British Smaller Co's - Annual Financial Report
21/06/2022 15:00
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RNS Number : 6745P British Smaller Companies VCT PLC 21 June 2022
British Smaller Companies VCT plc
Annual Financial Report Announcement
for the year ended 31 March 2022
British Smaller Companies VCT plc (the "Company") today announces its audited
results for the year ended 31 March 2022.
HIGHLIGHTS
· 24.9 per cent return on opening net assets.
· Total dividends paid during the year ended 31 March 2022 of 9.0p
per share (2021: 4.0p per share).
· Total Return increased by 18.9p to 252.1p per share.
· Net asset value at 31 March 2022 of 85.7p per share (2021: 75.8p
per share).
· Total cumulative dividends paid since inception of 166.4p per
share at 31 March 2022 (2021: 157.4p per share).
· Realisations of investments generated total proceeds of £11.8
million in the year, a gain of £5.1 million over the opening carrying value
and £8.0 million over cost.
· Two new investments and seven follow-on investments totalling
£9.8 million completed during the year.
· £33.2 million raised in fully subscribed September 2021 offer.
· The Board has previously declared an interim dividend of 2.0p per
share in respect of the year ending 31 March 2023. The dividend will be paid
on 12 July 2022 to shareholders on the register on 10 June 2022.
Chairman's Statement
I am pleased to present the Company's Annual Report and Accounts for the year
ended 31 March 2022.
The UK economy has encountered significant headwinds, with rising inflation
affecting the cost of living, interest rates on an upward trajectory and
economic turmoil and uncertainty caused by Russia's invasion of Ukraine.
Against this backdrop, it is pleasing to see the resilience of the Company's
portfolio. The trend towards technology-enabled solutions which was
accelerated by the pandemic has continued and the business to business
component of the portfolio continues to benefit from this dynamic.
This has been a year of strong performance for the Company, which has
generated an increase of 18.9 pence per share, equivalent to 24.9 per cent on
the opening net asset value ("NAV") of 75.8 pence.
It was pleasing to see shareholders' continued enthusiasm for the Company's
prospects, as demonstrated by our fundraising closing at full capacity after
just seven weeks.
Financial Performance
With the 18.9 pence per ordinary share increase in Total Return in the year,
the Company's overall Total Return is now 252.1 pence per ordinary share.
The year's increase derives from the portfolio, which generated a return of
£30.5 million, 41.3 per cent over its opening value, of which £5.1 million
was realised and £25.4 million is unrealised. New and follow-on investments
totalling £9.8 million were completed in the year.
Realisations
Realisations of investments generated total proceeds of £11.8 million, a gain
of £5.1 million over the opening carrying value and £8.0 million over the
original cost, equivalent to a multiple of 3.1x cost. There were two
significant realisations in the year: Deep Secure in July 2021 and the
partial realisation of Matillion in October 2021. Additional proceeds of £1.4
million were generated from loan repayments.
The Deep Secure exit generated capital proceeds of £6.6 million, delivering a
realised gain of £5.6 million above cost, and an uplift of £2.4 million on
the carrying value at the beginning of the year. Including income, the total
return from this investment was £7.7 million over a 12 year holding period,
producing an internal rate of return of 23 per cent and a multiple of 7.7x
cost.
The Company realised 15 per cent of its investment in Matillion as part of its
Series E funding round; this valued the company at $1.5 billion, affirming its
"unicorn" status. The proceeds from this partial exit were £5.0 million,
which represents an uplift on the carrying value at the beginning of the year
of £2.6 million, and together with previous proceeds received represents a
return to date of 2.7x the total cost of the Company's investment. The value
of the Company's residual investment in Matillion is £28.1 million. This is
an outstanding outcome to date, in a company which continues to experience
fast growth.
New Investments
Two new investments were made in the year, totalling £5.1 million. We
continue to fund growth in existing portfolio businesses, and hence seven
companies received follow-on funding in the year, totalling £4.6 million in
aggregate. The new investments are:
Investment Sector
Relative Insight AI-based text data analytics platform
Vuealta Business planning software and services
Financial Results
The combination of strong performance and realisations enabled the Board to
pay interim dividends of 9.0 pence per ordinary share in respect of the year
ended 31 March 2022, bringing the cumulative dividends paid to 31 March 2022
to 166.4 pence per ordinary share.
The movement in net asset value ("NAV") per ordinary share and the dividends
paid are set out in the table below:
Pence per ordinary share £000
NAV at 31 March 2021 75.8 110,360
Increase in value 17.4 25,515
Gain on disposal of investments 3.4 5,131
Gain arising from the investment portfolio 20.8 30,646
Net operating costs (1.2) (1,761)
Incentive fee (0.3) (621)
Issue/(buy-back) of new shares (0.4) 34,009
Total Return in year 18.9 62,273
NAV before the payment of dividends 94.7 172,633
Dividends paid (9.0) (13,099)
NAV at 31 March 2022 85.7 159,534
Cumulative dividends paid 166.4
Total Return: at 31 March 2022 252.1
at 31 March 2021 233.2
The charts on page 12 of the annual report show in greater detail the movement
in Total Return and Net Asset Value over time.
The portfolio investments held at the beginning of the financial year, amounting to £73.9 million, delivered a return over the year of £30.5 million, with an additional return of £0.1 million from other investments.
The current portfolio's net valuation increased by £25.4 million. Within this there were valuation gains of £31.0 million, offset by £5.6 million of downward movements.
The composition of the portfolio comprises predominantly younger, higher growth companies which are reinvesting earnings for further growth with ultimate returns deriving almost entirely from capital gains. As a result the proportion of the Company's return reported as income continues to reduce. During the year, income from the portfolio was £0.9 million, compared to £1.0 million (excluding the exceptional £2.9 million dividend received from ACC Aviation) in the previous financial year and £1.1 million in 2020. This trend is expected to continue as the proportion of new investments continues to grow.
Annual General Meeting
The Annual General Meeting of the Company will be held at 9:30 am on 16
September 2022 at 33 St James Square, London SW1Y 4JS. Full details of the
agenda for this meeting are included in the Notice of the Annual General
Meeting on page 91 of the annual report.
Dividends
Dividends paid in the year totalled 9.0 pence per ordinary share. These comprised interim dividends of 9.0 pence per ordinary share for the year ended 31 March 2022. Cumulative dividends paid as at 31 March 2022 were 166.4 pence per ordinary share.
An interim dividend for the year ending 31 March 2023 of 2.0 pence per ordinary share will be paid on 12 July 2022, to shareholders on the register at 10 June 2022.
Dividend Re-investment Scheme ("DRIS")
Your Company operates a DRIS, which gives shareholders the opportunity to
re-invest any cash dividends and 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 March 2022, £3.4 million was re-invested by
way of the DRIS, from overall dividend proceeds of £13.1 million.
Liquidity and Fundraising
Having previously assessed its expected cash requirements, the Company
announced a new share offer on 22 September 2021, alongside British Smaller
Companies VCT2 plc, with the intention of raising up to £60 million, in
aggregate, which included an over-allotment facility of £20 million, in
aggregate. This was fully subscribed and closed on 12 November 2021. The
related allotment of 39,514,174 ordinary shares took place on 7 January 2022,
following which the Company received net proceeds of £33.2 million.
At 31 March 2022, the Company's cash and other liquid reserves of £58.1
million represented 36.4 per cent of net assets.
Shareholder Relations
The electronic communications policy continues to be a success, with 82 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.
In 2021, we again had to change our plans for the Investor Workshops, subsequently holding two webinars in conjunction with British Smaller Companies VCT2 plc, on 25 June 2021 and 9 December 2021.
