Inc&gwth Vct Regulatory News (IGV)

The Income & Growth VCT plc ("the Company" "the VCT" or "I&G VCT") is a Venture Capital Trust ("VCT") listed on the London Stock Exchange. Its investment portfolio is advised by Mobeus Equity Partners LLP ("Mobeus").

Company Objective

The objective of the Company is to provide investors with an attractive return, by maximising the stream of 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.

Financial Highlights

Results for the six months ended 31 March 2016

* The first allotment of the former 'S' Share class, now the current share class, took place on 6 February 2008.

Performance Summary

The net asset value ("NAV") per share at 31 March 2016 was 104.42 pence.

The table below shows the recent past performance of the Company's existing class of shares. Detailed performance data, including a table of dividends paid to date, for all fundraising rounds is shown in the Performance Data appendix which will be included in the published Half-Year Report and on the Company's website.

Chairman's Statement

I am pleased to present the Company's Half-Year Report for the six months ended 31 March 2016.

This half-year has seen a period of solid performance for the Company. Three profitable investment disposals and a good performance across the portfolio as a whole were the main contributors to a further increase in shareholder returns for the half-year. During the period, the Company also completed new investments into two companies.

The second of these investments was the first made by the Company in compliance with the new VCT legislation introduced by the Finance (No 2) Act 2015 (the "new VCT Rules") and in accordance with the Company's new Investment Policy. By way of a reminder, the new Investment Policy was required to comply with the new VCT Rules and was approved by shareholders at the Annual General Meeting on 10 February 2016. Details of the new VCT Rules were set out in the 2015 Annual Report and a summary of current VCT regulation is provided following the Investment Policy below. Further information is given on more recent developments later in this statement.

Performance

The Company's NAV total return per share was 3.8% for the six months to 31 March 2016 (2015: 3.0%) while the total share price return was 7.0% (2015: 4.3%).

Cumulative NAV total return per share (being the closing net asset value plus total dividends paid to date) has risen to 178.92 pence compared to 174.88 pence at the year-end. This represents a further increase of 2.3% over the period and an increase of 88.9% since the merger of the VCT's share classes in March 2010.

Longer term performance of the Company

Shareholders who invested in the former class of 'S' Shares in 2007 (the current share class) have seen a total NAV return to date of 178.92 pence per share. This return compares with an initial investment of 100 pence per share, or a net cost (after initial income tax relief of 30%) of 70 pence per share. As part of this return, shareholders have received 74.50 pence in dividends, representing an average annual yield upon their initial 70.00 pence net investment of 13.0% (2015: 12.5%). The underlying net asset value, which represents the balance of their total return, is 104.42 pence per share.

Similar details are contained in the tables showing the performance for all fundraisings, including the fund of ordinary shares launched in 2000/01 ("the former 'O' Share Fund"), in the Performance Data tables which will be included in the published Half-Year Report and on the Company's website.

Investment portfolio

The portfolio has performed well during the period, increasing in value by 6.5% (2015: 8.0%) on a like-for-like basis. The aggregate portfolio saw a net increase of £2.47 million in realised gains and £0.73 million in unrealised gains over the six month period. The portfolio was valued at £53.95 million at the period-end (2015: £60.42 million). The movement over the six months is largely explained by disposals that are summarised below and in more detail in the Investment Review.

During the six months under review, the Company invested a total of £4.47 million, principally being £4.44 million invested into two new investments. These were Access IS, a leading provider of data capture and scanning hardware, and Redline, a market leader in the provision of security consultancy and services, particularly to airports.

The sale proceeds for the period of £10.65 million arose mainly from £7.38 million received from the full realisations of Tessella and Westway in December 2015 and the exit of Original Additions just before the period-end. The balance included proceeds from sales of investments made in previous years and receipts from partial loan stock repayments.

Details of all these transactions and the performance of the portfolio are contained in the Investment Review below.

Revenue account

The results for the period are set out in the Unaudited Income Statement below and show a revenue gain (after tax) of 1.69 pence per share (2015: 1.29 pence). The revenue return for the period of £1.19 million has risen by £0.37 million from last year's comparable figure of £0.82 million. This is primarily due to an increase in income of £0.46 million partly offset by an increase in the tax charge.

The rise in income of £0.46 million is due to a rise in loan interest income of £0.52 million, mainly arising from the exit of Original Additions (but also arising from a net increase in loan stock investments). Higher yields are also now being received from several loan stock investments.

Running costs charged to revenue returns fell marginally to £0.41 million. Other expenses fell by £0.02 million resulting from lower printing costs, trail commission fees and subscription costs, countered by an increase in Investment Adviser fees. Finally, the tax charge rose by £0.09 million due to the increase in taxable loan interest income.

