Full year Results and Notice of AGM
19/12/2023 07:00
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19 December 2023
HARGREAVE HALE AIM VCT PLC
(the “Company” or the “VCT”)
Full Year Results and Notice of AGM
Hargreave Hale AIM VCT plc announces its results for the year ended 30
September 2023.
The Company also announces that its 2024 Annual General Meeting will be held
at 4:45pm on 8 February 2024 at 88 Wood Street, London, EC2V 7QR.
The Company’s Annual Report and Financial Statements for the year ended 30
September 2023 and the formal Notice of the Annual General Meeting will be
posted to shareholders who have elected to receive hard copies and in
accordance with Listing Rule 9.6.1 copies of the documents have been submitted
to the UK Listing Authority and will shortly be available to view on the
Company's corporate website at https://www.hargreaveaimvcts.co.uk and have
also been submitted to the UK Listing Authority and will be shortly available
for inspection from the National Storage Mechanism at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Strategic report
The report has been prepared by the Directors in accordance with the
requirements of Section 414A of the Companies Act 2006.
Financial highlights for the year ended 30 September 2023
Net asset value (NAV) per share NAV total return Tax free dividends paid in the period Share price total return Ongoing charges ratio
46.34p -14.70% ((1)) 5.00p -23.51% ((1)) 2.24% ((1))
• £13.6 million invested in Qualifying Companies in the year.
• 91.65% invested by VCT tax value in Qualifying Investments at
30 September 2023.
• Final dividend of 1.50 pence per share proposed for the year
end.
• Offer for subscription closed to further applications on
10 February 2023, having raised £40 million.
• New Offer for subscription launched on 7 September 2023 to raise
£20 million, together with an over‑allotment facility to raise up to a
further £20 million.
Summary financial data 2023 2022
NAV (£m) 151.92 160.51
NAV per share (p) 46.34 60.19
NAV total return (%) ((1)) -14.70 -33.42
Market capitalisation (£m) 140.96 167.32
Share price (p) 43.00 62.75
Share price discount/premium to NAV per share (%) ((1)) -7.21 +4.25 ((2))
Share price 5 year average discount to NAV per share (%) ((1)) -5.64 -5.65
Share price total return (%) ((1)) -23.51 -28.06
(Loss)/gain per share for the year (p) -9.32 -33.42
Dividends paid per share (p) 5.00 6.65
Ongoing charges ratio (%) ((1)) 2.24 2.06
(1) Alternative performance measure definitions and illustrations can
be found in this report.
(2) The FY22 year end premium to NAV is a function of the year end
NAV of 60.19 pence per share and the year end share price.
Financial Calendar
Financial calendar
Record date for final dividend 5 January 2024
Payment of final dividend 15 February 2024
Annual General Meeting 8 February 2024
Announcement of half-yearly results for the six months ending 31 March 2024 June 2024
Payment of interim dividend (subject to Board approval) July 2024
Chair’s statement
Introduction
I would like to welcome shareholders who joined us as a result of the recent
offers for subscription. As always, we are grateful to new and existing
shareholders who continue to support the VCT, despite the difficult times we
continue to live through.
The financial year started with some significant headwinds, including high
inflation, a dislocation in the UK Government bond market and a forecast by
the Bank of England that the United Kingdom would endure the longest recession
of the last 100 years. Whilst we would not wish to downplay the hardship that
followed, the economy was stronger than predicted, in part due to Government
intervention in the energy market over the winter. UK consumer confidence
staged a partial recovery off historic lows, employment remained strong and,
towards the end of the period under review, UK real wage growth turned
positive.
As I noted in our interim report, uncertainty is a theme that we have all
learned to live with these past few years. To this list, we must now add the
implications of the terrible events that continue to unfold in Israel and
Gaza.
Whilst we are encouraged that much of the deep pessimism that permeated
markets at the start of the financial year did not manifest, we remain mindful
of the macro-economic backdrop, both here and abroad. The cost of borrowing
has changed dramatically within the year, impacting the financial sector and
companies with high levels of debt. Last year, this manifested itself within
the UK pension industry. This year, stress emerged in parts of the US and
European banking system. Remote as this might seem, it affected companies
closer to home, particularly pre-clinical and clinical stage companies within
the life sciences industry that were reliant upon funding from Silicon Valley
Bank (SVB). Those exposed to SVB became more cautious with their budgets,
which in turn reduced demand for the products and services sold into them.
Several of our portfolio companies have seen weaker trading as a consequence
of this.
When launching the 2022 offer for subscription, we were cautious about the
short-term outlook but spoke about the opportunity for value creation over the
medium term. Our experience over the period under review is consistent with
that view. Generating short-term performance has been very difficult with the
market applying asymmetrical responses to news flow: positive updates are not
getting full recognition whilst those that disappoint are often treated
harshly. Stock market liquidity is a major contributory factor. With many
active managers now deep into their third year of outflows, there are few
institutional buyers of shares in small UK companies. Taken together, this has
left the sector in deep value territory.
The malaise that continues to hang over markets in the UK and elsewhere has
heavily impacted the primary markets in which companies raise new capital
through the sale of new shares. With valuations so depressed and very little
capital available for investment (away from VCTs), very few companies have
undertaken an initial public offering (IPO). On AIM there were just 3 VCT
qualifying initial public offerings within the year. Despite this, we are
pleased to report that we deployed capital into VCT qualifying companies ahead
of budget, highlighting the importance of having a defined pool of capital, a
diversified portfolio and a flexible investment policy.
Performance
As described in more detail in the Investment Manager’s report, this has
been a second consecutive difficult year for performance. In contrast to last
year, when we suffered a substantial (unrealised) loss of value across
investments in public and private companies, this year the material declines
were confined to the portfolio of investments in public companies. The value
of the investments in private companies were protected by the difficult
decisions made last year and, in some cases, better trading. Although the
markets demand a cautious approach, we are hopeful that we might start to see
some value recovery within the private companies in the current year. It is
worth reiterating at this point that the predominant factor that drove down
the valuations in our investments in private companies last year was the broad
based (and deep) de-rating of publicly listed companies.
Whilst higher interest rates are a source of concern for many and likely to
weigh on economic activity, they have also made a significant positive impact
on the income generated from within the VCT, either from cash held on deposit
or from recently acquired short-dated fixed income investments. Investment
grade fixed income assets were a feature of the investment portfolio for a
number of years during and after the financial crisis until negative real
yields (and therefore high prices) forced us to exit those positions. We have
been able to use the sell off in the bond market this year to rebuild
positions that will continue to generate substantial income for the VCT for
several years.
At 30 September 2023, the NAV per share was 46.34 pence which, after
adjusting for the dividends paid in the year of 5 pence, gives a NAV total
return for the year of -14.70%((1)). The NAV total return (dividends
reinvested) for the year was -15.93%((1)) compared with -8.28% in the FTSE AIM
All-Share Index Total Return (also calculated on a dividends Index reinvested
basis). The Directors consider this to be the most appropriate benchmark from
a shareholder’s perspective, however, due to the range of assets held within
the investment portfolio and the investment restrictions placed on a VCT it is
not wholly comparable.
The earnings per share total return for the year was a loss of 9.32 pence
(comprising a revenue profit of 0.27 pence and a capital loss of
9.59 pence). Revenue income increased by 168% to £2.6m as a result of an
increase in dividends received from non-qualifying equity, non-qualifying
fixed income investments and bank interest. Interest accrued on loan
note instruments increased after the Investment Manager made two follow on
(qualifying) investments into Kidly Ltd. For the first time, income received
into the revenue account exceeded expenses, resulting in a revenue profit for
the year of 0.27 pence per share (FY22: -0.36 pence per share).
The share price decreased from 62.75 pence to 43.00 pence over the reporting
period which, after adjusting for dividends paid, gives a share price total
return of -23.51%(1), the fall amplified by the normalisation of the share
price, having briefly traded at a premium at the close of the last financial
year.
Investments
The Investment Manager invested £13.6 million into 10 Qualifying Companies
during the period. The fair value of Qualifying Investments at 30 September
2023 was £89.1 million (58.7% of NAV) invested in 63 AIM companies and
5((2)) unquoted companies. At the year end, the fair value of non-qualifying
equities and the Marlborough Special Situations Fund was £15.4 million
(10.1% of NAV) and £8.3 million (5.4% of NAV) respectively, with most of the
non-qualifying equities listed within the FTSE 350 and offering good levels
of liquidity should the need arise. £17.4 million (11.4% of NAV) was held in
short-dated investment grade corporate bonds, £2.0 million (1.3% of NAV) was
invested in a UK Government bond exchange traded fund and £19.2 million
(12.7% of NAV) held in cash at the period end. Further information can be
found in the Investment Manager’s report.
Dividend
The Directors continue to maintain their policy of targeting a tax free
dividend yield equivalent to 5% of the year end NAV per share.
In the 12-month period to 30 September 2023, the Company paid dividends
totalling 5 pence (2022: 6.65 pence). A special dividend of 2 pence and a
final dividend of 2 pence (2021: 3.15 pence) in respect of the 2022
financial year was paid on 10 February 2023 and an interim dividend of 1.00
penny (2022: 1 penny) was paid on 28 July 2023.
A final dividend of 1.50 pence is proposed (2022: 2 pence) which, subject
to shareholder approval at the Annual General Meeting, will be paid on
15 February 2024 to ordinary shareholders on the register on 5 January 2024.
Dividend re-investment scheme
Shareholders may elect to reinvest their dividend by subscribing for new
shares in the Company. Further information can be found in the shareholder
information section.
On 10 February 2023, 1,836,516 ordinary shares were allotted at a price of
54.95 pence per share, which was calculated in accordance with the terms and
conditions of the dividend reinvestment scheme (DRIS), on the basis of the
last reported NAV per share as at 20 January 2023, to shareholders who
elected to receive shares under the DRIS as an alternative to the final
dividend for the year ended 30 September 2022 and special dividend announced
on 19 December 2022.
On 28 July 2023, 591,318 ordinary shares were allotted at a price of
49.29 pence per share, which was calculated in accordance with the terms and
conditions of the DRIS, on the basis of the last reported NAV per share as at
7 July 2023, to shareholders who elected to receive shares under the DRIS as
an alternative to the interim dividend for the year ended 30 September 2023.
Share Buybacks
To maintain compliance with the discount control and management of share
liquidity policy, the Company purchased through share buybacks 7,183,338
ordinary shares (nominal value £71,833) during the 2023 financial year at a
cost of £3,636,841 (average price: 50.63 pence per share).
As at 18 December 2023, a further 2,039,414 shares have been repurchased post
the year end at a cost of £873,229 (average price: 42.82 pence per share).
(1) Alternative performance measure definitions and illustrations can be found
in the glossary of terms.
(2) Excluding companies in administration or at risk of administration with
zero value.
Share price discount
The Company aims to improve liquidity and to maintain a discount of
approximately 5 per cent. to the last published NAV per share (as measured
against the mid-price) by making secondary market purchases of its shares in
accordance with parameters set by the Board.
We continued to operate the discount control and management of share liquidity
policy effectively during the period. As at 30 September 2023, the Company
had 1 and 5 year average share price discounts of 6.06% and 5.64%
respectively.
The Company’s share price was trading at a discount of 7.21%((1)) as at
30 September 2023 compared to a premium of +4.25%((1)) as at 30 September
2022, this being calculated using the closing mid-price of the Company’s
shares on 30 September 2023 as a percentage of the year end net asset value
per share, as published on 5 October 2023.
As at 15 December 2023, the discount to NAV was 6.71% of the last published
NAV per share.
Offer for subscription
The Directors of the Company announced on 5 September 2022 the launch of an
offer for subscription for shares to raise up to £20 million, together with
an over-allotment facility of up to a further £30 million. On 10 February
2023, the Company announced it had received valid applications of
approximately £40 million. The Board decided not to utilise any further sums
under the over-allotment facility and therefore the offer for subscription was
closed to further applications. The offer resulted in gross funds being
received of £40 million and the issue of 66 million shares.
New Offer for subscription
The Directors of the Company announced on 7 September 2023 the launch of a
new offer for subscription for shares to raise up to £20 million, together
with an over-allotment facility of up to a further £20 million. The offer
was approved by shareholders of the Company at a general meeting on
11 October 2023.
On 18 December 2023, the Company had allotted 17.6 million shares raising
gross proceeds of £8.1 million. The Company has received valid applications
for a further £0.5 million. Future decisions by the Board about the
potential use of the over-allotment facility, in part or in full, will be made
with advice from the Investment Manager and subject to investor demand and the
deployment of capital into VCT qualifying companies.
Cancellation of share premium
At the general meeting of the Company held on 7 October 2022, a special
resolution was passed approving the cancellation of the Company’s share
premium account to expand the size of the Company’s distributable reserves.
We are pleased to confirm the cancellation of the share premium account of the
Company was approved by the High Court of Justice in England and Wales and,
accordingly, the amount standing to the credit of the share premium account
(£133.2m) of the Company as at 9 May 2023 was cancelled.
Cost efficiency
The Board reviews costs incurred by the Company on a regular basis and is
focused on maintaining a competitive ongoing charges ratio (OCR). The year end
ongoing charges ratio was 2.24%((1)) (FY22: 2.06%((1))) when calculated in
accordance with the AIC’s “Ongoing Charges” methodology. The increase in
the OCR is principally driven by the fall in the average net assets across the
year that followed the drop in the NAV per share. Other factors included an
increase in the number of independent non-executive directors to five and
below inflation increases in remuneration. The Company also made modest
investments to improve shareholder communication through investments into the
Company’s website, video updates and an increased number of shareholder
events. The Ongoing Charges methodology divides ongoing expenses by average
net assets.
Board remuneration
Following a review of Board remuneration, and taking into account peer group
analysis and inflation, the Board has agreed to increase its remuneration by
5%, effective from 1 October 2023. The annual remuneration of the Chair will
increase to £41,000, the independent non-executive directors to £32,000 and
the non-independent non-executive director, Oliver Bedford, to £29,500.
An additional fee of £1,500 will continue to be paid to the Chair of the
Management and Service Provider Engagement Committee. The Chair of the Audit
Committee will continue to receive an additional fee of £3,000.
Investment Manager
On 2 November 2022, the Company’s Investment Manager changed its name from
Hargreave Hale Limited (trading as Canaccord Genuity Fund Management) to
Canaccord Genuity Asset Management Limited (CGAM).
(1) Alternative performance measure definitions and illustrations can be found
in the glossary of terms.
Annual General Meeting
Shareholders are invited to attend the Company’s Annual General Meeting
(AGM) to be held at 4.45 pm on 8 February 2024 at 88 Wood Street,
London, EC2V 7QR. The AGM will be followed by a presentation from the
Investment Manager and a drinks reception.
Those shareholders who are unable to attend the AGM in person are encouraged
to raise any questions in advance with the Company Secretary at
HHV.CoSec@jtcgroup.com. The deadline for the advance submission of questions
is 5.00 p.m. on 1 February 2024. Answers will be published on the
Company’s website on 8 February 2024.
Shareholder Engagement
Shareholder engagement is given a high priority by the Board. Following a
recent review, the Board agreed to significantly improve the website and
develop new content (including video content) for shareholders to provide more
information about the Company’s activities and performance. The new website
is live at www.hargreaveaimvcts.co.uk.
The Company is working hard to make new, better and more accessible content
and hope that shareholders will find the output useful. The website also
introduces new functionality to allow shareholders to request by email updates
on shareholder events, the performance of the Company (interim management
statements, fact sheets and video updates) and information on the Company’s
fundraising activities.
In addition to this, the Board wants to provide shareholders with more
opportunities to meet directly with the Directors and the CGAM VCT management
team. As a result, the number of in‑person events has been increased with
the introduction of three new in-person quarterly updates in February, May and
August to sit alongside the AGM in February and the annual shareholder event
in November. The Board will look to run an event outside of London in the
current financial year to improve access for those unable to attend London
based events. The Board is aware that increased engagement carries a cost; we
therefore hope shareholders will be able to attend at least one of these
events. Further information on future events and recordings of previous
updates can be found on the Company’s website.
Whilst the Board strongly encourages shareholders to make use of everything
the website has to offer, the Directors recognise that it is not for everyone.
Should you prefer, you can of course continue to communicate with the Chair,
any other member of the Board or the Investment Manager by writing to the
Company, for the attention of the Company Secretary.
Within the 2023 financial year, the Investment Manager gave three
presentations covering the 12 months to 30 September 2022 on 23 November
2022, the 6 months to 31 March 2023 on 21 June 2023 and the 3 months to
30 June 2023 on 16 August 2023.
Subsequent to the year end, the Investment Manager gave a presentation
covering the 12 months to 30 September 2023 on 29 November 2023. The well
attended shareholder event was once again held at Everyman Cinema, Broadgate,
City of London. It included presentations and a pre-recorded interview with
several guest speakers and contributions from a number of portfolio companies,
including a panel discussion and a presentation from the Investment
Manager’s VCT team. The event concluded with the screening of a feature
film. Summary recordings of the Investment Manager’s presentations are
available to view on the Company’s website
https://www.hargreaveaimvcts.co.uk.
The next shareholder event will be held at the Investment Manager’s offices
at 88 Wood Street, London EC2V 7QR following the conclusion of the AGM to be
held at 4.45 pm on 8 February 2024. The presentation will cover the
3 months to 31 December 2023. Shareholders are asked to register their
interest in attending the shareholder event through the Company’s website
(www.hargreaveaimvcts.co.uk) or by emailing aimvct@canaccord.com.
Electronic communications
As ever, we are respectfully asking shareholders to opt into electronic
communications and update their dividend payment preference from cheque to
bank transfer. Switching to the digital delivery of shareholder communications
and dividend distributions is more cost efficient and more secure whilst also
helping to reduce our environmental footprint.
The Company no longer prints and distributes interim reports to shareholders.
The interim results continue to be available for download on the Company’s
website (www.hargreaveaimvcts.co.uk) and a summary of the results are
published via a Regulatory Information Service on the London Stock Exchange.
Where necessary, the Administrator can produce and send out a hard copy.
To support the digital experience, the Company has invested in an upgraded
website to improve the experience and include more regular updates to the
content, including recorded updates from the manager and portfolio companies.
Much of the new content will be available for distribution by email. You can
register your interest in (and opt out of) email updates through the
Company’s website.
Shareholders are also encouraged to make use of Equiniti’s shareview portal,
which can be used to monitor their investment, review their transaction
history, see information on dividend payments and update their communication
preferences.
