Interim Results
11 Novembro 2003 - 1:27PM
UK Regulatory
Results and Dividend
Net asset value per share at 31 August 2003 was 77.1p, an increase of 9.2% over
the six month period and 2.4% in the past twelve months. This compares to
rises of 17.4 % and 28.4% in the FTSE All Share and FTSE Aim indices
respectively for the six months and of 0.9% and 9.4% over the past twelve
months. The net revenue for the period was �33,000 and the Board is not
recommending that an interim dividend be paid.
Background and performance
The early part of the period witnessed the nadir of quoted equity markets in
mid March as investors feared a long drawn out period of international tension
over Iraq. In fact, the apparent swift conclusion to the war, the ending of
forced selling by life insurance companies and signs of economic revival in the
US contributed to a strong rally in equity markets.
In terms of the US, the debate continues as to whether the economic recovery is
sustainable despite the lack of new job creation or whether the headwinds
provided by the prior market bubble, the high level of consumer debt and the
deflationary forces in the rest of the world are too strong. Whilst the
outcome of this debate is important for investor and business sentiment
generally, of more relevance to the performance of your company's assets is the
UK economy. Here, whilst the war did prove disruptive and some retail sectors
were impacted negatively by the hot summer, GDP growth has proved remarkably
resilient, albeit slowing down from last year.
For the most part the trading of our unquoted portfolio holdings has continued
satisfactorily. As I reported six months ago the valuation of the unquoted
portfolio had held up well as at February 2003; for this reason the uplift in
valuation since the February year-end that has been made at 31 August 2003 has
not equalled the rebound in quoted equity markets as detailed above, but has
shown strong growth.
An analysis of the net asset value performance in the six months to 31 August
is as follows:
Weighted
Performance Contribution
Unquoted portfolio 3.8% 3.4%
AIM listed 57.7% 4.1%
Other quoted 46.5% 1.9%
Share buy backs 0.5%
Costs charged to capital (0.8%)
Net revenue 0.1%
Total 9.2%
Portfolio holdings
The three biggest holdings in the unquoted portfolio, Bridgefilms (Sooty),
Pearl Products and Offstump (the company which bought the business of IST)
continued to make steady trading progress. Only in the latter case, however,
have we chosen to recognise a significant uplift, stemming from a broadening of
the company's product portfolio together with the continuing prospects for the
company's investment in E motion. Otherwise, the largest uplift in valuation
was in respect of our holding in E Spotting which remains in negotiations as
regards its purchase by the American business, FindWhat. We have, however,
taken a fairly cautious view of the outcome and have discounted significantly
the terms originally offered.
The only major disappointment in the unquoted portfolio relates to
Communications in Business (CiB). This business provides PR and representation
to the travel, tourism and inward development industries. Whilst we have
confidence in the future of this business, the loss of a major client has
caused us to take a rigorously conservative view in its valuation. We have
been pleased with the results of the merger of the Packing Shop into a division
of Cadogan Tate to form Fine Art Logistics; early trading results are
promising. Finally, as you will note, there have been good recoveries in both
the AIM and the liquid reserve quoted portfolios.
Investment adviser
I am pleased to report that your Board and Manager have taken action which, we
believe, should lead to a strengthening of the investment advice provided to
your company. As at 23 July 2003, the Investment Advisory contract was
transferred from Beringea Limited to Inflexion Limited .At the same time
Gordon Power, who was previously managing director of Beringea Limited and
before that Proven, was contracted to Inflexion and will spend a significant
proportion of his time concentrating on the affairs of your company. The Board
believes that Gordon, following the period of the company's initial
investments, has played a significant role in restoring the trading fortunes of
several portfolio companies and in strengthening the value of your company's
investments. In retaining his services in this manner we have ensured a strong
element of continuity in the management of the investments, whilst we believe
also that Inflexion will provide an added element of investment and
administrative support as well as good access to continuing deal flow.
Share buy backs
During the period the Company bought back 326,863 shares for a total of �
148,975, an average price of 45.6p. This has enhanced net asset value per
share by approximately 0.5%.
Outlook
Whilst most of the recent statistics point to a growing strength in the US
economic recovery, this has yet to translate into any meaningful creation of
jobs. Without growth in employment feeding through to increased incomes, the
recovery will remain uncertain. The UK economy will not be able to escape any
setback on the global stage but the future combination of increasing government
expenditures (for which admittedly there may be a future price to pay) and
continued strength in the services sector seems to be supporting further UK
growth. Even manufacturing industry has been given some boost by the recent
relative strength of the Euro versus sterling. Overall, then, we have some
confidence in the portfolio making steady progress over the coming months.
