Source - RNS
RNS Number : 5770J
Puma VCT 10 PLC
29 June 2017
 

HIGHLIGHTS

 

·    Funds substantially invested in a diverse range of high quality businesses and projects

·    Requirement that qualifying investments are 70% of the fund on an HMRC basis now met

·    Profit of £279,000 before tax for the period, a post-tax gain of 0.76p per share

·    12p per share dividends paid during the period, equivalent to an 8.6% per annum tax free running yield on investment

 

CHAIRMAN'S STATEMENT

 

Introduction

 

I am pleased to present the Company's third Annual Report which, reflecting the change of accounting year end, represents a 14 month period ended 28 February 2017.

 

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

 

Results

 

The Company reported a profit before tax of £279,000 for the period (2015: £147,000 for the year) and a post-tax gain of 0.76p (2015: 0.19p) per ordinary share (calculated on the weighted average number of shares).  The Net Asset Value per ordinary share ("NAV") at 28 February 2017 after adding back dividends paid was 97.10p (2015: 96.35p). 

 

Dividend

 

I am pleased to report that, in line with our stated objective as set out in our prospectus, your board declared the Company's first two dividends during the period, a total of 12p per Ordinary Share. This is equivalent to an 8.6% per annum tax-free running yield on your investment.

 

Investments

 

During the period, the Company completed a series of investments for a total of £5.3 million.   At the end of the period, the Company had a total of £22.4 million invested in a mixture of qualifying and non-qualifying investments and achieved the threshold of holding 70% of its portfolio in qualifying investments required to maintain our VCT status. These investments are primarily in asset-backed businesses and projects.  Details of these investments can be found in the Investment Manager's report on pages 3 to 6. 

 

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 monitoring rule compliance and establishing the status of potential investments as qualifying holdings in the future. 

 

Outlook

 

The Company has made good progress during the period, and thereafter. We are pleased to report that the Company's net assets are now substantially deployed in a diverse range of high quality businesses and projects. The ongoing lack of availability of bank credit has enabled the Company to assemble a portfolio of investments on attractive terms. Whilst there will probably be some further changes in the composition of the portfolio, the Board expects to concentrate in the future on the monitoring of our existing investments and considering the options for exits in due course.

 

 

 

David Vaughan

Chairman

 

29 June 2017

 

 

 

 

INVESTMENT MANAGER'S REPORT

 

 

Introduction

 

The Company's funds are now substantially deployed in both qualifying and non-qualifying investments, having met its minimum qualifying investment percentage of 70 per cent during the period. We believe our portfolio is well positioned to deliver attractive returns to shareholders within the fund's expected remaining time horizon.

 

Investments

 

Qualifying Investments

 

During the period the Company made £2.14 million of qualifying investments in Saville Services Limited, a company providing contracting services over a series of projects across the United Kingdom.  In September 2016, Saville Services entered into a new contract to provide contracting services in connection with the construction of a 77-bed, purpose-built care home in Chester.  We understand that the development is progressing well and the home is scheduled to open in the first quarter of 2018.

 

During the period, the Company made a £980,000 qualifying investment (as part of a £2.8 million investment alongside other Puma VCTs) in Growing Fingers Limited, and a further £420,000 was invested after the period 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, in July 2014, before the passing of the Finance Act 2014, the Company completed a £1.875 million qualifying investment (as part of a £5 million investment alongside other Puma VCTs) in Urban Mining Limited, a member of the Chinook Urban Mining group of companies.  Chinook Urban Mining is a well-funded energy-from-waste business which is developing a flagship plant in East London to generate electricity through the gasification of municipal solid waste and will benefit from Renewable Obligations Certificates.  The investment is secured with a first charge over the Chinook Urban Mining business and the eight acre site of the East London plant and is yielding an attractive return to the Company.