We are pleased to confirm the return of an in-person Investor Workshop for 2022. This will be held jointly with British Smaller Companies VCT2 plc on 29 June 2022 at 1 Great George Street, Westminster, London SW1P 3AA. After the popularity of the webinars over the past couple of years, we will also continue providing these once per year, with the next event planned for December 2022.
Post Balance Sheet Events
Following the year end one new investment and two follow-on investments totalling £1.9 million have been completed.
Board Composition
I am retiring as Chairman at the end of this year's AGM. I am delighted to announce that I will be succeeded by Rupert Cook who has served as a director and Chair of the Investment Committee for five years.
The Board has completed a successful recruitment process and Purvi Sapre joined the Board on 6 June 2022. Purvi has over 15 years' investment experience in the UK and international markets, investing on behalf of debt, equity and impact investment funds. I am delighted to welcome her and I am confident that she will be an excellent addition to the Board.
Ukraine
During the build up to and subsequent to the recent invasion of Ukraine by Russia, we have been closely monitoring the impact of the war on our portfolio. There is minimal direct impact, which has principally been felt in a small number of cases where investee company software development teams have been based in Ukraine. From a business perspective, continuity of supply and service has been secured, although we are aware of a small number of developers who we believe are directly caught in the conflict and our thoughts are with them and all those suffering the humanitarian impact of the war.
Outlook
The current challenges for the UK economy are undoubtedly driving markets
towards more defensive positions, cooling some of the valuation multiples in
the fast growth sectors in which the Company invests. In this environment, the
quality and robustness of the portfolio is tested but is proving generally
resilient.
Following the recent fundraise, the Company expects to continue to provide
further investment to the portfolio to support investee companies' growth
ambitions. The cooling of markets is also expected to provide further
opportunities to add growing, innovative companies to the portfolio.
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.
Helen Sinclair
Chairman
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 Policy
The investment strategy 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 businesses will be re-investing their profits for growth and the
investments will comprise mainly equity investments.
The Company seeks to build a broad portfolio of investments in early stage
companies focussed 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 VCT plc and British Smaller Companies VCT2 plc
(together "the VCTs") typically co-invest in investments, allocating such
investments 60 per cent to the Company and 40 per cent to British Smaller
Companies VCT2 plc. However, the Board of the Company has discretion as to
whether or not to take up its allocation; where British Smaller Companies VCT2
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 choice on the initial £4.5 million of all
equity investment opportunities meeting the VCT qualifying criteria. Amounts
above £4.5 million are allocated two thirds to the VCTs and one third to
YFM's co-investment funds.
Asset Mix
Cash which is pending investment in VCT-qualifying securities is primarily
held in interest bearing instant access, short-notice bank accounts, money
market funds and investment funds listed on a recognised stock exchange
(including FCA authorised and regulated UCITS funds).
Remuneration Policy
The Company's policy on the remuneration of its directors, all of whom are
non-executive, can be found on page 50 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 on page 36 of the annual report.
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 approves all investment and divestment decisions save in that new
investments up to £250,000 in companies whose securities are traded on a
regulated stock exchange and where the decision is required urgently, in which
case the Chairman of the Board of Directors, if appropriate, may act in
consultation with the Manager.
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 are also received at each Board
meeting on compliance with VCT regulations 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 February 1996. The principal terms of the agreement under which these
services are performed are set out in note 3 to the financial statements.
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 kind falling within the Company's
investment policies.
Administration of the Listed Investment Funds Quoted Portfolio
The Company holds a small portfolio of listed investment funds, the purpose of
which is to optimise returns from liquid assets while preserving capital
value. Reporting to the Manager, this portfolio is managed by Brewin Dolphin
Limited on a discretionary basis. The Board receives regular reports on the
make-up and market valuation of this portfolio.
Key Performance Indicators
Total Return(1), 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.
1. Total Return is net of ongoing charges and other costs.
Total Return (as at 31 March)
The chart on page 12 of the annual report shows how the Total Return of your
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
which 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 52 of the annual report.
Total Return with DRIS (as at 31 March)
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 1996 who have re-invested their dividends.
Shareholder Returns Excluding all Tax Reliefs
The Board considers Total Return to be the primary measure of shareholder
value. The table below shows the cumulative dividends, the Total Return on
each fundraising round per ordinary share and the Internal Rate of Return
("IRR") if a shareholder had not opted to participate in the Company's DRIS.
The cumulative dividend, Total Return and IRR figures in this table exclude
the benefits of all tax reliefs.
Year of issue Offer price (1) NAV at 31 March 2022 Cumulative dividends paid since fundraising Total Return to date(2) IRR(3)
Pence Pence Pence Pence %
1996 100.0 85.7 166.4 252.1 5.3%
1997 100.0 85.7 163.4 249.1 5.4%
1998 105.0 85.7 159.7 245.4 5.2%
2005 (C share) (4) 100.0 96.4 148.3 244.7 7.9%
2006 99.5 85.7 136.0 221.7 8.0%
2007 102.5 85.7 131.5 217.2 8.0%
2008 106.3 85.7 126.5 212.2 7.9%
2010 97.3 85.7 116.5 202.2 10.3%
2011 128.0 85.7 110.2 195.9 6.2%
2012 99.8 85.7 87.2 172.9 8.1%
2013 95.8 85.7 82.2 167.9 9.3%
2014 100.8 85.7 75.7 161.4 8.7%
2015 99.5 85.7 67.7 153.4 9.1%
2016 102.3 85.7 57.7 143.4 7.8%
2017 84.6 85.7 35.7 121.4 9.0%
2019 76.0 85.7 19.0 104.7 12.4%
Notes
1( ) The offer price for the relevant
year excluding the benefit of income tax relief available to investors at the
time of the offer.
2( ) Total Return to date is cumulative
dividends paid plus the 31 March 2022 net asset value in pence per ordinary
share. This is an Alternative Performance Measure.
3( ) IRR is the unaudited annual rate
of return that equates the offer price at the date of the original investment,
with the value of subsequent dividends plus the 31 March 2022 net asset value
per ordinary share. This excludes the benefit of any initial tax relief.
4. All figures have been adjusted for conversion of C
shares into ordinary shares in May 2007.
The IRRs shown above are based on fundraisings and offer prices during the
relevant calendar year whilst the graph on page 14 of the annual report shows
IRRs over specific financial periods to 31 March 2022.
Set out on page 14 of the annual report is the average annual internal rate of
return (excluding all tax reliefs) over 1, 2, 3, 5 and 10 years up to 31 March
2022. The average annual internal rate of return is calculated with reference
to the cumulative dividends paid plus the unaudited NAV at 31 March 2022.
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 31 March 2022 (%) Year to 31 March 2021 (%)
Ongoing Charges figure* 2.02 2.10
* Alternative Performance Measure
The level of ongoing charges has fallen in the year due to the increased level
of net assets and the agreement with the Manager to pay a lower level of
management fee of 1 per cent on surplus cash. The ratio is one of the lowest
in the 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 its Manager. In addition, the Board receives formal
reports from its VCT Tax Adviser (Philip Hare & Associates LLP) twice a
year. The Board can confirm that during the period, all of the 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.
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
Page 16 of the annual report illustrates the broad range of the portfolio,
with 62 per cent of the portfolio by valuation being held for more than three
years, whilst 90 per cent is held at cost or above. 21 per cent of the
portfolio's value is held in financial instruments, although loans now account
for only five per cent of the value.
Portfolio Analysis
Also included on page 17 of the annual report is a profile of the portfolio by
industry sector and the breakdown of the portfolio between investments made
before and after the VCT rule changes in 2015.
Investment Review
The portfolio delivered a strong performance in the year, with a return of £30.5 million on the opening value of £73.9 million.
