Final Results

Downing Protected VCT VII plc FINAL RESULTS for the year ended 31 January 2009 Financial Highlights 31 Jan 2009 31 Jan 2008 Pence Pence Net asset value per Ordinary Share 92.00 96.40 Net asset value per 'A' Share 0.10 0.10 Dividends paid to date 1.75 - Total return per Ordinary Share and 'A' 93.85 96.50 Share CHAIRMAN'S STATEMENT I am pleased to present the Company's second Annual Report and Accounts and welcome the opportunity to update Shareholders on the progress made to date in investing the funds. Investment activity The Company continued to be an active investor throughout the year, making £4.1 million of new qualifying investments during the year. Additionally, the Company made £1.1 million of new non-qualifying investments. In some cases these investments complement existing qualifying investments and, in other cases, are low-risk property loans which allow the Company to improve the yield on its non-qualifying portfolio. There were several investment exits during the year generating proceeds of £3.2 million. These were primarily whole or partial redemptions of loan stock at par. At the year end, the Company had an investment portfolio which comprised 16 major investments with a total cost of £8.2 million. The Board has given particular consideration to the current economic conditions in undertaking its valuation review of the portfolio at the year end. The majority of investments have been made relatively recently and the Board has satisfied itself that, at this stage, the fair value of most investments remains at levels equal to original cost. There have been two exceptions. As I mentioned in my report with the half-year results, the investment in Vermont Developments Limited has faced difficulties, resulting in Vermont going into administration. Your Company took a charge over a plot of development land in Salford owned by Vermont and is now exploring methods for extracting value. As a result of these difficulties, at the year end the Board has valued the investment at £100,000 against the original cost of £500,000. The investment in West Tower Holdings Limited has also been the subject of a provision. The company has not performed to plan so far and, as a result, the Board has made a provision of £150,000 against the original £1 million investment. A detailed review of the investments is included in the Investment Manager's Report and Review of Investments. Net Asset Value At 31 January 2009, the Company's Net Asset Value ("NAV") per Ordinary Share stood at 92.0p and the NAV per 'A' Share at 0.1p. The combined NAV of 92.1p represents a decrease of 2.6p (2.7%) over the year (after adjusting for the 1.75p dividend paid in the year). In view of the economic climate, the Board considers this small fall in NAV to be a satisfactory result for the year. Results and dividend The loss on activities after taxation for the year was £244,000 (2008: profit £177,000) comprising a revenue return of £262,000 (2008: £177,000) and a capital loss of £506,000 (2008: £Nil). The Board is proposing to pay a dividend of 2.0p per Ordinary Share on 31 July 2009 to Shareholders on the register at the close of business on 10 July 2009. In accordance with the Articles of Association, when a dividend of 2.0p is declared for the Ordinary Shares, it is intended that the 'A' Shares receive a dividend of 0.02p per 'A' Share. In view of the fact that, for most 'A' Shareholders, a dividend of this level would be a very small amount and the disproportionate costs of paying such a small dividend on the 'A' Shares, the Board have decided not to declare an 'A' Share dividend at this time. The amount due on the 'A' Shares will be rolled up and will be declared as a dividend when the total amount due reaches a level that is economic to pay. VCT Status The Company has until 31 January 2010 in which to invest at least 70% of its funds in VCT qualifying investments. I am pleased to report that the Company is well ahead of schedule and since the year end has exceeded this target. Share repurchase The Company operates a policy, subject to certain restrictions, of buying shares that become available in the market at a price equivalent to a 10% discount to the Company's most recently published NAV. No shares were purchased in the year for cancellation. Share repurchase A special resolution to continue this policy is proposed for the forthcoming AGM. The Board recommends that Shareholders vote in favour of Resolution 6. Annual General Meeting The Company's second Annual General Meeting will be held at Kings Scholars House, 230 Vauxhall Bridge Road, London SW1V 1AU. The meeting will take place at 2.20 p.m. on 29 July 2009. One item of special business, seeking approval for the Company to be permitted to buy its own shares will be proposed. Outlook Although the Company's investment portfolio has not completely avoided difficulties, the last 12 months or so have seen almost unprecedented levels of financial turmoil and catastrophes. Against this background, the Board is satisfied with the Company's performance to date and believes the portfolio can deliver the targeted level of returns over the intended life of the Company. The Company is likely to have a much lower investment activity over the forthcoming year, with