Annual Report • Dec 31, 2016
Annual Report
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A VENTURE CAPITAL TRUST
Annual Report & Financial Statements for the year ended 31 December 2016
Mobeus Income & Growth 4 VCT plc, ("MIG4", the "Company" or the "Fund") is a Venture Capital Trust ("VCT") advised by Mobeus Equity Partners LLP ("Mobeus"), investing primarily in established, unquoted companies.
The Objective of the Company is to provide investors with a regular income stream by way of tax-free dividends and to generate capital growth through portfolio realisations which can be distributed by way of additional tax-free dividends, while continuing at all times to qualify as a VCT.
The Company seeks to pay dividends at least annually out of income and capital as appropriate, and subject to fulfilling certain regulatory requirements.
| Contents | |
|---|---|
| Financial Highlights | 1 |
| Chairman's Statement | 2 |
| Strategic Report | 4 |
| - Objective - Summary of Investment Policy - The Company and its Business Model - Summary of VCT Regulation - Performance and Key Performance Indicators - Investment Review - Principal Investments in the Portfolio at 31 December 2016 by Valuation - Investment Portfolio Summary - Key Policies |
4 4 4 4 5 8 10 14 18 |
| - Investment Policy - Principal risks, management and regulatory environment |
18 19 |
| Reports of the Directors - Board of Directors - Directors' Report - Corporate Governance Statement - Report of the Audit Committee - Directors' Remuneration Report - Statement of Directors' Responsibilities |
21 21 22 25 31 33 36 |
| Independent Auditor's Report | 37 |
| Financial Statements | 40 |
| Information for Shareholders | 62 |
| - Shareholder Information - Notice of the Annual General Meeting - Corporate Information |
62 64 67 |
Net Asset Value ("NAV") Total Return per share of 0.6% for the year.
Share Price Total Return per share of 3.3% for the year.
Shareholders received an interim dividend of 2.00 pence per share in September 2016. A second interim dividend of 7.00 pence per share has been declared and was paid on 17 March 2017. This brought dividends paid per share in respect of the year to 9.00 pence and cumulative dividends paid per share to date to 80.20 pence.
£3.14 million was invested during the year into five growth capital investments.
A total of £2.10 million cash proceeds was received primarily from loan stock repayments.
The longer term trend of performance on this measure is shown in the chart below:-
* Cumulative total shareholder return (NAV basis) is net asset value plus cumulative dividends paid since 1999 to 31 December 2016. The cumulative dividend figure of 73.20 pence per share excludes the payment of the second interim dividend after the year end on 17 March 2017, of 7.00 pence per share. Payment of this dividend has the effect of reducing NAV per share by the equivalent amount.
The chart above shows the recent past performance of the original funds raised in 1999. The original subscription price was 200p per share before the benefit of income tax relief. Subscription prices from subsequent fundraisings and historic performance data from 2008 are shown in the Investor Performance Appendix on the Company's website, www.mig4vct.co.uk, where they can be downloaded by clicking on "table" under "Reviewing the performance of your investment" on the home page.
On 31 July 2006, Mobeus became sole Investment Adviser to the Company. The cumulative NAV total return at this date was 122.51 pence.
I am pleased to present the annual results of Mobeus Income & Growth 4 VCT plc for the year ended 31 December 2016.
2016 represented a year of significant change for your Company. It was the first year of operating after the amendments introduced by the 2015 Finance Act "New VCT Rules".
Because of the magnitude of the changes, shareholders were asked to approve a new investment policy, which they did at last year's annual general meeting in May, 2016.
The Investment Adviser has expanded its investment team to address the new requirements, and has started making investments under the new rules.
Six new investments have already been completed under the New VCT Rules, which is encouraging.
The portfolio held up well despite the uncertainties of the Brexit campaign, which included some unduly pessimistic views advanced by the then government and its allies.
The NAV total return per share for the year was 0.6 per cent. (2015: 8.2 per cent.) (being the closing NAV plus dividends paid in the year divided by the opening NAV). The small rise in NAV return over the year was primarily due to a positive revenue return. The share price total return was 3.3 per cent. (2015: 11.7 per cent.). These figures are after adding back a total of 11.00 pence of dividends paid in the year. The NAV at 31 December 2016 was 107.57 pence. For details of these calculations, please refer to the Strategic Report.
For more details on the longer-term performance of your investment in the Company, please consult the Investor Performance Appendix on the Company's website.
Your Directors declared a second interim dividend in respect of 2016 of 7.00 pence (2015: final of 9.00 pence) per share, comprising 1.00 pence from income (2015: 1.50 pence) and 6.00 pence from capital
(2015: 7.50 pence) of which 6.00 pence was paid from the Company's Special Distributable Reserve. This dividend was paid on 17 March 2017 to shareholders on the Register on 17 February 2017. This brought dividends paid in respect of the year ended 31 December 2016 to 9.00 pence (2015: 11.00 pence) per share and cumulative dividends paid since inception to 80.20 pence (2015: 71.20 pence) per share. In view of the second interim dividend paid in March, the Board is not proposing the payment of a final dividend in respect of 2016.
A chart showing the dividends paid in respect of each of the last five years and cumulative dividends on the same basis is included in the Strategic Report.
Partly as a consequence of the move to target younger and smaller companies seeking growth capital funding in order to comply with the New VCT Rules, the amount of new investment completed by the Company was lower in 2016 than 2015. These New VCT Rules contain more restrictive investment criteria which, as anticipated in my Statement last year, reduced new investment by the Company in the first half of the year (and across the whole VCT generalist sector), while the Board and the Investment Adviser adapted to the changes.
It was thus pleasing that the last quarter of the year saw a significant pick up in the pace of new investment such that a total of £3.14 million (2015: £8.48 million) was invested in five (2015: seven) companies during the year plus £0.58 million in another company just after the year-end. While this level of investment is lower than in previous years, it compares favourably to levels achieved elsewhere, as Mobeus advised VCTs invested around a sixth of the total invested by the VCT generalist sector in 2016. These investments were made into Redline, MPB, BookingTek, Biosite, Preservica, an existing portfolio company, and finally into Tapas Revolution just after the year-end. The average transaction size of these new investments is less than half that of last year, reflecting the change in focus to younger, smaller companies as required by the New VCT Rules. Further details of all of these transactions are included in the Investment Adviser's Review on pages 8 - 9.
In addition to these new investments, the Investment Adviser is reporting a growing pipeline of opportunities, from which we expect the rate of new investment to increase. The Board remains of the view that the changes in the VCT legislation clearly restrict the universe of companies that the Company can invest in, but has been encouraged by the numbers and quality of the opportunities identified by the Investment Adviser so far. The Board believes that such earlier stage investments will carry higher risk alongside potentially higher, but more variable, capital returns. It also believes that loan stock income will represent a lower proportion of total returns from such investments. Transactions to date have sought to mitigate these factors by use of the capital structure applied to that investment.
Shareholders should note that, at the year-end but adjusted for the inclusion of Tapas, 88.1% of the value of the investment portfolio (excluding companies preparing to trade) is still held in investments made under the previous MBO-focused strategy. Overall, performance of this principal portion of the portfolio remained solid, and should continue to yield annual income returns to shareholders, supplemented by capital returns as they are realised over time. Net proceeds totalling £2.10 million were received during the year under review. Of this total, £0.58 million was received in the form of realisation proceeds, of which £0.38 million was deferred consideration arising from the previous year's realisations of Focus and Westway. The balance of net proceeds of £1.52 million comprised loan repayments from companies held within the portfolio. Unless a compelling case for an exit opportunity is presented, the Board and the Investment Adviser would prefer to develop this portfolio to further maturity.
During the year the value of the opening portfolio increased by £0.38 million of realised gains (net of transaction costs) and fell by £0.38 million of net unrealised falls in valuations. On a like for like basis, the value of the portfolio was therefore maintained over the year. The portfolio under management at the year-end was valued at £38.93 million (2015: £38.72 million) representing 101.5 per cent. of cost.
Full details of all of these transactions and of the new investment following the year end are included in the Investment Review.
HMRC published its guidance on the New VCT Rules in May 2016 which has provided further information on the new requirements at a detailed level. There remain several areas where further clarity is still required and the VCT, the Investment Adviser and the VCT industry as a whole, are continuing to work constructively with Government departments, through its industry bodies, to develop an improved practical approach. Notwithstanding the EU Referendum result, the Board is working on the assumption that there will be no further changes to the existing VCT legislation in the near future.
A summary of the current VCT regulations is included on page 4 of this Annual Report.
The Board continues to hold £7.51 million in a selection of money market funds with AAA credit ratings as at the year-end. The balance of the cash and current asset investments of £5.66 million is held in deposit accounts in a number of wellknown financial institutions across a range of maturities. Alternative ways of prudently investing cash continue to be sought, although the risk of a loss of capital remains the overriding consideration. In addition, there is £8.33 million invested in companies preparing to trade, at the year-end.
The Board will consider additional fundraising in the future in line with its liquidity and new investment requirements, together with an assessment of the effects of possible future legislative changes.
New legislation has been introduced in the UK on audit firm rotation, resulting from the new European Audit Regulation Directive, making it mandatory for listed companies to undergo a tender process for the audit of their company at least every ten years. An audit firm can, however, be appointed for up to twenty years provided a public tender process has been carried out after ten years. The Company therefore held an audit tender process over the summer. The Board, on the recommendation of the Audit Committee, has decided to recommend the reappointment of BDO LLP as the Company's external auditor. For further
information on the audit tender, please see the Audit Committee section of the Corporate Governance Statement on pages 31 – 32 of this Annual Report.
During the year ended 31 December 2016, the Company bought back 0.5 per cent. of the issued share capital of the Company which was subsequently cancelled. Further details of the purchases are included in the Strategic Report on page 7.
The annual shareholder event was held on Tuesday 24 January 2017 at the Royal Institute of British Architects in central London. This annual event included presentations on the Mobeus advised VCTs' investment activity and performance including presentations from investee companies. There were separate day-time and evening sessions, and feedback from those who attended indicated that they found it informative and worthwhile.
The Annual General Meeting of the Company will be held at 11.30 am on Monday, 8 May 2017 at a new venue, The Clubhouse, 8 St James's Square,
London SW1Y 4JU. Both the Board and the Investment Adviser look forward to welcoming shareholders to the meeting which will include a presentation from the Investment Adviser on the investment portfolio and provide an opportunity to ask questions of the Board and the Investment Adviser. The Notice of the meeting is included in the Annual Report and an explanation of the resolutions to be proposed can also be found in the Directors' Report on page 23 - 24 of this Annual Report.
In the context of a global economy that is facing increased uncertainty following the UK's Referendum vote and the US Presidential Election, the outlook for the UK economy in 2017 remains somewhat unclear, although not as doom laden as some forecasts have predicted. This will probably continue as the EU exit negotiations are unlikely to be completed rapidly. In this environment, we will continue our measured and cautious approach to investment appraisal and with our active engagement with existing portfolio companies.
The portfolio has a solid foundation of investments made under the previous MBO strategy, the majority of which are mature and profitable companies providing consistent income returns. Over the coming years, this portfolio mix will change towards younger growth capital companies. Your Board remains confident that, with the Investment Adviser's expanded management team, interesting investment opportunities will continue to be identified and developed. Notwithstanding the global political and economic uncertainties mentioned above, the Board and the Investment Adviser remain optimistic regarding the future prospects of the Company.
Finally, I would like to express my thanks to all shareholders for their continuing support of the Company.
Christopher Moore
Chairman 22 March 2017
The Objective of the Company is to provide investors with a regular income stream by way of tax-free dividends and to generate capital growth through portfolio realisations which can be distributed by way of additional tax-free dividends, while continuing at all times to qualify as a VCT.
The VCT's policy is to invest primarily in a diverse portfolio of UK unquoted companies. Investments are generally structured as part loan and part equity in order to receive regular income, to generate capital gain upon sale and to reduce the risk of high exposure to equities. To spread the risk further, investments are made in a number of businesses across different industry sectors.
The Company's cash and liquid resources are held in a range of investments which can be of varying maturities, subject to the overriding criterion that the risk of loss of capital be minimised.
The Company seeks to make investments in accordance with the requirements of VCT regulation. A summary of this is set out below.
The full text of the Company's Investment Policy is available on page 18 of this Strategic Report.
The Company is a Venture Capital Trust ("VCT"). Its Objective and its full Investment Policy are designed to ensure that the VCT continues to qualify and is approved as a VCT by HM Revenue & Customs ("HMRC") whilst maximising returns to shareholders from both income and capital.
To assist shareholders, the following table contains a summary of the most important rules that determine VCT approval.
To achieve continued status as a VCT, the Company must meet a number of conditions, the most important of which are that:-
No investment in a single company or group of companies may represent more than 15% (by VCT tax value*) of the Company's total investments at the date of investment;
The Company must pay sufficient levels of income dividend from its revenue available for distribution so as not to retain more than 15% of its income from shares and securities in a year;
To be a VCT qualifying holding, new investments must be in companies:-
which have no more than £15 million of gross assets at the time of investment and £16 million immediately following investment from VCTs;
whose maximum age is generally seven years (ten years for knowledge intensive businesses);
The above takes into account legislation up to the Finance Act 2016 enacted in September 2016 but effective from 6 April 2016.
The Board has identified six key performance indicators that are used in its own assessment of the Company's progress. It is intended that these will provide shareholders with sufficient information to assess how the Company has performed against its Objective in the year to 31 December 2016, and over the longer term, through the application of its investment and other principal policies:
The Company does not consider it appropriate to set a specific annual and cumulative return per share target for the year. However, shareholders should note that the Board assesses these returns against the Company's ability to meet its current annual dividend target of 4.00 pence per share.
The Net Asset Value (NAV) and share price total returns per share for the year ended 31 December 2016 were 0.6% and 3.3% respectively, as shown below:
| NAV basis (p) |
Share price basis (p) |
|||
|---|---|---|---|---|
| Closing NAV per share | 107.57 | Closing share price* | 97.00 | |
| Total | Plus: dividends paid in year | 11.00 | Plus: dividends paid in year | 11.00 |
| return | Total for year | 118.57 | Total for year | 108.00 |
| (p) | Less: opening NAV per share | (117.89) | Less: opening share price | (104.50) |
| Return for year per share | +0.68 | Return for year per share | +3.50 | |
| Return for year | +0.6% | Return for year | +3.3% |
| Share price basis (p) |
|---|
| NAV basis (p) |
Share price basis | (p) | ||
|---|---|---|---|---|
| Cumulative | Closing NAV per share | 107.57 | Closing share price* | 97.00 |
| Plus: cumulative dividends paid to date | 73.20 | Plus: cumulative dividends paid to date | 73.20 | |
| total | Closing cumulative total return | 180.77 | Closing cumulative total return | 170.20 |
| return (p) | Less: opening cumulative total return | (180.09) | Less: opening cumulative total return | (166.70) |
| Increase in cumulative total return for year | +0.68 | Increase in cumulative total return for year | +3.50 |
*Source: Panmure Gordon & Co (mid-market price)
Taking into account initial income tax relief, founder shareholders who invested in 1999 have now seen, as at 31 December 2016, an overall gain on net investment cost of 13.0% (2015: 12.6%) since the launch of the Company. This is on a NAV return basis and assumes a net investment cost of 160.00 pence per share after initial income tax relief of 40.00 pence per share (both figures restated for the 2 for 1 share consolidation in 2006). Original shareholders who also took advantage of the enhanced buyback offer made in 2013 have now seen an overall gain over net investment cost on this basis of 46.1%.
Both NAV and share price returns for the year are considered to be satisfactory by the Board, after considering that this has been the first year of investing under the new VCT rules.
| Original investment cost (pence per share) |
Income tax relief | Cost net of income tax (p) |
Internal Rate of Return |
|
|---|---|---|---|---|
| With benefit of Income Tax Relief 2006/7 shareholders 1999 shareholders |
120.9 200.0 |
30% 20% |
84.6 160.0 |
8.5% 0.7% |
| Without benefit of Income Tax Relief 2006/7 shareholders 1999 shareholders |
120.9 200.0 |
n/a n/a |
n/a n/a |
3.9% (0.6)% |
The table above shows internal rates of return of shareholders' investment for those founder shareholders who invested in 1999 alongside those shareholders who invested in 2006/7, shortly after the date at which Mobeus took over as sole Investment Adviser.
The internal rate of return is the annual discount rate that equates the original investment cost per share with the value of subsequent dividends received and the latest NAV.
The Board places emphasis on the Company's performance against a peer group of VCTs. Using the benchmark of NAV total return on an investment of £100, the VCT is ranked 14 out of 49 (2015: 10 out of 54) over three years, and 16 out of 44 (2015: 19 out of 45) over five years amongst generalist VCTs by the Association of Investment Companies (AIC) (based on statistics prepared by Morningstar) at 31 December 2016. The Board considers this performance to be satisfactory.
The Company has an annual target dividend of paying not less than 4.00 pence per share in respect of each financial year. It has met or exceeded this target in respect of its last seven financial years. The last five years are shown below.
During the year the Company paid an interim dividend of 2.00 pence per share, comprising 1.00 penny from capital and 1.00 penny from income per share.
The Directors declared and paid a second interim dividend in respect of 2016 of 7.00 pence (2015: 9.00 pence (final)) per share comprising 6.00 pence (2015: 7.50 pence) per share from capital (paid from the Special distributable reserve) and 1.00 pence (2015: 1.50 pence) per share from income. Following the payment of this second interim dividend, cumulative dividends paid to shareholders since launch now total 80.20 pence per share.
The ability of the Company to pay dividends in the future cannot be guaranteed and will be subject to performance and available cash and reserves. While the Board still believes in the attainment of the target dividend, the gradual move of the portfolio to growth capital investments is likely to result in annual dividend payments being less than in recent years.
The second interim dividend of 7.00 pence per share was paid on 17 March 2017, bringing the total dividends paid in respect of the year to 9.00 pence per share as shown in the chart above. This increased cumulative dividends paid to 80.20 pence per share.
In order to comply with VCT tax legislation, the Company must meet a number of tests set by HMRC as set out in the table headed 'Summary of VCT Regulation' on page 4. For the year ended 31 December 2016 and to date, the Company continued to meet these tests.
Subject to the Company having sufficient available funds and distributable reserves, it is the Board's current intention to pursue a buyback policy with the objective of maintaining the discount to the latest published NAV per share at which the shares trade at approximately 10 per cent. It has succeeded in carrying out this objective in the year.
The Board considers that a 10 per cent. discount currently represents a fair balance between assisting investors who wish to sell shares and the majority of investors who wish to continue to invest in a portfolio of investments in unquoted shares.
The Board intends to continue with the above buyback policy. Any future repurchases will be subject to the Company having appropriate authorities from shareholders and sufficient funds available for this purpose. Share buybacks will also be subject to the Listing Rules and any applicable law at the relevant time. Shares bought back in the market are always cancelled.
The discount of approximately 10 per cent. has been maintained for the whole of the last five years, since the Board stated its intent to pursue this policy.
Shareholders granted the Directors authority to buyback up to 7.2 million of the Company's shares, representing 14.99% of the shares in issue at the date of the notice of the meeting, at the AGM held on 13 May 2016. Shares bought back under this authority are cancelled and the Directors do not intend to exercise this authority unless they believe to do so would result in an increase in net assets per share which would be in the interests of shareholders generally. Continuing shareholders benefit from the difference between the NAV per share and the price at which the shares are bought back and cancelled. A resolution to renew this authority will be proposed at the forthcoming AGM. The resolution will grant authority for the Company to buyback up to 7.4 million of the Company's own shares representing 14.99% of the shares in issue and will normally expire at the AGM to be held in 2018.
During the year ended 31 December 2016, shareholders holding 251,468 shares expressed their desire to sell their holdings. The Company instructed its brokers, Panmure Gordon, to purchase these shares at prices representing discounts of approximately 10 per cent. to the previously announced NAV per share. The Company subsequently purchased these shares at prices of between 96.00 and 97.50 pence per share and cancelled them.
In total, the Company bought back 0.5 per cent. of the issued share capital of the Company at the beginning of the year, as calculated by reference to the issued share capital on 1 January 2016.
Continuing shareholders benefit from the difference between the NAV and the price at which the shares are bought back and cancelled.
The Board monitors costs using the Ongoing Charges Ratio*, which is as follows:
| 2016 | 2015 | |
|---|---|---|
| Ongoing charges Performance fee |
2.81% 0.00% |
2.72% 0.00% |
| Ongoing charges plus accrued performance fee | 2.81% | 2.72% |
* The Ongoing Charges Ratio has been calculated, using the AIC recommended methodology. This figure shows shareholders the annual percentage reduction in shareholder returns as a result of recurring operational expenses, assuming markets remain static and the portfolio is not traded. Although the Ongoing Charges figure is based upon historic information, it provides shareholders with an indication of the likely level of costs that will be incurred in managing the fund in the future.
The Ongoing Charges Ratio replaces the Total Expense Ratio reported previously. The Total Expense Ratio still forms the basis of any expense cap that may be borne by the Investment Adviser. For the purpose of calculating this ratio, actual running costs are capped at 3.4% of closing net assets but exclude any irrecoverable VAT and exceptional costs. There was no breach of the expense cap for the year ended 31 December 2016 (31 December 2015: £nil).
The rise in the Ongoing Charges ratio reflects a lower average level of net assets in 2016.
Investment Adviser fees charged to both revenue and capital have remained at £1.22 million. Running costs have also remained at £0.37 million. Trail commission, audit and registrar's fees have fallen in the year offset by a rise in printing costs. Other expenses have fallen due to 2015 containing a provision for interest receivable from an investee company that was recognised in a previous year, which did not occur in 2016.
Further details of these are contained in the financial statements on pages 46 and 47 of this Annual Report.
This has been a year of continued progress within the portfolio. The exceptional level of disposals in 2014 and 2015 has reduced the age of the remaining portfolio such that 57% by value (44% by number) of the current portfolio comprises investments made since the start of 2014 (excluding companies preparing to trade). The latter half of the year has seen investment in five (plus one just after the year-end) new growth capital opportunities, which represent 12.0% of the portfolio. Many of the MBO portfolio companies are generating cash, have made repayments of their loan stock and are trading well.
