Inc&gwth Vct Regulatory News (IGV)

THE INCOME & GROWTH VCT PLC

LEI: 213800FPC15FNM74YD92

ANNUAL FINANCIAL RESULTS OF THE COMPANY FOR THE YEAR ENDED 30 SEPTEMBER 2020

The Income & Growth VCT plc (the "Company") announces the final results for the year ended 30 September 2020. These results were approved by the Board of Directors on 9 December 2020.

You may, in due course, view the Annual Report & Financial Statements, comprising the statutory accounts of the Company by visiting www.incomeandgrowthvct.co.uk.

FINANCIAL HIGHLIGHTS

As at 30 September 2020:

Net assets: £83.13 million

Net asset value ("NAV") per share: 70.06 pence

- Net asset value ("NAV") total return1 per share was 11.9%.

- Share price total return1 per share was 3.3%2.

- Dividends paid in respect of the year total 14.00 pence per share. This brings cumulative dividends paid1 to Shareholders in respect of the past five years to 57.00 pence per share.

- The Company realised investments totalling £17.60 million of cash proceeds and generated net realised gains in the year of £6.42 million.

- £8.39 million was invested into five new companies and four follow-on investments.

1 - Definitions of key terms and alternative performance measures shown above and throughout this report are provided in the Glossary of terms within the Annual Report & Financial Statements.

2 - Further details on the share price total return are shown in the Performance section of the Strategic Report within the Annual Report & Financial Statements.

PERFORMANCE SUMMARY

The table below shows the recent past performance of the Company's existing class of shares for each of the last five years.

1 Source: Panmure Gordon & Co (mid-market price).

2 Cumulative total return per share comprises the NAV per share (NAV basis) or the mid-market price per share (share price basis) plus cumulative dividends paid since launch of the current share class. The details of the share price total return per share calculation are shown within the Annual Report & Financial Statements.

3 The share price at 30 September 2019 has been adjusted to add back the dividend of 4.50 pence per share paid on 18 October 2019, as the listed share price was quoted ex this dividend at this year-end.

Detailed performance data for each of the VCT's fundraisings is provided in the Performance Data Appendix within the Annual Report. The tables, which give cumulative total return per share information for each allotment date on both a NAV and share price basis, are also available on the Company's website at www.incomeandgrowthvct.co.uk where they can be downloaded by clicking on "table" in "Reviewing the performance of your investment".

CHAIRMAN'S STATEMENT

I am pleased to present the Annual Report of the Company for the financial year ended 30 September 2020.

Chairman's Introduction

This is my first Statement to Shareholders since succeeding Jonathan Cartwright as Chairman on 1 July 2020. I would like to thank Jonathan on your behalf, for the excellent service he provided to Shareholders during his tenure as a Director and latterly as interim Chairman.

Overview

This year has been a positive one for Shareholders, despite the significant and exceptional challenges caused by the outbreak of COVID-19 since late February 2020. Your Company's NAV total return per share increased in the year by 11.9%.

Before this outbreak, the Company completed a timely and successful fundraising ensuring the Company remained well-funded. In the same period, performance had started strongly, as the portfolio made further progress and three profitable realisations were achieved. One exit was from one of the most successful investments the Company has made while the two others were the first profitable exits of growth capital investments (which have been the only permitted category of investment the VCT can make since the VCT rule changes in 2015).

Shortly before the mid-point of the Company's year, the COVID-19 pandemic and the UK Government's lockdown measures provoked substantial uncertainty and instability. There was a significant decline in consumer and business confidence and public markets saw a sharp fall in March.

The immediate impact of the COVID-19 crisis for Shareholders was a fall in portfolio values at the end of March, based on best knowledge at that uncertain time. These adjustments were partly market related, but mainly in response to the Investment Adviser's assessment of COVID-19's actual and potential impact on specific market segments and investee companies.

