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20 Jun 2014 12:19
Mobeus Income & Growth 2 VCT plc ("MIG2" or the "Company" or the "VCT")
Results announcement for the 11 months ended 31 March 2014
Mobeus Income & Growth 2 VCT plc, ("Mobeus Income & Growth 2 VCT", the "Company" or the "VCT") is a Venture Capital Trust managed by Mobeus Equity Partners LLP ("Mobeus"), investing primarily in established, profitable, unquoted companies.
INVESTMENT OBJECTIVE
The Company's objective is to provide investors with a regular income stream, arising both from the income generated by the companies selected for the portfolio and from realising any growth in capital.
VENTURE CAPITAL TRUST STATUS
Mobeus Income & Growth 2 VCT has satisfied the requirements as a Venture Capital Trust under section 274 of the Income Tax Act 2017 ("ITA") and the Directors intend to conduct the business of the Company so as to continue to comply with that section.
FINANCIAL HIGHLIGHTS
Results for the 11 months ended 31 March 2014
§ - | Net Asset Value ("NAV") Total Return per share for the period of 17.8%. |
§ - | Share price Total Return per share for the period of 54.3%. |
§ - | An interim dividend of 4.9 pence per share was paid on 21 March 2014 in respect of the 2014 financial period together with a further interim dividend in respect of the 2013 financial year of 0.1 pence per share. This brings total dividends paid in the period to 5.0 pence per share. |
§ - | Liquidity has been enhanced by a successful fundraising raising £8.4 million. This brings the current total of portfolio and liquid assets to £36.4million. |
§ - | Investments of £5.2 million made during the period, plus a further £0.7 million invested after the period-end.
|
Note: The above data does not reflect the benefit of income tax relief.
PERFORMANCE SUMMARY
The NAV per share as at 31 March 2014 was 120.73 pence
The table below shows the recent past performance of the current share class, first raised in 2006. The original subscription price was 100p per share before the benefit of income tax relief. Performance data for all fundraising rounds are shown in tables in the Annual Report and Accounts (the "Annual Report").
Reporting date as at | Net assets (£ m) | Net asset value (NAV) per share (p) | Share price (mid-market price) (p)1 | Cumulative dividends paid per share (p) | Cumulative total return per share to shareholders since launch | |
(NAV basis) | (Share price basis) | |||||
(p)2 | (p)3 | |||||
31 March 2014 | 33.88 | 120.73 | 103.50 | 23.00 | 143.73 | 126.50 |
30 April 2013 | 25.70 | 106.75 | 70.30 | 18.00 | 124.75 | 88.30 |
30 April 2012 | 24.53 | 98.71 | 67.00 | 14.00 | 112.71 | 81.00 |
30 April 2011 | 24.86 | 96.16 | 62.00 | 10.00 | 106.16 | 72.00 |
30 April 2010 | 23.29 | 87.47 | 41.50 | 5.00 | 92.47 | 46.50 |
1 Source: London Stock Exchange
2 NAV as at 31 March 2014 plus cumulative dividends paid since fund launch.
3 Mid-market share price as at 31 March 2014 plus cumulative dividends paid since fund launch.
The data in the table above excludes the benefit of any income tax relief.
Chairman's Statement
I am pleased to present the results of Mobeus Income & Growth 2 VCT plc for the eleven months ended 31 March 2014. As foreshadowed in the Half-Yearly Report, the Company has shortened its year-end by one month from 30 April, to facilitate the process of allotting shares from the Linked Offer and future fundraisings.
Overview of Performance
This has been a good period for the Company. It has achieved a Net Asset Value ("NAV") Total Return of 17.8% (2013:12.3%) in the 11 month period, comfortably ahead of the Board's minimum average annual return target of 8%. This is due both to increased investment portfolio valuations and strong revenue returns in the period. The share price return has been an exceptional 54.3% (2013: 10.9%). This reflects the Board's adoption of a buyback policy that seeks to maintain the discount of the share price to latest net asset value per share at approximately10%. In response, the share price has risen from 70.3 pence to 103.5 pence.
The value of the investment portfolio has increased by 16.8% on a like for like basis in the period. Many of the companies in the portfolio have continued to achieve strong growth in their niche markets in spite of continuing uncertainty in the UK and global economies. Our portfolio supports the view that well-managed and prudently financed businesses can succeed under testing market conditions. A number of our businesses are now well placed to take advantage of the more promising near term outlook for the UK economy.
Further details of the calculations demonstrating the Company's performance for the period are contained in the Strategic Report. I explain the inclusion of the Strategic Report further below.
Shareholders should note that this performance data relates to the one ordinary share class now in existence, which was formerly called the C share class, before the share class merger completed on 10 September 2010. To assist shareholders in monitoring the performance of their original Ordinary or C shares, specific performance data is shown in the Performance Data appendix in the Report and Accounts.
Dividends
An Interim dividend of 4.9 pence per share in respect of the 11 months ended 31 March 2014 was paid on 21 March 2014, along with a further interim dividend of 0.1 pence per share in respect of the year ended 30 April 2013. Thus, dividends paid in the 11 months ended 31 March 2014 are 5.0 pence (2013: 4.0 pence) per share. Cumulative dividends paid since inception are 23.0 pence (2013: 18.0 pence) per share.
A table showing the dividends paid in respect of each of the last five years and cumulative dividends paid is included in the Strategic Report in the Report and Accounts.
The Board's policy is, subject to maintaining the net asset value of the Company, to pay a consistent and over time an increasing dividend. In the absence of unforeseen circumstances, the Board will maintain or increase the dividend per share paid in the previous year (currently 5p).
Investment portfolio
During the 11 months under review, the Company invested a total of £5.22 million (including £2.88 million which was previously held in acquisition vehicles) to support the MBOs of Veritek Global, Virgin Wines and Entanet International, a development capital investment in Bourn Bioscience and a substantial strategic acquisition by an existing portfolio company, Motorclean. Mobeus, the Company's Investment Adviser ("Adviser"), reports that deal flow continues to be strong. The prospects are good for further new investment during the current year.
Sale proceeds for the period have totalled £3.25 million, including £1.25 million received from Newquay Helicopters (formerly British International) as part of this company's realisation of assets. £0.13 million was received from Faversham House, £0.28 million was received from the sale of Omega Diagnostics and £1.53 million was received from other portfolio companies making partial loan stock repayments.
Just after the period-end, the VCT received £0.91 million in cash proceeds from the successful realisation of Machineworks and further proceeds of £0.17 million have also been received from Newquay Helicopters. A number of companies are pursuing their options for possible exits and we expect that some of these will complete during the next year.
Strategic Report
Shareholders may be aware that a number of significant changes have been introduced by recent legislation which affect the way in which companies are now required to present information in the narrative sections of their annual reports. In particular, you will see that this year's Annual Report contains a Strategic Report for the first time which complies with the new 2006 Companies Act requirements.
The purpose of this Report is to inform shareholders and help them to assess how the Directors have performed their duty to promote the success of the Company. The Report sets out the Company's Objective, Investment Policy and Business Model. The performance section of the Report provides information on how, and to what extent, the Company has achieved its Objective during the period and over the longer term, together with a description of the key performance indicators which the Directors monitor in order to measure the success of the Company. That section is followed by the Investment Review, which includes key data on the top ten investments and an analysis of the full investment portfolio. The Report goes on to provide context to this performance, giving information on the Company's other key policies and what the Board regards as the key risks faced by the Company, and how those risks are dealt with. In summary this Report should give shareholders an overview of your Company's progress in the period, supported by further detail that you can review, as you wish, in other sections of the Annual Report.
To avoid repetition, much of the detail that would previously have been included in the Chairman's Statement can now be found within the Strategic Report. I would welcome shareholders' views on whether you find this new format helpful and informative as well as your suggestions on any improvements you believe could be made.
Legislative and regulatory developments
The Finance Bill 2014 ("the Bill") has introduced measures to discourage VCT shareholders from selling their existing shares within six months before or after the date of making a new investment in the same VCT. Investors are now only able to claim income tax relief to the extent that the value of the new shares they subscribe for in respect of that VCT exceeds the proceeds from the shares which were sold. The Bill also contains measures that will prevent VCTs from returning share capital to investors within three years of the end of the accounting period in which the VCT issued the shares. Distributions made from realised profits will not be affected by this change. These changes only apply to shares issued after 5 April 2014.
The VCT is required to appoint an Alternative Investment Fund Manager ("AIFM") before July 2014 to comply with new legislation which implements the European Commission's Alternative Investment Fund Managers' Directive. This development has tightened the rules on alternative investments. The Board has considered the Company's options in respect of the new legislation. Given the nature of the Company's business and the fact that the Adviser has been appointed under a non-discretionary mandate, the Board believes that the most appropriate action for the Company is to appoint itself as its own AIFM to comply with the specific requirements of the legislation. It has now applied to register on this basis. Mobeus will continue to provide investment advisory and administrative services to the Company under the current agreement.
Recent changes to the European Commission's Transparency Directive will mean that the Company will shortly no longer be required to publish quarterly Interim Management Statements. However, the Board intends to continue to announce the NAV per share on a quarterly basis.
Share buybacks
During the 11 month ended 31 March 2014, the Company bought back 3.1% (2013: 3.1%) of its share capital in issue at the beginning of the period. Further details of the purchases are included in the Strategic Report.
As referred to earlier, the Board adopted a buyback policy with the objective of seeking to maintain the discount of the share price to the latest announced NAV at 10% or less. This policy has been successfully applied, as the discount has narrowed from 34.1% at the previous year-end, to 9.4% by 31 March, as the share price appreciated from 70.3p to 103.5p at 31 March 2014.
Fundraising
Last year's Annual General Meeting approved the extension of the life of the Company as a venture capital trust beyond 2015, and renewed the power to allot further shares under an offer for subscription. This enabled the Company to launch a 2013/14 Linked Offer for Subscription with the other three Mobeus VCTs on 28 November 2013. I am pleased to report that this Offer has been well received. The Company has raised £8.4 million as its one quarter share of the £33.7 million raised in subscriptions by the four VCTs in the Offer.
A total of 7,173,730 new shares in the Company were allotted under the Offer, which closed on 30 May 2014.
