Interim Results
British SmallerTechCompaniesVCT2PLC
19 September 2003
19 September 2003
BRITISH SMALLER TECHNOLOGY COMPANIES VCT 2 PLC
Unaudited preliminary results for the 6 months to 30 June 2003
• £295,000 invested to support the growth of two existing portfolio businesses
• £500,000 invested in three new businesses
• £5m of liquid resources still available
• Investment policy widened to include later stage technology-based businesses
British Smaller Technology Companies VCT 2 plc ("the Company"), the venture
capital trust specialising in growing smaller technology companies across a
range of industrial sectors, today announces its unaudited preliminary results
for the six months to 30 June 2003.
Financial highlights:
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2003 2002 2002
Gross revenue £128,000 £145,000 £296,000
Net revenue (loss) return before and £(33,000) £(10,000) £5,000
after tax
Revenue return per share (0.42)p (0.14)p 0.07p
Total return per share (3.54)p (1.69)p (2.41)p
Net assets £6.90m £7.21m £7.17m
Net asset value per share 88.1p 92.5p 91.6p
Announcing the results, the Chairman, Sir Andrew Hugh Smith, reported that the
continued difficult economic conditions had proved to be a restriction on the
short-term growth prospects of the relatively small, early stage
technology-based businesses in which the Company was invested. Commenting on the
valuations, Sir Andrew said, "In these conditions and with a portfolio of
relatively new investments, the Board feels unable to make any upward revisions
in investee values. On the other hand, under the valuation guidelines of the
British Venture Capital Association, it is necessary to take account of under
performance against plan by making a provision against certain investments."
Investments and Liquid Resources
During the period a total of £795,000 was invested in five companies, two of
which were follow-on investments in companies within the existing portfolio.
Both of these were made to support the further expansion of these businesses and
were part of a much larger syndicate of investors.
The three new investments were in Broadreach Networks Limited, a provider of
broadband access to the public, Amacis Group Limited, a leading provider of
electronic communication management solutions and Immunobiology Limited, a
company which specialises in the development of vaccines for the treatment of
infectious diseases.
The Company still has a significant level of funds to take advantage of
attractive propositions as they arise and at a time when entry valuations are at
more realistic levels. At the same time, the investment policy has been widened
to include some later stage technology-based businesses that will complement the
existing portfolio.
Commenting on the VCT legislative requirement to have at least 70% of the
Company's investments in qualifying holdings by the end of December 2003, Sir
Andrew said that plans were already in place to ensure the maintenance of
quality in the portfolio and retention of sufficient funds for follow-on support
were not compromised by the legislative requirement. He said that, "This will
result in a small reduction in the Company's income but will have the more
important advantage of retaining Shareholder tax benefits whilst permitting the
construction of a balanced portfolio of technology-based companies that will
offer Shareholders the opportunity for longer term capital growth."
Financial Results
The result for the period was a total return loss of 3.54 pence per share. The
net asset value at 30 June 2003 was 88.1 pence per share representing a 3.8%
fall in the first six months of the year. This compares to a 5% increase in the
FTSE(TM) techMARK(TM) All-Share index over that same period. No dividend can be
paid.
Shareholder Relations
The Board continues to look at ways to enhance communications with Shareholders
and improving liquidity in the Company's shares. The procedures to enable the
buy back of the Company's own shares are now in place and the special
distributable reserve created on the cancellation of the share premium account
will better enable the Company to distribute gains on future realisations.
The Company's Investment Adviser, Yorkshire Fund Managers Limited, has held
three investor workshops in the period to date with a fourth to be held in
Edinburgh on 15 October 2003. These workshops have proved very popular and a new
programme is being arranged for next year.
Outlook
Commenting on the prospects for the medium and longer term, Sir Andrew said
that, with a good deal of the international political uncertainty removed during
the earlier part of the year, there are signs that certain economies,
particularly the UK and US, are showing early signs of recovery. He added,
"There are excellent opportunities to invest in both early and later stage
businesses that can demonstrate clear innovative advantage in their current or
future market".
For further information, please contact:
Phil Cammerman, Yorkshire Fund Managers Limited Tel: 0113 294 5050
Neil Baldwin, Brewin Dolphin Securities Limited Tel: 0113 241 0130
Chairman's Statement
The economic conditions in the six months to 30 June 2003 have remained
difficult, and for relatively small and early stage technology companies this
has proved a restriction on their short-term growth prospects. In these
conditions and with a portfolio of relatively new investments, the Board feels
unable to make any upward revisions in investee values. On the other hand,
under the valuation guidelines of the British Venture Capital Association
(BVCA), it is necessary to take account of under performance against plan by
making a provision against certain investments.
