Interim Results
Baronsmead VCT 2 PLC
15 May 2007
Baronsmead VCT 2 plc
To: RNS
From: Baronsmead VCT 2 plc
Date: 15 May 2007
Interim Results - Twelve Months Ended 31 March 2007
Highlights
NAV per ordinary share increased by 7.5 per cent to 123.27p before deduction of
dividends. After interim dividends totalling 10p the NAV was 113.27p.
Average annual tax-free dividend is now 6.4p per ordinary share since launch
(equivalent to a pre-tax return of 9.5p per share for a higher rate taxpayer)
Total return to ordinary shareholders is 105.1 per cent since launch in 1998,
equivalent to an annualised total return of 8.3 per cent, before 20 per cent
income tax relief (on subscription, at launch) and 10.4 per cent afterwards.
C shares converted into ordinary shares on 24 January 2007 using a calculation
date of 31 December 2006 at a rate of 9,657 new ordinary shares for every 10,000
C shares.
The Chairman, Clive Parritt said:
'The conversion of the C shares in January 2007 increased the total number of
ordinary shares in issue to approximately 61.6 million. Despite paying
dividends totalling £5.5 million over the last 12 months, Baronsmead VCT 2
remains the largest VCT with a £69.7 million Net Asset Value at 31 March 2007
and over 3,400 ordinary shareholders.
Since launch, tax free dividends paid to ordinary shareholders have averaged
6.4p (equivalent to a pre-tax return of 9.5p per share for a higher rate
taxpayer).
RESULTS
In the twelve months to 31 March 2007, the Net Asset Value (NAV) per ordinary
share increased by 7.5 per cent to 123.27p before payment of the two interim
dividends totalling 10p per ordinary share. The second interim dividend of 5p
per ordinary share was paid on 30 March 2007 following a series of profitable
realisations, notably Americana and Domantis. Both were sold at significant
uplifts over cost.
In the nine months to the conversion date of 31 December 2006, the NAV per C
share increased by 10.8 per cent to 112.90p per share before payment of a 1.6p
interim dividend.
The conversion ratio resulted in 9,657 new shares being allotted for every
10,000 C shares held. As a result of the conversion on 24 January 2007, the
Board has issued 21,485,211 million new ordinary shares, which rank pari passu
with the existing ordinary shares. This brings the total number of ordinary
shares in issue to 61,576,638.
At the period end, 78 per cent of the ordinary share capital raised (net of
launch costs) prior to 31 March 2005 was invested in VCT qualifying investments.
All other VCT tests relating to the running of Baronsmead VCT 2 were also met
during the period.
On 1 March 2007, the Board announced that the accounting reference date would be
changed from 31 March to 30 September in order to provide a full three years to
invest funds first raised in October 2004. Therefore the next statutory accounts
will be for the 18 months to 30 September 2007. However company law requires
that an annual general meeting must be held no later than 15 months after the
previous AGM. Accordingly, we will hold a brief formal meeting on 18 June 2007,
while the next full AGM in December 2007 will follow the normal format of
several presentations, buffet lunch and a shareholder workshop.
LONG TERM PERFORMANCE
The total returns (tax-free) since inception are 105 per cent for the ordinary
shares (since April 1998) and 26 per cent for the C shares (since October 2004).
These returns are stated net of running costs and are based on the proceeds
received by the Company after launch costs. Included in the running costs for
the current period are additional fees payable to the Manager because the total
return exceeded the annual performance trigger. In the twelve months to 31
March 2007, £432,000 plus VAT is payable, representing 20 per cent of this extra
return.
Total returns have grown at an annual tax-free average of 8.3 per cent and 9.7
per cent since launch for the ordinary shares and C shares respectively. For the
ordinary shares this includes total dividends paid of 57.4p representing an
annual average of 6.4p tax-free per ordinary share (equivalent to a pre-tax
return of 9.5p per share for a higher rate taxpayer). The initial VCT tax
reliefs (of 20 per cent) can also be added to these returns dependent on the
individual tax benefits received by each private investor.
Based on the average dividend of 6.4p tax-free and using the period end share
price of 100.5p, the dividend yield for ordinary shares equates to 6.37 per
cent, which is tax-free for qualifying purchasers of the shares. For higher
rate taxpayers, the 'gross equivalent' yield is 9.44 per cent.
