TIDMBSC
RNS Number : 2181B
British Smaller Companies VCT2 Plc
02 April 2013
BRITISH SMALLER COMPANIES VCT2 PLC Annual Financial Report
Announcement for
the Year to 31 December 2012
British Smaller Companies VCT2 plc ("the Company") today
announces its audited results for the year to 31 December 2012.
Whilst the general economic backdrop has remained challenging
the total return to Shareholders has increased by 1.5% in the year.
The financial highlights are:
-- An increase in the proposed final dividend to 2.5 pence per ordinary share
-- An increase in Net Asset Value of 2.2 per cent prior to the payment of dividends
-- The investment portfolio has increased in value by 10.3 per cent over the year
-- Dividends for the year total 4.5 pence per ordinary share.
This brings cumulative dividends paid to Shareholders at 31
December 2012 to 34.5 pence per ordinary share.
-- Average annual dividend of 4.8 pence per ordinary share over
5 years, representing a yield of 8.2% on the share price at 31
December 2012.
-- An increase in Total Return of 1.5 per cent to 100.0 pence per ordinary share
Chairman's Statement
I am pleased to report an increase in Net Asset Value per
ordinary share of 1.5 pence in the year to December 2012 prior to
the payment of dividends totalling 4.5 pence per ordinary share
which includes a special dividend of 0.5 pence per ordinary share.
This is another solid performance against the backdrop of ongoing
economic challenges and represents a 2.2 per cent increase on the
opening Net Asset Value for the year. The Total Return as at 31
December 2012 increased by 1.5 per cent to 100.0 pence per ordinary
share. During the year the Company made new investments of GBP4.44
million.
In April 2012 the Company completed a successful offer for
subscription, raising gross proceeds of over GBP10 million and on
16 November 2012 announced a further fundraising by way of joint
offers for subscription with British Smaller Companies VCT plc. I
am pleased to report that the Company has made a first allotment of
3,136,695 shares raising total gross proceeds of GBP2.18 million
under the offers. The offer in relation to the 2012/2013 tax year
remains open until 11:00 am on Friday 5 April 2013, and the offer
in relation to the 2013/2014 tax year closes on 30 April 2013, but
may close early in the event of full subscription.
The special dividend of 0.5 pence per ordinary share paid in
October 2012 followed two profitable disposals of the investments
in Primal Pictures Limited and Sirigen Group Limited, from the
unquoted portfolio. The total dividends paid in the year of 4.5
pence per ordinary share brings the cumulative dividends paid since
the Company's inception to 34.5 pence per ordinary share.
Financial Results
The movement in Net Asset Value per ordinary share and the
dividends paid in the year can be summarised as follows:
Pence/ordinary
share
31 December 2011 68.5
Net increase in
value 2.1
Buy-back of shares 0.1
Issue of new shares (0.7)
Ordinary dividends
paid (4.0)
Special dividend
paid (0.5)
31 December 2012 65.5
---------------
During the 12 months to 31 December 2012 the Company realised a
gain on investments of GBP2.252 million compared to original cost
and an uplift of GBP1.662 million on the opening value. This
comprises:
Net proceeds Cost of Opening Gain on Profit
from sales investment value opening on cost
of investments 1 January value
2012
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ---------------- ------------ ----------- --------- ---------
Sale of Quoted and
Unquoted investments 4,111 2,214 2,675 1,436 1,897
------------------------- ---------------- ------------ ----------- --------- ---------
Deferred Proceeds
received 99 99 99
------------------------- ---------------- ------------ ----------- --------- ---------
Total Cash Proceeds 4,210 2,214 2,675 1,535 1,996
------------------------- ---------------- ------------ ----------- --------- ---------
Deferred Proceeds
accrued 197 65 132 197
------------------------- ---------------- ------------ ----------- --------- ---------
Total Proceeds 4,407 2,214 2,740 1,667 2,193
------------------------- ---------------- ------------ ----------- --------- ---------
Fixed Income Securities 1,127 1,068 1,132 (5) 59
------------------------- ---------------- ------------ ----------- --------- ---------
Total 5,534 3,282 3,872 1,662 2,252
------------------------- ---------------- ------------ ----------- --------- ---------
The proceeds from these disposals have allowed for the payment
of a capital dividend of 3.7 pence per ordinary share (GBP1.428
million) with the remaining dividend of 0.8 pence per ordinary
share (GBP0.294 million) being paid from revenue.
In the 12 months since 31 December 2011 the Total Return,
calculated by reference to Net Asset Value plus cumulative
dividends, has increased by 1.5 per cent, and over the last 2 years
it has increased by 5.9 per cent. Over the same two year period
this compares to a 5.8 per cent increase in the FTSE(TM) Small Cap
Share index and a fall of 24.3 per cent in the FTSE All Share(TM)
index.
Cumulative dividends at 31 December 2012 amounted to 34.5 pence
per ordinary share. The Net Asset Value per ordinary share as at 31
December 2012 was 65.5 pence per ordinary share.
Investment Portfolio
Including the deferred proceeds received during the year the
effective net gain on the investment portfolio was GBP1.05 million
equivalent to 2.1 pence per ordinary share, an increase of 10.3 per
cent on the opening 31 December 2011 portfolio value, which
comprises profits on disposals during the year of GBP1.44 million,
deferred consideration gains of GBP0.23 million and a reduction in
residual portfolio value of GBP0.62 million.
There are currently thirty active companies in the portfolio of
which nineteen are unquoted and the remaining eleven are quoted and
traded on AIM on the London Stock Exchange. This compares to twenty
nine companies at the end of 2011. The current value of the
unquoted portfolio is GBP9.357 million, whilst the AIM quoted
portfolio is valued at GBP2.006 million - these represent 82.3 per
cent and 17.7 per cent of the total portfolio respectively.
During the year strong profits were generated from a number of
disposals, although despite progress in many of the underlying
businesses, the current carrying value of the residual portfolio
has reduced by GBP0.62 million after allowing for the impact of
investment disposals and deferred consideration payments. This
figure comprises an increase of GBP0.17 million in the value of AIM
investments, a fall in value of GBP0.79 million in respect of
unquoted investments. The gilt portfolio has remained stable with a
marginal decrease in the value of GBP0.01 million.