As the year progressed, greater clarity has emerged. The environment for most of our investee companies has been less volatile and less uncertain than initially assumed last March, but critically, also more robust and favourable trading conditions emerged, such that the valuation of the portfolio has recovered strongly over the six months to 30 September from its March low point. Whilst the second lockdown and potential further restrictions may impact the portfolio going forward, overall, your Board is pleased with how well so many portfolio companies have been able to capitalise on opportunities presented and with the performance achieved.

Despite the considerable COVID-19 related restrictions on its ability to process transactions efficiently, the Company remained an active investor during the year. Several profitable realisations occurred, being the primary driver of shareholder value for the year. New and follow-on investment activity was strong considering the circumstances and resulted in nine transactions to support further growth in these companies. Both the portfolio valuation changes and investment movements are discussed in the Investment Portfolio section below and further details are also provided in the Investment Adviser's Review.

Performance

The year's key events summarised above saw an overall increase in the Company's NAV total return per share of 11.9% (2019: 7.4%). This was due to a strong revenue return, substantial realised gains on disposals and net gains in portfolio valuations for the year. These factors are explained in further detail in the Company's Strategic Report and Investment Adviser's Review.

The Board believes that the Company's performance has demonstrated resilience in a volatile year and that the valuations at the year-end reflect the responses to the pandemic and the potential to continue making progress, despite continued uncertainty in respect of the pandemic's impact.

The share price total return for the year was 3.3% (2019: 15.8%), compared to the NAV return of 11.9%. This difference arises principally due to the timing of NAV announcements and is explained more fully in the Strategic Report within the Annual Report & Financial Statements, under Performance.

At the year-end, your Company was ranked 1st out of 31 Generalist VCTs over ten years and 16th out of 42 Generalist VCTs over five years, in the Association of Investment Companies' analysis of NAV Cumulative Total Return. Shareholders should note that these figures do not reflect the NAV per share disclosed in this Report. For further details on the performance of the Company, please refer to the Investment Adviser's Review within the Annual Report & Financial Statements.

Dividends and Dividend Investment Scheme

A total of 18.50 pence has been paid in dividends during the year although 4.50 pence related to a dividend declared for the previous financial year. The two interim dividends paid of 3.00 and 11.00 pence per share in respect of the current year were paid on 10 July and 28 September 2020 respectively.

The Company's Dividend Investment Scheme ("DIS") was re-activated following the Annual General Meeting ("AGM") held in February 2020 and Shareholders wishing to take advantage of this seamless method of continuing investment, and the resultant tax relief, can elect to join the DIS at any time by instructing the Registrar, Link Asset Services, whose details are contained within the Annual Report & Financial Statements or by completing the mandate form available on the Company's website: www. incomeandgrowthvct.co.uk. Shareholders should note that an election must be registered at least 15 days prior to a dividend payment, for inclusion in the DIS. A total of 4,277,951 new Ordinary shares were allotted under the DIS scheme, subject to listing, throughout the year.

The Company's target of paying a dividend of at least six pence per share in respect of each financial year has been reached or exceeded in each of the last nine years. As Shareholders have been advised previously, both the gradual move of the portfolio to younger growth capital investments, and the realisations of older companies that have provided a good yield, are likely to make dividends harder to achieve from income and capital returns alone in any given year. Accordingly, the Board continues to monitor the sustainability of this target. Also, Shareholders should note that there may continue to be circumstances where the Company is required to pay dividends in order to maintain its regulatory status as a VCT, for example, to stay above the minimum percentage of assets required to be held in qualifying investments. Such dividends may cause the Company's NAV per share to reduce by a corresponding amount.

Investment portfolio

In the context of the continuing challenging business environment, the portfolio has performed strongly. The overall value has increased by £9.85 million (2019: increase of £4.93 million), or 19.6% (2019: increase of 10.0%) on a like-for-like basis, compared to the start of the year. This increase was comprised of £6.42 million in realised gains over the year and a net unrealised increase in valuations of £3.43 million. The portfolio was valued at £50.86 million at the year-end (30 September 2019: £50.22 million).

