Annual Financial Report to 31

RNS Number : 0557J

British SmallerTechCompaniesVCT2PLC

24 March 2010

 



BRITISH SMALLER TECHNOLOGY COMPANIES VCT 2 PLC

annual financial report announcement for

the year to 31 December 2009

British Smaller Technology Companies VCT 2 plc ("the Company") today announces its audited results for the year to 31 December 2009.

Chairman's Statement

I am pleased to report that your Company has held its ground with an overall increase in total return (net asset value plus cumulative dividends) to 94.7 pence per share from 92.9 pence per share at 31 December 2008.  After dividends the net asset value at 31 December 2009 was 72.7 pence per share (December 2008: 76.9 pence per share). This was achieved despite 2009 being an extremely challenging year, seeing the deepest recession since the 1930s.

Dividends paid in the year amounted to 6.0 pence per share (including a 2.0 pence interim and 2.0 pence special dividend declared following the successful realisation of DxS Limited) compared to 5.5 pence per share in 2008.  Your Board is recommending that the level of dividends be maintained, and proposes a final dividend of 2.0 pence per share in respect of 2009.  If approved, this dividend will be paid on 21 May 2010 to Shareholders on the register at 30 April 2010.  The final dividend has not been recognised in the accounts as the contractual obligation did not exist at the balance sheet date.

Investment Portfolio

During the year the Company realised investments amounting to £2.62 million, the most significant being DxS Limited which generated proceeds of £1.97 million.  Since the Fund's original investment in 2004, DxS developed from an early stage business with some interesting intellectual property to a leading provider of companion diagnostic products to international drug manufacturers.  It was acquired by the pharmaceutical technologies group Qiagen for a headline price of $95 million in September 2009, resulting in a total profit on cost of £1.81 million and representing an uplift over its December 2008 value of £1.55 million.

The quoted investment in e-commerce software business ART Technologies Group (acquired on the sale of Amacis Limited in 2004) was also sold during the year for £0.64 million, giving an overall profit on cost of £0.36 million and profit on its December 2008 value of £0.30 million.

This year has also seen further progress made by a number of portfolio companies.  A further investment of £209,000 was made into Silistix in April 2009 as part of a £1.5 million funding round to support the development of its advanced silicon chip development technology.  A new investment of £500,000 was made as part of the £3.5 million buy-out of Deep-Secure Limited which provides advanced IT security solutions for defence and governmental bodies around the world.

Unfortunately the strong profits on disposal during the year were partially offset by overall valuation losses of £1.26 million (2008: £0.94 million) in respect of other portfolio investments which is perhaps not unsurprising given the economic backdrop.  This figure breaks down into losses of £1.39 million in respect of unquoted investments and a gain of £0.13 million in respect of AIM quoted investments.  The biggest single reduction was Silistix (£0.79 million) where the Fund Manager considered it wise to take a prudent approach to the valuation given significant market uncertainty.  With market conditions expected to gradually improve during 2010 there should be opportunities for value growth during the year ahead.

The portfolio also generated income during the year of £0.15 million (2008: £0.12 million) in the form of interest and dividend payments, resulting in a total portfolio return for the year of £0.61 million (2008: £0.72 million) before administrative fees.

In September 2009 The International Private Equity and Venture Capital Valuation Board issued revised guidelines on the valuation of unquoted investments in order to promote consistency with established and emerging International Financial Reporting Standards. These have been adopted by the Company in the current year and the Board has reviewed the methodologies applied in reaching appropriate valuations. Determining the value of an unquoted company requires information on earning multiples for comparable quoted companies and sectors, suitably adjusted for differences between the comparator company and the company being valued. Other investments are valued at the price of recent investment, reviewed for impairment. Quoted investments continue to be valued at bid price.

Financial Results

The result for the financial year ended 31 December 2009 was a pre-tax profit of £0.31 million which comprised profits in respect of capital and revenue of £0.23 million and £0.08 million respectively, as compared to pre-tax profit before taxation of £0.56 million in 2008 (which comprised a capital profit of £0.42 million and a revenue profit of £0.14 million).

