TIDMPND
PENNINE DOWNING AIM VCT 2 PLC
Report & Accounts for the year ended 28 February 2009
FINANCIAL HIGHLIGHTS AND HISTORIC SUMMARY
Year Year
Ended Ended
28-Feb-09 29-Feb-08
Net asset value per share 26.8p 55.0p
Total distributions paid per share since 27.0p 23.5p
inception
Total return per share 53.8p 78.5p
(Net asset value plus cumulative distributions)
CHAIRMAN'S STATEMENT
I present the Report and Accounts for the year ended 28 February
2009. It has been another difficult and disappointing year for
Pennine Downing AIM VCT 2 plc. The Company's high level exposure to
the AIM market has resulted in further substantial falls in many of
the investment valuations of the portfolio companies and a large fall
in the Net Asset Value ("NAV").
Net Asset Value
At 28 February 2009, the Company's NAV stood at 26.8p, a decrease of
24.7p (44.9%) per share compared to the previous year-end position
and after adjusting for the dividend of 3.5p per share that was paid
in the year. By way of comparison, the FTSE AIM All-Share Index fell
by nearly 62% over the year.
Venture capital investments
During the year, the Company made a small number of part and full
disposals of some of its AIM-quoted holdings generating proceeds of
GBP757,000, although realising losses for the year of GBP10,000.
The Company also made two new investments, at a total cost of
GBP800,000 and two follow-on investments, totalling GBP104,000. The new
investments were in two unquoted businesses, one which owns a spa and
leisure facility and the other which owns a health club. Although
not without risk, the Board believes that, in this climate,
investments such as these, which own substantial assets, may prove to
be more resilient and might not suffer so greatly from low levels of
investor confidence which have heavily impacted on valuations of
AIM-quoted businesses.
At the year end the Company's venture capital portfolio was valued at
GBP5.6 million, with net unrealised losses arising for the year of GBP5.5
million.
Details of the Company's venture capital investments, including
additions, disposals and performance, are set out within the
Investment Manager's report and Review of Investments.
Unit trust and other investments
During the year, the Company disposed of its portfolio of Rathbones
Unit Trusts, realising a loss of GBP74,000 against cost.
The Company also holds a small non-qualifying portfolio which now
comprises of a corporate bond and a holding in a bond fund. This
portfolio was valued at GBP370,000 at the year end, with unrealised
losses for the year, thereon, of GBP28,000.
Directorate changes
On 21 October 2008, Brian Beverly decided to step down from the Board
as a non-executive director due to personal reasons. The Directors
would like to thank Brian for his valuable contribution since the
Company's launch in 2001 and wish him well for the future.
On 1 December 2008, Chad Murrin joined the board as a non-executive
director. Chad has extensive corporate finance experience. He
worked at 3i plc from 1986-2004, the last five years as Corporate
Development Director and leading a number of major corporate projects
including acquisitions and new market entry. Chad is currently also
a non-executive director of three other VCTs and the Directors
believe that his skills set and experience will be a valuable
addition to the Board.
Results
The loss on ordinary activities after taxation was GBP5,924,000 (2008:
GBP1,355,000), comprising a revenue return of GBP30,000 and a capital
loss of GBP5,954,000.
Dividend
As a result of the substantial falls in value that the Company has
suffered over the last year or so, the Company now no longer has
sufficient distributable reserves to be able to declare a final
dividend.
In order to remedy this situation, the Company is seeking to cancel
its share premium account. The cancellation of the share premium
account requires shareholder approval, and then Court approval.
Shareholder approval will be sought by Resolution 7 at the
forthcoming AGM. Assuming Shareholder approval is received at the
AGM, the Board will seek Court approval, a process which may take
several weeks, after which the Board will be able to consider the
resumption of the payment of dividends.
Share buybacks
The Company has, in the past, operated a policy of buying its own
shares when they become available in the market, for cancellation.
