RNS Number:1225U
Electra Kingsway VCT PLC
13 January 2004
Electra Kingsway VCT Plc
Preliminary Results for the year ended 30 September 2003
Financial Highlights
Funds raised by 30 September 2003 #19.8 million
Net asset value per share at 30 September 2003 103.52p
Unaudited net asset value per share at 31 December 2003 * 109.80p
Total dividend per ordinary share (paid and proposed) since
inception 1.65p
* The unaudited valuation at 31 December 2003 was calculated on the basis of the
asset valuation at 30 September 2003 adjusted to reflect income, expenses, the
purchases and sales of investments up to 31 December 2003 and mid market
valuations on 31 December 2003 in respect of quoted investments. On this basis,
which excludes any revaluation of unquoted investments, the unaudited net asset
value per share at 31 December 2003 was 109.80p.
A copy of the Chairman's Statement and Preliminary Announcement are attached.
Further information:
Nick Ross Electra Kingsway VCT Plc 020 7831 6464
Chairman's Statement
I am pleased to present my second annual statement to shareholders. Since the
launch of your Company in September 2001, #19.8m has been raised. The Fund
closed its extended "Top Up" offer on 30 September 2003. Market sentiment has
changed sharply since I last reported to you in May, with the FTSE All-Share
Index rising 17% in the six months to the end of September and recovering most
of the losses incurred in the first half of the financial year. The FTSE
SmallCap and FTSE AIM indices have also risen strongly and the IPO market has
improved.
The net asset value per share was 103.52p at 30 September 2003 compared with the
95p net launch price. This has been a satisfactory performance, especially as
almost half of the qualifying investments are still held at cost, and a large
proportion of the assets of the Fund are still held in cash and short dated
bonds.
Valuation Policy
The unquoted assets of the Company are valued by the Directors in accordance
with the latest BVCA valuation guidelines.
Portfolio Activity
During the year the Company invested in six new qualifying investments. It
completed four more investments after the year end, bringing the total number of
qualifying investments to 12 and has committed to one further investment in
January 2004. The Company, therefore, is well positioned to meet its three year
qualifying target by September 2004.
The Investment Manager has maintained a disciplined and focused investment
approach that has started to yield positive results. Two AIM investments,
BioProgress and Centurion Electronics, have risen, since acquisition, by 214%
and 182% respectively. This has allowed the Investment Manager to realise part
of the investment in BioProgress. In August the Fund took advantage of an
opportunity to increase its investment in Centurion Electronics by a further
#200,000, bringing the total invested to #700,000. Since then, the Centurion
shares have continued to rise strongly and we have realised some profits
subsequent to the year end.
Of the qualifying investments made so far, six are listed on AIM and seven are
unquoted - a mix that is broadly in line with the Board's expectations. The
portfolio is well diversified across different industry sectors.
VCT Qualifying Status
The Board has retained PricewaterhouseCoopers LLP to conduct an annual review of
the compliance of the Company with VCT legislation.
Dividend
The Board is recommending a final dividend of 0.90p per ordinary share for the
year ended 30 September 2003. Subject to approval at the Annual General Meeting
to be held on 23 February 2004, the dividend will be paid on 27 February 2004 to
shareholders on the Register of Members at close of business on 6 February 2004.
Share Price
The Company's mid-market share price was 85p on 30 September 2003, in comparison
with the NAV of 103.52p on 30 September 2003. This represented a discount of
18%. In common with other VCT companies, there is limited secondary trading
activity in the shares of the Company. However, the Board has established a
facility to buy back shares for cancellation to enhance market liquidity in the
Company's shares.
Prospects
With confidence returning to equity markets and the UK economy remaining
buoyant, your Fund is firmly on track to deliver positive returns to
shareholders. This is substantiated by the rise in the unaudited net asset value
per share to December 2003 which is calculated at 109.80p.
Rupert Pennant-Rea, Chairman
12 January 2004
Investment Manager's Review
Qualifying Investments
During the year the Fund invested in six qualifying investments and completed a
further four investments after the year end and committed to one further
investment. Details of all qualifying investments are listed below. In general,
the Investment Manager has maintained an active deal flow and has a number of
potential investments in various stages of due diligence.
