Annual Financial Report

RNS Number : 5168A
British Smaller Companies VCT2 Plc
30 March 2012
 

BRITISH SMALLER COMPANIES VCT2 PLC Annual Financial Report Announcement for

the Year to 31 December 2011

 

British Smaller Companies VCT2 plc ("the Company") today announces its audited results for the year to 31 December 2011.

 

Whilst the general economic backdrop has remained challenging the total return to Shareholders has increased by 4.3% (4.1 pence per Ordinary share) in the year.  The financial highlights are:

 

·      An increase in Net Asset Value to 68.5 pence per Ordinary share

·      Dividends for the year total 4.0 pence per Ordinary share. This brings cumulative dividends paid to Shareholders at 31 December 2011 to 30 pence per Ordinary share.

·      The portfolio value has increased by 17.2% of its opening value

·      The Company recorded a pre-tax profit of £1.04 million

 

Chairman's Statement

2011 saw a continuation of recent economic uncertainty with an optimistic first half being tempered by Euro-zone credit concerns in the second half.  Against this backdrop the Company's portfolio has performed strongly with a value gain of 17.2% over the year as businesses benefited from improved efficiencies and clear value creation strategies. The Total Return, calculated by reference to Net Asset Value plus cumulative dividends, at the year-end increased by 4.1 pence per Ordinary share to 98.5 pence per Ordinary share compared to 94.4 pence per Ordinary share in 2010, an increase of 4.3%. This result is particularly pleasing when compared with the performance of UK Stock markets with the FTSE™ Small Cap Share Index down 15% and FTSE All Share™ Index down 7.8% over the 12 months to 31 December 2011.

 

Cumulative dividends at 31 December 2011 amounted to 30.0 pence per Ordinary share. The Net Asset Value per Ordinary share as at 31 December 2011 was 68.5 pence per Ordinary share, an increase of 0.1 pence per Ordinary share compared to 2010 after payment of a 4.0 pence per Ordinary share dividend during the year.

 

Although economic uncertainties continue into 2012 there is increasing cause for optimism and improving stability. The Fund Manager is seeing increasing levels of good investment opportunities which are now showing through in investment levels.  The Board has therefore sought to increase the Company's investment capacity via an Offer for Subscription for new Ordinary shares which it launched in October 2011 and which remains open until 11am on 5 April 2012.  As at the date of this report I am pleased to announce that £6.98 million of Ordinary shares have been allotted.  This will enable the Company to take advantage of strong investment opportunities, to continue to support growth within the portfolio and to increase the stability of returns through increased diversification and income generation.

 

 

Investment Portfolio

New investments in 2011 increased to £2.8 million compared to only £1.4 million in 2010, although this is still low relative to previous years. This is expected to increase further in 2012 as the macro economic factors become clearer and business owners and funders are able to plan and prepare to take investment decisions. History has shown that the best returns have been made from investments as the economy begins to grow following a recession and the Company remains well placed to take advantage of good opportunities as they occur. 

 

In 2011 the Company made 11 investments, which comprised three new investments in un-quoted companies, two follow-on investments and six smaller investments into AIM quoted companies. 

 

In July 2011, £400,000 was invested as part of the £5 million management buy-out of Bagel Nash Limited, an established bakery and operator of 11 espresso and bagel bars in the North of England. In November 2011, £500,000 was invested to fund the growth plans of PowerOasis Limited, a leading provider of power management and energy efficient solutions to international mobile telecommunications operators. In December 2011, £375,000 of growth capital was invested into TeraView Limited, a provider of products with applications in the electronics, medical analysis, solar power and security sectors based on its innovative terahertz technology.

 

Within the portfolio, £233,334 was invested to acquire high-yielding preference shares in established contract catering group Waterfall Services Limited.  These were subsequently redeemed during the year (with an effective yield of 24.72%). A further £192,000 was also invested into Sirigen Group Limited to support the on-going development of its fluorescent marking technology which is beginning to achieve significant commercial success.

 

The six new AIM investments had a total cost of £1.1 million and were selected to provide a balance of medium term growth and yield in low risk businesses with good liquidity levels.  One of these investments, Group NBT plc, was subject to a private equity funded buyout which achieved a quick conclusion during the year with a profit of £59,000 on its £197,000 cost.  Overall, the remaining five holdings have seen a small (£14,000) increase in investment valuation in spite of a significant decline across quoted markets in the second half of 2011.

 

Although there have been no significant divestments from the portfolio during the year, the Company has received proceeds of £943,000 (excluding the sale of fixed income securities). This includes  £322,000  of deferred proceeds in respect of the trade sale of DxS Limited in 2009, bringing the total amount received from this investment to £2.3 million, representing a 14.85 times return on capital invested. The Company received £292,000 via the redemption of preference shares in Waterfall Services Limited. In addition to the sale of the investment in Group NBT plc, the Company also made a small partial disposal of its holding in AIM quoted Optos plc, taking advantage of improved trading results. Overall proceeds received during the year, including the DxS Limited deferred consideration, generated a profit of £203,000 above previous carrying values. After a profit of £22,000 on sales from the gilt portfolio, the total gain on disposals for the year amounted to £225,000.

 

 

Overall the value of investments has increased by £1,112,000 during 2011, ignoring the impact of the additions and disposals and the gain from the DxS Limited deferred consideration. This figure comprises a value gain of £1,219,000 in respect of unquoted investments, a fall in value of £186,000 in respect of AIM investments and an increase in the value of gilts of £79,000.

