Elderstreet VCT plc : Half-yearly report
Elderstreet VCT plc
Half-Yearly Report for the six months ended 30 June 2014
RECENT PERFORMANCE SUMMARY
| 30 Jun 2014 | 31 Dec 2013 | 30 Jun 2013 | |||
| pence | pence | pence | |||
| Net asset value per share | 89.2 | 78.0 | 70.3 | ||
| Cumulative distributions paid per share | 64.0 | 62.0 | 60.0 | ||
| Total return per share | 153.2 | 140.0 | 130.3 |
CHAIRMAN'S STATEMENT
I am pleased to present the Half-Yearly Report for Elderstreet VCT plc for the six month period ended 30 June 2014. As Shareholders will be aware from my statement with the last Annual Report, the Company completed a very profitable disposal of Wessex Advanced Switching Products Limited ("WASP") during the period, which has resulted in a substantial increase in net asset value.
Net asset value, results and dividends
At 30 June 2014, the Company's net asset value ("NAV") per share stood at 89.2p, an increase of 13.2p or 16.9% since 31 December 2013 after adjusting for the dividend of 2p per share paid on 30 June 2014.
The return on activities after taxation for the period was £4.0 million (2013: £1.1 million), comprising a revenue return of £28,000 and a capital return of £4.0 million.
Dividends and dividend reinvestment
On 26 June 2014, the Board announced that, following the successful sale of WASP, the Company will pay an additional dividend ("Special Dividend") of 15p per share on 19 September 2014, to Shareholders on the register at 29 August 2014. This equates to approximately £4.5 million.
In conjunction with the Special Dividend, the Company also offered a dividend re-investment option for those Shareholders who wished to receive further shares in the VCT instead of a cash payment. A circular was sent to all Shareholders with details of the dividend re-investment option.
In addition to the above, the Board intends to continue to pay regular biannual dividends and has announced that the target level has now been increased from 4p per share per annum to between 4p and 5p per share. The Board now announces that an interim dividend of 2p per share will be paid on 12 December 2014 to Shareholders on the register at 7 November 2014.
Venture capital investments
The Company experienced a fair level of investment activity during the period.
As mentioned above, the investment in WASP was sold in April realising a profit against previous carrying value of £4.2 million. The investment was originally made in 1999 and paid regular dividends throughout the time that it was held. The Investment Manager always worked closely with the company and played a significant role in supporting the business during the sales process and is congratulated for delivering this very profitable outcome.
There were also several other smaller disposals in the period which resulted in a realised profit in the period of £35,000.
The Company made one new investment and three follow-on investments during the period. £562,500 was invested in Macranet Limited, which trades as Sentiment Metrics. The company has developed software which allows businesses to monitor social media sources for data related to their business and then helps to manage how they respond.
The three follow-on investments were £100,000 into each of AngloINFO Limited and Aconite Technology Limited and £250,000 into Concorde Solutions Limited
In addition, the investments in Baldwin & Francis Limited and B&F Management Limited were reorganised. In order to simplifying the structure, trading in B&F Management Limited was wound down and effectively transferred to Baldwin and Francis Limited. The investment in B&F Management was then redeemed and funds reinvested in Baldwin and Francis.
At the period end, the Company held a portfolio of 24 venture capital investments, valued at £16.3 million.
The Board reviewed the unquoted investment valuations at the period end and has made some adjustments, the largest of which are noted below.
AngloINFO Limited operates franchise business for websites for ex-pat communities. The company has undertaken a substantial amount of development in recent years and made good progress in building out its global footprint, however the business has fallen behind plan in growing turnover. A new CEO and digital marketing manager have now been brought in and have identified a number of areas that need attention in order to deliver the targeted financial performance. Since the period end, the Company has invested a further £200,000 to partly fund the additional work that has been planned. In view of the further funding requirement and the behind budget financial performance, the investment has been reduced in value by £498,000. Despite this, the Manager believes that there are now reasonable prospects for growth with the new management team in place.
Aconite Technology Limited, a smartcard technology business, is facing funding difficulties and the Board has decided that it is prudent to make a provision of against the holding value of £155,000 at the current time.
