REG - The Inc & Grwth VCT - Annual Financial Report
15/01/2024 09:15
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RNS Number : 6910Z Income & Growth VCT (The) PLC 15 January 2024
THE INCOME & GROWTH VCT PLC
LEI: 213800FPC15FNM74YD92
ANNUAL FINANCIAL RESULTS OF THE COMPANY FOR THE YEAR ENDED 30 SEPTEMBER 2023
The Income & Growth VCT plc (the "Company") announces the final results
for the year ended 30 September 2023. These results were approved by the
Board of Directors on 12 January 2024.
You may, in due course, view the Annual Report & Financial Statements,
comprising the statutory accounts of the Company by visiting
https://www.mobeusvcts.co.uk/ (https://www.mobeusvcts.co.uk/) .
FINANCIAL HIGHLIGHTS
As at 30 September 2023:
Net assets: £122.78 million
Net asset value ("NAV") per share: 79.33 pence
- There was a positive Net asset value ("NAV") total return (including
dividends)(1) per share of 4.3%.
- Dividends paid/payable in respect of the year total 11.00 pence per
share. This brings cumulative dividends paid(1) to Shareholders in respect of
the past five years to 48.00 pence per share.
- The Company realised investments totalling £9.13 million of cash
proceeds and generated net realised gains in the year of £0.41 million.
- £3.34 million was invested into five new companies and two
follow-on investments.
(1) - Definitions of key terms and alternative performance measures shown
above and throughout this report are provided in the Glossary of terms
in the Annual Report & Financial
Statements.
(2) - Further details on the share price total return are shown in the
Performance section of the Strategic Report within the Annual Report &
Financial Statements.
OUR INVESTMENT OBJECTIVE
The objective of the Company is to provide investors with an attractive return
by maximising the stream of
tax-free dividend distributions from the income and capital gains generated by
a diverse and carefully selected portfolio of investments, while continuing at
all times to qualify as a VCT.
INVESTMENT POLICY
The Company's Investment Policy is to invest primarily in a diverse portfolio
of UK unquoted companies. Investments are generally structured as part loan
and part equity in order to receive regular income, to generate capital gain
upon sale and to reduce the risk of high exposure to equities. To further
spread
risk, investments are made in a number of different businesses across
different industry sectors.
The Company's cash and liquid resources are held in a range of instruments
which can be of varying
maturities, subject to the overriding criterion that the risk of loss of
capital be minimised.
The Company seeks to make investments in accordance with the requirements of
VCT regulation.
The full text of the Company's Investment Policy is set out in the Annual
Report & Financial Statements.
CHAIRMAN'S STATEMENT
Overview
The Company has seen continuing challenging UK economic conditions during this
financial year. Rising inflation and high interest rates have both impacted
consumer and business confidence which caused a general softening of trading
performance. Worldwide, central banks have been assessing the impact of their
rising rates and there are early signs that inflation is continuing, perhaps
more stubbornly than anticipated. Despite this, stock market multiples appear
to have stabilised somewhat following the material downward re-rating of
growth stocks experienced over much of 2022 and a number of portfolio
companies have experienced good growth in the year. Positive NAV performance
was generated over the last six months in the year, reversing a small fall in
the first six months, from strong performance by a number of key assets and a
degree of resilience within the remainder of the portfolio. The result is that
the Company's NAV total return (including dividends paid in the year)
increased by 4.3% (2022: (8.7)%).
The Company has continued to be an active investor and provided investment
finance to five new companies during the year: Connect Earth; Cognassist;
Dayrize; Mable Therapy and Branchspace. Follow-on investment activity
continued with further investments made during the year into Legatics and
Orri. It also delivered highly successful exits in both Equip Outdoor
Technologies (trading as Rab and Lowe Alpine) ("EOTH") and Tharstern Group.
Overall, the portfolio remains well funded and diversified, however there are
three key assets which represent 46.5% of portfolio value. As is the nature of
growth assets, the risk of company failures is ever present. The Company has
strong liquidity to support the Investment Adviser's team who are actively
seeking opportunities within the existing portfolio.
Following the year-end, new investments were made into Ozone Financial
Technology Limited, Azarc and CitySwift. Additionally further follow-on
investments were made into RotaGeek, FocalPoint and MyTutor.
The Board and Investment Adviser were pleased with the Chancellor's
confirmation in the Autumn Budget held on 22 November 2023, of the intention
to extend the sunset clause to 6 April 2035 meaning that future investors will
still benefit from the tax reliefs available from VCTs, subject to EU
approval.
Company Objective and Strategy
A Venture Capital Trust ("VCT") is a company listed on the London Stock
Exchange that raises money from private investors and uses it to invest in
small, young, innovative companies with high potential for growth.
These companies are usually unquoted and often less established. As a
consequence they may be considered higher risk and some will not be
successful. However, because small company formation is an important source of
growth for the UK economy, the government has policies to help those companies
grow. The VCT scheme provides investors with generous tax reliefs to help
encourage investors for the risk they take with their investment and there are
strict guidelines on the type of company that can receive VCT investment.
Since incorporation, your Company has helped to create jobs, reward innovation
and bolster the UK economy in line with the UK Government's VCT scheme policy.
The Company's objective is to provide investors with an attractive return by
maximising the stream of tax-free dividend distributions from the income and
capital gains generated by a diverse and carefully selected portfolio of
investments, while continuing at all times to qualify as a VCT. The investment
strategy and policy of the Company as set out in the Annual Report &
Financial Statements is to invest primarily in a diverse portfolio of UK
unquoted companies to support this objective.
Performance
The Company's NAV total return per share increased by 4.3% (2022: a fall of
(8.7)%) after adding back a total of 8.00 pence per share in dividends paid
during the year. The increase was principally the result of positive valuation
movements across three of the five largest investments by value, in
particular, Preservica, as well as higher interest income generated on cash
held awaiting investment. In addition, the successful portfolio exits of EOTH
and Tharstern Group generated a positive net realised gain for the Company,
although this was partially offset by impairments applied to the holdings of
two other companies.
At the year-end, the Company was ranked 5th out of 37 Generalist VCTs over
three years, 2nd out of 36 Generalist VCTs over five years and 9(th) out of 31
over ten years in the Association of Investment Companies' ("AIC") analysis of
NAV Cumulative Total Return. Shareholders should note that, due to the lag in
the disclosed performance figures available each quarter, the AIC ranking
figures do not fully reflect the final NAV uplift to 30 September 2023, or
those of our peers.
Dividends
To meet the Company's objective, the Investment Adviser is tasked to provide
an attractive dividend stream to Shareholders. The Board was therefore pleased
to be able to declare two interim dividends of 4.00 and 7.00 pence per share,
totalling 11.00 pence per share in respect of the year ended 30 September 2023
to reflect gains and income generated and ensure compliance with the VCT
regulations. This surpassed the Company's annual target of 6.00 pence per
share which has been achieved, and often exceeded, in each of the last twelve
financial years.
The first interim dividend was paid on 26 May 2023, to Shareholders on the
Register on 21 April 2023 and the second interim dividend was paid after the
year end on 8 November 2023 to those Shareholders on the Register on 6 October
2023. These dividend payments have brought cumulative dividends paid per share
since inception to 159.50 pence including the second interim dividend paid
after the year-end.
It should continue to be noted that the majority of the portfolio are now
younger growth capital investments. By their nature this results in greater
risk than the historic MBO portfolio and can result in increased volatility in
performance, which may affect the return Shareholders receive in any given
year. Shareholders should also note that there may continue to be
circumstances where the Company is required to pay dividends in order to
maintain its regulatory status as a VCT, for example, to stay above the
minimum percentage of assets required to be held in qualifying investments.
On 20 June 2023, the Board obtained Court approval to cancel the Company's
share premium reserve and capital redemption reserve. Subject to HMRC's Return
of Capital rules, this will enable additional distributable reserves to be
available for dividends and will help the Company to meet its dividend target
in
future years.
Dividend Investment Scheme
The Company's Dividend Investment Scheme ("DIS") provides Shareholders with
the opportunity to reinvest their cash dividends into new shares in the
Company at the latest published NAV per share. New VCT shares attract the same
tax reliefs as shares purchased through an Offer for Subscription. A total of
2,674,764 (2022: 1,901,145) Ordinary shares were allotted as a result of
dividends paid during the year resulting in £2.07 million (2022: £1.81
million) of cash being retained by the Company.
