Half-yearly report
Eclipse VTC 2 plc
Interim Results
25 September 2008
Eclipse VCT 2 plc, managed by Octopus Investments Limited, today
announces the Half-Yearly results for the six months ended 31 July
2008.
These results were approved by the Board of Directors on 24 September
2008.
You may view the Half-Yearly Report in full at
www.octopusinvestments.com and navigating to the VCT Annual and
Interim Reports under the 'Learn More' section.
Financial Highlights
Six months to Six months to Year to
31 July 2008 31 July 2007 31 January 2008
Net assets �17,426,000 �22,645,000 �20,928,000
Net profit after tax �(2,631,000) �1,309,000 �(248,000)
Net asset value per share
("NAV") 92.2p 121.9p 110.7p
Cumulative dividends paid
since launch 10.25p 2.25p 5.25p
Eclipse VCT 2 plc ("Eclipse 2", "Fund" or "Company") is a venture
capital trust ("VCT") which aims to provide shareholders with
attractive tax-free dividends and long-term capital growth.
Eclipse 2 invests primarily in unquoted and AIM-quoted companies and
aims to deliver absolute returns on its investments. Eclipse 2 was
launched in January 2005 and raised �18.4 million by the time the
offer closed in June 2005, to invest alongside Eclipse VCT plc, which
launched in April 2004 and raised �30.7 million. The Investment
Manager is Octopus Investments Limited ("Octopus" or "Manager").
Octopus has subsequently raised a further �58.2 million in a twin
fund, Eclipse VCT 3 plc and Eclipse VCT 4 plc.
Eclipse 2 co-invests with these three other Eclipse funds which are
all managed by the same investment team at Octopus. This means that
Eclipse 2 will not only be able to invest in a wider range of
opportunities but also in larger and more developed companies than
are typically available to a single VCT.
The table below shows the movement in NAV per share and lists the
dividends that have been paid since the launch of Eclipse 2:
Period Ended NAV Dividend NAV + cumulative dividends
31 July 2005 95.0p - 95.00p
31 January 2006 95.0p 1.25p 96.25p
31 July 2006 95.2p - 96.45p
31 January 2007 115.9p 1.00p 118.15p
31 July 2007 121.9p - 124.15p
31 January 2008 110.7p 3.00p 115.95p
31 July 2008 92.2p 5.00p 102.45p
Chairman's Statement
I am pleased to present the interim results for the six months to 31
July 2008.
Results Review
In the six months to 31 July 2008, the total return per share, being
the NAV plus dividends paid, decreased 11.6% from 115.95p to
102.45p. By comparison, the FTSE AIM All Share index and the FTSE
Small Cap index have fallen 15.1% and 11.8% respectively over the
same period. There has been no realisation activity during the
period under review and the decline in total return reflects the
downward movement in portfolio valuations as a result of difficult
market conditions. However, in line with the Board's desire to
deliver a regular stream of tax-free dividends, and with retained
capital profits from prior periods, the Board has declared an interim
dividend of 3p per share to be paid on 31 October 2008 to
shareholders on the register on 3 October 2008. This will take total
dividends paid to shareholders since launch to 13.25p. The total
return to shareholders of 2.5% is before taking into account the 40%
upfront income tax relief received by initial subscribers. It is
pleasing that Eclipse 2 is currently ranked amongst the top quartile
of generalist and specialist VCTs launched in the 2004/2005 tax year
(source: www.taxefficientreview.com).
Investment Portfolio
The year thus far has been challenging for many businesses as a
result of the credit crunch and the resultant worsening of the
general economic environment. Inevitably this has had an impact on
our portfolio and in particular the valuations. The decline of 13.5p
in the total return is principally accounted for by the decline in
the value of the AIM portfolio (5.7p) and the overall downward
valuation of the unquoted portfolio (7.4p). Disappointingly,
Adrenalin Design Limited has been placed into administration leading
to a full write-down to nil in the valuation of our investment of
�575,000. During the period, one new investment and six follow-on
investments were made totalling nearly �1.1 million. The new
investment of �257,900 was in unquoted company Hydrobolt, with small
follow-on investments in The History Press, The Grill Group, First
Sports Group, Lilestone Holdings and Adrenalin Design, and �371,000
in Promotion Space, supporting its acquisition of a significant
competitor.
