DOWNING TWO VCT plc
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
31 Dec
2015 |
31 Dec
2014 | ||
Pence | Pence | ||
'C' Share pool | |||
Net asset value per 'C' Share | 53.9 | 98.6 | |
Net asset value per 'A' Share | 0.1 | 0.1 | |
Cumulative distributions per 'C' Share | 75.0 | 25.0 | |
Adjusted for performance fee estimate | (7.6) | - | |
Total return per 'C' Share and 'A' Share | 121.4 | 123.7 | |
'D' Share pool | |||
Net asset value per 'D' Share | 51.8 | 71.5 | |
Net asset value per 'E' Share | 0.1 | 0.1 | |
Cumulative distributions per 'D' Share | 49.5 | 22.5 | |
Total return per 'D' Share and 'E' Share | 101.4 | 94.1 | |
'F' Share pool | |||
Net asset value per 'F' Share | 71.9 | 75.8 | |
Cumulative distributions per 'F' Share | 20.0 | 15.0 | |
Total return per 'F' Share | 91.9 | 90.8 | |
'G' Share pool | |||
Net asset value per 'G' Share | 86.3 | 90.2 | |
Cumulative distributions per 'G' Share | 15.0 | 10.0 | |
Total return per 'G' Share | 101.3 | 100.2 | |
Introduction
I am pleased to present the Annual Report for the year ended 31 December 2015. The Company currently has four share pools each of which are in different phases of their expected life.
Since the year end, the oldest remaining share pool, the 'C' Share pool, has completed the task of returning funds to Shareholders and has delivered an excellent final outcome. The 'D' Share pool has also recently commenced the process of returning funds to Shareholders although there is some way to go to complete the task. The other share pools are effectively fully invested and are not scheduled to start realising their investment portfolios for some time yet.
I would also like to welcome new 'K' Shareholders to Company. The 'K' Share fundraising was launched in December 2015, but the first 'K' Shares were not allotted until after the year end and therefore have limited coverage in this Annual Report.
A brief summary of each share pool is provided below. More detailed reviews are provided in the Investment Manager's Report and Review of Investments.
'C' Share pool
The Company's 'C' Shares were originally issued in 2008 and 2009. In line with the Company's planned exit strategy, the 'C' Share pool exited from most of its remaining investments in the year, which realised £5.7 million. As at the 31 December 2015, the 'C' Share pool held a portfolio of 2 investments with a total value of £748,000.
At 31 December 2015, the Net Asset Value ("NAV") of a combined holding of one 'C' Share and one 'A' Share stood at 54.0p, which represents an increase of 5.1% over the year after adjusting for the dividends of 50.0p per share paid in the year. Dividends paid to date total 75.0p.
Since the year end, realisations from the final two investments in Quadrate Spa Limited and Quadrate Catering Limited have been achieved, generating proceeds of £748,000. This resulted in the Company declaring final dividends of 30.6p per 'C' Share and 15.2p per 'A' Share which were paid on 24 March 2016, triggering a performance fee payable to the management team equivalent to 7.6p per 'C' Share.
After providing for the performance fee, Total Return (cumulative dividends to date) will be 120.8p, compared to the initial cost, net of income tax relief of 70.0p. The Board believes that, considering the economic climate in which the Investment Manager had to realise much of the portfolio, this is an excellent return.
Following the final dividend, the task of returning funds to these Shareholders is considered to be complete and no further dividends are expected to be paid to 'C' Shareholders. Steps will be taken to wind up this share class in due course.
'D' Share pool
The 'D' Shares were originally issued in 2010 and at the year end held a portfolio of 13 investments with a total value of £4.4 million.
At 31 December 2015, the Net Asset Value ("NAV") of a combined holding of one 'D' Share and one 'E' Share stood at 51.9p, which represents an increase of 10.2% over the year after adjusting for the dividends of 27.0p per share paid in the year. Total Return (NAV plus cumulative dividends to date) is now 101.4p, compared to the initial NAV of 94.5p.
During the year, the Manager commenced the task of realising the pool's investment portfolio with a number of investments sold producing proceeds of £3.6 million.
These proceeds were distributed to 'D' Shareholders by way of dividend paid on 18 December 2015 (27.0p per 'D' share) and on 24 March 2016 (17.0p per 'D' Share). These returns bring total dividends paid since the launch of the share class to 66.5p per 'D' Share. Since the period end further investments have been realised generating an additional £1.5 million.
The 'D' Share pool now has five main investments remaining and work is ongoing to achieve good returns from each of them. The Manager is optimistic that the majority will be realised before the end of the year, although is cautious in respect of Aminghurst Limited where it appears possible that a full exit might take longer. The Board intends to pay further dividends as soon as a significant level of funds has been generated by further realisations.
'F' Share pool
The 'F' Share pool was launched in 2012 and now holds a portfolio of 23 investments with a total value of £7.4 million.
At 31 December 2015, the 'F' Share NAV stood at 71.9p, which represents an increase of 1.5% over the year after adjusting for the dividends of 5.0p per share paid in the year. Dividends paid to date total 20.0p such that Total Return (NAV plus cumulative dividends to date) is now 91.9p, compared to the initial NAV of 94.5p.
In line with the dividend policy, the Board is proposing to pay a final dividend of 2.5p per 'F' Share on 24 June 2016 to Shareholders on the register at the close of business on 20 May 2016.
'G' Share pool
The 'G' Share pool was launched in 2013 and completed its initial investment phase this year. At 31 December 2015, the pool held 19 investments with a total value of £18.9 million.
At 31 December 2015, the 'G' Share NAV stood at 86.3p, which represents a small increase over the initial year of 1.2% after adjusting for the dividends of 5.0p per share paid in the year. Total Return (NAV plus cumulative dividends to date) is now 101.3p, compared to the initial NAV of 100.0p.
In line with the dividend policy, the Board is proposing to pay a final dividend of 2.5p per 'G' Share on 24 June 2016 to Shareholders on the register at the close of business on 20 May 2016.
Share buybacks
For share classes within the initial five year period, the Company operates a general policy of buying in its own shares for cancellation when any become available in the market. This policy is currently in place for the 'F' Shares and 'G' Shares. During this period, any such purchases will be undertaken at a price equal to the latest published NAV (i.e. at nil discount). Any buybacks are subject to regulatory restrictions and other factors such as the availability of liquid funds.
The Company is now unlikely to make any further purchases of 'D' Shares and 'E' Shares as the process of returning funds to those Shareholders is now underway. No purchases of 'C' Shares and 'A' Shares will be undertaken as the Shares now have negligible value and steps will be taken in due course to cancel these share classes.
Two purchases of 'G' Share were undertaken in the year. A total of 50,450 'G' Shares were purchased at an average price of 88.8p per share and were subsequently cancelled.
A resolution to renew the authority for the Company to purchase its own shares will be proposed at the forthcoming Annual General Meeting.
Board change
As I reported on in my statement with the Half Yearly Report. Christopher McCann joined the Board as a non-executive Director on 28 August 2015.
Christopher is an experienced VCT director who is familiar with a number of the Company's investments. He also has extensive banking, corporate finance and unquoted investment management experience, including fifteen years at Bridgepoint Capital and is proving to be a valuable addition to the Board.
The Board now comprises three non-executive Directors which we believe is an appropriate number for a Company of this size.
Fundraising
The 'K' Share Offer for Subscription was launched on 15 December 2015. As at the date of this report, the Offer had raised gross proceeds £12.3 million which makes the 'K' Share pool of a sufficient size to build a suitable portfolio.
VCT Rules
As Shareholders may be aware, a number of potentially significant changes to the VCT rules were made in November 2015 and some further changes announced in the Budget in March 2016. The new rules have introduced a limit on the age for most new investee companies of seven years, a lifetime cap of £15 million on the total amount of VCT and similar funding a company can receive and a ban on VCT funds being used by an investee company to acquire another trade or business. They have been brought in to bring the VCT scheme into line with the European Union's Risk Capital Guidelines. In addition, new restrictions on non-qualifying investments have been introduced and all investments into power generation businesses are now effectively banned.
