Downing Protected VCT VII plc
FINAL RESULTS for the year ended 31 January 2009
31 Jan 2009 31 Jan 2008
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
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.
The Company continued to be an active investor throughout the year,
making Â£4.1 million of new qualifying investments during the year.
Additionally, the Company made Â£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
There were several investment exits during the year generating
proceeds of Â£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 Â£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 Â£100,000 against the original cost of Â£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 Â£150,000 against
the original Â£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 Â£244,000
(2008: profit Â£177,000) comprising a revenue return of Â£262,000
(2008: Â£177,000) and a capital loss of Â£506,000 (2008: Â£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.
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.
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.
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.
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
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 Â£6.1 million.
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.
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
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
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
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 Â£150,000 against the Â£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.
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
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:
Cost Valuation in year % of
Â£'000 Â£'000 Â£'000 portfolio
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%
Hoole Hall Country Club 750 750 - 9.0%
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%
Aminghurst Limited 208 208 - 2.5%
Cannock Developments (Fields 125 125 - 1.5%
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
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
* Non-qualifying investment
Cost Valuation at Proceeds Profit/ Realised
** 31/1/08 (loss) vs gain/
Â£'000 Â£'000 Â£'000 Â£'000 Â£'000
Hoole Hall Country
Club Limited 750 750 750 - -
Loan stock redemptions
(Fields End) LLP 125 125 125 - -
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
* make judgments and estimates that are reasonable and
* 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
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
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.
for the year ended 31 January 2009
Year ended 31 January 2009 Period ended 31 January
Revenue Capital Total Revenue Capital Total
Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000
Income 611 - 611 467 - 467
Losses on - (506) (506) - - -
611 (506) 105 467 - 467
Investment (118) - (118) (95) - (95)
Other expenses (128) - (128) (122) - (122)
Return on ordinary
activities before 365 (506) (141) 250 - 250
Tax on ordinary (103) - (103) (73) - (73)
Basic and diluted
attributable to 262 (506) (244) 177 - 177
Basic and diluted
return per 2.8p (5.5p) 2.7p 2.0p - 2.0p
Basic and diluted
return per 'A' - - - - - -
The total column of this income statement represents the Company's
income statement prepared in accordance with the UK accounting
All Revenue and Capital items in the above statement derive from
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
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
as at 31 January 2009
Â£'000 Â£'000 Â£'000 Â£'000
Unquoted investments 7,734 6,314
Debtors 209 150
Cash at bank and in hand 623 2,479
Creditors: amounts falling due within one (186) (160)
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
31 Jan 31 Jan
Net cash inflow from operating activities 302 187
Corporation tax paid (73) -
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)
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
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
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.
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
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.
Dividend income from investments is recognised when the Shareholders'
rights to receive payment has been established, normally the ex
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.
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 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
Return per share based on:
Net revenue after taxation for the financial 258 4
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 (Â£'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
Shares in issue Net asset Net asset
2009 2008 Per Â£'000 Per Â£'000
Ordinary 9,098,500 9,098,500 92.0p 8,367 96.4p 8,774
'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
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'
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
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
The principal financial risks are outlined further as follows:
Credit risk is the risk that a counterparty to a financial instrument
is unable to discharge a commitment to the Company made under that
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 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
Â£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 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
Â£186,000 (2008: Â£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 Â£118,000 (2008: Â£95,000), was payable to DPMVII.
Additionally, the Company has appointed DPMVII to provide accounting,
secretarial and administrative services for an annual fee of Â£40,000
(plus VAT and RPI) per annum. During the year ended 31 January 2009
Â£42,000 (2008: Â£37,000), was due in respect of administration fees.
At the year end a balance of Â£40,000 (2008: Â£39,000) was due to
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 www.downing.co.uk.
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