TIDMFAMT
Framlington AIM VCT 2 PLC
Announcement of results for the year ended 28 February 2011
This announcement contains regulated information.
Chairman's statement
The company's financial year saw continued economic recovery. Emerging markets
economies which had not been as badly affected by the financial crisis led the
way with China to the fore. The inventory cycle played a big part in the
severity of the downturn and helped in the recovery. In the US there was a
recovery in the late summer and the US Federal Reserve responded by enabling a
second stage of Quantitative Easing. This was the signal for investors to
embrace more risk. Equities rallied as did most commodities, both soft and
hard. The rise in oil and mineral prices bolstered commodity shares, which have
a large exposure in the AIM markets. The other side of the coin was margin
pressure for those companies that did not have sufficient pricing power to pass
these increases on.
The manufacturing recovery around the world continued and began to spread to
the capital investment sector as confidence improved sufficiently for companies
to begin to increase capital spending. UK manufacturers are in the main in a
good competitive situation due to sterling's depreciation over the past few
years.
It was not all plain sailing for the world economy with Greece requiring a bail
out early in the year followed by Ireland and then Portugal. In addition,
unrest broke out in the Middle East as the populace rose up against several non
democratically elected regimes. This unrest had inevitable consequences on the
oil market where prices rose sharply. These increases act as the equivalent to
a tax on consumers worldwide. Finally, the tragic earthquake and tsunami in
Japan seriously affected their economy.
Within the UK, the economy stalled as the impending spending cuts and tax rises
impacted on consumer sentiment. In addition, a very cold start to the winter
caused the economy to freeze up.
During the year the company's net asset value made modest progress rising by
5.5%. However, a good second half of the year saw the portfolio rise by 15.4%
as improving earnings helped share prices. In addition there was the payment of
a dividend of 4 pence per share which gives a total return on net assets of
13.2%. Further comments on fund performance and market conditions are presented
in the Manager's report. Since the year end, the NAV has fallen to 51.45 pence
at 20 May 2011.
Shareholders may have noticed that the spread of the share price has reduced in
recent months which we believe may make the shares more attractive for certain
shareholders who might be interested in buying additional shares. Secondary
buyers enjoy the same tax free dividend benefits as the original subscribers.
I am pleased to report that the Board is recommending final dividends totalling
4.0 pence per share. This takes total dividends paid to shareholders by the
Company since launch to 24.0 pence per share. If approved by shareholders at
the annual general meeting ("AGM"), the dividend will be paid on 2 August 2011
to shareholders on the register at 1 July 2011. Dividends paid by the Company
are exempt from income tax. The directors have decided to terminate the
Company's dividend reinvestment scheme due to the small number of shareholders
who have taken up this option. All future dividends paid by the Company,
including that payable in August, will be paid in cash in the usual way.
The AGM will be held at 12.30 pm on 28 July 2011 at the registered office, 7
Newgate Street, London EC1A 7NX. We look forward to meeting shareholders then.
Chris Marsh
Chairman
27 May 2011
Manager's Report
The year was generally benign for equities with periods of worry. The initial
EuroZone sovereign credit concerns in Greece caused a sell off in markets in
the early part of the Company's year. The IMF and European bailout calmed these
nerves and markets recovered their poise. The announcement of further
Quantitative Easing in the US led to good strength in markets.
In particular the rise in investors risk appetite allied with global growth led
to strong rise in commodity prices. The unrest in the Middle East added to the
rises in the oil price. Commodity related shares amount for over 40% of the AIM
indices but are in general not VCT qualifying companies.
Within the portfolio there was a very big diversity in performance. The main
problem areas came in early stage companies where in several cases equity
prices were damaged by the need to raise more equity capital to try and see
companies through to positive cash flow. Examples include Byotrol, Corac, and
Energetix. Equity investors are reluctant to give high valuations without very
strong evidence of progress. Once this is shown the shares can perform very
strongly.
This is illustrated by AFC Energy whose shares rose by over 350% during the
year on prestigious tie ups. Their alkaline fuel cell made good progress
towards commercialisation. They are working with blue chip companies such as
AkzoNobel, Centrica, Air Products and the John Lewis Partnership. On the back
of the rise some of the profit was taken.