The pre-tax profit for the year has been impacted by the apparent increase in administrative expenses from £0.44 million to £0.53 million. However this is as a result of the one-off VAT recovery of £0.2 million in 2008. Further reductions in operating costs have resulted from the exemption of management fees from VAT, effective from October 2008.

The movement in net asset value in the year has been:

                                                                                                                                                                                                                                                      Pence/share

31 December 2008                                                                           76.9

Dividends paid in year                                                                        (6.0)

Net increase in value                                                                          1.8

31 December 2009                                                                           72.7                                                        

Cash and gilt investments at the end of the year amounted to £5.69 million, representing 47% of net asset value.  Further realisations will enhance cash reserves and enable distributions to Shareholders in the form of tax free dividends.

Shareholder Relations and Fundraising

Shareholders will be aware that, on 26 February 2010, your Board published proposals offering investors the opportunity to subscribe for up to 1,664,125 million new Ordinary shares in the Company at an offer price of 77.25 pence per share. These proposals were by way of two offers closing on 05 April 2010 and 30 April 2010 respectively.

Your Board continues to run Shareholder workshops where investors are invited to meet members of the Board, representatives from YFM Private Equity Limited, the Company's Fund Manager, and the CEOs of one or more of the portfolio investments.  With over 100 Shareholders, the workshop held in February 2010 at the Natural History Museum was well attended. Your Board remains committed to these events.

The Board also remains committed to the objective of achieving a consistent dividend stream. This policy has been continued with your Board proposing that a final dividend of 2.0 pence per share will be paid on 21 May 2010 to Shareholders on the register as at 30 April 2010.

For the benefit of Shareholders the Board will be recommending the reintroduction of a share buy-back policy, with an initial discount of 15% on Net Asset Value. It is the Board's intention that this be proposed at the Company's Annual General Meeting to be held on 12 May 2010.

The Annual General Meeting of the Company will be held at 10:00 am on 12 May 2010 at 33 St James Square, London, SW1Y 4JS.

Other matters

Your Board continues to monitor regulatory developments, in particular the proposed regulation in respect of Alternative Investment Fund Managers. This legislation is being derived by the EU and is currently being drafted for consideration during 2010 to take effect in 2012. This proposal is only in draft form but its implementation could impact the Company largely through an increase in regulatory costs. Your Company continues to support the activities of the Association of Investment Companies (AIC) in its consideration and review of these proposals.

The Finance Act 2009 set out a 50 per cent rate of income tax for higher earners, together with the restriction of tax reliefs available on pension contributions. As a result the tax free dividends paid by the Company as a VCT and the tax relief on contributions will become increasingly effective for individuals if utilised appropriately  - for example after independent financial advice - as a component of any long-term investment plan.

Outlook

The portfolio has weathered a very tough year with many actions being taken to improve efficiency and enhance sales propositions.  Overall investee companies remain well financed and with the economic picture expected to gradually improve through 2010 they should be well placed to take advantage.  The Company will continue to support our investee companies where value growth opportunities exist.

The Board remains firmly of the opinion that the upcoming period is likely to present a number of investment opportunities, both for the existing portfolio businesses and for new investments. An increase in the quality of new investment opportunities under consideration over recent months also supports this view.  It is with this in mind that the Board recently sought to increase investment capacity and will continue to consider fund raising options during the year ahead.

