REG - British Smlr Comp 2 - Annual Financial Report
15/03/2024 12:15
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RNS Number : 0794H British Smaller Companies VCT2 Plc 15 March 2024
British Smaller Companies VCT2 plc
Annual Financial Report Announcement
for the year ended 31 December 2023
British Smaller Companies VCT2 plc (the "Company") today announces its audited
results for the year ended 31 December 2023.
HIGHLIGHTS
l 4.8 per cent return on opening net assets, driven by underlying revenue growth
in portfolio companies.
l Total Return increased by 2.95 pence to 145.55 pence per share, net asset
value at 31 December 2023 of 59.3 pence per share (2022: 61.6 pence per
share).
l Realisations generated total proceeds of £4.1 million in the year, a gain of
£1.1 million over the opening carrying value and £0.8 million over cost.
Three full or partial exits post-year-end generating cumulative proceeds of
£6.5 million, including the realisation of Displayplan, which returned 9.6x
cost over the life of the Company's investment.
l Four new investments and five follow-on investments totalling £10.0 million
completed during the year. Three follow-on investments of £1.2 million made
subsequent to the year end.
l Total dividends paid during the year ended 31 December 2023 of 5.25 pence per
share (2022: 3.0 pence per share), bringing total cumulative dividends paid
since inception to 86.25 pence per share at 31 December 2023 (2022: 81.0 pence
per share).
l £27.5 million raised in fully subscribed November 2022 offer, with shares
allotted in April 2023. Gross applications of £34.5 million received in
relation to September 2023 offer, with £11.4 million allotted in January 2024
and the remaining funds to be allotted in early April 2024.
l The Board is declaring an interim dividend of 1.5 pence per share in respect
of the year ending 31 December 2024. The dividend will be paid on 28 June 2024
to shareholders on the register on 31 May 2024.
Chair's Statement
I am pleased to present the 2023 annual report and financial statements of
British Smaller Companies VCT2 plc (the "Company"), which highlight a robust
performance in a year of macroeconomic and geopolitical headwinds.
The year began with inflation remaining persistently high, with businesses and
consumers alike struggling with high prices for energy, food and other goods
and services. To combat this, interest rates continued their march upwards,
from 3.5 per cent at the start of the year to reach 5.25 per cent by August.
Market conditions stabilised in the second half of the year, with the rate of
inflation starting to ease. With the expectation that interest rates will
begin to decrease at some point in 2024, market sentiment towards
growth-focused investments has improved, which fed through to an increase in
market multiples, used to value the Company's investments, in the final
quarter of the year.
Through this challenging period it was pleasing to see the positive
performance of the Company, which generated a 4.8 per cent return on its
opening net asset value in the year. Over the same period, the FTSE Small Cap
rose by 3.0 per cent, while the AIC's index of generalist VCTs reduced by 1.3
per cent on a Share Price Total Return basis.
This return has been driven by two continuing trends. First, portfolio
companies have adapted well to market conditions and, while focused on capital
efficiency, are still achieving good growth rates in most cases. Of the 23
companies valued on a revenue basis, all but four have demonstrated positive
revenue growth over the last 12 months, with eight delivering growth of over
40 per cent. This growth has helped to offset the impact of lower valuation
multiples at the start of the year, and leaves the portfolio well placed for
further growth as market conditions improve.
Second, the portfolio continues to achieve positive realisations in a market
where many firms have struggled to convert book values into cash. In the year
the Company exited four investments for combined proceeds of £4.1 million;
these were pleasing outcomes for the Company following challenging hold
periods for all of these assets, and reflects the Company's ethos of working
closely with management teams to generate positive returns from all of its
investments.
Financial Performance
In 2023, the Company delivered a 2.95 pence per ordinary share increase in
Total Return, equivalent to 4.8 per cent of the opening net asset value at 31
December 2022. Total Return is now 145.55 pence per ordinary share.
This was driven by the portfolio, which generated a return of £9.1 million,
11.2 per cent over its opening value, of which £1.1 million was realised and
£8.0 million unrealised. New and follow-on investments totalling £10.0
million were completed.
Realisations in the Year
Realisations of portfolio investments generated total proceeds of £4.1
million, a gain of £1.1 million over the opening carrying value and £0.8
million over the original cost. There were four realisations in the year:
Wakefield Acoustics, Ncam, E2E and MacroArt.
Wakefield Acoustics was realised in January, generating proceeds of £0.7
million and an overall return of 1.5x cost. The investment in Ncam was
realised in April, generating initial proceeds of £0.9 million, with the
potential for additional receipts of up to £0.8 million of deferred proceeds
over the coming years, which would see the Company fully recover its
investment. £0.2 million of deferred proceeds have been recognised at the
period end.
In November the Company exited its investment in E2E for £1.3 million,
representing a 2.5x return on the Company's cost; and MacroArt for £1.0
million, representing a 2.0x return on cost.
The Company has seen further realisations post-year-end, partially realising
its investments in KeTech and Arcus in January 2024, and fully exiting its
investment in Displayplan in February 2024, all at valuations in line with
fair value at 31 December 2023, and delivering a net realised gain of £5.5
million.
To maximise shareholder value, the KeTech business was split into its two
component parts, Rail and Defence. The Defence business was subsequently
sold in January 2024, generating proceeds of £1.5 million. To date, the
Company has realised proceeds of £4.1 million from its KeTech investment, a
2.0x return on cost, while still retaining its investment in the Rail
Business, which at year-end was valued at £1.3 million.
In February 2024, the Company sold its investment in Displayplan for £4.8
million. Total proceeds received over the life of the investment are £6.7
million, an excellent 9.6x return on the Company's cost. There is the
potential for further deferred proceeds in due course. The case study on
page 24 of the annual report provides further information on this investment.
Arcus was partially exited in January 2024. The Company received initial
proceeds of £0.2 million, with the potential for additional receipts as the
company develops.
New Investments
The Company invested £10.0 million in the year. Four new investments were
completed, totalling £6.9 million. In our continued support of the portfolio,
five companies received follow-on funding, totalling £3.1 million in
aggregate. This follow-on investment was lower than the prior year as
portfolio companies focused on capital efficiency, but it is expected that the
level of follow-on investment will increase again in 2024.
The new investments in 2023 were:
Investment Sector
DrDoctor Patient
engagement and communications software platform
GEEIQ Data
and market intelligence platform in the gaming space
Workbuzz SaaS based
employee engagement, survey and insights platform
Xapien
Automated background research software
Treasury
Due to the nature of its structure, a proportion of the Company's net assets
will be held in cash and cash equivalents at any point in time. As interest
rates have risen, the Company has taken an active approach to generating a
good return on liquid funds, whilst remaining focused on the primary goal of
capital preservation.
A portion of the Company's liquid assets are held across a diversified range
of Triple-A rated money market funds, managed by global institutions, while
the balance is held as readily accessible cash, all of which is held at Tier 1
Financial Institutions (A2 rated or above).
The Company's small externally managed listed portfolio was exited in the
period.
In the year, the Company generated a return of £1.4 million on its liquid
assets, and at year-end was generating a weighted run-rate return on these
assets of around 4.5 per cent per annum.
Financial Results
The movement in net asset value ("NAV") per ordinary share and the dividends
paid are set out in the table below:
Pence per £000
ordinary share
NAV at 31 December 2022 61.60 111,869
Increase in value 3.55 8,043
Gain on disposal of investments 0.45 1,018
Net underlying change in investment portfolio 4.00 9,061
Net operating costs (0.35) (769)
Incentive fee (0.70) (1,601)
Total Return in period 2.95 6,691
Issue/buy-back of new shares - 28,012
NAV before the payment of dividends 64.55 146,572
Dividends paid (5.25) (10,956)
NAV at 31 December 2023 59.30 135,616
Cumulative dividends paid 86.25
Total Return:
at 31 December 2023 145.55
at 31 December 2022 142.60
The charts on page 12 of the annual report show the movement in Total
Return and net asset value over time in greater detail.
The investments held at the beginning of the financial year, amounting to
£81.4 million, delivered a return over the year of £9.1 million.
The current portfolio's net valuation increased by £8.0 million. Within this
there were valuation gains of £11.6 million, offset by £3.6 million of
downward movements.
Following the portfolio's evolution towards younger, higher growth companies
after changes to VCT regulations in 2015, as expected the level of income
generated by the portfolio continues to decrease. Overall, £0.7 million was
recognised in the year, down from £0.8 million in 2022.
Dividends
Dividends paid in the year totalled 5.25 pence per ordinary share. These
comprised interim dividends of 5.25 pence per ordinary share for the year
ended 31 December 2023. Cumulative dividends paid as at 31 December 2023 were
86.25 pence per ordinary share.
An interim dividend for the year ending 31 December 2024 of 1.5 pence per
ordinary share will be paid on 28 June 2024, to shareholders on the register
at 31 May 2024.
Dividend Re-investment Scheme ("DRIS")
The Company operates a DRIS, which gives shareholders the opportunity to
re-invest any cash dividends; it is open to all shareholders, including those
who invested under the recent offers. The main advantages of the DRIS are:
1 the dividends remain tax free; and
2 any DRIS investment attracts income tax relief at
the rate of 30 per cent.
For the financial year ended 31 December 2023, £2.1 million was re-invested
by way of the DRIS, from overall dividend proceeds of £11.0 million.
Liquidity and Fundraising
The Company completed a successful fundraise during the year, allotting £27.5
million in April 2023, relating to the 2022/23 tax year.
At 31 December 2023, the Company's cash and money market reserves of £39.1
million represented 28.8 per cent of net assets.
Post-period end, a further £11.4 million of shares were allotted, relating to
the 2023/24 tax year. It is expected that a further c.£23.1 million will be
allotted in early April 2024, following the close of the Company's joint share
offer alongside British Smaller Companies VCT plc on 16 February 2024.
Board Changes
I am retiring as Chair at the end of this year's AGM. I am delighted to
announce that I will be succeeded by Barbara Anderson, who has served as a
director of the Company for three years.
Incentive Fee
Following discussions with YFM Private Equity Limited, the Company's Manager,
an additional annual performance hurdle has been added to the Company's
performance incentive fee, effective from 1 January 2024. Further details
are available within Note 3.
Annual General Meeting
The Annual General Meeting of the Company will be held at 9:30 am on 13 June
2024 at
Thomas House, 84 Ecclestone Square, London SW1V 1PX. Full details of the
agenda for this meeting are included in the Notice of the Annual General
Meeting on page 90 of the annual report.
Investor Workshop
The annual shareholder workshop held on 20 June 2023 was well attended.
Attendees heard from Tom Dunlop, CEO of Summize, and Philip Hunt, Chair of
Vuealta.
We also hosted an event by video platform on 27 November 2023, which included
presentations from Tom Whicher, CEO of DrDoctor, and Mal Barritt, CEO of
TravelTek.
We are pleased to announce that the next in-person shareholder workshop will
be held jointly with British Smaller Companies VCT plc on 20 June 2024 at One
Great George Street, Westminster, London SW1P 3AA.
The electronic communications policy continues to be a success, with 83 per
cent of shareholders now receiving communications in this way. Documents such
as the annual report are published on the website www.bscfunds.com
(http://www.bscfunds.com) rather than by post, saving on printing costs, as
well as being more environmentally friendly.
The Company's website, www.bscfunds.com (http://www.bscfunds.com) , is
refreshed on a regular basis and provides a comprehensive level of information
in what I hope is a user-friendly format.
Post Balance Sheet Events
Subsequent to the year end, the Company has invested £1.2 million into three
follow on investments. The Company also received £6.5 million from the
realisation of Displayplan, and the partial realisations of KeTech and Arcus,
as detailed above.
On 30 January 2024, the Company issued 19,533,372 shares in relation to the
2023/24 fundraising, raising gross proceeds of £11.4 million. Following this
allotment, the Company's issued share capital consists of 248,292,037 ordinary
shares with voting rights and 21,383,768 shares held in treasury.
