TIDMBSC
RNS Number : 4700F
British Smaller Companies VCT2 Plc
21 March 2022
British Smaller Companies VCT2 plc
Annual Financial Report Announcement
for the year ended 31 December 2021
British Smaller Companies VCT2 plc (the "Company") today
announces its audited results for the year ended 31 December
2021.
HIGHLIGHTS
-- 26.4 per cent return on opening net assets.
-- Total Return increased by 14.5p to 139.5p per share.
-- Net asset value at 31 December 2021 of 61.5 pence per share (2020: 55.0 pence per share).
-- Realisations of investments and loan repayments generated
total proceeds of GBP11.7 million in the year, a gain of GBP5.3
million over the opening carrying value and GBP7.7 million over
cost.
-- Total dividends paid during the year ended 31 December 2021
of 8.0 pence per share (2020: 3.5 pence per share).
-- Total cumulative dividends paid since inception of 78.0 pence
per ordinary share at 31 December 2021 (2020: 70.0 pence per
ordinary share).
-- Three new investments and seven follow-on investments
totalling GBP6.1 million completed during the year.
-- 6.8 million raised in fully subscribed March 2021 offer. A
further GBP24.2 million raised in fully subscribed September 2021
offer, with shares allotted shortly after the year-end.
-- The Board is declaring an interim dividend of 1.5p per share
in respect of the year ending 31 December 2022. The dividend will
be paid on 6 May 2022 to shareholders on the register on 1 April
2022.
Chairman's Statement
In my third annual statement I am pleased to report that,
despite the prevailing pandemic and post Brexit fallout, the
resilience and growth of the portfolio that was seen in the latter
part of 2020 has continued throughout 2021. The weighting towards
business-to-business services emphasising technology-enabled
solutions, data management, analytics, protection and migration
continues to benefit from the accelerated trends that the pandemic
has provided. Meanwhile the more retail and leisure focused
companies have proven themselves adept at flexing their businesses
and adapting to an ever changing landscape, with many now emerging
in a more focused and streamlined guise to capture their customers'
return to the market.
This progress is reflected in the performance of the Company in
the year to 31 December 2021, with positive valuation growth in the
period. This means that over the two years since the outbreak of
the pandemic, the Company has seen a total return of 32.2 per cent
on the net asset value of 55.2 pence per share at 31 December
2019.
I and my fellow Board members were pleased to see this shared by
our investors, and were delighted to close the Company's
fundraising after just seven weeks, with funds allotted shortly
after the end of the financial year. We thank you for your ongoing
support of the Company.
Financial Performance
In 2021, the Company delivered a 14.5 pence per ordinary share
increase in Total Return, which is equivalent to 26.4 per cent of
the opening net asset value at 31 December 2020. Total Return is
now 139.5 pence per ordinary share.
This was driven by the portfolio, which generated a return of
GBP26.0 million, 53.0 per cent over its opening value, of which
GBP5.3 million was realised and GBP20.7 million unrealised. New and
follow-on investments totalling GBP6.1 million were completed.
Realisations in the Year
Realisations of investments generated total proceeds of GBP10.3
million, a gain of GBP5.3 million over the opening carrying value
and GBP8.0 million over the original cost. There were three
significant realisations in the year: Deep Secure in July 2021; the
partial realisation of Matillion in October 2021; and Tissuemed in
December 2021. Additional proceeds of GBP1.4 million were generated
from loan repayments.
The Deep Secure exit generated capital proceeds of GBP3.3
million, delivering a realised gain of GBP2.8 million above cost,
an uplift of GBP1.3 million on the carrying value at the beginning
of the year. Including income, the total return from this
investment was GBP3.9 million over a 12 year holding period,
producing an internal rate of return of 23 per cent and a multiple
of 7.7x cost.
The Company realised 20 per cent of its investment in Matillion
as part of its Series E funding round. The proceeds from this
partial exit were GBP5.9 million, which represents an uplift on the
carrying value at the beginning of the year of GBP3.4 million and a
return to date of 3.3x the total cost of the Company's investment.
The value of the Company's residual investment in Matillion is
GBP25.1 million. This is an outstanding outcome to date, in a
company which continues to experience fast growth.
The Tissuemed exit generated capital proceeds of GBP0.6 million
delivering a realised gain of GBP0.5 million above cost, an uplift
of GBP0.5 million on the carrying value at the beginning of the
year. Including income, the total return from this investment was
GBP0.6 million over a 16 year holding period, producing an internal
rate of return of 18 per cent and a multiple of 13.1x cost.
New Investments
Three new investments were made in the year, totalling GBP3.4
million. In our continued support of the portfolio, seven companies
received follow-on funding in the year, totalling GBP2.7 million in
aggregate. The new investments are :
Investment Sector
Outpost Visual effects for film and TV
----------------------------------------
Vuealta Business planning software and services
----------------------------------------
Vypr Cloud-based data validation platform
----------------------------------------
Financial Results
During the year, the Board paid interim dividends of 8.0 pence
per ordinary share in respect of the year ended 31 December 2021,
bringing the cumulative dividends paid to 31 December 2021 to 78.0
pence per ordinary share.
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 2020 55.0 70,929
Increase in portfolio value 14.6 20,702
Gain on disposal of investments 3.8 5,342
---------- --------- -------- ---------
Gain arising from the portfolio 18.4 26,044
Net operating costs (0.8) (1,248)
Incentive fee (3.1) (4,407)
Issue/(buy-back) of new shares - 7,072
Total Return in year 14.5 27,461
NAV before the payment of dividends 69.5 98,390
Dividends paid (8.0) (11,015)
---------- --------- -------- ---------
NAV at 31 December 2021 61.5 87,375
Cumulative dividends paid 78.0
---------- --------- -------- ---------
at 31 December
Total Return: 2021 139.5
at 31 December
2020 125.0
--------------------------------------- ---------- --------- -------- ---------
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 GBP49.1 million, delivered a return over the year of
GBP26.0 million.
The current portfolio's net valuation increased by GBP20.7
million. Within this there were valuation gains of GBP24.5 million,
offset by GBP3.8 million of downward movements.
As anticipated by the impact of the changes to VCT regulations
in 2015, the composition of the portfolio continues to evolve
towards younger, higher growth companies which are reinvesting
earnings for further growth. This, along with the ongoing
realisation of earlier, more income-focused investments, results in
the ongoing reduction of the Company's income. During the year,
income was GBP0.7 million, compared to GBP0.8 million (excluding
the exceptional GBP1.9 million dividend received from ACC Aviation)
in the previous financial year and GBP1.1 million in 2019. This
trend is expected to continue as the proportion of new investments
continues to grow.
Annual General Meeting
The Annual General Meeting of the Company will be held at 12:00
noon on 13 June 2022 at 33 St James Square, London SW1Y 4JS. Full
details of the agenda for this meeting are included in the Notice
of the Annual General Meeting on page 91 of the annual report .
Dividends
Dividends paid in the year totalled 8.0 pence per ordinary
share. These comprised interim dividends of 8.0 pence per ordinary
share for the year ended 31 December 2021. Cumulative dividends
paid as at 31 December 2021 were 78.0 pence per ordinary share.
An interim dividend for the year ending 31 December 2022 of 1.5
pence per ordinary share will be paid on 6 May 2022, to
shareholders on the register at 1 April 2022.
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 main advantages of the DRIS are:
1 the dividends remain tax free; and
2 any DRIS investment attracts income tax relief at the rate of 30 per cent.
For the financial year ended 31 December 2021, GBP2.3 million
was re-invested by way of the DRIS, from overall dividend proceeds
of GBP11.0 million.
Liquidity and Fundraising
The Company announced a new share offer on 2 February 2021,
alongside British Smaller Companies VCT plc, with the intention of
raising up to GBP7.05 million. The related allotment took place on
11 March 2021, following which the Company received net proceeds of
GBP6.8 million.
At 31 December 2021 the Company's cash reserves of GBP21.2
million represented 24.3 per cent of net assets.
Having previously assessed its expected cash requirements the
Company announced a new share offer on 22 September 2021, alongside
British Smaller Companies VCT plc, with the intention of raising up
to GBP60 million, in aggregate which included an over-allotment
facility of GBP20 million, in aggregate. This was fully subscribed
and closed on 12 November 2021. The related allotment of 40,224,521
ordinary shares took place post year-end, on 7 January 2022,
following which the Company received net proceeds of GBP24.2
million.
