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ADC Zeros 2010 plc (ADC2)

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Friday 31 July, 2009

ADC Zeros 2010 plc

Annual Financial Report

RNS Number : 6897W
ADC Zeros 2010 plc
31 July 2009
 

ADC ZEROS 2010 PLC


ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 MAY 2009


1.    CHAIRMAN'S STATEMENT


During the year to 31 May 2009 a total of 366,032 ZDP shares were purchased for cancellation at a cost of £143,000 and at a weighted average discount to prevailing net asset values of 36.0%. The Board will continue to consider repurchasing ZDP shares where favourable opportunities exist.

A second return of capital to ZDP 2010 shareholders of 15 pence per share was made in November 2008. After the year end, in June 2009, a third return of capital of 2.3 pence per share was made, bringing the total returrned to date to shareholders to 68.3 pence per share.

Shareholders will be aware that the ZDP shares are due for redemption at a rate of 57.02 pence each on 30 April 2010 following the latest return of capital. However, in the current economic decline it is unlikely that sufficient realisations will be made in order to achieve this target. Therefore, the Board has been exploring options available to the Company and will be writing to shareholders on this matter in due course.




31 May 2009


£m

Total assets less current liabilities (Group)

12.07

Less prior ranking liabilities:


ZDP 2010 shares

(4.23)

ZDP 2012 shares

(4.23)


___________

Cover

3.61


___________


 

John R Milligan

Chairman

31 July 2009



2.  ZDP 2010 Share Information


  • Group Asset Cover at 31 May 20091.4 times repayment value at 30 April 2010

  • Redemption Yield: 6.5% at 59.76 pence per share

  • Hurdle Rate at 31 May 2009 to reach final entitlement: -26.64% compound per annum.


The ZDP 2010 shares offer a pre-determined rate of growth in capital entitlement up to the repayment date of 30 April 2010, but no right to income. At the issue date, the ZDP 2010 shares were entitled to a repayment of 100p per share. This entitlement increases on a daily basis up to and including 30 April 2010 at a rate equivalent to 6.5% per annum, compound to reach 59.76 pence per share on the repayment date. Following a return of capital of 51 pence per share dated 27 November 2007 and a return of capital of 15 pence per share dated 14 November 2008, at 31 May 2009, this figure stood at 56.41 per share.


Following each return of capital under the Capital Return Scheme described in the circular to shareholders published on 11 July 2007 by Aberdeen Development Capital PLC, the Company and ADC Zeros 2012 the capital entitlements of the ZDP 2010 shares will be adjusted by deducting from the accrued capital entitlement of the ZDP 2010 shares, at the date on which the relevant return of capital is made, the amount of such return of capital per ZDP 2010 and thereafter the capital entitlement per ZDP 2010 will continue to accrue at a rate of 6.5% per annum compounded on a daily basis, based on the adjusted capital entitlement.


The ZDP 2010 shares rank ahead of Ordinary Shareholders but behind any bank borrowings. It should be noted that repayment at the rate indicated for the ZDP 2010 shares is not guaranteed should the Group's net assets be insufficient at the repayment date of 30 April 2010.



3    BUSINESS REVIEW


A review of the Company's activities is given in the Chairman's Statement in Section 1 and ZDP 2010 Share Information in Section 2. The major risks associated with the Company are that Investments in smaller unlisted companies carry substantially greater risk, in terms of price and liquidity, than investments in larger companies or in companies listed on the Official List. In addition, many of the businesses in which the parent company invests may be exposed to the risk of political change, exchange controls, tax or other regulations that may affect their value and marketability. As the volume of the Company's shares traded on the market is likely to be small, the shares may trade at a significant discount to the Net Asset Value. The Key Performance Indicators for the Company including NAV performance and share price are detailed in ZDP Share Information in Section 2. Other Group risks include:

  • Discount volatility: The Company's share price can trade at a discount to its underlying net asset value. The Company operates a share buyback programme which is reviewed on a continuing basis.

  • Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Section 842 of the Income and Corporation Taxes Act 1988, the UKLA Listing Rules and the Companies Act, could lead to a number detrimental outcomes and reputational damage. The Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager. 


