22 Jun 2018 16:10
HIGHLIGHTS
· Funds substantially invested in a diverse range of high quality businesses and projects
· HMRC requirement that qualifying investments are 70% of the fund is now met
· NAV at 98.39p per share (adding back 3p per share dividend paid during the year)
· Profit of £273,000 before tax for the year, a post-tax gain of 0.72p per share
CHAIRMAN'S STATEMENT
Introduction
I am pleased to present the Company's third annual report for the year to 28 February 2018.
The Company has now effectively deployed substantially all its funds in both qualifying and non-qualifying investments. As a result it has met and exceeded its minimum qualifying investment percentage (on an HMRC basis) of 70 per cent. Our portfolio is well positioned to deliver attractive returns to shareholders within its expected remaining time horizon.
Results
The Company reported a profit before tax of £273,000 for the year (2017: £525,000) and a post-tax gain of 0.72p (2017: 1.48p) per ordinary share (calculated on the weighted average number of shares). The reduction in profit during the year reflects the Company's shift in investment profile from non-qualifying loans to qualifying investments. This is in line with expectations as the Company has successfully achieved its 70% qualifying investment target during the period. The Net Asset Value per ordinary share ("NAV") at 28 February 2018 after adding back dividends paid was 98.39p (2017: 97.66p).
Dividend
In line with the Company's dividend policy as stated in the Prospectus, the Board will propose at the Annual General Meeting a resolution to pay a second dividend of 2p per share. The Company hopes to achieve (although there is no guarantee) an average dividend payment equivalent to 5p per annum (including the dividends paid to date) over the rest of the life of the Fund.
Investments
During the year, the Company completed a series of investments for a total of £14 million. At the end of the period, the Company had a total of £26.8 million invested in a mixture of qualifying and non-qualifying investments. Details of these investments can be found in the Investment Manager's report on pages 3 to 8.
VCT qualifying status
PricewaterhouseCoopers LLP ("PwC") provides the board and the Investment Manager with advice on the ongoing compliance with HMRC rules and regulations concerning VCTs and has reported no issues in this regard for the Company to date. PwC will continue to assist the Investment Manager in monitoring rule compliance and maintaining the qualifying status of the Company's holdings in the future.
Patient Capital Review and Finance Act 2018
We are pleased that, in its response to the Financing Growth in Innovative Firms Consultation published with the Autumn Budget on 22 November 2017 ("the Patient Capital Review"), the Government has recognised the continuing importance of VCTs in providing much needed investment in SMEs. We note that recently enacted Finance Act 2018 increases VCTs' minimum qualifying investment percentage threshold from 70% to 80% with effect from 6 April 2019. As reported above, the Company has already met its minimum qualifying investment percentage and we therefore believe that it is on track to meet this revised target in due course.
Outlook
We are pleased that the Company's net assets are now substantially deployed in a diverse range of high quality businesses and projects which should offer the prospect of further growth in net assets per share. Whilst there may be some further changes in the composition of the portfolio to ensure that the Company continues to satisfy its HMRC qualifying targets, the Board expects to concentrate in the future primarily on the monitoring of our existing investments and considering options for exits.
Harold Paisner
Chairman
21 June 2018
INVESTMENT MANAGER'S REPORT
Introduction
The Company's funds are now substantially deployed in both qualifying and non-qualifying investments, having met its minimum qualifying investment percentage of 70 per cent during the year. We believe the Company's portfolio is well positioned to deliver attractive returns to shareholders within the Fund's expected remaining time horizon.
Investments
Qualifying Investments
Growing Fingers - Children's Nursery
As reported in the Company's previous annual report, the Company had made a £686,000 qualifying investment (as part of a £2.8 million investment alongside other Puma VCTs) in Growing Fingers Limited, and a further £294,000 was invested during the year. The investment is funding the construction and launch of a new purpose-built 108 place nursery school in Wendover, Buckinghamshire, an affluent commuter town with direct links to London. Growing Fingers is a new venture headed by a management team with many years' operational experience in nurseries and healthcare facilities. The Company benefits from first charge security over the Wendover site and the Growing Fingers business.
Welcome Health - Chain of Pharmacies
The Company had previously invested £2.5 million (as part of a £5 million investment alongside other Puma VCTs) in Welcome Health Limited. We are pleased to report that Welcome Health commenced its trade during the year, acquiring a series of mature pharmacies across the North East of England. The entrepreneur behind Welcome Health has experience in this geography and is focused on providing pharmaceutical services to a currently underserviced and relatively deprived market. As at the date of this report, Welcome Health owns and operates five pharmacies and expects to acquire further units in the coming year.
Mini Rainbows - Children's Nursery
As previously reported, the Company invested £2.5 million in Mini Rainbows Limited (as part of a £5 million investment alongside other Puma VCTs), which was established to operate a trading business in the childcare sector and/or to acquire businesses which operate within that sector. During the year, Mini Rainbows commenced its trade by acquiring a mature children's day nursery in Murrayfield, an affluent part of Edinburgh. The nursery was founded in 1995 and has capacity for up to 90 children. The Mini Rainbows' experienced management team are in various stages of discussions to acquire further nurseries in the coming months.
