Final Results
Elderstreet VCT PLC
28 April 2006
ELDERSTREET VCT PLC
PRELIMINARY ANNOUNCEMENT OF RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2005
FINANCIAL HIGHLIGHTS
2005 2004
pence pence
Ordinary Shares
Net asset value (per share) 65.1 64.9
Cumulative paid distributions from launch to 31 December 2005 (per share) 29.5 27.5
Total return (net asset value plus cumulative distributions paid per share) 94.6 92.4
Interim distribution (per share) - 1.0
Final proposed distribution (per share) 2.0 2.0
2.0 3.0
'C' Shares
Net asset value (per share) 94.1 n/a
Cumulative paid dividends from launch to 31 December 2005 (per share) - n/a
Total return (net asset value plus cumulative distributions paid per share) 94.1 n/a
Final proposed dividend (per share) 1.0 n/a
The statement to shareholders by the Chairman, David Brock, includes the following comments:
Introduction
The year to 31 December 2005 has been a period of relative stability for your
Company with the Investment Manager focussing on securing some investment exits
in the Company's Ordinary Share pool and making a number of new investments in
both the Ordinary Share pool and the new 'C' Share pool.
'C' Share Issue
During the year, the Company undertook a 'C' share offer, which closed on 27 May
2005, having raised £1.5 million. The level of funds raised by this offer was
lower than had been hoped, however this still provides the Company with a larger
asset base over which to share its administration costs.
Net Asset Value
At 31 December 2005, the Company's Net Asset Value ('NAV') per Ordinary Share
stood at 65.1p, an increase of 2.2p or 3.4% compared to the NAV at 31 December
2004 (after adjusting for the dividend of 2p per share paid during the year).
The Total Return to original shareholders (NAV plus dividends paid to date) now
stands at 94.6p compared to the original net of income tax relief cost of 80.0p
per share.
The NAV of the Company's 'C' shares at 31 December 2005 stood at 94.1p, a
decrease of 0.9p or 0.9% compared to the initial NAV when the 'C' shares were
issue price of 95.0p.
Venture Capital Investments
The Company's investment portfolio had a fairly active year with three new
investments and two follow-on investments being completed. The new investments
are summarised as follows:
Ordinary 'C' share
Pool Pool Total
£'000 £'000 £'000
New Investments
Interquest Group plc 250 100 350
Oldbury Aluminium Alloys 450 100 550
Smart Education 390 97 487
1,090 297 1,387
Follow on Investments
Snacktime 150 - 150
The National Solicitors Network 45 - 45
1,285 297 1,582
New investments are allocated between the Ordinary Share and 'C' Share pools in
proportions approved by the Board for each investment to ensure that balanced
portfolios are maintained and giving due consideration to the constraints of the
VCT regulations.
The Ordinary Share pool has also made a number of disposals, which are
summarised below as follows:
Cost Market Proceeds Realised
Value at
31/12/04 gain/
(loss)
AIM Quoted £'000 £'000 £'000 £'000
Computer Software Group 276 290 274 (16)
Hartest Holdings 39 16 3 (13)
Springhealth Leisure 142 20 21 1
Unquoted
Henry J Beans 587 450 921 471
Milkround Online 250 288 298 10
UM (Holdings) 90 90 90 -
Sundry failed investments 316 5 6 1
1,700 1,159 1,613 454
The disposal of Henry J Beans at a price that gave the Company a realised gain
of £471,000 was a pleasing result. The business had got into serious
difficulties and the Investment Manager played a key role in helping the company
address these problems and to ultimately attract a buyer at the target selling
price.
Progress of a number of the remaining portfolio companies has been good over the
year under review. Wessex Advanced Switching Products Limited produced
above-budget results, supporting an increase in its valuation, using a P/E
basis, of £501,000. UM (Holdings) plc has also performed well and has likewise
been revalued upwards by £134,000. AIM quoted, Computer Software Group plc has
continued to make good progress, which has been reflected in its share price.
However, in valuing the investment, the Board has applied a liquidity discount
to the share price (in accordance with the International Private Equity and
Venture Capital Valuation Guidelines), which has, for this year, eliminated the
uplift.
There has also been some negative news from the portfolio, with Fords Packaging
Systems Limited experiencing a number of operational difficulties and AIM quoted
Berkeley Scott Group plc seeing a sharp fall in its share price after a profits
warning. These investments fell in value by £333,000 and £368,000 respectively.
Overall the Ordinary share pool fell in value by £141,000 and the 'C' share pool
by £31,000.
