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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Downing Absol 1 | LSE:DA1O | London | Ordinary Share | GB0002790714 | ORD 50P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 67.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMDA1O Downing Absolute Income VCT 1 plc Final results for the year ended 30 June 2012 FINANCIAL HIGHLIGHTS Year ended Year ended Ordinary Share pool 30 June 2012 30 June 2011 Net asset value per Ordinary Share 89.6 84.7 Total dividends paid since inception 63.4 60.4 Total return 153.0 145.1 Year ended Year ended 'C' Share pool 30 June 2012 30 June 2011 Net asset value per 'C' Share 79.7 94.7 Total dividends paid since inception 5.0 - Total return 84.7 94.7 CHAIRMAN'S STATEMENT I present the Company's Annual Report for the year ended 30 June 2012, which is my first as Chairman, having taken over the role in March 2012. This has been the first full year where the Company has operated two separate share pools. The Ordinary Share pool is close to fully invested and holds a reasonably mature portfolio. I am pleased to report that this share pool has performed well over the year. The 'C' Share pool is still in the process of investing its funds. It is disappointing to have to report a significant fall in net asset value over the year, although this has mainly resulted from the poor performance of one investment. Ordinary Share pool Net asset value ("NAV"), results and dividends At 30 June 2012, the Company's Ordinary Share NAV stood at 89.6p. This represents an increase of 7.9p per Ordinary Share against the NAV at 30 June 2011 (after adjusting for the dividends paid during the year of 3.0p per Ordinary Share), equivalent to an increase of 9.3%. The Total Return (NAV plus cumulative dividends paid since launch) now stands at 153.0p per Ordinary Share compared to an original investment at the Company's outset, net of income tax relief, of 80.0p per Ordinary Share. The return on ordinary activities for the Ordinary Share pool after taxation was GBP616,000 (2011: GBP109,000), comprising a return on the revenue account of GBP128,000 (2011: GBP122,000) and a gain on the capital account of GBP488,000 (2011: loss GBP13,000). Your Board is proposing to pay a final dividend of 2.0p per Ordinary Share (comprising 0.5p revenue and 1.5p capital) which, subject to Shareholder approval, will be paid on 14 December 2012 to Shareholders on the register at 16 November 2012. This will bring total dividends for the year to 3.0p per Ordinary Share (2011: 3.0p per Ordinary Share). Cumulative dividends to Shareholders since the Company's launch will total 65.4p per Ordinary Share once this dividend has been paid. Investment activity The Ordinary Share pool benefited from some loan stock redemptions during the year which provided funds for some new investment activity. Seven new investments were made and one follow-on investment at a total cost of GBP1.4 million. In valuing the investments at the year end, the Manager obtained third party valuations for each of the portfolio's care homes. These valuations have resulted in uplifts to each of these investments totalling GBP773,000. With other valuation adjustments, total unrealised movement on the portfolio was a net gain of GBP517,000. The pool also had some small realisations, producing total realised gains of GBP24,000. Further details of the investment management activities over the year and valuation movements are included in the Investment Manager's Report and full details of the portfolio are included in the Review of Investments. 'C' Share pool Net asset value, results and dividends At 30 June 2012, the Company's 'C' Share NAV stood at 79.7p. This represents a decrease of 10.0p per 'C' Share against the NAV at 30 June 2011 (after adjusting for the dividends paid during the year of 5.0p per 'C' Share), equivalent to a decrease of 10.6%. The loss on ordinary activities for the 'C' Share pool after taxation was GBP894,000, comprising a return on the revenue account of GBP103,000 and a loss on the capital account of GBP997,000. In line with the policy set out in the 'C' Share prospectus, your Board is proposing a final dividend in respect of the year ending 30 June 2012 of 2.5p per 'C' Share to be paid on 14 December 2012 to Shareholders on the register at 16 November 2012. This will bring total dividends for the year to 7.5p per 'C' Share. Investment activity The 'C' Share pool made eight VCT qualifying investments during the year at a total cost of GBP2.6 million, along with twelve non-qualifying investments at a total cost of GBP2.8 million. Most investments have performed more or less to plan, however, there has been one major exception. Helcim Group Limited organises and manages housing for social tenants, by working with local authorities and private landlords. The company has experienced some significant problems, including a new venture which has failed to attract clients quickly enough, and the core business failing to develop as planned, resulting in substantial losses. The 'C' Share pool invested a total of GBP1.2 million in Helcim. At the year end, the 'C' Share pool's investment has been written down to a nominal GBP124,000 as the future for the company looks