Having experienced an unprecedented number of profitable realisations in 2014 and 2015, the Investment Adviser does not anticipate this level to be repeated in the near to medium term. Shareholders will note that the year-end valuation of the portfolio is only just above its cost. As the portfolio now has a younger profile, time is required for these more recent investments to grow in value. Unless a compelling offer is made for one of our investments, we plan to hold those that are performing, that are generating income, and that show potential to grow their value further.
Investments remain spread across a number of sectors, primarily in support services, software and computer services and general retailers.
The amendments to VCT legislation were a significant change for the VCT industry and required all VCTs to reconsider the type of investments that VCTs can make in future. The Investment Adviser has responded to this by adding experienced growth capital investment resource to its existing team. Along with other investment advisers in the industry, Mobeus has focused on gaining familiarity with the practical implications of the rules on the types of investment opportunities it can now consider for VCT investment. That process is continuing, including discussions with HMRC in response to their draft Guidance to the legislation. The Investment Adviser is also gaining additional practical experience from assessing prospective opportunities at a detailed level and from continuing to seek HMRC Advance Assurance in respect of each new investment proposal.
There has been an inevitable initial slowdown in new deal activity, resulting from both the more restrictive criteria for VCT investment under the new VCT rules and delays at HMRC in processing applications for Advance Assurance. Independent research shows that as at 31 December 2016 the amount of completed new investment across the generalist VCT Industry for 2016 had fallen by 30% and 49% compared to the same periods in 2015 and 2014 respectively.
It is too early to comment on the eventual impact of the UK leaving the EU upon the portfolio, whatever form that departure takes. Whilst the SME sector will not be immune to any general downturn in the UK economy, the portfolio has historically proved to be resilient and we believe will continue to be so. Portfolio companies with foreign currency exposure routinely cover this exposure and any negative effects of a longer term adjustment in exchange rate will not emerge for some months. Some portfolio companies will be beneficiaries of a weaker pound.
Against this background, we are therefore pleased to have made six new investments under the New VCT Rules. A total of £3.14 million (including £0.84 million via a company preparing to trade) was invested during the year under review. This comprised new investments into Redline, MPB, BookingTek, Biosite and Preservica, an existing portfolio company. Just after the year-end, £0.58 million was invested into Tapas Revolution. Further details are set out below and opposite.
| Company | Business | Date of investment |
Amount of new investment (£m) |
|---|---|---|---|
| Redline | Provision of security products and services |
February 2016 | 0.84* |
Redline is a market leader in the provision of security consultancy and training services to airlines, governments, airports and global distribution companies. Redline currently operates predominantly in the aviation security market and is at the forefront of counter-terrorism training and services. The investment is being applied to enable the Company to grow in its core aviation market and in other sectors. The company's latest accounts for the year ended 31 March 2016 show turnover of £5.01 million and underlying profit before interest, tax and amortisation of goodwill of £1.04 million.
* £1.13 million previously held in Pound FM Consultants Limited, a company preparing to trade, was used for this investment. This resulted in a net repayment of £0.29 million. Pound FM Consultants Limited has subsequently changed its name to Redline Worldwide Limited.
| MPB Group | Online marketplace for used photo and video equipment |
June 2016 0.47 |
|---|---|---|
| ----------- | ---------------------------------------------------------- | ------------------- |
MPB is Europe's leading online marketplace for used photo and video equipment. Based in Brighton, their custom-designed pricing technology enables MPB to offer both buy and sell services through the same platform and offers a one-stop shop for all its customers. The investment is to fund expansion of its platform globally, with launches into both the US and German markets. The company's latest audited accounts for the year ended 31 March 2016 show turnover of £8.37 million and profit before interest, tax and amortisation of goodwill of £0.001 million.
| Company | Business | Date of investment |
Amount of new investment (£m) |
|---|---|---|---|
| BookingTek | Direct booking software for hotels |
October 2016 | 0.51 |
Based in London, BookingTek has developed software that enables hotels to reduce their reliance on third-party booking systems by means of a real-time booking platform for meeting rooms and restaurant reservations. The investment is to support further growth. The company's latest audited accounts for the year ended 31 July 2015 show turnover of £2.19 million and loss before interest, tax and amortisation of goodwill of £0.33 million.
| Biosite | Workforce management | November 2016 | 0.64 |
|---|---|---|---|
| --------- | ---------------------- | --------------- | ------ |
Based in the Midlands, Pattern Analytics (Biosite) is a fast growing provider of biometric access control and software-based workforce management solutions for the construction sector. The investment will support the expansion of the team to facilitate the development of new site-management tools to enable managers to oversee all aspects of a construction project. The company's latest accounts for the year ended 31 July 2016 show turnover of £4.69 million and profit before interest, tax and amortisation of goodwill of £0.49 million.
| Sellers of proprietary Preservica December 2016 0.68 digital archiving software |
|
|---|---|
| --------------------------------------------------------------------------------------------- | -- |
Based in Oxfordshire, Preservica has developed the world's leading software for the long-term preservation of digital records, ensuring that long-term digital content is accessible, irrespective of changes in future technology. Previously a subsidiary of Tessella, it was demerged prior to the sale of Tessella in December 2015. The additional investment was made to provide development funding to the company. The company's latest accounts for the year ended 31 March 2016 show turnover of £1.78 million and profit before interest, tax and amortisation of goodwill of £0.16 million.
| Company | Business | Date of investment |
Amount of new investment (£m) |
|---|---|---|---|
| Tapas Revolution | Restaurant | January 2017 | 0.58 |
Based in London, Ibericos Etc. Limited (which trades as Tapas Revolution) is a leading Spanish restaurant chain in the casual dining sector focusing on shopping centres sites with high footfall. Having opened its first restaurant in Shepherd's Bush Westfield, the business has since opened a further four restaurants. The investment provided growth capital to a high-calibre team with significant restaurant roll-out experience who have spent the past five years building and refining their offer and are now well placed to capitalise on a strong pipeline of new sites. The company's latest accounts for the year ended 25 October 2015 show a turnover of £2.37 million and loss before interest, tax and amortisation of goodwill of £0.16 million.
There were no full realisations during the year ended 31 December 2016, although the Company received cash proceeds of £2.10 million, of which £1.52 million was in the form of loan stock repayments (detailed below), deferred consideration of £0.38 million and other receipts of £0.20 million.
Loan stock repayments totalled £1.52 million for the year. These are summarised below:-
| Company | Business | Month | Amount (£000's) |
|---|---|---|---|
| Ward Thomas | Logistics, storage and removals business | January | 837 |
| Barham | Company preparing to trade | December | 454 |
| Pound FM | Company preparing to trade | February | 111 |
| Motorclean | Vehicle cleaning and valeting services | February | 64 |
| Jablite | Expanded polystyrene products | April | 57 |
| Total | 1,523 |
Virgin Wines Holding Company Limited www.virginwines.co.uk
Cost £1,931,000
Basis of valuation Earnings multiple
Equity % held 9.7% Income receivable in year £184,687
Business Online wine retailer
Location Norwich
Original transaction Management buyout
Year ended 30 June 2015 Turnover £37,117,000 Operating profit £2,424,000 Net assets £1,465,000
Period ended 30 June 20141 Turnover £25,813,000 Operating profit £1,708,000 Net assets £930,000
1 The financial information above is for a 15 month period.
www.access-is.com Cost £2,469,000
| Valuation | £2,601,000 |
|---|---|
| Basis of valuation Earnings multiple |
|
| Equity % held 10.1% |
|
| Income receivable in year £188,542 |
|
| Business Data capture and scanning hardware |
|
| Location Reading |
Original transaction Management buyout
Year ended 31 December 20151
Turnover £11,488,000 Operating profit £1,526,000 Net assets £5,236,000
Year ended 31 December 20141 Turnover £9,952,000 Operating profit £1,206,000 Net assets £3,765,000
1 The financial information quoted above is for Access Limited.
www.enta.net
Cost £2,168,000
Valuation £2,254,000 Basis of valuation Earnings multiple Equity % held 13.1% Income receivable in year £199,744 Business Wholesale voice and data communications provider Location Telford, Shropshire Original transaction Management buyout
Year ended 31 December 2015 Turnover £31,887,000 Operating profit £269,000 Net liabilities £(1,463,000)
Period ended 31 December 20141 Turnover £25,753,000 Operating profit £1,053,000 Net liabilities £(296,000)
1 The financial information above is for an 11 month period.
None.
Movements during the year
None.
Further details of the investments in the portfolio may be found on the Mobeus website: www.mobeusequity.co.uk. Operating profit is stated before charging amortisation of goodwill where appropriate for all investee companies.
None.
www.mb-insight.com
Cost £2,723,000
Basis of valuation Earnings multiple
Equity % held 15.7%
Income receivable in year £38,289 Business Publishing and events business
Location London Original transaction Management buyout
Year ended 31 December 20151 Turnover £8,768,000 Operating profit £508,000 Net assets £1,867,000
Year ended 31 December 20141 Turnover £8,378,000 Operating profit £1,139,000 Net assets £1,796,000
1 The financial information quoted above is for Media Business Insight Limited, the trading subsidiary of Media Business Insight Holdings Limited.
None.
www.aslh.co.uk
| Cost | £1,934,000 |
|---|---|
Basis of valuation Earnings multiple Equity % held 9.5% Income receivable in year £159,970 Business Printer and photocopier services
Location Cambridge Original transaction Management buyout
| Year ended | 30 September 2015 |
|---|---|
| Turnover | £15,361,000 |
| Operating profit | £1,442,000 |
| Net liabilities | £(2,450,000) |
Year ended 30 September 2014 Turnover £13,266,000 Operating profit £1,176,000 Net liabilities £(3,123,000)
Movements during the year
None.
www.motorclean.net
| Cost | £1,131,000 |
|---|---|
| Valuation | £1,460,000 |
|---|---|
| Basis of valuation Earnings multiple |
|
| Equity % held 9.8% |
|
| Income receivable in year £105,715 |
|
| Business Vehicle cleaning and valet services |
Location Laindon, Essex Original transaction Management buyout
| Year ended Turnover Operating profit Net assets |
31 March 2016 £49,632,000 £1,952,000 £1,607,000 |
|---|---|
| Year ended | 31 March 2015 |
| Turnover | £41,166,000 |
| Operating profit | £1,358,000 |
| Net assets | £1,586,000 |
Fullfield made a loan repayment of £0.06 million during the year.
www.gro.co.uk
| Cost | £1,578,000 |
|---|---|
Basis of valuation Earnings multiple
Equity % held 10.7%
Income receivable in year £83,702
Business Manufacturer and distributor of baby sleep products
Ashburton, Devon
Original transaction Management buyout
Period ended 31 December 20151 Turnover £21,018,000 Operating profit £1,304,000 Net assets £1,110,000
Year ended 30 June 2014 Turnover £12,854,000 Operating profit £1,352,000 Net assets £1,287,000
1 The financial information above is for an 18 month period.
| atgmedia | ||
|---|---|---|
www.antiquestradegazette.com
| £1,529,000 |
|---|
| Valuation | £1,330,000 |
|---|---|
| Basis of valuation Earnings multiple |
|
| Equity % held 3.7% |
|
| Income receivable in year £Nil |
|
| Business Publisher and online auction platform operator |
Location London Original transaction Secondary buyout
Year ended 30 September 2015 Turnover £18,918,000 Operating profit £601,000 Net liabilities £(7,125,000)
Period ended 30 September 20141 Turnover £4,126,000 Operating profit £(106,000) Net liabilities £(834,000)
1 The financial information above is for a 3 month period.
| CGI Creative Graphics International Limited www.cgi-visual.com |
|
|---|---|
| Cost | £1,450,000 |
| Valuation | £1,312,000 |
| Basis of valuation Earnings multiple |
Equity % held 6.3%
Income receivable in year £144,385
Business Vinyl graphics to global automotive/ recreation vehicle and aerospace markets
Kempston, Bedfordshire
Original transaction Management buyout
| Year ended | 29 February 2016 |
|---|---|
| Turnover | £12,528,000 |
| Operating profit | £518,000 |
| Net assets | £800,000 |
| Period ended | 28 February 20151 |
|---|---|
| Turnover | £12,124,000 |
| Operating profit | £902,000 |
| Net assets | £2,521,000 |
1 The financial information above is for a 9 month period.
None.
Movements during the year
None.
Further details of the investments in the portfolio may be found on the Mobeus website: www.mobeusequity.co.uk. Operating profit is stated before charging amortisation of goodwill where appropriate for all investee companies.
None.
Strategic Report
www.veritekglobal.com
Cost £1,620,000
Valuation £1,283,000
Basis of valuation Earnings multiple Equity % held 10.3% Income receivable in year £181,170 Business Maintenance of imaging equipment
Location
Eastbourne, East Sussex Original transaction Management buyout
Year ended 31 March 2016 Turnover £18,953,000 Operating profit £1,009,000 Net liabilities £(322,000)
Year ended 31 March 2015 Turnover £22,165,000 Operating profit £2,379,000 Net liabilities £(72,000)
None.
The remaining 32 investments in the portfolio (including seven companies preparing to trade) had a cost of £19.83 million and were valued at £20.34 million at 31 December 2016.
| Ordinary shares | Other investments1 (loan stock/preference shares) |
Total | ||||
|---|---|---|---|---|---|---|
| Cost at | Valuation at | Cost at | Valuation at | cost at | ||
| 31 December 2016 |
31 December 2016 |
31 December 2016 |
31 December 2016 |
31 December 2016 |
||
| £ | £ | £ | £ | £ | ||
| Virgin Wines Holding Company Limited Online wine retailer |
45,915 | 800,777 | 1,884,898 | 1,884,898 | 1,930,813 | |
| Tovey Management Limited (trading as Access IS) Provider of data capture and scanning hardware |
891,576 | 158,665 | 1,577,437 | 2,442,532 | 2,469,013 | |
| Entanet Holdings Limited Wholesale communications provider |
410,715 | - | 1,756,947 | 2,254,135 | 2,167,662 | |
| Media Business Insight Holdings Limited A publishing and events business focused on the creative production industries |
1,089,103 | - | 1,633,657 | 2,218,152 | 2,722,760 | |
| ASL Technology Holdings Limited Printer and photocopier services |
343,992 | 144,012 | 1,589,599 | 1,938,968 | 1,933,591 | |
| Manufacturing Services Investment Limited Company seeking to carry on a business in the manufacturing sector |
456,400 | 456,400 | 1,560,500 | 1,560,500 | 2,016,900 | |
| Fullfield Limited (trading as Motorclean) Vehicle cleaning and valet services |
462,184 | 331,803 | 669,260 | 1,127,722 | 1,131,444 | |
| Gro-Group Holdings Limited Baby sleep products |
148,765 | - | 1,429,212 | 1,361,293 | 1,577,977 | |
| Turner Topco Limited (trading as ATG Media) Publisher and online auction platform operator |
4,472 | - | 1,524,603 | 1,330,326 | 1,529,075 | |
| CGI Creative Graphics International Limited Vinyl graphics to global automotive, recreation vehicle and aerospace markets |
476,612 | - | 973,134 | 1,311,572 | 1,449,746 | |
| Veritek Global Holdings Limited Maintenance of imaging equipment |
43,527 | - | 1,576,559 | 1,283,041 | 1,620,086 | |
| Tharstern Group Limited MIS & Commercial print software solutions |
338,861 | 138,636 | 753,025 | 1,078,760 | 1,091,886 | |
| EOTH Limited (trading as Equip Outdoor Technologies) Distributor of branded outdoor equipment and clothing |
95,147 | 265,717 | 856,324 | 932,228 | 951,471 | |
| Vian Marketing Limited (trading as Tushingham Sails) Design, manufacture and sale of stand-up paddleboards and windsurfing sails |
271,683 | 292,166 | 627,391 | 896,273 | 899,074 | |
| Backhouse Management Limited Company seeking to carry on a business in the motor sector |
453,600 | 453,600 | 680,400 | 680,400 | 1,134,000 | |
| Chatfield Services Limited Company seeking to carry on a business in the retail sector |
453,600 | 453,600 | 680,400 | 680,400 | 1,134,000 | |
| Creasy Marketing Services Limited Company seeking to carry on a business in the textile sector |
453,600 | 453,600 | 680,400 | 680,400 | 1,134,000 | |
| McGrigor Management Limited Company seeking to carry on a business in the pharmaceutical sector |
453,600 | 453,600 | 680,400 | 680,400 | 1,134,000 | |
| Hollydale Management Limited Company seeking to carry on a business in the food sector |
438,200 | 438,200 | 657,300 | 657,300 | 1,095,500 | |
| RDL Corporation Limited Recruitment consultants for the pharmaceutical, business intelligence and IT industries |
173,932 | - | 826,068 | 926,025 | 1,000,000 | |
| The Plastic Surgeon Holdings Limited Snagging and finishing of domestic and commercial properties |
45,982 | 406,832 | 412,953 | 495,497 | 458,935 | |
| Bourn Bioscience Limited Management of In-vitro fertilisation clinics |
323,577 | 55,138 | 808,944 | 808,944 | 1,132,521 | |
| Redline Worldwide Limited (formerly Pound FM Consultants Limited)2 Provider of security services to the aviation industry and other sectors |
269,190 | 269,190 | 569,187 | 569,187 | 838,377 |
2
1 'Other investments' comprise principally loan stock instruments, and/or relatively small amounts of preference shares.
£1,134,000 invested in Pound FM Consultants Limited, a company preparing to trade, was used for the investment into Redline Assured Security Limited, which resulted in a net repayment £295,623. Pound FM subsequently changed its name to Redline Worldwide Limited.
| % of portfolio by value |
% of equity held |
Net proceeds in year |
Net realised gains in year |
Unrealised gains/(losses) in year |
Total valuation at 31 December 2016 |
Total additional investments |
Total valuation at 31 December 2015 |
|---|---|---|---|---|---|---|---|
| £ | £ | £ | £ | £ | £ | ||
| 6.9% | 9.7% | - | - | (99,054) | 2,685,675 | - | 2,784,729 |
| 6.7% | 10.1% | - | - | 132,184 | 2,601,197 | - | 2,469,013 |
| 5.8% | 13.1% | - | - | (1,083,908) | 2,254,135 | - | 3,338,043 |
| 5.7% | 15.7% | - | - | (64,455) | 2,218,152 | - | 2,282,607 |
| 5.4% | 9.5% | - | - | (151,957) | 2,082,980 | - | 2,234,937 |
| 5.2% | 11.4% | - | - | - | 2,016,900 | - | 2,016,900 |
| 3.7% | 9.8% | 64,044 | - | 143,595 | 1,459,525 | - | 1,379,974 |
| 3.5% | 10.7% | - | - | 222,433 | 1,361,293 | - | 1,138,860 |
| 3.4% | 3.7% | - | - | 501,716 | 1,330,326 | - | 828,610 |
| 3.4% | 6.3% | - | - | 131,700 | 1,311,572 | - | 1,179,872 |
| 3.3% | 10.3% | - | - | (376,022) | 1,283,041 | - | 1,659,063 |
| 3.1% | 12.2% | - | - | (301,371) | 1,217,396 | - | 1,518,767 |
| 3.1% | 1.7% | - | - | 189,710 | 1,197,945 | - | 1,008,235 |
| 3.1% | 7.1% | - | - | 289,365 | 1,188,439 | - | 899,074 |
| 2.9% | 11.3% | - | - | - | 1,134,000 | - | 1,134,000 |
| 2.9% | 11.3% | - | - | - | 1,134,000 | - | 1,134,000 |
| 2.9% | 11.3% | - | - | - | 1,134,000 | - | 1,134,000 |
| 2.9% | 11.3% | - | - | - | 1,134,000 | - | 1,134,000 |
| 2.8% | 11.0% | - | - | - | 1,095,500 | - | 1,095,500 |
| 2.5% | 9.1% | - | - | 303,969 | 926,025 | - | 622,056 |
| 2.3% | 11.4% | - | - | 61,492 | 902,329 | - | 840,837 |
| 2.2% | 7.7% | - | - | (31,346) | 864,082 | - | 895,428 |
| 2.2% | 6.7% | 295,623 | - | - | 838,377 | - | 1,134,000 |
| Cost at 31 December 2016 |
Ordinary shares Valuation at 31 December 2016 |
Cost at 31 December 2016 |
Other investments1 (loan stock/preference shares) Valuation at 31 December 2016 |
Total cost at 31 December 2016 |
|
|---|---|---|---|---|---|
| Master Removers Group Limited (trading as Anthony Ward Thomas, Bishopsgate and Aussie Man & Van) A specialist logistics, storage and removals business |
£ 511,620 |
£ 734,387 |
£ 235 |
£ - |
£ 511,855 |
| Barham Consulting Limited Company seeking to carry on a business in the catering sector |
453,600 | 272,160 | 408,240 | 408,240 | 861,840 |
| Preservica Limited3 Seller of proprietary digital archiving software |
679,617 | 679,617 | - | - | 679,617 |
| Pattern Analytics Limited (trading as Biosite) Workforce management and security services for the construction industry |
640,171 | 640,171 | - | - | 640,171 |
| Jablite Holdings Limited (formerly Duncary 16 Limited) Manufacturer of expanded polystyrene products |
339,974 | 557,173 | 36,109 | 49,825 | 376,083 |
| BookingTek Limited Software for hotel groups |
512,137 | 512,137 | - | - | 512,137 |
| MPB Group Limited Online marketplace for used photographic equipment |
359,022 | 359,022 | 112,194 | 112,194 | 471,216 |
| Omega Diagnostics Group plc2 In-vitro diagnostics for food intolerance, auto-immune diseases and infectious diseases |
200,028 | 291,682 | - | - | 200,028 |
| Blaze Signs Holdings Limited Manufacturer and installer of signs |
183,005 | 273,318 | 7,626 | 7,626 | 190,631 |
| Vectair Holdings Limited Designer and distributor of washroom products |
24,643 | 183,640 | 89 | 89 | 24,732 |
| Racoon International Holdings Limited Supplier of hair extensions, hair care products and training |
419,959 | - | 64,388 | 38,771 | 484,347 |
| Lightworks Software Limited Provider of software for CAD and CAM vendors |
9,329 | 34,926 | - | - | 9,329 |
| BG Training Limited City-based provider of specialist technical training |
- | - | 14,167 | 14,167 | 14,167 |
| Newquay Helicopters (2013) Limited (in creditors' voluntary liquidation) Helicopter service operator |
12,342 | - | - | - | 12,342 |
| CB Imports Group Limited (trading as Country Baskets) Importer and distributor of artificial flowers, floral sundries and home décor products |
175,000 | - | - | - | 175,000 |
| Watchgate Limited Holding company |
1,000 | - | - | - | 1,000 |
| Deferred proceeds from companies realised in previous years4 | - | - | - | - | - |
| Total | 12,665,680 | 10,110,169 | 25,051,646 | 28,429,865 | 37,717,326 |
| Former Elderstreet Private Equity Portfolio | |||||
| Cashfac Limited Provider of virtual banking application software solutions to corporate customers |
260,101 | 288,932 | - | - | 260,101 |
| Sparesfinder Limited Supplier of industrial spare parts online |
250,854 | 64,067 | - | - | 250,854 |
| Sift Group Limited Developer of business-to-business internet communities |
135,391 | 33,401 | - | - | 135,391 |
| Total | 646,346 | 386,400 | - | - | 646,346 |
| Investment Adviser's Total | 13,312,026 | 10,496,569 | 25,051,646 | 28,429,865 | 38,363,672 |
1 'Other investments' comprise principally loan stock instruments, and/or relatively small amounts of preference shares.
