Interim Results for the six months ended 30 June 2007
Investment Objective
Core VCT II plc ("Core VCT II" or "the Company") is a tax efficient listed
company which aims to achieve long-term capital and income growth, and to
distribute tax free dividends of realised gains and investors' capital.
Investment Approach
* The Company invests management buyout and development capital, typically in
established, private companies, which show:
* Sufficient operating critical mass and an established economic model; and
* Quality management teams with the key skills in place to deliver a
well-defined business model.
* The Company is managed by Core Capital LLP ("Core Capital" or "the
Manager") which invests amounts generally in the range of �2 - �5 million
across the three Core VCTs in companies valued at �5 - �25 million.
Fund Structure
Core VCT II is structured as follows:
* No annual management fees
Only when Shareholders have received the first 60 pence of distributions, which
together with an assumed 40 pence of initial tax relief will have realised them
100 pence per share, will the Manager be entitled to 30% of distributions from
the Company.
* Maximise distributions of income and capital
Core VCT II has a policy to distribute all proceeds from realised investments.
The Company has no fixed life, but intends to naturally liquidate and
distribute its assets over time. The Manager's incentives are structured to
align its interests in delivering this liquidity for Shareholders as well as
maximising overall investment performance.
Performance Summary
Ordinary Shares 30 June 2007 30 June 2006 31 December
2006
Net asset value per share 99.45 pence 95.04 pence 97.34 pence
Net asset value total return to 100.95 pence 95.04 pence 97.34 pence
date per share
Share price (mid-market) 90 pence 100 pence 100 pence
Earnings per share 3.72 pence 0.50 pence 2.99 pence
Dividends per share 1.50 pence 0.00 pence 0.00 pence
B shares 30 June 2007 30 June 2006 31 December
2006
Net asset value per share 0.01 pence 0.01 pence 0.01 pence
Net asset value total return to 0.01 pence 0.01 pence 0.01 pence
date per share
Share price (mid-market) 3.50 pence 3.50 pence 3.50 pence
Earnings per share 0.00 pence 0.00 pence 0.00 pence
Dividends per share 0.00 pence 0.00 pence 0.00 pence
Chairman's Statement
Results
The Net Asset Value (NAV) total return per Ordinary Share was 100.95p as at 30
June 2007, comprising a NAV per Ordinary Share of 99.45p and cumulative
dividends paid of 1.50p per Ordinary Share. This is an increase over the total
return to 31 December 2006 of 3.70%. A surplus of �613,590 was earned during
the six month period.
Dividends
Core VCT II is structured to maximise distributions of both capital and income
to Shareholders over the life of the Company. We are planning to distribute a
substantial proportion of the cash assets after the end of the full financial
year to 31 December 2008 (ie after approximately 18 months).
In the meantime, the Company earns income from its managed cash assets, and
over time should start to earn income from the unquoted investments made. This
has produced a revenue return surplus of 1.07p per Ordinary Share in this
period, which it is intended will be distributed after the end of the full
financial year.
VCT Qualifying Status
As at 30 June 2007, the Company was 33.68% invested in qualifying VCT
investments, which has increased to 43.73% following the completion of
investments since the period-end compared to the requirement to be over 70%
invested by 31 December 2008. This translates into a requirement to complete a
further 3 investments, comfortably within the Manager's investment rate.
Investments
The Manager's Review refers in more detail to the prospects of the investment
portfolio, and in particular to a recent investment, Baxters, where we have
chosen to make a provision. Good progress elsewhere and the completion of a
number of acquisitions by portfolio companies underline our confidence in the
valuation gains we anticipate in future. The net increase in the valuation of
the Portfolio was �348,000, or some 6.93%.
Change in Directors
Due to increasing demands on her time outside of the Company, Helen Bagan is
retiring from the Board today. We are very grateful for Helen's contribution
to the development of the Company to date and wish her well for the future.