Electronic Voting
Electronic proxy voting is available for shareholders to register the
appointment of a proxy and voting instructions for any general meeting of the
Company once notice has been given. This service assists the Company to make
further printing and production cost savings, reduce our environmental
footprint and streamline the voting process for investors.
Regulatory update
There were no major changes to VCT legislation during the period under review.
On 23 September 2022, the Government announced that it intended to extend the
sunset clause that, if not otherwise repealed or extended, would result in the
withdrawal of the upfront 30% income tax relief for new investment into VCTs
from 6 April 2025.
The sunset clause, introduced as part of the 2015 EU State aid review, does
not affect the Capital Gains Tax relief or tax free dividend payments, nor
does it affect investors’ income tax relief on VCT investments made before
6 April 2025.
On 22 November 2023, the Chancellor of the Exchequer announced as part of the
Autumn Statement the intention to extend the VCT and EIS schemes to 5 April
2035. The Government will introduce new legislation as part of a future
finance bill.
Consumer Duty
The Financial Conduct Authority (FCA) introduced the Consumer Duty on 31 July
2023 to improve the standard of care provided by firms that are involved in
the manufacture or supply of products and services to retail clients.
Consumer Duty comprises a new principle and suite of other rules and guidance
to be followed by firms involved in the manufacture and distribution of a
product to put consumers in a better position to take responsibility for
meeting their financial needs and objectives. For consumers, this should:
• give confidence that firms are acting in good faith, in line with
their interests;
• allow them to make informed choices about products and services
that are fit for purpose and designed to meet a designated target market;
• improve the information available to assist with the review of
the products and services most likely to meet their needs;
• support the correct delivery of benefits that consumers should
reasonably expect from the product and services they subscribe to;
• improve the standard of customer service; and
• help them obtain fair value from financial products and services.
As the Company is not regulated by the FCA, it falls outside of the FCA’s
new Consumer Duty regulation. However, CGAM and Canaccord Genuity Wealth
Limited (CGWL) are regulated companies and in scope, respectively as the
designated manufacturer and distributor of the Company. In its capacity as
manufacturer, CGAM has conducted a fair value assessment and a target market
assessment. Having reviewed both reports, the Board is satisfied that CGAM and
CGWL have complied with their obligations.
Two of the four pillars that underpin Consumer Duty relate to consumer
understanding and consumer support.
Although the Board is satisfied that these obligations are met in full, the
Company’s website has been upgraded to enhance the services and benefits
derived from an investment in the Company. As noted above, the Board and
Investment Manager have jointly agreed to host more shareholder events to
support the delivery of the consumer understanding outcome, one of the key
outcomes described under the Consumer Duty.
VCT status
I am pleased to report that the Company continues to perform well against the
requirements of the legislation and at the period end, the investment test was
91.65% (2022: 84.85%) against an 80% requirement when measured using HMRC’s
methodology. The increase in the investment test percentage reflects progress
made in deploying capital raised through the 2022 offer and the return of
capital to shareholders through the payment of a 2 pence per share special
dividend on 10 February 2023 following the successful exit from Ideagen plc.
The Company satisfied all other tests relevant to its status as a Venture
Capital Trust.
Key information document
In accordance with the Packaged Retail Investment and Insurance Products
(“PRIIPs”) regulations, the Company’s Key Information Document
(“KID”) is published on the Company’s website at
www.hargreaveaimvcts.co.uk/document-library/.
Risk review
The Board has reviewed the risks facing the Company. Further detail can be
found in the principal and emerging risks and uncertainties section.
Outlook
Whilst we continue to navigate an uncertain economic and geopolitical outlook,
recent news suggests that monetary policy is likely to become more
accommodating as we progress through the year, helping to lay the foundations
for a sustainable recovery in value.
When it finally emerges, a change of sentiment in public markets will benefit
our investments in both public and private companies. Until then, we draw
comfort from a number of factors: first, the majority of portfolio companies
continue to provide updates that are in line with expectations; second, there
is a substantial amount of growth on offer from within the portfolio, even in
these more difficult times; third, a review of valuation metrics within the
qualifying portfolio highlights the deep value on offer; and finally, a
significant majority of qualifying companies are well funded and commercially
robust.
David Brock
Chair
18 December 2023
The Company and its business model
The Company was incorporated and registered in England and Wales on 16 August
2004 under the Companies Act 1985, registered number 05206425.
The Company has been approved as a Venture Capital Trust by HMRC under
Section 259 of the Income Taxes Act 2007. The shares of the Company were
first admitted to the Official List of the UK Listing Authority and trading
on the London Stock Exchange on 29 October 2004 and can be found under the
TIDM code “HHV”. The Company is premium listed.
In common with many other VCTs, the Company revoked its status as an
investment company as defined in Section 266 of the Companies Act 1985 on
23 May 2006 to facilitate the payment of dividends out of capital profits.
The Company’s principal activity is to invest in a diversified portfolio of
qualifying small UK based companies, primarily trading on AIM, with a view to
generating capital returns and income from its portfolio and to make
distributions from capital and income to shareholders whilst maintaining its
status as a VCT.
The Company is registered as a small UK Alternative Investment Fund Manager
(AIFM) with a Board comprising of six non-executive directors, five of whom
are independent. Canaccord Genuity Asset Management Limited acts as investment
manager whilst Canaccord Genuity Wealth Limited (CGWL) acts as administrator
and custodian. JTC (UK) Limited provides company secretarial services.
The Board has overall responsibility for the Company’s affairs including the
determination of its investment policy. However, the Board exercises these
responsibilities through delegation to Canaccord Genuity Asset Management
Limited, Canaccord Genuity Wealth Limited and JTC (UK) Limited as it considers
appropriate.
The Directors have managed and continue to manage the Company’s affairs in
such a manner as to comply with Section 259 of the Income Taxes Act 2007.
Investment objectives, policy and strategy
Investment objectives
The investment objectives of the Company are to generate capital gains and
income from its portfolio and to make distributions from capital or income to
shareholders whilst maintaining its status as a Venture Capital Trust.
Investment policy
The Company intends to achieve its investment objectives by making Qualifying
Investments in companies listed on AIM, private companies and companies listed
on the AQSE Growth Market, as well as Non-Qualifying Investments as allowed by
the VCT Rules.
Qualifying investments
The Investment Manager will maintain a diversified portfolio of Qualifying
Investments which may include equities and fixed income securities as
permitted by the VCT Rules. Investments will primarily be made in companies
listed on AIM but may also include private companies that meet the Investment
Manager’s criteria and companies listed on the AQSE Growth Market. These
small companies have a permanent establishment in the UK and, whilst of high
risk, will have the potential for significant capital appreciation.
To maintain its status as a VCT, the Company must have 80 per cent. by value
as measured by the VCT Rules of all of its investments in Qualifying
Investments throughout accounting periods of the VCT beginning no later than
three years after the date on which those shares are issued. To provide some
protection against an inadvertent breach of this rule, the Investment Manager
targets a threshold of approximately 85 per cent.
Non-Qualifying Investments
The Non-Qualifying Investments must be permitted by the VCT Rules and may
include equities and exchange traded funds listed on the main market of the
London Stock Exchange, fixed income securities, bank deposits that are readily
realisable, the Marlborough Special Situations Fund and the Marlborough UK
Micro-Cap Growth Fund. Subject to the investment controls below, the
allocation to each of these investment classes will vary to reflect the
Investment Manager’s view of the market environment and the deployment of
funds into Qualifying Companies. The market value of the Non‑Qualifying
Investments (excluding bank deposits) will vary between nil and 50 per cent.
of the net assets of the Company.
The value of funds held in bank deposits will vary between nil and 30 per
cent. of the net assets of the Company.
Investment controls
The Company may make co-investments in investee companies alongside other
funds, including other funds managed by the Investment Manager.
Other than bank deposits, no individual investment shall exceed 10 per cent.
of the Company’s net assets at the time of investment.
Borrowings
The Articles permit the Company to borrow up to 15 per cent. of its adjusted
share capital and reserves (as defined in the Articles). However, it is not
anticipated that the Company will have any borrowings in place and the
Directors do not intend to utilise this authority.
To the extent that any future changes to the Company’s investment policy are
considered to be material, shareholder consent to such changes will be sought.
Such consent applies to the formal investment policy described above and not
the investment process set out below.
Investment process and strategy
The Investment Manager follows a stock specific investment approach based on
fundamental analysis of the investee company.
The Investment Manager’s fund management team has significant reach into the
market and meets with large numbers of companies each week. These meetings
provide insight into investee companies, their end markets, products and
services, and competition. Investments are monitored closely and the
Investment Manager usually meets or engages with their senior leadership team
at least twice each year. Where appropriate the Company may co-invest
alongside other funds managed by the Investment Manager.
The key selection criteria used in deciding which investments to make include,
inter alia:
• the strength and depth of the management team;
• the business strategy;
• a prudent approach to financial management and forecasting;
• a strong balance sheet;
• profit margins, cash flows and the working capital cycle;
• barriers to entry and the competitive landscape; and
• the balance of risk and reward over the medium and long term.
Qualifying Investments
Investments are made to support the growth and development of a Qualifying
Company. The Investment Manager will maintain a diversified portfolio that
balances opportunity with risk and liquidity. Qualifying Investments will
primarily be made in companies listed on AIM but may also include private
companies and companies listed on the AQSE Growth Market. Seed funding is
rarely provided and only when the senior leadership team includes proven
business leaders known to the Investment Manager.
Working with advisers, the Investment Manager will screen opportunities, often
meeting management teams several times prior to investment to gain a detailed
understanding of the company. Investments will be sized to reflect the risk
and opportunity over the medium and long term. In many cases, the Investment
Manager will provide further funding as the need arises and the investment
matures. When investing in private companies, the Investment Manager will
shape the investment to meet the investee company’s needs whilst balancing
the potential for capital appreciation with risk management.
Investments will be held for the long term unless there is a material adverse
change, evidence of structural weakness, or poor governance and leadership.
Partial realisations may be made where necessary to balance the portfolio or,
on occasion, to capitalise on significant mispricing within the stock market.
Non-Qualifying Investments
The Investment Manager’s VCT team works closely with the Investment
Manager’s wider fund management team to deliver the investment strategy when
making Non-Qualifying Investments, as permitted by the VCT Rules. The
Investment Manager will vary the exposure to the available asset classes to
reflect its view of the equity markets, balancing the potential for capital
appreciation with risk management, liquidity and income.
The Non-Qualifying Investments will typically include a focused portfolio of
direct investments in companies listed on the main market of the London Stock
Exchange. The portfolio will mix long term structural growth with more
tactical investment to exploit short term mispricing within the market. The
use of the Marlborough Special Situations Fund and the Marlborough UK
Micro-Cap Fund enables the Company to maintain its exposure to small UK
companies whilst the Investment Manager identifies opportunities to invest the
proceeds of fundraisings into Qualifying Companies.
The Investment Manager may use certain exchange traded funds listed on the
Main Market of the London Stock Exchange to gain exposure to asset classes not
otherwise accessible to the Company.
Environmental, social and governance considerations
Approach
The Company regards the development of a clearly defined and integrated ESG
management system as an important pillar for the long-term success of its
business, as well as for its investee companies.
The Investment Manager believes that companies with strong governance,
sustainable business models and balanced workforces are more likely to create
value over the long term whilst reducing investment risk, benefiting the wider
UK economy and society and generating positive shareholder returns.
ESG in the investment process
Holding meaningful stakes in investee companies provides the Investment
Manager with the opportunity and responsibility to positively influence
investee company behaviour, both at the point of investment and during the
time in which the Company is a shareholder.
Due diligence
The Investment Manager assesses ESG factors across the portfolio. For
Qualifying Companies, the Investment Manager will use the information provided
to develop an individualised ESG risk map to identify issues and track
behavioural themes. The Investment Manager regularly engages with senior
management teams and boards to identify and raise issues of note, provide a
forum for positive feedback and promote change where necessary.
Engagement, exclusions and divestment policies
As part of its investment strategy, the Company has adopted policies covering
exclusions and divestment to describe behaviours that fall outside of the
Company’s expectations of investee companies. The Investment Manager has
adopted an engagement policy to create a clear framework that defines how it
will interact with investee companies.
The Investment Manager
The Investment Manager adheres to its own ESG investment and stewardship
policies. These include an ESG Policy, an Engagement Policy, a Conflicts of
Interest Policy and a Stewardship Policy that, together with the investment
mandate and the Company’s ESG approach, inform the Company’s approach.
CGAM is a signatory of the United Nations Principles of Responsible Investment
(UN PRI) and HM Treasury’s Women in Finance Charter.
Risk management
The structure of the Company’s investment portfolio and its investment
strategy, has been developed to mitigate risk where possible. Key risk
mitigation strategies are as follows:
• The Company has a broad portfolio of investments to reduce stock
specific risk.
• Flexible allocations to non-qualifying equities, exchange traded
funds listed on the Main Market of the London Stock Exchange, fixed income
securities, bank deposits that are readily realisable, the Marlborough Special
Situations Fund and the Marlborough UK Micro-Cap Fund allow the Investment
Manager to adjust portfolio risk without compromising liquidity.
• Regular meetings with investee companies aid the close monitoring
of investments to identify potential risks and allow corrective action where
possible.
• Regular Board meetings and dialogue with the Directors, along
with policies to control conflicts of interest and co-investment with the
Marlborough fund mandates, support strong governance.
Further information can be found in this report.
Key performance indicators
The Directors consider the following Key Performance Indicators (KPIs) to
assess whether the Company is achieving its strategic objectives. The
Directors believe these measures help shareholders assess how effectively the
Company is applying its investment policy and are satisfied the results give a
fair indication of whether the Company is achieving its investment objectives
and policy. The KPIs are established industry measures.
Further commentary on the performance of these KPIs has been discussed in the
Chair’s statement and Investment Manager’s report.
1 NAV and share price total returns
The Board monitors NAV and share price total return to assess how the Company
is meeting its objective of generating capital gains and income from its
portfolio and making distributions to shareholders. The NAV per share
decreased from 60.19 pence to 46.34 pence resulting in a loss to ordinary
shareholders of -8.85 pence per share (-14.70%)((1)) after adjusting for
dividends paid in the year.
The Board considers peer group and benchmark comparative performance. Due to
the very low number of AIM VCTs, the Board reviews performance against the
generalist VCTs as well as the AIM VCTs to provide a broader peer group for
comparison purposes. Performance is also measured against the FTSE AIM
All-Share Index Total Return. With 91% of the portfolio of Qualifying
Investments in companies listed on AIM, the Directors consider this to be the
most appropriate benchmark. However, HMRC derived investment restrictions and
investments in private companies, main market listed companies and bonds mean
that the index is not a wholly comparable benchmark for performance.
Rolling Returns to end Sep 2023 1Y 3y 5y 10y
NAV total return -14.70% -15.30% -17.18% 29.11%
Share price total return -23.51% -10.53% -15.87% 35.53%
NAV total return (dividends reinvested) ((1)) -15.93% -22.40% -25.80% 18.49%
Share price total return (dividends reinvested) ((1)) -24.80% -18.58% -25.16% 23.65%
FTSE AIM All-Share Index Total Return -8.28% -21.23% -29.50% 4.21%
Source: Canaccord Genuity Asset Management Ltd
(1) The NAV total return (dividends reinvested) and share price total
return (dividends reinvested) measures have been included to improve
comparability with the FTSE AIM All-Share Index Total Return which is also
calculated on that basis.
Reflecting the difficult market conditions that continued to dominate through
the financial year, and in common with the AIM VCT peer group, the Company
reported a significant reduction in the NAV per share. The NAV total return
fell behind the benchmark over the year; however, it remains ahead of the
benchmark over three, five and ten years but behind the average of the AIM VCT
peer group over the same time horizons. The steep falls in valuations of
companies listed on AIM, which have heavily impacted the performance of the
Company and its AIM VCT peers, have not been mirrored in the Generalist VCT
sector, which has reported a very modest average decline of –0.05% over the
period under review (source: Morningstar). The divergence of performance
across the two peer groups is particularly notable across the two years since
the start of the bear market with the AIM VCT sector returning an average loss
of 42.1% against the average loss within the Generalist VCT sector of -1.1%.
AIM has fallen by 42.0% over the same two-year period. It is difficult to
account for the strongly divergent performance although the possible use of
investment structures not accessible to investors in public companies may
account for some of the difference.
(1) Alternative performance measure definitions and illustrations can be found
in the glossary of terms.
Further detailed information on peer group performance is available through
Morningstar
(https://www.morningstar.co.uk) and the AIC
(https://www.theaic.co.uk/aic/statistics).
2. Share price discount to NAV per share
The Company uses secondary market purchases of its shares to improve the
liquidity in its shares and support the discount. The discount to NAV per
share is an important influence on a selling shareholder’s eventual return.
The Company aims to maintain a discount of approximately 5 per cent. to the
last published NAV per share (as measured against the mid-price).
The Company’s shares traded at a discount of 7.21%((1)) as at 30 September
2023 (2022: 4.25%((1)) premium) when calculated with reference to the
30 September 2023 NAV per share. The 1 and 5 year average share price
discounts were 6.06%((1)) and 5.64%((1)) respectively.
The Company’s shares are priced against the last published NAV per share
with the market typically adjusting the price to reflect the NAV after its
publication. In line with the Company’s valuation policy, the Company aims
to publish the quarter end NAV per share within 5 business days of the period
end to allow time for the Investment Manager and Board to review and agree the
valuation of the private companies held within the investment portfolio.
The Company’s share price on 30 September 2023 reflected the last published
NAV per share prior to the year end, which was released on 26 September 2023.
The 30 September 2023 NAV was reported on 5 October 2023, following the
review of the valuations of the private companies.
As at 15 December 2023, the discount to NAV was 6.71% of the last published
NAV per share.
3. Ongoing charges ratio
The ongoing charges of the Company were 2.24%((1)) (2022: 2.06%((1))) of the
average net assets of the Company during the financial year to 30 September
2023.
The increase in the OCR is principally driven by the fall in the average net
assets across the year that followed the drop in the NAV per share. Other
factors included below inflation increases in board remuneration and an
increase in the number of non-executive directors from five to six. There were
also modest investments made to improve shareholder communication through
investments into the Company’s website, video updates and an increased
number of shareholder events. The Ongoing Charges methodology divides ongoing
expenses by average net assets.
