TIDMBSC
RNS Number : 9877G
British Smaller Companies VCT2 Plc
20 March 2020
British Smaller Companies VCT2 plc
Annual Financial Report Announcement
for the year ended 31 December 2019
British Smaller Companies VCT2 plc (the "Company") today
announces its audited results for the year ended 31 December
2019.
HIGHLIGHTS
-- Total Return increased by 3.3 pence to 121.7 pence per
ordinary share, an increase of 5.5 per cent over opening net asset
value.
-- The underlying growth in the investment portfolio was GBP5.2
million, an increase of 13.6 per cent.
-- Successful prospectus offer raising GBP12.7 million. Shares were allotted in April 2019.
-- Seven new investments and five follow-on investments
totalling GBP11.4 million were completed during the year.
-- Realisations of investments and loan repayments generated
total proceeds of GBP7.1 million in the year, a gain of GBP2.9
million over the opening carrying value and GBP2.8 million over
cost.
-- Net asset value at 31 December 2019 of 55.2 pence per
ordinary share (2018: 59.9 pence per ordinary share).
-- Total dividends paid during the year ended 31 December 2019
of 8.0 pence per ordinary share (2018: 3.0 pence per ordinary
share).
-- There is no proposed final dividend in respect of the year
ended 31 December 2019, but the Board is declaring a first interim
dividend of 2.0 pence per ordinary share in respect of the year
ending 31 December 2020.
-- Total cumulative dividends paid since inception of 66.5 pence
per ordinary share at 31 December 2019 (2018: 58.5 pence per
ordinary share).
-- On 10 March 2020 the Company realised its investment in
Business Collaborator Limited for GBP5.1 million, compared to a
valuation of GBP3.5 million at 31 December 2019, which is a strong
uplift on the original cost of the holding of GBP1.3 million. The
process began in earnest in January 2020 and the buyer was able to
transact quickly, leading to completion in March.
CHAIRMAN'S STATEMENT
This is my first Chairman's statement since I took up the post
after Richard Last stepped down from the role on 7 May 2019.
I am pleased to report that your Company has made strong
progress during the year which has seen net overall valuation gains
across the portfolio as a whole delivering a 3.3 pence per ordinary
share increase in Total Return, which equates to 5.5 per cent of
the opening net asset value at 31 December 2018. Total Return is
now 121.7 pence per ordinary share.
Your Company's portfolio delivered a strong performance over the
year, generating a return of GBP5.19 million, 13.6 per cent over
its opening value, of which GBP2.87 million was realised and
GBP2.32 million unrealised. New and follow-on investments totalling
GBP11.41 million have also been completed.
Realisations in the Year
Realisations of investments and loan repayments generated total
proceeds of GBP7.08 million, a gain of GBP2.87 million over the
opening carrying value. This included the partial realisation of
the investment in Eikon in October 2019. The original investment of
GBP2.0 million was completed in March 2018; the Company received
capital proceeds of GBP4.21 million in October and December 2019
and income of GBP0.28 million over the life of the investment
delivering a realised total return to date from this investment of
GBP4.49 million, a multiple of 2.25x cost and a 62 per cent
Internal Rate of Return in just 21 months. The Company retains
GBP0.5 million in loan notes and a residual equity stake of 1 per
cent. The Company also realised the remainder of its quoted
portfolio during the year.
New Investments
This has been an active period for investments and during the
year your Company completed seven new investments in aggregate of
GBP10.05 million and five follow-on investments totalling GBP1.36
million. The new investments were :
Investment Sector
Elucidat E-learning software
Frescobol Carioca Luxury men's resort wear and lifestyle brand
Panintelligence Business intelligence and analytics software
SharpCloud Visualisation software
Tonkotsu Ramen restaurants
Unbiased Technology-enabled market-place connecting
consumers to professionals
Wooshii Disruptive video agency
------------------ ---------------------------------------------
Financial Results
The movement in Total Return(1) is set out in the table
below:
Pence per
Total Return(1) ordinary share
Cumulative dividends to 31 December 2018 58.5
NAV at 31 December 2018 59.9
----
Total Return at 1 January 2019 118.4
Net underlying increase in portfolio 4.0
Net income after expenses (0.5)
Issue/buy-back of shares (0.2)
-------------------------------------------------- -------- --------
Increase in Total Return 3.3
-------------------------------------------------- -------- --------
Total Return at 31 December 2019 121.7
-------------------------------------------------- -------- --------
1. Total Return is defined as an Alternative Performance
Measure.
During the year your Board paid a final dividend of 1.5 pence
per ordinary share in respect of the previous financial year ended
31 December 2018 and interim dividends of 6.5 pence per ordinary
share in respect of the year ended 31 December 2019, bringing the
cumulative dividends paid to 31 December 2019 to 66.5 pence per
ordinary share. The interim dividends included a special dividend
of 5.0 pence per ordinary share following three realisations that
all occurred in December 2018.
The movement in net asset value ("NAV") per ordinary share and
the dividends paid are set out in the table below:
Pence per ordinary GBP000
share
-----------------------------------------
NAV at 31 December 2018 59.9 64,054
Net underlying increase in portfolio 4.0 5,191
Net income after expenses (0.5) (655)
Issue/buy-back of new shares (0.2) 13,042
3.3 17,578
Dividends paid (8.0) (9,299)
---------- --------- -------- -------
(4.7) 8,279
NAV at 31 December 2019 55.2 72,333
Cumulative dividends paid 66.5
at 31 December
Total Return: 2019 121.7
at 31 December
2018 118.4
---------------------------------------- ---------- --------- -------- -------
The charts on page 12 of the annual report show in greater
detail the movement in Total Return and Net Asset Value over
time.
The investments held at the beginning of the financial year,
amounting to GBP38.10 million, delivered a return over the year of
GBP5.19 million, equivalent to an increase in value for
shareholders of 4.0 pence per ordinary share.
Within the current portfolio there were GBP5.70 million of
valuation gains offset by GBP3.38 million of downward movements.
There were strong performances from ACC Aviation Group Limited,
Matillion Limited, Business Collaborator Limited, Traveltek Group
Holdings Limited and RMS Group Holdings Limited, which in part were
offset by the performances of Arcus Global Limited, Frescobol
Carioca Ltd, Macro Art Holdings Limited and Deep-Secure Ltd.
The unquoted portfolio as at 31 December 2019 comprised GBP23.22
million (48 per cent of the total value) of investments made since
the VCT rule changes in 2015. As previously reported these
investments are generally in younger cash consumptive businesses,
where the return will derive almost entirely from capital rather
than income. As a consequence, this increased level of new
investments, coupled with exits from AIM and older investments, has
seen the Company's income fall to GBP1.08 million, compared to
GBP1.68 million in the previous financial year. Income is likely to
reduce further as the proportion of new investments continues to
grow and more of the investment return is derived from capital.
Dividends
Dividends paid in the year totalled 8.0 pence per ordinary
share. These comprised an interim dividend of 5.0 pence per
ordinary share for the year ended 31 December 2019, following the
exits from Gill Marine, Mangar and GTK, that occurred at the end of
the previous financial year, a final dividend of 1.5 pence per
ordinary share in respect of the year ended 31 December 2018 and a
second interim dividend of 1.5 pence per ordinary share for the
year ended 31 December 2019. Cumulative dividends paid as at 31
December 2019 are now 66.5 pence per ordinary share.
The Board is pleased to announce the payment on an interim
dividend for the year ending 31 December 2020 of 2.0 pence per
ordinary share. This will be paid on 12 May 2020 to shareholders on
the register at 14 April 2020. The ex-dividend date is 9 April
2020.
Dividend Re-investment Scheme ("DRIS")
Your Company operates a DRIS, which gives shareholders the
opportunity to re-invest any cash dividends and is open to all
shareholders, including those who invested under the recent offers.
The three advantages of the DRIS are:
1 the dividends remain tax free;
2 any DRIS investment attracts income tax relief at the rate of 30 per cent; and
3 the investment is made at a 5 per cent discount to the last reported net asset value.
For the financial year ended 31 December 2019 out of dividends
totalling GBP9.30 million, GBP2.02 million were re-invested in your
Company by way of the DRIS.
Fundraising
The new share offer launched on 28 November 2018 with British
Smaller Companies VCT plc closed on 11 February 2019 raising total
gross proceeds across both VCTs of GBP35 million. The related
allotment of 23,205,679 ordinary shares took place on 1 April 2019
following which your Company received net proceeds of GBP12.73
million.
Shareholder Relations
The electronic communications policy continues to be a great
success, with 84 per cent of shareholders now receiving
communications in this way. Documents such as the annual report are
published on the website www.bscfunds.com rather than by post,
saving on printing costs, as well as being more environmentally
friendly.
Your Company's website www.bscfunds.com is refreshed on a
regular basis and provides a comprehensive level of information in
what I hope is a user-friendly format.
In light of the developing situation regarding Covid-19, we have
postponed the Investor Workshop originally scheduled for 19 May
2020 until later in the year. We will, of course, issue a new
invitation to all shareholders at the appropriate time.
Board Composition
On 6 March 2019 Roger McDowell joined the Board and also took up
the role of Chairman of the Audit Committee, a post to which he
brings considerable experience.
Regulatory Developments
Following continuous dialogue with HMRC there is now much
greater clarification around the operation of the new VCT rules
introduced in 2015 and as a result the majority of investments are
now made on the basis of self-assuring their qualifying status
under the VCT rules, subject to the receipt of professional
advice.
This seems to have had a positive impact on investment levels,
with your Company investing over GBP10 million in new opportunities
in the year ended 31 December 2019.
Post Balance Sheet Events
On 10 March 2020 the Company realised its investment in Business
Collaborator Limited for GBP5.08 million, compared to a valuation
of GBP3.46 million at 31 December 2019, which is a strong uplift on
the original cost of the holding of GBP1.34 million. The process
began in earnest in January 2020 and the buyer was able to transact
quickly, leading to completion in March.
Outlook
Although the General Election result has removed some domestic
political uncertainty there is still some way to go before the UK's
ongoing trading relationships with the world are agreed. The
companies in the portfolio continue to prepare to either mitigate
any impact of, or exploit any opportunities that may arise from,
the UK's new position in the world.
Over recent weeks the spread of the Covid-19 virus to the UK has
increased the overall impact on UK based businesses; whilst
initially principally impacting supply chains and certain overseas
customers the spread of the virus, and the response to it, is
beginning to impact behaviours and movement of people. Some sectors
have a greater exposure to these impacts, particularly travel,
hospitality and leisure. These impacts, whilst likely to be short
term, do mean that there might be increased cash needs in the
period. In general, our objectives are to ensure that the
investments are appropriately funded and we continue with this
approach. In addition to the Government's recently announced broad
range of initiatives to support SME's, your Company is very well
positioned to be able to provide any additional funding should it
be required. Notwithstanding that, we are working closely with all
the businesses to address their short and medium term needs and
also to take advantage of opportunities as they arise.
This past year has seen an increased level of new investment and
lead indicators for 2020 suggest demand for growth capital remains
healthy, albeit there may be a delay in conversion of the pipeline
as a result of the impact of the Covid-19 virus. Your Company
remains in a strong position to continue building out its
portfolio.
The Board wishes to thank existing and new shareholders for
making a success of the joint fundraising early in 2019 with
British Smaller Companies VCT plc which has given your Company the
resources to continue building the portfolio and deliver
shareholder value.
Peter Waller
Chairman
OBJECTIVES AND KEY POLICIES
The Company's objective is to maximise Total Return and provide
investors with an attractive long-term tax free dividend yield
whilst maintaining the Company's status as a venture capital
trust.