The movements in the investment portfolio, are set out in Table A below:
Table A Investment Portfolio Portfolio Listed Investment Funds Total
£million £million £million
Opening fair value at 1 April 2021 73.9 4.8 78.7
Additions 9.8 0.8 10.6
Disposal proceeds* (13.0) (1.0) (14.0)
Valuation movement including realised gains 30.5 0.1 30.6
Closing fair value at 31 March 2022 101.2 4.7 105.9
* excluding deferred consideration
At 31 March 2022 the portfolio was valued at £101.2 million, representing
63.4 per cent of net assets (67.0 per cent at 31 March 2021). The listed
investment funds were valued at £4.7 million, representing 2.9 per cent of
net assets (4.4 per cent at 31 March 2021). Cash, cash equivalents and current
asset investments at 31 March 2022 of £53.4 million represented 33.5 per cent
of net assets (27.3 per cent at 31 March 2021).
The Portfolio
£101.2 million Fair value of the portfolio (2021: £73.9 million)
23 Number of portfolio companies with a value of more than £1.0 million (2021: 21)
£0.9 million Income from the portfolio (2021: £1.0 million*)
£9.8 million Level of investment (2021: £8.5 million)
£30.5 million Return from portfolio (2021: £22.2 million*)
*excluding exceptional dividend of £2.9 million received from ACC Aviation
The portfolio has performed well during the period, adding £30.5 million of
value on the opening fair value of £73.9 million. The composition of
investments continues to show its dynamism, with £9.8 million invested in the
period and cash proceeds of £13.2 million received.
The top ten investments had a combined value of £72.0 million at 31 March
2022, 71.1 per cent of the total portfolio (65.4 per cent at 31 March 2021).
Fair value changes
Table B Gain from Investment Portfolio £million %
Gain in fair value from the portfolio 25.4 83
Gain on disposal over opening value from the portfolio 5.1 17
Gain arising from the portfolio 30.5 100
Gain in value of other investments 0.1
Gain arising from the investment portfolio 30.6
The current portfolio delivered a value gain of £25.4 million in the year. While Matillion has been a significant driver of value, it is pleasing to see the fair value increases arising across a range of companies, including established portfolio companies such as Springboard and DisplayPlan, tech-focused businesses such as Unbiased, Outpost, Force24, Elucidat and Wooshii as well as companies benefiting from the ongoing post-pandemic recovery of the retail sector, such as Tonkotsu and Frescobol. The case study on page 24 of the annual report gives more information on the investment in Springboard.
Some decreases in value have been seen; Arraco and Arcus Global have both struggled somewhat over the past 12 months, but we continue to work closely with the companies' management teams to navigate their current challenges.
A further £5.1 million of value arose from investments which were realised in the year, including the partial realisation of Matillion (£2.6 million), and Deep Secure (£2.4 million).
Other Significant Investment Movements
Investments
During the year ended 31 March 2022, the Company completed nine investments,
totalling £9.7 million. This comprised two new investments of £5.1 million
and seven follow-on investments of £4.6 million. 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 Company's recent investment, Relative
Insight.
Table C Investments Investments made
Company New Follow-on Total
£million £million £million
Relative Insight 3.0 - 3.0
Vuealta 2.1 - 2.1
Wooshii - 1.5 1.5
SharpCloud - 1.2 1.2
Sipsynergy - 0.9 0.9
Other follow-on investments - 1.0 1.0
Invested in the year 5.1 4.6 9.7
Capitalised income 0.1
Total portfolio additions in the year 9.8
Other investments 0.8
Total additions in the year 10.6
Disposal of Investments
During the year to 31 March 2022, the Company received proceeds from disposals
and loan repayments from the portfolio of £13.2 million, a gain of £5.1
million over the opening carrying value and £7.8 million over cost. This
included the very successful realisation of Deep Secure and the partial
realisation of Matillion. The Company's investments in Friska and Harris Hill
were disposed of for minimal proceeds; the investments had been fully written
down in previous periods.
Table D Disposal of Investments Net proceeds from sale of investments Opening value 31 March 2021 Gain on opening value
£million £million £million
Unquoted investments 13.0 7.9 5.1
Deferred proceeds 0.2 0.2 -
Total from portfolio 13.2 8.1 5.1
Listed investment funds 1.1 1.1 -
Total from investment portfolio 14.3 9.2 5.1
Further analysis of all investments sold in the year can be found in note 7.
Investment Portfolio Composition
As at 31 March 2022, the portfolio was valued at £101.2 million. An analysis
of the movements in the year is shown in note 7.
The portfolio has 23 investments valued above £1.0 million, compared to 21 a
year earlier, with the single largest investment, Matillion, representing 17.6
per cent of the net asset value.
The charts on pages 16 and 17 of the annual report show the diversity of the
portfolio, splitting it by industry sector, age of investment, investment
instrument and the valuation compared to cost.
Under the revised VCT legislation it is no longer possible to deposit funds
for longer than seven days which means that cash deposits must be available on
very short notice. The Board and the Manager continually review opportunities
to generate a higher level of income, without significantly changing the risk
profile of the funds held.
As part of this, the Company holds a small diversified quoted portfolio of
listed investment funds. During the period, this portfolio generated income
for the Company of £0.1 million (2021: £0.1 million). At 31 March 2022, this
quoted portfolio was valued at £4.7 million, or 2.9 per cent of net assets
(£4.8 million, or 4.4 per cent at 31 March 2021). The overall valuation
increase during the year from the quoted portfolio was £0.1 million.
Following a review of the composition of the quoted portfolio, assets with an
original cost of £1.1 million were realised during the year for proceeds of
£1.1 million, of which £0.8 million had been reinvested in the quoted
portfolio at 31 March 2022.
In addition, the Company has also invested into a number of money market funds
which can be converted back into cash with immediate notice. These funds are
included within Current Asset Investments as disclosed in note 9 to the
financial statements. At 31 March 2022, these funds were valued at £7.5
million, or 4.7 per cent of net assets (£2.5 million, or 2.3 per cent at 31
March 2021).
Valuation Policy
Unquoted investments are valued in accordance with both IFRS 13 'Fair Value
Measurement' and International Private Equity and Venture Capital Guidelines,
December 2018 edition (IPEV Guidelines).
Initially, at the first quarter-end following investment, unquoted 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.
Quoted investments are valued at bid price.
The full valuation policy is set out in note 1 on pages 66 and 67 of the
annual report.
Table E shows the value of unquoted investments within each valuation category
as at 31 March 2022.
With continued investment in earlier stage businesses that are investing for
growth, an increasing proportion of portfolio valuations are based on revenue
multiples.
Table E Valuation Policy 2022 2021
Valuation % of portfolio by value % of portfolio by value
£million
Revenue multiple 72.9 72 68
Earnings multiple 20.9 21 25
Cost or price of recent investment, reviewed for change in fair value 3.3 3 3
Discounted cashflow 2.2 2 -
Net assets, reviewed for change in fair value 1.9 2 4
Total - portfolio 101.2 100 100
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
of investments, aiming to grow and enhance positive impacts 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. They have
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.
In 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.
2021 ESG KPI Report for Investments held in YFM's VCT funds
Growing our economy
• £31.3 million of R&D investment during 2021
• £37.8 million of export sales achieved in 2021
Improving our society
• 95 per cent of companies were independently chaired in 2021
• 40 per cent of companies had female directors on boards, with 25 per
cent having a female CEO
• 25 per cent of businesses had a designated board member with
responsibility for improving ESG issues
Valuing our people
• 30 per cent of the portfolio workforce was female in 2021
• 866 new jobs were created from date of investment to 2021
• 65 per cent had mental wellbeing programmes in place and 55 per cent
held regular employee engagement surveys
• Over 22,000 hours of training was given to employees
Protecting our environment
• 60 per cent of companies had active carbon reduction strategies (up
from 15 per cent at investment)
• 25 per cent offset all or a defined portion of their carbon impact
• But only 15 per cent formally measure their carbon footprint
Summary and Outlook
It has been pleasing to see the continued positive progression of the
portfolio during the year, both from the continued growth of the Company's
technology-enabled and software-focused investments, but also from the
recovery of businesses which were heavily impacted by the pandemic.
