TIDMCR5
RNS Number : 2570Q
Core VCT V PLC
07 April 2009
Core VCT V plc
Annual Financial Report Announcement
Investment Objective
Core VCT V plc ("Core VCT V", "the Company" or "the Fund") is a tax efficient
listed company which aims to achieve an attractive yield from its underlying
investments ('Mezzanine and Private Equity Investments'), to be distributed to
shareholders as tax free dividends of both income and capital gains over time.
Core VCT V will invest alongside Core VCT IV plc, and has a co-investment policy
with the other Core VCTs managed by Core Capital LLP ('the Manager' or 'Core
Capital').
Investment Approach
Core Capital invests primarily in:
* Established, private companies, which show sufficient operating critical mass,
with an established economic model, and able, motivated management teams with
the key skills in place to deliver a well-defined business plan
* Total investment sizes are typically GBP3 - GBP8 million, of which GBP1 - GBP3
million may typically be provided by Core VCT IV and Core VCT V plc.
Fund Structure
Core VCT V is structured as follows :-
* No annual management fees
There are no annual management fees paid to Core Capital. Instead, Core Capital
receives a share of the investment profits generated from the underlying
investments;
* Provide attractive distributions
The Company intends to provide shareholders with an attractive level of income
by distributing all available profits generated through income and capital
gains, including the planned 30p per share distribution of the cash assets of
the fund after the third year.
Investment Policy
Core VCT V seeks to achieve its overall Investment Objective, consistent with
maintaining its qualifying status as a VCT, by pursuing the following Investment
Policy:-
Asset Allocation
The Company may invest all its assets in private companies. These investments
are unquoted, and include, but are not limited to, Management Buy-Outs (MBOs)
and Development Capital for expansion or acquisition funding for established
businesses. After 31 December 2009, the Company must have in excess of 70% of
its assets invested in Qualifying Investments as defined for VCT purposes.
However, due to the nature of completing and realising such investments, and the
need to maintain some liquid reserves, there will inevitably be periods when a
proportion of assets are not held in Unquoted investments.
Risk Management
The Company's Asset Allocation includes a potentially large proportion of the
Company's assets to be held in Unquoted Investments. These investments are not
publicly traded and there is not a liquid market for them, and therefore these
investments may be difficult to realise.
The Company manages its investment risk within the restrictions of maintaining
its qualifying VCT status by using a number of methods commonly used in the
Private Equity industry, including :-
* The active monitoring of its investments by the Manager;
* Seeking the agreement of various rights associated with each investment, such as
board representation, information rights and veto rights;
* Seeking to hold larger investment stakes by co-investing with other funds
managed by the Manager, so as to gain more significant influence in the
investment and to facilitate investing in larger companies which may reduce the
risk compared to investing in smaller companies;
* Ensuring a spread of investments is achieved.
Gearing
The Company has the authority to borrow up to the amount paid on the issued
share capital and the amount standing to the credit of the reserves of the
Company but does not ordinarily take advantage of this authority.
As is common in the Private Equity industry, in many cases the Company makes
investments into Unquoted Companies which have, or may have, substantial
borrowings from third party lenders.
Performance Summary
+---------------------------+--------------+--------------+
| Ordinary Shares | 31 December | 31 December |
| | 2008 | 2007 |
+---------------------------+--------------+--------------+
| Net asset value per share | 85.46 pence | 92.86 pence |
+---------------------------+--------------+--------------+
| Total return per share1 | 85.96 pence | 92.86 pence |
+---------------------------+--------------+--------------+
| Share price (mid-market) | 80.00 pence | 100 pence |
+---------------------------+--------------+--------------+
| Earnings per share | (6.90) pence | (2.20) pence |
+---------------------------+--------------+--------------+
| Cumulative dividends paid | 7.00 pence | 0.50 pence |
| and proposed per share2 | | |
+---------------------------+--------------+--------------+
| Total expense ratio3 | 2.27% | 2.34% |
+---------------------------+--------------+--------------+
1. Total return per share comprises closing net asset value per share plus
cumulative dividends per share paid to date.
2. Consists of a proposed final dividend of 6.5p (2007-0.5p) and dividends paid to
date of 0.5p (2007 - 0p)
3. Total expense ratio has been calculated using total operating costs divided by
closing net assets.
Chairman's Statement
Results
The Net Asset Value (NAV) Total Return per Ordinary Share was 85.96p as at 31
December 2008, comprising a NAV per Ordinary Share of 85.46p and cumulative
dividends paid of 0.5p per Ordinary Share. This is a reduction from the NAV
Total Return to 31 December 2007 of 7.4%, compared to a 29.9% reduction in the
value of the FTSE All share index over the same period. A deficit of GBP761,382
was recorded during the year ended 31 December 2008.
The major cause of the reduction in Net Asset Value over the year ended 31
December 2008, and since inception, is the loss incurred on the financial
instrument portfolio managed by Credit Suisse. Whilst market conditions have
been challenging, this underperformance is the subject of ongoing discussions
with Credit Suisse.
Dividends
Core VCT V is structured to produce an attractive yield to investors over the
life of the Company, and this will be driven primarily by the unquoted
investment portfolio. We are also working towards returning the proportion of
the fund we do not intend to invest into unquoted private equity investments
after 31 December 2009, approximating to 30p per share of the original capital
raised.
We are recommending a capital dividend of 5p per share, and an income dividend
of 1.5p per share, giving a total proposed dividend of 6.5p per share. This
brings the cumulative dividends paid since inception to 7p per share, equivalent
to a Net Annual yield of 5% of the net cost of subscription per share after
income tax relief.
Investments
The Manager has deliberately taken a cautious approach to completing new
investments. This has preserved substantial liquidity in the fund, and leaves
your fund well placed to benefit from completing new investments at a more
attractive time in the economic cycle.
This does, however, mean that the unquoted portfolio is not yet large enough to
produce the higher level of yield for the fund overall that we anticipate will
be achievable once the fund is more fully invested.
