North Atlantic Smlr - Final Results
11/05/2022 17:40
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RNS Number : 1743L North Atlantic Smlr Co Inv Tst PLC 11 May 2022
North Atlantic Smaller Companies Investment Trust plc
Annual Report for the year ended 31 January 2022
The financial information set out in this announcement does not constitute the
Company's statutory financial statements in accordance with section 434
Companies Act 2006 for the year ended 31 January 2022, but has been extracted
from the statutory financial statements for the year ended 31 January 2022
which were approved by the Board of Directors on 11 May 2022 and will be
delivered to the Registrar of Companies in due course. The Independent
Auditor's Report on those financial statements was unqualified and did not
contain any emphasis of matter nor statements under s 498(2) and (3) of the
Companies Act 2006. The statutory accounts for the year ended 31 January
2021 have been delivered to the Registrar of Companies and received an
Independent Auditor's report which was unqualified and did not contain any
emphasis of matter nor statements under s 498(2) and (3) of the Companies Act
2006. The annual financial report will be posted to shareholders later this
month. Copies of the Annual Report will then be available on the Company's
website www.nascit.co.uk (http://www.nascit.co.uk) and from the Company
Secretary.
objective of the company and financial highlights
The objective of the Company is to provide capital appreciation through
investment in a portfolio of smaller companies principally based in countries
bordering the North Atlantic Ocean.
31 January 2022 % change 31 January 2021 31 January 2020 31 January 2019 31 January 2018
return
Return for the year (£'000) 64,906 (50.1%) 130,078 98,852 35,418 70,817
Basic return per 5p Ordinary Share:*
- Revenue 9.94 164.4% 3.76 41.24 40.58 35.62
- Capital 456.30 (50.2%) 916.57 652.92 205.57 455.29
Final Dividend per 5p Ordinary Share (declared) nil nil 30.0p 30.0p nil
assets
Net assets (£'000) 789,466 6.4% 742,230 620,723 531,425 499,423
Net asset value ("NAV") per 5p Ordinary Share:**
Basic 5,779p 9.2% 5,292p 4,384p 3,710p 3,462p
Diluted 5,779p 9.2% 5,292p 4,384p 3,708p 3,458p
Basic adjusted† 5,856p 9.4% 5,355p 4,505p 3,776p 3,529p
Diluted adjusted† 5,856p 9.4% 5,355p 4,505p 3,774p 3,525p
Mid-market price of the 5p Ordinary Shares 4,330p 12.5% 3,850p 3,400p 2,910p 2,870p
discount to diluted net asset value 25.1% 27.2% 22.4% 21.5% 17.0%
discount to diluted adjusted net asset value 26.1% 28.1% 24.5% 22.9% 18.6%
indices and exchange rates at 31 January
Standard & Poor's 500 Composite Index 4,515.6 21.6% 3,714.2 3,225.5 2,704.1 2,823.8
Russell 2000 Index 2,028.5 (2.2%) 2,073.6 1,614.1 1,499.4 1,575.0
US Dollar/Sterling exchange rate 1.34180 (2.3%) 1.37295 1.31830 1.31505 1.4221
Standard & Poor's 500 Composite Index - Sterling adjusted 3,360.5 24.0% 2,709.5 2,442.5 2,062.8 1,989.9
Russell 2000 - Sterling adjusted 1,509.6 (0.2%) 1,512.7 1,222.2 1,143.8 1,109.9
* Please refer to note 7 for details on how the basic return per 5p Ordinary
Share is calculated.
** Please refer to note 7 for details on how the net asset value per 5p
Ordinary Share is calculated.
† Adjusted to reflect Oryx International Growth Fund Limited ("Oryx") under
the equity method of accounting, which is how the Company previously accounted
for its share of Oryx, prior to the adoption of IFRS 10. This is useful to the
shareholder as it shows the NAV based on valuing Oryx at NAV. See note 7.
chairman's statement
During the year under review the net asset value ("NAV") rose by 9.2% as
compared with a rise in the sterling adjusted Standard & Poors Composite
Index of 24.0%. The Standard and Poors Composite Index was, however, not
representative of the US market in general; for example, the Russell Index of
Smaller Companies actually fell during the period. However, the Company
materially outperformed a number of more comparable UK indices where most of
the investment assets are quoted.
The revenue account showed a surplus for the year of £1,384,000 after tax
(2021: £531,000) as dividends started to recover from the COVID crisis. This
is a trend which we expect to continue into 2022/2023. Consistent with our
long term practice, we do not intend to declare a dividend in respect of the
year ended 31 January 2022 (2021: nil).
During the year, 363,518 shares (2021: 135,482) were purchased for
cancellation at a significant discount to NAV. This benefits all long-term
shareholders by creating an immediate uplift for the NAV. At the forthcoming
AGM shareholders will once again be asked to support a whitewash proposal
allowing the company to continue to repurchase shares without requiring our
Chief Executive and persons and companies presumed to be acting in concert
with him to make a mandatory offer under Rule 9 of The Takeover Code for the
Company. This proposal and the background surrounding it are outlined in a
separate circular being sent to shareholders. The passing of the resolution to
support this proposal assists the liquidity of those shareholders wishing to
sell while enabling the company to add value to the ongoing NAV by buying back
its own shares. Last year the AGM approved the whitewash with opposing votes
of 34.65% (the largest shareholder being disqualified from voting). We
continue to engage with those voting against the resolution but have found
little interest in any meaningful discourse. Most of the votes cast against
the whitewash resolution appear to have been determined by the ESG departments
of certain large nominees and custodians. Their decisions, apparently made on
general principle, are not in my opinion in the interests of our shareholders
and I would appeal to beneficial shareholders to ensure that their votes are
cast in favour of the Resolution.
Last year saw a good recovery in corporate profits which resulted in
favourable equity markets for much of the year. This has abruptly changed in
recent months as investors become increasingly concerned that high inflation
rates are not transitory with the inevitable result that interest rates will
need to rise much further than was anticipated at the mid year. This
particularly affected growth stocks as evidenced by the fall in the NASDAQ
index which is down at the time of writing by nearly 20% from its all time
high.
Many well known technology companies such as Netflix, Peloton, Tesla and
PayPal are experiencing deteriorating performance. However, the majority of
businesses worldwide are experiencing rising commodity prices, supply chain
disruption and escalating labour costs. Businesses are therefore attempting
and largely succeeding in putting through price increases although whether
this will be sufficient to maintain profit margins is by no means certain.
The geopolitical position is, to say the least, uncertain. The war in Ukraine
makes daily news and has had a severe impact on world markets since the end of
our financial year but other flashpoints include Iran and Taiwan any one of
which could further unsettle equity markets.
It is therefore fortunate that the Company finished the year with cash and US
treasury bills of £147 million with a further £9 million due in over the
relatively short term as two takeovers are completed. We are therefore well
placed to take advantage of the current weakness in equity markets which we
expect to persist for several months.
Finally, I would like to express the Board's thanks to Peregrine Moncreiffe
who stepped down on 25 February 2022 to become a Non Executive Director and
who has been an outstanding Chairman of the Company since 2008 over which time
the net assets of the trust rose, on an adjusted diluted basis, from £12.09
per share to £58.56 as at 31 January 2022.
Sir Charles Wake
Chairman
11 May 2022
investment manager's report
quoted portfolio UK
Once again the year was one of two halves. Our life science businesses
performed extremely well in the first half but suffered towards the year end
due to the derating of growth stocks in the United States and concerns about
"COVID" stocks in the United Kingdom as the threat of the pandemic subsides.
Ironically, our two "COVID" companies never achieved silly valuations unlike
many others which never had any earnings in the first place. Following the
derating it is our opinion that both EKF and SourceBio International are
materially undervalued and this will become increasingly apparent as their
core business continues to experience good growth over the next few years.
Polar Capital a fund management business which has significant exposure to
high technology in the USA and Gleeson which is in the firing line to
contribute to the cladding crisis have both fallen in recent months but we are
confident that these are both high quality businesses that will prosper over
the medium term.
The balance of the portfolio generally performed well with notable successes
in Assetco, Augean, Frenkel Topping, Hargreaves Services, Signature (which was
taken over) Sureserve and Ten Entertainment.
Finally, it is encouraging to note that both Oryx International Growth Fund
Limited and Odyssean Investment Trust Plc, beat their respective benchmarks.
quoted portfolio USA
The performance of this small portfolio was satisfactorily led by the largest
holding Mountain Commerce which rose over 50% during the twelve month period
to 31 January 2022.
unquoted portfolio UK
The UK portfolio benefitted from bids for Pelsis (Hamsard 3468), Viking and
Antler Holdco all at significant premiums to the valuation at 31 January 2021.
Trellus also went public at a significant premium to 31 January 2021
valuation.
Despite continuing difficulties in the supply chain, Specialist Components saw
strong recovery in its business operations which gives us encouragement that
the company will flourish as economic activity returns to some degree of
normality. Spring Investments, on the other hand, continued to underperform
and was marked down during the period.
unquoted portfolio USA
Utitec had a good year and the prospects for 2022 are good. The company is now
in the process of being sold which, if successful, will result in an uplift in
the current value and a return of capital for the company of over £10 million
(including the indirect investment via Trident Private Equity III).
Performance Chemicals successfully won a lawsuit against former employees who
had infringed its patents. This resulted in a significant return of capital
(in reality 100% of our actual investment). The outlook is currently promising
and we intend to seek investor liquidity over the next eighteen months.
Jaguar had a good year despite continuing problems in the airline industry. As
a consequence, the business is expected to return 20% of our actual investment
in the near term. Shareholder liquidity will be sought when industry
conditions return to some degree of normality.
Coventbridge is also preparing itself for a liquidity event at the end of the
current year which should result in a further £20 million of liquidity for
the Company (including the indirect investment via Harwood Private Equity IV).
Finally, the sale of Utitec will effectively mean the liquidation of Trident
Private Equity III. Exposure to Harwood Private Equity IV will decline as
Journey releases cash and Coventbridge is sold. We are very excited about
Harwood Private Equity V not least because a recent investment was sold at
over 250% of cost.
liquidity
Cash and US treasury bills started the year at £89 million, and ended the
year at £147 million.
Your managers continue to review potential investment opportunities but are
adopting a cautious approach given the market headwinds of rising interest and
inflation rates.