The ordinary share total return is some 65 per cent ahead of the peer group
average of generalist VCTs launched in the same year.
The returns over 1, 3 and 5 years are detailed below (source F&C Asset
Management plc and Datastream). These returns are computed using the
methodology used by the Association of Investment Companies (AIC) primarily for
investment trusts. For the first time, the total returns are shown based on
both the increase in NAV per share and the increase in share price over the
periods, assuming that dividends are reinvested. The latter measure of past
performance is relevant for secondary market purchasers.
Ordinary Shares (%growth) One year Three years Five years
NAV total return +7.7 +44.6 +70.7
Share price total return +10.3 +48.5 +80.4
FTSE All-Share total return +11.2 +64.4 +51.2
These figures do not include the VCT tax benefits available to all qualifying
shareholders including purchasers. As dividends are tax free, the gross
equivalent returns for higher rate taxpayers are higher.
THE PORTFOLIO
In the six months since the previous interim review, seven new investments were
made and after the sale of six investments the portfolio increased to 77
companies. Further rounds of investment were made in Independent Living
Services, Xention Discovery, Business Direct and Claimar Care. The Board reviews
the relative health of portfolio companies quarterly in terms of profitability
as well as other non-financial benchmarks. At 31 March 2007, 82 per cent of the
portfolio companies were reporting steady or better progress.
Public markets showed some volatility in early 2007 although our AiM portfolio
closed 9.1 per cent up in the twelve months to 31 March 2007. Steady progress
was evident across most of the unquoted portfolio with an overall gain of 22.7
per cent and good uplifts in value for a number of newer investments such as
Independent Living Services, Fisher Outdoor Leisure and Reed & Mackay.
There was a reduction in value at The Art Group and Occam, following lower
trading profits and a full provision was made against the investment in Country
Artists, although this was more than offset by a write back in the value of the
loan stock in Hawksmere.
The strategy for the AiM portion of the portfolio is to invest in profitable
companies where the Manager ('ISIS') has relevant sector knowledge. There is
now good diversity across the AiM -traded portfolio so that when some companies
had profit warnings, (such as eg Solutions and Interlink Foods), or were down
rated by the market, (such as Debtmatters and Top Ten), the impact was balanced
by gains elsewhere in the portfolio, (such as Adventis, Claimar Care, Concateno,
InterQuest, Jelf and Worthington Nicholls). This helped achieve the overall
improvement in NAV.
During the period profits of £3.5 million were generated for ordinary
shareholders. In addition, following the period end, Martin Audio was sold to a
trade buyer for 3.5 times cost realising profits of £2.3m. The sale of
Americana too was an excellent result reflecting the private equity skills of
ISIS, in identifying the opportunity within the consumer sector and then
actively managing it during a period of fast growth. Since the first investment
in August 2003, the total proceeds of capital and income realised from Americana
totalled £5.6 million, some eight times the original cost.
A number of small investments have been made in early stage medical companies
(an area of considerable potential). These deals are led by our preferred lead
investor, MVM LLP, a specialist in this field. Domantis was one such investment
(0.7 per cent of the Company was acquired in 2004 for £400,000) in an early
stage drug discovery business. This is the first success from that group of
companies in the portfolio. GSK (Glaxo) paid $454 million for the company as a
trade purchaser in January 2007 realising £1.48 million for Baronsmead VCT 2.
Loan stock redemptions were made by Boldon James, Martin Audio and SLR of
£125,000, £617,000 and £204,000 respectively during the period.
VCT LEGISLATION
The 2007 Budget amended the 2006 Finance Act and we are now allowed up to six
months to reinvest the proceeds of profitable exits into new qualifying
investments. This change provides welcome flexibility and diminishes the need
for forced investment or dividend decision-making that might have been required
in order to comply with the 2006 revisions. Discussions continue with HM
Revenue & Customs as to the implication of the two amendments introduced for
raising new share capital after 6 April 2007. Such new capital can only be
invested in companies raising no more than £2 million from VCTs and in companies
with less than 50 employees. We understand these aspects are as a result of EU
harmonisation towards the application of state aid in financing Small
Enterprises. However, they are illogical and cannot be in the best interests of
promoting growth in smaller companies.
