Maven Income 1 Regulatory News (MIG1)

8 Jun 2009 13:07



Aberdeen Income and Growth VCT PLC

Final results for the year ended 28 February 2009

The Directors are pleased to report the Company's financial results for the year ended 28 February 2009. Despite the full scale banking crisis and associated turmoil experienced in the quoted markets, with a near collapse of AIM, the Company's NAV total return has seen only a modest reduction over the year, significantly less than the fall in markets generally. The majority of investments are in private companies and, therefore, the movements on quoted markets do not directly affect their valuations. The performance of these companies is broadly in line with expectations and, generally, they continue to meet their financial obligations to both their banks and shareholders. The Company has also achieved two profitable exits during the year. The unlisted portfolio has held up satisfactorily in what are almost unprecedented economic conditions for the SME sector, which we expect to continue for some time.

The values of our AIM/PLUS holdings have, however, been hit hard in line with the wider impact on listed markets, despite sound underlying trading figures and earnings in many cases. There has inevitably been a reduction in the Net Asset Value (NAV) of the AIM/PLUS element of the portfolio, as AIM has been particularly affected by poor global conditions, with the index falling by more than 60% over the year.

Overall, the Company has performed satisfactorily in the face of such a widespread and sustained downturn for small cap and private companies. The major features of the year were:

NAV total return of 95.4p per share (pps) at year end, down 6.1% over the year;

NAV at year end of 63.3pps;

two successful exits from unlisted companies during the year, generating net gains of 3.1pps; and

final dividend proposed of 2.0pps, to make a total of 3.0pps for year.

Performance

The NAV total return at 28 February 2009 was 95.4pps, a decrease of 6.1% over the equivalent figure at 29 February 2008. At 28 February 2009, the NAV was 63.3pps. The most important measure for a VCT is the NAV total return, being the long term record of dividend payments out of income and capital gains combined with the current NAV. In the short term, the NAV on its own is a less important measure of performance as the underlying investments are long-term in nature and not readily realisable. 

Dividends

The Company paid an interim dividend of 1.0pps to Shareholders on 12 December 2008. The Board is now proposing a final dividend of 2.0pps to be paid on 24 July 2009 to Shareholders on the register on 26 June 2009. All dividends are, of course, paid tax-free to Shareholders and the total dividend for the year of 3.0pps is equivalent to a yield of 5.0% from an equity investment to a higher-rate taxpayer on an effective initial investment of 80pps when the initial tax relief of 20% is taken into account. Based on the mid-market share price of 34.0p at 28 February 2009, the annual yield to a higher-rate taxpayer buying shares in the secondary market would by 11.8%. Since the Company's launch, and after receipt of the final dividend, Shareholders will have received 34.1pps in tax-free dividends, of which 24.6pps has been paid over the last five years. The effect of paying the proposed final dividend of 2.0pps will be to reduce the NAV to 61.3pps.

Outlook

The unlisted investments held by the Company are generally holding up well and are not directly affected by the turmoil which has been experienced in the quoted markets. There is, however, evidence that the banks are continuing to reduce their exposure to commercial lending, with the result that the unlisted companies in the portfolio may have to manage within their existing facilities. The Company does have the cash and available facilities to assist where appropriate. The Manager generally holds seats on our unlisted investee companies' boards and is, therefore, closely involved with those investments as they face continuing difficult market conditions. It is, of course, less closely associated with AIM or PLUS quoted investments, not having board representation.

There has been little activity in AIM or PLUS in recent months and it seems likely that it will be some time before new opportunities to invest in companies seeking an IPO on that market become available. The Manager will maintain a focus on investing in well managed unlisted companies which offer excellent growth prospects, as the Manager believes that such companies will offer the opportunity for profitable realisations when normal market conditions return.

A Statement of Total Recognised Gains and Losses has not been prepared, as all gains and losses are recognised in the Income Statement.

*The total column of this statement is the Profit and Loss Account of the Company.

Notes

Accounting Policies - UK Generally Accepted Accounting Practice

(a) Basis of preparation 

The Financial Statements have been prepared under the historical cost convention, modified to include the revaluations, eg investments, and in accordance with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' (the SORP) issued in 2005. The disclosures on going concern in the Directors' Report form part of these Financial Statements.

(b) Income 

Dividends receivable on equity shares and unit trusts are treated as revenue for the period on an ex-dividend basis. Where no ex-dividend date is available dividends receivable on or before the year end are treated as revenue for the period. Provision is made for any dividends not expected to be received. The fixed returns on debt securities and non-equity shares are recognised on a time apportionment basis so as to reflect the effective interest rate on the debt securities and shares. Provision is made for any fixed income not expected to be received. Interest receivable from cash and short term deposits and interest payable are accrued to the end of the year.

