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RNS

Half-year Report

Released 09:14 14-Aug-2019

RNS Number : 0114J
British Smaller Companies VCT2 Plc
14 August 2019
 

British Smaller Companies VCT2 plc

Unaudited Interim Results and Interim Management Report

For the six months ended 30 June 2019

British Smaller Companies VCT2 plc (the "Company") today announces its unaudited interim results for the six months to 30 June 2019.

HIGHLIGHTS

·      Investment of £6.9 million into four new and five follow-on investments during the period.

·      Offer for subscription alongside British Smaller Companies VCT plc fully subscribed, raising net funds of £12.7 million.

·     A special dividend of 5.0 pence per ordinary share in respect of the year ending 31 December 2019 was paid on 15 February 2019  and a final dividend of 1.5 pence per ordinary share in respect of the year ended 31 December 2018 was paid on 10 May 2019. As a result cumulative dividends paid since your Company's inception increased to 65.0 pence per ordinary share.

·     Proposed interim dividend of 1.5 pence per ordinary share in respect of the year ending 31 December 2019.

·     Total Return unchanged at 118.4 pence per ordinary share at 30 June 2019.

CHAIRMAN'S STATEMENT

Total Return for the six months was unchanged at 118.4 pence per ordinary share. There was a positive gain from the portfolio of 0.3 pence per ordinary share which was offset by the impact of the fundraising and net income after expenses.

New Investment

As previously reported your Company has begun to self-assure on selected new investments and this has had a positive impact on the level of investment so far this year.  Consequently, in the first six months of 2019, your Company completed new and follow-on investments totalling £6.9 million comprising four new investments and five follow-on investments. These were:

In March 2019 £1.2 million was invested into Frescobol Carioca Ltd, the luxury men's resort wear and lifestyle brand.

In May 2019 your Company invested £1.4 million into Wooshii Limited, a disruptive video agency.

Also in  May 2019 your Company made a new investment of £1.4 million into Elucidat Limited, an e-learning software business.

During June 2019 £1.6 million was invested into Tonkotsu Limited, a ramen restaurant group.

Follow-on investments totalling £1.3 million were made into five existing portfolio companies, including an additional investment of £0.75 million into Arcus Global Limited.

Financial Results and Dividends

The movement in Total Return is set out in the table below:

 

 

Total Return

 

 

Pence per

ordinary share

Total Return at 1 January 2019

 

 

 

118.4

Net underlying increase in portfolio

 

 

0.3

 

Net income after expenses

 

 

(0.2)

 

Issue/buy-back of shares

 

 

(0.1)

 

Movement in Total Return

 

 

 

-

Total Return at 30 June 2019

 

 

 

118.4

 

The portfolio produced a value gain of £0.4 million, representing a 1.0 per cent increase over the opening value and equivalent to an increase in value for shareholders of 0.3 pence per ordinary share. 

Investments made since the changes to the VCT rules in November 2015 now comprise £19.8 million (46 per cent) of the unquoted portfolio as at 30 June 2019, with £23.0 million (54 per cent) of investments made prior to the rule changes.  In general, the more recent additions to the portfolio are re-investing their profits for growth, which means that the investments comprise mainly equity instruments.

The resultant movements in net asset value ("NAV") per ordinary share and the dividends paid are set out in the table below:

 

 

Net Asset Value

 

£000

Pence per

ordinary share

NAV at 1 January 2019

 

64,054

 

59.9

Net underlying increase in portfolio

385

 

0.3

 

Net income after expenses

(244)

 

(0.2)

 

Issue/buy-back of shares

13,307

 

(0.1)

 

 

 

 

 

 

NAV before the payment of dividends

 

77,502

 

59.9

Dividends paid

 

(7,326)

 

(6.5)

NAV at 30 June 2019

 

70,176

 

53.4

Dividends

Following the three realisations in December 2018 the Company paid a special dividend of 5.0 pence per ordinary share in respect of the year ending 31 December 2019 on 15 February 2019.

A final dividend of 1.5 pence per ordinary share in respect of the year ended 31 December 2018 was paid on 10 May 2019, bringing the cumulative dividends paid to date to 65.0 pence per ordinary share. 

Your Board has proposed an interim dividend of 1.5 pence per ordinary share for the year ending 31 December 2019 which, when combined with the above dividends paid in the period will bring total dividends paid in the current financial year to 8.0 pence per ordinary share (2018: 3.0 pence per ordinary share).  The interim dividend will be paid on 23 September 2019 to shareholders on the register on 23 August 2019. 

Future performance is becoming more reliant on investments made since the VCT rule changes in November 2015.  These businesses tend to be re-investing profits for growth and in many cases are expected to require multiple funding rounds. The Company's cash returns will therefore become more reliant on successful exits.  In light of this your Board will continue to monitor the Company's dividend policy.