The Company’s ongoing charges ratio remains competitive against the wider
VCT industry and similar to other AIM VCTs. This ratio is calculated using the
AIC’s “Ongoing Charges” methodology and, although based on historical
information, it provides shareholders with an indication of the likely future
cost of managing the fund.
Cost control and efficiency continues to be a key focus for the Board.
Although the OCR increased within the year, the Board is pleased to report
that the Company’s expenses incurred within the year were below budget.
(1) Alternative performance measure definitions and illustrations can be found
in the glossary of terms.
4. Dividends per share
The Company’s policy is to target a tax free dividend yield equivalent to 5%
of the year end NAV per share. The Board remains committed to maintaining a
steady flow of dividend distributions to shareholders.
A total of 5.00 pence per share (2022: 6.65 pence) of dividends was paid
during the year, comprised of a special dividend of 2.00 pence per share paid
on 10 February 2023, a final dividend of 2.00 pence in respect of the
previous financial year (2021: 3.15 pence) paid on 10 February 2023 and an
interim dividend of 1.00 penny (2022: 1.00 penny) paid on 28 July 2023.
A final dividend of 1.50 pence per share will be proposed at the Annual
General Meeting. If approved by shareholders, the payment of the interim,
final and special dividends in respect of the financial year to 30 September
2023 would represent a distribution to shareholders of 9.7% of the
30 September 2023 NAV per share.
The below table demonstrates how the Board has been able to consistently pay
dividends in line with the 5% target and dividend policy.
Dividends paid/payable by financial year
Year Year end NAV Dividends Yield Additional information
pence per share
2010/11 61.14 4.00 6.5%
2011/12 61.35 3.25 5.3%
2012/13 71.87 3.75 5.2%
2013/14 80.31 4.25 5.3%
2014/15 74.64 4.00 5.4%
2015/16 75.93 4.00 5.3%
2016/17 80.82 4.00 4.9%
2017/18 87.59 5.40 6.2% Including special dividend of 1 penny.
2018/19 70.60 3.75 5.3%
2019/20 73.66 5.40 7.3% Including a special dividend of 1.75 pence.
2020/21 100.39 7.40 7.4% Including a special dividend of 2.50 pence.
2021/22 60.19 3.00 5.0%
2022/23 46.34 4.50 9.7% Including a special dividend of 2.00 pence and proposed final dividend of 1.50 pence.
(1) Alternative performance measure definitions and illustrations can be found
in the glossary of terms.
5. Compliance with VCT regulations
A VCT must be approved by HMRC at all times and, in order to retain its
status, the Company must meet a number of tests as set out by the VCT
legislation. Throughout the year ended 30 September 2023 the Company
continued to meet these tests.
The investment test increased from 84.85% to 91.65% in the financial year. The
increase in the investment test percentage reflects progress made in deploying
capital raised through the 2022 offer and the return of capital to
shareholders through the payment of a 2 pence per share special dividend on
10 February 2023 following the successful exit from Ideagen plc. The
investment test remains comfortably ahead of the 80% threshold that applies to
the Company and ahead of the target of 85% as set out in the Company’s
investment policy.
The Company invested £13.6 million into 10 Qualifying Companies, 4 of which
were investments into new Qualifying Companies. The Board is pleased with the
level of new Qualifying Investment, which was ahead of expectations.
The Board believes that the Company will continue to meet the HMRC defined
investment test and other qualifying criteria on an ongoing basis.
For further details please refer to the Investment Manager’s report.
Principal and emerging risks and uncertainties
The Directors acknowledge that they are responsible for the effectiveness of
the Company’s risk management and internal controls and periodically review
the principal risks faced by the Company at Board meetings. The Board may
fulfil these responsibilities through delegation to Canaccord Genuity Asset
Management Limited and Canaccord Genuity Wealth Limited as it considers
appropriate. The principal risks facing the Company, together with mitigating
actions taken by the Board, are set out below:
Risk Potential consequence How the Board mitigates risk Changes During the Year
Venture Capital Trust approval risk. The Company operates in a complex regulatory environment and faces a number of related risks. A breach of Section 259 of the Income Taxes Act 2007 could result in the disqualification of the Company as a VCT. Loss of VCT approval could lead to the Company losing its exemption from corporation tax on capital gains, shareholders losing their tax reliefs and, in certain circumstances, being required to repay the initial tax relief on their investment. To reduce this risk, the Board has appointed an investment manager with significant experience in the management of venture No change.
capital trusts. The Investment Manager regularly provides the Board with written and verbal reports. The Board also appointed
Philip Hare & Associates LLP to monitor compliance with regulations and provide half-yearly compliance reports to the Board.
Investment risk. Many of the Company’s investments are held in small, high risk companies which are either listed on AIM or privately held. Investment in poor quality companies could reduce the capital and income return to shareholders. Investments in small companies are often illiquid and may be difficult to realise. The Board has appointed an investment manager with significant experience of investing in small companies. The Investment No change. Changes in monetary or fiscal policy have undermined consumer, business and investor confidence with negative impacts on profitability, investment and stock market performance. The higher cost of borrowing is starting to impact the cost of debt for companies and consumers. Whilst still subdued, UK consumer and business confidence has recovered off lows as energy prices, inflation and supply chain frictions all eased. Whilst the economy has outperformed expectations for this year, the outlook remains weak.
Manager maintains a broad portfolio of investments across a wide range of industries and sectors. Individual Qualifying
Investments rarely exceed 5% of net assets. The Investment Manager holds regular company meetings to monitor investments and
identify potential risk. The VCT’s liquidity is monitored on a regular basis by the Investment Manager and reported to the Board
quarterly and as necessary.
Compliance risk. The Company is required to comply with the FCA Listing Rules and the Disclosure Guidance and Transparency Rules, the Companies Act, Accounting Standards, the General Data Protection Regulation and other legislation. The Company is also a small registered Alternative Investment Fund Manager (“ AIFM ”) and has to comply with the requirements of the AIFM Directive. Failure to comply with these regulations could result in a delisting of the Company’s shares, financial penalties, a qualified audit report or loss of shareholder trust. Board members have considerable experience of operating at senior levels within quoted businesses. They have access to a range No change.
of advisors including solicitors, accountants and other professional bodies and take advice when appropriate. CGWL provides
compliance oversight to both the Administrator and the Investment Manager and reports to the Board on a quarterly basis.
Operational risk and outsourcing. Failure in the Investment Manager, Administrator, Custodian, Company Secretary or other appointed third party systems and controls or disruption to its business as a result of operational failure, environmental hazards or cyber security attacks. Failures could put the assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or shareholders. Quality standards may be reduced through lack of understanding or loss of control. The Company has in place a risk matrix and a set of internal policies which are reviewed on a regular basis. It has written No change.
agreements in place with its third-party service providers. The Board, through the Management and Service Provider Engagement
Committee, receives regular reports from the Investment Manager, Administrator and custodian to provide assurance that they
operate appropriate control and oversight systems and have in place training and other defence measures to mitigate the risk of
cyber attack. Additionally, the Board receives a control report from the Company’s registrars on an annual basis. Where tasks
are outsourced to other third parties, reputable firms are used and performance is reviewed periodically by the Management and
Service Provider Engagement Committee
Key personnel risk. A change in the key personnel involved in the management of the portfolio. Potential impact on investment performance. The Board discusses key personnel risk and resourcing with the Investment Manager periodically. The VCT team within the No change.
Investment Manager comprises two fund managers and two investment analysts, which helps mitigate this risk.
Exogenous risks such as economic, political, financial, climate change and health. Economic risks include recession and sharp changes in interest rates. Political risks include the terms of the UK’s exit from the European Union or a change in government policy causing the VCT scheme to be brought to an end. A condition of the European Commission’s State aid approval of the UK’s VCT and EIS schemes in 2015 was the introduction of a retirement date for the current schemes at midnight on 5 April 2025 (the ‘Sunset Clause’). If the relevant legislation is not renewed or replaced with similar or equivalent legislation, new investors will not be able to claim income tax relief for investments into new shares issued by VCTs after 5 April 2025. Climate change presents environmental, geopolitical, regulatory and economic risks. In the long term, some companies may have restrictions imposed on their operational model that reduce revenues and profit margins and increases their cost of capital. Instability or changes arising from these risks could have an impact on stock markets and the value of the Company’s investments so reducing returns to shareholders. A failure to renew or replace the relevant sections of the Finance (No 2) Act 2015 with similar or equivalent legislation would make it more difficult for the Company to attract new capital whilst continuing to operate under its current investment policy. Companies may face restrictions on emissions, water consumption and increased risk of environmental hazards. Regular dialogue with the manager provides the Board with assurance that the Investment Manager is following the investment No change. The Bank of England increased base rates by 300bps to 5.25% during the financial year, significantly increasing the cost of debt for companies and and households with floating rate debt. Companies and households with savings benefitted. The full impact of this is yet to be felt. In the Autumn Statement 2023, the Government confirmed its intention to extend the sunset clause by 10 years to 5 April 2035. Legislation is expected to be introduced through the next Finance Bill and passed into law in early 2024. The wars in Ukraine and the Middle East present a range of risks that may have profound economic and social consequences if they impact access to certain commodities or much higher prices.
policy agreed by the Board and appraises the Board of the portfolio’s current positioning in the light of prevailing market
conditions. The Company’s investment portfolio is well diversified and the Company has no gearing. The Board regularly reviews
investment test forecasts and liquidity analysis, including under stress scenarios, to monitor current and anticipate future
performance against HMRC legislation and to ensure the Company has, and will continue to have, access to sufficient liquidity
and distributable reserves to maintain compliance with its key policies. The Board keeps abreast of current thinking through
contact with industry associations and its advisors. The Investment Manager undertakes a review of ESG factors as part of the
investment process. Climate change, or the need to limit its impact, will result in technological innovation as young companies
seek to develop solutions and create opportunities for value creation for existing or new Qualifying Companies.
Additional risks and further details of the above risks and how they are
managed are explained in note 15 of the financial statements. Trends
affecting future developments are discussed in the Chair’s statement and the
Investment Manager’s report.
Long term viability statement
—In accordance with provision 36 of the AIC Code of Corporate Governance,
the Directors have carried out a robust assessment of the Company’s current
position and its emerging and principal risks. This assessment has been
carried out over a longer period than the 12 months required by the ‘Going
Concern’ provision. The Board conducted this review for a period of five
years, which was selected because it:
• is consistent with investors’ minimum holding period to retain
the 30% income tax relief;
• exceeds the time allowed to deploy funds raised under the current
offer in accordance with VCT legislation; and
• is challenging to forecast beyond five years with sufficient
accuracy to provide actionable insight.
The Board considers the viability of the Company as part of its continuing
programme of monitoring risk. The Company has a detailed risk control
framework, documented procedures and forecasting model in place to reduce the
likelihood and impact of risk taking that exceeds the levels agreed by the
Board. These controls are reviewed by the Board and Investment Manager on a
regular basis.
The Board has considered the Company’s financial position and its ability to
meet its liabilities as they fall due over the next five years. Forecasts and
stress tests have been used to support their assessment and the following
factors have been considered in relation to the Company’s future viability:
• the Company maintains a highly diversified portfolio of
Qualifying Investments;
• the Company is well invested against the HMRC investment test
(91.65% at 30 September 2023) and the Board believes the Investment Manager
will continue to have access to sufficient numbers of investment opportunities
to maintain compliance with the HMRC investment test;
• the Company held £19.2 million in cash at the year end;
• the Company has distributable reserves of £134.4 million at
30 September 2023, equivalent to 41 pence per share;
• the Company has a portfolio of Non-Qualifying Investments, most
of which are listed in the FTSE 350 and offer good levels of liquidity should
the need arise;
• the financial position of the Company at 30 September 2023 was
strong with no debt or gearing;
• the offer for subscription launched on 7 September 2023 has
provided further liquidity for deployment in line with the Company’s
policies and to meet future expenses;
• the ongoing charges ratio of the Company at the year end was
2.24%;
• the Company has procedures and forecast models in place to
identify, monitor and control risk, portfolio liquidity and other factors
relevant to the Company’s status as a VCT; and
• the Investment Manager and the Company’s other key service
providers have contingency plans in place to manage operational disruptions.
In assessing the Company’s future viability, the Board has assumed that
investors will wish to continue to have exposure to the Company’s
activities, that performance will be satisfactory and the Company will
continue to have access to sufficient capital.
Based on this assessment, the Directors have a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they
fall due over the next five years.
Other matters
Dividend policy
The Company’s dividend policy is to target a tax free dividend yield
equivalent to 5% of the year end NAV per share. The ability to pay dividends
is dependent on the Company’s available distributable reserves and cash
resources, the Act, the Listing Rules and the VCT Rules. The policy is
non-binding and at the discretion of the Board. Dividend payments may vary
from year to year in both quantum and timing. The level of dividend paid each
year will depend on the performance of the Company’s portfolio. In years
where there is strong investment performance, the Directors may consider a
higher dividend payment, including the payment of special dividends. In years
where investment performance is not as strong, the Directors may reduce or
even pay no dividend.
Discount control policy and management of share liquidity
The Company aims to improve liquidity and to maintain a discount of
approximately 5 per cent. to the last published NAV per share (as measured
against the mid-price) by making secondary market purchases of its shares in
accordance with parameters set by the Board.
This policy is non-binding and at the discretion of the Board. Its operation
depends on a range of factors including the Company’s liquidity, shareholder
permissions, market conditions and compliance with all laws and regulations.
These factors may restrict the effective operation of the policy and prevent
the Company from achieving its objectives.
Diversity
The Board comprises three male non-executive directors and three female
non-executive directors with a diverse range of experience, skills, length of
service and backgrounds. The Board considers diversity when reviewing Board
composition and has made a commitment to consider diversity when making future
appointments. The Board will always appoint the best person for the job. It
will not discriminate on the grounds of gender, race, ethnicity, religion,
sexual orientation, age or physical ability.
Environmental Social and Governance (ESG) and Considerations
The Board seeks to maintain high standards of conduct with respect to
environmental, social and governance issues and to conduct the Company’s
affairs responsibly.
The Company does not have any employees or offices and so the Board does not
maintain any specific policies regarding employee, human rights, social and
community issues but does expect the Investment Manager to consider them when
fulfilling their role. As the Company used less than 40MWh of energy during
the period it is exempt from the Streamlined Energy and Carbon Reporting
requirements.
The Company, whilst exempt, continues to monitor and develop its approach to
the recommendations of the Task Force on Climate related Financial
Disclosures.
The management of the Company’s investment portfolio has been delegated to
its Investment Manager Canaccord Genuity Asset Management Ltd. The Company
has adopted specific policies on divestment and excluded activities and it
expects the Investment Manager to take account of ESG considerations in its
investment process for the selection and ongoing monitoring of underlying
investments. The Board has also given the Investment Manager discretion to
exercise voting rights on resolutions proposed by investee companies.
The Investment Manager continues to strengthen its approach to ESG issues.
To minimise the direct impact of its activities the Company offers electronic
communications where acceptable to reduce the volume of paper it uses and uses
Carbon Balanced paper manufactured at a FSC accredited mill to print its
financial reports. Vegetable based inks are used in the printing process where
appropriate.
Prospects
The prospects and future development of the Company are discussed in detail in
the outlook section of the Chair’s statement.
The strategic report is approved, by order of the Board of Directors.
David Brock
Chair
18 December 2023
Summary of VCT regulations
To maintain its status as a VCT, the Company must be approved by HMRC and
comply with a number of conditions. A summary of the most important conditions
are detailed below:
VCTs’ obligations
VCTs must:
• have 80 per cent. (by VCT tax value) of all funds raised from
the issue of shares invested in Qualifying Investments throughout accounting
periods of the VCT beginning no later than three years after the date on which
those shares are issued;
• have at least 70 per cent. by VCT tax value of Qualifying
Investments in Eligible Shares which carry no preferential rights (unless
permitted under VCT Rules);
• have at least 30 per cent. of all new funds raised by the
Company invested in Qualifying Investments within 12 months of the end of the
accounting period in which the Company issued the shares;
• have no more than 15 per cent. by VCT tax value of its
investments in a single company (as valued in accordance with the VCT
Rules at the date of investment);
• derive most of its income from shares and securities, and, must
not retain more than 15 per cent. of its income derived from shares and
securities in any accounting period; and
• have their shares listed on the main market of the London Stock
Exchange or a European regulated Stock Exchange.
VCTs must not:
• make a Qualifying Investment in any company that:
○ has (as a result of the investment or otherwise) received more
than £5 million from State aid investment sources in the 12 months prior to
the investment (£10 million for Knowledge Intensive Companies);
○ has (as a result of the investment or otherwise) received more
than £12 million from State aid investment sources in its lifetime (or
£20 million for Knowledge Intensive Companies);
○ in general has been generating commercial revenues for more than
7 years (or 10 years for Knowledge Intensive Companies); or
○ will use the investment to fund an acquisition of another company
(or its trade and assets).
• make any investment which is not a Qualifying Investment unless
permitted by section 274 ITA; and/or
• return capital to shareholders before the third anniversary of
the end of the accounting period during which the subscription for shares
occurs.
Qualifying Investments
A Qualifying Investment consists of new shares or securities issued directly
to the VCT by a Qualifying Company that at the point of investment:
• has gross assets not exceeding £15 million prior to investment
and £16 million post investment;
• carries out activities which are regarded as a Qualifying Trade;
• is a private company or is listed on AIM or the AQSE Growth
Market;
• has a permanent UK establishment;
• is not controlled by another company;
• will deploy the money raised for the purposes of the organic
growth and development of a Qualifying Trade within 2 years;
• has fewer than 250 employees (or fewer than 500 employees in the
case of certain Knowledge Intensive Companies);
• in general, has not been generating commercial sales for more
than 7 years (ten years for Knowledge Intensive Companies);
• has not received more than the permitted annual and lifetime
limits of risk finance State aid investment; and
• has not been set up for the purpose of accessing tax reliefs or
is in substance a financing business.
The Finance Act 2018 introduced a principles-based approach known as the risk
to capital condition to establish whether the activities or investments of an
investee company can qualify for VCT tax reliefs. This condition has two
parts:
• whether the investee company has an objective to grow and develop
over the long term; and
• whether there is a significant risk that there could be a loss of
capital to the investor of an amount exceeding the net return.
Investment Manager’s report
Introduction
This report covers the 2022/23 financial year, 1 October 2022 to
30 September 2023. The Investment Manager’s report contains references to
movements in the NAV per share and NAV total return per share. Movements in
the NAV per share do not necessarily mirror the earnings per share reported in
the accounts and elsewhere, which convey the profit after tax of the Company
within the reported period as a function of the weighted average number of
shares in issue for the period.
