Final Results
British Smaller Companies VCT PLC
9 June 2000
BRITISH SMALLER COMPANIES VCT plc
Unaudited preliminary results for the year ended 31st March 2000
* Improved performance in second half-year
* £2.3m invested during the year
* Investment policy guidelines broadened
British Smaller Companies VCT plc ('the Company'), one of the UK's largest
regionally-based venture capital trusts, today announces preliminary results
for the 12 months to 31st March 2000.
FINANCIAL HIGHLIGHTS
Unaudited Unaudited Unaudited Audited
Year ended 6 months 6 months Year ended
31st March 31st March 30th Sept 31st
2000 2000 1999 March 1999
(as
restated)
Income: £860,000 £412,000 £448,000 £1,046,000
Net return before tax: £556,000 £230,000 £326,000 £748,000
Net return after tax: £502,000 £246,000 £256,000 £550,000
Return per share: 3.17p 1.55p 1.62p 3.50p
Total return per
Share (5.79)p 3.99p (9.78)p 2.20p
Total dividend (net): 3.15p 1.60p 1.55p 3.49p
Net assets: £14.19m £14.19m £13.81m £15.60m
Net asset value per
Share: 89.6p 89.6p 87.2p 98.5p
Number of qualifying
investments: 19 19 19 18
Value of qualifying
investments: £8.40m £8.40m £7.87m £7.96m
INVESTMENTS
Announcing the results, the Chairman, Sir Andrew Hugh Smith, said that the
second half of the year had been one of consolidation and improvement, which
he expected to continue in the current year. During this period, the
Company's investment adviser, Yorkshire Fund Managers Ltd, strengthened the
team responsible for both the investment process and for management of the
portfolio.
A total of £2.3m was invested during the year in seven companies, four of
which were existing investments. As at 31st March 2000, the venture capital
portfolio comprised investments worth a total of £8.4m in 19 companies, while
some £5.5m was available for further venture capital investments.
The Company has exceeded the targets set by the Inland Revenue for investments
in qualifying holdings at 31st March 2000 and a further £1.75m has been
committed to three other companies.
In accordance with the Board's policy of investing up to 10% of available
funds in shares of AIM-quoted companies, as at 31st March 2000, £1.16m was
invested in six AIM companies. During the year, profits were realised on the
part disposal of two of these investments.
Net assets per share increased during the second half of the year from a low
of 87.2p at the interim stage to 89.6p at the year-end. This compares with
98.5p a year earlier. The overall reduction in the net asset value per share
is attributed principally to the continuing difficulties in the manufacturing
and allied industrial sectors, as well as the insolvency of Rainbow Garden
Products Ltd. This has been partially offset by a number of realisations,
including Goldcrest Homes Plc, and the increase in the value of the Company's
investment in International Resources Group Ltd.
INVESTMENT CRITERIA
We announced at the time of the Interim results that the scope of the
Company's investment policy was to be extended to allow the Company to invest
in businesses where added value is more than £1m, even though annual turnover
may not exceed the previous minimum of £2.5m. The portfolio's investment
criteria are also being broadened to include earlier stage businesses capable
of providing more substantial capital growth. As a result, an amount of up to
£2m has been earmarked for investment in early stage businesses developing
innovative products and services across a range of sectors.
PERFORMANCE
The Chairman said the performance of the portfolio had been disappointing for
the period as a whole with net assets per share falling from 98.5p to 89.6p.
Net return after taxation was £502,000 with a corresponding return per share
of 3.17p. However, 'during the second half of the year we have begun to see
evidence of a turnaround' he said.
DIVIDEND
A final dividend of 1.60p a share is being recommended, bringing the total
dividend payout for the year to 3.15p (1999: 3.49p).
OUTLOOK
Commenting on the Company's prospects for the current year, the Chairman said:
'Your Board expects the improvement in performance during the second half of
the period to gather pace. The broadening of the investment strategy will
enable us to take advantage of a wider range of investments which should
provide enhanced opportunities for capital growth.'
INVESTMENT ADVISER'S REVIEW
In his investment adviser's review, the Managing Director of Yorkshire Fund
Managers Ltd, Phil Cammerman, said the portfolio team had been strengthened to
provide the resource to improve performance. Also, a new office had been
opened in Manchester where a senior investment manager would be based. This
was expected to contribute substantially to the enquiry flow.