The Manager's Review refers in more detail to the two investments which comprise
the unquoted portfolio, with a total cost and valuation of GBP1.75 million. Both
of these produce an attractive overall yield on the investment cost.
Share Price and Share buy backs
The Ordinary Shares (CR5) are fully listed shares. Prices are available on
www.londonstockexchange.com and the Ordinary Share price is published daily in
the Financial Times.
We are conscious that the mid price of the shares is at a discount to the Net
Asset Value. This discount has widened over recent months, as it has for many
other VCTs, which reflects the lack of liquidity in the secondary market. In
addition, whilst Core VCT V does have the ability to buy back shares, we are not
anticipating making any share buy backs for the foreseeable future so that we
are best placed as a fund to maximise distributions made to all shareholders, as
referred to above. Communications from a number of our shareholders have
expressed their support for this approach. We would also remind shareholders
that we view the NAV Total Return, rather than the share price, as the
preferred measure of performance, as it encompasses the value of the current
portfolio and the amount of cash distributed to shareholders over the life of
their investment.
Information for Shareholders
The Board supports open communication with investors and welcomes any comments
or questions you may have, and full contact details are provided at the back of
this Report.
Outlook
The current economic and investment outlook remains very uncertain, and 2009 is
set to be a challenging year. Our investments cannot be immune from these
economic pressures, although the active management that goes into the
portfolio has prepared us as far as possible to withstand at least
those pressures that we can reasonably foresee. The majority of your fund is
held in liquid assets, and accordingly is well placed to benefit from the
investment opportunities that are likely to emerge at substantially more
attractive pricing and structures than were available previously. Whilst the
slower investment rate has delayed the initial returns to investors, it has
preserved capital in the fund and left us well placed to take full advantage of
the opportunities over the longer term.
Directors
It is the intention of Paul Richards to join the Managers, Core Capital LLP, as
a partner in the near future. In order to ensure the majority of the Board
remains independent of the Managers, Stephen Edwards will resign from the Board
on 9 April 2009 and be replaced by Greg Aldridge. Greg brings a wealth of
experience in industry and across a range of sectors in corporate finance and
should prove to be a valuable addition to the Board. Further details of his
experience can be found on page 7 of this report.
Ray Maxwell
6 April 2009
Manager's Review
Investment Highlights
* Investment Portfolio comprises 2 investments with a cost and value of GBP1.75
million;
* The investments comprise of loan stocks totalling GBP1.225 million with annual
interest rates ranging from 14.5% to 20% and GBP525,000 of equity, offering some
equity upside potential;
* We have continued with our cautious approach to investing, in what has been a
falling market; accordingly, no new investments were completed since 30 June
2008, and we have completed only one new investment in the full year. However,
we expect that we will see some very attractive opportunities during 2009.
New Investments
As we have stated in our previous reports, we have taken a cautious approach in
assessing new investment opportunities, and we completed only one new investment
in 2008, in Camwatch, detailed below. This means we have some GBP7.7 million in
available cash and cash equivalents to be invested alongside GBP7.2 million in
Core VCT IV. Whilst there is no shortage of companies seeking funding, we have
not yet seen quality businesses reflecting reduced valuations fully. We
anticipate that this will change during 2009 and we will find opportunities that
may be amongst the most attractive we have seen for several years.
Existing Investments
Whilst the existing investment portfolio is only two companies, we have
nonetheless sought to prepare for the downturn that is now evident, by cutting
costs early and actively managing the capital structure to ensure it is
appropriate for the business. We invested a further GBP125k (alongside the same
amount from Core VCT IV) into Camwatch in December to facilitate the
company raising substantial additional senior debt facilities.
Each investment is described below:
* Colway Limited
* Cost GBP1,000,000, Valuation: GBP1,000,000
Colway is a long established office and graphic supplies business, with three
principal divisions - Business, Systems, and Retail. Turnover has grown from
GBP15.5m to approximately GBP20m and whilst turnover growth has slowed, it is
still forecast to be maintained at the levels achieved last year. Having
completed five acquisitions since the date of our investment, the latest one in
February 2009, we anticipate completing further acquisitions during 2009.
The current yield on this investment is 14.5% per annum, with a warrant over
2.9% fully diluted of the equity.
* Camwatch Limited
* Cost GBP750,000, Valuation: GBP750,000
Camwatch provides CCTV installation and remotes security monitoring services to
a variety of businesses with a particular focus on the utilities, construction,
and high net worth residential markets. We made an initial investment in March
2008, and a small further investment in December 2008 to facilitate the company
raising GBP4.1 million additional senior debt facilities in order to finance the
growth of the business.
The current yield on this investment is 20% per annum, with a warrant over
3.225% of the equity.