Warm Hearth - Pubs with Microbreweries
In late 2015, the Company invested £2.5 million (as part of a £5 million investment alongside other Puma VCTs) in Warm Hearth Limited, a pub business seeking to capitalise on the strong growth trends within the craft beer sub-market. As previously reported, Warm Hearth entered into a franchise agreement with Brewhouse & Kitchen Limited ("B&K"), a strong and fast-growing national branded operator, offering craft micro-brewing activities within each of its pub units as a point of focus. Warm Hearth acquired three substantial freehold pub assets in Chester, Wilmslow and Bedford, all of which are trading as fully branded B&K units. Warm Hearth sold the Bedford pub just before the end of the year and management are now focused on improving performance at the Chester and Wilmslow pubs, as well as looking at planning options on both sites to further enhance value.
Signal Building Services - Construction projects
In September 2017, the Company invested £1 million (as part of a total investment round of £2 million) into Signal Building Services Limited, a recently established business specialising in delivering turnkey solutions to construction projects led by a management team with over 40 years' of combined experience in the construction sector. Shortly after the year end, Signal Building Services commenced its first project, the construction of a 22 apartment supported living scheme in Wigan.
Applebarn Nurseries - Children's Nursery
In October 2017, the Company invested £1.1 million in Applebarn Nurseries Limited (as part of a £2.2 million qualifying investment alongside another Puma VCT) which is developing and will operate a new 120 place children's day nursery in Altrincham, South Manchester. The management team behind Applebarn include Stewart Pickering (the founder of Kidsunlimited which he built up to 50 nurseries before a successful exit) and experienced developer and contractor, the McGoff Group. The nursery is expected to open in the third quarter of 2018.
Knott End - Pubs with Microbreweries
During the year, the Company invested £2.4 million (as part of a £4.8 million qualifying investment alongside another Puma VCT) in Knott End Limited which has entered into a franchise agreement with Brewhouse & Kitchen Limited to roll out a portfolio of pubs offering on-site craft micro-brewing activities and good quality food. The management team at Knott End have already identified their first site in the newly-developed theatre district of Milton Keynes which opened in April 2018.
Kid and Play - Children's Nursery
The Company made a £1.7 million qualifying investment in Kid and Play Limited, alongside funds invested by another Puma VCT totalling £3.4 million, in October 2017. Kid and Play is seeking to develop, own and operate a new children's day nursery and has identified a first site in Bromley, South London.
Sunlight Education Nucleus - Special Educational Needs Schools
In November 2017, the Company made a £1.35 million qualifying investment (as part of a £4.7 million investment alongside other Puma VCTs) in Sunlight Education Nucleus Limited, a company seeking to develop, own and operate a series of special education needs schools across the United Kingdom.
South West Cliffe - Children's Nursery
In October 2017, the Company invested £2.1 million (as part of a £4.2 million qualifying investment alongside another Puma VCT) in South West Cliffe Limited, supporting an experienced management team to roll out a portfolio of purpose built day nurseries.
Pure Cremation - Crematorium and Direct Cremations
In November 2017, the Company invested £2 million in Pure Cremation Holdings Limited (as part of a £5 million qualifying investment alongside another Puma VCT). Pure Cremation is a leading provider of so-called direct cremations, meeting the needs of a growing number of people in the United Kingdom who want a respectful direct cremation arranged without any funeral, leaving them free to say farewell how, where and when is right for them. The Pure Cremation team have many years' experience in the funeral services sector and have recently acquired a site near Andover on which they will seek to develop a new crematorium and central facility.
Non-Qualifying Investments
As previously reported, the Company had initially invested just over £20 million in a series of lending businesses offering an appropriate risk adjusted return in the short to medium term. It was intended that these positions would be liquidated in due course as the Company makes qualifying investments. Details of the loans that these lending businesses have made, many of which were repaid in full during the year, are set out below.
Residential Development Project, Beckenham
The loan of £3 million (together with loans from other vehicles managed and advised by your Investment Manager totalling £5 million) advanced (through an affiliate, Mayfield Lending Limited) to Northern Land Developments Limited in previous years, continues to perform. The loans facilitated the acquisition of two large residential houses in Beckenham, Kent, funded planning costs to replace these two units with seven town houses and are now funding planning costs to develop a larger scheme on an adjacent larger parcel of land. The loans are secured with a first charge over both sites. During the period, it was agreed that all accrued interest would be repaid and that the loans be extended for a further 12 months. Shortly following the year-end, the borrower obtained planning permission for 105 new units comprising a mixture of four bedroom houses and one, two and three bedroom apartments, materially improving the value of the security.
Citrus Group
As previously reported, a series of loans had been advanced (through affiliates, Marble Lending Limited and Tottenham Lending Limited) to various entities within the Citrus Group, which at the start of the period stood at £1.4 million. These loans, together with loans from other vehicles managed and advised by your Investment Manager, formed part of a series of revolving credit facilities to provide working capital to the Citrus PX business. Citrus PX operates a property part exchange service facilitating the rapid purchase of properties for developers and homeowners. During the year, the loans were repaid in full giving a good rate of return.
Portfolio of freehold ground rent interests
In June 2016, an £800,000 loan was advanced (through an affiliate, Sloane Lending Limited) and secured against a portfolio of freehold assets and the associated ground rents, as part of a package from other vehicles managed and advised by the Investment Manager totalling £4.3 million. We are pleased to report that, during the year, the loan was repaid in full giving a good rate of return.
Care Home for the Elderly, Formby
During the period, a £800,000 loan (as part of an overall facility of £7.6 million) was agreed (through an affiliate, Sloane Lending Limited) with New Care (Sefton) Limited to fund the development and initial trading of a 75-bed purpose-built care home in Formby, Merseyside. The New Care Group is an experienced developer and operator of care homes. The loan is secured with a first charge over the site.
