REG-Elderstreet VCT plc : Half-yearly report <Origin Href="QuoteRef">ELDR.L</Origin>
28/09/2017 16:41
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Elderstreet VCT plc
Half-Yearly Report for the six months ended 30 June 2017
FINANCIAL HIGHLIGHTS
30 Jun 2017 31 Dec 2016 30 Jun 2016
Pence Pence pence
Net asset value per share 61.6 62.8 68.9
Cumulative distributions paid per share 97.5 96.0 93.5
Total return per share 159.1 158.8 162.4
CHAIRMAN'S STATEMENT
I am pleased to present the Half-Yearly Report for Elderstreet VCT plc for the
six months ended 30 June 2017. During the period the Company undertook a
successful new fundraising and has now started to benefit from the enhanced
resources as part of the co-investment agreement between the Investment
Manager and Draper Esprit.
Net asset value, results and dividends
At 30 June 2017, the Company's net asset value ("NAV") per share stood at
61.6p, an increase of 0.3p or 0.5% since 31 December 2016, after adjusting for
the total dividends of 1.5p per share paid during the period.
The return on activities after taxation for the period was £75,000 (2016:
£316,000), comprising a revenue return of £271,000 (2016: £333,000) and a
capital loss of £196,000 (2016: £17,000).
In view of a number of realisations that have taken place, the Board has
decided to pay the interim dividend at an earlier date than usual this year. A
dividend of 1.5p per share will therefore be paid on 29 September 2017 to
Shareholders on the register at 8 September 2017. The Board expects the
interim dividend to revert to being paid in December in future.
Fundraising
The Company launched an offer for subscription in December 2016, which has to
date raised £17.0 million. The offer has now been extended to 30 November
2017.
The offer has resulted in the Company now having a significant level of funds
available for investment. A number of potential investments are now starting
to flow through from the new arrangements with Draper Esprit and we believe
this should allow these new funds to be employed in attractive opportunities
in a reasonably short period of time.
In view of the positive response by investors to the fundraising and the
indications that there is strong deal flow, the Company is planning to launch
a further £20 million offer for subscription in the coming months. Full
details will be available in due course.
Venture capital investments
During the period, actual investment activity was at a relatively low level.
The Company made one full and one partial disposal and received further
deferred consideration from a previous disposal. These transactions generated
total proceeds of £4.3m and gains over carrying value of £740,000.
The partial disposal was in respect of £450,000 of the loan notes issued to
Fords Packaging Top Co Limited, which were redeemed at par value. The Company
continues to hold a small loan note holding of £8,332, alongside the equity
interest.
The full disposal was the realisation of the Company's investment in Concorde
Solutions Limited. Total proceeds were £1.6m, resulting in a gain in the
period of £224,000.
Also, Wessex Advanced Switching Products Limited ("WASP"), a successful
realisation from 2015, paid further deferred consideration of £525,000 to the
Company. This is the now final proceeds from an investment that has produced
an excellent outcome for Shareholders.
There were also two additions during the period which totalled £475,000.
Macranet Limited was restructured such that loan notes of £776,250 were
converted at par along with accrued interest of £175,000, as part of a
funding round by new third party investors, into equity. There were also two
follow on investments totalling £300,000 in AngloINFO. This business is
making some headway but the Manager is taking a cautious approach in funding
the company.
At the period end, the Company held a portfolio of 22 venture capital
investments, valued at £16.9 million.
During the period the Manager has presented a number of new investment
opportunities to the Board which have been approved and have subsequently
completed or are expected to complete over the coming months. The Board has
committed to four of these new deals, totalling £5 million, alongside Draper
Esprit funds, and completion is subject to receiving HMRC approval. Two of
these opportunities are in the healthtech sector, one in fintech and the other
in the digital marketing space. We therefore expect to see increased new
investment activity over the second half of the year.
At the period end the Board reviewed the valuation of the unquoted investments
and made some adjustments. The largest adjustment was an uplift in the value
of Fords Packaging Top Co Limited by £505,000. The business has continued to
perform strongly and is starting to successfully explore new markets.
On the negative side, a reduction in value of £490,000 for Baldwin and
Francis was required. The business has faced some major challenges but a
refinancing has been completed and there are some prospects that the business
can now make some recovery. The other major adjustment has been a write down
of £351,000 against the investment in Ridee. The Company operates in the same
space as Deliveroo, UberEATS and others and has found competition to be
fierce.
