurbished units is ahead of expectations. We are however mindful
that the climate for consumers is likely to worsen and there are significant
cost pressures in the leisure industry which require careful management. We
have yet to see better economic terms for new sites, but this business is well
placed to take advantage when this does occur.
* Pureleaf Limited (Baxter International)
Cost �1,819,000 Valuation �1,229,000
Baxters is a long established removals and storage business with substantial
freehold property and a long standing relationship with the Ministry of
Defence, for whom Baxters carries out a significant amount of long term
storage.
As reported in the accounts to 31 December 2007, we have settled our claims
against the vendors to our satisfaction. However, we have chosen to maintain
the provision against the cost of this investment but anticipate a release of
this as we see the benefits of the settlement in the actual trading results.
This business has no senior bank gearing and significant unencumbered freehold
assets.
* Colway Limited
Cost �1,000,000, Valuation �1,462,000
Colway is a long established office and graphic supplies business. Since our
original investment, the business has completed four acquisitions and we are
actively pursuing a `buy & build' model to increase the scale of this business.
Turnover has grown from �15.5 million at the date of our investment to over �20
million in the year ended 31 March 2008. Whilst we can expect some impact from
the tougher economic climate, we are planning to take advantage of further
acquisition opportunities as they arise.
* Adapt Group Limited (formerly Highpitch Limited)
Cost �124,000, Valuation �162,000
Adapt is a virtual network operator (VNO) providing telecoms solutions to small
and medium sized businesses.
Adapt has traded in line with expectations. Our investment is structured as a
high yielding investment, and we have received �15k since inception in addition
to the valuation increase over cost as detailed above.
* SPL Services Limited
Cost �1,217,000, Valuation �912,000
SPL Services is a specialist logistics business servicing the pharmaceutical
sector. Whilst this business operates in an attractive market, it is
characterised by long term contracts and relationships; growth can therefore
take some time to be evidenced and we have made a provision against the cost of
this investment to reflect the weaker than expected short term trading. In
addition, we have invested in additional resources primarily in sales,
established an operation in India and are re-locating in the UK, and have
invested a further �93k in the period. In addition, a further �375k investment
commitment entered into at the original date of investment was completed after
the period end. We believe these actions will result in the successful outcome
from a number of significant tender contracts which would restore growth to the
business.
* Augentius Fund Administration LLP
Cost �35,000, Valuation �35,000
Augentius is a leading onshore administrator of private equity funds and was
formerly Ansbacher Fund Services. The business operates from London and
Guernsey and provides out-sourced administration services to many leading
private equity and property funds.
This small investment has a cash yield of 9.5%. The business is trading to
expectations, but we have made no increase in the valuation given the
immaterial size of this investment.
Developments at Core Capital
Core Capital and Aberdeen have agreed a new UK-wide business partnership, aimed
at leveraging the respective strengths of both businesses to provide the best
possible returns for our investors.
Under the terms of this agreement, Core Capital and Aberdeen will operate as
one team, sharing transactions and offering an integrated package of finance
for fast growing SMEs and will manage in excess of �200m in funds.
This alliance will bring significant benefits to investors, providing access to
a wider pool of transactions with broader geographical and risk
diversification.
Aberdeen will also provide back-office administration, accounting and investor
relations services to the Core Funds and the new contact details are set out at
the back of this report.