Advanced Medical Solutions
Advanced Medical Solutions ("AMS") and its completed acquisition, Medlogic, are
both focused on the R&D, manufacture, and subsequent commercial development of a
range of woundcare products for both the professional and retail markets. The
professional range centres around liquid wound sealants and the retail products
concentrate on moist wound dressings. In both cases the unique selling point is
greater efficacy in healing wounds and reducing scar tissue. Each product range
is sold either by way of joint ventures to large branded players such as Johnson
& Johnson, or directly through distributors. The professional range is the more
important, with margins of circa 35% and accounting for 80% of the present
turnover.
AMS moved from the main market to AIM in 2002. A consortium of investors raised
#4m to enable AMS to purchase Medlogic and integrate the two businesses. AMS was
valued at #8m pre new money which included cash of #5m and tax losses of #7m.
The Fund invested #500,000 and has a 4.1% stake.
In the audited accounts for the period ended 31 December 2002 AMS reported
losses of #1.48m before tax, a retained loss of #1.2m and net assets of #14.1m.
Nectar Taverns
Nectar Taverns is an independent pub company managed by Honeycombe Leisure, a
quoted pub company specialising in the acquisition and management of public
houses in the north west of England. Nectar has a strong balance sheet since it
raised #4m of equity and #7.5m of debt financed by the Bank of Scotland. The
strategy is to acquire pubs at low prices, renovate them in a very cost
effective way and then improve returns by installing stronger management and
trading competitively by utilising improved beer purchasing terms. To date,
Nectar have acquired 14 pubs, and in aggregate they are trading above
expectations. The management team at Honeycombe Leisure hope that Nectar will be
operating 25 units before the Bank of Scotland debt facility is fully utilised.
The Fund invested #750,000 and has an 18.5% stake.
In the audited accounts for the period ended 27 April 2003 Nectar made of loss
of #59,000 before tax, and had net assets of #3.65m.
Signature Brands Group
Signature Brands is a retailer of women's fashion wear operating under four
distinct brands: Dannimac, Four Seasons, Giant and Paul Costelloe. It was
incorporated in 1999 when Ashley Meyer, Chairman and Chief Executive led a
management buy-out of Four Seasons. The company then proceeded to acquire three
underperforming brands aiming to return them to profitability by implementing
tighter in-house design and cost controls.
The company designs its own ranges and outsources manufacturing to companies in
Hong Kong and Portugal. The majority of these garments are sold through
concessions in department stores such as John Lewis and House of Fraser. The
Fund invested #750,000 as part of a #1.8m funding round in October 2002 and has
a 10.0% stake.
The company reported a loss before tax of #961,931 in the year to 31 July 2003
and had net assets of #705,125.
Centurion Electronics
Centurion specialises in the design, marketing and distribution of DVD and video
systems for the in-car entertainment market. The company has two main products
which are either sold to be fitted to new cars, or as a Plug and Play device to
the retail market through established outlets such as Halfords and Dixons. In
the last year, it is estimated that the number of in-car vision units sold in
the UK has grown by approximately tenfold on the previous year. The prospects
for the company are encouraging. New customers include Toyota and Nissan and, on
the retailing side, CD Bramall, resulting in a strong current year order book.
The results of Centurion to date highlight a consistent growth trend and a
historic pre-tax profit of #435,000. The Fund invested #500,000 in November 2002
and a further #200,000 in August 2003, as part of a financing to support the
company's growing working capital requirements. The Fund held a 7.8% stake at
the year end.
The company reported a profit before tax of #1.2m in the year to 30 September
2003 and had net assets of #4.5m.
Berkeley Morgan
Berkeley Morgan is an independent financial intermediary operating under two
divisions. The investment division is the amalgamation of three IFA businesses
specialising in pensions and mortgages and a service company providing
compliance and training services to IFAs. The Protection Division comprises four
separate IFAs providing a range of products including health insurance, general
insurance and life assurance.
The company has grown through the successful integration of a number of bolt-on
acquisitions with the management team demonstrating a good track record in
controlling expenses and costs. The Fund invested #741,000, for a 12.7% stake.