Investment Portfolio Summary
+--------------------------+------------+----------+-----------+---------+-----------+
| | Date of | Bookcost | Valuation | % of | % of net |
| | initial | GBP'000 | GBP'000 | equity | assets by |
| | investment | | | held | value |
+--------------------------+------------+----------+-----------+---------+-----------+
| | | | | | |
+--------------------------+------------+----------+-----------+---------+-----------+
| Qualifying Investments | | | | | |
| (unquoted) | | | | | |
+--------------------------+------------+----------+-----------+---------+-----------+
| Colway Limited (trading | Aug-07 | 1,000 | 1,000 | 3.8% | 10.6% |
| as London Graphic | | | | | |
| Centre) | | | | | |
+--------------------------+------------+----------+-----------+---------+-----------+
| Office and graphics | | | | | |
| supplies | | | | | |
+--------------------------+------------+----------+-----------+---------+-----------+
| Camwatch Limited | Mar-08 | 750 | 750 | 3.2% | 8.1% |
+--------------------------+------------+----------+-----------+---------+-----------+
| CCTV monitoring and | | | | | |
| installation | | | | | |
+--------------------------+------------+----------+-----------+---------+-----------+
| Total qualifying | | 1,750 | 1,750 | | 18.7% |
| investments | | | | | |
+--------------------------+------------+----------+-----------+---------+-----------+
| | | | | | |
+--------------------------+------------+----------+-----------+---------+-----------+
| Non-qualifying | | | | | |
| investments | | | | | |
+--------------------------+------------+----------+-----------+---------+-----------+
| Funds and Trusts | | 4,283 | 3,961 | | 42.0% |
+--------------------------+------------+----------+-----------+---------+-----------+
| | | | | | |
+--------------------------+------------+----------+-----------+---------+-----------+
| Total non-qualifying | | 4,283 | 3,961 | | 42.0% |
| investments | | | | | |
+--------------------------+------------+----------+-----------+---------+-----------+
| | | | | | |
+--------------------------+------------+----------+-----------+---------+-----------+
| Total investments | | 6,033 | 5,711 | | 60.7% |
+--------------------------+------------+----------+-----------+---------+-----------+
| Other assets | | | 3,840 | | 40.8% |
+--------------------------+------------+----------+-----------+---------+-----------+
| Current liabilities | | | (129) | | (1.5)% |
+--------------------------+------------+----------+-----------+---------+-----------+
| Net assets | | | 9,422 | | 100.0% |
+--------------------------+------------+----------+-----------+---------+-----------+
10 Largest Investments
+-----------------------------------+-------------+---------------+--------------+
| | Bookcost | Valuation | % of nets |
| | GBP'000 | GBP'000 | assets by |
| | | | value |
+-----------------------------------+-------------+---------------+--------------+
| Treasury Stock 4% 2009 | 1,428 | 1,439 | 15.3% |
+-----------------------------------+-------------+---------------+--------------+
| Colway Limited | 1,000 | 1,000 | 10.6% |
+-----------------------------------+-------------+---------------+--------------+
| City Financial Investment Funds | 834 | 941 | 10.0% |
| Strategic Gilt | | | |
+-----------------------------------+-------------+---------------+--------------+
| Camwatch Limited | 750 | 750 | 8.1% |
+-----------------------------------+-------------+---------------+--------------+
| Network Rail Limited 4.875% | 205 | 206 | 2.2% |
+-----------------------------------+-------------+---------------+--------------+
| British Sky Broadcasting Group | 202 | 204 | 2.2% |
| Plc 7.75% | | | |
+-----------------------------------+-------------+---------------+--------------+
| Rexam Plc 7.125% | 200 | 201 | 2.1% |
+-----------------------------------+-------------+---------------+--------------+
| GE Capital UK Funding | 203 | 200 | 2.1% |
+-----------------------------------+-------------+---------------+--------------+
| BMW Finance NV 5% | 198 | 199 | 2.1% |
+-----------------------------------+-------------+---------------+--------------+
| BOC Group 5.875% | 199 | 194 | 2.0% |
+-----------------------------------+-------------+---------------+--------------+
| Total of 10 largest investments | 5,219 | 5,334 | 56.7% |
+-----------------------------------+-------------+---------------+--------------+
Income Statement
+-------------------------+-----------+--------------+--------------+-----------+-----------+------------+
| | | Year ended | | Period from 6 December 2006 |
| | | 31 December | | to 31 December 2007 |
| | | 2008 | | |
+-------------------------+-----------+ +--------------+ +
| | | | | |
+-------------------------+-----------+--------------+--------------+------------------------------------+
| | Revenue | Capital | Total | Revenue | Capital | Total |
+-------------------------+-----------+--------------+--------------+-----------+-----------+------------+
| | GBP | GBP | GBP | GBP | GBP | GBP |
+-------------------------+-----------+--------------+--------------+-----------+-----------+------------+
| Unrealised losses on | - | (233,146) | (233,146) | - | (89,581) | (89,581) |
| investments | | | | | | |
+-------------------------+-----------+--------------+--------------+-----------+-----------+------------+
| Realised losses on | - | (696,015) | (696,015) | - | (93,037) | (93,037) |
| investments | | | | | | |
+-------------------------+-----------+--------------+--------------+-----------+-----------+------------+
| Income | 406,144 | - | 406,144 | 253,515 | - | 253,515 |
+-------------------------+-----------+--------------+--------------+-----------+-----------+------------+
| Transaction costs and | (4,840) | (49,563) | (54,403) | (4,608) | (53,584) | (58,192) |
| investment management | | | | | | |
| expenses | | | | | | |
+-------------------------+-----------+--------------+--------------+-----------+-----------+------------+
| Other expenses |(159,284) | - | (159,284) |(180,988) | - | (180,988) |
+-------------------------+-----------+--------------+--------------+-----------+-----------+------------+
| Return on ordinary | 242,020 | (978,724) | (736,704) | 67,919 |(236,202) | (168,283) |
| activities before | | | | | | |
| taxation | | | | | | |
+-------------------------+-----------+--------------+--------------+-----------+-----------+------------+
| Tax on ordinary | (35,626) | 10,948 | (24,678) | - | - | - |
| activities | | | | | | |
+-------------------------+-----------+--------------+--------------+-----------+-----------+------------+
| Return attributable to | 206,394 | (967,776) | (761,382) | 67,919 |(236,202) | (168,283) |
| equity shareholders | | | | | | |
+-------------------------+-----------+--------------+--------------+-----------+-----------+------------+
| Return per Ordinary | 1.87p | (8.77)p | (6.90)p | 0.89p | (3.09)p | (2.20)p |
| Share | | | | | | |
+-------------------------+-----------+--------------+--------------+-----------+-----------+------------+
The revenue column is the profit and loss account of the Company.
There were no other gains or losses in the year ended 31 December 2008.
All revenue and capital items in the above statement derive from continuing
operations.
No operations were acquired or discontinued in the year.