Share Premium Cancellation
Following shareholder approval at a General Meeting, the
Company, subject to the sanction of the High Court, is cancelling
the balance of its Share Premium, GBP44.3 million, which will be
transferred to the Capital Reserve. This will give the Company
greater flexibility to continue to pay regular dividends to
shareholders and to provide its periodic offer to buy back shares
from shareholders. As set out on page 63 of the annual report this
will become available for distribution, if approved, at various
times over the period to 1 January 2026.
Shareholder Relations
The electronic communications policy continues to be a success,
with 82 per cent of shareholders now receiving communications in
this way. Documents such as the annual report are published on the
website http://www.bscfunds.com rather than by post, saving on
printing costs, as well as being more environmentally friendly.
The Company's website, http://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 2021, we again had to change our plans for the Investor
Workshops, subsequently holding two webinars in conjunction with
British Smaller Companies VCT plc, on 25 June 2021 and 9 December
2021.
We are pleased to announce the return of an in-person Investor
Workshop, to be held jointly with British Smaller Companies VCT plc
on 29 June 2022 at 1 Great George Street, Westminster, London SW1P
3AA. After the success of the webinars over the past couple of
years, we will also continue providing these once per year, with
the next event planned for December 2022.
Post Balance Sheet Events
As noted above, the Company allotted a successful GBP24.2
million fundraising on 7 January 2022.
Ukraine
During the build up to and subsequent to the recent invasion of
Ukraine by Russia, we have been closely monitoring the impact of
the war on our portfolio. There is minimal direct impact, which has
principally been in a small number of cases where portfolio company
software development teams have been based in Ukraine. From a
business perspective, continuity of supply and service has been
secured, although we are aware of a small number of developers who
we believe are directly caught in the conflict and our thoughts are
with them and all those suffering the humanitarian impact of the
war.
Ou tlook
There's little doubt that current market conditions are not
straightforward. Many companies are currently navigating challenges
from supply chain inflation, a highly competitive market for hiring
talent as well as political challenges, both domestically and
overseas. However, as we have seen through the pandemic the value
of having the right management teams in place, and the right
supportive advisers at their side, provides confidence that the
portfolio has the capacity to chart a path through the current
conditions and achieve success.
Thanks to investors' continued support, the Company is well
positioned to both continue to support the existing portfolio and
to continue to seek out the most promising new opportunities to
augment the portfolio. I look forward to updating investors on this
progress later in the year.
Peter Waller
Chairman
Objectives and Key Policies
The Company's objective is to maximise Total Return and provide
investors with a 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
comprise mainly equity investments.
The Company seeks to build a broad portfolio of investments in
early stage companies focussed on growth with the aim of spreading
the maturity profiles and maximising return as well as ensuring
compliance with the VCT guidelines in this regard.
Borrowing
The Company does not borrow and has no borrowing facilities,
choosing to fund investments from its own resources.
Co-investment
British Smaller Companies VCT2 plc and British Smaller Companies
VCT plc (together "the VCTs") typically co-invest in investments,
allocating such investments 40 per cent to the Company and 60 per
cent to British Smaller Companies VCT plc. However, the Board of
the Company has discretion as to whether or not to take up its
allocation; where British Smaller Companies VCT plc does not take
its allocation, the Board may opt to increase the Company's
allocation in such opportunities.
The VCTs may invest alongside co-investment funds managed by
YFM, the Manager of the VCTs. The VCTs have first choice on the
initial GBP4.5 million of all equity investment opportunities
meeting the VCT qualifying criteria. Amounts above GBP4.5 million
are allocated two thirds to the VCTs and one third to YFM's
co-investment funds.
Asset Mix
Cash which is pending investment in VCT-qualifying securities is
primarily held in interest bearing instant access and short-notice
bank accounts.
Remuneration Policy
The Company's policy on the remuneration of its directors, all
of whom are non-executive, 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 36 of the annual report.
Processes and Operations
The Manager is responsible for the sourcing and screening of
investment opportunities, carrying out suitable due diligence
investigations and making submissions to the Board regarding
potential investments. Post investment, the Manager intensively
works with the businesses and management teams in which the Company
is invested, monitoring progress, effecting change and, where
applicable, redefining strategies with a view to maximising values
through structured exit processes.
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 Manager.
The Board regularly monitors the performance of the portfolio
and the investment requirements set by the relevant VCT
legislation. Reports are received from the Manager regarding the
trading and financial position of each investee company and senior
members of the Manager regularly attend the Company's Board
meetings. Monitoring reports are also received each quarter from
the Manager 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 Manager at least annually.
YFM Private Equity Limited has performed investment advisory,
management, 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.
In the opinion of the directors, the continuing appointment of
YFM Private Equity Limited as Manager is in the interests of the
shareholders as a whole, in view of its experience in managing
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 (as at 31 December)
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
an index of generalist VCTs which are members of the AIC (based on
figures provided by Morningstar). 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 (as at 31 December)
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
The Board considers Total Return 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 Offer price NAV at 31 Cumulative Total Return IRR(3)
(1) December dividends to date(2)
2021 paid since
fundraising
------------ ---------- ------------- ------------- -------
Pence Pence Pence Pence %
--------------- ------------ ---------- ------------- ------------- -------
2001 100.0 61.5 78.0 139.5 2.1%
2002 100.0 61.5 78.0 139.5 2.3%
2010 77.3 61.5 56.0 117.5 4.9%
2011 70.3 61.5 52.0 113.5 6.1%
2012 70.5 61.5 48.0 109.5 6.1%
2013 68.0 61.5 43.5 105.0 6.6%
2014 68.0 61.5 39.0 100.5 6.5%
2015 65.0 61.5 34.5 96.0 7.4%
2016 63.0 61.5 30.0 91.5 7.7%
2017 62.2 61.5 25.5 87.0 8.3%
2018 59.4 61.5 22.5 84.0 10.9%
2019 56.3 61.5 14.5 76.0 12.5%
------------ ---------- ------------- ------------- -------
Notes
1 The offer price for the relevant year excluding the benefit of
income tax relief available to investors at the time of the
offer.
2 Total Return to date is cumulative dividends paid plus the 31
December 2021 net asset value in pence per ordinary share. This is
an Alternative Performance Measure.
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 2021 net asset value
per ordinary share. This excludes the benefit of any initial tax
relief.
Set out on page 13 of the annual report is the average annual
annualised investment rate of return over 1, 2, 3, 5 and 10 years
to 31 December 2021. The average annual investment rate of return
is calculated with reference to the cumulative dividends paid in
the period plus the unaudited NAV at 31 December 2021.
Expenses
Ongoing Charges
The Ongoing Charges figure, as calculated in line with the AIC
recommended methodology, is used by the Board to monitor expenses.
This figure shows shareholders the costs of the Company's 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
2021 December
2020 (%)
(%)
------------------------ -------------------- -----------
Ongoing Charges figure
* 2.16 2.45
------------------------ -------------------- -----------
* Alternative Performance Measure
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. There was no breach of
the expenses cap in the current or prior year .
Compliance with VCT Legislative Tests
A principal risk facing the Company is the retention of its VCT
qualifying status. The Board receives regular reports on compliance
with the VCT legislative tests from its Manager. In addition, the
Board receives formal reports from its VCT Status Adviser (Philip
Hare & Associates LLP) 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 further 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 Investments Test
At least 80 per cent by value of the Company's investments must
be represented throughout the period by shares or securities
comprised in Qualifying Investments of investee companies.
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 Investments 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 Investments
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.
Investment Limits
There is an annual limit for each investee company which
provides that they may not raise more than GBP5 million of state
aided investment (including from VCTs) in the 12 months ending on
the date of each investment (GBP10 million for Knowledge Intensive
Companies).
There is also a lifetime limit that a business may not raise
more than GBP12 million of state aided investment (including from
VCTs); the limit for Knowledge Intensive companies is GBP20
million.
Maximum Single Investment Test
The value of any one investment must not, at any time in the
period, represent more than 15 per cent of the Company's total
investment value. This is calculated at the time of investment and
updated should there be further additions; as such, it 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.
The Company is cancelling, subject to the approval of the High
Court, the balance of its Share Premium, GBP44.3 million, which
will be transferred to the Capital Reserve. As set out on page 63
of the annual report, this will become available for distribution,
if approved, at various times over the period to 1 January
2026.
