Final Results

Elderstreet VCT plc Final Results for the year ended 31 December 2007 FINANCIAL HIGHLIGHTS 2007 2006 pence pence Ordinary Shares Net asset value (per share) 81.9 76.1 Cumulative paid dividends from launch to 31 December 36.5 31.5 2007 (per share) Total return (net asset value plus cumulative dividends 118.4 107.6 paid per share) Final proposed distribution (per share) to be paid on 6 3.5 3.5 June 2008 2007 2006 pence pence 'C' Shares Net asset value (per share) 90.4 98.6 Cumulative paid dividends from launch to 31 December 4.5 1.0 2007 (per share) Total return (net asset value plus cumulative 94.9 99.6 dividends paid per share) Final proposed dividend (per share) to be paid on 6 1.5 3.5 June 2008 CHAIRMAN'S STATEMENT The statement to shareholders by the Chairman, David Brock, includes the following comments: Introduction I am pleased to present the Annual Report for Elderstreet VCT plc for the year ended 31 December 2007, a year which has been both busy and successful for your Company. Merger The merger with Elderstreet Millennium Venture Capital Trust plc ("EMVCT") was completed in April 2007, when the Company compulsorily acquired the remaining shares from EMVCT Shareholders who had not previously accepted the offer. Following the merger, the investment portfolios have been successfully integrated and the Company has started to benefit from the expected savings in running costs. Directorate There were two changes to the members of the Board during the year. As previously reported, following the completion of the merger, Hugh Aldous, a director of EMVCT, joined the Board as a non-executive director. On 16 October 2007, Luke Johnson decided to resign from the Board as a result of the demands of his other business commitments. The Board would like to thank Luke for his insightful and valuable contribution since the Company's launch in 1998 and wish him well in his many other ventures. Net Asset Value At 31 December 2007, the Company's Net Asset Value per Ordinary Share ("Ordinary NAV") stood at 81.9p, an increase of 10.8p or 14.2% since 31 December 2006 (after adjusting for the dividends of 5p per share paid during the year). The Total Return to original Ordinary Shareholders (Ordinary NAV plus dividends paid to date) now stands at 118.4p compared to the original cost net of income tax relief of 80p per share. The Total Return to Shareholders who invested in the Ordinary Share top up offer in March/April 2005 is 88.9p per share against the original cost, net of income tax relief, of 41.3p per share. The Net Asset Value of the Company's 'C' shares ("C Share NAV") at 31 December 2007 stood at 90.4p, a decrease of 4.7p or 4.9% since 31 December 2006 (after adjusting for the dividends paid during the year). The Total Return to original 'C' Shareholders (C Share NAV plus dividends paid to date) stands at 94.9p compared to the original net of income tax relief cost of 60p per share. Venture Capital Investments There were two major events from the Ordinary Share portfolio during the year. The sale of the holding in Computer Software Group plc produced proceeds of £3,000,000 for an investment with an original cost of £733,483. The second major event was Snacktime plc, which floated on AIM in December 2007. The VCT (along with EMVCT) made an early stage investment in Snacktime in 2003 and supported the company through several subsequent fundraisings. At the year end, the investment was valued at £2.4 million against a total original cost of £1.5 million. There were several other notable good performances over the year, with strong trading results by Baldwin and Francis (Holdings) Limited, Wessex Advanced Switching Products Limited and U M (Holdings) Limited accounting for unrealised gains of £600,000, £513,000 and £269,000 respectively. Overall the Ordinary Share venture capital portfolio produced net realised gains of £541,000 and net unrealised gains of £1.3 million for the year. With a significantly less mature portfolio, the C Share pool did not perform so strongly over the year. In particular, the AIM-quoted investments performed