As mentioned above the Company does not currently have sufficient
distributable reserves and is therefore unable the make further
market purchases of its share for the time being. Once the share
premium cancellation process is complete, the Board will consider
resuming share buybacks.
In order to give the Board flexibility to resume share buybacks in
due course, a special resolution is being put to Shareholders at the
forthcoming AGM to give the Company authority to make market purchase
of its shares.
During the year the Company purchased 629,287 of its shares for an
average price of 36.7p per Ordinary Share, being approximately a 10%
discount to the NAV, and an aggregate consideration of GBP232,000.
These shares were subsequently cancelled.
VCT Status
The Company continues to meet the requirements as set out in the VCT
regulations.
Annual General Meeting
The next Annual General Meeting of the Company will be held at 159
New Bond Street, London, W1Y 9PA at 11:00am on 5 August 2009.
Two items of Special Business are proposed, to authorise the Company
to make market purchases of the Company's shares and the cancellation
of share premium account.
Outlook
The prospect of a significant recovery of the AIM market in the short
term is unrealistic. With your Company heavily invested in AIM-quoted
stocks it is similarly unlikely that there will be significant growth
in the NAV over the coming year.
The Board is working on strategies for the future of the Company,
including whether a shift of investment focus could improve
performance and reviewing whether it is realistic for the Company to
continue at its current size as an independent entity. Naturally,
Shareholders will be contacted should any major proposals arise from
this review.
Andrew Griffiths
Chairman
INVESTMENT MANAGER'S REPORT
We present an overview of the investment management activities for
the year ended 28 February 2009.
The last twelve months has been a challenging period for equity
markets and a particularly torrid time for the smaller companies
market. UK smaller companies share prices have been under pressure
since the autumn of 2007 when credit markets started to tighten in
response to defaults in the US sub prime market. A readjustment of
risk throughout 2008 saw investors taking a more cautious stance
towards smaller companies. The worse falls in share prices occurred
in the second half of the year as the financial crisis intensified
with the effects of the credit crunch spreading to the wider economy,
resulting in the UK economy going into recession in the fourth
quarter. It is not unusual at this stage of the economic cycle to
see investors shy away from small companies. The falls have been
exacerbated by poor liquidity, and compounded by forced sellers as
smaller company funds, such as unit trusts, are necessitating sales
of their underlying investments into an already weak AIM share
market.
For the record the FTSE 100 shares index showed a fall over the year
of 34.9%, whilst the FTSE Small Cap Index fell 47.4% and the AIM
Index declined 61.8 %.
Following the merger with The Ethical AIM VCT plc and Pennine Downing
AIM VCT plc, the combined VCT is fully invested in terms of its
requirements to meet the Inland Revenue rules. With falling asset
prices and company valuations, we have pursued a cautious
reinvestment programme with just two new investments and two
additional investments into existing holdings.
Hoole Hall Spa & Leisure Ltd is a separate company set up to provide
spa and leisure facilities for Hoole Hall Country Club Ltd, which is
a country club hotel located on the Chester Ring Road. In May 2008
your Company invested GBP66,000 by way of equity and GBP234,000 into a
4.15% Convertible Loan Note to help fund the construction of the new
health club and spa.
The Thames Club Ltd is a health and fitness club based in Staines.
This is an unquoted investment in which your Company invested
GBP250,000 to help fund the purchase. The intention is to refurbish
the existing club to assist with growing the membership.
Trading to date has been to plan and the refurbishment plans are
progressing well, however a recent valuation for bank purposes has
suggested that the value of the club has fallen significantly since
it was acquired. For this reason, we have made 50% provision has
been made against the cost of the investment, but we believe that the
medium-term prospects for the refurbished club remain good.
