Half-yearly Report
Baronsmead VCT 2 plc
Half Yearly Financial Report
31 March 2013
The Directors announce the unaudited half-yearly financial report for the six
months to 31 March 2013 as follows:-
Copies of the half yearly report can be obtained from the following website:
www.baronsmeadvct2.co.uk .
Investment Objective Baronsmead VCT 2 plc is a tax efficient listed company
which aims to achieve long-term investment returns for private investors,
including tax free dividends.
Investment policy
â— To invest primarily in a diverse portfolio of UK growth businesses, whether
unquoted or traded on AIM.
â— Investments are made selectively across a range of sectors in companies that
have the potential to grow and enhance their value.
Dividend policy
The Board of Baronsmead VCT 2 aims to sustain a minimum annual dividend level
at an average of 6.5p per Ordinary Share, mindful of the need to maintain net
asset value. The ability to meet these twin objectives depends significantly on
the level and timing of profitable realisations and it cannot be guaranteed.
There will be variations in the amount of dividends paid year on year.
Since launch the average annual tax free dividend paid to ordinary shareholders
including the 3.0p interim dividend, has been 6.4p per share (equivalent to a
pre-tax return of 8.5p per share for a higher rate taxpayer). For shareholders
who claimed tax reliefs on initial subscription of 20 per cent, 30 per cent or
40 per cent, their returns would have been higher.
FINANCIAL HEADLINES
â— +10.0% - Net asset value ("NAV") per share increased 10.0 per cent to 105.7p
in the six months ended 31 March 2013 before deduction of dividends.
â— 3.0p - Interim dividend of 3.0p for the six month period to 31 March 2013.
◠£2.5m - Invested in three new and six follow on investments in the six months
to 31 March 2013.
â— 276.3p - NAV total return to shareholders for every 100.0p invested at
launch.
CHAIRMAN'S STATEMENT
This has been an excellent period for the Company. A 10.0 per cent increase in
Net Asset Value per share for the six months to 31 March 2013 is attributable
to increased valuations in both the unquoted and quoted portfolios. The
performance of the AIM market has been particularly strong and this accounts
for 70 per cent of the growth. At the same time, our unquoted portfolio
continues to develop well. Three profitable realisations generated £4.3 million
during the period. In December 2012, the Company raised £4.72 million net of
expenses from 832 shareholders.
The Board has declared an interim dividend of 3.0p per share.
Results
Before taking account of the 3.0p per share interim dividend, The Net Asset
Value increased to 105.72p per share, up 10.0 per cent from 96.10p per share.
Pence
per
ordinary
share
NAV as at 1 October 2012 96.10
(after deducting the final dividend of 5.0p)
Valuation uplift (10.0 per cent) 9.62
105.72
Less Interim dividend payable on 14 June 2013 (3.00)
(to shareholders on the register on 31 May 2013)
NAV as at 31 March 2013 102.72
All areas of the portfolio have increased in value during the six months under
review.
â— The gains have been led by the quoted portfolio (comprising AIM and Wood
Street Microcap Investment Fund) which increased by 24.6 per cent (8.0p per
share) benefiting from the improvement in quoted share prices generally (the
FTSE All Share Total Return index increased by 14.5 per cent over the same
period).
â— The unquoted portfolio increased in value by 5.2 per cent (2.6p per share)
reflecting the continuing steady progress made by these investments.
â— The most significant change in the portfolio was the 76.6 per cent increase
in the value of the Company's investment in Staffline, a national recruitment
and outsourcing organisation. Baronsmead VCT 2 first invested in Staffline in
2000 when it was an unquoted company. Subsequently, Staffline floated on the
AIM market in 2004 at a price of 80p and was trading at £3.92 as of 31 March
2013. Although not fully realised and so subject to future sale proceeds, the
return on the Company's investment in Staffline has been 5.9 times the cost of
the original investment taking account of previous realisations and valuing the
unrealised shares at the 31 March 2013 bid price.
