REG - British Smlr Comp 2 - Half-year Report
13/09/2023 07:15
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RNS Number : 2904M British Smaller Companies VCT2 Plc 13 September 2023
British Smaller Companies VCT2 plc
Unaudited Interim Results and Interim Management Report
for the six months ended 30 June 2023
British Smaller Companies VCT2 plc (the "Company") today announces its
unaudited interim results for the six months ended 30 June 2023.
HIGHLIGHTS
· Net Asset Value at 30 June 2023 of 57.95p per share (31 December
2022: 61.6p) following payment of dividends of 3.75p during the period
· Total Return increased by 0.1p to 142.7p per share
· Fully subscribed offer raised net proceeds of £27.5 million
· The Board has declared a third interim dividend of 1.5p per share in
respect of the year ending 31 December 2023, which will bring total dividends
paid in the current financial year to 5.25p per share, which equates to 8.5
per cent of the opening net asset value per share
· Three new investments and two follow-on investments totalling £7.4
million were completed during the period. Subsequent to the period end, one
follow-on investment totalling £0.2 million has been completed, bringing the
total invested this year to £7.6 million, following the £16.3 million
invested in the full year to 31 December 2022
Chairman's Statement
I am pleased to present the interim results of British Smaller Companies VCT2
plc (the "Company") for the six months to 30 June 2023. This reflects a
period where the UK has seen persistently high inflation, accompanied by
rising interest rates, which have acted as a drag on economic activity and
growth-focused share prices.
Despite these challenges, the Company has achieved a positive total return in
the period, increasing by 0.1 pence to 142.7 pence per ordinary share at 30
June 2023. In contrast the FTSE Small Cap fell by 2.3 per cent over the same
period. The Company continues to be ranked second across all generalist VCTs
when considering a blended average performance ranking over 1, 3, 5, 7 and 10
years.
The positive performance has been driven by the resilience of underlying
portfolio companies, which continue to see growing revenues, with companies
increasingly focused on longer term sustainability by balancing growth with a
path to profitability.
Due to the nature of the Company's investments, there is limited direct
exposure to rising interest rates. Conversely, these conditions, accompanied
by a contraction in the debt markets following the failure of Silicon Valley
Bank, present opportunities across the existing portfolio for the Company to
deploy further capital.
Over the past six months, the Company has completed three new investments to
the portfolio, totalling £5.3 million, and made two follow-on investments,
totalling £2.1 million. Subsequent to the period end, a further £0.2 million
has also been invested, taking the total invested so far this year to £7.6
million, following the £16.3 million invested in the full year to 31 December
2022.
Realisations in the Period
Realisations of portfolio investments generated total proceeds of £1.7
million in the period.
The Company realised its investment in Wakefield Acoustics in January,
generating proceeds of £0.6 million and an overall return of 1.5x cost. This
was a pleasing result, given the investment was valued at nil at the beginning
of the previous financial year, emphasising the Company's commitment to
portfolio companies at all stages through their growth journey.
The Company realised its investment in Ncam in April, generating initial
proceeds of £0.9 million. There is the potential for additional receipts of
up to £0.8 million depending on the achievement of certain milestones 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.
Financial Results
The investment portfolio generated a return of £2.0 million in the period,
driven by positive revaluations from a number of companies. 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 61.6 111,869
Net gain arising from investment portfolio 0.9 2,035
Net operating costs (0.3) (602)
Incentive fee (0.5) (1,180)
Total Return in period 0.1 253
Issue/buy-back of new shares 28,433
NAV before the payment of dividends 61.7 140,555
Dividends paid (3.75) (7,528)
NAV at 30 June 2023 57.95 133,027
Cumulative dividends paid 84.75
Total Return: At 30 June 142.7
2023
At 31 December 2022 142.6
Dividends
Following the realisations of Springboard and Intelligent Office in the
previous financial year, a special dividend of 2.25 pence was paid on 11
January 2023.
An interim dividend of 1.5 pence per ordinary share for the year ending 31
December 2023 was paid on 26 June 2023, bringing the cumulative dividends paid
to date to 84.75 pence per ordinary share.
Your Board has proposed an interim dividend of 1.5 pence per ordinary share
for the year ending 31 December 2023 which, when combined with the above
dividends, will bring total dividends paid in the current financial year to
5.25 pence per ordinary share (2022: 3.0 pence per ordinary share). The
dividend will be paid on 3 November 2023 to shareholders on the register on 6
October 2023.
