HIGHLIGHTS
- NAV per share up 1.17p, now 97.91p (after adding back the 25p of dividends paid to date) following profit of £185,000 before tax for the year.
- 25p per share of dividends paid since inception, equivalent to a 7.1% per annum tax-free running yield on net investment.
- As envisaged in the original Prospectus, resolutions will be put forward for a winding up of the VCT in the autumn of this year.
CHAIRMAN'S STATEMENT
Introduction
I am pleased to present the Company's fifth Annual Report for the year ended 28 February 2017.
The Company was launched and began investing in Spring 2012, with a planned life of five years. In this, its fifth year, the process of realising the Company's qualifying investments and preparing to return capital to investors advanced significantly.
Results
The Company reported a profit before tax of £185,000 for the year (2016: £310,000) and a post-tax gain of 1.17p (2016: 1.70p) 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 the 25p of dividends paid to date was 97.91p (2016: 96.74p).
Dividend
As envisaged in the Company's prospectus, the Company has for the fifth calendar year in succession paid a dividend of 5p per ordinary share, equivalent to a 7.1% tax-free annual running yield on shareholders' net investment.
Investments
At the end of the year, the Company had just over £8 million invested in a mixture of qualifying and non-qualifying investments whilst maintaining our VCT qualifying status. These investments are primarily in asset-backed businesses and projects.
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 as the Company approaches the end of its planned life.
Proposal to Wind-Up the Company
The Company has now just passed its fifth anniversary. In accordance with the plans set out in the Company's Prospectus, the Board expects to convene a General Meeting of the Company in the autumn of this year, at which resolutions will be proposed to place the Company into members' solvent liquidation. If these are passed, liquidators will be appointed and the Company will de-list from the London Stock Exchange.
Once such resolutions have been passed by shareholders, for a maximum period of three years, many of the VCT rules, including the 70 per cent qualifying rule, are suspended whilst the Company retains its VCT status of tax free distribution to UK taxpayers. The intention is to return the balance of the capital in an orderly way, with disposals timed appropriately to enable further substantial distributions by the end of 2017.
Sir Aubrey Brocklebank Bt
Chairman
29 June 2017
INVESTMENT MANAGER'S REPORT
Introduction
In its fifth year, the Company continues to make good progress. It is now beginning the process of returning capital to shareholders through the realisation of investments whilst maintaining its qualifying status. We believe our portfolio is well positioned to deliver attractive returns to shareholders within the Company's expected remaining time horizon.
Investments
Qualifying Investments
The Company made a £1.25 million investment in Urban Mining Limited, a member of the Chinook Urban Mining group of companies, in 2014. The investment, which was part of a £5 million investment alongside other Puma VCTs into an energy-from waste business, was made to facilitate the development of a flagship plant in East London to generate electricity through the gasification of municipal solid waste. The project is seeking to benefit from favourable Contracts for Difference available to renewable projects, but is qualifying because it was made prior to the royal assent of the Finance Act 2014. The management team has a track record of delivering similar projects in other jurisdictions and is a preferred partner of Chinook Sciences, the Nottingham based technology company which has developed the award-winning "non-incineration ultra clean synthetic gas technology" which will be used in the East London plant. The investment is secured with a first charge over the Chinook Urban Mining business and the eight acre freehold site of the East London plant and is yielding an attractive return to the Company.
As reported in the Company's previous interim report, Isaacs Trading Limited, Kinloss Trading Limited and Jephcote Trading Limited (in which the Company had invested £1 million, £254,000 and £1 million respectively) have been, as members of SKPB Services LLP, engaged in a contract with Openwide Investments Limited in relation to the construction of a new build 134 bedroom Ibis Budget Hotel and the associated infrastructure adjacent to Luton Airport. We are pleased to report that the project is nearing practical completion on time and on budget and the hotel is expected to open in the autumn.
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 £1m (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 £148,000 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 year 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.
The Company's investment of £1,185,000 (alongside other Puma VCTs) into Saville Services Limited continues to perform well. Saville Services has been working on a series of projects, including most recently the construction of a 77-bed, purpose-built care home in Chester. We understand that the development is progressing well and the care home is scheduled to open in the first quarter of 2018.
