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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Downing Plan 5 | LSE:DPV5 | London | Ordinary Share | GB00B0S5PZ69 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 6.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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TIDMDPV5
DOWNING PROTECTED VCT V PLC
FINAL RESULTS FOR THE YEAR ENDED 30 NOVEMBER 2009
FINANCIAL HIGHLIGHTS
Year ended Year ended Year ended Year ended
(All "pence per share") 30 Nov 09 30 Nov 08 30 Nov 07 30 Nov 06
Net asset value 87.4 95.5 97.0 95.7
Total distributions paid since 6.0 3.5 1.0 1.0
inception
Total return 93.4 99.0 98.0 96.7
CHAIRMAN'S STATEMENT
Introduction
I am pleased to update Shareholders on developments that have taken place in the
year ended 30 November 2009. Although we have had to make a number of
provisions against investments, we have made good progress on the planned return
of funds to Shareholders.
Portfolio activity
Shareholders will be aware that the Company's objective is to seek to return
funds to Shareholders within approximately five years of the close of the
Company's fundraising in April 2006. With all original Shareholders now having
held their investment in the Company for at least the minimum three-year period
to retain the income tax relief received on the investment, the Investment
Manager has been very active in working toward investment realisations, a
significant number which have been achieved in the latter part of the year and
since the year end.
In addition to the realisations, the Investment Manager has identified a number
of low-risk, short-term investment opportunities with generous yields. A number
of these opportunities were undertaken to increase the return by utilising funds
from other investment realisations prior to the funds being distributed to
Shareholders.
Full details of the portfolio activity are included in the Investment Manager's
Reports.
Investment valuations
At the year-end the Board has reviewed the investment valuations with the
Investment Manager and some adjustments to the previous carrying values have
been made.
The main valuations movements are summarised as follows:
The investment in Vermont Developments Limited (in administration) is based on
the valuation of a plot of development land in Salford over which your Company
has a charge. The economic turmoil of the last 18 months has, in some cases,
had an extreme effect on the values of development land, such that the
investment has now been written down to the estimated market value of its share
in the land of GBP50,000.
Richstone Contracting Limited has been undertaking a hotel and residential
development project in south Devon on land owned by Aminghurst Limited. The
project has encountered difficulties in respect of the general viability of the
planned development in the current market conditions. As a result, building
work has been halted and the Investment Manager has negotiated the return of
available funds from Richstone Contracting Limited to ensure that exposure to
the investment is reduced as much as possible.
With the value of building work undertaken to date uncertain, a full provision
has been made against the remaining value of the Richstone Contracting Limited
investment and a provision made against the investment in Aminghurst Limited. I
can report that progress is being made in modifying the planned project which
may provide the opportunity of a recovery of value in due course.
Other portfolio investments have mostly performed reasonably in line with plans
and have been held at the previous carrying value or cost.
Net Asset Value
The Net Asset Value per share ("NAV") at 30 November 2009 stood at 87.4p. With
dividends paid to date of 6p per share Total Return (NAV plus cumulative
dividends) stood at 93.4p per share.
Results
The loss on activities after taxation for the year was GBP1,285,000 (2008 profit:
GBP221,000) comprising a revenue profit of GBP372,000 (2008: GBP604,000) and a capital
loss of GBP1,657,000 (2008: loss GBP383,000).
Dividends
Since the year end, the Company has paid two dividends as follows:
Pence
per
share
6 January 2010 10.0
(interim dividend year ended 30 November 2009)
5 March 2010 40.0
(interim dividend year ended 30 November 2010)
50.0p
The above brings total dividends paid to Shareholders since the Company's launch
to 56p per share.
A number of further investment exits are currently being progressed. The Board
intends to declare further dividends as and when a reasonable level of further
investment proceeds has been accumulated.
Share buybacks
In view of the fact that the Company is now in the process of unwinding its
portfolio and returning proceeds to Shareholders, the Board is keen to see that
all investment proceeds are distributed across the whole shareholder base and
that funds utilised for share buybacks at this stage in the Company's life are
minimal.
Having said that, the Board acknowledges that occasionally there are forced
sellers of shares and feels that the Company should provide at least a basic
level of support in those circumstances. Rather than suspend share buybacks
entirely, the Board will from time to time consider making market purchases of
its own shares, however any such purchases are likely to be undertaken at a
substantial discount to the NAV.
