Half-yearly report
Elderstreet VCT plc
Half Yearly Report for the six months ended 30 June 2008
RECENT PERFORMANCE SUMMARY
30 Jun 2008 31 Dec 2007 30 Jun 2007
pence pence pence
Net asset value per Ordinary Share 88.5 81.9 81.9
Cumulative distributions paid per 40.0 36.5 35.0
Ordinary Share
Total return per Ordinary Share 128.5 118.4 116.9
Net asset value per 'C' Share 83.4 90.4 102.5
Cumulative dividends paid per 'C' 6.0 4.5 4.5
Share
Total return per 'C' Share 89.4 94.9 107.0
FORTHCOMING DIVIDENDS
Amount Date of payment Ex-div date Record date
Ordinary Shares 3.0p 26 Sept 2008 10 Sept 2008 12 Sept 2008
'C' Shares 24.0p 26 Sept 2008 10 Sept 2008 12 Sept 2008
CHAIRMAN'S STATEMENT
I am pleased to present the half yearly report for Elderstreet VCT
plc for the six-month period ended 30 June 2008. The period has been
notable for the deterioration in general economic conditions and it
is therefore especially pleasing to be able to report an increase in
the Ordinary Share net asset value.
Net Asset Value
At 30 June 2008, the Company's Net Asset Value ("NAV") per Ordinary
Share stood at 88.5p, an increase of 10.1p or 12.9% since 31 December
2007 (after adjusting for the dividend of 3.5p per share paid during
the period).
The NAV per 'C' Share at the same date stood at 83.4p, a decrease of
5.5p per 'C' Share (6.2%) since 31 December 2007 (after adjusting for
the dividend of 1.5p per share paid during the period).
Ordinary Share issue
The Company undertook a small top-up issue for the Ordinary Share
pool during the period. 962,377 Ordinary Shares of 5p were issued at
an average price of 91.9p per share. The total funds received under
the offer were £884,000 with issue costs thereon of £48,000.
Venture capital investments
Ordinary Share pool
The Ordinary Share pool made five follow on investments in the
period, at a total cost of £924,000, and also achieved two exits, the
most significant being that from UM (Holdings) Limited. The
Company's original equity investment was made in the provider of
trenchless installation equipment in 1999 at a cost of £53,000, along
with an investment in loan stock that was subsequently repaid. The
investment was sold for £1.56 million in March 2008, producing a
substantial realised gain. The Board congratulates the management
team on delivering another successful and highly profitable exit.
Of the investments held at the period end, there were a number of
valuation changes over the period. The most significant changes were
uplifts in the valuations of Wessex Automated Switching Products
Limited and Baldwin and Francis (Holdings) Limited of £869,000 and
£399,000 respectively, both resulting from continued improving
trading of the businesses. The investment in AIM-quoted Mediasurface
plc also rose in value by £395,000, caused by a bid approach by
Alterian plc. The bid was declared unconditional in July, resulting
in a disposal of the investment for part cash and part Alterian
shares.
Overall the Ordinary Share pool showed net realised gains of 632,000
and unrealised gains of £1.3 million over the period.
'C' Share pool
The 'C' Share pool made three follow on investments during the period
at a total cost of £141,000. The performance of the pool over the
period was hit by the generally poor performance of AIM stocks and
produced an unrealised loss of £96,000 for the six months.
Listed fixed income securities
The listed fixed income securities portfolio (held by the Ordinary
Share pool) was valued at £2.6 million at the period end. These funds
continue to be managed by Smith and Williamson Investment Management
Limited.
Results
The return on ordinary activities for the period was as follows:
Revenue Capital Total
£'000 £'000 £'000
Ordinary Shares 308 1,718 2,026
'C' Shares 17 (105) (88)
325 1,613 1,938
Dividend (Ordinary Shares)
The Company will pay an interim dividend to Ordinary Shareholders of
3p per share, comprising of 1.5p revenue dividend and 1.5p capital
dividend. The dividend will be paid on 26 September to Shareholders
on the register at 12 September 2008.
