Final Results

RNS Number : 9852H

Baronsmead VCT 2 PLC

12 November 2008

 



Baronsmead VCT 2 plc

Annual Financial Report Announcement 

12 November 2008

Investment Objective

To achieve long-term capital growth and generate tax-free dividends and capital distributions for private investors.

Audited Annual Financial Report Announcement - Year ended 30 September 2008

Financial Highlights

-12.0% NAV per share decrease to 98.68p before deduction of dividends. After payment of dividends totalling 7p per share in the year to 30 September 2008, the NAV was 91.68p.  The FTSE All Share index fell 25.12% over the same period

84% NAV total return since launch in 1998, representing an annualised total return of 6.0% (on original subscription at launch) before taking account of tax relief and 7.5% after allowing for initial income tax relief of 20% 

6.5p Average annual tax free dividend of 6.5p per share since inception, equivalent to 9.6p for higher rate taxpayers

£3.4m net capital profits from 14 exits; £11.8m of new investment.

£8.0m prospectus fund raising launched in September 2008

CHAIRMAN'S STATEMENT 

The credit crunch which we faced in late 2007 has now become a major issue for UK smaller companies. Many small companies and most of our unquoted investees continue to trade satisfactorily. However market sentiment has deteriorated still further and this has materially reduced the value of the AiM companies in the portfolio and consequently our Net Asset Value per share. 

Reducing valuation multiples also affected our unquoted investees and despite improving results, this part of the portfolio did not quite hold its overall value.

Despite the economic turmoil of the last year there was a satisfactory level of net profits from realisations which has enabled good dividends to be paid, while also generating capital for a high level of investment in 2008 and the future. The current prospectus fund raising will increase liquidity and the Board believes it will also place us in a good position to invest advantageously.

INVESTMENT PERFORMANCE

Results to 30 September 2008

In the 12 months to 30 September 2008, the Net Asset Value (NAV) per share decreased by 12.0% from 112.19p to 98.68p before payment of two interim dividends totalling 7p per share. These dividends include 2.8p per share generated from net revenue while the balance came from net realised capital profits.  Over the same period the FTSE All-Share index fell by 25.12%.

The six VCT tests relating to the management of Baronsmead VCT 2 were met during the year. At the period end, 79.7% of the ordinary share capital raised prior to 30 September 2006 was invested in qualifying investments. 

Longer term performance

Tax free Dividends paid to founder shareholders now total 67.9p per share. This is an average annual tax free dividend throughout the 10.5 year period of 6.5p per share. For those C shareholders who subscribed in winter 2004/2005, they have received 19.9p of tax-free dividends for each £1 invested.

The annual report contains a schedule that shows the total returns generated over 1, 5, 10 years and since launch compared against the FTSE All-Share index. The share price total return of Baronsmead VCT 2 is the most directly comparative.

These total returns are stated before the inclusion of VCT tax reliefs. These reliefs are designed to redress the VCT constraints as well as the higher risks associated with investing in smaller unquoted and AiM-traded companies. 

The up front income tax reliefs over the years have been 20%, 40% and are now 30%, so any adjusted performance measure including this relief will vary depending on the date of subscription. The benefit from receiving dividends tax free is also sizeable and for a 'higher rate taxpayer' adds the equivalent of another 32.7p per share to the net dividend over the period for a founder shareholder.  

THE IMPACT OF PRIVATE EQUITY 

Portfolio trends 

We value the unquoted portfolio by looking at comparable companies in the quoted markets and using their price/earnings ratios and multiples from comparable transactions. Despite the fall in these ratios, the 21 unquoted portfolio investments were only down 1.8%. Some companies were down rated but others performed strongly with a rise in profits which meant that the valuations of those companies more than offset the reduction in value.  This can be observed best from the top ten investments contained in the annual report where nine out of ten show year on year profits growth.  In contrast the portfolio of 66 AiM investees suffered a severe fall in market value by 42% from their peak value in summer 2007. The Manager's report comments further on this phenomenon and shows how much of this is attributed to falling market confidence and how much to poorer trading by investees. 