The funds raised for the Company will improve its liquidity, ensuring it can take part in the increased prospective deal flow and spread its fixed running costs over a larger asset base. They will provide a fund of new money which may be used to pay ongoing expenses, including dividends and share buybacks, thus preserving money raised prior to 6 April 2012 to support the Company's strategy of investing in MBO deals.
Annual General Meeting
The Annual General Meeting of the Company will be held at 12 noon on Thursday, 11 September 2014 at the offices of SGH Martineau LLP, One America Square, Crosswall, London EC3N 2SG. Both the Board and the Adviser look forward to welcoming shareholders to the meeting which will provide shareholders with the opportunity to ask questions and to receive a presentation from the Adviser on the investment portfolio. The Notice of the meeting is included in the Annual Report.
Future prospects
There is a more positive outlook for the UK economy following a number of business surveys indicating a cautious optimism in the corporate sector. The Office for Budget Responsibility and the CBI have also forecast growth in the UK economy of 2.7% and 3% respectively for 2014. However, there are some cautionary notes with other commentators questioning the depth of the current recovery in the medium term. Against such an economic backdrop the Board believes that there are grounds for optimism for the UK and the portfolio companies in particular.
The Adviser is of the view that the mergers and acquisitions environment continues to strengthen, presenting new opportunities to invest in established, profitable businesses on attractive terms. The current strengthening market also provides the Company with opportunities to sell companies from the portfolio, if an appropriate offer, judged to be in the best interests of shareholders, is received.
The Board continues to believe that its relatively low-risk investment strategy of investing only in profitable companies with strong cash flows mitigates some of the risks inherent when investing in smaller businesses and should continue to deliver attractive returns to shareholders over the medium to long term.
Finally, I would like to express my thanks to all shareholders for their continuing support of the Company.
Nigel Melville
Chairman
18 June 2014
Strategic Report
The Directors are pleased to present the Strategic Report of the Company for the 11 months ended 31 March 2014. The purpose of this Report is inform shareholders and help them to assess how the Directors have performed their duty to promote the success of the Company.
The Report has been prepared by the Directors in accordance with section 414 of the Companies Act 2006 ("the Act").
Company Objective
The Objective of the Company is to provide investors with a regular income stream, arising both from the income generated by the companies selected for the portfolio and from realising any growth in capital.
Summary of investment policy
The Company's policy is to invest primarily in a diverse portfolio of UK unquoted companies. Investments are 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 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 own. Investments are primarily made in companies that are established and profitable.
The VCT aims to invest in larger, more mature, unquoted companies through investing alongside three other VCTs advised by Mobeus with similar investment policies. This enables the VCT to participate in combined investments by the Manager of up to £5 million into each business per year.
The Company aims to maintain at least 70% of net funds raised, in qualifying investments. Uninvested funds are held in a portfolio of readily realisable interest-bearing investments and deposits.
The Company's cash and liquid resources may be invested to maximise the income returns of instruments of varying maturities, subject to the overriding criterion that the risk of loss of capital is minimised.
The full text of the Company's Investment Policy is available in the Annual Report.
Business Model
The Company is a Venture Capital Trust (VCT). Its Investment Policy is designed to ensure that the VCT continues to qualify and is approved as a VCT by HM Revenue & Customs ("HMRC") whilst maximising returns to shareholders from both income and capital. One of the rules to remain a VCT is that it must remain a fully listed company on the London Stock Exchange, and thus must also comply with the listing rules governing such companies.
The Company is an externally advised fund with a Board comprising non-executive Directors. 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 Adviser and are then subject to review and approval by the Directors.
Investment advisory and operational support are outsourced to external service providers including the Adviser, Company Secretary, and Administrator and Registrars, with the key strategic and operational framework and key policies set and monitored by the Board.
Private individuals invest in the Company to benefit from both income and capital returns generated by investment performance. By investing in a VCT they also receive immediate income tax relief (currently 30% of the amount subscribed for new shares by an investor), as well as tax-free dividends received from the Company and are not liable for any capital gains tax upon the eventual sale of the shares.
Performance
Key Performance Indicators used to measure performance*
The Board has identified six key performance indicators that it uses in its own assessment of the Company's progress. These are intended to provide shareholders with sufficient information to assess how the Company has performed in 2014 and over the longer term against its Objective, resulting from the application of its investment and other principal policies:
\* Throughout this Strategic Report each financial year was for the year ended 30 April, except for the current 11 month period ended 31 March 2014, due to the change in the Company's year end.
1. Annual and cumulative returns per share for the period
Total shareholder return per share for the period
The NAV and share price total return per share for the 11 months ended 31 March 2014 were 17.8% and 54.3% respectively, as shown below:
Total return (p) | NAV basis | Share price basis | |||
(p) | (p) | ||||
Closing NAV per share | 120.73 | Closing share price | 103.50 | ||
Plus: dividends paid in period | 5.00 | Plus: dividends paid in period | 5.00 | ||
Total for period | 125.73 | Total for period | 108.50 | ||
Less: opening NAV per share | 106.75 | Less: opening share price | 70.30 | ||
Return for period per share | +18.98 | Return for period per share | +38.20 | ||
% return for period | 17.8% | % return for period | 54.3% | ||
The Board considers both the NAV and share price return for the period to be good.
For similar performance data to that shown above for each allotment in each fundraising since the inception of the Company, please see the Performance Data Appendix of the Annual Report.
Taking into account initial income tax relief, founder shareholders have seen an annual return of 11.8% (2013: 10.7%) per annum since the launch of the current share class in 2006. This is the annual discount rate that equates the net investment cost of 60 pence per share at the date of the original investment, with the value of subsequent dividends received and the latest NAV per share.
The figures quoted in the information given above are for the shares subscribed in the Offer for subscription in 2005/06.
Shareholder returns
The returns for shareholders are:
- Initial income tax relief received treated as a cash return at the time of the initial investment and deducted from the cash then invested. The amount returned was 40% of the initial investment for the tax years 2004/05 and 2005/06 and 30% for the tax years 2006/07onwards;
- Tax -free dividends received as further cash returns since that initial investment;
- The closing mid-market share price.
The 2000/01 fundraising relates to ordinary shares ("O" fund shares) issued under the original fundraising by the Company. These "O" Fund Shares were merged with the "C" Share class (first launched in 2005/06) on 10 September 2010. The share price and dividends received have been adjusted to reflect that an investor in "O" Fund Shares received approximately 0.827 "C "Shares for each "O" Fund Share held.
Review of financial results for the 11 months ended 31 March 2014
For the period/year ended | 31 March 2014 £(m) | 30 April 2013 £(m) |
Capital return | 3.30 | 2.22 |
Revenue return | 1.53 | 0.46 |
Total profit | 4.83 | 2.68 |
The positive capital return of £3.30 million for the period is mainly due to a healthy uplift in portfolio valuations of a net £3.63 million on investments held at the period-end. Management fees charged to capital returns were a net £0.35 million.
The increase in revenue return for the period of £1.07 million is mainly due to a rise in income of £1.02 million from £1.03 million to £2.05 million, explained in the table below:
31 March 2014 | 30 April 2013 | % Change | Reason | |
£'000 | £'000 | |||
Loan interest | 1,519 | 866 | +75.4% | Due to new loan stock investments and an exceptional receipt from Newquay Helicopters, settling loan interest arrears. |
Dividend income | 493 | 135 | +265.2% | Higher and maiden dividends received, including preference dividend arrears from Newquay Helicopters. |
Returns on cash | 17 | 18 | (5.6)% | Lower returns on cash held |
Other Income | 19 | 6 | +216.7% | Interest on overdue preference dividends |
Totals | 2,048 | 1,025 | +99.8% |
In addition to capital returns from increases in valuations, and gains on realisations, of investee companies, the portfolio is structured to generate regular income from loan stocks and dividends from equity investments.
2. The VCT's performance compared with its peer group
Statistics produced by the AIC demonstrate that the Company's total return per share on a NAV basis has been maintained in the first quartile of the VCT's peer group (Generalist VCTs) on a one, three and five year basis.
Industry Awards for the Adviser
The Adviser was named VCT House of the Year 2013 at the unquote" British Private Equity Awards 2013. The citations for this award recognised the Adviser's outstanding level of consistency in maintaining high standards in all areas of its activity including deals, exits, portfolio management and fundraising. The Board is delighted that the work of the Adviser has been acknowledged in this way.
3. Compliance with VCT legislation
In order to comply with VCT tax legislation, the Company must meet a number of tests set by HMRC as detailed in the Annual Report and Accounts under VCT Regulation within the Investment Policy. At 31 March 2014, the Company continued to meet these tests.
4. Costs
The Board monitors costs using the Ongoing Charges Ratio which is as set out in the table below.
2014 | 2013 | |
Ongoing charges | 3.05%* | 3.30% |
Performance fee | 0.00% | 0.00% |
Ongoing charges plus accrued performance fee | 3.05%*
| 3.30%
|
* - Annualised for 12 months
The Ongoing Charges Ratio has been calculated using the AIC recommended methodology. This figure shows shareholders the annual percentage reduction in shareholder returns as a result of recurring operational expenses, assuming markets remain static and the portfolio is not traded. Although the ongoing charges figure is based upon historical information, it provides shareholders with an indication of the likely level of costs that will be incurred in managing the fund in the future.
The Ongoing Charges Ratio replaces the Total Expense Ratio previously reported, although the latter will still form the basis of any expenses in excess of the expense cap, that would be borne by the Adviser. There was no breach of the expense cap for the 11 months ended 31 March 2014 (year ended 30 April 2013: £nil).
The fall in the ratio over the period reflects the benefit of spreading the element of costs that are fixed across a larger asset base, even though the 2014 data for 11 months has been uplifted to enable comparison with the previous 12 month period.
Management fees and other expenses
Although net assets have increased, Adviser fees charged to both revenue and capital have barely changed, as last year covered 12 months and this period covered 11 months. Other expenses have nevertheless fallen from £0.32 million to £0.26 million.
In addition to its Investment Policy, the Board also monitors the key performance indicators arising from applying its Dividend and Share Buyback Discount Policies. These indicators are respectively dividends paid in respect of each year and the discount to NAV at which shares are bought back by the Company.
