Final Results
Unicorn AIM VCT plc
24 November 2008
Final results for the year ended 30 September 2008
Investment Objective
The objective of the Company is to provide Shareholders with an attractive
return from a diversified portfolio of investments, predominantly in the shares
of AIM quoted companies, by maximising the stream of dividend distributions to
Shareholders from the income and capital gains generated by the portfolio.
It is also the objective that the Company should continue to qualify as a
Venture Capital Trust, so that Shareholders benefit from the taxation
advantages that this brings. To achieve this at least 70% of the Company's
total assets are to be invested in qualifying investments of which 30% by value
must be in ordinary shares carrying no preferential rights to dividends or
return of capital and no rights to redemption.
Venture Capital Trust Status
The Company has satisfied the requirements for approval as a Venture Capital
Trust (VCT) under section 274 of the Income Tax Act 2007 (ITA). It is the
Directors' intention to continue to conduct the business of the Company so as
to maintain compliance with that section.
Investment Policy
In order to achieve the Company's Investment Objective, the Board has agreed an
Investment Policy which requires the Investment Manager to identify and invest
in a diversified portfolio, predominantly of VCT qualifying companies quoted on
AIM, that displays a majority of the following characteristics:
- experienced and well-motivated management;
- products and services supplying growing markets;
- sound operational and financial controls; and
- good cash generation to finance development allied with a progressive
dividend policy.
Asset allocation and risk diversification policies, including maximum
exposures, are to an extent governed by prevailing VCT legislation. Specific
conditions for HMRC approval of VCTs include the requirement that at no time
must any single holding represent more than 15% (by value) of the Company's
investments.
The Investment Manager is responsible for managing sector and stock specific
risk and the Board does not impose formal limits in respect of such exposures.
However, in order to maintain compliance with HMRC rules and to ensure that an
appropriate spread of investment risk is achieved, the Board receives and
reviews comprehensive reports from the Investment Manager and the Administrator
on a regular basis. When the Investment Manager proposes to make an investment
in an unquoted company the prior approval of the Board is required.
Where capital is available for investment while awaiting suitable VCT
qualifying opportunities, or in excess of the 70% VCT qualification, it may be
invested in collective investment funds in non-qualifying shares and securities
in smaller listed UK companies.
To date the Company has operated without recourse to borrowing. The Board may
however consider the possibility of introducing modest levels of gearing up to
a maximum of 20% of net assets, should circumstances suggest that such action
is in the interests of shareholders.
Chairman's Statement
During the twelve month period to 30 September 2008 equity markets have been
thrown into turmoil. The well publicised and increasingly severe crisis in the
global financial system has triggered a widespread collapse in investor &
consumer confidence, which in turn has left developed economies around the
world facing the prospect of recession. In the year under review, the FTSE100
Index has fallen by over 24%, whilst the FTSE AIM AllShare Index almost halved
in value.
Understandably, the assets of the Company have suffered accordingly. As I
remarked upon in my statement for the Half-Yearly Report, the technical
requirements of AIM based VCTS are such that the Investment Manager does not
have total flexibility to reposition portfolios. Because of the rules imposed
by HMRC, the portfolios are predominantly comprised of investments in small,
illiquid AIM quoted companies which tend to suffer disproportionately in times
of fear and uncertainty. Given these constraints and despite serious setbacks
from a number of investee companies, all three Funds have weathered the storm
significantly better than the FTSE AIM AllShare Index.
As at 30 September 2008, the Net Asset Values (NAV) at bid prices for the
Ordinary Share Fund, the Series 2 (S2) Share Fund and the Series 3 (S3) Share
Fund were 61.8 pence, 75.3 pence and 77.6 pence per share respectively.
The NAVs quoted above reflect an upward adjustment for reclaim of VAT from
HMRC. The Company is in the process of confirming this amount with HMRC and
expects to receive proceeds in the near future.
In previous years the Board has sought to maximise the stream of tax free
dividend distributions to Shareholders whilst maintaining the NAV in each Fund
at around 100 pence per share. Largely because of the extremely difficult
market conditions experienced in recent months the NAVs across the Funds are
currently considerably below this level. However, given that both the Ordinary
Share Fund and the S2 Share Fund have sufficient capital reserves available,
the Board proposes a dividend of 3.0 pence per share to holders of Ordinary
Shares and of 2.0 pence per share to holders of Series 2 Shares in respect of
the year ended 30 September 2008. In both cases, dividends will be paid from
net realised capital profits. The Board is also proposing a dividend for Series
3 Shareholders of 1.0 pence per share payable from income.
Following the closure of a small top-up Share Offer in April 2008, a total of
953,533 new Ordinary Shares and 220,765 new S2 Shares were issued. The Board
would like to take this opportunity to welcome new Shareholders to the Company.
During the period 426,346 Ordinary Shares and 234,827 Series 2 Shares were
bought back for cancellation at an average price of 62.6 pence per share and
78.75 pence per share respectively. To date, across all Funds, shareholders
have received a total of £15.5m in dividends and £5.8m through share buy-backs.
As previously announced; on 26 September 2008, Peter Webb, the former chief
executive of the Company's Investment Manager, Unicorn Asset Management,
resigned from the Board of the Company. The Board would like to express their
appreciation to Mr. Webb for his services to the Company since its inception in
2001.
Unsurprisingly, given the uncertain state of the market over the past twelve
months, the flow of VCT qualifying investment opportunities has been weaker and
in some cases of lower quality than in previous years. As a result, there have
been relatively few changes to the established portfolios. The Ordinary Share
Fund made six new investments in VCT qualifying companies and participated in
one secondary fundraising. The level of cash held in the Ordinary Share Fund
had increased substantially by the financial year end following two successful
realisations and a number of partial disposals. Total proceeds from
realisations and disposals amounted to £3.79m whilst the total cost of
purchases was £1.17m. The S2 Share Fund introduced eight new businesses to its
VCT qualifying portfolio costing a total of £1.44m. Partial disposal of
existing investments raised £2.14m. The S3 Share Fund commenced its investment
phase and was able to participate in six opportunities which qualified for VCT
status under new HMRC rules. The overall scale of investment in all three Funds
was modest in comparison to previous years reflecting the Investment Manager's
cautious approach.
