Half Yearly Report

RNS Number : 0188Q

Bluehone AIM VCT2 PLC

27 July 2010

 



Bluehone AiM VCT2 plc

Interim results for the six month period

ended 31 May 2010

 

 

Investment Objective

To provide shareholders with a tax efficient means of gaining long term capital growth and an attractive dividend stream primarily through investment in a diversified portfolio of AiM companies and unquoted companies.

Financial Highlights

·      Net asset value total return of -10.1 per cent for the period

·      An interim capital dividend of 0.5 pence per share, payable on 27 August 2010

The Chairman Gordon Brough said:

'Market Background

Stock markets began the year in a more positive mood with investors looking forward to economic recovery after enduring a severe and prolonged recession. This early euphoria proved short lived as, after peaking in April, share prices fell sharply in May wiping out many gains made thus far.  A combination of factors including the general election, the spectre of another banking crisis, this time coming from the problems of sovereign debt in Europe, together with the possible economic impact of the unwinding of excessive public sector spending in the UK, weighed heavily on share prices. Volatility in share price movements has once again increased with investors becoming risk averse, taking money out of equities, and this was especially so at the smaller end of the market capitalisation scale. Whilst the FTSE AIM All-Share index was up 5 per cent over the period; this was again helped by the proportionally large Oil and Gas and Basic Resources sectors, which continued to perform strongly. Elsewhere, within the smaller company market, liquidity became scarce as the month of May progressed and fund raisings by companies were more difficult to complete.

Company Performance

The Net Asset Value was 36.43 pence as at 31 May 2010.  The NAV total return was -10.1 per cent for the six months to 31 May 2010.  Eighty per cent of the reduction in the value of the portfolio can be accounted for by the fall in share prices of three of the largest holdings, namely, Infrastrata (formerly Portland Gas), Vectura and IS Pharma.

In the case of Infrastrata, the share price weakness was related to the absence of progress on prospective partners or financing for the Portland gas storage project. However, at the end of June the company announced it had terminated the co-operation agreement with this group of prospective partners and in its place it had signed a memorandum of understanding ('MOU')  with a single US independent energy company called e-CORP. Under the MOU, e-CORP has agreed, subject to final due-diligence, to acquire 50% of the share capital of the Portland project company in return for funding the next £22million of project expenditure, including the drilling of the first cavern well during 2011. e-CORP will also acquire shareholdings in Infrastrata's other gas storage projects in return for further funding commitments. Whilst this agreement was not the deal your Manager anticipated, the partnership with e-CORP underpins the financial status of the projects to the point of first gas at a time when the environment for funding major infrastructure projects remains difficult. The relationship also provides the company with an experienced partner which has developed and operated numerous gas storage facilities in the US. It has to be hoped that Infrastrata is now in a better position to enhance the value of its important gas storage projects for the benefit of shareholders.

 The fall in the share price of Vectura has been the result of the market overreacting to news earlier in the year, which concerned the company taking back rights to one of its drug candidates in the North American territory from its partner Sandoz. Vectura remains well financed with over £65m in cash and a strong portfolio of late stage drugs from which we anticipate better news during the remainder of this year.

The share price performance of IS Pharma was disappointing and belies the excellent progress being made by the company. In its recent preliminary results IS Pharma announced record revenues and profits as well as a confident outlook.

There was positive news from a number of portfolio holdings which did lead to upward movements in share prices but perhaps not as far as warranted, with investors using share price strength to tap the market for liquidity instead. Three notable good performers in the period were: Datum whose share price reacted well to the completion of its first acquisition and also news of positive trading; Mears Group following the takeover of Supporta (which was held in the portfolio) and Fulcrum Pharma that announced the terms of its agreed takeover for cash by Gold Medal Acquisitions Ltd. This was at an 83 per cent premium to the average prevailing price of the shares over the previous six months prior to the bid.

In addition, the holding value of Cambridge Sensors, the portfolio's largest unquoted investment, was increased by 26% to reflect the encouraging progress being made by this company in developing and selling sensors and strips for the measurement of glucose levels in the blood of diabetics.