5. Dividend policy
The Company has a target of paying a consistent and over time an increasing dividend in respect of each financial year. It has met or exceeded this target in respect of each of its last four financial years whilst maintaining the net asset value of the Company.
In the absence of unforeseen circumstances, the Board will maintain or increase the dividend paid in the previous year (currently 5p). However, the ability of the Company to pay dividends in the future cannot be guaranteed and will be subject to performance and available cash and reserves.
6. Share buyback and discount policy
Subject to the Company having sufficient available funds and distributable reserves, it is the Board's current intention to pursue a buyback policy with the objective of maintaining the discount to the latest published NAV at which the shares trade at approximately 10%. This policy was implemented for the first time during this period under review. Continuing shareholders benefit from the difference between the NAV and the price at which the shares are bought back and cancelled.
During the 11 months ended 31 March 2014, shareholders holding 0.75 million shares expressed their desire to sell their investments. The Company instructed its brokers, Panmure Gordon (UK) Limited ("Panmure Gordon"), to purchase these shares at prices representing discounts of between approximately 10.7% and 20.0% to the previously announced NAV per share. The Company subsequently purchased these shares at prices between 91.0 -102.0 pence per share and cancelled them.
In total, during the period, the Company has bought back 3.1% of the issued share capital of the Company.
Investment Review
The strong deal flow reported at the half-yearly stage has continued in the second half of the period. The Adviser is increasingly confident that new investment activity will continue at a reasonable rate in the current year. The Adviser believes the healthy level of dealflow reflects both improved business confidence and the continued perception that the UK banking industry remains unable to meet the funding needs of smaller businesses.
The valuation of the portfolio has increased by 16.8% during the year on a like-for-like basis. This is due to the strong trading performance of, and repayment of borrowings by, a number of companies in the portfolio.
Investments remain diversified across a number of sectors primarily in support services, general retailers, media and engineering technology.
New investment
A total of £5.22 million was invested into new deals during the period under review, including significant new investments to support the MBOs of Virgin Wines, Veritek Global and Entanet International Limited along with development capital invested in Bourn Bioscience Limited.
Principal new investments in the period
Company | Business | Month | Amount (£m) |
Veritek Global | Maintenance of imaging equipment | July | 0.97*
|
Veritek Global provides technical service, support and maintenance of complex and valuable equipment to world-leading brands throughout the photo imaging, healthcare, digital cinema, digital print and graphics sectors across Europe. The company's latest full year accounts show annual sales of £24.7 million and profit before interest, tax and goodwill of £1.5 million.
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Virgin Wines | Online wine retailer | November | 1.33* |
Virgin Wines is an online wine merchant and the Virgin Group Partner with the sole UK rights to use the Virgin brand to source and sell boutique, handcrafted wines from all over the world. The company's latest full year accounts show annual sales of £34.5 million and profit before interest, tax and goodwill of £2.0 million. | |||
Bourn Bioscience | In-vitro fertilisation | January | 0.76 |
Bourn Hall is one of the UK's leading IVF/assisted fertility businesses with a dominant presence in East Anglia. Its Bourn Hall clinic near Cambridge was the first IVF clinic in the world. It was founded in 1980 by Robert Edwards and Patrick Steptoe who were responsible for the conception of the first test tube baby, Louise Brown, in 1978. | |||
Entanet | Wholesale voice and data provider | February | 0.91* |
Entanet is a wholesale communications provider based in Telford. It supplies a range of voice and data services to IT resellers which in turn supply small and mid-sized companies.
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* The investments into Veritek Global, Virgin Wines and Entanet each utilised up to £1 million from one of the Company's acquisition vehicles, totalling a net £2.88 million, which is included in the above figures. For further details please see the Investment Portfolio Summary in the Report.
The VCT has also invested a further £1.21 million into two new acquisition vehicles, along with £0.04m of further finance provided to Gro-Group Holdings Limited as part of expansion plans previously agreed when the original investment was made.
Realisations in the period
Company | Business | Original investment/ Realisation | Total proceeds over the life of investment (£m)/ Multiple over cost | ||
Faversham House | Publisher, exhibition organiser and operator | December 2010 / March-December 2014 | £0.32 million 0.93 times cost
| ||
Faversham's progress had fallen short of expectations and we took the opportunity to agree with management a phased realisation of our holding. In March 2013, the VCT sold part of its loan stock and its entire equity investment. The residual loan stock investment was realised in two phases later in the period.
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Omega Diagnostics | In-vitro diagnostics | January 2014 | £0.28 million 1.31 times cost | ||
The investment in Omega Diagnostics, an AiM quoted stock, was sold as it was not considered to be part of the core strategy of the Company.
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Partial loan stock repayments | |||||
Company | Business | Original investment Realisation | Total proceeds over the life of investment (£m) Multiple over cost | ||
Newquay Helicopters | Helicopter Service Operators | June 2006 Ongoing | £1.83 million 2.00 times cost | ||
Newquay sold its principal operating subsidiary, British International Helicopter Services, to Patriot Aerospace in May 2013 as part of its assets realisation strategy. This enabled Newquay to repay most of its loan stocks. The VCT has already received cash proceeds amounting to 2.0 times the total cost of the investments sold. After the period end, the final remaining loan was repaid realising £0.17 million. | |||||
Positive cash flow resulting from profitable trading at a number of other companies has led to a healthy level of loan stock repayments totalling £2.91 million for the period, which figure includes loan repayments from the two companies above, as summarised below: -
Company | Business | Month | Amount (£m) |
Newquay Helicopters | Helicopter service operator | May | 1.25 |
DiGiCo Global | Audio mixing desks | April/July/October | 0.42 |
Focus Pharma | Licensing and distribution of pharmaceuticals | September/November | 0.41 |
Blaze Signs | Signs and sign maintenance | October | 0.27 |
EMaC | Provider of service plans to the motor trade | August | 0.23 |
Faversham House | Publisher, exhibition organiser and operator | March-December | 0.13 |
Ackling Management Madacombe Trading | Acquisition vehicles | February/July | 0.12 |
Tessella | Consultancy | Quarterly | 0.05 |
Monsal | Engineering services | July | 0.03 |
Total | 2.91 |
Also during the period, £0.06m was received from IGLU.com Holidays Limited as tax retention monies were released.
Post Period-end
Company | Business | Original investment/ Realisation | Total proceeds over the life of investment (£m)/ Multiple over cost |
Machineworks | Software for CAM and machine tool vendors | April 2006 April 2014 | £1.53 million 4.10 times cost |
On 2 June 2014, £0.73 million was invested into Creative Graphics International Limited, a specialist provider of self-adhesive branding solutions to the automotive, recreational vehicle and airline markets.
Investment outlook
The increase in the number and the continuing quality of investment opportunities that we have seen in recent months is encouraging. We are being approached by sellers with much more realistic expectations of the value of their businesses and the commitment to see deals through to completion. As a result of our prudent approach to new investment during the downturn, the Company still retains a strong level of liquidity which will enable it to take advantage of this more positive environment. We believe that the current encouraging performance of the portfolio, and the improved outlook for new investment should create value for shareholders in the medium term.
