Annual Financial Report
Mobeus Income & Growth 2 VCT plc ("MIG2" or the "Company" or the "VCT")
Annual Results Announcement for the year ended 31 March 2018
INVESTMENT OBJECTIVE
Mobeus Income & Growth 2 VCT plc, ("MIG2", the "Company" or the "Fund") is a Venture Capital Trust ("VCT") advised by Mobeus Equity Partners LLP ("Mobeus"), investing primarily in established, unquoted companies.
The objective of the Company is to provide investors with a regular income stream, arising both from the income generated by companies selected for the portfolio and from realising any growth in capital, while continuing at all times to qualify as a VCT.
DIVIDEND POLICY
The Company seeks to pay dividends at least annually out of income and capital as appropriate, and subject to fulfilling certain regulatory requirements.
FINANCIAL HIGHLIGHTS
Annual results for the year ended 31 March 2018
Net assets: £47.60 million
Net Asset Value ("NAV") per share: 96.54 pence
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§ |
NAV Total Return per share was 5.5% and Share Price Total per share was 8.5%. |
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§ |
Paid an interim dividend and second interim of 7.00 pence and 9.00 pence per share respectively. |
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§ |
A total of £5.29 million was received following two successful realisations of Entanet and Gro-Group. |
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§ |
A total of £3.181 million was invested into five new investments and £0.86 million into three follow-on investments. |
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§ |
£15 million raised from a successful Offer for Subscription which closed in March 2018, fully subscribed. |
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§ |
Total liquid assets at the year-end are £21.59 million. |
Note: The above data does not reflect the benefit of income tax relief.
1 Includes £1.30 million previously held in a company preparing to trade.
Performance Summary
The NAV per share as at 31 March 2018 was 96.54 pence.
The table below shows the recent past performance of the current share class, first raised in 2005/06 at an original subscription price of 100 pence per share before the benefit of income tax relief. Performance data for all fundraising rounds are shown in tables in the Annual Report and Financial Statements (the "Annual Report").
|
Reporting date as at |
Net assets (£ m) |
Net asset value (NAV) per share (p) |
Share price1 (mid-market price) (p) |
Cumulative dividends paid per share (p) |
Cumulative total return per share since launch2 |
Dividends paid and proposed in respect of each year (p) |
|
|
(NAV basis) |
(Share price basis) |
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|
(p) |
(p) |
||||||
|
31 March 2018 |
47.60 |
96.54 |
86.50 |
78.00 |
174.54 |
164.50 |
16.00 |
|
31 March 2017 |
38.06 |
106.70 |
94.50 |
62.00 |
168.70 |
156.50 |
15.00 |
|
31 March 2016 |
43.14 |
119.61 |
105.25 |
47.00 |
166.61 |
152.25 |
5.00 |
|
31 March 2015 |
42.10 |
115.45 |
104.50 |
42.00 |
157.45 |
146.50 |
19.00 |
|
31 March 20143 |
33.88 |
120.73 |
103.50 |
23.00 |
143.73 |
126.50 |
4.90 |
1 Source: Panmure Gordon & Co (mid-market price).
2 Cumulative total return per share comprises the NAV per share (NAV basis) or the mid-market price per share (share price basis) plus cumulative dividends paid since shares were first allotted in the fund in December 2005.
3 Data relates to an 11 month period, as the Company shortened its 2014 accounting period by 1 month.
CHAIRMAN'S STATEMENT
I am pleased to present the annual results of Mobeus Income & Growth 2 VCT plc for the year ended 31 March 2018.
Overview
This has been a year of solid performance by the Company. Returns to shareholders have again been positive due to profitable portfolio investment realisations as well as a good income return, despite a fall in value of the remaining portfolio. Further comment can be found under the 'Performance' section below and in the Investment Review in the Annual Report.
The Company and the Investment Adviser have responded well to the significant changes to the VCT Rules introduced by the Finance (No 2) Act 2015, having completed twelve growth capital investments that reflect the change in the Company's investment policy in September 2016. The Investment Adviser has continued to recruit additional experienced growth capital investors into the team and reports a healthy pipeline of prospective investments.
Following the Patient Capital Review, additional changes to VCT legislation were proposed in the 2017 Autumn Budget and enacted in the Finance Act 2018. Your Board believes that these changes will not materially affect the Company's existing strategic objectives. Further details can be found under the 'Industry and Regulatory Developments' section of my Statement below.
Fundraising
As reported in my Half-Year Statement, the Company launched an Offer for Subscription on 6 September 2017 to raise up to £15 million (including £5 million from the use of an over-allotment facility). The Offer closed on 13 March 2018 having raised the full amount. The Board is delighted with the strong support from investors for this fundraising. The Board appreciates continued support from existing shareholders and welcomes new shareholders.
A total of 14,303,289 shares were allotted to shareholders under the Offer at prices ranging between 95.21 pence and 110.99 pence.
Performance
The NAV total return per share for the year was 5.5%. (2017: 1.7%) (closing NAV per share plus dividends paid per share in the year less the opening NAV per share, as a percentage of the opening NAV per share). These returns, expressed by the number of shares in issue at the year end, were derived from:
|
Year ended 31 March |
2018 |
2017 |
|
|
(pence per share) |
(pence per share) |
|
Realised gains and net unrealised losses on the investment portfolio |
4.08 |
0.86 |
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Income on the investment portfolio and on liquidity |
3.48 |
4.71 |
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Share buybacks and adjustments |
1.09 |
0.13 |
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Gross return |
8.65 |
5.70 |
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Less: Investment Adviser's fees and other expenses |
(2.81) |
(3.61) |
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Net return |
5.84 |
2.09 |
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|
|
|
After accounting for interim dividends of 16.00 pence per share paid during the year and a net return of 5.84 pence, the NAV at 31 March 2018 was 96.54 pence, compared to 106.70 pence at the start of the year. The share price total return for the year, also after accounting for the dividends paid, was 8.5% (compared with 4.0% for the previous year).
Your Board regards these returns as satisfactory in the context of the significant changes in the VCT Rules and the resultant necessity to invest in younger companies.
At 31 March 2018, your Company was rated 1st out of 39 VCTs, over the last five years, in the Association of Investment Companies' analysis of NAV Cumulative Total Return for all Generalist VCTs. For further performance details please see the Strategic Report in the Annual Report.
For more details on the performance of your investment in the Company, please consult the Performance Data at 31 March 2018 in the Annual Report and on the Company's website.
Target Return
During the six years to 31 March 2016, the actual average annual total NAV return was 12.0% compared to the minimum target of 8.0%. The Board recognised that the investment strategy had to change significantly following VCT Rule changes in 2015 and the previous 8.0% annual target was therefore suspended for the year ended 31 March 2017. As stated in last year's Annual Report, the Board reverted to the minimum average annual total return NAV target of 8.0% per annum, for the year ended 31 March 2018. The annual total NAV return for the year ended 31 March 2018 was 5.5% (2017: 1.7%).
Dividends
The Board declared two interim dividends in respect of the year ended 31 March 2018. The first interim dividend of 7.00 pence and the second interim dividend of 9.00 pence per share were paid on 27 July 2017 and 22 January 2018 respectively. Therefore dividends paid in respect of the year ended 31 March 2018 amount to 16.00 pence (2017: 15.00 pence) per share and cumulative dividends paid since inception to 78.00 pence (2017: 62.00 pence) per share.
The Company's target of paying a regular dividend, at a current level of not less than 5.00 pence (increased from 4.00 pence per share in 2014) per share in respect of each financial year, has been exceeded in each of the last eight years. The dividend referred to above met this target during the year under review. While the Board still believes in the attainment of the dividend target, the recent focus towards growth capital investments is likely to result, at least in the medium term, in more variable dividends than have been paid in the recent past.
A chart showing the annual and cumulative dividends paid in respect of each of the last five years is included in the Strategic Report.
Investment Portfolio
For the year under review, the value of the investment portfolio increased by £2.02 million, due to an increase of £2.77 million on investments realised but a decrease of £0.75 million on investments still held. Investment realisations resulted in £2.61 million of capital gains over the original investment costs.
The portfolio movements for the year are summarised below.
|
|
£m |
|
Portfolio value at 31 March 2017 |
28.08 |
|
New and further investments (excluding use of CPTs) |
2.73 |
|
Disposal proceeds |
(5.94) |
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Realised gains |
2.77 |
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Valuation movements |
(0.75) |
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Portfolio value at 31 March 2018 |
26.89 |
During the year £4.04 million (£1.30 million of which was previously held in a company preparing to trade) was invested into five new companies and three existing portfolio companies. The new growth capital investments were: My Tutorweb, an online tutoring business; Wetsuit Outlet, a leading online retailer in the water sports market; Proactive Investors, a provider of investor media services; SuperCarers, an online carer matching service; and Hemmels, a classic car restorer.
After the year-end a further £0.63 million was invested into My Tutorweb.
It is important to note that several of these growth investments are currently loss-making, as is often the case for early stage investment opportunities. Early receipts from dividends or interest payments are therefore likely to be limited while the companies build long term value. In accordance with International Private Equity Valuation ("IPEV") guidelines, valuations of some growth investments in the portfolio are consequently now based on a revenue or gross margin multiple, rather than an earnings multiple (more common for MBO investments).
Shareholders should note that, at the year-end, 54.4% of the value of the investment portfolio was held in MBO type investments and 45.6% was held in growth capital investments.
Overall, performance is steady, but some valuations have fallen whilst others have experienced gains. It is believed that the portfolio as a whole should continue to yield annual income returns to shareholders, supplemented by capital returns as they are realised over time.
Cash proceeds totalling £5.94 million were received; £5.29 million from the realisation of two investments; £0.35 million from loan repayments; and other receipts of £0.30 million. Of the realisation total, £3.26 million was received as cash from the disposal of Entanet Holdings Limited, (realising a gain of 3.68 pence per share) generating a return on the original investment of 2.5 times at completion. This may increase upon receipt of potential deferred consideration of up to £0.33 million. £2.03 million was also received following the profitable disposal of Gro-Group (realising a gain of 1.83 pence per share) generating a return on the original investment of 2.3 times.