Good progress has however been made by a number of our portfolio
businesses which have seen profits grow despite the challenging
economic environment.
-- Since the initial investment in DisplayPlan Holdings Limited
in January 2012 the business has had a very strong first year of
trading and the value of the Company's investment has increased by
GBP0.80 million to GBP1.50 million.
-- Humber-based stevedoring and logistics operator, RMS Group
Holdings Limited, has delivered another year of good profits,
enabling the Company's remaining debt to be repaid in full and
increasing the value of the remaining investment by GBP0.12
million.
-- Several of the Company's quoted investments also reported
good results with value increases seen by Iomart Group plc (up
GBP0.13 million), Tikit Group plc (up GBP0.08 million) and Brady
plc (GBP0.65 million). Subsequent to the year end the Company
realised its investment in Tikit Group plc crystallising a further
gain of GBP0.08 million.
-- The largest negative changes in valuation were seen at
Immunobiology Limited (GBP0.51 million) due to the pricing of a new
GBP3.0 million investment round which was led by the Company, and
Digital Healthcare Limited (GBP0.48 million) which is now
profitable and consequently valued on an earnings basis although
this has resulted in a lower valuation compared to the previous
valuation method which was linked to the prior investment round
price.
New Investments
2012 has been an active year for investments with the Company
completing nine investments totalling GBP4.44 million compared to
GBP2.78 million in 2011. This comprised four new investments in
unquoted companies, one new investment into an AIM quoted company
and four follow-on investments into existing portfolio
companies.
The five new investments were:
-- GBP1.26 million was invested to support the expansion plans
of Seven Technologies Holdings Limited, a Northern Irish
engineering business which specialises in developing bespoke
electronics and communications applications for operation in
inhospitable environments.
-- GBP0.70 million was invested into DisplayPlan Holdings
Limited as part of the buyout of this UK-based retail display group
from its US parent company.
-- GBP0.78 million was invested to fund the buyout of Insider
Technologies (Holdings) Limited, an established provider of
monitoring and scheduling software to the financial services and
national security sectors.
-- GBP0.30 million was invested into the buyout of Selima
Limited, an established payroll & HR software services
provider.
-- GBP0.13 million was invested into AIM-quoted Hargreaves
Services plc, the UK's largest solid fuel production and bulk
haulage company.
The largest further investment into the portfolio was GBP0.90
million as part of a GBP3.0 million investment round into vaccine
platform technology development business Immunobiology Limited. The
Company led this round which included GBP1.0 million from a new
external investor and this funding provides a clear path to achieve
human trial results for its leading meningitis product to validate
this innovative technology.
Disposal of Investments
During the year the Company received proceeds from disposals and
deferred consideration of GBP4.21 million with a further GBP0.2
million deferred consideration included in accrued income,
representing a profit on cost of GBP2.19 million and an uplift on
the opening value of GBP1.66 million, including a small GBP0.01
million loss on sales from the gilt portfolio. The two most
significant disposals from the unquoted portfolio were:
-- Primal Pictures Limited was sold to a UK-listed media group
in August 2012, delivering total cash proceeds for the year of
GBP2.01 million and a profit on disposal of GBP0.93 million. The
profit on cost during the life of the investment was GBP1.11
million and represents a multiple on cost of 2.24x. A further
GBP0.01 million has been included in accrued income in respect of
expected deferred consideration.
-- Sirigen Group Limited was sold to a US-based international
healthcare group in August 2012, generating cash proceeds of
GBP1.45 million and a profit on disposal of GBP0.53 million. This
represents a profit on initial investment cost of GBP0.93 million
and a multiple of 2.80x. The Company is also entitled to
significant further deferred consideration payments of up to GBP0.6
million but only GBP0.11 million has been taken as profit as at
December 2012.
In the 12 months to December 2012 the Company has received
GBP0.05 million of deferred proceeds in respect of the trade sale
of DxS Limited in 2009, bringing the total amount received from
this investment to GBP2.64 million, representing a multiple of
16.17x on capital invested.
Shareholder Relations
Dividends
Your Board remains committed to achieving the objective of a
consistent and increasing dividend stream over time. The Company
paid dividends of 4.5 pence per ordinary share in the year and your
Board is pleased to propose a final dividend of 2.5 pence per
ordinary share. If approved at the Annual General Meeting, the
dividend will be paid on 5 June 2013 to shareholders on the
register as at 3 May 2013.
Fundraising
Following an offer for subscription published on 26 October 2011
your Board is pleased to report the offer was fully subscribed and
raised a total of GBP10 million net of costs.
The recent changes to UK legislation implemented with effect
from 6 April 2012 have increased the ability of Venture Capital
Trusts to invest in growing British businesses. This together with
the restricted supply of other forms of finance has combined to
make this an attractive investment environment for those such as
VCTs that are able to take a medium term view. In particular
businesses now have the ability to receive investment of up to GBP5
million in any one year from Venture Capital Trusts, which is an
increase of GBP3 million over the previous limit. The Company is
therefore seeking to increase further its investment capacity by
GBP5 million through joint offers with British Smaller Companies
VCT plc. The offer in relation to the 2012/2013 tax year remains
open until 11:00am on Friday 5 April 2013 and the offer in relation
to the 2013/2014 tax year remains open until 11:00am on Tuesday 30
April 2013 but may close earlier in the event of full
subscription.
Following an excellent response to the offers, an initial
allotment of 3,136,695 new ordinary shares was made on 31 December
2012. As at the date of this report the Company has received
applications of GBP5.96 million under the joint offers.
Share Buy-Back Policy
Following a review of the Share buy-back policy, the Board is
please to advise that, as of 2 April 2013, the rate of discount to
Net Asset Value at which ordinary shares are bought by the Company
will be reduced to no more than 10 per cent from the previously
stated 15 per cent.
Shareholder Relations
Your Board remains committed to enhancing Shareholder
communications and continues to hold Shareholder workshops where
investors are invited to meet members of the Board, representatives
from YFM Private Equity Limited, the Company's Fund Manager, and
the CEOs of one or more of our investee companies. Our 18th
Shareholder workshop was held at Lord's Cricket Ground in London on
6 February 2013 and achieved the highest ever attendance with
approaching 200 Shareholders attending. Presentations at the
workshop were made by David Hall on behalf of the Company's Fund
Manager, as well as the CEOs of investee companies Selima Limited
and DisplayPlan Holdings Limited and independent analyst and
commentator Martin Churchill. Ten separate afternoon "Meet the
Manager" sessions were attended by over 50 Shareholders.
