Elderstreet VCT Plc Elderstreet Vct Plc : Annual Financial Report

 
TIDMEDV 
 
   ELDERSTREET VCT PLC 
 
   FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015 
 
   FINANCIAL SUMMARY 
 
 
 
 
                                                            2015    2014 
                                                            pence   pence 
 
Net asset value per share ("NAV")                            70.6    70.8 
Cumulative dividends paid since launch                       91.0    81.0 
Total return (NAV plus cumulative dividends paid per 
 share)                                                     161.6   151.8 
 
Dividends in respect of financial year ended 31 December 
 2015 
Interim dividend paid per share                               2.5     2.0 
Special dividend paid per share                               5.0    15.0 
Final dividend per share (payable on 30 June 2016)            2.5     2.5 
                                                             10.0    19.5 
 
   CHAIRMAN'S STATEMENT 
 
   I am pleased to present the Company's Annual Report for the year ended 
31 December 2015. The period saw another strong performance with a 
further major successful realisation being achieved as well as good 
progress being made by many portfolio companies. 
 
   Net asset value and results 
 
   At 31 December 2015, the Company's NAV stood at 70.6p, an increase of 
9.8p (13.8%) over the year after adding back dividends of 10.0p per 
share which were paid during the year. 
 
   The total return to Shareholders who invested at the launch of the 
Company in 1998 (NAV plus cumulative dividends) is now 161.6p compared 
to the original cost (net of income tax relief) of 80.0p per share. 
 
   The return on ordinary activities after taxation for the year was GBP3.4 
million (2014: GBP3.7 million), comprising a revenue return of 
GBP262,000 (2014: GBP147,000) and a capital return of GBP3.1 million 
(2014: GBP3.5 million). 
 
   Venture capital investments 
 
   The most significant portfolio event of the year was the sale of the 
investment in SMART Education Limited. The VCT had been an early backer 
of the recruitment consultancy business in 2005. The Investment Manager 
worked closely with the business throughout its development, with the 
VCT providing additional financial support at a number of key points 
along the way.  At the point of disposal the investment had a net cost 
remaining (after earlier redemptions of loan stock) of GBP160,000 and 
was sold for GBP4.1 million, comprising  GBP2.6 million in cash and 
deferred proceeds valued at GBP1.5 million due to be paid in December 
2016. Over the full life of the investment, a total of GBP1.8 million 
was invested in the company and total proceeds (including earlier loan 
stock redemptions) were GBP5.7 million, which the Board considers to be 
a very successful outcome. 
 
   During the year, the Company also benefitted from further deferred 
proceeds of GBP449,000 from Wessex Advanced Switching Products Limited, 
the investment was sold in 2014. There were a small number of other 
disposals which brought total net realised gains for the year to 
GBP754,000. 
 
   In terms of new investment activity, the Company invested a total of 
GBP2.7 million in six investments, all of which were in existing 
portfolio companies. 
 
   At the year end, the Company held a portfolio of 21 venture capital 
investments valued at GBP18.6 million, with the vast majority of value 
held in the top ten investments. 
 
   In reviewing the investment valuations at the year end, the Board made a 
number of unquoted valuation adjustments. The main movements are 
summarised as follows; Lyalvale Express was increased by GBP735,000 
following the purchase of further shares from an exiting shareholder, 
Lyalvale Property Limited was uplifted by GBP614,000 in view of progress 
made in respect of development opportunities on land owned by the 
company and AngloINFO was increased by GBP389,000 with prospects for the 
business now improving. 
 
   A number of the Company's investments are quoted on AIM and experienced 
significant movements over the year. The investment in Access 
Intelligence increased by GBP1.0 million with several of the company's 
divisions making progress, Fulcrum Utility Services also increased by 
GBP833,000 fuelled by good trading results, while Proxama fell by 
GBP246,000. 
 
   Overall the portfolio had net unrealised gains for the year of GBP3.2 
million. 
 
   Fixed interest investments 
 
   The Company also continues to hold a small portfolio of fixed interest 
investments which is managed by Smith & Williamson Investment Management 
Limited. The portfolio, valued at GBP1.5 million at the year end, 
generated investment income of GBP17,000 during the year and unrealised 
capital losses of GBP3,000 were recognised. 
 
   Dividends 
 
   A final dividend of 2.5p per share is proposed to be paid on 30 June 
2016 to Shareholders on the register at 20 May 2016. 
 