Hill Station plc is an ice cream manufacturer based in Cwmbran. Your
Company made its initial investment of GBP250,000 in 2005. Further
funding of GBP233,000 was provided, to help with working capital
following a short fall in sales owing to a very wet summer in 2007
and also to assist with the acquisition of the So Real Ice Company, a
rival ice cream manufacturer. A sharp increase in raw material costs
coupled with suppliers imposing lower credit limits saw a need for
additional working capital. In January 2008, your Company
participated further with GBP70,000, the majority of which was via a
10% loan note. Sales improved, helped by deliveries to new
customers. In late March 2008 the company's bank unexpectedly
imposed a cap on their factoring facility well below normal terms at
the time when the company were looking to build stock for the summer
season. Your Company participated in fund raising and provided a
further GBP83,333 via a 15% loan stock to assist with working capital.
Unfortunately, customer confidence was damaged by these funding
difficulties which resulted in a loss of business and sales falling
below budget. By late summer 2008 it was clear that the company
would not survive the winter months without a further injection of
cash. Given the fragile state of the business, your Company together
with other investors declined to support the rescue plan and the
company was placed into administration in early October 2008.
Forward Media Limited operates local commercial radio stations. Your
Company provided GBP20,944 to replace working capital which had
previously come from other sources.
The top ten holdings now account for 50.5% of the value of the
portfolio. Synergy Health plc the largest holding, moved to the
Official List (main market) in the summer of 2008 although shortly
afterwards issued a disappointing trading update due to some short
term cost pressures. The company has a strong business model,
particularly in the area of decontamination and we expect the company
to remain an attractive investment. Spice plc also moved from AIM to
the Official List.
The third largest holding is Nu Nu plc who has been actively seeking
an exit for investors. Cadbury House Limited has traded well and to
budget whilst the building works and refurbishment at Hoole Hall
Country Club Holdings Limited have gone well with planning permission
granted for a further 30 bedrooms to bring the total to 140
bedrooms. The hotel has now been badged DoubleTree® by Hilton which
will allow the company to benefit from the brand recognition and
Hilton's powerful internet reservation system. The expected increase
in clientele will benefit Hoole Hall Spa & Leisure Limited.
The fall in the share price of Glisten plc has had the largest single
negative impact on your company's net asset value. The market
capitalisation fell to around the same level as it was at the time
the company was founded in June 2002, despite the robust growth in
profits from their strong portfolio of brands. The fall in share
price is attributable to some weakness in their confectionary
division which was impacted by greater price promotions from branded
competitors as well as declining sales in the independent retail
channel. With high debts after the acquisition of Dorman Foods in
2007 the company has rightly decided to cut the dividend to conserve
cash. This is fundamentally a sound business which we expect to
recover so long as profits start to pay down debt as we expect. We
see this as a recovery stock in the medium term.
A partial sale, to take profits at what now looks like a high price,
was undertaken in Aero Inventory plc at GBP5.61 to raise GBP202,000. The
share price has since fallen back on the expectation that the global
economic downturn will result in fewer passenger miles being flown
and a resultant decrease in aircraft serving needs. The company does
have long term contracts and strong asset backing through the stock
they hold.
In August 2007 Clerkenwell Ventures plc raised GBP26 million to add to
the GBP4 million which had come from their original admission to AIM in
2004. Its strategy had been to acquire restaurant businesses.
Although a number of potential acquisitions had been considered, no
businesses had been acquired due to inflated restaurant valuations
taking time to adjust to the poor outlook for consumer spending. As
a result of not investing the money raised, the investment became non
qualifying for VCT investment. We have worked with the company and
since Pennine Downing AIM VCT 2's year end, Clerkenwell has returned
to shareholders GBP27 million of its near GBP30 million of cash. This
has resulted in an upward valuation movement for the year as the
shares had been perversely trading at a substantial discount to
cash.
Ludorum plc has successfully delivered its first series to the BBC of
Chuggington, an animated weekday programme of train adventures for
children. Despite being heavily focused on the financial sector FDM
Group plc, with its specialist IT personnel, has since the date of
your Company's year end reported a strong set of profit figures with
substantial cash on the balance sheet.
