Half-yearly report
26 Juni 2007 - 4:10PM
UK Regulatory
Half-yearly report
The Ethical AIM VCT plc
Interim Statement for the six months ended 31 March 2007
RECENT PERFORMANCE SUMMARY
31 Mar 30 Sept 31 Mar
2007 2006 2006
pence pence pence
Net asset value per share 49.60 48.00 49.20
Cumulative dividends per ordinary share 7.75 6.75 5.75
Total return 57.35 54.75 54.95
CHAIRMAN'S STATEMENT
I am pleased to present the interim report and accounts for the six
months ended 31 March 2007.
Net Asset Value
At 31 March 2007, the Company's Net Asset Value per share ("NAV")
stood at 49.6p, an increase of 2.6p (5.5%) since 30 September 2006,
after taking account of the 1.0p dividend paid during the period.
Venture capital investments
As the Company is effectively fully invested, no significant new
investments were made during the period.
There was one major disposal. Blooms of Bressingham Holdings plc was
the subject of a takeover offer, and your Company received �226,000
for its holding, realising a gain of �61,000 against the market value
at the previous year end. The Investment Manager also made some
smaller disposals, realising further gains of �7,000.
Of the investments held at the period end, there were strong share
price increases for AIM-quoted Oasis Healthcare and Computer Software
Group. In addition, two unquoted companies, Core Control Limited and
Breaking Views Limited, showed positive developments justifying
significant increases to their carrying valuations.
Overall, the venture capital portfolio produced an unrealised gain of
�241,000 over the period.
Listed fixed income securities
The Company continues to hold a small portfolio of fixed income
securities. This portfolio was valued at �493,000 at the period end
and produced a small unrealised loss of �8,000 for the period.
Ethical Committee
The Committee has continued to monitor current portfolio companies
for compliance with the Company's Ethical Policy and are pleased to
report that no breaches of the policy were identified during the
period.
Results and dividend
The gain on activities after taxation during the period was �254,000
comprising a revenue loss of �31,000 and a capital profit of
�285,000. No interim dividend will be paid.
Share repurchase
The Directors are conscious that the Company's share price is
affected by the lack of a strong secondary market in VCT shares
arising from the fact that purchasers of VCT shares in the market do
not receive income tax relief on their investment. The Company,
therefore, has a policy of buying in shares for cancellation when
they become available.
During the period the Company purchased 176,800 of its own shares at
an average price of 41.0p per share. The Directors continue to
monitor the market in the Company's shares and will consider making
share purchases when appropriate.
Shareholders should note that, as a result of the discussions
mentioned below, the Company may be prohibited from buying in shares
until those discussions have reached a conclusion.
Outlook and Future
Since the period end, there has been some more positive news from the
portfolio with a cash offer for Computer Software Group producing
proceeds of �89,000 above the valuation at 31 March 2007.
Despite the recent improvement in investment valuations, your Company
remains very small for a VCT. With share buybacks continuing to
shrink the Company, the fixed running costs are becoming an
increasingly heavy burden and the Board is investigating possible
strategies for the future.
I can report that the Board is now in discussions with two other
VCTs, exploring the possibility of merging the three companies
together, by way of schemes of reconstruction under Section 110 of
the Insolvency Act 1986, to create a single larger entity. These
discussions may or may not lead to a formal proposal to merge,
however I shall update Shareholders as soon as there are firm
developments.
