Interim Management Statement

RNS Number : 9629J

Bluehone AIM VCT2 PLC

09 April 2010

 



Bluehone AIM VCT2 plc

Interim management statement

For the three month period from 1 December 2009 to 28 February 2010

Investment Objective

The Company's investment objective is to provide shareholders with a tax efficient means of gaining long term capital growth and an attractive dividend stream, primarily through investment in a diversified portfolio of AIM companies or unquoted companies which anticipate a stock market quotation.

Performance Summary

Capital return	As at 28 February 2010	As at 30 November 2009	Movement
Ordinary shares
Net assets	£23.5m	£24.6m	(4.7)%
Net asset value per share	39.6p	41.6p	(4.7)%
Share price	22.3p	24.3p	(8.2)%
Discount to NAV	43.6%	41.7%
Total return		For the three month period ended 28 February 2010
Ordinary shares
Net asset value 1		(2.3)%
Share price2		(8.3)%
FTSE AIM3		2.5%

¹NAV total return = NAV + reinvested dividends; Source: F&C Asset Management 

²Share price total return = mid to mid share price + reinvested dividends; Source: Datastream

³Source: Datastream

Investment Performance

The recent strength in the Main Market is a response to the improving macro economic situation of the world economy, in particular a resumption of strong growth in China and India and the gathering pace of the recovery in the US. Closer to home there remain plenty of risks and uncertainties to economic recovery, with the Euro zone facing currency crisis and in the UK political uncertainty, as well as the need for severe cuts in public sector expenditure weighing on investor decisions. Although there is yet little evidence from official statistics that economic recovery has been established in the UK, incidental evidence from portfolio companies suggests that order books are starting to recover after the destocking and delays experienced during 2009. After a strong 2009, smaller company markets have once again entered a period of inactivity with most of the share price strength being focused on the resource sectors and the larger more liquid companies. We have yet to see any significant improvement in the IPO market although some fund raisings by existing companies are gaining shareholder support and Bluehone AiM VCT2 has made selective investments over the period. The FTSE AiM Index increased by 2.1 per cent over the quarter and the Net Asset Value of the Company fell by 4.7 per cent. The performance was influenced by a reduction in the value of the largest holding in the portfolio, Infrastrata, which suffered from the absence of any news on the financing of its Portland gas project and accounted for the majority of the fall in the NAV. Infrastrata has previously given guidance that it hoped to achieve the farm out and financing of this important project in the first half of 2010. 

Investment Activity and Realisations

Investment into the portfolio amounted to £1million during the quarter.

Purchases of secondary stock were made in: Armour Group following an encouraging meeting with the company; as well as Avia Health Infomatics and Clarity Commerce.

New investments were made in Scotgold, Plant Impact, Access Intelligence and Qonnectics.

A small (£75k) initial investment was made in Scotgold when this company joined AIM having already been quoted on the Australian stock market. The company holds three exploration licenses covering an area of central Scotland including a high grade gold and silver project with a JORC resource of 154,000 oz gold and 589,000 oz silver. The existing project is expected to come into production during 2011 and the company has the potential to add to its resource from its exploration licenses.

A sum of £200,000 was invested into Plant Impact to enable the acceleration of sales of its range of ecologically sound fertilizer and agrochemical products which we believe have significant market opportunities. Plant Impact has responded to the growing pressure on the world's arable land by engineering natural fertilizer and crop additives to enhance yields and improve growing efficiency. The company is at the early stages of commercialising its technology having gained reputable third party verification and has recently signed a licensing agreement with Arysta Life Sciences, one of the world's top ten agrochemical businesses.

We backed the acquisition of Cobent by Access Intelligence with an investment of £300,000. Access is a software company focusing on the delivery of Software as a Service (SaaS) solutions, in particular in the areas of compliance and e-procurement. Cobent is a supplier of training and compliance software that helps customers comply with FDA, FSA, Health and Safety and Fire regulations and fits well with the existing businesses. The combined company is profitable and offers both organic growth and acquisition upside.

The investment in Qonnectis of just £100,000 will enable further investment into an IPO of American Leak at a 20% discount, which is anticipated to occur in April.

A follow-on investment was made into RiiG of a £100,000 12% convertible loan note secured on the debtor books of the company. The investment was part of a £300,000 injection of working capital to enable the company to fund the growth of its i-team service offering to the large insurers as new contracts are signed.

