Annual Financial Report

RNS Number : 8384F

Maven Income and Growth VCT 5 PLC

11 March 2020

 

Maven Income and Growth VCT 5 PLC

Final results for the year ended 30 November 2019

The Directors report the Company's financial results for the year ended 30 November 2019

Highlights

• NAV total return at the year end of 79.22p per share (2018: 78.89p)

• NAV at the year end of 37.37p per share (2018: 37.54p), after payment of the interim dividend of 0.50p per share

• Final dividend of 1.10p per share proposed

• Offer for Subscription fully subscribed, raising £20 million

• Deployment of £5 million in total, including investments in 19 new private and AIM quoted companies

• Two profitable realisations completed during the period, with a further sale completing after the period end

STRATEGIC REPORT

Chairman's Statement

On behalf of your Board, I am pleased to announce the results for the year to 30 November 2019, which reported a further annual increase in NAV total return to 79.22p per share. During the period under review, your Company made good progress in line with its key strategic objective of growing absolute net asset value and expanding its portfolio of investments.  During the year, 19 new private and AIM quoted companies were added to the portfolio and a £20 million Offer for Subscription closed fully subscribed. In addition, two profitable exits from private company holdings also completed.

The Directors are pleased to propose a final dividend of 1.10p per share, reflecting the positive performance achieved during the year.

This has been an important year of growth and development for your Company. The Offer for Subscription raised £20 million of new capital, which provides additional liquidity to support the further expansion of the portfolio by number of holdings. The Board considers that the best path towards the continuing achievement of Shareholder returns is the construction of a large, diversified private equity and AIM portfolio, whilst also maintaining scale and liquidity to support the best performing companies, which can grow Shareholder value and achieve profitable exits.

The Directors are encouraged by the healthy rate of investment that has been achieved during the reporting period, with the addition of a large number of new private company and AIM quoted holdings to the portfolio. This level of deployment and portfolio expansion reflects the regional investment resource available that allows Maven to capture some of the best young and growth focused companies across the UK regions. Whilst it will take time for these new assets to mature and grow in value, the Board believes that the breadth and size of the portfolio being constructed leaves the Company well positioned to achieve further growth in Shareholder value over the medium term. At the same time, the Board acknowledges that the growth path for early stage companies is more difficult to predict and may be less linear than for more established companies. This may lead to greater volatility in net asset value and in the quantum and timing of dividend payments.

As the portfolio continues to evolve and the proportion of holdings in early stage companies increases, the ability to provide follow-on funding will become an increasingly important element of the investment strategy, as many of the new portfolio companies will require several rounds of funding before they reach maturity and value is optimised. The Manager has therefore taken the cautious approach of making smaller initial investments, often as part of a syndicate with another VCT house or co-investment partner, as a means of managing portfolio risk. Investing through a phased or tranched approach provides the opportunity for the Manager to monitor commercial progress closely and continually assess the merits of investment before committing further funds. The Board is supportive of this approach as a means of balancing the risks associated with early stage investment.

During the period, the AIM portfolio delivered another strong performance, outperforming the FTSE AIM All-Share Index. The proportion of AIM holdings now represents 20.5% of net assets. Whilst the majority of new investments will continue to be made in unlisted company holdings, given the positive performance and the expertise of the dedicated AIM executives at Maven, your Company will also continue to make selective AIM investments. Shareholders will note that during the period a number of small new positions were taken in certain AIM quoted companies.

A detailed analysis of portfolio developments and a summary of all the investments completed during the year can be found in the Investment Manager's Review in the Annual Report. Whilst political and economic uncertainty continued to dominate the UK's macro-economic outlook throughout the financial year, it is reassuring to report that, to date, the portfolio has not been materially affected. The majority of the underlying investee companies have limited direct exposure to the EU, and those that do, have been implementing contingency plans to mitigate any potential impact.

The continuing positive performance achieved by a number of the more established private companies has enabled the valuations of certain assets to be increased. Those companies that are at an earlier stage of development have generally performed in line with expectations, with most generating improved revenue growth over the previous year, which has, in a small number of cases, warranted uplifts to valuations. Inevitably, however, there are other investments that are operating behind plan or have experienced a market adjustment that has influenced performance and, as a result, the valuations of these assets have been reduced. A full provision has been taken against the holding in Cognitive Geology, which failed to gain commercial traction. In addition, Motokiki, an early stage portfolio company, was unable to scale in line with the business plan and the value of that holding was fully written down before the business was placed into administration.

Two notable exits completed during the period. In June 2019, the holdings in Just Trays, the UK's leading designer and manufacturer of shower trays and accessories, and wind turbine blade maintenance specialist GEV, were realised for total returns of 2.0 times and 2.7 times cost respectively, over the holding periods. The Board is aware that discussions are underway regarding further potential exits from other portfolio companies, although there can be no certainty that these will result in profitable realisations.

Dividends and Distributable Reserves

As Shareholders will be aware, the requirement to support younger and earlier stage businesses in accordance with the VCT Regulations may, over time, result in less predictable capital gains and lower income flows. However, the Directors recognise the continuing importance of tax-free dividends to investors. Decisions on distributions take into consideration the availability of surplus revenue, the realisation of capital gains, the adequacy of distributable reserves, cash flow forecasts and the need to maintain the VCT qualifying level. These factors are all kept under regular review by the Board and the Manager. During the two prior financial years, and following several profitable realisations, the Company made a number of enhanced interim dividend payments outwith the regular payment pattern to ensure ongoing compliance with the VCT qualifying level requirements.