Investment Policy
The investment strategy of the Company is to invest in UK
businesses across a broad range of sectors that blends a mix of
businesses operating in established and emerging industries that
offer opportunities in the application and development of
innovation in their products and services.
These investments will all meet the definition of a Qualifying
Investment and be primarily in unquoted UK companies. It is
anticipated that the majority of these businesses will be
re-investing their profits for growth and the investments will,
therefore, comprise mainly equity investments.
The Company seeks to build a diversified portfolio in order to
reduce concentration as well as ensuring compliance with the VCT
guidelines in this regard.
Borrowing
The Company funds the investment programmes out of its own
resources and has no borrowing facilities for this purpose.
Co-investment
British Smaller Companies VCT2 plc and British Smaller Companies
VCT plc ("the VCTs") have in aggregate first choice of all
investment opportunities meeting the VCT qualifying criteria that
require up to GBP4.5 million of equity. Amounts above GBP4.5
million will be allocated one third to YFM's co-investment funds
and two thirds to the VCTs. Where there are opportunities for the
VCTs to co-invest with each other the basis for allocation is 40
per cent to the Company and 60 per cent to British Smaller
Companies VCT plc. The Board of the Company has discretion as to
whether or not to take up or, where British Smaller Companies VCT
plc does not take its allocation, increase its allocation in such
co-investment opportunities.
Asset Mix
Pending investment in VCT-qualifying securities, surplus cash is
primarily held in interest bearing instant access, and short-notice
bank accounts. Subsequent to the Finance (No. 2) Act 2015
investments can no longer be made in non-qualifying quoted
investments traded on an unregulated exchange. This change
therefore now excludes most AIM investments in this category.
Remuneration Policy
The Company's policy on the remuneration of its directors, all
of whom being non-executive directors, can be found on page 49 of
the annual report.
Other Key Policies
Details of the Company's policies on the payment of dividends,
the DRIS and the buy-back of shares are given on page 1 of the
annual report. In addition to these the Company's anti-bribery and
environmental and social responsibilities policies can be found on
page 37 of the annual report.
PROCESSES AND OPERATIONS
The Board approves all investment and divestment decisions save
in that new investments up to GBP250,000 in companies whose
securities are traded on a regulated stock exchange and where the
decision is required urgently, in which case the Chairman of the
Board of Directors, if appropriate, may act in consultation with
the Investment Adviser.
The Board regularly monitors the performance of the portfolio
and the investment requirements set by the relevant VCT
legislation. Reports are received from the Investment Adviser
regarding the trading and financial position of each investee
company and senior members of the Investment Adviser regularly
attend the Company's Board meetings. Monitoring reports are also
received at each Board meeting on compliance with VCT regulations
so that the Board can monitor that the Venture Capital Trust status
of the Company is maintained and take corrective action if
appropriate. Monitoring reports carrying out an independent review
of this compliance are received twice a year.
The Board reviews the terms of YFM Private Equity Limited's
appointment as Investment Adviser on a regular basis.
YFM Private Equity Limited has performed investment advisory,
administrative and secretarial services for the Company since its
inception on 28 November 2000. The principal terms of the agreement
under which these services are performed are set out in note 3 to
the financial statements.
Performance Incentive
The Investment Adviser will receive an amount equivalent to 20
per cent of the amount by which the cumulative dividends per
ordinary share paid as at the last business day in December in any
year, plus the average of the middle market price per ordinary
share on the five dealing days prior to that day, exceeds 120 pence
per ordinary share, multiplied by the number of ordinary shares
issued and the ordinary shares under option (if any) (the
"Hurdle"). Under the terms of the Subscription Rights Agreement,
once the Hurdle has been exceeded it is reset at that value going
forward, which becomes the new Hurdle. Any subsequent exercise of
these rights will only occur once the new Hurdle has been exceeded.
The subscription rights are exercisable in the ratio 95:5 between
the Investment Adviser and Chord Capital Limited. Further details
are given in note 3 to the financial statements.
In the opinion of the directors the continuing appointment of
YFM Private Equity Limited as Investment Adviser is in the
interests of the shareholders as a whole in view of its experience
in advising venture capital trusts and in making, managing and
exiting investments of the kind falling within the Company's
investment policies.
KEY PERFORMANCE INDICATORS
Total Return , calculated by reference to the cumulative
dividends paid plus net asset value (excluding tax reliefs received
by shareholders), is the primary measure of performance in the VCT
industry.
Total Return
The chart on page 12 of the annual report shows how the Total
Return of your Company has developed over the last ten years.
The evaluation of comparative success of the Company's Total
Return is by way of reference to the Share Price Total Return for
approximately 46 generalist VCTs as published by the Association of
Investment Companies ("the AIC"). This is the Company's stated
benchmark index. A comparison and explanation of the calculation of
this return is shown in the Directors' Remuneration Report on page
51 of the annual report.
Total Return with DRIS
The chart on page 12 of the annual report illustrates the Total
Return (excluding tax reliefs received by shareholders) for
investors who subscribed to the first fundraising in 2000/01 who
have re-invested their dividends.
Shareholder Returns
Total Return is defined as an Alternative Performance Measure
and the Board considers it to be the primary measure of shareholder
value. The table below shows the cumulative dividends, the Total
Return on each fundraising round per ordinary share and the IRR if
a shareholder had not opted to participate in the Company's DRIS.
The cumulative dividend, total return and IRR figures in this table
exclude the benefits of all tax reliefs.
Year of issue NAV at Cumulative Total Offer IRR(3)
31 December2019 dividends Return price
paid since to date(1) (2)
fundraising
Pence Pence Pence Pence %
----------------- ------------- ------------ ------- -------
2001 55.2 66.5 121.7 100.0 1.4%
2002 55.2 66.5 121.7 100.0 1.5%
2010 55.2 44.5 99.7 77.3 3.5%
2011 55.2 40.5 95.7 70.3 4.7%
2012 55.2 36.5 91.7 70.5 4.4%
2013 55.2 32.0 87.2 68.0 4.7%
2014 55.2 27.5 82.7 68.0 4.2%
2015 55.2 23.0 78.2 65.0 4.7%
2016 55.2 18.5 73.7 63.0 4.6%
2017 55.2 14.0 69.2 62.2 4.0%
2018 55.2 11.0 66.2 59.4 6.5%
----------------- ------------- ------------ ------- -------
Notes
(1) Total Return to date is cumulative dividends paid plus the
31 December 2019 net asset value in pence per ordinary share.
(2) The offer price for the relevant year excluding the benefit
of income tax relief available to investors at the time of the
offer.
(3) IRR is the unaudited annual rate of return that equates the
offer price at the date of the original investment, with the value
of subsequent dividends plus the 31 December 2019 net asset value
per ordinary share. This excludes the benefit of any initial tax
relief.
Expenses
Ongoing Charges
The Ongoing Charges figure, as calculated in line with the AIC
recommended methodology, is an Alternative Performance Measure used
by the Board to monitor expenses. This figure shows shareholders
the costs of the recurring operational expenses expressed as a
percentage of the average net asset value. Whilst based on
historical information this provides an indication of the likely
level of costs that will be incurred in managing the Company in the
future.
Year to 31 December Year to 31
2019 December
2018 (%)
(%)
Ongoing Charges figure 2.30 2.49
Expenses Cap
The total costs incurred by the Company in the year (excluding
any performance related fees, trail commission payable to financial
intermediaries and VAT) is capped at 2.9 per cent of the total net
asset value as at the relevant year end. The treatment of costs in
excess of the cap is described in note 3 of the financial
statements. There was no breach of the expenses cap in the current
or prior year .
Compliance with VCT Legislative Tests
The main business risk facing the Company is the retention of
VCT qualifying status. The Board receives regular reports on
compliance with the VCT legislative tests from its Investment
Adviser. In addition the Board receives formal reports from its VCT
Status Adviser twice a year. The Board can confirm that during the
period all of the VCT legislative tests have been met.
Under Chapter 3 Part 6 of the Income Tax Act 2007, in addition
to the requirement for a VCT's ordinary share capital to be listed
in the Official List on a European regulated market throughout the
period, there are a further five specific tests that VCTs must meet
following the initial three year provisional period.
Income Test
The Company's income in the period must be derived wholly or
mainly (70 per cent) from shares or securities.
Retained Income Test
The Company must not retain more than 15 per cent of its income
from shares and securities.
Qualifying Holdings Test
At least 70 per cent by value of the Company's investments must
be represented throughout the period by shares or securities
comprised in Qualifying Holdings of investee companies. (80 per
cent for accounting periods commencing after 5 April 2019).
For shares issued in accounting periods beginning on or after 6
April 2018, at least 30 per cent of those share issues must be
invested in Qualifying Holdings of investee companies by the
anniversary of the accounting period in which those shares are
issued.
Eligible Shares Test
At least 70 per cent of the Company's Qualifying Holdings must
be represented throughout the period by holdings of
non-preferential shares.
Investments made before 6 April 2018 from funds raised before 6
April 2011 are excluded from this requirement.
At least 10 per cent of the Company's total investment in each
Qualifying Investment must be in eligible shares.
In addition, monies are not permitted to be used to finance
buy-outs or otherwise to acquire existing businesses or shares.
There is also an annual limit for each investee company which
provides that they may not raise more than GBP5 million of state
aid investment (including from VCTs) in the 12 months ending on the
date of each investment (GBP10 million for Knowledge Intensive
Companies).
Maximum Single Investment Test
The value of any one investment has, at any time in the period,
not represented more than 15 per cent of the Company's total
investment value. This is calculated at the time of investment and
further additions and therefore cannot be breached passively.
The Board can confirm that during the period all of the VCT
legislative tests set out above have been met, where required.
Further restrictions placed on VCTs are:
Dividends from cancelled share premium
The Finance Act 2014 introduced a restriction with respect to
the use of monies in respect of VCTs. In particular, no dividends
can be paid out of cancelled share premium arising from shares
allotted on or after 6 April 2014 until at least three full
financial years have elapsed from the date of allotment.
Cancelled share premium of GBP7.24 million remains
undistributable until on or after 1 January 2020.
Other
The Finance (No. 2) Act 2015 imposes further conditions in
respect of investments, including those regarded as non-qualifying
investments, including:
i) an aggregate limit of GBP12 million (or GBP20 million for
Knowledge Intensive Companies) on the amount of State Aid Risk
Finance investment a business can receive during its lifetime;
and
ii) no more than seven years can have elapsed since the first
commercial sale achieved by the business (ten years in the case of
a Knowledge Intensive Company), unless:
a. the business has previously received an investment from a
source that has received state aid; or
b. the investment comprises more than 50 per cent of the average
of the previous five years' turnover and the funds are to be used
in the business to fund growth into new product markets and/or new
geographies.
Wherever possible the Company self-assures that an investment is
a qualifying investment, subject to the receipt of professional
advice.
Investment Performance
Portfolio Structure
The charts on page 15 of the annual report illustrate the broad
range of the investment portfolio with 42 per cent of the portfolio
valuation being held for more than five years, whilst 74 per cent
is held at cost or above.
Portfolio Diversity
Also included in the charts on page 16 of the annual report is a
profile of the investment portfolio by investments made before and
after the VCT rule changes in 2015, and the breakdown by industry
sector. 37 per cent of the portfolio's valuation is held in loans
and preference shares although loans now account for only 9 per
cent of the value.
INVESTMENT REVIEW
The portfolio delivered a strong performance in the year, with a
return of GBP5.19 million on the opening value and income of
GBP1.08 million.
