Inc&gwth Vct Regulatory News (IGV)

THE INCOME & GROWTH VCT PLC

Half-Year Results for the six months ended 31 March 2015

Company Objective

The objective of The Income & Growth VCT plc ("I&G VCT", "the VCT" or "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.

Financial Highlights

Performance Summary

The net asset value ("NAV") per share at 31 March 2015 was 105.99 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 tables in the Half-Year Report.

Chairman's Statement

I am pleased to present the Company's Half-Year Report for the six months ended 31 March 2015.

This period has seen realisations continue at a substantial level generating cash proceeds of £8.80 million. This has followed on from the exceptionally high level of realisations seen in the 2014 financial year. This sum included three further notable disposals completing in the December quarter, realising cash proceeds of £7.61 million. Two sizeable new investments were also made in the period. The Investment Adviser reports that conditions for both investment and divestment remain favourable, although the Board does not expect to see the recent high level of divestment activity continue in 2015. A number of companies in the portfolio continue to perform strongly and the performance of the portfolio as a whole remains solid, demonstrating the success of the Company's strategy of investing in established, profitable companies run by proven management teams.

Performance

The Company's NAV total return per share was 3.0% for the six months to 31 March 2015 (2014: 6.2%) while the total share price return was 4.3% (2014: 4.5%).

Cumulative NAV total return per share (being the closing net asset value plus total dividends paid to date) has risen to 168.49 pence compared to 165.10 pence at the year-end. This represents a further increase of 2.1% over the period and an increase of 78.9% 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 168.49 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 62.50 pence in dividends representing an average annual yield upon their initial 70 pence net investment of 12.5% (2014: 10.2%). The underlying net asset value, which represents the balance of their total return, is 105.99 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 'O' Share Fund"), in the Performance Data tables that will be available shortly at the back of 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 8.0% (2014: 13.0%) on a like-for-like basis. The aggregate portfolio saw a net increase of £0.89 million in unrealised gains and £1.69 million in realised gains over the six month period and was valued at £43.76 million at the period-end (2014: £41.72 million).

During the six months under review, the Company has invested a total of £11.28 million. The two principal new investments supported the corporate restructuring of the Ward Thomas Group and the MBO of Media Business Insight ("MBI"). Within the total invested above, £2.25 million has been invested in the six months under review to support follow-on investments in existing portfolio companies, ASL Technology, Entanet, Gro-Group and Racoon International. In addition, two investments were made in two new acquisition vehicles, Hollydale Management and Knighton Management.

A further new investment of £1.50 million to support the MBO of Synbra UK Limited (Jablite) completed following the period-end, on 23 April 2015. A further £12.03 million was also invested in a number of additional acquisition vehicles in early April. The rationale behind these investments is explained under 'VCT tax rules' below.

The sale proceeds for the period of £8.80 million included £7.61 million received from the realisations of Focus, Youngman and EMaC and £1.19 million received from seven other portfolio companies, principally making 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 1.29 pence per share (2014: 1.87 pence). The revenue return for the period of £0.83 million has fallen by £0.18 million from last year's figure of £1.01 million. This is primarily due to a fall in income of £0.11 million, alongside a rise in costs and tax charge of £0.05 million and of £0.02 million respectively, as explained below.

The fall in income of £0.11 million is primarily because dividend income has fallen by £0.30 million, due to realisations of a number of mature, dividend paying companies, namely ATG Media, Focus Pharma and Machineworks. In addition, a large preference dividend was received from Blaze Signs in 2014, that has not been repeated. Offsetting this fall, loan interest receivable has again increased, by £0.20 million, with the first six months generating £1.25 million (2014: £1.05 million). This is due to new investments in Ward Thomas Group (Leap New Co and Aussie Man & Van), Tharstern, and most recently Media Business Insight, along with follow on investments in ASL Technology and Entanet.

Running costs charged to revenue returns rose by £0.05 million. Investment Adviser fees rose by £0.02 million, due to the continuing rise in net assets over the last year. The high level of profitable realisations has given rise to the accrual of a performance fee (£0.68 million) compared to last year's comparative period (£0.52 million), which is charged against the capital return.

Other expenses rose from £0.19 million to £0.22 million caused by higher registrar, printing and subscription costs.

Dividends

The Board is committed to providing an attractive dividend stream to shareholders. Following a particularly strong series of realisations in 2014, it increased its target of paying a dividend in respect of each financial year to 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 2015, comprising 5.00 pence per share from capital and 1 penny per share from income. 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 paidon 30 June 2015 to shareholders on the Register on 5 June 2015 and will bring cumulative dividends per share paid to date to 68.50 pence.