Shareholder Relations

As part of the Board's continuing communication with shareholders, the 24th shareholder workshop was held in conjunction with British Smaller Companies VCT plc at Gibson Hall on 20 June 2019.  Shareholders saw presentations from Friska Limited, Matillion Limited and Frescobol Carioca Ltd. The Company's performance, portfolio and outlook were discussed in talks given by the Investment Adviser, followed by a question and answer session.

A large number of shareholders (83 percent) now receive documents such as the annual report via the website, www.bscfunds.com, rather than by post. This meets the Board's impact objectives as well as reducing printing costs. Your Board continues to encourage all shareholders to take up this option.

Your Company's website www.bscfunds.com, provides a comprehensive level of information in what I hope is a user-friendly format and is refreshed on a regular basis.

Regulatory Developments

As noted above the Company has begun to self-assure new investments on a case-by-case basis and only where professional advice confirms that they can easily be defined as a Qualifying Investment.  Advance assurance is sought where there is an element of uncertainty over the application of the rules.

Fundraising

The new share offer launched on 28 November 2018 with British Smaller Companies VCT plc closed on 11 February 2019 raising total gross proceeds across both VCTs of £35 million. The related allotment of 23,205,679 ordinary shares took place on 1 April 2019 following which your Company received net proceeds of £12.7 million.

Board Composition

Following completion of the 2019 Annual General Meeting, Richard Last stepped down as Chairman and Director and I am delighted to have taken on the role of Chairman at an exciting time for your Company.

Outlook

Given the short time available before 31 October, the recent appointment of a new Prime Minister and the subsequent changes to the Cabinet have made a no-deal Brexit more likely.  While the businesses in the portfolio believe they are as prepared as they can be for such an event there is no doubt that any economic slowdown in the UK could have an impact on some performances over the medium term. There may well be an offsetting effect for the net exporters, of which there are a number, but the overall impact remains a little uncertain. We continue to implement as much risk mitigation as possible into the strategies of the individual investments.

The investment rate has been strong so far this year and there are a number of attractive opportunities in the current pipeline which should help us to maintain this momentum.

 

OBJECTIVES AND STRATEGY

The Company's objective is to maximise Total Return and provide investors with an attractive long-term tax-free dividend yield while maintaining the Company's status as a venture capital trust.

The investment strategy of the Company is to invest in UK businesses across a broad range of sectors to create a portfolio that blends a mix of businesses operating in established and emerging industries that offer opportunities in the application and development of innovation in their products and services.

These investments will all meet the definition of a Qualifying Investment and be primarily in unquoted UK companies. It is anticipated that the majority of these businesses will be re-investing their profits for growth and the investments will, therefore, comprise mainly equity instruments.

 

INVESTMENTREVIEW

The Company's portfolio at 30 June 2019 had a value of £43.73 million consisting of £42.83 million (98 per cent) in unquoted investments and £0.90 million (2 per cent) in quoted investments.  The largest single investment represents 8.8 per cent of the net asset value.

Over the six months to 30 June 2019 the portfolio saw an underlying value gain of £0.26 million from the ongoing portfolio comprising £0.19 million from the unquoted portfolio and £0.07 million from the quoted portfolio.

The most significant upward movements in the period were:

·      ACC Aviation

·      Business Collaborator

·      Matillion

£0.93 million

£0.34 million

£0.31 million

 

 

These gains were offset by companies which saw profits impacted by difficult trading conditions resulting in downward movements:

·      Arcus Global

·      Macro Art

·      KeTech Enterprises

£0.37 million

£0.36 million

£0.36 million

New and Follow-on Investments

In the six months to 30 June 2019 the Company has invested £5.63 million into  four new investments and £1.24 million into five follow-on investments, including £0.75 million into Arcus Global Limited.

The new investments comprise:

·      £1.59 million into Tonkotsu Limited

·      £1.44 million into Wooshii Limited

·      £1.40 million into Elucidat Limited and

·      £1.20 million into Frescobol Carioca Ltd.

Realisation of Investments

During the six months to 30 June 2019 the Company generated £1.75 million from disposals and repayments of loans.  This included the full exit from its investment in Leengate Holdings Limited.

A detailed analysis of all investments realised in the period to 30 June 2019 can be found in note 6 to this interim report.

 

INVESTMENT PORTFOLIO

The top 10 investments had a combined value of £28.2 million, 64.5 per cent of the total portfolio.