Care Home for the Elderly, Egham
As previously reported, a loan of £1.2 million had been advanced (through an affiliate, Meadow Lending Limited) to Windsar Care (UK) LLP to fund the development and initial trading of a 68-bed purpose-built care home in Egham, Windsor. This loan, together with loans from other vehicles managed and advised by the Investment Manager totalling £7.2 million, are secured with a first charge over the site. As previously reported, construction has been behind schedule and over budget as a result of the non-performance of the original building contractor. We are pleased to report that, following a substantial injection of further equity by the developer and careful management by the construction manager, Alyth Trading, a new contractor has been appointed and the scheme is now on track to reach practical completion by the end of the year. It is anticipated that the value of the scheme on completion of construction will exceed the total value of the loans made.
Care Home for the Elderly, Mill Hill
As previously reported, a loan of £2.5 million (together with loans from other vehicles managed and advised by the Investment Manager totalling £5.6 million) was made (through an affiliate, Latimer Lending Limited) to Toppan Holdings Limited to fund the development of a 65 bed purpose built care home in Mill Hill, London. We are pleased to report that the loan was repaid in full during the year generating an attractive return.
Care Home for the Elderly, Hamilton
As previously reported, a loan of £2 million (as part of a £6.9 million facility from other vehicles managed and advised by the Investment Manager) was made (through an affiliate, Lothian Lending Limited) to Richmond Global Properties Limited to fund the development of a 112 bed purpose built care home in Hamilton, Scotland. We are pleased to report that, during the year, the loan was repaid in full, the project having reached practical completion with the home being fitted out ready to accept its first residents.
Care Home for the Elderly, Dover
As previously reported, a £116,000 loan (as part of a £4.4 million facility from other vehicles managed and advised by the Investment Manager) had been advanced (through an affiliate, Lavender Lending Limited) to Athena (Alpha) Limited to fund the development of a new purpose-built, 80-bed residential care home in Dover, Kent. We are pleased to report that the borrower sold the care home shortly following practical completion and our loan was repaid in full during the year giving a good rate of return.
Construction of Airport Hotel, Edinburgh
During the period, a £1.6 million loan (as part of an overall facility of £16 million) was agreed with Ability Hotels (Edinburgh) Limited to fund (through affiliates Meadow Lending Limited and Palmer Lending Limited) the development of a new 240-room Hampton by Hilton hotel at Edinburgh Airport. The hotel is scheduled to open in the summer of 2019 at which time it will be the newest and nearest hotel to the airport terminal building. The Ability Group is an experienced developer and operator of hotels and the loan is secured with a first charge over the site.
IVF Clinic, Wickford
As previously reported, loans of £400,000 were advanced (through affiliate Lothian Lending Limited) to HPC (Wickford) Limited in a total loan package of £2.85 million together with other vehicles managed and advised by the Investment Manager. These loans are to facilitate the development and initial trading of a purpose-built IVF Fertility Clinic in Wickford, Essex. HPC (Wickford) Limited has entered into a lease with Bourn Hall Limited, one of the UK's largest independent fertility clinic groups. Following the year-end, the clinic opened and the loans were repaid in full with a good rate of return.
Care Home Project, Melton Mowbray
A £1.35 million loan (together with loans from other vehicles managed and advised by the Investment Manager totalling £5.4 million) had been advanced (through affiliate, Meadow Lending Limited) to Regent Formations 265 Limited to fund the development of a new 88 bed care home in Melton Mowbray, Leicestershire. We previously reported that the borrower was in discussions with a potential purchaser of this care home on terms which would see the loan repaid in full. We are pleased to confirm that this transaction completed during the year and the loans were repaid in full with a good rate of return.
Ironbridge Group
We previously reported that a £1.2 million facility (as part of a total facility of £5 million) had been advanced (through affiliate, Primrose Lending Limited) to an entity within the Ironbridge Group, providing the senior 70% slice of "stretched senior" bridging loans on non-owner-occupied properties in London and the South East with Ironbridge funding the subordinated 30% slice. The £1.2 million facility was repaid in full during the year.
Liquidity Management
To further manage liquidity as previously reported, the Company had exposure to a floating rate note issued by Royal Bank of Canada and a floating rate note issued by Commonwealth Bank of Australia. These positions were liquidated during the year as the Company made the qualifying investments referred to above. Further details of this can be found in note 8 of the financial statements.
Investment Strategy
We are pleased to have invested the Company's funds in a diverse range of high quality businesses and projects. We remain focused on generating strong returns for the Company in both the qualifying and non-qualifying portfolios, whilst balancing these returns with an appropriate risk exposure and ensuring that the Company maintains its VCT qualifying status.
