Baronsmead Vt Regulatory News (BVT)

15 May 2007 09:44

Baronsmead VCT 2 PLC15 May 2007 Baronsmead VCT 2 plc To: RNS From: Baronsmead VCT 2 plc Date: 15 May 2007 Interim Results - Twelve Months Ended 31 March 2007 Highlights NAV per ordinary share increased by 7.5 per cent to 123.27p before deduction ofdividends. After interim dividends totalling 10p the NAV was 113.27p. Average annual tax-free dividend is now 6.4p per ordinary share since launch(equivalent to a pre-tax return of 9.5p per share for a higher rate taxpayer) Total return to ordinary shareholders is 105.1 per cent since launch in 1998,equivalent to an annualised total return of 8.3 per cent, before 20 per centincome tax relief (on subscription, at launch) and 10.4 per cent afterwards. C shares converted into ordinary shares on 24 January 2007 using a calculationdate of 31 December 2006 at a rate of 9,657 new ordinary shares for every 10,000C shares. The Chairman, Clive Parritt said: "The conversion of the C shares in January 2007 increased the total number ofordinary shares in issue to approximately 61.6 million. Despite payingdividends totalling £5.5 million over the last 12 months, Baronsmead VCT 2remains the largest VCT with a £69.7 million Net Asset Value at 31 March 2007and over 3,400 ordinary shareholders. Since launch, tax free dividends paid to ordinary shareholders have averaged6.4p (equivalent to a pre-tax return of 9.5p per share for a higher ratetaxpayer). RESULTS In the twelve months to 31 March 2007, the Net Asset Value (NAV) per ordinaryshare increased by 7.5 per cent to 123.27p before payment of the two interimdividends totalling 10p per ordinary share. The second interim dividend of 5pper ordinary share was paid on 30 March 2007 following a series of profitablerealisations, notably Americana and Domantis. Both were sold at significantuplifts over cost. In the nine months to the conversion date of 31 December 2006, the NAV per Cshare increased by 10.8 per cent to 112.90p per share before payment of a 1.6pinterim dividend. The conversion ratio resulted in 9,657 new shares being allotted for every10,000 C shares held. As a result of the conversion on 24 January 2007, theBoard has issued 21,485,211 million new ordinary shares, which rank pari passuwith the existing ordinary shares. This brings the total number of ordinaryshares in issue to 61,576,638. At the period end, 78 per cent of the ordinary share capital raised (net oflaunch costs) prior to 31 March 2005 was invested in VCT qualifying investments.All other VCT tests relating to the running of Baronsmead VCT 2 were also metduring the period. On 1 March 2007, the Board announced that the accounting reference date would bechanged from 31 March to 30 September in order to provide a full three years toinvest funds first raised in October 2004. Therefore the next statutory accountswill be for the 18 months to 30 September 2007. However company law requiresthat an annual general meeting must be held no later than 15 months after theprevious AGM. Accordingly, we will hold a brief formal meeting on 18 June 2007,while the next full AGM in December 2007 will follow the normal format ofseveral presentations, buffet lunch and a shareholder workshop. LONG TERM PERFORMANCE The total returns (tax-free) since inception are 105 per cent for the ordinaryshares (since April 1998) and 26 per cent for the C shares (since October 2004).These returns are stated net of running costs and are based on the proceedsreceived by the Company after launch costs. Included in the running costs forthe current period are additional fees payable to the Manager because the totalreturn exceeded the annual performance trigger. In the twelve months to 31March 2007, £432,000 plus VAT is payable, representing 20 per cent of this extrareturn. Total returns have grown at an annual tax-free average of 8.3 per cent and 9.7per cent since launch for the ordinary shares and C shares respectively. For theordinary shares this includes total dividends paid of 57.4p representing anannual average of 6.4p tax-free per ordinary share (equivalent to a pre-taxreturn of 9.5p per share for a higher rate taxpayer). The initial VCT taxreliefs (of 20 per cent) can also be added to these returns dependent on theindividual tax benefits received by each private investor. Based on the average dividend of 6.4p tax-free and using the period end shareprice of 100.5p, the dividend yield for ordinary shares equates to 6.37 percent, which is tax-free for qualifying purchasers of the shares. For higherrate taxpayers, the 'gross equivalent' yield is 9.44 per cent. The ordinary share total return is some 65 per cent ahead of the peer groupaverage of generalist VCTs launched in the same year. The returns over 1, 3 and 5 years are detailed below (source F&C AssetManagement plc and Datastream). These returns are computed using themethodology used by the Association of Investment Companies (AIC) primarily forinvestment trusts. For the first time, the total returns are shown based onboth the increase in NAV per share and the increase in share price over theperiods, assuming that dividends are reinvested. The latter measure of pastperformance is relevant for secondary