Interim Results
AIM VCT2 PLC
29 July 2005
To: RNS
From: AiM VCT2 plc
Date: 29 July 2005
Investment Objective
AiM VCT2 plc aims to provide shareholders with a tax efficient means of gaining
long term capital growth and an attractive dividend stream through investment in
a diversified portfolio of AiM companies and unquoted companies which anticipate
a stock market listing within 18 months.
Interim Results - Period Ended 31 May 2005
• Net asset value per share of 85.87 pence.
• Interim capital dividend of 1.5 pence.
• New and follow-on investments totalled £2.9 million.
The first half of this year has thus far turned out to be very similar to that
reported on in the Interim Statement to Shareholders in August 2004. Again stock
markets experienced strong performance into the new year, with the valuation of
smaller companies and AiM in particular making positive advances in the first
quarter. Once again the new issue market was busy, with the number of new
companies joining AiM surpassing previous records and providing further
investment opportunities for AiM VCT2. The second quarter was not as favourable
for the smaller company sector, with share prices softening significantly at
Easter time and reaching a recent nadir in early May. Economic pressures from
weakening consumer expenditure and decelerating house prices, combined with
general uncertainty prior to the election, all helped to put pressure on share
prices. At the smaller company end this was intensified by indigestion in the
IPO market. By the end of May the FTSE AIM Index had given up all the gains made
in the first quarter and ended the six month period down 3.5%.
Smaller companies have entered a period of underperformance compared with large
caps. In times of uncertainty markets often favour the larger and more liquid
stocks over those with smaller market capitalisations, and this appears to be
the case at present.
Performance
During the first half of the year AiM VCT2's net asset value per share fell by
2.2% to 85.87 pence per share, having peaked at 99.16 pence per share during
March 2005. This is after accounting for the proposed 1.5 pence per share
interim dividend. The flat overall performance in the NAV again masks some quite
large movements in the share prices of the portfolio companies both upwards and
downwards.
Earnings and Dividends
Earnings for the period amounted to a loss of £33,000 and the Board is not in
the position to recommend an interim income dividend. However, it continues to
be the Board's intention to seek to realise investments as individual business
plans progress and when there is sufficient demand in the stock market.
Profitable sales of AiM VCT2's holdings create the potential for capital
distributions. During the first half-year some such profitable sales have
occurred and the Board is pleased to report that an interim capital distribution
of 1.5 pence per share will be made to shareholders on 9 September 2005.
Following this distribution AiM VCT2 will have paid 9.0 pence per share back to
shareholders since launch. It is hoped that the Company will be in a position to
pay a further capital distribution to shareholders at the year end, market
conditions permitting.
Investment Approach
Market conditions at the start of the year were conducive to the continued
strategy of gradually refreshing the portfolio. The Managers took advantage of a
better level of liquidity to realise a number of holdings in whole or in part
which generated proceeds of £3.5 million and profits of £1.3 million. Of
particular note were: the sale of the remaining holding in Debt Free Direct for
a profit of £551,944 on an investment of £429,600; and profits taken from
holdings in Widney, Straight, Pipex Communications, NeuTec Pharma, Amino
Technologies, Pilat Media Global and Medal Entertainment and Media, all of which
remain significant holdings in the portfolio. The proceeds from these
disposals, together with the proceeds of new shares issued by AiM VCT2, enabled
the Managers to choose from a steady flow of investment opportunities during the
first half year and £2.9 million was reinvested back into the market. Eight new
holdings were added to the portfolio including four new companies joining AiM,
one unquoted investment and three existing AiM companies that had further rounds
of funding. In addition eight portfolio companies were supported with further
rounds of funding.
Managing Shareholders' Needs
At the end of May the Company's share price stood at 73.5 pence, up marginally
from the level at the year end. This represents a discount to the Net Asset
Value per share of 14.4%. The volume of shares offered by the market for
cancellation during the first six months was manageable at a value of £950,000
and this was more than offset by new shares being issued in the Top Up Offer to
the value of £2 million. In order to continue to help to provide a market for
the shares the Board renewed its authority to buy back as well as issue a
proportion of the Company's share capital at the Company's AGM held in April
2005.
