TIDMBNS
Baronsmead VCT 4 plc
Half Yearly Financial Report Announcement
11 August 2009
Investment Objective
Baronsmead VCT 4 is a tax efficient listed company which aims to achieve
long-term capital growth and generate tax-- free dividends for private
investors.
Unaudited Half Yearly Financial Report Announcement -
Six months ended 30 June 2009
Baronsmead VCT 4 plc
Financial Headlines
3.0p Interim dividend of 3.0p per share (unchanged from prior year) payable
on 7 September 2009 to shareholders on the register at 21 August 2009.
3.6% NAV per share increased by 3.6 per cent over the six month period to 30
June 2009 from 90.68p to 93.92p before payment of the 3.0p interim
dividend.
31.7% NAV total return to shareholders since inception in 2001, equivalent to
an annualised total return of 3.7 per cent before the 20 per cent
income tax relief (on subscription, at launch) and 4.6 per cent
afterwards.
8.3% Dividend yield of 8.3 per cent tax free to qualifying shareholders
(gross equivalent yield for a higher rate taxpayer is 12.3 per cent).
This is based on the 3.0p interim dividend payable in September 2009
plus the 4.0p dividend paid in December 2008 divided by the mid
ordinary share price of 84.0p at 30 June 2009.
Chairman's Statement - for the six months ended 30 June 2009
The Net Asset Value per share has increased by 3.6 per cent in the last six
months, mainly as the value of AIM shares in the portfolio has shown some
recovery from 2008 lows.
The 3p interim dividend reflects this positive total return in the period and
is payable largely out of capital reserves accumulated from successful unquoted
exits in prior years. The 18 strong unquoted portfolio is showing resilience
and has maintained its value in a challenging trading environment. Furthermore,
the Company is well positioned to make new investments at an advantageous point
in the cycle.
RESULTS
In the six months to 30 June 2009, the Net Asset Value (NAV) per share
increased by 3.6 per cent from 90.68p to 93.92p before payment (due on 7
September 2009) of a 3p per share interim dividend. This dividend comprises
2.7p per share of undistributed capital profits and 0.3p per share of net
revenue. The capital dividend is paid from the reserves accumulated from net
profits realised in previous years. The increase in NAV per share is nearly all
represented by a rise in the AIM portion of the portfolio, up 19 per cent since
the year end. The FTSE All-Share Index fell 2 per cent over the same period.
The performance of the unquoted portfolio has been robust and its collective
valuation has been sustained. This validates the quality of the portfolio and
the effectiveness of close cooperation with the investee companies.
At the period end, over 70 per cent of the ordinary capital raised (net of
launch costs) prior to 31 December 2006 was invested in VCT qualifying
investments and the 5 other VCT qualifying tests had also been met.
LONG TERM PERFORMANCE
The interim dividend will take the cumulative dividends paid (tax free to
qualifying shareholders) for founder shareholders to 34p per share and compares
to their original GBP1 investment.
There have been two prospectus fund raisings by Baronsmead VCT 4. All
shareholders from these prior offers have to date achieved positive absolute
total returns. The returns are also ahead of the FTSE All-Share Index over 1, 3
and 5 years. The results compare favourably with other VCTs and fuller
comparisons have recently been facilitated by the Association of Investment
Companies (AIC) who publish monthly data on their website, www.theaic.co.uk.
The returns to shareholders are enhanced by the tax benefits available to VCT
investors. At a time of lower and sometimes negative investment returns, the
proportional benefit from these reliefs is greater. For instance the tax free
nature of dividends for qualifying shareholders is significant when deposit
rates on cash are presently at a historic low.
PORTFOLIO REVIEW
The Board reviews the relative health of the portfolio companies quarterly, in
terms of financial performance and reference to market values.
Following the write off of three AIM investments and one unquoted company, the
total portfolio comprises 65 companies. 55 per cent of the portfolio by value
was invested in unquoted companies, 19 per cent in AIM investees and the
balance of 26 per cent remained in cash or government securities.
