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Annual Financial Report
Hargreave Hale AIM VCT plc announces its results for the year ended 30 September 2020. The full financial statements can be accessed on the Company's website https://www.hargreaveaimvcts.co.uk or alternatively by following the link at the bottom of this report.
Strategic report
The report has been prepared by the Directors in accordance with the requirements of Section 414A of the Companies Act 2006.
Summary financial data | 2020 | 2019 |
NAV (£m) | 147.00 | 144.04 |
NAV per share (p) | 73.66 | 70.60 |
NAV total return (%)(1) | 11.42 | (13.52) |
Market capitalisation (£m) | 131.7 | 135.7 |
Share price (p) | 66.00 | 66.50 |
Share price discount to NAV per share (%)(1) | 10.40(2) | 5.81 |
Share price 5 year average discount to NAV per share (%) | 6.18 | 5.37 |
Share price total return (%)(1) | 6.77 | (12.89) |
Gain/(loss) per share for the year (p) | 7.81 | (11.05) |
Dividends paid per share (p) | 5.00 | 5.15 |
Ongoing charges ratio (%)(1) | 2.35 | 2.05 |
Financial highlights
Alternative performance measure definitions and illustrations can be found in the applicable sections below.
The year end review resulted in favourable movements in the valuation of several private companies and a substantial increase in the NAV per share relative to the previously published NAV per share, leading to an unusually wide discount at the year end.
£17.11 million invested in Qualifying Companies in the year.
97.0% invested by VCT tax value in Qualifying Investments at 30 September 2020.
Offer for subscription to raise £20 million, together with an over-allotment facility to raise a further £10 million launched 2 September. The offer will close at 12 p.m. on 1 April 2021 for subscriptions in the 2020/21 tax year and 20 August 2021 for subscriptions in the 2021/22 tax year (unless fully subscribed earlier or closed at the Directors’ discretion).
Chairman’s statement
Introduction
I write this report at a time of significant turmoil in the world. The COVID-19 pandemic is causing unbelievable challenges for families, communities and society as a whole let alone business.
To say it has been an eventful six months since I last reported to you would be a gross understatement. In that time we have experienced the shortest bear market in history with unprecedented partially co-ordinated Government and Central Bank intervention, alongside extensive and unheard of commercial bank support for both quoted and unquoted companies.
In spite of the immense difficulties of the six month reporting period I am pleased to inform you that your investment team has risen to this challenge with great vigour which is reflected in the performance of your Company.
The very significant economic turmoil has inevitably caused difficulties for some of your investee companies but at the same time provided a backdrop for good progress in others, not least in the qualifying unquoted investment portfolio.
Performance
At 30 September 2020, the NAV per share was 73.66 pence which after adjusting for the dividends, paid in the year of 5.00 pence gives a NAV total return for the year of 11.42%. The NAV total return (dividends reinvested) for the year was 12.09% compared with 11.03% in the FTSE AIM All-share Index total return (also calculated on a dividends reinvested basis). The Directors consider this to be the most appropriate benchmark from a shareholder’s perspective, however, due to the investment restrictions placed on a VCT it is not wholly comparable. The NAV total return since inception(1) is 133.81 pence (a gain of 33.81%).
The earnings per share total return for the year was a gain of 7.81 pence (comprising a revenue loss of 0.26 pence and a capital return of 8.07 pence). Revenue income declined by 37% to £0.73m as a result of the reduced allocation to Non-Qualifying Investments and decisions made by many companies to suspend or cancel dividend payments as a consequence of the pandemic.
The share price fell from 66.50 pence to 66.00 pence over the reporting period which after adjusting for dividends paid gives a share price total return of 6.77%.
In an extraordinary year that has caused so much pain, it is pleasing to report a positive return to shareholders despite the very considerable challenges, the high levels of market volatility and the very difficult position we found ourselves in at the half-year. This is the result of a lot of hard work and commitment from leadership teams and employees across the portfolio, for which we are truly grateful.
Investments
During the year, the investment manager, Hargreave Hale Limited, invested £17.1 million into 22 Qualifying Companies. The fair value of Qualifying Investments at 30 September 2020 was £112.4 million invested in 65 AIM companies and 11 unquoted companies. £19.5 million (13.3% of NAV) was invested in non-qualifying equities and £15.7 million (10.7% of NAV) was held in cash at the year end. Most of the non-qualifying equities are listed in the FTSE 350 and offer good levels of liquidity should the need arise.
Dividend
The Directors continue to maintain their policy of targeting a tax free dividend yield equivalent to 5% of the year end NAV per share (see Other matters section for the full policy).
In the 12 month period to 30 September 2020, the Company paid dividends totalling 5.00 pence (2019: 5.15 pence). A special dividend of 1.75 pence (2019: 1 penny) was paid on 28 November 2019, a final dividend of 2.25 pence in respect of the previous financial year was paid on 11 February 2020 (2018: 2.65 pence) and an interim dividend of 1 penny (2019: 1.50 pence) paid on 24 July 2020.
A final dividend of 2.65 pence is proposed (2019: 2.25 pence) which, subject to shareholder approval at the Annual General Meeting, will be paid on 11 February 2021 to ordinary shareholders on the register on 8 January 2021.
Dividend re-investment scheme
The Directors are pleased to inform shareholders that, as approved at a general meeting of the Company on 29 September 2020, the Company will be offering a dividend re-investment scheme (“DRIS”) going forward. The DRIS allows shareholders to elect to receive all or part of their dividends from the Company in the form of new ordinary shares. Investors may elect to participate in the DRIS when applying for Offer Shares by ticking the appropriate box in section 10 of the application form and completing the DRIS mandate form which accompanies the Securities Note. Shareholders may elect to join the DRIS at any time by completing a DRIS mandate form, which will be provided on request from the Registrar.
Buybacks
In total, 4,499,438 shares (nominal value £44,994) were repurchased during the year at a cost of £2,875,694 (average price: 63.91 pence per share). As at 21 December 2020, a further 720,904 shares have been repurchased at a cost of £527,771 (average price: 73.21 pence per share).
Share price discount
The Company aims to improve liquidity and to maintain a discount of approximately 5 per cent. to the last published NAV per share (as measured against the mid-price) by making secondary market purchases of its shares in accordance with parameters set by the Board (see Other matters section for the full policy).
The Company has 1 and 5 year average share price discounts of 8.55% and 6.18% respectively. The share price discount as at 30 September 2020 was 10.40% compared to 5.81% at 30 September 2019. The year end review resulted in favourable movements in the valuation of several private companies and a substantial increase in the NAV per share relative to the previously published NAV per share, leading to an unusually wide discount at the year end.
Whilst the discount reported at 30 September is wider than our target of 5% we were pleased we were able to operate the discount control and management of share liquidity policy despite the challenging market environment. As at 21 December 2020 the discount had narrowed to 4.79% of the last published NAV per share.
Offer for subscription
The Directors of the Company announced on 2 September 2020 the launch of a new offer for subscription for shares to raise up to £20 million, together with an over-allotment facility of up to a further £10 million. The offer was approved by shareholders of the Company at a general meeting on 29 September 2020 and is open to both new and existing shareholders.
Since its launch, the offer has resulted in funds being received of £13.1 million and the issue of 16.8 million shares to 21 December 2020. The offer will close at 12 p.m. on 1 April 2021 for subscriptions in the 2020/21 tax year and 20 August 2021 for subscriptions in the 2021/22 tax year (unless fully subscribed earlier or closed at the Directors’ discretion).
Related party transactions
The Company’s investment manager, Hargreave Hale Limited is a related party to the Company for the purposes of the Listing Rules. Following analysis of the due diligence and transactional services costs paid by the Company, the investment manager has expanded its team to allow a greater proportion of due diligence and transactional services on potential investments to be carried out internally. Upon completion of an investment, the investment manager is permitted under the management agreement to charge private investee companies a fee equal to 1.5 per cent. of the investment amount. This fee is subject to a cap of £40,000 per investment and is payable directly from the investee company to the investment manager. It is expected that these changes will generate a reduction in transaction costs paid by the Company.
VCT fund management team
The Company’s investment manager, Hargreave Hale Limited, has notified the Board of Giles Hargreave’s intention to step back from his role as co-manager of the Company’s portfolio, with effect from 31 December 2020. Since 1 July 2019, Giles Hargreave has primarily supported the delivery of the Company’s Non-Qualifying investment strategy. Although he will no longer hold a formal portfolio management role, it is the Board’s expectation that he will continue to support the VCT’s fund management team.
Cost efficiency
Your Board reviews costs incurred by the Company on a regular basis and is focused on maintaining a competitive ongoing charges ratio. The year end ongoing charges ratio was 2.35% when calculated in accordance with the AIC’s “Ongoing Charges” methodology. This represents an increase of 14.63% from 30 September 2019 ratio of 2.05%. As indicated in the prior year Annual Report, most of this increase is a result of changes to the investment management, administration, custody and directors’ fees, further detail can be found in the key performance indicator section.
Board composition
Sir Aubrey Brocklebank intends to retire fully from the Board at the Annual General Meeting in February 2021. Sir Aubrey was Chairman of your Board between 2004 and 2020. I would like to take this opportunity to thank Sir Aubrey for all his hard work on the Board.
I am delighted to welcome Justin Ward to the Board as a non-executive director appointed on 1 November 2020. Justin is a non-executive director and Chairman of the Audit Committee of The Income & Growth VCT Plc, is non-executive CFO at School Explained Limited and a non-executive director and Chairman of the Audit and Finance Committee at Roehampton Club Limited. Justin will take on the role of Chairman of the Audit Committee when Sir Aubrey Brocklebank retires in February 2021.
In response to the amount of time committed by the non-executive directors the Board has decided to increase the annual remuneration of the Chairman to £35,000 and the independent non-executive directors to £27,500. An additional fee of £1,500 will be introduced for the Chairman of the Management and Service Provider Engagement Committee and the Chairman of the Audit Committee will continue to receive an additional fee of £3,000.
Appointment of new Company Secretary
Following CGWL’s decision to cease provision of company secretarial services with effect from 15 January 2021, the Board is in advanced discussions with a new provider and a further announcement will be made in due course.
Annual General Meeting
In light of the UK government’s public health guidelines on COVID-19 and the interests of the safety and wellbeing of our shareholders, this year’s AGM will be run as a closed meeting and shareholders will not be able to attend in person. Further information can be found in the director’s report and Notice of Annual General Meeting.
Shareholder event
Both your Board and the investment manager are keen to improve interaction with our shareholders. I am pleased to report that we held one shareholder event within the reporting period at an external venue with good facilities and convenient transport links and were delighted to see a much improved response from previous events with 119 shareholders joining us at Everyman Cinema on 28 November 2019. Your Board is planning to release a pre-recorded seminar on 25 February 2021. Shareholders are invited to put questions to the investment manager no later than 27 January 2021 by emailing aimvct@canaccord.com or in writing to the Company’s registered address.
Regulatory update
There were no major changes to VCT legislation during the period under review.
VCT status
I am pleased to report that we continue to perform well against the requirements of the legislation and at the period end, the investment test was 97.0% (2019: 96.6%) against an 80% requirement when measured using HMRC’s methodology. The investment test dropped to 86.9% on 1 October 2020 as shares issued in the 2017 financial year fell into the calculation for the first time. The Company satisfied all other tests relevant to its status as a Venture Capital Trust and further information on these tests can be found in the VCT summary section.
Key information document
In accordance with the EU’s PRIIPs regulations the Company’s KID is published on the Company’s website at www.hargreaveaimvcts.co.uk.
The KID has been prepared using the methodology prescribed in the PRIIPS regulation. Although well intended, there are concerns about the application of some aspects of the prescribed methodologies to VCTs. Specifically, the Board is concerned that the risk score may be understating the level of risk and would like shareholders to continue to classify the VCT as a
high risk investment.
Covid-19
Your Board has reviewed the risks facing the Company as a result of the Covid-19 pandemic, further detail can be found in the principal and emerging risks and uncertainties section.
Outlook
We continue to be in very unsettling times with immense human suffering. Even with an extensive COVID lockdown it was on the cards that a second wave would come along and of course it has. However for the first time since the arrival of the pandemic, hope is now around the corner that science will allow us to begin to return to a new normal during 2021.
As I write, the issue of the US election is largely behind us and whilst Brexit negotiations are still to be resolved, perhaps some of the very considerable uncertainties of 2020 maybe, just maybe, coming to an end.
It is said that we live in very interesting if unsettling times. Your fund has an excellent spread of diversified quality British companies, which in the main are well positioned to take advantage of any economic recovery. I look forward to updating you on the performance of your fund in six months’ time.
In the meantime I thank shareholders for their continuing support during these difficult times.
David Brock
Chairman
21 December 2020
(1) Alternative performance measure definitions and illustrations can be found in the applicable sections below.
The Company and its business model
The Company was incorporated and registered in England and Wales on 16 August 2004 under the Companies Act 1985, registered number 05206425.
