REG - British Smaller Co's - Annual Financial Report
16/06/2023 12:00
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RNS Number : 0281D British Smaller Companies VCT PLC 16 June 2023
British Smaller Companies VCT plc
Annual Financial Report Announcement
for the year ended 31 March 2023
British Smaller Companies VCT plc (the "Company") today announces its audited
results for the year ended 31 March 2023.
HIGHLIGHTS
l 7.6 per cent return on opening net assets, driven by positive realisations and
strong underlying revenue growth in portfolio companies.
l Realisations generated total proceeds of £20.7 million in the year, a gain of
£5.2 million over the opening carrying value and £6.1 million over cost.
l Total dividends paid during the year ended 31 March 2023 of 8.5 pence per
share (2022: 9.0 pence per share), bringing total cumulative dividends paid
since inception to 174.9 pence per ordinary share at 31 March 2023 (2022:
166.4 pence per ordinary share).
l Total Return increased by 6.5 pence to 258.6 pence per share.
l Net asset value at 31 March 2023 of 83.7 pence per share (2022: 85.7 pence per
share).
l Seven new investments and nine follow-on investments totalling £28.9 million
completed during the year. One follow-on investment of £0.8 million made
subsequent to the year end.
l £44.3 million raised in fully subscribed 2022/23 offer, with shares allotted
on 4 April 2023.
l The Board is declaring an interim dividend of 2.0 pence per share in respect
of the year ending 31 March 2024. The dividend will be paid on 28 July 2023 to
shareholders on the register on 30 June 2023.
Chairman's Statement
It gives me great pleasure to set out my first Chairman's Statement for
British Smaller Companies VCT plc ("BSC" or "the Company"), having been
appointed as Chair at the Company's AGM in September. I thank my predecessor,
Helen Sinclair, for her exemplary service to the Company over 14 years, both
as a director and Chair.
The Company delivered a robust performance in a demanding economic landscape.
In the year to 31 March 2023, the Company generated a 7.6 per cent total
return on its opening Net Asset Value, compared to a 12.0 per cent fall in the
FTSE Small Cap and a 6.7 per cent fall in the AIC's index of generalist VCTs'
share price total return. AIC data ranks the Company first across all
generalist VCTs when considering a blended average performance ranking over 1,
3, 5 and 10 years.
One notable factor driving this performance was the number of realisations
achieved by the Company in the year, with four portfolio companies sold, all
at significant uplifts from their opening valuations at the start of the year.
A second factor has been the good level of revenue growth seen within the
portfolio, particularly amongst the ten largest investments, which has helped
to offset decreases in valuation multiples as the share prices of publicly
listed comparable companies have reduced.
Financial Performance
In 2023, the Company delivered a 6.5 pence per ordinary share increase in
Total Return which, as noted above, is equivalent to 7.6 per cent of the
opening net asset value at 31 March 2022. Total Return is now 258.6 pence per
ordinary share.
The portfolio drove the positive performance, which generated a return of
£14.2 million, 14.0 per cent over its opening value; £5.3 million of the
return was from realised investments and £8.9 million from unrealised
investments. New and follow-on investments totalling £28.4 million were
completed.
The Company's portfolio of externally managed investments in listed investment
funds, which makes up a small part of the Company's treasury operations, saw
its valuation fall by £0.8 million in the year; £0.5 million was invested
into this portfolio over the course of the year.
Realisations in the Year
Realisations of investments generated total proceeds of £20.7 million, a gain
of £5.2 million over the opening carrying value and £6.1 million over the
original cost. There were four significant realisations in the year:
Springboard and Intelligent Office in September 2022, the partial realisation
of Vuealta in December 2022 and Wakefield Acoustics in January 2023.
The realisation of Springboard generated proceeds of £8.7 million,
representing a capital profit over cost of £5.9 million, an uplift of 30.7
per cent or £2.0 million on the carrying value at the beginning of the year.
Including income, the total return from this investment is £9.9 million over
a near eight year holding period, producing an internal rate of return of 23
per cent and a multiple of 4.1x cost. There is the prospect of further
consideration based on performance targets; however, no value has been
recognised relating to these potential payments at this time.
The sale of Intelligent Office generated proceeds of £6.1 million,
representing a capital profit over cost of £3.2 million and an uplift of 21.1
per cent, or £1.1 million, on the carrying value at the beginning of the
year. Including income, the total return from this investment was £7.6
million over an eight and a half year holding period, producing an internal
rate of return of 14 per cent and a multiple of 2.6x cost.
In December 2022, the Company completed the partial exit of its investment in
leading planning and forecasting software and services business, Vuealta,
through the sale of its fast-growing software division to long-standing
partner, Anaplan. The sale generated proceeds of £4.6 million, 1.5x cost, and
an uplift of 45.5 per cent or £1.4 million on the carrying value at the
beginning of the year (including further investments made in the financial
year prior to sale). The Company remains invested in the core Vuealta
consulting business to support its next phase of growth.
The Company realised its investment in Wakefield Acoustics in January 2023,
generating proceeds of £1.0 million and an overall return of 1.5x cost. This
was a pleasing result, given the investment was valued at £nil at the
beginning of the financial year, emphasising the Company's commitment to
portfolio companies at all stages through their growth journey.
In addition, two investments, Arraco and Seven, which had previously been
fully provided for, were unable to recover any value and were subsequently
realised during the year.
New Investments
The Company invested £28.4 million in the year into the portfolio. Seven new
investments were made in the year, totalling £14.5 million. In our continued
support of the portfolio, nine companies received follow-on funding in the
year, totalling £13.9 million in aggregate. The new investments are:
Investment
Sector
AutomatePro
SaaS platform providing test-automation tools for ServiceNow
Biorelate
Medical data curation
DrDoctor
Patient engagement and communications software platform
Plandek
DevOps analytics platform
Quality
Clouds
Quality control technology for low code software solutions
Summize
Contract lifecycle management software
Xapien
Automated background research software
Financial Results
The movement in net asset value ("NAV") per ordinary share and the dividends
paid in the year are set out in the table below:
Pence per £000
ordinary share
NAV at 31 March 2022 85.7 159,534
Increase in value 4.3 8,152
Gain on disposal of investments 2.8 5,213
Net underlying change in investment portfolio 7.1 13,365
Net operating costs (0.5) (1,003)
Incentive fee (0.1) (125)
Total Return in period 6.5 12,237
Issue/buy-back of new shares - 1,145
NAV before the payment of dividends 92.2 172,916
Dividends paid (8.5) (15,884)
NAV at 31 March 2023 83.7 157,032
Cumulative dividends paid 174.9
Total Return:
at 31 March 2023 258.6
at 31 March 2022 252.1
The charts on page 11 of the annual report show the movement in Total
Return and Net Asset Value over time in greater detail.
The portfolio investments held at the beginning of the financial year,
amounting to £101.2 million, delivered a return over the year of £14.2
million. The listed investments held saw a value fall of £0.8 million.
The current portfolio's net valuation increased by £8.9 million. Within this
there were valuation gains of £15.8 million, offset by £6.9 million of
downward movements.
As anticipated by the impact of the changes to VCT regulations in 2015, the
composition of the portfolio continues to evolve towards younger, higher
growth companies which are reinvesting earnings for further growth. This,
along with the ongoing realisation of earlier, more income-focused
investments, results in the reduction of the Company's ongoing income.
However, helped by the receipt of an ordinary dividend of £0.7 million from
Displayplan and the benefit of higher interest rates on cash and money market
balances held, income in the year was £2.0 million, compared to £1.1 million
in the previous financial year. The trend of lower ongoing income from the
portfolio is expected to continue as the proportion of new investments
continues to grow, although this may be offset by higher interest on cash and
money market deposits, at least in the short term.
Dividends
Dividends paid in the year totalled 8.5 pence per ordinary share. These
comprised interim dividends of 4.0 pence per ordinary share; and a special
dividend of 4.5 pence per ordinary share following the realisations of
Springboard and Intelligent Office. Cumulative dividends paid as at 31 March
2023 were 174.9 pence per ordinary share.
An interim dividend for the year ending 31 March 2024 of 2.0 pence per
ordinary share will be paid on 28 July 2023, to shareholders on the register
at 30 June 2023.
Dividend Re-investment Scheme ("DRIS")
The Company operates a DRIS, which gives shareholders the opportunity to
re-invest any cash dividends received; it is open to all shareholders,
including those who invested under the recent offers. The main advantages of
the DRIS are:
1 the dividends remain tax free; and
2 any DRIS investment attracts income tax relief at
the rate of 30 per cent.
