REG - Mobeus Inc&Gwth 2 - Annual Financial Report
13/07/2023 07:15
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RNS Number : 8604F Mobeus Income & Growth 2 VCT PLC 13 July 2023
MOBEUS INCOME & GROWTH 2 VCT PLC
LEI: 213800LY62XLI1B4VX35
ANNUAL FINANCIAL RESULTS OF THE COMPANY
FOR THE YEAR ENDED 31 MARCH 2023
Mobeus Income & Growth 2 VCT plc (the "Company") announces the final
results for the year ended 31 March 2023. These results were approved by the
Board of Directors on 12 July 2023.
You may, in due course, view the Annual Report & Financial Statements,
comprising the statutory accounts of the Company by visiting
www.mig2vct.co.uk.
FINANCIAL HIGHLIGHTS
For the year ended 31 March 2023
As at 31 March
2023:
Net assets: £70.43 million
Net asset value ("NAV") per share: 71.54 pence
- Net Asset Value ("NAV") total return(1) per share was (12.3)%.
- Share Price total return(1) per share of (6.9)%.(3)
- Dividends paid and declared of 13.00 pence per share. Cumulative
dividends paid(1) since inception amount to 147.00 pence per share.
- £3.32 million was invested into five new growth capital
investments and five existing portfolio companies during the year.
- Net unrealised losses were £(9.14) million.
- Sale of investments generated £8.05 million of cash proceeds
and a net loss of £(0.28) million
(1) Definitions of key terms and alternative performance measures("APMs")
Key Performance Indicators ("KPIs") shown above and throughout are provided in
the Glossary of terms within the Annual Report & Financial Statements.
CHAIR'S STATEMENT
I am pleased to present the annual results of Mobeus Income & Growth 2 VCT
plc for the year ended 31 March 2023.
Overview
The Company's financial year took place during a period of significant
political and economic disruption. A high point for many technology and growth
markets occurred at the end of 2021 before the impact of global events
including the Russian invasion of Ukraine, political turmoil in the UK and
across Europe as well as rising inflation and associated increase in interest
rates. Stock markets continue to be volatile and there has been a substantial
downward re-rating of growth stock valuations across global markets.
Recently inflation has moderated, albeit remaining relatively high, and the UK
economy narrowly avoided recession. However, the IMF forecast for 2023 warns
of an ongoing threat of recession which would likely result in additional
challenges for your portfolio companies, particularly in respect of input cost
inflation and dampened customer demand. Nevertheless, we believe your Company
is well prepared for most scenarios with strong liquidity available to support
the portfolio and through extensive planning and preparation by each of the
portfolio companies' management teams with the assistance of Gresham House.
The Company has continued to provide finance to new and existing investee
companies and delivered three notable exits during the year in the form of
Media Business Insight (MBI), Equip Outdoor Technologies (EOTH) and Tharstern
Group Limited (Tharstern). Looking forward we anticipate a quieter exit
environment in the current year.
The Board was pleased to learn of the commitment from the UK Government to
extend the VCT 'sunset clause' beyond the end date of 5 April 2025, although
Shareholders should note the VCT industry has seen no further detail provided
to date and any extension will most likely require parliamentary approval. If
the clause had not been extended, investor income tax relief on new VCT
subscriptions would not have been available.
Performance
NAV total return, expressed on a pence per share basis, was derived as
follows:
2023 2022
Year ended 31 March (pence per share) (pence per share)
Net realised and unrealised (losses)/gains on the investment portfolio (9.60) 15.04
Income from the investment portfolio and liquid assets 1.87 1.34
Share buybacks and adjustments (2.00) 0.89
Gross return (9.73) 17.27
Less: Investment Adviser's fees and other expenses (2.10) (3.81)
Net return (11.83) 13.46
NAV total return per share (12.3)% 13.3%
The Company's NAV total return per share decreased by (12.3)% for the year
ended 31 March 2023 (2022: 13.3%), calculated as the closing NAV per share of
71.54 pence plus 13.00 pence of dividends paid in the year, divided by the
opening NAV per share of 96.37 pence. The share price total return was down
(6.9)% (2022: 23.4%). The difference between the share price and NAV total
returns arises principally due to the timing of NAV announcements which are
usually made on a date following the date to which they relate and is
explained more fully under Performance in the Strategic Report of the Annual
Report. The negative NAV total return for the year was principally the result
of unrealised losses in the value of investments in the portfolio, driven
initially by lower benchmark market comparables and, more recently, by the
weaker trading performance of investee companies as the impact of inflation
and higher interest rates on consumer spending and business investment began
to bite.
In the Association of Investment Companies' analysis of Cumulative NAV Total
Returns at 31 March 2023, the Company was ranked 7(th) out of 36 Generalist
VCTs over five years and 1(st) out of 31 Generalist VCTs over ten years.
Shareholders should note that the AIC's rankings are based on the latest
available published NAVs and therefore do not reflect NAV per share movements
up to 31 March 2023. For further details on the performance of the Company,
please refer to the Strategic Report within the Annual Report.
Target Return
The Board's current target is to achieve an average NAV total return of 8.0%
per annum. Although this year's NAV total return decreased by (12.3)% (2022:
13.3%) the average over five years of 11.3% per annum, is well in excess of
the target.
The Board reminds Shareholders that investment portfolio returns and dividend
payments should always be viewed over the longer term.
Dividends
The Board continues to be committed to providing an attractive dividend stream
to Shareholders. In respect of the year ended 31 March 2023, the Company paid
Shareholders two interim dividends totalling 13.00 pence per share comprising
6.00 pence per share on 7 November 2022 and a further dividend of 7.00 pence
per share paid on 30 March 2023 to Shareholders on the register on 30
September 2022 and 3 March 2023 respectively. To date, cumulative dividends
paid since inception total 147.00 pence per share.
The Company has now met or exceeded the Board's dividend target of paying at
least 5.00 pence per share in respect of the last thirteen financial years.
The continuing change in the portfolio to younger growth capital investments,
as the older, more mature companies with higher income yields are sold, is
likely to make it more difficult to maintain a consistently high level of
dividends from income and capital returns alone in any given year. This year
the Company experienced a reduction in income from portfolio companies and
investments but was able to exceed the dividend target as it had sufficient
distributable reserves from past realised profits. Shareholders should also
note that there may be circumstances where the Company is required to pay
dividends in order to maintain its regulatory status as a VCT, for example, to
stay above the minimum percentage of assets required to be held in qualifying
investments. It should also be noted that the payment of dividends causes the
Company's NAV per share to reduce by a corresponding amount. The Board takes
all of these variables into account when setting the level of dividends and
continues to monitor the sustainability of the annual dividend target.
On 20 June 2023 by order of the Court, the share premium account and capital
redemption reserve of the Company was reduced (as approved at the General
Meeting of the Company held on 12 October 2022) and has been transferred to a
special distributable reserve. The purpose of this reserve is to fund market
purchases of the Company's own shares as and when it is considered by the
Board to be in the interests of the shareholders, make dividend payments and
to write-off existing and future losses as the Company must take into account
capital losses in determining distributable reserves.
Investment and portfolio performance
The portfolio valuation movements for the year were as follows:
2023 2022
£mn £mn
Opening Portfolio value 52.16 41.83
New and further investments 3.32 4.61
Disposal proceeds (8.05) (6.37)
Net realised (losses)/gains (0.28) 2.54
Valuation movements (9.14) 9.55
Portfolio value at 31 March 38.01 52.16
During the year, the Company invested a total of £3.32 million into five new
and five existing portfolio companies (2022: £4.61 million; three and seven
respectively). New investments totalling £1.88 million were made into:
· Bidnamic - a marketing technology business;
· FocalPoint - a GPS enhancement software supplier;
· Orri - an intensive day care provider for adults with eating
disorders;
· Connect Earth - an environmental data provider; and
· Cognassist - education and neuro-inclusion solutions.
Additional funding of £1.44 million was provided across five existing
portfolio companies:
· Northern Bloc - a dairy and allergen-free ice cream brand;
· Rotageek - a workforce management software system;
· Andersen EV - a provider of premium EV chargers;
· Vivacity - an AI and Urban Traffic Control business; and
· Bleach London - a hair colourants brand.
Post the year-end, £0.39 million was invested into a new portfolio company,
Dayrize , a provider of a rapid sustainability impact assessment tool.
Additionally, £0.30 million was further invested into Legatics, an existing
portfolio company. Further details of the new investments can be found in
the Investment Adviser's Report below.
The Company generated a total of £8.05 million in proceeds from full and
partial realisations alongside loan repayments and other capital receipts in
the year ended 31 March 2023 as detailed below.