Investment performance measures contained in this report are calculated on
a pence per share basis and include realised and unrealised gains and losses.
Investment report
Starting from a very low base, investor sentiment showed tentative signs of
recovery as investors became more confident that inflation was close to
peaking and, with it, the interest rate tightening cycle that had done so much
damage to risk assets in 2022. The failure in March 2023 of Silicon Valley
Bank, several US regional banks and Credit Suisse challenged the developing
thesis and the markets swiftly moved to price in a series of rate cuts by the
Federal Reserve throughout the second half of the year. A series of subsequent
data points highlighted a substantially more robust US economy which would
require US interest rates to remain higher for longer. This dynamic had
implications for risk assets globally.
The UK economy has experienced something similar, proving to be substantially
stronger this year than most predicted. Inflation has remained disappointingly
high, forcing the Bank of England (“BoE”) into a more hawkish position
with many homeowners protected by fixed rate mortgages and now benefitting
from higher interest payments on their savings. UK inflation (“CPI”)
peaked at 11.1% in October 2022 but has since steadily declined, reaching
6.7% in September.
UK consumer confidence remains low, albeit substantially better than at the
start of the financial year. The September reading did, however, suggest that
higher interest rates might finally start to take their toll. There are other
signs too that tighter monetary policy is starting to impact with retail sales
weakening and unemployment starting to trend higher, whilst remaining low by
historical standards.
With the Bank of England raising interest rates seven times within the year to
5.25%, the focus has shifted to the outlook for rate cuts. Currently, the
market is forecasting that the BoE remains on hold until mid‑2024. This is
substantially better than the forecast at the start of the financial year, but
also much higher than predicted in the Spring following the failure of SVB.
These huge swings in the outlook have been mirrored in the US and, to a lesser
extent, in Europe making it difficult for a range of asset classes from
equities to bonds and foreign exchange.
Sadly, these factors continue to depress appetite for investment into
high-risk growth equity. AIM continues to endure a particularly difficult
period, having now fallen by 41.6% in the two years to 30 September 2023. By
any measure, this is a long and uncomfortable bear market. Although trading
varies quite significantly by sector, price action is heavily influenced by
technical factors with many UK institutional shareholders still having to
manage sustained outflows. This dynamic is not unique to AIM. Small companies
are struggling in other territories too, with the Russell 2000 (US small
companies) and MSCI Europe Small Cap Index both posting positive returns over
the period under review whilst remaining negative over two years.
The risk averse environment and constant need for liquidity has again led to a
material underperformance by AIM (-9.95%) over the year relative to other
domestic indices such as the FTSE 100 (+10.36%) and FTSE 250 (+6.47%).
Performance
In the 12 months to 30 September 2023, the audited NAV per share decreased
from 60.19 pence to 46.34 pence, a NAV total return to investors of
-8.85 pence per share after adding back the 5.00 pence of dividends paid in
the year and which translates to a loss of -14.70%.
The qualifying investments made a net loss of -7.99 pence per share whilst
the non-qualifying investments loss was –0.32 pence per share. The
-0.54 pence adjusting balance was the net of the investment in Marlborough
Special Situations Fund, running costs and investment income.
Corporate news flow was mixed across the year. After a difficult winter, when
many companies faced weaker trading or pressure on margins, primarily due to
macro-economic factors, many companies reported trading improved through the
spring and summer. September included an unusually high number of poor
updates, although our analysis suggests this was mostly due to company
specific factors rather than a weakening economy or tightening of financial
conditions. We report below on those companies that were the most significant
contributors to performance. In particular, we note that three of the most
significant detractors (Zoo Digital, Maxcyte and Tortilla Mexican Grill) are
companies that have previously delivered strong contributions to the NAV; we
are hopeful that their share prices can recover with time.
Equipmake (+44.0%, +0.75 pence per share) reported that revenues in the
12 months to May 2023 grew by 34% to £5.1m. The company also announced two
contracts to convert diesel buses into battery powered buses and a £3.2m
grant to develop its electric powertrain technology for the off-highway sector
in partnership with Caterpillar. The company is forecast to increase revenues
by 163% to £13.4m in the current year. Profits are not expected until 2026.
The company is expected to close the current year with £2.0m of net cash.
Following an activist campaign launched by founder Jonathan Milner, Abcam
(+38.0%, +0.25 pence per share) launched a strategic review that resulted in
a $24 per share takeover offer from Danaher. The exit price represents an
increase of 7,086% (71x) over the book cost of the investment.
Following a two-year legal process, PCI-PAL (+21.7%, +0.21 pence per share)
received a favourable ruling from the UK High Court, comprehensively defeating
the patent infringement claims from competitor Sycurio. Whilst this is a clear
positive and a strong endorsement of the company’s IP position, the ruling
may yet be subject to appeal. Sycurio filed similar claims in the US courts,
which may be heard in 2024. The company continues to trade well with 2024
revenue growth subject to some modest revision to £19.1m
(previously: £20.0m), equivalent to +28% YOY. The company is expected to
report a maiden profit within the current financial year and close the year
with net cash of £0.3m.
XP factory (+37.5%, +0.17 pence per share) reported strong growth in both
H1’23 revenues (£18.6m, +130% YoY) and adjusted EBITDA (£2.4m, +120%). The
company continues to roll out its escape room and competitive socialising
concepts across the UK. Although trading within the current year remains
strong, the company has moderated the new openings planned in FY25 and beyond.
The company has a good balance sheet with net cash of £3.6m (30 June 2023).
Diaceutics (+28.8%, +0.15 pence per share) reported H1’23 revenues of
£9.9m (+32% YoY) and an EBITDA loss of £0.2m. Net cash was £17.9m.
Recurring revenues grew by 66% to £4.6m as more customers signed annual or
multi-year licences for the company’s DXRX platform. The forward order book
of £24.1m provides good cover of the current year forecast. The company also
announced that the founder would move from his current CEO role into a
business development role with the current COO moving into the CEO role.
Long running strikes (screenwriters and actors) in the US have materially
affected the commissioning of new content for distribution through streaming
platforms, leading to a substantial drop off in demand for Zoo Digital’s
(-69.2%, -1.14 pence per share) localisation and media services and several
significant forecast revisions. On current projections, revenues will fall by
50% this year to $45m. Whilst the short-term outlook remains uncertain,
production has resumed with the company expecting to return to growth in early
2024. There are no changes to medium term guidance. The company is well funded
following a $15.5m fundraise in April 2023.
The commercial impact of last year’s dispute with Azerion continues to cast
a long shadow over Bidstack (-90.0%, -0.90 pence per share), highlighting
profound issues with the company’s operational model, leadership and
governance structures. A Dutch court will review Azerion’s decision to
withhold payment. In the meantime, a substantially weaker balance sheet has
left the company exposed.
Following a very successful year in 2022 that included three profit upgrades,
Maxcyte (-55.4%, -0.73 pence per share) has been the victim of a notably
weaker end market following the failure of Silicon Valley Bank. The
significant tightening of financial conditions within the healthcare sector
has caused many clinical and pre-clinical companies to adopt a more cautious
approach to investment, leading the company to substantially revise its
expectations for this year across several updates. Disappointing as this is,
Maxcyte’s long-term prospects remain attractive, underpinned by an expanding
partnership portfolio with potential pre-commercial milestones valued at over
$1.6b and future royalties. The company’s shares have been savagely
de-rated, at one point valuing the company at $264m with year-end net cash
forecast to be approximately $200m. Post period end, the FDA approved Casgevy
for the treatment of severe sickle cell disease, the first time a therapy
developed using Maxcyte’s flow electroporation technology has been approved
by the FDA. The approval will trigger further milestone payments and
significant royalties from 2025.
Initially, the outlook looked promising for Polarean (-76.9%, -0.70 pence per
share) with the company receiving (in December 2022) FDA clearance for
Xenoview, its drug-device combination product that allows MRI scanners to
provide detailed evaluation of lung function. In subsequent updates, the
company reduced its assumptions for revenue growth and increased its guidance
on costs. The company has appointed a new CEO with prior experience in driving
adoption within the medical equipment sector. The company has net cash of
$9.9m but will need additional funding in 2024.
A desire to defend its value proposition at the cost of margins led Tortilla
Mexican Grill (-51.7%, -0.56 pence per share) to issue revised profit
guidance in late 2022 as inflationary pressures (food, labour and energy) ate
into margins. Subsequent updates have remained consistent with the revised
forecasts with the company reporting revenue growth of 22% in the 6 months to
June 2023. The company continues to use its strong balance sheet to expand
its UK footprint with 8 new sites to be opened in 2023. The medium-term
opportunity remains compelling.
We entered the year expecting to see an increase in the number of companies
undertaking an initial public offering in the second half of the financial
year. This has not come to pass with the low valuations and the continued flow
of capital out of open-ended funds increasing the risk of a poor outcome and
acting as a deterrent to new entrants. Investor confidence and appetite for
risk was depressed by a broad range of factors (higher interest rates, US
regional banking crisis, war in the Middle East) and will need to improve
before the market becomes more attractive to new listings.
We invested £13.6m through 12 Qualifying Investments into 10 Qualifying
Companies that included 2 IPOs, 2 new investments into companies listed on
AIM, 6 follow on investments into existing AIM portfolio companies and 2
further investments into Kidly. The most significant new investments included
Engage XR, Fadel and Itaconix. We reduced our investments in Bidstack,
Eneraqua, Equipmake, Faron Pharmaceuticals, Smoove and Zoo Digital. We made
complete exits from Diurnal, In The Style and Yourgene.
Portfolio structure
The VCT is comfortably through the HMRC defined investment test and ended the
period at 91.65% invested as measured by the HMRC investment test. By market
value, the VCT had a 58.7% weighting to Qualifying Investments at year-end.
The allocation to non-qualifying equity investments increased from 7.7% to
10.1% within the year. In line with the investment policy, we made investments
in the Marlborough Special Situations Fund as a temporary home for proceeds
from fundraising, increasing the allocation from 2.1% to 5.4%.
The non-qualifying direct equity investments, which are mostly held in
FTSE 350 companies contributed -0.08 pence per share. Within the period, JD
Sports returned +72.4% (+0.17 pence per share), Bytes Technology returned
+18.8% (+0.09 pence per share) and Bodycote returned +40.3% (+0.09 pence per
share). The largest losses from within the non-qualifying portfolio came from
NCC (-63.4%, -0.18 pence per share), Diversified Energy (-37.6%, -0.12 pence
per share) and Harbour Energy (-41.0%, -0.10 pence per share).
We took advantage of the significant increase in fixed income yields to invest
in six short-dated investment grade bonds and a short-dated UK Gilts exchange
trade fund. As a result, the allocation to non-qualifying fixed income
increased from nil to 12.7% whilst the cash weighting fell from 26.1% to
12.7%.
The Company invests across all available investment sectors, although VCT
legislation tends to promote investment into sectors such as technology,
healthcare and consumer discretionary. In respect of the Qualifying investment
portfolio, the weightings to these three sectors changed slightly over the
year as a consequence of additional investment and share price performance,
taking their respective shares to 37.5%, 20.6% and 13.7%. The weighting to the
industrial sector increased from 14.9% to 17.9%.
The HMRC investment tests are set out in Chapter 3 of Part 6 Income Tax
Act 2007, which should be read in conjunction with this investment
manager’s report. Funds raised by VCTs are first included in the investment
tests from the start of the accounting period containing the third anniversary
of the date on which the funds were raised. Therefore, the allocation of
qualifying investments as defined by the legislation can be different to the
portfolio weighting as measured by market value relative to the net assets of
the VCT.
Share Buy Backs & Discount Control
7,183,338 shares were acquired in the year at an average price of 50.63 pence
per share. The share price increased by 0.5% and traded at a discount of 6.78%
following the publication of the 30 September 2023 NAV on 5 October 2023.
Post period end update
The NAV per share has decreased from 46.34 pence to 45.45 pence in the
period to 8 December 2023, a decrease of 1.92%.
As at 15 December 2023, the share price of 42.40 pence represented a
discount of 6.71% to the last published NAV per share.
The start of the new financial year was particularly difficult with global
markets selling off in the face of higher oil prices and further increases in
the cost of capital, most obviously exemplified by the march higher in
US 10-year Treasury Yields. For a variety of reasons, the bond markets turned
in November with yields falling sharply. This was in part a consequence of
comments made by several members of the Federal Open Market Committee that the
market took to be dovish in nature. Both bonds and equities rallied. In the
UK, inflation fell further post period to 4.6% in October. Having fallen 6.4%
in October, the AIM All-share index rebounded by 5.0% in November.
Whilst the war in Israel and Gaza is yet to materially challenge markets, it
only adds to the general sense of unease with investors concerned about the
risks that would follow were it to escalate from a localised conflict into a
regional war.
There is considerable debate about the ‘neutral’ rate for monetary policy,
the level at which interest rates are neither seeking to restrain or stimulate
economic activity. The debate is not as abstract as it might appear, with
important ramifications for the risk-free rate and the cost of capital, both
of which have increased substantially in the year and are factors in assessing
company valuations. When central banks return to the neutral rate, and where
it is set, are therefore important when establishing the path to a recovery in
value. The outlook for the UK economy will impact some companies within the
portfolio, but surprisingly few. As we have said in the past, many portfolio
companies continue to develop new products and services, with success
determined by technical and operational excellence, and access to capital.
Whilst it is disappointing to again report on difficult markets, a weak
economy and negative performance, we remain convinced that the portfolio
contains a broad array of companies with a range of maturities and a shared
ambition to grow revenues and deliver profitable outcomes to their
shareholders. For now, the market is unwilling or unable to appropriately
recognise value. The stasis will not persist forever and valuations will
recover. In the meantime, the portfolio contains substantial amounts of growth
at unreasonably low prices.
We have completed one new qualifying investment post period end. Deal flow on
AIM remains very subdued. We expect this to remain the case through the early
part of 2024, before improving in the second half of the new financial year.
In the meantime, we continue to review large numbers of investment
opportunities in private companies.