Following recent exits, and in accordance with the statement made in the 2019 Interim Report, the Directors are pleased to propose a final dividend of 1.10p per Ordinary Share, in respect of the year ended 30 November 2019. The final dividend will be paid on 1 May 2020 to Shareholders on the register as at 27 March 2020. This will bring total distributions for the year to 1.60p per Ordinary Share representing a yield of 4.91% based on the year end closing mid-market share price of 32.60p. Since the Company's launch, and after receipt of the proposed final dividend, Shareholders will have received 42.95p per share in tax-free dividends. It should be noted that the effect of paying dividends is to reduce the NAV of the Company by the total cost of the distribution.

At a general meeting of the Company held on 8 November 2019, Shareholders approved a Special Resolution to cancel the Company's Share Premium Account and the Capital Redemption Reserve, pursuant to the Companies Act 2006, to create a further pool of distributable reserves that could be used for future dividends or any other applicable purpose. On 4 December 2019, the Company announced that the High Court of Justice had confirmed the cancellation of the Share Premium Account and the Capital Redemption Reserve. The Court Order was registered by the Registrar of Companies on 3 December 2019, at which point, the cancellation became effective.

Whilst the level of distributable reserves has increased, the Directors would like to remind Shareholders that as the portfolio evolves, and a greater proportion of holdings are invested in younger companies, there will continue to be fluctuations in the quantum and timing of dividend payments. Distributions will be more closely linked to realisation activity and will also reflect the Company's requirement to maintain its minimum VCT qualifying level. If larger distributions are required as a consequence of exits this could result in a reduction in NAV per share. However, the Board considers this to be a tax efficient means of returning value to Shareholders, whilst at the same time ensuring ongoing compliance with the requirements of the VCT legislation.

Dividend Investment Scheme (DIS)

Your Company operates a DIS, through which Shareholders may elect to have their dividend payments used to acquire new Ordinary Shares issued by the Company under the standing authority requested from Shareholders at Annual General Meetings. Shares issued under the DIS should qualify for VCT tax relief applicable for the tax year in which they are allotted, subject to an individual Shareholder's particular circumstances. If a Shareholder is in any doubt about the merits of participating in the DIS, or their own tax status, they should seek advice from a suitably qualified adviser.

Shareholders who wish to participate in the DIS in respect of future dividends, including the payment of the proposed final dividend, should ensure that a DIS mandate or CREST instruction, as appropriate, is received by the Registrar (Link Market Services) in advance of 14 April 2020, this being the next dividend election date. The mandate form, terms & conditions and full details of the scheme (including further details about tax considerations) are available from the Company's website at www.mavencp.com/migvct5. An election to participate in the DIS can also be made through the Registrar's share portal at www.signalshares.com.

Fund Raising

On 25 March 2019, the Directors were pleased to announce that your Company's element of the joint Offer for Subscription, which launched on 26 September 2018, was fully subscribed, including the over-allotment facility, raising £20 million. The first allotment of 23,534,337 new Ordinary Shares, in respect of the 2018/19 tax year, took place following the end of the early investment incentive period on 21 December 2018. A further allotment of 14,755,373 new Ordinary Shares for the 2018/19 tax year took place on 6 March 2019, with a final allotment for the 2018/19 tax year of 11,806,268 taking place on 3 April 2019. The allotment for the 2019/20 tax year, in respect of 2,596,389 new Ordinary Shares, took place on 24 April 2019.

This additional capital will enable your Company to continue to expand the portfolio by investing in ambitious, growth focused private and AIM quoted companies that operate across a range of market sectors, and are capable of generating capital gains. It will also ensure that existing portfolio companies can continue to be supported through follow-on funding where there is both demand and an ongoing business case and evidence of commercial traction which merits support. Furthermore, the funds raised will allow your Company to maintain its share buy-back policy, whilst also spreading costs over a wider asset base in line with the objective of maintaining a competitive total expense ratio for the benefit of all Shareholders.

Further details regarding the new Ordinary Shares issued under the Offer can be found in Note 12 of the Financial Statements in the Annual Report.

Share Buy-backs

Shareholders should be aware that the Board's primary objectives are for the Company to retain sufficient liquid assets for making investments in line with its stated policy, and for the continued payment of dividends. However, the Directors also acknowledge the need to maintain an orderly market in the Company's shares and have delegated authority to the Manager to buy back shares in the market for cancellation or to be held in treasury, subject always to such transactions being in the best interests of Shareholders.

It is intended that, subject to market conditions, available liquidity and the maintenance of the Company's VCT status, Ordinary Shares will be bought back at prices representing a discount of between 10% and 15% to the prevailing NAV per share.

Management and Administration Fees

On 1 June 2015, the Company entered into a revised Management and Administration Deed with the Manager. It was agreed that the base investment management fee payable would be 1.60% of the prevailing NAV of the Company, payable quarterly in arrears. The Manager also receives an administration fee of £86,000 (2018: £83,000) per annum, payable quarterly in arrears and subject to an annual adjustment to reflect any change in the retail prices index. More information on the current management and administration fees can be found in the Directors' Report in the  Annual Report.

