Replacement - Final Results

Elderstreet VCT plc Final Results for the year ended 31 December 2009 - REPLACEMENT The announcement issued by the Company entitled "Final Results" on 30 April 2001 at 15:49 as HUG1410767 included an error in respect of the proposed final dividend which should have appeared as 2.0p per share rather than 1.0p per share as originally stated.  The full corrected text of the announcement is follows: FINANCIAL HIGHLIGHTS   2009   2008 pence pence Net asset value per share ("NAV") 76.7   72.8 Cumulative dividends paid since launch 46.0   43.0 Total return (NAV plus cumulative dividends paid per share) 122.7   115.8 Dividends in respect of financial year Interim dividend per share 2.0   3.0 Final proposed dividend per share (payable on 23 June 2010) 2.0   1.0 ------- ------   4.0   4.0 CHAIRMAN'S STATEMENT In view of the continuing challenging conditions which prevailed throughout 2009, it is pleasing to be able to report a positive performance by your Company and a reasonable increase in its Net Asset Value over the year. Net Asset Value At 31 December 2009, the Company's Net Asset Value per Ordinary Share ("NAV") stood at 76.7p, an increase of 6.9p (9.5%) compared to the NAV at the previous year end (after adjusting for the dividends of 3.0p per share paid during the year). The Total Return to Shareholders who invested at the launch of the Company in 1998 (NAV plus cumulative dividends) is now 122.7p compared to the original cost (net of income tax relief) of 80p per share. Venture capital investments Portfolio activity during the year was reasonably limited, although the Company made two significant follow-on investments. Over the year, two investments showed substantial increases in value.  AIM-quoted companies, Snacktime plc and Access Intelligence plc, were both able to make good progress giving rise to increases in valuation of £1.5 million and £865,000 respectively. Further commentary on the portfolio, together with a schedule of additions, disposals and details of the largest investments by value, can be found within the Investment Manager's Report and Review of Investments. Fixed interest investments The Company continues to hold a portfolio of fixed interest investments which are managed by Smith & Williamson Investment Management Limited.  During the year this portfolio produced unrealised losses of £24,000 and realised losses of £21,000. Results and dividends The return on activities after taxation for the year was £1,628,000 (2008: loss £859,000), comprising a revenue return of £282,000 (2008: £529,000 and a capital gain of £1,346,000 (2008: loss £1,388,000). Subject to Shareholder approval at the forthcoming Annual General Meeting ("AGM"), your Board is proposing to pay a final revenue dividend of 2.0p per share on 23 June 2010 to Shareholders on the register at 28 May 2010. Investment management and administration fees As noted in my statement with the Half-Yearly Report, following changes to the legislation regarding VAT on investment management fees for VCTs, during the year, the Board reviewed the investment management and administration fees and agreed and small increase in the investment management fee and, in view of the fact that the Company now just has one share class, a small decrease in administration fees.  The net overall effect of these changes to Shareholders, including the changes to the VAT legislation, is negligible. Performance incentive fee The Board recognises that the existing performance incentive arrangements do not act to incentivise the Manager as there is no realistic possibility of any incentive fee being paid. In order to address this, Board is proposing to re-structure the performance incentive arrangements. Under the proposals, the Investment Manager will be entitled to a 20% share of any dividends in excess of 3.5p per annum (assuming that adjusted NAV is higher than 70.6p per share) and Directors will no longer be entitled to any performance fees.  The Board believes the proposals provide a realistic incentive and better align the interests of the Shareholders and the Manager in maximising dividends. Full details of the proposals will be put to Shareholders in a circular to be issued by the Company shortly. Ordinary Share issue 2008/09 and 2009/10 The Company undertook a small top-up share issue in December 2008.  1,979,406 Ordinary Shares were issued at an average price of 74.71p per share.  The total funds received under the offer were £1.5 million with issue costs thereon of £81,000. Ordinary Share issue 2009/10 and 2010/11 On 1 December 2009, the Company announced a new Offer for Subscription covering the tax years 2009/10 and 2010/2011 to raise up to £1.6 million by the issue of further Ordinary Shares.  