Ten largest investments in the portfolio by valuation
ATG Media Holdings Limited | Blaze Signs Holdings Limited | Fullfield Limited | |||||||
www.antiquestradegazette.com | www.blaze-signs.com | www.motorclean.net | |||||||
Cost | £1,632,000 | Cost | £437,000 | Cost | £1,625,000 | ||||
Valuation | £3,733,000 | Valuation | £2,052,000 | Valuation | £1,880,000 | ||||
Basis of valuation | Basis of valuation | Basis of valuation | |||||||
Earnings multiple | Earnings multiple | Earnings multiple | |||||||
Equity % held | Equity % held | Equity % held | |||||||
7.4% | 13.5% | 8.9% | |||||||
Income receivable in period | Income receivable in period | Income receivable in period | |||||||
£138,298 | £170,902 | £142,426 | |||||||
Business | Business | Business | |||||||
Publisher and on-line auction platform operator | Manufacturer and installer of signs | Provider of vehicle cleaning and valet services | |||||||
Location | Location | Location | |||||||
London | Broadstairs, Kent | Laindon, Essex | |||||||
Original transaction | Original transaction | Original transaction | |||||||
Management buyout | Management buyout | Management buyout | |||||||
Audited financial information | Audited financial information | Audited financial information | |||||||
Year ended | 30 September 2012 | Year ended | 31 March 2013 | Period ended | 31 March 2013 | ||||
Turnover | £10,900,000 | Turnover | £22,741,000 | Turnover | £25,156,000 | ||||
Operating profit | £2,704,000 | Operating profit | £2,301,000 | Operating profit | £1,234,000 | ||||
Net assets | £4,612,000 | Net assets | £3,323,000 | Net assets | £2,576,000 | ||||
Year ended | 30 September 2011 | Year ended | 31 March 2012 | Period ended | 31 March 2012 | ||||
Turnover | £8,927,000 | Turnover | £20,878,000 | Turnover | £17,320,000 | ||||
Operating profit | £1,831,000 | Operating profit | £1,761,000 | Operating profit | £1,210,000 | ||||
Net assets | £3,179,000 | Net assets | £2,918,000 | Net assets | £2,408,000 | ||||
Movements during the period | Movements during the period | Movements during the period | |||||||
Blaze Signs made loan stock repayments totalling £0.27million in the period. | |||||||||
| |||||||||
DiGiCo Global Limited | Ingleby (1879) Limited | ASL Technology Holdings Limited | |||||||
www.digico.biz | www.emac.co.uk | www.aslh.co.uk | |||||||
Cost | £830,000 | Cost | £867,000 | Cost | £1,360,000 | ||||
Valuation | £1,550,000 | Valuation | £1,490,000 | Valuation | £1,356,000 | ||||
Basis of valuation | Basis of valuation | Basis of valuation | |||||||
Earnings multiple | Earnings multiple | Earnings multiple | |||||||
Equity % held | Equity % held | Equity % held | |||||||
2.4% | 5.5% | 7.3% | |||||||
Income receivable in period | Income receivable in period | Income receivable in period | |||||||
£106,493 | £85,790 | £nil | |||||||
Business | Business | Business | |||||||
Designer and manufacturer of audio mixing desks | Provider of service plans for the motor trade | Printer and photocopier services | |||||||
Location | Location | Location | |||||||
Chessington, Surrey | Crewe | Cambridge | |||||||
Original transaction | Original transaction | Original transaction | |||||||
Secondary buyout | Management buyout | Management buyout | |||||||
Audited financial information | Audited financial information | Audited financial information | |||||||
Year ended | 31 December 2013 | Year ended | 31 December 2013 | Year ended | 30 September 2012 | ||||
Turnover | £23,960,000 | Turnover | £7,379,000 | Turnover | £13,394,000 | ||||
Operating profit | £7,543,000 | Operating profit | £2,769,000 | Operating profit | £665,000 | ||||
Net assets | £4,766,000 | Net assets | £5,926,000 | Net assets | £204,000 | ||||
Period ended | 31 December 2012 | Period ended | 31 December 2012 | Period ended | 30 September 2011 | ||||
Turnover | £23,858,000 | Turnover | £6,047,000 | Turnover | £9,613,000 | ||||
Operating profit | £7,594,000 | Operating profit | £2,347,000 | Operating profit | £662,000 | ||||
Net assets | £2,945,000 | Net assets | £3,510,000 | Net assets | £1,497,000 | ||||
Movements during the period | Movements during the period | Movements during the period | |||||||
DiGiCo made loan stock repayments totalling £0.42million in the period. | EMaC made a loan stock repayment of £0.23 million in the period. | ||||||||
| |||||||||
Virgin Wines Holding Company Limited | Tessella Holdings Limited | Gro-Group Holdings Limited | |||||||
www.virginwines.co.uk | www.tessella.com | www.gro.co.uk | |||||||
Cost | £1,330,000 | Cost | £829,000 | Cost | £1,096,000 | ||||
Valuation | £1,330,000 | Valuation | £1,150,000 | Valuation | £1,027,000 | ||||
Basis of valuation | Basis of valuation | Basis of valuation | |||||||
Recent investment price | Earnings multiple | Earnings multiple | |||||||
Equity % held | Equity % held | Equity % held | |||||||
6.4% | 3.9% | 6.0% | |||||||
Income receivable in period | Income receivable in period | Income receivable in period | |||||||
£48,431 | £81,447 | £76,134 | |||||||
Business | Business | Business | |||||||
Online wine retailer | Provider of science powered technology and consulting services | Manufacturer and distributor of baby sleep products | |||||||
Location | Location | Location | |||||||
Norwich | Abington, Oxfordshire | Ashburton, Devon | |||||||
Original transaction | Original transaction | Original transaction | |||||||
Management buyout | Management buyout | Management buyout | |||||||
Audited financial information | Audited financial information | Audited financial information | |||||||
Year ended | 28 June 20131 | Year ended | 31 March 20131 | Year ended | 30 June 20131 | ||||
Turnover | £24,475,000 | Turnover | £20,870,000 | Turnover | £11,444,000 | ||||
Operating profit | £2,010,000 | Operating profit | £3,021,000 | Operating profit | £775,000 | ||||
Net assets | £4,952,000 | Net assets | £556,000 | Net assets | £1,178,000 | ||||
Year ended | 28 June 20121 | Year ended | 31 March 20121 | Year ended | 30 June 20121 | ||||
Turnover | £37,390,000 | Turnover | £18,533,000 | Turnover | £10,945,000 | ||||
Operating profit | £2,404,000 | Operating profit | £278,000 | Operating profit | £886,000 | ||||
Net assets | £7,210,000 | Net assets | £2,404,000 | Net assets | £1,049,000 | ||||
1 - The financial information quoted above relates to the operating subsidiary, Virgin Wine Online Limited and includes figures relating to the performance of this company prior to the MBO which completed in November 2013. | 1 - The financial information quoted above relates to the operating subsidiary, Tessella Limited and includes figures relating to the performance of this company prior to the MBO which completed in July 2012. | 1 - The financial information quoted above relates to the operating subsidiary, Gro-Group International Limited and includes figures prior to the MBO which completed in March 2013. | |||||||
Movements during the period | Movements during the period | Movements during the period | |||||||
MBO investment made in November 2013 | Tessella made quarterly loan stock repayments totalling £0.05 million in the period. | ||||||||
| |||||||||
Veritek Global Holdings Limited | |||
www.veritekglobal.com | |||
Cost | £968,000 | ||
Valuation | £968,000 | ||
Basis of valuation | |||
Recent investment price | |||
Equity % held | |||
6.2% | |||
Income receivable in period | |||
£74,126 | |||
Business | |||
Maintenance of imaging equipment | |||
Location | |||
Eastbourne, East Sussex | |||
Original transaction | |||
Management buyout | |||
Audited financial information | |||
Year ended | 31 March 20131 | ||
Turnover | £24,684,000 | ||
Operating profit | £1,506,000 | ||
Net assets | £6,245,000 | ||
Year ended | 31 March 20121 | ||
Turnover | £25,412,000 | ||
Operating profit | £1,561,000 | ||
Net assets | £7,043,000 | ||
1 - The financial information quoted above is for Veritek Global Limited prior to the MBO which completed in July 2013 | |||
Movements during the period | |||
MBO investment made in July 2013. | |||
| |||
Operating profit in the above tables is stated before charging amortisation of goodwill.
Investment Portfolio Summary
as at 31 March 2014
Date of first investment/ Sector | Total Book cost at 31 March 2014 | Valuation at 30 April 2013 | Additions at cost | Disposals at valuation | Valuation at 31 March 2014 | Change in valuation for period | % of net assets by value | |
£ | £ | £ | £ | £ | £ | |||
Qualifying investments | ||||||||
Unquoted investments | ||||||||
ATG Media Holdings Limited | October 2008 | 1,631,830 | 3,334,643 | - | - | 3,732,310 | 397,667 | 11.0% |
Publisher and online auction platform operator | Media | |||||||
Blaze Signs Holdings Limited | April 2006 | 437,030 | 1,143,484 | - | 270,269 | 2,052,255 | 1,179,040 | 6.1% |
Manufacturing and installation of signs | Support services | |||||||
Fullfield Limited trading as Motorclean Limited | July 2011 | 1,624,769 | 1,920,275 | - | - | 1,879,839 | (40,436) | 5.5% |
Vehicle cleaning and valet services | Support services | |||||||
Ingleby (1879) Limited trading as EMaC Limited | October 2008 | 867,447 | 1,328,301 | - | 132,553 | 1,489,972 | 294,224 | 4.4% |
Service plans for the motor trade | Support services | |||||||
ASL Technology Holdings Limited | December 2010 | 1,360,130 | 611,725 | - | - | 1,356,148 | 744,423 | 4.0% |
Printer and photocopier services | Support services | |||||||
Virgin Wines Holding Company Limited (formerly Culbone Trading Limited )1 | November 2013 | 1,330,202 | - | 1,330,202 | - | 1,330,202 | - | 3.9% |
Online wine retailer | General retailers | |||||||
Tessella Holdings Limited | July 2012 | 828,649 | 880,725 | - | 52,076 | 1,149,818 | 321,169 | 3.4% |
Provider of science powered technology and consulting services | Support services | |||||||
Gro-Group Holdings Limited | March 2013 | 1,096,102 | 1,056,417 | 39,685 | - | 1,027,009 | (69,093) | 3.0% |
Baby sleep products | General retailers | |||||||
Veritek Global Holdings Limited (formerly Madacombe Trading Limited)2 | July 2013 | 967,780 | - | 967,780 | - | 967,780 | - | 2.9% |
Maintenance of imaging equipment | Support services | |||||||
EOTH Limited trading as Equip Outdoor Technologies Limited | October 2011 | 817,185 | 842,294 | - | - | 922,695 | 80,401 | 2.7% |
Branded outdoor equipment and clothing | General retailers | |||||||
Ackling Management Limited (trading as Entanet)3 | February 2014 | 912,057 | - | 912,057 | - | 912,057 | - | 2.7% |
Wholesale voice and data communications provider | Fixed Line Tele-communications | |||||||
Machineworks Software Limited | April 2006 | 25,727 | 674,691 | - | - | 902,986 | 228,295 | 2.7% |
Software for CAM and machine tool vendors | Software and Computer Services | |||||||
Bourn Bioscience Limited | January 2014 | 757,101 | - | 757,101 | - | 757,101 | - | 2.2% |
In-vitro fertilisation clinic | Healthcare Equipment & Services | |||||||
Focus Pharma Holdings Limited | October 2007 | 232,114 | 914,513 | - | 413,941 | 740,093 | 239,521 | 2.2% |
Licensor and distributer of generic pharmaceuticals | Support services | |||||||
Youngman Group Limited | October 2005 | 1,000,052 | 699,966 | - | - | 699,966 | - | 2.1% |
Manufacturer of ladders and access towers | Support services | |||||||
Manufacturing Services Investment Limited | February 2014 | 608,000 | - | 608,000 | - | 608,000 | - | 1.8% |
Company seeking to acquire businesses in the manufacturing sector | Support services | |||||||
South West Services Investment Limited | January 2014 | 606,000 | - | 606,000 | - | 606,000 | - | 1.8% |
Company seeking to acquire businesses in the engineering sector | Support services | |||||||
RDL Corporation Limited | October 2010 | 1,000,000 | 663,859 | - | - | 588,078 | (75,781) | 1.7% |
Recruitment consultants for the pharmaceutical , business intelligence and IT industries | Support services | |||||||
