12th Sep 2006 09:25
Eclipse VCT plc12 September 2006 Eclipse VCT plc Preliminary results for the year ended 31 May 2006 Financial Summaryfor the year ended 31 May 2006 31 May 2006 31 May 2005 (restated)** • Net assets £30,165,000 £30,264,000 • Net asset value per share 96.8p 96.8p • Revenue return after tax £442,000 £495,000 • Revenue return per share* 1.4p 2.4p • Total return per share* 1.4p 2.7p • Dividends paid 1.45p - • Proposed dividend 1.25p 1.45p • Cumulative dividends paid and proposed 2.70p - * Based on a weighted average of 31,240,517 shares in issue during the period(2005: 20,396,980). **Comparative figures have been extracted from the statutory accounts for theperiod ended 31 May 2005 and have been restated in accordance with FRS21 inrespect of declared dividends and FRS26 in respect of the valuation of quotedinvestments and the treatment of investments as at fair value through profit andloss as disclosed in note 1. Eclipse VCT plc ('Eclipse' or 'Fund') is a Venture Capital Trust ('VCT') and theinvestments are managed by Octopus Investments Limited formerly named OctopusAsset Management Limited ('Octopus' or 'Manager'). Eclipse was launched in April2004 and raised over £30.7 million (£29.7 million net of expenses) through anoffer for subscription. It invests primarily in unquoted and AIM-quotedcompanies and aims to deliver absolute returns on its investments. Chairman's Statement I am pleased to present the final results for the year to 31 May 2006. This isthe second year of Eclipse and I am delighted to report on the progress made bythe fund manager, Octopus Investments, in building the investment portfolio. Background Eclipse was one of the most successful VCTs launched in 2004 by funds raised,raising over £30 million by December 2004. Since then, the Manager has added anumber of experienced fund managers to its team of investment professionals andhas also launched three further Eclipse funds (Eclipse 2, 3 and 4), raising over£76 million in aggregate. These successful fund launches should benefitshareholders in Eclipse VCT as they will enable the Manager to invest up to £4million per company (i.e. £1 million from each of the four VCTs). This willallow the Manager to invest in more developed, lower-risk companies than typicalVCTs. Net Asset Value per share ('NAV') The NAV at 31 May 2006 was 96.8p. During the year to 31 May 2006, eighteenfurther investments were made in unquoted and AIM-quoted companies, meaning thatat the end of the period under review, Eclipse had a portfolio of 28 investmentsin qualifying companies, representing 50% of the Fund by net assets. Theunquoted companies have been valued in accordance with International PrivateEquity and Venture Capital ('IPEVC') guidelines and, with the exception of threeinvestments which have increased in value, are all held at cost as this isdeemed to be the fair value of the investments held. As set out in the IPEVCguidelines, valuations of unquoted investments are usually not changed for atleast twelve months from the date of investment unless the investee company hasperformed significantly behind plan (in which case the investment is writtendown in value), or we have participated in a follow-on fundraising for thecompany. The investment in The Capital Pub Company 2 was written up at the timeof the interim results to reflect our participation in a follow-on fundraisingwhich occurred at a higher valuation than the original investment. We are alsopleased to report that our investments in Gyro Group and Covion, two of theFund's earlier investments, have also been written up in value to reflect thestrong performance of the underlying businesses. The overall value of the portfolio of AIM investments was £4,267,000,representing an increase of 9% compared with a cost of £3,923,000. The Manager reports that it is pleased with the portfolio that has been createdand believes that a number of further investments should experience uplifts invalue in due course. Further information on portfolio holdings can be found inthe Manager's review. Dividend In line with our commitment to maximise tax-free dividends to shareholders, theDirectors propose a dividend of 1.25p per share to be paid on 6 November 2006shareholders on the register on 13 October 2006. The Fund is still at a comparatively early stage in its investment cycle anddividends are largely derived from interest earned on the un-invested cash heldin money market securities. As the Fund makes investments the level of cashdeclines, therefore reducing the distributable reserves in the period. This hashad the impact of reducing the proposed dividend for the year to 31 May 2006 by0.2p. In the medium-term our aim is to produce a regular tax-free income streamfor shareholders. As such we will realise profits on holdings where we believethey have reached fair value. Share Price and Buy-Back Facility Eclipse has a share buy-back facility, proposing to buy-back shares at no morethan a 10% discount to the prevailing NAV. This should assist the marketabilityof the shares and help prevent the shares from trading at a wide discount toNAV. The Fund's mid market share price currently stands at 80p compared to the NAV of96.8p. This is primarily due to the small number of transactions which tookplace when the Fund was in a closed period and, therefore, unable to utilise itsbuy back facility. In the period under review, Eclipse repurchased 99,715 shares at an averageprice of 87p. Shareholders should note that if they sell their shares withinthree years of the original purchase they forfeit any income tax reliefobtained. If you need to sell your shares, please contact Octopus on 020 77102800. Non-executive Directors' fees During the period a review of Directors' fees was undertaken, as a result ofthis and the additional work required