21st Sep 2005 16:55
Elderstreet VCT PLC21 September 2005 Elderstreet VCT plcInterim Statement for the six months ended 30 June 2005 CHAIRMAN'S STATEMENT I present the interim statement for the six months ended 30 June 2005. 'C' Shares The 'C' share offer closed on 27 May 2005, having raised £1.5 million. Althoughthis is a lower level than initially hoped, it does provide the Company withadditional funds for investment and allows the administration costs of theCompany to be shared over a larger base. Future new investments made by the Company will now usually be apportionedbetween funds from the 'C' Share and the Ordinary Share pool. Net Asset Value At 30 June 2005, the Company's Net Asset Value per Ordinary share ("NAV") stoodat 62.4p, a decrease of 0.5p or 0.8% compared to the NAV at 31 December 2004.The Company's NAV per 'C' share stood at 95.1p, an increase of 0.1p compared tothe initial NAV of 95p per 'C' share. Venture capital investments The Company made one new investment during the period. This was a £350,000investment into Interquest Group plc, an AIM quoted IT recruitment group, splitas £250,000 for the Ordinary Share pool and £100,000 for the 'C' Share pool. There were two disposals during the period. The majority of the holding inMilkround Online Limited was disposed of for a small profit against originalcost. Also, Springhealth Leisure plc was the subject of an acquisition and theCompany received cash proceeds slightly in excess of our previous carryingvalue. The Board have reviewed the valuation of the Company's unquoted investments atthe period end and made a number of adjustments to the previous valuations.Improved performance by Henry J Beans justified a increase in valuation of£262,000 over the period. Wessex Advanced Switching Products Limited and U M(Holdings) plc have also delivered solid results, giving rise to increases invaluation of £92,000 and £54,000 respectively using an earnings basis. FordsPackaging Systems Limited, however, had a poor year to 30 June 2005 andaccordingly its valuation has been reduced by £167,000. The remainder of the unquoted investments are generally performing in line withrecent expectations, and, in two cases, the Investment Manager is pursuingpotential exits opportunities. There were some significant movements in the valuations of the Company's AIMinvestments over the period. Mediasurface plc has made good progress andreported positive results. The resultant increase in the company's share pricelifted the valuation of our investment by £206,000. On a negative note, after floating on AIM in December 2004, Berkeley Scott Groupplc reported some disappointing results, which impacted heavily on the company'sshare price. The investment fell in value by £245,000 over the period. Overall, the venture capital portfolio gave rise to an unrealised loss of£121,000 for the six months. Listed fixed income securities The Company invested £997,000 in listed fixed income securities in the period.These funds are managed by Smith and Williamson Investment Management Limited. Format of accounts This is the first set of results that we have published since the 'C' shareoffer that was undertaken earlier this year. We are therefore now presentingReturn and Net Asset values for both the Ordinary and 'C' shares. When theCompany revoked investment company status in 2000 in order to pay a capitaldividend, we were advised that the Company should cease to present its accountsin accordance with Investment Trust Statement of Recommended Practice ("SORP").We therefore adopted the standard Companies Act format, which includes a Profitand Loss account rather than a Statement of Total Return. In recent years, accepted practice has changed such that it is now common forVenture Capital Trusts to continue to continue to present their accounts inaccordance with the SORP, even though they may have revoked investment companystatus. The Board feels that the SORP presentation is much more useful toreaders of the accounts and have therefore decided to revert to this format.Further details are given in the Accounting Policies note shown below. Results and Dividend The Company had a revenue surplus of £36,000 (2004: £48,000) for the period. Inview of the fact that there have been very few investment disposals in theperiod and, consequently, a low level of new realised gains, no interim dividendwill be paid. The Board expect to pay a revenue dividend at the year end andwill consider another capital distribution should the company achieve anyprofitable investment exits. Repurchase of shares The Directors are conscious that the Company's share prices are affected by theilliquidity of its shares in the market resulting from the fact that investorspurchasing "second-hand" shares do not benefit from income tax relief on theirinvestment. The Directors continue to monitor the market in the Company's shares and willmake share purchases when appropriate. During the period the Companyrepurchased 333,445 Ordinary Shares, at an average price of 50p per share, forcancellation. Outlook Over the period under review, the Investment Manager has been focussing onidentifying and securing new investments. Although the Company has beenrelatively inactive in this area recently, there are a number of investmentopportunities that are at an advanced stage and may complete in the comingmonths. I