Annual Financial Report
18/04/2023 07:00
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RNS Number : 4999W Amati AIM VCT PLC 18 April 2023
Amati AIM VCT plc (the "Company")
Legal Entity Identifier: 213800HAEDBBK9RWCD25
Annual Report & Financial Statements
For the year ended 31 January 2023
The Directors are pleased to present the Annual Financial Results of the
Company for the year ended 31 January 2023.
The information set out below does not constitute the
Company's full statutory accounts for the year ended 31 January 2023 in
terms of Section 434 of the Companies Act 2006 but is derived from those
accounts. Statutory accounts for the year ended 31 January 2023 will be posted
to Shareholders and delivered to the Registrar of Companies, in due course.
The Auditors have reported on those accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to which the
Auditors drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under Section 498 (2) or (3) of the
Companies Act 2006. The text of the Auditors' report can be found in the
Company's full Annual Report and Accounts. Audited statutory accounts for the
year to 31 January 2022, which were unqualified, have been lodged with the
Registrars of Companies.
OUR STRATEGY
The investment objective of the Company is to generate tax free capital gains
and income on investors' funds through investments primarily in AIM-traded
companies.
DIVIDEND POLICY
The Board aims to pay annual dividends of around 5% of the Company's Net Asset
Value at its immediately preceding financial year end, subject to
distributable reserves and cash resources, and with the authority to increase
or decrease this level at the Directors' discretion.
Highlights
For the year ended 31 January 2023
NAV Total return
for the year†
-22.2%
(2022: -7.5%)
£12.4m
invested in qualifying
holdings during the year
(2022: £31.3m)
1.9%
Ongoing charges**†
(2022: 1.9%)
Year end
Net Asset Value per share†
132.8p
(2022: 180.7p)
7.0%
Discount to NAV†
(2022: 7.9%)
5.3%
Dividend yield***
(2022: 5.0%)
Key data
31/01/23 31/01/22
Net Asset Value ("NAV") £201.3m £247.1m
Shares in issue 151,548,993 136,720,797
NAV per share† 132.8p 180.7p
Share price 123.5p 166.5p
Market capitalisation £187.2m £227.6m
Share price discount to NAV† 7.0% 7.9%
NAV Total Return for the year
(assuming re-invested dividends)† -22.2% -7.5%
Numis Alternative Markets
Total Return Index* -20.7% -3.5%
Ongoing charges**† 1.9% 1.9%
Dividends paid and declared
in respect of the year 7.0p 9.0p
* Numis Alternative Markets Index is included as a comparator
benchmark for performance as this index includes all companies listed on
qualifying UK alternative markets.
** Ongoing charges calculated in accordance with the Association
of Investment Companies' ("AIC's") guidance.
*** Dividend yield based on year end NAV.
† See Alternative Performance Measures on pages 77 and 78 of the
full Annual Report and Accounts.
Table of investor returns
to 31 January 2023
From Date NAV Total Numis
Return with Alternative
dividends Markets
re-invested Total
Return Index
NAV following re-launch of the VCT under management of Amati Global
Investors ("Amati") 9 November 2011* 139.6% 31.0%
NAV following appointment of Amati
as Manager of the VCT, which was known as ViCTory VCT at the time
25 March 2010 151.4% 34.6%
*Date of the share capital reconstruction when the NAV was rebased to
approximately 100p per share.
A table of historic returns is included on page 76 of the full Annual Report
and Accounts.
Dividends paid and declared
-22.2%
2023 total dividends per share
7.0p
5.3% of NAV
Cumulative dividends per share
92.74p
Dividend history
Since the re-launch of the VCT under the management of Amati Global Investors*
Year ended 31 January Total Cumulative
dividends dividends
per share** per share
p p
2011 4.74 4.74
2012 5.50 10.24
2013 6.00 16.24
2014 6.75 22.99
2015 6.25 29.24
2016 6.25 35.49
2017 7.00 42.49
2018 8.50 50.99
2019 7.50 58.49
2020 7.75 66.24
2021 10.50 76.74
2022 9.00 85.74
2023 7.00 92.74
*On 25 March 2010 Amati Global Investors was appointed as Manager of ViCTory
VCT. On 8 November 2011 Invesco Perpetual AIM VCT merged with ViCTory VCT and
the name was changed to Amati VCT 2. On 4 May 2018 the Company merged with
Amati VCT and the name was changed to Amati AIM VCT.
**Total dividends per share are the declared dividends of the financial year.
Fund performance
A graph depicting the Amati AIM VCT NAV Total Return and Numis Alternative
Markets Total Return Index from change of Manager on 19 March 2010 (first Net
Asset Value calculated on 25 March 2010) to 31 January 2023 can be found on
page 3 of the full Annual Report and Accounts.
Historic performance
A graph depicting the Amati AIM VCT NAV Total Return and Numis Alternative
Markets Total Return Index from inception of fund to 31 January 2023 can be
found on page 3 of the full Annual Report and Accounts.
Extracts from Strategic Report
Chairman's Statement
This report has been prepared by the Directors in accordance with the
requirements of Section 414A of the Companies Act 2006.
Overview and Investment Performance
The Russian invasion of Ukraine caused a steep fall in the valuations of
businesses and many other different types of assets in 2022. This resulted in
an inflation shock and a sharp rise in interest rates in all Western
economies. The overall market environment was one of de-rating for profitable
businesses, pressure on sales growth and margins and withdrawal of investor
appetite for early-stage companies, especially where there is a risk of
requiring more cash. The NAV Total Return for the period fell by 22.2%, which
compares to a fall in the Numis Alternative Markets Total Return Index of
20.7%. The bright spots were mostly around bid targets and one or two of the
top holdings, like Keywords, which saw good growth continuing through
turbulent times.
It was a particularly difficult year for smaller companies and especially so
for early-stage businesses still working their way through scale-up to
profitability. Amati AIM VCT's portfolio has a combination of some
long-standing holdings which have matured into profitable medium-sized
enterprises, and those which are still in the scale-up stage. 2022 was also
one of the leanest years for VCT qualifying investments on AIM that we have
seen. Having had a positive start to the first half, investing £9.4m in
qualifying investments, the number of fund raisings on AIM fell further
following the disastrous mini-budget in September, and as a result only a
further £3m was invested, making £12.4m for the year as a whole. Of this,
£3m was in a pre-IPO investment, Chorus Intelligence. This was a difficult
period for any company trying to commercialise innovative products and
services, regardless of how significant they are. In the medical arena,
problems also arose from a slowdown at the FDA (the US medicines regulator)
resulting from the pandemic-imposed switch to working from home, which
resulted in the delay of many crucial product and drug approvals, including
those from companies in our portfolio, such as Amryt Pharma (now bid for) and
Polarean. For others, like Creo Medical, the pandemic meant two years of
expensive lost time, as they were unable to train doctors in using their
approved devices. A number of our newer investments are involved in energy
transition where the move away from fossil fuels required to avert climate
change, necessitates an extra-ordinary scale of industrial change over the
coming decades. Rarely is the journey to commercialisation smooth, and
heightened stock market nerves have taken valuations down hard and made access
to new capital expensive. However, those companies that can make it through
this sifting period intact are likely to emerge much stronger. The negative
market sentiment, which has been particularly acute in the second half of the
year, reflects the widening gap between the kinds of companies which can raise
VCT qualifying investment and those which have the scale and significance to
afford the ever-increasing costs of going through an IPO process. A more
detailed analysis is providedin the Fund Manager's Review.
Corporate Developments
In February, before the Russian invasion of Ukraine, the Company raised £25m
under the Prospectus Offer which had opened on 30 July 2021. At the time the
decision was made to raise the further funds it appeared that the availability
of qualifying investment opportunities on AIM was likely to remain strong in
2022. However, the sharp falls in the valuations of growth companies and the
heightened level of uncertainty resulting from Russia's war on Ukraine put
many AIM fundraising plans on hold. The amount invested in the first half of
the year was low compared to prior expectations, but fell further again in the
second half as fund raising on AIM all but ground to a halt. Meanwhile, the
bids that were received for three holdings during the year have also served to
increase cash resources. For this reason, the Board took the decision not to
raise any further funds in the 2022/23 tax year. The cash position at the end
of the period was £59.6m.
The Manager will continue to invest primarily in companies on AIM. Where the
Manager invests in an unquoted company this will still be with the expectation
that the company is likely to list on AIM or Aquis. In reality however it is
possible that the investment may be realised via a trade sale.
VCT Legislation
The current VCT legislation contains a "Sunset Clause" which effectively
brings income tax relief to an end for new subscriptions after 5 April 2025.
This was agreed in 2015 to secure ongoing EU approval of the VCT and EIS
schemes, which have been a crucial source of funding for new and innovative
businesses in the UK. It has always been the case that the extension of the
scheme was bound up with resolving issues around the Northern Ireland Protocol
and potentially achieving a further ratification of the schemes from the EU,
so that they can also continue to operate in Northern Ireland after 2025. With
the publication of the Windsor Framework on 27 February, removal of the Sunset
Clause is now solely within the control of HM Treasury. As the Chancellor of
the Exchequer has previously set out an intention to continue the scheme, we
currently await further clarity on the details.
Dividend
The Board aims to pay annual dividends of around 5% of the Company's Net Asset
Value at its immediately preceding financial year end, subject to the
Company's distributable reserves and cash resources, and with the authority to
increase or decrease this level at the Directors' discretion.
As at 31 January 2023 the net asset value per share was 132.8p. In line with
this, the Board is proposing a final dividend of 3.5p per share, to be paid on
21 July 2023 to shareholders on the register on 16 June 2023. When added to
the interim dividend of 3.5p per share, this would make total dividends for
the year 7.0p per share, which is 5.3% of year end NAV.
The Board would like to remind shareholders that, as reported in the Interim
Report, the company has moved to paying all cash dividends by bank transfer,
rather than by cheque and details are provided in Shareholder Information on
page 76 of the full Annual Report and Accounts.
The last day for the Dividend Re-investment Scheme ("DRIS") elections will be
30 June 2023. The Board would also like to remind shareholders that the DRIS
allows shareholders to use their dividends to buy new shares issued by the
Company on the dividend payment date priced at the most recently published NAV
per share. Shares issued by the DRIS, being new shares, have the same tax
reliefs as shares bought in our standard share offers. The only difference is
that they do not have to meet the requirement to be bought more than six
months before or after any share sales, so income tax relief can be claimed on
them at 30% of the subscription value regardless of any share sales made,
provided that the other standard tests are met, such as not investing more
than £200,000 in VCT shares in any one tax year, whether through an Offer or
on the market. If you wish to join the DRIS please contact the Company's
registrar.
Annual General Meeting ("AGM")
The AGM this year will be held at Barber-Surgeons' Hall, Monkwell Square, Wood
Street, London EC2Y 5BL starting at 2pm on Thursday 15 June 2023. This will be
followed by presentations from the Manager and investee companies. Details are
being sent to you with this report.
The Notice of AGM is set out on pages 79 to 84 of the full Annual Report and
Accounts.
The Board recognises that the Company's AGM represents an important forum for
shareholders to put questions to the Directors, to express their views on
governance and to become fully informed about matters relating to the AGM
resolutions. It understands that attending in person may not be possible for
all shareholders who wish to attend. Therefore, the Company intends to also
make available a live stream facility to allow shareholders to watch and
listen to the AGM and the Investor Event which follows. If shareholders wish
to use this facility, please register your interest by emailing
info@amatiglobal.com and shortly ahead of the event the Company's Manager will
post a link and instructions on how to join the event on its homepage at
www.amatiglobal.com. Shareholders watching the AGM will not be counted towards
the quorum of the meeting and will not be able to participate in the formal
business of the meeting, including asking questions and voting on the day. The
Board encourages shareholders to engage with the Board and the Company's
Manager. In addition to asking questions at the AGM, shareholders can email
any questions they may have either on the business of the AGM to
info@amatiglobal.com by 9 June 2023. The Company's Manager will publish
questions together with answers on the page dedicated to the AGM on the
Manager's website prior to the AGM being held. The Company's Manager will
reply to any individual shareholder questions submitted by the deadline of 9
June 2023, before the AGM.
Outlook
The portfolio contains a diverse range of well-resourced companies, mostly
with high barriers to entry derived from intellectual property and specialist
skills. The early-stage companies, even with good cash resources addressing
potentially large markets, have not been immune to de-ratings. Some more
mature investments have been held for long periods with low levels of debt.
Most of these should be well placed to perform in continuing difficult
economic conditions.
We have a strong incentive to be long term investors, as if we exit positions
in more mature companies the VCT rules on investing do not allow us to buy
them back again. Also, under the VCT rules, even during periods of market
correction, VCTs are prohibited from buying more shares in their existing
qualifying holdings, unless they are able to do so as a further qualifying
investment at a point when new shares are being issued. It might be reasonable
to expect that the more challenging market conditions allow us to make new
investments at lower valuations but, as noted above, this has been one of the
leanest years on record for AIM listings. That said there are some bright
spots on the horizon with new and exciting potential AIM listings.
We are by no means resistant to market shocks, be they banking issues or
valuation scares, but we remain optimistic that the portfolio is robust for
the longer term with plenty of embedded value waiting to see the light of day.
Fiona Wollocombe
Chairman
17 April 2023
For any matters relating to your shareholding in the Company, dividend
payments, or the Dividend Re-investment Scheme, please contact The City
Partnership on 01484 240 910, or by email at registrars@city.uk.com. For any
other matters please contact Amati Global Investors ("Amati") on 0131 503 9115
or by email at info@amatiglobal.com.
Amati maintains an informative website for the Company - www.amatiglobal.com -
on which monthly investment updates, performance information, and past company
reports can be found.
Fund Manager's Review
Market Review
It has been a painful twelve-month period, with investors having to deal with
a number of seismic events including the Russian invasion of Ukraine, surging
global inflation, rising interest rates and ongoing fears of recession. As if
these weren't enough, we have also seen extreme volatility in many
commodities, most notably in natural gas and agriculture.
This heady mix of concerns led to meaningful declines across many asset
classes, with both equities and government bonds falling simultaneously in
most key markets. In equity markets the key trends were large falls in highly
valued growth sectors such as technology, offset by a return to form in deeper
value sectors such as oil and banking. Smaller companies fared far worse than
larger companies as fund redemptions and economic concerns badly impacted
liquidity.
The defining event of 2022 was the Russian invasion of Ukraine in February
with the subsequent devastation and economic upheaval having profound
repercussions for investors. We now live in a world where ideological
divisions have become a chasm and where decades of global economic integration
are beginning to unravel, leading to insecurity of supply in numerous key
commodities. However, despite initially sharp price increases post the
invasion until late summer, we have seen some welcome respite in gas prices in
Europe more recently, where a mild winter and adequate storage has led to
year-on-year prices actually declining. A similar dynamic has impacted oil
markets, with crude prices falling during the year under review. At this point
there appears no obvious end in sight to hostilities in Ukraine and investors
have had to attune to a world which may remain divided for some time. The
ongoing Chinese rhetoric regarding Taiwan also suggests that the world has
become a more dangerous place.
The economic adjustments have been rapid with inflation across the US, the EU
and UK reaching multi-decade highs towards the end of 2022, leading to sharp
spikes in interest rates across the developed world. There is considerable
debate about how persistent this inflation will be, but it seems reasonable to
assume that it will remain well above central bank targets for some time,
leading to a period of more normalised interest rates too. In 2023 we have
entered a phase of earnings downgrades, initially led by companies highly
exposed to consumer spending but increasingly impacting other sectors.
