Interim Results
British Smaller Companies VCT PLC
10 December 2003
10 December 2003
BRITISH SMALLER COMPANIES VCT PLC
Unaudited Interim results for the 6 months to 30 September 2003
• Further increase in portfolio valuation
• Net asset value up 10.4%
• Increase in liquid funds available for further
investment opportunities
British Smaller Companies VCT plc ('the Company') today announces its unaudited
interim results for the six months to 30 September 2003.
FINANCIAL SUMMARY
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 September 30 September 31 March
Gross revenue: £155,000 £214,000 £452,000
Net revenue return after tax: £12,000 £82,000 £125,000
Revenue return per share: 0.08p 0.52p 0.80p
Total return per share: 6.68p (3.05)p (2.13)p
Total dividend: Nil 0.25p 0.85p
Net assets: £11.14m £10.10m £10.14m
Net asset value per share: 72.1p 65.0p 65.3p
Number of venture capital
investments: 33 34 35
Value of venture capital
investments: £8.30m £8.40m £8.35m
Cash and liquid resources: £2.62m £1.73m £1.80m
Announcing the results, the Chairman, Sir Andrew Hugh Smith, said he was pleased
with the continued progress of the investment portfolio. The increase in net
asset value over the first six months of the year was 10.4%. Although the
adoption of the new British Venture Capital Association valuation guidelines
contributed to this increase, the underlying improvement was still 7.5%. Sir
Andrew commented that the adoption of the new guidelines is likely to lead to
increased volatility in future valuation movements.
REALISATIONS
During the period, the Company completed the sale of its investment in T & D
Packaging Limited, realising a net profit of £171,000. The balance of the
investment in TIB plc was also realised at book value, together with accrued
interest. There were two receiverships in the period, Weston Antennas Limited
and AIM quoted SBS plc. Neither had a material effect on net asset value having
been written down in prior periods.
Commenting on the oversubscription for a new AIM quoted investment completed
since the period end, and based on reports from the Investment Adviser,
Yorkshire Fund Managers Limited, of increasing enquiries from potential
purchasers of businesses within the portfolio, Sir Andrew said, 'There is a
general feeling that confidence is steadily coming back into the market and IPO
opportunities are starting to open up.' This should aid the continued
improvement within the portfolio.
INVESTMENT PORTFOLIO
Four investments were completed during the period totalling £613,000. Three of
these were small follow-on investments. The one new addition to the portfolio
was Harlands Labels Limited, one of the UK's leading suppliers of innovative
self-adhesive labelling solutions. £500,000 was invested to support the
management buy-out of this Hull based business.
Commenting on the positive signs within the unquoted portfolio, Phil Cammerman
of Yorkshire Fund Managers Limited, said, 'A number of companies have managed to
trade ahead of budget to demonstrate growing profitability.' He added that the
more established businesses performing above plan have been inclined to make
early repayment of loans and preference shares. In the case of the earlier stage
investments that were developing well and approaching cash break-even, the need
for follow-on funding is reduced. In both cases the original investment risk is
diminished and the Company has liquid resources available to further diversify
the portfolio.
RETURN AND DIVIDEND
In reporting the results, Sir Andrew said, 'After taking account of the capital
appreciation in the investment portfolio, the total return for the six month
period under review was 6.68p per Ordinary share' This compares to a loss for
the comparative period of 3.05p per share. However, as the revenue return was
only minimal, no interim dividend has been declared.
Sir Andrew continued, 'The Board will consider a distribution for the full year
following finalisation of the 2004 results.' Looking forward, he added, 'As exit
opportunities begin to present themselves and profits are realised we expect
that dividend returns to our Shareholders will start to rise again as some of
the realised capital gains are distributed.'
OUTLOOK
Summarising the year to date and commenting on prospects for the short to medium
term, the Chairman said, 'It has been encouraging to see continuing progress and
evidence of the potential for further significant growth in the portfolio. New,
varied and interesting investment opportunities continue to present themselves
and the upturn in corporate activity should introduce realisation opportunities
for some of our existing investments. This in turn would enhance distributions
to Shareholders.
Whilst there are still uncertainties in the economy, we expect general progress
within the investment portfolio to continue.'
For further information, please contact:
Alan Davies, Yorkshire Fund Managers Ltd Tel: 0113 294 5050
David Hall, Yorkshire Fund Managers Ltd Tel: 0161 832 7603
CHAIRMAN'S STATEMENT
I am pleased to report that the progress in the investment portfolio during the
second half of last year has continued. The first half of the current financial
year has seen an increase in net asset value per Ordinary share of 10.4%. With
corporate activity showing signs of an upturn and a growing flow of investment
opportunities, we are optimistic that this progress can continue.