uncertain. Since the problems with Helcim first came to light, the Board has worked closely with the Manager to ensure that appropriate action was taken. Although this has ultimately been unable to prevent the significant loss of value, the Manager has since enhanced a number of its processes, which the Board believes may help to prevent similar issues arising in future. In addition, the 'C' Share pool also suffered a small realised loss on its investment in Gingerbread Pre-Schools (UK) Limited. The company has subsequently been reorganised such that the nurseries now trade under a new holding company, Liverpool Nurseries (Holdings) Limited. All other investments within the pool have performed satisfactorily. The net unrealised loss for the year on the 'C' Share portfolio was GBP912,000, alongside realised losses of GBP85,000. Further details of the investment management activities over the year and valuation movements are included in the Investment Manager's Report and full details of the portfolio are included in the Review of Investments. In view of the disappointing performance of the 'C' Share pool, as a goodwill gesture, the Manager offered to waive its investment management and administration fees that were attributable to the 'C' Share pool for the year. These totalled GBP172,000. The Board accepted this offer. Share Realisation and Reinvestment Programme Shareholders will be aware that the Company recently undertook a Share Realisation and Reinvestment Programme ("SRRP") for Ordinary Shareholders in July 2012. The programme completed in September 2012, with approximately 20% of Ordinary Shares participating. The top-up offer that was launched alongside the SRRP raised gross new funds of approximately GBP140,000. Participating Shareholders should now have received new share certificates and income tax relief certificates. Please contact Downing if you participated in the programme and have not yet received these documents. Share buybacks Your Board continues to monitor the market in the Company's shares and, in order to ensure liquidity for Shareholders, the Company has a policy of purchasing its own shares when any become available in the market, subject to certain restrictions. The current policy is to purchase Ordinary Shares at approximately a 10% discount to NAV and 'C' Shares at a nil discount. A special resolution to allow the Company to continue with this policy is proposed for the forthcoming AGM. During the year, the Board used this power to repurchase 291,718 Ordinary Shares for an average consideration of 75.4p per share, representing 3.5% of the issued Ordinary Share capital. No 'C' Shares were purchased in the year. Directorate As Shareholders will be aware, there were some changes to the Board during the year. As a result of Downing being appointed as investment manager to two other VCTs in which Chris Kay has an involvement, Chris was no longer deemed to be independent of the manager and so, in February 2012, stepped down as Chairman of the Company. Chris continues as a non-executive director. In addition, Nicholas Lewis, as the founding partner of Downing, also stepped down as a director to ensure that the Board continued to comprise a majority of independent directors. I would like to thank Nicholas for his considerable contribution as a Board member and Chris for the professional manner in which he has chaired the Company and look forward to continuing to work with both in their ongoing roles. Annual General Meeting The Company's next AGM will be held at 10 Lower Grosvenor Place, London SW1W 0EN at 11.00 a.m. on 5 December 2012. One item of special business will be proposed in respect of share buybacks. Outlook VCTs are generally exposed to most risk when building their initial investment portfolio as, at that time, they can be investing in small, developing and potentially unproven businesses. This has been highlighted by the contrasting performance of the reasonably mature Ordinary Share portfolio and the new 'C' Share portfolio. A significant proportion of the Ordinary Share pool is invested in businesses operating care homes, mostly for people with special needs. Having held most of these for several years, we have gained confidence in the management teams and believe that these can continue to develop these businesses and ultimately deliver exits when suitable market conditions arrive. Most of the damage in the 'C' Share portfolio has arisen from one investment. While much value has been lost there, the remainder of the 'C' Share VCT qualifying investments have potential to build value over time and may be able to recover some of the lost ground. The 'C' Share pool still has funds to invest to complete building its VCT qualifying portfolio. The Board will continue to work closely with the Manager to ensure that, where possible, exposure to risks on new investments is carefully managed. Martin Bradford Chairman INVESTMENT MANAGER'S REPORT - ORDINARY SHARE POOL Introduction The Ordinary Share pool held 21 venture capital investments at the year end and is now fully invested. Further investment activity will be limited to reinvesting proceeds from divestments when suitable investment opportunities arise. The majority of the Ordinary Share pool's investments