RNS Number:9006Q
Murray VCT 2 PLC
15 October 2003
MURRAY VCT 2 PLC
Interim Results for the Six Months to 31 August 2003
The Directors announce the unaudited interim results of Murray VCT 2 PLC for the
six months to 31 August 2003.
Investment activity
Further unlisted investment during the six months ended 31 August 2003 totalled
#0.6 million. At 31 August 2003, the portfolio stood at 42 investments having a
total cost of #29.0 million and representing a qualifying investment level of
85%.
Portfolio developments
Since the publication of the Annual Report there have been no complete exits;
however, in April a partial sale of the holdings in Intron was completed.
Proceeds of #964,890 were received from the repayment of the entire loan
investment and the sale of half of the equity holding realising a gain on the
partial realisation of #93,464. It is not intended to distribute this gain until
a complete realisation from Intron has been achieved. In addition, Armeg has
redeemed a substantial proportion of its preference share capital, amounting to
#258,333, in three separate repayments.
Performance
Market conditions show little signs of improvement and this is evident in
increasing reports of weakening profits. The strength of sterling, combined with
UK interest rates that, despite recent falls to historically low levels, remain
relatively high compared to our international competitors, has made the
environment for small companies particularly tough for some considerable time.
Sterling did depreciate against the euro in the earlier part of the year and
this provided a more favourable backdrop for UK exports to Europe, but exchange
rates with the US moved in the opposite direction. Economic data in the UK over
the last few months has been mixed, with unemployment continuing at levels last
seen in the mid 1970s, inflation remaining relatively low, despite the
continuing strength of the housing market, but declining levels of manufacturing
output. Growth in the UK is low and is expected to remain so during the
remainder of 2003 and 2004, although there are some signs of an upturn in the
global economy which would offer some relief. Consumer spending is being fuelled
by increased debt, with net lending secured on personal dwellings reaching its
highest level since records began.
These conditions continue to have an impact on the valuations of the Company's
investment portfolio. The Net Asset Value (NAV) per share at 31 August 2003, was
43.5p compared with 46.6p at 28 February 2003. Adverse market conditions have
continued, as noted above, and this has led to reduced earnings and therefore
some reduced valuations in the period under review. This decrease in NAV of 6.7%
compares with the increase in stock market indices generally and, in particular,
the FTSE Small Cap Index which rose by 43.1% over the period and the FTSE AIM
Index which rose by 19.1%. The indices have risen markedly in the first half of
this financial year in expectation of substantial earnings growth. It should be
noted that the increase in the indices has not been evenly spread across each
sector with, for instance, the oil and gas sector outperforming other sectors by
a considerable margin. The Company's own portfolio is also more narrowly
focussed and because of the size of the portfolio companies, local influences
are felt to a far greater extent by the companies exposed as they are to their
local economies.
This sentiment in the market indices seems to be at odds with many commentators'
concerns about the sustainability of consumer spending and corporate profits in
a climate of low growth, currency strength and potential rises in interest
rates. What has been very clear for some considerable time, through the monthly
management accounts which are received from investee companies and the board
meetings which the Manager attends, is that market conditions are very difficult
and small companies in particular have been exposed to these difficulties.
Investment strategy
The Company is well beyond its qualifying threshold and the Manager has two
prime objectives: intense portfolio management to help restore profitability to
the investee companies in the current market conditions, and the resumption of
yield payments to the Company from the portfolio. The Board regularly reviews
portfolio performance and the Company's investment strategy with the Manager.
The aim from both of these is to restore value and ultimately achieve successful
disposals from a position of strength when market conditions recover. To achieve
this, it may be necessary to support with further investment those investee
companies which are believed to have potential. At the moment, the Company has
approximately 18.7% of its assets in cash and gilts and this will enable such
support to be given and also to invest in new opportunities on a selective
basis. Surplus funds from realisations will be re-invested and, where possible,
new investments will be selected in larger companies through co-investment with
the other Murray VCTs.
