Pennine AIM VCT 5 plc
Half-Yearly Report for the six months ended 31 March 2009
CHAIRMAN'S STATEMENT
Conditions continue to be difficult for your Company, with the
results for the six months ended 31 March 2009 showing another fall
in net asset value per share ("NAV"). The Company was, however, able
to successfully undertake a small tender offer during the period
providing liquidity for some Shareholders who wished to sell part of
their holdings.
Net asset value
At the period end, the NAV of the Company stood at 27.0p, a decrease
of 7.2p (21.0%) since 30 September 2008. While the performance is
very disappointing, the fall in the FTSE AIM All-Share Index over the
same period of 33.6% provides some indication of the market
conditions in which the Company has had to operate.
Venture capital investments
There was a reasonably low level of portfolio activity during the
period. There were a small number of partial disposals and one full
disposal, which generated £409,000 of proceeds. Additionally, the
Company's investment in Hoole Hall Country Club Limited underwent a
reorganisation, which resulted in the Company realising and
reinvesting £750,000 into a new holding company, Hoole Hall Country
Club Holdings Limited. A summary of the investment additions and
disposals during the period is shown on below.
Of the AIM-quoted investments held throughout the period, the vast
majority lost value, such that the total unrealised loss on the
portfolio for the six-months was £1.5 million.
It is not unusual to see smaller companies share prices suffer to a
greater extent than larger companies as the economy turns down. The
difference this time has been the speed and severity of the fall in
smaller company share prices as recorded by the FTSE AIM-All Share
Index. The falls have been exacerbated by poor liquidity and
compounded by forced sellers as smaller company funds such as unit
trusts, experienced redemptions, necessitating sales of the
underlying investments into an already weak AIM share market.
The two biggest fallers within the AIM portfolio were the recruitment
businesses of Servoca and the Kellan Group. Whilst companies are
concentrating on cost savings rather than recruitment, investor
concerns are likely to remain until signs of economic growth return
to the UK economy. With discretionary consumer spending under
pressure and a failed takeover approach for the company, Travelzest
saw a sharp fall in its shares. The poor consumer economic outlook
saw Clerkenwell Ventures return the majority of their cash to
shareholders rather than purchase potentially over-valued restaurant
businesses.
Some of the holdings within the portfolio have continued to show
profits growth although the shares have fallen with the general
malaise in the AIM market. Boomerang Plus, Concateno and IDOX are
such examples. There have been some share price rises over the
period. Ludorum has successfully delivered its first series to the
BBC of Chuggington, an animated week day programme of train
adventures for children, whilst FDM, despite being heavily focussed
on the financial sector with its provision of specialist IT
personnel, delivered a strong set of profit figures with substantial
cash on the balance sheet.
Around a third of all companies on AIM have a market capitalisation
of less than £5 million. With profits under pressure and one of the
primary reasons for being on AIM, that of being able to access
funding from potential investors, not currently available, we have
seen an increasing number of companies considering cancelling their
quote on AIM (delisting) and saving the costs of being quoted. The
Board are fully supportive of the Investment Manager's stance that
they are not generally in favour of companies coming off AIM.
Where companies do come off AIM, the Investment Manager will be
looking to safeguard the VCT's shareholder interests and where
possible put in place a shareholders' agreement with the delisting
company to provide appropriate corporate governance. In addition, a
matched bargain share transaction service will be sought.
The Investment Manager has also highlighted to the Board the trend
amongst an increasing number of companies who are rebasing management
options which are out of the money after the share price falls. Where
appropriate the Investment Manager will engage with companies to
resist such rebasing of options unless it is in the interest of all
shareholders.
Fixed income securities portfolio
The Company's one remaining fixed income security matured during the
period, realising a small loss against the previous market value of
£1,000.
Results and dividends
The loss on activities during the period was £1.6 million, comprising
a revenue loss of £75,000 and a capital loss of £1.6 million.
The Company has stated its intention to pay regular dividends of at
least 3p per annum. In line with this policy, the Company will pay
an interim dividend of 1p per share on 31 July 2009 to Shareholders
on the register at 25 June 2009.
Tender offer
The Company completed a tender offer in March 2009 in which it
acquired 1,000,000 of its own shares for cancellation at a price of
24.3p per share, being a 10% discount to the latest published NAV.
The tender offer was approximately four times oversubscribed with
Shareholders who applied being scaled back accordingly.
As I have explained previously, in the current conditions the Company
does not have a sufficient level of liquid funds to operate an
ongoing policy of buying back its own shares in the market. Under
these circumstances, the Board considers that the tender offer in
March was successful in making the Company's limited liquid funds
available on a fair basis to Shareholders who wished to sell all or
part of their holdings.
Risks and uncertainties
Under the Disclosure and Transparency Directive, the Board is now
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 facing the Company over
the remainder of the financial period are as follows:
* investment risk associated with investing in small
and immature businesses;
* significant exposure to the volatile and illiquid
conditions experienced by the AIM market; and
* failure to maintain approval as a VCT.