Puma Investment Management Limited
21 June 2018
Investment Portfolio Summary
As at 28 February 2018
Valuation | Cost | Gain/(loss) | Valuation as a % of Net Assets | |
As at 28 February 2018 | £'000 | £'000 | £'000 | |
Qualifying Investments | ||||
Warm Hearth Limited | 2,500 | 2,500 | - | 9% |
Mini Rainbows Limited | 2,500 | 2,500 | - | 9% |
Welcome Health Limited | 2,500 | 2,500 | - | 9% |
Growing Fingers Limited | 980 | 980 | - | 3% |
Applebarn Nurseries Limited | 1,133 | 1,133 | - | 4% |
Kid & Play Limited | 1,694 | 1,694 | - | 6% |
South-West Cliffe Limited | 2,100 | 2,100 | - | 7% |
Signal Building Services Limited | 1,000 | 1,000 | - | 3% |
Knott End Pub Company Limited | 2,400 | 2,400 | - | 8% |
Pure Cremation Holdings Limited | 2,000 | 2,000 | - | 7% |
Sunlight Education Nucleus Limited | 1,350 | 1,350 | - | 5% |
Total Qualifying Investments | 20,157 | 20,157 | - | 69% |
Non-Qualifying Investments | ||||
Latimer Lending Limited | 1 | 1 | - | 0% |
Lothian Lending Limited | 400 | 400 | - | 1% |
Mayfield Lending Limited | 2,600 | 2,600 | - | 9% |
Meadow Lending Limited | 2,558 | 2,558 | - | 9% |
Palmer Lending Limited | 260 | 260 | - | 1% |
Sloane Lending Limited | 800 | 800 | - | 3% |
Total Non-Qualifying Investments | 6,619 | 6,619 | - | 23% |
Total Investments | 26,776 | 26,776 | - | 92% |
Balance of Portfolio | 2,328 | 2,328 | - | 8% |
Net Assets | 29,104 | 29,104 | - | 100% |
Of the investments held at 28 February 2018, all are incorporated in England and Wales.
Income Statement
For the year ended 28 February 2018
Year ended 28 February 2018 | Year ended 28 February 2017 | ||||||
Note | Revenue | Capital | Total | Revenue | Capital | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
(Loss)/Gain on investments | 8 (b) | - | (4) | (4) | - | 49 | 49 |
Income | 2 | 1,153 | 1,153 | 1,317 | - | 1,317 | |
1,153 | (4) | 1,149 | 1,317 | 49 | 1,366 | ||
Investment management fees | 3 | (148) | (444) | (592) | (149) | (447) | (596) |
Other expenses | 4 | (284) | - | (284) | (245) | - | (245) |
(432) | (444) | (876) | (394) | (447) | (841) | ||
Profit/(loss) before taxation | 721 | (448) | 273 | 923 | (398) | 525 | |
Taxation | 5 | (137) | 85 | (52) | (184) | 110 | (74) |
Profit/(loss) and total comprehensive income for the year | 584 | (363) | 221 | 739 | (288) | 451 | |
Basic and diluted | |||||||
Return/(loss) per Ordinary Share (pence) | 6 | 1.91p | (1.19p) | 0.72p | 2.42p | (0.94p) | 1.48p |
All items in the above statement derive from continuing operations.
There are no gains or losses other than those disclosed in the Income Statement.
The total column of this statement is the Statement of Total Comprehensive Income of the Company prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. The supplementary revenue and capital columns are prepared in accordance with the Statement of Recommended Practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014 by the Association of Investment Companies and updated in January 2017.
Balance Sheet
As at 28 February 2018
Note | 2018 | 2017 | |
£'000 | £'000 | ||
Fixed Assets | |||
Investments | 8a | 26,776 | 28,820 |
Current Assets | |||
Debtors | 9 | 2,365 | 1,220 |
Cash | 198 | 35 | |
2,563 | 1,255 | ||
Creditors - amounts falling due within one year | 10 | (235) | (277) |
Net Current Assets | 2,328 | 978 | |
Net Assets | 29,104 | 29,798 | |
Capital and Reserves | |||
Called up share capital | 12 | 19 | 19 |
Share premium account | 29,473 | 29,473 | |
Capital reserve - realised | (1,069) | (728) | |
Capital reserve - unrealised | - | 22 | |
Revenue reserve | 681 | 1,012 | |
Total Equity | 29,104 | 29,798 | |
Net Asset Value per Ordinary Share | 13 | 95.39p | 97.66p |
The financial statements on pages 34 to 49 were approved and authorised for issue by the Board of Directors on 21 June 2018 and were signed on their behalf by:
Harold Paisner
Chairman
Statement of Cash Flows
For the year ended 28 February 2018
Year ended 28 February 2018 | Year ended 28 February 2017 | |
£'000 | £'000 | |
Profit after tax | 221 | 451 |
Loss/(gain) on investments | 4 | (49) |
(Increase)/decrease in debtors | (1,145) | 980 |
Decrease in creditors | (42) | (979) |
Net cash (used in)/generated from operating activities | (962) | 403 |
Cash flow from investing activities | ||
Purchase of investments | (11,971) | (4,964) |
Proceeds from disposal of investments | 14,011 | 2,083 |
Net cash generated from/ (used in) investing activities | 2,040 | (2,881) |
Cash flow from financing activities | ||
Dividends paid | (915) | - |
Net cash used for financing activities | (915) | - |
Net increase/(decrease) in cash and cash equivalents | 163 | (2,478) |
Cash and cash equivalents at the beginning of the year | 35 | 2,513 |
Cash and cash equivalents at the end of the year | 198 | 35 |
Statement of Changes in Equity
For the year ended 28 February 2018
Called up share capital | Share premium account | Capital reserve - realised | Capital reserve - unrealised | Revenue reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance as at 1 March 2016 | 19 | 29,473 | (365) | (53) | 273 | 29,347 |
Total comprehensive income for the year | - | - | (307) | 19 | 739 | 451 |
Realised loss from prior period | - | - | (56) | 56 | - | - |
Balance as at 28 February 2017 | 19 | 29,473 | (728) | 22 | 1,012 | 29,798 |
Total comprehensive income for the year | - | - | (363) | - | 584 | 221 |
Realised gain from prior period | 22 | (22) | - | |||
Dividends paid | - | - | - | - | (915) | (915) |
Balance as at 28 February 2018 | 19 | 29,473 | (1,069) | - | 681 | 29,104 |
Distributable reserves comprise: Capital reserve-realised, Capital reserve-unrealised (excluding gains on unquoted investments) and the Revenue reserve. At the year end, distributable revenue reserves were £681,000 (2017: £1,012,000).
