TIDMPNV5
Pennine AIM VCT 5 plc
Final Results for the year ended 30 September 2008
FINANCIAL HIGHLIGHTS
2008 2007
pence pence
Net asset value (per share) 34.2 92.2
Cumulative distributions paid since launch 30.0 2.5
Total return (net asset value plus cumulative 64.2 94.7
distributions paid)
Final proposed dividend (per share) Nil 1.0
CHAIRMAN'S STATEMENT
I am pleased to report that, despite prevailing market conditions
during the year, the Company paid a Special Dividend totalling 26.5p
per share on 30 July 2008 thereby returning the 30p per share to
investors as set out on the prospectus. The combination of
Shareholder's receipt of the 40p initial tax relief and dividends
totalling 30p has now effectively reduced Shareholder's original GBP1
per share investment to 30p per share.
It is, however, with regret that I report that diminishing stock
market prices, combined with the current ongoing global economic
turmoil, have resulted in a notable decline in the Company's
performance for the year to 30 September 2008.
Net Asset Value
At 30 September 2008, the Company's Net Asset Value per share ("NAV")
stood at 34.2p, a decrease of 30.5p (33.1%) over the year (after
adjusting for dividends totalling 27.5p per share paid during the
year). This movement can be analysed as follows:
Pence per share
GBP'000
Retained investments:
Full list investments 35 0.2
AIM quoted investments (4,942) (21.9)
Plus quoted investments (50) (0.2)
Unquoted investments (1,292) (5.7)
(6,249) (27.6)
Realised investments (2.1)
Net expenditure over income
(0.5)
Share buyback effect (0.3)
(30.5)
The Total Return (NAV per share plus cumulative dividends paid to
date) of the Company now stands at 64.2p.
Venture capital investments
With the emphasis for the year under review being the return of the
30p to investors, new investment activity was low although the Board
approved three new and two follow-on investments totalling GBP800,000.
Additionally, two of the Company's investments were re-structured
during the year, and of the GBP1.5 million total proceeds received from
the original investments, GBP1.1 million was invested into the new
entities.
The Company undertook an increased level of disposals during the
period in order to partly fund the Special Dividend, with total
proceeds from sales received in the market amounting to GBP1.6
million. The net realised loss arising on the disposal of these
investments, combined with the two restructured investments, amounted
to GBP478,000.
At the year end the Company's venture capital portfolio was valued at
GBP7.1 million, which comprised GBP62,000 in full list companies, GBP4.3
million of AIM quoted companies, GBP133,000 in Plus quoted companies
and GBP2.6 million in unquoted companies two of which, Cadbury House
Limited and Hoole Hall Country Club Limited, are backed by
substantial assets.
It is especially disappointing to note that those investments listed
on the stock exchange retained within portfolio were particularly
affected by the weak stock markets, falling in value by GBP4.9 million
over the twelve month period to GBP4.5 million against an original cost
of GBP10 million.
The Company's unquoted portfolio, which includes de-listed
investments, was written down by GBP1.3 million over the year. RFTRAQ
Limited and Doubletake Portraits Limited were both re-valued
downwards in view of the lack of progress and the challenges they now
face.
Further details of the Company's venture capital investments,
including valuations, additions, disposals and performance, are set
out within the Investment Manager's report and Review of Investments
below.
Listed fixed income securities
During the year, the Company disposed of gilts totalling GBP6.0
million, and realising a net gain of GBP1,000 against the previous
carrying value. Their proceeds were used to fund the Special
Dividend, and also to purchase the new investments mentioned
previously.
The remaining gilt was valued at GBP346,000 at the year end with
unrealised gains thereon amounting to GBP2,000. At the year end, 5.9%
of the Company's assets were held in cash and fixed income
securities.
Results
The loss on activities after taxation for the year was GBP6,851,000
(2007: GBP150,000), comprising a revenue profit of GBP112,000 and a
capital loss of GBP6,963,000.
