Unicorn Asset Management Regulatory News (UAV)

Unicorn AIM VCT plc ("The Company")

Half-Yearly Report Announcement for the six months ended 31 March 2017

Investment Objective

The Company's objective is to provide Shareholders with an attractive return from a diversified portfolio of investments, predominantly in the shares of AIM quoted companies, by maintaining a steady flow of dividend distributions to Shareholders from the income as well as capital gains generated by the portfolio.

It is also the objective that the Company should continue to qualify as a Venture Capital Trust, so that Shareholders benefit from the taxation advantages that this brings. To achieve this at least 70% of the Company's total assets are to be invested in qualifying investments of which 30% by VCT value (70% for funds raised after 6 April 2011) must be in ordinary shares carrying no preferential rights (save as permitted under VCT rules) to dividends or return of capital and no rights to redemption.

Venture Capital Trust Status

The Company has satisfied the requirements for approval as a Venture Capital Trust (VCT) under section 274 of the Income Tax Act 2007 (ITA). It is the Directors' intention to continue to conduct the business of the Company so as to maintain compliance with that section.

Financial Highlights

For the six months ended 31 March 2017

- £15 million Offer for Subscription fully subscribed.

- Total return of 8.08 pence per share.

- £12.6 million of investments made in the period.

Fund Performance

* Since the merger of the Company with Unicorn AIM VCT II plc on 9 March 2010 and merger of all former share classes.

Chairman's Statement

I am pleased to present the unaudited Half-Yearly Report (the "Report") of the Company for the six months ended 31 March 2017.

As at 31 March 2017, the net assets of the Company were £163.3 million, which represents an increase of £23.8 million compared with the end of the same period last year, and an increase of £15.6 million since the start of the current financial year. This growth in total net assets has arisen mainly as a result of a fully subscribed £15 million Offer for Subscription, which closed in February 2017.

During the period under review, the Company's unaudited Net Asset Value (NAV) per share increased from 160.5 to 162.4 pence. This represents a total return for the period of 5%, after taking into account the dividend of 6.25 pence per share for the financial year ended 30 September 2016 which was paid on 3 February 2017.  This dividend equated to a yield of 3.8% based on the period end NAV of 162.4 pence per share and is tax free to qualifying Shareholders.

The Company's performance compares to total returns of +14.3% from the FTSE AIM All-Share Index and +8.1% from the FTSE All-Share Index. Each of these indices contain meaningful exposure to the Oil & Gas and Mining Sectors, which performed very strongly in the period under review, and to which the Company has no exposure. 

Offer for Subscription

The £15 million Offer for Subscription which was opened on 19 January 2017 attracted significant support and swiftly became over-subscribed leading to closure to new investment on 3 February 2017.

On behalf of the Board, I would like to welcome all new Shareholders and thank existing Shareholders for their continued support.

Dividends

As announced in last year's Annual Financial Report, the Board has decided to move to twice yearly dividend payments and has therefore declared an interim dividend payment of 3.0 pence per share in relation to the six-month period ended 31 March 2017. The dividend will be paid on 11 August 2017, to Shareholders on the register as at 21 July 2017. The shares will be quoted ex-dividend on 20 July 2017.

As ever, future decisions regarding dividends remain subject to a number of factors including; market conditions, investment performance, and availability of cash and distributable reserves.

Qualifying Investments

A review of the ten most meaningful contributions to performance in absolute terms (both positive and negative) follows:-

Animalcare Group (+55.3%) is a leading supplier of generic veterinary medicines and animal identification products to companion animal veterinary markets. Animalcare delivered excellent interim results for the six-month period ended 31 December 2016. Revenues grew strongly in both the Licensed Veterinary Medicines division (+17.2% to £5.37m) and the Animal Welfare Products division (+13.3% to £1.51m), while overall, pre-tax profits increased by 20.8% to £1.85 million. As a consequence, the company's financial position continued to strengthen. Despite significantly increased investment in product development, the Group's net cash balance grew by 14.7% to £7.0 million (2015: £6.1 million). The interim dividend was increased by 11.1% to 2.0 pence per share (2015: 1.8 pence per share).