The Company has been approved as a Venture Capital Trust by HMRC under Section 259 of the Income Taxes Act 2007. The shares of the Company were first admitted to the Official List of the UK Listing Authority and trading on the London Stock Exchange on 29 October 2004 and can be found under the TIDM code “HHV”. The Company is premium listed.
In common with many other VCTs, the Company revoked its status as an investment company as defined in Section 266 of the Companies Act 1985 on 23 May 2006 to facilitate the payment of dividends out of capital profits.
The Company’s principal activity is to invest in a diversified portfolio of qualifying small UK based companies, primarily trading on AIM, with a view to generating capital returns and income from its portfolio and to make distributions from capital and income to shareholders whilst maintaining its status as a VCT.
The Company is registered as a small UK Alternative Investment Fund Manager (AIFM) with a Board comprising of six non-executive directors, five of whom are independent. Hargreave Hale Limited acts as investment manager whilst Canaccord Genuity Wealth Limited (CGWL) acts as administrator and custodian and provides the company secretary. CGWL will cease to provide company secretarial services on 15 January 2021. The Board is in advanced discussions with a new provider and a further announcement will be made in due course.
The Board has overall responsibility for the Company’s affairs including the determination of its investment policy, however, the Board exercises these responsibilities through delegation to Hargreave Hale/Canaccord Genuity Wealth Limited as it considers appropriate.
The Directors have managed and continue to manage the Company’s affairs in such a manner as to comply with Section 259 of the Income Taxes Act 2007.
Investment objectives, policy and strategy
Investment objectives
The investment objectives of the Company are to generate capital gains and income from its portfolio and to make distributions from capital or income to shareholders whilst maintaining its status as a Venture Capital Trust.
Investment policy
The Board has been working with the investment manager to update the Company’s investment policy whilst also making it clearer for investors to follow. The investment policy set out below is the updated investment policy approved by shareholders at the general meeting held on 29 September 2020.
The Company intends to achieve its investment objectives by making Qualifying Investments in companies listed on AIM, private companies and companies listed on the AQSE Growth Market, as well as Non-Qualifying Investments as allowed by the VCT Rules.
Qualifying investments
The investment manager will maintain a diversified portfolio of Qualifying Investments which may include equities and fixed interest securities as permitted by the VCT Rules. Investments will primarily be made in companies listed on AIM but may also include private companies that meet the investment manager’s criteria and companies listed on the AQSE Growth Market. These small companies will be UK based or have a UK presence and, whilst of high risk, will have the potential for significant capital appreciation.
To maintain its status as a VCT, the Company must have 80 per cent. of all funds raised from the issue of shares invested in Qualifying Investments throughout accounting periods of the VCT beginning no later than three years after the date on which those shares are issued. To provide some protection against an inadvertent breach of this rule, the investment manager targets a threshold of approximately 85 per cent.
Non-Qualifying Investments
The Non-Qualifying Investments must be permitted by the VCT Rules and may include equities and exchange traded funds listed on the main market of the London Stock Exchange, fixed income securities, bank deposits that are readily realisable and the Marlborough Special Situations Fund. Subject to the investment controls below, the allocation to each of these investment classes will vary to reflect the investment manager’s view of the market environment and the deployment of funds into Qualifying Companies. The market value of the Non-Qualifying Investments (excluding bank deposits) will vary between nil and 50 per cent. of the net assets of the Company. The value of funds held in bank deposits will vary between nil and 30 per cent. of the net assets of the Company.
Investment controls
The Company may make co-investments in investee companies alongside other funds, including other funds managed by the investment manager. Other than bank deposits, no individual investment shall exceed 10 per cent. of the Company’s net assets at the time of investment.
Borrowings
The Articles permit the Company to borrow up to 15 per cent. of its adjusted share capital and reserves (as defined in the Articles). However, it is not anticipated that the Company will have any borrowings in place and the Directors do not intend to utilise this authority.
To the extent that any future changes to the Company’s investment policy are considered to be material, shareholder consent to such changes will be sought. Such consent applies to the formal investment policy described above and not the investment process set out below.
Investment process and strategy
The investment manager follows a stock specific investment approach based on fundamental analysis of the investee company.
The Hargreave Hale fund management team has significant reach into the market and meets with large numbers of companies each week. These meetings provide insight into investee companies, their end markets, products and services, or the competition. Investments are monitored closely and the investment manager usually meets or engages with their senior leadership team at least twice each year. Where appropriate the Company may co-invest alongside the other funds managed by the investment manager.
The key selection criteria used in deciding which investments to make include, inter alia:
● the strength and depth of the management team;
● the business strategy;
● a prudent approach to financial management and forecasting;
● a strong balance sheet;
● profit margins, cash flows and the working capital cycle;
● barriers to entry and the competitive landscape; and
● the balance of risk and reward over the medium and long term.
Qualifying Investments
Investments are made to support the growth and development of a Qualifying Company. The investment manager will maintain a diversified portfolio that balances opportunity with risk and liquidity. Qualifying Investments will primarily be made in companies listed on AIM but may also include private companies and companies listed on the AQSE Growth Market. Seed funding is rarely provided and only when the senior leadership team includes proven business leaders known to the investment manager.
Working with advisers, the investment manager will screen opportunities, often meeting management teams several times prior to investment to gain a detailed understanding of the company. Investments will be sized to reflect the risk and opportunity over the medium and long term. In many cases, the investment manager will provide further funding as the need arises and the investment matures. When investing in private companies, the investment manager will shape the investment to meet the investee company’s needs whilst balancing the potential for capital appreciation with risk management.
Investments will be held for the long term unless there is a material adverse change, evidence of structural weakness, or poor governance and leadership. Partial realisations may be made where necessary to balance the portfolio or, on occasion, to capitalise on significant mispricing within the stock market.
Non-Qualifying Investments
The Hargreave Hale VCT team works closely with the wider Hargreave Hale fund management team to deliver the investment strategy when making Non-Qualifying Investments, as permitted by the VCT Rules. The investment manager will vary the exposure to the available asset classes to reflect its view of the equity markets, balancing the potential for capital appreciation with risk management, liquidity and income.
The Non-Qualifying Investments will typically include a focused portfolio of direct investments in companies listed on the main market of the London Stock Exchange. The portfolio will mix long term structural growth with more tactical investment to exploit short term mispricing within the market. The use of the Marlborough Special Situations Fund enables the Company to maintain its exposure to small UK companies whilst the investment manager identifies opportunities to invest the proceeds of fundraisings into Qualifying Companies.
The investment manager may use certain exchange traded funds listed on the main market of the London Stock Exchange to gain exposure to asset classes not otherwise accessible to the Company.
Environmental, social and governance (“ESG”) considerations
The investment manager is actively seeking to strengthen its current approach to ESG issues and is integrating a review of ESG issues into its investment decision-making process for investments in Qualifying Companies. The investment manager has already begun to implement its review of ESG issues in its due diligence process for Qualifying Investments in private companies and seeks to identify material issues in the following areas:
● role, structure and operation of the board;
● treatment of employees;
● robustness of accounting and internal controls; and
● environmental and/or social impacts of the business.
The investment manager will seek to engage and influence private companies on any areas of improvement identified through due diligence and, for both public and private companies, material ESG issues that arise during the term of the investment. The investment manager is developing a policy and a reporting structure to align with the UK Stewardship Code 2020, which has introduced a requirement to take ESG factors (including climate change) into account in the investment process as well as addressing ESG issues in ongoing engagement with investee companies.
Risk management
The structure of the Company’s investment portfolio and its investment strategy has been developed to mitigate risk where possible.
● The Company has a broad portfolio of investments to reduce stock specific risk.
● Flexible allocations to non-qualifying equities, exchange traded funds listed on the main market of the London Stock Exchange, fixed income securities, bank deposits that are readily realisable and the Marlborough Special Situations Fund, allow the investment manager to adjust portfolio risk without compromising liquidity.
● Regular meetings with investee companies aid the close monitoring of investments to identify potential risks and allow corrective action where possible. In order to address the additional risks posed by the current COVID-19 pandemic on smaller businesses, the investment manager has increased the number and frequency of meetings that it is holding with investee companies.
● Regular board meetings and dialogue with the Directors, along with policies to control conflicts of interest and co-investment with the Marlborough fund mandates, support strong governance.
Key performance indicators
The Directors consider the following Key Performance Indicators (KPIs) to assess whether the Company is achieving its strategic objectives. The Directors believe these measures help shareholders assess how effectively the Company is applying its investment policy and are satisfied the results give a good indication of whether the Company is achieving its investment objectives and policy. The KPIs are established industry measures.
Further commentary on the performance of these KPIs has been discussed in the chairman’s statement and investment manager’s report.
1. NAV and share price total returns
The Board monitors NAV and share price total return to assess how the Company is meeting its objective of generating capital gains and income from its portfolio and making distributions to shareholders. The Board is pleased to report a positive return for the year under review despite the challenging market environment. The NAV per share increased from 70.60 pence to 73.66 pence resulting in a gain to ordinary shareholders of 8.06 pence per share (11.42%) after adjusting for dividends paid in the year.
The Board considers peer group and benchmark comparative performance. Due to the very low number of AIM VCTs, the Board reviews performance against the generalist VCTs as well as the AIM VCTs to provide a broader peer group for comparison purposes. Performance is also measured against the Company’s closest benchmark the FTSE AIM All-share Index total return. With 67% of the net assets invested in companies listed on AIM, the Directors consider this to be the most appropriate benchmark from a shareholder’s perspective. However, HMRC derived investment restrictions, along with Qualifying Investments in private companies and fixed income securities, and Non-Qualifying Investments in main market listed companies, predominantly in the FTSE 350, mean the index is not a wholly comparable benchmark for performance.
Rolling Returns to end Sep 2020 | 1Y | 3y | 5y | 10y |
NAV total return | 11.42% | 8.65% | 28.36% | 83.20% |
Share price total return | 6.77% | 5.46% | 21.59% | 100.28% |
NAV total return (dividends reinvested) (1) | 12.09% | 9.98% | 32.25% | 107.56% |
Share price total return (dividends reinvested) (1) | 7.11% | 5.94% | 23.94% | 124.35% |
FTSE AIM All-Share Index total return | 11.03% | -0.86% | 41.47% | 37.41% |
Weighted average NAV total return for AIM VCT peer group (dividends reinvested) | 16.32% | 13.55% | 48.09% | 134.49% |
Weighted average NAV total return for generalist VCT peer group (dividends reinvested) | -4.92% | 3.03% | 20.81% | 75.66% |
Source: Hargreave Hale Ltd/Bloomberg/AIC and Morningstar
(1) The NAV total return (dividends reinvested) and Share price total return (dividends reinvested) measures have been included to improve comparability with the FTSE AIM All-Share index total return and peer group returns which are also calculated on that basis.
Whilst behind the weighted average of its AIM VCT peers, which is a particularly narrow peer group of just 5 managers, the NAV total return (dividends reinvested) for the VCT has performed ahead of the FTSE AIM All-Share over most periods, and very significantly ahead over 10 years. It has also comfortably outperformed the average of the much larger Generalist VCT sector over all time horizons shown in the table above.
2. Share price discount to NAV per share
Hargreave Hale AIM VCT plc uses secondary market purchases of its shares to improve the liquidity in its shares and support the discount. The discount to NAV per share is an important influence on a selling shareholder’s eventual return. The Company aims to maintain a discount of approximately 5 per cent. to the last published NAV per share (as measured against the mid-price).
The share price discount as 30 September 2020 was 10.40% (2019: 5.81%). The 1 and 5 year average share price discounts are 8.55% and 6.18% respectively.
The Company’s shares are priced against the last published NAV per share with the market typically adjusting the price to reflect NAV after its publication. In line with the Company’s valuation policy, the quarter end NAV per share is published 5 business days after the period end to allow time for the manager and board to review and agree the valuation of the private companies held within the investment portfolio.
The 30 September 2020 year end review resulted in favourable movements in the valuation of several private companies and a substantial increase in the NAV per share relative to the previously published NAV per share, leading to an unusually wide discount of 10.4% on 30 September 2020. The discount narrowed to 6.3% on 8 October 2020 following the release of 30 September 2020 NAV per share and averaged 8.55% during the year under review.
3. Ongoing charges ratio
The ongoing charges of the Company were 2.35% (2019: 2.05%) of the average net assets of the Company during the financial year to September 2020. The increase in the ongoing charges ratio primarily reflects the full year impact of changes made in the prior financial year, as previously reported. Beyond the appointment of Angela Henderson to the board on 29 October 2019, there were no other material increases to the cost base within the financial year. The addition of a legal counsel to the manager’s VCT team in May 2020 provided for a reduced spend on due diligence related legal advice in the latter part of the financial year and should provide further cost benefits in the current financial year and beyond.
The Company’s ongoing charges ratio remains competitive against the wider VCT industry and similar to other AIM VCTs. This ratio is calculated using the AIC’s “Ongoing Charges” methodology and, although based on historical information, it provides shareholders with an indication of the likely future cost of managing the fund.
Cost control and efficiency continues to be a key focus for your Board. The Board is satisfied with the result for the year which was in line with the Company’s budget.
