TIDMDO1O
Downing Structured Opportunities VCT 1 plc
(formerly Downing Protected Opportunities VCT 1 plc)
Initial Half-Yearly Report for the period ended 30 September 2009
Performance summary
30 Sept 2009
pence
Net asset value per Ordinary Share 100.3
Net asset value per 'A' Share 0.1
Cumulative distributions per Ordinary Share 2.5
Total return per Ordinary Share and 'A' Share 102.9
CHAIRMAN'S STATEMENT
I am pleased to welcome shareholders to Downing Structured
Opportunities VCT 1 plc and to present the Company's first report.
The Company has had a successful initial period from launch to 30
September 2009, with a well-received fundraising, a strong
performance by the structured product portfolio and the completion of
a number of VCT-qualifying investments.
Change of name
On 11 November 2009, the Company changed its name from "Downing
Protected Opportunities VCT 1 plc" to "Downing Structured
Opportunities VCT 1 plc". The change of name arose from discussions
between the Manager and the Board, regarding a plan to adjust the
branding of the Manager's series of VCTs to bring them in line with
the latest best practice. The Board believes the new name better
reflects the Company's exposure to structured product investments.
Original share offer
The Company launched its first fundraising in January 2009 and had
raised gross proceeds of GBP10.5 million by the time the offer closed
on 2 September 2009. The Company issued 10.4 million Ordinary
Shares and 15.6 million 'A' Shares producing net proceeds, after
issue costs, of GBP9.9 million.
Shareholders who subscribed under the offer received equal numbers of
Ordinary Shares and 'A' Shares. In accordance with the January 2009
Prospectus, shares were allotted at prices according to the pricing
formula based on the latest published NAV and grossed up for 5.5%
issue costs as follows:
Subscription price
(for one Ordinary Share
Allotment date and one 'A' Share)
6 March 2009 100.0p
31 March 2009 100.0p
1 April 2009 100.0p
5 April 2009 100.0p
30 April 2009 100.0p
2 June 2009 102.7p
3 July 2009 101.9p
5 August 2009 106.3p
2 Sept 2009 108.3p
The 'A' Shares are designed to facilitate the payment of a
performance incentive to management should any such incentive become
payable in the future. The 'A' Shares are expected to have a net
asset value of 0.1p per share for the initial years of the Company.
This is only expected to change if and when the performance hurdles
are met and a performance incentive becomes payable.
Management 'A' Shares
As noted in the January 2009 prospectus, immediately following the
close of the Offers, certain of the Management 'A' Share were
effectively cancelled such that the members of the Management team
now hold 5,181,613 'A' Shares (excluding any 'A' shares that members
of the management team acquired under the offers for subscription)
which represents one third of the total number of 'A' Shares In
issue.
New Director
I am pleased to report that Russell Catley joined the Board as a
non-executive director on 15 October 2009. Russell has over 25
years' experience in the financial sector and is a founding partner
at Catley Lakeman LLP, which specialises in structuring, advising on
and selling structured products and whose clients include J.P.
Morgan, Citigroup, Nomura and HSBC. He was previously with Citigroup
Global Markets Limited and AXA Investment Managers UK Ltd, also
specialising in structured products.
Russell's appointment brings additional skills to the Board,
particularly in the structured product area. The Board now comprises
four independent, non-executive directors.
Structured Product portfolio
In line with the Company's investment policy, predominantly all of
the Company's funds were initially invested in a portfolio of
structured products. Investments were made in a total of 17
structured products, all but one of which uses the FTSE 100 index as
its underlying index.
The portfolio produced realised gains of GBP126,000 and unrealised
gains of GBP794,000 over the period under review.
Further details are given in the Investment Manager's Report below.
Venture capital investments
Towards the end of the period, the Company made its first
VCT-qualifying investments. A total of GBP2.45 million was invested in
four investments, with part of one of the investments being non
VCT-qualifying.
Each of these investments has been valued at cost at the period-end.
Further details are given in the Investment Manager's Report.
Net Asset Value and Results
At 30 September 2009, the Net Asset Value ("NAV") per Ordinary Share
stood at 100.3p and the NAV per 'A' Share stood at 0.1p, producing a
combined total of 100.4p. After taking into account, the Company's
inaugural dividend described below, the NAV plus cumulative dividends
paid to date for one Ordinary Share and one A Share amounted to
102.9p. This is an increase of 8.9% over the initial NAV (net of
issue costs) of 94.5p since March 2009 when the Company first issued
shares.
The profit on ordinary activities after taxation for the period was
GBP743,000, comprising a revenue loss of GBP172,000 and a capital profit
of GBP915,000. As further venture capital investments are made,
investment income is expected to increase such that, in future,
revenue column will show a lower loss or a profit.