Takeover activity continued to feature with Innovision Research & Technology,
Melorio and Mount Engineering all being acquired by much larger businesses. All
three takeovers were at significant premiums to prices prevailing at the
beginning of the year. Fulcrum Pharma was purchased by a venture capital backed
company. At the period end IS Pharma had agreed to merge with Sinclair Pharma.
Other strong performers included Craneware and Plastics Capital on the back of
good trading results. The former is the largest equity holding and appears to
have very bright prospects.
It is disappointing to have to report that both Cashbox and Rok called in
receivers during the year. Other disappointing performers included Cohort,
Brulines and Imagelinx. Brulines saw disappointing trading from their tenanted
pub customers but seem to have good prospects in petrol forecourt retailing and
vending machines telemetry. These new areas are the result of a series of
acquisitions to diversify the businesses.
New qualifying investments were made in 3D Diagnostics Imaging, Avacta Group,
Brady, EKF Diagnostics, Manroy, Suretrack Monitoring and Wheelsure Holdings.
The cash for these purchases came from the takeovers already mentioned and
sales of Braemar Shipping, Cranswick and Synergy Healthcare. All three of these
holdings were non qualifying investments.
Rising interest rates around the world are a head wind for markets. Takeover
activity should increase which would be supportive. As always individual
company news will drive share prices.
George Luckraft
AXA Framlington
27 May 2011
Income statement
For the year ended 28 For the year ended 28
February 2011 February 2010
(As restated*)
Revenue Capital Total Revenue Capital Total
Return Return Return return
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
Realised gains - 1,116 1,116 - 466 466
Unrealised gains - 970 970 - 2,333 2,333
Income 353 - 353 457 - 457
Investment management (78) (234) (312) (80) (241) (321)
fee
Other expenses (184) - (184) (188) - (188)
Net return on ordinary 91 1,852 1,943 189 2,558 2,747
activities before
taxation
Tax on ordinary - - - (11) 11 -
activities
Return on ordinary 91 1,852 1,943 178 2,569 2,747
activities after tax for
the year
Return per ordinary 0.31p 6.23p 6.54p 0.59p 8.46p 9.05p
share:
basic and diluted
The total column of this statement represents the Company's profit and loss
account prepared in accordance with UK Accounting Standards.
All items in the above statement derive from continuing operations and the
Company has no other gains and losses, hence no Statement of Total Recognised
Gains and Losses is presented. No operations were acquired or discontinued in
the year.
The supplementary revenue and capital columns are both prepared on a memorandum
basis by applying the principles of the Statement of Recommended Practice
("SORP"), published by the Association of Investment Companies.
Other than revaluation movements arising on investments held at fair value
through the Income statement, there were no differences between the return as
stated above and at historical cost.
* The comparative figures for realised and unrealised gains have been restated.
The change is purely presentational and has not resulted in a change of
previously reported results.
Reconciliation of movements in shareholders' funds
Share Share Capital Distributable Retained Total
Capital Premium Redemption Special earnings
Account Reserve Reserve
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
At 28 February 3,065 - 20 23,455 (11,879) 14,661
2009
Dividends paid in - - - (1,143) (373) (1,516)
respect of the
period ended 28
February 2009
Shares issued re 16 67 - - - 83
dividend
reinvestment
scheme
Share buy backs (76) - 76 (303) - (303)
Transfer from - - - (522) 522 -
distributable
special reserve
Return on - - - - 2,747 2,747
ordinary
activities
At 28 February 3,005 67 96 21,487 (8,983) 15,672
2010
Dividends paid in - - - (185) (1,010) (1,195)
respect of the
year ended 28
February 2010
Shares issued re 14 55 - - - 69
dividend
reinvestment
scheme
Share buy backs (71) - 71 (267) - (267)
Transfer from - - - (1,858) 1,858 -
distributable
special reserve
Return on - - - - 1,943 1,943
ordinary
activities
Balance at 28 2,948 122 167 19,177 (6,192) 16,222
February 2011
Balance sheet as at 28 February
28 February 28 February
2011 2010
GBP000s GBP000s
Fixed assets
Fixed asset investments held at fair value through 16,074 15,083
