Baronsmead Vt Regulatory News (BVT)

15 May 2006 10:02

Baronsmead VCT 2 PLC15 May 2006 To: RNS From: Baronsmead VCT 2 plc Date: 15 May 2006 Investment Objective To achieve long-term capital growth and generate tax free dividends to privateinvestors. Audited Preliminary Results - Year Ended 31 March 2006 Ordinary shares • Net asset value (NAV) per share increased by 12.2 per cent to 128.12p before deduction of annual dividends. • After dividends totaling 13.5p per share, for the year, the NAV is 114.62p at 31 March 2006. • Since launch in 1998 the total return to ordinary shareholders is 90.5 per cent. C shares • NAV per share increased by 9.7 per cent to 104.23p before deduction of annual dividends. • After dividends totaling 2.3p per share, for the year, the NAV is 101.93p at 31 March 2006. The Chairman, Clive Parritt, said: "The significant profits realised from selling investments in the portfolioattributable to the ordinary shares have generated a very high level ofdividends, payable tax-free to qualifying shareholders. Despite the immaturityof their portfolio, C shareholders too have seen an early advance in their totalreturn. The proposed changes in VCT legislation will become law later this summer. Atthat time the Board will update shareholders about the impact of the changes forthe investment and shareholder policies including the Dividend ReinvestmentScheme. However, Baronsmead VCT 2 is the largest VCT in the market and aftereight years of operating within the strictures of VCT legislation the Boardbelieves it is well placed to sustain progress and performance. RESULTS | In the year to 31 March 2006, the Net Asset Value (NAV) per ordinaryshare increased by 12.2 per cent from 114.22p to 128.12p before dividends. Thethree interim dividends paid during the year totalled 13.5p per ordinary shareand the resulting NAV per Ordinary Share was 114.62p. Since launch in 1998 thetotal return for the Ordinary Shares is 190.5 per cent, net of all costs. The NAV per C share increased by 9.7 per cent from 95.04p to 104.23p beforedividends. Two interim dividends totalling 2.3p were paid and the resulting NAVper C share was 101.93p. Since launch the total return for the C shares is 110.9per cent, based mainly on the growth in the value of the recent AiM investments. The total returns for the ordinary and C shares are stated after all costs.Included in these costs are additional fees payable to the Manager when thetotal return in any year exceeds the annual performance trigger. In the year to31 March 2006, £782,000 inclusive of VAT is payable (comprising £684,000attributable to the ordinary shares and £98,000 attributable to the C shares)representing 20% of this extra return. LONG TERM PERFORMANCE | The performance since launch compares favourably againstthe FTSE All-Share Index, which is a broad UK comparator for equity investments. Furthermore, when compared to the six other Generalist VCTs launched at thesame time, the Company has a total return of some 61 per cent greater than theaverage of this peer group. The total return, since inception, is also 55 percent ahead of the FTSE All-Share Index. The investment performance compares well with the more established investmenttrusts that focus on private equity. The Association of Investment TrustCompanies lists 19 Trusts in this category and the Company would have ranked10th and 5th over the last three and five years respectively. However, theinvestment criteria of these trusts are not restricted by VCT legislation whichlimits the range of investments available to the Company. The taxation reliefsgiven to qualifying shareholders in VCTs are designed to redress thisrestriction and the resulting higher risk which may pertain to permitted smallerunquoted and AiM traded companies. Taking tax reliefs of 20 per cent intoaccount the Company would have ranked 6th and 4th. The Board was especially pleased that the Company was short listed in November2005 for Investment Trust award of the year (Investment Week). The Board believes that its policy objective of paying dividends at an averageannual rate of 4.5p per ordinary share will support the appeal of the secondarymarket. The intention of the Board is to maintain a NAV of at least 100p perordinary share and so meet the twin investment objectives of sustained dividendsand capital retention, including payment to the current C shareholders, oncetheir shares are converted into ordinary shares. THE PORTFOLIO | In the year under review, 18 new investments were made and 11investments were sold taking the net portfolio to 73 companies. The 7 newunquoted and 11 new AiM investments, when combined with further rounds offinancing for existing investments, resulted in total investment of £9.2m. Theaverage size of the each new unquoted investment was