The private equity disciplines developed by ISIS over the last ten years have generated a series of successful realisations of unquoted investments. The oldest unquoted investment is now one made in 2004. The Board believes that this experience will be especially valuable as the economic situation gets tougher.

Access to private equity

The Board aims to build the proportion of private equity in the portfolio recognising that

• VCTs enable private investors to access a selected diversified portfolio of private equity investments, tax efficiently.  

• VCTs as fully listed companies on the London Stock Exchange provide high standards of investor transparency and protection.

• ISIS has a national resource seeking out selected entrepreneurial teams in chosen sectors that it is difficult for other investors to replicate across the UK  

Asset allocation

At the year end unquoted (private equity) investments represented 49% of NAV and this percentage is expected to continue increasing gradually as realisation opportunities at premium prices are likely to slow in the near term.  However as we are likely to be well above the 70% VCT qualifying test this higher level of retention will enable the manager to more effectively manage the AiM portfolio when the opportunity arises.  This higher weighting will also enable the Manager to sell AiM investments more actively once more confidence returns to the market and there is a rebound element in the pricing of these AiM holdings.  

We continue to have a large pool of capital resources within the fund available for unexpected eventualities. A significant proportion of the cash available was raised prior to April 2006 so it can be used for larger qualifying investments with gross assets up to £15m pre-investment.

FUND RAISING AND INVESTMENT TIMING

Joint offer prospectus launched in September 2008

The Board's recommendation to raise additional capital was agreed by shareholders at the EGM held on 31 July 2008. The ensuing joint offer Securities Note was sent to all Shareholders in September aiming to raise up to £8m for each of Baronsmead VCT and Baronsmead VCT 2. The final closing date is 16 January 2009.  

Subscriptions to date

The first allotment date takes place after the announcement of these results but by 10 November 2008, over 300 shareholders had subscribed approximately £4m of new capital to the joint offer to be split between Baronsmead VCT and Baronsmead VCT 2. The allocation price is non-dilutive to existing shareholders as it is based on the audited NAV per share at the year end adjusted for any subsequent change in the valuations as at 31 October 2008, rounded up by the launch cost of 5.5%.

Investment timing

One of the key messages in the Securities Note is 'the Directors and Manager believe that now is an advantageous time in the UK economic cycle to be investing in smaller companies. Prices of assets are expected to be lower and further funds are sought to enable investments in the attractive opportunities that are expected to arise'.  

While not two economic cycles or recession ar e the same, the investments made in the 2003 downturn provide and example of propitious timing. The six major investments acquired in 2003 were made at attractive prices and all have now been sold at an aggregate multiple of 2.7 times original cost of £6.4m. This generated realised profits of over £10.7m including interest and dividends received, even allowing for the disappointing multiple of 0.2 on cost realised from the investment in the Art Group.  

MANAGING THROUGH RECESSIONS

The Board and Manager have experienced UK recessions both since our formation in 1998 and previously. Nonetheless there are always some surprises and on this occasion it has been the extent of the banking crisis in autumn 2008. The cash assets within Baronsmead VCT 2 are now held in Treasury Bills and Cash as it has never been the policy to take 'risk' with un-invested capital.

The nature of the credit crunch is such that we anticipate less banking finance being available for investees. This has been built into the Manager's plans for each unquoted investee for some time. We also wish to husband cash resources of Baronsmead VCT 2 for unexpected eventualities. There is a large pool of capital raised prior to April 2006 which can be invested in larger qualifying transactions and companies with gross assets of up to £15m pre investment. The current fund raising will supplement liquidity and also help us retain the high level of pre April 2006 capital.

