Downing Protected VCT VII plc
Half Yearly Report for the six months ended 31 July 2008
PERFORMANCE SUMMARY
31 Jul 31 Jan 31 Jul
2008 2008 2007
pence pence pence
Net asset value per Ordinary Share 94.50 96.40 95.10
Net asset value per 'A' Share 0.10 0.10 0.10
Cumulative distributions per Share 1.75 - -
Total return per Ordinary and 'A' Share 96.35 96.50 95.20
CHAIRMAN'S STATEMENT
In spite of the worsening global financial crisis, your Company has
continued to make satisfactory progress throughout the six months
ended 31 July 2008.
Venture capital investments
During the period, the Company invested a total of £2.85 million in
three new investments and three existing portfolio companies. Of
this £2.0 million was in VCT qualifying investments.
There were also some minor realisations in the period, where a number
of non-VCT qualifying investments redeemed loan stock producing
proceeds of £592,000.
Further details of the new investments and the current portfolio are
in the Investment Manager's Report and below.
The "credit-crunch" and, more specifically, its effect on the
property market, has unfortunately caused difficulties for one
portfolio company. A provision of £240,000 has been made against the
investment in Vermont Developments Limited, which equates to 2.4p per
share in terms of Net Asset Value. Further details are given in the
Investment Manager's report.
All other investments have performed satisfactorily over the period
and have been held at valuations equal to original cost or, in some
cases, have been uplifted slightly where investments have been
structured in such a way that the Company's share of the investee
company's profits increases over time.
At 31 July 2008, the Company's portfolio comprised 16 investments
with a total value of £8.4 million. Six of these investments, valued
at £4.9 million, were VCT qualifying, making 55.5% of the Company's
funds VCT qualifying. The Company needs to have 70% of its funds in
qualifying investments by 31 January 2010 so is on target to achieve
this comfortably.
Net Asset Value and Results
At 31 July 2008, the Net Asset Value per Ordinary Share ("NAV") stood
at 94.5p and the NAV per 'A' Share at 0.1p, giving a combined total
of 94.6p. This is a small decrease of 0.15p per share (0.16%) since
the year end of 31 January 2008 (after adjusting for the 1.75p
dividend paid during the period).
The loss on ordinary activities after taxation for the period as
recorded in the Income Statement was £20,000, comprising a revenue
profit of £141,000 and a capital loss of £161,000.
Share repurchase
The Company operates a policy, subject to certain restrictions, of
buying any shares that become available in the market. During the
period, the Company repurchased 108,200 Ordinary Shares, at an
average price of 87.0p per share for cancellation.
Risk and uncertainties
The Board has reviewed the principal risks and uncertainties facing
the Company over the remainder of the financial period and concluded
that the key risks are:
(i) investment risk associated with investing in small and
immature businesses; and
(ii) failure to maintain approval as a VCT.
In both cases the Board is satisfied with the Company's approach to
these risks. The strategy of, where possible, taking charges over
assets to secure its investments helps to limit any potential losses
which could arise from the failure of an investee business.
The Company continually monitors its compliance with the VCT
regulations and 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 regulations to a
minimal level.
Outlook
The current economic conditions clearly make the job of investing the
Company's funds more challenging. However, the Company now only
needs a small number of additional VCT qualifying investments to
achieve the required level by the target date. This should allow the
Investment Manager some additional flexibility in identifying and
securing strong investment opportunities which fulfil the Company's
objectives.
Hugh Gillespie
Chairman
INVESTMENT MANAGER'S REPORT
We are pleased to report that the Company has continued to achieve a
good rate of investment activity over the six months ended 31 July
2008 and that, although the portfolio has felt the impact of the
economic turmoil, we are happy that, with one exception, all
investments remain sound.
Portfolio Developments
The Company made an investment of £500,000 into Vermont Developments
Limited in April 2007 to partially fund the purchase of development
land in Salford. A charge was taken over the land. The sharp
deterioration in the property market has resulted in the development
of the site being delayed and has now created some considerable
uncertainty over the current market value of the land. After
reviewing the position and being able to only obtain a small
repayment of our loan stock investment, the decision was taken to
seek the appointment of an administrator to provide the best
opportunity of recovering value for your Company. In view of the
current uncertainty, the Board has made a 50% provision against the
net cost of the investment, being £240,000.
