Summary of results and financial highlights
RENN UNIVERSAL GROWTH INVESTMENT TRUST PLC
HALF YEARLY REPORT
FOR THE PERIOD ENDED 30 SEPTEMBER 2011 (UNAUDITED)
The Company's investment objective
Investment policy
The objective of the Company is to achieve capital growth and to outperform its benchmark, the Russell 2000 Index.
Investments are made primarily in securities issued by companies listed, quoted or domiciled in the US and Canada. These securities include, inter alia, privately placed common stock, preferred stock, convertible debentures and warrants, and securities traded on an exchange. The companies in which investments are made would generally be regarded as belonging to the category of companies with 'micro' stock market capitalisations at the time of purchase, typically those companies with market capitalisation below $1 billion. From time to time, the Company also invests in securities in unlisted US companies with similar characteristics. Although there are no limits set by the Board on the proportion which may be invested in unlisted securities, it is expected that such exposure will not exceed 25% over a prolonged period. The Company is able to invest its assets in business which generated sales and earnings outside the US so the Company may have significant economic exposure to markets or economies outside North America. The Board sets no specific limits on sector weights, or on the number of securities which may be held, although no investment will be made that would represent more that 15% of the value of the Company's total investments at the time of purchase. The Board reviews the investments at each Board meeting to ensure that diversification is adequate for a portfolio of this type.
The Company is permitted by its Articles of Association to borrow up to 30% of its net assets, and may do so on an opportunistic basis determined by the availability of investment opportunities.
A large proportion of the Company's investments will be, by their very nature, less readily marketable than equities in general.
The Company invests on a long only basis, and does not currently intend to hedge its non UK Currency exposure back into sterling.
The Company's policy is not to invest in UK listed investment companies, including investment trusts.
Construction of the Company's portfolio
Construction of the Company's portfolio involves subjective judgement, rather than quantitative targeting, although a number of considerations are taken into account: - Because liquidity in the Company's holdings is often very limited, it is likely that a relatively large number of positions will be held. The exact number of holdings will depend largely on the opportunities available to the Manager.
- Several different industries will typically be represented, but the portfolio will often deviate substantially from the sector weights in the Company's benchmark. It should be noted that the Company expects to take significant risks relative to that benchmark, with the goal of meeting its objective.
- The investment process tries to identify stocks which have the capacity to appreciate very substantially in price. As a result, positions which were relatively small on acquisition can become very large (over 15% of the portfolio) if the investment is successful. The Company will often hold these 'winners', even if they become a large part of the investment portfolio, and this can lead to significant concentration of risk.
- Purchases of investment positions often involves negotiation with the business concerned and may take several months. For this reason the Board believes it is desirable in normal circumstances for the Company to hold cash in anticipation of such investment.
- When no investment can be found with the desired return profile, the Company may hold cash or equivalent, and there is no limit set by the Board on the proportion of assets so held.
- The Manager may take a seat on the Board of investee companies in order to influence the strategy of these companies. Consequently, it is possible that this could lead to the acquisition of knowledge which might affect the ability of the Manager to act freely in all circumstances.
Engagement with investee companies
The long term nature of the Company's investments requires the Manager to actively engage with investee companies in order to enhance and protect shareholder value. This typically includes the following activities:
- Regular face-to face meetings.
- Regular formal and informal telephone communications.
- Board representation on investee companies, where appropriate.
- Provision of management assistance, where appropriate.
- Review of press releases, financial results and U.S. Security and Exchange Commission filings.
The Manager avoids conflicts of interest arising between itself and the Company's investee companies by not investing alongside the Company. The Manager's Compliance Officer also reviews any personal securities transactions undertaken by employees of the Manager.
The Manager has a published statement on its voting policy in respect of investee companies, which can be found on its website: www.rencapital.com.
The Board receives regular updates from the Manager on the performance of the Company's investee companies and the ways in which the Manager engages with these companies. The Board also receives face to face updates from some of the major investee companies each year, as well as meeting with certain potential investee companies.
