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Annual Financial Report

31 May 2017 07:00

RNS Number : 6167G
Puma VCT 11 PLC
31 May 2017
 

 

HIGHLIGHTS

 

· Over 75% of funds raised invested in a diverse range of high quality businesses and projects

· Profit of £525,000 before tax for the year, a post-tax gain of 1.48p per share

· Strong pipeline of investments as the Company completes its first full year of operations

 

CHAIRMAN'S STATEMENT

 

Introduction

 

I am pleased to present to you as Chairman the annual report for Puma VCT 11 plc for the year to 28 February 2017, the Company's first full year of investment.

 

The Company began investing in June 2015, having completed its fund-raising, and has made good progress in 2016/17. It has now deployed a large proportion of its funds in medium-term investments, both qualifying and non-qualifying.

 

The Investment Manager, Puma Investments, now has £121million of VCT money under management in this and other Puma VCTs and a well-established, experienced VCT team to manage the Company's deal flow.

 

Results

 

The Company reported a profit before tax of £525,000 for the year (2016: £145,000 loss) and a post-tax gain of 1.48p (2016: 0.72p loss) per ordinary share (calculated on the weighted average number of shares). The Net Asset Value per ordinary share ("NAV") at 28 February 2017 was 97.66p (2016: 96.18p). 

 

Dividend

 

In line with the Company's dividend policy as stated in the Prospectus, the Board will propose at the Annual General Meeting a resolution to pay a first dividend of 3p per share. The Company hopes to achieve (although there is no guarantee) an average dividend payment equivalent to 5p per annum (including the 3p 2017 dividend) over the rest of the life of the Fund.

 

Investments

 

During the year, the Company completed a series of investments for a total of £6.6 million. Details of these investments can be found in the Investment Manager's report on pages 3 to 6.

 

The Investment Manager has continued to review a number of suitable investment opportunities, generated by a strong pipeline, and expects, in particular, to make qualifying investments during the coming year to ensure the Company is on course to meet its HMRC qualifying target.

 

VCT qualifying status

 

PricewaterhouseCoopers LLP ("PwC") provides the board and the Investment Manager with advice on the ongoing compliance with HMRC rules and regulations concerning VCTs and has reported no issues in this regard for the Company to date. PwC will continue to assist the Investment Manager in establishing the status of potential investments as qualifying holdings in the future. 

 

Outlook

 

The Company has made good progress. At the time of writing and in advance of the Company's second anniversary of operations, we are pleased that we have deployed over 75% of the Company's net assets in a mixture of qualifying and non-qualifying investments. These investments have been made in a diverse range of high quality businesses and projects and there is a good flow of qualifying opportunities which should lead to further suitable investments. We will continue to update you in due course as investments are completed.

 

Although there is an increased demand from smaller companies seeking finance as they perceive that the economy has returned to growth, availability continues to be restricted. Moreover, the terms on which target companies can raise finance from banks remain problematic. This continues to drive the demand for our offering and should also allow us to secure favourable terms when we offer finance. There are suitable companies which are well managed, in good market positions, and which can offer security and need our finance.

 

 

 

 

 

 

 

Harold Paisner

Chairman

 

30 May 2017

INVESTMENT MANAGER'S REPORT

 

 

Introduction

 

As set out in the Chairman's Statement, availability of finance continues to be restricted for small and medium sized businesses (SMEs). As a consequence, the Company has been able to make a number of attractive investments, both qualifying and non-qualifying, to smaller companies on a secured basis. We have also continued to see a strong pipeline of potential investments, particularly opportunities to make further qualifying investments to ensure the Company meets its HMRC qualifying target.

 

Investments

 

Qualifying Investments

 

During the year, the Company made a £686,000 qualifying investment (as part of a £2.8 million investment alongside other Puma VCTs) in Growing Fingers Limited, a further £294,000 was invested after the year end. The investment will fund the construction and launch of a new purpose-built 108 place nursery school in Wendover, Buckinghamshire, an affluent commuter town with direct links to London. Growing Fingers is a new company headed by a management team with many years' operational experience in nurseries and healthcare facilities. The Company benefits from first charge security over the Wendover site and the Growing Fingers business and is expected to produce an attractive return to the Company.

 

As previously reported, before the passing of the Finance (2) Act 2015, the Company invested a total of £7.5 million in three newly established qualifying businesses. Warm Hearth Limited, in which the Company invested £2.5 million (as part of a £5 million investment alongside other Puma VCTs), was established to operate a trading business in the hospitality and leisure sectors and/or to acquire businesses that operate within those sectors. Mini Rainbows Limited, in which the Company invested £2.5 million (as part of a £5 million investment alongside other Puma VCTs), was established to operate a trading business in the childcare sector and/or to acquire businesses which operate within that sector. Welcome Health Limited, in which the Company invested £2.5 million (as part of a £5 million investment alongside other Puma VCTs), was established to operate a trading business in the healthcare sector and/or to acquire businesses that operate within that sector.

