Annual Report • Mar 31, 2018
Annual Report
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for the year ended 31 March 2018
Winner Small UK Deal of the Year GO Outdoors
Winner VCT Exit of the Year President Engineering Group
Winner Best Report & Accounts VCTs
British Smaller Companies VCT plc was formed in 1996 and invests in a combination of businesses operating in traditional industries and emerging businesses offering opportunities in the application and development of innovation.
A diverse existing portfolio of 38 active investments reduces the exposure to particular markets and individual companies. The current investment portfolio has an audited valuation of £61.8 million as at 31 March 2018.
| ABOUT US | |
|---|---|
| Investment Adviser | British Smaller Companies VCT plc ("the Company") is advised by YFM Private Equity Limited ("the Investment Adviser") which is a wholly owned subsidiary of YFM Equity Partners LLP and is authorised and regulated by the Financial Conduct Authority. |
| Investment Policy | The investment strategy of the Company is to create a portfolio with a mix of companies operating in traditional industries and those that offer opportunities in the development and application of innovation. |
| The Company invests in UK businesses across a broad range of sectors including software, information technology and telecommunications, retail and brands, business services, manufacturing and industrial services and healthcare and these investments will primarily be in unquoted companies. Investments will be made with regard to the VCT regulations so as to maintain the Company's venture capital trust status. Wherever possible the Company invests in a combination of equities, preference shares and loan stock to enhance the security of the portfolio. Further details of the Company's investment policy can be found in the Strategic Report on page 9. |
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| Dividend Policy | Your Board remains committed to achieving the objective of a consistent dividend but this depends upon the level of investment income and realisations that the Company is able to make or achieve in any one period and cannot be guaranteed. |
| The tax reliefs that are available for an investment in a VCT are of particular benefit for qualifying shareholders as there is no income tax payable on the dividend received, or need to declare them in a tax return. |
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| Share Buy-Backs | Share buy-backs enable shareholders to obtain some liquidity in an otherwise illiquid market when there is a need to dispose of shares. This policy is kept under active review to ensure that any decisions taken are in the interests of shareholders as a whole. The current rate of discount at which ordinary shares will be bought back is targeted to be no more than five per cent of the latest reported net asset value. |
| Dividend Re-Investment Scheme ("DRIS") |
The Company operates a DRIS which gives shareholders the opportunity to re-invest any cash dividends. Currently dividends are re-invested at a 5 per cent discount to the latest reported net asset value as adjusted for the relevant dividend in question if this has not already been recognised. Any dividends that are re-invested by qualifying shareholders are eligible for income tax relief at 30 per cent of the amount invested subject to an annual investment limit of £200,000. The Finance Act 2014 confirmed that shares acquired at any time under dividend re-investment schemes will not impact tax relief on sales of, or subscriptions for, VCT shares, unless in the latter case it results in a breach of the £200,000 investment limit. |
| Financial Highlights | 2 |
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| Financial Calendar | 3 |
| Five Year Summary | 3 |
| Chairman's Statement | 5 |
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| Objectives and Key Policies | 9 |
| Processes and Operations | 10 |
| Key Performance Indicators | 11 |
| Investment Performance | |
| Portfolio Structure and Diversity | 14 |
| Investment Review | 15 |
| Case Studies | 19 |
| Investment Portfolio Summary at 31 March 2018 | 20 |
| Summary of Investment Portfolio Movement since 31 March 2017 | 21 |
| Investee Company Information | 22 |
| Risk Factors | 28 |
| Other Matters | 30 |
| Directors | 31 |
|---|---|
| Directors' Report | 32 |
| Corporate Governance | 35 |
| Directors' Remuneration Report | 41 |
| Directors' Responsibilities Statement | 44 |
| Independent Auditor's Report | 45 |
|---|---|
| Statement of Comprehensive Income | 50 |
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| Balance Sheet | 51 |
| Statement of Changes in Equity | 52 |
| Statement of Cash Flows | 54 |
| Notes to the Financial Statements | 55 |
| Notice of the Annual General Meeting | 77 |
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| Form of Proxy | 81 |
Company Advisers 83
| Year ended 31 March 2018 |
Year ended 31 March 2017 |
Year ended 31 March 2016 |
Year ended 31 March 2015 |
Year ended 31 March 2014 |
|
|---|---|---|---|---|---|
| Income £'000 | 2,152 | 2,813 | 3,365 | 2,310 | 1,341 |
| Profit before and after taxation £'000 | 3,364 | 4,529 | 10,409 | 4,043 | 6,525 |
| Profit per ordinary share | 3.10p | 4.65p | 11.40p | 5.98p | 13.14p |
| Dividends per ordinary share paid in the year | 5.75p | 22.0p | 10.0p | 8.0p | 6.5p |
| Cumulative dividends paid per ordinary share | 136.4p | 130.7p | 108.7p | 98.7p | 90.7p |
| Net assets attributable to ordinary shares £'000 | 86,137 | 88,072 | 95,723 | 87,720 | 62,584 |
| Net asset value per ordinary share | 79.6p | 82.3p | 100.0p | 98.8p | 102.0p |
| Total return per ordinary share | 216.0p | 213.0p | 208.7p | 197.5p | 192.7p |
| Increase in total return per ordinary share | 3.0p | 4.3p | 11.2p | 4.8p | 11.5p |
The Company is pleased to present its Strategic Report for the year ended 31 March 2018. The purpose of this report is to inform shareholders and help them to assess how the Directors have performed in their duty to promote the success of the Company. This Report has been prepared by the Directors in accordance with section 414 of the Companies Act 2006.
4 BRITISH SMALLER COMPANIES VCT PLC
I am pleased to report that the Company has made reasonable progress during the year with a total shareholder return of 3.0 pence per ordinary share. This equates to 3.6 per cent of the net asset value at 31 March 2017 and total shareholder return is now 216.0 pence per ordinary share.
Following the payment of a 5.75 pence per ordinary share dividend in the year the total return at 31 March 2018 comprises cumulative dividends of 136.4 pence per ordinary share and a residual net asset value of 79.6 pence per ordinary share.
Your Company's portfolio delivered an overall satisfactory performance over the year, generating a return of 6.3 per cent over its opening value, this compares to a 3.0 per cent return on the FTSE Small Cap index.
Whilst there was some disruption to the investment pipeline arising from delays in gaining HMRC's advance assurance their process has subsequently showed a marked improvement. It is pleasing that a number of the investment opportunities reviewed have now converted into new investments. Consequently your Company completed new and follow-on investments totalling £8.16 million comprising four new investments and two follow-on investments. These were:
In July 2017 a £1.8 million investment into Friska Limited, a "food-to-go" restaurant concept, which has a roll out strategy to extend to new UK locations building a distinctive 'Feel Good Food' brand.
In September 2017 a £0.9 million investment into e2E Engineering Limited, a business utilising new technologies to become a niche managed service communications provider focusing on areas currently under-served by existing solutions.
In March 2018 £1.5 million was invested into Ncam Technologies Limited. Ncam develops award-winning augmented reality technology which is utilised globally by broadcast, film and episodic broadcast TV productions. The cash will be used to support the development of new products, invest in the team, and help the business extend its reach into new territories, especially the USA where a new office opening is planned for 2018.
Also in March 2018 the Company invested £3.0 million into Eikon Holdco Limited, a cutting edge, end-to-end, digital postproduction service provider for the film and broadcast industry based in London. Clients include Paramount Pictures, Twentieth Century Fox, Sony Pictures Entertainment, Warner Bros, Universal Pictures, CBS and Netflix. Eikon will use the funds to build a new state of the art studio in Los Angeles as well as continuing to invest in the development of technology to enhance the service delivery to customers.
Follow-on investments totalling £1.0 million were made into existing portfolio companies. Included in this was an additional investment of £0.5 million into Matillion Limited which was part of a large secondary funding round supported by two well-known US investors.
Since the year end a total of £3.1 million has been invested into Hutchinson Networks Limited and Arcus Global Limited.
It is also pleasing to report that there were two full realisations in the year:
In May 2017 the Company realised its investment in Selima Holding Company Ltd. Initial proceeds were £1.95 million, delivering a total return (including income) of £2.23 million, which is a multiple of 3.7x cost. There is the potential for additional contingent consideration of up to a maximum of £1.41 million, over the period to November 2019.
In August 2017 the Company realised its residual interest in Harvey Jones Holdings Limited for £0.97 million, bringing the total return from this investment to £3.20 million, which is a multiple of 1.6x cost.
The Annual General Meeting of the Company will be held at 11:00am on 5 September 2018 at 33 St James Square, London, SW1Y 4JS. Full details of the agenda for this meeting are included in the Notice of the Annual General Meeting on page 77.
The net asset value at 31 March 2018 is 79.6 pence per ordinary share as summarised in the table below:
| Net Asset Value | ||||||
|---|---|---|---|---|---|---|
| Pence per ordinary share |
£000 | |||||
| NAV at 31 March 2017 investment funds and fixed |
Net underlying increase in portfolio Net underlying decrease in listed |
3.3 | 82.3 | 3,555 | 88,072 | |
| income securities | (0.1) | (108) | ||||
| Net loss after expenses | (0.1) | (83) | ||||
| Issue/buy-back of new shares | (0.1) | 851 | ||||
| 3.0 | 4,215 | |||||
| NAV before the payment of dividends | 85.3 | 92,287 | ||||
| Dividends paid | (5.7) | (6,150) | ||||
| NAV at 31 March 2018 Cumulative dividends paid |
79.6 136.4 |
86,137 | ||||
| Total return: at 31 March 2018 at 31 March 2017 |
216.0 213.0 |
The charts on page 11 of these financial statements show in greater detail the movement in total return, net asset value and dividends paid over time.
