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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Leifheit | TG:LEI | Tradegate | Ordinary Share |
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RNS Number:1061L
Leggmason Investors AIM VCT PLC
14 May 2003
LEGGMASON INVESTORS AIM VCT PLC
Preliminary announcement of Audited Annual Results for the year ended 28
February 2003
CHAIRMAN'S STATEMENT
On behalf of your Board, I present the annual report and accounts for the year
ended 28 February 2003. It is disappointing to report a further decline in
equity markets over the period under review. The high profile accounting
scandals from the likes of Enron and WorldCom in the United States in 2002, lack
of confidence in economic growth and uncertainty over the build-up towards
hostilities with Iraq led to extreme risk aversion among investors. This tended
to leave smaller capitalised businesses, which are widely perceived as riskier,
at a disadvantage to their larger capitalised counterparts.
In the period from 28 February 2002 to 28 February 2003, the net asset value of
the Company fell by 46.5% from #7.36m to #3.94m. Although the composition of the
Company's investment portfolio is not directly comparable with any one index,
certain indices can be used as a guide. For example, on a total return basis the
FTSE AIM index declined by 32.6% while the FTSE techMARK Index suffered a
decline of 49.7%. As at 28 February 2003, 68% of the value of investments were
in AIM quoted stocks, 28% were listed on the FTSE techMARK 100 Index while the
remainder were quoted on OFEX, the FTSE Fledgling Index or were private equity
or non-quoted.
Investment strategy
As noted in the interim report to 31 August 2002 it was believed in the early
part of 2002 that equity valuations were very attractive given the major decline
in the AIM market since the equity market peak in early 2000 and, coupled with
encouraging economic news, it seemed likely that markets would recover. In
contrast, yields in the fixed interest market had reached extremely low levels
and appeared expensive.
The Manager considered that it was an appropriate time to change the portfolio
composition from bonds to equities, as envisaged in the prospectus, and
purchased qualifying and non-qualifying investments at what historically
appeared to be favourable prices. However, prior to our half year, there was a
further collapse in investor confidence and in equity markets. It is encouraging
that declines in the market have been less marked since the interim report
suggesting perhaps some stabilisation in investor sentiment. Overall however, as
at 28 February 2003, unrealised losses were #2.6m higher than at 28 February
2002 - #2 million of these losses being incurred in the first half - with the
FTSE AIM Index having fallen from 842.28 to 567.81 over the year.
Given the state of the equity markets, it is not surprising that activity in the
IPO market has remained low. However, it has meant that companies are being
priced realistically. During the year, we invested in eight qualifying
investments. By the end of the period 63% of the portfolio by tax book cost was
invested in VCT qualifying investments. Meeting the 70% VCT holding requirement
by 29 February 2004 should therefore be achievable.
Dividends
The amount of net revenue derived from the Company's holdings is at a much lower
level than in the first period of the Company's operation due to the switch to
equity holdings and away from bonds over the past year. Consequently, the
Directors do not propose to pay a dividend for the year ended 28 February 2003.
The Company's policy is to distribute the majority of its net realised profits
by way of tax-free capital dividends. As noted in the interim report, the timing
and level of future dividends will be dependent on the timing of the market
recovery required to recoup the level of unrealised capital losses and
subsequent capital realisations.
Cancellation of Share Premium Account
At the Annual General Meeting held on 18 July 2002, shareholders voted on the
cancellation of the share premium account to allow the Company to buy back its
shares. I am pleased to report that shareholders voted in favour of this and
that the cancellation received Court approval on 28 February 2003.
Shareholder relations
Shareholders who wish to know the latest published net asset value or share
price at any time may call Legg Mason Investments on 020 7070 7400.
Future prospects
The recent increase in takeover activity and management buy outs, indicate that
experts from within their specific industry sectors assess that company
valuations are low. Similarly, we too perceive that the depressed state of the
small companies market is providing some long-term investment opportunities.
Nonetheless, there remains uncertainty over the weakness in the US economy and
lack of growth in Europe. Consequently, we believe reflationary policies
worldwide will remain in place for the foreseeable future providing a positive
environment for an improvement in corporate profitability.