4. Dividends per share
The Company’s policy is to target a tax free dividend yield equivalent to 5% of the year end NAV per share. The Board remains committed to maintaining a steady flow of dividend distributions to shareholders.
A total of 5.00 pence per share (2019: 5.15 pence) of dividends was paid during the year, comprised of a special dividend of 1.75 pence (2019: 1 penny) paid on 28 November 2019, a final dividend of 2.25 pence in respect of the previous financial year (2018: 2.65 pence) paid on 11 February 2020 and an interim dividend of 1 penny (2019: 1.50 pence) paid on 24 July 2020.
A final dividend of 2.65 pence per share will be proposed at the Annual General Meeting. If approved by shareholders, the payment of the interim and final dividends in respect of the financial year to September 2020 would represent a distribution to shareholders of 5.0% of the 30 September 2020 NAV per share. The payment of the special dividend, which was outside of the scope of the dividend policy, further increases the distribution to 7.3% of the 30 September 2020 NAV per share.
The below table demonstrates how the Board has been able to consistently pay dividends in line with the 5% target and dividend policy.
Dividends paid/payable by financial year | ||||
Year | Year end NAV | Dividends paid | Yield | Additional information |
pence per share | ||||
2009/10 | 62.67 | 4.00 | 6.4% | |
2010/11 | 61.14 | 4.00 | 6.5% | |
2011/12 | 61.35 | 3.25 | 5.3% | |
2012/13 | 71.87 | 3.75 | 5.2% | |
2013/14 | 80.31 | 4.25 | 5.3% | |
2014/15 | 74.64 | 4.00 | 5.4% | |
2015/16 | 75.93 | 4.00 | 5.3% | |
2016/17 | 80.82 | 4.00 | 4.9% | |
2017/18 | 87.59 | 5.40 | 6.2% | Including special dividend of 1 penny. |
2018/19 | 70.60 | 3.75 | 5.3% | |
2019/20 | 73.66 | 5.40 | 7.3% | Including a special dividend of 1.75 pence and the proposed final dividend of 2.65 pence |
5. Compliance with VCT regulations
A VCT must be approved by HMRC at all times, and in order to retain its status, the Company must meet a number of tests as set out by the VCT legislation, please see summary of VCT regulations section for further information. Throughout the year ended 30 September 2020 the Company continued to meet these tests.
The investment test increased from 96.6% to 97.0% in the financial year, comfortably ahead of the new 80% threshold that applied to the Company with effect from 1 October 2019. The Company invested £17.1 million into 22 Qualifying Companies, 9 of which were investments into new Qualifying Companies. The Board is pleased with the level of new Qualifying Investment, which was ahead of expectations. Along with unrealised gains in the period, the new Qualifying Investments helped to increase the fair value of the qualifying portfolio from £79.6m to £112.4m. On 1 October 2020, when shares issued in the 2017 financial year fell into the test for the first time, the investment test dropped to 86.9%.
The Board believes that the Company will continue to meet the HMRC defined investment test and other qualifying criteria on an ongoing basis.
For further details please refer to the investment manager’s report.
Section 172 statement
This section sets out how the Company meets its obligations under Section 172 of the Companies Act and should be read with the other contents of the Strategic Report.
The directors have a duty to promote the success of the Company for the benefit of its members as a whole, and in doing so to have regard to a number of matters including:
the likely consequences of any decision in the long term;
the interests of the company's employees;
the need to foster the company's business relationships with suppliers, customers and others;
the impact of the company's operations on the community and the environment;
the desirability of the company maintaining a reputation for high standards of business conduct; and
the need to act fairly as between members of the company.
As an externally managed investment company with no employees, the Board considers its key stakeholders to be the shareholders, the investment manager, other service providers and investee companies.
Shareholders
Shareholder relations are given high priority by the Board. Regular updates are given to shareholders through the interim and annual report and accounts, which aim to provide shareholders with a full understanding of the Company’s activities and its results, monthly factsheets and the weekly publication of the Company’s NAV per share. This information combined with further background regarding the Company is available on the Company’s website at https://www.hargreaveaimvcts.co.uk.
In light of the UK government’s public health guidelines on COVID-19 and the interests of the safety and wellbeing of our shareholders, this year’s AGM will be run as a closed meeting and shareholders will not be able to attend in person. The Board recognises the importance of the AGM to shareholders and encourages them to submit questions in writing, to be received at least six business days before the meeting (i.e. by 10.30 am on 27 January 2021), by sending an email to aimvct@canaccord.com. Answers will be published on the website on 1 February 2021.
Shareholders can also communicate with the Chairman, any other member of the Board or the investment manager by writing to the Company, for the attention of the company secretary or by email to aimvct@canaccord.com.
In the last financial year the Company held a successful event attended by over 100 of its shareholders giving them the opportunity to hear directly from CEOs of some of the investee companies and meet with the investment manager and members of the Board. Your Board is planning to release a pre-recorded seminar on 25 February 2021. Shareholders are invited to put questions to the investment manager no later than 27 January 2021 by emailing aimvct@canaccord.com or in writing to the Company’s registered address.
Investment Manager
The Company’s most important business relationship is with its investment manager. The Company’s lead fund manager, Oliver Bedford, is a board member and he and other representatives of the investment manager attend all board meetings thus ensuring a constructive dialogue.
The Board regularly reviews the Company’s performance in relation to its investment objectives. The Board receives detailed reports from the investment manager, including commentary on investment performance and portfolio positioning, which enable it to oversee the delivery of the Company’s investment policy. The Board, through the Management and Service Provider Engagement Committee, formally reviews the performance of the Manager on an annual basis.
Other Service Providers
The Company seeks to have a constructive relationship with all of its service providers. It maintains a schedule of the contracts that it has in place with its service providers including those services provided by the Manager. The service provided by each is reviewed by the Board through the Manager and Service Provider Engagement Committee on an annual basis, most recently in November 2020.
Investee Companies
The Company’s performance is directly linked to the performance of its underlying investee companies. The Board has delegated the monitoring of its portfolio companies to the investment manager which engages with investee companies through a programme of regular company meetings as part of its investment process.
The Board has also given the investment manager discretionary authority to vote on investee company resolutions on its behalf as part of its approach to corporate governance.
The impact of key decisions on stakeholders
Key decisions and actions during the year which have required the Directors to have regard to applicable section 172 factors include:
During the year the Board decided to launch an offer for subscription of shares, this provided an opportunity for existing shareholders and new investors to invest in the Company and provided liquidity to enable the Company to take advantage of new investment opportunities in furtherance of its long-term objectives.
The Board established a dividend re-investment scheme (“DRIS”) allowing shareholders to elect to receive all or part of their dividends from the Company in the form of new ordinary shares.
The Board reviewed and updated the Company’s investment and discount control policies to provide additional clarity for shareholders. The revised investment policy was approved by shareholders at the Company’s recent General Meeting.
Notwithstanding difficult market conditions at times during the year under review the Company continued to buy back shares in line with its stated policy. This action provided liquidity for shareholders looking to sell their shares whilst modestly enhancing the NAV per share for remaining shareholders.
As part of its Board succession and refreshment plans the Board recruited Angela Henderson in October 2019 and Justin Ward in November 2020 as independent non-executive directors. The Board believes that the orderly refreshment of the Board is consistent with the principles of good corporate governance and so in the best interests of shareholders.
Principal and emerging risks and uncertainties
The Directors acknowledge that they are responsible for the effectiveness of the Company’s risk management and internal controls and periodically review the principal risks faced by the Company at board meetings. The Board may fulfil these responsibilities through delegation to Hargreave Hale Limited and Canaccord Genuity Wealth Limited as it considers appropriate. The Board also considers emerging risks of which the most significant to arise during the year was the emergence of the Covid-19 virus. The virus has had a terrible impact on public health and has also led to significant stock market and global economic volatility the duration of which is yet to be determined. The principal risks facing the Company together with mitigating actions taken by the Board are set out below:
Risk | Potential consequence | How the Board mitigates risk |
Venture Capital Trust approval risk – the Company operates in a complex regulatory environment and faces a number of related risks. A breach of Section 259 of the Income Taxes Act 2007 or the Finance Act could result in the disqualification of the Company as a VCT. | Loss of VCT approval could lead to the Company losing its exemption from corporation tax on capital gains, shareholders losing their tax reliefs and in certain circumstances being required to repay the initial tax relief on their investment. | To reduce this risk, the Board has appointed the investment manager, who has significant experience in venture capital trust management and reports to the Board regularly throughout the year. In addition, to provide further formal assurance, the Board has appointed Philip Hare & Associates LLP to monitor compliance with regulations and provide half yearly compliance reports to the Board. |
Investment risk – Many of the Company’s investments are held in small, high risk companies which are either listed on AIM or privately held. | Investment in poor quality companies could reduce the capital and income return to shareholders. Investments in small companies are often illiquid and may be difficult to realise. | The Board has appointed an investment manager with significant experience of investing in small companies. The investment manager maintains a broad portfolio of investments, individual Qualifying Investments rarely exceed 5% of net assets, and holds regular company meetings to monitor investments and identify potential risk. The fund’s liquidity is monitored on a regular basis by the investment manager. |
Compliance risk – The Company is required to comply with the rules of the UK Listing Authority, the Companies Act, Accounting Standards, the General Data Protection Regulation and other legislation. The Company is also a small registered Alternative Investment Fund Manager (“AIFM”) and has to comply with the requirements of the AIFM Directive. | Failure to comply with these regulations could result in a delisting of the Company’s shares, financial penalties, a qualified audit report or loss of shareholder trust. | Board members have considerable experience of operating at senior levels within quoted businesses. They have access to a range of advisors including solicitors, accountants and other professional bodies and take advice when appropriate. |
Operational risk and outsourcing – Failure in the investment manager/administrator or other appointed third party systems and controls or disruption to its business. | Failures could put the assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or shareholders. | The Company has in place a risk matrix and a set of internal policies which are reviewed on a regular basis. It has written agreements in place with its third-party service providers. The Board receives regular reports from the investment manager, administrator and custodian to provide assurance that appropriate oversight is in place. Additionally, the Board receives a control report from the Company’s registrars on an annual basis. Where tasks are outsourced to other third parties, reputable firms are used and performance is reviewed periodically. |
Key personnel risk – A change in the key personnel involved in the management of the portfolio. | Potential impact on investment performance | The Board discusses key personnel risk and resourcing with the investment manager periodically. The VCT team within the investment manager has increased in size over the last two and a half years, which helps to mitigate this risk. |
Exogenous risks such as economic, political, financial, climate change and health - economic risks include recession and sharp changes in interest rates, political risks include the terms of the UK’s exit from the European Union or a change in government policy causing the VCT scheme to be brought to an end. | Instability or change arising from these risks could have an impact on stock markets and the value of the Company’s investments so reducing returns to shareholders. In particular at present the future path of the Covid-19 pandemic is still uncertain and the full economic impact of measures taken to control the epidemic is yet to be seen. Whilst the UK stock market has already fallen in an attempt to price in | Regular dialogue with the manager provides the Board with assurance that the manager is following the investment policy agreed by the Board and appraises the Board of the portfolio’s current positioning in the light of prevailing market conditions. Communication between the Board and the investment manager has remained strong through the period of the COVID-19 outbreak. The Company’s investment portfolio is well diversified and the Company has no gearing. |
Information about additional risks the Company is exposed to is included in note 4. Trends affecting future developments are discussed in the chairman’s statement and the investment manager’s report.
Long term viability statement
In accordance with provision 28 of the UK Corporate Governance Code, the Directors have carried out a robust assessment of the Company’s emerging and principal risks, further details can be found in the principal and emerging risk section. This assessment has been carried out over a longer period than the 12 months required by the ‘Going Concern’ provision. The Board conducted this review for a period of five years, which was selected because it:
is consistent with investors’ minimum holding period to retain tax relief;
exceeds the time allowed to deploy funds raised under the current offer in accordance with VCT legislation; and
because it is challenging to forecast beyond five years with sufficient accuracy to provide actionable insight.
The Board considers the viability of the Company as part of its continuing programme of monitoring risk. The Company has a detailed risk control framework, documented procedures and forecasting model in place to reduce the likelihood and impact of risk taking that exceeds the agreed levels by the Board. These controls are reviewed by the Board and investment manager on a regular basis.
The Board has considered the Company’s financial position and its ability to meet its liabilities as they fall due over the next five years taking into account the following factors in its assessment of the Company’s future viability:
the Company maintains a highly diversified portfolio of Qualifying Investments;
the Company is well invested against the HMRC investment test and the Board believes the manager will continue to have access to sufficient numbers of investment opportunities to maintain compliance with the HMRC investment test;
the Company held £15.7 million in cash at the year end;
the Company has a broad portfolio of Non-Qualifying Investments, most of which are listed in the FTSE 350 and offer good levels of liquidity should the need arise;
the financial position of the Company at 30 September 2020 was strong with no debt or gearing;
the current offer for subscription of shares is expected to provide further liquidity for deployment in line with the company’s policies or to meet future expenses;
the ongoing charges ratio of the Company for the year end was 2.35%, which is competitive for the VCT sector; and
the Company has sufficient procedures in place to identify, monitor and control risk and portfolio liquidity.