 

As previously reported, a major fire occurred in February 2016 at the Materials Recycling Facility ("MRF") operated by Opes Industries Limited ("Opes"), into which the Company has invested a total of £3.45m (as part of an £8.8m investment by Puma entities). As a result of the incident, and as reported in the Company's previous annual report, the board made a provision of £510,000 against the carrying value of the Company's investment in Opes.  Opes owned a 73 hectare site in north Oxfordshire with a MRF, including a landfill site for non-hazardous materials and an aggregates/gravel quarrying business. The Company's investment was to provide funding for the construction and equipping of the MRF and working capital during the build-up of the trade. The funding was provided in the form of equity and loan stock and our interests are covered by a first fixed and floating charge over Opes' assets.  Following the incident, the Company appointed an administrator over Opes in order to best protect the Company's investment.  We are pleased to report that shortly after the period end, the administrator exchanged contracts for the sale of the north Oxfordshire site; the cash consideration is payable in stages over a 12 month period.  Moreover, discussions are continuing with Opes' insurers regarding reimbursement of the damage to the plant and the building and of the costs of business interruption.

 

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. 

 

We are pleased to report that, during the period, 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 as at 28 February 2017 a total of £6.1 million in a series of lending businesses with this strategy. Details of the loans that these lending businesses have made are set out below.

 

In September 2015, £800,000 was advanced (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, to fund 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 period end, the borrower sold the care home shortly following practical completion and the loan was repaid in full giving a good rate of return.

 

Various loans to entities within the Citrus Group (through affiliates Valencia Lending Limited and Victoria Lending Limited), as part of a series of facilities from other vehicles managed and advised by your Investment Manager to provide working capital to the Citrus PX business, continue to deliver attractive returns. 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. At the period-end, the Company's exposure totalled £1.29 million, including a £1 million advance during the period.

 

As previously reported, a £474,000 loan (as part of a £2.9 million facility from other vehicles managed and advised by your Investment Manager) had been extended (through an affiliate, Valencia Lending Limited) to Churchill Homes (Culter House) Limited. Churchill Homes is a longstanding Aberdeenshire developer and the facility provided funding towards the construction of a private detached housing development in one of Aberdeen's finest residential suburbs.  The loan is secured with a first charge over the site and is earning an attractive rate of interest. Whilst the Aberdeen housing market has slowed during the period, primarily as a result in the reduction in the price of oil, the loan is being serviced and the Company's security remains at an appropriate level.

 

A £1.3 million loan (as part of a £2.6 million facility) had been extended (through an affiliate, Lothian Lending Limited) to RPE FL1 Limited, a member of the Renewable Power Exchange group, to provide funding towards the construction of a 1.5MW wind farm in East Lothian, Scotland, with the electricity used to supply those on low incomes in the local community.  The loan is secured on the site in East Lothian and is earning an attractive rate of interest.  We are pleased to report that the turbines are operating well, generating electricity and EBITDA is in line with forecasts.  In accordance with the planned amortisation schedule, the loan balance now stands at £1.09 million.

 

A loan of £575,000 was 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.  Construction is behind schedule due to issues with the main contractor but this is being addressed by the developer and team. 

 

In the prior year, a loan of £1.2 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.

 

At the start of the period the Company had a £523,000 holding in Nextenergy Solar Fund, an 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 period.

 

To further manage liquidity, the Company holds through an affiliate, Latimer Lending Limited, £872,000 in a bond issued by J Sainsbury plc. During the period, the Company sold its £2.5 million holding in a sterling floating rate note issued by Royal Bank of Canada and its £1 million holding in a sterling floating rate note issued by Commonwealth Bank of Australia to free up cash for the Company to make 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. 

 

 

 

 

Puma Investment Management Limited

29 June 2017

 

  

 

Investment Portfolio Summary

As at 28 February 2017 

 

 

Valuation

Cost

Gain/(loss)

Valuation as a % of Net Assets

 

£'000

£'000

£'000

 

Qualifying Investments

 

 

 

 

Urban Mining Limited

1,875

1,875

-

8%

Opes Industries Limited

2,940

3,450

(510)

13%

Warm Hearth Limited

2,500

2,500

-

11%

Mini Rainbows Limited

2,500

2,500

-

11%

Welcome Health Limited

2,500

2,500

-

11%

Saville Services Limited

2,139

2,139

-

9%

Growing Fingers Limited

980

980

-

4%

 

 

 

 

 

Total Qualifying Investments

15,434

15,944

(510)

67%

 

 

 

 

 

Non-Qualifying Investments

 

 

 

 