poorly in the turbulent markets in the latter part of the year. Overall, the C Share portfolio produced an unrealised loss of £91,000 over the year. Fixed interest investments The Company continues to hold a small portfolio of fixed interest investments which are managed by Smith & Williamson Investment Management Limited. During the year this portfolio produced unrealised gains for the Ordinary Share pool of £27,000 and unrealised gains for the C Share pool of £11,000. Results and Dividends The total return on ordinary activities for the year was as follows: Revenue Capital Total £'000 £'000 £'000 Ordinary Shares 278 2,815 3,093 'C' Shares 28 (100) (72) 306 2,715 3,021 Your Board is proposing to pay the following final dividends for the year: Ordinary Shares 3.5p per share 'C' Shares 1.5p per share Subject to shareholder approval at the forthcoming Annual General Meeting ("AGM"), both dividends will be paid on 6 June 2008 to Shareholders on the registers at 9 May 2008. Repurchase of Shares The Directors are conscious that the market in the Company's shares tends to be illiquid because of the fact that investors purchasing "second-hand" shares do not benefit from income tax relief on their investment. The Directors continue to monitor the market in the Company's shares and intend to continue to make market purchases of its own shares at a 10% discount to the latest published NAV when appropriate. During the year the Company repurchased 904,097 Ordinary Shares for cancellation at an average price of 73.1p per share. No 'C' Shares were purchased during the year. A Special Resolution to continue with this policy is proposed for the forthcoming AGM and therefore the Board recommends Shareholders vote for resolution 7. Ordinary Share issue On 6 February 2008, the Company announced an Offer for Subscription to raise up to £10 million in Ordinary Shares in the Company. No shares had yet been issued under the Offer for Subscription as at the date of this report. Annual General Meeting The next AGM of the Company will be held at 32 Bedford Row, London WC1R 4HE at 11:00 am on 4 June 2008. One item of Special Business is proposed to authorise the Company to make market purchases of its shares. Outlook Investing in young and small businesses, often leads to a situation where poorer investments are exposed early and the better investments take several years to produce results. The Company's Ordinary Share portfolio now has a number of investments which have matured well and their performance has driven the uplift in NAV from which Shareholders have benefited this year. Although we may now be entering a more difficult economic climate, the number of well-developed businesses within the Ordinary share portfolio should provide some resilience. Indeed, since the year end, the Company has realised its investment in U Mole (Holdings) Limited producing proceeds of approximately £500,000 over the carrying value at the year end (equivalent to 2.5p per Ordinary Share). As set out in the 'C' Share prospectus, on or before 30 September 2008, it is the Board's intention to have returned at least 30p per share to C Shareholders. The Board expect to do this by means of a special dividend to C Shareholders in the second half of the current year. Following the payment of the special dividend, the Directors will consider plans to convert the 'C' Shares into Ordinary Shares to create one larger pool and provide a little more flexibility in investing activities. I shall update Shareholders on these plans in my statement with the Half-Yearly Financial Report to 30 June 2008. PORTFOLIO OF INVESTMENTS The following investments were held at 31 December 2007. All companies are registered in England and Wales, with the exception of Component Source Inc, which is registered the United States of America: Valuation % of movement in portfolio Cost Valuation year by value ORDINARY SHARE POOL £'000 £'000 £'000 % Top ten venture capital investments (by value) Snacktime plc * 1,500 2,428 928 14.8% Wessex Advanced 56 1,796 513 10.9% Switching Products Limited Baldwin & Francis 690 1,320 600 