Br.small Co.2 Regulatory News (BSC)

3 Apr 2007 10:42

British SmallerTechCompaniesVCT2PLC03 April 2007 BRITISH SMALLER TECHNOLOGY COMPANIES VCT 2 PLC UNAUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 British Smaller Technology Companies VCT 2 plc ("the Company") today announcesits unaudited preliminary results for the year ended 31 December 2006. Chairman's Statement The year under review has seen your Company take positive steps forwardfollowing the successful acquisition of British Smaller Technology Companies VCTplc at the end of 2005. In this, the first full financial year of the enlargedCompany, net asset value per share has grown by 12.8% due to successfulrealisations and the stabilisation of the remaining portfolio, which has shownencouraging signs of recovery and growth potential. The benefits of an enlarged Company, envisaged at the time of the acquisition,are already in evidence and your board is hopeful that these will continue toadd further value for shareholders. Operations 2006 has seen the portfolio stabilise and mature. Progress has been made by anumber of companies within the portfolio as these businesses gain criticalvolume of sales and move into profitability. This progress is reflected in thenet unrealised valuation gain of £473,000. Your board and its Investment Adviser have seen a good flow of propositionsduring the year. However, entry valuations sought for these businesses have, ingeneral, been overly optimistic and we took the decision to be very selective inthe deals we progressed. In the event, a total of £276,000 was invested in theyear. In addition to the new investment in AIM quoted Brulines plc and follow-oninvestments in DxS Limited and Silistix Limited to support their continuinggrowth, we took the opportunity to invest the residual investment in thesecondary management buyout at Tekton Group Limited that followed the successfulrealisation of our original holding in that company. This new investment is partof a restructuring to allow new institutional investors to take the businessthrough its rapid growth plans. The second half of the year saw a significant realisation from your Company'sportfolio with the sale, on 28 September 2006, of Vibration Technology Limitedto Sercel Inc, a multinational company head quartered in Nantes, France. Thedisposal realised cash proceeds of £2.3 million for your Company, compared to acarrying value at the last reporting date of £1.14 million and an original costof £1.06 million. Following the flotations of Oxonica plc and Optos plc, Vibration Technology isanother example of the initial investments made by your Company that focused onearlier stage innovative companies, which, typically, can take four to six yearsto mature to a position that is attractive to potential acquirers or for listingon a quoted market. For some time, your board has operated an investment strategy of moving towardcompanies that were at a later stage in their development to give the portfolioa better balance and a more immediate revenue stream, either through ongoingdividends or an earlier realisation profile. This strategy is bearing fruit withyour Company's investment in Tekton Group, made in December 2005, being realisedin December 2006. Your board continues to review its investment strategy to ensure it is bestpositioned to provide growth in shareholder value, with particular reference tothe developing portfolio and market conditions. I can report that your board hasrecently agreed to reserve a proportion of available cash for investing inmature companies of a more generalist nature that are expected to become revenuepositive at an early stage. Initially, it is intended that these companies willcomprise no more than forty per cent of the portfolio. Your directors feel thatthis broadening of the investment strategy will further enhance shareholderreturns over the short to medium term. Financial Results and Dividend The result for the financial year ended 31 December 2006 was a profit of £1.52million equivalent to 9.1 pence per share. The prior year result was a loss of£421,000 (loss per share of 5.14 pence per share). The prior year comparison isfor the original single entity prior to the acquisition of British SmallerTechnology Companies VCT plc. The year under review is for a full year of thecombined entity; hence the significant increase in income and administrativeexpenses. The cost economies forecast at the time of the acquisition are in evidence froma comparison of the costs of the two independent companies over the prior yearcompared to the cost base of the combined entity in the current year. The totalcost of the two companies in 2005 was £790,000. The cost base of the combinedentity in 2006 was £599,000, representing a saving of 24% (ignoring inflationaryeffects). As shareholders, you will see the benefits of these cost economies through animproving performance of your Company and improving dividend distributions asrealisations from the portfolio are achieved. The total return, taking account of net asset value plus dividends distributedto date, is now 90.7 pence per share. For the year to 31 December 2006, yourdirectors are recommending distributing some of this value as a tax freedividend of 2.0 pence per share. This will bring total distributions to 9.0pence per share. This dividend will be paid on 25 May 2007 to shareholders onthe register at 13 April 2007. Shareholder Matters In the first half of 2006, a total of 