Elderstreet VCT plc : Half-yearly report

ELDERSTREET VCT PLC
HALF YEARLY REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2013

Recent performance summary

	30 Jun 2013		31 Dec 2012		30 Jun 2012
	pence		pence		pence
Net asset value per share	70.3		68.9		63.6
Cumulative distributions paid per share	60.0		58.0		56.0
Total return per share	130.3		126.9		119.6

CHAIRMAN'S STATEMENT

I am pleased to present the Half-Yearly Report for Elderstreet VCT plc for the six month period ended 30 June 2013 and to report a solid performance by the Company over the period.

Net asset value, results and dividends

At 30 June 2013, the Company's net asset value ("NAV") per share stood at 70.3p, an increase of 3.4p or 4.9% since 31 December 2012 after adjusting for the dividend of 2.0p per share paid in the period.
The return on activities after taxation for the period was £1.1 million (2012 loss: £74,000), comprising a revenue return of £37,000 and a capital return of £1.1 million.

The Company will pay an interim dividend of 2.0p per share on 6 December 2013 to Shareholders on the register at 8 November 2013.

Venture capital investments

With a reasonably low level of liquid funds available, there was a limited level of investment activity during the period. The Company completed one follow-on investment in SnackTime plc at a cost of £400,000.

At the period end, the Company held a portfolio of 24 venture capital investments, valued at £15.5 million.

The Board reviewed the unquoted investment valuations at the period end and has made a number of adjustments, the most notable being uplifts to, what are now, the Company's two largest investments, Wessex Advanced Switching Products Limited ("WASP") and Fords Packaging Systems Limited ("Fords").

WASP, a manufacturer of switches, touch screens, key pads and related items for the defence, aerospace and medical instrument markets, experienced strong trading, particularly in its aerospace business, justifying an uplift of £771,000.

The valuation of the investment in Fords, a manufacturer of packaging equipment for the food and drink market, has been increased by £747,000 on the back of steady trading with improved margins.

The value of the investment in Aconite Technology Limited was also increased by £195,000 as the business is making progress and attracting interest from other investors.

The other two significant valuation movements were in respect of two of the AIM holdings. Access Intelligence fell by £335,000, although the business continues to make progress, while Fulcrum fell by £258,000 on the back of a profits warning and disappointing results.

Overall, the portfolio showed net unrealised gains of £1.2 million over the period.

Fixed income securities
The Company continues to hold a small portfolio of fixed income investments which is managed by Smith & Williamson. The portfolio, valued at £1.5 million at the period end, recognised unrealised capital losses of £16,000 in the period.

Fundraising activities
The Company undertook a top-up offer for subscription during the period, issuing 1,291,055 new shares at 67.5p per share. Net proceeds of the offer were £823,000.

Share buybacks
In June 2013, the Company purchased 216,480 shares for cancellation for an aggregate consideration of £121,000 at a price of 55.5p per share being a 15% discount to the most recently published NAV at the time of purchase.

The Board has a policy of making market purchases of its shares approximately four times each year and makes a certain level of funds available for this purpose. The Board expects to purchase shares at approximately a 15% discount to the latest published NAV although this policy is reviewed from time to time.

Outlook
The performance over the period supports the Board's view that the Company holds a reasonably robust portfolio which includes a number of investments which have good potential for continuing to build value. We again expect to see a low level of new investment activity as the Board is keen to hold a reasonable level of liquid funds to support existing investments should they require it. The Manager's focus will therefore remain on continuing to nurture the current portfolio.

Looking forward, the Board notes that there is now a trend in the market towards larger VCTs, which have lower running costs per share as one of their attractions. The Board is considering ways in which it may be able to grow the size of the Company and deliver reduced running costs to Shareholders, possibly through a new fundraising strategy. I will, of course, report to Shareholders any significant developments to this end if, or when, they arise.

David Brock
Chairman

SUMMARY OF INVESTMENT PORTFOLIO

	Cost	Valuation	Valuation movement in period	% of portfolio by value
	£'000	£'000	£'000
Top ten venture capital investments
Wessex Advanced Switching Products Limited	60	3,085	771	14.1%
Fords Packaging Systems Limited	1,047	3,018	747	13.8%
Smart Education Limited	761	2,471	-	11.3%
Access Intelligence plc *	1,633	1,519	(335)	6.9%
AngloINFO Limited	1,108	1,483	-	6.8%
Lyalvale Express Limited	915	1,255	-	5.8%
B & F Management Limited	700	700	-	3.2%
Baldwin & Francis (Holdings) Limited	690	690	-	3.2%
Aconite Technology Limited	462	688	195	3.2%
SnackTime plc *	1,775	630	-	2.9%
	9,151	15,539	1,378	71.2%
Other venture capital investments	4,666	2,246	(161)	10.3%
Fixed income securities	1,454	1,474	(16)	6.8%
	15,271	19,259	1,201	88.3%
Cash at bank and in hand		2,560		11.7%
Total investments		21,819		100.0%

All venture capital investments are unquoted unless otherwise stated.

