RNS Number:6135M
Electra Kingsway VCT PLC
25 January 2008
Electra Kingsway VCT Plc ("the Company" or "the Fund")
Unaudited Preliminary Results for the year ended 30 September 2007
Financial Highlights
Ordinary Shares
Year ended 30 September 2007 2006
Net assets �15.7m �21.3m
Net asset value per ordinary share 78.7p 102.0p
Dividend paid per ordinary share 1.5p 2.5p
Cumulative return to ordinary shareholders since launch
Dividends paid per ordinary share 12.1p 10.6p
Net asset value plus dividends paid per ordinary share 90.8p 112.6p
C Shares
Period ended 30 September 2007 2006
Net assets �8.4m -
Net asset value per C share 92.3p -
A copy of the Chairman's Statement, Investment Manager's Report and Unaudited
Preliminary Announcement are attached.
This unaudited preliminary announcement for the year ended 30 September 2007
does not constitute the statutory financial statements of the Company for the
year ended 30 September 2007 within the meaning of Section 240 of the Companies
Act 1985. Those financial statements have not yet been delivered to the
Registrar, nor have they been reported upon yet by the auditors.
The Report and Accounts will be sent to shareholders in January 2008 and will
thereafter be available from the Company's registered office at Paternoster
House, 65 St Paul's Churchyard, London EC4M 8AB. The Annual General Meeting
will be held on 27 February 2008 at 10.00am at the registered office address as
stated above.
For further information:
Nick Ross, Electra Kingsway VCT Plc: 0207 214 4200
Investment Objective
The Company's objective is to achieve long term capital gains and tax free
dividends to its shareholders. This will be achieved by investing the majority
of the Company's Funds in a portfolio of qualifying investments. Venture Capital
Trusts allow investors significant tax benefits provided that the Fund complies
with the VCT investment rules. These rules are designed to encourage venture
capital investment in smaller companies.
Investment Strategy
The strategy is to invest in a portfolio of qualifying unquoted and AIM listed
companies which are well diversified by sector focus. As these investments
mature the Investment Manager will seek to sell them at a capital profit and
distribute the uplift as a dividend. The original capital will be reinvested
into new qualifying companies. This strategy should ensure long term capital
growth and a regular flow of dividends to shareholders.
The Fund will co-invest alongside the other Electra Kingsway VCTs which will
enable shareholders to participate in larger unquoted transactions, which tend
to have a lower risk profile than smaller venture capital investments. The
majority of unquoted investments are structured in such a way as to give the
Fund downside protection with significant voting rights.
The Fund will also invest up to 25% of its assets in a combination of two
managed funds: Electra Private Equity and Electra Active Management. These funds
enable further portfolio diversification.
Qualifying Investments
Qualifying companies tend to be small companies that have higher risk profiles
than larger well established companies. The Investment Manager seeks to reduce
the risk of investing in these by selecting companies that are well managed and
have a proven and sustainable business plan. Investments are also selected on
the basis of their potential to deliver long term capital growth. This often
entails building companies through organic growth and bolt on acquisitions. The
holding period for investment is typically five years after which time it would
be hoped to achieve a profitable exit.
Chairman's Statement
Results
Ordinary Shares
Overview
As at 30 September 2007 the net asset value ("NAV") per ordinary share was
78.7p. This, plus dividends already paid, gives a total of 90.8p a share,
against the NAV at inception of 95p a share. Compared with the figure a year
ago, though - 112.6p - the total return has declined by 19.4%.
The explanation for this steep decline is that both parts of the portfolio have
been badly affected. The AIM investments (accounting for 40% of the portfolio)
have suffered some sharp falls; and five of the unquoted investments were
reduced in value, two of them to zero. Details are in the Investment Manager's
Review.
By 30 September 2007, the Company had met the VCT qualification requirements.
