30 Jun 2021 16:40
HIGHLIGHTS
· Realisation of investment in Pure Cremation in June 2021. Directors intend to declare a substantial special interim dividend.
· Profit of £3,896,000 for the year, representing 12.6p per share.
· Funds substantially invested in a diverse range of high quality businesses and projects.
· NAV per share at the year-end was 100.81p (after adding back dividends paid to date).
CHAIRMAN'S STATEMENT
Introduction
I am pleased to present the Company's fifth annual report for the year ended 28 February 2021.
Background
Once again, we are reporting against the backdrop of major economic disruption caused by the COVID-19 pandemic. Whilst the vaccine roll-out programme and the Government's road map out of lock down continue to progress, the impact of the measures taken to deal with COVID-19 continue to impact the entire economy and touch almost every sector.
Despite this volatile economic environment caused by the pandemic, we are pleased to report that in June 2021, after the end of the current financial year being reported upon, the Company sold its position in Pure Cremation and realised a gain of £4.46m, 2.1x return on total funds invested.
There is also good progress with several other companies in our portfolio and overall, we are pleased with the performance. We have worked closely to support the companies in our qualifying portfolio during the pandemic and the picture for the VCT is a lot more positive than could perhaps have been expected. That said, the repeated lockdowns will inevitably affect the timing of exits. So, whilst the Company was launched with an anticipated life of five to six years, it is likely that the liquidation process may take place at a later date than originally envisaged. Further details are set out below.
Results
The Company reported a profit of £3,896,000 for the year (2020: £764,000), a post-tax profit of 12.60p (2020: 2.47p) per ordinary share (calculated on the weighted average number of shares). The Net Asset Value per ordinary share ("NAV") as at 28 February 2021 after adding back the 9p of dividends paid to 28 February 2021 was 100.81p (2020: 88.20p).
Dividend
The Company paid dividends totalling 6p per ordinary share during the year, bringing dividends paid to date to 9p per ordinary share. The recent exit of Pure Cremation will enable the Company to pay a substantial special dividend, to be declared later this summer.
Investments
At the end of the year, the Company had £25.5 million invested in a mixture of qualifying and non-qualifying investments whilst maintaining our VCT qualifying status. Details of these investments can be found in the Investment Manager's report on pages 3 to 9.
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 also assists the Investment Manager in establishing the status of investments as qualifying holdings and will continue to assist the Investment Manager in monitoring rule compliance.
Annual General Meeting and Delay to Proposal to Wind-Up the Company
The Annual General Meeting of the Company will be held at Cassini House, 57 St James's Street, London, SW1A 1LD on 31 August 2021 at 11 a.m.. Notice of the Annual General Meeting and Form of Proxy will be inserted within the annual accounts.
As noted above, the Company has now just passed its fifth anniversary. It was anticipated in the Company's Prospectus that the Board would convene a General Meeting of the Company at which resolutions would be proposed to place the Company into members' solvent liquidation. That remains the Board's intention but, in light of the delays to realisations caused by the COVID-19 crisis, the Board has decided to delay this step, which it will keep under regular review.
Shareholders should therefore not expect the return of most of their capital as quickly as might have happened if the Covid crisis has not occurred. However, the Board is mindful of the demand of shareholders to see the capital returned but in an orderly way.
Ray Pierce
Chairman
30 June 2021
INVESTMENT MANAGER'S REPORT
Introduction
The year was of course dominated by the Covid-19 pandemic, which has dramatically accelerated a number of major macroeconomic trends. As the UK entered the pandemic at the beginning of 2020, the core outlook was of a high debt, low interest rate, low inflation model. In such an environment, innovative, fast growing companies tend to attract high values as it is easier to buy growth than to create it organically. This is exacerbated by large, cash-rich incumbents being reluctant to retain high levels of liquid assets as the yield on cash is unacceptably low. Overall, such an environment is supportive of small company investing, as it is stimulative of exits at good valuations.
Now, as the country begins to emerge from the Covid dislocation, it is evident that the economy has been thrust forwards on that trajectory by several years. National debt levels are very much higher while interest rates remain very low. In fact, we risk being in a position where governments and Central Banks (now more entwined than they have been for probably 30 years) cannot afford to raise interest rates. That raises material concerns about inflation, consideration of which we formally upweighted in our investment analysis this February.
Further, this has not been a 'conventional' recession. Whilst there has been considerable uncertainly throughout, including an intensely difficult planning period at the onset of the crisis, the scale of Government support, particularly via the Furlough scheme, but also through the various guaranteed loan schemes, has been unprecedented. The majority of that support still needs to be unwound, and in our view, it would be unwise to assume that we are now in an early cycle recovery phase like any other.