The Annual General Meeting of the Company will be held at 12.00
noon on 20 May 2013 at 33 St
James Square, London, SW1Y 4JS.
Subsequent Events
Since the year end the Company has disposed of its holding in
AIM quoted Tikit Group plc, supplier of enterprise software to UK
legal practices, on its trade sale to British Telecommunications
plc which completed in January 2013. The Company received GBP0.27
million of cash proceeds for the sale of its shares, representing a
profit on original cost of GBP0.08 million.
In March 2013 a further investment of GBP0.07 million was made
into existing portfolio company PowerOasis Limited, provider of
energy management solutions to telecoms infrastructure operators.
This investment was part of a significant $5 million investment
round led by a strategic trade investor.
On 16 March 2013, the amount standing to the credit of the share
premium account as at 5 April 2012 was cancelled pursuant to an
order of court following the passing of a special resolution. The
credit arising of GBP12,905,041 has been transferred to a Special
Reserve, which shall be applied in any manner in which the
Company's profits available for distribution are able to be
applied. Following the cancellation, the total distributable
reserves of the Company will increase to GBP20,284,000.
Following the acquisition of May Gurney Integrated Services plc
by Costain Group plc on 26 March 2013 the Company disposed of its
full shareholding of 39,000 shares for 2.42 per share raising total
proceeds of GBP0.09 million.
Outlook
The uncertain economic conditions have continued throughout the
year and it is clear that the UK economy is likely to continue to
experience flat or very low growth for some time to come. However
the portfolio companies on the whole remain well funded and have
clear strategies to maximise the new market opportunities they now
see. This Company remains well placed to continue to support our
portfolio companies and take advantage of investment opportunities
that may arise in the short term.
The Company's new investment activity is focussed on small UK
businesses with clearly differentiated business models, whether
through an established brand or a niche position in a growing
market, or innovative application of services and products. The
investments made during 2012 clearly demonstrate this approach and
have further increased the diversification of the portfolio, the
largest investment representing less than 6 per cent of Net Asset
Value.
The Board remains of the opinion that the ongoing economic
challenges will provide many good investment opportunities and that
this investment strategy can provide good returns throughout the
economic cycles. It was with this in mind that we have sought to
further increase the investment capacity of the Company this
year.
Richard Last
Chairman
28 March 2013
Fund Manager's Review
Introduction
The Company is increasing its investment capacity to take
advantage of the further investment opportunities over the coming
months. The increase to GBP5 million in the amount of investment
that companies can now receive from Venture Capital Trusts may well
lead to an increase in investment demand over and above that seen
in 2012. As a result the Board announced in November 2012 joint
offers for subscription with British Smaller Companies VCT plc to
be able to take advantage of opportunities as and when they
arise.
In spite of a continuation of the challenging economic
environment, there has been considerable further progress made by
many of the businesses in the Company's portfolio during the year.
The overall value gain from the portfolio was GBP1.05 million, an
increase of 10.3 per cent on the opening 31 December 2011 portfolio
value, which comprises profits on disposals during the year of
GBP1.44 million, deferred consideration gains of GBP0.23 million
and a reduction in the residual portfolio value of GBP0.62
million.
Significant Investment Movements
-- Following the investment in sales resource in 2011 Primal
Pictures Limited was able to further meet the commercial market
demand for its new educational product which was instrumental in
closing the trade sale during the year.
-- Sirigen Group Limited made further progress in integrating
its innovative fluorescent marking technology into a number of
commercial products leading to the sale during the year to one of
its key customers.
-- Following the buyout in January 2012 of retail display group,
DisplayPlan Holdings Limited, the management team were able to
deliver some significant customer gains in their first year of
independence.
-- After a protracted period Immunobiology Limited closed a
GBP3.0 million investment round in August 2012 to fund clinical
trials for its leading meningitis vaccine.
-- Bagel Nash Group Limited has begun the retail rollout of its
bagel and coffee bars based in the north of England increasing the
number of outlets from 11 to 15, and is now seeking to expand its
baking capacity.
-- Following the acquisition of its competitor in the UK retinal
screening market, Digital Healthcare Limited delivered a profitable
year in spite of significant pricing pressures from the NHS body
governing the national diabetic screening programme.
-- TeraView Limited, a developer of innovative commercial
applications utilising its leading terahertz technology, fell short
of its revenue projections leading to a re-evaluation of the
commercial strategy led by the company's non-executive
director.
-- Quoted business Iomart Group plc continued to report strong
progress of its strategy to consolidate the fragmented outsourced
IT hosting market.
Summary
Investment activity levels have increased with nine investments
during the year totalling GBP4.44 million (plus capitalised
interest of GBP0.1 million).
The Company has made four full disposals during the year from
the un-quoted portfolio and four part disposals from the quoted
portfolio generating GBP4.11 million of cash proceeds, with a
further GBP0.3 million of deferred consideration recognised.
Cash and gilt investments at 31 December 2012 were GBP15.44
million representing 56.88 per cent of net assets, which compares
to GBP5.69 million (35.63 per cent of net assets) at 31 December
2011.
Portfolio Overview
Overall, the quoted and unquoted portfolio increased by GBP1.15
million to a total of GBP11.36 million from GBP10.21 million.
Netting off the additions of GBP4.45 million and carrying value of
disposals of GBP2.68 million from the opening December 2011 value,
the net portfolio value movement of the residual portfolio over the
year was a decrease of GBP0.62 million.
Overall the portfolio remains well funded and positioned for
value growth as economic conditions improve and current strategies
are implemented to capitalise on the changing market
conditions.