Valencia Lending Limited

984

984

-

4%

Lothian Lending Limited

2,325

2,325

-

10%

Lavender Lending Limited

800

800

-

3%

Victoria Lending Limited

1,000

1,000

-

4%

Meadow Lending Limited

575

575

-

2%

Piccadilly Lending Limited

400

400

-

2%

 

 

 

 

 

Total Non-Qualifying investments

6,084

6,084

-

25%

 

 

 

 

 

Liquidity Management

 

 

 

 

J Sainsbury Plc Bond (via Latimer Lending)*

872

821

51

4%

 

 

 

 

 

Total Liquidity Management investments

872

821

51

4%

 

 

 

 

 

Total  Investments

22,390

22,849

(459)

95%

Balance of Portfolio

1,127

1,127

-

5%

 

 

 

 

 

Net Assets

23,517

23,976

(459)

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 period ended 28 February 2017

 

 

Period from 1 January 2016 to 28 February 2017

Year ended 31 December 2015

 

Note

Revenue

Capital

Total

Revenue

Capital

Total

 

 

£'000

£'000

£'000

£'000

£'000

£'000

Gain/(loss) on investments

8 (b)

-

32

32

-

(427)

(427)

Income

2

1,109

-

1,109

1,336

-

1,336

 

 

 

 

 

 

 

 

 

 

1,109

32

1,141

1,336

(427)

909

 

 

 

 

 

 

 

 

Investment management fees

3

(146)

(438)

(584)

(135)

(405)

(540)

Other expenses

4

(278)

-

(278)

(222)

-

(222)

 

 

 

 

 

 

 

 

 

 

(424)

(438)

(862)

(357)

(405)

(762)

 

 

 

 

 

 

 

 

Profit/(loss) before taxation

 

685

(406)

279

979

(832)

147

Taxation

5

(158)

88

(70)

(242)

146

(96)

 

 

 

 

 

 

 

 

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

 

527

(318)

209

737

(686)

51

 

 

 

 

 

 

 

 

Basic and diluted

 

 

 

 

 

 

 

Return/(loss) per ordinary

share (pence)

6

1.91p

(1.15p)

0.76p

2.67p

(2.48p)

0.19p

 

 

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

28 February 2017

31 December 2015

 

 

£'000

£'000

Fixed Assets

 

 

 

Investments

8

22,390

26,407

 

 

 

 

 

 

 

 

Current Assets

 

 

 

Debtors

9

1,087

1,033

Cash at bank and in hand

 

243

418

 

 

1,330

1,451

Creditors - amounts falling due within one year

10

(203)

(1,234)

 

 

 

 

Net Current Assets

 

1,127

217

 

 

 

 

Net Assets

 

23,517

26,624

 

 

 

 

Capital and Reserves

 

 

 

Called up share capital

12

17

17

Share premium account

 

15,624

15,624

Capital reserve - realised

 

(933)

(575)

Capital reserve - unrealised

 

(459)

(499)

Revenue reserve

 

9,268

12,057

 

 

 

 

Total Equity

 

23,517

26,624

 

 

 

 

 

 

 

 

Net Asset Value per Ordinary Share

13

85.10p

96.35p

 

 

The financial statements on pages 29 to 44 were approved and authorised for issue by the Board of Directors on 29 June 2017 and were signed on their behalf by:

 

 

 

David Vaughan

Chairman

29 June 2017

 

 

Statement of Cash Flows

For the period ended 28 February 2017

 

 

Period from 1 January 2016 to 28 February 2017

Year ended 31 December 2015

 

£'000

£'000

 

 

 

Profit after tax

209

51

Taxation

70

96

(Gain)/loss on investments

(51)

427

Increase in debtors

(54)

(941)

(Decrease)/increase in creditors

(985)

385

Tax paid

(116)

-

 

 

 

Net cash (used in)/generated from operating activities

(927)

18

 

 

 

Cash flow from investing activities

 

 

Purchase of investments

(4,694)

(18,242)

Proceeds from disposal of investments

8,762

4,940

 

 

 

Net cash generated from/(used in) investing activities

4,068

(13,302)

 

 

 

Cash flow from financing activities

 

 

Dividends paid

(3,316)

-

 

 

 

Net cash used in financing activities

(3,316)

-

 

 

 

Net decrease in cash and cash equivalents

(175)

(13,284)

 

 

 

Cash and cash equivalents at the beginning of the period

418

13,702

 

