Interim Results
Elderstreet VCT PLC
26 September 2006
Elderstreet VCT plc
Interim Statement for the six months ended 30 June 2006
CHAIRMAN'S STATEMENT
The period to 30 June 2006 has seen a mixed performance within the Company's
investment portfolio, with strong results by some of the more mature investments
being countered by difficulties affecting some of the younger companies.
Ordinary Share Issue
With the attractive level of income tax relief available on VCT investments in
the 2005/06 tax year, the Company took the opportunity to undertake a small
issue of Ordinary shares. The Company issued 1,401,471 Ordinary shares at a
price of 68.9p per share. The issue raised net proceeds of £966,000 and gives
the Company a larger asset base over which to share its fixed running costs and
a greater level of liquid funds to be able to participate in more new investment
opportunities.
Net Asset Value
At 30 June 2006, the Company's Net Asset Value per Ordinary share ('NAV') stood
at 67.2p, an increase of 4.1p or 4.3% since 31 December 2005 (after adjusting
for dividends paid during the period).
At 30 June, the Net Asset Value per 'C' share stood at 89.0p, a decrease of 4.1p
per 'C' share (4.4%) over the period after adjusting for the dividend paid.
Venture capital investments
During the period, the Company made one new investment and three follow on
investments totalling £317,000 and spread between the Ordinary and 'C' Share
pools.
The Ordinary share pool made two realisations during the period. Part of the
holding in AIM-quoted Computer Software Group plc was sold, giving rise to a
gain of £274,279 against previous carrying value. In addition, the remainder of
the holding in Milkround plc was sold, producing a gain of £25,000.
Of the investments held throughout the period, Computer Software Group accounted
for a sizable unrealised gain of £822,000. The company successfully completed
several acquisitions during the period and is establishing strong positions in a
number of niche software sectors. Of the other AIM stocks held by the company,
Interquest Group plc and Mediasurface plc both performed well producing gains of
£127,000 and £85,000 respectively.
Within the unquoted portfolio, several of the investee companies encountered
difficulties, causing the Board to make some provisions. Trading at Oldbury
Aluminium Limited suffered as a result of unusually large fluctuations in the
price of aluminium and The National Solicitors Network Limited produced some
poor results suggesting that future development of the business will be
difficult. Provisions of £182,000 and £375,000 respectively were made against
these investments.
Overall the investment portfolio gave rise to unrealised gains of £311,000 over
the period in respect of the Ordinary Share pool and a small unrealised loss of
£72,000 in respect of the 'C' Share pool.
Listed fixed income securities
The listed fixed income securities portfolio held by the Ordinary Share pool was
valued at £1.0 million at the period end. These funds continue to be managed by
Smith and Williamson Investment Management Limited.
Results and Dividend
The Company's Ordinary Share pool had a revenue surplus of £53,000 (2005:
£23,000), equivalent to 0.4p per share. The 'C' Share pool had a revenue
surplus of £14,000 (2005: 13,000) equivalent to 0.9p per 'C' share. The Board
does not intend to pay and interim dividend for either the Ordinary or 'C'
Shares.
Repurchase of shares
The Company continues to operate a policy of buying in for cancellation any
shares that become available, to ensure that there is liquidity in the market
for any Shareholders wishing to dispose of their holding.
During the period the Company purchased 283,067 Ordinary Shares, at an average
price of 55.0p per share, for cancellation. No 'C' Shares were purchased.
Outlook
With the 'C' Share investment portfolio still very much in its infancy, it may
be some time before any significant progress amongst its investments becomes
apparent. The Ordinary Share portfolio, however, contains a good spread of
businesses at varying levels of maturity which should give it a better chance of
delivering some good returns to Shareholders in the short and medium term.