The investments held at 31 March 2017, amounting to £56.52 million, delivered a return over the year of £3.56 million, equivalent to an increase in value for shareholders of 3.3 pence per ordinary share. This return comprises a gain on the revaluation of the portfolio of £3.32 million and a net gain over the opening value from the realisation of investments and deferred proceeds of £0.23 million.
Within the current portfolio there were £7.28 million of unrealised gains offset by £3.96 million of unrealised losses. There were strong performances from Matillion Limited, Deep-Secure Ltd, GTK (Holdco) Limited, Ketech Enterprises Limited,
Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) and Gill Marine Limited, which in part were offset by reductions in valuations for DisplayPlan Holdings Limited, The Heritage Window Company Holdco Limited, RMS Group Holdings Limited, Biz2Mobile Limited and Harris Hill Limited.
The realisation of Selima Holding Company Ltd contributed a profit on the 31 March 2017 carrying value of £0.65 million and this was offset by losses of £0.48 million on the refinancing of The Heritage Window Company Holdco Limited. The latter also had a negative impact on the year's income, with a provision of £0.32 million against loan interest and preference dividends.
Income for the year of £2.15 million was £0.66 million below the previous year
mainly as a result of the repayment of loans by portfolio companies. The reduction in loan interest is expected to continue in future as the current portfolio is replaced with new investments which are funded with a larger proportion of equity.
On 26 May 2017 the Company paid an interim dividend for the year ended 31 March 2018 of 5.75 pence per ordinary share which brings cumulative dividends paid to date to 136.4 pence per ordinary share.
As highlighted in previous statements the VCT rules introduced and implemented in 2015 have led to more investments in businesses seeking scale-up capital. The unquoted portfolio as at 31 March 2018 comprised £11.82 million (20 per cent) of these type of investments, with £47.75 million (80 per cent) of investments made prior to the rule changes. The older investments in the portfolio should provide an element of more stable returns in the short term, but over a longer timescale returns will become more dependent on realisations from the earlier stage businesses.
Subsequent to the year end on 18 May 2018 the Company paid an interim dividend in respect of the year ending 31 March 2019 of 4.0 pence per ordinary share. The Board is not proposing the payment of a final dividend for the year ended 31 March 2018.
Your Company operates a DRIS, which gives shareholders the opportunity to reinvest any cash dividends and is open to all shareholders. The three advantages of the DRIS are:
1 the dividends remain tax free;
For the financial year ended 31 March 2018 dividends totalling £1.75 million were invested in your Company by way of the DRIS.
The level of DRIS participation in the dividend paid on 18 May 2018 was 29 per cent which is the highest level to date the Company has received.
As a result of the performance and in accordance with the terms of the Incentive Agreement no incentive fee is payable in respect of the year ended 31 March 2018 (2017: £3.6 million).
Under the terms of the Incentive Agreement the Investment Adviser will receive £0.5 million following the Annual General Meeting on 5 September 2018, which relates to the unpaid balance of the incentive fee payable and was fully accounted for in the year ended 31 March 2017.
The Board has commenced a review of the Incentive Agreement as set out in note 3 on page 60.
As part of the Board's continuing dialogue with shareholders, the 23rd shareholder workshop was held in conjunction with British Smaller Companies VCT2 plc at the Honourable Artillery Company on 16 May 2018. There was a presentation from one of our newest investments: Ncam Technologies Limited, alongside short videos about our other new portfolio companies. The Company's performance, portfolio and outlook were discussed in talks given by the Investment Adviser, followed by a question and answer session. As shareholders may be aware the General Data Protection Regulations ("GDPR") came into force on 25 May 2018. GDPR provides a greater level of protection over personal information and the Company and the Investment Adviser have taken all necessary steps to comply with its requirements. A revised Privacy Notice has been published and this can be found on the Company's website at www.bscfunds.com.
The electronic communications policy continues to be a great success, with 82 per cent of shareholders now receiving communications in this way. Documents such as the annual report are disseminated via the website www.bscfunds.com rather than by post, saving on printing costs, as well as being more environmentally friendly.
Your Company's website www.bscfunds.com is refreshed on a regular basis, and provides a comprehensive level of information in what I hope is a user-friendly format.
The Board is currently reviewing the Company's funding requirements including the consideration of a fundraising during this tax year.
On 21 September 2017 the Company cancelled the balance of its Share Premium, £37.01 million, which was transferred to the Capital Reserve. As set out on page 53 this will become available for distribution at various times over the period to 1 April 2021.
On 18 May 2018 the Company paid an interim dividend for the year ending 31 March 2019 of 4.0 pence per ordinary share with 1,751,747 ordinary shares being issued under the Company's DRIS.
In April 2018 the Company made a new investment of £1.32 million into Hutchinson Networks Limited (a leading provider of multi-vendor IT and network solutions to clients globally) with a further £1.80 million invested into Arcus Global Limited (a provider of cloud-based software solutions to local and national public sector organisations) during May 2018.
Following the outcome of the Patient Capital Review the November 2017 Budget included a number of changes to the VCT rules, largely designed to target investment activity at younger, smaller businesses seeking scale-up capital. While there is now a restriction on the level of loan finance that can be taken on, and the level of interest chargeable on such loans, the changes are not expected to have a material impact on the Company. A major positive change is the doubling of the annual investment limit for Knowledge Intensive businesses to £10 million from £5 million and an increase in the lifetime investment limit for such investments to £20 million. This is yet to achieve state aid approval, however, your Company hopes to take advantage of these changes at the earliest opportunity.
Until recently HMRC were struggling to process applications for advance assurance but the situation has now improved such that the average time taken to process applications is around eight weeks, a position not seen for quite some time. This is a welcome development and, while not yet meeting HMRC's target of fifteen days, it has been a major factor in the recently increased level of investment.
The improved speed at which advance assurances are now being granted is an encouraging sign that HMRC are able to apply the new rules quickly. HMRC have also recently issued a consultation on new guidance that would allow investments to be made without seeking advance assurance, indicating that HMRC are seeking to have VCTs place greater reliance on their professional advisers when making an investment.
The Investment Adviser is working closely with other Investment Advisers and Managers to ensure that this does not pose additional risk to the Company.
The VCT industry continues to adapt to the new regulatory environment and the recent improvement in the advance assurance process has allowed for investments in some exciting businesses. As at the end of May 2018, 28 per cent of the portfolio comprised of investments made since November 2015 and there is a strong pipeline of similar opportunities being reviewed by the Investment Adviser. As has been noted before, these investments are largely in the form of equity instruments, with a lower level of debt instruments than historically while the risks of capital loss
have increased by investing in earlier stage companies. The more established portfolio continues to be managed with a view to maximising returns. In some cases this could mean seeking an exit at the right time while in others the Company may retain an investment if there are opportunities for future value growth.
There is no doubt that the number of potential investments has been limited by recent legislative changes and this has, in turn, led to more competitive pricing and investment terms, notably in competitive fundraising processes. The 2017/18 tax year was a record for VCT fundraising and this, combined with new rules that come into effect in the near future, is likely to increase these pressures further. On a more positive note, the changes to the investment levels permitted for Knowledge Intensive businesses noted on page 7 do provide an opportunity to make larger initial investments and to participate in further funding rounds as businesses grow.
With the improved advance assurance process and new investment limits for some businesses the Board believes that your Company is well positioned to continue delivering strong long-term returns from a well-balanced portfolio.
I would once again like to thank shareholders for their continued support.
Helen Sinclair Chairman
26 June 2018
The Company's objective is to provide investors with an attractive long-term tax free dividend yield whilst maintaining the Company's status as a venture capital trust.
The Company's investment policy is to create a portfolio that blends a mix of businesses operating in traditional industries with those that offer opportunities in the application and development of innovation. Investing across a range of companies and sectors reduces exposure to particular markets and individual companies. The changes to the VCT legislation in November 2015 and those announced in the November 2017 Budget mean that there is greater emphasis on opportunities focussing on the application and development of innovation.
To this end the Company will invest in UK businesses across a broad range of sectors including but not limited to software, information technology and telecommunications, retail and brands, business services, manufacturing and industrial services and healthcare. These investments will primarily be in unquoted UK companies which meet the definition of a Qualifying Investment, in order to maintain the Company's VCT status. It is anticipated that the majority of these businesses will be re-investing their profits for growth and the investments will, therefore, comprise mainly equity instruments.
The Company funds the investment programmes out of its own resources and has no borrowing facilities for this purpose.