Valuation process
Murray VCT 2's investments in unlisted companies are valued at fair value in
accordance with the revised British Venture Capital Association guidelines.
Dividends and returns to date
Having obtained Inland Revenue approval for the distribution of the capital gain
arising on the sale of Palgrave Brown, the Board declared a dividend of 4.76p
per share ("pps") on 12 June which was paid on 18 July 2003. The Board has not
declared an interim dividend for the year ending 29 February 2004 (2003 -
0.5pps). Future dividends from capital gains will depend on the achievement of
further realisations. Since the Company's launch most Shareholders will have
received 28.4pps in tax free dividends, comprising 17.8pps in income dividends
and 10.6pps in distributions of capital gains. To an investor who took advantage
of all available tax reliefs and deferrals, this represents a return of 35.5% of
the effective initial investment cost of 80pps. The total return since launch is
71.9pps, being the sum of dividends paid plus NAV, for a Shareholder who
subscribed at launch.
The most important measures for a VCT are the long term record of income and
capital gains dividend payments and the timing of these payments over the life
of the Company. In the short term, the NAV on its own is a less important
measure of performance as the underlying investments are long-term in nature and
not readily realisable.
Dividend re-investment
The Board has decided to terminate the dividend re-investment scheme with
immediate effect. The rules of the scheme require the issue of new shares under
the scheme at the prevailing Net Asset Value per share on the date of
re-investment. However, at present, the Company's shares stand at a substantial
discount to the Net Asset Value and therefore the Board believes that it is not
in Shareholders' interests for their dividends to continue to be re-invested.
Therefore, Shareholders who had previously elected to re-invest their dividends
will receive any future distributions by cheque or bank transfer.
Outlook
The Company now has a portfolio of 42 investments and the Manager believes that
a number of these have good prospects which should respond to an improvement in
the economic environment but it is likely to be some time before those prospects
can be demonstrated in profitable realisations. In the current market the
Manager does not expect to respond to an offer unless it is extremely
attractive. The immediate priority of the Manager is to concentrate efforts with
a view to improving performance and planning for exits in the medium to long
term.
The effects of market conditions in recent years have led to more realistic
pricing opportunities for new investments than have been seen for some time and
the Manager will continue to seek new investments on a selective basis.
The Board and the Manager expect that the coming year will be every bit as
testing as the last and the Manager will be conducting intense portfolio
management to recover value as soon as conditions allow.
MURRAY VCT 2 PLC
SUMMARY OF INVESTMENT CHANGES
For the six months ended 31 August 2003
Net
Valuation investment Appreciation Valuation
28 February Transfers (disinvestment)(depreciation)31 August 2003
2003
#'000 % #000 #'000 #'000 #'000 %
Unlisted
investments
Equities 3,515 20.6 209 (173) (577) 2,974 18.5
Preference 1,620 9.5 - (258) (190) 1,172 7.3
shares
Loan stocks 7,403 43.4 - (216) (665) 6,522 40.5
------------- ------- ---------- --------- ------- ------
12,538 73.5 209 (647) (1,432) 10,668 66.3
AIM
investments
Equities 1,320 7.7 (209) - 265 1,376 8.6
Listed
investments
Fixed 3,639 21.3 - (841) (19) 2,779 17.3
income
------------- ------- ---------- --------- ------- ------
Total 17,497 102.5 - (1,488) (1,186) 14,823 92.2
investments
Other net (434) (2.5) - 1,693 - 1,259 7.8
(liabilities)
assets ------- ------ ------- ---------- --------- ------- ------
Total
assets* 17,063 100.0 - 205 (1,186) 16,082 100.0
======= ====== ======= ========= ========= ======= ======
* Total assets represents equity Shareholders' funds
MURRAY VCT 2 PLC
INVESTMENT PORTFOLIO SUMMARY
As at 31 August 2003
% of
Valuation total
Unlisted and AIM Nature of business #'000 assets
