RNS Number:2394E
Strathdon Investment PLC
08 June 2006
8 June 2006
STRATHDON INVESTMENTS PLC
Preliminary results for the year ended 31 March 2006
Strathdon Investments plc ("Strathdon" or the "Company"), the technology
investment firm, today announces its financial results for the year ended 31
March 2006.
Financial Highlights:
* Diluted Net Asset Value per share 31.4p at 31 March 2006 (31 March 2005:
37.1p) reflecting provisions against three early stage investments
* 14 unquoted portfolio companies trading profitably compared with 9 in
September 2005
* Net increases in valuation for two portfolio companies - AMG Systems and
Episys
Corporate Highlights:
* Three new investments made during the year: Nanosight, Oxsensis and GBS
Corporate Training
* Acquisition of GBS Corporate Training in October 2005 and subsequent
merger with Atrium to form Stagebeach; combined businesses performing well
* Sale of part of holding in AMG Systems resulting in IRR of 114%
* Sale of holding in Room Solutions post year-end generating profit of
over 30%, including fees on exit
* Decision to sell quoted investment portfolio to reduce Company's
borrowings and improve liquidity for investment in unquoted companies
Commenting on the results, Andrew Firth, Chairman of Strathdon, said:
"Whilst the headline news is clearly not good, the underlying portfolio is
continuing to perform well in some areas. The environment for technology venture
capital investing in the UK remains strong, and we continue to believe that the
opportunities within the sector are promising for Strathdon"
Hugh Stewart, Chief Executive of Strathdon, added:
"There is significant effort behind the initiatives to increase NAV from the
current portfolio in this financial year and to grow third party funds under
management. We are encouraged by the good progress of a significant number of
our portfolio companies, with many more having moved into profitability. We are
confident that this will be translated into valuation uplifts and realisations
in the current financial year and beyond."
- Ends -
Enquiries:
Strathdon Investments plc 01962 870 492
Andrew Firth, Chairman
Hugh Stewart, Chief Executive
Merlin 020 7653 6620
Vanessa Maydon 07802 961902
Rebecca Penney 07795 108178
Attached: Chairman's Statement
Chief Executive's Review
Consolidated Profit and Loss Account
Statement of Total Recognised Gains and Losses
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Notes
Chairman's Statement
The past six months have been a disappointing period for Strathdon. Three
companies in the portfolio have failed to hit their business milestones and it
has been necessary to take significant provisions against their holding value.
At the same time, despite some strong performances, it has not been possible in
most cases to crystallise value in the better performing companies into Net
Asset Value ("NAV") per share. The net effect of this is that NAV per share has
dropped over the six months to 31 March 2006 by 11% from 35.4p to 31.4p, and for
the full year to 31 March 2006, NAV per share has fallen by 15% from 37.1p.
Whilst this headline news is clearly not good, the underlying portfolio is
continuing to perform well in some areas. Nine out of the top ten portfolio
companies by value are now consistently or intermittently profitable (from six
at 31 March 2005). Total "look-through" revenues (a proportional consolidation
of Strathdon's ownership of investee company revenues) are now over #13m,
meaning that revenues are approaching 100% of our holding value of these assets.
Although like-for-like growth in "look-through" revenues has dropped to 10% this
year, the average rate of growth over the past two years remains just over 20%.
The financial year has been an extremely busy period for Strathdon with many
projects and transactions across the portfolio. Most noteworthy was the
acquisition of GBS Corporate Training in October 2005 and its subsequent merger
with Atrium Group, the video based systems company already in the portfolio.
This investment now represents some 30% of the unquoted portfolio by value and
we are encouraged by the early performance of the business. Subsequent to the
year end, we have also concluded the sale of our holding in Room Solutions at a
profit of 30%, including fees.
I noted in my statement last year that a key objective for Strathdon was to grow
funds under management. There are several ongoing initiatives designed to attain
this goal and I am hopeful of announcing positive developments in this area in
the near future.
During the last six months the Board has been reviewing the Company's approach
to gearing, liquidity and the quoted portfolio. It is essential that we have
sufficient funds available to invest when good opportunities arise, particularly
when we have the opportunity to 'follow-on' where portfolio companies are
performing well. However, we have concluded that the combination of a quoted
portfolio and gearing to achieve this no longer looks optimal. The Board has
therefore decided to sell down the quoted portfolio over the next six months and
to use the proceeds to pay down the Company's borrowings. A bank facility of up
to #2m will remain in place with Singer & Friedlander should the Company require
additional liquidity.
