REG - The Inc & Grwth VCT - Half-year Report
14/06/2023 07:00
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RNS Number : 6178C Income & Growth VCT (The) PLC 14 June 2023
THE INCOME & GROWTH VCT PLC
LEI: 213800FPC15FNM74YD92
UNAUDITED HALF-YEAR RESULTS FOR THE SIX MONTHS TO 31 MARCH 2023
The Income & Growth VCT plc ("the Company") today announces its Half-Year
results for the six months to 31 March 2023.
You may, in due course, view the Half-Year Report, comprising the Unaudited
Condensed Financial Statements of the Company by visiting
www.incomeandgrowthvct.co.uk.
Financial Highlights
As at 31 March 2023:
Net assets: £122.93 million
Net asset value ("NAV") per share: 79.38 pence
Results for the six months to 31 March 2023:
· Net asset value ("NAV") total return¹ per share was (0.4)%.
· Share price total return(1) per share was (3.1)%.
· The Board has declared an interim dividend in respect of the current
year of 4.00 pence per share which was paid to Shareholders on 26 May 2023.
· The Company made two new investments of £1.01 million.
· Proceeds of £9.13 million were received from realisations,
generating net realised gains of £0.41 million.
(1) Alternative Performance Measure ("APM"). See Glossary of Terms in the
Half-Year Report.
PERFORMANCE SUMMARY
The table below shows the recent past performance of the Company's existing
class of shares for each of the last five years, and the current year to date.
Reporting date Net NAV per Share Share Cumulative dividends paid Cumulative total return per share to shareholders(2) Dividends
assets
Price(1) per share per share paid and proposed in respect of each year
(NAV (Share price basis)
basis)
As at (£m) (p) (p) (p) (p) (p) (p)
31 March 2023 122.93 79.38 75.00 148.50 227.88 223.50 4.00(3)
30 September 2022 108.42 83.73 81.50 144.50 228.83 226.00 8.00
30 September 2021 119.09 100.45 93.00 136.50 236.95 229.50 9.00
30 September 2020 83.13 70.06 59.50 131.50 201.56 191.00 14.00
30 September 2019 81.73 79.12 75.50 113.00 192.12 188.50 6.00
30 September 2018 82.58 78.32 69.50 108.00 186.32 177.50 6.00
( )
(1) Source: Panmure Gordon & Co (mid-market price).
(2) Cumulative total return per share comprises the NAV per share (NAV
basis) or the mid-market price per share (share price basis) plus cumulative
dividends paid since launch of the current share class.
(3) An interim dividend of 4.00 pence per share, referred to in the
Financial Highlights above, was paid to Shareholders on 26 May 2023. This
dividend has subsequently reduced the NAV per share to 75.38 pence and
increased cumulative dividends paid per share to 152.50 pence.
( )
Detailed performance data, including a table of dividends paid to date for all
share classes and fundraising rounds, is shown in the Performance Data
appendix in the Half-Year Report. The tables, which give information by
allotment date on NAVs and dividends paid per share, are also available on the
Company's website at www.incomeandgrowthvct.co.uk where they can be accessed
by clicking on "table" under "Reviewing the performance of your investment" on
the home page.
( )
Chair's Statement
I present the Company's Half-Year Report for the six months to 31 March 2023.
Overview
The first six months of the Company's financial year occurred against a
backdrop of challenging UK economic conditions. Increasing inflation and
rising interest rates have both impacted consumer and business confidence
which has pulled down market valuation benchmarks and caused a general
softening of trading performance. In line with this, the Company's NAV total
return fell marginally by 0.4%.
So far in 2023, despite the wider market concerns, stock market multiples
appeared to stabilise following the material downward re-rating of growth
stocks experienced over much of 2022. However, the collapse of Silicon Valley
Bank and other similar failures mean that confidence remains fragile. The
ongoing threat of a potential UK recession will likely result in additional
challenges for your portfolio companies. However, the portfolio is well
diversified and the Company is well prepared for most scenarios via its strong
liquidity available to support the winners in the portfolio.
The Company continued to be an active investor and provided new investment
finance to two new companies, Connect Earth and Cognassist. The Company also
delivered two highly successful exits, Equip Outdoor Technologies (EOTH) and
Tharstern Group.
On 5 October 2022, the Company launched an Offer for Subscription alongside
the three other Mobeus VCTs ("Offers") with the full amount being raised in a
matter of weeks. The Board was very pleased with this support and extends a
warm welcome to new and existing investors.
Performance
The Company's NAV total return per share was (0.4)% for the six months to 31
March 2023 (2022: 2.3%), and the share price total return was (3.1)% pence
(2022: 1.6%). The difference between the NAV total return and share price
total return figures above arises principally due to the timing of NAV
announcements which are usually made retrospectively. The fall in NAV total
return for the period was principally the result of unrealised declines in the
value of investments. Two successful portfolio exits generated realised gains
for the Company, however these were partially offset by impairments applied to
the holdings of two other companies.