In assessing the Company’s future viability, the Board has assumed that investors will wish to continue to have exposure to the Company’s activities, that performance will be satisfactory and the Company will continue to have access to sufficient capital.
Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years.
Other matters
Dividend policy
The Company’s dividend policy is to target a tax free dividend yield equivalent to 5% of the year end NAV per share. The ability to pay dividends is dependent on the Company’s available distributable reserves and cash resources, the Act, the Listing Rules and the VCT Rules. The policy is non-binding and at the discretion of the Board. Dividend payments may vary from year to year in both quantum and timing. The level of dividend paid each year will depend on the performance of the Company’s portfolio. In years where there is strong investment performance, the Directors may consider a higher dividend payment, including the payment of special dividends. In years where investment performance is not as strong, the Directors may reduce or even pay no dividend.
Discount control and management of share liquidity policy
The Company aims to improve liquidity and to maintain a discount of approximately 5 per cent. to the last published NAV per share (as measured against the mid-price) by making secondary market purchases of its shares in accordance with parameters set by the Board.
This policy is non-binding and at the discretion of the Board. Its operation depends on a range of factors including the Company’s liquidity, shareholder permissions, market conditions and compliance with all laws and regulations. These factors may restrict the effective operation of the policy and prevent the Company from achieving its objectives.
Diversity
The Board comprises five male non-executive directors and one female non-executive director with a diverse range of experience, skills, length of service and backgrounds. The Board considers diversity when reviewing Board composition and has made a commitment to consider diversity when making future appointments. The Board will always appoint the best person for the job. It will not discriminate on the grounds of gender, race, ethnicity, religion, sexual orientation, age or physical ability.
Environmental Social and Governance (ESG) Considerations
The Board seeks to maintain high standards of conduct with respect to environmental, social and governance issues and to conduct the Company’s affairs responsibly.
The Company does not have any employees or offices and so the Board does not maintain any specific policies regarding employee, human rights, social and community issues but does expect the investment manager to consider them when fulfilling their role.
The management of the Company’s investment portfolio has been delegated to its investment manager Hargreave Hale Ltd. The Company has not instructed the investment manager to include or exclude any specific types of investment on ESG grounds. However, it expects the investment manager to take account of ESG considerations in its investment process for the selection and ongoing monitoring of underlying investments. The Board has also given the investment manager discretion to exercise voting rights on resolutions proposed by investee companies.
The investment manager is actively seeking to strengthen its approach to ESG issues. Further detail regarding the investment manager’s approach to ESG issues can be found in the relevant section of the investment objectives, policy and strategy section.
To minimise the direct impact of its activities the Company offers electronic communications where acceptable to reduce the volume of paper it uses and uses Carbon Balanced paper manufactured at a FSC accredited mill to print its financial reports. Vegetable based inks are used in the printing process where appropriate.
Prospects
The prospects and future development of the Company are discussed in detail in the outlook section of the chairman’s statement.
The strategic report is approved, by order of the Board of Directors.
David Brock
Chairman
21 December 2020
Summary of VCT regulations
To maintain its status as a VCT, the Company must be approved by HMRC and comply with a number of conditions. A summary of the most important conditions are detailed below.
VCTs’ obligations
VCTs must:
have 80 per cent. (by VCT tax value) of all funds raised from the issue of shares invested in Qualifying Investments throughout accounting periods of the VCT beginning no later than three years after the date on which those shares are issued (this percentage has increased from 70% for accounting periods ending after 30 September 2019);
have at least 70 per cent. by VCT tax value of Qualifying Investments in Eligible Shares which carry no preferential rights (unless permitted under VCT rules);
have at least 30 per cent. of all new funds raised by the Company invested in Qualifying Investments within 12 months of the end of the accounting period in which the Company issued the shares;
have no more than 15 per cent. by VCT tax value of its investments in a single company (as valued in accordance with the VCT Rules at the date of investment); and
derive most of its income from shares and securities, and, must not retain more than 15 per cent. of its income derived from shares and securities in any accounting period; and
have their shares listed on a European regulated Stock Exchange.
VCTs must not:
make a Qualifying Investment in any company that:
has (as a result of the investment or otherwise) received more than £5 million from State Aid investment sources in the 12 months prior to the investment (£10 million for Knowledge Intensive Companies);
has (as a result of the investment or otherwise) received more than £12 million from State Aid investment sources in its lifetime (or £20 million for Knowledge Intensive Companies);
in general has been generating commercial revenues for more than seven years (or 10 years for Knowledge Intensive Companies); or
will use the investment to fund an acquisition of another company (or its trade and assets).
make any investment which is not a Qualifying Investment unless permitted by section 274 ITA; and/or
return capital to shareholders before the third anniversary of the end of the accounting period during which the subscription for shares occurs.
Qualifying Investments
A Qualifying Investment consists of new shares or securities issued directly to the VCT by a Qualifying Company that at the point of investment:
has gross assets not exceeding £15 million prior to investment and £16 million post investment;
whose activities are regarded as a Qualifying Trade;
is a private company or is listed on AIM or the AQSE Growth Market;
has a permanent UK establishment;
is not controlled by another company;
will deploy the money raised for the purposes of the organic growth and development of a Qualifying Trade within 2 years;
has fewer than 250 employees (or fewer than 500 employees in the case of certain Knowledge Intensive Companies);
in general, has not been generating commercial sales for more than seven years (ten years for Knowledge Intensive Companies);
has not received more than the permitted annual and lifetime limits of risk finance State aid investment; and
has not been set up for the purpose of accessing tax reliefs or is in substance a financing business.
The Finance Act 2018 introduced a principles-based approach known as the risk to capital condition to establish whether the activities or investments of an investee company can qualify for VCT tax reliefs. This condition has two parts:
whether the investee company has an objective to grow and develop over the long term; and
whether there is a significant risk that there could be a loss of capital to the investor of an amount exceeding the net return.
The investment manager and the administrator
Hargreave Hale was founded in 1897. It has been part of the Canaccord Genuity Wealth group of companies since September 2017.
The lead fund manager at the investment manager in relation to the Company is Oliver Bedford, supported by Lucy Bloomfield as deputy fund manager, Giles Hargreave as co-manager, Anna Salim, and Barbara Walshe. The VCT management team is also supported by the wider Hargreave Hale fund management team, which totals 17 (including the VCT team), mainly in the delivery of the Non-Qualifying Investment strategy. The Hargreave Hale fund management team manages approximately £4.3 billion as at 30 September 2020, including approximately £3.0 billion invested in small companies. Along with the scale of the investment in small companies and their track record, the breadth of the team and their reach into the market help attract Qualifying Investment deal flow.
Other members of the fund management team at Hargreave Hale include David Walton, Siddarth Chand Lall, Richard Hallett, George Finlay, Guy Feld, Will Searle and Eustace Santa Barbara, (pictured from left to right below), along with Dan Holmstrom, William Rosier, Phil Hallam, Caroline de La Soujeole and Tom Hutchinson.
The Administrator
Following the integration of Hargreave Hale into the CGWL group of companies, the Company appointed CGWL as its administrator, custodian and company secretary. CGWL is a subsidiary of Canaccord Genuity Inc., a full service financial services company listed on the Toronto Stock Exchange. CGWL will cease to provide company secretarial services on 15 January 2021. The Board is in advanced discussions with a new provider and a further announcement will be made in due course.
Fees and expenses
The annual running costs of the Company are capped at 3.5 per cent. of the net assets of the Company. The investment manager has agreed to indemnify the Company in relation to all costs that exceed this cap, such costs shall exclude any VAT payable on the annual running costs of the Company. Under the management agreement, the investment manager receives an annual management fee of 1.7 per cent. of the NAV of the Company.
75 per cent. of the annual management charge will be chargeable against capital reserves, with the remainder being chargeable against revenue. The Company does not pay the investment manager a performance fee. As the investment manager to the Company and investment advisor to the Marlborough Special Situations Fund (in which the Company may invest), the investment manager adjusts the fee it receives under the management agreement to ensure that the Company is not charged twice for its services.
Following analysis of the due diligence and transactional services costs paid by the Company, the investment manager has expanded its team to allow a greater proportion of due diligence and transactional services on potential investments to be carried out internally. Upon completion of an investment, the investment manager is permitted under the management agreement to charge private investee companies a fee equal to 1.5 per cent. of the investment amount. This fee is subject to a cap of £40,000 per investment and is payable directly from the investee company to the investment manager. It is expected that these changes will generate a reduction in transaction costs paid by the Company.
The administrator charges the Company an annual aggregate fee of £195,000 (plus VAT) in relation to the provision of administration services. In addition, the administrator receives a fee of £30,000 per annum in relation to its appointment as the Company’s custodian and will receive an annual fee of £17,000 (pro-rated) to 15 January 2021 for company secretarial services.
Investment manager’s report
Introduction
This report covers the 2019/20 financial year, 1 October 2019 to 30 September 2020. The investment manager’s report contains references to movements in the NAV per share and NAV total return per share. Movements in the NAV per share do not necessarily mirror the earnings per share reported in the accounts and elsewhere, which convey the profit after tax of the Company within the reported period as a function of the weighted average number of shares in issue for the period.
Investment performance measures contained in this report are calculated on a pence per share basis and include realised and unrealised gains and losses.
Investment report
The financial year started with global equity markets performing well. Markets also found support from the more dovish stance adopted by many central banks and, in the case of the UK and elsewhere, talk of fiscal stimulus. The General Election produced some clarity on how and when the UK will exit the EU. We started 2020 with an optimistic outlook for the small domestically orientated companies that we invest in.
Since then, all of us have had to adjust to a profoundly different way of life. For many portfolio companies, it was a year of extreme operational stress, either through severe business disruption or dramatically accelerated growth. Although the pandemic has taken a terrible toll, we are very proud of the way senior leadership teams responded, working hard to preserve employment, protect livelihoods and maintain safe working environments whilst managing their balance sheet liquidity in the face of the most significant reduction in global activity in living memory.
Whilst some companies have been negatively impacted, others are emerging in a stronger position than when they entered the crisis. It also seems some emerging or existing trends will accelerate and become more entrenched: deglobalisation, digitisation, remote working/ learning and e-commerce are good examples. The pandemic has created opportunities for those with relevant service propositions and those companies able to adjust quickly to the new world we find ourselves in.
Although it is clear that we are some way from returning to pre-pandemic levels of economic activity, recent progress on vaccine development offers hope and, placing the immediate challenges to one side, we look into 2021 with some optimism that the economic rebound witnessed through the summer will re-emerge early next year as vaccination programmes get underway and consumer and business confidence recovers.
Performance
The year to 30 September 2020 was a year of two very different halves that delivered an increase in the NAV per share from 70.60p to 73.66p. A special dividend of 1.75 pence per share was paid on 28 November 2019, a final dividend of 2.25 pence was paid on 11 February 2020 and an interim dividend of 1 penny per share was paid on 24 July 2020, giving investors a NAV total return for the year of +8.06 pence per share or +11.42%. The NAV total return (dividends reinvested) for the year was +12.09% compared with +11.03% in the FTSE AIM All-share Index total return and -16.6% in the FTSE All-Share Index total return (also calculated on a dividends reinvested basis).
The Qualifying Investments made a net contribution of +10.60 pence per share, in part offset by a modest decline (-1.24 pence per share) in the non-qualifying portfolio. The adjusting balance was the net of running costs and investment income.
Gousto was the top performing Qualifying Investment (+130.1%, +2.92 pence per share), with the company delivering strong performance and significant upgrades. The company raised £33m in March 2020 and, subsequent to the year end, a further £25m in October 2020 to support product and service enhancement, and a large investment in new capacity. The company delivered more than 5 million meals per month over lockdown and expects to report maiden profits for the year to 31 December 2020.
Ilika (+304.8%, +1.17 pence per share) followed a confident update in January with a £15m fundraise in March to fund the transition to large volume commercial production in response to meaningful levels of customer interest in their miniature solid state batteries.
Surface Transforms (+75.0%, +1.15 pence per share) reported significant contract wins with a large global original equipment manufacturer (OEM) and Koenisegg that more than compensated for further delays with Aston Martin. Aggregating this with the July 2019 EUR 12m contract with a large German OEM and the delayed Aston Martin contract results in a doubling of their 2022 revenue expectations, bringing forward profitability by 12 months.
Maxcyte (+216.5%, +1.11 pence per share) backed up trading that was ahead of expectations in FY19 with a strong start to FY20 with revenues up 30% year on year and a move into EBITDA profitability.
My 1st Years (+135.3%, +1.04 pence per share) reported substantial levels of growth through 2020 as consumers increasingly turned to the online retailer for personalised clothing and toys for pre-school children, helping the company to transition to profit. Other notable contributors included Polarean (+144.4%, +0.72 pence per share) and Oxford Genetics (+39.5%, +0.63 pence per share).
