TIDMDPV4
Downing Protected VCT IV plc
Final Results for the year ended 30 November 2008
Financial Highlights
30 Nov 2008 30 Nov 2007
Pence Pence
Net asset value per Ordinary share 95.5 97.0
Cumulative distributions per Ordinary share 3.5 1.0
Total return per Ordinary share 99.0 98.0
CHAIRMAN'S STATEMENT
Introduction
I am pleased to present the Annual Report for Downing Protected VCT
IV plc for the year ended 30 November 2008. The year has been
notable for the sharp deterioration in economic conditions, which has
added additional challenges as the Company completed its investing
phase.
Portfolio activity
The Company was an active investor during the year, making a total of
GBP7.8 million of new investments, of which GBP4.5 million was invested
into VCT qualifying investments. The deadline for the Company to
invest 70% of its funds in qualifying investments was 30 November
2008. I can confirm that this target was achieved, with the
qualification level at 30 November 2008 standing at 76.1%.
In order to generate the funds for the new qualifying investments
described above, the Company realised a significant number of
non-qualifying investments, raising GBP3.7 million of proceeds. In
many cases these investments were in the form of loan stock and were
successfully redeemed at par. None of the investments produced a
realised loss although the total realised capital gain across all
these investments was just GBP20,000.
Having reached the VCT qualification target, the Company is not now
planning to make any further new venture capital investments. The
Investment Manager is now starting to work towards exits from
investments in order to provide funds that can be returned to
Shareholders.
Fixed interest investments
At the start of its life, the Company invested a proportion of its
funds in a portfolio of corporate bonds and other fixed interest
securities. During the year, the Company disposed of the remainder
of these investments, producing a realised loss of GBP80,000 against
cost on a portfolio which had a valuation at the start of the year of
GBP3.9 million. As the year progressed and the "credit-crunch" took
hold, these types of securities became extremely volatile so,
although they ultimately produced a small loss, the Board considers
this outcome to be satisfactory under the circumstances.
Investment valuations
The Board has undertaken a detailed review of the Company's
investment portfolio at the year-end, particularly focussing on the
investment valuations.
As I mentioned in my statement with the Half-Year Report, the
Company's investment in Vermont Developments Limited has faced some
difficulties. The investment of GBP1 million was made partially to
fund the purchase of development land in Salford, with the Company
taking a charge over the land. Following a sharp deterioration of
the property market, Vermont Developments went into administration.
The Investment Manager is working intensively to extract value from
the development land and other assets, but it remains uncertain what
recovery might ultimately be made. The Board has decided to value the
investment at GBP500,000 at the year-end being approximately 50% of the
original cost and producing an unrealised loss equivalent to 1.9p per
share.
The other investments have all progressed reasonably in line with
plan. Although in many cases the values of the assets over which the
Company has taken charges may have fallen, the Board believes that
the structure of the investments still provides adequate protection
against the Company ultimately realising a significant deficit on any
investment. For this reason, the Board is satisfied, for the time
being, that the other investments are held at valuations equal to
original costs.
Net Asset Value
At 30 November 2008, the Company's Net Asset Value per share ("NAV")
stood at 95.5p, an increase of 1.0p (1.1%) over the year (after
adjusting for the 2.5p dividend paid in the year).
The Company's investment strategy is predominantly to minimise risk.
Investments have therefore been structured with that focus and
unsurprisingly have limited opportunities for upside. As a result,
the NAV performance is in line with the Board's expectations.
Results and dividend
The profit on activities after taxation for the year was GBP222,000
(2007: GBP502,000) comprising a revenue profit of GBP605,000 (2007:
GBP562,000) and a capital loss of GBP383,000 (2007: loss GBP60,000).
The Board intends to distribute the majority of its revenue earnings
for the year and is proposing pay a revenue dividend of 2.5p per
share on 30 April 2009 to Shareholders on the register at the close
of business on 14 April 2009.
Articles of Association
At the forthcoming AGM, the Board will seek Shareholder approval to
update the Company's Articles of Association. Resolution 7, which is
a special resolution, proposes the adoption of new Articles of
Association which incorporate a number of changes which are required
as a result of the implementation of the Companies Act 2006. An
explanation of the proposed changes is provided within the Report of
the Directors.
The Board recommends Shareholders vote for Resolution 7 as, in the
Board's opinion, the proposed changes are in the best interests of
Shareholders.