as the Fund matures, it has been proposedthat the Chairman and non-executive Directors' fees be increased to £17,500 and£13,500 respectively. While the Articles of Association allow the Directors to determine theirremuneration up to an aggregate limit of £75,000, your Board feel in order tomaintain the level of transparency with which the Fund has previously beenmanaged, approval of this increase should be put to a shareholder vote at theAnnual General Meeting. VCT Qualifying Status As you may be aware, Eclipse must be 70% invested in qualifying companies by 31May 2007 in order to comply with VCT regulations. At 31 May 2006, Eclipse wasapproximately 50% invested (by net assets) in qualifying holdings. Four furtherinvestments have been made since the year end, which increases the investmentlevel to approximately 59%. The Directors will continue to monitor the Fund's progress towards meeting HMRevenue and Customs conditions for VCT approval and have retainedPricewaterhouseCoopers LLP, one of the UK's leading firms of accountants, toadvise in this area. In light of the current deal flow, we are confident thatEclipse will meet the relevant conditions by its deadline of 31 May 2007. Outlook The challenge for all venture capital funds is to attract a strong flow ofattractive investment opportunities. The specific challenge for Eclipse VCT isto ensure that it has invested 70% of the funds raised in VCT qualifyingcompanies by May 2007. I am pleased to say that the Fund is ahead of target inthis respect and expects to be nearer to 80% invested by this date. The early signs from the portfolio are very encouraging and I expect to be ableto update you on specific progress in the coming months. Viscount Cobham Chairman 11 September Investment Manager's Review Personal Service At Octopus, we pride ourselves not only on our team's track record but also onour personalised customer service. We believe in open communication and ourregular updates are designed to keep you involved and informed. If you have any questions about this review, or if it would help to speak to oneof the fund managers, please do not hesitate to contact us on 020 7710 2800. Introduction We are pleased with the progress made by the Fund since launch. During thetwelve months to 31 May 2006 the Fund invested a further £7.5 million ineighteen companies bringing the total invested by Eclipse VCT to almost £14million. A further four investments have been made since the year end. Qualifying Status VCTs have three years to invest 70% of the money raised into qualifyingcompanies. We're pleased to report that, at 31 May 2006, two years through thethree year period, Eclipse was 50% invested (by net assets) in qualifyingcompanies. With the additional investments made since the end of the period,the proportion of the Fund invested has increased to 59%. Review of Investments At 31 May 2006, the Eclipse portfolio comprised investments in 15 AIM-quoted and13 unquoted companies. The remainder of the Fund has been invested in moneymarket securities. Once we have made an investment, we take an active approach in monitoring itsperformance. This includes regular meetings with management teams and, in thecase of most unquoted investments, attending board meetings of the portfoliocompanies. We are keen to invest in additional rounds of funding in portfoliocompanies, where we are familiar with the qualities of the management team andwhere the performance has been closely monitored. Portfolio Activity During the year, the Fund made sixteen new and two follow-on investments. Theseinvestments are discussed below. Lilestone Holdings Ltd Branded consumer goods In September 2005, Eclipse invested £470,000 alongside other Octopus managedfunds and a syndicate of third party investors in the acquisition and funding ofLilestone plc, the holding company for the Myla brand. Myla is a luxury brandselling premium priced lingerie together with bedroom accessories to style andfashion conscious women. Belgravium Technologies plc Information Technology Eclipse invested £45,000 in the AIM flotation of Belgravium in October 2005.Belgravium designs, develops and installs real time data capture systems aimedat the logistics, fuel distribution and airline industries. Abcam plc Healthcare Eclipse invested £89,000 in the AIM flotation of Abcam in October 2005. Abcamis an internet based company focussed on the development and distribution ofhigh quality antibodies to universities, research institutes and pharmaceuticalcompanies. Healthcare Locums plc Recruitment in healthcare industry In November 2005, Eclipse invested £300,000 in the AIM flotation of HealthcareLocums ('HCL'). HCL is a specialist player in the healthcare staffing market,targeting the niche markets for the supply of temporary doctors, GPs, socialworkers and other healthcare professionals. The Kendal Group Ltd Branded consumer goods Eclipse invested £1 million alongside Eclipse VCT 2 in a £1.6 million fundinground for The Kendal Group in November 2005. The majority of the funding isbeing used to support the growth of the swim equipment, swimwear and active wearbrands, Zoggs and PureLime. Plastics Capital Ltd Niche plastics engineering business In November 2005, Eclipse invested £1 million as part of an £11 milliontransaction to support the acquisition of two companies by Plastics Capital.Part of the funding was also provided from Eclipse VCT 2. Plastics Capital wasset up to build a group of niche plastics manufacturing companies, each with astrong market position and good cash generation characteristics. James Harvard International Ltd Recruitment in the pharmaceutical and IT sectors Eclipse invested £1 million in November 2005 in James Harvard. This was part ofa £2.5 million investment by Octopus managed funds to support an acquisition inNovember 