The impact of the new rules on most of the share pools is expected to be minimal as they are not expecting to make any new investments. The new 'K' Share funds will however have to be invested under the new regulations. The Manager believes that, although these new restrictions will be significant and are unwelcome, it will still be possible to build a balanced portfolio of good quality investments and has already started to make progress to that end.
Annual General Meeting ("AGM")
The Company's ninth AGM will be held at Ergon House, Horseferry Road, London, SW1P 2AL at 10:30 a.m. on 15 June 2016.
One item of special business will be proposed at the AGM in connection with the authority for the Company to buy back shares as described above.
Outlook
Following the successful completion of the return of funds to 'C' Share pool investors, over the coming year, a significant proportion of the Investment Manager's activity will be on seeking to exit the remaining 'D' Share investments in a timely manner and at optimal value.
Investment activity is expected to be limited over the coming year in the 'F' Share pool and 'G' Share pool, which are now both fully invested and will not start seeking to unwind their portfolios until 2018. The Manager will continue to monitor those investments closely during the remaining period to maximize prospects for growth before the exit dates.
The task of investing the new 'K' Share funds is now underway and we expect to see a significant level of new investment activity over the year as a portfolio is built from scratch within the constraints of the new VCT rules.
Although there will be challenges faced by each share pool, generally we believe that the Company is well positioned to deliver satisfactory results to each group of Shareholders over the full life of their investment. I look forward to updating Shareholders of all share pools in my statement in the Half Yearly Report.
Hugh Gillespie
Chairman
25 April 2016
INVESTMENT MANAGER'S REPORT- 'C' SHARE POOL
Introduction
Soon after the year end, the 'C' Share pool completed the task of realising its investments and, on 24 March 2016, paid final dividends.
Final outcome
Over the life of their investment, investors in the 'C' Share pool received total dividends of 105.61p per 'C' Share and 15.22p per 'A' Share making a total return of 120.83p for an original investment of 100p (70p net of income tax relief.) This equates to a return of 9.8% per annum over the life of the investment, which we believe represents a very good return to Shareholders.
'C' Share pool - investment activity
Investment activity throughout the year was almost exclusively focussed on realisations. Total disposal proceeds of £5,671,000 were received in the year.
The sale of Atlantic Dogstar Limited, AEW Pubs No 1 Limited, East Dulwich Tavern Limited and Westow House Limited completed in January 2015, generating capital proceeds to the 'C' share pool of £2,400,000 as well as a dividend of £509,000. In total, this equates to a gain against original cost of £1.2 million.
Domestic Solar Limited, the installer of domestic solar panels across the UK, was sold and generated an uplift over original cost of £165,000 on proceeds of £665,000.
Redmed Limited, the Lincoln bar operator, generated proceeds of £610,000 which represented an uplift over original cost of £102,000.
Vermont Developments Limited sold a property development site in Salford, which was its only remaining asset, and generated proceeds for the 'C' Share pool of £156,000 and a gain against cost of £131,000.
The Thames Club Limited generated proceeds equivalent to its original cost of £500,000.
The £210,000 non-qualifying loan in Hoole Hall Country Club Holdings Limited was repaid at par.
Unfortunately, not all exit proceeds exceeded original cost and two were sold at discounts in order to provide liquidity within an acceptable timeframe. These included Future Biogas (SF) Limited which cost £697,000 and had proceeds of £442,000; and Mosaic Spa and Health Clubs Limited which cost £125,000 and had proceeds of £46,000.
The 3D Pub Co Limited which cost £267,000 and had proceeds of £233,000 and Ecossol Limited which cost £250,000 and had proceeds of £238,000 were both realised in the period at values marginally below cost due to underperformance of the investments.
Several smaller exits also completed including Honeycombe Pubs VCT Limited for £66,000, Chapel Street Services Limited, Chapel Street Food and Beverage Limited and Chapel Street Hotel Limited for a combined total of £105,000.
Quadrate Spa Limited and Quadrate Catering Limited were the last remaining investments and were sold in January 2016 at a value of £55,000 above original costs.
Outlook
We are very satisfied with the final performance of the 'C' Share pool. Following the payment of the final dividends on 24 March 2016, the 'C' Share pool now has negligible valued and no further dividends are expected. In due course, steps will be taken to cancel the 'C' Share and 'A' Share classes.
Downing LLP
25 April 2016
REVIEW OF INVESTMENTS - 'C' SHARE POOL
Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2015:
'C' Share pool
Cost |
Valuation |
Valuation
movement in year |
% of portfolio | ||
£'000 | £'000 | £'000 | |||
VCT qualifying investments and partially qualifying investments | |||||
Quadrate Spa Limited* | 364 | 381 | 17 | 10.2% | |
Quadrate Catering Limited | 330 | 367 | 8 | 9.8% | |
694 | 748 | 25 | 20.0% | ||
694 | 748 | 25 | 20.0% | ||
Cash at bank and in hand | 2,995 | 25 | 80.0% | ||
Total investments | 3,743 | 100% |
*Part-qualifying investment
Summary of investment movements
Additions
Cost | |
VCT qualifying and partially qualifying investments | £'000 |
Redmed Limited | 158 |
Total 'C' Share pool | 158 |
Disposals
Cost |
MV at 01/01/15 |
Disposal proceeds |
Gain against cost |
Total realised
gain during the year | |||||||||
£'000 | £'000 | £'000 | £'000 | £'000 | |||||||||
VCT qualifying and partially qualifying
investments | |||||||||||||
Domestic Solar Limited | 500 | 560 | 665 | 165 | 105 | ** | |||||||
Chapel Street Food and Beverage Limited | 50 | 13 | 45 | (5) | 32 | ||||||||
Chapel Street Services Limited | 50 | 13 | 42 | (8) | 29 | ||||||||
Ecossol Limited | 250 | 213 | 238 | (12) | 25 | ||||||||
The 3D Pub Co Limited | 267 | 227 | 233 | (34) | 6 | ||||||||
Redmed Limited | 508 | 609 | 610 | 102 | 1 | ||||||||
Atlantic Dogstar Limited | 663 | 1,260 | 1,260 | 597 | - | ||||||||
Future Biogas (SF) Limited | 697 | 476 | 442 | (255) | (34) | ||||||||
Mosaic Spa and Health Clubs Limited | 125 | 96 | 46 | (79) | (50) | ||||||||
East Dulwich Tavern Limited | 644 | 734 | 541 | (103) | (193) | ** | |||||||
Westow House Limited | 429 | 606 | 338 | (91) | (268) | ** | |||||||
Non-qualifying investments | |||||||||||||
Vermont Developments Limited | 25 | 120 | 156 | 131 | 36 | ||||||||
Chapel Street Hotel Limited | 2 | 1 | 18 | 16 | 17 | ||||||||
The Thames Club Limited | 500 | 500 | 500 | - | - | ||||||||
Hoole Hall Country Club Holdings Limited | 210 | 210 | 210 | - | - | ||||||||
Honeycombe Pubs VCT Limited | 188 | 66 | 66 | (122) | - | ||||||||
AEW Pubs No1 Limited | - | 261 | 261 | 261 | - | ||||||||
Westow House Pub No1 Limited | - | 15 | - | - | (15) | ** | |||||||
East Dulwich Tavern Pub No1 Limited | - | 30 | - | - | (30) | ** | |||||||
5,108 | 6,010 | 5,671 | 563 | (339) |
* Adjusted for additions in the year
** Disposal proceeds were supplemented by dividends totalling £517,000
INVESTMENT MANAGER'S REPORT- 'D' SHARE POOL
Introduction
The 'D' Share pool holds investments in 13 companies and is fully invested. The focus this year has been on realisations and ten full exits have completed in the period. We are in the process of developing realisation plans for the remainder of the portfolio.