Shareholders wishing to take advantage of the scheme for any future dividends
can join the DIS by completing a mandate form available on the Company's
website, under the 'Dividends' heading, at:
www.incomeandgrowthvct.co.uk (http://www.incomeandgrowthvct.co.uk) , or
alternatively, Shareholders can opt-out by contacting City Partnership, using
their details provided under Corporate Information in the Annual Report &
Financial Statements.
Investment Portfolio
The portfolio movements across the year were as follows:
£m
Portfolio value at 30 September 2022 73.08
New and follow-on investments 3.34
Disposal proceeds (9.13)
Net unrealised gains 5.02
Net realised gains 0.41
Net investment portfolio gains 5.43
Portfolio value at 30 September 2023 72.72
Notwithstanding the current challenging environment, a number of investee
companies have shown positive revenue growth over the year (e.g. Preservica,
MPB and Bella & Duke). Alongside the improvements in market multiples used
as the basis of the Company's valuations, this has driven the portfolio value
increase compared to last year. The overall value of the portfolio increased
by £5.43 million, or 7.4%, on a like for like basis (adjusting new
investments in the year) compared to the opening value of the portfolio at 1
October 2022 of £73.08 million (2022: £(10.84) million, or (12.3)%).
At the year-end, the portfolio was valued at £72.72 million (30 September
2022: £73.08 million). The portfolio's value is now substantially comprised
of growth capital investments. Over 55% of the portfolio's value is comprised
of the Company's largest five assets by value, with Preservica accounting for
c. 27%.
The Investment Adviser closely monitors these higher value assets as part of
its risk mitigation measures. The VCT's portfolio valuation methodology has
continued to be applied consistently and in line with IPEV guidelines. During
the year, this was triangulated with an independent valuation, which was
commissioned for Preservica and Bella & Duke. The intention is that the
valuation of four of the largest investee companies will be externally
reviewed over the course of the next year.
During the year under review, the Company invested £2.72 million (2022:
£2.69 million) into five new investments:
Connect Earth £0.33 million An environmental data provider
Cognassist £0.67 million An education and neuro-inclusion solutions business
Dayrize £0.63 million A provider of a rapid sustainability impact assessment tool
Mable Therapy £0.55 million Therapy & counselling for children and young adults
Branchspace £0.54 million A digital retailing consultancy and software provider to the
aviation and travel industry
The Company also invested a total of £0.62 million (2022: £4.64 million)
into two existing portfolio companies during the year:
Legatics £0.45 million A SaaS LegalTech software provider
Orri £0.17 million An intensive day care provider for adults with eating disorders
In November 2022 it was pleasing to exit the equity investment held in EOTH
receiving £7.34 million including preference share dividends on completion
which generated a realised a capital gain in the year of £0.42 million, a
6.9x multiple of cost and an IRR of 23.2%. The Company retains its interest
yielding loan stock in EOTH which will increase returns further. The Company
also received £2.85 million in proceeds from the realisation of Tharstern
Group, generating a realised gain of £0.86 million. Over the life of this
investment, the Company has received total proceeds of £4.00 million which
equates to a multiple on cost of 2.6x and an IRR of 15.0%.
During the year, Spanish Restaurant Group Limited (trading as Tapas
Revolution) went into administration. The company had experienced extremely
challenging conditions since COVID-19 and under the HMRC Financial Health Test
(more detail below), your Company was unable to invest further. Including
Tapas Revolution and a restructuring of RDL Corporation, a total of £0.87
million has been recognised as a realised loss.
I reported previously on HMRC's recent stricter interpretation of the
Financial Health Test. Additional guidance has since been published on this
matter which outlines that each potential new VCT investment will be assessed
independently based on the specific financial circumstances of the investee
company. Although it will take time to see these assessments in action, this
updated guidance and expected increased flexibility is a welcome development.
The Board, AIC and Venture Capital Trust Association will continue to monitor
this.
Revenue Account
The results for the year are set out in the Income Statement in the Annual
Report & Financial Statements and show a revenue return (after tax) of
1.11 pence per share (2022: 1.23 pence per share). The revenue return for the
year of £1.66 million has increased from last year's figure of £1.53 million
which was, primarily, due to higher income received from the liquid balances
of the immediately realisable OEIC money market funds.
Fundraising
Following the success of the two fundraises launched in 2022, the Company has
sufficient levels of
liquidity to continue to take advantage of new investment opportunities and
fund further expansion of the businesses in its investment portfolio, helping
to further diversify the portfolio and create opportunities for future growth.
The current level of funds also allows the Company to seek to deliver
attractive returns for its Shareholders, by way of the payment of dividends
over the medium term, and buy back its shares from those Shareholders who may
wish to sell theirs. Therefore, it is not the intention of the Board to
conduct another fundraise in the 2023/2024 tax year.
Liquidity
Cash and liquidity fund balances as at 30 September 2023 amounted to £50.09
million representing 40.8% of net assets. After the year-end, following a 7.00
pence dividend payment of £8.89 million and investments totalling £3.84
million, the level of liquidity at 11 January 2024 is £37.36 million or 32.8%
of net assets). The majority of cash resources are held in liquidity funds
with AAA credit ratings, the returns on which have benefitted from the
increases in interest rates over the past year which will help support future
returns to Shareholders. The Board however continues to monitor credit risk in
respect of all its cash and near cash resources and still prioritises the
security and protection of the Company's capital.
Share buy-backs
During the year to 30 September 2023, the Company bought back and cancelled
3,975,746 of its own shares (2022: 1,166,089), representing 3.1% (2022: 1.1%)
of the shares in issue at the beginning of the year, at a total cost of £2.98
million (2022: £1.03 million), inclusive of expenses.
It is the Company's policy to cancel all shares bought back in this way. The
Board regularly reviews its buyback policy, where its priority is to act
prudently and in the interest of remaining Shareholders, whilst considering
other factors, such as levels of liquidity and reserves, market conditions and
applicable law and regulations. Under this policy, the Company seeks to
maintain the discount at which the Company's shares trade at approximately 5%
below the latest published NAV.
Shareholder Communications & Annual General Meeting
May I remind you that the Company has its own website which is available at:
www.incomeandgrowthvct.co.uk. (http://www.incomeandgrowthvct.co.uk/)
The Investment Adviser last held a virtual Shareholder Event on behalf of all
four Mobeus VCTs in March 2023. The event was well received and the Investment
Adviser plans to hold another event on 1 March 2024. Further details were
circulated to Shareholders in December 2023 and will be shown on the Company's
website in due course. You are encouraged to register for attendance.
Your Board is pleased to hold the next Annual General Meeting ("AGM") of the
Company at 11.00 am on Thursday, 29 February 2024 at the offices of
Shakespeare Martineau LLP, 6th Floor, 60 Gracechurch Street, London EC3V 0HR.
A webcast will also be available at the same time for those Shareholders who
cannot attend in person however, please note that you will not be able to vote
via this method and so are encouraged to return your proxy form before the
deadline of 27 February 2024. Information setting out how to join the meeting
by virtual means will be shown on the Company's website. For further details,
please see the Notice of the Meeting which can be found at the end of the
Annual Report & Financial Statements.
Change of Registrar
On 4 December 2023, the Company, along with the three other Mobeus VCTs,
changed its Registrar to City Partnership LLP ("City") bringing all four VCTs
under one Registrar for the first time. The Board believes the move will bring
additional benefits to Shareholders including the ability to access multiple
Mobeus VCT shareholdings in one place using City's online portal, the Hub.
Shareholders are encouraged to register their email address with City via the
Hub portal or by calling them to reduce the printing/posting costs of the
Company. Further details can be found in the Shareholder Information section
at the end of the Annual Report & Financial Statements.
Co-investment Scheme
The Board is keen to ensure that the Investment Adviser retains a motivated
and incentivised investment team which can generate attractive future returns
for the Company. To improve the alignment of interests with shareholders, on
26 July 2023, the Boards of the four Mobeus VCTs released a joint announcement
detailing the adoption of a Co-investment incentive scheme ("the Scheme")
under which members of the Investment Adviser's VCT investment and
administration team will invest their own money into a proportion of the
ordinary shares of each investment made by the Mobeus VCTs (the co-investment
under the Scheme will represent 8% of the four VCTs' overall ordinary share
investment in an investee company).