the Investment Manager's focus switching towards monitoring of the existing portfolio and ensuring that the Company is in a strong position to support its investments if required. Hugh Gillespie Chairman INVESTMENT MANAGER'S REPORT It has been a busy year for the Company in terms of new investment activity and we are pleased to report that the objective of building the Company's VCT-Qualifying portfolio is now nearly complete. At 31 January 2009, the Company had eight VCT-Qualifying investments with a total cost of £6.1 million. New investments A summary of the investments made in the year is shown below. The Company's largest new investments were in The Thames Club Limited (a health club owner/operator), The West Tower Limited (a wedding/conference venue owner operator) and Crossco (1135) Limited (an owner and operator of children's nurseries). Each of these investments is a good fit for the Company's investment profile. They all own substantial fixed assets over which we have been able to take a charge, securing part of the Company's investment and, in two cases, the management is planning significant developments of their respective properties, which is expected to build value. During the year, the Company's existing investment in Hoole Hall Country Club Limited underwent a reorganisation, whereby the investment was effectively switched into a new holding company. Investment realisations The Company had a reasonable number of loan stock redemptions during the year from within the non-qualifying investment portfolio. In most cases these redemptions had been anticipated and provided liquid funds for new qualifying investments. All realisations were achieved at cost, with one minor exception where a small loss of £4,000 arose. Valuations Although we attempt to reduce downside risk on the Company's investments by taking charges over assets where possible, the severity of the economic downturn has impacted on two of the portfolio investments. Following the effective collapse of Vermont Developments Limited, we are now seeking to recover value from the development land over which the Company has a charge. The current market value of the land is uncertain, however we are exploring development opportunities which might build value in due course. At the current time we have recommended that the investment be valued at approximately 20% of its original cost. We have also recommended that a provision be made against the cost of the Company's investment in The West Tower Limited. The company owns a conference and wedding venue near Ormskirk and a pub/restaurant which is nearby. Trading at both venues has been below budget since the investment was made, however the primary goal of management is to substantially redevelop both venues, which should increase the ultimate value. In view of the poor trading, we have recommended a provision of £150,000 against the £1 million cost. We are satisfied that the remainder of the Company's investments are performing reasonably in line with expectation and are fairly valued at a sum equal to original cost. Outlook With the Company's investing phase now essentially completed, the management task over the next two to three years will be to closely monitor and support the development of the portfolio companies. There is little prospect of substantial improvement in the economy in the short term. It is therefore essential that our investments adapt to the current conditions so that they are well-positioned to provide us with a successful exit as we approach the end of the Company's fifth year. Downing Protected Managers VII Limited REVIEW OF INVESTMENTS Portfolio of investments The following investments, all of which are incorporated in England and Wales, were held at 31 January 2009: Valuation movement Cost Valuation in year % of £'000 £'000 £'000 portfolio VCT-Qualifying investments Cadbury House Limited 1,000 1,000 - 12.0% The Thames Club Limited 1,000 1,000 - 12.0% West Tower Holdings Limited 1,000 850 (150) 10.2% Future Films Production 825 825 - 9.9% Services Limited Hoole Hall Country Club 750 750 - 9.0% Holdings Limited Crossco (1135) Limited 665 665 - 7.9% Liongold Contracting Limited 434 434 - 5.2% Richstone Contracting Limited 407 407 - 4.9% Non-VCT Qualifying investments Kings Gap Group Limited 400 400 - 4.8% JEB Leisure Limited 313 313 - 3.7% Sanguine Hospitality Limited 250 250 - 3.0% Future Films Production 225 225 - 2.7% Services Limited Aminghurst Limited 208 208 - 2.5% Cannock Developments (Fields 125 125 - 1.5% End) Limited Vermont Developments Limited 452 100 (352) 1.2% Cadbury House Limited 75 75 - 0.9% Coastal Partnerships Limited 75 75 - 0.9% Chapel Street Hotel (2008) LLP 31 31 - 0.3% Chapel Street Hotel Limited 1 1 - - 8,236 7,734 (502) 92.6% Cash at bank and in hand 623 7.4% Total investments 8,357 100.0% Investment movements for the year ended 31 January 2009 ADDITIONS £'000 Conference, health club and hotel Cadbury House Limited * operator 75 Chapel Street Hotel (2008) Developer LLP * 32 Crossco (1135) Limited Children's nurseries operator 665 Future Films Production Film production services Services Limited * 400 Hoole Hall Country Club Conference/wedding venue Holdings Limited 750 JEB Leisure Limited * Pub owner/operator 100 Liongold