Annual Financial Report

RNS Number : 5321T

Aberdeen Income & Growth VCT PLC

08 June 2009

 



Aberdeen Income and Growth VCT PLC

Final results for the year ended 28 February 2009

The Directors are pleased to report the Company's financial results for the year ended 28 February 2009. Despite the full scale banking crisis and associated turmoil experienced in the quoted markets, with a near collapse of AIM, the Company's NAV total return has seen only a modest reduction over the year, significantly less than the fall in markets generally. The majority of investments are in private companies and, therefore, the movements on quoted markets do not directly affect their valuations. The performance of these companies is broadly in line with expectations and, generally, they continue to meet their financial obligations to both their banks and shareholders. The Company has also achieved two profitable exits during the year. The unlisted portfolio has held up satisfactorily in what are almost unprecedented economic conditions for the SME sector, which we expect to continue for some time.

The values of our AIM/PLUS holdings have, however, been hit hard in line with the wider impact on listed markets, despite sound underlying trading figures and earnings in many cases. There has inevitably been a reduction in the Net Asset Value (NAV) of the AIM/PLUS element of the portfolio, as AIM has been particularly affected by poor global conditions, with the index falling by more than 60% over the year.

Overall, the Company has performed satisfactorily in the face of such a widespread and sustained downturn for small cap and private companies. The major features of the year were:

• NAV total return of 95.4p per share (pps) at year end, down 6.1% over the year;

• NAV at year end of 63.3pps;

• two successful exits from unlisted companies during the year, generating net gains of 3.1pps; and

• final dividend proposed of 2.0pps, to make a total of 3.0pps for year.

Performance

The NAV total return at 28 February 2009 was 95.4pps, a decrease of 6.1% over the equivalent figure at 29 February 2008. At 28 February 2009, the NAV was 63.3pps. The most important measure for a VCT is the NAV total return, being the long term record of dividend payments out of income and capital gains combined with the current NAV. In the short term, the NAV on its own is a less important measure of performance as the underlying investments are long-term in nature and not readily realisable. 

Dividends

The Company paid an interim dividend of 1.0pps to Shareholders on 12 December 2008. The Board is now proposing a final dividend of 2.0pps to be paid on 24 July 2009 to Shareholders on the register on 26 June 2009. All dividends are, of course, paid tax-free to Shareholders and the total dividend for the year of 3.0pps is equivalent to a yield of 5.0% from an equity investment to a higher-rate taxpayer on an effective initial investment of 80pps when the initial tax relief of 20% is taken into account. Based on the mid-market share price of 34.0p at 28 February 2009, the annual yield to a higher-rate taxpayer buying shares in the secondary market would by 11.8%. Since the Company's launch, and after receipt of the final dividend, Shareholders will have received 34.1pps in tax-free dividends, of which 24.6pps has been paid over the last five years. The effect of paying the proposed final dividend of 2.0pps will be to reduce the NAV to 61.3pps.

Outlook

The unlisted investments held by the Company are generally holding up well and are not directly affected by the turmoil which has been experienced in the quoted markets. There is, however, evidence that the banks are continuing to reduce their exposure to commercial lending, with the result that the unlisted companies in the portfolio may have to manage within their existing facilities. The Company does have the cash and available facilities to assist where appropriate. The Manager generally holds seats on our unlisted investee companies' boards and is, therefore, closely involved with those investments as they face continuing difficult market conditions. It is, of course, less closely associated with AIM or PLUS quoted investments, not having board representation.

There has been little activity in AIM or PLUS in recent months and it seems likely that it will be some time before new opportunities to invest in companies seeking an IPO on that market become available. The Manager will maintain a focus on investing in well managed unlisted companies which offer excellent growth prospects, as the Manager believes that such companies will offer the opportunity for profitable realisations when normal market conditions return.

Aberdeen Income and Growth VCT PLC
Income Statement*
For the year ended 28 February 2009
	Year ended 28 February 2009 (unaudited)			Year ended 29 February 2008 (audited)
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment income and deposit interest	1,509	-	1,509	1,677	-	1,677
Investment management fees	(62)	(250)	(312)	(67)	(270)	(337)
Other expenses	(204)	-	(204)	(221)	-	(221)
Losses on investments	-	(3,000)	(3,000)	-	(360)	(360)
Profit/(loss) on ordinary activities before taxation	1,243	(3,250)	(2,007)	1,389	(630)	759
Tax on ordinary activities	(176)	(46)	(222)	(395)	343	(52)
Profit/(loss) on ordinary activities after taxation	1,067	(3,296)	(2,229)	994	(287)	707
Earnings per share (pence)	3.0	(9.3)	(6.3)	2.8	(0.8)	2.0

A Statement of Total Recognised Gains and Losses has not been prepared, as all gains and losses are recognised in the Income Statement.

*The total column of this statement is the Profit and Loss Account of the Company.

