Downing ONE VCT plc : Final Results
Downing ONE VCT plc
Final results for the year ended 31 March 2014
FINANCIAL SUMMARY
| 31 Mar | 12 Nov | ||
| 2014 | 2013 | ||
| (merger) | |||
| pence | pence | ||
| Net asset value per share ("NAV") | 98.2 | 100.4 | |
| Cumulative dividends paid since 12 November 2013 | 2.0 | - | |
| Total return (net asset value plus cumulative dividends paid per share) | 100.2 | 100.4 | |
| Dividends in respect of financial year | |||
| Interim dividend per share | 2.0 | ||
| Proposed final dividend per share | 2.0 | ||
| 4.0 |
CHAIRMAN'S STATEMENT
I am pleased to present the Company's first Annual Report since the merger of six VCTs which took place in November 2013 and which came together to form Downing ONE VCT plc.
Merger
The VCTs whose assets and liabilities were involved in the merger were as follows:
Downing Distribution VCT 1 plc (the acquirer)
Downing Absolute Income VCT 1 plc ("DAI1");
Downing Absolute Income VCT 2 plc ("DAI2");
Downing Income VCT plc ("DI") (formerly Framlington AIM VCT 2 plc);
Downing Income VCT 3 plc ("DI3"); and
Downing Income VCT 4 plc ("DI4") (formerly Framlington AIM VCT plc)
The merger was undertaken on a relative net asset value basis using net asset values as at 8 November 2013 and completed on 12 November 2013.
The merger was undertaken by means of five schemes of reconstruction under Section 110 of the Insolvency Act 1986 and was followed by a share consolidation and a name change from Downing Distribution VCT 1 to Downing ONE VCT plc.
All Shareholders were sent new share certificates immediately following the merger in the Company's new name for the New Ordinary Shares issued by the Company. Any share certificates in any of the Company's former names, or in the names of the companies who assets were acquired, are no longer valid. If you have any queries regarding your share certificates, please contact Downing.
The transaction has created a VCT which has net assets of approximately £75 million, making it one of the largest VCT in existence. The costs of the merger were unusually low for Shareholders. Downing agreed to make a substantial contribution to the costs of the merger, with only £232,000 ultimately being borne by the participating VCTs. The running cost savings for the larger VCT are estimated to be approximately £450,000 per annum and, in addition, Downing now provides a running cost cap at 2.75% of net assets per annum. With the further benefit of a more diversified portfolio with significant exposure to both AIM-quoted and unquoted investments, the Board is satisfied that the merger has been a positive development for all Shareholders.
Directorate
As discussed in my statement in the Half-Yearly Report, there were some major changes to the Board which took place at the same time as the merger. I would like to reiterate my thanks to the three former directors of Downing Distribution VCT 1 plc who stepped down in November, along with all the other former non-executive directors from the companies listed above, who have not joined the Downing ONE Board.
Four directors joined the Board at the merger date; Barry Dean, Andrew Griffiths, Helen Sinclair and myself as Chairman. Stuart Goldsmith remains on the Board such that there is now a Board comprising 5 non-executive directors, with all of the merger participants being represented by former directors.
Net asset value and results
At the 31 March 2014 year end, the net asset value per New Ordinary Share ("NAV") stood at 98.2p. As part of the merger reorganisation, the NAV was rebased to 100p. After adding back the dividend of 2p per New Ordinary Share paid in March 2014, the NAV has shown a small increase of 0.2% between the date of the merger and the year end.
The Income Statement shows a return attributable to equity shareholders for the year was £501,000, comprising a revenue return of £285,000 and a capital profit of £216,000.
Dividends
The Company has adopted a policy of seeking to pay annual dividends of at least 4% of net assets per annum. In line with this policy, the Board is proposing to pay a final dividend of 2.0p per New Ordinary Share on 19 September 2014, subject to Shareholder approval at the forthcoming AGM, to Shareholders on the register at 29 August 2014.
Investment activity and performance
At year end the Company had a portfolio of some 111 investments. Of these, 37 are either quoted on AIM or the ISDX Growth Market and have a value of £24.8 million (36.6% of the portfolio). The 74 unquoted investments have a value of £42.9 million and represent 63.4% of the portfolio.
With most of the merger participants being effectively fully invested at the time of the merger, investment activity since has been quite limited. The Manager has however taken some opportunities to sell down and exit from selected AIM-quoted holdings which it did not consider to be long-term holds. This has been done into a strengthening market and has resulted in realised gains of £231,000 and proceeds totalling £2.5 million between the merger date and the year end.
There have also been some unquoted realisations since the merger, including a number of loan stock redemptions. Proceeds from unquoted realisations totalled £1.1 million and produced gains of £121,000.
Over the full year, the portfolio showed a net unrealised loss of £93,000. Since the merger date, the AIM-quoted investments have performed strongly producing a total net uplift of £1.8 million, however, some significant provisions have been made amongst the unquoted investments, which showed net unrealised losses of £2.4 million.
Further details on the investment activity are included in the Investment Manager's Report.
Fundraising
In January 2014, the Company launched an offer for subscription seeking to raise new funds. The offer had raised £4.3 million to date and has been extended to the current closing date of 30 September 2014.
The new funds provide the Company with some additional liquid resources to pursue new investment opportunities.