Richard Last

Chairman

23 March 2010

Fund Manager's Review

Name of Company	Date of Initial Investment	Location	Industry Sector	Original  Cost* £000	Realised Proceeds  to Date £000	Investment Valuation at 31 December 2009 £000	Realised and Unrealised to Date £000
Current Investments
Digital Healthcare Limited	Jun-05	Cambridge	Medical Instruments	3,072	-	1,660	1,660
Primal Pictures Limited	Dec-05	London	Medical Instruments	961	-	895	895
Immunobiology Limited	Jun-03	Cambridge	Pharmaceuticals	850	-	806	806
Deep-Secure Ltd	Dec-09	Reading	Software	500	-	500	500
Pressure Technologies plc	Jun-07	Sheffield	Manufacturing	300	-	480	480
Waterfall Services Limited	Feb-07	Warrington	Healthcare	250	-	391	391
Silistix Limited	Dec-03	Manchester	Electronics	1,215	-	310	310
Patsystems plc	Sep-07	London	Software	317	-	246	246
Harvey Jones Limited	May-07	London	Consumer Retail	389	-	230	230
Optos plc	Dec-05	Dunfermline	Medical Instruments	153	93	102	195
RMS Group Holdings Limited	Jul-07	Goole	Industrial Services	408	20	145	165
Ellfin Home Care Limited	Dec-07	Oldham	Healthcare	296	-	108	108
Brulines plc	Oct-06	Stockton-on-Tees	Electronics	81	-	91	91
Allergy Therapeutics plc	Oct-04	Worthing	Biotechnology	350	-	68	68
Tissuemed Limited	Dec-05	Leeds	Consumer Retail	48	-	60	60
Solcom Limited	Dec-05	Ryde	Software	-	-	63	63
Cambridge Cognition Limited	May-02	Cambridge	Software	240	-	-	-
Oxis Energy Limited	Dec-05	Abingdon	Electronics	5	-	-	-
Intelligent Recordings Limited	Sep-08	Nottingham	Electronics	-	-	-	-
Casmir Limited	Dec-05	Salford	Software	-	-	-	-
				9,435	113	6,155	6,268
Full realisations to date				7,872	13,692	-	13,692
Total realised and unrealised to date				17,307	13,805	6,155	19,960

Name of Company	Date of Initial Investment	Location	Industry Sector	Original  Cost* £000	Realised Proceeds to Date £000	Investment Valuation at 31 December 2009 £000	Realised to Date £000	Realised Profit (loss) £000
Realised Investments
DxS Ltd	Apr-04	Manchester	Healthcare	163	1,968	-	1,968	1,805
Sarian Systems Ltd	Dec-05	Ilkley	Telecoms	928	2,605	-	2,605	1,677
Amino Technologies plc	Sep-01	Cambridge	Electronics	415	1,875	-	1,875	1,460
Cozart plc	Jul-04	Abingdon	Healthcare	1,566	2,983	-	2,983	1,417
Vibration Technology Ltd	Mar-02	Glasgow	Industrial	1,061	2,328	-	2,328	1,267
The ART Technology Group Inc	Apr-03	Washington, USA	Software	275	638	-	638	363
Tamesis Ltd	Jul-01	London	Software	150	317	-	317	167
Voxar Ltd	Dec-05	Edinburgh	Software	-	134	-	134	134
Tekton Group Ltd	Dec-05	Manchester	Software	100	220	-	220	120
Arakis Ltd	Mar-04	Essex	Healthcare	14	108	-	108	94
Hallco 1390 Ltd	Dec-06	Manchester	Software	1	77	-	77	76
Oxonica plc	May-02	Oxford	Chemical	241	258	-	258	17
SoseiCo Ltd	Aug-05	Toyko, Japan	Healthcare	158	94	-	94	(64)
Sirus Pharmaceuticals Ltd	Sep-01	Cambridge	Healthcare	270	14	-	14	(256)
Infinite Data Storage Ltd**	Mar-02	Dunfermline	Software	425	-	-	-	(425)
Purely Proteins Ltd	Nov-03	Cambridge	Software	438	-	-	-	(438)
ExpressOn Biosystems Ltd**	Oct-02	Midlothian	Healthcare	450	-	-	-	(450)
Broadreach Networks Ltd**	Feb-03	London	Telecoms	550	17	-	17	(533)
Comvurgent Ltd**	Dec-05	Nottingham	Software	611	-	-	-	(611)
Hallco 1389 Ltd	Dec-06	Manchester	Software	49	49	-	49	-
Focus Solutions Group plc	Dec-05	Leamington Spa	Software	7	7	-	7	-
Elam-T Ltd**	Dec-05	London	Electronics	-	-	-	-	-
LANergy Ltd**	Dec-05	Newport	Telecoms	-	-	-	-	-
Sigtronics Ltd**	Dec-05	Livingston	Electronics	-	-	-	-	-
Weston Antennas Ltd**	Dec-05	Dorchester	Telecoms	-	-	-	-	-
Total realised to date				7,872	13,692	-	13,692	5,820

* Original or acquired cost where the investment was acquired at the fair value ascribed to it at the time of the acquisition of British Smaller Technology Companies VCT plc.

