Half-yearly report
Pennine AIM VCT 5 plc
Half-Yearly Report
for the six months ended 31 March 2008
SHAREHOLDER INFORMATION
Performance
31 Mar 2008 30 Sept 2007 31 Mar 2007
pence pence pence
Net asset value per share 71.3 92.2 90.7
Cumulative distributions per 3.5 2.5 2.5
share (paid)
Total return per share 74.8 94.7 93.2
Dividend History
Year end (including interim dividends) Pence per share
2005 (paid 24 February 2006) 1.00
2006 (paid 26 February 2007) 1.50
2007 (paid 25 February 2008) 1.00
Cumulative dividends paid to date 3.50
Proposed Special Dividend (payable on 30 July 2008) 26.50
Cumulative dividend paid by 31 July 2008 30.00
CHAIRMAN'S STATEMENT
I present the Company's half year results for the six months ended 31
March 2008. The period has been notable for a marked deterioration
in economic conditions and sharp falls in stock market values,
particularly amongst smaller companies. This has impacted on your
Company's Net Asset Value ("NAV").
Net asset value
At the period end, the NAV per share of the Company stood at 71.3p, a
decrease of 19.9p (21.8%) since 30 September 2007 (after adjusting
for the dividend of 1.0p per share paid in the period).
The fall in the Company's NAV over the period has been caused by
heavy falls in value of a number of investments, some of which are
discussed below. A reduction in NAV of this quantum is very
disappointing but is similar to that experienced by many other
AIM-based VCTs and illustrates how badly the valuations of small
quoted businesses have been hit in the current downturn.
Venture capital investments
Over the period, the value of the portfolio of the portfolio fell by
�4.05 million, accounting for 18.2p of the fall in NAV. In addition,
the Company made realised losses of �345,000, equivalent to 1.5p per
share, although it should be noted that this represented a gain
against original cost of �270,000.
RFTRAQ, MyHome, Doubletake, Hill Station and Kellan Group have seen
some of the largest falls in value over the period.
RFTRAQ, an unquoted technology business, has developed more slowly
than had been hoped, primarily due to contract delays. In addition,
that company's anticipated IPO now appears more difficult to achieve
in the short term and, therefore, the Board has marked down the
equity element of the investment by �672,000. It should, however, be
noted that the current valuation is only �82,000 below original cost.
MyHome, the AIM-quoted domestic services franchise group, has traded
below expectations, which has had a significant negative impact on
its share price, causing a fall in the value of the investment over
the period of �565,000. Despite this, the company is continuing to
develop and is upbeat about its prospects. It is worth noting that
some profits at much higher levels had been taken historically.
Doubletake, an unquoted photographic studio business, undertook a
further fundraising during the period. Although the business appears
to have good prospects, the Board has marked down the investment to
the valuation of the recent fundraising, producing a fall in carrying
value of �282,000.
Hill Station, an AIM-quoted Ice Cream manufacturer, underwent
management changes and a reorganisation and Kellan Group (formerly
Berkeley Scott Group) has undergone some major strategic changes.
The share prices of both companies fell significantly over the period
reducing the valuation of the holdings by �274,000 and �313,000
respectively.
Although we would normally expect to see some investments falling in
value over any period, we also expect some increases which would
offset their impact on the Company's performance. This has not been
the case over this difficult period, where only a small number of
investments have shown any increase in value, and, even then, at very
low levels.
The Company did make a small number of new investments during the
period. The largest investment was �1 million into Cadbury House
Limited, which was part of a reorganisation allowing the Company to
realise a gain of �573,000 from its previous investment in Cadbury
House Hotel & Country Club Limited. A summary of the investment
additions and disposals during the period is shown below.
Fixed income securities portfolio
The Company's one remaining fixed income security matured during the
period, realising a small loss against the previous market value of
�5,000.
Results
The loss on activities during the period was �4.5 million, comprising
a revenue profit of �45,000 and a capital loss of �4.53 million.
Cash return to Shareholders
In the Company's original prospectus, the Directors stated that they
were "targeting a tax free cash return to Shareholders of 30p per �1
invested, by 31 July 2008, through a combination of the Tender Offer
and Dividend payments". I am pleased to announce that, even in this
uncertain climate, the Company will meet this target.
The Board has reviewed the methods available of returning the
remainder of the targeted funds to Shareholders and concluded that in
view of the costs associated with undertaking a tender offer, payment
of the funds wholly by way of a dividend is the most efficient
route. An additional attraction is that Shareholders will have to
take no action to ensure that they receive the dividend, unlike a
tender offer.
As Shareholders have already received 3.5p per share in previous
dividends, the Company will pay a Special Dividend of 26.5p per share
on 30 July 2008 to Shareholders on the register at 11 July 2008.