 

Name of Company

Sector

First

investment

Current

cost

 

£000

Value at

30 June

2019

£000

Proceeds

to date

 

£000

Capital return to date

£000

ACC Aviation Group Limited

Business Services

Nov 14

145

6,178

1,233

7,411

Matillion Limited

Software

Nov 16

1,778

5,489

-

5,489

Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office)

 

Business Services

May 17

1,956

2,970

-

2,970

Business Collaborator Limited

Software

Nov 14

1,340

2,627

-

2,627

Eikon Holdco Limited

Software

Mar 18

2,000

2,342

-

2,342

KeTech Enterprises Limited

Software

Nov 15

1,500

1,971

500

2,471

Deep-Secure Ltd

Software

Dec 09

500

1,786

-

1,786

Springboard Research Holdings   Limited

Business Services

Oct 14

1,824

1,675

-

1,675

Tonkotsu Limited

Retail

Jun 19

1,592

1,592

-

1,592

Arcus Global Limited

Software

May 18

1,950

1,585

-

1,585

Total top 10 investments

 

 

14,585

28,215

1,733

29,948

Remaining unquoted portfolio

Wooshii Limited

Business Services

May 19

1,440

1,440

-

1,440

Elucidat Limited

Software

May 19

1,400

1,400

-

1,400

Frescobol Carioca Ltd

Retail

Mar 19

1,200

1,200

-

1,200

Sipsynergy

(via Hosted Network Services Limited)

Software

Jun 16

1,309

1,141

-

1,141

Friska Limited

Retail

Jul 17

1,200

1,116

-

1,116

Ncam Technologies Limited

Software

Mar 18

1,268

985

-

985

Traveltek Group Holdings Limited

Software

Oct 16

1,114

802

-

802

Wakefield Acoustics

 (via  Malvar Engineering Limited)

Manufacturing

Dec 14

720

750

41

791

Biz2Mobile Limited

Software

Oct 16

1,106

748

-

748

DisplayPlan Holdings Limited

Business Services

Jan 12

70

648

820

1,468

£0.5 million and below

Other investments

 

9,888

4,386

1,683

6,069

Total unquoted investments

 

 

35,300

42,831

4,277

47,108

Quoted portfolio investments £0.5 million and below

586

894

673

1,567

 

 

 

35,886

43,725

4,950

48,675

Full disposals to date

 

 

30,905

-

43,762

43,762

Total portfolio 

 

 

66,791

43,725

48,712

92,437

                           

 

The charts on page 12 of the interim report show the composition of the portfolio as at 30 June 2019 by age of investment, industry sector, investment instrument and period of investment in relation to VCT rule changes.

 

PRINCIPAL RISKS AND UNCERTAINTIES

In accordance with DTR 4.2.7, the Board confirms that the principal risks and uncertainties facing the Company have not materially changed from those identified in the Annual Report and Accounts for the year ended 31 December 2018. The Board acknowledges that there is regulatory risk and continues to manage the Company's affairs in such a manner as to comply with section 274 of the Income Tax Act 2007.

In summary, the principal risks are:

•              Loss of approval as a Venture Capital Trust;

•              Economic;

•              Investment and strategic;

•              Regulatory;

•              Reputational;

•              Operational;

•              Financial; and

•              Market/liquidity.

Full details of the principal risks can be found in the financial statements for the year ended 31 December 2018 on pages 28 and 29, a copy of which is available at www.bscfunds.com.

 

DIRECTORS' RESPONSIBILITIES STATEMENT

The directors of British Smaller Companies VCT2 plc confirm that, to the best of their knowledge, the condensed set of financial statements in this interim report have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the EU, and give a true and fair view of the assets, liabilities, financial position and profit and loss of British Smaller Companies VCT2 plc, and that the interim management report includes a true and fair review of the information required by DTR 4.2.7R and DTR 4.2.8R.

The directors of British Smaller Companies VCT2 plc are listed in note 9 of these interim financial statements.

 

By order of the Board

 

Peter Waller

Chairman

14 August 2019

 

 

UNAUDITED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2019

 

 

 

Unaudited 6 months ended

30 June 2019

Unaudited 6 months ended

30 June 2018

 

Notes

Revenue

Capital

Total

Revenue

Capital

Total

 

 

£000

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

Income

2

552

-

552

859

-

859

Gains on investments held at fair value

6

-

255

255

-

1,616

1,616

Gains on disposal of investments

6

-

130

130

-

65

65

Total income

 

552

385

937

859

1,681

2,540

Administrative expenses:

 

 

 

 

 

 

 

Investment Adviser's fee

 

(141)

(424)

(565)

(147)

(444)

(591)

Other expenses

 

(231)

-

(231)

(228)

-

(228)

 

 

(372)

(424)

(796)

(375)

(444)

(819)

Profit (loss) before taxation

 

180

(39)

141

484

1,237

1,721

Taxation

3

(5)

5

-

(41)

41

-

Profit (loss) for the period

 

175

(34)

141

443

1,278

1,721

Total comprehensive income (expense) for the period

 

175

(34)

141

443

1,278

1,721

Basic and diluted earnings (loss) per ordinary share

5

0.15p

(0.03p)

0.12p

0.42p

1.21p

1.63p

 

The Total column of this statement represents the Company's Unaudited Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards as adopted by the European Union ('IFRSs'). The supplementary Revenue and Capital columns are prepared under the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in November 2014 and updated in February 2018 with consequential amendments - "SORP") published by the Association of Investment Companies.