Full details of the investment activity during the year and a summary of the performance highlights can be found in the Investment Review in the Annual Report and below.
Liquidity
At 31 March 2018, net assets were £47.60 million (2017: £38.06 million), comprising principally £25.85 million (2017: £25.44 million) in investments (54.3% of net assets (2017: 66.8%)) and liquidity was £21.59 million (2017: £12.58 million) which includes funds held in companies preparing to trade of £1.03 million (2017: £2.64 million). Liquid assets thus represent 45.4% (2017: 33.1%) of net assets at the year-end.
Industry and regulatory developments
As mentioned in my overview, the 2017 Autumn Budget Statement outlined the key findings from the Patient Capital Review, which was tasked with identifying and tackling factors considered to be adversely affecting the supply of longer-term capital to small and developing firms. These findings have resulted in a number of legislative changes to the VCT scheme in the Finance Act 2018 which are designed to exclude tax motivated investments where capital is not at risk (that is, principally seeking to preserve investors' capital) and to encourage VCTs to put their funds to work faster.
Your Board notes the UK Government's initiatives behind these changes, and whilst they include further restrictions on the way investments can be structured, it does not believe that they will materially affect the Company's existing investment strategy.
A summary of the current VCT regulations is included in the Annual Report.
Share buybacks
During the year ended 31 March 2018, the Company bought back 1.9% of the issued share capital of the Company for cancellation. Further details of the purchases are included in the Directors' Report in the Annual Report.
Shareholder Communications
The annual shareholder event was held on Tuesday 30 January 2018 at the Royal Institute of British Architects in central London. This annual event included presentations on the Mobeus advised VCTs' investment activity and performance including presentations from investee companies. There were separate day-time and evening sessions which around 300 shareholders attended. The feedback received was that shareholders found it informative and worthwhile. The next shareholder event will be held in February 2019.
Succession planning
As announced on 14 June 2018, I have confirmed that I will be retiring as a Board member and Chairman following the forthcoming AGM on 12 September 2018, having served as a Board member since 10 May 2000 and as Chairman since 5 September 2006. I will therefore not be seeking re-election at the AGM.
Ian Blackburn, an existing non-executive director of the Company and chairman of the Nomination and Remuneration Committee, has agreed to become non-executive Chairman of the Company following the conclusion of the AGM on 12 September 2018, as announced on 14 June 2018. His brief biographical details are available in the Annual Report.
Annual General Meeting
The Annual General Meeting of the Company will be held at 11.00 am on Wednesday, 12 September 2018 at The Clubhouse, 8 St James's Square, London SW1Y 4JU. Both the Board and the Investment Adviser look forward to welcoming shareholders to the meeting which will include a presentation from the Investment Adviser on the investment portfolio and provide an opportunity to ask questions of the Board and the Investment Adviser. The Notice of the meeting is included in the Annual Report and an explanation of the resolutions to be proposed can also be found in the Directors' Report in the Annual Report.
Future prospects
The UK economy is projected to continue to grow, albeit at lower levels than projected for other economies. Over the next year, the outcome of the Brexit negotiations, and their impact upon the UK economy, should become clearer. In the meantime, the share of the portfolio represented by the new growth investments will increase. As I stated last year, these investments inevitably carry not only higher risk but also the prospect of potentially higher, but more variable, returns.
Your Board has noted how Mobeus has expanded its investment team to adapt to the new rules for VCTs and believe that your Company should benefit from this strengthened investment team.
Your Board remains of the opinion that your Company is well positioned to take advantage of the strong demand for growth capital investment, despite the uncertainties faced within the UK economy, outlined above. The portfolio has a solid foundation of investments made under the previous MBO strategy, and the Investment Adviser continues to source interesting growth capital investment opportunities to complement the portfolio.
Once again, I would like to take this opportunity to thank all Shareholders for their continued support and wish the Company continued success under Ian Blackburn's leadership.
Nigel Melville
Chairman
22 June 2018
Investment Review
Patient Capital Review
The UK Government conducted this review to identify and tackle factors considered to be adversely affecting the supply of longer term capital to small and developing firms. The consultation period closed on 22 September 2017 and strong representations were made on behalf of the VCT industry by Mobeus as the Company's Investment Adviser, the Venture Capital Trust Association, and the Association of Investment Companies.
As the Chairman's Statement notes, the Company has faced further regulatory changes following the Government's Review and the resulting measures introduced in the Budget announced on 22 November 2017. These have now been enacted in the Finance Act 2018.
As the Company's Investment Adviser, Mobeus believes these regulatory changes should not overall affect the ability of the Company to continue to make successful growth capital investments. We hope for a period of relative stability in respect of these VCT rules. This should create an environment of greater certainty in which to make growth investments.
Portfolio Review
This has been a year of continued progress within the portfolio, with the addition of five new growth capital investments totalling £3.18 million, three existing investments receiving follow-on funding totalling £0.86 million, and two significant, profitable disposals. One disposal (Entanet) generated net proceeds of £3.26 million resulting in a 2.5 times multiple over cost over the three and a half year life of the investment, while the second (Gro-Group) generated net proceeds of £2.03 million representing a 2.3 times multiple over the four year and nine month life of the investment. Total cash proceeds were £5.94 million, comprising the two realisations above, loan repayments of £0.35 million and £0.30 million of other receipts.
The investment and divestment activity completed during the year has increased the proportion of the growth capital element of the investment portfolio to 45.6% by value. The Company has now invested £8.85 million at value in new growth capital investments since the introduction of the changes to VCT regulations in 2015.
The value of the portfolio that was held at 31 March 2017 increased by 7.2% over the year. This like-for-like* basis comprised significant uplifts via realised gains generated from investment disposals of £2.77 million, but net of a reduction in the value of the remaining portfolio of £0.75 million.
* - Like-for-like basis is calculated by dividing the value of the portfolio at 31 March 2018 plus the proceeds of any realisations that occurred in the year less the total cost of new investments made in the year, with the portfolio valuation at 31 March 2017.
The decrease in value in the remaining portfolio was primarily due to reductions in the valuations of Motorclean, Media Business Insight and Veritek Global. This outweighed gains achieved elsewhere in the portfolio, including EOTH, as well as MPB and Preservica (both growth investments). Movements in valuations during the year under review are detailed in note 8 to the Annual Report. A small number of new growth investments have shown initial uplifts from cost, due in large part to the structure of the Company's investment, but also due to the underlying investee company performance. On the whole, we are encouraged by the early performance of the investments in the growth portfolio.
Demand for growth capital investment remains strong and there is a large pipeline of investment opportunities. We expect that follow on funding into existing companies to support growth plans will be a feature over the coming months and years.
New and Follow-on Investments
We are pleased to have made eight investments in the year, totalling £4.04 million. This comprised new investments into My Tutorweb, Wetsuit Outlet, Proactive Investors, SuperCarers and Hemmels as well as follow on investments into BookingTek, MPB, and Tapas Revolution which are existing portfolio growth companies. After the year-end, £0.63 million was further invested into My Tutorweb.