Additionally, each Director confirms that, so far as he is aware, there is no relevant audit information of which the Company's auditors are unaware, and he has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company's auditors are aware of that information. Additionally, there are no important events since the year end which have not been disclosed. 


The Company has made no political or charitable donations during the year and in common with most investment trusts, the Company has no employees. Directors' & Officers' liability insurance cover has been maintained throughout the year at the expense of the Company.


Principal Activity

The business of the Company is that of an investment company under Section 833 of the Companies Act 2006 with capital growth as its principal objective.


Status

The Company is an investment company as defined by Section 833 of the Companies Act 2006 and is registered as a public limited company. 


The Company is a qualifying trust for the purposes of Personal Equity Plans and Individual Savings Accounts and it is the Directors' intention that the Company should continue to be a qualifying trust.


Investment Objective and Policies

It is intended that the Company's assets be maintained at a level to cover the entitlement of the ZDP 2010 shares at all time. Subject to there being sufficient assets after deductions made, any shortfall in assets will be covered under the subscription agreement referred to above. Following approval by Shareholders of both the Company and the parent company on 3 August 2007 to approve a recommendation to effect an orderly realisation of the Group's assets, a policy to realise value to Shareholders through either ad hoc returns of capital or purchases of shares for cancellation was adopted.



4.    STATEMENT OF DIRECTORS' RESPONSIBILITIES


The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation. Under company law the directors must not approve the accounts 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, International Accounting Standard 1 requires that directors:

• properly select and apply accounting policies;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; 

• provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

• make an assessment of the company's ability to continue as a going concern.

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.

Responsibility statement 

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

• the management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces.


For ADC Zeros 2010 PLC

John Milligan

Chairman

31 July 2009









5.  INCOME STATEMENT

For the year ended 31 May 2009




Year ended

Year ended



31 May 2009

31 May 2008


Notes

£'000

£'000

Investment income




Interest income

3

4

10



___________

___________

Total revenue


4

10

Loan interest


216

441



___________

___________



220

451

Expenses




Management fees


-

-

Other operating expenses


(1)

(1)



___________

___________

Profit before finance costs and tax


219

450

Finance costs




Zero dividend preference shares

4

(216)

(441)



___________

___________

Profit before taxation


3

9

Taxation

5

(55)

(75)



___________

___________

Loss for the period


(52)

(66)



___________

___________

Earnings per ordinary share - basic (pence)

6

(44.57)

(62.90)



___________

___________


All income is attributable to the equity holders of ADC Zeros 2010 PLC.


All items in the above statement are derived from continuing operations.


The accompanying notes are an integral part of the financial statements.



  6.  BALANCE SHEET

As at 31 May 2009




2009

2008


Notes

£'000

£'000

Non-current assets




Held-at-fair-value investments


-

-





Current assets




Other receivables

7

4,226

5,307

Cash and cash equivalents


205

285



___________

___________



4,431

5,592

Current liabilities




Other payables


(221)

(249)

Zero dividend preference shares

9

(4,226)

-



___________

___________

Total current liabilities

8

(4,447)

(249)



___________

___________

Net current assets


(16)

5,343



___________

___________

Total assets less current liabilities


(16)

5,343





Creditors: amounts falling due after one year




Zero dividend preference shares

9

-

(5,307)



___________

___________

Total net (liabilities)/assets


(16)

36



___________

___________

Equity




Called-up Ordinary shares

10

117

117

Revenue reserve

11

(133)

(81)



___________

___________

Total shareholders' funds


(16)

36



___________

___________

Equity shareholders' funds


(16)

36





Net asset value per share (pence)




ZDP 2010 share

12

56.41

67.54

Ordinary share

12

(13.71)

30.86







The accompanying notes are an integral part of the financial statements.