In June 2022, the Company realised its investment in Media Business Insight
(MBI), a publishing and events business focussed on the production industries,
generating proceeds of £2.80 million (including deferred proceeds and loan
repayments made earlier in the year) resulting in a realised gain in the year
of £0.16 million. Returns received over the life of the investment amounted
to £4.50 million, a 2.2x multiple of cost and an IRR of 13.8 %.
In November 2022 we were delighted by the sale of the equity in EOTH, trading
as Rab and Lowe Alpine, receiving £4.34 million including preference share
dividends on completion which generated a realised gain in the year of £0.70
million. To date total proceeds received amount to £5.64 million providing a
6.9x multiple of cost and an IRR of 23.2%. The Company has retained interest
bearing loan stock to continue to generate future income.
In March 2023, the sale of Tharstern completed generating a realised gain of
£0.35 million. Over the life of this investment a 2.6x return and IRR of
15.0% was achieved.
Unfortunately in October 2022, Andersen EV, an electric charger provider, was
compelled to enter into administration as a result of a substantial
deterioration in its trading environment, which resulted in a realised loss of
£(0.65) million in the year. This was particularly disappointing as the
Company, alongside the other Mobeus VCTs, made a follow-on investment into the
company in May 2022. The company had secured some impressive clients and
funding was provided to drive product development in a premium brand operating
in the emerging electric car charging market. However, over the summer months,
a combination of global supply issues, inflationary cost increases and the
removal of Government consumer support for the purchase of EV chargers quickly
impacted its ability to continue trading and so necessitated the appointment
of administrators. On 22 December 2022, Parsley Box Group PLC delisted from
the AIM market and its shares were cancelled. It has subsequently
re-registered as a private company.
Also in the year, Tapas Revolution, the Spanish restaurant chain, went into
administration. Under the HMRC Financial Health Test (more detail below), the
Company was unable to invest further into this portfolio company and as a
result it was necessary for an Administrator to be appointed. It is likely
that other company failures will be seen during the rest of the financial year
as we are unable to invest and assist some portfolio companies further.
Including Andersen EV above, a total of £1.49 million has been recognised
as a realised loss across three companies which are experiencing significant
trading issues.
The portfolio's valuation at the year-end demonstrates the impact of slowing
consumer and business spending on consumer facing portfolio companies, in
particular Virgin Wines. Virgin Wines is an AIM-listed investment, which has
also suffered from the negative sentiment of its sector, in spite of broadly
positive news flows from the company itself and relative outperformance versus
its peers. It contributed £2.68 million of the unrealised portfolio reduction
of £9.14 million. Other smaller valuation decreases were registered by Buster
& Punch and Wetsuit Outlet, which were also marked down as a result of
experiencing challenging trading conditions.
The impact of the decline in consumer confidence on the portfolio companies
operating in the consumer sector has therefore contributed to the overall
realised and unrealised reduction in the value of the portfolio by £(9.42)
million in the year ended 31 March 2023 (2022: increase of £12.09 million),
or a fall of (18.1)% on a like-for-like basis compared to the value of the
portfolio at the start of the year.
During these uncertain times, the management of the portfolio is absolutely
critical and the Investment Adviser is, and has been, focused on deploying its
Talent Management team to support its investments. We continue to expect
follow-on investments to remain a significant feature of our portfolio
companies as they seek to achieve scale and move to profitability. Follow-on
investment requests are subject to the same scrutiny as new deals and both
rely on certain criteria being met, including the HMRC Financial Health Test.
Shareholders should be aware that this test is an effective tightening of the
interpretation of HMRC policy and practice in a technical aspect of the VCT
financing rules, now resulting in the restriction of potential follow-on
investments to support certain companies, where more than half their
subscribed share capital has been lost.
In a small number of cases, this may result in the Company not being able to
make follow-on investments, even where a compelling business case exists,
which in turn could impact the prospects of the portfolio company. The Board
continues to monitor developments in the interpretation of this area of
legislation carefully.
Further details of the Company's investment activity and the performance of
the portfolio are contained in the Investment Adviser's Review and the
Investment Portfolio Summary within the Annual Report.
Liquidity and Fundraising
Cash and cash equivalents held by the Company as at 31 March 2023 amounted to
£32.51 million, or 46.2% of net assets.
In October 2022, on considering the future cash requirements of the Company
and the potential demand for the Company's shares following the successful
fundraise in January 2022, the Board approved a further fundraise for the
2022/23 tax year. Having provided a period of time between the launch of the
prospectus and acceptance of applications, the Board was pleased that the
initial amount of £8 million (as well as an over-allotment facility of a
further £8 million), launched early in October 2022, was fully subscribed by
8 November 2022. Shares were allotted in November 2022 and February 2023 and
your Company extends a warm welcome to an equal mix of both new and existing
Shareholders.
The fundraising launched in October 2022 was to ensure that the Company
retained adequate levels of liquidity to take advantage of new investment
opportunities; fund further expansion of existing portfolio companies;
facilitate attractive Shareholders returns, including the payment of
dividends; and to buy back its shares from Shareholders who wish to sell.
Currently, the Board do not anticipate a fundraise in 2023.
Share Buybacks
During the year, the Company bought back and cancelled 1,464,956 of its own
shares (2022: 697,498), representing 1.8% of the shares in issue at the
beginning of the year (2022: 1.0%), at a total cost of £1.15 million,
inclusive of expenses (2022: £ 0.64 million). It is the Company's policy to
cancel all shares bought back in this way. The Board regularly reviews its
buyback policy and currently seeks to maintain the discount at which the
Company's shares trade at no more than 5% below the latest published NAV.
Shareholder Communications and Annual General Meeting
May I remind you that the Company has its own website containing useful
information for Shareholders at:
www.mig2vct.co.uk (http://www.mig2vct.co.uk) .
The Investment Adviser held a virtual Shareholder Event on the afternoon of 23
March 2023 with a live Q&A session which we hope you were able to join. We
are pleased that double the number of attendees joined the meeting this year.
A recording of the event is available via a link on the Company's website.
Your Board is pleased to be able to hold the next Annual General Meeting
("AGM") of the Company at 11.00 am on Wednesday, 13 September 2023 at the
offices of Shakespeare Martineau, 6th Floor, 60 Gracechurch Street, London,
EC3V 0HR. A webcast will also be available at the same time for those
Shareholders who cannot attend in person. However, please note that you will
not be able to vote via this method and so are encouraged to return your proxy
form before the deadline of 11:00 am on Monday 11 September 2023. Information
setting out how to join the meeting by virtual means will be shown on the
Company's website. For further details, please see the Notice of the Meeting
which can be found at the end of Annual Report & Financial Statements.
Board Composition & Succession
Throughout the year the Board comprised three directors. Following the
retirement of Adam Kingdon in September 2022, whom we thank for his services
to the Company, we were delighted that Sarah Clark joined as a director on
4 November 2023. Sarah brings new skills and depth of knowledge to the
Company and will be standing for election at the forthcoming AGM. Sarah was
also appointed as the Chair of the Investment Committee and is a member of all
other Company's Committees.
After considering and reviewing its composition, the Board agreed that the
directors have the breadth and depth of relevant knowledge and experience plus
the appropriate skill sets. The Board now consists of one male and two female
directors.
Fraud Warning
We are aware that Shareholders are being contacted in connection with
sophisticated but fraudulent financial scams which purport to come from the
Company or to be authorised by it. This is often by a phone call or an
email usually originating from outside of the UK, claiming or appearing to be
from a corporate finance firm offering to buy your shares at an inflated
price.
The Board strongly recommends Shareholders take time to read the Company's
Fraud warning section, including details of who to contact, contained within
the Information for Shareholders section within the Annual Report.
Environmental, Social and Governance ("ESG")
The Board and the Investment Adviser believe that the consideration of
environmental, social and corporate governance ("ESG") factors throughout the
investment cycle will contribute towards enhanced Shareholder value.
Gresham House has a team which is focused on sustainability and the Board
views this as an opportunity to enhance the Company's existing protocols and
procedures through the adoption of the highest industry standards.
The future FCA reporting requirements consistent with the Task Force on
Climate-related Financial Disclosures, which commenced on 1 January 2021, do
not currently apply to the Company but will be kept under review, the Board
being mindful of any recommended changes.
Consumer Duty
The Financial Conduct Authority (FCA) has introduced the concept of Consumer
Duty, the rules and principles of which come into effect in July 2023.
Consumer Duty is an advance on the existing concept of 'treating customers
fairly'. It sets higher and clearer standards of consumer protection across
financial services and requires all firms to put their customers needs first.