** In Receivership

This year has again seen the continuation of realisations at values in excess of the carrying value.

There have been significant positive developments within a number of the businesses in the portfolio in spite of tough market conditions.  These include a repositioning of Primal Pictures as a provider of education materials rather than a reference source, progress towards the commencement of clinical trials for Immunobiology's new vaccine technology and further expansion of Waterfall Services into both the education and care home markets.  Digital Healthcare has continued to expand in the UK and improve its model for rolling out services in North America.

The sale of DxS to Qiagen during the year enabled the Company to achieve a significant profit over cost and carrying value, capitalising on the strong growth reported to you previously.

Cash and gilt investments at 31 December 2009 were £5.69 million representing 47% of net assets. This compares to £4.97 million (39% of net assets) at 31 December 2008. The realisation of DxS Limited in the second half of the year enabled the payment of a special dividend of 2.0 pence per share to accompany the interim dividend. The Company remains in a strong cash position enabling further investment in selective opportunities and dividends in 2010.

Portfolio Overview

Portfolio Performance

Whilst this year has undoubtedly produced a number of challenges, both in terms of trading and raising funds, the portfolio as a whole has generally proved resilient. There is limited financial gearing across the portfolio businesses and in the main businesses are well funded going into 2010.  We have seen some progress through increases in earnings from a number of investments in spite of the global recession.

The big valuation movement in the year related to Silistix, where a fall of £794,000 was experienced following a prudent approach to valuation given current uncertainty over which technologies will ultimately succeed in this rapidly changing sector.  A £453,000 fall was also experienced at Digital Healthcare following some difficulties in breaking into the US market although recent signs are encouraging.  Conversely a £319,000 value improvement was seen at Primal Pictures with profits continuing to grow and a strategic repositioning of the business as an education provider.

There has been an overall reduction in the value of the quoted and unquoted portfolio of £1.26 million, equivalent to 17.0% of the value. However, overall realised gains plus unrealised valuations still exceed original cost by £2.65 million.

This decrease is split between the quoted and unquoted portfolio as follows:

	£000	%
Unquoted	(1,387)	(21.2)
Quoted	125	14.5

In accordance with the new requirements of IFRS 7 a sensitivity analysis has been undertaken on the assumptions used to value investments in unquoted companies.  This indicated that a 10% decrease in the discounts applied would have increased the net assets attributable to the Company's Shareholders and the total profit for the year by £556,000. An equal change in the opposite direction would have decreased net assets attributable to the Company's Shareholders and the total profit for the year by £498,000.

Investment Activity

During the year investments were made in two companies. A further investment was made into Silistix to progress customer discussions towards the signing of license deals.  The new investment into Deep-Secure enabled us to back a strong team who we have worked with before in a sector which should now see significant growth.

The Company's investment policy is to build a diversified portfolio of investments in emerging businesses, with a recent emphasis on ensuring that this captures later stage businesses that have the potential to deliver both income and capital growth.  Although it has been difficult to find good investment opportunities during 2009, there are encouraging signs that this position is starting to change with Deep-Secure being a good example.

It is encouraging that there has not been a significant need for further funding into the portfolio during the economic downturn.  We will continue to invest into the portfolio to fund value growth and support commercialisation of technology.

Realisations

In September 2009, the Company sold its entire holding in DxS Limited.  It was acquired by Qiagen for a headline consideration of $95 million which resulted in sale proceeds to the Company of £1.97 million.  This compared to a carrying value at 31 December 2008 of £0.42 million and an original cost of £0.16 million.  There are various deferred payments which may be received relating to this deal. The associated value of these is estimated at £214,000 and is held within non-current assets on the Balance Sheet.

