Final Results
Baronsmead VCT 2 PLC
15 May 2006
To: RNS
From: Baronsmead VCT 2 plc
Date: 15 May 2006
Investment Objective
To achieve long-term capital growth and generate tax free dividends to private
investors.
Audited Preliminary Results - Year Ended 31 March 2006
Ordinary shares
• Net asset value (NAV) per share increased by 12.2 per cent to 128.12p
before deduction of annual dividends.
• After dividends totaling 13.5p per share, for the year, the NAV is 114.62p
at 31 March 2006.
• Since launch in 1998 the total return to ordinary shareholders is 90.5 per
cent.
C shares
• NAV per share increased by 9.7 per cent to 104.23p before deduction of
annual dividends.
• After dividends totaling 2.3p per share, for the year, the NAV is 101.93p
at 31 March 2006.
The Chairman, Clive Parritt, said:
'The significant profits realised from selling investments in the portfolio
attributable to the ordinary shares have generated a very high level of
dividends, payable tax-free to qualifying shareholders. Despite the immaturity
of their portfolio, C shareholders too have seen an early advance in their total
return.
The proposed changes in VCT legislation will become law later this summer. At
that time the Board will update shareholders about the impact of the changes for
the investment and shareholder policies including the Dividend Reinvestment
Scheme. However, Baronsmead VCT 2 is the largest VCT in the market and after
eight years of operating within the strictures of VCT legislation the Board
believes it is well placed to sustain progress and performance.
RESULTS | In the year to 31 March 2006, the Net Asset Value (NAV) per ordinary
share increased by 12.2 per cent from 114.22p to 128.12p before dividends. The
three interim dividends paid during the year totalled 13.5p per ordinary share
and the resulting NAV per Ordinary Share was 114.62p. Since launch in 1998 the
total return for the Ordinary Shares is 190.5 per cent, net of all costs.
The NAV per C share increased by 9.7 per cent from 95.04p to 104.23p before
dividends. Two interim dividends totalling 2.3p were paid and the resulting NAV
per C share was 101.93p. Since launch the total return for the C shares is 110.9
per cent, based mainly on the growth in the value of the recent AiM investments.
The total returns for the ordinary and C shares are stated after all costs.
Included in these costs are additional fees payable to the Manager when the
total return in any year exceeds the annual performance trigger. In the year to
31 March 2006, £782,000 inclusive of VAT is payable (comprising £684,000
attributable to the ordinary shares and £98,000 attributable to the C shares)
representing 20% of this extra return.
LONG TERM PERFORMANCE | The performance since launch compares favourably against
the FTSE All-Share Index, which is a broad UK comparator for equity investments.
Furthermore, when compared to the six other Generalist VCTs launched at the
same time, the Company has a total return of some 61 per cent greater than the
average of this peer group. The total return, since inception, is also 55 per
cent ahead of the FTSE All-Share Index.
The investment performance compares well with the more established investment
trusts that focus on private equity. The Association of Investment Trust
Companies lists 19 Trusts in this category and the Company would have ranked
10th and 5th over the last three and five years respectively. However, the
investment criteria of these trusts are not restricted by VCT legislation which
limits the range of investments available to the Company. The taxation reliefs
given to qualifying shareholders in VCTs are designed to redress this
restriction and the resulting higher risk which may pertain to permitted smaller
unquoted and AiM traded companies. Taking tax reliefs of 20 per cent into
account the Company would have ranked 6th and 4th.
The Board was especially pleased that the Company was short listed in November
2005 for Investment Trust award of the year (Investment Week).
The Board believes that its policy objective of paying dividends at an average
annual rate of 4.5p per ordinary share will support the appeal of the secondary
market. The intention of the Board is to maintain a NAV of at least 100p per
ordinary share and so meet the twin investment objectives of sustained dividends
and capital retention, including payment to the current C shareholders, once
their shares are converted into ordinary shares.
THE PORTFOLIO | In the year under review, 18 new investments were made and 11
investments were sold taking the net portfolio to 73 companies. The 7 new
unquoted and 11 new AiM investments, when combined with further rounds of
financing for existing investments, resulted in total investment of £9.2m. The
average size of the each new unquoted investment was significantly larger at
£770,000 than the average AiM investment of £290,000.
Six VCT tests relating to the running of Baronsmead VCT 2 have to be and were
met throughout the year. The most visible of these tests is that more than 70
per cent of the portfolio has to be invested in qualifying investments by the
end of the third accounting period from when new share capital was subscribed.
At the year end, 74.6 per cent of the capital raised (net of launch costs) prior
to 31 March 2004 was invested in VCT qualifying investments.
