Interim Results

RNS Number : 4068U

Baronsmead VCT 2 PLC

14 May 2008

 



To:             RNS

From:        Baronsmead VCT 2 plc

Date:        14 May 2008

Unaudited results - Half-year ended 31 March 2008

• NAV per ordinary share over the six month period to 31 March 2008 decreased by 7.2 per cent from 112.19p to 104.08p before payment of a 3.0p interim dividend.

• NAV total return to ordinary shareholders since launch in 1998 of 94.5%, equivalent to an annualised total return of 6.9 per cent before 20 per cent income tax relief (on subscription, at launch) and 8.6 per cent afterwards. 

• Ordinary share price total return of 82 per cent over the five years to 31 March 2008, equivalent to an annualised tax free return of 12.7 per cent.

• £1.79 million subscribed by 230 existing shareholders in December 2007 after 
  top up offer closed oversubscribed. 

• £3.1 million profits realised from the sale of three unquoted investments in the period. A further £1.4 million profit was realised from the sale of kidsunlimited after the period end.

The Chairman, Clive Parritt, said:

'In the present economic conditions, stock market sentiment has moved away from UK smaller companies, with the result that valuations in the sector have fallen significantly. This is particularly noticeable in the AiM market where, in the last six months the value of our portfolio has fallen by 26% (8.8p a share).  In many cases the market has marked down the price of AiM investments even though the companies affected have delivered good trading performance. The unquoted portfolio has also been affected although the impact is less marked as positive trading results have helped underpin valuations. 

Some profitable fast growth companies can still command premium prices, despite these economic conditions. Since 1 October 2007 four unquoted investments (including kidsunlimited after the period end) have been sold very profitably and contributed a healthy addition to the reserves from which future dividends can be paid. On the other hand, the Manager has been able to take advantage of the generally lower prices in the market in order to achieve a higher level of new investment in the six months to 31 March 2008.

Our longer term performance remains firm but, inevitably, the portfolio has been affected by the down turn.  At present we have lower expectations but we do plan to benefit from the up-swing when it comes. 

RESULTS 

In the six months to 31 March 2008, the Net Asset Value (NAV) per ordinary share decreased by 7.2 per cent from 112.19p to 104.08p before payment (on 20 June 2008) of a  3p per share interim dividend. This dividend represents 1.2p per share of distributed capital profits and 1.8p per share of net revenue.  The capital is largely attributable to a series of profitable realisations, latterly from investments in Boldon James, RLA, and Hawksmere together with kidsunlimited which was sold shortly after the period end. All were sold at a significant uplift over cost.  

Baronsmead VCT 2 continued to meet the six VCT operational tests during the period. At the period end, 78.8 per cent of the ordinary capital raised (net of launch costs) prior to 30 September 2005 was invested in VCT qualifying investments.  

The decrease in Net Assets of 7.2 per cent is largely attributable to the reduction in value of the AiM portfolio which amounted to £5.4 million (26 per cent). Over the six month period, this 7.2 per cent reduction compares with the FTSE All-Share Index, which fell by 11.75 per cent.

LONG TERM PERFORMANCE

The standard measurements for monitoring investment performance are based either on the net asset value (NAV) plus dividends paid (known as 'NAV total return') or the movement in share price plus dividends paid (known as 'share price total return'). The latter is particularly relevant to investors who buy in the secondary market.  

Other measures include dividend yield and cash returned to shareholders. All of these measures are normally stated before the inclusion of VCT tax reliefs. These reliefs were designed to redress both the VCT constraints as well as the higher risks that relate to smaller unquoted and AiM-traded companies.  

NAV total return to shareholders since launch in April 1998 amounts to 94.5 per cent which represents an annual compound growth rate of 6.9 per cent and is stated net of all running costs.  

Share price total return in the last five years was 82 per cent, which represents an annualised tax-free return of 12.7 per cent. These results compare favourably with other VCTs and fuller comparisons have recently been facilitated by the Association of Investment Companies (AIC) who publish monthly data on their website, www.theaic.co.uk. The comparable increase in the FTSE All-Share total return was 98.7 per cent, but this is subject to tax on realisation.