market purchasers. Ordinary Shares (%growth) One year Three years Five yearsNAV total return +7.7 +44.6 +70.7Share price total return +10.3 +48.5 +80.4FTSE All-Share total return +11.2 +64.4 +51.2 These figures do not include the VCT tax benefits available to all qualifyingshareholders including purchasers. As dividends are tax free, the grossequivalent returns for higher rate taxpayers are higher. THE PORTFOLIO In the six months since the previous interim review, seven new investments weremade and after the sale of six investments the portfolio increased to 77companies. Further rounds of investment were made in Independent LivingServices, Xention Discovery, Business Direct and Claimar Care. The Board reviewsthe relative health of portfolio companies quarterly in terms of profitabilityas well as other non-financial benchmarks. At 31 March 2007, 82 per cent of theportfolio companies were reporting steady or better progress. Public markets showed some volatility in early 2007 although our AiM portfolioclosed 9.1 per cent up in the twelve months to 31 March 2007. Steady progresswas evident across most of the unquoted portfolio with an overall gain of 22.7per cent and good uplifts in value for a number of newer investments such asIndependent Living Services, Fisher Outdoor Leisure and Reed & Mackay. There was a reduction in value at The Art Group and Occam, following lowertrading profits and a full provision was made against the investment in CountryArtists, although this was more than offset by a write back in the value of theloan stock in Hawksmere. The strategy for the AiM portion of the portfolio is to invest in profitablecompanies where the Manager ("ISIS") has relevant sector knowledge. There isnow good diversity across the AiM -traded portfolio so that when some companieshad profit warnings, (such as eg Solutions and Interlink Foods), or were downrated by the market, (such as Debtmatters and Top Ten), the impact was balancedby gains elsewhere in the portfolio, (such as Adventis, Claimar Care, Concateno,InterQuest, Jelf and Worthington Nicholls). This helped achieve the overallimprovement in NAV. During the period profits of £3.5 million were generated for ordinaryshareholders. In addition, following the period end, Martin Audio was sold to atrade buyer for 3.5 times cost realising profits of £2.3m. The sale ofAmericana too was an excellent result reflecting the private equity skills ofISIS, in identifying the opportunity within the consumer sector and thenactively managing it during a period of fast growth. Since the first investmentin August 2003, the total proceeds of capital and income realised from Americanatotalled £5.6 million, some eight times the original cost. A number of small investments have been made in early stage medical companies(an area of considerable potential). These deals are led by our preferred leadinvestor, MVM LLP, a specialist in this field. Domantis was one such investment(0.7 per cent of the Company was acquired in 2004 for £400,000) in an earlystage drug discovery business. This is the first success from that group ofcompanies in the portfolio. GSK (Glaxo) paid $454 million for the company as atrade purchaser in January 2007 realising £1.48 million for Baronsmead VCT 2. Loan stock redemptions were made by Boldon James, Martin Audio and SLR of£125,000, £617,000 and £204,000 respectively during the period. VCT LEGISLATION The 2007 Budget amended the 2006 Finance Act and we are now allowed up to sixmonths to reinvest the proceeds of profitable exits into new qualifyinginvestments. This change provides welcome flexibility and diminishes the needfor forced investment or dividend decision-making that might have been requiredin order to comply with the 2006 revisions. Discussions continue with HMRevenue & Customs as to the implication of the two amendments introduced forraising new share capital after 6 April 2007. Such new capital can only beinvested in companies raising no more than £2 million from VCTs and in companieswith less than 50 employees. We understand these aspects are as a result of EUharmonisation towards the application of state aid in financing SmallEnterprises. However, they are illogical and cannot be in the best interests ofpromoting growth in smaller companies. However, the way in which Baronsmead VCT 2 continues to operate is unaffected bythe 2007 Budget unless new capital is raised. At present the Board is notminded to raise new capital but it will keep this matter under review especiallyas the detailed legislative changes become known. DEVELOPMENT OF THE SECONDARY MARKET Since launch in 1998, Baronsmead VCT 2 has built a consistent track record ofgenerating positive total returns and paying regular dividends, tax-free toqualifying shareholders. We believe that a thriving secondary market will beencouraged as VCTs deliver consistent performance and investors recognise thatthe best of such companies can be compared favourably with other investmenttrusts specialising in unquoted investments. This is especially true as VCTsoffer taxation advantages to investors which offset the investment restrictionsapplied by VCT legislation. There have been a few third party purchasers