At the financial year end the portfolios of the Ordinary and the S2 Share Funds
respectively contained thirty-nine and thirty-seven VCT qualifying companies,
whilst the S3 Share Fund portfolio comprised six qualifying investments.
The performance of all major equity markets around the world has been grim over
the past twelve months. In the UK, the FTSE AIM AllShare Index fell by 44.4%
with declines accelerating alarmingly in the final three months of the
Company's financial year. For the time being, investors' appetite for risk has
evaporated. This dramatic change in behaviour has been caused by the sudden and
collective realisation that even the largest, most highly regarded and
internationally diverse businesses can quickly find themselves insolvent if
they are deprived of access to capital.
Although showing significant and painful declines, the NAVs in all three Funds
performed significantly better than the FTSE AIM All-Share Index, thus
reversing the experience of the previous year. As highlighted in last year's
Annual Report, the AIM has developed significant concentration in a small
number of sectors. Despite heavy falls, the Oil & Gas and Mining sectors still
accounted for over 29% of the AIM AllShare by value as at the end of September
2008. It is worth repeating that your Company does not invest in businesses
operating in these areas of the market since they tend to be early stage and
unprofitable. In addition, under existing HMRC legislation they typically fail
to achieve VCT qualifying status.
During the past twelve months a number of investee companies issued profit
warnings. In the majority of cases, these setbacks were related to
deteriorating economic conditions rather than being specifically caused by
internal issues. Inevitably, given much slower economic growth, many companies
reported results which failed to live up to expectations. In certain cases, the
level of debt and the much reduced ability to refinance that debt has become a
serious issue. In the case of Greatfleet, the company has been forced into
administration and this investment has been written down to nil value. Another
investee company, Synarbor has recently delisted its shares in order to cut
costs and the decision has again been taken to mark the carrying value of this
investment to zero. On a more positive note, a healthy proportion of the value
in each Fund is held in businesses which are well managed, have modest levels
of debt and which will undoubtedly survive the current malaise. A detailed
report on the performance of the portfolios within each Fund is contained in
the Investment Manager's Review below.
The portfolios are well diversified and the majority of investments are in
companies which remain profitable and cash generative. Investor sentiment and
market conditions will eventually improve, at which point the Board is
confident that there are good prospects of recovering the ground lost in the
past twelve months. In the meantime, the Investment Manager will continue to
focus on preserving capital during this difficult period and to take advantage
of investment opportunities that meet its criteria.
Peter Dicks
Chairman
24 November 2008
The Directors confirm that to the best of their knowledge that:
(a) the financial statements, prepared under the fair value rules of the
Companies Act 1985, applicable accounting standards and the 2003 Statement of
Recommended Practice "Financial Statements of Investment Trust Companies",
revised December 2005, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company.
(b) the annual report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that they face.
For and on behalf of the Board:
Matrix-Securities Limited
Company Secretary
24 November 2008
Principal risks and uncertainties
The Directors review the principal risks faced by the Company as part of the
internal controls process (see the Corporate Governance Statement in the Annual
Report for further information). The principal risks identified by the
Directors are:
* Investment and strategic risk - Unsuitable investment strategy or stock
selection could lead to poor returns to shareholders.
* Regulatory and tax risk - The Company is subject to relevant laws and
regulations including Companies Acts 1985 and 2006, Income Tax Act 2007 and
UK Listing Authority Rules. There is a risk that the Company may breach
these rules and face public censure, suspension from the Official List and/
or financial penalties. There is a risk that the Company may lose its VCT
status under the Income Tax Act 2007 before shareholders have held their
shares for the minimum period to retain their tax reliefs. Should the
Company lose its VCT status, shareholders may lose any upfront income tax
relief they received and be taxed on any future dividends paid and capital
gain received if they dispose of their shares. Inappropriate accounting
policies or failure to comply with accounting standards could lead to
misreporting or breaches of regulations.
* Operational risk - The Company has no employees and is therefore reliant on
third party service providers. Failure of the systems at third party
service providers could lead to inaccurate reporting or monitoring.
Inadequate controls may lead to the misappropriation or insecurity of
assets.
* Financial Instruments risks - The main risks arising from the Company's
financial instruments are due to fluctuations in the market price and
interest rates, credit risk and liquidity risk. The Board regularly reviews
and agrees policies for managing these risks and full details can be found
in the Annual Report.
* Economic risk - Economic recession, inflation or deflation and movements in
interest rates could affect trading conditions for smaller companies and
consequently the value of the Company's investments.
Investment Manager's Review
Investment Policy
It is the aim of the Investment Manager to identify and invest in a diversified
portfolio of companies that display a majority of the following
characteristics:
- experienced and well-motivated management;
- products and services supplying growing markets;
- sound operational and financial controls; and
- good cash generation to finance development allied with a progressive
dividend policy.
Performance
The NAV of the Ordinary Share Fund on a bid price basis as at 30 September 2008
was 61.8 pence per share, representing a decline of 31% over the previous year.
Since shares were first allotted in November 2001 and taking into account total
dividends paid of 39 pence per share, the initial NAV of the Ordinary Share
Fund has increased by 6.7% on a total return basis.
The NAV of the S2 Share Fund on a bid price basis was 75.3 pence per share,
which represents a decrease in total return for the year of 29.5% after adding
back dividends paid. The total return on initial NAV is -2.6% which includes
dividends paid to date of 16.75 pence per share.
The NAV of the S3 Share Fund on a bid price basis was 77.6 pence per share,
representing a decline of 15.9%.