Other
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.
Portfolio Composition
Portfolio Structure
The broad range of the investment portfolio is illustrated on
page 16 of the annual report with 62 per cent of the portfolio
valuation being held for more than five years, whilst 85 per cent
is held at cost or above. 21 per cent of the portfolio value is
held in loans and preference shares, although loans now account for
only 5 per cent of the value.
Portfolio Diversity
Also included on page 17 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 break down by industry
sector.
Investment Review
The portfolio delivered a strong performance in the year, with a
return of GBP26.0 million on the opening value of GBP49.1
million.
The Portfolio
GBP70.0 million Fair value of the portfolio (2020: GBP49.1
million)
Number of portfolio companies
with a value of more than
22 GBP0.5 million (2020: 19)
------------------------------ ---------------
GBP0.7 million Income from the portfolio (2020: GBP0.8
million*)
------------------------------ ---------------
GBP6.1 million Level of investment (2020: GBP4.0
million)
------------------------------ ---------------
GBP26.0 million Return from portfolio (2020: GBP5.2
million*)
------------------------------ ---------------
*excluding exceptional dividend of GBP1.9 million received from
ACC Aviation
The portfolio has performed well during the period, adding
GBP25.9 million of value on the opening fair value of GBP49.1
million. The composition of investments continues to show its
dynamism, with GBP6.2 million invested in the period and cash
proceeds of GBP11.2 million received.
Table A
Portfolio GBPmillion
Opening fair value at 1 January
2021 49.1
Additions 6.2
Disposal proceeds* (11.2)
Valuation movement 25.9
------------
Closing fair value at 31 December
2021 70.0
------------
* excluding deferred consideration
At 31 December 2021 the investment portfolio was valued at
GBP70.0 million, representing 80.1 per cent of net assets (69.2 per
cent at 31 December 2020). Cash and fixed term deposits at 31
December 2021 of GBP21.2 million represented 24.3 per cent of net
assets (29.6 per cent at 31 December 2020).
Fair value changes
The ongoing portfolio delivered a value gain of GBP20.7 million
in the year. While Matillion continues to be a significant driver
of value, it is pleasing to see the fair value increases arising
across a range of companies, including tech-focused businesses such
as Force24 and Elucidat, as well as companies benefiting from the
ongoing post-pandemic recovery of the retail sector, such as
Tonkotsu and Frescobol.
Some decreases in value have been seen; Arraco and Arcus Global
have both struggled somewhat over the past 12 months, but we
continue to work closely with the companies' management teams to
navigate their current challenges.
A further GBP5.2 million of value arose from investments which
were realised in the year, including the partial realisation of
Matillion (GBP3.4 million), Deep Secure (GBP1.3 million) and
Tissuemed (GBP0.5 million).
Table B
Investment Portfolio GBPmillion %
----------------------------------------------- ------------- --------
Gain in fair value 20.7 80
Gain on disposal over opening value 5.2 20
----------------------------------------------- ------------- --------
Valuation movement above 25.9 100
Deferred proceeds received in respect of assets 0.1 -
previously disposed of
---------------------------------------------------- -------- --------
Gain arising from the portfolio 26.0 100
---------------------------------------------------- -------- --------
Other Significant Investment Movements
Investments
During the year ended 31 December 2021, the Company completed
ten investments, totalling GBP6.1 million. This comprised three new
investments of GBP3.4 million and seven follow-on investments of
GBP2.7 million. The analysis of these investments is shown in Table
C. The case study on page 24 of the annual report gives more
information on the investment in Outpost.
Table C
Investments
Investments made
----------------------------------------
Company New Follow-on Total
GBPmillion GBPmillion GBPmillion
------------
Vuealta 1.4 - 1.4
Outpost 1.0 - 1.0
Vypr 1.0 - 1.0
Wooshii - 1.0 1.0
SharpCloud - 0.8 0.8
Sipsynergy - 0.3 0.3
Other follow-on investments - 0.6 0.6
Invested in the year 3.4 2.7 6.1
Capitalised income 0.1
------------ ------------ ------------
Total additions in the year 6.2
------------------------------ ------------ ------------ ------------
Disposal of Investments
During the year to 31 December 2021 the Company received
proceeds from disposals and repayments of loans of GBP11.7 million,
a gain of GBP5.3 million over the opening carrying value and GBP7.7
million over cost. This included the very successful realisation of
Deep Secure and the partial realisation of Matillion. The Company's
investment in Friska was disposed of for nil proceeds; the
investment had been fully written down in previous periods. Further
details are given in the Chairman's statement above.
Table D
Disposal of Investments Net proceeds Opening value Gain on opening
from sale 31 December value
of investments 2020
GBPmillion GBPmillion GBPmillion
---------------- -------------- ----------------
Total investment disposals 11.7 6.4 5.3
---------------- -------------- ----------------
Further analysis of all investments sold in the year can be
found in note 7.
Portfolio Composition
As at 31 December 2021 the portfolio was valued at GBP70.0
million, comprising wholly of unquoted investments. An analysis of
the movements in the year is shown in note 7.
The portfolio has 22 investments valued above GBP0.5 million
(2020: 19), with the single largest investment, Matillion,
representing 28.7 per cent of the net asset value.
The charts on pages 16 and 17 of the annual report show the
diversity of the portfolio, splitting it by industry sector, age of
investment, investment instrument and the valuation compared to
cost.
Valuation Policy
Unquoted investments are valued in accordance with both IFRS 13
'Fair Value Measurement' and International Private Equity and
Venture Capital Guidelines, December 2018 edition (IPEV
Guidelines).
Initially, at the first quarter-end following investment,
investments are valued at the price of the funding round; following
this, the valuation switches to a new primary basis for all
subsequent periods.
The valuation methodology applied depends upon the facts and
circumstances of each individual investment. This may be with
reference to revenue multiples, earnings multiples, net assets,
discounted cash flows or calibrated from the price of the most
recent investment.
The full valuation policy is set out in note 1 on pages 66 and
67 of the annual report.
Table E shows the value of investments within each valuation
category as at 31 December 2021; no investments are currently
valued using discounted cash flow methodologies.
With continued investment in earlier stage businesses that are
investing for growth, an increasing proportion of valuations are
based on revenue multiples.
Table E 2021 2020
-----------------------------
Valuation Policy Valuation % of portfolio % of portfolio
GBPmillion by value by value
Revenue multiple 54.6 78 60
Earnings multiple 13.4 19 29
Net assets, reviewed for change in
fair value 1.9 3 4
Cost or price of recent investment,
reviewed for change in fair value 0.1 - 7
Total 70.0 100 100
Sustainable Investment and Environmental, Social and Governance
("ESG") Management
The Company backs small UK businesses to help them to grow and
produce strong financial returns for shareholders with the
additional aim of building better businesses that are ultimately
more sustainable.
In order to deliver more sustainable businesses, and to meet its
commitments under the Principles for Responsible Investment (PRI),
the Manager has continued to develop its processes in this area.
The Manager's approach is based on the belief that good
businesses:
-- Grow our economy
-- Improve our society
-- Value their people
-- Protect the environment
These aims are consistent with the Company's financial aims
because businesses which improve in these areas also strengthen
their resilience and value creation potential through their
increased attractiveness to customers, employees, suppliers and
eventual future owners and investors.
Sustainable Investment Principles
This set of principles guides the Manager's investment
process:
-- To seek to understand the ESG related impacts and potential
impacts of investments, aiming to grow and enhance positive impacts
and to avoid, reduce or minimise any negative impacts over an
investment's lifetime, leaving them overall better businesses.
-- To play a positive role in the investor, business and wider
communities by promoting good practice in ESG management, and by
being transparent in the way that investments are made and how the
Manager behaves.
-- To increase focus on the challenge of climate change both as
it may be affected by our investments, and as it may impact on them
and their resilience to possible climate change scenarios.
-- To show leadership by managing the Manager's own business'
ESG impacts to the best of their ability.
-- To be a proactive signatory to the PRI and to integrate its
principles into the Manager's business practices.
In line with the PRI the Manager has developed processes to help
the portfolio businesses to be better in each of these spheres, by
assessing them in terms of creating positive impacts and outcomes
and preventing or minimising negative ones.