Alternative Investment Fund Manager's Directive ("AIFMD")
Shareholders may be aware of a new tier of regulation being introduced in respect of "Alterative Investment Funds" of which VCTs fall within the scope. As part of the regulations, the Company must appoint an Alternative Investment Fund Manager ("AIFM"). The Board has decided that it is most appropriate for the Company to act as its AIFM and has submitted the relevant application forms to the FCA well ahead of the July deadline. Although the new regulations may have significant impact on much larger funds, it is expected that the impact on your Company will be minimal.
Share buybacks
The Company now operates a policy of buying in its own shares that become available in the market at a 5% discount to NAV (subject to liquidity and any regulatory restrictions).
During the year, the Company purchased 1.6 million New Ordinary Shares at an average price of 94.4p per share (all buybacks taking place since the merger).
The Company retains Panmure Gordon as its corporate broker to assist in operating the share buyback process and ensuring that the quoted spread on the Company's shares remains at a reasonable level. Contact details for Panmure Gordon are on the inside back cover of this report.
Annual General Meeting
The Company's next Annual General Meeting ("AGM") will be held at Downing LLP, Fifth Floor, Ergon House, Horseferry Road, London, SW1P 2AL at 10:30 a.m. on 10 September 2014.
Outlook
The last year has been an eventful one for your Company, but with the upheaval of the merger now behind us, the main focus over the coming year will be on the investment portfolio. Within the AIM-quoted holdings, the Manager continues to seek opportunities to rationalise the portfolio by exiting further non-core holdings. Within the unquoted portfolio, there are some investments that are underperforming and will require intensive monitoring and support from the Manager to try to bring them back on track.
The fundraising has brought in some new funds and we expect to see some further realisations from the AIM-quoted portfolio and may see some significant realisations from the unquoted portfolio over the next year. The Board will ensure that sufficient funds are set aside to pay dividends, fund share buybacks and to support existing investee companies, however some funds should be available to undertake new investments. With conditions for investing improving and a steady flow of investment opportunities reported by the Manager, over the next year we hope to see several new investments which will enhance the existing portfolio.
In terms of performance, with such a diverse portfolio, it is unlikely that we will see rapid growth in the NAV over a short period, however the Board believes that a steady growth is a realistic target, particularly with assistance from the improving economy.
Chris Kay
Chairman
INVESTMENT MANAGER'S REPORT
Introduction
The following is a review of the performance of the combined investment portfolio following the merger as discussed in the Chairman's statement.
At 31 March 2014, the Company held a portfolio of 111 quoted and unquoted companies, valued in total at £67.7 million. Many of the Company's investments are performing well or to plan and we are pleased to report that good uplifts were made within the quoted portfolio which contributed significantly to the NAV performance.
Net asset value and results
The NAV per Share at 31 March 2014 stood at 98.2p, compared to the NAV at the merger date of 100.4p. Total Return (NAV plus cumulative dividends paid since the merger) is 100.2p.
The return on ordinary activities after taxation for the year was £501,000, comprising a revenue return of £285,000 and a capital profit of £216,000.
Unquoted Venture Capital investments
Investment activity
At 31 March 2014, the unquoted portfolio was valued at £42.9 million, comprising 74 investments, spread across a number of sectors.
Since the merger date, the fund made further investments totalling £571,000, which were offset by proceeds received from disposals of £1.1 million.
The fund has made five follow-on investments since the merger date: £203,000 in Kidspace Adventure Holdings Limited, which owns children's play centres; £115,000 in Vulcan Renewables, the biogas plant near Doncaster; £98,000 in Future Biogas (SF) Limited, the biogas plant in Norfolk; £74,000 in Rostima, the software company based in Maidenhead; and £69,000 in electronics company SPC International (by way of capitalisation of interest). No new investments have been made following the merger.
The Company negotiated a full exit of Locale Enterprise Limited and London Italian Restaurants Limited, a restaurant group based in London, which exited at the acquisition value of £379,000. Five loan notes have also been redeemed (partly or in full) at par in the period, the largest of which was Retallack Surfpods which was acquired for £327,000 as part of the merger.
Portfolio valuation
The majority of the investments within the Fund have performed to plan since the merger and there have been several valuation uplifts totalling £987,000. Unfortunately a few investments have experienced significant write downs in value which has resulted in a net valuation decrease of £2.4 million. The largest valuation movements are discussed below.
The Leytonstone Pub Limited owns The Red Lion pub in Leytonstone. Performance at the site has been strong and as such an increase in value of £297,000 was made at the year end.
Domestic solar investment, Residential PV Trading Limited, owns solar panels on the rooftops of over 260 domestic properties in the south of the UK. Performance continues to be good and an increase in value of £180,000 has been recognised.
Kidspace Adventures Holdings Limited is the holding company of Kidspace Adventures Limited which owns three children's play centres. Continued good performance at all three sites has resulted in an increase in value of £136,000.
The 3D Pub Co Limited owns two pubs in Surrey: The Jolly Farmers in Reigate; and The Fox Revived in Horley. Recent performance has been encouraging and the valuation has been increased by £135,000.
An increase in value of £100,000 was made on Bowman Care Homes Limited. The company owns a 20-bed learning disabilities home in south west London and is performing to plan.
An increase in value of £59,000 in Future Biogas (SF) Limited was recognised to reflect that the operational issues that were initially experienced have been resolved and performance has significantly improved.