Shareholder Relations
The shareholder workshop held on 20 June 2023 was well attended. Attendees
heard from Tom Dunlop, CEO of Summize, and Philip Hunt, Chair of Vuealta.
The Company will be hosting an online webinar in November 2023 to provide an
update to shareholders; invites will be sent out in September.
Documents such as the annual report are now received electronically by 81 per
cent of shareholders, rather than by post, which helps to meet the Board's
impact objectives and reduces printing costs. The Board continues to encourage
all shareholders to take up this option.
The Company's website is refreshed on a regular basis and provides a
comprehensive level of information in what I hope is a user-friendly format.
Fundraising
On 4 April 2023 the Company allotted shares from its fully subscribed 2022/23
share offer. £27.5 million was raised by the Company, resulting in the
allotment of 46,357,328 ordinary shares.
On 2 August 2023, the Company announced its intention to launch a new joint
offer for subscription for the tax year 2023-24 later this year, alongside
British Smaller Companies VCT plc. A prospectus with full details of the
proposed offer is expected to be published in mid-to-late September.
Outlook
The Company's portfolio continues to be resilient, with businesses delivering
good growth, driven by the Company's backing of companies in sectors with
long-term favourable trends, such as those driving digital transformation.
The Board remains watchful of economic conditions and its knock-on impact to
the portfolio, while also noting that such conditions often prove to be an
opportune time to invest long term capital in fast growing businesses.
I thank shareholders for their continued support.
Peter Waller
Chairman
Objectives and Strategy
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 guidelines.
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
buybacks.
Unquoted investments are structured using various investment instruments,
including ordinary preference shares, convertible securities and very
occasionally loan stock, to achieve an appropriate balance of income and
capital growth, having regard to the VCT legislation. 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.
Investment Review
At 30 June 2023 the Company's portfolio was valued at £89.2 million. The
top ten investments represent 44.2 per cent of the net asset value with the
largest representing 15.8 per cent of the net asset value.
The movements in the investment portfolio are set out below:
Table A
Investment Portfolio
Portfolio Listed Investment Portfolio
£million investment £million
funds
£million
Opening fair value at 1 January 2023 81.4 1.6 83.0
Additions 7.4 0.4 7.8
Disposal proceeds (1.7) (0.2) (1.9)
Gain (loss) arising from the investment portfolio 2.1 (0.1) 2.0
Closing fair value at 30 June 2023 89.2 1.7 90.9
The Company's portfolio delivered a positive performance over the period,
generating a return of £2.1 million, of which £2.2 million arose from the
residual portfolio, offset by a small loss of £0.1 million from realisations.
As noted above, there was also a fall in value of £0.1 million from the
listed investment portfolio, which forms part of the Company's treasury
management.
There were upward revaluations from Unbiased, Displayplan, Traveltek and
Wooshii, offset by decreases from ACC and Relative Insight. Matillion's
valuation also reduced due to decreases in valuation multiples of comparable
public companies.
Realisation of Investments
During the six months to 30 June 2023, the portfolio generated £1.7 million
from disposals, a loss of £0.1 million over the opening carrying value and a
loss of £0.6 million on cost. Further details, including movements from
listed funds, are given in note 6.
Investments
During the six months ended 30 June 2023, the Company completed five
investments, totalling £7.4 million. This comprised three new investments,
totalling £5.3 million, and two follow-on investments, totalling £2.1
million. The breakdown of these investments is shown below:
Investments made £million
Company Description New Follow-on Total
DrDoctor Patient engagement and communications software platform 2.4 - 2.4
Workbuzz SAAS-based employee engagement, survey and insights platform 1.7 - 1.7
Quality Clouds B2B software - 1.6 1.6
Xapien Automated background research software 1.2 - 1.2
Relative Insight AI-based text data analytics platform - 0.5 0.5
Invested in the period 5.3 2.1 7.4
Following the initial investment into Quality Clouds in May 2022, the Company
participated in a further capital raise in March, providing £1.6 million of
additional funding to enable the company to expand its team and execute on a
growing sales pipeline. The Company also invested a further £0.5 million into
Relative Insight.
Cash Deposits and other Liquid Funds
In the current market of rising interest rates the Company is taking an active
approach to cash management, while ensuring its primary aim of capital
preservation is met. This is managed through the use of a diversified pool
of money market funds (which can be converted back to cash with immediate
notice), cash deposits with tier one banking institutions, and a small,
diversified portfolio of listed investment funds. At 30 June 2023 this listed
portfolio was valued at £1.7 million, or 1.3 per cent of net assets; this
reduced in value by £0.1 million in the period, predominantly driven by a
reduction in the valuation of its bond investments.