Investment portfolio
In the current challenging environment, a number of investee companies
experienced a decline in consumer confidence with a resultant impact on
trading. The overall value decreased by a modest £(0.60) million (2022:
£4.20 million), or (0.8)% (2022: 4.8%) on a like-for-like basis, compared to
the opening portfolio value at 1 October 2022 of £73.08 million. This net
decrease comprised net realised gains of £0.41 million and net unrealised
declines in portfolio valuations of £(1.01) million, over the period.
At the period-end, the portfolio was valued at £64.36 million after taking
account of investments purchased and sold in the period, together with the net
realised gains and net unrealised losses referred to above.
As the portfolio continues its move from being comprised mainly of MBO
investments made under the previous strategy, towards predominantly growth
capital investments which have a more variable return profile, shareholders
should note that the likelihood of investee company failures is higher. A
further impact of the strategy change in 2015 is that at 31 March 2023, nearly
60% of the portfolio is comprised by the top five assets by value. The
Investment adviser ensures that all necessary focus is on these higher value
assets.
During the six months under review, the Company invested £1.01 million into
two new investments:
Connect Earth £0.34 million
Environmental data provider
Cognassist £0.67
million
Education and neuro-inclusion solutions
The Company generated a total of £9.06 million in proceeds from realisations
alongside loan repayments of £0.07 million. The Company therefore generated
total proceeds of £9.13 million in the six months to 31 March 2023. More
detail on these realisations is provided below.
In November 2022, it was pleasing to exit the equity investment held in EOTH
(trading as Rab and Lowe Alpine), receiving £7.34 million including
preference share dividends received upon completion. This exit generated a
realised gain in the period of £0.42 million. Total proceeds received over
the life of this investment are £9.54 million to date, a 6.9x multiple of
cost and an IRR of 23.2%. The Company has retained its interest yielding loan
stock to continue to generate income for the VCT in the future.
In March 2023, the Company achieved a full exit of Tharstern Group Limited
generating proceeds of £2.85 million and a realised gain of £0.86 million.
Over the life of this investment, the Company has received £4.00 million
which equates to a multiple on cost of 2.6x and an IRR of 15.0%.
After the period end, Spanish Restaurant Group Limited (trading as Tapas
Revolution) went into administration. Tapas Revolution had experienced very
challenging conditions since COVID-19 and under the HMRC Financial Health Test
(more detail below), the Company was unable to invest further in this
portfolio company. It was therefore necessary for an Administrator to be
appointed. A total of £0.87 million has been recognised as a realised loss in
the period across two companies (including Tapas Revolution) which are
experiencing significant trading issues.
Shareholders should be aware that the Financial Health test is an effective
tightening of the interpretation of HMRC policy and practice in a technical
aspect of the VCT financing rules, now resulting in the restriction of
potential follow-on investments to support certain companies. The Board
continues to monitor developments in the interpretation of this area of
legislation carefully and supports the lobbying of HMRC by the VCTA to change
its stance.
After the period-end, the Company invested £0.63 million into Dayrize B.V., a
sustainability impact assessment tool provider.
Further details of this investment activity and the performance of the
portfolio are contained in the Investment Adviser's Review and the Investment
Portfolio Summary of the Half-Year Report.
Revenue account
The results for the period are set out in the Unaudited Condensed Income
Statement and show a revenue return (after tax) of 0.60 pence per share (2022:
0.51 pence per share). The revenue return for the period of £0.87 million
represents an increase from last year's comparable figure of £0.61 million.
This is due primarily to higher dividend receipts and interest income.
Dividends
The Board is pleased to have declared an Interim dividend of 4.00 pence per
share for the year ending 30 September 2023.
This dividend was paid on 26 May 2023, to Shareholders on the Register on 21
April 2023, and combined with a 4.00 pence dividend paid in November 2022 in
respect of the previous financial year has brought cumulative dividends paid
per share to 152.50 pence per share.
The Company intends to maintain its target of paying a dividend of at least
6.00 pence per share in respect of each financial year and this has been
achieved in each of the last eleven financial years. The Board continues to
monitor the sustainability of its dividend target given the continued movement
of the portfolio to a larger share of younger growth capital investments which
have the potential for increased volatility, which may affect the return in a
given year.
Offer for Subscription and Dividend Investment Scheme
The Board approved a further fundraise for the 2022/23 tax year in October
2022 after considering the future cash requirements of the Company and the
potential demand for the Company's shares following the successful fundraise
in January 2022. Having provided a period of time between the launch of the
prospectus and acceptance of applications, the Board was pleased that the
initial amount of £14 million (as well as an over-allotment facility of a
further £8 million), launched on 5 October 2022, was fully subscribed by 8
November 2022. Shares were allotted in November 2022 and February 2023.