   This will bring total dividends in respect of the year to 10.0p (2014: 
19.5p), equivalent to a tax-free yield over 17.3% p.a. equivalent to a 
yield for a 40% tax payer of 28.9% p.a. based on the share price at the 
date of this report. 
 
   Fundraising activities 
 
   In December 2015, the Company launched a new Top-Up Offer for 
Subscription and a further Top-Up Offer for Subscription seeking to 
raise up to a total of GBP1.8 million. The offers were very well 
received by investors and were fully subscribed within 30 days of the 
launch. Shares were allotted to new investors in March 2016. 
 
   Share buybacks 
 
   The Company operates a policy of buying in shares that become available 
in the market at a discount of approximately 7.5% to the latest 
published NAV. 
 
   During the year the Company purchased a total of 180,000 shares at an 
average price of 63p per share. 
 
   Any Shareholders who are considering selling their shares will need to 
use a stockbroker. Such Shareholders should ask their stockbroker to 
register their interest in selling their shares with Shore Capital. 
 
   VCT Rule changes 
 
   Shareholders may be aware that a number of potentially significant 
changes to the VCTs rules were made in November. The new rules have 
introduced a limit on the age for most new investee companies of seven 
years, a lifetime cap of GBP15 million on the total amount of VCT and 
similar funding a company can receive and a ban on VCT funds being 
used   by an   investee   company   to acquire another trade or business 
and have been brought in to bring the VCT scheme into line with the 
European Union's Risk Capital Guidelines. 
 
   At first inspection, it appeared that the impact of the main new 
regulations might be relatively limited on the Company in view of the 
types of investments typically made. However, it has subsequently become 
clear that the new rules have some surprising implications in 
restricting the support that the Company may be able to provide to 
existing portfolio companies. So far the Manager has been able to 
restructure two transactions so as to avoid any significant negative 
impact on the Company. However, it is concerning that the new 
regulations appear to create potential threats to businesses that the 
Company has supported under the historic VCT regulations for many years. 
The Board remains satisfied that the impact of the new rules on the 
Company will not be significant for new investments, but the Board and 
Manager will continue to closely monitor developments. 
 
   Annual General Meeting ("AGM") 
 
   The next AGM of the Company will be held on 28 June 2016 at 10-11 
Charterhouse Square, London EC1M 6EE at 11:00 a.m. 
 
   Three items of Special Business are proposed; one ordinary resolution 
and two special resolutions in relation to the allotment of shares and 
share buybacks. 
 
   Outlook 
 
   The Board is pleased that the Investment Manager's style of management 
of working very closely with a relatively small number of portfolio 
companies has once again produced good returns for Shareholders and 
believes that this approach can continue to be rewarding. 
 
   The investment portfolio now comprises ten main investments. Generally, 
prospects appear positive although, as is to be expected, a number of 
investments will face challenges. As noted above, the new VCT 
regulations may provide some additional challenges. However, the Board 
is hopeful that HMRC will soon publish guidance on the new regulations 
which will provide greater clarity and perhaps address some consequences 
which appear to be at odds with the overall objectives of the VCT 
scheme. 
 
   I look forward to updating Shareholders on all developments in my 
statement in the Half Year Report to 30 June 2016. 
 
   David Brock 
 
   Chairman 
 
   26 April 2016 
 
   INVESTMENT MANAGER'S REPORT 
 
   Over the year the Company recorded an increase in the total return of 
9.8p (net asset value including cumulative dividends), from 151.8p to 
161.6p including paying dividends of 10p per share. NAV per share 
decreased from 70.8p to 70.6p. 
 
   During the year we invested GBP2.7 million as we continued to support 
the existing portfolio companies, and completed one successful exit. Six 
follow-ons were made into Concorde Solutions Limited, AngloINFO Limited, 
Access Intelligence plc, Lyalvale Express Limited, Lyalvale Property 
Limited and Fords Packaging Topco Limited, and one full exit was 
completed in respect of SMART Education Limited. Overall the core 
portfolio has performed satisfactorily. 
 