As the Company is not regulated by the FCA it does not directly fall into the
scope of Consumer Duty. However, Gresham House as the Investment Adviser
alongside any IFAs or financial platforms used to distribute future
fundraising offers are subject to Consumer Duty.
It is incumbent on all parties to uphold the principles behind Consumer Duty
and to that end we are working with the Investment Adviser to review the
information we should provide to assist consumers and their advisers to
discharge their obligations under Consumer Duty.
Outlook
The geopolitical and macroeconomic background conditions are likely to remain
uncertain in the near future. Interest rates are set to remain relatively high
to combat inflation around the world. This background will continue to provide
trading challenges for our portfolio companies, although historically these
conditions have also provided an opportunity for the Company to make high
quality investments and build strategic stakes in businesses with great
potential. The issues affecting the banking sector may also mean that debt
markets continue to be constrained which may, notwithstanding the recent
successful sales of EOTH and Tharstern, keep the exit environment subdued
compared to recent years. However, as the Company is not time-limited this is
not expected to be a significant issue. The combined impact of inflation,
interest rates and restrictions in Government spending are expected to
continue to weigh down on UK consumer and business confidence. Therefore, we
anticipate that further market stresses will become evident as the year
progresses with all sectors vulnerable. However, the Company has a reasonably
large and diverse portfolio, managed by a professional and capable investment
team, which will mitigate the challenges that lie ahead. Allied to our strong
balance sheet, the Board remains confident that it will be able to continue
paying an attractive dividend.
I would like to take this opportunity once again to thank all Shareholders for
your continued support and to extend a warm welcome to new Shareholders.
Ian Blackburn
Chair
12 July 2023
INVESTMENT ADVISER'S REVIEW
Portfolio Review
The continuing harsh economic conditions continue to create challenging
circumstances for portfolio companies. UK business has seen both demand and
operating margins come under pressure in the face of increases in inflation,
interest rates and the associated threat of recession, unprecedented in recent
years and not experienced by a generation of management teams. Whilst markets
have somewhat stabilised, the impact of this is now being seen on consumer
confidence and business investment.
Gresham House, as Investment Adviser views portfolio value change in the first
half of the financial year characterised as by declining market multiples with
relatively stable company level trading performance carried over in part from
the momentum gained during the prior financial year. However, in the latter
months of 2022 and into 2023, the situation has reversed with trading
performance beginning to suffer somewhat.
Although markets remain buoyant and less volatile, in large part this is
attributable to the weighting of tech giants such as Alphabet and Meta who are
not directly representative of the real UK growth economy. Against this
backdrop, the latest US data suggests growth rates have more than halved to
1.1%. Whilst inflation is expected to be moderating following the rises in
base rates, it is still at a very high level and has impacted economic growth
expectations. There are also early signs that supply chains are returning to
normality, that the labour shortage is easing and that there are pockets of
positive market sentiment. The outlook is therefore mixed, and the emphasis is
thus on robust funding structures and on being prepared for all eventualities.
The Company's investment values have been insulated partially from market
movements and lower revenue growth by the preferred investment structures
employed in many of the portfolio companies. This acts to moderate valuation
swings and the net result is a more modest decline in portfolio value. The
Gresham House non-executive directors who sit on each portfolio company board
have responded by working with their boards to ensure that appropriate
scenario planning has been done to achieve the best results during these
uncertain times. Furthermore, the direct impact high interest rates on the
Company's portfolio is negligible as most portfolio companies do not have any
significant third-party debt. There is also now a greater focus on cash
management and capital efficiency. With ample liquidity following the recent
fund raise, the Company is also well placed to support portfolio companies
with follow-on funding where it is appropriate and can be done on attractive
terms. Strong liquidity will also benefit the attractive new investment
environment for the Company which, in our view is strong and we are seeing a
number of interesting business propositions.
There are some specific highs in the portfolio such as Preservica which
continues to see strong trading and is out-performing budget. The partial exit
from EOTH was also an excellent result after a long running process which had
to negotiate numerous economic and geo-political hurdles and shortly before
the end of the year was the exit of Tharstern. By contrast, there were also
some significant falls. The largest was at Virgin Wines, where market
sentiment shifted heavily against the whole sector despite Virgin Wines itself
outperforming its peers. MyTutor was also impacted by declining sector
multiples combined with slower than anticipated growth over the year and Tapas
has entered administration since the year-end with no expected recovery for
the VCTs.
The portfolio's valuation changes in the year are summarised as follows:
Investment Portfolio Capital Movement 2023 2022
£mn £mn
Increase in the value of unrealised investments
Decrease in the value of unrealised investments
0.67 14.91
(9.81) (5.36)
Net (decrease)/increase in the value of unrealised investments (9.14) 9.55
Realised gains 1.21 2.54
Realised losses (1.49) -
Net realised (losses)/gains in the year (0.28) 2.54
Net investment portfolio movement in the year (9.42) 12.09
The portfolio's movements in the year are summarised as follows:
2023 2022
£mn £mn
Opening portfolio value
New and further investments
Disposal proceeds
Net realised (losses)/gains
Valuations movements
52.16 41.83
3.32 4.61
(8.05) (6.37)
(0.28) 2.54
(9.14) 9.55
Portfolio value at 31 March 38.01 52.16
New investments during the year
A total of £1.88 million was invested into five new investments during the
year, as detailed below:
Company Business Date of Investment Amount of new investment (£mn)
Bidnamic Marketing technology May 2022 0.43
Lads Store Limited, trading as "Bidnamic" (bidnamic.com) is a marketing
technology business that offers a platform for online retailers to manage
their search engine marketing spend. The technology was all developed
internally and uses bespoke machine learning algorithms to automate the
management and optimisation of online retailers' Google shopping spend. The
ARR of the business has grown substantially over the last two years and this
is projected to continue. The investment round will be used further to enhance
the product's capabilities and drive continued ARR growth through expanding
the sales & marketing team and building a presence in North America.
FocalPoint GPS enhancement software provider September 2022 0.42
Focal Point Positioning Limited (focalpointpositioning.com) is a deep tech
business with a growing IP and software portfolio. Its proprietary technology
applies advanced physics and machine learning dramatically to improve the
satellite-based location sensitivity, accuracy, and security of devices such
as smartphones, wearables and vehicles and reduce costs.
Orri Specialists in eating disorder support September 2022 0.37
Orri Limited (orri-uk.com) is an intensive day care provider for adults with
eating disorders. Orri provides an alternative to expensive residential
in-patient treatment and lighter-touch outpatient services by providing highly
structured day and half day sessions either online or in-person at its clinic
on Hallam Street, London. Orri opened its current clinic in London in February
2019 which provides a homely environment in a converted 4-storey house but
which is operating at capacity. The plan sees a larger site being leased
nearby with Hallam Street being used to provide a step-down outpatient
service.
Connect Earth Environmental data provider March 2023 0.22
Founded in 2021, Connect Earth (connect.earth) is a London-based environmental
data company that democratises easy access to sustainability data. With its
carbon tracking API technology, Connect Earth supports financial institutions
in offering their customers transparent insights into the climate impact of
their daily spending and investment decisions. Connect Earth's defensible and
scalable product platform suite has the potential to be a future market winner
in the nascent but rapidly growing carbon emission data market, for example,
by enabling banks to provide end retail and business customers with carbon
footprint insights of their spending. This funding round is designed to
facilitate the delivery of the technology and product roadmap to broaden the
commercial reach of a proven product.
Cognassist Education and neuro-inclusion solutions March 2023 0.44
Cognassist (cognassist.com) is an education and neuro-inclusion solutions
company that provides a Software-as-a-Service (SaaS) platform focused on
identifying and supporting individuals with hidden learning needs. The
business is underpinned by extensive scientific research and a vast cognitive
dataset. Founded in 2019 by Chris Quickfall, Cognassist has scaled its
underlying business within the education market, enabling apprentices to
unlock government funding and helping diverse minds to thrive. This investment
will empower Cognassist to continue its growth within the education market and
penetrate the enterprise market, where demand for neuro-inclusive solutions to
adequately support employees is rapidly emerging.
Further investments during the year
A total of £1.44 million was invested into five existing portfolio companies
during the year, as detailed below:
Company Business Date of Investment Amount of further investment (£mn)
Dairy and allergen-free ice cream producer April 2022 0.12
Northern Bloc
Northern Bloc Ice Cream (northern-bloc.com) is an established food brand in
the emerging and rapidly growing vegan market. By focusing on chef quality and
natural ingredients, Northern Bloc has carved out an early mover position in
the dairy and allergen-free ice cream sector. The company's focus on
plant-based alternatives has strong environmental credentials as well as it
being the first ice cream brand to move wholly into sustainable packaging.