 

Across the unquoted portfolio good progress has been made by a number of businesses that have seen profits grow despite the challenging economic environment. In particular, secure communication systems provider Deep-Secure Limited, whose products continue to make significant headway in their markets which is reflected in the increased valuation of £710,000 in the year.  There are also several businesses implementing clear value growth strategies. Sirigen Group Limited has made good progress in generating commercial revenues from its innovative fluorescent reagent technology, showing in a value growth of £400,000 net of further investment cost. Digital Healthcare Limited successfully acquired the other significant UK provider of diabetic retinal screening services with the support of the National Screening Council and saw the investment value increase by £254,000.  Also Cambridge Cognition Limited saw a value increase of £204,000, having now proven a profitable model supplying its diagnostic tests for mental health conditions to clinical trial providers and is now exploring the significant opportunity to rollout services to primary medical providers. These gains have been partially offset by a £400,000 value reduction relating to Immunobiology Limited reflecting further delays in commencing clinical trials of its innovative vaccine technology.  Overall, the portfolio remains well funded and should be well placed for value growth as individual growth strategies are implemented and economic conditions improve.

 

Financial Results

The result for the financial year ended 31 December 2011 was a pre-tax profit of £1.04 million which comprised a profit in respect of capital of £1.08 million and a revenue loss of £0.04 million, as compared to a pre-tax loss of £0.10 million in 2010 (which comprised a capital loss of £0.11 million and a revenue profit of £0.01 million). This amounts to an increase of 4.1 pence per Ordinary share (2010: reduction of 0.7 pence per Ordinary share) before payment of dividends totalling 4.0 pence per Ordinary share.

 

The movement in Net Asset Value per Ordinary share in the year was:

 


Pence/share

31 December 2010

68.4

Dividends paid in the year

(4.0)

Buy back of shares

0.2

Issue of shares

(0.5)

Net increase in value

4.4

31 December 2011

68.5

 

 

Cash and gilt investments at the end of the year amounted to £5.69 million. Further disposals will enhance cash reserves and enable distributions to Shareholders in the form of tax free dividends.

 

Your Board remains committed to achieving the objective of a constant dividend stream and, following the 4.0 pence per Ordinary share of dividends paid this year, it is pleased to propose a final dividend of 2.0 pence per Ordinary share. If approved, the dividend will be paid on 22 May 2012 to Shareholders on the register as at 20 April 2012.

 

Fundraising and Shareholder Relations

The Company is seeking to increase its investment capacity through an Offer for Subscription in Ordinary shares. On 26 October 2011 your Board published a prospectus offering investors the opportunity to subscribe for up to 14,539,007 new Ordinary shares in the Company at an offer price of 70.5 pence per Ordinary share. The offer closes on 5 April 2012 at 11:00am. Following an excellent response to the Offer, an initial allotment of £2,676,119 for 3,795,914 new Ordinary shares was made on 5 January 2012. A second allotment of £4,305,533 for 6,106,906 new Ordinary shares was made on 20 March 2012. The additional investment capacity will enable the Company to take advantage of additional attractive investment opportunities and further diversify the investment portfolio.

 

At a Shareholder's meeting on 30 August 2011 Shareholders voted in favour of re-introducing a buy back policy and the rate of discount to Net Asset Value at which Ordinary shares are bought back has been set at no more than 15%. During the year the Company has bought back 363,022 Ordinary shares at an average price of 57.08 pence per Ordinary share representing 1.56% (excluding treasury shares) of the issued share capital at the year end. These shares have been placed in treasury.

 

Your Board remains committed to enhancing Shareholder communications and continues to run Shareholder workshops where investors are invited to meet members of the Board, representatives from YFM Private Equity Limited, the Company's Fund Manager, and the CEO's of one or more of our investee companies. Our 17th Shareholder workshop was held at the Royal College of Surgeons in London on 9 February 2012 and was attended by over 150 investors. Presentations at the workshop were made by David Hall on behalf of the Company's Fund Manager, YFM Private Equity Limited, as well as by the CEO of investee company Bagel Nash and a member of HM Revenue & Customs.

 

The Annual General Meeting of the Company will be held at 12.00 noon on 11 May 2012 at 33 St James Square, London, SW1Y 4JS.

 

Regulation

Venture Capital Trusts have had a positive influence and benefit on the flow of capital to the UK's smaller businesses and it is welcome that this is being recognised.

 

Following the Chancellors budget in March 2012 and the issue of the Draft Finance Bill 2012 on 6 December 2011 investments undertaken by the Company will be subject to new legislation. The most significant change which will affect the Company's investment policy is that:

 

·      For investments made after 5 April 2012 the annual investment limit of £1 million that any single VCT can invest in a company will be removed, except where the company trades in partnership or through a joint venture

 

In addition to the above investment criteria, changes have been made to the "qualifying company" limits effective from 6 April 2012 subject to the granting of EU approval. These are summarised as follows:

 

·      The employee limit will increase from 50 to 250 for investee companies.

·      An increase in the size threshold of gross assets to £15 million before investment from £7 million.

·      The maximum amount that an investee company can receive from VCTs and any other State Aid sources is now proposed to be £5 million.

 

Such changes to the current legislation should increase the number of potential new investments available to the Company and help diversify the portfolio further.

 

Subsequent Events

Since the year end we have seen increasing levels of investment activity.  The Company invested £700,000 in January 2012 as part of the management buyout of the retail display group Displayplan Holdings Limited from its US parent. In February 2012 a further £58,000 was invested into portfolio business Sirigen Group Limited as part of a £1 million internal growth capital round. In March 2012 £300,000 was invested as part of the £2 million buyout of Selima Limited, a supplier of payroll and expenses software predominantly to public sector customers. Also in March 2012 a further £148,000 was invested into EKF Diagnostics Holdings plc, a growing international diagnostics group.  In January 2012 derivatives trading system provider, Patsystems plc, was sold to trade purchaser ION Group plc with the Company receiving £164,000 of cash proceeds from the sale of its shares.  In March 2012 the Company's £140,000 remaining loan to Humber stevedore and logistics group RMS Group Holdings Limited was repaid as a result of a refinancing supported by the group's bank HSBC following further positive trading results. Also in March the Company sold 7.25% of its holding in quoted software group Tikit Group plc generating £17,000 of proceeds.