Clearly, COVID-19 has been the dominant influence on the portfolio and its valuations over the second half of the year. During this unprecedented time, the Board liaised closely with the Investment Adviser, who ensured that all practical steps were taken to enable each portfolio company to trade through the crisis where possible and return to growth in value thereafter. All investee companies were alerted to, and some utilised, the available government support packages. The Company has also provided loan interest payment holidays to some portfolio companies, generating vital cash headroom for certain companies in the portfolio over the subsequent half-year.

The sudden imposition of lockdown on UK business created immediate volatility and uncertainty. However, once the immediate impact subsided, its continuing influence on business generally and portfolio companies specifically was able to be far better understood. It is pleasing that this impact has been far less negative than was initially expected. This, combined with trading levels achieved by some companies, has caused many valuations to achieve not just a substantial recovery, but in some cases to reach higher valuations. Several portfolio companies have greatly benefited from a structural change in activity, behaviour and consumer purchasing habits, and are now trading at or above their pre COVID-19 levels. The majority of the portfolio has demonstrated a strong degree of resilience with over two-thirds of the portfolio value showing year to date growth in revenue and/or earnings over the previous year. A further beneficial factor is the portfolio's relatively limited exposure to the travel and hospitality sectors with the great majority of the retail sector exposure being to online business models (of the nine investments in retail, only the smallest, held at nil value, has a physical presence).

Although quoted markets have also been rallying since March, it is noteworthy that the principal driver of the rise in valuations over the recent half-year reflects strong earnings growth at many investee companies. On the other hand, some companies have clearly struggled, although they are in the minority and their impact on overall shareholder return is modest.

The portfolio movements across the year were as follows:

During the year, the Company invested a total of £8.39 million (2019: £5.08 million) into five new (2019: three) and four existing (2019: three) portfolio investments.

These businesses may present opportunities for further investment in the future as they may require further capital to realise their plans to expand.

The Company realised investments in Redline, Biosite, Auction Technology Group, Access IS and Blaze Signs during the year which, combined with loan repayment and other capital receipts, generated total proceeds of £17.60 million. The first half of the year saw the realisations of two growth capital investments, Redline Worldwide and Biosite, generating proceeds of £1.53 million and £2.65 million respectively, realising a combined gain in the year of £0.98 million. Over the life of these investments, Redline generated a multiple on cost of 1.7x and an IRR of 17.7% and Biosite generated a multiple on cost of 1.5x and an IRR of 21.0%.

In addition, the sale of Auction Technology Group ("ATG") achieved a substantial gain over cost and represented proceeds of £4.19 million and a gain of £1.56 million for the year. Over the life of the investment, total proceeds of £9.04 million have been received, an overall multiple of over 4.5x original cost and an IRR of 28.9%, an outstanding result for Shareholders.

The second half of the year saw the realisations of Access IS and Blaze Signs. Access IS generated cash of £8.38 million, a return of 2.5x and an IRR of 23.4% over the life of the investment and its completion resulted in a gain of £3.00 million in the year. Blaze Signs generated £3.39 million over the life of the investment, a 2.5x return and an IRR of 13.1% and its completion resulted in a gain of £0.13 million.

After the year-end, the sale of Vectair realised cash receipts of £1.10 million which over the nearly 15 year life of the investment contributed to a multiple on cost of 8.3x and an IRR of 22.2%. In isolation, this would result in an uplift of 0.07 pence per share over the 30 September 2020 NAV of 70.06 pence per share. Further proceeds may be receivable in due course.

Other loan repayments and other capital proceeds of £1.34 million and net realised gains of £0.75 million were principally generated from Omega Diagnostics, which was partially realised in several phases during the year.

Revenue account

The results for the year are set out in the Income Statement within the Financial Statements and show a revenue return (after tax) of 2.07 pence per share (2019: 1.80 pence per share). The revenue return of £2.32 million for the year has increased from last year's comparable figure of £1.87 million. This increase is mainly due to a significant receipt of loan interest arising from the sale of ATG, partially offset by a number of provisions against loan interest.

