29th May 2007 07:01
Edge Performance VCT PLC29 May 2007 28 May, 2007Edge Performance VCT plcPreliminary Results for the Period Ended 28 February, 2007 Edge Performance VCT plc is an innovative venture capital trust which offers theopportunity to invest in the entertainment industry, concentrating on livemusic, theatre, sports, festivals and other events, and utilising arrangementsthat seek to combine high targeted returns with reduced downside risk andenhanced liquidity whilst allowing investors to take advantage of VCT taxreliefs. Edge invests in the equity capital and the loan capital of events companies iecompanies in the business of, or formed for the purpose of, promoting orco-promoting a series of live events. Typically, 30% of each investment is inequity and 70% is in the form of loan stock secured by a debenture. The Company's investment manager is Edge Investment Management Limited. Financial Summary Period ended 28 February 2007 Net assets £5,997,660Net asset value per share 93.70pInvestment income £214,698 Return on ordinary activities before tax- Revenue £64,550- Capital £(60,089)- Total £4,461 Return per share- Revenue 0.82p- Capital (0.94)p- Total (0.12)p Dividend per share declared in respect of the period- Revenue Nil- Capital Nil- Total Nil Share price at end of period 100p For further information, please contact: The City Partnership (UK) LimitedCompany SecretaryRobin Smeaton 0131 467 4412 Chairman's Statement The first annual report of Edge Performance VCT plc ("Edge" or the "Company")paints an encouraging picture. Our investment proposition has been well receivedby the IFA community and the leading VCT commentators; we have enjoyed twosuccessful fund-raisings; and, in the period ended 28 February 2007, we madethree venture capital investments with a fourth following shortly thereafter.The acid test, of course, is our investment performance and, while it is tooearly to offer any objective evidence of progress, the board of directors("Board") has been impressed by the range and quality of investmentopportunities which have been introduced by our investment manager, EdgeInvestment Management Limited ("EIM"). Fund-raising Our initial offer for subscription which opened in February 2006 raised £6.3million gross, a highly creditable result in a year which strongly favoured theestablished performers and proved remarkably difficult for newcomers. Againstthis background, the Board decided to launch a C share issue which opened inDecember 2006. As at the date of this report, £13.2 million gross had beenraised under the offer taking our funds under management to almost £20 million.Not only have we more than doubled the sum raised under our first offer, we havedone so despite a dramatic reduction in the overall VCT market. The proceeds of the C share issue will be managed and accounted for as aseparate pool of funds within Edge until the scheduled date of conversion intoordinary shares which is expected to be no later than 31 March 2013. This willnecessitate a period of dual reporting of financial information commencing withthe accounts for the six month period ending 31 August 2007. As there were no C shares in issue during the period ended 28 February 2007, theaccompanying financial statements and investment manager's review report onlythe performance of the ordinary shareholders' pool of funds. Investment Activity Our investment activity in the period under review is detailed in the investmentmanager's report. The summary is that we made three venture capital investmentseach of £850,000 before 28 February with a fourth qualifying investment of£895,000 being completed shortly thereafter. Our venture capital portfolio,valued at cost as at 25 May 2007, totals £3,445,000 putting Edge comfortably ontarget to meet the VCT qualification criterion of having at least 70% of its netassets (attributable to ordinary shareholders) comprise venture capitalinvestments by no later than 28 February 2009. In future periods, with separately managed pools of funds for our ordinaryshareholders and our C shareholders, our investment activity will become morediverse. The focus of the management of the ordinary shareholders' fund is capitalprotection with a targeted minimum tax-free return for investors of 115p per100p invested (equivalent to a return of 75p per 60p invested net of incometax). In pursuit of this objective, Edge will invest only in events companieswhich have successfully made event licensing arrangements with an establishedevent promoter under which the revenues received by the events company from theevents promoted with that promoter will be at least 75% of the aggregate of theamount invested by Edge in the events company and the agreed running costs ofthe events company. The management