Christopher Mills
Chief Executive & Investment Manager
11 May 2022
strategic report - sector analysis of investments at fair value
as at 31 January
equities, convertible securities & loan stocks as a % of total portfolio Europe United States United Kingdom Total Total
valuation
31 January 2022 31 January 2022 31 January 2022 31 January 2022 31 January 2021
% % % % %
Financial Services* - - 27.1 27.1 24.8
Pharmaceuticals and Health Care - 0.5 20.4 20.9 15.9
Industrial Goods & Commercial Services - 2.7 15.6 18.3 12.0
Banks - 1.2 9.7 10.9 8.3
Transport, Travel & Leisure - - 4.7 4.7 3.8
Technology & Software - - 1.9 1.9 11.1
Consumer Products and Services - - 2.0 2.0 8.8
Energy - - 1.2 1.2 2.6
Oil & Gas - 1.2 - 1.2 1.9
Telecommunications - - 0.8 0.8 1.3
Real Estate - - 0.6 0.6 0.1
Insurance - 0.5 - 0.5 0.5
Education Services - - - - 1.2
- 6.1 84.0 90.1 92.3
treasury bills - 9.9 - 9.9 7.7
total at 31 January 2022 - 16.0 84.0 100.0
total at 31 January 2021 1.2 14.6 84.2 100.0
* Includes Investment Trusts.
strategic report - twenty largest investments
as at 31 January
equities (including convertibles, loan stocks and related financing) At fair value £'000
Oryx International Growth Fund Limited * UK Quoted 115,011
EKF Diagnostics Holdings plc UK Quoted 60,078
Polar Capital Holdings plc UK Quoted 44,030
MJ Gleeson Group plc UK Quoted 36,000
Hargreaves Services Plc UK Quoted 33,258
Ten Entertainment Group plc UK Quoted 27,200
Renalytix AI plc UK Quoted 26,993
Odyssean Investment Trust Plc UK Quoted 26,240
Harwood Private Equity IV LP UK Unquoted 22,102
AssetCo plc UK Quoted 21,750
ten largest investments 412,662
Harwood Private Equity V LP UK Unquoted 21,247
Frenkel Topping Group Plc UK Quoted 20,625
Sureserve Group plc UK Quoted 17,400
SourceBio International plc UK Quoted 17,225
Circassia Group plc UK Quoted 15,750
Tate and Lyle plc UK Quoted 14,128
Benchmark Holdings plc UK Quoted 11,237
CoventBridge Group US Unquoted 10,368
Redcentric plc UK Quoted 9,221
Mountain Commerce Bancorp US Quoted 8,911
twenty largest investments 558,774
Aggregate of other investments at fair value 82,867
641,641
US Treasury Bills 70,783
total 712,424
* Includes Investment Trusts.
All investments are valued at fair value.
strategic report
The Directors present the strategic report of the Company for the year ended
31 January 2022.
principal activity
The Company carries on business as an investment trust and its principal
activity is portfolio investment.
objective
The Company's objective is to provide capital appreciation to its shareholders
through investing in a portfolio of smaller companies which are based
primarily in countries bordering the North Atlantic Ocean.
strategy
In order to achieve the Company's investment objective, the Manager uses a
stock specific approach in managing the Company's portfolio, selecting
investments that he believes will increase in value over a period of time,
whether that be due to issues in the management of the businesses which he
believes can be improved by shareholder engagement and involvement or simply
due to the fact that the stock is undervalued and he can see potential for
improvement in value over the long term. The Company may invest in both quoted
and unquoted companies. At present, the investments in the portfolio are
principally in companies which are located either in the United Kingdom or the
United States of America. Typically the investment portfolio will comprise
between 40 and 50 securities.
investment policy
While pursuing the Company's objective, the Manager must adhere to the
following:
1. the maximum investment limit is 15% of the Company's investments in
any one company at the time of the investment;
2. gearing is limited to a maximum of 30% of net assets;
3. the Company may invest on both sides of the Atlantic, with the
weighting varying from time to time;
4. the Company may invest in unquoted securities as and when
opportunities arise and again the weighting will vary from time to time.
investment restrictions
The Company has not adopted any specific investment restrictions, and the
Company's investments may be highly concentrated. However, the Manager has put
in place internal limitations to control risk and to manage diversification
with the aim of allowing it to operate within parameters that it believes are
wide enough for it to generate target returns but which are suitable to
prevent undue risk.
investment approach
The Company invests in a diversified range of companies, both quoted and
unquoted, on both sides of the Atlantic in accordance with its objective and
investment policy.
Christopher Mills, the Company's Chief Executive and Investment Manager, is
responsible for the construction of the portfolio and details of the principal
investments are set out in the Annual Report. The top twenty largest
investments by current valuation are listed above.
When analysing a potential investment, the Manager will employ a number of
valuation techniques depending on their relevance to the particular
investment. A key consideration when deciding on a potential investment would
be the sustainability and growth of long term cash flow. The Manager will
consider the balance of quoted and unquoted securities in the portfolio when
deciding whether to invest in an unquoted stock as he is aware that the level
of risk in unquoted securities may be considered higher.
In respect of the unquoted portfolio, regular contact is maintained with the
management of prospective and existing investments and rigorous financial and
business analysis of these companies is undertaken. It is recognised that
different types of business perform better than others depending on economic
cycles and market conditions and this is taken into consideration when the
Manager selects investments and is therefore reflected within the range of
investments in the portfolio. The Company attempts to minimise its risk by
investing in a diversified spread of investments whether that spread be
geographical, industry type or quoted or unquoted companies.
best execution
The Company as the operator of a closed-ended investment trust has considered
the rules on best execution as noted in the Financial Services Markets Act
2000 and COBS 11.2 of the FCA Handbook. The Company has determined that the
rules on performing best execution do not apply to the Company when, acting in
the capacity of operator of an internally managed AIF (regulated collective
investment scheme), it purchases or sells units in that AIF/scheme.
borrowing and leverage
The Company does not intend to incur borrowings as part of its investment
strategy.
However, in the event that it did employ leverage for working capital
purposes, any such borrowings incurred will not remain outstanding for more
than 60 calendar days. In each such case, leverage may be obtained on an
unsecured or secured/collateralised basis. The Company is not otherwise
expected to engage in borrowing or make use of leverage.
The Company's borrowing and leveraging capacity is limited to an amount equal
to: 30% of the net asset value of the Company when calculated in accordance
with the "commitment" method set out in the AIFMD Rules.
The calculation and disclosure of such maximum leverage limits is required in
order to satisfy the requirements of the AIFMD Rules. However, the Investment
Manager expects the typical leverage levels to be lower than the maximum
levels stated above, and generally not to exceed 10% of the Company's net
asset value. The Investment Manager will inform investors to the extent such
leverage limits are exceeded in accordance with the AIFMD Rules.
The Company does not currently grant any guarantee under any leveraging
arrangement. The grant of any such guarantee would be disclosed to investors
in accordance with the AIFMD Rules. Save as set out herein, there are no
restrictions on the Company's use of leverage, by borrowing or otherwise,
other than those which may be imposed by applicable law, rule or regulation.
changes to the investment policy, investment restrictions and investment approach
Changes to the investment policy, investment restrictions and investment
approach of the Company as set out above may be made by the Directors. Changes
believed by the Directors to be material will be notified to investors in
advance of the change taking effect.
financial instruments
The financial instruments employed by the Company primarily comprise equity
and loan stock investments, although it does hold cash and liquid instruments.
Further details of the Company's risk management objectives and policies
relating to the use of financial instruments can be found in note 14 to the
financial statements.
delegated activities
The Company being internally managed has not delegated the provision of
portfolio management and risk management functions but does rely on third
party services providers to provide ancillary services to support the
activities of the company. As a result, the Company will continue to act as an
internally managed AIFM of the Company for the purposes of the FCA Rules in
accordance with the Investment Management Agreement.
appointment of depositary
The Company has appointed Bank of New York Mellon (BNYM) as depositary for the
quoted securities deposited for safekeeping with BNYM or with any third party
appointed by BNYM and to hold cash in accordance with the terms of its
agreement.
any conflicts of interest that may arise from such delegations
From time to time conflicts may arise between the Depositary and the
delegates, for example where an appointed delegate is an affiliated group
company which receives remuneration for another custodial service it provides
to the Company. In the event of any potential conflict of interest which may
arise during the normal course of business, the Depositary will have regard to
the applicable laws.
performance
At 31 January 2022, the diluted NAV per share was 5,779p (2021: 5,292p), an
increase of 9.2% during the year, compared to an increase of 24.0% during the
year in the Standard & Poor's 500 Composite Index (Sterling adjusted).
Net assets attributable to equity holders at 31 January 2022 amounted to
£789,466,000 compared with £742,230,000 at 31 January 2021.
The ongoing charges relating to the Company are 1.0% (2021: 1.2%), based on
total expenses, excluding finance charges and non-recurring items for the year
and average monthly net assets.
results and dividends
The total net return after taxation for the financial year ended 31 January
2022 amounted to £64,906,000 (2021: £130,078,000). The Board does not
propose to pay a final dividend (2021: nil).
key performance indicators
The Directors regard the following as the main key indicators pertaining to
the Company's performance:
(i) Net asset value per Ordinary Share: the Chart in the Strategic Report in
the Annual Report illustrates the movement in the fully diluted net asset
value per Ordinary Share over the past five years:
(ii) Share price return: the Chart in the Strategic Report in the Annual
Report illustrates the movement in the share price per Ordinary Share over the
past five years:
(iii) Performance against benchmark
The performance of the Company's share price is measured against the Standard
& Poor's 500 Composite Index (Sterling adjusted), the Company's benchmark.
A graph comparing performance can be found in the Directors' Remuneration
Report in the Annual Report.
principal risks and uncertainties
The Board has carried out a robust assessment of the emerging and principal
risks facing the Company including those that would threaten the Company's
business model, future performance, solvency of liquidity and reputation.
The key risks faced by the Company are set out below. The Board regularly
reviews these and agrees policies for managing these risks.
· Impact of COVID: Although the incidence of COVID has not abated,
testing has been reduced significantly. Consequently, there has been a fall in
value in stocks related to testing. This has to some extent, but not entirely,
been offset by a recovery in leisure and industrial businesses.
· Performance risk: the Board is responsible for deciding the
investment strategy in order to fulfil the Company's objectives and for
monitoring the performance of the Manager. An inappropriate investment
strategy may result in under-performance against the companies in the peer
group or against the benchmark indices. The Board manages this risk by
ensuring that the investments are appropriately diverse and by receiving
reports from the Manager at every board meeting explaining his investment
decisions and the composition and performance of the portfolio.
· Market risk: this category of risk includes currency risk, market
price risk and interest rate risk. The fair value of all future cash flows of
a financial investment held by the Company may fluctuate. Also, the valuations
of the investments in the portfolio may be subject to fluctuation due to
exchange rates or general market prices. The Manager monitors these
fluctuations and the markets on a daily basis. The performance of the
investment portfolio against its benchmarks is also closely monitored by the
Manager. The afore-mentioned graph in the Directors' Remuneration Report
illustrates the Company's performance against its benchmarks over the last ten
years.
