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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 Planned Exit VCT 5 plc
FINAL RESULTS for the year ended 30 November 2010
FINANCIAL HIGHLIGHTS
30 Nov 30 Nov
2010 2009
Pence Pence
Net asset value per Ordinary share 34.5 87.4
Cumulative distributions per Ordinary share 56.0 6.0
----------- ---------
Total return per Ordinary share 90.5 93.2
CHAIRMAN'S STATEMENT
Introduction
I am pleased to update Shareholders on developments that have taken place in the
year ended 30 November 2010 and on the work that remains to be done as the
Company continues to unwind its investment portfolio.
Portfolio activity and investment valuations
The Company's objective from the outset has been to seek to return funds to
Shareholders after approximately five years since the close of the Company's
fundraising in April 2006. The Investment Manager continued to work actively
towards investment realisations throughout the year, achieving proceeds of
GBP2.9m, all exits being at sums equal to previous carrying values.
The Company now effectively has four main investments remaining but does face
some problems in exiting from these investments. Bank lending continues to be
difficult to secure, particularly in the aftermath of the Irish financial
crisis. The delicate state of the commercial and residential property markets
is also having a significant impact on exit plans.
It is envisaged that exits from investments in West Tower Holdings, and the two
Hoole Hall entities (Hoole Hall Country Club Holdings and Hoole Hall Spa and
Leisure Club) will be achieved with the assistance of bank debt. Obtaining
suitable bank funding is proving time-consuming but the Manager is optimistic
that realisations from each of these investments will be achieved during the
next few months.
Heyford Contracting (South) is a building contractor which has been involved in
the construction of office buildings in Banbury and Uppingham, both of which are
now nearing completion. The weakness of the commercial property market and the
general economic conditions cast a significant level of uncertainty as to both
the timing of and price at which an exit will ultimately be achieved. In view
of this, a provision of GBP300,000 has been made against the investment.
Coast Constructors Limited (previously Richstone Contracting Limited) is
involved in building an apartment and hotel development in South Devon, on land
owned by Aminghurst Limited. Following the suspension of building work and a
comprehensive review of the project, modified planning permission has been
obtained and building work on the site has now recommenced. The revised
development has required further funding from both your Company and other
funders and it is now anticipated that a full exit from the investment will not
be achieved until all apartments and the completed hotel have been sold. As
with Heyford Contracting, this leaves some uncertainty in terms of timing and
the final proceeds from this investment. Taking the investments in Coast
Constructors and Aminghurst together, a net reduction in valuation of GBP332,000
has been made.
Net Asset Value
The Net Asset Value per share ("NAV") at 30 November 2010 stood at 34.5p. With
dividends paid to date of 56.0p per share Total Return (NAV plus cumulative
dividends) stood at 90.5p per share.
The Company may be liable to pay a performance incentive fee to members of the
management team and directors if certain targets are met. The targets are
related to the timing and amount of future dividends and it is uncertain at this
stage what level of fee, if any, will ultimately be payable.
Results
The loss on activities after taxation for the year was GBP621,000 (2009 loss:
GBP1,285,000) comprising a revenue loss of GBP31,000 (2009 profit: GBP372,000) and a
capital loss of GBP590,000 (2009: loss GBP1,657,000).
Dividends
The Board would normally declare dividends when funds become available as a
result of investment realisations. Recently some of the Company's available
funds have had to be reinvested in Coast Contractors to help to fund the build
out of the project as described above. As a result, the Company does not
currently have a significant amount of available funds and is not therefore in a
position to declare a further dividend at this time.
We anticipate that the next dividend will be declared in the third or fourth
quarter of 2011.
Winding up plans
Under the Company's Articles of Association, the Company must put a resolution
to Shareholders at the AGM in 2011 proposing that the Company discontinue as a
Venture Capital Trust. This is proposed as Resolution 6 at the forthcoming AGM.
If the resolution is passed, the Directors will put formal proposals for the
liquidation, reorganisation or reconstruction of the Company to Shareholders
within 9 months of the passing of the resolution.
As the Company is now at the stage of realising investments and returning funds
to Shareholders, it is reducing in size and may, in due course, become less
economically viable as a fully listed company than it currently is. VCT winding
up regulations were introduced several years ago to allow VCTs to go into a
members' voluntary liquidation and enjoy a relaxation of the usual VCT rules.
