Last checked at 
19 Dec 2022 07:00
THE INCOME & GROWTH VCT PLC
LEI: 213800FPC15FNM74YD92
ANNUAL FINANCIAL RESULTS OF THE COMPANY FOR THE YEAR ENDED 30 SEPTEMBER 2022
The Income & Growth VCT plc (the "Company") announces the final results for the year ended 30 September 2022. These results were approved by the Board of Directors on 16 December 2022.
You may, in due course, view the Annual Report & Financial Statements, comprising the statutory accounts of the Company by visiting https://www.mobeusvcts.co.uk/.
FINANCIAL HIGHLIGHTS
As at 30 September 2022: Net assets: £108.42 million Net asset value ("NAV") per share: 83.73 pence
- There was a negative Net asset value ("NAV") total return (including dividends)1 per share was (8.7)%. - Share price total return1 per share was (3.8)% 2 (as per London Stock Exchange mid-price on balance sheet date of 30 September 2022). - Dividends paid/payable in respect of the year total 8.00 pence per share. This brings cumulative dividends paid1 to Shareholders in respect of the past five years to 43.00 pence per share. - The Company realised investments totalling £11.56 million of cash proceeds and generated net realised gains in the year of £2.32 million. - Net unrealised losses of £(13.16) million in the year. - £7.33 million was invested into four new companies and eight 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 in the Annual Report. 2 - Further details on the share price total return are shown in the Performance section of the Strategic Report within the Annual Report.
OUR INVESTMENT OBJECTIVE
The objective of the Company is to provide investors with an attractive return by maximising the stream of tax-free dividend distributions from the income and capital gains generated by a diverse and carefully selected portfolio of investments, while continuing at all times to qualify as a VCT.
INVESTMENT POLICY
The Company's Investment Policy is to invest primarily in a diverse portfolio of UK unquoted companies. Investments are generally structured as part loan and part equity in order to receive regular income, to generate capital gain upon sale and to reduce the risk of high exposure to equities. To further spread risk, investments are made in a number of different businesses across different industry sectors.
The Company's cash and liquid resources are held in a range of instruments which can be of varying maturities, subject to the overriding criterion that the risk of loss of capital be minimised.
The Company seeks to make investments in accordance with the requirements of VCT regulation. A summary of this is set out below. The full text of the Company's Investment Policy is set out in the Strategic Report.
STRATEGIC REPORT
CHAIRMAN'S STATEMENT
Overview
This Company's financial year has been notable for the significant geopolitical economic and political disruption both domestically and internationally. The end of the 2021 calendar year was a high watermark in many technology and growth markets, and since then we have experienced a number of significant global events such as the illegal Russian invasion of Ukraine, the return of inflation to 40-year highs and political turmoil in the UK and across Europe. All of this has led to increased volatility across global markets and a material downward re-rating of growth stocks.
Despite the events set out above and the widely reported cost of living increases, the fundraise, launched for applications on 17 October 2022 secured the full £22 million sought (including £8 million over-allotment). This was a strong demonstration of confidence in the Company by investors.
One positive and as yet, we believe, still planned outcome from the so-called 'mini-budget' of the previous Chancellor of the Exchequer in September, was the commitment from the UK Government to extend the VCT 'sunset clause' beyond the end date of 5 April 2025, however it should be noted that no further detail has been provided at this stage and is also likely to require parliamentary approval. This clause was due to expire in 2025 and would have meant that investor income tax relief would have no longer been available on new VCT subscriptions.
Performance
The Company's NAV total fell by (8.7)% for the year ended 30 September 2022 (versus a gain of + 50.5% in 2020/21). The negative NAV total return for the year was principally comprised of unrealised falls in the value of investments still held, tempered somewhat by the successful exits from Media Business Insight ("MBI") and Vian Marketing Limited (trading as Red Paddle).
The reduction in the valuation of the portfolio has been driven primarily by lower benchmark market comparables and to a lesser extent by falls in underlying investee company trading performance. This is because markets are already factoring in the likely impact of inflation and higher interest rates on consumer spending and business investment.
At the year-end, the Company was ranked 2nd out of 39 Generalist VCTs over five years and 9th out of 31 over ten years, in the Association of Investment Companies' analysis of NAV Cumulative Total Return. Shareholders should note that, due to the lag in the disclosed performance figures available each quarter, the AIC ranking figures do not fully reflect the final NAV movement to 30 September 2022, or those of our peers.