The Investment Manager to the Company, Puma, has a highly involved and hands-on approach to portfolio management. This keeps us close to the management teams that the Company has backed and allows us to help them deal with challenges that arise. This, coupled with a focus on genuine multi-sector diversity, has served the Company well over the extraordinary last twelve months.
Investments
Qualifying Investments
Pure Cremation - Crematorium and Direct Cremations
Pure Cremation is a leading provider of direct cremations in the UK, meeting the needs of a growing number of people who want a respectful cremation arranged without any funeral, leaving them free to say farewell how, where and when is right for them.
The business has continued to perform extremely strongly throughout the period and has expanded operations to cover mainland Scotland where Pure Cremation has now taken office space. Similarly in Andover, where its main site, headquarters and crematoria are based, it took on substantial additional office space for its expanding customer services function.
Now profitable, the business has been using its growing free cash flow to carefully expand into adjacent end of life services and sectors. It recruited a legal team in Birmingham to help with its new will writing offer, which has initially been presented to existing pre-paid plan holders. Additional staff have also been taken on to support the business's existing trade networks and to drive at-need business in local markets. These efforts have been supported by the expansion of the group's marketing capacity, with new marketing channels added, including a digital focus to extend reach to new markets.
The position was realised in June 2021 for £8.51m, generating a gain of £4.46m on the original £4.05m invested. The accounts for the period value the holding at £7.80m (including accrued loan interest income).
NRG Gym - Budget Gyms
NRG is a gym business aimed at price-sensitive millennials with a keen interest in sports and fitness. The business operated sites in Gravesend and Watford at the point of our investment and has since added gyms in Walsall and Lewisham.
Having closed all sites during the first lockdown, NRG gyms were able to reopen on 25th July 2020 in line with government regulations. Upon reopening, the company was soon trading at membership levels higher than before the first lockdown. This followed the business's significant focus on marketing and messaging during the lockdown. The sites had to close again as a result of the national lockdown from 5th November 2020. During closure, the company benefitted from various government grant schemes, including the job retention scheme, the restart grant and the local restrictions support grant.
The company is exploring options for various digital offerings for its members after finding success with streaming instructional videos from its trainers over lockdown. These efforts rest on its growing membership base and its success at engaging that base through social media, particularly Instagram. The business continues to evolve and tighten its sales messaging, supported by the physical sites, media use and its website, to resonate with target customers and drive up yield.
Post period end, the gyms were able to re-open on 12th April in line with government regulations, with classes commencing indoors on 17th May. Encouragingly, membership numbers have reached and, in some cases, eclipsed pre-pandemic levels.
Growing Fingers - Children's Nursery
Our investment has funded 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. The Company benefits from first-charge security over the Wendover site and the Growing Fingers business.
Having experienced delays to construction due to material and staff shortages during lockdown, practical completion was reached at the beginning of January of this year. Despite limitations and restrictions in place due to Covid-19 legislation, the team conducted significant pre-marketing, utilising the latest technology to showcase the nursery to prospective parents, which led to strong advance registrations ahead of opening in March 2021 and, once opened, the nursery has since traded ahead of expectations.
Applebarn Nurseries - Children's Nursery
Applebarn Nurseries is a childcare business operating under the brand, Back to the Garden Childcare. The team's first site, a custom-built 120-place children's day nursery in Altrincham, South Manchester, opened in September 2018 and continues to show growth in occupancy.
The nursery was closed during the first lockdown in line with government regulations but was able to reopen in August 2020 operating at reduced capacity. Since then, the school has remained open, working in a system of 'bubbles' of teachers and students. This is to mitigate any potential risk of needing to isolate due to Covid-19.
Post period, the nursery has now been able to resume parent tours in preparation for September 2021 when a new cohort of attendees from the age of three upwards is expected to join.
Hot Copper - Pubs with Microbreweries
Brewhouse & Kitchen is the largest brewpub brand in the UK, distinctive for brewing their own unique craft beers onsite and running an participatory experience with beer tasting and brewing masterclasses. The Company invested into Knott End Pub Company in 2017, as a franchisee to the Brewhouse & Kitchen brand to provide growth capital for the further build-out of the overall Brewhouse & Kitchen branded estate.
In December 2020 Knott End was merged with two other Brewhouse & Kitchen franchise companies which other Puma managed funds had previously invested into. This resulted in the Company now holding shares in Hot Copper Pub Company Limited, and therefore having exposure to a larger, more diverse, mostly freehold estate Hot Copper benefits from a solid financial position, and sufficient free cash to exploit acquisition opportunities which may arise from the current challenging climate.