Anpario (+24.0%) is a specialist producer of natural feed additives that promote animal health, hygiene and good nutrition. For the financial year ended 31 December 2016, Anpario recorded a 10% rise in net profit to £3.4m (2015: £3.1m). This increase in profitability, was driven by a 4% increase in sales to £24.3 million (2015: £23.3 million) together with an improvement in gross margins. As a consequence, the proposed final dividend was increased by 10% to 5.5p per share (2015: 5.0p). At the calendar year end the company's net cash position had improved to £11.1 million (2015: £9.3 million)

Crawshaw Group (-37.3%) is a retailer of fresh meat and food-to-go. In April 2017, management released final results for the financial year ended 31 January 2017, which confirmed that trading performance had begun to improve following decisive action taken by management at the end of the first half of the year to address the price and range initiatives that were not resonating with customers. It is encouraging to note the sharp recovery in both sales and customer numbers throughout the second half of the year. Perhaps more importantly for the longer term success of the business, Crawshaw Group has recently entered into a potentially transformational partnership with the owners of 2 Sisters Food Group, one of Europe's largest meat and food processors. Subject to Crawshaw shareholder and Takeover Panel approvals, Ranjit Boparan, founder and owner of 2 Sisters has invested approximately £5.1m for a 29.9% stake in Crawshaw, together with warrants to acquire a further 20.1% of the Group. This transaction gives Crawshaw immediate access to increased volumes of fresh poultry and meats at attractive prices, while also providing surety of supply. In turn, this should result in Crawshaw customers benefitting from an expanded range of products at what are expected to be highly competitive prices. It is therefore anticipated that this transaction will drive significant value creation over the next few years.

Cohort (+38.9%) is the parent company of four businesses based in the UK and Portugal, providing a wide range of services and products for customers in the defence sector and related markets. Interim results for the six months ended 31 October 2016 saw operating profits increase by 11% to £3.9 million (2015: £3.5 million), on revenues that were essentially flat at £50.0 million (2015: £49.7 million). Order intake was healthy at £63.6 million, although this figure did include an acquired order book of £23.1 million (2015: £55.7 million). As a result, the closing order book at the half year end stood at £129.6 million (30 April 2016: £116.0 million). The interim dividend was increased by 16% to 2.20 pence per share (2015: 1.90 pence per share).

Directa Plus (-23.4%) is a producer and supplier of graphene-based materials for use in consumer and industrial markets. Apart from a number of announcements concerning new and existing customers the company has released no material newsflow in the period under review.

Instem (-42.5%) is a leading supplier of IT solutions and technology-enabled outsourced services to the global life sciences market. In its financial year ended 31 December 2016, Instem increased revenues by 12% to £18.3 million (2015: £16.3 million). Importantly, recurring revenues also increased strongly by 21% to £12.1 million (2015: £10.0 million). Adjusted profit before tax was lower than in the previous financial year at £0.7 million (2015: £1.7 million) due to a disappointing performance from Instem Clinical, one of the divisions within the Group. Actions have been taken to address the issues within this division, which principally revolve around a change in operational management. The net cash position on the balance sheet as at 31 December 2016 improved to £5 million (2015: £2.2 million), after a successful placing of new shares in February 2016.

MaxCyte (+217.6%) is a manufacturer of equipment designed to assist researchers in the rapidly emerging cell and gene therapy sector. The Company invested £1.5 million in MaxCyte as part of an initial public offering on the Alternative Investment Market in March 2016. In its maiden financial results as a listed company, MaxCyte recorded a 32% increase in revenues to $12.3 million ($9.3 million in 2015). Gross margins were stable at 89%, while planned investment in people and product development increased significantly resulting in an anticipated net loss of $3.3 million. As a consequence of the successful listing, total assets increased to $16.1 million at the end of 2016, compared to $6.4 million at the end of 2015. Following the period end, the Company has made a further £1.65 million VCT qualifying investment in MaxCyte as the business seeks to rapidly accelerate its product development activities in order to better meet market demand.