In respect of the past three financial years, the Company has successively paid dividends of 26.00 pence, 10.00 pence and 18.00 pence per share.

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:

Shareholders wishing to join the Scheme should submit a mandate form to Capita Asset Services, the Scheme Administrator, by no later than 15 June 2015, to ensure that they receive the above dividend as shares.

VCT tax rules

The Budget in March this year proposed some further amendments to VCT legislation, most of which are specifically aimed at enabling the scheme to gain continued approval under the European Commission's new State Aid guidelines. The proposals remain subject to approval by the European Commission so the date when these proposals become legislation is uncertain, but is expected to be later in 2015. The precise details and full implications for the VCT's future investment programme will only be fully clear once the legislation is enacted. However, in the longer term the Adviser does anticipate some reduction to the current range of companies that the VCT considers as potential qualifying investments.

These uncertainties in timing and implication apply to new investments made by VCTs on or after 6 April 2015 and being mindful of protecting shareholders' interests, the Board has moved to preserve the Company's existing successful investment strategy. Following discussions with the Company's advisers, the VCT made separate investments into a further nine new acquisition vehicles prior to 6 April 2015. Our projections show that this will provide sufficient funds to meet the Company's estimated requirements for investment for the next two years at least. These companies have been established by the Adviser to acquire target businesses on behalf of the Company and the other Mobeus VCTs. One of these acquisition vehicles, Duncary 16, has already been used to support the investment into Jablite following the period-end, as noted above.

Fundraising

I am pleased to report that the Offer for Subscription launched by the Company, in conjunction with the three other Mobeus VCTs, on 10 December 2014, was well received and closed on 10 March 2015, having raised the full amount offered for subscription by the Company of £10 million.

The Board continues to review, on an ongoing basis, the level of liquidity in the Company. It seeks to enhance the Company's ability to use the money raised in earlier fundraisings to continue to pursue its investment strategy and to ensure that it continues to meet the VCT tests. The Board expects the level of liquidity to reduce markedly over the next two years.

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 2015 amounted to £31.11 million bolstered by the recent fundraising of £10 million. This figure included £1.47 million held in money market funds with AAA credit ratings, £15.16 million held in deposit accounts with a number of well-known financial institutions across a range of maturities and £13.54 million awaiting investment in nine acquisition vehicles, completed just after the period-end. In addition, a further £4.45 million was already invested in three acquisition vehicles pending further investment, at the period-end.

Share buy-backs

During the six months ended 31 March 2015, the Company bought back 123,800 (2014: 225,938) shares (representing 0.2% (2014: 0.4%) of the shares in issue at the beginning of the period) at a total cost of £0.12 million (2014: £0.23 million), inclusive of expenses. These shares were subsequently cancelled by the Company. The Board regularly reviews its buyback policy and seeks to maintain the discount to NAV at which the Company's shares trade at around 10% below the latest published NAV. This has been largely achieved in the period.

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 fifth annual Shareholder Event in January 2015, which appeared to be well received. The event provided a forum for around 270 Mobeus VCT shareholders to hear presentations from the Investment Adviser and to learn more about the investment activity in greater depth from the chairman of both Tharstern and Tessella and from the managing director of Virgin Wines.

Outlook

It has been pleasing to report on an extremely successful series of realisations at the year-end and for this to have continued in the first three months of this period with the sales of Focus, Youngman and EMaC. The Investment Adviser reports a healthy level of dealflow and that new investment is being maintained at an encouraging level. The Board expects to see the size of the portfolio increase over the coming period.

We are optimistic that the result of the UK General Election earlier this month will bring more stability to the market. Whilst the economic outlook for the UK economy is currently positive, the Board is, however, conscious that the political, economic and legislative environment could present the Company with a number of challenges over the remaining months of this financial year. We remain aware of the importance of investing in companies that have the potential to grow and thrive in a diversity of economic conditions, in order to meet the challenge of maintaining performance at its current level. The uncertainty surrounding the impact of the changes to the EU State Aid Rules upon the VCT Scheme in the UK, referred to above, has resulted in the Board taking action to preserve its investment strategy for the next two years at least and thus to protect shareholders' interests.

The Board continues to believe that the Company's investment strategy mitigates some of the risks when investing in smaller businesses and that a continuation of this strategy should deliver attractive returns to shareholders over the medium to long term.

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 gains from trade sales and flotations of investee companies.