For further information, please contact:
Phil Cammerman Yorkshire Fund Managers Ltd Tel: 0113 294 5050
David Hardy/Simon Ellis Binns & Co PR Ltd Tel: 020 7786 9600
Simon Mountford Simon Mountford Tel: 01347 848609
Communications
Chairman's Statement
In my Interim Statement I reported on the difficulties experienced in a number
of our venture capital investments and the adverse impact it had made on the
portfolio's overall performance. I am pleased to report that the second half
has been one of consolidation and improvement after this difficult period.
During the year, our Investment Adviser, Yorkshire Fund Managers Limited, has
strengthened the team which is responsible for the investment and portfolio
management process. The processes have been reviewed and, where possible,
tightened. At the same time two non-executive members have joined Yorkshire
Fund Managers' Approvals Committee, which plays an important part in the
investment procedure. In addition, the non-executive directors of your
company have made themselves available to meet potential investee companies
and managements to add their experience to that of our investment managers.
The expanded monitoring team has been able to make an important contribution
to improving two investee companies' performance and expects to continue this
process in the case of others.
Whilst the performance of some of the investees has been disappointing for the
year as a whole, during the second half of the year we have begun to see
evidence of a turnaround. This is dealt with in more detail in the Investment
Adviser's Review. While there is much further to go, I am happy to report
that the year-end Net Asset Value per share shows some improvement to 89.6p
from 87.2p at the interim stage.
Investments
We invested £2.3 million in aggregate during the year. These investments were
made into 7 companies, four of which were existing investments. Since the end
of the financial year a further £1.75m has been committed to three other
companies.
In accordance with your Board's policy of investing up to 10% of our available
funds in shares of companies listed on AIM the investment portfolio at the
year end includes an amount, at cost, of £1,160,000 invested in 6 AIM
companies. During the year we realised profits on the part disposal of two of
these AIM investments.
Currently, we have in the order of £5.5 million available for further venture
capital investments. These funds awaiting investment continue to be held in a
portfolio of UK gilts with a modest amount held on deposit. Your directors
are keeping this policy under review.
Yorkshire Fund Managers Limited continues to experience a good enquiry flow
with some 15 or so investee companies under review at any one time seeking
around £10 million. This reservoir of opportunities should allow the Board to
maintain the required rate of investment as it has in the past. I am pleased
to report that we have exceeded the targets set by the Inland Revenue for
investments in qualifying holdings to 31st March 2000.
Your Board is extending the scope of the Company's investment policy. As
noted in the interim statement, the increasing number of enquiries relating to
companies in the service and other high added value and high growth sectors
resulted in your directors adopting a variation to the investment criteria
enabling us to invest in businesses where added value (broadly equivalent to
gross margin) is in excess of £1m, even though annual turnover may not exceed
£2.5 million. As a result of the changing market experienced over the past
twelve months we are seeking to broaden the base of investments in the
portfolio to include earlier stage businesses capable of providing more
substantial capital growth to shareholders. To this end we have made
available a maximum aggregate of £2 million for investment in early stage
companies developing innovative products and services across a range of
businesses usually as part of a syndicate alongside other investors.
Financial Statements
Net return after taxation was £502,000 with the corresponding return per share
on revenue account at 3.17p. The overall return per share, which includes
movements on capital account, was a loss of 5.79p.
The reduction in the net asset value per share, from 98.5p to 89.6p, is
principally attributed to continued difficulties in the manufacturing and
allied industrial sectors and the insolvency of Rainbow Garden Products
Limited. This has been partially offset by a number of realisations,
including the premium on the realisation of Goldcrest Homes plc and the
increase in the value of our investment in International Resources Group
Limited. The overall result is an 9% reduction in the net asset value from
98.5p to 89.6p, after total dividends for the year of 3.15p.
The Directors continue to follow the principles of valuation laid down by the
British Venture Capital Association and generally followed by the Venture
Capital industry. These insist on writing down values on any evidence of
underperformance and lay down conditions for the recognition of any increase
in value. In consequence, the Directors are convinced that the Company's
portfolio is valued prudently.
Four companies in the portfolio at 31st March 2000 have been revalued upwards
by up to 75%. However, against these increases in value seven investments have
been written down below cost and three others have also been written down but
are still valued above cost. The remaining five investments are all valued at
cost. On the basis of the improving trading reports we are receiving at
present we expect the improvement shown in the second half of the year to
continue in the current year.
Post Balance Sheet Events
On 31st May 2000 the holding of £561,000 of loan stock in International
Resource Group Limited (IRG) with a carrying value of £915,000 was redeemed
for a total consideration of £952,000. The Company continues to hold an
equity stake of 7% in IRG.
Dividend
Your Board has decided to recommend a final dividend of 1.60p per share. This
will bring the total dividends for the year to 3.15p per share. The proposed
final dividend will be paid, subject to shareholder approval, on 7th August
2000 to shareholders in respect of shares on the register on 23rd June 2000.