Summary of results and financial highlights
% change 31 March 2011 30 September 31 March to 30 September 30 September 2011 2011 2011 2010 Total net asset £ £ £ value and 48,507,000 58,564,000 (17.17) 55,339,000 shareholders' funds Net asset value per Ordinary share ('NAV') - pence 264.51 313.86 (15.72) 296.58 - US cents 412.05 503.10 (18.10) 467.35 Mid market price per 193.62p 252.00p (23.17) 243.00p Ordinary share Discount to NAV 26.80% 19.71% 18.07% Exchange rate - US$/ 1.55780 1.60295 (2.82) 1.57580 £ Russell 2000 Index 2,904.55 3,778.03 (23.12) 3,010.78 (Total Return) Russell 2000 Index 1,856.18 2,351.86 (21.08) 1,914.28 (Total Return) - Sterling adjusted S&P 500 Index (Total 1,930.79 2,239.44 (13.78) 1,908.95 Return) S&P 500 Index (Total 1,233.89 1,394.07 (11.49) 1,213.73 Return) - Sterling adjusted Interim management report Performance For the six months ended 30 September 2011, your Company's net asset value decreased 15.7% in Sterling, compared with a decrease of 21.1% for the Russell 2000 (Sterling adjusted). With the widening of the discount the share price has dropped 23.2% during the six months ended 30 September 2011. Returns in this Company are lumpy, due to the unique asset allocation and investment style. Unlike many investment trusts that closely track an index, this Company's returns will not, and should not, be expected to track the Russell 2000 index over the short term. The Company holds investments in small companies, both quoted and unquoted, based in the US, Canada, Australia and China. We maintain that a perfect index, or benchmark, to which to compare this Company's return simply does not exist. We believe the Russell 2000, while not ideal, is the index which best encapsulates the type of company in which we invest. From inception to 30 September 2011, a period of 15 years, your Company's Sterling net asset value return was 191.4% (7.4% on an annualised basis), compared with the Russell 2000's return of 127.2% (5.6% on an annualised basis). Interestingly, for the 15 years to September 2011, the Russell 2000 return has exceeded both the Standard & Poor's 500 and the Nasdaq Composite returns.
Core Holding & Asset Allocation
At 30 September 2011, the top ten holdings made up approximately 77% of the net asset value compared to 71% at 31 March 2011. The top ten holdings at 30 September and 31 March were as follows:
30 September 2011 % of net 31 March 2011 % of net assets assets AnchorFree, Inc 21.5% Cover-All Technologies, 17.4% Inc Cover-All Technologies, Inc 19.6% AnchorFree, Inc 17.3%
Plures Technologies, Inc 7.6% Hollysys Automation 5.7% (previously CMSF Corporation)
Technologies Limited Bovie Medical Corporation 5.0% Zhongpin, Inc 5.2% PHC, Inc* 4.6% Sinohub, Inc 5.0% Access Plans, Inc 4.1% Fushi Copperworld, Inc 4.7% Integrated Security Systems, 4.0% Dynamic Green Energy 4.3% Inc Limited Points International Limited 4.0% PHC, Inc* 3.9% Fushi Copperweld, Inc 3.6% Bovie Medical Corporation 3.6% Healthzone Limited 2.6% Skystar 3.6% Bio-Pharmaceutical
* PHC, Inc emerged with Acadia Healthcare on 1 November 2011.
As at 30 September, the asset allocation of net assets was as follows:
US listed investments 42.2% US unlisted investments 27.9% US listed Chinese investments 14.8% Other net assets less liabilities 6.1% US listed Canadian investments 4.0% US listed Australian investments 2.5% US unlisted Chinese investments 2.4% US unlisted Australian investments 0.1% Although the unquoted holdings are currently above our long term target, we do not expect this to persist due to an anticipated initial public offering in one of our unquoted companies. AnchorFree, Inc. (Private) is the world's leading ad-supported virtual private network ("VPN") providing security, privacy and freedom. Its Hotspot Shield enables users to access all online content anonymously and securely from any location in the world. The technology also enables the use of services such as Skype, Facebook, YouTube, Twitter and Google which are often blocked by telecom companies around the world. Individuals and companies from over 100 countries are using this VPN service with 9 million unique users per month, 30 million user sessions per month and over 2 billion page views per month. The company continues to garner positive press and additional users. We expect AnchorFree's revenue to continue to accelerate, not just because of increased number of users, but also because of increased revenues per user going forward. For the six months ended 30 September 2011, revenues were up 80% and earnings before tax were up 60% against the same period last year. AnchorFree has a very strong balance sheet, is debt free and enjoys high operating margins. AnchorFree is also in the process of releasing a mobile application for Apple's iPhone and iPad. These Apple applications will be free of advertising and thus AnchorFree will be charging for this service. Cover-All Technologies (OTCBB: COVR) licenses and maintains software for the insurance industry. Its product platforms are robust and can be used for back office compliance, billing, underwriting and insurance issuance. In the second quarter, Cover-All delivered a new commercial software programme which provides 100% web-based capabilities designed to support its customers' aggressive growth strategies - either one policy at a time or through the acquisition of an entire book of business. This business intelligence suite is the insurance industry's most comprehensive and turnkey solution designed to provide unparalleled access to a wealth of data sources. As a result, Cover-All's sales pipeline has reached its record levels. On 25 May 2011, Cover-All was listed on the New York Stock Exchange-AMEX. For the six months ended 30 June 2011, revenues increased 21% and net income increased 47% against the comparable period in 2010. Plures Technologies, Inc. (OTCBB: MANY) is a new portfolio holding. It is an entrepreneurial company that specialises in the commercialisation of advanced micro-electromechanical systems ("MEMS") semiconductor chips. The company has a fabrication plant based just outside Boston, Massachusetts. The manufacturing of MEMS consists of the design and manufacture of micro machines built on silicon chips. These machines are used in a wide and