The positive valuation movements above have been offset by disappointing performance of several large investments. These are described in detail below.
Hoole Hall Country Club Holdings Limited and Hoole Hall Spa and Leisure Limited own and operate the restaurant, conferencing centre, and spa and health club facilities at Hoole Hall alongside a large DoubleTree by Hilton hotel in Chester. Below budget performance in the year has resulted in the valuation of Hoole Hall Spa and Leisure being reduced by £575,000 and Hoole Hall Country Club Holdings by £966,000.
A decrease in the value of Tramps Nightclub Limited, a night club complex in central Worcester, of £818,000 has been made. The site has underperformed against budget since April 2013.
Cadbury House has fallen slightly behind budget and, as it has a high level of gearing, a provision of £321,000 has been made.
Mosaic Spa and Health Clubs Limited, owns and manages two health clubs: The Shrewsbury Club, in Shrewsbury; and Holmer Park, in Hereford. It also provides gym and spa management services to hotels, universities and corporate clients. Both Holmer Park and The Shrewsbury club have underperformed throughout the period against budget and the value has been reduced by £297,000.
Rostima, the software business based in Maidenhead, Berkshire, has experienced delays in contracts being signed and as a result a reduction in value of £259,000 has been made.
Quoted investments
Investment Activity
As at 31 March 2014, the quoted portfolio was valued at £24.8 million comprising of 37 holdings. As per the investment strategy to concentrate on a more focused portfolio of investments, five investments were fully disposed of in the period. Now, over 75% of the quoted portfolio is accounted for in the top 10 holdings.
Over the period since 12 November 2013, the valuation of the quoted portfolio is up 7.9% (£1.8 million), ahead of the main AIM indices.
Five full realisations were made in companies where we believed the valuations were not reflective of the prospects of the company. These included Photonstar Plc, EG Solutions Plc, Belgravium Technologies Plc, Saville Group Plc and Instem Plc. These were legacy investments which the Manager inherited. Separately, profits were taken in four portfolio holdings (Avacta, Angle, Accumuli and Pennant). Overall the realised gains on quoted investments, since the merger date, equated to £231,000.
The renewed interest in the quoted small companies market was reflected in the significant number of new AIM IPOs and secondary fund raisings. Although we welcome this activity, the Fund elected not to invest in these new offerings. It is the Manager's view that the valuations of these fund raisings were not aligned with the quality of many of the companies coming to market. This adversely affects the risk profile of the investment and hence we have elected to focus on those companies that we already know well within the quoted portfolio. In addition, the short time frame given to investors during the IPO fundraising process does not suit the investment philosophy of the fund; where we seek to adhere to a thorough diligence process, often over a period of many months. Post period end a further investment (£212,000) was made into the fire safety products manufacturer Sprue Aegis Plc, as it graduated from ISDX to AIM. This was an existing investment in the portfolio and one which had been monitored and held by Downing funds for some time.
Portfolio Movements
The most significant portfolio movement was Tracsis Plc which demonstrated a gain of £1.2 million (over 50%). This holding is now valued at £3.5 million and is one of the largest holdings within the Company.
Tracsis plc is a developer and supplier of resource optimisation technologies to the transport industry, supplying a range of products and services to transport operators and infrastructure owners. The company is well known to the Manager having been a holding since 2011.
In the period, Tracsis made four positive announcements. This news flow allowed the Manager to revisit the target valuation for the company and the Manager believes that the current valuation underestimates the value of future cash flows that the company can generate. Since the period end, there has been further positive news flow reinforcing this belief and the share price has made further gains.
Plastics Capital Plc, the manufacturer and distributor of specialist plastic extrusions saw its value within the portfolio increase by £310,000 reflecting an acquisition made in China and continued strong trading across its main markets.
Pressure Technologies Plc increased its value by £211,000 in the portfolio, reflecting the fundraising and acquisition of Roota Engineering, a specialist engineer in the oil and gas sector.
The UKs largest manufacturer and distributor of fire protection products, Sprue Aegis Plc, saw its value in the portfolio increase by £199,000. The company moved raised £8 million for working capital to fund growth when it moved from ISDX to AIM post the end of the period. The Company increased its holding by £212,000 as part of this fundraising.
Science in Sport, the manufacturer of sports nutritional products, saw its value fall by £429,000 in the Fund, reflecting a lack of news flow and small sellers in the market. Post the year end, the company has announced positive trading results evidenced by 24% top line growth, ahead of our expectations.
Outlook
The improving economic environment is welcome for our unquoted portfolio after some challenging years. Asset values have started to rise and more opportunities are arising to allow exits from investments. There are some signs that banks and other funding sources are starting to become more active, though not at levels that are expected to impact deal flow significantly.
For the quoted portfolio, the inevitable indigestion stemming from the large number of IPOs and fundraisings in a short time frame is now beginning to be experienced. We remain positive on the key drivers within the quoted portfolio on the basis of the fundamentals and the valuations on which they trade. Since the year end the portfolio has experienced further absolute gains while the wider AIM market has been in decline. Instead of predicting the outlook for the wider AIM index we will focus on the key drivers in the portfolio - and here we hold confidence and optimism for the longer term.
With the recent fundraising and receipts from exits, our overall strategy is to look at a wide range of transactions in both the asset backed arena and growth capital where income and growth can be achieved and risk mitigated.