In September and October 2009, the Company sold its entire quoted shareholding in Art Technology Group Inc, resulting in sale proceeds of £0.64 million.  This compared to a carrying value at 31 December 2008 of £0.34 million and an original cost of £0.28 million. 

In addition, the Company received proceeds of £2,838 as a result of the disposal of the residual investment in Oxonica plc.

Conclusion and Outlook

The year under review has seen extremely challenging market conditions for the entire portfolio.  We have been actively supporting the investee companies through these challenges and have again achieved disposals above the carrying values. The Company's cash reserves remain strong even after taking account of the special dividend paid in the year.

We are optimistic that 2010 will see gradually improving market conditions for the portfolio as well as generating some good opportunities for new investment.  The Company remains well placed to meet the upcoming investment needs.

David Hall

YFM Private Equity Limited

23 March 2010

Principal risks, risk management and regulatory environment

The Board believes that the principal risks faced by the Company are:

Investment and strategic - quality of enquiries, investments, investee company management teams and monitoring, the risk of not identifying investee under performance might lead to under performance and poor returns to Shareholders.

Loss of approval as a Venture Capital Trust - The Company must comply with Section 274 of the Income Tax Act 2007 which allows it to be exempted from capital gains tax on investment gains.  Any breach of these rules may lead to the Company losing its approval as a VCT, qualifying Shareholders who have not held their shares for the designated holding period having to repay their income tax relief they obtained and future dividends paid by the Company becoming subject to tax.  The Company would also lose its exemption from corporation tax on capital gains. As such one of the key performance indicators monitored by the Company is the compliance with legislative tests.  See below for more detail.

Regulatory - the Company is required to comply with the Companies Acts, the rules of the UK Listing Authority, International Financial Reporting Standards and the Statement of Recommended Practice. Breach of any of these regulatory rules might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.

Reputational - inadequate or failed controls might result in breaches of regulations or loss of Shareholder trust.

Operational - failure of the Fund Manager's and administrator's accounting systems or disruption to its business might lead to an inability to provide accurate reporting and monitoring.

Financial - inadequate controls might lead to misappropriation of assets.  Inappropriate accounting policies might lead to misreporting or breaches of regulations.

Market Risk - Lack of liquidity in both the venture capital and public markets.  Investment in AIM-traded and unquoted companies, by their nature, involve a higher degree of risk than investment in companies trading on the main market.  In particular, smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals.  In addition, the market for stock in smaller companies is often less liquid than that for stock in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock.

Liquidity Risk - The Company's investments may be difficult to realise.  The fact that a share is traded on AIM does not guarantee its liquidity.  The spread between the buying and selling price of such shares may be wide and thus the price used for valuation may not be achievable.

The Board seeks to mitigate the internal risks by setting policy, regular review of performance and monitoring progress and compliance.  The key performance indicators measure the Company's performance and its compliance with legislative tests.  In the mitigation and management of these risks, the Board applies rigorously the principles detailed in Financial Reporting Council - Revised Internal Control: Guidance for Directors on the Combined Code. 

Responsibility statements of the directors in respect of the annual financial report

The Annual Report and Accounts contains the following statements regarding responsibility for the management report and financial statements included in the Annual Report and Accounts from which the information in this Announcement has been extracted (references in the following statements are to sections of the Annual Report and Accounts).

The directors confirm, to the best of their knowledge:

·              that the financial statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

·              the business review included within the Chairman's Statement, Fund Manager's Review and Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with the principal risks and uncertainties that they face.