David Brock
Chairman
UNAUDITED SUMMARISED BALANCE SHEET
as at 30 June 2006
30 Jun 30 Jun 2005 31 Dec
2006 2005
£'000 £'000 £'000
Investments 9,309 8,906 9,248
Net current assets 2,286 1,483 1,384
Net assets 11,595 10,389 10,632
Capital and reserves
Called up share capital 838 793 782
Capital redemption reserve 67 42 52
Share premium 2,230 1,386 1,388
Special reserve 6,209 6,246 6,401
Capital reserve - realised 1,652 - 1,658
Capital reserve - unrealised 433 1,909 237
Revenue reserve 166 13 114
Equity shareholders' funds 11,595 10,389 10,632
Net asset value per Ordinary 67.2p 62.4p 65.1p
share
Net asset value per 'C' share 89.0p 95.1p 94.1p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS FUNDS
30 Jun 30 Jun 31 Dec
2006 2005 2005
£'000 £'000 £'000
Opening shareholder's funds 10,632 9,498 9,498
Issue of shares 966 1,542 1,542
Share issue costs (53) (81) (77)
Purchase of own shares (157) (168) (274)
Total recognised gains/ 534 (112) 231
(losses) for the period
Distributions paid (327) (290) (288)
Closing shareholder's funds 11,595 10,389 10,632
INCOME STATEMENT
for the six months ended 30 June 2006
Six months ended
30 Jun 2006
Revenue Capital Total
£'000 £'000 £'000
Income 186 - 186
Gains/(losses) on investments - 529 529
186 529 715
Investment management fees (22) (68) (90)
Other expenses (91) - (91)
Return on ordinary activities before taxation 73 461 534
Taxation (5) 5 -
Return attributable to equity shareholders 68 466 534
Return per Ordinary share 0.4p 3.7p 4.1p
Return per 'C' share 0.9p (5.1p) (4.2p)
Six months ended Year ended
30 Jun 2005 31 Dec 2005
Revenue Capital Total Total
£'000 £'000 £'000 £'000
Income 141 - 141 269
Gains/(losses) on investments - (96) (96) 305
141 (96) 45 574
Investment management fees (17) (52) (69) (155)
Other expenses (88) - (88) (188)
Return on ordinary activities before taxation 36 (148) (112) 231
Taxation - - - -
Return attributable to equity shareholders 36 (148) (112) 231
Return per Ordinary share 0.2p 0.9p 1.1p 1.7p
Return per 'C' share 0.9p (0.6p) 0.3p 0.9p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the six months ended 30 June 2006
Six months ended
30 Jun 2006
Revenue Capital Total
£'000 £'000 £'000
Return attributable to equity shareholders 68 466 534
Total recognised gains/(losses) for the period 68 466 534
Six months ended Year ended
30 Jun 2005 31 Dec 2005
(as restated)
Revenue Capital Total Total
£'000 £'000 £'000 £'000
Return attributable to equity shareholders 36 (148) (112) 231
Total recognised gains/(losses) for the period 36 (148) (112) 231
UNAUDITED CASHFLOW STATEMENT
for the six months ended 30 June 2006
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
2006 2005 2005
Note £'000 £'000 £'000
Cash outflow from operating activities and returns on
investments 1 (55) (22) (89)
Capital expenditure
Purchase of investments (318) (1,392) (3,207)
Sale of investments 100 358 2,231
Net cash outflow from capital expenditure (218) (1,034) (976)
Equity dividends paid (327) (290) (288)
Net cash outflow before financing (600) (1,346) (1,353)
Financing
Proceeds from share issue 966 1,542 1,542
Share issue costs (62) (41) (77)
Purchase of own shares (144) (163) (274)
Net cash inflow from financing 760 1,338 1,191
Increase/(decrease) in cash 160 (8) (162)
Notes to the cashflow statement:
1 Cash (outflow)/inflow from operating activities
and returns on investments
Net revenue before taxation 73 36 42
Expenses charged to capital (68) (52) (116)
Increase in other debtors (50) (3) (24)
(Decrease)/increase in other creditors (10) (3) 9
Net cash (outflow)/inflow from operating activities (55) (22) (89)
2 Analysis of net funds
Beginning of period 1,352 1,514 1,514
Net cash inflow/(outflow) 160 (8) (162)
End of period 1,512 1,506 1,352
SUMMARY OF INVESTMENT PORTFOLIO
as at 30 June 2006
Cost Valuation % of
portfolio
£'000 £'000 by value
Ordinary Share pool
Top ten venture capital investments
Computer Software Group plc * 733 1,960 19.1
Wessex Advanced Switching Products Limited 51 1,176 11.5
Snacktime Limited 750 750 7.3
Fords Packaging Systems Limited 83 667 6.5
