Downing Distribution VCT 1 plc : Half-yearly re...
Downing Distribution VCT 1 plc
Half-Yearly Report for the six months ended 30 September 2012
FINANCIAL PERFORMANCE
| 30 Sept 2012 pence | 31 Mar 2012 pence | 30 Sept 2011 pence | |
| Net asset value per share | 72.0 | 77.9 | 78.4 |
| Cumulative dividends paid since 1 April 2010 | 12.5 | 10.0 | 7.5 |
| Total return per share | 84.5 | 87.9 | 85.9 |
CHAIRMAN'S STATEMENT
I present the half-yearly report for the six month period ended 30 September 2012. It is disappointing to have to report a fall in net asset value over the period. This has arisen mainly from adjustments to three unquoted investment valuations and a fall in share price in one large AIM-quoted holding.
Investment activity
The Company has been reasonably active in the first six months of the year. Five investments were purchased at a total cost of £1.9 million.
£1.4 million was also raised from disposals of AIM-quoted investments as the Investment Manager continued to reduce the Company's exposure to the AIM market. Realised gains amounted to £333,000.
Since the change of Manager in 2010, the Company's strategy has been to reallocate some of its funds to lower risk, unquoted investments. The unquoted investments in Hoole Hall Country Club, Hoole Hall Spa and Leisure, and Cadbury House were made prior to the change of strategy and consequently have a higher risk profile that the type of unquoted investment that the Company has made recently.
The Hoole Hall and Cadbury House investments have accounted for the main valuation reductions in the period. The movements arise from a weakening in the market for large hotel and similar assets and the fact that the companies have a relatively high level of prior ranking finance. A 50% provision has been made against the equity element of these investments at the current time, however as this market is currently very illiquid there is some uncertainty as to the fair value of these assets. Should market conditions deteriorate further, increased provisions may be necessary.
AIM-quoted, Ludorum, also experienced a fall in share price over the period, although the underlying trading remains satisfactory. Net unrealised losses on the portfolio were £892,000
Further details of the investment activities of the Company are in the respective Investment Manager's Reports on pages 3 and 4.
Net asset value ("NAV")
As at 30 September 2012, the Company's NAV stood at 72.0p, a decrease of 3.4p (or 4.3%) compared to the year end position and after taking into account the 2.5p dividend paid during the period.
Dividends
In line with the Company's stated policy, an interim dividend of 2.5p will be paid on 29 March 2013 to Shareholders on the register at 1 March 2013.
Share realisation and reinvestment programme
As reported in the year end accounts, the share realisation and reinvestment programme ("SRRP") was well received by Shareholders with 38% of the shares in issue being tendered and proceeds reinvested shortly after the start of the period in April. A further £393,000 was received in respect of the top-up share offer, with shares being issued after the year end at 77.9p per share.
Share buybacks
The Company operates a general policy of purchasing its own shares that become available in the market. Details of share buybacks undertaken in the period are shown in note 7 of this report.
The Company's current policy is to buy any Ordinary Shares at approximately a 15% discount to the latest published NAV. Buybacks are subject to regulatory restrictions and other factors such as availability of liquid funds.
Outlook
The Company has significant exposure to the market for hotels and related businesses and the trends in that market are likely to be a major influence on the Company's performance for some time to come. General market conditions are expected to remain challenging for most small businesses for the foreseeable future. The Board will ensure that the Manager continues to closely monitor all portfolio companies and see that they continue to develop in this difficult climate.
Christopher Powell
Chairman
INVESTMENT MANAGER'S REPORT
At 30 September 2012, the Company's venture capital portfolio was valued at £13.5 million.
Investment activity
During the period, three new unquoted investments and two follow-on investments were made at a total cost of £1.9 million.
An overview of the new investments is as follows:
In April 2012, a £700,000 qualifying investment was made in Vulcan Renewables Limited which is developing a 2MW maize-fed biogas plant near Doncaster that will generate both gas and electricity. The investment will benefit from the receipt of FiTs (Feed in Tariffs) from the production of electricity and RHIs (Renewable Heat Incentives) from gas production.
A £500,000 non-qualifying loan stock investment was made in Baron House Developments LLP to purchase an office building in Newcastle which will be redeveloped into a hotel. In September 2012, a similar £400,000 non-qualifying loan was made to Southampton Hotel Developments Limited to fund the construction of a hotel at the Ageas Bowl, the home of Hampshire Cricket in Southampton. Both investments have a contracted exit which should provide the Company with a good yield over a relatively short period.