The environment for technology venture capital investing in the UK remains
strong, and we continue to believe that the opportunities within the sector are
promising for Strathdon. However, it is clear that in order for Strathdon's
current business model to be successful the underlying portfolio must be driving
substantial growth in NAV, and the business must be on track to be managing at
least #50m of assets. In the absence of these two criteria the costs of the
business are too high, and the Total Expense Ratio ("TER") is eroding too much
value. We are now two years into a five year plan to deliver these objectives
and the Company is clearly significantly behind where we had intended it to be.
Equally, elements of the business are progressing well and we are encouraged by
the initiatives we have under way to grow funds under management. Balancing all
of these factors, the Board is reviewing all the options available to improve
prospects for shareholders and to enhance shareholder value. We will keep
shareholders informed of the progress of this review.
Andrew Firth
Chairman
Chief Executive's Review
It is disappointing to have to report lower NAV. We have however achieved
broad-ranging success in assisting a significant number of our portfolio
companies to move into profitability, although this has not yet been translated
into higher valuations in most cases. As a result our NAV at 31 March 2006
showed a further fall to 31.4p per share, compared with 37.1p at 31 March 2005
and 35.4p at 30 September 2005. This fall is principally the result of
provisions against three investments, and in particular the failure of two
earlier stage companies to develop as rapidly as we had expected. Although we
continue to work with them to create value, we have taken a prudent line in
assessing their year-end valuations.
As at 31 March 2006, the portfolio had #18.5m of investments, comprising #15.3m
in unquoted companies and #3.2m in an OEIC managed by Invesco.
The operating loss in the period was #1.0m compared with #1.1m in the 15 months
ended 31 March 2005 (only nine months of which represented Strathdon in its
present form). The movement in Net Assets was a reduction of #1.5m. The bottom
line result for the period was a loss of #5.3m reflecting provisions made
against investments of #3.1m and a loss on disposal of investments of #1.2m.
Upwards revaluations of three unquoted investments totalling #2.3m were
reflected as a movement in the revaluation reserve, and do not impact the profit
and loss account.
Performance of the unquoted portfolio
The majority of companies in the unquoted portfolio have continued to develop
positively. Headline look through revenue growth, including new investments, was
over 40%, and the portfolio as a whole achieved profitability for the first
time. Revenue growth on a like-for-like basis slowed to 10% from a year ago as a
result of a temporary dip in performance by two significant companies. The
strong growth in 2004/05 means that the average rate of like-for-like revenue
growth in the past two years is 20%. Moreover the number of companies
moving into profit has increased significantly. At 31 March 2006, fourteen
companies were consistently or intermittently profitable, compared with nine at
30 September 2005.
During the year there have been two net increases in valuation - AMG Systems and
Episys Group. An uplift of #0.8m in the valuation of our investment in AMG
followed the sale of part of our holding in May 2005, resulting in an IRR at
that point of 114%. AMG had a slow start to the year but is now performing
strongly and has recently won its largest ever piece of business, to supply the
Highways Agency with traffic monitoring video systems. We hope to see a further
uplift from our remaining 22% interest in AMG in due course.
We have reviewed the valuation of our stake in Episys Group, which was
previously carried at cost, and increased it by #0.7m. Episys is a supplier of
printing and display systems to larger companies in the healthcare, industrial
and retail industries and its operating performance has improved materially
since the time of our investment several years ago.
The formation of Stagebeach and its acquisition of Atrium Group and GBS
Corporate Training has resulted in a net adverse impact on NAV of #0.6m, as a
result of a loss on the disposal of Atrium. The valuation of Stagebeach at 31
March 2006 is based on the price at which Stagebeach shares were issued to
acquire Atrium and new funds raised.
The uplifts in valuation have regrettably been more than offset by provisions
against unquoted investments, principally against three companies. In two cases,
Chasseral and AMGas, relatively immature businesses have not progressed as
quickly as we had expected in commercialising their technology. Although we are
continuing to work with these investments, we have taken a prudent view of
valuation and have made a full provision (#0.8m) against Chasseral and,
following a recent assessment of the outlook for the business, a provision of
some 75% against AMGas (#0.9m). In the third case, In Touch with Health, the
business has suffered throughout the last year from delayed purchase decisions
by the NHS, and a further #0.3m provision has been made in the second half,
giving a total provision in the year of #0.6m.