look forward to updating Shareholders in my statement with the yearend results. David BrockChairman UNAUDITED SUMMARISED BALANCE SHEETas at 30 June 2005 30 June 30 June 31 Dec 2005 2004 2004 £'000 £'000 £'000Fixed assetsListed fixed income securities 1,020 - -Venture capital investments 7,886 7,419 7,967 8,906 7,419 7,967 Net current assets 1,483 1,783 1,238 Net assets 10,389 9,202 9,205 Capital and reservesCalled up share capital 793 738 732Capital redemption reserve 42 19 25Share premium 1,386 - -Revaluation reserve 1,909 2,076 1,908Special reserve 6,246 6,369 6,540Revenue reserve 13 - - Total equity shareholders' funds 10,389 9,202 9,205 Net asset value per Ordinary share 62.4p 62.3p 62.9p Net asset value per 'C' share 95.1p N/A N/A UNAUDITED STATEMENT OF TOTAL RETURNS(incorporating the revenue account)for the six months ended 30 June 2005 Six months ended 30 June 2005 Revenue Capital Total £'000 £'000 £'000 Income 141 - 141 Gains/(losses) on investments:- Realised - 2 2- Unrealised - (98) (98) 141 (96) 45 Investment management fees (17) (52) (69) Other expenses (88) - (88) Return on ordinary activities before taxation 36 (148) (112) Tax on ordinary activities - - - Return attributable to equity shareholders 36 (148) (112) Distributions - - - Transfer to/(from) reserves 36 (148) (112) Return per Ordinary share 0.2p 0.9p 1.1p Return per 'C' share 0.9p (0.6p) 0.3p Six months ended Year ended 30 June 2004 31 December 2005 Revenue Capital Total Total £'000 £'000 £'000 £'000 Income 151 - 151 363 Gains/(losses) on investments:- Realised - - - -- Unrealised - 987 987 1,299 151 987 1,138 1,662 Investment management fees (16) (46) (62) (143) Other expenses (87) - (87) (166) Return on ordinary activities before 48 941 989 1,353taxation Tax on ordinary activities - - - - Return attributable to equity 48 941 989 1,353shareholders Distributions (43) (104) (147) (439) Transfer to/(from) reserves 5 837 842 914 Return per Ordinary share 0.3p 6.3p 6.7p 9.2p Return per 'C' share N/A N/A N/A N/A UNAUDITED CASHFLOW STATEMENTfor the six months ended 30 June 2005 Six Six months months Year ended ended ended 30 June 30 June 31 Dec 2005 2004 2004 Note £'000 £'000 £'000Cash (outflow)/inflow from operating activities andreturns on investments 1 (22) - 44 Capital expenditure Purchase of listed fixed income securities (997) - - Purchase of venture capital investments (395) (300) (933) Proceeds on disposal of venture capital investments 358 72 468 Net cash outflow from capital expenditure (1,034) (228) (465) Equity dividends paid (290) (149) (296) Net cash outflow before financing (1,346) (377) (717) Financing Proceeds from share issue 1,542 - -Share issue costs (41) - -Purchase of own shares (163) (56) (125)Net cash outflow from financing 1,338 (56) (125) Decrease in cash 2 (8) (433) (842) Notes to the cashflow statement: 1 Cash (outflow)/inflow from operating activities and returns on investments Net revenue before taxation 36 48 161 Expenses charged to capital (52) (46) (107) Decrease in other debtors (3) 2 (7) Decrease in other creditors (3) (4) (3) Net cash (outflow)/inflow from operating activities (22) - 44 2 Analysis of net funds Beginning of period 1,514 2,356 2,356 Net cash outflow (8) (433) (842) End of period 1,506 1,923 1,514 SUMMARY OF INVESTMENT PORTFOLIOas at 30 June 2005 % of Cost Valuation portfolio £'000 £'000 by valueOrdinary Share pool Top ten venture capital investmentsComputer Software Group plc * 1,462 1,621 18.2%Wessex Advanced Switching Products Limited 51 767 8.6%Fords Packaging Systems Limited 83 750 8.4%Henry J Bean's Group plc 587 712 8.0%The National Solicitors Network Limited 901 695 7.8%European Telecommunications & Technology Ltd 450 558 6.3%Snacktime Limited 550 550 6.2%Mediasurface plc * 374 420 4.7%Berkeley Scott Group plc * 657 320 3.6%Interquest Group plc * 250 227 2.5% 5,365 6,620 74.3% Other venture capital investments 2,559 1,175 13.2% Listed fixed income securities 997 1,020 11.3% Net current assets (including cash) 107 107 1.2% Ordinary Share Pool - Total 9,028 8,922 100.0% 'C'Share pool Venture capital investmentsInterquest Group plc * 100 91 6.2% 100 91 6.2% Net current assets (including cash) 1,376 1,376 93.8% 'C' Share Pool - Total 1,476 1,467 100.0% Company Total 10,504 10,389 All venture capital investments are unquoted unless otherwise stated. * Quoted on the Alternative Investment Market ("AIM") NOTES TO THE UNAUDITED FINANCIAL STATEMENTS 1. Accounting policies Accounting convention The financial statements are prepared under the historical cost convention asmodified by the revaluation of investments. True and fair override The Company is no longer an investment company within the meaning of Section266, Companies Act 1985, having revoked investment company status on 26 October2001 in order to pay a capital dividend. However, the Company continues toconduct its affairs as a venture capital trust for taxation purposes unders842AA of the Income and Corporation Taxes Act 1988. The financial statements are prepared in accordance with applicable AccountingStandards and with the Statement of Recommended Practice "Financial Statementsof Investment Trust Companies" ("SORP"). Ordinarily, the absence of Section 266status would require the Company to adopt a different presentation of theaccounts than that recommended by the Association of Investment Trust