Dividends and yield.  By 31 March 2008, (and including the declared interim dividend), dividends totaling 63.9p have been paid to founder shareholders over the last 10 years. Based on the mid share price of 94.5p at the period end, the dividend yield is currently 6.8 per cent tax-free for UK private investors. This is equivalent to a pre-tax return of 10.0 per cent per share for a higher rate tax payer. The Board aims to sustain annual dividends at an average of 5.5p per share, whilst also maintaining a NAV of at least 100p.  

Cash returned to shareholders arises from dividends paid and the initial income tax relief that qualifying shareholders can retain beyond the initial holding period. To date, subscribers at launch in 1998 will have received 63.9p of dividends plus up to 20p initial income tax relief. C share subscribers in 2004/5 will have received 16p of dividends and up to 40p income tax relief for every £1 subscribed (provided these shares were retained for more than three years).

PORTFOLIO REVIEW

 The total portfolio grew to 92 companies after 16 new investments, net of 4 realisations. The new investments totaled £6.3 million in unquoted investments and £2.6 million into AiM-traded investees. For the first time a significant amount (£2.0 million in 7 investees) has been allocated to wholly non-qualifying investments with good prospects of growth. 7 investee companies received additional funding.  

The Board reviews the relative health of portfolio companies quarterly, in terms of profitability as well as other non-financial benchmarks. At the period-end, 82 per cent of the portfolio companies were reporting better or steady progress.   

The unquoted portfolio changed little in aggregate value over the interim period. The portfolio saw some successful realisations and some strong trading, especially at Scriptswitch and SLR. This was balanced by downgrades arising from market reductions in price earnings ratios or because of expectations not being met. Both EWT and Fishers experienced lower operating profitability in the period.

The AiM part of the portfolio was down 26 per cent predominantly as a result of lower market prices rather than lower trading profits.  VCTs must invest in a restricted range of smaller businesses and the shares of these have been hit relatively hard as investors turned to larger and more liquid stocks.  All the ten largest AiM holdings reported satisfactory trading but yet in the six months to 31 March 2008, their share prices fell by 18 per cent on average. These companies have little or no borrowings but for investees like Huveaux and Top Ten with high debt levels, negative trading statements resulted in severe price reductions.

The cash realisations in the period show some strong outcomes from selling unquoted investments. In particular, Hawksmere an investment made in December 2003 had experienced difficult trading but had returned to profitability prior to its sale. A new Managing Director and Finance Director joined in summer of 2005 and led the trading recovery. The investment was fully provided as late as June 2006 and valued at nil. The sale of the company in January 2008 resulted in sales proceeds of 2.5 times the original cost of £942,000.

On 4 April 2008, kidsunlimited was sold to a financial buyer at an enterprise value of £45 million representing 4.7 times the cost and realised profits of £1.4 million. Since first investment in 2001, kidsunlimited has successfully rolled out new nurseries to 50 locations with over 4,500 registered places offering premium care in purpose built or designed settings, including gardening club, 'Soccer Tots' and baby yoga. The business which was transitioned from its founders to a professional management team operates a scalable nursery model in a changing marketplace and has become 'the stand out asset' in the sector.

ISSUE OF NEW SHARES

The top up offer in November 2007 resulted in applications from 230 shareholders (approximately 7 per cent of shareholders) totaling £2.5 million. These subscriptions were scaled back to 69.6 per cent and provided gross proceeds of £1.79 million, being the sterling equivalent of the upper limit allowed under the EU Prospective Directive issued in July 2005.

The third year anniversary of the C share issue occurred between October 2007 to January 2008 meaning that the original subscribers could then sell their shares but also retain the initial income tax relief obtained at the time of subscription. As such, a higher level of trading activity occurred and 1.6 million shares were bought back by the Company in this six month period.