The Company has endeavoured to prepare for the current downturn over the last
two years by selecting new investments in sub-sectors that are less cyclical
and with growth strategies that are intended to be less reliant on general
economic growth. The charts on page 7 of the interim report show the proportion
of the portfolio by value (including AIM-- traded companies). Healthcare &
Education which tends to be more public sector dependent has almost doubled to
19 per cent and IT & Media has increased significantly from 8 per cent to 28
per cent. In contrast the proportion invested in Consumer Markets has remained
relatively low at around 15 per cent and the exposure to Financial Services at
this stage in the cycle is modest at 6 per cent.
Unquoted portfolio
On average, the current portfolio of unquoted investments is valued at some
35 per cent higher than original cost. Thirteen companies are valued at a
level greater than cost and whilst five are valued below cost only two of these
have a provision against cost of greater than 25 per cent.
In addition, in the unquoted portfolio financial structures have been designed
to be prudent wherever possible with relatively low levels of external debt.
There are several ways of measuring borrowings but the most common relates to
the level of net borrowings divided by annual operating profits defined as
EBITDA - earnings before interest, tax, depreciation and amortisation. At an
average ratio of 1.8 times across the unquoted portfolio, the level of debt
within the portfolio as a whole is relatively low and considerably less than
those typically used in larger private equity transactions.
The Manager is actively involved in its private equity investments and tight
control of overheads, a focus on efficient working capital management and early
communication with each investee company's banks have all helped to manage risk
and minimise issues. Presentations by investee companies at each AGM have
illustrated the close relationship between the executive management of unquoted
companies and the Manager.
AIM-traded portfolio
The AIM market was oversold towards the end of 2008 and this portion of the
portfolio has bounced back during the period with 19 per cent growth in value.
While returns from AIM investments were poor throughout 2008, this part of the
portfolio is now making a positive contribution.
PROSPECTS FOR NEW INVESTMENT
The market for investing in new unquoted transactions remains relatively
depressed at present with overall M&A volumes significantly down. No new
investments have been completed during the six months under review. The quality
of proposals at present remains mixed as the market adjusts to revised asset
pricing and the Manager is rightly focused on high quality businesses with good
management. The M&A market will turn as confidence starts to return and we
intend to benefit when making investments from asset prices lower than the
peaks of recent years. In the meantime, the Manager has an active programme of
directly approaching prospective investee companies in selected sectors, and
this is building a strong pipeline of entrepreneurs that would like to work
with the Manager when timing is right. This continues to be a significant
investment for the future.
The volume of qualifying AIM opportunities has increased from very low levels
earlier in the year. However, conversion rates have so far remained low as the
Manager seeks to maintain a high quality threshold for new investments.
With capital still scarce for smaller AIM companies and support from the recent
recovery in equity markets, prospects for new AIM investment during the
remainder of the year are improving. As previously stated the intention is to
take more influential stakes in a smaller number of AIM investments, where a
likely exit strategy to a trade buyer can be envisaged.
SHAREHOLDING ISSUES
The top up offer in March/April 2009 raised gross proceeds of GBP600,000. Of the
102 total subscribers, we welcome 21 new shareholders to those 81 shareholders
that invested again. The Directors continue to believe that it is an
advantageous time in the UK economic cycle to be investing in smaller companies
and that it is appropriate for the Company to raise further funds in order to
fund future investments. The Board's current intention is that there will be a
significant fundraising in the current tax year under the existing shareholder
authorities and it is considering making such an offer on a joint basis with
Baronsmead VCT 3.
During the six months to 30 June 2009 1.35 million shares were bought back at
an average discount to NAV of 11 per cent. This compares against the rest of
the VCT sector where discounts to NAV were generally much higher at the period
end.
The Company's former broker, Teathers, ceased to operate as a market maker
during March 2009. However, several other firms became market makers during
that month thereby minimising the impact this could have had on the discount to
NAV at which the Company's shares were traded. Currently the Company's shares
have three market makers, namely Matrix Corporate Capital, Winterflood and
Singer Capital Markets. Following a review of brokers the Board agreed to
appoint Matrix Corporate Capital as the new broker to the Company from the
beginning of August 2009.