 

UNAUDITED BALANCE SHEET

as at 30 June 2019

 

 

Notes

Unaudited

30 June

2019

 

Unaudited

30 June

2018

 

Audited

31 December

2018

 

 

 

£000

£000

£000

Assets

 

 

 

 

Non-current assets at fair value through profit and loss

Financial assets

6

43,725

46,634

38,102

Accrued income and other assets

 

504

1,004

467

 

 

44,229

47,638

38,569

Current assets

 

 

 

 

Accrued income and other assets

 

505

462

552

Cash on fixed term deposit

 

1,988

1,988

1,988

Cash and cash equivalents

 

23,534

13,318

23,115

 

 

26,027

15,768

25,655

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

(80)

(172)

(170)

Net current assets

 

25,947

15,596

25,485

Net assets

 

70,176

63,234

64,054

 

 

 

 

 

Shareholders' equity

 

 

 

 

Share capital

 

13,949

11,252

11,318

Share premium account

 

16,105

4,073

4,351

Capital redemption reserve

 

88

88

88

Other reserve

 

2

2

2

Merger reserve

 

5,525

5,525

5,525

Capital reserve

 

25,586

29,745

33,694

Investment holding gains and losses reserve

 

7,868

10,925

7,335

Revenue reserve

 

1,053

1,624

1,741

Total shareholders' equity

 

70,176

63,234

64,054

Net asset value per ordinary share

7

53.4p

58.8p

59.9p

 

UNAUDITED STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 June 2019

               

 

 

Share

capital

Share

premium

account

Other

reserves*

Capital

reserve

Investment

holding

gains and

losses reserve

Revenue

reserve

Total

equity

 

£000

£000

£000

£000

£000

£000

£000

At 31 December 2017

10,450

257

5,615

32,198

9,090

1,446

59,056

 

 

 

 

 

 

 

 

Revenue return for the period

-

-

-

-

-

484

484

Capital expenses

-

-

-

(444)

-

-

(444)

Investment holding gain on investments held at fair value

-

-

-

-

1,616

-

1,616

Realisation of investments in the period

-

-

-

65

-

-

65

Taxation

-

-

-

41

-

(41)

-

Total comprehensive (expense) income for the period

-

-

-

(338)

1,616

443

1,721

Issue of ordinary share capital

737

3,663

-

-

-

-

4,400

Issue of shares - DRIS

65

294

-

-

-

-

359

Issue costs of ordinary shares**

-

(141)

-

(5)

-

-

(146)

Purchase of own shares

-

-

-

(544)

-

-

(544)

Dividends

-

-

-

(1,347)

-

(265)

(1,612)

Total transactions with owners

802

3,816

-

(1,896)

-

(265)

2,457

Realisation of prior year investment holding losses

-

-

-

(219)

219

-

-

At 30 June 2018

11,252

4,073

5,615

29,745

10,925

1,624

63,234

Revenue return for the period

-

-

-

-

-

334

334

Capital expenses

-

-

-

(399)

-

-

(399)

Investment holding loss on investments held at fair value

-

-

-

-

(240)

-

(240)

Realisation of investments in the period

-

-

-

3,038

-

-

3,038

Taxation

-

-

-

16

-

(16)

-

Total comprehensive income (expense) for the period

-

-

-

2,655

(240)

318

2,733

Issue of shares - DRIS

66

293

-

-

-

-

359

Issue costs of ordinary shares**

-

(15)

-

(1)

-

-

(16)

Unclaimed dividends

-

-

-

7

-

-

7

Purchase of own shares

-

-

-

(650)

-

-

(650)

Dividends

-

-

-

(1,412)

-

(201)

(1,613)

Total transactions with owners

66

278

-

(2,056)

-

(201)

(1,913)

Realisation of prior year investment holding gains

-

-

-

3,350

(3,350)

-

-

At 31 December 2018

11,318

4,351

5,615

33,694

7,335

1,741

64,054

Revenue return for the period

-

-

-

-

-

180

180

Capital expenses

-

-

-

(424)

-

-

(424)

Investment holding gain on investments held at fair value

-

-

-

-

255

-

255

Realisation of investments in the period

-

-

-

130

-

-

130

Taxation

-

-

5

-

(5)

-

Total comprehensive (expense) income for the period

-

-

(289)

255

175

141

Issue of ordinary share capital

2,321

10,959

-

-

-

-

13,280

Issue of shares - DRIS

310

1,259

-

-

-

-

1,569

Issue costs of ordinary shares**

-

(464)

-

(136)

-

-

(600)

Purchase of own shares

-

-

-

(942)

-

-

(942)

Dividends

-

-

(6,463)

-

(863)

(7,326)

Total transactions with owners

2,631

11,754

-

(7,541)

-

(863)

5,981

Realisation of prior year investment holding losses

-

-

(278)

278

-

-

At 30 June 2019

13,949

16,105

25,586

7,868

1,053

70,176

                           

*Other reserves include the capital redemption reserve, the merger reserve and the other reserve, which are non-distributable.