To be enclosed with the forthcoming Interim Report is a Circular to Shareholders
with a notice convening an Extraordinary General Meeting of the Company. At this
meeting Shareholder approval will be sought to increase the assets of the
Company through a further fundraising. The Board believes that raising the total
assets of the Company at this time is appropriate as it should enable the
Company to take further advantage of attractive investment opportunities as well
as spreading the running costs of the Company over a larger asset base. The
current fiscal year may be the last opportunity for investors to take advantage
of income tax relief of 40 per cent on the purchase of new shares in a VCT and
the Board would like existing and new shareholders to have the chance to invest
in AiM VCT2 before this window closes. The Directors are mindful that a fund-
raising involving the issue of a large number of ordinary shares might have a
dilutive effect on the fully invested funds. As a result, it is proposed that
new funds be raised through the issue of a new class of shares ('C' Shares)
which will be managed as a separate pool of assets for at least three years.
Outlook
The period of underperformance by smaller companies which started at Easter time
looks set to continue through the summer. Looking forward to the autumn and
beyond the two areas of most influence on smaller company performance are likely
to be the outlook for earnings growth and interest rates.
The best of the earnings recovery from the last bear market has been seen. As a
result markets are demanding more from companies to justify share price rises
and are placing even greater emphasis on earnings growth being required to
support equity valuations. In the Managers' experience, with market conditions
such as these, companies without earnings to support share prices often suffer
sharp reductions in their valuations on little selling pressure. Companies with
smaller market capitalisations also tend to fall beneath the radar screens of
investors. This has undoubtedly been a characteristic of the smaller end of the
AiM market in recent months. The September results season is likely to be
crucial in dictating the direction the smaller company markets will take leading
into 2006.
In addition, the economic cycle is at a delicate point, whereby the economy
decelerates after a period of strong growth but is accompanied by uncertainty
over the pace and duration of the slowdown, coupled with fears of an increase in
inflation. The downward correction in smaller company shares seen in recent
months is consistent with GDP growth that is undeniably slowing. However, one
trend that needs to be watched is the shift in emphasis from consumer spending,
which previously fuelled growth, to business spending, which is taking longer to
materialise than expected. It is one of the reasons why the current consensus is
that interest rates have peaked. If a period of easing interest rates is
imminent then smaller companies may well return to favour, as they have
historically done. An end to the period of under performance by smaller
companies compared with larger companies is not anticipated until the autumn
reporting season, when it is hoped that this will correct itself, barring any
unforeseen shocks.
Enquiries: Robert Mitchell/Bill Brown
Investment Manager
Bluehone Investment LLP Tel: 0207 496 8929
Unaudited Profit and Loss Account of the Company
Six months to 31 May 2005
Revenue Capital Total
£'000 £'000 £'000
Profit on realisation of investments - 373 373
Income 215 - 215
Investment management fee (116) (348) (464)
Other expenses (132) - (132)
(Loss)/profit on ordinary activities before taxation (33) 25 (8)
Tax on ordinary activities - - -
(Loss)/profit on ordinary activities after taxation (33) 25 (8)
Dividends payable - (657) (657)
Transfer (to)/from reserves (33) (632) (665)
Return per ordinary share: (0.08)p 0.06p (0.02)p
Unaudited Statement of Total Recognised Gains and Losses
2005 2005 2005
Revenue Capital Total
£'000 £'000 £'000
(Loss)/profit on ordinary activities after taxation (33) 25 (8)
Unrealised loss on revaluation of investments - (1,407) (1,407)
---------- ---------- -----------
Total recognised loss during the period (33) (1,382) (1,415)
---------- ---------- -----------
Total recognised loss per ordinary share (0.08)p (3.17)p (3.25)p
---------- ---------- ----------
Unaudited Profit and Loss Account of the Company
Six months to 31 May 2004
As restated As restated
Revenue Capital* Total*
£'000 £'000 £'000
Profit on realisation of investments - 357 357
Income 210 - 210
Investment management fee (114) (343) (457)
Other expenses (127) - (127)
(Loss)/profit on ordinary activities before taxation (31) 14 (17)
Tax on ordinary activities - - -
(Loss)/profit on ordinary activities after taxation (31) 14 (17)
Dividends payable (1) - (1)
Transfer from/(to) reserves (32) 14 (18)
Return per ordinary share: (0.07)p 0.03p (0.04)p
Unaudited Statement of Total Recognised Gains and Losses
2004 2004 2004