The Company's significant exposure to relatively immature businesses
quoted on AIM can, to some extent, be protected by holding a
well-diversified portfolio. With the Company effectively
fully-invested, management of the exposure to the AIM market
conditions is reasonably limited. Although the risks are
significant, the Board considers that the Company's approach to these
risks is satisfactory.
The Company's compliance with the VCT regulations is continually
monitored by the Administration 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. The Board considers that this approach reduces the risk of a
breach of the VCT regulations to a minimal level.
Outlook
The Board is conscious that the Company is now small in net asset
terms and, as a result, believes that the annual running costs
indemnity provided by the Manager and Administrator may come into
effect for the current financial year. The annual running costs
indemnity provides some protection for Shareholders in preventing
running costs from exceeding 3.5% of net assets per annum.
It is unlikely that Shareholders will see a significant improvement
in the performance of the Company in the short-term. Although the
FTSE AIM All Share Index has shown some reasonably steady increases
throughout April and May 2009, with the NAV at the 30 April 2009
standing at 28.5p, this goes only a little way to repairing the
damage done over the last 18 months and confidence in the economy
does not yet appear to be at a sufficient level to support a
sustained recovery.
Andrew Davison
Chairman
28 May 2009
UNAUDITED SUMMARISED BALANCE SHEET
as at 31 March 2009
31 Mar 31 Mar 30 Sept
2009 2008 2008
£'000 £'000 £'000
Fixed assets
Investments 5,167 9,631 7,445
Current assets
Debtors 143 335 100
Cash at bank and in hand 468 5,956 119
611 6,291 219
Creditors: amounts falling due within (42) (36) (48)
one year
Net current assets 569 6,255 171
Net assets 5,736 15,886 7,616
Capital and reserves
Called up share capital 2,128 2,227 2,228
Capital redemption reserve 137 38 37
Special reserve 11,996 17,336 12,946
Capital reserve - realised - 1,675 -
Investment holding losses (8,477) (5,461) (7,622)
Revenue reserve (48) 71 27
Equity shareholders' funds 5,736 15,886 7,616
Basic and diluted net asset value 27.0p 71.3p 34.2p
per share
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months ended 31 March 2009
31 Mar 31 Mar 30 Sept
2009 2008 2008
£'000 £'000 £'000
Opening shareholders' funds 7,616 20,811 20,811
Repurchase of own shares (244) (215) (215)
Total recognised losses for the period (1,636) (4,484) (6,851)
Dividends paid in period - (226) (6,129)
Closing shareholders' funds 5,736 15,886 7,616
INCOME STATEMENT
for the six months ended 31 March 2009
Six months ended
31 March 2009
Revenue Capital Total
£'000 £'000 £'000
Income 42 - 42
Losses on investments - (1,524) (1,524)
42 (1,524) (1,482)
Investment management fees (13) (37) (50)
Other expenses (note 5) (104) - (104)
Return on ordinary activities before taxation (75) (1,561) (1,636)
Taxation - - -
Return attributable to equity shareholders (75) (1,561) (1,636)
Basic and diluted return per share (0.3p) (7.1p) (7.4p)
Six months ended Year ended
31 March 2008 30 September
2008
Revenue Capital Total Total
£'000 £'000 £'000 £'000
Income 202 - 202 432
Losses on investments - (4,396) (4,396) (6,727)
202 (4,396) (4,194) (6,295)
Investment management fees (47) (141) (188) (331)
Other expenses (note 5) (101) (1) (102) (225)
Return on ordinary activities 54 (4,538) (4,484) (6,851)
before taxation
Taxation (9) 9 - -
Return attributable to equity 45 (4,529) (4,484) (6,851)
shareholders
Basic and diluted return per 0.2p (20.1p) (19.9p) (30.6p)
share
All Revenue and Capital items in the above statement derive from
continuing operations. 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 noted above.