Quoted
and unquoted Deferred
portfolio proceeds Total
GBP000 GBP000 GBP000
1 January 2011 10,209 65 10,274
Additions 4,445 - 4,445
Valuation changes
Unquoted (788) - (788)
Quoted 173 - 173
Proceeds (4,112) (99) (4,211)
Profit on disposal 1,436 231 1,667
-------------- ----------- ---------
31 December 2012 11,363 197 11,560
-------------- ----------- ---------
The GBP99,000 of deferred proceeds relates to further cash
payments from the sale of DxS Limited to Qiagen in 2009 and from
the sale of Primal Pictures Limited in August 2012. There are
expected future payments which have been included in the net assets
at a total of GBP198,000 which comprise of GBP70,000 in relation to
DxS Limited, GBP18,000 relating to Primal Pictures Limited and
GBP110,000 relating to Sirigen Group Limited. This value compares
to a maximum entitlement to deferred proceeds of GBP741,000.
Including the deferred proceeds the effective net movement in
the opening December 2011 value of the Company's portfolio was an
increase of GBP1.05 million. This can be analysed as:
2012
GBP000 %
Quoted 173 1.52
Unquoted (788) (6.93)
Profit on disposal 1,436 12.64
Deferred proceeds 231 2.03
--------- -------
Total Value Movement 1,052 9.26
--------- -------
The GBP788,000 reduction in value of the unquoted portfolio
principally relates to three investments, Immunobiology Limited,
Digital Healthcare Limited and TeraView Limited. The portfolio is
now well diversified with the biggest single investment
representing less than 6 per cent of the Net Asset Value and mainly
consisting of investments in profitable businesses (70 per cent by
number and 83 per cent by value).
The quoted portfolio increase was in line with the overall
movements in the quoted markets over the same period.
The investment portfolio held at the year end can be analysed
into the following categories:
NON LISTED INVESTMENTS GBP000
Non Qualifying 831
Qualifying 8,526
------
9,357
AIM LISTED INVESTMENTS
Non Qualifying 1,362
Qualifying 644
------
2,006
TOTAL INVESTMENTS 11,363
-------
Investment Activity
During the year the Company made a total of nine investments
(GBP4.44 million), comprising five new investments and four
follow-on investments into existing companies:
GBPmillion
New Investments
Seven Technologies Holdings Limited 1.26
Insider Technologies (Holdings)
Limited 0.78
DisplayPlan Holdings Limited 0.70
Selima Limited 0.30
Hargreaves Services plc 0.13
Follow-on Investments
Immunobiology Limited 0.90
Vianet Group Plc 0.16
EKF Diagnostics Holdings plc 0.15
Sirigen Group Limited 0.06
Total Investments 4.44
Capitalised Interest
Bagel Nash Group Limited (Capitalised
Interest) 0.01
TOTAL 4.45
-- Seven Technologies Holdings Limited is a Northern Ireland
based engineering business specialising in developing bespoke
electronics and communications applications for use in inhospitable
environments.
-- Insider Technologies (Holdings) Limited is an established
provider of monitoring and scheduling software to the financial
services and national security sectors.
-- DisplayPlan Holdings Limited is a designer and importer of
permanent retail point of purchase display equipment.
-- Selima Limited is an established payroll & HR software
services provider with clients in both the public and private
sectors.
-- Hargreaves Services plc is quoted on the AIM market and is
the UK's largest solid fuel producer and bulk haulage company.
In addition to the above investments the Company made four
additional investments into existing portfolio companies totalling
GBP1.27 million. The most significant of these was a GBP0.9 million
investment into Immunobiology Limited as part of the recent GBP3.0
million funding round. Although the valuation of this round was
heavily discounted to previous investment rounds and impacted the
historic value of the Company's investment, as a significant
investor in the round the Company was a beneficiary of this pricing
and now holds a 23 per cent shareholding in a business which could
have significant value if it can demonstrate the efficacy of its
new platform vaccine technology.
Disposals
In the last 12 months the Company has made a number of
significant full and partial disposals from both the quoted AIM and
unquoted investment portfolio. In total the Company has received
over GBP4.11 million in cash proceeds this year. This has resulted
in GBP1.44 million of realised gains over opening value in the year
and profit on cost of GBP1.90 million resulting in an average
return multiple on cost of 1.86x.
The two most significant disposals were Primal Pictures Limited
and Sirigen Group Limited which achieved sale returns of 2.24 and
2.80 on cost.
Primal Pictures Limited: An award-winning digital e-learning
company providing the world's most complete and medically accurate
3D human anatomy medical software used by educators, professionals,
practitioners, and students around the world. Their 3D anatomical
images of the human body are used by over 500,000 students in 77
per cent of the top 200 medical universities and educational
centres of excellence world-wide.
This has been a long term investment for the Company, investing
in 1999 and 2001 in a loss-making technology business seeking to
achieve a stock market flotation. After the initial strategy
failed, YFM worked closely with the company through a series of
management changes and successfully repositioned the business as a
provider of online educational products. We appointed corporate
finance advisors in 2011 who helped deliver the successful sale in
August 2012 to Informa plc who recognised the potential to leverage
Primal's technology within their existing products and distribution
channels. On completion of the sale David Carmen, Chairman of
Primal Pictures, stated "YFM has been a strong partner through a
period of significant change and was ultimately instrumental in
enabling us all to achieve this successful result."
Sirigen Group Limited: Founded in 2004, Sirigen uses Nobel-prize
winning science to produce light harvesting polymers which have a
wide range of applications in research, medical diagnostics and
life sciences. Since its initial investment in October 2010 YFM has
worked hard to strengthen the company's management team,
introducing new chairman David Evans, former Chairman of DxS
Limited.
Following a clear strategy of proving commercial applications
for the technology, the business was ultimately acquired by one of
its customers, a US based company Becton, Dickinson & Company,
a leading global medical technology company. Sirigen's patented
technology will enable them to develop unique dyes and antibody
specificity releases over the next two years to significantly
expand its life science research reagent portfolio. David commented
"I have worked with YFM now on several occasions and see them as a
strong partner, always taking a practical and pragmatic
approach."
The holding in AIM-quoted Patsystems plc was realised via a
trade sale in January 2012 to ION Group plc which realised GBP0.16
million of cash proceeds. Partial disposals were also achieved from
four other quoted holdings; Brady plc (GBP0.16 million), Iomart
Group plc (GBP0.11 million), May Gurney Integrated Services plc
(GBP0.05 million) and Tikit Group plc (GBP0.02 million). A small
legacy holding in Oxis Energy Limited was also disposed of for a
nominal sum during a further funding round. In total these other
disposals represented a value gain on disposal of GBP0.04
million.