2005. James Harvard is one of the leading recruitment agencies in thegrowing European clinical trials market. Luther Pendragon Ltd PR services In November 2005, Eclipse invested £1 million as part of a £2 million investmentby Octopus managed funds in the management buy-out of Luther Pendragon. Lutherprovides a fully integrated corporate public relations service specialising in 'issues management'. Autoclenz Holdings plc Valeting services to automotive retailers In December 2005, Eclipse invested £337,500 in the AIM flotation of Autoclenz.The company, founded in 1990, is the UK's leading provider of valeting servicesto automotive retailers, auction houses, rental companies and car supermarkets.Autoclenz floated on AIM in December 2005, having previously been a subsidiaryof Yule Catto, the chemical company. Red-M Group Limited Information Technology Eclipse invested £500,000 in a £5.4 million funding round led by Pi Capital.Red-M provides software products and services for the wireless market anddesigns, deploys and manages wireless networks across the spectrum ofcommercially used radio frequencies for blue chip clients. The company wasformed in April 2005 by the merger of Cellular Design Services, a wirelessconsulting services provider, and Red-M Communications, a vendor of wirelesssecurity probes and monitoring software. Cohort plc Business Services Eclipse invested £101,000 in the AIM flotation of Cohort in February 2006.Cohort was incorporated to acquire Systems Consultants Services ('SCS'), a UKbased company providing training support and equipment trials to the defencesector. The market for technical services, outside of the recently privatisedGovernment agency Qinetiq, is largely fragmented but has been consolidating.Cohort's strategy is to acquire complementary technical services companies andposition them alongside the fast-growing SCS business. Ovum plc Information Technology In March 2006, Eclipse invested £112,000 in the AIM flotation of Ovum. Ovum is aleading information, communication and technology research consultancy. Thecompany acts as a source of industry data, knowledge and expertise on thecommercial impact of technology, regulatory and market changes. This data ispackaged into detailed research documents and distributed through a range ofbespoke and tailored products. Current clients include IBM, BT, and Vodafone aswell as Government bodies such as the Department of Trade and Industry. Perfect Pizza Limited Pizza home delivery In March 2006 Eclipse invested £1.1 million alongside the other Eclipse funds inthe £7 million management buy-in of Perfect Pizza from Papa Johns, the US parentcompany. Perfect Pizza is the third largest home delivery pizza business in theUK with 114 franchised stores. Invocas plc Insolvency practitioner In March 2006 Eclipse invested £60,000 in the AIM flotation of Invocas. Thecompany is the leading provider of personal insolvency solutions in Scotlandwith a 16% share of the Protected Trust Deed market. Invocas has beenprofitable and cash generative for the past seven years. Demand in Scotland forProtected Trust Deeds, which help individuals who are having difficultyservicing their debt, grew by 14% in 2005 and is expected to grow by 20% in2006. Blanc Brasseries Holdings plc Restaurant operator Eclipse invested £103,000 in April 2006 in a £6 million private placementfunding round for Blanc Brasseries, which owns the Le Petit Blanc chain ofquality restaurants. The business was acquired from Loch Fyne Restaurants (LFR)and will continue to be managed by the LFR management team, which successfullybuilt up this chain to around 30 restaurants. BBI Holdings plc Diagnostics In May 2006, Eclipse invested £64,000 in BBI Holdings. BBI is an AIM-quoteddeveloper and manufacturer of diagnostic tests. The company derives income fromthe manufacture and supply of gold colloids, bespoke product development forthird parties and the manufacture of diagnostic tests for industry partners. Thefunding provided by Eclipse and other investors was used to fund the acquisitionof Alchemy Laboratories Ltd, a Dundee based company with operations in similarfields to BBI. Portfolio Valuation At 31 May 2006, the Fund's portfolio comprised investments in 28 companies witha total cost of £13.9 million and a carrying value of £14.9 million. The Fundalso held £14.8 million in money market securities awaiting investment inqualifying holdings. Investment Unrealised Carrying appreciation/ Value at Cost depreciationUnquoted investments £'000 £'000 £'000Gyro International Limited 1,000 370 1,370Perfect Pizza Limited * 1,125 - 1,125Covion Limited * 844 224 1,068The Kendal Group Limited * 1,024 - 1,024Plastics Capital Limited * 1,000 - 1,000Reading Room Limited 1,000 - 1,000James Harvard International Limited * 1,000 - 1,000Luther Pendragon Limited * 1,000 - 1,000Capital Pubs Company 2 plc * 600 20 620Red-M Group Limited * 500 - 500Lilestone Holdings Limited * 470 - 470TDX Group limited 400 - 400Blanc Brasseries Holdings plc * 104 - 104 10,067 614 10,681AIM-quoted investmentsCello Group plc 750 165 915The Tanfield Group plc * 500 138 638Zetar plc 237 231 468Augean plc 500 (90) 410Autoclenz Holdings plc * 338 (23) 313Healthcare Locums plc * 300 11 311InterQuest plc * 341 (43) 298Tissue Science Laboratories plc 246 (30) 216fountains plc 240 (100) 140Abcam plc * 89 40 129Cohort plc * 101 15 116Ovum plc * 112 (2) 110Invocas plc * 60 36 96BBI Holdings plc * 64 10 74Belgravium plc * 45 (12) 33 3,923 344 4,267 13,990 958 14,948 * Investments held in these companies are managed by the Investment Manager onbehalf of the Company as well as further investments on behalf of otherconnected parties. Further details are provided below. Ten Largest Holdings The Kendal Group Limited The Kendal Group is the holding company for the