As previously reported, the Company had invested £1.6 million (alongside other Puma VCTs) into Alyth Trading Limited, a nationwide provider of contracting services. During the year, Alyth Trading has been working on two contracts. The first is in connection with the construction of a 112 bed purpose built care home in Hamilton, Scotland. We are pleased to report that the project has recently completed successfully generating attractive returns for Alyth Trading which will benefit the Company when its investment is repaid in due course. The second is a contract in connection with the construction of a 68 bed purpose built care home in Egham, Windsor. We understand that construction is behind schedule due to issues with the main builder but this is being addressed by the team at Alyth Trading.
Non-Qualifying Investments
We are pleased to report the repayment during the year of the £750,000 loan made through an affiliate, Latimer Lending Limited. The loan was to Kingsmead Care Home Limited which owns and operates a care and dementia treatment facility in Mytchett, Surrey, generated a good return for the Company.
As previously reported, the Company advanced a £1 million loan (through an affiliate, Palmer Lending Limited), as part of a £2.9 million financing with other entities managed and advised by your Investment Manager) to Oval Estates (St Peter's) Limited. Oval owns a 6 acre site in Radstock, near Bath, which has outline planning permission for the development of 81 new houses. The loan is secured with a first charge on the site. Oval obtained full detailed planning permission for the development earlier this year after a protracted process with the local planning authority, the delays to which meant that the loan has passed its maturity date. Now that Oval has received detailed planning permission, it is taking steps to enable it to repay the loan. The client has requested a redemption statement and has indicated that they are seeking finance elsewhere to repay the facility and take the scheme forward.
Investment Strategy
We are pleased to have invested the Company's funds in a balanced portfolio of both qualifying and non-qualifying secured investments and are working on improving the liquidity of the portfolio wherever possible whilst maintaining an appropriate risk adjusted return. We continue to focus on the monitoring of our investments and are focused on exits. The objective remains to achieve an orderly winding up of the Company's assets at the end of its life, subject to shareholder approval at the forthcoming General Meeting.
Shore Capital 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 | ||||
| Kinloss Trading Limited | 254 | 254 | - | 3% |
| Saville Services Limited | 1,185 | 1,185 | - | 13% |
| Isaacs Trading Limited | 1,000 | 1,000 | - | 11% |
| Jephcote Trading Limited | 1,000 | 1,000 | - | 11% |
| Urban Mining Limited | 1,250 | 1,250 | - | 13% |
| Opes Industries Limited | 852 | 1,000 | (148) | 9% |
| Alyth Trading Limited | 1,600 | 1,600 | - | 17% |
| Total Qualifying Investments | 7,141 | 7,289 | (148) | 77% |
| Non-Qualifying Investments | ||||
| Latimer Lending Limited | 109 | 109 | - | 1% |
| Palmer Lending Limited | 1,000 | 1,000 | - | 11% |
| Total Non-Qualifying investments | 1,109 | 1,109 | - | 12% |
| Total Investments | 8,250 | 8,398 | (148) | 89% |
| Balance of Portfolio | 1,098 | 1,098 | - | 11% |
| Net Assets | 9,348 | 9,496 | (148) | 100% |
Of the investments held at 28 February 2017, all are incorporated in England and Wales.
Income Statement
For the year ended 28 February 2017
| Year ended 28 February 2017 | Year ended 29 February 2016 | ||||||
| Note | Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Loss on investments | 8 (b) | - | - | - | - | (148) | (148) |
| Income | 2 | 563 | - | 563 | 837 | - | 837 |
| 563 | - | 563 | 837 | (148) | 689 | ||
| Investment management fees | 3 | (48) | (142) | (190) | (53) | (159) | (212) |
| Other expenses | 4 | (188) | - | (188) | (167) | - | (167) |
| (236) | (142) | (378) | (220) | (159) | (379) | ||
| Profit/(loss) before taxation | 327 | (142) | 185 | 617 | (307) | 310 | |
| Taxation | 5 | (63) | 28 | (35) | (123) | 31 | (92) |
| Profit/(loss) and total comprehensive income for the year | 264 | (114) | 150 | 494 | (276) | 218 | |
| Basic and diluted | |||||||
| Return/(loss) per Ordinary Share (pence) | 6 | 2.06p | (0.89p) | 1.17p | 3.85p | (2.15p) | 1.70p |
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 | 8 | 8,250 | 8,891 |
| Current Assets | |||
| Debtors | 9 | 1,662 | 918 |
| Cash at bank and in hand | 226 | 365 | |
| 1,888 | 1,283 | ||
| Creditors - amounts falling due within one year | 10 | (789) | (334) |
| Net Current Assets | 1,099 | 949 | |
| Total Assets less Current Liabilities | 9,349 | 9,840 | |
| Creditors - amounts falling due after more than one year | 11 | (1) | (1) |
| Net Assets | 9,348 | 9,839 | |
| Capital and Reserves | |||
| Called up share capital | 12 | 128 | 128 |
| Capital reserve - realised | (681) | (567) | |