Following the initial investment in December 2020, Northern Bloc has grown and
strengthened its prospects against a challenging market backdrop. This further
investment provides additional working capital and funds a new production
facility to increase its resilience, flexibility and margins in the future.
May 2022 0.27
Andersen EV Provider of premium electric vehicle (EV) chargers
Muller EV Limited (trading as Andersen EV) (andersen-ev.com) is a design-led
manufacturer of premium electric vehicle chargers. Incorporated in 2016, this
business has secured high profile partnerships with Porsche and Jaguar Land
Rover, establishing an attractive niche position in charging points for the
high end EV market. This follow-on funding was to further support its premium
brand and product positioning whilst ensuring all new and existing products
met the most recent and highest safety and compliance standards.
Unfortunately, external factors caused its market and trading prospects to
worsen rapidly, including substantially reduced demand, global supply chain
issues, inflation and the removal of government consumer support for the
purchase of EV chargers. The company therefore entered administration in
October 2022.
Workforce management software June 2022 0.18
Rotageek
RotaGeek (rotageek.com) is a provider of cloud-based enterprise software to
help larger retail, leisure and healthcare organisations to schedule staff
effectively. RotaGeek has proven its ability to solve the scheduling issue for
large retail clients effectively competing due to the strength of its
technologically advanced proposition. The company has made significant
commercial progress since the VCTs first investment nearly doubling Annual
Recurring Revenues (ARR). This investment aims to boost ARR and enable the
company to take advantage of further large client opportunities.
Provider of artificial intelligence & urban traffic control systems 0.59
Vivacity July 2022
Vivacity (vivacitylabs.com) develops camera sensors with on-board video
analytics software that enables real-time anonymised data gathering of road
transport system usage. It offers city transport authorities the ability to
manage their road infrastructure more effectively, enabling more efficient
monitoring of congestion and pollution levels as well as planning for other
issues, such as the changing nature of road usage (e.g. the increasing number
of cyclists). The technology and software represent a significant leap forward
for local planning authorities which have traditionally relied upon manual
data collection methods. This new investment will help boost the company's
revenues through development of new functionality to enhance its product suite
which can also be installed into the existing asset base.
Hair colourants brand August 2022 0.28
Bleach
Bleach London Holdings ("Bleach") (bleachlondon.com) is an established brand
which develops and markets a range of innovative haircare and colouring
products. Bleach is regarded as a leading authority in the hair colourant
market having opened one of the world's first salons focused on colouring and
subsequently launched its first range of products in 2013. This further
investment was part of a wider £5.5 million investment round alongside
existing shareholders and a strategic partner. The funds will be used to drive
further expansion into the strategically important North American market and
to consolidate the brand's position in the UK.
Portfolio valuation movements
Across the portfolio, comparable market multiples that are used as the basis
of valuation have declined over the year, some by over 30%, but the levels at
the year-end reflect a degree of stabilisation over the final quarter.
Together with several downward revisions to trading forecasts in the latter
half of the year, this has driven a general decline in investee company
values. As noted, the preference investment structures used in many of the
portfolio companies serve to moderate the impact of such company value
movements on VCT value. The need to protect and develop value going forwards
in such an uncertain environment underlines the need for portfolio readiness
and planning, robust funding and close monitoring by the Gresham House team.
The main reductions within total valuation decreases of £(9.81) million,
were:
Virgin Wines - £(2.68) million
MyTutor - £(1.24) million
Wetsuit Outlet - £(1.12) million
Buster & Punch - £(1.05) million
Connect Childcare - £(0.85) million
Virgin Wines has suffered from negative sentiment across its sector despite
outperforming its peers although more recently, it also experienced some short
term operational difficulties particularly in the last quarter of 2022.
MyTutor's growth has slowed post COVID coupled with a decline in market
multiples. Buster and Punch and Wetsuit Outlet are both consumer facing
businesses that have experienced challenging trading conditions which resulted
in profit downgrades. Connect Childcare has struggled to grow revenues as
rapidly as hoped and is managing its cash carefully.
The uplifts within the total valuation increase of £0.67 million were:
Master Remover - £0.27 million
Preservica - £0.22 million
Orri - £0.18 million
Master Removers continues to trade well despite an uncertain housing market
across much of the period under review. Preservica is performing well and
increasing its recurring revenues. Finally, Orri has been valued on a revenue
multiple and the VCT has benefitted from an increase in value due to the
investment structuring.
Portfolio Realisations during the year
The Company completed three full or partial exits during the year, as detailed
below:
Company Business Period of investment Total cash proceeds over the life of the investment / Multiple over cost
MBI Publishing and events business January 2015 to
June 2022 £4.50 million
2.2x cost
The Company realised its entire investment in MBI for £2.80 million (realised
gain in the year: £0.16 million) including deferred proceeds received since
completion. Total proceeds received over the life of the investment were
£4.50 million compared to an original investment cost of £2.01 million,
representing a multiple on cost of 2.2x and an IRR of 13.8%.
Branded clothing (RAB and Lowe Alpine) October 2011 to November 2022 £5.64 million
Equip 6.9x cost
The Company realised its equity investment in EOTH for £3.67 million
(realised gain in the year: £0.70 million) including preference dividends.
Total proceeds received over the life of the investment were £5.64 million
compared to an original investment cost of £0.82 million, representing a
multiple on cost of 6.9x and an IRR of 23.2%. The Company has retained its
interest yielding loan stock investment. Once repaid, this should increase the
multiple on cost to 7.9x.
Software based management information systems July 2014 to £2.17 million
Tharstern March 2023 2.6x cost
The Company realised its investment in Tharstern Group for £1.55 million
(realised gain of £0.35 million). Total proceeds received over the life of
the investment were £2.17 million compared to an original cost of £0.84
million, representing a multiple on cost of 2.6x and an IRR of 15.0%.
Also during the year, the Company received a loan repayment from Jablite
Holdings Limited.
Portfolio income and yield
In the year under review, the Company received the following amounts in loan
interest and dividend income:
Investment Portfolio Yield 2022 2021
£mn £mn
Interest received in the year 0.50 0.79
Dividends received in the year 0.76 0.29
Total portfolio income in the year(1) 1.26 1.08
Portfolio value at 31 March 38.01 52.16
Portfolio Income Yield (Income as a % of Portfolio value at 31 March) 3.3% 2.1%
(1 ) Total portfolio income for the year is generated solely
from investee companies within the portfolio.
New investment made after the year-end
The Company made one new investment of £0.39 million after the year-end, as
detailed below:
Company Business Date of investment Amount of further investment (£mn)
0.39
Dayrize Sustainability impact assessment tool provider May 2022
Founded in 2020, Amsterdam-based Dayrize has developed a rapid sustainability
impact assessment tool that delivers product-level insights for consumer goods
brands and retailers, enabling them to be leaders in sustainability. Its
proprietary software platform and methodology bring together an array of data
sources to provide a single holistic product-level sustainability score that
is comparable across product categories in under two seconds. This funding
round is to drive product development and develop its market strategy to build
on an opportunity to emerge as a market leader in the industry.
Further investments made after the year-end
The Company made a further investment of £0.30 million into an existing
portfolio company after the year-end as detailed below:
Company Business Date of investment Amount of further investment (£m)
Legatics
SaaS LegalTech software July 2023 0.30
Legatics (legatics.com) transforms legal transactions by enabling deal teams
to collaborate and close deals in an interactive online environment. Designed
by lawyers to improve legacy working methods and solve practical transactional
issues, the legal transaction management platform increases collaboration,
efficiency and transparency. As a result, Legatics has been used by around
1,500 companies, and has been procured by more than half of the top global
banking and finance law firms, with collaborations having been hosted in over
60 countries. This funding round will provide headroom to further accelerate
growth and to drive efficiencies to reach profitability.
Environmental, Social and Governance considerations
The Board and the Investment Adviser believe that the consideration of
environmental, social and corporate governance ("ESG") factors throughout the
investment cycle should contribute towards enhanced shareholder value.
The Investment Adviser has a team which is focused on sustainability as well
as the Investment Adviser's Sustainability Committee who provide oversight and
accountability for the Investment Adviser's approach to sustainability across
its operations and investment practices. This is viewed as an opportunity to
enhance the Company's existing protocols and procedures through the adoption
of the highest industry standards. Each investment executive is responsible
for setting and achieving their own individual ESG objectives in support of
the wider overarching ESG goals of the Investment Adviser. The Investment
Adviser's Private Equity division has its own Sustainable Investment Policy,
in which it commits to:
· Ensuring its team understands the imperative for effective ESG
management and is equipped to carry this out through management support and
training.
· Conduct regular monitoring of ESG risks, opportunities and
performance in its investments.