Portfolio Activity
As the portfolio started the year fully invested, the opportunities for making
new investments were limited. However, �1.8 million was invested in follow-on
financing, which was funded by realising the holding in Electra Active
Management. After the year end, one new investment was added, Fin Machine
Company, a manufacturer of capital equipment for the motor industry, where the
three Electra Kingsway VCTs committed a total of �5.5 million. This investment
is a good example of the benefits of co-investing with the two other Electra
Kingsway VCTs, which allows shareholders access to larger and potentially more
profitable unquoted investments.
Dividends
During the year an interim dividend of 1.5p per ordinary share was paid to
shareholders on 7 August 2007. The dividend was paid out of opening reserves.
This brings the cumulative dividends paid to 12.1p per ordinary share. As the
underlying investments start to mature, the opportunities for disposals will
increase, which should allow for larger dividends.
C Shares
In January 2007 a C share issue was launched, and it eventually closed on 30
April 2007, having raised �8.6 million (net of expenses) from investors. By the
year-end, just over �4.4 million of this had been invested in six qualifying
companies, four of which were unquoted. This encouraging pace of investment
should ensure that the C share pool is invested well ahead of schedule.
Share Buybacks
The Company operates a share buyback policy at a 10% discount to the last
published NAV per share, subject to a limit approved by shareholders. This
facility operates throughout the year, so any investor wanting to sell shares
back to the Company should contact the Investment Manager. During the year the
Company purchased a total of 977,320 of its own ordinary shares for
cancellation.
March 2007 Budget
The 2007 Budget contained further changes to VCT regulations, which will have
some impact on the industry's future - although none of the changes affects your
Fund. The two main changes limit VCT investments to companies with gross assets
of less than �7 million and fewer than 50 employees.
The Investment Manager
In 2007 the investment management team established a limited liability
partnership ("LLP") called Acuity Capital LLP, which is owned by members of the
management team. The team is in negotiations to acquire, from Electra Partners
Group, a majority interest in Electra Quoted Management, the Investment Manager
of the Company. The Board believes that this will be beneficial to shareholders
as it will enable the Investment Manager to incentivise existing employees and
recruit high calibre individuals to the team. Acuity Capital will maintain
close ties with the Electra Partners Group, which will have a minority
shareholding in Acuity Capital.
In order to reflect the formation of Acuity Capital LLP, the Board recommends to
shareholders that the name of your Fund be changed to Acuity VCT Plc. A
resolution will be put to shareholders at the next AGM.
Outlook
After such a disappointing year, it would be wrong to suggest that the Fund is
now in calmer waters. Much will depend on economic conditions generally, and
these are particularly hard to predict.
Rupert Pennant-Rea
Chairman
Investment Manager's Review
It has been a difficult year for the Fund with a number of valuation movements
against a backdrop of increasing uncertainty in equity markets. On the positive
side there were good valuation uplifts from Advanced Medical Solutions ("AMS")
and Music Copyright Solutions ("MCS") both rising in the period in response to
good underlying trading. In particular AMS, which manufactures wound dressings
for the NHS, reported another strong set of results and looks well placed to
continue to grow. MCS specialises in administering and managing copyrights.
During the year, the company announced a number of new administration deals in
the USA and Asia. However, these uplifts were offset by a number of valuation
decreases. The most significant of these were in Media Square, Conquest
Business Media, Defaqto and Happy Times. Media Square, to some extent, had been
oversold by the market and has since started to recover from its lows in August.
Sanastro is recovering under new management and Conquest Business Media and
Happy Times were both written off due to continuing trading difficulties.
The C share portfolio has got off to a good start with a high level of
investment activity. During the period six investments were made in qualifying
companies with a further investment made after the year end. The main investment
focus is in unquoted companies where the Investment Manager has identified good
growth opportunities supported by strong management teams. In particular a
number of the companies have been acquired on the basis of buy and build
opportunities within fragmented market sectors. An example of this is Gyro,
which since our original investment has acquired and integrated four further
companies. Whilst the majority of the Fund's investments are unquoted, two AIM
investments were made in the year in profitable companies trading on low
valuation multiples. With the current global financial uncertainty AIM has
become increasingly volatile as investors have sought safer and more liquid blue
chip stocks.