A number of realisations were undertaken during the period, further reducing the exposure to the AIM market. Disposal proceeds received thereon were £1.4 million. Notably, a gain of £212,000 was realised following a takeover of Boomerang Plus plc which was acquired by a private equity backer, Lloyds Development Capital.
Investment performance
Overall, the portfolio fell in value by £873,000 over the period, of which £727,000 is attributable to falls in unquoted investments and £146,000 in quoted investments.
Unquoted investments
Cadbury House Holdings Limited owns and operates a restaurant, health club, and spa alongside a large Doubletree by Hilton Hotel at Cadbury House in Bristol. Although performance of the business remains consistent year on year, growth has now plateaued. Additionally, the market for large hotels in out of town locations such as Cadbury has weakened recently. This, combined with the high degree of leverage in this investment, has resulted in the investment valuation being reduced by £238,000.
Hoole Hall Country Club Holdings Limited and Hoole Hall Club and Spa Limited own and operate the restaurant, conferencing centre, and spa and health club facilities at Hoole Hall alongside a large Doubletree by Hilton Hotel in Chester. Whilst performance of the business remains ahead of last year, the improvement has not been as good as hoped. As with Cadbury House, the market for such assets is now weak, with the only buyers tending to be seeking distressed businesses. As a result, the valuation of Hoole Hall Country Club Holdings has been reduced by £336,000 and Hoole Hall Spa and Leisure by £132,000.
On a positive note, two investments, Tramps Nightclub Limited and Future Biogas (SF) Limited, have made good progress and, as a result, have been revalued upwards by £15,000 and £9,000 respectively at the period end.
Quoted investments
Ludorum plc, the owner of the children's TV property "Chuggington" saw a decrease in value of the investment of £322,000. We do not believe that this is reflective of any underlying issues within the company, which continues to sell its toys via a master toy licence with TOMY. The share price fall more closely related to illiquidity of the shares and that fact that there have been some small sellers of stock. We continue to monitor Ludorum carefully and believe that, at the current share price, it represents good value.
Meanwhile, Tracsis plc (up £111,000), Universe plc (up £106,000), and IDOX plc (up £93,000) all performed well, reflecting strong trading results and, in the case of Universe, a successful share placing which alleviated the issue of onerous debt. The Company participated in this share placing.
Other investments
The Company continues to hold one small investment in permanent interest bearing shares. At the period end, this investment was valued at £322,000, with unrealised gains of £21,000 for the six month period.
Outlook
Overall, the investment portfolio has experienced a disappointing six months largely resulting from the reduced valuations of the unquoted investments in Cadbury and Hoole Hall. The reductions primarily reflect the weaker market for large hotels. Some reassurance can be taken from the fact that the underlying trading remains reasonably satisfactory.
Trading conditions for most small businesses do, however, remain challenging and we believe that close monitoring and support for the existing portfolio companies will be one of the keys in delivering value to Shareholders in the medium term.
Downing LLP
SUMMARY OF INVESTMENT PORTFOLIO
as at 30 September 2012
| Cost | Valuation | Valuation movement in period | % of portfolio | |
| £'000 | £'000 | £'000 | by value | |
| Top ten venture capital investments (by value) | ||||
| Cadbury House Holdings Limited | 2,518 | 2,063 | (283) | 14.4% |
| Hoole Hall Country Club Holdings Limited | 1,920 | 1,584 | (336) | 11.0% |
| Ludorum plc * | 2,068 | 1,349 | (332) | 9.4% |
| Hoole Hall Spa and Leisure Limited | 1,200 | 1,068 | (132) | 7.4% |
| Vulcan Renewables Limited | 700 | 700 | - | 4.9% |
| First Care Limited | 879 | 604 | - | 4.2% |
| Accumuli plc * | 338 | 515 | (24) | 3.6% |
| Baron House Developments LLP | 500 | 500 | - | 3.5% |
| Aminghurst Limited | 493 | 493 | - | 3.4% |
| IDOX plc * | 133 | 440 | 93 | 3.1% |
| 10,749 | 9,316 | (1,014) | 64.9% | |
| Other venture capital investments | 7,818 | 4,192 | 141 | 29.1% |
| Other investments | 558 | 322 | 21 | 2.3% |
| 19,125 | 13,830 | (852) | 96.3% | |
| Cash at bank and in hand | 525 | 3.7% | ||
| Total investments | 14,355 | 100.0% |
All venture capital investments are unquoted unless otherwise stated.