 

I am pleased to report that, during the year, Warm Hearth Limited commenced its trade, seeking to capitalise on the strong growth trends within the craft beer sub-market and add value from the roll-out and use of a strong brand. In pursuit of this strategy Warm Hearth was able to negotiate a franchise agreement with Brewhouse & Kitchen Limited ("B&K"), a strong and fast-growing branded operator. Its differentiation is to have craft micro-brewing activities within each of its pub units as a point of focus. Warm Hearth acquired three substantial freehold pub assets in Chester, Wilmslow and Bedford, all of which are now open and trading as fully branded B&K units.

 

We understand that the directors of Mini Rainbows Limited and Welcome Health Limited have both agreed terms to deploy their funds in the near future. We have been advised by PwC that HMRC have confirmed that these investments should also be qualifying for VCT purposes.

 

Non-Qualifying Investments

 

As previously reported, we have adopted a strategy for the non-qualifying portfolio of secured loans (and other similar instruments) offering a good yield with hopefully limited downside risk. To that end, the Company had invested £20.6 million in a series of lending businesses with this strategy. Details of the loans that these lending businesses have made are set out below.

 

Loans of £1.2 million were advanced (through an affiliate, Meadow Lending Limited) to Windsar Care (UK) LLP to fund the development and initial trading of a 68-bed purpose-built care home in Egham, Windsor. These loans, together with loans from other vehicles managed and advised by the Investment Manager totalling £5.3 million, are secured with a first charge over the site and are expected to generate an attractive return. Construction is well progressed and the care home is expected to open later this year.

 

During the year, a series of further loans were advanced (through affiliates Tottenham Lending Limited and Marble Lending Limited) to various entities within the Citrus Group bringing the total to £2.75 million. These loans, together with loans from other vehicles managed and advised by the Investment Manager, form part of a series of revolving credit facilities to provide working capital to the Citrus PX business. Citrus PX operates a property part exchange service facilitating the rapid purchase of properties for developers and homeowners. The facility provides a series of loans to Citrus PX, with the benefit of a first charge over a geographically diversified portfolio of residential properties on conservative terms. Following the year end, the Company's exposure was reduced to £1.4 million following repayment of £1.35 million of principal (together with all accrued interest).

 

In June 2016, an £800,000 loan was advanced (through an affiliate, Sloane Lending Limited), secured against a portfolio of freehold assets and the associated ground rents, as part of a package from other vehicles managed and advised by the Investment Manager totalling £4.3 million. The portfolio of ground rents consists of 1,415 individual units in total across 16 freeholds, with all leases in excess of 90 years. The sponsor of the transaction is Grangeford Asset Management, a manager of some 7,000 individual ground rents across 130 properties in the United Kingdom valued at £50 million. We are pleased to report that, following the year end, the loan was repaid in full giving a good rate of return.

 

During the year, a £1.2 million facility (as part of a total facility of £5 million) was completed (through an affiliate, Primrose Lending Limited) with an entity within the Ironbridge Group. The facility provides the senior 70% slice of "stretched senior" bridging loans on non-owner-occupied properties in London and the South East with Ironbridge funding the subordinated 30% slice. Ironbridge operate a bridge lending business and have successfully deployed over £50m of customer loans to date. Loans are being advanced from 6 to 24 months with the senior slice at a conservative loan-to-value ratio.

 

In December 2016, loans of £400,000 were advanced (through an affiliate, Lothian Lending Limited) to HPC (Wickford) Limited which, together with loans from other vehicles managed and advised by the Investment Manager totalling £2.85 million, will facilitate the development and initial trading of a purpose-built IVF Fertility Clinic in Wickford, Essex. HPC (Wickford) Limited has entered into a lease with Bourn Hall Limited, one of the UK's largest independent fertility clinic groups. Construction has commenced on site and is progressing well.

 

The £116,000 loan (through an affiliate, Lavender Lending Limited) to Athena (Alpha) Limited, as part of a £4.4 million facility from other vehicles managed and advised by the Investment Manager, is funding the development of a new purpose-built, 80-bed residential care home in Dover, Kent. The site occupies a prominent location adjacent to the recently opened new community hospital, approximately a 5 minute drive from Dover town centre. We are pleased to report that, following the year end, the borrower sold the care home shortly following practical completion and our loan was repaid in full giving a good rate of return.

 

The loan of £3 million advanced (through an affiliate, Mayfield Lending Limited) to Northern Land Developments Limited to facilitate the acquisition of two large residential houses in Beckenham, Kent, and to fund planning costs to replace these two units with seven town houses, continues to perform. We are pleased to report that planning permission was duly granted during the year. The loan is secured with a first charge over the site and also an adjacent larger parcel of land with significant further development potential.