are performing well, with six venture capital investments uplifted in value as a result of strong trading performance; two have faced some difficulties resulting in a reduction in their valuation at the year end. Overall, the pool had a net increase in the value of its investments of GBP517,000 over the year. Net asset value and results The net asset value ("NAV") per Ordinary Share at 30 June 2012 stood at 89.6p, an increase of 7.9p per share (after adjusting for dividends paid in the year). Total Return (combined NAV plus cumulative dividends) stood at 153.0p per Ordinary Share. The return on ordinary activities after taxation for the year was GBP616,000 (2011: GBP109,000), comprising a revenue return of GBP128,000 (2011: GBP122,000) and a capital gain of GBP488,000 (2011 loss: GBP13,000). Venture capital investments Investment activity At 30 June 2012, the Ordinary Share pool held a venture capital portfolio with a total valuation of GBP7.2 million. During the year, the share pool made further investments totalling GBP1.4 million, which were offset by proceeds from divestments of GBP780,000. The pool made eight investments during the year, four of which were new qualifying investments. An overview of the largest new qualifying, or partially qualifying, investments made during the period is detailed below. In June 2012, the pool made a GBP575,000 qualifying investment in Downing Alton Limited to acquire an existing five bed care home in Alton, Hampshire for patients with autistic spectrum disorders. The manager is currently liaising with the local authority to fill vacancies within the home. In April 2012, three investments were made in City Falkirk Limited, Fubar Stirling Limited and Cheers Dumbarton Limited totalling GBP246,000. Each of these companies owns and operates Scottish nightclubs. The clubs are managed by Lochrise Limited which is associated with the Castle Leisure Group, an experienced operator in the region. In November 2011, a GBP150,000 investment was made in Angel Solar Limited, which invests in commercial solar power installations. A second investment of GBP100,000 was made in Progressive Energies Limited which installs, owns and manages solar panels on domestic rooftops. Both businesses benefit from the receipt of Feed-in Tariffs from solar energy generation. A GBP329,000 non-qualifying loan was made to Helcim Group Limited which organises and manages housing for vulnerable tenants, by working with local authorities and private landlords. The company has not been able to fulfil its ambitious expansion plans and, as a result, the investment was written down at the year end as described below. Portfolio valuation The majority of the Ordinary Share portfolio performed well during the year with a net valuation uplift of GBP517,000 recognised at the year end. At the year end, the Company commissioned independent valuations of its care home investments which resulted in a total uplift in value of GBP773,000 across the care homes. A GBP305,000 uplift was recognised in Downing (Pirbright Road) Limited, a special needs care home in Farnborough. A GBP250,000 uplift was recognised in Bowman Care Homes Limited, a 20-bed home in Byfleet for people with learning disabilities. A GBP168,000 uplift was recognised in Blue Cedars Holdings Limited, a six bedroom special needs care home in Farnborough. A GBP50,000 uplift in Kimbolton Lodge Limited was recognised to reflect the improvement of trading in the business which operates as a 35 bedroom nursing home in Bedford. A GBP48,000 increase in the valuation of Future Biogas (SF) Limited was recognised to reflect that the biogas plant is now complete and operating at target levels. The investment in Gatewales Limited increased by GBP20,000 to reflect the expected proceeds from its investment in Fenkle Street LLP. This will be received over the course of the next two years. The value of the Company's investment in Helcim Group Limited was written down by GBP295,000 during the year. The business has experienced significant problems since the investment was made, with a new venture failing to attract clients quickly enough and the core business failing to develop as planned, which required significant working capital funding. The future for the company is uncertain. We continue to work very closely with the business and are exploring plans that may be able to realise some value for Shareholders. A GBP29,000 reduction in the value of Heyford Homes (VCT) Limited was made to reflect the revised view of the anticipated exit proceeds from the business which is expected over the course of next year. Outlook The weak UK economy is expected to continue throughout 2012/13 with consumer confidence likely to remain subdued. The Ordinary Share pool is now fully invested. Therefore, further investment will be limited to the reinvestment of proceeds from the disposal of existing investments. We continue to work closely with our investee companies to ensure that our long term objectives are achieved. Downing LLP REVIEW OF INVESTMENTS - ORDINARY SHARE POOL Portfolio of investments The following investments, all of which are incorporated in England and Wales, were held at 30 June 2012: Valuation movement % of Cost Valuation in year portfolio GBP'000 GBP'000 