The Scheme will apply to investments made on or after 26 July 2023, such
co-investment to be at the same time and on substantially the same terms as
the investment by the Mobeus VCTs. The Board will keep the Scheme arrangements
under regular review.
Acquisition of Investment Adviser, Gresham House
Further to the announcement on 17 July 2023, on the acquisition of the
Investment Adviser by Searchlight Capital Partners, L.P., the acquisition has
now completed, and Gresham House plc delisted from the London Stock Exchange
on 20 December 2023 to become a privately owned company. The acquisition is
expected to have minimal impact on the Company and business is continuing as
usual.
For further information please visit the website link:
https://greshamhouse.com/ about/.
Consumer Duty
The Financial Conduct Authority's (FCA) new Consumer Duty regulation came into
effect on 31 July 2023. The Consumer Duty is an advance on the previous
concept of 'treating customers fairly', which sets higher and clearer
standards of consumer protection across financial services and requires all
firms to put their customers' needs first.
As previously notified, the Company is not regulated by the FCA and therefore
it does not directly fall into the scope of Consumer Duty. However, Gresham
House as the Investment Adviser, and any IFAs or financial platforms used to
distribute future fundraising offers, are subject to Consumer Duty.
The Board will ensure that the principles behind Consumer Duty are upheld and
have worked closely with the Investment Adviser on the information now
available to assist consumers and their advisers to be able to discharge their
obligations under Consumer Duty.
Environmental, Social and Governance ("ESG")
The Board and the Investment Adviser believe that the consideration of
environmental, social and corporate governance ("ESG") factors throughout the
investment cycle will contribute towards enhanced Shareholder value.
Gresham House Asset Management Limited has a team which is focused on
sustainability, the Board views this as an opportunity to enhance the
Company's existing protocols and procedures through the adoption of the
highest industry standards.
The FCA reporting requirements consistent with the Task Force on
Climate-related Financial Disclosures ("TCFD"), which commenced on 1 January
2021 do not currently apply to the Company but are kept under review, the
Board being mindful of any recommended changes. The Board is aware of the
FCA's new Sustainability Disclosure Requirements ("SDR") and investment labels
(together the "rules") to be phased-in across the next 3 years. As the Company
is classified as a Collective Investment Undertaking, the scope of the rules
capture such UK-domiciled unauthorised funds, however given that the shares in
the Company (the "product") do not have a sustainable investment objective,
the rules only apply on a very limited basis (through the Investment Adviser)
in relation to the Company. The Gresham House first TCFD Report can be found
on its website at: TCFD report - Gresham House
(https://greshamhouse.com/tcfd/) .
Fraud Warning
We are aware of cases where Shareholders are being fraudulently contacted or
are being subjected to
attempts of identity fraud. Shareholders should remain vigilant of all
potential financial scams or
requests for them to disclose personal data. The Board strongly recommends
Shareholders take time
to read the Company's Fraud warning section, including details of who to
contact, contained within
the Information for Shareholders section at the end of the Annual Report &
Financial Statements.
Outlook
The geopolitical and economic outlook for the next twelve months is likely to
remain challenging.
However, the Board and Investment Adviser are confident that this can also
provide a good opportunity to make high quality investments and build
strategic stakes in businesses with good potential for the future. Despite the
successful exits of EOTH and Tharstern during the year the exit environment is
likely to be more subdued when compared to recent years, although this is not
foreseen to be a significant issue given that the Company is not time limited.
We anticipate that further stresses will become apparent across the UK
business population over the coming year with no sectors immune from the
impact. Nevertheless, the Company's portfolio is managed by a professional and
capable Investment team, to respond to the challenges which lie ahead.
Maurice Helfgott
Chairman
12 January 2024
INVESTMENT ADVISER'S REVIEW
Porfolio Review
The current exacting economic conditions are creating challenging
circumstances for portfolio companies although some stability has been seen in
market multiples compared to the previous year. UK business has seen both
demand and operating margins come under pressure due to marked increases in
inflation and interest rates. Such macro-economic conditions have not been
faced by management teams in a generation, however Gresham House's experienced
non-executive directors and consultants continue to support the portfolio's
companies during these turbulent times.
There is now a greater focus on cash management and capital efficiency. With
ample liquidity following the fundraises in 2022, the Company is very well
placed to support portfolio companies with follow-on funding where it is
appropriate and can be structured on attractive terms. Strong liquidity also
benefits the new investment environment for the Company which, in our view, is
strong as we are seeing a number of interesting investment propositions.
The decline in consumer confidence and business investment has been impacting
portfolio companies'
trading. Inflation has remained at an elevated level and has impacted economic
growth expectations. In contrast, there are indications that supply chains are
returning to normal, that labour shortages are easing and this is producing an
element of positive market sentiment. The direct impact of high interest rates
on the Company's portfolio is appropriately limited because most portfolio
companies do not have any significant third-party debt. The outlook is
therefore mixed, with the emphasis on robust funding structures and
preparation for all circumstances.
The portfolio movements in the year are summarised as follows:
2023 2022
£m £m
Opening portfolio value 73.08 88.15
New and follow-on investments 3.34 7.33
Disposal proceeds (9.13) (11.56)
Net unrealised gains/(losses) 5.02 (13.16)
Realised valuation gains 0.41 2.32
Portfolio value at 30 September 72.72 73.08
Despite concerns about the wider trading environment, the portfolio's largest
investments have experienced some strong revenue growth, which has underpinned
a positive return over the last two quarters of the Company's financial year.
Preservica continues to see strong trading and is out-performing its budget
giving a material uplift in its valuation. A strengthening has also been seen
in the quoted share price of Virgin Wines UK plc following the release of its
trading update in July 2023. There has also been some recovery in value across
other portfolio companies, such as Veritek Global.
The profitable exit of EOTH provided a 6.9x multiple of cost and an IRR of
23.2% over the life of the investment and the Tharstern exit gave a return of
2.6x and an IRR of 15.0%. Unless there is a change in market dynamics, it is
likely that there will be few exit prospects in the next year and portfolio
companies will be held for longer periods. By contrast however, there were
also some larger portfolio value falls such as MyTutor, Bleach and Wetsuit
Outlet which continue to experience challenging trading conditions. The
portfolio companies are now more focussed on establishing a path to
profitability. Disappointingly, after experiencing very difficult trading
conditions as a result of the effects of COVID-19, Tapas Revolution entered
administration during the year with no expected recovery for the Company.
The Company made five new growth capital investments during the year totalling
£2.72 million and
two follow-on investments totalling £0.62 million, further details of these
investments are on the
next pages.
After the year-end, new investments were made into Ozone Financial Technology,
Azarc and CitySwift and further follow-on investments were made into RotaGeek,
FocalPoint and MyTutor.
The investment and divestment activity during the year has further increased
the proportion of the
portfolio comprised of investments made since the 2015 VCT rule change to
80.2% by value at the
year-end (30 September 2022: 71.5%).
The portfolio's valuation changes in the year are summarised as follows:
2023 2022
£m £m
Increase in the value of unrealised investments 11.49 7.32
Decrease in the value of unrealised investments (6.47) (20.48)
Net increase/(decrease) in the value of unrealised investments 5.02 (13.16)
Realised gains 1.28 3.03
Realised losses (0.87) (0.71)
Net realised gains in the year 0.41 2.32
Net investment portfolio movement in the year 5.43 (10.84)
Valuation changes of portfolio investments still held
The total valuation increases were £11.49 million with the main increases
being:
● Preservica £6.34 million
● MPB Group £2.07 million
● Aquasium £0.94 million
Preservica continues to perform well and is improving recurring revenues.
MPB's revenue growth continues with its latest valuation validated by a
significant third party investor round made after the
year end. Aquasium is gaining strong pipeline demand for its products.
The main reductions within total valuation decreases of £(6.47) million were:
● MyTutor £(2.39) million
● Bleach £(0.94) million
● Connect Childcare £(0.92) million
MyTutor has been impacted by declining sector multiples combined with slower
than anticipated growth over the year. Bleach is trading behind budget but has
recently received third party funding to support its cash position. Connect
Childcare struggled to deliver product cost effectively but has now raised
additional third party investment as part of its restructuring.
The Company's investment values have been partially insulated from market
movements and lower revenue growth by the preferred investment structures
utilised in many of the portfolio companies. This acts to moderate valuation
swings and the net result can be more modest falls when portfolio values
decline.