British Smaller Companies VCT plc and British Smaller Companies VCT2 plc ("the VCTs") have in aggregate priority in all investment opportunities meeting the VCT qualifying criteria that require up to £4.5 million of equity. Amounts above £4.5 million will be allocated one third to YFM's co-investment funds and two thirds to the VCTs. Where there are opportunities for the VCTs to co-invest with each other the basis for allocation is 60 per cent to the Company and 40 per cent to British Smaller Companies VCT2 plc. The Board of the Company has discretion as to whether or not to take up or, where British Smaller Companies VCT2 plc does not take its allocation, increase its allocation in such co-investment opportunities.
Pending investment in VCT-qualifying securities, surplus cash is primarily held in interest bearing instant access, and short-notice bank accounts and investment funds listed on a recognised stock exchange (including FCA authorised and regulated UCITS funds). Subsequent to the Finance (No. 2) Act 2015 investments can no longer be made in non-qualifying quoted investments traded on an unregulated exchange. This change therefore now excludes most AIM investments in this category.
The Company's policy on the remuneration of its directors, all of whom being non-executive directors, can be found on page 41.
Details of the Company's policies on the payment of dividends, the DRIS and the buy-back of shares are given on the inside of the front cover. In addition to these the Company's anti-bribery and environmental and social responsibilities policies can be found on page 30.
The Investment Adviser is responsible for the sourcing and screening of initial enquiries, carrying out suitable due diligence investigations and making submissions to the Board regarding potential investments. Once approved, further due diligence is carried out and HMRC clearance is obtained as the Board deems necessary for approval as a Qualifying Holding.
The Board approves all investment and divestment decisions save in that new investments up to £250,000 in companies whose securities are traded on a regulated stock exchange and where the decision is required urgently, in which case the Chairman of the Board of Directors, if appropriate, may act in consultation with the Investment Adviser, provided papers have first been circulated to the Chairman of the Investment Committee. With regard to the realisation of quoted holdings the Investment Adviser is authorised to implement the Company's exit strategy for the holding in question within parameters previously agreed by the directors.
The Board regularly monitors the performance of the portfolio and the investment requirements set by the relevant VCT legislation. Reports are received from the Investment Adviser regarding the trading and financial position of each investee company and senior members of the Investment Advisory Team regularly attend the Company's Board meetings. Monitoring reports are also received at each Board meeting on compliance with VCT regulations so that the Board can monitor that the Venture Capital Trust status of the Company is maintained and take corrective action if appropriate.
The Board reviews the terms of YFM Private Equity Limited's appointment as Investment Adviser on a regular basis.
YFM Private Equity Limited has performed investment advisory, administrative and secretarial services for the Company since its inception on 28 February 1996. The principal terms of the agreement under which these services are performed are set out in note 3 to the financial statements.
The Investment Adviser will receive an incentive payment equal to 20 per cent of the amount by which dividends paid in the relevant accounting period exceed 4.0 pence per ordinary share (increasing in line with RPI) once cumulative dividends of 10.0 pence per ordinary share from 1 April 2009 have been paid. These incentive payments are subject to cumulative shortfalls in any prior accounting periods being made up and the average adjusted net asset value per ordinary share in the relevant accounting period being not less than 94.0 pence per ordinary share, as adjusted for the impact of share issues and buy-backs. More detail on the agreement as amended from time to time is given in note 3 to the financial statements.
No payment can be made in respect of the year to 31 March 2018 under the Incentive Agreement unless the average quarterly adjusted net asset value of the Company is a minimum of 92.2 pence per ordinary share and, in addition, at least 5.1 pence per ordinary share in dividends has been paid to shareholders. The total dividends paid in the year are 5.75 pence per ordinary share and the average quarterly adjusted net asset value for the year is
78.4 pence per ordinary share. As a result, the Investment Adviser has not met the targets for the year under review and a performance fee of £nil has accrued to the Investment Adviser (31 March 2017: £3,648,873). If the annual incentive fee exceeds a certain threshold then the excess is deferred until following the next year's Annual General Meeting. Payment of the remainder is made five business days after the relevant Annual General Meeting at which the audited accounts are presented to shareholders. The prior year's payment exceeded the threshold and therefore a portion of the prior year fee was delayed until after the 2018 Annual General Meeting. Further details are given on page 60 (note 3).
In the opinion of the directors the continuing appointment of YFM Private Equity Limited as Investment Adviser is in the interests of the shareholders as a whole in view of its experience in advising venture capital trusts and in making, managing and exiting investments of the kind falling within the Company's investment policies.
Reporting to the Investment Adviser, these portfolios are managed by Brewin Dolphin Limited on a discretionary basis. The Board receives regular reports on the make-up and market valuation of these portfolios.
The commonly used benchmarks of performance for VCTs are total return, calculated as cumulative dividends paid plus net asset value, and dividends paid.
The evaluation of comparative success of the Company's total return is by way of reference to the share price total return for approximately 45 generalist VCTs as published by the Association of Investment Companies ("the AIC"). This is the Company's stated benchmark index. An explanation of the calculation of this return is shown in the Directors' Remuneration Report on page 43.
The table below shows the cumulative dividends, the total return on each fundraising round per ordinary share and the total return if a shareholder had opted to participate in the Company's DRIS. The cumulative dividend and total return figures in this table exclude the benefits of all tax reliefs, whilst the last column includes the benefit of tax reliefs as noted.
| Tax year | Net asset value as at 31 March 2018 |
Cumulative dividends paid since fundraising |
Total return since fundraising |
Offer price | Offer price net of initial tax relief |
Overall return including tax relief since fundraising with participation in the DRIS 1 |
|---|---|---|---|---|---|---|
| Pence | Pence | Pence | Pence | Pence | Pence | |
| 1995/96 & 1996/97 | 79.6 | 136.4 | 216.0 | 100.0 | 80.0 | 355.2 |
| 1996/97 & 1997/98 | 79.6 | 133.4 | 213.0 | 100.0 | 80.0 | 354.3 |
| 1997/98 & 1998/99 | 79.6 | 129.7 | 209.3 | 105.0 | 84.0 | 354.1 |
| 2004/05 & 2005/06 (C share2) | 89.5 | 114.6 | 204.1 | 100.0 | 60.0 | 369.1 |
| 2005/06 | 79.6 | 106.0 | 185.6 | 99.5 | 59.7 | 346.9 |
| 2006/07 & 2007/08 | 79.6 | 101.5 | 181.1 | 102.5 | 71.8 | 321.9 |
| 2007/08 & 2008/09 | 79.6 | 96.5 | 176.1 | 106.3 | 74.4 | 306.7 |
| 2009/10 & 2010/11 | 79.6 | 86.5 | 166.1 | 97.3 | 68.1 | 271.5 |
| 2010/11 & 2011/12 | 79.6 | 80.2 | 159.8 | 128.0 | 89.6 | 262.6 |
| 2011/12 | 79.6 | 57.2 | 136.8 | 99.8 | 69.8 | 203.9 |
| 2012/13 & 2013/14 | 79.6 | 52.2 | 131.8 | 95.8 | 67.0 | 192.0 |
| 2013/14 & 2014/15 | 79.6 | 45.7 | 125.3 | 100.8 | 70.5 | 180.7 |
| 2014/15 & 2015/16 | 79.6 | 37.7 | 117.3 | 99.5 | 69.7 | 165.8 |
| 2015/16 | 79.6 | 27.7 | 107.3 | 102.3 | 71.6 | 150.1 |
| 2016/17 | 79.6 | 5.7 | 85.3 | 84.6 | 59.2 | 111.9 |
NAV plus tax relief on the initial subscription plus additional tax relief and NAV on DRIS shares purchased. Assuming that all dividends since inception were invested under terms of current DRIS
All figures have been adjusted for conversion of C shares into ordinary shares in May 2007
The Board monitors expenses using the Ongoing Charges figure, as calculated in line with the AIC recommended methodology. This figure shows the annual percentage reduction in net asset value as a result of recurring operational expenses which, whilst based on historical information, provides an indication of the likely level of costs that will be incurred in managing the fund in the future.
| Expenses | Year to 31 March 2018 (%) |
Year to 31 March 2017 (%) |
|---|---|---|
| Ongoing Charges figure | 2.48 | 2.43 |
The total costs incurred by the Company in the year (excluding any performance related fees, trail commission payable to financial intermediaries and VAT) is capped at 2.9 per cent of the total net asset value as at the relevant year end. The treatment of costs in excess of the cap is described in note 3 on page 60. There was no breach of the expenses cap in the current or prior year.
The main business risk facing the Company is the retention of VCT qualifying status. The Board receives regular reports on compliance with the VCT legislative tests from its Investment Adviser. In addition the Board receives formal reports from its VCT Status Adviser twice a year. The Board can confirm that during the period all of the VCT legislative tests have been met.
Under Chapter 3 Part 6 of the Income Tax Act 2007, in addition to the requirement for a VCT's ordinary share capital to be listed in the Official List on a European regulated market throughout the period, there are a further five specific tests that VCTs must meet following the initial three year provisional period.
The Board can confirm that during the period all of the five VCT legislative tests set out below have been met.
The Budget in November 2017 introduced further changes that come into effect in future years and more detail on these is given on page 18 under the heading "Regulatory Developments".
Further restrictions placed on VCTs are:
The Finance Act 2014 introduced a restriction with respect to the use of monies by VCTs. In particular, no dividends can be paid out of cancelled share premium arising from shares allotted on or after 6 April 2014 until at least three full financial years have elapsed from the date of allotment.