 

 

Cash and cash equivalents at the end of the period

243

418

 

 

 

Statement of Changes in Equity

For the period 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 January 2015

17

15,624

(405)

17

11,320

26,573

Realised gain from prior period

-

-

8

(8)

-

-

Total comprehensive income for the year

-

-

(178)

(508)

737

51

Balance as at 31 December 2015

17

15,624

(575)

(499)

12,057

26,624

Realised gain in the period

-

-

11

(11)

-

-

Total comprehensive income for the period

-

-

(369)

51

527

209

Dividends paid

-

-

-

-

(3,316)

(3,316)

Balance as at 28 February 2017

17

15,624

(933)

(459)

23,517

 

 

 

Distributable reserves comprise: Capital reserve-realised, Capital reserve-unrealised (excluding gains on unquoted investments) and the Revenue reserve. At the period-end distributable revenue reserves were £9,268,000 (2015: £12,057,000).

 

The Capital reserve-realised includes gains/losses that have been realised in the period 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 10 plc ("the Company") was incorporated, registered and is domiciled in England. The Company's registered number is 08714913. 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 and a description of the nature of the Company's operations are disclosed in the Strategic Report.

 

The financial statements have been prepared under the historical cost convention, modified to include investments at fair value, and in accordance with the requirements of the Companies Act 2006, including the provisions of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, 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 16.

 

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 6,908,306 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 34,541,530.  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 period. 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 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 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 functional and presentational 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 period 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

 

Period from 1 January 2016 to 28 February 2017

Year ended 31 December 2015

 

£'000

£'000

Income from investments

 

 

Loan stock interest

1,000

1,254

Bond yields

109

31

 

 

 

 

1,109

1,285

Other income

 

 

Bank deposit income

-

51

 

1,109

1,336

 

 

 

3.      Investment Management Fees

 

 

Period from 1 January 2016 to 28 February  2017

Year ended 31 December 2015

 

£'000

£'000

 

 

 

Puma Investments fees

584

540

 

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 period were 2.7% of the funds raised (2015: 2.8%).

 

4.       Other expenses

 

Period from 1 January 2016 to 28 February 2017

Year ended 31 December 2015

 

£'000

£'000

PI Administration Services Limited

102

95

Directors' Remuneration

56

48

Social security costs

3

1

Auditor's remuneration for statutory audit

23

23

Legal and professional fees

40

34

Other expenses

54

21

 

 

 

 

278

222

 

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 period is disclosed in the Directors' Remuneration Report on page 21.  The Company had no employees (other than Directors) during the period (2015: none).  The average number of non-executive Directors during the period was 3 (2015: 3).  The non-executive Directors are considered to be the Key Management Personnel of the Company with total remuneration for the period of £59,000 (2015: £49,000), including social security costs.

 

The Auditor's remuneration of £19,500 (2015: £18,750) has been grossed up in the table above to be inclusive of VAT.

 

 

 

 

 

5.      Taxation

 

Period from 1 January 2016 to 28 February 2017

Year ended 31 December 2015

 

£'000

£'000

UK corporation tax charged to revenue reserve

158

242

UK corporation tax credited to capital reserve

(88)

(146)

 

 

 

UK corporation tax charge for the period

70

96

 

 

 

Factors affecting tax charge for the period

 

Profit before taxation

279

147

 

 

 

Tax charge calculated on profit before taxation at 20%

56

29

Capital items not taxable

(6)

86

Prior period under accrual

20

-

Other differences

-

(19)

 

 

 

 

70

96

 

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 is recognised on capital gains or losses.  Due to the intention to continue to comply with the VCT regulations, the Company has not provided for deferred tax on any realised or unrealised capital gains and losses.

