Final Results
Eclipse VCT 2 plc
Annual Report & Accounts for the year ended 31 January 2008
About Eclipse VCT 2 plc
Eclipse VCT 2 plc ("Eclipse 2" or "Company") is a venture capital
trust ("VCT") which aims to provide shareholders with attractive
tax-free dividends and long-term capital growth, by investing in a
diverse portfolio of unquoted and AIM-quoted companies. The Company
is managed by Octopus Investments Limited ("Octopus" or "Manager").
Eclipse 2 was launched in January 2005 and raised over �18.4 million
(�17.7 million net of expenses) through an offer for subscription.
The Company co-invests with other funds managed by Octopus. This
allows Eclipse 2 to invest in a wider range of opportunities and in
larger and more developed companies than are typically available to a
single VCT.
Financial Highlights
+-------------------------------------------------------------------+
| | Year to 31 | Year to 31 |
| | January 2008 | January 2007 |
|-------------------------------------+--------------+--------------|
| | | |
|-------------------------------------+--------------+--------------|
| Net assets (�'000s) | 20,928 | 21,537 |
|-------------------------------------+--------------+--------------|
| Net return after tax (�'000s) | (248) | 4,119 |
|-------------------------------------+--------------+--------------|
| Net asset value per share ("NAV") | 110.7p | 115.9p |
|-------------------------------------+--------------+--------------|
| Proposed dividend per share | 5.0p | 1.00p |
|-------------------------------------+--------------+--------------|
| Cumulative dividends since launch - | 10.25p | 2.25p |
| paid and proposed | | |
+-------------------------------------------------------------------+
The table below shows the movement in NAV per share and lists the
dividends that have been paid since the launch of Eclipse 2:
+-------------------------------------------------------------------+
| | | Dividends paid | NAV + cumulative |
| Period Ended | NAV | in period | dividends |
|-----------------+--------+----------------+-----------------------|
| 31 July 2005 | 94.9p | - | 94.9p |
|-----------------+--------+----------------+-----------------------|
| 31 January 2006 | 95.0p | - | 95.0p |
|-----------------+--------+----------------+-----------------------|
| 31 July 2006 | 95.2p | 1.25p | 96.45p |
|-----------------+--------+----------------+-----------------------|
| 31 January 2007 | 115.9p | - | 117.15p |
|-----------------+--------+----------------+-----------------------|
| 31 July 2007 | 121.9p | 1.00p | 124.15p |
|-----------------+--------+----------------+-----------------------|
| 31 January 2008 | 110.7p | 3.00p | 115.95p |
+-------------------------------------------------------------------+
Chairman's Statement
I am pleased to present to you the annual report for Eclipse VCT 2
plc for the year ended 31 January 2008.
Results Review
In the year to 31 January 2008, the total return (being the NAV plus
dividends paid out to shareholders) decreased from 117.15p to 115.95p
and the NAV per share decreased from 115.9p to 110.7p net of
dividends. In an increasingly volatile economic environment, there
was a risk of a larger decline in asset values. However, the
Investment Manager was successful in crystallising gains of over �4.2
million during the year from the disposal, either wholly or
partially, of a number of investments. This has meant that at the
year end cash accounted for over 30% of the net asset value. Further
details are included within the Investment Manager's Review including
a review of the performance of the investments.
The Board's strategy is to maintain an appropriate level of
liquidity in the balance sheet to achieve four aims:
* to take advantage of new investment opportunities as they arise;
* to support further investment in existing portfolio companies if
required;
* to assist liquidity in the shares through the buy back facility,
and
* to support a maintainable dividend flow
Consequently, the Board has proposed a final dividend of 5.0p per
share to be paid on 25 July 2008 to shareholders on the register on 4
July 2008. This will take cumulative dividends to 10.25p per share
since the Fund's launch and 8.0p for the year. The total return to
shareholders, before payment of this dividend, is 16.8%, before
taking into account the 40% upfront tax relief received by initial
subscribers.
Investment Portfolio
During the year, thirteen new investments were made and six
investments were fully disposed of. New investments totalled over
�5.5 million in seven unquoted companies and six AIM-quoted
companies, with over �1.0 million in follow-on investments. Of
particular significance were the exits from our investments in
Worthington Nicholls plc, James Harvard International Limited, Covion
Limited and Gyro International Limited and the flotation of Plastics
Capital Limited. As well as the full disposals, profits were also
taken in Tanfield Group plc.