| Capital reserve - unrealised | (148) | (148) | |
| Revenue reserve | 10,049 | 10,426 | |
| Total Equity | 9,348 | 9,839 | |
| Net Asset Value per Ordinary Share | 13 | 72.91p | 76.74p |
The financial statements on pages 26 to 41 were approved and authorised for issue by the Board of Directors on 29 June 2017 and were signed on their behalf by:
Sir Aubrey Brocklebank Bt
Chairman
29 June 2017
Statement of Cash Flows
For the year ended 28 February 2017
| Year ended 28 February 2017 | Year ended 29 February 2016 | |
| £'000 | £'000 | |
| Profit for the year | 150 | 218 |
| Taxation | 35 | 92 |
| Loss on investments | - | 148 |
| Increase in debtors | (744) | (579) |
| (Decrease)/increase in creditors | (132) | 111 |
| Tax paid | (89) | - |
| Net cash used in operating activities | (780) | (10) |
| Cash flow from investing activities | ||
| Purchase of investments | - | (1,800) |
| Proceeds from disposal of investments and repayment of loans and loan notes | 641 | 2,350 |
| Net cash generated from investing activities | 641 | 550 |
| Cash flow from financing activities | ||
| Dividends paid | - | (641) |
| Net cash used in financing activities | - | (641) |
| Net decrease in cash and cash equivalents | (139) | (101) |
| Cash and cash equivalents at start of the year | 365 | 466 |
| Cash and cash equivalents at the end of the year | 226 | 365 |
Statement of Changes in Equity
For the year ended 28 February 2017
| Called up share capital | Capital reserve - realised | Capital reserve - unrealised | Revenue reserve | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Balance as at 1 March 2015 | 128 | (439) | - | 10,573 | 10,262 |
| Profit for the year | - | (128) | (148) | 494 | 218 |
| Dividends paid | - | - | - | (641) | (641) |
| Balance as at 29 February 2016 | 128 | (567) | (148) | 10,426 | 9,839 |
| Profit for the year | - | (114) | 264 | 150 | |
| Dividends payable | - | - | - | (641) | (641) |
| Balance as at 28 February 2017 | 128 | (681) | (148) | 10,049 | 9,348 |
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 £10,049,000 (2016: £10,426,000).
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.
The revenue reserve represents the cumulative revenue earned less cumulative distributions.
1. Accounting Policies
Accounting convention
Puma VCT 8 plc ("the Company") was incorporated, registered and is domiciled in England. The Company's registered number is 07696739. 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.
Going concern
After making enquiries the Directors believe that it is appropriate to continue to apply the going concern basis in preparing the financial statements. This is appropriate as the Company has access to cash reserves greater than the anticipated annual running costs of the Company, which will enable the Company to meet its liabilities as they fall due for payment for a period of 12 months from the date of this report.
In accordance with the plans set out in the Company's Prospectus, the Board expects to convene a General Meeting of the Company in the autumn of this year, at which resolutions will be proposed to place the Company into members' solvent liquidation. If these are passed, liquidators will be appointed and the Company will de-list from the London Stock Exchange
The Directors have considered a period of 12 months from the date of this report for the purposes of determining the Company's going concern status. This period of assessment is in accordance with the guidance issued by the Financial Reporting Council and is appropriate as the resolutions referred to above may not be approved.
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 13.
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.
- 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, Shore Capital 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 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.
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.
1. Accounting Policies (continued)
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 as liabilities from the ex-dividend date.
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 5 and notes 8 and 14 of the financial statements.
2. Income
| Year ended 28 February 2017 | Year ended 29 February 2016 | |
| £'000 | £'000 | |
| Income from investments | ||
| Loan stock interest | 562 | 834 |
| 562 | 834 | |
| Other income | ||
| Bank deposit income | 1 | 3 |
| 563 | 837 |
3. Investment Management Fees
| Year ended 28 February 2017 | Year ended 29 February 2016 | |
| £'000 | £'000 | |
| Shore Capital Limited | 190 | 212 |
| 190 | 212 |
Shore Capital Limited ("Shore Capital") 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 Shore Capital will be paid an annual fee of 2% of the Net Asset Value ("NAV") 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, trail commission and certain non-recurring costs) to within 3.5% of average Net Asset Value. Total costs this year were 3.5% of average Net Asset Value (2016: 3.4%).