Following the payment of the 26.5p Special Dividend during the year,
the Board is not proposing a final dividend for the year under
review.
Share buybacks / Tender offer
During the year the Company purchased 294,338 shares for
cancellation, in order to provide an exit for investors, at an
average price of 72.9p per share.
The Board took the decision, in May 2008, to suspend its policy of
making market purchases of its own shares policy in order to have
better control over the Company's cash and liquid resources.
The Board is aware that some Shareholders may now wish to sell all or
part of their shareholding and will find this difficult now that the
Company is not making market purchases of its own shares.
In order to assist such Shareholders while maintaining control over
the Company's liquidity, the Board is proposing to undertake a Tender
Offer. The Tender Offer will be for up to a total of 1 million
shares and will be undertaken at a price equal to a discount of 10%
to the latest NAV.
Full details are provided in the Tender Offer document which is being
sent to Shareholders with the Annual Report. The Tender Offer is
subject to Shareholder approval, which is being sought by Resolution
6 at the forthcoming AGM.
The Board regularly reviews the Company's share buyback policy and
may make changes should circumstances change. Resolution 5 will be
proposed at the forthcoming AGM to give the directors the authority
to make market purchases of the Company's shares as they see fit to
do so. Currently, it remains a priority for the Board to closely
manage the Company's liquidity. For this reason, it seems unlikely
that the Company will resume market purchases of its shares in the
short term. If this situation continues, the Board will consider
undertaking further tender offers.
Articles of Association
At the forthcoming AGM, the Board will seek Shareholder approval to
update the Company's Articles of Association. Resolution 7, which is
a special resolution, proposes the adoption of new Articles of
Association which incorporate a number of changes which are required
as a result of the implementation of the Companies Act 2006.
Annual General Meeting
The Company's fourth AGM will be held at Kings Scholars House, 230
Vauxhall Bridge Road, London, SW1V 1AU at 12 noon on 4 March 2009.
Three items of Special Business are being proposed at the meeting to
update the Articles of Association, to renew the authority to allow
the Company to make market purchases of the Company's shares, and to
undertake a Tender Offer for the Company's shares.
Outlook
Since the year end, the global financial crisis has deepened and a
recession period has now commenced. The FTSE AIM All-Share index has
fallen by more than 25% since 30 September 2008 and, at 31 December
2008, the Company's NAV had fallen to 28.1p per share.
The Company is now significantly smaller than it was, and has no
prospect of substantial growth. The Board is committed to continuing
to pay a steady dividend yield to Shareholders, subject to liquidity,
and is reviewing strategies which will allow this to continue into
the future.
Andrew Davison
Chairman
INVESTMENT MANAGER'S REPORT
We present an overview of the investment management activities for
the year ended 30 September 2008.
Market commentary
The last twelve months has been a challenging time for equity markets
and a particularly torrid time for the smaller companies market. UK
smaller company share prices have been under pressure since credit
markets tightened in response to defaults in the US sub prime market.
A readjustment of risk throughout the last year saw investors taking
a more cautious stance towards smaller companies. The worst falls in
share prices occurred from mid June as the banking crisis intensified
with a shortage of credit hitting companies with leveraged balance
sheets. Investors also had to contend with rising inflation and a
deteriorating economic outlook hitting retail consumer confidence.
For the record the FTSE 100 Share Index showed a fall over the year
of 24.1% whilst the FTSE small cap index fell 35.7% and the AIM index
declined 44.3%.
Portfolio additions
A schedule of the additions during the year is shown below:
Boomerang Plus plc is an independent television producer with a
strong business in Welsh language productions for S4C. The group was
founded in 1994 and admitted to AIM in November 2007 when it raised
GBP3 million to pay down debt, provide working capital and funds for
future acquisition opportunities. Pennine AIM VCT 5 plc initially
invested GBP225,000 at 158p a share.