   The major news of the year was the exit from SMART Education Limited 
("SMART") in December 2015. SMART is a teacher supply agency. The 
investment was made in 2005 as a start-up, backing a proven management 
team who we had previously invested in and who had successfully sold a 
previous business. During the course of its investment, we completed 
seven follow-on rounds as the company grew turnover from zero to over 
GBP15 million. The Company received an initial cash consideration of 
GBP2.6 million with a further minimum payment of GBP1.5 million due in 
December 2016.  The exit will return a projected IRR of over 20%. 
 

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   A further investment of GBP0.5 million was made into Access Intelligence 
plc ("Access") in June as part of a GBP3 million funding round to 
acquire a complementary company for AIMediaComms. A divestment of a 100% 
subsidiary WillowStarcom was made in April 2015, and post the year end 
Access also divested its subsidiary Due North Ltd for GBP4.5 million to 
Proactis Holdings plc. Access is listed on AIM and the share price has 
risen 58% year on year. 
 
   In the last quarter two follow on investments were made into Lyalvale 
Express Limited and Lyalvale Property Limited. These were a result of an 
existing shareholder offering their shares for sale as part of a larger 
secondary sale of their investment fund. The VCT exercised its 
pre-emption rights and the holdings have been increased to 44% and 28% 
respectively. The valuations of both holdings rose as these shares were 
acquired at a discount to the VCT carrying value. Following this 
transaction, Lyalvale Express Limited purchased some of its own shares 
for cancellation, such that the net new investment by the Company was 
GBP1 million. 
 
   Fords Packaging Topco Limited continues to invest in its R&D and 
innovate new products. This innovation has resulted in a tripling of the 
sales pipeline and interest from other non-food sectors. While the sales 
cycle is long we hope to see the results of the past two years of 
investment coming through in late 2016.  Fords is debt free and pays a 
regular dividend. 
 
   AngloINFO Limited has been the subject of much change and investment 
over the past eighteen months and the new management have grown sales by 
17% year on year. The new mobile compliant digital platform went live in 
the first quarter of 2016 and the target for 2016 is to get the company 
to breakeven. 
 
   Baldwin and Francis Limited has endured a tough year as the mining and 
energy sector has gone through a marked downturn globally. Turnover is 
projected to increase 10% year on year and the company continues to make 
sales in the oil sector despite the drop in the oil price. A renewed 
sales focus on the UK rail sector and professional technical services 
has been initiated and we are hopeful a number of meaningful contracts 
will land in calendar 2016. The services business grew by 70% in the 
year. We have every confidence in the new management team who have set 
the company up with good prospects for future growth. 
 
   On the AIM market our investment in Fulcrum Utility Services Limited 
rose over 300% as the company reported six monthly pre-tax profits of 
GBP1.6 million versus a loss of GBP0.2 million in the previous year. 
Conversely our investment in Proxama plc, which was acquired as a result 
of selling a previous VCT investment Aconite Technology to them, fell 
35%. 
 
   Generally, it is worth noting that in eight out of the top ten companies 
by value at 31 December 2015 the Manager has at least one board seat or 
observer rights and is very actively involved with these businesses. 
 
   We are delighted to report that the new fundraising round of GBP1.8 
million for this season reached full subscription in 30 days from 
launch. Your Manager is confident they can find suitable new investments 
to invest this capital. 
 
   Post the year end we have completed a new investment of GBP0.5 million 
into Ridee Limited (trading as Jinn - www.jinnapp.com) a fast growing 
digital company, in a GBP5 million funding round alongside a syndicate 
of other venture capitalists, family offices and high net investors. 
 
   2015 has also been an interesting year with the introduction of the new 
HMRC investment rules for VCTs. The rule changes have had a number of 
unintentional consequences for existing portfolio companies. For example 
the VCT owned convertible loans in Snacktime plc, which although 
invested some years before the current rule changes, HMRC deemed a 
conversion of these loans could be a breach of VCT qualifying status. 
This issue was solved after taking advice from two specialist VCT tax 
advisers. At this moment in time we do not see the challenges of the new 
rules as having a material effect on the portfolio or the ability to 
invest in new companies. 
 
   In summary, we are pleased with the SMART exit and the overall outlook 
of the core portfolio companies. We remain cautiously optimistic. 
 
   Elderstreet Investments Limited 
 
   26 April 2016 
 
   REVIEW OF INVESTMENTS 
 
   Portfolio of investments 
 
   The following investments were held at 31 December 2015. All companies 
are registered in England and Wales, with the exception of Fulcrum 
Utility Services Limited which is registered in the Cayman Islands. 
 
