Final Results

Unicorn AIM VCT PLC 09 December 2002 UNICORN AIM VCT PLC Preliminary Results Announcement Chairman's Statement This is my first annual report to shareholders and covers the period since incorporation on 7 August 2001 to 30 September 2002. This period has been disappointing for investors in most markets around the globe. In the UK, for example, the FTSE All Share Index fell by 26% and the FTSE AIM Index by 21.3% in the twelve months to 30 September 2002. By contrast the Company's Net Asset Value before deduction of dividends declined by 11.3% from the initial value of 94.5 pence per share to 83.86 pence per share. In line with the guidelines set out in the Company's prospectus, approximately half of the its total assets at 30 September 2002 were held in qualifying investments and a portfolio of listed UK smaller companies with the remainder in cash or near cash instruments. The Manager has taken a prudent and highly selective approach with regard to building up the qualifying investment portfolio. Six investments were made in the period comprising four AIM companies and two unlisted investments. These are all described in the Managers report. The Board and the Manager remain confident that the 70% qualifying target required by the Inland Revenue by September 2004 will be reached. In the non-qualifying portfolio, a recommended offer was received for FCX International realising a £131,785 gain on cost of £400,783. Overall, the non-qualifying portfolio has performed reasonably well in disappointing market conditions. The Company's income account shows a profit over expenses of £190,472 and I am pleased to recommend a dividend for the period of 0.5 pence per share. The level of future dividends will clearly depend on the income received from the underlying investments. Due to an uncertain economic outlook stock markets have been particularly unsettled. This has resulted in some very weak share prices which, in a number of cases, may fail to reflect the medium term outlook. In this environment your Manager is concentrating on finding well managed, cash generative businesses. With its strong cash position the Company is well placed to take advantage of opportunities as they arise and the Directors look forward to the future with confidence. The Unicorn AIM VCT was the most successful VCT launched in 2002 in terms of monies raised and I would like to thank all shareholders for their contribution and support. Manager's Review Introduction Since the launch of the Unicorn AIM VCT the net asset value per share has fallen to 83.86 pence at 30 September 2002 (before providing for the recommended dividend of 0.5 pence), a reduction of 11.3% from the initial value of 94.5 pence. In contrast the FTSE All Share and the FTSE AIM indices have fallen by 21.3% and 26.0% respectively as investors have realised that corporate earnings are cyclical and ultimately cannot grow faster than the underlying economy. Investment Strategy The adopted investment policy has avoided over-ambitious start-ups in new markets, which require a leap of faith and have often been priced as though they have already succeeded. Instead, we have focussed on the strength of companies' balance sheets and the ability to pay progressive dividends, thereby safeguarding capital and maximising the tax-free income stream available to shareholders. AIM Market Review On the back of generous tax breaks the Alternative Investment Market (AIM) has been exceptionally successful at attracting new issues with the number of AIM listings doubling over the past three years to over 680. Unfortunately this has all too often been to the detriment of quality and, following a peak of 2925 on 3 March 2000, the FTSE AIM index was trading at an all time low of 605 at 30 September 2002. Moreover, it is likely that over the coming months the number of delistings will outnumber new admissions as investors become unwilling to refinance early stage, unprofitable business concepts, which were initially fuelled by unrealistic expectations. Regrettably, many AIM investors have lost the majority and in some cases all of the value of their investment whilst a number of directors have cashed in their chips but continued to enjoy generous pay packages. Salaries now need to be recalibrated to a realistic level to realign managers interests with those of shareholders. In addition, the City, which has grown fat over the past decade, must realign its cost base so that the benefits of funding are not outweighed by unjustifiably high fees. Qualifying Investments Encouragingly, companies currently raising money are of a higher calibre than those which came to the market during the dot-com frenzy. This has enabled the Fund to invest in traditional and often long established businesses, such as Glisten and Lloyds British Testing. Both companies have trading histories spanning over 70 years and were acquired on low single figure price earnings ratios offering the prospect of significant capital and income growth. Glisten is a niche manufacturer of chocolate confectionery, sugar based sweets and edible decorations which has delivered impressive growth over recent years. Furthermore, as only one or two product lines are currently sold to the major multiple stores there is considerable scope going forward to cross sell the product range. Lloyds British Testing is a well-established engineering services company providing testing and certification, maintenance and repair and training services. The group has a strong market position and a high level of recurring revenue providing the free cash flow to fund the consolidation of a legislative driven market. Our network of relationships with corporate advisors, listed companies and entrepreneurs generated qualifying investments in Aludel and Nectar Taverns, both of which are unlisted investments. Aludel was established to take advantage of opportunities within the leisure industry and in January 2002 acquired a number of Lady in Leisure sites from the receiver, creating the UK's only national branded chain of ladies-only fitness clubs with over 20,000 members. Nectar Taverns has