Net asset value and results
At 31 December 2015, the 'D' Share NAV stood at 51.8p and the 'E' Share NAV at 0.1p, giving a combined NAV of 51.9p. Total Return (NAV plus cumulative dividends to date) was 101.4p for a combined holding of one 'D' and one 'E' Share. This represents a net increase of 7.3p over the period (after adjusting for dividends paid during the period of 27.0p per 'D' Share), equivalent to an increase of 10.2%.
The return on ordinary activities for the 'D' Shares for the period was a gain of £723,000 (2014: loss £50,000) being a revenue profit of £339,000 (2014: £242,000) and a capital gain of £384,000 (2014: loss £292,000).
'D' Share pool - investment activity
Two small new investments completed in the period, Redmed Limited, the owner and operator of a bar in Lincoln for £194,000; and Future Biogas (SF) Limited, the operator of a biogas plant in Norfolk for £169,000.
Ten full exits occurred in the period generating proceeds of £2,900,000 and a realised gain over the opening 2015 valuation of £294,000.
Domestic Solar Limited, the installer of domestic solar panels across the UK, was sold and generated an uplift over original cost of £132,000 on proceeds of £532,000.
The investment in Alpha Schools Holdings Limited was realised in the period for £513,000, an uplift of £146,000 over original cost
Liverpool Nurseries (Holdings) Limited generated proceeds of £427,000 and an uplift over the brought forward market value of £40,000, although marginally below original investment cost of £435,000.
Green Electricity Generation Limited was sold at an uplift over cost of £65,000 and generated proceeds of £315,000.
Other full exits in the period that generated proceeds above cost include: Slopingtactic Limited which cost £196,000 and had proceeds of £248,000; Progressive Energies Limited which cost £170,000 and had proceeds of £203,000; and Ridgeway Pub Company Limited which cost £137,000 and had proceeds £150,000.
The exit of West Tower Property Limited returned the original cost of £250,000 to the Share pool.
Unfortunately not all exits exceeded original cost and some were sold at discounts due to performance issues. These included Ecossol Limited which cost £250,000 and had proceeds of £237,000 and Kilmarnock Monkey Bar Limited which had cost £42,000 and had proceeds of £25,000.
Partial exits totalling £650,000 also took place during the period. The most significant of these were Future Biogas (Reepham Road) Limited with proceeds equivalent to cost of £261,000 and Redmed Limited which cost £166,000 and received proceeds of £176,000.
'D' Share pool - portfolio valuation
The majority of the 'D' Share portfolio performed in line with expectations during the year. There were a small number of valuation movements which resulted in a net unrealised profit of £87,000.
Fenkle Street LLP, is a property development company based in Newcastle. The hotel is trading well and an uplift in the value of £98,000 has been recognised.
Quadrate Catering Limited and Quadrate Spa Limited were in an exit process at the period end date and have subsequently completed. The investments have been valued at the full amount of exit proceeds received which represented a total uplift of £81,000 across both companies.
Kidspace Adventures Holdings Limited, the owner of three well established children's play areas in Croydon, Romford and Epsom continues to perform well and an increase in the valuation of £17,000 has been recognised in the period.
Future Biogas (Reepham Road) Limited, the owner and operator of a biogas plant in Norfolk, has not performed in line with initial expectations and while the issues have now been resolved, performance to date is notably below plan. This has resulted in a decrease in the valuation of £65,000.
Small movements in value were also made on two investments: £47,000 decrease to Mosaic Spa and Health Clubs Limited; and a £7,000 uplift on Avon Solar Limited.
Outlook
The realisation of the 'D' share pool investments has continued well and exit plans for the remaining investments are progressing. We believe that there are good prospects for the majority of the remaining investment portfolio to be realised by the end of 2016, although we are cautious in respect of Aminghurst, where it make take more time to finally exit.
Downing LLP
25 April 2016
REVIEW OF INVESTMENTS - 'D' SHARE POOL
Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2015:
'D' Share pool
Cost |
Valuation |
Valuation
movement in year |
% of portfolio | |
£'000 | £'000 | £'000 | ||
VCT qualifying and partially qualifying investments | ||||
Quadrate Catering Limited | 441 | 538 | 57 | 10.7% |
Quadrate Spa Limited* | 496 | 520 | 24 | 10.3% |
Kidspace Adventures Holdings Limited | 375 | 465 | 17 | 9.2% |
Mosaic Spa and Health Clubs Limited* | 521 | 346 | (47) | 6.9% |
Westcountry Solar Solutions Limited | 250 | 250 | - | 5.0% |
Avon Solar Limited | 210 | 218 | 7 | 4.3% |
Future Biogas (Reepham Road) Limited | 581 | 196 | (65) | 3.9% |
Camandale Limited* | 422 | 2 | (1) | 0.0% |
3,296 | 2,535 | (8) | 50.3% | |
Non-qualifying investments | ||||
Aminghurst Limited | 1,321 | 1,321 | - | 26.2% |
Fenkle Street LLP | 122 | 220 | 98 | 4.3% |
Future Biogas (SF) Limited | 169 | 169 | - | 3.4% |
Commercial Street Hotel Limited | 100 | 100 | - | 2.0% |
Redmed Limited | 27 | 24 | (3) | 0.5% |
1,739 | 1,834 | 95 | 36.4% | |
5,035 | 4,369 | 87 | 86.7% | |
Cash at bank and in hand | 667 | 13.3% | ||
Total investments | 5,036 | 100% |
*Part-qualifying investment
Summary of investment movements
Additions
Cost | |
£'000 | |
VCT qualifying and partially qualifying investments | |
Mosaic Spa and Health Clubs Limited | 46 |
Camandale Limited | 8 |
Non-qualifying investments | |
Redmed Limited | 194 |
Future Biogas (SF) Limited | 169 |
Total 'D' Share pool | 417 |
Disposals
Cost |
MV at 01/01/15 |
Disposal proceeds |
Gain against cost |
Total realised
gain during the year | ||||||
£'000 | £'000 | £'000 | £'000 | £'000 | ||||||
VCT qualifying and partially qualifying investments | ||||||||||
Domestic Solar Limited | 400 | 448 | 532 | 132 | 84 | ** | ||||
Alpha Schools Holdings Limited | 367 | 438 | 513 | 146 | 75 | |||||
Liverpool Nurseries (Holdings) Limited | 435 | 387 | 427 | (8) | 40 | |||||
Ecossol Limited | 250 | 213 | 237 | (13) | 24 | |||||
Ridgeway Pub Company Limited | 137 | 126 | 150 | 13 | 24 | |||||
Slopingtactic Limited | 196 | 226 | 248 | 52 | 22 | |||||
Progressive Energies Limited | 170 | 190 | 203 | 33 | 13 | |||||
Green Electricity Generation Limited | 250 | 303 | 315 | 65 | 12 | |||||
Future Biogas (Reepham Road) Limited | 261 | 261 | 261 | - | - | |||||
West Tower Property Limited | 250 | 250 | 250 | - | - | |||||
Camandale Limited | 102 | 35 | 28 | (74) | (7) | |||||
Non-qualifying investments | ||||||||||
Redmed Limited | 166 | 166 | 176 | 10 | 10 | |||||
Aminghurst Limited | 185 | 185 | 185 | - | - | |||||
Kilmarnock Monkey Bar Limited | 42 | 25 | 25 | (17) | - | |||||
Total 'D' Share
pool | 3,211 |
3,253 | 3,550 | 339 | 297 |
* Adjusted for additions in the year
** Disposal proceeds were supplemented by dividends totalling £7,000
INVESTMENT MANAGER'S REPORT- 'F' SHARE POOL
Introduction
The 'F' Share pool is fully invested in a portfolio focussed on asset backed businesses and those with predictable revenue streams. In the period, two new qualifying investments were made at a total cost of £1.2m. Three qualifying follow on investments totalling £456,000 were also made.