Naturally, this has been a difficult time for pub businesses due to the extreme restrictions on trade which have characterised much of the period. Although there have been some very encouraging trading figures from the pubs when they have been able to open, Hot Copper has had to focus primarily on managing cash, and the Directors have taken the decision to mark down the value of the holding by a further £700,000 to reflect the challenging environment.
Over the course of the period, Brewhouse & Kitchen invested into their "B&K On Tap" app, which allows them to digitise the customer journey, accommodating order-from-table and pay-from-table functionality. This new digital solution will not only allow them to gain better labour efficiencies and reduce wage bills but will also facilitate the company in better understanding their customer-base.
Post period end, as the hospitality sector reopened in April, trade for Hot Copper has begun well, with several units posting gains on 2019 trading levels despite operating with significant restrictions still in place. This trade benefits from ongoing government support, including rates relief, flexi-furlough and the reduction of VAT on food sales from 20% to 5%, now extended to September 2021.
Also in April, post period end, Brewhouse & Kitchen won 'Best Pub Employer' at the 2021 Publican Awards and was shortlisted as 'Best Managed Pub Company'. The reputational benefits of these awards will help Hot Copper as a franchisee.
Kid & Play - Children's NurseryKid & Play has developed a 110-place children's day nursery in Bedford, which was originally expected to open in Spring 2020 but experienced interruptions to building work due to Covid-19. It therefore reached practical completion in May 2020 and opened in August 2020.
The site traded well from opening and has consistently been ahead of budget in terms of occupancy.
Encouragingly, the unit's occupancy is heavily weighted to babies and 'early years' children who are likely to remain with the nursery for three to four years. The company is finalising arrangements to acquire the lease on a new development site in Barnet with a targeted opening date of late autumn 2021.
Signal Building Services - Construction Projects
The Company has invested £200,000 (as part of a total investment round of £2 million) into Signal Building Services Limited, a 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. Signal Building Services is currently working on the construction of a 41-unit residential scheme in North-West London and a 60-bed care home in Wilmslow. It has also recently been working on the construction of a 22-apartment supported living scheme in Wigan which, we are pleased to report, completed successfully during the year.
Sunlight Education Nucleus - Special Educational Needs Schools
Sunlight Education Nucleus ("SEN") is a provider of special educational needs schools in the Midlands run by an expert management team with a proven track record of sourcing, developing and launching highly successful special needs educational settings.
At the outbreak of the pandemic, SEN's school in Stafford, West Midlands, was able remain open for students attending at the discretion of their parents and the school. This was based on government advice for vulnerable children and those with education health and care plans. Online teaching was provided to pupils who stayed at home during this time. Since opening in September 2020 for the new school year, this school has performed well and ahead of forecast. Furthermore, it has received approval from the Department of Education to increase the number of registered pupil spaces from 50 to 100.
SEN's second school in Crewe, Cheshire, opened fully in September 2020 with four-times the number of students originally expected and has also traded ahead of forecast. Referrals from Local Authorities remain strong and accordingly both schools are hiring new staff to cater for the increased demand.
Tictrac Limited - Health Engagement Platform
TicTrac is a personalised health and wellness platform that provides exclusive content to its users, as well as taking information from their wearable fitness trackers to give targeted feedback and action plans. TicTrac has gathered powerful evidence that use of its platform reduces sedentary behaviour amongst large workforces, with associated positive outcomes for engagement and wellbeing.
TicTrac's main customers are large insurance companies, such as Aviva, Allianz and Prudential, Generali Employee Benefits and Bupa Hong Kong. During 2020, TicTrac also launched a software as a service (SaaS) offer, selling direct to corporates, again for the provision of the TicTrac platform to staff as an employee benefit.
The Covid-19 pandemic accelerated an already prevalent focus on health and wellness, highlighting the need for flexible, scalable digital solutions. These trends are very positive for TicTrac. Whilst corporate spending was scrutinised in most areas during 2020, TicTrac's multi-year contracts with large insurers provided a buffer from this scrutiny and afforded the business with good levels of revenue visibility. Coupled with the investment from Puma funds (and co-investment partner Aviva Ventures) the business has been able to remain in growth mode and continue developing the skillsets it needs for expansion.
Post period end, the company has announced some significant client wins, again on valuable multi-year contracts. This year the business will continue to grow its staff base across the sales, account management, product and technology teams, with a focus on scaling and refining sales and marketing strategy.