Recession appears likely now across most of the major economies. Again, the
debate here is one of the depth and length of any downturn.
Closer to home, we have had specific problems to deal with in the UK.
Political instability has risen dramatically as a result of the ongoing impact
of Brexit and the chaos of having three prime ministers within a period of
months. Whilst it is comforting to see some economic stability in recent
months, the road ahead remains difficult regardless of political colour and
growth is likely to remain elusive.
It was a disappointing year for smaller company investors with the Numis
Smaller Companies plus AIM (excluding Investment Companies) Index falling by
12.4%. Things were even worse for the Numis Alternative Markets Total Return
Index, which fell by 20.7%. This was materially below the Numis Large Cap
index which rose by 7.4%, driven by big gains in oil, banking and consumer
staples.
More recently, we have begun to see some signs of market recovery as sterling
has stabilised and investors price in a peak in interest rates. UK company
valuations remain modest by international standards and within this broad
universe, smaller companies appear particularly undervalued. We would expect
to see increased takeover activity in UK quoted companies which should begin
to provide support for markets overall.
Performance Review
The VCT's NAV Total Return for the period was -22.2%. This slightly
underperformed the benchmark Numis Alternative Markets Total Return Index,
which fell by 20.7%. The negative trends in the overall market impacted the
portfolio both through a de-rating of early-stage business risk, a heightened
concern over any potential balance sheet issues, and a more difficult
operating environment as recession fears and consumer retrenchment swept
through many sectors.
The biggest gains were from companies that were acquired and those which
managed to continue to grow earnings in the face of the turbulent economic
backdrop or recovered from weaker trading during the pandemic.
Three companies received bids during the period. Ideagen, a leader in
regulatory and compliance software, which received an all-cash bid from
private equity investor HgCapital, was the first. This represented a 52%
premium to the share price on the prior business day, and an overall
investment return of just under 14x average in-cost in December 2012. The next
was Diurnal, a rare endocrine disease specialist, which fell 49% as lower
sales growth, due to an unexpected adverse opinion from the Scottish Medicines
Consortium, pushed back forecasts for profitability. Ultimately the company
was acquired in November by Neurocrine Inc, a US-based neurological and
endocrine related disease biopharma. Neurocrine's all-cash offer of 27.5p per
share was at a premium of 114% to prior trading day closing price, but 40%
below our average in-cost. We supported this transaction for two reasons.
Firstly, the path forward for Diurnal as an independent company looked
uncertain due to sub-scale resources and thus commercial reach. Secondly
Neurocrine's proposal indicated it would be a good steward of the assets in
which we had invested as Diurnal would receive further investment in its
infrastructure, pipeline and commercial products. The last was Amryt Pharma, a
commercial stage rare disease specialty pharma. It rose 44% on the back of a
bid in January 2023 from Italian family-owned peer, Chiesi Farmaceutici. Amryt
Pharma management has recommended the takeover, which comes at a 107% premium
to the prior closing price, and the transaction is due to close in the first
half of this year. Having originally invested in 2017, our return will be just
over 2x cost.
Two of the risers during the year were in the field of custom electronics.
Ensilica, a new holding which we invested in through its IPO in May, rose 94%.
The company specialises in Application Specific Integrated Circuits (ASICs),
which are custom designed as compared to standardised off-the-shelf chips. The
company issued positive news flow throughout the period regarding new customer
wins. These were punctuated by a very large win ($30m over seven years) for
the design and supply of an ASIC for industrial and factory automation to a
leading European industrial original equipment manufacturer. Following maiden
results, Ensilica upgraded expectations for its new financial year. Solid
State, a custom electronics supplier to commercial, industrial and defence
markets, rose 24%. Key events in the period included strong results which led
to upgraded expectations plus a well-received acquisition of US based Custom
Power, an expert in battery systems. Another recent IPO, Aurrigo, a provider
of electronic control systems to the automotive industry, which has developed
a range of autonomous vehicles specifically for airports, also performed
strongly since float.
Other positive contributors included a number of long-established holdings.
Keywords, the technical and creative services provider to the global video
games and entertainment industry, rose 13% to become the largest holding in
the portfolio. In the period, Keywords continued its track record of growing
by taking market share and through acquisitions. Much debate has surrounded
the strength of game developers in the wake of the waning trend of higher game
play since the end of lock-down. So far, Keywords has not suffered the same
impact. This is likely due to its diversified and broad client list, which
includes 23 out of the top 25 gaming companies as well as the entire top 10 of
mobile games companies. Furthermore, a slowing games market may be encouraging
greater outsourcing. AB Dynamics, the designer and supplier of advanced
testing and simulation products to the automotive industry, recovered to rise
23% in the period, having fallen in the prior year. Despite the impact of
supply chain constraints and inflationary pressures, performance was strong in
the period reflecting the ongoing pressure on car manufacturers to continue
their development of electric vehicles. The company also saw the benefits of
the integration of VadoTech, a provider of vehicle and subsystem testing.
VadoTech boosts AB Dynamics' recurring revenue by increasing sales of
software, service and support contracts. Velocity Composites, a supplier of
composite material kits to the aerospace industry, rose 180% in the period
after the announcement of a transformational contract from GKN Aerospace worth
$100m over 5-years. The contract will see the company produce a range of
high-performance composites across military, civil and business jet programmes
from a new manufacturing site in the US.
On the negative side, one of last year's most positive performers, Saietta
Group, which designs and manufactures electric-drive (e-drive) systems, fell
by 77% during the period, reflecting the change in market sentiment to
early-stage businesses. In many ways the company made remarkable operational
progress during the year, laying the foundations for significant growth in
2023 and beyond. Saietta secured a manufacturing site in Sunderland and a
co-development and commercialisation deal with ConMet, a major global
manufacturer and supplier of truck components to Ford, Volvo and Daimler. In
addition, the company signed a development deal with one of the largest
original equipment manufacturers operating in India. The company is now
focused on finalising designs and scaling up manufacturing to deliver revenues
from these agreements.
Some other large holdings also suffered. Frontier Developments, a leading
developer and publisher of videogames, fell by a similar amount. Interim
results overing the key Christmas 2022 season revealed that several games
titles had failed to meet expectations despite in-line performance earlier in
the year. Lower growth is now projected into next year. Management is also
reviewing the returns achieved by its Frontier Foundry" games publishing
label. Polarean, a medical imaging company, fell 31% over the year. Polarean
has been developing a clinically transformational lung imaging technology,
however its regulatory submission fell foul of FDA delays caused by the
pandemic which were still being felt in 2022. The FDA is majority funded by
the US government and is assessed by the number of on-time decisions. Where
they might miss a deadline, the FDA can either delay a decision or issue a
complete response letter (CRL). Delays are the FDA's responsibility, but CRLs
are the application sponsor's responsibility. It is no coincidence that in
2022 the number of CRLs reached new heights as a proportion of FDA approvals
at more than 30%. Polarean received final approval in December 2022 more than
a year after its original decision date, with the delay having a significant
impact on its commercial plan and cash reserves. GB Group, a specialist in
digital location, identity verification and fraud software, fell 46% in the
period after a solid pandemic performance. There was continued fallout from
the poorly received acquisition of Acuant, a specialist in biometric and
document verification. In addition, activity in cryptocurrency identity
verification fell away as sentiment soured, while the highly publicised
bankruptcy of the FTX crypto exchange brought the risks in this area into
sharp relief. In the period, private equity group GTCR announced it was
considering an all-cash approach for the company. While the shares rallied at
this point, GTCR then stepped away from the transaction. Water Intelligence, a
multi-national leak detection and remediation company, fell 33% over the
period despite solid financial and operational performance.
Fallers included two other healthcare companies. Aptamer, a developer of
aptamer and optimer binders for the life sciences industry, fell 71% over the
period. During 2022, market sentiment turned against loss making companies,
and the company felt the effects of this despite trading continuing as
expected. However, an update in early January has pointed to a deterioration
in end-markets and customers either delaying project starts or extending
decision making cycles. Whilst expectations have been re-set, no order or
project has been cancelled and the company continues to add to its pipeline.
Angle, a liquid biopsy company, finally received FDA approval in May for its
Parsortix device. However, the pace of commercialisation has been slower than
market expectations. A trading update in early January pointed to slower sales
conversion than had been hoped for based on the depth of the pipeline and
shares fell 74%.
There were three real disappointments amongst the newer holdings. Flylogix,
which established a methane emissions detection service for North Sea oil and
gas companies using drones, found good demand from customers, but proved
unable to establish reliable and consistent operations, so had to be
substantially written down. Glantus, a provider of accounts payable automation
and analytics, had a disastrous start to life as a public company, with a
badly handled company re-organisation to move back office functions to Costa
Rica, albeit a move which will drive value in the longer run. The poor
handling led to a sharp fall in revenues during the process, which is now
complete. However, the losses, combined with gearing in the company led to a
dramatic fall in the share price. Clean Power Hydrogen ("CPH2"), which is
commercialising a membrane free electrolyser technology, has delayed the
launch of its product due to design flaws emerging during the commissioning
process of the first units.
Portfolio Activity
The Company made five new investments and four follow-on investments during
the period. The new investments comprised four Initial Public Offerings
("IPOs"), and one pre-IPO investment.
The IPOs in the first part of the year were CPH2 and Strip Tinning ("ST"),
which have so far been disappointing investments, and EnSilica, which has
performed strongly. The CPH2 electrolyser design avoids the problem of thin
membrane degradation in PEM (proton-electrolyte membrane) electrolysers, which
limits useful life, but at the cost of needing to manage the mixed gasses
through a cryogenic circuit for separation. Key advantages of the CPH2 system
include long system life, 40% less water usage, high purity levels of the
output gasses, and the avoidance of expensive process catalysts. These
benefits should make CPH2's system cost competitive at low volumes.
Unfortunately, during commissioning of the initial scaled up units, the
company uncovered some design issues, which have required a period of further
engineering and design work, delaying the company's progress.
ST is a market leader in the provision of high-performance electronic
connector products and design services to the automotive industry. It
manufactures flexible printed circuit, flat foil, cable and busbar connectors,
which are used in car heating and lighting applications. This business dates
back to the 1950s and ST has very long-term relationships with vehicle
manufacturers and prime contractors, which positions it well for expansion
into growth markets. The company floated to raise funding for two
opportunities. Firstly, the growing demand for more sophisticated connectors
driven by greater functionality being embedded into automotive glazing. This
will involve invisible heating, rain and autonomous driving sensors, cameras,
opacity controls, heads-up displays and virtual reality. Secondly, ST is at
the forefront of next generation lightweight battery connectors to replace
heavy wiring harnesses for both electric vehicles and fuel drivetrains. With
both glazing and electric vehicle battery connectors, ST is exposed to the
major future drivers of automotive development. However trading since
flotation has been impacted by volume weakness within the industry caused by
ongoing component shortages along with manufacturing cost inflation and some
contract cancellations.
EnSilica is a company which specialises in the design of Application Specific
Integrated Circuits (ASICs), which are chips built for a specific use in
electronic equipment. EnSilica's customers range across the automotive,
industrial, satellite and healthcare sectors, which offer faster growth than
more saturated areas such as computing, mobiles and consumer electronics.
Structural drivers include autonomous sensors, satellite connectivity,
industrial Internet-of-Things and Artificial Intelligence, wearable healthcare
and 5G telecoms. Over 20 years EnSilica has evolved from pure design
consultancy services into Design and Outsourced Supply (D&S), so that it
now captures extra margin. D&S is growing strongly, and EnSilica floated
to scale up its capacity. Global investment in semiconductor fabrication is
based on new wafer technology which requires ASIC redesign, and the experience
of standardised chip shortages is encouraging an industry shift to customised
ASICs which have more robust supply chains. Over the past year there has been
a heightened recognition of the importance of the UK retaining its own silicon
chip capabilities and expertise, and EnSilica's success plays an important
part in this.
In the second half of the period the number of qualifying investment
opportunities on AIM dropped sharply and we made only one new investment,
which was in the IPO of Aurrigo. The company raised funds to further progress
development and initial roll-out of its autonomous vehicle technology for
airport baggage handling, Auto-Dolly. This vehicle is an autonomous electric
sledge that carries a standard baggage container. This development is being
piloted with Singapore's Changi Airport, a recognised global leader in airport
technology. Aurrigo had also developed a sophisticated airport mapping tool
(Auto-Sim) that functions as a digital twin of the airport. This is used to
understand where time is being lost in current processes and how efficiencies
could be realised through use of solutions like the Auto-Dolly. The
comprehensive nature of Auto-Sim modelling has drawn customers to use it as a
planning tool for future extensions to terminals. The company was founded in
1993 and for many years has profitably operated in automotive engineering
design and supply logistics. This expertise and internal funding enabled the
original pivot towards autonomous vehicles. Share price momentum has been
sustained by good, early progress with the Changi pilot project.
The one pre-IPO investment in the period was in Chorus Intelligence. This
company has developed software which enables customers to collect and
interpret data for intelligence purposes and court evidence. The platform can
connect to any source, analyse the data, and then store and share it in an
encrypted workspace. It has been successfully used to prosecute cases brought
by the British Transport Police involving criminals running county lines for
drugs. Chorus's first recurring revenues are with North Wales, an early
adopting police force, but they are involved with demonstrations and trials in
the rest of the UK market and are making a first tender proposal to Virginia
Beach in the US. The UK has almost 50 forces, but this is dwarfed by the US
where there are nearly 18,000 departments, agencies and sheriff counties. The
majority of the VCT's investment is by way of loan notes which convert at a
25% discount to the eventual IPO or sale price.
In July, we completed a small follow-on investment, by way of a convertible
loan note in Byotrol, the antimicrobial health product provider, to fund
future growth and reach breakeven in the next 24 months. In August, we added
nominally to our holding in Arecor Therapeutics. The company successfully
completed a fundraise in connection with the all-share acquisition of Tetris
Pharma, a specialty pharma with a focus on niche injectable and hospital
products in the UK and EU. The acquisition gives Arecor access to an
experienced team that can handle sales and marketing and supply chain for
approved products. We added to our position mainly to mark up its qualifying
value to the new share price. We were supportive of the acquisition but
decided our weighting was sufficient.
In November we added to our investment in Intelligent Ultrasound, a provider
of ultrasound classroom training simulators and AI enabled clinical ultrasound
software. This was the final VCT eligible fund raise, and the proceeds will be
used to strengthen the company's financial position and continue research and
development. The classroom side of the business generated the majority of
revenue in 2022. The remainder came from the AI division, which has developed
two FDA approved AI ultrasound products. The company has a long-term licence
and co-development agreement with GE Healthcare, the largest global
manufacturer of ultrasound machines, and GE is rolling out one of the AI
modules across its range. This first module automatically detects key scanning
views and audits whether they meet standardised criteria. This will improve
ultrasound speed, accuracy and quality.
In the same month we also participated in a placing for Northcoders, adding to
our investment from the IPO. The company is a training provider to IT novices
and junior software engineers. These are usually people changing careers, or
looking to up-skill or re-skill if they are already in the industry. There
continues to be an acute shortage of coders and developers in the UK. Funds
were raised to invest in new courses due to strong demand from employers.
Original training in Software Development and Data Engineering will now be
extended into Cyber Security, QA & Software Testing, Dev Ops & Cloud,
and Project Management. Each course is projected to be profitable ten months
after launch.