Andrew Davison
Chairman
INCOME STATEMENT
for the six months ended 31 March 2007
Six months ended
31 March 2007
Revenue Capital Total
�'000 �'000 �'000
Income 40 - 40
Gains/(losses) on investments
- - Realised - 68 68
- - Unrealised - 233 233
40 301 341
Investment management fees (5) (16) (21)
Other expenses (66) - (66)
Return on ordinary activities before (31) 285 254
taxation
Taxation - - -
Return attributable to equity shareholders (31) 285 254
Return per share (0.3p) 2.8p 2.5p
Six months ended Year ended
31 March 2006 30 September 2006
Revenue Capital Total Total
�'000 �'000 �'000 �'000
Income 57 - 57 136
Gains/(losses) on
investments
- - Realised - 76 76 147
- - Unrealised - 70 70 (33)
57 146 203 250
Investment management (6) (16) (22) (43)
fees
Other expenses (66) - (66) (133)
Return on ordinary (15) 130 115 74
activities before
taxation
Taxation - - - -
Return attributable to (15) 130 115 74
equity shareholders
Return per share (0.1p) 1.2p 1.1p 0.7p
A Statement of Total Recognised Gains and Losses has not been
prepared as all gains and losses are recognised in the Income
Statement as noted above
UNAUDITED SUMMARISED BALANCE SHEET
as at 31 March 2007
31 Mar 2007 31 Mar 2006 30 Sept 2006
�'000 �'000 �'000
Fixed assets
Investments 4,503 5,003 4,808
Net current assets 484 128 98
Net assets 4,987 5,131 4,906
Capital and reserves
Called up share capital 503 521 511
Capital redemption reserve 50 32 42
Special reserve 4,058 4,341 4,226
Capital reserve - realised 861 901 855
Capital reserve - unrealised (457) (660) (731)
Revenue reserve (28) (4) 3
Equity shareholders' funds 4,987 5,131 4,906
Net asset value per share 49.6p 49.2p 48.0p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
31 Mar 2007 31 Mar 2006 30 Sept 2006
�'000 �'000 �'000
Opening shareholders' funds 4,906 5,263 5,263
Repurchase of own shares (73) (90) (170)
Total recognised gains for 254 115 74
the period
Distributions paid in period (100) (157) (261)
Closing shareholders' funds 4,987 5,131 4,906
UNAUDITED CASH FLOW STATEMENT
for the six months ended 31 March 2007
Six months Six Year ended
ended months 30 September
31 March ended 2006
2007 31 March
2006
�'000 �'000 �'000
Cash (outflow)/inflow from
operating activities and
returns on investments (31) (12) (49)
Capital expenditure
Purchase of investments (2) (170) (275)
Proceeds on disposal of 608 244 520
investments
Net cash inflow from capital 606 74 245
expenditure
Equity dividends paid (100) (157) (261)
Net cash inflow/(outflow) 475 (95) (65)
before financing
Financing
Purchase of own shares (66) (90) (170)
Net cash outflow from (66) (90) (170)
financing
Increase/(decrease) in cash 409 (185) (235)
Notes to the cash flow
statement:
1 Cash (outflow)/inflow from
operating activities and
returns on investments
Net revenue before taxation (31) (15) (8)
Expenses charged to capital (16) (16) (32)
Decrease/(increase) in other 22 26 (6)
debtors
Decrease in other creditors (6) (7) (3)
Net cash outflow from (31) (12) (49)
operating activities
2 Analysis of net funds
Beginning of period 67 302 302
Net cash inflow/(outflow) 409 (185) (235)
End of period 476 117 67
SUMMARY OF INVESTMENT PORTFOLIO
as at 31 March 2007
Unrealised
gain/(loss)
Cost Valuation in period % of portfolio
�'000 �'000 �'000 by value
Top twenty venture
capital investments
SPC International 362 556 (41) 11.2%
Limited *
Oasis Healthcare Plc 270 517 217 10.4%
Computer Software Group 115 370 76 7.4%
plc
Aero Inventory Plc 111 331 (16) 6.6%
Synergy Healthcare plc 41 249 56 5.0%
Core Control 114 234 24 4.7%
International Ltd *
FDM Group plc 100 160 58 3.2%
Preston North End plc 250 149 32 3.0%
Bioganix plc 102 136 25 2.7%
Cadbury House Hotel and 100 136 6 2.7%
Country Club Ltd *
AT Communications Group 133 108 (22) 2.2%
plc
Supporta plc 70 98 (40) 2.0%
Advance Media 171 97 - 1.9%
Information Limited *
Chelford Group plc 200 93 (25) 1.9%
Straight plc 53 91 (18) 1.8%
1st Dental Laboratories 150 88 (3) 1.8%
plc
Breakingviews Limited 150 80 80 1.6%
Forest Support Services 190 80 (20) 1.6%
plc
Sanastro plc * 100 75 (25) 1.5%
Neutrahealth plc 86 74 (25) 1.5%
2,868 3,722 339 74.7%
Other venture capital 1,594 288 (98) 5.8%
investments
Listed fixed income
securities 498 493 (8) 9.9%
Subtotal 4,960 4,503 233 90.4%
Cash at bank and in hand 476 9.6%
Total investments 4,979 100.0%
All venture capital investments are quoted on AIM unless otherwise
stated.