Mark Hoffman
11 November 2003
Statement of Total Return (unaudited)
(incorporating the Revenue Account)
for the six months ended 31 August 2003
Six months ended 31 Six months ended 31 Year ended 28 February
August 2003 August 2002 2003
(unaudited) (unaudited) (audited)
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
Gains/ 2 - 1,923 1,923 - (2,034) (2,034) - (3,140) (3,140)
(losses) on
investments
Income 3 179 - 179 96 - 96 147 - 147
Investment 4 (59) (178) (237) (72) (216) (288) (135) (406) (541)
management
fee
Other (87) - (87) (104) - (104) (190) - (190)
expenses
Return on 33 1,745 1,778 (80) (2,250) (2,330) (178) (3,546) (3,724)
ordinary
activities
before
taxation
Tax on - - - (6) 6 - - - -
ordinary
activities
Return 33 1,745 1,778 (86) (2,244) (2,330) (178) (3,546) (3,724)
attributable
to equity
shareholders
Ordinary - - - - - - - - -
dividends
Transfer to/ 33 1,745 1,778 (86) (2,244) (2,330) (178) (3,546) (3,724)
(from)
reserves
Return per 5 0.11 6.08 6.19 (0.29) (7.68) (7.97) (0.61) (12.15) (12.76)
share
(pence)
Balance Sheet
as at 31 August 2003 (unaudited)
31 August 31 August 28 February
2003 2002 2003
(unaudited) (unaudited) (audited)
�'000 �'000 �'000
Fixed assets
AIM traded/listed equity 2,761 3,592 2,247
investments
Unlisted investments 19,373 16,723 17,940
22,134 20,315 20,187
Current assets
Debtors 1 423 255
Cash at bank 160 1,287 97
161 1,710 352
Creditors: amounts falling 208 72 80
due within one year
Net current assets (47) 1,638 272
Net assets 22,087 21,953 20,459
Capital and reserves
Share capital 2,866 2,918 2,898
Capital redemption reserve 103 51 71
Special reserve 25,692 25,942 25,842
Capital reserve - realised (5,727) 181 (5,632)
Capital reserve - unrealised (809) (7,160) (2,649)
Revenue reserves (38) 21 (71)
Total shareholders' funds 22,087 21,953 20,459
Net asset value per share 77.08 75.24 70.59
(pence)
Cash Flow Statement
for the six months ended 31 August 2003 (unaudited)
31 August 31 August 28
February
2003 2002 2003
(unaudited) (unaudited) (audited)
�'000 �'000 �'000
Net cash outflow from operating activities (29) (350) (879)
Taxation
UK corporation tax received - - 17
Investing activities
Purchases of investments (580) (2,620) (3,498)
Sales of investments 806 3,469 3,769
Net cash inflow from investment activities 226 849 271
Total cash inflow/(outflow) before financing 197 499 (591)
activities
Financing activities
Gross payments on cancellation of shares (134) (57) (157)
Increase/(decrease) in cash 63 442 (748)
Reconciliation of net cash flow to movement in
net funds
Increase/(decrease) in cash 63 442 (748)
Net funds at 1 March 2003 97 845 845
Net funds at 31 August 2003 160 1,287 97
Notes to the accounts
1. Principal activity
The principal activity of the Company is that of a venture capital trust.
2. Gains/(losses) on investments
31 August 31 August 28 February
2003 2002 2003
�'000 �'000 �'000
Realised gains/(losses) 83 (41) (377)
Unrealised gains/(losses) 1,840 (1,993) (2,763)
1,923 (2,034) (3,140)
3. Income
31 August 31 August 28 February
2003 2002 2003
�'000 �'000 �'000
UK dividends net of tax credits 9 31 48
Income from UK fixed interest securities 167 24 48
Other income from investments - 32 32
Other interest income 3 9 19
179 96 147
4. Management fee
One quarter of the management fee is charged to the revenue account and the
remaining three quarters is charged to capital reserves, net of corporation tax
relief, and inclusive of any related irrecoverable value added tax.
5. Return per share
Return per share has been calculated on 28,738,418 Ordinary shares, being the
weighted average number of shares in issue throughout the period.
6. VCT Status
As at 31 August 2003 the Company continues to be in compliance with the
relevant VCT status tests.
7. Comparative figures
The information for the year ended 28 February 2003 does not constitute
statutory accounts but has been extracted from the latest published audited
accounts which have been filed with the Registrar of Companies. The report of
the auditors on those accounts contained no qualification or statement under
section 237(2) or (3) of the Companies Act 1985.
The unaudited interim financial statements have been prepared on a consistent
basis with the statutory financial statements for the year ended 28 February
2003.
8. Publication
This unaudited interim report is being sent to shareholders and copies will be
made available to the public at the registered office of the Company.
For further information, please contact:
Heather Williams Investec Investment Management Limited 020 7597 2000
END