Financial Highlights
• Total net assets £111.9 million.
• Net asset value per share increased by 3.2% in the period from 55.8p at
• An interim dividend of 2.8p per share was paid on
• 1.1 million ordinary shares were issued as part of the Dividend Reinvestment Scheme on
• The portfolio has seen an uplift in valuation of £10.0 million in the last six months.
Chairman's Statement
I am pleased to present the un-audited Half-Yearly Report for
Material events during the period
Before providing other details, I would like to draw attention to a material event that occurred during the period being the continuing impact of Covid-19 on the Company and its portfolio.
The Covid-19 virus has presented the Company and the management of every one of its portfolio companies with unprecedented challenges which it is anticipated will persist for a considerable time to come. The Manager has been working closely with the portfolio companies, in order to try to minimise any adverse impact of this virus, and it is a great credit to the quality of the management of the portfolio companies, that the fallout from the pandemic has not been even more significant. Until this virus is brought under worldwide control, it is impossible to assess its full impact. However, it is already clear that the value of every business in the Company’s portfolio has been materially affected, a minority have benefitted but most have not.
At the end of last year the Company held eight investments, representing some 16% by value of its investment portfolio, in businesses involved in the travel, retail, entertainment and food and drink sectors. To date these sectors are amongst those most hard hit by the provisions of the lockdown imposed by the
The overall impact of the Covid virus could be seen in the material fall in the valuation of the Company’s portfolio at
Performance and portfolio activity
During the period Net Asset Value per share increased by 3.2% from 55.8p at
During the period under review the Manager made no new investments, as it focused on supporting the current portfolio during the ongoing Covid-19 Coronavirus outbreak.
Dividends
An interim dividend of 2.8p per Share was declared on
As noted in the Annual Report and Accounts and in light of the change in portfolio towards earlier stage, higher risk companies, as required by the new VCT rules, the Board felt it prudent to adjust the dividend policy towards a targeted annual dividend yield of 5% of NAV per annum. The Board and the Manager hope that this may be enhanced by additional ‘special’ dividends as and when particularly successful portfolio exits are made. The impact of Covid-19 will be taken into consideration when the Board considers dividends in the near term.
Shareholder communication
As a result of the travel restrictions imposed due to Covid-19, the Manager’s popular investor forums have been temporarily put on hold. Once it is possible to do so, details of both a
Board composition
The Board continues to review its own performance and undertakes succession planning to maintain an appropriate level of independence, experience, diversity and skills in order to be in a position to discharge all its responsibilities. As noted in the Annual Report and Accounts the
Outlook
The persisting uncertainty over the full impact of Covid-19 and the negotiations in relation to Brexit create truly exceptional challenges for every business. The Company invests primarily in developing companies which by their nature benefit from general economic growth and the current environment places considerable demands upon them and their management teams. The Manager’s private equity team is well aware of the management and business needs of each of the companies within the investment portfolio and is working closely with them to help them progress during these testing times.
Until the pandemic is brought under worldwide control there will inevitably be further, mainly unhelpful, implications for many
Chairman
Manager's Review
Portfolio Summary
As at
The investment team remain focused on supporting an annual dividend to shareholders of at least 5% of the NAV per share whilst retaining a stable NAV. The Company is currently on target as whilst dividends have remained at 5%, NAV per share has also increased by 3.2% in the period.
During the period, the value of unquoted investments increased overall by £10.0 million as the portfolio began to recover following the steep decline experienced in the quarter to March as the country entered the first peak of Covid-19. Whilst the recovery has been mixed across the portfolio depending on sector, in aggregate the recovery is reflective of the portfolio’s ability to successfully navigate the impacts of Covid-19 and the general uptick in economic activity following the reopening of businesses over the summer. Since the end of September, the country has had to face a second lockdown, which will bring further volatility to trading. Nevertheless, the portfolio is well prepared to weather this period of uncertainty with strong foundations laid during the first lockdown.
NEW INVESTMENTS
Given the challenges of completing transactions during lockdown and the broader uncertainty during the period, no new investments were made in the six months to September. Smaller companies remained focused largely on survival rather than strategic growth. In addition, the investment team were primarily focused on managing and supporting the existing portfolio through these unprecedented times. Where possible, portfolio companies are trying to maximise any commercial opportunities arising from Covid-19, with some thriving in the current climate.
FOLLOW-ON INVESTMENTS
With very active portfolio management and use of the various forms of Government support, such as the furlough scheme and the Coronavirus Business Interruption Loan Scheme, there have been no follow-on investments during the six months to
will seek to make strategic follow-on investments into businesses to support new growth plans or opportunities that have stemmed from the new economic landscape.