Your Residual Portfolio
GBP47.9 million Fair value of the (2018: GBP38.1
portfolio million)
Number of portfolio
companies with value
of more than GBP0.5
23 million (2018: 19)
---------------------- ---------------
GBP1.1 million Income from the (2018: GBP1.7
portfolio million)
---------------------- ---------------
GBP11.4 million Level of investment (2018: GBP5.6
million)
---------------------- ---------------
GBP5.2 million Return from portfolio (2018: GBP4.5
million)
---------------------- ---------------
The portfolio as a whole delivered a return of GBP5.19 million
in the year, as shown in Table A below. A value gain of GBP2.32
million has come from the portfolio with strong performances from
ACC Aviation Group Limited and Matillion Limited offset by the
impact of difficult trading conditions at Frescobol Carioca Ltd and
Arcus Global Limited. A gain of GBP2.87 million arose from the
realisation of investments in the year, including GBP2.63 million
from the partial realisation of Eikon Holdco Limited.
Table A
Investment portfolio GBPmillion %
----------------------------------------------- ----------- ----
Gain in fair value 2.32 45
Gain on disposal over opening value including
deferred proceeds 2.87 55
----------- ----
Total value movement 5.19 100
----------- ----
At 31 December 2019 the investment portfolio was valued at
GBP47.91 million, representing 66.2 per cent of net assets (59.5
per cent at 31 December 2018). 2019 saw your Company raise funds of
GBP12.73m; nonetheless, following a strong year of investment the
level of cash as a proportion of net assets has reduced. Cash at 31
December 2019 of GBP23.93 million represented 33.1 per cent of net
assets (39.2 per cent at 31 December 2018).
Other Significant Investment Movements
Investments
During the year ended 31 December 2019 the Company completed 12
investments totalling GBP11.41 million. This comprised seven new
investments of GBP10.05 million and five follow-on investments of
GBP1.36 million. The analysis of these investments is sh own in
Table B . The case study on page 23 of the annual report gives more
information on the investment in Tonkotsu Limited.
Table B
Date Company Investments made GBPmillion
New Follow-on Total
------------ ---------------------------------- -------- ------------- -------
Mar-19 Frescobol Carioca Ltd 1.20 - 1.20
Mar-19 Biz2Mobile Limited - 0.11 0.11
Mar/Oct-19 Ncam Technologies Limited - 0.36 0.36
Mar-19 Immunobiology Limited - 0.07 0.07
May-19 Elucidat Ltd 1.40 - 1.40
May-19 Wooshii Limited 1.44 - 1.44
May-19 Arcus Global Limited - 0.75 0.75
Jun-19 Tonkotsu Limited 1.59 - 1.59
Oct-19 SharpCloud Software Limited 1.46 - 1.46
Panintelligence (via Paninsight
Nov-19 Limited) 1.00 - 1.00
Dec-19 Unbiased EC1 Limited 1.96 - 1.96
Mar/Dec-19 Traveltek Group Holdings Limited - 0.07 0.07
------------ -------- -------
Invested in the year 10.05 1.36 11.41
----------------------------------------------- -------- ------------- -------
Capitalised income 0.06
----------------------------------------------- -------- ------------- -------
Total additions in the year 11.47
----------------------------------------------- -------- ------------- -------
The total of GBP11.41 million of investment is more than double
that of the previous year (GBP5.65 million) demonstrating a strong
demand for investment. It is also pleasing to see that there is a
healthy pipeline of enquiries so far this year.
Disposal of Investments
During the year to 31 December 2019 the Company received
proceeds from disposals, repayments of loans/preference shares and
deferred consideration of GBP7.08 million. This included the very
successful partial realisation of Eikon which produced capital
proceeds of GBP4.21 million against realised cost of GBP1.50
million, delivering a realised gain of GBP2.71 million of which
GBP2.63 million was recognised in the year. The investment in Eikon
was held at a valuation of GBP2.01 million at the beginning of the
financial year and GBP2.34 million in June 2019 prior to the offer
for your Company's investment. This was increased at September 2019
to GBP4.33 million once exclusivity was achieved. Total proceeds
received plus the residual loan notes total GBP4.99 million.
The total value gain on disposal of investments was GBP2.87
million above the 31 December 2018 valuations as set out in Table
C. The case study on page 22 of the annual report gives some
insight into the value created from the investment in Eikon Holdco
Limited.
Table C
Disposal of Investments Net proceeds Opening value Gain on opening
from sales 31 December value
of investments 2018
GBPmillion GBPmillion GBPmillion
Unquoted investments 5.61 2.90 2.71
Quoted investments 1.22 1.08 0.14
---------------- -------------- ----------------
Sale of portfolio investments 6.83 3.98 2.85
Deferred proceeds received 0.25 0.23 0.02
---------------- -------------- ----------------
Total investment disposals 7.08 4.21 2.87
---------------- -------------- ----------------
The quoted portfolio delivered proceeds of GBP1.22 million with
a profit on cost of GBP0.47 million.
Further analysis of all investments sold in the year can be
found in note 7 below.
Portfolio Composition
As at 31 December 2019 the portfolio had a value of GBP47.91
million comprising wholly of unquoted investments, with the quoted
portfolio having been realised in full during the year. An analysis
of the movements in the year is shown in note 7 below.
The portfolio remains well diversified, with 23 of 31
investments having a value greater than GBP0.5 million, compared to
19 a year earlier, with the single largest investment representing
9.1 per cent of the net asset value.
The charts on pages 15 and 16 of the annual report show the
composition of the portfolio as at 31 December 2019 by industry
sector, age of investment, investment instrument and the valuation
compared to cost. This demonstrates representation across a wide
range of industry sectors.
Valuation Policy
Unquoted investments are valued in accordance with the valuation
policy set out in note 1, which takes account of current industry
guidelines for the valuation of venture capital portfolios. The
December 2018 update to the IPEVC Guidelines discourages the use of
cost or price of a recent investment as a primary basis for
valuation. As a result our policy is to use the recent round basis
for the first quarter date immediately following the round, but
then switch to a new primary basis for all subsequent periods. This
change has in fact had little impact on the portfolio's valuation
as we have calibrated the valuation basis used to the recent
investment round. We would only expect significant adjustments to
recent investment values where an investment is significantly
under- or over-performing. As at 31 December 2019 the value of
investments falling into each valuation category is shown in Table
D.
With continued investment in younger businesses that are
investing for growth a higher proportion of valuations are based on
a multiple of sales
Table D 2019 2018
Valuation Policy Valuation % of portfolio % of portfolio
GBPmillion by value by value
Sales multiple 20.51 43 29
Earnings multiple 20.07 42 52
Cost or price of recent investment,
reviewed for change in fair value 5.07 10 10
Net assets, reviewed for change in
fair value 2.26 5 6
Quoted investments at bid price - - 3
------------------------------------- ------------ --------------- ---------------
Total 47.91 100 100
------------------------------------- ------------ --------------- ---------------
Regulatory Changes
As noted by the Chairman above, the VCT industry is now more
comfortable working within HMRC's guidelines on applying the 2015
VCT rule changes and the use of self-assurance, subject to
professional advice, seems to have had an impact on the level of
investment across the sector.
Impact
The Company's aim is to invest in smaller UK businesses to help
them grow with the primary objective of delivering strong financial
returns. However, your Company and the Investment Adviser are
increasingly mindful of the impact, both positive and negative,
that our activities and those of the businesses in the portfolio
have not just on the environment, but also their employees,
communities and society at large.
The Company believes that its investment activities have many
positive benefits beyond the returns we deliver for shareholders.
In the vast majority of cases the investments in the Company's
portfolio help fund growth, create new employment, develop new
technologies and products, improve productivity, help grow UK
exports and lead to increased tax revenues, all of which contribute
to the UK economy and have benefit to those employed in those
businesses and their supply chains.
However, as a responsible investor, your Company has been
seeking to do more in this area and to this end during the
financial year your Company has been looking at ways in which it
can improve the impact of our activities and help our portfolio
companies do the same.
This has resulted in your Company along with the Investment
Adviser introducing the following:
-- an assessment of the positive and negative impact the
portfolio companies invested in have on the environment, people and
society is now carried out pre-investment during the investment
appraisal process; and
-- a structured framework to regularly assess the positive and
negative impacts that the portfolio has on the environment, people
and society. The Investment Adviser is committed to pro-actively
working with portfolio companies on an ongoing basis to put Impact
on their agenda and help improve their performance in these areas,
through the introduction of specific initiatives and sharing of
best practice across the portfolio.
This approach has only recently been implemented, but it has
already resulted in many of our portfolio companies committing to
projects or to making changes to their businesses to improve their
Impact in a variety of areas. Examples of some of these activities
include:
-- commitments to monitor and reduce energy usage and transportation;
-- projects to reduce raw material usage or re-design products
to make them more environmentally sustainable;
-- projects to reduce waste and encourage re-use and recycling;
-- encouragement of charitable activities and volunteering
across their organisations and partnering with charities;
-- initiatives to work with local schools and other educational
establishments to help mentor and provide work experience and
career guidance to students;
-- initiatives to improve staff welfare such as addressing
mental health in the workplace, increase staff engagement, and
enhance staff pay and conditions; and
-- investment in staff training and development.
Summary and Outlook
Your Company completed the successful part realisation of its
investment in Eikon in the year after a short holding period and
further disposals are expected in 2020. Investment levels were the
highest since the new rules came into force and there is a strong
pipeline of new opportunities.
There have been further additions to the Investment Adviser's
team across the UK and additional resource is joining this
year.
David Hall
YFM Private Equity Limited
PORTFOLIO SUMMARY AT 31 DECEMBER 2019
Name of company Date Location Industry Current Valuation Proceeds Realised
of initial Sector cost at 31 to date &
investment December unrealised
2019 value
to date*
GBP000 GBP000 GBP000 GBP000
Unquoted portfolio
ACC Aviation Business
Group Limited Nov-14 Reigate Services 145 6,606 1,233 7,839
Software,
IT &
Matillion Limited Nov-16 Manchester Telecommunications 1,778 6,491 - 6,491
Software,
Business Collaborator IT &
Limited Nov-14 Reading Telecommunications 1,340 3,458 - 3,458
Intelligent Office
UK (IO Outsourcing
Limited t/a Intelligent Business
Office) May-14 Alloa Services 1,956 3,205 - 3,205
Software,
KeTech Enterprises IT &
Limited Nov-15 Nottingham Telecommunications 1,500 2,486 500 2,986
Investment companies Apr-15 - - 2,500 2,264 - 2,264
Unbiased EC1 Business
Limited Dec-19 London Services 1,964 1,964 - 1,964
Springboard Research Milton Business
Holdings Limited Oct-14 Keynes Services 1,883 1,747 - 1,747
Retail &
Tonkotsu Limited Jun-19 London Brands 1,592 1,728 - 1,728
Software,
IT &
Deep-Secure Ltd Dec-09 Malvern Telecommunications 500 1,558 - 1,558
Business
Elucidat Ltd May-19 Brighton Services 1,400 1,524 - 1,524
Software,
SharpCloud Software IT &
Limited Oct-19 London Telecommunications 1,460 1,460 - 1,460
Business
Wooshii Limited May-19 London Services 1,440 1,459 - 1,459
Software,
Arcus Global IT &
Limited May-18 Cambridge Telecommunications 1,950 1,249 - 1,249
Software,
Ncam Technologies IT &
Limited Mar-18 London Telecommunications 1,341 1,196 - 1,196
Sipsynergy (via Software,
Hosted Network IT &
Services Limited) Jun-16 Hampshire Telecommunications 1,309 1,134 - 1,134
Retail &
Friska Limited Jul-17 Bristol Brands 1,200 1,082 - 1,082
Software,
Traveltek Group IT &
Holdings Limited Oct-16 East Kilbride Telecommunications 1,163 1,068 - 1,068
Panintelligence Software,
(via Paninsight IT &
Limited) Nov-19 Leeds Telecommunications 1,000 1,000 - 1,000
DisplayPlan Holdings Business
Limited Jan-12 Baldock Services 70 800 820 1,620
Software,
IT &
Biz2Mobile Limited Oct-16 Oxfordshire Telecommunications 1,105 774 - 774
Wakefield Acoustics
(via Malvar Engineering Manufacturing
Limited) Dec-14 Heckmondwike & Industrial 720 648 41 689
RMS Group Holdings Manufacturing
Limited Jul-07 Hull & Industrial 70 611 349 960
Frescobol Carioca Retail &
Ltd Mar-19 London Brands 1,200 594 - 594
Software,
Eikon Holdco IT &
Limited Mar-18 London Telecommunications 500 500 4,209 4,709
Other investments
below GBP0.5
million 6,909 1,307 1,350 2,657
Total unquoted investments 37,995 47,913 8,502 56,415
--------------------------------------- ----------------------------------- -------- ---------- --------- -----------
Full disposals
to date 33,359 - 45,434 45,434
----------------------------------------------------------------------------- -------- ---------- --------- -----------
Total investment portfolio 71,354 47,913 53,936 101,849
--------------------------------------- ----------------------------------- -------- ---------- --------- -----------
* represents proceeds received to date plus the unrealised
valuation at 31 December 2019.