Whilst some of the falls in share prices have been as a result of a
general severe mark down in valuations for smaller companies, other
falls have been due to investor concerns. This has particularly been
the case for companies with relatively high debt positions, often
faced with the prospect of having to renegotiate with a reluctant
bank looking to rebuild its own lending margins through tougher
lending terms. This coupled with the general poor economic climate
has hit consumer related companies, with falls in The Clapham House
Group plc, Pubs 'n' Bars plc and Media Square plc, where for the
latter any benefits gained from the reorganisation plan that is
currently being executed are being more than offset by lower
advertising spend.
Despite contract wins and directors share purchases, the share price
of AT Communications plc has remained under pressure due to
relatively high debt levels. A more positive statement from the
company announcing a fall in borrowing and an expected further
reduction in 2009 has seen some improvement in the share price since
Pennine Downing AIM VCT 2's year end. A dramatic fall in commercial
property activity saw Colliers CRE plc report a substantial loss for
2008; with a reduced cost base the company is now better positioned
whilst they await an improvement in investor confidence towards
commercial property.
The downturn in construction work particularly in the Middle East
coupled with an increased pension fund deficit due to falling stock
markets saw Interserve lose value over the period. The company does
have a strong asset backing from its Private Finance Initiative (PFI)
holdings and a strong pipeline of projects. Neutrahealth saw its
share price fall following a profits warning due to pressure on sales
of their vitamins, minerals and supplements business and increased
costs. Their largest shareholder, Elder Pharmaceuticals, has stated
that it is considering its options concerning the company that may or
may not involve an offer.
Waterline plc, the kitchen business, suffering from lower demand
undertook a cost cutting exercise, one of which was its decision to
de list from AIM.
Around a third of all companies on AIM have a market capitalisation
of less than GBP5 million. With profits under pressure and one of the
primary reasons for being on AIM, that of being able to access
funding from potential investors, not currently available, we are
seeing an increasing number of companies considering delisting and
saving the costs of being quoted.
SPC - we have agreed some reductions in the valuations of the
Company's unquoted investments, the largest being in hardware support
company, SPC International Limited, against which we have made a full
provision of GBP361,000. Interest on the company's loan stock is in
arrears and we are currently awaiting proposals from the company as
to how this will be addressed.
During the year there were full disposals made of Condor
Environmental plc, Hartest Holdings plc and Payzone plc with partial
disposals in Aero Inventory plc and Breaking Views Limited, whilst
Chelford Group plc was taken over. The Rathbone Income Fund together
with the Rathbone Income & Growth Fund holdings were both sold with a
small part of the proceeds being reinvested into Henderson Global
Strategic Bond Fund.
Outlook
The economic news flow continues to be poor with company profits
under pressure. For many companies, expansion plans are on hold as
they look to weather this downturn. Companies with leveraged balance
sheets are looking to reduce debt through the conservation of cash,
meaning possible dividend cuts and where possible fund raising from
investors, although for most smaller companies there is little
investor demand. It is worth noting an increasing number of director
share purchases in their own companies. A sign perhaps that a great
deal of pessimism is already reflected in the depressed valuations
for smaller companies and the confirmation of the real value they
offer for the patient investor. Smaller companies may well remain
friendless for some time but when credit markets ease trade buyers
may well appear should share prices not start to pre-empt a turn for
the better in the economic cycle.