Downing LLP
REVIEW OF INVESTMENTS
Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 March 2014:
| Cost | Valuation | Valuation movement in year | % of portfolio by value | Total invested by Funds also managed by Downing LLP (1) | |
| £'000 | £'000 | £'000 | £'000 | ||
| Top ten venture capital investments | |||||
| Tracsis plc * | 2,052 | 3,515 | 1,217 | 4.6% | - |
| Accumuli plc * | 2,395 | 2,779 | 211 | 3.7% | 2,511 |
| Baron House Developments LLP | 2,695 | 2,695 | - | 3.6% | - |
| Cadbury House Holdings Limited | 3,233 | 2,457 | (321) | 3.2% | - |
| Mosaic Spa and Health Clubs Limited | 2,747 | 2,437 | (310) | 3.2% | 6,017 |
| Vulcan Renewables Limited | 2,415 | 2,415 | - | 3.2% | 5,649 |
| Ludorum plc * | 3,443 | 2,328 | (208) | 3.1% | 3,898 |
| Inland Homes plc * | 2,075 | 2,287 | 212 | 3.0% | 2,477 |
| Universe Group plc * | 1,706 | 2,114 | 217 | 2.8% | 2,034 |
| Bowman Care Homes Limited | 1,535 | 1,635 | 100 | 2.2% | - |
| 24,296 | 24,662 | 1,118 | 32.6% | 22,586 | |
| Other venture capital investments | |||||
| Plastics Capital plc * | 849 | 1,615 | 482 | 2.1% | 1,188 |
| Anpario plc * | 1,296 | 1,465 | 169 | 1.9% | 1,348 |
| Leytonstone Pub Limited | 1,108 | 1,437 | 297 | 1.9% | - |
| Science in Sport plc * | 1,689 | 1,313 | (376) | 1.8% | 2,211 |
| Kidspace Adventure Holdings Limited | 1,165 | 1,301 | 136 | 1.7% | 3,651 |
| Blue Cedars Holdings Limited | 1,268 | 1,268 | - | 1.7% | - |
| Residential PV Trading Limited | 1,060 | 1,240 | 180 | 1.6% | 2,060 |
| Future Biogas (Reepham Road) Limited | 1,123 | 1,123 | - | 1.5% | 2,785 |
| Aminghurst Limited | 1,106 | 1,106 | - | 1.5% | - |
| Future Biogas (SF) Limited | 942 | 1,023 | 59 | 1.4% | 2,301 |
| Hoole Hall Country Club Holdings Limited | 2,316 | 1,014 | (966) | 1.4% | - |
| Domestic Solar Limited | 1,008 | 1,008 | - | 1.3% | 2,808 |
| Quadrate Spa Limited | 1,074 | 988 | (86) | 1.3% | 2,663 |
| Data Centre Response Limited | 983 | 983 | - | 1.3% | - |
| Quadrate Catering Limited | 966 | 966 | - | 1.3% | 2,392 |
| Craneware plc * | 849 | 949 | 100 | 1.3% | 997 |
| Oak Grove Renewables Limited | 945 | 945 | - | 1.2% | 1,890 |
| Antelope Pub Limited | 840 | 869 | 29 | 1.1% | 1,890 |
| The 3D Pub Co Limited | 710 | 845 | 135 | 1.1% | 1,337 |
| Tramps Nightclub Limited | 1,582 | 795 | (818) | 1.0% | - |
| Vianet Group plc * | 952 | 794 | (71) | 1.0% | - |
| Hoole Hall Spa and Leisure Club Limited | 1,467 | 761 | (575) | 1.0% | - |
| Pearce & Saunders Limited | 739 | 739 | - | 1.0% | 1,019 |
| Norman Broadbent plc * | 708 | 691 | (17) | 0.9% | 1,095 |
| Rostima Limited | 942 | 683 | (259) | 0.9% | - |
| Downing (Pirbright Road) Limited | 675 | 675 | - | 0.9% | - |
| First Care Limited | 943 | 668 | - | 0.9% | - |
| Kimbolton Lodge Limited | 664 | 664 | - | 0.9% | - |
| Redmed Limited | 614 | 613 | - | 0.8% | 1,528 |
| Alpha Schools( Holdings) Limited | 585 | 585 | - | 0.8% | 1,818 |
| Angle plc * | 452 | 555 | 103 | 0.7% | - |
| Sprue Aegis plc ** | 333 | 532 | 199 | 0.7% | 831 |
| Manroy plc * | 343 | 528 | 185 | 0.7% | - |
| Curo Compensation Limited | 525 | 525 | - | 0.7% | - |
| Angel Solar Limited | 500 | 500 | - | 0.7% | - |
| Wickham Solar Limited | 472 | 472 | - | 0.6% | 1,417 |
| H&T Group plc * | 413 | 463 | 50 | 0.6% | 1,020 |
| Liverpool Nurseries (Holdings) Limited | 478 | 461 | (17) | 0.6% | 1,348 |
| Pressure Technologies plc* | 249 | 460 | 211 | 0.6% | 276 |
| Pennant International Group plc* | 335 | 422 | 87 | 0.6% | - |