significantly larger at£770,000 than the average AiM investment of £290,000. Six VCT tests relating to the running of Baronsmead VCT 2 have to be and weremet throughout the year. The most visible of these tests is that more than 70per cent of the portfolio has to be invested in qualifying investments by theend of the third accounting period from when new share capital was subscribed.At the year end, 74.6 per cent of the capital raised (net of launch costs) priorto 31 March 2004 was invested in VCT qualifying investments. The relative health of portfolio companies is measured quarterly in terms ofprofitability as well as other non-financial benchmarks. At the year end, 84per cent of the portfolio companies were reporting higher or steady profits. The Board was pleased that the Manager continued their run of realisationsuccesses and during the year they realised investments representing some 33 percent of the total portfolio yielding capital profits of approximately 2.3 timescost. It is vital for the Manager to make investment decisions based on the investmentcriteria agreed with the Board, without being too constrained by the VCT rules.In the interests of shareholders, investments are only made if they meet therigorous standards set by the Manager. Similarly investments are realised whenit is advantageous to do so. On occasions this could result in the VCT testsbecoming at risk (especially those related to the test under which 70 per centof the portfolio must be invested in qualifying investments). Recent Governmentannouncements relating to the use of non interest bearing accounts have furtherincreased the potential for commercial investment decisions to be inhibited bylegislation. MEETING SHAREHOLDER NEEDS | The March 2006 Budget statement introduced furtherchanges to the VCT regulations. Any capital raised by VCTs after 6 April 2006must be invested into companies with gross assets not exceeding £7m, as comparedwith the £15m which applied to capital raised before this date. At this stagethe Board believes this will reduce the number of suitable AiM opportunities andpotentially a smaller percentage of unquoted transactions. Existing shareholders subscribed for 1,003,001 new ordinary shares and 247,650 Cshares at respective average prices of 110p and 98p per share under the DividendReinvestment Scheme. 1.57m ordinary shares were bought back within the lastyear at an average price of 100.5p, representing a discount of approximately 10%to NAV per share. The Board believes that an investment in Baronsmead VCT 2 is an effective way toobtain a portfolio interest in smaller AiM and unquoted entrepreneurialbusinesses. If skillfully selected, such investments can offer an above averageopportunity for capital growth. Additionally, investments in VCTs are taxeffective. Baronsmead VCT 2 will, over time, compete with general investmenttrusts which invest in private equity but with the added advantage of capitalbeing invested in a tax-free environment, not dissimilar to ISA reliefs. To develop this it is vital for shareholders to be able to buy and sell theirshares in the market. At present this is still difficult and most sellers relyon shares being bought back by the VCTs themselves. There are signs that this ischanging and the Board hopes that by developing an agreed dividend policy andmaintaining performance, Baronsmead VCT 2 will become attractive to purchasers. CORPORATE GOVERNANCE | The Co-investment Scheme enabling executive members ofthe Managers to invest in unquoted transactions with the Company was announcedto shareholders in November 2004 and was explained in more detail in the InterimReport as at 30 September 2005. The rationale remains to expand the existingskills and capacity of the Managers team and by aligning the interests of theteam with those of shareholders encourage the retention of motivated staff. Inits first year of this Scheme, 21 members of ISIS have invested £74,950 in thesix unquoted investments where the Manager was the lead investor. Technologyinvestments like Domantis and Xention led by other Investment Managers did notqualify for the Scheme. ISIS continues to invest in its investment skills and also in systems to controland minimise risks associated with an investment portfolio within the VCTlegislation. We now have over 3,700 ordinary and C shareholders and I look forward towelcoming as many as possible at the AGM on 19 June 2006 at 11.00 a.m. at theOffices of ISIS, Exchange House, Primrose Street, London EC2A 2NY. OUTLOOK | The task of using private equity disciplines to find, invest, manageand realise attractive qualifying VCT investments will always remain achallenge. This is the role of the Managers and the Board maintains a constantdialogue to ensure that their progress and performance is