investments
Conveco Convenience store 1,815 11.3
operator
Connaught* Integrated communications 1,376 8.6
agency
Clamonta Engineering Precision Engineering 883 5.5
Power Gems Manufacturer of specialist 873 5.4
power supply units
Businesshealth Provider of health 707 4.4
management services to
employers
Synexus Management of clinical 646 4.0
trials
Poulter Independent communications 627 3.9
agency
First Line Supplier of automotive 596 3.7
parts to the aftermarket
ELE Advanced Manufacturer of precision 596 3.7
Technologies components for jet engines
and gas turbines
Carmichael Manufacturer of specialist 563 3.5
International fire fighting vehicles
Other investments valued individually at #650,000 3,362 20.9
of less --------- ------
12,044 74.9
Listed fixed income investments -------- ------
Treasury 5% Stock 2,779 17.3
2004 --------- ------
2,779 17.3
--------- ------
Total investments 14,823 92.2
========= ======
* Shares traded on Alternative Investment Market (AIM)
MURRAY VCT 2 PLC
INDEPENDENT REVIEW REPORT TO MURRAY VCT 2 PLC
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 31 August 2003 which comprises the Profit and Loss Account,
Statement of Total Recognised Gains and Losses, Balance Sheet, Cash Flow
Statement and the related notes 1 to 3. We have read the other information
contained in the Interim Report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
This report is made solely to the Company in accordance with guidance contained
in Bulletin 1999/4 "Review of interim financial information" issued by the
Auditing Practices Board. To the fullest extent permitted by the law, we do not
accept or assume responsibility to anyone other than the Company, for our work,
for this report, or for the conclusions we have formed.
Directors' responsibilities
The Interim Report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the Interim Report in accordance with the Listing
Rules of the Financial Services Authority, which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
"Review of interim financial information" issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making enquiries
of management and applying analytical procedures to the financial information
and underlying financial data and based thereon, assessing whether the
accounting policies and presentation have been consistently applied unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with United
Kingdom Auditing Standards and therefore provides a lower level of assurance
than an audit. Accordingly we do not express an audit opinion on the financial
information.
Review conclusion
On the basis of our review, we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 August 2003.
Ernst & Young LLP
15 October 2003
Glasgow
Murray VCT 2 PLC
Profit and Loss Account
For the six months ended 31 August 2003
Six months to Six months to Year ended
31 August 31 August 28 February
2003 2002 2003
(unaudited) (unaudited) (audited)
#'000 #'000 #'000
Income:
Investment income and 357 617 939
deposit interest
Investment management (188) (372) (598)
fees
Other expenses (142) (87) (196)
--------- ---------- ---------
Operating profit 27 158 145
Profit on realisation of 82 143 1,113
investments --------- ---------- ---------
Profit on ordinary 109 301 1,258
activities before
taxation
Tax on ordinary - - 9
activities --------- ---------- ---------
Profit on ordinary 109 301 1,267
activities after
taxation
Ordinary dividends on
equity shares:
Capital dividends nil - (319) (2,065)
(2003 : 5.62p)
Interim nil (2003 - 0.5p) - (184) (184)
Final nil (2003 - 0.5p) - - (183)
Over accrual in prior 2 1 1
years
--------- ---------- ---------
Balance transferred to/ 111 (201) (1,164)
(from) reserves --------- ---------- ---------
Earnings per share (pence) 0.3 0.8 3.4
(note 3) --------- ---------- ---------
Statement of Total Recognised Gains and Losses
For the six months ended 31 August 2003
Six months to Six months to Year ended
31 August 31 August 28 February
2003 2002 2003
(unaudited) (unaudited) (audited)
#'000 #'000 #'000
Profit on ordinary 109 301 1,267
activities after
taxation
Unrealised loss on (1,268) (2,121) (6,185)
revaluation of --------- ---------- ---------