The relative health of portfolio companies is measured quarterly in terms of
profitability as well as other non-financial benchmarks. At the year end, 84
per cent of the portfolio companies were reporting higher or steady profits.
The Board was pleased that the Manager continued their run of realisation
successes and during the year they realised investments representing some 33 per
cent of the total portfolio yielding capital profits of approximately 2.3 times
cost.
It is vital for the Manager to make investment decisions based on the investment
criteria agreed with the Board, without being too constrained by the VCT rules.
In the interests of shareholders, investments are only made if they meet the
rigorous standards set by the Manager. Similarly investments are realised when
it is advantageous to do so. On occasions this could result in the VCT tests
becoming at risk (especially those related to the test under which 70 per cent
of the portfolio must be invested in qualifying investments). Recent Government
announcements relating to the use of non interest bearing accounts have further
increased the potential for commercial investment decisions to be inhibited by
legislation.
MEETING SHAREHOLDER NEEDS | The March 2006 Budget statement introduced further
changes to the VCT regulations. Any capital raised by VCTs after 6 April 2006
must be invested into companies with gross assets not exceeding £7m, as compared
with the £15m which applied to capital raised before this date. At this stage
the Board believes this will reduce the number of suitable AiM opportunities and
potentially a smaller percentage of unquoted transactions.
Existing shareholders subscribed for 1,003,001 new ordinary shares and 247,650 C
shares at respective average prices of 110p and 98p per share under the Dividend
Reinvestment Scheme. 1.57m ordinary shares were bought back within the last
year at an average price of 100.5p, representing a discount of approximately 10%
to NAV per share.
The Board believes that an investment in Baronsmead VCT 2 is an effective way to
obtain a portfolio interest in smaller AiM and unquoted entrepreneurial
businesses. If skillfully selected, such investments can offer an above average
opportunity for capital growth. Additionally, investments in VCTs are tax
effective. Baronsmead VCT 2 will, over time, compete with general investment
trusts which invest in private equity but with the added advantage of capital
being invested in a tax-free environment, not dissimilar to ISA reliefs.
To develop this it is vital for shareholders to be able to buy and sell their
shares in the market. At present this is still difficult and most sellers rely
on shares being bought back by the VCTs themselves. There are signs that this is
changing and the Board hopes that by developing an agreed dividend policy and
maintaining performance, Baronsmead VCT 2 will become attractive to purchasers.
CORPORATE GOVERNANCE | The Co-investment Scheme enabling executive members of
the Managers to invest in unquoted transactions with the Company was announced
to shareholders in November 2004 and was explained in more detail in the Interim
Report as at 30 September 2005. The rationale remains to expand the existing
skills and capacity of the Managers team and by aligning the interests of the
team with those of shareholders encourage the retention of motivated staff. In
its first year of this Scheme, 21 members of ISIS have invested £74,950 in the
six unquoted investments where the Manager was the lead investor. Technology
investments like Domantis and Xention led by other Investment Managers did not
qualify for the Scheme.
ISIS continues to invest in its investment skills and also in systems to control
and minimise risks associated with an investment portfolio within the VCT
legislation.
We now have over 3,700 ordinary and C shareholders and I look forward to
welcoming as many as possible at the AGM on 19 June 2006 at 11.00 a.m. at the
Offices of ISIS, Exchange House, Primrose Street, London EC2A 2NY.
OUTLOOK | The task of using private equity disciplines to find, invest, manage
and realise attractive qualifying VCT investments will always remain a
challenge. This is the role of the Managers and the Board maintains a constant
dialogue to ensure that their progress and performance is monitored
constructively and on a regular basis. The last year has been no exception but
the challenges have been met and a high level of both investment and divestment
has delivered good results. The Board's priority is to sustain this progress
and continue meeting shareholder expectations.
The success of many of the investee companies (AiM and unquoted) depends to some
degree on the continuing strength of the UK economy. Current issues such as
increasing oil prices, heavier Government taxation, pension deficits, inflation
pressures and currency fluctuations could all make it harder for our investee
companies to increase their profits. Nonetheless, with over 80 per cent of the
companies in the portfolio showing steady or improved performance, together with
a record of successful realisations and AiM performance, the Company is well
placed to maintain its positive progress.'