On a less positive note fair value adjustments have resulted in
decreases in the value of the investments in Adrenalin Design Limited
and Lilestone Holdings Limited, and further fair value adjustments
have been made in First Sports Group Limited and Red-M Limited,
writing the value of this latter investment down to a fair value of
nil. Octopus considers these fair value adjustments, totalling an
additional �976,500 in the course of the year, to be prudent, based
on underperformance against the respective investment plans. A loss
of �631,000 was also taken on NPI Media Group Limited which was sold
out of administration to a new vehicle, The History Press Limited, in
which the fund has a continuing interest. Further information on all
the holdings in the portfolio can be found in the Investment
Manager's Review.
Share Price
Eclipse 2's mid-market share price currently stands at 87p compared
to its NAV of 110.7p. The discount to NAV is primarily due to the
low level of secondary market activity in Eclipse 2 shares, which is
a common feature of the VCT market. We hope this will change longer
term, by VCT funds, generally, delivering sustained growth and
regular dividends. Details of share issued and bought back in the
year can be found in the Directors' Report commencing on page 18.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager
with advice on the ongoing compliance with Her Majesty's Revenue &
Customs ("HMRC") rules and regulations concerning VCTs. The Board
has been advised that Eclipse VCT 2 plc is in compliance with the
conditions laid down by HMRC for maintaining approval as a VCT.
A key requirement was for 70% of the portfolio to be invested in
qualifying investments by the end of the third accounting period
following that in which new share capital was subscribed. As at 31
January 2008, which was the end of the third accounting period, over
83% of the portfolio (as measured by HMRC rules) was invested in VCT
qualifying investments, in line with our expectations at this stage
of the Fund's life. There is an ongoing requirement to maintain the
level of qualifying investments above the 70% threshold which will be
supported by continuing deal flow from the Investment Manager.
Outlook
In what has been a difficult period for stock markets generally, and
in particular smaller companies, your Board continues to seek a
balanced portfolio of investments in smaller, developing companies,
which should provide attractive returns to investors with a medium to
long-term horizon. Eclipse 2's investment strategy remains focused on
the delivery of absolute returns and a regular tax-free dividend
stream for investors and whilst the unquoted investment portfolio
will not be immune to the wider impact of the credit crunch, the
Board does consider that this portfolio is well positioned to benefit
from any improvement in the overall financial climate.
Marc Vlessing
Chairman
15 May 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 020 7710 2800.
Portfolio Review
Despite the decline in net assets over the year, in the context of
the current economic environment we are pleased to report on
encouraging progress and new investments across the portfolio.
During the year to 31 January 2008, �6.6 million was invested in
thirteen new and six follow-on investments. This takes the total
amount currently invested by Eclipse 2 in unquoted and AIM-quoted
investments to over �14.6 million. The remaining funds are invested
in money market securities awaiting investment in suitable qualifying
opportunities and follow-on investments.
Investment Portfolio
+----------------------------------------------------------------------------------------------------------------+
| | | | | | | Carrying| | | | |
| | | | | | | value at| | | | |
|Unquoted | |Investment| | Unrealised| |31 January| | % equity| | % equity held by all|
|Qualifying | | at cost| |profit/(loss)| | 2008| | held by| | funds managed by|
|Investments |Sector | (�'000)| | (�'000)| | (�'000)| |Eclipse 2| | Octopus|
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Luther Pendragon|Media & Marketing | 1,000| | 720| | 1,720| | 17.5%| | 35.0%|
|Limited |Services | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|The History | | 1,027| | -| | 1,027| | 9.7%| | 63.0%|
|Press Limited |Publishing | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|The Grill Group | | 992| | -| | 992| | 8.0%| | 51.6%|
|Limited |Leisure & Hotels | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Perfect Pizza | | 800| | -| | 800| | 10.5%| | 34.3%|
|Limited |Leisure & Hotels | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Sweet Cred | | 687| | -| | 687| | 3.1%| | 24.5%|
|Holdings Limited|Consumer Products | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|T4 Holdings |Media & Marketing | 659| | -| | 659| | 7.3%| | 41.7%|
|Limited |Services | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|CSL DualCom |Technology & | 589| | 40| | 629| | 7.3%| | 45.8%|
|Limited |Telecommunications| | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|The Kendal Group| | 576| | -| | 576| | 5.7%| | 15.9%|
|Limited |Consumer Products | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Audio Visual |Technology & | 455| | -| | 455| | 7.2%| | 45.0%|
|Machines Limited|Telecommunications| | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Tristar | | 446| | -| | 446| | 4.5%| | 36.0%|
|Worldwide | | | | | | | | | | |
|Limited |Transport Services| | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Adrenalin Design| | 550| | (137)| | 413| | 6.7%| | 42.9%|
|Limited |Consumer Products | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|First Sports | | 985| | (585)| | 400| | 18.5%| | 40.0%|