As at the date of this report, the Company had allotted 1,540,945 Ordinary Shares at a price of approximately 76.0p per share under the Offer. Share buybacks As I reported in my statement with the Half-Yearly Report, the Board has introduced a modified system for share buybacks, whereby the Board will allocate a fixed level of funds for the Company to acquire its own shares at a standard discount to NAV twice each year, normally expected to be in May and October. In October 2009, the Company spent approximately £150,000 purchasing 262,000 Shares for cancellation at a price of 58.0p per share at a 15% to the latest published NAV. The Board has allocated a further £150,000 for share buybacks which it intends to undertake at a 15% discount to the latest published NAV in May 2010. Shareholders who wish to sell their Shares should contact Downing Management Services Limited. The Board is aware that there may be forced sellers of the Company's Shares who are unable to wait for the next scheduled share buyback.   Accordingly, the Board may consider making further buybacks outside the scheduled times, however these will be made at a greater discount to NAV. Annual General Meeting The next AGM of the Company will be held at 32 Bedford Row, London WC1R 4HE at 11:00a.m. on 21 June 2010. Three items of Special Business are proposed; two special resolutions in relation to the allotment of shares; and a special resolution to make market purchases of its shares. Outlook A substantial proportion of the Company's value is now accounted for by a reasonably small number of investments.  The performance of these investments will therefore have a significant influence on the performance of the Company over the coming year. Prospects for these key investments generally look positive.  Having traded through the difficult conditions of the last 2 years, some of them may now be stronger and well placed to take advantage of better conditions when they arrive. David Brock Chairman 30 April 2010 INVESTMENT MANAGER'S REPORT In spite of the UK economy being in recession for most of the year it is pleasing to report that the VCT made a positive return over the year with the net asset value per share increasing by 8.8% to 76.7p after paying a 3.0p dividend. Most of our activity has been focused on the management of the existing portfolio. There were no completely new investments made during the year but over £1.0 million was invested in portfolio companies. In February we completed a secondary buy-out of Fords Packaging Limited in order to facilitate the retirement of three of the directors. A further £500,000 was invested in Access Intelligence plc by way of a £500,000 convertible loan stock as part of a £2.0 million funding round to make an acquisition. There were a number of other small follow on investments to several companies in the portfolio. During the year we fully realised holdings in four companies raising £683,000. These included; North West Transport Supplies, Fords Packaging Systems 1998 Limited, Expansys plc and Alterian plc. Since the year end we have also sold our holding in ComponentSource. Holdings Inc. A number of new investment opportunities were reviewed and indicative terms discussed but we chose not to proceed with any. Within the portfolio, we are generally pleased with the resilience of the majority of the companies. Overall the portfolio has weathered the downturn in trading conditions, although companies with sales order profiles relying on 'large ticket orders' in global markets are still subject to the lack of liquidity in global credit. The portfolio has relatively little external bank debt which has helped in the downturn. The Manager is confident that barring any unforeseen major shock to the global economy the portfolio is well positioned to trade through the existing economic climate. Positive news has been forthcoming from Snacktime plc and Access Intelligence plc which have both raised external capital and made earnings enhancing acquisitions over the last thirteen months. Within the high growth early stage portfolio weComm Limited, a mobile application software investment, has recently reported its best ever quarter's trading. Generally it is worth noting that in nine out of the top ten companies by value at 31 December 2009 we have at least one board seat and are very actively involved with these businesses. Over the year the movement in the net asset value including cumulative dividends has been positive.  Of the top ten investments three have increased in value, three have remained constant; and four have reduced. Valuation increases have outnumbered decreases by over £1.0 million. The majority of this increase has been in Access Intelligence plc and Snacktime plc, where the VCT has significant shareholdings and Board representation. Excluding these holdings, the AIM portfolio has increased in value by £75,000 reflecting the recovery in the markets. We continue to maintain a good level of liquidity so that we are able to respond to investment opportunities that become available. We expect that as the economy recovers that some of the portfolio companies will need further support to underpin their growth. Given the uncertainty in the general economy we believe our strategy of investing into the existing portfolio to make acquisitions while enterprise values are relatively low will enhance the value of the VCT in the medium term. The low external debt position of the portfolio, which is well covered by earnings and comfortably within banking