Having reported record revenues in the six months to March and resilient trading through to May, Hardide (-68.9%, -1.43 pence per share) reduced FY20 revenue guidance after travel restrictions delayed a large order in the oil and gas sector. Although demand from other oil and gas customers reduced to reflect lower levels of economic activity, demand from other verticals remains robust. The company continues to move forward with Airbus. The delayed order was confirmed just prior to year-end and provides the company with a good foundation for FY21.
Zoo Digital (-25.3%, -0.46 pence per share) guided lower for revenues and EBITDA for the year to March 2020. Subsequent statements were more positive with the company reporting a return to double digit revenue growth in the 6 months to September despite the difficult production and post production environment. The company is reporting market share gains as clients adopt their cloud based dubbing and subtitling solutions, which enable remote working, and use Zoo’s digital packaging solution to migrate back catalogues onto digital media platforms.
Other losses came from Laundrapp (-100%, -0.52 pence per share), which was placed into administration, and Craneware (-38.5%, -0.46 pence per share) which dampened organic growth expectations in response to CV19 impacts on the US healthcare sector. More recent trading points to a recovery in sales order momentum.
We invested £17.1m into 22 Qualifying Companies including 8 investments through secondary placings into new portfolio companies, 1 new private investment and 13 investments into existing portfolio companies.
The most significant new investments included Kidly (online retailer of design-led, parent-approved products for children), Eden Research (sustainable crop protection products), One Media IP (digital record label, publisher and rights management) and Polarean Imaging (advanced imaging solutions for the pulmonary function).
Within the qualifying portfolio, we reduced our investments in Blackbird, Diurnal, Faron Pharma, Fusion Antibodies, Ilika, Learning Technologies, Surface Transforms and Synairgen following good performance. High levels of new investment allowed us to review and refine the qualifying portfolio, resulting in the sale of a large number of legacy positions. Two companies, APC Technology and Synnovia (formerly Plastics Capital), were also sold following bids from private equity. In total we sold 17 Qualifying Investments over the course of the financial year.
Portfolio structure
The VCT is comfortably through the HMRC defined investment test and ended the period at 97.0% invested as measured by the HMRC investment test. By market value, the VCT had a 76.5% weighting to Qualifying Investments.
The allocation to non-qualifying equity investments decreased from 20.1% to 13.3%. In line with the investment policy we sold the investment in the Marlborough Special Situations Fund to release funds for new Qualifying Investments. The Marlborough Special Situations Fund returned a loss of -0.19 pence per share in the period. The non-qualifying direct equity investments, which are mostly held in FTSE 350 companies and included a number of companies that were impacted by the pandemic or the consequential impact on the global economy, contributed -1.24 pence per share. Within the period, XP Power returned +83.4% (+0.29 pence per share), S4 capital returned +90.5% (+0.29 pence per share) and Integrafin returned +28.5% (+0.20 pence per share). The largest non-qualifying losses came from Royal Dutch Shell -60.8% (-0.38 pence per share) and BP -56.3% (-0.27 pence per share). The period ended with no non-qualifying fixed income investments and a decrease in the cash weighting from 17.1% to 10.7%.
The Company invests across all available investment sectors, although VCT legislation tends to promote investment into sectors such as healthcare, technology and consumer discretionary. The weightings to these three sectors increased over the year as a consequence of additional investment and share price performance, taking their respective share of net assets to 27%, 26% and 22% at year end.
The HMRC investment tests are set out in Chapter 3 of Part 6 Income Tax Act 2007, which should be read in conjunction with this section of the annual report. Funds raised by VCTs are first included in the investment tests from the start of the accounting period containing the third anniversary of the date on which the funds were raised. Therefore, the allocation of Qualifying Investments as defined by the legislation can be different to the portfolio weighting as measured by market value relative to the net assets of the VCT.
Post period end update
Equity markets became increasingly nervous as CV19 infection rates built across many of the world’s advanced economies through the autumn. Although the winter will be difficult, the prospect of meaningful progress on mass vaccination in early 2021 allows investors to look beyond the immediate challenges. The UK markets have benefitted from this improved outlook, although sentiment remains heavily conditioned by the uncertainty over the future of our trading relationship with the European Union. Within UK equity markets, we have seen a rotation towards businesses which have been most affected by CV19 lockdowns, creating short-term headwinds for the investment portfolio with its significant weightings to high growth technology and healthcare companies.
2021 could herald a return to a more normal way of life, a strong rebound in economic activity and, at long last, some certainty on BREXIT. Should the Government succeed in securing a positive resolution to their current negotiations, then the outlook for many companies will be substantially brighter than it has been for much of the last year.
The NAV per share has increased from 73.66 pence to 79.82 pence in the period to 11 December, a gain of 8.4%.
We have been less active in making new Qualifying Investments since the year end, potentially a consequence of the record levels of activity seen earlier this year. However, with only very modest levels of new investment required to return to full investment, this is not a cause for concern.
As at 21 December 2021, the share price of 76 pence represented a discount of 4.8% to the last published NAV per share.
For further information please contact:
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21 December 2020
Investment portfolio summary
As at 30 September 2020
Net Assets % at 30 Sep 2020 | Cost £000 | Cumulative movement in value £000 | Valuation £000 | Change in value for the year £000 (2) | Market | COI(1) | ||
Qualifying Investments | ||||||||
SCA Investments Ltd (Gousto) | 7.06 | 2,484 | 7,893 | 10,377 | 5,867 | Unlisted | Y | |
Learning Technologies Group plc | 4.01 | 2,238 | 3,657 | 5,895 | 504 | AIM | Y | |
Ideagen plc | 3.37 | 1,992 | 2,965 | 4,957 | 1,188 | AIM | N | |
Surface Transforms plc | 2.76 | 1,388 | 2,668 | 4,056 | 2,100 | AIM | Y | |
Creo Medical Group plc | 2.60 | 2,329 | 1,489 | 3,818 | 506 | AIM | Y | |
Infinity Reliance Ltd (My 1st Years) | 2.46 | 2,500 | 1,112 | 3,612 | 2,077 | Unlisted | Y | |
Ilika plc | 2.27 | 1,376 | 1,954 | 3,330 | 2,083 | AIM | Y | |
Maxcyte Inc | 2.21 | 1,514 | 1,740 | 3,254 | 2,226 | AIM | Y | |
Oxford Genetics Ltd | 2.02 | 2,186 | 785 | 2,971 | 785 | Unlisted | Y | |
Cohort plc | 1.93 | 619 | 2,212 | 2,831 | 333 | AIM | Y | |
PCI-PAL plc | 1.90 | 2,355 | 434 | 2,789 | 724 | AIM | Y | |
Zoo Digital Group plc | 1.85 | 2,266 | 459 | 2,725 | (924) | AIM | N | |
Blackbird plc | 1.76 | 700 | 1,890 | 2,590 | 677 | AIM | Y | |
Eagle Eye Solutions Group plc | 1.76 | 1,642 | 938 | 2,580 | 1,099 | AIM | Y | |
Polarean Group plc | 1.66 | 1,000 | 1,444 | 2,444 | 1,444 | AIM | N | |
Diaceutics plc | 1.54 | 1,550 | 713 | 2,263 | 408 | AIM | Y | |
Abcam plc | 1.37 | 55 | 1,951 | 2,006 | 120 | AIM | Y | |
Aquis Exchange plc | 1.25 | 765 | 1,074 | 1,839 | (547) | AIM | Y | |
Cloudcall Group plc | 1.23 | 2,442 | (629) | 1,813 | (252) | AIM | Y | |
EKF Diagnostics Holdings plc | 1.20 | 565 | 1,205 | 1,770 | 774 | AIM | Y | |
Beeks Financial Cloud Group plc | 1.16 | 1,038 | 661 | 1,699 | 76 | AIM | Y | |
Honest Brew Ltd | 1.09 | 2,800 | (1,198) | 1,602 | 509 | Unlisted | N | |
Zappar Ltd | 1.09 | 1,600 | - | 1,600 | - | Unlisted | N | |
Eden Research plc | 1.08 | 1,355 | 226 | 1,581 | 226 | AIM | N | |
Craneware plc | 1.01 | 125 | 1,365 | 1,490 | (931) | AIM | Y | |
Mexican Grill Ltd | 1.00 | 1,125 | 343 | 1,468 | (308) | Unlisted | N | |
Intelligent Ultrasound Group plc | 1.00 | 1,150 | 314 | 1,464 | 533 | AIM | N | |
Diurnal Group plc | 0.96 | 672 | 735 | 1,407 | 735 | AIM | N | |
Hardide plc | 0.91 | 3,566 | (2,232) | 1,334 | (2,883) | AIM | Y | |
Angle plc | 0.83 | 1,158 | 58 | 1,216 | (642) | AIM | N | |
CentralNic Group plc | 0.74 | 588 | 493 | 1,081 | 481 | AIM | Y | |
Yourgene Health plc | 0.73 | 521 | 557 | 1,078 | 458 | AIM | N | |
AnimalCare Group plc | 0.73 | 720 | 356 | 1,076 | 221 | AIM | N | |
Velocys Group plc | 0.72 | 900 | 162 | 1,062 | 162 | AIM | N | |
OneMedia IP Group plc | 0.72 | 1,141 | (82) | 1,059 | (81) | AIM | Y | |
Fusion Antibodies plc | 0.70 | 629 | 400 | 1,029 | 541 | AIM | Y | |
Tristel plc | 0.63 | 543 | 378 | 921 | 363 | AIM | N | |
Rosslyn Data Group plc | 0.61 | 750 | 150 | 900 | 150 | AIM | Y | |
Belvoir Group plc | 0.60 | 762 | 116 | 878 | 242 | AIM | Y | |
Science in Sport plc | 0.59 | 1,479 | (613) | 866 | (385) | AIM | N | |
Globaldata plc | 0.57 | 173 | 663 | 836 | 379 | AIM | Y | |
C4X Discovery Holdings plc | 0.57 | 1,150 | (319) | 831 | (36) | AIM | Y | |
Idox plc | 0.56 | 135 | 684 | 819 | 252 | AIM | Y | |
Synairgen plc | 0.55 | 192 | 616 | 808 | 616 | AIM | N | |
Instem plc | 0.55 | 297 | 505 | 802 | 194 | AIM | Y | |
Faron Pharmaceuticals Oy | 0.52 | 1,374 | (604) | 770 | 1,295 | AIM | N | |
Intercede Group plc | 0.52 | 305 | 465 | 770 | 427 | AIM | Y | |
Crossword Cybersecurity plc | 0.51 | 876 | (120) | 756 | (544) | AIM | Y | |
Quixant plc | 0.46 | 1,209 | (539) | 670 | (487) | AIM | N | |
E-Therapeutics Group plc | 0.45 | 500 | 156 | 656 | 156 | AIM | N | |
The Property Franchise Group plc | 0.44 | 377 | 264 | 641 | 108 | AIM | Y | |
Clearstar Inc | 0.38 | 720 | (167) | 553 | (326) | AIM | Y | |
Gfinity plc | 0.35 | 1,526 | (1,010) | 516 | (147) | AIM | N | |
ULS Technology plc | 0.34 | 770 | (271) | 499 | 85 | AIM | N | |
Mirriad Advertising plc | 0.26 | 610 | (226) | 384 | 226 | AIM | N | |
WANDisco plc | 0.24 | 347 | 13 | 360 | 24 | AIM | N | |
DP Poland plc | 0.22 | 1,390 | (1,060) | 330 | 82 | AIM | Y | |
bigblu Broadband plc | 0.22 | 347 | (19) | 328 | (103) | AIM | Y | |
Everyman Media Group plc | 0.20 | 600 | (299) | 301 | (450) | AIM | Y | |
Renalytix AI plc | 0.19 | 82 | 195 | 277 | 113 | AIM | Y | |
K3 Business Technology Group plc | 0.18 | 270 | - | 270 | (366) | AIM | Y | |
Vertu Motors plc | 0.18 | 600 | (341) | 259 | (71) | AIM | N | |
Kidly Ltd | 0.17 | 150 | 99 | 249 | 99 | Unlisted | N | |
Location Sciences Group plc | 0.17 | 1,042 | (796) | 246 | (730) | AIM | N | |
Equals Group plc | 0.16 | 750 | (512) | 238 | (638) | AIM | N | |
KRM22 plc | 0.15 | 619 | (396) | 223 | (87) | AIM | Y | |
Lidco Group plc | 0.14 | 307 | (107) | 200 | 77 | AIM | N | |
Escape Hunt plc | 0.12 | 1,959 | (1,787) | 172 | (931) | AIM | Y | |
Reneuron Group plc | 0.10 | 606 | (453) | 153 | (288) | AIM | N | |
TrakM8 Holdings plc | 0.09 | 486 | (361) | 125 | (36) | AIM | N | |
Fusionex International plc(3) | 0.07 | - | 111 | 111 | 111 | Unlisted | N | |
Osirium Technologies plc | 0.07 | 858 | (749) | 109 | (85) | AIM | Y | |
MYCELX Technologies Corporation plc | 0.04 | 360 | (300) | 60 | (81) | AIM | Y | |