When the interim dividend of 3.0p per shares is added to the final dividend of
5.0p per share paid in January 2013, the current annual dividend yield based on
a mid-market share price of 99.50p is 8.0 per cent after tax (equivalent to
10.7 per cent for a higher rate taxpayer).
Long Term Performance
The Company is a generalist investor and our investment objective and the
investment and dividend policies are aimed at producing consistent returns over
the long-term.
The NAV total return over the last ten years has been 239.3p (before taxation
benefits) for each 100p invested compared with an average of 188.4p for the VCT
generalist sector as a whole (source AIC). Over the same period, cumulative tax
free dividends paid to shareholders, including the proposed final dividend of
3.0p, amount to 76.0p per share (equivalent to 101.3p for a higher rate
taxpayer). The comparable return would be higher if the initial income tax
relief available on subscription was included in the computation.
The FTSE All-Share Index grew to 275.29p using the same metrics but this index
takes no account of the restricted nature of VCT investments or the benefit of
tax reliefs available to qualifying investors in VCTs.
The Company's stated policy is to maintain a minimum annual dividend of around
6.5p per share if possible. The average annual tax free dividend paid to
shareholders (including the interim dividend of 3.0p per share) in the past ten
years has been 7.6 p (6.4p since launch), comfortably ahead of the minimum
target.
The full 15 year performance record is set out on our website,
www.baronsmeadvct2.co.uk.
Portfolio Review
At 31 March 2013, the portfolio comprised 71 companies. The Board receives
quarterly reports indicating the trading performance of those companies in
order to monitor the health of the portfolio. At 31 March 2013, 83 per cent of
companies in the portfolio were reporting steady or better progress.
The Company has also invested in Wood Street Microcap, a fund giving investment
exposure to a further 36 AIM-traded and fully listed companies.
The net assets of £79.4 million were invested as follows:
â— 25 Unquoted companies (49 per cent)
â— 46 AIM-traded and other listed companies (32 per cent)
â— Wood Street Microcap Investment Fund (6 per cent)
â— Cash and fixed interest (13 per cent.)
New Investment
During the six months to 31 March 2013 a total of £2.5 million was invested in
three new companies and in some additional funding for existing AIM
investments.
An investment was made in Create Health, an unquoted London based company which
is an internationally renowned fertility clinic specialising in Natural and
Mild IVF using methods that are cheaper, safer, and healthier for the mother
and baby. The Natural and Mild approach to IVF is common in advanced fertility
markets overseas such as Scandinavia, South Korea and Japan, as well as in
other parts of Europe.
After the period end, a further new unquoted investment of £0.9 million was
made in Eque2, a construction industry Enterprise Resource Planning solutions
provider.
We made two new AIM investments in Ideagen plc (compliance software solutions)
and Pinnacle Technology Group plc, a B2B telecoms and IT retailer.
Sale of Investments
During the six months to 31 March 2013 a total of £4.3 million was realised
from three investments.
â— Unquoted - the Company's investment in Micro Librarian Systems Ltd ("MLS")
was sold to Capita realising £1.1 million, a 2.8x multiple return (see below).
â— AIM -
â— FFastFill was sold following a recommended offer received from Pattington
(part of the ION Group) realising £0.9 million, representing 2.8 times return
on the amount invested.
◠IDOX was partially sold through the market realising £2.3 million,
representing 5.5 times return on the amount invested.
MLS is the leading provider of library and resource management systems to the
UK education sector. Since Baronsmead VCT 2's investment in 2006 the turnover
of MLS almost doubled while the values, culture and dedication to providing
best in class systems and services were maintained. Its purchase (by Capita),
which represented a return of 2.8 times on the amount invested, fits with
Capita's strategy of developing capability in their target markets.
FFastFill had been an investment since 2007 and on sale achieved 2.8 times cost
resulting in a profit of £0.6 million. In addition, the firmness of the share
price in IDOX enabled a proportion of the holding to be sold at 5.5 times cost
yielding a capital profit of £1.9 million.