* Quoted on AIM

SUMMARY OF INVESTMENT MOVEMENTS

Additions

	£'000
Venture capital investments
SnackTime plc	400

Disposals
There have been no disposals in the period.

UNAUDITED BALANCE SHEET

	30 Jun 2013		30 Jun 2012		31 Dec 2012
	£'000		£'000		£'000
Fixed assets
Investments	19,259		15,769		17,659
Current assets
Debtors	152		89		90
Cash at bank and in hand	2,560		3,274		3,030
	2,712		3,363		3,120
Creditors: amounts falling due within one year	(220)		(177)		(191)
Net current assets	2,492		3,186		2,929
Net assets	21,751		18,955		20,588
Capital and reserves
Called up share capital	1,547		1,490		1,494
Capital redemption reserve	436		241		425
Merger reserve	1,882		1,936		1,882
Share premium	856		9,832		9,929
Special reserve	7,290		1,202		-
Capital reserve - unrealised	7,741		1,367		6,540
Capital reserve - realised	1,768		2,673		(187)
Revenue reserve	231		214		505
Equity shareholders' funds	21,751		18,955		20,588
Basic and diluted net asset value per share	70.3p		63.6p		68.9p

UNAUDITED INCOME STATEMENT

	Six months ended 30 Jun 2013				Six months ended 30 Jun 2012				Year ended 31 Dec 2012
	Revenue	Capital	Total		Revenue	Capital	Total		Total
	£'000	£'000	£'000		£'000	£'000	£'000		£'000
Income	197	-	197		270	-	270		715
Gains/(losses) on investments:
- realised	-	-	-		-	120	120		120
- unrealised	-	1,201	1,201		-	(166)	(166)		1,883
	197	1,201	1,398		270	(46)	224		2,718
Investment management fees	(52)	(154)	(206)		(48)	(143)	(191)		(380)
Other expenses	(108)	-	(108)		(106)	(1)	(107)		(214)
Return/(loss) on ordinary activities before taxation	37	1,047	1,084		116	(190)	(74)		2,124
Taxation	-	-	-		-	-	-		-
Return/(loss) attributable to equity shareholders	37	1,047	1,084		116	(190)	(74)		2,124
Basic and diluted return/(loss) per share	0.1p	3.4p	3.5p		0.4p	(0.6p)	(0.2p)		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

	30 Jun 2013		30 Jun 2012		31 Dec 2012
	£'000		£'000		£'000
Opening Shareholders' funds	20,588		18,861		18,861
Issue of shares	871		952		1,134
Issue of shares under Enhanced Share Buyback scheme	-		-		2,131
Share issue costs	(48)		(52)		(127)
Purchase of own shares	(121)		(131)		(198)
Purchase of own shares under Enhanced Share Buyback scheme	-		-		(2,142)
Total recognised gains/(losses) in the period	1,084		(74)		2,124
Dividends	(623)		(601)		(1,195)
Closing Shareholders' funds	21,751		18,955		20,588

UNAUDITED CASH FLOW STATEMENT

	Six months ended 30 Jun 2013		Six months ended 30 Jun 2012		Year ended 31 Dec 2012
	£'000		£'000		£'000
Net cash (outflow)/inflow from operating activities and returns on investments	(178)		(73)		83
Capital expenditure
Purchase of investments	(400)		(2,284)		(2,284)
Sale of investments	-		1,352		1,512
Net cash outflow from capital expenditure	(400)		(932)		(772)
Equity dividends paid	(623)		(601)		(1,201)
Net cash outflow before financing	(1,201)		(1,606)		(1,890)
Financing
Proceeds from share issue	870		912		1,093
Proceeds from shares issued under Enhanced Share Buyback	-		-		2,131
Share issue costs	(18)		(12)		(75)
Purchase of own shares	(121)		(131)		(198)
Purchase of own shares under Enhanced Share Buyback	-		-		(2,142)
Net cash inflow from financing	731		769		809
Decrease in cash	(470)		(837)		(1,081)

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

1. The unaudited half yearly financial results cover the six months to 30 June 2013 and have been prepared in accordance with the accounting policies set out in the statutory accounts for the year ended 31 December 2012, 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 2012 and the year ended 31 December 2012 respectively.