Reconciliation of Movements in Shareholders' Funds
For the year ended 28 February 2009
	Year ended 28 February 2009 (unaudited)		Year ended 29 February 2008 (audited)
	£'000		£'000
Opening Shareholders' funds	25,802		28,745
Total (loss)/profit for year	(2,229)		707
Repurchase and cancellation of shares	(32)		-
Dividends paid - revenue	(1,170)		(461)
Dividends paid - capital	-		(3,189)
Closing Shareholders' funds	22,371		25,802

Aberdeen Income and Growth VCT PLC
Balance Sheet
As at 28 February 2009
	28 February 2009 (unaudited)		29 February 2008 (audited)
	£'000	£'000	£'000	£'000
Investments at fair value through profit or loss		20,832		25,002
Current assets
Debtors	802		617
Cash and overnight deposits	1,110		272
	1,912		889
Creditors
Amounts falling due within one year	373		89
Net current assets		1,539		800
Net assets		22,371		25,802
Capital and reserves
Called up share capital		3,535		3,546
Share premium account		17,235		17,235
Realised capital reserve		(568)		2,287
Unrealised capital reserve		(7,833)		(7,392)
Capital redemption reserve		350		339
Profit and loss account		9,652		9,787
Net assets attributable to Ordinary Shareholders		22,371		25,802
Net Asset Value per  Ordinary Share (pence)		63.3		72.8

Aberdeen Income and Growth VCT PLC
Cash Flow Statement
For the year ended 28 February 2009
	28 February 2009 (unaudited)		29 February 2008 (audited)
	£'000	£'000	£'000	£'000
Operating activities
Investment income received	1,314		1,355
Deposit interest received	23		74
Investment management fees paid	(232)		(789)
Secretarial fees paid	(44)		(50)
Directors' expenses paid	(60)		(57)
Other cash payments	(74)		(112)
Net cash inflow from operating activities		927		421
Taxation
Corporation tax		(43)		-
Financial investment
Purchase of investments	(5,349)		(15,640)
Sale of investments	6,505		12,219
Net cash inflow/(outflow) from financial investment		1,156		(3,421)
Equity dividends paid		(1,170)		(3,650)
Net cash inflow/(outflow) before financing		870		(6,650)
Financing
Repurchase of Ordinary Shares	(32)		-
Net cash outflow from financing		(32)		-
Increase/(decrease) in cash		838		(6,650)

Notes

Accounting Policies - UK Generally Accepted Accounting Practice

(a) Basis of preparation 

The Financial Statements have been prepared under the historical cost convention, modified to include the revaluations, eg investments, and in accordance with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' (the SORP) issued in 2005. The disclosures on going concern in the Directors' Report form part of these Financial Statements.

(b) Income 

Dividends receivable on equity shares and unit trusts are treated as revenue for the period on an ex-dividend basis. Where no ex-dividend date is available dividends receivable on or before the year end are treated as revenue for the period. Provision is made for any dividends not expected to be received. The fixed returns on debt securities and non-equity shares are recognised on a time apportionment basis so as to reflect the effective interest rate on the debt securities and shares. Provision is made for any fixed income not expected to be received. Interest receivable from cash and short term deposits and interest payable are accrued to the end of the year.

(c) Expenses 

All expenses are accounted for on an accruals basis and charged to the Income Statement. Expenses are charged through the revenue account except as follows:

• expenses which are incidental to the acquisition and disposal of an investment are charged to capital; and 

• expenses are charged to realised capital reserves where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect, the investment management fee has been allocated 20% to revenue and 80% to realised capital reserves to reflect the Company's investment policy and prospective income and capital growth.

(d) Taxation 

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the balance sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the Financial Statements which are capable of reversal in one or more subsequent periods. 

Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. 

The tax effect of different items of income/gain and expenditure/loss is allocated between capital reserves and revenue account on the same basis as the particular item to which it relates using the Company's effective rate of tax for the period.

(e) Investments 

In valuing unlisted investments the Directors follow the criteria set out below. These procedures comply with the revised International Private Equity and Venture Capital Valuation Guidelines for the valuation of private equity and venture capital investments. Investments are recognised at their trade date and are valued at fair value, which represent the Directors' view of the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction. This does not assume that the underlying business is saleable at the reporting date or that its current shareholders have an intention to sell their holding in the near future. 

A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.

 

1.       For investments completed within the 12 months prior to the reporting date and those at an early stage in their development, fair value is determined using the Price of Recent Investment Method, except that adjustments are made when there has been a material change in the trading circumstances of the company or a substantial movement in the relevant sector of the stock market.

 

2.       Whenever practical, recent investments will be valued by reference to a material arm’s length transaction or a quoted price.

 

3.       Mature companies are valued by applying a multiple to their fully taxed prospective earnings to determine the enterprise value of the company.

 

3.1   To obtain a valuation of the total ordinary share capital held by management and the institutional investors, the value of third party debt, institutional loan stock, debentures and preference share capital is deducted from the enterprise value. The effect of any performance related mechanisms is taken into account when determining the value of the ordinary share capital.