| Downing (Alton) Limited | 403 | 403 | - | 0.5% | - |
| Fresh Green Power Limited | 400 | 400 | - | 0.5% | 600 |
| Flowgroup plc (formely Energetix Group plc)* | 207 | 392 | 185 | 0.5% | - |
| Dillistone Group plc * | 411 | 383 | (28) | 0.5% | - |
| Slopingtactic Limited | 380 | 380 | - | 0.5% | 760 |
| Fubar Stirling Limited | 357 | 357 | - | 0.5% | 1,429 |
| Fenkle Street LLP | 346 | 346 | - | 0.5% | 558 |
| Sanderson Group plc* | 336 | 326 | (10) | 0.4% | 504 |
| Brady public limited company* | 272 | 326 | 54 | 0.4% | - |
| Avacta Group plc* | 247 | 322 | 76 | 0.4% | - |
| Progressive Energies Limited | 320 | 320 | - | 0.4% | 2,060 |
| Kidspace Adventures Limited | 311 | 311 | - | 0.4% | 1,075 |
| Cohort plc* | 393 | 302 | (91) | 0.4% | - |
| Augusta Pub Company Limited | 290 | 290 | - | 0.4% | - |
| SPC International Limited | 283 | 283 | - | 0.4% | - |
| Brooks Macdonald Group plc* | 257 | 281 | 24 | 0.4% | 365 |
| City Falkirk Limited | 326 | 275 | (51) | 0.4% | 2,012 |
| Interquest Group plc* | 229 | 271 | 41 | 0.4% | - |
| Hoole Hall Hotel Limited | 270 | 270 | - | 0.4% | 1,470 |
| IDOX plc * | 79 | 260 | (82) | 0.3% | 470 |
| Camandale Limited | 258 | 227 | (31) | 0.3% | 1,259 |
| Green Energy Production UK Limited | 200 | 200 | - | 0.3% | 300 |
| Pabulum Pubs Limited | 200 | 200 | - | 0.3% | - |
| Gatewales Limited | 172 | 172 | - | 0.2% | - |
| PHSC plc* | 156 | 161 | 5 | 0.2% | - |
| Dominions House Limited | 142 | 142 | - | 0.2% | 320 |
| Ridgeway Pub Company Limited | 126 | 126 | - | 0.2% | 263 |
| Commercial Street Hotel Limited | 115 | 115 | - | 0.2% | 300 |
| Kilmarnock Monkey Bar Limited | 113 | 113 | - | 0.2% | 195 |
| Corac Group plc* | 107 | 112 | 5 | 0.1% | - |
| Hasgrove plc | 81 | 110 | 9 | 0.1% | - |
| Chapel Street Food and Beverage Limited | 97 | 97 | - | 0.1% | 172 |
| Chapel Street Services Limited | 97 | 97 | - | 0.1% | 172 |
| Mi -Pay Group plc* (formerly Aimshell Acquisitions plc) | 136 | 87 | 6 | 0.1% | - |
| Giving Limited | 83 | 83 | - | 0.1% | - |
| Wheelsure Holdings plc** | 70 | 83 | 12 | 0.1% | - |
| Frontier IP Group plc* | 41 | 80 | 39 | 0.1% | - |
| China Food Company plc* | 149 | 73 | (76) | 0.1% | 465 |
| Concha plc* | 28 | 64 | 36 | 0.1% | - |
| Pro Global Insurance Solutions plc* (formerly Tawa plc) | 61 | 54 | (7) | 0.1% | - |
| Afriag plc* | 87 | 46 | (41) | 0.1% | - |
| Bglobal public limited company* | 25 | 23 | (2) | - | - |
| Cheers Dumbarton Limited | 64 | 22 | (42) | - | 255 |
| Octagonal plc* (formerly Suretrack Monitoring plc) | 38 | 20 | (18) | - | - |
| VSA Capital Group plc | 6 | 6 | - | - | - |
| Chapel Street Hotel Limited | 4 | 4 | - | - | 7 |
| Keycom plc | 817 | 2 | (28) | - | - |
| EPI Service Limited | 33 | - | (33) | - | - |
| Southampton Hotel Developments Limited | 400 | - | (400) | - | - |
| The Thames Club Limited | 175 | - | - | - | - |
| Top Ten Holdings plc | 399 | - | - | - | - |
| 45,865 | 43,061 | (1,211) | 56.9% | 54,884 | |
| 70,161 | 67,723 | (93) | 89.5% | 77,470 | |
| Cash at bank and in hand | 7,983 | 10.5% | |||
| Total investments | 75,706 | 100.0% |
The Company also invested into Global3Digital Ltd, Heyford Homes VCT Limited, Imagelinx plc, Invocas Group plc, Lochrise Limited, London City Shopping Centre Limited, The New Swan Holding Company Limited, Southampton Spa Limited, Rivington Street Holdings (UK) Limited and Travelzest plc. Each of these investments were acquired under the merger at negligible value and continued to be valued at the same level.