For further information please contact:
Oliver Bedford
Lead Fund Manager
18 December 2023
Investment portfolio summary
As at 30 September 2023
Net Assets % at 30.09.23 Cost £000 Cumulative Movement in value £000 Valuation £000 Change in Value for the Year £000 ((1)) Market COI ((2))
Qualifying Investments
Equipmake Holdings plc 5.02 3,662 3,969 7,631 2,501 AIM No
Eagle Eye Solutions Group plc 2.99 1,642 2,903 4,545 (173) AIM Yes
PCI-PAL plc 2.55 2,280 1,596 3,876 692 AIM Yes
Abcam plc 2.02 55 3,007 3,062 843 AIM No
Learning Technologies Group plc 1.90 2,238 649 2,887 (1,834) AIM No
Infinity Reliance Ltd (My 1st Years) ((3)) 1.81 2,500 243 2,743 — Unlisted Yes
Surface Transforms plc 1.76 1,744 929 2,673 (1,188) AIM Yes
Engage XR Holdings plc 1.59 3,453 (1,036) 2,417 (1,036) AIM Yes
Cohort plc 1.54 619 1,718 2,337 152 AIM Yes
Fadel Partners, Inc 1.51 2,300 — 2,300 — AIM No
XP Factory plc 1.40 4,068 (1,939) 2,129 581 AIM Yes
Diaceutics plc 1.38 1,550 550 2,100 469 AIM Yes
Maxcyte Inc 1.23 1,270 605 1,875 (2,325) AIM Yes
C4X Discovery Holdings plc 1.18 2,300 (500) 1,800 (199) AIM No
Aquis Exchange plc 1.18 765 1,024 1,789 398 AIM Yes
Zoo Digital Group plc 1.16 2,159 (399) 1,760 (3,806) AIM Yes
Tortilla Mexican Grill plc 1.15 1,125 625 1,750 (1,875) AIM Yes
Beeks Financial Cloud Group plc 1.09 1,038 623 1,661 (925) AIM Yes
Team Internet Group plc 1.09 588 1,067 1,655 243 AIM Yes
Intelligent Ultrasound Group plc 1.09 1,550 103 1,653 119 AIM No
Itaconix plc 1.09 3,025 (1,376) 1,649 (1,376) AIM No
SCA Investments Ltd (Gousto) 1.02 2,484 (929) 1,555 (1,228) Unlisted Yes
Craneware plc 0.95 125 1,316 1,441 (441) AIM Yes
Zappar Ltd 0.94 1,600 (171) 1,429 — Unlisted No
Instem plc 0.92 297 1,105 1,402 417 AIM Yes
Belvoir Group plc 0.86 762 539 1,301 30 AIM Yes
Arecor Therapeutics plc 0.80 1,687 (471) 1,216 (320) AIM No
Bivictrix Therapeutics Plc 0.78 1,600 (420) 1,180 (420) AIM No
Idox plc 0.75 135 1,007 1,142 (22) AIM Yes
Ilika plc 0.73 1,636 (526) 1,110 (888) AIM No
Equals Group plc 0.72 750 345 1,095 253 AIM Yes
AnimalCare Group plc 0.67 720 298 1,018 (407) AIM Yes
Eden Research plc 0.67 1,355 (339) 1,016 (45) AIM No
Blackbird plc 0.64 606 364 970 (858) AIM No
The Property Franchise Group plc 0.60 377 534 911 (17) AIM Yes
OneMedia iP Group plc 0.59 1,141 (245) 896 (244) AIM Yes
Tristel plc 0.56 543 310 853 252 AIM No
Skillcast Group plc 0.53 1,570 (764) 806 (42) AIM No
EKF Diagnostics Holdings plc 0.53 565 239 804 (390) AIM No
Crimson Tide plc 0.50 1,260 (504) 756 — AIM Yes
Nexteq plc 0.48 1,209 (479) 730 (250) AIM No
Rosslyn Data Technologies plc 0.47 1,345 (629) 716 (299) AIM Yes
Creo Medical Group plc 0.47 2,329 (1,616) 713 (506) AIM Yes
Crossword Cybersecurity plc 0.47 2,039 (1,332) 707 (864) AIM Yes
Polarean Imaging plc 0.45 2,081 (1,391) 690 (2,297) AIM No
Hardide plc 0.42 3,566 (2,928) 638 (232) AIM Yes
Globaldata plc 0.39 173 424 597 40 AIM Yes
Verici DX plc 0.35 1,939 (1,405) 534 (463) AIM No
Eneraqua Technologies plc 0.33 1,401 (895) 506 (702) AIM No
Faron Pharmaceuticals Oy 0.33 1,133 (638) 495 269 AIM No
Tan Delta Systems plc 0.31 504 (39) 465 (39) AIM No
Intercede Group plc 0.30 305 157 462 72 AIM Yes
Velocys plc 0.23 2,220 (1,866) 354 (1,372) AIM No
Strip Tinning Holdings plc 0.22 1,054 (712) 342 28 AIM No
Angle plc 0.22 1,158 (825) 333 (1,182) AIM No
K3 Business Technology Group plc 0.22 270 60 330 (39) AIM Yes
Kidly Ltd 0.21 1,660 (1,334) 326 (793) Unlisted No
Bidstack Group plc 0.21 2,733 (2,419) 314 (2,915) AIM No
Smoove plc 0.20 621 (316) 305 83 AIM No
Science in Sport plc 0.19 1,479 (1,191) 288 (96) AIM No
Everyman Media Group plc 0.14 600 (394) 206 (186) AIM Yes
Trakm8 Holdings plc 0.09 486 (352) 134 (18) AIM No
MYCELX Technologies Corporation 0.09 361 (230) 131 73 AIM Yes
Renalytix AI plc 0.03 82 (43) 39 2 AIM Yes
Fusion Antibodies plc 0.02 624 (588) 36 (280) AIM No
Gfinity plc 0.02 2,026 (1,998) 28 (266) AIM Yes
Osirium Technologies plc 0.01 858 (845) 13 (5) AIM No
Flowgroup plc — 26 (26) — — Unlisted No
Honest Brew Ltd — 2,800 (2,800) — — Unlisted No
Laundrapp Ltd — 2,450 (2,450) — — Unlisted No
Mporium Group plc — 33 (33) — — Unlisted No
Airportr Technologies Ltd ((3)) — 1,888 (1,888) — (529) Unlisted No
Infoserve Group plc ((4)) — — — — — Unlisted No
Total – equity Qualifying Investments 56.36 100,597 (14,972) 85,625 (25,875)
Qualifying fixed income investments
Kidly Ltd (convertible loan notes) 1.58 2,400 — 2,400 — Unlisted No
Osirium Technologies plc (convertible loan notes) 0.53 800 — 800 44 AIM No
Rosslyn Data Technologies plc (convertible loan notes) 0.20 300 — 300 — AIM No
Honest Brew Ltd (loan notes) — 300 (300) — — Unlisted No
Total qualifying fixed income investments 2.31 3,800 (300) 3,500 44
Total Qualifying Investments 58.67 104,397 (15,272) 89,125 (25,831)
Non qualifying investments
Funds
Marlborough Special Situations Fund 5.44 9,717 (1,449) 8,268 (1,125) Unlisted
iShares plc ISHRS UK Gilts 0-5Yr ETF GBP (Dist) 1.30 2,001 (23) 1,978 (24) Main
Total non-qualifying funds 6.74 11,718 (1,472) 10,246 (1,149)
Hollywood Bowl Group plc 0.98 1,566 (81) 1,485 194 Main Yes
Bodycote plc 0.97 1,534 (66) 1,468 296 Main No
Chemring Group plc 0.82 1,362 (113) 1,249 (59) Main Yes
Bytes Technology Group plc 0.75 747 400 1,147 304 Main Yes
WH Smith plc 0.71 1,220 (145) 1,075 63 Main Yes
Ashtead Group plc 0.66 1,116 (116) 1,000 (115) Main Yes
BAE Systems plc 0.65 782 206 988 180 Main No
National Grid plc 0.65 1,041 (61) 980 (61) Main No
TP ICAP Group plc 0.63 1,022 (69) 953 (70) Main Yes
Rotork plc 0.58 944 (69) 875 176 Main Yes
Energean plc 0.53 926 (126) 800 (126) Main No
Diversified Energy Company plc 0.48 1,050 (324) 726 (402) Main Yes
XP Power plc 0.47 743 (35) 708 (35) Main Yes
The Watches of Switzerland Group plc 0.44 1,216 (549) 667 (246) Main Yes
On the Beach Group plc 0.38 1,304 (722) 582 (81) Main No
Wickes Group plc 0.23 585 (242) 343 42 Main No
Tortilla Mexican Grill plc 0.12 161 29 190 (204) Main Yes
MYCELX Technologies Corporation 0.10 298 (146) 152 85 AIM Yes
Genagro Services Ltd — — — — 1 Unlisted Yes
Total – equity non-qualifying investments 10.15 17,617 (2,229) 15,388 (58)
Fixed income – bonds
Royal Bank of Canada 5.000% SNR NTS 24/01/28 1.90 3,045 (161) 2,884 (161) Main No
British Telecommunications plc 5.75% BDS 17/12/28 1.96 3,158 (173) 2,985 (173) Main No
Barclays plc 3.25% NTS 12/02/27 1.78 2,876 (169) 2,707 (169) Main No
NatWest Markets plc 6.375% NTS 08/11/27 1.93 3,051 (122) 2,929 (122) Main No
Next Group plc 4.375% BDS 02/10/26 1.89 2,980 (108) 2,872 (108) Main No
Marks & Spencer plc 3.000% NTS 08/12/23 1.96 2,999 (15) 2,984 (15) Main No
Total non-qualifying fixed income – bonds 11.42 18,109 (748) 17,361 (748)
Total – non-qualifying investments 28.31 47,444 (4,449) 42,995 (1,955)
Total investments 86.98 151,841 (19,721) 132,120 (27,786)
Cash at bank 12.65 19,231
Prepayments & accruals 0.37 569
Net assets 100.00 151,920
(1) The change in fair value has been adjusted for additions and
disposals in the year and as such does not reconcile to the unrealised total
in note 7. The difference is £0.7 million which is the total of 16 full
investment disposals in the year.
(2) COI – Co investments with other funds managed by the Investment
Manager at 30 September 2023.
(3) Different classes of shares held in unlisted companies within the
portfolio have been aggregated.
(4) Impaired fully through the profit and loss account and therefore
shows a zero cost.
The investments listed below are either listed, headquartered or registered
outside the UK:
Listed Headquartered Registered
Listed Investments:
Abcam plc UK/USA UK UK
Bytes Technology Group plc UK/South Africa UK UK
Crimson Tide UK/Republic of Ireland UK UK
Craneware plc UK UK/USA UK
Engage XR plc UK/Ireland Ireland Ireland
Fadel Partners plc UK USA USA
Faron Pharmaceuticals Oy UK/Finland Finland Finland
Itaconix plc UK USA UK
Maxcyte Inc UK/USA USA USA
Mycelx Technologies Corporation plc UK USA USA
Polarean Imaging plc UK USA UK
Renalytix AI plc UK/USA USA UK
Verici DX plc UK UK/USA UK
XP Power Ltd UK Singapore Singapore
Unlisted private companies:
Genagro Ltd ((1)) — UK Jersey
(1) Companies awaiting liquidation.
Top ten investments
As at 30 September 2023 (by market value)
The top 10 investments are shown below. Each investment is valued by reference
to the bid price or, in the case of unquoted companies, the IPEV guidelines
using one or more valuation techniques according to the nature, facts and
circumstances of the investment. Forecasts, where given, are drawn from a
combination of broker research and/or Bloomberg consensus forecasts and
exclude amortisation, share based payments and exceptional items. Forecasts
are in relation to a period end for which the company results are yet to be
released. Published accounts are used for private companies or public
companies with no published broker forecasts. The net asset figures and net
cash values are from published accounts in most cases.
Equipmake Holdings plc Share Price: 9.0p
Investment date July 2022 Forecasts for the year to May 2024
Equity held 8.94% Turnover (£’000) 13,400
Av. Purchase Price 4.3p (Loss) before tax (£’000) (5,300)
Cost (£’000) 3,662 Net cash May 2023 (£’000) 7,000
Valuation (£’000) 7,631 Net assets May 2023 (£’000) 13,803
Company description
Equipmake is a UK based technology company, which has developed a range of
electrification products for the provision of electric vehicle (EV)
drivetrains to meet the needs of the automotive, aerospace and other sectors
in support of the transition from fossil-fuelled to zero emission powertrains.
Equipmake products can be applied in a variety of other vehicle
electrification contexts, including hybrid, fully electric and fuel cell
vehicles. Equipmake provides individual components to full turnkey systems.
Eagle Eye Solutions Group plc Share Price: 525.0p
Investment date April 2014 Forecasts for the year to June 2024
Equity held 2.96% Turnover (£’000) 50,800
Av. Purchase Price 189.7p Profit before tax (£’000) 4,400
Cost (£’000) 1,642 Net cash June 2023 (£’000) 9,300
Valuation (£’000) 4,545 Net assets June 2023 (£’000) 24,100
Company description
Eagle Eye is a Software-as-a-Service (SaaS) technology company that creates
digital connections enabling personalised, real-time marketing solutions for
large retailers. Through Eagle Eye AIR, the company’s loyalty and promotions
omnichannel SaaS platform, companies connect all aspects of the customer
journey in real time, unlocking the capability to deliver personalisation,
streamline marketing execution and open up new revenue streams through
promotions, loyalty apps, subscriptions and gift services.
PCI PAL plc Share Price: 56.0p
Investment date January 2018 Forecasts for the year to June 2024
Equity held 10.55% Turnover (£’000) 19,100
Av. Purchase Price 32.9p (Loss) before tax (£’000) 1,000
Cost (£’000) 2,280 Net cash June 2023 (£’000) 1,169
Valuation (£’000) 3,876 Net (liabilities) June 2023 (£’000) (4,109)
Company description
PCI PAL plc is a provider of Software-as-a-Service (SaaS) solutions that
allows companies to take payments from their customers securely. Its products
secure payments and data in any business communications environment including
voice, chat, social, email, and contact centre and is integrated to, and
resold by, business communications vendors and payment service providers.
Abcam plc ((1)) Share Price: $22.63 USD
Investment date October 2005 Forecast for the year to December 2023
Equity held 0.07% Turnover (£’000) 438,800
Av. Purchase Price 33.4p Profit before tax (£’000) 118,600
Cost (£’000) 55 Net (debt) December 2022 (£’000) (30,600)
Valuation (£’000) 3,062 Net assets December 2022 (£’000) 726,900
Company description
Abcam is a global life science company listed on the Nasdaq stock exchange
after delisting from AIM. Abcam produces and distributes research-grade
antibodies and biological tools to the life sciences sector. The Company’s
customers include universities, research institutes and pharmaceutical and
biotechnology companies in countries around the world.
(1) Abcam was acquired by Danaher Inc. post period-end for $24.00 a
share with £3.14m received by the Company on 6 December 2023.
Learning Technologies Group plc Share price: 64.15p
Investment date July 2015 Forecast for the year to December 2023
Equity held 0.57% Turnover (£’000) 560,200
Av. Purchase Price 49.7p Profit/(loss) before tax (£’000) 83,000
Cost (£’000) 2,238 Net (debt) June 2023 (£’000) (108,377)
Valuation (£’000) 2,887 Net assets June 2023 (£’000) 419,647
Company description
Learning Technologies Group provides workplace digital learning and talent
management software and services to corporate and government clients. The
group offers end-to-end learning and talent solutions ranging from strategic
consultancy, through a range of content and platform solutions to analytical
insights that enable corporate and government clients to meet their
performance objectives.
Infinity Reliance Ltd (My 1st Years) Unquoted
Investment date May 2018 Results for the year to December 2022
Voting rights held 8.97% Turnover (£’000) 18,751
Av. Purchase Price 4670.4p Profit before tax (£’000) 1,091
Cost (£’000) 2,500 Net cash December 2022 (£’000) 2,818
Valuation (£’000) 2,743 Net assets December 2022 (£’000) 6,235
Income recognised in period (£) 0
Company description
My 1st Years is a UK retail platform that focusses on the sale of personalised
baby and children’s gifts through e-commerce channels. The product range
includes bespoke presents for new born babies to seven year olds, for
christenings, birthdays and Christmas.
Kidly Ltd ((1)) Unquoted
Investment date March 2020 Results for the year to March 2022
Voting rights held 9.45% Turnover (£’000) ((2)) —
Av. Purchase Price 165.6p Profit/(loss) before tax (£’000) ((2)) —
Cost (£’000) 4,060 Net cash March 2022 (£’000) 358
Valuation (£’000) 2,726 Net assets March 2022 (£’000) (1,490)
Income recognised in period (£) 223,562
Company description
Kidly is an online retail platform that curates a range of the world’s best
brands for children that sit alongside its own Kidly Label brand catering to
children between the ages of 0-5 years.
(1) Includes equity investment of £0.3m and convertible loan
note investments of £2.4m.
(2) Not available, data taken from abbreviated accounts.
Surface Transforms plc Share price: 27.0p
Investment date March 2016 Forecast for the year to December 2023
Equity held 4.85% Turnover (£’000) 8,600
Av. Purchase Price 17.6p (Loss) before tax (£’000) (8,500)
Cost (£’000) 1,744 Net cash June 2023 (£’000) 3,512
Valuation (£’000) 2,673 Net assets June 2023 (£’000) 28,990
Company description
Surface Transforms develops and produces carbon-ceramic brake discs serving
customers that include major OEMs in the global automotive markets. Surface
Transforms interweaves continuous carbon fibre to form a 3D multi-directional
matrix, producing a stronger, lighter and more durable product with 3x the
heat conductivity compared to standard production components.
Engage XR Holdings plc Share price: 2.80p
Investment date March 2023 Forecast for the year to December 2023
Equity held 29.72% Turnover (€’000) 5,400
Av. Purchase Price 4.0p (Loss) before tax (€’000) (4,500)
Cost (£’000) 3,453 Net cash December 2022 (€’000) 9,447
Valuation (£’000) 2,417 Net assets December 2022 (€’000) 10,340
Company description
Engage XR is virtual reality (’VR’) technology company with a proprietary
cloud-based professional metaverse platform used to deliver immersive
corporate communications, remote collaborations and events, training and
education. The company has a strong reputation for data security and
reliability, with a diverse customer base of 190 clients including several
blue-chip companies such as Meta, HP, HTC, KIA and BMW.
Cohort plc Share price: 492.0p
Investment date February 2006 Forecast for the year to April 2024
Equity held 1.15% Turnover (£’000) 187,400
Av. Purchase Price 130.2p Profit before tax (£’000) 19,200
Cost (£’000) 619 Net cash April 2023 (£’000) 15,608
Valuation (£’000) 2,337 Net assets April 2023 (£’000) 99,778
Company description
Cohort is the parent company of six businesses based in the UK, Germany and
Portugal, providing a wide range of services and products for domestic and
export customers in defence and related markets. The group is split into two
divisions: Communications and Intelligence, and Sensors and Effectors.
For further information please contact:
Oliver Bedford
Lead Fund Manager
Canaccord Genuity Asset Management Limited
88 Wood Street
London
EC2V 7QR
0207 523 4837
aimvct@canaccord.com
Statement of directors’ responsibilities in respect of the financial
statements
The Directors are responsible for preparing the annual report and the
financial statements in accordance with applicable law and regulations. They
are also responsible for ensuring that the annual report includes information
required by the Listing Rules of the Financial Conduct Authority.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors are required to prepare the
financial statements and have elected to prepare the company financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice (UK GAAP) (United Kingdom Accounting Standards and applicable law).
Under company law, the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss for the Company for that
period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are reasonable and
prudent;
• state whether they have been prepared in accordance with
UK GAAP, subject to any material departures disclosed and explained in the
financial statements;
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will continue in
business; and
• prepare a directors’ report, a strategic report and
directors’ remuneration report which comply with the requirements of the
Companies Act 2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company’s transactions, and disclose with
reasonable accuracy at any time the financial position of the Company, and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for ensuring that the annual report and
accounts, taken as a whole, are fair, balanced and understandable, and provide
the information necessary for shareholders to assess the Company’s position
and performance, business model and strategy.
Website publication
The Directors are responsible for ensuring the annual report and the financial
statements are made available on a website. The Company’s website address is
https://www.hargreaveaimvcts.co.uk. Financial statements are published on the
Company’s website in accordance with legislation in the United Kingdom
governing the preparation and dissemination of financial statements, which may
vary from legislation in other jurisdictions. The maintenance and integrity of
the Company’s website is the responsibility of the Directors. The
Directors’ responsibility also extends to the ongoing integrity of the
financial statements contained therein.
Directors’ responsibility statement pursuant to DTR4
David Brock (Chair), Oliver Bedford, Angela Henderson, Justin Ward, Megan
McCracken and Busola Sodeinde, the Directors confirm to the best of their
knowledge that:
• the financial statements have been prepared in accordance with
UK GAAP and give a true and fair view of the assets, liabilities, financial
position and profit and loss of the Company; and
• the annual report includes a fair review of the development and
performance of the business and the financial position of the Company,
together with a description of the principal risks and uncertainties that it
faces.
Disclosure of information to the Auditor
The Directors confirm that:
• so far as each Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
• the Directors have taken all the steps that they ought to have
taken as Directors in order to make themselves aware of any relevant audit
information and to establish that the Company’s auditor is aware of that
information.
For and on behalf of the Board
David Brock
Chair
18 December 2023
Income statement
Year to 30 September 2023 Year to 30 September 2022
Note Revenue £000 Capital £000 Total £000 Revenue £000 Capital £000 Total £000
Net loss on investments held at fair value through profit or loss 7 — (28,455) (28,455) — (85,203) (85,203)
Income 2 2,616 — 2,616 975 13 988
2,616 (28,455) (25,839) 975 (85,190) (84,215)
Management fee 3 (699) (2,098) (2,797) (835) (2,505) (3,340)
Other expenses 4 (1,052) (39) (1,091) (1,093) (22) (1,115)
(1,751) (2,137) (3,888) (1,928) (2,527) (4,455)
Profit/(loss) on ordinary activities before taxation 865 (30,592) (29,727) (953) (87,717) (88,670)
Taxation 5 — — — — — —
Profit/(loss) after taxation 865 (30,592) (29,727) (953) (87,717) (88,670)
Basic and diluted earnings/(loss) per share 6 0.27p (9.59)p (9.32)p (0.36)p (33.06)p (33.42)p
The total column of these statements is the income statement of the Company.
All revenue and capital items in the above statements derive from continuing
operations. There was no other comprehensive income other than the loss for
the year.
The accompanying notes are an integral part of these financial statements.