For example, a VCT in liquidation would delist and therefore save listing and
other associated fees. This may therefore be an attractive option for the
Company.
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. 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.
The Company did not buy any of its own shares during the year.
A special resolution to renew the Directors' authority to buy in the Company's
shares is proposed for the forthcoming AGM as Resolution 5.
Annual General Meeting
The Company's fifth Annual General Meeting will be held at 10 Lower Grosvenor
Place, London SW1W 0EN at 10.45 a.m. on 19 May 2011.
One item of special business is proposed at the AGM in respect of the authority
to buy shares as noted above.
Outlook
It is now just short of five years since the close of the Company's fundraising
and 56p per share has been returned to Shareholders to date. Taking into account
the income tax relief of 40p per share that Shareholders received on their
original investment, the net cost of the investment to original Shareholders is
now just 4p per share and therefore most of the remaining returns to
Shareholders can be viewed as "profit" on the investment. The level of this
profit will be determined by the success the Manager has in exiting the
remaining investments.
Whilst there is some uncertainty about when exits can be achieved, the Manager's
priority is to preserve capital value. There are clear exit routes in place for
some of the remaining investments and the Manager is confident that these can be
achieved at or close to original cost. In the case of the two largest
investments, there is work to be done to secure satisfactory outcomes. In these
cases, there is the possibility that proceeds could ultimately be somewhat
higher or, indeed, lower than the current valuations and it appears unlikely
that these exits will be complete within the next 12 months.
While this outlook is a little more downbeat than we had hoped at this stage,
the Board believes that the Manager is taking the right approach towards
realising the remaining portfolio and, in time, can achieve satisfactory results
for Shareholders.
Hugh Gillespie
Chairman
INVESTMENT MANAGER'S REPORT
Introduction
In 2010 the Investment Manger was focused on realising investments, with the aim
of returning funds to Shareholders. The challenging economic environment has
continued to create uncertainty in the marketplace which has led to a slower
than anticipated exit from investments as we have sought to achieve the optimal
exit value for our Shareholders. Despite this challenging environment the
Company successfully divested GBP2.9m of investments during the year.
Investment activity
The Company began the year with GBP9.4m of investments and ended the year with
GBP6.0m. The GBP3.4m reduction was driven by disposals in investments of GBP2.9m, and
a GBP637,000 valuation reduction on existing investments which was partly offset
by a small new investment. The Company succeeded in recovering the cost of all
investments disposed of during the year despite the current economic
environment. The Company's year end portfolio comprises 11 investments on which
it is actively seeking exit routes.
In April 2010, the Company made a GBP169,000 additional investment in Coast
Constructors Limited (previously called Richstone Contracting Limited)
increasing the cost of investment to GBP1.119m. Previously, a full provision had
been taken against the original investment whilst a revised funding plan was
developed. In April the revised funding for both Coast Constructors and
Aminghurst Limited was implemented to recover value in these investments, which
are both dependent on the same development in South Devon. Post year-end the
Company made a further GBP636,000 investment in Coast Constructors Limited and is
expected to realise this investment by the end of 2011. Following completion of
the development, Aminghurst Limited will own a hotel on the site that is likely
to take longer to realise.
The Company is planning to seek further realisations through the refinancing of
West Tower Holdings Limited and the Hoole Hall Spa and Country Club investments
which are all performing in line with budget. This process is taking longer than
we initially expected, as banks' enthusiasm for lending to small businesses of
this nature remains muted. We are aiming to borrow up to 50% of the value of
the freehold trading properties.
Portfolio valuation
Whilst the majority of the portfolio performed in line with expectations in the
period, the GBP637,000 valuation reduction was driven by three investments:
Aminghurst Limited and Coast Constructors Limited (discussed above) and Heyford
Contracting (South) Limited. Heyford Contracting (South) Limited is the
developer of commercial offices in Banbury and in Uppingham. Construction of the
offices is now completed and in order to exit the investment we are dependent on
the successful sale of the properties. It is likely to take between 18 months
and three years to achieve an exit from this investment at reasonable values,
and even then we are unlikely to recover the full amount of our
investment. Accordingly, it is the Company's view that a reduction in value is
appropriate at this time.