All venture capital investments are unquoted unless otherwise stated
* Quoted on AIM
** Quoted on the ISDX Growth Market
(1) Other funds also managed by Downing LLP as Investment manager as at 31 March 2014:
Downing Planned Exit VCT 2011 plc
Downing Structured Opportunities VCT plc
PFS Downing Active Management Fund
Downing AIM Estate Planning Service / Downing AIM ISA
Investment movements for the year ended 31 March 2014
Acquired through Mergers
| £'000 | |
| From Downing Absolute Income VCT 1 plc | 12,185 |
| From Downing Absolute Income VCT 2 plc | 13,476 |
| From Downing Income VCT plc | 8,819 |
| From Downing Income VCT 3 plc | 16,013 |
| From Downing Income VCT 4 plc | 7,033 |
| 57,526 |
Additions
| £'000 | |
| Pre Merger- from 1 April 2013 to 11 November 2013 | |
| Inland Homes plc | 390 |
| Science in Sport plc | 333 |
| Norman Broadbent plc | 137 |
| Sprue Aegis plc | 50 |
| Other sundry investments | 1 |
| 911 | |
| Post Merger- from 12 November 2013 to 31 March 2014 | |
| Kidspace Adventures Holdings Limited | 203 |
| Vulcan Renewables Limited | 115 |
| Future Biogas (SF) Limited | 98 |
| Rostima Limited | 74 |
| SPC International Limited | 69 |
| Retallack Surfpods Limited | 4 |
| Other sundry investments | 8 |
| 571 | |
| Total additions | 1,482 |
Disposals
Pre Merger- from 1 April 2013 to 11 November 2013
| Cost | Value at 01/04/13 * | Proceeds | (Loss)/ profit vs cost | Realised (loss)/ gain | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Market sales | |||||
| Accumuli plc | 2 | 2 | 4 | 2 | 2 |
| Animalcare Group plc | 219 | 222 | 235 | 16 | 13 |
| Belgravium Technologies plc | 43 | 34 | 45 | 2 | 11 |
| Craneware plc | 293 | 326 | 302 | 9 | (24) |
| Netcall plc | 55 | 187 | 210 | 155 | 23 |
| Travelzest plc | 96 | 17 | 3 | (93) | (14) |
| Tristel plc | 511 | 193 | 179 | (332) | (14) |
| 1,219 | 981 | 978 | (241) | (3) | |
| Unquoted (including loan note redemptions) | |||||
| Baron House Developments LLP | 115 | 115 | 115 | - | - |
| Cadbury House Holdings Limited | 149 | 149 | 149 | - | - |
| Real Time Logistic Solutions Limited | - | 125 | 125 | 125 | - |
| 264 | 389 | 389 | 125 | - | |
| Takeovers | |||||
| Hasgrove plc | 95 | 133 | 156 | 61 | 23 |
| Liquidations/administrations | |||||
| FSG Security plc | - | - | 1 | 1 | 1 |
| Bonds | |||||
| Ulster Bank (IRE) 11.75% Subord | 558 | 357 | 332 | (226) | (25) |
| 2,136 | 1,860 | 1,856 | (280) | (4) | |
| Post Merger- from 12 November 2013 to 31 March 2014 | |||||
| Market sales | |||||
| Accumuli plc | 122 | 188 | 321 | 199 | 133 |
| Angle plc | 225 | 225 | 281 | 56 | 56 |
| Avacta Group plc | 106 | 106 | 134 | 28 | 28 |
| Belgravium Technologies plc | 50 | 50 | 56 | 6 | 6 |
| China Food Company plc | 10 | 10 | 7 | (3) | (3) |
| EG Solutions plc | 194 | 194 | 113 | (81) | (81) |
| H&T Group plc | 413 | 413 | 449 | 36 | 36 |
| Instem plc | 283 | 283 | 296 | 13 | 13 |
| Pennant International Group plc | 642 | 642 | 688 | 46 | 46 |
| Photonstar LED Group | 132 | 132 | 124 | (8) | (8) |
| Savile Group plc | 27 | 27 | 32 | 5 | 5 |
| 2,204 | 2,270 | 2,501 | 297 | 231 | |
| Unquoted (including loan note redemptions) | |||||
| EPI Services Limited | - | - | 100 | 100 | 100 |
| Kidspace Adventures Limited | 95 | 95 | 95 | - | - |
| Leytonstone Pub Limited | 150 | 150 | 150 | - | - |
| Locale Enterprises Limited | 379 | 379 | 377 | (2) | (2) |
| London Italian Restaurants Limited | - | - | 1 | 1 | 1 |
| Redmed Limited | 45 | 45 | 45 | - | - |
| Retallack Surfpods Limited | 327 | 327 | 327 | - | - |
| SPC International Limited | 26 | 26 | 26 | - | - |
| 1,022 | 1,022 | 1,121 | 99 | 99 | |
| Liquidations/administrations | |||||
| Helcim Limited | - | - | 22 | 22 | 22 |
| 3,226 | 3,292 | 3,644 | 418 | 352 | |
| Total disposals | 5,362 | 5,152 | 5,500 | 138 | 348 |
* Adjusted for purchases in the year where applicable
Statement of Directors' responsibilities
The Directors are responsible for preparing the Strategic Report, the Directors' Report, the Directors' Remuneration Report, the separate corporate governance statement 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). 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 and loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments 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 and to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements and the Directors Remuneration Report 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 undertakes and provides the information necessary 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.
