Interim Results
Elderstreet VCT PLC
21 September 2005
Elderstreet VCT plc
Interim Statement for the six months ended 30 June 2005
CHAIRMAN'S STATEMENT
I present the interim statement for the six months ended 30 June 2005.
'C' Shares
The 'C' share offer closed on 27 May 2005, having raised £1.5 million. Although
this is a lower level than initially hoped, it does provide the Company with
additional funds for investment and allows the administration costs of the
Company to be shared over a larger base.
Future new investments made by the Company will now usually be apportioned
between funds from the 'C' Share and the Ordinary Share pool.
Net Asset Value
At 30 June 2005, the Company's Net Asset Value per Ordinary share ('NAV') stood
at 62.4p, a decrease of 0.5p or 0.8% compared to the NAV at 31 December 2004.
The Company's NAV per 'C' share stood at 95.1p, an increase of 0.1p compared to
the initial NAV of 95p per 'C' share.
Venture capital investments
The Company made one new investment during the period. This was a £350,000
investment into Interquest Group plc, an AIM quoted IT recruitment group, split
as £250,000 for the Ordinary Share pool and £100,000 for the 'C' Share pool.
There were two disposals during the period. The majority of the holding in
Milkround Online Limited was disposed of for a small profit against original
cost. Also, Springhealth Leisure plc was the subject of an acquisition and the
Company received cash proceeds slightly in excess of our previous carrying
value.
The Board have reviewed the valuation of the Company's unquoted investments at
the period end and made a number of adjustments to the previous valuations.
Improved performance by Henry J Beans justified a increase in valuation of
£262,000 over the period. Wessex Advanced Switching Products Limited and U M
(Holdings) plc have also delivered solid results, giving rise to increases in
valuation of £92,000 and £54,000 respectively using an earnings basis. Fords
Packaging Systems Limited, however, had a poor year to 30 June 2005 and
accordingly its valuation has been reduced by £167,000.
The remainder of the unquoted investments are generally performing in line with
recent expectations, and, in two cases, the Investment Manager is pursuing
potential exits opportunities.
There were some significant movements in the valuations of the Company's AIM
investments over the period. Mediasurface plc has made good progress and
reported positive results. The resultant increase in the company's share price
lifted the valuation of our investment by £206,000.
On a negative note, after floating on AIM in December 2004, Berkeley Scott Group
plc reported some disappointing results, which impacted heavily on the company's
share price. The investment fell in value by £245,000 over the period.
Overall, the venture capital portfolio gave rise to an unrealised loss of
£121,000 for the six months.
Listed fixed income securities
The Company invested £997,000 in listed fixed income securities in the period.
These funds are managed by Smith and Williamson Investment Management Limited.
Format of accounts
This is the first set of results that we have published since the 'C' share
offer that was undertaken earlier this year. We are therefore now presenting
Return and Net Asset values for both the Ordinary and 'C' shares. When the
Company revoked investment company status in 2000 in order to pay a capital
dividend, we were advised that the Company should cease to present its accounts
in accordance with Investment Trust Statement of Recommended Practice ('SORP').
We therefore adopted the standard Companies Act format, which includes a Profit
and Loss account rather than a Statement of Total Return.
In recent years, accepted practice has changed such that it is now common for
Venture Capital Trusts to continue to continue to present their accounts in
accordance with the 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 have therefore decided to revert to this format.
Further details are given in the Accounting Policies note shown below.
Results and Dividend
The Company had a revenue surplus of £36,000 (2004: £48,000) for the period. In
view of the fact that there have been very few investment disposals in the
period and, consequently, a low level of new realised gains, no interim dividend
will be paid. The Board expect to pay a revenue dividend at the year end and
will consider another capital distribution should the company achieve any
profitable investment exits.
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 333,445 Ordinary Shares, at an average price of 50p per share, for
cancellation.
Outlook
Over the period under review, the Investment Manager has been focussing on
identifying and securing new investments. Although the Company has been
relatively inactive in this area recently, there are a number of investment
opportunities that are at an advanced stage and may complete in the coming
months. I look forward to updating Shareholders in my statement with the year
end results.