Rathbone Investment Management Limited
REVIEW OF INVESTMENTS
Portfolio of investments
The following investments, all of which are incorporated in England
and Wales, were held at 28 February 2009:
Valuation % of
movement portfolio
Cost Valuation in year by value
GBP'000 GBP'000 GBP'000
Top ten venture capital
investments
Synergy Health plc *** 622 522 (371) 8.4%
Cadbury House Limited * 461 461 - 7.4%
Nu Nu plc * 470 432 (86) 6.9%
Elektron plc 459 351 (321) 5.6%
Aero Inventory plc 860 303 (571) 4.9%
Hoole Hall Spa and Leisure 300 300 - 4.8%
Limited *
Clerkenwell Ventures Group plc 276 265 30 4.3%
Ludorum plc 163 184 19 3.0%
Spice plc *** 398 172 (232) 2.7%
Pennant International Group 308 156 (167) 2.5%
plc
4,317 3,146 (1,699) 50.5%
Other venture capital
investments
Glisten plc 246 145 (654) 2.3%
Neutrahealth plc 230 144 (93) 2.3%
AT Communications plc 392 143 (196) 2.3%
Preston North End plc 141 130 (10) 2.1%
The Thames Club Limited * 250 125 (125) 2.0%
Supporta plc 406 124 (134) 2.0%
RFTRAQ Limited * 401 112 (113) 1.8%
FDM Group plc 150 103 (36) 1.7%
1st Dental Laboratories plc 316 100 (90) 1.6%
Forest Support Services plc 160 86 (34) 1.4%
Giving Limited * - 84 84 1.4%
FSG Security plc ** 500 79 (169) 1.3%
Interserve plc *** 213 77 (124) 1.2%
Sanastro Limited * 314 72 (68) 1.2%
Straight plc 160 72 (21) 1.2%
Quadnetics Holdings plc 161 71 (44) 1.1%
Huveaux plc 300 67 (134) 1.0%
Colliers CRE plc 296 63 (176) 1.0%
BreakingViews Limited * 61 61 - 1.0%
The Clapham House Group plc 107 51 (113) 0.8%
Keycom plc ** 555 34 (11) 0.5%
Global3 Digital Limited * 33 33 - 0.5%
Carecapital plc 149 28 (71) 0.5%
Forward Media Limited * 281 21 (83) 0.3%
Pubs 'n' Bars plc 138 20 (94) 0.3%
Daniel Stewart Securities plc 87 19 (36) 0.3%
Media Square plc 237 14 (131) 0.2%
Waterline Group plc * 313 7 (133) 0.1%
Symphony Environmental plc 5 4 (1) -
Cellcast Group plc 198 2 (6) -
The Real Good Food Group plc 91 1 (9) -
Bioganix plc * 98 - (77) -
Cenergie Corporation * 8 - (8) -
Chariot (UK) plc * 125 - - -
Cytomyx Holdings plc + 200 - - -
Dipford Group plc + 266 - (36) -
Hill Station Public Limited 637 - (405) -
Company +
Maverick Entertainment Group 240 - - -
plc *
Real Affinity plc + 176 - (102) -
SPC International Limited * 361 - (361) -
Torex Retail plc + 168 - - -
9,170 2,092 (3,814) 33.4%
Listed fixed income
securities
Prudential plc 5¿% 2009 226 248 (1) 4.0%
stock
Henderson Global Strategic 149 122 (27) 2.0%
Bond
375 370 (28) 6.0%
Sub total 13,862 5,608 (5,541) 89.9%
Cash at bank and in hand 627 10.1%
Total investments 6,235 100.0%
All venture capital investments are quoted on AIM unless otherwise
stated:
* Unquoted ** Quoted on the PLUS
market *** Full list
+ In Administration
Investment movements for the year ended 28 February 2009
Additions Total
GBP'000
Follow-on Investments
Hill Station plc 83
Unquoted investments
Forward Media Limited 21
Hoole Hall Spa and Leisure Limited 300
The Thames Club Limited 250
Total venture capital investments 654
Listed fixed income securities
Henderson Global Strategic Bond 149
Total investments 803
Profit/ Realised
MV at (loss) gain/
Disposals Cost 29/02/08* Proceeds vs cost (loss)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Full disposals
Conder Environmental plc 35 30 5 (30) (25)
Hartest Holdings plc 369 129 161 (208) 32
Payzone plc 237 146 20 (217) (126)
Partial disposals
Aero Inventory plc 220 223 202 (18) (21)
BreakingViews Limited 19 19 24 5 5
Takeovers
Chelford Group plc 217 220 287 70 67
Liquidation & retention - - 58 58 58
proceeds
Rathbone Unit Trusts
Income Fund 344 486 292 (52) (194)
Income & Growth Fund 293 401 271 (22) (130)
1,734 1,654 1,320 (414) (334)
* Adjusted for purchases in the year
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report, the
Directors Remuneration Report, and the financial statements in
accordance with applicable law and regulations.