The Management Engagement Committee undertakes an annual review of the management contract and, following the confirmed re-appointment of Maven as the Investment Manager at its meeting in October 2019, the Committee recommended that the Board conduct a further review of the fees payable to the Manager. The Committee is aware that, as a result of the increasing complexity of completing and managing early stage investments under the VCT rules introduced by the Finance (No. 2) Act 2015, the Manager has substantially increased its number of offices around the UK and has recruited additional, specialist personnel to help source, transact and manage these new investments.

On the recommendation of the Committee, and in recognition of the more onerous obligations on the Manager resulting from the most recent amendments to the VCT regulations, the Board has agreed that the management fee should be increased by 0.15% of NAV per annum. The Board has further agreed that this increase will be implemented over a two year period with the base management fee increasing from 1.60% to 1.675% of NAV with effect from 1 December 2019, and then from 1.675% to 1.75% of NAV with effect from 1 December 2020.

Following this increase, the Company's management fee rate will continue to remain highly competitive in comparison to fees paid by other VCTs in the Company's peer group.

Regulatory Developments

Whilst the 2019 Budget did not introduce further amendments to the rules governing VCTs, a key focus for the financial year has been satisfying the requirements of the Finance Act 2018, which increased the threshold level of qualifying investments that a VCT must hold from 70% to 80%. The Directors are pleased to confirm that this was achieved ahead of 1 December 2019, being the date of compliance for your Company. The qualifying position will continue to be closely monitored by the Manager and reviewed by the Board on a regular basis.

In February 2019, the Association of Investment Companies (AIC) issued an updated version of the AIC Corporate Governance Code (the AIC Code), reflecting the revised UK Corporate Governance Code (the UK Code), which was published in July 2018. The required application date for your Company is 30 November 2020 (being the end of the first accounting period beginning after 1 January 2019). The Board is considering the implications of both the UK Code and the AIC Code and the future reporting obligations under the new codes.

During the year, the Manager has been working towards the implementation of the Senior Managers and Certification Regime (SMCR) which, for solo regulated firms such as Maven, came into effect on 9 December 2019. The SMCR replaces the FCA's approved person regime and aims to increase transparency and accountability of processes and structures within FCA regulated entities including Maven. Whilst the introduction of this regime will have no direct impact on the way in which your Company is managed or administered, the Board is pleased to note that all necessary requirements of the SMCR were achieved by Maven ahead of the application date.

Board of Directors

Shareholders will be aware of my decision to step down as Chairman and Non-executive Director of your Company at the conclusion of the 2020 Annual General Meeting (AGM).

As detailed in the 2019 Interim Report, Graham Miller joined the Board as a Non-executive Director on 2 July 2019, and a resolution for Shareholders to confirm his appointment will be proposed at the 2020 AGM. Graham has extensive experience of private equity and has operated as an independent director and private investor for a number of years. (Further information is available in the Your Board section of the Annual Report). The Directors have unanimously agreed that Graham is the best candidate to succeed me in the role of Chairman.

I would like to thank my fellow Directors for the support they have given me during my time as Chairman and Non-executive Director and I wish Graham, the rest of the Board, and your Company, every success in the future.

Annual General Meeting (AGM)

As Shareholders are aware, AGMs have been held in Glasgow and London in alternate years in order to allow a wide range of Shareholders the opportunity to meet the Directors and the Manager. Following a review, the Directors have decided that these meetings will now be held in Glasgow every third year. The 2020 AGM, therefore, will be held in the London office of Maven Capital Partners UK LLP on 28 April 2020 commencing at 11.30am, the 2021 AGM will then be held at Maven's Glasgow office. The Notice of Annual General Meeting can be found in the Annual Report.

The Future

The success of the Offer for Subscription, which closed in March 2019, provides your Company with good levels of liquidity to support an active investment strategy, and this year has seen the first steps towards the expansion of the portfolio to reflect the increased size of your Company. The central objective for the new financial year remains focused on maintaining the rate of investment to ensure effective utilisation of the new capital, in line with the regulatory timeframe for deployment. The Board believes that the Manager is well placed to deliver on this objective, and recognises the success of the regional investment approach that has been adopted. Although the provisions of the 2015 Finance Act required VCTs to focus on investment in younger and higher risk companies, the continued expansion of the portfolio will allow Shareholders to diversify this risk, by gaining access to a broad range of private company and AIM quoted investments.

Allister Langlands

Chairman

11 March 2020

Business Report

This Business Report is intended to provide an overview of the strategy and business model of the Company, as well as the key measures used by the Directors in overseeing its management. The Company is a venture capital trust, which invests in accordance with the investment objective set out below.

Investment Objective

The Company aims to achieve long-term capital appreciation and generate income for Shareholders. Maven Capital Partners UK LLP (Maven or the Manager) was appointed in February 2011 with a view to applying a new investment policy, as set out below, and changing the focus of the portfolio from AIM/NEX quoted companies to unquoted private company investments.

Business Model and Investment Policy

Under an investment policy approved by the Directors, the Company intends to achieve its objective by:

• investing the majority of its funds in a diversified portfolio of shares and securities in smaller, unquoted UK companies and AIM/NEX quoted companies which meet the criteria for VCT qualifying investments and have strong growth potential;

• investing no more than £1.25 million in any company in one year and no more than 15% of the Company's assets by cost in one business at any time; and

• borrowing up to 15% of net asset value, if required and only on a selective basis, in pursuit of its investment strategy. The Board has no intention of approving any borrowing at this time.