Industry and Regulatory Changes

Although no further changes have emerged in the year, a previous change, already announced, whereby 80% (previously 70%) of the Company's total investments must now be in qualifying investments, applied to the Company from 1 October 2019. The Board has therefore ensured that this requirement has been met throughout the year under review.

Fundraising

The Board was pleased with the response to the Company's Offer for Subscription ("the Offer") which was launched during this financial year on 25 October 2019. This Offer became fully subscribed within two months and raised £10 million in total, made up of the initial £5 million limit, and the £5 million over-allotment facility. In accordance with the Offer's prospectus, all the shares in the Company were allotted under the Offer on 8 January 2020. The Board thanks Shareholders for their continued support and extends a warm welcome to all new investors.

Share buy-backs

During the year, the Company bought back and cancelled 1,858,177 (2019: 2,135,527) of its own shares, representing 1.8 % (2019: 2.0%) of the shares in issue at the beginning of the year, at a total cost of £1.24 million (2019: £1.47 million) inclusive of expenses. It is the Company's policy to cancel all shares bought back in this way. The Board regularly reviews its buyback policy and currently seeks to maintain the discount at which the Company's shares trade at no more than 5% below the latest published NAV.

Liquidity

Following the Company's successful fundraising, the re-introduction of the DIS and realisation proceeds, cash or near cash resources held by the Company as at 30 September 2020 were £32.19 million or 38.7% of net assets.

At the date of this report pro forma cash and liquid assets amount to £33.50 million or 40.3% of net assets, following post year-end disposals. The Board considers the Company to have the advantage of a strong cash position.

Shareholder communications

May I remind you that the Company has its own website containing useful information for Shareholders. The Investment Adviser held the annual Shareholder event on 4 February 2020 and is planning to hold a virtual event later during 2021. Details will be notified to Shareholders once finalised and will be shown on the Company's website: www.incomeandgrowthvct.co.uk.

Fraud Warnings

Boiler Room Fraud

We have been made aware of an increase in the number of Shareholders being contacted in connection with sophisticated but fraudulent financial scams which purport to come from the Company or to be authorised by it. This is often by a phone call or an email usually originating from outside of the UK, often claiming or appearing to be from a corporate finance firm offering to buy your VCT shares at an inflated price.

Further information and fraud advice plus details of who to contact, can be found in the Information for Shareholders section within the Annual Report & Financial Statements.

Protect against identity fraud

Shareholders are also encouraged to ensure their personal data is always held securely and that data held by the Registrar of the Company is up to date, to avoid cases of identity fraud.

Environmental, Social and Governance

Your Board would like to reassure Shareholders that it takes these issues seriously, and future reporting will cover them in more detail. Further reporting and procedural requirements for these increasingly important issues required by current and future regulation should enable the Board to provide concise information and implement further processes, both relevant to the Company and, correspondingly, useful to stakeholders. These objectives do require that regulations are measured, proportionate and cost-effective to introduce.

Annual General Meeting

The next Annual General Meeting of the Company will be held at 11.00 am on Wednesday, 10 February 2021. Shareholders should note that it is likely that physical meetings may still not be permitted due to the UK Government's COVID-19 restrictions and therefore Shareholders would not be allowed to attend the AGM in person. In planning our AGM we have sought to prioritise the safety and wellbeing of our Shareholders and all attendees. In light of the current COVID-19 measures in England, and the legislative measures that have been proposed to allow companies to hold general meetings safely, the AGM will, therefore, be held as a closed virtual meeting with Shareholders able to join the meeting as attendees by electronic means via MS Teams with the Board and Investment Adviser shown on the screen. A link to attend the meeting is available on pages 36, 76 and 78 of the Annual Report & Financial Statement and on the Company's website at www.incomeandgrowthvct.co.uk under the AGM bubble on the front page. You do not need to download MS Teams or have a MS Teams account to access the event. The meeting will also be accessible by telephone conference call for those without a suitable device and/or WiFi connection. Once the formal business of the meeting is concluded, a presentation by the Investment Adviser will commence followed by Shareholders' questions.