Risk management 

The Board manages all the risk dimensions associated with the Company through the framework established within the Combined Code for all fully listed public companies. At quarterly Board meeting all the key performance indicators are reviewed as well as wider topics which are spread annually across these meetings.  In the current conditions we have paid particular attention to the diverse challenges facing the portfolio and to the security of the uninvested funds which have now been moved into Government securities.

OTHER ISSUES

VAT reclaim 

It was announced in March 2008 that VAT is no longer to be charged on management fees from 1 July 2008. Subsequently HMRC confirmed that VAT paid by the Manager from a number of previous years could also be reclaimed and this is now being pursued.  At this stage it is expected that a minimum of £740,000 will be recovered and is included in the NAV per share at 30 September 2008.  These reclaims have resulted from the good work and representation by the Association of Investment Companies (AIC) that we joined as a member in October 2006. 

Shareholder liquidity

An important risk that the Board monitors relates to share buy backs.  Historically the repurchase price has represented an approximate discount to net asset value of 10 per cent and shareholders have been able to sell on this basis in normal market conditions. During the year, 3.0m shares were bought back. Another 0.6m shares were acquired under the Dividend Reinvestment Plan.

OUTLOOK

The availability of bank finance for investee companies has materially reduced and so these companies may have to be managed within their existing or shrinking credit lines. There is also increased economic risk that needs to be accommodated in the planning and financial control of investees. The Company has the cash resources to help in appropriate situations. However while the Manager is influential in its unquoted company relationships in this regard, it is less so with AiM-traded companies.  

The priority for portfolio companies is to face any recessionary pressures in a controlled way and be strong enough not to be diverted from a growth path. In working with current and future investees the Manager will remain focused on these investment fundamentals.

We can be selective in acquiring new investments at prices which are expected to be lower than in recent years. While the economic outlook is clearly difficult, the Board and the Manager both believe that attractive opportunities will arise to invest in businesses which have the resilience and flair to succeed. These prospective as well as existing investments provide the foundations on which we plan to both protect and then grow shareholder value in the years ahead.

Clive Parritt

Chairman

12 November 2008

MANAGER'S REPORT

High levels of new investment and exits were achieved in the year under review. The priority in the coming year is to assist the existing portfolio companies to sustain profitable growth

PORTFOLIO REVIEW

The total portfolio grew to 87 companies after 22 new investments, net of 14 realisations. All new investment and the exits are scheduled in the annual report. £11.8m was invested in total, split £7.6m into nine unquoted investments and £4.2m into 21 AiM-traded investments.

The realisations are predominantly split between five successful unquoted exits and five AiM realisations for nominal amounts. The net realised profits from all these realisations totalled £3.4m 

Interest bearing securities and cash amounted to £18.1m at the start of the year and by 30 September 2008 totalled £13.6m. Shortly after the year end the holdings in money market OEICS were switched into Gilts and Treasury Bills leaving cash deposits of approximately £2m for immediate operational requirements. This structure will be reviewed regularly and some reversion back to higher yielding OEICs will be sought once financial markets are exhibiting more conventional behaviour.

The Portfolio companies are reviewed quarterly in terms of their financial health and while there has been a fall in those companies exhibiting steady or better trading progress from 83% to 71% at the year end most investees are still performing satisfactorily. In addition financial gearing is measured as a ratio of debt to current enterprise value as well as the debt divided by operating profits. These ratios are currently at prudent levels both historically and against industry standards.

The severe AiM market de-rating over the last year has dented the AiM record as over the year price/earnings multiples broadly halved for both the AiM All Share and the FTSE SmallCap indices (source: Blue Oar Securities). This de-rating was partially offset by earnings growth within the majority of portfolio companies although there was an impact from some specific trading issues with five negative trading statements from portfolio companies arising in the final quarter. 21 out of 66 AiM and listed investees were categorised as 'Down' in terms of direction of travel, whilst 24 and 21 were categorised as up and steady respectively.

The annual report depicts four case studies of unquoted companies across a number of different market sectors within the portfolio.  