 
 
 
                                                         Valuation     % of 
                                                          movement   portfolio 
                                     Cost     Valuation   in year    by value 
                                   GBP'000    GBP'000     GBP'000 
Ten largest venture capital 
investments (by value) 
 
Lyalvale Express Limited             1,915        3,332        735       14.3% 
Fords Packaging Topco Limited        2,883        3,239          3       13.9% 
Access Intelligence plc *            2,333        3,118      1,010       13.4% 
Baldwin & Francis Limited            1,534        2,252      (246)        9.7% 
AngloINFO Limited                    1,634        1,225        389        5.3% 
Fulcrum Utility Services Limited 
 *                                     500        1,146        833        4.9% 
Concorde Solutions Limited             900          917         17        3.9% 
Lyalvale Property Limited              300          914        614        3.9% 
Macranet Limited                       863          862          -        3.7% 
Proxama plc*                           860          399      (246)        1.7% 
                                    13,722       17,404      3,109       74.7% 
Other venture capital investments 
Interquest Group plc *                 226          344       (78)        1.5% 
Cashfac plc                            260          328          -        1.4% 
Servoca plc *                          333          324        120        1.4% 
Sift Limited                           250          112         74        0.5% 
SnackTime plc *                      1,326           90       (72)        0.4% 
SparesFinder Limited                   103           34          -        0.1% 
The Kellan Group plc *                 657           11          2           - 
Infoserve Group plc                    127            -          -           - 
The National Solicitors Network 
 Limited                               501            -          -           - 
The QSS Group Limited                  268            -          -           - 
RB Sport & Leisure Holdings plc        188            -          -           - 
                                     4,239        1,243         46        5.3% 
Fixed income securities 
United Kingdom 1.25% Gilt 
 22/07/2018                            892          917        (1)        3.9% 
United Kingdom 1.00% Gilt 
 07/09/2017                            614          615        (2)        2.6% 
S&W Investment Funds Cash Fund          10           10          -        0.1% 
                                     1,516        1,542        (3)        6.6% 
 
                                    19,477       20,189      3,152       86.6% 
 
Cash at bank and in hand                          3,113                  13.4% 
 
Total investments                                23,302                 100.0% 
 
 
   All venture capital investments are unquoted unless otherwise stated 
 
   * Quoted on AIM 
 
   Investment movements for the year ended 31 December 2015 
 
   ADDITIONS 
 
 
 
 
                                GBP'000 
Venture capital investments 
Lyalvale Express Limited          1,500 
Access Intelligence plc *           500 
Lyalvale Property Limited           300 
AngloINFO Limited                   230 
Concorde Solutions Limited          150 
Fords Packaging Topco Limited         1 
 
                                  2,681 
 
 
   * Quoted on AIM 
 
   DISPOSALS 
 
 
 
 
                                      Value                Profit 
                                        at                    Vs      Realised 
                             Cost    01/01/15    Proceeds    cost      profit 
                           GBP'000   GBP'000    GBP'000    GBP'000   GBP'000 
Venture capital 
investments 
Smart Education Limited        160      3,670       4,153    3,993         483 
Lyalvale Express Limited       500        500         509        9           9 
SnackTime plc                  450        450         212    (238)       (238) 
Mears Group plc                188        298         350      162          52 
Proxama plc                     30         21          20     (10)         (1) 
                             1,328      4,939       5,244    3,916         305 
 
Wessex Advanced Switching 
 Products Limited                -          -         449      449         449 
 
                             1,328      4,939       5,693    4,365         754 
 
 
 
 
   * Adjusted for purchases in the year where applicable 
 
   Directors' responsibilities statement 
 
   The Directors are responsible for preparing the Report of the Directors, 
the Strategic Report, 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 Conduct 
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 

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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 these financial statements, the Directors are required to: 
 
   -- select suitable accounting policies and then apply them consistently; 
 
   -- make judgments and accounting 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, to 
disclose with reasonable accuracy at any time the financial position of 
the Company and to enable them to ensure that the financial statements 
comply with 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. 
 
   In addition, each of the Directors considers that the Annual report, 
taken as a whole, is fair, balanced and understandable and provides the 
information necessary for Shareholders to assess the Company's 
performance, business model and strategy. 
 
   The Directors are responsible for the maintenance and integrity of the 
corporate and financial information included on the Company'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. 
 