'C' Share "30p return"
In the 'C' Share prospectus published in February 2005, the Company
stated its intention to return at least 30p per share (for every £1
invested) to 'C' Shareholders by 30 September 2008. To date the
Company has paid a total of 6p per 'C' Share in dividends.
I am happy to report that the Company will achieve its target by
declaring a 'C' Share dividend of 24p per share payable on 26
September 2008. This will be paid to 'C' Shareholders on the
register at 12 September 2008. Following payment of this dividend
'C' Shareholders will have received dividends and upfront income tax
relief totalling 70p per share, against the £1 per share originally
subscribed.
Conversion of 'C' Shares
Following the payment of the 'C' Share dividend described above, the
'C' Share pool will effectively be fully invested but will also be
very small. This will make the task of maintaining a balanced
portfolio for the 'C' Shareholders with adequate levels of liquidity
more challenging.
In order to simplify the investment management task, the Board is
proposing that the 'C' Shares be converted into Ordinary Shares
shortly after the payment of the dividend. It is proposed that the
conversion of the 'C' Shares will take place in November based on the
relative NAVs of the 'C' Shares and Ordinary Shares as at 30
September 2008. A circular setting out the detailed proposals and
seeking Shareholder approval for the conversion will be sent to
Shareholders shortly.
Repurchase of shares
The Company continues to operate a policy of buying in for
cancellation any of its own shares that become available to ensure
that there is liquidity in the market for any Shareholders wishing to
dispose of their holdings.
During the period the Company purchased 353,754 Ordinary Shares for
cancellation at an average price of 76.1p per share and 54,124 'C'
Shares for cancellation at an average price of 79.2p per share.
Risks and uncertainties
Under the Disclosure and Transparency Directive, the Board is now
required in the Company's half year 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:
(i) investment risk associated with investing in small and
immature businesses; and
(ii) failure to maintain approval as a VCT.
In both 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.
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.
Outlook
The Board continues to be satisfied by progress made by many of the
investments within the Ordinary Share pool, particularly in the
current climate. The relative immaturity of the 'C' Share pool
investments has made its performance more vulnerable to the
challenging market conditions, however the pool holds a number of
investments with good medium term prospects.
The economic slowdown is likely to make further profitable exits much
more difficult to achieve in the short term, however the Board
believes a merged portfolio resulting from the proposed conversion of
the 'C' Shares can deliver good results to all Shareholders when
conditions improve.
David Brock
Chairman
UNAUDITED SUMMARISED BALANCE SHEET
as at 30 June 2008
As at As at
30 Jun 31 Dec
As at 30 Jun 2008 2007 2007
Ordinary 'C'
Shares Shares Total Total Total
£'000 £'000 £'000 £'000 £'000
Investments 17,029 905 17,934 16,420 17,462
Current assets
Investments 5,110 - 5,110 5,110 5,110
Debtors 275 31 306 144 168
Cash at bank and in hand 1,327 308 1,635 2,004 381
6,712 339 7,051 7,258 5,659
Creditors: amounts