*quoted on AIM
SUMMARY OF INVESTMENT MOVEMENTS
for the six months ended 30 September 2012
Additions
| £'000 | |
| Quoted (market purchases) | |
| Universe Group plc | 100 |
| Other sundry investments | 2 |
| Unquoted | |
| Aminghurst Limited | 181 |
| Baron House Developments LLP | 500 |
| Southampton Hotel Developments Ltd | 400 |
| Vulcan Renewables Limited | 700 |
| 1,883 |
| Disposals | Cost | Market value at 31/03/12 | Disposal proceeds | (Loss)/ gain against cost | Realised (loss)/ gain in period |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Quoted (market sales) | |||||
| Deltex Medical Group plc | 96 | 102 | 96 | - | (6) |
| DODs Group plc | 260 | 31 | 40 | (220) | 9 |
| IDOX plc | 52 | 135 | 172 | 120 | 37 |
| Netcall plc | 39 | 84 | 91 | 52 | 7 |
| Richoux Group plc | 47 | 65 | 74 | 27 | 9 |
| Sinclair IS Pharma plc | 178 | 137 | 144 | (34) | 7 |
| Tracsis plc | 20 | 31 | 47 | 27 | 16 |
| Unquoted (including loan note redemptions) | |||||
| Tramps Night Club Limited | 4 | 4 | 4 | - | - |
| Takeovers/tender offers | |||||
| Boomerang Plus plc | 596 | 393 | 605 | 9 | 212 |
| Business Control Solutions plc | 52 | 62 | 104 | 52 | 42 |
| 1,344 | 1,044 | 1,377 | 33 | 333 | |
*adjusted for purchases in the period
UNAUDITED BALANCE SHEET
as at 30 September 2012
| 30 Sept 2012 | 30 Sept 2011 | 31 Mar 2012 | ||||
| Note | £'000 | £'000 | £'000 | |||
| Fixed assets | ||||||
| Investments | 13,830 | 15,796 | 13,844 | |||
| Current assets | ||||||
| Debtors | 109 | 275 | 947 | |||
| Cash at bank and in hand | 526 | 70 | 1,284 | |||
| 635 | 345 | 2,231 | ||||
| Creditors: amounts falling due within one year | (155) | (184) | (263) | |||
| Net current assets | 480 | 161 | 1,968 | |||
| Net assets | 14,310 | 15,957 | 15,812 | |||
| Capital and reserves | ||||||
| Called up share capital | 7 | 199 | 204 | 198 | ||
| Capital redemption reserve | 8 | 1,226 | 1,141 | 1,147 | ||
| Share premium | 8 | 6,066 | 2 | 2 | ||
| Share capital to be issued | 8 | - | - | 382 | ||
| Special reserve | 8 | 8,085 | 14,558 | 14,206 | ||
| Capital reserve - realised | 8 | 4,057 | 5,552 | 4,629 | ||
| Revaluation reserve | 8 | (5,295) | (5,442) | (4,742) | ||
| Revenue reserve | 8 | (28) | (58) | (10) | ||
| Equity shareholders' funds | 6 | 14,310 | 15,957 | 15,812 | ||
| Basic and diluted NAV per Ordinary Share | 6 | 72.0p | 78.4p | 77.9p |
INCOME STATEMENT
for the six months ended 30 September 2012
| Six months ended 30 September 2012 | Six months ended 30 September 2011 | Year ended 31 March 2012 | ||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | ||||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| Income | 141 | - | 141 | 171 | - | 171 | 360 | |||
| Gains/(losses) on investments | ||||||||||
| - realised | - | 333 | 333 | - | (41) | (41) | 193 | |||
| - unrealised | - | (852) | (852) | - | (2,182) | (2,182) | (2,038) | |||
| 141 | (519) | (378) | 171 | (2,223) | (2,052) | (1,485) | ||||
| Investment management fees | (35) | (107) | (142) | (39) | (118) | (157) | (288) | |||
| Other expenses | (124) | - | (124) | (131) | - | (131) | (240) | |||
| (Loss)/return on ordinary activities before taxation | (18) | (626) | (644) | 1 | (2,341) | (2,340) | (2,013) | |||
| Taxation | - | - | - | - | - | - | - | |||
| (Loss)/return attributable to equity shareholders | 4 | (18) | (626) | (644) | 1 | (2,341) | (2,340) | (2,013) | ||
| Basic and diluted return per Ordinary Share | 4 | (0.1p) | (3.1p) | (3.2p) | - | (11.4p) | (11.4p) | (9.9p) | ||
The total column within the Income Statement represents the profit and loss account of the Company. No operations were acquired or discontinued during the period.