The Manager has more recently developed and integrated its ESG
management processes, which are:
Pre-investment Phase:
Structured processes at the pre-investment stage to identify
areas of potential ESG improvement as part of the due diligence and
pre-investment deliberations. Appropriate data is collected and
assessed on each business against ESG criteria at the point of
investment as a benchmark against which to evaluate future
progress.
Portfolio Phase:
For those investments made since 2020, based on the data
collected at the point of investment at the start of the portfolio
phase, bespoke areas for improvement are agreed with each
management team together with consequent objectives and targets. A
similar process has been applied to the significant majority of
investments made prior to 2020. Improvements are then measured and
recorded against a set of ESG criteria using the Manager's bespoke
ESG framework, refreshing targets annually and placing focus on any
new issues as they become more material in the management of the
company and in meeting the expectations of its stakeholders.
Reporting:
Annual reports will be produced, using the Manager's ESG
framework for consistency, recording the relevant initiatives,
impacts and ESG KPI performance of each company and providing an
overview of progress across the Manager's portfolios.
Note that Investment Companies are not eligible for reporting
under the Task Force on Climate-Related Financial Disclosures
(TCFD); and the Company does not use more than 40,000kWh of energy
and therefore is not required to report on its energy usage within
Streamlined Energy and Carbon Reporting regulations.
ESG Performance Data and Reporting
ESG KPI data analysis
The Manager has developed its ESG KPI data collation process.
They have established a data set reflecting the above ESG themes
and a means of collecting this to make year on year comparisons for
each company and across all of its portfolios. Where possible
baseline data has been collected from the date of investment with a
view to showing where the Manager's support has made a difference
during the hold period to the reporting date.
Annual company specific ESG performance progress report
The reviews that the Manager has been conducting enabled the
identification of relative strengths and weaknesses and agreement
of programmes of action with each business.
In 2021 the Manager has moved to recording annual updates and
agreed actions in a more visual and detailed report on both
qualitative and quantitative aspects of each company's progress. As
well as using this for portfolio reporting to investors it will be
used as an engagement tool with the senior management teams of each
company.
2021 ESG KPI Report for Investments held in YFM's VCT funds
Growing our economy
-- GBP 31.3 million of R&D investment during 2021
-- GBP37.8 million of export sales achieved in 2021
Improving our society
-- 95 per cent of companies were independently chaired in
2021
-- 40 per cent of companies had female directors on boards, with
25 per cent having a female CEO
-- 25 per cent of businesses had a designated board member with
responsibility for improving ESG issues
Valuing our people
-- 30 per cent of the portfolio workforce was female in 2021
-- 866 new jobs were created from date of investment to 2021
-- 65 per cent had mental wellbeing programmes in place and 55
per cent held regular employee engagement surveys
-- Over 22,000 hours of training was given to employees
Protecting our environment
-- 60 per cent of companies had active carbon reduction
strategies (up from 15 per cent at investment)
-- 25 per cent offset all or a defined portion of their carbon
impact
-- But only 15 per cent formally measure their carbon
footprint
Summary and Outlook
It has been pleasing to see the continued positive progression
of the portfolio during the year, both from the continued growth of
the Company's technology-enabled and software-focused investments,
but also from the recovery of businesses which were heavily
impacted by the pandemic.
We continue to help all of our companies navigate a fluid
economic environment, with many facing obstacles relating to
inflation, hiring of talent and an ever-changing political
landscape.
Despite these challenges, we continue to see a strong pipeline
of potential investments in a range of growth companies, as well as
opportunities to further support the continued growth of the
current portfolio. We thank investors for their ongoing support
from the Company's January 2022 fundraising, and are looking
forward to putting the funds raised to work.
David Hall
YFM Private Equity Limited
Portfolio Summary at 31 December 2021
Name of company Date Location Industry Current Valuation Proceeds Realised
of Sector cost at 31 to date & unrealised
initial December value
investment 2021 to date*
GBP000 GBP000 GBP000 GBP000
Data &
Matillion Limited Nov-16 Manchester Analytics 1,456 25,050 5,946 30,996
Springboard
Research Milton Data &
Holdings Limited Oct-14 Keynes Analytics 1,881 3,959 120 4,079
Intelligent Office
UK (IO Outsourcing
Limited t/a
Intelligent Business
Office) May-14 Alloa Services 1,956 3,163 - 3,163
Wooshii Limited May-19 London New Media 2,440 3,162 - 3,162
Unbiased EC1 Software
Limited Dec-19 London Applications 1,964 3,082 - 3,082
SharpCloud Software Data &
Limited Oct-19 London Analytics 2,271 2,927 - 2,927
Software
Elucidat Ltd May-19 Brighton Applications 1,800 2,926 - 2,926
Software
Force24 Ltd Nov-20 Leeds Applications 1,600 2,773 - 2,773
ACC Aviation Business
Group Limited** Nov-14 Reigate Services 145 2,450 1,233 3,683
KeTech Enterprises Data &
Limited Nov-15 Nottingham Analytics 10 1,976 1,775 3,751
Investment
companies Apr-15 - - 2,500 1,895 - 1,895
DisplayPlan
Holdings
Limited Jan-12 Stevenage New Media 70 1,891 820 2,711
Ncam Technologies
Limited Mar-18 London New Media 1,675 1,636 87 1,723
Outpost VFX Limited Feb-21 Bournemouth New Media 1,000 1,614 - 1,614
Sipsynergy (via
Hosted Network Software
Services Limited) Jun-16 Hampshire Applications 1,636 1,561 - 1,561
Retail
Tonkotsu Limited Jun-19 London & Brands 1,592 1,520 - 1,520
Vuealta Group Software
Limited Sep-21 London Applications 1,399 1,491 - 1,491
Vypr Validation
Technologies Data &
Limited Jan-21 Manchester Analytics 1,000 1,386 - 1,386
Arcus Global Software
Limited May-18 Cambridge Applications 2,050 1,324 - 1,324
Frescobol Carioca Retail
Ltd Mar-19 London & Brands 1,200 1,148 - 1,148
Traveltek Group Software
Holdings Limited Oct-16 East Kilbride Applications 1,163 983 - 983
Panintelligence
(via Paninsight Data &
Limited) Nov-19 Leeds Analytics 1,000 750 - 750
Welwyn
e2E Engineering Garden Business
Limited Sep-17 City Services 600 688 - 688
Other investments
below GBP0.5
million 9,629 664 5,384 6,048
--------------------------------------------------------------------- -------- ---------- --------- --------------
Total investments 42,037 70,019 15,365 85,384
Full disposals
to date 37,885 - 56,000 56,000
--------------------------------------------------------------------- -------- ---------- --------- --------------
Total portfolio 79,922 70,019 71,365 141,384
--------------------------------------------------------------------- -------- ---------- --------- --------------
* represents proceeds received to date plus the unrealised
valuation at 31 December 2021
** additional ordinary dividends of GBP1.93 million have also
been received
Summary of Portfolio Movement since 31 December 2020
Name of Company Investment Disposal Additions Valuation Investment
valuation proceeds including gains valuation
at 31 capitalised including at 31
December income profits December
2020 / (losses) 2021
on disposal
GBP000 GBP000 GBP000 GBP000 GBP000
----------- ---------- ------------- ------------- -----------
Matillion Limited 12,695 (5,946) - 18,301 25,050
Force24 Ltd 1,600 - - 1,173 2,773
Tonkotsu Limited 605 - - 915 1,520
Elucidat Limited 2,031 - - 895 2,926
Frescobol Carioca Ltd 326 - - 822 1,148
Outpost VFX Limited - - 1,000 614 1,614
Wooshii Limited 1,566 - 1,000 596 3,162
SharpCloud Software Limited 1,544 - 811 572 2,927
Unbiased EC1 Limited 2,512 - - 570 3,082
Vypr Validation Technologies
Limited - - 1,000 386 1,386
e2E Engineering Limited 434 - - 254 688
Traveltek Group Holdings Limited 808 - - 175 983
Sipsynergy (via Hosted Network
Services Ltd) 1,113 - 327 121 1,561
Vuealta Group Limited - - 1,399 92 1,491
Ncam Technologies Limited 1,476 (87) 175 72 1,636
Other investments GBP0.5 million
and below 109 - 160 41 310
Panintelligence (via Paninsight
Limited) 1,000 - - (250) 750
Arcus Global Limited 2,160 - 100 (936) 1,324
Arraco Global Markets Limited 1,500 - 120 (1,620) -
Investments made after November
2015 31,479 (6,033) 6,092 22,793 54,331
Deep-Secure Ltd 1,966 (3,279) - 1,313 -
Springboard Research Holdings
Limited 2,678 - 59 1,222 3,959
KeTech Enterprises Limited 2,601 (1,275) - 650 1,976
Displayplan Holdings Limited 1,267 - - 624 1,891
Tissuemed Limited 65 (599) - 534 -
Intelligent Office UK (IO Outsourcing
Limited t/a Intelligent Office) 3,156 - - 7 3,163
ACC Aviation Group Limited 2,993 - - (543) 2,450
Other investments GBP0.5 million
and below 2,910 - - (661) 2,249
Investments made prior to November
2015 17,636 (5,153) 59 3,146 15,688
Total investments 49,115 (11,186) 6,151 25,939 70,019
----------- ---------- ------------- ------------- -----------
Portfolio
The top 10 investments had a combined value of GBP51.5 million,
73.6 per cent of the total portfolio.