Unaudited Income Statement
(incorporating the Revenue Account of the Company for the six months ended 30
June 2008)
Six months ended 30 June 2008 Six months ended 30 June 2007
(unaudited) (unaudited)
Notes Revenue Capital Total Revenue Capital Total
� � � � � �
Unrealised (losses)/ 8 - (441,364) (441,364) - 486,912 486,912
gains on investments
Realised losses/ 8 - (331,830) (331,830) - (34,925) (34,925)
(gains) on
investments
Income 5 97,802 - 97,802 240,079 - 240,079
Transaction costs and 1d) (1,935) (7,980) (9,915) (3,675) (18,491) (22,166)
investment management
expense
Other expenses (76,424) - (76,424) (55,479) - (55,479)
---------- ------------ ----------- ------------- ---------- ----------
Return/(loss) on 19,443 (781,174) (761,731) 180,925 433,496 614,421
ordinary activities
before taxation
Tax on ordinary 6 - - - (4,483) 3,652 (831)
activities
---------- ----------- ----------- ------------- ---------- ----------
Return/(loss) 19,443 (781,174) (761,731) 176,442 437,148 613,590
attributable to
equity shareholders
---------- ----------- ----------- ------------- ---------- ----------
Return/(loss) per 7 0.12p (4.74)p (4.62)p 1.07p 2.65p 3.72p
0.01p Ordinary share
Dividends paid � � � � � �
Interim dividend paid 329,545 - 329,545 - - -
for year ended 31
December 2007 of 2.0p
per share
Final dividend paid - - - 247,386 - 247,386
for period from 23
September 2005 to 31
December 2006 of
1.50p per share
Year ended 31 December 2007
(audited)
Notes Revenue Capital Total
� � �
Unrealised 8 - 785,618 785,618
(losses)/gains on
investments
Realised losses/ 8 - 96,446 96,446
(gains) on
investments
Income 5 489,711 - 489,711
Transaction costs 1d) (5,761) (102,884) (108,645)
and investment
management expense
Other expenses (137,162) - (137,162)
---------- ----------- -----------
Return/(loss) on 346,788 779,180 1,125,968
ordinary
activities before
taxation
Tax on ordinary 6 (13,223) 13,017 (206)
activities
---------- ----------- -----------
Return/(loss) 333,565 792,197 1,125,762
attributable to
equity
shareholders
---------- ----------- -----------
Return/(loss) per 7 2.02p 4.80p 6.82p
0.01p Ordinary
share
Dividends paid � � �
Interim dividend - - -
paid for year
ended 31 December
2007 of 2.0p per
share
Final dividend 247,386 - 247,386
paid for period
from 23 September
2005 to 31
December 2006 of
1.50p per share
Unaudited Balance Sheet
as at 30 June 2008
As at As at As at
30 June 2008 30 June 2007 31 December 2007
(unaudited) (unaudited) (audited)
Notes � � �
Non-current assets
Investments at fair 8 14,049,490 14,731,076 15,357,867
value
--------------------- --------------------- ---------------------
Current assets
Debtors and 1,827,753 1,732,544 1,571,266
prepayments
Cash at bank 38,872 118,281 138,712
--------------------- --------------------- ---------------------
1,866,625 1,850,825 1,709,978
Creditors: amounts (86,521) (173,203) (146,975)
falling due within one
year
--------------------- --------------------- ---------------------
Net current assets 1,780,104 1,677,622 1,563,003
--------------------- --------------------- ---------------------
Net assets 15,829,594 16,408,698 16,920,870
--------------------- --------------------- ---------------------
Capital and reserves 9
Called up share 1,649 1,649 1,649
capital
Called up B share 2,474 2,474 2,474
Capital
Capital redemption 2 2 2
reserve
Share premium account 7,802,214 7,802,214 7,802,214
Capital reserve - 488,964 691,955 915,087
unrealised
Capital reserve - (313,065) (89,930) 41,986
realised
Special distributable 7,788,558 7,788,558 7,788,558
reserve
Revenue reserve 58,798 211,776 368,900
--------------------- --------------------- ---------------------
Total equity 15,829,594 16,408,698 16,920,870
shareholders' funds
--------------------- --------------------- ---------------------
Net asset value per
share (attributable
assets basis)
Net asset per 0.01p 10 95.94p 99.45p 102.55p
Ordinary Share
Net asset per 0.01p B 10 0.01 p 0.01 p 0.01 p
Share
Reconciliation of Movements in Shareholders' Funds
for the six months ended 30 June 2008
Six months ended Six months ended Year ended
30 June 2008 30 June 2007 31 December 2007
(unaudited) (unaudited) (audited)
� � �
Opening 16,920,870 16,056,152 16,056,152
shareholders' funds
Net share capital - (13,658) (13,658)
bought back
(Loss)/return for (761,731) 613,590 1,125,762
the period
Dividends paid in (329,545) (247,386) (247,386)
period
-------------------- --------------------- ---------------------
Closing 15,829,594 16,408,698 16,920,870
shareholders' funds
========== ========== ==========
Unaudited Summarised Cash Flow Statement
for the six months ended 30 June 2008
Six months ended Six months ended Year ended
30 June 2008 30 June 2007 31 December 2007
(unaudited) (unaudited) (audited)
Notes � � �
Operating activities
Income received 169,762 243,571 411,460
Investment management (58,071) (18,558) (28,954)
fees and transaction
costs paid
Other cash payments (163,781) (69,793) (213,680)
-------------------- --------------------- ---------------------
