Kings Arms Yard VCT PLC : Half-yearly report
Kings Arms Yard VCT PLC
As required by the UK Listing Authority's Disclosure and Transparency Rule 4.2, Kings Arms Yard VCT PLC today makes public its information relating to the Half-yearly Financial Report (which is unaudited) for the six months to 30 June 2012. This announcement was approved by the Board of Directors on 30 August 2012.
The full Half-yearly Financial Report (which is unaudited) for the period to 30 June 2012, will shortly be sent to shareholders. Copies of the full Half-yearly Financial Report will be shown via the Albion Ventures LLP website www.albion-ventures.co.uk under the "Our Funds" section by clicking on Kings Arms Yard VCT PLC and looking under the Financial Reports and Circulars section for the Half-yearly Financial Report to 30 June 2012.
Investment objectives
The Company is a Venture Capital Trust. The investment policy is intended to produce a regular and predictable dividend stream with an appreciation in capital value as set out below.
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Financial calendar
| Financial year end | 31 December |
| Ex-dividend date for second dividend | 31 October 2012 |
| Record date for second dividend | 7 September 2012 |
| Payment date of second dividend | 28 September 2012 |
Financial highlights (unaudited)
| Unaudited six months ended 30 June 2012 | Unaudited six months ended 30 June 2011 | Audited year ended 31 December 2011 | |
| (pence per share) | (pence per share) | (pence per share) | |
| Dividends paid | 0.50 | 0.67 | 0.67 |
| Revenue return/(loss) | - | (0.20) | 0.10 |
| Capital return | 0.90 | 0.30 | 0.70 |
| Net asset value | 17.10 | 16.0 | 16.70 |
The Directors have declared a second dividend of 0.5 pence per share for the year ended 31 December 2012, which will be paid on 28 September 2012 to shareholders on the register on 7 September 2012.
| Total shareholder net asset value return to 30 June 2012: | (pence per share) |
| Total dividends paid from incorporation to 31 December 2010 (the date Albion Ventures LLP became Manager) | 58.66 |
| Dividend paid during the year ended 31 December 2011 | 0.67 |
| Dividend paid during the six months to 30 June 2012 | 0.50 |
| Total dividends paid to 30 June 2012 | 59.83 |
| Net asset value as at 30 June 2012 | 17.10 |
| Total shareholder net asset value return to 30 June 2012 (1) | 76.93 |
| Total shareholder net asset value return to 30 June 2012 including tax benefits (2) | 96.93 |
The above financial summary is for the Company, Kings Arms Yard VCT PLC only. Details of the financial performance of the various Quester, SPARK and Kings Arms Yard VCT 2 PLC companies, which have been merged into the Company, can be found in the Half yearly report issued by the Company and shown on the website at www.albion-ventures.co.uk/Our Funds/Kings Arms Yard/ Financial Reports and Circulars.
Notes
(1) Net asset value plus cumulative dividend per share to ordinary shareholders in the Company since the launch of the Company (then called Quester VCT plc) in April 1996.
(2) Return after 20 per cent. initial income tax relief, but excluding capital gains deferral.
Chairman's statement
Introduction
I am pleased to report further progress in repositioning the Company's investment portfolio in accordance with the new investment policy adopted in February 2011.
Despite the confused market conditions, the net asset value has improved and the balance of the portfolio has been shifted further away from early stage unyielding equity holdings towards a more balanced generalist portfolio, including asset backed investments comprising a mixture of equity and loan stock.
Investment activity
During the period an opportunity was taken to reduce the quoted holding in Celldex Therapeutics Inc. (NASDAQ) at a gain of £51,000 above its carrying value and the entire holding in We7 Limited, the music destination website, was sold at a loss of £102,000 on its carrying value in an overall change of control of that business.
During the same period, investment has been completed in a total of five renewable energy businesses and a well established and profitable pub owning company. In all of these cases the investments include interest bearing loan stock which will provide welcome support to the Company's cash flow.
Meanwhile six smaller follow-on investments were made in selected companies from the legacy investment portfolio where it was considered that these would be justified by eventual realisations.
As a result of the above, progress is being achieved on the rebalancing of the portfolio in line with the investment objective. The asset-based portfolio now forms 14% of the Company's portfolio of investments. Albion introduced investments have increased from 8 per cent. to 15 percent. of the net asset value for the six months to 30 June 2012.
Performance
In the six months to 30 June 2012 the net asset value per share has increased from 16.7 pence to 17.1 pence per share and total net asset return per share, following the payment of a 0.5 pence per share dividend in May 2012, has increased from 76.0 pence to 76.9 pence per share. The increase in asset value is overwhelmingly as a result of revaluations following advanced offers for two of the Company's investments.
Once again all unquoted investment holdings have been rigorously reviewed and, where portfolio businesses have failed to meet performance targets or their market conditions have deteriorated, we have not hesitated to reduce their carrying values. In two significant cases, however, offers have been received from substantial and well funded third parties and these have advanced to stages at which we have a strong degree of confidence that transactions will take place. In both cases we have left the valuations at a substantial discount to the offer price.