Zoggs and PureLime brands. Zoggs is a leading swim equipment and swimwear brand, founded in Australia andwell known for its swim goggles and flotation aids. It has recently introducedswimwear to the range. Further information is available at www.zoggs.com PureLime is a ladies fitness and active wear brand, originally from Denmark.Further information is available at www.purelime.com The company has a high proportion of sales through fitness centres and swimmingpool locations and is starting to gain distribution through retail outlets suchas Tesco and Early Learning Centre. The Zoggs brand has a significant presencein Australia and plans to grow through licensing in other countries. Overall,sales of the Zoggs brand grew by approximately 17% in 2005. Further information can be found at the company's website,www.thekendalgroup.com Investment date 18 November 2005Equity held 10.2%Cost £1,024,456Valuation £1,024,456Valuation basis Cost (New Investment)Dividends/Interest received during the year NilLast Audited Accounts December 2005Net Assets £1,375,000Loss before taxation £(727,000) Gyro International Limited Gyro, which was founded in 1991, provides an integrated suite of marketingservices including brand strategy, direct marketing, web marketing and eventmanagement. The company focuses primarily on technology and financial servicescompanies, and clients include Sony, Sun Microsystems, Orange and Deutsche Bank. Gyro has offices in London, Geneva, Stockholm, Amsterdam, New York and SanFrancisco and has recently opened in Dublin and Hamburg. Revenues have grownfrom £11 million in 2004 to more than £17 million in 2005 and Gyro was rankedthe number one B2B agency in the UK in 2005. Sales continue to grow strongly inthe current financial year. The company has performed well since our investment and, based on strong tradingresults, the carrying value has been increased. Further information can be found at the company's website, www.gyrogroup.com. Investment date 10 February 2005Equity held 10.6%Cost £1,000,000Valuation £1,370,000Valuation basis Earnings multipleDividends/Interest received during the year £11,000Last Audited Accounts October 2005Net Assets £21,000Profit/(loss) before taxation: £707,000 Reading Room Limited Reading Room designs, develops and maintains websites for its clients. Thecompany is known for its integrated approach to digital communications, mediaand marketing and has a broad client base including GlaxoSmithKline, Ernst andYoung, and the trainline.com. Reading Room recently won a prestigious award forthe best charity website for Cancer Research UK to add to a long list of similarawards. Reading Room has offices in London, Manchester and Sydney and has increased itsstaffing level from 53 to 87 since our investment. Further information can be found at the company's website www.readingroom.com. Investment date 7 April 2005Equity held 26.7%Cost £1,000,000Valuation £1,000,000Valuation basis CostDividends/Interest received during the year £46,000Last Audited Accounts April 2005Net Assets £1,600,000Profit/(loss) before taxation £80,000 Plastics Capital Limited Plastics Capital was set up to build a group of niche plastics manufacturingcompanies, each with a strong market position and good cash generationcharacteristics. The group currently comprises three separate businesses withfactories located in Knaresborough, Leicester, Dartford and Poole with anaggregate turnover in excess of £15 million. The first company acquired was Bell Plastics, which manufactures plasticmandrels for use in the manufacturing process for high pressure hoses. Ourfunding was used to acquire Trimplex, a company that manufactures creasingmatrices for cardboard box manufacturing, and BNL, which manufactures plasticbearing components. Investment date 30 November 2005Equity held 11.8%Cost £1,000,000Valuation £1,000,000Valuation basis Cost (New Investment)Dividends/Interest received during the year NilLast Audited Accounts March 2005Net Assets £826,000Profit/(loss) before taxation £68,000 James Harvard International Limited James Harvard is one of the leading recruitment agencies in the growing, butfragmented, European clinical trials market. The funds raised were used toacquire EXCO, thereby extending the range of functional areas covered by JamesHarvard as well as providing access to a broader range of clients. Sincecompletion of our investment, JHI has made a further modest acquisition, ASAMedical, from Hotgroup. Further information can be found at the company's website www.jamesharvard.com. Investment date 30 November 2005Equity held 10.9%Cost £1,000,000Valuation £1,000,000Valuation basis Cost (New Investment)Dividends/Interest received during the year £9,000Last Audited Accounts December 2004Net Assets £550,000Profit/(loss) before taxation Not available Luther Pendragon Limited Luther provides a fully integrated corporate public relations servicespecialising in 'issues management', which involves developing communicationsstrategies to combat any potential risks to a client's reputation or toinfluence public perception to achieve a strategic goal. The company wasestablished in 1992 and has grown to 45 partners and staff. The company has arange of public sector and blue chip private sector clients from a range ofindustries. Further information can be found at the company's website www.luther.co.uk. Investment date 30 November 2005Equity held 19.2%Cost £1,000,000Valuation £1,000,000Valuation basis Cost (New Investment)Dividends/Interest received during the year NilLast Audited Accounts December 2005Net Assets £1,921,000Profit/(loss) before taxation £702,000 Perfect Pizza Limited Perfect Pizza is the third largest pizza delivery business in the UK with 114franchised stores throughout the country. The home delivery pizza market isexpected to