NCC Group (-62.1%) is an independent global cyber security and risk mitigation expert. Following two unexpected and disappointing profit warnings, the newly appointed Board of NCC undertook a strategic review. The review has highlighted significant issues that have negatively impacted on the performance of the Group's Assurance division. As a result, the Board has concluded that the Group's full year adjusted EBITDA will be approximately 20% below the £45.5m to £47.5m range, which it published in a trading update announcement released on 13 December 2016. In view of the deterioration in trading in the Assurance Division, the NCC Board is also conducting a comprehensive review of the Group's operating strategy. The Board expects to update the market no later than the Preliminary Results, due to be announced in July 2017. Despite this disappointing performance, the holding in NCC has been retained, since the Manager continues to believe that considerable value can, and should, be recovered in due course.

Tracsis (-18.2%) is a leading provider of software and technology led products and services for the traffic data and transportation industry. In interim results for the six months ended 31 January 2017, management reported revenue growth of 20% to £15.6 million (2016: £13.1 million), while adjusted pre-tax profits increased by 11% to £3.1million (2016: £2.8 million). The net cash balance at 31 January 2017 also improved to £12.7 million (31 January 2016: £8.0 million), while the proposed interim dividend was increased by 20% to 0.6p per share (2016: 0.5p). Despite these strong interim results the share price fell markedly in the period, principally because earnings were not as strong as had been originally forecast by the company's broker. This decline in expected profitability was due to additional investment needed to achieve significant operational improvements and future cost reductions in Tracsis' Traffic & Data division.

ULS Technology (+47.4%) is a provider of online 'business to business' platforms for the UK conveyancing and financial intermediary markets. For the six-month period ended 30 September 2016, ULS further increased its market share, resulting in increased revenue, profits and dividend payments. Revenues increased only slightly to £9.78 million (H1 2016: £9.76 million), while adjusted earnings per share improved by 5% to 2.40p (H1 2016: 2.28p). The business is inherently cash generative and as a result, net cash on the balance sheet increased significantly to £3.7 million (FY 2016: £2.7 million). The proposed interim dividend of 1.1p per share, represents an increase of 5% on the same period last year.

Non-Qualifying Investments

The performance of the non-qualifying investments was strong. In absolute terms, the net unrealised gain from the non-qualifying investments amounted to £1.6 million in the period under review. In share price terms, the most notable contributions to performance came from IQE (+100.0%), Communisis (+49.7%), Renold (+42.9%) and CareTech (+35.8%). The only disappointments were Hayward Tyler (-42.4%) and WYG (-17.6%). Both of these businesses issued profit warnings during the period that were related to delays in securing expected contracts. The holdings have been retained in anticipation of share price recovery in due course.

Investment Activity

The Investment Manager's cautious approach to investing in new VCT qualifying companies has been maintained. During the period under review, one new VCT qualifying investment was made:-

ECSC (+70.6%) is a provider of cyber security services. ECSC was established in 2000 and has been trading profitably ever since. The market need for cyber security services continues to grow rapidly and the founders, who are staying with the business, believe that now is the appropriate moment to seek to capture a significant market share. The net proceeds from the recent fundraising and AIM listing will therefore be deployed in a rapid expansion of the existing sales force. Clearly, it is too soon to judge the success of this strategy, but it is nonetheless pleasing to see the share price respond positively since the business listed on AIM in December 2016. The Company committed £2.55 million to this investment, which represents a 17.6% ownership stake in ECSC.