(c) Expenses 

All expenses are accounted for on an accruals basis and charged to the Income Statement. Expenses are charged through the revenue account except as follows:

expenses which are incidental to the acquisition and disposal of an investment are charged to capital; and 

expenses are charged to realised capital reserves where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect, the investment management fee has been allocated 20% to revenue and 80% to realised capital reserves to reflect the Company's investment policy and prospective income and capital growth.

(d) Taxation 

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the balance sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the Financial Statements which are capable of reversal in one or more subsequent periods. 

Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. 

The tax effect of different items of income/gain and expenditure/loss is allocated between capital reserves and revenue account on the same basis as the particular item to which it relates using the Company's effective rate of tax for the period.

(e) Investments 

In valuing unlisted investments the Directors follow the criteria set out below. These procedures comply with the revised International Private Equity and Venture Capital Valuation Guidelines for the valuation of private equity and venture capital investments. Investments are recognised at their trade date and are valued at fair value, which represent the Directors' view of the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction. This does not assume that the underlying business is saleable at the reporting date or that its current shareholders have an intention to sell their holding in the near future. 

(f) Gains and losses on investments 

When the Company revalues its investments during the year, any gains or losses arising are credited/charged to the Income Statement.

Movement in reserves

Returns per Ordinary Share

The returns per Ordinary Share are based on the following figures:

Net Asset Value per Ordinary Share

Net Asset Value per Ordinary Share as at 28 February 2009 has been calculated using the number of Ordinary Shares in issue at that date of 35,355,071 (2008: 35,463,992). 

Principal risks and uncertainties

The principal risks facing the Company relate to its investment activities and include market price, interest rate and liquidity risk. An explanation of these risks and how they are managed is contained in Note 18 to the Financial Statements. 

Additional risks faced by the Company, and the mitigation approach adopted by the Board, are as follows:

investment objective: the Board's aim is to maximise absolute returns to Shareholders while managing risk by ensuring an appropriate diversification of investments;

investment policy: inappropriate stock selection leading to underperformance in absolute and relative terms is a risk which the Manager mitigates by operating within investment guidelines and regularly monitoring performance against the peer group. The regulations affecting Venture Capital Trusts are central to the Company's investment policy; 

discount volatility: due to the lack of liquidity in the secondary market, venture capital trust shares tend to trade at discounts to net asset values; and 

regulatory risk: the Company operates in a complex regulatory environment and faces a number of related risks. A breach of Section 274 of the Income Tax Act 2007 could result in the Company being subject to capital gains tax on the sale of its investments. A breach of the VCT Regulations could result in the loss of VCT status and consequent loss of tax reliefs currently available to Shareholders. A serious breach of other regulations, such as the UKLA Listing Rules or the Companies Act, would lead to suspension of its shares from the Stock Exchange, loss of VCT status and reputational damage. The Board receives quarterly reports from the Manager in order to monitor compliance with regulations. 

At least twice each year the Board considers all of the above risks and the measures in place to manage them. 

Other information

The Annual General Meeting will be held on 7 July 2009, commencing at 2.15 p.m.

This Announcement has been prepared on the same basis as the Annual Report and Financial Statements for the year ended 29 February 2008. The Annual Report and Financial Statements for the year ended 28 February 2009 will be filed with the Registrar of Companies and issued to Shareholders in due course.

The financial information contained within this Announcement does not constitute the Company's statutory Financial Statements as defined in Section 240 of the Companies Act 1985. The statutory Financial Statements for the year ended 29 February 2008 have been delivered to the Registrar of Companies and contained an audit report which was unqualified and did not constitute statements under Sections 237(2) or (3) of the Companies Act 1985.

Copies of this announcement will be available to the public at the office of Aberdeen Asset Managers Limited, 149 St Vincent Street, Glasgow; at the registered office of the Company, One Bow Churchyard, Cheapside, London and on the Company's website at www.aigvct.co.uk

Directors' responsibility statement

The Directors confirm that, to the best of their knowledge:

the Financial Statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities and financial position of the Company as at 28 February 2009 and for the year to that date; and

the Directors' Report includes a fair review of the development and performance of the Company, together with a description of the principal risks and uncertainties that it faces.

By Order of the Board

Aberdeen Asset Management PLC

Secretary

8 June 2009