Realised gains/losses
The Company realised its investments in EOTH and Tharstern during the year
under review, generating
gains in the period of £0.42 million and £0.86 million, respectively. These
contributed to a multiple of cost of 6.9x and 2.6x over the life of the
investments. Realised losses through impairments of companies still held
totalling £0.87 million were applied to two investee companies. Net realised
gains for the year as a whole were £0.41 million.
Investment portfolio and income yield
In the year under review, the Company received the following amounts of
income:
2023 2022
£m £m
Interest received in the year 0.58 1.41
Dividends received in the year 0.64 1.16
OEIC and bank interest received in the year 1.97 0.24
Total Income in the year 3.19 2.57
Net asset Value at 30 September 122.78 108.42
Income Yield (Income as a % of Net asset Value at 30 September) 2.6% 2.6%
New investments during the year
The Company made five new investments totalling £2.72 million, as detailed
below:
Company Business Date of Investment Amount of new investment (£m)
Connect Earth Environmental data provider March 2023 0.33
Founded in 2021, Connect Earth (https://connect.earth/
(https://connect.earth/) ) is a London-based environmental data company that
seeks to facilitate easy access to sustainability data. With its carbon
tracking API technology, Connect Earth supports financial institutions in
offering their customers transparent insights into the climate impact of their
daily spending and investment decisions. Connect Earth's defensible and
scalable product platform suite has the potential to be a future market winner
in the nascent but rapidly growing carbon emission data market, for example,
by enabling banks to provide end retail and business customers with carbon
footprint insights of their spending. This funding round is designed to
facilitate the delivery of the technology and product roadmap to broaden the
commercial reach of a proven product.
Education and neuro-inclusion solutions March 2023 0.67
Cognassist
Cognassist (https://cognassist.com (https://cognassist.com) ) is an education
and neuro-inclusion solutions company that provides a Software-as-a-Service
(SaaS) platform focused on identifying and supporting individuals with hidden
learning needs. The business is underpinned by extensive scientific research
and an extensive cognitive dataset. Cognassist has scaled its underlying
business within the education market. This investment will empower Cognassist
to continue its growth within education and penetrate the enterprise market,
where demand for neuro-inclusive employee support solutions is rapidly
emerging.
Dayrize A provider of a rapid May 2023
sustainability impact 0.63
assessment tool
Founded in 2020, Amsterdam-based Dayrize (https://Dayrize.io
(https://Dayrize.io) ) has developed a rapid sustainability impact assessment
tool that delivers product-level insights for consumer goods brands and
retailers, enabling them to be leaders in sustainability. Its proprietary
software platform and methodology bring together an array of data sources to
provide a single holistic product-level
sustainability score that is comparable across product categories in under two
seconds. This funding round is to drive product development and develop its
market strategy to build on an opportunity to emerge as a market leader in the
industry.
Mable Therapy Digital health platform July 2023 0.55
for speech therapy and counselling for children and young adults
Based in Leeds, Mable (https://mabletherapy.com (https://mabletherapy.com) )
is the UK's leading digital health platform for speech therapy and counselling
for children and young adults. All sessions are undertaken live with qualified
paediatric therapists, and Mable uses gamification (games, activities and
other interactive resources) to provide improved therapeutic outcomes in a
child-friendly environment. This is a significant and growing area of need,
with 1.4 million children in the UK with long-term speech, language or
communication needs - Mable has the potential to transform the lives of
children in their crucial early stages of development. The funding will be
used to accelerate growth in existing B2C and B2B customer groups as well as
capitalising on new, potentially significant, routes to market.
Branchspace Digital retail software August 2023 0.54
provider to aviation and
travel industry
Branchspace (https://branchspace.com (https://branchspace.com) ) is a
well-established specialist digital retailing consultancy and software
provider to the aviation and travel industry. Branchspace's offering helps
customers to transform their technology architecture to unlock best-in-class
digital retailing capabilities, driving distribution efficiencies and an
improved customer experience. Across two complementary service offerings
Branchspace can effectively cover the entire airline tech stack and has carved
adefensible position as sector experts, serving clients including IAG,
Lufthansa and Etihad. This funding round will seek to accelerate product
development increasing the customer reach of their SaaS offering to establish
itself as the leading choice for airline digital retailing solutions.
Further investments during the year
The Company made two further investments into existing portfolio companies in
the year, totalling £0.62 million, as detailed below:
Company Business Date of Investment Amount of new investment (£m)
Legatics SaaS LegalTech software July 2023 0.45
Legatics (https://www.legatics.com/ (https://www.legatics.com/) ) transforms
legal transactions by enabling deal teams to collaborate and close deals in an
interactive online environment. Designed by lawyers to improve legacy working
methods and solve practical transactional issues, the legal transaction
management platform increases collaboration, efficiency and transparency. As a
result, Legatics
has been used by around 1,500 companies, and has been procured by more than
half of the top global banking and finance law firms, with collaborations
having been hosted in over 60 countries. This funding round will provide
headroom to further accelerate growth in sales via marketing as well as
increasing product development.
Orri Specialists in eating disorder support August 2023 0.17
Orri Limited (https://orri-uk.com (https://orri-uk.com) ) is an intensive
daycare provider for adults with eating disorders. Orri provides an
alternative to expensive residential in-patient treatment and lighter-touch
outpatient services by providing highly structured day and half day sessions
either online or in-person at its clinic on Hallam Street, London. Orri opened
its current clinic on Hallam Street, London in February 2019 which provides a
homely environment in a converted 4-storey manor house which is operating at
capacity. The plan sees a larger site being leased nearby with Hallam Street
being used to provide a step-down outpatient service. This follow on loan
stock is to provide additional cash headroom to help drive growth.
Portfolio Realisations during the year
The Company realised two investments, as detailed below:
Company Business Period of Investment Total cash proceeds over the life of the investment/
Multiple over cost
EOTH Branded clothing (RAB October 2011 £9.54 million
and Lowe Alpine) to 6.9x cost
November 2022
The Company realised its equity investment in EOTH for £7.34 million
(realised gain in the period:
£0.42 million) including preference dividends. Total proceeds received over
the life of the investment were £9.54 million compared to an original
investment cost of £1.38 million, representing a multiple on cost of 6.9x and
an IRR of 23.2%. The Company has retained its interest yielding loan stock
investment. Once repaid, this should increase the multiple on cost to
7.9x.
Software based July 2014 £4.00 million
Tharstern management to 2.6x cost
information systems March 2023
The Company realised its investment in Tharstern Group for £2.85 million
(realised gain in period: £0.86 million). Total proceeds received over the
life of the investment were £4.00 million compared to an original cost of
£1.54 million, representing a multiple on cost of 2.6x and an IRR of 15.0%.
Investments made after the year-end
The Company made three follow-on and three new investments of £3.84 million
after the year-end, as
detailed below:
Existing:
Company Business Date of Investment Amount of new investment (£m)
RotaGeek Provider of cloud-based November 2023 0.23
enterprise software
RotaGeek (https://www.rotageek.com/ (https://www.rotageek.com/) ) is a
provider of cloud-based enterprise software to help larger retail, leisure and
healthcare organisations to schedule staff effectively. RotaGeek has proven
its ability to solve the scheduling issue for large retail clients effectively
competing due to the strength of its technologically advanced proposition.
Since investment it has also diversified and started to prove its
applicability in other verticals such as healthcare and hospitality. This
investment will help the company focus on operational delivery and continue
sales and client contract win momentum.
GPS enhancement software provider December 2023 0.17
Focal Point Positioning
Focal Point Positioning Limited (https://focalpointpositioning.com
(https://focalpointpositioning.com) ) is a deeptech business with a growing IP
and software portfolio. Its proprietary technology applies advanced physics
and machine learning to dramatically improve the satellite-based location
sensitivity, accuracy, and security of devices such as smartphones, wearables,
and vehicles and reduce costs. The further investment was agreed at the time
of the original funding in September 2022.
Digital marketplace for online tutoring January 2024 0.64
MyTutor
MyTutorweb (trading as MyTutor) (https://mytutor.co.uk (https://mytutor.co.uk)
)is a digital marketplace that connects school age pupils who are seeking
private online tutoring with university students. The business is satisfying a
growing demand from both schools and parents to improve pupils' exam results.