During the year investments were made in the following new companies the
majority of which were acquired by the C share portfolio:
Emote Games is a specialist cross platform publisher of interactive gaming
content. Founder & CEO Morgan O'Rahilly is one of the gaming industry's most
respected executives, having previously been the CEO of Ifone, the UK's most
successful mobile games publisher. The video games industry is entering another
cycle of growth driven by new games hardware releases from Microsoft, Nintendo
and Sony. Within the industry, one of the fastest growing segments is networked
gaming, where players have the ability to play against each other remotely using
the internet and mobile networks.
Sport Media Group sells digital media content through mobile telephones via the
internet to mobile customers of major UK network operators and users of leading
UK internet key search engines. In 2007, the company acquired Sport Newspapers
which made strong commercial logic as it merged a content provider with a strong
digital distribution platform.
Acrobat Music is an established vehicle set up to acquire and exploit music
master rights. Master rights are created when a composition is recorded and are
usually assigned to the financier of the recording for life of copyright
(typically 95 years). Owners of master rights, most often record companies, are
entitled to royalties from the sale of their recordings (via CD or digital
download) as well as clearance fees for the use of recordings in audio-visual
productions. They also derive revenues from licensing recordings for
exploitation by third parties.
The Fin Machine Company was a transaction completed after the year end. The
company is a market leading manufacturer and supplier of capital equipment used
to manufacture heat exchangers in the automotive industry. The company has shown
good historic growth rates and has a significant further opportunity in the air
conditioning market. The transaction was structured as a Buy-in Management
Buy-out with the management team having a significant equity holding.
Unaudited Portfolio Summary
Valuation Movement in
Cost at Valuation at year ended
30 September 2007 30 September 2007 30 September 2007 % of Portfolio
by Value
Ordinary shares �'000 �'000 �'000
Ten Largest Qualifying Investments
Defaqto Group Limited 1,100 1,533 (740) 10.1
Advanced Medical Solutions Group Plc 487 1,519 888 10.1
Gyro International Limited 375 1,427 81 9.5
Music Copyright Solutions Plc 500 824 662 5.5
Hill Station Plc 1,283 811 (535) 5.4
Ma Hubbards Limited 750 750 - 5.0
Amber Taverns Limited 750 750 - 5.0
Keycom Plc 1,705 578 (173) 3.8
Hallmarq Veterinary Imaging Limited 1,300 554 (801) 3.7
Media Square Plc 1,122 525 (618) 3.5
Other qualifying investments 7,319 1,677 (3,168) 11.0
16,691 10,948 (4,404) 72.6
Non-Qualifying Investments
Electra Private Equity Plc 1,593 3,973 780 26.4
Other Non-Qualifying Investments 888 149 (238) 1.0
2,481 4,122 542 27.4
19,172 15,070 (3,862) 100.0
Other Assets
Liquidity Funds 1
Cash 127
128
Total 15,198
Valuation Movement in
Cost at Valuation at year ended
30 September 2007 30 September 2007 30 September 2007 % of Portfolio
by Value
C shares �'000 �'000 �'000 %
Largest Qualifying Investments
Target Entertainment Group Limited 1,000 1,000 - 29.2
Acrobat Group Limited 700 700 - 20.4
Hallmarq Veterinary Imaging Limited 300 300 - 8.8
Sport Media Group Plc 250 237 (13) 6.9
Mount Engineering Plc 250 236 (14) 6.9
Emote Games Limited 114 114 - 3.3
2,614 2,587 (27) 75.5
Non-Qualifying Investments