Principal new investments in the year
|
Company |
Business |
Date of Investment |
Amount of new investment (£m) |
|
|
My Tutorweb |
|
May 2017 |
0.35 |
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|
My Tutorweb Limited is a digital marketplace that connects school pupils who are seeking private one-to-one tutoring with university students. The business is satisfying a growing demand from both schools and parents to improve pupils' exam results to enhance their academic and career prospects. This investment supports an opportunity to consolidate the sizeable £2 billion UK tutoring market, grow My Tutorweb's market presence and drive technological development within the company. The company's latest unaudited accounts for the year ended 31 December 2017 show turnover of £0.56 million and a loss before interest, tax and amortisation of goodwill of £1.40 million. Since the year end, the Company has invested a further £0.63 million as part of a larger £5.00 million funding round. This additional capital is to support further growth in order to capitalise on its position as the largest provider of online tutoring into both private and school customers. |
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Wetsuit Outlet |
Retailer |
July 2017 |
1.72* |
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|
B2C Distribution Limited (trading as Wetsuit Outlet) has established itself as a leading online retailer in the water sports market, stocking an impressive brand portfolio including Musto, Billabong, Rip Curl, O'Neill, Red Paddle Co (an existing Mobeus VCT investment) and Gul. The investment is to fund working capital and growth in the existing activity and enter two new markets. Established in 2005, the company has developed into a successful and profitable business with revenues of £11.51 million and £1.98 million profit before interest, tax and amortisation of goodwill in the financial year ended 31 March 2017. |
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* - £1.30 million previously held in Manufacturing Services Investment Limited, a company preparing to trade, along with £0.42 million from the Company was used for this investment. |
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Proactive Investors |
Investor media services |
January 2018 |
0.29 |
|
|
Proactive Investors specialises in up-to-the-minute multi-media news provision, events organisation, digital services and investor research. Proactive provides breaking news, commentary and analysis on hundreds of small-cap listed companies and pre-IPO businesses across the globe, 24/7. The investment will enable Proactive to expand its services into the US market, which is the largest global market for investor media services in the world. The company's accounts for the year ended 30 June 2017 show turnover of £3.99 million and a profit before interest, tax and amortisation of goodwill of £0.53 million. |
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SuperCarers |
Online care provision platform |
March 2018 |
0.38 |
|
|
SuperCarers provides an online platform connecting people, typically family members seeking care for their elderly parents, with experienced independent carers. Carers and care-seekers manage care directly, thus reducing the administrative burden and the need for care managers, enabling care to be delivered with greater flexibility and more cost effectively. The company's accounts for the year ended 31 March 2017 generated revenues of £0.18 million and a loss before interest, tax and amortisation of £0.72 million. |
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Hemmels |
Classic car restoration |
March 2018 |
0.44 |
|
|
Hemmels commenced trading in September 2016 and specialises in the sourcing, restoration, selling and servicing of high value classic cars. Hemmels currently focuses on classic Mercedes Benz, and plans to expand into the Porsche marque under a separate brand. The investment will enable Hemmels to proceed with its expansion plans and secure sufficient development stock. For the year ended 31 December 2017, the company generated revenues of £1.21 million and a loss before interest, tax and amortisation of goodwill of £0.31 million. |
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Further investment into existing portfolio companies in the year
|
Company |
Business |
Date of investment |
Amount of new investment (£m) |
|
BookingTek |
A provider of direct-booking systems to major hotel groups |
November 2017 |
0.05 |
|
London-based BookingTek provides software that enables hotels to reduce their reliance on third-party booking systems through an enterprise-grade, real-time booking platform for meeting rooms and restaurant reservations. BookingTek's existing clients include two of the world's top 10 hotel groups and the UK's largest hotel chain. The company's latest audited accounts for the year ended 31 December 2017 show turnover of £2.15 million and a loss before interest, tax and amortisation of goodwill of £1.55 million. |
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|
MPB Group |
Online marketplace for used camera and video equipment |
September 2017/December 2017/February 2018 |
0.45 |
|
MPB is Europe's leading online marketplace for used camera and video equipment. Based in Brighton, its custom-designed pricing technology enables MPB to offer both buy and sell services through the same platform and offers a one-stop shop for all its customers. Having expanded into the US (opening a New York office) and German markets as part of the initial VCT investment round, this follow on investment, alongside funds provided by the Proven VCTs, is to support its continued growth plan. This investment will give the company sufficient capital to achieve its next planned expansion. The company's latest audited accounts for the year ended 31 March 2017 show turnover of £13.20 million and loss before interest, tax and amortisation of goodwill of £0.47 million. |
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Tapas Revolution |
Restaurant chain |
March 2018 |
0.36 |
|
Based in London, Tapas Revolution is a leading Spanish restaurant chain in the casual dining sector focusing on shopping centre sites with high footfall. Having opened its first restaurant in Shepherd's Bush Westfield, the business now operates six established restaurants with the support of the initial VCT investment in 2017. This follow on investment is to finance the opening of several new locations around the UK. The company's latest audited accounts for the year ended 25 October 2016 show a turnover of £4.25 million and loss before interest, tax and amortisation of goodwill of £0.28 million. |
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Realisations
There were two realisations during the year under review, namely: Entanet Holdings Limited and Gro-Group Holdings Limited, as set out below:
|
Company |
Business |
Period of investment |
Total cash proceeds over the life of the investment/Multiple over cost |
|
Entanet |
Wholesale voice and data communications provider |
February 2014 to August 2017 |
£3.69 million 2.5 times cost |
|
The Company sold its investment in Entanet to AIM quoted CityFibre Infrastructure Holdings Limited for £3.26 million in August 2017. Deferred consideration of up to £0.33 million is potentially receivable over the next two years. Excluding this deferred consideration, the Company has so far realised a gain over the life of the investment of £1.82 million, a multiple of 2.5 times cost, and has returned an IRR of 39% to date - an excellent outcome. |
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Gro-Group |
Baby sleep products |
March 2013 to December 2017 |
£2.54 million 2.3 times cost |
|
The Company sold its investment in Gro-Group for £1.96 million in December 2017 and subsequently received deferred consideration of £0.07 million. The Company realised a gain over the life of the investment of £1.42 million. This equates to a multiple of 2.3 times cost of £1.12 million and has returned an IRR of 21%. |
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Loan stock repayments
Loan stock repayments totalled £0.35 million for the year, all from TPSFF Holdings Limited (formerly, Plastic Surgeon).
Funds available for investment
As a result of the successful fundraising (£14.64 million raised) and also the divestments referred to above (£5.29 million received) cash and other liquid investments amounted to £21.59 million. Of this, £2.27 million is held as cash in bank and deposit accounts, and the balance is placed in AAA rated money market funds. The returns on these funds remain low, but the Board retains its policy of seeking above all to preserve capital for its uninvested funds.
Investment Portfolio Summary
at 31 March 2018
|
Qualifying investments |
Total Book Cost at 31 March 2018 £ |
Valuation at 31 March 2017 £ |
Valuation at 31 March 2018 £ |
% of Net assets by value |
|
Unquoted investments |
|
|
|
|
|
ASL Technology Holdings Limited Printer and photocopier services |
2,092,009 |
2,258,388 |
2,126,379 |
4.5% |
|
Tovey Management Limited (trading as Access IS) Provider of data capture and scanning hardware |
1,733,500 |
2,119,958 |
2,027,582 |
4.3% |
|
EOTH Limited (trading as Rab and Lowe Alpine) Branded outdoor equipment and clothing |
817,185 |
1,001,498 |
1,521,873 |
3.2% |
|
Manufacturing Services Investment Limited (trading as Wetsuit Outlet)1 Online retailer in the water sports market |
1,412,992 |
1,000,300 |
1,412,992 |
3.0% |
|
Virgin Wines Holding Company Limited Online wine retailer |
1,284,333 |
1,761,822 |
1,371,490 |
2.9% |
|
MPB Group Limited Online marketplace for used photographic and video equipment |
819,773 |
374,244 |
1,254,114 |
2.6% |
|
CGI Creative Graphics International Limited Vinyl graphics to global automotive, recreation vehicle and aerospace markets |
999,568 |
888,418 |
1,030,727 |
2.2% |
|
Vian Marketing Limited (trading as Red Paddle Co) Design, manufacture and sale of stand-up paddleboards and windsurfing sails |
717,038 |
987,739 |
987,179 |
2.1% |
|
Tharstern Group Limited Software based management information systems to the print sector |
789,815 |
942,138 |
887,870 |
1.9% |
|
Master Removers Group Limited (trading as Anthony Ward Thomas, Bishopsgate and Aussie Man & Van) A specialist logistics, storage and removals business |
369,625 |
526,134 |
874,317 |
1.8% |
|
Preservica Limited Seller of proprietary digital archiving software |
485,770 |
485,770 |
865,666 |
1.8% |
|
Ibericos Etc. Limited (trading as Tapas Revolution) Spanish restaurant chain |
812,248 |
451,248 |
854,224 |
1.8% |
|
Turner Topco Limited (trading as Auction Technology Group (formerly ATG Media)) SaaS based online auction market place platform |
1,317,100 |
1,151,484 |
777,645 |
1.6% |
|
Pattern Analytics Limited (trading as Biosite) Workforce management and security services for the construction industry |
495,479 |
495,479 |
743,219 |
1.6% |
|
Vectair Holdings Limited Designer and distributor of washroom products |
60,293 |
403,701 |
740,670 |
1.6% |
|
TPSFF Holding Limited (formerly The Plastic Surgeon Holdings Limited) Snagging and finishing of domestic and commercial properties |
101,942 |
881,275 |
731,523 |
1.5% |
|
BookingTek Limited Software for hotel groups |
504,336 |
450,442 |
714,211 |
1.5% |
|
Redline Worldwide Limited Provider of security services to the aviation industry |
682,222 |
837,283 |
689,047 |
1.4% |
|
Media Business Insight Holdings Limited A publishing and events business focused on the creative production industries |
1,447,188 |
979,875 |
651,225 |
1.4% |
|
Blaze Signs Holdings Limited Manufacturer and installation of signs |
437,030 |
526,492 |
639,342 |
1.3% |
|
Bourn Bioscience Limited Management of In-vitro fertilisation clinics |
757,101 |
504,586 |
558,620 |
1.2% |
|
Buster and Punch Holdings Limited (formerly Chatfield Services Limited) Industrial inspired lighting and interiors retailer |
436,391 |
436,391 |
553,896 |
1.2% |
|
RDL Corporation Limited Recruitment consultants for the pharmaceutical, business intelligence and IT industries |
1,000,000 |
1,031,100 |
515,476 |
1.1% |
|
Hemmels Limited Company specialising in the sourcing, restoration, selling and servicing of high price, classic cars |
437,238 |
- |
437,238 |
0.9% |
|
Fullfield Limited (trading as Motorclean) Vehicle cleaning and valet services |
1,025,152 |
1,053,281 |
433,939 |
0.9% |
|
Super Carers Limited Online platform that connects people seeking home care from experienced independent carers |
384,720 |
- |
384,720 |
0.8% |
|
My Tutorweb Limited Digital marketplace connecting school pupils seeking one-to-one online tutoring |
349,661 |
- |
349,661 |
0.7% |
|
Proactive Group Holdings Inc Provider of media services and investor conferences for companies primarily listed on secondary public markets |
288,952 |
- |
288,952 |
0.6% |
|
Jablite Holdings Limited Manufacturer of expanded polystyrene products |
281,398 |
401,864 |
171,931 |
0.4% |
|
Veritek Global Holdings Limited Maintenance of imaging equipment |
967,780 |
715,856 |
102,972 |
0.1% |
|
Lightworks Software Limited Provider of software for CAD and CAM vendors |
25,727 |
92,737 |
61,163 |
0.1% |
|
Racoon International Group Limited Supplier of hair extensions, hair care products and training |
906,935 |
- |
- |
0.0% |
|
Newquay Helicopters (2013) Limited (in creditors' voluntary liquidation) Helicopter service operator |
30,469 |
- |
- |
0.0% |
|
Entanet Holdings Limited Wholesale communications provider |
- |
1,550,227 |
- |
0.0% |
|
Gro-Group Holdings Limited Baby sleep products |
- |
973,928 |
- |
0.0% |
|
|
|
|
|
|
|
Total qualifying investments
|
24,270,970 |
25,283,658 |
24,759,863 |
52.0%2 |
|
|
|
|
|
|
|
Non-qualifying Investments |
|
|
|
|
|
Companies preparing to trade |
2,331,280 |
1,032,800 |
1,032,800 |
2.3% |
|
Media Business Insight Limited A publishing and events business focused on the creative production industries |
561,884 |
855,516 |
568,576 |
1.2% |
|
Manufacturing Services Investment Limited (trading as Wetsuit Outlet)1 Online retailer in the water sports market |
304,000 |
608,000 |
304,000 |
0.6% |
|
Tovey Management Limited (trading as Access IS) Provider of data capture and scanning hardware |
219,873 |
219,873 |
219,873 |
0.5% |
|
Racoon International Group Limited Supplier of hair extensions, hair care products and training |
139,050 |
83,729 |
- |
0.0% |
|
365 Agile Group plc (formerly Iafyds plc) Development of energy saving devices for domestic use |
254,586 |
- |
- |
0.0% |
|
Turner Topco Limited (trading as Auction Technology Group (formerly ATG Media)) SaaS based online auction market place platform |
3,863 |
- |
- |
0.0% |
|
|
|
|
|
|
|
Total non-qualifying investments |
3,814,536 |
2,799,918 |
2,125,249 |
4.6% |
|
|
|
|
|
|
|
Total investment portfolio |
28,085,506 |
28,083,576 |
26,885,112 |
56.6%2 |
|
|
|
|
|
|
|
Total investments including cash and current asset investments |
28,085,506 |
38,019,489 |
47,444,886 |
99.7% |
|
|
|
|
|
|
|
Net assets at the year end |
28,085,506 |
38,060,985 |
47,598,197 |
100.0% |
Notes
1 £1,716,992 was invested into Wetsuit Outlet, a leading online retailer in the water sports market. This investment utilised £1,304,300 previously held in Manufacturing Services Investment Limited, a company preparing to trade, after a net repayment to the Company of £304,000. A further £412,692 was invested directly by the Company into Wetsuit Outlet.