Principal and Emerging Risks and Uncertainties

The Board and the Risk Committee have an ongoing process for identifying, evaluating and monitoring the principal and emerging risks and uncertainties facing the Company. The risk register and risk dashboard form key parts of the Company's risk management framework used to carry out a robust assessment of the risks, including a significant focus on the controls in place to mitigate them.

The current principal and emerging risks and uncertainties facing the Company, are considered to be as follows:

Investment Risk

The majority of the Company's investments are in early stage, small and medium sized unquoted UK companies and AIM/NEX quoted companies which, by their nature, carry a higher level of risk and lower liquidity than investments in large quoted companies. The Board aims to limit the risk attached to the investment portfolio as a whole by ensuring that a robust and structured selection, monitoring and realisation process is applied. The Board reviews the investment portfolio with the Manager on a regular basis.

The Company manages and minimises investment risk by:

• diversifying across a large number of companies;

• diversifying across a range of economic sectors;

• actively and closely monitoring the progress of investee companies;

• co-investing with other clients of Maven and other VCT managers;

• ensuring valuations of underlying investments are made fairly and reasonably (see Notes to the Financial Statements 1(e), 1(f) and 16 for further details);

• taking steps to ensure that the share price discount is managed appropriately; and

• choosing and appointing an FCA authorised investment manager with the appropriate skills, experience and resources required to achieve the Investment Objective above, with ongoing monitoring to ensure the Manager is performing in line with expectations.

Internal Control Risk

The Board regularly reviews the system of internal controls, both financial and non-financial, operated by the Company, Maven and other key third party outsourcers such as the Custodian and Registrar. These include controls designed to ensure that the Company's assets are safeguarded, that all records are complete and accurate and that the third parties have adequate controls in place to prevent data protection and cyber security failings. Breaches of controls by service providers to the Company could also lead to reputational damage or loss.

VCT Qualifying Status Risk

The Company operates in a complex regulatory environment and faces a number of related risks, including:

• becoming subject to capital gains tax on the sale of its investments as a result of a breach of Section 274 of the Income Tax Act 2007;

• loss of VCT status and the consequential loss of tax reliefs available to Shareholders as a result of a breach of the VCT regulations;

• loss of VCT status and reputational damage as a result of a serious breach of other regulations such as the FCA Listing Rules and the Companies Act 2006; and

• increased investment restrictions resulting from the EU State Aid Rules incorporated by the Finance (No. 2) Act 2015 and the Finance Act 2018.

The Board works closely with the Manager to ensure compliance with all applicable and upcoming legislation such that VCT qualifying status is maintained. Further information on the management of this risk is detailed under other headings in this Business Report.

Legislative and Regulatory Risk

The Directors strive to maintain a good understanding of the changing regulatory agenda and consider emerging issues so that appropriate changes can be implemented and developed in good time.

In order to maintain its approval as a VCT, the Company is required to comply with current VCT legislation in the UK as well as the EU State Aid Rules. Changes to either legislation could have an adverse impact on Shareholder investment returns, whilst maintaining the Company's VCT status. The Board and the Manager continue to make representations where appropriate, either directly or through relevant industry bodies such as the Association of Investment Companies (AIC) and the British Venture Capital Association (BVCA).

The Company has retained Philip Hare & Associates LLP as its principal VCT adviser and also uses the services of a number of other VCT advisers on a transactional basis.

Breaches of other regulations, including but not limited to the Companies Act 2006, the FCA Listing Rules, the FCA Disclosure Guidance and Transparency Rules, the General Data Protection Regulation, or the Alternative Investment Fund Managers Directive (the AIFMD), could lead to a number of detrimental outcomes and reputational damage.

The AIFMD, which regulates the management of alternative investment funds, including VCTs, introduced a new authorisation and supervisory regime for all investment companies in the EU. The Company is a small registered, internally managed alternative investment fund under the AIFMD.

The Company is also required to comply with tax legislation under the Foreign Account Tax Compliance Act and the Common Reporting Standard. The Company has appointed Link Market Services to act on its behalf to report annually to HMRC and ensure compliance with this legislation.

Political Risk

The full political, economic and legal consequences of the UK leaving the EU are not yet known. It is possible that investments in the UK may be more difficult to value and assess for suitability of risk, harder to buy or sell and may be subject to greater or more frequent rises and falls in value. In the longer term, there is likely to be a period of uncertainty as the UK seeks to negotiate its ongoing relationship with the EU and other global trade partners. The UK's laws and regulations, including those relating to investment companies, may, in future, diverge from those of the EU. This may lead to changes in the operation of the Company or the rights of investors in the territories in which the shares of the Company may be promoted and sold.

The Board regularly reviews the political situation, together with any associated changes to the economic, regulatory and legislative environment, to ensure that any risks arising are mitigated as effectively as possible.

Climate Change and Social Responsibility Risk

The Board recognises that climate change is an important emerging risk that all companies should take into consideration within their strategic planning.