Format of Accounts
When the Company revoked investment company status in 2000 in order to pay a
capital dividend, it adopted the standard Companies Act format for its accounts,
which included a Profit and Loss account.
It has now, however, become common practice for Venture Capital Trusts to
continue to present their accounts in accordance with the Statement of
Recommended Practice for Investment Trusts ('SORP'), even though they may have
revoked investment company status. The Board feels that the SORP presentation
is much more useful to readers of the accounts and therefore these and future
accounts will be prepared in accordance with the SORP, an updated version of
which was published in December 2005.
The most noticeable change to the accounts as a result of these changes is that
the Company is presenting an Income Statement (analysed between Revenue and
Capital) rather than a Profit and Loss account and that our investments are now
categorised as 'Fair value through profit or loss' assets.
For this accounting period, your Company is required to adopt FRS 21, under
which dividends have to be accounted for in the period in which they are liable
to be paid rather than the period in respect for which they are declared. As a
result, comparative figures presented in this statement have been restated and
the final proposed dividend detailed below is not provided in these accounts.
It should be noted that although this change does effect the historic Net Asset
Value values for Total Return are not altered.
Results and Dividends
The return on ordinary activities after taxation for the year for the Ordinary
Share pool was £15,000 (2004: £161,000) and for 'C' shares was £26,000 (2004: n/
a).
Your Board is proposing to pay a final revenue dividend for the year of 1p per
'C' share and final Capital dividend of 2p per Ordinary share on 27 June 2006 to
shareholders on the register at 19 May 2006.
Repurchase of Shares
The Directors are conscious that the Company's share prices are affected by the
illiquidity of its shares in the market resulting from the fact that investors
purchasing 'second-hand' shares do not benefit from income tax relief on their
investment.
The Directors continue to monitor the market in the Company's shares and will
make share purchases when appropriate. During the period the Company
repurchased 535,345 Ordinary Shares of 5p each, at an average price of 50.6p per
share, for cancellation. No 'C' Shares were purchased during the year. A
Special Resolution to continue with this policy is proposed for the forthcoming
AGM.
Annual General Meeting
The Annual General Meeting of the Company will be held at 32 Bedford Row, London
WC1R 4HE at 11:00am on Wednesday 21 June 2006.
Outlook
Since the year end, the Company has undertaken a further fundraising, this time
being a further issue of Ordinary Shares, which raised net proceeds of
approximately £900,000 and helps to further dilute the fixed costs of running a
Venture Capital Trust.
The Company now has a reasonable level of funds from both the 'C' share and
Ordinary share top up fundraisings to invest and therefore, the Investment
Manager, will continue to be active in seeking new investment opportunities
which meet the Company's investment criteria.
The Company's existing portfolio now comprises investments of varying stages of
maturity which makes the Investment Manager's role a varied one. Although the
newer investments tend to demand more attention, the Board will ensure that,
while still building the 'C' Share portfolio, exit opportunities with the
Ordinary Share portfolio continue to be identified and pursued which can allow
the payment of further capital dividends to Ordinary Shareholders.
UNAUDITED INCOME STATEMENT
For the year ended 31 December 2005
Year ended 31 December 2005 Year ended 31 December 2004
(as restated)
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Income 269 - 269 363 - 363
Gains on 'fair value through profit or loss' assets - 305 305 - 1,299 1,299
269 305 574 363 1,299 1,662
Investment management fees (39) (116) (155) (36) (107) (143)
Other expenses (188) - (188) (166) - (166)
Return on ordinary activities
before tax 42 189 231 161 1,192 1,353
Tax on ordinary activities (1) 1 - - - -
Return attributable to equity shareholders 41 190 231 161 1,192 1,353
Return per Ordinary share 0.1p 1.6p 1.7p 1.1p 8.1p 9.2p
Return per 'C' share 1.7p (2.6p) 0.9p n/a n/a n/a
All Revenue and Capital items in the above statement derive from continuing
operations.