EXITS AND REALISATIONS
Whilst the M&A climate has been challenging in the period, with most trade acquirers focused on survival and private equity investors focused on their existing portfolios or on distressed acquisitions, the Investment Manager is seeing acquisition interest returning, particularly in the healthcare, technology and E-commerce sectors.
PIPELINE
At
The onset of Covid-19 and the resulting economic downturn has resulted in lower new investment activity across the market in the first three quarters of 2020. As the economy recovers from the worst effects of the virus, we expect company valuations to be attractive and demand for funding to increase, driving some particularly interesting opportunities for investment.
KEY PORTFOLIO DEVELOPMENTS
Overall, the value of unquoted investments held increased by £10.0 million to £76.2 million in the period, driven by an increase in the value of existing investments. A disciplined approach to investment valuations has been maintained in light of Covid-19. In the quarter to March, the onset of the Covid-19 pandemic drove significant economic uncertainty and the portfolio saw a substantial decrease in value of £20.6 million. In the quarter to June, as the portfolio adapted to the new economic climate, and started adapting their business models fair values saw a slight recovery in aggregate, increasing by £3.3 million. This upwards trend has continued, with valuations rebounding a further £6.7 million in the quarter to September. Material changes in valuation, defined as increasing or decreasing by £1.0 million or more since
KEY VALUATION CHANGES IN THE PERIOD
Company | Valuation (£) | Valuation Change (£) |
5,163,636 | 4,165,696 | |
2,179,243 | 2,179,243 | |
5,057,127 | 1,758,346 | |
3,089,081 | 1,531,512 | |
7,011,068 | 1,232,162 |
PROCAM
Procam is a broadcast hire company, supplying equipment and crew for location TV and film production and also has a division (True Lens Services) focused on the manufacture and maintenance of camera lenses. During Covid-19, Procam’s rental business had to largely close due to the halting of television and film production. Conversely, its True Lens Services division continued to trade positively, back to pre-Covid-19 levels. As challenging trading conditions continued, Procam required a formal restructuring and the Company supported a sale of the trade and assets of Procam’s rental division and spun out its True Lens Service division into a separate company, supporting a substantial recovery in value.
OUTLOOK
In light of rapidly evolving Government guidance, we now face a second countrywide lockdown. Most businesses had fully reopened by September, with the Manager supporting its portfolio through a transition to the ‘new normal’, working closely with them to implement safe working environments and resilient business models. It is now crucial that we act quickly and administer the same tools as the first lockdown to support our portfolio companies. We will increase our dialogue with management teams to closely monitor ongoing performance and cash levels. We have also been working with companies to revise business plans and budgets to manage creditor stretch and debt build-up, and to prepare them for an eventual reduction of Government support. We are ensuring that finance directors at the portfolio companies continue to tightly manage overheads, reduce capital expenditure and work through longer-term cost reduction plans given the uncertain macro environment. It is important that management teams are well prepared for a sustained period of weaker consumer and business demand. The Company’s portfolio is diversified by sector and market, and the SME sector has historically proven to be resilient and nimble enough to weather periods of volatility.
Where possible, we are trying to maximise any commercial opportunities arising from the current situation. For example, there are also a number of companies, particularly in the healthcare and life sciences sectors, which have traded strongly during this period due to the increased demand for the services they offer. Examples of this include Mologic, which received a grant of c.£1m to fund Covid-related diagnostic development. Molecular diagnostics business,
A proportion of the portfolio companies are particularly at risk due to the sectors they operate in, such as travel, hospitality and leisure. Many of these businesses will now be stuck in a prolonged period of closures and uncertainty on when they will be allowed to reopen. The Manager is working extensively with these businesses, paying particular attention to managing creditors and cash preservation. It is important to highlight that some of the Company’s leisure investments demonstrated market leading site metrics pre- Covid and will have the ability to weather this temporary period of suppressed trading. Once reopened, even with capacity limitations, we expect several of our leisure businesses to return to profit and cash generation over time thanks to a loyal customer base and favourable customer demographic.
Notwithstanding this backdrop, we continue to see encouraging levels of activity from smaller
Head of Private Equity
Unaudited Half-Yearly Results and Responsibilities Statements
Principal Risks and Uncertainties
The principal risks faced by the Company are as follows:
- Performance;
- Regulatory;
- Economic (external shocks);
- Operational; and
- Financial.