covenants, gives us confidence for the future. Overall we remain cautiously optimistic. Elderstreet Investments Limited 30 April 2010 REVIEW OF INVESTMENTS Portfolio of investments The following investments were held at 31 December 2009. All companies are registered in England and Wales, with the exception of Component Source Inc, which is registered in the United States of America:       Valuation       movement % of   Cost Valuation in year portfolio   £'000 £'000 £'000 by value Ten largest venture capital investments (by value) Snacktime plc * 1,725 3,453 1,482 19.2% Wessex Advanced Switching Products Limited 60 2,673 - 14.9% Access Intelligence plc * 1,133 1,826 865 10.2% Fords Packaging Systems Limited (formerly Fords Packaging Systems Holdings 1,047 1,152 105 6.4% Limited) Lyalvale Express Limited 915 1,027 - 5.7% Smart Education Limited 1,473 1,003 (53) 5.6% Baldwin & Francis (Holdings) Limited 690 770 (250) 4.3% The Engine Group Limited 600 526 (200) 2.9% Wecomm Limited 850 472 (273) 2.7% AngloINFO Limited 328 328 - 1.8% -------------------------------------   8,821 13,230 1,676 73.7% ------------------------------------- Other venture capital investments Interquest Group plc * 336 280 67 1.6% Mears Group plc ** 188 223 14 1.2% Melorio plc * 190 222 103 1.2% Cashfac Initiative Limited 260 197 - 1.1% Servoca plc * 333 168 (12) 0.9% The QSS Group Limited 268 135 - 0.7% Rosebowl plc 188 125 - 0.7% The Kellan Group plc* 657 38 (38) 0.2% Sift Limited 250 38 (150) 0.2% Infoserve plc * 127 17 (45) 0.1% SparesFinder Limited 103 12 - 0.1% Component Source Inc 250 8 8 0.1% Lanchon Holdings Limited 7 7 - 0.1% Business Meetings ASP Limited 12 - -       - The National Solicitors Network Limited 901 - -       - -------------------------------------   4,070 1,470 (53) 8.2% ------------------------------------- Listed fixed income securities Treasury 2¼% Stock 07/03/2014 830 832 2 4.6% Treasury 8% Stock 2013 711 718 (24) 4.0% Treasury 3¼% Stock 07/12/2011 718 716 (2) 4.0% Nucleus Cash Trust 95 93 - 0.5% -------------------------------------   2,354 2,359 (24) 13.1% -------------------------------------   15,245 17,059 1,599 95.0% Cash at bank and in hand   899   5.0 ----------- ---------- Total investments   17,958   100.0% All venture capital investments are unquoted unless otherwise stated * Quoted on AIM ** Quoted on the Main Market Investment movements for the year ended 31 December 2009 ADDITIONS   £'000 New investments Fords Packaging Systems Limited (formerly Fords Packaging Systems Holdings 1,047 Limited) ** Follow on investments Access Intelligence plc 500 Smart Education Limited 70 Listed fixed income securities Treasury 3¼% Stock 07/12/2011 719 Treasury 2¼% Stock 07/03/2014 830 ------   3,166 DISPOSALS         Profit/ Realised   MV at   (loss) vs gain/ Cost 01/01/09* Proceeds cost (loss)   £'000 £'000 £'000 £'000 £'000 Full disposals Alterian plc 125 57 49 (76) (8) Expansys plc 202 10 5 (197) (5) Fords Packaging Systems 1998 Limited (formerly  Fords Packaging Systems  Limited) ** 83 542 542 459 - Northwest Transport Supplies Limited 101 101 87 (14) (14) Partial disposals Interquest plc 15 9 13 (2) 4 Infoserve plc 22 11 5 (17) (6) Mears Group plc 77 87 74 (3) (13) Melorio plc 10 6 12 2 6 Servoca plc 17 10 10 (7) - Liquidations and dissolutions Oldbury Aluminium Alloys Group 1,375 - - (1,375) - Limited Veterinary Practices Initiatives 100 100 127 27 27 Limited Listed fixed income securities Treasury 4% Stock 2009 936 962 956 20 (6) Treasury 8% Stock 2013 711 742 726 15 (16) Nucleus Cash Trust 246 243 244 (2) 1 --------------------------------------------   4,020 2,880 2,850 (1,170) (30) *Adjusted for purchases in the year ** Restructuring of investment Statement of Directors' responsibilities The Directors are responsible for preparing the Report of the Directors, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Services Authority. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements the Directors are required to: *select suitable accounting policies and then apply them consistently; *make judgments and estimates that are reasonable and prudent; *state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and *prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Manager's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions. Statement as to disclosure of information to Auditors The Directors in office at the date of the report have confirmed, as far as they are aware, that there is no relevant audit information of which the Auditors are unaware. Each of the Directors has confirmed that they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the Auditor. By order of the Board Grant Whitehouse Secretary of Elderstreet VCT plc Company number: 03424984 Registered Office: Kings Scholars House 230 Vauxhall Bridge Road London SW1V 1AU 30 April 2010 INCOME STATEMENT for the year ended 31 December 2009   2009 2008   Revenue Capital Total Revenue Capital Total   £'000 £'000 £'000 £'000 £'000 £'000 Income 571 - 571 861 - 861 Distribution in specie - 5,110 5,110 - - - Gains/(losses) on investments - 1,569 1,569 - (1,238) (1,238) Loss on subsidiary undertaking - (5,110) (5,110) - - - ------------------------------------------------   571 1,569 2,140 861 (1,238) (377) Investment management fees (78) (234) (312) (90) (272) (362) Recoverable VAT - - - 25 75 100 Other expenses (199) (1) (200) (218) (2) (220) ------------------------------------------------ Return on ordinary activities before tax 294 1,334 1,628 578 (1,437) (859) Tax on ordinary activities (12) 12 - (49) 49 - ------------------------------------------------ Return attributable to equity Shareholders 282 1,346 1,628 529 (1,388) (859) Basic and diluted return per 1.2p 5.9p 7.1p 2.5p (6.7p) (4.2p) share All Revenue and Capital items in the above statement derive from continuing operations.  