HOW PRIVATE EQUITY CAN WORK IN A DOWN TURN

Selection, active management and exiting | The banking crisis has been driven by bad debts, over borrowing and now a shortage of capital. Moreover trading conditions for companies during an economic recession could be more volatile. These aspects will be designed into new investment opportunities by keeping borrowing levels low and allowing greater financial flexibility should the unforeseen happen.  

The appointment of an external chairman and one or more non-executives directors to investee companies can instil good standards of governance and key decision-making. This is normally reinforced by the alignment between all the shareholders including the executive directors who are incentivised to grow and then sell their company.

Investment process | The Manager constantly strives to achieve greater consistency through all the stages of investing in a niche market opportunity where the investee has a value strategy that can be sustained through economic cycles.  

The sale of two investments last year illustrates how active management by ISIS resolved difficulties whether managerial or due to a rapidly changing market environment.

.  

• New executive management introduced by ISIS joined Hawksmere in 2005 and were able to sell the business in early 2008 at a multiple of 2.5 times cost, which was a sharp change in fortunes as the investment had been valued at zero in June 2006.

• The investment in Kidsunlimited was held for over six years during which time the day care market sector for small children changed markedly caused by both regulatory and legislative change. Senior management had to change and evolve its skills over this time and judge when best to sell, which was achieved in April 2008 at a multiple of 4.75 times cost.  

Continuous learning

Over the 10 year life of Baronsmead VCT 2, 143 investments have been made and about 40 per cent have been realised. These outcomes enable ISIS to learn continuously how to invest more skilfully. The increased consistency of unquoted exits is testimony to this.

AiM investing

The intent is to apply private equity disciplines when possible in AiM investees. These inputs range from use of sector knowledge, prior contact before float as an unquoted company, board appointment introductions and experience of exits for similar unquoted companies. 73% of the value of the AiM portion of the portfolio is within 20 stocks and this will be where the focus will be for growth while the tail of investments is slowly reduced as market conditions allow.  

Getting ready for the upswing

Pricing of unquoted and AiM investments has begun to adjust and reduce so that the Manager is confident that the next year or so will be an advantageous time to invest. Debt availability will also be lower but the investment terms can be adjusted to accommodate lower gearing.  

Deal flow

ISIS sustains an active origination programme of building a dialogue prior to investment and this effort will not be diminished during the recession.  For example we first met the founder directors of Playforce, a new investment completed in January 2008, two years previously and identified this as an interesting opportunity.

OUTLOOK

The turbulence in financial markets will take some time to settle down but our role will be to stick to our investment principles during the current uncertainty. Prior experience of managing in the downturn is helpful both within incumbent investee management and ISIS as private equity managers, which can help ensure portfolio companies exercise sufficient control over costs and sales. We shall also be seeking out new opportunities where the economic 'drivers' behind sales growth are sound and at keener pricing than for some time.

Investment Managers

ISIS EP LLP

12 November 2008

Unquoted investments
Company	Location	Sector	Activity	Investment Cost (£'000)
Active Assistance	Sevenoaks	Healthcare	Specialist live in care		679
Carnell Contractors	Penkridge	Business Services	Highway agency services		1,499
CSC (World)	Pudsey	IT	3D structural steel software		1,606
Kidsunlimited	Wilmslow	Business Services	Childrens day nurseries		113
Nexus	Leeds	Business Services	Vehicle rental broker		1,368
Occam *	Bath	Business Services	Data Services		4
Playforce	Wiltshire	Business Services	Playground equipment		1,033
TVC Group	London	Media	Broadcast public relations firm		1,233
Xention *	Cambridge	Healthcare	Drug Discovery		65
Total Unquoted Investments					7,600