The Capital reserve-realised includes gains/losses that have been realised in the year due to the sale of investments, net of related costs. The Capital reserve-unrealised represents the investment holding gains/losses and shows the gains/losses on investments still held by the company not yet realised by an asset sale.
Share premium represents premium on shares issued less issue costs.
The revenue reserve represents the cumulative revenue earned less cumulative distributions.
1. Accounting Policies
Accounting convention
Puma VCT 11 plc ("the Company") was incorporated, registered and is domiciled in England. The Company's registered number is 09197956. The registered office is Bond Street House, 14 Clifford Street, London W1S 4JU. The Company is a public limited company (limited by shares) whose shares are listed on LSE with a premium listing. The company's principal activities and a description of the nature of the Company's operations are disclosed in the Strategic Report.
The financial statements have been prepared under the historical cost convention, modified to include investments at fair value, and in accordance with the requirements of the Companies Act 2006, including the provisions of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' ("FRS 102") and the Statement of Recommended Practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014 by the Association of Investment Companies and updated in January 2017 ("the SORP").
Monetary amounts in these financial statements are rounded to the nearest whole £1,000, except where otherwise indicated.
Investments
All investments are measured at fair value. They are all held as part of the Company's investment portfolio and are managed in accordance with the investment policy set out on page 18.
Listed investments are stated at bid price at the reporting date.
Unquoted investments are stated at fair value by the Directors with reference to the International Private Equity and Venture Capital Valuation Guidelines ("IPEV") as follows:
· Investments which have been made within the last twelve months or where the investee company is in the early stage of development will usually be valued at the price of recent investment except where the company's performance against plan is significantly different from expectations on which the investment was made in which case a different valuation methodology will be adopted.
· Investments in debt instruments will usually be valued by applying a discounted cash flow methodology based on expected future returns of the investment.
· Alternative methods of valuation such as net asset value may be applied in specific circumstances if considered more appropriate.
Realised surpluses or deficits on the disposal of investments are taken to realised capital reserves, and unrealised surpluses and deficits on the revaluation of investment are taken to unrealised capital reserves.
1. Accounting Policies (continued)
Income
Dividends receivable on listed 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 receivable is recognised wholly as a revenue item on an accruals basis.
Performance fees
Upon its inception, the Company agreed performance fees payable to the Investment Manager, Puma Investment Management Limited, and members of the investment management team at 20% of the aggregate excess of the amounts realised over £1 per Ordinary Share returned to Ordinary Shareholders. This incentive will only be effective once the other holders of Ordinary Shares have received distributions of £1 per share.
The performance incentive has been satisfied through the issue of 7,627,992 Ordinary Shares (as set out in note 11 of the financial statements) to the Investment Manager and members of the investment management team being 20% of the total issued Ordinary Share capital of 38,139,963. Under the terms of the incentive arrangement, all rights to dividends will be waived until the £1 per Ordinary Share performance target has been met. The performance fee is accounted for as an equity-settled share-based payment.
Section 26 of FRS 102 "Share-Based Payment" requires the recognition of an expense in respect of share-based payments in exchange for goods or services. Entities are required to measure the goods or services received at their fair value unless that fair value cannot be estimated reliably, in which case that fair value should be estimated by reference to the fair value of the equity instruments granted.
At each balance sheet date, the Company estimates that fair value by reference to any excess of the net asset value, adjusted for dividends paid, over £1 per share in issue at the balance sheet date. Any change in fair value is recognised in the Income Statement with a corresponding adjustment to equity.
Expenses
All expenses (inclusive of VAT) are accounted for on an accruals basis. Expenses are charged wholly to revenue, with the exception of:
· expenses incidental to the acquisition or disposal of an investment charged to capital; and
· the investment management fee, 75% of which has been charged to capital to reflect an element which is, in the directors' opinion, attributable to the maintenance or enhancement of the value of the Company's investments in accordance with the Board's expected long-term split of return; and
· the performance fee which is allocated proportionally to revenue and capital based on the respective contributions to the Net Asset Value.
Taxation
Corporation tax is applied to profits chargeable to corporation tax, if any, at the applicable rate for the year. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue return on the marginal basis as recommended by the SORP.
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, or right to pay less, tax in the future has occurred at the balance sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods. Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
1. Accounting Policies (continued)
Reserves
Realised losses and gains on investments, transaction costs, the capital element of the investment management fee and taxation are taken through the Income Statement and recognised in the Capital Reserve - Realised on the Balance sheet. Unrealised losses and gains on investments and the capital element of the performance fee are also taken through the Income Statement and are recognised in the Capital Reserve - Unrealised.
Debtors
Debtors include accrued income which is recognised at amortised cost, equivalent to the fair value of the expected balance receivable.
Creditors
Creditors are initially measured at the transaction price and subsequently measured at amortised cost, being the transaction price less any amounts settled.