The movement in net assets is summarised in the table below:
| Investments £'000 | Net current assets £'000 | Total £'000 | pence per share | ||||
| Net asset value at 31 December 2011 | 23,957 | 11,029 | 34,986 | 16.7 | |||
| Investment acquisitions | 3,701 | (3,701) | - | - | |||
| Investment disposals | (296) | 296 | - | - | |||
| Net (loss)/gain on disposal | (39) | 13 | (26) | - | |||
| Net gain/(loss) on valuation of investments | 2,097 | (1) | 2,096 | 1.0 | |||
| Income net of operating expenses | - | (16) | (16) | - | |||
| Management fee capitalised | - | (262) | (262) | (0.1) | |||
| Dividend paid (net of reinvestment) | - | (1,033) | (1,033) | (0.5) | |||
| Net asset value at 30 June 2012 | 29,420 | 6,325 | 35,745 | 17.1 |
| Split of portfolio valuation by sector as at 30 June 2012 (December 2011) shown at the end of this announcement | Split of existing investments originally made by SPARK and new investments made by Albion Ventures as at 30 June 2012 (December 2011) shown at the end of this announcement | |
Dividends
As indicated in our Annual Report and Financial Statements of 16 April 2012, the Board has set an annual dividend target of 1 penny per share and this intention has been reinforced by the strong performance to date. Accordingly, a further dividend of 0.5 pence per share will be paid on 28 September 2012 to shareholders on the register on 7 September 2012.
Venture Capital Trust (VCT) regulations
The Board welcomes the recent confirmation from the European Commission that it has formally approved the proposed increases in the size limits for companies that can qualify for VCT investment. The UK Government can now introduce the changes that it had previously planned to the VCT rules in order that VCTs be permitted to invest in businesses with assets of up to £15 million (currently £7 million), that portfolio companies be allowed to receive up to £5 million of funding from VCTs and similar schemes, and that companies with up to 250 employees (currently 50 employees) may receive VCT funding. While these changes have no immediate effect on the current investment portfolio, they will offer our Managers a wider pool of potential investments. They also reinforce the VCT sector as one of the most attractive tax efficient investment opportunities and an essential source of finance for small and medium sized business.
Portfolio companies directly employ 1,022 people.
Related party transactions
Details of material related party transactions for the reporting period can be found in note 12 of this Half-yearly Financial Report.
Share buy-backs
It remains the Company's policy to buy back shares in the market, subject to the overall constraint that such purchases are in the Company's interest. This includes the maintenance of sufficient cash resources for investment in new and existing portfolio companies and the continued payment of dividends to shareholders. It is the Board's intention over time for such buy-backs to be in the region of 10 to 15 per cent. discount to net asset value, so far as market conditions and liquidity permit.
Risks and uncertainties
The principal risk affecting the Company continues to be the vagaries of the UK and global economies, the malaise of which appears no closer to resolution. Investment in small and unquoted companies also carries particular risks of its own. The Company's investment risk is mitigated by the expertise and track record of its Manager and its new investment policy of investing in businesses with no external borrowing and of securing first charges over portfolio companies' assets wherever possible.
Other risks and uncertainties are as described in Note 16.
Outlook
The prospects for growth in the UK economy do not appear to have improved and no significant progress seems to have been made in resolving the major fiscal issues facing Continental Europe. Nevertheless, your Company has made good progress and the Board continues to believe that the current investment policy, with its emphasis on running yield and on asset backing, offers the best prospect of improvement in capital value and of a sustainable long term dividend.
Robin Field
Chairman
30 August 2012
Responsibility statement
The Directors of the Company, Robin Field, Thomas Chambers, Martin Fiennes and Alan Lamb, are responsible for preparing the Half-yearly Financial Report. The Directors have chosen to prepare this Half-yearly Financial Report for the Company in accordance with United Kingdom Generally Accepted Accounting Practice ("UK GAAP").
In preparing these summarised financial statements for the period to 30 June 2012, we the Directors of the Company, confirm that to the best of our knowledge:
(a) the summarised set of financial statements has been prepared in accordance with the pronouncement on interim reporting issued by the Accounting Standards Board;
(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year);
(c) the summarised set of financial statements gives a true and fair view in accordance with UK GAAP of the assets, liabilities, financial position and profit and loss of the Company for the six months ended 30 June 2012 and comply with UK GAAP and Companies Act 2006 and;
(d) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
The accounting policies applied to the Half-yearly Financial Report have been consistently applied in current and prior periods and are those applied in the Annual Report and Financial Statements for the year ended 31 December 2011.
This Half-yearly Financial Report has not been audited or reviewed by the Auditor.
