Final Results
May 23 2006 - 1:48PM
UK Regulatory
CHAIRMAN'S STATEMENT
Results
I am pleased to report on a busy year for your Company. Following the
consolidation of the Investment Adviser and Investment Management functions, a
thorough review and intensive engagement by Inflexion with the portfolio
companies have led to greater overall operating strength in our investments and
greater liquidity for the Company. The Company has realised its investments in
Loch Fyne Restaurants plc and Henry J Beans Ltd, both at excellent values.
Payment of dividends has re-commenced, with 1p per ordinary share being paid to
shareholders in November 2005. The Company bought back 640,000 shares during
the year and has now implemented a regular buy-back policy.
The net asset value per share was 74.55p at 28 February 2006. This represents a
decline of 6.9% from the 12 months earlier figure, attributable entirely to the
decrease of 7.5% in the first half of the year, as reported in the interim
results. Net asset value increased slightly in the second half, therefore, even
after payment of the dividend and despite reduced valuation multiples in
several of the relevant comparable industrial sectors. The full year decrease
compares to rises of 20% and 3.2% in the FTSE All Share and FTSE AIM indices
over the same period. The net revenue deficit before dividends for the year was
�211,000.
Dividends
Following successful realisations and payment of an interim dividend of 1p per
ordinary share as noted, the directors are now recommending a final dividend
payment of 1p per ordinary share on 20 July, subject to shareholders' approval,
resulting in total dividends of 2p per share for the year ended 28 February
2006.
Provided the Company is able to continue successfully its existing portfolio
realisation activities, the intention of the Company will be to maintain a
regular dividend payment to shareholders. This may be supplemented by one-off
payments depending on realisations, share buy-backs, new investment prospects
and other considerations.
Share Buy-Backs
During the course of the year, the Company bought back 640,000 shares at an
average price of 54.75p, closing the discount to net asset value at the end of
the year to 20.2%. The board recognises that there is considerable illiquidity
in the secondary market for VCT shares and will expect to continue to buy-back
shares as necessary in order to provide greater flexibility to investors and to
reduce as much as possible any discount to net asset value.
Economic Background
The global economy has continued to grow led by Asia, with China recording
growth of 9.3% in 2005. The US economy grew at 3.5% albeit with several signs
of potential weakness for 2006, including continuing high trade and budget
deficits. In the UK, the economy grew by 1.7% in 2005 with 2006 expected to
grow by 2%. Consumer prices were up 2.4% over a year ago while interest rates,
having been maintained at 4.5% for over nine months, may be subject to only
modest change for some time yet. While markets have recently evidenced
increasing uncertainty, the UK economy nevertheless presents currently a
relatively stable platform for the growth and development of our investment
portfolio.
Portfolio Performance
An analysis of the changes to our net asset value over the 12 months to
February 2006 is as follows:
Performance Weighted Contribution
Ongoing unquoted portfolio -7.9% -7.5%
Ongoing quoted portfolio -22.2% -1.0%
Share buy-backs 0.9%
Net profits on sale of 4.6%
assets
Costs charged to capital -1.7%
Net revenue -0.9%
Dividends -1.3%
TOTAL -6.9%
The Board
As was mentioned in the interim report, Raymond Pierce and David Potter were
appointed to the board during the year following the retirement of Ernest
Sharp. The board welcomes their important contributions to the active
stewardship of the Company and the supervision of its investment managers.
Prospects
The Company's Articles of Association require that at the tenth annual general
meeting, which will be held this year, shareholders should be invited to vote
on the question of continuation. Your board has kept this matter under regular
review and it is our intention to recommend at the annual general meeting that
the Company continue as a venture capital trust.
Since the appointment of Inflexion Managers Limited as investment adviser in
2003 and subsequently to Manager in 2004, the unquoted portfolio has been
stabilised and a successful realisation programme has commenced. The cash flow
from these realisations and the exits from the listed equity portfolio
generated �3.9m of cash in 2005/06 and have enabled the Company to return to
the payment of dividends and to implement an effective share buy-back policy in
conjunction with the Company's brokers, Teather & Greenwood. These activities
have had a positive effect on the Company's share price which has increased
from 38p in 2004 to 59.5p in 2006, narrowing the discount from 50% to 20.2%.
Our purpose is to create value for shareholders by achieving growth and
profitability within our investment portfolio. Your board looks forward to
pursuing this goal by developing the Company further in the future.
Given shareholder approval for continuation, and with income tax relief still
available at 30%, it will be the intention of your board to set out plans for
the issue of new shares in the 2006/07 tax year. Proceeds from any such
fundraising and from our continuing portfolio realisation activities should
provide the Company with adequate funds for new investment in small unquoted
companies in the UK, in order to achieve growth in value for our shareholders.