4.        Basic and diluted return per share

	Six months ended 30 Jun 2013		Six months ended 30 Jun 2012		Year ended 31 Dec 2012
Return per share based on:
Net revenue gain for the period (£'000)	37		116		406
Capital return per share based on:
Net capital gain/(loss) for the period (£'000)	1,047		(190)		1,718
Weighted average number of shares	30,458,332		29,306,317		29,559,342

5.        Dividends

			Six months ended 30 Jun 2013				Year ended 31 Dec 2012
	Per share		Revenue	Capital	Total		Total
	pence		£'000	£'000	£'000		£'000
Paid in the period
2012 Final	2.0		311	312	623		-
2012 Interim	2.0		-	-	-		594
2011 Final	2.0		-	-	-		601
			311	312	623		1,195

6.        Basic and diluted net asset value per share

	Shares in issue		Net assets		NAV per share
			£'000		pence
Period ended 30 June 2013	30,948,108		21,751		70.3p
Period ended 30 June 2012	29,812,249		18,955		63.6p
Year ended 31 December 2012	29,873,533		20,588		68.9p

7.        Called up share capital

	Shares in issue		£'000
Period ended 30 June 2013	30,948,108		1,547
Period ended 30 June 2012	29,812,249		1,490
Year ended 31 December 2012	29,873,533		1,494

Between 3 April 2013 and 30 April 2013, the Company allotted 1,291,055 Ordinary Shares of 5p each, under the terms of an offer document dated 14 January 2013, at 67.5p per share. Gross proceeds received thereon were £871,000 with issue costs in respect of the offer amounting to £48,000.

During the period the Company purchased 216,480 Ordinary Shares of 5p each for cancellation for an aggregate consideration of £121,000, at a price of 55.5p per share (approximately equal to a 15% discount to the most recently published NAV at the time of purchase), and representing 0.7% of the issued Ordinary Share capital held at 1 January 2013.

8.        Reserves

	Capital redemption reserve		Merger reserve	Share premium	Special reserve	Capital reserve- unrealised	Capital reserve- realised	Revenue reserve
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2013		425	1,882	9,929	-	6,540	(187)	505
Issue of new shares		-	-	807	-	-	-	-
Share issue costs		-	-	(48)	-	-	-	-
Purchase of own shares		11	-	-	(121)	-	-	-
Expenses capitalised		-	-	-	-	-	(154)	-
Gains on investments		-	-	-	-	1,201	-	-
Cancellation of share premium account		-	-	(9,832)	9,832	-	-	-
Transfer between reserves		-	-	-	(2,421)	-	2,421	-
Dividends paid		-	-	-	-	-	(312)	(311)
Retained net revenue for the period		-	-	-	-	-	-	37
At 30 June 2013		436	1,882	856	7,290	7,741	1,768	231

On 27 February 2013 the Company obtained court approval to cancel £9.8 million of the Company's share premium account. The special reserve is available to the Company to enable the purchase of its own shares in the market without affecting its ability to pay dividends, and also allows the Company to write back realised capital losses arising on disposals and impairments.

Distributable reserves are calculated as follows:

	Six months ended 30 Jun 2013		Six months ended 30 Jun 2012		Year ended 31 Dec 2012
	£'000		£'000		£'000
Special reserve	7,290		1,202		-
Capital reserve - realised	1,768		2,673		(187)
Revenue reserve	231		214		505
Merger reserve - distributable element	477		477		477
Unrealised losses - excluding unrealised unquoted gains	(790)		(2,967)		(256)
	8,976		1,599		539

9.        Reconciliation of return on operating activities before taxation to net cash flow from operating activities

	Six months ended 30 Jun 2013		Six months ended 30 Jun 2012		Year ended 31 Dec 2012
	£'000		£'000		£'000
Return/(loss) on ordinary activities before taxation	1,084		(74)		2,124
(Gains)/losses on investments	(1,201)		46		(2,003)
Decrease in other debtors	(61)		(37)		(38)
Decrease in other creditors	-		(8)		-
Net cash outflow from operating activities	(178)		(73)		83

10.        Analysis of changes in cash at bank and in period

	Six months ended 30 Jun 2013		Six months ended 30 Jun 2012		Year ended 31 Dec 2012
	£'000		£'000		£'000
Beginning of period	3,030		4,111		4,111
Net cash (outflow)/inflow	(470)		(837)		(1,081)
End of period	2,560		3,274		3,030

11.        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.

12.        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.

13.        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.

14.        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 2012 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.

15.        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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