Conclusion and Outlook
The year under review has seen a continuation of some of the
previous challenging market conditions. In spite of this, further
value growth has been achieved in the year and the portfolio is
increasingly diverse and well-funded to deliver further value gains
over the coming years.
Cash reserves remain strong and will be boosted with the funds
raised from the new share issue, so the Company is well placed to
take advantage of the gradually increasing investment rates, to
continue to support the portfolio and maintain historic dividend
levels.
David Hall
YFM Private Equity Limited
28 March 2013
Principal Risks, Risk Management and Regulatory Environment.
The Board believes that the principal risks faced by the Company
are:
Economic - events such as recession and interest rate
fluctuations could affect smaller investee companies' performance
and valuations.
Mitigation - the Company has a clear investment policy and a
diversified portfolio operating in a range of sectors. The Fund
Manager actively monitors investee performance which provides
quality information for the monthly review of the portfolio.
Investment and Strategic - Inappropriate strategy, poor asset
allocation or consistently weak stock allocation may lead to under
performance and poor returns to Shareholders. The quality of
enquiries, investments, investee company management teams and
monitoring and the risk of not identifying investee under
performance might also lead to under performance and poor returns
to Shareholders.
Mitigation - The Board reviews strategy annually. At each of the
(at least) quarterly Board meetings the directors review the
appropriateness of the Company's objectives and stated strategy in
response to changes in the operating environment and peer group
activity. The Fund Manager carries out due diligence on potential
investee companies and their management teams and utilises external
reports where appropriate to assess the viability of investee
businesses before investing. Wherever possible a non-executive
director will be appointed to the board of the investee.
Loss of Approval as a VCT - the Company must comply with Chapter
3 Part 6 of the Income Tax Act 2007 which allows it to be exempted
from capital gains tax on investment gains. Any breach of these
rules may lead to the Company losing its approval as a VCT,
qualifying Shareholders who have not held their shares for the
designated holding period having to repay the income tax relief
they obtained and future dividends paid by the Company becoming
subject to tax. The Company would also lose its exemption from
corporation tax on capital gains.
Mitigation - one of the Key Performance Indicators monitored by
the Company is the compliance with legislative tests.
Regulatory - the Company is required to comply with the
Companies Act 2006, the rules of the UK Listing Authority and
International Financial Reporting Standards as adopted by the
European Union. Breach of any of these might lead to suspension of
the Company's Stock Exchange listing, financial penalties or a
qualified audit report.
Mitigation - The Fund Manager has procedures in place to ensure
recurring Listing Rules requirements are met and actively consults
with brokers, solicitors and external compliance advisors as
appropriate.
Reputational - inadequate or failed controls might result in
breaches of regulations or loss of Shareholder trust.
Mitigation - The Board is comprised of directors with suitable
experience and qualifications who report annually to the
Shareholders on their independence. The Fund Manager is
well-respected with a proven track record and has a formal
recruitment process to employ experienced investment staff.
Allocation rules, relating to co-investments with other funds
managed by the Fund Manager, have been agreed between the Fund
Manager and the Company. Advice is sought from external advisors
where required. Both the Company and the Fund Manager maintain
appropriate insurances.
Operational - failure of the Fund Manager's and administrator's
accounting systems or disruption to its business might lead to an
inability to provide accurate reporting and monitoring.
Mitigation - The Fund Manager has a documented disaster recovery
plan.
Financial - inadequate controls might lead to misappropriation
of assets. Inappropriate accounting policies might lead to
misreporting or breaches of regulations.
Market/Liquidity - lack of liquidity in both the venture capital
and public markets. Investment in AIM quoted and unquoted
companies, by their nature, involve a higher degree of risk than
investment in companies trading on the main market. In particular,
smaller companies often have limited product lines, markets or
financial resources and may be dependent for their management on a
smaller number of key individuals. In addition, the market for
stock in smaller companies is often less liquid than that for stock
in larger companies, bringing with it potential difficulties in
acquiring, valuing and disposing of such stock.
Mitigation - overall liquidity risks are monitored on an ongoing
basis by the Fund Manager and on a quarterly basis by the Board.
Sufficient investments in cash and fixed income securities are
maintained to pay expenses as they fall due.
The Board seeks to mitigate its principal risks by setting
policy, regularly reviewing performance and monitoring progress and
compliance. In the mitigation and management of these risks, the
Board applies rigorously the principles detailed in section
C.2:"Risk Management & Internal Control" of The UK Corporate
Governance Code issued by the Financial Reporting Council in June
2010.
Responsibility statements of the directors in respect of the
annual financial report
The Annual Report and Accounts contains the following statements
regarding responsibility for the Directors' Report and financial
statements included in the Annual Report and Accounts from which
the information in this Announcement has been extracted (references
in the following statements are to sections of the Annual Report
and Accounts).
The directors confirm, to the best of their knowledge, that:
-- the financial statements, prepared in accordance with IFRSs
as adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit of the Company;
and
-- the business review included within the Chairman's Statement,
Fund Manager's Review and Directors' Report includes a fair review
of the development and performance of the business and the position
of the Company, together with the principal risks and uncertainties
that it faces.
Statement of Comprehensive Income
For the year to 31 December 2012
2012 2011
Notes Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain on disposal of investments - 1,662 1,662 - 225 225
(Losses) profits on investments
held at fair value - (622) (622) - 1,112 1,112
Income 2 594 - 594 349 - 349
Administrative expenses:
---------- ---------- --------- ---------- ---------- ---------
Fund Management fee (116) (346) (462) (86) (259) (345)
Other expenses (320) - (320) (301) - (301)
---------- ---------- --------- ---------- ---------- ---------
(436) (346) (782) (387) (259) (646)
Profit (loss) before taxation 158 694 852 (38) 1,078 1,040
Taxation 3 (4) 4 - - - -
--------------------------------- ---------- ---------- ---------- --------- ---------- ---------- ---------
Profit (loss) for the
year 154 698 852 (38) 1,078 1,040
--------------------------------- ---------- ---------- ---------- --------- ---------- ---------- ---------
Total comprehensive income
(loss) for the year 154 698 852 (38) 1,078 1,040
--------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------
Basic and diluted earnings
(loss) per Ordinary share 5 0.43p 1.96p 2.39p (0.17)p 4.92p 4.75p
------------------------------------- ------ ---------- ---------- --------- ---------- ---------- ---------
The total column of this statement represents the Company's
Statement of Comprehensive Income, prepared in accordance with
International Financial Reporting Standards ('IFRSs') as adopted by
the European Union. The supplementary revenue and capital columns
are prepared under the Statement of Recommended Practice 'Financial
Statements of Investment Trust Companies and Venture Capital
Trusts' ('SORP') 2009 published by the Association of Investment
Companies.