Portfolio Activity

The Manager took advantage of favourable market conditions at the start of the period to continue to streamline the portfolio by disposing of twelve smaller holdings where significant upside was not anticipated. The portfolio also benefited from the takeovers of Cybit Holdings and FDM Group, together with the sale of half of the holding in Vectura, prior to the fall in this company's shares mentioned above. The total amount realised from disposals in the period was £2.8million. On the investment side it was encouraging to witness an improvement in the new issue market at the start of the year and also the ability of existing AiM companies to launch fund raisings when the need arose; unfortunately this aspect of the market has recently deteriorated. The Company made six new investments over the period in Amerisur Resources, Plant Impact, Synchronica, Access Intelligence, Qonnectis and Scotgold. Scotgold was sold almost immediately at a 36 per cent profit. In addition to the new investments, the Company also supported three of its existing holdings, Datum, Third Quad Capital and Egdon Resources with further investment; as well as adding to Armour Group, Avia Health Informatics and Clarity Commerce Solutions. Investment into the portfolio amounted to £2.1 million. After a more active period the portfolio now comprises 57 holdings, down from 66 at the year end and in line with the Manager's intention to concentrate the portfolio to between 50 and 60 holdings.

Earnings and Dividends

Earnings for the period amounted to a loss of 0.17 pence per ordinary share and as in the past, the Board is not in a position to recommend an interim income dividend. However, the Board is able to recommend a capital distribution of 0.5 pence per share. This will be paid on 27 August 2010 to Ordinary shareholders on the register on 6 August 2010. The total cost of this distribution will be approximately £300,000 and will have the effect of reducing the Company's assets by 1.4 per cent. The Company has a record of paying regular dividends to shareholders and the Board intends to continue to encourage the Manager to realise investments when market conditions and development plans permit, in order to facilitate further capital distributions. Following payment of the interim distribution in August, the Company will have paid back 20.5 pence per share to shareholders.

Open Offer and Enhanced Buy-Back

In March the Company circulated a Top-up Offer document to shareholders to raise up to £2.175 million and this offer has been extended to 27 August 2010. The Board is keen to see a narrowing of the discount between the price of the Company's shares and the NAV per share, and with this in mind, agreed to implement an Enhanced Buy-back Facility, which was approved by shareholders by a Special Resolution at a General Meeting held on 15 July 2010. The Board believes that narrowing the discount would improve shareholders' flexibility to sell shares. Under the facility, shares accepted for repurchase are purchased at a price equivalent to a 1 per cent discount to the most recently published NAV per share and then cancelled. The sale proceeds arising from a repurchase will promptly be applied in subscribing for new shares under the Top-up Offer and will provide an opportunity for shareholders to take advantage of the income tax relief available on the purchase of new shares. The Board believes the combination of the Top-up Offer and Enhanced Buy-back Facility may also help to further stimulate the secondary market for the shares.

Shareholder Questionnaire

As part of the Board's ongoing review of the strategy of the Company and to ensure that future decisions are consistent with the interests of shareholders, it was decided to conduct a survey to identify what was important to you and what your plans were for the future. This survey was sent to shareholders during June 2010 and I am very pleased with the number of responses received to date which account for approximately 25 per cent of the shareholder base. The tables below highlight some of the results to date, identifying shareholders first priority in terms of what they want from their investment and how long they intend to hold their shares.

	Income	Capital growth	Asset class
Investment objective	54%	41%	5%
	VCT income tax relief	CGT deferral	Tax free income	Tax free capital growth
Initial tax planning priorities	47%	22%	18%	13%
	Tax free income	Tax free capital growth	Tax efficient investing generally	Continued CGT deferral
Ongoing tax objectives	45%	23%	19%	13%
	Greater than 5 years	Up to 5 years	Short term
How long shareholders intend to hold their shares	56%	36%	5%

Board

At the Annual General Meeting held in April 2010, Mr Gordon Harvey decided not to stand for re-election as a Director of the Company. The Board would like to thank Gordon for all his help and guidance since joining the Board of Bluehone AiM VCT2 plc and wish him well in his future activities. The Board has decided not to seek a replacement for Gordon at this time.

Outlook

Stock markets remain nervous about the strength of global economic recovery and share price valuations generally appear to be discounting a possible double dip recession. To date the recovery has been led by an improvement in corporate profits rather than relying solely on the inventory cycle or government stimulus. This is encouraging and recent increases in industrial output and capital expenditure provide some evidence that we are entering a new economic cycle. Consensus forecasts for the UK economy are for a return to the long run trend for growth in GDP in 2011.  This is a more modest level of growth than elsewhere but still positive. In the short term the stock market has been waiting to see how deep the cuts in public sector spending are likely to be. Against this background it appears likely that the consumer will remain under pressure as tax rises come to bear to help pay for excessive public sector spending of the past. However, as the market is given more certainty about the level of spending cuts and tax rises, it has to be hoped that investor sentiment will gradually improve over the remainder of the year, particularly if evidence builds that a double dip recession can be avoided.