In terms of the quoted investments, the holding in Access Intelligence plc
fell by £513,000. The Manager is, however, satisfied that the business is
continuing to make progress and the investment remains a long term hold.
In total the portfolio produced unrealised losses of £817,000 for the period.
Despite the movement in this period, the Board remains generally satisfied
with the investment portfolio.
Fixed income securities
The Company disposed of its remaining fixed income investments during the
period. New fixed interest investments cannot be made under the current VCT
regulations and so the decision was taken to hold these funds as cash while
awaiting qualifying investment opportunities.
The realisation of the fixed income portfolio generated proceeds of £1.5m and
resulted in total gains over cost of £26,000.
Share buybacks
The Company has a policy of buying in shares that become available in the
market at approximately a 7.5% discount to the latest published net asset
value (subject to applicable regulations and liquidity considerations).
In line with this policy, during the period the Company purchased 194,000
shares for cancellation for an aggregate consideration of £112,000, equating
to an average price of 57.4p per share.
Any Shareholders who are considering selling their shares will need to use a
stockbroker. Such Shareholders should ask their stockbroker to register their
interest in selling their shares with Shore Capital, who act as the Company's
corporate broker.
Year end and Company name
As the company starts to work more closely with Draper Esprit, it will be
helpful to align the reporting periods of the Company with that of Draper
Esprit. The Board has therefore decided to change the Company's year end from
31 December to 31 March. The next Annual Report will cover the 15 month period
to 31 March 2018 and will be published in June or July 2018.
The Board has also given consideration to whether it is now appropriate to
make a change to the Company's name. In view of the fact that Draper Esprit is
now providing a significant level of resources to the Company through
Elderstreet, the Board is planning to rename the Company Elderstreet Draper
Esprit VCT plc. The Board believes that this change will help avoid confusion
in the marketplace, especially for new investors, and expects the change of
name to coincide with the fundraising launch mentioned above.
Outlook
As I indicated in my statement in the last Annual Report, this is a time of
transition for your Company. Draper Esprit is now working closely with the
Company's Manager, Elderstreet Investments, in sourcing new investments,
focussed on the technology sector. As we have noted previously, this approach
will, over time, increase the risk profile of the portfolio, however the
rewards in this area can be great.
The UK Government is currently undertaking a "Patient Capital Review" which
seeks to strengthen the UK as a place for growing innovative businesses. The
VCT scheme is being reviewed as part of this exercise and is possible that
there are further changes to the VCT regulations as a result. The Board
believes that VCTs have a valuable role to play in this area, which has been
demonstrated by some of the Company's past successes. With the changes to VCT
regulations that have already taken place over the last two years, the Board
believes that the support that VCTs provide for growing businesses is now well
focussed. We expect to see a number of new businesses join the portfolio over
the remainder of the year and look forward to supporting them in their
development, while providing the prospect of good returns for our
Shareholders.
I look forward to updating Shareholders in the next Annual Report for the 15
month period to 31 March 2018.
David Brock
Chairman
SUMMARY OF INVESTMENT PORTFOLIO as at 30 June 2017
Cost Valuation Valuation movement in period % of portfolio by value
£'000 £'000 £'000
Top ten venture capital investments
Lyalvale Express Limited 1,915 3,903 - 10.5%
Fords Packaging Topco Limited 2,433 3,850 505 10.3%
Access Intelligence plc* 2,333 2,476 (513) 6.6%
Fulcrum Utility Services Limited* 500 2,271 124 6.1%
AngloINFO Limited 2,577 1,869 - 5.0%
Macranet Limited 1,037 876 (161) 2.4%
Baldwin & Francis Limited 1,534 422 (490) 1.1%
Cashfac PLC 260 394 66 1.1%
Servoca PLC 333 300 72 0.8%
Interquest Group PLC 226 172 16 0.5%
13,148 16,533 (381) 44.4%
Other venture capital investments 5,081 368 (436) 0.9%
18,229 16,901 (817) 45.3%
Cash at bank and in hand 20,357 54.7%
Total investments 37,258 100.0%
All venture capital investments are unquoted unless otherwise stated.