SUMMARY OF INVESTMENT PORTFOLIO MOVEMENT SINCE 31 DECEMBER
2018
Name of Company Investment Disposal Additions Valuation Investment
valuation proceeds including gains valuation
at 31 capitalised including at 31 December
December interest, profits 2019
2018 dividends / (losses)
and proceeds on disposal
GBP000 GBP000 GBP000 GBP000 GBP000
Unquoted portfolio
ACC Aviation Group Limited 5,248 - - 1,358 6,606
Business Collaborator Limited 2,284 - - 1,174 3,458
Intelligent Office UK (IO
Outsourcing Limited t/a Intelligent
Office) 2,992 - - 213 3,205
KeTech Enterprises Limited 2,329 - - 157 2,486
Investment Companies 2,309 - - (45) 2,264
Springboard Research Holdings
Limited 1,674 - 59 14 1,747
Deep-Secure Ltd 2,028 - - (470) 1,558
Displayplan Holdings Limited 563 - - 237 800
Wakefield Acoustics (via
Malvar Engineering Limited) 770 - - (122) 648
RMS Group Holdings Limited 305 - - 306 611
Macro Art Holdings Limited 682 - - (497) 185
Leengate Holdings Limited 1,240 (1,291) - 51 -
Other investments below GBP0.5
million 1,738 (114) 67 (569) 1,122
----------- ---------- -------------- ------------- ----------------
Investments made prior to
November 2015 24,162 (1,405) 126 1,807 24,690
----------- ---------- -------------- ------------- ----------------
Matillion Limited 5,180 - - 1,311 6,491
Unbiased EC1 Limited - - 1,964 - 1,964
Tonkotsu Limited - - 1,592 136 1,728
Elucidat Limited - - 1,400 124 1,524
SharpCloud Software Limited - - 1,460 - 1,460
Wooshii Limited - - 1,440 19 1,459
Arcus Global Limited 1,200 - 750 (701) 1,249
Ncam Technologies Limited 733 - 364 99 1,196
Sipsynergy (via Hosted Network
Services Ltd) 1,091 - - 43 1,134
Friska Limited 1,208 - - (126) 1,082
Traveltek Group Holdings
Limited 591 - 71 406 1,068
Panintelligence (via Paninsight
Limited) - - 1,000 - 1,000
Biz2Mobile Limited 624 - 105 45 774
Frescobol Carioca Ltd - - 1,200 (606) 594
Eikon Holdco Limited 2,080 (4,209) - 2,629 500
Other investments below GBP0.5
million 150 - - (150) -
Investments made after November
2015 12,857 (4,209) 11,346 3,229 23,223
Total unquoted investments 37,019 (5,614) 11,472 5,036 47,913
----------- ---------- -------------- ------------- ----------------
Quoted portfolio
Quoted investments GBP0.5
million and below 1,083 (1,221) - 138 -
----------- ---------- -------------- ------------- ----------------
Total quoted investments 1,083 (1,221) - 138 -
----------- ---------- -------------- ------------- ----------------
Total 38,102 (6,835) 11,472 5,174 47,913
----------- ---------- -------------- ------------- ----------------
RISK FACTORS
The Board carries out a regular and robust review of the risk
environment in which the Company operates. The emerging and
principal risks and uncertainties identified by the Board and
techniques used to mitigate these risks are set out in this
section.
The Board seeks to mitigate its emerging and principal risks by
setting policy, regularly reviewing performance and monitoring
progress and compliance. In the mitigation and management of these
risks, the Board applies rigorously the principles detailed in
section 4: "Audit, Risk & Internal Control" of The UK Corporate
Governance Code issued by the Financial Reporting Council in July
2018. Details of the Company's internal controls are contained in
the Corporate Governance Internal Control section on pages 47 and
48 of the annual report and further information on exposure to
risks including those associated with financial instruments is
given in note 16a of the financial statements.
Loss of Approval as a VCT
Risk - The Company must comply with Chapter 3 Part 6 of the
Income Tax Act 2007 which allows it to be exempted from corporation
tax on capital gains. Any breach of these rules may lead to the
Company losing its approval as a VCT, qualifying shareholders who
have not held their shares for the designated holding period having
to repay the income tax relief they obtained and future dividends
paid by the Company becoming subject to tax. The Company would also
lose its exemption from corporation tax on capital gains.
Mitigation - One of the Key Performance Indicators monitored by
the Company is the compliance with legislative tests. Details of
how the Company manages these requirements can be found under the
heading "Compliance with VCT Legislative Tests" in the section on
Key Performance Indicators.
Economic
Risk - Events such as recession and interest rate fluctuations
could affect investee companies' performance and valuations.
Mitigation - As well as the response to 'Investment and
Strategic' risk below the Company has a clear investment policy
(summarised in the section on Objectives and Key Policies) and a
diversified portfolio operating in a range of sectors. The
Investment Adviser actively monitors investee performance which
provides quality information for monthly reviews of the portfolio.
The investment Adviser ensures that the portfolio has plans to
mitigate the impact of economic risk.
Investment and Strategic
Risk - Inappropriate strategy, poor asset allocation or
consistently weak stock allocation may lead to under performance
and poor returns to shareholders. The quality of enquiries,
investments, investee company management teams and monitoring, and
the risk of not identifying investee under performance might also
lead to under performance and poor returns to shareholders.
Mitigation - The Board reviews strategy annually. At each of the
Board meetings the directors review the appropriateness of the
Company's objectives and stated strategy in response to changes in
the operating environment and peer group activity. The Investment
Adviser carries out due diligence on potential investee companies
and their management teams and utilises external reports where
appropriate to assess the viability of investee businesses before
investing. Wherever possible a non-executive director will be
appointed to the board of the investee on behalf of the
Company.
Regulatory
Risk - The Company is required to comply with the Companies Act
2006, the rules of the UK Listing Authority, the Prospectus Rules
made by the Financial Conduct Authority and International Financial
Reporting Standards as adopted by the European Union and is subject
to the EU's Alternative Investment Fund Manager's Directive. Breach
of any of these might lead to suspension of the Company's Stock
Exchange listing, financial penalties or a qualified audit
report.
Mitigation - The Investment Adviser and the Company Secretary
have procedures in place to ensure recurring Listing Rules
requirements are met and actively consult with brokers, solicitors
and external compliance advisers as appropriate. The key controls
around regulatory compliance are explained on pages 47 and 48 of
the annual report.
Reputational
Risk - Inadequate or failed controls might result in breaches of
regulations or loss of shareholder trust.
Mitigation - The Board is comprised of directors with suitable
experience and qualifications who report annually to the
shareholders on their independence. The Investment Adviser is
well-respected with a proven track record and has a formal
recruitment process to employ experienced investment staff.
Allocation rules relating to co-investments with other funds
managed/advised by the Investment Adviser, have been agreed between
the Investment Adviser and the Company. Advice is sought from
external advisors where required. Both the Company and the
Investment Adviser maintain appropriate insurances.
Operational
Risk - Failure of the Investment Adviser's and administrator's
accounting systems or disruption to its business might lead to an
inability to provide accurate reporting and monitoring.
Mitigation - The Investment Adviser has a documented business
continuity plan, which provides for back-up services in the event
of a system breakdown. The Investment Adviser's systems are
protected against viruses and other cyber-attacks.
Financial
Risk - Inadequate controls might lead to misappropriation of
assets. Inappropriate accounting policies might lead to
misreporting or breaches of regulations.
Mitigation - The key controls around financial reporting are
described on pages 47 and 48 of the annual report.
Market/Liquidity
Risk - Lack of liquidity in both the venture capital and public
markets. Investment in unquoted and AIM quoted companies, by their
nature, involve a higher degree of risk than investment in
companies trading on the main market. In particular, smaller
companies often have limited product lines, markets or financial
resources and may be dependent for their management on a smaller
number of key individuals. The fact that a share is traded on AIM
or on the main market does not guarantee its liquidity. The spread
between the buying and selling price of such shares may be wide and
thus the price used for valuation may not be achievable. In
addition, the market for stock in smaller companies is often less
liquid than that for stock in larger companies, bringing with it
potential difficulties in acquiring, valuing and disposing of such
stock.
Mitigation - Overall liquidity risks are monitored on an ongoing
basis by the Investment Adviser and on a quarterly basis by the
Board.
OTHER MATTERS
Section 172 statement
This section sets out your Company's Section 172 Statement and
should be read in conjunction with the other contents of the
Strategic Report on pages 6 to 37 of the annual report.
Section 172 of the Companies Act 2006 requires a director to
promote the success of the company. In doing this they must act in
the way that they consider, in good faith, would be most likely to
promote the success of the company for the benefit of its members
as a whole, and in doing so have regard (amongst other matters)
to:
-- the likely consequences of any decision in the long term;
-- the interests of the company's employees;
-- the need to foster the company's business relationships with
suppliers, customers and others;
-- the impact of the company's operations on the community and the environment;
-- the desirability of the company maintaining a reputation for
high standards of business conduct; and
-- the need to act fairly as between members of the company.
The Company takes a number of steps to understand the views of
investors and other key stakeholders and considers these, along
with the matters set out above, in Board discussions and decision
making.
Key stakeholders
Investors
The Board engages and communicates with shareholders by various
means. The Company encourages shareholders to attend its Annual
General Meeting and, along with British Smaller Companies VCT plc,
holds an annual Investor Workshop, which is attended by around 200
shareholders. Additionally, the Investment Adviser carries out
regular shareholder surveys.
The directors' decisions are intended to achieve the Company's
objective to maximise Total Return and provide investors with an
attractive long-term tax-free dividend yield. Maintaining the
Company's status as a VCT is a critical element of this, especially
as investors are required to hold any newly-acquired shares for at
least five years in order to retain their initial tax relief.
At the start of the year the Board agreed a revised Investment
Adviser fee which pays one per cent per annum on surplus cash. On 1
April 2019, as set out under the heading "Fundraising" in the
Chairman's Statement, the Company raised a substantial amount of
new funds and in the light of this the Board have decided there was
no need for a further fundraising in the 2019/20 tax year. During
the year the Board decided to maintain its existing arrangements
for dividends, share buy-backs and the dividend re-investment
scheme.