As the Company has achieved two substantial and profitable exits in the period together with other realisations at gains over cost, a performance fee accrual of £1.13 million (chargeable to the capital return) has been made, which is an increase of £0.46 million over the comparable period.

Dividends

The Board continues to be committed to providing an attractive dividend stream to shareholders and has set a target in respect of each financial year of at least 6.00 pence per share.

The Board has declared an interim dividend of 6.00 pence per share for the year ending 30 September 2016. I am pleased to note that this payment will meet the Board's target for the current year at the half-year stage. This dividend will be paid on 7 July 2016 to shareholders on the Register on 10 June 2016 and will bring cumulative dividends per share paid to date to 80.50 pence.

In respect of the past four financial years, and this half-year, the Company has now paid or declared dividends totalling 72.00 pence per share.

Shareholders are encouraged to ensure that Capita, as the Company's Registrar, has up-to-date details for them and to check whether they have received all dividends payable to them. This is particularly important if they have recently moved house or changed their bank. We are aware that a number of dividends remain unclaimed by shareholders and whilst we will continue to endeavour to contact you if this is the case, we cannot guarantee that we will be able to do so if the Registrars do not have an up-to-date address and/or email address for you.

Dividend Investment Scheme

The Company's Dividend Investment Scheme ("the Scheme") is a convenient, easy and cost effective way for shareholders to build up their shareholding in the Company. Instead of receiving cash dividends they can elect to receive new shares in the Company. By opting to receive their dividend in this manner, there are three benefits to shareholders:

The dividend remains tax free;

Shareholders are allotted new shares in the Company which will, subject to their particular circumstances, attract VCT tax reliefs applicable for the tax year in which the shares are allotted. The tax relief currently available to investors in new VCT shares is 30% for the 2015/16 tax year for investments up to £200,000 in any one tax year; and

The Scheme also has one particular advantage. Under its terms, a member is able to re-invest at an advantageous price, being the average market price of the shares for the five business days prior to the dividend being paid. This price is likely to be at a discount of 10% to the underlying net asset value (provided that this is greater than 70% of the latest published net asset value per share).

Shareholders wishing to join the Scheme should submit a mandate form to Capita Asset Services, the Scheme Administrator, by no later than, Wednesday, 22 June 2016, to ensure that they receive the above dividend as shares. An application form for the Scheme can be obtained from the Company's Registrars or downloaded from the Company's website.

Shareholders who already participate, or are considering whether to participate, in the Scheme should consider the following section on Industry Developments and the information given in the Annual Report. There is an associated five year holding period required to secure income tax relief when new shares are allotted under the Scheme. Shareholders may, therefore, wish to review their participation until the implications of these changes are clearer. If you are in any doubt about whether to participate in the Scheme or not, you should consult your financial adviser.

Industry developments

As explained in more detail in the Annual Report, the Finance (No 2) Act 2015, enacted in November 2015, introduced a series of amendments to the VCT Scheme. In summary, VCT capital may now only be invested for growth and development purposes which means that any new investments made by the VCT are likely to be focused upon younger and smaller companies within defined limits. The VCT's recent investment into Redline is an example of the type of investment the Company is likely to make in the future.

Since the publication of the Annual Report, your Board, together with the Investment Adviser and the whole VCT industry, has sought greater clarity from HMRC at a more detailed, practical level of what investments will or will not be permitted by the legislation. The draft guidelines, published by HMRC earlier this month, have now clarified some of the implications of these new VCT rules, which the Investment Adviser is now reviewing.

Notwithstanding the above, the Board's view remains that the change in focus carries not only a higher risk, but also the prospect of more variable returns.

Generating the level of consistently high returns achieved over the last six years, for example, is likely to be more challenging. Shareholders should note that the nature of the more restrictive range and size of new potential investments is likely to reduce gradually the overall income yield on the portfolio as a whole, although there should be a commensurate increase in the level of capital returns, albeit with a more volatile profile. However, shareholders should also note that the existing portfolio is comprised almost exclusively of MBO investments whose full potential should be realised over the next five years or so and thus changes to the balance of the portfolio and, therefore, to the risk and reward metrics are likely to be gradual. Based upon these discussions and developments to date, allied to the record of past returns achieved, the Board remains of the view that the Investment Adviser should be well able to apply its measured approach, taking account of the new VCT Rules, in order to continue to generate satisfactory returns in the future.