growing range of applications from location based chips for mobile phones to microphones, sensors and switches. Plures Technologies has a strong customer list. The team at Plures is able to accomplish tasks, projects and products that few can. The company has just begun trading publicly. Bovie Medical Corporation (AMEX:BVX) engages in the development, manufacture and marketing of medical products and devices, primarily electrosurgical generators and disposables in the US and Canada. For the six months ended 30 June 2011, revenues increased 13% and net income increased to $921,000 from a loss of $170,000 during the same comparable period last year. The company continues to place great effort and resources into the regulatory approval of its new J-Plasma surgical hand piece. The J-Plasma surgical hand piece will offer soft tissue coagulation and/or tissue cutting with no grounding pad required as with other electrosurgical products, thus minimising the risk to patient and surgeon. Once approved, we believe this new product will enhance certain surgical procedures and could ultimately contribute to a new standard of care. The feedback from surgeons in diverse specialties has been most encouraging. Management is convinced that the J-Plasma addressable market is large and that J-Plasma will be the prime engine of growth going forward. Acadia Healthcare Company (formerly PHC, Inc.) (NASDAQ: ACHC) is the country's leading publicly traded pure-play provider of inpatient behavioral health care services. The company operates 34 facilities, with approximately 1,950 licensed beds in 18 states, which would have produced annual revenues of more than $325 million on a pro forma basis for the twelve months ended 30 June 2011. The investment bank Jefferies & Company arranged the merger between our former holding PHC, Inc. and Acadia Healthcare. Jefferies has additional deals in the pipeline that could make Acadia Healthcare a substantially larger company. Access Plans, Inc. (OTCBB: APNC) is a leading membership benefits marketing company with two distribution channels. The Wholesale/Retail Plans distribution channel specialises in turnkey, private label membership benefit plans that provide discount products and services, protection benefits and retail services to more than 1 million customers in the US and Canada. America's Health Care Plans (AHCP), the Company's Insurance Marketing distribution channel, is one of the nation's largest independent agent networks and provides major medical, life and supplemental insurance products to individuals. For the three months ended 30 June 2011, revenues decreased 9% to $13.1 million, but net income increased 61% to $1.5 million compared to the same period last year. The company continues to explore strategic alternatives to deliver value to shareholders including taking the company private. Integrated Security Systems (OTCBB: IZZI) is a publicly traded shell company with cash equivalents of approximately $4.1 million, total assets of $5.4 million and total liabilities of just $306,549. Your company owns approximately 47.4% of Integrated Security Systems. Your Manager has completed due diligence on multiple merger candidates and is close to a transaction which we believe could bring substantial value. Points International (NASDAQ: PCOM) is the world's leading reward program management platform. At Points.com consumers can earn, buy, gift, share, trade, exchange and redeem miles and points from more than 25 of the world's leading reward programs. For the three months ended 30 June 2011, revenues increased 51% and earnings before interest, taxes, depreciation and amortisation increased 490% over the same period last year. The guidance for calendar 2011 is for revenue to increase 25% to 36% over 2010 and for net income of $0.20 to $0.40 per share. In the last six months, the company has formed partnerships with PayPal and Best Buy which should contribute to the growth of the retail channel. We are optimistic concerning the growth, scalability and increasing profitability of Points. Fushi Copperweld, Inc. (NASDAQ: FSIN) manufactures bimetallic wire products, principally copper-clad aluminum (CCA) and copper-clad steel (CCS). Its CCA and CCS conductors are used as substitutes for solid copper conductors in applications where specific electrical or physical attributes are necessary. It primarily serves applications in the telecommunication, electrical utility and transportation markets. For the quarter ended 30 June 2011, revenues increased 14% to $79 million and net income decreased by 14% to $10.6 million against the same period last year. Although growth in revenues occurred in the second quarter, raw material prices and pricing pressure as a result of decreased investment in the 3G network build out in China caused a decrease in earnings. Fushi retained BofA Merrill Lynch in conjunction with a proposed transaction to take the company private at $11.50 per share. The company has a strong balance sheet with $142 million in cash up from $123 million as of 31 December 2010. The company reiterated its previous annual guidance of 2011 earnings of between $1.15 and $1.25 a share. Healthzone Limited (OTCBB: HLTZY)* is a new portfolio holding that operates as a distributor, producer, franchisor, and retailer of health and beauty products primarily in Australia and China. It produces natural alternative products, including food, skin and body care, and household cleaning products. The company also engages in the wholesale distribution of health foods, and beauty and fragrance products, and catalogue retail of wellness products. In addition, it is involved in the retail sale of vitamin and mineral supplements, organic and whole foods, natural beauty products, sports nutrition and supplements, beverages and herbal teas. The company operates approximately 120 health food retail stores comprising 31 company stores and 6 Healthy Life China stores in Shanghai, China. The investment theme for Healthzone is buying into a demographically attractive profitable business at a good price while obtaining exposure to potentially rapid Asian growth prospects. For the 12 months ended 30 June 2011, the company reported revenues of $100.4 million and net income of $3.2 million.