The portfolio companies held by Bluehone AiM VCT2 have come through a very difficult economic period and are on the whole in good financial shape. The news coming from them is generally positive and it is encouraging to see companies once more focusing on growth plans rather that cost reduction with a number having made, or contemplating, acquisitions to augment growth. Valuations remain subdued with investors focused on the larger more liquid end of the market; however, once sentiment improves we believe the value and growth characteristics at the smaller end will come to the fore.'

Gordon Brough

Chairman

For further information, please contact:

Robert Mitchell

Bluehone Investors LLP

0207 496 8929

 

Unaudited Income Statement Six months ended 31 May 2010

 

 

	Ordinary shares
	Revenue	Capital	Total
	£'000	£'000	£'000
Profit on realisation of investments	-	416	416
Change in fair value of investments	-	(2,612)	(2,612)
Income (note 4)	91	-	91
Investment management fee	(57)	(172)	(229)
Other expenses	(135)	-	(135)
Loss on ordinary activities before taxation	(101)	(2,368)	(2,469)
Tax on ordinary activities	-	-	-
Loss on ordinary activities after taxation	(101)	(2,368)	(2,469)
Return per share	(0.17p)	(3.99p)	(4.16p)

Unaudited Reconciliation of Movement in Shareholders' Funds

Six months ended 31 May 2010

	Ordinary shares
	£'000
Opening shareholders' funds	24,632
Loss for the period	(2,469)
Increase in share capital	73
Expenses of share issue	(4)
Dividends paid	(594)
Closing shareholders' funds	21,638

 

Unaudited Income Statement Six months ended 31 May 2009

	Ordinary shares			C shares			Total
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Loss on realisation of investments	-	(19)	(19)	-	(2)	(2)	-	(21)	(21)
Change in fair value of investments	-	3,764	3,764	-	(174)	(174)	-	3,590	3,590
Income (note 4)	103	-	103	13	-	13	116	-	116
Investment management fee	(34)	(102)	(136)	(4)	(12)	(16)	(38)	(114)	(152)
Other expenses	(199)	-	(199)	(13)	-	(13)	(212)	-	(212)
(Loss)/profit on ordinary activities before taxation	(130)	3,643	3,513	(4)	(188)	(192)	(134)	3,455	3,321
Tax on ordinary activities	-	-	-	-	-	-	-	-	-
(Loss)/profit on ordinary activities after taxation	(130)	3,643	3,513	(4)	(188)	(192)	(134)	3,455	3,321
Return per share	(0.23p)	6.58p	6.35p	(0.15p)	(6.35p)	(6.50p)

Unaudited Reconciliation of Movement in Shareholders' Funds

Six months ended 31 May 2009

	Ordinary shares	C shares	Total
	£'000	£'000	£'000
Opening shareholders' funds	17,894	1,665	19,559
Profit/(loss) for the period	3,513	(192)	3,321
Closing shareholders' funds	21,407	1,473	22,880

Audited Income Statement Year ended 30 November 2009

 

 

	Ordinary shares
	2009	2009	2009
	Revenue	Capital	Total
	£'000	£'000	£'000
Loss on realisation of investments	-	(347)	(347)
Change in fair value of investments	-	6,176	6,176
Income (note 4)	253	-	253
Investment management fee	(87)	(262)	(349)
Expenses of capital restructure	-	(30)	(30)
Other expenses	(359)	-	(359)
(Loss) / profit on ordinary activities before taxation	(193)	5,537	5,344
Tax on ordinary activities	-	-	-
(Loss) / profit on ordinary activities after taxation	(193)	5,537	5,344
Return per ordinary share	(0.35p)	9.99p	9.64p

Audited Reconciliation of Movement in Shareholders' Funds

Year ended 30 November 2009

	2009	2009	2009
	Ordinary shares	C shares	Total
	£'000	£'000	£'000
Opening shareholders' funds	17,894	1,665	19,559
Profit / (loss) for the period	5,413	(69)	5,344
Conversion of C shares	1,596	(1,596)	-
Increase in share capital	9	-	9
Share issue expenses	(3)	-	(3)
Dividends paid	(277)	-	(277)
Closing shareholders' funds	24,632	-	24,632