**Issue costs include both fundraising costs (where applicable) and costs incurred from the Company's DRIS.

 

Reserves available for distribution

Under the Companies Act 2006 the capital reserve and the revenue reserve are distributable reserves.  The table below shows amounts that are available for distribution.

 

Capital reserve

£000

Revenue reserve

£000

        Total

£000

Distributable reserves as before

25,586

1,053

26,639

Less   : Income and proceeds not yet distributable

(388)

(1,008)

(1,396)

           : Revaluation losses

(410)

-

(410)

           : Cancelled share premium not yet distributable

(7,242)

-

(7,242)

Reserves available for distribution*

17,546

45

17,591

* subject to filing these interim financial statements at Companies House.

The capital reserve  and the revenue reserve are both distributable reserves.  These reserves total £26,639,000, representing a decrease of £8,796,000 in the period since 31 December 2018.  The directors also take into account the level of the investment holding gains and losses reserve and the future requirements of the Company when determining the level of dividend payments.

Of the potentially distributable reserves of £26,639,000 shown above, £1,396,000 relates to income and proceeds not yet receivable and £7,242,000 to cancelled share premium which becomes distributable from 1 January 2020 onwards (see below). In addition revaluation losses of £410,000 included within the investment holding gains and losses reserve are not considered to be recoverable.

Total share premium previously cancelled will be available for distribution from the following dates.

 

 

 

 

£000

1 January 2020

 

 

3,565

1 January 2021

 

 

3,677

Cancelled share premium not yet distributable

 

 

7,242

 

UNAUDITED STATEMENT OF CASH FLOWS

for the six months ended 30 June 2019

 

Notes

Unaudited

6 months

ended

30 June

2019

Unaudited

6 months 

ended

30 June

2018

Audited

year

ended

31 December

2018

 

 

£000

£000

£000

Profit before taxation

 

141

1,721

4,454

(Decrease) increase in trade and other payables

 

(90)

(176)

14

(Increase) decrease in accrued income and other assets

 

(96)

(81)

366

Gains on disposal of investments

 

(130)

(65)

(3,103)

Gains on investments held at fair value

 

(255)

(1,616)

(1,376)

Capitalised interest and dividends

 

-

-

(133)

Net cash (outflow) inflow from operating activities

 

(430)

(217)

222

Cash flows from investing activities

 

 

 

 

Purchase of financial assets at fair value through profit or loss

6

(6,867)

(5,534)

(5,647)

Proceeds from sale of financial assets at fair value through profit or loss

6

1,612

931

12,224

Deferred consideration

6

123

-

189

Net cash (outflow) inflow from investing activities

 

(5,132)

(4,603)

6,766

Cash flows from financing activities

 

 

 

 

Issue of ordinary shares

 

13,280

4,380

4,379

Costs of ordinary share issues*

 

(600)

(126)

(141)

Purchase of own shares

 

(942)

(544)

(1,194)

Dividends paid

4

(5,757)

(1,253)

(2,598)

Net cash inflow from financing activities

 

5,981

2,457

446

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

419

(2,363)

7,434

Cash and cash equivalents at the beginning of the period

 

23,115

15,681

15,681

Cash and cash equivalents at the end of the period

 

23,534

13,318

23,115

 

*Issue costs include both fundraising costs and expenses incurred from the Company's DRIS.

 

EXPLANATORY NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

1              General Information, Basis of Preparation and Principal Accounting Policies

These half year statements have been approved by the directors whose names appear at note 9, each of whom has confirmed that to the best of his knowledge:

•              the interim management report includes a fair review of the information required by rules 4.2.7 and 4.2.8 of the Disclosure Rules and the Transparency Rules; and

•              the half year statements have been prepared in accordance with IAS 34 'Interim financial reporting' and the Disclosure and Transparency Rules of the Financial Conduct Authority.

The half year statements are unaudited and have not been reviewed by the auditors pursuant to the Auditing Practices Board (APB) guidance on Review of Interim Financial Information. They do not constitute full financial statements as defined in section 435 of the Companies Act 2006. The comparative figures for the year ended 31 December 2018 do not constitute full financial statements and have been extracted from the Company's financial statements for the year ended 31 December 2018. Those accounts were reported upon without qualification by the auditors and have been delivered to the Registrar of Companies.