* This company went into receivership on 17 November 2011. See note 12.
New Investments
During the six months ended September 2011 we made two new portfolio investments for a total of $4.3 million. These new holdings are Plures Technologies, Inc. which was merged with the former holding CMSF Corporation and Healthzone Limited, both of which are discussed above.
With respect to follow on investments, we purchased $479,000 of Bovie Medical Corporation, $241,000 of Global Axcess Corporation and $226,000 of Acadia Healthcare Company (PHC, Inc) for a total cost of $946,000. Your Company made partial sales of Hollysys Automation Technologies, Ltd. and Wonder Auto Technolgy, Inc and also completed sales of Business Processing Outsourcing, ChinaCast Education Corporation, Global Sources Ltd., ilinc Communications, Kingtone Wireless Solution Holding Ltd., Shengtai Pharmaceutical Inc., and Zhongpin, Inc. The combined cost of the partial and complete sales was $8.1 million and the combined sale proceeds of the same were $9.8 million resulting in a combined realised gain of approximately $1.7 million.
Write downs
The Board have considered the valuations of the unlisted securities as at 30 September 2011, and as a result have written down Dynamic Green Energy by 70% to $1,162,000 and Murdoch Security by 38% to $349,000.
Purchase of shares from Global Special Opportunities Trust Plc ("GSOT")
On 19 May 2011, we made a purchase of a number of stocks and warrants from GSOT, a company with a liquidation date of 31 May 2011. This transaction increased the Company's holdings in AuraSound, Inc., Duoyuan Printing, Hemobiotech, Inc., Petrohunter Energy Corporation, and SinoHub, Inc. These stocks and warrants were purchased for an aggregate price of $95,000. RENN Capital Group previously acted as an Investment Advisor to GSOT.
Outlook
Your Manager's view is that long term investment opportunities in companies led by founder-owners offer good reward to risk metrics. The abundance of companies growing at double digit rates while selling for low single digit price-to-earnings ratios provide a large pool of investment opportunities. We remain optimistic that today we have a portfolio that is reasonably valued relative to its benchmark. Your Company's portfolio is characterised by larger inside ownership positions, faster revenue growth, lower price to book values, and lower price to earnings multiples than the Russell 2000. While there is the ever-present risk of lower valuations, we believe that current prices offer significant value. One example of evidence for such a positive valuation change came on 30 October 2011 when a US traded Chinese firm, not in your Company's portfolio, Harbin Electric Inc. (NASDAQ: HRBN) received shareholder approval to consummate its management buyout. This transaction will close the first week of November and has placed the short sellers on high alert. As we have opined before, North American-listed Chinese companies are trading at significant discounts to their China/Hong Konglisted peers. We believe this upward valuation trend will continue as companies explore dual listings and other ways to increase their share prices.
In conclusion, we continue to believe that investing in small founder-owner growth companies provides an effective diversifying element in today's complicated investment climate. A number of our holdings could make attractive merger candidates and provide good returns to our Company.
24 November, 2011
For further information, please contact:
Russell Cleveland RENN Capital Group, Inc Tel: 001 214 891 8294
Principal risks and uncertainties
Details of the following principal risks and uncertainties facing the Company are detailed in the Business Review section of the Company's Annual Report and Accounts for the year ended 31 March 2011:
Liquidity/marketability risk; interest rate risk; gearing risk; foreign currency risk; country risk; market price risk and discount volatility; compliance with sections 1158/1159 of the Corporation Tax Act 2010; credit risk; risk associated with the engagement of third parties; risk associated with the continuation vote; and valuation risk.
Responsibility statement
The Directors confirm that to the best of their knowledge:
(a) the condensed set of financial statements, which has been prepared in accordance with applicable accounting standards in the United Kingdom, gives a true and fair view of the assets, liabilities, financial position and loss of the Company as required by the Disclosure and Transparency Rules ("DTR") 4.2.4R; (b) the interim management report includes a fair review of the information required by DTR 4.2.7R 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; and a description of the principal risks and uncertainties for the remaining six months of the year; and (c) the half yearly report includes a fair review of the information required by DTR 4.2.8R being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
This half yearly report was approved by the Board of Directors on 24 November 2011 and the above responsibility statement was signed on its behalf by the Chairman.
