Last checked at 
26 Feb 2010 07:00
For immediate release 26 February 2010
SPARK VCT PLC ("Spark VCT" or the "Company") CONTINUATION VOTE AND STRATEGY UPDATE
At the Annual General Meeting ("AGM") being held in May 2010, shareholders in the Company will be asked to vote on a resolution to decide whether or not the Company should continue as a venture capital trust (the "Continuation Vote").
In preparation for this, the Board has considered whether the Company should continue as a venture capital trust ("VCT") and, if so, the most appropriate strategy for the Company and its shareholders both in the short and long term.
The Board today announces the conclusions of its review on both continuation and strategy well ahead of the AGM, giving shareholders reasonable time to consider the issues prior to the Continuation Vote.
Continuation Vote
Market surveys suggest that shareholders wish VCT companies to continue and to preserve their VCT tax status. As stated in the Half Yearly Financial Report published on 21 August 2009, the Board believes that many investors in Spark VCT with "rolled over" or "deferred" capital gains would be significantly disadvantaged if the Company ceased to qualify as a VCT.
It is, therefore, the Board's view that it is in the best interests of shareholders to maintain the Company as a qualifying VCT. Accordingly, the directors are recommending that shareholders support the Continuation Vote.
Investment Strategy
A new Board was appointed to Spark VCT early in 2009. The directors are most aware that no dividend has been paid to shareholders since October 2008, that net assets have fallen significantly in recent years and that there has been an enduring discount between the net assets per share and the share price.
They have, accordingly, assessed the Company's investments and concluded that, in the current economic climate, early stage venture capital investments, such as the majority of those in the Company's existing portfolio, no longer present an attractive investment for Spark VCT shareholders. The Board believes that this is likely to remain the case for the foreseeable future. As a result, the directors have reviewed the investment strategy for the Company and advise that:
* The Company's existing portfolio investments should be realised as soon as they mature and suitable exits are achievable. This is likely to take several years and some highly selective follow-on funding may be required where it is possible to enhance realisation prospects; * It is more efficient to use cash proceeds from realisations to fund tax free dividends than share buybacks. Accordingly, the Board intends to adopt an aggressive dividend policy, which returns 75% of sale proceeds realised from current portfolio investments to shareholders by way of tax free dividends; * The remaining cash funds not required for follow-on investments should be used to make new, qualifying investments, within the Company's existing investment policy, enabling the Company to maintain its VCT tax status; such investments would be focused towards relatively lower risk opportunities, where investee companies are more advanced in their development - either generating revenues and able to pay dividends or well positioned for exit in a short time frame.
This new investment strategy reflects the policy recently announced by Spark VCT 2 plc and it is anticipated that the majority of such new investments would be made in conjunction with that company.
The new policies set out above are likely, over time, to result in the total assets within the Company reducing to a size which is no longer viable, commercially, as an independent entity. Accordingly, the Board remains alert to the possibility of a merger with appropriate VCTs.
Board Changes
Greg Lockwood has indicated that, due to his other commitments, he will be standing down from the Board at the Company's AGM in May 2010. The Board would like to thank Greg for his valuable contribution during a short and active tenure. Having completed its review of the Company's investments and determined the future strategy, the Directors consider the reduced Board size will meet the Company's future needs.
Announcement of Final Results
The results for the year ended 31 December 2009 will be issued in early April 2010. Details of the Continuation Vote will be included in the Annual Report which will be posted at the same time as the results.
Dividends
On 31 December 2009, the Company had approximately £9.9m in cash and readily realisable assets. The Board will be recommending a final dividend for the year to 31 December 2009 of 2p per share for approval by shareholders at the AGM. Subject to a successful Continuation Vote, it is the Board's intention to provide more regular dividends thereafter, which reflect its new policy to return 75% of realisation proceeds from existing portfolio investments to shareholders.
Once the existing portfolio has been realised and 75% of the proceeds returned to shareholders, the Board intends to adopt a dividend policy which provides a consistent, although lower, income stream for shareholders, reflecting the underlying profitability of its investees.
Share Buybacks and Directors' Purchases
The Board considers that funding tax free cash dividends is better use of Company funds than share buybacks. Accordingly, it intends to limit any such share purchases to the most extreme circumstances and, in no case, will the cost of buybacks be allowed to exceed 0.5% of opening Net Asset Value in any year.
It is the intention of directors, Robin Field and David Adams, and certain officers of the Company's fund manager, Spark Venture Management Limited, to purchase shares on their own behalf once the Company is out of the current close period. This will take place following the announcement of the final results for the year ended 31 December 2009 and the Company has completed any share buybacks on its own account.
Thereafter, it is hoped that the new strategy, including the dividend policies, will encourage a more active secondary market in the Company's shares.
Costs
The Board is actively monitoring the costs of the Company's service providers to ensure these are kept as low as is practical. The management fee paid to Spark Venture Management Limited remains limited to 2% of NAV and all costs, including the management fee, are capped at 3.5% of NAV. As the existing portfolio is realised and the proceeds distributed to shareholders, the management fee will be reduced accordingly.
Once the disposal stage has been completed, there may well be opportunities for further cost savings.
Robin Field, Chairman of Spark VCT, said: "After much consideration, the Board believes it has identified the best strategy for the Company in the long term interests of its shareholders. The new strategy strikes the right balance between selling the existing portfolio and distributing significant tax free dividends and, thereafter, maintaining the Company's VCT status."
...Ends... For further information, please contact:
Rawlings Financial PR Limited Tel: 01653 618016 Catriona Valentine catriona@rawlingsfinancial.co.uk Keeley Clarke keeley@rawlingsfinancial.co.uk Spark VCT plc website www.sparkvct.com
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