   By order of the Board 
 
   Grant Whitehouse 
 
   Secretary of Elderstreet VCT plc 
 
   26 April 2016 
 
   INCOME STATEMENT 
 
   for the year ended 31 December 2015 
 
 
 
 
                                2015                                  2014 
 
                      Revenue  Capital   Total   Revenue  Capital   Total 
                      GBP'000  GBP'000  GBP'000  GBP'000  GBP'000  GBP'000 
 
Income                    688        -      688      544        -      544 
Gains on investments        -    3,906    3,906        -    4,891    4,891 
                          688    3,906    4,594 
                                                     544    4,891    5,435 
 
Investment 
 management fees        (118)    (354)    (472)    (128)    (383)    (511) 
Performance 
 incentive fees             -    (454)    (454)        -    (991)    (991) 
Other expenses          (308)      (6)    (314)    (269)        -    (269) 
 
Return on ordinary 
 activities before 
 tax                      262    3,092    3,354      147    3,517    3,664 
 
Tax on total 
 comprehensive              -        -        -        -        -        - 
 income and ordinary 
 activities 
 
Return attributable 
 to equity                262    3,092    3,354      147    3,517    3,664 
 shareholders 
 
Basic and diluted        0.8p     9.0p     9.8p     0.5p    11.4p    11.9p 
 return per share 
 
 
   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 Statement of Total Comprehensive Income of the Company prepared in 
accordance with Financial Reporting Standards ("FRS102"). The 
supplementary revenue and capital return columns are prepared in 
accordance with the Statement of Recommended Practice issued in November 
2014 by the Association of Investment Companies ("AIC SORP"). 
 
   Other than revaluation movements arising on investments held at fair 
value through the Income Statement, there were no differences between 
the return as stated above and at historical cost. 
 
   STATEMENT OF CHANGES IN EQUITY 
 
   for the year ended 31 December 2015 
 
 
 
 
                      Called 
                      up       Capital                                       Capital       Capital 
                      share     Redemption   Share     Merger   Special      reserve       reserve    Revenue 
                      capital   reserve      premium   reserve   reserve   - unrealised   - realised   reserve   Total 
                      GBP'000      GBP'000  GBP'000   GBP'000   GBP'000      GBP'000       GBP'000    GBP'000   GBP'000 
 
For the year ended 31 December 2015 
 
At 1 January 
 2015                   1,678          465     2,908     1,882     2,991          4,908        8,713       224    23,769 
Issue of new 
 shares                    45            -       596         -         -              -            -         -       641 
Issue of new 
 shares under 
 Dividend 
 Reinvestment 
 Scheme                    19            -       239         -         -              -            -         -       258 
Share issue 
 costs                      -            -         -         -       (9)              -            -         -       (9) 
Purchase of 
 own shares               (9)            9         -         -     (114)              -            -         -     (114) 
Expenses charged 
 to capital                 -            -         -         -         -              -        (814)         -     (814) 
Gains on 
 investments                -            -         -         -         -          3,152          754         -     3,906 
Realisation of 
 revaluations from 
 prior years                -            -         -         -         -        (3,627)        3,627         -         - 
Transfer between 
 reserves                   -            -         -      (54)     (239)              -          293         -         - 
Revenue return              -            -         -         -         -              -            -       262       262 
Dividends paid              -            -         -         -         -              -      (3,441)         -   (3,441) 
 
At 31 
 December 2015          1,733          474     3,743     1,828     2,629          4,433        9,132       486    24,458 
 
For the year ended 31 December 2014 
 
At 1 January 
 2014                   1,537          446       856     1,882     6,950          8,683        3,118       505    23,977 
Issue of new 
 shares                   112            -     1,415         -         -              -            -         -     1,527 
Issue of new shares 
 under Dividend 
 Reinvestment 
 Scheme                    48            -       637         -         -              -            -         -       685 
Share issue 
 costs                      -            -         -         -       (8)              -            -         -       (8) 
Purchase of 
 own shares              (19)           19         -         -     (319)              -            -         -     (319) 
Expenses charged 
 to capital                 -            -         -         -         -              -      (1,374)         -   (1,374) 
Gains on 
 investments                -            -         -         -         -            381        4,510         -     4,891 
Realisation of 
 revaluations from 
 prior years                -            -         -         -         -        (4,156)        4,156         -         - 
Transfer between 
 reserves                   -            -         -         -   (3,632)              -        3,632         -         - 
Revenue return              -            -         -         -         -              -            -       147       147 
Dividends paid              -            -         -         -         -              -      (5,329)     (428)   (5,757) 
 