· Incorporate ESG into its monitoring processes.
Outlook
Whilst the year under review has once again been marked with volatility and
uncertainty as a result of a number of factors affecting both the global and
UK economy, the portfolio has continued to trade well under the circumstances.
Rising costs and recessionary pressures will place further strains on the
portfolio however, the Investment Adviser with its wealth of team experience
will provide all additional help and advice to portfolio company management to
help weather this storm. In terms of new investment, evidence shows that
investing through the economic cycle has the potential to yield strong returns
and Gresham House is seeing a number of opportunities, which although not
without some risk, have the potential to drive shareholder value.
Gresham House Asset Management Limited
Investment Adviser
12 July 2023
Annual General Meeting
The AGM will be held at 11.00 am on Wednesday, 13 September 2023 at the
offices of Shakespeare Martineau LLP, 6(th) floor, 60 Gracechurch Street,
London EC3V 0HR and will also be webcast for those Shareholders who are unable
to attend in person. Details of how to join the meeting by virtual means will
be shown on the Company's website. Shareholders joining virtually should note
you will not be able to vote at the meeting and therefore you are encouraged
to lodge your proxy form. For further details, please see the Notice of the
Meeting which can be found at the end of the Annual Report & Financial
Statements.
Further Information
The Annual Report and Accounts for the year ended 31 March 2023 will be
available shortly on Mobeus Income & Growth 2 VCT plc
(https://www.mobeusvcts.co.uk/investor-area/vct-investors/mobeus-income-growth-2-vct-plc/meetings-reports)
. It will also be submitted shortly in full unedited text to the Financial
Conduct Authority's National Storage Mechanism and will be available for
inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) in accordance with
DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules.
Contact
Gresham House Asset Management Limited
Company Secretary
mobeusvcts@greshamhouse.com (mailto:mobeusvcts@greshamhouse.com)
+44 20 7382 0999
The Company's NAV total return per share decreased by (12.3)% for the year
ended 31 March 2023 (2022: 13.3%), calculated as the closing NAV per share of
71.54 pence plus 13.00 pence of dividends paid in the year, divided by the
opening NAV per share of 96.37 pence. The share price total return was down
(6.9)% (2022: 23.4%). The difference between the share price and NAV total
returns arises principally due to the timing of NAV announcements which are
usually made on a date following the date to which they relate and is
explained more fully under Performance in the Strategic Report of the Annual
Report. The negative NAV total return for the year was principally the result
of unrealised losses in the value of investments in the portfolio, driven
initially by lower benchmark market comparables and, more recently, by the
weaker trading performance of investee companies as the impact of inflation
and higher interest rates on consumer spending and business investment began
to bite.
In the Association of Investment Companies' analysis of Cumulative NAV Total
Returns at 31 March 2023, the Company was ranked 7(th) out of 36 Generalist
VCTs over five years and 1(st) out of 31 Generalist VCTs over ten years.
Shareholders should note that the AIC's rankings are based on the latest
available published NAVs and therefore do not reflect NAV per share movements
up to 31 March 2023. For further details on the performance of the Company,
please refer to the Strategic Report within the Annual Report.
Target Return
The Board's current target is to achieve an average NAV total return of 8.0%
per annum. Although this year's NAV total return decreased by (12.3)% (2022:
13.3%) the average over five years of 11.3% per annum, is well in excess of
the target.
The Board reminds Shareholders that investment portfolio returns and dividend
payments should always be viewed over the longer term.
Dividends
The Board continues to be committed to providing an attractive dividend stream
to Shareholders. In respect of the year ended 31 March 2023, the Company paid
Shareholders two interim dividends totalling 13.00 pence per share comprising
6.00 pence per share on 7 November 2022 and a further dividend of 7.00 pence
per share paid on 30 March 2023 to Shareholders on the register on 30
September 2022 and 3 March 2023 respectively. To date, cumulative dividends
paid since inception total 147.00 pence per share.
The Company has now met or exceeded the Board's dividend target of paying at
least 5.00 pence per share in respect of the last thirteen financial years.
The continuing change in the portfolio to younger growth capital investments,
as the older, more mature companies with higher income yields are sold, is
likely to make it more difficult to maintain a consistently high level of
dividends from income and capital returns alone in any given year. This year
the Company experienced a reduction in income from portfolio companies and
investments but was able to exceed the dividend target as it had sufficient
distributable reserves from past realised profits. Shareholders should also
note that there may be circumstances where the Company is required to pay
dividends in order to maintain its regulatory status as a VCT, for example, to
stay above the minimum percentage of assets required to be held in qualifying
investments. It should also be noted that the payment of dividends causes the
Company's NAV per share to reduce by a corresponding amount. The Board takes
all of these variables into account when setting the level of dividends and
continues to monitor the sustainability of the annual dividend target.
On 20 June 2023 by order of the Court, the share premium account and capital
redemption reserve of the Company was reduced (as approved at the General
Meeting of the Company held on 12 October 2022) and has been transferred to a
special distributable reserve. The purpose of this reserve is to fund market
purchases of the Company's own shares as and when it is considered by the
Board to be in the interests of the shareholders, make dividend payments and
to write-off existing and future losses as the Company must take into account
capital losses in determining distributable reserves.
Investment and portfolio performance
The portfolio valuation movements for the year were as follows:
2023 2022
£mn £mn
Opening Portfolio value 52.16 41.83
New and further investments 3.32 4.61
Disposal proceeds (8.05) (6.37)
Net realised (losses)/gains (0.28) 2.54
Valuation movements (9.14) 9.55
Portfolio value at 31 March 38.01 52.16
During the year, the Company invested a total of £3.32 million into five new
and five existing portfolio companies (2022: £4.61 million; three and seven
respectively). New investments totalling £1.88 million were made into:
· Bidnamic - a marketing technology business;
· FocalPoint - a GPS enhancement software supplier;
· Orri - an intensive day care provider for adults with eating
disorders;
· Connect Earth - an environmental data provider; and
· Cognassist - education and neuro-inclusion solutions.
Additional funding of £1.44 million was provided across five existing
portfolio companies:
· Northern Bloc - a dairy and allergen-free ice cream brand;
· Rotageek - a workforce management software system;
· Andersen EV - a provider of premium EV chargers;
· Vivacity - an AI and Urban Traffic Control business; and
· Bleach London - a hair colourants brand.
Post the year-end, £0.39 million was invested into a new portfolio company,
Dayrize , a provider of a rapid sustainability impact assessment tool.
Additionally, £0.30 million was further invested into Legatics, an existing
portfolio company. Further details of the new investments can be found in
the Investment Adviser's Report below.
The Company generated a total of £8.05 million in proceeds from full and
partial realisations alongside loan repayments and other capital receipts in
the year ended 31 March 2023 as detailed below.
In June 2022, the Company realised its investment in Media Business Insight
(MBI), a publishing and events business focussed on the production industries,
generating proceeds of £2.80 million (including deferred proceeds and loan
repayments made earlier in the year) resulting in a realised gain in the year
of £0.16 million. Returns received over the life of the investment amounted
to £4.50 million, a 2.2x multiple of cost and an IRR of 13.8 %.
In November 2022 we were delighted by the sale of the equity in EOTH, trading
as Rab and Lowe Alpine, receiving £4.34 million including preference share
dividends on completion which generated a realised gain in the year of £0.70
million. To date total proceeds received amount to £5.64 million providing a
6.9x multiple of cost and an IRR of 23.2%. The Company has retained interest
bearing loan stock to continue to generate future income.
In March 2023, the sale of Tharstern completed generating a realised gain of
£0.35 million. Over the life of this investment a 2.6x return and IRR of
15.0% was achieved.
Unfortunately in October 2022, Andersen EV, an electric charger provider, was
compelled to enter into administration as a result of a substantial
deterioration in its trading environment, which resulted in a realised loss of
£(0.65) million in the year. This was particularly disappointing as the
Company, alongside the other Mobeus VCTs, made a follow-on investment into the
company in May 2022. The company had secured some impressive clients and
funding was provided to drive product development in a premium brand operating
in the emerging electric car charging market. However, over the summer months,
a combination of global supply issues, inflationary cost increases and the
removal of Government consumer support for the purchase of EV chargers quickly
impacted its ability to continue trading and so necessitated the appointment
of administrators. On 22 December 2022, Parsley Box Group PLC delisted from
the AIM market and its shares were cancelled. It has subsequently
re-registered as a private company.
Also in the year, Tapas Revolution, the Spanish restaurant chain, went into
administration. Under the HMRC Financial Health Test (more detail below), the
Company was unable to invest further into this portfolio company and as a
result it was necessary for an Administrator to be appointed. It is likely
that other company failures will be seen during the rest of the financial year
as we are unable to invest and assist some portfolio companies further.