Net cash (outflow)/ (52,090) 155,220 168,826
inflow from operating
activities
Taxation
UK Corporation tax - - (44,917)
paid
Investing activities
Acquisitions of 8 (4,297,794) (5,020,768) (7,372,147)
investments
Disposals of 8 4,579,589 4,725,146 7,128,267
investments
-------------------- --------------------- ---------------------
Net cash inflow/ 281,795 (295,622) (243,880)
(outflow) from
investing activities
Equity dividends paid (329,545) (247,386) (247,386)
-------------------- --------------------- ---------------------
Cash outflow before (99,840) (387,788) (367,357)
financing and liquid
resource management
Financing
Share capital bought - (13,658) (13,658)
back
-------------------- --------------------- ---------------------
Decrease in cash for (99,840) (401,446) (381,015)
the period
-------------------- --------------------- ---------------------
Reconciliation of Net Revenue before Taxation to Net Cash Inflow from Operating
Activities
for the six months ended 30 June 2008
Six months Six months Year ended
ended ended
31 December 2007
30 June 2008 30 June 2007
(unaudited) (unaudited) (audited)
� � �
Revenue return before 19,443 180,925 346,788
taxation
Investment management (7,980) (18,491) (102,884)
fees charged to
capital
(Decrease)/increase in (3,099) 5,200 (87,358)
debtors
(Decrease)/increase in (60,454) (5,033) 14,280
creditors
Non cash movement - (7,381) (2,000)
----------- ----------- -----------
Net cash (outflow)/ (52,090) 155,220 168,826
inflow from operating
activities
Notes to the Unaudited Financial Statements
1. Principal accounting policies
A summary of the principal accounting policies, all of which have been applied
consistently throughout the period, is set out below:
a) Basis of accounting
The accounts have been prepared under the fair value rules of the Companies Act
1985, and in accordance with United Kingdom Generally Accepted Accounting
Practice consistent with the accounting policies set out in the audited
statutory accounts for the year ended 31 December 2007 and, to the extent that
it does not conflict with the Companies Act 1985, and UK accounting standards,
the 2003 Statement of Recommended Practice, `Financial Statements of Investment
Trust Companies', revised December 2005, amended October 2006.
b) Presentation of the Income Statement
In order to better reflect the activities of a VCT 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 total
column. The revenue return 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.
c) Investments
All investments held by the Company are classified as at "fair value through
profit and loss". For investments actively traded in organised financial
markets, fair value is generally determined by reference to Stock Exchange
market quoted bid prices at the close of business on the balance sheet date.
Unquoted investments are valued by the Directors in accordance with the
following rules, which are consistent with the International Private Equity
Venture Capital Valuation (IPEVCV) guidelines published in 2005:
(i) Investments which have been made in the last 12 months are valued at fair
value, which unless another methodology gives a better indication of fair
value, will be at cost.
(ii) Investments in companies at an early stage of their development are valued
at fair value, which unless another methodology gives a better indication of
fair value, will be at cost.
(iii) Where investments have gone beyond the stage in their development in
(ii) above, the shares may be valued, in the absence of overriding factors, by
applying a suitable price-earnings ratio to that company's maintainable
earnings (the ratio used being based on a comparable listed company or sector
but the resulting value being discounted to reflect lack of marketability).
Where overriding factors apply, alternative methods of valuation will be used.
These may include the application of a material arms length transaction by an
independent third party, cost, cost less provision for impairment, discounted
cash flow, or a net asset basis.
(iv) Where a value is indicated by a material arms-length transaction by a
third party in the shares of a company, this value will be used.
(v) Where a company's underperformance against plan indicates a permanent
diminution in the value of the investment, provision against cost is made and
charged to the realised capital reserve.
d) Transaction costs and investment management expense
The Company is responsible for any external costs such as legal or accounting
fees incurred on transactions that do not proceed to completion. Such
transaction costs, and other transaction costs, are charged 100% against
capital.
The Board has considered the intrinsic value of the B shares allotted to the
Manager at the period end, as the valuation should be considered over the
period of the Manager's service. The resulting valuation, less the amount
subscribed by the Manager for these shares, is spread over the estimated
investing period.