Investment strategy
The policy of investing in companies which have a demonstrable record of
profitability and positive cash generation remains unchanged. The Ordinary Fund
and the S2 Fund portfolios are now well diversified both by sector and by
number of investments held. These two Funds remain comfortably above the
threshold required to retain VCT qualifying status (whereby a minimum of 70% of
combined assets must be invested in VCT qualifying holdings). The Investment
Manager will continue to adopt a highly selective approach to new investment
opportunities for all three Funds.
Alternative Investment Market Review
In the twelve month period under review, the Alternative Investment Market went
from what had been a relatively controlled downward glide into a savage
tailspin in the final three months of the year. By the end of September 2008
the FTSE AIM AllShare Index had fallen by 44.4% from its level a year earlier.
The initial trigger for the decline was the emerging crisis in the US sub-prime
mortgage market, which caused equity investors to seek out the perceived safety
of larger capitalised companies. As a result, liquidity in the smaller end of
the market eroded causing further downward pressure on share prices. From June
2008 onwards the declines became progressively steeper, driven by rapid
de-rating of the junior mining and oil exploration stocks quoted on AIM. As
commented upon in last year's Annual Report, the FTSE AIM All-Share Index has
been dominated by mining and resource stocks which together accounted for 32%
of the Index by value as at 30 September 2007. As this unprecedented financial
crisis deepened, a realisation dawned that demand for commodities generally
including oil and metals could fall dramatically as developed economies entered
a period of recession and the era of supernormal growth from emerging markets
such as China might be over. In the three months to the end of September 2008
the FTSE AIM AllShare Index fell by 35.3%, compared to a fall in the FTSE
AllShare Index of 13% over the same period. Given their very significant
weighting, it is estimated that between them the Oil and Mining sectors
accounted for almost 20 percentage points of the FTSE AIM AllShare's fall.
In this environment it is unsurprising that the flow of opportunities to invest
in high quality businesses seeking an initial listing on AIM also dried up.
Fortunately, the portfolios are well invested and the Company was comfortably
above the minimum threshold required to maintain VCT status with over 81% of
total assets held in qualifying investments as at the financial year end.
Qualifying Investments
The Ordinary and the S2 Share Funds are well diversified with their portfolios
containing thirty-nine and thirty-seven qualifying holdings respectively.
However, in the year under review, many of the individual holdings in these
portfolios suffered share price declines that were at least as steep as the
falls experienced in the wider market. Performance in the Ordinary and the S2
Share Funds was also affected by a number of profit warnings from companies in
the portfolio. At the smaller end of the quoted market, companies which fail to
meet expectations inevitably get hit hard. In addition, share price declines
tend to be harsher during periods of uncertainty and fear. Unfortunately, a
number of our investee companies generated earnings that were lower than
originally anticipated, which, in general, reflects the fact that they have
been operating in a rapidly deteriorating trading environment. The S3 Share
Fund performed strongly relative to the other Funds, partly because it held
significant levels of cash for most of the year as a result of being in early
investment phase and partly because the new qualifying investments it has made
have performed robustly.
In the Ordinary Share Fund, six of the companies which disappointed, as set out
below, accounted for over 60% of the total negative contribution produced
during the year:-
Maxima Holdings is an IT managed services and systems integration company,
which has grown rapidly through a combination of both organic and acquisitive
growth. Maxima Holdings floated on AIM in November 2004 and has since completed
ten acquisitions. In that time turnover has grown from approximately £10m to
over £45m per annum, whilst profits before tax have risen from £1m to £5.2m.
Unfortunately, following the loss of a major client, the £5.2m of pre-tax
profit delivered in the year to 31 May 2008 was lower than expected and the
share price more than halved. The business remains profitable, is inherently
cash generative and has manageable levels of debt. However, despite a modest
but encouraging recovery in the share price in recent months, it may take an
extended period of consistent performance before investor confidence is fully
restored. Maxima is held in both the Ordinary and the S2 Share Fund.
Avingtrans is an engineering technology group with activities in the design,
manufacture and supply of critical components to the medical, industrial and
aerospace sectors. In the past twelve months a recovery plan has been
initiated, which has seen the introduction of a new and substantial strategic
investor, a change in management and a successful refinancing. Despite this
significant progress, the share price has remained depressed reflecting
concerns over the extent to which a general economic slowdown will impact the
Group's recovery prospects.
Zetar is a confectionery and healthy snacking business, which has grown
substantially in recent years. However, during the past year the group has had
to absorb significant raw material input prices and energy prices, which have
exerted pressure on margins. Despite this, the Board remains confident that
pre-tax profits for the current financial year will be ahead of the £4.8m
reported in the year to 30 April 2008. The level of net debt in the business
remains a concern, but the recent reversal in energy and commodity prices if
sustained, will help improve cashflow. Zetar is held in both the Ordinary and
the S2 Share Fund.
Supporta provides back office support services and domiciliary care to the
public and private sectors and is one of the Ordinary Share Fund's earliest
investments having been introduced to the portfolio in January 2002. Profits
have been realised in this investment at various points during the past five
years, however it remains a significant holding in the Ordinary Share Fund.
Supporta has experienced a second consecutive year of operational difficulties
and as a result management is focused on exploring alternative methods of
restoring shareholder value. Following an abortive takeover earlier in the
year, the Board announced in September 2008 that it had received another
preliminary approach for the Company.
Huveaux is a business to business media publishing group focused on political,
education, learning and healthcare publishing. In recent years, the company has
grown rapidly through acquisition, however, a number of these acquisitions have
failed to deliver shareholder value. In June 2008, the Board of Huveaux
announced the disposal of the French Healthcare division and of their
e-learning business, Epic. The £10m received from these disposals has been used
to reduce the Group's bank debt. Further disposals of non-core businesses are
anticipated and the Group is now focused on delivering shareholder value
through organic growth.
Shieldtech came to AIM in July 2007 with the intention of pursuing a buy and
build strategy focused on Homeland Security based products and services. The
funding environment for small, acquisitive businesses like Shieldtech quickly
deteriorated and the Group has been unable to secure the financing needed to
fund acquisitions. In addition, the core business; Aegis, which specialises in
the manufacture and supply of body armour systems to police forces, experienced
delays to a number of significant expected orders. As a result of these delays
and because the Group has built a central overhead designed to accommodate a
much larger entity, Shieldtech delivered losses in the year to 30 June 2008.