At 31 
 December 2014          1,678          465     2,908     1,882     2,991          4,908        8,713       224    23,769 
 
   BALANCE SHEET 
 
   at 31 December 2015 
 
 
 
 
                                                2015              2014 
                                      GBP'000  GBP'000  GBP'000  GBP'000 
Fixed assets 
Investments                                     20,189            19,295 
 
Current assets 
Debtors                                 1,757             3,704 
Cash at bank and in hand                3,113             1,562 
                                        4,870             5,266 
 
Creditors: amounts falling due 
 within one year                        (601)             (792) 
 
Net current assets                               4,269             4,474 
 
Net assets                                      24,458            23,769 
 
Capital and reserves 
Called up share capital                          1,733             1,678 
Capital redemption reserve                         474               465 
Share premium                                    3,743             2,908 
Merger reserve                                   1,828             1,882 
Special reserve                                  2,629             2,991 
Capital reserve - unrealised                     4,433             4,908 
Capital reserve - realised                       9,132             8,713 
Revenue reserve                                    486               224 
 
Total equity shareholders' funds                24,458            23,769 
 
Basic and diluted net asset value                70.6p             70.8p 
 per share 
 
   STATEMENT OF CASH FLOWS 
 
   for the year ended 31 December 2015 
 
 
 
 
                                                2015     2014 
                                               GBP'000  GBP'000 
 
Net cash outflow from operating activities       (757)    (431) 
 
Cash flow from investing activities 
Purchase of investments                        (2,677)  (3,880) 
Proceeds from disposal of investments            7,509    8,362 
Net cash inflow from investing activities        4,832    4,482 
 
Equity dividends paid                          (3,183)  (5,105) 
 
Net cash inflow/(outflow) before financing         892  (1,054) 
 
Cash flows from financing 

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Proceeds from share issue                          773    1,379 
Purchase of own shares                           (114)    (319) 
Net cash inflow from financing                     659    1,060 
 
Increase in cash                                 1,551        6 
 
   NOTES TO THE ACCOUNTS 
 
   for the year ended 31 December 2015 
 
   1. Accounting policies 
 
   Basis of accounting 
 
   The Company has prepared its financial statements in accordance with the 
Financial Reporting Standard 102 ("FRS102") and in accordance with the 
Statement of Recommended Practice "Financial Statements of Investment 
Trust Companies" revised November 2014 ("SORP"). 
 
   This is the first period in which the financial statements have been 
prepared under FRS102, however, it has not been necessary to restate 
comparatives as the treatment previously applied aligns with the 
requirements of FRS102. As a result, there are no reconciling 
differences between the previous financial reporting framework and the 
current financial reporting framework and the comparative figures 
represent the position under both current and previous financial 
reporting frameworks. 
 
   The Company implements new Financial Reporting Standards issued by the 
Financial Reporting Council when required. 
 
   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. 
 
   Fixed asset investments 
 
   Investments are designated as "fair value through profit or loss" assets, 
upon acquisition, 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, with a view to selling 
after a period of time, in accordance with the Company's documented 
investment policy. 
 
   Key sources of estimation uncertainty 
 
   Of the Company's assets measured at fair value, it is possible to 
determine their fair values within a reasonable range of estimates. 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 FRS 102 sections 11 and 12. 
 
   Listed fixed income investments and investments quoted on AIM and the 
Main Market are measured using bid prices in accordance with the IPEV. 
 
   For unquoted instruments, fair value is established using the IPEV. 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. Permanent impairments in the value of investments are 
deemed to be realised losses and held within the Capital Reserve - 
Realised. 
 
   Key sources of estimation uncertainty (continued) 
 
   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 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 and FRS102 sections 
14 and 15 that do 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 have been established, normally the 
ex-dividend date. 
 
   Interest income is accrued on a timely basis, by reference to the 
principal outstanding and at the effective interest 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 acquisition of an investment are 
deducted as a capital item. 
 
   --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, 75% to capital and 25% to 
revenue as permitted by the SORP. The allocation is in line with the 
Board's expectation of long term returns from the Company's investments 
in the form of capital gains and income respectively. 
 