Shareholders will not be able to vote at the meeting. Voting will be conducted by way of a poll, by the quorum of members, of all the valid proxy votes lodged. The Board encourages Shareholders to submit their vote by proxy either by completing and returning the form enclosed or proxy votes may also be submitted electronically via the Link Shareholder portal at: www.signalshares.com. Votes must arrive at the Registrar 48 hours before the meeting to be valid. The Notice of the meeting is included within the Annual Report & Financial Statements and an explanation of the resolutions to be proposed can be found in the Directors' Report.

Shareholders can also submit any questions about the resolutions to be passed at the AGM by using the agm@mobeus.co.uk email address and a response will be provided prior to the deadline for lodging proxy votes. You can also register any questions for the AGM using the same email address or using the question facility during the meeting.

Outlook

The impact of COVID-19 was and will continue to be immediate and wide reaching. Nevertheless, your Board considers that your Company is well positioned to continue to respond and adapt in most likely scenarios in so far as they can presently be foreseen. The successful realisations and earlier fundraising have given the Company strong liquidity not only to support the existing portfolio as appropriate, but also to capitalise on opportunities which may arise for new investment. The portfolio still retains a foundation of mature investments that are providing an income return, but also an increasing proportion of younger, growth capital investments seeking to achieve further scale, higher levels of profitability and value. The year-end valuations reflect strong performance by many investees in the second half of the year and a robust and well-funded portfolio, well equipped to meet an uncertain environment.

The results achieved for the year reflect the growth and valuation increases across the portfolio, underpinned by the successful realisations. The Investment Adviser is seeing a good pipeline of interesting new investment opportunities. Furthermore, as BREXIT negotiations continue unresolved they cause global market economies to be nervous and volatile. UK and European businesses in particular will therefore continue to operate in an uncertain trading environment for the foreseeable future. Although the degree and frequency of future lockdown and other restrictions to the UK economy is unclear, both the Investment Adviser and portfolio companies are well equipped to respond accordingly. On all fronts, we have cause to be cautiously optimistic.

I would like to take this opportunity once again to thank all Shareholders for their continued support and hope you and your families remain healthy and well.

Maurice Helfgott

Chairman

9 December 2020

INVESTMENT POLICY

The Company's policy is to invest primarily in a diverse portfolio of UK unquoted companies.

Asset Mix and Diversification

The Company will seek to make investments in UK unquoted companies in accordance with the requirements of prevailing VCT legislation.

Investments are made selectively across a wide variety of sectors, principally in established companies.

Investments are generally structured as part loan and part equity in order to receive regular income and to generate capital gain from realisations.

There are a number of conditions within the VCT legislation which need to be met by I&G and which may change from time to time.

No single investment may represent more than 15% (by VCT tax value) of the Company's total investments at the date of investment.

Save as set out above, the Company's other investments are held in cash and liquid funds.

Liquidity

The Company's cash and liquid funds are held in a portfolio of readily realisable interest-bearing investments, deposit and current accounts, of varying maturities, subject to the overriding criterion that the risk of loss of capital be minimised.

Borrowing

The Company's Articles of Association permit borrowing of up to 10% of the adjusted capital and reserves (as defined therein). However, the Company has never borrowed and the Board would only consider doing so in exceptional circumstances.

INVESTMENT ADVISER'S REVIEW

COVID-19 Pandemic

The Company's year started well with strong portfolio performance and some high-quality realisations being seen. Six months into the year, in March 2020, the UK Government introduced lockdown and social distancing measures in response to the COVID-19 pandemic.