2 Quoted on AIM.
3 A further £679,617 was invested into Preservica Limited, adding to the Company's existing shareholding that was received as part of the disposal of Tessella Holdings Limited in December 2015.
4 The deferred proceeds figure of £381,087 primarily consists of £371,652 received in respect of Focus Pharma and £9,435 from Westway Services (2014) Limited.
| % of equity held |
Net proceeds in year |
Net realised gains in year |
Unrealised gains/(losses) in year |
Total valuation at 31 December 2016 |
Total additional investments |
Total valuation at 31 December 2015 |
|---|---|---|---|---|---|---|
| £ | £ | £ | £ | £ | £ | |
| 4.3% | 836,825 | - | 85,315 | 734,387 | - | 1,485,897 |
| 11.3% | 453,600 | - | - | 680,400 | - | 1,134,000 |
| 4.6% | - | - | - | 679,617 | 679,617 | - |
| 4.8% | - | - | - | 640,171 | 640,171 | - |
| 9.1% | 56,700 | - | (433,708) | 606,998 | - | 1,097,406 |
| 3.4% | - | - | - | 512,137 | 512,137 | - |
| 5.3% | - | - | - | 471,216 | 471,216 | - |
| 1.5% | - | - | 33,335 | 291,682 | - | 258,347 |
| 5.7% | - | - | (75,542) | 280,944 | - | 356,486 |
| 2.1% | - | - | 60,650 | 183,729 | - | 123,079 |
| 10.5% | - | - | (38,771) | 38,771 | - | 77,542 |
| 4.2% | - | - | 10,068 | 34,926 | - | 24,858 |
| 0.0% | - | - | - | 14,167 | - | 14,167 |
| 2.5% | 8,908 | - | (12,342) | - | - | 21,250 |
| 5.8% | - | - | - | - | - | - |
| 33.3% | - | - | - | - | - | - |
| 0.0% | 381,087 | 381,087 | - | - | - | - |
| - | 2,096,787 | 381,087 | (502,944) | 38,540,034 | 2,303,141 | 38,455,537 |
| 2.9% | - | - | 101,824 | 288,932 | - | 187,108 |
| 2.0% | - | - | 17,090 | 64,067 | - | 46,977 |
| 1.3% | - | - | 6,353 | 33,401 | - | 27,048 |
| - | - | - 381,087 |
125,267 (377,677) |
386,400 38,926,434 |
- 2,303,141 |
261,133 |
The Board has put in place the following policies to be applied to meet the Company's overall Objective and to cover specific areas of the Company's business.
The investment policy is designed to meet the Company's objective.
The Company invests primarily in a diverse portfolio of UK unquoted companies. Investments are made selectively across a number of sectors, principally in established companies. Investments are usually structured as part loan stock and part equity in order to produce a regular income stream and to generate capital gains from realisations.
There are a number of conditions within the VCT legislation which need to be met by the Company and which may change from time to time. The Company will seek to make investments in accordance with the requirements of prevailing VCT legislation.
Asset allocation and risk diversification policies, including the size and type of investments the Company makes, are determined in part by the requirements of prevailing VCT legislation. No single investment may represent more than 15% (by VCT tax value) of the Company's total investments at the date of investment.
The Company's cash and liquid funds are held in a portfolio of readily realisable interest bearing investments, deposit and current accounts, of varying maturities, subject to the overriding criterion that the risk of loss of capital be minimised.
The Company's articles of association permit borrowings of amounts up to 10% of the adjusted capital and reserves (as defined therein). However, the Company has never borrowed and the Board would only consider doing so in exceptional circumstances.
The Directors have considered diversity in relation to the composition of the Board and have concluded that its membership is diverse in relation to gender and breadth of experience. The Board comprises two men and one woman. The Company does not have any senior managers or employees. The Board has made a commitment to consider diversity in making future appointments.
In addition to the Investment Policy, the Diversity policy and the policies on payment of dividends and share buybacks which were discussed earlier in this section (see pages 6 and 7), the Company has adopted a number of further policies relating to:
These are set out in the Directors' Report on pages 22 and 23 of this Annual Report.
The Directors acknowledge the Board's responsibilities for the Company's internal control systems and have instigated systems and procedures for identifying, evaluating and managing the significant risks faced by the Company. This includes a key risk management review which takes place at each quarterly Board meeting. Further details of these are contained in the corporate governance section of the Directors' Report on pages 25 to 30. The principal risks identified by the Board are set out below:
| Risk | Possible consequence | How the Board manages risk |
|---|---|---|
| Economic | Events such as an economic recession and movements in interest rates could affect trading conditions for smaller companies and consequently the value of the Company's qualifying investments. |
The Board monitors the portfolio as a whole to (1) ensure that ● the Company invests in a diversified portfolio of companies and (2) ensure that developments in the macro-economic environment such as movements in interest rates are monitored. |
| Loss of approval as a Venture Capital Trust |
The Company must comply with section 274 of the Income Tax Act 2007 ("ITA") which allows it to be exempted from capital gains tax on investment gains. Any breach of these rules may lead to the Company losing its approval as a Venture Capital Trust (VCT), qualifying shareholders who have not held their shares for the designated holding period having to repay the income tax relief they obtained and future dividends paid by the Company becoming subject to tax. The Company would also lose its exemption from corporation tax on capital gains. |
The Company's VCT qualifying status is continually reviewed ● by the Investment Adviser. The Board receives regular reports from its VCT Status Adviser ● who has been retained by the Board to monitor the VCT's compliance with the VCT Rules. |
| Investment | Investment in unquoted small companies involves a higher degree of risk than investment in fully listed companies. Smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals. This may lead to variable investment returns. Following the introduction of the New VCT Rules the Company is no longer permitted to invest in MBOs. The focus of investment has therefore moved to providing development capital to younger smaller companies. Such investments opportunities add a new aspect of investment risk to the Company. |
The Board regularly reviews the Company's investment ● strategy. Careful selection and review of the investment portfolio on ● a regular basis. The Investment Adviser has provided a growing pipeline of ● compliant investment opportunities following a continuing strengthening of their investment team. |
| Regulatory | The Company is required to comply with the Companies Act, the listing rules of the UK Listing Authority and United Kingdom Accounting Standards. Changes to and breach of any of these might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report. |
Regulatory and legislative developments are kept under ● review by the Board. |
| Financial and operating |
Failure of the systems at any of the third party service providers that the Company has contracted with could lead to inaccurate reporting or monitoring. Inadequate controls could lead to the misappropriation or insecurity of assets. |
The Board carries out an annual review of the Internal ● controls in place and reviews the risks facing the Company at each quarterly Board meeting and receives reports by exception. It reviews the performance of the service providers annually. ● |
| Market | Movements in the valuations of the VCT's investments will, inter alia, be connected to movements in UK Stock Market indices. |
The Board receives quarterly valuation reports from the ● Investment Adviser. The Investment Adviser alerts the Board about any adverse ● movements. |
| Asset liquidity | The Company's investments may be difficult to realise. | The Board receives reports from the Investment Adviser and ● reviews the portfolio at each quarterly Board meeting. It carefully monitors investments where a particular risk has been identified. |
| Market liquidity |
Shareholders may find it difficult to sell their shares at a price which is close to the net asset value given the limited secondary market in VCT shares. |
The Board has a share buyback policy which seeks to ● mitigate market liquidity risk. This policy is reviewed at each quarterly Board meeting. |
| Counterparty | A counterparty may fail to discharge an obligation or commitment that it has entered into with the Company. This may lead to financial loss for the Company. |
The Board regularly reviews and agrees policies for managing ● these risks. Further details can be found under 'credit risk' in Note 15 to the accounts on pages 55 and 56. |
changed as a result of the recent changes to VCT regulation. As the Company is now focusing its investment on growth capital investments in younger companies it is anticipated that investment returns will be more volatile, and will have a higher risk profile. The Board remain confident that the Investment Adviser can adapt to these changing investment requirements, although the early stage investment process remains unproven. The combination of high liquidity levels in the Company and the challenge of the new VCT rules may also result in continuing high liquidity which may be a drag on performance. The Board has partially addressed this through the payment of a second interim dividend in March 2017. These issues will be monitored by the Board during the coming year.
The risk profile of the Company has
The Board has assessed the Company's operation as a going concern. The Company's business activities, together with the factors likely to affect its future development, performance and position are set out in prior sections of this Strategic Report. The Directors have satisfied themselves that the Company continues to maintain a significant cash position. The majority of companies in the portfolio continue to trade profitably and the portfolio taken as a whole remains resilient and well diversified. The major cash outflows of the Company (namely investments, share buybacks and dividends) are within the Company's control. The Board's assessment of liquidity risk and details of the Company's policies for managing its capital and financial risks are shown in Note 15 on pages 54 to 60. Accordingly, the Directors continue to adopt the going concern basis of accounting in preparing the annual Financial Statements.
Furthermore, the Directors have considered whether there are any material uncertainties that the Company may face during the twelve months to 31 December 2017 that may impact on its ability to operate as a going concern. In particular, the Directors have continued to consider the impact of the new VCT Tax Rules on the Company's Investment Policy and this is discussed further below. No further material uncertainties have been identified by the Board.
The UK Corporate Governance Code includes a requirement for companies to include a "Viability Statement" in the Strategic Report, addressed to shareholders with the intention of providing an improved and broader assessment of long term solvency and liquidity. The Code does not define "long term" but expects the period to be longer than twelve months with individual companies choosing a period appropriate to the nature of their own businesses. The Directors have chosen a period of three years, which they currently believe to be an appropriate period (as explained further below).
The Directors have carried out a robust assessment of the principal risks facing the Company which are listed above. Subsequent to this review they have a reasonable expectation that the Company will continue to operate and meet its liabilities, as they fall due, for the next three years. This period has been chosen, as a period longer than three years creates a level of future uncertainty for which a Viability Statement cannot, in the Directors' view, currently be made meaningfully. The chosen three year period should accommodate any necessary transitioning of the Company's Investment Policy to focus upon growth capital transactions in line with the New VCT Rules. The longterm viability of the Company is also dependent on future changes in legislation. The Board is not aware of impending legislation or other factors that could affect the Company's viability beyond the next three years at least.
The Directors' assessment has been made with reference to the Company's current position and prospects, the Company's present strategy, the Board's risk appetite and the Company's principal risks and how these are managed, as described on page 19. The Board is mindful of the risks contained therein, but considers that its actions to manage those risks provide reasonable assurance that the Company's affairs are safeguarded for the stated period.
The Directors have reached this conclusion after giving careful consideration to the Company's strategy. They believe the Company's current strategy of "providing investors with a regular income stream by way of tax-free dividends and to generate capital growth through portfolio realisations" remains valid.
The Board has focused upon the range of future investments that the Company will be permitted to fund under the latest VCT legislation. The focus of new investment has moved to financing primarily growth capital opportunities, but it is still anticipated that positive returns will continue to be achievable from future investments and from the existing portfolio. The Company has already made six new investments in compliance with the new Investment Policy and the Investment Adviser is building a healthy pipeline of such investments.
The Board will be monitoring that assumption of positive returns on a regular basis as the change in focus will take time to manifest itself in executing such investments, and the prospective returns thereon are currently less clear until such investments have been made over the next three years at least. The Board considers that the Company's liquidity is currently at adequate levels and has no plans to raise further capital in the current tax year but intends to maintain liquidity at a satisfactory level at all times.
Shareholders should be aware that, under the Company's Articles, it is required to hold a continuation vote at the next AGM falling after the fifth anniversary of last allotting shares. As shares were last allotted in March 2017 (under a Dividend Investment Scheme that remains in place), this factor has not affected the Board's assumptions for the next three years.
For a discussion of the Company's future prospects (both short and medium term), please see the Chairman's Statement on pages 2 and 3 and the Investment Review on page 8.
22 March 2017
Date of appointment: 1 April 2002
Experience: Christopher has considerable experience of the venture capital industry. After completing a law degree and qualifying as a chartered accountant with Price Waterhouse, he worked for Robert Fleming Inc., Lazards, Jardine Fleming and then Robert Fleming, latterly as a main board director from 1986 to 1995. During this period he was involved in various unquoted and venture capital investments and remained chairman of Fleming Ventures Limited, an international venture capital fund, until the fund's final distribution in 2003. His roles have included acting as senior adviser to the chairman of Lloyds and chairing the successful turnaround of a quoted industrial group. Until May 2010, he was a director of Matrix Income & Growth VCT plc ("MIG") and until September 2010 he was a director of The Income & Growth VCT plc ("I&G"). He was also a director of Matrix Income & Growth 3 VCT plc until it merged with MIG in 2010.
Date of appointment: 1 August 2010
Experience: Andrew qualified as a Chartered Accountant in 1984. From 1984 to 1997, he worked in corporate finance at Robert Fleming & Co Limited, becoming a director. Following a four year term in charge of the finances of the National Gallery, he joined Société Générale as a director in the London M&A department. He subsequently became finance director of the eFinancial group, a group specialising in financial publishing and online recruitment. He now works as a business adviser to small companies. Andrew has over 16 years' experience as a non-executive director, including with investment companies. He is currently a non-executive director of First Integrity Limited (from December 2006), British Empire Trust plc (from August 2008), Peckwater Limited (from August 2008), Shires Income PLC (from May 2008) and JP Morgan Smaller Companies Investment Trust plc (from 2007). Andrew was a non-executive director of Edinburgh UK Smaller Companies Tracker Trust PLC from 1998 to 2006, a non-executive director of Gate Gourmet Group Holdings LLC from 2006 to 2007 and a non-executive director of M&G Equity Investment Trust plc from 2007 until 2011.
Experience: Helen has extensive experience of investing in a wide range of small and medium sized businesses. She graduated in economics from Cambridge University and began her career in banking. After an MBA at INSEAD business school, Helen worked from 1991 to 1998 at 3i plc, based in their London office. She was a founding director of Matrix Private Equity Limited when it was established in early 2000 and helped raise Mobeus Income & Growth 2 VCT plc (formerly Matrix e-Ventures VCT plc). She is a non-executive director of Gresham House Strategic plc, FTGS Holdco Limited and is chairman of British Smaller Companies VCT plc. Helen is a director of both I&G and MIG 4 and, as both are advised by Mobeus, is deemed not to be an independent director under the Listing Rules.
For details of the share interests and remuneration of each of the Directors please see page 35 of the Directors' Remuneration Report. Details of the attendance record of the Directors is also reported in the Directors' Remuneration Report on page 35.
The Board believes that the Annual Report and Accounts taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
The Company is registered in England and Wales as a Public Limited Company (registration number 03707697).
The Company has satisfied the requirements for full approval as a Venture Capital Trust under section 274 of the Income Tax Act 2007 ("the ITA"). It is the Directors' intention to continue to manage the Company's affairs in such a manner as to comply with section 274 of the ITA.
To enable capital profits to be distributed by way of dividends, the Company revoked its status as an investment company as defined by section 833 of the Companies Act 2006 ("the Companies Act") on 28 July 2008. The Company does not intend to re-apply for such status.
The Company's ordinary shares of 1.00 penny each are listed on the London Stock Exchange ("LSE").
During the year under review, the Company issued a total of 938,291 (2015: 813,364) under the Company's Dividend Investment Scheme, as detailed below.
The issued share capital of the Company as at 31 December 2016 was £490,430 (2015: £483,562) and the number of shares in issue at this date was 49,043,033 (2015: 48,356,210).
The Company also bought back 251,468 (2015: 168,443) of its own shares at a total cost of £244,575 (2015: £168,734) including expenses. These shares represented 0.5% of the issued share capital at the beginning of the year.
All shares bought back by the Company during the year were subsequently cancelled.
At the Annual General Meeting held on 27 May 2010, shareholders approved the introduction of a Dividend Investment Scheme (the "Scheme"). The Annual General Meeting on 13 May 2016 authorised the Directors to allot new Ordinary Shares to participating shareholders. The dividend payments made in the year were eligible for the Scheme and the following shares were allotted:
| Dividend payment date | Dividend amount (p) |
No. of new Ordinary Shares allotted under the Scheme |
Allotment date | Issue price (p) |
|---|---|---|---|---|
| 25 May 2016 8 September 2016 |
9.00 2.00 |
753,238 185,053 |
25 May 2016 8 September 2016 |
98.50 96.40 |
| Total | 11.00 | 938,291 |
Shareholders wishing to join or leave the Scheme should submit a mandate form, if joining, or submit a written instruction requesting to leave the Scheme to Capita Asset Services, the Scheme Administrator. Capita Asset Services can be contacted on +44 (0) 371 664 0324. Telephone lines are open 9.00 am – 5.30 pm Mon – Fri excluding public holidays in England and Wales.
A copy of the Scheme rules and Scheme mandate form can be obtained from the Company's website, www.mig4vct.co.uk
The names of and brief biographical details on each of the Directors are given on page 21 of this Annual Report.
So far as each of the Directors in office at 31 December 2016 are aware, there is no relevant audit information of which the auditor is unaware. They have individually taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.
The Directors have individually entered into Deeds of indemnity with the Company which indemnifies each Director, subject to the provisions of the Companies Act 2006 and the limitations set out in each deed, against any liability arising out of any claim made against him or her in relation to the performance of their duties as Directors of the Company. Copies of each Deed of indemnity entered into by the Company for the Directors are available at the registered office of the Company.
The Company maintains a Directors' and Officers' liability insurance policy. The policy does not provide cover for fraudulent or dishonest actions by the Directors.
The Board recognises its obligations under Section 414c of the Companies Act to provide information in this respect about environmental matters (including the impact of the Company's business on the environment), human rights and social and community issues, including information about any policies the Company has in relation to these matters and the effectiveness of these policies.
The Board seeks to maintain high standards of conduct in respect of ethical, environmental, governance and social
Reports of the Directors
issues and to conduct the Company's affairs responsibly. It considers relevant social and environmental matters when appropriate and particularly with regard to investment decisions. The Investment Adviser encourages good practice within the companies in which the VCT invests. The Board seeks to avoid investing in certain areas which it considers to be unethical and does not invest in companies which do not operate within relevant ethical, environmental and social legislation or otherwise fail to comply with appropriate industry standards. Environmental, social and governance issues are identified by the Investment Adviser prior to each investment and are drawn to the attention of the Board where appropriate.
The Company does not have any employees or officers and the Board therefore believes that there is limited scope for developing environmental, social or community policies. The Company has however adopted electronic communications for shareholders as a means of reducing the volume of paper that the Company uses to produce its reports. It uses mixed source paper from well-managed forests as endorsed by the Forest Stewardship Council for the printing of its circulars and annual and half-year reports. The Investment Adviser is conscious of the need to reduce its impact on the environment and has taken a number of initiatives in its offices including recycling and the reduction of its energy consumption.
The Board seeks to conduct the Company's affairs responsibly and gives full consideration to the human rights implications of its decisions, particularly with regard to investment decisions.
The VCT has adopted 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 where it operates.
The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013, (including those within the Company's underlying investment portfolio).
The Board has considered the recommendation made in the UK Corporate Governance Code with regard to a policy on whistleblowing and has reviewed the arrangements at the Investment Adviser under which staff may, in confidence, raise concerns. It has concluded that adequate arrangements are in place at the Investment Adviser for the proportionate and independent investigation of such matters and, where necessary, for appropriate follow-up action to be taken by the Investment Adviser. The Board has also asked each of its service providers to confirm that they have a suitable whistleblowing policy in place.
The main risks arising from the Company's financial instruments are due to fluctuations in market prices, investment risk, liquidity risk, interest rates and credit risk. The Board regularly reviews and agrees policies for managing these risks and full details can be found in Note 15 to the Financial Statements on pages 54 to 60 of this Annual Report.
For a full list of the post balance sheet events that have occurred since 31 December 2016, please see Note 18 to the Financial Statements on page 61.
The following additional disclosures are made in accordance with Part 6 of Schedule 7 of The Large and Mediumsized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended 2013).
The Company may amend its articles of association ("the Articles") by special resolution in accordance with section 21 of the Companies Act 2006.
As at the date of this report the Company had not been notified of any beneficial interest exceeding 3 per cent. of the issued share capital.
The Notice of the Annual General Meeting (AGM), which will be held at 11.30 am on 8 May 2017 at a new venue, The Clubhouse, 8 St James's Square, London SW1Y 4JU, is set out on pages 64 to 66 of this Annual Report. A proxy form for the meeting is enclosed separately with shareholders' hard copies of this Annual Report. Proxy votes may also be submitted electronically via the Capita Shareholder Portal www. capitashareportal.com.
Resolutions 1 to 9 are being proposed as ordinary resolutions requiring more than 50 per cent. of the votes cast at the meeting to be in favour and resolutions 10 and 11 will be proposed as special resolutions requiring the approval of at least 75 per cent. of the votes cast at the meeting. The following is an explanation of the main Resolutions to be proposed at the meeting.
These two resolutions grant the Directors the authority to allot shares for cash to a limited and defined extent otherwise than pro rata to existing shareholders.
Resolution 9 will enable the Directors to allot new shares up to an aggregate nominal value of £248,086, representing approximately 50.59 per cent. of the Company's existing issued share capital as at the date of the notice convening the AGM.