Given the inherent uncertainties in projecting the investment performance of
the Manager (which will ultimately determine the value of the B shares) the
Board consider that the fair value of these shares at the period end is �1,237,
being 0.01p per share. This is the subscription price paid by the Manager, and
as the Manager has paid this value in cash, there is no investment management
expense attributable to Core Capital LLP in the current period.
75% of the investment management expense attributable to Credit Suisse is
charged against capital. This is in line with the Board's expected long-term
split of returns from the investment portfolio of the Company.
Third party transaction costs arise from aborted transactions where such costs
are not otherwise recoverable. Under the agreement with the Manager, these
costs are to be borne by the Company and by the other VCTs managed by Core
Capital. The amount of such costs for the period ended 30 June 2008 is �nil (30
June 2007: �5,296; 31 December 2007: �82,752).
e) Income
Dividends receivable on quoted equity shares are brought into account on the
ex-dividend date. Dividends receivable on unquoted equity shares are brought
into account when the Company's right to receive payment is established and
there is no reasonable doubt that payment will be received. Fixed returns on
non-equity shares are recognised on a time apportionment basis so as to reflect
the effective yield, provided there is no reasonable doubt that payment will be
received in due course. Fixed returns on debt securities are recognised on a
time-apportioned basis so as to reflect the effective yield. Provisions are
made against such income receivable as soon as it is considered doubtful that
such income will be received.
f) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
wholly to revenue, with the exception of expenses incidental to the acquisition
or disposal of an investment, which are charged to the capital column of the
Income Statement.
g) Taxation
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax in the future or a right to
pay less tax in the future have occurred at the balance sheet date. Timing
differences are differences between the Company's taxable profits and its
results as stated in the financial statements.
Deferred tax is measured at the average tax rates that are expected to apply in
the years in which the timing differences are expected to reverse based on tax
rates and laws that have been enacted or substantially enacted at the balance
sheet date.
Deferred tax is measured on a non-discounted basis. Any tax relief obtained in
respect of management fees allocated to capital is reflected in the capital
reserve - realised and a corresponding amount is charged against revenue. The
tax relief is the amount by which corporation tax payable is reduced as a
result of these capital expenses.
2. The revenue column of the Income Statement is the profit and loss account of
the Company. There were no other gains and losses in the six months ended 30
June 2008, or the comparative periods.
3. All revenue and capital items in the Income Statement derive from continuing
operations.
4. Earnings for the six months ended 30 June 2008 should not be taken as a
guide to the results for the year ending 31 December 2008.
5. Income
Six months Six months Year ended
ended ended
31 December
30 June 2008 30 June 2007 2007
(unaudited) (unaudited) (audited)
� � �
From:
Fixed and variable 33,296 37,547 37,546
interest securities
Dividends - from listed 3,873 101,735 139,243
securities
Dividends - from unlisted 80,232 56,493 150,321
securities
Loan stocks (33,905) 33,661 145,826
Bank interest 14,306 10,643 16,775
--------- --------- ---------
97,802 240,079 489,711
Loan stock income above is stated after providing against �72,091 of loan
interest receivable recognised in the previous year.
6. Taxation
There is no tax charge for the period because most of the income is
non-taxable, so taxable losses have been incurred for the period.
7. Earnings and return per share
Six months Six months Year ended
ended ended
31 December
30 June 2008 30 June 2007 2007
(unaudited) (unaudited) (audited)
� � �
i) Total earnings after (761,731) 613,590 1,125,762
taxation
Basic earnings per (4.62)p 3.72p 6.82p
share
ii) Net revenue from 19,443 176,442 333,565
ordinary activities
after taxation
Revenue return per 0.12p 1.07p 2.02p
share
Net unrealised capital (441,364) 486,912 785,618
(losses)/gains
Net realised capital (331,830) (34,925) 96,446
(losses)/gains
Capital expenses (7,980) (14,839) (89,867)
----------- ----------- -----------
iii) Total capital (781,174) 437,148 792,197
(loss)/return
Capital (loss)/return (4.74)p 2.65p 4.80p
per share
iv) Weighted average 16,497,230 16,580,508 16,502,833
number of ordinary
shares in issue in the
period
The basic earnings, revenue return and capital return per share shown above for
each period are respectively based on numerators i)-iii), each divided by iv),
the weighted average number of shares in issue in the period.