Approved by the Board on 23 March 2010 and signed on its behalf by:

Richard Last

Chairman

Income statement for the year ended 31 December 2009

		2009			2008
	Notes	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000
Gain on realisation of investments		-	1,793	1,793	-	1,369	1,369
Losses on investments held at fair value		-	(1,326)	(1,326)	-	(768)	(768)
Income	2	372	-	372	394	-	394
Administrative expenses:
Fund Management fee		(79)	(238)	(317)	(95)	(285)	(380)
VAT recovery		-	-	-	57	107	164
Other expenses		(212)	-	(212)	(221)	-	(221)
		(291)	(238)	(529)	(259)	(178)	(437)
Profit before taxation		81	229	310	135	423	558
Taxation	3	(11)	11	-	(26)	26	-
Profit for the year attributable to equity Shareholders		70	240	310	109	449	558
Total comprehensive income for the year attributable to equity Shareholders		70	240	310	109	449	558
Basic and diluted earnings per Ordinary share	5	0.42p	1.44p	1.86p	0.65p	2.70p	3.35p

The total column of this statement represents the Company's income statement, prepared in accordance with International Financial Reporting Standards ('IFRS').  The supplementary revenue and capital columns are prepared under the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('SORP') 2009 published by the Association of Investment Companies.

Balance sheet at 31 December 2009

	Notes	2009 £000	2008 £000
Assets
Non-current assets
Investments		6,155	7,488
Fixed income government securities		3,382	4,864
Financial assets at fair value through profit or loss		9,537	12,352
Trade and other receivables		214	-
		9,751	12,352
Current assets
Trade and other receivables		192	388
Cash and cash equivalents		2,304	109
		2,496	497
Liabilities
Current liabilities
Trade and other payables		(141)	(55)
Net current assets		2,355	442
Net assets		12,106	12,794
Shareholders' equity
Share capital		1,664	1,664
Share premium		69	69
Capital redemption reserve		88	88
Merger reserve		5,525	5,525
Other reserve		2	2
Realised capital reserve		4,442	3,497
Unrealised capital reserve		(4,802)	(3,169)
Special reserve		4,786	4,786
Revenue reserve		332	332
Total Shareholders' equity		12,106	12,794
Net asset value per Ordinary share	6	72.7p	76.9p

 Statement of changes in equity for the year ended 31 December 2009

	Share capital	Share premium account	Merger reserve	*Other reserves	Realised capital reserve	Unrealised Capital reserve	Special reserve	Revenue reserve	Total equity
	£000	£000	£000	£000	£000	£000	£000	£000	£000
Balance at 31 December 2007	1,664	69	5,525	90	2,224	(1,539)	4,786	332	13,151
Revenue return for the year	-	-	-	-	-	-	-	109	109
Capital expenses	-	-	-	-	(152)	-	-	-	(152)
Realisation of negative goodwill	-	-	-	-	448	(448)	-	-	-
Unrealised loss on investments held at fair value	-	-	-	-	-	(768)	-	-	(768)
Realisation of investments in the year	-	-	-	-	1,369	-	-	-	1,369
Total comprehensive income for the year	-	-	-	-	1,665	(1,216)		109	558
Realisation of prior year unrealised gains	-	-	-	-	414	(414)	-	-	-
Dividends	-	-	-	-	(806)	-	-	(109)	(915)
Balance at 31 December 2008	1,664	69	5,525	90	3,497	(3,169)	4,786	332	12,794
Revenue return for the year	-	-	-	-	-	-	-	70	70
Capital expenses	-	-	-	-	(227)	-	-	-	(227)
Unrealised loss on investments held at fair value	-	-	-	-	-	(1,326)	-	-	(1,326)
Realisation of investments in the year	-	-	-	-	1,793	-	-	-	1,793
Total comprehensive income for the year	-	-	-	-	1,566	(1,326)	-	70	310
Realisation of prior year unrealised gains	-	-	-	-	307	(307)	-	-	-
Dividends	-	-	-	-	(928)	-	-	(70)	(998)
Balance at 31 December 2009	1,664	69	5,525	90	4,442	(4,802)	4,786	332	12,106

*Other reserves include the capital redemption reserve and other reserve, which are non-distributable.  The other reserve was created upon the exercise of warrants and the capital redemption reserve was created for the purchase of own shares.

                The merger reserve was created to account for the difference between the nominal and fair value of shares issued as consideration for the acquisition of the assets and liabilities of British Smaller Technology Companies VCT plc. The reserve was created after meeting the criteria under section 131 of the Companies Act 1985 and provisions of the Companies Act 2006 for merger relief.  The merger reserve is a non-distributable reserve.