Since the period end, the Company sold its unquoted investment in Independent
Living Services ("ILS") realising £3.43 million, representing a return of 2.5
times the original cost of the investment. The realisation figure includes
interest payments over the life of the investment and the redemption premium
received. Part of the Company's quoted holding in Staffline Recruitment Group
plc was also sold after the period end, realising £1.58 million.
Fund Raising and Shareholder Matters
The Company issued a prospectus on 20 November 2012 to raise up to £5 million
before expenses. The Offer closed after 19 working days on 17 December 2012
fully subscribed. On behalf of the Board of Directors, I would like to thank
the 426 existing shareholders who subscribed to the recent fundraising and
extend a warm welcome to the Company's 406 new shareholders.
In October 2012, around 3,000 shareholders responded to the shareholder survey
that was sent to approximately 10,000 investors in the five Baronsmead VCTs.
Several of the questions repeated those asked in the previous survey carried
out in October 2006 in order to measure any changes in shareholders' views. Key
results included:
â— An indication that the investment priority of shareholders had moved slightly
from a modest preference for capital growth to a greater desire for income
through dividends.
â— Confirmation that a significant majority of shareholders intend to hold their
shares for the long term.
The Board is very grateful to those shareholders who responded to the survey as
it provides valuable information on which the Board can base its decisions.
Following the shareholder survey, on 16 November 2012 the Directors announced
that in an effort to minimise the discount between the share price and the NAV
the Company would endeavour, in future, to buy back shares at a 5 per cent
instead of at a 10 per cent discount to NAV. This revised share price discount
policy will, of course, be kept under continuous review and may be subject to
revision. Shares will be bought back depending on market conditions at the time
and only where the Directors believe it to be in the best interests of
shareholders as a whole.
We have made good progress during the period under review in reducing the
difference between the share price and the net asset value of the Company's
shares. At 31 March 2013 the discount was approximately 6.0 per cent. During
the period the Company bought back 1,005,000 shares representing 1.2 per cent
of the shares in issue at the period end.
The Company buys back its shares through the market and not directly from
shareholders. This enables shareholders who wish to sell their shares to do so
at a time which suits their own circumstance. It also maximises the opportunity
for other investors to buy the Company's existing shares whilst minimising the
number of shares bought back by the Company.
Outlook
The outlook for the UK economy remains mixed with many commentators expecting
another drab year. Your Board does not indulge in economic forecasting and much
prefers to view the outlook for your Company through the prism of the companies
in which we have invested. From that perspective we have been encouraged to see
a gradual improvement over the last year or so.
The portfolio is widely diversified, well resourced, adequately funded and the
vitality and resilience of the entrepreneurial teams in which the Company has
invested gives confidence that, mostly, they are well placed to grow
profitability. Indeed, based on the experience of our portfolio, the negative
views of some commentators regarding the UK economy seem out of place.
The progress in the portfolio is encouraging and, furthermore, there are signs
of an increase in the number of investment opportunities available and we are
hopeful that, over time, this will contribute further to the strength and
diversity of the portfolio.
Clive Parritt
Chairman
17 May 2013
Summary Investment Portfolio
Sector by value Percentage
Business Services 37%
Consumer Markets 17%
Financial Services 2%
Healthcare & Education 15%
Technology, Media & Telecommunications ("TMT") 29%
Total Assets by value Percentage
Unquoted - loan stock 34%
Unquoted - ordinary & preference 15%
AIM, listed & collective investment vehicle 38%
Listed interest bearing securities 7%
Net current assets principally cash 6%
Time Investments Held by value Percentage
Less than 1 year 10%
Between 1 and 3 years 24%
Between 3 and 5 years 1%
Greater than 5 years 65%
Table of Investments and Realisations
Investments in the six month period
Book
cost
Company Location Sector Activity £'000
Unquoted
investments
New
Create Health London Healthcare Provider of fertility 1,065
Limited & Education services
Follow on
Impetus London Business Automotive consultancy and 230
Holdings Services outsourced service provider
Limited
Total unquoted investments 1,295
AIM-traded & listed investments
New
Ideagen plc Matlock TMT* Compliance software 225
solutions
Pinnacle Stirlingshire TMT* B2B telecoms and IT 169
Technology reseller
Group plc
Follow on
Hangar8 plc Oxford Business Business jet management 344
Services
Tangent London Business Digital direct marketing 215
Communications Services
plc
TLA Worldwide London Business Baseball sports management 113
plc Services and marketing business
Accumuli plc Salford TMT* Managed IT security 95
Green Worcester Business Small business compliance 50
Compliance plc Services
Total AIM-traded & listed
investments 1,211
Total investments in the
period 2,506
* Technology, Media & Telecommunications ("TMT").