 

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

 

Period from 1 January 2016 to 28 February 2017

 

Revenue

Capital

Total

 

£'000

£'000

£'000

Total comprehensive income for the period

527

(318)

209

Weighted average number of shares in issue for the period

34,541,530

34,541,530

34,541,530

Less: management incentive shares (see note 11)

(6,908,306)

(6,908,306)

(6,908,306)

Weighted average number of shares for purposes of return/(loss) per share calculation

27,633,224

27,633,224

27,633,224

 

 

 

 

Return/(loss) per share

1.91p

(1.15)p

0.76p

 

 

 

 

 

Year ended 31 December 2015

 

Revenue

Capital

Total

 

£'000

£'000

£'000

Total comprehensive income for the year

737

(686)

51

Weighted average number of shares in issue for the year

34,541,530

34,541,530

34,541,530

Less: management incentive shares (see note 11)

(6,908,306)

(6,908,306)

(6,908,306)

Weighted average number of shares for purposes of return/(loss) per share calculation

27,633,224

27,633,224

27,633,224

 

 

 

 

Return/(loss) per share

2.67p

(2.48)p

0.19p

 

7.      Dividends

 

The Directors do not propose a final dividend in relation to the period ended 28 February 2017 (2015: £nil). Two interim dividends of 6p per ordinary share were paid from revenue reserves in the period ended 28 February 2017 totalling £3,316,000 (2015: £nil).

 

 

8.      Investments

(a) Movements in investments

 

Qualifying investments

Non qualifying investments

Total

 

 

£'000

£'000

£'000

Book cost at 1 January 2016

 

5,325

21,582

26,907

Unrealised (losses)/gains at 1 January 2016

 

(510)

10

(500)

Valuation at 1 January 2016

 

4,815

21,592

26,407

 

 

 

 

 

Purchases at cost

 

3,119

2,228

5,347

Transfer from non-qualifying to qualifying investments

 

7,500

(7,500)

-

Disposal proceeds and repayments of loans and loan notes

 

-

(9,396)

(9,396)

Realised losses on disposals

 

-

(19)

(19)

Net unrealised gains

 

-

51

51

Valuation at 28 February 2017

 

15,434

6,956

22,390

 

 

 

 

 

Book cost at 28 February 2017

 

15,944

6,905

22,849

Net unrealised gains at 28 February 2017

 

(510)

51

(459)

 

 

 

 

 

Valuation at 28 February 2017

 

15,434

6,956

22,390

 

As previously reported, a major fire occurred in February 2016 at the Materials Recycling Facility ("MRF") operated by Opes Industries Limited ("Opes"), into which the Company has invested a total of £3.45m (as part of an £8.8m investment by Puma entities). As a result of the incident, and as reported in the Company's previous annual report, the board made a provision of £510,000 against the carrying value of the Company's investment in Opes.  Opes owned a 73 hectare site in north Oxfordshire with a MRF, including a landfill site for non-hazardous materials and an aggregates/gravel quarrying business. The Company's investment was to provide funding for the construction and equipping of the MRF and working capital during the build-up of the trade. The funding was provided in the form of equity and loan stock and our interests are covered by a first fixed and floating charge over Opes' assets.  Following the incident, the Company appointed an administrator over Opes in order to best protect the Company's investment.  We are pleased to report that shortly after the period end, the administrator exchanged contracts for the sale of the north Oxfordshire site; the cash consideration is payable in stages over a 12 month period.  Moreover, discussions are continuing with Opes' insurers regarding reimbursement of the damage to the plant and the building and of the costs of business interruption. 

 

During the period, the Company sold its quoted bonds in Nextenergy Solar Bond for £493,000, which were originally acquired for £500,000. These bonds were stated at £523,000 as at 31 December 2015.  The Company also sold its holdings of quoted bonds in Royal Bank of Canada for £2,516,000 (originally acquired for £2,500,000) and in Commonwealth Bank of Australia for £1,010,000 (originally acquired for £1,010,000). These bonds were stated at £2,505,000 and £1,010,000 respectively as at 31 December 2015.

 

 

8.      Investments (continued)

 

(b) Gains and losses on investments

 

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

 

 

 

Period from 1 January 2016 to 28 February 2017

Year ended 31 December 2015

 

 

 

 

£'000

£'000

Realised (losses)/gains in period

 

 

(19)

81

Unrealised gains/(losses) in period

 

 

51

(508)

 

 

 

 

 

 

 

 

32

(427)

 

(c) Quoted and unquoted investments

 

 

 

Market value as at 28 February 2017

Market value as at 31 December 2015

 

 

 

£'000

£'000

Quoted investments

 

 

872

3,028

Unquoted investments

 

 

21,518

23,379

 

 

 

 

 

 

 

 

22,390

26,407

 

Further details of these investments are disclosed in the Investment Portfolio Summary on pages 7 to 14 of the Annual Report.