As referred to elsewhere in this Strategic Report and in the Statement of Corporate Governance in the Annual Report, the Company has little direct impact on environmental issues. However, the Company has introduced measures to reduce the cost and the environmental impact of the production and circulation of shareholder documentation such as the Annual and Interim Reports. This has resulted in a significant reduction in the number of paper copies being printed and posted, with fewer than 6.6% of Shareholders now receiving printed reports.

The Board is aware that the Manager continues to take into account environmental, social and governance matters when considering investment proposals. VCTs in general are regarded as supporting small and medium sized enterprises which, in turn, helps create local employment across a range of geographical areas in the UK.

Other Risks

Governance Risk

The Directors are aware that an ineffective Board could have a negative impact on the Company and its Shareholders. The Board recognises the importance of effective leadership and board composition, and this is ensured by completing an annual evaluation process. If required, additional training is then arranged.

Management Risk

The Directors are aware of the risk that investment opportunities could fail or the management of the VCT could breach the Management and Administration Deed or regulatory parameters, due to lack of knowledge and/or experience of the investment professionals acting on behalf of the Company. To manage this risk, the Board has appointed Maven as investment manager, as it employs skilled professionals with the required VCT knowledge and experience. In addition, the Board takes comfort from the Manager's controls that have been updated to ensure compliance with the SMCR.

The Directors are also mindful of the impact that the loss of the Manager's key employees could have on both investment opportunities that may be lost or existing investments that may fail. The Board takes reassurance from the Manager's approach to incentivising staff and ensuring that adequate notice periods are included in all contracts of employment.

Financial and Liquidity Risk

As most of the investments require a mid to long-term commitment and are relatively illiquid, the Company retains a portion of the portfolio in cash and listed investment trusts in order to finance any new or follow-on investment opportunities. The Company has only limited direct exposure to currency risk and does not enter into any derivative transactions.

Economic Risk

The valuation of investment companies may be affected by underlying economic conditions such as fluctuating interest rates and the availability of bank finance. The economic and market environment is kept under constant review and the investment strategy of the Company is adapted so far as possible to mitigate emerging risks.

Credit Risk

The Company may hold financial instruments and cash deposits and is dependent on counterparties discharging their agreed responsibilities. The Directors consider the creditworthiness of the counterparties to such instruments and seek to ensure that there is no undue concentration of exposure to any one party.

An explanation of certain economic and financial risks and how they are managed is contained in Note 16 to the Financial Statements in the Annual Report.

Statement of Compliance with Investment Policy

The Company is adhering to its stated investment policy and managing the risks arising from it. This can be seen in various tables and charts throughout the Annual Report, and in the Chairman's Statement and the Investment Manager's Review. A review of the Company's business, its financial position as at 30 November 2019 and its performance during the year then ended is included in the Chairman's Statement, which also includes an overview of the Company's business model and strategy.

The management of the investment portfolio has been delegated to Maven, which also provides company secretarial, administrative and financial management services to the Company. The Board is satisfied with the depth and breadth of the Manager's resources and its nationwide network of offices which supply new deals and enable it to monitor the geographically widespread portfolio of companies effectively.

The Investment Portfolio Summary in the Annual Report discloses the investments in the portfolio and the degree of co-investment with other clients of the Manager. The tabular analysis of the unlisted and quoted portfolio in the Annual Report shows that the portfolio is diversified across a variety of industry sectors and transaction types. The level of VCT qualifying investment is monitored continually by the Manager and reported to the Risk Committee quarterly or as required.

Key Performance Indicators (KPIs)

During the year, the net return on ordinary activities before taxation was £519,000 (2018: £2.21 million), gains on investments were £960,000 (2018: £2.71 million) and earnings per share were 0.44p (2018: 2.91p). The Directors also consider a number of Alternative Performance Measures (APMs) in order to assess the Company's success in achieving its objectives, and these also enable Shareholders and prospective investors to gain an understanding of its business. The APMs are shown in the Financial History table in the Financial Highlights in the Annual Report. In addition, the Board considers the following to be KPIs:

• NAV total return;

• cumulative dividends paid;

• share price discount to NAV;

• share price total return; and

• operational expenses.

The NAV total return is the principal measure of Shareholder value as it includes both the current NAV per share and the sum of dividends paid to date. Cumulative dividends paid is the total amount of both capital and income distributions paid since the launch of the Company. The Directors seek to pay dividends to provide a yield and comply with the VCT rules, taking account of the level of distributable reserves, profitable realisations in each accounting period and the Company's future cash flow projections. The share price discount to NAV is the percentage by which the mid-market share price of an investment is lower than the NAV per share. Share price total return is the percentage movement in the share price over a period of time including any re-invested dividends paid over that timeframe. A historical record of these measures is shown in the Financial Highlights in the Annual Report, and the profile of the portfolio is reflected in the Summary of Investment Changes. Definitions of the APMs can be found in the Glossary in the Annual Report. The Board also reviews the Company's operational expenses on a quarterly basis as the Directors consider that this element is an important component in the generation of Shareholder returns. Further information can be found in Notes 2 and 4 to the Financial Statements in the Annual Report.