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). The financial statements are required
by law to give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period. In
preparing those financial statements, the Directors are required to:
* select suitable accounting policies and then apply them
consistently;
* make judgements and 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 also required by the Disclosure and Transparency
Rules of the Financial Services Authority to include a management
report containing a fair review of the business and a description of
the principal risks and uncertainties facing the company.
The Directors are responsible for keeping proper accounting records
which 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 requirements of the Companies Act 1985. 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.
Directors' statement pursuant to the Disclosure and Transparency
Rules
Each of the Directors, confirms that, to the best of each person's
knowledge:
* the financial statements, prepared in accordance with United
Kingdom Generally Accepted Accounting Practice, give a true and
fair view of the assets, liabilities, financial position and loss
of the Company; and
* the Directors' Report contained in the Annual Report includes a
fair review of the development and performance of the business and
the position of the company together with a description of the
principal risks and uncertainties that it faces.
Statement as to disclosure of information to Auditors
The Directors in office at the date of the report have confirmed
that, as far as they are aware, there is no relevant audit
information of which the Auditors are unaware. Each of the Directors
have confirmed that they have taken all the steps that they ought to
have taken as Directors in order to make themselves aware of any
relevant audit information and to establish that it has been
communicated to the Auditors.
By order of the Board
Grant Whitehouse
Secretary
Kings Scholars House
230 Vauxhall Bridge Road
London SW1V 1AU
INCOME STATEMENT
for the year ended 28 February 2009
2009 2008
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income - Continuing 263 - 263 228 - 228
Operations
- - - - 82 - 82
Acquisitions
Net losses on
investments
- Continuing - (5,875) (5,875) - (1,958) (1,958)
operations
- Acquisitions - - - - (832) (832)
Negative goodwill - - - - 1,487 1,487
263 (5,875) (5,612) 310 (1,303) (993)
Investment management (26) (79) (105) (42) (126) (168)
fees
Other expenses (207) - (207) (191) (3) (194)
Return on ordinary
activities 30 (5,954) (5,924) 77 (1,432) (1,355)
before tax
Tax on ordinary - - - - - -
activities
Return attributable
to equity 30 (5,954) (5,924) 77 (1,432) (1,355)
Shareholders
Basic and diluted
return per 0.1p (24.8p) (24.7p) 0.6p (11.3p) (10.7p)
Ordinary Share
The revenue and capital movements in the year relate to continuing
operations. 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 within the Income
Statement as noted above.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 28 February 2009
Year ended Year ended
28 February 2009 29 February 2008
GBP'000 GBP'000
Opening Shareholders' funds 13,324 9,182
Issue of share capital on - 7,381
acquisition
Share issue costs - (151)
Purchase of own shares (232) (638)
Total recognised losses for the (5,924) (1,355)
year
Distributions paid in year (844) (1,095)
Closing Shareholders' funds 6,324 13,324
BALANCE SHEET
as at 28 February 2009
2009 2008
GBP'000 GBP'000 GBP'000 GBP'000
Fixed Assets
Investments 5,608 12,000
Current assets
Debtors 135 116
Cash at bank and in hand 627 1,326
762 1,442
Creditors: amounts falling due within one (46) (118)
year
Net current assets 716 1,324
Net assets 6,324 13,324
Capital and reserves
Called up share capital 1,180 1,211
Capital redemption reserve 170 139
Share premium 6,506 6,506
Special reserve 6,867 7,473
Capital reserve - realised - 962
Investment holding losses (8,254) (2,792)
Revenue reserve (145) (175)
Total equity Shareholders' funds 6,324 13,324
Basic and diluted net asset value
per Ordinary Share 26.8p 55.0p
CASH FLOW STATEMENT
for the year ended 28 February 2009
2009 2008
GBP'000 GBP'000