European Telecommunications & Technology Ltd 450 558 5.5
UM (Holdings) plc 54 485 4.7
Mediasurface plc * 374 398 3.9
Oldbury Aluminium Alloys Group Ltd 450 301 2.9
The National Solicitors Network Limited 856 275 2.7
Interquest Group plc 250 264 2.6
4,051 6,834 66.2
Other venture capital investments 3,423 1,194 11.7
Listed fixed income securities 1,027 1,019 10.0
Net current assets (including cash) 1,186 1,186 11.6
Ordinary Share Pool - Total 9,687 10,233 100.0
'C' Share pool
Venture capital investments
Interquest Group plc * 100 105 7.6
Oldbury Aluminium Alloys Group Limited 100 67 4.9
Ovum plc 60 52 3.8
Smart Education Limited 115 48 3.5
375 321 19.9
Net current assets (including cash) 1,100 1,100 80.2
'C' Share Pool - Total 1,475 1,372 100.0
Company Total 11,162 11,595
All venture capital investments are unquoted unless otherwise stated.
* Quoted on the Alternative Investment Market ('AIM')
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. Accounting policies
Basis of accounting
The Company has prepared its financial statements under UK Generally Accepted
Accounting Practice ('UK GAAP'). Where presentation guidance set out in the
Statement of Recommended Practice 'Financial Statements of Investment Trust
Companies' revised December 2005 ('SORP') is inconsistent with the requirements
of UK GAAP, the Directors have sought to prepare the financial statements on a
basis compliant with the recommendations of the SORP.
The financial statements are prepared under the historical cost convention
except for the revaluation of certain financial instruments.
Presentation of Income Statement
In order to better reflect the activities of an investment trust company and in
accordance with guidance issued by the AITC, supplementary information which
analyses the income statement between items of a revenue and capital nature has
been presented alongside the income statement. The net revenue is the measure
the directors believe appropriate in assessing the Company's compliance with
certain requirements set out in Section 842 Income and Corporation Taxes Act
1988.
Investments
Listed fixed income investments and investments quoted on the Alternative
Investment Market ('AIM') are designated as 'fair value through profit or loss'
assets and are initially measured at cost. Thereafter the investments are
measured at subsequent reporting dates at fair value, which is the bid price
with illiquidity discounts applied where deemed appropriate.
In respect of unquoted instruments, fair value is established by using the
International Private Equity and Venture Capital Valuation Guidelines. Where no
reliable fair value can be estimated for such unquoted equity investments they
are carried at cost, subject to any provision for impairment. Where an investee
company has gone into receivership or liquidation the investment, although not
physically disposed of, is treated as being realised.
Gains and losses arising from changes in fair value are included in the income
statement for the year as a capital item and transaction costs on acquisition or
disposal of the investment expensed.
It is not the Company's policy to exercise either significant or controlling
influence over investee companies. Therefore the results of these companies are
not incorporated into the revenue account except to the extent of any income
accrued.
Income
Dividend income from investments is recognised when the shareholders' rights to
receive payment has been established, normally the ex dividend date.
Interest income is accrued on a timely basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset's net carrying amount, and only where there
is reasonable certainty of collection.
Expenses
All expenses are accounted for on an accruals basis. In respect of the analysis
between revenue and capital items presented within the income statement, all
expenses have been presented as revenue items except as follows:
• Expenses which are incidental to the disposal of an investment are
deducted from the disposal proceeds of the investment.