The Directors previously included investment income and the progress being made on the rebalancing of the legacy AIM portfolio to one focused on new unquoted investments as KPIs. The introduction of the Finance (No. 2) Act 2015 altered the type of investments VCTs can make, and also changed the deal structure to be more heavily weighted to equity investment. The proportion of loan notes has reduced as a result and, accordingly, the Directors have agreed that investment income should no longer be considered a KPI. The Directors have also agreed that the rebalancing of the legacy AIM portfolio should no longer be considered a KPI. In recent years, AIM has matured and has offered good investment opportunities, and your Board has been pleased with the positive contribution that the AIM portfolio has delivered.  Accordingly, your Company intends to continue to make new small investments in qualifying AIM quoted companies that offer attractive upside potential. Whilst the majority of new investments will continue to be made in unlisted company holdings, given the positive performance and the expertise of the dedicated AIM executives at Maven, your Company will continue to make selective AIM investments.

There is no VCT index against which to compare the financial performance of the Company. However, for reporting to the Board and Shareholders, the Manager uses comparisons with the most appropriate index being the FTSE AIM All-Share Index. The Directors also consider non-financial performance measures such as the flow of investment proposals and the Company's ranking within the VCT sector.

In addition, the Directors consider economic, regulatory and political trends and factors that may impact on the Company's future development and performance.

Valuation Process

Investments held by Maven Income and Growth VCT 5 PLC in unquoted companies are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Investments quoted or traded on a recognised stock exchange, including AIM, are valued at their bid prices.

Share Buy-backs

At the forthcoming AGM, the Board will seek the necessary Shareholder authority to continue to conduct share buy-backs under appropriate circumstances.

Employee, Environmental and Human Rights Policy

The Company has no direct employee or environmental responsibilities, nor is it directly responsible for the emission of greenhouse gases. The Board's principal responsibility to Shareholders is to ensure that the investment portfolio is managed and invested properly. The Company has no employees and, accordingly, has no requirement to report separately on employment matters. The management of the portfolio is undertaken by the Manager through members of its portfolio management team. The Manager engages with the Company's underlying investee companies in relation to their corporate governance practices and in developing their policies on social, community and environmental matters and further information may be found in the Statement of Corporate Governance in the Annual Report. In light of the nature of the Company's business, there are no relevant human rights issues and, therefore, the Company does not have a human rights policy.

Auditor

The Company's Auditor is required to report if there are any material inconsistencies between the content of the Strategic Report and the Financial Statements. The Independent Auditor's Report can be found in the Annual Report.

Future Strategy

The Board and Manager intend to maintain the policies set out above for the year ending 30 November 2020, as it is believed that these are in the best interests of Shareholders.

Approval

The Business Report, and the Strategic Report as a whole, was approved by the Board of Directors and signed on its behalf by:

Allister Langlands

Director

11 March 2020

Income Statement

For the Year Ended 30 November 2019

	Year ended 30 November 2019					Year ended 30 November 2018
	Revenue £'000	Capital £'000		Total £'000		Revenue £'000	Capital £'000		Total £'000
Gains on investments	-		960		960	-		2,707		2,707
Income from investments	607		-		607	568		-		568
Other income	49		-		49	24		-		24
Investment management fees	(198)		(593)		(791)	(185)		(554)		(739)
Other expenses	(306)		-		(306)	(351)		-		(351)
Net return on ordinary activities before	152		367		519	56		2,153		2,209
taxation
Tax on ordinary activities	(7)		7		-	-		-		-
Return attributable to Equity Shareholders	145		374		519	56		2,153		2,209
Earnings per share (pence)	0.12		0.32		0.44	0.07		2.84		2.91

All gains and losses are recognised in the Income Statement.

All items in the above statement are derived from continuing operations. The Company has only one class of business and one reportable segment, the results of which are set out in the Income Statement and Balance Sheet. The Company derives its income from investments made in shares, securities and bank deposits.

There are no potentially dilutive capital instruments in issue and therefore no diluted earnings per share figures are relevant. The basic and diluted earnings per share are, therefore, identical.

The Notes are an integral part of the Financial Statements and are included in full in the Annual Report.

Statement of Changes in Equity

For the year ended 30 November 2019

	Share capital £'000	Share premium account £'000	Capital reserve realised £'000	Capital reserve unrealised £'000	Special distributable reserve £'000	Capital redemption reserve £'000	Revenue reserve £'000	Total £'000
At 30 November 2018	7,527	8,816	(24,615)	(3,530)	37,531	3,752	(1,221)	28,260
Net return	-	-	(353)	727	-	-	145	519
Share premium cancellation costs	-	(1)	-	-	-	-	-	(1)
Dividends paid	-	-	(634)	-	-	-	-	(634)
Repurchase and cancellation of shares	(203)	-	-	-	(669)	203	-	(669)
Net proceeds of share issue	5,269	14,329	-	-	-	-	-	19,598
Net proceeds of DIS issue	15	36	-	-	-	-	-	51
At 30 November 2019	12,608	23,180	(25,602)	(2,803)	36,862	3,955	(1,076)	47,124

Year ended 30 November 2018

	Share capital £'000	Share premium account £'000	Capital reserve realised £'000	Capital reserve unrealised £'000	Special distributable reserve £'000	Capital redemption reserve £'000	Revenue reserve £'000	Total £'000
At 30 November 2017	7,646	8,816	(23,276)	(4,222)	37,918	3,633	(1,277)	29,238
Net return	-	-	1,461	692	-	-	56	2,209
Dividends paid	-	-	(2,800)	-	-	-	-	(2,800)
Repurchase and cancellation of shares	(119)	-	-	-	(387)	119	-	(387)
At 30 November 2018	7,527	8,816	(24,615)	(3,530)	37,531	3,752	(1,221)	28,260

The Notes are an integral part of the Financial Statements and are included in full in the Annual Report.