Liquidity

Annual fundraisings by the Company have provided it with a satisfactory level of liquidity sufficient to pursue its Objective and to meet the Company's running costs. The Board will consider further fundraising once it has had the opportunity to consider the implications of the new VCT Rules on the pace and scale of new investment.

Cash available for investment

The Board continues to monitor credit risk in respect of its cash balances and to prioritise the security and protection of the Company's capital. Cash and liquidity fund balances as at 31 March 2016 amounted to £21.20 million. This figure included £10.70 million held in money market funds with AAA credit ratings and £10.50 million held in deposit accounts with a number of well-known financial institutions across a range of maturities. In addition, the investment portfolio contained £11.78 million in seven companies preparing to trade that also hold cash in money market funds.

Share buy-backs

During the six months ended 31 March 2016, the Company bought back 227,619 of its own shares, representing 0.3% (2015: 0.2%) of the shares in issue at the beginning of the period, at a total cost of

£0.21 million (2015: £0.12 million) inclusive of expenses.

It is the Company's policy to cancel all shares bought back by the Company. The Board regularly reviews its buyback policy and currently seeks to maintain the discount to NAV at which the Company's shares trade at around 10% below the latest published NAV.

Shareholder communications

May I remind you that the Company continues to have its own website which is available at www.incomeandgrowthvct.co.uk.

The Investment Adviser held its sixth annual Shareholder Event in January 2016 which, from the feedback submitted, was well received by shareholders. The event included presentations on the investment activity and performance of the Mobeus VCTs. I would like to thank those shareholders who attended for helping to make it such a success. The next event will take place on Tuesday, 24 January 2017. Shareholders will be sent further details and an invitation nearer to the time.

Outlook

The global economy is currently undergoing a period of particular uncertainty reflected in some volatility in financial markets. Despite this backdrop and the added uncertainty generated by the forthcoming EU referendum, the outlook for the UK economy continues to look relatively resilient. If the Government's predicted growth rate of 2.0% for the UK economy in 2016 transpires, the existing portfolio should continue to make further steady progress. It would seem reasonable to expect a reduction in the level of new investment as the Investment Adviser identifies and evaluates opportunities that comply with the requirements of the new legislation. The Board is, therefore, pleased to note the completion of the first investment, under the new VCT legislation, in Redline. The Board is confident that the Investment Adviser will be able to tailor its investment approach to comply with the new VCT Rules. Meanwhile, the existing portfolio continues to perform well and provide a good foundation for future performance.

Once again, I would like to take this opportunity to thank all shareholders for their continued support.

Colin Hook

Chairman

Investment Policy

The Company's 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 and to generate capital gain upon sale.

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

The Company's cash and liquid resources are held in a range of instruments of varying maturities, subject to the overriding criterion that the risk of loss of capital be minimised.

VCT regulation

The Investment Policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. Amongst other conditions, the Company may not invest more than 15% of its investments (by VCT value at the time of investment) in a single company or group and must have at least 70% by VCT value of its investments throughout the period in shares or securities comprised in VCT qualifying holdings of which a minimum overall of 30% by VCT value (70% for funds raised after 6 April 2011) must be in ordinary shares which carry no preferential rights (save as may be permitted under VCT rules). In addition, although the VCT can invest less than 30% (70% for funds raised after 6 April 2011) of an investment in a specific company in ordinary shares it must have at least 10% by VCT value of its total investments in each VCT qualifying company in ordinary shares which carry no preferential rights (save as may be permitted under VCT rules).

The companies in which investments are made must have no more than £15 million of gross assets at the time of investment and £16 million immediately following the investment to be classed as a VCT qualifying holding.

Asset Mix

The Company initially holds its funds in a portfolio of interest bearing investments and deposits. The investment portfolio of qualifying investments is built up over a three year period with the aim of investing and maintaining at least 70% of net funds raised in qualifying investments.

Risk diversification and maximum exposures

Risk is spread by investing in a number of different businesses across different industry sectors. To reduce the risk of high exposure to equities, each qualifying investment is structured to achieve the optimum balance between loan stock and equity to provide protection against downside risk alongside the best potential overall returns.

Co-investment

The Company is entitled to invest alongside other VCTs advised by Mobeus Equity Partners LLP that have a similar investment policy, normally on a pro rata to net assets basis.

Borrowing

The Company's articles of association permit borrowing of up to 10% of the adjusted capital and reserves (as defined therein). However, it has never borrowed and the Board has currently no plans to undertake any borrowing.

Summary of VCT Regulation

To assist shareholders, the following table contains a summary of the most important rules that determine VCT approval.

Investment Review

New investment in the half-year

A total of £4.44 million was invested into new companies during the six months under review. This comprised new investments into Access IS and Redline.