Including Andersen EV above, a total of £1.49 million has been recognised
as a realised loss across three companies which are experiencing significant
trading issues.
The portfolio's valuation at the year-end demonstrates the impact of slowing
consumer and business spending on consumer facing portfolio companies, in
particular Virgin Wines. Virgin Wines is an AIM-listed investment, which has
also suffered from the negative sentiment of its sector, in spite of broadly
positive news flows from the company itself and relative outperformance versus
its peers. It contributed £2.68 million of the unrealised portfolio reduction
of £9.14 million. Other smaller valuation decreases were registered by Buster
& Punch and Wetsuit Outlet, which were also marked down as a result of
experiencing challenging trading conditions.
The impact of the decline in consumer confidence on the portfolio companies
operating in the consumer sector has therefore contributed to the overall
realised and unrealised reduction in the value of the portfolio by £(9.42)
million in the year ended 31 March 2023 (2022: increase of £12.09 million),
or a fall of (18.1)% on a like-for-like basis compared to the value of the
portfolio at the start of the year.
During these uncertain times, the management of the portfolio is absolutely
critical and the Investment Adviser is, and has been, focused on deploying its
Talent Management team to support its investments. We continue to expect
follow-on investments to remain a significant feature of our portfolio
companies as they seek to achieve scale and move to profitability. Follow-on
investment requests are subject to the same scrutiny as new deals and both
rely on certain criteria being met, including the HMRC Financial Health Test.
Shareholders should be aware that this test is an effective tightening of the
interpretation of HMRC policy and practice in a technical aspect of the VCT
financing rules, now resulting in the restriction of potential follow-on
investments to support certain companies, where more than half their
subscribed share capital has been lost.
In a small number of cases, this may result in the Company not being able to
make follow-on investments, even where a compelling business case exists,
which in turn could impact the prospects of the portfolio company. The Board
continues to monitor developments in the interpretation of this area of
legislation carefully.
Further details of the Company's investment activity and the performance of
the portfolio are contained in the Investment Adviser's Review and the
Investment Portfolio Summary within the Annual Report.
Liquidity and Fundraising
Cash and cash equivalents held by the Company as at 31 March 2023 amounted to
£32.51 million, or 46.2% of net assets.
In October 2022, on considering the future cash requirements of the Company
and the potential demand for the Company's shares following the successful
fundraise in January 2022, the Board approved a further fundraise for the
2022/23 tax year. Having provided a period of time between the launch of the
prospectus and acceptance of applications, the Board was pleased that the
initial amount of £8 million (as well as an over-allotment facility of a
further £8 million), launched early in October 2022, was fully subscribed by
8 November 2022. Shares were allotted in November 2022 and February 2023 and
your Company extends a warm welcome to an equal mix of both new and existing
Shareholders.
The fundraising launched in October 2022 was to ensure that the Company
retained adequate levels of liquidity to take advantage of new investment
opportunities; fund further expansion of existing portfolio companies;
facilitate attractive Shareholders returns, including the payment of
dividends; and to buy back its shares from Shareholders who wish to sell.
Currently, the Board do not anticipate a fundraise in 2023.
Share Buybacks
During the year, the Company bought back and cancelled 1,464,956 of its own
shares (2022: 697,498), representing 1.8% of the shares in issue at the
beginning of the year (2022: 1.0%), at a total cost of £1.15 million,
inclusive of expenses (2022: £ 0.64 million). It is the Company's policy to
cancel all shares bought back in this way. The Board regularly reviews its
buyback policy and currently seeks to maintain the discount at which the
Company's shares trade at no more than 5% below the latest published NAV.
Shareholder Communications and Annual General Meeting
May I remind you that the Company has its own website containing useful
information for Shareholders at:
www.mig2vct.co.uk (http://www.mig2vct.co.uk) .
The Investment Adviser held a virtual Shareholder Event on the afternoon of 23
March 2023 with a live Q&A session which we hope you were able to join. We
are pleased that double the number of attendees joined the meeting this year.
A recording of the event is available via a link on the Company's website.
Your Board is pleased to be able to hold the next Annual General Meeting
("AGM") of the Company at 11.00 am on Wednesday, 13 September 2023 at the
offices of Shakespeare Martineau, 6th Floor, 60 Gracechurch Street, London,
EC3V 0HR. A webcast will also be available at the same time for those
Shareholders who cannot attend in person. However, please note that you will
not be able to vote via this method and so are encouraged to return your proxy
form before the deadline of 11:00 am on Monday 11 September 2023. Information
setting out how to join the meeting by virtual means will be shown on the
Company's website. For further details, please see the Notice of the Meeting
which can be found at the end of Annual Report & Financial Statements.
Board Composition & Succession
Throughout the year the Board comprised three directors. Following the
retirement of Adam Kingdon in September 2022, whom we thank for his services
to the Company, we were delighted that Sarah Clark joined as a director on
4 November 2023. Sarah brings new skills and depth of knowledge to the
Company and will be standing for election at the forthcoming AGM. Sarah was
also appointed as the Chair of the Investment Committee and is a member of all
other Company's Committees.
After considering and reviewing its composition, the Board agreed that the
directors have the breadth and depth of relevant knowledge and experience plus
the appropriate skill sets. The Board now consists of one male and two female
directors.
Fraud Warning
We are aware that Shareholders are being contacted in connection with
sophisticated but fraudulent financial scams which purport to come from the
Company or to be authorised by it. This is often by a phone call or an
email usually originating from outside of the UK, claiming or appearing to be
from a corporate finance firm offering to buy your shares at an inflated
price.
The Board strongly recommends Shareholders take time to read the Company's
Fraud warning section, including details of who to contact, contained within
the Information for Shareholders section within the Annual Report.
Environmental, Social and Governance ("ESG")
The Board and the Investment Adviser believe that the consideration of
environmental, social and corporate governance ("ESG") factors throughout the
investment cycle will contribute towards enhanced Shareholder value.
Gresham House has a team which is focused on sustainability and the Board
views this as an opportunity to enhance the Company's existing protocols and
procedures through the adoption of the highest industry standards.
The future FCA reporting requirements consistent with the Task Force on
Climate-related Financial Disclosures, which commenced on 1 January 2021, do
not currently apply to the Company but will be kept under review, the Board
being mindful of any recommended changes.
Consumer Duty
The Financial Conduct Authority (FCA) has introduced the concept of Consumer
Duty, the rules and principles of which come into effect in July 2023.
Consumer Duty is an advance on the existing concept of 'treating customers
fairly'. It sets higher and clearer standards of consumer protection across
financial services and requires all firms to put their customers needs first.
As the Company is not regulated by the FCA it does not directly fall into the
scope of Consumer Duty. However, Gresham House as the Investment Adviser
alongside any IFAs or financial platforms used to distribute future
fundraising offers are subject to Consumer Duty.
It is incumbent on all parties to uphold the principles behind Consumer Duty
and to that end we are working with the Investment Adviser to review the
information we should provide to assist consumers and their advisers to
discharge their obligations under Consumer Duty.
Outlook
The geopolitical and macroeconomic background conditions are likely to remain
uncertain in the near future. Interest rates are set to remain relatively high
to combat inflation around the world. This background will continue to provide
trading challenges for our portfolio companies, although historically these
conditions have also provided an opportunity for the Company to make high
quality investments and build strategic stakes in businesses with great
potential. The issues affecting the banking sector may also mean that debt
markets continue to be constrained which may, notwithstanding the recent
successful sales of EOTH and Tharstern, keep the exit environment subdued
compared to recent years. However, as the Company is not time-limited this is
not expected to be a significant issue. The combined impact of inflation,
interest rates and restrictions in Government spending are expected to
continue to weigh down on UK consumer and business confidence. Therefore, we
anticipate that further market stresses will become evident as the year
progresses with all sectors vulnerable. However, the Company has a reasonably
large and diverse portfolio, managed by a professional and capable investment
team, which will mitigate the challenges that lie ahead. Allied to our strong
balance sheet, the Board remains confident that it will be able to continue
paying an attractive dividend.
I would like to take this opportunity once again to thank all Shareholders for
your continued support and to extend a warm welcome to new Shareholders.
Ian Blackburn
Chair
12 July 2023
INVESTMENT ADVISER'S REVIEW
Portfolio Review
The continuing harsh economic conditions continue to create challenging
circumstances for portfolio companies. UK business has seen both demand and
operating margins come under pressure in the face of increases in inflation,
interest rates and the associated threat of recession, unprecedented in recent
years and not experienced by a generation of management teams. Whilst markets
have somewhat stabilised, the impact of this is now being seen on consumer
confidence and business investment.