We continue to help all of our companies navigate a fluid economic
environment, with many facing obstacles relating to inflation, hiring of
talent and an ever-changing political landscape.
Despite these challenges, we continue to see a strong 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 ongoing support from the Company's January 2022
fundraising, and are looking forward to putting the funds raised to work.
David Hall
YFM Private Equity Limited
Portfolio Summary at 31 March 2022
Name of company Date of initial investment Location Industry Sector Current cost Valuation at 31 March 2022 Proceeds to date Realised & unrealised value to date*
£000 £000 £000 £000
Matillion Limited Nov-16 Manchester Data & Analytics 1,778 28,053 7,071 35,124
Springboard Research Holdings Limited Oct-14 Milton Keynes Data & Analytics 2,822 6,638 180 6,818
Unbiased EC1 Limited Dec-19 London Software Applications 2,946 6,230 - 6,230
Wooshii Limited May-19 London New Media 3,660 5,098 - 5,098
Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) May-14 Alloa Business Services 2,934 5,051 - 5,051
Elucidat Ltd May-19 Brighton Software Applications 2,700 4,634 - 4,634
DisplayPlan Holdings Limited Jan-12 Stevenage New Media 130 4,393 1,521 5,914
SharpCloud Software Limited Oct-19 London Data & Analytics 3,407 4,298 - 4,298
Force24 Ltd Nov-20 Leeds Software Applications 2,400 3,997 - 3,997
ACC Aviation Group Limited** Nov-14 Reigate Business Services 220 3,641 1,848 5,489
Outpost VFX Limited Feb-21 Bournemouth New Media 1,500 3,310 - 3,310
Relative Insight Limited Mar-22 Lancaster Data & Analytics 3,000 3,000 - 3,000
Tonkotsu Limited Jun-19 London Retail & Brands 2,388 2,496 - 2,496
Vuealta Group Limited Sep-21 London Software Applications 2,099 2,308 - 2,308
Ncam Technologies Limited Mar-18 London New Media 2,512 2,213 131 2,344
Vypr Validation Technologies Limited Jan-21 Manchester Data & Analytics 1,500 2,148 - 2,148
Sipsynergy (via Hosted Network Services Limited) Jun-16 Hampshire Software Applications 2,654 2,096 - 2,096
KeTech Enterprises Limited Nov-15 Nottingham Data & Analytics 10 1,926 1,775 3,701
Frescobol Carioca Ltd Mar-19 London Retail & Brands 1,800 1,811 - 1,811
Traveltek Group Holdings Limited Oct-16 East Kilbride Software Applications 1,715 1,549 - 1,549
Arcus Global Limited May-18 Cambridge Software Applications 3,075 1,365 - 1,365
Panintelligence (via Paninsight Limited) Nov-19 Leeds Data & Analytics 1,500 1,125 - 1,125
e2E Engineering Limited Sep-17 Welwyn Garden City Business Services 900 1,078 - 1,078
Other investments £0.75 million and below 11,615 2,701 8,469 11,170
Current investments 59,265 101,159 20,995 122,154
Full disposals to date 60,761 - 114,275 114,275
Total portfolio 120,026 101,159 135,270 236,429
* represents proceeds received to date plus the unrealised valuation at 31
March 2022.
** additional ordinary dividends of £2.9 million have also been received.
Summary of Portfolio Movement since 31 March 2021
Name of Company Investment valuation at 31 March 2021 Disposal proceeds Additions including capitalised income Valuation gains including profits / (losses) on disposal Investment valuation at 31 March 2022
£000 £000 £000 £000 £000
Matillion Limited 15,658 (4,967) - 17,362 28,053
Unbiased EC1 Limited 4,026 - - 2,204 6,230
Outpost VFX Limited 1,500 - - 1,810 3,310
Force24 Ltd 2,902 - - 1,095 3,997
Elucidat Ltd 3,587 - - 1,047 4,634
Wooshii Limited 2,617 - 1,500 981 5,098
Tonkotsu Limited 1,551 - - 945 2,496
Frescobol Carioca Ltd 907 - - 904 1,811
Vypr Validation Technologies Limited 1,500 - - 648 2,148
Traveltek Group Holdings Limited 1,111 - - 438 1,549
e2E Engineering Limited 697 - - 381 1,078
SharpCloud Software Limited 2,720 - 1,217 361 4,298
Vuealta Group Limited - - 2,099 209 2,308
Other investments £0.75 million and below 202 - 240 58 500
Panintelligence (via Paninsight Limited) 1,125 - - - 1,125
Relative Insight Limited - - 3,000 - 3,000
Ncam Technologies Limited 2,229 (131) 262 (147) 2,213
Sipsynergy (via Hosted Network Services Limited) 1,470 - 883 (257) 2,096
Arcus Global Limited 3,124 - 150 (1,909) 1,365
Arraco Global Markets Limited 2,297 - 300 (2,477) 120
Investments made after November 2015 49,223 (5,098) 9,651 23,653 77,429
Deep-Secure Ltd 4,121 (6,560) - 2,439 -
Springboard Research Holdings Limited 4,180 - 89 2,369 6,638
DisplayPlan Holdings Limited 2,742 - - 1,651 4,393
KeTech Enterprises Limited 2,725 (1,275) - 476 1,926
Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) 4,698 - - 353 5,051
ACC Aviation Group Limited 3,298 - - 343 3,641
Other investments £0.75 million and below 2,918 (72) - (765) 2,081
Investments made prior to November 2015 24,682 (7,907) 89 6,866 23,730
Total investments 73,905 (13,005) 9,740 30,519 101,159
Portfolio
The top 10 investments had a combined value of £72.0 million, 71.1 per cent
of the total portfolio.
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 Covid-19 pandemic and the current conflict in Ukraine have created
heightened uncertainty for the Company, but the Board does not consider that
it has changed the nature of the principal risks. The Board considers that the
present processes for mitigating those risks remain appropriate.
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 4: "Audit, Risk and
Internal Control" of The UK Corporate Governance Code issued by the Financial
Reporting Council in July 2018. Details of the Company's internal controls are
contained in the Corporate Governance Internal Control section on pages 48 and
49 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.
Loss of Approval as a VCT
Risk - The Company must comply with Chapter 3 Part 6 of the Income Tax Act
2007, which allows it to be exempted from corporation tax on capital gains.
Any breach of these rules may lead to the Company losing its approval as a
VCT, which would result in qualifying shareholders who have not held their
shares for the designated holding period having to repay the income tax relief
they obtained, while future dividends paid by the Company would be subject to
tax. The Company would also lose its exemption from corporation tax on capital
gains.
Mitigation - One of the Key Performance Indicators monitored by the Company is
the compliance with legislative tests. These tests are closely monitored by
the Manager on an ongoing basis and regularly reported to and reviewed by the
Board. The Company also makes use of external experts, who review the
Company's compliance with VCT rules on a regular basis. Details of how the
Company manages these requirements can be found under the heading "Compliance
with VCT Legislative Tests" above.
Economic
Risk - Events such as recession and interest rate fluctuations, which may
include factors arising from geopolitical shocks, could affect investee
companies' performance and valuations.