 

Outlook

There have been signs of economic conditions at least stabilising but the debt crisis in the Euro-zone will create further economic uncertainty for several months. However the portfolio remains well funded with many businesses now showing improved efficiency or driving clear strategies to maximise the new market opportunities they now see. This Company remains well placed to continue to support our portfolio companies and take advantage of investment opportunities that may arise in the short term.

 

As can be demonstrated by the recent increase in completed investments the Board remains of the opinion that the upcoming period is likely to present many good investment opportunities for new investments. It was with this in mind that we increased the investment capacity of the Company this year and the Board will continue to consider the opportunity for further fund raising offers in the future.

 

Richard Last

Chairman

30 March 2012

 

 

Fund Manager's Review

Portfolio valuation at 31 December 2011 and full history of disposals up to 31 December 2011

 

Name of Company

Date of Initial Investment

Location

Industry Sector

Current Cost*

 

 

 

£000

Proceeds to Date*

 

 

 

£000

Investment Valuation

at 31 December 2011

£000

Return  to Date

 

 

 

£000


Current Investments








Digital Healthcare Limited

Jun-05

Cambridge

Medical Instruments

3,072

-

1,396

1,396


Primal Pictures Limited

Dec-05

London

Medical Instruments

897

205

1,081

1,286


Deep-Secure Limited

Dec-09

Malvern

Software

500

-

1,103

1,103


Sirigen Group Limited

Jun-10

Hampshire

Medical Technology

458

-

858

858


Waterfall Services Limited

Feb-07

Warrington

Healthcare

192

292

390

682


Immunobiology Limited

Jun-03

Cambridge

Pharmaceuticals

1,032

-

602

602


Bluebell Telecom Group Limited

Sep-10

Newcastle

Telecommunications

500

-

569

569


PowerOasis Limited

Nov-11

Swindon

Energy Infrastructure

500

-

500

500


RMS Group Holdings Limited

Jul-07

Goole

Industrial Services

210

165

246

411


Bagel Nash Limited

July-11

Leeds

Retail Baker

405

-

405

405


Harvey Jones Holdings Limited

May-07

London

Consumer Retail

389

-

391

391


TeraView Limited

Dec-11

Cambridge

Medical Instruments

375

-

375

375


Optos plc

Dec-05

Dunfermline

Medical Instruments

81

167

175

342


Cambridge Cognition Limited

May-02

Cambridge

Software

240

-

286

286


Iomart Group plc

May-11

London

IT Infrastructure

198

-

285

285


Brady plc

Dec-10

Cambridge

Metals and Commodities

239

-

281

281


Pressure Technologies plc

Jun-07

Sheffield

Manufacturing

300

-

270

270


May Gurney Integrated Services plc

May-11

Norwich

Construction

212

-

217

217


Tikit Group plc

May-11

London

Software

198

-

195

195


Patsystems plc

Sep-07

London

Software

317

-

156

156


2ergo Group plc

May-11

Manchester

Software

197

-

114

114


EKF Diagnostics Holdings plc

Jul-11

London

Medical Instruments

77

-

85

85


Tissuemed Limited

Dec-05

Leeds

Consumer Retail

48

-

60

60


Brulines Group plc

Oct-06

Stockton-on-Tees

Electronics

81

-

50

50


Allergy Therapeutics plc

Oct-04

Worthing

Biotechnology

350

-

48

48


Ellfin Home Care Limited

Dec-07

Oldham

Healthcare

317

-

43

43


Intelligent Recordings Limited

Sep-08

Nottingham

Electronics

-

-

28

28


Solcom Limited

Dec-05

Ryde

Software

-

-

-

-


Oxis Energy Limited

Dec-05

Abingdon

Electronics

5

-

-

-











 

 



 11,390

 829

10,209

11,038


Full disposals to date

 


9,433

14,571

-

14,571


Total


20,823

15,400

10,209

25,609

 

 

 

* Proceeds include premiums and profits on loan repayments and preference redemptions.

 


 

Fund Manager's Review

 

Portfolio valuation at 31 December 2011 and full history of disposals up to 31 December 2011 (Continued)

 

Name of Company

Date of Initial Investment

Date of Disposal

Industry Sector

Original  Cost*

 

 

£000

Proceeds to Date

 

 

£000

Capital Return Multiple

 

 

 

Disposals to Date

 

 

£000

Gains (losses) on Disposal

£000

Disposed Investments








DxS Limited

Apr-04

Sep-09

Healthcare

163

2,588

15.87

2,588

2,425

Cozart plc

Jul-04

Oct-07

Healthcare

1,566

2,983

1.90

2,983

1,417

Sarian Systems Limited

Dec-05

Apr-08

Telecoms

928

2,605

2.80

2,605

1,677

Vibration Technology Limited

Mar-02

Sep-06

Industrial

1,061

2,328

2.20

2,328

1,267

Amino Technologies plc

Sep-01

Nov-04

Electronics

415

1,875

4.52

1,875

1,460

The ART Technology Group Inc

 

Apr-03

 

Oct-09

 

Software

 

275

 

638

 

2.32

 

638

 