falling due within one (5,310) (3) (5,313) (5,157) (5,153)
year
Net current assets 1,402 336 1,738 2,101 506
Net assets 18,431 1,241 19,672 18,521 17,968
Capital and reserves
Called up share capital 1,042 74 1,116 1,111 1,088
Capital redemption 141 3 144 101 124
reserve
Share premium 1,630 1,388 3,018 2,230 2,230
Merger reserve 3,475 - 3,475 3,475 3,475
Special reserve 4,157 - 4,157 5,097 4,563
Capital reserve - 4,697 (7) 4,690 3,967 3,649
realised
Capital reserve - 2,924 (179) 2,745 2,326 2,509
unrealised
Revenue reserve 365 (38) 327 214 330
Equity shareholder's 18,431 1,241 19,672 18,521 17,968
funds
Net asset value per:
Ordinary Share 88.5p 81.9p 81.9p
'C' Share 83.4p 102.5p 90.4p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months ended 30 June 2008
30 Jun 31 Dec
30 Jun 2008 2007 2007
Ordinary 'C'
Shares Shares Total Total Total
£'000 £'000 £'000 £'000 £'000
Opening shareholders' funds 16,573 1,395 17,968 12,922 12,922
Issue of shares 884 - 884 3,782 3,782
Share issue costs (48) - (48) - -
Purchase of own shares (271) (43) (314) (333) (665)
Total recognised gains in 2,026 (88) 1,938 2,933 3,021
the period
Distributions (733) (23) (756) (783) (1,092)
18,431 1,241 19,672 18,521 17,968
UNAUDITED INCOME STATEMENT
for the six months ended 30 June 2008
Six months ended
30 June 2008
Revenue Capital Total
Company Total £'000 £'000 £'000
Income 469 - 469
Gains/(losses) on investments - realised - 650 650
- unrealised - 1,101 1,101
469 1,751 2,220
Investment management fees (45) (136) (181)
Other expenses (99) (2) (101)
Return on ordinary activities before 325 1,613 1,938
taxation
Taxation - - -
Return attributable to equity shareholders 325 1,613 1,938
Return per Ordinary Share 1.5p 8.4p 9.9p
Return per 'C' Share 1.1p (6.8p) (5.7p)
Ordinary Shares
Income 441 - 441
Gains/(losses) on investments - realised - 648 648
- unrealised - 1,196 1,196
441 1,844 2,285
Investment management fees (42) (125) (167)
Other expenses (91) (1) (92)
Return on ordinary activities before taxation 308 1,718 2,026
Taxation - - -
Return attributable to equity shareholders 308 1,718 2,026
'C' Shares
Income 28 - 28
Gains/(losses) on investments - realised - 2 2
- unrealised - (95) (95)
28 (93) (65)
Investment management fees (3) (11) (14)
Other expenses (8) (1) (9)
Return/(loss) on ordinary activities before 17 (105) (88)
taxation
Taxation - - -
Return/(loss) attributable to equity 17 (105) (88)
shareholders
Six months ended Year ended
30 June 2007 31 December 2007
Revenue Capital Total Total
Company Total £'000 £'000 £'000 £'000
Income 328 - 328 654
Gains/(losses) on - 670 670 541
investments - realised
- unrealised - 2,188 2,188 2,371
328 2,858 3,186 3,566
Investment management fees (39) (118) (157) (339)
Other expenses (96) - (96) (206)
Return on ordinary 193 2,740 2,933 3,021
activities before taxation
Taxation (3) 3 - -
Return attributable to 190 2,743 2,933 3,021
equity shareholders
Return per Ordinary Share 0.9p 14.0p 14.9p 15.7p
Return per 'C' Share 1.2p 6.2p 7.4p (4.7p)
Ordinary Shares
Income 291 - 291 591
Gains/(losses) on investments - realised - 670 670 2,451
- unrealised - 2,082 2,082 541
291 2,752 3,043 3,583
Investment management fees (34) (104) (138) (305)
Other expenses (85) - (85) (185)
Return on ordinary activities before 172 2,648 2,820 3,093
taxation
Taxation - - - -
Return attributable to equity 172 2,648 2,820 3,093
shareholders
'C' Shares
Income 37 - 37 63
Gains/(losses) on investments - realised - - - -