The Board envisages that all Shareholders, other than those who may consider
themselves to be forced sellers, will continue to hold their shares and receive
the dividends from the Company which are expected to be paid as further
investment realisations are achieved
as this effectively ensures that they exit from the investment at NAV rather
than suffering a discount.
During the year, the Company bought 469,972 of its own shares at an average
price of 69.2p per share. These purchases were generally made at a 25% discount
to the latest announced NAV.
A special resolution to renew the Directors authority to buy in the Company's
shares is proposed for the forthcoming AGM as Resolution 5.
Change of name
You may be aware that a number of Downing-managed VCTs have recently been
renamed in order that their names better describe their key objectives and
differentiate them from other Downing-managed VCTs with different strategies.
In line with this process, the Board is proposing to change the name of this
Company to "Downing Planned Exit VCT 5 plc". Resolution 6 is proposed at the
AGM to seeking Shareholder approval to effect this change.
Annual General Meeting
The Company's fourth Annual General Meeting will be held at Kings Scholars
House, 230 Vauxhall Bridge Road, London, SW1V 1AU at 4.05 p.m. on 10 May 2010.
Two items of special business are proposed at the AGM in respect of the
authority to buy in shares and change the name of the Company as noted above.
Outlook
Since the year end the Company has achieved further realisations and paid out
dividends as described above.
A summary of the Company's balance sheet and remaining investments as at 5 March
2010 (immediately following the payment of the 40p dividend) is as follows:
Summary Balance Sheet at 5 March 2010
GBP'000
Fixed Assets
Venture Capital Investments
West Tower Holdings Limited 1,750
Heyford Contracting (South) Limited 1,500
Hoole Hall Spa and Leisure Club Limited 1,000
Heyford Contracting (North) Limited 990
Hoole Hall Country Club Holdings Limited 875
Aminghurst Limited 806
Future Films Production Services Limited 373
Others 521
----------
Total investments 7,816
Net current assets 121
Long Term Liabilities (21)
----------
Net Assets 7,916
Net Asset Value per share 37.7p
Shareholders should note the above NAV does not include any provision of
performance incentive that might become payable.
There are some remaining portfolio companies where it is currently not clear how
an exit will ultimately be achieved. The final outcome for Shareholders will be
heavily influenced by the level of success the Manager has in achieving
realisations of these investments.
The timing of future dividends will be determined by the timing of further
investment exits and so is difficult to accurately predict. However, the Board
expects that the next dividend will be paid later in 2010 out of proceeds from
investments where there is already a clear exit route.
Hugh Gillespie
Chairman
31 March 2010
INVESTMENT MANAGER'S REPORT
Introduction
The company had another busy year in terms of its investment activity. As the
Company's initial three-year period has passed we have focused on realising
investments and returning funds to Shareholders.
A recessionary backdrop throughout 2009 made the process of exiting investments
particularly challenging. Nevertheless the Company has successfully divested
approximately half of the GBP19.9m of investments that it held at the end of last
year.
Investment activity
The company began the year with GBP19.9m of investments and ended the year with
GBP9.4m. The GBP10.4m reduction was driven by a GBP12.9m divestment programme, new
investments totalling GBP4.1m and a GBP1.7 valuation reduction on existing
investments.
The GBP12.9m divestment programme has enabled the Company to return a total of
50.0p per share to Shareholders since 30 November 2009. The Company's year-end
portfolio comprises 18 companies on which it is actively seeking exit routes.
Whilst the company continues to focus on securing profitable exits and returning
Shareholders' funds, given the current economic climate, the Company expects
that some of the investments will take longer to exit than originally expected.
The GBP4.1m of new investments includes GBP1.6m invested in Hoole Hall Country Club
Holdings as part of a refinance of Hoole Hall Country Club Limited, which
released a net GBP0.75m of proceeds for the Company. Hoole Hall has been a long
term investment for the Company and one that it is confident it will be able to
exit in the medium term. The balance of GBP2.5m of fresh investments in the year
comprised eight non-qualifying loans with deal sizes ranging from GBP0.7m to
GBP0.2m, all of which provided some useful additional income.
Portfolio valuation
Whilst the majority of the portfolio performed in line with expectations in the
period the GBP1.7m valuation reduction in the period was driven by two
investments:
Vermont Developments Limited (Vermont) and Richstone Contracting Limited
("Richstone").