Balance Sheet
At 31 December 2012
Notes
2012 2011
GBP000 GBP000
Assets
Non-current assets
Investments 11,363 10,209
Fixed income government securities 912 1,618
----------------------------------------------- --------- ---------
Financial assets at fair value through
profit or loss 12,275 11,827
Trade and other receivables 198 65
----------------------------------------------- --------- ---------
12,473 11,892
Current assets
Trade and other receivables 423 242
Cash on fixed term deposit 7,048 -
Cash and cash equivalents 7,484 4,076
14,955 4,318
Liabilities
Current liabilities
Trade and other payables (276) (228)
Net current assets 14,679 4,090
Net assets 27,152 15,982
----------------------------------------------- --------- ---------
Shareholders' equity
Share capital 4,271 2,426
Share premium account 14,806 4,427
Capital redemption reserve 88 88
Other reserve 2 2
Merger reserve 5,525 5,525
Capital reserve 3,154 2,630
Investment holding losses (4,919) (3,665)
Special reserve 4,071 4,255
Revenue reserve 154 294
Total Shareholders' equity 27,152 15,982
----------------------------------------------- --------- ---------
Net asset value per ordinary
share 6 65.5p 68.5p
----------------------------------------------- --------- ---------
Statement of Changes In Equity
For the year to 31 December 2012
Share Investment
Share premium *Other Merger Capital holding Special Revenue Total
capital account reserves reserve reserve (losses) reserve reserve equity
gains
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 31
December 2010 1,785 810 90 5,525 3,587 (4,763) 4,463 332 11,829
--------------- --------- --------- ---------- --------- --------- ------------ --------- --------- ---------
Revenue return
for the year - - - - - - - (38) (38)
Capital
expenses - - - - (259) - - - (259)
Investment
holding
gain on
investments
held at fair
value - - - - - 1,112 - - 1,112
Realisation of
investments
in
the year - - - - 225 - - - 225
Total
comprehensive
income for
the
year - - - - (34) 1,112 - (38) 1,040
--------------- --------- --------- ---------- --------- --------- ------------ --------- --------- ---------
Issue of share
capital 640 3,862 - - - - - - 4,502
Issue costs - (250) - - - - - - (250)
Purchase of
own
shares - - - - - - (208) - (208)
Issue of
shares
- DRIS 1 5 - - - - - - 6
Dividends - - - - (937) - - - (937)
--------------- --------- --------- ---------- --------- --------- ------------ --------- --------- ---------
Total
transactions
with owners 641 3,617 - - (937) - (208) - 3,113
Realisation of
prior year
investment
holding gains - - - - 14 (14) - - -
Balance at 31
December 2011 2,426 4,427 90 5,525 2,630 (3,665) 4,255 294 15,982
--------------- --------- --------- ---------- --------- --------- ------------ --------- --------- ---------
Revenue return
for the year - - - - - - - 154 154
Capital
expenses - - - - (342) - - - (342)
Investment
holding
loss on
investments
held at fair
value - - - - - (622) - - (622)
Realisation of
investments
in
the year - - - - 1,662 - - - 1,662
--------------- --------- --------- ---------- --------- --------- ------------ --------- --------- ---------
Total
comprehensive
income for
the
year - - - - 1,320 (622) - 154 852
--------------- --------- --------- ---------- --------- --------- ------------ --------- --------- ---------
Issue of share
capital 1,828 11,015 - - - - - - 12,843
Issue costs** - (726) - - - - - - (726)
Purchase of
own
shares - - - - - - (184) - (184)
Issue of
shares
- DRIS 17 90 - - - - - - 107
Dividends - - - - (1,428) - - (294) (1,722)
--------------- --------- --------- ---------- --------- --------- ------------ --------- --------- ---------
Total
transactions
with owners 1,845 10,379 - - (1,428) - (184) (294) 10,318
Realisation of
Negative
Goodwill - - - - 106 (106) - - -
Realisation of
prior year
investment
holding gains - - - - 526 (526) - - -
Balance at 31
December 2012 4,271 14,806 90 5,525 3,154 (4,919) 4,071 154 27,152
--------------- --------- --------- ---------- --------- --------- ------------ --------- --------- ---------
*Other reserves include the capital redemption reserve and other
reserve, which are non-distributable. The other reserve was created
upon the exercise of warrants and the capital redemption reserve
was created for the purchase and cancellation of own shares.
** Issue costs include both fundraising costs and costs incurred
from the Company's dividend re-investment scheme.
The merger reserve was created to account for the difference
between the nominal and fair value of shares issued as
consideration for the acquisition of the assets and liabilities of
British Smaller Technology Companies VCT plc. The reserve was
created after meeting the criteria under section 131 of the
Companies Act 1985 and provisions of the Companies Act 2006 for
merger relief. The merger reserve is a non-distributable
reserve.
The special reserve was created following the approval of the
Court and a resolution of the Shareholders to cancel the Company's
share premium account and is available for other corporate purposes
of the Company. The capital reserve includes gains and losses
compared to cost on the realisation of investments, capital
expenses, together with the related taxation effect and capital
dividends paid to Shareholders. This is a distributable reserve.
The investment holding (losses) gains reserve includes increases
and decreases in the valuation of investment held at fair value.
This is a non-distributable reserve.