Flowgroup plc | - | 26 | (26) | - | - | Unlisted | N | |
Infoserve Group plc(3) | - | - | - | - | - | Unlisted | N | |
Laundrapp Ltd | - | 2,450 | (2,450) | - | (1,057) | Unlisted | N | |
Mporium Group plc | - | 33 | (33) | - | (2) | Unlisted | N | |
Paragon Entertainment Ltd | - | 87 | (87) | - | - | Unlisted | N | |
Portr Ltd | - | 1,888 | (1,888) | - | (510) | Unlisted | N | |
Verici Group plc | - | 2 | (2) | - | (2) | Unlisted | Y | |
Total – equity Qualifying Investments | 72.85 | 80,061 | 26,992 | 107,053 | 17,926 | |||
Qualifying convertible loan note investments | ||||||||
Kidly Ltd | 1.68 | 1,350 | 1,121 | 2,471 | 1,121 | Unlisted | N | |
Oxford Genetics Ltd | 1.00 | 1,000 | 473 | 1,473 | 473 | Unlisted | N | |
Osirium Technologies plc | 0.64 | 800 | 134 | 934 | 134 | Unlisted | N | |
Escape Hunt plc | 0.31 | 340 | 116 | 456 | 116 | Unlisted | N | |
Total qualifying convertible loan note investments | 3.63 | 3,490 | 1,844 | 5,334 | 1,844 | |||
Total Qualifying Investments | 76.48 | 83,551 | 28,836 | 112,387 | 19,770 | |||
Non-Qualifying Investments | ||||||||
Future plc | 0.99 | 328 | 1,129 | 1,457 | (571) | Main | Y | |
S4 Capital plc | 0.78 | 575 | 574 | 1,149 | 574 | Main | Y | |
XP Power Ltd | 0.75 | 660 | 445 | 1,105 | 521 | Main | Y | |
IntegraFin Holdings plc | 0.69 | 551 | 463 | 1,014 | 45 | Main | Y | |
Dechra Pharmaceuticals plc | 0.66 | 633 | 331 | 964 | 64 | Main | Y | |
Hilton Food Group plc | 0.61 | 717 | 174 | 891 | 135 | Main | Y | |
Liontrust Asset Management plc | 0.59 | 820 | 44 | 864 | 44 | Main | Y | |
Spirax-Sarco Engineering plc | 0.53 | 443 | 331 | 774 | 179 | Main | Y | |
Halma plc | 0.48 | 379 | 324 | 703 | (135) | Main | Y | |
Glaxosmithkline plc | 0.44 | 707 | (54) | 653 | (132) | Main | Y | |
GoCo Group plc | 0.44 | 674 | (23) | 651 | 113 | Main | Y | |
JD Sports Fashion plc | 0.44 | 312 | 335 | 647 | (490) | Main | Y | |
Tesco plc | 0.43 | 672 | (35) | 637 | (153) | Main | N | |
Ascential plc | 0.40 | 724 | (136) | 588 | (178) | Main | N | |
Cohort plc | 0.38 | 333 | 233 | 566 | 49 | AIM | Y | |
Anglo American plc | 0.38 | 443 | 120 | 563 | (89) | Main | N | |
James Fisher and Sons plc | 0.38 | 870 | (314) | 556 | (451) | Main | Y | |
NCC Group plc | 0.36 | 631 | (104) | 527 | (105) | Main | Y | |
Melrose Industries plc | 0.35 | 867 | (347) | 520 | (368) | Main | N | |
Pennon Group plc | 0.35 | 520 | (5) | 515 | (4) | Main | Y | |
On the Beach Group plc | 0.33 | 786 | (299) | 487 | (243) | Main | N | |
SThree plc | 0.33 | 703 | (223) | 480 | (223) | Main | Y | |
Royal Dutch Shell plc | 0.32 | 1,086 | (616) | 470 | (727) | Main | N | |
Hiscox Ltd | 0.29 | 663 | (234) | 429 | (234) | Main | N | |
Trifast Group plc | 0.29 | 500 | (77) | 423 | (77) | Main | Y | |
Howden Joinery Group plc | 0.28 | 483 | (70) | 413 | (70) | Main | N | |
BP plc | 0.26 | 793 | (410) | 383 | (279) | Main | N | |
Taylor Wimpey plc | 0.26 | 628 | (249) | 379 | (248) | Main | N | |
Countryside Properties plc | 0.23 | 504 | (168) | 336 | (119) | Main | N | |
Mexican Grill Ltd | 0.11 | 161 | (1) | 160 | (34) | Unlisted | N | |
Everyman Media Group plc | 0.10 | 293 | (147) | 146 | (218) | AIM | Y | |
MYCELX Technologies Corporation plc | 0.05 | 298 | (228) | 70 | (94) | AIM | Y | |
Genagro Ltd | - | - | - | - | - | Unlisted | Y | |
Total - equity Non-Qualifying Investments | 13.28 | 18,757 | 763 | 19,520 | (3,518) | |||
Total - Non-Qualifying Investments | 13.28 | 18,757 | 763 | 19,520 | (3,518) | |||
Total investments | 89.76 | 102,308 | 29,599 | 131,907 | 16,252 | |||
Cash at bank | 10.68 | 15,695 | ||||||
Prepayments & accruals | (0.44) | (645) | ||||||
Net assets | 100.00 | 146,957 |
(1) COI – Co investments with other funds managed by Hargreave Hale at 30 September 2020.
(2) The change in fair value has been adjusted for additions and disposals in the year.
(3) These investments have been impaired fully through the profit and loss account and therefore show a zero cost.
Different classes of shares held in unlisted companies within the portfolio have been aggregated.
The investments below are either headquartered or registered outside the UK:
Headquartered | Registered | |
Listed Investments: | ||
Clearstar Inc | USA | Cayman Islands |
Faron Pharmaceuticals Oy | Finland | Finland |
Maxcyte Inc | USA | USA |
MYCELX Technologies Corporation plc | USA | USA |
Polarean Group plc | USA | UK |
Renalytix AI plc | USA | UK |
Royal Dutch Shell plc | Netherlands | UK |
WANDisco plc | UK and USA | Jersey |
XP Power Ltd | Singapore | Singapore |
Unlisted private companies: | ||
Fusionex International plc | Malaysia | Jersey |
Genagro Ltd | Jersey | Jersey |
Paragon Entertainment Ltd | UK | Cayman Islands |
Top ten investments
As at 30 September 2020 (by market value)
The top 10 investments are shown below. Each investment is valued by reference to the bid price or, in the case of unquoted companies, the IPEV guidelines using one or more valuation techniques according to the nature, facts and circumstances of the investment. Forecasts, where given, are drawn from a combination of broker research and/or Bloomberg consensus forecasts and exclude amortisation, share based payments and exceptional items. Forecasts are in relation to a period end for which the company results are yet to be released. Published accounts are used for private companies or public companies with no published broker forecasts. The net asset figures and net cash values are from published accounts in most cases.
SCA Investments Ltd (Gousto) | Unquoted | ||
Investment date | July 2017 | Results for the year to | December 2019 |
Equity held | 1.50% | Turnover (£’000) | 82,526 |
Av. Purchase Price | 3,711.0p | Profit/(loss) before tax (£’000) | (14,546) |
Cost (£’000) | 2,484 | Net cash/(debt) December 2019 (£’000) | 29,794 |
Valuation (£’000) | 10,377 | Net assets December 2019 (£’000) | 50,813 |
Income recognised in the period (£) | - | Voting rights held | 1.53% |
Company description | |||
Founded in February 2012, Gousto is an e-commerce company offering recipe kit boxes which include fresh ingredients for step-by-step chef designed recipes to be made at home. Shoppers select meals from a variety of options on Gousto’s e-commerce platform. Gousto then delivers the pre-proportioned ingredients to the doorstep, along with instructions on how to prepare the meal. | |||
Learning Technologies Group plc | Share price: 131.0p | ||
Investment date | November 2014 | Forecasts for the year to | December 2020 |
Equity held | 0.67% | Turnover (£’000) | 130,000 |
Av. Purchase Price | 49.7p | Profit/(loss) before tax (£’000) | 38,000 |
Cost (£’000) | 2,238 | Net cash/(debt) June 2020 (£’000) | 77,800 |
Valuation (£’000) | 5,895 | Net assets June 2020 (£’000) | 273,611 |
Company description | |||
Learning Technologies Group provides a comprehensive and integrated range of e-learning services and technologies to corporate and government clients. The Group offers end-to-end learning and talent solutions ranging from strategic consultancy, through a range of content and platform solutions to analytical insights that enable corporate and government clients to meet their performance objectives. | |||
Ideagen plc | Share price: 192.0p | ||
Investment date | December 2014 | Forecasts for the year to | April 2021 |
Equity held | 1.17% | Turnover (£’000) | 63,100 |
Av. Purchase Price | 77.2 | Profit/(loss) before tax (£’000) | 16,800 |
Cost (£’000) | 1,992 | Net cash/(debt) April 2020 (£’000) | (16,784) |
Valuation (£’000) | 4,957 | Net assets April 2020 (£’000) | 76,909 |
Company description | |||
Oxford Genetics Ltd | Unquoted | ||
Investment date | March 2019 | Results for the year to | April 2019 |
Equity held | 7.17% | Turnover (£’000) | 6,002 |
Av. Purchase Price | 316.4 | Profit/(loss) before tax (£’000) | (3,226) |
Cost (£’000) | 3,186 | Net cash/(debt) April 2019 (£’000) | 3,418 |
Valuation (£’000) | 4,444 | Net assets April 2019 (£’000) | 6,530 |
Income recognised in the period (£) | 33,534 | Voting rights held | 7.17% |
Company description | |||
Surface Transforms plc | Share price: 42.0p | ||
Investment date | March 2016 | Forecasts for the year to | December 2020 |
Equity held | 6.25% | Turnover (£’000) | 2,000 |
Av. Purchase Price | 14.4 | Profit/(loss) before tax (£’000) | (2,700) |
Cost (£’000) | 1,388 | Net cash/(debt) June 2020 (£’000) | 1,465 |
Valuation (£’000) | 4,056 | Net assets June 2020 (£’000) | 6,750 |
Company description | |||
Creo Medical Group plc | Share price: 166.0p | ||
Investment date | December 2016 | Results for the year to | December 2019 |
Equity held | 1.53% | Turnover (£’000) | 13 |
Av. Purchase Price | 101.3 | Profit/(loss) before tax (£’000) | (18,600) |
Cost (£’000) | 2,329 | Net cash/(debt) June 2020 (£’000) | 69,710 |
Valuation (£’000) | 3,818 | Net assets June 2020 (£’000) | 79,865 |
Company description | |||
Infinity Reliance Ltd (My 1st Years) | Unquoted | ||
Investment date | December 2016 | Results for the year to | December 2019 |
Equity held | 8.97% | Turnover (£’000) | 13,043 |
Av. Purchase Price | 4,670.4 | Profit/(loss) before tax (£’000) | (2,361) |
Cost (£’000) | 2,500 | Net cash/(debt) December 2019 (£’000) | 2,124 |
Valuation (£’000) | 3,612 | Net assets December 2019 (£’000) | 1,087 |
Income recognised in the period (£) | - | Voting rights held | 8.97% |
Company description | |||
Cohort plc | Share price 596.0p | ||
Investment date | February 2006 | Forecasts for the year to | April 2021 |
Equity held | 1.39% | Turnover (£’000) | 137,900 |
Av. Purchase Price | 166.9 | Profit/(loss) before tax (£’000) | 17,700 |
Cost (£’000) | 952 | Net cash/(debt) April 2020 (£’000) | (4,707) |
Valuation (£’000) | 3,397 | Net assets April 2020 (£’000) | 81,789 |
Company description | |||
Ilika plc | Share price: 85.0p | ||
Investment date | February 2014 | Forecasts for the year to | April 2021 |
Equity held | 2.81% | Turnover (£’000) | 500 |
Av. Purchase Price | 35.1 | Profit/(loss) before tax (£’000) | (3,390) |
Cost (£’000) | 1,376 | Net cash/(debt) April 2020(£’000) | 13,989 |
Valuation (£’000) | 3,330 | Net assets April 2020 (£’000) | 17,193 |
Company description | |||
Maxcyte Inc | Share price 364.0p | ||
Investment date | March 2016 | Forecasts for the year to | December 2020 |
Equity held | 1.56% | Turnover ($’000) | 23,500 |
Av. Purchase Price | 169.3 | Profit/(loss) before tax ($’000) | (14,400) |
Cost (£’000) | 1,514 | Net cash/(debt) June 2020 ($’000) | 31,732 |
Valuation (£’000) | 3,254 | Net assets June 2020 ($’000) | 53,377 |
Company description | |||
For further information please contact:
Oliver Bedford
Lead Fund Manager
Hargreave Hale AIM VCT plc,
41 Lothbury
London
EC2R 7AE
0207 523 4837
aimvct@canaccord.com
Statement of directors’ responsibilities
In respect of the financial statements
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Conduct Authority.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the financial statements and have elected to prepare the company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (“UK GAAP”) (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 they have been prepared in accordance with UK GAAP, 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; and
§ prepare a directors’ report, a strategic report and directors’ remuneration report which comply with the requirements of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions, and disclose with reasonable accuracy at any time the financial position of the Company, and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for ensuring that the annual report and accounts, taken as a whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.