On the positive side, the investment in Baldwin and Francis has been uplifted by £321,000 following the completion of the reorganisation discussed above, and the AIM quoted investments have reported a net uplift of £266,000, with Interquest Group contributing a £121,000 gain and Access Intelligence a £82,000 gain.
Overall, the portfolio showed net unrealised losses of £132,000 and recognised realised gains of £4.3 million over the period.
Fixed income securities
The Company continues to hold a small portfolio of fixed income investments which is managed by Smith & Williamson. The portfolio, valued at £1.5 million at the period end, recognised unrealised capital losses of £2,000, realised losses of £3,000 and produced income of £9,000 in the period.
Share buybacks
In April, the Company announced that it had introduced a policy of buying in shares at approximately a 7.5% discount to the latest published net asset value (subject to applicable regulations and liquidity considerations).
In line with this policy, in May 2014, the Company purchased 370,720 shares for cancellation for an aggregate consideration of £319,000 at a price of 85.5p per share.
Any Shareholders who are considering selling their shares will need to use a stockbroker. Such Shareholders should ask their stockbroker to register their interest in selling their shares with Shore Capital, who act as the Company's corporate broker.
Outlook
The Board remains satisfied with the investment portfolio and believes that, with the improving economy, it has the potential to produce further profitable exits in the future.
Shareholders will be aware from the recent circular of the Board's plans to launch a new top-up share offer later in the year. This will give investors the opportunity to make a new VCT investment into a maturing portfolio which has demonstrated the rewards it can deliver and provide the Company with some extra funds to enable it to take advantage of further new investment opportunities. Full details of the offer will be sent to all Shareholders when it is launched and I look forward to updating Shareholder on developments in the next Annual Report
David Brock
Chairman
SUMMARY OF INVESTMENT PORTFOLIO
as at 30 June 2014
| Cost | Valuation | Valuation movement in period | % of portfolio by value | |
| £'000 | £'000 | £'000 | ||
| Top ten venture capital investments | ||||
| Smart Education Limited | 380 | 2,989 | - | 12.6% |
| Fords Packaging Topco Limited | 2,882 | 2,882 | - | 12.2% |
| Baldwin & Francis Limited | 1,384 | 2,348 | 321 | 9.9% |
| Access Intelligence plc * | 1,633 | 1,631 | 112 | 6.9% |
| Lyalvale Express Limited | 915 | 1,369 | - | 5.8% |
| AngloINFO Limited | 1,208 | 1,085 | (498) | 4.6% |
| Concorde Solutions Limited | 750 | 750 | - | 3.2% |
| SnackTime plc * | 1,775 | 630 | (18) | 2.7% |
| Macranet Limited | 563 | 563 | - | 2.4% |
| Interquest Group plc* | 267 | 558 | 121 | 2.4% |
| 11,757 | 14,805 | 38 | 62.7% | |
| Other venture capital investments | 4,433 | 1,506 | (168) | 6.3% |
| Fixed income securities | 1,516 | 1,501 | (2) | 6.3% |
| 17,706 | 17,812 | (132) | 75.3% | |
| Cash at bank and in hand | 5,853 | 24.7% | ||
| Total investments | 23,665 | 100.0% |
All venture capital investments are unquoted unless otherwise stated.