4. Other expenses
| Year ended 28 February 2017 | Year ended 29 February 2016 | |
| £'000 | £'000 | |
| Shore Capital Fund Administration Services Limited | 35 | 37 |
| Directors' Remuneration | 56 | 56 |
| Auditor's remuneration for statutory audit | 22 | 22 |
| Legal and professional fees | 20 | 12 |
| Trail commission | 14 | 28 |
| Other expenses | 41 | 12 |
| 188 | 167 |
Shore Capital Fund 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 18. 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 £58,000 (2016: £58,000), including social security costs.
The Auditor's remuneration of £19,000 (2016: £18,500) has been grossed up in the table above to be inclusive of VAT.
5. Taxation
| Year ended 28 February 2017 | Year ended 29 February 2016 | |
| £'000 | £'000 | |
| UK corporation tax charged to revenue reserve | 63 | 123 |
| UK corporation tax credited to capital reserve | (28) | (31) |
| UK corporation tax charge for the year | 35 | 92 |
| Factors affecting tax charge for the year | ||
| Profit before taxation | 185 | 310 |
| Tax charge calculated on profit before taxation at 20% | 37 | 62 |
| Capital losses not deductible | - | 30 |
| Prior year over accrual | (2) | - |
| 35 | 92 |
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
| Year ended 28 February 2017 | |||
| Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | |
| Total comprehensive income for the year | 264 | (114) | 150 |
| Weighted average number of shares | 12,820,841 | 12,820,841 | 12,820,841 |
| Return/(loss) per share | 2.06p | (0.89)p | 1.17p |
| Year ended 29 February 2016 | |||
| Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | |
| Total comprehensive income for the year | 494 | (276) | 218 |
| Weighted average number of shares | 12,820,841 | 12,820,841 | 12,820,841 |
| Return/(loss) per share | 3.85p | (2.15)p | 1.70p |
7. Dividends
The Directors do not propose a final dividend in relation to the year ended 28 February 2017 (2016: £nil). An interim dividend of 5p (2016: 5p) per ordinary share was paid from revenue reserves in respect of the year ended 28 February 2017 totalling £641,000 (2016: £641,000). This dividend was been recognised as a liability in the financial statements as at 28 February 2017 from the ex-dividend date of 16 February 2017. The dividend was paid on 3 March 2017.
8. Investments
| (a) Movements in investments | Qualifying investments | Non qualifying investments | Total |
| £'000 | £'000 | £'000 | |
| Book cost at 1 March 2016 | 7,289 | 1,750 | 9,039 |
| Net unrealised losses at 1 March 2016 | (148) | - | (148) |
| Valuation at 1 March 2016 | 7,141 | 1,750 | 8,891 |
| Repayment of loans | - | (641) | (641) |
| Valuation at 28 February 2017 | 7,141 | 1,109 | 8,250 |
| Book cost at 28 February 2017 | 7,289 | 1,109 | 8,398 |
| Net unrealised losses at 28 February 2017 | (148) | - | (148) |
| Valuation at 28 February 2017 | 7,141 | 1,109 | 8,250 |
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 £1m (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 £148,000 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 year 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.
(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 | Year ended 29 February 2016 | ||
| £'000 | £'000 | ||
| Unrealised loss in the year | - | (148) | |
| - | (148) |
8. Investments (continued)
(c) Quoted and unquoted investments
| Market value as at 28 February 2017 | Market value as at 29 February 2016 | ||
| £'000 | £'000 | ||
| Quoted investments | - | - | |
| Unquoted investments | 8,250 | 8,891 | |
| 8,250 | 8,891 |
Further details of these investments are disclosed in the Investment Portfolio Summary on pages 6 to 11 of the Annual Report.
9. Debtors
| 2017 | 2016 | |
| £'000 | £'000 | |
| Other debtors | 641 | - |
| Prepayments and accrued income | 1,021 | 918 |
| 1,662 | 918 |
Other debtors comprise monies paid to the registrar to enable the interim dividend to be paid on 3 March 2017 (see note 7).