By order of the Board
Robin Field
Chairman
30 August 2012
Portfolio of investments (unaudited)
The following is a summary of fixed asset investments as at 30 June 2012:
| Asset-based unquoted investments | % voting rights | Accounting cost(1) £'000 | Cumulative movement in value £'000 | Value £'000 | Change in value for the period(2) £'000 | |
| The Street by Street Solar Programme Limited | 10.0 | 1,000 | 14 | 1,014 | 14 | |
| Alto Prodotto Limited | 11.1 | 1,000 | - | 1,000 | (3) | |
| Regenerco Renewable Energy Limited | 7.9 | 935 | - | 935 | (2) | |
| AVESI Limited | 14.8 | 460 | - | 460 | - | |
| Bravo Inns II Limited | 2.8 | 400 | (1) | 399 | (1) | |
| Greenenerco Limited | 8.6 | 300 | - | 300 | - | |
| Total asset-based unquoted investments | 4,095 | 13 | 4,108 | 8 | ||
| High growth unquoted investments | ||||||
| Vivacta Limited | 13.4 | 2,104 | 2,289 | 4,393 | 2,411 | |
| Elateral Holdings Limited | 37.7 | 2,243 | 1,574 | 3,817 | - | |
| UniServity Limited | 36.6 | 3,510 | (481) | 3,029 | (830) | |
| Workshare Limited | 14.4 | 2,011 | 441 | 2,452 | 195 | |
| Oxford Immunotec Limited | 3.5 | 1,476 | 557 | 2,033 | 557 | |
| Cluster Seven Limited | 28.6 | 2,219 | (525) | 1,694 | 26 | |
| Hilson Moran Holdings Limited | 15.0 | 1,065 | 89 | 1,154 | 88 | |
| Sift Limited | 40.2 | 3,265 | (2,150) | 1,115 | (22) | |
| Antenova Limited | 12.3 | 1,543 | (581) | 962 | 466 | |
| Atego Group Limited | 9.3 | 384 | 484 | 868 | - | |
| Haemostatix Limited | 18.9 | 1,330 | (572) | 758 | (350) | |
| Academia Networks Limited | 5.3 | 351 | 383 | 734 | 65 | |
| Lab M Holdings Limited | 26.4 | 690 | (30) | 660 | 165 | |
| Celoxica Holdings plc | 2.8 | 405 | (33) | 372 | (33) | |
| Abcodia Limited | 6.7 | 235 | - | 235 | - | |
| Perpetuum Limited | 12.9 | 1,245 | (1,035) | 210 | (397) | |
| Xention Limited | 5.9 | 608 | (438) | 170 | (254) | |
| Symetrica Limited | 2.6 | 152 | - | 152 | - | |
| Xtera Communications Limited | 1.3 | 85 | - | 85 | - | |
| Clear2Pay NV | 0.1 | 129 | (59) | 70 | (59) | |
| TeraView Limited | 1.0 | 1,197 | (1,184) | 13 | - | |
| Oxonica Limited | 2.1 | 185 | (185) | - | (3) | |
| Total high growth unquoted investments | 26,432 | (1,456) | 24,976 | 2,025 | ||
| Quoted investments | ||||||
| Celldex Therapeutics Inc. (NASDAQ) | 427 | (188) | 239 | 110 | ||
| Allergy Therapeutics plc (AIM) | 456 | (359) | 97 | (28) | ||
| Total quoted investments | 883 | (547) | 336 | 82 | ||
| Total asset investments | 31,410 | (1,990) | 29,420 | 2,115 | ||
| Realised loss in current year | (26) | |||||
| Movement in loan stock accrued interest | (19) | |||||
| Total gains on investments as per Income Statement | 2,070 | |||||
(1) Amounts shown as accounting cost represent the acquisition cost in the case of investments originally made by the Company and/or the valuation attributed to the investments acquired from Quester VCT 2 plc and Quester VCT 3 plc at the date of the merger in 2005, plus any subsequent acquisition costs, as reduced in certain cases by amounts written off as representing an impairment in value.
(2) After adjustment for additions and disposals.
Summary income statement (unaudited)
| Unaudited six months ended 30 June 2012 | Unaudited six months ended 30 June 2011 | Audited year ended 31 December 2011 | ||||||||
| Note | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | |
| Gains on investments | 3 | - | 2,070 | 2,070 | - | 291 | 291 | - | 1,257 | 1,257 |
| Investment income | 4 | 212 | - | 212 | 77 | - | 77 | 522 | - | 522 |
| Investment management fees | (88) | (262) | (350) | (181) | - | (181) | (107) | (322) | (429) | |
| Other expenses | (140) | - | (140) | (152) | - | (152) | (290) | - | (290) | |
| (Loss)/return on ordinary activities before tax | (16) | 1,808 | 1,792 | (256) | 291 | 35 | 125 | 935 | 1,060 | |
| Tax on ordinary activities | - | - | - | - | - | - | - | - | - | |
| (Loss)/return on ordinary activities after tax | (16) | 1,808 | 1,792 | (256) | 291 | 35 | 125 | 935 | 1,060 | |
| Basic and diluted (loss)/return per share (pence) | 6 | - | 0.90 | 0.90 | (0.20) | 0.30 | 0.10 | 0.10 | 0.70 | 0.80 |
Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2011 and the audited statutory accounts for the year ended 31 December 2011.
The comparative figures for the six months ended 30 June 2011 are prior to the acquisition of the asset and liabilities of Kings Arms Yard VCT 2 PLC in September 2011.
The accompanying notes form an integral part of this Half-yearly Financial Report.
