Half-Yearly Report for the six months ended 30 June 2016
FINANCIAL HIGHLIGHTS
30 Jun 2016 | 31 Dec 2015 | 30 Jun 2015 | |||
pence | pence | pence | |||
Net asset value per share | 68.9 | 70.6 | 67.5 | ||
Cumulative distributions paid per share | 93.5 | 91.0 | 88.5 | ||
Total return per share | 162.4 | 161.6 | 156.0 |
CHAIRMAN'S STATEMENT
I am pleased to present the Half-Yearly Report for Elderstreet VCT plc for the six month period ended 30 June 2016.
At 30 June 2016, the Company's net asset value ("NAV") per share stood at 68.9p, an increase of 0.8p or 1.1% since 31 December 2015 after adjusting for the total dividends of 2.5p per share paid during the period.
The return on activities after taxation for the period was £316,000 (2015: £1.4 million), comprising a revenue return of £333,000 and a capital loss of £17,000.
An interim dividend of 2.5p per share will be paid on 16 December 2016 to Shareholders on the register at 4 November 2016.
The Company invested £1.5 million in the period in one new and two follow-on investments.
In March 2016, the Company invested £499,000 in a new venture, Ridee Limited, which trades as Jinn, a fast growing digital solution for last mile deliveries from restaurants and stores.
A further investment of £750,000 was made into Concorde Solutions Limited to grow the company. In addition, £253,000 was invested in AngloINFO Limited to provide working capital for the further development of the business.
There was one small part disposal in the period. Proceeds of £99,000 were received from the investment Uvenco UK plc (formerly Snacktime plc) where part of the holding was sold to ensure the Company maintains compliance with the new VCT rules. A further retention payment was received in respect of Wessex Advanced Switching Products ("WASP"), the investment that was sold in 2014, of £440,000. Total realised gains for the period were £539,000.
At the period end, the Board reviewed the unquoted investment valuations and made a small number of adjustments. The value of AngloINFO was adjusted downwards by £405,000, reflecting the fact that the company requires further funding to develop its product. The Manager does, however, continue to believe that the company has potential. Concorde Solutions was also decreased by £142,000 as sales are growing more slowly than planned.
Within the AIM-quoted investments there were some significant moves over the period, with Fulcrum Utility Services increasing by £479,000, Access Intelligence increasing by £128,000 and Proxama decreasing by £277,000. Overall, the full portfolio showed net unrealised losses of £373,000 over the six months.
At the period end, the Company held a portfolio of 22 venture capital investments, valued at £19.8 million.
The Company continues to hold a small portfolio of fixed income investments that is managed by Smith & Williamson. The portfolio, valued at £1.6 million at the period end, recognised unrealised capital gains of £14,000 and produced income of £9,000 in the period.
During the period, the Company issued 2.6 million new shares at an average price of 70.96p per share under a further Top-up Offer for Subscription that launched in December 2015. The offers closed being fully subscribed and having raised a total of £1.8 million.
The Company has a policy of buying in shares that become available in the market at approximately a 7.5% discount to the latest published net asset value (subject to applicable regulations and liquidity considerations).
In line with this policy during the period the Company purchased 145,500 shares for cancellation for an aggregate consideration of £93,000 at an average price of 63.6p per share.
Any Shareholders who are considering selling their shares will need to use a stockbroker. Such Shareholders should ask their stockbroker to register their interest in selling their shares with Shore Capital, who act as the Company's corporate broker.
The UK's decision to leave the European Union has clearly been a major event that will have some impact, one way or another, on the UK economy over the coming years. In light of this the Board has reviewed the portfolio and concluded that there is unlikely to be any significant negative effect on the Company's investments in the short term and, indeed, the weaker pound may be favourable to some investments. The Board will, of course, continue to monitor developments.
The Board has had some discussions with the Manager about future fundraising and general strategy. As a result it is expected that the Company will launch a new Offer for Subscription later in the year. Full details of the new offer will be available in due course.
The portfolio has continued to perform satisfactorily and the Board believes that it continues to include investments which can ultimately deliver good rewards for Shareholders.
I look forward to updating Shareholders in my statement with the next Annual Report.