As detailed above, holdings in Ideagen and Diurnal were exited as a result of
takeovers during the period. Concerned by the threat of new entrants, eroding
market share and strategic direction, the VCT also sold its holding in
Tristel, a manufacturer of infection prevention products, where a return of
3.2x the average in-cost was achieved. Also exited were positions in Ilika,
the solid state battery developer, where an investment return of 4x average
in-cost was achieved, and Synairgen, the respiratory drug developer, which
generated a return of 1.4x. A very small holding in LoopUp, the conference
call software platform provider, was sold at an overall loss as it had become
a low conviction investment following a change to its business model due to
competitive pressure. During the period, profits were taken in Polarean, our
largest holding at the time. The weighting was reduced slightly in the lead up
to the FDA approval decision for Xenoview in December.
Outlook
The first two months of the new financial year have been turbulent for stock
markets, which were rattled by the prospect of a banking crisis. With the
failure of three US banks in March and the dramatic weekend rescue of Credit
Suisse in Switzerland, there was considerable fear of contagion putting
significant pressure on stock markets. However, the issues with Credit Suisse
had been well known for a long time, and the US banks that failed did so due
to runs on deposits rather than because of bad loans caused by systemic
problems. The response of the Federal Reserve was to lend unlimited amounts
against bonds being held to maturity at par value. This might best be called
Quantitative Lending, injecting liquidity into banks without forcing them to
dispose of bonds at a loss. This added around $320bn to the Federal Reserve's
balance sheet in March.
The banking stress has slowed down the rate of interest rate rises, in the
expectation that slower bank lending would provide its own brake to inflation.
In the UK we had been expecting rates to peak at around 4.5%, and continue to
do so. Monetary conditions have tightened greatly over the past year in both
Europe and the US, and this is likely to cause inflation to fall sharply later
this year.
Whilst we don't expect the banking crisis to escalate from here, we are
acutely aware that Russia's unconscionable war of aggression against Ukraine
continues to represent a grave threat to the West as a whole. This is
accelerating a trend towards the formation of an axis of totalitarian states
in opposition to the democratic nations of the world. China, the world's
largest exporter by far, is the key agent in determining how destructive this
becomes, being of much greater importance to the global economy than Russia.
The interdependence between China and the West is too deep to uproot without
great harm. A rise in China's aggression over Taiwan and its closer alignment
with Russia remain the principal global risks.
Rapidly rising interest rates and tightening liquidity create a difficult
backdrop for early-stage companies on AIM, and it has been a tough period for
the portfolio. Investors are far less trusting of future potential in
companies and therefore less willing to attribute value to this. The sectors
most impacted by this are healthcare and energy transition focused companies,
both areas in which technical innovation is crucial and to which we have
exposure. However, we know from the experience of previous crises that the
de-rating goes across the board to start with, that weaker companies may fall
by the wayside, but that the companies with good foundations and effective
propositions will be able to emerge stronger on the other side. We also know
the importance of being able and willing to continue to invest through
troubled periods, as often the best investments can be made at times like
this. The strong cash balance that the VCT has, in part because of a relative
dearth of new investment opportunities on AIM during 2022, very much puts us
in this position.
Dr Paul Jourdan, David Stevenson, Anna Macdonald and Scott McKenzie
Amati Global Investors
17 April 2023
Investment Portfolio
as at 31 January 2023
Original Cost* Aggregate Fair value Fair value Market Industry Sector Yield %
Company name Amati VCT bookcost at 4 May 2018# £'000 Cost** £'000 movement Cap (NTM) of net
£'000 £'000 in year*** £m % assets
£'000
Keywords Studios plc(1) 323 4,851 Information Technology
5,174 14,434 1,626 2,217.8 0.1% 7.2
TB Amati UK Listed Smaller Companies Fund 3,331 6,482
9,813 12,558 (3,053) - Financials 2.8% 6.2
Polarean Imaging plc(1) - 5,081
5,081 9,781 (4,402) 85.2 Health Care - 4.9
Learning Technologies Group plc(1,3)
780 3,771 Information Technology
4,551 9,674 (1,856) 1,106.8 0.9% 4.8
AB Dynamics plc(1) 209 2,370
2,579 8,174 1,549 416.6 Industrials 0.3% 4.1
Ensilica plc(1) Information Technology
- 2,450 2,450 4,753 2,303 73.0 - 2.4
MaxCyte Inc.(1) 449 1,536
1,985 4,713 160 483.4 Health Care - 2.3
Water Intelligence plc(2)
180 1,038 1,218 4,643 (2,281) 110.8 Industrials - 2.3
GB Group plc(2, 3)
236 2,967 Information Technology
3,203 3,978 (3,426) 891.0 1.2% 2.0
Aurrigo International plc(1)
- 2,085 2,085 3,475 1,390 33.3 Industrials - 1.7
Top Ten 38,139 76,183 (7.990) 37.9
Amryt Pharma plc Ordinary shares & ADRs(1)
- 1,573 1,573 3,366 1,265 1,517.2 Health Care - 1.7
Northcoders Group plc(1) Consumer Discretionary
- 2,111 2,111 3,305 (40) 23.1 1.0% 1.6
Sosandar plc(1) Consumer Discretionary
- 1,872 1,872 3,182 (62) 56.5 - 1.6
Craneware plc(2,3)
298 3,601 3,899 3,051 (1,139) 504.7 Health Care 1.7% 1.5
Frontier Developments plc(1)
Communication Services
341 4,357 4,698 3,017 (5,611) 190.8 - 1.5
Chorus Intelligence Limited Ordinary Shares(1)
Information Technology
- 301 301 150 (151) - - 0.1
Chorus Intelligence Limited 10% Convertible loan notes(1,4)
Information Technology
- 2,699 2,699 2,699 - - 10.0% 1.3
Quixant plc(2) 419 3,777 4,196 2,841 157 108.4 Consumer Discretionary
1.7% 1.4
Solid State plc(2)
259 261 520 2,709 517 148.0 Industrials 1.6% 1.3
Saietta Group plc(1,3) Consumer Discretionary
- 5,100 5,100 2,575 (8,690) 49.4 - 1.3
Velocys plc(1) - 2,248 2,248 2,483 (956) 64.3 Energy - 1.2
Top Twenty 67,356 105,561 (22,700) 52.4
Intelligent Ultrasound plc(1) - 2,194 2,194 2,158 (871) 32.0 Health Care - 1.1
Anpario plc(2) 276 1,553 1,829 2,154 (1,632) 79.2 Health Care 3.0% 1.1
Diaceutics plc(1) - 1,557 1,557 2,151 (20) 88.7 Health Care - 1.1
Eneraqua plc(1) - 1,955 1,955 2,047 226 96.3 Industrials 0.4% 1.0
Brooks Macdonald Group plc(2) - 1,154 1,154 1,974 (315) 356.3 Financials 3.5% 1.0
Arecor Therapeutics plc(1) - 1,910 1,910 1,857 (1,096) 67.4 Health Care - 0.9
Accesso Technology Group plc(1,3) - 221 221 1,809 150 338.6 Information Technology - 0.9
SRT Marine Systems plc(1) 709 465 1,174 1,771 39 83.5 Information Technology - 0.9
Belvoir Group plc(1) 404 379 783 1,449 (581) 67.9 Real Estate 5.1% 0.7
Clean Power Hydrogen plc(1) - 2,500 2,500 1,333 (1,167) 64.4 Industrials - 0.7
Equals Group plc(1) - 1,137 1,137 1,264 134 154.2 Information Technology - 0.6
Aptamer Group plc(1) - 3,676 3,676 1,194 (2,891) 26.2 Health Care - 0.6
Ixico plc(1) - 1,367 1,367 1,123 (1,220) 11.1 Health Care - 0.6
Getech Group plc(1) - 1,700 1,700 1,082 (1,190) 9.4 Energy - 0.5
One Media iP Group plc(1) - 1,240 1,240 1,063 (89) 13.3 Financials - 0.5
Fusion Antibodies plc(1) 565 1,779 2,344 1,054 (1,100) 11.7 Health Care - 0.5
Angle plc(1) - 1,615 1,615 937 (2,681) 75.6 Health Care - 0.5
Elexsys Energy Ordinary Shares(1)( ) - 200 200 - (200) - Information Technology - -
Elexsys Energy 8% Convertible loan notes(1,4) - 1,800 1,800 900 (900) - Information Technology - 0.4
Byotrol plc Ordinary Shares(1)( ) 511 348 859 500 (425) 9.1 Materials 0.0% 0.2
Byotrol plc 9% Convertible loan notes(1,4) - 350 350 353 3 - Materials 8.9% 0.2
Kinovo plc(2) - 1,681 1,681 711 (151) 20.5 Industrials - 0.4
Property Franchise Group plc (The)(2) 155 197 352 708 (218) 76.9 Real Estate 5.6% 0.4
Velocity Composites plc(1) 496 307 803 644 414 20.4 Industrials - 0.3
Flylogix Limited Ordinary Shares(1)( ) - 300 300 - (300) - Information Technology - -
Flylogix Limited 10% Convertible loan notes(1,4) - 2,700 2,700 625 (2,075) - Information - 0.3
Technology
Hardide plc(1) 695 1,666 2,361 588 (904) 7.7 Materials - 0.3
Netcall plc(2) - 110 110 581 153 152.0 Information Technology 0.9% 0.3
Block Energy plc(1) - 3,000 3,000 563 (26) 7.5 Energy - 0.3
Rua Life Sciences plc(1) - 955 955 461 24 12.9 Health Care - 0.2
Verici Dx Limited(1) - 800 800 440 (1,360) 18.7 Health Care - 0.2
Zenova Group plc - 750 750 414 (178) 9.8 Materials - 0.2
Science in Sport plc(2) 811 1,145 1,956 390 (1,589) 22.4 Consumer Staples - 0.2
Strip Tinning Holdings plc(1) - 1,054 1,054 342 (712) 9.3 Industrials - 0.2
Eden Research plc(1) - 401 401 334 (83) 19.0 Materials - 0.2
Brighton Pier Group plc (The)(1) 314 175 489 269 (68) 26.5 Consumer - 0.1
Discretionary
Glantus Holdings plc(1) - 3,000 3,000 265 (2,235) 3.4 Information Technology - 0.1
Creo Medical Group plc(1,3) - 1,613 1,613 252 (1,271) 35.4 Health Care - 0.1
Rosslyn Data Technologies plc(1) 614 1,308 1,922 247 (952) 2.4 Information Technology - 0.1
Synectics plc(2) - 342 342 171 48 22.2 Information Technology 2.3% 0.1
Falanx Cyber Security Limited(1)( ) - 686 686 153 (180) 2.4 Industrials - 0.1
Trellus Health plc(1) - 700 700 140 (507) 12.9 Health Care - 0.1
MyCelx Technologies Corporation(1) 440 205 645 121 (174) 6.9 Industrials - 0.1
In The Style Group plc(1) - 1,447 1,447 56 (595) 4.0 Consumer Discretionary - -
FireAngel Safety Technology Group plc(1) - 690 690 55 (36) 15.8 Consumer Discretionary - -
Bonhill Group plc(1)( ) - 670 670 54 (29) 7.8 Communication Services - -
Merit Group plc(1) - 596 596 21 (10) 6.9 Communication Services - -
Allergy Therapeutics plc(1) - 29 29 15 (52) 37.4 Health Care - -
Investments held at nil value 691 - - - -
Total investments 129,664 142,354 (51,592) 70.7
Net current assets 58,927 29.3
Net assets 129,664 201,281 100.0
1 Qualifying holdings.
2 Part qualifying holdings.
3 These investments are also held by other funds managed by Amati.
4 The investment in Flylogix Limited ("Flylogix") consists of 392 ordinary
shares in Flylogix at fair value of nil and 10% convertible loan notes at fair
value of £625,000. The interest for the 18 months from the date of issue on
the convertible loan notes is waived if Flylogix is admitted to AIM within
that 18-month period, subject to a minimum equity raise of £10m. The
convertible loan notes are convertible into ordinary shares after listing. If
Flylogix is not listed on AIM, interest is payable at 10% per annum for a term
of 5 years. Flylogix had not listed at the Balance Sheet date and interest of
£334,000 has not been accrued.
The investment in Elexsys Energy plc ("Elexsys") consists of 202,737 ordinary
shares in Elexsys at fair value of nil and 8% convertible loan notes at fair
value of £900,000. The interest for the 12 months from the date of issue on
the convertible loan notes is waived if Elexsys is admitted to AIM, subject to
a minimum equity raise of £5m. The convertible loan notes are convertible
into ordinary shares after listing. If Elexsys is not listed on AIM, interest
is payable at 8% per annum for a term of 5 years. Elexsys has not listed,
interest due has been paid and the interest receivable of £48,000 to the
Balance Sheet date has been accrued.
The investment in Chorus Intelligence Limited ("Chorus") consists of 232
ordinary shares in Chorus at fair value of £150,000 and 10% convertible loan
notes at fair value of £2,699,000. The interest for the 18 months from the
date of issue on the convertible loan notes is waived if Chorus is admitted to
AIM within that 18-month period, subject to a minimum equity raise of £10m.
The convertible loan notes are convertible into ordinary shares after listing.
If Chorus is not listed on AIM, interest is payable at 10% per annum for a
term of 5 years. The Board is of the opinion that Chorus will not list within
the 18-month period and the interest receivable of £238,000 to the Balance
Sheet date has been accrued.
The investment in Byotrol plc ("Byotrol") consists of 25,000,001 ordinary
shares in Byotrol at fair value of £500,000 and 9% Convertible Loan Notes at
fair value of £353,000. The convertible loan notes are convertible into
ordinary shares at a conversion price of 3.25p. Interest is being received and
the amount receivable of £2,800 to the Balance Sheet date has been accrued.
# This column shows the original book cost of the investments acquired from
Amati VCT plc on 4 May 2018.
* This column shows the bookcost to the Company as a result of market trades
and events.
** This column shows the aggregate book cost to the Company either as a result
of trades and events or asset acquisition from Amati VCT plc on 4 May 2018.
*** This column shows the movement in fair value, the unrealised
gains/(losses) on investments during the year, see notes 1 and 8 below for
further details.
NTM Next twelve months consensus estimate (Source: Refinitiv)
The Manager rebates the management fee of 0.75% on the TB Amati UK Listed
Smaller Companies Fund and this is included in the yield.
All holdings are in ordinary shares unless otherwise stated.
Investments held at nil value: Celoxica Holdings plc(1), Leisurejobs.com
Limited(1) (previously The Sportweb.com Limited), Rated People Limited(1),
Sorbic International plc, TCOM Limited(1), VITEC Global Limited(1).
As at the year end the percentage of the Company's portfolio held in
qualifying holdings for the purposes of Section 274 of the Income and
Corporation Taxes Act is 100%.
Analysis as at 31 January 2023
Qualifying portfolio
The portfolio of qualifying investments in the Company as at 31 January 2023
is analysed in the graph which can be found on page 17 of the full Annual
Report and Accounts, by date of initial investment and market capitalisation.
The size of the circles represents the relative size of the holdings in the
portfolio by value.
The top ten qualifying portfolio companies are labelled. The dates of
investments in securities held solely by Amati VCT plc prior to the merger
with Amati VCT 2 plc in May 2018, are given as the dates those securities were
originally acquired by Amati VCT plc.