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 (adjusted for any subsequent
dividends). New VCT shares attract the same tax reliefs as shares purchased
through an Offer for Subscription. There were 1,197,652 shares allotted
through the DIS during the period at a price of 79.73 pence.
Shareholders can opt-in to the DIS by completing a mandate form available on
the Company's website at: www.incomeandgrowthvct.co.uk or can opt-out by
contacting Link Group, using the details provided in the Half Year Report.
Please note that instructions take 15 days to become effective.
Cash Available for investment
The Board continues to monitor credit risk in respect of its cash balances and
to prioritise the security and protection of the Company's capital. Cash and
liquidity fund balances as at 31 March 2023 amounted to £58.52 million. This
figure has been bolstered by the funds raised under the Offer and includes
£52.58 million held in money market funds with AAA credit ratings and £5.94
million held in deposit accounts with two well-known financial institutions.
The rises in the Bank of England base rate over recent months have
significantly increased the yield on these balances which will help provide
future returns to Shareholders.
Share buybacks
During the six months ended 31 March 2023, the Company bought back and
cancelled 2.41 million of its own shares, representing 1.9% (2022: 0.4%) of
the shares in issue at the beginning of the period, at a total cost of £1.84
million (2022: £0.40 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 no more than 5%
below the latest published NAV.
Shareholder Event & Communications
May I remind you that the Company has its own website which is available at:
www.incomeandgrowthvct.co.uk. The Investment Adviser last held a Shareholder
Event on behalf of the Mobeus VCTs on the afternoon of 23 March 2023 with a
live Q&A session which we hope you were able to join. Double the number of
attendees joined the meeting compared to last year. A recording of the event
is available via a link on the Company's website.
Fraud Warning
Shareholders continue to be contacted in connection with sophisticated but
fraudulent financial scams which purport to come from the Company or to be
authorised by it. This is often by a phone call or an email usually
originating from outside of the UK, claiming or appearing to be from a
corporate finance firm offering to buy your shares at an inflated price.
Further information and fraud advice plus details of who to contact, can be
found in the Shareholder Information section in the Half-Year Report.
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 has a team which is focused on sustainability and 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 future
FCA reporting requirements consistent with the Task Force on Climate-related
Financial Disclosures, which commenced on 1 January 2021, do not currently
apply to the Company but will be kept under review, the Board being mindful of
any recommended changes.
Consumer Duty
The Financial Conduct Authority (FCA) has introduced the concept of Consumer
Duty, the rules and principles of which come into effect in July 2023.
Consumer Duty is an advance on the existing concept of 'treating customers
fairly'. It sets higher and clearer standards of consumer protection across
financial services and requires all firms to put their customers' needs first.
As the Company is not regulated by the FCA 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.
It is incumbent on all parties to uphold the principles behind Consumer Duty
and to that end we are working with the Investment Adviser to review the
information we should provide to assist consumers and their advisers to
discharge their obligations under Consumer Duty.
Outlook
The geopolitical and economic context for the next year is liable to be
challenging. However, this can also provide an opportunity for the Company to
source and make high quality investments whilst building strategic stakes in
existing portfolio businesses with great potential for the future. The
prospects for new investment flow are good. Notwithstanding the successful
exits of EOTH and Tharstern, the exit environment will likely be subdued in
comparison to recent years. However, the Company has ample liquidity and is
not time-limited. The combined impact of inflation, interest rates and
restrictions in Government spending can be expected to impact both consumer
and business confidence in the near term. We therefore anticipate that further
stresses will become evident over the forthcoming year. We expect that all
sectors will be vulnerable, although the Company has a large and well
diversified portfolio, managed by a professional and capable investment team,
which helps to mitigate the challenges that lie ahead.
I would like to take this opportunity once again to thank all Shareholders for
your continued support and to extend a warm welcome to new Shareholders.
Maurice Helfgott
Chair
13 June 2023
Investment ADVISER'S Review
Portfolio review
The continuing harsh economic conditions continue to create challenging
circumstances for portfolio companies. UK business has seen both demand and
operating margins come under pressure in the face of marked increases in
inflation and interest rates which have not been experienced by a generation
of management teams.
In the latter months of 2022 and into 2023, market multiples began to
stabilise. However, portfolio companies' trading performance has now begun to
experience the impact of declining consumer confidence and business
investment.
Whilst inflation is expected to moderate following the rises in base rates, it
is still at a very high level and has impacted economic growth expectations.
In contrast to this, there are early signs that supply chains are returning to
normality, that labour shortages are easing and that there are pockets of
positive market sentiment. Furthermore, the direct impact of high interest
rates on the Company's portfolio is negligible as most portfolio companies do
not have any significant third-party debt. The outlook is therefore mixed, and
the emphasis is thus on robust funding structures and being prepared for all
eventualities.