The total column of this Summary income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns have been prepared in accordance with The Association of Investment Companies' Statement of Recommended Practice.
All revenue and capital items in the above statement derive from continuing operations. The Company has only one class of business and derives its income from investments made in shares and securities and from bank deposits.
There are no recognised gains or losses other than the results for the periods disclosed above. Accordingly a Statement of total recognised gains and losses is not required. The difference between the reported return/(loss) on ordinary activities before tax and the historical cost profit/(loss) is due to the fair value movements on investments. As a result a note on historical cost profit and losses has not been prepared.
Summary balance sheet (unaudited)
| Note | Unaudited 30 June 2012 £'000 | Unaudited 30 June 2011 £'000 | Audited 31 December 2011 £'000 | |||
| Fixed asset investments | 29,420 | 12,948 | 23,957 | |||
| Current assets | ||||||
| Trade and other debtors | 95 | |||||
| Current asset investments | 2,974 | 1,976 | ||||
| Cash at bank and in hand | 9 | 3,853 | 3,367 | 8,758 | ||
| 6,922 | 4,828 | 11,291 | ||||
| Creditors: amounts falling due within one year | (597) | (81) | (262) | |||
| Net current assets | 6,325 | 4,747 | 11,029 | |||
| Net assets | 35,745 | 17,695 | 34,986 | |||
| Capital and reserves | ||||||
| Called-up share capital | 7 | 2,095 | 5,521 | 2,095 | ||
| Share premium | 14 | 155 | - | |||
| Capital redemption reserve | - | 765 | - | |||
| Special reserve | 34,993 | 18,222 | 36,945 | |||
| Investment holding losses | (2,024) | (7,709) | (4,984) | |||
| Profit and loss account | 667 | 741 | 930 | |||
| Total equity shareholders' funds | 35,745 | 17,695 | 34,986 | |||
| Basic and diluted net asset value per share (pence) | 17.10 | 16.00 | 16.70 |
Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2011 and the audited statutory accounts for the year ended 31 December 2011.
The comparative figures for the six months ended 30 June 2011 are prior to the acquisition of the asset and liabilities of Kings Arms Yard VCT 2 PLC in September 2011.
The accompanying notes form an integral part of this Half-yearly Financial Report.
These financial statements were approved by the Board of Directors, and authorised for issue on 30 August 2012 and were signed on its behalf by
Robin Field
Chairman
Company number: 3139019
Summary reconciliation of movements in shareholders' funds (unaudited)
| Called-up share capital | Share premium account | Capital redemption reserve | Special reserve | Investment holding losses | Profit and loss account | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| 1 January 2012 (audited) | 2,095 | - | - | 36,945 | (4,984) | 930 | 34,986 |
| Recognised losses on investments | - | - | - | - | - | (26) | (26) |
| Realisation of prior years' net recognised losses on investments | - | - | - | - | 863 | (863) | - |
| Investment holding gain on valuation of investments | - | - | - | - | 2,097 | - | 2,097 |
| Transfer from special reserve to profit and loss account | - | - | - | (1,951) | - | 1,951 | - |
| Capitalised investment management fee | - | - | - | - | - | (262) | (262) |
| Issue of equity (net of costs) | - | 14 | - | - | - | - | 14 |
| Loss on ordinary activities after taxation | - | - | - | - | - | (16) | (16) |
| Dividends paid | - | - | - | - | - | (1,047) | (1,047) |
| As at 30 June 2012 (unaudited) | 2,095 | 14 | - | 34,993 | (2,024) | 667 | 35,745 |
| 1 January 2011 (audited) | 5,519 | 150 | 765 | 20,524 | (9,574) | 899 | 18,283 |
| Realisation of prior years' net recognised losses on investments | - | - | - | - | 1,598 | (1,598) | - |
| Transfer from special reserve to profit and loss account | - | - | - | (2,302) | - | 2,302 | - |
| Investment holding loss on valuation of investments | - | - | - | - | 267 | (267) | - |
| Issue of equity (net of costs) | 2 | 5 | - | - | - | - | 7 |
| Profit on ordinary activities after taxation | - | - | - | - | - | 35 | 35 |
| Dividends paid | - | - | - | - | - | (630) | (630) |
| As at 30 June 2011 (unaudited) | 5,521 | 155 | 765 | 18,222 | (7,709) | 741 | 17,695 |
| 1 January 2011 (audited) | 5,519 | 150 | 765 | 20,524 | (9,574) | 899 | 18,283 |
| Recognised losses on Investments | - | - | - | - | - | 270 | 270 |
| Realisation of prior years' net recognised losses on investments | - | - | - | - | 3,603 | (3,603) | - |
| Investment holding loss on valuation of investments | - | - | - | - | 987 | - | 987 |
| Transfer from special reserve to profit and loss account | - | - | - | (4,179) | - | 4,179 | - |
| Capitalised investment management fee | - | - | - | - | - | (322) | (322) |
| Shares issued under the Dividend Reinvestment Scheme | 2 | 5 | - | - | - | - | 7 |
| Shares issued to acquire net assets of Kings Arms Yard VCT 2 PLC | 4,953 | 11,425 | - | - | - | - | 16,378 |
| Share issue costs | - | (124) | - | - | - | - | (124) |
| Reduction in share capital and reserves | (8,379) | (11,456) | (765) | 20,600 | - | - | - |
| Gain on ordinary activities after taxation | - | - | - | - | - | 125 | 125 |
| Dividends paid | - | - | - | - | - | (619) | (619) |
| As at 31 December 2011 (audited) | 2,095 | - | - | 36,945 | (4,984) | 930 | 34,986 |
Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2011 and the audited statutory accounts for the year ended 31 December 2011.
