PENNINE DOWNING AIM VCT 2-0 
By
Pennine Downing AIM VCT 2 plc
Half Yearly Financial Report for the six months ended 31 August 2009
CHAIRMAN'S STATEMENT
The six-months ended 31 August 2009 has seen calmer stock markets
than in the previous reporting periods and some degree of recovery in
stock prices. On the back of this, the Company's Net Asset Value per
share ("NAV") has shown a reasonable increase over the period.
Net Asset Value
As at 31 August 2009, the Company's ("NAV") stood at 29.5p, an
increase of 2.7p (10.1%) since 28 February 2009.
Venture capital investments
There was a limited amount of investment activity during the period.
The Company invested £194,000 in two new investments and one
follow-on investment. £100,000 was invested into Financial News
Publishing Limited, a financial publisher which has arisen from
Sanastro Limited, a previous investment which had failed. An
investment of £34,000 was made in Tristel plc, a manufacturer of
infection control products, and £60,000 was invested in Hoole Hall
Spa and Leisure Limited as a follow-on investment.
There have been a small number of realisations in the period.
Clerkenwell Ventures plc returned most of its surplus funds to
shareholders after it was unable to find suitable restaurant
businesses to acquire in line with its plans with the Company
receiving £279,000, realising a gain of £40,000.
Sanastro (as mentioned above) and Forward Media Limited both went
into liquidation in the period, producing total realised losses of
£93,000. The net realised loss in the period from disposals amounted
to £52,000.
The existing quoted portfolio showed a significant rise in value over
the six months, increasing by £709,000. The most notable risers were
Spice plc, Synergy Health plc and Ludorum plc.
As usual, the Board also reviewed the valuation of the unquoted
investments at the period end and made a small number of changes to
previous carrying values. The net movement on the unquoted
valuations was an increase of £6,000.
The total unrealised gains for the six-months were £715,000.
Full details of the portfolio together with the additions and
disposals in the period are shown below.
Fixed income and other investments
The Company has a small holding in a bond fund which was valued at
£149,000 at the period end, with unrealised gains over the period
amounting to £27,000. A fixed income bond, previously held, matured
during the period with realised gains thereon amounting to £2,000.
Results and dividend
The return on activities after taxation for the period was £639,000,
comprising a revenue loss of £33,000 and a capital return of
£672,000.
In line with the Company's usual practice, no interim dividend will
be paid.
Share buybacks
The Company has currently suspended its share buyback policy while it
is in the process of cancelling its Share Premium account to create
additional distributable reserves. Once this is complete, the Board
will give consideration to the Company's future share buyback policy.
Risk and uncertainties
Under the Disclosure and Transparency Directive, the Board is now
required, in the Company's half year results, to report on principal
risks and uncertainties facing the Company over the remainder of the
financial year.
The Board has concluded that the key risks are:
* investment risk associated with investing in young businesses;
* failure to maintain approval as a VCT.
In both cases the Board continues to be satisfied with the Company's
approach to these risks. Although the Company has significant
exposure to the relatively immature businesses quoted on AIM, the
Company seeks to mitigate risks associated with this as far it can by
holding a well-diversified portfolio.
The Company's compliance with the VCT regulations is continually
monitored by the Administrator, who regularly reports to the Board on
the current position. The Company also retains
PricewaterhouseCoopers to provide regular reviews and advice in this
area. The Board considers that this approach reduces the risk of a
breach of the VCT regulations to a minimal level.
Outlook
Although stock market indices have shown reasonably steady and
sustained growth since March, they remain well below their previous
peak levels. This is especially true in the AIM market, where for
example the FTSE AIM All Share Index currently stands nearly 50%
below its 2006 peak. Whether the recovery seen in recent months can
continue, remains to be seen, however the Board believes it is
unrealistic to expect the Company's NAV to recover the ground it has
lost in the short or medium-term.
As I mentioned in my last report, the Board has been exploring
options for the future of the Company. I can report that some
progress has been made and the Board is currently formulating
proposals which I expect to be in a position to put to Shareholders
in the near future.