Companies.However, the Directors consider it appropriate to continue to present theaccounts in accordance with the SORP. Under the SORP, the financial performanceof the Company is presented in a Statement of Total Return in which the revenuecolumn is the profit and loss account of the Company. The revenue columnexcludes certain capital items, which in the absence of investment companystatus, the Companies Act 1985, would ordinarily require to be included in theprofit and loss account: net profits on disposal of investments, calculated byreference to their previous carrying amount, permanent diminution in value ofinvestments, management expenses charged to capital less tax relief thereon andthe distribution of capital profits. The presentation adopted enables the Company to report in a manner consistentwith the sector within which it operates. The Directors therefore consider thatthese departures from the specific provisions of Schedule 4 of the Companies Actrelating to the form and content of accounts for companies other than investmentcompanies and these departures from accounting standards are necessary to give atrue and fair view. The departures have no effect on the total return orbalance sheet. The particular accounting policies adopted are described below. Investments Listed fixed income investments are stated at market value based upon middlemarket prices at the end of the accounting period. Investments quoted on theAlternative Investment Market ("AIM") are stated at market value based uponmiddle market prices with illiquidity discounts applied where deemedappropriate. Unlisted investments are stated at Directors' valuations, inaccordance with British Venture Capital Association ("BVCA") guidelines. Wherean investee company has gone into receivership or liquidation the investment,although not physically disposed of, is treated as being realised. Realised profits and losses on investments, and permanent diminutions in value,are dealt with in the Profit and Loss account. Revaluation gains anddiminutions which are not expected to be permanent are dealt with in thestatement of total recognised gains and losses. The Company has defined apermanent diminution to be an investee company whose value is less than theoriginal cost price and there is little likelihood of the value being in excessof cost. It is not the Company's policy to exercise either significant or controllinginfluence over investee companies. Therefore the results of these companies arenot incorporated into the revenue account except to the extent of any incomeaccrued. Income and expenses All income and expenses are treated on the accruals basis and dividend income(other than on non-equity shares) is included in revenue when the investment isquoted ex-dividend. The fixed returns on non-equity shares and on debtsecurities are recognised on a time apportionment basis and only where there isreasonable certainty of collection. Dividend income is shown net of any relatedtax credit. Expenses, which are incidental to the acquisition of an investment,are included in the cost of the investment. Expenses, which are incidental tothe disposal of an investment, are deducted from the proceeds of the investment. Deferred taxation Deferred taxation is provided in full on timing differences that result in anobligation at the balance sheet date to pay more tax, or a right to pay lesstax, at a future date, at rates expected to apply when they crystallise based oncurrent tax rates and law. Timing differences arise from the inclusion of itemsof income and expenditure in taxation computations in periods different fromthose in which they are included in financial statements. 2. All revenue and capital items in the Statement of Total Return derivefrom continuing operations. 3. The Company has only one class of business and derives its incomefrom investments made in shares, securities and bank deposits. 4. The comparative figures were in respect of the six months ended 30June 2004 and the year ended 31 December 2004 respectively as restated to complywith the SORP, as described in note 1. 5. Net Asset value per share calculations are based on the following: Ordinary 'C' Shares Shares Revenue return per share based on:Net Assets (£'000) 8,922 1,467 Number of shares in issue at period end 14,305,855 1,542,202 6. Return per share calculations are based on the following: Ordinary 'C' Shares Shares Revenue return per share based on:Net revenue/ after taxation (£'000) 23 13 Weighted average number of ordinary shares in 14,544,315 1,433,666issue Capital return per share base on:Net capital loss for the financial year (£'000) (139) (9) Weighted average number of ordinary shares in 14,544,315 1,433,666issue 7. The unaudited financial statements set out herein do not constitutestatutory accounts within the meaning of Section 240 of the Companies Act 1985and have not been delivered to the Registrar of Companies. The figures for theyear ended 31 December 2004 have been extracted from the financial statementsfor that year, which have been delivered to the Registrar of Companies; theauditors' report on those financial statements was unqualified. 8. Copies of the unaudited interim results will be sent to shareholdersshortly. Further copies can be obtained from the Company's Registered Office. 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