* Quoted on AIM
SUMMARY OF INVESTMENT MOVEMENTS for the six months ended 30 June 2017
Additions
£'000
Venture capital investments
AngloINFO Limited 300
Macranet Limited 175
475
Disposals
Cost Value at 1 January 2017 Proceeds Profit vs cost Realised (loss)/ gain
£'000 £'000 £'000 £'000 £'000
Fixed income securities
United Kingdom 1.25% Gilt 22/07/2018 892 925 919 28 (6)
United Kingdom 1.00% Gilt 07/09/2017 614 616 613 (2) (3)
S&W Investment Funds Cash Fund 10 10 10 - -
1,516 1,551 1,542 26 (9)
Venture capital investments
Concorde Solutions Limited 1,650 1,525 1,749 99 224
Fords Packaging Top Co Limited 450 450 450 - -
2,100 1,975 2,199 99 224
Retention proceeds
Wessex Advanced Switching Products Limited - - 525 525 525
3,616 3,526 4,266 650 740
UNAUDITED BALANCE SHEET as at 30 June 2017
30 Jun 2017 30 Jun 2016 31 Dec 2016
Note £'000 £'000 £'000
Fixed assets
Investments 16,901 21,319 20,769
Current assets
Debtors 358 1,853 342
Cash at bank and in hand 20,357 2,560 2,302
20,715 4,413 2,644
Creditors: amounts falling due within one year (192) (151) (153)
Net current assets 20,523 4,262 2,491
Net assets 37,424 25,581 23,260
Capital and reserves
Called up share capital 7 3,035 1,855 1,852
Capital redemption reserve 9 495 481 485
Share premium 9 19,776 5,452 5,452
Merger Reserve 9 1,828 1,828 1,828
Special reserve 9 1,722 2,394 2,058
Capital reserve - unrealised 9 2,432 4,060 3,161
Capital reserve - realised 9 8,115 9,064 8,088
Revenue reserve 9 21 447 336
Equity shareholders' funds 6 37,424 25,581 23,260
Basic and diluted net asset value per share 6 61.6p 68.9p 62.8p
UNAUDITED INCOME STATEMENT for the six months ended 30 June 2017
Six months ended 30 Jun 2017 Six months ended 30 Jun 2016 Year ended 31 Dec 2016
Revenue Capital Total Revenue Capital Total Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
Income 470 - 470 526 - 526 603
Gains/(losses) on investments:
- realised - 740 740 - 539 539 (1,312)
- unrealised - (817) (817) - (373) (373) 445
470 (77) 393 526 166 692 (264)
Investment management fees (58) (175) (233) (61) (183) (244) (500)
Other expenses (141) 56 (85) (132) - (132) (269)
Return on ordinary activities before tax 271 (196) 75 333 (17) 316 (1,033)
Tax on total comprehensive income and ordinary activities - - - - - - -
Return attributable to shareholders 4 271 (196) 75 333 (17) 316 (1,033)
Basic/diluted return per share 4 0.7p (0.5p) 0.2p 0.9p 0.0p 0.9p 3.0p
All Revenue and Capital items in the above statement are derived from
continuing operations. The total column within the Income Statement represents
the profit and loss account of the Company.