|Group Limited |General Retailers | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Lilestone | | 653| | (289)| | 364| | 7.6%| | 20.4%|
|Holdings Limited|Consumer Products | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|The Capital Pub | | 350| | -| | 350| | 2.1%| | 8.2%|
|Company 2 plc |Leisure & Hotels | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Promotion Space |Media & Marketing | 284| | -| | 284| | 3.6%| | 28.3%|
|Limited |Services | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Bruce Dunlop | | 172| | -| | 172| | 2.0%| | 33.3%|
|Associates |Media & Marketing | | | | | | | | | |
|Limited |Services | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Blanc Brasseries| | 62| | -| | 62| | 0.7%| | 3.3%|
|Limited |Leisure & Hotels | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Red-M Group |Technology & | 300| | (300)| | -| | 2.2%| | 9.3%|
|Limited |Telecommunications| | | | | | | | | |
|-----------------------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Total unquoted qualifying | 10,587| | (551)| | 10,036| | | | |
|investments | | | | | | | | | |
|-----------------------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
| | | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|AIM-quoted | | | | | | | | | | |
|Qualifying | | | | | | | | | | |
|Investments | | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Plastics Capital| | 1,067| | (53)| | 1,014| | 4.0%| | 12.7%|
|plc |Engineering | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Tanfield Group | | 120| | 453| | 573| | 0.2%| | 2.7%|
|plc |Engineering | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Hexagon Human | | 431| | 17| | 448| | 1.7%| | 11.5%|
|Capital plc |Recruitment | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|CBG Group plc |Financial Services| 310| | 17| | 327| | 1.6%| | 14.2%|
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Interquest plc |Recruitment | 171| | 86| | 257| | 1.0%| | 4.2%|
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Healthcare | | 150| | 68| | 218| | 0.3%| | 0.9%|
|Locums plc |Recruitment | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
| |Media & Marketing | 200| | -| | 200| | 0.8%| | 7.9%|
|Hasgrove plc |Services | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Pressure | | 135| | 39| | 174| | 0.8%| | 5.3%|
|Technologies plc|Engineering | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Northern Bear |Construction & | 200| | (55)| | 145| | 0.8%| | 8.4%|
|plc |Materials | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
| |Technology & | 300| | (180)| | 120| | 1.0%| | 9.8%|
|Cantono plc |Telecommunications| | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Myhome | | 250| | (135)| | 115| | 0.5%| | 6.2%|
|International | | | | | | | | | | |
|plc |Support Services | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Cohort plc |Engineering | 85| | 27| | 112| | 0.2%| | 2.2%|
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Brulines | | 92| | 13| | 105| | 0.3%| | 2.6%|
|(Holdings) plc |Support Services | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Concateno plc |Support Services | 60| | 28| | 88| | 0.1%| | 0.5%|
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Autoclenz plc |Support Services | 206| | (123)| | 83| | 1.6%| | 12.8%|
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
| |Media & Marketing | 91| | (15)| | 76| | 0.5%| | 5.3%|
|Optimisa plc |Services | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Vertu Motors plc|General Retailers | 150| | (75)| | 75| | 0.3%| | 3.2%|
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Invocas plc |Financial Services| 50| | (15)| | 35| | 0.2%| | 1.3%|
|-----------------------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Total AIM-quoted qualifying | 4,068| | 97| | 4,165| | | | |
|investments | | | | | | | | | |
|-----------------------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Non-qualifying AIM-quoted | 15| | 10| | 25| | | | |
|investments | | | | | | | | | |
|-----------------------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Non-qualifying unquoted investments| 1| | -| | 1| | | | |
|-----------------------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Total non-qualifying investments | 16| | 10| | 26| | | | |
|-----------------------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Fixed income | | 5,929| | (5)| | 5,924| | | | |
|securities | | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Total | | 20,600| | (449)| | 20,151| | | | |
|investments | | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Net current | | | | | | 777| | | | |
|assets | | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+----------+-+---------+-+----------------------|
|Total net assets| | | | | | 20,928| | | | |
+----------------------------------------------------------------------------------------------------------------+
Review of Investments
At 31 January 2008, the Eclipse 2 qualifying portfolio comprised
investments in 18 unquoted and 18 AIM-quoted companies. The unquoted
investments are in ordinary shares with full voting rights as well as
loan notes and other securities. The AIM-quoted investments are in
ordinary shares, also with full voting rights.
Disposals
During the year, the Fund crystallised a profit of over �4.2 million
from realisations of investments. Six investments were disposed of
in their entirety; BBI Holdings plc, Worthington Nicholls plc, Covion
Limited, Gyro International Limited, James Harvard Limited and NPI
Media Group Limited, crystallising a profit of over �2.7 million.