continue to be a growth area as a result of the long-term trend awayfrom home cooking. Further information can be found at the company's websitewww.perfectpizza.co.uk. Investment date 8 March 2006Equity held 15.4%Cost £1,125,000Valuation £1,125,000Valuation basis Cost (New Investment)Dividends/Interest received during the year £23,000 First audited financial information will be available for the period to 31 March2006 Covion Limited Covion provides a full range of support services, including cleaning, securityand maintenance work for clients such as LogicaCMG, Sara Lee and AnglianWindows. The company has annualised sales of more than £20 million, making it the fastestgrowing business in the Thames Valley region in 2004 (source: BDO). Covion camefourth in the Sunday Times Fast Track 100 (October 2005) and was rated the 39thfastest growing in Europe. Two founder directors, David Steventon and FrankRodrigues, have also received an Entrepreneur of the Year award sponsored byErnst & Young. Further information can be found at the company's website www.covion.co.uk. Investment date 27 May 2005Equity held 10.1%Cost £844,083Valuation £1,068,000Valuation basis Earnings MultipleDividends/Interest received during the year NilLast Audited Accounts December 2004Net Assets £728,000Profit/(loss) before taxation £329,000 Cello Group plc Cello Group was created as a vehicle to identify and acquire well-establishedmedia services companies operating in niche markets. In October 2004, thecompany's flotation on AIM raised £15 million in order to acquire threebusinesses and provide working capital. Cello has subsequently made a number offurther acquisitions. Further information can be found at the company's website www.cellogroup.co.uk. Investment date 9 November 2004Equity held 2.3%Cost £750,000Valuation £877,000Valuation basis Bid priceDividends/Interest received during the year NilLast Audited Accounts December 2004Net Assets £33,500,000Profit/(loss) before taxation £1,300,000 The Capital Pub Company 2 plc Capital Pub Company 2 plc is the latest pub investment vehicle set up by DavidBruce, who has a long and successful track record in the brewing and leisureindustry. Bruce has set up and successfully sold a number of similar companies,including the Firkin and Slug and Lettuce chains of pubs. More than £16 million has been raised for the company which is developing aportfolio of freehold public houses in the Greater London area. These areunbranded, un-themed and have no tie to a particular brewery. To date, ten siteshave been acquired and more are in the pipeline. Further information can be found at the company's websitewww.capitalpubcompany2.com. Investment date 31 January and 30 June 2005Equity held 3.7%Cost £599,500Valuation £619,500Valuation basis Latest round of financeDividends/Interest received during the year NilLast Audited Accounts September 2005Net Assets £10,500,000Profit/(loss) before taxation £68,000 Recent Transactions Since the end of the period under review, we have completed 3 new and have onefollow-on investments: CSL Dualcom Limited Eclipse invested £857,000 alongside the other Eclipse funds to finance the £6million management buy out of CSL Dualcom. CSL is a leading supplier of dualpath alarm signalling devices. Worthington Nicholls Group plc The Fund invested £500,000 in the AIM flotation in June 2006 of WorthingtonNicholls Group plc, the leading UK installer of air conditioning units in thehotel, retail and leisure markets. The company, which supplies over 50% (bynumber of rooms) of the 3* plus UK hotel market, is expected to achieve a profitbefore tax of £3.6 million on turnover of £25.0 million for the year endingSeptember 2006. First Sports Group Limited In June 2006 Eclipse invested £1,000,000 alongside Eclipse VCT 2 in a £2 millionfundraising for First Sports Group ('FSG'). FSG provides and manages retailsolutions within sports and leisure clubs. The company's clients includeEsporta, Holmes Place and David Lloyd. As well as managing more than 20pro-shops, FSG has developed a stand alone unmanned retail display unit, fromwhich customers can buy sports goods, paying at the club reception. Lilestone Holdings Limited A further investment of £313,000 was made in Lilestone, owner of the Myla brand,as part of a £1.6 million funding round from current shareholders to support thecompany's growth plans. The fundraising included an investment of £800,000 byan overseas retail group. The investment was made at a small premium to thevaluation that was established in the first round. Summary of investments made by other funds managed by Octopus InvestmentsLimited It is a requirement that the Managers, disclose the full extent of its interestin any investment which also is invested in by other funds managed by Octopus.Details of these are shown below. % equity held by Eclipse VCT % equity held by other funds managed by OctopusAbcam plc 0.15 0.46Augean plc 0.42 1.15Autoclenz Holdings plc 2.60 10.25BBI Holdings plc 0.29 4.80Belgravium plc 0.32 1.28Blanc Brasseries Holdings plc 1.24 2.06Capital Pubs Company 2 plc 3.70 4.50Cello Group plc 2.25 3.86Cohort plc 0.28 1.59Covion Limited 10.10 5.20fountains plc 1.29 2.62Healthcare Locums plc 0.88 1.03InterQuest plc 2.14 2.24Invocas plc 0.19 1.07James Harvard International 10.90 16.00LimitedLuther Pendragon Limited 19.20 19.20Ovum plc 0.49 2.77Perfect Pizza Limited 15.40 9.10Plastics Capital Limited 11.80 9.50Red-M Group Limited 4.40 2.65The Kendal Group Limited 10.22 5.86The Tanfield Group plc 1.04 4.87Tissue Science Laboratories 0.50 0.50plcZetar plc 1.12 1.18 If you have any questions on any aspect of your investment, please call one ofthe team on 020 7710 2800. Simon RogersonChief Executive Income Statement Year to 31 May 2006 Period to 31 May 2005 (restated) Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Unrealised gains on - 424 424 - 363 363investments Income 1,028 - 1,028 901 - 901 Investment (174) (524) (698) (123) (370) (493)management feesOther expenses (308) - (308) (168) - (168) Return on ordinary 546 (100) 446 610 (7) 603activities beforetax Tax (104) 99 (5) (115) 70 (45) Return on ordinary 442 (1) 441 495 63 558activities aftertaxBasic and diluted 1.4p 0.0p 1.4p 2.4p 0.3p 2.7preturn per share • The total column of this statement is the profit and loss account of the Company • All revenue and capital items in the above statement derive from continuing operations • The accompanying notes are an integral part of the financial statements. • The Company has only one class of business and derives its income from investments made in sharesand securities and from bank and money market securities. Reconciliation of movements in shareholders' funds 31 May 2006 31 May 2005 £'000 £'000Equity shareholders' funds as at 1 June 2005 as previously reported 29,911 -Prior year adjustment:Adjustment in valuation of quoted investments to bid price (100) -Proposed dividend not accounted for until declared and paid 453 -As restated 30,264 -Total gains and losses recognised in period 441 558Shares purchased for cancellation (87) (27)Net proceeds of share issue - 29,733Dividends recognised in period (453) -Shareholders' funds at 31 May 2006 30,165 30,264 The accompanying notes are an integral part of the preliminary announcement.Balance Sheet as at 31 May 2006 as at 31 May 2005 (restated) £'000 £'000 £'000 £'000 Fixed asset investments 14,948 6,722Current assetsInvestments 13,657 23,299Debtors 448 148Cash at bank 1,157 167 15,262 23,614Creditors: amounts falling due within (45) (72)one yearNet current assets 15,217 23,542Net assets 30,165 30,264 Called up equity share capital 3,117 3,127Share premium - 26,603Special distributable reserve 26,516 -Capital redemption reserve 13 3Capital reserve realised (725) (300)Capital reserve unrealised 787 363Revenue reserve 457 468Total equity shareholders' funds 30,165 30,264 Net asset value per share 96.8p 96.8p The accompanying notes are an integral part of the preliminary announcement.Cash flow statement Year to 31 May 2006 Year to 31 May 2005 (restated)* £'000 £'000 £'000 £'000 Net cash (outflow)/inflow from operating (436) 119activities Financial investment :Purchase of investments (7,631) (6,359) Net cash outflow from financial investment (7,631) (6,359) Management of liquid resources :Decrease/(increase) in cash funds 9,642 (23,299) Taxation (45) Equity dividends paid (453) - Financing :Issue of own shares - 30,802Share issue expenses - (1,069)Repurchase of own shares (87) (27)Total financing (87) 29,706 Increase in cash resources 990 167 The accompanying notes are an integral part of the preliminary announcement. Notes to the preliminary announcement 1. Accounting policies The Company is required to comply with a number of new UK Financial ReportingStandards (FRSs) in presenting its financial statements for the year ended 31May 2006. These standards have been introduced as part of the process ofconverging UK standards with International Financial Reporting Standards (IFRS). The financial information provided in the audited results for the period ended31 May 2005 has been prepared on a consistent basis with the accounting policiesas disclosed in the Company's annual report and accounts for the period ended 31May 2005 except for such changes as are required by the new FRSs. These changesarise from the adoption of FRS21 "Events after the Balance Sheet Date" and FRS26"Financial Instruments: Measurement". The adoption of FRS 25 "FinancialInstruments: Disclosure and Presentation" has only impacted upon the disclosureswithin the financial statements and has had no impact upon the balances therein. The adoption of FRS 20 "Share based payments", FRS 22 "Earnings per share",FRS 23 "The effects of changes in foreign exchange rates", FRS 24 "Financialreporting in hyper-inflationary economies" and FRS 28 "Corresponding amounts"has not impacted upon the financial statements. The nature and effect of these changes are explained below and the comparativefigures for the period ended 30 May 2005 have been restated accordingly. Under FRS21, dividends to shareholders are accounted for in the period in whichthey are declared and approved at the Annual General Meeting. Therefore, thedividend of £453,000 that was shown as proposed in the 2005 Report and Accountshas been added back to the profit and loss account and deducted from creditorsin the comparative figures for the period ended 31 May 2005, and has beenrecognised as paid in the year to 31 May 2006. Under FRS26, quoted investments are valued at bid price rather than mid-marketprice. The effect of this is to decrease the valuations at which suchinvestments are stated in the balance sheet and to decrease the unrealised gainson investments shown in the capital column of the income statement. This changeresulted in a reduction of £100,000 in the valuation of fixed asset investmentsat 31 May 2005 and a corresponding decrease in the unrealised revaluationreserve at those dates. The Company invests in financial assets with a view to profiting from theirtotal return through income and capital growth. These investments are managedand their performance is evaluated on a fair value basis in accordance with adocumented investment strategy. Accordingly as permitted by FRS 26, theinvestments are designated as at fair value through profit and loss. Unrealisedgains or losses on valuation are recognised through the profit and loss account. Basis of accounting The Company is an investment company as defined in s266 of the Companies Act1985. The financial statements have been prepared under the historical costconvention, modified to include the