profit or loss
Current assets
Debtors 115 147
Cash at bank 125 731
240 878
Creditors: amounts falling due within one year (92) (289)
Net current assets 148 589
Net assets 16,222 15,672
Capital and reserves
Called up share capital 2,948 3,005
Share premium account 122 67
Capital redemption reserve 167 96
Distributable special reserve 19,177 21,487
Retained earnings (6,192) (8,983)
Equity shareholders' funds 16,222 15,672
Net asset value per share-basic and diluted 55.02p 52.15p
Cash Flow Statement
For the year For the year
ended 28 ended 28
February 2011 February 2010
GBP000s GBP000s
Operating activities
Cash received from investments 384 456
Interest received and other income 1 14
Revenue investment management fee (78) (80)
Refund of VAT allocated to revenue - 21
Cash paid to and on behalf of directors (44) (44)
Other cash payments (137) (134)
Net cash inflow from operating activities 126 233
Taxation
Withholding tax suffered and corporation tax paid - (18)
Capital expenditure and financial investment
Net sales of investments 895 2,273
Capital investment management fee (233) (240)
Refund of VAT allocated to capital - 62
Equity dividends
Dividends paid (1,126) (1,433)
Net cash (outflow)/inflow before financing (338) 877
Financing
Repurchase of ordinary shares (268) (302)
Net cash outflow from financing (268) (302)
(Decrease)/increase in cash (606) 575
Notes:
1 The financial information set out in the announcement does not constitute the
Company's statutory accounts for the year ended 28 February 2011 or the year
ended 28 February 2010.
The statutory accounts for the year ended 28 February 2011 have been prepared
on the basis of the financial information presented by the directors in this
announcement and will be delivered to the Registrar of Companies following the
Company's annual general meeting. The financial information for the year ended
28 February 2010 is derived from the statutory accounts for that year which
have been delivered to the Registrar of Companies. The auditors reported on
those accounts; their report was unqualified and did not contain any emphasis
of matter or a statement under s498 Companies Act 2006.
The financial information has been prepared on the basis of the accounting
policies set out in the Company's financial statements for the year ended 28
February 2010 which are also adopted in the financial statements for the year
ended 28 February 2011.
2 Income
Year ended 28 Year ended 28
February 2011 February 2010
GBP000s GBP000s
Income from investments
UK Dividend income 146 150
Unfranked investment income 206 305
352 455
Other income
Interest earned 1 2
Total income 353 457
Income from investments
Listed UK 164 265
AIM listing 126 129
Unlisted UK 62 61
352 455
3 Investment management fee
Year ended 28 Year ended
February 2011 28 February
2010
GBP000s GBP000s
Investment management fee charged to revenue 78 80
(25%)
Investment management fee charged to capital 234 241
(75%)
Total investment management fee 312 321
The management fees paid to AXA Investment Managers UK Limited ("the Manager")
have been allocated 25% to revenue and 75% to capital. The balance due to the
Manager at the year end was GBP27,000 (2010: GBP26,000). No performance fee is
payable in the year.
4 The board recommends the payment of a final revenue dividend of 0.3 pence and
a final capital dividend of 3.7 pence per share, total dividend of 4.0 pence
per share in respect of the year ended 28 February 2011. Subject to approval by
shareholders at the annual general meeting on 28 July 2011, the dividend will
be paid on 2 August 2011 to shareholders on the register on 1 July 2011.
5 Return per ordinary share
Year ended 28 Year ended 28
February 2011 February 2010
GBP000s GBP000s
Revenue return 91 178
Capital return 1,852 2,569
Total return 1,943 2,747
Weighted average number of ordinary shares 29,717,908 30,359,401
in issue during the year
Revenue return per ordinary share 0.31p 0.59p
Capital return per ordinary share 6.23p 8.46p
Total return per ordinary share 6.54p 9.05p
6 Called up share capital
During the year ended 28 February 2011, the Company repurchased 710,000 shares
with an aggregate nominal value of GBP71,000 for a total consideration of GBP
268,000. The number of ordinary shares in issue at 28 February 2011 was
29,486,299. A further 244,000 shares have been bought back since the year end,
at a cost of GBP88,000.