We welcome John Brimacombe as a non executive director who joins the Board
today. John is MD of Jobstream Group plc and an Operating Partner of Sussex
Place Ventures. He was a co-founder of NGame Limited and was also President of
Mforma Group Inc.. John is a non-executive director of Kelway Holdings Limited,
one of the investee companies of the Core VCTs, and we look forward to his
contribution.
Information for Shareholders
The Board supports open communication with investors and welcomes any comments
or questions you may have. Company contact information is provided below.
Share Price
Both the Ordinary Shares (CR2) and the B Shares (CR2B) are fully listed shares.
Prices are available on www.londonstockexchange.com and the Ordinary Share
price is published daily in the Financial Times. Shareholders are reminded that
disposing of shares within three years will result in loss of tax relief, and
that their holding of B Shares forms an integral part of their investment along
with their holding of Ordinary Shares.
Peter Smaill
Chairman
Manager's Review
Investment Highlights
* 43.73% invested in qualifying investments including investments made after
the period-end
* Investment Portfolio now comprises 7 investments with a cost of �6.67
million and a value of �7.01 million (6 investments with cost of �5.03
million and value of �5.37 million as at 30 June 2007);
* Three of the companies in the investment portfolio have completed, or
agreed to complete, substantial acquisitions;
Investment Progress
At 30 June 2007, Core VCT II was 33.68% invested in qualifying VCT investments
which has increased to 43.73% following the completion of one investment since
the period-end. This investment rate is comfortably ahead of that required to
achieve the 70% qualifying level by 31 December 2008. We are continuing with
our selective investment approach, investing in every case alongside other Core
funds in order to invest in more sizeable transactions. The Core VCTs have
invested a total of �10.5 million since the start of 2007.
New Investments
We completed one new investment and one further investment in the period to 30
June 2007 as follows :-
Pureleaf Limited (Baxters International)
Cost Valuation
At 30 June 2007 �990,000 �400,000
Drawn-down after period-end �641,000 �641,000
Total �1,631,000 �1,041,000
We completed the management buy in (MBI) of Baxters in January with total
funding of �8 million, in which the Core funds collectively invested �4.35
million. Core VCT II invested �1.63 million including a commitment to invest a
further �641,000 which completed on 31 July.
Baxters is a long established removals and storage business with substantial
freehold property and a long-standing relationship with the Ministry of
Defence, for whom Baxters carries out a significant amount of long term
storage.
Since the completion of the MBI, we have uncovered a number of areas where we
anticipate pursuing claims against the vendors. We have made a provision for
the financial effects of what we have discovered (including the anticipated
costs of these actions) notwithstanding our confidence in recovering the sums
due and the majority of our costs in pursuing these claims, and based on our
assessment of legal opinion of the strength of these claims. Following
extensive legal advice, we anticipate a successful outcome and will keep
shareholders informed of developments as appropriate.
Adapt Group Limited (formerly Highpitch Limited)
Cost �124,000 Valuation �124,000
Adapt is a virtual network operator (VNO) providing telecoms solutions to small
and medium sized businesses.
We first invested in Highpitch (formerly trading as MNet) in June 2006 as a
small participant in the mezzanine debt of the �7.5 million Management Buy out
(MBO) of the business. Since then, the business has grown significantly,
rebranded as Adapt, and in June this year acquired Centric Telecom. We took the
opportunity to make a small additional net new investment at this time
alongside a larger investment by Core VCT I.
SPL Services Limited
Since 30 June, one further new investment of �1 million has been completed, in
SPL Services Limited, a specialist courier company.
Existing Portfolio
Kelway Holdings Limited Cost �1,875,000, Valuation 2,812,500
Kelway is a fast growing IT reseller targeting organisations with 250 to 1,000
employees. The company has made good progress since our investment last year,
and completed a substantial acquisition in June, acquiring Elcom. This brings
the combined forecast revenues to over �90 million and has been completed
without any senior debt to Kelway's balance sheet. Accordingly, to reflect the
fair value of the investment, the valuation has been increased based on its
current and budgeted turnover and EBIT and in part the values implied by the
Elcom transaction.