The Fund's investment in AIM quoted companies Worthington Nicholls
plc and BBI Holdings plc generated returns of 130% and 99%
respectively. Unquoted companies, Covion Limited, James Harvard
International Limited, and Gyro International Limited were also
significant successes generating returns of 301%, 133% and 88%
respectively. Modest additional proceeds may be received in each
case over the next three years as a result of the terms on which each
investment was exited. In addition, partial realisations from the
sale of shares in Tanfield Group plc crystallised a further �596,000
of profit for the Fund. Eclipse 2 still owns shares in Tanfield with
a book cost of �120,000 and a valuation as at 31 January 2008 of
�573,000.
However the investment in NPI Media Group Limited was disposed of at
a loss to a new vehicle, The History Press Limited. The value at
which the transaction took place was considered prudent and, in due
course, a recovery of the investment value may occur through the
progress made by The History Press.
Finally, there was a successful flotation of Plastics Capital in
December 2007, through which the Fund's investment in loan notes was
redeemed. The flotation crystallised a profit for the Fund of
�878,000, representing a return of 87%. Other Octopus funds invested
at the time of the flotation. On AIM we expect this company to
continue its acquisition strategy, which we believe will generate
long term growth in value of the company and therefore the Fund's
investment.
A summary of these realisations is shown below:
+--------------------------------------------------------------------+
| | | Cost of| | |
| | Initial|investment|Proceeds of| Total|
| | investment| realised| investment|gain/(loss)|
|Realisations | date| (�'000)| (�'000)| (�'000)|
|--------------------+------------+----------+-----------+-----------|
|James Harvard | | 1,000| 2,331| 1,331|
|International | November| | | |
|Limited | 2005| | | |
|--------------------+------------+----------+-----------+-----------|
|Covion Limited | May 2005| 429| 1,718| 1,289|
|--------------------+------------+----------+-----------+-----------|
|Plastics Capital | November| 1,194| 2,072| 878|
|Limited | 2005| | | |
|--------------------+------------+----------+-----------+-----------|
|Tanfield Group plc | May 2005| 80| 676| 596|
|--------------------+------------+----------+-----------+-----------|
|Gyro International | | 451| 847| 396|
|Limited |October 2006| | | |
|--------------------+------------+----------+-----------+-----------|
|Worthington Nicholls| | 243| 558| 315|
|plc | June 2006| | | |
|--------------------+------------+----------+-----------+-----------|
|BBI Holdings plc | May 2006| 53| 106| 53|
|--------------------+------------+----------+-----------+-----------|
|NPI Media Group | | 1,215| 584| (631)|
|Limited |January 2007| | | |
|--------------------+------------+----------+-----------+-----------|
| | | 4,665| 8,892| 4,227|
+--------------------------------------------------------------------+
New Investments
During the year, Eclipse 2 made thirteen new investments and six
follow on investments. Details of these new investments are set out
below:
Unquoted investments
Sweet Cred Holdings Limited
Investment date: March 2007
Cost: �410,000 with a follow-on investment
of �277,485 (ordinary shares and loan notes)
Valuation: �687,485
Sweet Cred sells a wide range of products which combine sweets with
toys that are themed around the five cartoon characters in the Sweet
Cred gang. The range is sold through distribution partners in Europe,
the US and the Middle East. In the UK, distribution is through the
main wholesalers and retail distribution through the major multiple
retailers, motorway service stations and leading toyshop chains. In
March 2007 Octopus committed �5 million to fund working capital
relating to the orders pipeline. �3 million was drawn down at
completion and the balance of �2 million was invested on 31 January
2008 after the Company had been able to demonstrate significant
progress against its business plan.
Promotion Space Limited
Investment date: April 2007
Cost: �201,894 with a follow-on investment
of �81,701 (ordinary shares and loan notes)
Valuation: �283,595
Promotion Space works directly with major brands who wish to access
consumers in shopping centres. It also works with shopping centres to
generate revenue by organising promotional activities. Octopus
provided �1.5 million of funds to develop a Retail Merchandising Unit
business within major shopping centres and also to follow a buy and
build strategy. Octopus provided a further �0.6 million in November
2007 to facilitate the first acquisition of the buy and build
strategy, Fitting Exposure, the UK market leader in changing room
advertising media.
T4 Holdings Limited
Investment date: August 2007
Cost: �659,330 (ordinary shares and loan
notes)
Valuation: �659,330
T4 is based in London and, through subsidiaries Ad Barriers and Ad
Gates, is the leading provider of advertising solutions on railway
station gates and car park ticket equipment. It has benefited from
the expansion in number of railway station gates in recent years and
increasing passenger numbers. T4 provides solutions to a broad range
of brands including Visa, Marks & Spencer, O2 and 3 Mobile.