Investments are made selectively across a number of sectors, primarily in management buyout transactions (MBOs) i.e. to support incumbent management teams in acquiring the business they manage but do not yet own. Investments are principally made in companies that are established and profitable.

The Company has a small legacy portfolio of investments in companies from the period prior to 30 September 2008, when it was a multi-manager VCT. This includes investments in early stage and technology companies and in companies quoted on the AiM market.

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 in a single company and must have at least 70% by value of its investments throughout the period in shares or securities comprised in VCT qualifying holdings of which a minimum overall of 30% by 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 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 aims to invest in larger, more mature unquoted companies through investing alongside other VCTs which all have a similar investment policy and are also advised by Mobeus Equity Partners LLP.

Borrowing

The Company's Articles 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.

Management

The Board has overall responsibility for the Company's affairs including the determination of its Investment Policy. Investment and divestment proposals are originated, negotiated and recommended by the Investment Adviser and are then subject to review and approval by the Directors.

Investment Review

New investment

A total of £11.28 million was invested during the six months under review. This included new investments to support the corporate restructuring of the Ward Thomas Group and the MBO of Media Business Insight. Follow on investments were also made into ASL Technology, Entanet and Racoon International to help develop their growth plans.

Principal new investments in the half-year

Further investments into existing portfolio companies in the half-year

In addition to the three further investments above, the Company also invested a further £0.06 million into Gro-Group in November 2014 in the form of a loan agreed at the time of the original investment in March 2013.

New investment post period end

Realisations in the half-year

The VCT realised three investments during the period under review for cash proceeds of £7.61 million. Other realisations were £0.26 million, including a post-sale receipt from Alaric Systems Limited. With the loan repayments of £0.93 million, total cash proceeds for the period amounted to £8.80 million.

Loan stock repayments

Loan stock repayments totalled £3.36 million for the period, including £2.43 million as part of the proceeds from the companies realised above. Strong cash flow at five other companies contributed to the balance of £0.93 million. These proceeds are summarised below:-

Investment outlook

The environment continues to be good for making new investments and for opportunities to provide further finance to existing portfolio companies. This should sustain the level of attractive new investment activity. The market to sell good businesses profitably also continues to be strong. However, having concluded seven significant realisations over the past twelve months, this has reduced the overall maturity of the investment portfolio. We would therefore expect the level of realisations to be at a lower level and the size of the portfolio to grow.

Investment Portfolio Summary

as at 31 March 2015

 Responsibility Statement of the Directors

In accordance with Disclosure and Transparency Rule (DTR) 4.2.10, Colin Hook (Chairman), Jonathan Cartwright (Chairman of the Audit Committee 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:

(a) the condensed set of financial statements, which has been prepared in accordance with the statement "Half-Yearly Reports" issued by the Accounting Standards Board, gives a true and fair view of the assets, liabilities, financial position and profit of the Company as required by DTR 4.2.4;

(b) the Half-Year management report which comprises the Chairman's Statement, Investment Policy, Investment Review and Investment Portfolio Summary includes a fair review of the information required by DTR 4.2.7, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements;

(c) a description of the principal risks and uncertainties facing the Company for the remaining six months is set out below, in accordance with DTR 4.2.7; and

(d) there were no related party transactions in the first six months of the current financial year that are required to be disclosed, in accordance with DTR 4.2.8.

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 2014. The Board acknowledges that there is regulatory risk and continues to manage the Company's affairs in such a manner as to comply with section 274 of the Income Tax Act 2007.

The principal risks faced by the Company are:

· Investment and strategic;

· Loss of approval as a Venture Capital Trust;

· Regulatory;

· Counterparty;

· Economic;

· Financial and operating;

· Market;

· Asset liquidity; and

· Market liquidity;

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 2014 and in Note 19. 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 and has raised additional funds during the period. 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 buy-backs 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 19 of the Annual Report and Accounts for the year ended 30 September 2014. 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 2015

The total column of this statement is the Profit and Loss Account of the Company.

All revenue and capital items in the above statement derive from continuing operations.

There were no other recognised gains or losses in the period.

Other than revaluation movements arising on investments held at fair value through profit and loss, there were no differences between the profit as stated above and at historical cost.

Unaudited Balance Sheet

as at 31 March 2015

The financial information for the six months ended 31 March 2015 and the six months ended 31 March 2014 has not been audited.