• Expenses are split and presented partly as capital items where a connection
with the maintenance or enhancement of the value of the investments held
can be demonstrated and accordingly the investment management fee and
finance costs have been allocated 25% to revenue and 75% to capital, in
order to reflect the directors expected long-term view of the nature of the
investment returns of the Company.
Deferred taxation
Deferred taxation is provided in full on timing differences that result in an
obligation at the balance sheet date to pay more tax, or a right to pay less
tax, at a future date, at rates expected to apply when they crystallise based on
current tax rates and law. Timing differences arise from the inclusion of items
of income and expenditure in taxation computations in periods different from
those in which they are included in financial statements.
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 were in respect of the six months ended 30 June
2005 and the year ended 31 December 2005 respectively.
5. Net Asset Value per share calculations are based on the following:
Ordinary 'C' Shares
Shares
Revenue return per share based on:
Net Assets (£'000) 10,223 1,372
Number of shares in issue at period end 15,221,819 1,542,202
6. Return per share calculations are based on the following:
Ordinary 'C' Shares
Shares
Revenue return per share based on:
Net revenue after taxation (£'000) 53 15
Weighted average number of ordinary shares in issue 14,856,483 1,542,202
Capital return per share base on:
Net capital return/(loss) for the financial year (£'000) 544 (78)
Weighted average number of ordinary shares in issue 14,856,483 1,542,202
7. Distributions
30 Jun 2006 31 Dec 2005
Per Revenue Capital Total Total
Share
Pence £'000 £'000 £'000 £'000
Paid in year
2005 Final Ordinary distribution 2.0 - 311 311 -
2005 Final 'C' share dividend 1.0 16 - 16 -
2004 Final Ordinary distribution 3.0 - - - 288
16 311 327 288
8. Capital and Reserves
Capital Capital Capital
redemption reserve reserve
Share Special reserve Share Revenue
premium - -
Capital reserve unrealised realised Reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2006 782 6,401 52 1,388 237 1,658 114
Issue of new shares 71 - - 895 - - -
Share issue costs - - - (53) - - -
Shares repurchased (15) (157) 15 - - - -
Expenses capitalised - - - - - (68) -
Tax on capital expenses - - - - - 5 -
Realised gains - - - - - 299 -
Unrealised gains - - - - 230 - -
Transfer between reserves - (35) - - (34) 69 -
Retained net revenue for the period - - - - - - 68
Dividends paid in period - - - - - (311) (16)
At 30 June 2006 838 6,209 67 2,230 433 1,652 166
Analysed as:
Ordinary Shares £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2006 705 6,401 52 - 268 1,667 88
Issue of new shares 71 - - 895 - - -
Share issue costs - - - (53) - - -
Shares repurchased (15) (157) 15 - - - -
Expenses capitalised - - - - - (59) -
Tax on capital expenses - - - - - 2 -
Realised gains - - - - - 299 -
Unrealised gains - - - - 302 - -
Transfer between reserves - (35) - - (34) 69 -
Retained net revenue for the period - - - - - - 53
Dividends paid in period - - - - - (311) -
At 30 June 2006 761 6,209 67 842 536 1,667 141
'C' Shares £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2006 77 - - 1,388 (31) (9) 26
Expenses capitalised - - - - - (9) -
Tax on capital expenses - - - - - 3 -
Realised gains - - - - - - -
Unrealised gains - - - - (72) - -
Retained net revenue for the period - - - - - - 15
Dividends paid in period - - - - - - (16)
At 30 June 2006 77 - - 1,388 (103) (15) 25
The Special Reserve is a distributable reserve that allows the Company to make
market purchases of its own shares and to pay distributions. The Ordinary
Capital reserve - realised and Revenue Reserves are also distributable reserves.
9. 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 2005 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.
10.Copies of the unaudited interim results will be sent to shareholders shortly.
Further copies can be obtained from the Company's Registered Office.
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