Dividends
The Board intends to continue to target the Investment Adviser with providing an attractive dividend stream to Shareholders and was pleased to declare two interim dividends of 4.00 pence per share each totalling 8.00 pence in respect of the year ended 30 September 2022 exceeding the Company's annual target of 6.00 pence per share.
The first interim dividend was paid on 8 July 2022, to Shareholders on the Register on 6 June 2022 and the second interim dividend was paid on 7 November 2022 to those Shareholders on the Register on 23 September 2022. These dividend payments brought cumulative dividends paid per share since inception in 2004 to 148.5 pence.
The Company's ongoing target of paying a dividend of at least 6.00 pence per share in respect of each financial year has been achieved and often exceeded in each of the last eleven financial years.
It should be noted that the continued movement of the portfolio to a larger share of younger growth capital investments could lead to increased volatility, which may affect the return in any given year. Shareholders should also 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.
Dividend Investment Scheme
The Company's Dividend Investment Scheme ("DIS") provides Shareholders with the opportunity to reinvest their cash dividends into new shares in the Company at the latest published NAV per share. New VCT shares attract the same tax reliefs as shares purchased through an Offer for Subscription. A total of 1,901,145 (2021: 1,178,669) Ordinary shares were allotted as a result of dividends paid during the year resulting in £1.81 million (2021: £1.06 million) being retained by the Company.
Shareholders wishing to take advantage of the scheme for any future dividends can join the DIS by completing a mandate form available on the Company's website, under the 'Dividends' heading, at: www.incomeandgrowthvct.co.uk, or alternatively, Shareholders can opt-out by contacting Link Group, using their details provided under Corporate Information in the Annual Report . Investment Portfolio The portfolio movements across the year were as follows:
In the face of the current testing environment, particularly during the final quarter of the financial year following the mini-budget, the Investment Adviser has started to see the impact on trading of a number of investee companies of a decline in consumer confidence. As a result, there was a fall of £10.84 million in the overall value of the portfolio across year to 30 September 2022 (2021: increase of £43.64 million), or a fall of (12.3)% on a like-for-like basis compared to the opening value of the portfolio at 1 October 2021. Notably, included within the fall of £10.84 million above, Virgin Wines declined by £9.67 million. Virgin Wines, an AIM listed investment which has suffered from the negative sentiment of its sector, in spite of positive news flows from the company itself and the relative outperformance versus its peers.
The negative NAV total return for the year was principally comprised of unrealised falls in the value of investments still held of £13.16 million, primarily Virgin Wines, MyTutor and Buster & Punch mitigated to some extent by the successful exits from Media Business Insight and Red Paddle contributing to net realised gains of £2.32 million.
In November 2021, the Company's entire holding in Red Paddle was realised, generating proceeds of £5.52 million, taking proceeds received over the life of the investment of £6.50 million, a multiple on cost of 5.4x and an IRR of 33.2%. In June 2022, the Company realised its investment in MBI generating proceeds of £6.02 million from the sale (including loan repayments made earlier in the year). This contributed to returns received amounting to £8.23 million, a 2.2x multiple of cost and an IRR of 13.7% over the life of this investment.
Following the year-end, Andersen EV, the electric charger provider, was forced into administration as a result of a substantial deterioration in its trading conditions. This has resulted in a realised loss of £0.71 million recognised in the year under review. This is particularly disappointing as the Company, alongside the other Mobeus VCTs made a follow on investment into the company in May of this year. The Company had secured some impressive clients and funding was provided to drive product development in a premium brand which operated in the emerging electric car charging market. However, over the summer months, a sour combination of global supply issues and the removal of Government consumer support for the purchase of EV chargers quickly impacted the company's ability to continue trading and so necessitated the appointment of administrators shortly after the Company's year-end.
Investment activity during the year has been robust, with four new and eight follow-on investments completed, totalling £7.33 million. The Company invested a total of £2.69 million into four new investments:
In addition, eight follow-on investments totalling £4.64 million were made into:
We expect follow-on investments to continue to be a significant feature of the growth capital investments as they strive to achieve scale and move towards profitability. Follow-on investment requests will be subject to scrutiny and certain criteria being met, including the HMRC Financial Health Test.