Ludorum plc came to AIM in 2006 with a strategy to develop
entertainment related intellectual property and manage the commercial
exploits of the IP rights. In November 2007 the company raised GBP1.3
million for the further development of its animated series,
Chuggington. Pennine AIM VCT 5 plc invested GBP175,000 at 100p a
share.
Plastics Capital plc is a specialist plastics products manufacturer
operating in niche markets. The company raised GBP16.2 million to
restructure its balance sheet and pay down debt which had been
accrued from previous acquisitions. The company came to AIM in
December 2007 and Pennine AIM VCT 5 plc initially invested GBP185,000
at 100p a share.
Hill Station plc is an ice manufacturer based at Cwmbran. Pennine
AIM VCT 5 plc made its initial investment of GBP500,000 in 2005. In
2006 and 2007 further funding was provided totalling GBP469,000, to
help with working capital following a short fall in sales owing to a
very wet summer in 2007 and also to assist with the acquisition of
the So Real Ice Company, a rival ice cream manufacturer. A sharp
increase in raw material costs coupled with suppliers imposing lower
credit limits saw a need for further working capital. In January
2008 Pennine AIM VCT 5 plc provided GBP135,000, the majority of which
was via a 10% loan note. Sales improved, helped by deliveries to new
customers. In late March the company's bank unexpectedly imposed a
cap on their factoring facility well below normal terms at the time
when the company were looking to build stock for the summer season.
This news had a damaging effect on the confidence of the customers
and resulted in a loss of business and sales falling below budget.
By late summer 2008 it was clear that the company would not survive
the winter months without a further injection of cash. Given the
fragile state of the business, Pennine AIM VCT 5 plc together with
other investors declined to support the rescue plan and the company
was placed into administration in early October 2008.
Double Take Portraits Limited is a leading photographic studio
business. Pennine AIM VCT 5 plc made its original investment in
October 2006 with further monies provided in 2007 to assist with the
financing of the opening of a new studio in Manchester. Additional
working capital has been required to allow the business to continue
to grow. In March 2008 the existing convertible loans and the
accrued interest were converted into equity enabling the company to
attract further investment from existing and new investors.
Cadbury House Limited is a country club set in 14 acres close to
Bristol airport. Following redevelopment of the hotel and spa,
trading has been strong and the company undertook a re-structuring to
bring in some new investors. Pennine Aim VCT 5's original investment
of GBP755,000, in Cadbury House Country Club and Spa Limited, produced
proceeds in the re-structuring of GBP1,327,000 and a profit of
GBP572,000. Your Company re-invested GBP1 million of these proceeds into
the new company, called Cadbury House Limited.
Spice plc is a provider of out-sourced infra structure support
services with a strong presence in the UK utilities market. Spice
acquired Revenue Assurance Services plc in a recommended cash and
share acquisition in October 2007. The effect of the take over on
your Company's original holding in Revenue Assurance Services plc,
was the receipt of cash of GBP159,000 and shares in Spice plc, valued
at GBP62,000.
Portfolio Review
Against a weak stock market and particularly weak AIM market there
were only a few investments that showed a positive contribution to
the portfolio, although others have seen their share prices hold up
relatively well.
Craneware plc has seen its share price rise over 50% with the
company gaining new business providing their revenue cycle software
solutions to assist US hospitals in reducing billing errors. Other
AIM investments have held up well. An increasing number of pub chains
using Brulines Group plc's dispensing monitoring equipment, enabled
the group to show another year of profits growth. In late September
2008, earlier than expected, BBC2 began the daily weekday showing of
Chuggington, an animated series for children, produced by Ludorum
plc. Spice plc is benefiting from the significant expenditure by
utility companies on infrastructure. New contract wins in the
document management area together with the successful integration of
CAPS helped IDOX plc.