The current market conditions for new investment are more attractive in terms of pricing than for some years and as a consequence the Board is minded to ensure there is sufficient available capital within Baronsmead VCT 2 to exploit the opportunity. The intention is that there will be a new share offer available to shareholders in September 2008 and this will be communicated more clearly to shareholders once the Board has agreed the detailed plan.

OUTLOOK 

In recent years we have had a series of strong unquoted realisations. These may be harder to achieve in the current market. However the Manager believes that the present state of the economic cycle will offer significant opportunities to exploit as funds available to invest in developing companies become scarcer. We have sufficient cash resources to seek and complete new investments at the expected lower prices, in anticipation that future growth in the medium term will generate appropriate investment returns. The speed at which smaller unquoted and AiM growth companies are re-rated by the market is uncertain but we believe the market is cyclical and we wish to benefit, as best we can, from such swings whatever the circumstances at the time. There are, of course, risks on the downside but the Manager is experienced in tackling the impact of difficult economic conditions.  

The long term performance of Baronsmead VCT 2 can be observed in both its absolute performance, typically reflected in the high dividends paid in recent years, as well as in the favourable relative performance. The Board believes this firm track record makes Baronsmead VCT 2 an attractive investment which should appeal to purchasing shareholders and their advisers and therefore support the development of an active secondary market for both buyers and sellers.

There are currently and will continue to be in the future, excellent opportunities to invest in companies with real potential to grow even in the current market conditions. The Manager remains focused on finding companies which match its criteria for quality.  Accordingly the Board believes that the outlook for long term growth and dividend distribution remains strong.'

Enquiries:          Michael Probin, ISIS EP LLP                              020 7506 5796

                        Ian Ridge, F&C Asset Management                     0131 718 1010

Baronsmead VCT 2 plc

Unaudited Income Statement

Six month period to 31 March 2008

	Ordinary Shares Total
	Revenue	Capital	Total
	£'000	£'000	£'000
Unrealised losses on investments	-	(6,456)	(6,456)
Realised gains on investments	-	302	302
Income	1,898	-	1,898
Investment management fee	(193)	(580)	(773)
Other expenses	(163)	-	(163)
Profit/(loss) on ordinary activities before taxation	1,542	(6,734)	(5,192)
Taxation on ordinary activities	(405)	405	-
Profit/(loss) on ordinary activities after taxation	1,137	(6,329)	(5,192)
Return per ordinary share:
- Basic	1.84p	(10.25)p	(8.41)p

Unaudited Reconciliation of Movements in Shareholders' Funds
Six month period to 31 March 2008

	2008
	Ordinary Shares
	Total
	£'000
Opening shareholders' funds at 30 September 2007	68,745
Loss for the period	(5,192)
Issue of shares	1,786
Expenses of share issue	(60)
Purchase of shares for treasury	(1,566)
Closing shareholders' funds at 31 March 2008	63,713

   Baronsmead VCT 2 plc

Audited Income Statement

Eighteen month period to 30 September 2007

	Ordinary Shares Total
	Revenue	Capital	Total
	£'000	£'000	£'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	5,728	7,954
Taxation on ordinary activities	(459)	459	-
Profit on ordinary activities after taxation	1,767	6,187	7,954
Return per ordinary share:
- Basic	2.86p	10.02p	12.88p

Audited Reconciliation of Movements in Shareholders' Funds
for the eighteen month period ended 30 September 2007

	2007	2007	2007
	Ordinary	C
	Shares	Shares	Total
	£'000	£'000	£'000
Opening shareholders' funds at 31 March 2006	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 of share issue/conversion of share premium	(23)	(2)	(25)
Dividends paid	(7,243)	(356)	(7,599)
Closing shareholders' funds at 30 September 2007	68,745	-	68,745

Baronsmead VCT 2 plc

Unaudited Income Statement

Six months to 30 September 2006

	Ordinary Shares
	Revenue	Capital	Total
	£'000	£'000	£'000
Realised gains on investments	-	413	413
Income	621	-	621
Investment management fee	(138)	(413)	(551)
Other expenses	(106)	-	(106)
	----------	-----------	-----------
Profit on ordinary activities before taxation	377	-	377
Tax on ordinary activities	(66)	66	-
	----------	-----------	-----------
Profit on ordinary activities after taxation	311	66	377
	----------	----------	-----------
Return per ordinary share
- Basic	0.77p	0.16p	0.93p