For the financial year ended 31 March 2023, £3.7 million was re-invested by
way of the DRIS, from overall dividends paid of £15.9 million.
Liquidity and Fundraising
At 31 March 2023, the Company's cash and money market reserves of £28.3
million represented 18.0 per cent of net assets; this excludes net proceeds of
£44.3 million from the Company's 2022/23 fundraise, for which the associated
shares were allotted in April 2023, as noted below.
Share Premium Cancellation
Following shareholder approval at the Annual General Meeting in October 2022,
the Company cancelled the balance of its Share Premium, £63.6 million. This
was transferred to the Company's Capital Reserve, and provides greater
flexibility to continue to pay regular dividends to shareholders and
facilitates the continued periodic offer to buy back shares from shareholders.
As set out on page 63 of the annual report, this will become available for
distribution at various times over financial periods to 1 April 2026.
Board Changes
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 investment funds.
As noted above, Helen Sinclair retired as Chairman and a director of the Board
at the Company's AGM on 16 September 2022.
Annual General Meeting
The Annual General Meeting of the Company will be held at 9:30 am on 14
September 2023 at 8-10 Hill Street, London W1J 5NG. Full details of the agenda
for this meeting are included in the Notice of the Annual General Meeting on
page 92 of the annual report.
Shareholder Relations
The 2022/23 shareholder workshop was well attended. Attendees heard from
economist and author Paul Collier; Ben Hookway, CEO of Relative Insight, one
of the Company's recent investments; and Matthew Scullion of Matillion.
We also hosted an event by video platform on 1 December 2022, which included
presentations from Karen Barrett, CEO of Unbiased, and Sarim Khan, CEO of
SharpCloud.
The next in-person shareholder workshop will be held jointly with British
Smaller Companies VCT2 plc on 20 June 2023 at 1 Great George Street,
Westminster, London SW1P 3AA.
The electronic communications policy continues to be a success, with 83 per
cent of shareholders now receiving communications in this way. Documents such
as the annual report are published on the website www.bscfunds.com
(http://www.bscfunds.com) rather than by post, saving on printing costs, as
well as being more environmentally friendly.
The Company's website, www.bscfunds.com (http://www.bscfunds.com) , is
refreshed on a regular basis and provides a comprehensive level of information
in what I hope is a user-friendly format.
Post Balance Sheet Events
On 4 April 2023 the Company allotted shares from its fully subscribed 2022/23
share offer. £44.3 million was raised by the Company, resulting in the
allotment of 53,559,905 ordinary shares. This increased the number of ordinary
shares issued with voting rights to 241,239,184.
Following the year end, one investment of £0.8 million has been completed
into Relative Insight, and the Company realised its investment in Ncam, in
line with the valuation at 31 March 2023, with initial proceeds of £1.4
million being received.
Outlook
Inflation remains stubbornly high, and is therefore continuing to pull up
interest rates. It remains a challenging economic environment, and valuation
multiples are therefore likely to remain somewhat depressed in the
near-term. I am pleased to see the portfolio's continued resilience and
promising levels of underlying growth rates, and believe that many portfolio
companies will be stronger for the experience of weathering the economic
conditions of the past 12 months.
My fellow board members and I are grateful for the support for the Company
shown by new and existing shareholders in the recent fundraising. We look
forward to updating you on progress deploying the funds into exciting and
innovative areas of the UK economy across the forthcoming year.
Rupert Cook
Chairman
16 June 2023
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 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 49 of the annual report.
Other Key Policies
Details of the Company's policies on the payment of dividends, the DRIS and
the buy-back of shares are given on page 1 of the annual report. In addition
to these, details of the Company's anti-bribery and environmental and social
responsibilities policies can be found on page 35 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 regularly monitors the performance of the portfolio and the
investment requirements set by the relevant VCT legislation. Reports are
received from the Manager regarding the trading and financial position of each
investee company and senior members of the Manager regularly attend the
Company's Board meetings. Monitoring reports on compliance with VCT
regulations are also received at each Board meeting so that the Board can
monitor that the Venture Capital Trust status of the Company is maintained and
take corrective action if appropriate. Monitoring reports carrying out an
independent review of this compliance are received twice a year.
The Board reviews the terms of YFM Private Equity Limited's appointment as
Manager on a regular basis.
YFM Private Equity Limited has performed investment advisory, management,
administrative and secretarial services for the Company since its inception on
28 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 nature 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, 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.
Total Return (as at 31 March)
The chart on page 11 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
that are members of the AIC (based on figures provided by Morningstar). This
is the Company's stated benchmark index. A comparison and explanation of the
calculation of this return is shown in the Directors' Remuneration Report on
page 51 of the annual report.
Total Return with Dividend Re-Investment Scheme
(as at 31 March)
The chart on page 11 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
The Board considers Total Return to be the primary measure of shareholder
value. The IRR returns from the offers over the last ten years are set out on
page 12 of the annual report. IRR is the annual rate of return that equates
the cost at the date of the original investment, with the value of subsequent
dividends plus the audited 31 March 2023 Net Asset Value per share. This
excludes the benefit of any initial tax relief.
The IRRs shown are based on fundraisings and offer prices during the
relevant calendar year whilst the graph referred to below shows specific
financial periods to 31 March 2023.
Annualised return p.a. over 10, 5, 3, 2 and 1 year periods
(to 31 March 2023)
Set out on page 12 of the annual report is the annualised return over 10, 5,
3, 2 and 1 years to 31 March 2023. The annualised return is calculated with
reference to the cumulative dividends paid in the period plus the audited NAV
at 31 March 2023, compared to the NAV at the beginning of the relevant period.
Expenses
Ongoing Charges
The Ongoing Charges figure, as calculated in line with the AIC recommended
methodology, is used by the Board to monitor expenses. This figure shows
shareholders the costs of the Company's recurring operational expenses,
expressed as a percentage of the average net asset value. Whilst based on
historical information, this provides an indication of the likely level of
costs that will be incurred in managing the Company in the future.
Year to Year to
31 March 2023 31 March 2022
(%) (%)
Ongoing Charges figure* 2.12 2.02
* Alternative Performance Measure
The level of ongoing charges has averaged 2.08 per cent over the last 3 years.
Shareholders benefit from the Company's agreement with the Manager to pay a
lower level of management fee of 1 per cent on surplus cash. The Company's
ongoing charges ratio is one of the lowest in the VCT industry.
Expenses Cap
The total costs incurred by the Company in the year (excluding any performance
related fees, trail commission payable to financial intermediaries and VAT) is
capped at 2.9 per cent of the total net asset value as at the relevant year
end. The treatment of costs in excess of the cap is described in note 3 on
page 71 of the annual report. There was no breach of the expenses cap in the
current or prior year.
Compliance with VCT Legislative Tests
A principal risk facing the Company is the retention of its VCT qualifying
status. The Board receives regular reports on compliance with the VCT
legislative tests from the Manager. In addition, the Board receives formal
reports from its VCT Tax Adviser (Philip Hare & Associates LLP) twice a
year. The Board 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.
Following shareholder approval at the 2022 Annual General Meeting, in October
2022 the Company cancelled the balance of its Share Premium, £63.6 million,
of which £22.8 million is now distributable. The remaining £40.8 million
will become distributable over the period to 1 April 2026, as set out on page
63 of the annual report.
Other
No more than seven years can have elapsed since the first commercial sale
achieved by the business (ten years in the case of a Knowledge Intensive
Company), unless:
a. The business has previously received an investment from a
source that has received state aid; or
b. The investment comprises more than 50 per cent of the
average of the previous five years' turnover and the funds are to be used in
the business to fund growth into new product markets and/or new geographies.
Wherever possible, the Company self-assures that an investment is a Qualifying
Investment, subject to the receipt of professional advice.
Portfolio Structure and Analysis
Portfolio Structure
The broad range of the portfolio is illustrated on page 15 of the annual
report, with 40 per cent of the portfolio valuation being held for more than
five years, whilst 91 per cent is held at cost or above. 7 per cent of the
portfolio value is held in loans and preference shares, and loans now account
for only 3 per cent of the value.
Portfolio Analysis
Also included on page 16 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 change in 2015.
Investment Review
The movements in the investment portfolio are set out in Table A below:
Table A
Investment Portfolio
Portfolio Listed Total
Investment
Funds
£million £million £million
Opening fair value at 1 April 2022 101.2 4.6 105.8
Additions 28.4 0.5 28.9
Disposal proceeds (20.4) (0.3) (20.7)
Valuation movement 14.2 (0.8) 13.4
Closing fair value at 31 March 2023 123.4 4.0 127.4
At 31 March 2023 the portfolio was valued at £123.4 million, representing
78.6 per cent of net assets (63.4 per cent at 31 March 2022). The listed
investment funds were valued at £4.0 million, representing 2.6 per cent of
net assets (2.9 per cent at 31 March 2022). Cash, cash equivalents and current
asset investments at 31 March 2023 of £28.3 million represented 18.0 per cent
of net assets (33.5 per cent at 31 March 2022).