Balance Sheet

As at 30 November 2019

	30 November 2019 £'000	30 November 2018 £'000
Fixed assets Investments at fair value through profit or loss Current assets Debtors Cash	28,555 286 18,648	22,942 268 5,362
	18,934	5,630
Creditors
Amounts falling due within one year	(365)	(312)
Net current assets	18,569	5,318
Net assets	47,124	28,260
Capital and reserves
Called up share capital	12,608	7,527
Share premium account	23,180	8,816
Capital reserve - realised	(25,602)	(24,615)
Capital reserve - unrealised	(2,803)	(3,530)
Special distributable reserve	36,862	37,531
Capital redemption reserve	3,955	3,752
Revenue reserve	(1,076)	(1,221)
Net assets attributable to Ordinary Shareholders	47,124	28,260
Net asset value per Ordinary Share (pence)	37.37	37.54

On 3 December 2019, the Share Premium Account and the Capital Redemption Reserve were cancelled.

The Financial Statements of Maven Income and Growth VCT 5 PLC, registered number 4084875, were approved and authorised for issue by the Board of Directors on 11 March 2020 and were signed on its behalf by:

Allister Langlands

Director

The Notes are an integral part of the Financial Statements and are included in full in the Annual Report.

Cash Flow Statement

For the year ended 30 November 2019

	Year ended 30 November 2019 £'000	Year ended 30 November 2018 £'000
Net cash flows from operating activities Cash flows from investing activities Purchase of investments Sale of investments	(519) (6,821) 2,107	(576) (2,453) 5,328
Net cash flows from investing activities	(4,714)	2,875
Cash flows from financing activities
Equity dividends paid	(634)	(2,800)
Issue of ordinary shares	19,649	-
Share premium cancellation costs	(1)	-
Repurchase of ordinary shares	(495)	(468)
Net cash flows from financing activities	18,519	(3,268)
Net increase/(decrease) in cash	13,286	(969)
Cash at beginning of year	5,362	6,331
Cash at end of year	18,648	5,362

The Notes are an integral part of the Financial Statements and are included in full in the Annual Report.

Notes to the Financial Statements

For the year ended 30 November 2019

1.  Accounting Policies

The Company is a public limited company, incorporated in England and Wales and its registered office is shown in the Corporate Summary.

(a)  Basis of preparation

The Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of investments and in accordance with FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland, and in accordance with the Statement of Recommended Practice for Investment Trust Companies and Venture Capital Trusts ('the SORP') issued by the AIC in November 2014.

(b)  Income

Dividends receivable on equity shares and unit trusts are treated as revenue for the period on an ex-dividend basis. Where no ex-dividend date is available dividends receivable on or before the year end are treated as revenue for the period. Provision is made for any dividends not expected to be received. The fixed returns on debt securities and non-equity shares are recognised on a time apportionment basis so as to reflect the effective interest rate on the debt securities and shares. Provision is made for any fixed income not expected to be received. Interest receivable from cash and short term deposits and interest payable are accrued to the end of the year.

(c)  Expenses

All expenses are accounted for on an accruals basis and charged to the income statement. Expenses are charged through the revenue account except as follows:

• expenses which are incidental to the acquisition and disposal of an investment are charged to capital; and

• expenses are charged to realised capital reserves where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect the investment management fee and performance fee have been allocated 25% to revenue and 75% to realised capital reserves to reflect the Company's investment policy and prospective income and capital growth.

(d)  Taxation

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the balance sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the Financial Statements which are capable of reversal in one or more subsequent periods.

Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

The tax effect of different items of income/gain and expenditure/loss is allocated between capital reserves and revenue account on the same basis as the particular item to which it relates using the Company's effective rate of tax for the period.

UK corporation tax is provided at amounts expected to be paid/recovered using the tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

(e)  Investments

In valuing unlisted investments, the Directors follow the criteria set out below. These procedures comply with the revised International Private Equity and Venture Capital Valuation Guidelines (IPEVCV) for the valuation of private equity and venture capital investments. Investments are recognised at their trade date and are designated by the Directors as fair value through profit and loss. At subsequent reporting dates, investments are valued at fair value, which represents the Directors' view of the amount for which an asset could be exchanged between knowledgeable and willing parties in an arm's length transaction. This does not assume that the underlying business is saleable at the reporting date or that its current shareholders have an intention to sell their holding in the near future.

A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.

1.  For early stage investments completed in the reporting period, fair value is determined using the Price of Recent Investment Method, except that adjustments are made when there has been a material change in the trading circumstances of the investee company. Other early stage investments are valued using a milestone approach, in particular where it is considered there are no deemed current or short-term future maintainable earnings or positive cashflows.

2.  Whenever practical, recent investments will be valued by reference to a material arm's length transaction or a quoted price.

3.  Mature companies are valued by applying a multiple to their prospective earnings to determine the enterprise value of the company.

3.1  To obtain a valuation of the total ordinary share capital held by management and the institutional investors, the value of third party debt, institutional loan stock, debentures and preference share capital is deducted from the enterprise value. The effect of any performance related mechanisms is taken into account when determining the value of the ordinary share capital.