The Plastic Surgeon Holdings Limited | April 2008 | 392,264 | 353,544 | - | - | 376,825 | 23,281 | 1.1% |
Snagging and finishing of domestic and commercial properties | Support services | |||||||
Vectair Holdings Limited | January 2006 | 60,293 | 222,027 | - | - | 312,238 | 90,211 | 0.9% |
Design and sale of washroom products | Support services | |||||||
Newquay Helicopters (2013) Limited (previously British International Holdings Limited) | June 2006 | 226,000 | 997,500 | - | 928,800 | 226,000 | 157,300 | 0.7% |
Helicopter service operators | Support services | |||||||
Lightworks Software Limited | April 2006 | 25,727 | 146,059 | - | - | 67,873 | (78,186) | 0.2% |
Software for CAD vendors | Software and Computer Services | |||||||
PXP Holdings Limited (Pinewood Structures) | December 2006 | 1,220,579 | 57,143 | - | - | 57,143 | - | 0.2% |
Design, manufacture and supply of timber frames for buildings | Construction | |||||||
Monsal Holdings Limited | December 2007 | 821,982 | 76,897 | - | 25,632 | 51,265 | - | 0.2% |
Supplier of engineering services to the water and waste sectors | Engineering | |||||||
Racoon International Holdings Limited | December 2006 | 878,527 | 250,551 | - | - | 1,000 | (249,551) | 0.0% |
Supplier of hair extensions, hair care products and training | Personal goods | |||||||
Ackling Management Limited3 | January 2012 | - | 1,000,000 | - | 87,943 | - | - | 0.0% |
Acquisition vehicle used to support MBO of Entanet International Limited | Food production & distribution | |||||||
Culbone Trading Limited1 | April 2012 | - | 1,000,000 | - | - | - | - | 0.0% |
Acquisition vehicle used to support MBO of Virgin Wine Online Limited | Support services | |||||||
Madacombe Trading Limited2 | April 2012 | - | 1,000,000 | - | 32,220 | - | - | 0.0% |
Acquisition vehicle used to support MBO of Veritek Global Limited | Support services | |||||||
Legion Group plc | August 2005 | 150,000 | - | - | - | - | - | 0.0% |
Provision of manned guarding, mobile patrolling, and alarm response services | Support Services | |||||||
Total unquoted investments | 19,877,547 | 19,174,614 | 5,220,825 | 1,943,434 | 22,814,653 | 3,242,485 | 67.4%4 | |
AIM quoted investments | ||||||||
Vphase plc | March 2001 | 254,586 | 507 | - | - | - | (507) | 0.0% |
Development of energy saving devices for domestic use | Electronic and electrical equipment | |||||||
Omega Diagnostics Group plc | December 2010 | - | 331,455 | - | 331,455 | - | - | 0.0% |
In vitro diagnostics for food intolerance, auto-immune diseases and infectious diseases | Pharmaceuticals | |||||||
254,586 | 331,962 | - | 331,455 | - | (507) | 0.0% | ||
Total qualifying investments | 20,132,133 | 19,506,576 | 5,220,825 | 2,274,889 | 22,814,653 | 3,241,978 | 67.4% | |
Non-qualifying investments | ||||||||
DiGiCo Global Limited | December 2011 | 829,767 | 1,587,065 | - | 420,437 | 1,549,846 | 383,218 | 4.6% |
Design and manufacture of audio mixing desks | Technology, hardware and equipment | |||||||
Newquay Helicopters (2013) Limited (previously British International Holdings Limited) | as above | 167,647 | 487,647 | - | 320,000 | 167,647 | - | 0.5% |
ATG Media Holdings Limited | as above | 104 | 647 | - | - | 779 | 132 | 0.0% |
Faversham House | December 2010 | - | 111,335 | - | 111,335 | - | - | 0.0% |
Publisher, exhibition organiser and operator of websites for the environmental, visual communications and building services sectors | Media | |||||||
Ingleby (1879) Limited trading as EMaC Limited | as above | - | 95,723 | - | 95,723 | - | - | 0.0% |
Century 3370 plc (in liquidation) (formerly Fuse 8) | March 2004 | 250,000 | - | - | - | - | - | 0.0% |
Promotional goods and services agency | Support Services | |||||||
Legion Group plc | as above | 106 | - | - | - | - | - | 0.0% |
Total non-qualifying investments | 1,247,624 | 2,282,417 | - | 947,495 | 1,718,272 | 383,350 | 5.1% | |
Total investments | 21,379,757 | 21,788,993 | 5,220,825 | 3,222,384 | 24,532,925 | 3,625,328 | 72.5% | |
Money market funds5 | 3,727,300 | 3,727,300 | - | - | 3,727,300 | 11.0% | ||
Cash | 3,158,216 | 211,420 | - | - | 3,158,216 | 9.3% | ||
Total investments including money market funds and cash | 28,265,273 | 25,727,713 | 5,220,825 | 3,222,384 | 31,418,441 | 3,625,328 | 92.8% | |
Debtors | 2,596,972 | 157,722 | 2,596,972 | 7.7% | ||||
Creditors | (137,034) | (190,059) | (137,034) | (0.4)% | ||||
Totals | 30,725,211 | 5,220,8256 | 3,222,384 | 3,625,328 | ||||
Net assets | 25,695,376 | 33,878,379 | 100% |
1 - £1,000,000 of this investment into Virgin Wines Holdings Company Limited was provided by Culbone Trading Limited, one of the Company's acquisition vehicles.
2 - £967,780 was further invested into Veritek Global Holdings Limited. This was provided by the acquisition vehicle Madacombe Trading Limited and resulted in a net repayment to the Company of £32,220.
3 - £912,057 was further invested into Ackling Management Limited (trading AS Enternet International Limited). This finance was provided by the acquisition vehicle Ackling Management Limited and resulted in a net repayment to the Company of £87,943.
4 - As at 31 March 2014, the Company held more than 70% of its total investments in qualifying holdings, and therefore complied with the VCT Qualifying Investment test.
5 - Disclosed within Current assets as Current investments in the Balance Sheet.
6 - Total investment additions figure of £5,220,825 differs to that shown in note 9 to the Accounts of £2,340,988. This is due to recent investments in Ackling Management Limited, Virgin Wines Holding Company Limited and Veritek Global Holdings Limited being partially funded via amounts already invested in acquisition vehicles Ackling Management Limited, Culbone Trading Limited and Madcombe Trading Limited respectively.
Key policies
The Board has put in place the following policies to be applied to meet the Company's overall objective and to cover specific areas of the Company's business.
Investment policy
The Company's policy is to invest primarily in a diverse portfolio of UK unquoted companies. Investments are 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 i.e. to support incumbent management teams in acquiring the business they manage but do not yet own. Investments are primarily made in companies that are established and profitable.
The Company's cash and liquid resources may be invested to maximise income returns, subject to the overriding criterion that the risk of loss of capital be minimised.
UK Companies
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.
VCT Regulation
The investment policy is designed to ensure that the VCT continues to qualify and is approved as a VCT by HMRC. Amongst other conditions, the VCT may not invest more than 15 per cent. of its investments in a single company or group of companies and must have at least 70 per cent. by value of its investments throughout the period in shares or securities comprised VCT qualifying holdings, of which a minimum overall of 30% by value (70% for funds raised from 6 April 2011) must be in ordinary shares which carry no preferential rights (save as may be permitted under VCT rules). The VCT can invest less than 30% by value (70% for funds raised from 6 April 2011) of an investment in a specific company in ordinary shares. It must, however, 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).
Asset Mix
The Investment Adviser aims to hold approximately 80 per cent. of net assets by value in the Company's qualifying investments. The balance is held in readily realisable interest bearing investments and deposits and in some non-qualifying holdings in the same investee companies in which qualifying investments have been made.
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 using a significant proportion of loan stock (up to 70 per cent. of the total investment in each VCT qualifying company). Initial investments in VCT qualifying companies are generally made in amounts ranging from £200,000 to £2 million at cost, or such amounts as VCT legislation permits. Normally, no holding in any one company will be greater than 10 per cent. (but in any event will not be greater than 15 per cent.) of the value of the Company's investments, based on cost, at the time of investment. Ongoing monitoring of each investment is carried out by the Investment Adviser, generally through taking a seat on the board of each VCT qualifying company.
Co-investment
The Company aims to invest alongside the three other VCTs advised by the Investment Adviser with a similar investment policy. This enables the Company to participate in larger combined investments advised on by the Investment Adviser.
Borrowing
The Company has no borrowing and does not have any current plans for future borrowings.
Other key policies
Cash available for investment and liquidity
The Company has participated in the Mobeus VCTs' annual linked fundraising this year in order to maintain a sufficient level of funds that can be deployed in meeting the day-to-day expenses of the Company, dividend distributions and purchases of the Company's own shares. This enables money raised prior to 6 April 2012 to be allocated for future MBO investment.
Diversity
The Directors have considered diversity in relation to the composition of the Board and have concluded that its membership is diverse in relation to gender and breadth of experience. The Board comprises three men and one woman. The Company does not have any senior managers or employees. The Board has made a commitment to consider diversity in making future appointments.
Further policies
In addition to the investment policy above and the policies on payment of dividends and share buybacks, discussed earlier in the Strategic Report, the Company has adopted a number of further policies relating to:
· Human rights
· Anti-bribery
· Environmental and social responsibility
· Global greenhouse gas emissions
and these are set out in the Directors' Report in the Report and Accounts.
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 significant risks faced by the Company. This includes a key risk management review which takes place at each quarterly Board meeting. Further details of these are contained in the Corporate Governance section in the Annual Report. The principal risks identified by the Board are set out below.
Risk | Possible consequence | How the Board manages risk | |
Economic risk | Events such as an economic recession and movements in interest rates could affect trading conditions for smaller companies and consequently the value of the Company's qualifying investments.
| · The Board monitors (1) the portfolio as a whole to ensure that the Company invests in a diversified portfolio of companies and (2) developments in the macro-economic environment such as movements in interest rates.
| |
Risk of loss of approval as a Venture Capital Trust | A breach of the VCT tax rules may lead to the Company losing its approval as a VCT, which would result in qualifying shareholders who have not held their shares for the designated holding period having to repay the income tax relief they obtained and that future dividends paid by the Company becoming subject to tax. The Company would also lose its exemption from corporation tax on capital gains.
| · The Company's VCT qualifying status is continually reviewed by the Adviser.
· The Board receives regular reports from PricewaterhouseCoopers LLP ("PwC") who has been retained by the Board to undertake an independent VCT status monitoring role.
| |
Investment and strategic risk | Investment in unquoted small companies involves a higher degree of risk than investment in fully listed companies. Smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals.
| · The Board regularly reviews the Company's Objective and Investment Policy.