No operations were acquired or discontinued during the year.  The total column within the Income Statement represents the profit and loss account of the Company. A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement as shown above. Other than revaluation movements arising on investments held at fair value through the Income Statement, there were no differences between the return/deficit as stated above and at historical cost. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the year ended 31 December 2009   2009   2008   £'000   £'000 Opening shareholders' funds 15,698   17,968 Issue of shares 1,478   885 Share issue costs (81)   (49) Purchase of own shares (153)   (509) Total recognised gains/(losses) for the year 1,628    (859) Dividends paid (705)   (1,738) ---------- ---------- Closing shareholders' funds 17,865   15,698 BALANCE SHEET at 31 December 2009     2009 2008   £'000 £'000 £'000 £'000 Fixed assets Investments   17,059   15,174 Current assets Investments -   5,110 Debtors 91   392 Cash at bank and in hand 899   348 ------- ---------   990   5,850 Creditors: amounts falling due within one year (184)   (5,326) ------- --------- Net current assets   806   524 -------- ------- Net assets   17,865   15,698 Capital and reserves Called up share capital   1,164   1,079 Capital redemption reserve   170   157 Merger reserve   2,211   3,475 Share premium   4,341   3,042 Special reserve   2,895   3,461 Investment holding gains   2,481   124 Capital reserve - realised   4,395   4,141 Revenue reserve   208   219 -------- ------- Total equity shareholders' funds   17,865   15,698 Basic and diluted net asset value per share   76.7p   72.8p CASH FLOW STATEMENT for year ended 31 December 2009   2009   2008   £'000   £'000 Net cash inflow from operating activities 307   211 Capital expenditure Purchase of investments (3,166)   (3,827) Sale of investments 2,850   4,877 ----------- ---------- Net cash (outflow)/inflow from capital expenditure (316)   1,050 ----------- ---------- Acquisitions Cash acquired from subsidiary undertaking -   162 ----------- ---------- Net cash inflow from capital expenditure -   162 ----------- ---------- Equity dividends paid (735)   (1,738) ----------- ---------- Net cash outflow before financing (744)   (315) Financing Proceeds from share issue 1,478   885 Share issue costs (30)   (94) Purchase of own shares (153)   (509) ----------- ---------- Net cash inflow from financing 1,295   282 ----------- ---------- Increase/(decrease) in cash 551   (33) NOTES TO THE ACCOUNTS for year ended 31 December 2009 1. Accounting policies Basis of accounting The Company has prepared its financial statements 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 ("SORP"). The financial statements are prepared under the historical cost convention modified by the revaluation of certain financial instruments. The Company implements new Financial Reporting Standards ("FRS") issued by the Accounting Standards Board when required. Presentation of Income Statement In order to better reflect the activities of a venture capital trust and in accordance with the SORP, 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 Part 6 of the Income Tax Act 2007. Investments Investments are designated as "fair value through profit or loss" assets due to investments being managed and performance evaluated on a fair value basis.   A financial asset is designated within this category if it is both acquired and managed, with a view to selling after a period of time, in accordance with the Company's documented investment policy.  The fair value of an investment upon acquisition is deemed to be cost.  Thereafter investments are measured at fair value in accordance with the International Private Equity and Venture Capital Valuation Guidelines ("IPEV") together with FRS26. Listed fixed income investments and investments quoted on AIM and the Main Market are measured using bid prices in accordance with the IPEV. For unquoted instruments, fair value is established using the IPEV. The valuation methodologies for unquoted entities used by the IPEV to ascertain the fair value of an investment are as follows: *Price of recent investment; *Multiples; *Net assets; *Discounted cash flows or earnings (of underlying business); *Discounted cash flows (from the investment); and *Industry valuation benchmarks. The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value. Where an investee company has gone into receivership or liquidation the loss on 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 Income Statement except to the extent of any income accrued.  