The Gresham House non-executive directors who sit on each portfolio company
board have responded by working with their management teams to ensure that
appropriate scenario planning has been done to achieve the best results during
these uncertain times. There is also now a greater focus on cash management
and capital efficiency. With ample liquidity following the recent fund raise,
the Company is also well placed to support portfolio companies with follow-on
funding where it is appropriate and can be structured on attractive terms.
Strong liquidity will also benefit the attractive new investment environment
for the Company which, in our view is strong and we are seeing a number of
interesting investment propositions.
There are some specific highs in the portfolio such as Preservica which
continues to see strong trading and is out-performing budget. The exits from
EOTH and Tharstern were also excellent results after long running processes
which had to negotiate numerous economic and geo-political hurdles. By
contrast, there were also some significant falls, the largest were MyTutor and
Connect Childcare with a further fall in the quoted share price of Virgin
Wines UK plc. Disappointingly, after experiencing very difficult trading
conditions since the onset of COVID-19, Tapas Revolution has entered
administration since the period-end with no expected recovery for the VCTs.
The portfolio movements in the period are summarised as follows:
2023 2022
£m £m
Opening portfolio value 73.08 88.15
New and follow-on investments 1.01 3.25
Disposal proceeds (9.13) (6.24)
Net realised gains 0.41 1.21
Unrealised valuation movements (1.01) 2.99
Portfolio value at 31 March 64.36 89.36
Valuation changes of portfolio investments still held
The portfolio generated net unrealised losses of £(1.01) million in the first
half of its financial year.
The total valuation increases were £4.36 million. The main valuation
increases were in:
Preservica - £3.44 million
Aquasium - £0.32 million
Orri - £0.29 million
Preservica is performing well and increasing its recurring revenues whilst
Aquasium has started to gain significant traction with its products. Finally,
Orri has benefitted from a first time valuation uplift due to the investment
structuring.
The total valuation decreases were £(5.37) million. The main valuation
decreases were:
MyTutor - £(1.15) million
Connect Childcare - £(1.07) million
Virgin Wines - £(0.66) million
MyTutor has been impacted by declining sector multiples combined with slower
than anticipated growth over the year. Connect Childcare has not grown
revenues as quickly as hoped and is now prioritising capital efficiency.
Virgin Wines continues to suffer from negative sentiment across the consumer
sector. Following announcements of operational issues over its key Christmas
period, it has seen a further decline in its quoted share price, although
underlying trading remains resilient and compares very favourably to its
peers.
The Company's investment values have been insulated partially from market
movements and lower revenue growth by the preferred investment structures
employed in many of the portfolio companies. This acts to moderate valuation
swings and the net result is a more modest decline in portfolio value.
The portfolio's valuation changes in the period are summarised as follows:
Investment Portfolio Capital Movement 2023 2022 2020
£m £m £m
Increase in the value of unrealised investments 4.36 11.98 26.68
Decrease in the value of unrealised investments (5.37) (8.99) (0.61)
Net increase in the value of unrealised investments (1.01) 2.99 26.07
Realised gains 1.28 1.21 3.67
Realised losses (0.87) - (0.08)
Net realised gains in the period 0.41 1.21 3.59
Net investment portfolio movement in the period (0.60) 4.20 29.66
New investments during the period
The Company made one new investment of £1.01 million during the period, as
detailed below:
Company Business Date of Investment Amount of new investment (£m)
Connect Earth Environmental data March 2023 0.34
provider
Founded in 2021, Connect Earth (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.
Cognassist Education and neuro-inclusion solutions March 2023 0.67
Cognassist (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 the education market and penetrate the enterprise market, where
demand for neuro-inclusive solutions to adequately support employees is
rapidly emerging.
Realisations during the period
The Company completed two exits during the period, as detailed below:
Company Business Period of investment Total cash proceeds over the life of the investment/ Multiple over cost
EOTH Branded clothing (Rab and Lowe Alpine) October 2011 to November 2022 £9.54 million
6.9x cost
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.
Tharstern Software based management information systems July 2014 to March 2023 £4.00 million
2.6x cost
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%.
Loan repayments and other proceeds in the period
The Company received a loan repayment from Jablite Holdings Limited of £0.07
million.
Investment portfolio yield
In the period under review, the Company received the following amounts in loan
interest and dividend income:
Investment Portfolio Yield 2022 2022
£m £m
Interest received in the period 0.31 0.84
Dividends received in the period 0.56 0.40
Total portfolio income in the period(1) 0.87 1.24
Portfolio Value at 31 March 64.36 89.36
Portfolio Income Yield (Income as a % of Portfolio value at 31 March) 1.4% 1.4%
(1) Total portfolio income in the period is generated solely from investee
companies within the portfolio
New investments made after the period-end
The Company made one new investment of £0.63 million after the period-end, as
detailed below:
Company Business Date of Investment Amount of further investment (£m)
Dayrize May 2023 0.63
Sustainability impact assessment tool provider
Founded in 2020, Amsterdam-based Dayrize 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.