Further investment into an existing portfolio company

In October 2015, the VCT made a further investment of £0.03 million into Racoon, a premier supplier of ethically sourced hair for hair extensions, to provide additional working capital to enable the business to strengthen its sales team and to broaden its product range.

Realisations in the half-year

The VCT realised three investments during the six months under review for cash proceeds totaling £7.38 million. This comprised the very successful realisations of Tessella and Westway as well as the final loan stock payment from Original Additions. Other realisations were £1.52 million, including post-sale receipts from the companies referred to below. With the loan repayments of £1.75 million, total net cash proceeds for the six months amounted to £10.65 million.

In addition to the above, the Company received a further £1.52 million from investments realised in a previous period. This mainly comprised £1.27 million as deferred consideration primarily from App-DNA (£0.78 million), Focus Pharma (£0.29 million) and Alaric (£0.12 million). In addition £0.01 million was received from Newquay Helicopters as a second distribution resulting from the members' voluntary liquidation of that company and £0.24 million was received in consideration for the shares of Pound FM Consultants (a company preparing to trade).

Loan stock repayments

Loan stock repayments totalled £4.27 million for the year, including £2.52 million as part of the proceeds from the companies realised above. Positive cash flow at three other companies (in addition to Pound FM Consulting, a company preparing to trade) contributed to the balance of £1.75 million, summarised below:-

Investment Portfolio Summary

as at 31 March 2016

Statement of the Directors' Responsibilities

 Responsibility statements

In accordance with Disclosure and Transparency Rule (DTR) 4.2.10, Colin Hook (Chairman), Jonathan Cartwright (Chairman of the Audit and Nomination & Remuneration Committees) and Helen Sinclair (Chairman of the Investment Committee), being the Directors of the Company, confirm that to the best of their knowledge:

Principal risks and uncertainties

In accordance with DTR 4.2.7, the Board confirms that the principal risks and uncertainties facing the Company have not materially changed from those identified in the Annual Report and Accounts for the year ended 30 September 2015.

The principal risks faced by the Company are:

A detailed explanation of the principal risks facing the Company can be found in the Annual Report and Accounts for the year ended 30 September 2015 on pages 27 - 28 and in Note 18 on pages 67 - 73. Copies can be viewed or downloaded from the Company's website: www.incomeandgrowthvct .co.uk.

Going Concern

The Board has assessed the Company's operation as a going concern. The Company's business activities, together with the factors likely to affect its future development, performance and position are set out in the half-year management report which comprises the Chairman's Statement, Investment Policy, Investment Review and Investment Portfolio Summary. The Directors have satisfied themselves that the Company continues to maintain a significant cash position. The majority of companies in the portfolio continue to trade profitably and the portfolio taken as a whole remains resilient and well-diversified. The major cash outflows of the Company (namely investments, share buybacks and dividends) are within the Company's control.

The Board's assessment of liquidity risk and details of the Company's policies for managing its capital and financial risks are shown in Note 18 on pages 67 - 73 of the Annual Report and Accounts for the year ended 30 September 2015. Accordingly, the Directors continue to adopt the going concern basis of accounting in preparing the half-yearly report and annual financial statements.

Cautionary Statement

This report may contain forward looking statements with regards to the financial condition and results of the Company, which are made in the light of current economic and business circumstances. Nothing in this report should be construed as a profit forecast.

For and on behalf of the Board:

Colin Hook

Chairman

Unaudited  Income Statement

for the six months ended 31 March 2016

The revenue column of the Income Statement includes all income and expenses. The capital column accounts for the unrealised gains and realised gains on investments and the proportion of the Investment Adviser's fee charged to capital.

The total column is the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ("FRS"). In order to better reflect the activities of a VCT and in accordance with the Statement of Recommended Practice ("SORP") issued in November 2014 by the Association of Investment Companies ("AIC"), supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The revenue column of profit attributable to equity shareholders is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 274 Income Tax Act 2007.

All the items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the year.

Unaudited Balance Sheet

at 31 March 2016  

Unaudited Statement of Changes in Equity

For the six months ended 31 March 2016

Unaudited Statement of Cash Flows

for the six months ended 31 March 2016

The notes below form part of these Half-Year Financial Statements.

Notes to the Unaudited Financial Statements

for the six months ended 31 March 2016

1. Company information

The Income and Growth VCT plc is a public limited company incorporated in England, registration number 04069483. The registered office is 30 Haymarket, London, SW1Y 4EX.