Portfolio
The top 10 investments had a combined value of £58.7 million, 65.8 per cent
of the total portfolio.
Name of Company Sector First Amount invested Value at Recognised income/ proceeds Return
investment £000 30 June 2023 to date to date*
£000 £000 £000
Matillion Limited Data Nov 16 1,778 21,022 5,946 26,968
Unbiased EC1 Limited Tech-enabled Services Dec 19 3,731 7,008 - 7,008
Outpost VFX Limited New Media Feb 21 3,000 5,786 20 5,806
Displayplan Holdings Limited Business Services Jan 12 700 4,754 1,706 6,460
Wooshii Limited New Media May 19 3,096 4,654 360 5,014
Elucidat Ltd Application Software May 19 2,640 4,151 84 4,235
Force24 Ltd Application Software Nov 20 2,100 3,172 - 3,172
Vypr Validation Technologies Limited Tech-enabled Services Jan 21 2,200 2,772 - 2,772
ACC Aviation Group Limited Business Services Nov 14 1,379 2,741 3,525 6,266
Quality Clouds Limited Data May 22 2,610 2,688 - 2,688
SharpCloud Software Limited Data Oct 19 2,271 2,567 - 2,567
DrDoctor (via ICNH Ltd) Application Software Feb 23 2,377 2,377 - 2,377
KeTech Enterprises Limited Tech-enabled Services Nov 15 2,000 2,110 2,599 4,709
Traveltek Group Holdings Limited Application Software Oct 16 1,163 1,834 576 2,410
Tonkotsu Limited Retail & Brands Jun 19 1,592 1,831 - 1,831
Relative Insight Limited Tech-enabled Services Mar 22 2,536 1,796 - 1,796
AutomatePro Limited Cloud & DevOps Dec 22 1,483 1,777 - 1,777
Workbuzz Analytics Ltd Application Software Jun 23 1,718 1,718 - 1,718
Vuealta Holdings Limited Tech-enabled Services Sep 21 2,030 1,463 3,067 4,530
Plandek Limited Cloud & DevOps Oct 22 1,380 1,380 - 1,380
Sipsynergy (via Hosted Network Services Limited) Cloud & DevOps Jun 16 2,045 1,292 - 1,292
Summize Limited Application Software Oct 22 1,200 1,257 - 1,257
Frescobol Carioca Ltd Retail & Brands Mar 19 1,200 1,244 - 1,244
Xapien (via Digital Insight Technologies Limited) Application Software Mar 23 1,160 1,240 - 1,240
Biorelate Limited Application Software Nov 22 1,040 1,034 - 1,034
Panintelligence (via Paninsight Limited) Data Nov 19 1,000 1,000 - 1,000
e2E Engineering Limited Business Services Sep 17 600 950 155 1,105
Macro Art Holdings Limited Business Services Jun 16 840 727 666 1,393
£0.5 million and below 11,797 2,829 4,561 7,330
Total investments 62,666 89,174 23,265 112,439
Full disposals to date 48,145 - 76,630 76,630
Total portfolio 110,811 89,174 99,895 189,069
* Represents recognised income and proceeds received to date plus the
unrealised valuation at 30 June 2023
OUR PORTFOLIO AT A GLANCE
The charts on page 13 of the interim report illustrate the broad range of the
investment portfolio.
Principal Risks and Uncertainties
In accordance with DTR 4.2.7, the Board confirms that the principal risks and
uncertainties facing the Company have not materially changed from those
identified in the Annual Report and Accounts for the year ended 31 December
2022. The Board acknowledges that there is regulatory risk and continues to
manage the Company's affairs in such a manner as to comply with section 274 of
the Income Tax Act 2007.
In summary, the principal risks are:
> VCT Qualifying Status;
> Economic;
> Investment and Strategic;
> Regulatory;
> Legislative;
> Reputational;
> Operational;
> Cyber Security and Information Technology;
> ESG; and
> Liquidity.
Full details of the principal risks can be found in the financial statements
for the year ended 31 December 2022 on pages 32 to 34, a copy of which is
available at www.bscfunds.com.