Outlook
The final quarter of the year saw an improvement in the economic outlook, with
rates of inflation declining and a growing expectation of interest rate cuts
in 2024. However, we remain watchful for changes to this trend, as seen
recently with disruptions to shipping in the Red Sea linked to the instability
in the Middle East raising some concerns about rising input costs again.
Upcoming elections in the UK and US in 2024 may also impact economic
sentiment.
Portfolio companies continue to grow revenues in an efficient manner and are
expected to be well placed to grow further as macroeconomic conditions
improve. Equally, the Company's 2023/24 fundraising puts it in a strong
position to continue to support the portfolio's growth, as well as adding new
businesses through the coming year.
As I retire from the Board at the upcoming AGM, I am pleased with the position
in which I leave the Company and wish it, and my Board colleagues, well for
continued success in the future.
Peter Waller
Chair
15 March 2024
Objectives and Key Policies
The Company's objective is to maximise Total Return and provide investors
with a long-term tax free dividend yield whilst maintaining the Company's
status as a venture capital trust.
Investment Strategy
The Company seeks to build a broad portfolio of investments in early-stage
companies focused on growth, with the aim of spreading the maturity profiles
and maximising return, as well as ensuring compliance with the VCT
Regulations.
The Company predominantly invests in unquoted smaller companies and expects
that this will continue to make up the significant majority of the portfolio.
It will also retain holdings in cash or near-cash investments to provide a
reserve of liquidity which will maximise the Company's flexibility as to the
timing of investment acquisitions and disposals, dividend payments and share
buy-backs.
Unquoted investments are structured using various investment instruments,
including ordinary shares, preference shares, convertible securities and very
occasionally loan stock, to achieve an appropriate balance of income and
capital growth, having regard to the VCT Regulations. The portfolio is
diversified by investing in a broad range of industry sectors. The normal
investment period into the portfolio companies is expected to be typically
between the range of five to seven years.
Investment Policy
The investment policy of the Company is to invest in UK businesses across a
broad range of sectors that blends a mix of businesses operating in
established and emerging industries that offer opportunities in the
application and development of innovation in their products and services.
These investments will all meet the definition of a Qualifying Investment and
be primarily in unquoted UK companies. It is anticipated that the majority of
these will be re-investing their profits for growth and the investments will
comprise mainly equity instruments.
The Company seeks to build a broad portfolio of investments in early-stage
companies focused on growth with the aim of spreading the maturity profiles
and maximising return as well as ensuring compliance with the VCT guidelines.
Borrowing
The Company does not borrow and has no borrowing facilities, choosing to fund
investments from its own resources.
Co-investment
British Smaller Companies VCT2 plc and British Smaller Companies VCT plc
(together "the VCTs") typically co-invest in investments, allocating such
investments 40 per cent to the Company and 60 per cent to British Smaller
Companies VCT plc. However, the Board of the Company has discretion as to
whether or not to take up its allocation; where British Smaller Companies VCT
plc does not take its allocation, the Board may opt to increase the Company's
allocation in such opportunities.
The VCTs may invest alongside co-investment funds managed by YFM, the Manager
of the VCTs. The VCTs have first priority on all equity investment
opportunities meeting the VCT qualifying criteria. Non-VCT qualifying
investments are allocated to YFM's co-investment funds.
Asset Mix
Cash which is pending investment in VCT-qualifying securities is held in
interest bearing instant access, short-notice bank accounts and money market
funds.
Remuneration Policy
The Company's policy on the remuneration of its directors, all of whom are
non-executive, can be found on page 49 of the annual report.
Other Key Policies
Details of the Company's policies on the payment of dividends, the DRIS and
the buy-back of shares are given on page 1 of the annual report. In addition
to these the Company's anti-bribery and environmental and social
responsibilities policies can be found below.
Processes and Operations
The Manager is responsible for the sourcing and screening of investment
opportunities, carrying out suitable due diligence investigations and making
submissions to the Board regarding potential investments.
Post investment, the Manager works intensively with the businesses and
management teams in which the Company is invested, monitoring progress,
effecting change and, where applicable, redefining strategies with a view to
maximising values through structured exit processes.
The Board regularly monitors the performance of the portfolio and the
investment requirements set by the relevant VCT legislation. Reports are
received from the Manager regarding the trading and financial position of each
investee company and senior members of the Manager regularly attend the
Company's Board meetings. Monitoring reports on compliance with VCT
regulations are also received at each Board meeting so that the Board can
monitor that the Venture Capital Trust status of the Company is maintained and
take corrective action if appropriate. Monitoring reports carrying out an
independent review of this compliance are received twice a year.
The Board reviews the terms of YFM Private Equity Limited's appointment as
Manager on a regular basis.
YFM Private Equity Limited has performed investment advisory, management,
administrative and secretarial services for the Company since its inception on
28 November 2000. The principal terms of the agreement under which these
services are performed are set out in note 3.
In the opinion of the directors, the continuing appointment of YFM Private
Equity Limited as Manager is in the interests of the shareholders as a whole,
in view of its experience in managing venture capital trusts and in making,
managing and exiting investments of the nature falling within the Company's
investment policies.
Key Performance Indicators
Total Return, calculated by reference to the cumulative dividends paid plus
net asset value (excluding tax reliefs received by shareholders), is the
primary measure of performance in the VCT industry.
The chart on page 12 of the annual report shows how the Total Return of the
Company has developed over the last ten years.
The evaluation of comparative success of the Company's Total Return is by way
of reference to the Share Price Total Return for an index of generalist VCTs
that are members of the AIC (based on figures provided by Morningstar). This
is the Company's stated benchmark index. A comparison and explanation of the
calculation of this return is shown in the Directors' Remuneration Report on
page 51 of the annual report.
The chart on page 12 of the annual report illustrates the Total Return
(excluding tax reliefs received by shareholders) for investors who subscribed
to the first fundraising in 2000/01 who have re-invested their dividends.
Shareholder Returns
The Board considers Total Return to be the primary measure of shareholder
value. The IRR returns from the offers over the last ten years are set out on
page 13 of the annual report. IRR is the annual rate of return that equates
the cost at the date of the original investment, with the value of subsequent
dividends plus the audited 31 December 2023 net asset value. This excludes the
benefit of any initial tax relief.
Set out on page 13 of the annual report is the annualised return over 10,
5, 3, 2 and 1 years to 31 December 2023. The annualised return is calculated
with reference to the cumulative dividends paid in the period plus the audited
net asset value at 31 December 2023, compared to the net asset value at the
beginning of the relevant period.
Expenses
Ongoing Charges
The Ongoing Charges figure, as calculated in line with the AIC recommended
methodology, is used by the Board to monitor expenses. This figure shows
shareholders the costs of the Company's recurring operational expenses,
expressed as a percentage of the average net asset value. Whilst based on
historical information, this provides an indication of the likely level of
costs that will be incurred in managing the Company in the future.
Year to Year to
31 December 31 December
2023 2022
(%) (%)
Ongoing Charges figure* 2.14 2.08
* Alternative Performance Measure
Shareholders also benefit from the Company's agreement with the Manager to pay
a lower level of management fee of 1 per cent on surplus cash. The Company's
ongoing charges ratio is one of the lowest in the VCT industry.
Expenses Cap
The total costs incurred by the Company in the year (excluding any performance
related fees, trail commission payable to financial intermediaries and VAT) is
capped at 2.9 per cent of the total net asset value as at the relevant year
end. The treatment of costs in excess of the cap is described in note 3. There
was no breach of the expenses cap in the current or prior year.
Compliance with VCT Legislative Tests
A principal risk facing the Company is the retention of its VCT qualifying
status. The Board receives regular reports on compliance with the VCT
legislative tests from the Manager. In addition, the Board receives formal
reports from its VCT Tax Adviser (Philip Hare & Associates LLP) twice a
year. The Board confirms that during the period, all VCT legislative tests
have been met.
Under Chapter 3 Part 6 of the Income Tax Act 2007, in addition to the
requirement for a VCT's ordinary share capital to be listed in the Official
List on a European regulated market throughout the period, there are further
specific tests that VCTs must meet following the initial three year
provisional period.
Income Test
The Company's income in the period must be derived wholly or mainly (70 per
cent) from shares or securities.
Retained Income Test
The Company must not retain more than 15 per cent of its income from shares
and securities.
Qualifying Investments Test
At least 80 per cent by value of the Company's investments must be represented
throughout the period by shares or securities comprised in Qualifying
Investments of investee companies.
For shares issued in accounting periods beginning on or after 6 April 2018, at
least 30 per cent of those share issues must be invested in Qualifying
Investments of investee companies by the anniversary of the accounting period
in which those shares are issued.
Eligible Shares Test
At least 70 per cent of the Company's Qualifying Investments must be
represented throughout the period by holdings of non-preferential shares.
Investments made before 6 April 2018 from funds raised before 6 April 2011 are
excluded from this requirement.
At least 10 per cent of the Company's total investment in each Qualifying
Investment must be in eligible shares.
In addition, monies are not permitted to be used to finance buy-outs or
otherwise to acquire existing businesses or shares.
Investment Limits
There is an annual limit for each investee company which provides that they
may not raise more than £5 million of state aided investment (including from
VCTs) in the 12 months ending on the date of each investment (£10 million for
Knowledge Intensive Companies).
There is also a lifetime limit that a business may not raise more than £12
million of state aided investment (including from VCTs); the limit for
Knowledge Intensive Companies is £20 million.
Maximum Single Investment Test
The value of any one investment must not, at any time in the period, represent
more than 15 per cent of the Company's total investment value. This is
calculated at the time of investment and updated should there be further
additions; as such, it cannot be breached passively.
The Board can confirm that during the period, all of the VCT legislative tests
set out above have been met, where required.
Further restrictions placed on VCTs are:
Dividends from Cancelled Share Premium
The Finance Act 2014 introduced a restriction with respect to the use of
monies in respect of VCTs. In particular, no dividends can be paid out of
cancelled share premium arising from shares allotted on or after 6 April 2014
until at least three full financial years have elapsed from the date of
allotment.
In March 2022 the Company cancelled the balance of its Share Premium, £44.3
million, of which £16.7 million is now distributable. The remaining £27.6
million will become distributable over the period to 1 January 2026, as set
out under the Statement of Changes in Equity.
Other
No more than seven years can have elapsed since the first commercial sale
achieved by the business (ten years in the case of a Knowledge Intensive
Company), unless:
a. The business has previously received an investment
from a source that has received state aid; or
b. The investment comprises more than 50 per cent of the
average of the previous five years' turnover and the funds are to be used in
the business to fund growth into new product markets and/or new geographies.
Wherever possible, the Company self-assures that an investment is a Qualifying
Investment, subject to the receipt of professional advice.
Portfolio Structure and Analysis
Portfolio Structure
The broad range of the portfolio is illustrated on page 16 of the annual
report, with 41 per cent of the portfolio valuation being held for more than
five years, whilst 97 per cent is held at cost or above. 8 per cent of the
portfolio value is held in loans and preference shares, although loans now
account for only 3 per cent of the portfolio value.
Portfolio Analysis
Also included on page 17 of the annual report is a profile of the portfolio by
industry sector.
Investment Review
The movements in the investment portfolio are set out in Table A below:
Table A
Investment Portfolio
Portfolio Listed Investment
investment portfolio
funds
£million £million £million
Opening fair value at 1 January 2023 81.4 1.6 83.0
Additions 10.0 0.7 10.7
Disposal proceeds (4.1) (2.2) (6.3)
Valuation movement 9.1 (0.1) 9.0
Closing fair value at 31 December 2023 96.4 - 96.4
Accrued income 1.3 - 1.3
Financial assets - investments 97.7 - 97.7
At 31 December 2023 the investment portfolio was valued at £96.4 million,
representing 71.1 per cent of net assets (74.2 per cent at 31 December 2022).