GBP'000 by value Venture capital investments Bowman Care Homes Limited 800 1,700 250 23.4% Downing (Pirbright Road) Limited 780 1,305 305 17.9% Blue Cedars Holdings Limited 970 1,268 168 17.4% Kimbolton Lodge Limited** 685 650 50 8.9% Downing (Alton) Limited 575 575 - 7.9% Future Biogas (SF) Limited 406 454 48 6.3% Leytonstone Pub Limited 200 200 - 2.8% Gatewales Limited 367 162 20 2.2% City Falkirk Limited** 141 141 - 1.9% Chapel Street Food and Beverage Limited 125 125 - 1.7% Chapel Street Services Limited 125 125 - 1.7% Heyford Homes (VCT) Limited 300 100 (29) 1.4% Progressive Energies Limited 100 100 - 1.4% Fubar Stirling Limited* 90 90 - 1.2% Angel Solar Limited 75 75 - 1.0% Fenkle Street LLP* 69 69 - 0.9% Helcim Group Limited* 329 34 (295) 0.5% Cheers Dumbarton Limited* 16 16 - 0.2% Chapel Street Hotel Limited* 5 5 - 0.1% Lochrise Limited* 4 4 - 0.1% Kings Gap Group Limited 1,000 - - 0.0% ------------------------------------ 7,162 7,198 517 98.8% ------- ----------- Cash at bank and in hand 74 1.2% ----------- ---------- Total investments 7,272 100.0% ----------- ---------- * Non-qualifying investment ** Partially qualifying investment ADDITIONS GBP'000 Downing (Alton) Limited 575 Helcim Group Limited* 329 Angel Solar Limited 150 City Falkirk Limited** 141 Progressive Energies Limited 100 Fubar Stirling Limited* 89 Cheers Dumbarton Limited* 16 Lochrise Limited* 4 -------- 1,404 -------- DISPOSALS Market (Loss)/gain Total realised value at against gain during Cost 01/07/11*** Proceeds cost the year GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Heyford Homes (VCT) Limited 391 391 391 - - Gatewales Limited 286 286 286 - - Angel Solar Limited 75 75 75 - - Bond Contracting Limited* 8 4 4 (4) - Sanguine Hospitality Limited* 6 - 24 18 24 ------------------------------------------------------ 766 756 780 14 24 ------------------------------------------------------ * Non-qualifying investment ** Partially qualifying investment *** Adjusted for purchases during the year INVESTMENT MANAGER'S REPORT - 'C' SHARE POOL Introduction The 'C' Share pool holds 16 unquoted investments and one AIM quoted investment and is expected to become fully invested over the course of 2012/13. Whilst most of the 'C' Share pool's investments are performing more or less to plan, the continuing challenging economic environment throughout 2011/12 has impacted one investment in particular, Helcim Group Limited, which has been significantly marked down. This has been offset to some extent by an increase in value of the investment in Tracsis plc. Net asset value and results The net asset value ("NAV") per 'C' Share at 30 June 2012 stood at 79.7p, a fall of 10.0p per share over the year after adjusting for dividends. Total Return (combined NAV plus cumulative dividends) stood at 84.7p per share. The loss on ordinary activities after taxation for the year was GBP894,000, comprising a revenue profit of GBP103,000 (2011: GBP42,000) and a capital loss of GBP997,000 (2011: GBP29,000). Venture capital investments Investment activity The 'C' Share pool began the year with 11 investments valued at GBP6.6 million and ended the year with an investment portfolio with a valuation of GBP5.4 million comprising 16 venture capital investments and one AIM-quoted investment. During the year, the Company made investments totalling GBP5.3 million which was funded by proceeds from the sale of ten short-term investments of GBP5.5 million. The pool made 20 venture capital investments during the year, six of which were new qualifying investments, three were follow-on investments and 11 were short- term non-qualifying loans (five of these were disposed of during the year). An overview of the largest new qualifying, or partially qualifying investments, is detailed below. During the year, the pool invested a net GBP0.9 million in three qualifying solar power investments. Two investments were made in companies which install, own and manage solar panels on domestic rooftops. These include GBP532,000 in Residential PV Trading Limited and GBP220,000 in Progressive Energies Limited. One investment of GBP350,000 (of which GBP175,000 was subsequently redeemed), was made in Angel Solar Limited, which has invested in a number of commercial solar installations. All three of the qualifying solar investments made during the year benefit from the receipt of Feed-in Tariffs from solar energy generation. In July 2011, a GBP200,000 investment was made in Kidspace Adventures Limited which owns two indoor play centres in Croydon and Romford. In January 2012, a second investment was made with the Kidspace management team to purchase a site in Epsom, Surrey. GBP300,000 was invested in Kidspace Adventures Holdings Limited to purchase the site which has since been redeveloped into an indoor and outdoor children's play centre known as Hobbledown Farm, which opened to the public in July 2012. In December 2011, the 'C' Share pool invested GBP280,000 in Mosaic Spa and Health Club (Shrewsbury) Limited to purchase the freehold of an operating health club known as Welti. The purchase was from a company in administration for GBP2.1 million. In April 2012, three investments were made in City Falkirk Limited, Fubar Stirling Limited and Cheers Dumbarton Limited totalling