· Investments in unquoted stocks, by their nature may involve a
higher degree of risk than investments in the listed market. The valuation of
unquoted investments can include a significant element of estimation based on
professional assumptions that is not always supported by prices from current
market transactions. Recognised valuation techniques are used and recent arm's
length transactions in the same or similar entities may be taken into account.
Clearly the valuation of such investments is therefore a key uncertainty but
the Board manages this risk by regularly reviewing the valuation principles
applied by the Manager to ensure that they comply with the Company's
accounting policies and with fair value principles. Harwood Capital LLP, a
firm which is ultimately owned by Christopher Mills, the Company's Manager,
and which provides services such as dealing, administration and compliance to
the Company, operates a Valuations and Pricing Committee which meets regularly
throughout the year to review and agree the valuations of the investments in
the portfolio for onward submission to the Board.
· Regulatory risk: any breach of a number of regulations applicable
to the Company, the UKLA's Listing Rules, the FCA compliance regime and the
Companies Act could lead to a number of detrimental effects on the Company as
well as reputational damage. The Audit Committee monitors compliance with
these regulations in close alliance with the Manager and Secretary.
· Custodial and Banking risk: there is a risk that the custodians
and banks used by the Company to hold assets and cash balances could fail and
the Company's assets may not be returned. Associated with this is the
additional risk of fraud or theft by employees of those third parties. The
Board exercises monitoring through the Manager and Harwood Capital LLP over
the financial position of its custodial banks.
· Credit risk/Counterparty risk: the Company holds preference
shares in some investee companies and provides other forms of debt or loan
guarantees where deemed necessary. There is a risk of those counterparties
being unable to meet their obligations. The financial position and performance
of those investee companies are continually monitored by the Manager and
actions are taken to protect the Company's investment if needed.
professional negligence
The Company covers professional liability risks set out in Article 9(7) of
Directive 2011/61/EU on Alternative Investment Fund Managers (the "Directive")
and article 12 and 13 of the AIFMD level 2 regulation (professional liability
risks) by holding professional indemnity insurance and maintaining an amount
of own funds to meet the PII capital requirement under the Directive; and
comply with the qualitative requirements addressing professional liability
risks.
section 172 statement
Under Section 172 of the Companies Act 2006, directors are required to promote
the success of the Company for the benefit of the stakeholders. In accordance
with the requirements of the Companies (Miscellaneous Reporting) Regulations,
2018, the Company has to detail how this duty has been performed with regard
to the matters set out in Section 172 (1) (a) to (f).
· The directors have to consider the likely consequences of their
decisions in the long term taking into account the interests of the various
different stakeholders of the Company.
· A company's stakeholders are normally considered to comprise of
its shareholders, employees, customers and suppliers as well as the wider
community in which the company operates. As the Company is an internally
managed investment company it does not have any employees as its activities
are outsourced. Its customers are its shareholders and details of those owning
more than 3% of the Company's shares are shown in the Report of the Directors.
The Company's relations with its shareholders are detailed in the Annual
Report.
· The main stakeholders are therefore the Company's shareholders
and a small number of key third party suppliers, principally the Investment
Manager, together with the company secretary, accountants, brokers,
depositary, bankers and auditors, to whom the day to day functions
are delegated.
· The Board works closely with the Investment Manager to promote
the long-term success of the Company as effectively and responsibly as
possible and he in turn interacts directly with the investee companies.
Details of the investment policy and investment approach can be found above.
· The Company has a limited impact on the environment and has no
greenhouse gas emissions to report as indicated in the Report of the
Directors. Its impact on social, community and human rights issues are
detailed below, and a statement on the Modern Slavery Act is given below.
· The Directors take care to ensure that the Company maintains a
reputation for high standards of business conduct.
· The Directors ensure that the Company always acts fairly between
members of the Company.
· To summarise, the Directors are fully aware of their duty under
Section 172 in all their deliberations, and decisions taken always take into
account the interests of the key stakeholders.
viability statement
In accordance with the UK Corporate Governance Code the Board has considered
the longer term prospects for the Company. The Directors have reviewed the
Company over the next five years to May 2027, which is generally a reasonable
investment horizon for many investment trust shareholders. This assessment
took into account the Company's current position as well as its continuing
investment strategy. Additional factors under review included the principal
risks inherent in its management and portfolio structure, contractual
arrangements and cost base.
The Directors have noted the following elements as part of its evaluation:
· the Company invests in a combination of listed and unquoted
companies, most of which have positive EBITDA and/or net tangible asset values
which support their valuations;
· the Company holds more than 21% of its portfolio in cash and US
Treasury Bills which are readily realisable and intends to continue to hold
liquidity comfortably in excess of any contingent liabilities, including any
requirements to fund any future drawdowns resulting from private equity or put
option commitments;
· the Company's expenses are relatively stable, except for the
Investment Manager's fee which is positively correlated with the Company's net
asset value and relative performance, giving comfort that the Company could
easily cover costs in the event of a substantial decline in net asset value;
and
· the Company has considered the effect of COVID and does not
believe it impacts its viability.
The Directors have also assessed the Company's principal risks and
uncertainties and believe that appropriate measures are in place to minimise
the likelihood of their potential to impact the viability of the Company.
These measures include:
· the Manager's reports on compliance with the investment
objective;
· the Manager's control of counterparty and custodial risk;
· the Board's monitoring of gearing (if any), compliance with
specific investment guidelines and liquidity risk; and
· monitoring the share price's discount to net asset value and the
stability of the shareholder base.
Based on the results of this analysis, the Directors have concluded that there
is a reasonable expectation that the Company can continue in operation and
meet its liabilities as they fall due during the period to May 2027.
future prospects
The Directors are hopeful that some of the Company's investments will see
corporate activity over the coming year so that the Company's net asset value
should outperform its benchmark.
social, community and human rights issues
As an investment trust with no employees the Company has no direct social or
community responsibilities or impact on the environment. The Company, however,
takes into account the impact of environmental, social and governance factors
when selecting and managing its investments within the context of its
obligation to manage investments in the financial interests of its
shareholders.
modern slavery act
As an investment vehicle the Company does not provide goods or services in the
normal course of business. Accordingly, the Directors consider that the
Company is not required to make any slavery or human trafficking statement
under the Modern Slavery Act 2015.
AIFMD
The Company is authorised and regulated by Financial Conduct Authority. The
Company has been a full scope internally managed AIF with effect from 1
October 2021 under the Alternative Investment Fund Managers Regulations 2013.
For AIFMD purpose the Company is internally managed with Christopher Mills
making the investment decisions in his capacity as Chief Executive. The
Company must not perform any activities other than the internal management of
the AIF in accordance with Annex I of the Directive:
ANNEX I
1. Investment management functions which an AIFM shall at least
perform when managing an AIF
(a) portfolio management;
(b) risk management.
2. Other functions that an AIFM may additionally perform in the course
of the collective management of an AIF:
(a) Administration:
(i) legal and fund management accounting services;
(ii) customer inquiries;
(iii) valuation and pricing, including tax returns;
(iv) regulatory compliance monitoring;
(v) maintenance of unit-/shareholder register;
(vi) distribution of income;
(vii) unit/shares issues and redemptions;
(viii) contract settlements, including certificate dispatch;
(ix) record keeping;
(b) Marketing;
(c) Activities related to the assets of AIFs, namely services necessary to
meet the fiduciary duties of the AIFM, facilities management, real estate
administration activities, advice to undertakings on capital structure,
industrial strategy and related matters, advice and services relating to
mergers and the purchase of undertakings and other services connected to the
management of the AIF and the companies and other assets in which it has
invested.
periodic and regular disclosure
1. The following information is available to investors in the annual
report:
(i) the percentage of the Company's assets that are subject to special
arrangements arising from their illiquid nature;
(ii) any material changes to the arrangements for managing the liquidity
of the Company;
(iii) the current risk profile of the Company and the risk management
systems employed by the Company to manage those risks;
(iv) the total amount of leverage employed by the Company if applicable; and
(v) details of the Company's policy towards best execution.
2. The following information is available to investors in the annual
report:
(i) the maximum level of leverage which the Company may employ on behalf
of the Company;
(ii) the grant of or any changes to any right of re-use of collateral or
any changes to any guarantee granted under any leveraging arrangement; and
(iii) activation of liquidity management tools.
By Order of the Board
Kin Company Secretarial Limited
Company Secretary
11 May 2022
report of the directors
for the year ended 31 January
The Directors present their report to shareholders and the financial
statements for the year ended 31 January 2022. Certain information that is
required to be disclosed in this report has been provided in other sections of
this Annual Report and accordingly, these are incorporated into this report
by reference.
taxation status
In the opinion of the Directors, the Company has conducted its affairs during
the period under review, and subsequently, so as to maintain its status as an
investment trust for the purposes of Chapter 4 of Part 24 of the Corporation
Tax Act 2010. The Company made a successful application under Regulation 5 of
the Investment Trust (Approved Company) (Tax) Regulations 2011 for investment
trust status to apply to all accounting periods starting on or after 1
February 2013 subject to the Company continuing to meet the eligibility
conditions contained in Section 1158 of the Corporation Tax Act 2010 and the
ongoing requirements outlined in Chapter 3 of Part 2 of the Regulations.
share capital
The Company's issued share capital consisted of 13,661,000 Ordinary Shares of
5p nominal value each on 31 January 2022. Since the year end, no Ordinary
Shares have been repurchased for cancellation. All shares hold equal rights
with no restrictions and no shares carry special rights with regard to the
control of the Company. There are no special rights attached to the shares in
the event that the Company is wound up.
During the year, the Company purchased 363,518 (2021: 135,482) Ordinary Shares
for £17.7m (2021: £4.3m) for cancellation to improve net asset value per
Share. This comprised 2.8% (2021: 1.0%) of the issued share capital.
share valuations
On 31 January 2022, the middle market quotation and the diluted net asset
value per 5p Ordinary Share were 4,330p and 5,779p respectively. The
comparable figures at 31 January 2021 were 3,850p and 5,292p respectively.
There were no outstanding options for the year ended 2022 or 2021 meaning
there was no dilutive effect on the net asset value at either of these dates.
substantial shareholders
As at 31 January 2022, and at the date of this report, the following interests
in the Ordinary Shares of the Company which exceed 3% of the issued share
capital had been notified to the Company:
Number of Ordinary Shares % of issued share capital
Christopher Mills 3,766,000 27.57
CG Asset Management 941,738 6.89
Butterfield Bank Group 757,972 5.55
Rathbone Brothers plc 608,002 4.45
Interactive Investor Trading 483,136 3.54
Hargreaves Lansdown PLC 454,184 3.32
Peregrine Moncreiffe 440,589 3.23
directors
The biographical details for Directors currently in office are shown in the
Annual Report.