Cash, cash equivalents and current asset investments at 31 December 2023 of
£39.1 million represent 28.8 per cent of net assets (25.5 per cent at 31
December 2022).
The Portfolio
£96.4 million Fair value of the portfolio (2022: £81.4 million)
26 Number of portfolio companies with a value of more than £0.75 million (2022: 25)
£0.7 million Income from the portfolio (2022: £0.8 million)
£10.0 million Level of investment in the year (2022: £16.3 million)
£9.1 million Return from the portfolio in the year (2022: £8.0 million)
The portfolio showed robust performance in the period, adding £9.1 million of
value on the opening fair value of £81.4 million. The composition of
investments continues to show its dynamism, with £10.0 million invested in
the period and cash proceeds of £4.1 million received.
Fair value changes
Table B
Investment Portfolio
£million %
Gain in fair value from the portfolio 8.0 88
Gain on disposal over opening value from the portfolio 1.1 12
Gain arising from the portfolio 9.1 100
Fall in value of listed investment funds/deferred income recognised -
Gain arising from the investment portfolio 9.1
Of the £9.1 million gain in the year, £1.1 million arose from investments
which were realised, including MacroArt (£0.6 million) and E2E (£0.5
million). Further details can be found in the Chair's Statement and note 7.
The ongoing portfolio delivered a net value gain of £8.0 million in the year.
It is pleasing to see the fair value increases arising across a range of
companies, including tech-focused businesses such as Unbiased, Traveltek,
SharpCloud, Vypr and AutomatePro, as well as legacy companies such as KeTech
and Displayplan.
Some decreases in value have been seen, as in Relative Insight and Sipsynergy;
but the Manager continues to work closely with the companies' management teams
to navigate their current challenges.
Other Significant Investment Movements
Investments
During the year ended 31 December 2023, the Company invested £10.0 million
across nine companies.
Four new companies were added to the portfolio, receiving aggregate investment
of £6.9 million; while a further £3.1 million was invested across five
existing portfolio companies. The analysis of these investments is shown in
Table C. The case study on page 24 of the annual report gives more information
on the investment in GEEIQ.
Table C
Investments
Company Investments made
New Follow-on Total
£million £million £million
DrDoctor 2.4 - 2.4
Workbuzz 1.7 - 1.7
Quality Clouds - 1.6 1.6
GEEIQ 1.6 - 1.6
Xapien 1.2 - 1.2
Relative Insight - 0.5 0.5
Force24 - 0.5 0.5
Vuealta - 0.3 0.3
Elucidat - 0.2 0.2
Portfolio 6.9 3.1 10.0
Listed investment funds 0.7
Total additions in the year 10.7
Disposal of Investments
During the year to 31 December 2023, the Company received proceeds from
disposals of £6.3 million (£4.1 million from the portfolio), a net gain of
£1.0 million over the opening carrying value at the beginning of the year,
and an overall net gain of £0.6 million over cost. This included the
successful realisations of E2E and MacroArt, as well as the small listed
investment funds portfolio (see below). Further details are given in the
Chair's statement above.
Table D
Disposal of Investments
Net Opening Gain (loss) on
proceeds value opening value
from sale 31 December £million
of investments 2022
£million £million
Portfolio 4.1 3.0 1.1
Listed investment funds* 2.2 2.3 (0.1)
Total investment disposals 6.3 5.3 1.0
* opening value includes additions made during the year.
Further analysis of all investments sold in the year can be found in note 7.
Investment Portfolio Composition
As at 31 December 2023, the portfolio was valued at £96.4 million, comprising
wholly of unquoted investments. An analysis of the movements in the year is
shown on in note 7.
The portfolio has 26 investments valued above £0.75 million, one more than a
year earlier, with the single largest investment, Matillion, representing 16.5
per cent of the net asset value.
The charts on pages 16 and 17 of the annual report show the diversity of the
portfolio, split by industry sector, age of investment, investment instrument
and the valuation compared to cost.
Under VCT legislation, it is not possible to deposit funds for longer than
seven days, which means that cash deposits must be available on very short
notice. Given the current environment of high interest rates the Company is
taking an active approach to cash management, whilst pursuing its primary aim
of capital preservation. This is effected through the use of a pool of money
market funds (which can be converted back to cash with immediate notice) and
cash deposits held with tier one banking institutions. £1.3 million of income
was earned from money market funds and bank deposits during the year. At 31
December 2023, the Company was achieving a weighted average return on liquid
assets of 4.5 per cent.
During the year, the Company realised its small diversified quoted portfolio
of listed investment funds, managed by Brewin Dolphin, held as part of its
previous treasury operations. This sale generated proceeds of £2.2 million.
Valuation Policy
Unquoted investments are valued in accordance with both IFRS 13 'Fair Value
Measurement' and International Private Equity and Venture Capital Guidelines,
December 2022 edition (the "IPEV Guidelines").
Initially, at the first quarter-end following investment, investments are
valued at the price of the funding round; following this, the valuation
switches to a new primary basis for all subsequent periods.
The valuation methodology applied depends upon the facts and circumstances of
each individual investment. This may be with reference to revenue multiples,
earnings multiples, net assets, discounted cash flows or calibrated from the
price of the most recent investment.
The full valuation policy is set out in note 1.
Table E shows the value of investments within each valuation category as at 31
December 2023.
With continued investment in earlier stage businesses that are investing for
growth, the majority of valuations continue to be based on revenue multiples.
Table E
Valuation Policy
2023 2022
Valuation % of % of
£million portfolio portfolio
by value by value
Revenue multiple 80.9 84 75
Earnings multiple 6.4 7 12
Sale proceeds 6.4 7 3
Cost or price of recent investment, reviewed for change in fair value 0.3 - 7
Net assets, reviewed for change in fair value 2.4 2 3
Total 96.4 100 100
Sustainable Investment and Environmental, Social and Governance ("ESG")
Management
The Company backs small UK businesses to help them to grow and produce strong
financial returns for shareholders with the additional aim of building better
businesses that are ultimately more sustainable.
In order to deliver more sustainable businesses, and to meet its commitments
under the Principles for Responsible Investment (PRI), the Manager has
continued to develop its processes in this area.
The Manager's approach is based on the belief that good businesses:
• Grow our economy
• Improve our society
• Value their people
• Protect the environment
These aims are consistent with the Company's financial aims because
businesses which improve in these areas also strengthen their resilience and
value creation potential through their increased attractiveness to customers,
employees, suppliers and eventual future owners and investors.
Sustainable Investment Principles
This set of principles guides the Manager's investment process:
• To seek to understand the ESG related impacts and potential impacts
on portfolio companies, aiming to grow and enhance positive outcomes and to
avoid, reduce or minimise any negative impacts over an investment's lifetime,
leaving them overall better businesses;
• To play a positive role in the investor, business and wider
communities by promoting good practice in ESG management, and by being
transparent in the way that investments are made and how the Manager behaves;
• To increase focus on the challenge of climate change both as it may
be affected by our investments, and as it may impact on them and their
resilience to possible climate change scenarios;
• To show leadership by managing the Manager's own business' ESG
impacts to the best of their ability; and
• To be a proactive signatory to the PRI and to integrate its
principles into the Manager's business practices.
In line with the PRI the Manager has developed processes to help the portfolio
businesses to be better in each of these spheres, by assessing them in terms
of creating positive impacts and outcomes and preventing or minimising
negative ones.
The Manager has more recently developed and integrated its ESG management
processes, which are:
Pre-investment Phase:
Structured processes at the pre-investment stage to identify areas of
potential ESG improvement as part of the due diligence and pre-investment
deliberations. Appropriate data is collected and assessed on each business
against ESG criteria at the point of investment as a benchmark against which
to evaluate future progress.
Portfolio Phase:
For those investments made since 2020, based on the data collected at the
point of investment at the start of the portfolio phase, bespoke areas for
improvement are agreed with each management team together with consequent
objectives and targets. A similar process has been applied to the significant
majority of investments made prior to 2020. Improvements are then measured
and recorded against a set of ESG criteria using the Manager's bespoke ESG
framework, refreshing targets annually and placing focus on any new issues as
they become more material in the management of the company and in meeting the
expectations of its stakeholders.
Reporting:
Annual reports will be produced, using the Manager's ESG framework for
consistency, recording the relevant initiatives, impacts and ESG KPI
performance of each company and providing an overview of progress across the
Manager's portfolios.
Note that Investment Companies are not within scope for reporting under the
Task Force on Climate-Related Financial Disclosures (TCFD); and the Company
does not use more than 40,000kWh of energy and therefore is not required to
report on its energy usage within Streamlined Energy and Carbon Reporting
regulations.
ESG Performance Data and Reporting
ESG KPI data analysis
The Manager has developed its ESG KPI data collation process. It has
established a data set reflecting the above ESG themes and a means of
collecting this to make year on year comparisons for each company and across
the portfolio. Where possible baseline data has been collected from the date
of investment with a view to showing where the Manager's support has made a
difference during the hold period to the reporting date.
Annual company specific ESG performance progress report
The reviews that the Manager has been conducting enabled the identification of
relative strengths and weaknesses and agreement of programmes of action with
each business.
Since 2021 the Manager has moved to recording annual updates and agreed
actions in a more visual and detailed report on both qualitative and
quantitative aspects of each company's progress. As well as using this for
portfolio reporting to investors it will be used as an engagement tool with
the senior management teams of each company.
2023 ESG KPI Report for Investments held in YFM's VCT funds
Growing our economy
• £74 million of R&D investment during 2023
• £115 million of export sales achieved in 2023
Improving our society
• 95 per cent of companies were independently chaired in 2023
• 45 per cent of companies had female directors on boards, with 15 per
cent having a female CEO/MD
• 65 per cent of businesses had a designated board member with
responsibility for improving ESG issues
Valuing our people
• 35 per cent of the portfolio workforce was female in 2023
• 750 new jobs were created from date of investment to 2023
representing a 50 per cent increase
• 60 per cent had mental wellbeing programmes in place and 80 per cent
held regular employee engagement surveys
• 43,000 hours of non-statutory training was given to employees
Protecting our environment
• 20 per cent formally measure their carbon footprint
• 10 per cent offset all or a defined portion of their carbon impact
• 15 per cent formally set a target date and strategy for achieving
net zero carbon emissions
Summary and Outlook
The portfolio continues to deliver good underlying revenue growth, while also
demonstrating good levels of capital efficiency over the past 12 months.
Portfolio companies continue to navigate difficult macroeconomic conditions
well, with the portfolio well placed to benefit from a hoped for improvement
in the economic environment in 2024.
We continue to see a good pipeline of potential investments in a range of
growth companies, as well as opportunities to further support the continued
growth of the current portfolio. We thank investors for their continuing
support in the Company's 2023/24 fundraising, and are looking forward to
putting the funds raised to work.