In the April 2009 Budget there were only minor changes to the VCT rules and
regulations. However, the proposed 50 per cent income tax rate and restriction
of tax relief on pension contributions may mean that VCTs become increasingly
attractive. In the autumn, the Manager will seek to articulate these changes as
a follow up to the letter on utilising VCTs in retirement and estate planning
sent to shareholders in March 2009.
Again it is important to stress the need to consult professional advisers for
all investment decisions. Please email Michael.probin@isisep.com if you wish to
contribute to these topics and state what is important from your perspective as
an interested shareholder.
OUTLOOK
Equity markets have rallied in recent weeks anticipating that the pace of
decline in the UK economy over the past 12 months may have slowed. There is
some evidence that our portfolio companies are also trading more steadily.
Balance sheets of our investees are in general a little stronger, which should
enable many of them to anticipate and benefit from the upswing when it comes.
The Board and Manager share the belief that once greater stability has returned
to UK financial and industrial markets our Company should be well placed to
capitalise on a potentially more favourable investment environment.
There are other external issues which may impact on the company and its
prospects. The proposed increase in the higher rate of Income Tax in the UK to
50 per cent from April 2010 will make tax-free dividends more valuable in the
hands of our shareholders. Your Board believes it will be important to
demonstrate the positive benefit of such tax concessions to the UK economy from
investing in entrepreneurial growth businesses. We shall seek to measure the
increased employment and consequent increase in tax revenue to the Treasury by
investee companies that have benefited from our investment. For example the ten
largest investee companies have on average increased the number of employees by
over 50 per cent during the first 3 years following our investment.
Another external factor which we regard with concern is the proposed
Alternative Investment Fund Managers (AIFM) Directive which may impose
restrictions on the Manager and/or the Company over the manner in which
investments are made and funds raised. It is too early to tell how significant
the impact of these measures will be to the way your Company functions, but we
are alert to the issues and will comment further on this Directive in the
Annual Report.
Philip Dunne
Chairman
11 August 2009
TABLE OF INVESTMENTS
Company Location Sector Activity Investment
cost (GBP'000)
AIM-traded
investments
follow on
Ffastfill plc Sevenoaks IT Support Trading platform 106
Services software provider
IDOX plc London IT Support Public sector software 118
Services and services
Total AIM-traded 224
investments
Unquoted
investments
follow on
Occam Bath Business Integrated data 6
Services services
Total Unquoted investments 6
Total Investments in the 230
period
REALISATIONS FOR THE SIX MONTHS TO 30 JUNE 2009
First Value at Realised Multiple
investment profit/(loss) return*
date 31 December
2008 this period
Company GBP'000 GBP'000
AIM-traded
divestments
Craneware Part sale Sep 07 175 10 1.7
plc
EBTM plc Written off Mar 07 51 (51) -
Fishworks Written off Jun 05 14 (14) -
plc
IPT Holdings Written off Nov 04 4 (4) -
plc
MBL Group Part sale Jan 03 9 8 0.6
plc
Total AIM-traded 253 (51)
divestments
Unquoted
divestments
Green Issues Written off Dec 05 - - 0.2
Scriptswitch Partial May 07 361 - 1.3
loan note
redemption
Total Unquoted 361 -
divestments
Total divestments in the 614 (51)
period
In addition deferred proceeds of GBP16,000 were received on the sale of the
unquoted investment Language Line realised in a prior period.
*Includes interest/dividends received, loan note redemptions and partial
realisations accounted for in prior periods.
Responsibility statement of the Directors in respect of the half-yearly
financial report
We confirm that to the best of our knowledge:
*the condensed set of financial statements has been prepared in accordance with
the Statement `Half-yearly financial reports' issued by the UK Accounting
Standards Board;
*the Chairman's Statement (constituting the interim management report) includes
a fair review of the information required by DTR 4.2.7R of the Disclosure and
Transparency Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact on the
condensed set of financial statements;
*the Statement of Principal Risks and Uncertainties on page 12 of in interim
report is a fair review of the information required by DTR 4.2. 7R; and
*the financial statements include a fair review of the information required by
DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the last annual report that could do so.