Unaudited Reconciliation of Movements in Shareholders' Funds

Six month period to 30 September 2006

	Ordinary  Shares £'000
Opening shareholders' funds at 31 March 2006	46,897
Profit for the period	377
Decrease in share capital in issue	(696)
Closing shareholders' funds at 30 September 2006	46,578

Baronsmead VCT 2 plc

Unaudited Income Statement

Six months to 30 September 2006

	C Shares
	Revenue	Capital	Total
	£'000	£'000	£'000
Unrealised gains on investments	-	1,229	1,229
Realised gains on investments	-	42	42
Income	433	-	433
Investment management fee	(70)	(211)	(281)
Other expenses	(127)	-	(127)
	----------	-----------	-----------
Profit on ordinary activities before taxation	236	1,060	1,296
Tax on ordinary activities	(54)	54	-
	----------	-----------	-----------
Profit on ordinary activities after taxation	182	1,114	1,296
	----------	----------	-----------
Return per C share
- Basic	0.81p	5.01p	5.82p

Unaudited Reconciliation of Movements in Shareholders' Funds

Six months to 30 September 2006

	C Shares £'000
Opening shareholders' funds at 31 March 2006	22,677
Profit for the period	1,296
Decrease in share capital in issue	(2)
Closing shareholders' funds at 30 September 2006	23,971

  Baronsmead VCT 2 plc

Unaudited Income Statement

Six months to 30 September 2006 

	Total
	Revenue	Capital	Total
	£'000	£'000	£'000
Unrealised gains on investments	-	1,229	1,229
Realised gains on investments	-	455	455
Income	1,054	-	1,054
Investment management fee	(208)	(624)	(832)
Other expenses	(233)	-	(233)
Profit on ordinary activities before taxation	613	1,060	1,673
Taxation on ordinary activities	(120)	120	-
Profit on ordinary activities after taxation	493	1,180	1,673
Return per ordinary share/C share:  - Basic	0.78p	1.88p	2.66p

Unaudited Reconciliation of Movements in Shareholders' Funds for the six months to 30 September 2006
			Total
			£'000
Opening shareholders' funds at 31 March 2006		69,574
Profit for the period		1,673
Decrease in share capital in issue		(698)
Closing shareholders' funds at 30 September 2006		70,549

Baronsmead VCT 2 plc

Unaudited Balance Sheet
As at 31 March 2008
			Total
			£'000
Fixed assets  Investments
Unquoted investments			30,586
Traded on AiM			15,632
Quoted on PLUS			66
Listed investments			606
Listed interest bearing securities			12,431
			59,321
Net current assets			4,418
Total assets less current liabilities			63,739
Creditors (amounts falling due after more than one year)			(26)
Net assets			63,713
Financed by:
Shareholders' funds			63,713
Net asset value per share
- Basic			104.08p
- Treasury			103.52p
Shares in issue			61,216,015
Shares in Treasury			3,820,000

Baronsmead VCT 2 plc

Audited Balance Sheet
As at 30 September 2007
			Total
			£'000
Fixed assets  Investments
Unquoted investments			30,739
Traded on AiM			18,433
Quoted on PLUS			65
Listed investments			1,274
Interest bearing securities			16,929
			67,440
Net current assets			1,352
Total assets less current liabilities			68,792
Creditors falling due after one year			(47)
Net assets			68,745
Financed by:
Shareholders' funds			68,745
Net asset value per share
- Basic			112.19p
- Treasury			111.80p
Shares in issue			61,276,638
Shares in Treasury			2,220,000