Environmental, Social, Governance considerations
Gresham House is committed to sustainable investment as an integral part of
its business strategy. During the year, 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.
Outlook
Whilst the period under review has once again been marked with volatility and
uncertainty as a result of a number of factors affecting both the global and
UK economy, the portfolio has continued to trade well under the circumstances.
Rising costs and recessionary pressures will place further strains on the
portfolio. However, the portfolio is well diversified and Gresham House has an
experienced team working closely with them to help them navigate the
challenges that lie ahead. In terms of new investment, evidence shows that
investing through 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
13 June 2023
Half-Year Report
Copies of this statement are being sent to all shareholders. Further copies
are available free of charge from the Company's registered office, 5 New
Street Square, London, EC4A 3TW, or can be downloaded via the Company's
website at www.incomeandgrowthvct.co.uk
(https://www.mobeusvcts.co.uk/investor-area/vct-investors/the-income-growth-vct-plc)
.
Contact
Gresham House Asset Management Limited
Company Secretary
mobeusvcts@greshamhouse.com
+44 20 7382 0999
( )
(1) Source: Panmure Gordon & Co (mid-market price).
(2) Cumulative total return per share comprises the NAV per share (NAV
basis) or the mid-market price per share (share price basis) plus cumulative
dividends paid since launch of the current share class.
(3) An interim dividend of 4.00 pence per share, referred to in the
Financial Highlights above, was paid to Shareholders on 26 May 2023. This
dividend has subsequently reduced the NAV per share to 75.38 pence and
increased cumulative dividends paid per share to 152.50 pence.
( )
Detailed performance data, including a table of dividends paid to date for all
share classes and fundraising rounds, is shown in the Performance Data
appendix in the Half-Year Report. The tables, which give information by
allotment date on NAVs and dividends paid per share, are also available on the
Company's website at www.incomeandgrowthvct.co.uk where they can be accessed
by clicking on "table" under "Reviewing the performance of your investment" on
the home page.
( )
Chair's Statement
I present the Company's Half-Year Report for the six months to 31 March 2023.
Overview
The first six months of the Company's financial year occurred against a
backdrop of challenging UK economic conditions. Increasing inflation and
rising interest rates have both impacted consumer and business confidence
which has pulled down market valuation benchmarks and caused a general
softening of trading performance. In line with this, the Company's NAV total
return fell marginally by 0.4%.
So far in 2023, despite the wider market concerns, stock market multiples
appeared to stabilise following the material downward re-rating of growth
stocks experienced over much of 2022. However, the collapse of Silicon Valley
Bank and other similar failures mean that confidence remains fragile. The
ongoing threat of a potential UK recession will likely result in additional
challenges for your portfolio companies. However, the portfolio is well
diversified and the Company is well prepared for most scenarios via its strong
liquidity available to support the winners in the portfolio.
The Company continued to be an active investor and provided new investment
finance to two new companies, Connect Earth and Cognassist. The Company also
delivered two highly successful exits, Equip Outdoor Technologies (EOTH) and
Tharstern Group.
On 5 October 2022, the Company launched an Offer for Subscription alongside
the three other Mobeus VCTs ("Offers") with the full amount being raised in a
matter of weeks. The Board was very pleased with this support and extends a
warm welcome to new and existing investors.
Performance
The Company's NAV total return per share was (0.4)% for the six months to 31
March 2023 (2022: 2.3%), and the share price total return was (3.1)% pence
(2022: 1.6%). The difference between the NAV total return and share price
total return figures above arises principally due to the timing of NAV
announcements which are usually made retrospectively. The fall in NAV total
return for the period was principally the result of unrealised declines in the
value of investments. Two successful portfolio exits generated realised gains
for the Company, however these were partially offset by impairments applied to
the holdings of two other companies.
Investment portfolio
In the current challenging environment, a number of investee companies
experienced a decline in consumer confidence with a resultant impact on
trading. The overall value decreased by a modest £(0.60) million (2022:
£4.20 million), or (0.8)% (2022: 4.8%) on a like-for-like basis, compared to
the opening portfolio value at 1 October 2022 of £73.08 million. This net
decrease comprised net realised gains of £0.41 million and net unrealised
declines in portfolio valuations of £(1.01) million, over the period.
At the period-end, the portfolio was valued at £64.36 million after taking
account of investments purchased and sold in the period, together with the net
realised gains and net unrealised losses referred to above.
As the portfolio continues its move from being comprised mainly of MBO
investments made under the previous strategy, towards predominantly growth
capital investments which have a more variable return profile, shareholders
should note that the likelihood of investee company failures is higher. A
further impact of the strategy change in 2015 is that at 31 March 2023, nearly
60% of the portfolio is comprised by the top five assets by value. The
Investment adviser ensures that all necessary focus is on these higher value
assets.