Ernest Fenton Chairman Income statement (unaudited)
for the six months ended 30 September 2011
Six months ended Six months ended Year ended 30 September 2011 30 September 2010 31 March 2011 (unaudited) (unaudited) (audited) Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Losses on - (8,426) (8,426) - (12,320) (12,320)
- (9,592) (9,592) investments at fair value through profit or loss Exchange - 175 175 - (63) (63) - (168) (168) gains/ (losses) on capital items Income (see 81 - 81 213 - 213 1,573 - 1,573 note 4) Investment (375) - (375) (439) - (439) (874) - (874) Management fee (see note 5) Bad debt (623) - (623) - - - (78) - (78) expense* Other (228) - (228) (239) - (239) (478) - (478) expenses Net return (1,145) (8,251) (9,396) (465) (12,383) (12,848) 143 (9,760) (9,617) before finance costs and taxation Finance (1) - (1) (10) - (10) (16) - (16) costs Net return (1,146) (8,251) (9,397) (475) (12,383) (12,858) 127 (9,760) (9,633) before taxation Taxation on - - - (1) - (1) (1) - (1) ordinary activities Net return (1,146) (8,251) (9,397) (476) (12,383) (12,859) 126 (9,760) (9,634) on ordinary activities after taxation for the period pence pence pence pence pence pence pence pence pence Return per (6.19) (44.54) (50.73) (2.55) (66.36) (68.91) 0.68
(52.31) (51.63) Ordinary share (see note 2)
* The bad debt expense consists of :
50% of the interest owing on the Company's investment in PetroHunter 8.5% convertible debenture, on the grounds of uncertainty £36,000 (six months ended 30 September 2010: £nil; year ended 31 March 2011: £78,000).
Write off for accrued income from prior years deemed no longer recoverable from the Company's investments in Dynamic Green Energy 7% convertible notes, Ilinc 12% convertible notes and Pipeline Data 14% convertible debenture £587,000 (six months ended 30 September 2010: £nil; year ended 31 March 2011: £nil).
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 in accordance with the Association of Investment Companies' SORP. Revenue and capital return per share figures shown are also supplementary information.
The accounts have been prepared using the accounting standards and policies adopted at the previous year end.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period.
There are no recognised gains and losses other than those reflected in the income statement for the period, accordingly no statement of recognised gains and losses has been prepared.
These accounts are unaudited and are not the Company's statutory accounts.
The notes form part of these accounts.
Reconciliation of movements in shareholders' funds
Six months ended 30 September 2011 (unaudited)
Share Share Capital Special Capital Revenue Total capital premium redemption reserve reserve reserve account reserve * £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 April 2011 4,665 5,995 666 5,208 46,005 (3,975) 58,564 Net return after - - - - (8,251) (1,146) (9,397) taxation for the financial period Cost of shares (80) - 80 (660) - - (660) repurchasedfor cancellation
At 30 September 2011 4,585 5,995 746 4,548 37,754 (5,121) 48,507
Year ended 31 March 2011(audited) Share Share Capital Special Capital Revenue Total capital premium redemption reserve reserve reserve account reserve * £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 April 4,665 5,995 666 5,208 55,765 (4,101) 68,198 2010 Net return - - - - (9,760) 126 (9,634) after taxation for the year At 31 March 4,665 5,995 666 5,208 46,005 (3,975) 58,564 2011 Six months ended 30 September 2010 (unaudited) Share Share Capital Special Capital Revenue Total capital premium redemption reserve reserve reserve account reserve * £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 April 4,665 5,995 666 5,208 55,765 (4,101) 68,198 2010 Net return - - - - (12,383) (476) (12,859) after taxation for the financial period At 30 4,665 5,995 666 5,208 43,382 (4,577) 55,339 September 2010
* The special reserve was created in September 1998, following a transfer from the share premium account, to enable
the Company to purchase its own shares.
The notes form part of these accounts.
Balance sheet (unaudited) As at 30 September 2011 As at As at As at 30 September 31 March 30 September 2011 2011 2010 (unaudited) (audited) (unaudited) £'000 £'000 £'000 Fixed assets Investments at fair value through 45,568 56,894 54,941 profit or loss Current assets Debtors 255 776 538 Cash at bank 3,079 1,563 174 3,334 2,339 712 Creditors - amounts falling due within one year Creditors and accruals (281) (350) (313) Loan margin facility - (241) (1) (281) (591) (314) Net current assets 3,053 1,748 398 Provision for liabilities and charges Provision for bad debt* (114) (78) - Total net assets 48,507 58,564 55,339 Share capital and reserves Called up share capital (see note 4,585 4,665 4,665 6) Share premium account 5,995 5,995 5,995 Capital redemption reserve 746 666 666 Special reserve 4,548 5,208 5,208 Capital reserve 37,754 46,005 43,382 Revenue reserve (5,121) (3,975) (4,577) Equity shareholders' funds 48,507 58,564 55,339 Net asset value - pence per 264.51p 313.86p 296.58p Ordinary share including current period revenue (see note 3)
* a provision has been made for 50% of the interest owing on the Company's investment in PetroHunter 8.5% convertible debenture, on the grounds of uncertainty that the payment will be received.