   -- Performance incentive fees arising are treated as a capital item. 
 
   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 not discounted and 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 and other creditors 
 
   Other debtors (including accrued income) and other creditors are 
included within the accounts at amortised cost. 
 
   Issue costs 
 
   Issue costs in relation to the shares issued are deducted from the share 
premium account. 
 
   2. Basic and diluted return per share 
 
 
 
 
                                                         2015        2014 
 
Return per share based on: 
Net revenue return for the financial year (GBP'000)          262         147 
Net capital gains for the financial year (GBP'000)         3,092       3,517 
Total return for the financial year (GBP'000)              3,354       3,664 
 
Weighted average number of shares in issue            34,356,056  30,865,652 
 
 
   As the Company has not issued any convertible securities or share 
options, there is no dilutive effect on return per share. The return per 
share disclosed, therefore, represents both basic and diluted return per 
share. 
 
   3. Basic and diluted net asset value per share 
 
 
 
 
                                                    2015                   2014 
                  Shares in issue        Net asset value        Net asset value 
 
                                     Pence                  Pence 
  2015                     2014     per share    GBP'000   per share    GBP'000 
 
Ordinary 
 Shares    34,660,694  33,561,433        70.6     24,458        70.8     23,769 
 
 
   As the Company has not issued any convertible securities or share 
options, there is no dilutive effect on net asset value per share. The 
net asset value per share disclosed therefore represents both basic and 
diluted net asset value per share. 
 
   4. Principal risks 
 
   The Company's investment activities expose the Company to a number of 
risks associated with financial instruments and the sectors in which the 
Company invests. The principal financial risks arising from the 
Company's operations are: 
 
   -- Investment risks; 
 
   -- Credit risk; and 
 
   -- Liquidity risk. 
 
   The Board regularly reviews these risks and the policies in place for 
managing them. There have been no significant changes to the nature of 
the risks that the Company is exposed to over the year and there have 
also been no significant changes to the policies for managing those 
risks during the year. 
 
   The risk management policies used by the Company in respect of the 
principal financial risks and a review of the financial instruments held 
at the year end are provided below. 
 
   Investment risks 
 
   As a VCT, the Company is exposed to investment risks in the form of 
potential losses that may arise on the investments it holds in 
accordance with its investment policy. The management of these 
investment risks is a fundamental part of investment activities 
undertaken by the Investment Manager and overseen by the Board. The 
Manager monitors investments through regular contact with management of 
investee companies, regular review of management accounts and other 
financial information and attendance at investee company board meetings. 
This enables the Manager to manage the investment risk in respect of 
individual investments. Investment risk is also mitigated by holding a 

(MORE TO FOLLOW) Dow Jones Newswires

April 26, 2016 10:11 ET (14:11 GMT)

diversified portfolio spread across various business sectors and asset 
classes. 
 
   The key investment risks to which the Company is exposed are: 
 
   -- Investment price risk; and 
 
   -- Interest rate 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. 
 
   Investment price risk 
 
   Investment price risk arises from uncertainty about the future prices 
and valuations of financial instruments held in accordance with the 
Company's investment objectives. It represents the potential loss that 
the Company might suffer through investment price movements in respect 
of quoted investments and also changes in the fair value of unquoted 
investments that it holds. 
 
   Interest rate risk 
 
   The Company accepts exposure to interest rate risk on floating-rate 
financial assets through the effect of changes in prevailing interest 
rates. The Company receives interest on its cash deposits at a rate 
agreed with its bankers and on liquidity funds at rates based on the 
underlying investments. Investments in loan notes and fixed interest 
investments attract interest predominately at fixed rates. 
 
   Interest rate risk profile of financial assets and financial liabilities 
 
   There are three levels of interest which are attributable to the 
financial instruments as follows: 
 
   -- "Fixed rate" assets represent investments with predetermined yield 
targets and comprise fixed interest and loan note investments. 
 
   -- "Floating rate" assets predominantly bear interest at rates linked to 
Bank of England base rate and comprise cash at bank and Cash Trust 
investments. 
 
   -- "No interest rate" assets do not attract interest and comprise equity 
investments, loans and receivables (excluding cash at bank) and other 
financial liabilities. 
 