Unaudited Income Statement
For the six months ended 30 June 2009
Six months to 30 June Six months to 30 June Year to 31 December
2009 2008| 2008*|
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Unrealised gains/
(losses) on
investments - 1,849 1,849 - (5,255) (5,255) - (7,319) (7,319)
Realised (losses)
/gains on
investments - (42) (42) - 1,944 1,944 - (259) (259)
Income 563 - 563 996 - 996 1,762 - 1,762
Recoverable VAT 1 (3) (2) - - - 198 749 947
Investment (151) (454) (605) (185) (555) (740) (330) (989) (1,319)
management fee
Other expenses (174) - (174) (173) - (173) (427) - (427)
Profit/(loss) on
ordinary
activities before 239 1,350 1,589 638 (3,866) (3,228) 1,203 (7,818) (6,615)
taxation
Taxation on (34) 34 - (143) 143 - (306) 306 -
ordinary
activities
Profit/(loss) on
ordinary
activities after 205 1,384 1,589 495 (3,723) (3,228) 897 (7,512) (6,615)
taxation
Return per
ordinary share:
Basic ordinary
and C share
combined 0.39p 2.64p 3.03p 0.93p (7.03)p (6.10)p 1.72p (14.42) (12.70)
p p
*These figures are audited.
|Ordinary and C share combined.
Unaudited Reconciliation of Movements in Shareholders' Funds
For the six months ended 30 June 2009
Six months to Six months to Year to
30 June 2009 30 June 2008 31 December
2008
GBP'000 GBP'000 GBP'000*|
Opening shareholders' funds 47,896 58,599 58,599
Profit/(loss) for the period 1,589 (3,228) (6,615)
Issue of shares 601 1,526 1,526
Expenses of share issue/C share (42) (22) (34)
conversion
Purchase of shares for Treasury/ (1,111) (646) (1,002)
cancellation
Dividends paid - (1,658) (4,758)
Closing shareholders' funds 48,933 54,571 47,896
Unaudited Balance Sheet
As at 30 June As at 30 June As at 31
2009 2008 December 2008
Total Total Total
GBP'000 GBP'000| GBP'000*|
Fixed assets
Unquoted investments 27,055 25,005 27,047
Traded on AIM and Listed 9,350 11,586 7,833
Interest bearing securities 10,300 15,020 9,497
46,705 51,611 44,377
Current assets
Debtors 217 535 1,693
Cash at bank and on deposit 2,439 2,932 2,352
2,656 3,467 4,045
Creditors (amounts falling due (428) (507) (505)
within one year)
Net current assets 2,228 2,960 3,540
Total assets less current - - 47,917
liabilities
Creditors (amounts falling due - - (21)
after one year)
Net assets 48,933 54,571 47,896
Capital and reserves
Called-up share capital 5,589 13,923 13,923
Share premium account 14,322 13,844 13,826
Capital redemption reserve 8,623 224 224
Revaluation reserve 2,902 2,799 131
Profit and loss account 17,497 23,781 19,792
Equity shareholders' funds 48,933 54,571 47,896
As at 30 June As at 30 June As at 31
2009 2008 December 2008
Ordinary Ordinary Shares Ordinary Shares*
Shares
Net asset value per share 93.92p 108.27p 90.68p
Number of ordinary shares in 52,099,126 31,214,339 30,837,886
issue
Treasury net asset value per 93.25p 107.72p 90.19p
share
Number of ordinary shares in 52,099,126 31,214,339 30,837,886
issue
Number of ordinary shares held 3,793,593 2,065,000 2,441,453
in Treasury
Number of listed ordinary 55,892,719 33,279,339 33,279,339
shares
*These figures are audited.
|Ordinary and C share combined.