During such uncertain times, management of the portfolio is critical and the Investment Adviser is focused on deploying its Talent Management team to support investments.
Shareholders should be aware that an effective tightening of HMRC policy and practice to a technical aspect of the VCT financing rules is now resulting in the restriction of potential follow on investments to support companies, where more than half their subscribed share capital has been lost. In a small number of cases, this may result in the Company not being able to follow its money even where a compelling business case exists therefore affecting the growth prospects of these businesses.
After the year end, the Company realised its equity holding in Equip Outdoor Technologies Holdings Limited ("EOTH") for £7.34 million (including preference dividends). These proceeds have contributed to returns received over the life of this investment of £9.54 million, which is a multiple on cost of 6.9x to date. The Company has retained its interest yielding loan stock.
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 1.23 pence per share (2021: 0.77 pence per share). The revenue return for the year of £1.53 million has increased from last year's figure of £0.91 million. This is primarily the result of significant loan interest arrears that were not previously recognised that were received upon the sale of MBI as well as higher dividends receivable from EOTH.
Fundraising
In January 2022, the Company completed a fundraise of £10 million for the 2021/2022 tax year which was fully subscribed in less than 24 hours. This level of demand was pleasing, but the Board was aware that a number of investors were left disappointed having not been able to subscribe. Later in the year, upon considering the future cash requirements of the VCT and the potential demand for the Company's shares, the Board approved a further fundraise for the 2022/23 tax year.
Having provided a period of time between the launch of the prospectus and acceptance of applications, the Board was pleased that the initial amount of £14m (as well as an overallotment facility of a further £8m), launched early in October 2022, was fully subscribed by 13 December 2022 and is therefore no longer taking applications. Your Company welcomes both new and existing shareholders.
Those investors who invested when the over-allotment facility had been utilised, have yet to receive their shares which are due to be allotted in January 2023 and certificates dispatched shortly afterwards.
The fundraising launched in October 2022 was to ensure that the Company retained adequate levels of liquidity to continue to take advantage of new investment opportunities and fund further expansion of the businesses in its investment portfolio, seek the delivery of attractive returns for its Shareholder, including the payment of dividends, over the medium term, and buy back its shares from those Shareholders who may wish to sell their shares. It is not the intention of the Board to conduct another fundraise in 2023.
Liquidity
Cash and liquidity fund balances as at 30 September 2022 amounted to £34.78 million representing 32.1% of net assets. After the year-end, following the payment of a 4.00 pence per share dividend and the successful fundraise, the pro-forma level of liquidity is £52.55 million (41.6% of net assets). The Board continues to monitor credit risk in respect of its cash and near cash resources and to prioritise the security and protection of the Company's capital.
Share buy-backs
During the year to 30 September 2022, the Company bought back and cancelled 1,166,089 of its own shares (2021: 1,285,499), representing 1% (2021: 1.1%) of the shares in issue at the beginning of the year, at a total cost of £1.03 million (2021: £1.05 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, where its priority is to act prudently and in the interest of remaining Shareholders, whilst considering other factors, such as levels of liquidity and reserves, market conditions and applicable law and regulations. Under this policy, the Company seeks to maintain the discount at which the Company's shares trade at approximately 5% below the latest published NAV.
Shareholder Communications & Annual General Meeting
May I remind you that the Company has its own website which is available at: www.incomeandgrowthvct.co.uk.
The Investment Adviser last held its Shareholder Event virtually on behalf of all four Mobeus VCTs on 25 February 2022. The event was well received and the Investment Adviser plans to hold another event in March 2023. Further details will be circulated to Shareholders and shown on the Company's website in due course.
Your Board is pleased to hold the next Annual General Meeting ("AGM") of the Company at 11.00am on Wednesday,22 February 2023 at the offices of Shakespeare Martineau LLP, 6th Floor, 60 Gracechurch Street, London EC3V 0HR. A webcast will also be available at the same time for those Shareholders who cannot attend in person however, please note that you will not be able to vote via this method and so are encouraged to return your proxy form before the deadline of 20 February 2023. Information setting out how to join the meeting by virtual means will be shown on the Company's website. For further details, please see the Notice of the Meeting which can be found at the end of the Annual Report & Financial Statements.