 These measures had an immediate adverse impact on UK businesses, with many companies experiencing a significant reduction in consumer and business demand, restrictions on employees' working practices and disruption to their supply chains. Global markets fell significantly as a result.

Following the low point in March, there has been a significant and pleasing bounce-back with recovery in portfolio trading levels. There are still uncertainties ahead, particularly the second wave of the COVID-19 pandemic and BREXIT, but the portfolio is in robust shape, following the experience gained and the opportunities taken over the last six months, to withstand and respond to these as yet uncertain developments in future.

 At all times during the pandemic, the Investment Adviser has reviewed and evaluated the impact of COVID-19 on each sector exposure and on the value of the portfolio, and appropriate action taken. Mobeus has and continues to review the opportunities for new and follow-on investments and is in a position to capitalise as and when needed via the Company's relatively high liquidity levels. Over the most recent months, investment in new opportunities has been relatively low as entrepreneurs temporarily deferred fundraising but there is now a healthy pipeline of suitable opportunities which are being evaluated.

 The level of portfolio follow-on investment has indicated there are opportunities to back proven portfolio companies that are achieving strong relative performance. The realisation activity outlook continues to be positive with approaches received from trade and financial investors to several investee companies.

 Overall, the portfolio is robust and the Investment Adviser is mindful of the uncertain future but remains optimistic on the basis of recent evidence of trading performance and potential growth within the portfolio.

 Portfolio review

Prior to the emergence of the COVID-19 pandemic, there was some very positive progress within the portfolio, particularly with respect to exits such as Auction Technology Group, Redline Worldwide and Biosite. At the half-year stage, and at the height of the pandemic uncertainty, many valuation reductions were applied to the portfolio which reflected the initial drop in revenues, stock market movements and included COVID-19 specific adjustments given the uncertain outlook. In the second half of the year, the portfolio experienced a significant bounce-back such that for the year as a whole the value of the portfolio increased by £9.85 million, comprising an increase of £3.43 million in the unrealised portfolio and gains of £6.42 million through realisations.

 It is important to note that the usual approach to portfolio valuation by the Investment Adviser continued to be applied throughout this uncertain period. The second half-year recovery is attributable to trading improvement achieved by many portfolio companies, against a backdrop of improved market sentiment. The removal of unused COVID-19 related adjustments that were put in place during March, and improved cash generation, were also contributing factors. Some portfolio companies, often with online business models, have traded strongly throughout the latter half of the year. Whilst it is still early to be certain, there is evidence that a degree of structural change to consumer purchasing habits has occurred, which should underpin strong performance in future under the "new normal".

The second half of the year, benefited from further valuation increases and continued a strong run of realisations with further gains generated from the exits of Access IS and Blaze. 

Activity in the year is summarised as follows:

The Company made new and follow-on investments totalling £8.39 million, which is particularly pleasing given that there was effectively a temporary pause in new investment going into the summer months. The Company invested £4.46 million into five new growth companies, including one since the onset of the COVID-19 pandemic. £3.93 million was invested into four existing portfolio companies to allow them to capitalise on further growth opportunities. The details of these investments are shown within the Investment Review section of the Annual Report & Financial Statements.

The Company realised its investments in Redline, Biosite, Auction Technology Group, Access IS and Blaze Signs during the year, receiving a total of £16.25 million in proceeds, and contributing to total receipts of £17.60 million during the year. The details are set out below:

In December, the Company realised £1.53 million from its first growth capital investment made under the new VCT rules, Redline Worldwide, generating a gain of £0.98 million in the year. Over the time that this investment was held, a multiple of proceeds over cost of 1.7x and an IRR of 17.7% has been achieved to date.

In February, Auction Technology Group was sold and generated proceeds over the life of the investment of £9.04 million compared to an original cost of £2.00 million, a multiple on cost of 4.5x and an IRR of 28.9% over the 11½ years this investment was held - an exceptional return for Shareholders.