* Quoted on AIM
SUMMARY OF INVESTMENT MOVEMENTS
for the six months ended 30 June 2014
Additions
| £'000 | |
| Venture capital investments | |
| Baldwin & Francis Limited | 694 |
| Macranet Limited | 562 |
| Concorde Solutions Limited | 250 |
| Aconite Technology Limited | 100 |
| AngloINFO Limited | 100 |
| 1,706 | |
| Other Investments | |
| United Kingdom 1.25% Gilt 22/07/2018 | 892 |
| 2,598 |
Disposals
| Cost | Value at 1 January 2014 | Proceeds | Profit vs cost | Realised profit/ (loss) | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Venture capital investments | |||||
| B&F Management Limited | 700 | 763 | 763 | 63 | - |
| Interquest Group plc | 69 | 112 | 147 | 78 | 35 |
| Smart Education Limited | 132 | 132 | 132 | - | - |
| Wessex Advanced Switching Products Limited | 60 | 4,627 | 8,918 | 8,858 | 4,291 |
| 961 | 5,634 | 9,960 | 8,999 | 4,326 | |
| Other investments | |||||
| United Kingdom 2.25% Gilt 07/03/2014 | 830 | 848 | 845 | 15 | (3) |
| 1,791 | 6,482 | 10,805 | 9,014 | 4,323 |
UNAUDITED BALANCE SHEET
as at 30 June 2014
| 30 Jun 2014 | 30 Jun 2013 | 31 Dec 2013 | ||||
| Note | £'000 | £'000 | £'000 | |||
| Fixed assets | ||||||
| Investments | 17,812 | 19,259 | 21,828 | |||
| Current assets | ||||||
| Debtors | 3,632 | 152 | 831 | |||
| Cash at bank and in hand | 5,853 | 2,560 | 1,556 | |||
| 9,485 | 2,712 | 2,387 | ||||
| Creditors: amounts falling due within one year | (207) | (220) | (238) | |||
| Net current assets | 9,278 | 2,492 | 2,149 | |||
| Net assets | 27,090 | 21,751 | 23,977 | |||
| Capital and reserves | ||||||
| Called up share capital | 7 | 1,519 | 1,547 | 1,537 | ||
| Capital redemption reserve | 8 | 464 | 436 | 446 | ||
| Merger reserve | 8 | 1,882 | 1,882 | 1,882 | ||
| Share premium | 8 | 856 | 856 | 856 | ||
| Special reserve | 8 | 4,531 | 7,290 | 6,950 | ||
| Capital reserve - unrealised | 8 | 3,844 | 7,741 | 8,683 | ||
| Capital reserve - realised | 8 | 13,764 | 1,768 | 3,118 | ||
| Revenue reserve | 8 | 230 | 231 | 505 | ||
| Equity shareholders' funds | 6 | 27,090 | 21,751 | 23,977 | ||
| Basic and diluted net asset value per share | 6 | 89.2p | 70.3p | 78.0p |
UNAUDITED INCOME STATEMENT
for the six months ended 30 June 2014
| Six months ended 30 Jun 2014 | Six months ended 30 Jun 2013 | Year ended 31 Dec 2013 | ||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | ||||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| Income | 232 | - | 232 | 197 | - | 197 | 625 | |||
| Gains/(losses) on investments: | ||||||||||
| - realised | - | 4,323 | 4,323 | - | - | - | 747 | |||
| - unrealised | - | (132) | (132) | - | 1,201 | 1,201 | 3,368 | |||
| 232 | 4,191 | 4,423 | 197 | 1,201 | 1,398 | 4,740 | ||||
| Investment management fees | (60) | (180) | (240) | (52) | (154) | (206) | (423) | |||
| Performance incentive fees | - | - | - | - | - | - | (61) | |||
| Other expenses | (144) | - | (144) | (108) | - | (108) | (210) | |||
| Return on ordinary activities before taxation | 28 | 4,011 | 4,039 | 37 | 1,047 | 1,084 | 4,046 | |||
| Taxation | - | - | - | - | - | - | - | |||
| Return attributable to equity shareholders | 4 | 28 | 4,011 | 4,039 | 37 | 1,047 | 1,084 | 4,046 | ||
| Basic and diluted return per share | 4 | 0.1p | 13.1p | 13.2p | 0.1p | 3.4p | 3.5p | 13.2p | ||
All Revenue and Capital items in the above statement derive from continuing operations. The total column within the Income Statement represents the profit and loss account of the Company.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months ended 30 June 2014
| 30 Jun 2014 | 30 Jun 2013 | 31 Dec 2013 | ||||
| Note | £'000 | £'000 | £'000 | |||
| Opening Shareholders' funds | 23,977 | 20,588 | 20,588 | |||
| Issue of shares | - | 871 | 871 | |||
| Share issue costs | - | (48) | (48) | |||
| Purchase of own shares | 7 | (319) | (121) | (238) | ||
| Total recognised gains in the period | 4,039 | 1,084 | 4,046 | |||
| Dividends | 5 | (607) | (623) | (1,242) | ||
| Closing Shareholders' funds | 6 | 27,090 | 21,751 | 23,977 | ||
UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 June 2014
| Six months ended 30 Jun 2014 | Six months ended 30 Jun 2013 | Year ended 31 Dec 2013 | ||||
| Note | £'000 | £'000 | £'000 | |||