The Portfolio
£123.4 million Fair value of the portfolio (2022: £101.2 million)
27 Number of portfolio companies with a value of more than £1.0 million (2022: 23)
£1.4 million Income from the portfolio (2022: £0.9 million)
£28.4 million Level of investment (2022: £9.8 million)
£14.2 million Return from the portfolio (2022: £30.5 million)
The portfolio showed robust performance in the period, adding £14.2 million
of value on the opening fair value of £101.2 million. The composition of
investments continues to show its dynamism, with £28.4 million invested in
the period and cash proceeds of £20.4 million received.
Fair value changes
Table B
Gain from Investment Portfolio
£million %
Gain in fair value from the portfolio 8.9 63
Gain on disposal over opening value from the portfolio 5.3 37
Gain arising from the portfolio 14.2 100
Fall in value of listed investment funds (0.8)
Gain arising from the investment portfolio 13.4
Of the £14.2 million gain in the year, £5.3 million arose from investments
which were realised, including Springboard (£2.0 million), Vuealta (partial
realisation £1.4 million), Intelligent Office (£1.1 million) and Wakefield
Acoustics (£1.0 million). Further details can be found in the Chairman's
Statement and note 7 to the financial statements.
The ongoing portfolio delivered a net value gain of £8.9 million in the year.
It is pleasing to see the fair value increases arising across a range of
companies, including tech-focused businesses such as Vuealta, Outpost,
Unbiased and Wooshii, as well as legacy companies such as Displayplan and ACC.
Some decreases in value have been seen. The Company's largest investment,
Matillion, saw its valuation decrease, driven by lower valuation multiples of
comparable public companies; although the effect of this has been partly
offset by the company's continued strong revenue growth and movements in
exchange rates over the year. Certain other investments have struggled
somewhat over the past 12 months, but the Manager continues to work closely
with these companies' management teams to navigate their current challenges.
Other Significant Investment Movements
Investments
During the year ended 31 March 2023, the Company invested £28.4 million
across 16 companies.
Seven new companies were added to the portfolio, receiving aggregate
investment of £14.5 million; while a further £13.9 million was invested
across nine existing portfolio companies, including an additional investment
into Quality Clouds. The analysis of these investments is shown in Table C.
The case studies on page 23 of the annual report give more information on the
investments in AutomatePro and Quality Clouds.
Table C
Investments
Company Investments made
New Follow-on Total
£million £million £million
Quality Clouds 1.5 2.4 3.9
DrDoctor 3.6 - 3.6
Outpost - 3.0 3.0
Unbiased - 2.7 2.7
AutomatePro 2.2 - 2.2
Plandek 2.1 - 2.1
Summize 1.8 - 1.8
Vypr - 1.8 1.8
Xapien 1.7 - 1.7
Biorelate 1.6 - 1.6
Elucidat - 1.3 1.3
Wooshii - 1.0 1.0
Vuealta - 0.9 0.9
Force24 - 0.7 0.7
Other - 0.1 0.1
Portfolio (including capitalised income) 14.5 13.9 28.4
Listed investment funds 0.5
Total additions in the year 28.9
Disposal of Investments
As set out in Table D below, during the year to 31 March 2023 the Company
received proceeds from portfolio disposals of £20.4 million, a net gain of
£5.3 million over the opening carrying value at the beginning of the year,
and an overall net gain of £6.2 million over cost. This included the
successful realisations of Springboard, Intelligent Office, Vuealta (partial)
and Wakefield Acoustics. Further details are given in the Chairman's statement
above.
Table D
Disposal of Investments
Net Opening Gain (loss) on
proceeds value opening value
from sale 31 March £million
of investments 2022*
£million £million
Portfolio 20.4 15.1 5.3
Listed investment funds 0.3 0.4 (0.1)
Total investment disposals 20.7 15.5 5.2
* Including further investments during the year prior to realisation.
Further analysis of all investments sold in the year can be found in note 7
below.
Investment Portfolio Composition
As at 31 March 2023, the portfolio was valued at £123.4 million, comprising
wholly of unquoted investments. An analysis of the movements in the year is
shown below.
The portfolio has 27 investments valued above £1.0 million, four more than a
year earlier, with the single largest investment, Matillion, representing 16.0
per cent of the NAV.
The charts on pages 15 and 16 of the annual report show the diversity of the
portfolio, split by industry sector, age of investment, investment instrument
and the valuation compared to cost.
Under VCT legislation, it is not possible to deposit funds for longer than
seven days, which means that cash deposits must be available on very short
notice. 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, managed by Brewin Dolphin Limited. At 31
March 2023, this quoted portfolio was valued at £4.0 million, or 2.6 per cent
of net assets, following a decrease in value of £0.8 million during the year.
Valuation Policy
Unquoted investments are valued in accordance with both IFRS 13 'Fair Value
Measurement' and International Private Equity and Venture Capital Guidelines,
December 2022 edition (IPEV Guidelines).
Initially, at the first quarter-end following investment, investments are
valued at the price of the funding round; following this, the valuation
switches to a new primary basis for all subsequent periods.
The valuation methodology applied depends upon the facts and circumstances of
each individual investment. This may be with reference to revenue multiples,
earnings multiples, net assets, discounted cash flows or calibrated from the
price of the most recent investment.
The full valuation policy is set out in note 1 on pages 66 and 67 of the
annual report.
Table E shows the value of investments within each valuation category as at 31
March 2023; no investments are currently valued using discounted cash flow
methodologies.
With continued investment in earlier stage businesses that are investing for
growth, the majority of valuations continue to be based on revenue multiples.
Table E
Valuation Policy
2023 2022
Valuation % of % of
£million portfolio portfolio
by value by value
Revenue multiple 97.0 79 72
Earnings multiple 15.8 13 21
Cost or price of recent investment, reviewed for change in fair value 5.5 4 3
Sale proceeds 3.1 2 -
Net assets, reviewed for change in fair value 2.0 2 2
Discounted cashflow - - 2
Total 123.4 100 100
Sustainable Investment and Environmental, Social and Governance ("ESG")
Management
The Company backs small UK businesses to help them to grow and produce strong
financial returns for shareholders with the additional aim of building better
businesses that are ultimately more sustainable.
In order to deliver more sustainable businesses, and to meet its commitments
under the Principles for Responsible Investment (PRI), the Manager has
continued to develop its processes in this area. The Manager's approach is
based on the belief that good businesses:
• Grow our economy
• Improve our society
• Value their people
• Protect the environment
These aims are consistent with the Company's financial aims because businesses
which improve in these areas also strengthen their resilience and value
creation potential through their increased attractiveness to customers,
employees, suppliers and eventual future owners and investors.
Sustainable Investment Principles
This set of principles guides the Manager's investment process:
• To seek to understand the ESG related impacts on portfolio
companies, aiming to grow and enhance positive outcomes and to avoid, reduce
or minimise any negative impacts over an investment's lifetime, leaving them
overall better businesses;
• To play a positive role in the investor, business and wider
communities by promoting good practice in ESG management, and by being
transparent in the way that investments are made and how the Manager behaves;
• To increase focus on the challenge of climate change both as it may
be affected by our investments, and as it may impact on them and their
resilience to possible climate change scenarios;
• To show leadership by managing the Manager's own business' ESG
impacts to the best of their ability; and
• To be a proactive signatory to the PRI and to integrate its
principles into the Manager's business practices.
In line with the PRI the Manager has developed processes to help the portfolio
businesses to be better in each of these spheres, by assessing them in terms
of creating positive impacts and outcomes and preventing or minimising
negative ones.
The Manager has more recently developed and integrated its ESG management
processes, which are:
Pre-investment Phase:
Structured processes at the pre-investment stage to identify areas of
potential ESG improvement as part of the due diligence and pre-investment
deliberations. Appropriate data is collected and assessed on each business
against ESG criteria at the point of investment as a benchmark against which
to evaluate future progress.
Portfolio Phase:
For those investments made since 2020, based on the data collected at the
point of investment at the start of the portfolio phase, bespoke areas for
improvement are agreed with each management team together with consequent
objectives and targets. A similar process has been applied to the significant
majority of investments made prior to 2020. Improvements are then measured
and recorded against a set of ESG criteria using the Manager's bespoke ESG
framework, refreshing targets annually and placing focus on any new issues as
they become more material in the management of the company and in meeting the
expectations of its stakeholders.