Blanc Brasseries Holdings plc Cost �1,000,000, Valuation �1,000,000
Blanc Brasseries currently operates five units in the premium casual dining
market and is looking to grow to 20 units within 3 years. The business model
has been successfully re-worked in preparation for the roll-out of future
sites. Finding sites on attractive economic terms has taken longer than
originally expected, but there is now a strong contracted pipeline of sites in
place. These restaurants will also feature in the forthcoming BBC 2 TV series,
"The Restaurant". We would anticipate increasing the valuation of this
investment once the implementation of the roll-out has been commenced.
Colway Limited Cost �1,000,000, Valuation �1,000,000
(trading as London Graphic Centre and Red Box)
London Graphic Centre is a long established office and graphic supplies
business. Since our original investment, the business has rebranded its core
B2B activities as Red Box, and secured two acquisitions, in the latter of which
other Core funds invested additional mezzanine funding. With further
acquisitions identified, we see this business growing to over �30 million in
turnover compared to the �15.5 million at the date of our original investment
in 2006, placing it firmly as one of the largest independent stationery and
office supplies businesses serving the London market.
Augentius Fund Administration LLP Cost �35,525, Valuation: �35,525
Augentius is a leading onshore administrator of private equity funds and was
formerly Ansbacher Fund Services. The business operates from London and
Guernsey and provides out-sourced administration services to many leading
private equity funds.
This small investment has a cash yield of 9.5%. The business is winning new
clients rapidly, but we have made no increase in the valuation given its size
and stage.
Developments at Core Capital
Following the Closing of the Offers of both Core VCTs IV & V, Core now has a
total of some �65 million of VCT funds under management. As a part of Core's
evolution in managing this growth, a number of changes have been made to the
team. These include the retirement of Mark Storey as a partner, and the ending
of Ian Henderson-Londono's consulting arrangement. David Steel, previously at
KPMG, has been appointed as investment executive, and joins the founders,
Stephen Edwards and Walid Fakhry. As mentioned in the Chairman's Statement,
John Brimacombe joins the Boards of each of Core VCTs I, II & III following the
retirement of Helen Bagan.
Future Investments
Core VCT II is now 43.73% invested, and has approximately �4.3 million left to
invest by 31 December 2008 in order to complete its initial investment
programme. There has been some significant activity across the portfolio and we
feel confident that, taken as a whole, we are putting in place the foundations
for value growth as the portfolio matures.
Investment Portfolio Summary
as at 30 June 2007
Date of Book cost Valuation % of net
investment assets by
value
�'000 �'000
Qualifying investments
(unquoted)
Kelway Holdings Limited November 2006 1,875 2,813 17.1%
IT Services
Blanc Brasseries April 2006 1,000 1,000 6.1%
Holdings plc
Premium casual dining
brasseries
Colway Limited May 2006 1,000 1,000 6.1%
(trading as London
Graphic Centre and Red
Box)
Office and graphics
supplies
Adapt Group Limited June 2006 124 124 0.8%
(Formerly Highpitch
Limited)
Internet connections and
co-location services
Pureleaf Limited January 2007 990 400 2.4%
(Baxters International)
**
Removal company
----------- ----------- -----------
Total qualifying 4,989 5,337 32.5%*
investments
Non-qualifying
investments
Augentius Fund October 2006 36 36 0.2%
Administration LLP
Fund administrator
Funds and Trusts 2,121 2,184 13.3%
Listed securities 3,935 4,216 25.7%
Unlisted securities 2,958 2,958 18.1%
----------- ----------- -----------
Total non-qualifying 9,050 9,394 57.3%
investments
----------- ----------- -----------
Total investments 14,039 14,731 89.8%
----------- ----------- -----------
Other assets 1,851 11.3%
Current liabilities (173) (1.1%)
----------- -----------
Net assets 16,409 100.0%
======= =======
* Book value of total qualifying investments represents 36% of the total book
value of investments. The VCT investment tests are measured broadly on original
cost of investments, including cash balances, and this gives the figure of
33.68% quoted in the Chairman's Statement and the Manager's Review above in
relation to progress towards achieving a minimum of 70% of total investments
invested in qualifying investments before 31 December 2008.