The comparative figures for the six months ended 30 June 2011 are prior to the acquisition of the assets and liabilities of Kings Arms Yard VCT 2 PLC in September 2011.
The total distributable reserves are £33,636,000 (30 June 2011: £11,254,000; 31 December 2011: £32,891,000), comprising the special reserve and the profit and loss account, less net investment holdings losses.
Summary cash flow statement (unaudited)
| Note | Unaudited six months ended 30 June 2012 £'000 | Unaudited six months ended 30 June 2011 £'000 | Audited year ended 31 December 2011 £'000 | |||
| Operating activities | ||||||
| Dividend income received | - | - | 359 | |||
| Investment income received | 150 | 59 | 88 | |||
| Deposit interest received | 79 | 15 | 60 | |||
| Investment management fees paid | (175) | (210) | (375) | |||
| Administrative expenses paid | (156) | (118) | (337) | |||
| Net cash flow from operating activities | 8 | (102) | (254) | (205) | ||
| Taxation | ||||||
| UK corporation tax recovered/(paid) | - | |||||
| Capital expenditure and financial investments | ||||||
| Purchase of fixed asset investments | (4,522) | (452) | (3,131) | |||
| Purchase of current asset investments | (1,993) | (985) | (985) | |||
| Disposal of fixed asset investments | 365 | 326 | 4,235 | |||
| Disposal of current asset investments | 1,976 | 3,235 | 3,230 | |||
| Cash from investments previously sold or written off | 403 | - | 324 | |||
| Net cash flow from investing activities | (3,771) | 2,124 | 3,673 | |||
| Equity dividends paid Equity dividends paid (net of costs of issuing shares under the Dividend Reinvestment Scheme) | (1,032) | (719) | (706) | |||
| Net cash flow before financing | (4,905) | 1,151 | 2,762 | |||
| Financing | ||||||
| Cash acquired from Kings Arms Yard VCT 2 PLC on Merger Cost of Merger (paid on behalf of the Company and Kings Arms Yard VCT 2 PLC) | - - | - - | 3,953 (173) | |||
| Net cash flow from financing | - | - | 3,780 | |||
| Cash flow in the period | 9 | (4,905) | 1,151 | 6,542 |
Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2011 and the audited statutory accounts for the year ended 31 December 2011.
The comparative figures for the six months ended 30 June 2011 are prior to the acquisition of the asset and liabilities of Kings Arms Yard VCT 2 PLC in September 2011.
The accompanying notes form an integral part of this Half-yearly Financial Report.
The equity dividend paid in the cash flow is different to the dividend disclosed in note 5 due to the non-cash effect of the Dividend Reinvestment Scheme.
Notes to the unaudited summarised financial statements (unaudited)
1. Accounting policies
A summary of the principal accounting policies, which have been applied consistently in the current and in prior periods, is set out below.
2. Basis of accounting
The Financial Statements have been prepared in accordance with the historical cost convention, except for the measurement of fair value of investments, and in accordance with applicable UK law and accounting standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ("SORP") issued by The Association of Investment Companies ("AIC") in January 2009. The accounts are prepared on a going concern basis.
Fixed asset investments
The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.
Upon initial recognition (using trade date accounting) investments are designated by the Company as 'at fair value through profit or loss' and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the Income statement).
Subsequently, the investments are valued at 'fair value', which is measured as follows:
- Investments listed on recognised exchanges are valued at their bid prices at the end of the accounting period or otherwise at fair value based on published price quotations;
- Unquoted investments, where there is not an active market, are valued using an appropriate valuation technique in accordance with the September 2009 International Private Equity and Venture Capital Valuation Guidelines (IPEVCV guidelines). Indicators of fair value are derived using established methodologies including earnings multiples, the level of third party offers received, prices of recent investment rounds, net assets and industry valuation benchmarks. Where the Company has an investment in an early stage enterprise, the price of a recent investment round is often the most appropriate approach to determining fair value. In situations where a period of time has elapsed since the date of the most recent transaction, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, the investment in question is valued at the amount reported at the previous reporting date. Examples of events or changes that could indicate a diminution include:
- the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
- a significant adverse change either in the portfolio company's business or in the technological, market, economic, legal or regulatory environment in which the business operates; or
- market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.
It is not the Company's policy to exercise control or significant influence over portfolio companies. Therefore, in accordance with the exemptions under FRS 9 "Associates and Joint Ventures", those undertakings in which the Company holds more than 20 per cent., but less than 50 per cent., of the voting share capital of an investment company, and the investment company is not a subsidiary, are not regarded as associated undertakings.