Website publication
The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. The Company’s website address is https://www.hargreaveaimvcts.co.uk. 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' responsibility statement pursuant to DTR4
David Brock (Chairman), Sir Aubrey Brocklebank, Oliver Bedford, Ashton Bradbury, Angela Henderson and Justin Ward, the Directors confirm to the best of their knowledge that:
the financial statements have been prepared in accordance with UK GAAP and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company
the annual report includes a fair review of the development and performance of the business and the financial position of the Company, together with a description of the principal risks and uncertainties that it faces.
For and on behalf of the Board
David Brock
Chairman
21 December 2020
Income statement
Year to 30 September 2020 | Year to 30 September 2019 | ||||||
Revenue | Capital | Total | Revenue | Capital | Total | ||
Note | £000 | £000 | £000 | £000 | £000 | £000 | |
Net gain/(loss) on investments held at fair value through profit or loss | - | 18,308 | 18,308 | - | (20,687) | (20,687) | |
Income | 731 | 70 | 801 | 1,163 | 354 | 1,517 | |
731 | 18,378 | 19,109 | 1,163 | (20,333) | (19,170) | ||
Management fee | (573) | (1,721) | (2,294) | (565) | (1,696) | (2,261) | |
Other expenses | (698) | (184) | (882) | (616) | (133) | (749) | |
(1,271) | (1,905) | (3,176) | (1,181) | (1,829) | (3,010) | ||
(Loss)/profit on ordinary activities before taxation | (540) | 16,473 | 15,933 | (18) | (22,162) | (22,180) | |
Taxation | - | - | - | - | - | - | |
(Loss)/profit after taxation | (540) | 16,473 | 15,933 | (18) | (22,162) | (22,180) | |
Basic and diluted (loss)/earnings per share | 2 | (0.26) | 8.07 | 7.81 | (0.01) | (11.04) | (11.05) |
The total column of these statements is the income statement of the Company. All revenue and capital items in the above statements derive from continuing operations. There was no other comprehensive income other than the gain/loss for the year.
The accompanying notes are an integral part of these financial statements.
Balance sheet
Company Registration Number 5206425 (In England and Wales)
As at 30 September 2020
2020 | 2019 | ||
Note | £000 | £000 | |
Fixed assets | |||
Investments at fair value through profit or loss | 131,907 | 119,947 | |
Current assets | |||
Debtors | 173 | 466 | |
Cash at bank | 15,695 | 24,638 | |
15,868 | 25,104 | ||
Creditors: amounts falling due within one year | (818) | (1,009) | |
Net current assets | 15,050 | 24,095 | |
Total assets less current liabilities | 146,957 | 144,042 | |
Capital and Reserves | |||
Called up share capital | 1,995 | 2,040 | |
Share premium | 24,238 | 24,238 | |
Capital redemption reserve | 91 | 46 | |
Capital reserve – unrealised | 46,580 | 21,713 | |
Special reserve | 99,785 | 112,803 | |
Capital reserve – realised | (24,437) | (16,043) | |
Revenue reserve | (1,295) | (755) | |
Total shareholders’ funds | 146,957 | 144,042 | |
Net asset value per share (basic and diluted) | 3 | 73.66p | 70.60p |
These financial statements were approved and authorised for issue by the Board of Directors on 21 December 2020 and signed on its behalf by
David Brock
Chairman
21 December 2020
The accompanying notes are an integral part of these financial statements.
Statement of changes in equity
For the year ending 30 September 2020
Non-distributable reserves |
| ||||||||
|
| Capital Redemption Reserve | Capital |
| Capital |
|
| ||
£000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | ||
At 1 October 2019 | 2,040 | 24,238 | 46 | 21,713 | 112,803 | (16,043) | (755) | 144,042 | |
Profit/(loss) and total comprehensive income for the year | |||||||||
Realised (losses) on investments | - | - | - | - | - | (230) | - | (230) | |
Unrealised gains on investments | - | - | - | 18,538 | - | - | - | 18,538 | |
Management fee charged to capital | - | - | - | - | - | (1,721) | - | (1,721) | |
Income allocated to capital | - | - | - | - | - | 70 | - | 70 | |
Due diligence investments costs | - | - | - | - | - | (184) | - | (184) | |
Revenue (loss) after taxation for the year | - | - | - | - | - | - | (540) | (540) | |
Total profit after taxation for the year | - | - | - | 18,538 | - | (2,065) | (540) | 15,933 | |
Contributions by and distributions to owners | |||||||||
Share buybacks | (45) | - | 45 | - | (2,876) | - | - | (2,876) | |
Equity dividends paid | - | - | - | - | (10,142) | - | - | (10,142) | |
Total contributions by and distributions to owners | (45) | - | 45 | - | (13,018) | - | - | (13,018) | |
Other movements | |||||||||
Permanent impairment | - | - | - | 6,329 | - | (6,329) | - | - | |
Total other movements | - | - | - | 6,329 | - | (6,329) | - | - | |
At 30 September 2020 | 1,995 | 24,238 | 91 | 46,580 | 99,785 | (24,437) | (1,295) | 146,957 | |
Reserves available for distribution are capital reserve realised, special reserve and revenue reserve. Total distributable reserves at 30 September 2020 were £74.0 million. The accompanying notes are an integral part of these financial statements.
(1) The Income Taxes Act 2007 restricts distribution of capital from reserves created by the conversion of the share premium account into a special (distributable) reserve until the third anniversary of the share allotment that led to the creation of that part of the share premium account. As at 30 September 2020, £47.2 million of the special reserve is subject to this restriction.
Statement of changes in equity
For the year ending 30 September 2019
Non-distributable reserves |
| ||||||||
|
| Capital Redemption Reserve | Capital |
| Capital |
|
| ||
£000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | ||
At 1 October 2018 | 1,767 | - | 5 | 30,606 | 125,919 | (2,774) | (737) | 154,786 | |
Profit/(loss) and total comprehensive income for the year | |||||||||
Realised (losses) on investments | - | - | - | - | - | (1,143) | - | (1,143) | |
Unrealised (losses) on investments | - | - | - | (19,544) | - | - | - | (19,544) | |
Management fee charged to capital | - | - | - | - | - | (1,696) | - | (1,696) | |
Income allocated to capital | - | - | - | - | - | 354 | - | 354 | |
Due diligence investments costs | - | - | - | - | - | (133) | - | (133) | |
Revenue (loss) after taxation for the year | - | - | - | - | - | - | (18) | (18) | |
Total (loss) after taxation for the year | - | - | - | (19,544) | - | (2,618) | (18) | (22,180) | |
Contributions by and distributions to owners | |||||||||
Share buybacks | (41) | - | 41 | - | (2,902) | - | - | (2,902) | |
Share Issues | 314 | 24,686 | - | - | - | - | - | 25,000 | |
Issue Costs | - | (448) | - | - | - | - | - | (448) | |
Equity dividends paid | - | - | - | - | (10,214) | - | - | (10,214) | |
Total contributions by and distributions to owners | 273 | 24,238 | 41 | - | (13,116) | - | - | 11,436 | |
Other movements | |||||||||
Permanent impairment | - | - | - | 10,651 | - | (10,651) | - | - | |
Total other movements | - | - | - | 10,651 | - | (10,651) | - | - | |
At 30 September 2019 | 2,040 | 24,238 | 46 | 21,713 | 112,803 | (16,043) | (755) | 144,042 | |
Reserves available for distribution are capital reserve realised, special reserve and revenue reserve. Total distributable reserves at 30 September 2019 were £96.0 million. The accompanying notes are an integral part of these financial statements.
(1) The Income Taxes Act 2007 restricts distribution of capital from reserves created by the conversion of the share premium account into a special (distributable) reserve until the third anniversary of the share allotment that led to the creation of that part of the share premium account. As at 30 September 2019, £70.8 million of the special reserve is subject to this restriction.
Statement of cash flows
2020 |
| ||
£000 | £000 | ||
Total profit/(loss) on ordinary activities before taxation | 15,933 | (22,180) | |
Non-cash distributions | (66) | (166) | |
Net cash (outflow) from operating activities | (2,339) | (1,295) | |
Purchase of investments | (27,602) | (35,628) | |
Net cash provided by/used in investment activities | 6,414 | (10,363) | |
Share buybacks | (2,876) | (2,902) | |
Net cash provided by financing activities | (13,018) | 11,436 | |
Net (decrease) in cash | (8,943) | (222) | |
Opening cash | 24,638 | 24,860 | |
Closing cash | 15,695 | 24,638 |
The accompanying notes are an integral part of these financial statements.
1. Basis of preparation
The financial information set out in this announcement does not constitute the Company’s statutory accounts for the years ended 30 September 2020 or 30 September 2019. Statutory accounts for the year ended 30 September 2019 have been filed with the Registrar of Companies and those of the year ended 30 September 2020 will be delivered to the Registrar in due course; both have been reported on by the independent auditors. The independent auditor’s reports on the Statutory accounts for the years ended 30 September 2019 and 30 September 2020 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
The financial statements have been prepared in accordance with UK Generally Accepted Accounting Practice (“UK GAAP”), including Financial Reporting Standard 102 (“FRS 102”) and with the Companies Act 2006 and the Statement of Recommended Practice for “Financial Statements of Investment Trust Companies and Venture Capital Trusts” October 2019 (“SORP”). The accounting policies used in preparing this announcement are consistent with those used in the preparation of the financial statements.
Financial instruments
All investments are classified as fair value through profit or loss. Investments are measured initially and subsequently at fair value which is deemed to be market bid prices for listed investments and investments traded on AIM. Unquoted investments are valued using the most appropriate methodology recommended by the International Private Equity Venture Capital (“IPEV”) guidelines published in December 2018.
Where no active market exists for the particular asset, the Company holds the investment at fair value as determined by the investment manager and approved by the Board. Valuations of unquoted investments are reviewed on a quarterly basis and more frequently if events occur that could have a material impact on the investment.
In estimating fair value for an unquoted investment, the investment manager will apply one or more valuation techniques according to the nature, facts and circumstances of the investment. The investment manager will use reasonable current market data and inputs combined with market participant assumptions. The assessment of fair value will reflect the market conditions at the measurement date irrespective of which valuation technique is used. The IPEV guidelines describe a range of valuation techniques, including but not limited to relevant observable market multiples, independent arms-length transactions, income, discounted cash flows and net assets. The fair value of convertible loan notes is measured using the Net Present Value of the bond component and the derivative value(s) of the conversion option(s).
Investments are recognised and derecognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional. Transaction costs are included in the initial cost or deducted from the disposal proceeds as appropriate.
These investments will be managed and their performance evaluated on a fair value basis in accordance with a documented investment strategy and information about them is provided internally on that basis to the Board.
Gains and losses arising from changes in fair value (realised and unrealised) are included in the net profit or loss for the period as a capital item in the income statement and are taken to the unrealised capital reserve or realised capital reserve as appropriate.
If an investment has been impaired such that there is no realistic expectation that there will be a full return from the investment, the loss is treated as a permanent impairment and transferred to the capital reserve realised.
Other financial assets and liabilities comprise receivables, payables and cash which are measured at amortised cost. There are no financial liabilities other than payables.
Copies of the statutory accounts for the year ended 30 September 2020 may in due course be obtained during normal business hours from Canaccord Genuity Wealth Limited, Talisman House, Boardmans Way, Blackpool, FY4 5FY.
Notice of annual general meeting
In light of the UK government’s public health guidelines on COVID-19 and the interests of the safety and wellbeing of our shareholders, this year’s AGM will be run as a closed meeting and shareholders will not be able to attend in person. Shareholders are encouraged to vote by proxy ahead of the AGM. The Chairman will record the voting for each resolution by way of a poll to ensure each vote cast is counted individually. For the avoidance of doubt shareholders who try and attend the physical location of the AGM will be refused entry to the AGM. The Board and the investment manager will ensure that there are sufficient shareholders in attendance at the AGM to form a quorum.
The Board recognises the importance of the AGM to Shareholders’ and encourages them to submit questions in writing, to be received at least six business days before the meeting (i.e. by 10.30 am on 27 January 2021), by sending an email to aimvct@canaccord.com. Answers will be published on the website on 1 February 2021.
The Annual General Meeting of the Company will be held at the Company’s registered office on 4 February 2021 at 10.30am
2. Earnings per share
2020 | 2020 | 2020 | 2019 | 2019 | 2019 | |
Revenue | Capital | Total | Revenue | Capital | Total | |
Return (£) | (540,497) | 16,473,370 | 15,932,873 | (18,218) | (22,162,255) | (22,180,473) |
(Loss)/earnings per ordinary share | (0.26)p | 8.07p | 7.81p | (0.01)p | (11.04)p | (11.05)p |
(basic and diluted) |
The earnings per share is based on 204,111,631 ordinary shares (2019: 200,668,966), being the weighted average number of shares in issue during the year.