Directors' Responsibilities Statement
The directors of British Smaller Companies VCT2 plc confirm that, to the best
of their knowledge, the condensed set of financial statements in this interim
report have been prepared in accordance with International Accounting Standard
34 "Interim Financial Reporting" as adopted by the UK, and give a true and
fair view of the assets, liabilities, financial position and profit and loss
of British Smaller Companies VCT2 plc, and that the interim management report
includes a true and fair review of the information required by DTR 4.2.7R and
DTR 4.2.8R.
The directors of British Smaller Companies VCT2 plc are listed in note 11 of
these interim financial statements.
By order of the Board
Peter Waller
Chairman
Unaudited Statement of Comprehensive Income
for the six months ended 30 June 2023
Notes Unaudited 6 months ended Unaudited 6 months ended
30 June 2023 30 June 2022
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gains on investments held at fair value 6 - 2,108 2,108 - 2,364 2,364
Loss on disposal of investments 6 - (73) (73) - - -
Income 2 720 - 720 275 - 275
Total income 720 2,035 2,755 275 2,364 2,639
Administrative expenses:
Manager's fee (250) (751) (1,001) (205) (613) (818)
Incentive fee - (1,180) (1,180) - (363) (363)
Other expenses (321) - (321) (295) - (295)
(571) (1,931) (2,502) (500) (976) (1,476)
Profit (loss) before taxation 149 104 253 (225) 1,388 1,163
Taxation 3 - - - - - -
Profit (loss) for the period 149 104 253 (225) 1,388 1,163
Total comprehensive income (expense) for the period 149 104 253 (225) 1,388 1,163
Basic and diluted earnings (loss) per ordinary share 5 0.07p 0.05p 0.12p (0.13p) 0.77p 0.64p
The Total column of this statement represents the Company's Unaudited
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 Association of Investment Companies.
Unaudited Balance Sheet
as at 30 June 2023
Notes Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£000 £000 £000
ASSETS
Non-current assets at fair value through profit or loss
Investments 6 89,174 78,161 81,385
Listed investment funds 6 1,746 647 1,596
Financial assets at fair value through profit or loss 6 90,920 78,808 82,981
Accrued income and other assets 1,403 688 948
92,323 79,496 83,929
Current assets
Accrued income and other assets 148 48 287
Current asset investments 21,750 1,988 1,988
Cash and cash equivalents 20,134 28,583 26,486
42,032 30,619 28,761
LIABILITIES
Current liabilities
Trade and other payables (148) (116) (821)
Provisions for liabilities and charges 7 (1,180) (363) -
Net current assets 40,704 30,140 27,940
Net assets 133,027 109,636 111,869
Shareholders' equity
Share capital 24,903 19,921 20,014
Share premium account 24,899 430 858
Capital redemption reserve 88 88 88
Other reserve 2 2 2
Merger reserve 5,525 5,525 5,525
Capital reserve 41,959 52,519 52,263
Investment holding gains and losses reserve 34,446 30,373 31,762
Revenue reserve 1,205 778 1,357
Total shareholders' equity 133,027 109,636 111,869
Net asset value per ordinary share 8 57.95p 60.3p 61.6p
Signed on behalf of the Board
Peter Waller
Chairman
Unaudited Statement of Changes in Equity
for the six months ended 30 June 2023
Share Share Other reserves* Capital Investment Revenue Total
capital premium £000 reserve holding reserve equity
£000 account £000 gains and £000 £000
£000 losses
reserve
£000
At 31 December 2021 15,808 24,122 5,615 12,818 28,009 1,003 87,375
Revenue loss for the period - - - - - (225) (225)
Expenses charged to capital - - - (976) - - (976)
Investment holding gain on investments held at fair value - - - - 2,364 - 2,364
Total comprehensive (expense) income for the period - - - (976) 2,364 (225) 1,163
Issue of share capital 4,023 21,274 - - - - 25,297
Issue of shares - DRIS 90 452 - - - - 542
Issue costs - (1,103) - - - - (1,103)
Share premium cancellation - (44,315) - 44,315 - - -
Purchase of own shares - - - (920) - - (920)
Dividends - - - (2,718) - - (2,718)
Total transactions with owners 4,113 (23,692) - 40,677 - - 21,098
At 30 June 2022 19,921 430 5,615 52,519 30,373 778 109,636
Revenue return for the period - - - - - 579 579
Expenses charged to capital - - - (998) - - (998)
Investment holding gain on investments held at fair value - - - - 1,923 - 1,923
Realisation of investments in the period - - - 3,586 - - 3,586
Total comprehensive income for the period - - - 2,588 1,923 579 5,090
Issue of shares - DRIS 93 450 - - - - 543
Issue costs - (22) - - - - (22)