Under section 561(1) of the Companies Act, if the Directors wish to allot new shares or sell or transfer treasury shares for cash they must first offer such shares to existing shareholders in proportion to their current holdings. It is proposed by Resolution 10 to sanction the disapplication of such pre-emption rights in respect of the allotment of equity securities:
in each case where the proceeds may be used in whole or in part to purchase the Company's shares in the market.
The Company does not currently hold any shares as treasury shares.
Both of these authorities, unless previously renewed, varied or revoked, will expire on the date falling fifteen months after the passing of the resolution or, if earlier, on the conclusion of the annual general meeting of the Company to be held in 2018. However, the Directors may allot securities after the expiry dates specified above in pursuance of offers or agreements made prior to the expiration of these authorities. Both resolutions generally renew previous authorities approved by shareholders at the Annual General Meeting of the Company held on 13 May 2016.
The Directors have no plans at the current time to fundraise for the Company or any other further immediate intention of exercising the above powers but will consider raising further funds in the future in line with its liquidity and new investment requirements. It is therefore seeking authority to allot shares and dissapply the pre-emption rights of members to take account of this contingency.
This resolution authorises the Company to purchase its own shares pursuant to section 701 of the Companies Act. The authority is limited to the purchase of an aggregate of 7,351,551 shares representing approximately 14.99 per cent. of the issued share capital of the Company as at the date of the Notice of the Meeting or, if lower, such number of shares (rounded down to the nearest whole share) as shall equal 14.99 per cent. of the issued share capital at the date the resolution is passed. The maximum price that may be paid for a share will be the higher of (i) an amount that is not more than five per cent. above the average of the middle market quotations of the shares as derived from the Daily Official List of the UK Listing Authority for the five business days preceding the date such shares are contracted to be purchased and (ii) the price stipulated by Article 5(1) of the Buy-back and Stabilisation Regulation. The minimum price that may be paid for a share is 1 penny, being the normal value thereof.
Market liquidity in VCTs is normally very restricted. The passing of this resolution will enable the Company to purchase its own shares thereby providing a mechanism by which the Company may enhance the liquidity of its shares and seek to manage the level and volatility of the discount to NAV at which its shares may trade.
It is the Directors' intention to cancel any shares bought back under this authority. Shareholders should note that the Directors do not intend to exercise this authority unless they believe that to do so would result in an increase in net assets per share which would be in the interests of shareholders generally. This resolution will expire on the date falling fifteen months after the passing of this resolution or, if earlier, on the conclusion of the Company's annual general meeting to be held in 2018 except that the Company may purchase its own shares after this date in pursuance of a contract or contracts made prior to the expiration of this authority.
The Board recommends that shareholders vote in favour of the resolutions to be proposed at the Annual General Meeting, as the Directors intend to do in respect of their own beneficial holdings of 71,041 shares (representing 0.15 per cent. of the issued share capital as at 21 March 2017, this being the latest practicable date prior to publication of this document).
At general meetings of the Company, each shareholder has one vote on a show of hands, and one vote per share held on a poll. No member shall be entitled to vote or exercise any rights at a general meeting unless all shares held by them have been paid up in full. Any instrument of proxy must be deposited at the place specified by the Directors no later than 48 hours before the time fixed for the meeting.
There are no restrictions on voting rights and no agreements between holders of securities that may prevent or restrict the transfer of securities or voting rights.
By order of the Board
Company Secretary
22 March 2017
The Directors have adopted the Association of Investment Companies (AIC) Code of Corporate Governance 2014 ("the AIC Code") for the financial year ended 31 December 2016. The Board has considered the principles and recommendations of the AIC Code by reference to the AIC Corporate Governance Guide for investment companies ("AIC Guide"). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code ("the UK Code"), as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company.
The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Code), will provide the most appropriate information to shareholders.
The AIC Code was endorsed by the Financial Reporting Council (FRC) on 14 July 2016. In adopting the AIC Code, the Company will therefore meet its obligations in relation to the UK Code and paragraph 9.8.6 of the Listing Rules.
This statement has been compiled in accordance with the FCA's Disclosure and Transparency Rule (DTR) 7.2 on Corporate Governance Statements.
The Board considers that the Company has complied with the AIC Code throughout the year under review, except as explained in the following paragraphs.
As an externally managed VCT, most of the Company's operations are delegated to third parties. The Board has therefore concluded, for the reasons set out in the AIC Guide, that not all the provisions of the UK Code are relevant to the Company. Firstly, as the Company does not employ a chief executive, nor any executive directors, the provisions of the AIC Code relating to the role of the chief executive and executive directors' remuneration are not relevant to the Company. Secondly, the systems and procedures of the Investment Adviser, the provision of VCT monitoring services by Philip Hare & Associates LLP, as well as the size of the Company's operations, give the Board full confidence that an internal audit function is not necessary. The Company has therefore not reported further in respect of these provisions.
The table below and on the following pages shows how the Company has complied with the AIC Code during the year. Explanations are provided where the Company had not complied with the AIC Code.
| AIC Code | Principle | Compliance and/or departure from the Code |
|---|---|---|
| 1 | The Chairman should be independent. | The Board have assessed the independence of the Chairman and concluded that Christopher Moore has continued to meet the independence criteria as set out in this section of the AIC Code. The remaining Directors monitor the continuing independence of the Chairman, and inform the Chairman of their discussions. The significant directorships and time commitments of the Chairman and the other Directors are considered by the Board and are disclosed on page 21. The Board has not appointed a Senior Independent Director, as it does not believe that such an appointment is necessary when the Board is comprised solely of non-executive directors. As suggested in the AIC Code, this role can be, and in this instance is, fulfilled by the Chairman of the Audit Committee. |
| 2 | A majority of the Board should be independent of the manager. |
The Company has a Board of three non-executive directors. The Board has considered whether each Director is independent in character and judgement and whether there are any relationships or circumstances which are likely to affect, or could appear to affect, the Director's judgement. Helen Sinclair is also a director of The Income & Growth VCT plc, a company that is also advised by Mobeus, and is therefore not considered to be independent of the Investment Adviser. The Board has concluded that Christopher Moore and Andrew Robson were independent of the Investment Adviser throughout the year ended 31 December 2016. The Directors have declared any existing or potential conflicts of interest and these are reviewed and authorised by the Board, as appropriate, in accordance with the procedures under the Articles and applicable rules and regulations. It is the policy of the Directors not to participate in decisions concerning investee companies in which they hold an interest. No Director currently holds, or has previously held, a direct interest in any of the Company's investee companies. |
| AIC Code | Principle | Compliance and/or departure from the Code |
|---|---|---|
| 3 | Directors should be submitted for re-election at regular intervals. Nomination for re-election should not be assumed but be based on disclosed procedures and continued satisfactory performance. |
As is common practice among Venture Capital Trusts, the Directors are not appointed for specific terms. The Board has agreed that each Director will retire annually and, if appropriate, seek re-election, which is over and above what is required under the AIC Code. A Director's appointment may be terminated on three months' notice being given by the Company. For further information please see the Directors' Remuneration Report on page 33. |
| 4 | The Board should have a policy on tenure, which is disclosed in the annual report. |
The Board has considered a policy on tenure and agreed that for a Company of the size and structure of MIG 4, it is not appropriate to insist on a Director's period of service being limited to a set number of years. The AIC Code does not explicitly make recommendations on the overall length of tenure for directors and has stated that it does not believe that there is any evidence that an individual director's length of service on a board may compromise his or her independence in the case of investment companies. It has specifically stated that investment company boards are perhaps more likely than most to benefit from having at least one director with considerably longer than nine years' experience. As part of its annual performance review, the Board has come to the conclusion that the length of service, experience and ability of the Company's Directors enhances its performance. It does not believe that the length of service of any of the Directors has a negative effect on their independence and is satisfied with the balance of experience on the current Board. In particular, the Board considers that the Chairman's length of service as a Director of the Company is an asset to the Board. |
| 5 | There should be full disclosure of information about the board. |
Full biographical details on each Director are included on page 21 and on the Company's website. |
| 6 | The board should aim to have a balance of skills, experience, length of service and knowledge of the Company. |
The Board believe that there is a diversity of skills, gender, experience and approach amongst the Board members. Both the Board and Nomination and Remuneration Committee give careful consideration to issues of board balance and diversity when considering board composition and appointments. Details of each Director's experience and background are set out on page 21. |
| 7 | The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. |
The effectiveness of the Board and the Chairman is reviewed regularly as part of the internal control process led by the Audit Committee. The Board has carried out a performance evaluation review in respect of the year ended 31 December 2016. As part of their review, the Directors considered the performance of each of the Directors and of the Board as a whole in relation to specific areas of their activity. The performance of the Chairman was assessed separately. The Board as a whole discussed the outcome of the performance evaluation, and led by the Chairman, considered and agreed a plan of action to rectify any shortfalls where appropriate. The Board concluded that the performance of the Board, the Chairman and the Directors remained effective. |
| AIC Code | Principle | Compliance and/or departure from the Code |
|---|---|---|
| 8 | Directors' remuneration should reflect their duties, responsibilities and the value of their time spent. |
The Nomination and Remuneration Committee considers the remuneration of the Directors annually and makes recommendations to the Board. One of the main tenets of the Company's Remuneration Policy is that directors' fees should take account of the workload and responsibilities of each and the value and amount of time that each Director is required to commit to the Company. For further details, please see page 33. |
| 9 | The independent directors should take the lead in the appointment of new directors and the process should be disclosed in the annual report. |
The Nomination and Remuneration Committee is responsible for proposing candidates for appointment to the Board and for overseeing the recruitment process. The Committee comprises a majority of independent directors. No new directors were appointed to the Board during the year under review. |
| 10 | Directors should be offered relevant training and induction. |
New directors are provided with an induction pack and an induction session is arranged in conjunction with the Board and the Investment Adviser. A formal training programme has not been required during the year under review. All of the Directors participate in continuing professional development and regularly attend conferences and workshops relevant to the VCT industry. |
| 11 | The chairman (and the board) should be brought into the process of structuring a new launch at an early stage. |
Principle 11 applies to the launch of new investment companies and is therefore not applicable to the Company. However, the Board participated fully in the launch of all fundraisings undertaken by the Company in previous years. |
| 12 | Boards and managers should operate in a supportive, co-operative and open environment. |
The Board meets at least quarterly, which meetings are also attended by the Investment Adviser. Both parties are in regular contact between these meetings. The Board and the Investment Adviser aim to work together in a supportive, co-operative and open manner. The Board has overall responsibility for the Company's affairs. The Investment Adviser takes the initiative on most aspects of the Company's operations, under the guidance and formal approval of the Board and the Board has agreed policies with the Investment Adviser covering key operational issues. All investment, divestment and variation decisions are made by the Board having considered formal recommendations from the Investment Adviser. The Board invites senior members of the Investment Adviser to attend and contribute to its annual strategy meeting that it has held since 2012. |
| 13 | The primary focus at regular board meetings should be a review of investment performance and associated matters, such as gearing, asset allocation, marketing/investor relations, peer group information and industry issues. |
The Board considers a report from the Investment Adviser at each of its quarterly meetings which provides information on the performance of each of the investments in the portfolio, recent or forthcoming corporate actions at any of the investee companies and other matters relating to the portfolio. The Board monitors the investments made by the Investment Adviser to ensure they are in line with the Company's Investment Policy. The Board also considers peer group performance, asset allocation and wider industry and economic issues in reviewing investment performance and strategy. In addition, the Board monitors financial and other internal controls including maintenance of VCT status and the level of share price discount or premium. The Board has no current plans to undertake any gearing of the Company. |
| AIC Code | Principle | Compliance and/or departure from the Code |
|---|---|---|
| 14 | Boards should give sufficient attention to overall strategy. |
The Board monitors performance against its agreed strategy on an ongoing basis and reviews its overall strategy at its annual strategy meeting. |
| 15 | The Board should regularly review both the performance of, and contractual arrangements with, the manager. |
The Board reviews annually and at other times, as and when necessary, the Investment Adviser's Agreement and the performance of the Investment Adviser. |
| 16 | The Board should agree policies with the manager covering key operational issues. |
The Board has agreed that the Investment Adviser takes the initiative on most aspects of the Company's operations, under the guidance and formal approval of the Board. The Board has agreed policies with the Investment Adviser covering key operational issues. |
| 17 | The Board should monitor the level of the share price discount or premium (if any) and, if desirable, take action to reduce it. |
A review of the level of share price discount or premium is performed at each Board meeting. The Board approves every buyback of the Company's shares as it is undertaken. |
| 18 | The Board should monitor and evaluate other service providers. |
The Board reviews annually and at other times, as and when necessary, the performance of the other service providers including the auditor, VCT status adviser, solicitors, bankers and registrars. |
| 19 | The Board should regularly monitor the shareholder profile of the company and put in place a system for canvassing shareholder views and for communicating the Board's views to shareholders. |
The Board has a duty to promote the success of the Company and to ensure that its obligations to shareholders are met. The Company communicates with shareholders and solicits their views where it is appropriate to do so. The Board approves the circulation of the Half-Year and Annual Report and Financial Statements to shareholders. Shareholders are welcome at the Annual General Meeting which provides a forum for shareholders to ask questions of the Directors and the Investment Adviser and to discuss issues affecting the Company with them. In addition, the Investment Adviser publishes a twice-yearly VCT shareholder newsletter which contains information on the portfolio and recent investment and corporate activity. The Investment Adviser also organises an annual shareholder event, which the Board attends to listen to any views that shareholders may have and answer any questions about the Company. The Company has established its own website which is a dedicated section of the Investment Adviser's website. |
| 20 | The Board should normally take responsibility for, and have a direct involvement in, the content of communications regarding major corporate issues even if the manager is asked to act as spokesman. |
The Board reviews and agrees the content of all communications issued on behalf of the Company. It is consulted regarding promotional material which may be issued by the Investment Adviser. |
| 21 | The Board should ensure that shareholders are provided with sufficient information for them to understand the risk: reward balance to which they are exposed by holding the shares. |
The Board believes that the Annual Report and Financial Statements have been prepared in order to ensure that the information presented to shareholders is fair, balanced and understandable and complies with the recommendations of the AIC Code. The principal risks faced by the Company are documented in the Strategic Report, as part of the Annual Report, and in the Half-Year Report. |
Additional information relevant to the corporate governance of the Company is set out on the following pages:
The Board acknowledges that it is responsible for the Company's system of internal control and for reviewing its effectiveness. Internal control systems are designed to manage the particular needs of the Company and the risks to which it is exposed and can by their nature only provide reasonable and not absolute assurance against material misstatement or loss.
The Company's internal control system aims to ensure the maintenance of proper accounting records, the reliability of the finance information used for publication and upon which business decisions are made, and that the assets of the Company are safeguarded. The financial controls operated by the Board include the authorisation of the Investment Policy and regular reviews of the financial results and investment performance.
The Board has put in place ongoing procedures for identifying, evaluating and managing the significant risks faced by the Company. As part of this process, an annual review of the control systems is carried out. The review covers a consideration of the key business, operational, compliance and financial risks facing the Company and includes a review of the risks in relation to the financial reporting process. The Board reviews a schedule of key risks and the management accounts at each quarterly Board meeting. It is assisted by the Audit Committee in respect of the Annual and Half-Year Reports and other published financial information.
The Board has delegated, contractually to third parties, the management of the investment portfolio, the day-to-day accounting, company secretarial and administration requirements and the registration services. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of services offered, including the financial control systems in operation at the service providers in so far as they relate to the affairs of the Company. The Board regularly monitors these controls from a risk perspective and receives reports from the Registrar and Investment Adviser and Administrator when appropriate.
The Board, assisted by the Audit Committee, carries out separate assessments in respect of the Annual and Half-Year Reports and other published financial information. As part of these reviews, the Board appraises all the relevant risks ensuing from the internal control process referred to above. The main aspects of the internal controls which have been in place throughout the year in relation to financial reporting are:
The system of internal control and the procedure for the review of control systems has been in place and operational throughout the year under review and up to the date of this Report. An assessment of the effectiveness of internal controls in managing risk was conducted on the basis of reports from the relevant service providers. The last review took place on 13 March 2017. The Board has identified no significant problems with the Company's internal control mechanisms.
The Board appointed the Company as its own AIFM in compliance with the European Commission's Alternative Investment Fund Management Directive with effect from 22 July 2014. The Company is registered as a small AIFM, and is therefore exempt from the principal requirements of the Directive. Mobeus continues to provide investment advisory and administrative services to the Company. However, in order for the Company to continue to discharge its safekeeping responsibilities for the documents of title to its investments, Mobeus company secretarial staff are now directly responsible to the Board, under its instruction, for accessing and dealing with these documents.
The powers of the Directors have been granted by company law, the Company's articles and resolutions passed by the
Company's members in general meeting. Resolutions are proposed annually at each annual general meeting of the Company to authorise the Directors to allot shares, disapply the pre-emption rights of members and buyback the Company's own shares on behalf of the Company. These authorities are currently in place and resolutions to renew them will be proposed at the Annual General Meeting of the Company to be held on 8 May 2017.
The Board (chaired by Christopher Moore) has agreed a schedule of matters specifically reserved for decision by the Board. These include compliance with the requirements of the Companies Act 2006 and the Income Tax Act 2007, the UK Listing Authority and the London Stock Exchange; strategy and management of the Company; changes relating to the Company's capital structure or its status as a plc; financial reporting and controls; board and committee appointments as recommended by the Nomination and Remuneration Committee and terms of reference of committees; material contracts of the Company and contracts of the Company not in the ordinary course of business.
Christopher Moore and Helen Sinclair have both served on the Board for more than nine years and in accordance with the recommendation of the AIC Code of Corporate Governance and the Company's Policy on tenure, have agreed to stand for re-election annually. Andrew Robson in conjunction with his fellow Directors also offers himself for re-election at the forthcoming Annual General Meeting.
Following the performance evaluation of the Directors during the year, the Board confirms that each of Christopher Moore, Helen Sinclair, and Andrew Robson continue to demonstrate commitment to their roles and to be effective in carrying out their duties on behalf of the Company.
Copies of the Directors' appointment letters will be available for inspection at the place of the Annual General Meeting for at least fifteen minutes prior to and during the meeting.
The Board has established three Committees, the Nomination and Remuneration Committee, the Investment Committee and the Audit Committee, each with responsibilities for specific areas of its activity. Each of the Committees have written terms of reference, which detail their authority and duties. Shareholders may obtain copies of these
by making a written request to the Company Secretary or by downloading these documents from the Company's website: www.mig4vct.co.uk .
The Board has satisfied itself that each of its Committees has sufficient resources to undertake its duties.
The Nomination and Remuneration Committee is chaired by Andrew Robson and comprises all three Directors.
A full description of the work of the Committee with regard to remuneration is included within the Directors' Remuneration Report on page 33 and 34.
In considering nominations, the Committee is responsible for making recommendations to the Board concerning new appointments of Directors to the Board and its committees; the periodic review of the composition of the Board and its committees; and the annual performance review of the Board, the Directors and the Chairman. This includes the ongoing review of each Director's actual or potential conflicts of interest which may arise as a result of the external business activities of Board members. No appointments were made during the year under review. The Board has made a commitment to consider diversity, including gender as part of the recruitment process for future appointments.
The Investment Committee is chaired by Helen Sinclair and comprises all three Directors.
The Committee meets as necessary to consider the investment proposals put forward by the Investment Adviser. The Committee advises the Board on the development and implementation of the Investment Policy and leads the process for the ongoing monitoring of investee companies and the Company's investment therein. Investment guidance has been issued to the Investment Adviser and the Committee ensures that this guidance is adhered to. New investments and divestments are approved by written resolution of the Committee following discussion between Committee members and are subsequently ratified by the Board. Investment matters are discussed extensively at Board meetings. During the year, the Committee formally approved all
investments, divestments and variation decisions and met informally on numerous occasions.
The Committee considers and agrees, on the advice of the Investment Adviser for recommendation to the Board, all unquoted investment valuations. Investments are valued in accordance with the International Private Equity and Venture Capital (IPEV) Valuation Guidelines under which investments are valued at fair value as defined in those guidelines. Any AIM or other quoted investment will be valued at the closing bid price of its shares as at the relevant reporting date, in accordance with generally accepted accounting practice.
The main risks arising from the Company's financial instruments are due to investment risk, liquidity risk, credit risk, fluctuations in market prices (market price risk), cash flow interest rate risk and currency risk. The Board regularly reviews and agrees policies for managing these risks and full details can be found in Note 15 to the Accounts on pages 54 to 60 of this Annual Report.
Mobeus acts as Investment Adviser and also provides administrative and company secretarial services to the Company.
The Directors carry out an Annual Review of the performance of and contractual arrangements with the Investment Adviser. As part of this review, the Board considers the quality and continuity of the investment management team, investment performance, quality of information provided to the Board, remuneration of the Investment Adviser, the investment process and the results achieved to date. A review of the performance of the Company is included in the Strategic Report on pages 4 to 20. The Board concluded that the Investment Adviser has performed consistently well over the medium term and has returned a solid performance in respect of the year under review. In particular, they noted the response of the Investment Adviser to the New VCT Rules, featured by the recruitment of senior specialist resource, development of a pipeline of growth capital opportunities and entering into six such transactions. The Company's investment portfolio performance has been stable, demonstrating principally
the success of the Company's previous Investment Policy and a successful transition to the new Policy.
The Board places significant emphasis on the Company's performance against its peers and further information on this has been included in the Strategic Report on page 6. The Board further considered the Investment Adviser's commitment to the promotion of the Company and was satisfied that this was highly prioritised by the Investment Adviser as evidenced by, inter alia, the Mobeus fundraisings from 2010 - 2015 and annual shareholder events which have taken place since 2012.
The Board considers that the Investment Adviser continues to exercise independent judgment while producing valuations which reflect fair value. Overall, the Board continues to believe that the Investment Adviser possesses the experience, knowledge and resources that are required to support the Board in achieving the Company's long term investment objectives. The Directors are also confident that the Investment Adviser will continue to adjust to the new VCT regulations, although this will again be carefully monitored by the Board in the coming year. The Directors therefore believe that the continued appointment of Mobeus as Investment Adviser to the Company on terms currently agreed is in the interests of shareholders and this was formally approved by the Board on 13 March 2017.