Also in February, the investment in Biosite was realised, generating proceeds of £2.77 million over the life of the investment, representing a profit over cost of £0.98 million and contributing to a gain over original cost of 1.5x and an IRR of 21.0%.

In August, the realisation of Access IS provided total proceeds over the life of the investment of £8.38 million representing a profit over cost of £5.06 million and a gain over original cost of 2.5x with an IRR of 23.4%.

Finally, in September, the Blaze Signs exit contributed to total proceeds of £3.39 million over the life of the holding, contributing to a gain over cost of £2.06 million, representing 2.5x and an IRR of 13.1%.

Following the year-end, the realisation of Vectair contributed to total proceeds received over the life of the investment of £1.79 million, generating a multiple over cost of 8.3x and an IRR of 22.2%.

Also during the year and following a significant increase in its share price, the Company received £1.05 million from the partial realisations of its holding in Omega Diagnostics. This represented a realised gain of £0.85 million for the year and contributed to an attractive return to date of 5.3x multiple on cost and based upon the valuation at the year-end has achieved an IRR to that date of 19.1%.

This investment has secured a strong positive return to date but maintains a degree of potential upside through the residual holding.

The investment and divestment activity during the year increased the proportion of the portfolio regarded as growth capital investments by value to 74.6% at the year-end (30 September 2019: 59.2%). The portfolio (including legacy and AIM investments) had decreased from 41 to 40 investments at the year-end.

The portfolio's contribution to the overall results of the Company is summarised below:

Valuation changes of portfolio investments still held

The strength of the valuation increases in the second half-year was primarily driven by the Company's growth portfolio, many of which have Direct-to-Consumer business models that have been ideally suited to the more physically remote business environment under COVID-19. Mobeus believes that this has accelerated an existing trend and in many cases the shift in behaviours will prove permanent. Over this period, some older style MBO portfolio companies with similar business practices have also benefited.

 Despite much of the portfolio performance being positive, a few companies have struggled in this environment, although in most cases, these businesses were already struggling pre-COVID-19. While there remains a possibility such businesses will fail, their value has already been reduced to modest levels, reducing their risk to future shareholder value. The details of valuation increases and reductions are explained below.

Within total valuation decreases of £(6.73) million, the main reductions were CGI Creative Graphics International - £(1.59) million, Tapas Revolution - £(1.33) million, and Media Business Insight (MBI) - £(1.25) million. These companies saw some of the most significant impact of a sudden decline in demand for their products or services which, even when restrictions are eased, may take time for value to recover.

By contrast some investee companies' trading has benefited greatly from the lockdown. The main valuation increases include Virgin Wines - £3.04 million, Active Navigation - £1.54 million, Parsley Box - £1.24 million and MPB Group- £0.84 million. Virgin Wines, Parsley Box and MPB have generated record earnings and revenues over the lockdown period and beyond. All have significantly increased their customer base and there is evidence that these new customers are continuing to be at least as active and profitable as their pre-COVID-19 customers. Active Navigation has benefited from its strong levels of recurring revenues.

The majority of the increase in portfolio value lies in the top 10 companies which represent nearly 70% of the portfolio by value. Year-on-year growth by either revenues or earnings has been seen in nine of the top ten companies and it is pleasing to note that eight of these are from the younger, growth portfolio. The significant value and performance growth has contributed to the resilience of the portfolio, reflecting investment by the Company in strong Direct-to- Customer business models or those that have adapted to them.

The year also saw portfolio companies, Jablite and Oakheath (formerly Super Carers) entering voluntary liquidation. These two companies were struggling before the impact of COVID-19. Valuation reductions for these companies had already been made, so there has been little impact on shareholder value from these administration processes.

Investment portfolio yield

During its financial year, the Company received the following amounts in interest and dividend income:

1 Total portfolio income in the year is generated solely from investee companies within the portfolio. See Note 3 of the Financial Statements for all income receivable by the Company. The increase in income was mainly due to interest of £1.09 million received on the loan instruments in Auction Technology Group being paid, as part of the sale transaction, which had not previously been recognised. Portfolio yield is expected to fall for the foreseeable future, as the growth portfolio's returns are likely to be more capital in nature.