Of amounts relating to cancelled share premium £16.07 million remains undistributable until on or after 1 April 2019. Further details are given on page 53.
The Finance (No. 2) Act 2015 imposes further conditions in respect of investments, including those regarded as non-qualifying investments, including:
| Income Test | The Company's income in the period must be derived wholly or mainly (70 per cent) from shares or securities. |
|---|---|
| Retained Income Test | The Company must not retain more than 15 per cent of its income from shares and securities. |
| Qualifying Holdings Test | At least 70 per cent by value of the Company's investments must be represented throughout the period by shares or securities comprised in Qualifying Holdings of investee companies. |
| Eligible Shares Tests | At least 30 per cent of the Company's Qualifying Holdings must be represented throughout the period by holdings of non-preferential ordinary shares. |
| For monies raised from 6 April 2011 onwards the eligible shares test above increases to at least 70 per cent of Qualifying Holdings that must be represented by eligible shares. |
|
| In addition, monies are not permitted to be used to finance buy-outs or otherwise to acquire existing businesses or shares. |
|
| There is also an annual limit for each investee company which provides that they may not raise more than £5 million of state aid investment (including from VCTs) in the 12 months ending on the date of each investment (£10 million for Knowledge Intensive Companies). |
|
| Maximum Single Investment Test | The value of any one investment, at any time in the period, must not represent more than 15 per cent of the Company's total investment value. This is calculated at the time of investment and further additions and therefore cannot be breached passively. |
This illustrates the broad range of the investment portfolio with 66 per cent of the portfolio valuation being held for more than 3 years, whilst 91 per cent is held at cost or above. Half of the portfolio's value is held in income generating financial instruments.
Also included below is a profile of the investment portfolio by industry sector.
The portfolio delivered a solid performance in the year, with a total return of £5.5 million, comprising a £3.5 million uplift on the opening value and income of £2.0 million.
The portfolio as a whole delivered an increased value of £3.56 million in the year, as shown in Table A below. A value gain of £2.92 million has come from the unquoted portfolio with strong performances from Matillion Limited, Deep-Secure Ltd, GTK (Holdco) Limited; backed up by good growth also from Ketech Enterprises Limited, Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) and Gill Marine Limited. These were partly offset by the impact of difficult trading conditions at DisplayPlan Holdings Limited, The Heritage Window Company Holdco Limited, RMS Group Holdings Limited, Biz2Mobile Limited and Harris Hill Limited.
DisplayPlan suffered from its exposure to the retail sector, with a number of clients cutting back expenditure. We have strengthened our portfolio management team during the year which has allowed us to continue to add value. A good example of this was Heritage Windows, where we have brought in new management who have personally invested behind their turnaround plan.
At 31 March 2018 the investment portfolio was valued at £61.76 million, representing 71.7 per cent of net assets (64.2 per cent at 31 March 2017). Cash (including fixed term deposits) and gilt investments at 31 March 2018 totalled £19.76 million representing 22.9 per cent of net assets (33.3 per cent at 31 March 2017). Subsequent to the year end the Company paid a net dividend of £3.09 million and has completed 2 investments totalling £3.12 million.
In April 2016 a new VCT rule came into force preventing your Company from holding deposits with more than 7 days' notice. While this did not require preexisting deposit/notice accounts to be closed, over time this will limit the level of income that can be generated from cash awaiting investment and, after a detailed review, the Board decided to invest in a small portfolio of listed investment funds. At 31 March 2018 this portfolio was valued at £2.34 million, or 2.7 per cent of net assets. We continue to seek out opportunities that would generate a higher level of income while minimising the level of risk.
| TABLE A Investment Portfolio |
£million | % |
|---|---|---|
| Unquoted value gain | 2.92 | 82 |
| Quoted value gain | 0.40 | 11 |
| Gain on disposal over opening value | 0.20 | 6 |
| 3.52 | 99 | |
| Gain from deferred proceeds | 0.04 | 1 |
| Total portfolio gain | 3.56 | 100 |
| Reduction in value of other investments | (0.11) | |
| Total investment gain | 3.45 |
During the year ended 31 March 2018 the Company completed 6 investments totalling £8.16 million. This comprised 4 new investments of £7.17 million and 2 follow-on investments of £0.99 million.
It was very pleasing that Sapphire Ventures and Scale Venture Partners, two well-known US venture capital investors, decided to invest in a new round of funding totalling £18.0 million into Matillion Limited, alongside the Company and British Smaller Companies VCT2 plc.
The analysis of these investments is shown in Table B below. The case studies on page 19 give more information on the investments into Eikon Holdco Limited and Matillion Limited.
bring our feel good food (and coffee) to cities around the UK and working with YFM and Steve
| TABLE B | ||||
|---|---|---|---|---|
| Date | Company | Investments made £million | ||
| New | Follow-on | Total | ||
| June 2017 | Sipsynergy (via Hosted Network Services Limited) | - | 0.42 | 0.42 |
| July 2017 | Friska Limited | 1.80 | - | 1.80 |
| September 2017 | e2E Engineering Limited | 0.90 | - | 0.90 |
| March 2018 | Ncam Technologies Limited | 1.47 | - | 1.47 |
| March 2018 | Matillion Limited | - | 0.57 | 0.57 |
| March 2018 | Eikon Holdco Limited | 3.00 | - | 3.00 |
| Invested in the year | 7.17 | 0.99 | 8.16 | |
| Capitalised interest and dividends | 0.08 | |||
| Total additions in the year | 8.24 |
During the year to 31 March 2018 the Company generated proceeds totalling £6.56 million from disposals, repayments of loans/preference shares and deferred consideration. Overall this resulted in a value gain on disposal of investments of £0.23 million above the 31 March 2017 valuations as set out in Table C.
The full disposals of Selima Holding Company Ltd, Harvey Jones Holdings Limited and Fairlight Bridge Limited account for £4.03 million of the proceeds contributing a combined profit on cost of £1.70 million. The quoted portfolio delivered proceeds of £0.69 million with a profit on cost of £0.56 million.
The total return of 3.7x cost on the disposal of Selima Holding Company Ltd is a clear example of the Company's ability to optimise returns by patiently supporting the investee company's strategy.
Further analysis of all investments sold in the year can be found in note 7 to the financial statements on page 66.
As at 31 March 2018 the portfolio had a value of £61.76 million which comprised £59.57 million in unquoted investments (96 per cent) and £2.19 million in quoted investments (4 per cent). An analysis of the movements in the year is shown on page 21.
The portfolio remains well diversified, with 20 investments having a value equal to or greater than £1.0 million (31 March 2017: 20), with the single largest investment representing 5.7 per cent of the net asset value.
The charts on page 14 of these financial statements show the composition of the portfolio as at 31 March 2018 by industry sector, age of investment, investment instrument and the valuation compared to cost. This demonstrates the diversity of the portfolio including its representation across a wide range of industry sectors.
| TABLE C Disposal of Investments |
Net proceeds from sales of investments £million |
Opening value 31 March 2017 £million |
Gain on opening value £million |
|---|---|---|---|
| Sale of portfolio investments | 6.53 | 6.33 | 0.20 |
| Deferred proceeds received | 0.03 | - | 0.03 |
| Total investment disposals | 6.56 | 6.33 | 0.23 |
In order to improve the return on its liquid resources the Company has invested in a portfolio of listed investment funds.
The Company has also continued to hold a small proportion of its cash in a fixed interest UK Government gilt.
Unquoted investments are valued in accordance with the valuation policy set out in note 1 on pages 55 and 56, which takes account of current industry
guidelines for the valuation of venture capital portfolios. Adjustments to fair value are made where an investment is significantly under-performing. As at 31 March 2018 the value of investments falling into each valuation category is shown in Table D. Now that the focus of new investments is on younger businesses that are investing for growth a higher proportion of valuations are based on a multiple of sales. This is likely to increase as the more mature companies in the portfolio are divested.
| TABLE D Valuation Policy |
2018 Valuation £million |
% of portfolio by value |
2017 % of portfolio by value |
|---|---|---|---|
| Earnings multiple Sales multiple Cost, reviewed for change in fair value Price of recent investment, reviewed for change in fair value Quoted investments at bid price |
33.49 9.84 10.81 5.43 2.19 |
53 16 18 9 4 |
73 - 22 1 4 |
| Total | 61.76 | 100 | 100 |
The Government published the results of its consultation known as the Patient Capital Review in the November 2017 Budget and it is pleasing that the Government reaffirmed its commitment to the Venture Capital Trust Schemes as a tool for supporting investment in the UK's small businesses. The changes announced seek to focus investment on earlier stage higher risk businesses and away from any capital preservation/assetbacked investments.
There are two new qualifying investment tests; the first is that for the Company as a whole 80 per cent of its investments will have to be held in Qualifying Investments as opposed to the current test of 70 per cent; for the Company this comes into force from 1 April 2020. The second test applies to financial years commencing on or after 6 April 2019 where 30 per cent of any funds raised have to be invested in Qualifying Investments within 12 months. This will apply for the year ending 31 March 2021. It is not believed that either of these changes will significantly impact the Company.
