Final Results

DOWNING PROTECTED VCT II PLC

FINAL RESULTS FOR THE YEAR ENDED 31 JANUARY 2008

 

FINANCIAL HIGHLIGHTS

 

CHAIRMAN'S STATEMENT

 

The Company made three qualifying investments during the year totalling £2.6 million.  This took the Company VCT qualification percentage to 76.1 % at the year-end, comfortably in excess of the required level for the Company to have 70% of its funds in VCT-Qualifying investments at that date.

 

The new investments are spread across a variety of sectors (leisure, residential property contracting and commercial property contracting), such that the Company's final VCT-Qualifying portfolio is reasonably diversified, while remaining within the parameters of investing in business which can provide asset backing.

 

As I have mentioned in previous reports, the Investment Manager has seen a number of good quality non-VCT Qualifying investment opportunities which can often provide higher yields than gilts or listed corporate bonds with no significant increase in risk.  The Company made five such investments (including a partly non-qualifying investment) during the year at a total cost of £2.1 million.

 

The Board has reviewed the valuation of the investments at the year end.  Generally investments have been performing to plan and the Board has concluded that it is appropriate to continue to hold all investments at valuations equivalent to cost.

 

During the year, the Company sold all of its remaining listed fixed interest investments, giving rise to a loss during the year of £21,000.  The funds raised were employed in the non-VCT Qualifying investments described above.

 

At 31 January 2008, the Company's Net Asset Value per share ("NAV") stood at 96.5p, a rise of 2.2p (2.3%) against the NAV at 31 January 2007 after adjusting for the dividend of 1.5p per share paid during the year. 

The return on ordinary activities for the year after taxation was £215,000 (2007: £113,000) comprising a revenue return of £236,000 and a capital loss of £21,000.

 

The Board is proposing to pay a dividend of 2.0p per share on 31 July 2008 to Shareholders on the register at the close of business on 11 July 2008.

 

At the forthcoming AGM, the Board will seek Shareholder approval to update the Company's Articles of Association. Resolution 7, which is a special resolution, proposes the adoption of new Articles of Association which incorporate a number of changes which are required as a result of the implementation of the Companies Act 2006.

 

The Board recommends Shareholders vote for Resolution 7 as, in the Board's opinion, the proposed changes are in the best interests of Shareholders.

Annual General Meeting

The Directors have decided to hold the Company's third AGM at Hoole Hall near Chester, a property owned by one of the Company's investments.  Full details of the address are in the notice to the meeting.  The meeting will take place at 2.15 pm on 30 July 2008.

 

Two item of special business, seeking approval for the Company to be able to buy its own shares and to adopt the new Articles of Association as described above, will be proposed.

 

The Investment Manager is now working with all investee companies to seek exits from the investments.  It is too early to be able to accurately determine when all exits will be achieved, but the Manager is confident that sufficient realisations can take place over the coming months to allow a substantial dividend to be paid before the end of September 2008.

 

The Company's original prospectus targeted paying proceeds of £1 per share to Shareholders by the end of the Company's sixth year (27 June 2011).  The Board is optimistic that the investment portfolio can be liquidated significantly ahead of that schedule.

 

Having reviewed potential cash flows that Shareholders might receive, it is clear that it is in best interests of Shareholders to receive funds from the Company as early as possible.  To this end, the Board has set a target timetable for the distribution of funds to Shareholders as follows:

 

30 September 2008                                          50.0p

31 January 2009                                               25.0p

30 June 2009                                                     Remaining funds

 

The above timetable is not a forecast and the Investment Manager is giving no guarantee that it can be achieved, but believes it to be realistic.

In order to provide liquidity for forced sellers of shares, the Company has a policy of buying in any shares that become available in the market for cancellation.  A special resolution to renew the authority for Directors to buy in shares for cancellation is proposed for the forthcoming AGM.  No shares were acquired during the year.

 

In order that the process of realising investments and distributing the proceeds to Shareholders can take place in an orderly manner, the Board has decided that provision should be made for the maximum amount of performance incentive fees that could be payable, as well as a 10% discount against NAV, in determining the price at which any share buybacks are undertaken.  This currently equates to approximately a 20% discount to NAV.

 

This discount is significantly higher than would normally be applied, but following discussions with the Manager, the Board believes this is essential to ensure that the Company has the best chance of meeting the target timetable for distributions set out above.

 

The reverberations of the "credit crunch" have been felt widely and have changed the climate for both investors and borrowers.  Although this may make the task of liquidating the Company's portfolio more challenging than it would otherwise have been, the Board and Manager are confident that the structure of the Company's investments will allow exits to be achieved to support the target timetable for distributions.

 

Chairman

 

 

All Revenue and Capital items in the above statement derive from continuing operations.

 

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement noted above.

 

 

 

 

The following investments, all of which are incorporated in England and Wales, were held at 31 January 2008:

* partly non-qualifying

 

Revenue return per ordinary share is based on the net revenue after taxation of £236,000 (2007:  £181,000), in respect of 10,143,848 (2007: 10,153,602) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

 

Capital return per ordinary share is based on the net capital loss for the financial year of £21,000 (2007: £68,000), in respect of 10,143,848 (2007: 10,153,602) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

 

As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per Ordinary share.  The return per share disclosed therefore represents both the basic and diluted return per Ordinary share.

 

 

Net asset value per ordinary share is based on net assets at the year end, and on 10,143,848 (2007: 10,138,848) ordinary shares, being the number of ordinary shares in issue at the year end.

 

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 January 2008, but has been extracted from the statutory financial statements for the year ended 31 January 2008, which were approved by the Board of Directors on 29 May 2008 and 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 s498 (2) and (3) of the Companies Act 2006.

 

The statutory accounts for the year ended 31 January 2007 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.

 

A copy of the full annual report and financial statements for the year ended 31 January 2008 will be printed and posted to shareholders shortly. 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.