The special reserve, capital reserve and revenue reserve are all
distributable reserves. These reserves total GBP7,379,000 (2011:
GBP7,179,000) representing an increase of GBP200,000 (2011:
GBP1,203,000 decrease) during the year. This change arises from the
revenue profit in the year of GBP154,000 (2011: GBP38,000 loss),
movements in the capital reserve relating to the realisation of
investments and capital expenses of GBP1,846,000 profit (2011:
GBP20,000 loss), dividends of GBP1,722,000 (2011: GBP937,000),
purchase of shares of GBP184,000 (2011: GBP208,000) and the
realisation of negative goodwill of GBP106,000 (2011:nil). The
directors also take into account the level of the investment
holding (losses) gains reserve when determining the level of
dividend payments.
Statement of Cash Flows
For the year ended 31 December 2012
2012 2011
GBP000 GBP000
Net cash outflow from operating activities (354) (174)
---------------------------------------------------- --------- ---------
Cash flows from investing activities
Purchase of financial assets at fair value through
profit or loss (4,867) (3,970)
Proceeds from sale of financial assets at fair
value through profit or loss 5,239 4,276
Cash placed on fixed term deposit (7,048) -
Deferred consideration 99 322
---------------------------------------------------- --------- ---------
Net cash (outflow) inflow from investing
activities (6,577) 628
---------------------------------------------------- --------- ---------
Cash flows from financing activities
Issue of share capital 12,743 4,502
Issue costs (605) (250)
Purchase of own shares (184) (208)
Dividends paid (1,615) (931)
Net cash inflow from financing activities 10,339 3,113
---------------------------------------------------- --------- ---------
Net increase in cash and cash equivalents 3,408 3,567
Cash and cash equivalents at beginning
of the year 4,076 509
Cash and cash equivalents at the
end of the year 7,484 4,076
---------------------------------------------------- --------- ---------
Reconciliation of Profit before Taxation to Net Cash Outflow
from
Operating Activities
2012 2011
GBP000 GBP000
Profit before taxation 852 1,040
Increase in trade and other payables 26 177
Increase in trade and other receivables (181) (49)
Gains on disposal of investments
in the year (1,662) (225)
Losses (profits) on investments
held at fair value 622 (1,112)
Capitalised interest (11) (5)
---------------------------------------------------------- ----------- --------
Net cash outflow from operating activities (354) (174)
-------------------------------------------------- ------ ----------- --------
Notes
1. Basis of Accounting
This announcement of the annual results of the Company for the
year ended 31 December 2012 has been prepared using accounting
policies consistent with those adopted in the full audited
financial statements which have been prepared on a going concern
basis and in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union and those parts
of the Companies Act 2006 applicable to companies reporting under
IFRS.
The financial statements have been prepared under the historical
cost convention as modified by the measurement of investments at
fair value through profit or loss.
The accounts have been prepared in compliance with the
recommendations set out in the Statement of Recommended Practice
'Financial Statements of Investment Trust Companies and Venture
Capital Trusts' issued by the Association of Investment Companies
in January 2009 (SORP) to the extent that they do not conflict with
IFRSs as adopted by the European Union.
Segmental reporting has been determined by the directors based
upon the reports reviewed by the Board. The directors are of the
opinion that the Company has engaged in a single operating segment
- investing in equity and debt securities within the United Kingdom
- and therefore no reportable segmental analysis is provided.
2. Income
2012 2011
GBP000 GBP000
Dividends from unquoted companies 8 11
Dividends from AIM quoted companies 44 37
Interest on loans to unquoted companies 339 146
Fixed interest Government securities 20 88
Income from investments held at fair value
through profit or loss 411 282
Interest on bank deposits 183 67
594 349
-------------------------------------------- -------- --------
3. Taxation
2012 2011
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Corporation tax at 20 - - - - - -
per cent (2011: 21 per
cent)
------------------------------- ---------- ---------- --------- ---------- ------------ -----------
Profit (loss) before taxation 158 694 852 (38) 1,078 1,040
------------------------------- ---------- ---------- --------- ---------- ------------ -----------
Profit (loss) before taxation
multiplied by standard
small company rate of
corporation tax in UK
of 20 per cent (2011:
21 per cent) 32 139 171 (8) 216 208
Effect of:
UK dividends received (10) - (10) (10) - (10)
Non taxable profits on
investments - (208) (208) - (267) (267)
Excess management expenses (18) 65 47 18 51 69
Tax charge (credit) 4 (4) - - - -
------------------------------- ---------- ---------- --------- ---------- ------------ -----------
The Company has no provided or unprovided deferred tax liability
in either year.
Deferred tax assets of GBP500,000 calculated at 20 per cent
(2011: GBP452,000 calculated at 20 per cent) in respect of
unrelieved management expenses (GBP2.502 million as at 31 December
2012 and GBP2.226 million as at 31 December 2011) have not been
recognised as the directors do not currently believe that it is
probable that sufficient taxable profits will be available against
which assets can be recovered.
Due to the Company's status as a venture capital trust and the
continued intention to meet with the conditions required to comply
with Section 274 of the Income Tax Act 2007, the Company has not
provided for deferred tax on any capital gains or losses arising on
the realisation or disposal of investments.
4. Dividends
Amounts recognised as distributions to equity holders in the
period:
2012 2011
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Final dividend for the year
ended 31 December 2011 of
2.0p (2010 year end: 2.0p)
per ordinary share 294 472 766 - 467 467
Interim dividend for the year
ended 31 December 2012 of
2.0p (2011: 2.0p) per ordinary
share - 765 765 - 470 470
Special dividend of 0.5 pence
per ordinary share - 191 191 - - -
294 1,428 1,722 - 937 937
---------------------------------------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------
Shares issued under DRIS (107) (6)
---------------------------------------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------
Dividends paid in Statement
of Cash Flows 1,615 931
---------------------------------------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------
The final year-end dividend of 2.0 pence per ordinary share in
respect of the year to 31 December 2011 was paid on 22 May 2012 to
Shareholders on the register at 20 April 2012.
The interim dividend of 2.0 pence per ordinary share and special
dividend of 0.5 pence per ordinary share were paid on 26 October
2012 to Shareholders on the register as at 28 September 2012.
A final dividend of 2.5 pence per ordinary share in respect of
the year to 31 December 2012 is proposed. This dividend has not
been recognised in the year ended 31 December 2012 as the
obligation did not exist at the balance sheet date.