2 As at 31 March 2018, the Company held more than 70% of its total investments in qualifying holdings, and therefore complied with the VCT Qualifying Investment test. For the purposes of the VCT qualifying test, the Company is permitted to disregard disposals of investments for six months from the date of disposal. It also has up to three years to bring in new funds raised, before these need to be included in the qualifying investment test.
Principal risks
The Directors acknowledge the Board's responsibilities for the Company's internal control systems and have instigated systems and procedures for identifying, evaluating and managing the significant risks faced by the Company. This includes a key risk management review which takes place at each quarterly Board meeting. Further details of these are contained in the Corporate Governance section of the Directors' Report in the Annual Report.
The risk profile of the Company has changed as a result of the changes to the VCT Rules. As the Company's investment focus is on growth capital investments in younger companies it is anticipated that investment returns will be more volatile and will have a higher risk profile. The Board is confident that the Investment Adviser will continue to adapt to changes in investment requirements. The Company continues to have high liquidity levels in advance of the proceeds of the fundraising being deployed, which may have an adverse impact on performance.
The principal risks identified by the Board are set out below:
|
Risk |
Possible consequence |
How the Board manages risk |
|
Economic |
Events such as an economic recession and movements in interest rates could affect trading conditions for smaller companies and consequently the value of the Company's qualifying investments. The impact of the UK's withdrawal from the EU upon the UK economy is uncertain.
|
· The Board monitors (1) the portfolio as a whole to ensure that the Company invests in a diversified portfolio of companies and (2) developments in the macro-economic environment such as changes caused by withdrawal from the EU and movements in interest rates.
|
|
Investment and strategic |
Investment in unquoted small companies can involve a higher degree of risk than investment in larger, and/or fully listed companies and will likely have more variable returns. Smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals.
|
· The Board regularly reviews the Company's investment strategy.
· Investee companies are carefully selected by the Investment Adviser for recommendation to the Board. The investment portfolio is reviewed by the Board on a regular basis.
· The Investment Adviser is appointed to the Board of each new investee company. |
|
Loss of approval as a Venture Capital Trust |
The Company must comply with section 274 of the Income Tax Act 2007 ("ITA") which allows it to be exempted from capital gains tax on investment gains. Any breach of these rules may lead to the Company losing its approval as a VCT, qualifying shareholders who have not held their shares for the designated holding period having to repay the income tax relief they obtained and that future dividends paid by the Company become subject to tax. The Company would also lose its exemption from corporation tax on capital gains.
|
· The Board receives regular reports from Philip Hare & Associates LLP ("PHA") who have been retained to undertake an independent VCT status monitoring role.
· The Company's VCT qualifying status is reviewed by PHA and the Investment Adviser on a regular basis.
|
|
VCT Regulatory changes |
The Company is required to comply with frequent changes to the VCT specific regulations relating to European State Aid regulations as enacted by the UK Government. Non-compliance would result in a loss of VCT status. The Board is also aware that VCTs are to be considered within the Government's Patient Capital Review.
|
· The Board receives advice from PHA in respect of these requirements, including those that may arise from the withdrawal from the EU, and conducts its affairs in order to comply with these requirements. |
|
Regulatory |
The Company is required to comply with the Companies Act, the listing rules of the UK Listing Authority and United Kingdom Accounting Standards. Changes to and breaches of any of these might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.
|
· Regulatory and legislative developments are kept under review by the Company's solicitors and the Board. |
|
Financial and operating |
Failure of the systems at any of the third party service providers that the Company has contracted with could lead to inaccurate reporting or monitoring. Inadequate controls could lead to the misappropriation or insecurity of assets.
|
· The Board carries out an annual review of the internal controls in place and reviews the risks facing the Company at each quarterly Board meeting.
· It reviews the performance of the service providers annually.
|
|
Market |
Movements in the valuations of the VCT's investments will, inter alia, be connected to movements in UK Stock Market indices.
|
· The Board receives quarterly valuation reports from the Investment Adviser and remains focused on the investments being at fair value, after considering many factors, including the impact of market movements.
· The Investment Adviser alerts the Board about any adverse movements.
|
|
Asset liquidity |
The Company's investments may be difficult to realise. |
· The Board receives reports from the Investment Adviser and reviews the portfolio at each quarterly Board meeting. It carefully monitors investments where a particular risk has been identified.
|
|
Market liquidity |
Shareholders may find it difficult to sell their shares at a price which is close to the net asset value given the limited secondary market in VCT shares. |
· The Board has a share buyback policy which seeks to mitigate market liquidity risk. This policy is reviewed at each quarterly Board meeting.
|
|
Counterparty |
A counterparty may fail to discharge an obligation or commitment that it has entered into with the Company. |
· The Board regularly reviews and agrees policies for managing these risks. Further details can be found under 'Credit risk' in Note 15 to the Financial Statements in the Accounts.
|
|
Cyber and Data Security |
The Company and its shareholders may suffer losses in the event of the IT systems at principal suppliers being compromised by cyber attack. |
· Cyber security matters are kept under review and continually monitored.
· The Board monitors and seeks assurance from the VCT's principal suppliers in respect of the systems and processes they have adopted to counter these risks. |
STATEMENT OF DIRECTORS' RESPONSIBILITIES
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 and the Directors have elected to prepare the Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for the Company for that period.
In preparing these Financial Statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· state whether the Financial Statements have been prepared in accordance with United Kingdom accounting standards, subject to any material departures disclosed and explained in the Financial Statements;
· prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;
· prepare a Strategic Report, a Directors' Report and Directors' Annual Remuneration Report which comply with the requirements of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring the Annual Report and the Financial Statements are made available on a website. Financial Statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of Financial Statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the Financial Statements contained therein.
Directors' responsibilities pursuant to Disclosure and Transparency Rule 4 of the UK Listing Authority
The Directors confirm to the best of their knowledge that:
(a) The Financial Statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and the profit of the Company.
(b) The Annual Report 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 it faces.
Having taken advice from the Audit Committee, the Board considers that the Annual Report and Financial Statements, taken as a whole, as fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
Neither the Company nor the Directors accept any liability to any person in relation to the Annual Report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A and schedule 10A of the Financial Services and Markets Act 2000.
The names and functions of the Directors are stated in the Annual Report.
For and on behalf of the Board
Nigel Melville
Chairman
22 June 2018
FINANCIAL STATEMENTS
Income Statement
for the year ended 31 March 2018
|
|
|
Year ended 31 March 2018 |
Year ended 31 March 2017 |
||||
|
|
Notes |
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
£ |
£ |
£ |
£ |
£ |
|
|
|
|
|
|
|
|
|
|
|
Unrealised (losses)/gains on investments |
8 |
- |
(755,510) |
(755,510) |
- |
229,772 |
229,772 |
|
Realised gains on investments |
8 |
- |
2,766,722 |
2,766,722 |
- |
76,067 |
76,067 |
|
Income |
3 |
1,715,664 |
- |
1,715,664 |
1,679,033 |
- |
1,679,033 |
|
Investment Adviser's fees |
4a |
(247,177) |
(741,530) |
(988,707) |
(237,791) |
(713,374) |
(951,165) |
|
Investment Adviser's performance fees |
4b |
- |
- |
- |
- |
(2,692) |
(2,692) |
|
Other expenses |
4c |
(348,568) |
- |
(348,568) |
(304,306) |
- |
(304,306) |
|
Profit/(loss) on ordinary activities before taxation |
|
1,119,919 |
1,269,682 |
2,389,601 |
1,136,936 |
(410,227) |
726,709 |
|
Taxation on profit/(loss) on ordinary activities |
5 |
(191,512) |
140,891 |
(50,621) |
(172,122) |
143,213 |
(28,909) |
|
|
|
|
|
|
|
|
|
|
Profit/(loss) for the year and total comprehensive income |
|
928,407 |
1,410,573 |
2,338,980 |
964,814 |
(267,014) |
697,800 |
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per ordinary share: |
7 |
2.25p |
3.43p |
5.68p |
2.69p |
(0.75)p |
1.94p |
|
|
|
|
|
|
|
|
|
The revenue column of the Income Statement includes all income and expenses. The capital column accounts for the
unrealised (losses)/gains and realised gains on investments and the proportion of the Investment Adviser's fee and
performance fee charged to capital.