The accounting policies and methods of computation followed in the half year statements are the same as those adopted in the preparation of the audited financial statements for the year ended 31 December 2018. New standards coming into force during the period have not had a material impact on these interim financial statements.

The financial statements for the year ended 31 December 2018 were prepared in accordance with the 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. Where guidance set out in the SORP is consistent with the requirements of IFRS, the financial statements have been prepared in compliance with the recommendations of the SORP.

Standards, amendments to standards and interpretations have been issued which are effective for the current reporting period. The Company has carried out an assessment and considers that these standards, amendments and interpretations do not affect the Company's accounting policies, results or net assets.

The financial statements are presented in sterling and all values are rounded to the nearest thousand (£000), except where stated.

Going Concern: The directors have carefully considered the issue of going concern and are satisfied that the Company has sufficient resources to meet its obligations as they fall due for a period of at least twelve months from the date these half year statements were approved. As at 30 June 2019 the Company held cash balances and fixed term deposits with a combined value of £25,522,000. Cash flow projections show the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of share buy-backs and the dividend policy. The directors therefore believe that it is appropriate to continue to apply the going concern basis of accounting in preparing these half year statements.

2             Income

 

Unaudited

6 months

ended

30 June

2019

£000

Unaudited

6 months

ended

30 June

2018

£000

Income from investments

 

 

- Dividends from unquoted companies

149

263

- Dividends from AIM quoted companies

2

8

 

151

271

- Interest on loans to unquoted companies

289

527

Income from investments held at fair value through profit or loss

440

798

Interest on bank deposits

112

61

 

552

859

 

3          Taxation

 

Unaudited 6 months ended

30 June 2019

Unaudited 6 months ended

30 June 2018

 

Revenue

Capital

Total

Revenue

Capital

Total

 

£000

£000

£000

£000

£000

£000

Profit (loss) before taxation

180

(39)

141

484

1,237

1,721

Profit (loss) before taxation multiplied by the standard small company rate of corporation tax in UK of 19.0% (2018: 19.0%)

34

(7)

27

92

235

327

Effect of:

 

 

 

 

 

 

UK dividends received

(29)

-

(29)

(51)

-

(51)

Non-taxable profits on investments

-

(73)

(73)

-

(319)

(319)

Excess expenses

-

75

75

-

43

43

Tax charge (credit)

5

(5)

-

41

(41)

-

 

The Company has no provided, or unprovided, deferred tax liability in either period.

Deferred tax assets in respect of losses have not been recognised as the directors do not currently believe that it is probable that sufficient taxable profits will be available against which the assets can be recovered.

Due to the Company's status as a venture capital trust, and the continued intention to meet the conditions required to comply with Chapter 3 Part 6 of the Income Tax Act 2007, the Company has not provided deferred tax on any capital gains or losses arising on the revaluation or realisation of investments.

 

4          Dividends

             Amounts recognised as distributions to equity holders in the period:

 

Unaudited

6 months ended

30 June 2019

Unaudited

6 months ended

30 June 2018

Audited

Year ended

31 December 2018

 

Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total

 

£000

£000

£000

£000

£000

£000

£000

£000

£000

Final dividend for the year ended 31 December 2018 of 1.5p (2017: 1.5p) per ordinary share

785

1,190

1,975

265

1,347

1,612

265

1,347

1,612

 

 

 

 

 

 

 

 

 

 

Interim dividend for the year ended 31 December 2019 of 5.0p (2018 1.5p) per ordinary share

78

5,273

5,351

-

-

-

201

1,412

1,613

 

863

6,463

7,326

265

1,347

1,612

466

2,759

3,225

Shares allotted under DRIS

 

 

(1,569)

 

 

(359)

 

 

(718)

Unclaimed dividends

 

 

-

 

 

-

 

 

91

Dividends paid in the Statement of Cash Flows

 

 

5,757

 

 

1,253

 

 

2,598

                     

 

An interim dividend of 1.5 pence per ordinary share, amounting to approximately £2.0 million, is proposed. The dividend has not been recognised in these half year financial statements 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 per ordinary share is based on the profit after tax attributable to equity shareholders of £141,000 (30 June 2018: £1,721,000) and 120,024,534 (30 June 2018: 105,882,952) ordinary shares being the weighted average number of ordinary shares in issue during the period.

             The basic and diluted revenue earnings per ordinary share is based on the revenue profit attributable to equity shareholders of £175,000 (30 June 2018: £443,000) and 120,024,534 (30 June 2018: 105,882,952) ordinary shares being the weighted average number of ordinary shares in issue during the period.

             The basic and diluted capital earnings per ordinary share is based on the capital loss attributable to equity shareholders of £34,000 (30 June 2018: profit £1,278,000) and 120,024,534 (30 June 2018: 105,882,952) ordinary shares being the weighted average number of ordinary shares in issue during the period.