None of the returns to date are attributable to the B shares. Accordingly, no
diluted earnings and return per share are disclosed.
8. Summary of investments during the period
Fully listed Unlisted Loan stock Investments Fixed and Funds and Total
ordinary in variable trusts
Shares associated interest
companies rate
securities
� � � � � � �
Valuation at 1 3,213,401 3,305,512 4,591,387 2,915,766 - 1,331,801 15,357,867
January 2008
Purchases at 74,000 301,020 187,500 - 3,323,244 158,642 4,044,406
cost
Sales - (2,758,487) - (131,250) - (560,242) (1,129,610) (4,579,589)
proceeds
- realised (143,889) - - - (1,405) (186,536) (331,830)
losses
Movement in (74,232) (39,237) (229,000) (53,571) (12,106) (33,218) (441,364)
unrealised
losses
------------ ------------ ------------ ------------ ------------ ------------ ------------
Valuation at 30 310,793 3,567,295 4,418,637 2,862,195 2,749,491 141,079 14,049,490
June 2008
Book cost at 30 467,324 2,142,563 5,003,637 2,958,605 2,761,597 226,800 13,560,526
June 2008
Unrealised (156,531) 1,424,732 (585,000) (96,410) (12,106) (85,721) 488,964
(losses)/gains
at 30 June 2008
------------ ------------ ------------ ------------ ------------ ------------ ------------
Valuation at 30 310,793 3,567,295 4,418,637 2,862,195 2,749,491 141,079 14,049,490
June 2008
Reconciliation of cash movements in investment transactions
Deducting the unsettled trade of �253,388 from purchases of �4,297,794 as shown
in the summarised Cash Flow Statement leaves purchases of �4,044,406 as shown
above.
9. Capital and reserves
Called up Called up Capital Share Unrealised
ordinary B share redemption premium capital
share capital reserve account reserve
capital
� � � � �
At 1 January 2008 1,649 2,474 2 7,802,214 915,087
Losses on disposal of - - - - -
investments
Unrealised movements in - - - - (441,364)
fair value
Transaction costs less - - - - -
tax charge
Management fees on - - - - -
Credit Suisse portfolio
Realisation of - - - - 15,241
previously unrealised
movement in fair value
Net revenue for the - - - - -
period
Dividends paid - - - - -
---------- ---------- ---------- ---------- ----------
At 30 June 2008 1,649 2,474 2 7,802,214 488,964
Realised Special
capital distributable Revenue
reserve reserve reserve Total
� � � �
At 1 January 2008 41,986 7,788,558 368,900 16,920,870
Losses on disposal of (331,830) - - (331,830)
investments
Unrealised movements in - - - (441,364)
fair value
Transaction costs less (2,178) - - (2,178)
tax charge
Management fees on Credit (5,802) - - (5,802)
Suisse portfolio
Realisation of previously (15,241) - - -
unrealised movement in
fair value
Net revenue for the - - 19,443 19,443
period
Dividends paid - - (329,545) (329,545)
---------- ---------- ---------- ----------
At 30 June 2008 (313,065) 7,788,558 58,798 15,829,594
10. Net asset values
The Net Asset Values per share, as disclosed on the balance sheet, are based on
attributable assets at the date of the balance sheet and assume that no
break-up of the Company will occur. The Board consider that the Articles basis
reflects the attribution of assets between the two classes of shares that would
occur in the event that a liquidation of the Company took place. On
liquidation, B shareholders could be entitled to up to 40% of the assets
remaining after Ordinary shareholders first recover their effective initial
cost of 60 pence per share plus the annual hurdle rates due to both share
classes, achieved up to the date of liquidation.
At this early stage in the Company's life, the Board considers that liquidation
is unlikely, and that attributing to the B shares purely the capital
contributed of 0.01 penny per share reflects the Board's best estimate at 30
June 2008 of the B shares' entitlement to assets at 30 June, given the inherent
uncertainties in projecting the investment performance of the Manager (which
will ultimately determine the B shares' entitlement to the Company's assets).