ofexisting shares in the last six months and the level of buy backs has fallen to825,000 ordinary shares into Treasury, in part due to 526,067 shares purchasedby the Dividend Reinvestment Plan. This is approximately half the level boughtback in the financial year to 31 March 2006. Furthermore, the Board is aware from both the recent surveys across the 'Baronsmead' family of VCTs that there is an indication that some 15 per cent ofexisting shareholdings may be interested in purchasing more shares. To activatesuch interest will require regular and relevant communication and to facilitatethis, it is intended to stimulate the use of the Company's website(www.baronsmeadvct2.co.uk) as well as accelerate the introduction of electroniccommunication, which is being encouraged by the new Companies Act 2006. ISIShas also re-employed Michael Probin as an investor relations specialist tosupport this activity following his return from two years overseas. OUTLOOK The total returns attributable to the ordinary shares are showing increasingconsistency and this is supporting the upward trend of average annual dividends. The current portfolio is showing a preponderance of good to steady trading andthe profits taken from recent exits have been at a high multiple over cost. TheManager continues to be highly selective when making investments in new unquotedand AiM-traded opportunities and we look to the future with cautious optimism." Contacts: David Thorp, ISIS EP LLP: 0207 506 1609 Rhonda Nicoll, F&C Asset Management plc 0131 718 1074 Unaudited Income Statement Twelve months to 31 March 2007 Ordinary Shares Revenue Capital Total £'000 £'000 £'000 Unrealised gains on investments - 4,132 4,132Realised gains on investments - 2,552 2,552Income 2,414 - 2,414Investment management fee (417) (1,758) (2,175)Other expenses (437) - (437) ---------- ----------- -----------Profit on ordinary activities before taxation 1,560 4,926 6,486 Tax on ordinary activities (322) 322 - ---------- ----------- -----------Profit on ordinary activities after taxation 1,238 5,248 6,486 ---------- ---------- -----------Return per ordinary share 2.00p 8.47p 10.47p 0 0000 0 0000 0 0000 Unaudited Reconciliation of Movements in Shareholders' Funds Twelve months to 31 March 2007 Ordinary Shares £'000Opening shareholders' funds (ordinary shares) 46,897Opening shareholders' funds (C shares) 22,677Profit for the period 6,486Decrease in share capital in issue (847)Expenses of share issue & share premium conversion (14)Dividends paid (5,454) Closing shareholders' funds 69,745 Audited Income Statement For the year to 31 March 2006 Ordinary Shares Revenue Capital Total £'000 £'000 £'000 Unrealised gains on investments - 3,997 3,997Realised gains on 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 0 0000 0 0000 0 0000 Audited Reconciliation of Movement in Shareholders' Funds Year to 31 March 2006 Ordinary Shares £'000Opening shareholders' funds 48,469Profit for the year 5,545Deferred consideration 12Decrease in share capital in issue (459)Dividends paid (6,670) Closing shareholders' funds 46,897 Audited Income Statement For the year to 31 March 2006 C Shares Revenue Capital Total £'000 £'000 £'000 Unrealised gains on investments - 1,838 1,838Realised losses on 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 0 0000 0 0000 0 0000 Audited Reconciliation of Movement in Shareholders' Funds Year to 31 March 2006 C Shares £'000Opening shareholders' funds 21,129Profit for the year 2,037Increase in share capital in issue 239Dividends paid (728) Closing shareholders' funds 22,677 Audited Income Statement For the year to 31 March 2006 Total Revenue Capital Total £'000 £'000 £'000 Unrealised gains on investments - 5,835 5,835Realised gains on 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 share 2.67p 9.33p 12.00p 0 0000 0 0000 0 0000 Audited Reconciliation of Movement in Shareholders' Funds Year to 31 March 2006 Total £'000Opening shareholders' funds 69,598Profit for the year 7,582Deferred consideration 12Decrease in share capital in issue (220)Dividends paid (7,398) Closing shareholders' funds 69,574 Unaudited Balance Sheet As at 31 March 2007 Ordinary Shares £'000Fixed AssetsTraded on AiM 21,278Unquoted investments 27,070Traded on PLUS market 152Listed investments 450Listed interest bearing securities 16,197 _______ 65,147 Net current assets 4,646 ______Total assets less current liabilities 69,793 Creditors: amounts falling due after one year (48) ______ Net assets 69,745 ______Financed by: Equity shareholders' funds 69,745 ______ Net asset value per share: 113.27p Ordinary shares in issue 61,576,638 Treasury net asset value per share* 112.88pNumber of ordinary shares in issue 61,576,638Number of ordinary shares held in Treasury 1,920,000Number of listed ordinary shares 63,496,638 *At an EGM held on 2 November 2006, shareholders renewed the existing authorityto disapply pre-emption rights in relation to the allotment or sale fromTreasury of up to 10 per cent of the listed share capital. The Board is nowmandated to sell Treasury shares at a discount to the prevailing NAV.Accordingly, the shares held in Treasury at 31 March 2007 have been valued atmiddle market price (100.5p). Audited