TIDMDIVO
Downing Income VCT plc
Half-Yearly Report for the six months ended 28 February 2013
FINANCIAL HIGHLIGHTS
28 Feb 31 Aug 29 Feb
2013 2012 2012
pence pence pence
Net asset value per share 33.6 34.0 38.5
Cumulative dividends 28.0 26.0 24.0
Total return per share 61.6 60.0 62.5
CHAIRMAN'S STATEMENT
I am pleased to present the Company's half-yearly report for the period
ended 28 February 2013. During the six months, the Manager has continued
to make progress in rebalancing the investment portfolio and I can
report a small increase in net asset value.
Investment activity and performance
At the period end, the Company held approximately 71% of its funds in
quoted investments compared to 74% at 31 August 2012 and 87% at 29
February 2012.
The Manager made full or partial disposals of 14 holdings, raising
GBP1.5 million of proceeds and realising gains of GBP248,000. GBP1.0
million of the proceeds has been reinvested in four new and two
follow-on investments, three of which are unquoted.
Over the period, the overall performance of the quoted investments,
supported by a buoyant market, was positive, with gains outweighing
falls by GBP472,000. Avacta Group, Angle, Anpario and Craneware were
particularly strong performers.
In respect of the unquoted investments, Locale Enterprises Limited and
London Italian Restaurants Limited have been marked down by GBP113,000
and GBP109,000 respectively, due to weak results and the generally
difficult trading conditions.
Further details of the investment activities of the Company are in the
Investment Manager's Report.
Net asset value, results and dividend
As at 28 February 2013, the Company's Net Asset Value ("NAV") stood at
33.6p per share, an increase of 1.6p per share (4.7%) compared to the
position at 31 August 2012 after adjusting for the dividend of 2.0p per
share paid in the period.
The return on ordinary activities after taxation for the period recorded
in the Income Statement was GBP440,000, comprising a revenue loss of
GBP16,000 and a capital gain of GBP456,000.
The Company paid a final dividend of 2.0p on 15 February 2013 to
Shareholders on the register at 18 January 2013. In line with the
Company's normal policy, no interim dividend will be paid.
Share Realisation and Reinvestment Programme
As Shareholders will be aware, the Company launched a Share Realisation
and Reinvestment Programme ("SRRP") in December. This completed shortly
after the period end and was well received by investors with 8,255,759
shares being tendered. The shares were purchased on 21 March 2013 at
33.5p per share and the proceeds reinvested in new shares issued at
approximately 34.5p per share. A further GBP82,000 was received in
respect of the top-up share offer that was launched alongside the SRRP,
with shares being issued on the 21 March 2013 at the same price.
Share buyback policy
Historically, the Company has made market purchases of its shares from
time to time when they become available in the market. Such purchases
have not been undertaken at any fixed discount to NAV and, consequently,
the Company's shares have tended to trade at a large discount to NAV.
Since the change of Manager last year, the Company has been working
towards the introduction of a policy whereby the Company will usually
purchase shares at a standard discount to NAV. Subject to liquidity
within the funds, close periods and other regulatory restrictions, the
Company intends to buy in shares as they become available in the market
at a 20% discount to NAV. The Board will review this discount level
regularly and will consider reducing it should liquidity and market
considerations allow.
Shareholders who wish to sell their shares will need to do so through a
stockbroker and are recommended to contact Downing prior to selling.
Downing is able to provide details of the prices at which the Company is
expecting to buy in shares and of close periods when the Company may be
prohibited from making purchases.
Outlook
The Board is pleased with progress made by the Manager in refocusing the
portfolio and believes that the prospects for the Company are improving.
Further work on the portfolio will continue over the remainder of the
year.
As I have noted previously, the Company is now becoming relatively small
for a VCT and there is a risk of running costs becoming
disproportionately high. The Board is continuing to explore options with
the Manager for the longer term future of the Company which include
future fundraising and/or a possible merger. I will update Shareholders
when there are any major developments.
Chris Marsh
Chairman
INVESTMENT MANAGER'S REPORT
At 28 February 2013, the Company's venture capital portfolio was valued
at GBP9.1 million.
Investment activity
Consistent with the strategy outlined in the Annual Report and Accounts,
we have been implementing an investment focus that concentrates on a
smaller pool of AIM investments that fully fit our investment criteria
while broadening our scope to include unquoted investments. It is
challenging to drive performance from a large number of small holdings,
as has been typical of the portfolio of the Fund. Our top ten
investments now account for 48.9% of the total value of the portfolio,
significantly higher than a year ago. We have been carefully disposing
of those investments that do not meet our strict investment criteria;
however, we have not been hasty in doing so - seeking to achieve the
best possible prices and valuations for these companies.