David Brock
Chairman
UNAUDITED SUMMARISED BALANCE SHEET
as at 30 June 2005
30 June 30 June 31 Dec
2005 2004 2004
£'000 £'000 £'000
Fixed assets
Listed fixed income securities 1,020 - -
Venture capital investments 7,886 7,419 7,967
8,906 7,419 7,967
Net current assets 1,483 1,783 1,238
Net assets 10,389 9,202 9,205
Capital and reserves
Called up share capital 793 738 732
Capital redemption reserve 42 19 25
Share premium 1,386 - -
Revaluation reserve 1,909 2,076 1,908
Special reserve 6,246 6,369 6,540
Revenue reserve 13 - -
Total equity shareholders' funds 10,389 9,202 9,205
Net asset value per Ordinary share 62.4p 62.3p 62.9p
Net asset value per 'C' share 95.1p N/A N/A
UNAUDITED STATEMENT OF TOTAL RETURNS
(incorporating the revenue account)
for the six months ended 30 June 2005
Six months ended
30 June 2005
Revenue Capital Total
£'000 £'000 £'000
Income 141 - 141
Gains/(losses) on investments:
- Realised - 2 2
- Unrealised - (98) (98)
141 (96) 45
Investment management fees (17) (52) (69)
Other expenses (88) - (88)
Return on ordinary activities before taxation 36 (148) (112)
Tax on ordinary activities - - -
Return attributable to equity shareholders 36 (148) (112)
Distributions - - -
Transfer to/(from) reserves 36 (148) (112)
Return per Ordinary share 0.2p 0.9p 1.1p
Return per 'C' share 0.9p (0.6p) 0.3p
Six months ended Year ended
30 June 2004 31 December
2005
Revenue Capital Total Total
£'000 £'000 £'000 £'000
Income 151 - 151 363
Gains/(losses) on investments:
- Realised - - - -
- Unrealised - 987 987 1,299
151 987 1,138 1,662
Investment management fees (16) (46) (62) (143)
Other expenses (87) - (87) (166)
Return on ordinary activities before 48 941 989 1,353
taxation
Tax on ordinary activities - - - -
Return attributable to equity 48 941 989 1,353
shareholders
Distributions (43) (104) (147) (439)
Transfer to/(from) reserves 5 837 842 914
Return per Ordinary share 0.3p 6.3p 6.7p 9.2p
Return per 'C' share N/A N/A N/A N/A
UNAUDITED CASHFLOW STATEMENT
for the six months ended 30 June 2005
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
2005 2004 2004
Note £'000 £'000 £'000
Cash (outflow)/inflow from operating activities and
returns on investments 1 (22) - 44
Capital expenditure
Purchase of listed fixed income securities (997) - -
Purchase of venture capital investments (395) (300) (933)
Proceeds on disposal of venture capital investments 358 72 468
Net cash outflow from capital expenditure (1,034) (228) (465)
Equity dividends paid (290) (149) (296)
Net cash outflow before financing (1,346) (377) (717)
Financing
Proceeds from share issue 1,542 - -
Share issue costs (41) - -
Purchase of own shares (163) (56) (125)
Net cash outflow from financing 1,338 (56) (125)
Decrease in cash 2 (8) (433) (842)
Notes to the cashflow statement:
1 Cash (outflow)/inflow from operating activities and
returns on investments
Net revenue before taxation 36 48 161
Expenses charged to capital (52) (46) (107)
Decrease in other debtors (3) 2 (7)
Decrease in other creditors (3) (4) (3)
Net cash (outflow)/inflow from operating activities (22) - 44
2 Analysis of net funds
Beginning of period 1,514 2,356 2,356
Net cash outflow (8) (433) (842)
End of period 1,506 1,923 1,514
SUMMARY OF INVESTMENT PORTFOLIO
as at 30 June 2005 % of
Cost Valuation portfolio
£'000 £'000 by value
Ordinary Share pool
Top ten venture capital investments
Computer Software Group plc * 1,462 1,621 18.2%
Wessex Advanced Switching Products Limited 51 767 8.6%
Fords Packaging Systems Limited 83 750 8.4%
Henry J Bean's Group plc 587 712 8.0%
The National Solicitors Network Limited 901 695 7.8%
European Telecommunications & Technology Ltd 450 558 6.3%
Snacktime Limited 550 550 6.2%
Mediasurface plc * 374 420 4.7%
Berkeley Scott Group plc * 657 320 3.6%
Interquest Group plc * 250 227 2.5%
5,365 6,620 74.3%
Other venture capital investments 2,559 1,175 13.2%
Listed fixed income securities 997 1,020 11.3%
Net current assets (including cash) 107 107 1.2%
Ordinary Share Pool - Total 9,028 8,922 100.0%
'C'Share pool
Venture capital investments
Interquest Group plc * 100 91 6.2%
100 91 6.2%
Net current assets (including cash) 1,376 1,376 93.8%
'C' Share Pool - Total 1,476 1,467 100.0%
Company Total 10,504 10,389
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
Accounting convention
The financial statements are prepared under the historical cost convention as
modified by the revaluation of investments.