The company reported a loss before tax of #2.7m for the year to 30 April 2003, a
retained loss of #2.5m and had net assets of #1.5m.
Online Travel Corporation
Online Travel Corporation ("OTC") is an internet based, travel technology and
distribution business. It offers consumers a comprehensive travel service on the
internet, as well as through its call centre. It is also a tour operator
offering its own specialist holidays and tailor-made packages to suit individual
client needs. In order to satisfy the demand for niche markets, OTC forms
alliances with other companies, for example Superbreaks for UK holidays and ABC
Holiday Extras for airport parking and hotels. OTC was founded in January 1998
and in May 2000 became a publicly listed company quoted on AIM. Although the
last two years have been difficult ones for the travel industry, the longer term
prospects look more encouraging and further consolidation is anticipated. The
Fund invested #900,000, for a 3.5% stake, to provide further working capital to
the group.
In the audited accounts to 31 October 2003, OTC reported a loss before tax of
#5.9m, a retained loss of #5.2m and had net assets of #7.4m.
BioProgress
BioProgress is engaged in the research, development and marketing of a film used
to coat tablets and liquid capsules for the pharmaceutical and health products
market. The company's key technology is a coating material made from a
derivative of wood pulp. This material has not previously been used as a film or
coating but has a number of core properties which make it an attractive
substitute for gelatin. Gelatin is widely used in the coating and wrapping of
capsules but because it is made from animal renderings it has possible health
concerns relating to BSE and is unacceptable to certain religious groups. In
addition to its product advantages, the manufacturing process is significantly
cheaper than gelatin production. The company was originally listed on the Over
The Counter market in the US although most of its operations are UK based. In
2003 the company transferred to AIM and raised #5m to finance working capital.
The company was forecasting a breakeven position by the end of 2003. The Fund
invested #300,000 in the AIM float and held a 1.8% stake at the year end.
In the audited accounts to 31 December 2002, BioProgress reported losses before
tax of $6.7m and net assets of $0.3m.
Keycom
Keycom provides telephone and internet services to students. The company has
negotiated contracts with 52 UK universities and now has over 25,000 students
able to use its ISP service. Demand for Keycom's services is driven by students'
requirements for cheap, unlimited access to the internet and the ability to call
home on cheap evening tariffs. Keycom markets unlimited internet access for #16
per month, which is an extremely attractive price relative to other ISP
offerings. In addition to the on-campus students the company aims to attract the
larger numbers of off-campus students to its services.
The company was spun off from Key Students Services in 2000 and has undergone a
troublesome development period which has entailed a number of funding rounds.
The majority of other operators in the sector have gone into receivership
leaving Keycom as the only major player. The Fund invested #950,000 as part of
syndicated funding rounds to provide working capital to the company. The Fund
has a 9.3% stake.
In the audited accounts to 30 September 2002 the company made a loss before
taxation of #1.9m, a retained loss of #1.7m and had net assets of #91,000.
Non Qualifying Funds
In line with the investment policy set out in the Prospectus, #1.3m has been
invested in two funds managed by Electra Partners. Electra Investment Trust
specialises in private equity with net assets of #495m as at 30 September 2003.
Electra Active Management is a specialist smaller company fund which invests in
undervalued smaller companies where a corporate catalyst can create a valuation
uplift. Both funds have performed well in the year and at the year end showed an
uplift of 24% and 12% respectively on their cost.
Bond Portfolio
At the year end the bond portfolio was valued at #7.5m and comprised investments
in 14 short-dated corporate bonds and gilts. The bonds have been selected on the
basis of their yields and credit rating with redemption periods matched to
anticipated qualifying investment rates.
Investments made or committed after 30 September 2003
James & James
James & James is a business to business publisher of international environmental
magazines and directories.