| Net cash outflow from operating activities and returns on investments | 9 | (19) | (178) | (105) | ||
Capital expenditure | ||||||
Purchase of investments | (2,036) | (400) | (1,004) | |||
Sale of investments | 7,278 | - | 303 | |||
| Net cash inflow/(outflow) from capital expenditure | 5,242 | (400) | (701) | |||
Equity dividends paid | (607) | (623) | (1,242) | |||
| Net cash inflow/(outflow) before financing | 4,616 | (1,201) | (2,048) | |||
Financing | ||||||
| Proceeds from share issue | - | 870 | 870 | |||
| Share issue costs | - | (18) | (58) | |||
| Purchase of own shares | (319) | (121) | (238) | |||
| Net cash inflow from financing | (319) | 731 | 574 | |||
| Increase/(decrease) in cash | 10 | 4,297 | (470) | (1,474) | ||
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
for the six months ended 30 June 2014
1. The unaudited half yearly financial results cover the six months to 30 June 2014 and have been prepared in accordance with the accounting policies set out in the statutory accounts for the year ended 31 December 2013, which were prepared under UK Generally Accepted Accounting Practice and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" revised January 2009.
2. The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.
3. The comparative figures are in respect of the six months ended 30 June 2013 and the year ended 31 December 2013 respectively.
4. Basic and diluted return per share
| Six months ended 30 Jun 2014 | Six months ended 30 Jun 2013 | Year ended 31 Dec 2013 | |||
| Return per share based on: | |||||
| Net revenue gain for the period (£'000) | 28 | 37 | 309 | ||
| Capital return per share based on: | |||||
| Net capital gain/ for the period (£'000) | 4,011 | 1,047 | 3,737 | ||
| Weighted average number of shares | 30,648,942 | 30,458,332 | 30,684,457 |
5. Dividends
| Six months ended 30 Jun 2014 | Year ended 31 Dec 2013 | ||||||
| Per share | Revenue | Capital | Total | Total | |||
| pence | £'000 | £'000 | £'000 | £'000 | |||
| Paid in the period | |||||||
| 2013 Final | 2.0 | 303 | 304 | 607 | - | ||
| 2013 Interim | 2.0 | - | - | - | 624 | ||
| 2012 Final | 2.0 | - | - | - | 618 | ||
| 303 | 304 | 607 | 1,242 | ||||
6. Basic and diluted net asset value per share
| Six months ended 30 Jun 2014 | Six months ended 30 Jun 2013 | Year ended 31 Dec 2013 | |||
| Net asset value per share based on: | |||||
| Net assets (£'000) | 27,090 | 21,751 | 23,977 | ||
| Number of shares in issue at the period end | 30,372,438 | 30,948,108 | 30,743,158 | ||
| Net asset value per share | 89.2p | 70.3p | 78.0p |
7. Called up share capital
| Six months ended 30 Jun 2014 | Six months ended 30 Jun 2013 | Year ended 31 Dec 2013 | |||
| Ordinary shares of 5p each | |||||
| Number of shares in issue at the period end | 30,372,438 | 30,948,108 | 30,743,158 | ||
| Nominal value (£'000) | 1,519 | 1,547 | 1,537 |
During the period, the Company purchased 370,720 shares for cancellation for an aggregate consideration of £319,000 at a price of 85.5p per share (approximately equal to a 7.5% discount to the most recently published NAV at the time of purchase) and representing 0.7% of the issued share capital in issue at 1 January 2014.
8. Reserves
| Capital redemption reserve | Merger reserve | Share premium | Special reserve | Capital reserve- unrealised | Capital reserve- realised | Revenue reserve | ||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||
| At 1 January 2014 | 446 | 1,882 | 856 | 6,950 | 8,683 | 3,118 | 505 | |||
| Purchase of own shares | 18 | - | - | (319) | - | - | - | |||
| Expenses capitalised | - | - | - | - | - | (180) | - | |||
| Gains/(losses) on investments | - | - | - | - | (132) | 4,323 | - | |||
| Transfer between reserves | - | - | - | (2,100) | (4,707) | 6,807 | - | |||
| Dividends paid | - | - | - | - | - | (304) | (303) | |||
| Retained net revenue for the period | - | - | - | - | - | - | 28 | |||
| At 30 June 2014 | 464 | 1,882 | 856 | 4,531 | 3,844 | 13,764 | 230 | |||
The special reserve is available to the Company to enable the purchase of its own shares in the market without affecting its ability to pay dividends, and also allows the Company to write back realised capital losses arising on disposals and impairments.