Eamon Nolan
YFM Private Equity Limited
15 March 2024
Portfolio Summary at 31 December 2023
Name of Date of Location Industry Amount Valuation at Recognised Realised &
company initial Sector invested 31 December income/ unrealised
investment 2023 proceeds value to date*
to date
£000 £000 £000 £000
Matillion Limited Nov-16 Manchester Data 1,778 22,334 5,946 28,280
Unbiased EC1 Limited Dec-19 London Tech-enabled Services 3,731 8,365 - 8,365
Outpost VFX Limited Feb-21 Bournemouth New Media 3,000 5,879 30 5,909
Displayplan Holdings Limited Jan-12 Stevenage Business Services 700 4,741 1,890 6,631
Elucidat Ltd May-19 Brighton Application Software 2,840 4,398 181 4,579
Force24 Ltd Nov-20 Leeds Application Software 2,600 4,126 12 4,138
Wooshii Limited May-19 London New Media 3,096 3,638 423 4,061
SharpCloud Software Limited Oct-19 London Data 2,271 3,309 - 3,309
Vypr Validation Technologies Limited Jan-21 Manchester Tech-enabled Services 2,200 3,222 - 3,222
ACC Aviation Group Limited Nov-14 Reigate Business Services 1,379 2,905 3,525 6,430
KeTech Holdings Limited/KeTech Technology Holdings Limited Nov-15 Nottingham Tech-enabled Services 2,000 2,765 2,599 5,364
Quality Clouds Limited May-22 London Cloud & DevOps 2,610 2,763 - 2,763
Traveltek Group Holdings Limited Oct-16 East Kilbride Application Software 1,163 2,731 626 3,357
Investment companies Apr-15 - - 2,500 2,443 71 2,514
DrDoctor (via ICNH Ltd) Feb-23 London Application Software 2,377 2,377 - 2,377
Workbuzz Analytics Limited Jun-23 Milton Keynes Application Software 1,718 2,111 - 2,111
AutomatePro Limited Dec-22 London Cloud & DevOps 1,483 2,088 - 2,088
Tonkotsu Limited Jun-19 London Retail & Brands 1,592 2,020 - 2,020
GEEIQ (via Checkpoint GG Limited) Sep-23 London Data 1,572 1,821 - 1,821
Vuealta Holdings Limited Sep-21 London Tech-enabled Services 2,386 1,660 3,070 4,730
Summize Limited Oct-22 Manchester Application Software 1,200 1,604 - 1,604
Frescobol Carioca Ltd Mar-19 London Retail & Brands 1,200 1,518 - 1,518
Plandek Limited Oct-22 London Cloud & DevOps 1,380 1,380 - 1,380
Relative Insight Limited Mar-22 Lancaster Tech-enabled Services 2,536 1,357 - 1,357
Xapien (via Digital Insight Technologies Limited) Mar-23 London Application Software 1,160 1,294 - 1,294
Biorelate Limited Nov-22 Manchester Application Software 1,040 1,146 - 1,146
Panintelligence (via Paninsight Limited) Nov-19 Leeds Data 1,000 1,046 - 1,046
Sipsynergy (via Hosted Network Services Limited) Jun-16 Hampshire Cloud & DevOps 2,045 715 1 716
Other investments below £0.5 million 9,296 671 4,506 5,177
Total unquoted investments 63,853 96,427 22,880 119,307
Full disposals to date 49,585 - 79,845 79,845
Total portfolio 113,438 96,427 102,725 199,152
*represents recognised income and proceeds received to date plus the
unrealised valuation at 31 December 2023.
Summary of Portfolio Movement since 31 December 2022
Name of Company Investment Disposal Additions Valuation Investment
valuation at proceeds gains including valuation at
31 December profits/(losses) 31 December
2022 on disposal 2023
£000 £000 £000 £000 £000
Unbiased EC1 Limited 6,072 - - 2,293 8,365
Traveltek Group Holdings Limited 1,359 - - 1,372 2,731
KeTech Holdings Limited/ KeTech Technology Holdings Limited 1,788 - - 977 2,765
SharpCloud Software Limited 2,508 - - 801 3,309
Displayplan Holdings Limited 4,109 - - 632 4,741
Vypr Validation Technologies Limited 2,598 - - 624 3,222
AutomatePro Limited 1,483 - - 605 2,088
Macro Art Holdings Limited 409 (990) - 581 -
Force24 Ltd 3,091 - 500 535 4,126
Tonkotsu Limited 1,485 - - 535 2,020
E2E Engineering Limited 800 (1,305) - 505 -
Matillion Limited 21,874 - - 460 22,334
Summize Limited 1,200 - - 404 1,604
Workbuzz Analytics Limited - - 1,718 393 2,111
GEEIQ (via Checkpoint GG Limited) - - 1,572 249 1,821
Frescobol Carioca Ltd 1,284 - - 234 1,518
Elucidat Ltd 4,039 - 200 159 4,398
Quality Clouds Limited 1,000 - 1,611 152 2,763
Xapien (via Digital Insight Technologies Limited) - - 1,160 134 1,294
Vuealta Holdings Limited/Vuealta Group Limited 1,192 - 357 111 1,660
Biorelate Limited 1,040 - - 106 1,146
Wakefield Acoustics (via Malvar Engineering) 648 (712) - 64 -
Panintelligence (via Paninsight Limited) 1,000 - - 46 1,046
DrDoctor (via ICNH Ltd) - - 2,377 - 2,377
Plandek Limited 1,380 - - - 1,380
Ncam Technologies Limited 1,175 (1,118) - (57) -
Outpost VFX Limited 6,202 - - (323) 5,879
Wooshii Limited 4,197 - - (559) 3,638
Sipsynergy (via Hosted Network Services Limited) 1,378 - - (663) 715
ACC Aviation Group Limited 3,575 - - (670) 2,905
Relative Insight Limited 2,010 - 536 (1,189) 1,357
Other investments £0.5 million and below 2,489 - - 625 3,114
Total investments 81,385 (4,125) 10,031 9,136 96,427
Accrued income 1,275
Financial assets - investments 97,702
Risk Factors
The Board carries out a regular review of the risk environment in which the
Company operates. The emerging and principal risks and uncertainties
identified by the Board and techniques used to mitigate these risks are set
out in this section.
The Board seeks to mitigate its emerging and principal risks by setting
policy, regularly reviewing performance and monitoring progress and
compliance. In the mitigation and management of these risks, the Board
rigorously applies the principles detailed in section 8: "Audit, Risk and
Internal Control" of the AIC Code. Details of the Company's internal controls
are contained in the Corporate Governance Internal Control section on pages 47
and 48 of the annual report and further information on exposure to risks,
including those associated with financial instruments, can be found in note
17a of the financial statements.
The Board carries out a regular review of the risk environment in which the
Company operates, together with changes to the operational environment and
idiosyncratic risks. The Board also identifies emerging risk which impact on
the Company. In the period the most notable emerging risks have been:
• Global trade: on-going global trade tensions between major economies
have the potential to disrupt global supply chains which could cause a
slowdown in economic activity.
• Geopolitical instability: geopolitical tensions, such as the
conflicts in the Middle East and Eastern Europe can create uncertainty,
disrupt global markets and create market volatility.
• Rising interest rates: whilst interest rates appear to be
stabilising, higher interest rates can increase borrowing costs for businesses
and consumers, potentially leading to reduced spending and investment, and
ultimately economic growth.
The principal risks the Company faces are considered in more detail below.
VCT Qualifying Status:
Risk - A failure to continue to meet the VCT qualifying criteria could result
in the loss of approved VCT status. The loss of such approval could lead to
investors losing the various tax benefits associated with VCT investments.
Mitigation - The Manager tracks the Company's VCT qualifying status on an
ongoing and continual basis. Furthermore, external independent experts have
been retained and report on the VCT qualifying status regularly throughout the
year.
The Manager reports to the Board on a quarterly basis.
Further information on these requirements can be found under the heading
"Compliance with VCT Legislative Tests" above.
Change - No overall change in risk exposure.
Economic:
Risk - Macroeconomic events such as geopolitical developments, external shocks
and economic recession could adversely affect smaller companies' valuations,
as they may be more vulnerable to changes in trading conditions or the sectors
in which they operate. This could lead to a reduction in the Company's share
price, resulting in capital losses for Shareholders.
Mitigation - The Board, in conjunction with the Manager, regularly assesses
the resilience of the portfolio. The Company has a clear Investment Policy
(summarised above) and invests in a diverse portfolio of companies across a
range of sectors, which helps to mitigate against the impact on any one
sector. The Manager also maintains adequate liquidity to make sure it can
provide follow-on investment to those portfolio companies which require it and
which is supported by the individual investment case.
Change - Up. Continued uncertainty in an environment that currently includes
high inflation, high interest rates and other economic factors.
Investment Performance:
Risk - The Company invests in small and medium-sized VCT qualifying companies,
which, by their nature, entail a higher level of risk and shorter cash runway
than investments in larger quoted companies. Poor performance could reduce
returns for shareholders through downward valuations.
Mitigation - The Board places reliance on the Manager's significant
experience, expertise and strong track record of investing in early-stage
unquoted companies. The Manager has a rigorous and robust formal process in
selecting new companies which includes appropriate due diligence and approval
by an Investment Committee made up of the senior members of the Manager's
investment team.
Change - No overall change in risk exposure.
Strategy:
Risk - The Board fails to set appropriate strategic objectives and fails to
monitor the Company's implementation of the strategy, which leads to poor
performance.
Poor performance leads to a lack of investor demand for the Company's shares
resulting in difficulty raising new capital and lack of cash available to fund
corporate activity.
Mitigation - The Board reviews strategy annually. At each of the Board
meetings, the directors review the appropriateness of the Company's objectives
and stated strategy in response to changes in the operating environment and
peer group activity. It also reviews compliance of the Manager with the stated
investment strategy.
Change - Up. Small increase due to the difficult macro environment and more
challenging trading conditions for some portfolio companies.
Legislative & Regulatory:
Risk - The Company fails to comply with applicable laws and regulations
including VCT Rules, UK Listing Authority Rules, AIC Code on Corporate
Governance, Stewardship Code, Companies Act, Bribery Act, Market Abuse
Regulations, data protection rules, Criminal Finances Act and relevant Taxes
Acts and as a result loses its approval as a VCT.
Changes to the UK legislation, in particular relating to the VCT Rules, could
have an adverse effect on the Company's ability to achieve satisfactory
investment returns.
Mitigation - The Manager ensures that it has suitably qualified members of
staff who are experienced with regulatory requirements and relevant accounting
standards. The Manager and the Company Secretary have procedures in place to
ensure recurring Listing Rules requirements are met.
The Board and Manager review corporate governance, regulatory legislative
change and political developments on a continual basis and seek additional
advice as and when required.
The Manager is a member of the Venture Capital Trust Association which engages
with the Government to help shape future legislation.
Change - Down. A reduction in this risk, as result of the ten year extension
of the VCT legislation sunset clause to 6 April 2035, continuing shareholders'
rights to income tax relief on newly issued shares.
Operational:
Risk - Key service providers, such as the Manager, have inadequate procedures
for the identification, evaluation and management of risks, cyber security and
data protection putting the Company's assets and data at risk.
Mitigation - The Board regularly reviews the system of internal controls, both
financial and non-financial operated by the Company and the Manager. These
include controls designed to ensure that the Company's assets are safeguarded
and proper accounting records are maintained.
Change - No overall change in risk exposure.
Cyber Security and Information Technology:
Risk - A failure in IT systems and controls might lead to business
interruption, loss of data, the inability of the Manager to provide accurate
reporting and monitoring or the loss of Company records.
Mitigation - The Manager has in place significant cybersecurity controls,
including multifactor authentication, email protection software, monitored
firewalls and regularly updated electronic devices. Staff at the Manager
regularly receive training in relation to their cybersecurity obligations. The
Manager is Cyber Essentials Plus certified.
Due diligence is conducted on other service providers, including a review on
their controls for information security.
Change - No overall change on balance, although cyber threat remains a
significant risk area faced by all service providers, with ever increasing
sophistication of attacks.
Liquidity:
Risk -
a. The Company may not have sufficient liquidity
available to meet its financial obligations.
b. The VCT invests in smaller unquoted companies, which
by their nature are illiquid, therefore they may be difficult to realise, at
fair market value, at short notice
Mitigation - The Company's overall liquidity risks and cashflow forecasts are
monitored on an ongoing basis by the Manager and on a quarterly basis by the
Board.
The Company's valuation methodology takes account of potential liquidity
restrictions in the markets in which it invests.
For any publicly listed investments, accounting standards require an ongoing
assessment of the liquidity of the stock.
The Manager regularly reviews its exit plans for investee companies to allow
it to identify the optimal point at which to seek a sale. As part of a planned
exit, the assistance of a third party adviser will normally be sought, with a
view to identifying the largest number of possible purchasers.