5. Basic and Diluted Earnings (Loss) per Ordinary Share
The basic and diluted earnings (loss) per ordinary share is
based on the profit after tax attributable to Shareholders of
GBP852,000 (2011: GBP1,040,000 profit) and 35,591,107 (2011:
21,906,793) ordinary shares being the weighted average number of
ordinary shares in issue during the year.
The basic and diluted revenue earnings (loss) per ordinary share
is based on the profit for the year attributable to Shareholders of
GBP154,000 (2011: GBP38,000 loss) and 35,591,107 (2011: 21,906,793)
ordinary shares being the weighted average number of ordinary
shares in issue during the year.
The basic and diluted capital earnings per ordinary share is
based on the capital profit for the year attributable to
Shareholders of GBP698,000 (2011: GBP1,078,000 profit) and
35,591,107 (2011: 21,906,793) ordinary shares being the weighted
average number of ordinary shares in issue during the year.
During the year the Company issued 18,450,681 ordinary shares.
The Company has also repurchased 323,639 of its own shares which
are held in treasury. The treasury shares have been excluded in
calculating the weighted average number of ordinary shares for the
period that they were treasury shares.
The only potentially dilutive shares are those shares which,
subject to certain criteria being achieved in the future, may be
issued by the Company to meet its obligations under the investment
management agreement. No such shares have been issued or are
currently expected to be issued. There are, therefore, considered
to be no potentially dilutive shares in issue at 31 December 2012
or 31 December 2011. Consequently, basic and diluted earnings per
ordinary share, basic and diluted revenue return per ordinary share
and basic and diluted capital return per ordinary share are the
same for the years ended 31 December 2012 and 31 December 2011.
6. Basic and Diluted Net Asset Value per Ordinary Share
The basic and diluted Net Asset Value per ordinary share is
calculated on attributable assets of GBP27,152,000 (2011:
GBP15,982,000) and 41,457,844 (2011: 23,330,802) ordinary shares in
issue at the year end.
The treasury shares have been excluded in calculating the number
of ordinary shares in issue at 31 December 2012.
The only potentially dilutive shares are those shares which,
subject to certain criteria being achieved in the future, may be
issued by the Company to meet its obligations under the investment
management agreement. No such shares have been issued or are
currently expected to be issued. There are therefore considered to
be no potentially dilutive shares in issue at 31 December 2012 or
31 December 2011. Consequently, basic and diluted Net Asset Value
per ordinary share is the same for the year ended 31 December 2012
and 31 December 2011.
7. Total Return per Ordinary Share
The Total Return per ordinary share is calculated on cumulative
dividends paid of 34.5 pence per ordinary share (2011: 30.0 pence
per ordinary share) plus the Net Asset Value as calculated per note
6.
8. Related Party Transactions
The Company has not entered into any related party transactions
that have had a material impact on its financial position or
performance in the year to 31 December 2012. Full details of
related party transactions are shown in note 17 to the Annual
Report and Accounts which can be obtained as described in note
11.
9. Events after the Balance Sheet Date
Since the year end the Company has disposed of its holding in
AIM quoted Tikit Group plc, supplier of enterprise software to UK
legal practices, on its trade sale to British Telecommunications
plc which completed in January 2013. The Company received GBP0.27
million of cash proceeds for the sale of its shares, representing a
profit on original cost of GBP0.08 million.
In March 2013 a further investment of GBP0.07 million was made
into existing portfolio company PowerOasis Limited, provider of
energy management solutions to telecoms infrastructure operators.
This investment was part of a significant $5 million investment
round led by a strategic trade investor.
On 16 March 2013, the amount standing to the credit of the share
premium account as at 5 April 2012 was cancelled pursuant to an
order of court following the passing of a special resolution. The
credit arising of GBP12,905,041 has been transferred to a Special
Reserve, which shall be applied in any manner in which the
Company's profits available for distribution are able to be
applied. Following the cancellation, the total distributable
reserves of the Company will increase to GBP20,284,000.
10. Financial Information
The financial information set out here for the year ended 31
December 2012 does not constitute full statutory financial
statements as defined in section 435 of the Companies Act 2006 but
has been extracted from the Company's financial statements for that
period. Statutory accounts for the year ended 31 December 2012 will
be delivered to the Registrar of Companies following the Company's
Annual General Meeting on 20 May 2013. Those accounts were reported
upon without qualification by the independent auditor and did not
contain a statement under Section 498 (2) or (3) of the Companies
Act 2006.
11. Annual Report and Accounts
Copies of the Annual Report and Accounts for the year ended 31
December 2012 have been submitted to the National Storage Mechanism
and will shortly be available to the public for viewing online at
www.hemscott.com/msn/do. They can also shortly be viewed on the
Fund Manager's website at www.yfmep.com. Hard copies of the Annual
Report and Accounts for the Year ended 31 December 2012 will be
distributed by post to Shareholders and will be available
thereafter to members of the public from the Company's registered
office.
12. Directors
The directors of the Company are: Mr R Last, Mr RM Pettigrew and
Mr PC Waller.
13. Annual General Meeting
The Annual General Meeting of the Company will be held at 33 St
James Square, London, SW1Y 4JS, on 20 May 2013 at 12.00 noon.
14. Final Dividend for year ended 31 December 2012
Further to the announcement of its final results for the year
ended 31 December 2012, British Smaller Companies VCT2 plc ("the
Company") confirms that, subject to its approval by shareholders at
the forthcoming Annual General Meeting to be held on 20 May 2013,
the final dividend of 2.5 pence per ordinary share will be paid on
5 June 2013 to those shareholders on the Company's register at the
close of business on 3 May 2013 ("Final Dividend"). The ex-dividend
date will be 1 May 2013.
15. Dividend re-investment scheme ('DRIS')
The Company operates a dividend reinvestment scheme ("DRIS").
The latest date for receipt of DRIS elections so as to participate
in the DRIS in respect of the Final Dividend is the close of
business on 21 May 2013.
For further information, please contact:
David Hall YFM Equity Partners Limited Tel: 0113 294 5039
Matthew Thomas Nplus 1 Singer Advisory LLP Tel: 0203 205
7500
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACSNKFDQOBKDBNB
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