Mitigation - As well as the response to the 'Investment and Strategic' risk
below, the Company has a clear investment policy (summarised above) and a
diversified portfolio operating in a range of sectors. The Manager actively
monitors investee company performance, which provides quality information for
monthly reviews of the portfolio. The Manager ensures that the portfolio has
plans to manage the impact of economic risk.
Investment and Strategic
Risk - Inappropriate strategy, poor asset allocation or consistently weak
stock allocation may lead to underperformance and poor returns to
shareholders. The quality of enquiries, investments, investee company
management teams and monitoring, and the risk of not identifying investee
company difficulties may lead to underperformance by the Company and poor
returns to shareholders.
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.
The Manager carries out due diligence on potential investee companies and
their management teams and utilises external reports where appropriate to
assess the viability of investee businesses before investing. Wherever
possible, a non-executive director will be appointed to the board of the
investee company on behalf of the Company.
Regulatory
Risk - The Company is required to comply with the Companies Act 2006, the
rules of the UK Listing Authority, the Financial Conduct Authority's
Prospectus Rules and UK adopted international accounting standards; it is also
subject to the AIFMD EU Exit Regulations. Breach of any of these might lead to
suspension of the Company's Stock Exchange listing, financial penalties or a
qualified audit report.
Mitigation - The Manager and the Company Secretary have procedures in place to
ensure recurring Listing Rules requirements are met and actively consult with
brokers, solicitors and external compliance advisers as appropriate.
The Manager ensures that it hires suitably qualified members of staff who are
experienced with regulatory requirements and relevant accounting standards.
The key controls around regulatory compliance are explained on pages 48 and 49
of the annual report.
Reputational
Risk - Inadequate or failed controls might result in breaches of regulations
or loss of shareholder trust.
Mitigation - The Board is comprised of directors with suitable experience and
qualifications who report annually to the shareholders on their independence.
The Manager is well-respected, with a proven track record. It has a formal
recruitment process to employ experienced investment staff. Allocation rules
relating to co-investments with other funds managed by the Manager have been
agreed between the Manager and the Company. Advice is sought from external
advisors where required. Both the Company and the Manager maintain appropriate
insurances.
Operational
Risk - Failure of the Manager's and administrator's accounting systems or
disruption to its business might lead to an inability to provide accurate
reporting and monitoring.
Mitigation - The Manager has a documented business continuity plan, which
provides for back-up services in the event of a system breakdown. The
Manager's systems are protected against viruses and other cyber-attacks. The
Manager implemented its business continuity plan through the Covid-19 pandemic
with no loss of service.
Cyber/IT
Risk - Inadequate IT systems and controls might lead to business interruption,
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 two factor authentication, email protection software, monitored
firewalls and regularly updated electronic devices. The Manager is Cyber
Essentials Plus certified. Staff at the Manager regularly receive training
in relation to their cybersecurity obligations.
Climate
Risk - The Company, the Manager and the portfolio companies may fail to
positively contribute towards, and adapt to, the global transition towards
decarbonisation, which could result in regulatory breaches, reduced investor
and/or employee attraction and the reduced ability of portfolio companies to
attract lending to fund their growth.
Mitigation - In 2021, the Manager published its first Sustainable Investment
Report, detailing the steps it has taken in this area to date. The Manager
is a signatory of the UN's Principles for Responsible Investment; it has
published its Sustainable Investment Principles; and has rewritten its Ethical
Policy. Its investment process now includes a set of over 50 thematic ESG
KPIs, with which it is now tracking its portfolio over time across four key
areas: Improve our Society; Protect our Environment; Grow our Economy; and
Value our People. Further details can be found on pages 21 to 23 of the annual
report.
Financial
Risk - Inadequate controls might lead to misappropriation of assets.
Inappropriate accounting policies might lead to misreporting or breaches of
regulations.
Mitigation - The Company's internal control and risk management processes are
described on pages 48 and 49 of the annual report.
Market/Liquidity
Risk - Lack of liquidity in both the venture capital and public markets.
By their nature, investments in unquoted companies involve a higher degree of
risk than investments in companies trading on public markets. In particular,
smaller companies often have limited product lines, markets or financial
resources; they may be dependent on a smaller number of key individuals.
For quoted companies, the fact that a share is traded on the public market
does not guarantee its liquidity. The spread between the buying and selling
price of such shares may be wide and thus the price used for valuation may not
be achievable. In addition, smaller companies' shares are often less liquid
than larger companies, bringing with it potential difficulties in acquiring,
valuing and disposing of such stock.
Mitigation - Overall liquidity risks 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
the assets to be optimised to identify a willing buyer. 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.
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 VCT2 plc, the Company normally holds an
annual Investor Workshop, which is always well attended. Because of
restrictions introduced by the UK Government during the recent Covid-19
pandemic, it was not possible to hold this in its normal format, so two online
workshops were held, in June 2021 and December 2021, which were attended by
almost 200 shareholders. The Manager also carried out a shareholder survey
during 2021.
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.
On 22 September 2021, the Company issued a prospectus, alongside British
Smaller Companies VCT2 plc, to raise up to £60 million in aggregate for the
2021/22 tax year. The related allotment took place on 7 January 2022,
following which the Company received net proceeds of £33.2 million.
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 4.0 pence per ordinary share, a special dividend of
5.0 pence per ordinary share was paid in November 2021, following the partial
realisation of the Company's investment in Matillion.
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
VCT2 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.
The Covid-19 pandemic highlighted the Manager's ongoing commitment to support
its portfolio companies. At the start of the pandemic, the Manager put in
place weekly monitoring reviews, as well as providing the portfolio with
regular updates on the availability of government funding initiatives. Cash
flow forecasts were kept under constant review and additional funding was
provided where appropriate.
Employees
The Company has no employees. The Board is composed of two female
non-executive director and three 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 on pages 50 to 52 of the
annual 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, who
recognises the importance of its environmental responsibilities and has signed
up to the United Nations' Principles for Responsible Investment.
More details of the work that the Manager has done in this area are set out on
pages 21 to 23 of the annual report. Its Sustainable Investment Policy can
be found at www.yfmep.com/who-we-are/our_impact/
(http://www.yfmep.com/who-we-are/our_impact/)
Business Conduct
The Company has a zero tolerance approach to bribery. The following is a
summary of its policy:
> It is the Company's policy to conduct all of 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 directors of the Company, the Manager and any other service
providers must not promise, offer, give, request, agree to receive or accept
financial or other advantage in return for favourable treatment, to influence
a business outcome or gain any business advantage on behalf of the Company or
encourage others to do so;
> The Company has communicated its anti-bribery policy to the Manager
and its other service providers and, in turn, the Manager ensures that
portfolio companies implement appropriate policies of their own; and
> The Manager has its own Anti-Bribery and Anti-Slavery policies and
ensures that portfolio companies adopt a similar policy.
Helen Sinclair
Chairman
Statement of Comprehensive Income
For the year ended 31 March 2022
2022 2021
Notes
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gain on disposal of investments 7 - 5,131 5,131 - 1,740 1,740
Gains on investments held at fair value 7 - 25,515 25,515 - 17,639 17,639
Gain arising from the portfolio - 30,646 30,646 - 19,379 19,379
Income 2 1,065 - 1,065 4,074 - 4,074
Total income 1,065 30,646 31,711 4,074 19,379 23,453
Administrative expenses:
Manager's fee (577) (1,732) (2,309) (419) (1,256) (1,675)
Incentive fee - (621) (621) - - -
Other expenses (517) - (517) (439) - (439)
3 (1,094) (2,353) (3,447) (858) (1,256) (2,114)
(Loss) profit before taxation (29) 28,293 28,264 3,216 18,123 21,339
Taxation 4 - - - - - -
(Loss) profit for the year (29) 28,293 28,264 3,216 18,123 21,339
Total comprehensive (expense) income for the year (29) 28,293 28,264 3,216 18,123 21,339
Basic and diluted (loss) earnings per ordinary share 6 (0.02p) 18.24p 18.22p 2.32p 13.06p 15.38p
The accompanying notes on pages 65 to 90 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 April 2021 -
"SORP") published by the AIC.