Sector split
The portfolio of investments in the Company as at 31 January 2023 is analysed
in the graph by sector which can be found on page 17 of the full Annual Report
and Accounts. This includes a sector split of the investments within the TB
Amati UK Listed Smaller Companies Fund which in the Investment Portfolio table
above is classed as Financials.
Investment Policy, Investment Objectives and Investment Strategy
Investment Objectives
The investment objectives of the Company are to generate tax free capital
gains and regular dividend income for its shareholders while complying with
the requirements of the rules and regulations applicable to Venture Capital
Trusts ("VCTs").
Investment Policy
The Company's investment policy is to hold a diversified portfolio across a
broad range of sectors to mitigate risk. It makes Qualifying Investments (as
defined in the Income Tax Act 2007 (as amended)) primarily in companies traded
on AIM or on the Aquis stock exchange ("Aquis") and non-Qualifying Investments
as allowed by the VCT legislation. The Company manages its portfolio to comply
with the requirements of the rules and regulations applicable to VCTs.
Investment Parameters
Whilst the investment policy is to make Qualifying Investments primarily in
companies traded on AIM or Aquis, the Company may also make Qualifying
Investments in companies likely to seek a quotation on AIM or Aquis. With
regard to the non-Qualifying portfolio the Company makes investments which are
permitted under the VCT legislation, including shares or units in an
Alternative Investment Fund (AIF) or an Undertaking for Collective Investment
in Transferable Securities (UCITS) fund, and shares in other companies which
are listed on a regulated market such as the Main Market of the London Stock
Exchange. Any investments by the Company in shares or securities of another
company must not represent more than 15% of the Company's net asset value at
the time of purchase.
Borrowing
The Company has the flexibility to borrow money up to an amount equal to its
adjusted capital and reserves but the Board's policy is not to enter into
borrowings.
Investment Strategy for Achieving Objectives
The investment strategy for achieving the Company Objectives which follows is
not part of the formal Investment Policy. Any material amendment to the formal
Investment Policy may only be made with shareholder consent, but that consent
applies only to the formal Investment Policy above and not to any part of the
Strategy for Achieving Objectives or Key Performance Indicators below.
(a) Qualifying Investments Strategy
The Company is likely to be a long-term investor in most Qualifying
Investments, with sales generally only being made where an investment case has
deteriorated or been found to be flawed, or to realise profits, adjust
portfolio weightings, fund new investments or pay dividends. Construction of
the portfolio of Qualifying Investments is driven by the historic investments
made by the Company and by the availability of suitable new investment
opportunities. The Manager may co-invest in companies in which other funds
managed by Amati Global Investors invest.
(b) Non-Qualifying Investments Strategy
The assets of the portfolio which are not in Qualifying Investments will be
invested by the Manager on behalf of the Company in investments which are
allowable under the rules applicable to VCTs. Currently, cash not needed in
the short term is invested in a combination of the following (though ensuring
that no more than 15% of the Company's funds are invested in any one entity at
the time of purchase):
(i) the TB Amati UK Listed Smaller Companies Fund (which is a UCITS
fund), or other UCITS funds approved by the Board;
(ii) direct equity investments in small and mid-sized companies
and debt securities in each case listed on the Main Market of the London Stock
Exchange; and
(iii) cash or cash equivalents (including money market funds)
which are redeemable within 7 days.
Environmental, Social and Governance ("ESG") Policies
The Investment Manager recognises that managing investments on behalf of
clients involves taking into account a wide set of responsibilities in
addition to seeking to maximise financial returns for investors. Industry
practice in this area has been evolving rapidly and Amati has been an active
participant in seeking to define and strengthen its principles accordingly.
This involves both integrating ESG considerations into the Investment
Manager's investment decision-making process as a matter of course, and also
signing up to major external bodies who are leading influencers in the
formation of industry best practice. The following is an outline of the kinds
of ESG factors that the Investment Manager will consider and question as part
of its investment process, reflecting the specific inputs and outputs of a
business.
· Environmental - climate change; use of natural resources; pollution;
waste and impact on bio-diversity; and taking into account any positive
environmental impacts.
· Social - use of human capital; potential product or service
liabilities; stakeholder opposition; and taking into account any positive
social considerations.
· Governance - ownership and control; management structure and quality;
pay and alignment; accounting issues; business ethics; and tax transparency.
· Human rights - weighing up the risks of activities in countries with
Freedom House Scores below 33 and based on Clean Trade principles; not
investing in companies extracting natural resources in countries which score
below 15; risk of exposure to corruption and unreliable legal frameworks; risk
of benefiting from slave labour; risk from adverse political developments
impacting a business negatively.
Board Diversity of Investee Companies
The Board, through the Manager, considers board diversity to be an important
consideration in its investment decision on investee companies.
Key Performance Indicators
The Board expects the Manager to deliver a performance which meets the
objectives of the Company. A review of the Company's performance during the
financial year, the position of the Company at the year end and the outlook
for the coming year is contained in the Chairman's Statement and Fund
Manager's Review. The Board monitors on a regular basis a number of key
performance indicators which are typical for VCTs, the main ones being:
· Compliance with HMRC VCT regulations to maintain the Company's VCT
Status. See below;
· Net asset value and total return to shareholders (the aggregate of
net asset value and cumulative dividends paid to shareholders, assuming
dividends re-invested at ex-dividend date). See graphs on page 3 of the full
Annual Report and Accounts;
· Comparison against the Numis Alternative Markets Total Return Index.
See graph on page 46 of the full Annual Report and Accounts;
· Dividend distributions. See table of investor returns above;
· Share price. See key data above; and
· Ongoing charges ratio. See key data above.
Fund Management and Key Contracts
Management Agreement
Amati Global Investors was appointed as Manager to the Company on 19 March
2010. Under an Investment Management and Administration Agreement dated 19
March 2010, and subsequently revised and updated in two separate agreements,
an Investment Management Deed ("IMA") and a Fund Administration, Secretarial
Services and Fund Accounting Agreement ("FASSFAA"), on 30 September 2019, the
Manager agreed to manage the investments and other assets of the Company on a
discretionary basis subject to the overall policy of the Directors. The
Company will pay to the Manager under the terms of the IMA a fee of 1.75% of
the net asset value of the Company quarterly in arrears. In November 2014,
with shareholder consent, the Company amended its non-qualifying investment
policy to permit investment in the TB Amati UK Listed Smaller Companies Fund,
a small and mid-cap fund managed by the Manager. The Company receives a full
rebate on the fees payable by the Company to the Manager within this fund
either through a reduction of fees payable by the Company or a direct payment
by the Manager.
Annual running costs are capped at 3.5% of the Company's net assets, any
excess being met by the Manager by way of a reduction in future management
fees. The annual running costs include the Directors' and Manager's fees,
professional fees and the costs incurred by the Company in the ordinary course
of its business (but excluding any commissions paid by the Company in relation
to any offers for subscription, irrecoverable VAT and exceptional costs,
including winding-up costs). No performance fee is payable as the Manager
waived all performance fees from 31 July 2014 onwards.
Administration Arrangements
Under the terms of the FASSFAA, the Investment Manager also agreed to provide
certain fund administration, company secretarial and accounting services to
the Company. As disclosed in last year's annual report, the Manager and Board
agreed that a new Company Secretary would be sought and that the Board would
contract directly with the new Company Secretary. The Board appointed Law
Debenture as Company Secretary of the Company with effect from 1 February
2022.
Under the FASSFAA, the Investment Manager has the right to appoint suitable
representatives to provide fund accounting and administration services to the
Company. The Manager engages Link Alternative Fund Administrators Limited to
act as fund accountant and administrator.
For the year ending 31 January 2023 the Company agreed to pay to the
Investment Manager a fee of £72,000 quarterly in arrears in respect of the
provision of fund accounting and administration services. This fee is subject
to an annual increase in line with the consumer prices index. The appointment
of the Investment Manager as investment manager and/or fund accountant and
administrator may be terminated with twelve months' notice.
Where the Investment Manager negotiates and structures an investment directly
with a company, most commonly as a convertible loan, the Investment Manager
retains the right to charge the investee company a fee. Any legal expenses
incurred by the Investment Manager will be paid out of this fee.
Fund Manager's Engagement
The Board regularly appraises the performance and effectiveness of the
managerial, administration and secretarial arrangements of the Company. As
part of this process, the Board will consider the arrangements for the
provision of investment management and other services to the Company on an
ongoing basis and a formal review is conducted annually. In the opinion of the
Board, the continuing appointment of the Manager, on the terms agreed, is in
the interests of the shareholders. The Directors are satisfied that the
Manager will continue to manage the Company in a way which will enable the
Company to achieve its objectives.
VCT Status Adviser
Philip Hare & Associates LLP ("Philip Hare & Associates") is engaged
to advise the Company on compliance with VCT requirements. Philip Hare &
Associates review new investment opportunities, as appropriate, and review
regularly the investment portfolio of the Company. Philip Hare &
Associates work closely with the Manager but report directly to the Board.
Principal and Emerging Risks
The Audit Committee regularly reviews the Company's risk register, which
assesses each risk and classifies the likelihood of the risk and the potential
impact of each risk on the Company. The Board considers that the Company faces
the following major risks and uncertainties:
Potential Risk Potential Impact Mitigation
Investment Risk A substantial portion of the Company's investments is in small AIM traded To reduce the risk, the Board placesreliance upon the skills and expertise of
companies as well as some unquoted companies. By their nature these the Manager and its strong track record for investing in this segment of the
investments involve a higher degree of risk than investments in larger fully market. Investments are actively and regularly monitored by the Manager and
listed companies. These companies tend to have limited product lines and niche the Board receives detailed reports on the portfolio in addition to the
markets. They can be reliant on a few key individuals. They can be dependent Manager's report at regular Board meetings. The Manager also seeks to limit
on securing further financing. With the changes to VCT regulations introduced these risks through building a diversified portfolio with companies in
in different areas within sectors and markets at different stages of development.
the Finance Act 2018 focusing investment in knowledge based companies, newer
investments may well be made at an earlier stage in the lifecycle and may
result in a reduced exposure to asset based businesses leading to increased Investments in unquoted companies in particular are subject to strict controls
volatility in the value of an investee company's shares. Further, the majority and investment limits in recognition of the significant risks involved. In
of the new investments will be in companies which have invested in developing relation to investments of this nature there is an expectation that the
and commercialising intellectual property, which brings with it the risk that investee company is likely to seek admission to AIM, in order to de- risk the
another company might develop superior technology, or that the investment, to the extent that this is possible, within an acceptable time
commercialisation strategy may fail. In addition, the liquidity of these frame. It may be that an investment is realised via a trade sale as this
shares can be low and the share prices volatile. option is always a possibility. The Manager ensures Board representation or
monitoring is a requirement of the investment agreement and, if a listing or
trade sale do not occur, will continue to oversee board and operational
management performance.
Venture Capital Trust Approval Risk The current approval as a venture capital trust allows investors to take To reduce this risk, the Board has appointed the Manager which has significant
advantage of income tax reliefs on initial investment and ongoing tax-free experience in venture capital trust management and is used to operating within
capital gains and dividend income. Failure to meet the qualifying requirements the requirements of the venture capital trust legislation. In addition, to
could result in investors losing the income tax relief on initial investment provide further formal reassurance, the Board has appointed Philip Hare &
and loss of tax relief on any tax-free income or capital gains received. In Associates as VCT Status Adviser to the Company. Philip Hare & Associates
addition, failure to meet the qualifying requirements could result in a loss reports every six months to the Board to confirm compliance with the venture
of listing of the shares. capital legislation, to highlight areas of risk and to inform on changes in
legislation independently.
The current VCT legislation contains a "Sunset Clause" which effectively
brings income tax relief to an end for new subscriptions after 5 April 2025. Other tax reliefs such as tax-free dividends and exemption from capital gains
This was agreed in 2015 to secure ongoing EU approval to the VCT and EIS tax would remain unaffected by the sunset clause. With the publication of the
schemes, which have been a crucial source of funding for new and innovative Windsor Framework on 27 February, removal of the Sunset Clause is now solely
businesses in the UK. within the control of HM Treasury. As the Chancellor has previously set out an
intention to continue the scheme, we currently await further clarity on the
details.
Compliance Risk The Company has a premium listing on the London Stock Exchange and is required Board members and the Manager have considerable experience of operating at
to comply with the rules of the UK Listing Authority, as well as with the senior levels within quoted businesses. In addition, the Board and the Manager
Companies Act, Financial Reporting Standards and other legislation. Failure receive regular updates on new regulations from the auditor, lawyers, the
to comply with these regulations could result in a delisting of the Company's Company Secretary and other professional bodies.
shares, or
other penalties under the Companies Acts or from financial reporting oversight
bodies.
The Alternative Investment Fund Managers (Amendment etc.) (EU Exit)
Regulations 2019 ("AIFMD") is a directive affecting the regulation of VCTs.
Amati AIM VCT has been entered in the register of small, registered UK AIFMs
on the Financial Services register at the Financial Conduct Authority ("FCA").
As a registered firm there are a number of regulatory obligations and
reporting requirements which must be met in order to maintain itsstatus as an
AIFM.
Internal Control Risk Failures in key controls within the Board or within the Manager's business The Board seeks to mitigate the internal control risk by setting policy,
could put assets of the Company at risk or result in reduced or inaccurate regular reviews of performance, enforcement of contractual obligations and
information being passed to the Board or to shareholders. monitoring progress and compliance.
Inadequate or failed controls might result in breaches of regulations or loss
of shareholder trust. The Manager operates a robust risk management system
which is reviewed regularly to ensure the controls in place are effective in
reducing or eliminating risks to the Company. Details of the Company's
internal controls are on page 41 of the full Annual Report and Accounts.
Financial Risk By its nature, as a venture capital trust, the Company is exposed to market The Company's policies for managing these risks are outlined in full in notes
price risk, credit risk, liquidity risk, interest rate risk and currency risk. 15 to 18 to the financial statements below. The Company is financed wholly
through equity.
Economic Risk Events such as economic recession, not only in the UK, but also in the core The Manager seeks to mitigate economic risk by seeking to adopt a suitable
markets relevant to our investee companies, together with a movement in investment style for the current point in the business cycle, and to diversify
interest rates, can affect investor sentiment towards liquidity risk, and the exposure to geographic end markets.
hence have a negative impact on the valuation of smaller companies. The
economic future for the UK and the wider world would appear to be as uncertain
as it has ever been in the last few decades. Actual war in Europe and the
possibility of war in the East combine to give grave concern for the future.
This follows two years of the Covid-19 pandemic and the ensuing impacts on the
UK and global economies where government debt has not been as high as it is
now since World War 2. Government actions to deal with Covid-19 and to boost
the economy during the pandemic now result in rising inflation and therefore
interest rates, the impacts on the cost of living being exacerbated by rising
energy prices caused by poor Government energy policy decision-making in the
rush to go green, reliance for energy supplies on countries with corrupt
regimes and the impact of the Russian invasion into Ukraine. The Covid-19
pandemic and the measures taken to control the outbreak had already led to
volatility in stock markets and other financial markets in the UK and a
downturn in the UK economy. The future development and long-term impacts of
the outbreak are unknown. Despite a permanent trade agreement between the UK
and EU and the end of the transition period on 31 December 2020 there remains
uncertainty and potential volatility in markets and for the economy while
practicalities are addressed.