The total column is the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial
Reporting Standards ("FRS"). In order to better reflect the activities of a VCT and in accordance with the 2014 Statement of Recommended Practice ("SORP") (updated in January 2017) by the Association of Investment Companies ("AIC"),
supplementary information which analyses the Income Statement between items of a revenue and capital nature has been
presented alongside the Income Statement. The revenue column of profit attributable to equity shareholders is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section
274 Income Tax Act 2007.
All the items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the year.
Balance Sheet
As at 31 March 2018
|
|
|
|
|
|
|
|
31 March 2018 |
31 March 2017 |
|
|
Notes |
£ |
£ |
|
|
|
|
|
|
Fixed assets |
|
|
|
|
Investments at fair value |
8 |
26,885,112 |
28,083,576 |
|
|
|
|
|
|
Current assets |
|
|
|
|
Debtors and prepayments |
|
339,187 |
185,596 |
|
Current asset investments |
|
18,287,301 |
5,197,301 |
|
Cash at bank |
|
2,272,473 |
4,738,612 |
|
|
|
|
|
|
|
|
20,898,961 |
10,121,509 |
|
|
|
|
|
|
Creditors: amounts falling due within one year |
|
(185,876) |
(144,100) |
|
|
|
|
|
|
Net current assets |
|
20,713,085 |
9,977,409 |
|
|
|
|
|
|
|
|
|
|
|
Net assets |
|
47,598,197 |
38,060,985 |
|
|
|
|
|
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
Called up share capital |
|
493,042 |
356,724 |
|
Share premium reserve |
|
30,498,349 |
15,901,497 |
|
Capital redemption reserve |
|
94,298 |
87,583 |
|
Revaluation reserve |
|
1,398,656 |
2,001,764 |
|
Special distributable reserve |
|
6,052,525 |
7,540,615 |
|
Realised capital reserve |
|
7,943,475 |
11,142,462 |
|
Revenue reserve |
|
1,117,852 |
1,030,340 |
|
|
|
|
|
|
Equity shareholders' funds |
|
47,598,197 |
38,060,985 |
|
|
|
|
|
|
Basic and diluted net asset value per ordinary share |
|
96.54p |
106.70p |
|
|
|
|
|
Statement of changes in equity
for the year ended 31 March 2018
|
|
|
|
|
|||||
|
|
Non-distributable reserves |
Distributable reserves |
Total |
|||||
|
Called up share capital |
Share premium reserve |
Capital redemption reserve |
Revaluation reserve |
Special distributable reserve |
Realised capital reserve |
Revenue Reserve |
||
|
|
|
|
|
|
(Note a) |
(Note b) |
(Note b) |
|
|
|
£ |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
|
|
|
|
|
|
|
|
|
|
|
At 1 April 2017 |
356,724 |
15,901,497 |
87,583 |
2,001,764 |
7,540,615 |
11,142,462 |
1,030,340 |
38,060,985 |
|
Comprehensive income for the year |
|
|
|
|
|
|
|
|
|
(Loss)/profit for the year |
- |
- |
- |
(755,510) |
- |
2,166,083 |
928,407 |
2,338,980 |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year |
- |
- |
- |
(755,510) |
- |
2,166,083 |
928,407 |
2,338,980 |
|
|
|
|
|
|
|
|
|
|
|
Contributions by and distributions to owners |
|
|
|
|
|
|
|
|
|
Shares issued via Offer for Subscription (note c) |
143,033 |
14,596,852 |
- |
- |
(103,872) |
- |
- |
14,636,013 |
|
Shares bought back (note d) |
(6,715) |
- |
6,715 |
- |
(616,121) |
- |
- |
(616,121) |
|
Dividends paid |
- |
- |
- |
- |
- |
(5,980,765) |
(840,895) |
(6,821,660) |
|
|
|
|
|
|
|
|
|
|
|
Total contributions by and distributions to owners |
136,318 |
14,596,852 |
6,715 |
- |
(719,993) |
(5,980,765) |
(840,895) |
7,198,232 |
|
|
|
|
|
|
|
|
|
|
|
Other movements |
|
|
|
|
|
|
|
|
|
Realised losses transferred to special reserve (note a) |
- |
- |
- |
- |
(768,097) |
768,097 |
- |
- |
|
Realisation of previously unrealised depreciation |
- |
- |
- |
152,402 |
- |
(152,402) |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
Total other movements |
- |
- |
- |
152,402 |
(768,097) |
615,695 |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2018 |
493,042 |
30,498,349 |
94,298 |
1,398,656 |
6,052,525 |
7,943,475 |
1,117,852 |
47,598,197 |
|
|
|
|
|
|
|
|
|
|
|
Notes a): The cancellation of the formerly named C Share Fund's share premium reserve (as approved at the Extraordinary General meeting held on 10 September 2008 and by the order of the Court dated 28 October 2009), together with the previous cancellation of the share premium reserve attributable to the former Ordinary Share Fund and C Shares, has provided the Company with a special distributable reserve. The purpose of this reserve is to fund market purchases of the Company's own shares as and when it is considered by the Board to be in the interests of the shareholders, and to write-off existing and future losses as the Company must take into account capital losses in determining distributable reserves. The total transfer of £768,097 from the realised capital reserve to the special distributable reserve above is the total of realised losses incurred by the Company in the year.
b): The realised capital reserve and the revenue reserve together comprise the Profit and Loss Account of the Company.
c): Under an Offer for Subscription launched on 6 September 2017, 14,303,289 shares were allotted between September 2017 and March 2018, raising net funds of £14,636,013 for the Company. This figure is net of issue costs of £260,115. Having raised the full amount of funds sought, the Offer was closed on 13 March 2018.
d): During the year, the Company purchased 671,517 of its own shares at the prevailing market price for a total cost of £616,121, which were subsequently cancelled.
The composition of each of these reserves is explained below:
Called up share capital The nominal value of shares originally issued, increased for subsequent share issues either via an Offer for Subscription or reduced due to shares bought back by the Company.
Capital redemption reserve The nominal value of shares bought back and cancelled is held in this reserve, so that the company's capital is maintained.
Share premium reserve This reserve contains the excess of gross proceeds less issue costs over the nominal value of shares allotted under Offers for Subscription.
Revaluation reserve Increases and decreases in the valuation of investments held at the year-end are accounted for in this reserve, except to the extent that the diminution is deemed permanent. In accordance with stating all investments at fair value through profit and loss (as recorded in note 8), all such movements through both revaluation and realised capital reserves are shown within the Income Statement for the year.
Special distributable reserve The cost of share buybacks is charged to this reserve. In addition, any realised losses on the sale (excluding transaction costs) of an investment or if an investment has permanently fallen in value, and 75% of the Investment Adviser's fee and 100% of any performance fee expense, and the related tax effect, are transferred from the realised capital reserve to this reserve. The cost of any IFA facilitation fee payable as part of the Offer for Subscription is also charged to this reserve.
Realised capital reserve The following are accounted for in this reserve:
· Gains and losses on realisation of investments;
· Permanent diminution in value of investments;
· Transaction costs incurred in the acquisition and disposal of investments;
· 75% of the Investment Adviser's fee (subsequently transferred to the Special distributable reserve along with the related tax effect) and 100% of any performance fee payable, together with the related tax effect to this reserve in accordance with the policies, and
· Capital dividends paid.
Revenue reserve Income and expenses that are revenue in nature are accounted for in this reserve together with the related tax effect, as well as income dividends paid that are classified as revenue in nature.