Unaudited Reconciliation of Movements in Shareholders' Funds

for the six months ended 31 March 2015

Unaudited Cash Flow Statement

for the six months ended 31 March 2015

Reconciliation of profit on ordinary activities before taxation to net cash (outflow)/inflow from operating activities

for the six months ended 31 March 2015 

Notes to the Unaudited Financial Statements

For the six months ended 31 March 2015

2. Income

3. Investment Adviser's fees and performance fees

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 incentive 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, to whom, for the year ended 30 September 2014, £121,640 was paid in February 2015. For the period ended 31 March 2015, £11,921 has been accrued. The agreement is due to expire on 10 March 2019. Mobeus waived their right to their portion of the fee under the previous agreement.

Any payment under the new incentive agreement is now 15% of net realised gains for each year, payable in cash. It is payable only if 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:

(i) compound growth of 6% per annum (but 5% per annum for the year ended 30 September 2014 only), before deducting any incentive fee payable (for the year of calculation only) under both this amended agreement and the existing incentive agreement with Foresight in cumulative NAV total return per share;

or

(ii) the cumulative percentage change in the Consumer Prices Index since 1 October 2013 to the relevant financial year-end, the resultant figure then being multiplied by (100+A)/100, where A is the number of full 12 month periods (or part thereof ) that have passed between 1 October 2013 and the relevant financial year end.

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 2014 was a 5% uplift on the opening net asset value of 113.90 pence, being 119.60 pence. As cumulative total NAV return was 124.24 pence per share at the year-end, the Target Return had been met and a fee was payable.

Under this amended agreement, any fee payments to Mobeus are subject to an annual cap of an amount equal to 2% of the net assets of the Company 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).

As a result of the new incentive fee agreement, £1,278,875 was payable to Mobeus for the year ended 30 September 2014. £1,087,737 of this was paid in February 2015. As a result of the 2% cap referred to above, the balance of £191,138 is not payable until the year ending 30 September 2015 at the earliest.

For the year ending 30 September 2015, the target return is 126.77p (being a 6% uplift of the target at the previous year end of 119.60 pence). As at 31 March 2015, the cumulative total NAV return is 127.99p, so the Target Return has currently been met and a fee of £667,147 has therefore been accrued.

Under the terms of an offer for subscription with the other Mobeus advised VCTs launched on 10 December 2014 ("the Offer"), Mobeus was entitled to fees of 3.25% of the investment amount received from investors. The Offer closed on 10 March 2015, being fully subscribed. Based upon fully subscribed Offers of £39 million across all four VCTs, this equalled £1,267,500, out of which all the costs associated with the Offer were met, excluding any payments to advisers facilitated under the terms of the Offer.

4. 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.

5. 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.

6. Dividends

* - Of this amount £1,000,105 (31 March 2014: £277,780; 30 September 2014: £727,916) of new shares were issued as part of the Company's Dividend Investment Scheme.

7. Summary of movement on investments during the period

Transaction costs on disposals of investments of £168,459 were incurred in the period. Deducting these from realised gains above gives £1,687,489 of gains as shown in the Income Statement. 

Proceeds above of £8,971,003 are less than the Cash Flow Statement figure of £9,581,318 by £610,315. £778,774 of this is cash received relating to the restructuring of the investment in Westway Services* less transaction costs paid of £168,459. Purchases of investments above of £9,941,553 differ from the Cash Flow Statement figure of £10,720,327 by £778,774 relating to the Westway Services* restructure.

Unrealised gains above of £1,110,965 differ from that shown in the Income Statement of £885,965 by £225,000. This sum is the fall in the fair value of contingent consideration from £825,000, recognised in the Balance Sheet at 30 September 2014 to £600,000 at 31 March 2015. This was because £225,000 of this contingent consideration was received in the period and is thus now recognised as a realised gain. The remaining deferred consideration of £600,000 also explains the difference between unrealised gains as at 31 March 2015 above of £4,684,075 and that shown in Note 9 of £5,284,075.

* - Although the cash movements above of £778,774 relating to the restructuring of the investment in Westway Services are included in the Cash Flow Statement, they have been netted off each other in the movements on investments above.

Current asset investments comprise investments of £1,470,979 (31 March 2014: £12,793,416, 30 September 2014: £12,796,794) in four OEIC money market funds (three Dublin based and one London based) subject to immediate access and £15,159,820 (31 March 2014: £7,043,389, 30 September 2014: £6,118,055) is held in bank deposits, repayable within one year. These sums are all regarded as monies held pending investment.

9. Capital and reserves for the six months ended 31 March 2015

Note a: Shares issued as part of the Offer for Subscription and Dividend investment scheme per the Cash Flow Statement of £10,764,855 differ to that shown as shares issued above of £9,764,850 due to £1,000,105 of shares allotted under the Company's Dividend Investment Scheme, shown separately above.