Risk Factors
The Board carries out a regular 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 Covid-19 pandemic and the current conflict in Ukraine
created heightened uncertainty for the Company, but the Board do
not consider that it is has changed the nature of the principal
risks. The Board considers that the present processes for
mitigating those risks remain appropriate.
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 rigorously applies the principles detailed in
section 4: "Audit, Risk and 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, can
be found 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, which would
result in qualifying shareholders who have not held their shares
for the designated holding period having to repay the income tax
relief they obtained, while future dividends paid by the Company
would be 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. These tests
are closely monitored by the Manager on an ongoing basis and
regularly reported to and reviewed by the Board. The Company also
makes use of external experts, who review the Company's compliance
with VCT rules on a regular basis. Details of how the Company
manages these requirements can be found under the heading
"Compliance with VCT Legislative Tests" above.
Economic
Risk - Events such as recession and interest rate fluctuations
could affect investee companies' performance and valuations.
Mitigation - As well as the response to the 'Investment and
Strategic' risk below, the Company has a clear investment policy
(summarised above) and a diversified portfolio operating in a range
of sectors. The Manager actively monitors investee company
performance, which provides quality information for monthly reviews
of the portfolio. The Manager ensures that the portfolio has plans
to manage the impact of economic risk.
Investment and Strategic
Risk - Inappropriate strategy, poor asset allocation or
consistently weak stock allocation may lead to underperformance and
poor returns to shareholders. The quality of enquiries,
investments, investee company management teams and monitoring, and
the risk of not identifying investee company difficulties may lead
to underperformance by the Company 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 Manager 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 company 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 Financial Conduct
Authority's Prospectus Rules and UK adopted international
accounting standards; it is also subject to the AIFMD EU Exit
Regulations. 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 Manager 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 Manager ensures that it hires suitably qualified members of
staff who are experienced with regulatory requirements and relevant
accounting standards.
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 Manager is well-respected,
with a proven track record. It has a formal recruitment process to
employ experienced investment staff. Allocation rules relating to
co-investments with other funds managed by the Manager have been
agreed between the Manager and the Company. Advice is sought from
external advisors where required. Both the Company and the Manager
maintain appropriate insurances.
Operational
Risk - Failure of the Manager's and administrator's accounting
systems or disruption to its business might lead to an inability to
provide accurate reporting and monitoring.
Mitigation - The Manager has a documented business continuity
plan, which provides for back-up services in the event of a system
breakdown. The Manager's systems are protected against viruses and
other cyber-attacks. The Manager implemented its business
continuity plan through the Covid-19 pandemic with no loss of
service.
Cyber/IT
Risk - Inadequate IT systems and controls might lead to business
interruption, the inability of the Manager to provide accurate
reporting and monitoring or the loss of Company records.
Mitigation - The Manager has in place significant cybersecurity
controls, including two factor authentication, email protection
software, monitored firewalls and regularly updated electronic
devices. The Manager is Cyber Essentials Plus certified. Staff at
the Manager regularly receive training in relation to their
cybersecurity obligations.
Climate
Risk - The Company, the Manager and the portfolio companies may
fail to positively contribute towards, and adapt to, the global
transition towards decarbonisation, which could result in
regulatory breaches, reduced investor and/or employee attraction
and the reduced ability of portfolio companies to attract lending
to fund their growth.
Mitigation - In 2021, the Manager published its first
Sustainable Investment Report, detailing the steps it has taken in
this area to date. The Manager is a signatory of the UN's
Principles for Responsible Investment; it has published its
Sustainable Investment Principles; and has rewritten its Ethical
Policy. Its investment process now includes a set of over 50
thematic ESG KPIs, with which it is now tracking its portfolio over
time across four key areas: Improve our Society; Protect our
Environment; Grow our Economy; and Value our People. Further
details can be found on pages 21 to 23 of the annual report.
Financial
Risk - Inadequate controls might lead to misappropriation of
assets. Inappropriate accounting policies might lead to
misreporting or breaches of regulations.
Mitigation - The Company's internal control and risk management
processes 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.
By their nature, investments in unquoted companies involve a
higher degree of risk than investments in companies trading on
public markets. In particular, smaller companies often have limited
product lines, markets or financial resources; they may be
dependent on a smaller number of key individuals.
For quoted companies, the fact that a share is traded on the
public 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,
smaller companies' shares are often less liquid than 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 Manager and on a quarterly basis by the Board.
The Company's valuation methodology takes account of potential
liquidity restrictions in the markets in which it invests.
For any publicly listed investments, accounting standards
require an ongoing assessment of the liquidity of the stock.
The Manager regularly reviews its exit plans for investee
companies to allow the assets to be optimised to identify a willing
buyer. As part of a planned exit, the assistance of a third party
adviser will normally be sought, with a view to identifying the
largest number of possible purchasers.
Other Matters
Section 172 Statement
This Section 172 Statement should be read in conjunction with
the other contents of the Strategic Report, on pages 6 to 36 of the
annual report.
Section 172 of the Companies Act 2006 requires that a director
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
As an investment company with no employees, the Company's key
stakeholders are its investors, its service providers and its
portfolio companies.
Investors
The Board engages and communicates with shareholders in a
variety of ways.
The Company encourages shareholders to attend its Annual General
Meeting (AGM), but unfortunately the 2021 AGM had to be held as a
"closed" meeting due to the restrictions on social gatherings at
the time. It was not possible to hold the AGM electronically
because such general meetings were not yet permitted by the
Company's Articles of Association and the legislation permitting
electronic general meetings had not been passed at the time. A
resolution was presented and passed at the 2021 AGM to allow
electronic general meetings to be held in future.
Along with British Smaller Companies VCT plc, the Company
normally holds an annual Investor Workshop, which is always well
attended. As with the 2021 AGM, it was not possible to hold this in
its normal format, so two online workshops were held, in June 2021
and December 2021, which were attended by almost 200 shareholders.
The Manager also carried out a shareholder survey during 2021.
Maintaining the Company's status as a VCT is critical to meeting
the Company's objective to maximise Total Return and provide
investors with an attractive long-term tax-free dividend yield. The
Company receives regular reports on this issue from the Manager and
has taken various steps in the year to ensure that the relevant
tests are met.
The Board also aims for investors to continue to have tax
efficient opportunities to invest in the Company, and to generate
tax-free returns from both capital appreciation and ongoing
dividends.
After carefully considering its funding needs, the Company
announced a non-prospectus offer to raise up to GBP7.1 million on 2
February 2021. At the same time, the Company issued an unaudited
net asset value per ordinary share as at 31 December 2020,
following the material increase in the final quarter of 2020. The
related allotment took place on 11 March 2021 following which your
Company received net proceeds of GBP6.8 million.
On 22 September 2021, the Company issued a prospectus, alongside
British Smaller Companies VCT plc, to raise up to GBP60 million in
aggregate for the 2021/22 tax year. The related allotment took
place on 7 January 2022, following which the Company received net
proceeds of GBP24.2 million.
During the year the Board kept its arrangements for dividends,
share buy-backs and the dividend re-investment scheme under
constant review. Along with normal dividends totalling 3.0 pence
per ordinary share, a special dividend of 5.0 pence per ordinary
share was paid in November 2021, following the partial realisation
of the Company's investment in Matillion.