UNAUDITED STATEMENT OF CHANGES IN EQUITY for the six months ended 30 June 2017
Called up share capital Capital redemption reserve Share Premium Merger reserve Special reserve Capital reserve-unrealised Capital reserve-realised Revenue reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2017 1,852 485 5,452 1,828 2,058 3,161 8,088 336 23,260
Issue of new shares 1,193 - 14,324 - - - - - 15,517
Share Issue costs - - - - - - - (404) (404)
Purchase of own shares (10) 10 - - (112) - - - (112)
Expenses charged to capital - - - - - - (119) - (119)
(Losses)/gains on investments - - - - - (817) 740 - (77)
Transfer between reserves - - - - (224) 88 136 - -
Dividends paid - - - - - - (730) (182) (912)
Revenue return for the period - - - - - - - 271 271
At 30 June 2017 3,035 495 19,776 1,828 1,722 2,432 8,115 21 37,424
UNAUDITED STATEMENT OF CASH FLOWS for the six months ended 30 June 2017
Six months ended 30 Jun 2017 Six months ended 30 Jun 2016 Year ended
31 Dec 2016
£'000 £'000 £'000
Cash flow from operating activities
Return on ordinary activities before tax 75 316 (1,033)
Losses/(gains) on investments 77 (166) 867
(Increase)/decrease in debtors (15) (101) 1,415
Increase/(decrease) in creditors 38 (459) (448)
Return attributable to equity shareholders 175 (410) 801
Cash flow from investing activities
Purchase of investments (475) (1,502) (1,892)
Sale of investments 4,266 544 445
Net cash (outflow)/inflow from investing activities 3,791 (958) (1,447)
Cash flows from financing activities
Proceeds from share issue 15,517 1,839 1,830
Share issue costs (404) - -
Purchase of own shares (112) (93) (139)
Equity dividends paid (912) (931) (1,856)
Net cash inflow/(outflow) from financing activities 14,089 815 (165)
(Decrease)/increase in cash 18,055 (553) (811)
Net movement in cash
Beginning of period 2,302 3,113 3,113
Net cash (outflow)/inflow 18,055 (553) (811)
End of period 20,357 2,560 2,302
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS for the six months ended 30
June 2017
1. The unaudited half yearly results cover the six months to 30 June 2017 and
have been prepared in accordance with the Statement of Recommended Practice
"Financial Statements of Investment Trust Companies and Venture Capital
Trusts" revised January 2009 and in accordance with the accounting policies
set out in the statutory accounts for the year ended 31 December 2016, which
were prepared in accordance with the United Kingdom Generally Accepted
Accounting Practice (United Kingdom accounting standards and applicable law),
including Financial Reporting Standard 102, the financial reporting standard
applicable in the UK and Republic of Ireland.
2. The Company has only one class of business and derives its income from
investments made in shares, securities and bank deposits.
3. The comparative figures are in respect of the six months ended 30 June 2016
and the year ended 31 December 2016 respectively.
4. Basic and diluted return per share
Six months ended 30 Jun 2017 Six months ended 30 Jun 2016 Year ended
31 Dec 2016
Return per share based on:
Net revenue gain for the period (£'000) 271 333 222
Capital return per share based on:
Net capital loss for the period (£'000) (196) (17) (1,255)
Weighted average number of shares 41,615,341 35,889,194 35,214,342
5. Dividends
Six months ended 30 Jun 2017 Year ended
31 Dec 2016
Per share Revenue Capital Total Total
pence £'000 £'000 £'000 £'000
Paid in the period
2016 Final 1.5p 304 608 912 -
2016 Interim 2.5p - - - 926
2015 Final 2.5p - - - 930
304 608 912 1,856
6. Basic and diluted net asset value per share
Six months ended 30 Jun 2017 Six months ended 30 Jun 2016 Year ended
31 Dec 2016
Net asset value per share based on:
Net assets (£'000) 37,424 25,581 23,260
Number of shares in issue at the period end 60,716,778 37,106,366 37,034,366
Net asset value per share 61.6p 68.9p 62.8p
7. Called up share capital
Six months ended 30 Jun 2017 Six months ended 30 Jun 2016 Year ended
31 Dec 2016
Ordinary shares of 5p each
Number of shares in issue at the period end 60,716,778 37,106,366 37,034,366
Nominal value (£'000) 3,035 1,855 1,852
During the period the Company allotted 23,876,412 Ordinary Shares of 5p each
("Ordinary Shares") under an Offer for Subscription that launched in December
2016, at an average price of 63.3p per share. Gross proceeds received thereon
were £15.5 million, with issue costs in respect of the offer amounting to
£403,760.
During the period, the Company purchased 194,000 shares for cancellation for
an aggregate consideration of £112,000, at an average price of 57.4p per
share (approximately equal to a 7.5% discount to the most recently published
NAV at the time of purchase) and representing 0.5% of the share capital in
issue as at 1 January 2017.
8. Investment commitments
Since the end of the tax year the VCT has committed to four new investments
totalling £5 million as part of the co-investment agreement alongside Draper
Esprit funds. Completion of these investments is contingent on receiving VCT
clearance from HMRC. Two of these deals are in healthtech, one in fintech, and
one in an affiliate marketing software business. Total funds committed in
these four investment rounds was over £50 million.