Realisations in the six month period
Realised
30 profit/
September (loss)
First 2012 this Overall
investment valuation period multiple
Company date £'000 £'000 return
Unquoted realisations
Full trade
MLS Limited sale Jul 06 1,036 44 2.8
Total unquoted
realisations 1,036 44
AIM-traded & listed realisations
IDOX plc Market sale Jan 09 990 566 5.5
Full trade
FFastFill plc sale Jun 07 557 317 2.8
Total AIM-traded & listed
realisations 1,547 883
Total realisations in the period 2,583 927â€
†Proceeds of £2,000 were also received in respect of Adventis Group plc, which
had been written off in the year ended 30 September 2012.
Responsibility statement of the Directors in respect of the half-yearly
financial report
We confirm that to the best of our knowledge:
â— the condensed set of financial statements has been prepared in accordance
with the Statement 'Half-yearly financial reports' issued by the UK Accounting
Standards Board;
â— the Chairman's Statement (constituting the interim management report)
includes a fair review of the information required by 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;
â— the Statement of Principal Risks and Uncertainties on page 14 is a fair
review of the information required by DTR 4.2.7R; and
â— the financial statements include a fair review of the information required by
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.
By Order of the Board,
Clive Parritt
Chairman
17 May 2013
Unaudited Income Statement
For the six months to 31 March 2013
Six months to Six months to Year to
31 March 2013 31 March 2012 30 September 2012* * Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Unrealised gains on investments - 6,998 6,998 - 3,402 3,402 - 5,842 5,842
Realised gains on investments - 929 929 - 524 524 - 750 750
Income 952 - 952 362 - 362 1,101 - 1,101
Investment management fee (186) (1,469) (1,655) (164) (492) (656) (337) (1,011) (1,348)
Other expenses (229) - (229) (203) - (203) (381) - (381)
Profit/(loss) on ordinary 537 6,458 6,995 (5) 3,434 3,429 383 5,581 5,964
activities before taxation
Taxation on ordinary activities (74) 74 - - - - (16) 16 - Profit/(loss)on ordinary activities 463 6,532 6,995 (5) 3,434 3,429 367 5,597 5,964
after taxation Return per ordinary share:
Basic 0.63p 8.87p 9.50p (0.01p) 4.97p 4.96p 0.52p 7.93p 8.45p
* Figures as at 30 September 2012 are audited.
Unaudited Reconciliation of Movement in Shareholders' Funds
For the six months to 31 March 2013
Six Six
months to Months to Year to
31 March 31 March 30 September
2013 2012 2012*
£'000 £'000 £'000
Opening shareholders' funds 72,433 64,999 64,999
Profit for the period 6,995 3,429 5,964
Gross proceeds of share issues 5,000 4,135 4.135
Purchase of shares for treasury (964) (191) (652)
Expenses of share issue and buybacks (280) (197) (199)
Other costs charged to capital - (10) (10)
Dividends paid (3,772) - (1,804)
Closing shareholders' funds 79,412 72,165 72,433
* Figures as at 30 September 2012 are audited.
Notes
1. The unaudited interim results which cover the six months to 31 March 2013
have been prepared in accordance with applicable accounting standards and
adopted the accounting policies set out in the statutory accounts of the
Company for the year to 30 September 2012.