AiM-traded investments
Advanced Computer Software	London		IT	Healthcare IT business			525
Appian Technology*	Buckinghamshire		IT	Number plate recognition products			52
Brulines*	Stockton-On-Tees		Business Services	Pub management systems			58
Character Group*	New Malden		Media	Toy design and  distribution			144
Cohort	Henley-On-Thames		Business Services	Defence industry services			178
Concateno*	London		Healthcare	Drug testing			71
Electric Word	London		Media	B2B publishing			17
Essentially Group	Jersey		Media	Sports marketing			240
Ffastfill*	London		IT	Trading platform software provider			85
Fishworks*	Bath		Consumer	Fishmongers and fish restaurants			46
Independent Media Distribution	London		IT	Digital media distribution			15
IS Pharma	Chester		Healthcare	Specialist  pharmaceuticals			246
Mission Marketing	London		Media	Marketing services			247
Optimisa	London		Media	Marketing services			298
Plastics Capital	London		Business Services	Specialist plastic products			473
Praesepe	London		Consumer	Gaming			525
Relax Group	Chesterfield		Consumer	Debt management group			263
Research Now	London		Media	Online market research provider			263
Silverdell	Barking		Business Services	Asbestos specialists			14
STM	Gibraltar		Business Services	Off shore Trust  administration			140
Tasty*	London		Consumer	Restaurant chain			290
Total AiM-traded Investments							4,190
Total Investments							11,790
* Follow on investment

Realisations	First investment date	Original Cost £'000	Total Proceeds £'000	Multiple return*
Unquoted Investments
Boldon James	June 2005	562	1,713	3.1
Hawksmere	December 2003	942	2,098	2.5
Kidsunlimited	June 2001	481	2,281	4.7
RLA Media	December 2002	1,438	2,398	3.7
SLR	September 2002	494	2,485	6.0
The Art Group	October 2003	1,576	-	-
Total Unquoted realisations		5,493	10,975
AiM-traded investments
Cantono	April 2005	375	19	0.1
Capcon	October 2001	137	6	-
Oxford Biomedica	April 2003	250	65	0.3
SSP Holdings	July 2007	36	46	1.3
Xpertise Group	November 2002	296	222	0.8
Ardana	August 2003	481	-	-
Business Direct Group	August 2004	443	-	-
Charterhouse Communications	November 1999	355	-	-
Total AiM-traded investments		2,373	358
Total Investments		7,866	11,333

* Includes interest received and some earlier loan redemptions

Deferred proceeds were received for Domantis £174,000 and Oxxon Pharmaccines £3,900.

The Disclosure and Transperency Rules ('DTR') of the UK Listing Authority require certain disclosures in relation to the annual financial report, as follows:

Principal risks, risk management and regulatory environment

The Board believes that the principal risks faced by the Company are:

- Economic risk - events such as an economic recession and movement in interest rates could affect smaller companies valuations.

- Loss of approval as a Venture Capital Trust - the Company must comply with Section 274 of the Income Tax Act 2007 which allows it to be exempted from capital gains tax on investment gains. Any breach of these rules may lead to the Company losing its approval as a VCT, qualifying shareholders who have not held their shares for the

designated holding period having to repay the income tax relief they obtained and future dividends paid by the

Company becoming subject to tax. The Company would also lose its exemption from corporation tax on capital gains.

- Investment and strategic - inappropriate strategy, poor asset allocation or consistent weak stock selection might lead to under performance and poor returns to shareholders.

- Regulatory - the Company is required to comply with the Companies Acts, the rules of the UK Listing Authority and United Kingdom Accounting Standards. Breach of any of these might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report. 

- Reputational - inadequate or failed controls might result in breaches of regulations or loss of shareholder trust.

- Operational - failure of the Manager's and administrator's accounting systems or disruption to its business might lead to an inability to provide accurate reporting and monitoring.

- Financial - inadequate controls might lead to misappropriation of assets. Inappropriate accounting policies

might lead to misreporting or breaches of regulations.

- Market risk - investment in AiM traded, PLUS traded and unquoted companies by nature involve a higher degree of risk than investment in companies traded on the main market. In particular, smaller companies often have limited

product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals. In addition, the market for stock in smaller companies is often less liquid than that for stock in larger

companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock.