Baronsmead VCT 2 plc

Unaudited Balance Sheet
As at 30 September 2006
	Ordinary	C
	Shares	Shares	Total
	£'000	£'000	£'000
Fixed assets investments
Unquoted investments	17,949	7,821	25,770
Traded on AiM	14,973	4,967	19,940
Quoted on PLUS	125	-	125
Listed investments	513	-	513
Listed interest bearing securities	11,715	10,194	21,909
	45,275	22,982	68,257
Net current assets	1,303	989	2,292
Net assets	46,578	23,971	70,549
Financed by:
Shareholders' funds	46,578	23,971	70,549
Net asset value per share
- Basic	115.74p	107.75p
- Treasury	115.17p	-
Shares in issue	40,241,427	22,247,650
Shares in Treasury	1,770,000

Baronsmead VCT 2 plc

Summarised Unaudited Statement of Cash Flows

For the six month period ended 31 March 2008

			Total
			£'000
Net cash inflow from operating activities			758
Net cash inflow from capital expenditure and financial investment			2,426
Equity dividends (paid)/recovered			3
Net cash inflow before financing			3,187
Net cash inflow from financing			161
Increase in cash			3,348
Reconciliation of net cash flow to movement in net cash
Increase in cash in the period			3,348
Net cash as at beginning of period			1,167
Net cash as at end of period			4,515

Baronsmead VCT 2 plc

Summarised Audited Statement of Cash Flows

For the eighteen month period ended 30 September 2007

			Total
			£'000
Net cash outflow from operating activities			(1,383)
Net cash inflow from capital expenditure and financial investment			6,501
Equity dividends paid			(7,603)
Net cash outflow before financing			(2,485)
Net cash outflow from financing			(1,310)
Decrease in cash			(3,795)
Reconciliation of net cash flow to movement in net cash
Decrease in cash in the period			(3,795)
Net cash as at beginning of period			4,962
Net cash as at end of period			1,167

  Baronsmead VCT 2 plc

Summarised unaudited Statement of Cash Flows

For the six month period ended 30 September 2006

	Ordinary	C
	Shares	Shares	Total
	£'000	£'000	£'000
Net cash outflow from operating activities	(927)	(48)	(975)
Tax received/paid	29	(29)	-
Capital expenditure and financial investment	(345)	(355)	(700)
Net cash outflow before financing	(1,243)	(432)	(1,675)
Financing	(822)	-	(822)
Decrease in cash	(2,065)	(432)	(2,497)
Reconciliation of net cash flow to movement in net cash
Decrease in cash	(2,065)	(432)	(2,497)
Net cash at beginning period	3,290	1,672	4,962
Net cash at end of period	1,225	1,240	2,465

  Notes

1.       The unaudited interim results which cover the six month period to 31 March 2008 have been prepared in accordance with applicable accounting standards and adopting the accounting policies set out in the statutory accounts of the Company for the period ended 30 September 2007.

 

2.       Return per ordinary share is based on a weighted average of 61,719,450 ordinary shares in issue (30 September 2007 – 61,762,131, 30 September 2006 – 40,627,493).

3.       Earnings for the six months to 31 March 2008 should not be taken as a guide to the results of the full financial year to 30 September 2008. 

 

4.       During the six months to 31 March 2008 the Company issued 1,539,377 ordinary shares pursuant to an offer for subscription at an offer price of 116p per share which raised £1.79 million, before costs. During this period the Company purchased 1,600,000 ordinary shares to be held in Treasury at a cost of £1,566,000. At 31 March 2008 the Company holds

          3,820,000 ordinary shares in Treasury. There were 61,216,015 ordinary shares in issue at 31 March 2008 (30 September 2007 – 61,276,638, 30 September 2006 – 40,241,427).

 

5.            The interim dividend of 3.0p per ordinary shares (1.8p revenue and 1.2p capital) will be paid on 20 June 2008 to shareholders on the register on 23 May 2008.

 

6.              These are not statutory accounts in terms of Section 240 of the Companies Act 1985 and are unaudited. Statutory accounts for the period to 30 September 2007, which were unqualified, have been lodged with the Registrar of Companies. No statutory accounts in respect of any period after 30 September 2007 have been reported on by the Company’s auditors or delivered to the Registrar of Companies.

 

7.             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.

 

 

 

END

 

 

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