Reporting:
Annual reports will be produced, using the Manager's ESG framework for
consistency, recording the relevant initiatives, impacts and ESG KPI
performance of each company and providing an overview of progress across the
Manager's portfolios.
Note that Investment Companies are not within scope for reporting under the
Task Force on Climate-Related Financial Disclosures (TCFD); and the Company
does not use more than 40,000kWh of energy and therefore is not required to
report on its energy usage within Streamlined Energy and Carbon Reporting
regulations.
ESG Performance Data and Reporting
ESG KPI data analysis
The Manager has developed its ESG KPI data collation process. It has
established a data set reflecting the above ESG themes and a means of
collecting this to make year on year comparisons for each company and across
the portfolio. Where possible baseline data has been collected from the date
of investment with a view to showing where the Manager's support has made a
difference during the hold period to the reporting date.
Annual company specific ESG performance progress report
The reviews that the Manager has been conducting enabled the identification of
relative strengths and weaknesses and agreement of programmes of action with
each business.
Since 2021 the Manager has moved to recording annual updates and agreed
actions in a more visual and detailed report on both qualitative and
quantitative aspects of each company's progress. As well as using this for
portfolio reporting to investors it will be used as an engagement tool with
the senior management teams of each company.
2022 ESG KPI Report for Investments held in YFM's VCT funds
Growing our economy
• £44.7 million of R&D investment during 2022
• £51.6 million of export sales achieved in 2022
Improving our society
• 95 per cent of companies were independently chaired in 2022
• 40 per cent of companies had female directors on boards, with 20 per
cent having a female CEO
• 40 per cent of businesses had a designated board member with
responsibility for improving ESG issues
Valuing our people
• 35 per cent of the portfolio workforce was female in 2022
• 995 new jobs were created from date of investment to 2022
• 75 per cent had mental wellbeing programmes in place and 70 per cent
held regular employee engagement surveys
• Approaching 29,000 hours of training was given to employees
Protecting our environment
• 60 per cent of companies had active carbon reduction strategies (up
from 10 per cent at investment)
• 25 per cent offset all or a defined portion of their carbon impact
• But only 20 per cent formally measure their carbon footprint
Summary and Outlook
The portfolio continues to show its resilience, with strong underlying levels
of revenue growth across the largest investments, helping to counter downward
pressure on revenue multiples. Portfolio company management teams continue to
be resilient and adaptable to economic conditions, which will hold them in
good stead for future progress.
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 continuing
support in the Company's recent fundraising, and are looking forward to
putting the funds raised to work.
Eamon Nolan
YFM Private Equity Limited
16 June 2023
Portfolio Summary at 31 March 2023
Name of Date of Location Industry Amount Valuation at Recognised Realised &
company initial Sector invested 31 March income/ unrealised
investment £000 2023 proceeds value to date*
£000 to date £000
£000
Matillion Limited Nov-16 Manchester Data 2,666 25,193 7,071 32,264
Unbiased EC1 Limited Dec-19 London Tech-enabled Services 5,596 9,976 - 9,976
Outpost VFX Limited Feb-21 Bournemouth New Media 4,500 9,420 23 9,443
Displayplan Holdings Limited Jan-12 Stevenage Business Services 1,300 7,901 3,168 11,069
Wooshii Limited May-19 London New Media 4,644 7,141 499 7,640
Elucidat Ltd May-19 Brighton Application Software 3,960 6,277 66 6,343
ACC Aviation Group Limited Nov-14 Reigate Business Services 2,068 5,398 5,280 10,678
Force24 Ltd Nov-20 Leeds Application Software 3,150 4,757 - 4,757
Quality Clouds Limited May-22 London Cloud & DevOps 3,916 4,074 - 4,074
Vypr Validation Technologies Limited Jan-21 Manchester Tech-enabled Services 3,300 4,051 - 4,051
DrDoctor (via ICNH Ltd) Feb-23 London Application Software 3,565 3,565 - 3,565
SharpCloud Software Limited Oct-19 London Data 3,407 3,404 - 3,404
Relative Insight Limited Mar-22 Lancaster Tech-enabled Services 3,000 2,794 - 2,794
Tonkotsu Limited Jun-19 London Retail & Brands 2,388 2,666 - 2,666
AutomatePro Limited Dec-22 London Cloud & DevOps 2,225 2,557 - 2,557
Vuealta Holdings Limited Sep-21 London Tech-enabled Services 3,045 2,126 4,601 6,727
Plandek Limited Oct-22 London Cloud & DevOps 2,070 2,070 - 2,070
Traveltek Group Holdings Limited Oct-16 East Kilbride Application Software 1,716 2,049 827 2,876
Frescobol Carioca Ltd Mar-19 London Retail & Brands 1,800 1,995 - 1,995
Summize Limited Oct-22 Manchester Application Software 1,800 1,885 - 1,885
KeTech Enterprises Limited Nov-15 Nottingham Tech-enabled Services 2,000 1,786 2,599 4,385
Xapien (via Digital Insight Technologies Ltd) Mar-23 London Application Software 1,740 1,740 - 1,740
Ncam Technologies Limited Mar-18 London New Media 2,643 1,659 131 1,790
Biorelate Limited Nov-22 Manchester Application Software 1,560 1,570 - 1,570
Panintelligence (via Paninsight Limited) Nov-19 Leeds Data 1,500 1,500 - 1,500
Sipsynergy (via Hosted Network Services Limited) Jun-16 Hampshire Cloud & DevOps 2,654 1,464 1 1,465
E2E Engineering Limited Sep-17 Welwyn Garden City Business Services 900 1,200 223 1,423
Other investments below £0.75 million 12,413 3,143 7,797 10,940
Total unquoted investments 85,526 123,361 32,286 155,647
Full disposals to date 74,032 - 147,832 147,832
Total portfolio 159,558 123,361 180,118 303,479
*represents recognised income and proceeds received to date plus the
unrealised valuation at 31 March 2023.
Summary of Portfolio Movement since 31 March 2022
Name of Company Investment Disposal Additions Valuation Investment
valuation at proceeds including gains including valuation at
31 March £000 capitalised profits (losses) 31 March
2022 income on disposal 2023
£000 £000 £000 £000
Vuealta Holdings Limited/Vuealta Group Limited 2,308 (4,601) 946 3,473 2,126
Outpost VFX Limited 3,310 - 3,000 3,110 9,420
Unbiased EC1 Limited 6,230 - 2,650 1,096 9,976
Wooshii Limited 5,098 - 984 1,059 7,141
Traveltek Group Holdings Limited 1,549 - - 500 2,049
Elucidat Ltd 4,634 - 1,260 383 6,277
Panintelligence (via Paninsight Limited) 1,125 - - 375 1,500
AutomatePro Limited - - 2,225 332 2,557
Frescobol Carioca Ltd 1,811 - - 184 1,995
Tonkotsu Limited 2,496 - - 170 2,666
Quality Clouds Limited - - 3,916 158 4,074
E2E Engineering Limited 1,078 - - 122 1,200
Vypr Validation Technologies Limited 2,148 - 1,800 103 4,051
Summize Limited - - 1,800 85 1,885
Force24 Ltd 3,997 - 750 10 4,757
Biorelate Limited - - 1,560 10 1,570
DrDoctor (via ICNH Ltd) - - 3,565 - 3,565
Plandek Limited - - 2,070 - 2,070
Xapien (via Digital Insight Technologies Ltd) - - 1,740 - 1,740
Relative Insight Limited 3,000 - - (206) 2,794
Ncam Technologies Limited 2,213 - - (554) 1,659
Other investments £0.75 million and below 620 - 120 (623) 117
Sipsynergy (via Hosted Network Services Limited) 2,096 - - (632) 1,464
SharpCloud Software Limited 4,298 - - (894) 3,404
Arcus Global Limited 1,365 - - (1,126) 239
Matillion Limited 28,053 - - (2,860) 25,193
Investments made after November 2015 77,429 (4,601) 28,386 4,275 105,489
Displayplan Holdings Limited 4,393 - - 3,508 7,901
Springboard Research Holdings Limited 6,638 (8,673) - 2,035 -
ACC Aviation Group Limited 3,641 - - 1,757 5,398
Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) 5,051 (6,119) - 1,068 -
Wakefield Acoustics (via Malvar Engineering) - (972) - 972 -
Other investments £0.75 million and below 2,081 - - 706 2,787
KeTech Enterprises Limited 1,926 - - (140) 1,786
Investments made prior to November 2015 23,730 (15,764) - 9,906 17,872
Total portfolio 101,159 (20,365) 28,386 14,181 123,361
Risk Factors
The Board carries out a regular review of the risk environment in which the
Company operates. The emerging and principal risks and uncertainties
identified by the Board and techniques used to mitigate these risks are set
out in this section.