- Liquidity risk -The Company's investments may be difficult to realise. The fact that a share is traded on AiM does not guarantee its liquidity. The spread between the buying and selling price of such shares may be wide and thus the price used for valuation may not be achievable. 

- Competitive risk - Retention of key personnel is vital to the success of the Company. Incentives to the manager's key staff were recently strengthened.

The Board seeks to mitigate the internal risks by setting policy, regular review of performance, enforcement of contractual obligations and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies rigorously the principles detailed in the 'Turnbull' guidance.

Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards (UK GAAP).

The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards (UK GAAP) have been followed, subject to any material departures disclosed and explained in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. 

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report (including Business Review), Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations. 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Visitors to the website should be aware that legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

  Audited Income Statement of the Company

For the year ended 30 September 2008

	2008 Revenue £'000	2008 Capital £'000	2008 Total £'000
Unrealised losses on investments	-	(10,241)	(10,241)
Realised losses on investments	-	(105)	(105)
Income	2,834	-	2,834
Recoverable VAT	85	655	740
Investment management fee	(350)	(1,054)	(1,404)
Other expenses	(357)	-	(357)
Profit/(loss) on ordinary activities before taxation	2,212	(10,745)	(8,533)
Tax on ordinary activities	(544)	544	-
Profit/(loss) on ordinary activities after taxation	1,668	(10,201)	(8,533)
Return per ordinary share (p)	2.73p	(16.68p)	(13.95p)

Audited Reconciliation of Movement in Shareholders' Funds 

For the year ended 30 September 2008

	2008 Total £'000
Opening shareholders' funds	68,745
(Loss) for the period	(8,533)
Purchase of shares for treasury	(2,850)
Issue of shares	1,786
Expenses for share issue / buybacks	(81)
Dividends paid	(4,245)
Closing shareholders' funds	54,822

  Audited Income Statement of the Company

For the eighteen month period ended 30 September 2007

	2007 Revenue £'000	2007 Capital £'000	2007 Total £'000
Unrealised gains on investments	-	6,288	6,288
Realised gains on investments	-	1,820	1,820
Income	3,474	-	3,474
Investment management fee	(624)	(2,380)	(3,004)
Other expenses	(624)	-	(624)
Profit on ordinary activities before taxation	2,226	5,729	7,954
Tax on ordinary activities	(459)	459	-
Profit on ordinary activities after taxation	1,767	6,187	7,954
Return per ordinary share (p)	2.86p	10.02p	12.88p

Audited Reconciliation of Movement in Shareholders' Funds

For the eighteen month period ended 30 September 2007

	2007 Ordinary Shares £'000	2007 C Shares £'000	2007 Total £'000
Opening shareholders' funds	46,897	22,677	69,574
Conversion of C shares	24,760	(24,760)	-
Profit for the period	5,513	2,441	7,954
Purchase of shares for treasury	(1,159)	-	(1,159)
Expenses for share issue / buybacks	(23)	(2)	(25)
Dividends paid	(7,243)	(356)	(7,599)
Closing shareholders' funds	68,745	-	68,745

  Audited Balance Sheet

As at 30 September 2008

	2008 £'000	2007 £'000
Fixed assets
Investments	50,191	67,440
Current assets
Debtors	1,378	690
Cash at bank and on deposit	4,123	1,167
	5,501	1,857
Creditors (amounts falling due within one year)	(846)	(505)
Net current assets	4,655	1,352
Total assets less current liabilities	54,846	68,792
Creditors (amounts falling due after one year)	(24)	(47)
Net assets	54,822	68,745
Capital and reserves
Called-up share capital	6,504	6,350
Share premium account	5,135	3,563
Capital redemption reserve	9,254	9,254
Revaluation reserve	(2,684)	11,240
Profit and loss account	36,613	38,338
Equity shareholders' funds	54,822	68,745