Purchase of own shares - - - (652) - - (652)
Dividends - - - (2,726) - - (2,726)
Total transactions with owners 93 428 - (3,378) - - (2,857)
Realisation of prior year investment holding gains - - - 534 (534) - -
At 31 December 2022 20,014 858 5,615 52,263 31,762 1,357 111,869
Revenue return for the period - - - - - 149 149
Expenses charged to capital - - - (1,931) - - (1,931)
Investment holding gain on investments held at fair value - - - - 2,108 - 2,108
Realisation of investments in the period - - - (73) - - (73)
Total comprehensive (expense) income for the period - - - (2,004) 2,108 149 253
Issue of share capital 4,636 24,076 - 28,712
Issue of shares - DRIS 253 1,201 - - - - 1,454
Issue costs - (1,236) - - - - (1,236)
Purchase of own shares - - - (497) - - (497)
Dividends - - - (7,227) - (301) (7,528)
Total transactions with owners 4,889 24,041 - (7,724) - (301) 20,905
Realisation of prior year investment holding losses - - - (576) 576 - -
At 30 June 2023 24,903 24,899 5,615 41,959 34,446 1,205 133,027
* Other reserves includes the capital redemption reserve, the merger reserve
and the other reserve, which are non-distributable.
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 above 41,959 1,205 43,164
Cancelled share premium not yet distributable (27,879) - (27,879)
Income/proceeds not yet distributable (198) (1,205) (1,403)
Reserves available for distribution* 13,882 - 13,882
*subject to filing these interim financial statements at Companies House.
The capital reserve and the revenue reserve are both distributable reserves.
These reserves total £43,164,000, representing a decrease of £10,456,000 in
the period since 31 December 2022. The directors also consider 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 £43,164,000 shown above,
£1,403,000 relates to income/proceeds not yet receivable.
Total share premium cancelled is available for distribution from the
following dates:
£000
1 January 2024 299
1 January 2025 7,387
1 January 2026 20,193
Cancelled share premium account not yet distributable 27,879
Unaudited Statement of Cash Flows
for the six months ended 30 June 2023
Notes Unaudited Unaudited Audited
6 months 6 months year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
£000 £000 £000
Profit before taxation 253 1,163 6,253
Increase in provisions for liabilities and charges 1,080 363 -
Decrease in trade and other payables (573) (4,427) (3,722)
Increase in accrued income and other assets (118) (30) (529)
Loss (gains) on disposal of investments 73 - (3,586)
Gains on investments held at fair value (2,108) (2,364) (4,287)
Capitalised income - - (40)
Net cash outflow from operating activities (1,393) (5,295) (5,911)
Cash flows from (used in) investing activities
Cash maturing from fixed term deposits 1,988 - -
Purchase of financial assets at fair value through profit or loss 6 (7,817) (6,425) (17,978)
Proceeds from sale of financial assets at fair value
through profit or loss 6 1,715 - 12,929
Deferred consideration 6 - 4 4
Net cash outflow from investing activities (4,114) (6,421) (5,045)
Cash flows from (used in) financing activities
Issue of ordinary shares 28,712 25,297 25,297
Costs of ordinary share issues* (1,236) (1,103) (1,125)
Purchase of own shares (497) (920) (1,572)
Dividends paid 4 (6,074) (2,176) (4,359)
Net cash inflow from financing activities 20,905 21,098 18,241
Net increase in cash and cash equivalents 15,398 9,382 7,285
Cash and cash equivalents at the beginning of the period 26,486 19,201 19,201
Cash and cash equivalents at the end of the period 41,884 28,583 26,486
Cash and cash equivalents comprise
Money market funds 21,750 - -
Cash at bank 20,134 28,583 26,486
Cash and cash equivalents at the end of the period 41,884 28,583 26,486
*Issue costs include both fundraising costs and expenses incurred from the
Company's DRIS.
Explanatory Notes to the Unaudited
Condensed Financial Statements
1 General Information, Basis of Preparation and
Principal Accounting Policies
These half year statements have been approved by the directors whose names
appear at note 11, each of whom has confirmed that to the best of their
knowledge:
> the interim management report includes a fair
review of the information required by rules 4.2.7 and 4.2.8 of the Disclosure
Rules and the Transparency Rules; and
> the half year statements have been prepared in
accordance with IAS 34 'Interim financial reporting' and the Disclosure and
Transparency Rules of the Financial Conduct Authority.