revaluation of fixed asset investments, andin accordance with applicable accounting standards in the UK and with theStatement of Recommended Practice "Financial statements and investment trustcompanies" issued in January 2003 and revised in December 2005. Investments Investments in AIM-listed companies are stated at bid prices. Previously thevaluation of these investments was based at middle market prices. The effect onthe comparative figures was a reduction in the net asset value of £100,000 at 31May 2005. The comparative figures have been restated to reflect this change. Unlisted investments are valued in accordance with the International PrivateEquity and Venture Capital ("IPEVC") valuation guidelines. The company'sinvestments have been designated by the directors as being stated at fair valuethrough profit and loss ("FVTPL") for the purposes of FRS 26. In the case ofinvestments quoted on a recognised stock exchange, fair value is established byreference to the closing bid price on the relevant date. In the case ofunquoted investments, fair value is established by using measurements of valuesuch as price of recent investment, earnings multiple and net assets; where noreliable fair value can be estimated using such techniques, unquoted investmentsare carried at cost subject to provision for impairment where necessary. Realised surpluses and deficits on the disposal of investments are taken tothrough the income statement to the realised capital reserve; unrealisedsurpluses and deficits are taken through the income statement to the unrealisedcapital reserve. Current asset investments are shown at the lower of cost and net realisablevalue. Income Investment income includes income tax withheld at source. Dividend income isshown net of any related tax credit. Dividends receivable are brought into account on the ex-dividend date. Fixedreturns on debt and money market securities are recognised on a timeapportionment basis so as to reflect the effective yield, provided there is noreasonable doubt that payment will be received in due course. Expenses All expenses are accounted for on an accruals basis. Expenses are chargedwholly to revenue with the exception of the investment management fee, which hasbeen charged 25% to the revenue account and 75% to the realised capital reserveto reflect, in the Directors' opinion, the expected long term split of returnsin the form of income and capital gains respectively from the investmentportfolio. Taxation Corporation tax payable is provided on taxable profits at the current rate. Thetax effect of different items of income/gain and expenditure/loss is allocatedbetween capital and revenue on the same basis as the particular item to which itrelates, using the Company's effective rate of tax for the accounting period. Deferred tax is recognised, without discounting, in respect of all timingdifferences between the treatment of certain items for taxation and accountingpurposes which have arisen but not reversed by the balance sheet date. Capital reserve - realised The following are accounted for in this reserve: a) gains and losses on the realisation of investments; b) realised exchange differences of a capital nature; c) expenses and finance costs, together with the relatedtaxation effect, charges to this reserve in accordance with the above policies; d) realised gains and losses on transactions undertaken tohedge an exposure of a capital nature. Capital reserve - unrealised The following are accounted for in this reserve: a) increases and decreases in the valuation of investmentsheld at the year end; b) unrealised exchange differences of a capital nature; c) unrealised gains and losses on transactions undertaken tohedge an exposure of a capital nature. Cash and liquid resources Cash, for the purposes of the cash flow statement, comprises cash in hand anddeposits repayable on demand, less overdrafts payable on demand. Liquidresources are current asset investments which are disposable without curtailingor disrupting the business and are either readily convertible into known amountsof cash at or close to their carrying values or traded in an active market.Liquid resources comprise term deposits of less than one year (other than cash),government securities and investments in money market managed funds. 2. Return per share The revenue return per share is based on profit from ordinary activities aftertax of £442,000 (2005:£495,000) and on 31,240,517 (2005: 20,396,980) shares,being the weighted average number of shares in issue during the period. There are no potentially dilutive capital instruments in issue and, therefore,no diluted return per share figures are relevant. 3. Reserves Share Special Capital Capital Capital Revenue premium distributable redemption reserve reserve reserve Reserve reserve realised unrealised £'000 £'000 £'000 £'000 £'000 £'000Balance as previously reported 31 May 2005 26,603 - 3 (300) 463 15Adjustments as per FRS 21 and 26 - - - - (100) 453As restated 26,603 - 3 (300) 363 468Cancellation of share premium account (26,603) 26,603 - - - -Share buy back - (87) 10 - - -Management fee capitalised net of - - (425) - - associated -taxationNet increase in unrealised appreciation - - - - 424 -Return on activities after tax - - - - - 442Dividends - - - - - (453) - 26,516 13 (725) 787 457 The Special Distributable Reserve was created on 8 December 2005 following thecancellation of the Share Premium account in accordance with the High CourtApproval obtained on 7 December 2005. The Special Distributable Reserve allowsthe Company to fund the buy-back of its ordinary shares and is a distributablereserve. 