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. As intended, most of these positions have been liquidated as the Company has made qualifying investments. Details of these lending businesses' loans are set out below.
Care Homes for the Elderly, Willenhall and Lichfield
A loan of £1,926,000 was advanced (through an affiliate, Marble Lending Limited) to various entities within the Macc Care group of companies to support the stabilisation of a newly built 73-bed care home in Willenhall (between Wolverhampton & Walsall) and the acquisition of a site in Lichfield which was the subject of a planning application for a 90-bed care home. This loan, together with loans from other vehicles managed and advised by the Investment Manager totalling £7.7 million, was secured with a first charge over the two sites. We are pleased to report that the loan was repaid in full during the year.
Supported Living, Nottingham and Liverpool
As previously reported, a loan of £1,623,000 was advanced (through an affiliate, Piccadilly Lending Limited) to various entities within the Carislease group of companies. The loan was funding for the acquisition and development of a series of supported living schemes in Nottingham and Liverpool. This loan, together with loans from other vehicles managed and advised by the Investment Manager totalling £4.8 million, was secured with a first charge over the sites, many of which had already been pre-sold. The loan was repaid in full during the year.
Aparthotel, Glasgow
A pre-development bridge loan of £836,000 was advanced (through affiliate Tottenham Lending Limited) to Citihome Glasgow Limited against a site with planning permission for a 156-room aparthotel in central Glasgow. This loan, together with loans from other vehicles managed and advised by the Investment Manager totalling £3.3 million, is secured with a first charge over the site and is backed by a personal guarantee from the developer. Since the loan was advanced, the developer successfully increased the planning permission to 204 rooms.
Care Home for the Elderly, Bristol
A loan of £1,512,000 was advanced to facilitate the development of a new 80-bed care home in Bristol. The loan was made through an affiliate, Marble Lending Limited and was advanced together with facilities from other vehicles managed and advised by the Investment Manager totalling £13.4 million. The developer has significant previous experience of developing and operating care homes and the loans are secured with a first charge over the site.
Purpose Built Student Accommodation, Brighton
A loan of £1,250,000 was advanced (through an affiliate, Tottenham Lending Limited) to Alumno Student Brighton Living (Brighton) Limited. The loan was to fund the acquisition and development of a 71-unit purpose-built student accommodation unit in Brighton. This loan, together with loans from other vehicles managed and advised by the Investment Manager totalling £8.47 million, is secured with a first charge over the site. Brighton is one of the university towns which has had a strong demand for new-build quality student accommodation and the developer has a long track record, having developed over 5,000 units to date. Construction is progressing well with a view to opening in line with the beginning of the 2021/22 academic year.
Supported Living, Atherstone
A loan of £594,000 was advanced (through affiliate Victoria Lending Limited) to HBP Group Limited to facilitate the development of 16 supported-living flats in Atherstone, Warwickshire. This loan, together with loans from other vehicles managed and advised by the Investment Manager totalling £1.7 million, is secured with a first charge over the property. The scheme benefits from a pre-let with a leading housing association and a rental void agreement with a large care provider. The development is expected to reach practical completion in the coming weeks.
Care Homes for the Elderly, the Wirral
During the year, a loan of £700,000 was advanced (through an affiliate, Victoria Lending Limited) to various entities within the Athena Healthcare group of companies. This loan, together with loans from other vehicles managed and advised by the Investment Manager totalling £14 million is supporting the stabilisation of two newly built 80-bed care homes in the Wirral, near Liverpool. Both care homes have been performing well and have not, to-date, had serious outbreaks of Covid-19.
Care Home for the Elderly, Cumbria
A loan of £1,311,000 was advanced to facilitate the development of a new 70-bed care home in Brampton, Cumbria. The loan was made through an affiliate, Marble Lending Limited and was advanced together with facilities from other vehicles managed and advised by the Investment Manager totalling £11.7 million. The developer has significant previous experience of developing and operating care homes and the loans are secured with a first charge over the site.