The principal terms of the Company's Investment Management Agreement dated 12 November 2010 and the previous contractual arrangements prior to this date are set out in Note 4 to the Accounts on page 46 of this Annual Report. The Board seeks to ensure that the terms of these Agreements represent an appropriate balance between cost and incentivisation of the Investment Adviser.
By order of the Board
Company Secretary 22 March 2017
The Audit Committee is chaired by Andrew Robson and comprises all three Directors. A summary of the Audit Committee's principal activities for the year ended 31 December 2016 is provided below:
In complience with the new European Audit Regulation Directive, the committee undertook an audit tender process during the year. For further details please see page 32.
The Half-Year and Annual Reports to shareholders were thoroughly reviewed by the Committee prior to submission to the Board for approval.
The Committee has monitored the system of internal controls throughout the year under review as described in more detail in this Report on page 29. It receives a report by exception on the Company's progress against internal controls at its annual and half-year results meetings and reviews a schedule of key risks at each meeting. A full review of the internal controls in operation by the Company was undertaken by the Committee in November 2016 and updated in March 2017.
The Investment Adviser prepared valuations of the investments in the portfolio at the end of each quarter and these were considered in detail and agreed by the Investment Committee for recommendation to the Board. The Audit Committee continues to monitor the adequacy of the controls over the preparation of these valuations. As part of this process, it focused on ensuring that both the bases of the valuations and any assumptions used were reasonable and in accordance with the IPEV Valuation Guidelines. The Committee received a report on the valuations from the external auditor as part of both the year-end audit process and the half-year review. These reports were discussed by the Committee with the Auditor and the Investment Adviser before a recommendation to approve the valuations was made to the Board.
The key accounting and reporting issues considered by the Committee in addition to those described above during the year included:
The Committee monitors the Company's resources at each quarterly board meeting and is satisfied that the Company has an adequate level of resources for the foreseeable future. It has assessed the viability of the Company for three years and beyond. Consideration is given to the cash balances and holdings in money market funds, together with the ability of the Company to realise its investments. See page 20 of the Strategic Report for further details.
If an investment has been impaired such that there is no realistic expectation that there will be a full return from the investment, the loss is treated as a permanent impairment and is recognised as a realised loss in the Financial Statements. The Committee reviews the appropriateness and completeness of such impairments.
The Company engages the services of a VCT Status Adviser (Philip Hare & Associates LLP) to advise on its ongoing compliance with the legislative requirements relating to VCTs. A report on the Company's compliance supported by the tests carried out is produced by the VCT Status Adviser on a bi-annual basis and reviewed by the Committee for recommendation to the Board. The Committee has continued to consider the risk and compliance aspects of changes to the VCT Rules introduced by the Finance Act (No.2) 2015 as the implications of the changes have become clearer. As an essential part of this work, the Committee has held ongoing discussions with the Company's VCT Status Adviser throughout the year.
The Committee notes that revenue from loan stock and dividends may be uncertain given the type of companies in which the VCT invests. Dividends in particular may be difficult to predict. The payments received however have a direct impact on the level of income dividends the Company is able to pay to shareholders. The Committee agrees policies for revenue recognition and reviews their application at each of its meetings. It considers schedules of income received and receivable from each of the investee companies and assesses, in consultation with the Investment Adviser, the likelihood of receipt of each of the amounts.
The Board has identified the key risks faced by the Company, as disclosed in the Strategic Report on page 19, and established appropriate controls. The Committee monitors these controls and reviews any incidences of non-compliance. Further details are set out in the section of this report that discusses the Company's system of internal controls (page 29).
The Committee is responsible for overseeing the relationship with the external Auditor, assessing the effectiveness of the external audit process and making recommendations on the appointment and removal of the external Auditor. It makes recommendations to the Board on the level of audit fees and the terms of engagement for the Auditor. The external Auditor is invited to attend Audit Committee meetings, where appropriate, and also meets with the Committee and its Chairman without representatives of the Investment Adviser being present.
The Audit Committee undertakes a review of the external Auditor and the effectiveness of the audit process on an annual basis. When assessing the effectiveness of the process, the Committee considers whether the Auditor:
The Board regularly reviews and monitors the external Auditor's independence and objectivity. As part of this it reviews the nature and extent of services supplied by the Auditor to ensure that independence is maintained.
The Committee is also currently reviewing, with BDO, the implications of the Financial Reporting Council's ("FRC") Ethical Reporting Standard 2016 which includes a list of prohibited non-audit services that cannot be provided by the external Auditor and in particular, the ongoing appropriateness of the provision of tax services by the external auditor.
The Audit Committee has so far concluded that it is in the interests of the Company to purchase certain non-audit services from the external Auditor given its knowledge of the Company and considers these to be acceptable under the FCA's ethical standard. The Services contracted for during the year were tax compliance services, iXBRL tagging and a review of the half-year report.
Subsequent to its review, the Audit Committee was satisfied that the audit independence had been maintained as the fees involved were relatively small compared to those for the audit. Also, with the exception of the half-year review the work is undertaken by separate teams and none of the services involved undertaking any management role in preparing the information reported in the Financial Statements.
During the year, Jason Homewood, who had been senior statutory auditor since 2012, rotated off the audit and was replaced by Peter Smith.
The Committee undertook an audit tender process during the year in compliance with new requirements on audit firm rotation, resulting from the new European Audit Regulation Directive. These made it mandatory for listed companies to undergo a tender process for the audit of their company at least every ten years.
As part of the tender process, having invited three firms with demonstrable experience in the VCT sector to tender, the Audit Committee considered proposals from BDO, as the incumbent Auditor, and one other firm of auditors. The Committee considered that BDO had made a strong presentation and had shown a clear understanding of the Company's requirements and its particular demands as a VCT as well as presenting a competitive estimate of fees.
As a result of the audit tender, the Committee concluded that the reappointment of BDO as Auditor was in the best interests of the Company and of shareholders and its recommendation was endorsed by the Board.
Disclosures required by certain publiclytraded companies as set out in Part 6 of Schedule 7 of the Large and Mediumsized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended 2013) are contained in the Directors' Report on page 23.
By order of the Board
Chairman of the Audit Committee 22 March 2017
This Report has been prepared by the Directors in accordance with the requirements of Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, the Companies Act 2006 and the Listing Rules of the UK Listing Authority ("the Listing Rules").
The Company's independent Auditor is required to give its opinion on the information provided on Directors' emoluments and Directors' interests on page 35 of this Annual Report and this is explained further in the Auditor's report to shareholders on pages 37 to 39.
The resolution to approve the Directors' Remuneration Policy as set out in the Annual Report for the year ended 31 December 2013 was approved by shareholders at the Annual General Meeting of the Company held on 9 May 2014. It was agreed that this policy would be subject to shareholder approval every three years Therefore a resolution to approve the Remuneration Policy will be put to shareholders at the forthcoming Annual General Meeting of the Company to be held on 8 May 2017.
The resolution to approve the Directors' Annual Remuneration Report as set out in the Annual Report for the year ended 31 December 2015 was approved by shareholders at the Annual General Meeting of the Company held on 13 May 2016. An ordinary resolution will be proposed at the forthcoming Annual General Meeting of the Company to be held on 8 May 2017 for the approval of the Annual Remuneration Report as set out below.
This report sets out the Company's forward looking Directors' Remuneration Policy and the Annual Remuneration Report which describes how this policy has been applied during the year.
The Committee has reviewed the fees paid in the year ended 31 December 2016 and decided not to make any changes to the level of fees paid at the current time. As part of this review it considered information on the fees paid to directors of a peer group of VCTs of a similar size operating in its sector.
Chairman of the Nomination and Remuneration Committee 22 March 2017
The remuneration policy is set by the Board on the recommendation of the Nomination and Remuneration Committee and is unchanged from last year. In determining the Company's remuneration policy, the Committee seeks to determine a level of fees appropriate to attract and retain individuals of sufficient calibre to lead the Company in achieving its strategy. When considering the level of Directors' fees, it takes account of the required workload and responsibilities of each role and the value and amount of time that a Director is required to commit to the Company. It further considers remuneration levels elsewhere in the Venture Capital Trust industry for companies of a similar size and structure, together with other relevant information.
The level of fees paid to each of the Directors is reviewed annually by the Nomination and Remuneration Committee which makes recommendations to the Board.
The Committee has access to independent advice where and when it considers appropriate. However, it was not considered necessary to take any such advice during the year under review.
In addition to the £20,000 paid to Directors (£25,000 paid to Christopher Moore as Chairman) supplements are paid to the Directors in respect of their membership of the Investment (£6,000) and Audit (£2,500) Committees. The Directors may at their discretion pay additional sums in respect of specific tasks carried out by individual Directors on behalf of the Company.
Since all the Directors are non-executive, the Company is not required to comply with the executive director's provisions of the Listing Rules, the UK Corporate Governance Code and the AIC Code of Corporate Governance in respect of Directors' remuneration, except in so far as they relate specifically to non-executive directors.
Whilst it is a key element of this policy to recruit directors of the calibre required to lead the Company in achieving its short and long-term objectives no component of the fees paid is directly related to performance.
All the Directors are non-executive and the Company does not provide pension benefits to any of the Directors.
The Company does not have any schedules in place to pay bonuses or benefits to the Directors. No arrangements have been entered into between the Company and the Directors to entitle any of the Directors to compensation for loss of office. The Company has not granted any Director any options over the share capital of the Company.
Remuneration of any new Director, who may subsequently be appointed to the Board, will be in line with the Remuneration Policy set out in this Report and the levels of remuneration stated therein, as modified from time to time.
The Board prioritises the views of shareholders and encourages an open discussion at general meetings of the Company. It takes shareholders' views into account, where appropriate, when formulating its remuneration policy.
This policy applied throughout the year ended 31 December 2016 and will continue to apply to the current year ending 31 December 2017.
Christopher Moore and Helen Sinclair have agreed to offer themselves for re-election annually as both of these Directors have served on the Board for more than nine years and Helen Sinclair is considered to be a non-independent Director as explained on page 25. Andrew Robson has also agreed to offer himself for re-election annually.
All of the Directors are non-executive and none of the Directors has a service contract with the Company.
All Directors receive a formal letter of appointment setting out the terms of their appointment and their specific duties and responsibilities and the fees pertaining to their appointment. None of the Directors have a service contract with the Company. A Director's appointment may be terminated on three months' notice being given by the Company and in certain other circumstances.
New Directors are asked to undertake that they will have sufficient time to carry out their responsibilities to the Company and to disclose their other significant time commitments to the Board before appointment.
The table below illustrates how the Company's Objective is supported by its Remuneration Policy. It sets out details of each component of the pay package and the maximum amount receivable during the forthcoming year by each Director. The Nomination and Remuneration Committee and the Board review the fees paid to Directors annually in accordance with the Remuneration Policy set out on page 33 and may decide that an increase in fees is appropriate in respect of subsequent years.
| Director | Components of Pay Package | Maximum | Performance | ||
|---|---|---|---|---|---|
| Role | Director's fees | Supplements payable to: | payment for the |
conditions | |
| Audit Committee Members |
Investment Committee Members |
forthcoming year |
|||
| Christopher Moore Chairman |
£25,000 | £2,500 | £6,000 | £33,500 | None |
| Andrew Robson Chairman, Audit, and Nomination & Remuneration Committees |
£20,000 | £2,500 | £6,000 | £28,500 | None |
| Helen Sinclair Chairman, Investment Committee |
£20,000 | £2,500 | £6,000 | £28,500 | None |
| Total fees payable | £65,000 | £7,500 | £18,000 | £90,500 |
To provide investors with a regular income stream by way of tax-free dividends and to generate capital growth through portfolio realisations which can be distributed by way of additional tax-free dividends, while continuing at all times to qualify as a VCT.
To ensure that the levels of remuneration paid are sufficient to attract, retain and motivate directors of the quality required to manage the Company in order to achieve the Company's Objective.
The Directors' Remuneration Policy as set out above applied throughout the year ended 31 December 2016 and will continue to apply to the current year ending 31 December 2017.
The Committee comprises the full Board and is chaired by Andrew Robson. All members of the Committee are considered to be independent of the Investment
Adviser with the exception of Helen Sinclair under the AIC Code (see page 25 for further details). The Committee meets at least once a year and is responsible for making recommendations to the Board on remuneration policy and reviewing the policy's ongoing appropriateness and relevance. It carries out an annual review of the remuneration of the Directors and makes recommendations to the Board on the level of Directors' fees. The Committee, may at its discretion, recommend to the Board that individual Directors should be
awarded additional payments in respect of extra-curricular work carried out on behalf of the Company. It is responsible for the appointment of remuneration consultants, if this should be considered necessary, including establishing the selection criteria and terms of reference for such an appointment. However, it was not considered necessary to take any such advice during the year under review. The Committee met once during the year under review with full attendance from all its members.
| Year ended | |||||
|---|---|---|---|---|---|
| 31 December 2016 £ |
31 December 2015 £ |
||||
| Christopher Moore | 33,500 | 33,500 | |||
| Andrew Robson | 28,500 | 28,500 | |||
| Helen Sinclair | 28,500 | 28,500 | |||
| Total | 90,500 | 90,500 |
£28,500 (2015: £28,500) of Christopher Moore's annual fee was paid to his consultancy business, The Moore Corporation.
The Company does not require the Directors to hold shares in the Company.
The Directors, however, believe that it is in the best interests of the Company and its shareholders for each Director to maintain an interest in the Company. The Directors who held office throughout the year under review and their interests as at 31 December 2016 were:
| 31 December 2016 | 31 December 2015 | ||||
|---|---|---|---|---|---|
| Percentage of | Percentage of | ||||
| Director | Shares held |
issued share capital |
Shares held |
issued share capital |
|
| Christopher Moore | 41,359 | 0.08% | 41,359 | 0.08% | |
| Andrew Robson | 14,820 | 0.03% | 14,820 | 0.02% | |
| Helen Sinclair | 14,862 | 0.03% | 14,862 | 0.03% |
There have been no further changes to the Directors' share interests between the year-end and the date of this Annual Report.
| Year to 31 December 2016 |
Year to 31 December 2015 |
Percentage Increase/ (decrease) |
|
|---|---|---|---|
| £ | £ | % | |
| Total directors' fees |
90,500 | 90,500 | - |
| Dividends paid/payable in respect of the year |
4,412,802 | 5,316,003 | (17.0) |
| Share Buybacks |
244,575 | 168,734 | 45.0 |
The table below sets out the Directors' attendance at quarterly Board meetings and Committee meetings held during the year to 31 December 2016. In addition to the quarterly Board meetings, the Board met on other occasions to consider specific issues as they arose.
| Directors | Board Meetings (4) | Audit Committee Meetings (4) |
Nomination & Remuneration Committee (1) |
|||
|---|---|---|---|---|---|---|
| Eligible | Attended | Eligible | Attended | Eligible | Attended | |
| Christopher Moore | 4 | 4 | 4 | 4 | 1 | 1 |
| Andrew Robson | 4 | 4 | 4 | 4 | 1 | 1 |
| Helen Sinclair | 4 | 4 | 4 | 4 | 1 | 1 |
The graph below charts the total shareholder return of the Company's shares on a share price basis (assuming all dividends are re-invested and excluding the tax relief available to shareholders) over the past eight years compared with that of an index of all VCTs and an index of generalist VCTs which are members of the AIC (based on figures provided by Morningstar). The Board considers these indices to be the most appropriate to use to measure the Company's relative performance over the medium to long term. The total shareholder returns have each been rebased to 100 pence at 31 January 2009.
An explanation of the performance of the Company is given in the Chairman's Statement on pages 2 and 3, the Performance section of the Strategic Report on pages 5 to 7 and in the Investment Review and Investment Portfolio Summary on pages 8 to 17.
By order of the Board
Company Secretary 22 March 2017
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each financial year and the Directors have elected to prepare the Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for the Company for that period.
In preparing these Financial Statements, the Directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for ensuring the Annual Report and the Financial Statements are made available on a website. Financial Statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of Financial Statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the Financial Statements contained therein.
The Directors confirm to the best of their knowledge that:
(a) The Financial Statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and the profit of the Company.
(b) The Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
Having taken advice from the Audit Committee, the Board considers the Annual Report and Financial Statements, taken as a whole, as fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
Neither the Company nor the Directors accept any liability to any person in relation to the Annual Report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A and schedule 10A of the Financial Services and Markets Act 2000.
The names and functions of the Directors are stated on page 21.
For and on behalf of the Board
Chairman
22 March 2017
In our opinion Mobeus Income & Growth VCT 4 plc financial statements for the year ended 31 December 2016, which have been prepared by the directors in accordance with applicable law and and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice):
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Our audit opinion on the financial statements covers the Income Statement, the Balance Sheet, the Statement of Changes in Equity, the Statement of Cash Flows and the related notes.
As explained more fully in the report of the directors, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council's (FRC's) Ethical Standards for Auditors.
A description of the scope of an audit of financial statements is provided on the FRC's website at www.frc.org.uk/ auditscopeukprivate
Our audit approach was developed by obtaining an understanding of the company's activities, the key functions undertaken on behalf of the Board by the Investment Adviser and Administrator and the overall control environment. Based on this understanding we assessed those aspects of the company's transactions and balances which were most likely to give rise to a material misstatement. Below are those risks which we considered to have the greatest effect on the overall audit strategy including the allocation of resources in the audit, and our audit response:
The valuation of investments is a key accounting estimate where there is an inherent risk of management override arising from the investment valuations being prepared by the Investment Adviser, who is remunerated based on the net asset value of the company. In addition, there is a high level of estimation uncertainty involved in determining the unquoted investment valuations.
We performed initial analytical procedures to determine the extent of our work considering, inter alia, the value of individual investments, the nature of the investment and the extent of the fair value movement. A breakdown of the investment portfolio by nature of instrument and valuation method is shown below.
Investments by type
In respect of unquoted investments our sample for testing was stratified according to risk, having regard to the subjectivity of the inputs to the valuations. 30% of the portfolio is based on price of recent investment or cost, including cash held within companies seeking to acquire a trade. For such investments, we verified the cost or price of recent investment to supporting documentation and reviewed the Investment Adviser's determination of
whether there were any reasons why the valuation did not remain appropriate, including obtaining evidence of the cash balance where appropriate.
69% of the unquoted investment portfolio is valued in accordance with more subjective techniques, mainly on an earnings multiple basis, as described in note 8. In respect of the sample selected for detailed testing (representing 99% by value of the investments valued using more subjective techniques) we:
Where appropriate, we performed a sensitivity analysis by developing our own point estimate where we considered that alternative input assumptions could reasonably have been applied and we considered the overall impact of such sensitivities on the portfolio of investments in determining whether the valuations as a whole are reasonable and free from bias.
In respect of equity investments quoted on AIM (<1% of the total portfolio value), we obtained the year end price and confirmed that bid price had been used as the most appropriate indication of fair value.
For all investments tested, we developed our own point estimate where alternative assumptions could reasonably be applied and considered the overall impact of such sensitivities on the portfolio of investments in determining whether the valuations as a whole are reasonable and unbiased.
The remainder of the portfolio was subject to analytical procedures to confirm there were no unexpected movements in value warranting further investigation.
The extent of our testing is detailed below:
Revenue consists primarily of interest earned on loans to investee companies and cash balances, as well as dividends
receivable from investee companies. Revenue recognition is considered to be a significant audit risk as it is one of the key drivers of dividend returns to investors.
We developed expectations for interest income receivable based on loan instruments and investigated any variations in amounts recognised to ensure they were valid. We traced a sample of interest income receipts to bank statements.
We considered whether the accounting policy had been applied correctly by management in determining provisions against income where recovery is considered doubtful, considering management information relevant to the ability of the investee company to service the loan and the reasons for any arrears of loan interest. We considered the appropriateness of the accounting treatment of other fixed returns, including redemption premia.
We considered the completeness of dividend income receivable by reviewing independent data including published dividend histories for AIM quoted investments and statutory and management information for a sample of unquoted investments. We traced
dividend income received to bank and considered the appropriate classification of dividends between revenue and capital.
The audit committee's consideration of their key issues is set out on pages 31 and 32.
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. For planning, we consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. Importantly, misstatements below this level will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the Financial Statements. The application of these key considerations gives rise to two levels of materiality, the quantum and purpose of which are tabulated below.
| Materiality measure | Purpose | Key considerations and benchmarks |
Quantum (£) |
|---|---|---|---|
| Financial statement materiality (2% value of investments)- |
Assessing whether the financial statements as a whole present a true and fair view |
The value of investments The level of judgement inherent in the valuation |
770,000 |
| The range of reasonable alternative valuation |
|||
| Specific materiality – classes of transactions and balances which impact on revenue profits (10% revenue return before tax) |
Assessing those classes of transactions, balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. |
The level of net income return | 125,000 |
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £9,000, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
In our opinion the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
In our opinion: based on the work undertaken in the course of the audit:
We have nothing material to add or to draw attention to in relation to:
Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the Report and Accounts is:
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the Directors' statement that they consider the Report and Accounts is fair, balanced and understandable and whether the Report and Accounts appropriately discloses those matters that we communicated to the Audit committee which we consider should have been disclosed.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Under the Listing Rules we are required to review the part of the corporate governance statement relating to the company's compliance with the provisions of the UK Corporate Governance Code specified by the Listing Rules of the Financial Conduct Authority for review by the auditor. The Listing Rules also require that we review the directors' statements set out on page 20 regarding going concern and longer term viability.
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the director's report.
We have nothing to report in respect of these matters.
(senior statutory auditor) For and on behalf of BDO LLP, statutory auditor London United Kingdom
Date 22 March 2017
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127)
| Year ended 31 December 2016 | Year ended 31 December 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| Notes | Revenue £ |
Capital £ |
Total £ |
Revenue £ |
Capital £ |
Total £ |
||
| Unrealised (losses)/gains on investments | 8 | - | (377,677) | (377,677) | - | 1,094,287 | 1,094,287 | |
| Realised gains on investments | 8 | - | 381,087 | 381,087 | - | 3,302,320 | 3,302,320 | |
| Income | 3 | 2,019,579 | - | 2,019,579 | 2,202,056 | - | 2,202,056 | |
| Investment Adviser's fees | 4a | (304,628) | (913,884) (1,218,512) | (303,725) | (911,176) | (1,214,901) | ||
| Other expenses | 4d | (370,899) | - | (370,899) | (402,156) | - | (402,156) | |
| Profit/(loss) on ordinary activities | ||||||||
| before taxation | 1,344,052 | (910,474) | 433,578 | 1,496,175 | 3,485,431 | 4,981,606 | ||
| Taxation on profit/(loss) on ordinary activities | 5 | (212,864) | 182,776 | (30,088) | (184,209) | 184,209 | - | |
| Profit/(loss) for the year and total | ||||||||
| comprehensive income | 1,131,188 | (727,698) | 403,490 1,311,966 3,669,640 | 4,981,606 | ||||
| Basic and diluted earnings per ordinary share | 6 | 2.32p | (1.49)p | 0.83p | 2.74p | 7.67p | 10.41p |
The revenue column of the Income Statement includes all income and expenses. The capital column accounts for the unrealised (losses)/gains and realised gains on investments and the proportion of the Investment Adviser's fee charged to capital.