Investment Adviser
The Company's most important business relationship is with the
Investment Adviser. There is regular contact with the Investment
Adviser and members of the Investment Adviser's board attend all of
the Company's Board meetings. There is also an annual strategy
meeting with the Investment Adviser and British Smaller Companies
VCT plc.
As noted above a revised Investment Adviser fee was agreed with
the Investment Adviser. In return for this as set out in note 3 of
the financial statements the Subscription Rights Agreement relating
to the incentive fee was revised such that the recipients can elect
to receive the incentive in cash or shares.
Portfolio Companies
The Company holds minority investments in its portfolio
companies and it has appointed the Investment Adviser to manage the
portfolio. While the Board has little direct contact with the
portfolio the Investment Adviser provides updates on the entire
portfolio at least quarterly.
There were seven additions to the portfolio and further support
was also provided to the existing portfolio through a number of
follow-on investments. The Company also completed the exit of its
AIM portfolio and there were two major disposals in the year;
Leengate Holdings Limited and Eikon Holdco Limited. Leengate had
been held since 2013 and was purchased by its management team. An
unsolicited offer was received for Eikon and, while the intention
had been to hold the investment for longer, it was felt that the
opportunity to make a partial realisation, while retaining an
interest in the business, was the best outcome for all
stakeholders.
Employees
The Company has no employees. Following the appointment of Mr R
S McDowell as a non-executive director on 6 March 2019 the Board
was composed of four male non-executive directors, though this
reduced to the previous level of three following the retirement of
Mr R Last at the 2019 Annual General Meeting. For a review of the
policies used when appointing directors to the Board of the Company
please refer to the Directors' Remuneration Report on page 49 of
the annual report.
Environment and Community
The Company seeks to ensure that its business is conducted in a
manner that is responsible to the environment. The management and
administration of the Company is undertaken by the Investment
Adviser, YFM Private Equity Limited who recognises the importance
of its environmental responsibilities, monitors its impact on the
environment and implements policies to reduce any damage that might
be caused by its activities. Initiatives of the Investment Adviser
designed to minimise its and the Company's impact on the
environment include recycling and reducing energy consumption.
More details of the work that the Investment Adviser has done in
this area are set out above and at
www.yfmep.com/who-we-are/our_impact/ .
Business Conduct
The Company has a zero tolerance approach to bribery. The
following is a summary of its policy:
-- it i s the Company's policy to conduct all of its business in
an honest and ethical manner. The Company is committed to acting
professionally, fairly and with integrity in all its business
dealings and relationships;
-- the directors of the Company, the Investment Adviser and any
other service providers must not promise, offer, give, request,
agree to receive or accept financial or other advantage in return
for favourable treatment, to influence a business outcome or gain
any business advantage on behalf of the Company or encourage others
to do so;
-- the Company has communicated its anti-bribery policy to the
Investment Adviser and its other service providers and, in turn,
the Investment Adviser ensures that portfolio companies implement
appropriate policies of their own; and
-- the Investment Adviser has its own Anti-Bribery and
Anti-Slavery policies and ensures that portfolio companies adopt a
similar policy.
The Strategic Report on pages 6 to 37 of the annual report is
approved by order of the Board.
DIRECTORS' RESPONSIBILITIES STATEMENT
The directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare the financial
statements for each financial year. Under that law the directors
are required to prepare the financial statements and have elected
to prepare the Company's financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. Under company law the directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and of the profit or loss for the Company for that
period.
In preparing these financial statements, the directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with
IFRSs as adopted by the European Union, subject to any material
departures disclosed and explained in the financial statements;
and
-- prepare a strategic report, directors' report and directors'
remuneration report which comply with the requirements of the
Companies Act 2006.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Website Publication
The directors are responsible for ensuring the annual report and
the financial statements are made available on a website. Financial
statements are published on the Company's website at
www.bscfunds.com in accordance with legislation in the United
Kingdom governing the preparation and dissemination of financial
statements, which may vary from legislation in other jurisdictions.
The maintenance and integrity of the Company's website is the
responsibility of the directors. The directors' responsibility also
extends to the ongoing integrity of the financial statements
contained therein.
Directors' Responsibilities pursuant to DTR4
The directors confirm to the best of their knowledge:
-- the financial statements have been prepared in accordance
with IFRSs as adopted by the European Union and give a true and
fair view of the assets, liabilities, financial position and profit
and loss of the Company; and
-- the annual report includes a fair review of the development
and performance of the business and the financial position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
Having taken advice from the Audit Committee, the Board
considers the annual report and accounts, taken as a whole, are
fair, balanced and understandable and that it provides the
information necessary for shareholders to assess the Company's
performance, business model and strategy.
The names and functions of all the directors are stated in note
13 and further biographical details are given on page 38 of the
annual report.
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2019
2019 2018
Notes
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain on disposal of investments 7 - 2,868 2,868 - 3,103 3,103
Gains on investments held
at fair value 7 - 2,323 2,323 - 1,376 1,376
--------------------------------- ------ ---------- ---------- --------- ---------- ---------- ---------
Gain arising from the
portfolio - 5,191 5,191 - 4,479 4,479
Income 2 1,076 - 1,076 1,610 74 1,684
Total income 1,076 5,191 6,267 1,610 4,553 6,163
Administrative expenses:
---------- ---------- --------- ---------- ---------- ---------
Investment Adviser's
fee (297) (892) (1,189) (306) (917) (1,223)
Other expenses (542) - (542) (486) - (486)
---------- ---------- --------- ---------- ---------- ---------
3 (839) (892) (1,731) (792) (917) (1,709)
Profit before taxation 237 4,299 4,536 818 3,636 4,454
Taxation 4 - - - (57) 57 -
Profit for the year 237 4,299 4,536 761 3,693 4,454
--------------------------------- ------ ---------- ---------- --------- ---------- ---------- ---------
Total comprehensive income
for the year 237 4,299 4,536 761 3,693 4,454
--------------------------------- ------ ---------- ---------- --------- ---------- ---------- ---------
Basic and diluted earnings
per ordinary share 6 0.19p 3.41p 3.60p 0.71p 3.46p 4.17p
--------------------------------- ------ ---------- ---------- --------- ---------- ---------- ---------
The accompanying notes on pages 65 to 90 of the annual report
are an integral part of these financial statements.
The Total column of this statement represents the Company's
Statement of Comprehensive Income, prepared in accordance with
International Financial Reporting Standards ('IFRSs') as adopted by
the European Union. The supplementary Revenue and Capital columns
are prepared under the Statement of Recommended Practice 'Financial
Statements of Investment Trust Companies and Venture Capital
Trusts' (issued in October 2019 - "SORP") published by the AIC.
BALANCE SHEET
At 31 December 2019
Assets Notes 2019 2018
GBP000 GBP000
Non-current assets at fair value through
profit or loss
Financial assets at fair value through
profit or loss 7 47,913 38,102
Accrued income and other assets 488 467
--------------------------------------------- ------ -------- --------
48,401 38,569
Current assets
Accrued income and other assets 166 552
Cash on fixed term deposit 1,988 1,988
Cash and cash equivalents 21,944 23,115
24,098 25,655
Liabilities
Current liabilities
Trade and other payables (166) (170)
Net current assets 23,932 25,485
Net assets 72,333 64,054
--------------------------------------------- ------ -------- --------
Shareholders' equity
Share capital 14,041 11,318
Share premium account 16,436 4,351
Capital redemption reserve 88 88
Other reserves 2 2
Merger reserve 5,525 5,525
Capital reserve 25,223 33,694
Investment holding gains and losses reserve 7 9,948 7,335
Revenue reserve 1,070 1,741
Total shareholders' equity 72,333 64,054
--------------------------------------------- ------ -------- --------
Net asset value per ordinary share 8 55.2p 59.9p
--------------------------------------------- ------ -------- --------
The accompanying notes on pages 65 to 90 of the annual report
are an integral part of these financial statements.
The financial statements were approved and authorised for issue
by the Board of Directors and were signed on its behalf on 20 March
2020.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2019
Share Investment
Share premium Other Capital holding Revenue Total
capital account reserves* reserve gains reserve equity
and
losses
reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ ---------- ---------- ------------ ---------- ------------- ---------- ---------
Balance at 31 December
2017 10,450 257 5,615 32,198 9,090 1,446 59,056
------------------------ ---------- ---------- ------------ ---------- ------------- ---------- ---------
Revenue return
for the year - - - - - 818 818
Capital return - - - (843) - - (843)
Investment holding
gain on investments
held at fair value - - - - 1,376 - 1,376
Realisation of
investments in
the year - - - 3,103 - - 3,103
Taxation - - - 57 - (57) -
------------------------ ---------- ---------- ------------ ---------- ------------- ---------- ---------
Total comprehensive
income for the
year - - - 2,317 1,376 761 4,454
------------------------ ---------- ---------- ------------ ---------- ------------- ---------- ---------
Issue of share
capital 737 3,663 - - - - 4,400
Issue costs ** - (156) - (6) - - (162)
Unclaimed dividends - - - 7 - - 7
Purchase of own
shares - - - (1,194) - - (1,194)
Issue of shares
- DRIS 131 587 - - - - 718
Dividends - - - (2,759) - (466) (3,225)
Total transactions
with owners 868 4,094 - (3,952) - (466) 544
Realisation of
prior year investment
holding gains - - - 3,131 (3,131) - -
------------------------ ---------- ---------- ------------ ---------- ------------- ---------- ---------
Balance at 31 December
2018 11,318 4,351 5,615 33,694 7,335 1,741 64,054
------------------------ ---------- ---------- ------------ ---------- ------------- ---------- ---------
Revenue return
for the year - - - - - 237 237
Capital return - - - (892) - - (892)
Investment holding
gain on investments
held at fair value - - - - 2,323 - 2,323
Realisation of
investments in
the year - - - 2,868 - - 2,868
Total comprehensive
income for the
year - - - 1,976 2,323 237 4,536
------------------------ ---------- ---------- ------------ ---------- ------------- ---------- ---------
Issue of share
capital 2,320 10,960 - - - - 13,280
Issue costs ** - (496) (135) - - (631)
Purchase of own
shares - - - (1,631) - - (1,631)
Issue of shares
- DRIS 403 1,621 - - - - 2,024
Dividends - - - (8,391) - (908) (9,299)
Total transactions
with owners 2,723 12,085 - (10,157) - (908) 3,743
Realisation of
prior year investment
holding losses - - - (290) 290 - -
------------------------ ---------- ---------- ------------ ---------- ------------- ---------- ---------
Balance at 31 December
2019 14,041 16,436 5,615 25,223 9,948 1,070 72,333
------------------------ ---------- ---------- ------------ ---------- ------------- ---------- ---------
The accompanying notes on pages 65 to 90 of the annual report
are an integral part of these financial statements.
Reserves available for distribution
Under the Companies Act 2006 the capital reserve and the revenue
reserve are distributable reserves. The table below shows amounts
that are available for distribution.
Capital Revenue Total
reserve reserve equity
GBP000 GBP000 GBP000
Distributable reserves as shown on previous
page 25,223 1,070 26,293
--------------------------------------------------------- ---------- ---------- ---------
Less : income not yet distributable - (881) (881)
: cancelled share premium not yet distributable (7,242) - (7,242)
--------------------------------------------------------- ---------- ---------- ---------
Reserves available for distribution*** 17,981 189 18,170
--------------------------------------------------------- ---------- ---------- ---------
* Other reserves include the capital redemption reserve, the
merger reserve and the other reserve, which are non-distributable.
