Elderstreet VCT plc : Half-yearly report

Elderstreet VCT plc

Half-Yearly Report for the six months ended 30 June 2012

RECENT PERFORMANCE SUMMARY

	30 Jun 2012 pence	31 Dec  2011 Pence	30 Jun 2011 pence
Net asset value per share	63.6	65.7	71.1
Cumulative distributions paid per share	56.0	54.0	50.0
Total return per share	119.6	119.7	121.1

CHAIRMAN'S STATEMENT

I am pleased to present the Half-Yearly Report for Elderstreet VCT plc for the six month period ended 30 June 2012. It has been a reasonably stable period for the Company's investment portfolio, although a significant fall in value of one AIM investment was mostly offset by gains in others.

Net Asset Value

At 30 June 2012, the Company's net asset value ("NAV") per share stood at 63.6p, a decrease of 0.1p or 0.2% since 31 December 2011 after adjusting for the dividend of 2.0p per share paid in the period.

 

Venture capital investments

During the period, the Company made two new investments and one follow-on investment at a total cost of £1.6 million. 

£700,000 was invested in B&F Management Limited, a company associated with Baldwin and Francis (Holdings) Limited; £500,000 was invested in Concorde Solutions Limited, a software asset management company; and  a further £446,000 was invested in AngloINFO Limited, to provide working capital to support further growth.

Loan notes were redeemed by Aconite Technology Limited and Smart Education Limited in the period, at a small premium of £10,000.  In addition, the Company received retention proceeds of £113,000 in respect of the WeComm disposal which occurred during 2011.

At the period end the Company held a portfolio of 24 venture capital investments valued at £14.3 million.

The Company's AIM-quoted investments have seen mixed results. Snacktime's share price has fallen as the company struggled to fully integrate a major acquisition. Management changes have now taken place and the new team is working to bring the business back on track. Although the value of the investment fell by £629,000 over the period, the Manager believes that there are prospects for the company to recover value.

On a positive note, Access Intelligence saw its share price rise over the period as a result of improved trading. The value of this investment rose in value by £388,000. Fulcrum Utility Services also increased by £83,000.

Following a review of the unquoted portfolio, the Board concluded that no adjustments to the previous carrying values were required.

Overall, the investment portfolio produced unrealised losses of £166,000 and realised gains of £10,000 over the period.

Fixed income securities

The Company continues to hold a small portfolio of fixed income investments, valued at £1.5 million, which are managed by Smith & Williamson. During the period, this portfolio produced unrealised losses of £8,000 and realised losses of £3,000.

Top-up share issue

The Company undertook a top-up offer during the period, issuing 1,348,003 shares at 70.7p per share.  Net proceeds of the offer were £900,000 which provides the Company with the ability to pursue further investment opportunities.

Results

The loss on activities after taxation for the period was £74,000 (2011: £1.6 million), comprising a revenue return of £116,000 and a capital loss of £190,000.

Dividend

The Company intends to pay an interim dividend to Shareholders of 2.0p per share on 7 December 2012 to Shareholders on the register at 9 November 2012.

Share buybacks

In June 2012, the Company spent approximately £131,000 purchasing 237,429 shares for cancellation at a price of 55.0p per share being a 15% discount to the most recently published NAV.

Currently the Board intends to make a certain level of funds available approximately four times each year to buy in shares. Such purchases will be made at approximately a 15% discount to the latest published NAV. The Board will, however, regularly review this policy and make adjustments if they see fit.

Enhanced share buyback

As noted in the Annual Report, the Company has been planning to offer an enhanced share buyback facility to Shareholders. The offer document and circular are now in the process of being finalised and will be sent to Shareholders shortly.

The enhanced share buyback will allow Shareholders who have already held their shares for five years to sell them back to the Company at a price equivalent to NAV on the condition that they reinvest the proceeds in new shares in the Company. The new shares will be issued at a price equivalent to approximately a 3% premium to NAV. The issue of new shares will entitle eligible Shareholders to 30% income tax relief on the current value of their shares and Shareholders will end up with an almost identical shareholding to that which they have now, although the new shares will need to be held for five years to retain the new income tax relief. Full details will be included in the offer document.