UNAUDITED CASH FLOW STATEMENT
for the six months ended 31 March 2009
31 Mar 31 Mar 30 Sept
2009 2008 2008
£'000 £'000 £'000
Net cash inflow from operating activities
and returns on investments (162) 5 (56)
Capital expenditure
Purchase of investments (750) (1,854) (2,868)
Proceeds from sale of investments 1,504 8,051 9,192
Net cash inflow from capital expenditure 754 6,197 6,324
Equity dividends paid - (226) (6,129)
Net cash inflow before financing 592 5,976 139
Financing
Purchase of own shares (243) (233) (233)
Net cash outflow from financing (243) (233) (233)
Increase/(decrease) in cash 349 5,743 (94)
Notes to the cash flow statement:
1. Net cash inflow from operating
activities and returns on investments
Loss on ordinary activities before (1,636) (4,484) (6,851)
taxation
Losses on investments 1,524 4,396 6,727
(Increase)/decrease in other debtors (43) 118 80
(Decrease)/increase in other creditors (7) (25) (12)
Net cash inflow from operating activities (162) 5 (56)
2. Analysis of net funds
Beginning of period 119 213 213
Net cash inflow/(outflow) 349 5,743 (94)
End of period 468 5,956 119
SUMMARY OF INVESTMENT PORTFOLIO
as at 31 March 2009
Unrealised
gain/(loss) % of
Cost Valuation in period portfolio
£'000 £'000 £'000 by value
Top twenty venture
capital investments
Cadbury House Limited * 1,000 1,000 - 17.7%
Hoole Hall Country Club 750 750 - 13.3%
Holdings Limited *
Doubletake Portraits 645 363 - 6.5%
Limited *
IDOX plc 271 335 (27) 5.9%
First Care Limited * 275 275 - 4.9%
Concateno plc 241 266 (89) 4.7%
Ludorum plc 175 219 35 3.9%
FDM Group plc 169 212 56 3.8%
Telephonetics plc 415 156 (15) 2.8%
Zamano plc 316 151 (79) 2.7%
Craneware plc 76 129 (7) 2.3%
The Mission Marketing 472 126 (110) 2.2%
Group plc
Travelzest plc 426 118 (206) 2.1%
AT Communications Group 356 115 13 2.0%
plc
RFTRAQ Limited * 533 112 (113) 2.0%
Boomerang Plus plc 185 102 (99) 1.8%
Brulines Group plc 133 100 (58) 1.8%
Servoca plc 291 81 (186) 1.4%
Autoclenz Holdings plc 363 67 23 1.2%
FSG Security plc ** 250 58 (75) 1.0%
7,342 4,735 (937) 84.0%
Other venture capital 6,302 432 (548) 7.7%
investments
13,644 5,167 (1,485) 91.7%
Cash at bank and in hand 468 8.3%
Total investments 5,635 100.0%
All venture capital investments are quoted on AIM unless otherwise
stated.
* Unquoted
** Quoted on PLUS Market
SUMMARY OF INVESTMENT MOVEMENTS
for the six months ended 31 March 2009
Additions
£'000
Hoole Hall Country Club Holdings Limited 750
Disposals
Market Gain/ Total
value at (loss) realised
1 October Disposal against gain/
Cost 2008 * proceeds cost (loss)
£'000 £'000 £'000 £'000 £'000
Full disposals
Disperse Group plc 500 - - (500) -
Hoole Hall Country Club
Limited 750 750 750 - -
Jelf Group plc 79 116 39 (40) (77)
Partial disposals
Boomerang Plus plc 16 17 15 (1) (2)
Clerkenwell Ventures plc 271 195 257 (14) 62
IDOX plc 23 30 30 7 -
Universe Group plc 191 89 68 (123) (21)
Fixed interest securities
Treasury Stock 4% 07/03/09 344 346 345 1 (1)
2,174 1,543 1,504 (670) (39)
* Adjusted for purchases in the period
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. The unaudited half yearly financial results cover the six months
to 31 March 2009 and have been prepared in accordance with the
accounting policies set out in the statutory accounts for the year
ended 30 September 2008 which were prepared under UK Generally
Accepted Accounting Practice ("UK GAAP") and in accordance with the
Statement of Recommended Practice "Financial Statements of Investment
Trust Companies and Venture Capital Trusts" issued in January 2009
("SORP").
2. All revenue and capital items in the Income Statement 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 period ended 31
March 2008 and the year ended 30 September 2008 respectively.
5. Other expenses include a charge of £19,000 in respect of costs
relating to the Tender Offer.
6. Return per share for the period has been calculated on
22,150,196 shares, being the weighted average number of shares in
issue during the period.
7. NAV per share for the period has been calculated on 21,276,570
shares, being the number of shares in issue at the period end.
8. Dividends
31 March 2009 30 Sept 2008
Revenue Capital Total Total
£'000 £'000 £'000 £'000
Paid in period/year
2008 Special Interim - 26.5p - - - 5,903
2007 Final - 1.0p - - - 226
- - - 6,129
9. Reserves
Capital Capital Investment
Special redemption reserve holding Revenue
reserve reserve - realised losses reserve
£'000 £'000 £'000 £'000 £'000
At 1 October 2008 12,946 37 - (7,622) 27
Repurchase of shares (244) 100 - - -
Expenses capitalised - - (37) - -
Losses on - - (39) (1,485) -
investments
Transfer between (706) - 76 630 -
reserves
Retained net revenue - - - - (75)
At 31 March 2009 11,996 137 - (8,477) (48)
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. The Special Reserve,
Capital Reserve - Realised and Revenue Reserve are all distributable
reserves.
10. 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 30 September 2008 have
been extracted from the financial statements for that year, which
have been delivered to the Registrar of Companies; the Independent
Auditors' Report on those financial statements was unqualified.
11. The Directors confirm that, to the best of their knowledge, the
half-yearly financial statements have 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 in 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.
12. 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.
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