Puma Investment Management Limited
30 June 2021
Investment Portfolio Summary
As at 28 February 2021
Valuation | Cost | Gain/(loss) | Valuation as a % of Net Assets | |
£'000 | £'000 | £'000 | ||
Qualifying Investment - Unquoted | ||||
Growing Fingers Limited | 420 | 420 | - | 1% |
Kid & Play Limited | 1,694 | 1,694 | - | 6% |
Signal Building Services Limited | 194 | 200 | (6) | 1% |
Applebarn Nurseries Limited | 1,833 | 1,833 | - | 6% |
Hot Copper Pub Company Limited | 2,705 | 4,053 | (1,348) | 10% |
Sunlight Education Nucleus Limited | 3,650 | 2,350 | 1,300 | 13% |
Sweat Union Limited | - | 3,421 | (3,421) | 0% |
Pure Cremation Holdings Limited | 7,564 | 4,053 | 3,511 | 27% |
SA Fitness Holdings Limited ('NRG') | 1,429 | 1,417 | 12 | 5% |
TicTrac Limited | 3,735 | 2,145 | 1,590 | 13% |
Total Qualifying Investments | 23,224 | 21,586 | 1,638 | 82% |
Non-Qualifying Investments | ||||
Piccadilly Lending Limited | 11 | 11 | - | 0% |
Victoria Lending Limited | 317 | 317 | - | 1% |
Tottenham Lending Limited | 510 | 510 | - | 2% |
Marble Lending Limited | 1,450 | 1,450 | - | 5% |
Total Non-Qualifying investments | 2,288 | 2,288 | - | 8% |
Total Investments | 25,512 | 23,874 | 1,638 | 90% |
Balance of Portfolio | 2,865 | 2,865 | - | 10% |
Net Assets | 28,377 | 26,739 | 1,638 | 100% |
Of the investments held at 28 February 2021, all are incorporated in England and Wales.
Income Statement
For the year ended 28 February 2021
Year ended 28 February 2021 | Year ended 29 February 2020 | ||||||
Note | Revenue | Capital | Total | Revenue | Capital | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
Gain on investments | 8 (b) | - | 3,982 | 3,982 | - | 946 | 946 |
Income | 2 | 677 | - | 677 | 595 | - | 595 |
677 | 3,982 | 4,659 | 595 | 946 | 1,541 | ||
Investment management fees | 3 | (128) | (385) | (513) | (127) | (380) | (507) |
Other expenses | 4 | (250) | - | (250) | (270) | - | (270) |
(378) | (385) | (763) | (397) | (380) | (777) | ||
Profit before taxation | 299 | 3,597 | 3,896 | 198 | 566 | 764 | |
Taxation | 5 | (57) | 57 | - | (38) | 38 | - |
Profit and total comprehensive income for the year | 242 | 3,654 | 3,896 | 160 | 604 | 764 | |
Basic and diluted | |||||||
Return per Ordinary Share (pence) | 6 | 0.78p | 11.82p | 12.60p | 0.52p | 1.95p | 2.47p |
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 by the Association of Investment Companies.
Balance Sheet
As at 28 February 2021
Note | As at28 February 2021 | As at29 February 2020 | |
£'000 | £'000 | ||
Fixed Assets | |||
Investments | 8 (a) | 25,512 | 23,724 |
Current Assets | |||
Debtors | 9 | 2,866 | 2,752 |
Cash | 167 | 23 | |
3,033 | 2,775 | ||
Creditors - amounts falling due within one year |
10 | (168) | (163) |
Net Current Assets | 2,865 | 2,612 | |
Total Assets less Current Liabilities | 28,377 | 26,336 | |
Net Assets | 28,377 | 26,336 | |
Capital and Reserves | |||
Called up share capital | 12 | 19 | 19 |
Capital reserve - realised | (1,780) | (1,392) | |
Capital reserve - unrealised | 1,638 | (2,404) | |
Revenue reserve | 28,500 | 30,113 | |
Total Equity | 28,377 | 26,336 | |
Net Asset Value per Ordinary Share | 13 | 91.81p | 85.20p |
The financial statements on pages 39 to 54 were approved and authorised for issue by the Board of Directors on 30 June 2021 and were signed on their behalf by:
Ray Pierce
Chairman
Statement of Cash Flows
For the year ended 28 February 2021
Year ended 28 February 2021 | Year ended 29 February 2020 | ||
£'000 | £'000 | ||
Reconciliation of profit after tax to net cash used in operating activities | |||
Profit after tax | 3,896 | 764 | |
Gain on investments | (3,982) | (946) | |
Increase in debtors | (101) | (339) | |
Decrease in creditors | (8) | (3) | |
Net cash used in operating activities | (195) | (524) | |
Cash flow from investing activities | |||
Purchase of investments | (2,145) | (71) | |
Proceeds from disposal of investments and repayments of loans | 4,339 | 820 | |
Net cash generated from investing activities | 2,194 | 749 | |
Cash flow used in financing activities | |||
Dividends paid | (1,855) | (309) | |
Net cash used in financing activities | (1,855) | (309) | |
Net Increase/(decrease) in cash and cash equivalents | 144 | (84) | |
Cash and cash equivalents at the beginning of the year | 23 | 107 | |
Cash and cash equivalents at the end of the year | 167 | 23 |
Statement of Changes in Equity
For the year ended 28 February 2021
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 2019 | 19 | 29,833 | (1,050) | (3,350) | 429 | 25,881 |
Total comprehensive income for the year | - | - | (342) | 946 | 160 | 764 |
Dividends paid | (309) | (309) | ||||
Cancellation of share premium | - | (29,833) | - | - | 29,833 | - |
Balance as at 29 February 2020 | 19 | - | (1,392) | (2,404) | 30,113 | 26,336 |
Dividends paid | - | - | - | - | (1,855) | (1,855) |
Total comprehensive income for the year | - | - | (328) | 3,982 | 242 | 3,896 |
Transfer realised loss from prior period | - | - | (60) | 60 | - | - |
Balance as at 28 February 2021 | 19 | - | (1,780) | 1,638 | 28,500 | 28,377 |
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 £28,501,000 (2020: £30,113,000).