Further information on these movements and the holdings in the
portfolio can be found in the Investment Manager's review.
Share Price
At the date of publication, the Company's mid market share price
stood at 90p compared to the previously published NAV of 104.6p and
the current NAV of 92.2p. We hope that as our Fund demonstrates its
ability to deliver sustained growth and regular dividends in the
future, its discount to NAV will narrow longer term.
During the period, the Company issued 407,684 Ordinary shares at a
price of 120.9p, and bought back 403,159 Ordinary shares at a
weighted average price of 96.0p, representing 2% of the issued share
capital prior to the buy back.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager
with advice on the ongoing compliance with Her Majesty's Revenue &
Customs ("HRMC") rules and regulations concerning VCTs. The Board
has been advised that Eclipse 2 is in compliance with the conditions
laid down by HMRC for maintaining approval as a VCT.
A key requirement is for 70% of the portfolio to be invested in
qualifying investments by the end of the third accounting period, and
every accounting period thereafter, following that in which new share
capital was subscribed. As at 31 July 2008, over 77.8% of the
portfolio (according to HMRC regulations) was invested in VCT
qualifying investments, in line with our expectations at this stage
of the Fund's life. The Board is confident of maintaining the
required investment level.
VAT on Management Fees
The Government has recently announced that VCTs will be exempt from
paying VAT on investment management fees with effect from 1 October
2008. This follows a European Court of Justice judgement against the
Government in a case relating to VAT payable by investment trusts.
It is not yet clear to what degree it will be possible to obtain a
repayment of VAT paid on management fees prior to the new measure
taking effect, and we will follow developments with the help of our
advisers. At this stage it is inappropriate to accrue for any
repayment until the picture becomes clearer.
Outlook
The Board's focus is to continue to generate capital growth in the
investee companies in order to pay out a tax-free dividend stream to
shareholders. Whilst short term valuations are indicative of the
tough market conditions, it is important to maintain some
perspective. The Investment Manager has, in line with VCT
requirements, invested in relatively small companies with growth
potential, either through new products or increased market share.
These fundamentals have not changed and most of our unquoted
investments have continued to grow organically and through
acquisition. Difficult market conditions can often present
opportunities for acquisitions or exits. This and the diversified
nature of the portfolio should assist the Manager in achieving its
objective of realising gains in the coming years to support the
continuation of an attractive tax-free dividend profile.
Nevertheless, the Board's visibility on the twelve months ahead is
clearly restricted as a result of the scale of the current world
financial crisis which will have a significant negative impact on
small as well as large businesses unless credit conditions are
improved markedly in the coming months.
Marc Vlessing
Chairman
24 September 2008
Investment Manager's Review
Personal Service
At Octopus, we pride ourselves not only on our team's track record
but also on our personalised customer service. We believe in open
communication and our regular 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 one of the fund managers, please do not hesitate to contact
us on 0800 316 2347.
Portfolio Review
The performance of the Fund over the last year has been mixed. In
the strong Mergers and Acquisitions market, which pertained up until
March 2008, the fund was able to capitalise on two very successful
full realisations, Covion and Gyro and the partial realisation on
float, of Plastics Capital. However, since the beginning of the
current accounting period the overall performance of the portfolio
has been affected by the widely reported weakness in the stock market
and by the performance of some of the portfolio companies in
worsening economic circumstances. Particularly disappointing has
been the loss of our investment in Adrenalin Design totalling
�575,000. Although we believe progress was being made, a number of
management issues were compounded by very weak trading conditions.
The quantum of additional funding required and the uncertainty of
success led us to conclude that follow-on investment was not
appropriate and the Company has gone into administration.
