The Company targets returns for the Ordinary Share Class of 8%
to 10% pa including the benefit of tax relief. At a weighted
average share price at acquisition or conversion of 83.6p and on a
weighted average return this is broadly equivalent to a total
target return to investors in 2018 of 90.4p. This compares to a net
asset value per share for the Ordinary Share Class at 31 March 2014
of 79.03p and a dividend payment of 4.11p, bringing the total
return at 31 March 2014 to 83.14p.
The net asset value per share for the A Share Class at 31 March
2014 stood at 82.15p and a dividend payment of 5p, making a total
return at 31 March 2014 of 87.15p. The targeted return for the
original investment in TP12 (I) VCT plc was 9% to 12%. At a return
of 9% on a weighted average share price at conversion of 86.4p, it
broadly equates to a total target return to investors in 2017 of
97.6p.
The net asset value per share for the C Share Class at 31 March
2014 stood at 98.38p. The target for the C Share Class is to pay
dividends of 5% to 7% of net asset value each year from 2016 for 15
years, and in addition to secure a partial realisation targeted to
be 50% after five years.
The Board and the Investment Manager are both committed to
ensuring that returns on the investment portfolio are optimised and
that the VCT remains fully invested and continues to be managed in
line with the Company's investment strategy and risk profile.
The Company's objective has been to build a portfolio of
investments which target capital preservation. The Company's
qualifying and non-qualifying investments are both meeting this
objective. Some of the unquoted investments are showing some small
appreciation in line with market valuations, whilst the remainder
of the portfolio has maintained its value and is valued at
cost.
A review of the performance of the Company's investments during
the financial year, the position of the Company at the year end and
the outlook for the coming year is contained within the Chairman's
statement on pages 2 to 3 and the Investment Manager's Review on
pages 10 to 11.
Dividend Policy
The Board aims to deliver an annual 5% dividend for the Ordinary
Share Class and the A Share Class and a dividend of 5% to 7% for
the C Share Class from 2016, but this depends primarily on the
Company's level of realisations as well as profitability and cash
flow. There may be variations in the amount of dividends paid year
on year.
Investment Policy
The Company's Investment Policy as set out in the prospectuses
circulated to shareholders is set out below.
At least 70% of the Company's net assets will be invested in
unquoted companies. The remaining assets will be exposed either to
(i) cash or similar cash-based liquid investments or (ii)
investments originated in line with the Company's VCT qualifying
investment policy.
To comply with VCT Rules, the Company will seek to acquire (and
subsequently maintain) a portfolio of VCT qualifying company
investments equivalent to a minimum of 70% of the value of its
investments over a period not exceeding three years. These VCT
qualifying investments will typically be in investments ranging
between GBP500,000 and GBP5,000,000 and will encompass businesses
with cash generative ability, arising from a niche position or the
market in which they operate. No single investment by the Company
will represent more than 15% of the aggregate value of all the
investments of the Company at the time any investment is made or
added to. It is possible that investments may be made in more than
one company in the same sector.
In seeking to achieve its objectives, the Company will invest on
the basis of the following conservative principles:
(a) TPIM will seek investments where robust due diligence has been undertaken;
(b) TPIM will favour investments where there is a high level of
access to material financial and other information on an ongoing
basis (as a condition for investing in a company, the Company may
nominate directors to the boards of investee companies);
(c) TPIM will seek to minimise the risk of losses when investing
through careful analysis of the collateral available to investee
companies;
(d) TPIM will target investments where there is a strong
relationship with the key decision makers.
Qualifying Investments
The Company pursues investments in a range of sectors that meet
its investment criteria. The objective is to build a diversified
portfolio of unquoted companies which are cash generative and,
therefore, capable of producing predictable income for the Company
prior to their realisation or exit.
Although investments will be sought in a range of diverse
industries, the Company's portfolio will comprise companies with
certain characteristics, for example clear commercial and financial
objectives, strong contractual customer relationships and, where
possible, tangible assets with value. The Company will focus on
identifying businesses typically with predictable revenues from a
high-quality customer base. Businesses with assets providing
valuable security may also be considered. The objective is to
reduce the risk of capital value volatility by selecting businesses
with stable valuation characteristics and to provide investors with
an attractive income stream.
The criteria against which investment targets would be assessed
will include the following:
(a) an attractive valuation at the time of the investment;
(b) managed risk of capital losses;
(c) predictability and reliability of the company's cash flows;
(d) the quality of the business's counterparties, suppliers and market position;
(e) the sector in which the business is active. The Company will
focus on sectors where its capital can be used to create growth but
not where returns are speculative. Key target sectors include
energy, entertainment and social enterprise;
(f) the quality of the company's assets;
(g) the opportunity to structure an investment that can produce distributable income;
(h) the prospect of achieving an exit after 5 years.
Non-Qualifying Investments
The non-qualifying investments will consist of cash, cash-based
similar liquid investments and investments of a similar profile to
the qualifying investments with an expected realisation date which
meets the liquidity requirements of the VCT.
Borrowing Powers
The Company has no present intention of utilising direct
borrowing as a strategy for improving or enhancing returns. To the
extent that borrowing is required, the Directors will restrict the
borrowings of the Company and exercise all voting and other rights
or powers of control over its subsidiary undertakings (if any) to
ensure that the aggregate amount of money borrowed by the group,
being the Company and any subsidiary undertakings for the time
being, (excluding intra-group borrowings), shall not without the
previous sanction of an ordinary resolution of the Company exceed
30% of its net asset value at the time of any borrowing.
VCT Regulation and Tax Benefits
VCTs were introduced in the Finance Act 1995 to provide a means
for private individuals to invest in unquoted companies in the UK.
The Finance Act 2004 introduced changes to VCT legislation designed
to make VCTs more attractive to investors. The tax benefits
available to eligible investors in VCTs include:
-- up-front income tax relief of 30%
-- exemption from income tax on dividends received
-- exemption from capital gains tax on disposals of shares in VCTs.
The Company was provisionally approved as a VCT by Her Majesty's
Revenue and Customs. In order to secure final approval the Company
must comply with certain requirements on a continuing basis. Within
three years from the effective date of provisional approval or
later allotment at least 70% of the Company's investments must
comprise "qualifying holdings" of which at least 30% must be in
eligible ordinary shares.
VCT qualifying status risk: the Company is required at all times
to observe the conditions laid down in the Income Tax Act 2007 for
the maintenance of approved VCT status. The loss of such approval
could lead to the Company losing its exemption from corporation tax
on capital gains, to investors being liable to pay income tax on
dividends received from the Company and, in certain circumstances,
to investors being required to repay the initial income tax relief
on their investment. The Investment Manager keeps the Company's VCT
qualifying status under continual review and reports to the Board
on a quarterly basis. The Board has also retained
PricewaterhouseCoopers LLP to undertake an independent VCT status
monitoring role.
Exit Programme
The Company is committed to realising its investments and
returning funds to Ordinary shareholders and A shareholders as soon
as practicable after the end of the five year holding period which
will be 30 April 2017 for the A shares and 30 April 2018 for the
Ordinary shares. In relation to the C Share Class the Company is
intending to secure a partial realisation of 50p per share after
five years but plans to retain its investment in the Hydro
companies for 25 years.
The valuation of and potential exit routes for the Company's
portfolio of investments are reviewed and discussed at each Board
meeting. The Investment Manager has successfully implemented exit
plans for other VCTs under its management.
Principal Risk and Risk Management
The Directors carry out a regular review of the environment in
which the Company operates. The main areas of risk identified by
them, along with the risks to which the Company is exposed through
its operational and investing activities, are detailed below.
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