Return per share has been calculated using the following values:
Ordinary Shares 'C' Shares
Revenue return per share based on:
Net revenue after taxation (£'000) 15 26
Weighted average number of ordinary shares in issue 14,396,954 1,509,120
Capital return per share based on:
Net capital gain/(loss) for the financial year (£'000) 230 (40)
Weighted average number of ordinary shares in issue 14,396,954 1,509,120
UNAUDITED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Year ended 31 December 2005 Year ended 31 December 2004
(as restated)
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Return attributable to equity shareholders 41 190 231 161 1,192 1,353
Total recognised gains for the year 41 190 231 161 1,192 1,353
UNAUDITED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Year ended Year ended
31 31 December
2004
December 2005
(as restated)
£'000 £'000
Opening shareholders' funds 9,498 8,408
Adjustment for dividend provided for in 2003 - 150
Issue of shares 1,542 -
Share issue costs (77) -
Purchase of own shares (274) (117)
Total recognised gains for the year 231 1,353
Distributions paid (288) (296)
Closing shareholders' funds 10,632 9,498
The prior year restatement is described in note 2.
UNAUDITED BALANCE SHEET
at 31 December 2005
2005 2004
(as
restated)
£'000 £'000 £'000 £'000
Fixed Assets
'Fair value through profit or loss' assets 9,248 7,967
Current Assets
Debtors 74 48
Cash at bank and in hand 1,352 1,514
1,426 1,562
Creditors: amounts falling due within one year (42) (31)
Net current assets 1,384 1,531
Net assets 10,632 9,498
Equity attributable to Equity Holders
Called up share capital 782 732
Capital redemption reserve 52 25
Share premium 1,388 -
Special reserve 6,401 6,833
Capital reserve - realised 1,658 -
Capital reserve - unrealised 237 1,908
Revenue reserve 114 -
Total Equity 10,632 9,498
Net asset value per Ordinary share 65.1p 64.9p
Net asset value per 'C' share 94.1p n/a
Net asset value per ordinary share is based on net assets at the year-end, and
on 14,103,955 ordinary shares (2004: 14,885,400) and 1,542,202 'C' Shares being
the number of shares in issue at the year-end.
The Special Reserve is a distributable reserve that allows the Company to make
market purchases of its own shares and to pay dividends.
UNAUDITED CASHFLOW STATEMENT
for year ended 31 December 2005
Year ended Year ended
31 December 2005 31 December 2004
£'000 £'000 £'000 £'000
Net cash (outflow)/inflow from operating
activities (89) 44
Corporation tax -
Capital expenditure
Purchase of fixed income securities (1,625) -
Purchase of venture capital investments (1,582) (933)
Sale of fixed income securities 619 -
Sale of venture capital investments 1,612 468
Net cash outflow from capital expenditure (976) (465)
Equity distributions paid (288) (296)
Net cash outflow before financing (1,353) (717)
Financing
Proceeds from share issue 1,542 -
Share issue costs (77) -
Purchase of own shares (274) (125)
Net cash inflow/(outflow) from financing 1,191 (125)
Decrease in cash (162) (842)
UNAUDITED NOTES
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 consistent 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. The Company
previously valued the investments using mid-price. The financial effect of the
change in valuation policy is that the investments are valued at £113,000 less
than if they were valued at mid-price.
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. Changes in accounting policies
The Company is required to comply with a number of new UK Financial Reporting
Standards (FRS), which now represent UK Generally Accepted Accounting Practice
(UK GAAP), in preparing its financial statements for the year ended 31 December
2005. These Standards have been introduced as part of the process of aligning UK
accounting principles with International Accounting Standards.
As required by FRS 21 'Events after the Balance Sheet Date', dividends to
shareholders are accounted for in the period in which the Company is liable to
pay them rather than in the period in respect of which they are declared. The
comparative figures for the year ended 31 December 2004 have been re-stated
accordingly. The effect of the adoption of FRS 21 on the reported net assets of
the company is as follows:
2004
Net
assets
£'000
As previously reported 9,205
Add: proposed dividends not accounted for until paid 293
As restated 9,498
Announcement based on draft accounts (unqualified audit report)
The financial information set out in the announcement does not constitute the
Company's statutory accounts for the year ended 31 December 2005 or 31 December
2004. The statutory accounts for the year ended 31 December 2005 (not yet
signed by the auditors) will be finalised on the basis of the financial
information presented by the directors in this preliminary announcement and will
be delivered to the Registrar of Companies following the Company's Annual
General Meeting.
The financial information for the year ended 31 December 2004 is derived from
the statutory accounts for that year which have been delivered to the Registrar
of Companies. The auditors reported on those accounts; this report was
unqualified and did not contain a statement under section 237(2) or (3) of the
Companies Act 1985.
A copy of the full annual report and financial statements for the year ended 31
December 2005 will be printed and posted to shareholders. Copies will also be
available to the public at the registered office of the Company at 69 Eccleston
Square, London SW1V 1PJ.
This information is provided by RNS
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