The Board seeks to mitigate its emerging and principal risks by setting
policy, regularly reviewing performance and monitoring progress and
compliance. In the mitigation and management of these risks, the Board
rigorously applies the principles detailed in section 4: of The UK Corporate
Governance Code issued by the Financial Reporting Council in July 2018:
"Audit, Risk and Internal Control". Details of the Company's internal controls
are contained in the Corporate Governance Internal Control section on pages 47
and 48 of the annual report and further information on exposure to risks,
including those associated with financial instruments, can be found in note
16a of the financial statements.
The Board has considered emerging risks. The Board seeks to mitigate
identified and emerging risks by regular reviews of performance and monitoring
compliance with policy. The Board has identified the following as potential
emerging risks:
· Deterioration of macro-economic environment
· Geo-political instability
VCT Qualifying Status:
Risk - The Company must at all times ensure compliance with the conditions for
maintenance of approved VCT status. The loss of approval as a VCT could lead
to its investors losing the various tax benefits associated with VCT
investments.
Mitigation - One of the Key Performance Indicators monitored by the Company is
the compliance with VCT rules. Compliance with these rules is 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" on pages 13 and 14 of the annual
report.
Change - No change
Economic:
Risk - Events such as recession and interest rate fluctuations, which may
include factors arising from geopolitical shocks, could adversely affect
investee companies' performance and valuations. This could result in a
reduction in the performance of the Company.
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 which helps mitigate
against sector specific impacts. The Manager actively monitors investee
company performance, which provides quality information for monthly reviews of
the portfolio.
Change - Stable - the war in Ukraine and the inflationary environment continue
to mean this risk is slightly increased, albeit at a similar level to last
year.
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. It also reviews compliance of the Manager with the stated
investment strategy.
The Manager carries out appropriate 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 nonexecutive director will be appointed to the board of
the investee company on behalf of the Company.
Change - No change
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 47 and 48
of the annual report.
Change - No change
Legislative:
Risk - A change to the VCT regulations could result in a significant change to
investment strategy which could adversely impact the Company. Such changes may
also result in changes to VCT tax reliefs for investors, which could make
future fundraising difficult.
Mitigation - The Manager is a member of the Venture Capital Trust Association
which engages with the Government to help shape future legislation.
Change - No change
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. Advice is sought
from external advisors where required.
Change - No change
Operational:
Risk - The Company is reliant on a number of third parties, in particular the
Manager, for investment management and administrative services. Failure of the
operational systems and controls of these third parties could result in 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 regularly tests its business continuity plan. Both the Company and the
Manager maintain appropriate insurances.
Change - No change
Cyber Security and Information Technology:
Risk - A failure in IT systems and controls might lead to business
interruption, loss of data, the inability of the Manager to provide accurate
reporting and monitoring or the loss of Company records.
Mitigation - The Manager has in place significant cybersecurity controls,
including 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.
Change - No change
ESG:
Risk - The Company, the Manager and the portfolio companies may fail to
positively contribute towards, and adapt to, the global transition towards
decarbonisation and other ESG priorities, 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 - 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 20 to
22 of the annual report.
Change - No change
Liquidity:
Risk -
a. The Company may not have sufficient liquidity available to meet its
financial obligations.
b. The VCT invests into smaller unquoted companies, which by their
nature are illiquid, therefore they may be difficult to realise, at fair
market value, at short notice.
Mitigation - The Company's overall liquidity risks and cashflow forecast are
monitored on an ongoing basis by the Manager and on a quarterly basis by the
Board.
The Company's valuation methodology takes account of potential liquidity
restrictions in the markets in which it invests.
For any publicly listed investments, accounting standards require an ongoing
assessment of the liquidity of the stock.
The Manager regularly reviews its exit plans for investee companies to allow
it to identify the optimal point at which to seek a sale. As part of a
planned exit, the assistance of a third party adviser will normally be sought,
with a view to identifying the largest number of possible purchasers.
Change - No change
Other Matters
Section 172 Statement
This Section 172 Statement should be read in conjunction with the other
contents of the Strategic Report, on pages 5 to 35 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 held two Investor
Workshops during the year. An in-person workshop was held on 29 June 2022 and
an online webinar was hosted on 1 December 2022. Both were well attended.
Maintaining the Company's status as a VCT is critical to meeting the Company's
objective to maximise Total Return and provide investors with an attractive
long-term tax-free dividend yield. The Company receives regular reports on
this issue from the Manager and has taken various steps in the year to ensure
that the relevant tests are met.
The Board also aims for investors to continue to have tax efficient
opportunities to invest in the Company, and to generate tax-free returns from
both capital appreciation and ongoing dividends.
Following shareholder approval at a General Meeting in October 2022, the
Company cancelled the balance of its Share Premium, £63.6 million, which was
transferred to the Capital Reserve, giving the Company greater flexibility to
continue to pay regular dividends to shareholders and to provide its periodic
offer to buy back shares from shareholders. As set out on page 63 of the
annual report, this will become available for distribution at various times
over the period to 1 April 2026.
After carefully considering its funding needs, on 30 November 2022, the
Company issued a prospectus, alongside British Smaller Companies VCT2 plc, to
raise up to £75 million in aggregate for the 2022/23 tax year.
During the year the Board kept its arrangements for dividends, share buy-backs
and the dividend re-investment scheme under constant review. Along with normal
dividends totalling 4.0 pence per ordinary share in the year ended 31 March
2023, a special dividend of 4.5 pence per ordinary share was paid in January
2023, following the realisation of the Company's investments in Springboard
and Intelligent Office.
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.
Employees
The Company has no employees. The Board is composed of one 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.
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 20 to 22 of the annual report. Its Sustainable Investment Policy can be
found at www.yfmep.com/who-we-are/our_impact/.
Business Conduct
The Company has a zero tolerance approach to bribery. 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.
Rupert Cook
Chairman
16 June 2023
FINANCIAL STATEMENTS
Statement of Comprehensive Income
For the year ended 31 March 2023
Notes 2023 2022
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gains on investments held at fair value 7 - 8,152 8,152 - 25,515 25,515
Gain on disposal of investments 7 - 5,213 5,213 - 5,131 5,131
Gain arising from the investment portfolio - 13,365 13,365 - 30,646 30,646
Income 2 1,994 - 1,994 1,065 - 1,065
Total income 1,994 13,365 15,359 1,065 30,646 31,711
Administrative expenses:
Manager's fee (696) (2,086) (2,782) (577) (1,732) (2,309)
Incentive fee - (125) (125) - (621) (621)
Other expenses (215) - (215) (517) - (517)
(911) (2,211) (3,122) (1,094) (2,353) (3,447)
Profit (loss) before taxation 1,083 11,154 12,237 (29) 28,293 28,264
Taxation - - - - - -
Profit (loss) for the year 1,083 11,154 12,237 (29) 28,293 28,264
Total comprehensive income (expense) for the year 1,083 11,154 12,237 (29) 28,293 28,264
Basic and diluted earnings (loss) per ordinary share 6 0.58p 5.96p 6.54p (0.02p) 18.24p 18.22p
The accompanying notes on pages 65 to 91 of the annual report are an integral
part of these financial statements.
The Total column of this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with UK adopted international
accounting standards. The supplementary Revenue and Capital columns are
prepared under the Statement of Recommended Practice 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' (issued in July 2022 -
"SORP") published by the AIC.
Balance Sheet
At 31 March 2023
Notes 2023 2022
£000 £000
ASSETS
Non-current assets at fair value through profit or loss
Financial assets at fair value through profit or loss 7 127,406 105,865
Accrued income and other assets 1,556 907
128,962 106,772
Current assets
Accrued income and other assets 161 150
Current asset investments 7,501 14,471
Cash and cash equivalents 20,766 38,928
28,428 53,549
LIABILITIES
Current liabilities
Trade and other payables (358) (787)
Net current assets 28,070 52,762
Net assets 157,032 159,534
Shareholders' equity
Share capital 20,969 20,510
Share premium account 1,700 62,123
Capital reserve 82,893 33,620
Investment holding gains and losses reserve 49,215 41,982
Revenue reserve 2,255 1,299
Total shareholders' equity 157,032 159,534
Net asset value per ordinary share 8 83.7p 85.7p
The accompanying notes on pages 65 to 91 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 16 June 2023.