Outlook
The general economic conditions in the UK are expected to see a modest
improvement in 2011. The continued lack of available funding from traditional
sources creates challenges for exiting from the Company's remaining portfolio,
with the Company expecting that some investments will take longer to exit than
originally expected. Despite these challenges we continue to focus on securing
profitable exits and returning further Shareholders' funds in 2011.
Downing Managers 5 Limited
REVIEW OF INVESTMENTS
Portfolio of investments
The following investments, all of which are incorporated in England and Wales,
were held at 30 November 2010:
Valuation
movement
Cost Valuation in year % of
GBP'000 GBP'000 GBP'000 portfolio
West Tower Holdings Limited 1,750 1,750 - 24.2%
Heyford Contracting (South) Limited** 1,650 1,199 (300) 16.6%
Hoole Hall Spa and Leisure Club Limited 1,000 1,000 - 13.9%
Hoole Hall Country Club Holdings Limited 875 875 - 12.1%
Coast Constructors Limited (formerly
Richstone Contacting Limited) 1,119 643 474 8.9%
Sanguine Hospitality Limited* 243 238 (5) 3.3%
Future Films Production Services Limited 142 142 - 2.0%
Chapel Street Hotel (2008) LLP* 63 126 - 1.8%
Vermont Developments Limited* 902 50 - 0.7%
Chapel Street Hotel Limited* 3 3 - 0.0%
Aminghurst Limited* 993 - (806) 0.0%
---------------------------------------
8,740 6,026 (637) 83.5%
-------------
Cash at bank and in hand 1,194 16.5%
Total investments 7,220 100.0%
* Non qualifying investment
**Partially non qualifying investment
ADDITIONS
GBP'000
Coast Constructors Limited (formerly Richstone Contacting Limited) 169
--------
169
DISPOSALS
MV at Loss Realised
Cost 30/11/09 Proceeds vs cost gain
GBP000 GBP000 GBP000 GBP000 GBP000
Heyford Contracting (North) Limited 1,037 990 1,037 - 47
Bowman Care Homes Limited* 600 600 600 - -
East Dulwich Tavern Limited* 319 319 319 - -
Future Films Production Services
Limited 308 308 308 - -
Westow House Limited* 281 281 281 - -
Atlantic Dogstar Limited* 150 150 150 - -
Heyford Homes VCT Limited* 150 150 150 - -
Hoi Polloi Pub Company Limited* 100 100 100 - -
Vermont Developments Limited* 1 - - (1) -
-----------------------------------------
2,946 2,898 2,945 (1) 47
*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 adequate 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
website. 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 Planned Exit VCT 5 plc
Company number: 5632108
Registered office:
10 Lower Grosvenor Place
London SW1W 0EN
INCOME STATEMENT
For the year ended 30 November 2010
Year ended 30 November Year ended 30 November
2010 2009
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 203 - 203 887 - 887
Losses on investments - (590) (590) - (1,657) (1,657)
------------------------------------------------
203 (590) (387)
887 (1,657) (770)
Investment management (100) - (100) (195) - (195)
fees
Other expenses (134) - (134) (162) - (162)
------------------------------------------------
(Loss)/return on ordinary
activities before tax (31) (590) (621) 530 (1,657) (1,127)
Tax on ordinary activities - - - (158) - (158)
------------------------------------------------
(Loss)/return attributable
to equity Shareholders (31) (590) (621) 372 (1,657) (1,285)
Basic and diluted loss per
share (0.2p) (2.8p) (3.0p) 1.7p (7.8p) (6.1p)
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 2010 30 November 2009
GBP'000 GBP'000
Opening Shareholders' funds 18,384 20,534
Purchase of own shares - (328)
Total recognised loss for the year (621) (1,285)
Dividends paid (10,512) (537)
---------------- ---------------
Closing Shareholders' funds 7,251 18,384
BALANCE SHEET
as at 30 November 2010
2010 2009
GBP'000 GBP'000 GBP'000 GBP'000
Fixed assets
Investments 6,026 9,392
Current assets
Debtors 133 205
Cash at bank and in hand 1,194 8,993
------- -------
1,327 9,198
Creditors: amounts falling due within one year (81) (185)
------- -------
Net current assets 1,246 9,013
--------- --------
Net assets less current liabilities 7,272 18,405
Creditors: amounts falling due after more than (21) (21)
one year
--------- --------
Net assets 7,251 18,384
Capital and reserves
Called up share capital 210 210
Capital redemption reserve 7 7
Special reserve 9,785 19,772
Capital reserve - realised 2 3
Revaluation reserve (2,713) (2,124)
Revenue reserve (40) 516
--------- --------
Total equity Shareholders' funds 7,251 18,384
Basic and diluted net asset value per Ordinary Share 34.5p 87.4p
CASH FLOW STATEMENT
for the year ended 30 November 2010
Year Year
ended ended
30 Nov 30 Nov
2010 2009
GBP'000 GBP'000
Net cash (outflow)/ inflow (9) 487
from operating activities
Taxation
Corporation tax paid (54) (236)
Capital expenditure
Purchase of investments (169) (4,066)
Sale of investments 2,945 12,904
---------------------
Net cash inflow from capital expenditure 2,713 8,838
---------------------
Equity dividends paid (10,512) (537)
Net cash (outflow)/ inflow before financing (7,799) 8,552
Financing
Purchase of own shares - (328)
---------------------
Net cash outflow from financing - (328)
---------------------
(Decrease)/ increase in cash (7,799) 8,224
NOTES
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" January 2009 ("SORP").