9. Reserves
The special reserve is available to the Company to enable the purchase of its
own shares in the market without affecting its ability to pay dividends, and
allows the Company to write back realised capital losses arising on disposals
and impairments.
Distributable reserves are calculated as follows:
Six months ended 30 Jun 2017 Six months ended 30 Jun 2016 Year ended
31 Dec 2016
£'000 £'000 £'000
Special reserve 1,722 2,394 2,058
Capital reserve - realised 8,115 9,064 8,088
Revenue reserve 21 447 336
Merger reserve - distributable element 423 423 423
Unrealised losses - excluding unrealised unquoted gains (1,781) 57 (657)
8,500 12,385 10,248
The Company has categorised its financial instruments using the fair value
hierarchy as follows:
- Level a Reflects financial instruments quoted in an active market (fixed
interest investments, and investments in shares quoted on either the Main or
AIM Markets);
- Level b Reflects financial instruments that have prices that are observable
either directly or indirectly; and
- Level c i) Reflects financial instruments that use valuation techniques that
are based on observable market data.
ii) Reflects financial instruments that use valuation techniques that are not
based on observable market data (unquoted equity investments and loan note
investments).
Six months ended 30 June 2017 Year ended 31 Dec 2016
Level a Level b Level c(ii) Total Level a Level b Level c(ii) Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Fixed interest securities - - - - 1,551 - - 1,551
AIM quoted shares 4,248 - 87 4,335 4,516 - 204 4,720
Loan notes - - 3,272 3,272 - - 4,839 4,839
Unquoted shares - - 9,294 9,294 - - 9,659 9,659
4,248 - 12,653 16,901 6,067 - 14,702 20,769
10. Risks and uncertainties
Under the Disclosure and Transparency Directive, the Board is required in the
Company's half-yearly results to report on principal risks and uncertainties
facing the Company over the remainder of the financial year.
The Board has concluded that the key risks facing the Company over the
remainder of the financial period are as follows:
- investment risk associated with investing in small and immature businesses;
- liquidity risk arising from investing mainly in unquoted businesses; and
- failure to maintain approval as a VCT.
In all cases the Board is satisfied with the Company's approach to these
risks. As a VCT, the Company is forced to have significant exposure to
relatively immature businesses. This risk is mitigated to some extent by
holding a well-diversified portfolio.
With a reasonably illiquid venture capital investment portfolio, the Board
ensures that it maintains an appropriate proportion of its assets in cash and
liquid instruments.
The Company's compliance with the VCT regulations is continually monitored by
the Administration Manager, who regularly reports to the Board on the current
position. The Company also retains Philip Hare and Associates LLP to provide
regular reviews and advice in this area. The Board considers that this
approach reduces the risk of a breach of the VCT regulations to a minimal
level.
The Company has considerable financial resources at the period end, and holds
a diversified portfolio of investments. As a result, the Directors believe
that the Company is well placed to manage its business risks successfully
despite the current uncertain economic outlook.
The Directors have concluded that the Company has adequate resources to
continue in operational existence for the foreseeable future. Thus, they
continue to adopt the going concern basis of accounting in preparing the
financial statements.
11. The Directors confirm that, to the best of their knowledge, the
half-yearly financial statements have been prepared in accordance with the
"Statement: Half-Yearly Financial Reports" issued by the UK Accounting
Standards Board and the half-yearly financial report includes a fair review of
the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication
of important events that have occurred during the first six months of the
current financial year and their impact on the condensed set of financial
statements, and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period, and any changes in the related
party transactions described in the last annual report that could do so.
12. The unaudited financial statements set out herein do not constitute
statutory accounts within the meaning of Section 434 of the Companies Act 2006
and have not been delivered to the Registrar of Companies. The figures for the
year ended 31 December 2016 have been extracted from the financial statements
for that year, which have been delivered to the Registrar of Companies; the
Auditor's report on those financial statements was unqualified.
13. Copies of the unaudited half-yearly results will be sent to Shareholders
shortly. Further copies can be obtained from the Company's registered office
or downloaded from www.elderstreet.com and www.downing.co.uk.
This announcement is distributed by Nasdaq Corporate Solutions on behalf of
Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for
the content, accuracy and originality of the information contained therein.
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