Dividends
Final dividends payable are recognised as distributions in the financial statements when the Company's liability to make payment has been established. The liability is established when the dividends proposed by the Board are approved by the Shareholders. Interim dividends are recognised when paid.
Key accounting estimates and assumptions
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets within the next financial year relate to the fair value of unquoted investments. Further details of the unquoted investments are disclosed in the Investment Manager's Report on pages 3 to 8 and notes 8 and 14 of the financial statements.
2. Income
Year ended 28 February 2018 | Year ended 28 February 2017 | |
£'000 | £'000 | |
Income from investments | ||
Loan stock interest | 1,137 | 1,257 |
Bond yields | 16 | 59 |
1,153 | 1,316 | |
Other income | ||
Bank deposit income | - | 1 |
1,153 | 1,317 |
3. Investment Management Fees
Year ended 28 February 2018 | Year ended 28 February 2017 | |
£'000 | £'000 | |
Puma Investments fees | 592 | 596 |
592 | 596 |
Puma Investment Management Limited ("Puma Investments") has been appointed as the Investment Manager of the Company for an initial period of five years, which can be terminated by not less than twelve months' notice, given at any time by either party, on or after the fifth anniversary. The Board is satisfied with the performance of the Investment Manager. Under the terms of this agreement, Puma Investments will be paid an annual fee of 2% of the Net Asset Value payable quarterly in arrears calculated on the relevant quarter end NAV of the Company. These fees are capped, the Investment Manager having agreed to reduce its fee (if necessary to nothing) to contain total annual costs (excluding performance fee and trail commission) to within 3.5% of funds raised. Total costs this year were 3.0% (2017: 2.8 %) of the funds raised. Graham Shore (a director) holds a Directorship of the parent of the Investment Manager.
4. Other expenses
Year ended 28 February 2018 | Year ended 28 February 2017 | |
£'000 | £'000 | |
PI Administration Services Limited | 103 | 104 |
Directors' Remuneration | 48 | 48 |
Social security costs | 2 | 2 |
Auditor's remuneration for statutory audit | 24 | 23 |
Legal and professional fees | 63 | 17 |
Other expenses | 44 | 51 |
284 | 245 |
PI Administration Services Limited provides administrative services to the Company for an aggregate annual fee of 0.35% of the Net Asset Value of the Fund, payable quarterly in arrears.
Remuneration for each Director for the year is disclosed in the Directors' Remuneration Report on page 24. The Company had no employees (other than Directors) during the year (2017: none). The average number of non-executive Directors during the year was 3 (2017: 3). The non-executive Directors are considered to be the Key Management Personnel of the Company with total remuneration for the year of £50,000 (2017: £50,000) including social security costs.
The Auditor's remuneration of £20,000 (2017: £19,500) has been grossed up in the table above to be inclusive of VAT.
5. Taxation
Year ended 28 February 2018 | Year ended 28 February 2017 | |
£'000 | £'000 | |
UK corporation tax charged to revenue reserve | 137 | 184 |
UK corporation tax credited to capital reserve | (85) | (110) |
UK corporation tax charge for the year | 52 | 74 |
Factors affecting tax charge for the year | ||
Profit before taxation | 273 | 525 |
Tax charge calculated on profit before taxation at 19% (2017: 20%) | 51 | 105 |
Tax on capital items not taxable | 1 | (10) |
Tax losses utilised | - | (18) |
Other differences | - | (3) |
52 | 74 |
Capital returns are not taxable as the Company is exempt from tax on realised capital gains whilst it continues to comply with the VCT regulations, so no corporation tax is recognised on capital gains or losses. Due to the intention to continue to comply with the VCT regulations, the Company has not provided for deferred tax on any realised or unrealised capital gains and losses.
6. Basic and diluted return/(loss) per Ordinary Share
Year ended 28 February 2018 | |||
Revenue | Capital | Total | |
Total comprehensive income for the year (£'000) | 584 | (363) | 221 |
Weighted average number of shares in issue for the year | 38,139,963 | 38,139,963 | 38,139,963 |
Less: management incentive shares (see note 11) | (7,627,992) | (7,627,992) | (7,627,992) |
Weighted average number of shares for purposes of return/(loss) per share calculations | 30,511,971 | 30,511,971 | 30,511,971 |
Return/(loss) per share | 1.91p | (1.19p) | 0.72p |
6. Basic and diluted return/(loss) per Ordinary Share (continued)
Year ended 28 February 2017 | |||
Revenue | Capital | Total | |
Total comprehensive income for the year (£'000) | 739 | (288) | 451 |
Weighted average number of shares in issue for the year | 38,139,963 | 38,139,963 | 38,139,963 |
Less: management incentive shares (see note 11) | (7,627,992) | (7,627,992) | (7,627,992) |
Weighted average number of shares for purposes of return/(loss) per share calculations | 30,511,971 | 30,511,971 | 30,511,971 |
Return/(loss) per share | 2.42p | (0.94p) | 1.48p |
7. Dividends
During the year, the directors paid the dividend approved at the 2017 AGM of 3p per share (2016: nil) resulting in a total dividend payment of £915,000. The Directors will propose a resolution at the Annual General Meeting to pay a final dividend of 2p per share (2017: 3p per share) which, if approved, would result in a total dividend payment of £610,000 (2017: £915,000).