Four non-qualifying investments were realised in the period, generating total proceeds of £326,000.
Net asset value and results
At 31 December 2015, the 'F' Share NAV stood at 71.9p. Total Return (NAV plus cumulative dividends to date) for Shareholders who invested in the original share offer is now 91.9p. This represents a net increase of 1.1p per share over the period (after adjusting for dividends paid during the period of 5.0p per Share), equivalent to an increase of 1.5%.
The return on ordinary activities for the 'F' Share pool for the period was a gain of £118,000 (2014: £87,000) being a revenue profit of £175,000 (2014: £98,000) and a capital loss of £57,000 (2014: £11,000).
'F' Share pool - investment activity
A new investment of £1,000,000 was made in Apex Energy Limited. The company is seeking to undertake the build and operation of electricity generation power plants.
£258,000 of non-qualifying loan was replaced with a qualifying investment in Pearce and Saunders Limited, the freehold pub company that operates three sites in south east London. A further £46,000 was also invested in a new company, Pearce and Saunders DevCo Limited that will be used to take advantage of a related development opportunity.
£200,000 was invested in Atlantic Dogstar Limited, the owner and operator of five London pubs.
A further qualifying investment of £65,000 was also made in Vulcan Renewables Limited.
Two further partially qualifying and non-qualifying investments were made in the period: Redmed Limited for £87,000 and London City Shopping Centre Limited for £23,000.
One full exit of a qualifying company occurred in the period: Tor Solar Limited, the operator of a solar farm in the south west of England, generated proceeds of £753,000 and a £73,000 profit over the original investment cost.
The partial exit of Redmed Limited generated proceeds of £329,000 in the period. This represented a small uplift of £10,000 over cost.
During the year, several realisations of non-qualifying loans were made: Hoole Hall Hotel Limited for £84,000; Dominions House Limited for £59,000; and The 3D Pub Co Limited for £55,000.
'F' Share pool - portfolio valuation
The majority of the 'F' Share pool investments have performed in line with expectations over the period and continue to be valued at original cost. There have however been several adjustments made which have resulted in a net unrealised loss of £136,000 in the year.
Following a further round of financing the valuation of Vulcan Renewables Limited was increased by £126,000.
Lambridge Solar Limited, the owner of a solar farm in Lincolnshire is performing well and the valuation has been increased by £43,000.
After third party valuations of the sites at two of our freehold London pub companies, Pabulum Pubs Limited and Augusta Pub Company Limited, the valuations were increased by £29,000 and £34,000 respectively.
Kidspace Adventures Holdings Limited, which owns three well established children's play areas in Croydon, Romford and Epsom continues to perform well. As a result the valuation has been increased by £11,000.
Unfortunately, these increases were offset by three value reductions. The pubs owned and operated by Pearce and Saunders Limited have experienced underperformance in the year and the valuation has been reduced by £248,000.
Performance at two of the Share pool's Scottish nightclubs, Fubar Stirling Limited and City Falkirk Limited has continued to operate below expectations and value reductions of £99,000 and £30,000 respectively have been made. Whilst we continue to work closely with the management of both clubs to bring trading back on track, it is clear that the depressed economic conditions in the region are a major contributing factor to the weak performance.
Outlook
The focus now for the 'F' Share portfolio is on close monitoring and support of the portfolio companies to ensure that prospects for growth are optimised in the period until the realisation process commences in 2018.
Downing LLP
25 April 2016
REVIEW OF INVESTMENTS - 'F' SHARE POOL
Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2015:
'F' Share pool |
Cost |
Valuation |
Valuation
movement in year |
% of portfolio |
£'000 | £'000 | £'000 | ||
VCT qualifying and partially qualifying investments | ||||
Apex Energy Limited | 1,000 | 1,000 | - | 12.9% |
Vulcan Renewables Limited | 653 | 779 | 126 | 10.0% |
Goonhilly Earth Station Limited | 760 | 760 | - | 9.8% |
Lambridge Solar Limited | 500 | 543 | 43 | 7.0% |
Merlin Renewables Limited | 500 | 500 | - | 6.4% |
Grasshopper 2007 Limited | 378 | 378 | - | 4.9% |
Augusta Pub Company Limited | 290 | 324 | 34 | 4.2% |
Kidspace Adventures Holdings Limited | 250 | 310 | 11 | 4.0% |
Pearce and Saunders Limited* | 497 | 248 | (248) | 3.2% |
Pabulum Pubs Limited | 200 | 229 | 29 | 2.9% |
Atlantic Dogstar Limited | 200 | 200 | - | 2.6% |
Fresh Green Power Limited | 200 | 200 | - | 2.6% |
City Falkirk Limited | 422 | 177 | (30) | 2.3% |
Fubar Stirling Limited | 268 | 169 | (99) | 2.2% |
Green Energy Production UK Limited | 100 | 100 | - | 1.3% |
Cheers Dumbarton Limited | 48 | 17 | - | 0.2% |
Redmed Limited* | 18 | 13 | (2) | 0.0% |
Lochrise Limited | 13 | - | - | 0.0% |
6,297 | 5,947 | (136) | 76.5% | |
Non-qualifying investments | ||||
Aminghurst Limited | 839 | 839 | - | 10.8% |
Baron House Developments LLP | 481 | 481 | - | 6.2% |
London City Shopping Centre Limited | 66 | 66 | - | 0.9% |
Pearce and Saunders DevCo Limited | 46 | 46 | - | 0.6% |
Southampton Hotel Developments Limited | 298 | - | 0.0% | |
1,730 | 1,432 | - | 18.5% | |
8,027 | 7,379 | (136) | 95.0% | |
Cash at bank and in hand | 392 | 5.0% | ||
Total investments | 7,771 | 100% |
* Part-qualifying investment
Summary of investment movements
Additions
Cost | |
£'000 | |
VCT qualifying and partially qualifying investments | |
Apex Energy Limited | 1,000 |
Pearce and Saunders Limited | 304 |
Atlantic Dogstar Limited | 200 |
Redmed Limited | 87 |
Vulcan Renewables Limited | 65 |
Non-qualifying investments | |
Pearce and Saunders DevCo Limited | 46 |
London City Shopping Centre Limited | 23 |
Total 'F' Share pool | 1,725 |
Disposals
Cost |
MV at 01/01/15 |
Disposal proceeds |
Gain against cost |
Total realised
gain during the year | |||||||
£'000 | £'000 | £'000 | £'000 | £'000 | |||||||
VCT qualifying and partially qualifying investments | |||||||||||
Tor Solar PV Limited | 680 | 680 | 753 | 73 | 73 | ||||||
Redmed Limited | 319 | 323 | 329 | 10 | 6 | ||||||
Pearce and Saunders Limited | 257 | 257 | 257 | - | - | ** | |||||
Non-qualifying investments | |||||||||||
Aminghurst Limited | 128 | 128 | 128 | - | - | ||||||
Hoole Hall Hotel Limited | 84 | 84 | 84 | - | - | ||||||
Dominions House Limited | 59 | 59 | 59 | - | - | ||||||
The 3D Pub Co Limited | 55 | 55 | 55 | - | - | ||||||
Total 'F' Share
pool | 1,582 |
1,586 | 1,665 | 83 | 79 |
* Adjusted for additions in the year
** Disposal proceeds were supplemented by dividends totalling £46,000
INVESTMENT MANAGER'S REPORT- 'G' SHARE POOL
Introduction
Over the course of the year, the 'G' Share pool has continued to build its qualifying portfolio and is fully qualifying as at 31 December 2015.
Net asset value and results
At 31 December 2015, the 'G' Share NAV stood at 86.3p. Total Return (NAV plus cumulative dividends to date) for Shareholders who invested in the original share offer is now 101.3p. This represents a net increase of 1.1p per Share over the period (after adjusting for dividends paid during the period of 5.0p per Share), equivalent to an increase of 1.2%.