There have been bid approaches for several of our companies including
Concateno plc, Boomerang Plus plc and Travelzest plc, although to
date none of these approaches have concluded in a takeover being
announced. Since your company's year end Travelzest saw its shares
fall when the potential suitor withdrew due to the current
uncertainties in financial markets
Whilst some of the falls in share prices have been due to poor
trading others have been as a result of concerns on debt and the
economic outlook. Amongst those that have announced poor trading is
Sport Media Group plc who despite a re-launch in April has seen
falls in circulation and concerns over advertising revenues. The
Kellan Group plc (formally Berkeley Scott Group plc) continues to
invest in growing its brands to become a significant force in
recruitment, however the deteriorating market place has reduced the
visibility of their earnings. Servoca plc has also been harshly
de-rated on general worries on the future prospects for the
recruitment market, although they operate in specialist fields.
Shrinking company marketing budgets are also likely to hit the
profitability of advertising companies and The Mission Marketing
Group plc is expected to be no exception.
AT Communications Group plc has seen its shares fall owing to debt
concerns although investors have taken some comfort from directors
buying shares. Difficult trading in its core valeting business saw
Autoclenz Holdings plc issue a profits warning.
RFTRAQ Limited's disappointing sales progress and continuing cash
requirements has led us to write the ordinary shares down to zero
pending stronger evidence of progress towards profitability. The
loan stock has been revalued to GBP225,000.
MyHome International plc had been a successful investment Pennine AIM
VCT 5 invested GBP200,000 in 2005 and realised profits of GBP278,000
through 2006 and 2007. The company continued to make acquisitions,
including the ChipsAway Group in October 2007, which your VCT
declined to support. In July 2008, the company breached some of the
covenants on its debt and the bank called in the loan. The shares
were suspended from AIM and in early September the company was placed
into administration. This resulted in the Company's holding being
devalued to GBPnil from an opening market value at the beginning of the
year of GBP713,000.
In August 2007 Clerkenwell Ventures plc raised GBP26million to pursue
the acquisition of restaurant businesses. Although a number of
potential acquisitions have been considered, owing to over inflated
valuations, no purchases have yet been made. As a result of not
investing the money raised the investment has become non-qualifying
for Inland Revenue purposes. The indiscriminate fall in the shares
puts them at a substantial discount to the cash held on their balance
sheet.
Portfolio disposals
At the first available opportunity within the VCT rules we undertook
some sales of existing investments to raise sufficient funds to
prepare for the return of 26.5p a share, the balance of the 30p a
share which was indicated would be returned to share holders after
three years. The cost of the 26.5p dividend was GBP5.9 million and
paid in July 2008. New investments through the year cost GBP2.8
million and sale proceeds raised GBP9.2 million. Of the sale proceeds
GBP6.0 million came from the redemption and sale of short dated gilts,
GBP1.5 million from takeovers and reconstructions, with the balance of
GBP1.7 million from 2 disposals and 19 partial sales. Owing to the
tight liquidity in many of the companies, sales were undertaken over
a three month period.
Outlook
The economy is expected to deteriorate further with consumers under
pressure and company profits likely to fall. Although it is
difficult to predict with any certainty how much of this expected bad
news has been priced into equities, in the case of smaller companies
there has been such a de-rating that there is real value for the
patient investor. Small companies remain friendless but as credit
markets ease trade buyers could appear should share prices not start
to pre-empt the turn for the better in the economic cycle.