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement as noted above.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months ended 30 September 2012
| 30 Sept 2012 | 30 Sept 2011 | 31 Mar 2012 | ||||
| Note | £'000 | £'000 | £'000 | |||
| Opening Shareholders' funds | 15,812 | 19,161 | 19,161 | |||
| Proceeds of new share issue | 6,243 | - | - | |||
| Share issue costs | (99) | - | - | |||
| Unallotted shares | (382) | - | 382 | |||
| Purchase of own shares | (6,121) | (355) | (707) | |||
| Total recognised losses for the period | (644) | (2,340) | (2,013) | |||
| Dividends paid | 5 | (499) | (509) | (1,011) | ||
| Closing Shareholders' funds | 14,310 | 15,957 | 15,812 | |||
UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 September 2012
| 30 Sept 2012 | 30 Sept 2011 | 31 Mar 2012 | ||||
| Note | £'000 | £'000 | £'000 | |||
| Cash outflow from operating activities and returns on investments | 9 | (86) | (181) | (235) | ||
Capital expenditure | ||||||
Purchase of investments | (1,883) | (315) | (1,115) | |||
Sale of investments | 2,152 | 1,344 | 3,859 | |||
| Net cash inflow from capital expenditure | 269 | 1,029 | 2,744 | |||
Acquisitions | ||||||
Costs in relation to schemes of arrangement | - | (7) | (12) | |||
Net cash outflow from acquisitions | - | (7) | (12) | |||
Equity dividends paid | (499) | (518) | (1,015) | |||
Net cash (outflow)/inflow before financing | (316) | 323 | 1,482 | |||
Financing | ||||||
| Proceeds from new share issue | 6,243 | - | - | |||
| Unalloted share issue proceeds | (382) | - | 382 | |||
| Share issue costs | (99) | - | (67) | |||
| Purchase of own shares | (6,204) | (452) | (712) | |||
| Net cash outflow from financing | (442) | (452) | (397) | |||
| (Decrease)/increase in cash | 10 | (758) | (129) | 1,085 |
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
for the six months ended 30 September 2012
1. The unaudited half-yearly financial results cover the six months to 30 September 2012 and have been prepared in accordance with the accounting policies set out in the statutory accounts for the year ended 31 March 2012, which were prepared under UK Generally Accepted Accounting Practice and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" January 2009.
2. The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.
3. The comparative figures were in respect of the six months ended 30 September 2011 and the year ended 31 March 2012 respectively.
4. Return per share
| Weighted average number of shares in issue | Revenue (loss)/ return | Capital gain/ (loss) | |||
| £'000 | £'000 | ||||
| Period ended 30 September 2012 | 20,160,488 | (18) | (626) | ||
| Period ended 30 September 2011 | 20,559,823 | 1 | (2,341) | ||
| Year ended 31 March 2012 | 20,429,797 | 49 | (2,062) | ||
5. Dividends
| Paid in the period | 30 Sept 2012 | 31 Mar 2012 | ||||||
| Revenue | Capital | Total | Total | |||||
| £'000 | £'000 | £'000 | £'000 | |||||
| Date paid | ||||||||
| - | ||||||||
| 2012 Final | 28/09/2012: 2.5p | - | 499 | 499 | - | |||
| 2012 Interim | 30/03/2012: 2.5p | - | - | - | 502 | |||
| 2011 Final | 30/09/2011: 2.5p | - | - | - | 509 | |||
| - | 499 | 499 | 1,011 | |||||
6. Basic and diluted net asset value per share
| Shares | Net assets | NAV per share | |||
| in issue | £'000 | pence | |||
| Period ended 30 September 2012 | 19,872,990 | 14,310 | 72.0p | ||
| Period ended 30 September 2011 | 20,350,677 | 15,957 | 78.4p | ||
| Year ended 31 March 2012 | |||||
| Ordinary shares | 19,811,677 | 15,430 | 77.9p | ||
| Share capital to be issued | 382 | ||||
| 15,812 |
7. Called up share capital
| Shares | Net assets | ||
| in issue | £'000 | ||
| Period ended 30 September 2012 | 19,872,990 | 199 | |
| Period ended 30 September 2011 | 20,350,677 | 204 | |
| Year ended 31 March 2012 | 19,811,677 | 198 |
Between 4 April 2012 and 13 April 2012, the following transactions took place under the Share Realisation and Reinvestment Programme:
7,587,377 Ordinary Shares were purchased for cancellation at a price of 77.1p per Ordinary Share.