Net asset value per share:

	2008 £'000	2007 £'000
	Ordinary	Ordinary
Basic	91.68p	112.19p
Treasury	91.10p	111.80p
Ordinary Shares listed	65,036,015	63,496,638
Ordinary Shares in issue	59,794,245	61,276,638

Audited Cash Flow Statement of the year ended 30 September 2008

	2008 £'000	2007* £'000
Operating activities
Investment income received	2,949	2,746
Deposit interest received	152	237
Investment management fees	(1,531)	(3,784)
Other cash payments	(358)	(582)
Net cash inflow / (outflow) from operating activities	1,212	(1,383)
Capital expenditure and financial investment
Purchases of investments	(32,122)	(31,030)
Disposals of investments	38,917	37,531
Net cash outflow from capital expenditure and financial investment	6,795	6,501
Dividends
Equity dividends paid	(4,251)	(7,603)
Net cash outflow before financing	3,756	(2,485)
Financing
Issue of shares	1,786	-
Expenses of the issue of shares	(60)	(25)
Buy-back of ordinary shares	(2,526)	(1,285)
Net cash inflow from financing	(800)	(1,310)
(Decrease) / increase in cash in the year / period	2,956	(3,795)
Opening cash position	1,167	4,962
Closing cash position	4,123	1,167
Reconciliation of net revenue before taxation to net cash (outflow) / inflow from operating activities
Profit / (loss) on ordinary activities before taxation	(8,533)	7,954
(Gains) / losses in investments	10,346	(8,108)
(Increase) / decrease in debtors	(465)	(506)
(Decrease) / increase in creditors	(136)	(723)
Net cash (outflow) / inflow from operating activities	1,212	(1,383)

* The comparative information represents an eighteen month accounting period.

Notes

1.   The audited results which cover the year ended 30 September 2008 have been prepared under UK
       Generally Accepted Accounting Practice (UK GAAP).

In order to better reflect the activities of a VCT and in accordance with the SORP, supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. Net Revenue is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 274 of the Income Tax Act 2007.

2.   There were 65,036,015 ordinary shares listed at 30 September 2008 (30 September 2007: 63,496,638). 
       During the period the Company bought back 3,021,770 ordinary shares to be held in Treasury, at a cost 
       of £2,849,141. These shares will not be sold at a discount wider than the discount prevailing at the time the 
       shares were initially bought back by the Company. The Company holds 5,241,770 ordinary shares in 
       Treasury representing 8.1 per cent of the issued share capital as at 10 November 2008. The total number 
      of ordinary shares in issue at 30 September 2008 was 59,794,245 (30 September 2007: 61,276,638).

3.    Revenue and capital returns for the ordinary shares for the period to 30 September 2008 are based on a 
       weighted average of 61,138,930 (2007: 61,762,131) ordinary shares in issue during the period.

4.   Income for the year / period is derived from:

  2008            2007

  Total             Total

 £'000            £'000

    UK franked                                                                334               697

    UK unfranked                                                         1,987            2,461

    Redemption premium                                              358                  95

    Deposit interest                                                        155                221

                                                                                     2,834            3,474

5.   The exceptional income derived during the year relates to a recovery of VAT of management fees. This 
       represents a VAT recovery of amounts paid during the period from 1 July 2005 to 30 June 2007. This has 
       been recognised in the Income Statement in the same portions as the original VAT was xpensed between 
       revenue and capital.

6.    These are not full accounts in terms of Section 240 of the Companies Act 1985. Full audited accounts for 
        the period ending 30 September 2007 have been lodged with the Registrar of Companies. The annual 
        report for the year ended 30 September 2008 will be sent to shareholders shortly and will then be available
        for inspection at 100 Wood Street, London, the registered office of the Company. The audited accounts 
        for the year ended 30 September 2008 contains an unqualified audit report. 

7.    The Annual General Meeting will be held on 15 December 2008.

 

END

 

 

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