This further investment, alongside other existing shareholders and Australian
strategic coinvestor, SEEK, aims to build and reinforce its position as a UK
category leader in the online education market. This additional funding will
give the business extra headroom to support its more focused product and
growth strategy.
New:
Company Business Period of Investment Amount of further investment (£m)
Ozone Financial Technology Limited Open banking software developer December 2023 1.50
Ozone API (https://ozoneapi.com (https://ozoneapi.com) ) is a software
developer providing banks and financial institutions with a low cost, out of
the box solution enabling them to deliver open APIs which comply with open
banking and finance standards globally. The software goes beyond compliance
and enables customers to monetise open banking and finance opportunities which
are growing significantly following regulatory & market development. This
funding is the first equity investment into Ozone and enables the team to
invest into their product and go to market teams as they look to capitalise on
the large and fast-growing global market.
Azarc Cross-border customs automation software provider December 2023 0.53
Azarc.io (https://azarc.io (https://azarc.io) ) specialises in business
process automation using distributed ledger technology. Its Verathread®
product has been applied to automating cross-border customs clearances, albeit
it has wider supply chain applications. Founded in 2021, Azarc successfully
secured British Telecom as a customer and a long-term strategic partner in the
UK and aims to improve inefficiencies over traditional paper-based customs
clearances for import and export trade. This investment will support the
company's growth trajectory with BT and expedite its expansion into
international import/export hubs through new partnerships.
CitySwift Passenger transport data and scheduling software provider December 2023 0.77
Huddl Mobility Limited trading as CitySwift (https://cityswift.com
(https://cityswift.com) ) is a software business that works with bus operators
and local authorities to aggregate, cleanse and access insight from complex
data sources from across their networks, enabling them to optimise schedules
and unlock revenue generating or cost reduction opportunities. This investment
will be used to accelerate new customer acquisition and unlock significant
opportunities within the existing customer base - CitySwift already works with
major bus operators and local transport authorities including National
Express, Stagecoach and Transport for Wales.
Environmental, Social, Governance considerations
Gresham House is committed to sustainable investment as an integral part of
its business strategy. The Investment Adviser has formalised its approach to
sustainability and has put in place several processes to ensure environmental,
social and governance factors and stewardship responsibilities are built into
asset management across all funds and strategies, including venture capital
trusts, for example, individual members of the investment team now have their
own individual ESG objectives set which align with the wider ESG goals of
Gresham House. For further details, Gresham House published its third
Sustainable Investment Report in April 2023, which can be found on its website
at: www.greshamhouse.com (http://www.greshamhouse.com) .
Outlook
Whilst the year under review was marked with volatility and uncertainty as a
result of a number of factors affecting the global economy, the portfolio has
continued to trade well. The UK outlook remains challenging but the portfolio
is well diversified and Gresham House has an experienced team working closely
with the portfolio companies to help them navigate the challenges that lie
ahead. The exit environment is likely to remain subdued, resulting in longer
average investment hold times, but also providing further portfolio follow-on
investment opportunities. Previous evidence has shown that investing
throughout the economic cycle has the potential to yield strong returns and
Gresham House is seeing a number of opportunities, both new deals and further
investment into the existing portfolio, which have the potential to drive
shareholder value over the medium term.
Gresham House Asset Management Limited
Investment Adviser
12 January 2024
Annual General Meeting
The AGM will be held at 11.00 am on Thursday, 29 February 2024 at the offices
of Shakespeare Martineau LLP, 6(th) floor, 60 Gracechurch Street, London EC3V
0HR and will also by webcast for those Shareholders who are unable to attend
in person. Details of how to join the meeting by virtual means will be shown
on the Company's website. Shareholders joining virtually should note you will
not be able to vote at the meeting and therefore you are encouraged to lodge
your proxy form. For further details, please see the Notice of the Meeting
which can be found at the end of the Annual Report & Financial Statements.
Further Information
The Annual Report & Financial Statements for the year ended 30 September
2023 will be available shortly on www.incomeandgrowthvct.co.uk
(http://www.incomeandgrowthvct.co.uk) .
It will also be submitted shortly in full unedited text to the Financial
Conduct Authority's National Storage Mechanism and will be available for
inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism
(file:///C:/Users/b.onanuga/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/7ZS900ED/data.fca.org.uk/#/nsm/nationalstoragemechanism)
in accordance with DTR 6.3.5(1A) of the Financial Conduct Authority's
Disclosure Guidance and Transparency Rules.
Contact:
Gresham House Asset Management Limited
Company Secretary
mobeusvcts@greshamhouse.com (mailto:mobeusvcts@greshamhouse.com)
+44 20 7382 0999
Notwithstanding the current challenging environment, a number of investee
companies have shown positive revenue growth over the year (e.g. Preservica,
MPB and Bella & Duke). Alongside the improvements in market multiples used
as the basis of the Company's valuations, this has driven the portfolio value
increase compared to last year. The overall value of the portfolio increased
by £5.43 million, or 7.4%, on a like for like basis (adjusting new
investments in the year) compared to the opening value of the portfolio at 1
October 2022 of £73.08 million (2022: £(10.84) million, or (12.3)%).
At the year-end, the portfolio was valued at £72.72 million (30 September
2022: £73.08 million). The portfolio's value is now substantially comprised
of growth capital investments. Over 55% of the portfolio's value is comprised
of the Company's largest five assets by value, with Preservica accounting for
c. 27%.
The Investment Adviser closely monitors these higher value assets as part of
its risk mitigation measures. The VCT's portfolio valuation methodology has
continued to be applied consistently and in line with IPEV guidelines. During
the year, this was triangulated with an independent valuation, which was
commissioned for Preservica and Bella & Duke. The intention is that the
valuation of four of the largest investee companies will be externally
reviewed over the course of the next year.
During the year under review, the Company invested £2.72 million (2022:
£2.69 million) into five new investments:
Connect Earth £0.33 million An environmental data provider
Cognassist £0.67 million An education and neuro-inclusion solutions business
Dayrize £0.63 million A provider of a rapid sustainability impact assessment tool
Mable Therapy £0.55 million Therapy & counselling for children and young adults
Branchspace £0.54 million A digital retailing consultancy and software provider to the
aviation and travel industry
The Company also invested a total of £0.62 million (2022: £4.64 million)
into two existing portfolio companies during the year:
Legatics £0.45 million A SaaS LegalTech software provider
Orri £0.17 million An intensive day care provider for adults with eating disorders
In November 2022 it was pleasing to exit the equity investment held in EOTH
receiving £7.34 million including preference share dividends on completion
which generated a realised a capital gain in the year of £0.42 million, a
6.9x multiple of cost and an IRR of 23.2%. The Company retains its interest
yielding loan stock in EOTH which will increase returns further. The Company
also received £2.85 million in proceeds from the realisation of Tharstern
Group, generating a realised gain of £0.86 million. Over the life of this
investment, the Company has received total proceeds of £4.00 million which
equates to a multiple on cost of 2.6x and an IRR of 15.0%.
During the year, Spanish Restaurant Group Limited (trading as Tapas
Revolution) went into administration. The company had experienced extremely
challenging conditions since COVID-19 and under the HMRC Financial Health Test
(more detail below), your Company was unable to invest further. Including
Tapas Revolution and a restructuring of RDL Corporation, a total of £0.87
million has been recognised as a realised loss.
I reported previously on HMRC's recent stricter interpretation of the
Financial Health Test. Additional guidance has since been published on this
matter which outlines that each potential new VCT investment will be assessed
independently based on the specific financial circumstances of the investee
company. Although it will take time to see these assessments in action, this
updated guidance and expected increased flexibility is a welcome development.
The Board, AIC and Venture Capital Trust Association will continue to monitor
this.
Revenue Account
The results for the year are set out in the Income Statement in the Annual
Report & Financial Statements and show a revenue return (after tax) of
1.11 pence per share (2022: 1.23 pence per share). The revenue return for the
year of £1.66 million has increased from last year's figure of £1.53 million
which was, primarily, due to higher income received from the liquid balances
of the immediately realisable OEIC money market funds.
Fundraising
Following the success of the two fundraises launched in 2022, the Company has
sufficient levels of
liquidity to continue to take advantage of new investment opportunities and
fund further expansion of the businesses in its investment portfolio, helping
to further diversify the portfolio and create opportunities for future growth.