Environmental, Social, Governance considerations

The Investment Adviser and the Board have discussed an appropriate framework within which to assess progress on these matters within the existing portfolio. The Investment Adviser is encouraging this matter to be a standing agenda item at investee company board meetings. It will continue to be an important consideration in our assessment of new investment opportunities.

Outlook

The portfolio is in a good position with many companies trading well during lockdown and several at record levels. This gives confidence about the future prosperity of the portfolio and its ability to cope with other uncertainties, challenges and opportunities associated with BREXIT and the second national lockdown. The new investment pipeline is recovering to levels seen pre-COVID-19 and capital deployment should continue at an encouraging rate. The Investment Adviser, although cautious in its approach, is confident that the portfolio is in robust shape to cope with whatever the short to medium-term holds.

New investments in the year

A total of £4.46 million was invested into five new investments during the year as detailed below:

Further investments in existing portfolio companies in the year

The Company made further investments totalling £3.93 million into four existing portfolio companies during the year under review, as detailed below:

Realisations during the year

The Company realised its investments in Redline Worldwide, Biosite, Auction Technology Group, Access IS and Blaze Signs, as detailed below:

Realisations after the year-end

After the year-end, the Company realised one investment, as detailed below:

Loan stock repayments and other receipts

During the year, there were two partial realisations of Omega Diagnostics Group plc which generated proceeds of £1.05 million and a realised gain of £0.85 million. A £0.08 million loan repayment was received from BookingTek, generating a nominal loss of £0.01 million. Finally, following the decision of Jablite Holdings to enter a voluntary liquidation, the Company recognised a realised loss of £0.09 million on that investment, with some recovery still anticipated.

Mobeus Equity Partners LLP

Investment Adviser

9 December 2020

For further information on the Investment Portfolio, please see the Annual Report and Financial Statements.

PRINCIPAL RISKS

The Directors acknowledge the Board's responsibilities for the Company's internal control systems and have instigated systems and procedures for identifying, evaluating and managing the principal risks faced by the Company. This includes a key risk management review which takes place at each quarterly Board meeting. The principal risks identified by the Board, a description of the possible consequences of each risk and how the Board manages each risk are set out below.

The risk profile of the Company changed as a consequence of the VCT regulations introduced in 2015. As the Company is required to focus its investment on growth capital investments in younger companies it is anticipated that investment returns will be more volatile and will have a higher risk profile. The Board remains confident that the Company and the Investment Adviser has adapted to these new requirements and put in place appropriate resource to identify and make suitable investments.

The Board regularly sets and reviews policies for financial risk management and full details of these can be found in Note 16 to the Financial Statements.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year and the Directors have elected to prepare the Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these Financial Statements, the Directors are required to:

● select suitable accounting policies and then apply them consistently;

● make judgements and accounting estimates that are reasonable and prudent;

● state whether the Financial Statements have been prepared in accordance with United Kingdom accounting standards, subject to any material departures disclosed and explained in the Financial Statements;

● prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;

● prepare a Strategic Report, a Director's 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.

Website publication

The Directors are responsible for ensuring the Annual Report and the Financial Statements are made available on a website. Financial Statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of Financial Statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the Financial Statements contained therein.

Directors' responsibilities pursuant to Disclosure and Transparency Rule 4 of the UK Listing Authority

The Directors confirm to the best of their knowledge that:

a) the Financial Statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice give a true and fair view of the assets, liabilities, financial position and the profit of the Company; and

b) the Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

Having taken advice from the Audit Committee, the Board considers the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

Neither the Company nor the Directors accept any liability to any person in relation to the Annual Report except to the extent that such liability could arise under English law.

For and on behalf of the Board

Maurice Helfgott

Chairman

9 December 2020

Financial Statements