Rathbone Investment Management Limited
REVIEW OF INVESTMENTS
Portfolio of investments
The following investments, all of which are incorporated in England
and Wales, were held at 30 September 2008:
Valuation
movement
Cost Valuation in year % of
GBP'000 GBP'000 GBP'000 portfolio
Ten largest venture
capital investments (by
value)
Cadbury House Limited * 1,000 1,000 - 13.2%
Hoole Hall Country Club 750 750 - 9.9%
Limited *
IDOX plc 294 392 20 5.2%
Doubletake Portraits 645 363 (282) 4.8%
Limited *
Concateno plc 241 355 (37) 4.7%
Travelzest plc 425 324 (142) 4.3%
First Care Limited * 275 275 - 3.6%
Servoca plc 292 268 (245) 3.5%
The Mission Marketing 472 236 (334) 3.1%
Group plc
Zamano plc 316 230 (102) 3.1%
4,710 4,193 (1,122) 55.4%
Other venture capital
investments
RFTRAQ Limited * 532 225 (897) 3.0%
Boomerang Plus plc 201 218 17 2.9%
Clerkenwell Ventures 300 216 (104) 2.9%
Group plc
The Kellan Group plc 500 213 (313) 2.8%
(formerly Berkeley Scott
Group plc)
Ludorum plc 175 184 9 2.4%
Telephonetics plc 415 171 16 2.3%
Brulines Group plc 133 157 13 2.1%
FDM Group plc 169 156 (119) 2.1%
Universe Group plc 309 143 (166) 1.9%
Craneware plc 77 137 46 1.8%
Richoux Holdings plc 410 137 (171) 1.8%
(formerly Gourmet
Holdings plc)
FSG Security plc ** 250 133 (50) 1.7%
Jelf Public Limited 79 117 (60) 1.5%
Company
AT Communications Group 356 102 (246) 1.4%
plc
Plastics Capital plc 158 95 (63) 1.2%
INVU plc 200 83 (103) 1.1%
Waterline Group plc 487 64 (301) 0.9%
Spice plc *** 29 62 33 0.8%
Belgravium Technologies 222 48 (151) 0.6%
plc
Autoclenz Holdings plc 362 43 (238) 0.6%
Business Control 251 42 (62) 0.5%
Solutions plc
Bioganix plc 166 41 (145) 0.5%
NetServices plc 375 33 (30) 0.4%
Sport Media Group plc 148 32 (111) 0.4%
Neutrahealth plc 148 28 (141) 0.4%
@UK plc 350 14 (31) 0.2%
Daniel Stewart Securities 80 9 (48) 0.1%
plc
Cellcast plc 388 3 (25) 0.1%
Chariot (UK) plc # 500 - - -
Dipford Group plc # 272 - (113) -
Disperse Group plc # 500 - - -
Hill Station plc 1,119 - (862) -
MyHome International plc 101 - (713) -
#
Telephone Maintenance 251 - - -
Group plc #
10,013 2,906 (5,129) 38.4%
Listed fixed income
securities
Treasury 4% Stock 344 346 2 4.6%
07/03/2009
Subtotal 15,067 7,445 (6,249) 98.4%
Cash at bank and in hand 119 1.6%
Total investments 7,564 100.0%
All investments are quoted on AIM unless otherwise stated.
Key:
* Unquoted
# De-listed AIM quoted investment
** Quoted on the PLUS Market
*** Full List Company
Investment movements for the year ended 30 September 2008
ADDITIONS
Total
GBP'000
Investments in Secondary AIM/ PLUS Market Issues (including
IPO's)
Boomerang Plus plc 226
Ludorum plc 175
Plastics Capital plc 185
586
Follow on investments
Hill Station plc 150
Sundry investments 3
153
Unquoted investments
Doubletake Portraits Limited 70
Reconstructions/takeovers
Cadbury House Limited 1,000
Spice plc 62
1,062
Total venture capital investments 1,871
Listed fixed income securities
Treasury 4% Stock 07/03/2009 997
Total investments 2,868
DISPOSALS
Cost MV at Proceeds Profit/ Realised
30/09/07* (loss) gain/
vs cost (loss)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Reconstructions/takeovers
Cadbury House Country Club 755 1,306 1,327 572 21
& Spa Limited
Revenue Assurance Group plc 126 292 221 95 (71)
Full disposals
Accuma Group plc 400 45 30 (370) (15)
Debts.Co.UK plc 150 78 38 (112) (40)
Partial disposals
AT Communications Group plc 88 86 65 (23) (21)
Autoclenz Holdings plc 63 49 25 (38) (24)
Belgravium Technologies plc 28 25 20 (8) (5)
Bioganix plc 90 102 39 (51) (63)
Boomerang Plus plc 25 25 28 3 3
Brulines Group plc 62 67 71 9 4
Concateno plc 137 221 201 64 (20)
Daniel Stewart Securities 200 142 73 (127) (69)
plc
FDM Group plc 32 51 42 10 (9)
IDOX plc 8 10 9 1 (1)
Jelf Group Public Limited 175 392 383 208 (9)
Company
Neutrahealth plc 284 324 218 (66) (106)
Plastics Capital plc 28 27 24 (4) (3)
Richoux Holdings plc 90 67 44 (46) (23)
Spice plc 33 33 77 44 44
Sports Media Group pc 102 99 56 (46) (44)
The Mission Marketing Group 30 36 21 (9) (15)
plc
Travelzest plc 76 83 57 (19) (25)
Zamano plc 60 63 75 15 12
Listed fixed income
securities
Treasury 5% Stock 07/03/08 5,481 5,393 5,398 (83) 4