Balance Sheet
At 31 March 2022
Notes 2022 2021
£000 £000
ASSETS
Non-current assets at fair value through profit or loss
Investments 7 101,159 73,905
Listed investment funds 7 4,706 4,838
Financial assets at fair value through profit or loss 7 105,865 78,743
Accrued income and other assets 907 704
106,772 79,447
Current assets
Accrued income and other assets 150 971
Current asset investments 14,471 9,471
Cash and cash equivalents 38,928 20,657
53,549 31,099
LIABILITIES
Current liabilities
Trade and other payables (787) (186)
Net current assets 52,762 30,913
Net assets 159,534 110,360
Shareholders' equity
Share capital 20,510 16,131
Share premium account 62,123 29,995
Capital reserve 33,620 41,106
Investment holding gains and losses reserve 41,982 18,944
Revenue reserve 1,299 4,184
Total shareholders' equity 159,534 110,360
Net asset value per ordinary share 8 85.7p 75.8p
The accompanying notes on pages 65 to 90 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 21 June 2022.
Helen Sinclair
Chairman
Statement of Changes in Equity
For the year ended 31 March 2022
Share capital Share premium account Capital reserve Investment holding gains and losses reserve Revenue reserve Total equity
£000 £000 £000 £000 £000 £000
Balance at 31 March 2020 14,950 22,838 49,624 375 1,174 88,961
Revenue return for the year - - - - 3,216 3,216
Expenses charged to capital - - (1,256) - - (1,256)
Gain on investments held at fair value - - - 17,639 - 17,639
Gain on disposal of investments in the year - - 1,740 - - 1,740
Total comprehensive income for the year - - 484 17,639 3,216 21,339
Issue of share capital 929 6,121 - - - 7,050
Issue of shares - DRIS 252 1,257 - - - 1,509
Issue costs - (221) (35) - - (256)
Purchase of own shares - - (2,732) - - (2,732)
Dividends - - (5,305) - (206) (5,511)
Total transactions with owners 1,181 7,157 (8,072) - (206) 60
Realisation of prior year investment holding losses - - (930) 930 - -
Balance at 31 March 2021 16,131 29,995 41,106 18,944 4,184 110,360
Revenue loss for the year - - - - (29) (29)
Expenses charged to capital - - (2,353) - - (2,353)
Gain on investments held at fair value - - - 25,515 - 25,515
Gain on disposal of investments in the year - - 5,131 - - 5,131
Total comprehensive income (expense) for the year - - 2,778 25,515 (29) 28,264
Issue of share capital 3,952 30,676 - - - 34,628
Issue of shares - DRIS 427 2,990 - - - 3,417
Issue costs - (1,538) - - - (1,538)
Purchase of own shares - - (2,498) - - (2,498)
Dividends - - (10,303) - (2,796) (13,099)
Total transactions with owners 4,379 32,128 (12,801) - (2,796) 20,910
Realisation of prior year investment holding gains - - 2,537 (2,477) (60) -
Balance at 31 March 2022 20,510 62,123 33,620 41,982 1,299 159,534
The accompanying notes on pages 65 to 90 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 reserve Revenue reserve Total
£000 £000 £000
Distributable reserves as shown above 33,620 1,299 34,919
Less: income not yet distributable (231) (1,299) (1,530)
Reserves available for distribution(1) 33,389 - 33,389
1. Following the circulation of the Annual Report to shareholders.
The capital reserve and revenue reserve are both distributable reserves. The
reserves total £34,919,000 representing a decrease of £10,371,000 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 £34,919,000 shown above,
£1,530,000 relates to income not yet distributable.
Statement of Cash Flows
For the year ended 31 March 2022
Notes 2022 2021
£000 £000
Net cash (outflow) inflow from operating activities (1,483) 1,004
Cash flows (used in) from investing activities
Purchase of financial assets at fair value through profit or loss 7 (10,465) (8,661)
Proceeds from sale of financial assets at fair value through profit or loss 7 14,069 1,813
Deferred consideration 7 240 489
Net cash inflow (outflow) from investing activities 3,844 (6,359)
Cash flows from (used in) financing activities
Issue of ordinary shares 34,628 7,050
Costs of ordinary share issues* (1,538) (256)
Purchase of own ordinary shares (2,498) (2,732)
Dividends paid 5 (9,682) (4,002)
Net cash inflow from financing activities 20,910 60
Net increase (decrease) in cash and cash equivalents 23,271 (5,295)
Cash and cash equivalents at the beginning of the year 23,158 28,453
Cash and cash equivalents at the end of the year 46,429 23,158
*Issue costs include both fundraising costs and expenses incurred from the
Company's DRIS
Cash and cash equivalents comprise
Money market funds 7,501 2,501
Cash at bank 38,928 20,657
Cash and cash equivalents at the end of the year 46,429 23,158
Reconciliation of Profit before Taxation to Net Cash (Outflow) Inflow from
Operating Activities
2022 2021
£000 £000
Profit before taxation 28,264 21,339
Increase (decrease) in trade and other payables 601 (19)
Decrease (increase) in accrued income and other assets 387 (848)
Gain on disposal of investments (5,131) (1,740)
Gains on investments held at fair value (25,515) (17,639)
Capitalised income (89) (89)
Net cash (outflow) inflow from operating activities (1,483) 1,004
The accompanying notes on pages 65 to 90 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 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 April 2021 - "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 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
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.
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") updated in December 2018. 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 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, such as the impact of the coronavirus
pandemic. 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.
Quoted Investments and Listed Investment Funds
Quoted investments and 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. No methodology other than active market bid price has been
applied as at 31 March 2022.
Income
Dividends and interest are received from financial assets measured at fair
value through profit or 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 on 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, a performance incentive fee is payable to the Manager subject to
the Company achieving both a target level of Total Return (the "Total Return
Hurdle") and dividends ("Dividend Hurdle"). Subject to meeting the Total
Return Hurdle, the Manager will receive an amount equivalent to 20 per cent of
the amount by which dividends paid per share exceeds the Dividend Hurdle,
multiplied by the number of shares in issue at the year end. The incentive
fee in any financial year will be subject to a cap if the excess of dividends
paid over the Dividend Hurdle is greater than the sum of the excess of the
Total Return over the Total Return Hurdle divided by 1.2. At the end of each
reporting period, an accrual is recognised based upon the dividends paid
during the financial year to date and the Total Return at the end of the
reporting period. 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 3 months, readily convertible to a known amount of cash
and subject to an insignificant risk of change 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 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
2022 2021
£000 £000
Dividends from unquoted companies* 504 3,336
Interest on loans to unquoted companies 359 522
Income from unquoted portfolio 863 3,858
Income from listed investment funds 129 124
Income from investments held at fair value through profit or loss 992 3,982
Interest on bank deposits/money market funds 73 92
1,065 4,074
* 2021 includes an ordinary dividend of £2.9 million received from ACC
Aviation
3. Administrative Expenses
2022 2021
£000 £000
Manager's fee 2,309 1,675
Administration fee 69 68
Total payable to YFM Private Equity Limited 2,378 1,743
Incentive fee 621 -
Other expenses:
Directors' remuneration 124 126
General expenses 90 80
Trail commission paid to financial intermediaries 60 82
Listing and registrar fees 58 57
Auditor's remuneration (excluding irrecoverable VAT)
- audit of the statutory financial statements 43 38
Printing 41 36
Irrecoverable VAT 32 31
3,447 2,193
Fair value movement related to credit risk - (79)
3,447 2,114
Ongoing charges figure 2.02% 2.10%
Directors' remuneration comprises only short term benefits including social
security contributions of £9,000 (2021: £9,000).