Valuation impairments have been made on a number of unquoted
investments where performance is significantly behind plan including
T4 and The Grill Group. We have also reduced the uplift on Luther
Pendragon to reflect the weaker trading environment. The approach
taken to portfolio valuations, in compliance with EVCA guidelines,
may be viewed as prudent, and we have been cautious in the current
environment about writing up investment values, even where
demonstrable progress has been made by the investee company. A number
of companies including SweetCred, Audio Visual Machines and Promotion
Space have made significant progress, which we would hope to lead to
valuation uplifts in the future. It is our aim to ensure that the
achieved valuations on exit from an investment exceed the carrying
value prior to that exit. Octopus actively works with all investee
companies to ensure value will be added in due course.
The AIM portfolio, whilst only accounting for around 22% of the
investment portfolio by value, has reduced in value over the period
to impact the NAV negatively by around 5.7p per share. The Fund has
been impacted by a profit warning by Tanfield Group, which was one of
the Fund's larger holdings. We invested in Tanfield during May 2005,
and had sold over 50% of the original holding over recent years,
crystallising investment gains of over �722,700 against an original
investment of �130,000. The recent share price fall however has
impacted the NAV by approximately 2.8p over the period. Price falls
in quoted smaller companies have been severe (the FTSE AIM All Share
index and the FTSE Small Cap index have fallen 15.1% and 11.8%
respectively over the period under review), and due to the
illiquidity of some of the stocks, this has compounded the problem.
Whilst the economic outlook remains of concern, a large number of the
companies in the AIM portfolio are established, profitable companies,
which should not need to rely on access to further funding.
Furthermore, many of the AIM investments are engaged in business
activities that have demonstrated robust pricing power and will not
be reliant on the ebb and flow of the wider economy. With this in
mind, we remain confident about the longer-term prospects of many of
the underlying AIM holdings within the portfolio. Disappointingly,
however, Myhome International plc went into administration on 3
September 2008 and this effectively vales our holding at �nil (31
July 2008: �17,000). The underlying businesses that the franchisees
contract with are not subject to insolvency proceedings and shall
continue to operate whilst the administrators explore the strategic
options for the group.
The portfolio is spread across a wide range of sectors to give the
Fund a broad exposure to the UK economy. However, in line with the
concentration of deal flow over the last three years, a proportion of
the Fund is invested in consumer facing companies or other businesses
that may be susceptible to an economic downturn. To mitigate the risk
of such a downturn we regularly review performance and the outlook
for each investment so that early action can be taken if there is any
impact on these companies. In many cases this includes asking the
management teams to consider, in advance, plans to counter the
impact.
%
equity
held by
Carrying Change in % all
value at valuation equity funds
Investment Unrealised 31 July in the held by managed
Unquoted at cost profit/(loss) 2008 period Eclipse by
investments ('�000) (�'000) (�'000) (�'000) 2 VCT Octopus
Luther
Pendragon
Limited 1,000 234 1,234 (486) 17.5% 35.0%
The History
Press Limited 1,071 - 1,071 - 9.7% 60.0%
Perfect Pizza
Limited 800 - 800 - 10.5% 34.3%
CSL DualCom
Limited 589 124 713 84 7.3% 45.8%
Sweet Cred
Holdings
Limited 688 - 688 - 3.1% 24.5%
The Grill
Group Limited 1,042 (647) 395 (647) 8.0% 51.6%
Promotion
Space Limited 655 - 655 - 4.7% 38.0%
Audio Visual
Machines
Limited 454 138 592 138 6.9% 43.1%
The Kendal