INCOME STATEMENT
for the year ended 31 March 2014
| 2014 | 2013 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
Income | ||||||||
-continuing | 272 | - | 272 | 329 | - | 329 | ||
-acquisition | 886 | - | 886 | - | - | - | ||
| 1,158 | - | 1,158 | 329 | - | 329 | |||
Gains/(losses) on investments | ||||||||
-continuing | - | (522) | (522) | - | (128) | (128) | ||
-acquisition | - | 777 | 777 | - | - | - | ||
| - | 255 | 255 | - | (128) | (128) | |||
| Net gain on acquisition of net assets | - | 253 | 253 | - | - | - | ||
| 1,158 | 508 | 1,666 | 329 | (128) | 201 | |||
| Investment management fees | (298) | (379) | (677) | (63) | (187) | (250) | ||
| Other expenses | (488) | - | (488) | (239) | - | (239) | ||
| Return/(loss) on ordinary activities before tax | 372 | 129 | 501 | 27 | (315) | (288) | ||
| Tax on ordinary activities | (87) | 87 | - | - | - | - | ||
| Return/(loss) attributable to equity shareholders | 285 | 216 | 501 | 27 | (315) | (288) | ||
| Restated | Restated | Restated | ||||||
| Basic and diluted return per share | 0.4p | 0.3p | 0.7p | 0.2p | (2.2p) | (2.0p) | ||
The total column within the Income Statement represents the profit and loss account of the Company.
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement shown above.
Other than revaluation movements arising on investments held at fair value through the Income Statement, there were no differences between the return as stated above and at historical cost.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 March 2014
| 2014 | 2013 | ||
| £'000 | £'000 | ||
| Opening Shareholders' funds | 14,005 | 15,812 | |
| Issue of share capital on acquisition | 60,625 | - | |
| Issue of new shares | 2,102 | 393 | |
| Unallotted shares | 921 | (382) | |
| Issue of shares under Share Realisation and Reinvestment Programme | - | 5,850 | |
| Share issue costs | (57) | (97) | |
| Purchase of own shares | (1,531) | (413) | |
| Purchase of own shares under Share Realisation and Reinvestment Programme | - | (5,879) | |
| Total recognised gains/(losses) for the year | 501 | (288) | |
| Dividends paid | (1,989) | (991) | |
| Closing Shareholders' funds | 74,577 | 14,005 |
BALANCE SHEET
as at 31 March 2014
| 2014 | 2013 | ||
| £'000 | £'000 | ||
| Fixed assets | |||
| Investments | 67,723 | 13,960 | |
| Current assets | |||
| Debtors | 509 | 111 | |
| Cash at bank and in hand | 7,983 | 123 | |
| 8,492 | 234 | ||
| Creditors: amounts falling due within one year | (1,638) | (189) | |
| Net current assets | 6,854 | 45 | |
| Net assets | 74,577 | 14,005 | |
Capital and reserves | |||
| Called up share capital | 750 | 196 | |
| Capital redemption reserve | 1,470 | 1,153 | |
| Share premium account | 62,114 | 315 | |
| Share capital to be issued | 921 | - | |
| Special reserve | 11,458 | 13,743 | |
| Capital reserve - realised | - | 1,136 | |
| Capital reserve - unrealised | (2,438) | (2,555) | |
| Revenue reserve | 302 | 17 | |
| Total equity shareholders' funds | 74,577 | 14,005 | |
| Restated | |||
| Basic and diluted net asset value per share | 98.2p | 100.3p |
CASH FLOW STATEMENT
for the year ended 31 March 2014
| 2014 | 2013 | ||
| £'000 | £'000 | ||
| Net cash outflow from operating activities | (128) | (119) | |
| Taxation | |||
| Corporation tax paid | (169) | - | |
| Capital expenditure | |||
| Purchase of investments | (1,482) | (2,188) | |
| Disposal of investments | 5,397 | 2,719 | |
| Net cash inflow from capital expenditure | 3,915 | 531 | |
| Acquisitions | |||
| Cash acquired | 4,627 | - | |
| Acquisition costs | (238) | - | |
| Net cash inflow from acquisitions | 4,389 | - | |
| Equity dividends paid | (1,984) | (989) | |
| Net cash inflow/(outflow) before financing | 6,023 | (577) | |
| Financing | |||
| Proceeds from share issue | 2,102 | 393 | |
| Proceeds from new share issue under Share Realisation and Reinvestment Programme | - | 5,850 | |
| Unallotted share issue proceeds | 921 | (382) | |
| Share issue costs | (57) | (99) | |
| Purchase of own shares | (1,129) | (467) | |
| Purchase of own shares under Share Realisation and Reinvestment Programme | - | (5,879) | |
| Net cash inflow/(outflow) from financing | 1,837 | (584) | |
| Increase/(decrease) in cash | 7,860 | (1,161) |
NOTES
1.Accounting policies
Basis of accounting
The Company has prepared its financial statements 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" January 2009 ("SORP").
The financial statements are prepared under the historical cost convention except for the revaluation of certain financial instruments.
The Company implements new Financial Reporting Standards issued by the Accounting Standards Board when required.
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
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 26.
Listed fixed income investments and investments quoted on recognised stock markets are measured using bid prices.
The valuation methodologies for unlisted instruments 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 the 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.
Where an investee company has gone into receivership, liquidation, or administration where there is little likelihood of a recovery, the loss on the investment, although not physically disposed of, is treated as being realised.
Gains and losses arising from changes in fair value are included in the income statement as a capital item.
It is not the Company's policy to exercise either significant or controlling influence over investee companies. Consistent with FRS9 and the SORP all portfolio investments are stated at fair value and not using the equity method of accounting. Therefore, the results of these companies are not incorporated into the revenue account except to the extent of any income accrued.