** A further �641,000 as drawn-down after the period-end in respect of the
total commitment of �1.63 million.
Unaudited Income Statement
(incorporating the Revenue Account of the Company for six months ended 30 June
2007)
Six months ended Period from 23 September 2005
30 June 2007 to 30 June 2006
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
� � � � � �
Realised losses - (34,925) (34,925) - - -
on investments
Unrealised gains/ - 486,912 486,912 - (5,931) (5,931)
(losses) on
investments
Income 240,079 - 240,079 232,071 - 232,071
Cost of (3,675) (18,491) (22,166) - (37,511) (37,511)
investment
transactions
Other expenses (55,479) - (55,479) (96,349) - (96,349)
----------- ----------- ----------- ----------- ----------- -----------
Return on 180,925 433,496 614,421 135,722 (43,442) 92,280
ordinary
activities before
taxation
Tax on ordinary (4,483) 3,652 (831) (33,041) 7,093 (25,948)
activities
----------- ----------- ----------- ----------- ----------- -----------
Return 176,442 437,148 613,590 102,681 (36,349) 66,332
attributable to
equity
shareholders
----------- ----------- ----------- ----------- ----------- -----------
Return per 0.01p 1.07p 2.65p 3.72p 0.77p (0.27)p 0.50p
Ordinary share
Dividends paid
Final dividend 247,386 - 247,386 - - -
paid for period
from 23 September
2005 to 31
December 2006 of
1.50p per share
Period from 23 September 2005
to 31 December 2006
(audited)
Revenue Capital Total
� � �
Realised losses - (37,184) (37,184)
on investments
Unrealised gains/ - 268,862 268,862
(losses) on
investments
Income 545,008 - 545,008
Cost of (7,744) (86,131) (93,875)
investment
transactions
Other expenses (190,482) - (190,482)
Return on 346,782 145,547 492,329
ordinary
activities before
taxation
Tax on ordinary (64,062) 19,330 (44,732)
activities
Return 282,720 164,877 447,597
attributable to
equity
shareholders
Return per 0.01p 1.89p 1.10p 2.99p
Ordinary share
Dividends paid
Final dividend - - -
paid for period
from 23 September
2005 to 31
December 2006 of
1.50p per share
Unaudited Balance Sheet
as at 30 June 2007
As at As at As at
30 June 2007 30 June 2006 31 December 2006
(unaudited) (unaudited) (audited)
� � �
Non-current assets
Investments at fair 14,731,076 12,154,950 14,229,922
value
Current Assets
Debtors and 1,732,544 1,716,473 1,483,908
prepayments
Current investments - 1,797,627 -
Cash at bank 118,281 100,840 519,727
-------------- -------------- --------------
1,850,825 3,614,940 2,003,635
Creditors: amounts (173,203) (95,003) (177,405)
falling due within
one year
-------------- -------------- --------------
Net current assets 1,677,622 3,519,937 1,826,230
-------------- -------------- --------------
Net assets 16,408,698 15,674,887 16,056,152
========= ========= =========
Capital and
reserves
Called up share 1,649 1,649 1,651
capital
Called up B share 2,474 2,474 2,474
Capital
Capital redemption 2 - -
reserve
Share premium 7,802,216 15,604,432 7,802,214
account
Capital reserve - 691,955 (5,931) 268,862
unrealised
Capital reserve - (89,930) (30,418) (103,985)
realised
Special 7,788,556 - 7,802,216
distributable
reserve
Revenue reserve 211,776 102,681 282,720
-------------- -------------- --------------
Total equity 16,408,698 15,674,887 16,056,152
shareholders' funds
========= ========= =========
Net Asset Value per
Share (attributable
assets basis)
Net asset per 0.01p 99.45p 95.04p 97.34p
Ordinary Share
Net asset per 0.01p 0.01 p 0.01 p 0.01 p
B Share
Unaudited Reconciliation of Movements in Shareholders' Funds
for the six months ended 30 June 2007
Six months Period from 23 Period from
ended September 2005 23 September
to 2005 to
30 June 2007
30 June 2006 31 December
2006
� � �
Opening shareholders' funds 16,056,152 - -