363

Tamesis Limited

Jul-01

Sep-07

Software

150

317

2.11

317

167

Oxonica plc

May-02

Sep-09

Chemical

241

258

1.07

258

17

Group NBT plc

May-11

Nov-11

IT Support

197

256

1.30

256

59

Tekton Group Limited

Dec-05

Dec-06

Software

100

223

2.23

223

123

Voxar Limited

Dec-05

Nov-06

Software

-

134

-

134

134

Hallco 1389 Limited & Hallco 1390 Limited

Dec-06

Mar-08

Software

50

126

2.52

126

76

Arakis Limited

Mar-04

Aug-05

Healthcare

14

108

7.71

108

94

SoseiCo Limited

Aug-05

Feb-06

Healthcare

158

94

0.59

94

(64)

Broadreach Networks Limited

 

Feb-03

 

Dec-05

 

Telecoms

 

550

 

17

 

0.03

 

17

 

(533)

Sirus Pharmaceuticals Limited

 

Sep-01

 

Mar-04

 

Healthcare

 

270

 

14

 

0.05

 

14

 

(256)

Focus Solutions Group plc

Dec-05

Feb-06

Software

7

7

1.00

7

-

Infinite Data Storage Limited

 

Mar-02

 

Dec-10

 

Software

 

425

 

-

 

-

 

-

 

(425)

Purely Proteins Limited

Nov-03

Dec-05

Software

438

-

-

-

(438)

ExpressOn Biosystems Limited

 

Oct-02

 

Dec-05

 

Healthcare

 

450

 

-

 

-

 

-

 

(450)

Comvurgent Limited

Dec-05

Dec-08

Software

611

-

-

-

(611)

Silistix Limited

Dec-03

Dec-11

Electronics

1,364

-

-

-

(1,364)










Total 


9,433

14,571

-

14,571

5,138

 

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


Fund Manager's Review

Introduction

Significant progress has been made during the year.  The portfolio achieved a strong increase in value equivalent to 17.2% of its opening value with many businesses well positioned to see further increases over the coming year.  The Company is also seeing a marked increase in investment activity levels and has successfully increased its investment capacity to be able to take advantage of opportunities as and when they arise.

 

There has been considerable further progress made by many of the businesses in the Company's portfolio in spite of a continuation of the challenging market conditions. Having made a substantial investment in additional sales resource at the start of the year Primal Pictures Limited has now proven the commercial market demand for its new educational product, a major step in repositioning the business as a provider of education services. Digital Healthcare Limited, with the support of the UK National Screening Council, has acquired the other significant diabetic retinal screening provider to consolidate services provided on a national basis.  Bluebell Telecom Group Limited acquired another supplier of phone line services to UK businesses, Worldwide ISDN Limited, in order to achieve significant efficiency improvements. Deep-Secure Limited's products continue to make significant headway in their markets which is reflected in the increased valuation of £710,000 in the year.  Waterfall Services Limited won a significant new contract to deliver meals to school children in the Sheffield area.

 

This year has seen the continued disposal of investments at values above carrying value although there were no significant exits during the year. The Company has continued to benefit from the sale of DxS Limited to Qiagen in 2009 with another £322,000 of deferred proceeds received in this year.

 

Investment activity levels have increased with 11 investments during the year totalling £2.78 million.  A further four investments totalling £1.21 million have been made since the year end.  Cash and gilt investments at 31 December 2011 were £5.69 million representing 35.8% of net assets, which compares to £4.49 million (37.9% of net assets) at 31 December 2010. The share subscription which was announced in October 2011 has been strongly supported, receiving £6.98 million. This puts the Company in a strong cash position to take advantage of the current increase in good investment opportunities and to continue to pay dividends in future years.

 

 

 

 

 

 

 

Portfolio Overview

Portfolio Performance

Overall, the quoted and unquoted portfolio increased by £3.27 million to a total of £10.21 million from £6.94 million. Netting off the new investments of £2,784,000 and carrying value of disposals of £574,000 from the opening December 2010 value, the net portfolio value movement over the year was an increase of £1.03 million. This breaks down into an increase in the value of the unquoted portfolio of £1.22 million and a fall in the value of the quoted portfolio of £186,000. Overall the portfolio remains well funded and positioned for value growth as economic conditions improve and current strategies are implemented to capitalise on the changing market conditions.

 

 


Quoted and unquoted portfolio

£000

 

Deferred

proceeds

£000

 

 

Total

£000

Opening value

6,939

259

7,198

Additions

2,784

-

2,784

Valuation changes




  -Unquoted

1,219

-

1,219

  -Quoted

(186)

-

(186)

Proceeds

(622)

(322)

(944)

Profit on disposal

75

128

203

31 December 2011

10,209

65

10,274


A further £322,000 of cash proceeds were generated from deferred consideration payments relating to the sale of DxS Limited to Qiagen which completed in 2009. These payments together with a further £65,000 of value assumed from DxS Limited in the future represented a profit of £128,000 over the December 2010 valuation (shown within debtors).

 

Including the deferred proceeds the effective net movement in the opening December 2010 value of the Company's portfolio was an increase of £1,236,000. This can be broken down as follows:-


 

2011

£000

 

 

%

Unquoted

1,219

11.95

Quoted

(186)

(1.80)

Profit on disposal

75

0.70

Deferred proceeds

128

1.25

Total Value Movement

1,236

12.10



 

The unquoted portfolio as a whole continued to perform strongly with nine out of the 16 investments showing an uplift in value, three remaining flat and relatively minor value falls in the others. The key unrealised value movements relate to Deep-Secure Limited (up £710,000) which has now established a strong performance following the buyout of this high security communication software supplier where its products continue to gain increased market penetration. Sirigen Group Limited (up £400,000) has made considerable progress in co-developing products with a number of major international diagnostic groups.  Digital Healthcare Limited (up £254,000) made a significant value enhancing step when it successfully acquired the other significant diabetic retinal screening supplier in the UK with support from the National Screening Council to help standardise services.  Cognitive testing supplier, Cambridge Cognition Limited, also made strong progress (up £204,000) having established a profitable model supplying the clinical trials sector and with plans for a major product launch targeting the primary care providers. Immunobiology Limited (down £400,000) has experienced further delays in getting its vaccine technology into human trials although further technical progress has been made.