During the six months under review, the Company invested £1.01 million into
two new investments:
Connect Earth £0.34 million
Environmental data provider
Cognassist £0.67
million
Education and neuro-inclusion solutions
The Company generated a total of £9.06 million in proceeds from realisations
alongside loan repayments of £0.07 million. The Company therefore generated
total proceeds of £9.13 million in the six months to 31 March 2023. More
detail on these realisations is provided below.
In November 2022, it was pleasing to exit the equity investment held in EOTH
(trading as Rab and Lowe Alpine), receiving £7.34 million including
preference share dividends received upon completion. This exit generated a
realised gain in the period of £0.42 million. Total proceeds received over
the life of this investment are £9.54 million to date, a 6.9x multiple of
cost and an IRR of 23.2%. The Company has retained its interest yielding loan
stock to continue to generate income for the VCT in the future.
In March 2023, the Company achieved a full exit of Tharstern Group Limited
generating proceeds of £2.85 million and a realised gain of £0.86 million.
Over the life of this investment, the Company has received £4.00 million
which equates to a multiple on cost of 2.6x and an IRR of 15.0%.
After the period end, Spanish Restaurant Group Limited (trading as Tapas
Revolution) went into administration. Tapas Revolution had experienced very
challenging conditions since COVID-19 and under the HMRC Financial Health Test
(more detail below), the Company was unable to invest further in this
portfolio company. It was therefore necessary for an Administrator to be
appointed. A total of £0.87 million has been recognised as a realised loss in
the period across two companies (including Tapas Revolution) which are
experiencing significant trading issues.
Shareholders should be aware that the Financial Health test is an effective
tightening of the interpretation of HMRC policy and practice in a technical
aspect of the VCT financing rules, now resulting in the restriction of
potential follow-on investments to support certain companies. The Board
continues to monitor developments in the interpretation of this area of
legislation carefully and supports the lobbying of HMRC by the VCTA to change
its stance.
After the period-end, the Company invested £0.63 million into Dayrize B.V., a
sustainability impact assessment tool provider.
Further details of this investment activity and the performance of the
portfolio are contained in the Investment Adviser's Review and the Investment
Portfolio Summary of the Half-Year Report.
Revenue account
The results for the period are set out in the Unaudited Condensed Income
Statement and show a revenue return (after tax) of 0.60 pence per share (2022:
0.51 pence per share). The revenue return for the period of £0.87 million
represents an increase from last year's comparable figure of £0.61 million.
This is due primarily to higher dividend receipts and interest income.
Dividends
The Board is pleased to have declared an Interim dividend of 4.00 pence per
share for the year ending 30 September 2023.
This dividend was paid on 26 May 2023, to Shareholders on the Register on 21
April 2023, and combined with a 4.00 pence dividend paid in November 2022 in
respect of the previous financial year has brought cumulative dividends paid
per share to 152.50 pence per share.
The Company intends to maintain its target of paying a dividend of at least
6.00 pence per share in respect of each financial year and this has been
achieved in each of the last eleven financial years. The Board continues to
monitor the sustainability of its dividend target given the continued movement
of the portfolio to a larger share of younger growth capital investments which
have the potential for increased volatility, which may affect the return in a
given year.
Offer for Subscription and Dividend Investment Scheme
The Board approved a further fundraise for the 2022/23 tax year in October
2022 after considering the future cash requirements of the Company and the
potential demand for the Company's shares following the successful fundraise
in January 2022. Having provided a period of time between the launch of the
prospectus and acceptance of applications, the Board was pleased that the
initial amount of £14 million (as well as an over-allotment facility of a
further £8 million), launched on 5 October 2022, was fully subscribed by 8
November 2022. Shares were allotted in November 2022 and February 2023.
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 (adjusted for any subsequent
dividends). New VCT shares attract the same tax reliefs as shares purchased
through an Offer for Subscription. There were 1,197,652 shares allotted
through the DIS during the period at a price of 79.73 pence.
Shareholders can opt-in to the DIS by completing a mandate form available on
the Company's website at: www.incomeandgrowthvct.co.uk or can opt-out by
contacting Link Group, using the details provided in the Half Year Report.
Please note that instructions take 15 days to become effective.
Cash Available for investment
The Board continues to monitor credit risk in respect of its cash balances and
to prioritise the security and protection of the Company's capital. Cash and
liquidity fund balances as at 31 March 2023 amounted to £58.52 million. This
figure has been bolstered by the funds raised under the Offer and includes
£52.58 million held in money market funds with AAA credit ratings and £5.94
million held in deposit accounts with two well-known financial institutions.
The rises in the Bank of England base rate over recent months have
significantly increased the yield on these balances which will help provide
future returns to Shareholders.
Share buybacks
During the six months ended 31 March 2023, the Company bought back and
cancelled 2.41 million of its own shares, representing 1.9% (2022: 0.4%) of
the shares in issue at the beginning of the period, at a total cost of £1.84
million (2022: £0.40 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 no more than 5%
below the latest published NAV.