Current asset investments
In accordance with FRS 26, units held in funds used for cash management are designated as fair value through profit and loss. These investments are classified as current asset investments as they are investments held for the short term.
Gains and losses on Investments
Gains and losses arising from changes in the fair value of the investments are included in the Income statement for the year as a capital item and are allocated to Investment holding losses.
Investment income
Dividends receivable on quoted equity shares are recognised on the ex-dividend date. Income receivable on unquoted equity and non-equity shares and loan notes is recognised when the Company's right to receive payment and expect settlement is established. Fixed returns on non-equity shares and debt securities are recognised on a time apportionment basis (including amortisation of any premium or discount to redemption) so as to reflect the effective interest rate, provided there is no reasonable doubt that payment will be received in due course. Income from fixed interest securities and deposit interest is included on an effective interest basis.
Investment management fees and other expenses
All expenses, including expenses incidental to the acquisition or disposal of an investment, are accounted for on an accruals basis and are charged wholly to the Income statement except for 75 per cent. of management fees which are allocated to capital to the extent that these relate to an enhancement in the value of the investments. This is in line with the Board's expectation that over the long term 75 per cent. of the Company's investment returns will be in the form of capital gains.
Costs associated with the issue of shares are charged to the share premium account. Costs associated with the buy back of shares are charged to the special reserve.
Taxation
Taxation is applied on a current basis in accordance with FRS 16 "Current tax". Taxation associated with capital expenses is applied in accordance with the SORP. In accordance with FRS 19 "Deferred tax", deferred taxation is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the Financial Statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered.
The Directors have considered the requirements of FRS 19 and do not believe that any provision should be made for deferred tax.
Foreign exchange
The currency of the primary economic environment in which the Company operates (the functional currency) is pounds Sterling ("Sterling"), which is also the presentational currency of the Company. Transactions involving currencies other than Sterling are recorded at the exchange rate ruling on the transaction date. At each Balance sheet date, monetary items and non-monetary assets and liabilities that are measured at fair value, which are denominated in foreign currencies, are retranslated at the closing rates of exchange. Exchange differences arising on settlement of monetary items and from retranslating at the Balance sheet date of investments and other financial instruments measured at fair value through profit or loss, and other monetary items, are included in the Income statement. Exchange differences relating to investments and other financial instruments measured at fair value are subsequently included in the transfer to the Investment holding losses.
Reserves
Share premium account
This reserve accounts for the difference between the price paid for shares and the nominal value of the shares, less issue costs.
Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is diminished through the repurchase and cancellation of the Company's own shares.
Investment holding losses
Increases and decreases in the valuation of investments held at the year end against cost are included in this reserve.
Special reserve
The reduction in the nominal value of shares, the cancellation of the share premium and capital redemption reserves has created a special reserve that can be used to fund market purchases and subsequent cancellation of own shares, to cover gross realised losses, and for other distributable purposes.
Dividends
In accordance with FRS 21 "Events after the balance sheet date", dividends declared by the Company and payable to equity shareholders are accounted for in the period in which the dividend has been paid or approved by shareholders at an annual general meeting.
3. Gains/(losses) on investments
| Unaudited six months ended 30 June 2012 £'000 | Unaudited six months ended 30 June 2011 £'000 | Audited year ended 31 December 2011 £'000 | |||
| Unrealised gains on fixed asset investments held at fair value through profit or loss account | 2,097 | 267 | 993 | ||
| Unrealised (loss) on current asset investments held at fair value through profit or loss account | (1) | - | - | ||
| Unrealised (loss) on deferred consideration held at fair value through profit or loss account | - | ||||
| 2,096 | |||||
| Realised (losses)/gains on fixed asset investments held at fair value through profit or loss (includes escrow receipts from previously sold investments and distributions from investments in liquidation) | (26) | ||||
| 2,070 | 1,257 |
4. Investment income
| Unaudited six months ended 30 June 2012 £'000 | Unaudited six months ended 30 June 2011 £'000 | Audited year ended 31 December 2011 £'000 | |||
| Income recognised on investments held at fair value through profit or loss | |||||
| Dividends | - | ||||
| Listed fixed interest securities | 12 | ||||
| Loan stock, convertible bonds and discounted debt | 154 | ||||
| Other income | 2 | ||||
| 168 | |||||
| Interest recognised on investments held at amortised cost | |||||
| Bank deposit interest | 44 | ||||
| 212 | 77 | 522 |
5. Dividends
| Unaudited six months ended 30 June 2012 £'000 | Unaudited six months ended 30 June 2011 £'000 | Audited year ended 31 December 2011 £'000 | |||
| Final dividend of 0.67 pence per share paid on 24 June 2011 | 739 | 739 | |||
| First dividend of 0.5 pence per share paid on 25 May 2012 | 1,047 | ||||
| Dividends recovered | - | ||||
| 1,047 | 630 | 619 |
The Directors have declared a second dividend of 0.5 pence per share for the year ended 31 December 2012, which will be paid on 28 September 2012 to shareholders on the register on 7 September 2012.