 

9.      Debtors

 

 

As at 28 February 2017

As at 31 December 2015

 

£'000

£'000

 

 

 

Prepayments and accrued income

1,063

1,033

Other debtors

24

-

 

 

 

 

1,087

1,033

 

10.    Creditors - amounts falling due within one year

 

 

As at 28 February 2017

As at 31 December 2015

 

£'000

£'000

Accruals

153

198

Other creditors

-

940

Corporation tax

50

96

 

 

 

 

203

1,234

 

 

 

11.    Management Performance Incentive Arrangement

 

On 7 October 2013, 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% 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 6,908,306 ordinary shares being 20% of the issued share capital of 34,541,530.

 

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

 

 

As at 28 February 2017

As at 31 December 2015

 

£'000

£'000

34,541,530 ordinary shares of 0.05p each

17

17

 

 

 

13.     Net Asset Value per Ordinary Share

 

 

2017

2015

 

 

 

Net assets

£23,517,000

£26,624,000

 

 

 

Number of shares in issue

 

Less: management incentive shares (see note 11)

34,541,530

 

(6,908,306)

34,541,530

 

(6,908,306)

 

Number of shares in issue for purposes of Net Asset Value per share calculation

27,633,224

27,633,224

 

 

 

Net asset value per share

 

 

Basic

85.10p

96.35p

Diluted

85.10p

96.35p

 

 

 

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

2015

 

£'000

£'000

 

 

 

Financial assets at fair value through profit or loss

22,390

26,407

 

 

 

Financial assets that are debt instruments measured at amortised cost

1,087

1,033

 

 

 

Financial liabilities measured at amortised cost

(153)

(1,138)

 

 

 

 

23,324

26,302

 

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 period.

 

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

2015

 

£'000

£'000

 

 

 

Investments in loans, loan notes and bonds

11,445

17,264

Cash at bank and in hand

243

418

Interest, dividends and other receivables

1,087

1,033

 

 

 

 

12,775

18,715

 

The cash held by the Company at the period 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.

 

 

 

 

14.    Financial Instruments (continued)

 

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. 4% (2015: 11%) of the Company's investments are quoted investments and 96% (2015: 89%) 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 period for which they are held. As at the period 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 Strategic Report and 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 (2015:0.5%). 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

Weighted average interest rate

Weighted average period until maturity

Total

 

 

 

 

£'000

Cash at bank - RBS

Floating

0.01%

-

243

Cash at bank - Lloyds

Floating

0.25%

-

-

Loans, loan notes and bonds

Floating

5.65%

15 months

4,632

Loans, loan notes and bonds

Fixed

11.24%

39 months

5,125

Balance of assets

Non-interest bearing

-

13,720

 

 

 

 

 

 

 

 

 

23,720

 

 

14.    Financial Instruments (continued)

 

The following analysis sets out the interest rate risk of the Company's financial assets as at 31 December 2015.

 

Rate status

Weighted average interest rate

Weighted average period until maturity

Total

 

 

 

 

£'000

Cash at bank - RBS

Floating

0.15%

-

417

Cash at bank - Lloyds

Floating

0.50%

-

1

Loans, loan notes and bonds

Floating

6.27%

51 months

10,579

Loans, loan notes and bonds

Fixed

10.37%

52 months

6,685

Balance of assets

Non-interest bearing

-

10,176

 

 

 

 

 

 

 

 

 

27,858

 

Foreign currency risk

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

 

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 period as follows:-

 

2017

2015

 

£'000

£'000

Level 1

 

 

Investments listed on LSE

872

3,028

 

 

 

Level 3

 

 

Unquoted investments

21,518

23,379

 

 

 

 

22,390

26,407

 

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 interests section of the Annual Report on pages 8 to 14.

 

 

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 period-end (2015: 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 period ended 28 February 2017, but has been extracted from the statutory financial statements for the period ended 28 February 2017 which were approved by the Board of Directors on 29 June 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 statements under s 498(2) and (3) of the Companies Act 2006.  The Independent Auditor's Report included an emphasis of matter paragraph highlighting the uncertainties associated with the fair value of investment in Opes Industries Limited.

The statutory accounts for the year ended 31 December 2015 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 period 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.

 


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