The Company's Articles of Association require that Directors should submit
themselves for election at the first Annual General Meeting following their
appointment and thereafter for re-election at least every three years.
However, the Company is adopting the requirements of the UK Corporate
Governance Code in relation to the annual re-election of directors. Therefore,
in accordance with provision 18 of the UK Corporate Governance Code all of the
Directors will retire at the Annual General Meeting and being eligible, offer
themselves up for re-election.
directors' interests
The interests of the Directors as notified to the Company, including those of
their connected persons, in the Ordinary Shares of the Company as at 31
January 2022 and 31 January 2021 were as follows:
31 January 2022 31 January 2021
5p Ordinary Shares 5p Ordinary Shares
Peregrine Moncreiffe 440,589 440,589
Christopher Mills 3,766,000 3,766,000
Christopher Mills (non-beneficial) 355,740 355,740
Lord Howard of Rising 5,000 5,000
G Walter Loewenbaum 15,000 15,000
Sir Charles Wake 8,170 5,270
There have been no changes to the above interests between 31 January 2022 and
the date of this report.
Details of Directors' remuneration are described in the Directors'
Remuneration Report in the Annual Report.
Save as disclosed in the Directors' Remuneration Report in the Annual Report
or in notes 3 and 15 to the financial statements, no Director was party to or
had any interest in any contract or arrangement with the Company at any time
during the year.
significant agreements
The Company is required to disclose details of any agreement that it considers
to be essential to the business and the two agreements detailed below are
considered by the Board to be significant.
Pursuant to the Sub Advisory, Administration and Transmission Services
Agreement dated 15 June 2016, Harwood Capital LLP provides administration
services to the Company. The Sub Advisory, Administration and Transmission
Services Agreement continues unless thereafter terminated by either party on
not less than twelve months' notice in writing or may be terminated forthwith
as a result of a material breach of the agreement or the insolvency of either
party. No compensation is payable on termination of the Agreement.
Pursuant to the Secondment Services Agreement between the Company, GFS and
Christopher Mills and the Sub Advisory, Administration and Transmission
Services Agreement between the Company and Harwood Capital LLP, Christopher
Mills is responsible for the day-to-day investment decisions. The Secondment
Services Agreement continues until terminated by the Company or GFS on not
less than twelve months' notice.
The Board reviews the activities of the Manager. The Chief Executive carries
out day-to-day investment decisions for and on behalf of the Company. As part
of this review, the Board is satisfied that the continuing appointment of the
Manager, on the terms agreed, is in the best interests of shareholders.
Christopher Mills has been Chief Executive of the Company since 1984 and the
Board consider it is in the best interest of the Company for this arrangement
to continue.
As part of this review, the Board has given consideration to the experience,
skills and commitment of the Chief Executive in addition to the personnel,
services and resources provided by Harwood Capital LLP. The Company's
performance over the last year is described in the Chairman's Statement above.
related party transactions
Christopher Mills makes day-to-day investment decisions for the Company in his
capacity as its Chief Executive and this position is distinct from his
position as Chief Investment Officer of Harwood Capital LLP. Christopher Mills
is a director of Growth Financial Services Limited ("GFS"). GFS is a
wholly-owned subsidiary of Harwood Capital Management Limited, which is the
holding company of the Harwood group of companies and is, in turn, 100% owned
by Christopher Mills. Harwood Capital Management Limited is also a Designated
Member of Harwood Capital LLP.
Details of the related party transactions and fees payable are disclosed in
note 15 and in the Directors' Remuneration Report in the Annual Report. The
Investment Management Fees are disclosed in note 3 of the financial
statements. Any Performance Fee payable to GFS is disclosed in the Directors'
Remuneration Report in the Annual Report and note 3 of the financial
statements.
With the exception of the matters referred to above, during the year no
Director was materially interested in any contract of significance (as defined
by the UK Listing Authority Listing Rules) entered into by the Company.
institutional investors - use of voting rights
The Chief Executive, in the absence of explicit instruction from the Board, is
empowered to exercise discretion in the use of the Company's voting rights in
respect of investments and to then report to the Board, where appropriate,
regarding decisions taken. The Board have considered whether it is appropriate
to adopt a new voting policy and an investment policy with regard to social,
ethical and environmental issues and concluded that it is not appropriate to
change the existing arrangements.
donations
The Company does not make any political or charitable donations.
creditors' payment policy
It is the Company's policy to settle investment transactions according to the
settlement periods operating for the relevant markets. For other creditors, it
is the Company's policy to pay amounts due to them as and when they become
due. All supplier invoices received by 31 January 2022 had been paid (31
January 2021 - all supplier invoices paid).
greenhouse gas emissions
The Company has no physical assets, operations, premises or employees of its
own. Consequently it consumed less than 40,000 kWh of energy during the year
so has no greenhouse gas emissions to report.
auditors
Resolutions to re-appoint RSM UK Audit LLP as the Company's auditors and to
authorise the Board to determine their remuneration will be proposed at the
forthcoming Annual General Meeting.
In the case of each of the persons who are directors at the time the report is
approved so far as each director is aware, there is no relevant audit
information of which the Company's auditor is unaware, and he has taken all
the steps that he ought to have taken as a director in order to make himself
aware of any relevant audit information and to establish that the Company's
auditor is aware of that information.
going concern
The Company's assets largely comprise readily realisable securities which can
be sold to meet funding commitments if necessary and it also has sufficient
cash reserves so the Directors have a reasonable expectation that the Company
has adequate resources to continue in operation for the foreseeable future.
They have, therefore, adopted the going concern basis in preparing these
financial statements.
additional disclosures
The following further information is disclosed in accordance with the Large
and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008:
· the Company's capital structure and voting rights are summarised
earlier in this report and note 11;
· details of the substantial shareholders in the Company are listed
earlier in this report;
· the rules concerning the appointment and replacement of directors
are contained in the Company's Articles of Association and are discussed
earlier in this report;
· amendment of the Company's Articles of Association and powers to
issue on a pre-emptive basis or buy back the Company's shares requires a
special resolution to be passed by the shareholders; and
· there are: no restrictions concerning the transfer of securities
in the Company; no special rights with regard to control attached to
securities; no agreements between holders of securities regarding their
transfer known to the Company; no agreements which the Company is party to
that might affect its control following a takeover bid; no agreements between
the Company and its Directors concerning compensation for loss of office; and
no qualifying third party indemnities in place.
By Order of the Board
Kin Company Secretarial Limited
Company Secretary
Registered Office:
Hyde Park House
5 Manfred Road
London
SW15 2RS
Registered No: 1091347
11 May 2022
statement of directors' responsibilities in respect of the annual report and the financial statements
for the year ended 31 January
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. The Directors elected under company law and are required under
the Listing Rules of the Financial Conduct Authority to prepare the financial
statements in accordance with UK-adopted International Accounting Standards.
The financial statements are required by law and UK-adopted International
Accounting Standards to present fairly the financial position and performance
of the company. The Companies Act 2006 provides in relation to such financial
statements that references in the relevant part of that Act to financial
statements giving a true and fair view are references to their achieving a
fair presentation.
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 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-adopted International Accounting Standards;
· assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
· use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no realistic
alternative but to do so.
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 its financial statements and the Directors
Remuneration Report comply with the Companies Act 2006. They are responsible
for such internal control as they determine is necessary to enable the
preparation of financial statements that are free from material misstatement,
whether due to fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the Company
and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration
Report and Corporate Governance Statement that complies with that law and
those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
responsibility statement of the directors in respect of the annual financial report
Each of the directors, whose names and functions are listed in the Annual
Report confirm that to the best of each person's knowledge:
· the financial statements, prepared in accordance with UK-adopted
International Accounting Standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company taken as a
whole; and
· the Strategic Report and the Report of the Directors includes a
fair review of the development and performance of the business and the
position of the company, together with a description of the principal risks
and uncertainties that they face.
We consider the Annual Report and financial statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
For and on behalf of the Board
Sir Charles Wake
Chairman
11 May 2022
statement of comprehensive income
for the year ended 31 January
2022 2021
Notes Revenue £'000 Capital £'000 Total £'000 Revenue £'000 Capital £'000 Total £'000
Income 2 10,899 - 10,899 7,889 - 7,889
Net gains on investments at fair value 8 - 63,623 63,623 - 133,879 133,879
Currency exchange losses 8 - (48) (48) - (563) (563)
total income 10,899 63,575 74,474 7,889 133,316 141,205
Expenses
Investment management fee 3 (7,510) (53) (7,563) (6,380) (3,769) (10,149)
Other expenses 4 (1,977) - (1,977) (963) - (963)
return before taxation 1,412 63,522 64,934 546 129,547 130,093
Taxation 6 (28) - (28) (15) - (15)
return for the year 1,384 63,522 64,906 531 129,547 130,078
basic and diluted earnings per ordinary share 7 9.94 456.30 466.24 3.76 916.57 920.33
The total column of the statement is the Statement of Comprehensive Income of
the Company, prepared in accordance with UK-adopted International Accounting
Standards. The supplementary revenue and capital columns are presented in
accordance with the Statement of Recommended Practice issued by the
Association of Investment Companies ("AIC SORP").
All items in the above Statement derive from continuing operations. No
operations were acquired or discontinued in the year.