of the C shareholders' fund will seek to realise a higher return- the targeted tax-free return for investors is 160p per 100p invested(equivalent to a return of 130p per 70p invested net of income tax) - through aninvestment strategy which will also feature investment in events companies whichhave made event licensing arrangements with established promoters but willaccept a spread of investments amongst those offering high minimum guaranteedreturns, with little of investors' capital at risk, and those with more modestminimum guaranteed returns but with significantly higher potential returns. Financial Performance The Company's net asset value per ordinary share as at 5 April 2006 was 93.84pafter account was taken of the start-up costs (which were capped at 5.5% oftotal funds subscribed) and the early subscriber discount of 1.5%.At 28 February 2007, the Company's net asset value per ordinary share was93.70p. This compares with an effective cost of investment of 60p to thosequalifying investors able to benefit fully from the front-end tax reliefavailable under the 2005/06 tax regime or 58.5p for those who also received theearly subscriber discount. The reduction in net asset value per ordinary shareof 0.14p over the period from 5 April 2006 to 28 February 2007 had two sources:a loss after tax for the period of £7,803 and legal costs of £750 incurred inredeeming 50,000 redeemable, non-voting preference shares (which costs were setagainst the Company's share premium account). The loss comprised a revenueprofit of £52,286 and a capital loss of £60,089 giving rise to a revenue returnper share of 0.82p and a capital return per share of (0.94)p over the period. Corporate Activity On 16 November 2006 Edge Music Limited, a company wholly owned by David Glickand Richard Baskind exercised an option to acquire the Company's interest inEIM. Up until this time the Company held a 51 per cent. interest in EIM withDavid Glick holding the remaining 49 per cent. This option was granted by theCompany to Edge Music Limited on 3 February 2006 and was exercisable in theevent that EIM became authorised by the FSA to carry out investment business.EIM received such authorisation on 31 October 2006. In accordance with the termsof the option instrument, Edge Music Limited paid £1 to exercise the option. Following EIM's FSA authorisation on 31 October 2006, it entered into a newmanagement agreement with the Company on 12 December 2006, which agreementreplaced the original management agreement dated 3 February 2006. The newagreement is for a fixed term which shall expire on 6 April 2012 and shallcontinue in force thereafter unless and until terminated by either party givingto the other previous written notice of not less than 12 months so as to expireon 6 April 2012 or at the end of any month thereafter. At an extraordinary general meeting of the Company on 15 November 2006, pursuantto a special resolution, the Company's authorised share capital was increasedfrom £30,050,000 to £32,030,100 by the creation of 19,800,000 C ordinary sharesof 10p each and 1,000 deferred shares of 10p each having the rights and beingsubject to the restrictions set out in the new Articles of Association whichwere also adopted pursuant to this resolution. Our second offer for subscription which opened on 22 December 2006 had issued13,345,312 C ordinary shares as at the date of this report. The proceeds of theissue will be managed and accounted for as a separate pool of funds within theCompany until the scheduled date of conversion into ordinary shares which shallnot be later than 2013. Looking Forward The Board is confident that, in the year ending 28 February 2008, the Company'sordinary share fund will be sufficiently invested to satisfy the VCTqualification criteria and that a solid foundation will have been laid for therealisation of the targeted minimum tax-free return. The Board also expects EIM to make significant progress in establishing a Cshare venture capital portfolio which will be capable of delivering the moreambitious targeted return for that fund. We are convinced of the investment potential of the live events market in theUK, we believe Edge has made a promising start to realising some of thatpotential and we are confident that the Company will continue this progress. Thank you for your support.Sir Robin MillerChairman Investment Manager's Review Investment Overview At the end of the period, the portfolio consisted of investments in threequalifying companies, with a further qualifying investment completed after theperiod ended. The ordinary shareholders' fund ("Fund") needs to have at least70% by value of its investments in qualifying holdings by no later than 28February 2009 to comply with VCT regulations. With a fifth qualifying