   The Company monitors the level of income received from fixed, floating 
and non-interest rate assets and, if appropriate, may make adjustments 
to the allocation between the categories, in particular, should this be 
required to ensure compliance with the VCT regulations. 
 
   The Bank of England base rate stood at 0.5% per annum throughout the 
year. Any potential change in the base rate, at the current level, would 
have an immaterial impact on the net assets and total return of the 
Company. 
 
   Credit risk 
 
   Credit risk is the risk that a counterparty to a financial instrument is 
unable to discharge a commitment to the Company made under that 
instrument. The Company is exposed to credit risk through its holdings 
of loan notes in investee companies, investments in fixed income 
securities, cash deposits and debtors. 
 
   The Manager manages credit risk in respect of loan notes with a similar 
approach as described under investment risks above. In addition the 
credit risk is partially mitigated by registering floating charges over 
the assets of certain investee companies. The strength of this security 
in each case is dependent on the nature of the investee company's 
business and its identifiable assets. The level of security is a key 
means of managing credit risk. Similarly, the management of credit risk 
associated interest, dividends and other receivables is covered within 
the investment management procedures. 
 
   Cash is mainly held at Royal Bank of Scotland plc, with a balance also 
maintained at Bank of Scotland plc, both of which are A-rated financial 
institutions and ultimately part-owned by the UK Government. 
Consequently, the Directors consider that the risk profile associated 
with cash deposits is low. 
 
   There have been no changes in fair value during the year that can be 
directly attributable to changes in credit risk. 
 
   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 or from the inability to 
generate cash inflows as required. The Company normally has a relatively 
low level of creditors (2015: GBP428,000, 2014: GBP759,000) and has no 
borrowings. The Company always holds sufficient levels of funds as cash 
and readily realisable investments in order to meet expenses and other 
cash outflows as they arise. For these reasons, the Board believes that 
the Company's exposure to liquidity risk is minimal. 
 
   The Company's liquidity risk is managed by the Investment Manager in 
line with guidance agreed with the Board and is reviewed by the Board at 
regular intervals. 
 
   5. Related party transactions 
 
   Michael Jackson is a Director of Elderstreet Investments Limited which 
provides investment management services to the Company. During the year, 
GBP472,000 (2014: GBP511,000) was due in respect of these services. 
Performance incentive fees totalling GBP454,000 (2014: GBP991,000) were 
due to Elderstreet Investments Limited in respect of the year under 
review. GBP454,000 (2014: GBP642,372) was outstanding at the year-end. 
 
   Nicholas Lewis is a partner of Downing LLP which provides administration 
services to the Company. During the year, GBP50,000 (2014: GBP50,000) 
was due to Downing LLP in respect of these services. 
 
   As a result of the recent VCT rule changes, the Company was unable to 
convert its existing loans in SnackTime plc, which were invested some 
years before the rule changes. Under the new rules, the conversion of 
these loans would constitute a breach which would jeopardise the 
Company's VCT status. This issue was resolved after taking advice from 
two specialist VCT tax advisers, and a resulting related party 
transaction, whereby the VCT sold its loans to the Investment Manager, 
who then converted these loans into equity, resulted in SnackTime being 
able to take further investment from third parties. Under the term of 
the transaction, the Company will received a total of GBP50,000 in cash 
from the Investment Manager and also sums equal to 75% of any disposal 
proceeds that the Investment Manager receives on the shares arising from 
the conversion. 
 
   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 31 December 2015, 
but has been extracted from the statutory financial statements for the 
year ended 31 December 2015, which were approved by the Board of 
Directors on 26 April 2016 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 s498(2) and (3) of the Companies Act 2006. 
 
   The statutory accounts for the year ended 31 December 2014 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 31 December 2015 will be printed and posted to shareholders 
shortly. Copies will also be available to the public at the registered 
office of the Company at Ergon House, Horseferry Road , London, SW1P 2AL 
and will be available for download from www.downing.co.uk. 
 
   This announcement is distributed by NASDAQ OMX Corporate Solutions on 
behalf of NASDAQ OMX Corporate Solutions clients. 
 
   The issuer of this announcement warrants that they are solely 
responsible for the content, accuracy and originality of the information 
contained therein. 
 
   Source: Elderstreet VCT plc via Globenewswire 
 
   HUG#2006773 
 
 
 
 

(END) Dow Jones Newswires

April 26, 2016 10:11 ET (14:11 GMT)

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