Half-yearly report

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. ---END OF MESSAGE---