monitoredconstructively and on a regular basis. The last year has been no exception butthe challenges have been met and a high level of both investment and divestmenthas delivered good results. The Board's priority is to sustain this progressand continue meeting shareholder expectations. The success of many of the investee companies (AiM and unquoted) depends to somedegree on the continuing strength of the UK economy. Current issues such asincreasing oil prices, heavier Government taxation, pension deficits, inflationpressures and currency fluctuations could all make it harder for our investeecompanies to increase their profits. Nonetheless, with over 80 per cent of thecompanies in the portfolio showing steady or improved performance, together witha record of successful realisations and AiM performance, the Company is wellplaced to maintain its positive progress." Enquiries: David Thorp, ISIS EP LLP 0207 506 1100 Rhonda Nicoll, F&C Asset Management 0131 465 1000 Baronsmead VCT 2 plc Audited Income Statement Year to 31 March 2006 Ordinary Shares Revenue Capital Total £'000 £'000 £'000 Increase in fair value of investments held - 3,997 3,997Gain on disposal of investments - 1,590 1,590Income 1,903 - 1,903Investment management fee (278) (1,517) (1,795)Other expenses (241) - (241) Profit on ordinary activities before taxation 1,384 4,070 5,454 Tax on ordinary activities (284) 375 91 Profit on ordinary activities after taxation 1,100 4,445 5,545 Return per ordinary share: 2.68p 10.81p 13.49p Audited Reconciliation of Movements in Ordinary Shareholders' Funds 2006 £'000 Opening shareholders' funds (as previously reported) 47,931Less investments held at fair value changed from mid to bid basis (581)Add dividends accrued at 31 March 2005 1,119 Opening shareholders' funds (as restated) 48,469Profit for the year 5,545Deferred consideration 12Decrease in share capital in issue (459)Dividends paid (6,670) Closing shareholders' funds 46,897 Baronsmead VCT 2 plc Audited Income Statement Year to 31 March 2006 C Shares Revenue Capital Total £'000 £'000 £'000 Increase in fair value of investments held - 1,838 1,838Loss on disposal of investments - (60) (60)Income 1,091 - 1,091Investment management fee (129) (485) (614)Other expenses (127) - (127) Profit on ordinary activities before taxation 835 1,293 2,128 Tax on ordinary activities (247) 156 (91) Profit on ordinary activities after taxation 588 1,449 2,037 Return per C share: 2.66p 6.56p 9.22p Audited Reconciliation of Movements in C Shareholders' Funds 2006 £'000 Opening shareholders' funds 20,951Less investments held at fair value changed from mid to bid basis (42)Add dividends accrued at 31 March 2005 220 Opening shareholders' funds 21,129Profit for the year 2,037Increase in share capital in issue 239Dividends paid (728)Closing shareholders' funds 22,677 Baronsmead VCT 2 plc Audited Income Statement Year to 31 March 2006 Total Revenue Capital Total £'000 £'000 £'000 Increase in fair value of investments held - 5,835 5,835Gain on disposal of investments - 1,530 1,530Income 2,994 - 2,994Investment management fee (407) (2,002) (2,409)Other expenses (368) - (368) Profit on ordinary activities before taxation 2,219 5,363 7,582 Tax on ordinary activities (531) 531 - Profit on ordinary activities after taxation 1,688 5,894 7,582 Return per ordinary share/C share: 2.67p 9.33p 12.00p Audited Reconciliation of Movements in Total Shareholders' Funds 2006 £'000 Opening shareholders' funds (as previously reported) 68,882Less investments held at fair value changed from mid to bid basis (623)Add dividends accrued at 31 March 2005 1,339 Opening shareholders' funds (as restated) 69,598Profit for the year 7,582Deferred consideration 12Decrease in share capital in issue (220)Dividends paid (7,398) Closing shareholders' funds 69,574 Baronsmead VCT 2 plc Audited Income Statement Year to 31 March 2005 Ordinary Shares Revenue Capital Total (as restated) (as restated) (as restated) £'000 £'000 £'000 Increase in fair value of investments held - 7,789 7,789Gain on disposal of investments - 1,181 1,181Income 1,511 - 1,511Investment management fee (255) (2,418) (2,673)Other expenses (272) - (272) Profit on ordinary activities before taxation 984 6,552 7,536 Tax on ordinary activities (177) 206 29 Profit on ordinary activities after taxation 807 6,758 7,565 Return per ordinary share: 1.92p 16.09p 18.01p Audited Reconciliation of Movements in Ordinary Shareholders' Funds Total £'000 Opening shareholders' funds (as previously reported) 41,643Less investments held at fair value changed from mid to bid basis (510) Opening shareholders' funds (as restated) 41,133Profit for the year 7,565Increase in share capital in issue 738Dividends paid (967) Closing shareholders' funds 48,469 Baronsmead VCT 2 plc Audited Income Statement