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.
The revenue reserve represents the cumulative revenue earned less cumulative distributions.
The Company cancelled its share premium account in October 2019.
1. Accounting Policies
Accounting convention
Puma VCT 12 plc ("the Company") was incorporated in England on 2 September 2015 and is registered and domiciled in England and Wales. The Company's registered number is 09758309. The registered office is Cassini House, 57 St James's Street, London SW1A 1LD. 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 October 2019 by the Association of Investment Companies ("the SORP").
Monetary amounts in these financial statements are rounded to the nearest whole £1,000, except where otherwise indicated.
Going concern
As set out in the Chairman's Statement on pages 1 and 2, due to the ongoing Covid-19 disruption, the Board have delayed convening a General Meeting of the Company at which resolutions would be proposed to place the Company into members' solvent liquidation. The Board continues to keep this matter under regular review and, as a result, a meeting may be convened during the period to 30 June 2022. If a meeting is convened, and if the resolution is approved, the Company would be placed into members' solvent liquidation.
The Directors have considered a period of 12 months from the date of this report for the purposes of determining the Company's going concern status which has been assessed in accordance with the guidance issued by the Financial Reporting Council. After making enquiries, including consideration of the ongoing impact of COVID-19 on the Company's current financial position and expected cash flows for the period of the review, the Directors believe that it is appropriate to continue to apply the going concern basis in preparing the financial statements. This is appropriate as the Company has access to cash reserves greater than the anticipated annual running costs of the Company.
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 19.
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 either the price of recent investment or cost 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 multiples or 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 investments are taken to unrealised capital reserves.
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 7,727,297 Ordinary Shares (as set out in note 11 to the financial statements) to the Investment Manager and members of the investment management team being 20% of the total issued Ordinary Share capital of 38,636,487. 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 have 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.
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, especially due to the ongoing impact of COVID-19. Further details of the unquoted investments are disclosed in the Investment Manager's Report on pages 3 to 9 and notes 8 and 14 to the financial statements.
2. Income
Year ended 28 February 2021 | Year ended 29 February 2020 | |
£'000 | £'000 | |
Income from investments | ||
Loan stock interest | 677 | 595 |
677 | 595 | |
Other income | ||
Bank deposit income | - | - |
677 | 595 |
3. Investment Management Fees
Year ended 28 February 2021 | Year ended 29 February 2020 | |
£'000 | £'000 | |
Puma Investments fees | 513 | 507 |
513 | 507 |
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 2.5% (2020: 2.6%) of the funds raised.
4. Other expenses
Year ended 28 February 2021 | Year ended 29 February 2020 | |
£'000 | £'000 | |
PI Administration Services Limited | 90 | 89 |
Directors' Remuneration | 57 | 57 |
Social security costs | 2 | 1 |
Auditor's remuneration for statutory audit | 32 | 27 |
Legal and professional fees | 53 | 56 |
Other expenses | 16 | 40 |
250 | 270 |
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 27. Directors' remuneration disclosed above has been grossed up, where applicable, to be inclusive of VAT. The Company had no employees (other than Directors) during the year (2020: none). The average number of non-executive Directors during the year was 3 (2020: 3).
The Auditor's remuneration of £26,250 (2020: £24,000) has been grossed up in the table above to be inclusive of VAT. Non-audit fees charged during the year were £nil (2020: £250 for iXBRL tagging of the 2019 financial statements).