GBP737,000. Each of these companies owns and operates Scottish nightclubs. The clubs are managed by Lochrise Limited which is associated with the Castle Leisure Group, an experienced operator in the region. In February 2012, a GBP218,000 non-qualifying investment was made in Liverpool Nurseries (Holdings) Limited to purchase the assets of Gingerbread Pre-Schools (UK) Limited in which the 'C' Share pool had previously invested. Gingerbread had originally purchased two operating children's day nurseries in Liverpool and was in the process of renovating a third nursery. Unfortunately, Gingerbread experienced significant cost overruns on the renovation, together with poor performance of one of the existing sites. The investment partner, who was also the Chief Executive, was suspended and later dismissed. In the interim, further liabilities came to light and the business went into administration in February 2012. The trading assets were subsequently purchased from the Administrator by Liverpool Nurseries (Holdings) Limited. A new manager has been appointed and the nurseries are now starting to make progress. A realised loss of GBP85,000 on Gingerbread arose on the reorganisation, however, most of the investment value has been rolled over into the new company. Portfolio valuation The majority of the investments were all made during the year and, accordingly, were held at original cost at the year end. The portfolio fell in value by GBP912,000 during the year, primarily due to the GBP1.1 million decrease in value of Helcim Group Limited which was offset by valuation increases of GBP142,000 in Tracsis plc and a GBP7,500 valuation increase in Alpha Schools Holdings Limited. We are particularly disappointed to report a GBP1.1 million write down in value of the Company's investment in Helcim Group Limited during the year. The business has experienced significant problems since the investment was made, with a new venture failing to attract clients quickly enough and the core business failing to develop as planned and requiring significant working capital funding. The future for the company is uncertain, however, we are working very closely with the business and exploring plans that may be able to realise some value for Shareholders. An uplift in value of GBP7,500 was recognised on the Alpha Schools Holdings Limited, an independent primary school operator, to reflect that the business is performing well and in line with expectations. Tracsis plc, an AIM-listed company, has been valued at market bid price at the year end resulting in a GBP142,000 gain on cost. Tracsis plc, a provider of optimisation software to the rail industry, has experienced a significant improvement in earnings. We forecast these gains at the time of our initial investment in March 2011, predicated on their involvement and software sales to the Train Operating Companies ("TOCS"). These sales have led to eight profit upgrades since March 2012 and have justified the appreciation in share price. Outlook The general economic conditions in the UK are expected to continue throughout 2012/13 with consumer confidence likely to remain subdued. The 'C' Share pool will continue to make new qualifying investments over the next year, with funds being raised from the redemption of non-qualifying loan stocks. We will continue to focus on working closely with investee companies to ensure that the target returns are met through these challenging economic times. Downing LLP REVIEW OF INVESTMENTS - 'C' SHARE POOL Portfolio of investments The following investments, all of which are incorporated in England and Wales, were held at 30 June 2012: Valuation movement % of Cost Valuation in year portfolio GBP'000 GBP'000 GBP'000 by value VCT qualifying investments Residential PV Trading Limited* 532 532 - 7.4% Future Biogas (Reepham Road) Limited* 499 499 - 6.9% City Falkirk Limited* 421 421 - 5.8% Kidspace Adventures Holdings Limited 300 300 - 4.2% Mosaic Spa and Health Club (Shrewsbury) 280 280 - 3.9% Limited* Tracsis plc 100 244 142 3.4% Progressive Energies Limited 220 220 - 3.0% Alpha Schools Holdings Limited 200 208 8 2.8% Angel Solar Limited 175 175 - 2.4% Helcim Group Limited 1,186 124 (1,062) 1.7% ------------------------------------ 3,913 3,003 (912) 41.5% ------------------------------------ Non-qualifying investments West Tower Holdings Limited 880 880 - 12.1% Hoole Hall Hotel Limited 800 800 - 11.1% Fubar Stirling Limited 268 268 - 3.7% Liverpool Nurseries (Holdings) Limited 218 218 - 3.0% Kidspace Adventures Limited 200 200 - 2.8% Cheers Dumbarton Limited 48 48 - 0.7% Lochrise Limited 13 13 - 0.2% ------------------------------------ 2,427 2,427 - 33.6% ------------------------------------ 6,340 5,430 (912) 75.1% ------- ----------- Cash at bank and in hand 1,803 24.9% ----------- ---------- Total investments 7,233 100.0% ----------- ---------- * Partially qualifying investment With the exclusion of Tracsis plc, which is quoted on AIM, all of the investments are unquoted. ADDITIONS GBP'000 VCT qualifying investments Residential PV Trading Limited* 532 Helcim Group Limited 436 City Falkirk Limited* 421 Angel Solar Limited 350 Kidspace Adventures Holdings Limited 300 Mosaic Spa and Health Club (Shrewsbury) Limited* 280 Progressive Energies