Elizabeth Kennedy
Chairman
14 May 2003
INVESTMENT MANAGER'S REPORT
Company Performance
As at 28 February 2003, the Company's net asset value stood at 44.32 pence per
share, a 46.5% decline over the past year. This performance compares with the
FTSE AIM index, which fell 32.6%, and the FTSE techMARK Index, which fell 49.7%,
as investors remained extremely risk averse. However, in the six month period
since the interim report on 31 August 2002, market falls have been more limited
with the respective indices declining by 14.8% and 23.1% respectively. As at 28
February 2003, 68% of the portfolio was invested in AIM listed stocks, 28% was
listed in FTSE techMARK 100 Index stocks and the remainder was listed on OFEX,
the FTSE Fledgling index or are private equity or non-quoted. Further analysis
shows that the portfolio's AIM listed holdings include only 3.4% of the
constituents of the AIM Index. This implies that deviation i.e. volatility from
the AIM Index return is likely to be high.
Market Review
The concern over the integrity of accounting practices and corporate governance
in 2002 had a disproportionately negative effect on smaller capitalised stocks.
Generally speaking, transparency of smaller company accounts and newsflow is
considered to be inferior compared with that of larger capitalised companies
because of lower listing and reporting requirements and less coverage by
brokers. In contrast, however, it could be argued that the accounts of smaller
capitalised companies have less room for manipulation as they tend to have fewer
streams of revenues and tend to be less acquisitive (on account of more
difficulty accessing new finance). We tend to concentrate on companies which
have a significant competitive advantage because of a company's proprietary
knowledge or technical expertise and which are growing organically, rather than
on companies that are growing predominantly through acquisition. All of this
underscores how essential our in-depth fundamental analysis of prospective
holdings is.
The extreme level of investor risk aversion has meant that income has been
highly prized over the past year. Initial public offerings imply that companies
are seeking new equity financing and that they are therefore not in a position
to pay out dividends. The lack of dividends has continued to keep investors away
from this area of the equity market. Interestingly, the fall in the value of
small cap equities has caused the historically negligible dividend yield to
increase to more than 1% on the AIM market.
Deal flow has been extremely poor in the last six months or so. With the equity
risk premium so high, quality companies have stayed away, unwilling to access
such a high cost of capital and instead seeking alternative sources of finance,
such as cheaper debt financing. As a result, we believe that it is primarily
lower quality companies which have been seeking new finance in the VCT niche.
Portfolio Review
In line with last year's annual report, our strategy was to continue to decrease
the fixed interest part of the portfolio in favour of both VCT qualifying and
non-qualifying investments, in particular given the dramatic declines in equity
markets over the previous two years and the anticipated improvement in economic
news. As a result, all fixed interest assets were sold by the end of March 2002.
With VCT qualifying IPO deal flow being limited, our participation in issues
tended to be concentrated in the first half of the period. Qualifying
investments made during the year are as follows:
Huveaux has been built up by making acquisitions in niche areas of the
publishing and media arenas. It has recently bought both Lonsdale (publisher of
school revision guides for UK and English-speaking schools overseas) and Vacher
and Dod (publishers of UK law guides).
Zipcom, which since the close of the reporting period has changed its name to GX
Networks, operates in the UK telecom sector, being a leading player in the
provision of local loop telecom services. After over-investment during the
telecom boom, many players went bust and the liquidators are now selling IT
assets at distressed prices. Zipcom is buying up these assets and leading the
consolidation in this sector.
Cardpoint owns and operates free-standing ATMs. They have agreements in place
for units at motorway service stations operated by Moto, Welcome Break, Spar and
BP. Since the interim report, the stock has risen by more than 40%. It made a
small acquisition in October, has continued to grow its ATM installation rate,
and has managed to increase the average fee per withdrawal.
Cobra BioManufacturing produce DNA for clinical trials. The sharp growth in
gene-based therapies puts Cobra in a strong position to be a key supplier of DNA
material. Further clients were added over the last six months, for example, in
Australia. Moreover, the stock has improved by more than 15% since its November
2002 low.
PM Group designs, manufactures and services on-board vehicle weighing systems.
The benefits for bulk haulage firms are increased efficiency from maximum
payloads, reduced wear and tear from incorrect axle loadings and avoiding fines
imposed for excess axle loading. Waste management firms also benefit from
avoidance of fines for overloading and point of collection invoicing based on
weight. This stock has made some headway recently, despite having needed to
issue shares to finance a 75% stake in Waste Collection Systems in Belgium and
Holland, thus continuing their geographic expansion.
Not all new VCT qualifying investments had positive performance, with poor
performers tending to have been in the IT arena. For example, Lo-Q, which
develops virtual queue management systems for theme parks, issued a profits
warning notifying the market that the contract signed with Six Flags for rollout
in eleven parks had been revised down to encompass only the existing six parks.