Share buybacks
The Company has to date operated a policy, subject to certain
restrictions, of buying its own shares that become available in the
market. During the year the Company purchased 5,050 shares for
cancellation at a price of 85.0p per share.
As Shareholders will be aware, the Company's strategy now is to seek
exits from its investments to allow funds to be returned to
Shareholders. This process is expected to take some time but will
ultimately return funds to shareholders without their suffering a
discount to the valuation.
In order that this process can take place in an orderly manner and
that the vast majority of the funds generated from investment
realisations can be distributed to all shareholders, the Board is
keen to discourage a high level of share buybacks.
The Board is aware that there can occasionally be forced sellers of
shares and wishes to allow them the opportunity to sell their
holdings, albeit at a higher discount to NAV than might historically
have been the case. The Board therefore intends to buy in shares
that become available at a price equivalent to a 25% discount to the
Company's most recently published NAV.
A special resolution to give the Directors authority to buy in the
Company's shares is proposed for the forthcoming AGM as Resolution 6.
Annual General Meeting
The Company's third Annual General Meeting will be held at Kings
Scholars House, 230 Vauxhall Bridge Road, London, SW1V 1AU at 11:15
am on 29 April 2009.
Two items of special business will be proposed in respect of share
buybacks and adoption of revised articles of association.
Outlook
Later this year, all Shareholders who invested at the Company's
outset will have held their investments for the minimum three-year
holding period required in order to retain the income tax relief.
The Company will then be able to start unwinding the investment
portfolio and returning funds to Shareholders. The Board expects
that most of the funds will be returned by the payment of dividends.
The timing and amount of such dividends are difficult to estimate as
they will be determined by the timing of investment realisations.
Despite the extremely difficult conditions, the Company's portfolio
has so far held up well. This is not to say that it is without
risk. It is possible that a further deterioration in the economic
climate and a prolonged recession could eradicate the remaining
protection built into the investments and erode the valuations. The
Board is very satisfied with the investment performance to date, but
acknowledges that the greatest challenge to achieving successful
realisations while the economy moves sharply into recession is still
to come.
Hugh Gillespie
Chairman
INVESTMENT MANAGER'S REPORT
Introduction
The Company has had a busy year in terms of investment activity with
several new investments taking place, several follow-on investments,
and a number of redemptions of loan stock from existing investments.
At 30 November 2008, the Company had in excess of 76% of its funds
invested in VCT Qualifying investments (on VCT regulations valuation
basis) comfortably meeting the VCT requirement of 70% by this date.
Investment activity
The main movements in the investment portfolio over the year are
summarised as follows. The largest new investment made in the year
was a total of GBP1.75 million invested in West Tower Holdings
Limited. The company used the funding to acquire The West Tower, an
exclusive dining and wedding venue and hotel near Ormskirk. The
company also acquired The Swan, a nearby conference and banqueting
venue. The management are progressing plans to develop the two
venues and capitalise on the benefits of having the two sites.
The Company also made a new investment of GBP500,000 in The Thames Club
Limited, providing part of the funding for the purchase of The Thames
Club, a health and fitness club in Staines, Surrey. The new
management of the club are considering improvements to the club,
which should help in growing membership.
The Company's other significant new investment was in Liongold
Contracting Limited. The Company has a contract to build an
apartment development in North Devon. After some initial delays, the
development is now well underway.
Richstone Contracting Limited has a similar contract to develop a
hotel and apartment complex on the South Devon coast. The Company
invested a further GBP950,000 during the year to provide funding for
the commencement of the main part of the project.
The Company invested a further GBP250,000 into Hoole Hall Country Club
Limited to fund the final phase of the function facilities at the
Hoole Hall property, which is situated in Chester. This work was
completed in November.
During the year, a new company was established which has acquired the
hotel operations and trading at Hoole Hall. The Company made a
non-qualifying investment of GBP1,250,000 in the company. Work was
recently completed on a new block of rooms such that the hotel now
has 108 rooms.
A further company, Hoole Hall Spa and Leisure Club Limited, has taken
on the development of a new spa and leisure facilities on the Hoole
Hall site. The Company invested GBP1,000,000 to partly fund the
development of the facilities, which are expected to be completed
late in 2009.
Redemptions of loan stock by a number of investee companies provided
much of the funds for the above investments. In all cases loan stock
was redeemed at par.