been established as a new venture to create a chain of unbranded, managed, freehold public houses in the North West of England. This heavily asset backed enterprise will leverage the buying power and infrastructure of Honeycombe Leisure plc, an AIM listed pub operator, with a proven track record of delivering above average returns. As reported in the interim review we remain confident of benefiting from the increasing trend for companies to seek secondary funding. The Company participated in the placing and open offer of Staffing Ventures, an existing AIM listed company, and Spring Grove Property Maintenance which graduated from OFEX to AIM. In both cases the price paid was below the original issue price. Staffing Ventures was established to invest in early stage recruitment companies across a range of sectors and provide them with back office support services. Spring Grove Property Maintenance provides day-to-day repair and maintenance services for registered social landlords and local authorities within the Greater London and South East region. Using a well-defined model for expansion Spring Grove raised additional funding to benefit from the increasing trend to outsource maintenance, bringing significant cost savings, greater professionalism and a reduction in administrative burden. Non-Qualifying Portfolio The non-qualifying smaller company portfolio has been geared towards industrial recovery whilst largely avoiding stocks exposed to consumer spending. Leverage in the asset market has risen as central banks have made a concerted effort to relax monetary policy and increase liquidity by slashing interest rates. The emergence of cheap money created the technology bubble in 1999 & early 2000 and more recently a housing bubble. In the face of rising unemployment and slowing house prices there is now a significant risk that consumers may simply close their wallets. In contrast inventories are so low that industrial production is likely to accelerate in the coming months. Examples of companies likely to benefit from such a recovery include BSS Group, McBride & Wyndeham Press. All three used the economic slowdown as an opportunity to reduce overheads whilst maintaining a strong market position in their respective markets. They have a proven ability to generate cash and significantly each has benefited from a recent improvement in the book-to-bill ratio. Prospects As ever the market is ruled by fear and greed but with a significant cash holding we hope to benefit from the market's current pessimism to invest in established, sensibly priced businesses. STATEMENT OF TOTAL RETURN (incorporating the revenue account of the company) for the period from 7 August 2001 to 30 September 2002 Revenue Capital Total £ £ £ Unrealised losses on investments - (3,699,372) (3,699,372) Realised gains on investments - 131,785 131,785 Income 627,729 - 627,729 Investment management fee (120,162) (360,487) (480,649) Other expenses (317,095) - (317,095) RETURN ON ORDINARY ACTIVITIES BEFORE TAXATION 190,472 (3,928,074) (3,737,602) Tax on ordinary activities - - - RETURN ON ORDINARY ACTIVITIES AFTER TAXATION 190,472 (3,928,074) (3,737,602) Dividend (174,999) - (174,999) 15,473 (3,928,074) (3,912,601) RETURN PER ORDINARY SHARE 0.79p (16.21)p (15.42)p The revenue column is the profit and loss account of the Company. All revenue and capital items in the above statement derive from continuing operations. BALANCE SHEET as at 30 September 2002 as at 30 September 2002 £ £ FIXED ASSETS Investments 16,336,801 CURRENT ASSETS Debtors and prepayments 61,163 Cash at bank 13,128,991 13,190,154 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR (350,899) NET CURRENT ASSETS 12,839,255 NET ASSETS 29,176,056 CAPITAL AND RESERVES Called up share capital 349,997 Share premium account - Special reserve 32,738,660 Capital reserve - realised (228,702) Capital reserve - unrealised (3,699,372) Revenue reserve 15,473 TOTAL SHAREHOLDERS' FUNDS 29,176,056 NET ASSET VALUE PER ORDINARY SHARE 83.36p The above financial statements were approved by the board of directors on 06 December 2002 and were signed on its behalf by: Peter Dicks Director CASH FLOW STATEMENT for the period from 7 August 2001 to 30 September 2002 £ £ OPERATING ACTIVITIES Net investment income 293,791 Dividend income 280,215 Investment management fees paid (480,649) Other cash payments (148,635) NET CASH OUTFLOW FROM OPERATING ACTIVITIES (55,278) INVESTING ACTIVITIES Acquisition of investments (20,436,956) Disposal of investments 532,568 NET CASH OUTFLOW FROM INVESTING ACTIVITIES (19,904,388) (19,959,666) FINANCING Share capital raised 33,088,657 MANAGEMENT OF LIQUID RESOURCES Increase in monies held pending investment (13,034,936) INCREASE IN CASH FOR THE PERIOD 94,055 NOTES : 1. The audited results which cover the period from 7 August 2001 to 30 September 2002 have been prepared under the historical cost convention, modified to include the revaluation of fixed asset investments. These accounts have been prepared in accordance with applicable accounting standards and on the assumption that the Company maintains VCT status. 2. There were 34,999,734 Ordinary Shares issued during the period to 30 September 2002. 3. Returns for the period to 30 September 2002 are based on a weighted average of 24,243,506 Ordinary Shares in issue during the period. 4. The final dividend of 0.5 pence per Ordinary Share will be paid on 28 January 2003 to shareholders on the register on 6 January 2003. 5. These are not full accounts in terms of Section 240 of the Companies Act 1985.The annual report for the period to 30 September 2002 will be sent to shareholders shortly and will then be available for inspection at Gossard House, 7-8 Savile Row, London W1S 3PE, the registered office of the Company. The audited accounts for the period to 30 September 2002 contain an unqualified audit report. 6. The Annual General Meeting will be held at 11.00 am on 21 January 2003 at Gossard House, 7-8 Savile Row, London W1S 3PE. This information is provided by RNS The company news service from the London Stock Exchange
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