During the period, three new unquoted investments were made at a total
cost of GBP626,000 and four quoted investments were made at a total cost
of GBP380,000.
An overview of the new investments is as follows:
A qualifying investment of GBP137,000 was made in Mosaic Spa and Health
Clubs Limited, a management company which trades under the name of
Fitness Express. The company currently has approximately 30 management
contracts to provide gym and spa management to hotels, universities and
corporate clients and owns a freehold health club known as Welti near
Shrewsbury. In October 2012, a second freehold club in Hereford, Holmer
Park, was purchased by the company.
In October 2012, a qualifying investment of GBP189,000 was made in Oak
Grove Renewables Limited, which is developing a 2MW biogas plant in
Norfolk. The plant will produce biogas through an anaerobic digestion
process which is then used to generate electricity. The company will
benefit from the receipt of Feed-in Tariffs for electricity generation
and for electricity exported to the National Grid.
GBP300,000 was also invested in a non-qualifying opportunity,
Southampton Hotel Developments Limited. The company is developing a
hotel at the Aegeas Bowl, the home of Hampshire Cricket Club.
A further (non-qualifying) quoted investment of GBP176,000 was made in
AIM company Universe Group plc, which is one of Europe's largest
providers of loyalty payment and forecourt technology. The Company also
invested GBP40,000 in loan notes which strengthens shareholder rights.
These investments complement the existing qualifying equity investment
and are consistent with the Company's strategy to take larger holdings
in fewer companies where the Manager believes there is significant
value. In total, Downing funds now hold 18.1% of Universe Group's equity
share.
A small (non-qualifying) position of GBP84,000 was taken in China Food
Group plc which is a manufacturer and distributor of soy sauce and
condiments in Northern China. We believe that this investment has been
made at a significant discount to the intrinsic value of China Food
Group plc.
A number of realisations were undertaken during the period, reducing the
exposure to those investments where the longer term prospects were not
attractive. Disposal proceeds received thereon were GBP1.46 million.
This represented a realised gain of GBP248,000 in the interim period but
an overall loss against cost of GBP953,000.
Investment performance
Overall, the portfolio increased in value by GBP250,000 over the period,
of which GBP472,000 is attributable to an increase in value of quoted
and PLUS market investments, offset by a GBP222,000 fall in value of the
unquoted holdings.
Unquoted investments
Locale Enterprises Limited owns and operates a number of restaurants in
and around central London and has seen sales adversely affected by
declining consumer spending. As a result, a cautionary GBP113,000
reduction in value has been recognised.
The investment in London Italian Restaurants has also been marked down
by GBP109,000, as a result of continued weak trading at the company's
restaurants.
Quoted investments
In the period, there was a positive contribution from a number of the
top holdings within the portfolio.
Angle plc, the holding company for a number of innovative medical
technology companies, announced the proposed launch of Parsortix, a
non-invasive cancer diagnostic. This led to a gain for the Company of
GBP127,000 in the period.
Meanwhile, Anpario plc, the manufacturer and distributor of animal feed
additives, saw its share price appreciate on the back of a positive
trading statement and this led to a gain for the Company in the period
of GBP113,000.
Craneware plc, the provider of software and solutions to the US
healthcare and billing market, saw a recovery in its share price after a
positive trading statement, leading to a gain of GBP108,000 in the
period for the Company.
Vianet Group plc, the provider of real time monitoring systems and data
management solutions for the retail forecourt market, saw its share
price decline on the back of a cautious trading update, leading to an
unrealised fall of GBP47,000 in the period for the Company. We still
continue to believe that the Vianet solution is unique and has a market
leading position in the sector which is not fully reflected in the share
price.
Other notable movements outside of the top performing investments were
as follows:
Avacta plc, a leading provider of proprietary and diagnostic technology
consumables and reagents to the drug delivery and healthcare sector, saw
continued growth in unit sales for the optium analytical product, albeit
from a low base. The continued strength of the animal diagnostic
business was reiterated in a trading update in February and this
contributed to a gain for the Company of GBP145,000 in the period.
The investment in Corero Network Security plc, the provider of network
and business software solutions, fell by GBP71,000 following news of
continued losses.