Unfortunately, a strategy based around growth through acquisition now looks
unworkable. On a more positive note, the Board recently announced that sales in
the current financial year ending 30 June 2009 will be substantially greater
than those in the previous year and also that they expect a return to
profitability.
Clearly, each of these companies have suffered major setbacks in the past
twelve months. However, it is fair to say that in each case management have
taken action to protect shareholder value. In time, there are grounds for
optimism that each of these investments will recover lost ground.
Unfortunately, two companies held in the Ordinary Share Fund were delisted
during the year under review and the carrying value of both investments has had
to be written down to zero. Greatfleet, a specialist recruitment business, was
forced into administration, whilst Synarbor, another small recruitment company,
delisted as it could no longer justify the cost associated with being a public
company. A number of other companies held in both the Ordinary and the S2 Share
Funds issued profit warnings during the past twelve months resulting in
significant share price declines.
On a more positive note, the Ordinary Share Fund saw the successful completion
of two takeover bids in the past year; Tellings Golden Miller, the coach
operator, was acquired by Arriva, whilst Xpertise Group, an IT training
business was bought by a leading, privately owned competitor for cash at a
substantial premium to the prevailing share price. In total, these realisations
generated cash proceeds of £1.7m and capital gains of £340k. The remaining
holding in Assetco was sold from the Ordinary Share Fund representing a total
return on original investment of 92% and generating a capital gain of £111,000,
whilst cash proceeds of £62,800 were received following the delisting of
Finsaga. Partial disposals were also made in a small number of holdings in both
the Ordinary and the S2 Share Funds.
In a particularly difficult year for smaller quoted companies, one company held
in the Ordinary Share Fund deserves special mention. Abcam is a manufacturer
and distributor of therapeutic antibodies which has successfully exploited web
based technology to build a substantial business targeting the worldwide life
science research market. The company was formed in 1998 and now generates
annual sales of more than £30m from an online catalogue of over 44,000
products. The business is inherently high margin, cash generative with strong
prospects for continued growth. In the past year, the company has invested
significantly in expanding its manufacturing capability. The new facilities are
now complete and production of commercial scale antibodies has commenced. In
time, this initiative should further enhance margins as well as giving Abcam
much greater control over the antibody market as a whole. During the past
twelve months Abcam's share price has risen by 56%, outperforming the AIM
AllShare Index by 100%.
New Qualifying Investments
The Series 3 Share Fund made new investments totalling £1.1m in six VCT
qualifying companies during the year under review:
Animalcare recently raised £6.4m via a placing of new shares in order to part
fund the acquisition of a business focused on developing products for the
steadily growing companion animal market. The business offers a range of
licensed veterinary pharmaceuticals, animal identification microchips and other
veterinary supplies which it sells predominantly through the wholesale channel.
IS Pharma is a profitable, cash generative and fast growing hospital medicines
business which targets the development and commercial exploitation of
late-stage pharmaceuticals and medical devices in the specialist hospital
medicines sector. In April 2008, the company successfully raised £10m to fund
the acquisition of SEPI AG, a Swiss-based pharmaceutical company with a
profitable portfolio of specialist hospital pharmaceutical products. The
combined Group is now primarily focused in the areas of critical care,
neurology and oncology and operates internationally through a strong network of
distributors.
Keycom designs, develops, installs and delivers broadband based communications
solutions and services to niche markets such as Universities, Hospitals and
Army Campuses. Keycom has created a number of proprietary systems and
applications which are designed to improve communications and facilitate access
to information at institutions located throughout the UK. Following two
fundraisings during 2008, the proceeds of which were used to acquire two
competitors, the enlarged Group is now a market leader in the delivery of value
added communications services to students and key workers in the NHS.
Melorio is a vehicle created to consolidate the fragmented UK vocational
training market. The initial focus will be on the construction, utilities,
logistics and care sectors. Vocational training addresses the UK's skills
deficit and helps fulfil the Government's policy commitment to create a fully
qualified workforce. Melorio runs each of its businesses as autonomous
divisions. Melorio's first acquisition was Construction Learning World (CLW), a
leading provider of on-site assessment and training to the construction sector.
CLW is a high growth and high margin business with 2006/7 EBITDA of £2.6m and
sales of £7.5m. The market for CLW is being driven by government focus and
increasing industry led regulation. It has seven contracts with Learning and
Skills Councils and thirteen partnerships with further education colleges.
Snacktime is the UK's only national snack vending company. It claims to have a
unique business model. Machines are sited in the staff rooms and point of sale
areas of major UK retailers. Snacktime installs machines free of charge and
there are no rental, maintenance, servicing or replenishment costs payable by
the retailer. Machines are visited at least once a week by one of Snacktime's
team of self-employed merchandisers. The business generates 75% of its revenues
from the profit on branded product sales. The remaining 25% of revenues comes
from marketing contributions made by Brand Partners such as PepsiCo, Mars and
Walkers Crisps. Over 6,500 machines have been installed to date within
established retail chains such as Argos, Currys and Matalan. The order book is
continuing to expand, but once the initial growth phase has peaked the business
should become significantly cash generative. The company raised £3m in December
2007 to help fund future growth.
Tracsis is a small, highly specialised provider of resource optimisation
software used in the processing of labour scheduling by passenger rail and bus
service operators. Contracts have been secured with rail and bus companies
throughout the UK. Tracsis has developed a technology platform that is both
scaleable and transferable to other industries and overseas markets. Tracsis
joined AIM in November 2007 following a successful placing.
The S2 Fund also participated in each of these new investments with the
exception of Animalcare, whilst the Ordinary Share Fund co-invested in
Snacktime and Tracsis.