Investment Portfolio
Just over £600,000 was invested in the first six months of the year, of which
£500,000 was into a new addition to the portfolio, Harlands Labels Limited. The
balance was into three existing companies within the portfolio, Imerge Limited,
Special Mail Services Limited and the AIM quoted Cardpoint plc.
There was one successful realisation in the period. In June 2003, completion of
the sale of T & D Packaging Limited took place. An initial cash payment of
£837,000 was received on completion with the final consideration of £94,000
received in November. The net realised profit, after costs and expenses, was
£171,000.
The AIM quoted portfolio has performed well in the six months to 30 September
2003. The ten AIM companies produced a net gain of £670,000 (including £113,000
of realised gains) with the main increases coming from Landround plc, Connaught
plc and Oasis Healthcare plc. During the period, one of the ten companies, SBS
Group plc was placed into receivership. The effect on net asset value was
minimal as this investment was already substantially written down.
Since the period end, your Company has made a new investment in another AIM
quoted company, Straight plc. Based in Leeds, Straight supplies kerbside boxes
for recycling purposes. The issue was oversubscribed, adding to the general
feeling that confidence is steadily coming back into the market and IPO
opportunities are starting to open up.
During the period the British Venture Capital Association has published revised
valuation guidelines, which became effective from 1 August 2003. As the 31 March
2004 annual results will be prepared under these valuation guidelines, your
Board took the decision to value the portfolio on this same revised basis in
this interim statement. The comparative investment valuations have not been
adjusted for. Of the 6.8p net asset value increase, 1.9p was due to the changed
valuation basis.
The main changes have been in the AIM quoted portfolio where bid price is now
used instead of mid market price and in the unquoted portfolio, where provisions
in bands of 25% to reflect varying levels of under performance of certain
companies, have been replaced by more specific, although by necessity
subjective, estimates of impairment. Against this, when valuing the more
successful unquoted companies, the discounts to quoted P/E ratios have been
reduced. The net result of moving to the new guidelines is that valuation
movements in the future are likely to be more volatile. A fuller explanation of
the revised guidelines will be included in the Annual Report.
Financial Results
The revenue return for the six months to 30 September 2003 was a small return of
£12,000 (2002: £82,000). This reflects the current reduction in revenue return
from the investment portfolio, partly due to the repayment of loans made to
investee companies under the original financing arrangements. As exit
opportunities begin to present themselves and profits are realised, we expect
that dividend returns to our Shareholders will start to rise again as some of
the realised capital gains are distributed.
After taking account of the capital appreciation in the investment portfolio,
the total return for the six month period under review was 6.68p per Ordinary
share (2002: net loss of 3.05p).
Given the size of the profits available for distribution at this interim stage,
no interim dividend is proposed. The Board will consider a distribution for the
full year following the finalisation of the 2004 results.
The net asset value per Ordinary share at 30 September 2003 was 72.1p (30
September 2002: 65.0p, 31 March 2003: 65.3p). Liquid funds available for
investment at the period end amounted to £2.6m. The directors consider this
adequate at this present time to take advantage of selective investment
opportunities as they arise.
Shareholder Relations
I am pleased to report that the proposal at the Annual General Meeting held on
11 July 2003 for the Company to continue as a venture capital trust was
overwhelmingly carried. I would like to take this opportunity to thank
Shareholders for their continued support.
As previously reported, Yorkshire Fund Managers have hosted a series of
presentations to Shareholders of all three VCTs under its management. In
addition to the one held in London on 6 March and reported on in my Chairman's
Statement in the Annual Report, further such presentations were held in Leeds,
Birmingham and Edinburgh. All the meetings were well received and I would like
to thank all those involved, particularly those investee companies who made
presentations, for making the events such a success. A programme for 2004 is
currently being arranged. Shareholders will be circulated with details in the
New Year.
Outlook
It has been encouraging to see continuing progress and evidence of the potential
for further significant growth in the portfolio. New, varied and interesting
investment opportunities continue to present themselves and the upturn in
corporate activity should introduce realisation opportunities for some of our
existing investments. This in turn would enhance distributions to Shareholders.
Whilst there are still uncertainties in the economy, we expect general progress
within the investment portfolio to continue.