 

A £1.35 million loan (together with loans from other vehicles managed and advised by the Investment Manager totalling £5.4 million) has been advanced (through an affiliate, Meadow Lending Limited) to Regent Formations 265 Limited to fund the development of a new 88 bed care home in Melton Mowbray, Leicestershire. This loan is secured with a first charge over the care home which recently opened and has accepted its first residents. We understand that the borrower is in discussions with a potential purchaser of this care home on terms which would see the loan repaid in full.

 

As previously reported, a loan of £2.5 million was made (through an affiliate, Latimer Lending Limited) to Toppan Holdings Limited to fund the development of a 65 bed purpose built care home in Mill Hill, London. The loan, together with loans from other vehicles managed and advised by the Investment Manager totalling £5.6 million, is secured with a first charge over the care home which has recently reached practical completion.

 

A loan of £2 million (as part of a £6.9 million facility from other vehicles managed and advised by the Investment Manager) was made (through an affiliate, Lothian Lending Limited) to Richmond Global Properties Limited to fund the development of a 112 bed purpose built care home in Hamilton, Scotland. These loans are again secured with a first charge over the site. This recently reached practical completion and the home is now being fitted out ready to accept its first residents.

 

We are pleased to report that the residual £640,000 loan (through an affiliate, Lothian Lending Limited) to Kingsmead Care Home Limited, which owns and operates a care and dementia treatment facility in Mytchett, Surrey, was repaid in full during the year, giving a good rate of return.

 

As previously reported, the Company had acquired £519,000 shares in Nextenergy Solar Fund, a fully listed investment company focusing on operational solar photovoltaic assets located in the United Kingdom. Due to a change in power-generation markets resulting from declining energy prices, we began to reduce the Company's exposure and fully exited this investment during the year.

 

To further manage liquidity, the Company has exposure to £2.2 million in a floating rate note issued by Royal Bank of Canada (reduced by £0.8 million during the year) and £1.3 million in a floating rate note issued by Commonwealth Bank of Australia (which are held by affiliates Bayswater Lending Limited and Palmer Lending Limited). It is intended that these positions will be liquidated in due course as the Company makes qualifying investments.

 

Investment Strategy

 

We are pleased to have invested a substantial proportion of the Company's funds. We remain focused on generating strong returns for the Company in both the qualifying and non-qualifying portfolios, whilst balancing these returns with maintaining an appropriate risk exposure and ensuring there is significant liquidity in the portfolio to free up cash for qualifying investments as they arise.

 

The Investment Management team continues to meet with companies which are potentially suitable for investment. In accordance with our mandate we have maintained a cautious approach and are performing due diligence work on several potential investments. Over the course of the next year, the Company will build the qualifying portfolio to the required 70 per cent. We have strong deal-flow and are meeting many potential investee companies with several interesting opportunities to make further qualifying investments.

 

 

 

Puma Investment Management Limited

30 May 2017

 

Investment Portfolio Summary

As at 28 February 2017

 

Valuation

Cost

Gain/(loss)

Valuation as a % of Net Assets

£'000

£'000

£'000

As at 28 February 2017

Qualifying Investments

Warm Hearth Limited

2,500

2,500

-

8%

Mini Rainbows Limited

2,500

2,500

-

8%

Welcome Health Limited

2,500

2,500

-

8%

Growing Fingers Limited

686

686

-

2%

Total Qualifying Investments

8,186

8,186

-

26%

Non-Qualifying Investments

Palmer Lending Limited

125

125

-

0%

Valencia Lending Limited

1,350

1,350

-

5%

Primrose Lending Limited

2,000

2,000

-

7%

Mayfield Lending Limited

3,000

3,000

-

10%

Lothian Lending Limited

2,874

2,874

-

10%

Lavender Lending Limited

116

116

-

0%

Latimer Lending Limited

2,481

2,481

-

8%

Meadow Lending Limited

2,575

2,575

-

9%

Bayswater Lending Limited

401

401

-

1%

Tottenham Lending Limited

800

800

-

3%

Marble Lending Limited

600

600

-

2%

Sloane Lending Limited

800

800

-

3%

Total Non-Qualifying investments

17,122

17,122

-

58%

Liquidity Management

Royal Bank of Canada bonds* (via Bayswater Lending Limited)

2,215

2,201

14

7%

Commonwealth Bank of Australia bonds*(via Palmer Lending Limited)

1,297

1,289

8

4%

Total Liquidity Management investments

3,512

3,490

22

11%

Total Investments

28,820

28,798

22

97%

Balance of Portfolio

978

978

-

3%

Net Assets

29,798

29,776

22

100%

 

 

Of the investments held at 28 February 2017, all are incorporated in England and Wales.

 

* Quoted investment listed on the LSE.