The directors are the Company's only key management personnel.
No fees are payable to the auditor in respect of other services (2021: £nil),
apart from costs of £12,000 (2021: £nil) for audit-related assurance
services which were charged to the share premium account.
YFM Private Equity Limited provides management services to the Company under
an agreement (IA) dated 28 February 1996 as varied by agreements dated 1 July
2009, 16 November 2012, 17 October 2014, 24 August 2015 and 18 November 2019.
The agreement may be terminated by not less than 12 months' notice given by
either party at any time. No notice has been issued to or by YFM Private
Equity Limited terminating the contract as at the date of this Report.
Under an agreement dated 18 November 2019 YFM Private Equity Limited was
appointed as the Company's Alternative Fund Manager. As a result the Company
was de-registered by the Financial Conduct Authority as a Small Registered
Alternative Investment Fund Manager on 24 March 2021 and responsibility for
the custody of the Company's investments passed to YFM Private Equity Limited
on that date.
The key features of the IA are:
> YFM Private Equity Limited receives a Manager's fee, calculated at
half-yearly intervals as at 31 March and 30 September, at the rate of 2.0 per
cent of gross assets less current liabilities. The fee is allocated between
capital and revenue as described in note 1. The fee is payable quarterly in
advance;
> With effect from 1 April 2019 the annual fee payable to the Manager
is 1.0 per cent on all surplus cash, defined as all cash above £15 million,
unless an incentive fee has been paid under the new agreement in which case
the amount determined to be surplus will be the excess over £7.5 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 March 2022 of £159,534,000 and cash
of £45,898,000 at that date, and the incentive payment for the year ended 31
March 2022 being made prior to 30 September 2022, this equates to
approximately £2,844,000 per annum;
> Under the IA YFM Private Equity Limited also provides
administrative and secretarial services to the Company for a fee of £35,000
per annum (at 28 February 1996) plus annual adjustments to reflect movements
in the Retail Prices Index. This fee is charged fully to revenue, and
totalled £69,000 for the year ended 31 March 2022 (2021: £68,000); and
> YFM Private Equity Limited shall bear the annual operating costs of
the Company (including the fees 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 payable to financial intermediaries) to the extent
that those costs exceed 2.9 per cent of the net asset value of the Company.
The excess expenses during the year payable to the Company from YFM Private
Equity Limited amounted to £nil (2021: £nil).
When the Company makes investments into its unquoted portfolio the Manager
charges that investee an advisory fee or arrangement fee, calculated by
applying a percentage to the investment amount. The Company and the Manager
have agreed that, if the average of the relevant fees during the Company's
financial year exceeds 3.0 per cent of the total invested into new portfolio
companies and 2.0 per cent into follow-on holdings this excess will be rebated
to the Company. As at 31 March 2022, the Company was due a rebate from the
Manager of £nil (2021: £nil).
The total remuneration payable to YFM Private Equity Limited under the IA in
the period was £2,378,000 (2021: £1,743,000).
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.
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 March 2022 the fees receivable by YFM Private Equity Limited
from investee companies which were attributable to advisory and directors' and
monitoring fees amounted to £1,271,000 (2021: £1,158,000).
A performance incentive fee is payable to the Manager subject to the Company
achieving both a target level of Total Return (the "Total Return Hurdle") and
dividends ("Dividend Hurdle"). Subject to meeting the Total Return Hurdle,
the Manager will receive an amount equivalent to 20 per cent of the amount by
which dividends paid per share exceeds the Dividend Hurdle, multiplied by the
number of shares in issue at the year end. The incentive fee in any
financial year will be subject to a cap if the excess of dividends paid over
the Dividend Hurdle is greater than the sum of the excess of the Total Return
over the Total Return Hurdle divided by 1.2. With effect from 31 March 2019
the Total Return Hurdle was 228.6 pence per share and the annual increase is
equivalent to 4.0 pence per share, as increased or decreased by the percentage
increase or decrease (if any) in RPI from 1 April 2009. For the year ended
31 March 2022 the annual increase in the Total Return Hurdle was 5.6 pence per
share.
The Dividend Hurdle was 4.0 pence per share (increasing in line with RPI) from
1 April 2009. For the year ended 31 March 2022 the Dividend Hurdle was 5.6
pence per share.
The Total Return Hurdle for the year ended 31 March 2021 was 244.8 pence per
share while the Total Return at 31 March 2021 was 233.2 pence per share, a
shortfall of 11.6 pence per share. The total dividends paid in the year were
4.0 pence per share. Consequently no incentive fee was paid for the year ended
31 March 2021.
The Total Return Hurdle for the year ended 31 March 2022 was 250.4 pence per
share. The Total Return as at 31 March 2022 (prior to the accrual for the
subsequent incentive fee) was 252.4 pence per share, an excess of 2.0 pence.
The Dividend Hurdle was 5.6 pence per share. The total dividends paid in the
year were 9.0 pence per share. Consequently both Hurdles were exceeded,
resulting in a performance related incentive fee being payable. This is
calculated by taking the lower excess of the two hurdles, being 2.0 pence,
divided by 1.2 to adjust for the impact of the fee due to be paid (1.67
pence); 20 per cent of this figure (0.33 pence) gives the resulting incentive
fee per share in issue; with 186,260,145 shares in issue, this results in a
total fee payable of £621,000.
The Total Return Hurdle for the year ending 31 March 2023 is 258.2 pence per
share. The Dividend Hurdle is 6.1 pence per share.
If the annual incentive fee exceeds £5.0 million then the excess is deferred
until following the next year's Annual General Meeting. Payment of the
remainder is made five Business Days after the relevant Annual General Meeting
at which the audited accounts are presented to shareholders.
The amount of the incentive payment paid to the Manager for any one year
shall, when taken with all other relevant costs, ensure that the Company's
total costs in a single year do not exceed 5 per cent of net assets. Any
excess over the 5 per cent is carried forward to be included in the
calculation of the amount that can be paid in future years. Except with
shareholder approval the maximum fee payable in any 12 month period will not
exceed £7,500,000.
There are also provisions for a compensatory fee in circumstances where the
Company is taken over or the Incentive Agreement is terminated, which is
calculated as a percentage of the fee that would otherwise be payable under
the Incentive Agreement by reference to the accounting period following its
termination. In this instance 80 per cent is payable in the first accounting
period after such an event, 55 per cent in the second, 35 per cent in the
third and nothing is payable thereafter.
Under the terms of the offer launched with British Smaller Companies VCT2 on 2
February 2021, YFM Private Equity Limited was entitled to 2.5 per cent of
gross subscriptions, less the cost of re-investment of intermediary
commission. The net amount paid to YFM Private Equity Limited under this offer
amounted to £176,000.
Under the terms of the offer launched with British Smaller Companies VCT2 on
22 September 2021, 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 the cost of re-investment of
intermediary commission. The net amount paid to YFM Private Equity Limited
under this offer amounted to £1,019,000.
The Manager met all costs and expenses arising out of these offers out of
these fees.
The details of directors' remuneration are set out in the Directors'
Remuneration Report on page 51 of the annual report under the heading
"Directors' Remuneration for the year ended 31 March 2022 (audited)".