The Ordinary Share Fund and the S2 Share Fund co-invested in three other VCT
qualifying opportunities during the year:-
Essentially is a leading independent sports marketing, media, management and
services agency. In April, the Group raised £6m to help fund the acquisition of
a successful and consistently profitable competitor which specialises in
stadium perimeter advertising and which has exclusive arrangements with the
owners of some of the biggest and most prestigious stadia in the UK. This
acquisition has now been successfully integrated and Essentially Group recently
announced Interim Results that demonstrated a significant advance in both
turnover and profits before tax.
Optare manufactures buses and coaches which it sells into the UK public
transport market. Following a reverse acquisition in July 2008, the enlarged
Group has become an important competitor in the UK bus and coach industry and
is firmly focused on developing the next generation of fuel efficient vehicles.
Praesepe is an operator of adult gaming centres in the UK. The intention is to
grow the business through a series of acquisitions in what remains a highly
fragmented market. The business is run by Nick Harding who previously created
substantial shareholder value for investors in Talarius, which was a similar
business that also expanded rapidly and successfully through acquisition and
was then sold to a trade buyer at the end of 2006.
Non-qualifying portfolios
In all three Funds, the contribution to performance from the investment in
sub-funds of the Unicorn Investment Funds OEIC was negative in line with wider
equity market declines. In the Ordinary Share Fund, the investment in Unicorn
Free Spirit Fund was substantially reduced, generating cash proceeds of £
1,450,000. A total gain on disposal of £703,000 was recorded. In the S2 Share
Fund, the remaining holding in the Unicorn Free Spirit Fund was sold, whilst
investments in Unicorn Mastertrust Fund and Unicorn UK Smaller Companies Fund
were significantly reduced. In aggregate the total capital gains on these
disposals amounted to £421,000. There were no changes to the non-qualifying
portfolio of the S3 Fund.
Prospects
As discussed, it has been a torrid year for equity markets. Many investors have
discovered to their cost, that even the largest, highly regarded and
internationally diverse businesses can be risky investment propositions. The
disintegration and subsequent part-nationalisation of the UK banking sector
provides stark testament to this fact.
Throughout the life of Unicorn AIM VCT, the Investment Manager has consistently
highlighted the particular risks associated with investment in small, illiquid,
AIM quoted companies, whilst also setting out a clear Investment Policy
designed to mitigate this risk as far as possible. Inevitably, at the smaller
end of the market and with a limited number of qualifying companies to choose
from, there will always be individual investments which disappoint. On
occasion, poor performance may well be a direct result of management mistakes
and sometimes the investment decision making process may prove flawed. However,
during the past twelve months there has been extraordinary upheaval in
financial systems around the world which has fundamentally changed people's
perception of risk. The dramatic decline in the value of AIM quoted companies
is an example of this re-pricing of risk. It is important to note that
throughout this period, your Company's Investment Policy has been consistently
applied. The Investment Manager has always sought to generate satisfactory and
sustainable returns over the long term rather than to speculate in an attempt
to generate spectacular and unsustainable short term gains. The portfolios
comprise a diverse range of predominantly profitable, well-capitalised
businesses which offer good long term potential.
The current crisis is a painful reminder that when short term greed triumphs
over long term prudence there is ultimately a heavy price to pay; even the
biggest and supposedly safest of businesses can fail when risk control measures
prove inadequate. There will now almost certainly need to be a prolonged period
of readjustment before confidence and stability can return.
Non-statutory analysis between the Ordinary Share Fund, S2 Share Fund and S3
Share Fund
1. Profit and loss account
for the year ended 30 September 2008
Ordinary Share Fund S2 Share Fund
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net unrealised - (8,751) (8,751) - (4,714) (4,714)
(losses) on
investments
Net gains / - 4 4 - (186) (186)
(losses) on
realisation of
investments
Income 416 - 416 189 - 189
VAT recoverable 137 411 548 30 89 119
Investment (108) (322) (430) (53) (159) (212)
management fees
Other expenses (290) - (290) (154) - (154)
---------- ---------- ---------- ---------- ---------- ----------
(Loss)/profit on 155 (8,658) (8,503) 12 (4,970) (4,958)
ordinary
activities before
taxation
Tax on ordinary 25 (18) 7 - - -
activities
---------- ---------- ---------- ---------- ---------- ----------
(Loss)/profit 180 (8,676) (8,496) 12 (4,970) (4,958)
attributable to
equity
shareholders
====== ====== ====== ====== ====== ======
(Loss)/profit per 0.59 p (28.26)p (27.67)p 0.08 p (33.73)p (33.65)p
ordinary share
(pence per share)
Average number of 30,699,263 14,731,850
shares in issue
S3 Share Fund Total of all Funds
(per Statutory Profit and
Loss Account)
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net unrealised - (744) (744) - (14,209) (14,209)
(losses) on
investments
Net gains / - - - - (182) (182)
(losses) on
realisation of
investments
Income 124 - 124 729 - 729
VAT recoverable 1 3 4 168 503 671
Investment (11) (33) (44) (172) (514) (686)
management fees
Other expenses (60) - (60) (504) - (504)
---------- ---------- ---------- ---------- ---------- ----------
(Loss)/profit on 54 (774) (720) 221 (14,402) (14,181)
ordinary
activities before
taxation
Tax on ordinary (7) - (7) 18 (18) -
activities
---------- ---------- ---------- ---------- ---------- ----------
(Loss)/profit 47 (774) (727) 239 (14,420) (14,181)
attributable to
equity
shareholders
====== ====== ====== ====== ====== ======
(Loss)/profit per 0.95 p (15.61)p (14.66)p
ordinary share
(pence per share)
Average number of 4,958,036
shares in issue
2. Balance sheet
as at 30 September 2008
Ordinary Share Fund S2 Share Fund
£'000 £'000 £'000 £'000
Non-current assets
Investments at fair 14,817 10,520
value
Current assets
Debtors and 1,911 201
prepayments
Current investments 2,537 482
Cash at bank 9 20
----------- -----------
4,457 703
Creditors: amounts (120) (102)
falling due within