8.0% (Holdings) Limited Oldbury Aluminium 1,275 1,275 - 7.6% Alloys Group Limited UM (Holdings) Limited 54 915 269 5.5% Lyalvale Express 915 915 - 5.5% Limited Smart Education 913 542 (93) 3.3% Limited Fords Packaging 83 542 (125) 3.3% Systems Limited Wecomm Limited 500 500 - 3.1% Interquest Group plc * 251 387 - 2.4% 6,237 10,620 2,092 64.4% Other venture capital investments The Engine Group 250 375 126 2.3% Limited Halifax Industrial 332 320 (11) 2.0% Limited Mears Group plc 264 260 4 1.6% (formerly Careforce)* AngloINFO Limited 245 245 - 1.5% Mediasurface plc * 708 213 (626) 1.3% Berkeley Scott Group 657 196 (35) 1.2% plc * Sift Limited 250 188 - 1.1% The QSS Group Limited 269 170 (98) 1.0% The National 900 150 (125) 0.9% Solicitors Network Limited Servoca plc * 90 144 54 0.9% Rosebowl plc 187 125 - 0.8% Expansys plc * 202 106 44 0.7% Melorio plc * 100 105 5 0.7% NorthWest Transport 101 100 - 0.6% Supplies Limited Veterinary Practise 100 100 - 0.6% Initiatives Limited Infoserve plc * 90 34 (56) 0.2% Cashfac Initiative 260 33 - 0.2% Limited SparesFinder Limited 103 12 - 0.1% Lanchon Holdings 5 5 - - Limited Business Meetings ASP 12 - - - Limited Component Source Inc 250 - - - Shopcreator Limited 375 - - - 5,750 2,881 (718) 17.7% Total venture capital 11,987 13,501 1,374 82.1% investments Listed fixed income securities Treasury 5% 2008 1,469 1,470 6 8.9% Treasury 4% 2009 970 987 21 6.0% Nucleus Cash Trust 146 146 - 0.9% 2,585 2,603 27 15.8% Total investments 14,572 16,104 1,401 97.9% before cash at bank and in hand Cash at bank and in 354 2.1% hand Total investments 16,458 100.0% Valuation % of movement in portfolio Cost Valuation year by value 'C' SHARE POOL £'000 £'000 £'000 % Top ten venture capital investments (by value) Interquest Group plc * 100 155 - 11.2% Snacktime plc * 125 115 (10) 8.3% Melorio plc * 100 105 5 7.6% Oldbury Aluminium 100 100 - 7.2% Alloys Group Limited Wecomm Limited 100 100 - 7.2% Servoca plc * 60 96 36 6.9% AngloINFO Limited 78 78 - 5.7% Smart Education Limited 139 61 (9) 4.3% Media Surface plc * 80 26 (76) 1.9% Infoserve plc * 60 23 (37) 1.7% 942 859 (91) 62.0% Other venture capital investments Lanchon Holdings 2 2 - 0.1% Limited Total venture capital 944 861 (91) 62.1% investments Listed fixed income securities Treasury 4% 2009 486 497 11 35.9% Total investments 1,430 1,358 (80) 98.0% before cash at bank and in hand Cash at bank and in 27 2.0% hand Total investments 1,385 100.0% All venture capital investments are unquoted unless otherwise stated * Quoted on AIM INCOME STATEMENT for the year ended 31 December 2007 Company position Year ended 31 December Year ended 31 December 2007 2006 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Income - Continuing 455 - 455 373 - 373 operations - 199 199 Acquisitions Gains on investments - Continuing - 1,330 1,330 - 2,015 2,015 operations - Acquisitions - 1,582 1,582 654 2,912 3,566 373 2,015 2,388 Investment (85) (254) (339) (48) (143) (191) management fees Other expenses (206) - (206) (186) - (186) Return on ordinary activities before 363 2,658 3,021 139 1,872 2,011 tax Tax on ordinary (57) 57 - (4) 4 - activities Return attributable to equity 306 2,715 3,021 135 1,876 2,011 shareholders Return per Ordinary 1.4p 14.3p 15.7p 0.7p 12.1p 12.8p share Return per 'C' 1.8p (6.5p) (4.7p) 1.7p 3.8p 5.5p share Split as: Ordinary shares Year ended 31 December Year ended 31 December 2007 2006 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Income - Continuing 392 - 392 311 - 311 operations - 199 - 199 Acquisitions Gains on investments - Continuing - 1,410 1,410 - 1,942 1,942 operations - Acquisitions 1,582 1,582 - - - 591 2,992 3,583 311 1,942 2,253 Investment (76) (229) (305) (42) (124) (166) management fees Other expenses (185) - (185) (160) - (160) Return on ordinary activities before 330 2,763 3,093 109 1,818 1,927 tax Tax on ordinary (52) 52 - - - - activities Return attributable to 278 2,815 3,093 109 1,818 1,927 equity shareholders 'C' Ordinary shares Year ended 31 December Year ended 31 December 2007 2006 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Income 63 - 63 62 - 62 (Losses)/gains - (80) (80) - 73 73 on investments 63 (80) (17) 62 73 135 Investment (9) (25) (34) (6) (19) (25) management fees Other expenses (21) - (21) (26) - (26) Return on ordinary 33 (105) (72) 30 54 84 activities before tax Tax on (5) 5 - (4) 4 - ordinary activities (Loss)/return attributable 28 (100) (72) 26 58 84 to equity shareholders A Statement of Total Recognised Gains and Losses relating to each class of share has not been prepared as all gains and losses are recognised in the relevant Income Statements. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the year ended 31 December 2007 Year ended Year ended 31 December 2007 31 December 2006 Ordinary 'C' Ordinary 'C' shares shares Total shares shares Total £'000 £'000 £'000 £'000 £'000 £'000 Opening 11,401 1,521 12,922 9,180 1,452 10,632 shareholders' funds Issue of 3,782 - 3,782 966 - 966 shares Share issue - - - (53) - (53) costs Purchase of (665) - (665) (310) - (310) own shares Total 3,093 (72) 3,021 1,927 84 2,011 recognised gains for the year Dividends (1,038) (54) (1,092) (309) (15) (324) Closing 16,573 1,395 17,968 11,401 1,521 12,922 shareholders' funds BALANCE SHEET at 31 December 2007 Year ended Year ended 31 December 2007 31 December 2006 Ordinary 'C' Ordinary 'C' shares shares Total shares shares Total £'000 £'000 £'000 £'000 £'000 £'000 Fixed assets Investments 16,104 1,358 17,462 9,984 470 10,454 Current assets Investments 5,110 - 5,110 - - - Debtors 154 14 168 307 98 405 Cash at bank 354 27 381 1,256 958 2,214 and in hand 5,618 41 5,659 1,563 1,056 2,619 Creditors: (5,149) (4) (5,153) (146) (5) (151) amounts falling due within one year Net current 469 37 506 1,417 1,051 2,468 assets Net assets 16,573 1,395 17,968 11,401 1,521 12,922 Capital and reserves Called up 1,011 77 1,088 749 77 826 share capital Capital 124 - 124 79 - 79 redemption reserve Merger 3,475 - 3,475 reserve Share premium 842 1,388 2,230 842 1,388 2,230 Special 4,563 - 4,563 5,967 - 5,967 reserve Capital 2,581 (72) 2,509 1,605 8 1,613 reserve - unrealised Capital 3,659 (10) 3,649 1,963 10 1,973 reserve - realised Revenue 318 12 330 196 38 234 reserve Equity 16,573 1,395 17,968 11,401 1,521 12,922 shareholder's funds Net asset 81.9p 90.4p 76.1p 98.6p value per share CASH FLOW STATEMENT for year ended 31 December 2007 Year ended Year ended 31 December 2007 31 December 2006 Ordinary 'C' Ordinary 'C' shares Shares Total shares Shares Total £'000 £'000 £'000 £'000 £'000 £'000 Net cash 53 (5) 48 (82) 11 (71) (outflow)/inflow from operating activities Capital expenditure Purchase of (3,147) (967) (4,114) (660) (224) (884) investments Sale of investments 3,837 95 3,932 1,456 - 1,456 Net cash 690 (872) (182) 796 (224) 572 inflow/(outflow) from capital expenditure Acquisitions Purchase of (225) - (225) - - - subsidiary undertaking Cash acquired from 369 - 369 - - - subsidiary undertaking 144 - 144 - - - Equity dividends (1,038) (54) (1,092) (309) (15) (324) paid Net cash (151) (931) (1,082) 405 (228) 177 (outflow)/inflow before financing Financing Proceeds from share - - - 966 - 966 issue Share issue costs (6) - (6) (50) - (50) Purchase of own (745) - (745) (231) - (231) shares Net cash (751) - (751) 685 - 685 inflow/(outflow) from financing (Decrease)/increase (902) (931) (1,833) 1,090 (228) 862 in cash NOTES 1. Accounting policies Basis of accounting The Company has prepared its financial statements under UK Generally Accepted Accounting Practice ("UK GAAP") and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies" revised December 2005 ("SORP"). The financial statements are prepared under the historical cost convention as modified by the revaluation of certain financial instruments and on the basis that it is not appropriate to prepare consolidated accounts. Presentation of Income Statement In order to better reflect the activities of a Venture Capital Trust and in accordance with guidance issued by the Association of Investment Companies ("AIC"), supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. The net revenue is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Part 6 of