* Unquoted
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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" revised December 2005 ("SORP").
The financial statements are prepared under the historical cost
convention except for the revaluation of certain financial
instruments.
Presentation of Income Statement
In order to better reflect the activities of a Venture Capital Trust
and in accordance with guidance issued by the Association of
Investment Companies ("AIC"), 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 Section
842 Income and Corporation Taxes Act 1988.
Investments
All investments are designated as "fair value through profit or loss"
assets and are initially measured at cost. Thereafter the investments
are measured at subsequent reporting dates at fair value.
Listed fixed income investments and investments quoted on AIM are
measured using bid prices with illiquidity discounts applied where
deemed appropriate.
In respect of unquoted instruments, fair value is established by
using International Private Equity and Venture Capital Valuation
Guidelines. Where no reliable fair value can be estimated for such
unquoted equity investments they are carried at cost, subject to any
provision for impairment. Where an investee company has gone into
receivership or liquidation the investment, although not physically
disposed of, is treated as being realised.
Gains and losses arising from changes in fair value are included in
the income statement for the year as a capital item and transaction
costs on acquisition or disposal of the investment expensed.
It is not the Company's policy to exercise either significant or
controlling influence over investee companies. Therefore the results
of these companies are not incorporated into the revenue account
except to the extent of any income accrued.
Income
Dividend income from investments is recognised when the shareholders'
rights to receive payment has been established, normally the ex
dividend date.
Interest income is accrued on a timely basis, by reference to the
principal outstanding and at the effective interest rate applicable,
which is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial asset to that
asset's net carrying amount, and only where there is reasonable
certainty of collection.
Expenses
All expenses are accounted for on an accruals basis. In respect of
the analysis between revenue and capital items presented within the
income statement, all expenses have been presented as revenue items
except as follows:
* Expenses which are incidental to the disposal of an investment
are deducted from the disposal proceeds of the investment.
* Expenses are split and presented partly as capital items where a
connection with the maintenance or enhancement of the value of the
investments held can be demonstrated. The Company has adopted the
policy of allocating investment managers 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.
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
Section 842AA of the Income and Corporation Taxes Act (1988), 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.
2. All revenue and capital items in the Income Statement derive from
continuing operations.
3. The Company has only one class of business and derives its income
from investments made in shares, securities and bank deposits.
4. The comparative figures were in respect of the period ended 31
March 2006 and the year ended 30 September 2006 respectively.
5. Return per share for the period has been calculated on 10,162,285
shares, being the weighted average number of shares in issue during
the period.
6. Dividends
31 March 2007 30 Sept 2006
Revenue Capital Total Total
�'000 �'000 �'000 �'000
Paid in period
2006 Final - 102 102 -
2006 Interim - - - 104
2005 Final - - - 157
- 102 102 261
Proposed
2006 Final - - - 102
- - - 102
7. Reserves
Capital Capital Capital
Special redemption reserve reserve Revenue
reserve reserve - unrealised - realised reserve
�'000 �'000 �'000 �'000 �'000
At 1 October 2006 4,226 42 (731) 855 3
Purchase of (73) 8 - - -
shares
Expenses - - - (16) -
capitalised
Gains on - - 233 68 -
investments
Transfer between (95) - 41 54 -
reserves
Retained net - - - - (31)
revenue for the
year
Distributions - - - (100) -
paid in year
At 31 March 2007 4,058 50 (457) 861 (28)
The Special Reserve, Capital Reserve - Realised and Revenue Reserve
are all distributable reserves.
8. The unaudited financial statements set out herein do not
constitute statutory accounts within the meaning of Section 240 of
the Companies Act 1985 and have not been delivered to the Registrar
of Companies. The figures for the year ended 30 September 2006 have
been extracted from the financial statements for that year, which
have been delivered to the Registrar of Companies; the auditors'
report on those financial statements was unqualified.
Copies of the unaudited interim results will be sent to shareholders
shortly. Further copies can be obtained from the Company's Registered
Office or will be available for download from www.downing.co.uk.
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