2. Return per share is based on a weighted average of 73,664,418 ordinary
shares in issue (30 September 2012 - 70,544,594 ordinary shares, 31 March 2012
-69,096,100 ordinary shares).
3. Earnings for the six months to 31 March 2013 should not be taken as a guide
to the results of the full financial year to 30 September 2013.
4. During the six months to 31 March 2013 the Company purchased 1,005,000
ordinary shares to be held in treasury at a cost of £964,000. At 31 March 2013
the Company holds 10,223,819 ordinary shares in treasury. These shares may be
re-issued below Net Asset Value as long as the discount at issue is narrower
than the average discount at which the shares were bought back.
Excluding treasury shares, there were 75,114,950 ordinary shares in issue at 31
March 2013 (30 September 2012 - 71,647,952 ordinary shares, 31 March 2012 -
72,167,952 ordinary shares).
5. The interim dividend of 3.0p per share (0.6p revenue and 2.4p capital) will
be paid on 14 June 2013 to shareholders on the register on 31 May 2013. The
ex-dividend date is 29 May 2013.
6. The financial information contained in this half-yearly financial report
does not constitute statutory accounts as defined in section 434 of the
Companies Act 2006. The information for the year to 30 September 2012 has been
extracted from the latest published audited financial statements. The audited
financial statements for the year to 30 September 2012, which were unqualified,
have been filed with the Registrar of Companies. No statutory accounts in
respect of any period after 30 September 2012 have been reported on by the
Company's auditors or delivered to the Registrar of Companies.
7. Copies of the half-yearly financial report have been made available to
shareholders and are available from the Registered Office of the Company at 100
Wood Street, London EC2V 7AN.
Unaudited Balance Sheet
As at to 31 March 2013
As at As at As at
31 31 30
March March September
2013 2012 2012
£'000 £'000 £'000*
Fixed assets
Unquoted investments 38,859 30,224 36,720
Traded on AIM 23,756 19,349 20,750
Listed on LSE 1,603 1,164 1,526
Collective investment vehicle - Wood Street Microcap 5,092 3,095 4,183
Investment Fund
Listed interest bearing securities 5,619 26,635 5,939
74,929 80,467 69,118
Current assets
Debtors 1,820 227 310
Cash at bank 6,908 1,232 465
Cash on deposit 2,500 - 3,000
11,228 1,459 3,775
Creditors (amounts falling due within one year) (6,745) (9,761) (460)
Net current assets/(liabilities) 4,483 (8,302) 3,315
Net assets 79,412 72,165 72,433
Capital and reserves
Called-up share capital 8,534 8,087 8,087
Share premium account 7,809 3,531 3,531
Capital reserve 44,947 51,198 47,452
Revaluation reserve 17,415 9,100 12,742
Revenue reserve 707 249 621
Equity shareholders' funds 79,412 72,165 72,433
* Figures as at 30 September 2012 are audited.
As at As at As at
31 March 31 March 30 September
2013 2012 2012*
Net asset value per share 105.72p 100.00p 101.10p
Number of shares in circulation 75,114,950 72,167,952 71,647,952
Treasury net asset value per share 104.98p 98.64p 99.83p
Number of ordinary shares in circulation 75,114,950 72,167,952 71,647,952
Number of ordinary shares held in 10,223,819 8,698,819 9,218,819
treasury
Number of listed ordinary shares in issue 85,338,769 80,866,771 80,866,771
* Figures as at 30 September 2012 are audited.