The return on ordinary activities for the 'G' Share pool for the period was a gain of £286,000 (2014: £18,000) being a revenue profit of £257,000 (2014: £17,000) and a capital gain of £29,000 (2014: £1,000).
Investment activity
During the period the 'G' Share pool made seven new qualifying investments and two follow on investments at a total cost of £11,745,000. Of these investments, seven were VCT qualifying and two were non-qualifying.
Brief details of the qualifying investments (or investments that will become qualifying in due course) are as follows:
£3.5 million was invested in Atlantic Dogstar Limited in January 2015. The company owns and operates five freehold pubs in London.
The 'G' Share pool invested £1,977,000 in Kidspace Adventures Holdings Limited, which owns three well established children's play areas in Croydon, Romford and Epsom.
Antelope Pub Limited owns and operates a pub of the same name in Tooting, London. £1,760,000 has been invested in the company in the period.
A new investment of £1,300,000 was made in Apex Energy Limited. The company is seeking to undertake the build and operation of electricity generation power plants.
£1,250,000 has been invested in Hedderwick Limited. The company is seeking a wedding venue site requiring investment.
Oak Grove Renewables Limited operates an anaerobic digestion plant in Norfolk. £420,000 was invested in the company in the period.
In addition to the above, a number of non-qualifying investments were made in the form of secured loans.
These help to generate investment income on funds ahead of them being employed in VCT qualifying investments. The most significant of these was Hobblers Heath Limited, which is building a children's adventure playground in Hounslow, West London. £1,325,000 has been invested in this company. £175,000 has also been invested in Redmed Limited, the owner and operator of a bar in Lincoln.
11 non-qualifying loans were fully or partially repaid in the period and generated total proceeds of £6,412,000. Of these 11, seven were repaid in full and generated total proceeds of £5,663,000.
Full repayment was made on Harrogate Street LLP of £1.4m; Deeside Solar Farms Limited of £1.2m; Woodbridge Solar Limited of £1.2m; Vulcan Renewables Limited of £940,000, Future Biogas (SF) Limited of £525,000; Antelope Pub Limited of £300,000; and Dominions House Limited of £98,000.
The 'G' Share pool investments have performed in line with expectations over the period and the majority continue to be valued at original cost. Four companies had their valuation reviewed at the period end and generated a small uplift of £16,000 overall.
The most significant of these was a value reduction on Oak Grove Renewables Limited of £105,000 due to performance issues at the anaerobic digestion plant.
This was more than offset by good performance at two pub companies: Augusta Pub Company and Pabulum Pubs Limited. Both are performing ahead of plan and were uplifted by £68,000 and £58,000 respectively.
Outlook
Following the exits of a number of non-qualifying investments and the redeployment of this capital to qualifying investments, the 'G' Share investment portfolio now holds more than 70% of its funds in qualifying investments. Our focus has now shifted to close monitoring and support of the portfolio companies in order to nurture growth before the ultimate exit date.
Downing LLP
25 April 2016
REVIEW OF INVESTMENTS - 'G' SHARE POOL
Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2015:
'G' Share pool |
Cost |
Valuation |
Valuation
movement in year |
% of portfolio |
£'000 | £'000 | £'000 | ||
VCT qualifying and partially qualifying investments | ||||
Atlantic Dogstar Limited | 3,500 | 3,500 | - | 16.0% |
Kidspace Adventures Holdings Limited | 1,977 | 1,977 | - | 9.1% |
Antelope Pub Limited | 1,760 | 1,760 | - | 8.1% |
Goonhilly Earth Station Limited | 1,710 | 1,710 | - | 7.8% |
Apex Energy Limited | 1,300 | 1,300 | - | 6.0% |
Hedderwick Limited | 1,250 | 1,250 | - | 5.7% |
Grasshopper 2007 Limited | 1,050 | 1,050 | - | 4.8% |
Augusta Pub Company Limited | 580 | 648 | 68 | 3.0% |
Pabulum Pubs Limited | 400 | 458 | 58 | 2.1% |
Oak Grove Renewables Limited | 420 | 315 | (105) | 1.4% |
Redmed Limited | 37 | 27 | (5) | 0.1% |
13,984 | 13,995 | 16 | 64.1% | |
Non-qualifying investments | ||||
Hobblers Heath Limited | 1,325 | 1,325 | - | 6.1% |
Baron House Developments LLP | 1,093 | 1,093 | - | 5.0% |
Pub People Limited | 873 | 873 | - | 4.0% |
Aminghurst Limited | 801 | 801 | - | 3.7% |
Ludlow Taverns Limited | 387 | 387 | - | 1.8% |
Pearce and Saunders Limited | 193 | 193 | - | 0.9% |
London City Shopping Centre Limited | 110 | 110 | - | 0.5% |
Craft Beer Pub Co Limited | 92 | 92 | - | 0.4% |
4,874 | 4,874 | - | 22.4% | |
18,858 | 18,869 | 16 | 86.5% | |
Cash at bank and in hand | 2,967 | 13.5% | ||
Total investments | 21,836 | 100.0% |
*Part-qualifying investment
Summary of investment movements
Additions
Cost | |
£'000 | |
VCT qualifying and partially qualifying investments | |
Atlantic Dogstar Limited | 3,500 |
Kidspace Adventures Holdings Limited | 1,977 |
Antelope Pub Limited | 1,760 |
Apex Energy Limited | 1,300 |
Hedderwick Limited | 1,250 |
Oak Grove Renewables Limited | 420 |
Redmed Limited | 175 |
Non-qualifying investments | |
Hobblers Heath Limited | 1,325 |
London City Shopping Centre Limited | 38 |
Total 'G' Share pool | 11,745 |
Disposals
Cost |
MV at 01/01/15 |
Disposal proceeds |
Gain against cost |
Total realised
gain during the year | |||||
£'000 | £'000 | £'000 | £'000 | £'000 | |||||
VCT qualifying and partially qualifying investments | |||||||||
Redmed Limited | 638 | 644 | 657 | 19 | 13 | ||||
Antelope Pubs Limited | 300 | 300 | 300 | - | - | ||||
Non-qualifying investments | |||||||||
Pub People Limited | 24 | 24 | 24 | - | - | ||||
Aminghurst Limited | 199 | 199 | 199 | - | - | ||||
Ludlow Taverns Limited | 33 | 33 | 33 | - | - | ||||
Pearce and Saunders Limited | 493 | 493 | 493 | - | - | ||||
Dominions House Limited | 98 | 98 | 98 | - | - | ||||
Harrogate Street LLP | 1,400 | 1,400 | 1,400 | - | - | ||||
Future Biogas (SF) Limited | 525 | 525 | 525 | - | - | ||||
Woodbridge Solar Limited | 1,200 | 1,200 | 1,200 | - | - | ||||
Deeside Solar Farm Limited | 1,200 | 1,200 | 1,200 | - | - | ||||
Vulcan Renewables Limited | 940 | 940 | 940 | - | - | ||||
7,050 | 7,056 | 7,069 | 19 | 13 |
* Adjusted for additions in the year
Directors' responsibilities statement
The Directors are responsible for preparing the Report of the Directors, the Directors' Remuneration Report, the Strategic 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 Conduct 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), including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and Republic of Ireland (FRS 102). Under company law the directors must not approve the financial statements 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 year.
In preparing these financial statements the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· state whether applicable UK 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 are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions, to disclose with reasonable accuracy at any time the financial position of the company and to 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.
In addition, each of the Directors considers that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's performance, business model and strategy.
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 Auditor
The Directors in office at the date of the report have confirmed, as far as they are aware, that there is no relevant audit information of which the Auditor is 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 Auditor.