6. Basic and diluted earnings per share
| Unaudited six months ended 30 June 2012 | Unaudited six months ended 30 June 2011 | Audited year ended 31 December 2011 | ||||
| Revenue | Capital | Revenue | Capital | Revenue | Capital | |
| (Loss)/return attributable to shares (£'000) | (16) | 1,808 | (256) | 291 | 125 | 935 |
| Weighted average shares in issue (excluding treasury shares) | 209,487,699 | 110,371,963 | 135,360,943 | |||
| (Loss)/return per share (pence) | - | 0.90 | (0.20) | 0.30 | 0.10 | 0.70 |
There are no convertible instruments, derivatives or contingent share agreements in issue for the Company hence there are no dilution effects to the return per share. The basic return per share is therefore the same as the diluted return per share.
7. Share capital
| Unaudited 30 June 2012 £'000 | Unaudited 30 June 2011 £'000 | Audited 31 December 2011 £'000 | |||
| Allotted, issued and fully paid: 209,566,476 shares of 1 pence each (30 June 2011: 110,417,392 shares of 5 pence each and 31 December 2011: 209,467,597 shares of 1 pence each) | 2,095 | 5,521 | 2,095 |
During the period from 1 January to 30 June 2012, the Company issued the following new shares of 1 penny each under the terms of the Dividend Reinvestment Scheme Circular dated 19 April 2011:
| Date of allotment | Number of shares issued | Issue price (pence per share) | Mid market price on issue date (pence per share) | Net proceeds £'000 |
| 25 May 2012 | 98,879 | 16.2 | 10.25 | 15 |
No shares were bought back by the Company during the period ended 30 June 2012.
8. Reconciliation of revenue return/(loss) on ordinary activities before taxation to net cash flow from operating activities
| Unaudited six months ended 30 June 2012 £'000 | Unaudited six months ended 30 June 2011 £'000 | Audited year ended 31 December 2011 £'000 | |||
| Revenue (loss)/return on ordinary activities before tax | (16) | 35 | 125 | ||
| Capitalised investment management fees | (262) | ||||
| Movement in accrued loan stock interest | (19) | ||||
| Decrease in debtors | 27 | ||||
| Increase/(decrease) in creditors | 168 | ||||
| Net cash flow from operating activities | (102) | (254) | (205) |
9. Analysis of change in cash during the period
| Unaudited six months ended 30 June 2012 £'000 | Unaudited six months ended 30 June 2011 £'000 | Audited year ended 31 December 2011 £'000 | |||
| Opening cash balances | 8,758 | 2,216 | 2,216 | ||
| Net cash flow | (4,905) | 1,151 | 6,542 | ||
| Closing cash balances | 3,853 | 3,367 | 8,758 |
10. Commitments, contingencies and guarantees
As at 30 June 2012, the Company was committed to making investments of £166,000 in respect of further funding to be provided to existing portfolio companies (30 June 2011: £nil, 31 December 2011: £148,000 ).
11. Post balance sheet events
Since 30 June 2012, the Company has completed the following material transactions:
· July 2012: investment of £131,000 in Atego Limited; and
· August 2012: investment of £247,000 in Dragon Hydro Limited
12. Related party disclosures
The Manager, Albion Ventures LLP, could be considered to be a related party by virtue of the fact that it is party to an Investment management agreement from the Company (details disclosed on page 19 of the Annual Report and Financial Statements for the year ended 31 December 2011).
During the period, services of a total value of £375,000 (30 June 2011 and 31 December 2011: £nil), were purchased by the Company from Albion Ventures LLP; this includes £350,000 for investment management fees and £25,000 for administration fees. At the financial period end, the amount due to Albion Ventures LLP in respect of these services disclosed within accruals and deferred income was £175,000 (30 June 2011 and 31 December 2011: £nil).
Albion Ventures LLP holds a total of 7,487 shares in the Company as a result of the merger with Kings Arms Yard VCT 2 PLC on 30 September 2011. These shares will be sold for the benefit of the Company at a future date.
There are no other related party transactions or balances requiring disclosure.
13. Going concern
The Board's assessment of liquidity risk remains unchanged and is detailed on page 44 of the Annual Report and Financial Statements for the year ended 31 December 2011.
The Company has significant cash and liquid resources, and the major cash outflows of the Company (namely investments and dividends) are within the Company's control. Accordingly, after making diligent enquiries the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors have adopted the going concern basis in preparing the accounts in accordance with "Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009", published by the Financial Reporting Council.
14. Other information
The information set out in this Half-yearly Financial Report does not constitute the Company's statutory accounts within the terms of section 434 of the Companies Act 2006 for the periods ended 30 June 2012 and 30 June 2011, and is unaudited. The information for the year ended 31 December 2011 does not constitute statutory accounts within the terms of section 434 of the Companies Act 2006 and is derived from the statutory accounts for that financial year, which have been delivered to the Registrar of Companies. The Auditor reported on those accounts; their report was unqualified and did not contain a statement under s498 (2) or (3) of the Companies Act 2006.