Approximately half the GBP0.9m cost of investment in Vermont has previously been
provided against when the company went into administration in 2008. A further
GBP0.4m has been provided against in the year based upon a third party valuation
of its land. The investment is now carried at GBP50,000.
Work was halted on the project that Richstone was contracted to build pending
design changes to the proposed holiday-apartment and hotel complex in South
Devon. The new plans require a new funding package, and until this is in place
the residual GBP0.95m investment (after repaying GBP1.6m in 2009) has been written
down to nil. This reflects a conservative site value (on the basis of realisable
value today) and Richstone's second charge over the site, behind Aminghurst
Limited; another of the Company's investments.
We are hopeful that Richstone's new funding package will be agreed, which will
likely require some reinvestment of the funds repaid last year, and that this
should enable the recovery of all funds invested in this company.
Outlook
Whilst the general economic conditions in the UK are expected to see an
improvement in 2010, the continued lack of available funding from traditional
sources creates challenges for exiting from the Company's remaining portfolio.
We remain cautious about the prospects for a sustained recovery.
The company will continue to focus on realisations and returning cash to
Shareholders and expects to be able to declare further dividends later in the
year.
Downing Protected Managers VCT V Limited
31 March 2010
REVIEW OF INVESTMENTS
Portfolio of investments
The following investments, all of which are incorporated in England and Wales,
were held at 30 November 2009:
Valuation
movement
Cost Valuation in year % of
GBP'000 GBP'000 GBP'000 portfolio
West Tower Holdings Limited 1,750 1,750 - 9.5%
Heyford Contracting (South) Limited ** 1,650 1,500 (150) 8.2%
Hoole Hall Spa and Leisure Club 1,000 1,000 - 5.4%
Limited
Heyford Contracting (North) Limited 1,037 990 (47) 5.4%
Hoole Hall Country Club Holdings 875 875 - 4.8%
Limited
Aminghurst Limited * 993 806 (187) 4.4%
Bowman Care Homes limited * 600 600 - 3.3%
Future Films Production Services 450 450 - 2.5%
Limited
East Dulwich Tavern Limited * 319 319 - 0.8%
Westow House Limited * 281 281 - 1.5%
Sanguine Hospitality Limited * 243 243 - 1.3%
Heyford Homes VCT Limited * 150 150 - 0.8%
Atlantic Dogstar Limited * 150 150 - 1.7%
Chapel Street Hotel (2008) LLP * 63 126 63 0.7%
Hoi Polloi Pub Company Limited * 100 100 - 0.5%
Vermont Developments Limited * 903 50 (449) 0.3%
Chapel Street Hotel Limited * 2 2 - 0.0%
Richstone Contracting Limited 950 - (950) 0.0%
-----------------------------------------
11,516 9,392 (1,720) 51.1
-----------------------------------------
Cash at bank and in hand 8,993 48.9
----------- -----------
Total investments 18,385 100.0%
----------- -----------
* Non qualifying investment
** Partially non qualifying investment
Investment movements for the year ended 30 November 2009
ADDITIONS
GBP'000
Hoole Hall Country Club Holdings Limited (partial disposal in the year) 1,625
Pub People Freeholds Limited* 700
Bowman Care Homes Limited* 600
East Dulwich Tavern Limited* 319
Westow House Limited* 281
Future Films Production Services Limited* (disposed of in the year) 225
Hoi Polloi Pub Company Limited* (partial disposal in the year) 164
Atlantic Dogstar Limited* 150
Chapel Street Hotel Limited* 2
-------
4,066
DISPOSALS
MV at Profit/ (loss) Realised
Cost 30/11/08 Proceeds vs cost gain/(loss)
Loan stock redemptions GBP000 GBP000 GBP000 GBP000 GBP000
Cadbury House Limited 3,000 3,000 3,000 - -
Hoole Hall Country Club
Limited 1,625 1,625 1,625 - -
Richstone Contracting
Limited 1,592 1,592 1,592 -
Hoole Hall Hotel Limited* 1,250 1,250 1,250 - -
The Really Fine Leisure
Limited 1,100 1,100 1,149 49 49
Nu Nu plc 1,000 1,000 1,000 - -
Hoole Hall Country Club
Holdings Limited 750 750 750 - -
Pub People Freehold
Limited* 700 700 700 - -
Future Films Production
Services Limited** 600 600 615 15 15
The Thames Club Limited** 500 500 500 - -
Liongold Contracting
Limited 434 434 434 - -
Heyford Homes VCT Limited* 150 150 150 - -
Coastal Partnerships
Limited* 75 75 75 - -
Hoi Polloi Pub Company
Limited* 64 64 64 - -
Vermont Developments
Limited* 1 1 - (1) (1)
-----------------------------------------------------
12,841 12,841 12,904 63 63
* non qualifying VCT investment
** partially non qualifying VCT investment
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Report of the Directors, the
Directors Remuneration Report, and the financial statements in accordance with
applicable law and regulations. They are also responsible for ensuring that the
Annual Report includes information required by the Listing Rules of the
Financial Services Authority.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law).