Shareholder Event & Communications
May I remind you that the Company has its own website which is available at:
www.incomeandgrowthvct.co.uk. The Investment Adviser last held a Shareholder
Event on behalf of the Mobeus VCTs on the afternoon of 23 March 2023 with a
live Q&A session which we hope you were able to join. Double the number of
attendees joined the meeting compared to last year. A recording of the event
is available via a link on the Company's website.
Fraud Warning
Shareholders continue to be contacted in connection with sophisticated but
fraudulent financial scams which purport to come from the Company or to be
authorised by it. This is often by a phone call or an email usually
originating from outside of the UK, claiming or appearing to be from a
corporate finance firm offering to buy your shares at an inflated price.
Further information and fraud advice plus details of who to contact, can be
found in the Shareholder Information section in the Half-Year Report.
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 has a team which is focused on sustainability and 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 future
FCA reporting requirements consistent with the Task Force on Climate-related
Financial Disclosures, which commenced on 1 January 2021, do not currently
apply to the Company but will be kept under review, the Board being mindful of
any recommended changes.
Consumer Duty
The Financial Conduct Authority (FCA) has introduced the concept of Consumer
Duty, the rules and principles of which come into effect in July 2023.
Consumer Duty is an advance on the existing concept of 'treating customers
fairly'. It sets higher and clearer standards of consumer protection across
financial services and requires all firms to put their customers' needs first.
As the Company is not regulated by the FCA 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.
It is incumbent on all parties to uphold the principles behind Consumer Duty
and to that end we are working with the Investment Adviser to review the
information we should provide to assist consumers and their advisers to
discharge their obligations under Consumer Duty.
Outlook
The geopolitical and economic context for the next year is liable to be
challenging. However, this can also provide an opportunity for the Company to
source and make high quality investments whilst building strategic stakes in
existing portfolio businesses with great potential for the future. The
prospects for new investment flow are good. Notwithstanding the successful
exits of EOTH and Tharstern, the exit environment will likely be subdued in
comparison to recent years. However, the Company has ample liquidity and is
not time-limited. The combined impact of inflation, interest rates and
restrictions in Government spending can be expected to impact both consumer
and business confidence in the near term. We therefore anticipate that further
stresses will become evident over the forthcoming year. We expect that all
sectors will be vulnerable, although the Company has a large and well
diversified portfolio, managed by a professional and capable investment team,
which helps to mitigate the challenges that lie ahead.
I would like to take this opportunity once again to thank all Shareholders for
your continued support and to extend a warm welcome to new Shareholders.
Maurice Helfgott
Chair
13 June 2023
Investment ADVISER'S Review
Portfolio review
The continuing harsh economic conditions continue to create challenging
circumstances for portfolio companies. UK business has seen both demand and
operating margins come under pressure in the face of marked increases in
inflation and interest rates which have not been experienced by a generation
of management teams.
In the latter months of 2022 and into 2023, market multiples began to
stabilise. However, portfolio companies' trading performance has now begun to
experience the impact of declining consumer confidence and business
investment.
Whilst inflation is expected to moderate following the rises in base rates, it
is still at a very high level and has impacted economic growth expectations.
In contrast to this, there are early signs that supply chains are returning to
normality, that labour shortages are easing and that there are pockets of
positive market sentiment. Furthermore, the direct impact of high interest
rates on the Company's portfolio is negligible as most portfolio companies do
not have any significant third-party debt. The outlook is therefore mixed, and
the emphasis is thus on robust funding structures and being prepared for all
eventualities.
The Gresham House non-executive directors who sit on each portfolio company
board have responded by working with their management teams to ensure that
appropriate scenario planning has been done to achieve the best results during
these uncertain times. There is also now a greater focus on cash management
and capital efficiency. With ample liquidity following the recent fund raise,
the Company is also well placed to support portfolio companies with follow-on
funding where it is appropriate and can be structured on attractive terms.
Strong liquidity will also benefit the attractive new investment environment
for the Company which, in our view is strong and we are seeing a number of
interesting investment propositions.
There are some specific highs in the portfolio such as Preservica which
continues to see strong trading and is out-performing budget. The exits from
EOTH and Tharstern were also excellent results after long running processes
which had to negotiate numerous economic and geo-political hurdles. By
contrast, there were also some significant falls, the largest were MyTutor and
Connect Childcare with a further fall in the quoted share price of Virgin
Wines UK plc. Disappointingly, after experiencing very difficult trading
conditions since the onset of COVID-19, Tapas Revolution has entered
administration since the period-end with no expected recovery for the VCTs.