The total column is the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ("FRS"). In order to better reflect the activities of a VCT and in accordance with the Statement of Recommended Practice ("SORP") issued in November 2014 (updated in January 2017) by the Association of Investment Companies ("AIC"), supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The revenue column of profit attributable to equity shareholders is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 274 Income Tax Act 2007.
All the items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the year.
The notes on pages 45 to 61 form part of these Financial Statements.
| Notes | 31 December 2016 £ |
31 December 2015 £ |
|
|---|---|---|---|
| Fixed assets | |||
| Investments at fair value | 8 | 38,926,434 | 38,716,670 |
| Current assets | |||
| Debtors and prepayments | 10 | 860,011 | 561,950 |
| Current asset investments | 11 | 9,511,810 | 14,619,207 |
| Cash at bank | 11 | 3,662,074 | 3,386,635 |
| 14,033,895 | 18,567,792 | ||
| Creditors: amounts falling due within one year | 12 | (205,173) | (276,680) |
| Net current assets | 13,828,722 | 18,291,112 | |
| Net assets | 52,755,156 | 57,007,782 | |
| Capital and reserves | |||
| Called up share capital | 13 | 490,430 | 483,562 |
| Share premium reserve | 13,540,891 | 12,629,944 | |
| Capital redemption reserve | 9,342 | 6,827 | |
| Revaluation reserve | 1,152,007 | 1,545,364 | |
| Special distributable reserve | 31,646,338 | 32,622,021 | |
| Realised capital reserve | 4,702,557 | 8,422,420 | |
| Revenue reserve | 1,213,591 | 1,297,644 | |
| Equity shareholders' funds | 52,755,156 | 57,007,782 | |
| Basic and diluted net asset value per ordinary share | 14 | 107.57p | 117.89p |
The notes on pages 45 to 61 form part of these Financial Statements.
The Financial Statements were approved and authorised for issue by the Board of Directors on 22 March 2017 and were signed on its behalf by:
Christopher Moore
Chairman
| Called up share |
Share | Non-distributable reserves Capital |
Special premium redemption Revaluation distributable |
Distributable reserves Realised capital |
Revenue reserve |
||||
|---|---|---|---|---|---|---|---|---|---|
| Notes | capital | reserve | reserve | reserve | reserve (note a) |
reserve (note b) |
(note b) | Total | |
| £ | £ | £ | £ | £ | £ | £ | £ | ||
| At 1 January 2016 Comprehensive income for the year |
483,562 12,629,944 | 6,827 | 1,545,364 | 32,622,021 | 8,422,420 | 1,297,644 57,007,782 | |||
| (Loss)/profit for the year | - | - | - | (377,677) | - | (350,021) | 1,131,188 | 403,490 | |
| Total comprehensive income for the year |
- | - | - | (377,677) | - | (350,021) | 1,131,188 | 403,490 | |
| Contributions by and distributions to owners Dividends re-invested |
|||||||||
| into new shares Shares bought back |
13 13 |
9,383 (2,515) |
910,947 - |
- 2,515 |
- - |
- (244,575) |
- - |
- - |
920,330 (244,575) |
| Dividends paid | 7 | - | - | - | - | - | (4,116,630) | (1,215,241) | (5,331,871) |
| Total contributions by and distributions |
|||||||||
| to owners | 6,868 | 910,947 | 2,515 | - | (244,575) (4,116,630) (1,215,241) (4,656,116) | ||||
| Other movements Realised losses transferred to special |
|||||||||
| reserve (note a below) Realisation of previously |
- | - | - | - | (731,108) | 731,108 | - | - | |
| unrealised appreciation | - | - | - | (15,680) | - | 15,680 | - | - | |
| Total other movements | - | - | - | (15,680) | (731,108) | 746,788 | - | - | |
| At 31 December 2016 | 490,430 13,540,891 | 9,342 | 1,152,007 | 31,646,338 | 4,702,557 | 1,213,591 52,755,156 |
Notes
a) The Special distributable reserve also provides the Company with a reserve to absorb any existing and future realised losses and, when considered by the Board to be in the interests of shareholders, to fund share buybacks and for other corporate purposes. All of this reserve originates from funds raised prior to 6 April 2014. The transfer of £731,108 to the special reserve from the realised capital reserve above is the total of realised losses incurred by the Company in the year.
b) The realised capital reserve and the revenue reserve together comprise the Profit and Loss Account of the Company.
The Notes on pages 45 to 61 form part of these Financial Statements.
| Non-distributable reserves | Distributable reserves | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Called up share capital £ |
Share reserve £ |
Capital reserve £ |
reserve £ |
Special premium redemption Revaluation distributable reserve £ |
Realised capital reserve £ |
Revenue reserve £ |
Total £ |
||
| At 1 January 2015 Comprehensive income for the year |
425,434 | 5,985,042 | 5,143 | 1,214,933 | 33,748,039 | 7,968,451 | 943,995 50,291,037 | ||
| Profit for the year | - | - | - | 1,094,287 | - | 2,575,353 | 1,311,966 | 4,981,606 | |
| Total comprehensive income for the year |
- | - | - | 1,094,287 | - | 2,575,353 | 1,311,966 | 4,981,606 | |
| Contributions by and distributions to owners Shares issued via Offer |
|||||||||
| for Subscription Dividends re-invested |
51,679 | 5,841,843 | - | - | (26,070) | - | - | 5,867,452 | |
| into new shares Shares bought back |
8,133 (1,684) |
803,059 - |
- 1,684 |
- - |
- (168,734) |
- - |
- - |
811,192 (168,734) |
|
| Dividends paid | - | - | - | - | - | (3,816,454) | (958,317) | (4,774,771) | |
| Total contributions by and distributions |
|||||||||
| to owners | 58,128 | 6,644,902 | 1,684 | - | (194,804) (3,816,454) | (958,317) | 1,735,139 | ||
| Other movements Realised losses transferred |
|||||||||
| to special reserve Realisation of previously |
- | - | - | - | (931,214) | 931,214 | - | - | |
| unrealised appreciation | - | - | - | (763,856) | - | 763,856 | - | - | |
| Total other movements | - | - | - | (763,856) | (931,214) | 1,695,070 | - | - | |
| At 31 December 2015 | 483,562 12,629,944 | 6,827 | 1,545,364 | 32,622,021 | 8,422,420 | 1,297,644 57,007,782 |
The composition of each of these reserves is explained below:
Called up share capital - The nominal value of shares originally issued, increased for subsequent share issues either via an Offer for Subscription or Dividend investment scheme, or reduced due to shares bought back by the Company.
Share premium reserve - This reserve contains the excess of gross proceeds less issue costs over the nominal value of shares allotted under recent Offers for Subscription and the Company's Dividend Investment scheme.
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.
Revaluation 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.
In accordance with stating all investments at fair value through profit and loss (as recorded in note 8), all such movements through both revaluation and realised capital reserves are shown within the Income Statement for the year.
Special distributable reserve - The cost of share buybacks is charged to this reserve. In addition, any realised losses on the sale or impairment of investments, and 75% of the Investment Adviser's fee expense, and the related tax effect, are transferred from the Profit and Loss Account reserve to this reserve. Capital dividends may also be paid from this reserve.
Realised capital reserve - The following are accounted for in this reserve:
Revenue reserve - Income and expenses that are revenue in nature are accounted for in this reserve together with the related tax effect, as well as dividends paid that are classified as revenue in nature.
The notes on pages 45 to 61 form part of these Financial Statements.
| Notes | Year ended 31 December 2016 £ |
Year ended 31 December 2015 £ |
|
|---|---|---|---|
| Cash flows from operating activities | |||
| Profit for the financial year | 403,490 | 4,981,606 | |
| Adjustments for: | |||
| Net unrealised losses/(gains) on investments | 377,677 | (1,094,287) | |
| Net gains on realisations of investments | (381,087) | (3,302,320) | |
| Tax charge for the current year | 30,088 | - | |
| Increase in debtors | (22,813) | (68,758) | |
| (Decrease)/increase in creditors | (102,175) | 8,948 | |
| Net cash inflow from operating activities | 305,180 | 525,189 | |
| Cash flows from investing activities | |||
| Sale of investments | 8 | 2,402,008 | 7,239,803 |
| Purchase of investments | 8 | (2,883,610) | (16,809,665) |
| Decrease in bank deposits with a maturity over three months | 85,130 | 453,120 | |
| Net cash outflow from investing activities | (396,472) | (9,116,742) | |
| Cash flows from financing activities | |||
| Share issued as part of Offer for Subscription | - | 5,867,452 | |
| Equity dividends paid | 7 | (4,411,541) | (3,963,579) |
| Purchase of own shares | (243,995) | (168,734) | |
| Net cash (outflow)/inflow from financing activities | (4,655,536) | 1,735,139 | |
| Net decrease in cash and cash equivalents | (4,746,828) | (6,856,414) | |
| Cash and cash equivalents at start of year | 15,920,712 | 22,777,126 | |
| Cash and cash equivalents at end of year | 11,173,884 | 15,920,712 | |
| Cash and cash equivalents comprise: | |||
| Cash at bank and in hand | 11 | 3,662,074 | 3,386,635 |
| Cash equivalents | 11 | 7,511,810 | 12,534,077 |
The notes on pages 45 to 61 form part of these Financial Statements.
Mobeus Income and Growth 4 VCT plc is a public limited company incorporated in England, registration number 03707697. The registered office is 30 Haymarket, London, SW1Y 4EX.
A summary of the principal accounting policies, all of which have been applied consistently throughout the year are set out next to the related disclosure throughout the Notes to the Financial Statements. All accounting policies are included within an outlined box at the top of each relevant note.
These Financial Statements have been prepared in accordance with applicable United Kingdom accounting standards, including Financial Reporting Standard 102 ("FRS102"), with the Companies Act 2006 and the 2014 Statement of Recommended Practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('the SORP') issued by the Association of Investment Companies (updated in January 2017). The company has a number of financial instruments which are disclosed under FRS102 s11/12 as shown in note 15.
The comparatives to these Financial Statements are those disclosed in last year's Financial Statements other than in relation to Monies held pending investment, Current asset investments and Cash at bank. These comparative figures have been reallocated to reflect more accurately the nature of the underlying instruments. This is just a presentational change and has no effect on net assets.
Dividends receivable on quoted equity shares are brought into account on the ex-dividend date. Dividends receivable on unquoted equity shares are brought into account when the Company's right to receive payment is established and there is no reasonable doubt that payment will be received.
Interest income on loan stock is accrued on a daily basis. Provision is made against this income where recovery is doubtful or where it will not be received in the foreseeable future. Where the loan stocks only require interest or a redemption premium to be paid on redemption, the interest and redemption premium is recognised as income or capital as appropriate once redemption is reasonably certain.
When a redemption premium is designed to protect the value of the instrument holder's investment rather than reflect a commercial rate of revenue return, the redemption premium is recognised as capital. The treatment of redemption premiums is analysed to consider if they are revenue or capital in nature on a company by company basis. Accordingly, based on this assessment, the redemption premium recognised in the year ended 31 December 2016 has been classified as capital and has been included within gains on investments.
| 2016 £ |
2015 £ |
|
|---|---|---|
| Income from bank deposits | 48,157 | 78,334 |
| Income from investments | ||
| – from equities | 106,043 | 61,752 |
| – from overseas based OEICs | 47,986 | 30,470 |
| – from loan stock | 1,817,393 | 2,031,331 |
| – from interest on preference share dividend arrears | - | 169 |
| 1,971,422 | 2,123,722 | |
| Total income | 2,019,579 | 2,202,056 |
| Total income comprises | ||
| Dividends | 154,029 | 92,222 |
| Interest | 1,865,550 | 2,109,834 |
| 2,019,579 | 2,202,056 |
Total loan stock interest due but not recognised in the year was £446,862 (2015: £184,887).
All fees and expenses are accounted for on an accruals basis.
25% of the Investment Adviser's fees are charged to the revenue column of the Income Statement, while 75% is charged against the capital column of the Income Statement. This is in line with the Board's expected long-term split of returns from the investment portfolio of the Company.
100% of any performance incentive fee payable for the year is charged against the capital column of the Income Statement, as it is based upon the achievement of capital growth.
| Revenue | Capital | Total | Revenue | Capital | Total | |
|---|---|---|---|---|---|---|
| 2016 | 2016 | 2016 | 2015 | 2015 | 2015 | |
| £ | £ | £ | £ | £ | £ | |
| Mobeus Equity Partners LLP | 304,628 | 913,884 | 1,218,512 | 303,725 | 911,176 | 1,214,901 |
Under the terms of a revised investment management agreement dated 12 November 2010, Mobeus Equity Partners LLP ("Mobeus LLP") (formerly Matrix Private Equity Partners LLP ("MPEP") provides investment advisory, administrative and company secretarial services to the Company, for a fee of 2% per annum of closing net assets, calculated on a quarterly basis by reference to the net assets at the end of the preceding quarter, plus a fixed fee of £115,440 per annum, the latter being subject to indexation, if applicable. In 2013, Mobeus agreed to waive such further increases due to indexation, until otherwise agreed with the Board.
The Investment Adviser fee includes provision for a cap on expenses excluding irrecoverable VAT and exceptional items set at 3.4% of closing net assets at the year-end. In accordance with the investment management agreement, any excess expenses are borne by the Investment Adviser. The excess expenses during the year amounted to £nil (2015: £nil).
The Company is responsible for external costs such as legal and accounting fees, incurred on transactions that do not proceed to completion ("abort expenses") subject to the cap on total annual expenses referred to above.
In line with common practice, Mobeus Equity Partners LLP retain the right to charge arrangement and syndication fees and Directors' or monitoring fees to companies in which the Company invests. The Investment Adviser received fees totalling £219,348 (2015: £365,994) during the year ended 31 December 2016, being £62,480 (2015: £210,253) for arrangement fees, and £156,868 (2015: £155,741) for acting as non-executive directors on a number of investee company boards. These fees attributable to MIG 4 VCT are based upon the investment allocation to MIG 4 VCT which applied at the time of each investment. These figures are not part of these Financial Statements.
Under the terms of a separate agreement dated 1 November 2006, from the end of the accounting period ending on 31 January 2009 and in each subsequent accounting period throughout the life of the company, the Investment Adviser will be entitled to receive a performance related incentive fee of 20% of the dividends paid in excess of a "Target Rate" comprising firstly, an annual dividend target of 6% of the net asset value per share at 5 April 2007 (indexed each year for RPI) and secondly a requirement that any cumulative shortfalls below the 6 per cent hurdle must be made up in later years, while any excess is not carried forward, whether a fee is payable for that year or not. Payment of a fee is also conditional upon the average Net Asset Value ("NAV") per share for each such year equalling or exceeding the average Base NAV per share for the same year. The performance fee will be payable annually. No incentive fee is payable to date.
No funds were raised by an offer by the VCT in the year (2015: £6.00 million). Accordingly, no subscription fees were payable to Mobeus in the year (2015: £0.19 million) where all costs associated with the offer were met out of these fees by Mobeus, excluding any payments to financial advisers facilitated under the terms of the offer).
Expenses are charged wholly to revenue, with the exception of expenses incidental to the acquisition or disposal of an investment, which are written off to the capital column of the Income Statement or deducted from the disposal proceeds as appropriate.
| 2016 £ |
2015 £ |
|
|---|---|---|
| Directors' remuneration (including NIC of £8,327 (2015: £9,327) (note i) | 98,827 | 99,827 |
| IFA trail commission | 73,779 | 77,227 |
| Broker's fees | 12,000 | 12,000 |
| Auditor's fees – Audit of Company (excluding VAT) | 21,525 | 23,600 |
| – audit related assurance services (excluding VAT) - note ii) | 4,203 | 4,100 |
| – tax compliance services (excluding VAT) note ii) | 3,752 | 5,288 |
| Registrar's fees | 40,518 | 45,154 |
| Printing | 38,171 | 34,196 |
| Legal & professional fees | 10,686 | 6,117 |
| VCT monitoring fees | 9,600 | 9,000 |
| Directors' insurance | 8,350 | 9,248 |
| Listing and regulatory fees | 40,680 | 39,132 |
| Sundry | 8,808 | 8,511 |
| Running costs | 370,899 | 373,400 |
| Provision against loan interest receivable (note iii) | - | 28,756 |
| Other expenses | 370,899 | 402,156 |
Note i): See analysis in Directors' Remuneration table on page 35, which excludes the NIC above. The key management personnel are the three non-executive directors. The Company has no employees.
Note ii): The Directors consider the Auditor was best placed to provide the other services disclosed above. The Audit Committee reviews the nature and extent of these services to ensure that auditor independence is maintained.
Note iii) In the current year, there is no provision against loan interest recognised in previous years (2015: £28,756).
The tax expense for the year comprises current tax and is recognised in profit or loss. The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date.
Any tax relief obtained in respect of Investment Adviser fees allocated to capital is reflected in the capital reserve – realised and a corresponding amount is charged against revenue. The tax relief is the amount by which corporation tax payable is reduced as a result of these capital expenses.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Company's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in the tax assessments in periods different from those in which they are recognised in the financial statements.
Deferred tax is measured at the average tax rates that are expected to apply in the years in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax is measured on a non-discounted basis.
A deferred tax asset would be recognised only to the extent that it is more likely than not that future taxable profits will be available against which the asset can be utilised.
| 2016 Revenue £ |
2016 Capital £ |
2016 Total £ |
2015 Revenue £ |
2015 Capital £ |
2015 Total £ |
|
|---|---|---|---|---|---|---|
| a) Analysis of tax charge: | ||||||
| UK Corporation tax on profits/(losses) for the year |
212,864 | (182,776) | 30,088 | 184,209 | (184,209) | - |
| Total current tax charge/(credit) | 212,864 | (182,776) | 30,088 | 184,209 | (184,209) | - |
| Corporation tax is based on a rate of 20% (2015: 20%) |
||||||
| b) Profit/(loss) on ordinary | ||||||
| activities before tax | 1,344,052 | (910,474) | 433,578 | 1,496,175 | 3,485,431 | 4,981,606 |
| Profit/(loss) on ordinary activities multiplied | ||||||
| by company rate of corporation tax in the | ||||||
| UK of 20% (2015: 20%) | 268,810 | (182,095) | 86,715 | 299,235 | 697,086 | 996,321 |
| Effect of: | ||||||
| UK dividends not taxable | (21,209) | - | (21,209) | (12,350) | - | (12,350) |
| Unrealised losses/(gains) not taxable | - | 75,535 | 75,535 | - | (218,857) | (218,857) |
| Realised gains not taxable | - | (76,216) | (76,216) | - | (660,464) | (660,464) |
| Marginal relief | - | - | - | 1,974 | (1,974) | - |
| Losses brought forward | (34,737) | - | (34,737) | (104,650) | - | (104,650) |
| Actual tax charge | 212,864 | (182,776) | 30,088 | 184,209 | (184,209) | - |
Tax relief relating to Investment Adviser fees is allocated between revenue and capital where such relief can be utilised.
No asset or liability has been recognised for deferred tax in relation to capital gains or losses on revaluing investments as the Company is exempt from corporation tax in relation to capital gains or losses as a result of qualifying as a Venture Capital Trust.
There is no potential liability to deferred tax (2015: £nil). There is no unrecognised deferred tax asset in 2016 (2015: £34,737).
| 2016 £ |
2015 £ |
|
|---|---|---|
| Total earnings after taxation: | 403,490 | 4,981,606 |
| Basic and diluted earnings per share (note a) | 0.83p | 10.41p |
| Net revenue from ordinary activities after taxation | 1,131,188 | 1,311,966 |
| Basic and diluted revenue return per share (note b) | 2.32p | 2.74p |
| Net unrealised capital (losses)/gains | (377,677) | 1,094,287 |
| Net realised capital gains | 381,087 | 3,302,320 |
| Capital expenses (net of taxation) | (731,108) | (726,967) |
| Total capital return | (727,698) | 3,669,640 |
| Basic and diluted capital return per share (note c) | (1.49)p | 7.67p |
| Weighted average number of shares in issue in the year | 48,793,978 | 47,857,465 |
a) Basic earnings per share is total earnings after taxation divided by the weighted average number of shares in issue.
b) Revenue earnings per share is the revenue return after taxation divided by the weighted average number of shares in issue.
c) Capital earnings per share is the total capital profit after taxation divided by the weighted average number of shares in issue.
d) There are no instruments that will increase the number of shares in issue in future. Accordingly, the above figures currently represent both basic and diluted returns.
Dividends payable are recognised as distributions in the financial statements when the Company's liability to pay them has been established. This liability is established for interim dividends when they are paid, and for final dividends when they are approved by the shareholders, usually at the Company's annual general meeting.