Plethora Solutions plc, the speciality pharmaceutical company dedicated
to the development and marketing of products for the treatment of
urological disorders, put one of its subsidiaries into administration
and will now focus on its core product, a treatment for premature
ejaculation, which is seeking European approvals. This negative news led
to a loss for the Company in the period of GBP89,000.
Outlook
Overall, the investment portfolio has experienced an encouraging six
months, with modest improvements in the trading outlook of the largest
holdings, while new quoted holdings introduced to the Company have begun
to demonstrate early signs of performance. The change in the emphasis of
the fund into a blend of unquoted and quoted holdings has made continued
progress. Although some yielding unquoted assets have already been
introduced to the portfolio in the interim period, we anticipate that
this momentum will continue in the second half of year.
Downing LLP
SUMMARY OF INVESTMENT PORTFOLIO
as at 28 February 2013
Valuation
movement % of portfolio
Cost Valuation in period by value
GBP'000 GBP'000 GBP'000
Top ten venture capital
investments (by value)
Vianet Group plc 835 636 (47) 6.6%
Locale Enterprises Limited * 540 622 (113) 6.5%
Baron House Developments LLP* 600 600 - 6.2%
Craneware plc 173 547 108 5.7%
Anpario plc 252 459 113 4.7%
Plastics Capital plc 500 400 65 4.1%
Vulcan Renewables Limited * 400 400 - 4.1%
Cohort plc 364 379 61 3.9%
Angle plc 219 353 127 3.7%
Vertu Motors plc 500 329 64 3.4%
4,383 4,725 378 48.9%
Other venture capital
investments 9,350 4,343 (128) 44.9%
13,733 9,068 250 93.8%
Cash at bank and in hand 594 6.2%
Total investments 9,662 100%
All venture capital investments are quoted on AIM unless otherwise
stated.
* Unquoted
SUMMARY OF INVESTMENT MOVEMENTS
for the six months ended 28 February 2013
Additions
GBP'000
Quoted (market purchases)
China Food Company plc 84
Norman Broadbent plc 80
Universe Group plc 216
Other sundry investments 3
Unquoted
Mosaic Spa and Health Clubs Limited 137
Oak Grove Renewables Limited 189
Southampton Hotel Developments Limited 300
1,009
(Loss)/
Market Realised gain
value at Disposal gain/(loss) against
Disposals Cost 31/08/12* proceeds in period cost
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Quoted (market sales)
3D Resources plc 180 3 13 10 (167)
AFC Energy plc 106 242 279 37 173
Bglobal plc 83 15 18 3 (65)
Cyan Holdings plc 655 64 120 56 (535)
Digital Barriers plc 178 271 273 2 95
Energetix Group plc 33 26 26 - (7)
Getech Group plc 40 45 47 2 7
Hightex Group plc 212 63 63 - (149)
Photonstar LED Group
plc 188 76 99 23 (89)
Porta Communications
plc 85 55 48 (7) (37)
Pressure Technologies
plc 169 158 184 26 15
Tangent Communications
plc 350 188 268 80 (82)
Theo Fennell plc 23 6 7 1 (16)
Unquoted
Consolidated General
Minerals plc 111 - 15 15 (96)
2,413 1,212 1,460 248 (953)
* Adjusted for purchases in the period
UNAUDITED BALANCE SHEET as at 28 February 2013
28 Feb 2013 29 Feb 2012 31 Aug 2012
(Unaudited) (Unaudited) (Audited)
Note GBP'000 GBP'000 GBP'000
Fixed assets
Investments 9,068 10,768 9,022
Current assets
Debtors 48 25 354
Cash at bank and in hand 594 430 325
642 455 679
Creditors: amounts falling due within
one year (108) (50) (42)
Net current assets 534 405 637
Net assets 9,602 11,173 9,659
Capital and reserves
Called up share capital 7 2,839 2,898 2,839
Capital redemption reserve 8 277 217 277
Share premium 8 122 122 122
Share capital to be issued 8 71 - -
Special reserve 8 6,668 14,786 8,312
Capital reserve - realised 8 291 - -
Capital reserve- unrealised 8 (761) (6,976) (2,002)
Revenue reserve 8 95 126 111
Equity shareholders' funds 6 9,602 11,173 9,659
Basic and diluted NAV per share 6 33.6p 38.5p 34.0p
UNAUDITED INCOME STATEMENT
for the six months ended 28 February 2013
18 months
ended
6 months ended 6 months ended 31 August
28 February 2013 29 February 2012 2012
Revenue Capital Total Revenue Capital Total Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 96 - 96 72 - 72 291
Gains/(losses)
on
investments
- realised - 248 248 - (15) (15) (355)
- unrealised - 250 250 - (1,286) (1,286) (3,904)
96 498 594 72 (1,301) (1,229) (3,968)
Investment
management
fees (14) (41) (55) (30) (89) (119) (263)
Other expenses (98) (1) (99) (68) - (68) (236)
Return /(loss)
on ordinary
activities
before
taxation (16) 456 440 (26) (1,390) (1,416) (4,467)
Taxation - - - - - - -
Return/(loss)
attributable
to equity
shareholders 4 (16) 456 440 (26) (1,390) (1,416) (4,467)
Basic and
diluted
return per
share 4 (0.1p) 1.6p 1.5p (0.1p) (4.8p) (4.9p) (15.4p)
The total column within the Income Statement represents the profit and
loss account of the Company. No operations were acquired or discontinued
during the period.