Operational Risk Failure of the Manager's, or other contracted third parties', accounting The Manager regularly reviews the performance of third-party suppliers at
systems or disruption to their businesses might lead to an inability to monthly management meetings and the Board consider at quarterly board
provide accurate reporting and monitoring or loss to shareholders. meetings.
Concentration Risk Although the Company has a diversified portfolio of investments, the twenty Portfolio weighting limits apply to the portfolio's largest holdings such that
largestinvestments account for just over half of the total investments. A no holding is allowed to approach a size of 10% of the portfolio, with action
material fall in any one investment can have a significant impact on the normally taken well before that level particularly where the shares have
overall net asset value. become overbought with no underlying earnings justification.
Section 172 Statement
Directors' Duty to Promote the Success of the Company
This section sets out the Company's Section 172 Statement and should be read
in conjunction with the other contents of the Strategic Report. The Directors
have a duty to promote the success of the Company for the benefit of its
members as a whole and in doing so to have regard to a number of matters
including:
· the likely consequences of any decision in the long term;
· the interests of the Company's employees;
· the need to foster business relationships with suppliers, customers
and others;
· the impact of the company's operations on the community and the
environment;
· the desirability of the Company maintaining a reputation for high
standards of business conduct; and
· the need to act fairly between members of the Company.
As an externally managed investment company, the Company does not have
employees. Its main stakeholders therefore comprise the shareholders, the
Investment Manager, other service providers and investee companies.
To ensure that the Directors are aware of, and understand, their duties they
are provided with a tailored induction, including details of all relevant
regulatory and legal duties as a Director of a UK public limited company when
they first join the Board, and continue to receive regular and ongoing updates
and training on relevant legislative and regulatory developments.
They also have continued access to the advice and services of the Company
Secretary, and when deemed necessary, the Directors can seek independent
professional advice. The Terms of Reference of the Board's committees are
reviewed annually and describe the Directors' responsibilities and obligations
and include any statutory and regulatory duties.
Stakeholder Importance Board Engagement
Shareholders Continued shareholder support and engagement are critical to the continuing The Board places great importance on communication with its shareholders and
existence of the business and its future growth. encourages shareholders to attend the AGM and an annual investor event
andwelcomes communication from shareholders as described more fully on page
39 of the full Annual Report and Accounts.
Investment Manager The Manager's performance is fundamental for the Company to successfully The Board's decisions are intended to achieve the Company's objective
deliver its investment strategy, meet its investment objective and its to generate tax free capital gains and income on investors' funds
long-term success. and maintaining the Company's status as aVCT is a critical element of this.
The Board regularly monitors the Company's performance in relation to its
investment objectives and seeks to maintain a constructive working
relationship with the Manager. Representatives of the Manager attend each
quarterly board meeting and provide an update on the investment portfolio
along with presenting on macroeconomic issues. The Board also expects good
standards at the companies within which the Company is invested and, as
described below, the manager remains a signatory to the UK Stewardship Code,
and the Principles for Responsible Investment.
Other service providers, including: In order to function as an investment trust with a premium listing on the The Board maintains regular contact with its key external service providers,
London Stock Exchange, the Company engages a diverse and experienced range of and the quality of the provision of these services is considered by the Board
the registrar, the receiving agent, the tax adviser, the auditor, the lawyers, advisors for support with meeting all relevant obligations. at Board meetings, as well as being subject to a more formal annual review of
the Company Secretary and the Fund Accountant
both performance and fees by the Remuneration Committee.
Investee companies The Company's performance is directly linked to the performance of its The Manager does not have board representation in any quoted investee company
underlying investee companies and accordingly communication with those but does interact with Directors and senior management of quoted investee
entities is regarded as very important. companies regularly. The Manager does ensure direct or indirect representation
is achieved on the boards of unquoted companies.
The Board's primary focus in promoting the long-term success of the Company
for the benefit of the members as a whole is to direct the Company with a view
to achieving the investment objective in a manner consistent with its stated
investment policy and strategy.
Key decision making
The mechanisms for engaging with stakeholders are kept under review by the
Directors and discussed at Board meetings to ensure they remain effective. The
Board has policies for dividends, share buybacks and the dividend
re-investment scheme, all of which it is considered are for the benefit of
shareholders.
During the year the Directors discussed these and reaffirmed their commitment
to the policies. Examples of the Board's principal decisions during the year,
and how the Board fulfilled its duties under Section 172, are set out below:
Principal Decision Long-term impact Stakeholder Engagement
To cancel the Company's The share premium cancellation improved the Company's distributable reserves The Board considered the direction and future aims of the Company, and at the
position. An improved distributable reserves position will provide the Company June 2022 AGM put forward a special resolution to Shareholders to cancel the
share premium with flexibility to support dividend payments or other distributions to entire amount standing to the credit of the Company's share premium account.
shareholders and support Company share buybacks.
Following overwhelming shareholder support for the proposal (97.9%), the
Company commenced Court proceedings to cancel the share premium and sought the
consent of its creditors as part of due process.
Board appointments Continuing to develop and evolve the Board, so that it contains an appropriate During the year, the Board was pleased to appoint Fiona Wollocombe as Chairman
mix of skills, diversity and experience is important to promote the long-term of the Board with effect from the end of the AGM held on 16 June 2022. Fiona's
success of the Company. appointment ensured an orderly succession for the previous Chairman, Peter
Lawrence, who retired from the Board at the end of the 2022 AGM.
In addition, the Board was pleased to appoint Julia Henderson as Chair of the
Remuneration Committee. Julia's appointment followed the resignation of
Susannah Nicklin as a non-executive Director of the Company. Julia remains
Chair of the Nomination Committee.
The Nomination Committee and the Board considered the Board composition and
agreed that the current composition of the Board (being three directors) was
fit for the current requirements of the Company for the time being, however
will continue to review evolving the Board in line with the current and future
needs of the Company.
During the financial year, the Company held a General meeting in March 2022
relating to the allotment of new shares, which was disclosed as a key decision
in the Annual Report and Financial Statements for the year ended 31 January
2022.
Environmental, Social and Governance ("ESG") Policies, and Responsible
Ownership
The Company has no employees and no premises and the Board has decided that
the direct impact of its activities is minimal; therefore it has no policies
relating to social, community and human rights issues. However, the Board does
consider the impact of its operations on the environment and during the year
the Board made the decision to no longer pay all cash dividends via cheque and
to no longer provide printed copies of the Company's Half-Yearly report in
order to reduce the use of paper. The Company engaged with its shareholders on
the matter.
The Company's indirect impact occurs through the range of organisations in
which it invests and for this it follows a policy of Responsible Ownership.
In terms of external validation and support, Amati Global Investors, the
Manager, is signatory to the UK Stewardship Code which aims to enhance the
quality of engagement between investors and companies to help improve
long-term risk adjusted returns to shareholders. Amati's approach to
Stewardship and Shareholder Engagement can be found at
https://www.amatiglobal.com/storage/644/Stewardship
_and_Shareholder_Engagement-v2.pdf.
Amati is also a signatory to the UN-supported Principles for Responsible
Investment (PRI), which works to support its international network of
signatories in incorporating ESG factors into their investment and ownership
decisions. The PRI acts in the long-term interests of its signatories, of the
financial markets and economies in which they operate and ultimately of the
environment and society as a whole.
Voting on portfolio investments
In 2022, the Manager voted in respect of 62 Amati AIM VCT holdings at 70
company meetings on a range of ESG issues.
Business Conduct
The Board takes its responsibility to prevent bribery very seriously and has a
zero-tolerance policy towards bribery. It has committed to carry out all
business in an honest and ethical manner and to act professionally, fairly and
with integrity in all its business dealings and relationships. The Manager has
its own anti-bribery and corruption policy.
Global Greenhouse Gas Emissions
The Company is a low energy user and is therefore exempt from the reporting
obligations under the Companies Act 2006 (Strategic Report and Directors'
Report) Regulations 2013 or the Companies (Directors' Report) and Limited
Liability Partnerships (Energy and Carbon Report) Regulations 2018,
implementing the UK Government's policy on Streamlined Energy and Carbon
Reporting. The Company has no greenhouse gas emissions or energy consumption
to report from the operations of the Company, nor does it have responsibility
for any other emission producing sources. Under listing rule 15.4.29(R), the
Company, as a closed ended investment fund, is currently exempt from complying
with the Task Force on Climate related Financial Disclosures.
Other Matters
VCT Regulations
The Company's investment policy is designed to ensure that it meets the
requirements of HM Revenue & Customs to qualify and to maintain approval
as a VCT:
(i) The Company must, within three years of raising funds, maintain
at least 80% of its investments by VCT value (cost, or the last price paid per
share, if there is an addition to the holding) in shares or securities
comprised in qualifying holdings (this percentage rose from 70% to 80% for
accounting periods beginning on or after 6 April 2019 which for the Company
was from 1 February 2020). At least 70% by VCT value must be ordinary shares
which carry no preferential rights. A further condition requires that 30% of
new funds raised in accounting periods beginning after 5 April 2018 are to be
invested in qualifying holdings within 12 months of the accounting period
following the issuance of shares;
(ii) The Company may not invest more than 15% of its investments
in a single company and it must have at least 10% by VCT value of its total
investments in any qualifying company in qualifying shares approved by HM
Revenue & Customs;
(iii) To be classed as a VCT qualifying holding, companies in
which investments are made must have no more than £15 million of gross assets
at the time of investment and £16 million after investment; they must be
carrying on a qualifying trade and satisfy a number of other tests including
those outlined below; the investment must also be made for the purpose of
promoting growth or development;
(iv) VCTs may not invest new capital in a company which has raised
in excess of £5 million (£10 million from 6 April 2018 if the company is
deemed to be a Knowledge Intensive Company) from all sources of state-aided
capital within the 12 months prior to and including the date of investment;
(v) No investment may be made by a VCT in a company that causes
that company to receive more than £12 million (£20 million if the company is
deemed to be a Knowledge Intensive Company) of state-aid investment (including
from VCTs) over the company's lifetime. A subsequent acquisition by the
investee company of another company that has previously received State-Aid
Risk Finance can cause the lifetime limit to be exceeded;
(vi) No investment can be made by a VCT in a company whose first
commercial sale was more than 7 years prior to date of investment, except
where previous State-Aid Risk Finance was received by the company within 7
years (10 years in each case for a Knowledge Intensive Company) or where both
a turnover test is satisfied and the money is being used to enter a new
product or geographical market;
(vii) No funds received from an investment into a company can be
used to acquire another existing business or trade;
(viii) Since 6 April 2016 a VCT must not make "nonqualifying"
investments except for certain specified investments held for liquidity
purposes and redeemable within seven days. These include investments in UCITS
(Undertakings for Collective Investments in Transferable Securities) funds,
AIF (Alternative Investment Funds) and in shares and securities purchased on a
Regulated Market. In each of these cases the restrictions in (iii) - (vii)
above are not applied; and
(ix) Non-qualifying investments in AIM-quoted shares are not
permitted as AIM is not a Regulated Market.
During 2018, HMRC stopped issuing pre-clearance letters for VCT investments.
They are encouraging VCTs not to use the advance assurance service for
investments and have stated that where a VCT has taken reasonable steps to
ensure an investment is qualifying, the VCT status will not be withdrawn where
an investment is ultimately found to be non-qualifying.
The Manager and the Board rely on advice from Philip Hare & Associates
regarding the qualifying status of new investments. The Manager monitors
compliance with VCT qualifying rules on a day-to-day basis through a
combination of automated and manual compliance checks in place within the
business. Philip Hare & Associates also review the portfolio bi-annually
to ensure the Manager has complied with regulations and has reported to the
Board that the VCT has met the necessary requirements during the year.
PRIIPs Regulations
The Company is required to publish a Key Information Document (KID), which
sets out the key features, risks, potential future performance and costs of
PRIIPs (Packaged Retail and Insurance-based Investment Products). This
document is available at the website of Amati Global Investors:
www.amatiglobal.com.
Statement on Long-term Viability
In accordance with the UK Corporate Governance Code published in July 2018
(the "Code"), the Directors have carried out a robust assessment of the
prospects of the Company for the period to January 2028, taking into account
the Company's performance and emerging and principal risks, and are of the
opinion that, at the time of approving the financial statements there is a
reasonable expectation that the Company will be able to continue in operation
and meet liabilities as they fall due over that period.
To come to this conclusion the Manager prepares and the Directors consider an
income statement and cash flow forecast for the next five years, which is
considered to be an appropriate time period due to its consistency with the UK
Government's tax relief minimum holding period for an investment in a VCT.
This time frame allows for forecasts to be made to allow the Board to provide
shareholders with reasonable assurance over the viability of the Company. In
making their assessment the Directors have taken into account the nature of
the Company's business and Investment Policy, its risk management policies,
the diversification of its portfolio, the cash holdings and the liquidity of
non-qualifying investments.
The Directors have considered in particular the likely economic effects and
the impacts on the Company's operations of the war taking place in Ukraine,
rising inflation and interest rates.
The longer-term economic outlook is very difficult to predict but in
considering preparing the long term viability of the Company the Directors
noted the Company holds a portfolio of liquid investments and cash balances
whose value is a multiple of liabilities.
Other Disclosures
The Company had no employees during the year and has three non-executive
directors, two of whom are female and one is male.
On behalf of the Board
Fiona Wollocombe
Chairman
17 April 2023
Extracts from the Directors' Remuneration Report
Directors' fees for the year (Audited)
The fees payable to individual Directors in respect of the year ended 31
January 2023 are shown in the table below.
Year ended 31 January 2023
(audited)
Fees Taxable benefits(†) Total Total Fixed remuneration Total variable remuneration
£ £ £ £ £
Peter Lawrence* 10,130 531 10,661 10,130 -
Julia Henderson 24,500 303 24,803 24,500 -
Susannah Nicklin** 15,333 363 15,696 15,333 -
Brian Scouler 26,000 - 26,000 26,000 -
Fiona Wollocombe 27,019 - 27,019 27,019 -
102,982 1,197 104,179 102,982 -
† Reimbursement of travel expenses
* retired at the end of the AGM on 16 June 2022
** resigned on 19 September 2022
Year ended 31 January 2022
(audited)
Fees Taxable benefits Total Total Fixed remuneration Total variable remuneration
£ £ £ £ £
Peter Lawrence 25,378 - 25,378 25,378 -
Julia Henderson 22,905 - 22,905 22,905 -
Susannah Nicklin 22,905 - 22,905 22,905 -
Brian Scouler 22,905 - 22,905 22,905 -
Fiona Wollocombe* 14,744 - 14,744 14,744 -
108,837 - 108,837 108,837 -
* appointed on 10 June 2021
Directors are remunerated exclusively by fixed fees and do not receive
bonuses, share options, long-term incentives, pension or other benefits. There
have been no payments to past Directors during the financial year ended 31
January 2023, whether for loss of office or otherwise.
Directors' shareholdings (Audited)
The Directors who held office at 31 January 2023 and their interests in the
shares of the Company (including beneficial and family interests) were:
31 January 2023 31 January 2022
Shares held % of issued Shares held % of issued
share capital share capital
Peter Lawrence* N/A N/A 941,660 0.69
Julia Henderson 22,376 0.01 19,360 0.01
Susannah Nicklin** N/A N/A 25,777 0.02
Brian Scouler 63,806 0.04 60,381 0.04
Fiona Wollocombe 19,763 0.01 13,755 0.01
*retired at the 2022 AGM on 16 June 2022
** resigned on 19 September 2022
The Company confirms that it has not set out any formal requirements or
guidelines for a Director to own shares in the Company.