Balance sheet
As at 30 September 2023
Company Registration Number 5206425 (In England and Wales)
Note 2023 £000 2022 £000
Fixed assets
Investments at fair value through profit or loss 7 132,120 119,188
Current assets
Debtors 9 1,475 408
Cash and cash equivalents 19,231 41,911
20,706 42,319
Creditors: amounts falling due within one year 10 (906) (1,000)
Net current assets 19,800 41,319
Total assets less current liabilities 151,920 160,507
Capital and Reserves
Called up share capital 11 3,278 2,666
Share premium 286 93,660
Capital redemption reserve 272 201
Capital reserve – unrealised 13,640 23,935
Special reserve 177,762 63,931
Capital reserve – realised (41,071) (20,774)
Revenue reserve (2,247) (3,112)
Total shareholders’ funds 151,920 160,507
Net asset value per share (basic and diluted) 12 46.34p 60.19p
The accompanying notes are an integral part of these financial statements.
These financial statements were approved and authorised for issue by the Board
of Directors on 18 December 2023 and signed on its behalf by
David Brock
Chair
18 December 2023
Statement of changes in equity
For the year ending 30 September 2023
Non-distributable reserves Distributable reserves ((1))
Note Share Capital £000 Share Premium £000 Capital Redemption Reserve £000 Capital Reserve Unrealised £000 Special Reserve £000 Capital Reserve Realised £000 Revenue Reserve £000 Total £000
At 1 October 2022 2,666 93,660 201 23,935 63,931 (20,774) (3,112) 160,507
Profit and total comprehensive income for the year
Realised (losses) on investments 7 — — — — — (8,245) — (8,245)
Unrealised (losses) on investments 7 — — — (20,210) — — — (20,210)
Management fee charged to capital 3 — — — — — (2,098) — (2,098)
Income allocated to capital 2 — — — — — — — —
Due diligence investments costs 4 — — — — — (39) — (39)
Revenue profit after taxation for the year — — — — — — 865 865
Total (loss) after taxation for the year — — — (20,210) — (10,382) 865 (29,727)
Contributions by and distributions to owners
Subscription share issues 11 659 39,277 — — — — — 39,936
Issue costs 11 — (742) — — — — — (742)
Share buybacks 11 (71) — 71 — (3,637) — — (3,637)
DRIS share issues 11 24 1,276 — — — — — 1,300
Equity dividends paid 16 — — — — (15,717) — — (15,717)
Total contributions by and distributions to owners 612 39,811 71 — (19,354) — — 21,140
Other movements
Capital reduction 11 — (133,185) — — 133,185 — — —
Diminution in value — — — 9,915 — (9,915) — —
Total other movements
At 30 September 2023 3,278 286 272 13,640 177,762 (41,071) (2,247) 151,920
Reserves available for distribution are capital reserve realised, special
reserve and revenue reserve. Total distributable reserves at 30 September
2023 were £134.4 million, following the capital reduction of £133.2m
(2022: £40 million). The accompanying notes are an integral part of these
financial statements.
(1) The Income Taxes Act 2007 restricts distribution of capital from
reserves created by the conversion of the share premium account into a special
(distributable) reserve until the third anniversary of the share allotment
that led to the creation of that part of the share premium account. As at
30 September 2023, £108.9 million of the special reserve is subject to this
restriction.
Statement of changes in equity
For the year ending 30 September 2022
Non-distributable reserves Distributable reserves ((1))
Note Share Capital £000 Share Premium £000 Capital Redemption Reserve £000 Capital Reserve Unrealised £000 Special Reserve £000 Capital Reserve Realised £000 Revenue Reserve £000 Total £000
At 1 October 2021 2,280 53,802 158 102,311 84,004 (11,433) (2,159) 228,963
Profit and total comprehensive income for the year
Realised gains on investments 7 — — — — — 2,056 — 2,056
Unrealised (losses) on investments 7 — — — (87,259) — — — (87,259)
Management fee charged to capital 3 — — — — — (2,505) — (2,505)
Income allocated to capital 2 — — — — — 13 — 13
Due diligence investments costs 4 — — — — — (22) — (22)
Revenue (loss) after taxation for the year — — — — — — (953) (953)
Total (loss) after taxation for the year (87,259) (458) (953) (88,670)
Contributions by and distributions to owners
Subscription share issues 11 416 39,579 — — — — — 39,995
Issue costs 11 — (746) — — — — — (746)
Share buybacks 11 (43) — 43 — (3,243) — — (3,243)
DRIS share issues 11 13 1,025 — — — — — 1,038
Equity dividends paid 16 — — — — (16,830) — — (16,830)
Total contributions by and distributions to owners 386 39,858 43 — (20,073) — — 20,214
Other movements
Diminution in value — — — 8,883 — (8,883) — —
Total other movements — — — 8,883 — (8,883) — —
At 30 September 2022 2,666 93,660 201 23,935 63,931 (20,774) (3,112) 160,507
Reserves available for distribution are capital reserve realised, special
reserve and revenue reserve. Total distributable reserves at 30 September
2022 were £40 million (2021: £70.4 million). The accompanying notes are
an integral part of these financial statements.
(1) The Income Taxes Act 2007 restricts distribution of capital from
reserves created by the conversion of the share premium account into a special
(distributable) reserve until the third anniversary of the share allotment
that led to the creation of that part of the share premium account. As at
30 September 2023, none of the special reserve is subject to this
restriction.
Statement of cash flows
Note 2023 £000 2022 £000
Total (loss) on ordinary activities before taxation (29,727) (88,670)
Realised losses/(gains) on investments 7 8,245 (2,056)
Unrealised losses on investments 7 20,210 87,259
(Increase) in debtors (1,067) (78)
(Decrease) in creditors (94) (183)
Amortisation for discount/premium on bonds (24) —
Non-cash distributions 2 — (126)
Net cash (outflow) from operating activities ((1)) (2,457) (3,854)
Purchase of investments 7 (57,699) (29,460)
Sale of investments 7 16,336 27,995
Net cash (used in) investing activities (41,363) (1,465)
Share buybacks 11 (3,637) (3,243)
Issue of share capital 11 39,936 39,995
Issue costs 11 (742) (746)
Dividends paid 16 (14,417) (15,792)
Net cash provided by financing activities 21,140 20,214
Net (decrease)/increase in cash and cash equivalents (22,680) 14,895
Opening cash and cash equivalents 41,911 27,016
Closing cash and cash equivalents 19,231 41,911
(1) The Company received dividends of £1,178,059 (2022: £715,253)
and interest of £599,735 (2022: £47,143).
The accompanying notes are an integral part of these financial statements.
Notes to the financial statements
Hargreave Hale AIM VCT plc is a company incorporated in England and Wales
under the Companies Act. The address of the registered office is given in the
company information section and the nature and principal business activities
are set out in the Strategic Report.
Basis of preparation
The financial statements have been prepared in accordance with UK Generally
Accepted Accounting Practice (UK GAAP), including Financial Reporting
Standard 102 (FRS 102) and with the Companies Act 2006 and the
Statement of Recommended Practice for “Financial Statements of Investment
Trust Companies and Venture Capital Trusts” July 2022 (SORP).
Going Concern
The financial statements have been prepared on a going concern basis and on
the basis that the company maintains its VCT status.
The Directors have assessed the Company’s ability to continue as a going
concern and are satisfied that the Company has adequate resources to continue
in operational existence for a period of 12 months from the date these
financial statements were approved.
The Company has sufficient cash (£19.2 million at 30 September 2023)
and liquid assets held across a diversified portfolio of investments in listed
companies to meet obligations as they fall due. The Company is a close-ended
fund, where assets are not required to be liquidated to meet day-to-day
redemptions. The major driver of cash outflows (dividends, buybacks and
investments) are managed in accordance with the Company’s key policies
at the discretion of the Board or, in the case of the Company’s investments,
the Investment Manager.
The Board has reviewed forecasts and stress tests to assist them with their
going concern assessment. These tests have included the modelling of a 15%
reduction in NAV, whilst also considering ongoing compliance with the VCT
investment test. It was concluded that in a plausible downside scenario the
Company would continue to meet its liabilities.
The Directors have carefully considered the principal risk factors facing the
Company and their potential impact on income into the portfolio and the NAV.
The Directors are of the opinion that the Company has sufficient cash and
other liquid assets to continue to operate as a going concern, including under
a stress scenario.
The Investment Manager has a team of four dedicated fund managers and analysts
with multi-year experience working for the VCT. Abbe Martineau joined the CGAM
VCT fund management team on 17 April 2023. The Investment Manager and the
Company’s other key service providers have contingency plans in place to
manage operational disruptions.
The Directors have not identified any material uncertainties related to events
or conditions that may cast significant doubt about the ability of the Company
to continue as a going concern. Therefore, they are satisfied that the Company
should continue to operate as a going concern and report its financial
statements on that basis.
Key judgements and estimates
The preparation of the financial statements requires the Board to make
judgements and estimates that affect the application of policies and reported
amounts of assets, liabilities, income and expenses. The nature of estimation
means that the actual outcomes could differ from those estimates. Key
judgements and estimates mainly relate to determination of the fair valuation
of unquoted investments. The policies for these are set out in the notes to
the financial statements.
The assessment of fair value will reflect the market conditions at the
measurement date irrespective of which valuation technique is used. The IPEV
guidelines describe a range of valuation techniques, as described in the
“financial instruments” section.
Further areas requiring judgement and estimation are recognising and
classifying unusual or special dividends as either capital or revenue in
nature. The estimates and underlying assumptions are under continuous review
with particular attention paid to the carrying value of the investments.
1. Accounting policies
A summary of the principal accounting policies, all of which have been applied
consistently throughout the year, is set out below:
Financial instruments
All investments are classified as fair value through profit or loss.
Investments are measured initially and subsequently at fair value which is
deemed to be market bid prices for listed investments and investments traded
on AIM. Unquoted investments are valued using the most appropriate methodology
recommended by the International Private Equity Venture Capital (IPEV)
guidelines published in December 2022.
Where no active market exists for the particular asset, the Company holds the
investment at fair value as determined by the Investment Manager and approved
by the Board. Valuations of unquoted investments are reviewed on a quarterly
basis and more frequently if events occur that could have a material impact on
the investment.
In estimating fair value for an unquoted investment, the Investment Manager
will apply one or more valuation techniques according to the nature, facts and
circumstances of the investment. The Investment Manager will use reasonable
current market data and inputs combined with market participant assumptions.
The assessment of fair value will reflect the market conditions at the
measurement date irrespective of which valuation technique is used. The IPEV
guidelines describe a range of valuation techniques, including but not limited
to relevant observable market multiples, independent arms-length transactions,
income, discounted cash flows and net assets. The fair value of convertible
loan notes is estimated by aggregating the Net Present Value of the bond
component and the derivative value of the option to convert into equity. The
derivative value of the option to convert a particular loan note is the
probable weighted average of the present value of each conversion scenario
described in the loan note instrument as calculated using the Black Scholes
option pricing model.
Investments are recognised and derecognised at trade date where a purchase or
sale is under a contract whose terms require delivery within the time frame
established by the market concerned. Purchases and sales of unlisted
investments are recognised when the contract for acquisition or sale becomes
unconditional. Transaction costs are included in the initial cost or deducted
from the disposal proceeds as appropriate.
These investments will be managed and their performance evaluated on a fair
value basis in accordance with a documented investment strategy and
information about them is provided internally on that basis to the Board.
Gains and losses arising from changes in fair value (realised and
unrealised) are included in the net profit or loss for the period as a
capital item in the income statement and are taken to the unrealised capital
reserve or realised capital reserve as appropriate.
If an investment has been impaired such that there is no realistic expectation
that there will be a full return from the investment, the loss is treated as a
diminution in value and transferred to the capital reserve realised. The
Company conducts impairments reviews on a quarterly basis. In the case of
equity investments, impairment reviews are triggered when unrealised losses
exceed 50% of book cost, or if the loss when realised would lead to a material
reduction in the Company’s distributable reserves. Fixed income investments
are reviewed for impairment if the issuing company’s ability to repay is
uncertain unless there are reasonable grounds to believe that the loan could
be recovered through the sale of the company or its trading assets.
Other financial assets and liabilities comprise receivables, payables and cash
and cash equivalents which are measured at amortised cost. There are no
financial liabilities other than payables.
Cash and cash equivalents
For the purposes of the Balance Sheet, cash comprises cash in hand and demand
deposits. Cash equivalents are short-term, highly liquid investments and money
market funds that are readily convertible to known amounts of cash and which
are subject to insignificant risk of changes in value. For the purposes of the
Statement of Cash Flows, cash and cash equivalents consist of cash and cash
equivalents as defined above, net of outstanding bank overdrafts when
applicable. Cash held at CGWL (see note 15) meets the definition of
cash and cash equivalents as it is to meet short term liquidity requirements
and is available on demand with no restrictions or penalties on withdrawal.
Income
Equity dividends are analysed to consider if they are revenue or capital in
nature on a case by case basis and are taken into account on the ex-dividend
date, net of any associated tax credit. Fixed returns on non-equity shares and
debt securities are recognised on a time apportionment basis so as to reflect
the effective yield, provided there is no reasonable doubt that payment will
be received in due course. All other income is recognised on an accruals
basis. Other income is treated as a repayment of capital or revenue depending
on the facts of each particular case.
Expenditure
All expenditure is accounted for on an accruals basis. Of investment
management fees, 75% are allocated to the capital reserve realised and 25% to
the revenue account in line with the Board’s expected long term split of
investment returns in the form of capital gains to the capital column of the
income statement. Due diligence costs incurred for prospective private company
purchases are charged to capital in addition to the cost of investment. All
other expenditure is charged to the revenue account.
Capital reserves
Realised profits and losses on the disposal of investments, due diligence
costs, income that is capital in nature, losses realised on investments
considered to be diminished in value and 75% of investment management fees are
accounted for in the capital reserve realised.
Increases and decreases in the valuation of investments held at the year end
are accounted for in the capital reserve unrealised.
Operating segments
There is considered to be one operating segment being investment in equity and
debt securities.
Taxation
Deferred tax is recognised in respect of all timing differences that have
originated but not yet reversed at the balance sheet date. Deferred tax assets
are only recognised to the extent that it is probable that they will be
recovered against the reversal of deferred tax liabilities or other future
taxable profits.
Current tax is expected tax payable on the taxable profit for the period using
the current tax rate and laws that have been enacted or substantially enacted
at the reporting date. The tax effect of different items of income and
expenditure is allocated between capital and revenue on the same basis as the
particular item to which it relates.
Approved VCTs are exempt from tax on capital gains from the sale of fixed
asset investments. The Directors intend that the Company will continue to
conduct its affairs to maintain its VCT status, no deferred tax has been
provided in respect of any capital gains or losses arising from the
revaluation or disposal of investments.
Dividends
Only dividends recognised during the year are deducted from revenue or capital
reserves. Equity dividends are recognised in the accounts when they become
legally payable.
Interim dividends are approved by the Board of Directors and may be varied or
rescinded at any time before payment, therefore the liability is only
established when the dividend is actually paid. Final dividends are subject to
approval at the AGM. When the dividend is declared it states that it is
payable on a future date, so liability is established on that date.
Functional currency
The Company is required to nominate a functional currency, being the currency
in which the Company predominantly operates. The Board has determined that
sterling is the Company’s functional currency. Sterling is also the currency
in which these accounts are presented.
Repurchase of shares to hold in treasury
The cost of repurchasing shares into treasury, including the related stamp
duty and transaction costs is charged to the special reserve and dealt with in
the statement of changes in equity. Share repurchase transactions are
accounted for on a trade date basis. Where shares held in treasury are
subsequently cancelled, the nominal value of those shares is transferred out
of share capital and into capital redemption reserve.
Should shares held in treasury be reissued, the sale proceeds will be treated
as a realised profit up to the amount of the purchase price of those shares
and will be transferred to capital reserves. The excess of the sale proceeds
over the purchase price will be transferred to share premium.
Capital structure
Share Capital
Ordinary shares are classed as equity. The ordinary shares in issue have a
nominal value of one penny and carry one vote each. Substantial holdings in
the Company are disclosed in the Directors’ Report.
Share Premium
This reserve represents the difference between the issue price of shares and
the nominal value of shares at the date of issue, net of related issue costs.
Capital Redemption Reserve
This reserve is used for the cancellation of shares bought back under the
buyback facility.
Special Reserve
Distributable reserve used to pay dividends and re-purchase shares under the
buyback facility.
Capital Reserve Realised
Gains/losses on disposal of investments, due diligence costs, income that is
capital in nature, diminishment of financial assets and 75% of the investment
management fee are accounted for in the capital reserve realised.
Capital Reserve Unrealised
Unrealised gains and losses on investments held at the year end arising from
movements in fair value are taken to the capital reserve unrealised.
Revenue Reserve
Net revenue profits and losses of the Company.
2. Income
2023 £000 2022 £000
Income from investments:
Revenue:
Dividend income 1,247 744
Fixed income interest 867 ((1)) 184 ()
Interest 502 47
Total revenue income 2,616 975
Capital:
Return of capital — —
In-specie dividend — 13
Total capital income — 13
Total Income 2,616 988
(1) Additional loan stock interest of £18k was
recognised in the year following reversal of the impairment being carried at
30 September 2022. The loan note accrued interest to 30 June 2023 in line
with the terms of the redemption agreement with Sailpoint Technologies UK
Limited.
3. Management fees
2023 Revenue £000 2023 Capital £000 2023 Total £000 2022 Revenue £000 2022 Capital £000 2022 Total £000
Management fees 699 2,098 2,797 835 2,505 3,340
The investment management agreement terminates on 12 months’ notice,
subject to earlier termination in certain circumstances. In the event of
termination by the Company on less than the agreed notice period, compensation
may be payable to the Investment Manager in lieu of the unexpired notice
period. No notice had been given by the Investment Manager or by the Board to
terminate the agreement as at the date of approval of these accounts.
The Investment Manager receives an investment management fee of 1.7% per annum
of the NAV of the Company, calculated and payable quarterly in arrears. At
30 September 2023, £645,397 (2022: £687,373) was owed in respect of
management fees. The Company receives a reduction to the annual management fee
for investments in other funds managed by the Investment Manager, being any
investment in the Marlborough Special Situations Fund and/or the Marlborough
UK Micro-Cap Growth Fund so the Company is not charged twice for these
services. This amounted to £49,931 for the year to 30 September 2023
(2022: £23,407). The Investment Manager has agreed to indemnify the
Company against annual running costs exceeding 3.5% of its net assets. No fees
were waived between 1 October 2022 and 30 September 2023 and no fees were
waived between 1 October 2021 and 30 September 2022 under the indemnity.