The other reserve was created upon the exercise of warrants, the
capital redemption reserve was created for the purchase and
cancellation of own shares, and the merger reserve was created on
the merger with British Smaller Technologies Company VCT plc.
** Issue costs include both fundraising costs and costs incurred from the Company's DRIS.
*** Subject to filing these financial statements at Companies House, see table below.
The merger reserve was created to account for the difference
between the nominal and fair value of shares issued as
consideration for the acquisition of the assets and liabilities of
British Smaller Technology Companies VCT plc. The reserve was
created after meeting the criteria under section 131 of the
Companies Act 1985 and the provisions of the Companies Act 2006 for
merger relief. The merger reserve is a non-distributable
reserve.
The capital reserve and revenue reserve are both distributable
reserves. The reserves total GBP26,293,000 representing an decrease
of GBP9,142,000 during the year. The directors also take into
account the level of the investment holding gains and losses
reserve and the future requirements of the Company when determining
the level of dividend payments.
Of the potentially distributable reserves of GBP26,293,000 shown
above, GBP881,000 relates to income not yet distributable and
GBP7,242,000 to cancelled share premium which becomes distributable
from 1 January 2020 onwards (see below).
Total share premium previously cancelled is available for
distribution from the following dates.
GBP000
1 January 2020 - now distributable 3,565
1 January 2021 3,677
Cancelled share premium not yet distributable 7,242
----------------------------------------------- -------
STATEMENT OF CASH FLOWS
For the year ended 31 December 2019
Notes 2019 2018
GBP000 GBP000
Net cash (outflow) inflow from operating activities (582) 222
------------------------------------------------------ ------ --------- --------
Cash flows (used in) from investing activities
Purchase of financial assets at fair value
through profit or loss 7 (11,413) (5,647)
Proceeds from sale of financial assets at fair
value through profit or loss 7 6,835 12,224
Deferred consideration 7 246 189
Net cash (outflow) inflow from investing activities (4,332) 6,766
------------------------------------------------------ ------ --------- --------
Cash flows from financing activities
Issue of ordinary shares 13,280 4,379
Costs of ordinary share issues* (631) (141)
Purchase of own ordinary shares (1,631) (1,194)
Dividends paid 5 (7,275) (2,598)
Net cash inflow from financing activities 3,743 446
------------------------------------------------------ ------ --------- --------
Net (decrease) increase in cash and cash equivalents (1,171) 7,434
Cash and cash equivalents at the beginning
of the year 23,115 15,681
Cash and cash equivalents at the end of the
year 21,944 23,115
------------------------------------------------------ ------ --------- --------
*Issue costs include both fundraising costs and expenses
incurred from the Company's DRIS.
Reconciliation of Profit before Taxation to Net Cash (Outflow)
Inflow from Operating Activities
2019 2018
GBP000 GBP000
Profit before taxation 4,536 4,454
(Decrease) increase in trade and other payables (4) 14
Decrease in accrued income and other assets 136 366
Gain on disposal of investments (2,868) (3,103)
Gains on investments held at fair value (2,323) (1,376)
Capitalised income (59) (133)
------------------------------------------------------ -------- --------
Net cash (outflow) inflow from operating activities (582) 222
------------------------------------------------------ -------- --------
The accompanying notes on pages 65 to 90 of the annual report
are an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
1. Principal Accounting Policies
Basis of Preparation
The accounts have been prepared on a going concern basis and in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and those parts of the Companies
Act 2006 applicable to companies reporting under IFRS.
The financial statements have been prepared under the historical
cost basis as modified by the measurement of investments at fair
value through profit or loss.
The accounts have been prepared in compliance with the
recommendations set out in the Statement of Recommended Practice
'Financial Statements of Investment Trust Companies and Venture
Capital Trusts' issued by the Association of Investment Companies
(issued in October 2019 - "SORP") to the extent that they do not
conflict with IFRSs as adopted by the European Union.
The financial statements are prepared in accordance with IFRSs
and interpretations in force at the reporting date. New standards
coming into force during the year have not had a material impact on
these financial statements.
The Company has carried out an assessment of accounting
standards, amendments and interpretations that have been issued by
the IASB and that are effective for the current reporting period.
The Company has determined that the transitional effects of the
standards do not have a material impact. In particular as the
Company does not have any leases there is no impact from the
adoption of IFRS 16.
The financial statements are presented in sterling and all
values are rounded to the nearest thousand (GBP000), except where
stated.
Financial Assets held at Fair Value through Profit or Loss -
Investments
Financial assets designated as at fair value through profit or
loss ("FVPL") at inception are those that are managed and whose
performance is evaluated on a fair value basis, in accordance with
the documented investment strategy of the Company. Information
about these financial assets is provided internally on a fair value
basis to the Company's key management. The Company's investment
strategy is to invest cash resources in venture capital investments
as part of the Company's long-term capital growth strategy.
Consequently, all investments are classified as held at fair value
through profit or loss.
All investments are measured at fair value on the whole unit of
account basis with gains and losses arising from changes in fair
value being included in the Statement of Comprehensive Income as
gains or losses on investments held at fair value.
Transaction costs on purchases are expensed immediately through
profit or loss.
Redemption premiums are designed to protect the value of the
Company's investment. These are accrued daily on an effective rate
basis and included within the capital valuation of the investment
(and thus classified under "Gains on investments held at fair
value" in the Statement of Comprehensive Income).
Although the Company holds more than 20 per cent of the equity
of certain companies, it is considered that the investments are
held as part of the investment portfolio, and their value to the
Company lies in their marketable value as part of that portfolio.
These investments are therefore not accounted for using equity
accounting, as permitted by IAS 28 'Investments in associates' and
IFRS 11 'Joint arrangements' which give exemptions from equity
accounting for venture capital organisations.
Under IFRS 10 "Consolidated Financial Statements", control is
presumed to exist when the Company has power over an investee
(whether or not used in practice); exposure or rights; to variable
returns from that investee, and ability to use that power to affect
the reporting entities returns from the investees. The Company does
not hold more than 50 per cent of the equity of any of the
companies within the portfolio. The Company does not control any of
the companies held as part of the investment portfolio. It is not
considered that any of the holdings represent investments in
subsidiary undertakings.
Valuation of Investments
Unquoted investments are valued in accordance with IFRS 13 "Fair
Value Measurement" and, using the International Private Equity and
Venture Capital (IPEVC) Valuation Guidelines ("the Guidelines")
updated in December 2018. Quoted investments are valued at market
bid prices. A detailed explanation of the valuation policies of the
Company is included below.
Initial Measurement
The best estimate of the initial fair value of an unquoted
investment is the cost of the investment. Unless there are
indications that this is inappropriate, an unquoted investment will
be held at this value within the first three months of
investment.
Subsequent Measurement
Based on the IPEVC Guidelines we have identified six of the most
widely used valuation methodologies for unquoted investments. The
Guidelines advocate that the best valuation methodologies are those
that draw on external, objective market-based data in order to
derive a fair value.
Unquoted Investments
-- sales multiples . An appropriate multiple, given the risk
profile and sales growth prospects of the underlying company, is
applied to the revenue of the company. The multiple is adjusted to
reflect any risk associated with lack of marketability and to take
account of the differences between the investee company and the
benchmark company or companies used to derive the multiple.
-- earnings multiple . An appropriate multiple, given the risk
profile and earnings growth prospects of the underlying company, is
applied to the maintainable earnings of the company. The multiple
is adjusted to reflect any risk associated with lack of
marketability and to take account of the differences between the
investee company and the benchmark company or companies used to
derive the multiple.
-- net assets . The value of the business is derived by using
appropriate measures to value the assets and liabilities of the
investee company.
-- discounted cash flows of the underlying business . The
present value of the underlying business is derived by using
reasonable assumptions and estimations of expected future cash
flows and the terminal value, and discounted by applying the
appropriate risk-adjusted rate that quantifies the risk inherent in
the company.
-- discounted cash flows from the investment . Under this
method, the discounted cash flow concept is applied to the expected
cash flows from the investment itself rather than the underlying
business as a whole.
-- price of recent investment . This may represent the most
appropriate basis where a significant amount of new investment has
been made by an independent third party. This is adjusted, if
necessary, for factors relevant to the background of the specific
investment such as preference rights and will be benchmarked
against other valuation techniques. In line with the IPEVC
guidelines the Price of Recent Investment will usually only be used
for the initial period following the round and after this an
alternative basis will be found.
Due to the significant subjectivity involved, discounted cash
flows are only likely to be reliable as the main basis of
estimating fair value in limited situations. Their main use is to
support valuations derived using other methodologies and for
assessing reductions in fair value.
One of the valuation methods described above is used to derive
the gross attributable enterprise value of the company. This value
is then apportioned appropriately to reflect the respective debt
and equity instruments in the event of a sale at that level at the
reporting date.
Quoted Investments
Quoted investments are valued at active market bid price. An
active market is defined as one where transactions take place
regularly with sufficient volume and frequency to determine price
on an ongoing basis. The Company does not hold any quoted
investments at 31 December 2019.
Income
Dividends and interest are received from financial assets
measured at fair value through profit or loss and are recognised on
the same basis in the Statement of Comprehensive Income. This
includes interest and preference dividends rolled up and/or payable
at redemption. Interest income is also received on cash, cash
equivalents and cash deposits. Dividend income on unquoted equity
shares is recognised at the time when the right to the income is
established.
Expenses
Expenses are accounted for on an accruals basis. Expenses are
charged through the Revenue column of the Statement of
Comprehensive Income, except for the Investment Adviser's fee and
incentive fees. Of the Investment Adviser's fees 75 per cent are
allocated to the Capital column of the Statement of Comprehensive
Income, to the extent that these relate to an enhancement in the
value of the investments and in line with the Board's expectation
that over the long term 75 per cent of the Company's investment
returns will be in the form of capital gains. The incentive fee
payable to the Investment Adviser (as set out in note 3) is charged
wholly through the Capital column.
Tax relief is allocated to the Capital Reserve using a marginal
basis.
Cash and Cash Equivalents
Cash and cash equivalents include cash at hand as this meets the
definition in IAS 7 'Statement of cash flows' of a short term
highly liquid investment that is readily convertible into known
amounts of cash and subject to insignificant risk of change in
value.
Balances held in fixed term deposits are not classified as cash
and cash equivalents, unless they are due for maturity within three
months, as they do not meet the definition in IAS 7 'Statement of
cash flows' of short-term highly liquid investments.
Cash flows classified as "operating activities" for the purposes
of the Statement of Cash Flows are those arising from the Revenue
column of the Income Statement, together with the items in the
Capital column that do not fall to be easily classified under the
headings for "Investing Activities" given by IAS 7 'Statement of
cash flows', being advisory and incentive fees payable to the
Investment Adviser. The capital cash flows relating to acquisition
and disposal of investments are presented under "investing
activities" in the Statement of Cash Flows in line with both the
requirements of IAS 7 and the positioning given to these headings
by general practice in the industry.
Share Capital and Reserves
Share Capital
This reserve contains the nominal value of all shares allotted
under offers for subscription.
Share Premium Account
This reserve contains the excess of gross proceeds less issue
costs over the nominal value of shares allotted under offers for
subscription, to the extent that it has not been cancelled.
Capital Redemption Reserve
The nominal value of shares bought back and cancelled is held in
this reserve, so that the Company's capital is maintained.