Portfolio valuation
With one main exception, the portfolio investments have performed
satisfactorily during the period. As outlined in the Chairman's
Statement, the Company's GBP1 million investment in Vermont
Developments Limited has faced difficulties resulting in Vermont
being placed into administration. We are investigating a number of
options in an effort to recover value for the Company. In view of
these issues, we have recommended a provision of GBP404,000 against
cost as at the balance sheet date.
Shareholders will be aware that the Company's strategy has been to
reduce normal risks associated with VCTs as much as possible. As a
result, many of the investments are structured such that they have
limited upside, however there has to be a sizeable loss of value on
the underlying business and assets before the Company faces any
significant loss. For this reason, the Board has agreed with our
recommendation continuing to hold the remaining investments at levels
equal to original cost.
Outlook
Now that the Company's initial three-year period is complete and the
VCT "70% test" has been achieved, the focus will shift to working
towards investment realisations and ultimately returning funds to
Shareholders. The current economic climate clearly makes this
process more challenging both in terms of achieving the exits and the
predictability of their timing.
Downing Protected Managers IV Limited
REVIEW OF INVESTMENTS
Portfolio of investments
The following investments, all of which are incorporated in England
and Wales, were held at 30 November 2008:
Valuation
movement
Cost Valuation in year % of
GBP'000 GBP'000 GBP'000 portfolio
VCT qualifying
investments
Cadbury House Limited 3,000 3,000 - 14.5%
Richstone Contracting 2,542 2,542 - 12.2%
Limited
West Tower Holdings 1,750 1,750 - 8.4%
Limited
Heyford Contracting 1,650 1,650 - 8.0%
(South) Limited
Hoole Hall Country Club 1,625 1,625 - 7.8%
Limited
The Really Fine Leisure 1,100 1,100 - 5.3%
Limited
Heyford Contracting 1,038 1,038 - 5.0%
(North) Limited
Hoole Hall Spa and 1,000 1,000 - 4.8%
Leisure Club Limited
Nu Nu plc 1,000 1,000 - 4.8%
Future Films Production 825 825 - 4.0%
Services Limited
Liongold Contracting 434 434 - 2.1%
Limited
The Thames Club Limited 150 150 - 0.7%
16,114 16,114 - 77.6%
Non-qualifying
investments
Hoole Hall Hotel Limited 1,250 1,250 - 6.0%
Aminghurst Limited 993 993 - 4.8%
Vermont Developments 904 500 (404) 2.4%
Limited
The Thames Club Limited 350 350 - 1.7%
Heyford Homes VCT Limited 300 300 - 1.5%
Sanguine Hospitality 242 242 - 1.2%
Limited
Coastal Partnerships 75 75 - 0.3%
Limited
Chapel Street Hotel 63 63 - 0.3%
(2008) LLP
4,177 3,773 (404) 18.2%
20,291 19,887 (404) 95.8%
Cash at bank and in hand 879 4.2%
Total investments 20,766 100.0%
REVIEW OF INVESTMENTS
Investment movements for the year ended 30 November 2008
ADDITIONS
GBP'000
Chapel Street Hotel (2008) LLP 63
Cymbal Contracting Limited 650
Future Films Production Services Limited 175
Hoole Hall Country Club Limited 250
Hoole Hall Hotel Limited 1,250
Hoole Hall Spa and Leisure Club Limited 1,000
Liongold Contracting Limited 434
New Swan Holding Company Limited 750
Richstone Contracting Limited 950
The Thames Club Limited 500
West Tower Holdings Limited 1,750
7,772
DISPOSALS
Profit/
MV at (loss) Unrealised Realised
now
Cost 30/11/08* Proceeds vs cost realised gain/(loss)
Loan stock
redemptions
Calthorpe
Street
Limited 113 113 125 12 - 12
Heyford Homes
Limited 300 300 300 - - -
Sanguine
Hospitality
Limited 7 7 15 8 - 8
Property
Solutions
Limited 500 500 500 - - -
Future Films
Limited 175 175 175 - - -
Heyford
Contracting
South Limited 350 350 350 - - -
Gatewales
Limited 500 500 500 - - -
Cymbal
Contracting
Limited 650 650 650 - - -
New Swan
Holdings
Limited 750 750 750 - - -
Vermont
Developments
limited 96 96 96 - - -
Bowman Care
Homes Limited 600 600 600 - - -
Bond
disposals
Bank of
Ireland 4.75% 495 490 490 (5) 5 -
ASIF3 (AIG)
5.625% 504 492 494 (10) 12 2
HSBC Finance
(Household)
6.125% 513 494 497 (16) 19 3
Metropolitan
Life 5.25% 501 494 495 (6) 7 1
ING 4.75% 492 490 492 - 2 2
John Hancock
6.625% 521 507 505 (16) 14 (2)
Toyota 5.25% 502 498 502 - 4 4
Merrill Lynch
5.125% 497 479 470 (27) 18 (9)
8,066 7,985 8,006 (60) 81 21
* Adjusted for purchases in the year
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the annual 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). The financial statements are required
to 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 year. In preparing
these financial statements the Directors are required to:
* select suitable accounting policies and then apply them
consistently;
* make judgments and estimates that are reasonable and
prudent;
* state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
* prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Company will
continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements. They also confirm
that the annual report includes a fair review of the development and
performance of the business together with a description of the
principal risks and uncertainties faced by the Company.