4. Other expenses
2023 £000 2022 £000
Other revenue expenses:
Administration fee 195 195
Directors’ fees 205 157
Legal & professional 39 34
London Stock Exchange fees 84 131
Registrar’s fee 47 50
Website and marketing 60 14
Printing, postage and stationary 40 43
Auditors’ remuneration – for audit services 55 41
VCT monitoring fees 15 12
Company secretarial fees 57 72
Custody fee 30 30
Directors’ and officers’ liability insurance 36 39
Broker’s fee 5 5
VAT 115 128
Other expenses ((1)) 104 98
Provision against loan stock interest receivable (35) ((2)) 44 ((3))
Total other revenue expenses 1,052 1,093
Other capital expenses:
Due diligence costs 32 18
VAT on due diligence costs 7 4
Total other capital expenses 39 22
Total other expenses 1,091 1,115
(1) Other expenses include FCA fees, AIC membership fees,
VCT Association fees, recruitment costs, professional subscriptions, license
costs, shareholder event costs and other nominal expenses.
(2) Reversal of provision against loan interest
receivable in previous years of £34,816 for Osirium plc.
(3) Provision against loan interest receivable of
£44,145 (2021: nil), for loan stock interest regarded as collectable
in previous years in relation to Honest Brew Ltd and Osirium plc.
The Directors’ remuneration above includes national insurance contributions.
Directors’ remuneration excluding employer’s national insurance
contributions is detailed in the directors’ remuneration report.
The maximum aggregate directors’ emoluments authorised by the Articles of
Association are detailed in the directors’ remuneration report.
5. Tax on ordinary activities
The tax charge for the year is based on the standard rate of UK Corporation
Tax of 22%((1)) (2022: 19%).
2023 Total £000 2022 Total £000
Loss on ordinary activities before taxation (29,727) (88,670)
UK Corporation Tax: 22% (2022: 19%) (6,540) (16,847)
Effect of non taxable losses on investments 6,260 16,189
Effect of non taxable UK dividend income (274) (144)
Deferred tax not recognised 554 802
Current tax charge — —
(1) Average rate of corporation tax applicable for the period.
At the 30 September 2023 the Company had tax losses carried forward of
£24,379,001 (2022: £21,921,076). It is unlikely that the Company will
generate enough taxable income in the future to use these expenses to reduce
future tax charges and therefore no deferred tax asset has been recognised.
There is no taxation charge in relation to capital gains or losses. No asset
or liability has been recognised in relation to capital gains or losses on
revaluing investments. The Company is exempt from such tax as a result of its
intention to maintain its status as a Venture Capital Trust.
6. Basic and diluted earnings/(loss) per share
2023 Revenue £000 2023 Capital £000 2023 Total £000 2022 Revenue £000 2022 Capital £000 2022 Total £000
Return (£) 865 (30,592) (29,727) (953) (87,717) (88,670)
Earnings/(loss) per ordinary share 0.27p (9.59)p (9.32)p (0.36)p (33.06)p (33.42)p
The earnings per share is based on 318,946,009 ordinary shares
(2022: 265,292,558), being the weighted average number of shares in
issue during the year.
7. Investments
Quoted investments ((1)) 2023 £000 Unquoted Investments 2023 £000 Total investments 2023 £000 Total investments 2022 £000
Opening Valuation 108,630 10,558 119,188 202,800
Purchases at cost 56,199 1,500 57,699 29,460
Non-cash distribution — — — 126
Sale proceeds (16,336) – (16,336) (27,995)
Realised gains/(losses) (8,245) – (8,245) ((2)) 2,056
Unrealised losses (17,705) (2,505) (20,210) ((2)) (87,259)
Amortisation for discount/premium on bonds 24 — 24 —
Closing valuation 122,567 9,553 132,120 119,188 ((4))
Cost at 30 September 2023 132,600 19,241 151,841 118,699
Unrealised gains 14,981 (1,341) 13,640 23,935
Diminution in value ((3)) (25,014) (8,347) (33,361) (23,446)
Closing valuation 122,567 9,553 132,120 119,188
(1) Includes the Marlborough Special Situations Fund
(valuation £8.3m as at 30 September 2023), included in unquoted investments
previously.
(2) The net loss on investments held at fair value
through profit or loss in the income statement of -£28,455 is the sum of the
realised gains and unrealised losses for the year as detailed in the table
above.
(3) Diminishments of £14,762,893 were made in the year.
Once adjusted for disposals (£4,617,026) and diminishment reversals
(£230,000) the net movement for the year is £9,915,867. Diminishments
carried forward are £33,361,442.
(4) Correction to prior year (casting error).
Transaction Costs
During the year the Company incurred transaction costs of £97,493
(2022: £40,809) and £15,710 (2022: £15,989) on purchases and
sales respectively. These amounts are included in the gain on investments as
disclosed in the income statement.
Fair Value Measurement Hierarchy
The table below sets out fair value measurements using FRS102 (appendix to
section 2 fair value measurement) fair value hierarchy. The Company has
one class of assets, being at fair value through profit or loss.
• Level 1: Quoted prices (unadjusted) in active markets for
identical assets or liabilities.
• Level 2: Inputs other than quoted prices included within level 1
that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
• Level 3: Valued by reference to valuation techniques using
inputs that are not based on observable market data.
2023 Level 1 £’000 2023 Level 2 £’000 2023 Level 3 £’000 2023 Total £’000 2022 Level 1 £’000 2022 Level 2 £’000 2022 Level 3 £’000 2022 Total £’000
Investments 82,565 40,002 9,553 132,120 105,069 ((1)) 3,561 10,558 119,188
(1) Correction to prior year (casting error).
Transfers between level 3 and level 1 occur when a previously unquoted
investment undertakes an initial public offering, resulting in its equity
becoming quoted on an active market. There have been no instances in the
current period (2022: £5.9m). Transfers between level 1 and 3 would occur
when a quoted investment’s market becomes inactive, or the portfolio company
elects to delist. There have been no instances in the current year
(2022: none).
There were transfers of £20.2m between level 1 and level 2 in the current
period where the investments market is not sufficiently active
(2022: £3.6m). There were no transfers between level 2 and level 1
(2022: none).
Level 3 financial assets
2023 Equity shares £’000 2023 Preference Shares £’000 ((1)) 2023 Loan notes £’000 2023 Total £’000 2022 Equity shares £’000 2022 Preference Shares £’000 ((1)) 2022 Loan notes £’000 2022 Total £’000
Opening balance 4,740 3,861 1,957 10,558 19,956 9,380 5,835 35,171
Re-Classification Adjustment — — — — (457) (3,013) (2,431) (5,901) ((2))
Purchases at cost — — 1,500 1,500 — — 300 300
Non-cash distribution — — — — — 59 — 59 ((3))
Sale proceeds — — — — (590) — — (590)
Realised (losses)/gains — — — — (1,159) — — (1,159)
Unrealised (losses)/gains (1,756) (792) 43 (2,505) (13,010) (2,565) (1,747) (17,322)
Closing valuation 2,984 3,069 3,500 9,553 4,740 3,861 1,957 10,558
(1) The preference shares held are in the nature of equity.
(2) Includes Mexican Grill (£4.5m) listed on the
London Stock Exchange on 8 October 2021 and conversion of the XP Factory loan
note (£1.4m) into listed equity shares on 2 February 2022.
(3) The Company elected to convert accrued fixed income
from a convertible loan note in Kidly into shares (£59k).
The following table sets out the basis of valuation for the material Level 3
investments and those where the value has materially changed during the year,
held within the portfolio at 30 September 2023.
In assessing fair value, the Investment Manager considered a range of
valuation methodologies including EV/Sales, and EV/EBITDA multiples for the
current and next financial year. Where appropriate, the Investment Manager
also assessed value using discounted cash flow analysis. Where observable
market multiples were available, these were used as part of peer group
analysis. Market based multiples were taken as reference points with discounts
applied (where appropriate) to reflect liquidity and forecast risk.
The manager also undertook sensitivity analysis to consider the impact of a
30% movement in the peer group multiples, both higher and lower. The use of
alternative investment structures such as convertible loan stock by the
Company or other investors can lead to asymmetric movements in value in
response to different upside and downside scenarios. For further information
on sensitivities, please see note 15.
Level 3 Unquoted Investments
Infinity Reliance Ltd (My 1st Years) Despite the difficult environment, trading remained resilient and in line with expectations for the financial year to December 2022. Although trading remains difficult, the company expects to report further progress with revenues and EBITDA in the current
financial year. The fair value of the investment, which was unchanged, was reviewed against EV/Sales multiples across a peer group of listed companies. Peer group multiples recovered some of the heavy declines seen in the prior year.
Kidly Ltd Trading was difficult over the winter period with the company closing the financial year to March 2023 with revenues lower year on year. Although trading remains challenging within the current year, changes to the operating model are expected to increase
margins and reduce losses. The company raised new equity and debt funding (including from the Company) during the period under review. The fair value of the equity investment, which was reviewed against EV/Sales multiples across a peer group of listed
companies, was reduced. The fair value of the convertible loan note investment was unchanged. The conversion option is valued using the Black-Scholes option pricing model. Peer group multiples recovered some of the heavy declines seen in the prior year.
SCA Investments Ltd (Gousto) The company raised new equity (February 2023) and debt (September 2023) to fund capital expenditure and working capital. EBITDA and cash flow generation improved significantly within the year. Although the assessment of value has resulted in an
increased enterprise value, the addition of a new class of share and warrants resulted in a reduction to the value of the investment. EV/Sales and EV/EBITDA peer group ratios and discounted cash flow analysis were used to support the valuation. Peer group
multiples recovered some of the heavy declines seen in the prior year.
Zappar Ltd Trading for the financial year to March 2023 was in line with (modestly) revised guidance. With end markets remaining difficult and extended sales cycles, the company has made small reductions to revenue and profit guidance for the financial year to
March 2024, although these, if achieved, would still represent gains over the prior year. The valuation, which was unchanged, was reviewed against the revised financial projections for the current year and EV/Sales multiples across a peer group of listed
companies. Peer group multiples reduced in the year under review.
Osirium Technologies plc – convertible loan note On 30 August 20203, Osirium announced a recommended cash offer for the company by SailPoint Technologies through a scheme of arrangement, effective from 30 October 2023. As part of the transaction, the convertible loan notes and all outstanding accrued
interest was repaid in full in November 2023.
Rosslyn Data Technologies plc – convertible loan note On 19 September 2023, Rosslyn Data Technologies completed a £3.3m fundraising through the issue of new shares and convertible loan notes to fund its organic growth strategy. As part of the funding round, the Company invested £0.3m through the new
convertible loan notes. The fair value of the convertible loan notes was unchanged with the value of the conversion option calculated using the Black-Scholes option pricing model.
8. Significant interests
At the year end the Company held 3% or more of the issued share capital of the
following investments:
Investment Holding % Investment Holding %
Engage XR Holdings plc 29.72% Crimson Tide plc 6.39%
Fadel Partners inc 22.55% Eden Research plc 5.59%
Rosslyn Data Technologies plc 20.27% Skillcast Group plc 4.74%
Bivictrix Therapeutics plc 11.00% Zoo Digital Group plc 4.50%
PCI-PAL plc 10.54% C4X Discovery Holdings plc 4.26%
Bidstack Group plc 9.64% Intelligent Ultrasound Group plc 4.21%
Equipmake Holdings plc 8.94% Verici DX plc 4.18%
Itaconix plc 8.80% Surface Transforms plc 4.10%
Crossword Cybersecurity plc 8.38% Strip Tinning Holdings plc 3.69%
XP Factory plc 7.39% Polarean Imaging plc 3.34%
One Media IP Group 7.33% Blackbird plc 3.29%
Tortilla Mexican Grill plc 7.17%
9. Debtors
2023 £000 2022 £000
Prepayments and accrued income 1,475 408
The material increase in accrued income from the prior year is due to
increased investment in fixed interest bonds and convertible loan notes.
10. Creditors: amounts falling due within one year
2023 £000 2022 £000
Trade Creditors 21 8
Accruals 885 992
906 1,000
11. Called up share capital
2023 £000 2022 £000
Allotted, called-up and fully paid: 327,813,939
(2022: 266,652,209) ordinary shares of 1p each. 3,278 2,666
During the year 7,183,338 (2022: 4,307,731) ordinary shares were
purchased through the buyback facility at a cost of £3,636,841
(2022: £3,243,492). The repurchased shares represent 2.7%
(2022: 1.9%) of ordinary shares in issue on 1 October 2022. The
acquired shares have been cancelled.
During the year, the Company issued 65,917,234 ordinary shares of 1 penny
(nominal value £659,172.) in an offer for subscription, representing
24.7% of the opening share capital at prices ranging from 54.76p to 63.84p per
share. Gross funds of £39,935,333 were received. The 3.5% premium of
£1,397,737 payable to Canaccord Genuity Wealth Ltd (CGWL) under the
terms of the offer was reduced by £555,552 being the discount awarded to
investors in the form of additional shares. A further reduction of £755
introductory commission was made resulting in fees payable to CGWL of
£841,430 which were used to pay other costs associated with the prospectus
and marketing. In accordance with the offer agreement, the Company was
entitled to a rebate of £100,000 from CGWL reducing the net fees payable to
CGWL to £741,430.
On 10 February 2023, 1,836,516 ordinary shares were allotted at a price of
54.95 pence per share, which was calculated in accordance with the terms and
conditions of the DRIS, on the basis of the last reported NAV per share as at
20 January 2023, to shareholders who elected to receive shares under the DRIS
as an alternative to the final and special dividend for the year ended
30 September 2022.
On 28 July 2023, 591,318 ordinary shares were allotted at a price of
49.29 pence per share, which was calculated in accordance with the terms and
conditions of the DRIS, on the basis of the last reported NAV per share as at
7 July 2023, to shareholders who elected to receive shares under the DRIS as
an alternative to the interim dividend for the year ended 30 September 2023.
On 9 May 2023, the amount standing to the credit of the share premium account
(£133.2m) was cancelled.
Further details of the Company’s capital structure can be seen in note 1.
Income entitlement
The revenue earnings of the Company are available for distribution to holders
of ordinary shares by way of interim, final and special dividends (if
any) as may from time to time be declared by the Directors.
Capital entitlement
The capital reserve realised and special reserve of the Company are available
for distribution to holders of ordinary shares by way of interim, final and
special dividends (if any) as may from time to time be declared by the
Directors.
Voting entitlement
Each ordinary shareholder is entitled to one vote on a show of hands and on a
poll to one vote for each ordinary share held. Notices of meetings and proxy
forms set out the deadlines for valid exercise of voting rights and other than
with regard to directors not being permitted to vote on matters upon which
they have an interest, there are no restrictions on the voting rights of
ordinary shareholders.
Transfers
There are no restrictions on transfers except dealings by directors, persons
discharging managerial responsibilities and their persons closely associated
which may constitute insider dealing or is prohibited by the rules of the FCA.
The Company is not aware of any agreements with or between shareholders which
restrict the transfer of ordinary shares, or which would take effect or alter
or terminate in the event of a change of control of the Company.
12. Net asset value per ordinary share
30 September 2023 30 September 2022
Net assets (£’000) 151,920 160,507
Shares in issue 327,813,939 266,652,209
NAV per share (p) 46.34 60.19
There are no potentially dilutive capital instruments in issue and as such,
the basic and diluted NAV per share are identical.
13. Contingencies, guarantees and financial commitments
There were no contingencies, guarantees or financial commitments of the
Company at the year end (2022: nil).
14. Related party transactions and conflicts of interest
The remuneration of the directors, who are key management personnel of the
Company, is disclosed in the Directors’ remuneration report and in note 4.
Transactions with the Investment Manager
As the Company’s Investment Manager, Canaccord Genuity Asset Management Ltd
is a related party to the Company for the purposes of the Listing Rules. As
the Investment Manager and Canaccord Genuity Wealth Limited (CGWL) are
part of the same CGWL group, CGWL also falls into the definition of related
party.
On 7 September 2023, the Board and the Investment Manager entered into an
updated Investment Management Agreement. The amended agreement included
updates to reflect changes in regulation. There were no changes to the
commercial terms of the agreement.
Oliver Bedford, a non-executive director of the Company is also an employee of
the Investment Manager which received fees of £28,000 for the year ended
30 September 2023 in respect of his position on the Board
(2022: £26,125). Of these fees £7,000 was still owed at the year end.
Oliver Bedford’s non-executive directorship fees will increase to £29,500
per annum, with effect from 1 October 2023.
CGWL act as administrator and custodian to the Company. On 7 September 2023,
the Company entered into an amended administration agreement with CGWL. Under
the terms of the agreement the fees to be paid to CGWL were increased to
£250,000 per annum (previously £195,000) with effect from 1 October
2023.
CGWL received fees for the support functions as follows:
30 September 2023 30 September 2022
Custody 30,000 30,000
Administration 195,000 195,000
Total 225,000 225,000
Still owed at the year end 55,765 55,240
Under an offer agreement dated 5 September 2022, CGWL were appointed by the
Company to administer an offer for subscription and acted as receiving agent
in relation to the offer. Under the terms of the agreement CGWL received a fee
of 3.5 per cent. of the gross proceeds of the offer for providing these
services. The Administrator agreed to discharge commissions payable to
financial advisers in respect of accepted applications for offer shares
submitted by them, including any trail commission.
The Administrator also agreed to discharge and/or reimburse all costs and
expenses of and incidental to the offer and the preparation of the prospectus,
including without limitation to the generality of the foregoing, FCA vetting
fees in relation to the prospectus, sponsor and legal fees, expenses of the
Company and CGWL, the Company’s tax adviser’s fees and expenses,
registrar’s fees, costs of printing, postage, advertising, publishing and
circulating the prospectus and marketing the offer, including any introductory
commission and discounts to Investors. However, the Administrator was not
responsible for the payment of listing fees associated with the admission of
the ordinary shares to the premium segment of the Official List and to trading
on the main market of the London Stock Exchange.