The current level of funds also allows the Company to seek to deliver
attractive returns for its Shareholders, by way of the payment of dividends
over the medium term, and buy back its shares from those Shareholders who may
wish to sell theirs. Therefore, it is not the intention of the Board to
conduct another fundraise in the 2023/2024 tax year.
Liquidity
Cash and liquidity fund balances as at 30 September 2023 amounted to £50.09
million representing 40.8% of net assets. After the year-end, following a 7.00
pence dividend payment of £8.89 million and investments totalling £3.84
million, the level of liquidity at 11 January 2024 is £37.36 million or 32.8%
of net assets). The majority of cash resources are held in liquidity funds
with AAA credit ratings, the returns on which have benefitted from the
increases in interest rates over the past year which will help support future
returns to Shareholders. The Board however continues to monitor credit risk in
respect of all its cash and near cash resources and still prioritises the
security and protection of the Company's capital.
Share buy-backs
During the year to 30 September 2023, the Company bought back and cancelled
3,975,746 of its own shares (2022: 1,166,089), representing 3.1% (2022: 1.1%)
of the shares in issue at the beginning of the year, at a total cost of £2.98
million (2022: £1.03 million), inclusive of expenses.
It is the Company's policy to cancel all shares bought back in this way. The
Board regularly reviews its buyback policy, where its priority is to act
prudently and in the interest of remaining Shareholders, whilst considering
other factors, such as levels of liquidity and reserves, market conditions and
applicable law and regulations. Under this policy, the Company seeks to
maintain the discount at which the Company's shares trade at approximately 5%
below the latest published NAV.
Shareholder Communications & Annual General Meeting
May I remind you that the Company has its own website which is available at:
www.incomeandgrowthvct.co.uk. (http://www.incomeandgrowthvct.co.uk/)
The Investment Adviser last held a virtual Shareholder Event on behalf of all
four Mobeus VCTs in March 2023. The event was well received and the Investment
Adviser plans to hold another event on 1 March 2024. Further details were
circulated to Shareholders in December 2023 and will be shown on the Company's
website in due course. You are encouraged to register for attendance.
Your Board is pleased to hold the next Annual General Meeting ("AGM") of the
Company at 11.00 am on Thursday, 29 February 2024 at the offices of
Shakespeare Martineau LLP, 6th Floor, 60 Gracechurch Street, London EC3V 0HR.
A webcast will also be available at the same time for those Shareholders who
cannot attend in person however, please note that you will not be able to vote
via this method and so are encouraged to return your proxy form before the
deadline of 27 February 2024. Information setting out how to join the meeting
by virtual means will be shown on the Company's website. For further details,
please see the Notice of the Meeting which can be found at the end of the
Annual Report & Financial Statements.
Change of Registrar
On 4 December 2023, the Company, along with the three other Mobeus VCTs,
changed its Registrar to City Partnership LLP ("City") bringing all four VCTs
under one Registrar for the first time. The Board believes the move will bring
additional benefits to Shareholders including the ability to access multiple
Mobeus VCT shareholdings in one place using City's online portal, the Hub.
Shareholders are encouraged to register their email address with City via the
Hub portal or by calling them to reduce the printing/posting costs of the
Company. Further details can be found in the Shareholder Information section
at the end of the Annual Report & Financial Statements.
Co-investment Scheme
The Board is keen to ensure that the Investment Adviser retains a motivated
and incentivised investment team which can generate attractive future returns
for the Company. To improve the alignment of interests with shareholders, on
26 July 2023, the Boards of the four Mobeus VCTs released a joint announcement
detailing the adoption of a Co-investment incentive scheme ("the Scheme")
under which members of the Investment Adviser's VCT investment and
administration team will invest their own money into a proportion of the
ordinary shares of each investment made by the Mobeus VCTs (the co-investment
under the Scheme will represent 8% of the four VCTs' overall ordinary share
investment in an investee company).
The Scheme will apply to investments made on or after 26 July 2023, such
co-investment to be at the same time and on substantially the same terms as
the investment by the Mobeus VCTs. The Board will keep the Scheme arrangements
under regular review.
Acquisition of Investment Adviser, Gresham House
Further to the announcement on 17 July 2023, on the acquisition of the
Investment Adviser by Searchlight Capital Partners, L.P., the acquisition has
now completed, and Gresham House plc delisted from the London Stock Exchange
on 20 December 2023 to become a privately owned company. The acquisition is
expected to have minimal impact on the Company and business is continuing as
usual.
For further information please visit the website link:
https://greshamhouse.com/ about/.
Consumer Duty
The Financial Conduct Authority's (FCA) new Consumer Duty regulation came into
effect on 31 July 2023. The Consumer Duty is an advance on the previous
concept of 'treating customers fairly', which sets higher and clearer
standards of consumer protection across financial services and requires all
firms to put their customers' needs first.
As previously notified, the Company is not regulated by the FCA and therefore
it does not directly fall into the scope of Consumer Duty. However, Gresham
House as the Investment Adviser, and any IFAs or financial platforms used to
distribute future fundraising offers, are subject to Consumer Duty.
The Board will ensure that the principles behind Consumer Duty are upheld and
have worked closely with the Investment Adviser on the information now
available to assist consumers and their advisers to be able to discharge their
obligations under Consumer Duty.
Environmental, Social and Governance ("ESG")
The Board and the Investment Adviser believe that the consideration of
environmental, social and corporate governance ("ESG") factors throughout the
investment cycle will contribute towards enhanced Shareholder value.
Gresham House Asset Management Limited has a team which is focused on
sustainability, the Board views this as an opportunity to enhance the
Company's existing protocols and procedures through the adoption of the
highest industry standards.
The FCA reporting requirements consistent with the Task Force on
Climate-related Financial Disclosures ("TCFD"), which commenced on 1 January
2021 do not currently apply to the Company but are kept under review, the
Board being mindful of any recommended changes. The Board is aware of the
FCA's new Sustainability Disclosure Requirements ("SDR") and investment labels
(together the "rules") to be phased-in across the next 3 years. As the Company
is classified as a Collective Investment Undertaking, the scope of the rules
capture such UK-domiciled unauthorised funds, however given that the shares in
the Company (the "product") do not have a sustainable investment objective,
the rules only apply on a very limited basis (through the Investment Adviser)
in relation to the Company. The Gresham House first TCFD Report can be found
on its website at: TCFD report - Gresham House
(https://greshamhouse.com/tcfd/) .
Fraud Warning
We are aware of cases where Shareholders are being fraudulently contacted or
are being subjected to
attempts of identity fraud. Shareholders should remain vigilant of all
potential financial scams or
requests for them to disclose personal data. The Board strongly recommends
Shareholders take time
to read the Company's Fraud warning section, including details of who to
contact, contained within
the Information for Shareholders section at the end of the Annual Report &
Financial Statements.
Outlook
The geopolitical and economic outlook for the next twelve months is likely to
remain challenging.
However, the Board and Investment Adviser are confident that this can also
provide a good opportunity to make high quality investments and build
strategic stakes in businesses with good potential for the future. Despite the
successful exits of EOTH and Tharstern during the year the exit environment is
likely to be more subdued when compared to recent years, although this is not
foreseen to be a significant issue given that the Company is not time limited.
We anticipate that further stresses will become apparent across the UK
business population over the coming year with no sectors immune from the
impact. Nevertheless, the Company's portfolio is managed by a professional and
capable Investment team, to respond to the challenges which lie ahead.
Maurice Helfgott
Chairman
12 January 2024
INVESTMENT ADVISER'S REVIEW
Porfolio Review
The current exacting economic conditions are creating challenging
circumstances for portfolio companies although some stability has been seen in
market multiples compared to the previous year. UK business has seen both
demand and operating margins come under pressure due to marked increases in
inflation and interest rates. Such macro-economic conditions have not been
faced by management teams in a generation, however Gresham House's experienced
non-executive directors and consultants continue to support the portfolio's
companies during these turbulent times.
There is now a greater focus on cash management and capital efficiency. With
ample liquidity following the fundraises in 2022, the Company is very well
placed to support portfolio companies with follow-on funding where it is
appropriate and can be structured on attractive terms. Strong liquidity also
benefits the new investment environment for the Company which, in our view, is
strong as we are seeing a number of interesting investment propositions.