4. Taxation
2022 2021
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
(Loss) profit before taxation (29) 28,293 28,264 3,216 18,123 21,339
(Loss) profit before taxation multiplied by standard rate of corporation tax (6) 5,376 5,370 611 3,443 4,054
in UK of 19% (2021 :19%)
Effect of:
UK dividends received (103) - (103) (644) - (644)
Non-taxable profits on investments - (5,823) (5,823) - (3,682) (3,682)
Deferred tax not recognised 109 447 556 33 239 272
Tax charge - - - - - -
The Company has no provided or unprovided deferred tax liability in either
year.
Deferred tax assets of £4,077,000 (2021: £2,543,000) calculated at 25%
(2021: 19%) in respect of unrelieved management expenses of £16.31 million as
at 31 March 2022 (2021: £13.39 million) 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
March:
2022 2021
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Interim dividend for the year ended 31 March 2022 of 2.0p (2021: 2.0p) per 2,796 116 2,912 206 2,537 2,743
ordinary share
Second interim dividend for the year ended 31 March 2022 of 5.0p (2021: 2.0p) - 7,244 7,244 - 2,768 2,768
per ordinary share
Third interim dividend for the year ended 31 March 2022 of 2.0p per ordinary - 2,943 2,943 - - -
share
2,796 10,303 13,099 206 5,305 5,511
Shares allotted under DRIS (3,417) (1,509)
Dividends paid in Statement of Cash Flows 9,682 4,002
The first interim dividend of 2.0 pence per ordinary share was paid on 23 July
2021 to shareholders on the register as at 25 June 2021.
The second interim dividend of 5.0 pence per ordinary share was paid on 16
November 2021 to shareholders on the register as at 15 October 2021.
The third interim dividend of 2.0 pence per ordinary share was paid on 5
January 2022 to shareholders on the register as at 26 November 2021.
An interim dividend of 2.0 pence per ordinary share in respect of the year
ending 31 March 2023 amounting to approximately £3.7 million has been
announced. This dividend has not been recognised in the year ended 31 March
2022 as the obligation did not exist at the balance sheet date.
6. Basic and Diluted (Loss) Earnings per Share
The basic and diluted earnings per ordinary share is based on the profit after
tax attributable to shareholders of £28,264,000 (2021: £21,339,000) and
155,125,398 (2021: 138,775,882) ordinary shares being the weighted average
number of ordinary shares in issue during the year.
The basic and diluted revenue (loss) earnings per ordinary share is based on
the revenue loss for the year attributable to shareholders of £29,000 (2021:
profit of £3,216,000) and 155,125,398 (2021: 138,775,882) 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 £28,293,000
(2021: £18,123,000) and 155,125,398 (2021: 138,775,882) ordinary shares being
the weighted average number of ordinary shares in issue during the year.
During the year the Company allotted 39,514,174 new ordinary shares from the
fundraising, and 4,270,105 new ordinary shares in respect of its DRIS.
The Company has also repurchased 3,148,801 of its own shares in the year, and
these shares are held in the Capital Reserve. The total of 18,834,982
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 hence the basic and diluted
earnings per ordinary share are equivalent for both of the years ended 31
March 2022 and 31 March 2021.
7. Financial Assets at Fair Value though Profit or Loss
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. 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, AIM quoted investments and other fixed
income securities 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 revenue or earnings 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 at 31 March 2022.
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 the
financial statements. Where investments are held in quoted stocks, fair value
is set at the market bid price.
Movements in investments at fair value through profit or loss during the year
to 31 March 2022 are summarised as follows:
IFRS 13 measurement classification Level 3 Level 1
Unquoted Investments Listed Investment Funds Total Investments
£000 £000 £000
Opening cost 54,954 4,845 59,799
Opening investment holding gain (loss) 18,951 (7) 18,944
Opening fair value at 1 April 2021 73,905 4,838 78,743
Additions at cost 9,651 814 10,465
Capitalised income 89 - 89
Disposal proceeds (13,005) (1,064) (14,069)
Net profit on disposal* 5,112 10 5,122
Change in fair value 24,648 108 24,756
Foreign exchange 759 - 759
Closing fair value at 31 March 2022 101,159 4,706 105,865
Closing cost 59,265 4,618 63,883
Closing investment holding gain 41,894 88 41,982
Closing fair value at 31 March 2022 101,159 4,706 105,865
*The net profit on disposal in the table above is £5,122,000 whereas that
shown in the Statement of Comprehensive Income is 5,131,000. The difference
comprises the change in the value of deferred proceeds totalling £9,000 in
respect of assets which have been disposed of and are not included within the
investment portfolio at 1 April 2021.
There were no individual reductions in fair value during the year that
exceeded 5 per cent of the total assets of the Company (2021: £nil).
The following disposals and loan repayments took place in the year:
Net proceeds from sale Cost Opening carrying value as at 1 April 2021 Profit (loss) on disposal
£000 £000 £000 £000
Unquoted investments:
Deep-Secure Ltd 6,560 1,000 4,121 2,439
Matillion Limited 4,967 269 2,349 2,618
KeTech Enterprises Limited 1,275 1,490 1,292 (17)
Ncam Technologies Limited 131 131 131 -
Harris Hill Holdings Limited 72 439 - 72
Friska Limited - 2,100 - -
Total from unquoted investments 13,005 5,429 7,893 5,112
Deferred proceeds:
Bagel Nash Group Limited 150 - 150 -
Ness (Holdings) Limited 90 - 81 9
Total from deferred proceeds 240 - 231 9
Total from portfolio 13,245 5,429 8,124 5,121
Listed investment funds 1,064 1,041 1,054 10
Total from investment portfolio 14,309 6,470 9,178 5,131
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 £159,534,000 (2021: £110,360,000) and 186,260,145
(2021: 145,624,667) 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 March 2022 and 31 March 2021.
The Company has no potentially dilutive shares and hence the basic and diluted
net asset values per ordinary share are the same.
9. Total Return per Ordinary Share
The Total Return per ordinary share is calculated on cumulative dividends paid
of 166.4 pence per ordinary share (2021: 157.4 pence per ordinary share) plus
the net asset value as calculated per note 8.
10. Financial Commitments
There are no financial commitments at 31 March 2022 or 31 March 2021.
11. Related Party Transactions
Fees payable during the year to the directors and their interests in shares of
the Company are disclosed within the Directors' Remuneration Report on pages
50 to 52 of the annual report. There were no amounts outstanding and due to
the directors at 31 March 2022 (2021: £nil).
12. Events after the Balance Sheet Date
Following the year end one new investment and two follow-on investments
totalling £1.9 million have been completed.
13. Annual Report and Accounts
Copies of the statutory accounts for the year ended 31 March 2022 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 http://www.bscfunds.com
(http://www.bscfunds.com) . Hard copies of the statutory accounts for the
year to 31 March 2022 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.
14. Directors
The directors of the Company are Ms H Sinclair, Mr A C N Bastin, Mr J H
Cartwright, Mr R Cook and Ms P Sapre.
15. Annual General Meeting
The Annual General Meeting of the Company will be held at 9:30 am on 16
September 2022 at 33 St James Square, London SW1Y 4JS. Full details of the
agenda for this meeting are included in the Notice of the Annual General
Meeting on page 91 of the annual report.
16. Interim Dividend for the Year Ending 31 March 2023
The directors have previously announced the payment of an interim dividend for
the year ending 31 March 2023 of 2.0 pence per ordinary share ("Interim
Dividend").
The Interim Dividend will be paid on 12 July 2022 to those shareholders on the
Company's register at the close of business on 10 June 2022. The ex-dividend
date will be 9 June 2022.
The directors are not proposing a final dividend for the year ended 31 March
2022.
17. 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 24 June 2022.
18. 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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