Treasury 4% Stock 653 653 650 (3) (3)
07/03/2009
Total venture capital 9,176 9,669 9,192 16 (478)
investments
* Adjusted for purchases in the year
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have elected to
prepare the financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable law). The financial statements are required
by law to give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period.
In preparing those financial statements, the Directors are required
to:
* select suitable accounting policies and then apply them
consistently;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
* prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
The Directors are responsible for keeping proper accounting records
which disclose with reasonable accuracy at any time the financial
position of the Company and to enable them to ensure that the
financial statements comply with the requirements of the
Companies Act 1985. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities. The
Directors are responsible for ensuring that the Report of the
Directors and other information included in the Annual Report is
prepared in accordance with company law in the United Kingdom. They
are also responsible for ensuring that the Annual Report includes
information required by the Listing Rules of the Financial Services
Authority.
INCOME STATEMENT
for the year ended 30 September 2008
2008 2007
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 432 - 432 605 - 605
Losses on - (6,727) (6,727) - (164) (164)
investments
432 (6,727) (6,295) 605 (164) 441
Investment (83) (248) (331) (94) (282) (376)
management
fees
Other (222) (3) (225) (215) - (215)
expenses
Return on
ordinary
activities
before tax 127 (6,978) (6,851) 296 (446) (150)
Tax on (15) 15 - (52) 52 -
ordinary
activities
Return
attributable
to equity
shareholders 112 (6,963) (6,851) 244 (394) (150)
Basic and
diluted 0.5p (31.1p) (30.6p) 1.1p (1.7p) (0.6p)
return per
share
All Revenue and Capital items in the above statement derive from
continuing operations and represent one geographical and business
segment. The total column within the Income Statement represents the
profit and loss account of the Company.
A Statement of Total Recognised Gains and Losses has not been
prepared as all gains and losses are recognised in the Income
Statement noted above.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 30 September 2008
2008 2007
GBP'000 GBP'000
Opening shareholders' funds 20,811 21,318
Purchase of own shares (215) (18)
Total recognised losses for the year (6,851) (150)
Dividends paid (6,129) (339)
Closing shareholders' funds 7,616 20,811
BALANCE SHEET
as at 30 September 2008
2008 2007
GBP'000 GBP'000 GBP'000 GBP'000
Fixed assets
Investments 7,445 20,496
Current assets
Debtors 100 180
Cash at bank and in hand 119 213
219 393
Creditors: amounts falling due within (48) (78)
one year
Net current assets 171 315
Net assets 7,616 20,811
Capital and reserves
Called up share capital 2,228 2,257
Capital redemption reserve 37 8
Special reserve 12,946 18,414
Capital reserve - realised - 759
Capital reserve - unrealised (7,622) (879)
Revenue reserve 27 252
Equity shareholders' funds 7,616 20,811
Basic and diluted net asset value per 34.2p 92.2p
share
CASH FLOW STATEMENT
for the year ended 30 September 2008
2008 2007
GBP'000 GBP'000
Net cash (outflow)/inflow from operating (56) 28
activities
Taxation - (38)
Capital expenditure
Purchase of investments (2,868) (6,516)
Sale of investments 9,192 6,753
Net cash inflow from capital expenditure 6,324 237
Equity dividends paid (6,129) (339)
Net cash inflow/(outflow) before financing 139 (112)
Financing
Purchase of own shares (233) -
Net cash outflow from financing (233) -
Decrease in cash (94) (112)
NOTES
1. Basis of Accounting/Accounting policies
The Company has prepared the financial information under UK Generally
Accepted Accounting Practice ("UK GAAP") and in accordance with the
Statement of Recommended Practice "Financial Statements of Investment
Trust Companies" revised December 2005 ("SORP") and has used the
historical cost convention except for the revaluation of certain
financial instruments.