Totally (-6.6%) is a provider of a range of out-of-hospital services to the healthcare sector in the UK. A secondary, VCT qualifying, investment amounting to £0.5 million was made in Totally during the period, in order to help facilitate the next phase of the management team's acquisition strategy.

In aggregate, a total of £12.6 million was allocated to new investments during the period. Over £9 million of this was allocated to a small number of non-qualifying, short-term investments in large companies on the main list of the London Stock Exchange.

Material Transactions

Other than the Offer for Subscription and the purchase and sale of stocks described above, there were no material transactions in the six-month period ended 31 March 2017.

Outlook

The UK economy seems to be on a continuing, albeit modest, growth trend. Despite gloomy predictions as to the immediate negative consequences of the BREXIT vote, the impact appears to have been limited thus far. Indeed, it can be argued that the sharp decline in the value of Sterling in the immediate aftermath of the referendum has provided an unexpected fillip for many companies. Given the increasingly global reach of so many UK businesses, Sterling's fall has improved their competitiveness, while also providing a potentially significant boost to future earnings, once currency translation effects are taken into account.

Of course, Sterling's devaluation has also resulted in a sharp rise in the cost of imported goods, the effects of which are now being seen in a rapid rise in the rate of inflation, albeit from a low base. It is generally expected that this sharp increase in inflation will be one-off in nature, which is presumably why the Bank of England's Monetary Policy Committee appears content to keep interest rates unchanged for the foreseeable future.

Despite the new and more restrictive rules that now govern State Aided investments, I am pleased to note that our Investment Manager continues to find sufficient suitable and potentially rewarding VCT qualifying companies to invest in.

At the half year end, the Company comfortably met one of the key tests required for it to retain VCT status, whereby 70% of total assets must be held in VCT qualifying companies. At the period end, approximately 76% of total assets, valued in accordance with VCT rules, were invested in such companies.

The monies raised through the recent offer enable the Investment Manager to continue the long established and successful strategy of selectively developing the existing portfolio of investments, by providing much needed capital to emerging businesses. This in turn should create further employment opportunities and consequentially, additional tax revenues for HM Treasury.

The portfolio itself contains a diverse range of reasonably valued, well managed and, for the most part, profitable and cash generative businesses with strong leadership positions in specialist, growing markets.

Conclusion

Having delivered a total return of 5% for the six-month period ended 31 March 2017, the outlook for the second half of the financial year remains difficult to predict. The uncertainty surrounding Brexit negotiations and the turbulent economic and political environment; both domestically and internationally, suggest that equity markets could become increasingly volatile over the summer period. The majority of investee companies continue to trade well however, and they are generally in excellent operational and financial health, which bodes well for continued value creation over the longer term.

Peter Dicks

30 May 2017

In order to achieve the Company's Investment Objective, the Board has agreed an Investment Policy which requires the Investment Manager to identify and invest in a diversified portfolio, predominantly of VCT qualifying companies quoted on AIM that display a majority of the following characteristics:

➢ experienced and well-motivated management;

➢ products and services supplying growing markets;

➢ sound operational and financial controls; and

➢ good cash generation to finance ongoing development allied with a progressive dividend policy.

Asset allocation and risk diversification policies, including maximum exposures, are to an extent governed by prevailing VCT legislation. No single holding may represent more than 15% (by value) of the Company's total investments and cash, at the date of investment.

There are a number of VCT conditions which need to be met by the Company which may change from time to time. The Investment Manager will seek to make qualifying investments in accordance with such requirements.

Where capital is available for investment while awaiting suitable VCT qualifying opportunities, or is in excess of the 70% VCT qualification threshold, it may be invested in cash or invested in money market funds, collective investment vehicles or non-qualifying shares and securities of fully listed companies registered in the UK.

To date the Company has operated without recourse to borrowing. The Board may however consider the possibility of introducing modest levels of gearing up to a maximum of 10% of the adjusted capital and reserves, should circumstances suggest that such action is in the interests of Shareholders.