5. Taxation
Year ended 28 February 2021 | Year ended 29 February 2020 | |
£'000 | £'000 | |
UK corporation tax charged to revenue reserve | (57) | (38) |
UK corporation tax credited to capital reserve | 57 | 38 |
UK corporation tax charge for the year | - | - |
Factors affecting tax charge for the year | ||
Profit before taxation | 3,896 | 764 |
Tax charge calculated on profit before taxation at the applicable rate of 19% | 740 | 145 |
Gains on investments | (757) | (180) |
Tax losses carried forward | 17 | 35 |
- | - | |
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. No deferred tax asset has been recognised in respect of the tax losses carried forward due to the uncertainty as to recovery.
6. Basic and diluted return/(loss) per Ordinary Share
Year ended 28 February 2021 | |||
Revenue | Capital | Total | |
Total comprehensive income for the year | £242,000 | £3,654,000 | £3,896,000 |
Weighted average number of shares in issue for the year | 38,636,487 | 38,636,487 | 38,636,487 |
Less: management incentive shares (see note 11) | (7,727,297) | (7,727,297) | (7,727,297) |
Weighted average number of shares for purposes of return per share calculations | 30,909,190 | 30,909,190 | 30,909,190 |
Return per share | 0.78p | 11.82p | 12.60p |
Year ended 29 February 2020 | |||
Revenue | Capital | Total | |
Total comprehensive income for the year | £160,000 | £604,000 | £764,000 |
Weighted average number of shares in issue for the year | 38,636,487 | 38,636,487 | 38,636,487 |
Less: management incentive shares (see note 11) | (7,727,297) | (7,727,297) | (7,727,297) |
Weighted average number of shares for purposes of return per share calculations | 30,909,190 | 30,909,190 | 30,909,190 |
Return per share | 0.52p | 1.95p | 2.47p |
7. Dividends
The Directors do not propose a final dividend in relation to the year ended 28 February 2021 (2020: £nil). During the year, two interim dividends of 3p per ordinary share were paid from revenue reserves in relation to the years ended 28 February 2020 and 2021 totalling £1,855,000 (2020: 1p final dividend paid in respect of the year ended 28 February 2019 totalling £309,000).
8. Investments
(a) Movements in investments | Qualifying investments | Non-qualifying investments | Total | |
£'000 | £'000 | £'000 | ||
Purchased at cost | 21,541 | 4,587 | 26,128 | |
Net unrealised loss | (2,404) | - | (2,404) | |
Valuation at 29 February 2020 | 19,137 | 4,587 | 23,724 | |
Purchases at cost | 2,145 | - | 2,145 | |
Disposal of investments and repayments of loans and loan notes | (2,040) | (2,299) | (4,339) | |
Net unrealised gain | 3,982 | - | 3,982 | |
Valuation at 28 February 2021 | 23,224 | 2,288 | 25,512 | |
Book cost at 28 February 2021 | 21,586 | 2,288 | 23,874 | |
Net unrealised gain at 28 February 2021 | 1,638 | - | 1,638 | |
Valuation at 28 February 2021 | 23,224 | 2,288 | 25,512 | |
(b) Gains on investments | ||||
Year ended 28 February 2021 | Year ended 29 February 2020 | |||
£'000 | £'000 | |||
Unrealised gains in year | 3,982 | 946 | ||
3,982 | 946 |
The Company's investments are revalued each year, so until they are sold any unrealised gains or losses are included in the fair value of the investments
(c) Quoted and unquoted investments | ||||
Market value as at 28 February 2021 | Market value as at 29 February 2020 | |||
£'000 | £'000 | |||
Unquoted investments | 25,512 | 23,724 | ||
25,512 | 23,724 |
Further details of these investments (including the unrealised gain in the year) are disclosed in the Chairman's Statement, Investment Manager's Report, Investment Portfolio Summary and Significant Investments on pages 1 to 17 of the Annual Report.
9. Debtors
As at 28 February 2021 | As at 29 February 2020 | |
£'000 | £'000 | |
Other debtors | 13 | 3 |
Accrued income | 2,853 | 2,749 |
2,866 | 2,752 |
10. Creditors - amounts falling due within one year
As at 28 February 2021 | As at 29 February 2020 | |
£'000 | £'000 | |
Accruals | 168 | 163 |
168 | 163 |
Redeemable preference shares were issued on 3 September 2015 for total consideration £12,500 to Puma Investment Management Limited, being one quarter paid up, so as to enable the Company to obtain a certificate under s.761 of the Companies Act 2006.
Each of the redeemable preference shares carries the right to a fixed, cumulative, preferential dividend of 0.1% per annum (exclusive of any imputed tax credit available to shareholders) on the nominal amount thereof but confers no right to vote except as otherwise agreed by the holders of a majority of the Shares. On a winding-up, the redeemable preference shares confer the right to be paid the nominal amount paid on such shares. The redeemable preference shares are redeemable at par at any time by the Company and by the holder. Each redeemable preference share which is redeemed, shall, thereafter be cancelled without further resolution or consent.