|
|||||||||||||
|
Statement of changes in equity for the year ended 31 March 2017
|
|||||||||||||
|
|
|
|
|
|
|
||||||||
|
|
|
Non-distributable reserves |
Distributable reserves |
Total |
|
||||||||
|
|
Called up share capital |
Share Premium reserve |
Capital redemption reserve |
Revaluation reserve |
Special distributable reserve |
Realised capital reserve |
Revenue Reserve |
|
|||||
|
|
|
£ |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
At 1 April 2016 |
360,685 |
15,901,497 |
83,622 |
1,783,724 |
8,524,729 |
15,529,419 |
957,336 |
43,141,012 |
|
|||
|
|
Comprehensive income for the year |
|
|
|
|
|
|
|
|
|
|||
|
|
Profit/(loss) for the year |
- |
- |
- |
229,772 |
- |
(496,786) |
964,814 |
697,800 |
|
|||
|
|
Total comprehensive income for the year |
- |
- |
- |
229,772 |
- |
(496,786) |
964,814 |
697,800 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Contributions by and distributions to owners |
|
|
|
|
|
|
|
|
|
|||
|
|
Shares bought back |
(3,961) |
- |
3,961 |
- |
(411,261) |
- |
- |
(411,261) |
|
|||
|
|
Dividends paid |
- |
- |
- |
- |
- |
(4,474,756) |
(891,810) |
(5,366,566) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Total contributions by and distributions to owners |
(3,961) |
- |
3,961 |
- |
(411,261) |
(4,474,756) |
(891,810) |
(5,777,827) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Other movements |
|
|
|
|
|
|
|
|
|
|||
|
|
Realised losses transferred to special reserve |
- |
- |
- |
- |
(572,853) |
572,853 |
- |
- |
|
|||
|
|
Realisation of previously unrealised appreciation |
- |
- |
- |
(11,732) |
- |
11,732 |
- |
- |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Total other movements |
- |
- |
- |
(11,732) |
(572,853) |
584,585 |
- |
- |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
At 31 March 2017 |
356,724 |
15,901,497 |
87,583 |
2,001,764 |
7,540,615 |
11,142,462 |
1,030,340 |
38,060,985 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Statement of Cash Flows for the year ended 31 March 2018
|
|||||||||||||
|
|
|
|
|
|
|
||||||||
|
|
|
Notes
|
Year ended 31 March 2018 £ |
Year ended 31 March 2017 £ |
|
||||||||
|
|
|
|
|
|
|
||||||||
|
|
Cash flows from operating activities |
|
|
|
|
||||||||
|
|
Profit for the financial year |
|
2,338,980 |
697,800 |
|
||||||||
|
|
Adjustments for: |
|
|
|
|
||||||||
|
|
Net unrealised losses/(gains) on investments |
|
755,510 |
(229,772) |
|
||||||||
|
|
Net gains on realisations on investments |
|
(2,766,722) |
(76,067) |
|
||||||||
|
|
Tax charge for the current year |
|
50,621 |
28,909 |
|
||||||||
|
|
(Increase)/decrease in debtors |
|
(100,281) |
80,712 |
|
||||||||
|
|
Increase/(decrease) in creditors and accruals |
|
20,273 |
(44,914) |
|
||||||||
|
|
Net cash inflow from operations |
|
298,381 |
456,668 |
|
||||||||
|
|
Corporation tax paid |
|
(29,118) |
- |
|
||||||||
|
|
|
|
|
|
|
||||||||
|
|
Net cash inflow from operating activities |
|
269,263 |
456,668 |
|
||||||||
|
|
|
|
|
|
|
||||||||
|
|
Cash flows from investing activities |
|
|
|
|
||||||||
|
|
Purchase of investments |
8 |
(2,733,686) |
(2,257,183) |
|
||||||||
|
|
Disposal of investments |
8 |
5,890,052 |
3,812,501 |
|
||||||||
|
|
No change/decrease in bank deposits with a maturity over three months |
|
- |
507,061 |
|
||||||||
|
|
|
|
|
|
|
||||||||
|
|
Net cash inflow from investing activities |
|
3,156,366 |
2,062,379 |
|
||||||||
|
|
|
|
|
|
|
||||||||
|
|
Cash flows from financing activities |
|
|
|
|
||||||||
|
|
Shares issued as part of Offer for subscription |
|
14,636,013 |
- |
|
||||||||
|
|
Equity dividends paid |
6 |
(6,821,660) |
(5,366,566) |
|
||||||||
|
|
Purchase of own shares |
|
(616,121) |
(412,046) |
|
||||||||
|
|
|
|
|
|
|
||||||||
|
|
Net cash inflow/(outflow) from financing activities |
|
7,198,232 |
(5,778,612) |
|
||||||||
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
||||||||
|
|
Net increase/(decrease) in cash and cash equivalents |
|
10,623,861 |
(3,259,565) |
|
||||||||
|
|
Cash and cash equivalents at start of year |
|
9,935,913 |
13,195,478 |
|
||||||||
|
|
|
|
|
|
|
||||||||
|
|
Cash and cash equivalents at end of the year |
|
20,559,774 |
9,935,913 |
|
||||||||
|
|
|
|
|
|
|
||||||||
|
|
Cash and cash equivalents comprise: |
|
|
|
|
||||||||
|
|
Cash equivalents |
|
18,287,301 |
5,197,301 |
|
||||||||
|
|
Cash at bank and in hand |
|
2,272,473 |
4,738,612 |
|
||||||||
|
|
|
|
|
|
|
||||||||
NOTES TO THE ACCOUNTS
for the year ended 31 March 2018
1 Company Information
Mobeus Income and Growth 2 VCT plc is a public limited company incorporated in England, registration number 03946235. The registered office is 30 Haymarket, London, SW1Y 4EX.
2 Basis of preparation
A summary of the principal accounting policies, all of which have been applied consistently throughout the year are set out at the start of the related disclosure throughout the Notes to the Financial Statements within an outlined box.
These Financial Statements have been prepared in accordance with applicable United Kingdom accounting standards, including Financial Reporting Standard 102 ("FRS102"), with the Companies Act 2006 and the 2014 Statement of Recommended practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('the SORP')
(updated in January 2017) issued by the Association of Investment Companies. The Company has a number of
financial instruments which are disclosed under FRS102 s11/12 as shown in Note 15 of the Annual Report.
3 Income
|
Dividends receivable on quoted equity shares are brought into account on the ex-dividend date. Dividends receivable on unquoted equity shares are brought into account when the Company's right to receive payment is established and there is no reasonable doubt that payment will be received. Interest income on loan stock is accrued on a daily basis. Provision is made against this income where recovery is doubtful or where it will not be received in the foreseeable future. Where the loan stocks only require interest or a redemption premium to be paid on redemption, the interest and redemption premium is recognised as income or capital as appropriate once redemption is reasonably certain. When a redemption premium is designed to protect the value of the instrument holder's investment rather than reflect a commercial rate of revenue return, the redemption premium is recognised as capital. The treatment of redemption premiums is analysed to consider if they are revenue or capital in nature on a company by company basis. Accordingly, the redemption premium recognised in the year ended 31 March 2018 has been classified as capital and has been included within gains on investments. |
|
|
2018 |
2017 |
|
|
£ |
£ |
|
Income from bank deposits |
11,161 |
29,594 |
|
|
|
|
|
Income from investments |
|
|
|
- from equities |
114,698 |
181,950 |
|
- from overseas based OEICs |
21,687 |
15,605 |
|
- from UK based OEICs |
11,450 |
8,549 |
|
- from loan stock |
1,551,995 |
1,443,335 |
|
- from interest on preference share dividend arrears |
218 |
- |
|
|
1,700,048 |
1,649,439 |
|
|
|
|
|
Other income |
4,455 |
- |
|
|
|
|
|
Total income |
1,715,664 |
1,679,033 |
|
|
|
|
|
Total income comprises |
|
|
|
Dividends |
147,835 |
206,104 |
|
Interest |
1,563,374 |
1,472,929 |
|
Other |
4,455 |
- |
|
|
1,715,664 |
1,679,033 |
Total loan stock interest due but not recognised in the year was £243,675 (2017: £275,960).
4 Investment Adviser's fees and Other expenses
|
All expenses are accounted for on an accruals basis. |
a) Investment Adviser's fees
|
25% of the Investment Adviser's fees are charged to the revenue column of the Income Statement, while 75% is charged against the capital column of the Income Statement. This is in line with the Board's expected long-term split of returns from the investment portfolio of the Company. 100% of any performance incentive fee payable for the year is charged against the capital column of the Income Statement. This is because although the incentive fee is linked to an annual dividend target, it is ultimately based upon the achievement of capital growth. |
|
|
2018 |
2017 |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Mobeus Equity Partners LLP |
£ |
£ |
£ |
£ |
£ |
£ |
|
Investment Adviser's fees |
247,177 |
741,530 |
988,707 |
237,791 |
713,374 |
951,165 |
|
Investment Adviser's performance fee |
- |
- |
- |
- |
2,692 |
2,692 |
|
|
247,177 |
741,530 |
988,707 |
237,791 |
716,066 |
953,857 |
Under the terms of a revised investment management agreement dated 10 September 2010, Mobeus Equity Partners LLP ("Mobeus") provides investment advisory, administrative and company secretarial services to the Company, for a fee
of 2% per annum calculated on a quarterly basis by reference to the net assets at the end of the preceding quarter, plus a
fee of £113,589 per annum, the latter being subject to changes in the retail prices index each year. In 2013, Mobeus
has agreed to waive such further increases due to indexation, until otherwise agreed by the Board. In accordance
with the policy statement published under "Management and Administration" in the Company's prospectus
dated 10 May 2000, the Directors have charged 75% of the investment management expenses to the capital account.
This is in line with the Board's expectation of the long term split of returns from the investment portfolio of the Company.
Under the terms of the management agreement the total Investment Adviser and administration expenses of the Company excluding any irrecoverable VAT, exceptional costs and any performance incentive fee, are linked to a maximum of 3.6% of the value of the Company's closing net assets. For the year ended 31 March 2018, the expense cap has not been breached (2017: £nil).
The Company is responsible for external costs such as legal and accounting fees, incurred on transactions that do not
proceed to completion ("abort expenses") subject to the cap on total annual expenses referred to above.
In accordance with general market practice, the Investment Adviser earned arrangement fees and fees for supplying Directors and/or monitoring services from investee companies. The share of such fees attributable to the investments made by the Company were £85,289 (2017: £67,353) and £164,993 (2017: £139,556) respectively. The fees for supplying directors and/or monitoring services were from 34 (2017: 28) investee companies during the year.
b) Performance fees
Performance incentive agreement
The following performance incentive fee arrangement dated 20 September 2005 continues to be in place, and operated as detailed below:
New Ordinary and former C share fund shares
Basis of Calculation
The performance incentive fee payable is calculated as an amount equivalent to 20 per cent of the excess of a "Target rate" comprising:-
(i) an annual dividend target (indexed each year for RPI), and
(ii) a requirement that any cumulative shortfalls below the annual dividend target must be made up in later years. Any excess is not carried forward, whether a fee is payable for that year or not.
Payment of a fee is also conditional upon the average Net Asset Value ("NAV") per share for each such year equalling
or exceeding the average "Base NAV" per share for the same year. Base NAV commenced at £1 per share when C fund shares
were first issued in 2005, which is adjusted for subsequent shares issued and bought back.
Any performance fee will be payable annually. It will be reduced to the proportion which the number of "Incentive Fee Shares" represent of the total number of shares in issue at any calculation date. Incentive Fees Shares are the only shares upon which an incentive fee is payable. They will be the number of C fund shares in issue just before the Merger of the two former share
classes on 10 September 2010, (which subsequently became Ordinary shares) plus Ordinary shares issued under new
fundraisings since the Merger. This total is then reduced by an estimated proportion of the shares bought back by the
Company since the Merger, that are attributable to the Incentive Fee Shares.
Clarifications to the agreement
During the year ended 31 March 2016, the Board and the Investment Adviser agreed to confirm and clarify in more detail a number of principles and interpretations applied to the agreement. The principal ones are reflected in the paragraphs
above and explained below:-
First, the incentive fee is paid upon dividends paid in a year, not declared and paid in a year, as the original agreement stated. Secondly, the average NAV referred to above is calculated on a daily weighted average basis throughout the year.