 

 

Income Statement

For the year ended 28 February 2017

 

Year ended 28 February 2017

Period from 1 September 2014 to 29 February 2016

Note

Revenue

Capital

Total

Revenue

Capital

Total

£'000

£'000

£'000

£'000

£'000

£'000

Gain/(loss) on investments

8 (b)

-

49

49

-

(53)

(53)

Income

2

1,317

-

1,317

764

-

764

1,317

49

1,366

764

(53)

711

Investment management fees

3

(149)

(447)

(596)

(144)

(433)

(577)

Other expenses

4

(245)

-

(245)

(279)

-

(279)

(394)

(447)

(841)

(423)

(433)

(856)

Profit/(loss) before taxation

923

(398)

525

341

(486)

(145)

Taxation

5

(184)

110

(74)

(68)

68

-

Profit/(loss) and total comprehensive income for the year

739

(288)

451

273

(418)

(145)

Basic and diluted

Return/(loss) per Ordinary Share (pence)

6

2.42p

(0.94p)

1.48p

1.35p

(2.07p)

(0.72p)

 

 

All items in the above statement derive from continuing operations. 

 

There are no gains or losses other than those disclosed in the Income Statement.

 

The total column of this statement is the Statement of Total Comprehensive Income of the Company prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. The supplementary revenue and capital columns are prepared in accordance with the Statement of Recommended Practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014 by the Association of Investment Companies and updated in January 2017.

 

Balance Sheet

As at 28 February 2017

 

Note

2017

2016

£'000

£'000

Fixed Assets

Investments

8a

28,820

25,890

Current Assets

Debtors

9

1,220

2,200

Cash at bank and in hand

35

2,513

1,255

4,713

Creditors - amounts falling due within one year

10

(277)

(1,256)

Net Current Assets

978

3,457

Net Assets

29,798

29,347

Capital and Reserves

Called up share capital

12

19

19

Share premium account

29,473

29,473

Capital reserve - realised

(728)

(365)

Capital reserve - unrealised

22

(53)

Revenue reserve

1,012

273

Total Equity

29,798

29,347

Net Asset Value per Ordinary Share

13

97.66p

96.18p

 

The financial statements on pages 30 to 44 were approved and authorised for issue by the Board of Directors on 30 May 2017 and were signed on their behalf by:

 

 

 

 

 

Harold Paisner

Chairman

 

 

 

Statement of Cash Flows

For the year ended 28 February 2017

 

Year ended 28 February 2017

Period from 1 September 2014 to 29 February 2016

£'000

£'000

Profit/(loss) after tax

451

(145)

(Gain)/loss on investments

(49)

53

Decrease/(increase) in debtors

980

(2,200)

(Decrease)/increase in creditors

(979)

1,256

Net cash generated from/(used in) operating activities

403

(1,036)

Cash flow from investing activities

Purchase of investments

(4,964)

(25,943)

Proceeds from disposal of investments and repayment of loans and loan notes

2,083

-

Net cash used in investing activities

(2,881)

(25,943)

Cash flow from financing activities

Proceeds received from issue of ordinary share capital

-

30,242

Expense paid for issue of share capital

-

(750)

Proceeds received from issue of redeemable preference shares

-

13

Redemption of redeemable preference shares

-

(13)

Net cash generated from financing activities

-

29,492

Net cash (decrease)/increase in cash and cash equivalents

(2,478)

2,513

Cash and cash equivalents at the beginning of the year

2,513

-

Cash and cash equivalents at end of year

35

2,513

 

 

 

 

 

 

Statement of Changes in Equity

For the year ended 28 February 2017

 

Called up share capital

Share premium account

Capital reserve - realised

Capital reserve - unrealised

Revenue reserve

Total

£'000

£'000

£'000

£'000

£'000

£'000

Balance as at 1 September 2014

-

-

-

-

-

-

Shares issues in the period

19

30,223

-

-

-

30,242

Expenses of share issues

-

(750)

-

-

-

(750)

Total comprehensive income for the year

-

-

(365)

(53)

273

(145)

Balance as at 29 February 2016

19

29,473

(365)

(53)

273

29,347

Realised loss from prior period

-

-

(56)

56

-

-

Total comprehensive income for the year

-

-

(307)

19

739

451

Balance as at 28 February 2017

19

29,473

(728)

22

1,012

29,798

 

 

 

Distributable reserves comprise: Capital reserve-realised, Capital reserve-unrealised (excluding gains on unquoted investments) and the Revenue reserve. At the year end, distributable revenue reserves were £1,012,000 (2016: £nil).

 

The Capital reserve-realised includes gains/losses that have been realised in the year due to the sale of investments, net of related costs. The Capital reserve-unrealised represents the investment holding gains/losses and shows the gains/losses on investments still held by the company not yet realised by an asset sale.

 

Share premium represents premium on shares issued less issue costs.

 

The revenue reserve represents the cumulative revenue earned less cumulative distributions.

1. Accounting Policies

 

 

Accounting convention

Puma VCT 11 plc ("the Company") was incorporated, registered and is domiciled in England. The Company's registered number is 09197956. The registered office is Bond Street House, 14 Clifford Street, London W1S 4JU. The Company is a public limited company whose shares are listed on LSE with a premium listing. The company's principal activities are disclosed in the report of the directors.