11. Management Performance Incentive Arrangement
On 3 September 2015, 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 7,727,297 ordinary shares being 20% of the issued share capital of 38,636,487.
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 total return per share to 28 February 2021 is 100.81p (2020: 88.20p), comprising net asset value per share of 91.81p (2020: 85.20p) and dividends paid to date of 9p (2020: 3p). As the total return only exceeds £1 per share by less than 1p, there is no share based payment charge in the accounts due to immateriality (2020: nil) and the management incentive shares are excluded from the calculations of earnings per share (note 6) and net asset per share (note 13).
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
As at 28 February 2021 | As at 29 February 2020 | As at 28 February 2021 | As at 29 February 2020 | |
£'000 | £'000 | Number of shares | Number of shares | |
Allotted, called up and fully paid: Ordinary shares of 0.05p each | 19 | 19 | 38,636,487 | 38,636,487 |
Allotted, called up and partly paid: Redeemable preference shares of £1 each | 13 | 13 | 50,000 | 50,000 |
13. Net Asset Value per Ordinary Share
As at28 February 2021 | As at29 February 2020 | |
Net assets | £28,377,000 | £26,336,000 |
Number of shares in issue | 38,636,487 | 38,636,487 |
Less: management incentive shares (see note 11) | (7,727,297) | (7,727,297) |
Number of shares in issue for purposes of Net | ||
Asset Value per share calculation | 30,909,190 | 30,909,190 |
Net asset value per share | ||
Basic and diluted | 91.81p | 85.20p |
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 2021:
As at 28 February 2021 | As at 29 February 2020 | |
£'000 | £'000 | |
Financial assets at fair value through profit or loss | 25,512 | 23,724 |
Financial assets that are debt instruments measured at amortised cost | 2,866 | 2,752 |
Financial liabilities measured at amortised cost | (168) | (163) |
28,210 | 26,313 |
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 Company's maximum exposure to credit risk is as follows:
As at 28 February 2021 | As at 29 February 2020 | |
£'000 | £'000 | |
Investments in loans, loan notes and bonds | 6,269 | 8,510 |
Cash at bank and in hand | 167 | 23 |
Interest, dividends and other receivables | 2,866 | 2,752 |
9,302 | 11,285 |
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 and loan notes 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 19. 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. 100% (2020: 100%) of the Company's investments are unquoted investments.
Liquidity risk
Details of the Company's unquoted investments are provided in the Investment Portfolio summary on page 10. By their nature, unquoted investments may not be readily realisable and 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 Directors' Report. The Company's overall liquidity risks are monitored on a quarterly basis by the Board. The Company maintains access to cash reserves sufficient 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 0.1% at 28 February 2021 (2020: 0.75%). 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 2021.
Rate status | Average interest rate | Period until maturity | Total | |
£'000 | ||||
Cash at bank - RBS | Floating | 0.01% | - | 167 |
Loans and loan notes | Fixed | 17.63% | 70 months | 4,866 |
Balance of assets | Non-interest bearing | - | 23,512 | |
28,545 | ||||
The following analysis sets out the interest rate risk of the Company's financial assets as at 29 February 2020.
Rate status | Average interest rate | Period until maturity | Total | |
£'000 | ||||
Cash at bank - RBS | Floating | 0.01% | - | 23 |
Loans and loan notes | Fixed | 11.88% | 26 months | 8,516 |
Balance of assets | Non-interest bearing | - | 17,960 | |
26,499 | ||||
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 than 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:-
2021 | 2020 | |
£'000 | £'000 | |
Level 3 | ||
Unquoted investments | 25,512 | 23,724 |
25,512 | 23,724 |
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 11 to 17.
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.
The Company must have an amount of capital, at least 80% (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.
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 (2020: none).
17. Controlling Party
In the opinion of the Directors there is no immediate or ultimate controlling party.
18. Post Balance Sheet Events
On 15 June 2021, the VCT realised its position in Pure Cremation Holdings Limited for the total proceeds of £8.3m.
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 2021, but has been extracted from the statutory financial statements for the year ended 28 February 2021 which were approved by the Board of Directors on 30 June 2021 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 year ended 29 February 2020 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 2021 will be available to the public at the registered office of the Company at Cassini House, 57 St James's Street, London, SW1A 1LD and will be available for download from www.pumainvestments.co.uk.