the Income Tax Act 2007. Investments All investments are designated as "fair value through profit or loss" assets and are initially measured at cost, equivalent to their fair value. Thereafter the investments are measured at subsequent reporting dates at fair value. Listed fixed income investments and investments quoted on AIM are measured using bid prices in accordance with the International Private Equity and Valuation Guidelines. In respect of unquoted instruments, fair value is established by using International Private Equity and Venture Capital Valuation Guidelines. Where no reliable fair value can be estimated for such unquoted equity investments they are carried at cost, subject to any provision for impairment. Where an investee company has gone into receivership or liquidation the investment, although not physically disposed of, the loss is treated as being realised. Gains and losses arising from changes in fair value are included in the income statement for the year as a capital item and transaction costs on acquisition or disposal of the investment expensed. It is not the Company's policy to exercise either significant or controlling influence over investee companies. Therefore the results of these companies are not incorporated into the revenue account except to the extent of any income accrued. Income Dividend income from investments is recognised when the shareholders' rights to receive payment has been established, normally the ex dividend date. Interest income is accrued on a timely basis, by reference to the principal outstanding and at the effective interest rate applicable and only where there is reasonable certainty of collection. Expenses All expenses are accounted for on 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 and accordingly the investment management fee and finance costs have been allocated 25% to revenue and 75% to capital, in order to reflect the directors expected long-term view of the nature of the investment returns of the Company. 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 period. 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 arises. Deferred taxation is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the accounts. Issue Costs Issue costs in relation to the shares issued are deducted from the respective share premium account. 2. Return per share Ordinary Shares 'C' Shares Revenue return per share based on: Net revenue after taxation (£'000) 278 28 Weighted average number of ordinary 19,718,057 1,542,202 shares in issue Capital return/(loss) per share based on: Net capital gain for the financial year 2,815 (100) (£'000) Weighted average number of ordinary 19,718,057 1,542,202 shares in issue 3 Net asset value per share 2007 2006 Shares in Net asset value Net asset value Issue pence pence per per 2007 2006 share £'000 share £'000 Ordinary 20,227,504 14,981,819 81.9 16,573 76.1 11,401 shares 'C' shares 1,542,202 1,542,202 90.4 1,395 98.6 1,521 17,968 12,922 Announcement based on audited accounts The financial information set out in the announcement does not constitute the Company's statutory financial statements in accordance with section 240 Companies Act 1985 for the year ended 31 December 2007. The statutory accounts for the year ended 31 December 2006 have been delivered to the Registrar of Companies and received an Independent Auditors report which was unqualified and did not contain any emphasis of matter nor statements under S237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 31 December 2007, which were approved by the Board of Directors on 3 April 2009, will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s237 (2) and (3) of the Companies Act 1985. A copy of the full annual report and financial statements for the year ended 31 December 2007 will be printed and posted to shareholders. Copies will also be available to the public at the registered office of the Company at Kings Scholars House, 230 Vauxhall Bridge Road, London SW1V 1AU and will be available for download from www.downing.co.uk. ---END OF MESSAGE---
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