7 Net asset value per share
The net asset value per share and the net assets attributable to the ordinary
shares at the year end calculated in accordance with the Articles of
Association were as follows:
Year ended 28 Year ended 28
February 2011 February 2010
GBP000s GBP000s
Net assets attributable to ordinary 16,222 15,672
shareholders
Ordinary shares in issue 29,486,299 30,050,605
Net asset value per share 55.02p 52.15p
8 Related Parties Transactions
AXA Investment Managers UK Limited ("AXA IM" or "the Manager") was appointed as
manager with effect from 1 June 2009 to manage and advise the Company and
provide accounting, secretarial, office and administrative services.
The Manager is paid an investment management fee at the rate of 2.0% of the Net
Asset Value of the company accrued and calculated weekly but paid monthly. The
Manager is also paid a fee of 0.25% of the Net Asset Value in respect of
secretarial and administration fees.
A performance fee is payable in respect of any financial year of the Company in
respect of which aggregate dividends to Shareholders exceed five pence per
Share and is equal to 20 per cent of the excess so that for every 1p per Share
distributed over and above the hurdle of 5p per Share, 0.2p per Share shall be
paid by way of Performance Fee. However, (i) no Performance fee will be payable
in respect of the first three financial years of the Company, (ii) if and in so
far as dividends in respect of any previous years have been less than 5p per
Share, any shortfall must first be made up before calculating the excess in
respect of which a Performance fee is payable and (iii) no Performance fee will
be payable if, after adding back all the dividends previously made in respect
of each Share, the net asset value per Share would thereby be less than the
initial net asset value per Share of 95p.
The investment management agreement is terminable on one year's notice.
As at 27 May 2011, the directors had the following interests in the Company's
shares:
C Marsh 33,100
A Evans 10,000
C Kay 20,600
During the year, the directors each received dividends of 4 pence per share on
their holdings in the Company.
There have not been any other related party transactions during the year.
9 Principal risks and uncertainties
The directors believe that the principal risk faced by the Company is the loss
of approval as a venture capital trust arising from a breach of the
requirements of Section 274 of the Income Tax Act 2007. This would mean that
shareholders might have to repay the income tax relief they obtained on their
investment in the Company and that the Company would lose its exemption from
tax on any capital gains. The Manager reports to the board at each meeting on
the Company's compliance with Section 274 and the board is advised on VCT
issues by PricewaterhouseCoopers. The board considers that the most important
key performance indicators for the Company are its compliance with the
requirements of Section 274.
Other significant risks include the risk of a serious or prolonged fall in the
stock market which would affect the Company's performance and value; consistent
underperformance by the Manager; and the Company's shares failing to achieve a
rating which reflects performance. The board seeks to mitigate these risks by
monitoring the Manager's performance at each board meeting and discussing
appropriate action where considered necessary.
10 The 2011 annual report and accounts will be sent to all shareholders on the
share register. Copies of the report and accounts for the year ended 28
February 2011, the interim report and accounts to 31 August 2008 and the
interim management statements are available from the Company's registered
office, 7 Newgate Street, London EC1A 7NX.
Statement under the Disclosure & Transparency Rules 4.1.12
The Disclosure and Transparency Rules ("DTR") of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Report and Accounts.
The directors are responsible for preparing the directors' report, the
directors' remuneration report and the financial statements in accordance with
applicable law and regulations. They are also responsible for ensuring that the
annual report includes information required by the Listing Rules of the
Financial Services Authority.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law).
Under company law, the directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the company and of the profit or loss of the company for that year.
In preparing these financial statements the directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and estimates that are reasonable and prudent;
* state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the financial statements;
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the company's transactions and disclose with
reasonable accuracy at any time the financial position of the company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The directors confirm to the best of their knowledge that the financial
statements, which have been prepared in accordance with UK Generally Accepted
Accounting Practice, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and that the management
report included within the chairman's statement, manager's report and report of
the directors includes a fair review of the development and performance of the
business together with a description of the principal risks and uncertainties
that it faces.
END
The 2011 annual report and accounts will also be available on the Manager's
website at www.axaframlington.com. Neither the contents of this website nor the
contents of any website accessible from hyperlinks on this website (or any
other website) is incorporated into, or forms part of, this announcement.
END
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