Following payment of that dividend, Shareholders will have received
the targeted 30p per share.
Share buybacks
The Company has operated a policy of buying shares that became
available in the market at a 10% discount to the latest published
NAV. During the period, the Company repurchased 294,338 Ordinary
Shares each for an average price of 72.9p and an aggregate
consideration of �215,000.
Following the payment of the July 2008 dividend, the Company will be
virtually 100% invested in VCT Qualifying companies. In the current
market conditions, the Board is therefore conscious of its duty to
carefully manage the Company's liquidity.
In order to ensure that all Shareholders are treated fairly, the
Company will, for the time being, not make any further market
purchases of shares. Instead, the Board intends to undertake regular
tender offers, the first of which will be launched in January 2009
when the next Annual Report is published.
The tender offer will allow Shareholders to sell shares to the
Company at a 10% discount to the prevailing NAV. Subject to
liquidity considerations, the Board will allocate funds equivalent to
the value of 10% of the issued share capital. Shareholders wishing
to do so will, therefore, be able to sell at least 10% of their
holding in the Company at that time.
The Board acknowledges that this may have a short-term impact on the
Company's share price, and that the market in the Company's shares
may be very limited for a period until the first tender offer takes
place. However, the Board is convinced that this approach is in the
best interests of all Shareholders in that it gives the Board
adequate control over the Company's liquid funds and puts in place an
orderly system for the use of those funds for buybacks.
Risk and uncertainties
Under the Disclosure and Transparency Directive, the Board is now
required in the Company's half year results, to report on principal
risks and uncertainties facing the Company over the remainder of the
financial year. The Board has concluded that the key risks facing the
Company over the remainder of the financial period are as follows:
investment risk associated with investing in small and immature
businesses;
short-term liquidity risk as a result of payment of the Special
Dividend and
failure to maintain approval as a VCT.
In all cases the Board is satisfied with the Company's approach to
these risks. Although the Company has significant exposure to the
relatively immature businesses quoted on AIM, by holding a
well-diversified portfolio, the impact of any sharp negative changes
in market conditions can, as far as possible, be reduced.
In respect of liquidity, the Board is conscious the main
unpredictable factor affecting cash resources will be the demand for
share buybacks and will therefore exert appropriate controls over the
level undertaken, by using a tender offer as opposed to general
market purchases.
The Company's compliance with the VCT regulations is continually
monitored by the Administration Manager, who regularly reports to the
Board on the current position. The Company also retains
PricewaterhouseCoopers to provide regular reviews and advice in this
area. The Board considers that this approach reduces the risk of a
breach of the VCT regulations to a minimal level.
Outlook
As stated at the Company's outset, following the return of 30p to
Shareholders at the end of three years, it is the intention of the
Company to pay regular tax-free dividends. After the July 2008
dividend, the net cost of the investment to original shareholders
(after income tax relief) will be 30p per share. The Board is now
targeting an annual tax-free dividend of 3p per share. This will be
equivalent to a yield of 10% per annum tax-free, or 16.7% per annum
grossing up for higher rate tax-payers (based on net cost).
In terms of investment performance, the short-term outlook is
unclear. However, some reassurance can be gained from the fact that,
in many cases, the trading of the underlying investments has not been
adversely affected by the prevailing conditions. The falls in share
prices seen are generally a consequence of market sentiment. This
suggests that, given time, the Company's portfolio can deliver
rewards to Shareholders.
For the longer term outlook of the Company, the Board will consider
strategic options over the next 18 months or so. A resolution is due
to be put to Shareholders at the Company's AGM in 2010 as to whether
it should continue as a venture capital trust. The Board will
therefore conclude their review in time to make a recommendation to
Shareholders regarding this matter.
INCOME STATEMENT
for the six months ended 31 March 2008
Six months ended
31 Mar 2008
Revenue Capital Total
�'000 �'000 �'000
Income 202 - 202
Losses on investments - (4,396) (4,396)
202 (4,396) (4,194)
Investment management fees (47) (141) (188)
Other expenses (101) (1) (102)
Return on ordinary activities 54 (4,538) (4,484)
before taxation
Taxation (9) 9 -
Return attributable to equity 45 (4,529) (4,484)
shareholders
Basic and diluted return per share 0.2p (20.1p) (19.9p)
Year
Six months ended ended
31 Mar 2007 30 Sept
2007
Revenue Capital Total Total
�'000 �'000 �'000 �'000
Income 306 - 306 605
Losses on investments - (488) (488) (164)
306 (488) (182) 441
Investment management fees (48) (144) (192) (376)
Other expenses (111) - (111) (215)
Return on ordinary activities 147 (632) (485) (150)
before taxation
Taxation (26) 26 - -
Return attributable to equity 121 (606) (485) (150)
shareholders
Basic and diluted return per share 0.5p (2.7p) (2.2p) (0.6p)
A Statement of Total Recognised Gains and Losses has not been
prepared as all gains and losses are recognised in the Income
Statement as noted above.