Change - Up. A small increase to reflect the potential impacts of economic
uncertainty, including the impacts on fundraising and ability to exit
investments.
Other Matters
Section 172 Statement
This Section 172 Statement should be read in conjunction with the other
contents of the Strategic Report, on pages 6 to 36 of the annual report.
Section 172 of the Companies Act 2006 requires that a director must act in the
way that they consider, in good faith, would be most likely to promote the
success of the company for the benefit of its members as a whole, and in doing
so have regard (amongst other matters) to:
• The likely consequences of any decision in the long term;
• The interests of the company's employees;
• The need to foster the company's business relationships with
suppliers, customers and others;
• The impact of the company's operations on the community and the
environment;
• The desirability of the company maintaining a reputation for high
standards of business conduct; and
• The need to act fairly as between members of the company.
The Company takes a number of steps to understand the views of investors and
other key stakeholders and considers these, along with the matters set out
above, in Board discussions and decision making.
Key Stakeholders
As an investment company with no employees, the Company's key stakeholders are
its investors, its service providers and its portfolio companies.
Investors
The Board engages and communicates with shareholders in a variety of ways.
The Company encourages shareholders to attend its Annual General Meeting.
Along with British Smaller Companies VCT plc, the Company held two Investor
Workshops during the year. An in-person workshop was held on 20 June 2023 and
an online webinar was hosted on 27 November 2023. Both were well attended.
Maintaining the Company's status as a VCT is critical to meeting the Company's
objective to maximise Total Return and provide investors with an attractive
long-term tax-free dividend yield. The Company receives regular reports on
this issue from the Manager and has taken various steps in the year to ensure
that the relevant tests are met.
The Board also aims for investors to continue to have tax efficient
opportunities to invest in the Company, and to generate tax-free returns from
both capital appreciation and ongoing dividends.
After carefully considering its funding needs, on 20 September 2023 the
Company issued a prospectus, alongside British Smaller Companies VCT plc, to
raise up to £90 million in aggregate for the 2023/24 tax year.
During the year the Board kept its arrangements for dividends, share buy-backs
and the dividend re-investment scheme under constant review. Along with normal
dividends totalling 3.0 pence per ordinary share in the year ended 31 December
2023, a special dividend of 2.25 pence per ordinary share was paid in January
2023, following the realisation of the Company's investments in Springboard
and Intelligent Office in 2022.
Manager
The Company's most important service provider is its Manager. There is regular
contact with the Manager, and members of the Manager's board attend all of the
Company's Board meetings. There is also an annual strategy meeting with the
Manager, alongside the board of British Smaller Companies VCT plc.
The Manager maintains strong relationships with relevant media publications
and a wide range of distributors for the Company's shares, including wealth
managers, independent financial advisers and execution-only brokers. RAM
Capital acts as a promoter of the Company's shares to smaller distributors.
The Company is a member of the Association of Investment Companies which
promotes the interests of investment companies, including VCTs. The Manager is
a founder member of the Venture Capital Trust Association, which promotes the
interests of VCTs in a variety of ways.
Portfolio Companies
The Company holds minority investments in its portfolio companies and has
delegated the management of the portfolio to the Manager. The Manager provides
the Board with regular updates on the performance of each portfolio company at
least quarterly and the Board is made aware of all major issues.
The Manager has a dedicated Portfolio team to assist the portfolio companies
with the challenges that they face as fast-growing companies. The Manager
promotes ongoing sustainable growth within the businesses; this often involves
improving systems and processes, as well as significant job creation.
Employees
The Company has no employees. The Board is composed of one female
non-executive director and two male non-executive directors. For a review of
the policies used when appointing directors to the Board of the Company,
please refer to the Directors' Remuneration Report.
Environment and Community
The Company seeks to ensure that its business is conducted in a manner that is
responsible to the environment. The management and administration of the
Company is undertaken by the Manager, YFM Private Equity Limited, which
recognises the importance of its environmental responsibilities and is a
signatory of the United Nations' Principles for Responsible Investment.
More details of the work that the Manager has achieved in this area are set
out above. Its Sustainable Investment Policy can be found at
www.yfmep.com/who-we-are/our_impact/.
Business Conduct
The Company has a zero tolerance approach to bribery and corruption. The
following is a summary of the controls in place:
• The Company conducts all its business in an honest and ethical
manner. The Company is committed to acting professionally, fairly and with
integrity in all its business dealings and relationships;
• The Company prohibits the offering, the giving, the solicitation or
the acceptance of any bribe;
• The Company has communicated its anti-bribery & corruption
policy to the Manager and its other service providers; and
• The Manager has its own Anti-Bribery & Corruption Policy and
monitors portfolio companies' compliance with their legal obligations.
Peter Waller
Chair
15 March 2024
Statement of Comprehensive Income
For the year ended 31 December 2023
Notes 2023 2022
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gains on investments held at fair value 7 - 8,043 8,043 - 4,287 4,287
Gain on disposal of investments 7 - 1,018 1,018 - 3,586 3,586
Gain arising from the investment portfolio - 9,061 9,061 - 7,873 7,873
Income 2 2,047 - 2,047 1,075 - 1,075
Total income 2,047 9,061 11,108 1,075 7,873 8,948
Administrative expenses:
Manager's fee (536) (1,611) (2,147) (447) (1,339) (1,786)
Incentive fee - (1,601) (1,601) - (635) (635)
Other expenses (669) - (669) (274) - (274)
3 (1,205) (3,212) (4,417) (721) (1,974) (2,695)
Profit before taxation 842 5,849 6,691 354 5,899 6,253
Taxation 4 - - - - - -
Profit for the year 842 5,849 6,691 354 5,899 6,253
Total comprehensive income for the year 842 5,849 6,691 354 5,899 6,253
Basic and diluted earnings per ordinary share 6 0.39p 2.69p 3.08p 0.20p 3.25p 3.45p
The accompanying notes on pages 65 to 89 of the annual report are an integral
part of these financial statements.
The Total column of this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with UK adopted international
accounting standards. The supplementary Revenue and Capital columns are
prepared under the Statement of Recommended Practice 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' (issued in July 2022 -
"SORP") published by the AIC.
Balance Sheet
At 31 December 2023
Notes 2023 2022
£000 £000
ASSETS
Non-current assets
Financial assets at fair value through profit or loss 7 97,702 82,981
Accrued income and other assets 210 948
97,912 83,929
Current assets
Accrued income and other assets 475 287
Current asset investments 23,500 1,988
Cash at bank 15,571 26,486
39,546 28,761
LIABILITIES
Current liabilities
Trade and other payables (1,842) (821)
Net current assets 37,704 27,940
Net assets 135,616 111,869
Shareholders' equity
Share capital 25,014 20,014
Share premium account 25,386 858
Capital redemption reserve 88 88
Other reserves 2 2
Merger reserve 5,525 5,525
Capital reserve 37,458 52,263
Investment holding gains and losses reserve 40,245 31,762
Revenue reserve 1,898 1,357
Total shareholders' equity 135,616 111,869
Net asset value per ordinary share 8 59.3p 61.6p
The accompanying notes on pages 65 to 89 of the annual report are an integral
part of these financial statements.
The financial statements were approved and authorised for issue by the Board
of Directors and were signed on its behalf on 15 March 2024.
Peter Waller
Chair
Statement of Changes in Equity
For the year ended 31 December 2023
Share Share Other Capital Investment Revenue Total
capital premium reserves* reserve holding gains reserve equity
account and losses
reserve
£000 £000 £000 £000 £000 £000 £000
Balance at 31 December 2021 15,808 24,122 5,615 12,818 28,009 1,003 87,375
Revenue return for the year - - - - - 354 354
Expenses charged to capital - - - (1,974) - - (1,974)
Investment holding gain on investments held at fair value - - - - 4,287 - 4,287
Realisation of investments in the year - - - 3,586 - - 3,586
Total comprehensive income for the year - - - 1,612 4,287 354 6,253
Issue of share capital 4,023 21,274 - - - - 25,297
Issue of shares - DRIS 183 902 - - - - 1,085
Issue costs ** - (1,125) - - - - (1,125)
Share premium cancellation - (44,315) - 44,315 - - -
Purchase of own shares - - - (1,572) - - (1,572)
Dividends - - - (5,444) - - (5,444)
Total transactions with owners 4,206 (23,264) - 37,299 - - 18,241
Realisation of prior year investment holding gains - - - 534 (534) - -
Balance at 31 December 2022 20,014 858 5,615 52,263 31,762 1,357 111,869
Revenue return for the year - - - - - 842 842
Expenses charged to capital - - - (3,212) - - (3,212)
Investment holding gain on investments held at fair value - - - - 8,043 - 8,043
Realisation of investments in the year - - - 1,018 - - 1,018
Total comprehensive (expense) income for the year - - (2,194) 8,043 842 6,691
Issue of share capital 4,636 24,077 - - - - 28,713
Issue of shares - DRIS 364 1,719 - - - 2,083
Issue costs ** - (1,268) - - - - (1,268)
Purchase of own shares - - - (1,516) - - (1,516)
Dividends - - - (10,655) - (301) (10,956)
Total transactions with owners 5,000 24,528 - (12,171) - (301) 17,056
Realisation of prior year investment holding losses - - - (440) 440 - -
Balance at 31 December 2023 25,014 25,386 5,615 37,458 40,245 1,898 135,616
The accompanying notes on pages 65 to 89 of the annual report are an integral
part of these financial statements.
Reserves available for distribution
Under the Companies Act 2006 the capital reserve and the revenue reserve are
distributable reserves. The table below shows amounts that are available for
distribution.
Capital Revenue Total
reserve reserve £000
£000 £000
Distributable reserves as shown above 37,458 1,898 39,356
Income/proceeds not yet distributable (253) (1,315) (1,568)
Revaluation losses (630) - (630)
Cancelled share premium not yet distributable (see below) (27,580) - (27,580)
Reserves available for distribution*** 8,995 583 9,578
* Other reserves include the capital redemption
reserve, the merger reserve and the other reserve, which are
non-distributable. The other reserve was created upon the exercise of
warrants, the capital redemption reserve was created for the purchase and
cancellation of own shares, and the merger reserve was created on the merger
with British Smaller Technologies Company VCT plc.
** Issue costs include both fundraising costs and costs
incurred from the Company's DRIS.
*** Following the circulation of the Annual Report to
shareholders.
The merger reserve was created to account for the difference between the
nominal and fair value of shares issued as consideration for the acquisition
of the assets and liabilities of British Smaller Technology Companies VCT plc.
The reserve was created after meeting the criteria under section 131 of the
Companies Act 1985 and the provisions of the Companies Act 2006 for merger
relief. The merger reserve is a non-distributable reserve.
The capital reserve and revenue reserve are both distributable reserves. The
reserves total £39,356,000, representing a decrease of £14,264,000 during
the year. The directors also take into account the level of the investment
holding gains and losses reserve and the future requirements of the Company
when determining the level of dividend payments.
Of the potentially distributable reserves of £39,356,000 shown above,
£1,568,000 relates to income/proceeds not yet distributable and £27,580,000
relates to cancelled share premium which will become distributable from the
dates shown in the table below. In addition revaluation losses of £630,000
included within the investment holding gains and losses reserve are not
considered to be recoverable.