Group Limited 576 - 576 - 5.7% 16.0%
First Sports
Group Limited 1,135 (585) 550 - 18.5% 40.0%
Lilestone
Holdings
Limited 811 - 811 289 6.7% 18.0%
Tristar
Worldwide
Limited 446 - 446 - 4.5% 35.0%
T4 Holdings
Limited 659 (228) 431 (228) 7.3% 41.7%
The Capital
Pub Company 2
plc 349 (77) 272 (77) 2.1% 8.2%
Hydrobolt
Limited 258 - 258 - 3.0% 48.1%
BDA
International
Limited 173 - 173 - 3.4% 33.4%
Blanc
Brasseries
Limited 62 (31) 31 (31) 0.7% 3.3%
Adrenalin
Design
Limited 575 (575) - (438) 6.7% 42.9%
Red-M Group
Limited 300 (300) - - 2.2% 9.3%
Total
unquoted
investments 11,643 (1,947) 9,696 (1,396)
AIM-quoted
investments
Plastics
Capital plc 1,068 (267) 801 (214) 4.0% 12.7%
CBG Group plc 312 33 345 15 1.6% 13.7%
Hexagon Human
Capital plc 431 (99) 332 (116) 1.7% 8.5%
Healthcare
Locums plc 151 125 276 57 0.3% 1.9%
Pressure
Technologies
plc 137 108 245 69 0.8% 5.3%
Interquest
plc 171 - 171 (87) 1.0% 5.9%
Hasgrove plc 200 (38) 162 (38) 0.8% 7.7%
Cohort plc 85 44 129 16 0.2% 2.5%
Brulines
(Holdings)
plc 93 19 112 6 0.3% 2.6%
Concateno plc 61 44 105 16 0.1% 0.5%
Northern Bear
plc 200 (101) 99 (46) 0.7% 7.6%
Cantono plc 300 (201) 99 (21) 1.0% 9.9%
Autoclenz plc 206 (145) 61 (21) 1.6% 12.8%
Vertu Motors
plc 150 (93) 57 (18) 0.3% 3.2%
Tanfield
Group plc 132 (79) 53 (542) 0.2% 2.8%
Invocas plc 50 (18) 32 (4) 0.2% 1.3%
Optimisa plc 91 (66) 25 (50) 0.5% 5.3%
Myhome
International
plc 250 (233) 17 (97) 0.6% 6.3%
Total
AIM-quoted
investments 4,088 (967) 3,121 (1,074)
Total
investments 15,731 (2,914) 12,817 (2,470)
Review of Investments
At 31 July 2008, the Eclipse 2 portfolio comprised investments in 19
unquoted and 18 AIM-quoted companies. The unquoted investments are
in ordinary shares with full voting rights as well as loan note
securities. The AIM-quoted investments are in ordinary shares also
with full voting rights.
During the period the portfolio did not give rise to any disposals.
New Investments
During the period, the Fund made one new investment:
Hydrobolt Limited
Investment date: April 2008
Cost: �257,879 (ordinary shares and loan
notes)
Valuation: �257,879
Eclipse 2 invested in the management buy-out of Hydrobolt Limited in
April 2008 as part of �3.5 million investment across all the Eclipse
funds. Hydrobolt is a specialist manufacturer of high integrity
fasteners for the oil & gas and energy sectors. The business has
progressed well since investment, with sales year to date of over 20%
ahead of prior year.
In addition to the new investment noted above, the Company has made
follow-on investments in another six of the unquoted portfolio
companies as follows:
* Promotion Space Limited - In April 2008 Eclipse 2 invested
�371,000 as part of a �2.75 million round from Octopus managed
funds, to finance the acquisition of BrandSpace Limited.
Together with the acquisition of Fitting Exposure in 2007,
Promotion Space has now become the UK's leading arranger of
promotional activities in UK shopping centres.
* Lilestone Holdings Limited, The History Press Limited, Adrenalin
Design Limited, The Grill Group Limited and First Sports Group
Limited, in each case to support the working capital needs of the
company
Recent Investments
Since the end of the period under review, the Fund has invested a
further �50,000 by way of guarantee in The Grill Group Limited.
If you have any questions on any aspect of your investment, please
call one of the team on 0800 316 2347.
Simon Rogerson
Chief Executive
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has
been approved by, the Directors. The Directors confirm that to the
best of their knowledge the half-yearly financial report has been
prepared in accordance with the Disclosure and Transparency rules and
in accordance with applicable accounting standards, and includes a
fair review of the information required by DTR 4.2.7R of the
Disclosure and Transparency rules, being an indication of important
events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial
statements.