Gresham House, as Investment Adviser views portfolio value change in the first
half of the financial year characterised as by declining market multiples with
relatively stable company level trading performance carried over in part from
the momentum gained during the prior financial year. However, in the latter
months of 2022 and into 2023, the situation has reversed with trading
performance beginning to suffer somewhat.
Although markets remain buoyant and less volatile, in large part this is
attributable to the weighting of tech giants such as Alphabet and Meta who are
not directly representative of the real UK growth economy. Against this
backdrop, the latest US data suggests growth rates have more than halved to
1.1%. Whilst inflation is expected to be moderating following the rises in
base rates, it is still at a very high level and has impacted economic growth
expectations. There are also early signs that supply chains are returning to
normality, that the labour shortage is easing and that there are pockets of
positive market sentiment. The outlook is therefore mixed, and the emphasis is
thus on robust funding structures and on being prepared for all eventualities.
The Company's investment values have been insulated partially from market
movements and lower revenue growth by the preferred investment structures
employed in many of the portfolio companies. This acts to moderate valuation
swings and the net result is a more modest decline in portfolio value. The
Gresham House non-executive directors who sit on each portfolio company board
have responded by working with their boards to ensure that appropriate
scenario planning has been done to achieve the best results during these
uncertain times. Furthermore, the direct impact high interest rates on the
Company's portfolio is negligible as most portfolio companies do not have any
significant third-party debt. There is also now a greater focus on cash
management and capital efficiency. With ample liquidity following the recent
fund raise, the Company is also well placed to support portfolio companies
with follow-on funding where it is appropriate and can be done on attractive
terms. Strong liquidity will also benefit the attractive new investment
environment for the Company which, in our view is strong and we are seeing a
number of interesting business propositions.
There are some specific highs in the portfolio such as Preservica which
continues to see strong trading and is out-performing budget. The partial exit
from EOTH was also an excellent result after a long running process which had
to negotiate numerous economic and geo-political hurdles and shortly before
the end of the year was the exit of Tharstern. By contrast, there were also
some significant falls. The largest was at Virgin Wines, where market
sentiment shifted heavily against the whole sector despite Virgin Wines itself
outperforming its peers. MyTutor was also impacted by declining sector
multiples combined with slower than anticipated growth over the year and Tapas
has entered administration since the year-end with no expected recovery for
the VCTs.
The portfolio's valuation changes in the year are summarised as follows:
Investment Portfolio Capital Movement 2023 2022
£mn £mn
Increase in the value of unrealised investments
Decrease in the value of unrealised investments
0.67 14.91
(9.81) (5.36)
Net (decrease)/increase in the value of unrealised investments (9.14) 9.55
Realised gains 1.21 2.54
Realised losses (1.49) -
Net realised (losses)/gains in the year (0.28) 2.54
Net investment portfolio movement in the year (9.42) 12.09
The portfolio's movements in the year are summarised as follows:
2023 2022
£mn £mn
Opening portfolio value
New and further investments
Disposal proceeds
Net realised (losses)/gains
Valuations movements
52.16 41.83
3.32 4.61
(8.05) (6.37)
(0.28) 2.54
(9.14) 9.55
Portfolio value at 31 March 38.01 52.16
New investments during the year
A total of £1.88 million was invested into five new investments during the
year, as detailed below:
Company Business Date of Investment Amount of new investment (£mn)
Bidnamic Marketing technology May 2022 0.43
Lads Store Limited, trading as "Bidnamic" (bidnamic.com) is a marketing
technology business that offers a platform for online retailers to manage
their search engine marketing spend. The technology was all developed
internally and uses bespoke machine learning algorithms to automate the
management and optimisation of online retailers' Google shopping spend. The
ARR of the business has grown substantially over the last two years and this
is projected to continue. The investment round will be used further to enhance
the product's capabilities and drive continued ARR growth through expanding
the sales & marketing team and building a presence in North America.
FocalPoint GPS enhancement software provider September 2022 0.42
Focal Point Positioning Limited (focalpointpositioning.com) is a deep tech
business with a growing IP and software portfolio. Its proprietary technology
applies advanced physics and machine learning dramatically to improve the
satellite-based location sensitivity, accuracy, and security of devices such
as smartphones, wearables and vehicles and reduce costs.
Orri Specialists in eating disorder support September 2022 0.37
Orri Limited (orri-uk.com) is an intensive day care provider for adults with
eating disorders. Orri provides an alternative to expensive residential
in-patient treatment and lighter-touch outpatient services by providing highly
structured day and half day sessions either online or in-person at its clinic
on Hallam Street, London. Orri opened its current clinic in London in February
2019 which provides a homely environment in a converted 4-storey house but
which is operating at capacity. The plan sees a larger site being leased
nearby with Hallam Street being used to provide a step-down outpatient
service.
Connect Earth Environmental data provider March 2023 0.22
Founded in 2021, Connect Earth (connect.earth) is a London-based environmental
data company that democratises easy access to sustainability data. With its
carbon tracking API technology, Connect Earth supports financial institutions
in offering their customers transparent insights into the climate impact of
their daily spending and investment decisions. Connect Earth's defensible and
scalable product platform suite has the potential to be a future market winner
in the nascent but rapidly growing carbon emission data market, for example,
by enabling banks to provide end retail and business customers with carbon
footprint insights of their spending. This funding round is designed to
facilitate the delivery of the technology and product roadmap to broaden the
commercial reach of a proven product.
Cognassist Education and neuro-inclusion solutions March 2023 0.44
Cognassist (cognassist.com) is an education and neuro-inclusion solutions
company that provides a Software-as-a-Service (SaaS) platform focused on
identifying and supporting individuals with hidden learning needs. The
business is underpinned by extensive scientific research and a vast cognitive
dataset. Founded in 2019 by Chris Quickfall, Cognassist has scaled its
underlying business within the education market, enabling apprentices to
unlock government funding and helping diverse minds to thrive. This investment
will empower Cognassist to continue its growth within the education market and
penetrate the enterprise market, where demand for neuro-inclusive solutions to
adequately support employees is rapidly emerging.
Further investments during the year
A total of £1.44 million was invested into five existing portfolio companies
during the year, as detailed below:
Company Business Date of Investment Amount of further investment (£mn)
Dairy and allergen-free ice cream producer April 2022 0.12
Northern Bloc
Northern Bloc Ice Cream (northern-bloc.com) is an established food brand in
the emerging and rapidly growing vegan market. By focusing on chef quality and
natural ingredients, Northern Bloc has carved out an early mover position in
the dairy and allergen-free ice cream sector. The company's focus on
plant-based alternatives has strong environmental credentials as well as it
being the first ice cream brand to move wholly into sustainable packaging.
Following the initial investment in December 2020, Northern Bloc has grown and
strengthened its prospects against a challenging market backdrop. This further
investment provides additional working capital and funds a new production
facility to increase its resilience, flexibility and margins in the future.
May 2022 0.27
Andersen EV Provider of premium electric vehicle (EV) chargers
Muller EV Limited (trading as Andersen EV) (andersen-ev.com) is a design-led
manufacturer of premium electric vehicle chargers. Incorporated in 2016, this
business has secured high profile partnerships with Porsche and Jaguar Land
Rover, establishing an attractive niche position in charging points for the
high end EV market. This follow-on funding was to further support its premium
brand and product positioning whilst ensuring all new and existing products
met the most recent and highest safety and compliance standards.
Unfortunately, external factors caused its market and trading prospects to
worsen rapidly, including substantially reduced demand, global supply chain
issues, inflation and the removal of government consumer support for the
purchase of EV chargers. The company therefore entered administration in
October 2022.
Workforce management software June 2022 0.18
Rotageek
RotaGeek (rotageek.com) is a provider of cloud-based enterprise software to
help larger retail, leisure and healthcare organisations to schedule staff
effectively. RotaGeek has proven its ability to solve the scheduling issue for
large retail clients effectively competing due to the strength of its
technologically advanced proposition. The company has made significant
commercial progress since the VCTs first investment nearly doubling Annual
Recurring Revenues (ARR). This investment aims to boost ARR and enable the
company to take advantage of further large client opportunities.
Provider of artificial intelligence & urban traffic control systems 0.59
Vivacity July 2022
Vivacity (vivacitylabs.com) develops camera sensors with on-board video
analytics software that enables real-time anonymised data gathering of road
transport system usage. It offers city transport authorities the ability to
manage their road infrastructure more effectively, enabling more efficient
monitoring of congestion and pollution levels as well as planning for other
issues, such as the changing nature of road usage (e.g. the increasing number
of cyclists). The technology and software represent a significant leap forward
for local planning authorities which have traditionally relied upon manual
data collection methods. This new investment will help boost the company's
revenues through development of new functionality to enhance its product suite
which can also be installed into the existing asset base.