David Brock
Chairman
SUMMARY OF INVESTMENT PORTFOLIO as at 30 June 2016
Cost | Valuation | Valuation movement in period | % of portfolio by value | |
£'000 | £'000 | £'000 | ||
Top ten venture capital investments | ||||
Lyalvale Express Limited | 1,915 | 3,332 | - | 14.0% |
Access Intelligence plc* | 2,333 | 3,246 | 128 | 13.6% |
Fords Packaging Topco Limited | 2,883 | 3,239 | - | 13.6% |
Baldwin & Francis Limited | 1,534 | 2,252 | - | 9.4% |
Fulcrum Utility Services Limited* | 500 | 1,625 | 479 | 6.8% |
Concorde Solutions Limited | 1,650 | 1,525 | (142) | 6.4% |
AngloINFO Limited | 1,887 | 1,072 | (405) | 4.5% |
Lyalvale Property Limited | 300 | 914 | - | 3.8% |
Macranet Limited | 863 | 863 | - | 3.6% |
Ridee Limited | 499 | 499 | - | 2.1% |
14,364 | 18,567 | 60 | 77.8% | |
Other venture capital investments | 5,099 | 1,195 | (447) | 5.0% |
Fixed income securities | 1,516 | 1,557 | 14 | 6.5% |
20,979 | 21,319 | (373) | 89.3% | |
Cash at bank and in hand | 2,560 | 10.7% | ||
Total investments | 23,879 | 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 2016
Additions
£'000 | |
Venture capital investments | |
Concorde Solutions Limited | 750 |
Ridee Limited | 499 |
AngloINFO Limited | 253 |
1,502 |
Disposals
Cost | Value at 1 January 2016 | Proceeds | Profit/ (loss) vs cost | Realised profit | ||
£'000 | £'000 | £'000 | £'000 | £'000 | ||
Part disposal | ||||||
Uvenco UK plc (formerly Snacktime plc) | - | - | 99 | 99 | 99 | |
Retention proceeds | ||||||
Wessex Advanced Switching Products Limited | - | - | 440 | 440 | 440 | |
- | - | 539 | 539 | 539 |
UNAUDITED BALANCE SHEET as at 30 June 2016
30 Jun 2016 | 30 Jun 2015 | 31 Dec 2015 | ||||
Note | £'000 | £'000 | £'000 | |||
Fixed assets | ||||||
Investments | 21,319 | 20,667 | 20,189 | |||
Current assets | ||||||
Debtors | 1,853 | 125 | 1,757 | |||
Cash at bank and in hand | 2,560 | 2,846 | 3,113 | |||
4,413 | 2,971 | 4,870 | ||||
Creditors: amounts falling due within one year | (151) | (244) | (601) | |||
Net current assets | 4,262 | 2,727 | 4,269 | |||
Net assets | 25,581 | 23,394 | 24,458 | |||
Capital and reserves | ||||||
Called up share capital | 7 | 1,855 | 1,733 | 1,733 | ||
Capital redemption reserve | 8 | 481 | 474 | 474 | ||
Share premium | 8 | 5,452 | 3,743 | 3,743 | ||
Merger Reserve | 8 | 1,828 | 1,828 | 1,828 | ||
Special reserve | 8 | 2,394 | 2,592 | 2,629 | ||
Capital reserve - unrealised | 8 | 4,060 | 5,671 | 4,433 | ||
Capital reserve - realised | 8 | 9,064 | 6,792 | 9,132 | ||
Revenue reserve | 8 | 447 | 561 | 486 | ||
Equity shareholders' funds | 6 | 25,581 | 23,394 | 24,458 | ||
Basic and diluted net asset value per share | 6 | 68.9p | 67.5p | 70.6p |
UNAUDITED INCOME STATEMENT for the six months ended 30 June 2016
Six months ended 30 Jun 2016 | Six months ended 30 Jun 2015 | Year ended 31 Dec 2015 | ||||||||
Revenue | Capital | Total | Revenue | Capital | Total | Total | ||||
Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
Income | 526 | - | 526 | 529 | - | 529 | 688 | |||
Gains on investments: | ||||||||||
- realised | - | 539 | 539 | - | 492 | 492 | 754 | |||
- unrealised | - | (373) | (373) | - | 880 | 880 | 3,152 | |||
526 | 166 | 692 | 529 | 1,372 | 1,901 | 4,594 | ||||
Investment management fees | (61) | (183) | (244) | (59) | (178) | (237) | (472) | |||
Performance incentive fees | - | - | - | - | (107) | (107) | (454) | |||
Other expenses | (132) | - | (132) | (133) | - | (133) | (314) | |||
Return on ordinary activities before tax | 333 | (17) | 316 | 337 | 1,087 | 1,424 | 3,354 | |||
Tax on total comprehensive income and ordinary activities | - | - | - | - | - | - | - | |||
Return attributable to equity shareholders | 4 | 333 | (17) | 316 | 337 | 1,087 | 1,424 | 3,354 | ||
Basic and diluted return per share | 4 | 0.9p | 0.0p | 0.9p | 1.0p | 3.2p | 4.2p | 9.8p |
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.