 

The quoted portfolio saw a fall in value which reflects the movement in the market as a whole during the period.  Both Patsystems plc (down £138,000) and Pressure Technologies plc (down £100,000) saw significant value falls following profit downgrades and 2ergo Group plc suffered a value fall (down £83,000) following a change in regulation relating to the marketing of mobile services to retail customers.  Several other investees bucked this trend with value gains, in particular cloud computing specialist Iomart Group plc (up £87,000) following significant profit growth and a strategic acquisition.

 

The investment portfolio held at the year end can be analysed into the following categories:

 

AIM LISTED INVESTMENTS

-Non Qualifying

£1,279,037

-Qualifying

£594,762


£1,873,799

 

NON LISTED INVESTMENTS

-Non Qualifying

£137,315

-Qualifying

£8,197,593


£8,334,908

 

TOTAL INVESTMENTS

£10,208,707

 

 

 

 

 

Investment Activity

During the year the Company made a total of 11 investments (£2.78 million), nine new investments and two follow-on investments into existing companies.

 

In July 2011, £400,000 was invested, alongside British Smaller Companies VCT plc, to support a proven management team in the buyout of Bagel Nash Limited.  The strategy is to roll out the proven retail proposition across the North of England. In November 2011 the Company invested £500,000 into PowerOasis Limited, a specialist provider of off grid power solutions for operators of mobile phone base stations. In December 2011 the Company invested £375,000 into TeraView Limited, a company specialising in the provision of innovative testing processes to the electronics sector. In September 2011 a £233,000 follow-on investment was made in high yielding preference shares in Waterfall Services Limited although strong cash generation enabled these to be redeemed three months later. The Company made additional follow-on investments totalling £191,000 into Sirigen Group Limited alongside a strong syndicate of institutional investors as management completed the technical development and began commercial sales of its innovative fluorescent marking products.

 

In addition to the above unquoted investments the Company made six investments into AIM listed companies totalling £1.08 million of new investments.  At 31 December 2011 the total value of this portfolio had increased by £73,000.

 

The Company's investment policy is to build a diversified portfolio of investments in emerging businesses combined with later stage businesses that have the potential to deliver both income and capital growth. Investment levels, though higher than in 2010, have remained below historic levels but are expected to grow further in 2012.  This can now be demonstrated by the four additional investments (£1.21 million) which have been made since the year end. The Company invested £700,000 in January 2012 as part of the management buyout of the retail display group Displayplan Holdings Limited from its US parent. In February 2012 a further £58,000 was invested into portfolio business Sirigen Group Limited as part of a £1 million internal growth capital round. In March £300,000 was invested as part of a £2 million buyout of Selima Limited, a supplier of payroll and expenses software predominantly to public sector customers. A further £148,000 was invested in March 2012 into quoted portfolio business EKF Diagnostics Holdings plc.

 

We will continue to invest into the portfolio to fund value growth and support commercialisation of technology.

 

Disposals

There were no significant disposals during the year as market conditions were not appropriate to maximise value in most sectors. In total the Company has received £622,000 in the year from the sale of investments; £292,000 was received following the partial disposal of preference shares held in Waterfall Services Limited using free cash generated from trading profits; £256,000 was received from the sale of AIM quoted Group NBT plc which was subject to a private equity backed buyout realising a profit of £59,000 (29.8%) over cost in just six months.  The Company also took advantage of positive trading results at quoted portfolio company Optos plc to sell 30% of the Company's holding generating £74,000, a £16,000 profit on opening value and £50,000 profit on cost. 

 

Deferred consideration of £322,000 was received during the year in respect of DxS Limited with the residual deferred payments due still being valued at £65,000 as a non-current asset on the Company's Balance Sheet at the year end.

 

A further £321,000 has been received since 31 December 2011 equating to a profit over the year end value of £10,000. The derivatives trading system supplier Patsystems plc was sold to trade competitor ION Group plc resulting in cash proceeds of £164,000.  Also the Company's £140,000 remaining loan to Humber stevedore and logistics group RMS Group Holdings Limited has been repaid through a HSBC bank funded refinancing. In March the Company sold 7.25% of its holdings in quoted software group Tikit Group plc generating £17,000 of proceeds.

 

 

Conclusion and Outlook

The year under review has seen a continuation of some of the previous challenging market conditions.  In spite of this there has been a general improvement in performance and valuations across the Company's portfolio.

 

Cash reserves remain strong and will be boosted with the funds raised from the new share issue, so the Company is well placed to take advantage of the gradually increasing investment rates, to continue to support the portfolio and maintain historic dividend levels.

 

David Hall

YFM Private Equity Limited

30 March 2012

 

 



 

Principal risks, risk management and regulatory environment.

 

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

 

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

 

Loss of approval as a VCT - the Company must comply with Chapter 3 Part 6 of the Income Tax Act 2007 which allows it to be exempted from capital gains tax on investment gains. Any breach of these rules may lead to the Company losing its approval as a VCT, qualifying Shareholders who have not held their shares for the designated holding period having to repay the income tax relief they obtained and future dividends paid by the Company becoming subject to tax. The Company would also lose its exemption from corporation tax on capital gains. As such one of the Key Performance Indicators monitored by the Company is the compliance with legislative tests.

 

Regulatory - the Company is required to comply with the Companies Act 2006, the rules of the UK Listing Authority and International Financial Reporting Standards as adopted by the European Union. Breach of any of these might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.