Andrew Griffiths
Chairman
27 October 2009
UNAUDITED SUMMARISED BALANCE SHEET
as at 31 August 2009
31 Aug 31 Aug 28 Feb
2009 2008 2009
£'000 £'000 £'000
Investments 5,962 10,002 5,608
Current assets
Debtors 92 45 135
Cash at bank and in hand 968 132 627
1,060 177 762
Less: Creditors falling due within one (59) (51) (46)
year
Net current assets 1,001 126 716
Net assets 6,963 10,128 6,324
Capital and reserves
Called up share capital 1,180 1,193 1,180
Capital redemption reserve 170 157 170
Share premium 6,506 6,506 6,506
Special reserve 6,009 6,907 6,867
Capital reserve - realised - 276 -
Investment holding losses (6,724) (4,734) (8,254)
Revenue reserve (178) (177) (145)
Total equity shareholders' funds 6,963 10,128 6,324
Net asset value per share 29.5p 42.4p 26.8p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
31 Aug 31 Aug 28 Feb
2009 2008 2009
£'000 £'000 £'000
Opening shareholders' funds 6,324 13,324 13,324
Repurchase of own shares - (156) (232)
Total recognised gains/(losses) for the 639 (2,196) (5,924)
period
Distributions paid in the period - (844) (844)
Closing shareholders' funds 6,963 10,128 6,324
INCOME STATEMENT
for the six months ended 31 August 2009
Six months ended
31 Aug 2009
Revenue Capital Total
£'000 £'000 £'000
Income 67 - 67
Net gains/(losses) on investments - unrealised - 743 743
-realised (50) (50)
67 693 760
Investment management fees (7) (21) (28)
Other expenses (93) - (93)
Return/(loss) on ordinary activities (33) 672 639
Taxation - - -
Return/(loss) attributable to equity (33) 672 639
shareholders
Return per Ordinary Share (0.1p) 2.8p 2.7p
Six months ended Year ended
31 Aug 2008 28 Feb
2009
Revenue Capital Total Total
£'000 £'000 £'000 £'000
Income 162 - 162
263
Net gains/(losses) on - unrealised (2,179) (2,179) (5,541)
investments
- realised 58 58 (334)
162 (2,121) (1,959) (5,612)
Investment management fees (24) (72) (96) (105)
Other expenses (140) (1) (141) (207)
Return/(loss) on ordinary (2) (2,194) (2,196) (5,924)
activities
Taxation - - - -
Return/(loss) attributable to (2) (2,194) (2,196) (5,924)
equity shareholders
Return per Ordinary Share - (9.1p) (9.1p) (24.7p)
All Revenue and Capital items in the above statement derive from
continuing operations. The total column within the Income Statement
represents the profit and loss account of the Company.
A Statement of Total Recognised Gains and Losses has not been
prepared as all gains and losses are recognised within the Income
Statement as noted above.
UNAUDITED CASH FLOW STATEMENT
for the six months ended 31 August 2009
Six Six
months months Year
ended ended ended
31 Aug 31 Aug 28 Feb
2009 2008 2009
Note £'000 £'000 £'000
Cash outflow from operating
activities 1
and returns on investments (14) (34) (91)
Capital expenditure
Purchase of investments (194) (789) (789)
Disposal of investments 533 680 1,320
Net cash inflow/(outflow) from capital 339 (109) 531
expenditure
Acquisitions
Cash acquired 16 - -
16 - -
Equity dividends paid - (848) (844)
Net cash inflow/(outflow) before financing 341 (991) (404)
Financing
Share issue costs - (41) (52)
Purchase of own shares - (162) (243)
Net cash outflow from financing - (203) (295)
Increase/(decrease) in cash 2 341 (1,194) (699)
Notes to the cash flow statement:
1. Cash flow from operating activities and returns on
investments
Gain/(loss) on activities before 639 (2,196) (5,924)
taxation
(Gains)/losses on investments (693) 2,121 5,875
Decrease/(increase) in other 43 61 (33)
debtors
Increase in accruals and deferred income (3) (20) (9)
Net cash outflow from operating activities (14) (34) (91)
2. Analysis of net funds
Beginning of period 627 1,326 1,326
Net cash inflow/(outflow) 341 (1,194) (699)
End of period 968 132 627
SUMMARY OF INVESTMENT PORTFOLIO
as at 31 August 2009
Unrealised
gain/(loss)
in the % of
Cost Valuation period portfolio
£'000 £'000 £'000 by value
Top twenty venture capital
investments
Synergy Health plc ** 622 730 208 10.5%
Cadbury House Limited * 461 461 - 6.6%
Nu Nu plc * 470 432 - 6.2%
Aero Inventory plc 860 395 92 5.7%
Hoole Hall Spa and Leisure 360 360 - 5.2%
Limited *
Elektron plc 459 341 (10) 4.9%
Ludorum plc 161 339 158 4.9%
Spice plc ** 398 315 143 4.6%
Glisten plc 246 181 36 2.6%
FDM Group plc 150 158 55 2.3%
Pennant International Group 308 155 - 2.2%
plc
Straight plc 160 138 66 2.0%
Supporta plc 406 134 10 1.9%
The Thames Club Limited * 250 125 - 1.8%
Colliers CRE plc 296 123 60 1.8%
Huveaux plc 300 114 47 1.7%
Interserve plc ** 213 114 36 1.6%
Forest Support Services plc 160 112 26 1.6%
Neutrahealth plc 230 108 (36) 1.6%
Preston North End plc 141 107 (23) 1.6%
6,651 4,943 868 71.3%
Other venture capital 5,886 870 (153) 12.5%
investments
Other investments 149 149 28 2.2%
Total investments 12,686 5,962 743 86.0%
Cash at bank and in hand 968 14.0%
Total 6,930 100.0%
All venture capital investments are quoted on AIM unless otherwise
stated.