Electra Private Equity Plc 820 840 20 24.5
3,434 3,427 (7) 100.0
Other Assets
Liquidity Funds 4,050
Cash 1,067
5,117
Total 8,544
Ten Largest Qualifying Investments (Unaudited)
Defaqto Group Limited Year ended March 2007
Cost �1,000,000 �'m
Valuation �1,533,000 Sales 4.7
Basis of Valuation Earnings multiple Loss before tax (6.2)
Equity held 9.48% Retained loss (6.2)
Business Financial product data Net liabilities (6.2)
provider
Advanced Medical Solutions Year ended December 2006
Group Plc
Cost �487,000 �'m
Valuation �1,519,000 Sales 14.3
Basis of Valuation Bid price Profit before tax 0.6
Equity held 4.10% Retained profit 0.7
Business The manufacture of medical Net assets 12.7
adhesives
Gyro International Limited Year ended October 2006
Cost �375,000 �'m
Valuation �1,427,000 Sales 24.8
Basis of Valuation Latest issue price Profit before tax 1.5
Equity held 3.53% Retained profit 1.0
Business Business to business creative Net assets 5.8
agency
Target Entertainment Limited Year ended October 2006
Cost �1,000,000 �'m
Valuation �1,000,000 Sales 10.3
Basis of Valuation Recent purchase price Loss before tax (0.3)
Equity held 13.33% Retained loss (0.4)
Business Television distribution Net liabilities (1.8)
company
Target Entertainment Group Limited is the parent company of Target Entertainment
Limited and has not yet produced any annual accounts.
Music Copyright Solutions Plc Year ended December 2006
Cost �500,000 �'m
Valuation �824,000 Sales 3.1
Basis of Valuation Bid price Loss before tax (1.5)
Equity held 5.50% Retained loss (0.9)
Business Copyright management Net assets 1.5
Hill Station Plc 52 weeks ended 28 October 2006
Cost �1,283,000 �'m
Valuation �811,000 Sales 13.9
Basis of Valuation Bid price Loss before tax (4.8)
Equity held 6.3% Retained loss (5.1)
Business Manufacturer of ice cream Net assets 3.4
Amber Taverns Limited Year ended January 2007
Cost �750,000 �'m
Valuation �750,000 Sales 2.4
Basis of Valuation Earnings multiple Loss before tax (0.3)
Equity held 16.46% Retained loss (0.3)
Business Portfolio of managed pubs in Net assets 0.7
NE England
Ma Hubbards Limited Period ended 29 April 2007
Cost �750,000 �'m
Valuation �750,000 Sales 3.1
Basis of Valuation Earnings multiple Loss before tax (0.7)
Equity held 25.00% Retained loss (0.7)
Business Acquisition of portfolio of Net liabilities (0.2)
managed pubs in the Midlands
Keycom Plc Year ended September 2006
Cost �1,750,000 �'m
Valuation �578,000 Sales 1.0
Basis of Valuation Earnings multiple Loss before tax (2.0)
Equity held 13.8% Retained loss (2.0)
Business Provision of broadband Net liabilities (2.3)
telephone services to
students
Hallmarq Veterinary Imaging Year ended August 2007
Limited
Cost �1,600,000 �'m
Valuation �854,000 Sales 2.0
Basis of Valuation Last funding price Loss before tax (1.5)
Equity held 14.10% Retained loss (1.5)
Business Design manufacture and sale Net assets 1.0
of MRI equipment to the
equine market
Note:-
In many cases, a qualifying investment is made substantially in the form of loan
notes which both carry a high interest rate and are treated as debt for
statutory audit purposes. Shareholders should therefore be advised that often
the investee companies report both retained losses and net liabilities as a
result of the structure of the investment.
Equity held percentages are calculated on an undiluted basis.
Year ended financial figures of investee companies are derived from the latest
available financial statements of each investee company audited by respective
company auditors.