665,867 shares were purchased by yourCompany under its stated share buy-back policy. Following that transaction, yourboard became aware that further substantial shareholdings were about to beoffered for buy-back. This would have significantly reduced the available cashfor investing in, and growing, the current portfolio, which, the board believes,is not in the interests of shareholders as a whole. Your directors believe thatthe investment strategy for bringing later stage growing businesses into theportfolio, and in the active support of the successful companies already in theportfolio, will bring stability and recovery to shareholder value. Therefore,your board took the decision to withdraw the Company's share buy-back policy foran indefinite period. An inevitable consequence of this decision has been to increase the discountbetween the share price and the reported net asset value. This is unfortunatebut does reflect the long term nature of VCT shares and the effect of thelegislation that only offers tax relief on a subscription to new shares. Wecontinue to work with the Company's brokers to improve secondary marketliquidity and the level of the discount, with some progress being made in thelast quarter of the year. With the revised investment strategy already showing evidence of success and theearlier stage portfolio companies showing signs of maturity with therequirement, in some cases, for follow-on funding to support their growth plans,your board is focused on reserving cash for these purposes. We will consider thereinstatement of a similar buy-back policy to that operated previously at theappropriate time, but this is unlikely to be in the foreseeable future. I can confirm that your Company continues to meet all the investment ratiosrequired by legislation to maintain its status as a qualifying VCT. The Annual General Meeting of the Company will be held at 11.30am on 22 May 2007at 23 Berkeley Square, Mayfair, London, W1J 6HE. Full details of the agenda forthis meeting will be included in the Annual Report which will be circulated toshareholders. Outlook Early stage companies at the leading edge of technological innovation areinevitably fragile when market conditions change and failure rates can berelatively high. However, those companies that do gain market acceptance canprovide their investors with significant returns. Your Company has seen someimprovement from these earlier investments as they begin reaching maturity andbecome attractive to secondary purchasers through either a trade sale orflotation. With an investment strategy, firstly, to target innovative companies thatalready have a proven market acceptance and, latterly, to include a proportionof more generalist mainstream businesses, your Company intends to have abalanced portfolio well positioned to provide a more constant rate of growth andtax free dividend income to shareholders. Sir Andrew Hugh SmithChairman3 April 2007 Unaudited Income Statement for the year ended 31 December 2006 Notes 2006 2005 £000 £000 Income 220 82Administrative expenses: ------ ------Investment advisory fee (371) (172)Other expenses (228) (186) ------ ------ (599) (358)Excess of acquirer's interest in the fairvalue of the acquiree's identifiable assets, liabilities and contingent liabilities over cost - 975Gain on realisation of investments 1,421 251Gains (losses) on investments held at fair value 473 (1,371) ------ ------Profit (loss) on ordinary activities before taxation 1,515 (421)Taxation 2 - - ------ ------Profit (loss) for the year from continuing operations 1,515 (421) ------ ------Earnings (loss) per Ordinary share basic and diluted 3 9.10p (5.14)p ====== ====== Unaudited Balance Sheet at 31 December 2006 Notes 2006 2005 £000 £000Assets Non-current assetsInvestments at fair value through profit or loss 9,008 9,503 ------ ------Current assets Trade and other receivables 335 150Cash and cash equivalents 4,984 3,834 ------ ------ 5,319 3,984Liabilities Current liabilitiesTrade and other payables (391) (647) ------ ------Net current assets 4,928 3,337 ------ ------Net assets 13,936 12,840 ====== ====== Shareholders' equityShare capital 1,664 1,731Share premium 69 69Capital redemption reserve 88 21Merger reserve 5,525 5,525Other reserve 2 2Retained earnings 6,588 5,492 ------ ------Total shareholders' equity 13,936 12,840 ====== ======Net asset value per Ordinary share 4 83.7p 74.2p ====== ====== Unaudited Statement of Changes in Equity Share Share premium Revaluation Merger Special *Other Retained Total capital account reserve reserve reserve reserves earnings equity £000 £000 £000 £000 £000 £000 £000 £000 Balance at 31 December 2004 783 9 223 - 5,364 6 1,221 7,606Loss for the year - - - - - - (421) (421)Transfer of the revaluation reserve onadoption of IAS39 - - (223) - - - 223 -Dividends - - - - - - (738) (738)Purchase of own shares (20) - - - (159) 20 - (159)Exercise of warrants 1 8 - - - (1) - 8Issue of share capital on acquisition 959 - - 5,561 - - - 6,520Issue costs - - - (36) - - - (36)Issue of share capital on DRIS** 8 52 - - - - - 60Transfer of the special reserve - - - - (5,205) - 5,205 -Transfer of the warrant reserve - - - - - (2) 2 - ------ ------ ------ ------ ------ ------ ------ ------Balance at 31 December 2005 1,731 69 - 5,525 - 23 5,492 12,840Profit for the year - - - - - - 1,515 1,515Purchase of own shares (67) - - - - 67 (419) (419) ------ ------ ------ ------ ------ ------ ------ ------ Balance at 31 December 2006 