one year
----------- ----------- ----------- -----------
Net current assets 4,337 601
----------- -----------
Net assets 19,154 11,121
====== ======
Capital
Called up share 310 148
capital
Capital redemption 50 12
reserve
Share premium 640 200
account
Revaluation reserve (2,036) (1,707)
Special 15,656 11,172
distributable
reserve
Profit and Loss 4,534 1,296
account
----------- -----------
Equity shareholders 19,154 11,121
' funds
====== ======
Number of shares in 30,980,344 14,764,738
issue:
Net asset value per 61.83p 75.32p
1p share:
S3 Share Fund Adjustments Total of all Funds
(see note (per Statutory
below) Balance Sheet)
£'000 £'000 £'000 £'000 £'000
Non-current assets
Investments at 2,705 28,042
fair value
Current assets
Debtors and 54 (98) 2,068
prepayments
Current 1,133 4,152
investments
Cash at bank 19 48
----------- -----------
1,206 (98) 6,268
Creditors: amounts (63) 98 (187)
falling due within
one year
----------- ----------- ----------- -----------
Net current assets 1,143 6,081
----------- -----------
Net assets 3,848 - 34,123
====== ======
Capital
Called up share 50 508
capital
Capital redemption - 62
reserve
Share premium - 840
account
Revaluation (860) (4,603)
reserve
Special 4,568 31,396
distributable
reserve
Profit and Loss 90 5,920
account
----------- -----------
Equity 3,848 34,123
shareholders'
funds
====== ======
Number of shares 4,958,036
in issue:
Net asset value 77.62p
per 1p share:
Note: The adjustment above nets off the inter-fund debtor and creditor
balances, so that the "Total of all funds" Balance Sheet agrees to the
Statutory Balance Sheet below.
3. Reconciliation of Movements in Shareholders' Funds
for the year ended 30 September 2008
Ordinary S2 Share S3 Share Total of
Share Fund Fund Fund all Funds
(per
Statutory
Balance
Sheet)
£'000 £'000 £'000 £'000
As at 1 October 27,270 16,825 4,575 48,670
2007
Net share capital (270) (199) - (469)
bought back in the
year
Net share capital 650 192 - 842
issued in the year
Loss for the year (8,496) (4,958) (727) (14,181)
Dividends paid - (739) - (739)
---------- ---------- ---------- ----------
Closing 19,154 11,121 3,848 34,123
shareholders' funds
at 30 September
2008
======= ======= ======= =======
Profit and loss account
for the year ended 30 September 2008
30 September 2008 30 September 2007
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Net - (14,209) (14,209) - 748 748
unrealised
(losses) /
gains on
investments
Net losses - (182) (182) - 1,358 1,358
on
realisation
of
investments
Income 3 729 - 729 746 - 746
VAT 4 168 503 671 - - -
recoverable
Investment (172) (514) (686) (263) (788) (1,051)
management
fees
Other (504) - (504) (516) - (516)
expenses
---------- ---------- ---------- ---------- ---------- ----------
Profit / 221 (14,402) (14,181) (33) 1,318 1,285
(loss) on
ordinary
activities
before
taxation
Tax on 5 18 (18) - - - -
ordinary
activities
---------- ---------- ---------- ---------- ---------- ----------
Profit / 239 (14,420) (14,181) (33) 1,318 1,285
(loss) on
ordinary
activities
after
taxation
for the
financial
year
====== ====== ====== ====== ====== ======
Earnings
per share
(basic and
diluted):
Ordinary 7 (27.67)p 2.85p
Shares
S2 Shares 7 (33.65)p 3.32p
S3 Shares 7 (14.66)p (3.02)p
The total column of this statement is the profit and loss account of the
Company. All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued in the year.
There were no other recognised gains or losses in the year.
Other than revaluation movements arising on investments held at fair value
through the Profit and Loss Account, there were no differences between the
profit / (loss) as stated above and at historical cost.
The notes below form part of these financial statements.
Balance sheet
as at 30 September 2008
30 September 2008 30 September 2007
Notes £'000 £'000 £'000 £'000
Non-current assets
Investments at fair value 28,042 44,637
Current assets
Debtors and prepayments 2,068 1,298
Current investments 9 4,152 2,939
Cash at bank 48 108
---------- ----------
6,268 4,345
Creditors: amounts falling (187) (312)
due within one year
---------- ---------- ---------- ----------
Net current assets 6,081 4,033
---------- ----------
Net assets 34,123 48,670
======= =======
Capital
Called up share capital 508 502
Capital redemption reserve 62 56
Share premium account 840 4,652
Revaluation reserve (4,603) 9,835
Special distributable 31,396 30,131
reserve
Profit and loss account 5,920 3,494
---------- ----------
Equity shareholders' funds 34,123 48,670
======= =======
Net asset value per share
of 1 pence each:
Ordinary Shares 8 61.83p 89.55p
S2 Shares 8 75.32p 113.84p
S3 Shares 8 77.62p 92.28p
Reconciliation of Movements in Shareholders' Funds
for the year ended 30 September 2008
30 September 2008 30 September 2007
Notes £'000 £'000
As at 1 October 2007 48,670 50,422
Net share capital bought back (469) (2,290)
in the year
Net share capital subscribed in 842 4,692
the year
(Loss)/ profit for the year (14,181) 1,285
Dividends paid 6 (739) (5,439)
------------ ------------
Closing Shareholders' funds at 34,123 48,670
30 September 2008
======= =======
Cash Flow Statement
for the year ended 30 September 2008
30 September 2008 30 September 2007
£'000 £'000 £'000 £'000
Operating activities
Dividends received 701 764
Deposit and similar interest 12 24
Investment management fees (807) (1,063)
paid
Other cash payments (600) (599)
---------- ---------- ---------- ----------
Net cash outflow from (694) (874)
operating activities
Investing activities
Purchase of investments (3,710) (6,797)
Sale of investments 5,967 9,167
---------- ---------- ---------- ----------
2,257 2,370
Equity dividends
Payment of dividends (739) (5,439)
---------- ----------
Net cash Inflow/(outflow) 824 (3,943)
before financing and liquid
resource management
---------- ----------
Financing
Issue of shares (net of 842 4,692
expenses)
Purchase of own shares (513) (2,290)
---------- ---------- ---------- ----------
329 2,402
Management of liquid resources
(Increase)/decrease in current (1,213) (1)
investments
---------- ----------
Net decrease in cash (60) (1,542)
====== ======
Notes to the Accounts
for the year ended 30 September 2008
1. Accounting policies
A summary of the principal accounting policies, all of which have been applied
consistently throughout the year, is set out below:
a) Basis of accounting
The accounts have been prepared under UK Generally Accepted Accounting Practice
(UK GAAP) and, to the extent that it does not conflict with the Companies Act
1985, the 2003 Statement of Recommended Practice, `Financial Statements of
Investment Trust Companies', revised December 2005 ("SORP").