 

The financial statements have been prepared under the historical cost convention, modified to include investments at fair value, and in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' ("FRS 102") and the Statement of Recommended Practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014 by the Association of Investment Companies and updated in January 2017 ("the SORP").

 

Monetary amounts in these financial statements are rounded to the nearest whole £1,000, except where otherwise indicated.

 

Investments

All investments are measured at fair value. They are all held as part of the Company's investment portfolio and are managed in accordance with the investment policy set out on page 17.

 

Listed investments are stated at bid price at the reporting date.

 

Unquoted investments are stated at fair value by the Directors with reference to the International Private Equity and Venture Capital Valuation Guidelines ("IPEV") as follows:

 

· Investments which have been made within the last twelve months or where the investee company is in the early stage of development will usually be valued at the price of recent investment except where the company's performance against plan is significantly different from expectations on which the investment was made in which case a different valuation methodology will be adopted.

 

· Investments in debt instruments will usually be valued by applying a discounted cash flow methodology based on expected future returns of the investment.

 

· Alternative methods of valuation such as net asset value may be applied in specific circumstances if considered more appropriate.

 

Realised surpluses or deficits on the disposal of investments are taken to realised capital reserves, and unrealised surpluses and deficits on the revaluation of investment are taken to unrealised capital reserves.

 

 

1. Accounting Policies (continued)

 

Income

Dividends receivable on listed equity shares are brought into account on the ex-dividend date. Dividends receivable on unquoted equity shares are brought into account when the Company's right to receive payment is established and there is no reasonable doubt that payment will be received. Interest receivable is recognised wholly as a revenue item on an accruals basis.

 

Performance fees

Upon its inception, the Company agreed performance fees payable to the Investment Manager, Puma Investment Management Limited, and members of the investment management team at 20% of the aggregate excess of the amounts realised over £1 per Ordinary Share returned to Ordinary Shareholders. This incentive will only be effective once the other holders of Ordinary Shares have received distributions of £1 per share.

 

The performance incentive has been satisfied through the issue of 7,627,992 Ordinary Shares (as set out in Note 11 of the financial statements) to the Investment Manager and members of the investment management team being 20% of the total issued Ordinary Share capital of 38,139,963. Under the terms of the incentive arrangement, all rights to dividends will be waived until the £1 per Ordinary Share performance target has been met. The performance fee is accounted for as an equity-settled share-based payment.

Section 26 of FRS 102 "Share-Based Payment" requires the recognition of an expense in respect of share-based payments in exchange for goods or services. Entities are required to measure the goods or services received at their fair value unless that fair value cannot be estimated reliably, in which case that fair value should be estimated by reference to the fair value of the equity instruments granted.

 

At each balance sheet date, the Company estimates that fair value by reference to any excess of the net asset value, adjusted for dividends paid, over £1 per share in issue at the balance sheet date. Any change in fair value is recognised in the Income Statement with a corresponding adjustment to equity.

 

Expenses

All expenses (inclusive of VAT) are accounted for on an accruals basis. Expenses are charged wholly to revenue, with the exception of:

 

· expenses incidental to the acquisition or disposal of an investment charged to capital; and

· the investment management fee, 75% of which has been charged to capital to reflect an element which is, in the directors' opinion, attributable to the maintenance or enhancement of the value of the Company's investments in accordance with the Board's expected long-term split of return; and

· the performance fee which is allocated proportionally to revenue and capital based on the respective contributions to the Net Asset Value.

 

Taxation

Corporation tax is applied to profits chargeable to corporation tax, if any, at the applicable rate for the year. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue return on the marginal basis as recommended by the SORP.

 

Deferred tax 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, or right to pay less, tax in the future has 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 taxable 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.

1. Accounting Policies (continued)

 

Reserves

Realised losses and gains on investments, transaction costs, the capital element of the investment management fee and taxation are taken through the Income Statement and recognised in the Capital Reserve - Realised on the Balance sheet. Unrealised losses and gains on investments and the capital element of the performance fee are also taken through the Income Statement and are recognised in the Capital Reserve - Unrealised.

 

Foreign exchange

The base currency of the Company is Sterling. Transactions denominated in foreign currencies are translated into Sterling at the rates ruling at the dates that they occurred. Assets and liabilities denominated in a foreign currency are translated at the appropriate foreign exchange rate ruling at the balance sheet date. Translation differences are recorded as unrealised foreign exchange losses or gains and taken to the Income Statement.

 

Debtors

Debtors include accrued income which is recognised at amortised cost, equivalent to the fair value of the expected balance receivable.

 

Dividends

Final dividends payable are recognised as distributions in the financial statements when the Company's liability to make payment has been established. The liability is established when the dividends proposed by the Board are approved by the Shareholders. Interim dividends are recognised when paid.

 

Key accounting estimates and assumptions

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets within the next financial year relate to the fair value of unquoted investments. Further details of the unquoted investments are disclosed in the Investment Manager's Report on pages 3 to 6 and notes 8 and 14 of the financial statements.