 

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

 

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

 

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

 

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

 

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

 

The Board seeks to mitigate its principal risks by setting policy, regularly reviewing performance and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies rigorously the principles detailed in section C.2:"Risk Management & Internal Control" of The UK Corporate Governance Code issued by the Financial Reporting Council in June 2010.

 

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

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

 

The directors confirm, to the best of their knowledge:

 

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

 

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

 



 

Statement of Comprehensive Income

For the year ended 31 December 2011

                                                                                                                                   



2011

2010


 

Notes

 

Revenue

£000

 

Capital

£000

 

Total

£000

 

Revenue

£000

 

Capital

£000

 

Total

£000









Gain on disposal of investments


-

225

225

-

370

370

Profits (losses) on investments held at fair value


-

1,112

1,112

-

(252)

(252)

Income

2

349

-

349

321

-

321

Administrative expenses:








     Fund Management fee


(86)

(259)

(345)

(77)

(231)

(308)

     Other expenses


(301)

-

(301)

(234)

-

(234)



(387)

(259)

(646)

(311)

(231)

(542)

Profit (loss) before taxation


1,078

1,040

(103)

Taxation

3

-

-

-

-

-

-

Profit (loss) for the year

 


(38)

1,078

1,040

10

(113)

(103)

Total comprehensive income for the year

(38)

1,078

1,040)

10

(113)

(103)

Basic and diluted earnings (loss) per Ordinary share

 

5

 

(0.17)p

 

4.92p

 

4.75p

 

0.06p

 

(0.65)p

 

(0.59)p









 

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



 

Balance Sheet

At 31 December 2011



 

 

Notes


 

 

 

2011

£000

 

 

 

2010

£000

Assets






Non-current assets






Investments




10,209

6,939

Fixed income government securities




1,618

3,980

Financial assets at fair value through profit or loss


11,827

10,919

Trade and other receivables




65

259





11,892

11,178

Current assets






Trade and other receivables




242

193

Cash and cash equivalents




4,076

509





4,318

702

Liabilities






Current liabilities






Trade and other payables




(228)

(51)

Net current assets




4,090

651

Net assets




15,982

11,829







Shareholders' equity






Share capital




2,426

1,785

Share premium account




4,427

810

Capital redemption reserve




88

88

Other reserve




2

2

Merger reserve




5,525

5,525

Capital reserve




2,630

3,587

Investment holding (losses) gains




(3,665)

(4,763)

Special reserve




4,255

4,463

Revenue reserve




294

332

Total Shareholders' equity




15,982

11,829

Net asset value per Ordinary share


6


68.5p

68.4p







 



 

Statement of Changes In Equity

For the year to 31 December 2011

 

 

 

 

Share capital

 

Share premium account

 

 

 *Other reserves

 

 

Merger reserve

 

 

Capital reserve

 

 

Investment holding (losses) gains

 

 

 

Special

reserve

 

 

 

Revenue reserve

 

 

 

Total

equity


£000

£000

 

£000

£000

£000

£000

£000

£000

£000

Balance at 31 December 2009

 

1,664

 

69

 

90

 

5,525

 

4,442

 

(4,802)

 

4,786

 

332

 

12,106

Revenue return for the year

-

-

-

-

-

-

-

10

10

Capital expenses

-

-

-

-

(231)

-

-

-

(231)

Investment holding loss on investments held at fair value

 

-

 

-

 

-

 

-

 

-

 

(252)

 

-

 

-

 

(252)

Realisation of investments in the year

 

-

 

-

 

-

 

-

 

370

 

-

 

-

 

-

 

370

Total comprehensive income for the year

 

-

 

-

 

-

 

-

139

(252)

-

10

(103)

Issue of share capital

121

792

-

-

-

-

-

-

913

Issue costs

-

(51)

-

-

-

-

-

-

(51)

Purchase of own shares

-

-

-

-

-

-

(323)

-

(323)

Dividends

-

-

-

-

(703)

-

-

(10)

(713)

Total transactions with owners

121

741

-

-

(703)

-

(323)

(10)

(174)

Realisation of prior year investment holding gains

 

-

 

-

 

-

 

-

 

(291)

 

291

 

-

 

-

 

-

Balance at 31 December 2010

1,785

810

90

5,525

3,587

(4,763)

4,463

332

11,829

Revenue return for the year

-

-

-

-

-

-

-

(38)

(38)

Capital expenses

-

-

-

-

(259)

-

-

-

(259)

Investment holding gain  on investments held at fair value

 

-

 

-

 

-

 

-

 

-

 

1,112

 

-

 

-

 

1,112

Realisation of investments in the year

 

-

 

-

 

-

 

-

 

225

 

-

 

-

 

-

 

225

Total comprehensive income  for the year

 

-

 

-

 

-

 

-

(34)

1,112

-

(38)

1,040

Issue of share capital

640

3,862

-

-

-

-

-

-

4,502

Issue costs

-

(250)

-

-

-

-

-

-

(250)

Purchase of own shares

-

-

-

-

-

-

(208)

-

(208)

Issue of shares - DRIS

1

5

-

-

-

-

-

-

6

Dividends

-

-

-

-

(937)

-

-

-

(937)

Total transactions with owners

641

3,617

-

-

(937)

-

(208)

-

3,113

Realisation of prior year investment holding gains

 

-

 

-

 

-

 

-

 

14

 

(14)

 

-

 

-

 

-

Balance at 31 December 2011

2,426

4,427

90

5,525

2,630

(3,665)

4,255

294

15,982

 

 

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

 

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

 

The special reserve was created following the approval of the Court and a resolution of the Shareholders to cancel the Company's share premium account and is available for other corporate purposes of the Company. The capital reserve includes gains and losses compared to cost on the realisation of investments, capital expenses, together with the related taxation effect and capital dividends paid to Shareholders. This is a distributable reserve. The investment holding (losses) gains reserve includes increases and decreases in the valuation of investment held at fair value.  This is a non-distributable reserve.