In order to better reflect the activities of a Venture Capital Trust
and in accordance with guidance issued by the Association of
Investment Companies ("AIC"), supplementary information which
analyses the income statement between items of a revenue and capital
nature has been presented alongside the income statement. The net
revenue is the measure the Directors believe appropriate in assessing
the Company's compliance with certain requirements set out in Section
274 Income Tax Act 2007.
2. Return per ordinary share
Revenue return per ordinary share is based on the net revenue return
after taxation of GBP112,000 (2007: GBP244,000), in respect of 22,414,358
(2007: 22,591,914) ordinary shares, being the weighted average number
of ordinary shares in issue during the year.
Capital return per ordinary share is based on the net capital loss
for the financial year of GBP6,963,000 (2007: GBP394,000), in respect of
22,414,358 (2007: 22,591,914) ordinary shares, being the weighted
average number of ordinary shares in issue during the year.
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on return per ordinary share.
The return per share disclosed therefore represents both basic and
diluted return per share.
3. Net asset value per ordinary share
2008 2007
Net asset Net asset
value value
per share Net asset per share Net asset
value value
Pence GBP'000 Pence GBP'000
Ordinary 34.2 7,616 92.2 20,811
shares
Net asset value per ordinary share is based on net assets at the year
end, and on 22,276,570 (2007: 22,570,908) ordinary shares, being the
number of ordinary shares in issue at the year end.
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on net asset per ordinary
share. The net asset value per share disclosed therefore represents
both basic and diluted return per share.
4. Principal financial risks
As a Venture Capital Trust ("VCT"), the majority of the Company's
assets are represented by financial instruments which are held as
part of the investment portfolio. In order to ensure continued
compliance with relevant VCT regulation and to be in a position to
deliver the long term capital growth which is part of the Company's
investment objective, the Board is very much aware of the need to
manage and mitigate the risks associated with the financial
instruments held within the investment portfolio.
The management of these risks starts with the application of a clear
investment strategy which has been developed by the Board, which
comprises of experienced investment professionals. Furthermore, the
Board has appointed an experienced investment manager to whom they
have communicated the Company's investment strategy and whose
remuneration is linked to the achievement of that strategy. The
Investment Managers report regularly to the Board on performance, and
to facilitate the direct Board involvement with key decisions, on
whether or not to invest, disinvest and the nature, terms and the
security of investments being made.
Further information about the VCT's investment strategy is set out in
the Directors' Report on page 14.
In assessing the risk profile of its investment portfolio, the Board
has identified four principal classes of financial investment which
are analysed within Note 9. All such financial investments are "fair
value through the profit and loss account" and are recognised as such
on initial recognition.
In addition to its investment portfolio, the VCT holds cash balances
with one of the main UK banks and the Investment Manager. The
Directors consider that by splitting the cash balances between the
bank and the Investment Manager, the risk profile associated with
cash deposits is low, and thus the carrying value in the financial
statements is a close approximation of its fair value.
A review of the specific financial risks faced by the Company
follows.
