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Our main feature, EIS offers cheap enterprise, outlined the considerable tax benefits of investing in enterprise investment schemes, but cautioned against allowing the tax tail to wag the investment dog. Below, we outline some examples of how investments in enterprise investment schemes have worked in practice.
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World's your oyster
Loch Fyne Oysters is an example of a single company EIS that returned around three times the value of the original investment – and that's before any tax relief.
"This was a supplier of oysters from Loch Fyne in Scotland," says Martin Sherwood, head of tax-efficient solutions at Smith & Williamson. "The company established an excellent trade supplying restaurants and expanded its range of seafood to include mussels, salmon and other fish. They decided to launch their own chain of restaurants and funded the expansion through the EIS, issuing shares at £3.50.
"The restaurants were an immediate success and they expanded the chain steadily, until the company received a takeover offer in 2005 at £10 a share, which was accepted."
Harvesting profits
Country Food & Dining Approved Asset Backed EIS Fund is an example of a unique EIS scheme that is currently raising funds. It is seeking £10m, setting a target date for this of 15 December, though this is likely to be extended.
"There will be up to five underlying companies that will invest in existing farm shops, putting in a management team to develop these into shops with a restaurant come dining option attached – so you've got two trades on one site," says Mr Sherwood.
"The first of these EISs was two years ago, with another fund-raising put in place last year, and this is the third year, with two sites already operating – one near Hungerford in Berkshire, which has been rebranded Cobbs Farm Shop, and the second one is near Bath, called Spring Leaze Farm Shop. Farm shops are increasingly popular, as people have a growing interest in food – where it comes from, whether it's organic and how it is being produced. There is also a big increase in out-of-town restaurants, which we know from our success with the country pub market through former EISs."
The management team is headed by David Bruce, previously chief executive of Capital Pub Company, who has been involved in the international brewing and leisure industry for 40 years and was responsible for developing the Slug and Lettuce brand in the 1990s.
This EIS has a minimum investment of £10,000, with an initial charge of 7.5pc and annual charges at 1 per cent. The first farm shop has seen like-for-like sales up over 8 per cent in the last year, though it’s early days.
The proposed term of the fund is likely to be between three and a half years and five years and the exit is likely to be by way of a trade sale. It is anticipated that all of the investee companies should be disposed of as one, thus creating a "lotting premium" on exit.
Ben Yearsley at financial advisers Hargreaves Lansdown adds: "This is a very niche but a very nice idea, which I was considering putting money into myself – the problem comes with raising enough finance."
For further information visit www.smith.williamson.co.uk, tel: 020 7131 4325 or email tes@smith.williamson.co.uk
Longbow targets healthy returns
Longbow Capital has launched two healthcare EIS funds aimed at investors who wish to profit from continued innovation and investment in healthcare. A venture investor specialising in the areas of healthcare, well-being and life sciences, Longbow is co-creator of the Boots Centre for Innovation and has raised £14m in its EIS portfolio service.
"Healthcare is a defensive investment sector likely to do better than many in a downturn, but also an exciting area for innovation," says Julian Hichman, a partner at Longbow.
Longbow's new funds will invest in a diversified portfolio of unquoted UK based life sciences, health and well-being companies that can exploit their products and technologies globally. The two funds offer different tax solutions so that investors can take advantage of the EIS in a way best matched to their tax circumstances.
As background, Longbow points out that, in life sciences and healthcare, the UK is a global centre of innovation and the sector accounts for more than £32bn in revenue and employs more than 400,000 people.
During 2006, Longbow partnered with Alliance Boots, and Professor Marc Clement, representing the Institute of Life Science, based within the University of Wales in Swansea, to establish the Boots Centre for Innovation. The aim of the BCI is to identify, validate and commercialise new product and service opportunities for Boots through open innovation, managed and co-ordinated by the BCI.
Working in collaboration with the BCI and the Boots New Product division in Nottingham, Longbow has priority access to investment prospects that emerge from this source. www.bootsinnovation.com
Examples of current Longbow investments include:
PWB Health: The Glasgow-based company has developed a ‘BreastChecker’ which uses a specific frequency of light to reveal tissue with a higher than normal bloody supply, such as tumours or cysts. The device is hand-held, helping women to see, as well as to feel, lumps in the breast which may be cancerous.
IPL hair removal: This idea came out of research from the University of Swansea. Intense Pulsed Light (IPL) systems use white light to remove hair and are widely used in beauty salons around the UK. A home use device will be available at Boots.com in January.
Destiny Pharma: This is innovative pharmaceutical company is combating drug-resistant bacteria such as MRSA that are at the centre of a global healthcare crisis.
Longbow's fund managers say that healthcare companies' policy of open innovation, which rewards the external inventor, means there are lots of opportunities to sell the companies into trade – its preferred strategy.
The big pharmaceutical companies, such as Procter & Gamble, have cash to spend on innovation and they need products. They are actively encouraging ideas and developments to come from outside the company.
Minimum investment in the Longbow funds is £50,000. The managers say this is "not for widows and orphans", but could make up 10-15 per cent of an adventurous investment portfolio.
For further information visit www.longbow.co.uk
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-IC-1.9.0c-prod - 15/05/2009 11:00:33 - stuart.turner