The financial statements are prepared under the historical cost convention
except for 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 have had a material
effect on the Company's operations for the year under review.
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.
Where an investee company has gone into receivership, liquidation, or
administration (where there is little likelihood of recovery) the loss on the
investment, although not physically disposed of, is treated as being realised.
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, which is not discounted, 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
number of Revenue Capital
shares in return/ gain
issue (loss) (loss)
Return per share is calculated GBP'000 GBP'000
on the following:
Year ended 30 November 2010 21,024,816 (31) (590)
Year ended 30 November 2009 21,321,461 372 (1,657)
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
2010 2009
Shares in issue Net Asset Value Net Asset Value
2010 2009 Pence GBP'000 Pence GBP'000
per per
share share
Ordinary Shares 21,024,816 21,024,816 34.5 7,251 87.4 18,384
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, loan notes and
unquoted equity. All investments are "fair value through the profit and loss
account" and are recognised as such on initial recognition.
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
The key market risks to which the company is exposed are interest rate risk and
market price risk. The Company has undertaken sensitivity analysis on its
financial instruments, split into the relevant component parts, taking into
consideration the economic climate at the time of review in order to ascertain
the appropriate risk allocation.
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. The
sensitivity of the investments to a 10% increase or decrease in valuation would
be an increase or decrease in total return of GBP603,000 (2009: GBP939,000) and an
increase or decrease in net asset value of the same amount or 8% (2009: 5%).
Interest rate risk
The Company's investment portfolio includes 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 materially. 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 GBP1.5 million (2009: GBP10.0 million). Sensitivity has been tested by the
impact on the NAV over a one year period of a fall in the base rate to nil,
being the largest possible fall. The estimated impact on performance and NAV is
not deemed significant.
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.
Investments in loan stocks comprise a fundamental part of the Company's venture
capital investments and are managed within the main investment management
procedures.
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. Liquidity risk may also
arise from either the inability to sell financial instruments when required at
their fair values of from the inability to generate cash inflows as required. As
the Company only ever has a very low level of creditors being GBP81,000 (2009:
GBP185,000), 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.
4. Related party transactions
Downing Managers 5 Limited ("DM5"), a wholly owned subsidiary, is the Company's
Investment Manager. During the year ended 30 November 2010 GBP100,000 (2009:
GBP195,000) was payable to DM5. Additionally, DM5 provides accounting, secretarial
and administrative services for an annual fee of GBP40,000 (plus RPI) per annum.
During the year ended 30 November 2010, GBP45,000 (2009: GBP45,000) was due in
respect of administration fees. At the year end a balance of GBP31,000 (2009:
GBP59,000) was due to DM5.
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 2010, but has been extracted
from the statutory financial statements for the year ended 30 November 2010,
which were approved by the Board of Directors on 30 March 2011 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
s 498(2) and (3) of the Companies Act 2006.
A copy of the full annual report and financial statements for the year ended 30
November 2010 will be printed and posted to shareholders shortly. Copies will
also be available to the public at the registered office of the Company at 10
Lower Grosvenor Place, London, SW1W 0EN 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 Planned Exit VCT 5 PLC via Thomson Reuters ONE
[HUG#1501855]
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