Elsewhere, Vianet Group, which operates data collection systems via remote
control and operates mainly in the vending machine market, lost ground after its
results in October. Yeoman Group, which has developed a unique mobile navigation
system that provides a user with route planning, traffic and detailed
turn-by-turn instructions delivered directly to a standard mobile phone, has
also struggled. However, since the October lows price performance has improved
somewhat.
Elsewhere British Photovoltaics, the solar energy panel and tile producer, has
been a casualty of the lack of appetite in the IPO market. It has been unable to
finance its expansion plan and has gone into liquidation. This had been a
private equity holding with a 15-year trading track record. With the outlook for
renewable energy being extremely positive, the prospects had appeared promising.
We are currently awaiting news from the liquidators.
As at 28 February 2003 the portfolio split by market value was as follows:
% of portfolio
by valuation
Non-qualifying equities 34.9
Qualifying investments 61.9
Cash 3.2
Total 100.0
=======
Market Outlook
While deal flow has been poor, the background of extremely low interest rates is
positive for some of the companies held in the portfolio, as lower interest
costs on debt are helping to improve cashflows. Moreover, current geopolitical
risk is helping some of our holdings, such as Radstone Technology, which is
benefiting from increased defense spending, while opportunities for Biotrace
International could increase, given the threat of bioterrorism.
The gloom pervading most sectors of the equity market, heightened by the
conflict in Iraq, masks some improvement in the underlying global economy. The
retrenchment by companies over the last couple of years and low interest rates
are leading to increased margins and an improvement in corporate profitability,
notably in the US. With the US being the global engine of growth, this will flow
through to other markets. However, even as equity markets recover on the back of
better earnings news, we expect larger capitalised companies to outperform
initially, before the equity market move flows down to the smaller cap arena.
On a long term basis, we believe that the past year will prove to have been an
opportune time to purchase stocks at very attractive valuations. Moreover, the
recent improvement in corporate bonds spreads, even among those of junk status,
in contrast to equity markets staying flat or moving lower, suggests that equity
market investors have failed to take advantage of the improvement in risk
profiles of many companies, indicating further undervaluation of equities.
Nevertheless, corporate and geopolitical risks still exist and economies and the
stockmarkets are likely to remain fragile. In these conditions, continuing
stockmarket volatility is still likely.
Legg Mason Investments (Europe) Limited
14 May 2003
FINANCIAL HIGHLIGHTS
Period from
Year ended 5 April 2001 to
28 February 2003 28 February 2002
Total return# after tax (#3,424,231) (#939,731)
Total return# per share (38.53p) (12.78p)
Movement in net asset value per share* (46.51)% (12.81)%
Movement in FTSE AIM Index (32.59)% (25.47)%
Movement in FTSE techMARK Index (49.72)% (32.13)%
Movement in FTSE SmallCap ex investment companies Index (30.30)% (11.73)%
Movement in FTSE All-Share Index (28.69)% (8.50)%
Proposed revenue dividends per share Nil 1.60p
# Total return represents the total profit on ordinary activities together with
losses on investments.
* Excludes effect of expenses on initial share issues
Extracts from balance sheet
At 28 February 2003 At 28 February 2002
Net asset value #3,939,511 #7,363,742
Net asset value per share 44.32p 82.85p
Statement of revenue and capital returns (audited)
For the year ended 28 February 2003
Year ended Period from 13 February 2001 to
28 February 2003 28 February 2002
Revenue Capital Total Revenue Capital Total
# # # # # #
Losses on investments - (3,337,591) (3,337,591) - (1,134,021) (1,134,021)
Income 51,391 - 51,391 431,016 - 431,016
Investment management fees 78,863 - 78,863 (44,006) - (44,006)
Other expenses (216,746) - (216,746) (192,455) - (192,455)
----------- ----------- ----------- ----------- ----------- -----------
(Loss)/return on ordinary (86,492) (3,337,591) (3,424,083) 194,555 (1,134,021) (939,466)
activities before finance
costs and taxation
Interest payable and similar (148) - (148) (265) - (265)
charges
----------- ----------- ----------- ----------- ----------- -----------
(Loss)/return on ordinary (86,640) (3,337,591) (3,424,231) 194,290 (1,134,021) (939,731)
activities before taxation
Taxation on ordinary - - - - - -
activities
----------- ----------- ----------- ----------- ----------- -----------
(Loss)/return attributable (86,640) (3,337,591) (3,424,231) 194,290 (1,134,021) (939,731)
to equity shareholders
Dividends in respect of - - - (142,214) - (142,214)
equity shares
----------- ----------- ----------- ----------- ----------- -----------
Transfer (from)/to reserves (86,640) (3,337,591) (3,424,231) 52,076 (1,134,021) (1,081,945)
======= ======= ======= ======= ======= =======
(Loss)/return per ordinary (0.98p) (37.55p) (38.53p) 2.64p (15.42p) (12.78p)
share
======= ======= ======= ======= ======= =======
The Company's results have been prepared in accordance with the requirements of
Schedule IV of the Companies Act 1985, which requires that realised gains and
losses, including those arising from the disposals of investments, are included
in the profit for the period, and the unrealised capital gains are excluded from
the profit for the period.