1,664 69 - 5,525 - 90 6,588 13,936 ====== ====== ====== ====== ====== ====== ====== ====== *Other reserves include the capital redemption reserve and other reserve, whichare non-distributable. ** DRIS being the Dividend Re-investment Scheme. The Merger reserve was created to account for the difference between the nominaland fair value of shares issued as consideration for the acquisition of theassets and liabilities of British Smaller Technology Companies VCT plc. Thereserve was created after meeting the criteria under section 131 of theCompanies Act 1985 for merger relief. The merger reserve is a non-distributablereserve. The special distributable reserve was created following the approval of theCourt and the resolution of the Shareholders to cancel the Company's sharepremium account and is available for use for other corporate purposes of theCompany. Included within retained earnings is £1,211,000 (2005: £632,000) in respect ofunrealised gains in respect of investments held at fair value through profit orloss. These gains are not distributable under the Companies Act 1985. Unaudited Cash Flow Statement for the year ended 31 December 2006 2006 2005 £000 £000 Net cash flows from operating activities (393) (290) ------ ------Cash flows from investing activities Cash acquired - 1,386Costs of acquisition (172) (39) ------ ------Acquisition net of cash acquired (172) 1,347Purchase of fixed asset investments (276) (867)Proceeds from sale of fixed asset investments 2,875 331 ------ ------Net cash from investing activities 2,427 811 ------ ------Cash flows from financing activitiesIssue of Ordinary shares on exercise of warrants - 8Issue costs in respect of the shares issued inconsideration for the acquisition - (36)Purchase of own shares and associated warrants (419) (159)Dividends paid (346) (332) ------ ------Net cash used in financing activities (765) (519) ------ ------Net increase in cash and cash equivalents 1,269 2 Cash and cash equivalents at beginning of the year 3,834 3,824 Effect of market value changes in cash equivalents (119) 8 ------ ------Cash and cash equivalents at the end of the year 4,984 3,834 ====== ====== Notes to Financial Statements for the year ended 31 December 2006 1. Accounting Policies This preliminary announcement does not constitute statutory accounts within themeaning of Section 240 of the Companies Act 1985. The information for the year ended 31 December 2005 is an extract from thestatutory accounts to that date which have been delivered to the Registrar ofCompanies. Those accounts included an audit report which was unqualified andwhich did not contain a statement under Section 237(2) or (3) of the CompaniesAct 1985. The statutory accounts for the year ended 31 December 2006, upon whichthe auditors have still to report, will be delivered to the Registrar followingthe Company's annual general meeting. The financial statements have been prepared in accordance with the InternationalFinancial Reporting Standards (IFRS), which comprise standards andinterpretations approved by the International Accounting Standards Board (IASB)and International Accounting Standards Committee (IASC) as adopted by theEuropean Union. 2. Taxation on Ordinary Activities 2006 2005 £000 £000 Corporation tax payable at 19% (2005: 19%) - - ------ ------Profit (loss) on ordinary activities before taxation 1,515 (421) ------ ------Profit (loss) on ordinary activities multiplied bystandard small company rate of corporation tax in UK of 19% (2005: 19%) 288 (80) Effect of:UK dividends received (4) -Non taxable (profits) losses on investments (360) 213Excess management expenses 76 (133) ------ ------Current tax charge for the year - - ------ ------ 3. Earnings (loss) per Ordinary Share The earnings (loss) per Ordinary share is based on net profit from ordinaryactivities after tax of £1,515,000 (2005: loss of £421,000) and 16,878,000(2005: 8,185,000) shares, being the weighted average number of shares in issueduring the year. The only potentially dilutive shares are those shares which, subject to certaincriteria being achieved in the future, may be issued by the Company to meet itsobligations under the investment management agreement. No such shares have beenissued or are currently expected to be issued. There are, therefore, consideredto be no potentially dilutive shares in issue at 31 December 2006 or 31 December2005. Consequently, basic and diluted earnings per share are the same for theyear ended 31 December 2006 and 31 December 2005. 4. Net Asset Value per Ordinary Share The net asset value per Ordinary share is calculated on attributable assets of£13,936,000 (2005: £12,840,000) and 16,641,257 (2005: 17,307,124) shares inissue at the year end. The Company has no securities that would have a dilutiveeffect in either period and hence the basic and diluted net asset value pershare are the same. 5. Annual Report Copies of the full financial statements for the year ended 31 December 2006 willbe available to the public at the registered office of the Company at SaintMartins House, 210-212 Chapeltown Road, Leeds, LS7 4HZ . For further information, please contact: David Hall YFM Private Equity Limited Tel: 0161 832 7603 Alan Davies YFM Private Equity Limited Tel: 0113 294 5000 Jonathan Becher Teather & Greenwood Limited Tel: 0207 426 3269 Michael Bellamy Teather & Greenwood Limited Tel: 0207 426 9547 This information is provided by RNS The company news service from the London Stock Exchange