Total share premium cancelled will be available for distribution from the
following dates:
£000
1 January 2025 7,387
1 January 2026 20,193
Cancelled share premium not yet distributable 27,580
Statement of Cash Flows
For the year ended 31 December 2023
Notes 2023 2022
£000 £000
Net cash outflow from operating activities (1,821) (5,911)
Cash flows generated from (used in) investing activities
Cash maturing from fixed term deposits 1,988 -
Purchase of financial assets at fair value through profit or loss 7 (10,696) (17,978)
Proceeds from sale of financial assets at fair value through profit or loss 7 6,031 12,929
Deferred consideration 7 27 4
Net cash outflow from investing activities (2,650) (5,045)
Cash flows from (used in) financing activities
Issue of ordinary shares 28,713 25,297
Costs of ordinary share issues* (1,268) (1,125)
Purchase of own ordinary shares (1,516) (1,572)
Dividends paid 5 (8,873) (4,359)
Net cash inflow from financing activities 17,056 18,241
Net increase in cash and cash equivalents 12,585 7,285
Cash and cash equivalents at the beginning of the year 26,486 19,201
Cash and cash equivalents at the end of the year 39,071 26,486
* Issue costs include both fundraising costs and
expenses incurred from the Company's DRIS
Cash and cash equivalents comprise:
Money market funds 23,500 -
Cash at bank 15,571 26,486
Cash and cash equivalents at the end of the year 39,071 26,486
Reconciliation of Profit before Taxation to Net Cash Outflow from Operating
Activities
2023 2022
£000 £000
Profit before taxation 6,691 6,253
Increase (decrease) in trade and other payables 1,021 (3,722)
Increase in accrued income and other assets* (472) (529)
Gain on disposal of investments (1,018) (3,586)
Gains on investments held at fair value (8,043) (4,287)
Capitalised income - (40)
Net cash outflow from operating activities (1,821) (5,911)
* Includes accrued income and other assets disclosed
in Note 7 - Financial Assets at Fair Value through Profit or Loss -
Investments.
The accompanying notes on pages 65 to 89 of the annual report are an integral
part of these financial statements.
Notes to the Financial Statements
1. Principal Accounting Policies
Basis of Preparation
The accounts have been prepared on a going concern basis as set out in the
Directors Report on page 38 of the annual report and in accordance with UK
adopted international accounting standards.
The directors have carefully considered the issue of going concern in view of
the Company's activities and associated risks. The Company has a
well-diversified portfolio with businesses in a variety of sectors, many of
which are well funded. Some portfolio companies may require additional funding
in the near- to medium-term; the Company is well placed to provide this, where
appropriate.
The Company has a significant level of liquidity, which will be further
enhanced by the current fundraising. In addition, the Board has control over,
and can flex as appropriate, the Company's major outgoings, which
predominantly comprise investments, dividends and share buy-backs.
The directors have also assessed whether material uncertainties exist and
their potential impact on the Company's ability to continue as a going
concern; they have concluded that no such material uncertainties exist.
Taking all of the above into consideration, the directors are satisfied that
the Company has sufficient resources to meet its obligations for at least 12
months from the date of this report and therefore believe that it is
appropriate to continue to apply the going concern basis of accounting in
preparing the financial statements.
The financial statements have been prepared under the historical cost basis as
modified by the measurement of investments at fair value through profit or
loss.
The accounts have been prepared in compliance with the recommendations set out
in the Statement of Recommended Practice 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts' issued by the Association of
Investment Companies (issued in July 2022 - the "SORP") to the extent that
they do not conflict with UK adopted international accounting standards.
The financial statements are prepared in accordance with UK adopted
international accounting standards (International Financial Reporting
Standards ("IFRS") and International Accounting Standards ("IAS")) and
interpretations in force at the reporting date. From 1 January 2023 IAS 1 has
been amended introducing the concept Material Accounting Policy Information.
The Company has performed a review of its existing accounting policies and
updated where relevant. Other new standards coming into force during the year
and future standards that come into effect after the year-end have not had a
material impact on these financial statements.
The Company has carried out an assessment of accounting standards, amendments
and interpretations that have been issued by the IASB and that are effective
for the current reporting period. The Company has determined that the
transitional effects of the standards do not have a material impact.
The financial statements are presented in sterling and all values are rounded
to the nearest thousand (£000), except where stated:
Financial Assets held at Fair Value through Profit or Loss - Investments
Financial assets designated as at fair value through profit or loss ("FVPL")
at inception are those that are managed and whose performance is evaluated on
a fair value basis, in accordance with the documented investment strategy of
the Company. Information about these financial assets is provided internally
on a fair value basis to the Company's key management. The Company's
investment strategy is to invest cash resources in venture capital investments
as part of the Company's long-term capital growth strategy. Consequently, all
investments are classified as held at fair value through profit or loss.
All investments are measured at fair value on the whole unit of account basis
with gains and losses arising from changes in fair value being included in the
Statement of Comprehensive Income as gains or losses on investments held at
fair value. Accrued income on loans/preference shares that is rolled to exit
and is not yet past due, forms part of the investment's fair value.
Transaction costs on purchases are expensed immediately through profit or
loss.
Although the Company holds more than 20 per cent of the equity of certain
companies, it is considered that the investments are held as part of the
investment portfolio, and their value to the Company lies in their marketable
value as part of that portfolio. These investments are therefore not accounted
for using equity accounting, as permitted by IAS 28 'Investments in
associates' and IFRS 11 'Joint arrangements' which give exemptions from equity
accounting for venture capital organisations.
Under IFRS 10 "Consolidated Financial Statements", control is presumed to
exist when the Company has power over an investee (whether or not used in
practice); exposure or rights; to variable returns from that investee, and
ability to use that power to affect the reporting entities returns from the
investees. The Company does not hold more than 50 per cent of the equity of
any of the companies within the portfolio. The Company does not control any of
the companies held as part of the investment portfolio. It is not considered
that any of the holdings represent investments in subsidiary undertakings.
Valuation of Investments
Unquoted investments are valued in accordance with IFRS 13 "Fair Value
Measurement" and using the International Private Equity and Venture Capital
Valuation Guidelines (the "IPEV Guidelines"). Quoted investments are valued at
market bid prices. A detailed explanation of the valuation policies of the
Company is included below.
Initial Measurement
The best estimate of the initial fair value of an unquoted investment is the
cost of the investment. Unless there are indications that this is
inappropriate, an unquoted investment will be held at this value within the
first three months of investment.
Subsequent Measurement
Based on the IPEV Guidelines we have identified six of the most widely used
valuation methodologies for unquoted investments. The IPEV Guidelines advocate
that the best valuation methodologies are those that draw on external,
objective market-based data in order to derive a fair value.
Unquoted Investments
• Revenue multiples. An appropriate multiple, given the risk profile
and revenue growth prospects of the underlying company, is applied to the
revenue of the company. The multiple is adjusted to reflect any risk
associated with lack of marketability and to take account of the differences
between the investee company and the benchmark company or companies used to
derive the multiple.
• Earnings multiple. An appropriate multiple, given the risk profile
and earnings growth prospects of the underlying company, is applied to the
maintainable earnings of the company. The multiple is adjusted to reflect any
risk associated with lack of marketability and to take account of the
differences between the investee company and the benchmark company or
companies used to derive the multiple.
• Net assets. The value of the business is derived by using
appropriate measures to value the assets and liabilities of the investee
company.
• Discounted cash flows of the underlying business. The present value
of the underlying business is derived by using reasonable assumptions and
estimations of expected future cash flows and the terminal value, and
discounted by applying the appropriate risk-adjusted rate that quantifies the
risk inherent in the company.
• Discounted cash flows from the investment. Under this method, the
discounted cash flow concept is applied to the expected cash flows from the
investment itself rather than the underlying business as a whole.
• Price of recent investment. This may represent the most appropriate
basis where a significant amount of new investment has been made by an
independent third party. This is adjusted, if necessary, for factors relevant
to the background of the specific investment such as preference rights and
will be benchmarked against other valuation techniques. In line with the IPEV
Guidelines the price of recent investment will usually only be used for the
initial period following the round and after this an alternative basis will be
found.
Due to the significant subjectivity involved, discounted cash flows are only
likely to be reliable as the main basis of estimating fair value in limited
situations. Their main use is to support valuations derived using other
methodologies and for assessing reductions in fair value.
One of the valuation methods described above is used to derive the gross
attributable enterprise value of the company after which adjustments are then
made to reflect specific circumstances. This value is then apportioned
appropriately to reflect the respective debt and equity instruments in the
event of a sale at that level at the reporting date.
Listed Investment Funds
Listed investment funds are valued at active market bid price. An active
market is defined as one where transactions take place regularly with
sufficient volume and frequency to determine price on an ongoing basis. There
were no listed investment funds held at 31 December 2023.
Income
Dividends and interest are received from financial assets measured at fair
value through profit and loss and are recognised on the same basis in the
Statement of Comprehensive Income. This includes interest and preference
dividends rolled up and/or payable at redemption. Interest income is also
received on cash, cash equivalents and current asset investments. Dividend
income from unquoted equity shares is recognised at the time when the right to
the income is established.
Expenses
Expenses are accounted for on an accruals basis. Expenses are charged through
the Revenue column of the Statement of Comprehensive Income, except for the
Manager's fee and incentive fees. Of the Manager's fees 75 per cent are
allocated to the Capital column of the Statement of Comprehensive Income, to
the extent that these relate to an enhancement in the value of the investments
and in line with the Board's expectation that over the long term 75 per cent
of the Company's investment returns will be in the form of capital gains. The
incentive fee payable to the Manager (as set out in note 3) is charged wholly
through the Capital column.
Tax relief is allocated to the Capital Reserve using a marginal basis.
Incentive Fee
The incentive fee is accounted for on an accruals basis. As further detailed
in note 3, the incentive fee is calculated as 20 per cent of the amount by
which the cumulative dividends per ordinary share paid as at the last business
day in December in any year, plus the average of the Company's middle market
price per ordinary share on the five dealing days prior to that day, exceeds
the Hurdle (as defined in note 3), multiplied by the number of ordinary shares
issued and the ordinary shares under option. At the end of each reporting
period, an accrual is recognised based upon the cumulative dividends per
ordinary share paid to the reporting date, plus the average of the Company's
middle market price per ordinary share on the five dealing days prior to the
reporting date. The incentive fee is charged wholly through the Capital
column.
Cash, Cash Equivalents and Current Asset Investments
Cash at bank comprises cash at hand and bank deposits with an original
maturity of less than three months, readily convertible to a known amount of
cash and subject to an insignificant risk of changes in value.
Current asset investments comprise money market funds and balances held in
fixed term deposits which mature after three months.
Cash and cash equivalents include cash at hand, money market funds and bank
deposits repayable on up to three months' notice as these meet the definition
in IAS 7 'Statement of cash flows' of a short-term highly liquid investment
that is readily convertible into known amounts of cash and subject to
insignificant risk of change in value.
Balances held in fixed term deposits which mature after three months are not
classified as cash and cash equivalents, as they do not meet the definition in
IAS 7 'Statement of cash flows' of short-term highly liquid investments.
Cash and cash equivalents are valued at amortised cost, which equates to fair
value.
Cash flows classified as "operating activities" for the purposes of the
Statement of Cash Flows are those arising from the Revenue column of the
Statement of Comprehensive Income, together with the items in the Capital
column that do not fall to be easily classified under the headings for
"investing activities" given by IAS 7 'Statement of cash flows', being
management and incentive fees payable to the Manager. The capital cash flows
relating to the acquisition and disposal of investments are presented under
"investing activities" in the Statement of Cash Flows in line with both the
requirements of IAS 7 and the positioning given to these headings by general
practice in the industry.
Share Capital and Reserves
Share Capital
This reserve contains the nominal value of all shares allotted under offers
for subscription.
Share Premium Account
This reserve contains the excess of gross proceeds less issue costs over the
nominal value of shares allotted under offers for subscription, to the extent
that it has not been cancelled.
Capital Reserve
The following are included within this reserve:
• Gains and losses on realisation of investments;
• Realised losses upon permanent diminution in value of investments;
• Capital income from investments;
• 75 per cent of the Manager's fee expense, together with the related
taxation effect to this reserve in accordance with the policy on expenses in
note 1 of the financial statements;
• Incentive fee payable to the Manager;
• Capital dividends paid to shareholders;
• Applicable share issue costs;
• Purchase and holding of the Company's own shares; and
• Credits arising from the cancellation of any share premium account.