The Grill Group Limited
Investment date: September 2007
Cost: �991,750 (ordinary shares and loan
notes)
Valuation: �991,750
The Grill Group has three restaurant brands: Smollensky's, with nine
Bar & Grill and Burgershack sites in London, and the Le Frog Bistros
and Pastiche with eight restaurants in the North West and Midlands.
In September 2007, Octopus committed �6 million to fund the
acquisition of the Smollensky's chain of restaurants by The Shire
Group which owned the Le Frog Bistros and Pastiche chains. The
investment strategy includes the operational turnaround of
Smollensky's, followed by the roll-out of the Smollensky's and Le
Frog restaurant brands.
The History Press Limited
Investment date: December 2007
Cost: �1,026,795 (ordinary shares and loan
notes)
Valuation: �1,026,795
The History Press was incorporated in order to buy the assets of NPI
Media Limited which had been placed into administration. It is the UK
market leading publisher of distinctive 'local interest' history
books. The company is based in Stroud with subsidiary operations in
France, Germany, Ireland and the US.
Bruce Dunlop Associates Limited
Investment date: December 2007
Cost: �172,728 (ordinary shares and loan
notes)
Valuation: �172,728
Bruce Dunlop Associates provides promotion and design services to
broadcasters and advertisers worldwide and also creates brand films
and internal communications for leading UK corporations, including
Hallmark, Barclays, Discovery and Sony. The company operates from
offices in London, Munich, Dubai, Singapore and Sydney.
Tristar Worldwide Limited
Investment date: January 2008
Cost: �446,304 (ordinary shares and loan
notes)
Valuation: �446,304
Tristar is one of the world's leading chauffeur companies, carrying
over 400,000 passengers for 400 clients in 2007 alone. The business
operates in 44 countries with its own vehicles in the UK and a
rapidly expanding service in the US. It has a blue chip customer base
which includes Virgin, Emirates, BP, Goldman Sachs and Merrill Lynch.
In addition to the new investments and the follow-on investment in
Sweet Cred Holdings Limited and Promotion Space Limited noted above,
the Company has made follow-on investments in another five of the
unquoted portfolio companies. These include an investment of
�260,406 in NPI Media Limited, which has subsequently been sold to
The History Press Limited and �394,796 into Plastics Capital Limited,
prior to its flotation on AIM. The Company has also invested further
sums in Lilestone Holdings Limited (�186,525), CSL DualCom Limited
(�74,984) and Perfect Pizza Limited (�125,002).
AIM-quoted investments
CBG Group plc
Investment date: June 2007
Cost: �309,850
Valuation: �327,430
Based in Manchester, CBG Group is a corporate general insurance, risk
management and financial services intermediary. The company offers a
range of services principally in the area of Commercial Insurance,
Business Risk Management, Healthcare and Employee Benefits. We
expect the company to continue to acquire further businesses in the
North-West of England.
Pressure Technologies plc
Investment date: July 2007
Cost: �135,000
Valuation: �173,700
Pressure Technologies is the holding company of Chesterfield Special
Cylinders ("CSC"). CSC designs, manufactures and offers testing and
refurbishment services for a range of speciality high pressure,
seamless steel gas cylinders for global energy and defence markets.
Northern Bear plc
Investment date: August 2007
Cost: �200,100
Valuation: �144,800
Northern Bear is a building services group based in North East
England. It provides central strategic and financial functions for a
group of otherwise autonomous companies, each of which provides
products and/or services to the construction industry and house
builders. We expect the company to complete further acquisitions
over the next twelve months.
Cantono plc
Investment date: August 2007
Cost: �300,000
Valuation: �120,000
Cantono is a provider of Managed IT Services and hosting solutions
for small to medium sized organisations. Its typical client has from
100 -1,000 users. Cantono provides a range of services from
individual applications to fully managed IT environments. Cantono's
services are backed by robust service level agreements, expert
technicians, and a high level of customer service.
Optimisa plc
Investment date: October 2007
Cost: �91,000
Valuation: �75,600
Optimisa plc provides market research and consultancy services.
Recently Optimisa completed the earnings enhancing acquisition of EQ
Group, a business operating in a similar sector. Historically
Optimisa and EQ have competed for contracts and we expect the larger
and more diversified group to exploit a number of synergies and cross
selling opportunities.
Myhome International plc
Investment date: November 2007
Cost: �250,000
Valuation: �114,583
Myhome is an acquisitive national franchise group. The company has
become a market leader in the growing sector of residential cleaning
under the brand of Myhome, and has extended its offering by rolling
out other franchises including electrical, plumbing and cleaning
services. In June 2006 the company acquired Ovenclean, the UK's
leading domestic oven cleaning franchise with a ten year growth
history and over 165 franchisees. More recently Myhome completed the
acquisition of ChipsAway, a mobile service delivered to customers'
homes and offices, repairing scratches, chips and other minor damage
to car paintwork using proprietary technology. Myhome which is
currently capitalised at �11.3 million is expected to make a profit
before tax of �3.6 million on a turnover of �16.2 million for the
year to 30 September 2008.