                The special distributable reserve was created following the approval of the Court and the resolution of the Shareholders to cancel the Company's share premium account and is available for other corporate purposes of the Company.

                The realised capital reserve includes gains and losses compared to cost on the realisation of investments, capital  expenses, together with the related taxation effect and capital dividends paid to Shareholders.  This is a distributable reserve.

                This unrealised capital reserve includes increases and decreases in the valuation of investment held at fair value.  This is a non-distributable reserve.

                The special reserve, realised capital reserve and revenue reserve are all distributable reserves. These reserves total £9,560,000 (2008: £8,615,000) representing an increase of £945,000 (2008: £1,273,000 increase) during the year. This change arises from the profit in the year of £310,000 (2008: £558,000 profit), movements in the unrealised capital reserve of £1,633,000 (2008: £1,630,000) and dividends of £998,000 (2008: £915,000). The directors also take into account the level of the unrealised capital reserve when determining the level of dividend payments.

Cash flow statement for the year ended 31 December 2009

	2009 £000	2008 £000
Net cash inflow (outflow) from operating activities	125	(305)
Cash flows from investing activities
Purchase of financial assets at fair value through profit or loss	(1,175)	(4,115)
Proceeds from sale of financial assets at fair value through profit or loss	4,243	5,217
Net cash from investing activities	3,068	1,102
Cash flows used in financing activities
Dividends paid	(998)	(915)
Net cash used in financing activities	(998)	(915)
Net increase (decrease) in cash and cash equivalents	2,195	(118)
Cash and cash equivalents at beginning of the year	109	227
Cash and cash equivalents at the end of the year	2,304	109

Reconciliation of profit before Taxation to Net Cash Inflow (Outflow) from Operating Activities

		2009 £000	2008 £000
Profit before taxation		310	558
Increase (decrease) in trade and other payables	86		(102)
Decrease (increase) in trade and other receivables	196		(160)
Gains on realisation of investments in the year		(1,793)	(1,369)
Losses on investments held at fair value		1,326	768
Net cash inflow (outflow) from operating activities		125	(305)

Notes

1. Basis of Accounting

This announcement of the annual results of the Company for the year ended 31 December 2009 has been prepared using accounting policies consistent with those adopted in the full audited financial statements which have been prepared on a going concern basis and in accordance with the International Financial Reporting Standards (IFRSs), as adopted by the European Union and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements have also been prepared under the historical cost convention modified to include the fair values of financial assets at fair value through profit or loss.

In addition where guidance set out in the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the Association of Investment Companies in January 2009 (SORP) is consistent with the requirements of IFRS, the financial statements have been prepared in compliance with the recommendations of the SORP. 

The directors consider that the Company has one operating segment of investing in equity and debt securities and therefore no segmental reporting is provided.

2. Income

			2009 £000	2008 £000
Income from investments
- Dividends from unquoted companies			10	-
- Dividends from AIM quoted companies			20	10
			30	10
- Interest on loans to unquoted companies			115	111
- Fixed interest Government securities			209	258
Income from investments held at fair value through profit or loss			354	379
Interest on bank deposits			9	15
Interest on VAT recovered in 2008			9	-
			372	394

3. Taxation

		2009			2008
		Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000
Corporation tax at 21% (2008: 21%)		11	(11)	-	26	(26)	-
Profit before taxation		81	229	310	135	423	558
Profit before taxation multiplied by standard small company rate of corporation tax in UK of 21% (2008: 21%)		17	48	65	28	89	117
Effect of:
UK dividends received		(6)	-	(6)	(2)	-	(2)
Non taxable profits on investments		-	(98)	(98)	-	(126)	(126)
Excess management expenses		-	39	39	-	11	11
Tax charge (credit)		11	(11)	-	26	(26)	-

The Company has no provided or unprovided deferred tax liability in either year.

Deferred tax assets have not been recognised, as management do not currently believe that it is probable that sufficient taxable profits will be available against which the assets can be recovered.