However, the way in which Baronsmead VCT 2 continues to operate is unaffected by
the 2007 Budget unless new capital is raised. At present the Board is not
minded to raise new capital but it will keep this matter under review especially
as the detailed legislative changes become known.
DEVELOPMENT OF THE SECONDARY MARKET
Since launch in 1998, Baronsmead VCT 2 has built a consistent track record of
generating positive total returns and paying regular dividends, tax-free to
qualifying shareholders. We believe that a thriving secondary market will be
encouraged as VCTs deliver consistent performance and investors recognise that
the best of such companies can be compared favourably with other investment
trusts specialising in unquoted investments. This is especially true as VCTs
offer taxation advantages to investors which offset the investment restrictions
applied by VCT legislation. There have been a few third party purchasers of
existing shares in the last six months and the level of buy backs has fallen to
825,000 ordinary shares into Treasury, in part due to 526,067 shares purchased
by the Dividend Reinvestment Plan. This is approximately half the level bought
back in the financial year to 31 March 2006.
Furthermore, the Board is aware from both the recent surveys across the '
Baronsmead' family of VCTs that there is an indication that some 15 per cent of
existing shareholdings may be interested in purchasing more shares. To activate
such interest will require regular and relevant communication and to facilitate
this, it is intended to stimulate the use of the Company's website
(www.baronsmeadvct2.co.uk) as well as accelerate the introduction of electronic
communication, which is being encouraged by the new Companies Act 2006. ISIS
has also re-employed Michael Probin as an investor relations specialist to
support this activity following his return from two years overseas.
OUTLOOK
The total returns attributable to the ordinary shares are showing increasing
consistency and this is supporting the upward trend of average annual dividends.
The current portfolio is showing a preponderance of good to steady trading and
the profits taken from recent exits have been at a high multiple over cost. The
Manager continues to be highly selective when making investments in new unquoted
and AiM-traded opportunities and we look to the future with cautious optimism.'
Contacts:
David Thorp, ISIS EP LLP: 0207 506 1609
Rhonda Nicoll, F&C Asset Management plc 0131 718 1074
Unaudited Income Statement
Twelve months to 31 March 2007
Ordinary Shares
Revenue Capital Total
£'000 £'000 £'000
Unrealised gains on investments - 4,132 4,132
Realised gains on investments - 2,552 2,552
Income 2,414 - 2,414
Investment management fee (417) (1,758) (2,175)
Other expenses (437) - (437)
---------- ----------- -----------
Profit on ordinary activities before taxation 1,560 4,926 6,486
Tax on ordinary activities (322) 322 -
---------- ----------- -----------
Profit on ordinary activities after taxation 1,238 5,248 6,486
---------- ---------- -----------
Return per ordinary share 2.00p 8.47p 10.47p
0 0000 0 0000 0 0000
Unaudited Reconciliation of Movements in Shareholders' Funds
Twelve months to 31 March 2007
Ordinary
Shares
£'000
Opening shareholders' funds (ordinary shares) 46,897
Opening shareholders' funds (C shares) 22,677
Profit for the period 6,486
Decrease in share capital in issue (847)
Expenses of share issue & share premium conversion (14)
Dividends paid (5,454)
Closing shareholders' funds 69,745
Audited Income Statement
For the year to 31 March 2006
Ordinary Shares
Revenue Capital Total
£'000 £'000 £'000