  7.  STATEMENT OF CHANGES IN EQUITY

For the year ended 31 May 2009



Share

Revenue



Capital

Reserve

Total

For year ended 31 May 2009

£'000

£'000

£'000

Net assets at 31 May 2008

117

(81)

36

Net loss on ordinary activities after taxation

-

(52)

(52)


___________

___________

___________

Net assets at 31 May 2009

117

(133)

(16)


___________

___________

___________



Share

Revenue



Capital

Reserve

Total

For year ended 31 May 2008

£'000

£'000

£'000

Net assets at 31 May 2007

50

(15)

35

Proceeds from parent company

67

-

67

Net loss on ordinary activities after taxation

-

(66)

(66)


__________

__________

__________

Net assets at 31 May 2008

117

(81)

36


__________

__________

__________



  8.  CASH FLOW STATEMENT

For the year ended 31 May 2009




Year ended

Year ended



31 May 2009

31 May 2008 



£'000

£'000

Operating activities




Profit before tax


3

9

ZDP shares finance cost


216

441

Decrease in other receivables


1,081

4,567

Increase in other payables


1

2



__________

__________

Net cash from operating activities 


1,301

5,019





Corporation tax paid


(84)

(53)





Financing activities




Equity shares issued


-

67

Return of capital to ZDP holders by parent company


(1,154)

(4,462)

Repurchase of ZDP shares by parent company


(143)

(546)



__________

__________

Net cash from financing activities


(1,297)

(4,941)





Net (decrease)/increase in cash and cash equivalents


(80)

25



__________

__________

Cash and cash equivalents at start of period


285

260



__________

__________

Cash and cash equivalents at end of period


205

285



__________

__________



  9.  NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 May 2009


1.    Principal activities

The principal activity of the Company is that of an investment company within the meaning of Section 833 of the Companies Act 2006.



2.    Accounting policies

The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs'). The Company financial statements have been prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006. The principal accounting policies adopted by the Company are set out below. 


The financial statements are prepared under the historical cost convention, except for the measurement at fair value of investments.


(a)    Basis of accounting

The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 May 2009. The financial statements have been prepared on a basis other than that of a going concern which includes, where appropriate, writing down the Company's net assets to a net realisable value. The financial statements do not include any provision for the future costs of terminating the business of the Company except to the extent that such were committed at the balance sheet date.


The Company financial statements are presented in Sterling, which the currency of the primary environment in which it operates. All values are rounded to the nearest thousand pounds (£000) except when otherwise indicated.


The Company has adopted IFRS 7: 'Financial Instruments Disclosures' in these accounts. IFRS 7 introduces new disclosure requirements relating to financial instruments. This standard does not have any impact on the classification and/or valuation of the Group's financial instruments. The disclosures required by this standard are given in note 13.


(b)    Valuation of investments

Investments are held at fair value through the Income Statement.


For financial assets acquired, the cost is the fair value of the consideration. Subsequent to initial recognition, all listed investments are measured at their quoted bid prices without deduction for the estimated future selling costs.


Unlisted investments are valued by Directors at fair value having regard to the International Private Equity and Venture Capital Valuation Guidelines as far as it is prudent to do so in light of the investment objective. They are valued at cost unless subsequent financings or other circumstances indicate a different valuation is appropriate. When a valuation is undertaken consideration is given to the most recent information available, including the latest trading figures, performance against forecast, management's view of prospects and the price of transactions in the security.


Realisable value in the short term could differ materially from the amount which these investments are included in the accounts.


(c)    Movements in fair value

Changes in the fair value of all held-at-fair-value assets are taken to the Income Statement.


On disposal, realised gains and losses are also recognised in the Income Statement.


(d)    Income

Dividends receivable on equity shares are brought into account on the ex-dividend date. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised when it is reasonably certain that they will be receivable. Other returns on non-equity shares are recognised when the right to the return is established. 


The fixed return on a debt security is recognised when it is reasonably certain that it will be receivable. Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the amount of cash dividend is recognised as income. Any excess in the value of the shares received over the amounts of the cash is recognised in capital reserves. 


(e)    Expenses and interest payable

All expenses are accounted for on an accruals basis. Remuneration of the Company's auditors is borne by the Company's parent.


(f)    Taxation

The charge for taxation is based on the taxable profits for the period. Deferred taxation is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which temporary differences can be utilised.


(g)    Dividends payable

Dividends are recognised from the date on which they are declared ex-dividend.


(h)    Cash and cash equivalents 

Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash that are subject to insignificant risk of change in value.