As explained in the Chairman's statement, it is the Directors' intention to
distribute realised capital profits in the future. In order to do this, the
Company will relinquish its investment company status but will continue to be a
Venture Capital Trust. In order to enable investors to be able to compare the
results of the Company over time, these financial statements have been prepared
on the basis that will be required once investment company status is
relinquished.
Notes to the statement of revenue and capital returns
The results in the statement of revenue and capital returns (the 'Statement')
have been included to assist investors in comparing the results of the Company
with other Investment or Venture capital trusts and also to show the taxation
basis of returns. Although the basis of presentation of the Statement and the
profit and loss account is different, the total gains recognised in the year
together with the net assets attributable to each share remain the same
irrespective of the basis of presentation. The Statement does not form part of
the financial statements.
Set out below is a comparison of how the returns are recorded in the Statement
and the statutory accounts.
Statement Statutory accounts
# #
Loss attributable to equity shareholders (3,424,231) -
Loss on ordinary activities after taxation - (699,648)
Unrealised losses for the year - (2,724,583)
--------------- ---------------
Total (3,424,231) (3,424,231)
========= =========
Revenue loss after dividends (86,640) -
Retained loss - (699,648)
Transferred from capital reserve - 613,008
--------------- ---------------
Total (86,640) (86,640)
========= =========
Capital loss after dividends (3,337,591) -
Transferred from capital reserve - (613,008)
Unrealised losses for the year - (2,724,583)
--------------- ---------------
Total (3,337,591) (3,337,591)
========= =========
Reference to revenue and capital in the notes to the financial statements
reflect the basis on which taxation is calculated and the treatment applied in
determining amounts available for revenue dividend distribution.
Basic revenue loss per ordinary share is based on the net loss on ordinary
activities after taxation of #86,640 (2002: #194,290 gain) divided by 8,888,364
(2002: 7,354,467) ordinary shares, being the weighted average number of ordinary
shares in issue during the year.
Basic capital loss per ordinary share is based on the net capital loss for the
year of #3,337,591 (2002: #1,134,021 loss) divided by 8,888,364 (2002:
7,354,467) ordinary shares, being the weighted average number of ordinary shares
in issue during the year.
Profit and loss account (audited)
For the year ended 28 February 2003
Year ended Period from 13 February 2001
28 February 2003 to 28 February 2002
Notes # # # #
Income received on 51,391 431,016
investments
Administrative expenses
Investment Management fees 78,863 (44,006)
Other expenses (216,746) (192,455)
------------- -------------
(137,883) (236,461)
------------- -------------
Net (loss)/revenue (86,492) 194,555
Income from fixed asset
investments
Losses on investments (613,008) (68,859)
------------- -------------
(Loss)/profit before (699,500) 125,696
interest and taxation
Interest payable and similar (148) (265)
charges
------------- -------------
(Loss)/profit before (699,648) 125,431
taxation
Taxation on ordinary - -
activities
------------- -------------
(Loss)/profit on ordinary (699,648) 125,431
activities after taxation
------------- -------------
Dividends 1
Revenue - (142,214)
-------------- --------------
Retained loss (699,648) (16,783)
Transfer from capital 613,008 68,859
reserves
------------- -------------
Retained revenue (losses)/ (86,640) 52,076
profits
======== ========
(Loss)/earnings per share 2 (7.87p) 1.71p
======== ========
All returns are derived from continuing activities.