Revenue Capital Total
£'000 £'000 £'000
(Loss)/profit on ordinary activities after taxation (31) 14 (17)
Unrealised gain on revaluation of investments - 1,003 1,003
---------- ---------- -----------
Total recognised (loss)/gain during the period (31) 1,017 986
---------- ---------- -----------
Total recognised (loss)/gain per ordinary share (0.07)p 2.42p 2.35p
---------- ---------- ----------
*As restated for revocation of investment company status
Audited Profit and Loss Account of the Company
Year to 30 November 2004
Revenue Capital Total
£'000 £'000 £'000
Profit on realisation of investments - 758 758
Income 321 - 321
Investment management fee (226) (679) (905)
Other expenses (260) - (260)
(Loss)/profit on ordinary activities before taxation (165) 79 (86)
Tax on ordinary activities (13) - (13)
(Loss)/profit on ordinary activities after taxation (178) 79 (99)
Dividends payable (1) (868) (869)
Transfer from reserves (179) (789) (968)
Return per ordinary share: (0.42)p 0.19p (0.23)p
Audited Statement of Total Recognised Gains and Losses
2004 2004 2004
Revenue Capital Total
£'000 £'000 £'000
(Loss)/profit on ordinary activities after taxation (178) 79 (99)
Unrealised gain on revaluation of investments - 252 252
---------- ---------- -----------
Total recognised (loss)/gain during the year (178) 331 153
---------- ---------- -----------
Total recognised (loss)/gain per ordinary share (0.42)p 0.78p 0.36p
---------- ---------- ----------
Unaudited Balance Sheet
As at As at As at
31 May 31 May 30 November
2005 2004 2004*
£'000 £'000 £'000
Fixed Assets
Listed investments 141 - 97
Quoted on the Alternative Investment Market 32,394 28,862 31,829
Quoted on OFEX 1,442 2,888 2,457
UK government securities - 392 -
Unquoted investments 3,134 5,001 3,540
________ ________ ________
37,111 37,143 37,923
Net current assets 876 2,275 187
________ ________ _______
Net assets 37,987 39,418 38,110
________ ________ ________
Financed by:
Shareholders' funds 37,987 39,418 38,110
________ ________ ________
Net asset value per ordinary share: 85.87p 91.27p 87.83p
Ordinary shares in issue 44,236,479 43,188,084 43,390,309
*These figures are audited
Summarised Unaudited Statement of Cash Flows
Six months to Six months to Year to
31 May 31 May 30 November
2005 2004* 2004**
£'000 £'000 £'000
Net cash outflow from operating activities (449) (389) (839)
Tax paid (2) - (14)
Capital expenditure and financial investment 238 (980) (1,111)
Equity dividends paid (861) (250) (250)
Net cash outflow before financing (1,074) (1,619) (2,214)
Financing 789 1,463 1,886
Decrease in cash (285) (156) (328)
Reconciliation of net cash flow to movement in net cash
Decrease in cash (285) (156) (328)
Opening net cash 1,895 2,223 2,223
Net cash at 31 May / 30 November 1,610 2,067 1,895
Reconciliation of net revenue before taxation to net cash flow from operating activities
Loss on ordinary activities before taxation (8) (17) (86)
Profit on realisation of investments (373) (357) (758)
Decrease/(increase) in debtors 7 (5) (3)
(Decrease)/increase in creditors (75) (10) 8
Net cash outflow from operating activities
(449) (389) (839)
*As restated for revocation of investment company status
**These figures are audited
Notes
1. The unaudited interim results which cover the six months to
31 May 2005 have been drawn up in accordance with the applicable accounting
standards, adopting the accounting policies set out in the statutory accounts
for the year ended 30 November 2004.
2. There were 44,236,479 ordinary shares in issue at 31 May
2005 (31 May 2004: 43,188,084; 30 November 2004: 43,390,309). During the six
months ended 31 May 2005 the Company issued 1,976,592 ordinary shares and 69,712
ordinary shares were issued under the Dividend Reinvestment Scheme. The Company
bought back for cancellation 1,200,000 ordinary shares at a cost of £954,000.
3. Earnings for the six months to 31 May 2005 should not be
taken as a guide to the results for the full year and are based on a weighted
average of 43,541,592 (31 May 2004: 42,105,278; 30 November 2004: 42,603,642)
ordinary shares in issue during the period.
4. Income for the period to 31 May is derived from:
2005 2004
£'000 £'000
Equity investment 104 75
Fixed interest investment 62 107
Deposit interest 49 28
____ ____
215 210
5. These are not statutory accounts in terms of Section 240 of
the Companies Act 1985 and are unaudited. The full audited accounts for the
period to 30 November 2004, which were unqualified, have been lodged with the
Registrar of Companies. No statutory accounts in respect of any period after 30
November 2004 have been reported on by the Company's auditors or delivered to
the Registrar of Companies.
6. The interim capital dividend of 1.50p will be paid on 9
September 2005 to shareholders on the register on 12 August 2005.
7. Copies of the interim report will be mailed to shareholders
shortly, and will be available from the Registered Office of the Company at
Exchange House, Primrose Street, London EC2A 2NY.
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