The Directors are responsible for keeping proper accounting records
that disclose with reasonable accuracy at any time the financial
position of the Company and enable them to ensure that the financial
statements comply with the Companies Act 1985. 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 Auditors
The Directors in office at the date of the report have confirmed, as
far as they are aware, that there is no relevant audit information of
which the Auditors are 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.
By order of the Board
Grant Whitehouse
Secretary
INCOME STATEMENT
For the year ended 30 November 2008
Year ended 30 November 2008 Year ended 30 November
2007
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 1,239 - 1,239 1,202 - 1,202
Net loss on - (383) (383) - (60) (60)
investments
1,239 (383) 856 1,202 (60) 1,142
Investment (208) - (208) (207) - (207)
management
fees
Other (162) - (162) (167) - (167)
expenses
Return on 869 (383) 486 828 (60) 768
ordinary
activities
before tax
Tax on (264) - (264) (266) - (266)
ordinary
activities
Return
attributable 605 (383) 222 562 (60) 502
to equity
shareholders
Basic and
diluted 2.8p (1.8p) 1.0p 2.6p (0.3p) 2.3p
return per
share
All Revenue and Capital items in the above statement derive from
continuing operations. 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 and losses are recognised in the Income
Statement as noted above.
Other than revaluation movements arising on investments held at fair
value through the Income Statement, there were no differences between
the return /deficit as stated above and at historical cost.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Year Year
ended ended
30 30
November November
2008 2007
GBP'000 GBP'000
Opening shareholders' funds 20,965 20,742
Purchase of own shares (4) (62)
Total recognised gains for the year 222 502
Dividends paid (540) (217)
Closing shareholders' funds 20,643 20,965
BALANCE SHEET
as at 30 November 2008
2008 2007
GBP'000 GBP'000 GBP'000 GBP'000
Investments
"Fair value through profit or loss" assets 19,887 20,505
Current Assets
Debtors 165 325
Cash at bank and in hand 879 588
1,044 913
Creditors: amounts falling due within one (267) (432)
year
Net current assets 777 481
Net assets less current liabilities 20,664 20,986
Creditors: amounts falling due after more (21) (21)
than one year
Net assets 20,643 20,965
Capital and reserves
Called up share capital 216 216
Capital redemption reserve 1 1
Special reserve 20,205 20,209
Capital reserve - realised (60) -
Capital reserve - unrealised (404) (81)
Revenue reserve 685 620
Total equity shareholder's funds 20,643 20,965
Net asset value per Ordinary share 95.5p 97.0p
CASH FLOW STATEMENT
for the year ended 30 November 2008
Year Year
ended ended
30 Nov 30 Nov
2008 2007
GBP'000 GBP'000
Net cash inflow from operating activities 999 925
Taxation
Corporation tax paid (399) (133)
Capital expenditure
Purchase of investments (7,771) (14,568)
Proceeds from disposal of investments 8,006 13,953
Net cash inflow/(outflow) from capital expenditure 235 (615)
Equity dividends paid (540) (217)
Net cash inflow/(outflow) before financing 295 (40)
Financing
Purchase of own shares (4) (62)
Net cash outflow from financing (4) (62)
Increase/(decrease) in cash 291 (102)
NOTES
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").
Presentation of Income Statement
In order to better reflect the activities of an investment trust
company 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 Part 6
of the Income Tax Act 2007.
Investments
All investments are designated as "fair value through profit or loss"
assets and are measured at fair value. A financial asset is
designated within this category if it is both acquired and managed,
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 Guidelines" together with FRS26.
Listed fixed income investments are measured using bid prices in
accordance with the IPEV Guidelines.