As a result of the Directors' decision to distribute capital profits by way of
a dividend, the Company revoked its investment company status as defined under
section 266 (3) of the Companies Act 1985, on 17th August 2004.
b) Presentation of the Profit and Loss Account
In order to better reflect the activities of a VCT and in accordance with the
SORP, supplementary information which analyses the Profit and Loss Account
between items of a revenue and capital nature has been presented alongside the
Profit and Loss Account. The net revenue is the measure the Directors believe
appropriate in assessing the Company's compliance with certain requirements set
out in section 274 Income Tax Act 2007.
c) Investments
Investments are accounted for on a trade date basis. All investments held by
the Company are classified as "fair value through profit and loss". For
investments actively traded in organised financial markets, fair value is
determined by reference to Stock Exchange market quoted bid prices at the close
of business on the balance sheet date.
Unquoted investments are valued by the Directors at fair value. Accordingly, in
the absence of a market price, the Directors have valued unquoted investments
in accordance with International Private Equity Venture Capital Valuation
(IPEVCV) guidelines:
i. Investments which have been made in the last 12 months are at fair value
which, unless another methodology gives a better indication of fair value,
will be at cost.
ii. Investments in companies at an early stage of their development are also at
fair value which, unless another methodology gives a better indication of
fair value, will be at cost.
iii. Where investments have gone beyond the stage of their development in (ii)
above, the shares may be valued by applying a suitable price-earnings ratio
to that company's post-tax earnings (the ratio used being based on a
comparable listed company or sector but discounted to reflect lack of
marketability);
iv. Where a value is indicated by a material arms-length transaction by a third
party in the shares of a company, this value will be used.
Unlisted investments will not normally be re-valued upwards for a period of at
least twelve months from the date of acquisition. Where a company's
underperformance against plan indicates a diminution in the value of the
investment, provision against cost is made, as appropriate.
Where the value of an investment has become permanently impaired below cost,
the loss is treated as a permanent impairment and as a realised loss, even
though the investment is still held. The Board assess the portfolio for such
investments, and after agreement with the Investment Manager, will agree the
values that represent the extent to which an investment has become permanently
impaired. This is based upon an assessment of objective evidence of that
investment's prospects, to determine whether there is potential for the
investment to recover in value.
d) Income
Dividends receivable on quoted equity shares are brought into account on the
ex-dividend date. Dividends receivable on unquoted equity shares are brought
into account when the Company's right to receive payment is established and
there is no reasonable doubt that payment will be received. Fixed returns on
non-equity shares are recognised on a time apportionment basis so as to reflect
the effective yield, provided there is no reasonable doubt that payment will be
received in due course. Fixed returns on debt securities are recognised on a
time-apportioned basis so as to reflect the effective yield.
e) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
wholly to revenue, with the exception of expenses incidental to the acquisition
or disposal of an investment, which are charged to capital, and with the
further exception that 75% of the fees payable to the Investment Managers are
charged against capital. This is in line with the allocation followed by most
other VCTs. IFA trail commission is expensed in the year it relates to.
Expenses that related to the Ordinary Share Fund, the S2 Share Fund and S3
Share Fund have been allocated to those funds respectively. Of other expenses
which did not relate specifically to any fund, 56% have been attributed to the
Ordinary Share Fund, 35% to the S2 Share Fund and 9% to the S3 Share Fund.
These percentages represented the share of net assets of each Share Fund as at
30 September 2007.
2. In accordance with the policy statement published under "Management, Fees
and Administration" in the Company's prospectus dated 2 October 2001, the
Directors have charged 75% of the investment management expenses to the
capital reserve.
3. Income
2008 2007
Total income comprises £'000 £'000
Dividends from equities 426 407
Dividends from money-market 290 275
funds and Unicorn OEICs
Interest 13 64
-------- --------
729 746
===== =====
4. VAT recoverable
Revenue Capital Total Revenue Capital Total
2008 2008 2008 2007 2007 2007
£'000 £'000 £'000 £'000 £'000 £'000
-------- -------- -------- -------- -------- --------
VAT recoverable 168 503 671 - - -
===== ===== ===== ===== ===== =====
VAT recoverable above is the likely amount of VAT recoverable from HMRC in
respect of VAT charged upon management fees in past years. 25% of this amount
has been credited to the Revenue return, while the balance of 75% has been
credited to the Capital return. An additional £120,000 of further VAT incurred
in respect of the current year has been set against investment manager's fees.
This income is not expected to recur in future years, other than in respect of
any adjustments between the amounts recognised above and the amounts eventually
received from HMRC.
5. Taxation
There is no tax charge for the period, as the Company has incurred taxable
losses in the period.