The notes form part of these accounts.
Statement of cash flows
for the six months ended 30 September 2011
Six months Six months Year ended 30 ended 30 ended September September 31 March 2011 2010 2011 unaudited) (unaudited) (audited) £'000 £'000 £'000 Operating activities Investment income received 6 81 1,209 Deposit interest received 1 1 2 Other income received 1 - - Investment management fees (420) (459) (877) paid Secretarial fees paid (37) (36) (73) Other cash payments (226) (195) (378) Net cash outflow from (675) (608) (117) operating activities Servicing of finance Other interest paid (1) - - Loan interest paid - (10) (16) (1) (10) (16) Taxation Irrecoverable overseas tax - (1) (1) Total taxation paid - (1) (1) Capital expenditure and financial investment Purchases of investments (3,287) (3,536) (7,119) Sales of investments 6,278 3,879 8,228 Net cash inflow from capital 2,991 343 1,109 expenditure and financial investment Net cash inflow/(outflow) 2,315 (276) 975 before financing Financing Repurchase of Ordinary shares (660) - - for cancellation Loan margin drawdown - 1,102 1,964 Loan margin repayment (241) (4,198) (4,821) Net cash outflow from (901) (3,096) (2,856) financing Increase/(decrease) in cash 1,414 (3,372) (1,881)
The notes form part of these accounts.
Notes
for the six months ended 30 September 2011
1. Basis of preparation
This financial information has been prepared under the historical cost convention as modified by the revaluation of fixed asset investments and in accordance with the Accounting Standard Board's ("ASB") Statement on Half Yearly Financial Reports, applicable accounting standards in the United Kingdom and with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ("SORP") issued by the Association of Investment Companies ("AIC") in January 2009 and in accordance with the accounting policies set out in the statutory accounts for the year ended 31 March 2011. All of the Company's activities are continuing and the accounts are prepared on a going concern basis.
2. Return per Ordinary share
The calculations of return per Ordinary share are based on 18,522,288 Ordinary shares being the weighted average number of shares in issue during the six months ended at 30 September 2011 (six months ended 30 September 2010: 18,659,008 and year ended 31 March 2011: 18,659,008).
3. Net asset value per Ordinary share
The calculations of net asset value per Ordinary share are based on 18,338,405 Ordinary shares being in issue at 30 September 2011 (30 September 2010: 18,659,008 Ordinary shares and 31 March 2011: 18,659,008 Ordinary shares).
4. Income Six months to Six months to Year to 30 September 2011 30 September 2010 31 March 2011 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Income from US investments: Convertible 79 207 497 debenture stocks-unlisted Convertible - 5 1,074 preference shares-unlisted 79 212 1,571 Other income: Bank interest 1 1 2 receivable Other interest 1 - - 81 213 1,573
5. Investment Management fee
The Investment Management fee is charged 100% to revenue. Investment Management fees of £375,000 (six months ended 30 September 2010: £439,000; year ended 31 March 2011: £874,000) have been charged to the income statement. At 30 September 2011, £176,000 (six months ended 30 September 2010: £204,000; year ended 31 March 2011: £220,000) was due for payment to the Investment Manager in respect of Investment Management fees. A performance fee may also become payable at the end of each year and this is charged 100% to capital. No performance fee has been accrued (30 September 2010: nil; year ended 31 March 2011: nil) based on the best estimate of the fee that would be due at the balance sheet date.
6. Called up share capital
30 September 30 September 31 March 2011 2010 2011 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Allotted, called up 4,585 4,665 4,665 and fully paid: 18,338,405 (September 2010: 18,659,008, March 2011: 18,659,008) Ordinary shares of 25p 7. Share buybacks
During the period, the Company repurchased 320,603 Ordinary Shares for cancellation at a total consideration of £660,000 (six months ended 30 September 2010: nil; year ended 31 March 2011: nil Ordinary shares). No Ordinary shares were repurchased for holding in Treasury (six months ended 30 September 2010: nil; year ended 31 March 2011: nil Ordinary shares).