Balance Sheet As at 31 March 2006 Ordinary C Shares Shares Total £'000 £'000 £'000Fixed AssetsTraded on AiM 16,404 3,909 20,313Unquoted investments 16,230 4,110 20,340Traded on OFEX 119 - 119Listed investments 530 - 530Listed interest bearing securities 11,229 13,302 24,531 _______ _______ _______ 44,512 21,321 65,833 Net current assets 2,385 1,356 3,741 ______ ______ ______ Net assets 46,897 22,677 69,574 ______ ______ ______Financed by: Equity 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 Treasury net asset value per share 114.62pNumber of ordinary shares in issue 40,916,427Number of ordinary shares held in Treasury 1,095,000Number of listed ordinary shares 42,011,427 Summarised Unaudited Statement of Cash Flows Twelve months to 31 March 2007 Ordinary Shares £'000 Net cash outflow from operating activities (544)Capital expenditure and financial investment 7,370Equity dividends paid (5,454) -----------Net cash inflow before financing 1,372Financing (835) -----------Increase in cash 537 -----------Reconciliation of net cash flow to movement in net cash Increase in cash 537Opening net cash 4,962 -----------Net cash at end of period 5,499 ----------- Reconciliation of operating profit before taxation to net cash flow fromoperating activities Profit on ordinary activities before taxation 6,486Unrealised gains on investments (4,132)Realised gains on investments (2,552)Changes in working capital and other non cash items (346) -----------Net cash outflow from operating activities (544) ----------- Summarised Audited Statement of Cash Flows Year to 31 March 2006 Ordinary C Shares Shares Total £'000 £'000 £'000 Net cash (outflow)/inflow from operating activities (974) 697 (277)Capital expenditure and financial investment 7,319 (773) 6,546Equity dividends paid (6,670) (728) (7,398) ----------- ----------- -----------Net cash outflow before financing (325) (804) (1,129)Financing (485) (113) (598) ----------- ----------- -----------Decrease in cash (810) (917) (1,727) ----------- ----------- -----------Reconciliation of net cash flow to movement in net cash Decrease in cash (810) (917) (1,727)Opening net cash 4,100 2,589 6,689 ----------- ----------- -----------Net cash at end of period 3,290 1,672 4,962 ----------- ----------- ----------- Reconciliation of operating profit before taxation to net cash flow fromoperating activities Profit on ordinary activities before taxation 5,454 2,128 7,582Unrealised gains on investments (3,997) (1,838) (5,835)Realised gains on investments (1,590) 60 (1,530)Changes in working capital and other non cash items (841) 347 (494) ----------- ----------- -----------Net cash (outflow)/inflow from operating activities (974) 697 (277) ----------- ----------- ----------- Notes 1. The unaudited interim results which cover the twelve monthsto 31 March 2007 have been prepared in accordance with applicable accountingstandards and adopting the accounting policies set out in the statutory accountsfor the year ended 31 March 2006. 2. Return per ordinary share is based on a weighted average of61,919,789 ordinary shares in issue (31 March 2006 - 41,108,544). 3. Earnings for the twelve months to 31 March 2007 should notbe taken as a guide to the results of the full financial period to 30 September2007. 4. During the twelve months ended 31 March 2007, the Companypurchased 825,000 ordinary shares to be held in Treasury at a cost of £847,000.At 31 March 2007 the Company holds 1,920,000 ordinary shares in Treasury. Therewere 61,576,638 ordinary shares in issue at 31 March 2007 (31 March 2006 -40,916,427). There were no C shares in issue at 31 March 2007 (31 March 2006 -22,247,650). On 24 January 2007 the C shares converted into ordinary shares in accordancewith the terms set out in the C share prospectus dated 3 September 2004. Thecalculation date was 31 December 2006 and resulted in the issuance of 21,485,211new ordinary shares. 5. An interim dividend comprising 0.7p (revenue) and 4.3p (capital) waspaid on 20 December 2006 to ordinary shareholders on the register on 17 November2006. An interim dividend comprising 0.8p (revenue) and 0.8p (capital) was paidon 20 December 2006 to C shareholders on the register on 17 November 2006. Asecond interim capital dividend of 5.0p was paid on 30 March 2007 to ordinaryshareholders on the register on 9 March 2007. 6. On 2 November 2006 the Company received court approval for thecancellation of the Share Premium Account of the C shares, (then standing at acredit of £10,031,000) and the transfer of this amount to the SpecialDistributable Reserve. 7. These are not statutory accounts in terms of Section 240 of theCompanies Act 1985 and are unaudited. Statutory accounts for the year to 31March 2006, which were unqualified, have been lodged with the Registrar ofCompanies. No statutory accounts in respect of any period after 31 March 2006have been reported on by the Company's auditors or delivered to the Registrar ofCompanies. 8. Copies of the Interim Report will be mailed to shareholders and willbe available from the Registered Office of the Company at 100 Wood Street,London EC2V 7AN. This information is provided by RNS The company news service from the London Stock Exchange