A key judgement in applying the above accounting policy is in determining the amount of minimum income dividend to be paid in respect of a year. The Company's status as a VCT means it has to comply with Section 259 of the Income Tax Act 2007, which requires that no more than 15% of the income from shares and securities in a year can be retained from the revenue available for distribution for the year.
| Dividend | Type | For year ended 31 December |
Pence per share |
Date Paid | 2016 £ |
2015 £ |
|---|---|---|---|---|---|---|
| Second Interim | Income | 2014 | 1.00p | 6 May 2015 | - | 476,355 |
| Second Interim | Capital | 2014 | 7.00p | 6 May 2015 | - | 3,334,494 |
| Interim | Income | 2015 | 1.00p | 25 September 2015 | - | 481,961 |
| Interim | Capital | 2015 | 1.00p | 25 September 2015 | - | 481,961 |
| Final | Income | 2015 | 1.50p | 25 May 2016 | 725,346 | - |
| Final | Capital | 2015 | 7.50p | 25 May 2016 | 3,626,735 | - |
| Interim | Income | 2016 | 1.00p | 8 September 2016 | 489,895 | - |
| Interim | Capital | 2016 | 1.00p | 8 September 2016 | 489,895 | - |
| 5,331,871* | 4,774,771 |
Amounts recognised as distributions to equity shareholders in the year:
* - £5,331,871 (2015: £4,774,771) disclosed above differs to that shown in the Statement of Cash Flows of £4,411,541 (2015: £3,963,579) due to £920,330 (2015: £811,192) of new shares issued as part of the DIS scheme.
| Dividend | Type | For year ended 31 December |
Pence per share |
Date Payable | 2016 £ |
2015 £ |
|---|---|---|---|---|---|---|
| Final | Income | 2015 | 1.50 | 25 May 2016 | - | 725,343 |
| Final | Capital | 2015 | 7.50 | 25 May 2016 | - | 3,626,716 |
| Second interim | Income | 2016 | 1.00 | 17 March 2017 | 490,430 | - |
| Second interim | Capital | 2016 | 6.00 | 17 March 2017 | 2,942,582 | - |
| 3,433,012 | 4,352,059 |
Any proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these Financial Statements.
Set out below are the total income dividends payable in respect of the financial year, which is the basis on which the requirements of section 274 of the Income Tax Act 2007 are considered.
| Dividend | Type | For year ended 31 December |
Pence per share |
Date paid/payable | 2016 £ |
2015 £ |
|---|---|---|---|---|---|---|
| Revenue available for distribution by way of dividends for the year | 1,131,188 | 1,311,966 | ||||
| Interim | Income | 2015 | 1.00p | 25 September 2015 | - | 481,961 |
| Final | Income | 2015 | 1.50p | 25 May 2016 | - | 725,343 |
| Interim | Income | 2016 | 1.00p | 8 September 2016 | 489,895 | - |
| Second interim | Income | 2016 | 1.00p | 17 March 2017 | 490,430 | - |
| Total income dividends for the year | 980,325 | 1,207,304 |
The most critical estimates, assumptions and judgements relate to the determination of the carrying value of investments at "fair value through profit and loss" ("FVTPL"). All investments held by the Company are classified as FVTPL and measured in accordance with the International Private Equity and Venture Capital Valuation ("IPEV") guidelines, as updated in December 2015. This classification is followed as the Company's business is to invest in financial assets with a view to profiting from their total return in the form of capital growth and income.
For investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange market quoted bid prices at the close of business on the balance sheet date. Purchases and sales of quoted investments are recognised on the trade date where a contract of sale exists whose terms require delivery within a time frame determined by the relevant market. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional.
Unquoted investments are stated at fair value by the Directors in accordance with the following rules, which are consistent with the IPEV guidelines:
All investments are held at the price of a recent investment for an appropriate period where there is considered to have been no change in fair value. Where such a basis is no longer considered appropriate, each investment is considered as a whole on a 'unit of account' basis, alongside consideration of:
or:-
A key judgement made in applying the above accounting policy relates to investments that are permanently impaired. Where the value of an investment has fallen permanently below cost, the loss is treated as a permanent impairment and as a realised loss, even though the investment is still held. The Board assesses the portfolio for such investments and, after agreement with the Investment Adviser, will agree the values that represent the extent to which an investment loss has become realised. This is based upon an assessment of objective evidence of that investment's future prospects, to determine whether there is potential for the investment to recover in value.
Movements in investments during the year are summarised as follows:
| Traded on AIM |
Unquoted equity shares |
Unquoted preference shares |
Loan stock | Total | |
|---|---|---|---|---|---|
| £ | £ | £ | £ | £ | |
| Cost at 31 December 2015 | 200,028 | 11,827,294 | 15,144 | 26,249,570 | 38,292,036 |
| Unrealised gains/(losses) at 31 December 2015 | 58,319 | (13,042) | (444) | 1,500,531 | 1,545,364 |
| Permanent impairment in value of investments | |||||
| as at 31 December 2015 | - | (551,595) | (1,649) | (567,486) | (1,120,730) |
| Valuation at 31 December 2015 | 258,347 | 11,262,657 | 13,051 | 27,182,615 | 38,716,670 |
| Purchases at cost (note a) | - | 2,190,947 | - | 112,194 | 2,303,141 |
| Sale proceeds (note b) | - | (574,405) | - | (1,522,382) | (2,096,787) |
| Net realised gains in the year (note c) | - | 199,647 | - | 181,440 | 381,087 |
| Unrealised gains/(losses) in the year (note d) | 33,335 | (2,873,959) | (284) | 2,463,231 | (377,677) |
| Closing valuation at 31 December 2016 | 291,682 | 10,204,887 | 12,767 | 28,417,098 | 38,926,434 |
| Cost at 31 December 2016 | 200,028 | 13,111,998 | 15,144 | 25,036,502 | 38,363,672 |
| Unrealised gains/(losses) at 31 December 2016 | 91,654 | (2,887,001) | (728) | 3,948,082 | 1,152,007 |
| Permanent impairment in value of investments at | |||||
| 31 December 2016 (note e) | - | (20,110) | (1,649) | (567,486) | (589,245) |
| Valuation at 31 December 2016 | 291,682 | 10,204,887 | 12,767 | 28,417,098 | 38,926,434 |
Note a: Purchases above of £2,303,141 are less than that shown in the Statement of Cash flows of £2,883,610, by £580,469. This relates to the Tapas Revolution investment that completed on 4 January 2017, and these funds were shown as part of debtors at the year end.
Note b: The cash flow from investment proceeds shown above of £2,096,787 differs from the sale proceeds shown in the Statement of Cash flows of £2,402,008, by £305,221. This is due to £305,221 of deferred cash sale proceeds, which were received during the year relating to a prior year.
Note c: Disposals of investment portfolio companies during the year were:
| Type | Investment cost |
Disposal proceeds |
Valuation at 31 December 2015 |
Realised gain in year |
|
|---|---|---|---|---|---|
| £ | £ | £ | £ | ||
| Master Removers Group Limited Loan repayment | 836,825 | 836,825 | 836,825 | - | |
| Barham Consulting Limited | Loan repayment | 272,160 | 453,600 | 453,600 | - |
| Focus Pharma Holdings Limited | Deferred consideration | - | 371,652 | - | 371,652 |
| Pound FM Consultants Limited | Loan repayment and share buyback | 295,623 | 295,623 | 295,623 | - |
| Others | Loan payments/deferred consideration | 113,972 | 139,087 | 129,652 | 9,435 |
| 1,518,580 | 2,096,787 | 1,715,700 | 381,087 |
Note d: The major components of the decrease in unrealised valuations of £377,977 in the year were decreases of £1,083,908 in Entanet Holdings Limited, £433,708 in Jablite Holdings Limited, and £376,022 in Veritek Global Limited. This fall was partly offset by increases of £501,716 in Turner Topco Limited (trading as ATG Media), £303,969 in RDL Corporation Limited and £289,365 in Vian Marketing Limited (trading as Tushingham Sails). The increase in unrealised valuations of the loan stock investments above reflects the changes in the entitlement to loan premiums, and/or in the underlying enterprise value of the investee company. The increase does not arise from assessments of credit risk or market risk upon these instruments.
Note e: During the year, permanent impairments of the cost of investments have decreased from £1,120,730 to £589,245. The net reduction is due to an investee company being dissolved in the year, which removes the cost and related impairment of this investment from these accounts, and an impairment of the equity of another investee company.
At 31 December 2016 the Company held significant investments, amounting to 3% or more of the equity capital of an undertaking, in the following companies:
| Equity investment (ordinary shares) £ |
Investment in loan stock and preference shares £ |
Total investment (at cost) £ |
Percentage of investee company's total equity |
% of equity held by all funds managed by Mobeus1 |
|
|---|---|---|---|---|---|
| Media Business Insight Holdings Limited2 | 1,089,103 | 1,633,657 | 2,722,760 | 15.7% | 67.5% |
| Tovey Management Limited (trading as Access IS)3 | 891,576 | 1,577,437 | 2,469,013 | 10.1% | 45.0% |
| Entanet Holdings Limited | 410,715 | 1,756,947 | 2,167,662 | 13.1%* | 57.5% |
| Manufacturing Services Investment Limited | 456,400 | 1,560,500 | 2,016,900 | 11.4% | 50.0% |
| ASL Technology Holdings Limited | 343,992 | 1,589,599 | 1,933,591 | 9.5%* | 47.5% |
| Virgin Wine Holding Company Limited | 45,915 | 1,884,898 | 1,930,813 | 9.7% | 42.0% |
| Veritek Global Limited | 43,527 | 1,576,559 | 1,620,086 | 10.3%* | 44.0% |
| Gro-Group Holdings Limited | 148,765 | 1,429,212 | 1,577,977 | 10.7%* | 48.0% |
| Turner Topco Limited (trading as ATG Media) | 4,472 | 1,524,603 | 1,529,075 | 3.7% | 16.4% |
| CGI Creative Graphics International Limited | 476,612 | 973,134 | 1,449,746 | 6.3%* | 28.1% |
| Backhouse Management Limited | 453,600 | 680,400 | 1,134,000 | 11.3% | 50.0% |
| Chatfield Services Limited | 453,600 | 680,400 | 1,134,000 | 11.3% | 50.0% |
| Creasy Marketing Services Limited | 453,600 | 680,400 | 1,134,000 | 11.3% | 50.0% |
| McGrigor Management Limited | 453,600 | 680,400 | 1,134,000 | 11.3% | 50.0% |
| Bourn Bioscience Limited | 323,577 | 808,944 | 1,132,521 | 7.7% | 23.8% |
| Fullfield Limited (trading as Motorclean) | 462,184 | 669,260 | 1,131,444 | 9.8% | 46.0% |
| Hollydale Management Limited | 438,200 | 657,300 | 1,095,500 | 11.0% | 50.0% |
| Tharstern Group Limited | 338,861 | 753,025 | 1,091,886 | 12.2%* | 52.5% |
| RDL Corporation Limited | 173,932 | 826,068 | 1,000,000 | 9.1%* | 45.2% |
| Vian Marketing Limited (trading as Tushingham Sails) | 271,683 | 627,391 | 899,074 | 7.1%* | 31.5% |
| Barham Consulting Limited | 453,600 | 408,240 | 861,840 | 11.3% | 50.0% |
| Redline Worldwide Limited | |||||
| (formerly Pound FM Consultants Limited) | 269,190 | 569,187 | 838,377 | 6.7% | 30.0% |
| Preservica Limited | 679,617 | - | 679,617 | 4.6% | 20.2% |
| Pattern Analytics Limited (trading as Biosite) | 640,171 | - | 640,171 | 4.8% | 20.4% |
| BookingTek Limited | 512,137 | - | 512,137 | 3.4% | 14.7% |
| Master Removers Group Limited (trading as Anthony | |||||
| Ward Thomas, Bishopsgate and Aussie Man & Van) | 511,620 | 235 | 511,855 | 4.3%* | 18.5% |
| Racoon International Holdings Limited | 419,959 | 64,388 | 484,347 | 10.5%* | 47.5% |
| MPB Group Limited | 359,022 | 112,194 | 471,216 | 5.3% | 23.5% |
| The Plastic Surgeon Holdings Limited | 45,982 | 412,953 | 458,935 | 11.4% | 49.5% |
| Jablite Holdings Limited | 339,974 | 36,109 | 376,083 | 9.1% | 40.1% |
| Blaze Signs Holdings Limited | 183,005 | 7,626 | 190,631 | 5.7% | 52.5% |
| CB Imports Group Limited | 175,000 | - | 175,000 | 5.8%* | 23.2% |
| Lightworks Software Limited | 9,329 | - | 9,329 | 4.2% | 45.0% |
| Watchgate Limited | 1,000 | - | 1,000 | 33.3% | 100.0% |
1 – Mobeus Equity Partners LLP also advises The Income and Growth VCT plc, Mobeus Income and Growth VCT plc and Mobeus Income & Growth 2 VCT plc.
2 – Includes a loan of £674,755 to Media Business Insight Limited
3 – Includes a loan of £239,513 to Access IS Limited
* The percentage of equity held for these companies may be subject to further dilution of an additional 1% or more if, for example, management of the investee company exercises share options.
It is considered that, under FRS102 s9.9, "Consolidated and Separate Financial Statements", the above investments are held as part of an investment portfolio and that accordingly, their value to the Company lies in their marketable value as part of that portfolio and as such are not required to be consolidated. Also, the above investments are considered to be associates that are held as part of an investment portfolio and are accounted for in accordance with FRS 14.4B.
All of the above companies are incorporated in the United Kingdom.
Financial Statements
| 2016 £ |
2015 £ |
|
|---|---|---|
| Amounts due within one year: | ||
| Accrued income | 264,015 | 241,576 |
| Prepayments | 15,527 | 15,153 |
| Other debtors | - | 305,221 |
| Monies held in solicitor's client account (see note) | 580,469 | - |
| 860,011 | 561,950 |
Note: £580,469 was held in a solicitor's client account pending completion of an investment in January 2017.
Cash equivalents, for the purposes of the Statement of Cash flows, comprises bank deposits repayable on up to three months' notice and funds held in OEIC money-market funds. Current asset investments are the same but also include bank deposits that mature after three months. Current asset investments are disposable without curtailing or disrupting the business and are readily convertible into known amounts of cash at their carrying values at immediate or up to three months' notice. Cash, for the purposes of the Statement of Cash Flows is cash held with banks in accounts subject to immediate access. Cash at bank in the Balance Sheet is the same.
| 2016 £ |
2015 £ |
|
|---|---|---|
| OEIC Money market funds Bank deposits that mature within three months but are not immediately repayable |
7,511,810 - |
12,529,513 4,564 |
| Cash equivalents per Statement of Cash Flows Bank deposits that mature after three months |
7,511,810 2,000,000 |
12,534,077 2,085,130 |
| Current asset investments | 9,511,810 | 14,619,207 |
| Cash at bank | 3,662,074 | 3,386,635 |
| 2016 £ |
2015 £ |
|
|---|---|---|
| Trade creditors | 9,504 | 40,431 |
| Other creditors | 11,973 | 11,432 |
| Corporation tax | 30,088 | - |
| Accruals | 153,608 | 224,817 |
| 205,173 | 276,680 |
| 2016 £ |
2015 £ |
|
|---|---|---|
| Allotted, called-up and fully paid: Ordinary shares of 1p each: 49,043,033 (2015: 48,356,210) |
490,430 | 483,562 |
During the year the Company purchased 251,468 (2015: 168,443) of its own shares for cash (representing 0.5% (2015: 0.4%) of the shares in issue at the start of the year) at the prevailing market price for a total cost of £244,575 (2015: £168,734). These shares were subsequently cancelled by the Company.
Under the terms of the Dividend Investment Scheme, 938,291 (2015: 813,364) shares were allotted during the year for a non-cash consideration of £920,330 (2015: £811,192).
Net asset value per Ordinary Share is based on net assets at the end of the year, and on 49,043,033 (2015: 48,356,210) Ordinary shares, being the number of Ordinary shares in issue on that date.
There are no instruments that will increase the number of shares in issue in future. Accordingly, the figures currently represent both basic and diluted net asset value per share.
The Company's financial instruments predominantly comprise investments held at fair value through profit and loss, namely equity and preference shares and fixed and floating rate interest securities that are held in accordance with the Company's investment objective.
Other financial instruments are held at amortised cost comprising loans and receivables being Cash at bank, Current asset investments and short term debtors and financial liabilities being creditors, all that arise directly from the Company's operations.
The principal purpose of these financial instruments is to generate revenue and capital appreciation for the Company's operations, although cash and current asset investments are held to yield revenue return only. The Company has no gearing or other financial liabilities apart from short-term creditors. It is, and has been throughout the year under review, the Company's policy that no trading in derivative financial instruments shall be undertaken.
The accounting policy for determining the fair value of investments is set out in Note 8 to the Financial Statements. The composition of investments held is shown below and in Note 8.
The fair value of Cash at bank and Current asset investments equates to their carrying value in the Balance Sheet. Loans and receivables and other financial liabilities are stated at amortised cost which the Directors consider is equivalent to fair value.
The Company held the following categories of financial instruments at 31 December 2016:
| 2016 (Fair value) £ |
2015 (Fair value) £ |
|
|---|---|---|
| Assets at fair value through profit and loss: | ||
| Investment portfolio | 38,926,434 | 38,716,670 |
| Current asset investments | 9,511,810 | 14,619,207 |
| Cash at bank | 3,662,074 | 3,386,635 |
| Loans and receivables | ||
| Accrued income | 264,015 | 241,576 |
| Other debtors | 580,469 | 305,221 |
| Liabilities at amortised cost or equivalent | ||
| Other creditors | (175,085) | (276,680) |
| Total for financial instruments | 52,769,717 | 56,992,629 |
| Non-financial instruments | (14,561) | 15,153 |
| Total net assets | 52,755,156 | 57,007,782 |
There are no differences between book value and fair value disclosed above.
The investment portfolio principally consists of unquoted investments 99.3% (2015: 99.3%). The investment portfolio has a 100% (2015: 100%) concentration of risk towards small UK based, sterling denominated companies, and represents 73.8% (2015: 67.9%) of net assets at the year-end.
Current asset investments are money market funds, and bank deposits which, along with cash are discussed under credit risk below, which represent 25.0% (2015: 31.6%) of net assets at the year-end.
The main risks arising from the Company's financial instruments are the investment risk and the liquidity risk of the unquoted portfolio. Other important risks are credit risk, fluctuations in market prices (market price risk) and cash flow interest rate risk, although currency risk is also discussed below. The Board regularly reviews and agrees policies for managing each of these risks and they are summarised below. These have been in place throughout the current and preceding years.
The Company's investment portfolio is made up of predominantly UK companies which are not quoted on any recognised stock exchange. The companies held in the portfolio are usually smaller than those companies which are quoted on a stock exchange. They are therefore usually regarded as carrying more risk compared to larger companies, as they are more sensitive to changes in key financial indicators, such as a reduction in its turnover or an increase in costs. The Board is of the view that the Investment Adviser mitigates this risk as the investment in an investee company is held as part of a portfolio of such companies so that the performance of one company does not significantly affect the value of the portfolio as a whole. The Investment Adviser also usually only recommends companies for investment that have a proven business model, a sound financial record and a strong management team. The Investment Adviser also usually takes a seat on the Board of each investee company such that it is able to monitor its progress on a regular basis and contribute to the strategic direction of the company.
The investments in equity and fixed interest stocks of unquoted companies that the Company holds are not traded and therefore they are not readily realisable. The ability of the Company to realise the investments at their carrying value may at times not be possible if there are no willing purchasers and, as the Company owns minority stakes, could require a number of months and the co-operation of other shareholders to achieve at a reasonable valuation. The Company's ability to sell investments may also be constrained by the requirements set down for VCTs. The maturity profile of the Company's loan stock investments disclosed within the consideration of credit risk below indicates that these assets are also not readily realisable until dates up to five years from the year-end.
To counter these risks to the Company's liquidity, the Investment Adviser maintains sufficient cash and money market funds to meet running costs and other commitments. The Company invests its surplus funds in high quality money market funds and bank deposits of £9,511,810 (2015: £14,619,207), which are all accessible at varying points over the next 12 months. The Board also receives regular cash flow projections in order to manage this liquidity risk.
The table below shows a maturity analysis of financial liabilities:
| Financial liabilities | <3 months £ |
3-6 months £ |
6-12 months £ |
over 12 months £ |
2016 Total £ |
|---|---|---|---|---|---|
| Other creditors | 93,815 | 81,270 | - | - | 175,085 |
| Financial liabilities | <3 months £ |
3-6 months £ |
6-12 months £ |
over 12 months £ |
2015 Total £ |
|---|---|---|---|---|---|
| Other creditors | 182,234 | - | 94,446 | - | 276,680 |
The Company does not have any derivative financial liabilities.
Credit risk is the risk that a counterparty will fail to discharge an obligation or commitment that it has entered into with the Company. The Company's maximum exposure to credit risk is:
| 2016 £ |
2015 £ |
|
|---|---|---|
| Loan stock investments | 28,417,098 | 27,182,615 |
| Current asset investments | 9,511,810 | 14,619,207 |
| Accrued income | 264,015 | 241,576 |
| Other debtors | 580,469 | 305,221 |
| Cash at bank | 3,662,074 | 3,386,635 |
| 42,435,466 | 45,735,254 |
The Company has an exposure to credit risk in respect of the loan stock investments it has made into investee companies, most of which have no security attached to them, and where they do, such security ranks beneath any bank debt that an investee company may owe. The loan stock is held in companies with turnover under £50 million, which may be considered less stable than larger, longer established businesses. The Investment Adviser undertakes extensive financial and commercial due diligence before recommending an investment to the Board. The Investment Adviser usually takes a seat on the Board of each investee company and the Board of the VCT receives regular updates on each company at each quarter end.
The accrued income shown above of £264,015 (2015: £241,576) was all due within five months of the year-end, with £22,596 still receivable three months after the year end.
The following table shows the maturity of the loan stock investments referred to above. In some cases, the loan maturities are not the contractual ones, but are the best estimate using management's expectations of when it is likely that such loans may be repaid.
| Repayable within | 2016 £ |
2015 £ |
|---|---|---|
| 0 to 1 year | 5,277,333 | 931,159 |
| 1 to 2 years | 6,582,192 | 509,437 |
| 2 to 3 years | 8,950,579 | 6,412,851 |
| 3 to 4 years | 5,595,287 | 7,812,944 |
| 4 to 5 years | 2,011,707 | 11,516,224 |
| Total | 28,417,098 | 27,182,615 |
Included within loan stock investments above is a loan at a carrying value of £495,270 (2015: £495,270), which is past its repayment date but has been renegotiated. Two loans with values of £1,857,184 (2015: (one loan) £622,056) are now past their repayment date but have not yet been renegotiated. The loan stock investments are made as part of the qualifying investments within the investment portfolio, and the risk management processes applied to the loan stock investments are set out under market price risk below.