Investment Holding Gains and Losses Reserve
Increases and decreases in the valuation of investments held at the year end
are accounted for in this reserve, except to the extent that the diminution is
deemed permanent.
Revenue Reserve
This reserve includes all revenue income from investments along with any costs
associated with the running of the Company - less 75 per cent of the Manager's
fee expense as detailed in the Capital Reserve above.
Taxation
Due to the Company's status as a venture capital trust and the continued
intention to meet the conditions required to comply with Chapter 3 Part 6 of
the Income Tax Act 2007, no provision for taxation is required in respect of
any realised or unrealised appreciation of the Company's investments which
arises. Deferred tax is recognised on all temporary differences that have
originated, but not reversed, by the balance sheet date.
Deferred tax assets are only recognised to the extent that they are regarded
as recoverable. Deferred tax is calculated at the tax rates that are expected
to apply when the asset is realised. Deferred tax assets and liabilities are
not discounted.
Dividends Payable
Dividends payable are recognised only when an obligation exists. Interim and
special dividends are recognised when paid and final dividends are recognised
when approved by shareholders in general meetings.
Segmental Reporting
In accordance with IFRS 8 'Operating Segments' and the criteria for
aggregating reportable segments, segmental reporting has been determined by
the directors based upon the reports reviewed by the Board. The directors are
of the opinion that the Company has engaged in a single operating segment -
investing in equity and debt securities within the United Kingdom - and
therefore no reportable segmental analysis is provided.
Critical Accounting Estimates and Judgements
The preparation of financial statements in conformity with generally accepted
accounting practice requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Although these estimates are based on management's best
knowledge of the amount, event or actions, actual results may ultimately
differ from those estimates. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are those used to
determine the fair value of investments at fair value through profit or loss,
as disclosed in note 7 to the financial statements.
The fair value of investments at fair value through profit or loss is
determined by using valuation techniques. As explained above, the Board uses
its judgement to select from a variety of methods and makes assumptions that
are mainly based on market conditions at each balance sheet date.
The Board uses its judgement to select the appropriate method for determining
the fair value of investments through profit or loss.
2. Income
2023 2022
£000 £000
Dividends from unquoted companies 531 642
Interest on loans to unquoted companies 152 206
Income from unquoted portfolio 683 848
Income from listed investment funds 47 22
Income from investments held at fair value through profit or loss 730 870
Interest from bank deposits/money market funds 1,317 205
2,047 1,075
3. Administrative Expenses
2023 2022
£000 £000
Manager's fee 2,147 1,786
Administration fee 85 75
Total payable to YFM Private Equity Limited 2,232 1,861
Incentive fee 1,601 635
Other expenses:
General expenses 135 120
Directors' remuneration 112 106
Listing and registrar fees 93 68
Trail commission 75 59
Auditor's remuneration - audit fees (excluding irrecoverable VAT) 63 62
Printing 57 40
Irrecoverable VAT 49 43
4,417 2,994
Fair value movement related to credit risk - (299)
4,417 2,695
Ongoing charges figure 2.14% 2.08%
Directors' remuneration comprises only short term benefits including social
security contributions of £10,000 (2022: £10,000).
The directors are the Company's only key management personnel.
No fees are payable to the auditor in respect of other services (2022: £nil).
YFM Private Equity Limited has acted as Manager and performed administrative
and secretarial duties for the Company under an Investment Agreement dated 28
November 2000, superseded by an agreement dated 31 October 2005 and as varied
by agreements dated 8 December 2010, 26 October 2011, 16 November 2012, 17
October 2014, 7 August 2015 and 13 November 2019 (the "IA"). The agreement may
be terminated by not less than twelve months' notice given by either party at
any time. Under an Investment Agreement dated 13 November 2019, YFM Private
Equity Limited was appointed as the Company's Alternative Investment Fund
Manager. On 19 September 2023 YFM Private Equity Limited was approved as a
full-scope Alternative Investment Fund Manager, from this date Thompson Taraz
Depositary Limited were appointed as the Depositary and assumed responsibility
for asset safekeeping, cash flow monitoring and oversight duties.
The key features of the agreement are:
• YFM Private Equity Limited receives a Manager's fee, payable
quarterly in advance, calculated at half-yearly intervals as at 30 June and 31
December. The fee is allocated between capital and revenue as described in
note 1;
• The annual Manager's fee payable to the Manager is 1.0 per cent on
all surplus cash, defined as all cash above £5 million. The annual fee on all
other assets will be 2.0 per cent of net assets per annum. Based on the
Company's net assets at 31 December 2023 of £135,616,000, and cash and cash
equivalents of £39,071,000 at that date this equates to approximately
£2,372,000 per annum;
• YFM Private Equity Limited shall bear the annual operating costs of
the Company (including the Manager's fee set out above but excluding any
payment of the performance incentive fee, details of which are set out below
and excluding VAT and trail commissions) to the extent that those costs exceed
2.9 per cent of the net asset value of the Company; and
• Under the IA, YFM Private Equity Limited also provides
administrative and secretarial services to the Company for a fee of £46,000
per annum plus annual adjustments to reflect movements in the Retail Prices
Index. This fee is charged fully to revenue, and totalled £85,000 for the
year ended 31 December 2023 (2022: £75,000).
When the Company makes investments into its unquoted portfolio, the Manager
charges that investee an advisory fee. With effect from 1 October 2013, if the
average of relevant fees exceeds 3.0 per cent of the total invested into new
portfolio companies and 2.0 per cent into follow-on investments over the
Company's financial year, this excess will be rebated to the Company. As at 31
December 2023, the Company was due a rebate from the Manager of £nil (2022:
£nil).
Monitoring and directors' fees the Manager receives from the investee
companies are limited to a maximum of £40,000 (excluding VAT) per annum per
company.
The total remuneration payable to YFM Private Equity Limited under the IA in
the year was £2,232,000 (2022: £1,861,000).
Under the IA, YFM Private Equity Limited is entitled to receive fees from
investee companies in respect of the provision of non-executive directors and
other advisory services. YFM Private Equity Limited is responsible for paying
the due diligence and other costs incurred in connection with proposed
investments which for whatever reason do not proceed to completion. In the
year ended 31 December 2023, the fees receivable by YFM Private Equity Limited
from investee companies which were attributable to advisory and directors' and
monitoring fees amounted to £1,869,000 (2022: £2,026,000).
Under the Subscription Rights Agreement dated 23 November 2001 between the
Company, YFM Private Equity Limited and Chord Capital Limited ("Chord"
formerly Generics Asset Management Limited), as amended by an agreement
between those parties dated 31 October 2005, YFM Private Equity Limited and
Chord have a performance-related incentive, structured so as to entitle them
to an amount equivalent to 20 per cent of the amount by which the cumulative
dividends per ordinary share paid as at the last business day in December in
any year, plus the average of the middle market price per ordinary share on
the five dealing days prior to that day (the "Share Price"), exceeds 120 pence
per ordinary share, multiplied by the number of ordinary shares issued and the
ordinary shares under option (if any) (the "Hurdle"). Under the terms of the
Subscription Rights Agreement, once the Hurdle has been exceeded it is reset
at that value going forward, which becomes the new Hurdle. Any subsequent
exercise of these rights will only occur once the new Hurdle has been
exceeded. The subscription rights are exercisable in the ratio 95:5 between
the Manager and Chord Capital Limited.
By a Deed of Assignment dated 19 December 2003 (together with a supplemental
agreement dated 5 October 2005), the benefit of the YFM Private Equity Limited
subscription right was assigned to YFM Private Equity Limited Carried Interest
Trust (the "Trust"), an employee benefit trust formed for the benefit of
certain employees of YFM Private Equity Limited and associated companies.
Pursuant to a deed of variation dated 16 November 2012 between the Company,
the trustees of the Trust and Chord, the Subscription Rights Agreement was
varied so that the subscription rights will be exercisable in the ratio of
95:5 between the trustees of the Trust and Chord. Pursuant to a deed of
variation dated 5 August 2014 the Subscription Rights Agreement was varied so
that the recipient was changed from the Trust to YFM Private Equity Limited.
Pursuant to a deed of variation dated 13 November 2019 the Subscription Rights
Agreement was varied so that the recipients can elect to receive the incentive
in the form of shares or cash.
As at 31 December 2022, the total of cumulative cash dividends paid and the
Share Price was 137.25 pence per ordinary share. Consequently the Hurdle was
exceeded and a performance related incentive of £635,000 for the year ended
31 December 2022 was paid. The Hurdle for the year ending 31 December 2023 was
reset at 137.25 pence per ordinary share.
As at 31 December 2023 the total of cumulative cash dividends paid and the
Share Price was 140.75 pence per ordinary share. Consequently the Hurdle was
exceeded and a performance related incentive of £1,601,000 for the year ended
31 December 2023 is payable.
The Company, the Manager and Chord have agreed to amend the current agreement
with effect from 1 January 2024. The Hurdle for each financial year will be
increased by an agreed percentage of the corresponding Share Price for each of
the five years starting from the year ending 31 December 2024, commencing with
1 per cent for the year ending 31 December 2024 and increasing by an
additional 1 per centage point per year until the year ending 31 December 2028
when the increase to the Hurdle will be 5 per cent of the corresponding Share
Price. Following the changes, the Hurdle for the year ending 31 December 2024
was reset at 141.295 pence per ordinary share. In addition, from 1 January
2027 the subscription rights will be wholly exercisable to the Manager.
If the IA is terminated, the beneficiaries of the Incentive Agreement will
continue to be entitled to the Incentive Payment. The Incentive Payment will
be modified so as to entitle the recipients to an Incentive Payment that is
fair, having regard to all the circumstances.
Under the terms of the offer launched with British Smaller Companies VCT plc
on 30 November 2022, YFM Private Equity Limited was entitled to 3.0 per cent
of gross subscriptions, (3.5 per cent for Applications received from
Applicants who did not invest their money through a financial intermediary
advisor and invested directly into the Company) less commissions payable to an
execution-only broker or platform. The net amount paid to YFM Private Equity
Limited under this offer amounted to £859,000.
Under the terms of the offer launched with British Smaller Companies VCT plc
on 20 September 2023, YFM Private Equity Limited will be entitled to 3.0 per
cent of gross subscriptions, (3.5 per cent for Applications received from
Applicants who did not invest their money through a financial intermediary
advisor and invested directly into the Company) less commissions payable to an
execution-only broker or platform.
The details of directors' remuneration are set out in the Directors'
Remuneration Report on page 50 of the annual report under the heading
"Directors' Remuneration for the year ended 31 December 2023 (audited)".
4. Taxation
2023 2022
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Profit before taxation 842 5,849 6,691 354 5,899 6,253
Profit before taxation multiplied by standard rate of corporation tax in UK of 160 1,111 1,271 67 1,121 1,188
19% (2022: 19%)
Effect of:
UK dividends received (101) - (101) (172) - (172)
Non-taxable profits on investments - (1,721) (1,721) - (1,496) (1,496)
Deferred tax not recognised (59) 610 551 105 375 480
Tax charge - - - - - -
The Company has no provided or unprovided deferred tax liability in either
year.
Deferred tax assets of £4,420,000 (2022: £3,703,000) calculated at 25%
(2022: 25%) in respect of unrelieved management expenses (£17.68 million as
at 31 December 2023 and £14.81 million as at 31 December 2022) have not been
recognised as the directors do not currently believe that it is probable that
sufficient taxable profits will be available against which assets can be
recovered.
Due to the Company's status as a venture capital trust and the continued
intention to meet with the conditions required to comply with Section 274 of
the Income Tax Act 2007, the Company has not provided for deferred tax on any
capital gains or losses arising on the revaluation or realisation of
investments.