STATEMENT OF CHANGE IN EQUITY for the six months ended 30 June 2016
Called up share capital | Capital redemption reserve | Share Premium | Merger reserve | Special reserve | Capital reserve-unrealised | Capital reserve-realised | Revenue reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
At 1 January 2016 | 1,733 | 474 | 3,743 | 1,828 | 2,629 | 4,433 | 9,132 | 486 | 24,458 |
Issue of new shares | 129 | - | 1,709 | - | - | - | - | 1,838 | |
Share Issue costs | - | - | - | - | (9) | - | - | - | (9) |
Purchase of own shares | (7) | 7 | - | - | (93) | - | - | - | (93) |
Expenses charged to capital | - | - | - | - | - | - | (183) | - | (183) |
Gains on investments | - | - | - | - | - | (373) | 539 | - | 166 |
Transfer between reserves | - | - | - | - | (133) | - | 133 | - | - |
Dividends paid | - | - | - | - | - | - | (557) | (372) | (929) |
Revenue return for the period | - | - | - | - | - | - | - | 333 | 333 |
At 30 June 2016 | 1,855 | 481 | 5,452 | 1,828 | 2,394 | 4,060 | 9,064 | 447 | 25,581 |
UNAUDITED CASH FLOW STATEMENT for the six months ended 30 June 2016
Six months ended 30 Jun 2016 | Six months ended 30 Jun 2015 | | Year ended 31 Dec 2015 | |||
£'000 | £'000 | £'000 | ||||
Cash flow from operating activities | ||||||
Return on ordinary activities before taxation | 316 | 1,424 | 3,354 | |||
Gains on investments | (166) | (1,372) | (3,906) | |||
(Increase)/decrease in other debtors | (101) | 3,437 | (20) | |||
Decrease in other creditors | (459) | (544) | (185) | |||
Net cash generated from operating activities | (410) | 2,945 | (757) | |||
Cash flow from investing activities | ||||||
Purchase of investments | (1,502) | (876) | (2,677) | |||
Sale of investments | 544 | 881 | 7,509 | |||
Net cash (outflow)/inflow from investing activities | (958) | 5 | 4,832 | |||
Cash flows from financing activities | ||||||
Proceeds from share issue | 1,839 | 782 | 773 | |||
Proceeds from shares issued under Dividend Reinvestment Scheme | - | 258 | - | |||
Share issue costs | - | (9) | - | |||
Purchase of own shares | (93) | (113) | (114) | |||
Equity dividends paid | (931) | (2,584) | (3,183) | |||
Net cash inflow/(outflow) from financing activities | 815 | (1,666) | (2,524) | |||
Increase in cash | (553) | 1,284 | 1,551 | |||
Net increase in cash | ||||||
Beginning of period | 3,113 | 1,562 | 1,562 | |||
Net cash (outflow)/inflow | (553) | 1,284 | 1,551 | |||
End of period | 2,560 | 2,846 | 3,113 |
for the six months ended 30 June 2016
1. The unaudited half yearly results cover the six months to 30 June 2016 and have been prepared in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" revised January 2009 and in accordance with the accounting policies set out in the statutory accounts for the year ended 31 December 2015, which were prepared in accordance with the United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law), including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and Republic of Ireland.
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 2015 and the year ended 31 December 2015 respectively.