7,510,952 Ordinary Shares were allotted in respect of the shares tendered for cancellation at a price of approximately 77.9p per Ordinary Share.
Between 4 April 2012 and 13 April 2012, 504,727 Ordinary Shares were allotted at a price of 77.9p per Ordinary Share as a result of new subscriptions under an Open Offer.
In addition, in line with authority given at the Company's Annual General Meeting, the Company repurchased 366,989 Ordinary Shares for an aggregate consideration of 65.5p per share. These shares were subsequently cancelled.
8. Reserves
| Capital Redemption reserve | Share premium | Special reserve | Capital reserve -realised | Revaluation reserve | Revenue reserve | Share capital to be issued | |||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| At 1 April 2012 | 1,147 | 2 | 14,206 | 4,629 | (4,742) | (10) | 382 | ||
| Proceeds of new share issue | - | 6,163 | - | - | - | - | (382) | ||
| Share issue costs | - | (99) | - | - | - | - | - | ||
| Shares repurchased | 79 | - | (6,121) | - | - | - | - | ||
| Capital expenses | - | - | - | (107) | - | - | - | ||
| Gains/(losses) on investments | - | - | - | 333 | (852) | - | - | ||
| Realisation of revaluations from previous years | - | - | - | (299) | 299 | - | - | ||
| Dividends paid | - | - | - | (499) | - | - | - | ||
| Retained net revenue | - | - | - | - | - | (18) | - | ||
| At 30 September 2012 | 1,226 | 6,066 | 8,085 | 4,057 | (5,295) | (28) | - | ||
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/capital distributions.
Distributable reserves comprise the Special reserve, Capital reserve - realised and Revenue reserve and are reduced by revaluation losses of £5.3 million (31/03/2012: £4.8 million) (which excludes unquoted revaluation gains of £62,000. At the period end £6.8 million of reserves were available for distribution (31/03/2012: £14 million).
9. Cash outflow from operating activities and returns on investments
| 30 Sept 2012 | 30 Sept 2011 | 31 Mar 2012 | |||
| £'000 | £'000 | £'000 | |||
| Loss on ordinary activities before taxation | (644) | (2,340) | (2,013) | ||
| Losses on investments | 519 | 2,223 | 1,845 | ||
| Decrease/(increase) in other debtors | 63 | (20) | (12) | ||
| Decrease in other creditors | (24) | (44) | (55) | ||
| Net cash outflow from operating activities | (86) | (181) | (235) |
10. Analysis of net funds
| 30 Sept 2012 | 30 Sept 2011 | 31 Mar 2012 | |||
| £'000 | £'000 | £'000 | |||
| Beginning of period | 1,284 | 199 | 199 | ||
| Net cash (outflow)/inflow | (758) | (129) | 1,085 | ||
| End of period | 526 | 70 | 1,284 |
11. 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 March 2012 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.
12. Going concern
The Directors have reviewed the Company's financial resources at the period end and concluded that the Company is well placed to manage its business risks.
The Directors confirm that they are satisfied that the Company has adequate resources to continue to operate for the foreseeable future. For this reason, the Directors believe that the Company continues to be a going concern and that it is appropriate to apply the going concern basis in preparing the financial statements.
13. Risks and uncertainties
Under the Disclosure and Transparency Directive, the Board is 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 are:
(i) Compliance risk of failure to maintain approval as a VCT; and
(ii) Investment risk associated with investing in small and immature businesses.
The Company's compliance with the VCT regulations is continually monitored by the 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.
In order to make VCT qualifying investments, the Company has to invest in small businesses which are often immature. It also has a limited period in which it must invest the majority of its funds into VCT qualifying investments. The Manager follows a rigorous process in vetting and careful structuring of new investments, including taking a charge over the assets of the business wherever possible and, after an investment is made, closely monitoring the business.
The Board is satisfied that these approaches provide satisfactory management of the key risks.
14. The Directors confirm that, to the best of their knowledge, the half yearly financial report has 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 during 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.
15. Copies of the unaudited half-yearly financial 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.
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: Downing Distribution VCT 1 plc via Thomson Reuters ONE
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