There are also proposed changes to the investment instruments that VCTs can use. In particular there are new conditions applying to the use of loans, including a requirement for them to be unsecured and a restriction on the return that they can deliver to a maximum of 10 per cent on average over a 5 year period. Whilst this will have some limited impact on the Company, the majority of investments made since the new rules were introduced have not included significant levels of loan stock.
Full details of the Government's response to the Patient Capital Review can be found at:
HMRC have also issued a consultation on the advance assurance process. This is seeking to place greater reliance on the Company and, by extension, the Company's professional advisers and on the Investment Adviser, in deciding if an investment meets the criteria as a Qualifying Investment. Further clarification is needed on how this would work in practice, as an investment in a nonqualifying investment would currently lead to the Company losing its status as a VCT.
While HMRC has now granted advance assurance in respect of a number of investments, we continue to lobby them and HM Treasury to improve the speed at which these are being granted.
Currently investments are being approved in around eight weeks but meeting HMRC's stated target of fifteen days may take some time. We continue to see a good pipeline of opportunities for new investment and we remain selective in deciding which of these to take forward.
We continue to actively manage the portfolio, seeking to add to, enhance and support the management teams that operate the businesses in which the Company is investing as well as setting agendas for realisations, re-investment and further fundraisings. As the older investments in the portfolio are realised the balance of the portfolio will change, with a greater proportion consisting of younger businesses that are likely to require further funding as they grow.
David Hall YFM Private Equity Limited
26 June 2018
opportunities that stem from delivering cuttingtechnology. We are delighted to have YFM's backing leader in next-generation Data Integration."
Managing Director, Matillion
Amount invested by the Company £2.7 million
• Supporting the continued growth of the business
business with YFM as our partner. We chose YFM because of their history of helping businesses grow, particularly in the US, and because of their honest and
• Backing a strong management team to expand into new markets, services and geographies
| No | Page Name of company | Date of initial investment |
Location | Industry Sector | Current cost £000 |
Valuation at 31 March 2018 £000 |
Proceeds to date £000 |
Realised & unrealised value to date* £000 |
|---|---|---|---|---|---|---|---|---|
| Unquoted portfolio | ||||||||
| 22 | Matillion Limited | Nov-16 | Manchester | Software, IT & Telecommunications |
2,666 | 4,938 | - | 4,938 |
| 23 | Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) |
May-14 | Alloa | Business Services | 2,934 | 4,868 | - | 4,868 |
| 23 | ACC Aviation (via NewAcc (2014) Limited) |
Nov-14 | Reigate | Business Services | 1,142 | 4,673 | 926 | 5,599 |
| 23 | Mangar Health Limited | Jan-14 | Powys | Healthcare | 2,460 | 4,156 | - | 4,156 |
| 24 | Eikon Holdco Limited | Mar-18 | London | Software, IT & Telecommunications |
3,000 | 3,000 | - | 3,000 |
| 24 | GTK (Holdco) Limited | Oct-13 | Basingstoke | Manufacturing & Industrial | 222 | 2,937 | 1,832 | 4,769 |
| 24 | Deep-Secure Ltd | Dec-09 | Malvern | Software, IT & Telecommunications |
1,000 | 2,861 | - | 2,861 |
| 25 | Business Collaborator Limited | Nov-14 | Reading | Software, IT & Telecommunications |
2,010 | 2,798 | - | 2,798 |
| 25 | Springboard Research Holdings Limited |
Oct-14 | Milton Keynes | Business Services | 2,647 | 2,765 | - | 2,765 |
| 25 | Gill Marine Holdings Limited | Sep-13 | Nottingham | Retail & Brands | 2,500 | 2,608 | - | 2,608 |
| 26 | KeTech Enterprises Limited | Nov-15 | Nottingham | Software, IT & Telecommunications |
2,000 | 2,488 | - | 2,488 |
| 26 | Leengate Holdings Limited | Dec-13 | Derbyshire | Manufacturing & Industrial | 1,401 | 2,226 | - | 2,226 |
| 27 | DisplayPlan Holdings Limited | Jan-12 | Baldock | Business Services | 130 | 1,863 | 1,521 | 3,384 |
| 27 | Friska Limited | Jul-17 | Bristol | Retail & Brands | 1,800 | 1,800 | - | 1,800 |
| Traveltek Group Holdings Limited | Oct-16 | East Kilbride | Software, IT & Telecommunications |
1,470 | 1,538 | - | 1,538 | |
| Sipsynergy (via Hosted Network Services Limited) |
Jun-16 | Hampshire | Software, IT & Telecommunications |
1,770 | 1,475 | - | 1,475 | |
| Ncam Technologies Limited | Mar-18 | London | Software, IT & Telecommunications |
1,466 | 1,466 | - | 1,466 | |
| Wakefield Acoustics (via Malvar Engineering Limited) |
Dec-14 | Heckmondwike | Manufacturing & Industrial | 1,080 | 1,389 | 75 | 1,464 | |
| Macro Art Holdings Limited | Jun-14 | Cambridgeshire | Business Services | 746 | 1,313 | 514 | 1,827 | |
| Biz2Mobile Limited | Oct-16 | Oxfordshire | Software, IT & Telecommunications |
1,500 | 1,166 | - | 1,166 | |
| Seven Technologies Holdings Limited |
Apr-12 | Belfast | Software, IT & Telecommunications |
1,984 | 992 | 1,524 | 2,516 | |
| e2E Engineering Limited | Sep-17 | Welwyn Garden City |
Software, IT & Telecommunications |
900 | 900 | - | 900 | |
| Other investments £0.75 million and below | 5,965 | 5,345 | 1,242 | 6,587 | ||||
| Total unquoted investments | 42,793 | 59,565 | 7,634 | 67,199 | ||||
| Quoted portfolio investments £0.75 million and below | 732 | 2,191 | 2,783 | 4,974 | ||||
| 43,525 | 61,756 | 10,417 | 72,173 | |||||
| Full disposals since 31 March 2002 | 32,731 | - | 70,269 | 70,269 | ||||
| Full disposals prior to 31 March 2002 | 5,748 | - | 1,899 | 1,899 | ||||
| Total investment portfolio | 82,004 | 61,756 | 82,585 | 144,341 |
* represents proceeds received to date plus the unrealised valuation at 31 March 2018.
| Name of Company | Investment | Disposal | Additions | Valuation | Investment |
|---|---|---|---|---|---|
| Valuation | proceeds | including | gains | valuation | |
| at | capitalised | including | at | ||
| 31 March 2017 |
interest and dividends |
profits / (losses) |
31 March 2018 |
||
| on disposal | |||||
| £000 | £000 | £000 | £000 | £000 | |
| Unquoted portfolio | |||||
| Matillion Limited | 2,100 | - | 566 | 2,272 | 4,938 |
| Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) |
4,488 | - | - | 380 | 4,868 |
| ACC Aviation (via NewAcc (2014) Limited) 1 | 5,337 | (926) | - | 262 | 4,673 |
| Mangar Health Limited | 3,995 | - | - | 161 | 4,156 |
| Eikon Holdco Limited | - | - | 3,000 | - | 3,000 |
| GTK (Holdco) Limited1 | 2,431 | (679) | - | 1,185 | 2,937 |
| Deep-Secure Ltd | 1,505 | - | - | 1,356 | 2,861 |
| Business Collaborator Limited | 2,626 | - | - | 172 | 2,798 |
| Springboard Research Holdings Limited | 2,590 | - | 89 | 86 | 2,765 |
| Gill Marine Holdings Limited | 2,250 | - | - | 358 | 2,608 |
| KeTech Enterprises Limited | 2,012 | - | - | 476 | 2,488 |
| Leengate Holdings Limited | 2,160 | - | - | 66 | 2,226 |
| DisplayPlan Holdings Limited | 3,732 | - | - | (1,869) | 1,863 |
| Friska Limited | - | - | 1,800 | - | 1,800 |
| Traveltek Group Holdings Limited | 1,470 | - | - | 68 | 1,538 |
| Sipsynergy (via Hosted Network Services Limited) | 1,215 | - | 420 | (160) | 1,475 |
| Ncam Technologies Limited | - | - | 1,466 | - | 1,466 |
| Wakefield Acoustics (via Malvar Engineering Limited) | 1,498 | - | - | (109) | 1,389 |
| Macro Art Holdings Limited1 | 1,560 | (156) | - | (91) | 1,313 |
| Biz2Mobile Limited | 1,500 | - | - | (334) | 1,166 |
| Seven Technologies Holdings Limited | 992 | - | - | - | 992 |
| e2E Engineering Limited | - | - | 900 | - | 900 |
| Bagel Nash Group Limited | 824 | - | - | (94) | 730 |
| RMS Group Holdings Limited | 972 | - | - | (431) | 541 |
| The Heritage Window Company Holdco Limited | 1,102 | - | - | (625) | 477 |
| Selima Holding Company Ltd1+2 | 1,417 | (2,064) | - | 647 | - |
| Fairlight Bridge Limited1+2 | 1,000 | (1,000) | - | - | - |
| Harvey Jones Holdings Limited1+2 | 975 | (970) | - | (5) | - |
| Other investments £0.75 million and below1 | 4,328 | (45) | 3 | (689) | 3,597 |
| Total unquoted investments | 54,079 | (5,840) | 8,244 | 3,082 | 59,565 |
| Quoted portfolio | |||||
| Mattioli Woods 2 | 813 | (177) | - | (23) | 613 |
| AB Dynamics plc 2 | 800 | (392) | - | 195 | 603 |
| Other investments £0.75 million and below 2 | 827 | (120) | - | 268 | 975 |
| Total quoted investments | 2,440 | (689) | - | 440 | 2,191 |
| Total movement | 56,519 | (6,529) | 8,244 | 3,522 | 61,756 |
1 Loan repayments / preference share redemption
2 Equity disposals
* one company is represented in two industry sectors.