The half year statements are unaudited and have not been reviewed by the
auditors pursuant to the International Standard on Review Engagements (UK and
Ireland) 2410 guidance on Review of Interim Financial Information performed by
the independent Auditor of the entity. They do not constitute full financial
statements as defined in section 435 of the Companies Act 2006. The
comparative figures for the year ended 31 December 2022 do not constitute full
financial statements and have been extracted from the Company's financial
statements for the year ended 31 December 2022. Those accounts were reported
upon without qualification by the auditors and have been delivered to the
Registrar of Companies.
The accounting policies and methods of computation followed in the half year
statements are the same as those adopted in the preparation of the audited
financial statements for the year ended 31 December 2022. They do not include
all disclosures that would otherwise be required in a complete set of
financial statements and should be read in conjunction with the 2022 annual
report.
The accounts have been prepared on a going concern basis as set out below and
in accordance with UK adopted international accounting standards.
The accounts 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 - "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 (IFRSs) and interpretations in force at the
reporting date. New standards coming into force during the period and future
standards that come into effect after the period-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.
Going Concern: The directors have carefully considered the issue of going
concern and are satisfied that the Company has sufficient resources to meet
its obligations as they fall due for a period of at least twelve months from
the date these half year statements were approved. As at 30 June 2023 the
Company held cash balances, money market funds, listed investment funds and
fixed term deposits with a combined value of £43,630,000. Cash flow
projections show the Company has sufficient funds to meet both its contracted
expenditure and its discretionary cash outflows in the form of share buy-backs
and the dividend policy. In the year ended 31 December 2022 the Company's
costs and discretionary expenditures were:
£'000
Administrative expenses (before fair value movements related to credit risk 2,359
and incentive fee)
Share buybacks 1,572
Dividends (before DRIS) 5,444
Total 9,375
The directors therefore believe that it is appropriate to continue to apply
the going concern basis of accounting in preparing these half year statements.
2 Income
Unaudited Unaudited
6 months 6 months
ended 30 ended 30
June June
2023 2022
£000 £000
Income from investments
- Interest on loans to unquoted companies 71 100
- Dividends from unquoted companies 153 114
Income from unquoted portfolio 224 214
Income from listed investment funds 29 -
Income from investments held at fair value through profit or loss 253 214
Interest on bank deposits/money market funds 467 61
720 275
3
Taxation
Unaudited 6 months ended Unaudited 6 months ended
30 June 2023 30 June 2022
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Profit (loss) before taxation 149 104 253 (225) 1,388 1,163
Profit (loss) before taxation multiplied by the standard small company rate of 28 20 48 (43) 264 221
corporation tax in UK of 19.0% (2022: 19.0%)
Effect of:
UK dividends received (29) - (29) (22) - (22)
Non-taxable profits on investments - (387) (387) - (449) (449)
Deferred tax not recognised 1 367 368 65 185 250
Tax charge - - - - - -
The Company has no provided, or unprovided, deferred tax liability in either
period.
Deferred tax assets in respect of losses have not been recognised as the
directors do not currently believe that it is probable that sufficient taxable
profits will be available against which the assets can be recovered.
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, the Company has not provided deferred tax on any
capital gains or losses arising on the revaluation or realisation of
investments.
4 Dividends
Amounts recognised as distributions to equity holders in the period:
Unaudited 6 months ended Unaudited 6 months ended
30 June 2023 30 June 2022
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
First interim dividend for the year ending 31 December 2023 of 2.25p (2022: - 4,097 4,097 - 2,718 2,718
1.5p) per ordinary share
Second interim dividend for the year ended 31 December 2023 of 1.5p (2022 301 3,130 3,431 - - -
1.5p) per ordinary share
301 7,227 7,528 - 2,718 2,718
Shares allotted under DRIS (1,454) (542)
Dividends paid in the Statement of Cash Flows 6,074 2,176
Audited year ended
31 December 2022
Revenue Capital Total
£000 £000 £000
First interim dividend for the year ending 31 December 2023 of 2.25p (2022: - 2,718 2,718
1.5p) per ordinary share
Second interim dividend for the year ended 31 December 2023 of 1.5p (2022 - 2,726 2,726
1.5p) per ordinary share
- 5,444 5,444
Shares allotted under DRIS (1,085)
Dividends paid in the Statement of Cash Flows 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.