In respect of unquoted instruments, fair value is established by
using the IPEV Guidelines. The valuation methodologies used by the
Company to ascertain the fair value of an investment in an unquoted
entity are as follows:
* Price of recent investment;
* Earnings multiple;
* Net assets;
* Discounted cash flows or earnings (of underlying
business); and
* Discounted cash flows (from the investment).
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. If fair value cannot be reliably measured by methods listed,
previous carrying value (less provision for impairment) may be used
where it is considered to provide the best estimate of fair value at
the reporting date.
Where an investee company has gone into receivership or liquidation
and there is no prospect of any recovery of value, the loss on 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 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 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
and only where there is reasonable certainty of collection.
Expenses
All expenses are accounted for on 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 a policy of charging 100% of the Investment
Management fees to the revenue account.
Deferred taxation
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 financial statements.
2 Return per share
Revenue return per Ordinary share is based on the net revenue after
taxation of GBP605,000 (2007: GBP562,000), in respect of 21,606,474
(2007: 21,676,345) Ordinary shares, being the weighted average number
of ordinary shares in issue during the year.
Capital loss per Ordinary share is based on the net capital loss
after taxation of GBP383,000 (2007: GBP60,000), in respect of 21,606,474
(2007: 21,676,345) Ordinary shares, being the weighted average number
of ordinary shares in issue during the year.
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on return per Ordinary share.
The return per share disclosed therefore represents both the basic
and diluted return per Ordinary share.
3 Net asset value per Ordinary share
2008 2007
Net asset Net asset
value value
per share Net asset per share Net asset
value value
Pence GBP'000 Pence GBP'000
Ordinary 95.5 20,643 97.0 20,965
shares
Net asset value per Ordinary share is based on net assets at the year
end, and on 21,603,990 (2007: 21,609,040) Ordinary shares, being the
number of Ordinary shares in issue at the year end.
As the Company has not issued any convertible shares or share
options, there is no dilutive return per Ordinary share. The Net
Asset Value per share disclosed therefore represents both the basic
and diluted return per Ordinary share
4 Principal financial risks
As a VCT, the majority of the Company's assets are represented by
financial instruments which are held as part of the investment
portfolio. In order to ensure continued compliance with relevant VCT
regulation and to be in a position to deliver the long term capital
growth which is part of the Company's investment objective, the Board
is very much aware of the need to manage and mitigate the risks
associated with the financial instruments held within the investment
portfolio.
The management of these risks starts with the application of a clear
investment policy which has been developed by the Board who are
experienced investment professionals. Furthermore, the Board has
appointed an experienced investment manager to whom they have
communicated the Company's investment objectives and whose
remuneration is linked to the achievement of those objectives. The
Investment Manager reports regularly to the Board on performance, and
to facilitate the direct Board involvement with key decisions, on
whether or not to invest, disinvest and the nature, terms and the
security of investments being made.
In assessing the risk profile of its investment portfolio, the Board
has identified three principal classes of financial instrument which
are analysed within note 9 of the Financial Statements. All
financial instruments are "fair value through the profit and loss
account" and are recognised as such on initial recognition.
In addition to its investment portfolio, the VCT maintains a cash
position. Cash is mainly held by Bank of Scotland plc and Royal
Bank of Scotland plc which are A+/A-1-rated financial institutions.
The Directors consider that the risk profile associated with cash
deposits is low and thus the carrying value in the financial
statements is a close approximation of the fair value.
The Board has reviewed the Company's financial risk profile. Despite
the fact that there has been a clear deterioration in the economic
climate, the Board has concluded that, as a result of the manner in
which the Company structures its investments so as to try to reduce
downside risk, the Company's exposure to financial risk has not
changed significantly since the previous year.
A review of the specific financial risks faced by the Company is
presented below.
Market risks
Market risk arises from uncertainty about fair values or future cash
flows of financial instruments because of changes in market prices.
The Company's investment portfolio is comprised of variable rate,
floating rate and fixed rate financial instruments, the fair values
of which are influenced by differing degrees by changes in market
price. Generally, unless the risk profile attaching to the loan note
changes, the fair value of variable and floating rate investments is
unlikely to alter materiality. The fair value of fixed rate
investments would, theoretically, increase as base rates fall.
However, as a result of the structuring of the Company's investments,
the fixed rate investments (loan notes) have strict redemption and
transferability conditions and, therefore, any theoretical uplift in
fair value would not be a fair reflection of the realisable value of
this class of investment.