- unrealised - 106 106 (80)
37 106 143 (17)
Investment management fees (5) (14) (19) (34)
Other expenses (11) - (11) (21)
Return/(loss) on ordinary activities 21 92 113 (72)
before taxation
Taxation (3) 3 - -
Return/(loss) attributable to equity 18 95 113 (72)
shareholders
UNAUDITED CASHFLOW STATEMENT
for the six months ended 30 June 2008
Six Year
months ended
Six months ended 31 Dec
ended 30 Jun 2007
30 Jun 2008 2007
Ordinary 'C'
Shares Share Total
Note £'000 £'000 £'000 £'000 £'000
Cash
inflow/(outflow) 1 166 (13) 153 19 48
from operating
activities and
returns on
investments
Capital expenditure
Purchase of (2,470) (140) (2,610) (3,126) (4,114)
investments
Sale of investments 3,337 500 3,837 3,900 3,932
Net cash 867 360 1,227 774 (182)
inflow/(outflow)
from capital
expenditure
Acquisitions
Purchase of - - - (202) (225)
subsidiary
undertakings
Net cash 162 - 162 377 369
transferred from
subsidiary
undertakings
162 - 162 175 144
Equity dividends (733) (23) (756) (783) (1,092)
paid
Net cash 462 324 786 185 (1,082)
inflow/(outflow)
before financing
Financing
Proceeds from share 884 - 884 - -
issue
Share issue costs (103) - (103) - (6)
Purchase of own (270) (43) (313) (395) (745)
shares
Net cash inflow 511 (43) 468 (395) (751)
from financing
Increase/(decrease) 2 973 281 1,254 (210) (1,833)
in cash
Notes to the
cashflow statement:
1 Cash
inflow/(outflow)
from operating
activities and
returns on
investments
Return on ordinary 2,025 (87) 1,938 2,933 3,021
activities before
taxation
Gains/(losses) on (1,844) 93 (1,751) (2,858) (2,912)
investments
Increase in other (12) (18) (30) (47) (66)
debtors
(Decrease)/increase (3) (1) (4) (9) 5
in other creditors
Net cash 166 (13) 153 19 48
inflow/(outflow)
from operating
activities
2 Analysis of net
funds
Beginning of period 354 27 381 2,214 2,214
Net cash 973 281 1,254 (210) (1,833)
inflow/(outflow)
End of period 1,327 308 1,635 2,004 381
SUMMARY OF INVESTMENT PORTFOLIO
as at 30 June 2008
Unrealised
gain/(loss) % of
Cost Valuation in period portfolio
£'000 £'000 £'000 by value
Ordinary Share pool
Top ten venture capital
investments
Wessex Advanced Switching 56 2,668 872 14.5%
Products Limited
Snacktime plc * 1,500 2,337 (92) 12.7%
Baldwin & Francis (Holdings) 690 1,719 399 9.4%
Limited
Oldbury Aluminium Alloys 1,275 1,275 - 6.9%
Group Limited
Lyalvale Express Limited 915 1,027 112 5.6%
The Engine Group Limited 600 725 - 4.0%
MediaSurface plc * 740 710 465 3.9%
Smart Education Limited 1,229 700 (158) 3.8%
Fords Packaging Systems 83 542 - 3.0%
Limited
Wecomm Limited 604 517 (87) 2.8%
7,692 12,220 1,511 66.6%
Other venture capital 4,835 2,247 (235) 12.2%
investments
Listed fixed income 2,626 2,562 (80) 14.0%
securities
Subtotal 15,153 17,029 1,196 92.8%
Cash at bank and in hand 1,327 7.2%
Ordinary Share Pool - Total 18,356 100.0%
'C' Share pool
Top ten venture capital
investments
Servoca plc * 140 127 (49) 10.4%
Snacktime plc * 125 111 (5) 9.1%
Interquest Group plc * 100 109 (45) 9.0%
Wecomm Limited 121 103 (17) 8.5%
Oldbury Aluminium Alloys 100 100 - 8.2%
Group Limited
MediaSurface plc * 83 87 57 7.2%
Melorio plc * 100 80 (25) 6.6%
AngloINFO Limited 79 79 - 6.6%
Smart Education Limited 174 78 (17) 6.4%
Infoserve plc * 60 29 6 2.4%
1,082 903 (95) 74.4%
Other venture capital 2 2 - 0.1%
investments
Subtotal 1,084 905 (95) 75.5%
Cash at bank and in hand 308 25.5%
'C' Share Pool - Total 1,213 100.0%
All venture capital investments are unquoted unless otherwise stated.