15. Publication
This Half-yearly Financial Report is being sent to shareholders and copies will be made available to the public at the registered office of the Company, Companies House, the National Storage Mechanism and also electronically at www.albion-ventures.co.uk under the 'Our Funds' section by clicking on Kings Arms Yard VCT PLC, and looking in the Financial Reports and Circulars section for the Half-yearly Financial Report to 30 June 2012.
16. Risks and uncertainties
The Board considers that the Company faces the following major risks and uncertainties:
1. Economic risk
Changes in economic conditions, including, for example interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company's prospects in a number of ways.
To reduce this risk, in addition to investing in equity in portfolio companies, the Company often invests in secured loan stock and has a policy of not permitting any external bank borrowings within the portfolio companies. Additionally, the Manager selects the sector exposure of the portfolio with a view to limiting reliance on consumer led sectors.
2. Investment risk
This is the risk of investment in poor quality assets which reduces the capital and income returns to shareholders, and negatively impacts on the Company's reputation. By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes, are more fragile than larger, long established businesses.
To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its strong track record for investing in this segment of the market. In addition, the Manager operates a formal and structured investment process, which includes an investment committee, comprising investment professionals from the Manager and at least one external investment professional. The Manager also invites, and takes into account, comments from non-executive Directors of the Company on investments discussed at the investment committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards) and the Board receives detailed reports on each investment as part of the Manager's report at quarterly Board meetings. For new investments it is the policy of the Company for portfolio companies to not normally have external borrowings.
3. Valuation risk
The Company's investment valuation method is reliant on the accuracy and completeness of information that is issued by portfolio companies. In particular, the Directors may not be aware of or take into account certain events or circumstances which occur after the information issued by such companies is reported.
Unquoted equity investments, loan stock and debt issued at a discount held by the Company are valued at fair value through profit or loss in accordance with the International Private Equity and Venture Capital Valuation Guidelines. The guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. These investments are valued on the basis of forward looking estimates and judgements about the business itself, its market and the environment in which it operates, together with the state of the mergers and acquisitions market, stock market conditions and other factors. In making these judgements the valuation takes into account all known material facts up to the date of approval of this half-yearly Financial Report.
4. Venture Capital Trust approval risk
The Company's current approval as a venture capital trust allows investors to take advantage of tax reliefs on initial investment and ongoing tax free capital gains and dividend income. Failure to meet the qualifying requirements could result in investors losing the tax relief on initial investment and loss of tax relief on any tax-free income or capital gains received. In addition, failure to meet the qualifying requirements could result in a loss of listing of the shares.
To reduce this risk, the Board has appointed the Manager, who has a team with significant experience in venture capital trust management, used to operating within the requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed Grant Thornton UK LLP as its taxation advisors. Grant Thornton UK LLP report annually to the Board to independently confirm compliance with the venture capital trust legislation, to highlight areas of risk and to inform on changes in legislation.
5. Compliance risk
The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company's shares, or other penalties under the Companies Act or from financial reporting oversight bodies.
Board members and the Manager have experience of operating at senior levels within quoted businesses. In addition, the Board and the Manager receive regular updates on new regulation from the Company's Auditor, lawyers and other professional bodies.
6. Internal control risk
Failures in key controls, within the Board or within the Manager's business, could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders.
The Audit Committee meets with the Manager's internal auditor, Littlejohn LLP, when required, and receives a report regarding the last formal internal audit performed on the Manager, and providing opportunity for the Audit Committee to ask specific and detailed questions. The Audit Committee Chairman has met with the internal audit partner of Littlejohn LLP to discuss the most recent Internal Audit Report on the Manager. The Manager has a comprehensive business continuity plan in place in the event that operational continuity is threatened. Further details regarding the Board's management and review of the Company's internal controls through the implementation of the Turnbull guidance are detailed on page 24 of the Annual Report and Financial Statements for the year ended 31 December 2011. Measures are in place to mitigate information risk in order to ensure the integrity, availability and confidentiality of information used within the business.
7. Reliance upon third parties risk
The Company is reliant upon the services of Albion Ventures LLP for the provision of investment management and administrative functions. There are provisions within the management agreement for the change of Manager under certain circumstances (for further detail, see the investment management agreement details in note 4 of the Annual Report and Financial Statements for the year ended 31 December 2011). In addition, the Manager has demonstrated to the Board that there is no undue reliance placed upon any one individual within Albion Ventures LLP.
8. Financial risks
By its nature, as a venture capital trust, the Company is exposed to investment risk (which comprises investment price risk and cash flow interest rate risk), credit risk and liquidity risk. The Company's policies for managing these risks and its financial instruments are outlined in full in note 19 to the Annual Report and Financial Statements for the year ended 31 December 2011.
Most of the Company's income and expenditure is denominated in sterling. There is one foreign currency quoted portfolio investment whose value at 30 June 2012 was £239,000 (30 June 11: £48,000 and 31 December 2011: £178,000). It is therefore unlikely that the Company would be significantly affected by currency fluctuations.
The Company is financed through equity and does not have any borrowings. The Company does not use derivative financial instruments for speculative purposes.
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: Kings Arms Yard VCT PLC via Thomson Reuters ONE
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