Principal Risks and Uncertainties
The Company's assets consist of equity and fixed interest
investments, cash and liquid resources. Its principal risks are
therefore market risk, credit risk and liquidity risk. Other risks
faced by the Company include economic, loss of approval as a Venture
Capital Trust, investment and strategic, regulatory, reputational,
operational and financial risks. These risks, and the way in which
they are managed, are described in more detail in the Company's
Annual Report and Accounts for the year ended 31 January 2008. The
Company's principal risks and uncertainties have not changed
materially since the date of that report.
Related Party Transactions
Octopus Investments Limited acts as the investment manager of the
Company. Octopus also provides the provision of secretarial and
administrative services to the Company. Under the management
agreement, Octopus receives a fee of 2.0 per cent per annum of the
net assets of the Company for the investment management services.
This is described in more detail under Note 17 in the Annual Report
and Accounts for the year ended 31 January 2008. During the period,
the Company incurred management fees of �256,000, including VAT at
the applicable rate, payable to Octopus. At the period end there was
�nil outstanding to Octopus.
Profit and Loss Account
Six months to 31 July Six months to 31 July
2008 2007 Year to 31 January 2008
Revenue Capital Total Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
Gain on
disposal of
fixed asset
investments - - - - 415 415 - 1,334 1,334
(Loss)/gain on
disposal of
current asset
investments - - - - (3) (3) - 5 5
(Loss)/gain on
valuation of
fixed asset
investments - (2,470) (2,470) - 1,078 1,078 - (1,389) (1,389)
(Loss)/gain on
valuation of
current asset
investments - (16) (16) - 18 18 - 13 13
Income 239 - 239 240 - 240 630 - 630
Investment
management fees (64) (192) (256) (63) (188) (251) (127) (379) (506)
Other expenses (128) - (128) (188) - (188) (335) - (335)
Profit/(loss)
on ordinary
activities
before tax 47 (2,678) (2,631) (11) 1,320 1,309 168 (416) (248)
Taxation on
profit on
ordinary
activities - - - - - - -
Profit/(loss)
on ordinary
activities
after tax 47 (2,678) (2,631) (11) 1,320 1,309 168 (416) (248)
Earnings/(loss)
per share -
basic and
diluted 0.3p (14.0)p (13.7)p (0.1)p 7.1p 7.0p 0.9p (2.2)p (1.3)p
* the 'Total' column of this statement is the profit
and loss account of the Company; the supplementary revenue return
and capital return columns have been prepared under guidance
published by the Association of Investment Companies
* 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 shares and securities
and from bank and money market funds
The Company has no recognised gains or losses other than the results
for the period as set out above.
Reconciliation of Movements in Shareholders' Funds
Six months Six months
ended 31 July ended 31 July Year to 31
2008 2007 January 2008
�'000 �'000 �'000
Shareholders' funds at start
of period 20,928 21,537 21,537
(Loss)/profit for the period (2,631) 1,309 (248)
Net proceeds of share issue 468 - 417
Cancellation of own shares (387) (15) (35)
Dividends paid (952) (186) (743)
Shareholders' funds at end
of period 17,426 22,645 20,928
Balance Sheet
As at 31 July As at 31
As at 31 July 2008 2007 January 2008
�'000 �'000 �'000 �'000 �'000 �'000
Fixed asset investments 12,817 15,816 14,226
Current assets:
Investments - money
market securities 4,610 6,757 5,924
Debtors 45 100 875
Cash at bank 107 13 500
4,762 6,870 7,299
Creditors: amounts
falling due within one
year (153) (41) (597)
Net current assets 4,609 6,829 6,702
Net assets 17,426 22,645 20,928
Called up equity share
capital 1,891 1,857 1,890
Share premium account 808 - 381
Special distributable
reserve 15,386 15,792 15,773
Capital redemption
reserve 45 3 5
Revaluation reserve (2,935) 3,402 (449)
Profit and loss account 2,231 1,591 3,328
Total equity
shareholders' funds 17,426 22,645 20,928
Net asset value per
share 92.2p 121.9p 110.7p
Cash flow statement
Six months