Ten Largest Holdings
Listed below are the ten largest investments by value as at 31
January 2008:
Luther Pendragon Limited
Luther Pendragon is a Public Relations agency focusing on issues and
crisis management. The company provides mission critical advice to a
wide range of public sector and blue chip private sector clients on
media relations, government relations and public affairs to help them
protect and enhance their reputation and business interests. Luther
Pendragon also provides stand-alone services such as media training,
crisis simulation exercises and presentation skills training. Since
our original investment, the company has performed well and has
repaid a significant proportion of the acquisition debt. This has
been the main driver of the increase in the carrying value of the
investment.
Initial investment date: November 2005
Cost: �1,000,000
Valuation: �1,720,000
Valuation basis: Earnings
Equity held: 17.5%
Last audited accounts: 31 December 2006
Profit before interest & tax: �1.4 million
Net assets: �4.1 million
The History Press Limited
The History Press was incorporated in order to buy the assets of NPI
Media Limited which had been placed in administration. It is the UK
market leading publisher of distinctive 'local interest' history
books. In December 2007 Eclipse 2 invested �1 million, as part of a
�4 million investment by Octopus funds, into a new vehicle, The
History Press Limited, set up to acquire NPI through a restructuring
process. NPI had performed poorly since the initial investment and
had been particularly impacted by its printing operations. Through
the restructuring process, initiated by Octopus, The History Press
only acquired the publishing assets from NPI and we believe that this
will make a more robust and exciting investment for the future.
Through the new investment, Eclipse 2 realised just under half its
original investment in NPI, the balance being written off. A
considerable amount of time has been put into the investment by
Octopus, and this has included the recruitment of a new management
team.
Initial investment date: December 2007
Cost: �1,026,795
Valuation: �1,026,795
Valuation basis: Cost
Equity held: 9.7%
Last audited accounts: N/A
Plastics Capital plc
Plastics Capital was set up to build a group of niche plastics
manufacturing companies, each with a strong market position and good
cash generation characteristics. The group currently comprises three
separate businesses with factories located in Knaresborough,
Leicester, Dartford and Poole with an aggregate turnover in excess of
�15 million. Plastics Capital, which is currently valued at �24.2
million, is expected to achieve a profit before tax of �4.3 million
for the year ending March 2009.
Initial investment date: December 2007 (rollover of
unquoted equity investment at time of flotation)
Cost: �1,067,355
Valuation: �1,013,987
Valuation basis: Bid-price
Equity held: 4.0%
Last audited accounts: 31 March 2007
Profit before interest & tax: �1.7 million
Net assets: �3.3 million
The Grill Group Limited
The Grill Group has three restaurant brands: Smollensky's, with nine
Bar & Grill and Burgershack sites in London, and the Le Frog Bistros
and Pastiche with eight restaurants in the North West and Midlands.
In September 2007, Octopus committed �6 million to fund the
acquisition of the Smollensky's chain of restaurants by the Shire
Group, which owned the Le Frog and Pastiche chains.The investment
strategy includes the operational turnaround of Smollensky's during
the first twelve months, followed by the roll-out of the Smollensky's
and Le Frog restaurant brands.
Initial investment date: September 2007
Cost: �991,750
Valuation: �991,750
Valuation basis: Cost
Equity held: 8.0%
Last audited accounts: N/A
Perfect Pizza Limited
Perfect Pizza is a home delivery pizza franchisor. We purchased the
business with 114 franchisee stores across the UK. It generates
revenue from selling food and drink to the franchisees and it also
earns a royalty commission based on the overall level of sales. The
management team we are backing is attempting a turnaround in the
performance of the business as under the previous owners (Papa Johns)
it had experienced declining sales and profitability over the last
three years.
Initial investment date: March 2006
Cost: �800,000
Valuation: �800,000
Valuation basis: Cost
Equity held: 10.5%
Last audited accounts: 28 February 2007
Profit before interest & tax: �0.5m
Net assets: �0.3m
Sweet Cred Limited
Sweet Cred sells a wide range of products which combine sweets with
toys that are themed around the five cartoon characters in the Sweet
Cred gang. The range is sold through distribution partners in Europe,
the US and the Middle East. In the UK, distribution is through the
main wholesalers and retail distribution through the major multiple
retailers, motorway service stations and leading toyshop chains. In
March 2007 Octopus committed �5 million to fund working capital
relating to the orders pipeline. �3 million was drawn down at
completion, and the balance of �2 million was invested on 31 January
2008 after the company had been able to demonstrate significant
progress against its business plan.