Unaudited Profit and Loss Account
For the year ended For the year ended
30 September 2007 30 September 2006
�'000 �'000
Profit/(Loss) on realisation of investments 193 75
Unrealised (losses)/gains on revaluation of investments (3,869) (270)
Investment income 491 757
(3,185) 562
Investment management fee (419) (470)
Other expenses (646) (296)
(1,065) (766)
Loss on ordinary activities before interest and taxation (4,250) (204)
Finance cost (29) -
Loss on Ordinary Activities before Taxation (4,279) (204)
Tax on ordinary activities - -
Loss for the financial year (4,279) (204)
Basic and diluted earnings per ordinary share (20.7)p (0.97)p
Basic and diluted earnings per C share (0.5)p -
The amounts dealt with in the Profit and Loss account are all derived from
continuing activities. No operations were acquired or discontinued in the
period. There are no recognised gains or losses other than those included in the
Profit and Loss account.
Unaudited Statement of Total Recognised Gains and Losses
For the year ended For the year ended
30 September 2007 30 September 2006
�'000 �'000
Loss for the financial year (4,279) (204)
Prior year adjustment - (212)
Total recognised losses for the year (4,279) (416)
Unaudited Statement of Historical Profits and Losses
For the year ended For the year ended
30 September 2007 30 September 2006
�'000 �'000
Loss on ordinary activities after tax (4,279) (204)
Realisation of investment revaluation gains
recognised in previous years 555 1,463
Historical cost (loss)/profit for the year after tax (3,724) 1,259
Unaudited Balance Sheet
As at 30 September 2007 As at 30 September 2006
�'000 �'000
Fixed Assets
Investments held at fair value 18,497 20,215
Current Assets
Debtors 769 686
Other investments 4,051 351
Cash at bank 1,194 129
6,014 1,166
Current Liabilities
Creditors: amounts falling due within one year 151 113
Net Current Assets 5,863 1,053
Creditors: amounts falling due after one year 8,746 -
Net Assets 15,614 21,268
Capital and Reserves
Called-up share capital 199 209
Share premium account 13,580 14,024
Capital redemption reserve 22 12
Special reserve 5,070 5,957
Revenue reserve (3,257) 1,066
Total Equity Shareholders' Funds 15,614 21,268
Net Asset Value per Ordinary Share 78.7p 102.0p
Net Asset Value per C Share 92.3p -
Number of Ordinary Shares in issue at end of the year 19,879,331 20,856,651
Number of C Shares in issue at end of year 9,093,156 -
Unaudited Cash Flow Statement
For the year ended For the year ended
30 September 2007 30 September 2006
�'000 �'000
Operating Activities
Investment income received 158 151
Bank interest received 48 7
Investment management fees paid (566) (383)
Other cash payments (273) (296)
Net Cash Outflow from Operating Activities (633) (521)
Capital Expenditure and Financial Investment
Sale of investments 2,582 4,165
Purchase of investments (4,539) (2,422)
Net Cash (Outflow)/Inflow from Capital Expenditure and
Financial Investment
(1,957) 1,743
Equity Dividends Paid (305) (454)
Cash (Outflow)/Inflow before Financing
and Management of Liquid Resources (2,895) 768
Management of Liquid Resources
Sales/(Purchases) of current asset investments (3,700) 50
Net Cash (Outflow)/Inflow from Management
of Liquid Resources (3,700) 50
Financing
Repurchase of ordinary shares (880) (738)
Issue of shares 9,093 -
Expenses of the issue of shares (553) -
Net Cash (Outflow)/Inflow from Financing 7,660 (738)
Increase in Cash for the Year 1,065 80
Unaudited Reconciliation of Movements in Shareholders' Funds
For the year ended For the year ended
30 September 2007 30 September 2006
�'000 �'000
Loss for the financial year (4,279) (204)
Dividend paid (305) (527)
Shares issued - 73
Deferred share issue expense (183) -
Repurchase of ordinary shares (887) (761)
Movements in Shareholders' Funds (5,654) (1,419)
Shareholders' Funds at start of Year 21,268 22,687
Shareholders' Funds at end of the Year 15,614 21,268
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
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