An aged analysis of the value of loan stock investments included above, which are past due but not individually impaired, is set out below. For this purpose, these loans are considered to be past due when any payment due under the loan's contractual terms (such as payment of interest or redemption date) is received late or missed. We are required to report in this format and include the full value of the loan even though in some cases it is only in respect of interest that they are in default.
| 0-6 months | 6-12 months | over 12 months | 2016 Total | |
|---|---|---|---|---|
| £ | £ | £ | £ | |
| Loans to investee companies past due | 931,159 | 2,256,923 | 926,025 | 4,114,107 |
| 0-6 months | 6-12 months | over 12 months | 2015 Total | |
| £ | £ | £ | £ | |
| Loans to investee companies past due | 622,056 | - | - | 622,056 |
Credit risk also arises from cash and cash equivalents, deposits with banks and amounts held in liquidity funds. There is a risk of liquidity fund defaults such that there could be defaults within their underlying portfolios that could affect the values at which the Company could sell its holdings. However, as the five OEIC money market funds holding £7,511,810 are all triple A rated funds and, along with bank deposits and cash of £5,662,074 at seven well-known financial institutions, credit risk is considered to be relatively low in current circumstances. The Board manages credit risk in respect of these money market funds and cash by ensuring a spread of such investments such that none should exceed 15% of the Company's total investment assets. The Company's current account totalling £828,189 is held with NatWest Bank plc, so the risk of default is considered to be low.
There could also be a failure by counter-parties to deliver securities which the Company has paid for, or pay for securities which the Company has delivered. This risk is considered to be small as most of the Company's investment transactions are in unquoted investments, where investments are conducted through solicitors, to ensure that payment matches delivery. In respect of any quoted investment transactions that are undertaken, the Company uses brokers with a high credit quality, and these trades usually have a short settlement period. Accordingly, counterparty risk is considered to be relatively low.
Market price risk arises from uncertainty about the future valuations of the unquoted portfolio held in accordance with the Company's investment objectives. These future valuations are determined by many factors but include the operational and financial performance of the underlying investee companies (Investment risk), as well as market perceptions of the future performance of the UK economy and its impact upon the economic environment in which these companies operate. This risk represents the potential loss that the Company might suffer through holding its investment portfolio in the face of market movements, which was a maximum of £38,926,434 at the year-end, representing the fair value of the investment portfolio.
The investments in equity and fixed interest stocks of unquoted companies that the Company holds are not traded and as such the prices are more uncertain than those of more widely traded securities. As, in a number of cases, the unquoted investments are valued by reference to price earnings ratios prevailing in quoted comparable sectors (discounted for points of difference from quoted comparators), their valuations are exposed to changes in the price earnings ratios that exist in the quoted markets.
The Board's strategy in managing the market price risk inherent in the Company's portfolio of equities and loan stock investments is determined by the requirement to meet the Company's Objective, as set out on page 4 in the Strategic Report. As part of the investment management process, the Board seeks to maintain an appropriate spread of market risk, and also has full and timely access to relevant information from the Investment Adviser. No single investment is permitted to exceed 15% of total investment assets at the point of investment. The Investment Committee meets regularly and reviews the investment performance and financial results, as well as compliance with the Company's objectives. The Company does not use derivative instruments to hedge against market risk.
The Board believes that the Company's assets are exposed to market price risk, as the Company is required to hold most of its assets in the form of sterling denominated investments in small companies.
Although a small part of these assets are quoted on AIM, nearly all of these assets are unquoted. All of the investments made by the Investment Adviser in unquoted companies, irrespective of the instruments the Company actually holds, (whether shares, preference shares or loan stock) carry a full market risk, even though some of the loan stocks may be secured on assets, but behind any prior ranking bank debt in the investee company.
The Board considers that the value of investments in equity and loan stock instruments are ultimately sensitive to changes in their trading performance (discussed under investment risk above) and to changes in quoted share prices, insofar as such changes eventually affect the enterprise value of unquoted companies. The table below shows the impact on profit and net assets if there were to be a 20% (2015: 20%) movement in overall share prices, which might in part be caused by changes in interest rate levels. However, it is not considered possible to evaluate separately the impact of changes in interest rates upon the value of the Company's portfolios of investments in small, unquoted companies.
The sensitivity analysis below assumes that the value of each of these sub categories of investments (shares, preference shares and loan stocks) held by the Company produces a movement overall of 20% (2015: 20%), and that the actual portfolio of investments held by the Company is perfectly correlated to this overall movement in share prices. However, shareholders should note that this level of correlation is unlikely to be the case in reality, particularly in the case of the loan stock instruments. This is because loan stock instruments would not share in the impact of any increase in share prices to the same extent as the equity instruments, as the returns are set by reference to interest rates and premiums agreed at the time of initial investment. Similarly, where share prices are falling, the equity instrument could fall in value before the loan stock instrument. It is not considered practical to assess the sensitivity of the loan stock instruments to market price risk in isolation.
| 2016 Profit and net assets £ |
2015 Profit and net assets £ |
|
|---|---|---|
| If overall share prices rose/fell by 20% (2015: 20%), with all other variables held constant – increase/(decrease) |
6,119,527 / (6,119,527) | 5,760,054 / (5,760,054) |
| Increase/(decrease) in earnings, and net asset value, per ordinary share (in pence) | 12.48p / (12.48)p | 11.91p / (11.91)p |
The impact of a change of 20% (2015: 20%) has been selected as this is considered reasonable given the current level of volatility observed both on a historical basis and market expectations for future movement.
The Company's fixed and floating rate interest securities, its equity and preference equity investments and net revenue may be affected by interest rate movements. Investments are often in relatively small businesses, which are relatively high risk investments sensitive to interest rate fluctuations.
Due to the short time to maturity of some of the Company's floating rate investments, it may not be possible to re-invest in assets which provide the same rates as those currently held.
The Company's assets include fixed and floating rate interest instruments, as shown below. The rate of interest earned is regularly reviewed by the Board, as part of the risk management processes applied to these instruments, already disclosed under market price risk above.
The interest rate profile of the Company's financial net assets at 31 December 2016 was:
| Financial net assets on which no interest paid |
Fixed rate financial assets |
Variable rate financial assets |
Total | Weighted average interest rate |
Average period to maturity |
|
|---|---|---|---|---|---|---|
| £ | £ | £ | £ | % | (years) | |
| Equity shares | 10,496,569 | - | - | 10,496,569 | ||
| Preference shares | - | 12,767 | - | 12,767 | - | 1.4 |
| Loan stocks | - | 23,069,458 | 5,347,640 | 28,417,098 | 5.8 | 2.2 |
| Current asset investments | - | - | 9,511,810 | 9,511,810 | 0.5 | |
| Cash | - | - | 3,662,074 | 3,662,074 | 0.3 | |
| Debtors | 844,484 | - | - | 844,484 | ||
| Creditors | (175,085) | - | - | (175,085) | ||
| Total for financial instruments | 11,165,968 | 23,082,225 | 18,521,524 | 52,769,717 | ||
| Non-financial instruments | (14,561) | - | - | (14,561) | ||
| Total net assets | 11,151,407 | 23,082,225 | 18,521,524 | 52,755,156 |
The interest rate profile of the Company's financial net assets at 31 December 2015 was:
| Financial net assets on which no interest paid |
Fixed rate financial assets |
Variable rate financial assets |
Total | Weighted average interest rate |
Average period to maturity |
|
|---|---|---|---|---|---|---|
| £ | £ | £ | £ | % | (years) | |
| Equity shares | 11,521,004 | - | - | 11,521,004 | ||
| Preference shares | - | 13,051 | - | 13,051 | - | 3.1 |
| Loan stocks | - | 20,882,415 | 6,300,200 | 27,182,615 | 7.8 | 2.5 |
| Current asset investments | - | - | 14,619,207 | 14,619,207 | 0.6 | |
| Cash | - | - | 3,386,635 | 3,386,635 | 0.5 | |
| Debtors | 546,797 | - | - | 546,797 | ||
| Creditors | (276,680) | - | - | (276,680) | ||
| Total for financial instruments | 11,791,121 | 20,895,466 | 24,306,042 | 56,992,629 | ||
| Non-financial instruments | 15,153 | - | - | 15,153 | ||
| Total net assets | 11,806,274 | 20,895,466 | 24,306,042 | 57,007,782 |
Note: Weighted average interest rates above are derived by calculating the expected annual income that would be earned on each asset (but only for those sums that are currently regarded as collectible and would therefore be recognised), divided by the values for each asset class at the balance sheet date.
Variable rate cash earns interest based on LIBOR rates.
The Company's investments in equity shares have been excluded from the interest rate risk profile as they do not yield interest and have no maturity date. Their inclusion would distort the weighted average period information above.
Although the Company holds investments in loan stocks that pay interest, the Board does not consider it appropriate to assess the impact of interest rate changes in isolation upon the value of the unquoted investment portfolio, as interest rate changes are only one factor affecting the market price movements that are discussed above under market price risk. However, as the Company has a substantial proportion of its assets in cash, bank deposits and money market funds, the table below shows the sensitivity of income earned to changes in interest rates:
| 2016 Profit and net assets £ |
2015 Profit and net assets £ |
|
|---|---|---|
| If interest rates rose/fell by 1%, with all other variables held constant – increase/ (decrease) |
148,172 / (148,172) | 194,448 /(194,448) |
| Increase/(decrease) in earnings, and net asset value, per Ordinary share (in pence) | 0.30p / (0.30)p | 0.40p / (0.40)p |
All assets and liabilities are denominated in sterling and therefore there is no currency risk.
The table below sets out fair value measurements using FRS102 s11.27 fair value hierarchy. The Company has one class of financial assets, being at fair value through profit and loss.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:
Level 1 – valued using quoted prices in active markets for identical assets
Level 2 – valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1.
Level 3 – valued by reference to valuation techniques using inputs that are not based on observable market data.
| Financial assets at fair value through profit and loss At 31 December 2016 |
Level 1 £ |
Level 2 £ |
Level 3 £ |
Total £ |
|---|---|---|---|---|
| Equity investments | 291,682 | - | 10,204,887 | 10,496,569 |
| Preference shares | - | - | 12,767 | 12,767 |
| Loan stock investments | - | - | 28,417,098 | 28,417,098 |
| Current asset investments | 9,511,810 | - | - | 9,511,810 |
| Cash at bank | 3,662,074 | - | - | 3,662,074 |
| Total | 13,465,566 | - | 38,634,752 | 52,100,318 |
| Financial assets at fair value through profit and loss At 31 December 2015 |
Level 1 £ |
Level 2 £ |
Level 3 £ |
Total £ |
|---|---|---|---|---|
| Equity investments | 258,347 | - | 11,262,657 | 11,521,004 |
| Preference shares | - | - | 13,051 | 13,051 |
| Loan stock investments | - | - | 27,182,615 | 27,182,615 |
| Current asset investments | 14,619,207 | - | - | 14,619,207 |
| Cash at bank | 3,386,635 | - | - | 3,386,635 |
| Total | 18,264,189 | - | 38,458,323 | 56,722,512 |
There are currently no financial liabilities at fair value through profit and loss.
The valuation techniques used by the company are explained in the accounting policies in notes 8, 10 and at the start of this note.
There have been no transfers during the year between Levels 1 and 2. A reconciliation of fair value measurements in Level 3 is set out below:
| Equity investments £ |
Preference shares £ |
Loan stock investments £ |
Total £ |
|
|---|---|---|---|---|
| Opening balance at 1 January 2016 | 11,262,657 | 13,051 | 27,182,615 | 38,458,323 |
| Purchases Sales Total (losses)/gains included in gains/(losses) on investments in the Income Statement: |
2,190,947 (574,405) |
- - |
112,194 (1,522,382) |
2,303,141 (2,096,787) - |
| - on assets sold or impaired - on assets held at the year end |
199,647 (2,873,959) |
- (284) |
181,440 2,463,231 |
381,087 (411,012) |
| Closing balance at 31 December 2016 | 10,204,887 | 12,767 | 28,417,098 | 38,634,752 |
As detailed in the accounting policy for note 8, where investments are valued on an earnings-multiple basis, the main input used for this basis of valuation is a price-earnings ratio taken from a comparable sector on the quoted market which is then appropriately adjusted for points of difference. These ratios are correlated to the share prices and so any change in share prices will have a significant effect on the fair value measurements of the investments classified as Level 3 investments.
Level 3 unquoted equity and loan stock investments are valued in accordance with the IPEV guidelines as follows:
| 31 December 2016 £ |
31 December 2015 £ |
|
|---|---|---|
| Valuation methodology | ||
| Estimated realisation proceeds | 14,167 | 35,417 |
| Cost (reviewed for impairment) | 38,771 | - |
| Recent investment price* | 11,470,318 | 13,362,029 |
| Earnings multiple | 27,111,496 | 25,060,877 |
| 38,634,752 | 38,458,323 |
* - These are all investments made during the year or previous year. None arise from a follow on investment at a price that differed from the original cost.
The unquoted equity and loan stock investments had the following movements between valuation methodologies between 31 December 2015 and 31 December 2016:
| Change in valuation methodology | Carrying value as at 31 December 2016 £ |
Explanatory note |
|---|---|---|
| Recent investment price to earnings multiple | 3,789,636 | Sufficient time has elapsed since investment such that earnings multiple is a more appropriate basis for determining fair value |
| Recent investment price to cost (reviewed for impairment) |
38,771 | Further funding round |
The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the December 2015 IPEV guidelines. The Directors believe that, within these parameters, there are no other possible methods of valuation which would be reasonable as at 31 December 2016.
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern, so that it can continue to provide returns for shareholders. It aims to provide an adequate return to shareholders by allocating its capital to assets commensurate with the level of risk.
By its nature, the Company has an amount of capital, at least 70% (as measured under the tax legislation) of which is and must remain, invested in the relatively high risk asset class of small UK companies within three years of that capital being subscribed. The Company accordingly has limited scope to manage its capital structure in the light of changes in economic conditions and the risk characteristics of the underlying assets. Subject to this overall constraint upon changing the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets if so required to maintain a level of liquidity to remain a going concern.
Although, as the Investment Policy implies, the Board would consider levels of gearing, there are no current plans to do so. It regards the net assets of the Company as the Company's capital, as the levels of liabilities are small and the management of them is not directly related to managing the return to shareholders. There has been no change in this approach from the previous year.
The operations of the Company are wholly in the United Kingdom, from one class of business.
On 4 January 2017, the Company invested £0.58 million into Ibericos etc. Limited (trading as Tapas Revolution). This sum was held in a solicitor's client account at the year-end, and is part of the year end debtors figure analysed in Note 10.
In January and February 2017, the Company received £0.08 million of deferred consideration as a result of the realisation of Focus Pharma Holdings Limited in a previous year.
On 27 January 2017, the Company received loan repayment proceeds of £0.91 million from Backhouse Management Limited.
On 31 January 2017 and 28 February 2017, the Company received loan repayment proceeds totalling £0.91 million from McGrigor Management Limited.
On 17 March 2017, the Company allotted 706,138 ordinary shares at a price of 90.00 pence per share, under its Dividend Investment Scheme.
We aim to communicate regularly with our shareholders. In addition to the Half-Year and Annual Reports, shareholders receive a twiceyearly VCT newsletter from the Investment Adviser, approved by the Board. The May annual general meeting provides a useful platform for the Board to meet shareholders and exchange views. Your Board welcomes your attendance at general meetings to give you the opportunity to meet your Directors and representatives of the Investment Adviser. The Company releases Interim Management Statements in respect of those quarters where it does not publish half or full year accounts. The Investment Adviser holds an annual shareholder event, the most recent of which was held on 24 January 2017.
Shareholders wishing to follow the Company's progress can visit its website at www.mig4vct.co.uk. The website includes up-to-date details on fund performance and dividends as well as publicly available information on the Company's portfolio of investments and copies of company reports. There is also a link to the London Stock Exchange's website at: www.londonstockexchange.com where shareholders can obtain details of the share price and latest NAV announcements, etc.
| Financial calendar | ||
|---|---|---|
| 17 March 2017 | Payment of second interim dividend for year ended 31 December 2016. |
|---|---|
| 8 May 2017 | Annual General Meeting. |
| August 2017 | Half-Year Report for the six months ending 30 June 2017 to be announced and circulated to shareholders. |
| September 2017 | Payment of an interim dividend, if payable. |
| 31 December 2017 | Year-end. |
| January 2018 | Shareholder event. |
Shareholders can check the performance of the VCT by visiting the Investment Adviser's website at www.mobeusequity.co.uk. This is regularly updated with information on your investment including case studies of portfolio companies.
The Company's next Annual General Meeting will be held at 11.30 am on Monday 8 May 2017 at a new venue: The Clubhouse, 8 St James's Square, London SW1Y 4JU. A copy of the notice of the meeting can be found on pages 64 to 66. A proxy form for the meeting is included with shareholders' copies of this Annual Report.
Shareholders who wish to have dividends paid directly into their bank account rather than sent by cheque to their registered address can complete a mandate for this purpose. Mandates can be obtained by contacting the Company's Registrars, Capita Asset Services at the address given on page 67.
Shareholders are encouraged to ensure that the Registrars maintain up-to-date details for yourselves and to check whether you have received all dividends payable to you. This is particularly important if you have recently moved house or changed your bank. We are aware that a number of dividends remain unclaimed by shareholders and whilst we will endeavour to contact shareholders if this is the case, we cannot guarantee that we will be able to do so if the Registrars do not have an up-to-date postal address or email address for you.
The Scheme is a convenient, easy and cost effective way to build up your shareholding in the Company. Instead of receiving cash dividends, you can elect to receive new shares in the Company. By opting to receive your dividend in this manner, there are three benefits to shareholders:
Shareholders who wish to join the Scheme should contact the Scheme Administrator, Capita Asset Services at the address given on page 67 or download an application form from the company's website on the dividend page.
The Company's shares are listed on the London Stock Exchange and as such they can be sold in the same way as any other quoted company through a stockbroker. However, to ensure that you obtain the best price, if you wish to sell your shares, you are strongly advised to contact the Company's stockbroker, Panmure Gordon, by telephoning 020 7886 2727 before agreeing a price with your stockbroker. Shareholders are also advised to discuss their individual tax position with their financial adviser before deciding to sell their shares.
For details on your individual shareholding and to manage your account, online shareholders may log into or register with the Capita Shareholder Portal at: www.capitashareportal.com.
You can use the Shareholder Portal to change your address details, check your holding balance and transactions, view the dividends you have received, add and amend your bank details and manage how you receive your dividends.
New tax legislation was introduced with effect from 1st January 2016 under the Organisation for Economic Co-operation and Development Common Reporting Standard for Automatic Exchange of Financial Account Information. The legislation requires investment trust companies to provide personal and financial account information to HMRC on certain investors who purchase their shares including details of their shareholding and income from the shares. As an affected entity, the Company has to provide information annually to HMRC relating to a number of non-UK based certificated shareholders who are deemed to be resident for tax purposes in any of the 90 plus countries who have joined CRS. All new shareholders, excluding those whose shares are held in CREST, who are entered onto the share register from 1 January 2016 will be asked to provide the relevant information. Additionally, HMRC changed its policy position on FATCA in June 2016. We understand that this will mean that, as a result of the restricted secondary market in VCT shares, the Company's shares will not be considered to be "regularly traded". This will mean that the Company will also be an affected entity for the purposes of this legislation and as such will have to provide information annually to HMRC relating to shareholders who are resident for tax purposes in the United States.
For further information, please see HMRC's Quick Guide: Automatic Exchange of Information – information for account holders:
https://www.gov.uk/government/publications/exchange-of-information-account-holders.
For enquiries concerning the investment portfolio or the Company in general, please contact the Investment Adviser, Mobeus Equity Partners. To contact the Chairman or any member of the Board, please contact the Company Secretary, also Mobeus Equity Partners LLP, in the first instance at [email protected].
The Registrars may be contacted via their Shareholder Portal, post or telephone for queries relating to your shareholding or dividend payments, dividend mandate forms, change of address, etc.
Full contact details for each of Mobeus and Capita are included under Corporate Information on page 67 of this Annual Report.
NOTICE IS HEREBY GIVEN that an Annual General Meeting of Mobeus Income & Growth 4 VCT plc ("the Company") will be held at 11.30 am on Monday 8 May 2017 at The Clubhouse, 8 St James's Square, London SW1Y 4JU for the purpose of considering and, if thought fit, passing the following resolutions of which resolutions numbered 1 to 9 will be proposed as ordinary resolutions and resolutions 10 and 11 will be proposed as special resolutions:
in each case where the proceeds of the allotment may be used, in whole or part, to purchase the Company's Shares in the market and provided that this authority shall (unless renewed, varied or revoked by the Company in general meeting) expire on the date falling fifteen months after the passing of this resolution or, if earlier, on the conclusion of the annual general meeting of the Company to be held in 2018, except that the Company may, before the expiry of this authority, make offers or agreements which would or might require equity securities to be allotted after such expiry and the directors of the Company may allot equity securities in pursuance of such offers or agreements as if the authority conferred by this resolution had not expired.
BY ORDER OF THE BOARD
30 Haymarket Company Secretary London SW1Y 4EX
Registered Office Mobeus Equity Partners LLP
Dated: 22 March 2017
Christopher Moore (Chairman) Andrew Robson Helen Sinclair
Mobeus Equity Partners LLP 30 Haymarket London SW1Y 4EX
30 Haymarket London SW1Y 4EX
03707697
Mobeus Equity Partners LLP 30 Haymarket London SW1Y 4EX Telephone: 020 7024 7600 www.mobeusequity.co.uk
www.mig4vct.co.uk
BDO LLP 55 Baker Street London W1U 7EU
The City Partnership (UK) Limited Thistle House 21 Thistle Street Edinburgh EH2 1DF
Howard Kennedy Corporate Services LLP 1 London Bridge Walk London W1A 2AW
Shakespeare Martineau LLP No 1 Colmore Square Birmingham B4 6AA
Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU
Tel: +44 (0) 371 644 0324 Telephone lines are open 9.00am-5.30pm Mon-Fri excluding public holidays in England and Wales.
Panmure Gordon (UK) Limited 1 New Change London EC4M 9AF
Philip Hare & Associates LLP 4-6 Staple Inn High Holborn London WC1V 7QH
National Westminster Bank plc City of London Office PO Box 12258 1 Princes Street London EC2R 8PA
Mobeus Equity Partners LLP 30 Haymarket London SW1Y 4EX
020 7024 7600 www.mig4vct.co.uk
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