4. Dividends 31 May 2006 31 May 2005 £'000 £'000Dividend paid in the current year relating to the previous period 453 - Proposed final dividend 1.25p per share (2005: 1.45 p per share) 390 453 5. Net asset value per share The calculation of net asset value per share as at 31 May 2006 is based on netassets of £30,165,000 (2005: £30,264,000) divided by the 31,169,065 (2005:31,268,780 ordinary shares in issue at that date. 6. Financial instruments Management of risk As a Venture Capital Trust, the Company's objective is to provide shareholderswith an attractive income and capital return by investing in accordance with theCompany's investment strategy. The Company's financial instruments may comprise: - shares and securities in UK companies - cash, liquid resources and short term debtorsand creditors that arise from the Company's operations. The Company has no derivative financial instruments and has no financial assetsor liabilities for which hedge accounting has been used. Fixed assets are valuedat fair value as determined by the Directors on the basis set out in theaccounting policies. The fair value of certain unlisted investment has beencalculated by reference to a multiples earning model which examines the price/earnings ratio. In determining these valuations, the industry sector ratioshave been used, adjusted as necessary to take into account the associated riskson an individual investment basis. At 30 May 2006 the fair value of the financial assets designated as fair valuethrough profit and loss was £28,605,000 (2005: £30,021,000). During the courseof the current year, there has been an unrealised appreciation of £424,000(2005: £363,000) which has been credited to the unrealised capital reserve. Thedesignation of the financial assets as at fair value through profit and loss isin accordance with the documented strategy of the Company. The main risks arising from the Company's financial instruments are fluctuationsin market price for quoted investments and fluctuations in valuations, includingthe issue of the going concern, for unquoted investments. Market price risk Market price risk arises mainly from the uncertainty about future prices offinancial instruments used in the Company's operations. It represents thepotential loss the Company might suffer through holding market positions by wayof price movements. The potential risk is continuously monitored by theinvestment manager and reported on a regular basis to the board. Liquidity risk The funds raised since incorporation are currently used to fund the Company'sprimary objective of investing in venture capital opportunities which accordwith its investment strategy. Some 46% of these funds had been utilised in thisinvestment process at 31 May 2006 and the remaining funds were primarilyrepresented by cash and liquid resources shown as current asset investments inthe balance sheet. Interest rate risk The Company finances its operations through share capital raised and retainedprofits including both realised and unrealised capital profits. At the periodend and throughout the period, the Company had no liabilities that were subjectto interest rate risk and had no borrowing facilities. The Company's financialassets are invested in short term money market funds (typically of one to threemonths duration) at fixed rates. The weighted average interest rate on suchfunds was approximately 4.4% during the period. Credit risk The company's principal financial asset is cash deposits. The credit riskassociated with these cash deposits is limited as the counterparties have highcredit ratings assigned by international credit-rating agencies. Fair values of financial assets and liabilities There was no material difference between the fair values of financial assets andliabilities and their book values at the balance sheet date. 7. Related party transactions Matt Cooper, a non-executive Director of Eclipse VCT plc, is a Director ofOctopus. Eclipse VCT plc has employed Octopus throughout the period asinvestment managers. Eclipse VCT plc has paid Octopus £698,000 in the period asa management fee and there is £nil outstanding at the balance sheet date. Themanagement fee is payable quarterly in advance and is based on 2.0% of the netasset value calculated at annual intervals as at 31 May. Octopus also providesaccounting and administrative services to the Company, payable quarterly inadvance for a fee of 0.3% of the net asset value calculated at annual intervalsas at 31 May. During the period £105,000 was paid to Octopus and there is £niloutstanding at the balance sheet date, for the accounting and administrativeservices. In addition, Octopus is entitled to an annual performance related incentive feein the event that performance criteria in relation to the increase in netassets, after adding back distributions, are exceeded. No performance fee ispayable until after 31 May 2007. 8. The above summary of results for the year ended 31 May 2006 does notconstitute statutory financial statements within the meaning of Section 240 ofthe Companies Act 1985 and has not been delivered to the Registrar of Companies. Statutory financial statements will be filed with the Registrar of Companies indue course; the auditors' report on those financial statements under S235 of theCompanies Act 1985 is unqualified and does not contain a statement under S237(2)or (3) of the Companies Act 1985. 9. The proposed final dividend for the period ended 31 May 2006, if approved bythe shareholders, will be paid on 6 November 2006 to shareholders on theregister at the close of business on 13 October 2006. 10. A copy of the full annual report and financial statements for the year ended31 May 2006 will be printed and posted to shareholders. Copies will also beavailable to the public at the registered office of 8 Angel Court, London EC2R7HP. This announcement was approved by the Board on 11 September 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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