 

3.2   Preference shares, debentures and loan stock are valued using the Price of Recent Investment Method. When a redemption premium has accrued, this will only be valued if there is a reasonable prospect of it being paid. Preference shares which carry a right to convert into ordinary share capital are valued at the higher of the Price of Recent Investment Method basis and the price/earnings basis, both described above.

 

4.       Where there is evidence of impairment, a provision may be taken against the previous valuation of the investment.

 

5.       In the absence of evidence of a deterioration, or strong defensible evidence of an increase in value, the fair value is determined to be that reported at the previous balance sheet date.

 

6.       All unlisted investments are valued individually by the Portfolio Management Team of the Manager. The resultant valuations are subject to detailed scrutiny and approval by the Directors of the Company.

 

7.       In accordance with normal market practice, investments listed on the Alternative Investment Market or a recognised stock exchange are valued at their bid market price.

(f) Gains and losses on investments 

When the Company revalues its investments during the year, any gains or losses arising are credited/charged to the Income Statement.

Movement in reserves

	Share premium account	Realised  capital reserves	Unrealised  capital reserves	Capital redemption reserve	Profit and loss account
	£'000	£'000	£'000	£000	£'000
At 1 March 2008	17,235	2,287	(7,392)	339	9,787
Losses on sales of investments	-	(2,559)	-	-	-
Tax effect of capital items	-	(46)	-	-	-
Investment management fees	-	(250)	-	-	-
Net decrease in value of investments	-	-	(441)	-	-
Dividends paid	-	-	-	-	(1,170)
Repurchase and cancellation of shares	-	-	-	11	(32)
Profit on ordinary activities after taxation	-	-	-	-	1,067
At 28 February 2009	17,235	568	(7,833)	350	9,652

Returns per Ordinary Share

The returns per Ordinary Share are based on the following figures:

	Year ended	Year ended
	28 February 2009	29 February 2008
	£'000	£'000
Weighted average number of Ordinary Shares in issue	35,461,258	35,463,992
Revenue return	£1,067,000	£994,000
Capital return	(£3,296,000)	(£287,000)
Total return	(£2,229,000)	£707,000

Net Asset Value per Ordinary Share

Net Asset Value per Ordinary Share as at 28 February 2009 has been calculated using the number of Ordinary Shares in issue at that date of 35,355,071 (2008: 35,463,992). 

Principal risks and uncertainties

The principal risks facing the Company relate to its investment activities and include market price, interest rate and liquidity risk. An explanation of these risks and how they are managed is contained in Note 18 to the Financial Statements. 

Additional risks faced by the Company, and the mitigation approach adopted by the Board, are as follows:

• investment objective: the Board's aim is to maximise absolute returns to Shareholders while managing risk by ensuring an appropriate diversification of investments;

• investment policy: inappropriate stock selection leading to underperformance in absolute and relative terms is a risk which the Manager mitigates by operating within investment guidelines and regularly monitoring performance against the peer group. The regulations affecting Venture Capital Trusts are central to the Company's investment policy; 

• discount volatility: due to the lack of liquidity in the secondary market, venture capital trust shares tend to trade at discounts to net asset values; and 

• regulatory risk: the Company operates in a complex regulatory environment and faces a number of related risks. A breach of Section 274 of the Income Tax Act 2007 could result in the Company being subject to capital gains tax on the sale of its investments. A breach of the VCT Regulations could result in the loss of VCT status and consequent loss of tax reliefs currently available to Shareholders. A serious breach of other regulations, such as the UKLA Listing Rules or the Companies Act, would lead to suspension of its shares from the Stock Exchange, loss of VCT status and reputational damage. The Board receives quarterly reports from the Manager in order to monitor compliance with regulations. 

At least twice each year the Board considers all of the above risks and the measures in place to manage them. 

Other information

The Annual General Meeting will be held on 7 July 2009, commencing at 2.15 p.m.

This Announcement has been prepared on the same basis as the Annual Report and Financial Statements for the year ended 29 February 2008. The Annual Report and Financial Statements for the year ended 28 February 2009 will be filed with the Registrar of Companies and issued to Shareholders in due course.

The financial information contained within this Announcement does not constitute the Company's statutory Financial Statements as defined in Section 240 of the Companies Act 1985. The statutory Financial Statements for the year ended 29 February 2008 have been delivered to the Registrar of Companies and contained an audit report which was unqualified and did not constitute statements under Sections 237(2) or (3) of the Companies Act 1985.

Copies of this announcement will be available to the public at the office of Aberdeen Asset Managers Limited, 149 St Vincent Street, Glasgow; at the registered office of the Company, One Bow Churchyard, Cheapside, London and on the Company's website at www.aigvct.co.uk

Directors' responsibility statement

The Directors confirm that, to the best of their knowledge:

• the Financial Statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities and financial position of the Company as at 28 February 2009 and for the year to that date; and

• the Directors' Report includes a fair review of the development and performance of the Company, together with a description of the principal risks and uncertainties that it faces.

By Order of the Board

Aberdeen Asset Management PLC

Secretary

8 June 2009

 

END

 

 

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