8. Taxation
The Company is subject to corporation tax at 26% (six months ended 30 September 2010:28%; year ended 31 March 2011: 28%). However, the available tax deductible expenses (including substantial brought forward amounts) exceed the taxable income of the Company and, as a result, there is no UK tax charge (six months ended 30 September 2010: nil; year ended 31 March 2011: nil), other than withholding tax suffered on foreign dividends.
Due to the Company's status as an investment trust, and the intention to continue meeting the conditions required to obtain approval to retain that status in the foreseeable future, the Company has not provided deferred tax on any capital gains or losses arising on the revaluation or disposal of investments.
9. Reconciliation of net return before finance costs and taxation to net cash outflow from operating activities
Six months Six months Year ended ended ended 30 September 30 September 31 March 2011 2010 2011 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Net return before finance (9,396) (12,848) (9,617) costs and taxation Net capital return 8,251 12,383 9,760 Increase in provision for 36 - 78 bad debt (Decrease)/increase in (87) (29) 14 creditors and accruals Decrease/(increase) in 521 (114) (352) prepayments and accrued income Net cash outflow from (675) (608) (117) operating activities
10. Reconciliation of net cashflow to net funds
Six months ended Six months ended 30 September 30 September Year ended 2011 2010 31 March 2011 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Increase/(decrease) in 1,414 (3,372) (1,881) cash in period/year Effect of movement in 102 36 (66) exchange rates Movement in net funds 1,516 (3,336) (1,947) Net funds at beginning 1,563 3,510 3,510 of period/year Net funds at end of 3,079 174 1,563 period/year
11. Related party transactions
The Manager, RENN Capital Group Inc., is regarded as a related party of the Company. The amounts paid to the Manager are disclosed in note 5.
RENN Capital Group Inc. has an aggregate interest in 50% or more of the share capital of Integrated Security Systems.
Mr Cleveland is a director of Cover-All Technologies and Integrated Security Systems. Details of the Company's holding in these investments can be found in the Investment Portfolio. On 19 May 2011, the Company purchased a number of stocks from Global Special Opportunities PLC, which is now in liquidation. This transaction increased the Company's holding in Hemiobiotech, Business Process Outsourcing, Aurasound, Sinohub, PetroHunter Energy Corp, Duoyuan Printing and BPO Management Services. These stocks were purchased for an aggregate price of $0.95 million. RENN Capital Group previously acted as Investment Advisor to Global Special Opportunities.
12. Post balance sheet event
On 17 November 2011, one of the Company's investments, Healthzone Limited, went into receivership. As a result, the Board have considered the valuation and as a precautionary measure have taken the decision to write down the value from $1,866,000 to $780,000 with effect from 23 November 2011
13. Continuation vote
The Articles of Association provide for shareholders to vote for the continuation of the Company at every third Annual General Meeting. The next continuation vote will be put to shareholders in 2013.
14. Financial information
The financial information contained in this report does not constitute full statutory accounts as defined in section 434 of the Companies Act 2006. The comparative financial information for the six months ended 30 September 2010 does not constitute full statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the six months ended 30 September 2011 and 30 September 2010 has not been audited or reviewed by the Company's auditors.
The information for the year ended 31 March 2011 has been extracted from the latest published audited accounts. Those accounts have been filed with the Registrar of Companies and include the report of the auditors which was unqualified and did not contain a statement under Section 498(2) of the Companies Act 2006.
The Company has considerable financial resources and therefore, the Directors believe that the Company is well placed to manage its business risks and also believe that the Company will have sufficient adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing this half yearly report. Investment portfolio as at 30 September 2011 Sector Book Marketvalue % of cost net US$'000 US$'000 £'000 assets Corporate investment US unlisted Chinese loan notes Dynamic Green Solar energy 3,867 1,162 746 1.5 Energy Total US unlisted 3,867 1,162 746 1.5 Chinese loan notes US unlisted convertible debentures
PetroHunter Energy Oil and gas 2,100 375 241 0.5 Corporation exploration
Pipeline Data Business services 1,500 854 548 1.1
Total US unlisted 3,600 1,229 789 1.6 convertible debentures US unlisted convertible preference shares AnchorFree Wireless 2,500 16,262 10,439 21.5 communications