On behalf of the Board
Julia Henderson
Chairman of the Remuneration Committee
17 April 2023
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report and the
financial statements in accordance with UK Financial Reporting Standards and
applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors are required to prepare the
company's financial statements and have elected to prepare the company
financial statements in accordance with UK Financial Reporting Standards.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the company and of the profit or loss for the company for that
period.
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and accounting estimates that are reasonable and
prudent;
· state whether they have been prepared in accordance with UK
Financial Reporting Standards, subject to any material departures disclosed
and explained in the financial statements;
· prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the group and the company will continue in
business;
· prepare a directors' report, a strategic report and directors'
remuneration report which comply with the requirements of the Companies Act
2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the company's transactions and disclose with
reasonable accuracy at any time the financial position of the company and
enable them to ensure that the financial statements comply with the Companies
Act 2006.
They are also responsible for safeguarding the assets of the company and hence
for taking reasonable steps for the prevention and detection of fraud and
other irregularities. The Directors are responsible for ensuring that the
annual report and accounts, taken as a whole, are fair, balanced, and
understandable and provide the information necessary for shareholders to
assess the group's performance, business model and strategy.
Website Publication
The Directors are responsible for ensuring the annual report and the financial
statements are made available on a website. Financial statements are published
on the company's website in accordance with legislation in the United Kingdom
governing the preparation and dissemination of financial statements, which may
vary from legislation in other jurisdictions. The maintenance and integrity of
the company's website is the responsibility of the Directors. The Directors'
responsibility also extends to the ongoing integrity of the financial
statements contained therein.
Directors' responsibilities pursuant to DTR4
The Directors confirm to the best of their knowledge:
· The financial statements have been prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit and loss of the company.
· The annual report includes a fair review of the development and
performance of the business and the financial position of the company,
together with a description of the principal risks and uncertainties that it
faces.
On behalf of the Board
Fiona Wollocombe
Chairman
17 April 2023
Income Statement
for the year ended 31 January 2023
Note 2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Loss on investments 8 - (55,748) (55,748) - (18,123) (18,123)
Investment Income 2 1,810 - 1,810 701 - 701
Management fee 3 (930) (2,788) (3,718) (1,115) (3,345) (4,460)
Other expenses 4 (588) - (588) (514) - (514)
Profit/(loss) on ordinary activities before taxation 292 (58,536) (58,244) (928) (21,468) (22,396)
Taxation on ordinary activities 5 - - - - - -
Profit/(loss)and total 292 (58,536) (58,244) (928) (21,468) (22,396)
comprehensive income attributable to shareholders
Basic and diluted earnings/(loss) per ordinary share 7 0.19p (38.99)p (38.80)p (0.73)p (16.93)p (17.66)p
The total column of this Income Statement represents the profit and loss
account of the Company. The supplementary revenue and capital columns have
been prepared in accordance with The Association of Investment Companies'
Statement of Recommended Practice ('AIC SORP'). There is no other
comprehensive income other than the results for the year discussed above.
Accordingly a Statement of Total Comprehensive Income is not required.
All the items above derive from continuing operations of the Company.
The notes below form part of these financial statements.
Statement of Changes in Equity
for the year ended 31 January 2023
Non-distributable reserves Distributable reserves
Share Share Merger Capital Capital Special Capital Revenue Total
capital premium reserve redemption reserve reserve reserve reserve reserves
£'000 £'000 £'000 reserve (non- £'000 (distributable) £'000 £'000
£'000 distributable) £'000
£'000
Opening balance as at 1 February 2022 6,836 109,545 425 819 80,666 57,160 (6,104) (2,273) 247,074
(Loss)/profit and total comprehensive income for the year - - - - (67,748) - 9,212 292 (58,244)
Total comprehensive income 6,836 109,545 425 819 12,918 57,160 3,108 (1,981) 188,830
for the period
Contributions by and distributions to shareholders:
Repurchase of shares (89) - - 89 - (2,451) - - (2,451)
Shares issued 831 26,351 - - - - - - 27,182
Costs of share issues - (132) - - - - - - (132)
Dividends paid - - - - - (12,110) - - (12,110)
Cancellation of share premium* - (134,824) - - - 134,824 - - -
Expenses in relation to cancellation - - - - - (38) - - (38)
of share premium account
742 (108,605) - 89 - 120,225 - - 12,451
Closing balance as at 31 January 2023 7,578 940 425 908 12,918 177,385 3,108 (1,981) 201,281
*Following Court approval and the subsequent registration of the Court order
with the Registrar of Companies on 14 September 2022, the cancellation of the
Company's share premium account became effective and an amount of
£134,824,000 was transferred from the Share Premium account to the Special
Reserve. The Special Reserve is available for distribution as determined in
accordance with the Companies Act 2006 and HMRC rules specific to venture
capital trusts.
for the year ended 31 January 2022
Opening balance as at 1 February 2021 5,780 61,635 425 731 107,450 75,023 (11,420) (1,345) 238,279
(Loss)/profit and total comprehensive income for the year - - - - (26,784) - 5,316 (928) (22,396)
Contributions by and distributions to shareholders:
Repurchase of shares (88) - - 88 - (3,431) - - (3,431)
Shares issued 1,144 48,216 - - - - - - 49,360
Costs of share issues - (306) - - - - - - (306)
Dividends paid - - - - - (14,432) - - (14,432)
Total contributions by and distributions to shareholders 1,056 47,910 - 88 - (17,863) - - 31,191
Closing balance as at 31 January 2022 6,836 109,545 425 819 80,666 57,160 (6,104) (2,273) 247,074
The accompanying notes below are an integral part of these financial
statements.
Balance Sheet
as at 31 January 2023
Note 2023 2022
£'000 £'000
Fixed assets
Investments held at fair value 8 142,354 214,737
Current assets
Debtors 9 329 1,972
Cash at bank 59,595 31,833
59,924 33,805
Current liabilities
Creditors: amounts falling due within one year 10 (997) (1,468)
(997) (1,468)
Net current assets 58,927 32,337
Total assets less current liabilities 201,281 247,074
Capital and reserves
Called-up share capital* 11 7,578 6,836
Share premium account* 940 109,545
Merger reserve* 425 425
Capital redemption reserve* 908 819
Capital reserve (non-distributable)* 12,918 80,666
Special reserve 177,385 57,160
Capital reserve (distributable) 3,108 (6,104)
Revenue reserve (1,981) (2,273)
Equity shareholders' funds 201,281 247,074
Net asset value per share 12 132.8p 180.7p
* These reserves are not distributable.
The financial statements above and below were approved and authorised for
issue by the Board of Directors on 17 April 2023 and were signed on its behalf
by
Fiona Wollocombe
Chairman
Company Number 04138683
The accompanying notes below are an integral part of these financial
statements.
Statement of Cash Flows
for the year ended 31 January 2023
2023 2022
£'000 £'000
Cash flows from operating activities
Investment income received 1,299 626
Investment management fees paid (3,910) (4,427)
Other operating costs (572) (485)
Net cash outflow from operating activities (3,183) (4,286)
Cash flows from investing activities
Purchases of investments (12,422) (32,872)
Sale of investments 31,166 13,596
Net cash inflow/(outflow) from investing activities 18,744 (19,276)
Net cash inflow/(outflow) before financing 15,561 (23,562)
Cash flows from financing activities
Proceeds of share issues* 24,931 46,748
Issue costs (132) (306)
Share buy-backs (2,701) (4,194)
Equity dividends paid (9,859) (11,820)
Expenses in relation to cancellation of share premium account (38) -
Net cash inflow from financing activities 12,201 30,428
Increase in cash 27,762 6,866
Opening cash & cash equivalents 31,833 24,967
Closing cash & cash equivalents 59,595 31,833
Reconciliation of Loss on Ordinary Activities Before Taxation to Net Cash
Outflow from Operating Activities
Loss on ordinary activities before taxation (58,244) (22,396)
Loss on investments 55,748 18,123
Less dividends reinvested (223) (71)
(Decrease)/increase in creditors (188) 64
Increase in debtors (276) (6)
Net cash outflow from operating activities (3,183) (4,286)
*Adjusted to exclude non-cash dividends re-invested under the Dividend
Re-investment Scheme.
The accompanying notes below are an integral part of these financial
statements.
Notes to the Financial Statements
1 Accounting Policies
Basis of Accounting
The financial statements have been prepared under FRS 102 'The Financial
Reporting Standard applicable in the UK and Republic of Ireland' and in
accordance with the AIC SORP.
Basis of Preparation
The functional currency of the Company is Pounds Sterling because this is the
currency of the primary economic environment in which the Company operates.
The financial statements are presented in Pounds Sterling rounded to the
nearest thousand, except where otherwise indicated.
Going Concern
The financial statements have been prepared on a going concern basis and on
the basis that the Company maintains its VCT Status.
The Directors have made an assessment of the Company's ability to continue as
a going concern and are satisfied that the Company has adequate resources to
continue in operational existence for a period of 12 months from the date
these financial statements were approved.
In making this assessment, the Directors have considered in particular the
likely economic effects and the impacts of the war taking place in Ukraine,
rising inflation and interest rates on the Company, operations and investment
portfolio.
The Directors noted that the Company, with the current cash balance and
holding a portfolio of liquid listed investments, is able to meet the
obligations of the Company as they fall due. The cash available enables the
Company to meet any funding requirements and finance future additional
investments. The Company is a closed-end fund, where assets are not required
to be liquidated to meet day-to-day redemptions.
The Board has reviewed stress testing and scenario analysis prepared by the
Investment Manager to assist it in assessing the impact of changes in market
value and income with associated cash flows. In making this assessment, the
Investment Manager has considered plausible downside scenarios. These tests
included the modelling of a reduction in income of 50%, increase in costs of
50% and a reduction in net asset value of 50%, any or all of which could apply
to any set of circumstances in which asset value and income are significantly
impaired. It was concluded that in a plausible downside scenario, the Company
could continue to meet its liabilities. Whilst the economic future is
uncertain, and the Directors believe that it is possible the Company could
experience further reductions in income and/or market value, the opinion of
the Directors is that this should not be to a level which would threaten the
Company's ability to continue as a going concern.
The Directors, the Investment Manager and the Company's other service
providers have put in place contingency plans to minimise disruption. The
Board was satisfied that there has been minimal impact to the services
provided during the year and is confident that this will continue.
Furthermore, the Directors are not aware of any material uncertainties that
may cast significant doubt on the Company's ability to continue as a going
concern, having taken into account the liquidity of the Company's investment
portfolio and the Company's financial position in respect of its cash flows,
borrowing facilities and investment commitments (of which there are none of
significance). Therefore, the financial statements have been prepared on the
going concern basis.
Segmental Reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business, being investment business. The Company primarily invests
in companies listed in the UK.
Judgements and Key Sources of Estimation Uncertainty
The preparation of the Financial Statements requires management to make
judgments, estimates and assumptions that affect the application of policies
and reported amounts in the financial statements. The estimates and associated
assumptions are based on historical experience and various other factors that
are believed to be reasonable under the circumstances, the results of which
form the basis of making judgements about carrying values of assets and
liabilities and the allocation of income and expenses that are not apparent
from other sources. The nature of estimation means that the actual outcomes
could differ from those estimates, possibly significantly.
The most critical estimates and judgments relate to the determination of
carrying value of unquoted investments at fair value through profit or loss.
The policies for these are set out in the notes to the financial statements
below. The Company values unquoted investments by following the International
Private Equity Venture Capital Valuation ("IPEV") guidelines. Further areas
requiring judgement and estimation are recognising and classifying unusual or
special dividends received as either capital or revenue in nature. The
estimates and underlying assumptions are reviewed on an ongoing basis. There
are no further significant judgements or estimates in these financial
statements.
Income
Dividends receivable on quoted equity shares are taken to revenue on an
ex-dividend basis except where, in the opinion of the Directors, their nature
indicates they should be recognised in the Capital Account. Where no
ex-dividend date is quoted, dividends are brought into account when the
Company's right to receive payment is established.
Fixed returns on non-equity shares and debt securities are recognised on a
time apportionment basis, provided there is no reasonable doubt that payment
will be received in due course.
Interest receivable is included in the accounts on an accruals basis. Where
interest is rolled up or payable on redemption it is recognised as income
unless there is reasonable doubt as to its receipt.
All other income is accounted for on a time-apportioned accrual basis and is
recognised in the Income Statement.
Expenses
All expenses are accounted for on an accruals basis. In respect of the
analysis between revenue and capital items presented within the income
statement, all expenses have been prescribed as revenue items except as
follows:
Expenses are split and presented partly as capital items where a connection
with the maintenance or enhancement of the value of the investments held can
be demonstrated, and accordingly the investment management fee is currently
allocated 25% to revenue and 75% to capital, which reflects the Directors'
expected long-term view of the nature of the investment returns of the
Company.
Issue costs in respect of ordinary shares issued by the Company are deducted
from the share premium account.
Taxation
Deferred taxation is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date. Deferred tax assets are
only recognised when they arise from timing differences where recovery in the
foreseeable future is regarded as more likely than not. Timing differences are
differences arising between the Company's taxable profits and its results as
stated in the financial statements which are capable of reversal in one or
more subsequent periods. Deferred tax is not discounted.
Current tax is expected tax payable on the taxable income for the year, using
tax rates enacted or substantively enacted at the balance sheet date and any
adjustment to tax payable in respect of previous years. The tax effect of
different items of expenditure is allocated between revenue and capital on the
same basis as a particular item to which it relates, using the Company's
effective rate of tax, as applied to those items allocated to revenue, for the
accounting year.
No tax liability arises on gains from sales of fixed asset investments by the
Company by virtue of its VCT status.
Investments
In accordance with FRS 102, Sections 11 and 12, all investments held by the
Company are designated as held at fair value upon initial recognition and are
measured at fair value through profit or loss in subsequent accounting
periods. Investments are initially recognised at cost, being the fair value of
the consideration given. After initial recognition, investments are measured
at fair value, with changes in the fair value of investments recognised in the
Income Statement and allocated to capital. Realised gains and losses on
investments sold are calculated as the difference between sales proceeds and
cost. Also included within this heading are transaction costs in relation to
the purchase or sale of investments.
In respect of investments that are traded on AIM or are fully listed, these
are valued at bid prices at close of business on the Balance Sheet date.
Investments traded on SETS (London Stock Exchange's electronic trading
service) are valued at the last traded price as this is considered to be a
more accurate indication of fair value.
Fair values for unquoted investments, or for investments for which the market
is inactive, are established by using various valuation techniques in
accordance with IPEV guidelines. These are constantly monitored for value and
impairment. The values and impairment, if any, are approved by the Board. The
shares may be valued by using the most appropriate methodology recommended by
the IPEV guidelines, including revenue multiples, net assets, discounted
cashflows and industry valuation benchmarks.
Convertible loan stock instruments are valued using present value of future
payments discounted at a market value of interest for a similar loan and
valuing the option at fair value.
Contingent Value Rights (CVRs) pay out if certain hurdles are achieved and are
valued at the amount payable per share on achievement of those hurdles,
discounted for certain probabilities and the time to the value date to reflect
the illiquidity of the holdings, and further discounted for payment, if it
becomes due, being made either in the form of loan notes or shares issue at
market value.