The decline in consumer confidence and business investment has been impacting
portfolio companies'
trading. Inflation has remained at an elevated level and has impacted economic
growth expectations. In contrast, there are indications that supply chains are
returning to normal, that labour shortages are easing and this is producing an
element of positive market sentiment. The direct impact of high interest rates
on the Company's portfolio is appropriately limited because most portfolio
companies do not have any significant third-party debt. The outlook is
therefore mixed, with the emphasis on robust funding structures and
preparation for all circumstances.
The portfolio movements in the year are summarised as follows:
2023 2022
£m £m
Opening portfolio value 73.08 88.15
New and follow-on investments 3.34 7.33
Disposal proceeds (9.13) (11.56)
Net unrealised gains/(losses) 5.02 (13.16)
Realised valuation gains 0.41 2.32
Portfolio value at 30 September 72.72 73.08
Despite concerns about the wider trading environment, the portfolio's largest
investments have experienced some strong revenue growth, which has underpinned
a positive return over the last two quarters of the Company's financial year.
Preservica continues to see strong trading and is out-performing its budget
giving a material uplift in its valuation. A strengthening has also been seen
in the quoted share price of Virgin Wines UK plc following the release of its
trading update in July 2023. There has also been some recovery in value across
other portfolio companies, such as Veritek Global.
The profitable exit of EOTH provided a 6.9x multiple of cost and an IRR of
23.2% over the life of the investment and the Tharstern exit gave a return of
2.6x and an IRR of 15.0%. Unless there is a change in market dynamics, it is
likely that there will be few exit prospects in the next year and portfolio
companies will be held for longer periods. By contrast however, there were
also some larger portfolio value falls such as MyTutor, Bleach and Wetsuit
Outlet which continue to experience challenging trading conditions. The
portfolio companies are now more focussed on establishing a path to
profitability. Disappointingly, after experiencing very difficult trading
conditions as a result of the effects of COVID-19, Tapas Revolution entered
administration during the year with no expected recovery for the Company.
The Company made five new growth capital investments during the year totalling
£2.72 million and
two follow-on investments totalling £0.62 million, further details of these
investments are on the
next pages.
After the year-end, new investments were made into Ozone Financial Technology,
Azarc and CitySwift and further follow-on investments were made into RotaGeek,
FocalPoint and MyTutor.
The investment and divestment activity during the year has further increased
the proportion of the
portfolio comprised of investments made since the 2015 VCT rule change to
80.2% by value at the
year-end (30 September 2022: 71.5%).
The portfolio's valuation changes in the year are summarised as follows:
2023 2022
£m £m
Increase in the value of unrealised investments 11.49 7.32
Decrease in the value of unrealised investments (6.47) (20.48)
Net increase/(decrease) in the value of unrealised investments 5.02 (13.16)
Realised gains 1.28 3.03
Realised losses (0.87) (0.71)
Net realised gains in the year 0.41 2.32
Net investment portfolio movement in the year 5.43 (10.84)
Valuation changes of portfolio investments still held
The total valuation increases were £11.49 million with the main increases
being:
● Preservica £6.34 million
● MPB Group £2.07 million
● Aquasium £0.94 million
Preservica continues to perform well and is improving recurring revenues.
MPB's revenue growth continues with its latest valuation validated by a
significant third party investor round made after the
year end. Aquasium is gaining strong pipeline demand for its products.
The main reductions within total valuation decreases of £(6.47) million were:
● MyTutor £(2.39) million
● Bleach £(0.94) million
● Connect Childcare £(0.92) million
MyTutor has been impacted by declining sector multiples combined with slower
than anticipated growth over the year. Bleach is trading behind budget but has
recently received third party funding to support its cash position. Connect
Childcare struggled to deliver product cost effectively but has now raised
additional third party investment as part of its restructuring.
The Company's investment values have been partially insulated from market
movements and lower revenue growth by the preferred investment structures
utilised in many of the portfolio companies. This acts to moderate valuation
swings and the net result can be more modest falls when portfolio values
decline.
Realised gains/losses
The Company realised its investments in EOTH and Tharstern during the year
under review, generating
gains in the period of £0.42 million and £0.86 million, respectively. These
contributed to a multiple of cost of 6.9x and 2.6x over the life of the
investments. Realised losses through impairments of companies still held
totalling £0.87 million were applied to two investee companies. Net realised
gains for the year as a whole were £0.41 million.
Investment portfolio and income yield
In the year under review, the Company received the following amounts of
income:
2023 2022
£m £m
Interest received in the year 0.58 1.41
Dividends received in the year 0.64 1.16
OEIC and bank interest received in the year 1.97 0.24
Total Income in the year 3.19 2.57
Net asset Value at 30 September 122.78 108.42
Income Yield (Income as a % of Net asset Value at 30 September) 2.6% 2.6%
New investments during the year
The Company made five new investments totalling £2.72 million, as detailed
below:
Company Business Date of Investment Amount of new investment (£m)
Connect Earth Environmental data provider March 2023 0.33
Founded in 2021, Connect Earth (https://connect.earth/
(https://connect.earth/) ) is a London-based environmental data company that
seeks to facilitate easy access to sustainability data. With its carbon
tracking API technology, Connect Earth supports financial institutions in
offering their customers transparent insights into the climate impact of their
daily spending and investment decisions. Connect Earth's defensible and
scalable product platform suite has the potential to be a future market winner
in the nascent but rapidly growing carbon emission data market, for example,
by enabling banks to provide end retail and business customers with carbon
footprint insights of their spending. This funding round is designed to
facilitate the delivery of the technology and product roadmap to broaden the
commercial reach of a proven product.
Education and neuro-inclusion solutions March 2023 0.67
Cognassist
Cognassist (https://cognassist.com (https://cognassist.com) ) is an education
and neuro-inclusion solutions company that provides a Software-as-a-Service
(SaaS) platform focused on identifying and supporting individuals with hidden
learning needs. The business is underpinned by extensive scientific research
and an extensive cognitive dataset. Cognassist has scaled its underlying
business within the education market. This investment will empower Cognassist
to continue its growth within education and penetrate the enterprise market,
where demand for neuro-inclusive employee support solutions is rapidly
emerging.
Dayrize A provider of a rapid May 2023
sustainability impact 0.63
assessment tool
Founded in 2020, Amsterdam-based Dayrize (https://Dayrize.io
(https://Dayrize.io) ) has developed a rapid sustainability impact assessment
tool that delivers product-level insights for consumer goods brands and
retailers, enabling them to be leaders in sustainability. Its proprietary
software platform and methodology bring together an array of data sources to
provide a single holistic product-level
sustainability score that is comparable across product categories in under two
seconds. This funding round is to drive product development and develop its
market strategy to build on an opportunity to emerge as a market leader in the
industry.
Mable Therapy Digital health platform July 2023 0.55
for speech therapy and counselling for children and young adults
Based in Leeds, Mable (https://mabletherapy.com (https://mabletherapy.com) )
is the UK's leading digital health platform for speech therapy and counselling
for children and young adults. All sessions are undertaken live with qualified
paediatric therapists, and Mable uses gamification (games, activities and
other interactive resources) to provide improved therapeutic outcomes in a
child-friendly environment. This is a significant and growing area of need,
with 1.4 million children in the UK with long-term speech, language or
communication needs - Mable has the potential to transform the lives of
children in their crucial early stages of development. The funding will be
used to accelerate growth in existing B2C and B2B customer groups as well as
capitalising on new, potentially significant, routes to market.
Branchspace Digital retail software August 2023 0.54
provider to aviation and
travel industry
Branchspace (https://branchspace.com (https://branchspace.com) ) is a
well-established specialist digital retailing consultancy and software
provider to the aviation and travel industry. Branchspace's offering helps
customers to transform their technology architecture to unlock best-in-class
digital retailing capabilities, driving distribution efficiencies and an
improved customer experience. Across two complementary service offerings
Branchspace can effectively cover the entire airline tech stack and has carved
a defensible position as sector experts, serving clients including IAG,
Lufthansa and Etihad. This funding round will seek to accelerate product
development increasing the customer reach of their SaaS offering to establish
itself as the leading choice for airline digital retailing solutions.