8. Investments
(a) Movements in investments | Qualifying investments | Non qualifying investments | Total | |
£'000 | £'000 | £'000 | ||
Purchased at cost | 8,186 | 20,612 | 28,798 | |
Net unrealised | - | 22 | 22 | |
Valuation at 1 March 2017 | 8,186 | 20,634 | 28,820 | |
Purchases at cost | 11,971 | 2,408 | 14,379 | |
Disposal of investments and repayment of loans and loan notes: | ||||
- Proceeds | - | (16,419) | (16,419) | |
- Realised net (losses) on disposals | - | (4) | (4) | |
Valuation at 28 February 2018 | 20,157 | 6,619 | 26,776 | |
Book cost at 28 February 2018 | 20,157 | 6,619 | 26,776 | |
Net unrealised gains at 28 February 2018 | - | - | - | |
Valuation at 28 February 2018 | 20,157 | 6,619 | 26,776 |
During the year, the Company sold its quoted bonds in Commonwealth Bank of Australia for £1,296,000. These bonds were originally acquired for £1,288,000 and were stated at £1,297,000 as at 28 February 2017. The Company also sold its holding of quoted bonds in Royal Bank of Canada for £2,213,000. These bonds were originally acquired for £2,202,000 and were stated at £2,215,000 as at 28 February 2017.
(b) Gains and losses on investments
The gains and losses on investments for the year shown in the Income Statement is analysed as follows:
Year ended 28 February 2018 | Year ended 28 February 2017 | ||
£'000 | £'000 | ||
Realised (losses)/gains/ in period | (4) | 30 | |
Unrealised gains in period | - | 19 | |
(4) | 49 |
(c) Quoted and unquoted investments
Market value as at 28 February 2018 | Market value as at 28 February 2017 | ||
£'000 | £'000 | ||
Quoted investments | - | 3,512 | |
Unquoted investments | 26,776 | 25,308 | |
26,776 | 28,820 |
Further details of these investments are disclosed in the Investment Portfolio Summary on pages 9 to 16 of the Annual Report.
9. Debtors
2018 | 2017 | |
£'000 | £'000 | |
Other debtors | 9 | 6 |
Accrued income | 2,356 | 1,214 |
2,365 | 1,220 |
10. Creditors - amounts falling due within one year
2018 | 2017 | |
£'000 | £'000 | |
Accruals | 169 | 172 |
Amounts committed but not drawn | - | 17 |
Other creditors | 14 | 14 |
Corporation tax | 52 | 74 |
235 | 277 |
11. Management Performance Incentive Arrangement
On 11 September 2014, the Company entered into an Agreement with the Investment Manager and members of the investment management team (together "the Management Team") such that the Management Team will be entitled in aggregate to share in 20 per cent of the aggregate excess on any amounts realised by the Company in excess of £1 per Ordinary Share, the Performance Target.
This incentive is effective through the issue of ordinary shares in the Company, such that the Management Team hold 7,627,992 ordinary shares being 20% of the issued share capital of 38,139,963.
The Management Team will waive all rights to dividends until a return of £1 per share (whether capital or income) has been paid to the other shareholders.
The performance incentive structure provides a strong incentive for the Investment Manager to ensure that the Company performs well, enabling the Board to approve distributions as high and as soon as possible.
12. Called Up Share Capital
2018 | 2017 | |
£'000 | £'000 | |
38,139,963 ordinary shares of 0.05p each | 19 | 19 |
13. Net Asset Value per Ordinary Share
2018 | 2017 | |
Net assets | 29,104,000 | 29,798,000 |
Number of shares in issue | 38,139,963 | 38,139,963 |
Less: management incentive shares (see note 11) | (7,627,992) | (7,627,992) |
Number of shares in issue for purposes of Net | ||
Asset Value per share calculation | 30,511,971 | 30,511,971 |
Net asset value per share | ||
Basic | 95.39p | 97.66p |
Diluted | 95.39p | 97.66p |
14. Financial Instruments
The Company's financial instruments comprise its investments, cash balances, debtors and certain creditors. The fair value of all of the Company's financial assets and liabilities is represented by the carrying value in the Balance Sheet. Excluding cash balances, the Company held the following categories of financial instruments at 28 February 2018:
2018 | 2017 | |
£'000 | £'000 | |
Financial assets at fair value through profit or loss | 26,776 | 28,820 |
Financial assets that are debt instruments measured at amortised cost | 2,365 | 1,220 |
Financial liabilities measured at amortised cost | (183) | (203) |
28,958 | 29,837 |
Management of risk
The main risks the Company faces from its financial instruments are market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency movements, liquidity risk, credit risk and interest rate risk. The Board regularly reviews and agrees policies for managing each of these risks. The Board's policies for managing these risks are summarised below and have been applied throughout the year.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Investment Manager monitors counterparty risk on an ongoing basis. The carrying amount of financial assets best represents the maximum credit risk exposure at the balance sheet date. The Company's financial assets and maximum exposure to credit risk is as follows:
2018 | 2017 | |
£'000 | £'000 | |
Investments in loans, loan notes and bonds | 12,367 | 22,884 |
Cash at bank and in hand | 198 | 35 |
Interest, dividends and other receivables | 2,365 | 1,220 |
14,930 | 24,139 |
The cash held by the Company at the year-end is held in one U.K. bank. Bankruptcy or insolvency of the bank may cause the Company's rights with respect to the receipt of cash held to be delayed or limited. The Board monitors the Company's risk by reviewing regularly the financial position of the bank and should it deteriorate significantly the Investment Manager will, on instruction of the Board, move the cash holdings to another bank.