The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Accounts for the year ended
In the view of the Board, there have been no changes to the fundamental nature of these risks since the previous report and these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure and Transparency Rules (‘DTR’) of the
The Directors confirm to the best of their knowledge that:
- the summarised set of financial statements has been prepared in accordance with FRS 104;
- the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year);
- the summarised set of financial statements gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company as required by DTR 4.2.4R; and
- the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties’ transactions and changes therein).
GOING CONCERN
The Company’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic Report of the Annual Report. The financial position of the Company, its cash flows, liquidity position and borrowing facilities are described in the Chairman’s Statement, Strategic Report and Notes to the Accounts of the
The Company has considerable financial resources together with investments and income generated therefrom across a variety of industries and sectors. As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully.
The Directors have reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
The Half-Yearly Financial Report has not been audited nor reviewed by the auditors.
On behalf of the Board
Chairman
Unaudited Income Statement
for the six months ended
Six months ended | Six months ended | Year ended | |||||||
Revenue £’000 | Capital £’000 | Total £’000 | Revenue £’000 | Capital £’000 | Total £’000 | Revenue £’000 | Capital £’000 | Total £’000 | |
Investment holding gains/ (losses) | - | 9,990 | 9,990 | - | 7,900 | 7,900 | - | (11,081) | (11,081) |
Realised losses on investments | - | - | - | - | (3,623) | (3,623) | - | (5,251) | (5,251) |
Income | 324 | - | 324 | 420 | - | 420 | 3,673 | - | 3,673 |
Investment management fees | (295) | (884) | (1,179) | (330) | (991) | (1,321) | (545) | (1,633) | (2,178) |
Other expenses | (270) | - | (270) | (315) | - | (315) | (594) | - | (594) |
(Loss) /return on ordinary activities before taxation | (241) | 9,106 | 8,865 | (225) | 3,286 | 3,061 | 2,534 | (17,965) | (15,431) |
Taxation | - | - | - | - | - | - | - | - | - |
(Loss) /return on ordinary activities after taxation | (241) | 9,106 | 8,865 | (225) | 3,286 | 3,061 | 2,534 | (17,965) | (15,431) |
(Loss) /return per share | (0.1)p | 4.7p | 4.6p | (0.1)p | 1.7p | 1.6p | 1.3p | (9.2)p | (7.9)p |
The total column of this statement is the profit and loss account of the Company and the revenue and capital columns represent supplementary information.
All revenue and capital items in the above Income Statement are derived from continuing operations. No operations were acquired or discontinued in the period.
The Company has no recognised gains or losses other than those shown above, therefore no separate statement of total recognised gains and losses has been presented.
Unaudited Balance Sheet
at 30 September 2020
Registered Number: 03506579
As at £’000 | As at £’000 | As at £’000 | |
Fixed assets | |||
Investments held at fair value through profit or loss | 76,196 | 82,488 | 66,206 |
Current assets | |||
Debtors | 971 | 15,874 | 726 |
Cash and cash equivalents | 34,884 | 29,893 | 41,872 |
35,855 | 45,767 | 42,598 | |
Creditors | |||
Amounts falling due within one year | (124) | (497) | (104) |
Net current assets | 35,731 | 45,270 | 42,494 |
Net assets | 111,927 | 127,758 | 108,700 |
Capital and reserves | |||
Called-up share capital | 1,944 | 1,957 | 1,948 |
Share premium account | 80,002 | 79,466 | 79,443 |
Capital redemption reserve | 518 | 494 | 503 |
Special distributable reserve | 56,678 | 60,911 | 63,127 |
Capital reserve | (50,874) | (47,720) | (49,990) |
Revaluation reserve | 23,659 | 32,650 | 13,669 |
Equity shareholders’ funds | 111,927 | 127,758 | 108,700 |
Net asset value per share | 57.6p | 65.3p | 55.8p |
Unaudited Reconciliation of Movements in Shareholders' Funds
for the six months ended
Called-up share capital £’000 | Share premium account £’000 | Capital redemption reserve £’000 | Special Distributable reserve* £’000 | Capital reserve* £’000 | Revaluation reserve £’000 | Total £’000 | |
As at | 1,948 | 79,443 | 503 | 63,127 | (49,990) | 13,669 | 108,700 |
Share issues in the period | 11 | 578 | - | - | - | - | 589 |
Expenses in relation to share issues | - | (19) | - | - | - | - | (19) |
Repurchase of shares | (15) | - | 15 | (795) | - | - | (795) |