Balance Sheet
As at 31 December 2008
+---------------------+------------+------------+-----------+--------------+
| | 31 December 2008 | 31 December 2007 |
+---------------------+-------------------------+--------------------------+
| | GBP | GBP | GBP | GBP |
+---------------------+------------+------------+-----------+--------------+
| Non-current assets | | | | |
+---------------------+------------+------------+-----------+--------------+
| Investments at fair | | 5,710,649 | | 7,018,219 |
| value | | | | |
+---------------------+------------+------------+-----------+--------------+
| | | | | |
+---------------------+------------+------------+-----------+--------------+
| Current assets | | | | |
+---------------------+------------+------------+-----------+--------------+
| Debtors and | 2,693,574 | |2,655,525 | |
| prepayments | | | | |
+---------------------+------------+------------+-----------+--------------+
| Cash at bank | 1,146,561 | | 741,118 | |
+---------------------+------------+------------+-----------+--------------+
| | | 3,840,135 | | 3,396,643 |
+---------------------+------------+------------+-----------+--------------+
| Creditors: amounts falling due | | | |
| within one year | | | |
+----------------------------------+------------+-----------+--------------+
| Other creditors | 24,678 | | 78,724 | |
+---------------------+------------+------------+-----------+--------------+
| Accruals | 104,300 | | 97,825 | |
+---------------------+------------+------------+-----------+--------------+
| | |( 128,978) | | (176,549) |
+---------------------+------------+------------+-----------+--------------+
| Net current assets | | 3,711,157 | | 3,220,094 |
+---------------------+------------+------------+-----------+--------------+
| Net assets | | 9,421,806 | | 10,238,313 |
+---------------------+------------+------------+-----------+--------------+
| | | | | |
+---------------------+------------+------------+-----------+--------------+
| Capital and | | | | |
| reserves | | | | |
+---------------------+------------+------------+-----------+--------------+
| Called up Ordinary | | 1,102 | | 1,102 |
| Share capital | | | | |
+---------------------+------------+------------+-----------+--------------+
| Share premium | | - | | - |
| account | | | | |
+---------------------+------------+------------+-----------+--------------+
| Capital reserve - | | (881,251) | | (146,621) |
| realised | | | | |
+---------------------+------------+------------+-----------+--------------+
| Capital reserve - | | (322,727) | | (89,581) |
| unrealised | | | | |
+---------------------+------------+------------+-----------+--------------+
| Special | |10,405,494 | | 10,405,494 |
| distributable | | | | |
| reserve | | | | |
+---------------------+------------+------------+-----------+--------------+
| Revenue reserve | | 219,188 | | 67,919 |
+---------------------+------------+------------+-----------+--------------+
| Total equity | | 9,421,806 | | 10,238,313 |
| shareholders' funds | | | | |
+---------------------+------------+------------+-----------+--------------+
| | | | | |
+---------------------+------------+------------+-----------+--------------+
| Net asset value per | | 85.46p | | 92.86p |
| 0.01p Ordinary | | | | |
| Share | | | | |
+---------------------+------------+------------+-----------+--------------+
Cash Flow Statement
For the Year ended 31 December 2008
+------+---------------------+-------------+----------+-------------+-------------+
| | Year Ended 31 | Period Ended 31 |
| | December 2008 | December 2007 |
+----------------------------+------------------------+---------------------------+
| | GBP | GBP | GBP | GBP |
+----------------------------+-------------+----------+-------------+-------------+
| Operating activities | | | | |
+----------------------------+-------------+----------+-------------+-------------+
| Investment income received | 367,844 | | 235,824 | |
+----------------------------+-------------+----------+-------------+-------------+
| Investment management fees | (20,710) | | (14,707) | |
| paid | | | | |
+----------------------------+-------------+----------+-------------+-------------+
| Other cash payments | (264,377) | | (85,758) | |
+----------------------------+-------------+----------+-------------+-------------+
| Net cash inflow from | | 82,757 | | 135,359 |
| operating activities | | | | |
+----------------------------+-------------+----------+-------------+-------------+
| | | | | | |
+------+---------------------+-------------+----------+-------------+-------------+
| Investing activities | | | | |
+----------------------------+-------------+----------+-------------+-------------+
| Acquisition of investments |(6,724,134) | |(8,819,500) | |
+----------------------------+-------------+----------+-------------+-------------+
| Disposal of investments | 7,101,945 | | 1,618,663 | |
+----------------------------+-------------+----------+-------------+-------------+
| Net cash inflow/(outflow) | | 377,811 | |(7,200,837) |
| from financial investment | | | | |
+----------------------------+-------------+----------+-------------+-------------+
| | | | | | |
+------+---------------------+-------------+----------+-------------+-------------+
| Equity dividends paid | |(55,125) | | - |
+----------------------------+-------------+----------+-------------+-------------+
| | | | | | |
+------+---------------------+-------------+----------+-------------+-------------+
| Net cash inflow/(outflow) | | 405,443 | |(7,065,478) |
| before financing | | | | |
+----------------------------+-------------+----------+-------------+-------------+
| | | | | | |
+------+---------------------+-------------+----------+-------------+-------------+
| Financing | | | | |
+----------------------------+-------------+----------+-------------+-------------+
| Issue of ordinary shares | - | | 8,406,218 | |
+----------------------------+-------------+----------+-------------+-------------+
| Issue costs | - | | (599,622) | |
+----------------------------+-------------+----------+-------------+-------------+
| | | | - | | 7,806,596 |
+------+---------------------+-------------+----------+-------------+-------------+
| Increase in cash | | 405,443 | | 741,118 |
+------+---------------------+-------------+----------+-------------+-------------+
Reconciliation of Movements in Shareholders' Funds
For the Year ended 31 December 2008
+---------------------+--------------------------+------------------------+
| | Year Ended 31 December |Period from 6 December |
| | 2008 | 2006 to 31 December |
| | | 2007 |
+---------------------+--------------------------+------------------------+
| | GBP | GBP |
+---------------------+--------------------------+------------------------+
| Opening | 10,238,313 | - |
| Shareholders' | | |
| Funds | | |
+---------------------+--------------------------+------------------------+
| | | |
+---------------------+--------------------------+------------------------+
| Net share capital | - | 10,406,596 |
| subscribed for in | | |
| the year | | |
+---------------------+--------------------------+------------------------+
| | | |
+---------------------+--------------------------+------------------------+
| Loss for the year | (761,382) | (168,283) |
+---------------------+--------------------------+------------------------+
| Dividends paid - | (55,125) | - |
| revenue | | |
+---------------------+--------------------------+------------------------+
| Closing | 9,421,806 | 10,238,313 |
| Shareholders' funds | | |
| at 31 December 2008 | | |
+---------------------+--------------------------+------------------------+
Accounting policies
A summary of the principal accounting policies, all of which have been applied
consistently throughout the current year, is set out below:
a)Basis of accounting
The accounts have been prepared under the fair value rules of the Companies Act
1985, and in accordance with applicable accounting standards and, to the extent
that it does not conflict with the Companies Act 1985 and UK accounting
standards, the 2003 Statement of Recommended Practice, 'Financial Statements of
Investment Trust Companies', revised December 2005.