Net cash outflow from operating activities (91) (15)
Capital expenditure and financial investment
Purchase of investments (789) (2,624)
Disposal of investments 1,320 5,412
Net cash inflow from capital expenditure 531 2,788
Acquisitions
Cash acquired - 2,124
Payment of acquisition cost creditor acquired as a - (225)
result of merger
Payment of dividend creditor acquired as a result of - (1,831)
merger
- 68
Equity distributions paid (844) (1,095)
Net cash (outflow)/inflow before financing (404) 1,746
Financing
Share issue costs (52) (98)
Shares repurchased (243) (662)
Net cash outflow from financing (295) (760)
(Decrease)/increase in cash (699) 986
NOTES TO THE ACCOUNTS
for the year ended 28 February 2009
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 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 ("FRS")
issued by the Accounting Standards Board when required. The new SORP
is mandatory for accounting periods commencing on or after 1 January
2009, however the Company has taken advantage of the early adoption
policy for the year under review. No comparative restatements have
been required as a result of the implementation of the SORP.
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 FRS26.
Listed fixed income investments, hedge funds, investments quoted on
AIM and those traded on the PLUS Market are measured using bid prices
in accordance with the IPEV.
In respect of unquoted instruments, fair value is established by
using IPEV. The valuation methodologies for unquoted entities used
by the IPEV to ascertain the fair value of an investment are as
follows:
* Price of recent investment;
* Earnings multiple;
* Net assets;
* Discounted cash flows or earnings (of underlying
business);
* Discounted cash flows (from the investment); and
* Industry valuation benchmarks.
Where an investee company has gone into receivership or liquidation
the loss on 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 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 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 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.
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 tax rates and law 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 and on a non-discounted basis.
Other debtors and other creditors
Other debtors (including accrued income) and other creditors are
initially recognised at fair value and subsequently measured at
amortised cost using the effective interest method.
2. Return per Ordinary Share
Revenue return per Ordinary Share is based on the net revenue profit
after taxation of GBP30,000 (2008: GBP77,000) in respect of 23,960,944
(2008: 12,636,443) 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 GBP5,954,000 (2008: GBP1,432,000) in respect of
23,960,944 (2008: 12,636,443) 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 basic and
diluted return per Ordinary Share.
3. Net asset value per Share
2009 2008
Net asset Net asset
value value
per share Net asset per share Net asset
value value
pence GBP'000 pence GBP'000
Ordinary 26.8 6,324 55.0 13,324
Shares
Net asset value per Ordinary Share is based on net assets at the year
end, and on 23,590,014 (2008: 24,219,301) Ordinary Shares, being the
number of Ordinary Shares in issue at the year end.
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on net asset value per Ordinary
Share. The net asset value per share disclosed therefore represents
both basic and diluted net asset value per Ordinary Share.
4. Principal financial risks
The principal financial risks faced by the Company include interest
rate, liquidity and marketability risks.
In addition to these risks, the Company, as a fully listed Company on
the London Stock Exchange and as a Venture Capital Trust, operates in
a complex regulatory environment and therefore faces a number of
related risks. A breach of the VCT regulations could result in the
loss of VCT status and consequent loss of tax reliefs currently
available to Shareholders and the Company being subject to capital
gains tax.
Serious breaches of other regulations, such as the UKLA Listing rules
and the Companies Act, could lead to suspension from the Stock
Exchange and damage to the Company's reputation.