INCOME STATEMENT
for the year ended 31 December 2015
| Year ended 31 December 2015 |
| Year ended 31 December 2014 | ||||||
| |||||||||
|
| Revenue | Capital | Total | Revenue | Capital | Total | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||
Income | 2,663 | - | 2,663 | 1,959 | - | 1,959 | |||
| |||||||||
Gain on investments | - | 41 | 41 | - | 227 | 227 | |||
2,663 | 41 | 2,704 | 1,959 | 227 | 2,186 | ||||
Investment management fees | (753) | - | (753) | (941) | - | (941) | |||
Other expenses | (251) | - | (251) | (287) | - | (287) | |||
Return on ordinary activities before tax |
1,659 |
41 |
1,700 |
731 |
227 |
958 | |||
Tax on total comprehensive income and ordinary activities |
(201) |
- |
(201) |
(179) |
- |
(179) | |||
Return attributable to equity shareholders |
1,458 |
41 |
1,499 |
552 |
227 |
779 | |||
Basic and diluted return/(loss) per: | |||||||||
'C' Share | 9.6p | (4.4p) | 5.2p | 2.7p | 7.4p | 10.1p | |||
'A' Share | - | - | - | - | - | - | |||
'D' Share | 3.4p | 3.8p | 7.2p | 2.4p | (2.9p) | (0.5p) | |||
'E' Share | - | - | - | - | - | - | |||
'F' Share | 1.6p | (0.5p) | 1.1p | 0.9p | (0.1p) | 0.8p | |||
'G' Share | 1.0p | 0.1p | 1.1p | 0.1p | - | 0.1p |
All Revenue and Capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. The total column within the Income Statement represents the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ("FRS 102"). The supplementary revenue and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in November 2014 by the Association of Investment Companies ("AIC SORP").
Other than revaluation movements arising on investments held at fair value through the profit and loss, there were no differences between the return/loss as stated above and at historical cost.
INCOME STATEMENT (ANALYSED BY SHARE POOL)
for the year ended 31 December 2015
'C' Share pool
| Year ended 31 December 2015 |
| Year ended 31 December 2014 | |||||
| ||||||||
|
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
Income | 818 | - | 818 | 390 | - | 390 | ||
(Loss)/gain on investments | - | (315) | (315) | - | 529 | 529 | ||
818 | (315) | 503 | 390 | 529 | 919 | |||
Investment management fees | (57) | - | (57) | (89) | - | (89) | ||
Other expenses | (35) | - | (35) | (48) | (48) | |||
Return/(loss) on ordinary activities before tax |
726 |
(315) |
411 |
253 |
529 |
782 | ||
Tax on total comprehensive income and ordinary activities |
(39) |
- |
(39) |
(58) |
- |
(58) | ||
Return/(loss) attributable to equity shareholders |
|
687 |
(315) |
372 |
195 |
529 |
724 |
'D' Share pool
| Year ended 31 December 2015 |
| Year ended 31 December 2014 | |||||
| ||||||||
|
| Revenue | Capital | Total | Revenue | Capital | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
Income | 560 | - | 560 | 467 | - | 467 | ||
Gain/(loss) on investments | - | 384 | 384 | - | (292) | (292) | ||
560 | 384 | 944 | 467 | (292) | 175 | |||
Investment management fees | (97) | - | (97) | (104) | - | (104) | ||
Other expenses | (44) | - | (44) | (49) | - | (49) | ||
Return/(loss) on ordinary activities
before tax |
419 |
384 |
803 |
314 |
(292) |
22 | ||
Tax on total comprehensive income and ordinary activities |
(80) |
- |
(80) |
(72) |
- |
(72) | ||
Return/(loss) attributable to equity shareholders |
|
339 |
384 |
723 |
242 |
(292) |
(50) |
'F' Share pool
| Year ended 31 December 2015 |
| Year ended 31 December 2014 | |||||
| ||||||||
|
| Revenue | Capital | Total | Revenue | Capital | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
Income | 409 | - | 409 | 424 | - | 424 | ||
Loss on investments | - | (57) | (57) | - | (11) | (11) | ||
409 | (57) | 352 | 424 | (11) | 413 | |||
Investment management fees | (144) | - | (144) | (184) | - | (184) | ||
Other expenses | (74) | - | (74) | (98) | - | (98) | ||
(Loss)/return on ordinary activities
before tax |
191 |
(57) |
134 |
142 |
(11) |
131 | ||
Tax on total comprehensive income and ordinary activities |
(16) |
- |
(16) |
(44) |
- |
(44) | ||
Return/(loss) attributable to equity shareholders |
|
175 |
(57) |
118 |
98 |
(11) |
87 |
'G' Share pool
| Year ended 31 December 2015 |
| Year ended 31 December 2014 | |||||
| ||||||||
|
| Revenue | Capital | Total | Revenue | Capital | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
Income | 876 | - | 876 | 678 | - | 678 | ||
Gain on investments | - | 29 | 29 | - | 1 | 1 | ||
876 | 29 | 905 | 678 | 1 | 679 | |||
Investment management fees | (455) | - | (455) | (564) | - | (564) | ||
Other expenses | (98) | - | (98) | (92) | - | (92) | ||
Return on ordinary activities
before tax |
323 |
29 |
352 |
22 |
1 |
23 | ||
Tax on total comprehensive income and ordinary activities |
(66) |
- |
(66) |
(5) |
- |
(5) | ||
Return attributable to equity shareholders |
|
257 |
29 |
286 |
17 |
1 |
18 |
BALANCE SHEET
as at 31 December 2015
| 2015 |
| 2014 | |
£'000 | £'000 | |||
| ||||
Fixed assets | ||||
Investments | 31,365 | 35,236 | ||
Current assets | ||||
Debtors | 879 | 635 | ||
Cash at bank and in hand | 7,021 | 10,047 | ||
7,900 | 10,682 | |||
Creditors: amounts falling due within one year | (532) | (568) | ||
Net current assets | 7,368 | 10,114 | ||
Net assets | 38,733 | 45,350 | ||
Capital and reserves | ||||
Called up share capital | 79 | 79 | ||
Capital redemption reserve | 106 | 106 | ||
Special reserve | 40,086 | 47,161 | ||
Share premium reserve | - | - | ||
Revaluation reserve | (1,248) | (289) | ||
Capital reserve - realised | (2,252) | (2,255) | ||
Revenue reserve | 1,962 | 548 | ||
Total equity shareholders' funds |
38,733 |
45,350 | ||
Basic and diluted net asset value per Share: | ||||
'C' Share | 53.9p | 98.6p | ||
'A' Share | 0.1p | 0.1p | ||
'D' Share | 51.8p | 71.5p | ||
'E' Share | 0.1p | 0.1p | ||
'F' Share | 71.9p | 75.8p | ||
'G' Share | 86.3p | 90.2p | ||
BALANCE SHEET
(ANALYSED BY SHARE POOL)
as at 31 December 2015
'C' Shares
| 2015 |
| 2014 | |
£000 |
| £000 | ||
Fixed assets | ||||
Investments | 748 | 6,576 | ||
Current assets | ||||
Debtors | 175 | 52 | ||
Cash at bank and in hand | 2,995 | 514 | ||
3,170 | 566 | |||
Creditors: amounts falling due within one year | (75) | (108) | ||
Net current assets | 3,095 | 458 | ||
Net assets | 3,843 | 7,034 | ||
Capital and reserves | ||||
Called up share capital | 18 | 18 | ||
Capital redemption reserve | 106 | 106 | ||
Special reserve | 2,743 | 5,745 | ||
Share premium reserve | - | - | ||
Revaluation reserve | 55 | 932 | ||
Capital reserve - realised | - | - | ||
Revenue reserve | 921 | 233 | ||
Total equity shareholders' funds | 3,843 | 7,034 |
'D' Shares
| 2015 |
| 2014 | |
£000 |
| £000 | ||
Fixed assets | ||||
Investments | 4,369 | 7,119 | ||
Current assets | ||||
Debtors | 283 | 136 | ||
Cash at bank and in hand | 667 | 81 | ||
950 | 217 | |||
Creditors: amounts falling due within one year | (133) | (174) | ||
Net current assets | 817 | 43 | ||
Net assets | 5,186 | 7,162 | ||
Capital and reserves | ||||
Called up share capital | 25 | 25 | ||
Capital redemption reserve | - | - | ||
Special reserve | 5,205 | 7,566 | ||
Share premium reserve | - | - | ||
Revaluation reserve | (667) | (712) | ||
Capital reserve - realised | - | - | ||
Revenue reserve | 623 | 283 | ||
Total equity shareholders' funds | 5,186 | 7,162 |