b)Presentation of the Income Statement
In order to better reflect the activities of a VCT and in accordance with the
SORP, supplementary information which analyses the Income Statement between
items of a revenue and capital nature has been presented alongside the total
column. The Net revenue is the measure the Directors believe appropriate in
assessing the Company's compliance with certain requirements set out in Section
274 Income Tax Act 2007.
c) Investments
All investments held by the Company are classified as at "fair value through
profit and loss". For investments actively traded in organised financial
markets, fair value is generally determined by reference to
Stock Exchange market quoted bid prices at the close of business on the balance
sheet date.
Unquoted investments are valued by the Directors in accordance with the
following rules, which are consistent with the International Private Equity
Venture Capital Valuation (IPEVCV) guidelines published in 2005:
(i) Investments which have been made in the last 12 months are at fair value,
which unless another methodology gives a better indication of fair value, will
be at cost. Investments are recognised and de-recognised on a date where
the purchase or sale of an investment is under a contract whose terms require
the delivery or settlement of the investment. The Company manages its
investments with a view to profiting from the receipt of dividends and changes
in fair value of equity investments.
(ii) Investments in companies at an early stage of their development are also
valued at fair value, which unless another methodology gives a better indication
of fair value, will be at cost.
(iii) Where investments have gone beyond the stage in their development in (ii)
above, the shares may be valued, in the absence of overriding factors, by
applying a suitable price-earnings ratio to that company's maintainable earnings
(the ratio used being based on a comparable listed company or sector but the
resulting value being discounted to reflect lack of marketability). Where
overriding factors apply, alternative methods of valuation will be used. These
may include the application of a material arms length transaction by an
independent third party, cost, cost less provision for impairment, discounted
cash flow, or a net asset basis.
(iv) Where a value is indicated by a material arms-length transaction by a third
party in the shares of a company, this value will be used.
(v) Where a company's underperformance against plan indicates a permanent
diminution in the value of the investment, this amount is transferred to the
realised reserve from the unrealised reserve.
(vi) When the fair value of an asset is below cost the asset will be impaired.
d)Income
Dividends receivable on quoted equity shares are brought into account on the
ex-dividend date. Dividends receivable on unquoted equity shares are brought
into account when the Company's right to receive payment is established and
there is no reasonable doubt that payment will be received. Fixed returns on
non-equity are recognised on a time-apportioned basis so as to reflect the
effective yield, provided there is no reasonable doubt that payment will be
received in due course. Fixed returns on debt securities are recognised on a
time-apportioned basis so as to reflect the effective yield.
e)Transaction costs and investment management expense
The Company is responsible for any external costs such as legal or accounting
fees incurred on transactions that do not
proceed to completion. Such transaction costs are charged 100% against
capital. 75% of the investment management expense is charged against capital.
This is in line with the Board's expected long term split of returns from the
investment portfolio of the Company.
f) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged wholly
to revenue, with the exception of expenses incidental to the acquisition or
disposal of an investment, which are charged to the capital column of the Income
Statement.
g)Taxation
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax in the future or a right to
pay less tax in the future have occurred at the balance sheet date. Timing
differences are differences between the Company's taxable profits and its
results as stated in the financial statements.
Deferred tax is measured at the average tax rates that are expected to apply
in the years in which timing differences are expected to reverse based on tax
rates and laws that have been enacted or substantially enacted at the balance
sheet date. Deferred tax is measured on a non-discounted basis.
Any tax relief obtained in respect of management fees allocated to capital is
reflected in the capital reserve - realised and a corresponding amount is
charged against revenue. The tax relief is the amount by which corporation tax
payable is reduced as a result of these capital expenses.