The portfolio movements in the period are summarised as follows:
2023 2022
£m £m
Opening portfolio value 73.08 88.15
New and follow-on investments 1.01 3.25
Disposal proceeds (9.13) (6.24)
Net realised gains 0.41 1.21
Unrealised valuation movements (1.01) 2.99
Portfolio value at 31 March 64.36 89.36
Valuation changes of portfolio investments still held
The portfolio generated net unrealised losses of £(1.01) million in the first
half of its financial year.
The total valuation increases were £4.36 million. The main valuation
increases were in:
Preservica - £3.44 million
Aquasium - £0.32 million
Orri - £0.29 million
Preservica is performing well and increasing its recurring revenues whilst
Aquasium has started to gain significant traction with its products. Finally,
Orri has benefitted from a first time valuation uplift due to the investment
structuring.
The total valuation decreases were £(5.37) million. The main valuation
decreases were:
MyTutor - £(1.15) million
Connect Childcare - £(1.07) million
Virgin Wines - £(0.66) million
MyTutor has been impacted by declining sector multiples combined with slower
than anticipated growth over the year. Connect Childcare has not grown
revenues as quickly as hoped and is now prioritising capital efficiency.
Virgin Wines continues to suffer from negative sentiment across the consumer
sector. Following announcements of operational issues over its key Christmas
period, it has seen a further decline in its quoted share price, although
underlying trading remains resilient and compares very favourably to its
peers.
The Company's investment values have been insulated partially from market
movements and lower revenue growth by the preferred investment structures
employed in many of the portfolio companies. This acts to moderate valuation
swings and the net result is a more modest decline in portfolio value.
The portfolio's valuation changes in the period are summarised as follows:
Investment Portfolio Capital Movement 2023 2022 2020
£m £m £m
Increase in the value of unrealised investments 4.36 11.98 26.68
Decrease in the value of unrealised investments (5.37) (8.99) (0.61)
Net increase in the value of unrealised investments (1.01) 2.99 26.07
Realised gains 1.28 1.21 3.67
Realised losses (0.87) - (0.08)
Net realised gains in the period 0.41 1.21 3.59
Net investment portfolio movement in the period (0.60) 4.20 29.66
New investments during the period
The Company made one new investment of £1.01 million during the period, as
detailed below:
Company Business Date of Investment Amount of new investment (£m)
Connect Earth Environmental data March 2023 0.34
provider
Founded in 2021, Connect Earth (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.
Cognassist Education and neuro-inclusion solutions March 2023 0.67
Cognassist (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 the education market and penetrate the enterprise market, where
demand for neuro-inclusive solutions to adequately support employees is
rapidly emerging.
Realisations during the period
The Company completed two exits during the period, as detailed below:
Company Business Period of investment Total cash proceeds over the life of the investment/ Multiple over cost
EOTH Branded clothing (Rab and Lowe Alpine) October 2011 to November 2022 £9.54 million
6.9x cost
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.
Tharstern Software based management information systems July 2014 to March 2023 £4.00 million
2.6x cost
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%.
Loan repayments and other proceeds in the period
The Company received a loan repayment from Jablite Holdings Limited of £0.07
million.
Investment portfolio yield
In the period under review, the Company received the following amounts in loan
interest and dividend income:
Investment Portfolio Yield 2022 2022
£m £m
Interest received in the period 0.31 0.84
Dividends received in the period 0.56 0.40
Total portfolio income in the period(1) 0.87 1.24
Portfolio Value at 31 March 64.36 89.36
Portfolio Income Yield (Income as a % of Portfolio value at 31 March) 1.4% 1.4%
(1) Total portfolio income in the period is generated solely from investee
companies within the portfolio
New investments made after the period-end
The Company made one new investment of £0.63 million after the period-end, as
detailed below:
Company Business Date of Investment Amount of further investment (£m)
Dayrize May 2023 0.63
Sustainability impact assessment tool provider
Founded in 2020, Amsterdam-based Dayrize 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.
Environmental, Social, Governance considerations
Gresham House is committed to sustainable investment as an integral part of
its business strategy. During the year, 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.
Outlook
Whilst the period under review has once again been marked with volatility and
uncertainty as a result of a number of factors affecting both the global and
UK economy, the portfolio has continued to trade well under the circumstances.
Rising costs and recessionary pressures will place further strains on the
portfolio. However, the portfolio is well diversified and Gresham House has an
experienced team working closely with them to help them navigate the
challenges that lie ahead. In terms of new investment, evidence shows that
investing through 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
13 June 2023
Half-Year Report
Copies of this statement are being sent to all shareholders. Further copies
are available free of charge from the Company's registered office, 5 New
Street Square, London, EC4A 3TW, or can be downloaded via the Company's
website at www.incomeandgrowthvct.co.uk
(https://www.mobeusvcts.co.uk/investor-area/vct-investors/the-income-growth-vct-plc)
.
Contact
Gresham House Asset Management Limited
Company Secretary
mobeusvcts@greshamhouse.com
+44 20 7382 0999
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