The Net Asset Values per share have been calculated by reference to the numbers
of shares in issue at 30 June 2008, as follows:
30 June 2007 30 June 2006
Share capital � �
16,497,230 (30 June 2007: 16,497,230) 1,649 1,649
0.01p Ordinary shares
24,738,570 (30 June 2007 24,738,570) 2,474 2,474
0.01p B shares
----------- -----------
4,123 4,123
0.01p Ordinary shares Total attributable Net asset value
net assets � (pence per share)
In accordance with the Articles 12,828,657 77.76 p
Reduced entitlement to assets in 2,998,463 18.18 p
accordance with the Articles
----------- -----------
Attributed basis 15,827,120 95.94 p
0.01p B shares
In accordance with the Articles 3,000,937 12.13p
Additional entitlement to assets in (2,998,463) (12.12)p
accordance with the Articles
----------- -----------
Attributed basis 2,474 0.01p
11. Subsequent events
After 30 June 2008, the Company has invested a further �375,000 in SPL Services
Ltd, a specialist logistics company.
12. Related party transactions
Lord Walker is also a Director of Caparo plc, which is a member of the Manager,
Core Capital LLP. No amounts have been paid or are payable to Caparo plc.
13. The financial information for the six months ended 30 June 2008 and 30 June
2007 has neither been audited nor reviewed.
14. The information for the year to 31 December 2007 does not comprise full
financial statements within the meaning of Section 240 of the Companies Act
1985. The financial statements for the year ended 31 December 2007 have been
filed with the Registrar of Companies. The auditors have reported on these
financial statements and that report was unqualified and did not contain a
statement under section 237(2) of the Companies Act 1985.
15. Copies of this statement are being sent to all shareholders. Further copies
are available free of charge from the Company's registered office, One Bow
Churchyard, London, EC4M 9HH.
Shareholder enquiries:
For information on your holding, to notify the Company of a change of address
or to request a dividend mandate form (should you wish to have future dividends
paid directly into your bank account) please contact the Company's Registrars,
Capita IRG plc, Northern House, Woodsome Park, Fennay Bridge, Huddersfield HD8
0LA (Tel: 0871 664 0300 (calls cost 10p per minute plus network extras), if
calling from overseas dial +44 208 639 3399) or should you prefer visit their
website at www.capitaregistrars.com.
For enquiries concerning the performance of the Company, please contact the
Investment Manager at Core Capital LLP:
Stephen Edwards on 020 7317 0150 or by e-mail on Stephen.Edwards@Core-Cap.com
Walid Fakhry on 020 7317 0145 or by e-mail on Walid.Fakhry@Core-Cap.com
For other Shareholder enquiries, including the sale of shares, please contact
the Company Secretary and Administrator, Aberdeen Asset Management plc,
Sutherland House, 149 St Vincent Street, Glasgow G2 5NW (telephone 0845 300
2830) or alternatively visit their website www.aberdeen-asset.com, email:
vcts@aberdeen-asset.com.
Corporate Information
Directors www.core-cap.com
Peter Smaill (Chairman)
Lord Walker
John Brimacombe
All of whom are non-executive and of: Solicitors
One Bow Churchyard SJ Berwin
London 10 Queen Street Place
EC4M 9HH London
EC4R 1BE
Company Secretary and administrator Auditors
Aberdeen Asset Management plc Ernst & Young LLP
Sutherland House 1 More London Place
149 St Vincent Street London
Glasgow SE1 2AF
G2 5NW
Investment Manager Bankers
Core Capital LLP Bank of Scotland
103 Baker Street PO Box No. 39900 Level 7
London Bishopsgate Exchange
W1U 6LN 155 Bishopsgate
London EC2M 3YB
VCT Tax Adviser Sponsor and Stockbroker
PricewaterhouseCoopers LLP Brewin Dolphin Securities Limited
1 Embankment Place PO Box 512
London National House
WC2N 6RH 36 St Ann Street
Manchester M60 2EP
Cash Assets Investment Manager Registrar
Credit Suisse Capita Registrars
Private Banking, London Branch Northern House
17th Floor Woodsome Park
1 Cabot Square Fennay Bridge
London Huddersfield
E14 4QJ HD8 0LA
Receiving Agent Promoter
Matrix Registrars Limited Brewin Dolphin Securities Limited
One Vine Street 5 Giltspur Street
London London
W1J 0AH EC1A 9BD
Company No : 5572545
END
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