             During the period the Company allotted 3,103,427 new ordinary shares in respect of its dividend re-investment scheme and 23,205,679 new ordinary shares of 10 pence each under the offer for subscription launched on 28 November 2018, which raised gross proceeds of £13.3 million. 

             The Company has repurchased 1,815,531 of its own shares in the period and these shares are held in the capital reserve. The total of 7,974,092 treasury shares has been excluded in calculating the weighted average number of ordinary shares during the period.

             The Company has no dilutive shares and consequently, basic and diluted earnings per ordinary share are equivalent at 30 June 2019, 31 December 2018 and 30 June 2018.

 

6          Financial Assets at Fair Value through Profit or Loss

             IFRS 13, in respect of financial instruments that are measured in the balance sheet at fair value, requires disclosure of fair value measurements by level within the following fair value measurement hierarchy:

•           Level 1: quoted prices in active markets for identical assets or liabilities. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is defined as a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The quoted market price used for financial assets held by the Company is the current bid price. These instruments are included in Level 1 and comprise AIM quoted investments classified as held at fair value through profit or loss.

•           Level 2: the fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. The Company held no such instruments in the current or prior year.

•           Level 3: the fair value of financial instruments that are not traded in an active market (for example, investments in unquoted companies) is determined by using valuation techniques such as earnings or sales multiples. If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. The majority of the Company's investments fall into this category.

             Each investment is reviewed at least quarterly to ensure that it has not ceased to meet the criteria of the level in which it was included at the beginning of each accounting period. There have been no transfers between these classifications in the period (2018: none).

The change in fair value for the current and previous year is recognised through profit or loss. All items held at fair value through profit or loss were designated as such upon initial recognition.

             Valuation of Investments

             Initial Measurement: Financial assets are initially measured at fair value. The best estimate of the initial fair value of a financial asset that is either quoted or not quoted in an active market is the transaction price (i.e. cost).

             Subsequent Measurement: The International Private Equity and Venture Capital (IPEV) Valuation Guidelines ("the Guidelines") identify six of the most widely used valuation methodologies for unquoted investments. The Guidelines advocate that the best valuation methodologies are those that draw on external, objective market based data in order to derive a fair value.

             Full details of the methods used by the Company were set out on page 57 of the financial statements for the year ended 31 December 2018, a copy of which can be found at www.bscfunds.com. Where investments are in quoted stocks, fair value is set at the market price.

 

             The primary methods used for valuing non-quoted investments, and the key assumptions relating to them are:

 

•           Price of recent investment, reviewed for changes in fair value: This represents the cost of the investment or the price at which a significant amount of new investment has been made by an independent third party adjusted, if necessary, for factors relevant to the background of the specific investment. The value of the investment is assessed for changes or events that would imply either a reduction or increase to its fair value through comparison of financial, technical and marketing milestones set at the time of investment. Where it is considered that the fair value no longer approximates to the cost of the recent investment an estimated adjustment to the cost, based on objective data, will be made to the investment's carrying value.

 

•           Earnings multiple: A multiple that is appropriate and reasonable, given the risk profile and earnings growth prospects of the underlying company, is applied to the maintainable earnings of that company. The multiple is adjusted to reflect any risk associated with lack of marketability and to take account of the differences between the investee company and the benchmark company or companies.

 

•           Sales multiples and industry valuation benchmarks: Where appropriate comparator companies can be identified, multiples of revenues may be used as a valuation benchmark.

 

             Movements in investments at fair value through profit or loss during the six months to 30 June 2019 are summarised as follows:

 

IFRS 13 measurement classification

Level 3

Unquoted

Investments

 

£000

Level 1

Quoted 

Equity

Investments

£000

Total

Investments

 

 

£000

Opening cost

30,042

754

30,796

Opening valuation gain

6,977

329

7,306

Opening fair value at 1 January 2019

37,019

1,083

38,102

Additions at cost

6,867

-

6,867

Disposal proceeds

(1,304)

(308)

(1,612)

Net profit on disposal

59

54

113

Change in fair value

190

65

255

Closing fair value at 30 June 2019

42,831

894

43,725

Closing cost

35,300

586

35,886

Closing valuation gain

7,531

308

7,839

Closing fair value at 30 June 2019

42,831

894

43,725

 

The net profit on disposal in the table above is £113,000 whereas that shown in the Statement of Comprehensive Income is £130,000. The difference comprises the gain of £17,000 arising on deferred proceeds in respect of assets which have been disposed of and are not included within the investment portfolio at the period end.

Level 3 valuations include assumptions based on non-observable data, such as discounts applied either to reflect changes in fair value of financial assets held at the price of recent investment, or to adjust earnings multiples.