Environmental, Social and Governance ("ESG")
The Board and the Investment Adviser believe that the consideration of environmental, social and corporate governance ("ESG") factors throughout the investment cycle will contribute towards enhanced Shareholder value.
Gresham House Asset Management Limited, has a team which is focused on sustainability, the Board views this as an opportunity to enhance the Company's existing protocols and procedures through the adoption of the highest industry standards.
The future FCA reporting requirements consistent with the Task Force on Climate-related Financial Disclosures, which commenced on 1 January 2021 do not currently apply to the Company but will be kept under review, the Board being mindful of any recommended changes.
Fraud Warning
We are aware of a number of cases where Shareholders are being fraudulently contacted or are being subjected to attempts of identity fraud. Shareholders should remain vigilant of all potential financial scams or requests for them to disclose personal data. The Board strongly recommends Shareholders take time to read the Company's Fraud warning section, including details of who to contact, contained within the Information for Shareholders section within the Annual Report.
Board Succession
Helen Sinclair retired from the Board immediately following the Annual General Meeting in February 2022 after 19 years wonderful service and left with the gratitude of the Board. The Board continued to be comprised of the two existing directors whilst considering the appropriate composition and succession of the Board. Following this review, an extensive recruitment process commenced and we were delighted to appoint Nemone Wynn-Evans to the Board and its committees as a nonexecutive director on 7 November 2022 and extend a warm welcome to Nemone, who will present herself for election as a director at the AGM in February 2023. Nemone has a wealth of relevant experience and will bring additional skills to the Board.
Nemone will take over as Chair of the Audit Committee on 1 January 2023 and I would like to thank Justin for filling this role since his appointment in 2019 and for the excellent work conducted under his Chairmanship. Justin will remain as the Chair of the Investment Committee, a role he also took on earlier in the year.
Outlook
The geopolitical and economic context for the next twelve months is likely to be challenging although this can also provide a good opportunity to make high quality investments and build strategic stakes in businesses with great potential for the future. Despite the successful exit of EOTH in November, the exit environment is likely to be subdued compared to recent years, although this is not foreseen to be a significant issue given that the VCT fund is not time-limited. However, the combined impact of inflation, interest rates and restrictions in Government spending can all be expected to impact consumer and business confidence. With business failure rates still below their pre-Covid levels, we therefore anticipate that further stresses will become apparent across the UK business population over the coming year. No sectors will be immune, but the Company has a reasonably large and diverse portfolio, managed by a professional and capable investment team, that mitigates the challenges which lie ahead.
Maurice Helfgott Chairman 16 December 2022
INVESTMENT ADVISER'S REVIEW
Porfolio Review
The current macro environment continues to create challenging conditions for all enterprises including our investee companies, with operating margins coming under pressure. The portfolio movements in the year are summarised as follows:
The year to 30 September 2022 saw a significant decline in many quoted market values. In addition, political uncertainties have also affected consumer confidence across the UK and impact is now being starting to be seen. In spite of relatively resilient underlying trading performance in the early part of the year, the portfolio value has reduced as a result of these circumstances. The Company made four new growth capital investments during the year totalling £2.69 million:
Also, during the year, the Company further invested into eight portfolio companies totalling £4.64 million, a breakdown is listed later in the Investment Adviser's Review.
Two strong exits were achieved during the year, Red Paddle and MBI. On Red Paddle, the Company received a total of £5.52 million in proceeds during the year, generating a realised gain of £1.20 million in the year. On MBI, the Company received a total of £6.02 million in proceeds during the year generating a realised gain of £1.82 million. It was disappointing that Andersen EV, despite securing some large clients such as Porsche and JLR, went into administration. Andersen experienced very challenging trading conditions with substantially reduced demand, supplier chain issues, cost pressures and the removal of government consumer support for the purchase of EV chargers. A realised loss of £0.71 million was recognised during the financial year as a result.
After the year end, the Company realised its equity holding in Equip Outdoor Technologies Holdings Limited ("EOTH") for £7.34 million (including preference dividends). These proceeds have contributed to returns received over the life of this investment of £9.54 million, which is a multiple on cost of 6.9x to date, an IRR of 23.2%. The Company has retained it interest yielding loan stock.