Outlook

The Board continues to be reasonably satisfied with the Company's investments which, in most cases, are proving to be resilient throughout the ongoing long double-dip recession.

The Company also continues to hold a reasonable level of liquid resources which leaves it well placed to both support existing portfolio companies and to participate in new investment opportunities.

David Brock

Chairman

UNAUDITED BALANCE SHEET

as at 30 June 2012

	As at 30 Jun  2012	As at 30 Jun  2011	As at 31 Dec 2011
	£'000	£'000	£'000
Fixed assets
Investments	15,769	15,185	14,884
Current assets
Debtors	89	46	52
Cash at bank and in hand	3,274	5,608	4,111
	3,363	5,654	4,163
Creditors: amounts falling due within one year	(177)	(200)	(186)
Net current assets	3,186	5,454	3,977
Net assets	18,955	20,639	18,861
Capital and reserves
Called up share capital	1,490	1,452	1,435
Capital redemption reserve	241	212	229
Merger reserve	1,936	1,985	2,034
Share premium	9,832	8,999	8,999
Special reserve	1,202	1,619	1,216
Revaluation reserve	1,367	2,093	1,705
Capital reserve - realised	2,673	3,864	2,844
Revenue reserve	214	415	399
Equity shareholders' funds	18,955	20,639	18,861
Net asset value per share	63.6p	71.1p	65.7p

UNAUDITED INCOME STATEMENT

for the six months ended 30 June 2012

	Six months ended 30 Jun 2012				Six months ended 30 Jun 2011			Year ended 31 Dec 2011
	Revenue	Capital	Total		Revenue	Capital	Total		Total
	£'000	£'000	£'000		£'000	£'000	£'000		£'000
Income	270	-	270		285	-	285		575
Gains/(losses) on investments:
- realised	-	120	120		-	4	4		4
- unrealised	-	(166)	(166)		-	(1,602)	(1,602)		(2,004)
	270	(46)	224		285	(1,598)	(1,313)		(1,425)
Investment management fees	(48)	(143)	(191)		(47)	(141)	(188)		(394)
Other expenses	(106)	(1)	(107)		(98)	-	(98)		(207)
Return/(loss) on ordinary activities before taxation	116	(190)	(74)		140	(1,739)	(1,599)		(2,026)
Taxation	-	-	-		-	-	-		-
Return/(loss) attributable to equity shareholders	116	(190)	(74)		140	(1,739)	(1,599)		(2,026)
Basic and diluted return per share	0.4p	(0.6p)	(0.2p)		0.5p	(6.4p)	(5.9p)		(7.2p)

All Revenue and Capital items in the above statement derive from continuing operations.  The total column within the Income Statement represents the profit and loss account of the Company.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

for the six months ended 30 June 2012

	30 Jun 2012	30 Jun  2011	31 Dec  2011
	£'000	£'000	£'000
Opening shareholders' funds	18,861	18,785	18,785
Issue of shares	952	3,823	3,823
Share issue costs	(52)	(210)	(210)
Purchase of own shares	(131)	(160)	(344)
Total recognised losses in the period	(74)	(1,599)	(2,026)
Dividends	(601)	-	(1,167)
Closing shareholders' funds	18,955	20,639	18,861

UNAUDITED CASH FLOW STATEMENT

for the six months ended 30 June 2012

		Six months  ended  30 Jun 2012	Six months  ended  30 Jun  2011	Year  ended 31 Dec  2011
	Note	£'000	£'000	£'000
Net cash outflow from operating activities and returns on investments	1	(73)	(29)	(74)
Capital expenditure
Purchase of investments		(2,284)	(153)	(254)
Sale of investments		1,352	1,204	1,204
Net cash (outflow)/inflow from capital expenditure		(932)	1,051	950
Equity dividends paid		(601)	-	(1,167)
Net cash (outflow)/inflow before financing		(1,606)	1,022	(291)
Financing
Proceeds from share issue		912	3,823	3,695
Share issue costs		(12)	(204)	(76)
Purchase of own shares		(131)	(160)	(344)
Net cash inflow from financing		769	3,459	3,275
(Decrease)/increase in cash	2	(837)	4,481	2,984
Notes to the cash flow statement:
1 Net cash inflow from operating activities and returns on investments
Loss on ordinary activities before taxation		(74)	(1,599)	(2,026)
Losses on investments		46	1,598	2,000
Increase in other debtors		(37)	(20)	(25)
Decrease in other creditors		(8)	(8)	(23)
Net cash outflow from operating activities and returns on investments		(73)	(29)	(74)
2 Analysis of net funds
Beginning of period		4,111	1,127	1,127
Net cash (outflow)/inflow		(837)	4,481	2,984
End of period		3,274	5,608	4,111