Unrealised gains on investments - 3,997 3,997
Realised gains on investments - 1,590 1,590
Income 1,903 - 1,903
Investment management fee (278) (1,517) (1,795)
Other expenses (241) - (241)
---------- ----------- -----------
Profit on ordinary activities before taxation 1,384 4,070 5,454
Tax on ordinary activities (284) 375 91
---------- ----------- -----------
Profit on ordinary activities after taxation 1,100 4,445 5,545
---------- ---------- -----------
Return per ordinary share 2.68p 10.81p 13.49p
0 0000 0 0000 0 0000
Audited Reconciliation of Movement in Shareholders' Funds
Year to 31 March 2006
Ordinary
Shares
£'000
Opening shareholders' funds 48,469
Profit for the year 5,545
Deferred consideration 12
Decrease in share capital in issue (459)
Dividends paid (6,670)
Closing shareholders' funds 46,897
Audited Income Statement
For the year to 31 March 2006
C Shares
Revenue Capital Total
£'000 £'000 £'000
Unrealised gains on investments - 1,838 1,838
Realised losses on investments - (60) (60)
Income 1,091 - 1,091
Investment management fee (129) (485) (614)
Other expenses (127) - (127)
---------- ----------- -----------
Profit on ordinary activities before taxation 835 1,293 2,128
Tax on ordinary activities (247) 156 (91)
---------- ----------- -----------
Profit on ordinary activities after taxation 588 1,449 2,037
---------- ---------- -----------
Return per C share 2.66p 6.56p 9.22p
0 0000 0 0000 0 0000
Audited Reconciliation of Movement in Shareholders' Funds
Year to 31 March 2006
C Shares
£'000
Opening shareholders' funds 21,129
Profit for the year 2,037
Increase in share capital in issue 239
Dividends paid (728)
Closing shareholders' funds 22,677
Audited Income Statement
For the year to 31 March 2006
Total
Revenue Capital Total
£'000 £'000 £'000
Unrealised gains on investments - 5,835 5,835
Realised gains on investments - 1,530 1,530
Income 2,994 - 2,994
Investment management fee (407) (2,002) (2,409)
Other expenses (368) - (368)
---------- ----------- -----------
Profit on ordinary activities before taxation 2,219 5,363 7,582
Tax on ordinary activities (531) 531 -
---------- ----------- -----------
Profit on ordinary activities after taxation 1,688 5,894 7,582
---------- ---------- -----------
Return per share 2.67p 9.33p 12.00p
0 0000 0 0000 0 0000
Audited Reconciliation of Movement in Shareholders' Funds
Year to 31 March 2006
Total
£'000
Opening shareholders' funds 69,598
Profit for the year 7,582
Deferred consideration 12
Decrease in share capital in issue (220)
Dividends paid (7,398)
Closing shareholders' funds 69,574
Unaudited Balance Sheet
As at 31 March 2007
Ordinary
Shares
£'000
Fixed Assets
Traded on AiM 21,278
Unquoted investments 27,070
Traded on PLUS market 152
Listed investments 450
Listed interest bearing securities 16,197
_______
65,147
Net current assets 4,646
______
Total assets less current liabilities 69,793
Creditors: amounts falling due after one year (48)
______
Net assets 69,745
______
Financed by:
Equity shareholders' funds 69,745
______
Net asset value per share: 113.27p
Ordinary shares in issue 61,576,638
Treasury net asset value per share* 112.88p
Number of ordinary shares in issue 61,576,638
Number of ordinary shares held in Treasury 1,920,000
Number of listed ordinary shares 63,496,638
*At an EGM held on 2 November 2006, shareholders renewed the existing authority
to disapply pre-emption rights in relation to the allotment or sale from
Treasury of up to 10 per cent of the listed share capital. The Board is now
mandated to sell Treasury shares at a discount to the prevailing NAV.
Accordingly, the shares held in Treasury at 31 March 2007 have been valued at
middle market price (100.5p).