Enquiries: David Thorp, ISIS EP LLP 0207 506 1100
Rhonda Nicoll, F&C Asset Management 0131 465 1000
Baronsmead VCT 2 plc
Audited Income Statement
Year to 31 March 2006
Ordinary Shares
Revenue Capital Total
£'000 £'000 £'000
Increase in fair value of investments held - 3,997 3,997
Gain on disposal of investments - 1,590 1,590
Income 1,903 - 1,903
Investment management fee (278) (1,517) (1,795)
Other expenses (241) - (241)
Profit on ordinary activities before taxation 1,384 4,070 5,454
Tax on ordinary activities (284) 375 91
Profit on ordinary activities after taxation 1,100 4,445 5,545
Return per ordinary share: 2.68p 10.81p 13.49p
Audited Reconciliation of Movements in Ordinary Shareholders' Funds
2006
£'000
Opening shareholders' funds (as previously reported) 47,931
Less investments held at fair value changed from mid to bid basis (581)
Add dividends accrued at 31 March 2005 1,119
Opening shareholders' funds (as restated) 48,469
Profit for the year 5,545
Deferred consideration 12
Decrease in share capital in issue (459)
Dividends paid (6,670)
Closing shareholders' funds 46,897
Baronsmead VCT 2 plc
Audited Income Statement
Year to 31 March 2006
C Shares
Revenue Capital Total
£'000 £'000 £'000
Increase in fair value of investments held - 1,838 1,838
Loss on disposal of investments - (60) (60)
Income 1,091 - 1,091
Investment management fee (129) (485) (614)
Other expenses (127) - (127)
Profit on ordinary activities before taxation 835 1,293 2,128
Tax on ordinary activities (247) 156 (91)
Profit on ordinary activities after taxation 588 1,449 2,037
Return per C share: 2.66p 6.56p 9.22p
Audited Reconciliation of Movements in C Shareholders' Funds
2006
£'000
Opening shareholders' funds 20,951
Less investments held at fair value changed from mid to bid basis (42)
Add dividends accrued at 31 March 2005 220
Opening shareholders' funds 21,129
Profit for the year 2,037
Increase in share capital in issue 239
Dividends paid (728)
Closing shareholders' funds 22,677
Baronsmead VCT 2 plc
Audited Income Statement
Year to 31 March 2006
Total
Revenue Capital Total
£'000 £'000 £'000
Increase in fair value of investments held - 5,835 5,835
Gain on disposal of investments - 1,530 1,530
Income 2,994 - 2,994
Investment management fee (407) (2,002) (2,409)
Other expenses (368) - (368)
Profit on ordinary activities before taxation 2,219 5,363 7,582
Tax on ordinary activities (531) 531 -
Profit on ordinary activities after taxation 1,688 5,894 7,582
Return per ordinary share/C share: 2.67p 9.33p 12.00p
Audited Reconciliation of Movements in Total Shareholders' Funds
2006
£'000
Opening shareholders' funds (as previously reported) 68,882
Less investments held at fair value changed from mid to bid basis (623)
Add dividends accrued at 31 March 2005 1,339
Opening shareholders' funds (as restated) 69,598
Profit for the year 7,582
Deferred consideration 12
Decrease in share capital in issue (220)
Dividends paid (7,398)
Closing shareholders' funds 69,574
Baronsmead VCT 2 plc
Audited Income Statement
Year to 31 March 2005
Ordinary Shares
Revenue Capital Total
(as restated) (as restated) (as restated)
£'000 £'000 £'000
Increase in fair value of investments held - 7,789 7,789
Gain on disposal of investments - 1,181 1,181
Income 1,511 - 1,511
Investment management fee (255) (2,418) (2,673)
Other expenses (272) - (272)
Profit on ordinary activities before taxation 984 6,552 7,536
Tax on ordinary activities (177) 206 29
Profit on ordinary activities after taxation 807 6,758 7,565
Return per ordinary share: 1.92p 16.09p 18.01p
Audited Reconciliation of Movements in Ordinary Shareholders' Funds
Total
£'000
Opening shareholders' funds (as previously reported) 41,643
Less investments held at fair value changed from mid to bid basis (510)
Opening shareholders' funds (as restated) 41,133
Profit for the year 7,565
Increase in share capital in issue 738
Dividends paid (967)
Closing shareholders' funds 48,469
Baronsmead VCT 2 plc
Audited Income Statement
Year to 31 March 2005
C Shares
Revenue Capital Total
(as (as (as
restated) restated) restated)
£'000 £'000 £'000
Increase in fair value of investments held - 86 86
Income 383 - 383
Investment management fee (43) (129) (172)
Other expenses (57) - (57)