UNAUDITED SUMMARISED BALANCE SHEET
as at 31 March 2008
31 Mar 31 Mar 30 Sept
2008 2007 2007
�'000 �'000 �'000
Fixed asset investments 9,631 18,132 20,496
Net current assets 6,255 2,362 315
Net assets 15,886 20,494 20,811
Capital and reserves
Called up share capital 2,227 2,259 2,257
Capital redemption reserve 38 6 8
Special reserve 17,336 19,142 18,414
Capital reserve - realised 1,675 60 759
Capital reserve - unrealised (5,461) (1,102) (879)
Revenue reserve 71 129 252
Total equity shareholders' funds 15,886 20,494 20,811
Basic and diluted net asset value 71.3p 90.7p 92.2p
per share
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
31 Mar 31 Mar 30 Sept
2008 2007 2007
�'000 �'000 �'000
Opening shareholders' funds 20,811 21,318 21,318
Repurchase of own shares (215) - (18)
Total recognised losses for the period (4,484) (485) (150)
Dividends paid in period (226) (339) (339)
Closing shareholders' funds 15,886 20,494 20,811
UNAUDITED CASH FLOW STATEMENT
for the six months ended 31 March 2008
31 Mar 31 Mar 30 Sept
2008 2007 2007
�'000 �'000 �'000
Net cash inflow from operating
activities and returns on 5 51
investments 28
Taxation - - (38)
Capital expenditure
Purchase of investments (1,854) (4,031) (6,516)
Proceeds from sale of investments 8,051 6,307 6,753
Net cash inflow from capital 6,197 2,276 237
expenditure
Equity dividends paid (226) (339) (339)
Net cash inflow/(outflow) before 5,976 1,988 (112)
financing
Financing
Purchase of own shares (233) - -
Net cash outflow from financing (233) - -
Increase/(decrease) in cash 5,743 1,988 (112)
Notes to the cash flow statement:
1.Net cash inflow from operating
activities and returns on
investments
Loss on ordinary activities before (4,484) (485) (150)
taxation
Losses on investments 4,396 488 164
Decrease in other debtors 118 71 13
(Decrease)/increase in other (25) (23) 1
creditors
Net cash inflow from operating 5 51 28
activities
2.Analysis of net funds
Beginning of period 213 325 325
Net cash inflow/(outflow) 5,743 1,988 (112)
End of period 5,956 2,313 213
SUMMARY OF INVESTMENT PORTFOLIO
as at 31 March 2008
Unrealised
gain/(loss) % of
Cost Valuation in period portfolio
�'000 �'000 �'000 by value
Top twenty venture capital investments
Cadbury House Limited * 1,000 1,000 - 6.4%
Hoole Hall Country Club 750 750 - 4.8%
Limited *
Hill Station plc 1,104 572 (274) 3.7%
RFTRAQ Limited * 532 450 (672) 2.9%
Zamano plc 328 410 65 2.6%
Concateno plc 288 406 (61) 2.6%
Doubletake Portraits Limited 645 363 (282) 2.3%
IDOX plc 294 352 (20) 2.3%
Servoca plc 292 350 (163) 2.2%
Travelzest plc 425 327 (138) 2.1%
The Mission Marketing Group 472 314 (255) 2.0%
plc
First Care Limited * 275 275 - 1.8%
AT Communications Group plc 357 272 (76) 1.7%
Boomerang Plus plc 210 233 22 1.5%
Gourmet Holdings plc 500 222 (153) 1.4%
Kellan Group plc 500 213 (313) 1.4%
FDM Group plc 169 212 (63) 1.4%
Universe Group plc 309 210 (99) 1.3%
Clerkenwell Ventures plc 300 200 (120) 1.3%
Bioganix plc 256 192 (96) 1.2%
9,006 7,323 (2,698) 46.9%
Other venture capital 6,087 2,308 (1,358) 14.9%
investments
15,093 9,631 (4,056) 61.8%
Cash at bank and in hand 5,956 38.2%
Total investments 15,587 100.0%
All venture capital investments are quoted on AIM unless otherwise
stated.