A Statement of Total Recognised Gains and Losses has not been prepared
as all gains and losses are recognised in the Income Statement as noted
above.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months ended 28 February 2013
6 months
ended 18 months ended
28 February 6 months ended 31 August
2013 29 February 2012 2012
Note GBP'000 GBP'000 GBP'000
Opening Shareholders'
funds 9,659 12,589 16,222
Unallotted shares 71 - -
Purchase of own shares - - (365)
Total recognised gains/(losses)
for the period 440 (1,416) (4,467)
Dividends paid 5 (568) - (1,731)
Closing Shareholders'
funds 9,602 11,173 9,659
UNAUDITED CASH FLOW STATEMENT
for the six months ended 28 February 2013
6 months
ended 18 months ended
28 February 6 months ended 31 August
2013 29 February 2012 2012
Note GBP'000 GBP'000 GBP'000
Cash outflow from operating activities and returns
on investments 9 (17) (130) (170)
Capital expenditure
Payments to acquire investments (1,004) (512) (3,982)
Receipts from sale of investments 1,775 897 6,460
Net cash inflow from capital expenditure 771 385 2,478
Equity dividends paid (556) - (1,743)
Net cash inflow before financing 198 255 565
Financing
Unallotted share issue proceeds 71 - -
Purchase of own shares - - (365)
Net cash inflow/(outflow) from financing 71 - (365)
Increase in cash 10 269 255 200
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
for the six months ended 28 February 2013
1. The unaudited half-yearly financial results cover the six months to
28 February 2013 and have been prepared in accordance with the
accounting policies set out in the statutory accounts for the 18 months
ended 31 August 2012, which were prepared under UK Generally Accepted
Accounting Practice and in accordance with the Statement of Recommended
Practice "Financial Statements of Investment Trust Companies and Venture
Capital Trusts" January 2009.
2. The Company has only one class of business and derives its income
from investments made in shares, securities and bank deposits.
3. The comparative figures were in respect of the six months ended 29
February 2012, calculated using the second Half Yearly Report to 29
February 2012 and the Half Yearly Report to 31 August 2011, and the
Annual Report for the 18 months ended 31 August 2012 respectively.
4. Return per share
Capital
Weighted average Revenue gain/
number of shares in issue loss (loss)
GBP'000 GBP'000
Period ended 28 February 2013 28,385,141 (16) 456
Period ended 29 February 2012 28,986,299 (26) (1,390)
Period ended 31 August 2012 29,003,509 (10) (4,457)
5. Dividends
18 months
ended
6 months ended 31 August
Paid in the period 28 February 2013 2012
Revenue Capital Total Total
GBP'000 GBP'000 GBP'000 GBP'000
Date paid
2012 Final 15/02/2013: 2.0p - 568 568 -
2012 Interim 03/08/2012: 2.0p - - - 568
2011 Final 02/08/2011: 4.0p - - - 1,163
- 568 568 1,731
6. Basic and diluted net asset value per share
Shares in issue Net assets NAV per share
GBP'000 pence
As at 28 February 2013
Ordinary shares 28,385,141 9,531 33.6p
Share capital to be issued 71
9,602
As at 29 February 2012 28,986,299 11,173 38.5p
As at 31 August 2012 28,385,141 9,659 34.0p
7. Called up share capital
Shares in issue GBP'000
As at 28 February 2013 28,385,141 2,839
As at 29 February 2012 28,986,299 2,898
As at 31 August 2012 28,358,141 2,839
8. Reserves
Share
Capital Capital capital
redemption Share Special Capital reserve reserve - Revenue to be
reserve premium reserve -realised unrealised reserve issued
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 September
2012 277 122 8,312 - (2,002) 111 -
Unallotted
shares - - - - - - 71
Capital
expenses - - - (42) - - -
Gains on
investments - - - 248 250 - -
Realisation of
revaluations
from previous
years - - - (991) 991 - -
Dividends paid - - - (568) - - -
Transfer
between
reserves - - (1,644) 1,644 - - -
Retained net
revenue - - - - - (16) -
At 28 February
2013 277 122 6,668 291 (761) 95 71
The Special reserve is available to the Company to enable the purchase
of its own shares in the market without affecting its ability to pay
dividends/capital distributions.