Rupert Cook
Chairman
Statement of Changes in Equity
For the year ended 31 March 2023
Share Share Capital Investment Revenue Total
capital premium reserve holding gains reserve equity
account and losses
reserve
£000 £000 £000 £000 £000 £000
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)
Investment holding gain on investments held at fair value - - - 25,515 - 25,515
Realisation 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
Revenue return for the year - - - - 1,083 1,083
Expenses charged to capital - - (2,211) - - (2,211)
Investment holding gain on investments held at fair value - - - 8,152 - 8,152
Realisation of investments in the year - - 5,213 - - 5,213
Total comprehensive income for the year - - 3,002 8,152 1,083 12,237
Issue of shares - DRIS 459 3,245 - - - 3,704
Issue costs * - (62) - - - (62)
Share premium cancellation - (63,606) 63,606 - - -
Purchase of own shares - - (2,497) - - (2,497)
Dividends - - (15,757) - (127) (15,884)
Total transactions with owners 459 (60,423) 45,352 - (127) (14,739)
Realisation of prior year investment holding gains - - 919 (919) - -
Balance at 31 March 2023 20,969 1,700 82,893 49,215 2,255 157,032
The accompanying notes on pages 65 to 91 of the annual report are an integral
part of these financial statements.
Reserves available for distribution
Under the Companies Act 2006 the capital reserve and the revenue reserve are
distributable reserves. The table below shows amounts that are available for
distribution.
Capital Revenue Total
reserve reserve
£000 £000 £000
Distributable reserves as shown above 82,893 2,255 85,148
Income not yet distributable - (1,617) (1,617)
Cancelled share premium not yet distributable (40,769) - (40,769)
Reserves available for distribution** 42,124 638 42,762
* Issue costs include both fundraising costs and costs incurred from the
Company's DRIS.
** Following the circulation of the Annual Report to shareholders.
The capital reserve and revenue reserve are both distributable reserves. The
reserves total £85,148,000, representing an increase of £50,229,000 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 £85,148,000 shown above,
£1,617,000 relates to income not yet distributable and £40,769,000 relates
to cancelled share premium which will become distributable from the dates
shown in the table below.
Following shareholder approval at the 2022 Annual General Meeting, in October
2022 the Company cancelled the balance of its Share Premium, £63,606,000, of
which £22,837,000 is now distributable. The remaining share premium cancelled
will be available for distribution from the following dates:
£000
1 April 2024 7,157
1 April 2025 32,128
1 April 2026 1,484
Cancelled share premium not yet distributable 40,769
Statement of Cash Flows
For the year ended 31 March 2023
Notes 2023 2022
£000 £000
Net cash outflow from operating activities (2,277) (1,483)
Cash flows generated from (used in) investing activities
Cash maturing from fixed term deposits 6,970 -
Purchase of financial assets at fair value through profit or loss 7 (28,832) (10,465)
Proceeds from sale of financial assets at fair value through profit or loss 7 20,716 14,069
Deferred consideration 7 - 240
Net cash (outflow) inflow from investing activities (1,146) 3,844
Cash flows from (used in) financing activities
Issue of ordinary shares - 34,628
Costs of ordinary share issues* (62) (1,538)
Purchase of own ordinary shares (2,497) (2,498)
Dividends paid 5 (12,180) (9,682)
Net cash (outflow) inflow from financing activities (14,739) 20,910
Net (decrease) increase in cash and cash equivalents (18,162) 23,271
Cash and cash equivalents at the beginning of the year 46,429 23,158
Cash and cash equivalents at the end of the year 28,267 46,429
* Issue costs include both fundraising costs and expenses incurred from
the Company's DRIS
Cash and cash equivalents comprise:
Money market funds 7,501 7,501
Cash at bank 20,766 38,928
Cash and cash equivalents at the end of the year 28,267 46,429
Reconciliation of Profit before Taxation to Net Cash Outflow from Operating
Activities
2023 2022
£000 £000
Profit before taxation 12,237 28,264
(Decrease) increase in trade and other payables (429) 601
(Increase) decrease in accrued income and other assets (660) 387
Gain on disposal of investments (5,213) (5,131)
Gains on investments held at fair value (8,152) (25,515)
Capitalised income (60) (89)
Net cash outflow from operating activities (2,277) (1,483)
The accompanying notes on pages 65 to 91 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 pages 37 and 38 of the annual report and in accordance
with UK adopted international accounting standards.
The directors have carefully considered the issue of going concern in view of
the Company's activities and associated risks. The Company has a
well-diversified portfolio with businesses in a variety of sectors, many of
which are well funded. Some portfolio companies may require additional funding
in the near- to medium-term; the Company is well placed to provide this, where
appropriate.
The Company has a significant level of liquidity, which was enhanced by the
April 2023 fundraising. In addition, the Board has control over, and can flex
as appropriate, the Company's major outgoings, which predominantly comprise
investments, dividends and share buy-backs.
The directors have also assessed whether material uncertainties exist and
their potential impact on the Company's ability to continue as a going
concern; they have concluded that no such material uncertainties exist.
Taking all of the above into consideration, the directors are satisfied that
the Company has sufficient resources to meet its obligations for at least 12
months from the date of this report and therefore believe that it is
appropriate to continue to apply the going concern basis of accounting in
preparing the financial statements.
The financial statements have been prepared under the historical cost basis as
modified by the measurement of investments at fair value through profit or
loss.
The accounts have been prepared in compliance with the recommendations set out
in the Statement of Recommended Practice 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts' issued by the Association of
Investment Companies (issued in July 2022 - "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 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 - Investments
Financial assets designated as at fair value through profit or loss ("FVPL")
at inception are those that are managed and whose performance is evaluated on
a fair value basis, in accordance with the documented investment strategy of
the Company. Information about these financial assets is provided internally
on a fair value basis to the Company's key management. The Company's
investment strategy is to invest cash resources in venture capital investments
as part of the Company's long-term capital growth strategy. Consequently, all
investments are classified as held at fair value through profit or loss.
All investments are measured at fair value on the whole unit of account basis
with gains and losses arising from changes in fair value being included in the
Statement of Comprehensive Income as gains or losses on investments held at
fair value.
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 2022. 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.
Listed Investment Funds
Listed investment funds are valued at active market bid price. An active
market is defined as one where transactions take place regularly with
sufficient volume and frequency to determine price on an ongoing basis. No
methodology other than active market bid price has been applied as at 31 March
2023.
Income
Dividends and interest are received from financial assets measured at fair
value through profit and loss and are recognised on the same basis in the
Statement of Comprehensive Income. This includes interest and preference
dividends rolled up and/or payable at redemption. Interest income is also
received on cash, cash equivalents and current asset investments. Dividend
income from unquoted equity shares is recognised at the time when the right to
the income is established.
Expenses
Expenses are accounted for on an accruals basis. Expenses are charged through
the Revenue column of the Statement of Comprehensive Income, except for the
Manager's fee and incentive fees. Of the Manager's fees 75 per cent are
allocated to the Capital column of the Statement of Comprehensive Income, to
the extent that these relate to an enhancement in the value of the investments
and in line with the Board's expectation that over the long term 75 per cent
of the Company's investment returns will be in the form of capital gains. The
incentive fee payable to the Manager (as set out in note 3) is charged wholly
through the Capital column.
Tax relief is allocated to the Capital Reserve using a marginal basis.
Incentive Fee
The incentive fee is accounted for on an accruals basis. As further detailed
in note 3, 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 three months, readily convertible to a known amount of
cash and subject to an insignificant risk of changes in value.
Current asset investments comprise money market funds and balances held in
fixed term deposits which mature after three months.
Cash and cash equivalents include cash at hand, money market funds and bank
deposits repayable on up to three months' notice as these meet the definition
in IAS 7 'Statement of cash flows' of a short-term highly liquid investment
that is readily convertible into known amounts of cash and subject to
insignificant risk of change in value.
Balances held in fixed term deposits which mature after three months are not
classified as cash and cash equivalents, as they do not meet the definition in
IAS 7 'Statement of cash flows' of short-term highly liquid investments.
Cash and cash equivalents are valued at amortised cost, which equates to fair
value.
Cash flows classified as "operating activities" for the purposes of the
Statement of Cash Flows are those arising from the Revenue column of the
Statement of Comprehensive Income, together with the items in the Capital
column that do not fall to be easily classified under the headings for
"investing activities" given by IAS 7 'Statement of cash flows', being
management and incentive fees payable to the Manager. The capital cash flows
relating to the acquisition and disposal of investments are presented under
"investing activities" in the Statement of Cash Flows in line with both the
requirements of IAS 7 and the positioning given to these headings by general
practice in the industry.