Sir Andrew Hugh Smith
INVESTMENT ADVISER'S REVIEW
Overview
This is the first report to be based on the new British Venture Capital
Association valuation guidelines which became effective from 1 August 2003. In
applying the new guidelines, we have found that previous methodologies have
produced a more cautious valuation for the portfolio. Nevertheless it is
important that, in applying the recommended discounts and in selecting quoted
comparative companies, we do not lose sight of the ultimate exit prospects and
marketability of our investees which are often, in order of magnitude, smaller
than quoted competitors. Comparative investment valuations have not been
adjusted for.
Whilst the portfolio has begun to exhibit signs of stability and growth, there
has been some need to make provisions on a few of the investments that have not
responded to improved economic conditions. We have continued to work with the
management teams in all our investments in an endeavour to add value and to
fulfil every growth prospect.
Whilst the Company was, in effect, fully invested at the start of the period
under review, cash exits have been obtained from two companies. This has
released cash to provide further funding for existing investments, which merit
additional funding, and for selective new investments.
Investments made during the Period
During the six months to 30 September 2003 your Company made the following
investments :
Company Sector £
Cardpoint plc Consumer related 68,050
Harlands Labels Limited Manufacturing 500,000
Imerge Limited Consumer related 7,500
Special Mail Services Limited Services 37,499
-------
613,049
=======
Unquoted Portfolio
There are a number of positive signs that give rise to some optimism within our
unquoted portfolio. A number of companies have managed to trade ahead of budget
to demonstrate growing profitability. This has a direct beneficial effect on
valuations and the net asset value of the Company. Some of the investments have
succeeded in completing further funding rounds.
In addition, those businesses that generate above budget profits are often
inclined to make early repayment of loans and preference share redemptions to
your Company, which means that the original risk is diminished and cash is
raised to help with diversifying the portfolio.
Three years ago the Board agreed to incorporate into the portfolio a limited
number of earlier stage investments and some of these are developing well, being
close to cash break even, which will reduce the possibility of a need for
follow-on funding. Some of these earlier stage investments have attracted the
interest of potential trade purchasers. The offers so far received have not been
adequate to optimise the return to the investors so no sale has proceeded. We do
regard this interest as a promising indication of more trade activity as the
general economic climate improves.
During the period there were three unquoted companies that ceased to be active
investments. As referred to in the Chairman's Statement, the profitable
completion of the sale of T & D Packaging Limited took place in June 2003. The
original investment of £750,000 in February 2000 had supported the management
buy out of this producer and distributor of industrial packaging.
As has been previously reported, TIB plc entered a Creditors Voluntary
Arrangement (CVA) on 26 April 2002. The CVA proved unsuccessful. However, the
sale, by the Receiver, of the freehold land and buildings provided a full return
to your Company of its loan and outstanding interest. The balance of the
investment had already been fully provided against. As a result of this sale,
the company is no longer a part of the portfolio.
Attempts at Weston Antennas Limited to turn around a very difficult trading
position, through the further injection of funds by other private equity
investors and the appointment of new management, eventually failed and the
company was placed into Administrative Receivership in July 2003. No return is
expected from this investment. A full provision had already been made in a prior
year.
AIM Portfolio
There has been little activity within the small portfolio of AIM quoted
investments. For a variety of reasons we are, broadly, holders of the stocks
which comprise this portfolio.
Over the period, the like-for-like increase in the AIM portfolio was 48%
compared to the FT-SE AIM index, which showed an increase of just under 39% over
the six months to 30 September 2003. One of our AIM stocks, SBS plc, was
particularly hard hit by the downturn in the IT sector, and was placed into
receivership after it was unable to reach a conclusion in funding talks with its
bankers.
Summary
We have been successful in working with many of our portfolio businesses to
encourage them to perform to the investment budgets. The enhanced valuation of
the portfolio is evidence of the success of this policy. Your Company continues
to meet the VCT qualification rules and holds adequate liquid funds to provide
follow-on funding should it be needed.
The general economic recovery is tentative, but the performance of a number of
investments gives cause for a cautious optimism. The companies which emerge from
the recent difficult conditions are leaner and fitter to deliver profitability
and growing value to Shareholders.