Investment holding gains | - | - | - | - | - | 9,990 | 9,990 |
Dividend paid | - | - | - | (5,413) | - | - | (5,413) |
Management fees charged to capital | - | - | - | - | (884) | - | (884) |
Revenue loss for the period | - | - | - | (241) | - | - | (241) |
As at | 1,944 | 80,002 | 518 | 56,678 | (50,874) | 23,659 | 111,927 |
*Reserve is available for distribution, total distributable reserves at
Unaudited Cash Flow Statement
for the six months ended
Six months ended £’000 | Six months ended £’000 | Year ended £’000 | |
Cash flow from operating activities | |||
Loan interest received on investments | 29 | 196 | 559 |
Dividends received from investments | - | 28 | 2,835 |
Deposit and similar interest received | 26 | 111 | 238 |
Investment management fees paid | (1,179) | (1,267) | (2,579) |
Secretarial fees paid | (79) | (85) | (169) |
Other cash payments | (147) | (248) | (418) |
Net cash (outflow)/inflow from operating activities | (1,350) | (1,265) | 466 |
Cash flow from investing activities | |||
Purchase of investments | - | (3,600) | (8,361) |
Net proceeds on sale of investments | - | - | 434 |
Net proceeds on deferred consideration | - | 31 | 31 |
Net cash outflow from investing activities | - | (3,569) | (7,896) |
Cash flow from financing activities | |||
Proceeds of fund raising | - | 10,021 | 25,586 |
Expenses of fund raising | (19) | (314) | (336) |
Repurchase of own shares | (795) | (1,098) | (2,067) |
Equity dividends paid | (4,824) | (7,067) | (7,066) |
Net cash (outflow)/inflow from financing activities | (5,638) | 1,542 | 16,117 |
Net (outflow)/inflow in cash in the period | (6,988) | (3,292) | 8,687 |
Analysis of changes in net debt
At £’000 | Cash Flow £’000 | At £’000 | |
Cash and cash equivalents | 41,872 | (6,988) | 34,884 |
Notes to the Unaudited Half-Yearly Results
- The Unaudited Half-Yearly Financial Report has been prepared on the basis of the accounting policies set out in the statutory accounts of the Company for the year ended
31 March 2020 . Unquoted investments have been valued in accordance with IPEV Valuation Guidelines. - These are not statutory accounts in accordance with S436 of the Companies Act 2006 and the financial information for the six months ended
30 September 2020 and30 September 2019 has been neither audited nor formally reviewed. Statutory accounts in respect of the year ended31 March 2020 have been audited and reported on by the Company’s auditors and delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under S498(2) or S498(3) of the Companies Act 2006. No statutory accounts in respect of any period after31 March 2020 have been reported on by the Company’s auditors or delivered to the Registrar of Companies. - Copies of the Unaudited Half-Yearly Financial Report will be sent to shareholders via their chosen method and will be available for inspection at the
Registered Office of the Company at The Shard,32 London Bridge Street ,London , SE1 9SG. - Net asset value per share
The net asset value per share is based on net assets at the end of the period and on the number of shares in issue at the date.
Net assets | Shares in Issue | |
£111,927,000 | 194,420,778 | |
£127,758,000 | 195,726,224 | |
£108,700,000 | 194,826,224 |
- Return per share
The weighted average number of shares used to calculate the respective returns are shown in the table below.
Shares | |
Six months ended | 194,054,492 |
Six months ended | 195,728,848 |
Year ended | 195,581,908 |
Earnings for the period should not be taken as a guide to the results for the full year.
6) Income
Six months ended £’000 | Six months ended £’000 | Year ended £’000 | |
Loan stock interest | 278 | 281 | 597 |
Dividends | - | 28 | 2,835 |
Deposit and similar interest received | 26 | 111 | 241 |
Other Income | 20 | - | - |
324 | 420 | 3,673 |
7) Investments held at fair value through profit or loss
£’000 | |
Book cost as at | 52,537 |
Investment holding gains | 13,669 |
Valuation at | 66,206 |
Movements in the period: | |
Purchases | - |
Disposal proceeds | - |
Realised gains | - |
Investment holding gains | 9,990 |
Valuation at | 76,196 |
Book cost at | 52,537 |
Investment holding gains | 23,659 |
Valuation at | 76,196 |
8) Related party transactions
No Director has an interest in any contract to which the Company is a party other than their appointment and payment as directors.
9) Transactions with the Manager
During the period, administration services of a total cost of £79,000 (
At
10) Post-Balance sheet events
On
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