SUMMARY OF INVESTMENT PORTFOLIO

as at 30 June 2012

	Cost	Valuation	Unrealised  gain/(loss) in period	% of portfolio
	£'000	£'000	£'000	by value
Top ten venture capital investments
Fords Packaging Systems Limited	1,047	1,845	-	9.7%
Wessex Advanced Switching Products Limited	60	1,799	-	9.4%
Access Intelligence plc *	1,633	1,631	388	8.6%
AngloINFO Limited	1,108	1,483	-	7.8%
Smart Education Limited	877	1,371	-	7.2%
Lyalvale Express Limited	915	1,255	-	6.6%
Fulcrum Utility Services Limited *	500	792	83	4.2%
B & F Management Limited	700	700	-	3.7%
Baldwin & Francis (Holdings) Limited	690	690	-	3.6%
Snacktime plc *	1,375	589	(629)	3.1%
	8,905	12,155	(158)	63.9%
Other venture capital investments	4,628	2,118	-	11.0%
Fixed income securities	1,454	1,496	(8)	7.9%
Subtotal	14,987	15,769	(166)	82.8%
Cash at bank and in hand		3,274		17.2%
Total investments		19,043		100.0%

All venture capital investments are unquoted unless otherwise stated.

* Quoted on AIM

SUMMARY OF INVESTMENT MOVEMENTS

for the six months ended 30 June 2012

Additions

	£'000
Venture capital investments
AngloINFO Limited	446
B&F Management Limited	700
Concorde Solutions Limited	500
	1,646
Other investments
S&W Cash Fund	23
United Kingdom 1% Gilt 07/09/2017	615
	638
	2,284

Disposals

	Cost	Market  value at 1 January  2012	Disposal proceeds	Gain against  cost	Total realised  gain/ (loss)
	£'000	£'000	£'000	£'000	£'000
Loan note redemptions
Aconite Technology Limited	100	100	110	10	10
Smart Education Limited	397	530	530	133	-
	497	630	640	143	10
Retention proceeds
WeComm Limited	-	-	113	113	113
Other investments
S&W Cash Fund	33	33	33	-	-
United Kingdom 2.75% Gilt 22/01/2015	559	569	566	7	(3)
	592	602	599	7	(3)
	1,089	1,232	1,352	263	120

NOTESTO THE UNAUDITED FINANCIAL STATEMENTS

1. The unaudited half yearly financial results cover the six months to 30 June 2012 and have been prepared in accordance with the accounting policies set out in the statutory accounts for the year ended 31 December 2011, which were prepared under UK Generally Accepted Accounting Practice and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" revised January 2009.

2. The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.

3. The comparative figures are in respect of the six months ended 30 June 2011 and the year ended 31 December 2011 respectively.

4. Basic and diluted return per share

	30 Jun 2012		30 Jun 2011		31 Dec 2011
Return per share based on:
Net revenue gain for the period (£'000)	116		140		271
Capital return per share based on:
Net capital loss for the period (£'000)	(190)		(1,739)		(2,297)
Weighted average number of shares	29,306,317		26,954,181		27,950,201

5. Dividends

		30 Jun 2012					31 Dec 2011
	Per share	Revenue		Capital		Total		Total
	Pence	£'000		£'000		£'000		£'000
Paid in the period
2011 Final dividend	2.0	301		300		601		-
2011 Interim dividend	2.0	-		-		-		581
2010 Final dividend	2.0	-		-		-		586
		301		300		601		1,167

6. Net asset value per share

	30 Jun 2012	30 Jun 2011	31 Dec 2011
Net Asset Value per share based on:
Net assets (£'000)	18,955	20,639	18,861
Number of shares in issue	29,812,249	29,032,002	28,701,675
Net asset value per share	63.6p	71.1p	65.7p

7. Called up share capital

Ordinary shares of 5p each	Shares	£'000
As at 1 January 2012	28,701,675	1,435
Shares issued in period	1,348,003	67
Shares bought back and cancelled	(237,429)	(12)
As at 30 June 2012	29,812,249	1,490

Between 5 April 2012 and 2 May 2012, the Company allotted 1,348,003 Ordinary Shares of 5p each, under the terms of a prospectus dated 9 December 2011, at 70.7p per share, with gross proceeds received thereon of £952,000. Issue costs in respect of the offer amounted to £52,000.