Share Capital and Reserves
Share Capital
This reserve contains the nominal value of all shares allotted under offers
for subscription.
Share Premium Account
This reserve contains the excess of gross proceeds less issue costs over the
nominal value of shares allotted under offers for subscription, to the extent
that it has not been cancelled.
Capital Reserve
The following are included within this reserve:
> Gains and losses on realisation of investments;
> Realised losses upon permanent diminution in value of
investments;
> Capital income from investments;
> 75 per cent of the Manager's fee expense, together with
the related taxation effect to this reserve in accordance with the policy on
expenses in note 1 of the financial statements;
> Incentive fee payable to the Manager;
> Capital dividends paid to shareholders;
> Applicable share issue costs;
> Purchase and holding of the Company's own shares; and
> Credits arising from the cancellation of any share
premium account.
Investment Holding Gains and Losses Reserve
Increases and decreases in the valuation of investments held at the year end
are accounted for in this reserve, except to the extent that the diminution is
deemed permanent.
Revenue Reserve
This reserve includes all revenue income from investments along with any costs
associated with the running of the Company - less 75 per cent of the Manager's
fee expense as detailed in the Capital Reserve above.
Taxation
Due to the Company's status as a venture capital trust and the continued
intention to meet the conditions required to comply with Chapter 3 Part 6 of
the Income Tax Act 2007, no provision for taxation is required in respect of
any realised or unrealised appreciation of the Company's investments which
arises. Deferred tax is recognised on all temporary differences that have
originated, but not reversed, by the balance sheet date.
Deferred tax assets are only recognised to the extent that they are regarded
as recoverable. Deferred tax is calculated at the tax rates that are expected
to apply when the asset is realised. Deferred tax assets and liabilities are
not discounted.
Dividends Payable
Dividends payable are recognised only when an obligation exists. Interim and
special dividends are recognised when paid and final dividends are recognised
when approved by shareholders in general meetings.
Segmental Reporting
In accordance with IFRS 8 'Operating segments' and the criteria for
aggregating reportable segments, segmental reporting has been determined by
the directors based upon the reports reviewed by the Board. The directors are
of the opinion that the Company has engaged in a single operating segment -
investing in equity and debt securities within the United Kingdom - and
therefore no reportable segmental analysis is provided.
Critical Accounting Estimates and Judgements
The preparation of financial statements in conformity with generally accepted
accounting practice requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Although these estimates are based on management's best
knowledge of the amount, event or actions, actual results may ultimately
differ from those estimates. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are those used to
determine the fair value of investments at fair value through profit or loss,
as disclosed in note 7 to the financial statements.
The fair value of investments at fair value through profit or loss is
determined by using valuation techniques. As explained above, the Board uses
its judgement to select from a variety of methods and makes assumptions that
are mainly based on market conditions at each balance sheet date.
The Board uses its judgement to select the appropriate method for determining
the fair value of investments through profit or loss.
2. Income
2023 2022
£000 £000
Dividends from unquoted companies 1,102 504
Interest on loans to unquoted companies 263 359
Income from unquoted portfolio 1,365 863
Income from listed investment funds 300 129
Income from investments held at fair value through profit or loss 1,665 992
Interest from bank deposits/money market funds 329 73
1,994 1,065
3. Administrative Expenses
2023 2022
£000 £000
Manager's fee 2,782 2,309
Administration fee 75 69
Total payable to YFM Private Equity Limited 2,857 2,378
Incentive fee 125 621
Other expenses:
General expenses 149 90
Directors' remuneration 141 124
Listing and registrar fees 80 58
Auditor's remuneration - audit of the financial statements (excluding 64 43
irrecoverable VAT)
Trail commission paid to financial intermediaries 92 60
Printing 51 41
Irrecoverable VAT 46 32
3,605 3,447
Fair value movement related to credit risk (483) -
3,122 3,447
Ongoing charges figure 2.12% 2.02%
Directors' remuneration comprises only short-term benefits including social
security contributions of £13,000 (2022: £9,000).
The directors are the Company's only key management personnel.
No fees are payable to the auditor in respect of other services (2022: £nil,
apart from costs of £12,000 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.
The key features of the IA are:
Ø 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;
Ø 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 £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 2023 of £157,032,000 and cash
and cash equivalents of £28,267,000 at that date, this equates to
approximately £2,933,000 per annum;
Ø 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 £75,000
for the year ended 31 March 2023 (2022: £69,000); and
Ø 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 (2022: £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 2023, the Company was due a rebate from the
Manager of £1,320 (2022: £nil).
The total remuneration payable to YFM Private Equity Limited under the IA in
the period was £2,857,000 (2022: £2,378,000).
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 2023 the fees receivable by YFM Private Equity Limited
from investee companies which were attributable to advisory and directors' and
monitoring fees amounted to £1,355,000 (2022: £729,000).
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 2023 the annual increase in the Total Return Hurdle was 6.1 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 2023 the Dividend Hurdle was 6.1
pence per share.
The incentive fees payable for the years ended 31 March 2022 and 31 March 2023
were calculated as follows:
2023 2022
Total Return Hurdle (p) 258.20 250.40
Actual Total Return per Share before incentive fee (p) 258.60 252.40
Excess over Total Return Hurdle (p) 0.40 2.00
Dividend Hurdle (p) 6.10 5.60
Actual Dividends per share (p) 8.50 9.00
Excess over Dividend Hurdle (p) 2.40 3.40
Lower excess of the two hurdles (p) 0.40 2.00
Fee impact reduction (divide by 1.2) (p) 0.333 1.667
Performance fee per share at 20% of adjusted excess (p) 0.067 0.333
Number of shares in issue ('000) 187,679 186,260
Incentive fee payable (£'000) 125 621
The Total Return Hurdle for the year ending 31 March 2024 is 265.5 pence per
share. The Dividend Hurdle is 7.0 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 £7.5 million.
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 plc
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 commissions payable to an
execution-only broker or platform. The net amount paid to YFM Private Equity
Limited under this offer amounted to £1,019,000.
Under the terms of the offer launched with British Smaller Companies VCT2 plc
on 30 November 2022, YFM Private Equity Limited was entitled to 3.0 per cent
of gross subscriptions, (3.5 per cent for Applications received from
Applicants who did not invest their money through a financial intermediary
advisor and invested directly into the Company) less commissions payable to an
execution-only broker or platform. The net amount paid to YFM Private Equity
Limited under this offer amounted to £1,383,000.
The details of directors' remuneration are set out in the Directors'
Remuneration Report on page 50 of the annual report under the heading
"Directors' Remuneration for the year ended 31 March 2023 (audited)".
4. Taxation
2023 2022
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Profit (loss) before taxation 1,083 11,154 12,237 (29) 28,293 28,264
Profit (loss) before taxation multiplied by standard rate of corporation tax 206 2,119 2,325 (6) 5,376 5,370
in UK of 19% (2022: 19%)
Effect of:
UK dividends received (297) - (297) (103) - (103)
Non-taxable profits on investments - (2,539) (2,539) - (5,823) (5,823)
Deferred tax not recognised 91 420 511 109 447 556
Tax charge - - - - - -
The Company has no provided or unprovided deferred tax liability in either
year.
Deferred tax assets of £4,754,000 (2022: £4,077,000) calculated at 25%
(2022: 25%) in respect of unrelieved management expenses (£19.01 million as
at 31 March 2023 and £16.31 million as at 31 March 2022) have not been
recognised as the directors do not currently believe that it is probable that
sufficient taxable profits will be available against which assets can be
recovered.
Due to the Company's status as a venture capital trust and the continued
intention to meet with the conditions required to comply with Section 274 of
the Income Tax Act 2007, the Company has not provided for deferred tax on any
capital gains or losses arising on the revaluation or realisation of
investments.
5. Dividends
Amounts recognised as distributions to equity holders in the period to 31
March:
2023 2022
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Interim dividend for the year ended 31 March 2023 of 2.0p (2022: 2.0) per - 3,725 3,725 2,796 116 2,912
ordinary share
Second interim dividend for the year ended 31 March 2023 of 2.0p (2022: 5.0p) - 3,736 3,736 - 7,244 7,244
per ordinary share
Third interim dividend for the year ended 31 March 2023 of 4.5p (2022: 2.0p) 127 8,296 8,423 - 2,943 2,943
per ordinary share
127 15,757 15,884 2,796 10,303 13,099
Shares allotted under DRIS (3,704) (3,417)
Dividends paid in Statement of Cash Flows 12,180 9,682
The first interim dividend of 2.0 pence per ordinary share was paid on 12 July
2022 to shareholders on the register as at 10 June 2022.