Further investments during the year
The Company made two further investments into existing portfolio companies in
the year, totalling £0.62 million, as detailed below:
Company Business Date of Investment Amount of new investment (£m)
Legatics SaaS LegalTech software July 2023 0.45
Legatics (https://www.legatics.com/ (https://www.legatics.com/) ) transforms
legal transactions by enabling deal teams to collaborate and close deals in an
interactive online environment. Designed by lawyers to improve legacy working
methods and solve practical transactional issues, the legal transaction
management platform increases collaboration, efficiency and transparency. As a
result, Legatics
has been used by around 1,500 companies, and has been procured by more than
half of the top global banking and finance law firms, with collaborations
having been hosted in over 60 countries. This funding round will provide
headroom to further accelerate growth in sales via marketing as well as
increasing product development.
Orri Specialists in eating disorder support August 2023 0.17
Orri Limited (https://orri-uk.com (https://orri-uk.com) ) is an intensive
daycare provider for adults with eating disorders. Orri provides an
alternative to expensive residential in-patient treatment and lighter-touch
outpatient services by providing highly structured day and half day sessions
either online or in-person at its clinic on Hallam Street, London. Orri opened
its current clinic on Hallam Street, London in February 2019 which provides a
homely environment in a converted 4-storey manor house which is operating at
capacity. The plan sees a larger site being leased nearby with Hallam Street
being used to provide a step-down outpatient service. This follow on loan
stock is to provide additional cash headroom to help drive growth.
Portfolio Realisations during the year
The Company realised two investments, as detailed below:
Company Business Period of Investment Total cash proceeds over the life of the investment/
Multiple over cost
EOTH Branded clothing (RAB October 2011 £9.54 million
and Lowe Alpine) to 6.9x cost
November 2022
The Company realised its equity investment in EOTH for £7.34 million
(realised gain in the period:
£0.42 million) including preference dividends. Total proceeds received over
the life of the investment were £9.54 million compared to an original
investment cost of £1.38 million, representing a multiple on cost of 6.9x and
an IRR of 23.2%. The Company has retained its interest yielding loan stock
investment. Once repaid, this should increase the multiple on cost to
7.9x.
Software based July 2014 £4.00 million
Tharstern management to 2.6x cost
information systems March 2023
The Company realised its investment in Tharstern Group for £2.85 million
(realised gain in period: £0.86 million). Total proceeds received over the
life of the investment were £4.00 million compared to an original cost of
£1.54 million, representing a multiple on cost of 2.6x and an IRR of 15.0%.
Investments made after the year-end
The Company made three follow-on and three new investments of £3.84 million
after the year-end, as
detailed below:
Existing:
Company Business Date of Investment Amount of new investment (£m)
RotaGeek Provider of cloud-based November 2023 0.23
enterprise software
RotaGeek (https://www.rotageek.com/ (https://www.rotageek.com/) ) is a
provider of cloud-based enterprise software to help larger retail, leisure and
healthcare organisations to schedule staff effectively. RotaGeek has proven
its ability to solve the scheduling issue for large retail clients effectively
competing due to the strength of its technologically advanced proposition.
Since investment it has also diversified and started to prove its
applicability in other verticals such as healthcare and hospitality. This
investment will help the company focus on operational delivery and continue
sales and client contract win momentum.
GPS enhancement software provider December 2023 0.17
Focal Point Positioning
Focal Point Positioning Limited (https://focalpointpositioning.com
(https://focalpointpositioning.com) ) is a deeptech business with a growing IP
and software portfolio. Its proprietary technology applies advanced physics
and machine learning to dramatically improve the satellite-based location
sensitivity, accuracy, and security of devices such as smartphones, wearables,
and vehicles and reduce costs. The further investment was agreed at the time
of the original funding in September 2022.
Digital marketplace for online tutoring January 2024 0.64
MyTutor
MyTutorweb (trading as MyTutor) (https://mytutor.co.uk (https://mytutor.co.uk)
) is a digital marketplace that connects school age pupils who are seeking
private online tutoring with university students. The business is satisfying a
growing demand from both schools and parents to improve pupils' exam results.
This further investment, alongside other existing shareholders and Australian
strategic coinvestor, SEEK, aims to build and reinforce its position as a UK
category leader in the online education market. This additional funding will
give the business extra headroom to support its more focused product and
growth strategy.
New:
Company Business Period of Investment Amount of further investment (£m)
Ozone Financial Technology Limited Open banking software developer December 2023 1.50
Ozone API (https://ozoneapi.com (https://ozoneapi.com) ) is a software
developer providing banks and financial institutions with a low cost, out of
the box solution enabling them to deliver open APIs which comply with open
banking and finance standards globally. The software goes beyond compliance
and enables customers to monetise open banking and finance opportunities which
are growing significantly following regulatory & market development. This
funding is the first equity investment into Ozone and enables the team to
invest into their product and go to market teams as they look to capitalise on
the large and fast-growing global market.
Azarc Cross-border customs automation software provider December 2023 0.53
Azarc.io (https://azarc.io (https://azarc.io) ) specialises in business
process automation using distributed ledger technology. Its Verathread®
product has been applied to automating cross-border customs clearances, albeit
it has wider supply chain applications. Founded in 2021, Azarc successfully
secured British Telecom as a customer and a long-term strategic partner in the
UK and aims to improve inefficiencies over traditional paper-based customs
clearances for import and export trade. This investment will support the
company's growth trajectory with BT and expedite its expansion into
international import/export hubs through new partnerships.
CitySwift Passenger transport data and scheduling software provider December 2023 0.77
Huddl Mobility Limited trading as CitySwift (https://cityswift.com
(https://cityswift.com) ) is a software business that works with bus operators
and local authorities to aggregate, cleanse and access insight from complex
data sources from across their networks, enabling them to optimise schedules
and unlock revenue generating or cost reduction opportunities. This investment
will be used to accelerate new customer acquisition and unlock significant
opportunities within the existing customer base - CitySwift already works with
major bus operators and local transport authorities including National
Express, Stagecoach and Transport for Wales.
Environmental, Social, Governance considerations
Gresham House is committed to sustainable investment as an integral part of
its business strategy. The Investment Adviser has formalised its approach to
sustainability and has put in place several processes to ensure environmental,
social and governance factors and stewardship responsibilities are built into
asset management across all funds and strategies, including venture capital
trusts, for example, individual members of the investment team now have their
own individual ESG objectives set which align with the wider ESG goals of
Gresham House. For further details, Gresham House published its third
Sustainable Investment Report in April 2023, which can be found on its website
at: www.greshamhouse.com (http://www.greshamhouse.com) .
Outlook
Whilst the year under review was marked with volatility and uncertainty as a
result of a number of factors affecting the global economy, the portfolio has
continued to trade well. The UK outlook remains challenging but the portfolio
is well diversified and Gresham House has an experienced team working closely
with the portfolio companies to help them navigate the challenges that lie
ahead. The exit environment is likely to remain subdued, resulting in longer
average investment hold times, but also providing further portfolio follow-on
investment opportunities. Previous evidence has shown that investing
throughout the economic cycle has the potential to yield strong returns and
Gresham House is seeing a number of opportunities, both new deals and further
investment into the existing portfolio, which have the potential to drive
shareholder value over the medium term.
Gresham House Asset Management Limited
Investment Adviser
12 January 2024
Annual General Meeting
The AGM will be held at 11.00 am on Thursday, 29 February 2024 at the offices
of Shakespeare Martineau LLP, 6(th) floor, 60 Gracechurch Street, London EC3V
0HR and will also by webcast for those Shareholders who are unable to attend
in person. Details of how to join the meeting by virtual means will be shown
on the Company's website. Shareholders joining virtually should note you will
not be able to vote at the meeting and therefore you are encouraged to lodge
your proxy form. For further details, please see the Notice of the Meeting
which can be found at the end of the Annual Report & Financial Statements.
Further Information
The Annual Report & Financial Statements for the year ended 30 September
2023 will be available shortly on www.incomeandgrowthvct.co.uk
(http://www.incomeandgrowthvct.co.uk) .
It will also be submitted shortly in full unedited text to the Financial
Conduct Authority's National Storage Mechanism and will be available for
inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism
(file:///C:/Users/b.onanuga/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/7ZS900ED/data.fca.org.uk/#/nsm/nationalstoragemechanism)
in accordance with DTR 6.3.5(1A) of the Financial Conduct Authority's
Disclosure Guidance and Transparency Rules.
Contact:
Gresham House Asset Management Limited
Company Secretary
mobeusvcts@greshamhouse.com (mailto:mobeusvcts@greshamhouse.com)
+44 20 7382 0999
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