Contracting Limited Building contractor 434 Pocket Living (Bath Road) Developer Limited * 500 Richstone Contracting Limited Building contractor 204 The Thames Club Limited Health club owner operator 1,000 West Tower Holdings Limited Conference/wedding venue 1,000 5,160 * Non-qualifying investment DISPOSALS Cost Valuation at Proceeds Profit/ Realised ** 31/1/08 (loss) vs gain/ cost (loss) £'000 £'000 £'000 £'000 £'000 Full disposal Hoole Hall Country Club Limited 750 750 750 - - Loan stock redemptions Cannock Development (Fields End) LLP 125 125 125 - - Future Films Production Services Limited 175 175 175 - - JEB Leisure 38 38 38 - - Kaizen Capital LLP 902 902 902 - - Kings Gap Group Limited 400 400 400 - - Pocket Living (Bath Road) Limited 800 800 796 (4) (4) Vermont Developments 48 - - Limited 48 48 3,238 3,238 3,234 (4) (4) ** Adjusted for purchases in the year STATEMENT OF DIRECTORS' RESPONSIBILITIES The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Services Authority. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).The financial statements are required to 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 year. In preparing these financial statements the Directors are required to: * select suitable accounting policies and then apply them consistently; * make judgments and estimates that are reasonable and prudent; * state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and * prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors confirm that they have complied with the above requirements in preparing the financial statements. They also confirm that the annual report includes a fair review of the development and performance of the business together with a description of the principal risks and uncertainties faced by the Company. The Directors are responsible for keeping proper accounting records that 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 1985. 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. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions. Statement as to disclosure of information to Auditors The Directors in office at this report have confirmed, as far as they are aware, that there is no relevant audit information of which the Auditors are unaware. Each of the Directors has confirmed that they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the Auditors. INCOME STATEMENT for the year ended 31 January 2009 Year ended 31 January 2009 Period ended 31 January 2008 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Income 611 - 611 467 - 467 Losses on - (506) (506) - - - investments 611 (506) 105 467 - 467 Investment (118) - (118) (95) - (95) management fees Other expenses (128) - (128) (122) - (122) Return on ordinary activities before 365 (506) (141) 250 - 250 tax Tax on ordinary (103) - (103) (73) - (73) activities Basic and diluted return attributable to 262 (506) (244) 177 - 177 equity shareholders Basic and diluted return per 2.8p (5.5p) 2.7p 2.0p - 2.0p Ordinary Share Basic and diluted return per 'A' - - - - - - Share The total column of this income statement represents the Company's income statement prepared in accordance with the UK accounting standards. All Revenue and Capital items in the above statement derive from continuing operations. A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement noted above. Other than revaluation movements arising on investments held at fair value through the Income Statement, there were no differences between the return/deficit at historical cost. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Year ended Period ended 31 January 2009 31 January 2008 £'000 £'000 Opening shareholders' funds 8,783 - Proceeds from share issue - 9,106 Share issue costs - (500) Dividends paid (159) Total recognised gains for the year (244) 177 Closing shareholders' funds 8,380 8,783 BALANCE SHEET as at 31 January 2009 2009 2008 £'000 £'000 £'000 £'000 Fixed assets Unquoted investments 7,734 6,314 Current assets Debtors 209 150 Cash at bank and in hand 623 2,479 832 2,629 Creditors: amounts falling due within one (186) (160) year Net current assets 646 2,469 Net assets 8,380 8,783 Capital and reserves Called up Ordinary share capital 9 9 Called up 'A' Share capital 14 14 Deferred Share capital 3 3 Share premium - 8,580 Special reserve 8,576 - Capital reserve - unrealised (502) - Revenue reserve 280 177 Total equity shareholders' funds 8,380 8,783 Net asset value per Ordinary Share 92.0p 96.4p Net asset value per 'A' Share 0.1p 0.1p CASH FLOW STATEMENT for the year ended 31 January 2009 Year Period ended ended 31 Jan 31 Jan 2009 2008 £'000 £'000 Net cash inflow from operating activities 302 187 Taxation Corporation tax paid (73) - Capital expenditure Purchase of investments (5,160) (6,814) Proceeds from disposal of investments 3,234 500 Net cash outflow from capital expenditure (1,926) (6,314) Equity dividends paid (159) - Net cash outflow before financing (1,856) (6,127) Financing Proceeds from Ordinary Share issue - 9,089 Proceeds from 'A' Share issue - 17 Proceeds from preference share issue - 50 Redemption of preference shares - (50) Share issue costs - (500) Net cash inflow from financing - 8,606 (Decrease)/increase in cash (1,856) 2,479 NOTES 1. Accounting policies Basis of accounting The Company has