· Investee companies are carefully selected by the Adviser for recommendation to the Board. The investment portfolio is reviewed by the Board on a regular basis.
| |
Regulatory risk | The Company is required to meet its legal and regulatory obligations as a VCT and listed company. Failure to comply might result in suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.
| · Regulatory and legislative developments are kept under review by the Company's Solicitors and by the Board. | |
Financial and operating risk | Failure of the systems at any of the third party service providers that the Company has contracted with could lead to inaccurate reporting or monitoring. Inadequate controls could lead to the misappropriation or insecurity of assets.
| · The Board carries out an annual review of the Internal controls in place and reviews the risks facing the Company at each quarterly Board meeting. · It reviews the performance of the service providers at least annually.
| |
Market risk | Movements in the valuations of the VCT's investments will, inter alia, be connected to movements in UK Stock Market indices.
| · The Board receives quarterly valuation reports from the Adviser.
· The Adviser alerts the Board about any adverse movements.
| |
Asset liquidity risk | The Company's investments may be difficult to realise. | · The Board receives reports from the Adviser and reviews the portfolio at each quarterly Board meeting. It carefully monitors investments where a particular risk has been identified.
| |
Market liquidity risk | Shareholders may find it difficult to sell their shares at a price which is close to the net asset value. | · The Board has a share buyback policy which seeks to mitigate market liquidity risk. This policy is reviewed at each quarterly Board meeting.
| |
Counterparty risk | A counterparty may fail to discharge an obligation or commitment that it has entered into with the Company. | · The Board regularly reviews and agrees policies for managing these risks. Further details can be found under 'credit risk' in Note 19 to the accounts.
|
Future prospects
For a discussion of the Company's future prospects, please see the Chairman's Statement.
Nigel Melville
Chairman
18 June 2014
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. Under that law the Directors are required to prepare the Financial Statements and have elected to prepare the company Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (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 the profit or loss for the company for that period.
In preparing these Financial Statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· state whether they have been prepared in accordance 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 Director's report and Director's 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 DTR4
The Directors confirm to the best of their knowledge that:
· The Financial Statements have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice, and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company.
· The Annual Report includes a fair review of the development and performance of the business and the financial position of the Company, together with a description or the principal risks and uncertainties that they face.
Having taken advice from the Audit Committee, the Board considers the Annual Report and Accounts, taken as a whole, are 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 not 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. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A and schedule 10A of the Financial Services and Markets Act 2000.
The names and functions of the Directors are stated in the Annual Report and Accounts.
For and on behalf of the Board:
Nigel Melville
Chairman
18 June 2014
NON STATUTORY ACCOUNTS
PRIMARY FINANCIAL STATEMENTS
Income Statement
for the eleven months ended 31 March 2014
Eleven months ended | Year ended | |||||||
31 March 2014 | 30 April 2013 | |||||||
Note | Revenue | Capital | Total | Revenue | Capital | Total | ||
£ | £ | £ | £ | £ | £ | |||
Unrealised gains on investments | 7 | - | 3,625,328 | 3,625,328 | - | 2,556,199 | 2,556,199 | |
Realised gains on investments | 7 | - | 24,286 | 24,286 | - | 34,319 | 34,319 | |
Income | 2 | 2,047,564 | - | 2,047,564 | 1,025,133 | - | 1,025,133 | |
Investment management fees |
3 | (152,635) | (457,906) | (610,541) | (151,992) | (455,974) | (607,966) | |
Other expenses | (255,016) | - | (255,016) | (322,286) | - | (322,286) | ||
Profit on ordinary activities before taxation | 1,639,913 | 3,191,708 | 4,831,621 | 550,855 | 2,134,544 | 2,685,399 | ||
Taxation on profit on ordinary activities | 4 | (106,850) | 106,850 | - | (88,954) | 88,954 | - | |
Profit on ordinary activities after taxation | 1,533,063 | 3,298,558 | 4,831,621 | 461,901 | 2,223,498 | 2,685,399 | ||
Basic and diluted earnings per share: Ordinary shares | 6 | 6.28p | 13.52p | 19.80p | 1.87p | 9.00p | 10.87p | |
All the items in the above statement derive from continuing operations.
There were no other gains and losses in the period/year.
The total column of this statement is the profit and loss account of the Company.
Other than revaluation movements arising on investments held at fair value through the profit and loss, there were no differences between the return as stated above and at historical cost.
Balance Sheet
As at 31 March 2014
Company number: 3946235
Note | ||||
31 March 2014 £ | 30 April 2013 £ | |||
Fixed assets | ||||
Investments at fair value | 7 | 24,532,925 | 21,788,993 | |
Current assets | ||||
Debtors and prepayments | 2,596,972 | 157,722 | ||
Current investments | 3,727,300 | 3,727,300 | ||
Cash at bank | 3,158,216 | 211,420 | ||
9,482,488 | 4,096,442 | |||
Creditors: amounts falling due within one year |
| (137,034) | (190,059) | |
Net current assets | 9,345,454 | 3,906,383 | ||
Net assets | 33,878,379 | 25,695,376 | ||
Capital and reserves | ||||
Called up share capital | 8 | 280,621 | 240,707 | |
Capital redemption reserve | 8 | 73,413 | 65,940 | |
Share premium reserve | 8 | 5,363,551 | - | |
Revaluation reserve | 8 | 5,930,144 | 2,827,063 | |
Special distributable reserve | 8 | 11,565,499 | 13,176,946 | |
Profit and loss account | 8 | 10,665,151 | 9,384,720 | |
Equity shareholders' funds | 33,878,379 | 25,695,376 | ||
Net asset value per share - basic and diluted Ordinary shares | 9 |
120.73p |
106.75p |
Reconciliation of Movements in Shareholders' Funds
for the eleven months ended 31 March 2014
Note | 11 months ended 31 March 2014 | Year ended 30 April 2013 | ||
£ | £ | |||
Opening shareholders' funds | 25,695,376 | 24,526,639 | ||
Net share capital issued in the period/year (net of expenses) | 8 | 5,410,938 | - | |
Share capital bought back | 8 | (740,347) | (541,894) | |
Profit for the period/year | 4,831,621 | 2,685,399 | ||
Dividends paid in period/year | 5 | (1,319,209) | (974,768) | |
Closing shareholders' funds | 33,878,379 | 25,695,376 |
Cash Flow Statement
for the eleven months ended 31 March 2014
11 months ended | Year ended | ||||
31 March 2014 | 30 April 2013 | ||||
Note | £ | £ | |||
Interest income received | 1,510,256 | 884,548 | |||
Dividend income | 298,109 | 157,147 | |||
Other income | - | 6,678 | |||
Investment management fees paid | (610,541) | (607,966) | |||
Cash payments for other expenses | (286,518) | (287,611) | |||
Net cash inflow from operating activities | 911,306 | 152,796 | |||
Investing activities | |||||
Purchase of investments | 7 | (2,341,072) | (281,207) | ||
Disposals of investments | 7 | 3,246,670 | 3,380,036 | ||
Net cash inflow from investing activities | 905,598 | 3,098,829 | |||
Dividends | |||||
Equity dividends paid | 5 | (1,319,209) | (974,768) | ||
Net cash inflow before financing and liquid resource management | 497,695 | 2,276,857 | |||
Financing | |||||
Purchase of own shares | (761,518) | (517,829) | |||
Shares capital raised (net of expenses) | 3,210,619 | - | |||
Net cash inflow/(outflow) from financing | 2,449,101 | (517,829) | |||
Management of liquid resources No change/(increase) in monies held in current investments |
18 | - | (1,627,394) | ||
Increase in cash for the period/year | 18 | 2,946,796 | 131,634 | ||
Notes to the Accounts
for the eleven months ended 31 March 2014
1 Accounting policies
A summary of the principal accounting policies, all of which have been applied consistently throughout the period, is set out below:
a) Basis of accounting
The accounts have been prepared under UK Generally Accepted Accounting Practice (UK GAAP) and the Statement of Recommended Practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ("the SORP") issued by the Association of Investment Companies in January 2009. The financial statements are prepared under the historical cost convention except for the measurement of certain financial instruments at fair value, which are in accordance with FRS26.
b) Presentation of the Income Statement
In order to better reflect the activities of a VCT and in accordance with the SORP, 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 the 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.
c) Change of financial year-end
The Company has changed its financial year end to 31 March and, therefore these financial statements and notes to the accounts relate to the eleven month period to 31 March 2014. The comparatives are for the year to 30 April 2013, and have not been restated.
d) Investments
All investments held by the Company are classified as "fair value through profit and loss", and are valued in accordance with the International Private Equity and Venture Capital Valuation ("IPEVCV") guidelines, as updated in September 2009. This classification is followed as the Company's business is to invest in financial assets with a view to profiting from their total return in the form of capital growth and income.
For investments actively traded on organised financial markets, fair value is generally determined by reference to Stock Exchange market quoted bid prices at the close of business on the balance sheet date. Purchases and sales of quoted investments are recognised on the trade date where a contract of sale exists whose terms require delivery within a time frame determined by the relevant market. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional.
Unquoted investments are measured at fair value by the Directors in accordance with the following rules, which are consistent with the IPEVCV guidelines:
All investments are held at the price of a recent investment for an appropriate period where there is considered to have been no change in fair value. Where such a basis is no longer considered appropriate, the following factors will be considered:
(i) Where a value is indicated by a material arms-length transaction by an independent third party in the shares of a company, this value will be used.
(ii) In the absence of i), and depending upon both the subsequent trading performance and investment structure of an investee company, the valuation basis will usually move to either:-
a) an earnings multiple basis. The shares may be valued by applying a suitable price-earnings ratio to that company's historic, current or forecast post-tax earnings before interest and amortisation (the ratio used being based on a comparable sector but the resulting value being adjusted to reflect points of difference identified by the Investment Adviser compared to the sector including, inter alia, a lack of marketability).
or:-
b) where a company's underperformance against plan indicates a diminution in the value of the investment, provision against cost is made, as appropriate. Where the value of an investment has fallen permanently below cost, the loss is treated as a permanent impairment and as a realised loss, even though the investment is still held. The Board assesses the portfolio for such investments and, after agreement with the Investment Adviser, will agree the values that represent the extent to which an investment loss has become realised. This is based upon an assessment of objective evidence of that investment's future prospects, to determine whether there is potential for the investment to recover in value.