The Board has overall responsibility for the Company's affairs including the determination of its investment policy. Risk is spread by investing in a number of different businesses across different industry sectors. The Investment Manager is responsible for managing sector and stock specific risk and the Board does not impose formal limits in respect of such exposures. However, in order to maintain compliance with HMRC rules and to ensure that an appropriate spread of investment risk is achieved, the Board receives and reviews comprehensive reports from the Investment Manager and the Administrator on a monthly basis. When the Investment Manager proposes to make any investment in an unquoted company, the prior approval of the Board is required. The Board continues to take the need for transparency and independence seriously. When a conflict arises involving a relationship between any Director and an investee or proposed investee company that Director abstains from any discussion or consideration on any such investment by the Company.

The Administrator, ISCA Administration Services Limited, provides Company Secretarial and Accountancy services to the Company.

 *based on fair value not VCT carrying value

The important events that have occurred during the period under review and the key factors influencing the financial statements are set out in the Chairman's Statement above.

In accordance with DTR 4.2.7, the Directors consider that the principal risks and uncertainties facing the Company have not materially changed since the publication of the Annual Report and Accounts for the year ended 30 September 2016.

The principal risks faced by the Company include, but are not limited to:

• investment and strategic

• regulatory and tax

• operational

• fraud and dishonesty

• financial instruments

• economic

A more detailed explanation of these risks and the way in which they are managed can be found in the Strategic Report on page 10 and in the Notes to the Financial Statements on pages 58 to 60 of the 2016 Annual Report and Accounts - copies can be found via the Company's website, www.unicornaimvct.co.uk.

Directors' Statement of Responsibilities in Respect of the Financial Statements

In accordance with Disclosure and Transparency Rule (DTR) 4.2.10, Peter Dicks (Chairman), Charlotta Ginman, Jeremy Hamer (Chairman of the Audit Committee) and Jocelin Harris (Senior Independent Director), the Directors, confirm that to the best of their knowledge:

● the condensed set of financial statements, which have been prepared in accordance with FRS 104 "Interim Financial Reporting" give a true and fair view of the assets, liabilities, financial position and profit of the Company for the period ended 31 March 2017, as required by DTR 4.2.4;

● this Half-Yearly Report includes a fair review of the information required as follows;

● the interim management report included within the Chairman's Statement and Investment Portfolio Summary includes a fair review of the information required by DTR 4.2.7 being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties facing the Company for the remaining six months of the year; and

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

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

This Half-Yearly Report was approved by the Board of Directors on 30 May 2017 and the above responsibility statement was signed on its behalf by:

Peter Dicks

Chairman

30 May 2017

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

The total column of this statement is the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ("FRS"). The supplementary revenue return and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in November 2014 by the Association of Investment Companies ("AIC SORP").

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

The financial information for the six months ended 31 March 2017 and the six months ended 31 March 2016 has not been audited.

The financial information for the six months ended 31 March 2017 and the six months ended 31 March 2016 has not been audited.

The financial information for the six months ended 31 March 2017 and the six months ended 31 March 2016 has not been audited.

a) Principal accounting policies

In order to better reflect the activities of a VCT and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. The revenue column of profit attributable to Shareholders is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 274 Income Tax Act 2007.

All investments held by the Company are classified as "fair value through profit and loss", in accordance with the International Private Equity and Venture Capital Valuation ("IPEVCV") guidelines, as updated in December 2015. This classification is followed as the Company's business is to invest in financial assets with a view to profiting from their total return in the form of capital growth and income.

For investments actively traded on organised financial markets, fair value is generally determined by reference to Stock Exchange market quoted bid prices at the close of business on the balance sheet date. Purchases and sales of quoted investments are recognised on the trade date where a contract of sale exists whose terms require delivery within a time frame determined by the relevant market. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional.