There is no other comprehensive income, and therefore the return for the year
is also the comprehensive income.
statement of changes in equity
for the year ended 31 January
Share capital £'000 Capital redemption reserve Share premium £'000 Capital reserve £'000 Revenue reserve £'000 Total £'000
£'000
2022
31 January 2021 701 169 1,301 737,228 2,831 742,230
Total comprehensive income for the year - - - 63,522 1,384 64,906
Shares purchased for cancellation (18) 18 - (17,670) - (17,670)
31 January 2022 683 187 1,301 783,080 4,215 789,466
Share capital £'000 Capital redemption reserve Share premium £'000 Capital reserve £'000 Revenue reserve £'000 Total £'000
£'000
2021
31 January 2020 708 162 1,301 612,022 6,530 620,723
Total comprehensive income for the year - - - 129,547 531 130,078
Dividend paid - - - - (4,230) (4,230)
Shares purchased for cancellation (7) 7 - (4,341) - (4,341)
31 January 2021 701 169 1,301 737,228 2,831 742,230
balance sheet
as at 31 January
Notes 31 January 2022 £'000 31 January 2021 £'000
non current assets
Investments at fair value through profit or loss 8 712,424 712,874
712,424 712,874
current assets
Trade and other receivables 9 1,548 3,211
Cash and cash equivalents 76,029 33,918
77,577 37,129
total assets 790,001 750,003
current liabilities
Trade and other payables 10 (535) (7,773)
total liabilities (535) (7,773)
total assets less current liabilities 789,466 742,230
net assets 789,466 742,230
represented by:
Share capital 11 683 701
Capital redemption reserve 187 169
Share premium account 1,301 1,301
Capital reserve 783,080 737,228
Revenue reserve 4,215 2,831
total equity attributable to equity holders of the company 789,466 742,230
net asset value per ordinary share:
Basic and Diluted 7 5,779p 5,292p
cash flow statement
for the year ended 31 January
Notes 2022 2021
£'000 £'000
cash flows from operating activities
Investment income received 11,053 6,202
Deposit interest received 1 4
Investment Manager's and performance fees paid (11,342) (7,082)
Other income 33 -
Transfer (to)/from subsidiary - 104
Other cash payments (2,320) (923)
cash expended from operations 12 (2,575) (1,695)
Taxation paid (28) (15)
net cash (outflow)/inflow from operating activities (2,603) (1,710)
cash flows from investing activities
Purchases of investments (412,316) (265,471)
Sales of investments 475,022 292,209
net cash inflow from investing activities 62,706 26,738
cash flows from financing activities
Dividend paid - (4,230)
Repurchase of Ordinary Shares for cancellation (17,852) (4,159)
net cash outflow from financing activities (17,852) (8,389)
increase in cash and cash equivalents for the year 42,251 16,639
cash and cash equivalents at the start of the year 33,918 17,805
Revaluation of foreign currency balances (140) (526)
cash and cash equivalents at the end of the year 13 76,029 33,918
notes to the financial statements
1 accounting policies
NASCIT is a listed public company incorporated and registered in England and
Wales. The registered office of the Company is 6 Stratton Street, Mayfair,
London W1J 8LD. The principal activity of the Company is that of an investment
trust company within the meaning of sections 1158/1159 of the Corporation Tax
Act 2010 and its investment approach is detailed in the Strategic Report.
a) basis of preparation
The financial statements of the Company have been prepared in accordance with
UK-adopted International Accounting Standards, and International Financial
Reporting Standards ("IFRS"). The annual financial statements have also been
prepared in accordance with the AIC SORP for the financial statements of
investment trust companies and venture capital trusts.
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 also presented in Pounds Sterling rounded to the
nearest thousand, except where otherwise indicated.
b) going concern
The financial statements have been prepared on a going concern basis and on
the basis that approval as an investment trust company will continue to be
met.
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 at least 12 months from the
date when these financial statements were approved.
The longer-term economic effects of the pandemic are very difficult to predict
but in considering preparing the accounts on a going concern basis the
Directors noted the Company holds a portfolio of liquid investments whose
value is a multiple of liabilities. The Directors are of the view that the
Company can meet its obligations as and when they fall due. The cash and US
treasury bills 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.
c) segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business, being investment business. The Company invests in small
companies principally based in countries bordering the North Atlantic Ocean.
d) accounting developments
In the current year, the Company has applied a number of amendments to IFRS,
issued by the IASB mandatorily effective for an accounting period that begins
on or after 1 January 2020. These include annual improvements to IFRS, changes
in standards, legislative and regulatory amendments, changes in disclosure and
presentation requirements. The adoption of these has not had any material
impact on these financial statements.
e) critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in accordance with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and the reported amounts in the Balance Sheet, the
Income Statement and the disclosure of contingent assets and liabilities at
the date of 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 that are
not readily apparent from other sources. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future period if the revision affects both current and
future periods.
In order to value the unquoted investments, there are a number of valuation
techniques that can be used. Judgement is used to determine the best
methodology to obtain the most accurate valuation. Details of valuation
techniques used and sensitivities are set out in Note 14.
The Board of Directors has assessed the Company as meeting the definition of
an investment entity within IFRS 10 Consolidated Financial Statements
requirements. The Company measures the subsidiaries at fair value through
profit or loss rather than consolidate the entities. The details are set out
in Note 8.
Further to the above, there were no accounting estimates or significant
judgements in the current period that have had a material impact upon the
financial statements.
f) investments
All investments are designated upon initial recognition as held at fair value
through profit or loss, and are measured at subsequent reporting dates at fair
value. Quoted investments are valued using either the bid price or the closing
price for Stock Exchange Electronic Trading Service - quotes and crosses
('SETSqx'). The Company derecognises a financial asset only when the
contractual rights to the cash flows from the asset expire, or when it
transfers the financial asset and substantially all the risks and rewards of
ownership of the asset to another entity. On derecognition of a financial
asset, the difference between the asset's carrying amount and the sum of
consideration received and receivable and the cumulative gain or loss that had
been accumulated is recognised in profit or loss.
Fair values for unquoted investments, or investments for which the market is
inactive, are established by using various valuation techniques in accordance
with the International Private Equity and Venture Capital Valuation (the
"IPEV") guidelines. These may include recent arm's length market transactions,
the current fair value of another instrument which is substantially the same,
discounted cash flow analysis and option pricing models. Where there is a
valuation technique commonly used by market participants to price the
instrument and that technique has been demonstrated to provide reliable
estimates of prices obtained in actual market transactions, that technique is
utilised.
Gains and losses arising from changes in fair value are included in the total
return as a capital item. Also included within this heading are transaction
costs in relation to the purchase or sale of investments. When a sale or
purchase is made under a contract, the terms of which require delivery within
the timeframe of the relevant market, the investments concerned are recognised
or derecognised on the trade date.
All investments for which a fair value is measured or disclosed in the
financial statements are categorised within the fair value hierarchy levels
set out in Note 14.
g) foreign currency translation
Transactions in currencies other than Pounds Sterling are recorded at the
rates of exchange prevailing on the date of the transaction. Items that are
denominated in foreign currencies are retranslated at the rates prevailing on
the Balance Sheet date. 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 capital or revenue in nature.
h) cash and cash equivalents
Cash comprises cash in hand, overdrafts and demand deposits. Cash equivalents
are short-term, highly liquid investments that are readily convertible to
known amounts of cash and which are subject to insignificant risk of changes
in value.
For the purpose of the Cash Flow Statement, cash and cash equivalents consist
of cash and cash equivalents as defined above, net of outstanding bank
overdrafts when applicable.
i) other receivables and payables
Trade receivables and trade payables are measured at amortised cost and
balances revalued for exchange rate movement.
j) income
Dividends receivable on quoted equity shares are taken to revenue on an
ex-dividend basis. Dividends receivable on equity shares where no ex-dividend
date is quoted are brought into account when the Company's right to receive
payment is established. Fixed returns on non-equity shares are recognised on a
time-apportioned basis. Dividends from overseas companies are shown gross of
any withholding taxes which are disclosed separately in the Statement of
Comprehensive Income.
Special dividends are taken to the revenue or capital account depending on
their nature. In deciding whether a dividend should be regarded as capital or
revenue receipt, the Board reviews all relevant information as to the sources
of the dividend on a case-by-case basis.
When the Company has elected to receive scrip dividends in the form of
additional shares rather than in cash, the amount of the cash dividend
foregone is recognised as income. Any excess in the value of the cash dividend
is recognised in the capital column.
All other income is accounted on a time-apportioned accruals basis and is
recognised in the Statement of Comprehensive Income.
k) expenses and finance costs
All expenses are accounted on an accruals basis and are allocated wholly to
revenue with the exception of the Performance Fees which are allocated wholly
to capital, as the fee payable by reference to the capital performance of the
Company.
Expenses incurred in shares purchased for cancellation are charged to the
capital reserve through the Statement of Changes in Equity.
l) taxation
The charge for taxation is based on the net revenue for the year and takes
into account taxation deferred or accelerated because of temporary differences
between the treatment of certain items for accounting and taxation purposes.
Deferred tax is provided using the liability method on temporary differences
between the tax bases of assets and liabilities and their carrying amount for
financial reporting purposes at the reporting date. Deferred tax assets are
only recognised if it is considered more likely than not that there will be
suitable profits from which the future reversal of timing differences can be
deducted. In line with recommendations of the SORP, the allocation method used
to calculate the tax relief expenses charged to capital is the 'marginal'
basis. Under this basis, if taxable income is capable of being offset entirely
by expenses charged through the revenue account, then no tax relief is
transferred to the capital account.
m) dividends payable to shareholders
Dividends to shareholders are recognised as a liability in the period in which
they are paid or approved in general meetings and are taken to the Statement
of Changes in Equity. Dividends declared and approved by the Company after the
Balance Sheet date have not been recognised as a liability of the Company at
the Balance Sheet date.
n) share capital and reserves
Share Capital: Represents the nominal value of equity shares.
Capital Redemption Reserve: The amount by which the share capital has been
reduced, equivalent to the nominal value of the Ordinary Shares repurchased
for cancellation.
Share Premium: The account, is a non-distributable reserve which represents
the accumulated premium paid for shares issued in previous periods above their
nominal value less issue expenses.
Capital Reserve: The following items are taken to this reserve:
· realised and unrealised capital and exchange gains and losses on
the disposal and revaluation of investments and of foreign currency items;
· performance fee costs;
· Ordinary Shares repurchased for cancellation; and
· exchange differences of a capital nature.
Revenue Reserves: Represents the surplus of accumulated revenue profits being
the excess of income derived from holding investments less the costs
associated with running the Company. This reserve may be distributed by way of
dividends.
2 income
2021 2020
£'000 £'000
income from investments
Dividend income 7,520 4,070
Interest 3,346 1,914
Interest reinvested - 1,901
10,866 7,885
other income
Redemption premium 12 -
Underwriting commission 15 -
Interest receivable 6 4
33 4
Total income 10,899 7,889
total income comprises
Dividends 7,520 4,070
Interest 3,352 3,819
Redemption premium 12 -
Underwriting commission 15 -
10,899 7,889
Listed UK 7,272 3,976
Other listed 248 94
Other unquoted 3,346 3,815
10,866 7,885
3 investment management fee
(i) Pursuant to the Secondment Services Agreement,
described in the Report of the Directors above and the Directors'
Remuneration Report of the Annual Report, GFS provides the services of
Christopher Mills as Chief Executive of the Company, who is responsible for
day-to-day investment decisions. Christopher Mills is a director of GFS. GFS
is entitled to receive part of the investment management and related fees
payable to GFS and Harwood Capital LLP as may be agreed between them from time
to time.
(ii) Pursuant to the terms of the Sub Advisory,
Administration and Transmission Services Agreement, described in the Report of
the Directors, Harwood Capital LLP is entitled to receive a fee (the Annual
Fee) in respect of each financial period equal to the difference between (a)
1% of shareholders' Funds (as defined) on 31 January each year and (b) the
amount payable to GFS referred to in note 3(i) above. This fee is payable
quarterly in advance.
As set out in note 15, no formal arrangements exist to avoid double charging
on investments managed or advised by the Chief Executive or Harwood Capital
LLP.