We consider the "look-through" results for the overall unquoted portfolio to be
a good proxy for future value growth. The trading performance included in the
"look-through" constitutes that of each unquoted investee company for the year
to 31 March and attributes the proportion to Strathdon which represents
Strathdon's fully diluted economic holding in each company. This measure showed
growth in revenue in the 12 months to 31 March 2006 of over 40%, from #9.5m to
#13.4m. The latter figure represents a Price-to-Sales Ratio ("PSR") of 1.07,
based on 31 March 2006 NAV, compared with a PSR of 1.3 at 31 March 2005.
It is most encouraging to note that, for the first time, the "look-through" EBIT
at 31 March 2006 shows a small operating profit of #0.04m compared with a loss
of #0.5m at 31 March 2005. These figures include new investments made since 31
March 2005, in particular GBS Corporate Training, the acquisition of which was
financed from internal resources and through the issue of 4 million new ordinary
shares in a vendor placing. We have therefore expanded the scale of the
business, in "look-through" revenue terms, by two-fifths at the cost of only 8%
dilution. Excluding new investments, the revenue growth was 10% in the year to
31 March, and showed a reduction in overall losses of over #0.3m compared with a
year earlier. Amongst our larger investments, we were particularly encouraged by
the performance of Episys and Meta, both of which moved into operating profit. A
number of our smaller investments also performed well including Knowledge
Capital Group and Utilyx both of which showed revenue growth of over 40%. AMG
and eeParts had slow starts but recovered strongly towards the end of the
period.
We have made three new investments made since 31 March 2005. The two smaller
ones, Nanosight and Oxsensis, have both hit milestones set at the time of
investment and are considered to have high potential. Stagebeach has completed
the acquisitions of Atrium and GBS Corporate Training and has made good progress
in developing its blended learning solution, combining the best of Atrium's
software systems and GBS' "chalk and talk" classroom based training. It is
particularly encouraging to report that the business has won its first customers
for blended learning.
I can also report that we have completed the sale of our investment in Room
Solutions. This investment had not performed to our original expectations but I
am pleased to report that the sale of Room in April to NIIT, an Indian company,
will generate a profit including fees on exit of over 30% on our cost of
#691,000.
We have not achieved the level of successful realisations we would have wished
during the period but are actively working on several projects to achieve
valuation uplifts and realisations in the current year. In a portfolio like ours
containing for the most part quite small companies, realisation is usually not
possible until the company has reached a certain size and in many cases moved
into profitability. Once that is achieved one can then work to optimise and
realise the value of the business. The continued growth and move into
profitability by a significant number of our portfolio companies in the period
under review gives us greater scope to build more value and make further
profitable realisations from the current portfolio.
The quoted portfolio
As previously reported we changed our arrangements for the quoted portfolio in
early October, rolling almost all of our quoted technology investments into the
Invesco Perpetual UK Smaller Companies Growth Fund. This fund underperformed
against its benchmark index in the six months since we made the switch, but
achieved a positive overall result. It is our intention to further unwind our
holding in the fund over coming months and to reduce borrowings.
Third party fund management
We have been very active in seeking acquisition opportunities for secondary
assets, and in raising funds for such deals. I am pleased to report that we are
at an advanced stage of negotiation to establish a business to manage secondary
assets and hope to be able to announce developments in this area in the near
future.
Costs
The Total Expense Ratio ("TER") in the year under review was an unsustainably
high 6%. We have reviewed and reduced the cost base to seek to achieve a lower
TER in the current year, while also retaining the ability to assist portfolio
companies and to develop the business.
Outlook
The lack of progress in growing NAV in the past two years is clearly a cause for
concern and we will be conducting a rigorous assessment of the Strathdon
business model as part of the strategic review process.
There is significant effort behind the initiatives to increase NAV from the
current portfolio in this financial year, and to grow third party funds under
management. We are encouraged by the good progress of a significant number of
our portfolio companies, with many more having moved into profitability. We are
confident that this will be translated into valuation uplifts and realisations
in the current financial year and beyond.