Profit/(loss) on ordinary activities before taxation 283 (43) 240
Tax on ordinary activities (54) 25 (29)
Profit/(loss) on ordinary activities after taxation 229 (18) 211
Return per C share: 1.49p (0.11)p 1.38p
Audited Reconciliation of Movements in C Shareholders' Funds
2005
£'000
Profit for the year 211
Increase in share capital in issue 20,918
Closing shareholders' funds 21,129
Baronsmead VCT 2 plc
Audited Income Statement
Year to 31 March 2005
Total
Revenue Capital Total
(as (as (as
restated) restated) restated)
£'000 £'000 £'000
Increase in fair value of investments held - 7,875 7,875
Gain on disposal of investments - 1,181 1,181
Income 1,894 - 1,894
Investment management fee (298) (2,547) (2,845)
Other expenses (329) - (329)
Profit on ordinary activities before taxation 1,267 6,509 7,776
Tax on ordinary activities (231) 231 -
Profit on ordinary activities after taxation 1,036 6,740 7,776
Return per ordinary share/C share: 1.81p 11.76p 13.57p
Audited Reconciliation of Movements in Total Shareholders' Funds
2005
£'000
Opening shareholders' funds (as previously reported) 41,643
Less investments held at fair value changed from mid to bid basis (510)
Opening shareholders' funds (as restated) 41,133
Profit for the year 7,776
Increase in share capital in issue 21,656
Dividends paid (967)
Closing shareholders' funds 69,598
Baronsmead VCT 2 plc
Audited Balance Sheet
As at 31 March 2006
Ordinary C
Shares Shares Total
£'000 £'000 £'000
Fixed assets held at fair value
Quoted on AiM 16,404 3,909 20,313
Quoted on OFEX 119 - 119
Listed 530 - 530
Interest bearing securites 11,229 13,302 24,531
Unquoted investments 16,230 4,110 20,340
44,512 21,321 65,833
Net current assets 2,385 1,356 3,741
Net assets 46,897 22,677 69,574
Financed by:
Shareholders' funds 46,897 22,677 69,574
Net asset value per share 114.62p 101.93p -
Shares in issue 40,916,427 22,247,650
Baronsmead VCT 2 plc
Audited Balance Sheet (As restated)
As at 31 March 2005
Ordinary C
Shares Shares Total
£'000 £'000 £'000
Fixed assets held at fair value
Quoted on AiM 15,919 786 16,705
Quoted on OFEX 127 - 127
Listed 481 - 481
Interest bearing securites 6,001 17,984 23,985
Unquoted investments 23,698 - 23,698
46,226 18,770 64,996
Net current assets 2,243 2,359 4,602
Net assets 48,469 21,129 69,598
Financed by:
Shareholders' funds 48,469 21,129 69,598
Net asset value per share 116.92p 96.04p -
Shares in issue 41,453,426 22,000,000
Baronsmead VCT 2 plc
Summarised Audited Statement of Cash Flows
For the year ended 31 March 2006
Ordinary C
Shares Shares Total
£'000 £'000 £'000
Net cash (outflow)/inflow from operating activities (974) 697 (277)
Net cash inflow/(ouflow) from capital expenditure and
financial investment
7,319 (773) 6,546
Equity dividends paid (6,670) (728) (7,398)
Net cash outflow before financing (325) (804) (1,129)
Net cash (outflow) from financing (485) (113) (598)
Decrease in cash (810) (917) (1,727)
Reconciliation of net cash flow to movement in net
cash
Decrease in cash in the year (810) (917) (1,727)
Net cash as at 1 April 2005 4,100 2,589 6,689
Net cash as at 31 March 2006 3,290 1,672 4,962
Summarised Audited Statement of Cash Flows
For the year ended 31 March 2005
Ordinary C
Shares Shares Total
£'000 £'000 £'000
Net cash inflow from operating activities 235 3 238
Net cash inflow/(outflow) from capital expenditure and
financial investment
(1,034) (18,684) (19,718)
Equity dividends paid (967) - (967)
Net cash outflow before financing (1,766) (18,681) (20,447)
Net cash inflow from financing 1,010 21,270 22,280
(Decrease)/increase in cash (756) 2,589 1,833
Reconciliation of net cash flow to movement in net cash
(Decrease)/increase in cash in the year (756) 2,589 1,833
Net cash as at 1 April 2004 4,856 - 4,856
Net cash as at 31 March 2005 4,100 2,589 6,689
Notes
1. The audited results which cover the year to 31 March 2006 have been
prepared under UK Generally Accepted Accounting Practice (UK GAAP). A number of
new UK financial Reporting Standards have been introduced as apart of the UK
convergence programme with International Accounting Standards. The changes
affecting the Company relate to FRS 26 Financial Instruments: Measurement and
FRS 21 Events after the Balance Sheet Date. A reconciliation of these changes is
set out in Notes 6 and 7 below.