Unaudited Balance Sheet
	As at 31 May 2010	As at 31 May 2009				(Audited) As at 30 November 2009
	Ordinary	Ordinary	C shares	Total		Ordinary
	£'000	£'000	£'000	£'000		£'000
Fixed assets
Investments
Quoted on AiM	14,234	14,350	1,108	15,458		17,164
Quoted on PLUS Market	1,341	405	-	405		644
Listed investments	1,536	2,636	-	2,636		2,554
UK government securities	-	1,522	340	1,862		1,238
Unquoted investments	2,723	2,322	-	2,322		2,313
	19,834	21,235	1,448	22,683		23,913
Current assets
Debtors	67	160	14	174		87
Cash at bank and on deposit	1,875	187	24	211		958
	1,942	347	38	385		1,045
Creditors (amounts falling due within one year)	(138)	(175)	(13)	(188)		(326)
Net current assets	1,804	172	25	197		719
Net assets	21,638	21,407	1,473	22,880		24,632
Financed by:
Equity shareholders' funds	21,638	21,407	1,473	22,880		24,632
Net asset value per share:	36.43p	38.66p	49.93p			41.59p
Number of shares in issue at the Balance Sheet date	59,399,132	55,370,992	2,950,085			59,226,066

Summarised Unaudited Statement of Cash Flow

	Six months ended 31 May 2010	Six months ended 31 May 2009	(Audited) Year ended 30 Nov 2009
	£'000	£'000	£'000
Net cash (outflow) / inflow from operating activities	(242)	508	236
Capital expenditure and financial investment	1,684	(518)	772
Equity dividends paid	(594)	-	(277)
Net cash inflow / (outflow) before financing	848	(10)	731
Financing	69	-	6
Increase / (decrease) in cash	917	(10)	737
Reconciliation of net cash flow to movement in net cash
Increase / (decrease) in cash	917	(10)	737
Opening net cash	958	221	221
Net cash at 31 May/30 November	1,875	211	958

Reconciliation of net revenue before taxation

to net cash flow from operating activities

(Loss) / profit on ordinary activities before taxation	(2,469)	3,321	5,344
(Profit) / loss on realisation of investments	(416)	21	347
Changes in fair value of investments	2,612	(3,590)	(6,176)
Decrease in debtors	19	716	742
Increase / (decrease) in creditors	12	40	(21)
Net cash (outflow) / inflow from operating activities	(242)	508	236

Notes

1.         The unaudited interim results for the six month period ended 31 May 2010 have been prepared in accordance with applicable accounting standards, adopting the accounting policies set out in the statutory accounts for the year ended 30 November 2009.

2.         There were 59,399,132 Ordinary shares in issue at 31 May 2010 (31 May 2009: 55,370,992; 30 November 2009: 59,226,066).  There were nil C shares in issue at 31 May 2010 (31 May 2009: 2,950,085, 30 November 2009: nil)

3.         Earnings for the six months to 31 May 2010 should not be taken as a guide to the results for the full year and are based on a weighted average of 59,283,180 Ordinary shares (31 May 2009: 55,370,992 Ordinary shares and 2,950,085 C shares, 30 November 2009: 55,408,414 Ordinary shares) in issue during the period.

4.         Income for the period is derived from:

	Six months ended 31 May 2010	Six months ended 31 May 2009	Year ended 30 Nov 2009
	£'000	£'000	£'000
Equity investments	74	72	165
Fixed interest investment	5	43	86
Deposit Interest	6	1	2
Miscellaneous Income	6	-	-
	91	116	253

5.   The interim dividend of 0.5p per Ordinary share will be paid on 27 August 2010 to shareholders on the register on 6 August 2010.  In accordance with accounting standards this dividend has not been accounted for in the results for the six months ended 31 May 2010.

6.   These accounts have not been audited or reviewed by the Company's auditors.

7.   These are not statutory accounts in terms of Section 434 of the Companies Act 2006.  Statutory accounts for the year ended 30 November 2009, which were unqualified, have been lodged with the Registrar of Companies. No statutory accounts in respect of any period after 30 November 2009 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 Exchange House, Primrose Street, London, EC2A  2NY.

Statement of Principal Risks and Uncertainties

The Company's assets consist mainly of listed securities and its principal risks are therefore market related. Risks faced by the Company include loss of approval as a venture capital trust, investment and strategic, regulatory, reputational, operational, financial, market and liquidity 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 Report of the Directors in the Company's Annual Report for the year ended 30 November 2009. The Company's principal risks and uncertainties have not changed materially since the date of that report.

Statement of Directors' Responsibilities in Respect of the Interim Results

We confirm that to the best of our knowledge:

·      the financial statements have been prepared in accordance with the Statement 'Half-Yearly Financial Reports' issued by the UK Accounting Standards Board and give a true and fair view of the assets, liabilities, financial position and return of the Company;

·      the Chairman's Statement (constituting the Interim Management Report together with the Statement of Principal  Risks and Uncertainties above) includes a fair review of the information required by the Disclosure and Transparency Rules ("DTR") 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the financial statements;

·      the financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board

Gordon H Brough

Director

27 July 2010

 

END

 

 

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