* Unquoted
SUMMARY OF INVESTMENT MOVEMENTS
for the six months ended 31 March 2008
Additions
�'000
Boomerang Plus plc 225
Cadbury House Limited 1,000
Doubletake Portraits Limited 70
Ludorum plc 175
Hill Station plc 135
Plastics Capital plc 185
Spice plc 62
Sundry venture capital investments 2
1,854
Disposals
Gain/ Total
Market (loss) realised
value at 1 Disposal against gain/
Cost Oct 2007 * Proceeds cost (loss)
�'000 �'000 �'000 �'000 �'000
Full disposals
Accuma plc 401 45 29 (372) (16)
Cadbury House Hotel &
Country Club Ltd 755 1,307 1,328 573 21
Revenue Assurance
Services plc 126 292 221 95 (71)
Partial disposals
AT Communications plc 88 86 65 (23) (21)
Autoclenz Holdings plc 63 49 25 (38) (24)
Belgravium Technologies
plc 28 25 20 (8) (5)
Boomerang Plus plc 16 16 18 2 2
Brulines Holdings plc 62 67 71 9 4
Concateno plc 91 145 128 37 (17)
Daniel Stewart Securities
plc 122 87 48 (74) (39)
Debts.co.uk plc 90 47 25 (65) (22)
FDM Group plc 31 51 42 11 (9)
IDOX plc 8 9 9 1 -
Jelf Group plc 175 392 383 208 (9)
The Mission Marketing
Group plc 30 36 21 (9) (15)
Neutrahealth plc 284 324 218 (66) (106)
Plastics Capital plc 27 27 24 (3) (3)
Spice plc 32 33 77 45 44
Sport Media Group plc 102 100 56 (46) (44)
Travelzest plc 76 82 57 (19) (25)
Zamano plc 48 50 60 12 10
Fixed interest securities
Treasury 5% Stock 2008 5,481 5,393 5,398 (83) 5
8,136 8,663 8,323 187 (340)
* Adjusted for purchases in the period
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. The unaudited half yearly financial results cover the six months
to 31 March 2008 and have been prepared in accordance with the
accounting policies set out in the statutory accounts for the year
ended 30 September 2007 which were prepared under UK Generally
Accepted Accounting Practice ("UK GAAP") and in accordance with the
Statement of Recommended Practice "Financial Statements of Investment
Trust Companies" revised December 2005 ("SORP").
2. All revenue and capital items in the Income Statement derive from
continuing operations.
3.The Company has only one class of business and derives its income
from investments made in shares, securities and bank deposits.
4. The comparative figures were in respect of the period ended 31
March 2007 and the year ended 30 September 2007 respectively.
Return per share for the period has been calculated on 22,496,170
shares, being the weighted average number of shares in issue during
the period.
5. Dividends
31 March 2008 30 Sept
2007
Revenue Capital Total Total
�'000 �'000 �'000 �'000
Paid in year
2007 Final - 1.0p 226 - 226 -
2006 Final - 1.5p - - - 339
226 - 226 339
Proposed
2008 Special - 26.5p 44 5,859 5,903 -
2007 Final - 1.0p - - - 226
44 5,859 5,903 226
6. Reserves
Capital Capital Capital
Special redemption reserve reserve Revenue
reserve reserve - realised - unrealised reserve
�'000 �'000 �'000 �'000 �'000
At 1 October 2007 18,414 8 759 (879) 252
Repurchase of (215) 30 - - -
shares
Expenses - - (142) - -
capitalised
Tax on capital - - 9 - -
expenses
Losses on - - (340) (4,056) -
investments
Transfer between (863) - 1,389 (526) -
reserves
Retained net - - - - 45
revenue
Dividends paid - - - - (226)
At 31 March 2008 17,336 38 1,675 (5,461) 71
The Special Reserve was created on 6 December 2006 by the
cancellation of the Share Premium account following court approval.
The Special Reserve is available to the Company to enable the
purchase of its own shares in the market without affecting its
ability to pay capital distributions. The Special Reserve and
Revenue Reserve are all distributable reserves. Following the
revocation of investment company status under Section 833 Companies
Act 2006, which took place on 22 May 2008, the Capital Reserve -
Realised is also a distributable reserve.
7. The unaudited financial statements set out herein do not
constitute statutory accounts within the meaning of Section 434 of
the Companies Act 2006 and have not been delivered to the Registrar
of Companies. The figures for the year ended 30 September 2007 have
been extracted from the financial statements for that year, which
have been delivered to the Registrar of Companies; the auditors'
report on those financial statements was unqualified.
8. The Directors confirm that, to the best of their knowledge, the
half-yearly financial statements have been prepared in accordance
with the "Statement: Half-Yearly Financial Reports" issued by the UK
Accounting Standards Board and the half-yearly financial report
includes a fair review of the information required by:
a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements, and a description of the principal risks
and uncertainties for the remaining six months of the year; and
b. DTR 4.2.8R of the Disclosure and Transparency Rules, being related
party transactions that have taken place in the first six months of
the current financial year and that have materially affected the
financial position or performance of the entity during that period,
and any changes in the related party transactions described in the
last annual report that could do so.
9. Copies of the unaudited half yearly financial reports will be sent
to shareholders shortly. Further copies can be obtained from the
Company's Registered Office.
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