Limited 220 Gingerbread Pre-Schools (UK) Limited 12 -------- 2,551 -------- Non-qualifying investments Lullingstone Limited 1,008 Hoole Hall Hotel Limited 800 Fubar Stirling Limited 268 Liverpool Nurseries (Holdings) Limited 218 Kidspace Adventures Limited 200 Liverpool Nurseries (House) Limited 95 Liverpool Nurseries (Greenbank) Limited 64 Cheers Dumbarton Limited 48 Downing (Alton) Limited 42 Liverpool Nurseries (Cottage) Limited 32 Edison House Limited 24 Lochrise Limited 13 -------- 2,812 -------- -------- 5,363 -------- DISPOSALS Market Loss Total realised value at against loss during Cost 01/07/11** Proceeds cost the year GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 VCT qualifying investments Gingerbread Pre-Schools (UK) Limited* 269 269 184 (85) (85) Helcim Group Limited* 250 250 250 - - Angel Solar Limited 175 175 175 - - ------------------------------------------------- 694 694 609 (85) (85) ------------------------------------------------- Non-qualifying investments Woolmer Properties Limited 1,100 1,100 1,100 - - Lullingstone Limited 1,008 1,008 1,008 - - Hoole Hall Country Club Holdings Limited 625 625 625 - - West Tower Holdings Limited 520 520 520 - - Bijou Wedding Venues Limited 500 500 500 - - Manor Capital LLP 500 500 500 - - Edison House Limited 469 469 469 - - Liverpool Nurseries (House) Limited 95 95 95 - - Liverpool Nurseries (Greenbank) Limited 64 64 64 - - Downing (Alton) Limited 42 42 42 - - Liverpool Nurseries (Cottage) Limited 32 32 32 - - ------------------------------------------------- 4,955 4,955 4,955 - - ------------------------------------------------- 5,649 5,649 5,564 (85) (85) ------------------------------------------------- * Partially qualifying investment ** Adjusted for purchases during the year 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 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 and 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 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 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. Statement as to disclosure of information to the Auditor The Directors in office at the date of this report have confirmed, as far as they are aware, that there is no relevant audit information of which the Auditor is 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. INCOME STATEMENT for the year ended 30 June 2012 Year ended 30 June 2012 Year ended 30 June 2011 Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Income 631 - 631 373 - 373 Net (loss)/gain on investments - (456) (456) - 42 42 ------------------------- ---------------------- 631 (456) 175 373 42 415 Investment management fees (17) (53) (70) (28) (84) (112) Other expenses (289) - (289) (165) - (165) ------------------------- ---------------------- Return/(loss) on ordinary 325 (509) (184) 180 (42) 138 activities before tax Tax on ordinary activities (94) - (94) (16) - (16) ------------------------- ---------------------- Return/(loss) attributable to equity shareholders 231 (509) (278) 164 (42) 122 ------------------------- ---------------------- Basic and diluted return/(loss) per: Ordinary Shares 1.5p 6.0p 7.5p 1.5p (0.2p) 1.3p 'C' Shares 1.2p (11.2p) (10.0p) 0.7p (0.5p) 0.2p 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/losses are recognised in the Income Statement as noted above. Other than revaluation movements arising on investments held at fair value through the profit and loss, there were no differences between the return/deficit as stated above and historical cost. INCOME STATEMENT (ANALYSED BY SHARE POOL) for the year ended 30 June 2012 Year ended 30 June Year ended 30 June 2012 2011 Ordinary Share pool Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Income 282 - 282 299 - 299 Net gains on investments - 541 541 - 40 40 ----------------------- ---------------------- 282 541 823 299 40 339 Investment management fees (17) (53) (70) (18) (53) (71) Other expenses (105) - (105) (146) - (146) ----------------------- ---------------------- Return/(loss) on ordinary activities before tax 160 488 648 135 (13) 122 Tax on ordinary activities (32) - (32) (13) - (13) ----------------------- ---------------------- Return/(loss) attributable to equity shareholders 128 488 616 122 (13) 109 ----------------------- ---------------------- Year ended 30 June Year ended 30 June 2012 2011 'C' Share pool Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Income 349 - 349 74 - 74 Net gain/(loss) on investments - (997) (997) - 2 2 ----------------------- ---------------------- 349 (997) (648) 74 2 76 Investment management fees - - - (10) (31) (41) Other expenses (184) - (184) (19) - (19) ----------------------- ---------------------- Return/(loss) on ordinary activities before tax 165 (997) (832) 45 (29) 16 Tax on ordinary activities (62) - (62) (3) - (3) ----------------------- ---------------------- Return/(loss) attributable to equity shareholders 103 (997) (894) 42 (29) 13 ----------------------- ---------------------- RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the year ended 30 June 2012 Year ended 30 June Year ended 30 June 2012 2011 Ordinary 'C' Ordinary 'C' Share Share Share Share pool pool Total pool pool Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Opening Shareholders' funds 7,064 