The main new additions to the portfolio in the period were £1 million
investments in both West Tower Holdings Limited and The Thames Club
Limited. West Tower Holdings used the funds to acquire "The West
Tower", a popular, upmarket dining and wedding venue with 12
bedrooms, near Ormskirk. The management team is now progressing
plans to develop the property.
The Thames Club Limited has acquired a health and fitness centre in
Staines, Surrey called "The Thames Club". Plans are now underway to
develop and reconfigure the centre, which should, once complete,
allow significantly improved financial performance.
The largest non-qualifying investment made in the period was that of
£500,000 in Pocket Living (Bath Road) Limited. The funds have been
used to finance the build out of an affordable housing development in
Hounslow, West London. The Company has taken a charge over the land
and buildings, giving it a high level of security cover.
Outlook
At 31 July 2008, the Company had invested 55.5% of its funds in VCT
qualifying investments. Further VCT qualifying investments totalling
approximately £1.25 million are required for the Company to reach the
70% target. We are currently pursuing a number of good quality
investment opportunities and expect to be able to meet the
qualification target well ahead of the 31 January 2010 deadline.
While we expect difficult trading conditions to persist for some
time, we are confident that the existing portfolio is well placed to
deal with this. We will continue to monitor the investments closely,
in order to identify and address any potential problem as early as
possible.
Downing Protected VCT Managers VI Ltd
UNAUDITED SUMMARISED BALANCE SHEET
as at 31 July 2008
31 Jul 2008 31 Jul 2007 31 Jan
2008
£'000 £'000 £'000
Fixed assets
Investments 8,411 2,325 6,314
Net current assets 193 6,342 2,469
Net assets 8,604 8,667 8,783
Capital and reserves
Called up share capital 23 23 23
Deferred shares 3 3 3
Share premium 8,580 8,580 8,580
Revenue reserve 159 61 177
Capital reserve-unrealised (161) - -
Equity shareholders' funds 8,604 8,667 8,783
Net asset value per Ordinary share 94.4p 95.1p 96.4p
Net asset value per "A" share 0.1p 0.1p 0.1p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the period ended 31 July 2008
31 Jul 2008 31 Jul 2007 31 Jan 2008
£'000 £'000 £'000
Opening shareholders' funds 8,783 - -
Issue of shares - 9,156 9,106
Share issue costs - (500) (500)
Redemption of preference - (50) -
shares
Total recognised
(losses)/gains for the period (20) 61 177
Distributions paid in the (159) - -
period
Closing shareholders' funds 8,604 8,667 8,783
UNAUDITED INCOME STATEMENT
for the period ended 31 July 2008
Period ended
31 Jul 2008
Revenue Capital Total
£'000 £'000 £'000
Income 317 - 317
Gains on investments - (161) (161)
317 (161) 156
Investment management fees (59) - (59)
Other expenses (61) - (61)
Return on ordinary activities before 197 (161) 36
taxation
Taxation (56) - (56)
Return attributable to equity shareholders 141 (161) (20)
Return per Ordinary share 1.5p (1.7p) (0.2p)
Return per "A" share - - -
Period ended Period ended
31 Jul 2007 31 Jan 2008
Revenue Capital Total Total
£'000 £'000 £'000 £'000
Income 178 - 178 467
Gains on investments - - - -
178 - 178 467
Investment management fees (36) - (36) (95)
Other expenses (56) - (56) (122)
Return on ordinary activities 86 - 86 250
before taxation
Taxation (25) - (25) (73)
Return attributable to equity 61 - 61 177
shareholders
Return per Ordinary share 0.7p - 0.7p 2.0p
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 31 July 2008
31 Jul 31 Jul 31 Jan
2008 2007 2008
Note £'000 £'000 £'000
Cash inflow from operating
activities and returns on 1
investments 24 134 187
Capital expenditure
Purchase of investments (2,850) (2,325) (6,814)
Proceeds from sale of investments 592 - 500
Net cash outflow from capital (2,258) (2,325) (6,314)
expenditure
Equity dividends paid (159) - -