Manager
The Company's most important service provider is its Manager.
There is regular contact with the Manager, and members of the
Manager's board attend all of the Company's Board meetings. There
is also an annual strategy meeting with the Manager, alongside the
board of British Smaller Companies VCT plc.
The Manager maintains strong relationships with relevant media
publications and a wide range of distributors for the Company's
shares, including wealth managers, independent financial advisers
and execution-only brokers. RAM Capital acts as a promoter of the
Company's shares to smaller distributors.
The Company is a member of the Association of Investment
Companies which promotes the interests of investment companies,
including VCTs. The Manager is a founder member of the Venture
Capital Trust Association, which promotes the interests of VCTs in
a variety of ways.
Portfolio Companies
The Company holds minority investments in its portfolio
companies and has delegated the management of the portfolio to the
Manager. The Manager provides the Board with regular updates on the
performance of each portfolio company at least quarterly and the
Board is made aware of all major issues.
The Manager has a dedicated Portfolio team to assist the
portfolio companies with the challenges that they face as
fast-growing companies. The Manager promotes ongoing, sustainable
growth within the businesses; this often involves improving systems
and processes, as well as significant job creation.
The Covid-19 pandemic highlighted the Manager's ongoing
commitment to support its portfolio companies. At the start of the
pandemic, the Manager put in place weekly monitoring reviews, as
well as providing the portfolio with regular updates on the
availability of government funding initiatives. Cash flow forecasts
were kept under constant review and additional funding was provided
where appropriate.
Employees
The Company has no employees. The Board is composed of one
female non-executive director and two male non-executive directors.
For a review of the policies used when appointing directors to the
Board of the Company, please refer to the Directors' Remuneration
Report on pages 49 to 51 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 Manager, YFM
Private Equity Limited, who recognises the importance of its
environmental responsibilities and has signed up to the United
Nations' Principles for Responsible Investment.
More details of the work that the Manager has done in this area
are set out on pages 21 to 23 of the annual report. Its Sustainable
Investment Policy can be found 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 is 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 Manager 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
Manager and its other service providers and, in turn, the Manager
ensures that portfolio companies implement appropriate policies of
their own; and
> The Manager has its own Anti-Bribery and Anti-Slavery
policies and ensures that portfolio companies adopt a similar
policy.
Peter Waller
Chairman
Statement of Comprehensive Income
For the year ended 31 December 2021
2021 2020
Notes
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain on disposal of investments 7 - 5,342 5,342 - 1,669 1,669
Gains on investments held
at fair value 7 - 20,702 20,702 - 1,615 1,615
--------------------------------- ------ ---------- ---------- --------- ---------- ---------- ---------
Gain arising from the
portfolio - 26,044 26,044 - 3,284 3,284
Income 2 661 - 661 2,752 - 2,752
Total income 661 26,044 26,705 2,752 3,284 6,036
Administrative expenses:
---------- ---------- --------- ---------- ---------- ---------
Manager's fee (374) (1,118) (1,492) (301) (903) (1,204)
Incentive fee - (4,407) (4,407) - - -
Other expenses (417) - (417) (581) - (581)
---------- ---------- --------- ---------- ---------- ---------
3 (791) (5,525) (6,316) (882) (903) (1,785)
(Loss) profit before taxation (130) 20,519 20,389 1,870 2,381 4,251
Taxation 4 - - - - - -
--------------------------------- ------ ---------- ---------- --------- ---------- ---------- ---------
(Loss) profit for the
year (130) 20,519 20,389 1,870 2,381 4,251
--------------------------------- ------ ---------- ---------- --------- ---------- ---------- ---------
Total comprehensive (expense)
income for the year (130) 20,519 20,389 1,870 2,381 4,251
--------------------------------- ------ ---------- ---------- --------- ---------- ---------- ---------
Basic and diluted (loss)
earnings per ordinary
share 6 (0.09p) 14.80p 14.71p 1.44p 1.83p 3.27p
--------------------------------- ------ ---------- ---------- --------- ---------- ---------- ---------
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 UK
adopted international accounting standards. 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 April 2021 -
"SORP") published by the AIC.
Balance Sheet
At 31 December 2021
Notes 2021 2020
GBP000 GBP000
ASSETS
Non-current assets at fair value through
profit or loss
Financial assets at fair value through
profit or loss 7 70,019 49,115
Accrued income and other assets 493 444
--------------------------------------------- ------ -------- --------
70,512 49,559
Current assets
Accrued income and other assets 217 511
Current asset investments 1,988 1,988
Cash and cash equivalents 19,201 19,002
21,406 21,501
LIABILITIES
Current liabilities
Trade and other payables (4,543) (131)
Net current assets 16,863 21,370
Net assets 87,375 70,929
--------------------------------------------- ------ -------- --------
Shareholders' equity
Share capital 15,808 14,133
Share premium account 24,122 16,735
Capital redemption reserve 88 88
Other reserves 2 2
Merger reserve 5,525 5,525
Capital reserve 12,818 22,461
Investment holding gains and losses reserve 7 28,009 9,254
Revenue reserve 1,003 2,731
Total shareholders' equity 87,375 70,929
--------------------------------------------- ------ -------- --------
Net asset value per ordinary share 8 61.5p 55.0p
--------------------------------------------- ------ -------- --------
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 21 March
2022.
Peter Waller
Chairman
Statement of Changes in Equity
For the year ended 31 December 2021
Share Share Other Capital Investment Revenue Total
capital premium reserves* reserve holding reserve equity
account gains
and losses
reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ --------- --------- ----------- --------- ------------ --------- ---------
Balance at 31 December
2019 14,041 16,436 5,615 25,223 9,948 1,070 72,333
------------------------ --------- --------- ----------- --------- ------------ --------- ---------
Revenue return
for the year - - - - - 1,870 1,870
Expenses charged
to capital - - - (903) - - (903)
Investment holding
gain on investments
held at fair value - - - - 1,615 - 1,615
Realisation of
investments in
the year - - - 1,669 - - 1,669
Total comprehensive
income for the
year - - - 766 1,615 1,870 4,251
------------------------ --------- --------- ----------- --------- ------------ --------- ---------
Issue of shares
- DRIS 92 319 - - - - 411
Issue costs ** - (20) - - - - (20)
Purchase of own
shares - - - (1,508) - - (1,508)
Dividends - - - (4,329) - (209) (4,538)
Total transactions
with owners 92 299 - (5,837) - (209) (5,655)
Realisation of
prior year investment
holding gains - - - 2,309 (2,309) - -
------------------------ --------- --------- ----------- --------- ------------ --------- ---------
Balance at 31 December
2020 14,133 16,735 5,615 22,461 9,254 2,731 70,929
------------------------ --------- --------- ----------- --------- ------------ --------- ---------
Revenue return
for the year - - - - - (130) (130)
Expenses charged
to capital - - - (5,525) - - (5,525)
Investment holding
gain on investments
held at fair value - - - - 20,702 - 20,702
Realisation of
investments in
the year - - - 5,342 - - 5,342
Total comprehensive
(expense) income
for the year - - - (183) 20,702 (130) 20,389
------------------------ --------- --------- ----------- --------- ------------ --------- ---------
Issue of share
capital 1,276 5,774 - - - - 7,050
Issue of shares
- DRIS 399 1,851 - - - - 2,250
Issue costs ** - (238) - (48) - - (286)
Purchase of own
shares - - - (1,942) - - (1,942)
Dividends - - - (9,456) - (1,559) (11,015)
Total transactions
with owners 1,675 7,387 - (11,446) - (1,559) (3,943)
Realisation of
prior year investment
holding gains - - - 1,986 (1,947) (39) -
------------------------ --------- --------- ----------- --------- ------------ --------- ---------
Balance at 31 December
2021 15,808 24,122 5,615 12,818 28,009 1,003 87,375
------------------------ --------- --------- ----------- --------- ------------ --------- ---------
The accompanying notes on pages 65 to 90 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
GBP000 GBP000 GBP000
Distributable reserves as shown above 12,818 1,003 13,821
---------------------------------------- --------- --------- -------
Less: income not yet distributable - (968) (968)
---------------------------------------- --------- --------- -------
Reserves available for distribution*** 12,818 35 12,853
---------------------------------------- --------- --------- -------
* 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.