The effect of this in the six months to 30 June 2003 has been to reduce the net
asset value by 3.8%. This compares to a 5% increase in the FTSE(TM) techMARK(TM)
All-Share index over the same period, which, given the focus of businesses that
your Company is looking to invest in, remains the most appropriate quoted index
benchmark.
Investment Operations
During the period £795,000 was invested in five companies. Two of these were
follow-on investments in businesses within the existing portfolio, Amino
Holdings and Vibration Technology. Both were made as part of a larger syndicate
to support the further expansion of these two businesses.
The three new investments were made in Broadreach Networks Limited, Amacis Group
Limited and Immunobiology Limited.
Broadreach Networks provides broadband access to the public through both fixed
access sites and wireless "hot spots". A total investment of £250,000 was
approved by your Board in February 2003 with the first tranche of £125,000
invested that same month as part of a larger syndicate of institutional and
trade investors. Following the company's progress since investment and the
achievement of certain key objectives, the drawdown of the remaining balance of
the initial commitment is expected shortly.
Amacis Group is a leading provider of electronic communication management
solutions to global organisations. An investment of £275,000 was made in April
2003 as part of a £1.55m funding package.
The £100,000 investment in Immunobiology was made in June 2003 as part of a
larger funding package to finance the continuing development of the company,
which specialises in the development of vaccines for the treatment of infectious
diseases and cancers.
Financial Results
The result for the period was a total return loss of 3.54 pence per share with a
revenue loss of 0.42 pence per share and a capital loss of 3.12 pence per share.
The net asset value at 30 June was 88.1 pence per share.
As mentioned above, provisions against investments have been made in accordance
with the BVCA valuation guidelines as at 30 June 2003. Shareholders should be
aware that, with effect from 1 August of this year, these guidelines have been
revised, particularly in so far as they relate to early stage technology
investments. The move is away from a cost basis and standard provisioning in
bands of 25% to more intuitive measurements of a company's performance,
discounted cash flows and other perceptions of value.
Liquid Resources and Rate of Investment
Liquid fund resources at the period end amounted to just under £5m in a mixture
of cash and gilt investments. Therefore, your Company still has a significant
level of funds to invest in growing businesses at a time when entry valuations
have become much more attractive. Your Board is looking to invest in some later
stage technology companies over the coming period that will complement the early
stage businesses in the current portfolio.
The VCT legislation requires that, by 31 December 2003, at least 70% of the
Company's investments must be in qualifying holdings (as defined by the
legislation). However, it is also important to ensure that the quality of
investments and the need to retain sufficient reserves for follow-on investments
is not compromised by the need to meet legislative requirements.
Accordingly, if necessary, part of the Company's liquid funds will be deposited
in a non-interest bearing bank account, which does not represent an investment
within the legislative definitions. This will result in a small reduction in the
Company's income but will have the more important advantage of retaining
Shareholder tax benefits whilst permitting the construction of a balanced
portfolio of technology-based companies that will offer Shareholders the
opportunity for longer term capital growth.
Shareholder Relations
The proposals to enable your Company to buy back its own shares were approved by
Shareholders at the Annual General Meeting held on 15 May 2003. This is in
continuance of your Board's active policy of improving Shareholder liquidity in
what is, by nature, an illiquid market through a combination of enhancing
information to Shareholders and providing a mechanism to realise holdings in the
last resort, albeit to a limited amount.
The special distributable reserve created on the cancellation of the share
premium account as part of the process for enabling the buy back of shares will
also be available for other corporate purposes. In particular, your Board is
proposing that it may be utilised to eliminate losses accumulated on capital
reserve. This will better enable the Company to distribute gains on future
realisations to Shareholders.
Over the last six months, your Board's Investment Adviser, Yorkshire Fund
Managers, has held three investor workshops - in London, Leeds and Birmingham.
Over 100 Shareholders from across the three VCTs managed by Yorkshire Fund
Managers have attended. It has become clear that this provides a much better
forum for Shareholders to voice their comments than the Annual General Meeting.
The final workshop for 2003 will be held in Edinburgh on 15 October 2003.
Outlook
Continued progress in our portfolio of investments depends as much on the
progress of the US and Global economies as on the efforts of the companies and
their management. With a good deal of the international political uncertainty
removed during the earlier part of 2003, there are early signs of recovery in
some economies, notably the UK and the US.
Currently, there are excellent opportunities to invest in both early and later
stage businesses that can demonstrate clear innovative advantage in their
current or future market. We look to work with strong syndicates in making new
investments and to ensure that we have adequate reserves to support investee
companies on their road to market acceptance of their products.