Initial investment date: March 2007
Cost: �687,500
Valuation: �687,500
Valuation basis: Cost
Equity held: 3.1%
Last audited accounts: 31 December 2006
Profit before interest & tax: �0.04 million
Net assets: �1.1 million
T4 Media Limited
T4 is based in London and, through subsidiaries Ad Barriers and Ad
Gates, is the leading provider of advertising solutions on railway
station gates and car park ticket equipment. T4 has a blue chip
advertising customer base including Visa, Fox (The Simpsons), M&S,
Bank of Scotland and Costa Coffee.
Initial investment date: July 2007
Cost: �659,330
Valuation: �659,330
Valuation basis: Cost
Equity held: 7.3%
Last audited accounts: 31 December 2006
Profit before interest & tax: �0.7 million
Net assets: �0.05 million
CSL DualCom Limited
CSL DualCom is the UK's leading supplier of dual path signalling
devices, which link burglar alarms to the police or a private
security firm. The devices communicate using a telephone line and a
Vodafone wireless link. Vodafone has been a partner of CSL DualCom
for the last six
products to the fire sector, where recent legislation has created a
large market opportunity. There has been a small uplift in the
carrying value of this investment in recognition of the progress the
business has made since the initial investment.
Initial investment date: June 2006
Cost: �588,700
Valuation: �629,200
Valuation basis: Earnings multiple
Equity held: 7.3%
Last audited accounts: 31 March 2007
Profit before interest & tax: �0.4 million
Net assets: �0.8m
The Kendal Group Limited
The Kendal Group is a branded consumer goods company, owning the
Zoggs and PureLime brands of swimwear, swim equipment and active
wear. The company designs the product, has it manufactured in Europe
and the Far East and sells to retail outlets, on-line, leisure
centres and through distribution agreements overseas. The company
has offices in the UK, Australia and Denmark. In the UK most sales
are made through leisure centres and the drive for 2007 was to
increase sales through retail outlets, and distribution agreements
were set up with Tesco, Early Learning Centre, Toys R Us and others.
Initial investment date: November 2005
Cost: �576,000
Valuation: �576,000
Valuation basis: Cost
Equity held: 5.7%
Last audited accounts: 31 December 2006
Profit before interest & tax: �0.5 million
Net assets: �6.6 million
Tanfield Group plc
Tanfield plc is a manufacturing company with two principal operating
divisions; Smith Electric Vehicles, the world's largest manufacturer
of road-going commercial zero emission vehicles, and UpRight Powered
Access, the UK's largest manufacturer of self-propelled aerial work
platforms. UpRight has recently increased its exposure in the US
market with the acquisition of Snorkel Holdings last year.
Initial investment date: May 2005
Cost: �120,000
Valuation: �573,000
Valuation basis: Bid price
Equity held: 0.2%
Last audited accounts: 31 December 2007
Profit before interest & tax: �11.6 million
Net assets: �165.2 million
Recent Transactions
Since the end of the year under review, we have completed one new
qualifying investments, as well as further small investments in First
Sports Group Limited, Lilestone Holdings Limited, Adrenalin Design
Limited and Promotion Space Limited:
Hydrobolt Limited
Eclipse 2 invested �257,879 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.
Further details of these investments will be detailed in the interim
report of Eclipse 2 later in the year.
If you have any questions on any aspect of your investment, please
call one of the team on 020 7710 2800.
Simon Rogerson
Chief Executive
Profit and Loss Account
Year to Year to
31 January 2008 31 January 2007
�'000 �'000
Gain on disposal of fixed asset 1,334 388
investments
Gain on disposal of current asset 5 26
investments
(Loss)/gain on valuation of fixed (1,388) 3,868
asset investments
Gain/(loss) on valuation of current 12 (64)
asset investments
Other income 630 574
Investment management fees (506) (415)
Other expenses (335) (258)
(Loss)/profit on ordinary (248) 4,119
activities before tax
Taxation on profit on ordinary - -
activities
(Loss)/profit on ordinary (248) 4,119
activities after tax
Earnings per share - basic and (1.3)p 22.2p
diluted
The Company has no recognised gains or losses other than the results
for the year as set out above.