*** Following the circulation of the Annual Report to shareholders.
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 GBP13,821,000, representing a decrease
of GBP11,371,000 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 GBP13,821,000 shown
above, GBP968,000 relates to income not yet distributable.
The Company held a General Meeting on 25 February 2022, at which
shareholders approved the cancellation of the Company's share
premium account, subject to the sanction of the High Court. If
approved, total share premium cancelled (including that arising
from the fundraising allotment on 7 January 2022) will be available
for distribution from the following dates:
GBP000
----------------------------------------- ------- ------- --------------
Once relevant accounts incorporating the share premium
cancellation have been filed 4,351
1 January 2023 12,085
1 January 2024 299
1 January 2025 7,387
------------------------------------------------------------------ -------
Share premium account at 31 December 2021 24,122
1 January 2026 20,193
------------------------------------------------------------------ -------
Cancelled share premium not yet distributable 44,315
------------------------------------------------------------------ -------
Statement of Cash Flows
For the year ended 31 December 2021
Notes 2021 2020
GBP000 GBP000
Net cash (outflow) inflow from operating activities (1,419) 938
------------------------------------------------------ ----- --------- --------
Cash flows generated from (used in) investing
activities
Purchase of financial assets at fair value
through profit or loss 7 (6,092) (3,997)
Proceeds from sale of financial assets at fair
value through profit or loss 7 11,182 5,772
Deferred consideration 7 471 -
Net cash inflow from investing activities 5,561 1,775
------------------------------------------------------ ----- --------- --------
Cash flows from (used in) financing activities
Issue of ordinary shares 7,050 -
Costs of ordinary share issues* (286) (20)
Purchase of own ordinary shares (1,942) (1,508)
Dividends paid 5 (8,765) (4,127)
Net cash outflow from financing activities (3,943) (5,655)
------------------------------------------------------ ----- --------- --------
Net increase (decrease) in cash and cash equivalents 199 (2,942)
Cash and cash equivalents at the beginning
of the year 19,002 21,944
Cash and cash equivalents at the end of the
year 9 19,201 19,002
------------------------------------------------------ ----- --------- --------
* 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
2021 2020
GBP000 GBP000
Profit before taxation 20,389 4,251
Increase (decrease) in trade and other payables 4,412 (35)
(Increase) decrease in accrued income and
other assets (117) 65
Gain on disposal of investments (5,342) (1,669)
Gains on investments held at fair value (20,702) (1,615)
Capitalised income (59) (59)
-------------------------------------------------- --------- --------
Net cash (outflow) inflow from operating
activities (1,419) 938
-------------------------------------------------- --------- --------
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 UK adopted international accounting standards. The
directors' assessment of going concern is set out in the Director's
Report on page 38 of the annual report.
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 April 2021 - "SORP") to the extent that they do not
conflict with International Accounting Standards in conformity with
the Companies Act 2006.
The financial statements are prepared in accordance with UK
adopted international accounting standards (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.
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 Valuation Guidelines ("the IPEV Guidelines")
updated in December 2018. 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 IPEV 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
> Revenue multiples . An appropriate multiple, given the risk
profile and revenue 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 IPEV
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.
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 Manager's fee and incentive
fees. Of the Manager'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.
Tax relief is allocated to the Capital Reserve using a marginal
basis.
Incentive Fee
The incentive fee is accounted for on an accruals basis. As
further detailed in note 3, the incentive fee is calculated as 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 Company's middle market price per
ordinary share on the five dealing days prior to that day, exceeds
the Hurdle (as defined in note 3), multiplied by the number of
ordinary shares issued and the ordinary shares under option. At the
end of each reporting period, an accrual is recognised based upon
the cumulative dividends per ordinary share paid to the reporting
date, plus the average of the Company's middle market price per
ordinary share on the five dealing days prior to the reporting
date. The incentive fee is charged wholly through the Capital
column.
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 Manager's and incentive fees payable to the
Manager. 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 Manager'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 Manager;
> Capital dividends paid to shareholders;
> Purchase and holding of the Company's own shares; and
> Credits arising from the 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 Manager's 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. The Board does not consider
that there is any particular impact of climate change that would
materially affect the estimate of fair value.
2. Income
2021 2020
GBP000 GBP000
Dividends from unquoted companies* 328 2,237
Interest on loans to unquoted companies 273 391
Income from investments held at fair value
through profit or loss 601 2,628
Interest on bank deposits 60 124
-------------------------------------------- ------- -------
661 2,752
-------------------------------------------- ------- -------
* 2020 includes an ordinary dividend of GBP1.93 million received
from ACC Aviation
3. Administrative Expenses
2021 2020
GBP000 GBP000
Manager's fee 1,492 1,204
Administration fee 70 69
-------------------------------------------------- ------- -------
1,562 1,273
Incentive fee 4,407 -
Other expenses:
Directors' remuneration 96 105
General expenses 63 71
Listing and registrar fees 55 56
Auditor's remuneration - audit fees (excluding
irrecoverable VAT) 41 35
Printing 34 33
Trail commission 33 60
Irrecoverable VAT 25 30
-------------------------------------------------- ------- -------
6,316 1,663
Fair value movement related to credit risk - 122
-------------------------------------------------- ------- -------
6,316 1,785
-------------------------------------------------- ------- -------
Ongoing charges figure 2.16% 2.45%
-------------------------------------------------- ------- -------
Directors' remuneration comprises only short term benefits
including social security contributions of GBP8,000 (2020:
GBP9,000).
The directors are the Company's only key management
personnel.
No fees are payable to the auditor in respect of other services
(2020: GBPnil), apart from costs of GBP12,000 (2020: GBPnil) for
audit-related assurance services which were charged to the share
premium account.
YFM Private Equity Limited has acted as Manager 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 "IA"). The agreement may be terminated by
not less than twelve months' notice given by either party at any
time. Under an Investment Agreement dated 13 November 2019, YFM
Private Equity Limited was appointed as the Company's Alternative
Investment Fund Manager. As a result, the Company was de-registered
by the Financial Conduct Authority as a Small Registered
Alternative Fund Manager on 24 March 2020 and responsibility for
the custody of the Company's investments passed to YFM Private
Equity Limited on that date.
The key features of the agreement are:
-- YFM Private Equity Limited receives a Manager's 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;
-- The annual Manager's fee payable to the Manager 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 2021 of GBP87,375,000, cash of GBP21,189,000 at that
date, and the incentive payment for the year ended 31 December 2021
being made prior to 30 June 2022 this equates to approximately
GBP1,611,000 per annum;
-- YFM Private Equity Limited shall bear the annual operating
costs of the Company (including the Manager's 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 IA 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 GBP70,000 for the year ended 31 December 2021 (2020:
GBP69,000).
When the Company makes investments into its unquoted portfolio,
the Manager 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 2021,
the Company was due a rebate from the Manager of GBPnil (2020:
GBPnil).
Monitoring and directors' fees the Manager 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 IA in the year was GBP1,562,000 (2020: GBP1,273,000).
Under the IA, 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 2021 the fees receivable by YFM Private Equity Limited
from investee companies which were attributable to advisory and
directors' and monitoring fees amounted to GBP1,235,000 (2020:
GBP1,009,000) of which GBP113,000 (2020: GBP93,000) was borne by
the Company.
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 Manager 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 2021 the total of cumulative cash dividends
paid and mid-market price was 135.5 pence per ordinary share.
Consequently the Hurdle was exceeded and a performance related
incentive of GBP4,407,000 is payable. The Hurdle for the year
ending 31 December 2022 is reset at 135.5 pence per ordinary
share.
If the IA is terminated the beneficiaries of the Incentive
Agreement will continue to be entitled to the Incentive Payment.
The Incentive Payment will be modified so as to entitle the
recipients to an Incentive Payment that is fair, having regard to
all the circumstances.
Under the terms of the offer launched with British Smaller
Companies VCT plc on 2 February 2021, YFM Private Equity Limited
was entitled to 2.5 per cent of gross subscriptions, less the cost
of re-investment of intermediary commission. The net amount to be
paid to YFM Private Equity Limited under this offer amounted to
GBP176,000.