In respect of disclosures required by the SORP for the 10 largest investments held by the Company, the most recent publicly available accounts information, either as filed at Companies House, or announced to the London Stock Exchange, is disclosed. In the case of unlisted investments, this may be abbreviated information only.
Income
Dividend income from investments is recognised when the Shareholders' right to receive payment has been established, normally the ex-dividend date.
Interest income is accrued on a time apportioned 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 acquisition of an investment are deducted from the Capital Account.
*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. Since the merger on 12 November 2013, investment management fees are allocated 50% to revenue and 50% to capital, in order to reflect the Directors' expected long-term view of the nature of the investment returns of the Company. Prior to the merger, such fees were allocated 25% to revenue and 75% to capital.
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.
Deferred taxation is not discounted and 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 the obligations or rights crystallise based on tax rates and law enacted or substantively enacted at the balance sheet date. 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. Deferred tax assets are only recognised if it is expected that future taxable profits will be available to utilise such assets and are recognised on a non-discounted basis.
Other debtors and other creditors
Other debtors (including accrued income) and other creditors are included within the accounts at amortised cost.
Share issue costs
Share issue costs have been deducted from the share premium account.
Segmental reporting
The Company only has one class of business and one market.
Acquisitions
Acquisitions made during the year are accounted for using the acquisition method. The purchase consideration is measured at the fair value of equity issued compared to the fair value of the assets and liabilities acquired. The excess of fair value of net assets acquired compared to the purchase consideration is recognised in the Income Statement, after deduction of acquisition costs, and described as "Net gain on acquisition of net assets".
2.Basic and diluted return per share
| 2014 | 2013 | |||
| Return per share based on: | ||||
| Net revenue return for the financial year (£'000) | 285 | 27 | ||
| Capital return per share based on: | ||||
| Net capital gain/(loss) for the financial year (£'000) | 216 | (315) | ||
| Restated | ||||
| Weighted average number of shares in issue | 74,326,968 | 14,230,452 | ||
On 12 November 2013, each 1p ordinary share was converted into 0.713 1p Ordinary shares and 0.287 deferred shares. The weighted average number of ordinary shares in issue as at 31 March 2013 has been restated accordingly.
As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share. The return per share disclosed therefore represents both basic and diluted return per share.
3.Basic and diluted net asset value per share
| Shares in issue | Net assets | NAV per share | ||
| £'000 | pence | |||
| As at 31 March 2014 | Ordinary Shares | 75,007,105 | 73,656 | 98.2 |
| Share capital to be issued | 921 | |||
| 74,577 | ||||
| As at 31 March 2013 | Ordinary Shares | 13,969,445 | 14,005 | 100.3 |
On 12 November 2013 the 19,592,490 Ordinary shares were converted into 13,969,445 ordinary shares. The net asset value per share as at 31 March 2013 has been restated accordingly.
As the Company has not issued any convertible securities or share options, there is no dilutive effect on net asset value per class of share in issue. The net asset value per share disclosed therefore represents both basic and diluted net asset value per class of share in issue.
4.Principal risks
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; and
*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:
Investment risks
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 the investment activities undertaken by the 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; and
*Interest rate risk.
The Company has undertaken sensitivity analysis on its financial instruments, split into the relevant component parts, taking into consideration the economic climate at the time of review in order to ascertain the appropriate risk allocation.
Investment price risk
Investment price risk arises from uncertainty about the future prices and valuations of financial instruments held in accordance with the Company's investment objectives. It represents the potential loss that the Company might suffer through investment price movements in respect of quoted investments and also changes in the fair value of unquoted investments that it holds.
Interest rate risk
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 and fixed interest securities attract interest predominately at fixed rates. A summary of the interest rate profile of the Company's investments is shown below.
Interest rate profile of financial assets and financial liabilities
There are three levels of interest which are attributable to the financial instruments as follows:
*"Fixed rate" assets represent investments with predetermined yield targets and comprise fixed interest and loan note investments.
*"Floating rate" assets predominantly bear interest at rates linked to Bank of England base rate and comprise cash at bank.
*"No interest rate" assets do not attract interest and comprise equity investments, non-interest bearing convertible loan notes, loans and receivables (excluding cash at bank) and other financial liabilities.
The Company monitors the level of income received from fixed, floating and non interest 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
Credit risk is the risk that 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, investments in fixed interest securities, cash deposits and debtors.
The Manager manages credit risk in respect of loan notes 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. The level of security is a key means of managing credit risk. Similarly, the management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures.
Cash is mainly held at Royal Bank of Scotland plc, with a balance also maintained at Bank of Scotland plc, both of which are A-rated financial institutions and 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 can be directly attributable to changes in credit risk.
Liquidity 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. The Company only normally ever has a relatively low level of creditors (2014: £1,638,000, 2013: £189,000) and has no borrowings. Also most quoted investments held by the Company are considered to be readily realisable. The Company always holds sufficient levels of funds as cash and readily realisable investments 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 Manager in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.
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 March 2014, but has been extracted from the statutory financial statements for the year ended 31 March 2014 which were approved by the Board of Directors on 22 July 2014 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 year ended 31 March 2013 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 March 2014 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, Horseferry Road, London SW1P 2AL and will be available for download from 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: Downing ONE VCT plc via Globenewswire
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