Final Results

 

 

 

 

The statement to shareholders by the Chairman, David Brock, includes the following comments:

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.

 

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.

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.

 

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.

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.

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.

 

The total return on ordinary activities for the year was as follows:

 

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.

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.

 

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.

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.

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.

 

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:

 

 

All venture capital investments are unquoted unless otherwise stated

 

* Quoted on AIM

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.

 

 

 

 

 

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.

In order to better reflect the activities of a Venture Capital Trust and in accordance with guidance issued by the Association of Investment Companies ("AIC"), supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. The net revenue is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Part 6 of the Income Tax Act 2007.

 

All investments are designated as "fair value through profit or loss" assets and are 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.

 

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.

 

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:

 

 

 

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 in relation to the shares issued are deducted from the respective share premium account.

 

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.