Philip S. Cammerman
Yorkshire Fund Managers Limited
Unaudited Statement of Total Return
(incorporating the Revenue Account)
Notes Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2003 2002 2003
£000 £000 £000
Revenue
Gross revenue 155 214 452
Administrative expenses (143) (132) (327)
Taxation 2 - - -
------ ------ ------
12 82 125
------ ------ ------
Capital
Net realised (losses) gains (112) 161 (1,120)
Net unrealised gains (losses) 1,223 (630) 839
Management fee allocated to capital (89) (87) (175)
------ ------ ------
1,022 (556) (456)
------ ------ ------
Total return 1,034 (474) (331)
====== ====== ======
Appropriated:
Revenue
Dividend payable on Ordinary shares - 39 132
Transfer to (from) revenue reserve 12 43 (7)
------ ------ ------
12 82 125
====== ====== ======
Capital
Increase (decrease) on reserves 1,022 (556) (456)
====== ====== ======
Basic and diluted return per
Ordinary share
Revenue 3 0.08p 0.52p 0.80p
Capital 6.60p (3.57)p (2.93)p
------ ------ ------
6.68p (3.05)p (2.13)p
====== ====== ======
Notes
The revenue section of this statement is the profit and loss account of the
Company.
All activity has arisen from continuing operations.
Unaudited Balance Sheet
Notes Unaudited Unaudited Audited
30 September 30 September 31 March
2003 2003 2002
£000 £000 £000
Fixed assets
Investment portfolio 8,295 8,400 8,349
-------- -------- --------
Current assets
Short-term investments 2,344 1,490 1,485
Debtors 285 61 156
Cash and short-term deposits 278 238 317
-------- -------- --------
2,907 1,789 1,958
Creditors: amounts payable within
one year (63) (91) (170)
-------- -------- --------
Net current assets 2,844 1,698 1,788
-------- -------- --------
Total net assets 11,139 10,098 10,137
======== ======== ========
Capital and reserves
Called-up share capital 1,544 1,554 1,552
Capital redemption reserve 43 33 35
Capital reserve (4,093) (5,215) (5,115)
Special reserve 13,615 13,658 13,647
Revenue reserve 30 68 18
-------- -------- --------
Equity shareholders' funds 11,139 10,098 10,137
======== ======== ========
Net asset value per Ordinary
share 4 72.1p 65.0p 65.3p
Unaudited Summarised Cash Flow Statement
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2003 2002 2003
£000 £000 £000
Net cash outflow from operating
activities (220) - (114)
Taxation - - -
Financial investment 1,199 (271) (27)
Equity dividends paid to shareholders (93) (142) (181)
------- ------- -------
Net cash inflow (outflow) before
management of liquid resources and
financing 886 (413) (322)
Management of liquid resources (893) 445 445
Financing (32) (69) (81)
------- ------- -------
Decrease in cash (39) (37) 42
------- ------- -------
Notes to the Financial Statements
1. Basis of Reporting
The unaudited interim financial statements have been prepared on a basis
consistent with the statutory financial statements for the year ended 31 March
2003. The interim financial statements, which have been approved by the
directors, are unaudited and do not constitute full financial statements as
defined in section 240 of the Companies Act 1985. The comparative figures for
the year ended 31 March 2003 do not constitute full financial statements and
have been extracted from the Company's financial statements for the year ended
31 March 2003 which have been reported upon without qualification by the
auditors and have been delivered to the Registrar of Companies.
2. Taxation charge
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2003 2002 2003
£000 £000 £000
Return on ordinary activities
multiplied by standard small company
rate of corporation tax in the UK
of 19% (2002: 20%) 2 16 24
Effect of:
Expenses not deductible for tax purposes
UK dividends (i) (9) (24) (45)
Movement in excess management
expenses (ii) 7 8 21
------ ------ ------
Current tax charge for the period - - -
====== ====== ======
(i) Venture capital trusts are not subject to corporation tax on these items
(ii) The Company has no deferred tax liability
3. Revenue return per Ordinary share
The revenue return per share is based on net revenue from ordinary activities
after tax attributable to shareholders of £12,000 (30 September 2002: £82,000,
31 March 2003: £125,000) and on 15,477,000 shares (30 September 2002:
£15,579,000 31 March 2003: 15,556,000), being the weighted average number of
shares in issue during the period. The Company has no securities that would have
a dilutive effect and hence basic and diluted return per share are the same.
4. Net asset value per Ordinary share
The net asset value per Ordinary share is calculated on attributable assets of
£11,139,000 and 15,440,838 shares in issue at the period end (30 September 2002:
assets of £10,098,000 and 15,542,838 shares, 31 March 2003: assets of
£10,137,000 and 15,517,838 shares).
5. Interim Report and Accounts
Copies of the interim report are being posted to shareholders and can be
obtained from the Company's registered office: Saint Martins House, 210-212
Chapeltown Road, Leeds, LS7 4HZ thereafter.
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