Dividends
The Board intends to declare dividends of at least 2.5p per Ordinary
Share twice each year. The Company's first dividend of 2.5p per
Ordinary Share was paid on 25 September 2009.
The next dividend of 2.5p per Ordinary Share will be paid on 29
January 2010 to Ordinary Shareholders on the register at 15 January
2010.
Share buybacks
The Company operates a share buyback policy whereby, subject to
certain restrictions, it intends to buy in any of its own shares that
become available in the market for cancellation at a 10% discount to
the prevailing NAV.
No such shares were purchased in the period.
Cancellation of Share Premium Account
On 28 July 2009, the Company cancelled its Share premium account and
created a distributable Special Reserve. The Special Reserve gives
the Company flexibility to undertake share buybacks (if required) and
also in paying dividends.
New share offer
On 15 October 2009, the Company launched a new share offer.
Subscribers to the new share offer will receive equal numbers of 'B'
Shares and 'C' Shares. Funds raised under the new share offer will be
maintained and managed separately from the existing Ordinary/'A'
share pool, however the new funds will allow the Company's fixed
running costs to be spread over a larger shareholder base, thus
reducing running costs per share for all Shareholders.
Risk and uncertainties
Under the Disclosure and Transparency Directive, the Board is
required in the Company's Half-Year Results, to report on the
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:
(i) compliance risk of failure to maintain approval as a VCT.
(ii) market, liquidity and counterparty risk associated with
Structured Products, and
(iii) investment risk associated with investing in small and immature
businesses,
The Company's compliance with the VCT regulations is continually
monitored by the Administration Manager, who reports regularly to the
Board on the current position. The Company also retains
PricewaterhouseCoopers to provide regular reviews and advice in this
area. The Board considers that this approach reduces the risk of a
breach of the VCT.
In investing in structured products, the Company is exposed to market
risk, liquidity risk and counterparty risk. The Company manages these
risks as follows:
* holding a portfolio of structured products,
* limiting exposure to any one counterparty, and
* monitoring credit ratings and other indicators relevant to
counterparties.
With this approach, the Board believes that these risks are reduced.
In order to make VCT-qualifying investments, the Company has to
invest in small businesses which are often immature. It also has a
limited period in which it must invest the majority of its funds.
The Investment Manager follows a rigorous process in vetting and
careful structuring of new investments, including taking a charge
over the assets of the business wherever possible and, after an
investment is made, closely monitoring the business. The Board is
satisfied that this approach reduces the investment risk described in
(iii) above as far as is reasonably possible.
Outlook
The Company's structured product portfolio has benefitted from the
favourable market conditions since the Company's launch and has given
your Company an excellent start. The Company still has a large
exposure to structured products so their performance will continue to
be highly significant to the Company over the remainder of this first
financial period.
In line with the Company's plans, the exposure to structured products
will reduce steadily over the next two or so years as the Company
makes further VCT-qualifying investments. I will report further
progress in building the Ordinary/'A' Share pool VCT-qualifying
portfolio, as well as news on the initial investments made by the new
'B'/'C' Share pool, in my report with the first year-end results,
which I expect to be published in July 2010.
Howard Flight
Chairman
INVESTMENT MANAGER'S REPORT
We are pleased to report that the Company's Structured Product
portfolio has performed well and that we have already made four
VCT-qualifying investments.
Structured Products
Brewin Dolphin acts as the Company's Structured Products manager and
has overseen the building of the Company's Structured Product
portfolio.
The Company invested in a total of 17 Structured Products over the
period at total cost of GBP8.3 million. Full details are included
below.
Four realisations took place as follows:
Cost Proceeds Realised gain
GBP'000 GBP'000 GBP'000
BNP Paribas Harewood 12% Defensive 732 784 52
Citigroup Gilt Backed Defensive
Auto-Call 2 249 270 21
Citigroup Gilt Backed Defensive
Auto-Call 3 372 391 19
Sienna (Morgan Stanley) 3Y FTSE Bonus
Shares 573 608 34
1,927 2,053 126
The Sienna and Citigroup products were sold in the market, while the
BNP Paribas product was realised as a result of a "kick-out", whereby
its targets had been met and it paid out the planned returns.
With further "kick-outs" anticipated, the Ordinary/'A' share pool may
make further new Structured Product investments, depending on the
timing of new VCT-qualifying investments.