'F' Shares
| 2015 |
| 2014 | |
£000 |
| £000 | ||
Fixed assets | ||||
Investments | 7,379 | 7,377 | ||
Current assets | ||||
Debtors | 131 | 145 | ||
Cash at bank and in hand | 392 | 822 | ||
523 | 967 | |||
Creditors: amounts falling due within one year | (119) | (138) | ||
Net current assets | 404 | 829 | ||
Net assets | 7,783 | 8,206 | ||
Capital and reserves | ||||
Called up share capital | 11 | 11 | ||
Capital redemption reserve | - | - | ||
Special reserve | 9,158 | 9,618 | ||
Share premium reserve | - | - | ||
Revaluation reserve | (647) | (510) | ||
Capital reserve - realised | (1,032) | (1,034) | ||
Revenue reserve | 293 | 121 | ||
Total equity shareholders' funds | 7,783 | 8,206 |
'G' Shares
| 2015 |
| 2014 | |
£000 |
| £000 | ||
Fixed assets | ||||
Investments | 18,869 | 14,164 | ||
Current assets | ||||
Debtors | 290 | 302 | ||
Cash at bank and in hand | 2,967 | 8,630 | ||
3,257 | 8,932 | |||
Creditors: amounts falling due within one year | (205) | (148) | ||
Net current assets | 3,052 | 8,784 | ||
Net assets | 21,921 | 22,948 | ||
Capital and reserves | ||||
Called up share capital | 25 | 25 | ||
Capital redemption reserve | - | - | ||
Special reserve | 22,980 | 24,232 | ||
Share premium reserve | - | - | ||
Revaluation reserve | 11 | 1 | ||
Capital reserve - realised | (1,220) | (1,221) | ||
Revenue reserve | 125 | (89) | ||
Total equity shareholders' funds | 21,921 | 22,948 |
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2015
Called up share
capital |
Capital
redemption reserve |
Special
reserve |
Share
premium reserve |
Revaluation reserve |
Capital
reserve - realised |
Revenue
reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Year ended 31 December 2014 | ||||||||
At 1
January 2014 |
79 | 106 | 13,988 | 35,664 | (516) | (2,255) | (4) |
47,062 |
Gain on
investments |
- | - | - | - | 227 | - | - |
227 |
Retained
revenue |
- | - | - | - | - | - | 552 |
552 |
Transfer
between reserves |
- | - | 33,173 | (35,664) | - | 2,491 | - |
- |
Dividend
paid |
- | - | - | - | - | (2,491) | - |
(2,491) |
At 31
December 2014 |
79 | 106 | 47,161 | - | (289) | (2,255) | 548 |
45,350 |
Year ended 31 December 2015 | ||||||||
At 1
January 2015 |
79 | 106 | 47,161 | - | (289) | (2,255) | 548 |
45,350 |
(Loss)/gain
on investments |
- | - | - | - | (8) | 49 | - |
41 |
Purchase of
own shares |
- | - | - | - | - | - | (44) |
(44) |
Retained
revenue |
- | - | - | - | - | - | 1,458 |
1,458 |
Transfer
between reserves |
- | - | (7,075) | - | (951) | 8,026 | - |
- |
Dividend
paid |
- | - | - | - | - | (8,072) | - |
(8,072) |
At 31
December 2015 |
79 | 106 | 40,086 | - | (1,248) | (2,252) | 1,962 |
38,733 |
CASH FLOW STATEMENT
for the year ended 31 December 2015
| Year ended 31 December 2015 | ||||||
|
'C'
Share pool |
'D'
Share pool |
'F'
Share pool |
'G'
Share pool |
Total | ||
£'000 | £'000 | £'000 | £'000 | £'000 | |||
Net cash inflow from operating activities |
530 |
153 |
170 |
325 |
1,178 | ||
| |||||||
Cash flows from investing activities | |||||||
Purchase of investments |
| (158) | (416) | (1,724) | (11,744) | (14,042) | |
Sale of investments | 5,671 | 3,550 | 1,665 | 7,068 | 17,954 | ||
Net cash inflow/(outflow) from investing activities |
5,513 |
3,134 |
(59) |
(4,676) |
3,912 | ||
| |||||||
Net cash inflow/(outflow) before financing activities | 6,043 | 3,287 | 111 | (4,351) | (5,090) | ||
| |||||||
Cash flows from financing activities | |||||||
Equity dividends paid | (3,562) | (2,700) | (540) | (1,270) | (8,072) | ||
Purchase of own shares | - | - | - | (44) | (44) | ||
Net cash outflow from financing activities | (3,562) | (2,700) | (540) | (1,314) | (8,116) | ||
| |||||||
Increase/(decrease) in cash | 2,481 | 587 | (429) | (5,665) | (3,026) |
| Year ended 31 December 2014 | ||||||
Net cash inflow/(outflow) from operating activities |
181 |
245 |
86 |
(108) |
404 | ||
| |||||||
Cash flows from investing activities | |||||||
Purchase of investments | (650) | - | (2,181) | (8,272) | (11,103) | ||
Sale of investments | 371 | 143 | 1,189 | 2,564 | 4,267 | ||
Net cash (outflow)/inflow from investing activities |
(279) |
143 |
(992) |
(5,708) |
(6,836) | ||
| |||||||
Net cash (outflow)/inflow before financing activities | (98) | 388 | (906) | (5,816) | (6,432) | ||
| |||||||
Cash flows from financing activities | |||||||
Equity dividends paid |
| (178) | (499) | (541) | (1,272) | (2,490) | |
Net cash inflow from financing activities | (178) | (499) | (541) | (1,272) | (2,490) | ||
| |||||||
Decrease in cash | (276) | (111) | (1,447) | (7,088) | (8,922) |
NOTES
1. General information
Downing TWO VCT plc ("The Company") is a venture capital trust established under the legislation introduced in the Finance Act 1995 and is domiciled in the United Kingdom and incorporated in England and Wales.
2. Accounting policies
Basis of accounting
The Company has prepared its financial statements under FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and in accordance with the Statement of Recommended Practice ("SORP") for investment trust companies and venture capital trusts issued by the Association of Investment Companies ("AIC") revised November 2014.
The Company implements new Financial Reporting Standards ("FRS") issued by the Financial Reporting Council when required.
This is the first year in which the Financial Statements have been prepared under FRS 102, however it has not been necessary to restate comparatives as the treatment previously applied aligns with the requirements of FRS 102. As a result, there are no reconciling differences between the previous financial reporting framework and the current financial reporting framework and the comparative figures represent the position under both current and previous financial reporting frameworks.
The financial statements are presented in Sterling (£).
Presentation of Income Statement
In order to better reflect the activities of a venture capital trust and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The return on ordinary activities 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
Venture capital investments are designated as "fair value through profit or loss" assets due to investments being managed and performance evaluated on a fair value basis. A financial asset is designated within this category if it is both acquired and managed on a fair value basis, 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") together with FRS 102 sections 11 and 12.
For unquoted investments, fair value is established using the IPEV guidelines. The valuation methodologies for unquoted entities used by the IPEV to ascertain the fair value of an investment are as follows:
· Price of recent investment;
· Multiples;
· Net assets;
· Discounted cash flows or earnings (of underlying business);
· Discounted cash flows (from the investment); and
· Industry valuation benchmarks.
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.
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 are expensed. Where an investee company has gone into receivership, liquidation or administration (where there is little likelihood of recovery), the loss on the investment, although not physically disposed of, is treated as being realised.