A third interim dividend of 1.5p per ordinary share amounting to approximately
£3.4 million is proposed. This dividend has not been recognised in these half
year financial statements as the obligation did not exist at the balance sheet
date.
5 Basic and Diluted Earnings per Ordinary Share
The basic and diluted earnings per ordinary share is based on the profit after
tax attributable to equity shareholders of £253,000 (30 June 2022:
£1,163,000) and 204,822,093 (30 June 2022: 180,486,872) ordinary shares being
the weighted average number of ordinary shares in issue during the period.
The basic and diluted revenue earnings per ordinary share is based on the
revenue profit attributable to equity shareholders of £149,000 (30 June 2022:
loss of £225,000) and 204,822,093 (30 June 2022: 180,486,872) ordinary shares
being the weighted average number of ordinary shares in issue during the
period.
The basic and diluted capital earnings per ordinary share is based on the
capital profit attributable to equity shareholders of £104,000 (30 June 2022:
£1,388,000) and 204,822,093 (30 June 2022: 180,486,872) ordinary shares being
the weighted average number of ordinary shares in issue during the period.
During the period the Company allotted 46,357,328 new ordinary shares from the
fundraising, and 2,534,656 new ordinary shares in respect of its DRIS.
The Company has also repurchased 875,911 of its own shares in the period and
these shares are held in the capital reserve. The total of 19,542,723 treasury
shares has been excluded in calculating the weighted average number of
ordinary shares during the period.
The Company has no dilutive shares and consequently, basic and diluted
earnings per ordinary share are equivalent at 30 June 2023, 31 December 2022
and 30 June 2022.
6 Financial Assets at Fair Value through Profit or
Loss
IFRS 13 and IFRS 7, in respect of financial instruments that are measured in
the balance sheet at fair value, require disclosure of fair value measurements
by level within 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. A 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 listed investment funds classified as held at
fair value through profit or loss.
> 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 earnings or
revenue multiples. If one or more of the significant inputs is not based on
observable market data, the instrument is included in Level 3. The majority of
the Company's investments fall into this category.
Each investment is reviewed at least quarterly to ensure that it has not
ceased to meet the criteria of the level in which it was included at the
beginning of each accounting period. There have been no transfers between
these classifications in the period (2022: none).
The change in fair value for the current and previous year is recognised
through profit or loss. All items held at fair value through profit or loss
were designated as such upon initial recognition.
Valuation of Investments
Unquoted investments are valued in accordance with IFRS 13 "Fair Value
Measurement" and using the International Private Equity and Venture Capital
("IPEVC") Valuation Guidelines ("the Guidelines") issued in December 2022.
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 Guidelines we have identified six of the most widely used
valuation methodologies for unquoted investments. The Guidelines advocate that
the best valuation methodologies are those that draw on external, objective
market-based data in order to derive a fair value.
Full details of the methods used by the Company were set out on pages 66 and
67 of the financial statements for the year ended 31 December 2022, a copy of
which can be found at www.bscfunds.com.
The primary methods used for valuing non-quoted investments, and the key
assumptions relating to them are:
Unquoted Investments
> revenue multiple. 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.
Movements in investments at fair value through profit or loss during the six
months to 30 June 2023 are summarised as follows:
IFRS 13 measurement classification Level 3 Level 1 Total
Unquoted Listed Investments
Investments Investment £000
£000 Funds
£000
Opening cost 49,494 1,752 51,246
Opening valuation gain (loss) 31,891 (156) 31,735
Opening fair value at 1 January 2023 81,385 1,596 82,981
Additions at cost 7,402 415 7,817
Disposal proceeds (1,754) (159) (1,913)
Net loss on disposals (69) (4) (73)
Change in fair value 3,371 (102) 3,269
Foreign exchange loss (1,161) - (1,161)
Closing fair value at 30 June 2023 89,174 1,746 90,920
Closing cost 54,502 1,999 56,501
Closing valuation gain (loss) 34,672 (253) 34,419
Closing fair value at 30 June 2023 89,174 1,746 90,920
Level 3 valuations include assumptions based on non-observable data, such as
discounts applied either to reflect changes in the fair value of financial
assets held at the price of recent investment, or to adjust revenue or
earnings multiples.