Under company law the directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs
of the Company and of the profit or loss of the Company for that period. In
preparing those financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements; and
· prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping accounting records that are sufficient
to show and explain the Company's transactions and disclose with reasonable
accuracy at any time the financial position of the Company and to enable them to
ensure that the financial statements, and the Directors Remuneration Report,
comply with the requirements of the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity of the corporate
and financial information relating to the Company included on the Manager's
websites. Legislation in the United Kingdom governing the preparation and
dissemination of the financial statements and other information included in
annual reports may differ from legislation in other jurisdictions.
Statement as to disclosure of information to Auditors
The Directors in office at the date of the report have confirmed, as far as they
are aware, that there is no relevant audit information of which the Auditors are
unaware. Each of the Directors has confirmed that they have taken all the steps
that they ought to have taken as Directors in order to make themselves aware of
any relevant audit information and to establish that it has been communicated to
the Auditor.
By order of the Board
Grant Whitehouse
Secretary of Downing Protected VCT V plc
Company number: 5632108
Registered office:
Kings Scholars House
230 Vauxhall Bridge Road
London SW1V 1AU
31 March 2010
INCOME STATEMENT
For the year ended 30 November 2009
Year ended 30 November 2009 Year ended 30 November
2008
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 887 - 887 1,235 - 1,235
Losses on investments - (1,657) (1,657) - (383) (383)
--------- --------- --------- --------- --------- -------
887 (1,657) (770) 1,235 (383) 852
Investment management (195) - (195) (207) - (207)
fees
Other expenses (162) - (162) (161) - (161)
--------- --------- --------- --------- --------- -------
Return /(loss) on
ordinary activities 530 (1,657) (1,127) 867 (383) 484
before
tax
Tax on ordinary (158) - (158) (263) - (263)
activities
--------- --------- --------- --------- --------- -------
Return /(loss)
attributable to equity 372 (1,657) (1,285) 604 (383) 221
Shareholders
Basic and diluted
return per share 1.7p (7.8p) (6.1p) 2.8p (1.8p) 1.0p
All Revenue and Capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the year. The
total column within the Income Statement represents the profit and loss account
of the Company.
A Statement of Total Recognised Gains and Losses has not been prepared as all
gains and losses are recognised in the Income Statement as noted above.