10. Creditors - amounts falling due within one year
| 2017 | 2016 | |
| £'000 | £'000 | |
| Accruals and deferred income | 110 | 186 |
| Corporation tax | 38 | 92 |
| Other creditors | - | 56 |
| Dividends payable (see note 7) | 641 | - |
| 789 | 334 |
11. Creditors - amounts falling due after more than one year
| 2017 | 2016 | |
| £'000 | £'000 | |
| Loan notes | 1 | 1 |
On 26 July 2011, the Company issued Loan Notes in the amount of £1,000 to a nominee on behalf of Shore Capital Limited and members of the investment management team. The Loan Notes accrue interest of 5% per annum.
The Loan Notes entitle Shore Capital and members of the investment management team to receive a performance related incentive of 20% of the aggregate amounts realised by the Company in excess of £1 per Ordinary Share. The Shareholders will be entitled to the balance. This incentive, to be effected through the issue of shares in the Company, will only be exercised once the holders of Ordinary Shares have received distributions of £1 per share (whether capital or income). 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.
In the event that distributions to the holders of Ordinary Shares totalling £1 per share have been made, the Loan Notes will convert into sufficient Ordinary Shares to represent 20% of the enlarged number of Ordinary Shares. The amount of the performance fee will be calculated as 20% of the excess of the net asset value (adjusted for dividends paid) over £1 per issued share.
12. Called Up Share Capital
| 2017 | 2016 | |
| £'000 | £'000 | |
| 12,820,841 ordinary shares of 1p each | 128 | 128 |
13. Net Asset Value per Ordinary Share
| 2017 | 2016 | |
| Net assets | £9,348,000 | £9,839,000 |
| Shares in issue | 12,820,841 | 12,820,841 |
| Net asset value per share | ||
| Basic | 72.91p | 76.74p |
| Diluted | 72.91p | 76.74p |
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 | 2016 | |
| £'000 | £'000 | |
| Financial assets at fair value through profit or loss | 8,250 | 8,891 |
| Financial assets that are debt instruments measured at amortised cost | 1,662 | 918 |
| Financial liabilities measured at amortised cost | (751) | (243) |
| 9,161 | 9,566 |
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 | 3,292 | 3,937 |
| Cash at bank and in hand | 226 | 365 |
| Other debtors | 641 | - |
| Accrued interest income | 1,021 | 918 |
| 5,180 | 5,220 |
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.
Other debtors comprised monies advanced to the registrar for payment of the interim dividend on 3 March 2017.
Credit risk associated with accrued interest income is predominantly covered by the investment management procedures.
14. Financial Instruments (continued)
Investments in loans and loan notes comprise 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 13. 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.
None of the Company's investments are quoted investments and 100% are unquoted investments (2016: 100% unquoted).
Liquidity risk
Details of the Company's unquoted investments are provided in the Investment Portfolio summary on page 6. 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 year end, the Company had no borrowings, other than loan notes amounting to £1,000 (2016: £1,000) (see note 11).
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 (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.
14. Financial Instruments (continued)
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% | - | 226 |
| Cash at bank - Lloyds | Floating | 0.25% | - | - |
| Loans, loan notes and bonds | Fixed | 19.65% | 23 months | 2,287 |
| Balance of assets | Non-interest bearing | - | 7,625 | |
| 10,138 | ||||
The following analysis sets out the interest rate risk of the Company's financial assets as at 29 February 2016.
| Rate status | Weighted average interest rate | Weighted average period until maturity | Total | |
| £'000 | ||||
| Cash at bank - RBS | Floating | 0.15% | - | 158 |
| Cash at bank - Investec | Fixed | 0.40% | 32 day notice | 3 |
| Cash at bank - Lloyds | Floating | 0.50% | - | 204 |
| Loans, loan notes and bonds | Floating | 7.50% | 34 months | 750 |
| Loans, loan notes and bonds | Fixed | 23.09% | 52 months | 2,320 |
| Balance of assets | Non-interest bearing | - | 6,739 | |
| 10,174 | ||||
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.
14. Financial Instruments (continued)
Fair values have been measured at the end of the reporting year as follows:-
| 2017 | 2016 | |
| £'000 | £'000 | |
| Level 3 | ||
| Unquoted investments | 8,250 | 8,891 |
| 8,250 | 8,891 |
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 6 to 11.
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. There have been no changes to this approach from prior years.
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 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 29 February 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.