7,899 14,963 6,972 - 6,972 Proceeds from share issue - 649 649 330 8361 8,691 Share issue costs - (36) (36) (18) (460) (478) Purchase of own shares (221) - (221) (77) (15) (92) Total recognised gain/(loss) for the year 616 (894) (278) 109 13 122 Dividends paid (247) (449) (696) (252) - (252) ----------------------- ---------------------- Closing Shareholders' funds 7,212 7,169 14,381 7,064 7,899 14,963 ----------------------- ---------------------- BALANCE SHEET as at 30 June 2012 Year ended 30 June Year ended 30 June 2012 2011 Ordinary 'C' Ordinary 'C' Share pool Share Share Share pool Total pool pool Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Fixed assets Investments 7,198 5,430 12,628 6,032 6,629 12,661 Current assets Debtors 58 59 117 63 161 224 Cash at bank and in hand 74 1,803 1,877 1,052 1,216 2,268 ----------------------- ---------------------- 132 1,862 1,994 1,115 1,377 2,492 Creditors: amounts falling due within one year (118) (123) (241) (83) (107) (190) ----------------------- ---------------------- Net current assets 14 1,739 1,753 1,032 1,270 2,302 ----------------------- ---------------------- Net assets 7,212 7,169 14,381 7,064 7,899 14,963 ----------------------- ---------------------- Capital and reserves Called up share capital 4,025 9 4,034 4,171 8 4,179 Capital redemption reserve 1,264 - 1,264 1,118 - 1,118 Special reserve 1,240 8,052 9,292 1,233 - 1,233 Capital reserve - realised 582 - 582 695 (31) 664 Revaluation reserve 37 (910) (873) (491) 2 (489) Revenue reserve 64 18 82 59 27 86 Share premium reserve - - - 279 7,893 8,172 ----------------------- ---------------------- Total Shareholders' funds 7,212 7,169 14,381 7,064 7,899 14,963 ----------------------- ---------------------- Basic and diluted net asset value per: Ordinary/'C' Share 89.6p 79.7p 84.7p 94.7p CASH FLOW STATEMENT for the year ended 30 June 2012 Year ended 30 June 2012 Year ended 30 June 2011 Ordinary 'C' Ordinary 'C' Share Share Share Share pool pool Total pool pool Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Net cash inflow/(outflow) from operating activities 130 225 355 116 (44) 72 Taxation Corporation tax (16) (3) (19) - 39 (paid)/received 39 Capital expenditure Purchase of investments (1,404) (5,363) (6,767) (1,201) (6,626) (7,827) Sale of investments 780 5,564 6,344 1,293 - 1,293 -------------------------- ------------------------- Net cash (outflow)/inflow from (624) 201 (423) (6,534) capital expenditure 92 (6,626) -------------------------- ------------------------- Dividends paid (247) (449) (696) (252) - (252) -------------------------- ------------------------- Net cash (outflow)/inflow before financing (757) (26) (783) (5) (6670) (6,675) Financing Repurchase of shares (221) - (221) (77) (15) (92) Share issue costs - (36) (36) (18) (460) (478) Proceeds from share issue - 649 649 330 8361 8,691 -------------------------- ------------------------- Net cash (outflow)/inflow from financing (221) 613 392 235 7886 8,121 -------------------------- ------------------------- (Decrease)/increase in (978) 587 (391) 1,216 1,446 cash 230 -------------------------- ------------------------- NOTES TO THE ACCOUNTS for the year ended 30 June 2012 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 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. 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 All 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 FRS 26. Investments quoted on recognised stock markets are valued at bid price. The valuation methodologies for unquoted entities recommended by the IPEV to ascertain the fair value of an investment are as follows: · Price of recent investment; · Multiple; · 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. 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. 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 equity shares 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 in the foreseeable future. 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, 75% to the capital reserve and 25% to the revenue account, 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; and · Expenses and liabilities not specific to a share class are generally allocated pro rata to the net assets. 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 arises. 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. Deferred taxation is not discounted. 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. Issue costs Issue costs in relation to the shares issued for each share class have been deducted from the share premium account. 