(iii) The Performance Fee, calculated annually to 31
January, is only payable if the investment portfolio, including Oryx at the
adjusted price, outperforms the Sterling adjusted Standard & Poors' 500
Composite Index. It is calculated as 10% of the outperformance and paid as a
percentage of shareholders' Funds. It is limited to a maximum payment of 0.5%
of shareholders' Funds. The Performance Fee arrangements payable to GFS have
been in place since 1984 when they were approved by shareholders.
The amounts payable in the year in respect of investment management are as
follows:
2022 2021
Revenue £'000 Capital £'000 Total £'000 Revenue £'000 Capital £'000 Total £'000
Annual fee payable to Harwood Capital 4,506 - 4,506 3,828 - 3,828
Annual fee payable to GFS 3,004 - 3,004 2,552 - 2,552
Performance fee - - - - 3,774 3,774
Irrecoverable VAT thereon* - - - - 30 30
Irrecoverable VAT adjustment in respect of prior years** - 53 53 - (35) (35)
7,510 53 7,563 6,380 3,769 10,149
At 31 January 2022, £376,000 was payable to Harwood Capital LLP in respect of
outstanding management fees (2021: £319,000). At 31 January 2022, there was
no fee payable to GFS in respect of outstanding performance fees (2021:
£501,000) net of VAT.
* Nil irrecoverable VAT (2021: 4%) based on rates per latest VAT return
information.
** Adjustment in irrecoverable VAT following completion of VAT return.
4 other expenses
2022 2021
£'000 £'000
Auditor's remuneration - audit - RSM UK Audit LLP 65 59
Directors' fees (see Directors' Remuneration Report in the Annual Report) 144 130
Administration fee 364 271
Legal and Professional fees 842 198
Registrars fees 40 36
Stock Exchange related fees 38 33
Other expenses 484 236
1,977 963
5 dividends paid
2022 2021
£'000 £'000
Final dividend for the year ended 31 January 2021 of nil pence per share - 4,230
(2020: 30p)
- 4,230
The Directors do not recommend the payment of a dividend in respect of the
year ended 31 January 2022.
6 taxation
2022 2021
Total Total
£'000 £'000
Withholding tax 28 15
28 15
The current taxation charge for the year is different from the standard rate
of corporation tax in the UK of 19%. The differences are explained below.
2022 2021
Total Total
£'000 £'000
Total return before taxation 130,093 98,852
Theoretical tax at UK Corporation tax rate of 19% (2021: 19%) 12,337 24,718
Effects of:
Non taxable capital return (12,079) (25,330)
UK and overseas dividends which are not taxable (1,429) (774)
Withholding tax 28 15
Decrease in tax losses, disallowable expenses and excess management expenses 1,171 1,386
actual current tax charge 28 15
Factors that may affect future tax charges:
As at 31 January 2022, the Company has tax losses of £76,314,000 (2021:
£70,966,000) that are available to offset future taxable revenue, comprising
excess management expenses of £67,319,000 and a non-trade loan relationship
deficit of £8,995,000 (2021: excess management expenses of £61,971,000 and a
non-trade loan relationship deficit of £8,995,000). A deferred tax asset has
not been recognised in respect of those losses as the Company is not expected
to generate taxable income in the future in excess of the deductible expenses
of future periods and, accordingly, it is unlikely that the Company will be
able to reduce future tax liabilities through the use of those losses.
The Company is exempt from corporation tax on capital gains provided it
maintains its status as an investment trust under Chapter 4 of Part 24 of the
Corporation Tax Act 2010. Due to the Company's intention to continue to meet
the conditions required to maintain its investment trust status, it has not
provided for deferred tax on any capital gains or losses arising on the
revaluation or disposal of investments.
7 return per ordinary share and net asset value per ordinary share
a) return per ordinary share:
Revenue Capital Total
Net return Ordinary Shares Per Share Net return Ordinary Shares Per Share Net return Ordinary Shares Per Share
£'000 pence £'000 pence £'000 pence
2022
Basic and diluted return per Share 1,384 13,921,018 9.94 63,522 13,921,018 456.30 64,906 13,921,018 466.24
Revenue Capital Total
Net return Ordinary Shares Per Share Net return Ordinary Shares Per Share Net return Ordinary Shares Per Share
£'000 pence £'000 pence £'000 pence
2021
Basic and diluted return per Share 531 14,133,859 3.76 129,547 14,133,859 916.57 130,078 14,133,859 920.33
Return per Ordinary Share has been calculated using the weighted average
number of Ordinary Shares in issue during the year.
b) net asset value per ordinary share:
The net asset value per Ordinary Share calculated in accordance with the
Articles of Association is as follows:
2022 Net assets Number of Ordinary Shares Net asset value
£'000 per Share
Ordinary Shares - Basic and diluted 789,466 13,661,000 5,779p
Ordinary Shares* - Basic and diluted 800,009 13,661,000 5,856p
2021 Net assets Number of Ordinary Shares Net asset value
£'000 per Share
Ordinary Shares - Basic and diluted 742,230 14,024,518 5,292p
Ordinary Shares* - Basic and diluted 751,077 14,024,518 5,355p
* Adjusted for Oryx using equity accounting
There is no dilutive effect for 31 January 2022 or 31 January 2021.
The Company has also reported an adjusted net asset value per share, in
accordance with its previous method of valuing its investment in Oryx. The
Company has chosen to report this net asset value per share to show the
difference derived if equity accounting was used. Equity accounting permits
the use of net asset value pricing for listed assets, which in the case of
Oryx, is higher than its fair value.
The values of Oryx, as at each year end, are as follows:
2022 2021
£'000 £'000
Oryx at Fair value (traded price) using IFRS 10 115,011 104,321
Oryx value using Equity Accounting 125,554 113,168
Increase in net assets using Equity Accounting 10,543 8,847
8 investments at fair value through profit or loss
a) investments at fair value through profit or loss
2022 2021
£'000 £'000
Quoted at fair value:
United Kingdom 536,056 532,711
Overseas 15,952 19,868
Total quoted investments 552,008 552,579
Treasury bills at fair value 70,783 54,615
investments at fair value through profit or loss 712,424 712,874
2022 Quoted Unquoted Loan Treasury Total £'000
equities Equities Stocks Bills
£'000 £'000 £'000 £'000
analysis of investment portfolio movements
Opening bookcost as at 1 February 2021 246,540 55,669 23,285 54,853 380,347
Opening unrealised appreciation/(depreciation) 306,039 26,437 289 (238) 332,527
opening fair value as at 1 February 2021 552,579 82,106 23,574 54,615 712,874
Movements in year:
Transfer 157 (157) - - -
Purchases at cost 65,718 11,432 6,139 326,508 409,797
Sales - proceeds (117,304) (31,748) (13,175) (311,643) (473,870)
- realised gains/(losses) on sales 73,383 9,191 (82) 264 82,756
(Decrease)/increase in appreciation on assets held (22,525) 1,954 399 1,039 (19,133)
closing fair value as at 31 January 2022 552,008 72,778 16,855 70,783 712,424
Closing bookcost as at 31 January 2022 268,337 44,544 16,167 69,982 399,030
Closing appreciation 283,671 28,234 688 801 313,394
552,008 72,778 16,855 70,783 712,424
2021 Listed equities £'000 Unlisted equities £'000 Loan stocks £'000 Treasury Bills £'000 Total £'000
analysis of investment portfolio movements
Opening bookcost as at 1 February 2020 208,908 48,581 42,812 65,252 365,553
Opening unrealised appreciation/(depreciation) 211,423 25,711 (108) (1,411) 235,615
opening fair value as at 1 February 2020 420,331 74,292 42,704 63,841 601,168
Movements in year:
Purchases at cost 69,435 11,740 1,918 186,027 269,120
Sales - proceeds (70,611) (4,696) (21,445) (194,541) (291,293)
- realised gains/(losses) on sales 38,808 44 - (1,885) 36,967
Increase in appreciation on assets held 94,616 726 397 1,173 96,912
closing fair value as at 31 January 2021 552,579 82,106 23,574 54,615 712,874
Closing bookcost as at 31 January 2021 246,540 55,669 23,285 54,853 380,347
Closing appreciation/(depreciation) 306,039 26,437 289 (238) 332,527
552,579 82,106 23,574 54,615 712,874
2022 2021
£'000 £'000
analysis of capital gains and losses
Gains on sales 82,756 36,967
Unrealised (losses)/gains (19,133) 96,912
gains on investments at fair value 63,623 133,879
2022 2021
£'000 £'000
Exchange gains/(losses) on capital items 92 (37)
Exchange losses on currency (140) (526)
exchange losses (48) (563)
2022 2021
£'000 £'000
portfolio analysis
Equity shares 622,662 629,292
Convertible preference securities 2,124 5,393
Fixed interest/Loan note securities 16,855 23,574
Treasury Bills 70,783 54,615
712,424 712,874
b) subsidiary undertakings
At 31 January 2022 the Company has the following Subsidiaries which were
active during the year:
Subsidiary Principal activity Equity held Country of registration
Consolidated Venture Finance Limited Investment entity 100% England and Wales
Hampton Investment Properties Limited Property investment 79.65% England and Wales
Oryx International Growth Fund Limited Investment company 52.66% Guernsey
Performance Chemical Company Oil field service company 53.12% United States of America
assessment as an investment entity
Entities that meet the definition of an investment entity within IFRS 10
Consolidated Financial Statements, are required to measure their subsidiaries
at fair value through profit or loss rather than consolidate the entities. The
criteria which define an investment entity are as follows:
· an entity that obtains funds from one or more investors for the
purpose of providing those investors with investment services;
· an entity that commits to its investors that its business purpose
is to invest funds solely for returns from capital appreciation, investment
income or both; and
· an entity that measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Board have concluded that the Company continues to meet the
characteristics of an investment entity in that it has more than one
investment, it has ownership interests in the form of equity and similar
interests, it has more than one investor and its investors are not related
parties other than those disclosed in note 15.
c) significant holdings
At the year-end, the Company held 20% or over of the aggregate nominal value
of voting equity of the following companies:
Company and address of principal business Country of incorporation and registration Year end Capital and reserves £'000 Revenue reserves for the last financial year £'000 Company holding Company holding
31 January 2022 31 January 2021
% %
Consolidated Venture Finance England and Wales 31 January 2021 (740) 5 100.00 100.00
6 Stratton Street, Mayfair, London, W1J 8LD
EKF Diagnostics Holdings Plc England and Wales 31 December 2021 94,742 14,611 20.82 21.54
Avon House, 19 Stanwell Road, Penarth, Cardiff, CF64 2EZ
Frenkel Topping Group Plc England and Wales 31 December 2020 25,148 1,197 24.30 22.30
Frenkel House 15 Carolina Way, Salford, Manchester, United Kingdom, M50 2ZY
Hampton Investment Properties England and Wales 31 December 2020 12,147 (64) 79.65 79.65
6 Stratton Street, Mayfair, London, W1J 8LD
Hargreaves Services Plc
West Terrace, Esh Winning, Durham,
DH7 9PT England and Wales 31 May 2021 144,296 16,348 20.37 20.91
Harwood Private Capital UK L.P. England and Wales 31 March 2021 6,280 (240) 28.57 28.57
6 Stratton Street, Mayfair, London, W1J 8LD
Harwood Private Equity Fund IV England and Wales 31 December 2021 87,321 (202) 26.28 26.28
6 Stratton Street, Mayfair, London, W1J 8LD
Harwood Private Equity Fund V England and Wales 31 December 2021 85,626 (505) 25.00 25.00
6 Stratton Street, Mayfair, London, W1J 8LD
Oryx International Growth Fund Limited Guernsey 31 March 2021 230,311 107,215 52.66 52.47
BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey GY1 1WA
Performance Chemical Company United States of America 30 September 2020 13,424 591 53.12 53.12
9105 W Interstate 20 Midland, TX 79706
Trident Private Equity Fund III LP England and Wales 31 December 2021 14,980 (103) 38.76 38.76
6 Stratton Street, Mayfair, London, W1J 8LD
All the investments detailed above have not been consolidated into the
financial statements due to the Company meeting the definition of an
investment entity under IFRS 10 and therefore these investments are included
at fair value through profit and loss.