investments
Total recognised gains and (1,159) (1,820) (4,918)
losses relating to the --------- ---------- ---------
period
Murray VCT 2 PLC
Balance Sheet
As at 31 August 2003
31 August 31 August 28 February
2003 2002 2003
(unaudited) (unaudited) (audited)
#'000 #'000 #'000
Fixed assets
Investments 14,823 20,797 17,497
Current assets
Debtors 1,200 1,511 1,610
Cash and overnight deposits 228 370 77
--------- --------- ---------
1,428 1,881 1,687
Creditors
Amounts falling due within 169 463 2,121
one year --------- --------- ---------
Net current assets/ 1,259 1,418 (434)
(liabilities)
--------- --------- ---------
16,082 22,215 17,063
--------- --------- ---------
Capital and reserves
Called up share capital 9,246 9,220 9,157
Share premium account (note 99 11,647 12
2)
Revaluation reserve (note 2) (13,608) (8,173) (12,288)
Capital redemption reserve 392 286 357
(note 2)
Profit and loss account (note 19,953 9,235 19,825
2)
--------- --------- ---------
Equity Shareholders' funds 16,082 22,215 17,063
--------- --------- ---------
Net Asset Value per Ordinary 43.5 60.2 46.6
share (pence) (note 3) --------- --------- ---------
MURRAY VCT 2 PLC
Cash Flow Statement
For the six months ended 31 August 2003
Six months Six months Year ended
to 31 August to 31 August 28 February
2003 2002 2003
(unaudited) (unaudited) (audited)
#'000 #'000 #'000
Operating activities
Investment income 419 793 1,366
received
Deposit interest received 4 5 13
Investment management fees (290) (398) (742)
paid
Secretarial fees paid (31) (28) (56)
Cash paid to and on behalf (39) (27) (51)
of Directors
Other cash payments (83) (42) (107)
--------- --------- ----------
Net cash (outflow)/inflow (20) 303 423
from operating activities
Taxation
Corporation tax - - -
Financial investment
Purchase of investments (2,216) (2,516) (7,055)
Sale of investments 4,118 3,427 7,847
--------- --------- ----------
Net cash inflow from 1,902 911 792
financial investment
Equity dividends paid (1,927) (878) (1,062)
--------- --------- ----------
Net cash (outflow)/inflow (45) 336 153
before financing
Financing
Issue of Ordinary shares 231 121 156
Repurchase of Ordinary (35) (337) (482)
shares
--------- --------- ----------
Net cash inflow/(outflow) 196 (216) (326)
from financing
--------- --------- ----------
Increase/(decrease) in 151 120 (173)
cash --------- --------- ----------
MURRAY VCT 2 PLC
Notes to the Financial Statements
1. Accounting policies
The financial information contained in this report has been prepared on
the basis of the accounting policies set out in the Annual Report for
the year ended 28 February 2003. The results for the year ended 28
February 2003 are abridged from the full accounts for that year, which
received an unqualified report from the Auditors and have been filed
with the Registrar of Companies.
Profit
Share Capital and
premium Revaluation redemption loss
account reserve reserve account
#'000 #'000 #'000 #'000
2. Movement in reserves
At 1 March 2003 12 (12,288) 357 19,825
Issue of shares 87 - - -
Repurchase and cancellation - - 35 (35)
of shares
Transfer of realised - (52) - 52
profits to profit and loss
account
Net decrease in value of - (1,268) - -
investments
Retained profit for - - - 111
period --------- --------- --------- ---------
As at 31 August 2003 99 (13,608) 392 19,953
--------- --------- --------- ---------
3. Earnings and NAV per share
Earnings per Ordinary share has been calculated using the average number
of shares in issue during the period of 36,668,241. The Net Asset Value
per Ordinary share at 31 August 2003 has been calculated using the
number of shares in issue at that date of 36,985,156.
A full copy of the interim report will be printed and issued to shareholders.
The results for the six months ended 31 August 2003 will be filed with the
Registrar of Companies.
Copies of this announcement will be available to the public at the office of
Aberdeen Asset Management PLC, 123 St Vincent Street, Glasgow and at the
registered office of the Company, One Bow Churchyard, Cheapside, London.
By Order of the Board
MURRAY JOHNSTONE LIMITED
SECRETARY
15 October 2003
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