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%
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Cash at bank and in hand 74 1.2%
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Total investments 7,272 100.0%
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* 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
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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
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766 756 780 14 24
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* 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%
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Cash at bank and in hand 1,803 24.9%
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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
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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
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2,812
--------
--------
5,363
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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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