VCT-qualifying investments
The Company's four VCT-qualifying investments are as follows:
GBP'000
Atlantic Dogstar Limited 216
Bijou Wedding Venues Limited * 1,415
East Dulwich Tavern Limited 459
Westow House Limited 405
2,495
*GBP750,000 of the investment in Bijou Wedding venues is non
VCT-qualifying
Atlantic Dogstar Limited has acquired the freehold of the Dogstar pub
in Brixton, South London. The pub is operated by an experienced
operator Antic Limited, who is also the investment partner in
Atlantic Dogstar Limited.
The management team of Bijou Wedding Venues Limited owns and operates
a number of wedding venues. Your Company, along with other Downing
VCTs, provided funding to allow the company to acquire the freehold
of Botleys Mansion in Chertsey, Surrey. The venue is now undergoing
refurbishment work, with the first wedding scheduled to be hosted
there in December this year.
East Dulwich Tavern Limited acquired the freehold of the East Dulwich
Tavern. As with Atlantic Dogstar above, the pub is operated by Antic
Limited who has also invested in the company.
Westow House Limited owns the freehold of the Westow House pub in
Crystal Palace, South London, which, again is operated by Antic
Limited, who is also the investment partner.
Outlook
Dealflow of potential VCT-qualifying investments has strengthened in
recent months, with evidence that stronger businesses now consider it
to be the right time to take advantage of opportunities that have
arisen as a result of the sustained period of economic deterioration.
With bank funding generally still proving difficult to obtain, we are
well-positioned to be able to secure investments with attractive
levels of asset-backing and returns.
We anticipate that further VCT-qualifying investments will be made
within the Ordinary/'A' share pool over the remainder of the
financial period, and also expect to see the start of development of
the Structured Products portfolio for the new 'B'/'C' share pool
Downing Corporate Finance Ltd
UNAUDITED SUMMARISED BALANCE SHEET
as at 30 September 2009
30 Sept 2009
GBP'000
Fixed assets
Investments 9,665
Current assets
Debtors 12
Cash at bank and in hand 886
898
Creditors: amounts falling due within one year (139)
Net current assets 759
Net assets 10,423
Capital and reserves
Called up share capital 31
Share premium 2,794
Special reserve 6,855
Capital reserve - unrealised 794
Capital reserve - realised 121
Revenue reserve (172)
Equity shareholders' funds 10,423
Net asset value per Ordinary Share 100.3p
Net asset value per 'A' Share 0.1p
100.4p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the period ended 30 September 2009
30 Sept 2009
GBP'000
Opening shareholders' funds
Issue of shares 10,510
Share issue costs (571)
Distributions (259)
Total recognised gains for the period 743
Closing shareholders' funds 10,423
UNAUDITED INCOME STATEMENT
for the period ended 30 September 2009
Period ended
30 Sept 2009
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Income 14 - 14
Gains on investments - realised - 126 126
- unrealised - 794 794
14 920 934
Investment management fees (61) - (61)
Other expenses (125) (5) (130)
Return on ordinary activities before (172) 915 743
taxation
Taxation - - -
Return attributable to equity shareholders (172) 915 743
Return per Ordinary Share (2.18p) 11.61p 9.43p
Return per 'A' Share - - -
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 CASH FLOW STATEMENT
for the period ended 30 September 2009
30 Sept 2009
Note GBP'000
Cash inflow from operating activities and returns
on investments 1 (82)
Capital expenditure
Purchase of investments (10,797)
Sale of investments 2,053
Net cash outflow from capital expenditure (8,744)
Equity dividends paid (259)
Net cash outflow before financing (9,385)
Financing
Proceeds from Ordinary Share issue 10,500
Proceeds from 'A' Share issue 5
Proceeds from Deferred Share issue 5
Proceeds from Preference Share issue 50
Redemption of preference shares (50)
Share issue costs (539)
Net cash inflow from financing 9,971
Increase in cash 2 886
Notes to the cash flow statement:
1 Cash inflow from operating activities and
returns on investments
Return on ordinary activities before taxation 743
Gains on investments (920)
Increase in other debtors (12)
Increase in other creditors 107
Net cash inflow from operating activities (82)
2 Analysis of net funds
Beginning of period -
Net cash inflow 886
End of period 886
SUMMARY OF INVESTMENT PORTFOLIO
as at 30 September 2009
% of
Unrealised portfolio
Cost Valuation gain/(loss) by value