Capital Reserve
The following are included within this reserve:
-- gains and losses on realisation of investments;
-- realised losses upon permanent diminution in value of investments;
-- 75 per cent of the Investment Adviser's fee expense, together
with the related taxation effect to this reserve in accordance with
the policy on expenses in note 1 of the financial statements;
-- incentive fee payable to the Investment Adviser;
-- capital dividends paid to shareholders;
-- purchase and holding of the Company's own shares; and
-- credits arising from cancellation of any share premium account.
Investment Holding Gains and Losses Reserve
Increases and decreases in the valuation of investments held at
the year-end are accounted for in this reserve, except to the
extent that the diminution is deemed permanent.
Revenue Reserve
This reserve includes all income from investments along with any
costs associated with the running of the Company - less 75 per cent
of the advisory fee expense as detailed in the Capital Reserve
above.
Taxation
Due to the Company's status as a venture capital trust and the
continued intention to meet the conditions required to comply with
Chapter 3 Part 6 of the Income Tax Act 2007, no provision for
taxation is required in respect of any realised or unrealised
appreciation of the Company's investments which arises. Deferred
tax is recognised on all temporary differences that have
originated, but not reversed, by the balance sheet date.
Deferred tax assets are only recognised to the extent that they
are regarded as recoverable. Deferred tax is calculated at the tax
rates that are expected to apply when the asset is realised.
Deferred tax assets and liabilities are not discounted.
Dividends Payable
Dividends payable are recognised only when an obligation exists.
Interim and special dividends are recognised when paid and final
dividends are recognised when approved by shareholders in general
meetings.
Segmental Reporting
In accordance with IFRS 8 'Operating segments' and the criteria
for aggregating reportable segments, segmental reporting has been
determined by the directors based upon the reports reviewed by the
Board. The directors are of the opinion that the Company has
engaged in a single operating segment - investing in equity and
debt securities within the United Kingdom - and therefore no
reportable segmental analysis is provided.
Critical Accounting Estimates and Judgements
The preparation of financial statements in conformity with
generally accepted accounting practice requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Although these estimates are based on management's best
knowledge of the amount, event or actions, actual results may
ultimately differ from those estimates. The estimates and
assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year are those used to determine the fair value
of investments at fair value through profit or loss, as disclosed
in note 7 to the financial statements.
The fair value of investments at fair value through profit or
loss is determined by using valuation techniques. As explained
above, the Board uses its judgement to select from a variety of
methods and makes assumptions that are mainly based on market
conditions at each balance sheet date.
2. Income
2019 2018
GBP000 GBP000
Dividends from unquoted companies 325 523
Dividends from AIM quoted companies 6 91
Interest on loans to unquoted companies 526 944
Income from investments held at fair value
through profit or loss* 857 1,558
Interest on bank deposits 219 126
1,076 1,684
-------------------------------------------- ------- -------
*GBP47,000 of income previously recognised, now impaired, was
disclosed as a deduction from income in the 2018 Annual Report (see
note 3)
3. Administrative Expenses
2019 2018
GBP000 GBP000
Investment Adviser's fee 1,189 1,223
Administration fee 68 66
-------------------------------------------------------------------------- ------- -------
Total payable to YFM Private Equity Limited 1,257 1,289
Other expenses:
Directors' remuneration 102 93
Trail commission 92 87
General expenses 66 64
Listing and registrar fees 56 43
Printing 32 33
Auditor's remuneration - audit fees (excluding
irrecoverable VAT) 32 28
- audit related assurance services - 7
Irrecoverable VAT 29 18
-------------------------------------------------------------------------- ------- -------
1,666 1,662
-
Fair value movement related to credit risk* 65 47
-------------------------------------------------------------------------- ------- -------
1,731 1,709
-------------------------------------------------------------------------- ------- -------
Ongoing charges figure 2.30% 2.49%
-------------------------------------------------------------------------- ------- -------
*The GBP47,000 shown for the year ended 31 December 2018 was
previously disclosed as a deduction from income in the 2018 annual
report.
Directors' remuneration comprises only short term benefits
including social security contributions of GBP9,000 (2018:
GBP8,000).
The directors are the Company's only key management
personnel.
No fees are payable to the auditor in respect of other services
(2018: GBP7,000) apart from those shown above.
YFM Private Equity Limited has acted as Investment Adviser and
performed administrative and secretarial duties for the Company
under an agreement dated 28 November 2000, superseded by an
agreement dated 31 October 2005 and as varied by agreements dated 8
December 2010, 26 October 2011, 16 November 2012, 17 October 2014,
7 August 2015 and 13 November 2019 (the "IAA"). The agreement may
be terminated by not less than twelve months' notice given by
either party at any time. Following the Financial Conduct
Authority's registration of the Company as a Small Registered
Alternative Investment Fund Manager in 2014, the Company has
retained responsibility for the custody of its investments.
The key features of the agreement are:
-- YFM Private Equity Limited receives an Investment Adviser
fee, payable quarterly in advance, calculated at half-yearly
intervals as at 30 June and 31 December. The fee is allocated
between capital and revenue as described in note 1;
-- with effect from 1 January 2019 the annual advisory fee
payable to the Investment Adviser is 1.0 per cent on all surplus
cash, defined as all cash above GBP10 million, unless the Hurdle
has been met triggering an incentive payment in which case the
amount determined to be surplus will be the excess over GBP5
million. The annual fee on all other assets is 2.0 per cent of net
assets per annum. Based on the Company's net assets at 31 December
2019 of GBP72,333,000 million and cash of GBP23,932,000 million at
that date, this equates to GBP1,307,000 per annum;
-- YFM Private Equity Limited shall bear the annual operating
costs of the Company (including the advisory fee set out above but
excluding any payment of the performance incentive fee, details of
which are set out below and excluding VAT and trail commissions) to
the extent that those costs exceed 2.9 per cent of the net asset
value of the Company; and
-- under the IAA YFM Private Equity Limited also provides
administrative and secretarial services to the Company for a fee of
GBP46,000 per annum plus annual adjustments to reflect movements in
the Retail Prices Index. This fee is charged fully to revenue, and
totalled GBP68,000 for the year ended 31 December 2019 (2018:
GBP66,000).
When the Company makes investments into its unquoted portfolio
the Investment Adviser charges that investee an advisory fee. With
effect from 1 October 2013 if the average of relevant fees exceeds
3.0 per cent of the total invested into new portfolio companies and
2.0 per cent into follow-on investments over the Company's
financial year, this excess will be rebated to the Company. As at
31 December 2019, the Company was due a rebate from the Investment
Adviser of GBPnil (2018: GBPnil).
Monitoring and directors' fees the Investment Adviser receives
from the investee companies are limited to a maximum of GBP40,000
(excluding VAT) per annum per company.
The total remuneration payable to YFM Private Equity Limited
under the IAA in the year was GBP1,257,000 (2018:
GBP1,289,000).
Under the IAA, YFM Private Equity Limited is entitled to receive
fees from investee companies in respect of the provision of
non-executive directors and other advisory services. YFM Private
Equity Limited is responsible for paying the due diligence and
other costs incurred in connection with proposed investments which
for whatever reason do not proceed to completion. In the year ended
31 December 2019 the fees receivable by YFM Private Equity Limited
from investee companies which were attributable to advisory and
directors' and monitoring fees amounted to GBP658,000 (2018:
GBP576,000).
Under the Subscription Rights Agreement dated 23 November 2001
between the Company, YFM Private Equity Limited and Chord Capital
Limited ("Chord" formerly Generics Asset Management Limited), as
amended by an agreement between those parties dated 31 October
2005, YFM Private Equity Limited and Chord have a
performance-related incentive, structured so as to entitle them to
an amount equivalent to 20 per cent of the amount by which the
cumulative dividends per ordinary share paid as at the last
business day in December in any year, plus the average of the
middle market price per ordinary share on the five dealing days
prior to that day, exceeds 120 pence per ordinary share, multiplied
by the number of ordinary shares issued and the ordinary shares
under option (if any) (the "Hurdle"). Under the terms of the
Subscription Rights Agreement, once the Hurdle has been exceeded it
is reset at that value going forward, which becomes the new Hurdle.
Any subsequent exercise of these rights will only occur once the
new Hurdle has been exceeded. The subscription rights are
exercisable in the ratio 95:5 between the Investment Adviser and
Chord Capital Limited.
By a Deed of Assignment dated 19 December 2003 (together with a
supplemental agreement dated 5 October 2005), the benefit of the
YFM Private Equity Limited subscription right was assigned to YFM
Private Equity Limited Carried Interest Trust (the "Trust"), an
employee benefit trust formed for the benefit of certain employees
of YFM Private Equity Limited and associated companies. Pursuant to
a deed of variation dated 16 November 2012 between the Company, the
trustees of the Trust and Chord, the Subscription Rights Agreement
was varied so that the subscription rights will be exercisable in
the ratio of 95:5 between the trustees of the Trust and Chord.
Pursuant to a deed of variation dated 5 August 2014 the
Subscription Rights Agreement was varied so that the recipient was
changed from the Trust to YFM Private Equity Limited. Pursuant to a
deed of variation dated 13 November 2019 the Subscription Rights
Agreement was varied so that the recipients can elect to receive
the incentive in the form of shares or cash.
As at 31 December 2019 the total of cumulative cash dividends
paid and mid-market price was 118.50 pence per ordinary share.
Consequently the Hurdle has not been exceeded and no performance
related incentive is payable.
There are also provisions for a compensatory fee in
circumstances where the Company is taken over or the Incentive
Agreement is terminated, which is calculated as a percentage of the
fee that would otherwise be payable under the Incentive Agreement
by reference to the accounting period following its termination. In
this instance 80 per cent is payable in the first accounting period
after such an event, 55 per cent in the second, 35 per cent in the
third and nothing is payable thereafter
Under the terms of the offer launched with British Smaller
Companies VCT plc on 28 November 2018, YFM Private Equity Limited
was entitled to 4.5 per cent of gross subscriptions from execution
brokers and 2.5 per cent of gross subscriptions for applications
through intermediaries offering financial advice or directly from
applicants, less the cost of re-investment of intermediary
commission. The net amount paid to YFM Private Equity Limited under
this offer amounted to GBP416,000.
Under the terms of the offer launched on 11 January 2018, YFM
Private Equity Limited was entitled to 4.5 per cent of gross
subscriptions from execution brokers and 2.5 per cent of gross
subscriptions for applications through intermediaries offering
financial advice or directly from applicants, less the cost of
re-investment of intermediary commission. The net amount paid to
YFM Private Equity Limited under this offer amounted to
GBP130,000.
The Investment Adviser met all costs and expenses arising from
these offers out of these fees, including any payment or
re-investment of initial intermediary commissions.
The details of directors' remuneration are set out in the
Directors' Remuneration Report on page 50 of the annual report
under the heading "Directors' Remuneration for the year ended 31
December 2019 (audited)".
4. Taxation
2019 2018
--------------------------- ---------------------------
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Profit before taxation 237 4,299 4,536 818 3,636 4,454
--------------------------- -------- -------- ------- -------- -------- -------
Profit before taxation
multiplied by standard
rate of corporation tax
in UK of 19% (2018 :19%) 45 817 862 155 691 846
Effect of:
UK dividends received (65) - (65) (98) (14) (112)
Non-taxable profits on
investments - (986) (986) - (851) (851)
Excess advisory expenses 20 169 189 - 117 117
--------------------------- -------- -------- ------- -------- -------- -------
Tax charge (credit) - - - 57 (57) -
--------------------------- -------- -------- ------- -------- -------- -------
The Company has no provided or unprovided deferred tax liability
in either year.
Deferred tax assets of GBP851,000 (2018: GBP699,000) calculated
at 17% in respect of unrelieved management expenses (GBP5.01
million as at 31 December 2019 and GBP4.11 million as at 31
December 2018) have not been recognised as the directors do not
currently believe that it is probable that sufficient taxable
profits will be available against which assets can be
recovered.