Income
+-------------------------------+---------+-----------+
| Income from investments | 2008 | 2007 |
| | GBP | GBP |
+-------------------------------+---------+-----------+
| - from loan stock |104,737 | 48,424 |
+-------------------------------+---------+-----------+
| - from dividends |276,201 | 126,687 |
+-------------------------------+---------+-----------+
| |380,938 | 175,111 |
+-------------------------------+---------+-----------+
| Interest income | | |
+-------------------------------+---------+-----------+
| Bank interest | 25,206 | 78,404 |
+-------------------------------+---------+-----------+
| Total income |406,144 | 253,515 |
+-------------------------------+---------+-----------+
| | | |
+-------------------------------+---------+-----------+
| Total income | | |
+-------------------------------+---------+-----------+
| Dividends |276,201 | 126,687 |
+-------------------------------+---------+-----------+
| Interest |129,943 | 126,828 |
+-------------------------------+---------+-----------+
| |406,144 | 253,515 |
+-------------------------------+---------+-----------+
| Income from investments | | |
| comprises | | |
+-------------------------------+---------+-----------+
| Fixed Income securities |276,201 | 126,687 |
+-------------------------------+---------+-----------+
| Unlisted UK securities |104,737 | 48,424 |
+-------------------------------+---------+-----------+
| |380,938 | 175,111 |
+-------------------------------+---------+-----------+
Investments
+---------+---------+---------+----------+------------+-------------+-------------+
| | | | | | Funds and | |
| | | | | | Unit | |
| | | | | | Trusts | |
+---------+---------+---------+----------+------------+ +-------------+
| | | | | Unlisted | | Total |
+---------+---------+---------+----------+------------+-------------+-------------+
| | | | | GBP | GBP | GBP |
+---------+---------+---------+----------+------------+-------------+-------------+
| Valuation at 31 December | | 1,124,000 | 5,894,219 | 7,018,219 |
| 2007 | | | | |
+-----------------------------+----------+------------+-------------+-------------+
| Unrealised (gains)/losses at 31 | (124,000) | 213,581 | 89,581 |
| December 2007 | | | |
+----------------------------------------+------------+-------------+-------------+
| Cost at 31 December 2007 | | 1,000,000 | 6,107,800 | 7,107,800 |
+-----------------------------+----------+------------+-------------+-------------+
| | | | | | | |
+---------+---------+---------+----------+------------+-------------+-------------+
| Purchases at cost | | | 750,000 | 5,974,134 | 6,724,134 |
+-------------------+---------+----------+------------+-------------+-------------+
| Sale proceeds | | | - |(7,101,945) |(7,101,945) |
+-------------------+---------+----------+------------+-------------+-------------+
| Realised losses | | | - | (696,015) | (696,015) |
+-------------------+---------+----------+------------+-------------+-------------+
| Amortisation | | | - | (598) | (598) |
+-------------------+---------+----------+------------+-------------+-------------+
| Cost at 31 December 2008 | | 1,750,000 | 4,283,376 | 6,033,376 |
+-----------------------------+----------+------------+-------------+-------------+
| | | | | | | |
+---------+---------+---------+----------+------------+-------------+-------------+
| Unrealised (losses) at 31 December | - | (322,727) | (322,727) |
| 2008 | | | |
+----------------------------------------+------------+-------------+-------------+
| Valuation at 31 December | | 1,750,000 | 3,960,649 | 5,710,649 |
| 2008 | | | | |
+---------+---------+---------+----------+------------+-------------+-------------+
Share Capital and Reserves
+--------------------------+---------+------------+--------------+---------------+------------+------------+
| | Called | Capital | Capital | Special | Revenue | Total |
| | up | reserve | reserve |distributable | reserve | |
| | Share |(realised) |(unrealised) | reserve | | |
| |Capital | | | | | |
+--------------------------+ + + + + + +
| | | | | | | |
+--------------------------+ + + + + + +
| | | | | | | |
+--------------------------+---------+------------+--------------+---------------+------------+------------+
| | GBP | GBP | GBP | GBP | GBP | GBP |
+--------------------------+---------+------------+--------------+---------------+------------+------------+
| | | | | | | |
+--------------------------+---------+------------+--------------+---------------+------------+------------+
| As at 1 January 2008 | 1,102 | (146,621) | (89,581) | 10,405,494 | 67,919 |10,238,313 |
+--------------------------+---------+------------+--------------+---------------+------------+------------+
| Realised losses | - | (696,015) | - | - | - | (696,015) |
+--------------------------+---------+------------+--------------+---------------+------------+------------+
| Unrealised losses | - | - | (233,146) | - | - | (233,146) |
+--------------------------+---------+------------+--------------+---------------+------------+------------+
| Capitalised expenses | - | (49,563) | - | - | - | (49,563) |
+--------------------------+---------+------------+--------------+---------------+------------+------------+
| Dividends - revenue | - | - | - | - | (55,125) | (55,125) |
+--------------------------+---------+------------+--------------+---------------+------------+------------+
| Tax effect of capital | - | 10,948 | - | - | - | 10,948 |
| items | | | | | | |
+--------------------------+---------+------------+--------------+---------------+------------+------------+
| Return for year | - | - | - | - | 206,394 | 206,394 |
+--------------------------+---------+------------+--------------+---------------+------------+------------+
| At 31 December 2008 | 1,102 | (881,251) | (322,727) | 10,405,494 | 219,188 | 9,421,806 |
+--------------------------+---------+------------+--------------+---------------+------------+------------+
Net Asset value per share
Net asset value per ordinary shares is based on net assets at the end of the
year and on 11,024,969 Ordinary Shares, being the number of ordinary shares in
issue on that date.
Financial Instruments
The main risks arising from the Company's financial instruments are due to
fluctuations in market prices (market price risk), credit risk and interest rate
risk, although liquidity risk and currency risk are also discussed below. The
Board regularly reviews and agrees policies for managing each of these risks and
they are summarised below. These have been in place throughout the current
and preceding periods.
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 gain or loss that the Company might benefit or suffer
from through holding market positions in the face of market movements.
The investments in equity and fixed interest stocks of unquoted companies that
the Company holds are not traded and as such the prices are more uncertain than
those of more widely traded securities. Where the unquoted investments are
valued by reference to price earnings ratios prevailing in quoted comparable
sectors, their valuations are exposed to changes in the price earnings ratios
that exist in the quoted markets.
The Board's strategy in managing the market price risk inherent in the Company's
portfolio of equities and loan stock investments is determined by the
requirement to meet the Company's investment objective, as set out above. As
part of the investment process, the Board seeks to maintain an appropriate
spread of market risk, and also has full and timely access to relevant
information from the Investment Manager. No single investment is permitted to
exceed 15% of total investment assets at the point of investment. The Board
meets regularly and reviews the investment performance and financial results, as
well as compliance with the Company's objectives. In the case of the Credit
Suisse portfolio, derivative instruments are often used to hedge against market
risk.
Market price risk sensitivity
The Board believes that the Company's assets are mainly exposed to market price
risk, as the Company is required to hold most of its assets in the form of
sterling denominated investments in small companies, and holds the remainder in
a portfolio of equity instruments managed by Credit Suisse.