This is in accordance with the SORP that does not require portfolio investments to be accounted for using the equity method of accounting. 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 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 acquisition of an investment are deducted as a Capital item. 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. The Company has adopted the policy of allocating investment manager's fees, 75% to Capital and 25% to Revenue as permitted by the SORP.  The allocation is in line with the Board's expectation of long term returns from the Company's investments in the form of capital gains and income respectively. Taxation The tax effects on different items in the Income Statement are allocated between capital and revenue on the same basis as the particular item to which they relate using the Company's effective rate of tax for the accounting period. Due to the Company's status as a Venture Capital Trust and the continued intention to meet the conditions required to comply with Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company's investments which arise. 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 the accounts. Other debtors and other creditors Other debtors (including accrued income) and other creditors are included within the accounts at amortised cost, equivalent to the fair value of the expected balance receivable/payable by the Company. Issue costs Issue costs in relation to the shares issued are deducted from the Share Premium account. 2. Basic and diluted return per share   Weighted average number of Revenue Capital gain/ shares in return per loss per issue share share     £'000 £'000 Return per share is calculated on the following: Year ended 31 December 2009 Ordinary Shares 23,010,569 282 1,346 Year ended 31 December 2008 Ordinary Shares 20,770,524 529 (1,388) As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share.  The return per share disclosed therefore represents both basic and diluted return per share. 3. Basic and diluted net asset value per share   2009 2008   Shares in issue Net asset value Net asset value       pence       pence     per   per 2009 2008 share £'000 share £'000 Ordinary shares 23,287,887 21,570,481   76.7   17,865   72.8   15,698 As the Company has not issued any convertible securities or share options, there is no dilutive effect on net asset per share.  The net asset value per share disclosed therefore represents both basic and diluted net asset value per share. 4. Principal financial risks As a VCT, the majority of the Company's assets are represented by financial instruments which are held as part of the investment portfolio. In order to ensure continued compliance with relevant VCT regulations and to be in a position to deliver the long term capital growth, which is part of the Company's investment objective, the Board is very much aware of the need to manage and mitigate the risks associated with these financial instruments. The management of these risks starts with the application of a clear investment policy which has been developed by the Board who are experienced investment professionals. Furthermore, the Board has appointed an experienced Investment Manager to whom they have communicated the Company's investment objectives and whose remuneration is linked to the achievement of those objectives. The Investment Manager reports regularly to the Board on performance, and to facilitate the direct Board involvement with key decisions, on whether or not to invest, disinvest and the nature, terms and the security of investments being made. Further information about the VCT's investment policy is set out in the Report of the Directors. In assessing the risk profile of its investment portfolio, the Board has identified three principal classes of financial instrument.  Investments are "fair value through the profit and loss account" and are recognised as such on initial recognition. In addition to its investment portfolio, the VCT holds cash balances with one of the main UK banks and the Listed Fixed Income Securities Manager. The Directors consider that the risk profile associated with cash deposits is low and thus the carrying value in the Financial Statements is a close approximation of its fair value. The Board has reviewed the Company's financial risk profile and concluded that the current sensitivity level remains appropriate. A review of the specific financial risks faced by the Company follows. Market risks The key market risks to which the Company is exposed are interest rate risk and market price risk.  The Company has undertaken sensitivity analysis on its financial instruments, split into the relevant component parts, taking into consideration the economic climate at the time of review in order to ascertain the appropriate risk allocation. Interest rate risk Board decisions in relation to amounts to be retained as cash deposits and held in fixed interest investments (including yields) are influenced by actual and potential changes in the Bank of England base rate.   