Other than revaluation movements arising on investments held at fair value
through the Income Statement, there were no differences between the
return/deficit as stated above and at historical cost.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Year ended Year ended
30 November 2009 30 November 2008
GBP'000 GBP'000
Opening Shareholders' funds 20,534 20,856
Purchase of own shares (328) (5)
Total recognised gain/ (loss) for the year (1,285) 221
Dividends paid (537) (538)
------------------ ------------------
Closing Shareholders' funds 18,384 20,534
BALANCE SHEET
as at 30 November 2009
2009 2008
GBP'000 GBP'000 GBP'000 GBP'000
Fixed assets
Investments 9,392 19,887
Current Assets
Debtors 205 166
Cash at bank and in hand 8,993 769
------- -------
9,198 935
Creditors: amounts falling due within one year (185) (267)
------- -------
Net current assets 9,013 668
--------- --------
Net assets less current liabilities 18,405 20,555
Creditors: amounts falling due after more than one (21) (21)
year
--------- --------
Net assets 18,384 20,534
Capital and reserves
Called up share capital 210 215
Capital redemption reserve 7 2
Special reserve 19,772 20,100
Capital reserve - realised 3 (60)
Investment holding losses (2,124) (404)
Revenue reserve 516 681
--------- --------
Total equity Shareholders' funds 18,384 20,534
Basic and diluted net asset value per Ordinary 87.4p 95.5p
Share
CASH FLOW STATEMENT
for the year ended 30 November 2009
Year Year
ended ended
30 Nov 30 Nov
2009 2008
GBP'000 GBP'000
Net cash inflow from operating activities
Taxation
Corporation tax paid (236) (527)
Capital expenditure
Purchase of investments
Sale of investments 12,904 8,006
---------- ----------
Net cash inflow/(outflow) from capital expenditure 8,838 235
---------- ----------
Equity dividends paid (537) (538)
Net cash inflow/(outflow) before financing 8,552 296
Financing
Purchase of own shares (328) (5)
---------- ----------
Net cash outflow from financing (328) (5)
---------- ----------
Increase/(decrease) in cash 8,224 291
NOTES TO THE ACCOUNTS
for the year ended 30 November 2009
1. Accounting policies
Basis of accounting
The Company has prepared its financial statements under UK Generally Accepted
Accounting Practice ("UK GAAP") and in accordance with the Statement of
Recommended Practice "Financial Statements of Investment Trust Companies and
Venture Capital Trusts" revised January 2009 ("SORP").
The financial statements are prepared under the historical cost convention
except for the certain financial instruments measured at fair value and on the
basis that it is not necessary to prepare consolidated accounts.
The Company implements new Financial Reporting Standards ("FRS") issued by the
Accounting Standards Board when required. No new standards were issued for
implementation for the year under review. The Association of Investment
Companies issued a new SORP in January 2009 which has been adopted for these
financial statements. No comparative restatements have been required as a
result of the implementation of the new SORP.
Presentation of Income Statement
In order to better reflect the activities of a venture capital trust 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 Income Statement. The net revenue is the measure the directors
believe appropriate in assessing the Company's compliance with certain
requirements set out in Part 6 of the Income Tax Act 2007.
Investments
Venture capital investments are designated as "fair value through profit or
loss" assets due to investments being managed and performance evaluated on a
fair value basis. A financial asset is designated within this category if it
is both acquired and managed on a fair value basis, with a view to selling after
a period of time, in accordance with the Company's documented investment
policy. The fair value of an investment upon acquisition is deemed to be cost.
Thereafter investments are measured at fair value in accordance with the
International Private Equity and Venture Capital Valuation Guidelines ("IPEV")
together with FRS26.
For unquoted investments, fair value is established using the IPEV guidelines.
The valuation methodologies for unquoted entities used by the IPEV to ascertain
the fair value of an investment are as follows:
* Price of recent investment;
* Multiples;
* Net assets;
* Discounted cash flows or earnings (of underlying business);
* Discounted cash flows (from the investment); and
* Industry valuation benchmarks.
The methodology applied takes account of the nature, facts and circumstances of
the individual investment and uses reasonable data, market inputs, assumptions
and estimates in order to ascertain fair value.
Gains and losses arising from changes in fair value are included in the Income
Statement for the year as a capital item and transaction costs on acquisition or
disposal of the investment are expensed.
It is not the Company's policy to exercise significant influence over investee
companies. Therefore the results of these companies are not incorporated into
the Income Statement except to the extent of any income accrued. This is in
accordance with the SORP that does not require portfolio investments to be
accounted for using the equity method of accounting.
Income
Dividend income from investments is recognised when the Shareholders' rights to
receive payment has been established, normally the ex-dividend date.
Interest income is accrued on a time apportionment basis, by reference to the
principal sum outstanding and at the effective rate applicable and only where
there is reasonable certainty of collection.
Expenses
All expenses are accounted for on an accruals basis. In respect of the analysis
between revenue and capital items presented within the Income Statement, all
expenses have been presented as revenue items except as follows:
· Expenses which are incidental to the disposal of an investment are deducted
from the disposal proceeds of the investment.
· Expenses are split and presented partly as capital items where a connection
with the maintenance or enhancement of the value of the investments held can be
demonstrated. The Company has adopted the policy of allocating Investment
Manager's fees, 100% as revenue.