The investment made by the Manager in unquoted companies, irrespective of the
instruments the Company actually holds, (whether shares or loan stock) carry a
full market risk, even though some of the loan stocks may be secured on assets,
but behind any prior ranking bank debt in the investee company.
The Board considers that the values of investments in unquoted equity and loan
stock instruments are ultimately sensitive to changes in quoted share prices,
insofar as such changes eventually affect the enterprise value of unquoted
companies. The impact on net assets of unquoted investments if there were to be
a 15% movement in overall share prices for the year would have been an
increase or decrease of GBP262,500 (2007:GBP168,600). The impact on net assets
if there were to be a 15% movement in overall share price for listed quoted
securities for the year would have been an increase or decrease of GBP594,097
(2007:GBP884,133).
The above figures assume that each of these sub categories of investments
(shares and loan stocks) held by the Company produces a movement overall of 15%
and that the actual portfolio of investments held by the Company is perfectly
correlated to this overall movement in share prices. However, Shareholders
should note that this level of correlation is unlikely to be the case in
reality, particularly in the case of the loan stock instruments. This is because
loan stock instruments would not share in the impact of any increase in share
prices to the same extent as the equity investments, as the returns are set by
reference to interest rates and premiums agreed at the time of the initial
investment. Similarly, where share prices are falling, the equity instrument
could fall in value before the loan stock instrument. It is not considered
practical to assess the sensitivity of the loan stock instruments to
market price risk in isolation.
The impact of a change of 15% has been selected as this is considered reasonable
given the current level of volatility observed both on a historical basis and
market expectations for future movement. The range in equity prices is
considered reasonable given the historic changes that have been observed.
Credit risk
Credit risk is the risk that a counterparty will fail to discharge an obligation
or commitment that it has entered into with the Company. The Company's maximum
exposure to credit risk is:
+------------+---------+---------+---------+-----------+------------+
| | | | | 2008 | 2007 |
+------------+---------+---------+---------+-----------+------------+
| Financial assets | | | GBP | GBP |
+----------------------+---------+---------+-----------+------------+
| Securities | | | |4,185,649 | 6,018,219 |
+------------+---------+---------+---------+-----------+------------+
| Loan stock investments | |1,525,000 | 1,000,000 |
+--------------------------------+---------+-----------+------------+
| Called up share capital | |2,600,000 | 2,600,000 |
| unpaid | | | |
+--------------------------------+---------+-----------+------------+
| Accrued income | | | 86,588 | 47,690 |
+----------------------+---------+---------+-----------+------------+
| Other debtors (including prepayments) | 6,986 | 7,835 |
+------------------------------------------+-----------+------------+
| Cash and cash equivalents | |1,146,561 | 741,118 |
+--------------------------------+---------+-----------+------------+
| Total | | | |9,550,784 |10,414,862 |
+------------+---------+---------+---------+-----------+------------+
The Company has an exposure to credit risk in respect of the loan stock
investment it has made into an investee company, which has little security
attached to it, and where it does, such security ranks beneath any bank debt
that an investee company may owe.
GBP86,588 of the accrued income shown above was due within 2 months of the
year-end.
The following table shows the maturity of the loan stock investment referred to
above.
+---------+---------+-----------+-----------+
| | | 2008 | 2007 |
+---------+---------+-----------+-----------+
| | | GBP | GBP |
+---------+---------+-----------+-----------+
| Repayable within | | |
+-------------------+-----------+-----------+
| 5 years | |1,525,000 |1,000,000 |
+---------+---------+-----------+-----------+
| Total | |1,525,000 |1,000,000 |
+---------+---------+-----------+-----------+
These loan stock investments are made as part of the qualifying investment
within the investment portfolio, and the risk management processes applied to
loan stock investments have already been set out under market price risk above.
Called up share capital unpaid is supported by bank guarantees, so is considered
to be low credit risk.
There could also be a failure by counterparties to deliver securities which the
Company has paid for, or pay for securities which the Company has delivered.
This risk is considered to be small as most of the Company's investment
transactions are in unquoted investments, where investments are conducted
through solicitors, to ensure that payment matches delivery. In respect of any
quoted investment transactions that are undertaken, the Company uses brokers
with a high credit quality, and these trades usually have a short settlement
period. Accordingly, counterparty risk is considered to be relatively low.
There are no assets that are past due repayment dates.
Interest rate risk
The Company's fixed and floating rate interest securities, its equity
investments and net revenue may be affected by interest rate movements.
Investments are often in relatively small businesses, which are relatively high
risk investments sensitive to interest rate fluctuations.
Due to the short time to maturity of some of the Company's floating rate
investments, it may not be possible to re-invest in assets which provide the
same rates as those currently held.
The Company's assets include fixed and floating rate interest instruments, as
shown below. The rate of interest earned is regularly reviewed by the Board, as
part of the risk management processes applied to these instruments, already
disclosed under market price risk above.