At the year end, the Company held over 3% of the shares in the following
listed companies which were considered to be material:
%
Oryx International Growth Fund Limited 52.66
Frenkel Topping Group Plc 24.30
EKF Diagnostics Holdings Plc 20.56
Hargreaves Services Plc 20.48
SourceBio International plc 17.86
AssetCo Plc 17.21
Sportech 17.00
Odyssean Investment Trust Plc 16.80
TEN Entertainment Group Plc 14.63
Bigblu Broadband Plc 13.71
Sureserve Group Plc 12.15
Verici DX Limited 11.64
Circassia Group Plc 8.96
MJ Gleeson Plc 8.58
Renalytix AI Plc 8.48
Trellus Health 7.43
Polar Capital Holdings Plc 6.98
Esken Limited 6.52
Mountain Comm Bancorp 6.30
Circle Property 6.22
Redcentric Plc 4.81
d) investments in US treasury bills
At 31 January 2022, the Company held US Treasury Bills with a market value of
£70,783,000 (2021: £54,615,000).
e) transaction costs
During the year, the Company incurred total transaction costs of £196,000
(2021: £176,000) comprising £151,000 (2021: £87,000) and £45,000 (2021:
£89,000) on purchases and sales of investments respectively. These amounts
are included in gains on investments as disclosed in the Statement of
Comprehensive Income.
f) commitment
At 31 January 2022 NASCIT had undrawn capital commitments to invest £22.1
million (2021: £32 million) in Harwood Private Equity V LP and £17.1 million
(2021: £18.7m) in Harwood Private Capital U.K. LP.
9 trade and other receivables
2022 2021
£'000 £'000
Amounts due from brokers - 169
Accrued income 463 623
Other debtors 1,085 1,528
Recoverable withholding tax - 891
1,548 3,211
10 trade and other payables
2022 2021
£'000 £'000
Investment Manager's fees 376 319
Performance fees (incl. VAT) - 4,529
Amounts due to brokers for share buybacks - 182
Amounts due to brokers for trades - 2,519
Other creditors and accruals 159 224
535 7,773
11 share capital
2022 2022 2021 2021
Number £'000 Number £'000
- allotted, called up and fully paid:
Ordinary Shares of 5p:
Balance at beginning of year 14,024,518 701 14,160,000 708
Cancellation of shares (363,518) (18) (135,482) (7)
Balance at end of year 13,661,000 683 14,024,518 701
Since 31 January 2022, no Ordinary Shares have been purchased by the Company
for cancellation. As at the date of approval of this report, the Company's
issued share capital consists of 13,661,000 Ordinary Shares of 5p nominal
value each.
12 reconciliation of total return before taxation to cash generated from operations
2022 2021
£'000 £'000
Total return before taxation 64,934 130,093
Gains on investments and currency (63,575) (133,316)
Dividends and interest reinvested - (1,901)
Movement in provision for subsidiary - 104
Decrease/(increase) in debtors and accrued income 603 (518)
(Decrease)/increase in creditors and accruals (4,537) 3,843
Cash expended from operations (2,575) (1,695)
13 analysis of net cash
net cash At 1 February 2021 £'000 Cash flow £'000 Exchange movement £'000 At 31 January 2022 £'000
Cash and cash equivalents 33,918 42,251 (140) 76,029
14 financial instruments and risk profile
The Company's financial risk management objectives, policies and strategy can
be found in the Strategic Report in the Annual Report.
The Company's financial instruments comprise its investment portfolio, cash
balances, loan stock and trade receivables and trade payables that arise
directly from its operations.
The main risks arising from the Company's financial instruments are:
(i) market price risk, including currency risk, interest rate risk and
other price risk;
(ii) liquidity risk; and
(iii) credit risk
The Board and Manager consider and review the risks inherent in managing the
Company's assets which are detailed below.
(i) market price risk
The fair value or future cash flows of a financial instrument held by the
Company may fluctuate because of changes in market prices. This market risk
comprises currency risk, interest rate risk and other price risk. The Board of
Directors review and agree policies for managing these risks through detail
and continuing analysis. The Manager assesses the exposure to market risk when
making each investment decision and monitor the overall level of market risk
on the whole of the investment portfolio on an ongoing basis.
currency risk
The Company's total return and net assets can be materially affected by
currency translation movements as a significant proportion of the Company's
assets are denominated in currencies other than Sterling, which is the
Company's functional currency. It is not the Company's policy to hedge this
risk on a continuing basis but the Company may, from time to time, match
specific overseas investment with foreign currency borrowings. The Manager
seeks, when deemed appropriate, to manage exposure to currency movements on
borrowings by using forward foreign currency contracts as a hedge against
potential foreign currency movements. At 31 January 2022, the Company had no
open forward currency contracts (2021: none).
The revenue account is subject to currency fluctuation arising on overseas
income. The Company does not hedge this currency risk.
Foreign currency exposure by currency of denomination:
31 January 2022 31 January 2021
Overseas investments £'000 Net monetary assets Total currency exposure £'000 Overseas investments £'000 Net monetary assets Total currency exposure £'000
£'000 £'000
US Dollar 114,196 6,488 120,684 106,484 5,079 111,563
Euro - - - 8,504 - 8,504
114,196 6,488 120,684 114,988 5,079 120,067
Sensitivity analysis is based on the Company's monetary foreign currency
financial instruments held at each balance sheet date. If Sterling had moved
by 10% against all currencies, with all other variables constant, net assets
would have moved by the amounts shown below. The analysis is shown on the same
basis for 2021.
31 January 2022 31 January 2021
10% weakening £'000 10% strengthening £'000 10% weakening £'000 10% strengthening £'000
US Dollar 13,409 (10,971) 12,396 (10,142)
Euro - - 945 (773)
13,409 (10,971) 13,341 (10,915)
In the opinion of the Directors, the above sensitivity analyses are not
representative of the year as a whole, since the level of exposure changes
frequently as part of the currency risk management process used to meet the
Company's objectives.
interest rate risk
Interest rate movements may affect;
· the fair value of the investments in fixed interest rate
securities (including unquoted loans); or
· the level of income receivable on cash deposits;
The possible effects on fair value and cash flows that could arise as a result
of changes in interest rates are taken into account when making investment
decisions.
The Board reviews on a regular basis the values of the fixed interest rate
securities and the unquoted loans to companies in which private equity
investment is made.
Movements in interest rates would not significantly affect net assets
attributable to the Company's shareholders and total profit.
other price risk
Other price risks (i.e. changes in market prices other than those arising from
currency risk or interest rate risk) may affect the value of the quoted and
unquoted investments.
The Company's exposure to price risk comprises mainly movements in the value
of the Company's investments. It should be noted that the prices of options
tend to be more volatile than the prices of the underlying securities. As at
the year-end, the spread of the Company's investment portfolio analysed by
sector was as set out earlier in the Annual Report.
The Board of Directors manages the market price risks inherent in the
investment portfolios by ensuring full and timely access to relevant
investment information from the Manager. The Board meets regularly and at each
meeting reviews investment performance. The Board monitors the Manager's
compliance with the Company's objectives and is directly responsible for
investment strategy and asset allocation.
The Company's exposure to other changes in market prices at 31 January 2022 on
its quoted and unquoted investments and options on investments was as follows:
2022 2021
£'000 £'000
Financial assets at fair value through profit or loss
- Non current investments at fair value through profit or loss 712,424 712,874
As mentioned in the accounting policies note, the Private equity investments
have been valued following the IPEV Valuation Guidelines. The valuation
incorporates all relevant factors that market participants would consider in
setting a price.
Methods applied include cost of investment, price of recent investments, net
assets and earnings multiples. Any valuations in local currency are converted
into sterling at the prevailing exchange rate on the valuation date.
Although the Manager believes that the estimates of fair values are
appropriate, the use of different methodologies or assumptions could lead to
different measurements of fair values.
Subsequent adjustments in price are determined by the Manager's Valuation and
Pricing Committee.
The table below shows how the most significant unquoted investments have been
valued as at 31 January 2022.
Method of fair value valuation 2022 fair value GBP £'000 2021 fair value GBP £'000
Antler Holdco Limited GBP Offer Price 4,871 3,117
Antler Holdco Discount Notes GBP Cost 21 17
Coventbridge Group Limited 9% loan USD Cost 10,368 10,133
Hampton Investment Properties Ltd GBP Adjusted Net Assets 742 742
Harwood Private Equity Fund IV GBP Net Assets 22,102 34,656
Harwood Private Capital UK L.P. GBP Net Assets 2,857 1,300
Harwood Private Equity Fund V GBP Net Assets 21,247 7,944
Jaguar Holdings Limited Ordinary Shares - USD EBITDA Multiple 1,341 947
Jaguar Holdings Limited Preference Shares - USD Cost 2,124 2,076
Pelsis Holding/Hamsard 3468 Ltd A2 Loan Notes Euro Cost plus accrued interest - 5,083
Pelsis Holding/Hamsard 3468 Ltd A1 Loan Notes Euro Cost plus accrued interest - 3,388
Pelsis Holding/Hamsard 3468 Ltd A4 Ordinary Euro EBITDA Multiple - 33
Performance Chemical Holdings Common Stock USD EBITDA Multiple 7,918 9,916
Performance Chemical Holdings Series A Preferred Stock USD Cost - 3,317
Spring Investment LP (Duke Street) GBP Net Assets 1,750 3,500
Specialist Components Ltd APC Technology Ord GBP EBITDA Multiple 118 -
Specialist Components Ltd GBP 5% Loan Notes GBP Cost 2,622 1,311
Trellus Health Limited A Ordinary Shares GBP EBITDA Multiple - 980
Trident Private Equity Fund LP 3 Including Rebate GBP Net Assets 5,842 5,874
Utitec Holdings Inc - Loan Stock 12.5% USD Cost 3,842 3,642
Viking Investments LP GBP Net Assets - 5,734
WEP II SIMCO Co-Investment USD Net Assets 1,491 1,602
89,256 105,312
Other investments 377 368
89,633 105,680
the valuation techniques applied are based on the following assumptions:
Unquoted investments are usually valued by reference to the valuation
multiples of similar listed companies or from transactions of similar
businesses. Where appropriate discounts are then applied to those comparable
multiples to reflect difference in size and liquidity. These enterprise values
are then adjusted for net debt to arrive at an equity valuation. Where
companies are in compliance with the loan note terms these loans are generally
held at par plus accrued interest (where applicable) unless the enterprise
value suggests that the debt cannot be recovered.