Hugh Stewart
Chief Executive
Consolidated Profit and Loss Account for the year ended 31 March 2006
Unaudited Audited
Year Fifteen months
to 31March 1 January 2004
2006 to 31March 2005
#'000 #'000
Turnover 458 223
Administration expenses (1,466) (1,311)
Operating loss (1,008) (1,088)
(Loss) / Profit on disposal of fixed asset
investments (1,209) 2,710
----------- -----------
(Loss) / Profit on ordinary activities
before provision against carrying value of (2,217) 1,622
investments and interest
Change in provision against carrying value
of investments (3,125) (907)
Interest payable (212) (160)
Interest receivable 206 189
------ ------
(Loss) / Profit on ordinary activities
before taxation (5,348) 744
Taxation - -
------ ------
Retained (loss) / profit for the financial
year / period (5,348) 744
------ ------
Earnings per Ordinary Share Pence pence
-basic & diluted (10.76) 1.88
Statement of Total Recognised Gains and Losses for the Year ended 31st March
2006
Unaudited Audited
Year Fifteen months
to 31March 1 January 2004
2006 to 31 March 2005
#'000 #'000
(Loss) / Profit for the financial
year/period (5,348) 744
Change in unrealised gain on investments 1,306 93
------ ------
Total (losses) / gains relating to the
year/period (4,042) 837
----------- -----------
Consolidated Balance Sheet at 31 March 2006 Unaudited Audited
31 March 2006 31 March 2005
#'000 #'000
Fixed assets
Tangible Fixed Assets 13 15
Investments 18,497 19,991
------ ------
18,510 20,006
------ ------
Current assets
Debtors 786 594
Cash at bank 288 445
------ ------
1,074 1,039
Creditors: amounts falling due within one year (669) (281)
------ ------
Net current assets 405 758
------ ------
Total assets less current liabilities 18,915 20,764
------ ------
Long term loan (2,646) (2,980)
----------- -----------
Total net assets 16,269 17,784
----------- -----------
Capital and reserves
Called up share capital 2,591 2,391
Share premium account 6,392 5,392
Special reserve 36,290 36,290
Revaluation reserve 2,633 1,327
Warrant reserve 928 928
Profit and loss account (32,565) (28,544)
----------- -----------
Total shareholders' funds 16,269 17,784
------ ------
Net Asset Value per Ordinary Share Pence pence
- basic 31.40 37.19
- diluted 31.40 37.06
Consolidated Cash Flow Statement for the year ended 31 March 2006
Unaudited Audited
year Fifteen months
to 31 March 2006 1 January 2004
to 31 March 2005
#'000 #'000
Operating activities
Investment income received 37 72
Portfolio management fees 220 95
Investment management fee paid (37) (72)
Salaries (777) (580)
Other cash payments (693) (668)
----------- -----------
Net cash outflow from operating activities (1,250) (1,153)
----------- -----------
Returns on investment and servicing of
finance
Interest received 61 24
Interest paid (193) (195)
----------- -----------
Net cash outflow from returns on investment
and servicing of finance (132) (171)
----------- -----------
Capital expenditure and financial investment
Purchases of investments (3,040) (6,444)
Sales of investments 4,607 9,397
Purchases of tangible fixed assets (8) (9)
Repayment of borrowings (334) -
----------- -----------
Net cash inflow from capital expenditure
and financial investment 1,225 2,944
----------- -----------
Acquisitions and disposals
Bank balances acquired with subsidiary - 103
Expenses incurred on acquisition of
subsidiary - (1,387)
----------- -----------
Net cash outflow from acquisitions and
disposals - (1,284)
----------- -----------
Net cash (outflow)/ inflow before and
after financing (157) 336
----------- -----------
(Decrease) / increase in cash (157) 336
----------- -----------
Notes:
The calculation of basic earnings per ordinary share is based on a loss after
taxation for the period of # 5,348,000 (2005 profit - #744,000) and on
49,701,989 (2005 - 39,682,997) shares being the weighted average number of
Ordinary Shares in issue during the period. The diluted earnings per share is
equal to the basic earnings per share because the share options within the
Employee Share Option Scheme are considered to be non-dilutive potential
ordinary shares. No dilution is caused by the existence of the 5,902,843
warrants in issue because the average share price over the period has been below
the 36p exercise price of these warrants
The basic net asset value calculation at 31 March 2006 is based on net assets of
#16,269,000 (31 March 2005 - #17,784,000) and 51,817,057 (31 March 2005:
47,817,057) Ordinary shares in issue at that date. Diluted net asset value per
share in respect of the period ended 31st March 2005 is calculated by adjusting
for the impact of the 5,902,843 warrants in issue, exercisable at 36p per share
on certain dates between 2009 and 2011.
The foregoing financial information does not constitute statutory financial
statements as defined in section 240 Companies Act 1985. The statutory accounts
for the period to 31 March 2005, which contained an unqualified auditors'
report, have been lodged with the Registrar of Companies and did not contain a
statement required under Section 237(2) or (3) of the Companies Act 1985.
The Annual Report will be posted to shareholders by 15th July and copies will be
available from the Company Secretary at Canister House, Jewry Street,
Winchester, Hants SO23 8RY, telephone number 01962 870492, or e-mail
investorrelations@strathdon.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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