Sir Andrew Hugh Smith
Chairman
Statement Of Total Return
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2003 2002 2002
£000 £000 £000
Notes
Revenue
Gross revenue 128 145 296
Administrative expenses (161) (155) (291)
Taxation 2 - - -
------- ------- -------
(33) (10) 5
Capital
Realised gains (losses) (net) 68 (5) (4)
Unrealised losses net (271) (74) (123)
Management fee allocated to (39) (35) (61)
capital
------- ------- -------
(242) (114) (188)
Total return (275) (124) (183)
======= ======= =======
Appropriated:
Revenue
Transfer (from) to revenue (33) (10) 5
reserve
------- ------- -------
Capital
Decrease on reserves (242) (114) (188)
------- ------- -------
Basic and diluted return per
Ordinary share
Revenue (0.42)p (0.14)p 0.07p
Capital (3.12)p (1.55)p (2.48)p
------- ------- -------
3 (3.54)p (1.69)p (2.41)p
======= ======= =======
Notes
The revenue section of this statement is the profit and loss account of the
Company
All activity has arisen from continuing operations.
Balance Sheet
Unaudited Unaudited Audited
30 June 30 June 31 December
2003 2002 2002
£000 £000 £000
Notes
Fixed assets
Investment portfolio 1,938 889 1,317
------- ------- -------
Current assets
Short-term investments 2,640 5,733 5,737
Debtors 99 207 116
Cash and short-term deposits 2,324 419 34
------- ------- -------
5,063 6,359 5,887
Creditors: amounts payable within (100) (36) (31)
one year
------- ------- -------
Net current assets 4,963 6,323 5,856
------- ------- -------
Total net assets 6,901 7,212 7,173
======= ======= =======
Capital and reserves
Called-up share capital 784 780 783
Share premium account 4 - 6,577 6,595
Capital reserve (485) (168) (243)
Revenue reserve - 18 33
Warrant reserve 4 5 5
Special reserve 4 6,597 - -
Other reserve 1 - -
------- ------- -------
Equity shareholders' funds 6,901 7,212 7,173
======= ======= =======
Net asset value per Ordinary share 5 88.1p 92.5p 91.6p
======= ======= =======
Summarised Cash Flow Statement
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2003 2002 2002
£000 £000 £000
Net cash inflow (outflow) from operating
activities 14 (143) (68)
Financial investment (795) (664) (1,194)
-------- -------- --------
Net cash outflow before management of liquid
resources and financing (781) (807) (1,262)
Management of liquid resources 3,068 (105) (56)
-------- -------- --------
Net cash inflow (outflow) before financing 2,287 (912) (1,318)
Financing 3 894 915
-------- -------- --------
Increase (decrease) in cash 2,290 (18) (403)
-------- -------- --------
Notes to the Financial Statements
1. The interim financial statements have been prepared on a basis
consistent with the statutory financial statements for the year ended 31
December 2002. 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 December 2002 do not constitute full financial statements and
have been extracted from the Company's financial statements for the year ended
31 December 2002 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 June 30 June 31 December
2003 2002 2002
£000 £000 £000
Loss on ordinary activities multiplied by
standard small company rate of corporation
tax in the UK of 19% (2002:20%) (52) (25) (36)
Effect of:
Non taxable (gains) losses on investments (i) 39 16 24
Movement in excess management expenses (ii) 13 9 12
------ ------ ------
Current tax charge for period - - -
------ ------ ------
(i) Venture Capital Trusts are not subject to corporation tax on these items
(ii) The Company has no deferred tax liability
3. The basic revenue return per share is based on net loss from ordinary
activities after tax attributable to shareholders of £33,000 (30 June 2002: net
loss £10,000 and 31 December 2002: net revenue £5,000) and on 7,790,000 shares
(30 June 2002: 7,314,000 and 31 December 2002: 7,566,000, 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 the basic and diluted
return per share are the same.
4. The special distributable reserve which was created following the
approval of the Court and the resolution of the Shareholders to cancel the
Company's share premium account will be available for use for other corporate
purposes of the Company. In particular, the special reserve may be utilised to
eliminate losses accumulated on the capital reserve prior to 1 January 2003.
As at 31 December 2002 the accumulated losses on the capital reserve (realised
and unrealised) stood at £243,000. Section 266 of the Companies Act 1985
prohibits an investment company from distributing its capital profits. At such
time as the Board determines that it is appropriate to revoke such status by
giving notice in the prescribed form to the registrar that it no longer wishes
to be an investment company, such prohibition will no longer apply.
5. The net asset value per Ordinary share is calculated on attributable assets
of £6,901,000 and 7,836,000 shares in issue at the period end (30 June 2002:
£7,212,000 and 7,798,000 shares, 31 December 2002: £7,173,000 and 7,833,000
shares).
6. Copies of the interim report can be obtained from the Company's registered
office: Saint Martins House, 210-212 Chapeltown Road, Leeds, LS7 4HZ thereafter.
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