3. Net asset value per ordinary share
30 September 2020 | 30 September 2019 | |
Net assets (£’000) | 146,957 | 144,042 |
Shares in issue | 199,514,929 | 204,014,367 |
NAV per share (p) | 73.66 | 70.60 |
There are no potentially dilutive capital instruments in issue and as such, the basic and diluted NAV per share are identical.
4. Principal and emerging risks and uncertainties
The principal and emerging risks and uncertainties facing the Company relate to the Company’s investment activities and include venture capital trust approval risk, investment risk, compliance risk, operational risk and outsourcing, key personnel risk, and exogenous risks such as economic, political, financial, climate change and health risk. Other risks faced by the Company include market risk, currency risk, interest rate risk and credit risk. These risks and the way in which they are managed are described in more detail in the Strategic Report.
5. Related party transactions and conflicts
The remuneration of the directors, who are key management personnel of the Company, is disclosed below:
2020 | 2020 | 2020 | 2019 | 2019 | 2019 | |
David Brock (Chairman) | 30,612 | - | 30,612 | 18,000 | - | 18,000 |
Sir Aubrey Brocklebank | 29,388 | - | 29,388 | 22,500 | - | 22,500 |
Oliver Bedford | 25,000 | - | 25,000 | 18,000 | - | 18,000 |
Ashton Bradbury | 25,000 | 425 | 25,425 | 18,000 | 398 | 18,398 |
Angela Henderson | 23,122 | - | 23,122 | - | - | - |
Total | 133,122 | 425 | 133,547 | 76,500 | 398 | 76,898 |
David Brock is non-executive Chairman of Honest Brew Limited which is an investee company in the VCT’s portfolio. David is also a shareholder in Honest Brew Limited, however he does not control the entity. David Brock made a further investment in Honest Brew Ltd on the same commercial terms as independent third party investors. The Board, excluding David Brock, reviewed potential conflicts of interest in relation to this matter and agreed certain control measures to mitigate any conflicts that may arise.
Transactions with the manager
As the Company’s investment manager, Hargreave Hale Limited is a related party to the Company for the purposes of the Listing Rules. As Hargreave Hale Limited and Canaccord Genuity Wealth Limited (CGWL) are part of the same CGWL group, CGWL also falls into the definition of related party.
Oliver Bedford, a non-executive director of the Company is also an employee of Hargreave Hale Limited which received fees of £25,000 for the year ended 30 September 2020 in respect of his position on the Board (2019: £18,000). On 1 October 2019 Oliver Bedford’s directors’ fees increased from £18,000 to £25,000 per annum. Of these fees £6,250 was still owed at the year end.
CGWL act as administrator and custodian to the Company and provide the company secretary. During the financial year ending 30 September 2019 administration fees increased from £110,000 to £195,000 per annum and custodian fees increased from £10,000 to £30,000 per annum.
CGWL received fees for the support functions as follows:
30 September 2020 | 30 September 2019 | |
Custody | 30,000 | 19,642 |
Administration | 195,000 | 132,713 |
Company secretarial | 17,000 | 17,000 |
Total | 242,000 | 169,355 |
Still owed at the year end | 60,500 | 88,130 |
Under an offer agreement dated 2 September, CGWL were appointed by the Company to administer the Offer for Subscription and act as receiving agent in relation to the offer. Under the terms of the agreement CGWL will receive a fee of 3.5 per cent. of the gross proceeds of the offer for providing these services. The Administrator has agreed to discharge commissions payable to Financial Advisers in respect of accepted applications for Offer Shares submitted by them, including any trail commission.
The Administrator has also agreed to discharge and/or reimburse all costs and expenses of and incidental to the Offer and the preparation of the Prospectus, including without limitation to the generality of the foregoing, FCA vetting fees in relation to the Prospectus, sponsor and legal fees and expenses of the Company and CGWL, the Company’s tax adviser’s fees and expenses, costs of printing, postage, advertising, publishing and circulating the Prospectus and marketing the Offer, including any introductory commission and discounts to Investors. However, the Administrator will not be responsible for the payment of listing fees associated with the admission of the Ordinary Shares to the premium segment of the Official List and to trading on the main market of the London Stock Exchange.
Following the final allotment under the Offer the Company and the Administrator will agree on the aggregate costs of the Offer. If the aggregate fee paid by the Company to the Administrator exceeds the costs of the Offer by more than £25,000 then CGWL will rebate any surplus to the Company, subject to a maximum rebate of £75,000. No fees were paid to CGWL in relation to this agreement during the year ended 30 September 2020.
Hargreave Hale Limited is appointed as investment manager to the Company and receives an investment management fee of 1.7% per annum (increased from 1.5% effective 1 April 2019).
Investment management fees for the year are £2,294,259 (2019: £2,261,355). Of these fees £630,674 was still owed at the year end. As the investment manager to the Company and the investment advisor to the Marlborough Special Situations Fund (in which the VCT may investment), Hargreave Hale Limited makes an adjustment as necessary to its investment management fee to ensure the VCT is not charged twice for their services.
Following analysis of the due diligence and transactional services costs paid by the Company, the investment manager has expanded its team to allow a greater proportion of due diligence and transactional services on potential investments to be carried out internally. Upon completion of an investment, the investment manager is permitted under the Management Agreement to charge private investee companies a fee equal to 1.5 per cent. of the investment amount. This fee is subject to a cap of £40,000 per investment and is payable directly from the investee company to the investment manager. The investment manager may recover due diligence and transactional services costs directly from private investee companies. It is expected that these changes will generate a reduction in transaction costs paid by the Company.
Total commission of £43,000 was paid to CGWL in the year for broker services.
Hargreave Hale Limited has agreed to indemnify the Company and keep indemnified the Company in respect of the amount by which the annual running costs of the Company exceed 3.5per cent. of the net assets of the Company, such costs shall exclude any VAT payable thereon and any payments to financial intermediaries, the payment of which is the responsibility of the Company. No fees were waived by Hargreave Hale Limited in the financial year under the indemnity.
The Company also held £10,459,777 in the client account held at CGWL at 30 September 2020.
6. Called up share capital
2020 | 2019 | |
£000 | £000 | |
Allotted, called-up and fully paid: 199,514,929 | ||
(2019: 204,014,367) ordinary shares of 1p each. | 1,995 | 2,040 |
During the year 4,499,438 (2019: 4,076,170) ordinary shares were purchased through the buyback facility at a cost of £2,875,694 (2019: £2,902,402). The repurchased shares represent 2.2% (2019: 2.3%) of ordinary shares in issue on 1 October 2019. The acquired shares have been cancelled.
7. Capital structure
Share Capital
Ordinary shares are classed as equity. The ordinary shares in issue have a nominal value of one penny and carry one vote each. Substantial holdings in the Company are disclosed in the directors’ report.
Share Premium
This reserve represents the difference between the issue price of shares and the nominal value of shares at the date of issue, net of related issue costs.
Capital Redemption Reserve
This reserve is used for the cancellation of shares bought back under the buyback facility.
Special Reserve
Distributable reserve used to pay dividends and re-purchase shares under the buyback facility.
Capital Reserve Realised
Gains/losses on disposal of investments, due diligence costs, income that is capital in nature, permanent impairment of financial assets and 75% of the investment management fee are accounted for in the capital reserve realised.
Capital Reserve Unrealised
Unrealised gains and losses on investments held at the year end arising from movements in fair value are taken to the capital reserve unrealised.
Revenue Reserve
Net revenue profits and losses of the Company.
Key judgements and estimates
The preparation of the financial statements requires the Board to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Key estimation uncertainties mainly relate to the fair valuation of unquoted investments.
The assessment of fair value will reflect the market conditions at the measurement date irrespective of which valuation technique is used.
The IPEV guidelines describe a range of valuation techniques, as described in note 1.
The estimates are under continuous review with particular attention paid to the carrying value of the investments. The process of estimation is also affected by the determination of fair value hierarchy.
Alternative performance measures
An alternative performance measure (“APM”) is a financial measure of the Company’s historic or future financial performance, financial position or cash flows which is not defined or specified in the applicable financial reporting framework.
The Directors assess the Company’s performance against a range of criteria which are viewed as particularly relevant for a VCT.
The definition of each APM is in the glossary. Where the calculation of the APM is not detailed within the financial statements, an explanation of the methodology employed is below:
NAV total return since inception
30 September 2020 | ||
Net asset value per share | A | 73.66p |
Dividends paid per share since inception | B | 60.15p |
NAV total return since inception(1) | A+B | 133.81p |
(1) Includes 100 pence initial cost
NAV total return
30 September 2020 | ||
Net asset value per share 30 September 2019 | A | 70.60p |
Dividends paid | B | 5.00p |
Net asset value per share 30 September 2020 | C | 73.66p |
NAV total return | ((B+C-A)/A)*100 | 11.42% |
NAV total return (dividends reinvested)
30 September 2020 | % Return | |||
Opening NAV per share | A | 70.60p | ||
Closing NAV per share | 73.66p | |||
Special dividend paid November 2019 | 1.75p | |||
Final dividend for year paid February 2020 | 2.25p | |||
Interim dividend paid July 2020 | 1.00p | |||
Total dividend payments | 5.00p | |||
Closing NAV per share plus dividends paid | 78.66p | 11.42% | ||
In year performance of reinvested dividends | 0.63p | |||
NAV total return (dividends reinvested) | ((B-A)/A)*100 | B | 79.29p | 12.31% |
Share price total return
30 September 2020 | ||
Share price as at 30 September 2019 | A | 66.50p |
Dividends paid | B | 5.00p |
Share price as at 30 September 2020 | C | 66.00p |
Share price total return | ((B+C-A)/A)*100 | 6.77% |
Share price total return (dividends reinvested)
30 September 2020 | % Return | |||
Opening share price | A | 66.50p | ||
Closing share price | 66.00p | |||
Special dividend paid November 2019 | 1.75p | |||
Final dividend for year paid February 2020 | 2.25p | |||
Interim dividend paid July 2020 | 1.00p | |||
Total dividend payments | 5.00p | |||
Closing share price plus dividends paid | 71.00p | 6.77% | ||
In year performance of reinvested dividends | 0.23p | |||
Share price total return (dividends reinvested) | ((B-A)/A)*100 | B | 71.23p | 7.11% |
Ongoing charges ratio
The ongoing charges ratio has been calculated using the AIC’s “Ongoing Charges” methodology.
30 September 2020 | ||
Investment management fee | 2,294 | |
Other expenses | 882 | |
Ongoing charges | A | 3,176 |
Average net assets | B | 135,416 |
Ongoing charges ratio | (A/B)*100 | 2.35% |
Share price discount
30 September 2020 | ||
Share price | A | 66.00p |
Net asset value per share | B | 73.66p |
(Discount) / premium | ((A/B)-1)*100 | (10.40%) |
The 5 year average discount of 6.18% is calculated by taking the average of the share price discount at each month end between 1 October 2015 and 30 September 2020.
Glossary
Alternative performance measures
An alternative performance measure is a financial measure of the Company’s historic or future financial performance, financial position or cash flows which is not defined or specified in the applicable financial reporting framework.
The Company uses the following alternative performance measures:
Net asset value (NAV)
The value of the Company’s assets, less its liabilities.
Net asset value (NAV) per share
The net asset value divided by the total number of shares in issue at the year end.
NAV total return
The NAV total return shows how the NAV per share has performed over a period of time in percentage terms taking into account both capital returns and dividends paid. We calculate this by adding the dividends paid in the period to the closing NAV per share and measuring the percentage change relative to the opening NAV per share.
NAV total return since inception
The sum of the published NAV per share plus all dividends paid per share over the lifetime of the Company.
NAV total return (dividends reinvested)
The NAV total return (dividends reinvested) shows the percentage movement in the NAV Total Return per share over time taking into account both capital returns and dividends paid assuming dividends are re-invested into new shares. To be consistent with industry standard practice, the allotment price of the new shares issued in place of the cash dividend is assumed to be the prevailing ex-dividend NAV per share on the day the shares go ex-dividend. This differs from the methodology followed by the registrar when issuing shares under the Company’s dividend re-investments scheme.
Ongoing charges ratio
The ongoing costs of managing and operating the Company divided by its average net assets. Calculated in accordance with AIC guidance, this figure excludes ‘non-recurring costs’.
Share price discount
As stockmarkets and share prices vary, a VCT’s share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.
Share price total return
The share price total return shows performance over a period of time in percentage terms by reference to the mid price of the Company’s shares taking into account dividends paid and any return of capital if applicable.
We calculate this by adding the dividends paid in the period to the closing mid price and measuring the percentage change relative to the opening mid price.
Share price total return (dividends reinvested)
The performance of the Company’s share price on a total return basis assuming dividends are reinvested in new shares at the mid-price of the shares on the ex-dividend date.
Canaccord Genuity Wealth Limited
Company Secretary
Registered office:
Hargreave Hale AIM VCT plc,
41 Lothbury
London
EC2R 7AE
21 December 2020
Annual Report and Accounts - 30 September 2020