During the period the Company purchased 237,429 Ordinary Shares of 5p each for cancellation for an aggregate consideration of £131,000, at a price of 55.0p per share (approximately equal to a 15% discount to the most recently published NAV at the time of purchase), and representing 0.8% of the issued Ordinary Share capital held at 1 January 2012.

8. Capital and Reserves

	Capital redemption reserve		Merger reserve	Share premium	Special reserve	Revaluation reserve	Capital reserve   -realised	Revenue reserve
	£'000		£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2012		229	2,034	8,999	1,216	1,705	2,844	399
Issue of new shares		-	-	885	-	-	-	-
Share issue costs		-	-	(52)	-	-	-	-
Purchase of own shares		12	-	-	(131)	-	-	-
Expenses capitalised		-	-	-	-	-	(144)	-
(Losses)/gains on investments		-	-	-	-	(166)	120	-
Realisation of revaluations from previous years		-	-	-	-	(172)	172	-
Realisation of fair value assets previously acquired		-	(98)	-	-	-	98	-
Transfer between reserves		-	-	-	117	-	(117)	-
Dividends paid		-	-	-	-	-	(300)	(301)
Retained net revenue for the period		-	-	-	-	-	-	116
At 30 June 2012		241	1,936	9,832	1,202	1,367	2,673	214

Distributable reserves comprise the special reserve, capital reserve - realised, and revenue reserve, and are reduced by losses within the revaluation reserve of £3.0 million (31 Dec 2011: £2.8 million). £477,000 (31 Dec 2011: £477,000) of the merger reserve is also distributable. At the period end, total distributable reserves were £1.6 million (31 Dec 2011: £2.1 million).

10. Risks and uncertainties

Under the Disclosure and Transparency Directive, the Board is required in the Company's half-yearly results to report on principal risks and uncertainties facing the Company over the remainder of the financial year.

The Board has concluded that the key risks facing the Company over the remainder of the financial period are as follows:

* investment risk associated with investing in small and immature businesses;

* liquidity risk arising from investing mainly in unquoted businesses; and

* failure to maintain approval as a VCT.

In all cases the Board is satisfied with the Company's approach to these risks. As a VCT, the Company is forced to have significant exposure to relatively immature businesses. This risk is mitigated to some extent by holding a well-diversified portfolio.

With a reasonably illiquid venture capital investment portfolio, the Board ensures that it maintains an appropriate proportion of its assets in cash and liquid instruments.

The Company's compliance with the VCT regulations is continually monitored by the Administration Manager, who regularly reports to the Board on the current position. The Company also retains PricewaterhouseCoopers to provide regular reviews and advice in this area.  The Board considers that this approach reduces the risk of a breach of the VCT regulations to a minimal level.

11. Going concern

The Company has considerable financial resources at the period end, and holds a diversified portfolio of investments.  As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook.

The Directors have concluded that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements.

12. The Directors confirm that, to the best of their knowledge, the half-yearly financial statements have been prepared in accordance with the "Statement: Half-Yearly Financial Reports" issued by the UK Accounting Standards Board and the half-yearly financial report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the current financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

13. The unaudited financial statements set out herein do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been delivered to the Registrar of Companies. The figures for the year ended 31 December 2011 have been extracted from the financial statements for that year, which have been delivered to the Registrar of Companies; the Auditor's report on those financial statements was unqualified.

14. Copies of the unaudited half-yearly results will be sent to Shareholders shortly. Further copies can be obtained from the Company's Registered Office or downloaded from www.downing.co.uk. 

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Source: Elderstreet VCT plc via Thomson Reuters ONE

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