investmentnearing completion, it is expected that this target will be reached by 31 August2007. In the period, the Fund looked to invest in a series of events companies, eachof whose business is the promotion and organisation of shows, concerts, tours,festivals, exhibitions and other events before live audiences, and themarketing, advertising, promotion and management of those events. The eventscompanies in which the Fund has invested have in turn contracted with one of twoestablished promoters, SJM Limited or AEG Live (UK) Limited, to acquire theright to promote specific live events, selected by the relevant events company,over a defined period of time. Inevitably, given that the period representedonly the early stages of the Fund, much of the activity centred on theconclusion of the initial investment arrangements with the events companies, andless on the promotion by the events companies of particular live events.However, promotion of two significant concert tours was undertaken in theperiod, one of which was concluded successfully in 2006, and the other of whichtook place after the period ended. It is anticipated that 2007 will bring agreater level of activity, not only in terms of investing in events companies,but particularly in those companies' activities in promoting events. Qualifying Investments in the Period Martha and George Productions Limited In November 2006, £850,000 was invested in Martha and George Productions Limitedfor a 50% equity stake. The company's founding director, Clive Black, has many years of experiencewithin the entertainment industry, having been the youngest ever ManagingDirector of EMI Records. He now owns Edel Music and Blacklist Music. Drawing onhis areas of specialism, the company's focus is, in particular, on "urban" musicand other ethnic-influenced musical genres, as well as musical theatre. In conjunction with SJM, Martha and George Productions co-promoted the tour inDecember 2006 by The Pogues, resulting in a positive net return to the company. In Tandem Promotions Limited In December 2006, £850,000 was invested in In Tandem Promotions Limited for a49% equity holding. Steven Howard, who is a director of and shareholder in the company, has over 25years' experience within the music industry having until recently been ManagingDirector of Zomba Music Publishers, part of the leading independent musiccompany, Zomba Group. He currently also manages Bryan Ferry and the ballerinaDarcey Bussell, amongst others. The company's particular focus is events byperformers from the rock, pop and classical fields. In Tandem and SJM contracted to co-promote the April 2007 tour by James. My Brother Promotions Limited In February 2007, £850,000 was invested in My Brother Promotions Limited for a45% equity stake. Jeremy Wakefield, a director and shareholder of the company, has many years ofexperience within the industry, as a solicitor with a particular focus in themusic and entertainment sector. His role in running the company is to focus onopportunities to promote established artists, particularly artists from the1970s and 1980s, together with looking at opportunities in musical theatre. Qualifying Investments following the Period LC Presents Limited In March 2007, £895,000 was invested in LC Presents Limited for a 49% equityinterest. The company's founding director, Lester Dales, has many years of experiencewithin the entertainment industry as an accountant specialising in the musicbusiness, in particular dealing with tours and touring income. He will beseeking suitable events for the company to produce and promote, and will overseethe event management, production, media relations, merchandising and otheraspects of the company's business. The focus of the company is rock,particularly live touring by non-UK artists; however, this will not precludeother investment opportunities. Non-qualifying investments During the period, £844,427 was invested in the Rothschild Preferred IncomeFund. As at the end of the period, the value of that investment stood at£840,274. Fund-raising In December 2006, the Company offered C Shares for subscription. So far, thisoffer has raised over £13 million. Outlook The Fund has started well, and is on track to attaining its 70% qualifyinginvestment target by August 2007, sixteen months earlier than is required. Dealflow has been strong, with many approaches made to EIM for opportunities in thelive performance area and also in the wider entertainment sector. EIM continuesactively to review all approaches, as well as proactively seeking out investmentopportunities through its board's extensive network of contacts in the sector. Investment Portfolio as at 28 February 2007 Cost at Valuation at % of 28 February 28 February net assets by 2007 2007 Value £'000 £'000Qualifying InvestmentsMartha and George Productions Limited 850.5* 850.5* 14.2In Tandem Promotions Limited 850.5* 850.5* 14.2My Brother Promotions Limited 850.5* 850.5* 14.2 Total qualifying investments 2,551.5 2,551.5 42.6Net current assets 3,446.2 57.4Net assets 5,997.7 100.0 \* This amount includes transaction costs of £500. The audited financial statements for the period ended 28 February 2007 will showthe results set out below. Income Statement for the period ended 28 February 2007 Revenue Capital Total £'000 £'000 £'000Realised/unrealised movements in investments - (5) (5)Income 215 - 215Investment manager's fees (18) (55) (73)Other expenses (133) - (133) Return on ordinary activities before tax 64 (60) 4Tax on ordinary activities (12) - (12) Return attributable to equity shareholders 52 (60) (8)Dividends paid - - - Transfer to reserves 52 (60) (8)Return per ordinary share 0.82p (0.94)p (0.12)p The total column of this statement represents the profit and loss account of theCompany. All revenue and capital items in the above statement derive fromcontinuing operations. The Company has only one class of business and derivesits income from investments made in shares, securities and bank deposits. TheCompany has no gains and losses other than those recognised in the IncomeStatement above and has not therefore prepared a separate statement ofrecognised gains and losses. NoteBasic revenue return per share is based on the net revenue profit from ordinaryactivities after taxation of £52,286 and on 6,400,640 ordinary shares, being theweighted average number of shares in issue during the period from 5 April 2006to 28 February 2007. Basic capital return per share is based on the net capitalloss after taxation of £(60,089) and on 6,400,640 Ordinary Shares, being theweighted average number of shares in issue during the period from 5 April 2006to 28 February 2007. Reconciliation of movements in shareholders' funds Total £'000 Capital per sums subscribed 6,288Capital per waived commission 64Capital per "early bird" 4Expenses of issue (349)Expenses of share redemption (1)Return for the period (8) Total net assets attributable at 28 February 2007 5,998 Balance Sheet as at 28 February 2007 As at 28 February 2007 £'000Fixed assetsInvestments 2,552 Current assetsDebtors 82Corporate bond & other liquidity funds 1,703Cash at bank 1,740 3,525 Creditors: amounts falling due within one year (79) Net current assets 3,446 Net assets 5,998 Capital and reservesCalled up share capital 640Share premium account 5,366Realised capital reserve (56)Unrealised capital reserve (4)Revenue reserves 52 5,998 Net asset value per share 93.70p Post Balance Sheet Events On 21 March 2007, the Company completed a fourth unquoted company investment.Edge invested £895,000 in L C Presents Limited. The Company's offer for subscription in respect of the 2006/07 tax year closedhaving raised £12,520,320 gross. The offer in respect of the 2007/08 tax yearclosed on 25 May 2007 having raised £722,000 gross. Cash Flow Statement for the period ended 28 February 2007 £'000 £'000Operating activitiesInvestment income received 49Deposit and similar interest received 159Investment adviser's fees paid (142)Company secretarial fees paid (47)Cash paid to and on behalf of Directors (49)Other cash payments (15) Net cash outflow from operating activities (45) Financial investmentPurchase of unquoted investments (4,259)Purchased interest (2)Recovery of purchased interest 2 Net cash outflow from financial investment (4,259) Net cash outflow before financing (4,304) FinancingNew share issue 6,288Share issue expenses (244) Net cash inflow from financing 6,044 Increase in cash 1,740 Reconciliation of net revenue before taxation to net cash outflow from operating activities 2006/07 £'000Net return before taxation 4(Gains)/losses on investments 5(Increase)/decrease in debtors (82)Increase/(decrease) in creditors and accruals 67Transaction costs included in cost of investments (2)Cost of preference shares' redemption charged to share premium a/c (1)Outstanding balance of offer fee charged to share premium a/c (36) Net cash outflow from operating activities (45) The above summary of results for the year ended 28 February 2007 does notconstitute statutory financial statements within the meaning of Section 240 ofthe Companies Act 1985 and has not been delivered to the Registrar of Companies.Statutory financial statements will be filed with the Registrar of Companies indue course; the independent auditors' report on those financial statements underSection 235 of the Companies Act 1985 is unqualified and does not contain astatement under Section 237(2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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