3.2  Preference shares, debentures and loan stock are valued using the Price of Recent Investment Method. When a redemption premium has accrued, this will only be valued if there is a reasonable prospect of it being paid. Preference shares which carry a right to convert into ordinary share capital are valued at the higher of the Price of Recent Investment Method basis and the price/ earnings basis.

4.  In the absence of evidence of a deterioration, or strong defensible evidence of an increase in value, the fair value is determined to be that reported at the previous balance sheet date.

5.  All unlisted investments are valued individually by the portfolio management team of Maven Capital Partners UK LLP. The resultant valuations are subject to detailed scrutiny and approval by the Directors of the Company.

6.  In accordance with normal market practice, investments listed on the Alternative Investment Market or a recognised stock exchange are valued at their bid market price.

(f)  Fair value measurement

Fair value is defined as the price that the Company would receive upon selling an investment in a timely transaction to an independent buyer in the principal or the most advantageous market of the investment. A three-tier hierarchy has been established to maximise the use of observable market data and minimise the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable.

Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity.

Unobservable inputs are inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on best information available in the circumstances

The three-tier hierarchy of inputs is summarised in the three broad levels listed below.

• Level 1 - the unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

• Level 2 - inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.

• Level 3 - inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

(g)  Gains and losses on investments

When the Company sells or revalues its investments during the year, any gains or losses arising are credited/charged to the Income Statement.

(h)  Critical accounting judgements and key sources of estimation uncertainty

Disclosure is required of judgements and estimates made by the Board and the Manager in applying the accounting policies that have a significant effect on the Financial Statements. The area involving the highest degree of judgement and estimates is the valuation of early stage unlisted investments recognised in Note 8 in the Annual Report and explained in Note 1 (e) above.

In the opinion of the Board and the Manager, there are no critical accounting judgements, and there are no reasonable possible alternative assumptions and estimates that will have a significant effect on the valuation of the rest of the unlisted portfolio.

Reserves

Share premium account

The share premium account represents the premium above nominal value received by the Company on issuing shares net of issue costs. This reserve is non-distributable.

Capital reserves

Gains or losses on investments realised in the year that have been recognised in the Income Statement are transferred to the capital reserve realised account on disposal. Furthermore, any prior unrealised gains or losses on such investments are transferred from the capital reserve unrealised account to the capital reserve realised account on disposal.

Increases and decreases in the fair value of investments are recognised in the Income Statement and are then transferred to the capital reserve unrealised account. The capital reserve realised account also represents capital dividends, capital investment management fees and the tax effect of capital items. This reserve is distributable.

Special distributable reserve

The total cost to the Company of the repurchase and cancellation of shares is represented in the special distributable reserve account. This reserve is distributable.

Capital redemption reserve

The nominal value of shares repurchased and cancelled is represented in the capital redemption reserve. This reserve is non-distributable.

Revenue reserve

The revenue reserve represents accumulated profits retained by the Company that have not been distributed to shareholders as a dividend. This reserve is distributable.

Return per Ordinary Share

	Year ended 30 November 2019	Year ended 30 November 2018
The returns per share have been based on the following figures: Weighted average number of Ordinary Shares Revenue return Capital return	117,646,559 £145,000 £374,000	75,738,198 £56,000 £2,153,000
Total return	£519,000	£2,209,000

Net asset value per Ordinary Share

The net asset value per Ordinary Share as at 30 November 2019 has been calculated using the number of Ordinary Shares in issue at that date of 126,086,158 (2018: 75,275,587).

Directors' responsibility statement

The Directors confirm that, to the best of their knowledge:

• the Financial Statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company as at 30 November 2019 and for the year to that date;

• the Directors' Report includes a fair review of the development and performance of the Company, together with a description of the principal risks and uncertainties that it faces; and

• the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's position and performance, business model and strategy.

Other information

The Annual General Meeting will be held on Tuesday, 28 April 2020, commencing at 11.30am, at the offices of Maven Capital Partners UK LLP, Fifth Floor, 1-2 Royal Exchange Buildings, London EC3V 3LF.

Copies of this announcement and copies of the Annual Report and Financial Statements for the year ended 30 November 2019, will be available to the public at the offices of Maven Capital Partners UK LLP, 1st Floor Kintyre House, 205 West George Street, Glasgow G2 2LW; at the registered office of the Company, Fifth Floor, 1-2 Royal Exchange Buildings, London EC3V 3LF and on the Company's website at www.mavencp.com/migvct5.

The Annual Report and Financial Statements for the year ended 30 November 2019 will be issued to Shareholders and filed with the Registrar of Companies in due course.

The financial information contained within this Announcement does not constitute the Company's statutory Financial Statements as defined in the Companies Act 2006. The statutory Financial Statements for the year ended 30 November 2018 have been delivered to the Registrar of Companies and contained an audit report which was unqualified and did not constitute statements under S498(2) or S498(3) of the Companies Act 2006.

Neither the content of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

The 2019 Annual Report will be submitted to the National Storage Mechanism and will be available for inspection at: www.morningstar.co.uk/uk/NSM

By order of the Board

Maven Capital Partners UK LLP

Secretary

11 March 2020

 

END

 

 

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