The second interim dividend of 2.0 pence per ordinary share was paid on 3
October 2022 to shareholders on the register as at 2 September 2022.
The third interim dividend of 4.5 pence per ordinary share was paid on 11
January 2023 to shareholders on the register as at 18 November 2022.
An interim dividend of 2.0 pence per ordinary share, in respect of the year
ending 31 March 2024, will be paid on 28 July 2023 to shareholders on the
register on 30 June 2023. This dividend was not recognised in the year ended
31 March 2023 as the obligation did not exist at the balance sheet date.
6. Basic and Diluted Earnings (Loss) per Ordinary Share
The basic and diluted earnings per ordinary share is based on the profit after
tax attributable to shareholders of £12,237,000 (2022: £28,264,000) and
187,113,203 (2022: 155,125,398) ordinary shares being the weighted average
number of ordinary shares in issue during the year.
The basic and diluted revenue earnings (loss) per ordinary share is based on
the revenue profit for the year attributable to shareholders of £1,083,000
(2022: loss of £29,000) and 187,113,203 (2022: 155,125,398) 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 £11,154,000
(2022: £28,293,000) and 187,113,203 (2022: 155,125,398) ordinary shares being
the weighted average number of ordinary shares in issue during the year.
During the year the Company allotted 4,591,917 new ordinary shares in respect
of its DRIS.
The Company has also repurchased 3,172,783 of its own shares in the year, and
these shares are held in the capital reserve. The total of 20,007,765 treasury
shares has been excluded in calculating the weighted average number of
ordinary shares for the period. The Company has no securities that would have
a dilutive effect and hence basic and diluted earnings per ordinary share are
the same.
The Company has no potentially dilutive shares and consequently, basic and
diluted earnings per ordinary share are equivalent in both the year ended 31
March 2023 and 31 March 2022.
7. Financial Assets at Fair Value through Profit or Loss
- Investments
IFRS 13, in respect of financial instruments that are measured in the balance
sheet at fair value, requires disclosure of fair value measurements by level
of the following fair value measurement hierarchy:
Level 1: quoted prices in active markets for identical assets or liabilities.
The fair value of financial instruments traded in active markets is based on
quoted market prices at the balance sheet date. An active market is defined as
a market in which transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing information on an ongoing
basis. The quoted market price used for financial assets held by the Company
is the current bid price. These instruments are included in level 1 and
comprise fixed income securities classified as held at fair value through
profit or loss.
Level 2: the fair value of financial instruments that are not traded in an
active market is determined by using valuation techniques. These valuation
techniques maximise the use of observable market data where it is available
and rely as little as possible on entity specific estimates. If all
significant inputs required to fair value an instrument are observable, the
instrument is included in level 2. The Company held no such instruments in the
current or prior year.
Level 3: the fair value of financial instruments that are not traded in an
active market (for example, investments in unquoted companies) is determined
by using valuation techniques such as revenue and earnings multiples. If one
or more of the significant inputs is not based on observable market data, the
instrument is included in level 3. The majority of the Company's investments
fall into this category at 31 March 2023.
Each investment is reviewed at least quarterly to ensure that it has not
ceased to meet the criteria of the level in which it is included at the
beginning of each accounting period. The change in fair value for the current
and previous year is recognised through profit or loss.
There have been no transfers between these classifications in either period.
All items held at fair value through profit or loss were designated as such
upon initial recognition.
Valuation of Investments
Full details of the methods used by the Company are set out in note 1 of these
financial statements. Where investments are held in listed investment funds,
fair value is set at the market bid price.
Movements in investments at fair value through profit or loss during the year
to 31 March 2023 are summarised as follows:
IFRS 13 measurement classification Level 3 Level 1 Total
Unquoted Listed Investments
Investments Investment
Funds
£000 £000 £000
Opening cost 59,265 4,618 63,883
Opening investment holding gain 41,894 88 41,982
Opening fair value at 1 April 2022 101,159 4,706 105,865
Additions at cost 28,326 506 28,832
Capitalised income 60 - 60
Disposal proceeds (20,365) (351) (20,716)
Net profit (loss) on disposal 5,273 (60) 5,213
Change in fair value 7,098 (756) 6,342
Foreign exchange gain 1,810 - 1,810
Closing fair value at 31 March 2023 123,361 4,045 127,406
Closing cost 73,515 4,676 78,191
Closing investment holding gain (loss) 49,846 (631) 49,215
Closing fair value at 31 March 2023 123,361 4,045 127,406
There were no individual reductions in fair value during the year that
exceeded 5 per cent of the total assets of the Company (2022: £nil).
Level 3 valuations include assumptions based on non-observable market data,
such as discounts applied either to reflect changes in fair value of financial
assets held at the price of recent investment, or to adjust revenue and
earnings multiples. IFRS 13 requires an entity to disclose quantitative
information about the significant unobservable inputs used. Of the Company's
level 3 investments, 79 per cent are held on a revenue multiple basis and 13
per cent on an earnings multiple basis, which have significant judgement
applied to the valuation inputs. The table on page 76 of the annual report
sets out the range of Revenue Multiple (RM), Earnings Multiple (EM), and
discounts applied in arriving at investments valued on these bases. The
remaining 8 per cent are valued based on cost or price of recent investment,
reviewed for change in fair value (4 per cent), net asset value reviewed for
change in fair value (2 per cent) and expected sale proceeds (2 per cent).
The following disposals took place in the year:
Net proceeds Cost Opening
from sale carrying Profit (loss)
value as at on disposal
1 April 2022
£000 £000 £000 £000
Unquoted investments:
Springboard Research Holdings Limited 8,673 2,822 6,638 2,035
Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) 6,119 2,934 5,051 1,068
Vuealta Group Limited* 4,601 2,954 3,163 1,438
Wakefield Acoustics (via Malvar Engineering Limited) 972 1,080 - 972
Arraco Global Markets Limited* - 2,670 240 (240)
Seven Technologies Holdings Limited - 1,677 - -
Total from portfolio 20,365 14,137 15,092 5,273
Listed investment funds 315 447 411 (60)
Total from investment portfolio 20,716 14,584 15,503 5,213
* opening carrying value includes further investments made during the
year.
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 £157,032,000 (2022: £159,534,000) and 187,679,279
(2022: 186,260,145) 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 2023.
The Company has no potentially dilutive shares and consequently, basic and
diluted net asset values per ordinary share are equivalent in both the years
ended 31 March 2023 and 31 March 2022.
9. Total Return per Ordinary Share
The Total Return per ordinary share is calculated on cumulative dividends paid
of 174.9 pence per ordinary share (2022: 166.4 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 2023 or 31 March 2022.
11. Events after the Balance Sheet Date
On 4 April 2023 the Company allotted shares from its fully subscribed 2022/23
share offer. £44.3 million was raised by the Company, resulting in the
allotment of 53,559,905 ordinary shares. This increased the number of
ordinary shares issued with voting rights to 241,239,184.
Following the year end, one investment of £0.8 million has been completed
into Relative Insight, and the Company realised its investment in Ncam, in
line with the valuation at 31 March 2023, with initial proceeds of £1.4
million being received.
12. Annual Report and Accounts
Copies of the statutory accounts for the year ended 31 March 2023 will shortly
be submitted to the National Storage Mechanism and will be available to the
public for viewing online at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) . They can also
shortly be viewed on the Company's website at www.bscfunds.com
(http://www.bscfunds.com) . Hard copies of the statutory accounts for the
year to 31 March 2023 will be distributed by post or electronically to
shareholders and will thereafter be available to members of the public from
the Company's registered office.
13. Directors
The directors of the Company are Mr R Cook, Mr A C N Bastin, Mr J Cartwright
and Ms P Sapre.
14. Annual General Meeting
The Annual General Meeting of the Company will be held at 9:30 am on 14
September 2023 at 8-10 Hill Street, London, W1J 5NG. Full details of the
agenda for this meeting are included in the Notice of the Annual General
Meeting on page 92 of the annual report.
15. Interim Dividend for the Year Ending 31 March 2024
The directors are pleased to announce the payment of an interim dividend for
the year ending 31 March 2024 of 2.0 pence per ordinary share ("Interim
Dividend").
The Interim Dividend will be paid on 28 July 2023 to those shareholders on the
Company's register at the close of business on 30 June 2023. The ex-dividend
date will be 29 June 2023.
The directors are not proposing a final dividend for the year ended 31 March
2023.
16. Dividend Re-investment Scheme
The Company operates a dividend re-investment scheme ("DRIS"). The latest
date for receipt of new or updated DRIS elections in respect of the Interim
Dividend is the close of business on 14 July 2023.
17. 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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