Year to 31 March 2005 C Shares Revenue Capital Total (as (as (as restated) restated) restated) £'000 £'000 £'000 Increase in fair value of investments held - 86 86Income 383 - 383Investment management fee (43) (129) (172)Other expenses (57) - (57) Profit/(loss) on ordinary activities before taxation 283 (43) 240 Tax on ordinary activities (54) 25 (29) Profit/(loss) on ordinary activities after taxation 229 (18) 211 Return per C share: 1.49p (0.11)p 1.38p Audited Reconciliation of Movements in C Shareholders' Funds 2005 £'000 Profit for the year 211Increase in share capital in issue 20,918Closing shareholders' funds 21,129 Baronsmead VCT 2 plc Audited Income Statement Year to 31 March 2005 Total Revenue Capital Total (as (as (as restated) restated) restated) £'000 £'000 £'000 Increase in fair value of investments held - 7,875 7,875Gain on disposal of investments - 1,181 1,181Income 1,894 - 1,894Investment management fee (298) (2,547) (2,845)Other expenses (329) - (329) Profit on ordinary activities before taxation 1,267 6,509 7,776 Tax on ordinary activities (231) 231 - Profit on ordinary activities after taxation 1,036 6,740 7,776 Return per ordinary share/C share: 1.81p 11.76p 13.57p Audited Reconciliation of Movements in Total Shareholders' Funds 2005 £'000 Opening shareholders' funds (as previously reported) 41,643Less investments held at fair value changed from mid to bid basis (510) Opening shareholders' funds (as restated) 41,133Profit for the year 7,776Increase in share capital in issue 21,656Dividends paid (967) Closing shareholders' funds 69,598 Baronsmead VCT 2 plc Audited Balance SheetAs at 31 March 2006 Ordinary C Shares Shares Total £'000 £'000 £'000Fixed assets held at fair value Quoted on AiM 16,404 3,909 20,313 Quoted on OFEX 119 - 119 Listed 530 - 530 Interest bearing securites 11,229 13,302 24,531 Unquoted investments 16,230 4,110 20,340 44,512 21,321 65,833 Net current assets 2,385 1,356 3,741Net assets 46,897 22,677 69,574 Financed by: Shareholders' funds 46,897 22,677 69,574 Net asset value per share 114.62p 101.93p - Shares in issue 40,916,427 22,247,650 Baronsmead VCT 2 plc Audited Balance Sheet (As restated)As at 31 March 2005 Ordinary C Shares Shares Total £'000 £'000 £'000Fixed assets held at fair value Quoted on AiM 15,919 786 16,705 Quoted on OFEX 127 - 127 Listed 481 - 481 Interest bearing securites 6,001 17,984 23,985 Unquoted investments 23,698 - 23,698 46,226 18,770 64,996 Net current assets 2,243 2,359 4,602Net assets 48,469 21,129 69,598 Financed by: Shareholders' funds 48,469 21,129 69,598 Net asset value per share 116.92p 96.04p - Shares in issue 41,453,426 22,000,000 Baronsmead VCT 2 plc Summarised Audited Statement of Cash Flows For the year ended 31 March 2006 Ordinary C Shares Shares Total £'000 £'000 £'000 Net cash (outflow)/inflow from operating activities (974) 697 (277)Net cash inflow/(ouflow) from capital expenditure andfinancial investment 7,319 (773) 6,546Equity dividends paid (6,670) (728) (7,398) Net cash outflow before financing (325) (804) (1,129)Net cash (outflow) from financing (485) (113) (598) Decrease in cash (810) (917) (1,727) Reconciliation of net cash flow to movement in netcash Decrease in cash in the year (810) (917) (1,727)Net cash as at 1 April 2005 4,100 2,589 6,689 Net cash as at 31 March 2006 3,290 1,672 4,962 Summarised Audited Statement of Cash Flows For the year ended 31 March 2005 Ordinary C Shares Shares Total £'000 £'000 £'000 Net cash inflow from operating activities 235 3 238Net cash inflow/(outflow) from capital expenditure andfinancial investment (1,034) (18,684) (19,718)Equity dividends paid (967) - (967)Net cash outflow before financing (1,766) (18,681) (20,447)Net cash inflow from financing 1,010 21,270 22,280(Decrease)/increase in cash (756) 2,589 1,833 Reconciliation of net cash flow to movement in net cash (Decrease)/increase in cash in the year (756) 2,589 1,833Net cash as at 1 April 2004 4,856 - 4,856Net cash as at 31 March 2005 4,100 2,589 6,689 Notes 1. The audited results which cover the year to 31 March 2006 have beenprepared under UK Generally Accepted Accounting Practice (UK GAAP). A number ofnew UK financial Reporting Standards have been introduced as apart of the UKconvergence programme with International Accounting Standards. The changesaffecting the Company relate to FRS 26 Financial Instruments: Measurement andFRS 21 Events after the Balance Sheet Date. A reconciliation of these changes isset out in Notes 6 and 7 below. Where presentational guidance set out in the Statement of Recommended Practice("SORP"), revised December 2005, for Investment Trusts issued by the Associationof Investment Trust ("AITC") in January 2003 is consistent with the requirementsof UK GAAP, the Directors have sought to prepare the financial statements on abasis compliant with the recommendations of the SORP. In order to better reflect the activities of a VCT and in accordance with theSORP, supplementary information which analyses the income statement betweenitems of a revenue and capital nature has been presented alongside the incomestatement. The Net Revenue is the measure the Directors believe appropriate inassessing the Company's compliance with certain requirements set out in Section842 AA Income and Corporation Taxes Act 1988. 