Further detail on the valuation of significant investments, are detailed
below:
Trident Private Equity Fund III LP (TPE3), Harwood Private Equity IV LP (HPE4) and Harwood Private Equity V LP (HPE5)
Held at net asset value, derived from the audited financial statements of the
Funds as at 31 December 2021, as the underlying investments within TPE3, HPE4
and HPE5 are valued on a fair value basis. The Directors believe that the
movement between the Funds' measurement dates and the reporting dates are not
material. As the funds have no debts, a change of 10% in the underlying assets
would have a 10% impact on the Funds' carrying value.
Performance Chemical Company - Ordinary Shares
The enterprise value is calculated based on an EBITDA multiple of 7.5x. A
reduction in the multiple by a factor of 1x would reduce the carrying value of
the total investment by US$1.2 million, or -12%. An increase in the multiple
by a factor of 1x would increase the value of the total investment by US$1.2
million, or 12%. The preference shares were redeemed at 30 September 2021.
Coventbridge Group - Loan
The loan is held at par plus accrued interest. The enterprise value is
calculated using an EBITDA multiple of 11.6x. Neither a reduction nor an
increase in the multiple by a factor of 1x would impact the carry value of the
loan.
The following table illustrates the sensitivity of the profit after taxation
and net assets to an increase or decrease of 10% in the fair values of the
Company's investments. This level of change is considered to be reasonably
possible based on observation of current market conditions. The sensitivity
analysis is based on the Company's equities and equity exposure through
options at each Balance Sheet date, with all other variables held constant.
2022 2021
Increase in Decrease in Increase in Decrease in
fair value fair value fair value fair value
£'000 £'000 £'000 £'000
Increase/(decrease) in net assets 71,242 (71,242) 71,287 (71,287)
(ii) liquidity risk
This is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.
The Company invests in equities and other investments that are readily
realisable. It also invests in unquoted securities, which are less readily
marketable than equities. These investments are monitored by the Board on
regular basis.
As at 31 January 2022, £70,783,000 of the Company's cash is held in
short-term Treasury Bills, which are highly liquid. As a consequence, the
Company could access in excess of £71 million based on the year end exchange
rates, within one week.
As the Company is a closed-end company, assets do not need to be liquidated to
meet redemptions and sufficient liquidity is maintained to meet obligations as
they fall due.
(iii) credit risk
Other than its investment in US Treasury Bills, the Company does not have any
significant exposure to credit risk arising from any one individual party.
Credit risk is spread across a number of counterparties, each having an
immaterial effect on the Company's cash flows, should a default happen. The
Company assesses the credit worthiness of its debtors from time to time to
ensure they are neither past due or impaired.
The maximum exposure of the financial assets to credit risk at the Balance
Sheet date was as follows:
2022 2021
£'000 £'000
financial assets neither past due or impaired
Fixed income securities 16,855 23,574
Preference shares 2,124 2,162
Treasury Bills 70,783 54,615
Accrued income and other debtors 1,548 3,211
Cash and cash equivalents 76,029 33,918
167,339 117,480
The maximum credit exposure of financial assets represents the carrying
amount.
There are no financial assets that are past due or impaired.
commitments giving rise to credit risk
There are no commitments giving rise to credit risk as at 31 January 2022.
fair value of financial assets
The Company measures fair values using the fair value hierarchy that reflects
the significance of the inputs used in making the measurements of the relevant
assets as follows:
· Level 1 - Quoted prices (unadjusted) in active markets for
identical assets or liabilities.
· Level 2 - Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices).
· Level 3 - Inputs for the asset or liability that are not based on
observable market data (unobservable inputs). See note 1f) for details on how
the value of level 3 investments are calculated.
The Company's main unobservable inputs are earnings multiples, recent
transactions and net asset basis. The market value would be sensitive to
movements in these unobservable inputs. Movements in these inputs,
individually or in aggregate could have a significant effect on the market
value. The effect of such a change or a reasonable possible alternative would
be difficult to quantify as such data is not available.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement in its entirety. For
this purpose, the significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses observable
inputs that require significant adjustment based on unobservable inputs, that
measurement is a Level 3 measurement. Assessing the significance of a
particular input to the fair value measurement in its entirety requires
judgement, considering factors specific to the asset or liability.
The Company considers observable data from investments actively traded in
organised financial markets, fair value is generally determined by reference
to Stock Exchange quoted market bid prices at the close of business on the
Balance Sheet date, without adjustment for transaction costs necessary to
realise the asset.
The table below sets out fair value measurements of financial assets in
accordance with the IFRS 13 fair value hierarchy system:
financial assets at fair value through profit or loss
At 31 January 2022
Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Equity investments 624,786 552,008 - 72,778
Fixed interest investments 87,638 70,783 - 16,855
total 712,424 622,791 - 89,633
At 31 January 2021
Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Equity investments 634,685 552,579 - 82,106
Fixed interest investments 78,189 54,615 - 23,574
total 712,874 607,194 - 105,680
A reconciliation of fair value measurements in Level 3 is set out below.
level 3 financial assets at fair value through profit or loss
At 31 January 2022
Total £'000 Equity investments £'000 Fixed interest investments £'000
Opening fair value 105,680 82,106 23,574
Purchases 17,571 11,432 6,139
Sales (44,923) (31,748) (13,175)
Total gains/(losses) included in gains on investments (157) (157) -
in the Statement of Comprehensive Income:
- on assets sold 9,109 9,191 (82)
- on assets held at the end of the year 2,353 1,954 399
closing fair value 89,633 72,778 16,855
capital management policies and procedures
The Company's capital management objectives are:
· to ensure that the Company will be able to continue as a going
concern; and
· to maximise the income and capital return to its equity
shareholders through an appropriate balance of equity capital and debt. The
policy is that gearing should not exceed 30% of net assets.
The Company's capital at 31 January comprises:
2022 2021
£'000 £'000
debt - -
equity
Equity share capital 683 701
Retained earnings and other reserves 788,783 741,529
789,466 742,230
debt as a % of net assets 0.0% 0.0%
The Board, with the assistance of the Manager monitor and reviews the broad
structure of the Company's capital on an ongoing basis. This review includes:
· the planned level of gearing, which takes account of the
Manager's views on the market;
· 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 level of share price discount or premium);
· the need for new issues of equity Shares; and
· the extent to which revenue in excess of that which is required
to be distributed should be retained.
capital requirement
The Company's objectives, policies and processes for managing capital are
unchanged from the preceding accounting period.
15 related party transactions
Harwood Capital LLP is regarded as a related party of the Company due to
Christopher Mills, the Company's Chief Executive and Investment Manager being
a member of Harwood Capital LLP until 9 June 2015 and the ultimate beneficial
owner. Harwood Capital LLP acts as Investment Manager or Investment Adviser of
the following companies in which the Company has an investment and from which
companies it receives fees or other incentives for its services:
Services 2022 2021
£'000 £'000
Oryx International Growth Fund Limited Investment Advisory 3,027 2,289
Trident Private Equity III LP Investment Advisory 146 146
Harwood Private Equity IV LP Investment Advisory 1,485 2,446
Harwood Private Equity V LP Investment Advisory 3,200 2,111
The amounts payable to the Manager are disclosed in note 3. The relationships
between the Company, its Directors and the Manager are disclosed in the Report
of the Directors in the Annual Report.
Christopher Mills is Chief Executive Officer and indirectly a member of
Harwood Capital LLP. He is also a director of Oryx. GFS is a wholly-owned
subsidiary of Harwood Capital Management Limited, which is the holding company
of the Harwood group of companies and is, in turn, 100% owned by Christopher
Mills. Harwood Capital Management Limited is also a Designated Member of
Harwood Capital LLP, the Administrator of the Company.
Fees from Odyssean Investment Trust Plc and Harwood Private Capital UK LP go
to Odyssean Capital LLP (OCLLP) and Harwood Private Capital LLP (HPCLLP)
respectively. Both OCLLP and HPCLLP are 50:50 JVs between Harwood Capital
Management Ltd and Stuart Widdowson, for OCLLP, and Haseeb Aziz, for HPCLLP.
transfer of assets from subsidiary
During the year to 31 January 2022, the Company received a transfer of cash
and assets from its subsidiary company, Consolidated Venture Finance,
amounting to £nil (2021: £104,000).
disclosure of interests
Christopher Mills is also a director of the following companies in which the
Company has an investment or may have had in the year and/or from which he may
receive fees or hold shares: AssetCo plc, Augean plc, Bigblu Broadband plc,
Coventbridge Group Limited, EKF Diagnostics Holdings Plc, Frenkel Topping
Group plc, Hampton Investment Properties Limited, Jaguar Holdings Limited, M J
Gleeson Group plc, Oryx, Pelsis/Hamsard, Renalytix Al Plc,
SourceBio International plc, SureServe Group plc, Ten Entertainment Group
Plc, Trellus Health plc and Utitec Holdings Inc. Employees of the Manager may
hold options over shares in investee companies. A total of £478,367 (2021:
£435,000) in directors fees was received by Christopher Mills during the year
under review.
No formal arrangements exist to avoid double charging on investments held by
the Company which are also managed or advised by Christopher Mills (Chief
Executive) and/or Harwood Capital LLP. Members and certain private clients of
Harwood Capital LLP, and its associates (excluding Christopher Mills and his
family) hold 83,924 shares in the Company (2021: 83,924).
Members, employees, institutional clients and private clients of Harwood
Capital LLP may co-invest in the same investments as the Company.
From time to time Directors may co-invest in the same investments as the
Company.
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