Investment Company Status
You will recall that in 1999 shareholders were asked to pass a resolution at
the AGM to cancel the Company's share premium account in consequence of which
it was necessary for the directors to change the status of the Company from
that of an investment company. This was so that the Company could purchase
its own shares without reducing its ability to pay dividends, a restriction
imposed by sections 265 and 266 of the Companies Act 1985. These sections
have now been amended by Parliament to remove this restriction and in common
with other venture capital trusts in a similar position, your board has
decided that it is in the Company's interest to notify the registrar of
companies of its intention to carry on business as an Investment Company. The
Company's ability to finance the acquisition of its own shares will not be
affected by this.
Outlook
Your Board expects the improvement in performance during the second half of
the year to gather pace. Additional factors such as the reduction in the
value of sterling in relation to the US dollar will certainly help those
manufacturing companies in the portfolio together with the prospects for
others in the sector in which we might invest. Finally, the broadening of the
investment strategy will enable us to selectively take advantage of a wider
range of investments which should provide enhanced opportunities for capital
growth.
Sir Andrew Hugh Smith
Chairman
9th June 2000
Investment Adviser's Review
Operations
During the year under review, the range of industries that were considered for
investment included packaging, leisure, printing and a number of niche
engineering businesses.
We have increased the resources available for making investments and adding
value to them by recruiting an experienced business executive in the
monitoring section together with a support manager in the investment
department. Our approvals committee has been further strengthened with the
appointment of two additional non-executive members.
We are pleased to report the opening of a new office in Manchester and the
appointment of a locally based experienced senior investment manager which we
believe will contribute further to our enquiry flow.
We invested £2.3m in 7 companies during the year and received back a total of
£986,000 from 7 companies - a net increase in investment of £1.4m. This
compares with a net investment of £4m in 11 companies for the previous period.
This pattern of increasing redemptions has already continued into the current
year as the cycle of redemptions in the case of mature investments catches up
with new investments in companies. However, having completed our initial
three years of trading, we are pleased to confirm that we have exceeded the
targets set by the VCT legislation in respect of the investment in qualifying
holdings and the equity percentage of those investments for the year ended
31st March 2000. The realisation at Goldcrest achieved an annual compound
return of 25% and the recent realisation of the loan to International
Resources Group a 32% annual compound return on total funds invested.
Portfolio Performance
There are a number of factors which we believe will lead to an improvement in
the portfolio's performance over the coming year.
Firstly, the strengthened portfolio team has provided the resource to improve
performance in at least two investees with others currently being programmed.
The programme should bear fruit in subsequent periods. Secondly, we expect the
weakening of sterling in relation to the US dollar should help certain of our
manufacturing companies to improve their performance, particularly those
selling to the US. Finally, as the portfolio becomes more mature, investments
will begin to be realised at prices usually at a premium to their carrying
value.
Outlook
The new financial year has already begun well with £1.75 million committed so
far this year. The current level and quality of enquiries is as high as it has
ever been - the result of increased venture capital funding currently being
made available to small businesses. The additional resource now in place,
together with our broader investment policy should allow the improvement in
portfolio performance which has become evident in recent months to continue in
the coming year and beyond.
Philip S. Cammerman
Yorkshire Fund Managers Limited
9th June 2000
UNAUDITED STATEMENT OF TOTAL RETURN
(INCORPORATING THE REVENUE ACCOUNT)
FOR THE YEAR ENDED 31ST MARCH 2000
Unaudited Audited
2000 1999 (as restated)
Notes Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Net losses
on
investments - (1,216) (1,216) - (33) (33)
Income 860 - 860 1,046 - 1,046
Investment
advisory
fee (86) (259) (345) (78) (235) (313)
Other
expenses (218) - (218) (220) - (220)
----- ----- ----- ----- ----- -----
Net return
on ordinary
activities
before
taxation 556 (1,475) (919) 748 (268) 480
Tax on
ordinary
activities 2 (54) 56 2 (198) 64 (134)
----- ----- ----- ----- ----- -----
Net return
on ordinary
activities
after
taxation 502 (1,419) (917) 550 (204) 346
Dividends
in respect
of equity
shares 3 (499) - (499) (553) - (553)
----- ----- ----- ----- ----- -----
Transfer
to/(from)
reserves 3 (1,419) (1,416) (3) (204) (207)
===== ===== ===== ===== ===== =====
Return per
Ordinary
share:
Basic and
fully
diluted 4 3.17p (8.96)p (5.79)p 3.50p (1.30)p 2.20p
Notes
The revenue column of this statement is the profit and loss account of the
Company.