Sensitivity has been tested by the impact on the NAV over a one year period of a fall in the base rate to nil, being the largest possible fall, and also a graduating increase in base rate to 4%. Market price risk Market price risk arises from uncertainty about the future prices of financial instruments held in accordance with the Company's investment objectives.  It represents the potential loss that the Company might suffer through holding market positions in the face of market movements. At 31 December 2009, the net unrealised gain on the quoted portfolios (quoted on the Main Market, AIM-quoted and fixed income investments) was £1,544,000 (2008: loss £1,089,000). The investments the Company holds are (with the exception of listed fixed income securities), in the main, thinly traded (due to the underlying nature of the investments) and, as such, the prices are more volatile than those of more widely traded, full list, securities.  In addition, the ability of the Company to realise the investments at their carrying value may at times not be possible if there are no willing purchasers.  The ability of the Company to purchase or sell investments is also constrained by the requirements set down for VCTs. The Board considers each investment purchase to ensure that an acquisition will enable the Company to continue to have an appropriate spread of market risk and that an appropriate risk reward profile is maintained. It is not the Company's policy to use derivative instruments to mitigate market risk, as the Board believes that the effectiveness of such instruments does not justify the cost or risk involved. Credit risk Credit risk is the risk that a counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. Investments in loan stocks comprise a fundamental part of the Company's venture capital investments and are managed within the main investment management procedures. Cash is mainly held by Bank of Scotland plc, which is an Aa3 rated financial institution (Moody's) and, consequently the Directors consider that the risk profile associated with cash deposits is low.  There have been no changes in fair value that are directly attributable to changes in credit risk. Interest, dividends and other receivables are predominantly covered within the investment management procedures. There have been no changes in fair value that are directly attributable to changes in credit risk. Liquidity risk Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities.  Liquidity risk may also arise from either the inability to sell financial instruments when required at their fair values or from the inability to generate cash inflows as required.  As the Company only ever has a very low level of creditors, (2009: £184,000, 2008: £216,000), has no borrowings and holds £899,000 of funds in the Bank at the year end (2008: £348,000), the Board believes that the Company's exposure to liquidity risk is minimal. 5. Related party transactions In the opinion of the Directors there is no immediate or ultimate controlling party. Michael Jackson is a director of Elderstreet Investments Limited and Elderstreet Private Equity Limited which provides investment management services to the Company. During the year £312,000 (2008: £377,000) was due to the companies in respect of these services.  At the year end £Nil (2008: £126,000) was repayable to the Company in respect of recoverable VAT on investment management fees which was received in full after the year end.  In addition, £Nil (2008: £51,000) is repayable to the Company in respect of fundraising costs paid by the Company on behalf of Elderstreet Private Equity Limited during the year. Nicholas Lewis is a director of Downing Management Services Limited, which provides administration services to the Company.  During the year £52,000 plus VAT (2008: £60,000 plus VAT) was due to Downing Management Services Limited in respect of these services. Announcement based on audited accounts The financial information set out in this announcement does not constitute the Company's statutory financial statements in accordance with section 434 Companies Act 2006 for the year ended 31 December 2009, but has been extracted from the statutory financial statements for the year ended 31 December 2009, which were approved by the Board of Directors on 30 April 2010 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.  The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006. The statutory accounts for the period ended 31 December 2008 have been delivered to the Registrar of Companies and received an Independent Auditors report which was unqualified and did not contain any emphasis of matter nor statements under S237(2) or (3) of the Companies Act 1985. A copy of the full annual report and financial statements for the year ended 31 December 2009 will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at Kings Scholars House, 230 Vauxhall Bridge Road, London SW1V 1AU and will be available for download from www.downing.co.uk. [HUG#1412037]

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