Statement of total recognised gains and losses (audited)
For the year ended 28 February 2003
Period from
Year ended 13 February 2001 to 28
February 2002
28 February 2003
# #
(Loss)/profit for the year (699,648) 125,431
Unrealised losses for the year (2,724,583) (1,065,162)
--------------- ---------------
Total recognised losses during the year (3,424,231) (939,731)
========= =========
Total recognised loss per share (38.53p) (12.78p)
========= =========
Note of historical profits and losses
Year ended Period from 13 February 2001 to
28 February 2003 28 February 2002
# #
Reported (loss)/profit on ordinary (699,648) 125,431
activities before taxation
Realisation of investment revaluation (127,783) -
losses recognised in previous periods
-------------- --------------
(827,431) 125,431
======== ========
Historical cost loss for the year retained (827,431) (16,783)
after taxation and dividends
======== ========
Balance Sheet (audited)
As at 28 February 2003
As at 28 February 2003 As at 28 February 2002
Notes # #
Fixed assets
Investments 3 3,852,508 6,794,386
Current assets
Debtors 99,016 298,946
Cash at bank and in hand 126,395 540,011
-------------- --------------
225,411 838,957
Creditors:
amounts falling due within one year (138,408) (269,601)
-------------- --------------
Net current assets 87,003 569,356
-------------- --------------
Net assets 3,939,511 7,363,742
======== ========
Capital and reserves
Called up share capital 444,418 444,418
Share premium - 8,001,269
Special reserve 8,001,269 -
Capital reserve - realised (809,650) (68,859)
Capital reserve - unrealised (3,661,962) (1,065,162)
Revenue reserve (34,564) 52,076
-------------- --------------
3,939,511 7,363,742
======== ========
Net asset value per share 4
Ordinary shares 44.32p 82.85p
======== ========
The financial statements were approved by the Board of Directors on 14 May 2003
and signed on their behalf by:
Elizabeth Kennedy
Chairman
Cash Flow Statement (audited)
For the year to 28 February 2003
Period from
Year ended 13 February 2001 to 28
February 2002
28 February 2003
# #
Operating activities
Investment income received 48,728 362,301
Deposit interest received 11,845 51,821
Other expenses paid (224,413) (152,827)
-------------- --------------
Net cash (outflow)/inflow (163,840) 261,295
======== =========
Servicing of finance
Interest paid (148) (265)
-------------- ---------------
Capital expenditure and financial
investment
Purchase of investments (2,949,117) (15,118,095)
Disposal of investments 2,841,703 6,951,389
-------------- --------------
Net cash outflow (107,414) (8,166,706)
-------------- --------------
Dividends
Equity dividends paid (142,214) -
-------------- --------------
Net cash outflow before financing (413,616) (7,905,676)
-------------- --------------
Financing
Proceeds of ordinary shares issued - 8,888,364
Issued share costs paid in respect of - (442,677)
ordinary shares issued
-------------- --------------
Net cash inflow from financing - 8,445,687
======== ========
(Decrease)/increase in cash (413,616) 540,011
======== ========
Notes to the financial statements
1. Dividends
2003 2002
# #
Revenue dividends on equity shares
Final Nil (2002: 1.60p per share) - 142,214
======== ========
2. (Loss)/earnings per share
Basic earnings per ordinary share is based on the net loss on ordinary
activities after taxation of #699,648 (2002: #125,431 gain) and on 8,888,364
(2002: 7,354,467) ordinary shares, being the weighted average number of ordinary
shares in issue during the year.
3. Investments
2003 2002
# #
Investments listed on the London Stock Exchange 1,094,072 3,800,784
Investments in companies traded on AIM 2,627,566 2,582,182
Investments in companies traded on OFEX 77,590 61,500
Unlisted investments 53,280 349,920
--------------- ---------------
3,852,508 6,794,386
========= =========
4. Net asset value per share
Basic net asset value per share is based on the net assets attributable to
ordinary shareholders of #3,939,511 (2002: #7,363,742) and on 8,888,364 (2002:
8,888,364) ordinary shares in issue at the year ended 28 February 2003.
5. Post balance sheet events
There were no significant post balance sheet events.
6. 2003 Accounts
The preliminary figures for the year ended 28 February 2003 have been extracted
from the latest Company Accounts, which have not yet been delivered to the
Registrar of Companies.
7. Annual Report
The annual report will be issued to shareholders in May 2003 and further copies
will be available from the Company Secretary. The Company's Annual General
Meeting will be held on Thursday,24 July 2003 at 11.00 am at the offices of
Brewin Dolphin Securities Limited, 48 St Vincent Street, Glasgow G2 5TS.
For further information, please contact:
Cogent Secretarial Services Limited
Company Secretary
Tel: 020 7410 4942
14 MAY 2003
This information is provided by RNS
The company news service from the London Stock Exchange
END
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