Taxation
The tax effects on different items in the Income Statement are allocated between
capital and revenue on the same basis as the particular item to which they
relate using the Company's effective rate of tax for the accounting period.
Due to the Company's status as a Venture Capital Trust and the continued
intention to meet the conditions required to comply with Part 6 of the Income
Tax Act 2007, no provision for taxation is required in respect of any realised
or unrealised appreciation of the Company's investments which arise.
Deferred taxation is provided in full on timing differences that result in an
obligation at the balance sheet date to pay more tax, or a right to pay less
tax, at a future date, at rates expected to apply when they crystallise based on
current tax rates and law. Timing differences arise from the inclusion of items
of income and expenditure in taxation computations in periods different from
those in which they are included in the accounts.
Other debtors, other creditors and loan notes
Other debtors (including accrued income), other creditors and loan notes are
included within the accounts at amortised cost, equivalent to the fair value of
the expected balance receivable/payable by the Company.
2. Basic and diluted return per share
Weighted average Revenue Capital gain/
number of shares return (loss)
in issue / (loss)
Return per share is calculated on the GBP'000 GBP'000
following:
Year ended 30 November 21,321,461 372 (1,657)
2009
Year ended 30 November 21,497,881 604 (383)
2008
As the Company has not issued any convertible securities or share options, there
is no dilutive effect on return per Ordinary share. The return per share
disclosed therefore represents both the basic and diluted return per Ordinary
share.
3. Basic and diluted net asset value per Ordinary Share
2009 2008
Shares in issue Net Asset Value Net Asset Value
2009 2008 Pence per GBP'000 Pence per GBP'000
share share
Ordinary
Shares 21,024,816 21,494,788 87.4 18,384 95.5 20,534
As the Company has not issued any convertible shares or share options, there is
no dilutive net asset value per Ordinary Share. The Net Asset Value per share
disclosed therefore represents both the basic and diluted net asset value per
Ordinary Share.
4. Principal financial risks
As a VCT, the majority of the Company's assets are represented by financial
instruments which are held as part of the investment portfolio. In order to
ensure continued compliance with relevant VCT regulation and to be in a position
to deliver the long term capital growth, which is part of the Company's
investment objective, the Board is very much aware of the need to manage and
mitigate the risks associated with these financial instruments.
The management of these risks starts with the application of a clear investment
policy which has been developed by the Board who are experienced investment
professionals. Furthermore, the Board has appointed an experienced Investment
Manager to whom they have communicated the Company's investment objectives and
whose remuneration is linked to the achievement of those objectives. The
Investment Manager reports regularly to the Board on performance, and to
facilitate the direct Board involvement with key decisions, on whether or not to
invest, disinvest and the nature, terms and the security of investments being
made.
In assessing the risk profile of its investment portfolio, the Board has
identified two principal classes of financial instrument. All investments are
"fair value through the profit and loss account".
In addition to its investment portfolio, the VCT maintains a cash position.
Cash is mainly held by Bank of Scotland plc and Royal Bank of Scotland plc. The
Directors consider that the risk profile associated with cash deposits is low
and thus the carrying value in the financial statements is a close approximation
of the fair value.
The Board has reviewed the Company's financial risk profile. Despite the fact
that there has been a clear deterioration in the economic climate, the Board has
concluded that, as a result of the manner in which the Company structures its
investments so as to try to reduce downside risk, the Company's exposure to
financial risk has not changed significantly since the previous year.
The main risks arising from the Company's financial instruments are interest
rate, market risk and credit risk. The Board reviews and agrees policies for
managing each of these risks and they are summarised below. These policies have
remained unchanged since the beginning of the financial year. A review of the
specific financial risks faced by the Company is presented below.
Market risk
Market risk arises from uncertainty about fair values or future cash flows of
financial instruments because of changes in market prices. This is a fundamental
aspect of investing in unquoted companies and one which is regularly assessed by
the board and the investment manager.
Market price risk
The Company has no holdings in any listed or quoted equities at the year end. As
such it has no direct exposure to substantial movements experienced by stock
markets. The Company generally structures its investments such that the
majority of any losses are initially borne by its investment partners. Therefore
the Company has reduced its exposure to a fall in the value of the businesses in
which it invests and any underlying assets held by those businesses, such that
it has a charge over substantial assets of the underlying business.