Distributable reserves are calculated as follows:
| Six months ended 30 Jun 2014 | Six months ended 30 Jun 2013 | Year ended 31 Dec 2013 | |||
| £'000 | £'000 | £'000 | |||
| Special reserve | 4,531 | 7,290 | 6,950 | ||
| Capital reserve - realised | 13,764 | 1,768 | 3,118 | ||
| Revenue reserve | 230 | 231 | 505 | ||
| Merger reserve - distributable element | 477 | 477 | 477 | ||
| Unrealised losses - excluding unrealised unquoted gains | (1,071) | (790) | (912) | ||
| 17,931 | 8,976 | 10,138 |
9. Reconciliation of return on operating activities before taxation to net cash flow from operating activities
| Six months ended 30 Jun 2014 | Six months ended 30 Jun 2013 | Year ended 31 Dec 2013 | |||
| £'000 | £'000 | £'000 | |||
| Return on ordinary activities before taxation | 4,039 | 1,084 | 4,046 | ||
| Gains on investments | (4,191) | (1,201) | (4,115) | ||
| Decrease/(increase) in other debtors | 164 | (61) | (94) | ||
| (Decrease)/increase in other creditors | (31) | - | 58 | ||
| Net cash outflow from operating activities | (19) | (178) | (105) |
10. Analysis of changes in cash at bank and in period
| Six months ended 30 Jun 2014 | Six months ended 30 Jun 2013 | Year ended 31 Dec 2013 | |||
| £'000 | £'000 | £'000 | |||
| Beginning of period | 1,556 | 3,030 | 3,030 | ||
| Net cash inflow/(outflow) | 4,297 | (470) | (1,474) | ||
| End of period | 5,853 | 2,560 | 1,556 |
11. Risks and uncertainties
Under the Disclosure and Transparency Directive, the Board is required in the Company's half-yearly results to report on principal risks and uncertainties facing the Company over the remainder of the financial year.
The Board has concluded that the key risks facing the Company over the remainder of the financial period are as follows:
- investment risk associated with investing in small and immature businesses;
- liquidity risk arising from investing mainly in unquoted businesses; and
- failure to maintain approval as a VCT.
In all cases the Board is satisfied with the Company's approach to these risks. As a VCT, the Company is forced to have significant exposure to relatively immature businesses. This risk is mitigated to some extent by holding a well-diversified portfolio.
With a reasonably illiquid venture capital investment portfolio, the Board ensures that it maintains an appropriate proportion of its assets in cash and liquid instruments.
The Company's compliance with the VCT regulations is continually monitored by the Administration Manager, who regularly reports to the Board on the current position. The Company also retains PricewaterhouseCoopers to provide regular reviews and advice in this area. The Board considers that this approach reduces the risk of a breach of the VCT regulations to a minimal level.
12. Going concern
The Company has considerable financial resources at the period end, and holds a diversified portfolio of investments. As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook.
The Directors have concluded that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements.
13. The Directors confirm that, to the best of their knowledge, the half-yearly financial statements have been prepared in accordance with the "Statement: Half-Yearly Financial Reports" issued by the UK Accounting Standards Board and the half-yearly financial report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the current financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.
14. The unaudited financial statements set out herein do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been delivered to the Registrar of Companies. The figures for the year ended 31 December 2013 have been extracted from the financial statements for that year, which have been delivered to the Registrar of Companies; the Auditor's report on those financial statements was unqualified.
15. Copies of the unaudited half-yearly results will be sent to Shareholders shortly. Further copies can be obtained from the Company's registered office or downloaded from www.elderstreet.com and www.downing.co.uk.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Elderstreet VCT plc via Globenewswire
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