The investment and divestment activity during the year has further increased the proportion of the portfolio comprised of investments made since the 2015 VCT rule change to 71.5% by value at the year-end (30 September 2021: 59.5%).
The portfolio's valuation changes in the year are summarised as follows:
Valuation changes of portfolio investments still held
The main reductions within total valuation decreases of £(20.48) million, were: · Virgin Wines - £(9.67) million; · MyTutor - £(3.60) million · Buster and Punch - £(1.64) million, and · Wetsuit Outlet - £(1.58) million.
Virgin Wines has consistently delivered robust trading performance relative to its peers and continued to release positive news flow. Nevertheless, the value of the AIM-listed stock has been impacted by the general de-rating of its sector. MyTutor has generated strong revenues in the year to date, both above budget and previous years. However, a reduction in comparator multiples has reduced the value of this investment which reflects market movements rather than company specific performance. The decrease in Buster and Punch and Wetsuit Outlet reflects the weak economic environment and the resulting deterioration of consumer sentiment. The main uplifts within total valuation increases of £7.32 million were: · Preservica - £2.84 million · EOTH - £1.72 million · Master Removers Group - £1.40 million
Preservica continues build its high retention, long contract term Software-as-a-Service ("SaaS") business improving recurring revenues year on year. EOTH and Master Removers Group continue to grow with both businesses being very cash generative and high margin. Realised gains
The Company realised its investments in Red Paddle and MBI during the year under review, generating gains in the year of £1.20 million and £1.82 million, respectively. These contributed to a multiple of cost of 5.4x and 2.2x over the life of the investments. A further £0.01 million of deferred proceeds were received from investments realised in a previous year. Conversely, Muller EV (trading as Andersen EV) generated a realised loss in the year of £(0.71) million.
Investment portfolio yield
In the year under review, the Company received the following amounts in loan interest and dividend income:
New investments during the year
The Company made four new investments totalling £2.69 million during the year, as detailed below:
Further investments during the year
The Company made eight further investments into existing portfolio companies in the year, totalling £4.64 million, as detailed below:
Portfolio Realisations during the year
The Company realised two investments, as detailed below:
Environmental, Social, Governance considerations
The novation of the investment advisory agreement to Gresham House has enabled the Company to benefit from a dedicated team which is focused on sustainability tasked with implementing the highest industry standards in this area. Under the new enlarged investment team, each investment executive is responsible for their own individual ESG objectives in support of the wider overarching ESG goals of the Investment Adviser. For further details, Gresham House published its second Sustainable Investment Report in April 2022, which can be found on its website at: www.greshamhouse.com.
Outlook
With inflation, political uncertainty and the increasing threat of recession impacting consumer confidence and business investment, the number of UK businesses experiencing financial stress is set to increase. This will impact all sectors and businesses to varying degrees and may present attractive opportunities for a selective investor with the advantage of being able to take a longer-term view such as your VCT. However, the economic backdrop will also impact existing portfolio companies and falls largely outside of the experience of this generation of management teams and advisers. Markets are volatile and uncertain and business planning is particularly difficult. As such, the experience of seasoned investment managers will be increasingly important in the coming year as they seek to support their portfolio management teams in navigating through some particularly challenging short-term trading conditions. The VCT has ample liquidity to provide further support to its portfolio businesses through this period and is keen to make such investments where there is a commercial case to do so over the medium-long term.
Gresham House Asset Management Limited Investment Adviser 16 December 2022
Annual General Meeting
The AGM will be held on Wednes, 22 February 2023 at the offices of Shakespeare Martineau LLP, 6th floor, 60 Gracechurch Street, London EC3V 0HR and will also by webcast for those Shareholders who are unable to attend in person. Details of how to join the meeting by virtual means will be shown on the Company's website. Shareholders joining virtually should note you will not be able to vote at the meeting and therefore you are encouraged to lodge your proxy form. For further details, please see the Notice of the Meeting which can be found at the end of this Annual Report & Financial Statements.
Further Information
The Annual Report and Accounts for the year ended 30 September 2022 will be available shortly on www.incomeandgrowthvct.co.uk.
It will also be submitted shortly in full unedited text to the Financial Conduct Authority's National Storage Mechanism and will be available for inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism in accordance with DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.
Contact: Gresham House Asset Management Limited Company Secretary mobeusvcts@greshamhouse.com +44 20 7382 0999 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||