2. Basic and diluted return per share Weighted average number Revenue Capital of shares in issue return gain/(loss) Return per share is calculated on the following: GBP'000 GBP'000 Year ended 30 June 2012 Ordinary Shares 8,190,411 128 488 'C' Shares 8,890,413 103 (997) Year ended 30 June 2011 Ordinary Shares 8,288,961 122 (13) 'C' Shares 6,270,402 42 (29) 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 2012 2011 Shares in issue Net asset value Net asset value 2012 2011 per share GBP'000 per share GBP'000 Ordinary Shares 8,051,170 8,342,888 89.6p 7,212 84.7p 7,064 'C' Shares 8,994,057 8,345,200 79.7p 7,169 94.7p 7,899 The Ordinary Share pool and 'C' Share pool are treated as separate investment pools. The Directors allocate the assets and liabilities of each share pool to ensure that each pool has sufficient net assets to represent its dividend and return of capital rights. As the Company has not issued any convertible securities or share options, there is no dilutive effect on the net asset value per share. The net asset value per share disclosed therefore represents both basic and diluted return 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: · Market risks · Credit risk · 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: Market risks As a VCT, the Company is exposed to market risks in the form of potential losses and gains that may arise on the investments it holds in accordance with its investment policy. The management of these market 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. Market risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes. The key market risks to which the Company is exposed are: · Market price risk · Interest rate risk Market price risk Market 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 market 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. Investments in loan stock attract interest predominately at fixed rates. A summary of the interest rate profile of the Company's investments is shown below. There are three categories in respect of interest which are attributable to the financial instruments held by the Company as follows: · "Fixed rate" assets represent investments with predetermined yield targets and comprise certain loan note investments. · "Floating rate" assets predominantly bear interest at rates linked to Bank of England base rate or LIBOR and comprise cash at bank and liquidity fund investments and certain loan note investments. · "No interest rate" assets do not attract interest and comprise equity investments. The Company monitors the level of income received from fixed and floating 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. 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 stock in investee companies, investments in liquidity funds, cash deposits and debtors. The Manager manages credit risk in respect of loan stock with a similar approach as described under "Market risks" above. Similarly the management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures. The level of security is a key means of managing credit risk. Cash is mainly held by Bank of Scotland plc and Royal Bank of Scotland plc, both of which are A-rated financial institutions and both also ultimately part-owned by the UK Government. Consequently, the Directors consider that the credit risk associated with cash deposits is low. 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. As the Company has a relatively low level of creditors ( GBP241,000) and has no borrowings, the Board believes that the Company's exposure to liquidity risk is low. The Company always holds sufficient levels of funds as cash 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 Nicholas Lewis, who resigned as director on 29 February 2012, is a partner in Downing LLP. Downing LLP is the Company's Investment Manager and during the year ended 30 June 2012 GBP208,000 (2011: GBP17,300) was payable to Downing LLP. Of this GBP138,000 was waived for the 'C' Share pool in respect of these services. At the year end GBP14,000 (2011: GBP17,300) was owed to Downing LLP in respect of these services. Downing LLP also provided administration services during the year for an annual fee of GBP65,000 (2011: GBP65,000). During the year to 30 June 2012 GBP65,000 was payable to Downing LLP of which GBP34,000 in respect of the 'C' Share pool was waived. At the year end the Company owed Downing LLP GBP10,000 (2011: GBP5,400) in respect of these fees. During the year GBP39,000 (2011: GBP nil) trail commission relating to the year ended 30 June 2011 was paid to Downing LLP of which Nicholas Lewis is a Director. At the year end GBP36,000 (2011: GBP nil) was payable to Downing LLP in respect of the year ended 30 June 2012. In the opinion of the Directors, there is no immediate or ultimate controlling party. 6. Post balance sheet events In July 2012, the Company launched a Share Realisation and Reinvestment Programme ("SRRP") which comprised and on-market tender offer and an offer for subscription in respect of the Ordinary Shares class. On 25 September 2012, the following transactions took place under the SRRP: · 1,653,340 Ordinary Shares were purchased for cancellation at a price of 89.6p per Ordinary Share. · 1,603,739 Ordinary Shares were allotted in respect of the shares tendered for cancellation at a price of approximately 92.4p per Ordinary Share. 150,874 Ordinary Shares were also allotted for cash at a price of 92.4p per Ordinary Share. 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 June 2012, but has been extracted from the statutory financial statements for the year ended 30 June 2012, which were approved by the Board of Directors on 25 October 2012 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 period ended 30 June 2011 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 June 2012 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 Absolute Income VCT 1 PLC via Thomson Reuters ONE [HUG#1652393]
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