The Board reviews and agrees policies for managing each of these
risks. They receive quarterly reports from the Managers which
monitor the compliance of these risks, and place reliance on the
Managers to give updates in the intervening periods. These policies
have remained unchanged since the beginning of the financial period.
The principal financial risks are outlined further as follows:
Market risks
The key market risks to which the Company is exposed are interest
rate risk and market price risk.
Interest rate risk
The Company receives interest on its cash deposits at a rate agreed
with its banker, while investments in loan stock and fixed interest
investments predominately attract interest at fixed rates. As the
Company must comply with the VCT regulations, increases in interest
rates could lead to a potential breach of these regulations. The
Company therefore monitors the level of income received from fixed,
floating and non interest rate assets to ensure that the regulations
are not breached. The Company has reviewed the financial impact of
the interest rate risk, with a 0.5% change in base rate (i.e.
reducing to 0%) changing income and the return for the year by GBP4,000
equivalent to a 7.6% impact on overall income receivable by the
Company. Such a change would have an immaterial impact on Net Asset
Value.
Market price risk
Market price risk arises from uncertainty about the future prices of
financial instruments held in accordance with the Company's
investment objectives. It represents the potential loss that the
Company might suffer through holding market positions in the face of
market movements. At 28 February 2009, the unrealised loss on the
quoted portfolios (Full list, AIM quoted, PLUS quoted and listed
fixed income investments) was GBP4.8 million (2008: GBP1.7 million).
The investments the Company holds are, in comparison to the Main
Market, thinly traded (due to being traded on the AIM and Plus
Markets) and, as such, the prices are more volatile than those of
more widely traded securities. In addition, the ability of the
Company to realise the investments at their carrying value may at
times not be possible if there are no willing purchasers. The
ability of the Company to purchase or sell investments is also
constrained by the requirements set down for Venture Capital Trusts.
The Board considers each investment purchase to ensure that an
acquisition will enable the Company to continue to have an
appropriate spread of market risk and that an appropriate risk reward
profile is maintained.
It is not the Company's policy to use derivative instruments to
mitigate market risk, as the Board believes that the effectiveness of
such instruments does not justify the cost involved.
Credit risk
Credit risk is the risk that the counterparty to a financial
instrument is unable to discharge a commitment to the Company made
under that instrument. The carrying values of financial assets best
represent the maximum credit risk exposure at the balance sheet date.
Investments in loan stocks comprise a fundamental part of the
Company's venture capital investments therefore credit risk in
respect of these assets is managed within the main investment
management procedures.
Credit risk in respect of listed fixed income investments, listed
bonds, interest, dividends and other receivables are predominantly
covered within the investment management procedures.
Liquidity risk
Liquidity risk is the risk that the Company encounters difficulties
in meeting obligations associated with its financial liabilities. As
the Company only ever has a very low level of creditors and has no
borrowings, the Board believes that the Company's exposure to
liquidity risk is minimal.
5 Related party transactions
Nicholas Lewis and Tony McGing are directors of Downing Management
Services Limited ("DMS") who act as Administration Manager to the
Company. During the year GBP51,000 (2008: GBP65,000) was due to DMS in
respect of these fees. At the year end GBP37,000 was repayable to the
Company (2008: GBPNil) by DMS in respect of the expenses cap. This has
subsequently been repaid in full.
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 28 February
2009, but has been extracted from the statutory financial statements
for the year ended 28 February 2009, which were approved by the Board
of Directors on 24 June 2009 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 s 498(2) and (3) of the Companies Act 2006.
The statutory accounts for the year ended 29 February 2008 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 28 February 2009 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.
=--END OF MESSAGE---
This announcement was originally distributed by Hugin. The issuer is
solely responsible for the content of this announcement.
Grafico Azioni Penn.Down.Aim 2 (LSE:PND)
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Grafico Azioni Penn.Down.Aim 2 (LSE:PND)
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