5. Dividends
Amounts recognised as distributions to equity holders in the period to 31
December:
2023 2022
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Interim dividend for the year ended 31 December 2023 of 2.25p (2022: 1.5p) per - 4,097 4,097 - 2,718 2,718
ordinary share
Second interim dividend for the year ended 31 December 2023 of 1.5p (2022: 301 3,130 3,431 - 2,726 2,726
1.5p) per ordinary share
Third interim dividend for the year ended 31 December 2023 of 1.5p per - 3,428 3,428 - - -
ordinary share
301 10,655 10,956 - 5,444 5,444
Proceeds from shares allotted under DRIS (2,083) (1,085)
Dividends paid in Statement of Cash Flows 8,873 4,359
The first interim dividend of 2.25 pence per ordinary share was paid on 11
January 2023 to shareholders on the register as at 18 November 2022.
The second interim dividend of 1.5 pence per ordinary share was paid on 26
June 2023 to shareholders on the register as at 12 May 2023.
The third interim dividend of 1.5 pence per ordinary share was paid on 3
November 2023 to shareholders on the register as at 6 October 2023.
An interim dividend of 1.5 pence per ordinary share, in respect of the year
ending 31 December 2024, will be paid on 28 June 2024 to shareholders on the
register on 31 May 2024. This dividend was not recognised in the year ended 31
December 2023 as the obligation did not exist at the balance sheet date.
6. Basic and Diluted Earnings per Ordinary Share
The basic and diluted earnings per ordinary share is based on the profit after
tax attributable to shareholders of £6,691,000 (2022: £6,253,000) and
217,157,606 (2022: 181,163,554) ordinary shares being the weighted average
number of ordinary shares in issue during the year.
The basic and diluted revenue earnings per ordinary share is based on the
revenue profit for the year attributable to shareholders of £842,000 (2022:
£354,000) and 217,157,606 (2022: 181,163,554) ordinary shares being the
weighted average number of ordinary shares in issue during the year.
The basic and diluted capital earnings per ordinary share is based on the
capital profit for the year attributable to shareholders of £5,849,000 (2022:
£5,899,000) and 217,157,606 (2022: 181,163,554) ordinary shares being the
weighted average number of ordinary shares in issue during the year.
During the year the Company allotted 3,649,583 new ordinary shares in respect
of its DRIS and 46,357,328 new ordinary shares from the fundraising.
The Company has also repurchased 2,716,956 of its own shares in the year, and
these shares are held in the capital reserve. The total of 21,383,768 treasury
shares has been excluded in calculating the weighted average number of
ordinary shares for the period. The Company has no securities that would have
a dilutive effect and hence basic and diluted earnings per ordinary share are
the same.
The Company has no potentially dilutive shares and consequently, basic and
diluted earnings per ordinary share are equivalent in both the year ended 31
December 2023 and 31 December 2022.
7. Financial Assets at Fair Value through Profit or Loss -
Investments
2023 2022
£000 £000
Investment portfolio 96,427 82,981
Accrued income and other assets 1,275 -
Financial assets at fair value through profit and loss 97,702 82,981
IFRS 13, in respect of financial instruments that are measured in the balance
sheet at fair value, requires disclosure of fair value measurements by level
of the following fair value measurement hierarchy:
Level 1: quoted prices in active markets for identical assets or liabilities.
The fair value of financial instruments traded in active markets is based on
quoted market prices at the balance sheet date. An active market is defined as
a market in which transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing information on an ongoing
basis. The quoted market price used for financial assets held by the Company
is the current bid price. These instruments are included in level 1 and
comprise fixed income securities classified as held at fair value through
profit or loss. The Company held no such investments at 31 December 2023.
Level 2: the fair value of financial instruments that are not traded in an
active market is determined by using valuation techniques. These valuation
techniques maximise the use of observable market data where it is available
and rely as little as possible on entity specific estimates. If all
significant inputs required to fair value an instrument are observable, the
instrument is included in level 2. The Company held no such instruments in the
current or prior year.
Level 3: the fair value of financial instruments that are not traded in an
active market (for example, investments in unquoted companies) is determined
by using valuation techniques such as revenue and earnings multiples. If one
or more of the significant inputs is not based on observable market data, the
instrument is included in level 3. All of the Company's investments fall into
this category at 31 December 2023.
Each investment is reviewed at least quarterly to ensure that it has not
ceased to meet the criteria of the level in which it is included at the
beginning of each accounting period. The change in fair value for the current
and previous year is recognised through profit or loss.
There have been no transfers between these classifications in either period.
All items held at fair value through profit or loss were designated as such
upon initial recognition.
Valuation of Investments
Full details of the methods used by the Company are set out in note 1 of these
financial statements. Where investments are held in listed investment funds,
fair value is set at the market bid price.
Movements in investments at fair value through profit or loss during the year
to 31 December 2023 are summarised as follows:
IFRS 13 measurement classification Level 3 Level 1 Total
Unquoted Listed Investments
Investments Investment
Funds
£000 £000 £000
Opening cost 49,494 1,752 51,246
Opening investment holding gain (loss)* 31,891 (156) 31,735
Opening fair value at 1 January 2023 81,385 1,596 82,981
Additions at cost 10,031 665 10,696
Disposal proceeds (4,125) (2,159) (6,284)
Net profit on disposal** 1,093 (102) 991
Change in fair value 9,258 - 9,258
Foreign exchange loss (1,215) - (1,215)
Closing fair value at 31 December 2023 96,427 - 96,427
Closing cost 56,209 - 56,209
Closing investment holding gain* 40,218 - 40,218
Closing fair value at 31 December 2023 96,427 - 96,427
* Following the merger between the Company and
British Smaller Technologies Company VCT plc a total of £975,000 of negative
goodwill was recognised in the investment holding gains and losses reserve in
respect of the investments acquired. The relevant amount per investment is
realised at the point of disposal to the capital reserve. At 31 December 2023
a total of £27,000 (2022: £27,000) was held on investments yet to be
realised in the investment holdings gains and losses reserve.
** The net profit on disposal in the table above is
£991,000 whereas that shown in the Statement of Comprehensive Income is
£1,018,000. The difference comprises deferred proceeds in respect of assets
which have been disposed of in prior periods and were not included in the
portfolio at 1 January 2023.
The following disposals took place in the year:
Net proceeds Cost Opening Profit (loss)
from sale carrying on disposal
value as at
1 January 2023
£000 £000 £000 £000
Unquoted investments:
E2E Engineering Limited 1,305 600 800 505
Ncam Technologies Limited 1,118 1,675 1,175 (57)
Macro Art Holdings Limited 990 320 409 581
Wakefield Acoustics (via Malvar Engineering Limited) 712 720 648 64
Total from portfolio 4,125 3,315 3,032 1,093
Tissuemed Limited 27 - - 27
Deferred Consideration 27 - - 27
Listed investment funds* 2,159 2,418 2,261 (102)
Total from investment portfolio** 6,311 5,733 5,293 1,018
* Opening carrying value includes further
investments made during the year.
** The total from disposals in the year in the table
above is £6,311,000 whereas that shown in total in the Statement of Cash
Flows is £6,058,000. The difference comprises deferred proceeds of £253,000
which will be received in subsequent years.
8. Basic and Diluted Net Asset Value per Ordinary Share
The basic and diluted net asset value per ordinary share is calculated on
attributable assets of £135,616,000 (2022: £111,869,000) and 228,758,665
(2022: 181,468,710) ordinary shares in issue at the year end.
The treasury shares have been excluded in calculating the number of ordinary
shares in issue at 31 December 2023.
The Company has no potentially dilutive shares and consequently, basic and
diluted net asset values per ordinary share are equivalent in both the years
ended 31 December 2023 and 31 December 2022.
9. Total Return per Ordinary Share
The Total Return per ordinary share is calculated on cumulative dividends paid
of 86.25 pence per ordinary share (2022: 81.0 pence per ordinary share) plus
the net asset value as calculated per note 8.
10. Financial Commitments
There are no financial commitments at 31 December 2023 or 31 December 2022.
11. Events after the Balance Sheet Date
Having previously assessed its expected cash requirements, the Company
announced a new share offer on 20 September 2023, alongside British Smaller
Companies VCT plc, with the intention of raising up to £90 million, in
aggregate which included an over-allotment facility of £25 million, in
aggregate. The offers closed to new Applications on 16 February 2024. Gross
Applications of £90 million have been received, of which £34.5 million
relate to the Company. The first allotment of £30 million (£11.4 million
relating to the Company) took place on 30 January 2024. The second and final
allotment will take place in early April 2024.
Subsequent to the year end, the Company has invested £1.2 million into three
follow on investments. The Company also received £6.5 million from the
realisation of Displayplan, and the partial realisations of KeTech and Arcus,
as detailed above.
On 30 January 2024, the Company issued 19,533,372 shares in relation to the
2023/24 fundraising, raising gross proceeds of £11.4 million. Following this
allotment, the Company's issued share capital consists of 248,292,037 ordinary
shares with voting rights and 21,383,768 shares held in treasury.
12. Contingent liability
As set out in note 3, the Manager and Chord Capital are entitled to a
performance-related incentive fee if the cumulative dividends per ordinary
share paid as at the last business day of December in any year plus the
average of the middle market price per ordinary share on the five dealing days
prior to that day, exceeds a Hurdle, which is set at 141.295 pence per
ordinary share for the year ending 31 December 2024. The value of the
incentive fee is 20 per cent of the excess to the Hurdle, multiplied by the
number of ordinary shares issued. The reported net assets per ordinary share
have increased by 2.4 pence per ordinary share since 31 December 2023. If this
increase were to flow through to an increase in the middle market price per
ordinary share in the last five dealing days of December 2024, at a discount
of 5 per cent to the net asset value per ordinary share, then an incentive fee
of approximately £641,000 would be payable at 31 December 2024 based on the
number of shares in issue at 15 March 2024.
13. Related Party Transactions
Fees payable during the year to the directors and their interests in the
shares of the Company are disclosed within the Directors' Remuneration Report
on page 50 of the annual report. There were no amounts outstanding and due to
the directors at 31 December 2023 (2022: £nil).
14. Annual Report and Accounts
Copies of the statutory accounts for the year ended 31 December 2023 will
shortly be submitted to the National Storage Mechanism and will be available
to the public for viewing online at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) . They can also
shortly be viewed on the Company's website at www.bscfunds.com
(http://www.bscfunds.com) . Hard copies of the statutory accounts for the
year to 31 December 2023 will be distributed by post or electronically to
shareholders and will thereafter be available to members of the public from
the Company's registered office.
15. Directors
The directors of the Company are Mr P C Waller, Ms B L Anderson and Mr R S
McDowell.
16. Annual General Meeting
The Annual General Meeting of the Company will be held at 9:30 am on 13 June
2024 at Thomas House, 84 Ecclestone Square, London SW1V 1PX. Full details of
the agenda for this meeting are included in the Notice of the Annual General
Meeting on page 90 of the annual report.
17. Interim Dividend for the Year Ending 31 December 2024
The directors are pleased to announce the payment of an interim dividend for
the year ending 31 December 2024 of 1.5 pence per ordinary share ("Interim
Dividend").
The Interim Dividend will be paid on 28 June 2024 to those shareholders on the
Company's register at the close of business on 31 May 2024. The ex-dividend
date will be 30 May 2024.
The directors are not proposing a final dividend for the year ended 31
December 2023.
18. Dividend Re-investment Scheme
The Company operates a dividend re-investment scheme ("DRIS"). The latest
date for receipt of new or updated DRIS elections in respect of the Interim
Dividend is the close of business on 14 June 2024.
19. Inside Information
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulations
(EU No. 596/2014). Upon the publication of this announcement via Regulatory
Information Service this inside information is now considered to be in the
public domain.
For further information, please contact:
David Hall YFM Private Equity Limited Tel:
0113 244 1000
Alex Collins Panmure Gordon (UK) Limited Tel: 0207 886 2767
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