All activity has arisen from continuing operations.
There is no difference between the net return on ordinary activities before
taxation and the transfer to/(from) reserves for the financial period and
their historic cost equivalents.
The prior year result has been restated in accordance with FRS 16. Tax
attributable to franked investment income has been set off against gross
dividend income.
UNAUDITED BALANCE SHEET
AT 31ST MARCH 2000
Notes Unaudited Audited
2000 1999
£000 £000
Fixed Assets
Investment portfolio 8,399 7,956
-------- -------
Current Assets
Investments 5,472 6,879
Debtors 610 465
Cash 21 457
----- -----
6,103 7,801
Creditors: amounts payable within one
year (314) (153)
----- -----
Net Current Assets 5,789 7,648
----- -----
Total Net Assets 14,188 15,604
===== =====
Capital and Reserves
Called up share capital 1,584 1,584
Share premium account - 13,815
Capital redemption reserve 3 3
Capital reserve (1,218) 201
Special reserve 13,819 -
Revenue reserve 4 1
----- -----
Equity shareholders' funds 14,188 15,604
===== =====
Net asset value per Ordinary share 5 89.6p 98.5p
===== =====
UNAUDITED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31ST MARCH 2000
Unaudited Audited
2000 1999
£000 £000
Net cash inflow from operating activities 140 314
----- -----
Taxation
Tax repayments received - 19
Advance corporation tax paid (40) (61)
----- -----
Net tax paid (40) (42)
----- -----
Investing activities
Purchase of investments (2,338) (4,490)
Proceeds from disposal of investments 986 471
----- -----
Net cash outflow from investing activities (1,352) (4,019)
----- -----
Equity dividends paid to shareholders (284) (659)
----- -----
Net cash outflow before use of liquid
resources and financing (1,536) (4,406)
-------- --------
Management of liquid resources
Purchase of fixed interest government stocks (456) (6,627)
Proceeds from the sale of fixed interest
government stocks 1,556 6,499
----- -----
Net cash inflow (outflow) from management of
liquid resources 1,100 (128)
----- -----
Financing
Issue of Ordinary shares - 4,492
Issue expenses - (289)
Purchase of own shares - (6)
----- -----
Net cash inflow from financing - 4,197
----- -----
Decrease in cash (436) (337)
===== =====
Notes To The Financial Statements
1 Basis of Reporting
Other than the results for the prior year the financial information in these
statements is unaudited and does not constitute the Company's statutory
accounts for the year ended 31st March 2000. The audited accounts for the year
ended 31st March 1999 have been reported upon without qualification by the
auditors and filed with the Registrar of Companies.
2 Taxation Charge
2000 1999 (as restated)
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Corporation tax
at 22%
(1999: 27%) 61 (56) 5 152 (64) 88
ACT
(written back)
written off (7) - (7) 46 - 46
----- ---- ---- ---- ---- ----
54 (56) (2) 198 (64) 134
=== === === === === ===
The prior year revenue charge has been restated by £55,000 due to the
reallocation of tax attributable to franked investment income in accordance
with FRS 16.
3 Dividends
2000 1999
£000 £000
First interim paid - 1.55p per share
(1999:1.75p) 246 277
Second interim paid - nil per share
(1999:1.50p) - 238
Final proposed - 1.60p per share (1999:0.24p) 253 38
----- -----
499 553
=== ===
The proposed final dividend of 1.60p per share in respect of the year ended
31st March 2000 will, if approved by the shareholders, be paid on 7th August
2000.
4 Return per Ordinary share
The basic return per Ordinary share is based on net revenue from ordinary
activities after tax of £502,000 (1999: £550,000) and on 15,839,838 shares
(1999: 15,732,038), being the weighted average number of shares in issue
during the year.
There is no difference between the basic return per Ordinary share and the
fully diluted return per Ordinary share.
5 Net asset value per Ordinary share
The net asset value per Ordinary share is calculated on attributable net
assets of £14,188,000 (1999: £15,604,000) and 15,839,838 shares in issue at
the year end (1999: 15,839,838).
6 Annual General Meeting
Copies of the full financial statements for the year ended 31st March 2000 are
expected to be posted to shareholders on 22nd June 2000 and will be available
to the public at the registered office of the Company at Saint Martins House,
210-212 Chapeltown Road, Leeds, LS7 4HZ thereafter. The Company's AGM is due
to be held at 12.00 noon on 21st July 2000 at 28 Grosvenor Street, London, W1.
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