* Quoted on AIM
SUMMARY OF INVESTMENT MOVEMENTS
for the six months ended 30 June 2008
Additions
'C'
Ordinary Share Pool Share Pool
£'000 £'000
Venture Capital Investments
AngloINFO Limited 3 1
MediaSurface plc * 32 3
Servoca plc 120 80
Smart Education Limited 316 35
The Engine Group Limited 350 -
Wecomm Limited 104 21
925 140
Listed fixed income securities
Nucleus Cash Trust 124 -
Treasury 8% 2013 stock 1,421 -
2,470 140
Disposals
Market Gain/ Total
value at (loss) realised
1 January Disposal against gain/
Cost 2008 Proceeds cost (loss)
£'000 £'000 £'000 £'000 £'000
Ordinary Share pool
Full disposals
Halifax Industrial Limited 331 320 306 (25) (14)
UM Holdings Limited 54 915 1,561 1,507 646
Retention monies received - - 16 16 16
Fixed interest securities
Nucleus Cash Trust 1 1 1 - -
Treasury 5% 2008 Stock 1,469 1,470 1,470 1 -
Treasury 4% 2009 Stock 34 35 35 1 -
1,889 2,741 3,389 1,500 648
'C' Share pool
Treasury 4% 2009 Stock 486 498 500 14 2
486 498 500 14 2
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. The unaudited half yearly financial results cover the six months
to 30 June 2008 and have been prepared in accordance with the
accounting policies set out in the statutory accounts for the year
ended 31 December 2007 which were prepared under UK Generally
Accepted Accounting Practice ("UK GAAP") and in accordance with the
Statement of Recommended Practice "Financial Statements of Investment
Trust Companies" revised December 2005 ("SORP").
2. All revenue and capital items in the Income Statement derive from
continuing operations.
3. The Company has only one class of business and derives its income
from investments made in shares, securities and bank deposits.
4. The comparative figures are in respect of the six months ended 30
June 2007 and the year ended 31 December 2007 respectively.
5. Net Asset Value per share calculations are based on the following:
Ordinary Shares
'C' Shares
Revenue return per share based on:
Net Assets (£'000) 18,431 1,241
Number of shares in issue at period end 20,836,307 1,488,078
6. Return per share calculations are based on the following:
Ordinary Shares
'C' Shares
Revenue return per share based on:
Net revenue return after taxation 308 17
(£'000)
Capital return per share based on:
Net capital return/(loss) for the 1,717 (104)
financial year (£'000)
Weighted average number of shares in 20,566,061 1,529,579
issue
7. Distributions
30 Jun 2008 31 Dec 2007
Per share Revenue Capital Total Total
Pence £'000 £'000 £'000 £'000
Paid in the period
2007 Interim Ordinary Share 1.5 - - - 309
dividend
2007 Final Ordinary Share 3.5 262 471 733 -
dividend
2007 Final 'C' Share 1.5 23 - 23 -
dividend
2006 Final Ordinary Share 3.5 - - - 729
dividend
2006 Final 'C' Share 3.5 - - - 54
dividend
285 471 756 1,092
8. Capital and Reserves
Capital Capital Capital
Redemption Share Special Reserve Reserve Revenue Merger
Reserve Premium Reserve -unrealised - Reserve Reserve
realised
Company £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 124 2,230 4,563 2,509 3,649 330 3,475
2008
Issue of new - 836 - - - - -
shares
Share issue - (48) - - - - -
costs
Shares 20 - (271) - - (43) -
repurchased
Expenses - - - - (138) - -
capitalised
Gains on - - - 1,101 650 - -
investments
Transfer - - (135) (865) 1,000 - -
between
reserves
Retained net
revenue for the - - - - - 325 -
period
Dividends paid - - - - (471) (285) -
in period
At 30 June 2008 144 3,018 4,157 2,745 4,690 327 3,475
The above figures relate to the Company as a whole. The Special
Reserve, Capital Reserve - Realised and Revenue Reserve are all
distributable reserves.
9. 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 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.
10. The unaudited financial statements set out herein do not
constitute statutory accounts within the meaning of Section 240 of
the Companies Act 1985 and have not been delivered to the Registrar
of Companies. The figures for the year ended 31 December 2007 have
been extracted from the financial statements for that year, which
have been delivered to the Registrar of Companies; the auditors'
report on those financial statements was unqualified.
11. Copies of the unaudited half yearly results will be sent to
Shareholders shortly. Further copies can be obtained from the
Company's Registered Office and will be available for download from
www.downing.co.uk .
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