In turn, this average NAV is compared to a Base NAV that is also calculated on a daily weighted average basis throughout
the year. Thirdly, the methodologies to account for new shares issued and buybacks of shares, their inclusion in the
incentive fee calculations and to identify the proportion of all shares upon which an incentive fee is payable have been
clarified.
Finally, it has been agreed that any excess of cumulative dividends paid over the cumulative annual dividend target is not
carried forward, whether a fee is paid for that year or not.
These clarifications have been incorporated into the performance incentive agreement. The Board has been advised that, as
these and a number of more minor clarifications, are clarifications of the Incentive Agreement, rather than changes to it,
there was no need to seek shareholder approval for them.
Position at 31 March 2018
The cumulative dividends paid exceeded the annual cumulative dividend target at 31 March 2018 by 7.24p
per share (£2,788,162 surplus in aggregate being 78.1% of the total surplus) at the year-end, (where 78.1% is the proportion of
Incentive Fee Shares to the total number of shares in issue at the year-end date) and taking into account the target rate of
dividends and the dividends paid to shareholders.
The 6p annual dividend hurdle was 7.80p per share at the year-end after adjustment for RPI. The Base NAV was 105.97p per share
at the year-end and an average of 106.09p for the year, compared to an average NAV for the year of 103.51p.
Therefore no incentive fee is payable for the year (2017: £2,692).
c) Other expenses
|
Expenses are charged wholly to revenue, with the exception of expenses incidental to the acquisition or disposal of an investment, which are written off to the capital column of the Income Statement or deducted from the disposal proceeds as appropriate. |
|
|
2018 |
2017 |
|
|
£ |
£ |
|
Directors' remuneration (including NIC of £5,318 (2017: £5,080) (note a) |
104,373 |
96,080 |
|
IFA trail commission |
47,511 |
15,395 |
|
Broker's fees |
12,000 |
12,000 |
|
Auditor's fees - Audit of Company (excluding VAT) |
22,807 |
22,550 |
|
- tax compliance services (note b) (excluding VAT) |
1,503 |
3,550 |
|
- audit related assurance services (note b) (excluding VAT) |
4,562 |
4,510 |
|
Registrar's fees |
46,614 |
30,707 |
|
Printing |
41,250 |
33,215 |
|
Legal & professional fees |
8,129 |
13,059 |
|
VCT monitoring fees |
8,400 |
8,400 |
|
Directors' insurance |
8,094 |
8,310 |
|
Listing and regulatory fees |
24,760 |
23,219 |
|
Sundry |
18,565 |
18,466 |
|
Running costs |
348,568 |
289,461 |
|
Provision against loan interest receivable (note c) |
- |
14,845 |
|
Other expenses |
348,568 |
304,306 |
a): See analysis in the Directors' emoluments table in the Annual Report, which excludes the NIC above. The key management personnel are the non-executive directors. The Company has no employees.
b): The Directors consider the Auditor was best placed to provide the other services disclosed above. The audit related assurance services are in relation to the review of the Financial Statements within the Company's Half-Year Report. The Audit Committee reviews the nature and extent of these services to ensure that auditor independence is maintained. In this regard, compliance tax services (excluding iXBRL services), with effect from the current year, are to be carried out by another firm, so are included within legal and professional fees.
c): Provision against loan interest receivable of £nil (2017: £14,845) is a provision made against loan stock interest recognised in previous years.
5 Taxation on ordinary activities
|
The tax expense for the year comprises current tax and is recognised in profit or loss. The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date. Any tax relief obtained in respect of Investment Adviser fees allocated to capital is reflected in the realised capital reserve and a corresponding amount is charged against revenue. The tax relief is the amount by which corporation tax payable is reduced as a result of these capital expenses. Deferred tax 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 a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Company's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in the tax assessments in periods different from those in which they are recognised in the Financial Statements. Deferred tax is measured at the average tax rates that are expected to apply in the years in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax is measured on a non-discounted basis. A deferred tax asset would be recognised only to the extent that it is more likely than not that future taxable profits will be available against which the asset can be utilised. |
|
|
2018 |
2017 |
||||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
||
|
|
£ |
£ |
£ |
£ |
£ |
£ |
||
|
a) Analysis of tax charge: |
|
|
|
|
|
|
||
|
UK Corporation tax on profits for the year |
191,512 |
(140,891) |
50,621 |
172,122 |
(143,213) |
28,909 |
||
|
Total current tax charge |
191,512 |
(140,891) |
50,621 |
172,122 |
(143,213) |
28,909 |
||
|
Corporation tax is based on a rate of 19% (2017: 20%) |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
|
b) Profit/(loss) on ordinary activities before tax |
1,119,916 |
1,269,682 |
2,389,601 |
1,136,936 |
(410,227) |
726,709 |
||
|
Profit/(loss) on ordinary activities multiplied by small company rate of corporation tax in the UK of 19% (2017: 20%) |
212,785 |
241,239 |
454,024 |
227,387 |
(82,046) |
145,341 |
||
|
Effect of: |
|
|
|
|
|
|
||
|
UK dividends |
(21,792) |
- |
(21,792) |
(36,390) |
- |
(36,390) |
||
|
Unrealised losses/(gains) not deductible/taxable |
- |
143,547 |
143,547 |
- |
(45,954) |
(45,954) |
||
|
Realised gains not taxable |
- |
(525,677) |
(525,677) |
- |
(15,213) |
(15,213) |
||
|
Unrelieved expenditure |
310 |
- |
310 |
- |
- |
- |
||
|
Utilisation of losses on which deferred tax not recognised |
- |
- |
- |
(18,875) |
- |
(18,875) |
||
|
Under provision in prior period |
209 |
- |
209 |
- |
- |
- |
||
|
Actual tax charge |
191,512 |
(140,891) |
50,621 |
172,122 |
(143,213) |
28,909 |
||
Tax relief relating to Investment Adviser fees is allocated between revenue and capital where such relief can be utilised.
No asset or liability has been recognised for deferred tax in relation to capital gains or losses on revaluing investments as the Company is exempt from corporation tax in relation to capital gains or losses as a result of qualifying as a Venture Capital Trust.
There is no potential liability to deferred tax (2017: £nil). There is no unrecognised deferred tax asset in 2018 (2017: £nil).
6 Dividends paid and payable
|
Dividends payable are recognised as distributions in the Financial Statements when the Company's liability to pay them has been established. This liability is established for interim dividends when they are paid, and for final dividends when they are approved by the shareholders, usually at the Company's Annual General Meeting. A key judgement in applying the above accounting policy is in determining the amount of minimum income dividend to be paid in respect of a year. The Company's status as a VCT means it has to comply with Section 259 of the Income Tax Act 2007, which requires that no more than 15% of the income from shares and securities in a year can be retained from the revenue available for distribution for the year. |
|
|
|
|
||||
|
Amounts recognised as distributions to equity shareholders in the year: |
|
|
||||
|
Dividend |
Type |
For year ended 31 March |
Pence per share |
Date Paid |
2018 £ |
2017 £ |
|
|
|
|
|
|
|
|
|
Interim |
Capital |
2017 |
5.00p |
08/08/2016 |
- |
1,799,327 |
|
Second interim |
Income |
2017 |
2.50p |
31/03/2017 |
- |
891,810 |
|
Second interim |
Capital |
2017 |
7.50p |
31/03/2017 |
- |
2,675,429 |
|
Interim |
Capital |
2018 |
7.00p |
27/07/2017 |
2,497,067 |
- |
|
Second interim |
Income |
2018 |
1.75p |
22/01/2018 |
840,894 |
- |
|
Second interim |
Capital |
2018 |
7.25p |
22/01/2018 |
3,483,699 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,821,660 |
5,366,566 |
|
|
|
|
|
|
|
|
Any proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these Financial Statements.
Set out below are the total income dividends payable in respect of the financial year, which is the basis on which the requirements of section 274 of the Income Tax Act 2007 are considered.
|
|
|
|
||||
|
Recognised income distributions in the financial statements for the year: |
|
|
||||
|
Dividend |
Type |
For year ended 31 March |
Pence per share |
Date Paid |
2018 £ |
2017 £ |
|
|
|
|
|
|
|
|
|
Revenue available for distribution by way of dividends for the year |
928,407 |
964,814 |
||||
|
|
|
|
|
|
|
|
|
Second interim |
Income |
2017 |
2.50p |
31/03/2017 |
- |
891,810 |
|
Second interim |
Income |
2018 |
1.75p |
22/01/2018 |
840,894 |
- |
|
|
|
|
|
|
|
|
|
Total income dividends for the year |
|
840,894 |
891,810 |
|||
|
|
|
|
|
|
|
|
7 Basic and diluted earnings per share
|
|
|
|
|
|
2018 |
2017 |
|
|
£ |
£ |
|
|
|
|
|
Total earnings after taxation: |
2,338,980 |
697,800 |
|
Basic and diluted earnings per share (note a) |
5.68p |
1.94p |
|
|
|
|
|
Net revenue earnings from ordinary activities after taxation |
928,407 |
964,814 |
|
Basic and diluted revenue earnings per share (note b) |
2.25p |
2.69p |
|
|
|
|
|
Unrealised capital (losses)/gains |
(755,510) |
229,772 |
|
Realised capital gains |
2,766,722 |
76,067 |
|
Capital Investment Adviser's fees (net of taxation) |
(600,639) |
(570,161) |
|
Investment Adviser's performance fee |
- |
(2,692) |
|
|
|
|
|
Total capital earnings |
1,410,573 |
(267,014) |
|
Basic and diluted capital earnings per share (note c) |
3.43p |
(0.75)p |
|
|
|
|
|
Weighted average number of shares in issue in the year |
41,190,198 |
35,877,280 |
|
|
|
|
Notes:
a) Basic earnings per share is total earnings after taxation divided by the weighted average number of shares in issue.
b) Revenue earnings per share is the revenue return after taxation divided by the weighted average number of shares in issue.
c) Capital earnings per share is the total capital return after taxation divided by the weighted average number of shares in issue.
d) There are no instruments that will increase the number of shares in issue in future. Accordingly, the above figures currently represent both basic and diluted earnings.