Unaudited Statement of Cash Flow Statement
For the six months to 31 March 2013
Six Six
months months Year
to to to
31 March 31 March 30 September
2013 2012 2012*
£'000 £'000 £'000
Net cash outflow from operating activities (2) (90) (337)
Capital expenditure and financial investment 6,488 (2,914) 1,833
Equity dividends paid (3,772) - (1,804)
Net cash inflow/(outflow) before financing 2,714 (3,004) (308)
Net cash inflow from financing 3,229 3,694 3,231
Increase in cash 5,943 690 2,923
Reconciliation of net cash flow to movement in
net cash
Increase in cash 5,943 690 2,923
Opening cash position 3,465 542 542
Closing cash position 9,408 1,232 3,465
Reconciliation of profit on ordinary activities before taxation to net cash
outflow from operating activities
Profit on operating activities before taxation 6,995 3,429 5,964
Gains on investments (7,927) (3,926) (6,592)
Changes in working capital and other non-cash 930 407 291
items
Net cash outflow from operating activities (2) (90) (337)
* Figures as at 30 September 2012 are audited.
Principal Risks and Uncertainties
The Company's assets consist of equity and fixed interest investments, cash and
liquid resources. Its principal risks are therefore market risk, credit risk
and liquidity risk. Other risks faced by the Company include economic, loss of
approval as a Venture Capital Trust, investment and strategic, regulatory,
reputational, operational and financial risks. These risks, and the way in
which they are managed, are described in more detail under the heading
Principal risks, risk management and regulatory environment within the Business
Review in the Company's Annual Report and Accounts for the year to 30 September
2012. The Company's principal risks and uncertainties have not changed
materially since the date of that report.
Related Parties
ISIS EP LLP ('the Manager') manages the investments of the Company. The Manager
also provides or procures the provision of secretarial, administrative and
custodian services to the Company. Under the management agreement, the Manager
receives a fee of 2.0 per cent per annum of the net assets of the Company. This
is described in more detail under the heading Management within the Report of
the Directors in the Company's Annual Report and Accounts for the year to 30
September 2012. During the period the Company has incurred management fees of £
744,000 and secretarial fees of £68,000 payable to the Manager. A performance
fee of £911,000 has been accrued at 31 March 2013 to reflect the potential fee
that would be payable to the Manager at 30 September 2013 should the current
investment performance continue to the end of the current financial year.
Going Concern
After making enquires, and bearing in mind the nature of the Company's business
and assets, the Directors consider that the Company has adequate resources to
continue in operational existence for the foreseeable future. In arriving at
this conclusion the Directors have considered the liquidity of the Company and
its ability to meet obligations as they fall due for a period of at least
twelve months from the date that these financial statements were approved. As
at 31 March 2013 the Company held cash balances, investments in UK Gilts and
Money Market Funds with a combined value of £15,027,000. Cash flow projections
have been reviewed and show that the Company has sufficient funds to meet both
its contracted expenditure and its discretionary cash outflows in the form of
the share buyback programme and dividend policy. The Company has no external
loan finance in place and therefore is not exposed to any gearing covenants.
Corporate Information
Directors Registrar and Transfer Office
Clive Parritt (Chairman) Computershare Investor Services PLC
Howard Goldring* PO Box 82
Gillian Nott OBE‡ The Pavilions
Christina McComb Bridgwater Road
Bristol BS99 6ZZ
Secretary Tel: 0870 889 3249
ISIS EP LLP
Auditors
Registered Office KPMG Audit Plc
100 Wood Street Saltire Court
London EC2V 7AN 20 Castle Terrace
Edinburgh EH1 2EG
Investment Manager
ISIS EP LLP Solicitors
100 Wood Street Martineau
London EC2V 7AN No 1 Colmore Square
020 7506 5717 Birmingham B4 6AA
FPPE LLP (listed interest bearing securities only) VCT Status Adviser
100 Wood Street PricewaterhouseCoopers LLP
London EC2V 7AN 1 Embankment Place
London WC2N 6RH
Registered Number
03504214 Website
www.baronsmeadvct2.co.uk
* Chairman of the Audit Committee
‡ Chairman of the Management Engagement and
Remuneration Committee, Chairman of the Nomination
Committee and Senior Independent Director.
Copies of the half-yearly financial report will shortly be available from the following website: www.baronsmeadvct2.co.uk.
National Storage Mechanism
A copy of the Half-Yearly Report will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.hemscott.com/nsm.do .
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.