Net share capital (bought (13,658) 15,608,555 15,608,555
back)/subscribed for in the
period
Profit for the period 613,590 66,332 447,597
Dividends paid in period (247,386) - -
Closing shareholders' funds 16,408,698 15,674,887 16,056,152
Unaudited Summarised Cash Flow Statement
for the six months ended 30 June 2007
Six months Period from Period from
ended
23 September 23 September
30 June 2007 2005 to 2005 to
30 June 2006 31 December
2006
� � �
Operating activities
Income received 243,571 295,346 809,029
Investment management fees (18,558) (60,245) (85,644)
paid
Other cash payments (69,793) (284,308) (413,969)
------------ ------------ ------------
Net cash inflow/(outflow) 155,220 (49,207) 309,416
from operating activities
Investing activities
Acquisitions of investments (5,020,768) (12,160,881) (26,147,977)
Disposals of investments 4,725,146 - 12,149,733
------------ ------------ ------------
Net cash outflow from (295,622) (12,160,881) (13,998,244)
investing activities
Equity dividends paid (247,386) - -
------------ ------------ ------------
Cash outflow before (387,788) (12,210,088) (13,688,828)
financing and liquid
resource management
Financing
Share Capital (bought back) (13,658) 14,968,380 15,068,380
/raised
Issue costs of ordinary - (859,825) (859,825)
shares
Net (outflow)/inflow from (13,658) 14,108,555 14,208,555
financing
Management of liquid
resources
Increase in current - (1,797,627) -
investments
------------ ------------ ------------
(Decrease)/increase in cash (401,446) 100,840 519,727
for the period
======== ======= =======
Notes:
1. The accounts have been prepared under the fair value rules of the Companies
Act 1985, and in accordance with United Kingdom Generally Accepted
Accounting Practice and, to the extent that it does not conflict with the
Companies Act 1985 and UK accounting standards, the 2003 Statement of
Recommended Practice, `Financial Statements of Investment Trust Companies',
revised December 2005, amended October 2006.
2. 75% of the investment management expense is charged against capital. This is
in line with the Board's expected long-term split of returns from the
investment portfolio of the Company.
3. The revenue return per Ordinary Share is based on the net revenue on
ordinary activities after taxation of �176,442 and is based on 16,508,508
Ordinary Shares (30 June 2006: revenue return �102,681 and 13,327,783 Ordinary
Shares, 31 December 2006: revenue return �282,720 and 14,963,417 Ordinary
Shares), being the weighted average number of Ordinary Shares in issue during
this period. The capital gain per Ordinary Share is based on ordinary
activities after taxation of �437,148 and is based on 16,508,508 Ordinary
Shares (30 June 2006: capital loss �36,349 and 13,327,783 Ordinary Shares, 31
December 2006: capital return �164,877 and 14,963,417 Ordinary Shares), being
the weighted average number of Ordinary Shares in issue during the period.
4. Net asset value per Ordinary Share is based on attributed net assets at 30
June 2007, and on 16,497,230 Ordinary Shares, being the number of Ordinary
Shares in issue on that date.
5. The financial information for the period ended 30 June 2007 has neither been
audited nor reviewed.
6. Copies of the Interim Report for the six months ended 30 June 2007 are being
sent to all Shareholders. Further copies are available free of charge from the
Company's registered office, One Jermyn Street, London SW1Y 4UH.
Contact details for further enquiries:
Sarah Penfold of Matrix-Securities Limited (the Company Secretary) on 020 7925
3300 or by e-mail on CoSec@matrixgroup.co.uk
Core Capital LLP (the Investment Manager), on 020 7317 0155 or by e-mail on
info@Core-Cap.com
END
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