Due to the Company's status as a venture capital trust and the continued intention to meet with the conditions required to comply with Section 274 of the Income Tax Act 2007, the Company has not provided for deferred tax on any capital gains or losses arising on the revaluation or realisation of investments.

4.  Dividends

		2009			2008
Amounts recognised as distributions to equity holders in the period:		Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000
Final dividend for the year ended 31 December 2008 of 2.0p (2007 year end: 1.5p) per share		-	333	333	109	141	250
Interim dividend for the year ended 31 December 2009 of 2.0p (2008: 2.0p) per share		70	262	332	-	332	332
Special interim dividend for the year ended 31 December 2009  of 2.0p (2008: 2.0p) per share		-	333	333	-	333	333
		70	928	998	109	806	915

The Special dividend of 2p accompanying the interim dividend of 2p was declared on 24 September 2009 and paid on 30 October 2009 to Shareholders on the register on 2 October 2009.

A final dividend of 2.0p per Ordinary share in respect of the year to 31 December 2009, amounting to £333,000, is proposed. This dividend has not been recognised in the year ended 31 December 2009 as the obligation did not exist at the balance sheet date.

5. Basic and Diluted Earnings per Ordinary Share and Movements in Share Capital

The basic and diluted earnings per Ordinary share is based on the profit after tax attributable to equity Shareholders of £310,000 (2008: £558,000) and 16,641,257 (2008: 16,641,257) shares being the weighted average number of shares in issue during the year.                              

The basic and diluted revenue return per Ordinary share is based on the revenue profit for the year attributable to equity Shareholders of £70,000 (2008: £109,000) and 16,641,257 (2008: 16,641,257) shares being the weighted average number of shares in issue during the year.

The basic and diluted capital return per Ordinary share is based on the capital profit for the year attributable to equity Shareholders of £240,000 (2008: £449,000) and 16,641,257 (2008: 16,641,257) shares being the weighted average number of shares in issue during the year.

There were no movements in share capital during the year. The Company has no securities that would have a dilutive effect in either period and hence the basic and diluted earnings per share are the same.

6. Basic and Diluted Net Asset Value per Ordinary Share

The basic and diluted net asset value per Ordinary share is calculated on attributable assets of £12,106,000 (2008: £12,794,000) and 16,641,257 (2008: 16,641,257) shares in issue at the year end.  

The Company has no securities that would have a dilutive effect in either period and hence the basic and diluted net asset values per share are the same.

7. Total Return per Ordinary Share

The total return per share is calculated on cumulative dividends paid of 22.0 pence per Ordinary share (2008: 16.0 pence per Ordinary share) plus the net asset value as calculated per note 6.

8. Related Party Transactions

The Company has not entered into any related party transactions that have had a material impact on its financial position or performance in the year to 31 December 2009. Full details of related party transactions are shown in note 17 to the Annual Report and Accounts, which can be obtained as described in note 10.

9. Financial Information

The financial information set out here for the year ended 31 December 2009 does not constitute full statutory financial statements as defined in section 434 of the Companies Act 2006 but has been extracted from the Company's financial statements for that period. Statutory accounts for the year ended 31 December 2009 will be delivered to the Registrar of Companies following the Company's Annual General Meeting on 12 May 2010. Those accounts were reported upon without qualification by the independent auditor and the audit report did not contain a statement under Sections 498 (2) or (3) of the Companies Act 2006.

10. Annual Report and Accounts

The Annual Report and Accounts for the year ended 31 December 2009 will be distributed shortly by post to Shareholders and will be available thereafter to members of the public from the Company's registered office or on the website www.yfmgroup.co.uk.

11. Directors

The directors of the Company are Mr R Last, Mr PS Cammerman and Mr RM Pettigrew.

12. Annual General Meeting

The Annual General Meeting of the Company will be held at 33 St James Square, London, SW1Y 4JS on 12 May 2010 at 10:00 am.

For further information, please contact:

David Hall                                 YFM Private Equity Limited                    Tel:  [phone]

Jeff Keating                              Singer Capital Markets                           Tel:  [phone]

 

END

 

 

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