Credit risk associated with interest, dividends and other receivables are predominantly covered by the investment management procedures.
Investments in loans, loan notes and bonds comprises a fundamental part of the Company's venture capital investments, therefore credit risk in respect of these assets is managed within the Company's main investment procedures.
Market price risk
Market price risk arises mainly from uncertainty about future prices of financial instruments held by the Company. It represents the potential loss the Company might suffer through holding investments in the face of price movements. The Investment Manager actively monitors market prices and reports to the Board, which meets regularly in order to consider investment strategy.
The Company's strategy on the management of market price risk is driven by the Company's investment policy as outlined in the Strategic Report on page 18. The management of market price risk is part of the investment management process. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis, with an objective of maximising overall returns to shareholders.
Holdings in unquoted investments may pose higher price risk than quoted investments. Some of that risk can be mitigated by close involvement with the management of the investee companies along with review of their trading results. 0% (2017: 12%) of the Company's investments are quoted investments and 100% (2017: 88%) are unquoted investments.
Liquidity risk
Details of the Company's unquoted investments are provided in the Investment Portfolio summary on page 9. By their nature, unquoted investments may not be readily realisable, the Board considers exit strategies for these investments throughout the period for which they are held. As at the year end, the Company had no borrowings.
The Company's liquidity risk associated with investments is managed on an ongoing basis by the Investment Manager in conjunction with the Directors and in accordance with policies and procedures in place as described in the Strategic Report and the Report of the Directors. The Company's overall liquidity risks are monitored on a quarterly basis by the Board. The Company maintains sufficient investments in cash to pay accounts payable and accrued expenses.
Fair value interest rate risk
The benchmark that determines the interest paid or received on the current account is the Bank of England base rate, which was 0.5% at 28 February 2018 (2017: 0.25%). All of the loan and loan note investments are unquoted and hence not directly subject to market movements as a result of interest rate movements.
Cash flow interest rate risk
The Company has exposure to interest rate movements primarily through its cash deposits and loan notes which track either the Bank of England base rate or LIBOR.
Interest rate risk profile of financial assets
The following analysis sets out the interest rate risk of the Company's financial assets as at 28 February 2018.
Rate status | Average interest rate | Period until maturity | Total | |
£'000 | ||||
Cash at bank - RBS | Floating | 0.01% | - | 198 |
Loans and loan notes | Floating | 2.25% | 32 months | 2,250 |
Loans and loan notes | Fixed | 8.85% | 42 months | 10,117 |
Balance of assets | Non-interest bearing | - | 16,774 | |
| 29,339 |
The following analysis sets out the interest rate risk of the Company's financial assets as at 28 February 2017.
Rate status | Average interest rate | Period until maturity | Total | |
£'000 | ||||
Cash at bank - RBS | Floating | 0.01% | - | 35 |
Loans, loan notes and bonds | Floating | 3.80% | 46 months | 8,512 |
Loans, loan notes and bonds | Fixed | 7.70% | 43 months | 14,372 |
Balance of assets | Non-interest bearing | - | 7,156 | |
30,075 |
Foreign currency risk
The reporting currency of the Company is Sterling. The Company has not held any non-Sterling investments during the year.
Fair value hierarchy
Financial assets and liabilities measured at fair value are disclosed using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurements, as follows:-
· Level 1 - Fair value is measured using the unadjusted quoted price in an active market for identical assets.
· Level 2 - Fair value is measured using inputs other quoted prices that are observable using market data.
· Level 3 - Fair value is measured using unobservable inputs.
Fair values have been measured at the end of the reporting year as follows:-
2018 | 2017 | |
£'000 | £'000 | |
Level 1 | ||
Investments listed on LSE | - | 3,512 |
Level 3 | ||
Unquoted investments | 26,776 | 25,308 |
26,776 | 28,820 |
The Level 3 investments have been valued in line with the Company's accounting policies and IPEV guidelines. Further details of these investments are provided in the significant investments section of the Annual Report on pages 10 to 16.
15. Capital management
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern, so that it can 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 must be, and remain, invested in the relatively high risk asset class of small UK companies within three years of that capital being subscribed. From April 2019 this is rising to 80%.
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 Company may adjust the amount of dividends paid to shareholders, issue new shares, or sell assets to maintain a level of liquidity to remain a going concern.
The Board has the opportunity to consider levels of gearing, however 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 is small and the management of those liabilities is not directly related to managing the return to shareholders.
16. Contingencies, Guarantees and Financial Commitments
There were no commitments, contingencies or guarantees of the Company at the year-end (2017: none).
17. Controlling Party
In the opinion of the Directors there is no immediate or ultimate controlling party.
The financial information set out in this announcement does not constitute the Company's statutory financial statements in accordance with section 434 Companies Act 2006 for the year ended 28 February 2018, but has been extracted from the statutory financial statements for the year ended 28 February 2018 which were approved by the Board of Directors on 21 June 2018 and will be delivered to the Registrar of Companies. The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.
The statutory accounts for the period ended 28 February 2017 have been delivered to the Registrar of Companies and received an Independent Auditors report which was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.
Copies of the full annual report and financial statements for the year ended 28 February 2018 will be available to the public at the registered office of the Company at Bond Street House, 14 Clifford Street, London, W1S 4JU and will be available for download from www.pumainvestments.co.uk.