(i)    Foreign currency

Transactions involving foreign currencies are converted at the rate ruling at the date of the transaction. Foreign currency monetary assets and liabilities are translated into Sterling at the rate ruling on the balance sheet date. Foreign exchange differences arising on translation are recognised in the Income Statement.


(j)    Zero dividend preference shares

Zero dividend preference shares are treated as a liability of the Company, calculated on the effective yield basis. Full details of the Zero dividend preference shares are given in note 9.   




2009

2008

3.    Income

£'000

£'000

Other income



Deposit interest

4

10


__________

__________


4

10

Total income comprises:



Interest

4

10


__________

__________


4

10


__________

__________





2009

2008

4.    Finance costs


£'000

£'000

Zero dividend preference shares


216

441



__________

__________



216

441



__________

__________





2009

2008

5    Tax on ordinary activities


£'000

£'000

a) Analysis of charge for the year




UK Corporation tax on profits for the period


55

75



__________

__________



55

75



__________

__________



2009

2008

    b) Factors affecting tax charge for the year

£'000

£'000

Net income before tax

3

9

Net income multiplied by the standard rate of corporation tax in the UK of 28% (2008 - 29.67%)

Effects of:

ZDP finance charge

Utilisation of tax losses

Marginal relief 

Prior year adjustment

1



60

(12)

(4)

(10)

3



131

(57)

(2)

-


_______

_______

Current tax charge for the period (note 5(a))

55

75


_______

_______



6.     Earnings per share

The earnings per Ordinary share is based on a loss after taxation of £52,000 (2008 - £66,000) and on 116,667 (2008 - 105,009) Ordinary shares, being the number of Ordinary shares in issue during the period.







2009

2008

7    Other receivables

£'000

£'000

Amounts due from parent company

4,226

5,307


_______

_______


4,226

5,307


_______

_______




2009

2008

8    Current liabilities

£'000

£'000

Amounts due to parent company

176

176

Accruals

-

1

Taxation

45

72

Zero dividend preference shares

4,226

-


_______

_______


4,447

249


_______

_______



9.    Zero dividend preference shares

The Zero dividend preference shares were issued on 30 June 2005. They were issued at 100 pence per share and redeem at the Board's discretion between 30 April 2010 and 31 October 2010 at 59.76 pence per share, an effective rate of 6.5% per annum. During the year a return of 15 pence per share was made to holders of ADC Zeros 2010 PLC. In addition 366,032 Zero dividend preference shares were purchased for cancellation for ADC Zeros 2010 PLC during the year. Accordingly, there were 7,491,110 Zero dividend preference shares in issue at 31 May 2009 for ADC Zeros 2010 PLC (2008 - 7,857,142). The entitlement due in respect of the Zero dividend preference shares at the year end was £4,226,000 (2008 - £5,307,000). 




Number of ZDP Shares

Amount due to ZDP shareholders £'000


2009

2008

2009

2008

At 31 May 2008

7,857,142

8,750,000

5,307

9,874

Repurchase of ZDP shares

(366,032)

(892,858)

(143)

(546)

Return of capital to ZDP shares

-

-

(1,154)

(4,462)

ZDP shares finance cost

-

-

216

441


_________

_________

_________

________

At 31 May 2009

7,491,110

7,857,142

4,226

5,307


_________

_________

_________

________




2009

2008

Non-current liabilities

£'000

£'000

Zero dividend preference shares

-

5,307


_________

_________


-

5,307


_________

_________






2009

2008



Issued and


Issued and


Authorised

fully paid

Authorised

fully paid

10.    Called-up share capital

£'000

£'000

£'000

£'000

Ordinary shares of 100p 

20,000

117

20,000

117



Share

Revenue

Share

Revenue


Capital

Reserve 

Capital

Reserve 

11.    Share premium and capital reserves

2009

2009

2008

2008


£'000

£'000

£'000

£'000

At 1 June

117

(81)

50

(15)

Issue of share capital

-

-

67

-

Retained earnings

-

(52)

-

(66)


_________

_________

_________

_________

At 31 May 

117

(133)

117

(81)


_________

_________

_________

_________


12.    Net Asset Value per share

The net asset value per Ordinary share is based on net liability of £16,000 (31 May 2008 - net assets - £36,000) and on 116,667 Ordinary shares (31 May 2008 - 116,667), being the number of Ordinary shares in issue at the year end. 