This section describes the business of the active companies in the portfolio with a value greater than £1.75 million in order of valuation at 31 March 2018. The Company's voting rights in an investee company are the same as the percentage of equity held for each investment detailed below.
Matillion Limited www.matillion.com Manchester
Matillion develops cloud-native data transformation products for platforms including Amazon Web Services, Google BigQuery and Snowflake. The products allow customers to harness the power of these platforms to rapidly transform and interrogate large quantities of data.
| Cost: Valuation: |
£2,666,000 £4,938,000 |
Year ended 31 December | 2017 £million |
2016* £million |
|---|---|---|---|---|
| Date of initial investment: Equity held: Valuation basis: |
November 2016 10.79% Price of recent investment, reviewed for change in fair value |
Sales LBITA Loss before tax Retained losses Net assets |
3.04 (1.70) (1.65) (3.27) 0.45 |
1.29 (0.86) (0.87) (1.65) 2.07 |
| * Adjusted to reflect underlying performance as the company did not trade for a full year. |
Alloa
Intelligent Office is a leading provider of process outsourcing solutions to UK legal practices and has recently won a number of significant new customers. The Managed Services division works within firms' own premises to help them transform and manage key administrative functions and secretarial services.
| Cost: Valuation: |
£2,934,000 £4,868,000 |
Year ended 30 September | 2017 £million |
2016 £million |
|---|---|---|---|---|
| Date of initial investment: Equity held: |
May 2014 26.65% |
Sales | 26.24 | 29.12 |
| Valuation basis: Interest: |
Earnings multiple £58,973 |
EBITA (Loss) profit before tax |
1.30 (0.69) |
1.67 0.06 |
| (2017 £58,973) | Retained losses Net assets |
(1.78) 7.03 |
(0.87) 7.16 |
|
| Dividends: | £126,890 (2017 £126,543) |
www.flyacc.com Reigate
With annual sales of over £90 million, ACC Aviation has built an excellent reputation for providing services to clients globally in all aspects of aircraft leasing, charter and flight management. The airline industry continues to change at a fast pace and ACC has evolved its model to become a valued partner.
| Cost: Valuation: |
£1,142,000 £4,673,000 |
Year ended 31 December | 2017 £million |
2016 £million |
|---|---|---|---|---|
| Date of initial investment: | November 2014 | Sales | 93.05 | 60.89 |
| Equity held: | 19.80% | EBITA | 3.63 | 3.30 |
| Valuation basis: | Earnings multiple | Profit before tax | 2.14 | 2.19 |
| Interest: | £55,296 | Retained profits | 0.17 | 0.91 |
| (2017 £55,296) | Net assets | 3.21 | 1.58 | |
| Dividends: | £73,363 (2017 £113,947) |
www.mangar.co.uk Powys
Mangar is a world leader in inflatable lifting and handling and bathing equipment for the elderly, disabled and emergency services markets. It distributes its products to care providers, local authorities, ambulance services and care homes. Products facilitate extended independence for elderly users.
| Cost: | £2,460,000 | Year ended 31 July | 2017 | 2016 |
|---|---|---|---|---|
| Valuation: | £4,156,000 | £million | £million | |
| Date of initial investment: | January 2014 | Sales | 8.78 | 7.74 |
| Equity held: | 25.65% | EBITA | 1.26 | 1.34 |
| Valuation basis: Interest: |
Earnings multiple £196,800 (2017 £196,800) |
Profit before tax Retained losses |
0.01 (0.52) |
0.06 (0.33) |
| Dividends: | £22,140 (2017 £22,079) |
Net assets | 0.46 | 0.66 |
Eikon provides digital mastering and localisation services to the film, broadcast and online media industry from its cutting edge facilities in London and Los Angeles. Clients include Paramount Pictures, Twentieth Century Fox, Sony Pictures Entertainment, Warner Bros, Universal Pictures, CBS and Netflix.
change in fair value
Cost: £3,000,000 Valuation: £3,000,000 Date of initial investment: March 2018 Equity held: 8.75%
Interest: £1,479
Valuation basis: Cost, reviewed for
www.gtk.co.uk Basingstoke
GTK is a manufacturer of cable assemblies, connectors, optoelectronics and manufacturing solutions for high technology customers. With a small sourcing team in Taiwan and facilities in the UK and Romania it provides design, procurement and manufacturing services to a wide range of customers.
| Cost: | £222,000 | Year ended 31 July | 2017 | 2016 |
|---|---|---|---|---|
| Valuation: | £2,937,000 | £million | £million | |
| Date of initial investment: Equity held: Valuation basis: Interest: |
October 2013 26.90% Earnings multiple £25,357 (2017 £63,574) |
Sales EBITA Profit before tax Retained profits Net assets |
14.32 1.38 1.21 2.07 2.71 |
12.19 1.08 0.62 0.97 1.61 |
www.deep-secure.com Malvern
DeepSecure specialises in high security network gateway products, known as Content Threat Removal and has developed a market leading approach in a strong growth sector. A proven CEO has been appointed and the sales and marketing resource has been bolstered resulting in significant new customers.
| Cost: | £1,000,000 | Year ended 31 December | 2017 | 2016 |
|---|---|---|---|---|
| Valuation: | £2,861,000 | £million | £million | |
| Date of initial investment: Equity held: Valuation basis: Interest: |
December 2009 15.88% Sales multiple £108,000 (2017 £108,000) |
Sales EBITA Loss before tax Retained losses Net liabilities |
4.85 0.99 (0.30) (4.29) (3.88) |
3.87 0.64 (0.50) (4.21) (3.81) |
£million £million
Year ended 31 October 2017 2016
Sales 6.51 4.05 EBITA 1.52 0.87
Accounts for the trading company Eikon Group Limited are shown, as Eikon Holdco Limited has not yet published a full year's accounts
www.groupbc.com Reading
Business Collaborator is an established provider of collaboration software hosted on the cloud to the construction sector and a leader in the Building Information Modelling ("BIM") software market. Sales growth is driven by the products' ability to deliver cost savings and supported by government regulations.
| Cost: | £2,010,000 | Year ended 30 November | 2017 | 2016 |
|---|---|---|---|---|
| Valuation: | £2,798,000 | £million | £million | |
| Date of initial investment: Equity held: Valuation basis: Interest: |
November 2014 29.08% Sales multiple £176,100 (2017 £176,988) |
Sales (LBITA) EBITA (Loss) profit before tax Retained losses Net (liabilities) assets |
3.68 (0.54) (0.87) (0.80) (0.33) |
3.80 0.29 0.05 (0.25) 0.23 |
www.spring-board.info Milton Keynes
Springboard Research is a leading provider of retail performance monitoring; providing footfall, dwell time and analysis of consumer behaviour. A continually shifting retail environment means that retailers and landlords are seeking new ways of improving their competitive advantage. The company has seen a significant increase in sales to North America.
| Cost: | £2,647,000 | Year ended 31 December | 2017 | 2016 |
|---|---|---|---|---|
| Valuation: | £2,765,000 | £million | £million | |
| Date of initial investment: | October 2014 | Sales | 5.09 | 4.47 |
| Equity held: | 19.43% | EBITA | 0.38 | 0.19 |
| Valuation basis: | Earnings multiple | Loss before tax | (0.42) | (0.90) |
| Interest: | £125,352 | Retained losses | (2.12) | (1.61) |
| Dividends: | (2017 £151,193) £88,704 (2017 £88,704) |
Net assets | 1.01 | 1.52 |
www.gillmarine.com Nottingham
Gill Marine is a manufacturer of technical sailing equipment and clothing. Exports account for over 70 per cent of turnover with Gill recently taking over direct supply to its key North American market. The strategy is to develop the brand further and increase its share in existing and new markets, including direct online sales.
| Cost: Valuation: |
£2,500,000 £2,608,000 |
Year ended 30 September | 2017 £million |
2016 £million |
|---|---|---|---|---|
| Date of initial investment: Equity held: Valuation basis: Interest: |
September 2013 18.47% Earnings multiple £225,000 (2017 £225,000) |
Sales EBITA Loss before tax Retained losses Net assets |
14.19 1.35 (0.72) (1.22) 0.35 |
12.23 1.45 (0.87) (0.51) 1.06 |
groupbc.com
Strategic Report
KeTech has refined its product range to become a specialist manufacturer and distributor of the rail communications systems. Its core products provide real-time information via on-train and on-platform solutions, and are increasingly being specified on some high profile new projects and upgrades.
www.leengatevalves.co.uk Derbyshire
Leengate Valves is a wholesaler, stockist and distributor, supplying one of the largest ranges of industrial valves in the UK to leading re-sellers in the gas, water and industrial sectors. In addition it supplies engineering actuation and automation packages, offering a next day service and high quality technical advice.