prepared its financial statements under UK Generally Accepted Accounting Practice ("UK GAAP") and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies" revised January 2009 ("SORP"). The financial statements are prepared under the historical cost convention as modified by the revaluation of certain financial instruments and on the basis that it is not necessary to prepare consolidated accounts. The Company implements new Financial Reporting Standards ("FRS") issued by the Accounting Standards Board when required. The Association of Investment Companies issued a new SORP in January 2009 which has been adopted for these financial statements. No comparative restatements have been required as a result of the implementation of the new SORP. Presentation of Income Statement In order to better reflect the activities of a venture capital trust and in accordance with guidance issued by the Association of Investment Companies ("AIC"), 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 Part 6 of the Income Tax Act 2007. Investments All investments are designated as "fair value through profit or loss" assets and are measured at fair value. A financial asset is designated within this category if it is both acquired and managed, with a view to selling after a period of time, in accordance with the Company's documented investment policy. The fair value of an investment upon acquisition is deemed to be cost. Thereafter investments are measured at fair value in accordance with the International Private Equity and Venture Capital Valuation Guidelines "IPEV Guidelines" together with FRS26. Listed fixed income investments are measured using bid prices in accordance with the IPEV Guidelines. In respect of unquoted instruments, fair value is established by using the IPEV Guidelines. The valuation methodologies used by the Company to ascertain the fair value of an investment in an unquoted entity are as follows: * Price of recent investment; * Earnings multiple; * Net assets; * Discounted cash flows or earnings (of underlying business); and * Discounted cash flows (from the investment). The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value. If fair value cannot be reliably measured by methods listed, previous carrying value (less provision for impairment) may be used where it is considered to provide the best estimate of fair value at the reporting date. Where an investee company has gone into receivership or liquidation and there is no prospect of any recovery of value, the loss on 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 significant influence over investee companies. Therefore the results of these companies are not incorporated into the Income Statement except to the extent of any income accrued. This is in accordance with SORP, which does not require portfolio investments to be accounted for using the equity method of accounting. 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 and only where there is reasonable certainty of collection. Expenses All expenses are accounted for on 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. The Company has adopted a policy of charging 100% of the Investment Management fees to the revenue account. 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. Return per share Ordinary 'A' Shares Shares Return per share based on: Net revenue after taxation for the financial 258 4 year (£'000) Weighted average number of shares in issue 9,098,500 13,647,743 Capital return per share based on: Net capital loss for the financial year (£'000) (449) (7) Weighted average number of shares in issue 9,098,500 13,647,743 As the Company has not issued any convertible securities or share options, there is no dilutive effect on the return per Ordinary or 'A' Share. The return per share disclosed therefore represents both basic and diluted return per Ordinary and 'A' Share. 3 Net asset value per share 2009 2008 Shares in issue Net asset Net asset value value 2009 2008 Per £'000 Per £'000 share share Ordinary 9,098,500 9,098,500 92.0p 8,367 96.4p 8,774 Shares 'A' Shares 13,647,743 13,647,743 0.1p 13 0.1p 9 92.1p 8,380 96.5p 8,783 The Directors allocate the assets and liabilities of the Company between the Ordinary Shares and 'A' Shares such that each share class has sufficient net assets to represent its dividend and return of capital rights. As the Company has not issued any convertible shares or share options, there is no dilutive return per Ordinary Share or per 'A' Share. The Net Asset Value per share disclosed therefore represents both the basic and diluted return per Ordinary Share and per 'A' Share. 