GBP'000 GBP'000 GBP'000
VCT-Qualifying
Atlantic Dogstar Limited 216 216 - 2.0%
Bijou Wedding Venues Limited * 1,415 1,415 - 13.4%
East Dulwich Tavern Limited 459 459 - 4.4%
Westow House Limited 405 405 - 3.8%
2,495 2,495 - 23.6%
Structured products
Barclays 3 Year Semi-Annual
Synthetic Zero 476 552 76 5.2%
Barclays 12.2% FTSE Autocall 859 970 111 9.2%
Citigroup FTSE Defensive 488 551 63 5.2%
Citigroup Gilt Backed Defensive
Autocall 1 130 137 7 1.3%
Elders Capital Accumulator 2 259 308 49 2.9%
Elders Capital Accumulator 6 634 776 142 7.4%
Elders Japan Capital Protected
3 626 656 30 6.2%
Goldman Sachs Defensive
Autocall 336 394 58 3.7%
Goldman Sachs Reservoir
Autocall 401 418 17 4.0%
Morgan Stanley FTSE Synthetic
Zero 449 559 110 5.3%
Platinum Defensive FTSE
Autocall 656 704 48 6.7%
Platinum 3 Year Callable 351 367 16 3.5%
Symphony 3.5 Year FTSE 4.85
Call 710 777 67 7.4%
6,375 7,169 794 68.0%
Total 8,871 9,664 794
Cash at bank and in hand 886 8.4%
Total Investments 10,550 100.0%
*partly non VCT-qualifying
SUMMARY OF INVESTMENT MOVEMENTS
as at 30 September 2009
Additions GBP'000
VCT-qualifying investments
Westow House Limited 405
Atlantic Dogstar Limited 216
East Dulwich Tavern Limited 459
Bijou Wedding Venues Limited * 1,415
2,495
Structured products
Barclays 3 Year Semi-Annual Synthetic Zero 476
Barclays 12.2% FTSE Autocall 860
BNP Paribas Harewood 12% Defensive 732
Citigroup FTSE Defensive 488
Citigroup Gilt Backed Defensive Autocall 1 130
Citigroup Gilt Backed Defensive Auto-Call 2 249
Citigroup Gilt Backed Defensive Auto-Call 3 372
Elders Capital Accumulator 2 259
Elders Capital Accumulator 6 634
Elders Japan Capital Protected 3 626
Goldman Sachs Defensive Autocall 336
Goldman Sachs Reservoir Autocall 401
Morgan Stanley FTSE Synthetic Zero 449
Platinum Defensive FTSE Autocall 656
Platinum 3 Year Callable 351
Sienna 3 Year FTSE Bonus Shares 573
Symphony 3.5 Year FTSE 4.85 Call 710
8,302
10,797
Disposals Disposal Total realised
Cost Proceeds gain/(loss)
GBP'000 GBP'000 GBP'000
Structured products
BNP Paribas Harewood 12% 784 52
Defensive 732
Citigroup Gilt Backed Defensive 270 21
Auto-Call 2 249
Citigroup Gilt Backed Defensive 391 19
Auto-Call 3 372
Sienna 3 Year FTSE Bonus Shares 573 607 34
1,926 2,052 126
* GBP750,000 of investment is non VCT-qualifying
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. Basis of accounting
The unaudited half-yearly results cover the period to 30 September
2009 and have been prepared in accordance with the accounting
policies set out in the initial accounts for the period ended 31 July
2009 which were prepared under UK Generally Accepted Accounting
Practice ("UK GAAP") and in accordance with the Statement of
Recommended Practice "Financial Statements of Investment Trust
Companies" revised January 2009 ("SORP").
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. Net Asset Value per share at the period end has been calculated on
10,371,225 Ordinary Shares and 15,556,838 'A' Shares, being the
number of shares in issue at the period end.
5. Return per share for the period has been calculated on 7,867,430
Ordinary Shares and 16,194,621 'A' Shares, being the weighted average
number of shares in issue during the period.
6. Dividends
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Paid in period
Interim - paid 29 Sept 2009 - 259 259
7. Reserves
Investment Capital
Share premium Special holding reserve-realised Revenue
account reserve gains reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 12 January - - - - -
2009
Share issues 10,479 - - - -
Share issue (571) - - - -
costs
Transfer
between (7,114) 7,114 - - -
reserves
Distributions - (259) - -
Retained - - 794 121 (172)
revenue
At 30 2,794 6,855 794 121 (172)
September
2009
The Revenue reserve, Special reserve and Capital reserve - realised
are distributable reserves. Investment holding gains are also
considered to be distributable as at 30 September 2009. Distributable
reserves at 30 September 2009 were GBP7,598,000
8. 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.
9. 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 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.
10. Copies of the Half-Yearly Report will be sent to Shareholders
shortly. Further copies will be available from the Company's
registered office or for download from www.downing.co.uk.
=--END OF MESSAGE---
This announcement was originally distributed by Hugin. The issuer is
solely responsible for the content of this announcement.
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