True and fair override
The Company is no longer an investment company within the meaning of Section
266, Companies Act 1985, having revoked investment company status on 26 October
2001 in order to pay a capital dividend. However, the Company continues to
conduct its affairs as a venture capital trust for taxation purposes under
s842AA of the Income and Corporation Taxes Act 1988.
The financial statements are prepared in accordance with applicable Accounting
Standards and with the Statement of Recommended Practice 'Financial Statements
of Investment Trust Companies' ('SORP'). Ordinarily, the absence of Section 266
status would require the Company to adopt a different presentation of the
accounts than that recommended by the Association of Investment Trust Companies.
However, the Directors consider it appropriate to continue to present the
accounts in accordance with the SORP. Under the SORP, the financial performance
of the Company is presented in a Statement of Total Return in which the revenue
column is the profit and loss account of the Company. The revenue column
excludes certain capital items, which in the absence of investment company
status, the Companies Act 1985, would ordinarily require to be included in the
profit and loss account: net profits on disposal of investments, calculated by
reference to their previous carrying amount, permanent diminution in value of
investments, management expenses charged to capital less tax relief thereon and
the distribution of capital profits.
The presentation adopted enables the Company to report in a manner consistent
with the sector within which it operates. The Directors therefore consider that
these departures from the specific provisions of Schedule 4 of the Companies Act
relating to the form and content of accounts for companies other than investment
companies and these departures from accounting standards are necessary to give a
true and fair view. The departures have no effect on the total return or
balance sheet. The particular accounting policies adopted are described below.
Investments
Listed fixed income investments are stated at market value based upon middle
market prices at the end of the accounting period. Investments quoted on the
Alternative Investment Market ('AIM') are stated at market value based upon
middle market prices with illiquidity discounts applied where deemed
appropriate. Unlisted investments are stated at Directors' valuations, in
accordance with British Venture Capital Association ('BVCA') guidelines. Where
an investee company has gone into receivership or liquidation the investment,
although not physically disposed of, is treated as being realised.
Realised profits and losses on investments, and permanent diminutions in value,
are dealt with in the Profit and Loss account. Revaluation gains and
diminutions which are not expected to be permanent are dealt with in the
statement of total recognised gains and losses. The Company has defined a
permanent diminution to be an investee company whose value is less than the
original cost price and there is little likelihood of the value being in excess
of cost.
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 and expenses
All income and expenses are treated on the accruals basis and dividend income
(other than on non-equity shares) is included in revenue when the investment is
quoted ex-dividend. The fixed returns on non-equity shares and on debt
securities are recognised on a time apportionment basis and only where there is
reasonable certainty of collection. Dividend income is shown net of any related
tax credit. Expenses, which are incidental to the acquisition of an investment,
are included in the cost of the investment. Expenses, which are incidental to
the disposal of an investment, are deducted from the proceeds of the investment.
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 Statement of Total Return 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 2004 and the year ended 31 December 2004 respectively as restated to comply
with the SORP, as described in note 1.
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) 8,922 1,467
Number of shares in issue at period end 14,305,855 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) 23 13
Weighted average number of ordinary shares in 14,544,315 1,433,666
issue
Capital return per share base on:
Net capital loss for the financial year (£'000) (139) (9)
Weighted average number of ordinary shares in 14,544,315 1,433,666
issue
7. 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 2004 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.
8. 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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