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 the SORP and FRS 102 sections 14 and 15 that does not require portfolio investments, where the interest held is greater than 20%, 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 time apportionment basis, by reference to the principal sum outstanding and at the effective rate applicable and only where there is reasonable certainty of collection in the foreseeable future.
Expenses
All expenses are accounted for on an 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 the policy of allocating Investment Manager's fees 100% as revenue.
· Expenses and liabilities not specific to a share class are generally allocated pro rata to the net assets.
· Performance incentive fees arising from the disposal of investments are deducted as a capital item.
Taxation
The tax effects on different items in the Income Statement are allocated between capital and revenue on the same basis as the particular item to which they relate using the Company's effective rate of tax for the accounting year.
Due to the Company's status as a Venture Capital Trust and the continued intention to meet the conditions required to comply with Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company's investments which arise.
Deferred taxation which is not discounted 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 years different from those in which they are included in the accounts. Deferred taxation is not discounted.
Other debtors and other creditors
Other debtors (including accrued income) and other creditors are included within the accounts at amortised cost.
Issue costs
Issue costs in relation to the shares issued for each share class have been deducted from the share premium account for the relevant share class.
3. Basic and diluted return per share
'C' Shares | 'A' Shares | 'D' Shares | 'E' Shares | 'F' Shares | 'G' Shares | ||
Revenue return (£'000) | 687 | - | 339 | - | 175 | 257 | |
Net capital loss for the year (£'000) | (315) | - | 384 | - | (57) | 29 | |
Weighted average number of shares in issue |
7,126,194 |
10,724,029 |
10,000,000 |
14,950,000 |
10,822,154 |
25,349,833 |
As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share for any of the share classes. The return per share disclosed therefore represents both the basic and diluted return per share for all share classes.
4. Basic and diluted net asset value per share
31 Dec 2015 | 31 Dec 2014 | |||||||||
| Shares in issue | |||||||||
Net asset value
| Net asset Value | |||||||||
31 Dec 2015 | 31 Dec 2014 | per share | £'000 | per share | £'000 | |||||
| ||||||||||
'C' Shares | 7,126,194 | 7,126,194 | 53.9p | 3,832 | 98.6p | 7,023 | ||||
'A' Shares | 10,724,029 | 10,724,029 | 0.1p | 11 | 0.1p | 11 | ||||
'D' Shares | 10,000,000 | 10,000,000 | 51.8p | 5,171 | 71.5p | 7,147 | ||||
'E' Shares | 14,950,000 | 14,950,000 | 0.1p | 15 | 0.1p | 15 | ||||
'F' Shares | 10,822,154 | 10,822,154 | 71.9p | 7,783 | 75.8p | 8,206 | ||||
'G' Shares | 25,386,546 | 25,436,996 | 86.3p | 21,921 | 90.2p | 22,948 | ||||
| 38,733 | 45,350 |
The 'C' Share pool, 'D' Share pool, 'F' Share pool and 'G' Share pool are treated as separate investment pools. Within the 'C' Share pool the Directors allocate the assets and liabilities of the Company between the 'C' Shares and 'A' Shares such that each share class has sufficient net assets to represent its dividend and return of capital rights. Within the 'D' Share pool the Directors allocate the assets and liabilities of the Company between the 'D' Shares and 'E' Shares such that each share class has sufficient net assets to represent its dividend and return of capital rights.
5. Principal risks
The Company's financial instruments comprise investments held at fair value through profit and loss, being equity and loan stock investments in unquoted companies, loans and receivables consisting of short term debtors, cash deposits and financial liabilities, being creditors arising from its operations. The main purpose of these financial instruments is to generate cashflow and revenue and capital appreciation for the Company's operations. The Company has no gearing or other financial liabilities apart from short-term creditors and does not use any derivatives.
The fair value of cash deposits and short term debtors and creditors equates to their carrying value in the Balance Sheet.
Loans and receivables and other financial liabilities are stated at amortised cost which the Directors consider is equivalent to fair value.
The Company's investment activities expose the Company to a number of risks associated with financial instruments and the sectors in which the Company invests. The principal financial risks arising from the Company's operations are:
· Investment risks
· Credit risk
· Liquidity risk
The Board regularly reviews these risks and the policies in place for managing them. There have been no significant changes to the nature of the risks that the Company is exposed to over the year and there have also been no significant changes to the policies for managing those risks during the year.
The risk management policies used by the Company in respect of the principal financial risks and a review of the financial instruments held at the year end are provided below:
As a VCT, the Company is exposed to investment risks in the form of potential losses and gains that may arise on the investments it holds in accordance with its investment policy. The management of these investment risks is a fundamental part of investment activities undertaken by the Investment Manager and overseen by the Board. The Manager monitors investments through regular contact with management of investee companies, regular review of management accounts and other financial information and attendance at investee company board meetings. This enables the Manager to manage the investment risk in respect of individual investments. Investment risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes.
The key investment risks to which the Company is exposed are:
· Investment price risk
· Interest rate risk
Investment price risk arises from uncertainty about the valuation of financial instruments held in accordance with the Company's investment objectives. It represents the potential loss that the Company might suffer through changes in the fair value of unquoted investments that it holds.
The Company accepts exposure to interest rate risk on floating-rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers. Investments in loan stock attract interest predominately at fixed rates. A summary of the interest rate profile of the Company's investments is shown below.
There are three categories in respect of interest which are attributable to the financial instruments held by the Company as follows:
· "Fixed rate" assets represent investments with predetermined yield targets and comprise certain loan note investments.
· "Floating rate" assets predominantly bear interest at rates linked to Bank of England base rate or LIBOR and comprise cash at bank and liquidity fund investments and certain loan note investments.
· "No interest rate" assets do not attract interest and comprise equity investments and debtors.
The Company monitors the level of income received from fixed and floating rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular, should this be required to ensure compliance with the VCT regulations.
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. The Company is exposed to credit risk through its holdings of loan stock in investee companies, cash deposits and debtors.
The Manager manages credit risk in respect of loan stock with a similar approach as described under "Investment risks" above. In addition the credit risk is partially mitigated by registering floating charges over the assets of certain investee companies. The strength of this security in each case is dependent on the nature of the investee company's business and its identifiable assets. Similarly the management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures.
Cash is mainly held by Bank of Scotland plc and Royal Bank of Scotland plc, both of which are A-rated financial institutions and both also ultimately part-owned by the UK Government. Consequently, the Directors consider that the credit risk associated with cash deposits is low.
There have been no changes in fair value during the year that are directly attributable to changes in credit risk.
Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. Liquidity risk may also arise from either the inability to sell financial instruments when required at their fair values or from the inability to generate cash inflows as required. As the Company has a relatively low level of creditors, (£532,000, 2014: £568,000) and has no borrowings, the Board believes that the Company's exposure to liquidity risk is low. The Company always holds sufficient levels of funds as cash in order to meet expenses and other cash outflows as they arise. For these reasons, the Board believes that the Company's exposure to liquidity risk is minimal.
The Company's liquidity risk is managed by the Investment Manager in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.
6. Events after the end of the reporting period
Following the end of the reporting period, the remaining funds attributable to the 'C' Shares and 'A' Shares were distributed by way of dividends of 30.6p per 'C' Share and 15.2p per 'A' Share on 24 March 2016. This equated to a payment of £2.2 million to 'C' Shareholders and £1.6 million to 'A' Shareholders (including £544,000 on the 'A' Shares held by members of the management team). Following this, the 'C' Share pool will have negligible remaining value and is expected to be delisted and wound up in due course.
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 December 2015, but has been extracted from the statutory financial statements for the year ended 31 December 2015 which were approved by the Board of Directors on 25 April 2015 and will be delivered to the Registrar of Companies. 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 December 2014 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 s 498(2) and (3) of the Companies Act 2006.
A copy of the full annual report and financial statements for the year ended 31 December 2015 will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at Ergon House, London, SW1P 2AL and will be available for download from www.downing.co.uk.