The interest rate profile of the Company's financial net assets at 31 December
2008 was:
+------------+---------+-----------+------------+-----------+-----------+----------+----------+
| | |Financial | Fixed | Floating | |Weighted | Average |
| | |assets on | rate | rate | | average | period |
| | | which no | financial |financial | |interest | to |
| | | interest | assets | assets | | rate |maturity |
| | | paid | | | | | |
+------------+---------+ + + +-----------+ + +
| | | | | | | | |
+------------+---------+ + + +-----------+ + +
| | | | | | | | |
+------------+---------+ + + +-----------+ + +
| | | | | | | | |
+------------+---------+ + + +-----------+ + +
| | | | | | Total | | |
+------------+---------+-----------+------------+-----------+-----------+----------+----------+
| | | GBP | GBP | GBP | GBP | % | (years) |
+------------+---------+-----------+------------+-----------+-----------+----------+----------+
| Equity | |2,746,784 | - | - |2,746,784 | | |
+------------+---------+-----------+------------+-----------+-----------+----------+----------+
| Fixed | | - | 1,438,865 | - |1,438,865 | 4.30 | 0.41 |
| Interest | | | | | | | |
| securities | | | | | | | |
+------------+---------+-----------+------------+-----------+-----------+----------+----------+
| Loan stock | - | 1,525,000 | - |1,525,000 | 14.97 | 4.90 |
+----------------------+-----------+------------+-----------+-----------+----------+----------+
| Cash | | - | - |1,146,561 |1,146,561 | | |
+------------+---------+-----------+------------+-----------+-----------+----------+----------+
| Debtors | |2,693,574 | - | - |2,693,574 | | |
+------------+---------+-----------+------------+-----------+-----------+----------+----------+
| Creditors | |(128,978) | - | - |(128,978) | | |
+------------+---------+-----------+------------+-----------+-----------+----------+----------+
| Total | |5,311,380 | 2,963,865 |1,146,561 |9,421,806 | | |
+------------+---------+-----------+------------+-----------+-----------+----------+----------+
The interest rate profile of the Company's financial net assets at 31 December
2007 was:
+-----------+---------+-----------+------------+-----------+------------+----------+----------+
| | |Financial | Fixed | Floating | Total |Weighted | Average |
| | |assets on | rate | rate | | average | period |
| | | which no | financial |financial | |interest | to |
| | | interest | assets | assets | | rate |maturity |
| | | paid | | | | | |
+-----------+---------+ + + + + + +
| | | | | | | | |
+-----------+---------+ + + + + + +
| | | | | | | | |
+-----------+---------+ + + + + + +
| | | | | | | | |
+-----------+---------+ + + + + + +
| | | | | | | | |
+-----------+---------+-----------+------------+-----------+------------+----------+----------+
| | | GBP | GBP | GBP | GBP | % | (years) |
+-----------+---------+-----------+------------+-----------+------------+----------+----------+
| Equity | |6,018,219 | - | - | 6,018,219 | | |
+-----------+---------+-----------+------------+-----------+------------+----------+----------+
| Loan stock | - | 1,000,000 | - | 1,000,000 | 14.98 | 4.70 |
+---------------------+-----------+------------+-----------+------------+----------+----------+
| Cash | | - | - | 741,118 | 741,118 | | |
+-----------+---------+-----------+------------+-----------+------------+----------+----------+
| Debtors | |2,655,525 | - | - | 2,655,525 | | |
+-----------+---------+-----------+------------+-----------+------------+----------+----------+
| Creditors | |(176,549) | - | - | (176,549) | | |
+-----------+---------+-----------+------------+-----------+------------+----------+----------+
| Total | |8,497,195 | 1,000,000 | 741,118 |10,238,313 | | |
+-----------+---------+-----------+------------+-----------+------------+----------+----------+
The Company's investments in equity shares and similar instruments have been
excluded from the interest rate risk profile as they have no maturity date and
would thus distort the weighted average period information.
Interest rate sensitivity
Although the Company holds investments in loan stocks that pay interest, the
Board does not believe that the income of these instruments is interest rate
sensitive, as the majority of the loan is at a fixed rate of interest. The Board
does not consider that the impact of interest rate changes materially affects
the value of the loan portfolio in isolation, other than the consequent impact
that interest rate changes have upon movements in share prices, discussed under
equity price risk above.
Liquidity risk
The investment in equity and fixed interest stocks of unquoted companies that
the Company holds are not traded. They are not readily realisable. 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 company's ability to
sell investments may also be constrained by the requirements set down by
VCTs. The maturity profile of the Company's loan stock investments disclosed
within the consideration of credit risk above indicates that these assets are
also not readily realisable until dates up to 5 years or more from the year end.
To counter these risks to the Company's liquidity, the Manager maintains
sufficient ready realisable investments within the Credit Suisse portfolio to
meet running costs and other commitments.
All creditors and accruals are due within one year and are comfortably covered
by funds within the Credit Suisse portfolio and short term debtors.
Currency risk
All assets and liabilities are denominated in sterling and therefore there is no
currency risk.
Other information
The Annual General Meeting of the Company will be held on 6 May 2009, commencing
at 9.45 a.m (or as soon thereafter as the Annual General Meeting of Core IV VCT
plc has been concluded or adjourned) at the offices of Core Capital LLP, 103
Baker Street, London, W1U 6LN. The Annual Report and Financial Statements for
the year ended 31 December 2008 will be printed and issued to Shareholders in
due course and will shortly be available on the website of Core Capital
www.core-cap.com.
The financial information contained within this announcement does not constitute
the Company's statutory financial statements as defined in Section 240 of the
Companies Act 1985 and has not been delivered to the Registrar of Companies.
Statutory financial statements will be filed with the Registrar of Companies in
due course. The financial information for 2007 is derived from the statutory
accounts for 2007 which have been delivered to the Registrar of Companies. The
independent auditors' report on the financial statements under section 235 of
the Companies Act 1985 is unqualified and does not contain a statement under
section 237(2) or (3) of the Companies Act 1985. The statutory financial
statements for the year ended 31 December 2007 contains an audit report which
was unqualified and did not contain statements under Sections 237(2) or (3) of
the Companies Act 1985, and have been delivered to the Registrar of Companies.
Copies of this announcement will be available to the public at the office of
Aberdeen Asset Managers Limited, 149 St Vincent Street, Glasgow and at the
registered office of the Company, One Bow Churchyard, Cheapside, London;
Directors' responsibility statement
The Directors confirm that, to the best of their knowledge:
* the Financial Statements have been prepared in accordance with the applicable
accounting standards and give a true and fair view of the assets, liabilities
and financial position of the Company as at 31 December 2008 and for the year to
that date; and
* the Directors' Report includes a fair review of the development and performance
of the Company, together with a description of the principal risks and
uncertainties that it faces.
By Order of the Board
Aberdeen Asset Management PLC
Secretary
6 April 2009
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FGGGDRNDGLZG
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