| Cost: | £1,401,000 | Year ended 31 December | 2017 | 2016 |
|---|---|---|---|---|
| Valuation: | £2,226,000 | £million | £million | |
| Date of initial investment: Equity held: Valuation basis: Interest: Dividends: |
December 2013 10.50% Earnings multiple £107,184 (2017 £110,694) £33,624 (2017 £33,630) |
Sales EBITA Profit before tax Retained profits Net assets |
9.57 1.39 0.52 1.11 1.69 |
8.23 1.42 0.55 0.79 1.37 |
www.displayplan.com Baldock
DisplayPlan provides retail display solutions from design to finished product delivery to branded product manufacturers and UK retailers. Strong profits have been achieved since investment before 2017 saw a cyclical decline in performance. Actions have been taken to stabilise profitability and we expect to see an improvement in 2018.
| Cost: | £130,000 | Year ended 31 December | 2017 | 2016 |
|---|---|---|---|---|
| Valuation: | £1,863,000 | £million | £million | |
| Date of initial investment: Equity held: Valuation basis: Dividends: |
January 2012 22.75% Earnings multiple £56,875 (2017 £nil) |
Sales (LBITA) EBITA (Loss) profit before tax Retained profits Net assets |
11.90 (0.21) (0.37) 5.87 6.27 |
20.38 1.93 1.77 6.00 6.40 |
| www.friskafood.com | |
|---|---|
| Bristol |
Friska is a Bristol based chain of food-to-go restaurants offering food throughout the day based on a founding principle of delivering 'feel good food' made from fresh, quality, and responsibly sourced ingredients, alongside high service standards. At investment it operated from a total of nine outlets in Bristol, Birmingham and Luton Airport. The strategy is to expand into other UK regional cities, with the initial focus on Manchester and consolidation around Bristol.
| Cost: Valuation: |
£1,800,000 £1,800,000 |
Year ended 30 September | 2017* £million |
2016 £million |
|---|---|---|---|---|
| Date of initial investment: Equity held: Valuation basis: Interest: |
July 2017 21.60% Cost, reviewed for change in fair value £58,142 |
Sales LBITA Loss before tax Retained losses Net (liabilities) assets |
4.34 (0.41) (0.49) (0.73) (0.22) |
3.67 (0.15) (0.20) (0.25) - |
| * The 2017 figures above are not yet filed and may still be |
subject to change.
The Board carries out a regular and robust review of the risk environment in which the Company operates. The principal risks and uncertainties identified by the Board and techniques used to mitigate these risks are set out in this section.
The Board seeks to mitigate its principal risks by setting policy, regularly reviewing performance and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies rigorously the principles detailed in section C.2: "Risk Management & Internal Control" of The UK Corporate Governance Code issued by the Financial
Reporting Council in April 2016. Details of the Company's internal controls are contained in the Corporate Governance Internal Control section on pages 39 and 40 and further information on exposure to risks including those associated with financial instruments is given in note 17a of the financial statements.
Risk - The Company must comply with Chapter 3 Part 6 of the Income Tax Act 2007 which allows it to be exempted from corporation tax on capital gains. Any breach of these rules may lead to the Company losing its approval as a VCT, qualifying shareholders who have not held their shares for the designated holding period having to repay the income tax relief they obtained and future dividends paid by the Company becoming subject to tax. The Company would also lose its exemption from corporation tax on capital gains.
Mitigation - One of the Key Performance Indicators monitored by the Company is the compliance with legislative tests. Details of how the Company manages these requirements can be found under the heading "Compliance with VCT Legislative Tests" on page 13.
Risk - Events such as recession and interest rate fluctuations could affect investee companies' performance and valuations.
Mitigation - As well as the response to 'Investment and Strategic' risk below the Company has a clear investment policy (summarised on page 9) and a diversified portfolio operating in a range of sectors. The Investment Adviser actively monitors investee performance which provides quality information for monthly reviews of the portfolio.
Risk – Inappropriate strategy, poor asset allocation or consistently weak stock allocation may lead to under performance and poor returns to shareholders. The quality of enquiries, investments, investee company management teams and monitoring, and the risk of not identifying investee under performance might also lead to under performance and poor returns to shareholders.
Mitigation - The Board reviews strategy annually. At each of the Board meetings the directors review the appropriateness of the Company's objectives and stated strategy in response to changes in the operating environment and peer group activity. The Investment Adviser carries out due diligence on potential investee companies and their management teams and utilises external reports where appropriate to assess the viability of investee businesses before investing. Wherever possible a non-executive director will be appointed to the board of the investee on behalf of the Company.
Operational
Risk – Failure of the Investment Adviser's and administrator's accounting systems or disruption to its business might lead to an inability to provide accurate reporting and monitoring.
Risk – Inadequate controls might lead to misappropriation of assets. Inappropriate accounting policies might lead to misreporting or breaches of regulations.
Risk – Lack of liquidity in both the venture capital and public markets. Investment in unquoted and AIM quoted companies, by their nature, involve a higher degree of risk than investment in companies trading on the main market. In particular, smaller companies often have limited product lines, markets or financial rources and may be dependent for their management on a smaller number of key individuals. The fact that a share is traded on AIM or on the main market does not guarantee its liquidity. The spread between the buying and selling price of such shares may be wide and thus the price used for valuation may not be achievable. In addition, the market for stock in smaller companies is often less liquid than that for stock in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock.
Annual Report and Accounts for the year ended 31 March 2018 29
Mitigation – The Investment Adviser has a documented business continuity plan, which provides for back-up services in the event of a system breakdown. The Investment Adviser's systems are protected against viruses and other cyber attacks.
Mitigation – The key controls around financial reporting are described on pages 39 and 40.
Mitigation – Overall liquidity risks are monitored on an ongoing basis by the Investment Adviser and on a quarterly basis by the Board.
Reputational
Risk – Inadequate or failed controls might result in breaches of regulations or loss of shareholder trust.
Risk – The Company is required to comply with the Companies Act 2006, the rules of the UK Listing Authority, the Prospectus
International Financial Reporting Standards as adopted by the European Union and is subject to the EU's Alternative Investment Fund Manager's Directive. Breach of any of these might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.
Rules made by the Financial Conduct Authority and
Listing Rules requirements are met and actively consult with brokers, solicitors and external compliance advisers as appropriate. The key controls around regulatory compliance are explained on pages 39 and 40.
Mitigation – The Board is comprised of directors with suitable experience and qualifications who report annually to the shareholders on their independence. The Investment Adviser is well-respected with a proven track record and has a formal recruitment process to employ experienced investment staff. Allocation rules relating to co-investments with other funds managed/advised by the Investment Adviser, have been agreed between the Investment Adviser and the Company. Advice is sought from external advisors where required. Both the Company and the Investment Adviser maintain appropriate insurances.
Mitigation – The Investment Adviser and the Company Secretary have procedures in place to ensure recurring
The Board recognises the requirement under Section 414C of the Companies Act 2006 to detail information about environmental matters (including the impact of the Company's business on the environment), employee, human rights, social and community issues, including information about any policies it has in relation to these matters and the effectiveness of these policies.
The Company seeks to ensure that its business is conducted in a manner that is responsible to the environment, and has introduced an electronic communications policy. This policy has led to a significant increase in the number of such communications, with a commensurate reduction in the distribution of hard copy documents. The management and administration of the Company is undertaken by the Investment Adviser. YFM Private Equity Limited recognises the importance of its environmental responsibilities, monitors its impact on the environment and implements policies to reduce any damage that might be caused by its activities. Initiatives of the Investment Adviser designed to minimise its and the Company's impact on the environment include recycling and reducing energy consumption.
Given the size and nature of the Company's activities and the fact that it has no employees, the Board considers there is limited scope to develop and implement social and community policies.
The Company has a zero tolerance approach to bribery. The following is a summary of its policy:
The Company had no employees during the year. The Board is composed of three non-executive directors; one female and two male. For a review of the policies used when appointing directors to the Board of the Company please refer to the Directors' Remuneration Report.
The Strategic Report on pages 5 to 30 is approved by order of the Board
Helen Sinclair Chairman
26 June 2018
Helen Sinclair (appointed 1 March 2008) has an MA in Economics from the University of Cambridge and an MBA from INSEAD Business School. After working in investment banking Helen spent nearly 8 years at 3i plc focusing on MBOs and growth capital investments. She later co-founded Matrix Private Equity (now Mobeus Equity Partners) in early 2000 raising Mobeus Income & Growth 2 VCT plc (formerly Matrix e-Ventures VCT plc). She subsequently became managing director of Matrix Private Equity before moving to take on a portfolio of non-executive director roles in 2005. She is currently a non-executive director of The Income & Growth VCT plc, Mobeus Income & Growth 4 VCT plc, Gresham House Strategic plc and North East Finance (Holdco) Limited.
Edward Buchan (appointed 22 September 2010) is a Fellow of the Institute of Chartered Accountants in England and Wales, starting his career with Deloitte before moving to Hill Samuel Bank Limited where he became Head of Corporate Finance and a member of the Bank Executive Committee. He subsequently joined Close Brothers Corporate Finance Limited and then West LB Panmure, specialising in the transport and logistics industry sectors. He is currently a senior consultant in corporate finance at Edmond De Rothschild Securities.