 

2. Income

Year ended 28 February 2017

Period from 1 September 2014 to 29 February 2016

£'000

£'000

Income from investments

Loan stock interest

1,257

698

Bond yields

59

42

1,316

740

Other income

Bank deposit income

1

24

1,317

764

 

 

 

 

3. Investment Management Fees

 

Year ended 28 February 2017

Period from 1 September 2014 to 29 February 2016

£'000

£'000

Puma Investments fees

596

577

596

577

 

 

Puma Investment Management Limited ("Puma Investments") has been appointed as the Investment Manager of the Company for an initial period of five years, which can be terminated by not less than twelve months' notice, given at any time by either party, on or after the fifth anniversary. The Board is satisfied with the performance of the Investment Manager. Under the terms of this agreement, Puma Investments will be paid an annual fee of 2% of the Net Asset Value payable quarterly in arrears calculated on the relevant quarter end NAV of the Company. These fees are capped, the Investment Manager having agreed to reduce its fee (if necessary to nothing) to contain total annual costs (excluding performance fee and trail commission) to within 3.5% of funds raised. Total costs this year were 2.8% (2016: 2.9 %) of the funds raised.

 

In addition to the investment manager fees disclosed above, during the period ended 29 February 2016, two payments were made to Puma Investment Management Limited totalling £649,000 in relation to share issue costs.

 

4. Other expenses

Year ended 28 February 2017

Period from 1 September 2014 to 29 February 2016

£'000

£'000

PI Administration Services Limited

104

108

Directors' Remuneration

48

56

Social security costs

2

3

Auditor's remuneration for statutory audit

23

23

Legal and professional fees

17

8

Other expenses

51

81

245

279

 

PI Administration Services Limited provides administrative services to the Company for an aggregate annual fee of 0.35% of the Net Asset Value of the Fund, payable quarterly in arrears.

 

Remuneration for each Director for the year is disclosed in the Directors' Remuneration Report on page 22. The Company had no employees (other than Directors) during the year (2016: none). The average number of non-executive Directors during the year was 3 (2016: 3). The non-executive Directors are considered to be the Key Management Personnel of the Company with total remuneration for the year of £50,000 (2016: £59,000) including social security costs.

 

The Auditor's remuneration of £19,500 (2016: £18,750) has been grossed up in the table above to be inclusive of VAT.

 

 

5. Taxation

Year ended 28 February 2017

Period from 1 September 2014 to 29 February 2016

£'000

£'000

UK corporation tax charged to revenue reserve

184

68

UK corporation tax credited to capital reserve

(110)

(68)

UK corporation tax charge for the year

74

-

Factors affecting tax charge for the year

Profit/(loss) before taxation

525

(145)

Tax charge calculated on profit/(loss) before taxation at 20%

105

(29)

Tax on capital items not taxable

(10)

11

Tax losses (utilised)/carried forward

(18)

18

Other differences

(3)

-

74

-

 

Capital returns are not taxable as the Company is exempt from tax on realised capital gains whilst it continues to comply with the VCT regulations, so no corporation tax or deferred tax is recognised on capital gains or losses.

 

 

6. Basic and diluted return/(loss) per Ordinary Share

Year ended 28 February 2017

Revenue

Capital

Total

£'000

£'000

£'000

Total comprehensive income for the year

739

(288)

451

Weighted average number of shares (excludes management incentive shares - see note 11)

30,511,971

30,511,971

30,511,971

Return/(loss) per share

2.42p

(0.94)p

1.48p

Period from 1 September 2014 to 29 February 2016

Revenue

Capital

Total

£'000

£'000

£'000

Total comprehensive income for the period

273

(418)

(145)

Weighted average number of shares (excludes management incentive shares - see note 11)

20,226,612

20,226,612

20,226,612

Return/(loss) per share

1.35p

(2.07)p

(0.72)p

 

7. Dividends

 

The Directors will propose a resolution at the Annual General Meeting to pay a final dividend of 3p per share (2016: nil).

8. Investments

 

(a) Movements in investments

Qualifying investments

Non qualifying investments

Total

£'000

£'000

£'000

Purchased at cost

-

25,943

25,943

Net unrealised

-

(53)

(53)

Valuation at 1 March 2016

-

25,890

25,890

Purchases at cost

686

5,875

6,561

Disposal of investments and repayment of loans and loan notes:

- Proceeds

-

(3,680)

(3,680)

- Realised gains on disposals

-

30

30

Reclassification to qualifying

7,500

(7,500)

-

Net unrealised gains

-

19

19

Valuation at 28 February 2017

8,186

20,634

28,820

Book cost at 28 February 2017

8,186

20,612

28,798

Net unrealised gains at 28 February 2017

-

22

22

Valuation at 28 February 2017

8,186

20,634

28,820

 