 

The special reserve, capital reserve and revenue reserve are all distributable reserves. These reserves total £7,179,000 (2010: £8,382,000) representing a decrease of £1,203,000 (2010: £1,178,000 decrease) during the year. This change arises from the revenue loss in the year of £38,000 (2010: £10,000 profit), movements in the investment holding (losses) gains reserve of £20,000 loss (2010: £152,000 loss), dividends of £937,000 (2010: £713,000) and purchase of shares of £208,000 (2010: £323,000). The directors also take into account the level of the investment holding (losses) gains reserve when determining the level of dividend payments.



 

Statement of Cash Flows

For the year ended 31 December 2011




 

2011

£000

 

2010

£000






Net cash outflow from operating activities



(174)

(312)






Cash flows from (used in) from investing activities





Purchase of financial assets at fair value through profit or loss

(3,970)

(3,135)

Proceeds from sale of financial assets at fair value through profit or loss

4,276

1,525

Deferred consideration



322

301

Net cash from (used in) investing activities



628

(1,309)






Cash flows from (used in) financing activities





Issue of share capital



4,502

913

Issue costs



(250)

(51)

Purchase of own shares



(208)

(323)

Dividends paid



(931)

(713)

Net cash from (used in) financing activities



3,113

(174)






Net increase (decrease) in cash and cash equivalents

3,567

(1,795)

Cash and cash equivalents at beginning of the year



509

2,304

Cash and cash equivalents at the end of the year



4,076

509






 

Reconciliation of Profit (Loss) before Taxation to Net Cash Outflow from

Operating Activities








2011

£000

2010

£000






Profit (loss) before taxation



1,040

(103)

Increase (decrease) in trade and other payables



177

(90)

Increase in trade and other receivables


(49)

(1)

Gains on disposal of investments in the year



(225)

(370)

(Profit) losses on investments held at fair value



(1,112)

252

Capitalised Interest



(5)

-

Net cash outflow from operating activities


(174)

(312)

 



 

Notes

 

1. Basis of Accounting

 

This announcement of the annual results of the Company for the year ended 31 December 2011 has been prepared using accounting policies consistent with those adopted in the full audited financial statements which have been prepared on a going concern basis and in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

The financial statements have been prepared under the historical cost convention as modified by the measurement of investments at fair value through profit or loss.

 

The accounts have been prepared in compliance with the recommendations set out in the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the Association of Investment Companies in January 2009 (SORP) to the extent that they do not conflict with IFRSs as adopted by the European Union.

 

Segmental reporting has been determined by the directors based upon the reports reviewed by the Board. The directors are of the opinion that the Company has engaged in a single operating segment - investing in equity and debt securities within the United Kingdom - and therefore no reportable segmental analysis is provided.

 

2. Income


 

 

 


2011

£000

2010

£000

Income from investments





  - Dividends from unquoted companies



11

6

  - Dividends from AIM quoted companies



37

22




48

28

  - Interest on loans to unquoted companies



146

117

  - Fixed interest Government securities



88

162






Income from investments held at fair value through profit or loss



282

307

Interest on bank deposits



67

14




349

321






 

 

3. Taxation


2011

2010


 

Revenue

£000

 

Capital

£000

 

Total

£000

 

Revenue

£000

 

Capital

£000

 

Total

£000








Corporation tax at 20% (2010: 21%)

-

-

-

-

-

-

Profit (loss) before taxation

(38)

1,078

1,040

10

(113)

(103)

Profit (loss) before taxation multiplied by standard small company rate of corporation tax in UK of 20% (2010: 21%)

 

 

 

(8)

 

 

 

216

 

 

 

208

 

 

 

2

 

 

 

(24)

 

 

 

(22)

Effect of:







UK dividends received

(10)

-

(10)

(6)

-

(6)

Non taxable profits on investments

-

(267)

(267)

-

(24)

(24)

Excess management expenses

18

51

69

4

48

52

Tax charge (credit)                         

-

-

-

-

-

-








 

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

 

Deferred tax assets of £452,000 calculated at 20% (2010: £406,000 calculated at 21%) in respect of unrelieved management expenses (£2.262 million as at 31 December 2011) have not been recognised as the directors do not currently believe that it is probable that sufficient taxable profits will be available against which assets can be recovered.

 

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

 



 

4. Dividends

 

Amounts recognised as distributions to equity holders in the period:

 



2011

2010


 

Revenue

£000

 

Capital

£000

 

Total

£000

 

Revenue

£000

 

Capital

£000

 

Total

£000

Final dividend for the year ended 31 December 2010 of 2.0p (2009 year end: 2.0p) per Ordinary share

 

 

-

 

 

467

 

 

467

 

 

-

 

 

356

 

 

356

Interim dividend for the year ended 31 December 2011 of 2.0p (2010: 2.0p) per Ordinary share

 

 

-

 

 

470

 

 

470

 

 

10

 

 

347

 

 

357








                                                                               

-

937

937

10

703

713

 

A final dividend of 2.0p per Ordinary share in respect of the year to 31 December 2011 is proposed. This dividend has not been recognised in the year ended 31 December 2011 as the obligation did not exist at the balance sheet date.

 

5. Basic and Diluted Earnings (Loss) per Ordinary Share

 

The basic and diluted earnings (loss) per Ordinary share is based on the profit after tax attributable to Shareholders of £1,040,000 (2010: £103,000 loss) and 21,906,793 (2010: 17,449,179) Ordinary shares being the weighted average number of Ordinary shares in issue during the year.