Distributable reserves are calculated as follows:
28 February 31 August
2013 2012
GBP'000 GBP'000
Special reserve 6,668 8,312
Capital reserve - realised 291 -
Revenue reserve 95 111
Unrealised losses (excluding unrealised unquoted gains) (843) (2,196)
Total distributable reserves 6,211 6,227
9. Reconciliation of return on operating activities before taxation to
net cash flow from operating activities
6 months
ended 18 months ended
28 February 6 months ended 31 August
2013 29 February 2012 2012
GBP'000 GBP'000 GBP'000
Return/(loss) on ordinary
activities before taxation 440 (1,416) (4,467)
(Losses)/gains on investments (498) 1,301 4,259
(Increase)/decrease in other
debtors (20) 10 88
Increase/(decrease) in other
creditors 61 (25) (50)
Net cash outflow from
operating activities (17) (130) (170)
10. Analysis of changes in cash at bank in the period
28 Feb 29 Feb 31 Aug
2013 2012 2012
GBP'000 GBP'000 GBP'000
Beginning of period 325 175 125
Net cash inflow 269 255 200
End of period 594 430 325
11. The unaudited financial statements set out herein do not constitute
statutory accounts within the meaning of Section 434 of the Companies
Act 2006 and have not been delivered to the Registrar of Companies. The
figures for the period ended 31 August 2012 have been extracted from the
financial statements for that period, which have been delivered to the
Registrar of Companies; the Auditor's report on those financial
statements was unqualified.
12. Going concern
The Directors have reviewed the Company's financial resources at the
period end and concluded that the Company is well placed to manage its
business risks.
The Directors confirm that they are satisfied that the Company has
adequate resources to continue to operate for the foreseeable future.
For this reason, the Directors believe that the Company continues to be
a going concern and that it is appropriate to apply the going concern
basis in preparing the financial statements.
13. Risks and uncertainties
Under the Disclosure and Transparency Rules, the Board is required, in
the Company's half-year results, to report on principal risks and
uncertainties facing the Company over the remainder of the financial
year.
The Board has concluded that the key risks are:
(i) compliance risk of failure to maintain approval as a VCT; and
(ii) investment risk associated with investing in small and immature
businesses.
The Company's compliance with the VCT regulations is continually
monitored by the Manager, who regularly reports to the Board on the
current position. The Company also retains PricewaterhouseCoopers to
provide regular reviews and advice in this area.
In order to make VCT qualifying investments, the Company has to invest
in small businesses which are often immature. It also has a limited
period in which it must invest the majority of its funds into VCT
qualifying investments. The Manager follows a rigorous process in
vetting and careful structuring of new investments, including taking a
charge over the assets of the business wherever possible and, after an
investment is made, closely monitoring the business.
The Board is satisfied that these approaches provide satisfactory
management of the key risks.
14. The Directors confirm that, to the best of their knowledge, the half
yearly financial report has been prepared in accordance with the
"Statement: Half-Yearly Financial Reports" issued by the UK Accounting
Standards Board and the half-yearly financial report includes a fair
review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related
party transactions that have taken place during the first six months of
the current financial year and that have materially affected the
financial position or performance of the entity during that period, and
any changes in the related party transactions described in the last
annual report that could do so.
15. Copies of the unaudited half-yearly financial results will be sent
to Shareholders shortly. Further copies can be obtained from the
Company's Registered Office and will be available for download from
www.downing.co.uk.
This announcement is distributed by Thomson Reuters on behalf of Thomson
Reuters clients.
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other
applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the
information contained therein.
Source: Downing Income VCT plc via Thomson Reuters ONE
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