The Company's future cash flows can be influenced by changes in
interest rates resulting in an increase or decrease in income from
investments linked to the base rate, as well as the credit worthiness
of the borrowers of the funds. The maximum exposure to this risk
amounts to the value of variable and floating rate assets of GBP6.0
million (2007: GBP6.9 million). Sensitivity has been tested by the
impact on the NAV over a one year period of a fall in the base rate
to nil, being the largest possible fall. The impact is summarised
below.
Base rate Risk exposure at Impact on Impact on
falls to nil 30 Nov 2008 NAV NAV per
share
GBP'000 GBP'000 Pence
Variable rate investments 1,949 40 0.2p
Floating rate investments 4,022 111 0.5p
5,971 151 0.7p
The Company has no holdings in any listed or quoted equities at the
year end so has no direct exposure to substantial movements
experienced by stock markets. As the Company generally structures
its investments such that the majority of any losses are initially
borne by its investment partners, the Company has reduced exposure to
any falls in the values of the underlying assets of the businesses in
which it invests.
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's financial assets that are exposed to
credit risk are summarised as follows:
2008 2007
GBP'000 GBP'000
Investments in loan stocks 15,399 13,151
Cash and cash equivalents 879 588
Interest, dividends and other receivables 158 127
16,436 13,866
Credit risk in respect of investments in liquidity funds is minimised
by investing in AA-rated funds.
Investments in loan stocks comprise a fundamental part of the
Company's venture capital investments and are managed within the main
investment management procedures. The Company's policy is to invest
in businesses with substantial assets, with security being taken over
the assets of the business.
Cash is mainly held by Bank of Scotland plc, which is a AA-rated
financial institution and, consequently the Directors consider that
the risk profile associated with cash deposits is low.
Interest, dividends and other receivables are predominantly covered
within the investment management procedures.
Liquidity risk
Liquidity risk is the risk that the Company encounters difficulties
in meeting obligations associated with its financial liabilities. As
the Company only ever has a very low level of creditors being
GBP267,000 (2007: GBP432,000) and has no borrowings (other than the
GBP21,000 of loan notes issued to the management team in respect of the
performance incentive fee), the Board believes that the Company's
exposure to liquidity risk is minimal.
5 Contingencies, guarantees and financial commitments
Contingent liability re. performance incentive fees
As explained in the Report of the Directors within the Annual Report,
the Company may be liable to pay performance incentive fees by way of
additional interest on the loan notes issued to the Management Team
and Directors. The amount of additional interest, if any, is
dependent on the level of distributions made to Shareholders before 5
April 2012. The maximum amount payable under these arrangements is
10% of the net proceeds paid to Shareholders.
If the Company's assets and liabilities were realised at the current
carrying values and other targets met, the maximum level of
performance fees payable would be GBP2.1 million (equivalent to 9.9p
per share). However, in view of the significant uncertainties as to
what extent the targets will actually be met, the Directors are
unable to make a reliable estimate of the fees (if any).that will
ultimately be payable
Other than as described above, at 30 November 2008, the Company had
no contingencies, guarantees or financial commitments.
6 Controlling party and related party transactions
In the opinion of the Directors there is no immediate or ultimate
controlling party.
Downing Protected Managers IV Limited ("DPM IV"), a wholly owned
subsidiary is the Company's Investment Manager. During the year ended
30 November 2008, GBP208,000 (2007: GBP207,000) was payable to DPM IV.
Additionally, DPM IV provides accounting, secretarial and
administrative services for an annual fee of GBP40,000 (plus RPI) per
annum. During the year ended 30 November 2008, GBP43,000 (2007:
GBP42,000) was due in respect of administration fees. At the year end a
balance of GBP61,000 (2007: GBP62,000) was due to DPM IV.
Each of the Directors hold loans notes issued by the Company as part
of the performance incentive arrangements.
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 November
2008, but has been extracted from the statutory financial statements
for the year ended 30 November 2008, which were approved by the Board
of Directors on 31 March 2009 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 s 498(2) and (3) of the Companies Act 2006.
The statutory accounts for the year ended 30 November 2008 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 S237(2) or (3) of the
Companies Act 1985.
A copy of the full annual report and financial statements for the
year ended 30 November 2008 will be printed and posted to
shareholders shortly. Copies will also be available to the public at
the registered office of the Company at Kings Scholars House, 230
Vauxhall Bridge Road, London SW1V 1AU and will be available 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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