During the year, the Company sold its quoted bonds in Nextenergy Solar Bond for £493,000. These bonds were originally acquired for £519,000 and were stated at £463,000 as at 29 February 2016. The Company also sold a part of its holding of quoted bonds in Royal Bank of Canada for £806,000. These bonds were originally acquired for £800,000 and were stated at £801,000 as at 29 February 2016

 

(b) Gains and losses on investments

 

The gains and losses on investments for the year shown in the Income Statement is analysed as follows:

 

Year ended 28 February 2017

Period ended 28 February 2016

£'000

£'000

Realised gains in year

30

3

Unrealised gains/(losses) in year

19

(56)

49

(53)

 

(c) Quoted and unquoted investments

Market value as at 28 February 2017

Market value

as at 29 February 2016

£'000

£'000

Quoted investments

3,512

4,758

Unquoted investments

25,308

21,132

28,820

25,890

 

Further details of these investments are disclosed in the Investment Portfolio Summary on pages 7 to 15 of the Annual Report.

 

9. Debtors

 

2017

2016

£'000

£'000

Other debtors

6

1,500

Prepayments and accrued income

1,214

700

1,220

2,200

 

 

 

10. Creditors - amounts falling due within one year

 

2017

2016

£'000

£'000

Accruals

172

159

Amounts committed but not drawn

17

1,083

Other creditors

14

14

Corporation tax

 74

 -

277

1,256

 

 

 

11. Management Performance Incentive Arrangement

 

 

On 11 September 2014, the Company entered into an Agreement with the Investment Manager and members of the investment management team (together "the Management Team") such that the Management Team will be entitled in aggregate to share in 20 per cent of the aggregate excess on any amounts realised by the Company in excess of £1 per Ordinary Share, the Performance Target.

 

This incentive is effective through the issue of ordinary shares in the Company, such that the Management Team hold 7,627,992 ordinary shares being 20% of the issued share capital of 38,139,963.

 

The Management Team will waive all rights to dividends until a return of £1 per share (whether capital or income) has been paid to the other shareholders.

 

The performance incentive structure provides a strong incentive for the Investment Manager to ensure that the Company performs well, enabling the Board to approve distributions as high and as soon as possible.

 

 

12. Called Up Share Capital

 

2017

2016

£'000

£'000

38,139,963 ordinary shares of 0.05p each

19

19

 

 

13. Net Asset Value per Ordinary Share

 

2017

2016

Net assets

29,798,000

29,347,000

Number of shares in issue

38,139,963

38,139,963

Less: management incentive shares (see note 11)

(7,627,992)

(7,627,992)

Number of shares in issue for purposes of Net

Asset Value per share calculation

30,511,971

30,511,971

Net asset value per share

Basic

97.66p

96.18p

Diluted

97.66p

96.18p

 

 

14. Financial Instruments

 

The Company's financial instruments comprise its investments, cash balances, debtors and certain creditors. The fair value of all of the Company's financial assets and liabilities is represented by the carrying value in the Balance Sheet. Excluding cash balances, the Company held the following categories of financial instruments at 28 February 2017:

2017

£'000

2016

£'000

Financial assets at fair value through profit or loss

28,820

25,890

Financial assets measured at amortised cost

1,220

2,200

Financial liabilities measured at amortised cost

(203)

(1,256)

29,837

26,834

 

Management of risk

The main risks the Company faces from its financial instruments are market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency movements, liquidity risk, credit risk and interest rate risk. The Board regularly reviews and agrees policies for managing each of these risks. The Board's policies for managing these risks are summarised below and have been applied throughout the year.

 

Credit risk

Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Investment Manager monitors counterparty risk on an ongoing basis. The carrying amount of financial assets best represents the maximum credit risk exposure at the balance sheet date.

The Company's financial assets and maximum exposure to credit risk is as follows:

 

2017

2016

£'000

£'000

Investments in loans, loan notes and bonds

22,884

20,177

Cash at bank and in hand

35

2,513

Interest, dividends and other receivables

1,220

2,200

24,139

24,890

 

The cash held by the Company at the year end is split between two U.K. banks. Bankruptcy or insolvency of either bank may cause the Company's rights with respect to the receipt of cash held to be delayed or limited. The Board monitors the Company's risk by reviewing regularly the financial position of the banks and should it deteriorate significantly the Investment Manager will, on instruction of the Board, move the cash holdings to another bank.

 

Credit risk associated with interest, dividends and other receivables are predominantly covered by the investment management procedures.

 

Investments in loans, loan notes and bonds comprises a fundamental part of the Company's venture capital investments, therefore credit risk in respect of these assets is managed within the Company's main investment procedures.

 

Market price risk

Market price risk arises mainly from uncertainty about future prices of financial instruments held by the Company. It represents the potential loss the Company might suffer through holding investments in the face of price movements. The Investment Manager actively monitors market prices and reports to the Board, which meets regularly in order to consider investment strategy.

 

The Company's strategy on the management of market price risk is driven by the Company's investment policy as outlined in the Strategic Report on page 16. The management of market price risk is part of the investment management process. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis, with an objective of maximising overall returns to shareholders.