Where presentational guidance set out in the Statement of Recommended Practice
('SORP'), revised December 2005, for Investment Trusts issued by the Association
of Investment Trust ('AITC') in January 2003 is consistent with the requirements
of UK GAAP, the Directors have sought to prepare the financial statements on a
basis compliant with the recommendations of the SORP.
In order to better reflect the activities of a VCT and in accordance with the
SORP, supplementary information which analyses the income statement between
items of a revenue and capital nature has been presented alongside the income
statement. The Net Revenue is the measure the Directors believe appropriate in
assessing the Company's compliance with certain requirements set out in Section
842 AA Income and Corporation Taxes Act 1988.
2. There were 40,916,427 ordinary shares in issue at 31 March 2006 (31
March 2005: 41,453,426). During the year the Company issued 1,033,001 ordinary
shares raising net proceeds of £1,126,000 and bought back for cancellation
475,000 ordinary shares at a cost of £472,000. Since the Company's AGM held on
20 June 2005, the Company has bought back 1,095,000 ordinary shares to be held
in Treasury at a cost of £1,113,000. The total number of ordinary shares listed
at 31 March 2006 was 42,011,427 (31 March 2005: 41,453,426).
During the year the Company issued 247,650 C shares raising net
proceeds of £239,000.
3. Revenue and capital returns for the ordinary shares for the year to 31
March 2006 are based on a weighted average of 41,108,544 (2005: 41,995,911)
ordinary shares in issue during the year.
Revenue and capital returns for the C shares for the year to 31 March
2006 are based on a weighted average of 22,080,010 (2005: 15,323,042) C shares
in issue during the year.
4. Income for the year is derived from:
2006 2005
Total Total
£'000 £'000
Dividend Income 452 375
Fixed interest investment 2,382 1,291
Deposit interest 160 228
2,994 1,894
5. These are not full accounts in terms of Section 240 of the Companies Act
1985. Full audited accounts for the year to 31 March 2005 have been lodged with
the Registrar of Companies. The annual report for the year to 31 March 2006
will be sent to shareholders shortly and will then be available for inspection
at Exchange House, Primrose Street, London, the registered office of the
Company. The audited accounts for the year to 31 March 2005 and 31 March 2006
contain unqualified audit reports.
6. (a) Restatement of balances as at and for the year ended 31 March
2005.
There have been a number of changes to financial reporting standards that have
come into effect for accounting periods beginning on or after 1 January 2005.
The principal ones affecting the Company are the requirement to value its
investments at fair value and only reflect dividends to shareholders when paid.
Investments are designated as held at fair value under revised UK GAAP and are
carried at bid prices which total £64,996,000. Previously under UK GAAP, they
were carried at mid prices. The aggregate differences, being a revaluation
downwards of £623,000 also decreases Revaluation reserve.
No provision has been made for the final dividend on the ordinary shares and C
shares for the year ended 31 March 2005 of £1,119,000 and £220,000 respectively.
Under revised UK GAAP, dividends are not recognised until paid.
(b) Reconciliation of the Profit and Loss Account to the Income Statement for
the year ended 31 March 2005.
Under revised UK GAAP the total column of the Income Statement is the equivalent
of the Profit and Loss Account reported previously.
2005
Notes £'000
Total transfer from reserves per the Profit and Loss Account (as
previously reported) (2,764)
Add unrealised gains on revaluation of investments 1 8,347
Add back dividends paid and proposed 2 2,306
Investments held at fair value changed from mid to bid basis at 31
March 2004
3 510
Investments held at fair value changed from mid to bid basis at 31
March 2005 3 (623)
Net profit per the Income Statement 7,776
1) Unrealised gains on revaluation of investments are reflected in the Income
Statement under revised UK GAAP.
2) Dividends declared and paid during the year are dealt with through Movements
in Shareholders' Funds.
3) The portfolio valuations at 31 March 2004 and 31 March 2005 are required to
be valued at fair value under revised UK GAAP. These differ from the previous
valuations by £510,000 and £623,000 respectively.
7. (a) Restatement of opening balances as at 31 March 2004
Investments are designated as held at fair value under revised UK GAAP and are
carried at bid prices which total £36,224,000. Previously under UK GAAP, they
were carried at mid prices. The aggregate differences, being a revaluation
downwards of £510,000 also decreases the Revaluation reserve.
No provision had been made for a final dividend on the ordinary shares for the
year ended 31 March 2004. Accordingly no adjustment is required, as under
revised UK GAAP. Dividends are not recognised until paid.
8. The Annual General Meeting will be held on 19 June 2006 at 11.00 am.
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