The valuation of the Company's investment in TB Amati UK Listed Smaller
Companies Fund is based on the published share price. The valuation is
provided by the Authorised Corporate Director of the fund, T Bailey Fund
Managers Limited.
Financial Instruments
The Company classifies financial instruments, or their component parts, on
initial recognition as a financial asset, a financial liability or an equity
instrument in accordance with the substance of the contractual arrangement.
Financial instruments are recognised on trade date when the Company becomes a
party to the contractual provisions of the instrument. All financial
instruments are designated upon initial recognition as held at fair value
through profit or loss, and are measured at subsequent reporting dates at fair
value, with changes in the fair value recognised in the Income Statement and
allocated to capital.
Financial instruments are derecognised on the trade date when the Company is
no longer a party to the contractual provisions of the instrument.
Cash and Cash Equivalents
For the purposes of the Balance Sheet, cash comprises cash in hand and demand
deposits. Cash equivalents are short-term, highly liquid investments and money
market funds that are readily convertible to known amounts of cash and which
are subject to insignificant risk of changes in value.
For the purposes of the Statement of Cash Flows, cash and cash equivalents
consist of cash and cash equivalents as defined above, net of outstanding bank
overdrafts when applicable.
Foreign Currency
Foreign currency assets and liabilities are translated into sterling at the
exchange rates ruling at the balance sheet date. Transactions during the year
are converted into sterling at the rates ruling at the time the transactions
are executed. Any gain or loss arising from a change in exchange rate
subsequent to the date of the transaction is included as an exchange gain or
loss in the capital reserve or the revenue account depending on whether the
gain or loss is of a capital or revenue nature.
Short-term Debtors and Creditors
Debtors and creditors with no stated interest rate and receivable within one
year are recorded at transaction price. Any losses arising from impairment are
recognised in the income statement in other operating expenses upon
notification.
Dividends Payable
Final dividends are included in the financial statements when they are
approved by shareholders. Interim dividends payable are included in the
financial statements on the date on which they are paid.
Share Premium
The share premium account is a non-distributable reserve which represents the
accumulated premium paid on the issue of shares in previous periods over the
nominal value, net of any expenses.
Merger Reserve
The merger reserve is a non-distributable reserve which originally represented
the share premium on shares issued when the Company merged with Singer &
Friedlander AIM VCT and Singer & Friedlander AIM 2 VCT in February 2006.
The merger reserve is released to the realised capital reserve as the assets
acquired as a consequence of the merger are subsequently disposed of or
permanently impaired. There have been no disposals of these assets during the
year.
Capital Redemption Reserve
The capital redemption reserve represents non-distributable reserves that
arise from the purchase and cancellation of shares.
Special Reserve
The special reserve was created by the cancellation of the share premium
account by order of the Court and forms part of the distributable reserves.
Distributions may be restricted as determined in accordance with the Companies
Act 2006 and HMRC rules specific to venture capital trusts. The following
items are taken to this reserve:
• costs of share buybacks; and
• dividends payable to shareholders.
Capital Reserve
The following are taken to the capital reserve through the capital column in
the Income Statement:
Capital reserve - other, forming part of the distributable reserves:
· gains and losses on the disposal of investments;
· realised exchange gains and losses of a capital nature; and
· expenses allocated to this reserve in accordance with the above
policies.
Capital reserve - investment holding gains, not distributable:
· increase and decrease in the value of investments held at the year
end; and
· unrealised exchange gains of a capital nature.
Revenue Reserve
The revenue reserve represents accumulated profits and losses and any surplus
profit is distributable by way of dividends.
2 Income
Year to Year to
31 January 31 January
2023 2022
£'000 £'000
Dividends from UK companies 843 701
UK loan stock interest 447 -
Interest from deposits 519 -
Other income 1 -
1,810 701
3 Management Fees
The Manager provides investment management and fund accounting and
administration services to the Company under an Investment Management
Agreement ("IMA") and a Fund Administration, Secretarial and Fund Accounting
Agreement ("FASSFAA"). Details of these agreements are given above.
Under the IMA the Manager receives an investment management fee of 1.75% of
the net asset value of the Company quarterly in arrears.
The Company received a rebate of its management fee for the investment in the
TB Amati UK Listed Smaller Companies Fund.
The investment management fee for the year was as follows:
Year to Year to
31 January 31 January
2023 2022
£'000 £'000
Due to the Manager by the Company at 1 February 1,049 1,016
Investment management fee charged to revenue and capital for the year 3,718 4,460
Fees paid to the Manager during the year (3,910) (4,427)
Due to the Manager by the Company at 31 January 857 1,049
In addition to the investment management fee the Manager also received a fund
accounting and administration fee of £72,000 (2022: £96,000) paid quarterly
in arrears. See note 4.
No performance fee is payable in respect of the year ended 31 January 2023, as
the Manager has waived all performance fees from 31 July 2014 onwards.
Annual running costs are capped at 3.5% of the Company's net assets. If the
annual running costs of the Company in any year are greater than 3.5% of the
Company's net assets, the excess is met by the Manager by way of a reduction
in future management fees. The annual running costs include the Directors' and
Manager's fees, professional fees and the costs incurred by the Company in the
ordinary course of its business (but excluding any commissions paid by the
Company in relation to any offers for subscription, any performance fee
payable to the Manager, irrecoverable VAT and exceptional costs, including
winding-up costs).
4 Other Expenses
Year to Year to
31 January 31 January
2023 2022
£'000 £'000
Directors' remuneration 103 109
Directors' employer's national insurance 9 4
Directors' expenses 2 2
Auditor's remuneration - audit of statutory financial statements 45 35
Administration fee 71 94
Company secretarial services 48 -
Other expenses 310 270
588 514
The Company has no employees. The Directors are therefore the only key
management personnel.
Details of Directors' remuneration are provided in the audited section of the
directors' remuneration report on page 44 of the full Annual Report and
Accounts.
5 Tax on Ordinary Activities
5a Analysis of charge for the year
Year to Year to
31 January 31 January
2023 2022
£'000 £'000
Charge for the year - -
5b Factors affecting the tax charge for the year
Year to Year to
31 January 31 January
2023 2022
£'000 £'000
Loss on ordinary activities before taxation (58,244) (22,396)
Corporation tax at standard rate of 19.00% (2022: 19.00%) (11,066) (4,255)
Effect of:
Non-taxable dividends (160) (133)
Non-taxable losses on investments 10,592 3,443
Movement in excess management expenses 634 945
Tax charge for the year (note 5a) - -
Due to the Company's tax status as an approved Venture Capital Trust, deferred
tax has not been provided on any capital gains arising on the disposal or
valuation of investments as such gains are not taxable. We remain of the view
that the provisions of CTA 2009 sections 396 and 641 apply to treat any
gains/losses on loan instruments as taxable under the chargeable gains
provisions in TCGA 1992 and further exempt the VCT from tax under the
provisions in s100.
No deferred tax asset has been recognised on surplus management expenses
carried forward as it is not envisaged that future taxable profits will be
available against which the Company can use the benefits. The amount of
unrecognised deferred tax asset is £6,827,000 (31 January 2022: £5,992,000)
based on a corporate tax rate of 25% substantively enacted at the balance
sheet dates and due to come into effect on 1 April 2023.
6 Dividends
Amounts recognised as distributions to equity holders during the year:
2023 2023 2022 2022
Revenue Capital Revenue Capital
£'000 £'000 £'000 £'000
Final dividend for the year ended 31 January 2022 of 4.50p per ordinary share - 6,803 - -
paid on 22 July 2022
Interim dividend for the year ended 31 January 2023 of 3.50p per ordinary - 5,307 - -
share paid on 25 November 2022
Final dividend for the year ended 31 January 2021 of 7.00p per ordinary share - - - 8,278
paid on 23 July 2021
Interim dividend for the year ended 31 January 2022 of 4.50p per ordinary - - - 6,154
share paid on 26 November 2021
- 12,110 - 14,432
Set out below are the interim and final dividends paid or proposed on ordinary
shares in respect of the financial year:
2023 2023 2022 2022
Revenue Capital Revenue Capital
£'000 £'000 £'000 £'000
Interim dividend for the year ended 31 January 2023 of 3.50p per ordinary - 5,307 - 6,154
share (2022: 4.50p)
Declared final dividend for the year ended 31 January 2023 of 3.50p per - 5,287 - 6,698
ordinary share (2022: 4.50p)*
- 10,594 - 12,852
* Based on shares in issue on 17 April 2023. The payment of a final dividend
will, as always, be subject to ensuring that the Company has sufficient
distributable reserves at the time
7 Earnings per Share
2023 2022
Net profit/ (loss) Weighted Basic and Net profit/ (loss) Weighted Basic and
£'000 average diluted £'000 average diluted
shares Earnings shares Earnings
per share per share
pence pence
Revenue 292 0.19p (928) (0.73)p
Capital (58,536) (38.99)p (21,468) (16.93)p
Total (58,244) 150,110,568 (38.80)p (22,396) 126,840,235 (17.66)p
8 Investments
Level 1* Level 2* Level 3* Total
£'000 £'000 £'000 £'000
Opening cost as at 1 February 2022 128,607 - 6,955 135,562
Opening investment holding gains 80,646 - 20 80,666
Opening unrealised loss recognised in realised reserve (228) - (1,263) (1,491)
Opening fair value as at 1 February 2022 209,025 - 5,712 214,737
Analysis of transactions during the year:
Reclassification in the year (67) - 67 -
Purchases at cost 9,262 3,350 12,612
Disposals- proceeds received (29,128) - (119) (29,247)
- realised loss on disposals (3,564) - (592) (4,156)
- unrealised losses during the year (47,917) - (3,675) (51,592)
Closing fair value as at 31 January 2023 137,611 - 4,743 142,354
Closing cost as at 31 January 2023 120,593 - 9,071 129,664
Closing investment holding gains/(losses) as at 31 January 2023 17,246 - (4,328) 12,918
Closing unrealised loss recognised in realised reserve as at 31 January 2023 (228) - - (228)
Closing fair value as at 31 January 2023 137,611 - 4,743 142,354
Equity shares 137,611 - 166 137,777
CVRs - - - -
Convertible loan notes - - 4,577 4,577
Closing fair value as at 31 January 2023 137,611 - 4,743 142,354
Holdings of ordinary shares in unquoted companies rank pari passu for voting
purposes. Preference shares and CVRs have no voting rights.
The Company received £29,247,000 (2022: £15,515,000) from the sale of
investments in the year. The book cost of these investments when they were
purchased was £18,509,000 (2022: £6,855,000). These investments have been
revalued over time and until they were sold any unrealised gains/(losses) were
included in the fair value of the investments.
2023 2022
£'000 £'000
Realised (losses)/gains on disposal (4,156) 65
Unrealised losses on investments during the year (51,592) (18,188)
Net losses on investments (55,748) (18,123)
Transaction Costs
During the year the Company incurred transaction costs of £nil (31 January
2022: £44,000) and £14,000 (31 January 2022: £8,000) on purchases and sales
of investments respectively. These amounts are included in the gain on
investments as disclosed in the income statement.
9 Debtors
2023 2022
£'000 £'000
Receivable for investments sold - 1,919
Prepayments and accrued income 329 53
329 1,972
10 Creditors: Amounts Falling due within One Year
2023 2022
£'000 £'000
Payable for share buybacks - 249
Payable for investments bought - 34
Other creditors 997 1,185
997 1,468
11 Called Up Share Capital
2023 2023 2022 2022
Ordinary shares (5p shares) Number £'000* Number £'000*
Allotted, issued and fully paid at 1 February 136,720,797 6,836 115,589,550 5,780
Issued during the year 16,617,329 831 22,880,426 1,144
Repurchase of own shares for cancellation (1,789,133) (89) (1,749,179) (88)
At 31 January 151,548,993 7,578 136,720,797 6,836
* nominal value
During the year a total of 1,789,133 ordinary shares of 5p each were purchased
by the Company at an average price of 136p per share.
Further details of the Company's share capital and associated rights are shown
in the Directors' Report on page 33 of the full Annual Report and Accounts.
12 Net Asset Value per Ordinary Share
2023 2022
Net Ordinary NAV Net assets Ordinary NAV
assets shares per share £'000 shares per share
£'000 pence pence
Ordinary share 201,281 151,548,993 132.8 247,074 136,720,797 180.7
13 Significant Interests
The Company has the following significant interests (amounting to an
investment of 3% or more of the equity capital of an undertaking):
% held
Northcoders Group plc 14.3
Getech Group plc 11.5
Polarean Imaging plc 11.5
Aurrigo International plc 10.4
Rosslyn Data Technologies plc 10.4
Ixico plc 10.1
Fusion Antibodies plc 9.0
One Media iP Group plc 8.0
Glantus Holdings plc 7.8
Hardide plc 7.7
Block Energy plc 7.5
Intelligent Ultrasound plc 6.7
Ensilica plc 6.5
Falanx Cyber Security Limited 6.3
Sosandar plc 5.6
Byotrol plc 5.5
Saietta Group plc 5.2
Aptamer Group plc 4.5
Zenova Group plc 4.2
Water Intelligence plc 4.2
Velocys plc 3.9
Strip Tinning Holdings plc 3.7
Rua Life Sciences plc 3.6
Kinovo plc 3.5
Velocity Composites plc 3.2
14 Financial Instruments
The Company's financial instruments comprise equity and fixed interest
investments, cash balances and liquid resources including debtors and
creditors. The Company holds financial assets in accordance with its
investment policy to invest in qualifying investments predominantly in AIM
traded companies or companies to be traded on AIM.
Classification of financial instruments
The Company held the following categories of financial instruments at 31
January:
2023 2022
£'000 £'000
Assets at fair value through profit or loss:
Investments 142,354 214,737
Assets measured at amortised cost:
Accrued income and other debtors 329 1,972
Cash at bank 59,595 31,833
Liabilities (amounts due within one year) measured at amortised cost:
Payable for investments bought - (282)
Accrued expenses (997) (1,186)
Total for financial instruments 201,281 247,074
The investments are measured at fair value through profit or loss. The
Company's investing activities expose it to various types of risk that are
associated with the financial instruments and markets in which it invests. The
most important types of financial risk to which the Company is exposed are
market risk, credit risk, currency and liquidity risk. The nature and extent
of the financial instruments outstanding at the balance sheet date and the
risk management policies employed by the Company are discussed below.
The Company measures fair values using the following fair value hierarchy into
which the fair value measurements are categorised. A fair value measurement is
categorised in its entirety on the basis of the lowest level input that is
significant to the fair value measurement of the relevant asset as follows:
Level 1 - the unadjusted quoted price in an active market for identical assets
or liabilities that the entity can access at the measurement date.
Level 2 - inputs other than quoted prices included within Level 1 that are
observable (i.e. developed using market data) for the asset or liability,
either directly or indirectly.
The Company's level 2 assets are valued using models with significant
observable market parameters.
Level 3 - inputs are unobservable (i.e. for which market data is unavailable)
for the asset or liability.
Level 3 fair values are measured using a valuation technique that is based on
data from an unobservable market. Discussions are held with management,
statutory accounts, management accounts and cashflow forecasts are obtained,
and fair value is based on multiples of revenue.