* Unquoted
** Listed on London Stock Exchange Main Market
SUMMARY OF INVESTMENT MOVEMENTS
for the six months ended 31 August 2009
Additions
£'000
Venture capital investments
Financial News Publishing Ltd 100
Hoole Hall Spa and Leisure Limited 60
Tristel plc 34
194
Disposals
Market Total
value at Profit/ realised
1 March Disposal loss vs gain/
Cost 2009 proceeds cost (loss)
£'000 £'000 £'000 £'000 £'000
Venture capital investments
Clerkenwell Ventures plc 248 239 279 31 40
Ludorum plc 2 3 4 2 1
Dissolutions/ liquidations
Bioganix plc 98 - - (98) -
Cytomyx plc 200 - - (200) -
Forward Media plc 281 20 - (281) (20)
Sanastro plc 315 73 - (315) (73)
Bonds
Prudential plc 5¿% 2009
stock 226 248 250 24 2
1,370 583 533 (837) (50)
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. The unaudited half yearly financial results cover the six months
to 31 August 2009 and have been prepared in accordance with the
accounting policies set out in the statutory accounts for the year
ended 28 February 2009 which were prepared under UK Generally
Accepted Accounting Practice and in accordance with the Statement of
Recommended Practice "Financial Statements of Investment Trust
Companies and Venture Capital Trusts" January 2009.
2. All revenue and capital items in the income statement derive from
continuing operations.
3. The Company has only one class of business and derives its income
from investments made in shares, securities and bank deposits.
4. The comparative figures were in respect of the period ended 31
August 2008 and the year ended 28 February 2009 respectively.
5. Return per share for the period has been calculated on 23,590,014
shares, being the weighted average number of shares in issue during
the period.
6. NAV per share for the period has been calculated on 23,590,014
shares, being the number of shares in issue at the period end.
7. Dividends
31 August 2009 28 Feb
2009
Revenue Capital Total Total
£'000 £'000 £'000 £'000
Paid in period
2008 Final distribution - - - 844
8. Reserves
Capital Share Capital Investment
redemption premium Special reserve holding Revenue
reserve account reserve - losses reserve
realised
£'000 £'000 £'000 £'000 £'000 £'000
At 1 March 170 6,506 6,867 - (8,254) (145)
2009
Expenses - - - (21) - -
charged to
capital
Net
gains/(losses) - - - (50) 743 -
on
investments
Realisation of
revaluations - - - (787) 787 -
from
previous years
Transfer - - (858) 858 - -
between
reserves
Retained net - - - - - (33)
revenue
loss
At 31 August 170 6,506 6,009 - (6,724) (178)
2009
Distributable reserves comprise the Special reserve, Capital reserve
- realised, Revenue Reserve and Investment holding losses of
£6,807,000. At the period end there were no reserves available for
distribution.
9. The unaudited financial statements set out herein do not
constitute statutory accounts within the meaning of Section 434 of
the Companies Act 2006 and have not been delivered to the Registrar
of Companies. The figures for the year ended 28 February 2009 have
been extracted from the financial statements for that year, which
have been delivered to the Registrar of Companies; the auditors'
report on those financial statements was unqualified.
10. The Directors confirm that, to the best of their knowledge, the
half-yearly financial statements have been prepared in accordance
with the "Statement: Half-Yearly Financial Reports" issued by the UK
Accounting Standards Board and the half-yearly financial report
includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements, and a description of the principal risks
and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period, and any changes in the related party transactions
described in the last annual report that could do so.
11. Copies of the unaudited half yearly financial results will be
sent to Shareholders shortly. Further copies can be obtained from the
Company's Registered Office and will be available for download from
www.downing.co.uk.
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