Due to the Company's status as a venture capital trust and the
continued intention to meet with the conditions required to comply
with Section 274 of the Income Tax Act 2007, the Company has not
provided for deferred tax on any capital gains or losses arising on
the revaluation or realisation of investments.
5. Dividends
Amounts recognised as distributions to equity holders in the
period to 31 December:
2019 2018
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Special interim dividend for
the year ended 31 December
2019 of 5.0p (2018: GBPnil)
per ordinary share 78 5,273 5,351 - - -
Final dividend for the year
ended 31 December 2018 of
1.5p (2018: 1.5p) per ordinary
share 785 1,190 1,975 265 1,347 1,612
Interim dividend for the year
ended 31 December 2019 of
1.5p (2018: 1.5p) per ordinary
share 45 1,928 1,973 201 1,412 1,613
908 8,391 9,299 466 2,759 3,225
--------------------------------- -------- -------- -------- -------- -------- -------
Shares allotted under DRIS (2,024) (718)
Unclaimed dividends - 91
--------------------------------- -------- -------- -------- -------- -------- -------
Dividends paid in Statement
of Cash Flows 7,275 2,598
--------------------------------- -------- -------- -------- -------- -------- -------
The special interim dividend of 5.0 pence per ordinary share was
paid on 15 February 2019 to shareholders on the register as at 18
January 2019.
The final dividend of 1.5 pence per ordinary share in respect of
the year to 31 December 2018 was paid on 10 May 2019 to
shareholders on the register as at 5 April 2019.
The interim dividend of 1.5 pence per ordinary share was paid on
23 September 2019 to shareholders on the register as at 23 August
2019.
An interim dividend of 2.0 pence per ordinary share in respect
of the year ending 31 December 2020 has been announced. This
dividend has not been recognised in the year ended 31 December 2019
as the obligation did not exist at the balance sheet date.
During previous years the Company had received amounts from the
Registrars in respect of unclaimed dividends and had made efforts
to contact the relevant shareholders. The unclaimed balance of
GBP91,000 was subsequently returned to the Registrars during
2018.
6. Basic and Diluted Earnings per Ordinary Share
The basic and diluted earnings per ordinary share is based on
the profit after tax attributable to shareholders of GBP4,536,000
(2018: GBP4,454,000) and 125,967,837 (2018: 106,692,574) ordinary
shares being the weighted average number of ordinary shares in
issue during the year.
The basic and diluted revenue earnings per ordinary share is
based on the profit for the year attributable to shareholders of
GBP237,000 (2018: GBP761,000) and 125,967,837 (2018: 106,692,574)
ordinary shares being the weighted average number of ordinary
shares in issue during the year.
The basic and diluted capital earnings per ordinary share is
based on the capital profit for the year attributable to
shareholders of GBP4,299,000 (2018: GBP3,693,000) and 125,967,837
(2018: 106,692,574) ordinary shares being the weighted average
number of ordinary shares in issue during the year.
During the year the Company allotted 23,205,679 new ordinary
shares from the fundraising, and 4,026,578 new ordinary shares in
respect of its DRIS.
The Company has also repurchased 3,150,531 of its own shares in
the year, and these shares are held in the capital reserve. The
total of 9,309,092 treasury shares has been excluded in calculating
the weighted average number of ordinary shares for the period. The
Company has no securities that would have a dilutive effect and
hence basic and diluted earnings per ordinary share are the
same.
The Company has no potentially dilutive shares and consequently,
basic and diluted earnings per ordinary share are equivalent in
both the year ended 31 December 2019 and 31 December 2018.
7. Financial Assets at Fair Value through Profit or Loss - Investments
IFRS 13, in respect of 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 measurement
hierarchy:
Level 1 : quoted prices in active markets for identical assets
or liabilities. The fair value of financial instruments traded in
active markets is based on quoted market prices at the balance
sheet date. A market is defined as a market in which transactions
for the asset or liability take place with sufficient frequency and
volume to provide pricing information on an ongoing basis. The
quoted market price used for financial assets held by the Company
is the current bid price. These instruments are included in level 1
and comprise AIM quoted investments and other fixed income
securities classified as held at fair value through profit or
loss.
Level 2 : the fair value of financial instruments that are not
traded in an active market is determined by using valuation
techniques. These valuation techniques maximise the use of
observable market data where it is available and rely as little as
possible on entity specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument
is included in level 2. The Company held no such instruments in the
current or prior year.
Level 3 : the fair value of financial instruments that are not
traded in an active market (for example, investments in unquoted
companies) is determined by using valuation techniques such as
earnings multiples. If one or more of the significant inputs is not
based on observable market data, the instrument is included in
level 3. The majority of the Company's investments fall into this
category.
Each investment is reviewed at least quarterly to ensure that it
has not ceased to meet the criteria of the level in which it is
included at the beginning of each accounting period. The change in
fair value for the current and previous year is recognised through
profit or loss.
There have been no transfers between these classifications in
either period.
All items held at fair value through profit or loss were
designated as such upon initial recognition.
Valuation of Investments
Full details of the methods used by the Company are set out in
note 1. Where investments are held in quoted stocks, fair value is
set at the market bid price.
Movements in investments at fair value through profit or loss
during the year to 31 December 2019 are summarised as follows:
IFRS 13 measurement classification Level 3 Level 1
------------------------------------ ------------- -------------- ------------------
Unquoted Quoted Equity Total Investments
Investments Investments
GBP000 GBP000 GBP000
Opening cost 30,042 754 30,796
Opening investment holding gain 6,977 329 7,306
------------- -------------- ------------------
Opening fair value at 1 January
2019 37,019 1,083 38,102
Additions at cost 11,413 - 11,413
Capitalised income 59 - 59
Disposal proceeds (5,614) (1,221) (6,835)
Net profit on disposal* 2,713 138 2,851
Change in fair value 2,323 - 2,323
------------------------------------ ------------- -------------- ------------------
Closing fair value at 31 December
2019 47,913 - 47,913
------------------------------------ ------------- -------------- ------------------
Closing cost 37,995 - 37,995
Closing investment holding gain** 9,918 - 9,918
------------------------------------ ------------- -------------- ------------------
Closing fair value at 31 December
2019 47,913 - 47,913
------------------------------------ ------------- -------------- ------------------
*The net profit on disposal in the table above is GBP2,851,000
whereas that shown in the Statement of Comprehensive Income is
GBP2,868,000. The difference comprises deferred proceeds of
GBP17,000 in respect of assets which have been disposed of in prior
years and are not included within the investment portfolio at 1
January 2019 (see below).
**Following the merger between the Company and British Smaller
Technologies Company VCT plc a total of GBP975,000 of negative
goodwill was recognised in the investment holding gains and losses
reserve in respect of the investments acquired. The relevant amount
per investment is realised at the point of disposal to the capital
reserve. At 31 December 2019 a total of GBP30,000 (2018: GBP30,000)
was held on investments yet to be realised in the investment
holdings gains and losses reserve.
There were no individual reductions in fair value during the
year that exceeded 5 per cent of the total assets of the Company
(2018: GBPnil).
The following disposals took place in the year (all companies
are unquoted except where otherwise indicated):
Net proceeds Cost Opening Profit
from sale carrying (loss)
value on disposal
as at
1 January
2019
GBP000 GBP000 GBP000 GBP000
Unquoted investments:
Eikon Holdco Limited 4,209 1,500 1,580 2,629
The Heritage Window Company Holdco
Limited - 410 75 (75)
Hutchinson Networks Limited - 880 - -
Leengate Holdings Limited 1,291 716 1,240 51
Solcom Limited 85 - - 85
Tissuemed Limited 16 - - 16
Seven Technologies Holdings Limited 13 14 6 7
Total from unquoted investments 5,614 3,520 2,901 2,713
------------------------------------- ------------- ------- ----------- -------------
Quoted investments:
AB Dynamics plc 101 7 95 6
EKF Diagnostics plc 282 235 235 47
Iomart Group plc 352 86 330 22
Renalytix plc 110 74 73 37
Volex plc 376 352 350 26
Total from quoted investments 1,221 754 1,083 138
------------------------------------- ------------- ------- ----------- -------------
Total from disposals in the year 6,835 4,274 3,984 2,851
------------------------------------- ------------- ------- ----------- -------------
Deferred proceeds :
Selima Holding Company Ltd 246 - 229 17
Deferred proceeds received 246 - 229 17
------------------------------------- ------------- ------- ----------- -------------
Total from quoted and unquoted
investments 7,081 4,274 4,213 2,868
------------------------------------- ------------- ------- ----------- -------------
8. Basic and Diluted Net Asset Value per Ordinary Share
The basic and diluted net asset value per ordinary share is
calculated on attributable assets of GBP72,333,000 (2018:
GBP64,054,000) and 131,100,546 (2018: 107,018,820) ordinary shares
in issue at the year end.
The treasury shares have been excluded in calculating the number
of ordinary shares in issue at 31 December 2019.
The Company has no potentially dilutive shares and consequently,
basic and diluted net asset values per ordinary share are
equivalent in both the year ended 31 December 2019 and 31 December
2018.
9. Total Return per Ordinary Share
The Total Return per ordinary share is calculated on cumulative
dividends paid of 66.5 pence per ordinary share (2018: 58.5 pence
per ordinary share) plus the net asset value as calculated per note
8.
10. Financial Commitments
There are no financial commitments at 31 December 2019 or 31
December 2018.
11. Events after the Balance Sheet Date
On 10 March 2020 the Company realised its investment in Business
Collaborator Limited for GBP5.08 million, compared to a valuation
of GBP3.46 million at 31 December 2019, which is a strong uplift on
the original cost of the holding of GBP1.34 million. The process
began in earnest in January 2020 and the buyer was able to transact
quickly, leading to completion in March 2020.
12. Annual Report and Accounts
Copies of the statutory accounts for the year ended 31 December
2019 will shortly be submitted to the National Storage Mechanism
and will be available to the public for viewing online at
www.morningstar.co.uk/uk/NSM . They can also shortly be viewed on
the Company's website at www.bscfunds.com . Hard copies of the
statutory accounts for the year to 31 December 2019 will be
distributed by post or electronically to shareholders and will
thereafter be available to members of the public from the Company's
registered office.
13. Directors
The directors of the Company are: Mr P C Waller, Mr R M
Pettigrew and Mr R S McDowell.
14. Annual General Meeting
The Annual General Meeting of the Company will be held at 12.00
noon on 16 June 2020 at 33 St James Square, London, SW1Y 4JS.
15. Interim dividend for the year ending 31 December 2020
The directors are pleased to announce the payment of an interim
dividend for the year ending 31 December 2020 of 2.0 pence per
ordinary share ("Interim Dividend").
The Interim Dividend will be paid on 12 May 2020 to those
shareholders on the Company's register at the close of business on
14 April 2020. The ex-dividend date will be 9 April 2020.
The directors are not proposing a final dividend for the year
ended 31 December 2019.
16. Dividend Re-investment Scheme
The Company operates a dividend re-investment scheme ("DRIS").
The latest date for receipt of DRIS elections so as to participate
in the DRIS in respect of the Interim Dividend is the close of
business on 28 April 2020.
17. Inside Information
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU No. 596/2014). Upon the
publication of this announcement via Regulatory Information Service
this inside information is now considered to be in the public
domain.
For further information, please contact:
David Hall YFM Equity Partners Limited Tel: 0113 244 1000
Alex Collins Panmure Gordon (UK) Limited Tel: 0207 886 2767
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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