It has established leading titles in certain energy, waste and conservation
sectors. The core products are three bi-monthly, advertising-led magazines:
Renewable Energy World, Co-Generation & On-site Power Generation and Waste
Management World. The company was seeking finance to complete the acquisition of
Earthscan, a publisher of academic and professional books on environmental
change and sustainable development. The strategy is to build a dedicated
international environmental publisher through further bolt-on acquisitions and
organic growth. The company's core focus will be on the Energy and Waste
sectors. The Fund invested #750,000, for a 29.2% stake, to facilitate the
acquisition of Earthscan and to provide working capital.
Media Square
The company was set up in 2000 and floated on AIM in 2001. Its objective was to
acquire a number of companies in the design/media consultancy market to achieve
a degree of scale and exploit the resultant synergies. Media Square has two
divisions focusing on marketing communications consultancy and retail marketing
production support. The Fund invested #600,000, for a 6.5% stake, to enable the
company to complete the acquisition of Preprint. Preprint represented a good
bolt-on opportunity for the retail marketing division.
For the year ended 31 October 2002 the company reported an audited loss of
#0.9m, a retained loss of #0.9m and net assets of #0.7m.
Music Copyright Solutions ("MCS")
MCS administers and owns music copyright. The company drives revenues by the
collection and payment of music royalties, and the creation of rights by
commissioning specific work. MCS focuses largely on products for film and TV
production companies, such as Endemol and Chorion. MCS is implementing a
buy-and-build strategy within the UK independent music publishing market, a
market that is very fragmented below a small number of major players such as EMI
and Sony. The company had raised #1.1m to acquire the administration rights of a
rival, Palans, but had a shortfall of #0.9m. The Fund led a funding round,
investing #500,000 to make up the difference. The Fund has a 12.1% stake. MCS is
quoted on OFEX and plans to move to AIM in the first half of 2004.
In the audited accounts to 31 December 2002, MCS reported a loss before taxation
of #990,000 and had net assets of #1.2m.
Happy Times
Happy Times is an owner operator of three childrens nurseries in South West
London. It was seeking expansion capital to acquire a freehold site in Fulham
and a further freehold site elsewhere in the London area. The dynamics of the
market remain favourable, particularly in the affluent London boroughs where the
supply of nursery care facilities lags behind demand. The company has
differentiated itself from the competition by operating larger nurseries of
typically over 100 places and providing high standards of child care. The Fund
invested #750,000 as part of a #1.5m equity funding alongside #2.6m of debt
finance. The company is unquoted and reported a loss before tax of #456,000 to
31 March 2003 with net liabilities of #66,511. The Fund has a 12.2% stake.
Immedia Broadcasting
The company designs and operates live radio stations providing tailored
commercial programming to retail outlets. It provides two distinct services: a
free radio proposition to CTN and convenience stores where advertising slots are
sold to the large confectionery and drinks companies; the second service is a
bespoke radio station, tailored to meet the requirements of the client. The
company has successfully operated a station for Lloyds Chemists and has a number
of other potential contracts in the pipeline. There has been considerable
interest in point of sale advertising, since a large proportion of purchasing
decisions are often made in-store. Accordingly, radio advertising has the
potential to increase in-store sales and, in the case of bespoke programming,
provide a valuable communications tool.
The company listed on AIM in December 2003 and the Fund invested #275,000 for a
5.4% stake. The company declared a loss of #651,000 to 30 December 2002 with net
assets of #26,106.
Statement of Total Return
Incorporating the Revenue Account of the Company for the year ended 30 September
2003
For the period 12 September 2001 to
For the year ended 30 September 2003 30 September 2003
Revenue Capital Total Revenue Capital Total
# # # # # #
Unrealised
gains/(losses)
on investments - 2,117,035 2,117,035 - (138,156) (138,156)
Realised
gains/(losses)
on investments - 61,369 61,369 - (17,300) (17,300)
Income 668,134 - 668,134 463,104 - 463,104
668,134 2,178,404 2,846,538 463,104 (155,456) 307,648
Investment
management
fees (87,703) (263,109) (350,812) (49,281) (147,842) (197,123)
Other expenses (344,339) - (344,339) (250,653) - (250,653)
Return on
Ordinary
Activities
before
Taxation 236,092 1,915,295 2,151,387 163,170 (303,298) (140,128)
Tax on
ordinary
activities (54,579) 49,991 (4,588) (39,047) 28,829 (10,218)
Return on
Ordinary
Activities
after Taxation 181,513 1,965,286 2,146,799 124,123 (274,469) (150,346)
Dividend (178,243) - (178,243) (118,183) - (118,183)
Transfer
to/(from)
Reserves 3,270 1,965,286 1,968,556 5,940 (274,469) (268,529)
Return per
Ordinary Share 1.03p 11.08p 12.11p 3.06p (6.76p) (3.70p)
All revenues and capital in the above statement derive from continuing
activities.