(iii) Premiums on loan stock investments are accrued at fair value when the Company receives the right to the premium and when considered recoverable.
(iv) Where an earnings multiple or cost less impairment basis is not appropriate and overriding factors apply, discounted cash flow or net asset valuation bases may be applied.
e) Current Investments
Monies held pending investment are invested in financial instruments with same day or two-day access and as such are treated as current investments, and have been measured at fair value.
f) Income
Dividends receivable on quoted equity shares are brought into account on the ex-dividend date. Dividends receivable on unquoted equity shares are brought into account when the Company's right to receive payment is established and there is no reasonable doubt that payment will be received.
Interest income on loan stock and dividends on preference shares are accrued on a daily basis. Provision is made against this income where recovery is doubtful or where it will not be received in the foreseeable future. Where the loan stocks only require interest or a redemption premium to be paid on redemption, the interest and redemption premium is recognised as income once redemption is reasonably certain. Until such date interest is accrued daily and included within the valuation of the investment, where appropriate.
g) Capital reserves
(i) Realised (included within the Profit and Loss Account reserve)
The following are accounted for in this reserve:
· Gains and losses on realisation of investments;
· Permanent diminution in value of investments;
· Transaction costs incurred in the acquisition of investments; and
· 75% of management fee expense, together with the related tax effect to this reserve in accordance with the policies.
(ii) Revaluation reserve (Unrealised capital reserve)
Increases and decreases in the valuation of investments held at the period-end are accounted for in this reserve, except to the extent that the diminution is deemed permanent.
In accordance with stating all investments at fair value through profit and loss, all such movements through both revaluation and realised capital reserves are shown within the Income Statement for the period.
(iii) Special distributable reserve
The cost of share buybacks are charged to this reserve. In addition, any realised losses on the sale of investments, and 75% of the management fee expense, and the related tax effect, are transferred from the Profit and Loss Account reserve to this reserve.
(iv) Share premium reserve
This reserve contains the excess of gross proceeds less issue costs over the nominal value of shares allotted under Offers for Subscription.
(v) Capital redemption reserve
This reserve contains the excess of gross proceeds less issue costs over the nominal value of shares allotted under Offers for Subscription.
h) Expenses
All expenses are accounted for on an accruals basis.
25% of the Investment Adviser's fees are charged to the revenue column of the Income Statement, while 75% is charged against the capital column of the Income Statement. This is in line with the Board's expected long-term split of returns from the investment portfolio of the Company.
100% of any performance incentive fee payable for the period is charged against the capital column of the Income Statement, as it is based upon the achievement of capital growth.
Expenses are charged wholly to revenue, with the exception of expenses incidental to the acquisition or disposal of an investment, which are written off to the capital column of the Income Statement or deducted from the disposal proceeds as appropriate.
i) Taxation
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Company's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in the tax assessments in periods different from those in which they are recognised in the financial statements.
Deferred tax is measured at the average tax rates that are expected to apply in the years in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantially enacted at the balance sheet date. Deferred tax is measured on a non-discounted basis.
A deferred tax asset is recognised only to the extent that it is more likely than not that future taxable profits will be available against which the asset can be utilised.
Any tax relief obtained in respect of management fees allocated to capital is reflected in the capital reserve - realised and a corresponding amount is charged against revenue. The tax relief is the amount by which corporation tax payable is reduced as a result of these capital expenses.
2 Income
Eleven months ended 31 March 2014 | Year ended 30 April 2013 | |
£ | £ | |
Income from bank deposits | 3,344 | 991 |
Income from investments | ||
- from equities | 492,984 | 135,481 |
- from overseas based OEICs | 9,101 | 12,066 |
- from UK based OEICs | 4,283 | 4,618 |
- from loan stock | 1,519,044 | 865,768 |
2,025,412 | 1,017,933 | |
Other income | 18,808 | 6,209 |
Total income | 2,047,564 | 1,025,133 |
Total income comprises | ||
Dividends | 506,368 | 152,165 |
Interest | 1,522,388 | 866,759 |
Other | 18,808 | 6,209 |
2,047,564 | 1,025,133 | |
Income from investments comprises | ||
Listed overseas securities | 9,101 | 12,066 |
Unlisted UK securities | 497,267 | 140,099 |
Loan stock interest | 1,519,044 | 865,768 |
2,025,412 | 1,017,933 |
Total loan stock interest due but not recognised in the period was £210,897 (year ended 30 April 2013: £405,722). | ||
3 Investment management fees
Eleven months ended 31 March 2014 | Year ended 30 April 2013 | |||||
Revenue | Capital | Total | Revenue | Capital | Total | |
£ | £ | £ | £ | £ | £ | |
Mobeus Equity Partners LLP | 152,635 | 457,906 | 610,541 | 151,992 | 455,974 | 607,966 |
Under the terms of a revised investment management agreement dated 10 September 2010, Mobeus Equity Partners LLP ("Mobeus") provides investment advisory, administrative and company secretarial services to the Company, for a fee of 2% per annum calculated on a quarterly basis by reference to the net assets at the end of the preceding quarter, plus a fee of £113,589 per annum, the latter being subject to changes in the Retail Prices Index each year. In 2013, Mobeus has agreed to waive such further increases due to indexation, until otherwise agreed by the Board. In accordance with the policy statement published under "Management and Administration" in the Company's prospectus dated 10 May 2000, the Directors have charged 75% of the investment management expenses to the capital account. This is in line with the Board's expectation of the long-term split of returns from the investment portfolio of the Company. For the eleven months ended 31 March 2014, the expense cap hasn't been breached (year ended 30 April 2013: £nil).
The following performance incentive fee arrangements continue to be in place, and operated as detailed below:
Former C share fund
· the performance incentive fee payable will be calculated as an amount equivalent to 20 per cent of the excess of annual dividends paid to the holders of New Ordinary Shares but then reduced to the proportion which the C Share Fund's aggregate net asset value represented the entire net asset value of the Company at the date of the merger; and
· the dividend shortfall per former C Share at 31 March 2014 is 25.11p (£3,810,480 in aggregate, being 65.1% of the total shortfall at the period-end (where 65.1% was the proportion of C shares to the total number of shares in issue at the date of the Share Merger) and taking into account the target rate of dividends and the dividends paid to shareholders.
The 6p annual dividend hurdle (as adjusted for RPI) and the £1 NAV maintenance provisions will continue to apply in respect of shares in issue and funds raised at the date of the Share Merger. The £1 NAV provision will be adjusted for shares issued since the merger.
Under the terms of the Linked Offer for Subscription launched on 28 November 2013, Mobeus will be entitled to fees of 3.25% of the investment amount received from investors. The sum earned to 31 March 2014 is £721,052, across all four VCTs involved in the Offer equally, out of which all costs of the Offer are being met. Based upon a fully subscribed Offer of £34 million, the fee would be £1,105,000, out of which again, all costs of the Offer will be met.
4 Taxation on ordinary activities
Eleven months ended 31 March 2014 | Year ended 30 April 2013 | |||||
Revenue | Capital | Total | Revenue | Capital | Total | |
£ | £ | £ | £ | £ | £ | |
a) Analysis of tax charge: | ||||||
UK Corporation tax on profits for the period/year | 106,850 | (106,850) | - | 88,954 | (88,954) | - |
Total current tax charge | 106,850 | (106,850) | - | 88,954 | (88,954) | - |
Corporation tax is based on a rate of 20% (2013: 20%) | ||||||
b) Profit on ordinary activities before tax | 1,639,913 | 3,191,708 | 4,831,621 | 550,855 | 2,134,544 | 2,685,399 |
Profit on ordinary activities multiplied by small company rate of corporation tax in the UK of 20% (2013: 20%) | 327,983 | 638,342 | 966,325 | 110,171 | 426,909 | 537,080 |
Effect of: | ||||||
UK dividends | (98,597) | - | (98,597) | (27,097) | - | (27,097) |
Unrealised gains not allowable | - | (725,066) | (725,066) | - | (511,240) | (511,240) |
Realised gains not taxable | - | (4,857) | (4,857) | - | (6,864) | (6,864) |
Marginal rate relief | 15,269 | (15,269) | - | 5,880 | (5,880) | - |
Losses utilised | (137,805) | - | (137,805) | - | - | - |
Unrelieved expenditure | - | - | - | - | 8,121 | 8,121 |
Actual current tax charge | 106,580 | (106,580) | - | 88,954 | (88,954) | - |
Tax relief relating to investment management fees is allocated between revenue and capital where such relief can be utilised.
No asset or liability has been recognised for deferred tax in relation to capital gains or losses on revaluing investments as the Company is exempt from corporation tax in relation to capital gains or losses as a result of qualifying as a Venture Capital Trust.
There is no potential liability to deferred tax (2012: nil). There is an unrecognised deferred tax asset of £203,946 (2013: £362,594). This unrecognised deferred tax asset relates to taxable losses arising from expenses exceeding taxable income. In the Directors' opinion, these are unlikely to be recovered for the foreseeable future and therefore have not been recognised.
5 Dividends paid and payable
Eleven months ended 31 March 2014 | Year ended 30 April 2013 | |
£ | £ | |
Amounts recognised as distributions to equity holders in the period/year: | ||
Ordinary shares | ||
Second Interim income dividend paid for the year ended 30 April 2013 of 0.1p (year ended 30 April 2012: nil p) per share | 26,384 | - |
Interim income dividend paid for the eleven months ended 31 March 2014 of 4.7p (year ended 30 April 2013: 1.25p) per share | 1,240,056 | 303,182 |
Interim capital dividend paid for the eleven months ended 31 March 2014 of 0.2p (year ended 30 April 2013: 2.75p) per share | 52,769 | 671,586 |
Total paid | 1,319,209 | 974,768 |
Any proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
Set out below are the total income dividends payable in respect of the financial period/year, which is the basis on which the requirements of section 274 of the Income Tax Act 2007 are considered.