IFRS13 requires disclosure, by class of financial instruments, if the effect
of changing one or more inputs to reasonably possible alternative assumptions
would result in a significant change to fair value measurement. Each unquoted
portfolio company has been reviewed and both downside and upside alternative
assumptions have been identified and applied to the valuation of each of the
unquoted investments. Applying the downside alternative the value of the
unquoted investments would be £4,322,000 (4.8 per cent) lower. Using the
upside alternative the value would be increased by £4,443,000 (5.0 per cent).
98 per cent of the Company's investments are in unquoted companies held at
fair value. The valuation methodology for these investments includes the
application of externally produced revenue and earnings multiples. Therefore
the value of the unquoted element of the portfolio is also indirectly affected
by price movements on the listed market. Those using revenue and earnings
multiple methodologies include judgements regarding the level of discount
applied to that multiple. The effect of changing the level of discounts
applied to the multiples is considered above.
2 per cent of the Company's investments are investment funds listed on the
main market of the London Stock Exchange (including FCA authorised and
regulated UCITS funds). A 5 per cent increase in stock prices as at 30 June
2023 would have increased the net assets attributable to the Company's
shareholders and the total profit by £87,000. An equal change in the opposite
direction would have decreased the net assets attributable to the Company's
shareholders and the total profit by an equal amount.
There have been no individual fair value adjustments downwards during the
period that exceeded 5 per cent of the total assets of the Company (31
December 2022: none).
The following disposals took place during the period.
Net Cost Opening Loss
proceeds £000 carrying over
from sale value as at opening
£000 1 January carrying
2023 value
£000 £000
Unquoted investments
Ncam Technologies Limited 1,106 1,675 1,175 (69)
Wakefield Acoustics (via Malvar Engineering Limited) 648 720 648 -
Total from portfolio 1,754 2,395 1,823 (69)
Listed investment funds 159 167 163 (4)
Total from investment portfolio 1,913 2,562 1,986 (73)
The total from disposals in the table above is £1,913,000 whereas that shown
in the Statement of Cash Flows is £1,715,000. This is due to the timing
differences between the recognition of the deferred income arising on
realisations and its receipt in cash.
7 Provisions for Liabilities and Charges
Incentive fee
Under the terms of the Subscription Rights Agreement, the Manager and Chord
Capital are entitled to a performance-related incentive fee if the cumulative
dividends per ordinary share paid or payable as at the last business day of
December in any year, plus the average of the middle market price per ordinary
share of the five dealing days prior to that day, exceeds a Hurdle. The Hurdle
for the year ending 31 December 2023 is 137.25 pence per ordinary share. The
value of the incentive fee is 20 per cent of the excess to the Hurdle,
multiplied by the number of ordinary shares issued. At 30 June 2023 the
total of cumulative cash dividends paid and the mid-market price was 140.45
pence per ordinary share. In accordance with the Company's accounting
policy, an accrual of £1,180,000 has been recognised based on the number of
shares in issue at 30 June 2023.
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 £133,027,000 (30 June 2022 and 31 December 2022:
£109,636,000 and £111,869,000 respectively) and 229,484,783 (30 June 2022
and 31 December 2022: 181,720,724 and 181,468,710 respectively) ordinary
shares in issue at 30 June 2023.
Treasury shares have been excluded in calculating the number of ordinary
shares in issue at 30 June 2023.
The Company has no potentially dilutive shares and consequently, basic and
diluted net asset values are equivalent at 30 June 2023, 31 December 2022 and
30 June 2022.
9 Total Return
Total Return per ordinary share is calculated on cumulative dividends paid of
84.75 pence per ordinary share (30 June 2022: 79.5 pence per ordinary share
and 31 December 2022: 81.0 pence per ordinary share) plus the net asset value
as calculated in note 8.
10 Post Balance Sheet Events
Subsequent to the period end the Company has invested a further £0.2 million
into Elucidat.
11 Directors
The directors of the Company are Peter Waller, Barbara Anderson and Roger
McDowell.
12 Interim Dividend for the year ending 31 December 2023
The directors are pleased to announce the payment of a third interim dividend
for the year ending 31 December 2023 of 1.5 pence per ordinary share ("Interim
Dividend").
The Interim Dividend will be paid on 3 November 2023 to those shareholders on
the Company's register at the close of business on 6 October 2023. The
ex-dividend date will be 5 October 2023.
13 Dividend Re-investment Scheme ("DRIS")
The Company operates a DRIS. The latest date for receipt of DRIS elections
so as to participate in the DRIS in respect of the Interim Dividend is the
close of business on 20 October 2023.
14 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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