4. Basic and diluted return per share
Six months ended 30 Jun 2016 | Six months ended 30 Jun 2015 | Year ended 31 Dec 2015 | |||
Return per share based on: | |||||
Net revenue gain for the period (£'000) | 333 | 337 | 262 | ||
Capital return per share based on: | |||||
Net capital (loss)/gain for the period (£'000) | (17) | 1,087 | 3,092 | ||
Weighted average number of shares | 35,889,194 | 34,046,369 | 34,356,056 |
5. Dividends
Six months ended 30 Jun 2016 | Year ended 31 Dec 2015 | ||||||
Per share | Revenue | Capital | Total | Total | |||
pence | £'000 | £'000 | £'000 | £'000 | |||
Paid in the period | |||||||
2015 Final | 2.5p | 372 | 557 | 929 | - | ||
2015 Interim | 2.5p | - | - | - | 866 | ||
2015 Special | 5.0p | - | - | - | 1,714 | ||
2014 2nd interim | 2.5p | - | - | - | 861 | ||
372 | 557 | 929 | 3,441 |
6. Basic and diluted net asset value per share
Six months ended 30 Jun 2016 | Six months ended 30 Jun 2015 | Year ended 31 Dec 2015 | |||
Net asset value per share based on: | |||||
Net assets (£'000) | 25,581 | 23,394 | 24,458 | ||
Number of shares in issue at the period end | 37,106,366 | 34,660,694 | 34,660,694 | ||
Net asset value per share | 68.9p | 67.5p | 70.6p |
7. Called up share capital
Six months ended 30 Jun 2016 | Six months ended 30 Jun 2015 | Year ended 31 Dec 2015 | |||
Ordinary shares of 5p each | |||||
Number of shares in issue at the period end | 37,106,366 | 34,660,694 | 34,660,694 | ||
Nominal value (£'000) | 1,855 | 1,733 | 1,733 |
In April 2016 the Company allotted 2,591,172 Ordinary Shares of 5p each ("Ordinary Shares") under the Top-up Offer for Subscription and a further Top-up Offer for Subscription that launched in December 2016, at an average price of 70.96p per share. Gross proceeds received thereon were £1.8 million with issue costs in respect of the offer amounting to £9,000.
During the period, the Company purchased 145,500 shares for cancellation for an aggregate consideration of £93,000 at an average price of 63.6p per share (approximately equal to a 9.9% discount to the most recently published NAV at the time of purchase) and representing 0.4% of the issued share capital in issue at 1 January 2016.
8. Reserves
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 2016 | Six months ended 30 Jun 2015 | Year ended 31 Dec 2015 | |||
£'000 | £'000 | £'000 | |||
Special reserve | 2,394 | 2,592 | 2,629 | ||
Capital reserve - realised | 9,064 | 6,792 | 9,132 | ||
Revenue reserve | 447 | 561 | 486 | ||
Merger reserve - distributable element | 423 | 477 | 423 | ||
Unrealised losses - excluding unrealised unquoted gains | 57 | (678) | 414 | ||
12,385 | 9,744 | 13,084 |
The Company has categorised its financial instruments using the fair value hierarchy as follows:
Level a Reflects financial instruments quoted in an active market (fixed interest investments, and investments in shares quoted on either the Main or AIM Markets);
Level b Reflects financial instruments that have prices that are observable either directly or indirectly; and
Level c i) Reflects financial instruments that use valuation techniques that are based on observable market data.
ii) Reflects financial instruments that use valuation techniques that are not based on observable market data (unquoted equity investments and loan note investments).
Six months ended 30 June 2016 | Year ended 30 Dec 2015 | ||||||||
Level a | Level b | Level c(ii) | Total | Level a | Level b | Level c(ii) | Total | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
Fixed interest securities | 1,557 | - | - | 1,557 | 1,542 | - | - | 1,542 | |
AIM quoted shares | 4,330 | - | 262 | 4,592 | 4,199 | - | 233 | 4,432 | |
Loan notes | - | - | 4,916 | 4,916 | - | - | 4,820 | 4,820 | |
Unquoted shares | - | - | 10,254 | 10,254 | - | - | 9,395 | 9,395 | |
5,887 | - | 15,432 | 21,319 | 5,741 | - | 14,448 | 20,189 |
9. 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 Philip Hare and Associates LLP 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.
10. 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.
11. 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.
12. 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 2015 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.
13. 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.elderstreet.com and www.downing.co.uk.