Market risks
The key market risks to which the Company is exposed are interest
rate risk and market price risk.
Interest rate risk
The Company receives interest on cash deposits at a rate agreed with
its banker, while investments in loan stock and fixed interest
investments predominately attract interest at fixed rates. A summary
of the interest rate profile of the Company's investments is shown in
Note 17. As the Company must comply with the VCT regulations,
increases in interest rates could lead to a potential breach of these
regulations as the proportion of the Company's income from sources
other than shares and securities could exceed the required level.
The Company therefore monitors the level of income received from
fixed, floating and non interest bearing assets to ensure that the
regulations are not breached. The Company has reviewed the financial
impact of the interest rate risk, with 1.0% change in base rate
changing income and the return for the year by GBP3,000 equivalent to a
3.8% impact on overall income receivable by the Company. Such a
change would have an immaterial impact on Net Asset Value.
Market price risk
Market price risk arises from uncertainty about the future prices of
financial instruments held in accordance with the Company's
investment objectives. It represents the potential loss that the
Company might suffer through holding market positions in the face of
market movements. At 30 September 2008, the net unrealised loss on
the quoted portfolios (Full list, AIM-quoted, PLUS-quoted and
Non-qualifying investments) was GBP5.5 million (2007: GBP1.2 million).
The investments the Company holds are, in the main, thinly traded
(due to being traded on the AIM and Plus Markets) and, as such, the
prices are more volatile than those of more widely traded, full list,
securities. In addition, the ability of the Company to realise the
investments at their carrying value may at times not be possible if
there are no willing purchasers. The ability of the Company to
purchase or sell investments is also constrained by the requirements
set down for VCTs.
The Board considers each investment purchase to ensure that an
acquisition will enable the Company to continue to have an
appropriate spread of market risk and that an appropriate risk reward
profile is maintained.
It is not the Company's policy to use derivative instruments to
mitigate market risk, as the Board believes that the effectiveness of
such instruments does not justify the cost involved.
The Company's sensitivity to fluctuations in the share prices of its
quoted investments (AIM-quoted Plus-quoted and Full List but
excluding listed fixed interest investments) is summarised below. A
50% fall in the share price in each of the quoted investments held by
the Company would have an effect as follows:
Impact on NAV
Risk exposure Impact on Net per share
Assets
GBP'000 GBP'000 Pence
50% fall in quoted 4,486 (2,243) (10.1)
stocks
As the larger proportion of the Company's unquoted investments are
classed as "asset backed", a fall in shares prices generally would
have a lesser impact on the valuation of the unquoted portfolio. A
25% fall in the valuations of all of the unquoted investments held by
the Company would have an effect as follows:
Impact on NAV
Risk exposure Impact on Net per share
Assets
GBP'000 GBP'000 Pence
25% fall in unquoted 2,614 (653) (2.9)
investment valuations
The Company also has exposure to variations in the price of its
non-qualifying investments. As the investment is a government gilt,
such securities are subject to lower price fluctuations. A 2.5%
fall in the valuation of these assets held by the Company would have
the following impact:
Impact on
Risk Impact on NAV per
exposure Net Assets share
GBP'000 GBP'000 Pence
2.5% fall in value of
non-qualifying investments 345 (9) -
(government gilt)
In each case, the impact of such changes on the return for the year
would be that same as that on Net Assets and NAV per share.
Credit risk
Credit risk is the risk that the counterparty to a financial
instrument is unable to discharge a commitment to the Company made
under that instrument. The Company's financial assets that are
exposed to credit risk are summarised as follows:
2008 2007
GBP'000 GBP'000
Fair value through profit or loss assets
Investments in listed fixed interest investments 345 5,393
Investments in loan stocks 1,860 2,661
Loans and receivables
Cash and cash equivalents 119
=--END OF MESSAGE---
This announcement was originally distributed by Hugin. The issuer is
solely responsible for the content of this announcement.
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