 

Holdings in unquoted investments may pose higher price risk than quoted investments. Some of that risk can be mitigated by close involvement with the management of the investee companies along with review of their trading results. 12% (2016: 18%) of the Company's investments are quoted investments and 88% (2016: 82%) are unquoted investments.

 

Liquidity risk

Details of the Company's unquoted investments are provided in the Investment Portfolio summary on page 7. By their nature, unquoted investments may not be readily realisable, the Board considers exit strategies for these investments throughout the year for which they are held. As at the year end, the Company had no borrowings.

 

The Company's liquidity risk associated with investments is managed on an ongoing basis by the Investment Manager in conjunction with the Directors and in accordance with policies and procedures in place as described in the Report of the Directors. The Company's overall liquidity risks are monitored on a quarterly basis by the Board. The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses.

 

Fair value interest rate risk

The benchmark that determines the interest paid or received on the current account is the Bank of England base rate, which was 0.25% at 28 February 2017 (2016: 0.5%). All of the loan and loan note investments are unquoted and hence not directly subject to market movements as a result of interest rate movements.

 

Cash flow interest rate risk

The Company has exposure to interest rate movements primarily through its cash deposits and loan notes which track either the Bank of England base rate or LIBOR.

 

Interest rate risk profile of financial assets

The following analysis sets out the interest rate risk of the Company's financial assets as at 28 February 2017.

 

Rate status

Average interest rate

Period until maturity

Total

£'000

Cash at bank - RBS

Floating

0.01%

-

35

Loans, loan notes and bonds

Floating

3.80%

46 months

8,512

Loans, loan notes and bonds

Fixed

7.70%

43 months

14,372

Balance of assets

Non-interest bearing

-

7,156

30,075

 

The following analysis sets out the interest rate risk of the Company's financial assets as at 28 February 2016.

 

Rate status

Average interest rate

Period until maturity

Total

£'000

Cash at bank - RBS

Floating

0.15%

-

2,503

Cash at bank - Lloyds

Floating

0.50%

-

10

Loans, loan notes and bonds

Floating

3.48%

58 months

6,285

Loans, loan notes and bonds

Fixed

9.19%

54 months

8,631

Balance of assets

Non-interest bearing

-

13,174

30,603

 

Foreign currency risk

The reporting currency of the Company is Sterling. The Company has not held any non-Sterling investments during the year.

 

Fair value hierarchy

Financial assets and liabilities measured at fair value are disclosed using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurements, as follows:-

· Level 1 - Fair value is measured using the unadjusted quoted price in an active market.

· Level 2 - Fair value is measured using inputs other quoted prices that are observable using market data.

· Level 3 - Fair value is measured using unobservable inputs.

 

The Company has early adopted the changes to FRS 102 published by the FRC in March 2016 in relation to these disclosures.

 

Fair values have been measured at the end of the reporting year as follows:-

 

2017

2016

£'000

£'000

Level 1

Investments listed on LSE

3,512

4,758

Level 3

Unquoted investments

25,308

21,132

28,820

25,890

 

The Level 3 investments have been valued in line with the Company's accounting policies and IPEV guidelines. Further details of these investments are provided in the significant investments section of the Annual Report on pages 8 to 15.

 

15. Capital management

The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern, so that it can provide an adequate return to shareholders by allocating its capital to assets commensurate with the level of risk.

By its nature, the Company has an amount of capital, at least 70% (as measured under the tax legislation) of which must be, and remain, invested in the relatively high risk asset class of small UK companies within three years of that capital being subscribed.

The Company accordingly has limited scope to manage its capital structure in the light of changes in economic conditions and the risk characteristics of the underlying assets. Subject to this overall constraint upon changing the capital structure, the Company may adjust the amount of dividends paid to shareholders, issue new shares, or sell assets to maintain a level of liquidity to remain a going concern.

The Board has the opportunity to consider levels of gearing, however there are no current plans to do so. It regards the net assets of the Company as the Company's capital, as the level of liabilities is small and the management of those liabilities is not directly related to managing the return to shareholders.

 

16. Contingencies, Guarantees and Financial Commitments

 

There were no commitments, contingencies or guarantees of the Company at the year-end (2016: none).

 

17. Controlling Party

 

In the opinion of the Directors there is no immediate or ultimate controlling party.

 

 

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 28 February 2017, but has been extracted from the statutory financial statements for the year ended 28 February 2017 which were approved by the Board of Directors on 30 May 2017 and will be delivered to the Registrar of Companies. 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 period ended 29February 2016 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 s 498(2) and (3) of the Companies Act 2006.

 

Copies of the full annual report and financial statements for the year ended 28 February 2017 will be available to the public at the registered office of the Company at Bond Street House, 14 Clifford Street, London, W1S 4JU and will be available for download from www.pumainvestments.co.uk.

 

This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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12
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12

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