The net asset value per ZDP shares is based on the entitlement due of £4,226,000 (31 May 2008 - £5,307,000) at the year end and on 7,491,110 ZDP shares, (31 May 2008 - 7,857,142) being the number of ZDP shares in issue at the year end.


13.    Financial instruments

The Company's financial instruments comprise cash and liquid resources that arise directly from the Company's operations and ZDP shares

The main risks arising from the Company's financial instruments are (i) interest rate risk; (ii) liquidity risk; and (iii) credit risk. 

The Manager's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures below exclude short-term debtors and creditors, which are included in the Balance Sheet at fair value.


(i)    Interest rate risk

The interest rate risk profile of financial assets and liabilities at the Balance Sheet date was as follows:



Weighted






Average

Weighted





Period for which

Average



Non-interest


Rate is fixed

Interest

Fixed rate

Floating rate

Bearing

As at 31 May 2009

Years

Rate %

£'000

£'000

£'000

Assets






Cash

-

2.9

-

205

-


_________

_________

_________

_________

_________


-

2.9

-

205

-


_________

_________

_________

_________

_________


Liabilities






ZDP shares

0.92

6.5

4,226

-

-


_________

_________

_________

_________

_________


0.92

6.5

4,226

-

-


_________

_________

_________

_________

_________




Weighted






Average

Weighted





Period for which

Average



Non-interest


Rate is fixed

Interest

Fixed rate

Floating rate

Bearing

As at 31 May 2008

Years

Rate %

£'000

£'000

£'000

Assets






Cash

-

5.5

-

285

-


_________

_________

_________

_________

_________


-

5.5

-

285

-


_________

_________

_________

_________

_________

Liabilities






ZDP shares

1.92

6.5

5,307

-

-


_________

_________

_________

_________

_________


1.92

6.5

5,307

-

-


_________

_________

_________

_________

_________


The weighted average interest rate is based on the current yield of cash deposits. The weighted average interest rate on Zero dividend preference is based on the entitlement payable to shareholders.


The cash assets consist of cash deposits on call earning interest at prevailing market rates.


Maturity profile

The maturity profile of the Company's financial assets and liabilities at the Balance Sheet date was as follows:



Within 1 year

Within 1-2 years

At 31 May 2009

£'000

£'000

Assets



Cash

205

-


_________

_________


205

-


_________

_________




Liabilities



ZDP shares

(4,226)



_________

_________


(4,226)

-


_________

_________



Within 1 year

Within 1-2 years

At 31 May 2008

£'000

£'000

Assets



Cash

285

-


_________

_________


285

-


_________

_________




Liabilities



ZDP shares

-

(5,307)


_________

_________


-

(5,307)


_________

_________


(ii) Liquidity risk 

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. 

Liquidity risk is considered to be significant as the Company is reliant upon the sale of assets within its parent undertaking, which mainly comprises unlisted investments.  Details of how this risk is managed is contained within the financial statements of the parent company.


(iii) Credit risk 

This is failure of the counter party to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. 

The risk is not considered to be significant as cash is held only with reputable banks with high quality external credit enhancements.



14.    Post Balance Sheet 

On 16 June 2009, the Company made a third return of capital under the Capital Return Scheme, which was approved by Shareholders at an Extraordinary General Meeting held on 3 August 2007 of 2.6p per ZDP share


Additional notes for Annual Financial Report:


The income statement, balance sheet, statement of changes in equity and the cashflow statement set out above do not represent full accounts in accordance with Section 240 of the Companies Act 1985. The financial information for the year ended 31 May 2009 has been extracted from the Annual Report and Accounts of the Company which have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified. We expect to deliver statutory accounts for the year ended 31 May 2009 to the Registrar of Companies following the Company's Annual General Meeting which will be held at 10 Queen's Terrace, Aberdeen AB10 1YQ on 24 September 2009 at 12 .05 pm.


The Annual Report and Accounts will be posted to shareholders at the end of August 2009 and copies will be available from the registered office of the investment manager.


Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.


For ADC Zeros 2010 PLC

Aberdeen Asset Management PLC, Secretaries

31 July 2009


END



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