Integrated Security Security services 75 1 1 0.0 Systems
Plures Technologies Semiconductors 1,500 3,251 2,087 4.3 (formerly CMSF Corporation) Total US unlisted 4,075 19,514 12,527 25.8 convertible preference shares US unlisted equities Murdoch Security & Security services 1,250 349 224 0.5 Investigation Total US unlisted 1,250 349 224 0.5 equities US unlisted Australian warrants
Healthzone Personal products - 64 41 0.1
Total US unlisted - 64 41 0.1 Australian warrants US unlisted Chinesewarrants AuraSound Technology - 654 420 0.9 Duoyuan Printing Industrial - - - 0.0 machinery Shengtai Pharmaceuticals - - - 0.0 Pharmaceutical SinoHub Electronic - - - 0.0 components Total US unlisted - 654 420 0.9 Chinesewarrants US listed Chinese warrants Plastec Plastic products - 17 11 0.0 Technologies Total US listed - 17 11 0.0 Chinese warrants US listed Australian equities
Healthzone Personal products 2,012 1,866 1,198 2.5
Total US listed 2,012 1,866 1,198 2.5 Australian equities US listed Canadian equities Points Internet software 1,506 2,993 1,921 4.0 International Total US listed 1,506 2,993 1,921 4.0 Canadian equities US listed Chinese equities AuraSound Technology 2,013 898 576 1.2 China Jo-Jo Drug Drug stores 1,000 280 180 0.4 stores Cogo Information 1,083 639 410 0.8 technology
Fushi Copperweld Industrial 1,650 2,736 1,756 3.6
manufacturing Hollysys Automation Electronic 1,187 1,182 759 1.6 Technologies equipment Orient Paper Paper - 22 14 0.0 manufacturing Plastec Plastic products 1,030 900 578 1.2 Technologies SearchMedia Advertising 2,422 835 536 1.1 Holdings SGOCO Technology Electronic 2,000 822 528 1.1 equipment SinoHub Electronic 4,932 1,359 872 1.8 components SkyPeople Fruit Consumer goods & 401 245 157 0.3 Juice beverages Skystar Pharmaceuticals & 2,277 1,143 734 1.5 Bio-Pharmaceutical biotechnology Wonder Auto Auto parts 502 154 99 0.2 Technology Total US listed 20,497 11,215 7,199 14.8 Chinese equities US listed equities Access Plans USA Consumer services 3,876 3,077 1,975 4.1 Bovie Medical Healthcare 2,901 3,757 2,412 5.0 Corporation services Cover-All Information 5,051 14,804 9,503 19.6 Technologies technology Global Axcess Commercial 2,062 1,056 678 1.4 services Hemobiotech Biotechnology 1,984 123 79 0.2
Integrated Security Security products 9,562 3,057 1,962 4.0 Systems
PetroHunter Energy Oil and gas 202 23 15 0.0 exploration
PHC (Acadia) Healthcare 1,703 3,502 2,248 4.6
Plures Technologies Semiconductors 5,384 2,524 1,620 3.3 (formerly CMSF Corporation) Total US listed 32,725 31,923 20,492 42.2 equities Total corporate 69,532 70,986 45,568 93.9 investments Net current assets 4,756 3,053 6.3 Provision for (178) (114) (0.2) liabilities Total net assets 75,564 48,507 100.0 Company information Directors Custodian (USA) Ernest J Fenton (Chairman, UK) Frost National Bank Andrew C Barker (UK) 8201 Preston Road Steven A R Bates (UK) Suite 540 Alexandra Mackesy (UK) Dallas, Texas William W Vanderfelt (Switzerland) USA Secretary and Registered Office Stockbrokers Capita Sinclair Henderson Limited Winterflood Investment Trusts (trading as "Capita Financial Group - The Atrium Building Specialist Fund Services") Cannon Bridge Beaufort House 25 Dowgate Hill 51 New North Road London EC4R 2GA Exeter EX4 4EP Tel: 01392 412122 Fax: 01392 253282 Auditor Chartered Accounts Corporate website KPMG Audit Plc www.renaissanceusgrowth.co.uk 100 Temple Street Bristol BS1 6AG Investment Manager RENN Capital Group, Inc. Registrars Suite 210 LB59 Capita Registrars Limited 8080 North Central Expressway The Registry Dallas, Texas 75206-1857 34 Beckenham Road USA Beckenham Tel: 001 214 891 8294 Kent BR3 4TU Fax: 001 214 891 8291 www.rencapital.com Tel: 0871 664 0300 - calls cost 10p per minute plus network extras (or 0044 208 639 3399 for overseas enquires) email: ssd@capitaregistrars.com www.capitaregistrars.com
Sources of further information
The Company's share price is listed in the Financial Times and The Daily Telegraph under "Investment Companies". Copies of the Company's annual and half-yearly reports, stock exchange announcements and further information on corporate governance can be obtained from the Company's corporate website: www.renaissanceusgrowth.co.uk.
Key dates March Company year end May Annual results July AGM November Half yearly results February / September Interim Management Statements
Frequency of NAV publication
The Company's net asset value is released to the London Stock Exchange on a bi-weekly basis and is published on both the Company's and the Manager's websites as detailed above.
24 November 2011 National Storage Mechanism
A copy of the Half yearly Report 2011 will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.hemscott.com/nsm.do.
Neither the contents of the Company's website or the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.