Unquoted investments are stated at fair value by the Directors in accordance with the following rules, which are consistent with the IPEVCV guidelines and in accordance with FRS102.

All unquoted investments are held at the price of a recent investment for an appropriate period where there is considered to have been no change in fair value. Where such a basis is no longer considered appropriate, the following factors will be considered:

(i) Where a value is indicated by a material arms-length transaction by an independent third party in the shares of a company, this value will be used.

(ii) In the absence of i), and depending upon both the subsequent trading performance and investment structure of an investee company, the valuation basis will usually move to either:-

a) an earnings multiple basis. The shares may be valued by applying a suitable price-earnings ratio to that company's historic, current or forecast post-tax earnings before interest and amortisation (the ratio used being based on a comparable sector but the resulting value being adjusted to reflect points of difference identified by the Investment Manager compared to the sector including, inter alia, a lack of marketability).

or:

b) where a company's underperformance against plan indicates a diminution in the value of the investment, provision against cost is made, as appropriate. Where the value of an investment has fallen permanently below cost, the loss is treated as a permanent impairment and as a realised loss, even though the investment is still held. The Board assesses the portfolio for such investments and, after agreement with the Investment Manager, will agree the values that represent the extent to which an investment loss has become realised. This is based upon an assessment of objective evidence of that investment's future prospects, to determine whether there is potential for the investment to recover in value.

(iii) Redemption premiums on loan stock investments are accrued at fair value when the Company receives the right to the premium and when considered recoverable.

f) Short debtors and creditors 

2. Investment Management Fees

The Directors have charged 75% of the investment management fees to the capital reserve.

3. Taxation

Despite reporting a revenue profit, the total allowable expenses exceed income and there is no tax charge for the period.

4. Income

5. Basic and diluted earnings and return per share

6. Dividends

7. Investments at fair value

Transaction costs on the purchase and disposal of investments of £54,000 were incurred in the period. These are excluded from realised gains shown above of £171,000, but were included in arriving at losses on realisations of investments disclosed in the Income Statement of £117,000.

Reconciliation of cash movements in investment transactions

The difference between the purchases in Note 7 and that shown in the Cash Flow Statement is £11,000. This is the result of the reinvestment of income in the Unicorn Ethical Fund amounting to £11,000. There is no difference between disposals per Note 7 above and that shown in the Cash Flow Statement.

Fair value hierarchy

Paragraph 34.22 of FRS102 (early adoption) regarding financial instruments that are measured in the balance sheet at fair value requires disclosure of fair value measurements by level of the following fair value hierarchy:

Level 1 - valued using quoted prices in active markets for identical assets.

Level 2 - valuation by reference to valuation techniques using directly observable inputs other than quoted prices included within Level 1.

Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data.

The valuation techniques used by the Company are explained in the accounting policies in Note 1.

The majority of the Level 3 investments are held at cost or recent transaction price and the remaining Level 3 investments are insignificant therefore no assumptions are disclosed or sensitivity analysis provided.

The table below sets out the Company's fair value hierarchy investments as at 31 March 2017:

There have been no transfers during the period between Levels 1 and 2.

A reconciliation of fair value measurements in Level 3 is set out below:

8. Net asset values

9. Post Balance Sheet Events

On 7 April 2017 the Company purchased 170,000 shares for cancellation, representing approximately 0.17% of the issued share capital at a total cost of £237,000, representing 139.4 pence per share.

On 10 May 2017 the Company purchased 279,247 shares for cancellation, representing approximately 0.28% of the issued share capital at a total cost of £407,000, representing 145.7 pence per share.

10. Related party transactions

During the first six months of the financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company.

11. Copies of this statement are being sent to Shareholders.

Further copies are available free of charge from the Company Secretary, ISCA Administration Services Limited on 01392 487056, email: unicornaimvct@iscaadmin.co.uk, or from the Company's website: www.unicornaimvct.co.uk.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of this announcement.