The Revenue column of this statement is the Profit and Loss Account of the
Company.
Reconciliation of Total Shareholder Funds
Period from
Year ended 12 September 2001
30 September 2003 to 30 September 2002
# #
Total Return 2,146,799 (150,346)
Dividend on ordinary shares (178,243) (118,183)
Ordinary shares issued 4,090,587 15,857,118
Repurchase of ordinary shares (34,624) (99,395)
Preference shares issued - 50,000
Redemption of preference shares - (50,000)
Share issue expenses charged to
Share Premium account (224,981) (787,785)
Movements in Total Shareholders'
Funds 5,799,538 14,701,409
Total Shareholders' Funds at start
of period 14,701,409 -
Total Shareholders' Funds at 30
September 2003 20,500,947 14,701,409
Balance Sheet
As at 30 September 2003
As at 30 September 2003 As at 30 September 2002
# # # #
Fixed Assets
Investments 16,517,969 9,942,610
Current Assets
Debtors 372,802 325,867
Cash at bank 3,898,192 4,723,879
4,270,994 5,049,746
Creditors: amounts falling
due within one year
Creditors 288,016 290,947
Net Current Assets 3,982,978 4,758,799
Net Assets 20,500,947 14,701,409
Capital and Reserves
Called-up share capital 198,048 157,577
Share premium account 11,551,185 14,812,361
Capital redemption
reserve 435 -
Special reserve 7,051,251 -
Realised capital reserve (340,843) (136,313)
Unrealised capital
reserve 2,031,660 (138,156)
Revenue reserve 9,211 5,940
Total Equity
Shareholders' Funds 20,500,947 14,701,409
Net Asset Value per
Ordinary Share 103.52p 93.30p
2003 2002
Number of ordinary shares
in issue at 30 September 19,804,760 15,757,723
Cash Flow Statement
For the period 12 September to
For the year ended 30 September 2003 30 September 2002
# # # #
Operating
Activities
Investment income
received 761,125 419,980
Bank interest
received 128,673 83,770
Investment
management fees
paid (458,124) (131,884)
Other cash payments (316,337) (166,271)
Net Cash Inflow
from Operating
Activities 115,337 205,595
Taxation (10,195) -
Capital Expenditure
and Financial
Investments
Sale of investments 7,075,679 1,000,000
Acquisition of
investments (11,719,307) (11,451,654)
Net Cash Outflow
from Capital
Expenditure and
Financial
Investments (4,643,628) (10,451,654)
Equity Dividends
Paid (118,183) -
Cash Outflow before
Financing (4,656,669) (10,246,059)
Financing
Issue of ordinary
shares 4,090,587 15,857,118
Repurchase of
ordinary shares (34,624) (99,395)
Issue of preference
shares - 50,000
Redemption of
preference shares - (50,000)
Expenses of the
issue of ordinary
shares (224,981) (787,785)
Net Cash Inflow
from Financing 3,830,982 14,969,938
(Decrease)/Increase
in Cash for the
Period (825,687) 4,723,879
The figures and financial information for the year ended 30 September 2003 do
not constitute the statutory Financial Statements for that period. Those
Financial Statements have not yet been delivered to the Registrar, nor have the
Auditors yet reported on them.
The Report and Accounts for the year ended 30 September 2003 will be sent to
shareholders shortly and will thereafter be available from the Company's
registered office at 65 Kingsway, London WC2B 6QT. The second Annual General
Meeting of the Company will be held on Monday 23 February 2004 at 65 Kingsway,
London WC2B 6QT.
This information is provided by RNS
The company news service from the London Stock Exchange
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