Net cash outflow before financing (2,393) (2,191) (6,127)
Financing
Shares issued - 9,156 9,156
Redemption of preference shares - (50) (50)
Share issue costs - (500) (500)
Net cash inflow from financing - 8,606 8,606
(Decrease)/increase in cash 2 (2,393) 6,415 2,479
Notes to the cash flow statement:
1 Cash inflow from operating
activities and returns on
investments
Net revenue before taxation 197 86 250
Increase in other debtors (156) (35) (150)
(Decrease)/increase in other (17) 83 87
creditors
Net cash inflow from operating 24 134 187
activities
2 Analysis of net funds
Beginning of period 2,479 - -
Net cash (outflow)/inflow (2,393) 6,415 2,479
End of period 86 6,415 2,479
SUMMARY OF INVESTMENT PORTFOLIO
as at 31 July 2008
% of
Unrealised portfolio
Cost Valuation gain/(loss) by value
£'000 £'000 £'000 £'000
VCT Qualifying
Cadbury House Limited* 1,075 1,099 24 12.9%
West Tower Holding Limited 1,000 1,016 16 12.0%
The Thames Club Limited 1,000 1,000 - 11.8%
Future Films Production
Services Limited 825 825 - 9.7%
Hoole Hall Hotel Limited 750 782 32 9.2%
Richstone Contracting Limited 204 204 - 2.4%
4,854 4,926 72 58.0%
Non-VCT Qualifying
Pocket Living (Bath Road)
Limited 800 800 - 9.4%
Kaizen Capital LLP 740 740 - 8.7%
Kings Gap Limited 400 400 - 4.7%
JEB Leisure Limited 337 337 - 3.9%
Cannock Developments (Field
End) LLP 250 250 - 3.0%
Sanguine Hospitality Limited 250 250 - 3.0%
Vermont Development Limited 483 250 (233) 3.0%
Aminghurst Limited 208 208 - 2.4%
Future Films Production
Services Limited 175 175 - 2.0%
Coastal Partnerships Limited 75 75 - 0.9%
3,718 3,485 (233) 41.0%
Total 8,572 8,411 (161) 99.0%
Cash at Bank and in hand 86 1.0%
Total investments 8,497 100.0%
* Part of investment is non-VCT qualifying
SUMMARY OF INVESTMENT MOVEMENTS
for the six months ended 31 July 2008
Additions
£'000
VCT Qualifying investments
West Tower Holdings Limited 1,000
The Thames Club Limited 1,000
2,000
Non VCT Qualifying investments
Pocket Living (Bath Road) Limited 500
Future Films Production Services Limited 175
JEB Leisure Limited 100
Cadbury House Limited 75
850
2,850
Disposals
Profit/(loss)
Cost Proceeds Gain/(loss) in period
£'000 £'000 £'000 £'000
Non VCT Qualifying
investments
Kings Gap Limited 400 400 - -
Kaizen Capital LLP 163 163 - -
Vermont Development
Limited 17 17 - -
JEB Leisure Limited 12 12 - -
592 592 - -
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. The unaudited half-yearly results cover the six months to
31 July 2008 and have been prepared in accordance with the accounting
policies set out in the statutory accounts for the year ended 31
January 2008 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 December 2005 ("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 has been calculated on 9,098,500
Ordinary shares and 13,647,743 'A' shares, being the share in issue
at the period end.
5. Return per share for the period has been calculated on
9,098,500 Ordinary shares and 13,647,743 'A' shares, being the
weighted average number of shares in issue during the period.
6. Dividends
31 July 2008 31 Jan
2008
Revenue Capital Total Total
£'000 £'000 £'000 £'000
Paid in year
2008 Final 159 - 159 -
7. Reserves
Share Capital reserve -
premium Revenue unrealised
account reserve
£'000 £'000 £'000
At 1 February 2008 8,580 177 -
Net gains/(losses) on - (161)
investments
Distributions paid - (159) -
Retained net revenue for the - 141 -
year
At 31 July 2008 8,580 159 (161)
The Revenue Reserve and Capital reserve - realised are distributable
reserves.
8. The unaudited condensed 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 31 January
2008 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.
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 unaudited interim results will be sent to
shareholders shortly. Further copies can be obtained from the
Company's Registered Office and will be available for download from
www.downing.co.uk.
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