The table below sets out the fair value measurement of financial instruments
as at the year end, by the level in the fair value hierarchy into which the
fair value measurement is categorised:
Financial assets at fair value
Year ended 31 January 2023 Year ended 31 January 2022
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Equity shares 137,611 - 166 137,777 209,025 - 501 209,526
CVRs - - - - - - 711 711
Convertible loan notes - - 4,577 4,577 - - 4,500 4,500
137,611 - 4,743 142,354 209,025 - 5,712 214,737
The fair value of investments are derived as follows:
For quoted securities this is the bid price or, in the case of SETS
securities, the last traded price. The Company's Level 1 investments are AIM
traded companies and fully listed companies. Investments in TB Amati UK Listed
Smaller Companies Fund are based on the published fund mid-price NAV.
Unquoted investments are valued by the Directors using rules consistent with
IPEV guidelines. Where there is no observable input the investments are
designated as Level 3 and the fair values determined as follows:
Equity shares are valued by using revenue multiples, net assets, discounted
cashflows and industry valuation benchmarks. These multiples are derived from
a basket of comparable quoted companies, with appropriate discounts applied.
These discounts are subjective, based on the Manager's experience and
assessment of disclosures made by the underlying investee company.
Contingent Value Rights (CVRs) pay out if certain hurdles are achieved and are
valued at the amount payable per share on achievement of those hurdles,
discounted for certain probabilities and the time to the value date to reflect
the illiquidity of the holdings, and further discounted for payment, if it
becomes due, being made either in the form of loan notes or shares issued at
market value.
Convertible Loan Notes (CLNs) are fair valued using the present value of
future payments, benchmarking and assessing market transactions of a similar
CLN's. Further to this the fair value and interest accrued of the CLN's will
be referenced to the assessment of disclosures made by the underlying investee
company, the terms of the agreement and referenced to the underlying assets
held by the investee company. The inputs and information utilised in
determining the fair value are subjective and based upon the Manager's
experience. The fair values are reviewed by the Directors using rules
consistent with IPEV guidelines. The details of the CLNs' fair value and
interest are noted in the Investment Portfolio above.
Details of movements in Level 3 financial assets are set out below:
Level 3 financial assets at fair value
Year ended 31 January 2023 Year ended 31 January 2022
Equity Preference Loan Equity Preference Loan
shares shares CVR Stock Total shares shares CVR Stock Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £000 £'000
Opening balance at 1 February 501 - 711 4,500 5,712 81 47 732 - 860
Transfer from 67 - - - 67 - - - - -
Level 1
Purchases at cost 301 - - 3,049 3,350 500 - - 4,500 5,000
Disposal proceeds - - (119) - (119) (353) (207) (311) (871)
Total net gains/(losses) recognised in the income statement (703) - (592) (2,972) (4,267) 273 160 (21) 311 723
Closing balance at 31 January 166 - - 4,577 4,743 501 - 711 4,500 5,712
15 Risks
The identified risks arising from the financial instruments are market risk
(which comprises market price risk and foreign currency risk), liquidity risk
and credit and counterparty risk.
The Board and Investment Manager consider and review the risks inherent in
managing the Company's assets which are detailed below.
16 Market Risk
Market risk arises from uncertainty about the future prices of financial
instruments held in accordance with the Company's investment objectives. It
represents the potential loss that the Company might suffer through holding
positions by the way of price movements, interest rate movements, exchange
rate movements and systematic risk (risk inherent to the market, reflecting
economic and geopolitical factors).
The Company's strategy on the management of market risk is driven by the
Company's investment objective as outlined above. The management of market
risk is part of the investment management process. The Board seeks to mitigate
the internal risks by setting policy, regular reviews of performance,
enforcement of contractual obligations and monitoring progress and compliance
with an awareness of the effects of adverse price movements through detailed
and continuing analysis, with an objective of maximising overall returns to
shareholders. Investments in unquoted stocks and AIM traded companies, by
their nature, involve a higher degree of risk than investments in the Main
Market. Some of that risk can be mitigated by diversifying the portfolio
across business sectors and asset classes. The Company's overall market
positions are regularly monitored by the Board and at quarterly Board
meetings.
Market price risk
Market price risk arises from any fluctuations in the value of investments
held by the Company. Adherence to investment policies mitigates the risk of
excessive exposure to any particular type of security or issuer. The portfolio
is managed with an awareness of the effects of adverse price movements through
detailed and continuing analysis with the objective of maximising overall
returns to shareholders.
The assessment of market risk is based on the Company's portfolio as held at
the year end. The assessment uses the AIM All-Share Index as a proxy for the
AIM Qualifying Investments and quoted Non-Qualifying Investments and
illustrates, based on historical price movements, their potential change in
value to the AIM All-Share Index.
The review has also examined the potential impact of a movement in the market
on the CLN investments held by the Company, whose values will vary according
to the value of the underlying security into which the loan note instrument
has the option to convert.
As at 31 January 2023 96.68% (31 January 2022: 97.34%) of the Company's
investments are traded. A 30% decrease in stock prices as at 31 January 2023
would have decreased the net assets attributable to the Company's shareholders
and increased the loss for the year by £41,283,000 (31 January 2022:
£62,708,000); an equal change in the opposite direction would have increased
the net assets attributable to the Company's shareholders and turned the loss
into a profit for the year by an equal amount.
As at 31 January 2023 3.32% (31 January 2022: 2.66%) of the Company's
investments are in unquoted companies held at fair value. A change in market
inputs that would result in a 30% decrease in the valuations of unquoted
investments at 31 January 2023 would have decreased the net assets
attributable to the Company's shareholders and increased the loss for the year
by £1,418,000 (31 January 2022: £1,714,000); an equal change in the opposite
direction would have increased the net assets attributable to the Company's
shareholders and reduced the loss for the year by an equal amount.
Currency risk
The Company's performance is measured in sterling, a proportion of the
Company's assets may be either denominated in other currencies or are in
investments with currency exposure. Any income denominated in a foreign
currency is converted into sterling upon receipt. At the Balance Sheet date,
the Company exposure to the United States Dollar consisted of investments of
£3,366,000 (31 January 2022: £2,846,000).
A 5% rise or decline of Sterling gains foreign currency (i.e. non Pounds
Sterling) assets and liabilities held at the year end would have
increased/decreased the net asset value by £168,000 (2022: £142,000).
Interest Rate Risk
Interest rate movements may affect the level of income receivable on cash
deposits and any fixed interest securities. The Company held four fixed
interest investments of £4,577,000 (2022: £4,500,000), the weighted average
interest of the convertible loan interest is 3.87% (2022: Nil%). The details
of the convertible loan notes' terms of agreement, fair value, interest
chargeable and provisions are noted in the Investment Portfolio above.
Changes in interest rates will impact the fair value of the convertible loan
notes due to the changes in inputs changing the present value of future
payments and the benchmarking to similar convertible loan notes. A change in
market inputs, through changes in interest rates, that would result in a 1%
decrease in the fair value of convertible loan notes at 31 January 2023 would
have decreased the net assets attributable to the Company's shareholders and
increased the loss for the year by £46,000 (31 January 2022: £45,000); an
equal change in the opposite direction would have increased the net assets
attributable to the Company's shareholders and reduced the loss for the year
by an equal amount. The convertible loan notes are fixed interest.
The Company held a cash balance at 31 January 2023 of £59,595,000 (2022:
£31,833,000). If the level of cash was maintained for a year, a 1% increase
in interest rates would increase the revenue return and net assets by
£596,000 (2022: £318,000). Management proactively manages cash balances. If
there were a fall of 1% in interest rates, it would potentially impact the
Company by turning positive interest to negative interest. The total effect
would be a revenue reduction/cost increase of £596,000 (2022: £318,000).
17 Credit Risk
Credit risk is the risk that the counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with
the Company. The carrying amount of financial assets best represents the
maximum credit risk exposure at the balance sheet date. At 31 January 2023,
the financial assets exposed to credit risk, representing convertible loan
stock instruments, amounts due from brokers, accrued income and cash amounted
to £64,474,000 (31 January 2022: £38,267,000). The convertible loan in
Sorbic International plc is secured over the buildings and land use rights of
the companies.
Credit risk arising on transactions with brokers relates to transactions
awaiting settlement. Risk relating to unsettled transactions is considered to
be small due to the short settlement period involved, the high credit quality
of the brokers used and the fact that almost all transactions are on a
'delivery versus payment' basis. The Manager monitors the quality of service
provided by the brokers used to further mitigate this risk.
All the assets of the Company which are tradeable on AIM are held by The Bank
of New York Nominees, the Company's custodian. Bankruptcy or insolvency of the
custodian may cause the Company's rights with respect to securities held by
the custodian to be delayed or limited.
At 31 January 2023, cash held by the Company was held by The Bank of New York
Mellon. Bankruptcy or insolvency of the institutions may cause the Company's
rights with respect to the cash held by it to be delayed or limited. Should
the credit quality or the financial position of the institutions deteriorate
significantly the Company has the ability to move the cash at short notice.
The Board monitor the credit worthiness of BNYM, currently rated at Aa2
(Moody's).
There were no significant concentrations of credit risk to counterparties at
31 January 2023 or 31 January 2022.
18 Liquidity Risk
The Company's financial instruments include investments in unlisted equity
investments which are not traded in an organised public market and which
generally may be illiquid. As a result, the Company may not be able to quickly
liquidate some of its investments in these instruments at an amount close to
their fair value in order to meet its liquidity requirements, or to respond to
specific events such as deterioration in the creditworthiness of any
particular issuer. The proportion of the portfolio invested in unlisted equity
investments is not considered significant given the amount of investments in
readily realisable securities.
The Company's liquidity risk is managed on an ongoing basis by the Manager in
accordance with policies and procedures in place as described in the Strategic
Report above. The Company's overall liquidity risks are monitored on a
quarterly basis by the Board.
The Company maintains sufficient investments in cash and readily realisable
securities to pay accounts payable and accrued expenses. At 31 January 2023,
these investments were valued at £123,326,000 (31 January 2022:
£132,107,000). The Directors consider that frequently traded AIM investments
with a market capitalisation of greater than £200m represent readily
realisable securities. The Company is a closed-end fund, assets do not need to
be liquidated to meet redemptions, and sufficient liquidity is maintained to
meet obligations as they fall due.
19 Capital Management Policies and Procedures
The Company's capital management objectives are:
· to ensure that it will be able to continue as a going concern;
· to satisfy the relevant HMRC requirements; and
· to maximise the income and capital return to its shareholders.
As a VCT, the Company must have, within 3 years of raising its capital, at
least 80% by value of its investments in VCT qualifying holdings, which are
relatively high-risk UK smaller companies. In addition at least 30% of new
money raised during an accounting period must be invested in qualifying
holdings within 12 months of the end of the financial year in which the funds
are raised. In satisfying these requirements, the Company's capital management
scope is restricted. The Company does have the option of maintaining or
adjusting its capital structure by varying dividends, returning capital to
shareholders, issuing new shares or selling assets to maintain a certain level
of liquidity. There has been no change in the objectives, policies or
processes for managing capital from the previous year.
The structure of the Company's capital is described in note 11 and details of
the Company's reserves are shown in the Statement of Changes in Equity above.
The Board, with the assistance of the Manager, monitors and reviews the broad
structure of the Company's capital on an ongoing basis. This review includes:
· the need to buy back equity shares for cancellation, which takes
account of the difference between the net asset value per share and the share
price (i.e. the premium or discount);
· the need for new issues of shares; and
· the extent to which revenue in excess of that which is to be
distributed should be retained.
The Company is subject to externally imposed capital requirements:
a. as a public limited company, the Company is required to have a minimum
share capital of £50,000; and
b. in accordance with the provisions of the Income Tax Act 2007, the Company
as a Venture Capital Trust:
i) is required to make a distribution each year such that it does not retain
more than 15% of income from shares and securities; and
ii) is required to derive 70% of its income from shares and securities.
These requirements are unchanged since last year and the Company has complied
with them at all times.
20 Post Balance Sheet Events
The following transactions have taken place between 31 January 2023 and the
date of this report:
498,817 shares bought back
On 2 March 2023 Flylogix Limited, an unquoted investment within the Company's
portfolio, was placed into administration.
21 Related Parties
The Company retains Amati Global Investors as its Manager. Details of the
agreement with the Manager are set out above. The number of ordinary shares in
the Company (all of which are held beneficially) by certain members of the
management team are:
31 January 31 January 31 January 31 January
2023 2023 2022 2022
shares held % shares held shares held % shares held
Paul Jourdan* 596,806 0.39% 723,985 0.53%
David Stevenson 26,753 0.02% 26,753 0.02%
Anna Macdonald 15,930 0.01% 7,855 0.01%
* includes 24,781 shares held by a Person Closely Associated to Paul Jourdan
The remuneration of the Directors, who are key management personnel of the
Company, is disclosed in the Directors' Remuneration Report on page 44 of the
full Annual Report and Accounts, and in note 4 above.
Corporate Information
Directors
Fiona Wollocombe
Julia Henderson
Brian Scouler
all of:
8th Floor
100 Bishopsgate
London
United Kingdom
EC2N 4AG
Secretary
LDC Nominee Secretary Limited
8(th) Floor, 100 Bishopsgate
London
EC2N 4AG
Fund Manager
Amati Global Investors Limited
8 Coates Crescent
Edinburgh
EH3 7AL
VCT Status Adviser
Philip Hare & Associates LLP
6 Snow Hill
London
EC1A 2AY
Registrar
The City Partnership (UK) Limited
The Mending Rooms
Park Valley Mills
Meltham Road
Huddersfield
HD4 7BH
Auditor
BDO LLP
55 Baker Street
London
W1U 7EU
Solicitors
Dickson Minto W.S.
16 Charlotte Square
Edinburgh
EH2 4DF
Custodian
The Bank of New York Mellon SA/NV
London Branch
160 Queen Victoria Street
London
EC4V 4LA
Annual General Meeting
Attendance at the meeting
The Annual General Meeting of Amati AIM VCT plc (the "Company") will be held
at the Barber-Surgeons' Hall, Monkwell Square, Wood Street, Barbican, London
EC2Y 5BL on Thursday 15 June 2023 starting at 2pm.
As is our normal practice, there will be live voting for those physically
present at the AGM. Shareholders are advised that it will not be possible to
vote or ask questions virtually during the live-stream and we therefore
request that all shareholders, and particularly those who cannot attend
physically, submit their votes by proxy, ahead of the deadline of 2.00 pm on
Tuesday 13 June 2023 to ensure that their vote counts at the AGM. If you hold
your shares in a nominee account, such as through a share dealing service or
platform, you will need to contact your provider and ask them to submit the
proxy votes on your behalf. For further instructions on proxy voting, please
refer to the notes on pages 82 to 84 of the full Annual Report and Accounts.
Shortly ahead of the AGM, the Company's Manager will post a link and
instructions on how to join the event on its homepage at www.amatiglobal.com.
Shareholders who are unable to join the Meeting physically can email any
questions they may have either on the business of the AGM or the portfolio to
info@amatiglobal.com by 9 June 2023. The Company's Manager will publish
questions together with answers on the page dedicated to the AGM on the
Manager's website prior to the AGM being held.
The full audited Annual Report and Accounts for the year ended 31 January 2023
will shortly be available on the Company's website www.amatiglobal.com
(http://www.amatiglobal.com) . It will also be submitted to the National
Storage Mechanism ("NSM") and will be available for inspection there, situated
at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
A copy of the Annual Report and Accounts, which includes the Notice of Annual
General Meeting, will be posted to shareholders shortly.
For further information, please contact the investor line at Amati Global
Investors on 0131 503 9115 or by email at info@amatiglobal.com
(mailto:info@amatiglobal.com) .
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.
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