Hair colourants brand August 2022 0.28
Bleach
Bleach London Holdings ("Bleach") (bleachlondon.com) is an established brand
which develops and markets a range of innovative haircare and colouring
products. Bleach is regarded as a leading authority in the hair colourant
market having opened one of the world's first salons focused on colouring and
subsequently launched its first range of products in 2013. This further
investment was part of a wider £5.5 million investment round alongside
existing shareholders and a strategic partner. The funds will be used to drive
further expansion into the strategically important North American market and
to consolidate the brand's position in the UK.
Portfolio valuation movements
Across the portfolio, comparable market multiples that are used as the basis
of valuation have declined over the year, some by over 30%, but the levels at
the year-end reflect a degree of stabilisation over the final quarter.
Together with several downward revisions to trading forecasts in the latter
half of the year, this has driven a general decline in investee company
values. As noted, the preference investment structures used in many of the
portfolio companies serve to moderate the impact of such company value
movements on VCT value. The need to protect and develop value going forwards
in such an uncertain environment underlines the need for portfolio readiness
and planning, robust funding and close monitoring by the Gresham House team.
The main reductions within total valuation decreases of £(9.81) million,
were:
Virgin Wines - £(2.68) million
MyTutor - £(1.24) million
Wetsuit Outlet - £(1.12) million
Buster & Punch - £(1.05) million
Connect Childcare - £(0.85) million
Virgin Wines has suffered from negative sentiment across its sector despite
outperforming its peers although more recently, it also experienced some short
term operational difficulties particularly in the last quarter of 2022.
MyTutor's growth has slowed post COVID coupled with a decline in market
multiples. Buster and Punch and Wetsuit Outlet are both consumer facing
businesses that have experienced challenging trading conditions which resulted
in profit downgrades. Connect Childcare has struggled to grow revenues as
rapidly as hoped and is managing its cash carefully.
The uplifts within the total valuation increase of £0.67 million were:
Master Remover - £0.27 million
Preservica - £0.22 million
Orri - £0.18 million
Master Removers continues to trade well despite an uncertain housing market
across much of the period under review. Preservica is performing well and
increasing its recurring revenues. Finally, Orri has been valued on a revenue
multiple and the VCT has benefitted from an increase in value due to the
investment structuring.
Portfolio Realisations during the year
The Company completed three full or partial exits during the year, as detailed
below:
Company Business Period of investment Total cash proceeds over the life of the investment / Multiple over cost
MBI Publishing and events business January 2015 to
June 2022 £4.50 million
2.2x cost
The Company realised its entire investment in MBI for £2.80 million (realised
gain in the year: £0.16 million) including deferred proceeds received since
completion. Total proceeds received over the life of the investment were
£4.50 million compared to an original investment cost of £2.01 million,
representing a multiple on cost of 2.2x and an IRR of 13.8%.
Branded clothing (RAB and Lowe Alpine) October 2011 to November 2022 £5.64 million
Equip 6.9x cost
The Company realised its equity investment in EOTH for £3.67 million
(realised gain in the year: £0.70 million) including preference dividends.
Total proceeds received over the life of the investment were £5.64 million
compared to an original investment cost of £0.82 million, representing a
multiple on cost of 6.9x and an IRR of 23.2%. The Company has retained its
interest yielding loan stock investment. Once repaid, this should increase the
multiple on cost to 7.9x.
Software based management information systems July 2014 to £2.17 million
Tharstern March 2023 2.6x cost
The Company realised its investment in Tharstern Group for £1.55 million
(realised gain of £0.35 million). Total proceeds received over the life of
the investment were £2.17 million compared to an original cost of £0.84
million, representing a multiple on cost of 2.6x and an IRR of 15.0%.
Also during the year, the Company received a loan repayment from Jablite
Holdings Limited.
Portfolio income and yield
In the year under review, the Company received the following amounts in loan
interest and dividend income:
Investment Portfolio Yield 2022 2021
£mn £mn
Interest received in the year 0.50 0.79
Dividends received in the year 0.76 0.29
Total portfolio income in the year(1) 1.26 1.08
Portfolio value at 31 March 38.01 52.16
Portfolio Income Yield (Income as a % of Portfolio value at 31 March) 3.3% 2.1%
(1 ) Total portfolio income for the year is generated solely
from investee companies within the portfolio.
New investment made after the year-end
The Company made one new investment of £0.39 million after the year-end, as
detailed below:
Company Business Date of investment Amount of further investment (£mn)
0.39
Dayrize Sustainability impact assessment tool provider May 2022
Founded in 2020, Amsterdam-based Dayrize has developed a rapid sustainability
impact assessment tool that delivers product-level insights for consumer goods
brands and retailers, enabling them to be leaders in sustainability. Its
proprietary software platform and methodology bring together an array of data
sources to provide a single holistic product-level sustainability score that
is comparable across product categories in under two seconds. This funding
round is to drive product development and develop its market strategy to build
on an opportunity to emerge as a market leader in the industry.
Further investments made after the year-end
The Company made a further investment of £0.30 million into an existing
portfolio company after the year-end as detailed below:
Company Business Date of investment Amount of further investment (£m)
Legatics
SaaS LegalTech software July 2023 0.30
Legatics (legatics.com) transforms legal transactions by enabling deal teams
to collaborate and close deals in an interactive online environment. Designed
by lawyers to improve legacy working methods and solve practical transactional
issues, the legal transaction management platform increases collaboration,
efficiency and transparency. As a result, Legatics has been used by around
1,500 companies, and has been procured by more than half of the top global
banking and finance law firms, with collaborations having been hosted in over
60 countries. This funding round will provide headroom to further accelerate
growth and to drive efficiencies to reach profitability.
Environmental, Social and Governance considerations
The Board and the Investment Adviser believe that the consideration of
environmental, social and corporate governance ("ESG") factors throughout the
investment cycle should contribute towards enhanced shareholder value.
The Investment Adviser has a team which is focused on sustainability as well
as the Investment Adviser's Sustainability Committee who provide oversight and
accountability for the Investment Adviser's approach to sustainability across
its operations and investment practices. This is viewed as an opportunity to
enhance the Company's existing protocols and procedures through the adoption
of the highest industry standards. Each investment executive is responsible
for setting and achieving their own individual ESG objectives in support of
the wider overarching ESG goals of the Investment Adviser. The Investment
Adviser's Private Equity division has its own Sustainable Investment Policy,
in which it commits to:
· Ensuring its team understands the imperative for effective ESG
management and is equipped to carry this out through management support and
training.
· Conduct regular monitoring of ESG risks, opportunities and
performance in its investments.
· Incorporate ESG into its monitoring processes.
Outlook
Whilst the year under review has once again been marked with volatility and
uncertainty as a result of a number of factors affecting both the global and
UK economy, the portfolio has continued to trade well under the circumstances.
Rising costs and recessionary pressures will place further strains on the
portfolio however, the Investment Adviser with its wealth of team experience
will provide all additional help and advice to portfolio company management to
help weather this storm. In terms of new investment, evidence shows that
investing through the economic cycle has the potential to yield strong returns
and Gresham House is seeing a number of opportunities, which although not
without some risk, have the potential to drive shareholder value.
Gresham House Asset Management Limited
Investment Adviser
12 July 2023
Annual General Meeting
The AGM will be held at 11.00 am on Wednesday, 13 September 2023 at the
offices of Shakespeare Martineau LLP, 6(th) floor, 60 Gracechurch Street,
London EC3V 0HR and will also be webcast for those Shareholders who are unable
to attend in person. Details of how to join the meeting by virtual means will
be shown on the Company's website. Shareholders joining virtually should note
you will not be able to vote at the meeting and therefore you are encouraged
to lodge your proxy form. For further details, please see the Notice of the
Meeting which can be found at the end of the Annual Report & Financial
Statements.
Further Information
The Annual Report and Accounts for the year ended 31 March 2023 will be
available shortly on Mobeus Income & Growth 2 VCT plc
(https://www.mobeusvcts.co.uk/investor-area/vct-investors/mobeus-income-growth-2-vct-plc/meetings-reports)
. It will also be submitted shortly in full unedited text to the Financial
Conduct Authority's National Storage Mechanism and will be available for
inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) in accordance with
DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules.
Contact
Gresham House Asset Management Limited
Company Secretary
mobeusvcts@greshamhouse.com (mailto:mobeusvcts@greshamhouse.com)
+44 20 7382 0999
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