During the year, the Company issued 65,917,234 ordinary shares of 1 penny
(nominal value £659,172) in an offer for subscription, representing
24.7% of the opening share capital at prices ranging from 54.76p to 63.84p per
share. Gross funds of £39,935,333 were received. The 3.5% premium of
£1,397,737 payable to Canaccord Genuity Wealth Ltd (CGWL) under the
terms of the offer was reduced by £555,552, being the discount awarded to
investors in the form of additional shares. A further reduction of £755
introductory commission was made resulting in fees payable to CGWL of
£841,430 which were then used to pay other costs associated with the
prospectus and marketing. In accordance with the offer agreement, the Company
was entitled to a rebate of £100,000 from CGWL reducing the net fees payable
to CGWL to £741,430.
Under an offer agreement dated 7 September 2023, CGWL were appointed by the
Company to administer a new offer for subscription and act as receiving agent
in relation to the offer. Under the terms of the agreement CGWL will receive a
fee of 3.5 per cent. of the gross proceeds of the offer for providing these
services. The Administrator has agreed to discharge commissions payable to
financial advisers in respect of accepted applications for Offer Shares
submitted by them, including any trail commission.
The Administrator has also agreed to discharge and/or reimburse all costs and
expenses of and incidental to the offer and the preparation of the prospectus,
including without limitation to the generality of the foregoing, FCA vetting
fees in relation to the prospectus, sponsor and legal fees, expenses of the
Company and CGWL, the Company’s tax adviser’s fees and expenses,
registrar’s fees, costs of printing, postage, advertising, publishing and
circulating the prospectus and marketing the offer, including any introductory
commission and discounts to Investors. However, the Administrator will not be
responsible for the payment of listing fees associated with the admission of
the Ordinary Shares to the premium segment of the Official List and to trading
on the main market of the London Stock Exchange.
If following the final admission under the offer, the aggregate fee that has
been paid to CGWL exceeds the costs and expenses referred to above by more
than £25,000, then CGWL will rebate any surplus to the Company subject to a
maximum rebate of £100,000.
Canaccord Genuity Asset Management Ltd is appointed as Investment Manager to
the Company and receives an investment management fee of 1.7% per annum.
Investment management fees for the year are £2,797,377
(2022: £3,340,182) as detailed in note 3. Of these fees £645,397
(2022: £687,373) were still owed at the year end. As the Investment Manager
to the Company and the investment advisor to the Marlborough Special
Situations Fund (in which the Company may invest), the Investment
Manager makes an adjustment as necessary to its investment management fee to
ensure the Company is not charged twice for their services.
Upon completion of an investment, the Investment Manager is permitted under
the investment management agreement to charge private investee companies a fee
equal to 1.5 per cent. of the investment amount. This fee is subject to a cap
of £40,000 per investment and is payable directly from the investee company
to the Investment Manager. The Investment Manager may recover external due
diligence and transaction services costs directly from private investee
companies. No fees were charged to investee companies in the year under this
agreement (2022: nil).
Total commission of £63,318 was paid to CGWL in the year for broker services
(2022: £30,612).
The Investment Manager has agreed to indemnify the Company and keep
indemnified the Company in respect of the amount by which the annual running
costs of the Company exceed 3.5 per cent. of the net assets of the Company,
such costs shall exclude any VAT payable thereon and any payments to financial
intermediaries, the payment of which is the responsibility of the Company. No
fees were waived by the Investment Manager in the financial year under the
indemnity.
The Company also held £8,119,302 in the client account held at CGWL at
30 September 2023 (2022: £16,786,442).
15. Financial instruments
Risk management policies and procedures
The investment objectives of the Company are to generate capital gains and
income from its portfolio and to make distributions from capital or income to
shareholders whilst maintaining its status as a Venture Capital Trust.
The Company intends to achieve its investment objectives by making Qualifying
Investments in companies listed on AIM, private companies and companies listed
on the AQSE Growth Market, as well as Non-Qualifying Investments as allowed by
the VCT Rules.
At least 80% of the Company’s funds have been invested in qualifying
holdings during the year under the HMRC investment test definition. The
balance of the Company’s funds were invested in liquid assets (such as
non-qualifying equities, fixed income securities and bank deposits). The
Company is managed as a VCT in order that shareholders in the Company may
benefit from the tax relief available.
This strategy exposes the Company to certain risks, which are summarised
below.
The structure in place to manage these risks is set out in the corporate
governance report of the annual report and accounts.
A detailed review of the investment portfolio is contained in the chairman’s
statement and Investment Manager’s report.
Classification of financial instruments
The investments at year end comprise two types of financial instruments. The
basis of valuation is set out below:
• Equities – fair value through the profit and loss account.
• Fixed income securities – fair value through the profit and
loss account
Other financial assets comprise cash and cash equivalents of £19,231,167
(2022: £41,911,058), accrued income and debtors of £1,434,688
(2022: £370,624), which is classified as ‘loans and receivables
measured at amortised cost’. Financial liabilities consist of trade
creditors and accruals of £905,897 (2022: £1,000,255) which are
classified as ‘financial liabilities measured at amortised cost’.
Market risk
Market price risk arises from any fluctuations in the value of investments
held by the Company. Adherence to investment policies mitigates the risk of
excessive exposure to any particular type of security or issuer. In
particular, other than bank deposits, no individual investment shall exceed
10 per cent. of the Company’s net assets at the time of investment.
However, many of the investments are in small companies traded on the AIM
market which by virtue of their size carry more risk than investments in
larger companies listed on the main market of the London Stock Exchange.
Market risk is monitored by the Board on a quarterly basis and on an ongoing
basis, through the Investment Manager.
The following table summarises exposure to price risk by asset class at year
end date:
Change in Fair Value of Investments
Asset class 30% market increase 2023 £’000 30% market decrease 2023 £’000 Aggregate value 2023 £’000 Aggregate value 2022 £’000
AIM Qualifying Investments ((1)) 14,365 -14,232 80,673 93,680
Unquoted Qualifying Investments ((2)) 2,004 -2,645 8,453 9,802
Quoted Non-Qualifying Investments 4,496 -4,496 17,366 12,397
Unquoted Non-Qualifying Investments — — — —
Authorised unit trust 1,409 -1,409 8,268 3,309
Quoted Non-Qualifying fixed income securities -110 110 17,360 —
22,164 22,672 132,120 119,188
(1) Includes variances in the value of CLN issued by
Osirium plc and Rosslyn Data Technologies plc.
(2) Including variances in the value of CLNs issued by
Kidly Ltd.
If market prices had been 30% higher or lower while all other variables
remained unchanged the return attributable to ordinary shareholders for the
year ended 30 September 2023 would have increased by £22,164,436
(2022: £25,128,703) or decreased by £22,671,676
(2022: £25,965,809).
The assessment of market risk is based on the Company’s equity and fixed
income portfolio including private company investments, as held at the year
end. The assessment uses the AIM All-Share Index and the FTSE 250 Index as
proxies for the AIM Qualifying Investments and quoted Non-Qualifying
Investments and illustrates, based on historical price movements, their
potential change in value in relation to change in value of a reference index,
in this case the FTSE 100.
The review has also examined the potential impact of a 30% move in the market
on the CLN investments held by the Company, whose values will vary according
to the price of the underlying security into which the loan note instrument
has the option to convert.
Currency risk
The Company is not directly exposed to currency risk and does not invest in
currencies other than sterling. There are indirect exposures through movements
in the foreign exchange market as a consequence of investments held in
companies who report in foreign currencies.
Interest rate risk
The Company is fully funded through equity and has no debt; therefore,
interest rate risk is not considered a material risk.
The Company’s financial assets and liabilities are denominated in sterling
as follows:
30 September 2023
Fixed Rate £000 Variable Rate £000 Non-Interest Bearing £000 Total £000
Investments 20,860 — 111,260 132,120
Cash and cash equivalents — 19,231 — 19,231
Other current assets (net) 1,293 — 182 ((2)) 1,475
Other current liabilities (net) — — (906) (906)
Net assets 22,153 19,231 110,536 151,920
30 September 2022
Fixed Rate £000 Variable Rate £000 Non-Interest Bearing £000 Total £000
Investments 1,956 — 117,232 119,188
Cash and cash equivalents — 41,911 — 41,911
Other current assets (net) ((1)) 262 — 146 408
Other current liabilities (net) ((1)) — — (1,000) (1,000)
Net assets 2,218 41,911 116,378 160,507
(1) Prior year updated to split out assets and
liabilities and correct fixed interest accrual allocation.
(2) Includes prepayments of £40k which is not considered a financial
asset.
Interest rate risk exposure relates to cash and cash equivalents (bank
deposits) where interest income is primarily linked to bank base rates.
Interest rate risk exposure on debt instruments is reflected in the market
risk and since these securities are valued at fair value, no additional
disclosure is made in this respect. Movements in interest rates on cash and
cash equivalents are not considered a material risk.
Liquidity risk
Liquidity risk is the risk that the Company is unable to meet obligations as
they fall due. The Company has no debt and maintains sufficient investments in
cash or cash equivalents, or readily realisable securities to pay trade
creditors and accrued expenses (£905,897 as at 30 September 2023).
Liquidity risk is not considered material. As at 30 September 2023 the
Company held £19,231,167 in cash or cash equivalents.
Credit risk
Credit risk relates to the risk of default by a counterparty. The Company may
have credit risk through investments made in unsecured loan stock issued by
Qualifying Companies or through Non-Qualifying Investments in fixed income
securities and exchange traded funds. No assets are past due date for payment.
On 30 August 2023, Osirium announced a recommended cash offer for the company
by SailPoint Technologies through a scheme of arrangement, effective from
30 October 2023. As part of the transaction, the convertible loan notes and
all outstanding accrued interest was repaid in full in November 2023. In
anticipation of the completion of the transaction, which was completed post
period end, the impairments to the carrying value of the loan note and
accrued interest were reversed.
An investment will be impaired if the investee company is loss making and does
not have sufficient funds available to transition into profit and in the
opinion of the Investment Manager may fail to secure sufficient equity or debt
funding to transition into profit, or if the borrower defaults or is expected
to default on payment of accrued interest or repayment of the principal sum.
The maximum credit risk exposure equates to the carrying value of assets at
the balance sheet date:
2023 £000 2022 £000
Fixed income securities;
—Qualifying Investments (convertible loan notes) 3,500 1,956
—Non-qualifying investments (investment grade corporate bonds) 17,361 —
—Non-qualifying investments (UK gilt exchange traded fund) 1,978 —
Total fixed income securities 22,839 ((1)) 1,956
Cash and cash equivalents 19,231 41,911
Other assets 1,475 408
43,545 44,275
(1) Includes UK gilt exchange traded fund as underlying
investments are fixed income securities.
Cash and cash equivalents include bank deposits held through Canaccord Genuity
Wealth Limited of £8.1 million (2022: £16.8 million) (CGWL, trading
as CGWM), are held with banks that are authorised and regulated to carry
on banking or deposit-taking business. All these meet the requirements of
UK’s FCA CASS rules. Through its treasury function, CGWM uses a tiered level
approach to counterparty selection to reflect different maturities of cash
held on deposit.
The Company’s cash reserves, when held through CGWL, are pooled with cash
deposits from other clients of CGWL and diversified across a specified panel
of banks. CGWM’s treasury function reviews panel members ahead of selection
and prioritises the safety of client assets with the panel selection process
placing an emphasis on quality and security. Participating banks must be rated
as investment grade by at least two international credit rating agencies. CGWM
will also consider the expertise and market reputation of the bank; review a
bank’s financial statements and consider its capital and deposit base;
consider the geographical location of the parent; monitor a bank’s credit
default swaps; and ask the bank to complete a due diligence questionnaire. The
CGWM treasury function maintains regular contact with panel banks, typically
meeting them every 6 months or so. There are no withdrawal restrictions on
the Company’s cash held with CGWL.
Fair value of financial assets and financial liabilities
Equity investments are held at fair value. No investments are held for trading
purposes only.
Capital management policies and procedures
The current policy is to fund investments through equity. No future change to
this policy is envisaged. As a public limited company, the Company is required
to hold a minimum £50,000 share capital.
The Company’s capital is summarised in notes 1 and 11 to these accounts.
The Company has no debt and is fully funded by equity.
16. Dividends
2023 Ord £000 2022 Ord £000
Paid per share:
Special capital dividend of 2.50 pence for the year ended 30 September 2021 () — 5,704
Paid per share:
Final capital dividend of 3.15 pence for year ended 30 September 2021 — 8,455
Paid per share: Interim capital dividend of 1.00 penny for year ended 30 September 2022 — 2,671
Paid per share:
Special capital dividend of 2.00 pence for the year ended 30 September 2023 6,216 —
Paid per share:
Final capital dividend of 2.00 pence for year ended 30 September 2022 6,216 —
Paid per share:
Interim capital dividend of 1.00 penny for year ended 30 September 2023 3,298 —
Dividends unclaimed (13) (1)
15,717 ((2)) 16,830 ((3))
Proposed per share:
Final capital dividend of 1.50 pence for the year ended 30 September 2023 5,151 —
Paid per share:
Special capital dividend of 2.00 pence for the year ended 30 September 2023 — 6,218
Paid per share:
Final capital dividend of 2.00 pence for the year ended 30 September 2022 — 6,218
(1) Unclaimed dividends for a period of 12 years
reverted to the Company.
(2) The difference between total dividends paid for the
period ending 30 September 2023 and the cash flow statement is £1,300,000
which reflects the amount of dividends reinvested under the DRIS.
(3) The difference between total dividends paid for the
period ending 30 September 2022 and the cash flow statement is £1,038,000
which reflects the amount of dividends reinvested under the DRIS.
17. Post balance sheet events
Share buybacks
As at 18 December 2023, 2,039,414 ordinary shares have been purchased at an
average price of 42.82 pence per share and a total cost of £873,229.
Shares issued
As at 18 December 2023, 17,599,435 ordinary shares have been issued through
the offer for subscription raising gross proceeds of £8,101,695.
New investments
The Company has made the following investments since the period end:
Amount Invested £000 Investment into existing company
Qualifying Investments
Eden Research plc 500 Yes
Non-Qualifying Investments
Next Group plc GRTD BDS 26/08/25 957 No
Shell plc 809 No
XP Power plc 126 Yes
Marlborough UK Micro-Cap Fund 4,365 No
Marks & Spencer plc 3.75% SNR EMTN 19/05/2026 2,058 No
Unilever plc 1.375% GTD SNR NTS 15/09/24 3,028 No
Disposals
The Company has made the following full disposals since the period end:
Proceeds £000
Qualifying Investments
Osiruim Technologies plc 14
Osiruim Technologies plc (convertible loan note) 800
Renalytix AI plc 13
Velocys plc 61
Instem plc 1,416
Abcam plc 3,143
Non-Qualifying Investments
Diversified Energy Company plc 659
Watches of Switzerland plc 641
Energean plc 679
Marks and Spencer 3% SNR EMTN 3,000
IShares III plc UK Gilts 0-5 YR UCITS ETF 2,005
Alternative performance measures
Alternative performance measures
An alternative performance measure (APM) is a financial measure of the
Company’s historic or future financial performance, financial position or
cash flows which is not defined or specified in the applicable financial
reporting framework.
The Directors assess the Company’s performance against a range of criteria
which are viewed as particularly relevant for a VCT.
Where the calculation of the APM is not detailed within the financial
statements, an explanation of the methodology employed is below:
NAV total return
30 September 2023 30 September 2022
Opening NAV per share A 60.19p 100.39p
Special dividend paid B 2.00p 2.50p
Final dividend paid C 2.00p 3.15p
Interim dividend paid D 1.00p 1.00p
Closing NAV per share E 46.34p 60.19p
NAV total return ((B+C+D+E-A)/A)*100 -14.70% -33.42%
NAV total return (dividends reinvested)
30 September 2023 % Return
Opening NAV per share (30 September 2022) A 60.19p
Closing NAV per share (30 September 2023) 46.34p
Special dividend paid February 2023 2.00p
Final dividend for year paid February 2023 2.00p
Interim dividend July 2023 1.00p
Total dividend payments 5.00p
Closing NAV per share plus dividends paid 51.34p -14.70% (-33.42% 30 September 2022)
In year performance of reinvested dividends -0.74p
NAV total return (dividends reinvested) ((B-A)/A)*100 B 50.60p -15.93% (-35.47% 30 September 2022)
Share price total return
30 September 2023 30 September 2022
Opening share price A 62.75p 93.00p ((1))
Special dividend paid B 2.00p —
Final dividend paid C 2.00p 3.15p
Interim dividend paid D 1.00p 1.00p
Closing share price E 43.00p 62.75p
Share price total returns ((B+C+D+E-A)/A)*100 -23.51% -28.06%
(1) Ex-dividend
Share price total return (dividends reinvested)
30 September 2023 % Return
Opening share price (30 September 2022) A 62.75p
Closing share price (30 September 2023) 43.00p
Special dividend paid February 2023 2.00p
Final dividend for year paid February 2023 2.00p
Interim dividend paid July 2023 1.00p
Total dividend payments 5.00p
Closing share price plus dividends paid 48.00p % -23.51% (-28.06% 30 September 2022)
In year performance of reinvested dividends -0.81p
Share price total return (dividends reinvested) ((B-A)/A)*100 B 47.19p % -24.80% (-28.98% 30 September 2022)
Ongoing charges ratio
The ongoing charges ratio has been calculated using the AIC’s “Ongoing
Charges” methodology.
30 September 2023 £000 30 September 2022 £000
Investment management fee 2,797 3,340
Other expenses 1,035 ((1)) 989
VCT proportion of MSSF expenses 65 26
Ongoing charges A 3,897 4,355
Average net assets B 174,334 211,552
Ongoing charges ratio (A/B)*100 2.24% 2.06%
(1) Other expenses exclude London Stock Exchange fees of
£58,905 for admission of shares under the offer for subscription, reversal of
the provision of loan stock interest previously recognised (£34,816),
capital reduction costs of £15,131 and witholding tax charges of £16,485 as
the Board do not consider these costs to be ongoing costs to the fund.
Share price discount
30 September 2023 30 September 2022
Share price A 43.00p 62.75p
Net asset value per share B 46.34p 60.19p
(Discount) / premium ((A/B)-1)*100 -7.21% 4.25%
The 1-year average discount of 6.06% is calculated by taking the average of
the share price discount at each month end between 1 October 2022 and
30 September 2023.
The 5-year average discount of 5.64% is calculated by taking the average of
the share price discount at each month end between 1 October 2018 and
30 September 2023.
END
For further information, please contact:
JTC (UK) Limited HHV.CoSec@jtcgroup.com
Susan Fadil +44 20 3893 1005
Uloma Adighibe +44 207 409 0181
LEI: 213800LRYA19A69SIT31