Audited Balance Sheet
As at 31 March 2006
Ordinary C
Shares Shares Total
£'000 £'000 £'000
Fixed Assets
Traded on AiM 16,404 3,909 20,313
Unquoted investments 16,230 4,110 20,340
Traded on OFEX 119 - 119
Listed investments 530 - 530
Listed interest bearing securities 11,229 13,302 24,531
_______ _______ _______
44,512 21,321 65,833
Net current assets 2,385 1,356 3,741
______ ______ ______
Net assets 46,897 22,677 69,574
______ ______ ______
Financed by:
Equity shareholders' funds 46,897 22,677 69,574
______ ______ ______
Net asset value per share: 114.62p 101.93p -
Shares in issue 40,916,427 22,247,650
Treasury net asset value per share 114.62p
Number of ordinary shares in issue 40,916,427
Number of ordinary shares held in Treasury 1,095,000
Number of listed ordinary shares 42,011,427
Summarised Unaudited Statement of Cash Flows
Twelve months to 31 March 2007
Ordinary
Shares
£'000
Net cash outflow from operating activities (544)
Capital expenditure and financial investment 7,370
Equity dividends paid (5,454)
-----------
Net cash inflow before financing 1,372
Financing (835)
-----------
Increase in cash 537
-----------
Reconciliation of net cash flow to movement in net cash
Increase in cash 537
Opening net cash 4,962
-----------
Net cash at end of period 5,499
-----------
Reconciliation of operating profit before taxation to net cash flow from
operating activities
Profit on ordinary activities before taxation 6,486
Unrealised gains on investments (4,132)
Realised gains on investments (2,552)
Changes in working capital and other non cash items (346)
-----------
Net cash outflow from operating activities (544)
-----------
Summarised Audited Statement of Cash Flows
Year to 31 March 2006
Ordinary C
Shares Shares Total
£'000 £'000 £'000
Net cash (outflow)/inflow from operating activities (974) 697 (277)
Capital expenditure and financial investment 7,319 (773) 6,546
Equity dividends paid (6,670) (728) (7,398)
----------- ----------- -----------
Net cash outflow before financing (325) (804) (1,129)
Financing (485) (113) (598)
----------- ----------- -----------
Decrease in cash (810) (917) (1,727)
----------- ----------- -----------
Reconciliation of net cash flow to movement in net cash
Decrease in cash (810) (917) (1,727)
Opening net cash 4,100 2,589 6,689
----------- ----------- -----------
Net cash at end of period 3,290 1,672 4,962
----------- ----------- -----------
Reconciliation of operating profit before taxation to net cash flow from
operating activities
Profit on ordinary activities before taxation 5,454 2,128 7,582
Unrealised gains on investments (3,997) (1,838) (5,835)
Realised gains on investments (1,590) 60 (1,530)
Changes in working capital and other non cash items (841) 347 (494)
----------- ----------- -----------
Net cash (outflow)/inflow from operating activities (974) 697 (277)
----------- ----------- -----------
Notes
1. The unaudited interim results which cover the twelve months
to 31 March 2007 have been prepared in accordance with applicable accounting
standards and adopting the accounting policies set out in the statutory accounts
for the year ended 31 March 2006.
2. Return per ordinary share is based on a weighted average of
61,919,789 ordinary shares in issue (31 March 2006 - 41,108,544).
3. Earnings for the twelve months to 31 March 2007 should not
be taken as a guide to the results of the full financial period to 30 September
2007.
4. During the twelve months ended 31 March 2007, the Company
purchased 825,000 ordinary shares to be held in Treasury at a cost of £847,000.
At 31 March 2007 the Company holds 1,920,000 ordinary shares in Treasury. There
were 61,576,638 ordinary shares in issue at 31 March 2007 (31 March 2006 -
40,916,427). There were no C shares in issue at 31 March 2007 (31 March 2006 -
22,247,650).
On 24 January 2007 the C shares converted into ordinary shares in accordance
with the terms set out in the C share prospectus dated 3 September 2004. The
calculation date was 31 December 2006 and resulted in the issuance of 21,485,211
new ordinary shares.
5. An interim dividend comprising 0.7p (revenue) and 4.3p (capital) was
paid on 20 December 2006 to ordinary shareholders on the register on 17 November
2006. An interim dividend comprising 0.8p (revenue) and 0.8p (capital) was paid
on 20 December 2006 to C shareholders on the register on 17 November 2006. A
second interim capital dividend of 5.0p was paid on 30 March 2007 to ordinary
shareholders on the register on 9 March 2007.
6. On 2 November 2006 the Company received court approval for the
cancellation of the Share Premium Account of the C shares, (then standing at a
credit of £10,031,000) and the transfer of this amount to the Special
Distributable Reserve.
7. These are not statutory accounts in terms of Section 240 of the
Companies Act 1985 and are unaudited. Statutory accounts for the year to 31
March 2006, which were unqualified, have been lodged with the Registrar of
Companies. No statutory accounts in respect of any period after 31 March 2006
have been reported on by the Company's auditors or delivered to the Registrar of
Companies.
8. Copies of the Interim Report will be mailed to shareholders and will
be available from the Registered Office of the Company at 100 Wood Street,
London EC2V 7AN.
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