to Six months to Year to 31
31 July 2008 31 July 2007 January 2008
�'000 �'000 �'000
Net cash inflow/(outflow)
from operating activities 242 78 (638)
Financial investment :
Purchase of investments (1,071) (2,025) (7,667)
Sale of investments 8 3,205 8,891
Management of liquid
resources :
Net purchase of money market
securities (1,330) (1,956) (1,122)
Dividends paid (952) (186) (743)
Financing :
Issue of own shares 487 - 437
Received for shares to be
issued - - 487
Share issue expenses (19) - (22)
Repurchase of own shares (387) (15) (35)
Decrease in cash resources (3,022) (899) (412)
Reconciliation of net cash flow to movement in liquid resources
Six months to 31 Six months to Year to 31
July 2008 31 July 2007 January 2008
�'000 �'000 �'000
Decrease in cash
resources (3,022) (899) (412)
Increase in liquid
resources 1,314 1,972 1,139
Opening net cash
resources 6,424 5,697 5,697
Net cash at 31 July/31
January 4,716 6,770 6,424
Reconciliation of operating profit before taxation to cash flow from
operating activities
Six months to Six months to Year to 31
31 July 2008 31 July 2007 January 2008
�'000 �'000 �'000
(Loss)/profit on ordinary
activities before tax (2,631) 1,309 (248)
Decrease/(increase) in
debtors 830 258 (517)
(Decrease)/increase in
creditors (443) 19 90
Gain on realisation of
investments - (412) (1,339)
Loss/(gain) on valuation of
investments 2,486 (1,096) 1,376
Inflow/(outflow) from
operating activities 242 78 (638)
Notes to the Interim Financial Statements
1. Basis of preparation
The unaudited interim results which cover the six months to 31 July
2008 have been prepared in accordance with applicable accounting
standards in the United Kingdom, to include a Profit and Loss
Account, Reconciliation of Movements in Shareholders' Funds, Balance
Sheet and Cash Flow Statement. Investment company status was revoked
on 24 July 2007.
2. Publication of non-statutory accounts
The unaudited interim results for the six months ended 31 July 2008
do not constitute statutory accounts within the meaning of Section
240 of the Companies Act 1985 and have not been delivered to the
Registrar of Companies. The comparative figures for the year ended
31 January 2008 have been extracted from the audited financial
statements for that year, which have been delivered to the Registrar
of Companies. The independent auditor's report on those financial
statements under Section 235 of the Companies Act 1985 was
unqualified. This half-yearly report has not been reviewed by the
Company's auditor.
3. Earnings per share
The earnings/(/oss) per share at 31 July 2008 is based on a
(loss)/profit from ordinary activities after tax of �(2,631,000) and
on 19,191,116 shares (31 January 2008: �(248,000) and 18,657,430
shares and 31 July 2007: �1,309,000 and 18,580,785 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.
4. Net asset value per share
The calculation of net asset value per share is based on the net
assets at 31 July 2008 and on 18,906,826 shares being the number of
shares in issue at the same date (31 January 2008: 18,902,301 and 31
July 2007: 18,569,454).
5. Dividends
The interim dividend of 3.0 pence per share for the six months ending
31 July 2008 will be paid on 31 October 2008 to shareholders on
register at the close of business on 3 October 2008. A final
dividend of 5.0 pence per share, relating to the year ended 31
January 2008, was paid on 25 July 2008 to shareholders on the
register on 4 July 2008.
6. During the six months ended 31 July 2008 the Company
issued 407,684 ordinary shares of 10 pence each at a price of 120.9
pence per share. The Company bought back 403,159 shares at a weighted
average price of 96.0p per share during the same period.
7. Copies of this statement are being sent to all
shareholders. Copies are also available from the registered office of
the Company at 8 Angel Court, London, EC2R 7HP, and will also be
available to view on the Investment Manager's website at
www.octopusinvestments.com.
ENDS.
- ---END OF MESSAGE---
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