2. Basis of preparation of the financial statements

These Financial Statements have been prepared in accordance with accounting policies consistent with Financial Reporting Standard 102 ("FRS 102"), Financial Reporting Standard 104 - Interim Financial Reporting ("FRS 104"), with the Companies Act 2006 and the 2014 Statement of Recommended Practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('the SORP') issued by the Association of Investment Companies.

This is the first period in which the Financial Statements have been prepared under FRS 102. There has been no material change in the accounting policies and so there has been no restatement of comparatives, other than in relation to Cash at bank and Current asset investments. The Company has elected to apply early the revised disclosure requirements as set out in Amendments to FRS 102 - Fair Value hierarchy disclosures issued in March 2016.

The Half-Year Report has not been audited, nor has it been reviewed by the Auditor pursuant to the Auditing Practices Board (APB)'s guidance on Review of Interim Financial Information.

3. Principal accounting policies

The accounting policies have been applied consistently throughout the period. Full details of principal accounting policies will be disclosed in the Annual Report, while the policy in respect of investments is included within an outlined box at the top of Note 9 on investments.

The Directors have charged 75% of the fees payable under the Investment Adviser's Agreement, and 100% of the amounts payable under the incentive agreements, to the capital reserve. The Directors believe it is appropriate to charge the performance fees wholly against the capital return, as any fees payable depend on capital performance, as explained below.

On 30 September 2014, a new incentive fee agreement was signed between the Board and Mobeus, with effect from 1 October 2013, to amend and replace the previous agreement. The previous agreement remains in force, but only with the former adviser, Foresight Group LLP ("Foresight").

 For the period ended 31 March 2016, £43,830 has been accrued under the previous agreement. Mobeus waived its right to its portion of the fee under the previous agreement. This agreement is due to expire on 10 March 2019.

Any payment under the new Performance Fees Incentive Agreement ("new Incentive Agreement") is now 15% of net realised gains for each year, payable in cash. It is payable only if the Cumulative Net Asset Value (NAV) Total Return per share (being the closing NAV at a year-end plus cumulative dividends paid to that year-end, since 1 October 2013) equals or exceeds a "Target Return". The Target Return is the greater of two targets, being either:

Both measures of Target Return are applied to the same opening base, being NAV per share as at 30 September 2013 of 113.90 pence. The objective of this Target Return is to enable shareholders to benefit from a cumulative NAV return of at least 6% per annum (5% in the financial year ended 30 September 2014), before any incentive fee is payable. Once a payment has been made, cumulative NAV total return is calculated after deducting past years' incentive fees paid and payable.

The Target Return for the year ended 30 September 2015 was a 6% uplift on the opening Target Return of 119.60 pence, being 126.77 pence. As Cumulative NAV Total return was 134.17 pence per share at 30 September 2015, the Target Return had been exceeded and a fee of £667,622 (along with £191,138, which was payable from a previous year as a result of the annual cap (as explained below)) was paid following the approval of the Annual Report for the year ended 30 September 2015 by shareholders at the AGM held on 10 February 2016.

Under this new Incentive Agreement, any fee payments to Mobeus are subject to an annual cap of an amount equal to 2% of the net assets of I&G VCT as at the immediately preceding year-end. This cap will include any fee payable to Foresight under the old agreement, although any such payment to Foresight is not capped. Any excess over the 2% remains payable to Mobeus in the following year(s), subject to the 2% annual cap in such subsequent year(s) and after any payment in respect of such subsequent year(s).

For the year ended 30 September 2016, the Target Return will be 134.38p per share (being a 6% uplift on the Target Return at the previous year end of 126.77 pence). As at 31 March 2016, the Cumulative NAV Total Return per share is 138.42p, so the Target Return for the 2016 financial year has currently been met and a fee of £1,091,152 has therefore been accrued. This fee will only be payable if the Cumulative NAV Total Return per share at 30 September 2016 exceeds the Target Return per share of 134.38p.

6. Taxation

There is no tax charge for the period as the Company has incurred tax losses, as its tax-deductible expenses exceed its taxable income.

7. Basic and diluted earnings per share

Other than the performance related incentive, there are no instruments in place that will increase the number of shares in issue in future. If shares are issued, no dilution of earnings per share will occur, as the estimated incentive fee payable has been charged in these accounts.

8. Dividends

* - £4,241,526 (31 March 2015: £7,620,309; 30 September 2015: £11,820,896) disclosed above differs to that shown in the Statement of Cash Flows of £3,584,090 (31 March 2015: £6,620,204; 30 September 2015: £10,205,256) due to £657,436 (31 March 2015: £1,000,105; 30 September 2015: £1,615,640) of new shares issued as part of the Company's Dividend Investment Scheme.

9. Summary of movement on investments during the period