8 Investments at fair value
|
The most critical estimates, assumptions and judgements relate to the determination of the carrying value of investments at "fair value through profit and loss" ("FVTPL"). All investments held by the Company are classified as FVTPL and measured in accordance with the International Private Equity and Venture Capital Valuation ("IPEV") guidelines, as updated in December 2015. This classification is followed as the Company's business is to invest in financial assets with a view to profiting from their total return in the form of capital growth and income. For investments actively traded on organised financial markets, fair value is generally determined by reference to Stock Exchange market quoted bid prices at the close of business on the balance sheet date. Purchases and sales of quoted investments are recognised on the trade date where a contract of sale exists whose terms require delivery within a time frame determined by the relevant market. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional. Where the terms of a disposal state that consideration may be received at some future date and, subject to the conditionality and materiality of the amount of deferred consideration, an estimate of the fair value, discounted for the time value of money may be recognised through the Income Statement. In other cases, the proceeds will only be recognised once the right to receive payment is established and there is no reasonable doubt that payment will be received.
Unquoted investments are stated at fair value by the Directors in accordance with the following rules, which are consistent with the IPEV guidelines: All investments are held at the price of a recent investment for an appropriate period where there is considered to have been no change in fair value. Where such a basis is no longer considered appropriate, each investment is considered as a whole on a 'unit of account' basis, alongside consideration of: (i) Where a value is indicated by a material arms-length transaction by an independent third party in the shares of a company, this value will be used. (ii) In the absence of i) and depending upon both the subsequent trading performance and investment structure of an investee company, the valuation basis will usually move to either:- a) a multiple basis. The shares may be valued by applying a suitable price-earnings ratio, revenue or gross profit multiple to that company's historic, current or forecast post-tax earnings before interest and amortisation, revenue, or gross profit (the ratio used being based on a comparable sector but the resulting value being adjusted to reflect points of difference identified by the Investment Adviser compared to the sector including, inter alia, a lack of marketability). or:- b) where a company's underperformance against plan indicates a diminution in the value of the investment, provision against cost is made, as appropriate. (iii) Premiums, to the extent that they are considered capital in nature, and that will be received upon repayment of loan stock investments are accrued at fair value when the Company receives the right to the premium and when considered recoverable. (iv) Where a multiple or cost less impairment basis is not appropriate and overriding factors apply, a discounted cash flow, net asset valuation or realisation proceeds basis may be applied. Capital gains and losses on investments, whether realised or unrealised, are dealt with in the profit and loss and revaluation reserves, and movements in the period are shown in the Income Statement.
All investments are initially recognised and subsequently measured at fair value. Changes in fair value are recognised in the Income Statement.
A key judgement made in applying the above accounting policy relates to investments that are permanently impaired. Where the value of an investment has fallen permanently below cost, the loss is treated as a permanent impairment and as a realised loss, even though the investment is still held. The Board assesses the portfolio for such investments and, after agreement with the Investment Adviser, will agree the values that represent the extent to which an investment loss has become realised. This is based upon an assessment of objective evidence of that investment's future prospects, to determine whether there is potential for the investment to recover in value. The methods of fair value measurement are classified into hierarchy based on the reliability of the information used to determine the valuation.
- Level 1 - Fair value is measured based on quoted prices in an active market. - Level 2 - Fair value is measured based on directly observable current market prices or indirectly being derived from market prices. -Level 3 - Fair value is measured using valuation techniques using inputs that are not based on observable market data.
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Movements in investments during the year are summarised as follows:
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Traded on AIM |
Unquoted equity shares |
Unquoted preference shares |
Unquoted Loan Stock |
Total |
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|
£ |
£ |
£ |
£ |
£ |
|
|
|
|
|
|
|
|
Cost at 31 March 2017 |
254,586 |
10,571,020 |
23,395 |
17,664,403 |
28,513,404 |
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Permanent impairment at 31 March 2017 |
(254,586) |
(1,365,869) |
(739) |
(810,398) |
(2,431,592) |
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Unrealised gains/(losses) at 31 March 2017 |
- |
(2,271,287) |
377,118 |
3,895,933 |
2,001,764 |
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|
|
|
|
|
|
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Valuation at 31 March 2017 |
- |
6,933,864 |
399,774 |
20,749,938 |
28,083,576 |
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|
|
|
|
|
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Purchases at cost |
- |
1,810,907 |
- |
922,779 |
2,733,686 |
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Sale proceeds (notes a and b) |
- |
(3,069,069) |
(1,236) |
(2,873,057) |
(5,943,362) |
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Reclassification at value (note c) |
- |
445,804 |
- |
(445,804) |
- |
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Realised gains on investments |
- |
2,765,069 |
1,236 |
417 |
2,766,722 |
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Unrealised gains/(losses) on investments (note d) |
- |
1,844,353 |
(719) |
(2,599,144) |
(755,510) |
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|
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Valuation at 31 March 2018 |
- |
10,730,928 |
399,055 |
15,755,129 |
26,885,112 |
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|
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Cost at 31 March 2018 |
- |
12,398,820 |
22,159 |
15,664,527 |
28,085,506 |
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Permanent impairments at 31 March 2018 (note e) |
- |
(1,704,184) |
(739) |
(894,127) |
(2,599,050) |
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Unrealised gains at 31 March 2018 |
- |
36,292 |
377,635 |
984,729 |
1,398,656 |
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Valuation at 31 March 2018 |
- |
10,730,928 |
399,055 |
15,755,129 |
26,885,112 |
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A breakdown of the increases and the decreases in unrealised valuations of the portfolio is shown in the Investment Portfolio Summary in the Annual Report.
Major movements in investments
Note a) Disposals of investment portfolio companies during the year were:
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Type |
Investment Cost |
Disposal Proceeds |
Opening valuation |
Realised gain in year |
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£ |
£ |
£ |
£ |
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Entanet Holdings Limited1 |
Full exit |
1,444,090 |
3,259,328 |
1,550,227 |
1,709,101 |
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Gro-Group Holdings Limited |
Full exit |
1,123,088 |
2,026,442 |
973,928 |
1,052,514 |
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TPSFF Holdings Limited |
Loan repayments |
290,406 |
348,485 |
348,485 |
- |
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Manufacturing Services Investment Limited |
Share buyback |
304,000 |
304,000 |
304,000 |
- |
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Others |
|
- |
5,107 |
- |
5,107 |
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|
|
3,161,584 |
5,943,362 |
3,176,640 |
2,766,722 |
1 Deferred contingent consideration of £0.33 million is potentially receivable over the next 9-15 months. There are conditions attached to this deferred consideration such that the amount receivable is uncertain and so has not been recognised in the current year's financial statements.
Note b) The cash flow from investment proceeds shown above of £5,943,362 differs from the sales proceeds shown in the Statements of Cash Flows of £5,890,052, by £53,310. These are deferred proceeds payable from the sale of Gro-Group and are held in debtors at the year end.
Note c) During the year, Manufacturing Services Investment Limited, a company preparing to trade, acquired Wetsuit Outlet. Part of the original holding was reorganised whereby £445,804 of loan stock was reclassified into ordinary shares.
Note d) Within net unrealised losses of £755,510 for the year, the significant losses in value compared to last year were as follows: £619,342 in Fullfield Limited (trading as Motorclean), £615,590 in Media Business Insight Holdings Limited, £612,884 in Veritek Global Limited, £515,624 in RDL Corporation Limited, £390,332 in Virgin Wines Holding Company Limited and £373,839 in Turner Topco Limited (trading as Auction Technology Group (formerly ATG Media)). These losses were partially offset by unrealised gains in valuation compared to last year, including: £520,375 in EOTH Limited, £434,341 in MPB Group Limited, £379,896 in Preservica Limited, £348,183 in Master Removers Group Limited and £336,969 in Vectair Limited.
The decrease in unrealised valuations of the loan stock investments above reflects the changes in the entitlements to loan premiums, and/or in the underlying enterprise value of the investee company. The increase does not arise from assessments of credit risk or market risk upon these investments.
Note e) During the year, permanent impairments of the cost of investments have risen from £2,431,592 to £2,599,050. The increase of £167,458 is due to the impairment of one investee company's remaining investment cost.
9 Post balance sheet events
On 30 April 2018, TPSFF Holdings Limited made a loan repayment of £0.07 million to the Company.
On 25 May 2018, MPB Group Limited made a loan repayment of £0.09 million to the Company.
On 31 May 2018, the Company invested a further £0.63 million into My Tutorweb.
On 15 June 2018, the Company invested £0.06 million as loan stock into Proactive Investors.
10 Statutory information
The financial information set out in these statements does not constitute the Company's statutory accounts for the year ended 31 March 2018 in terms of section 434 of the Companies Act 2006 but is derived from those accounts. Statutory accounts for the year ended 31 March 2018 will be delivered to Companies House following the Company's Annual General Meeting. The auditors have reported on those accounts: their report was unqualified and did not contain a statement under Section 498 of the Companies Act 2006.
11 Annual Report
The Annual Report for the year ended 31 March 2018 will shortly be made available on the Company's website: www.mig2vct.co.uk. and shareholders will be notified of this by email or post or sent a hard copy in the post in accordance with their instructions. Copies will be available thereafter to members of the public from the Company's registered office.
12 Annual General Meeting
The Annual General Meeting of the Company will be held at 11.00 am on Wednesday, 12 September 2018 at The Clubhouse, 8 St James's Square, London SW1Y 4JU.
Contact details for further enquiries:
Robert Brittain of Mobeus Equity Partners LLP (the Company Secretary) on 020 7024 7600 or by e-mail to vcts@mobeusequity.co.uk.
Mark Wignall or Clive Austin at Mobeus Equity Partners LLP (the Investment Adviser) on 020 7024 7600 or by e-mail to info@mobeusequity.co.uk.
DISCLAIMER
Neither the contents 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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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