Interest rate risk
The Company's investment portfolio is comprised of variable rate, floating rate
and fixed rate financial instruments, the fair values of which are influenced by
differing degrees to changes in market price. Generally, unless the risk
profile attaching to the loan note changes, the fair value of variable and
floating rate investments is unlikely to alter materiality. The fair value of
fixed rate investments would, theoretically, increase as base rates fall.
However, as a result of the structuring of the Company's investments, the fixed
rate investments (loan notes) have strict redemption and transferability
conditions and, therefore, any theoretical uplift in fair value would not be a
fair reflection of the realisable value of this class of investment.
The Company's future cash flows can be influenced by changes in interest rates
resulting in an increase or decrease in income from investments linked to the
base rate, and by the credit worthiness of the borrowers of the funds. The
maximum exposure to this risk amounts to the value of variable and floating rate
assets of GBP10.0 million (2008: GBP6.0 million).
Credit risk
Credit risk is the risk that the counterparty to a financial instrument is
unable to discharge a commitment to the Company made under that instrument.
Credit risk in respect of investments in liquidity funds is minimised by
investing in AA-, or better, rated funds.
Investments in loan stocks comprise a fundamental part of the Company's venture
capital investments and are managed within the main investment management
procedures. The Company's policy is to invest in businesses with substantial
assets, with security being taken over the assets of the business.
Cash is mainly held by Bank of Scotland plc, consequently the Directors consider
that the risk profile associated with cash deposits is low.
Interest, dividends and other receivables are predominantly covered within the
investment management procedures.
Liquidity risk
Liquidity risk is the risk that the Company encounters difficulties in meeting
obligations associated with its financial liabilities. As the Company only ever
has a very low level of creditors being GBP186,000 (2008: GBP267,000), holds
significant cash balances and no borrowings (other than the GBP21,000 of loan
notes issued to the management team in respect of the performance incentive
fee), the Board believes that the Company's exposure to liquidity risk is low.
5. Contingent liability
The Company may be liable to pay performance incentive fees by way of additional
interest on the loan notes issued to the Management Team and Directors. The
amount of additional interest, if any, is dependent on the level of
distributions made to Shareholders before 5 April 2012. The maximum amount
payable under these arrangements is 10% of the net proceeds paid to
Shareholders.
If the Company's assets and liabilities were realised at the current carrying
values and other targets met, the maximum level of performance fees payable
would be GBP1.9 million (equivalent to 8.8p per share). However, in view of the
significant uncertainties as to what extent the targets will actually be met,
the Directors are unable to make a reliable estimate of the performance fees (if
any) that will ultimately be payable.
6. Related party transactions
Downing Protected Managers V Limited ("DPM V"), a wholly owned subsidiary, is
the Company's Investment Manager. During the year ended 30 November 2009
GBP195,000 (2008: GBP207,000) was payable to DPM V. Additionally, DPM V provides
accounting, secretarial and administrative services for an annual fee of GBP40,000
(plus RPI) per annum. During the year ended 30 November 2009, GBP45,000 (2008:
GBP43,000) was due in respect of administration fees. At the year end a balance of
GBP59,000 (2008: GBP61,000) was due to DPM V.
Each Director holds loan notes issued by the Company as part of the performance
incentive arrangements.
Announcement based on audited accounts
The financial information set out in this announcement does not constitute the
Company's statutory financial statements in accordance with section 434
Companies Act 2006 for the year ended 30 November 2009, but has been extracted
from the statutory financial statements for the year ended 30 November 2009,
which were approved by the Board of Directors on 31 March 2010 and will be
delivered to the Registrar of Companies following the Company's Annual General
Meeting. The Independent Auditor's Report on those financial statements was
unqualified and did not contain any emphasis of matter nor statements under s
498(2) and (3) of the Companies Act 2006.
The statutory accounts for the year ended 30 November 2009 have been delivered
to the Registrar of Companies and received an Independent Auditors report which
was unqualified and did not contain any emphasis of matter nor statements under
S237(2) or (3) of the Companies Act 1985.
A copy of the full annual report and financial statements for the year ended 30
November 2009 will be printed and posted to shareholders shortly. Copies will
also be available to the public at the registered office of the Company at Kings
Scholars House, 230 Vauxhall Bridge Road, London SW1V 1AU and will be available
for download from www.downing.co.uk.
[HUG#1399934]
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