6. Dividends
2008 2008 2008 2008 2007 2007 2007 2007
Ordinary Ordinary
S2 S3 S2 S3
Fund Fund Fund Total Fund Fund Fund Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Amounts recognised as
distributions to equity
holders in the year:
Ordinary Fund
Interim dividend for the - - - - 2,362 - - 2,362
year ended 30 September 2007
of 7.5p per Ordinary paid on
27 February 2007
Interim dividend for the - - - - 1,549 - - 1,549
year ended 30 September 2007
of 5.05p per Ordinary paid
on 5 September 2007
S2 Fund
Final dividend for the year - - - - - 783 - 783
ended 30 September 2006 of
5p per S2 share paid on 29
January 2007
Interim dividend for the - - - - - 745 - 745
year ended 30 September 2007
of 5p per S2 share paid on 5
September 2007
Final dividend for the year - 739 - 739 - - - -
ended 30 September 2007 of
5p per S2 share paid on 31
January 2008
- 739 - 739 3,911 1,528 - 5,439
Any proposed final dividend is subject to approval by shareholders at the
Annual General Meeting and has not been included as a liability in these
financial statements.
Set out below are the total income dividends payable in respect of the
financial year, which is the basis on which the requirements of section 274 of
the Income Tax Act 2007 are considered. Capital dividends are not reflected in
this table.
2008 2007
£'000 £'000
Ordinary Fund:
Revenue available for distribution by way of dividends for 180 (52)
the year
------- -------
Proposed final dividend of nil pence for the year ended 30 - -
September 2008 (2007: nil)
------- -------
S2 Fund:
Revenue available for distribution by way of dividends for 12 (20)
the year
------- -------
Proposed final dividend of nil pence per share for the - -
year ended 30 September 2008 (2007:nil)
------- -------
S3 Fund:
Revenue available for distribution by way of dividends for 47 39
the year
------- -------
Proposed final dividend of 1 penny per share for the year 50 -
ended 30 September 2008 (2007: nil)
------- -------
7. Earnings and return per share
2008 2008 2008 2008 2007 2007 2007 2007
Ordinary Ordinary
Fund S2 Fund S3 Fund Total Fund S2 Fund S3 Fund Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Total (8,496) (4,958) (727) (14,181) 890 512 (117) 1,285
earnings
after
taxation:
Basic (27.67)p (33.65)p (14.66)p 2.85p 3.32p (3.02)p
earnings
per share
(note a)
Net revenue 180 12 47 (52) (20) 39
/ (loss)
from
ordinary
activities
after
taxation
Revenue 0.59p 0.08p 0.95p (0.17)p (0.13)p 1.00p
return per
share (note
b)
Net 4 (186) - 1,330 40 (12)
realised
capital
gains/
(losses)
Net (8,751) (4,714) (744) 124 740 (116)
unrealised
capital
(losses)/
gains
Capital 411 89 3
element of
VAT
recoverable
Capital (340) (159) (33) (512) (248) (28)
expenses
Total (8,676) (4,970) (774) 942 532 (156)
capital
return
Capital (28.26)p (33.73)p (15.61)p 3.02p 3.45p (4.02)p
return per
share (note
c)
Weighted 30,699,263 14,731,850 4,958,036 31,171,332 15,425,839 3,879,970
average
number of
shares in
issue in
the year
Notes
a) Basic earnings per share is total earnings after taxation divided by the
weighted average number of shares in issue.
b) Revenue return per share is net revenue after taxation divided by the
weighted average number of shares in issue.
c) Capital return per share is total capital return divided by the weighted
average number of shares in issue.
There are no instruments in place that will increase the number of shares in
issue in future. Accordingly, the above figures currently represent both basic
and diluted returns.
8. Net asset values
2008 2008 2008 2007 2007 2007
Ordinary Ordinary
Fund S2 Fund S3 Fund Fund S2 Fund S3 Fund
£'000 £'000 £'000 £'000 £'000 £'000
Net Assets 19,154 11,121 3,848 27,270 16,825 4,575
Number of 30,980,344 14,764,738 4,958,036 30,453,157 14,778,800 4,958,036
shares in issue
Net asset value 61.83p 75.32p 77.62p 89.55p 113.84p 92.28p
per share
9. Current investments
These comprise investments in two Dublin based OEIC money market funds, managed
by Royal Bank of Scotland and Blackrock Investment Management UK Limited. £
4,151,000 (30 September 2007: £2,939,000) of this sum is subject to same day
access while £1,000 (30 September 2007: £ nil) is subject to two day access.
These sums are regarded as monies held pending investment.
10. Related party transactions
Under the terms of the agreement dated 1 October 2001, the Company has
appointed Unicorn Asset Management Limited (of which Peter Webb is a
shareholder and was a director until 21 July 2008) to be the Investment
Manager. The fee arrangements for these services and the fees payable are set
out in the Annual Report. Unicorn Asset Management also received a fee of £
48,000 for acting as promoter to the Ordinary and S2 Funds (2007: £147,000 S3
fund). David Royds is a director and shareholder of Matrix-Securities Limited,
who acted as Promoter to the Company for a fee of £nil (30 September 2007: £
nil) and provides administration services to the Company for a fee of £193,000
(year ended 30 September 2007: £178,000), disclosed in the Annual Report. £nil
(2007: £42,000) was due to Matrix at the end of the year.
These are not full accounts in terms of section 240 of the Companies Act 1985.
The Annual Report for the year to 30 September 2008 will be sent to
shareholders shortly and will then be available for inspection at One Vine
Street, London W1J 0AH, the registered office of the Company. Copies of the
Annual Report will be available from 12 December 2008 on the Company
Secretary's website, www.matrixgroup.co.uk and the Investment Manager's
website, www.unicornam.com. Statutory accounts will be delivered to the
Registrar of Companies after the Annual General Meeting. The audited accounts
for the year ended 30 September 2008 contain an unqualified audit report.
The Annual General Meeting of the Company will be held at 11.00 am on 15
January 2009 at One Vine Street, London W1J 0AH.
For further information please contact:
Chris Hutchinson, Unicorn Asset Management Limited, Tel: 020 7253 0889
Robert Brittain, Matrix-Securities Limited, Tel: 020 3206 7000
Director's initials ………………………………….
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