The purchases during the quarter were:

Company	Date	Cost (£'000)	VCT status
Access Intelligence placing	Feb	300	Qualifying
Plant Impact placing	Feb	200	Qualifying
Armour group	Jan/Feb	151	Non-Qualifying
Qonnectis placing	Dec	100	Qualifying
Resources in Insurance Group (RiiG) 12% loan note	Feb	100	Qualifying
Scotgold placing	Feb	75	Qualifying
Clarity Commerce Solutions	Jan	60	Non-Qualifying
Avia Heath Informatics	Dec	18	Non-Qualifying
Total purchases		1,004

Investment Realisation

Total sales during the quarter amounted to £3.6 million. We continued streamlining the bottom of the portfolio and sold holdings in Image Scan, Westminster, 1^st Dental Laboratories, Altitude and Coolabi. A sum of £275,000 was realised from the takeover of Cybit Holdings by an American private equity firm called Francisco Partners. The takeover of FDM was completed in December and a further £638,000 was realised for the fund on top of the £418,000 which was raised when the bid was announced. The decision to halve the fund's exposure to Vectura realised £1.3 million at an average price of 75p per share.

The cash balance at the end of the quarter was £3.2 million or 13.4% of net assets; however this has been reduced to £2.7 million following additional investment into the portfolio after the quarter end.

The sales during the quarter were:

Company	Date	Proceeds (£'000)	Profit / (loss) (£'000)
Vectura	Dec/Jan	1,283	457
UK 5.755 071209 (maturity)	Dec	1,241	(49)
FDM Group	Dec	639	288
CybIT Holdings	Jan	275	(275)
Westminster	Jan	49	(51)
1st Dental Laboratories	Dec/Feb	28	(230)
Altitude Group	Jan	23	(101)
Coolabi Group	Jan	13	(57)
PHSC	Dec	9	(17)
Image Scan Holdings	Dec	6	(111)
Total sales		3,566	(146)

Top ten investment holdings

Position as at 28 February 2010	Position  as at 30 November 2009	Company	Percentage of net assets as at 28 February 2010
1	(1)	Infrastrata	9.8
2	(3)	Cambridge Sensors	5.0
3	(2)	Vectura	4.7
4	(10)	Clarity Commerce Solutions	3.5
5	(7)	Mears Group (formerly Supporta)	3.4
6	(6)	Quadnetics	3.1
7	(9)	Bond International Software	2.9
8	(11)	Servoca	2.6
9	(8)	FfastFill	2.6
10	(4)	IS Pharma	2.3
Total			39.9

Sector breakdown  (Including cash and interest bearing securities)

	Percentage of total investments at 28 February 2010	Percentage of total investments at 30 November 2009
Industrials	24.6	24.5
Technology	18.9	17.8
Health care	18.3	25.0
Oil and gas	11.7	14.7
Consumer services	3.9	3.7
Financials	2.6	2.2
Utilities	2.2	1.7
Consumer goods	2.1	1.8
Basic materials	1.3	0.0
Telecommunications	1.0	0.7
UK Government securities	0.0	5.0
Net current assets	13.4	2.9
Total	100.0	100.0

Outlook

The main market, and in particular the FTSE100 index which has greater exposure to overseas earners, is being driven by more positive news coming from China, India and the US as the world economy gathers pace after severe global recession. The domestic outlook is more uncertain with the impending general election and an anaemic economic recovery holding back investment decisions.  Apart from the buoyant resource sector, smaller company markets have suffered in 2010 from bouts of illiquidity as investors remain focused on the larger end of the market and many individual companies have not participated in the market's recovery. The portfolio companies in Bluehone AiM VCT2 have come through a very difficult economic period and are on the whole in good financial shape. It is encouraging to see companies once more focusing on growth plans rather that cost reduction and a number have made or are contemplating acquisitions to augment growth. Despite the rather uncertain economic background we anticipate a strong news flow from the portfolio in the period ahead.

Daily and key information

Further information regarding the Company, including daily net asset values published since the end of the period and quarterly factsheets, can be found at the Company's website www.bluehoneaimvct2.com

Year end:                     30 November 2010

Dividends paid:           The Board are proposing to pay a final capital dividend of 1.0 pence per share on 30 April 2010 to shareholders on the register on 9 April 2010.

Issued Share Capital: 59,399,132 Ordinary shares of 10p each

For further information please contact:

Robert Mitchell, Bluehone Investors LLP: 0207 496 8929

Scott Macrae, F&C Asset Management plc:  0207 628 8000

 

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