Unaudited Statement of Cash Flows
Six months Six months to Year to 31
to 30 June 30 June 2008 December 2008
2009
GBP'000 GBP'000| GBP'000*|
Net cash (outflow)/inflow from 722 91 613
operating activities
Capital expenditure and financial (74) (2,533) (861)
investment
Equity dividends paid - (1,658) (4,578)
Net cash (outflow)/inflow before 648 (4,100) (4,826)
financing
Net cash (outflow)/inflow from (561) 344 490
financing
(Decrease)/increase in cash 87 (3,756) (4,336)
Reconciliation of net cash flow
to movement in cash
(Decrease)/increase in cash 87 (3,756) (4,336)
Opening net cash 2,352 6,688 6,688
Net cash at 30 June/31 December 2,439 2,932 2,352
Reconciliation of operating
profit before taxation to
net cash flow from operating
activities
Profit on ordinary activities 1,589 (3,228) (6,615)
before taxation
Unrealised (gains)/losses on (1,849) 5,255 7,319
investments
(Profit)/losses on realisation of 42 (1,944) 259
investments
Changes in working capital and 940 8 (350)
other non-cash items
Net cash (outflow)/inflow from 722 91 613
operating activities
*These figures are audited.
|Ordinary and C share combined.
Principal Risks and Uncertainties
The Company's assets consist of equity and fixed interest investments, cash and
liquid resources. Its principal risks are therefore market risk, credit risk
and liquidity risk. Other risks faced by the Company include economic, loss of
approval as a Venture Capital Trust, investment and strategic, regulatory,
reputational, operational and financial risks. These risks, and the way in
which they are managed, are described in more detail under the heading
Principal risks, risk management and regulatory environment within the Business
Review in the Company's Annual Report and Accounts for the year ended 31
December 2008. The Company's principal risks and uncertainties have not changed
materially since the date of that report.
Related Parties
ISIS EP LLP (`the Manager') manages the investments of the Company. The Manager
also provides or procures the provision of secretarial, accounting,
administrative and custodian services to the Company. Under the management
agreement, the Manager receives a fee of 2.5 per cent per annum of the net
assets of the Company. This is described in more detail under the heading
Management within the Report of the Directors in the Company's Annual Report
and Accounts for the year ended 31 December 2008. During the period the Company
has incurred management fees of GBP605,000 and secretarial fees of GBP51,000
payable to the Manager.
Notes
1. The unaudited interim results which cover the six months to 30 June 2009
have been prepared in accordance with applicable accounting standards and
adopting the accounting policies set out in the statutory accounts of the
Company for the period ended 31 December 2008.
2. Return per ordinary share is based on a weighted average of 52,515,200
ordinary shares in issue (31 December 2008 - 31,200,831, 30 June 2008 -
31,379,027).
3. Earnings for the first six months should not be taken as a guide to the
results of the full year.
4. During the six months ended 30 June 2009 the Company bought back 1,352,140
ordinary shares at a cost of GBP1,111,252. At 30 June 2009 the Company held
3,793,593 ordinary shares in Treasury. These shares may be re-issued below Net
Asset Value as long as the discount at issue is narrower than the average
discount at which the shares were bought back.
Excluding Treasury shares there were 52,099,126 ordinary shares in issue at
30 June 2009 (31 December 2008 - 30,837,886 ordinary and 21,191,442 C shares,
30 June 2008 - 31,214,339 ordinary and 21,191,442 C shares).
During the six months ended 30 June 2009 the Company issued 632,306 ordinary
shares in addition to 21,980,574 ordinary shares issued on conversion of the
C shares.
5. The interim dividend of 3.0 pence per ordinary share (0.30 pence revenue and
2.70 pence capital) will be paid on 7 September 2009 to shareholders on the
register on 21 August 2009. The ex-dividend date is 19 August 2009.
6. The financial information contained in this half year report does not
constitute statutory accounts as defined in Section 434 of the Companies Act
2006. The information for the year ended 31 December 2008 has been extracted
from the latest published audited financial statements. The audited financial
statements for the year to 31 December 2008, which were unqualified, have been
filed with the Registrar of Companies. No statutory accounts in respect of any
period after 31 December 2008 have been reported on by the Companies auditors
or delivered to the Registrar of Companies.
7. Copies of the Interim Report will be mailed to shareholders and are
available from the Registered Office of the Company at 100 Wood Street, London
EC2V 7AN.
Date: 11/08/2009
END
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