IFRS13 requires disclosure, by class of financial instruments, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to fair value measurement. Each unquoted portfolio company has been reviewed and both downside and upside alternative assumptions have been identified and applied to the valuation of each of the unquoted investments. Applying the downside alternative the value of the unquoted investments would be £2,423,000 (5.7 per cent) lower. Using the upside alternative the value would be increased by £2,610,000 (6.1 per cent).

Of the Company's investments, 98 per cent are in unquoted companies held at fair value (31 December 2018: 97 per cent). The valuation methodology for these investments includes the application of externally produced sales multiples and FTSE® PE multiples. Therefore the value of the unquoted element of the portfolio is also indirectly affected by price movements on the listed market. Those using earnings and sales multiple methodologies include judgements regarding the level of discount applied to that multiple. A 10 per cent decrease in the discount applied would have increased the net assets attributable to the Company's shareholders and the total profit by £3,271,000 (4.7 per cent of net assets). An equal change in the opposite direction would have decreased net assets attributable to the Company's shareholders and the total profit by an equal amount.

Of the Company's equity investments, 2 per cent are quoted on AIM (31 December 2018: 3 per cent). A 5 per cent increase in stock prices as at 30 June 2019 would have increased the net assets attributable to the Company's shareholders and the total profit for the period by £45,000 (31 December 2018: £54,000). An equal change in the opposite direction would have decreased the net assets attributable to the Company's shareholders and the total profit for the period by an equal amount.

There have been no individual fair value adjustments downwards during the period that exceeded 5 per cent of the total assets of the Company (31 December 2018: none).

The following disposals and loan repayments took place during the period (all companies are unquoted unless otherwise stated).

 

Net

proceeds

from sale

 

Cost

 

Opening

carrying

value as at

1 January

2019

Gain

over 

opening

carrying

value

 

£000

£000

£000

£000

Unquoted investments

 

 

 

 

Leengate Holdings Limited

1,291

716

1,240

51

Hutchinson Networks Limited

-

880

-

-

Seven Technologies Holdings Limited

13

13

5

8

 

1,304

1,609

1,245

59

Quoted investments

 

 

 

 

AB Dynamics plc

100

8

95

5

Renalytix plc

109

74

73

36

Volex plc

99

86

86

13

 

308

168

254

54

Total from disposals in the period

1,612

1,777

1,499

113

Deferred proceeds:

 

 

 

 

Selima Holding Company Ltd

134

-

117

17

Total from quoted and unquoted investments

1,746

1,777

1,616

130

 

The proceeds in the table above total £1,746,000, whereas that shown in the Statement of Cash Flows including deferred consideration is £1,735,000. The difference comprises deferred consideration which is expected to be received after 30 June 2019.

 

7          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 £70,176,000 (30 June 2018 and 31 December 2018: £63,234,000 and £64,054,000 respectively) and 131,512,395 (30 June 2018 and 31 December 2018: 107,538,444 and 107,018,820 respectively) ordinary shares in issue at 30 June 2019.

             The 7,974,092 (30 June 2018 and 31 December 2018: 4,980,851 and 6,158,561 respectively) treasury shares have been excluded in calculating the number of ordinary shares in issue at 30 June 2019.

             The Company has no potentially dilutive shares and consequently, basic and diluted net asset values are equivalent at 30 June 2019, 31 December 2018 and 30 June 2018.

 

8          Total Return

             Total Return per ordinary share is calculated on cumulative dividends paid of 65.0 pence per ordinary share (30 June 2018: 57.0 pence per ordinary share and 31 December 2018: 58.5 pence per ordinary share) plus the net asset value as calculated in note 7.

 

9          Directors

             The directors of the Company are: Peter Charles Waller, Robert Martin Pettigrew, and Roger Steven McDowell.

 

10        Other Information

             Copies of the interim report can be obtained from the Company's registered office: 5th Floor, Valiant Building, 14 South Parade, Leeds, LS1 5QS or from www.bscfunds.com.

 

11         Interim Dividend for the Six Months ended 30 June 2019

Further to the announcement of its interim results for the six months to 30 June 2019, the Company confirms that an interim dividend of 1.5 pence per ordinary share ("Interim Dividend") will be paid on 23 September 2019 to those shareholders on the Company's register at the close of business on 23 August 2019. The ex-dividend date for these dividends will be 22 August 2019.

 

12        Dividend Re-investment Scheme ("DRIS") 

The Company operates a dividend re-investment scheme ("DRIS"). The latest date for receipt of DRIS elections so as to participate in the DRIS in respect of the Interim Dividend is the close of business on 9 September 2019.

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU No. 596/2014). Upon the publication of this announcement via Regulatory Information Service this inside information is now considered to be in the public domain.

 

For further information, please contact:

 

David Hall          YFM Private Equity Limited        Tel: 0113 244 1000

 

Robert Naylor    Panmure Gordon (UK) Limited Tel: 0207 886 2768

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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Half-year Report - RNS