2. There were 40,916,427 ordinary shares in issue at 31 March 2006 (31March 2005: 41,453,426). During the year the Company issued 1,033,001 ordinaryshares raising net proceeds of £1,126,000 and bought back for cancellation475,000 ordinary shares at a cost of £472,000. Since the Company's AGM held on20 June 2005, the Company has bought back 1,095,000 ordinary shares to be heldin Treasury at a cost of £1,113,000. The total number of ordinary shares listedat 31 March 2006 was 42,011,427 (31 March 2005: 41,453,426). During the year the Company issued 247,650 C shares raising netproceeds of £239,000. 3. Revenue and capital returns for the ordinary shares for the year to 31March 2006 are based on a weighted average of 41,108,544 (2005: 41,995,911)ordinary shares in issue during the year. Revenue and capital returns for the C shares for the year to 31 March2006 are based on a weighted average of 22,080,010 (2005: 15,323,042) C sharesin issue during the year. 4. Income for the year is derived from: 2006 2005 Total Total £'000 £'000 Dividend Income 452 375Fixed interest investment 2,382 1,291Deposit interest 160 228 2,994 1,894 5. These are not full accounts in terms of Section 240 of the Companies Act1985. Full audited accounts for the year to 31 March 2005 have been lodged withthe Registrar of Companies. The annual report for the year to 31 March 2006will be sent to shareholders shortly and will then be available for inspectionat Exchange House, Primrose Street, London, the registered office of theCompany. The audited accounts for the year to 31 March 2005 and 31 March 2006contain unqualified audit reports. 6. (a) Restatement of balances as at and for the year ended 31 March2005. There have been a number of changes to financial reporting standards that havecome into effect for accounting periods beginning on or after 1 January 2005.The principal ones affecting the Company are the requirement to value itsinvestments at fair value and only reflect dividends to shareholders when paid. Investments are designated as held at fair value under revised UK GAAP and arecarried at bid prices which total £64,996,000. Previously under UK GAAP, theywere carried at mid prices. The aggregate differences, being a revaluationdownwards of £623,000 also decreases Revaluation reserve. No provision has been made for the final dividend on the ordinary shares and Cshares for the year ended 31 March 2005 of £1,119,000 and £220,000 respectively.Under revised UK GAAP, dividends are not recognised until paid. (b) Reconciliation of the Profit and Loss Account to the Income Statement forthe year ended 31 March 2005. Under revised UK GAAP the total column of the Income Statement is the equivalentof the Profit and Loss Account reported previously. 2005 Notes £'000 Total transfer from reserves per the Profit and Loss Account (aspreviously reported) (2,764) Add unrealised gains on revaluation of investments 1 8,347Add back dividends paid and proposed 2 2,306Investments held at fair value changed from mid to bid basis at 31March 2004 3 510Investments held at fair value changed from mid to bid basis at 31March 2005 3 (623) Net profit per the Income Statement 7,776 1) Unrealised gains on revaluation of investments are reflected in the IncomeStatement under revised UK GAAP. 2) Dividends declared and paid during the year are dealt with through Movementsin Shareholders' Funds. 3) The portfolio valuations at 31 March 2004 and 31 March 2005 are required tobe valued at fair value under revised UK GAAP. These differ from the previousvaluations by £510,000 and £623,000 respectively. 7. (a) Restatement of opening balances as at 31 March 2004 Investments are designated as held at fair value under revised UK GAAP and arecarried at bid prices which total £36,224,000. Previously under UK GAAP, theywere carried at mid prices. The aggregate differences, being a revaluationdownwards of £510,000 also decreases the Revaluation reserve. No provision had been made for a final dividend on the ordinary shares for theyear ended 31 March 2004. Accordingly no adjustment is required, as underrevised UK GAAP. Dividends are not recognised until paid. 8. The Annual General Meeting will be held on 19 June 2006 at 11.00 am. This information is provided by RNS The company news service from the London Stock Exchange