Eleven months ended 31 March 2014 | Year ended 30 April 2013 | |
£ | £ | |
Ordinary shares | ||
Revenue available for distribution by way of dividends for the period/year | 1,533,063 | 461,901 |
Interim income dividend for the eleven months ended 31 March 2014 paid of 4.7p (year ended 30 April 2013: 1.25p) per share | 1,240,056 | 303,182 |
Second interim income dividend declared for the eleven months ended 31 March 2014 of nil p (year ended 30 April 2013: 0.1 p) per share | - | 24,071 |
6 Basic and diluted earnings and return per share
Eleven months ended 31 March 2014 | Year ended 30 April 2013 | ||
£ | £ | ||
Total earnings after taxation: | 4,831,621 | 2,685,399 | |
Basic and diluted earnings per share (note a) | 19.80p | 10.87p | |
Net revenue from ordinary activities after taxation | 1,533,063 | 461,901 | |
Basic and diluted revenue earnings per share (note b) | 6.28p | 1.87p | |
Net unrealised capital gains | 3,625,328 | 2,556,199 | |
Net realised capital gains | 24,286 | 34,319 | |
Capital expenses (net of taxation) | (351,056) | (367,020) | |
Total capital return | 3,298,558 | 2,223,498 | |
Basic and diluted capital earnings per share (note c) | 13.52p | 9.00p | |
Weighted average number of shares in issue in the period/year | 24,404,368 | 24,697,137 |
Notes:
a) Basic earnings per share is total earnings after taxation divided by the weighted average number of shares in issue.
b) Revenue earnings per share is the revenue return after taxation divided by the weighted average number of shares in issue.
c) Capital earnings per share is the total capital return after taxation divided by the weighted average number of shares in issue.
d) There are no instruments that will increase the number of shares in issue in future. Accordingly, the above figures currently represent both basic and diluted returns.
7 Investments at fair value
Movements in investments during the period are summarised as follows:
Traded on AiM | Unquoted equity shares | Unquoted preference shares | Loan Stock | Total | |
£ | £ | £ | £ | £ | |
Cost at 30 April 2013 | 469,584 | 6,365,282 | 39,734 | 14,764,699 | 21,639,299 |
Permanent impairment at 30 April 2013 | (254,586) | (400,106) | - | (774,864) | (1,429,556) |
Unrealised gains/(losses) at 30 April 2013 | 116,964 | 934,828 | (16,736) | 544,194 | 1,579,250 |
Valuation at 30 April 2013 | 331,962 | 6,900,004 | 22,998 | 14,534,029 | 21,788,993 |
Purchases at cost | - | 762,716 | - | 1,578,272 | 2,340,988 |
Sale proceeds | (281,998) | (59,334) | - | (2,907,073) | (3,248,405) |
Reclassified* | - | (869,841) | 1,537 | 868,304 | - |
Realised (losses)/gains | (49,457) | 59,334 | - | 16,144 | 26,021 |
Unrealised (losses)/gains | (507) | 3,059,755 | - | 566,080 | 3,625,328 |
Closing valuation at 31 March 2014 | - | 9,852,634 | 24,535 | 14,655,756 | 24,532,925 |
Cost at 31 March 2014 | 254,586 | 6,258,157 | 41,271 | 14,825,743 | 21,379,757 |
Permanent impairment at 31 March 2014 | (254,586) | (883,876) | (739) | (810,398) | (1,949,599) |
Unrealised gains/(losses) at 31 March 2014 | - | 4,478,353 | (15,997) | 640,411 | 5,102,767 |
Valuation at 31 March 2014 | - | 9,852,634 | 24,535 | 14,655,756 | 24,532,925 |
* - The equity from acquisition vehicles was exchanged for equity and loan stock issued by the eventual acquirer of the target business.
A breakdown of the increases and the decreases in unrealised valuations of the portfolio is shown in the Investment Portfolio Summary in the Annual Report and Accounts.
Reconciliation of investment transactions to cash and income statement movements
The difference between sales proceeds above of £3,248,405 and disposals of investments shown by the Cash Flow Statement of £3,246,670, is transaction costs of £1,735. These transaction costs also account for the difference between realised gains above of £26,021 and that shown in the Income Statement of £24,286. The difference between investment purchases above of £2,340,988 and that shown by the Cash Flow Statement of £2,341,072 is £84 relating to an investment that had not yet completed by the period-end.
Unrealised gains/(losses) at 31 March 2014 of £5,102,767 differ to that shown in the Revaluation Reserve of £5,930,144. The difference of £827,377 is remaining loan stock received as part of the disposal of DiGiCo Europe Limited in December 2011, which was not recognised as a realised gain in that year.
8 Movement in share capital and reserves
Called up Share capital | Capital redemption reserve | Share Premium | Revaluation reserve | Special distributable reserve * | Profit and loss account* | Total | |
£ | £ | £ | £ | £ | £ | £ | |
At 30 April 2013 | 240,707 | 65,940 | - | 2,827,063 | 13,176,946 | 9,384,720 | 25,695,376 |
Issue of shares | 47,387 | - | 5,572,460 | - | - | - | 5,619,847 |
Expenses of share offer | - | - | (208,909) | - | - | - | (208,909) |
Share buybacks | (7,473) | 7,473 | - | - | (740,347) | - | (740,347) |
Transfer of realised losses to Special distributable reserve (note) | - | - | - | - | (871,100) | 871,100 | - |
Realisation of previously unrealised gain | - | - | - | (522,247) | - | 522,247 | - |
Dividends paid | - | - | - | - | - | (1,319,209) | (1,319,209) |
Profit for the period | - | - | - | 3,625,328 | - | 1,206,293 | 4,831,621 |
As at 31 March 2014 | 280,621 | 73,413 | 5,363,551 | 5,930,144 | 11,565,499 | 10,665,151 | 33,878,379 |
* - These reserves, less net unrealised losses of £254,586 on Level 1 investments per note 9, total £21,976,064 (2013: £22,424,044) and are regarded as distributable reserves for the purpose of assessing the Company's ability to pay dividends to shareholders.
The Company's revaluation reserve represents the capital reserve (unrealised) upon investments held at the period end.
Note: The cancellation of the formerly named C Share Fund's share premium account (as approved at the Extraordinary General meeting held on 10 September 2008 and by the order of the Court dated 28 October 2009), together with the previous cancellation of the share premium account attributable to the former Ordinary Share Fund and C Shares, has provided the Company with a special distributable reserve. The purpose of this reserve is to fund market purchases of the Company's own shares as and when it is considered by the Board to be in the interests of the Shareholders, and to write-off existing and future losses as the Company must take into account capital losses in determining distributable reserves. The total transfer of £871,100 to the special distributable reserve from the profit and loss account is the total of realised losses incurred by the Company in the period.
9 Basic and diluted net asset value per share
Net asset value per Ordinary share is based on net assets at the end of the period, and on 28,062,140 (2013: 24,070,716) Ordinary shares, being the number of Ordinary shares in issue on that date.
10 Management of capital
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern, so that it can continue to provide returns for shareholders and to provide an adequate return to shareholders by allocating its capital to assets commensurate with the level of risk.
By its nature, the Company has an amount of capital, at least 70% (as measured under the tax legislation) of which is and must be, and remain, invested in the relatively high risk asset class of small UK companies within three years of that capital being subscribed. The Company accordingly has limited scope to manage its capital structure in the light of changes in economic conditions and the risk characteristics of the underlying assets. Subject to this overall constraint upon changing the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets if so required to maintain a level of liquidity to remain a going concern.
Although, as the Investment Policy implies, the Board would consider levels of gearing, there are no current plans to do so. It regards the net assets of the Company as the Company's capital, as the level of liabilities are small and the management of them is not directly related to managing the return to shareholders. There has been no change in this approach from the previous year.
11 Segmental analysis
The operations of the Company are wholly in the United Kingdom, from one class of business.
12 Post balance sheet events
On 3 April 2014, the entire investment in Machineworks Software Limited was realised for net proceeds of £902,986. This value was reflected in the Company's valuation of Machineworks as at 31 March 2014.
Under the Linked Offer for Subscription launched on 28 November 2013, on 3 April 2014 and 4 April 2014, a total of 1,744,947 new Ordinary shares were allotted at average effective offer prices of 119.82 pence and 119.08 pence per share respectively, raising net funds of £1,994,140.
On 25 April 2014, Newquay Helicopters (2013) Limited repaid their remaining loan stock, realising £167,647.
On 16 May 2014, Monsal Holdings Limited repaid loan stock totalling £29,060.
On 2 June 2014, £731,032 was invested into Creative Graphics International Limited, a specialist provider of self-adhesive branding solutions for the automotive, recreational vehicle and airline markets.
Following the closure of the Linked Offer for Subscription on 30 May 2014, on 6 June 2014, a further 690,023 new Ordinary shares were allotted at an average effective offer price of 118.66 pence per share, raising net funds of £788,836.
13 Statutory information
The financial information set out in these statements does not constitute the Company's statutory accounts for the 11 months ended 31 March 2014 in terms of section 434 of the Companies Act 2006 but is derived from those accounts. Statutory accounts for the 11 months ended 31 March 2014 will be delivered to Companies House following the Company's Annual General Meeting. The auditors have reported on those accounts: their report was unqualified and did not contain a statement under Section 498 of the Companies Act 2006.
14 Annual Report
The Annual Report for the 11 months ended 31 March 2014 will shortly be made available on the Company's website: www.mig2vct.co.uk. and Shareholders will be notified of this by email or post or sent a hard copy in the post in accordance with their instructions. Copies will be available thereafter to members of the public from the Company's registered office.
15 Annual General Meeting
The Annual General Meeting of the Company will be held at 12 noon on Thursday, 11 September 2014 at the offices of SGH Martineau LLP, One America Square, Crosswall, London EC3N 2SG.
Contact details for further enquiries:
Robert Brittain of Mobeus Equity Partners LLP (the Company Secretary) on 020 7024 7600 or by e-mail to mig2@mobeusequity.co.uk.
Mark Wignall or Mike Walker at Mobeus Equity Partners LLP (the Investment Adviser) on 020 7024 7600 or by e-mail to info@mobeusequity.co.uk.
DISCLAIMER
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.