 

The basic and diluted revenue (loss) earnings per Ordinary share is based on the loss for the year attributable to Shareholders of £38,000 (2010: £10,000 profit) and 21,906,793 (2010: 17,449,179) Ordinary shares being the weighted average number of Ordinary shares in issue during the year.

 

The basic and diluted capital earnings (loss) per Ordinary share is based on the capital profit for the year attributable to Shareholders of £1,078,000 (2010: £113,000 loss) and 21,906,793 (2010: 17,449,179) Ordinary shares being the weighted average number of Ordinary shares in issue during the year.

 

During the year the Company issued 6,415,128 Ordinary shares. The Company has also repurchased 363,022 of its own shares which are held in treasury. The treasury shares have been excluded in calculating the weighted average number of Ordinary shares for the period that they were treasury shares.

 

 

The only potentially dilutive shares are those shares which, subject to certain criteria being achieved in the future, may be issued by the Company to meet its obligations under the investment management agreement. No such shares have been issued or are currently expected to be issued. There are, therefore, considered to be no potentially dilutive shares in issue at 31 December 2011 or 31 December 2010. Consequently, basic and diluted earnings per Ordinary share, basic and diluted revenue return per Ordinary share and basic and diluted capital return per Ordinary share are the same for the years ended 31 December 2011 and 31 December 2010.

 

 

6. Net Asset Value per Ordinary Share

 

The basic and diluted Net Asset Value per Ordinary share is calculated on attributable assets of £15,982,000 (2010: £11,829,000) and 23,330,802 (2010: 17,278,696) Ordinary shares in issue at the year end. 

 

The treasury shares have been excluded in calculating the number of Ordinary shares in issue at 31 December 2011.

 

The only potentially dilutive shares are those shares which, subject to certain criteria being achieved in the future, may be issued by the Company to meet its obligations under the investment management agreement. No such shares have been issued or are currently expected to be issued. There are therefore considered to be no potentially dilutive shares in issue at 31 December 2011 or 31 December 2010. Consequently, basic and diluted Net Asset Value per Ordinary share is the same for the year ended 31 December 2011 and 31 December 2010.

 

7. Total Return per Ordinary Share

 

The total return per Ordinary share is calculated on cumulative dividends paid of 30.0 pence per Ordinary share (2010: 26.0 pence per Ordinary share) plus the Net Asset Value as calculated per note 6.

 

8. Related Party Transactions

 

The Company has not entered into any related party transactions that have had a material impact on its financial position or performance in the year to 31 December 2011.  Full details of related party transactions are shown in note 17 to the Annual Report and Accounts which can be obtained as described in note 11.

 

 

9. Events after the Balance Sheet Date

 

Your Board has published an Offer for Subscription giving investors the opportunity to subscribe for up to 14,539,007 new Ordinary shares in the Company at an offer price of 70.5 pence per Ordinary share. The Offer for Subscription will close on 5 April 2012. Pursuant to the offer an initial allotment of £2,676,119 for 3,795,914 Ordinary shares was made on 5 January 2012, and £4,305,533 for 6,106,906 Ordinary shares was made on 20 March 2012.

 

High current activity levels can be seen by the fact that several additional investments have already completed since the 31 December 2011 year end. The Company invested £700,000 in January 2012 as part of the management buyout of the retail display group Displayplan Holdings Limited from its US parent. In February 2012 a further £58,000 was invested into portfolio business Sirigen Group Limited as part of a £1 million internal growth capital round.  In March 2012 £300,000 was invested as part of the £2 million buyout of Selima Limited, a supplier of payroll and expenses software predominantly to public sector customers. Also in March a further £148,000 was invested into EKF Diagnostics Holdings plc, a growing international diagnostics group.

 

In January 2012 derivatives trading system provider, Patsystems plc, was sold to trade purchaser ION Group plc with the Company receiving £164,000 of cash proceeds from the sale of its shares. In March 2012 the Company's £140,000 remaining loan to Humber stevedore and logistics group RMS Group Holdings Limited was repaid as a result of a refinancing supported by the group's bank HSBC following further positive trading results. Also in March the Company sold 7.25% of its holding in quoted software group Tikit Group plc generating £17,000 of proceeds.

 

10. Financial Information

 

The financial information set out here for the year ended 31 December 2011 does not constitute full statutory financial statements as defined in section 435 of the Companies Act 2006 but has been extracted from the Company's financial statements for that period. Statutory accounts for the year ended 31 December 2011 will be delivered to the Registrar of Companies following the Company's Annual General Meeting on 11 May 2012. Those accounts were reported upon without qualification by the independent auditor and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

 

11. Annual Report and Accounts

 

Copies of the Annual Report and Accounts for the year ended 31 December 2011 have been submitted to the National Storage Mechanism and will shortly be available to the public for viewing online at www.hemscott.com/msn/do.  They can also shortly be viewed on the Fund Manager's website at www.yfmep.com. Hard copies of the Annual Report and Accounts for the Year ended 31 December 2011 will be distributed by post to Shareholders and will be available thereafter to members of the public from the Company's registered office.

 

12. Directors

 

The directors of the Company are: Mr R Last, Mr RM Pettigrew and Mr PC Waller.

 

13. Annual General Meeting

 

The Annual General Meeting of the Company will be held at 33 St James Square, London, SW1Y 4JS, on 11 May 2012 at 12.00 noon.

 

 

For further information, please contact:

 

David Hall                                  YFM Equity Partners Limited                  Tel:  0113 294 5039

Claes Spang                              Singer Capital Markets                            Tel:  0203 205 7500


This information is provided by RNS
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