Mark Hoffman
23 May 2006
Statement of Total Return
(incorporating the Revenue Account)
for the year ended 28 February 2006
2006 (un-audited) 2005 (audited)
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
(Losses)/gains on - (803) (803) - 1,452 1,452
investments
Income from investments 116 - 116 162 - 162
Interest receivable 18 - 18 25 - 25
Investment management (127) (382) (509) (127) (382) (509)
fee
Finance costs (5) (15) (20) - - -
Other expenses (213) - (213) (197) - (197)
Return on ordinary (211) (1,200) (1,411) (137) 1,070 933
activities before
taxation
Taxation on ordinary - - - - - -
activities
Return attributable to (211) (1,200) (1,411) (137) 1,070 933
equity shareholders
Transfer (from)/to (211) (1,200) (1,411) (137) 1,070 933
reserves
Basic and diluted (0.75)p (4.27)p (5.02)p (0.48)p 3.78p 3.30p
return
per ordinary share
The revenue column is the profit and loss account of the Company.
All revenue and capital items derive from continuing operations. No operations
were acquired or discontinued in the year.
Balance Sheet
as at 28 February 2006
28 February 28 February
2006 2005
(unaudited) (audited)
�'000 �'000
Fixed assets
Investments
Listed 724 1,125
Unlisted 18,536 21,500
19,260 22,625
Current assets
Debtors - 3
Cash 1,549 739
1,549 742
Creditors: amounts falling due within one year (204) (719)
Net current assets 1,345 23
Total assets less current liabilities 20,605 22,648
Capital and reserves
Share capital 2,764 2,828
Special reserve 24,893 25,525
Capital redemption reserve 205 141
Capital reserve - realised (5,394) (5,649)
Capital reserve - unrealised (1,399) 56
Revenue reserve (464) (253)
Total equity shareholders' funds 20,605 22,648
Net asset value per ordinary share 74.55p 80.09p
Number of ordinary shares 27,638,128 28,278,128
Cash Flow Statement
for the year ended 28 February 2006
2006 2005
(unaudited) (audited)
�'000 �'000
Net cash outflow from operating activities (713) (416)
Investing activities
Purchases of investments (1,200) (1,607)
Sales of investments 3,875 2,129
Net cash inflow from investing activities 2,675 522
Net cash inflow before financing 1,962 106
Dividends (282) -
Financing activities
Bank loan drawn down 350 500
Bank loan repaid (850) -
Bank loan interest paid (20) -
Repurchase of shares (350) (53)
Net cash (outflow)/inflow from financing (870) 447
activities
Net cash flow 810 553
Reconciliation of net cash flow to movement in net
funds
Net cash flow 810 553
Loans decreased/(increased) 500 (500)
Net funds at 1 March 239 186
Net funds at 28 February 1,549 239
Reconciliation of Movement in Shareholders Funds
For the year ended 28 February 2006 (un-audited)
Ordinary Capital Special Realised Unrealised Revenue Total
reserve capital
Share redemption capital earnings equity
reserve
Capital reserve reserve
�'000 �'000 �'000 �'000 �'000 �'000 �'000
Balance at 1 2,838 131 25,578 (5,708) (955) (116) 21,768
March 2004
Changes in
equity for 2005
Revenue for the - - - 59 1,011 (137) 933
year
2,838 131 25,578 (5,649) 56 (253) 22,701
Dividends paid - - - - - - -
to equity
holders
2,838 131 25,578 (5,649) 56 (253) 22,701
Purchase of own (10) 10 (53) - - - (53)
shares
Balance at 28 2,828 141 25,525 (5,649) 56 (253) 22,648
February 2005
Changes in
equity for 2006
Revenue for the - - - 255 (1,455) (211) (1,411)
year
2,828 141 25,525 (5,394) (1,399) (464) 21,237
Dividends paid - - (282) - - - (282)
to equity
holders
2,828 141 25,243 (5,394) (1,399) (464) 20,955
Purchase of own (64) 64 (350) - - - (350)
shares
Balance at 28 2,764 205 24,893 (5,394) (1,399) (464) 20,605
February 2006
The financial information set out in the announcement does not constitute the
Company's statutory accounts for the year ended 28 February 2006. The statutory
accounts for the year ended 28 February 2006 will be finalised on the basis of
the financial information presented by the directors in this preliminary
announcement and will be delivered to the Registrar of Companies following the
Company's annual general meeting. The audit report on the statutory financial
statements has yet to be signed. The comparative financial information is based
on the statutory accounts for the year ended 28 February 2005. These accounts,
upon which the auditors issued an unqualified opinion, have been delivered to
the Registrar of Companies.
The above financial information is prepared on the basis of the accounting
policies set out in the financial statements for the year ended 28 February
2005.
The Company revoked its Investment Company status within the meaning of s266,
Companies Act 1985 in 2004. However, it conducts its affairs as a Venture
Capital Trust for taxation purposes under s842AA of the Income and Corporation
Taxes Act 1988. Notwithstanding, and as permitted by the Statement of
Recommended Practice "Financial Statements of Investment Trust Companies"
(SORP), issued by the Association of Investment Companies in January 2003, the
Company has prepared its financial statements in accordance with the SORP. The
directors consider that the departure from the Companies Act 1985 is necessary
to enable the financial statements to give a true and fair view.
The Annual Report and Accounts for the year to 28 February 2006 will be posted
to shareholders in due course.
For further information please contact:
Gordon Power
Inflexion Managers Limited 020 7487 9844
END
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