Note of Historical Cost Profits and Losses
Year to Year to
31 January 2008 31 January 2007
�'000 �'000
(Loss)/profit on ordinary (248) 4,119
activities before taxation
Loss/(gain) on valuation of 1,376 (3,804)
investments
Realisation of prior years' net 2,824 24
unrealised gains on investment
Historical cost profit on ordinary 3,952 339
activities before taxation
Historical cost profit on ordinary 3,952 339
activities after taxation
Reconciliation of Movements in Shareholders' Funds
Year ended Year ended
31 January 2008 31 January 2007
�'000 �'000
Shareholders' funds at 21,537 17,650
start of year
(Loss)/profit on ordinary (248) 4,119
activities after tax
Net proceeds of share 417 -
issue
Cancellation of own (35) -
shares
Dividends paid (743) (232)
Balance as at end of year 20,928 21,537
Balance Sheet
As at 31 January 2008 As at 31 January 2007
�'000 �'000 �'000 �'000
Fixed asset investments 14,226 15,504
Current assets:
Investments 5,924 4,785
Debtors 875 358
Cash at bank 500 912
7,299 6,055
Creditors: amounts (597) (22)
falling due within one
year
Net current assets 6,702 6,033
Net assets 20,928 21,537
Called up equity share 1,890 1,858
capital
Share premium 381 -
Special distributable 15,773 15,807
reserve
Capital redemption 5 2
reserve
Revaluation reserve (449) 3,751
Revenue reserve 3,328 119
Total equity 20,928 21,537
shareholders' funds
Net asset value per 110.7p 115.9
share
Cash Flow Statement
Year to 31 Year to 31
January 2008 January 2007
�'000 �'000
Net cash outflow from operating (621) (314)
activities
Financial investment :
Purchase of investments (7,667) (6,461)
Sale of investments 8,891 787
Management of liquid resources :
(Increase)/decrease in cash equivalent (1,139) 4,623
investments
Dividends paid (743) (232)
Financing :
Issue of own shares 437 -
Received for shares to be issued 487 -
Share issue expenses (22) -
Repurchase of own shares (35) -
Decrease in cash resources (412) (1,597)
Reconciliation of Net Cash Flow to Movement in Cash Resources
Year to 31 January Year to 31 January
2008 2007
�'000 �'000
Decrease in cash (412) (1,597)
resources
Movement in liquid 1,139 (4,623)
resources
Opening net cash 5,697 11,917
resources
Net cash at 31 January 6,424 5,697
Net cash at 31 January comprised:
Year to 31 January
Year to 31 January 2008 2007
�'000 �'000
Cash at Bank 500 912
Bonds 1,263 4,785
Money Market Funds 4,661 -
Net cash at 31 January 6,424 5,697
Reconciliation of Operating Profit before Taxation to Cash Flow from
Operating Activities
Year to 31 Year to 31
January 2008 January 2007
�'000 �'000
(Loss)/profit on ordinary activities (248) 4,119
before tax
Loss/(gains) on valuation of fixed 1,388 (3,842)
asset investments
Realised gains on fixed asset (1,334) (414)
investments
Increase in debtors (517) (168)
Increase/(decrease) in creditors 90 (9)
Outflow from operating activities (621) (314)
Note: Fixed asset investments
Unquoted AIM-quoted Total
investments investments investments
31 January 2008 31 January 2008 31 January 2008
�'000 �'000 �'000
Valuation and net
book amount:
Book cost as at 1 9,566 2,100 11,666
February 2007
Cumulative 2,497 1,341 3,838
revaluation
Valuation at 1 12,063 3,441 15,504
February 2007
Movement in the year:
Purchases at cost 5,309 2,358 7,667
Disposal proceeds (7,551) (1,340) (8,891)
Profit on realisation 1,026 308 1,334
of investments -
current year
Revaluation in year (811) (577) (1,388)
Valuation at 31 10,036 4,190 14,226
January 2008
Book cost at 31
January 2008:
- - Ordinary shares 2,317 4,083 6,400
- - Loan notes/other 8,270 - 8,270
securities
Revaluation to 31
January 2008:
- - Ordinary shares (28) 107 79
- - Loan notes/other (523) - (523)
securities
Valuation at 31 10,036 4,190 14,226
January 2008
Further details of the fixed asset investments held by the Company
are shown within the Investment Manager's Review.
The above summary of results for the year ended 31 January 2008 does
not constitute statutory financial statements within the meaning of
section 240 of the Companies Act 1985 and has not been delivered to
the Registrar of Companies.
Statutory financial statements will be filed with the Registrar of
Companies in due course; the auditor's report on those financial
statements under S235 of the Companies Act 1985 is unqualified and
does not contain a statement under S237 (2) or (3) of the Companies
Act 1985.
A copy of the full annual report and financial statements for the
year ended 31 January 2008 is expected to be posted to shareholders
shortly and will be available to the public at the registered office
of the company at 8 Angel Court, London, EC2R 7HP.
- ---END OF MESSAGE---
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