Under the terms of the offer launched with British Smaller
Companies VCT plc on 22 September 2021, YFM Private Equity Limited
was entitled to 3.0 per cent of gross subscriptions, (3.5 per cent
for Applications received from Applicants who did not invest their
money through a financial intermediary advisor and invested
directly into the Company) less the cost of re-investment of
intermediary commission. The net amount to be paid to YFM Private
Equity Limited under this offer amounted to GBP744,000.
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 2021 (audited)".
4. Taxation
2021 2020
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
(Loss) profit before taxation (130) 20,519 20,389 1,870 2,381 4,251
------------------------------- -------- -------- -------- -------- -------- -------
(Loss) profit before taxation
multiplied by standard
rate of corporation tax
in UK of 19% (2020 :19%) (25) 3,899 3,874 355 453 808
Effect of:
UK dividends received (62) - (62) (412) - (412)
Non-taxable profits on
investments - (4,948) (4,948) - (624) (624)
Deferred tax not recognised 87 1,049 1,136 57 171 228
Tax charge - - - - - -
------------------------------- -------- -------- -------- -------- -------- -------
The Company has no provided or unprovided deferred tax liability
in either year.
Deferred tax assets of GBP3,072,000 (2020: GBP1,198,000)
calculated at 25% (2020: 19%) in respect of unrelieved management
expenses (GBP12.29 million as at 31 December 2021 and GBP6.31
million as at 31 December 2020) 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:
2021 2020
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Interim dividend for the year
ended 31 December 2021 of
1.5p (2020: 2.0p) per ordinary
share - 1,934 1,934 189 2,409 2,598
Second interim dividend for
the year ended 31 December
2021 of 1.5p (2020: 1.5p per
ordinary share) 1,559 544 2,103 20 1,920 1,940
Third interim dividend for
the year ended 31 December
2021 of 5.0p per ordinary
share - 6,978 6,978 - - -
1,559 9,456 11,015 209 4,329 4,538
Shares allotted under DRIS (2,250) (411)
--------------------------------- -------- -------- -------- -------- -------- -------
Dividends paid in Statement
of Cash Flows 8,765 4,127
--------------------------------- -------- -------- -------- -------- -------- -------
The first interim dividend of 1.5 pence per ordinary share was
paid on 5 March 2021 to shareholders on the register as at 5
February 2021.
The second interim dividend of 1.5 pence per ordinary share was
paid on 25 October 2021 to shareholders on the register as at 24
September 2021.
The third interim dividend of 5.0 pence per ordinary share was
paid on 16 November 2021 to shareholders on the register as at 15
October 2021.
An interim dividend of 1.5 pence per ordinary share in respect
of the year ending 31 December 2022, amounting to approximately
GBP2,700,000, will be paid on 6 May 2022. This dividend was not
recognised in the year ended 31 December 2021 as the obligation did
not exist at the balance sheet date.
6. Basic and diluted earnings per share
The basic and diluted earnings per ordinary share is based on
the profit after tax attributable to shareholders of GBP20,389,000
(2020: GBP4,251,000) and 138,592,343 (2020: 129,987,842) ordinary
shares being the weighted average number of ordinary shares in
issue during the year.
The basic and diluted revenue (loss) earnings per ordinary share
is based on the revenue (loss) profit for the year attributable to
shareholders of GBP130,000 (2020: profit of GBP1,870,000) and
138,592,343 (2020: 129,987,842) 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 GBP20,519,000 (2020: GBP2,381,000) and 138,592,343
(2020: 129,987,842) ordinary shares being the weighted average
number of ordinary shares in issue during the year.
During the year the Company allotted 3,995,494 new ordinary
shares in respect of its DRIS and 12,756,951 new ordinary shares
from the fundraising.
The Company has also repurchased 3,553,337 of its own shares in
the year, and these shares are held in the capital reserve. The
total of 15,929,774 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 2021 and 31 December 2020.
7. Financial Assets at Fair Value though 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.
The Company held no such instruments in the current or prior
year.
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
revenue or earnings multiples. If one or more of the significant
inputs is not based on observable market data, the instrument is
included in level 3. All of the Company's investments fall into
this category at 31 December 2021.
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 of these financial statements. 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 2021 are summarised as follows:
IFRS 13 measurement classification Level 3
Unquoted
Investments
GBP000
------------------------------------ -------------
Opening cost 39,891
Opening investment holding gain 9,224
-------------
Opening fair value at 1 January
2021 49,115
Additions at cost 6,092
Capitalised income 59
Disposal proceeds (11,186)
Net profit on disposal* 5,237
Change in fair value 20,539
Foreign exchange gain 163
------------------------------------ -------------
Closing fair value at 31 December
2021 70,019
------------------------------------ -------------
Closing cost 42,037
Closing investment holding gain** 27,982
------------------------------------ -------------
Closing fair value at 31 December
2021 70,019
------------------------------------ -------------
* The net profit on disposal in the table above is GBP5,237,000
whereas that shown in the Statement of Comprehensive income is
GBP5,342,000. The difference comprises deferred proceeds of
GBP105,000 in respect of assets which have been disposed of in
prior years and are not included in the portfolio at 1 January 2021
(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 2021 a total of GBP27,000 (2020: GBP30,000)
was held on investments yet to be realised in the investment
holdings gains and losses reserve.
The following disposals took place in the year:
Net proceeds Cost Opening Profit (loss)
from sale carrying on disposal
value as
at 1 January
2021
GBP000 GBP000 GBP000 GBP000
Unquoted investments:
Matillion Limited 5,946 321 2,539 3,407
Deep-Secure Ltd 3,279 500 1,966 1,313
KeTech Enterprises
Limited 1,275 1,490 1,292 (17)
Tissuemed Limited 599 48 65 534
Ncam Technologies
Limited 87 87 87 -
Macro Art Holdings - 159 - -
Limited
Friska Limited - 1,400 - -
Total from unquoted
investments 11,186 4,005 5,949 5,237
-------------------------- ------------- ------- -------------- --------------
Deferred proceeds
Business Collaborator
Limited 300 - 300 -
Bagel Nash Group Limited 100 - 66 34
Ness (Holdings) Limited 71 - - 71
Deferred proceeds
received 471 - 366 105
-------------------------- ------------- ------- -------------- --------------
Total proceeds received* 11,657 4,005 6,315 5,342
-------------------------- ------------- ------- -------------- --------------
* The total from disposals in the year in the table above is
GBP11,657,000 whereas that shown in the Statement of Cash Flows is
GBP11,653,000. The difference comprises proceeds of GBP4,000 which
were received after the year end.
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 GBP87,375,000 (2020:
GBP70,929,000) and 142,155,199 (2020: 128,956,091) 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 2021.
The Company has no potentially dilutive shares and consequently,
basic and diluted net asset values per ordinary share are
equivalent in both the years ended 31 December 2021 and 31 December
2020.
9. Total Return per Ordinary Share
The Total Return per ordinary share is calculated on cumulative
dividends paid of 78.0 pence per ordinary share (2020: 70.0 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 2021 or 31
December 2020.
11. Events after the Balance Sheet Date
The Company announced a new share offer on 22 September 2021,
alongside British Smaller Companies VCT plc, with the intention of
raising up to GBP40 million, in aggregate with an over-allotment
facility of GBP20 million, in aggregate. This was fully subscribed
and closed on 12 November 2021. The related allotment of 40,224,521
ordinary shares took place post year-end, on 7 January 2022,
following which the Company received net proceeds of GBP24.2
million.
12. Annual Report and Accounts
Copies of the statutory accounts for the year ended 31 December
2021 will shortly be submitted to the National Storage Mechanism
and will be available to the public for viewing online at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism . They can
also shortly be viewed on the Company's website at
http://www.bscfunds.com . Hard copies of the statutory accounts for
the year to 31 December 2021 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 Waller, Ms B Anderson and
Mr R McDowell.
14. Annual General Meeting
The Annual General Meeting of the Company will be held at 12:00
noon on 13 June 2022 at 33 St James Square, London, SW1Y 4JS.
15. Interim Dividend for the Year Ending 31 December 2022.
The directors are pleased to announce the payment of an interim
dividend for the year ending 31 December 2022 of 1.5 pence per
ordinary share ("Interim Dividend").
The Interim Dividend will be paid on 6 May 2022 to those
shareholders on the Company's register at the close of business on
1 April 2022. The ex-dividend date will be 31 March 2022.
The directors are not proposing a final dividend for the year
ended 31 December 2021.
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 19 April 2022.
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 Private Equity 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
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