4 Principal financial risks The principal financial risks faced by the Company, which include interest rate, liquidity and marketability risks. In addition to these risks, the Company, as a fully listed Company on the London Stock Exchange and as a Venture Capital Trust, operates in a complex regulatory environment and therefore faces a number of related risks. A breach of the VCT Regulations could result in the loss of VCT status and consequent loss of tax reliefs currently available to Shareholders and the Company being subject to capital gains tax. Serious breaches of other regulations, such as the UKLA Listing Rules, the Companies Act 2006 and the Companies Act 1985 could lead to suspension from the Stock Exchange and damage to the Company's reputation. The Board reviews and agrees policies for managing each of these risks. The Directors receive quarterly reports from the Managers which monitor the compliance of these risks, and place reliance on the Managers to give updates in the intervening periods. These policies have remained unchanged since the beginning of the financial year. The principal financial risks are outlined further as follows: Credit risk Credit risk is the risk that a counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. Investments in loan stocks comprise a fundamental part of the Company's venture capital investments and are managed within the main investment management procedures. Cash is mainly held by Bank of Scotland plc and Royal Bank of Scotland plc which are A+/A-1-rated financial institutions. The Directors consider that the risk profile associated with cash deposits is low and thus the carrying value in the financial statements is a close approximation of the fair value. Interest, dividends and other receivables are predominantly covered within the investment management procedures. Market risk Market risk arises from uncertainty about fair values or future cash flows of financial instruments because of changes in market prices. The Company's investment portfolio is comprised of variable rate, floating rate and fixed rate financial instruments, the fair values of which are influenced by differing degrees by changes in market price. Generally, unless the risk profile attaching to the loan note changes, the fair value of variable and floating rate investments is unlikely to alter materiality. The fair value of fixed rate investments would, theoretically, increase as base rates fall. However, as a result of the structuring of the Company's investments, the fixed rate investments (loan notes) have strict redemption and transferability conditions and, therefore, any theoretical uplift in fair value would not be a fair reflection of the realisable value of this class of investment. The Company's future cash flows can be influenced by changes in interest rates resulting in an increase or decrease in income from investments linked to the base rate. The maximum exposure to this risk amounts to the value of variable and floating rate assets of £2.0 million. The Company has no holdings in any listed or quoted equities so has no direct exposure to substantial movements experienced by stock markets. As none of the financial instruments held by the Company are traded on any specified stock market, the Company is not exposed to a quantifiable equity price risk. The ability of the Company to realise the investments at their carrying value may at times not be possible if there are no willing purchasers. The ability of the Company to purchase or sell investments is also constrained by the requirements set down for Venture Capital Trusts. The Board (or a nominated Director) considers each investment purchase to ensure that an acquisition will enable the Company to continue to have an appropriate spread of market risk and that an appropriate risk reward profile is maintained. It is not the Company's policy to use derivative instruments to mitigate market risk, as the Board believes that the effectiveness of such instruments does not justify the cost involved. Liquidity risk Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. As the Company only ever has a very low level of creditors being £186,000 (2008: £160,000) and has no borrowings, the Board believes that the Company's exposure to liquidity risk is minimal. 5. Related party transactions The Company has appointed Downing Protected Managers VII Limited ("DPMVII") as its investment manager. During the year ended 31 January 2009 £118,000 (2008: £95,000), was payable to DPMVII. Additionally, the Company has appointed DPMVII to provide accounting, secretarial and administrative services for an annual fee of £40,000 (plus VAT and RPI) per annum. During the year ended 31 January 2009 £42,000 (2008: £37,000), was due in respect of administration fees. At the year end a balance of £40,000 (2008: £39,000) was due to DPMVII. Announcement based on audited accounts The financial information set out in this announcement does not constitute the Company's statutory financial statements in accordance with section 434 Companies Act 2006 for the year ended 31 January 2009, but has been extracted from the statutory financial statements for the year ended 31 January 2009, which were approved by the Board of Directors on 29 May 2009 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006. The statutory accounts for the period ended 31 January 2008 have been delivered to the Registrar of Companies and received an Independent Auditors report which was unqualified and did not contain any emphasis of matter nor statements under S237(2) or (3) of the Companies Act 1985. A copy of the full annual report and financial statements for the year ended 31 January 2009 will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at Kings Scholars House, 230 Vauxhall Bridge Road, London SW1V 1AU and will be available for download from ---END OF MESSAGE--- This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.