Rupert Cook (appointed 1 August 2017) specialises in corporate and business development, with twenty five years' experience of technology, including fifteen years in corporate finance and investment. He has led multiple fund-raisings, acquisitions and sales of IT businesses as well as having co-founded and built up his own IT Services business through to sale to a UK plc. Earlier in his career, he was a senior manager at Cap Gemini plc, Director of Advisory Services at Interregnum plc and Head of Technology M&A at goetzpartners corporate finance. Rupert is the founder of Red Penguin Ventures Limited, and was previously a partner at Realise Capital Partners, both of which are firms which advise and have investments in a range of technology businesses. He is investor-director of Krowd 9 Limited, Operatix Limited and an executive director at Immersive Labs Limited.
The City Partnership (UK) Limited 5th Floor 110 George Street Valiant Building Edinburgh 14 South Parade EH2 4LH Leeds
LS1 5QS
Registered No: SC269164 Registered No: 03134749
For the year ended 31 March 2018
The directors present their report and audited financial statements of British Smaller Companies VCT plc ("the Company") for the year ended 31 March 2018.
The Company is a public limited company incorporated and domiciled in the United Kingdom. The address of the registered office and principal place of business is 5th Floor, Valiant Building, 14 South Parade, Leeds, LS1 5QS.
The Company has its primary, and sole, listing on the London Stock Exchange.
The principal activity of the Company is the making of long term equity and loan investments, mainly in unquoted businesses.
The Company operates as a venture capital trust ("VCT") and has been approved by HM Revenue & Customs as an authorised venture capital trust under Chapter 3 Part 6 of the Income Tax Act 2007. It is the directors' intention to continue to manage the Company's affairs in such a manner as to comply with Chapter 3 Part 6 of the Income Tax Act 2007.
A detailed and fair review of the Company's business, its development, its financial performance during and at the end of the financial year, and its future prospects is set out in the Strategic Report on pages 5 to 30. The principal risks and uncertainties the Company faces are detailed on pages 28 to 29.
The Statement of Comprehensive Income is set out on page 50. The profit before and after taxation for the year amounted to £3,364,000 (2017: £4,529,000).
During the year the Company paid £6,150,000 in dividends (2017:£ 21,226,000) totalling 5.75 pence (2017: 22.0 pence) per ordinary share. A detailed review can be found in note 5 on page 61.
The Board do not recommend the payment of a final dividend (2017: none) for the year ended 31 March 2018.
On 18 May 2018 the Company paid an interim dividend for the year ending 31 March 2019 of 4.0 pence per ordinary share.
The net asset value per ordinary share at 31 March 2018 was 79.6 pence (2017: 82.3 pence). The transfer to and from reserves is given in the Statement of Changes in Equity on page 52.
The directors have carefully considered the issue of going concern and are satisfied that the Company has sufficient resources to meet its obligations for the foreseeable future. The directors therefore believe that it is appropriate to continue to apply the going concern basis of accounting in preparing the financial statements.
The AIC's Code of Corporate Governance requires the Board to assess the Company's viability over an appropriate
period and the directors consider that for the purpose of this exercise it is not practical or meaningful to look forward over a period of more than three years. Taking into account the Company's current position and principal risks, the directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over that period.
In making their assessment the directors have taken into account the principal risks and their mitigation identified in the Strategic Report on pages 28 to 29, the nature of the Company's business, including its substantial reserves of cash, the potential of its venture capital portfolio to generate future income and capital proceeds, and the ability of the directors to minimise the level of cash outflows should this be necessary.
The statement on corporate governance set out on pages 35 to 40 is included in the Directors' Report by reference.
The Company has, as permitted by the Companies Act 2006, maintained insurance cover on behalf of the directors indemnifying them against certain liabilities which may be incurred by any of them in relation to the Company.
The directors confirm that so far as each director is aware, there is no relevant audit information of which the Company's auditor is unaware; and that each of the directors has taken all the steps that he/she ought to have taken as a director in order to make themself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
As shown in note 11 to the financial statements, the Company has only one class of share, being ordinary shares of 10 pence each.
In accordance with the Company's stated buy-back policy the Company purchased during the year (under the authority granted by the shareholders at a general meeting held on 1 August 2017) 1,177,019 ordinary shares of 10 pence each in the market (as disclosed in the table below) for aggregate consideration of £871,000. These shares are held in treasury.
Under the existing authority, which expires on the later of 1 August 2020, or at the conclusion of the Annual General Meeting held in 2020, the Company has the power
to purchase shares up to 14.99 per cent of the Company's issued ordinary share capital as at 16 June 2017, being 16,394,140 ordinary shares.
During the year to 31 March 2018 a total of 2,407,686 ordinary shares were issued under the Company's DRIS. Further details are given in note 11 on page 71.
The directors have unconditional authority to allot shares in the Company or to grant rights to subscribe for or to convert any security into ordinary shares in the Company until 1 November 2018 up to an aggregate nominal amount of £4,000,000. This authority will be replaced by a new authority to issue shares up to an aggregate nominal amount of £5,000,000 at the forthcoming Annual General Meeting.
In addition, the directors have a separate unconditional authority to allot shares in the Company in connection with the Company's DRIS until the commencement of the Annual General Meeting in 2018. A resolution is proposed at the Annual General Meeting to renew the authority of the directors to allot shares pursuant to the DRIS until the commencement of the Annual General Meeting in 2023.
The following information has been disclosed in accordance with Schedule 7 of the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended):
• the Company's capital structure is summarised in note 11 to the financial
| Buy-Back of Shares | |||
|---|---|---|---|
| Date | Number of ordinary shares of 10p bought-back |
Percentage of issued share capital at that date |
Consideration paid per ordinary share (pence) |
| 27 September 2017 | 260,000 | 0.24% | 73.22 |
| 19 December 2017 | 500,000 | 0.46% | 73.65 |
| 23 February 2018 | 122,000 | 0.11% | 74.98 |
| 28 February 2018 | 115,019 | 0.11% | 74.98 |
| 27 March 2018 | 180,000 | 0.17% | 74.98 |
| 1,177,019 |
statements. Each ordinary share carries one vote. There are no restrictions on voting rights or any agreement between holders of securities that result in restrictions on the transfer of securities or on voting rights;
The Company has no greenhouse gas emissions to report from the operations of the Company, nor does it have responsibility for any emissions producing sources including those within its underlying investment portfolio under part 7 of schedule 7 to the Large and Mediumsized Companies and Groups (Accounts and Reports) Regulations 2008, as amended.
The directors of the Company at 31 March 2018, their interests and contracts of significance are set out in the Directors' Remuneration Report on pages 41 to 43.
Mr P Cammerman retired from the Board on 1 August 2017 and Mr R Cook was appointed as a non-executive director on the same date.
The directors are not aware of any substantial shareholdings representing 3 per cent or more of the Company's issued share capital as at 31 March 2018 and the date of this report.
BDO LLP has indicated its willingness to continue in office and a resolution concerning its reappointment will be proposed at the Annual General Meeting.
No fees are payable to the auditor in respect of non-audit services.
Details of the financial instruments held by the group and the risks associated with them are set out on pages 72 to 76 and this information is accordingly, incorporated into the Directors' Report by reference.
The employment policies of the Company are set out on page 42.
On 18 May 2018 the Company paid an interim dividend for the year ending 31 March 2019 of 4.0 pence per ordinary share with 1,751,747 ordinary shares being issued under the Company's DRIS.
In April 2018 the Company made a new investment of £1.32 million into Hutchinson Networks Limited with a further £1.80 million invested into Arcus Global Limited during May 2018.
In May 2018 the Company has received a total of £1.9 million in deferred consideration and loan repayments from Fairlight Bridge Limited and ACC Aviation.
Shareholders will find the Notice of the Annual General Meeting on pages 77 to 80 of these financial statements.
The ordinary business of the meeting includes a resolution (Resolution 7) proposed to ensure the directors retain the authority to allot shares in the Company until the date of the 2019 Annual General Meeting up to an aggregate nominal amount of £5,000,000 (representing approximately 45 per cent of the issued ordinary share capital of the Company as at 26 June 2018, excluding treasury shares).
Resolution 8 is proposed to authorise the directors to issue and allot new ordinary shares pursuant to the DRIS up to an aggregate nominal amount of £1,500,000, representing approximately 14 per cent of the ordinary share capital of the Company in issue as at 26 June 2018. This resolution will replace the existing authority the directors have to allot shares pursuant to the dividend re-investment scheme to reflect a new maximum number of shares which are permitted to be allotted under the authority,
Also included are two special resolutions:
Resolution 9 is proposed to empower the directors to allot shares under the authority granted by Resolution 7 and to sell treasury shares without regard to any rights of pre-emption on the part of the existing shareholders.
A special resolution is also included (Resolution 10) to empower the directors to allot shares pursuant to the DRIS authority contained in Resolution 8 without regard to any rights of pre-emption on the part of existing shareholders.
This report was approved by the Board on 26 June 2018 and signed on its behalf by
Helen Sinclair Chairman
British Smaller Companies VCT plc Registered number 03134749
The Board is committed to the principle and application of sound corporate governance and confirms that the Company has taken steps, appropriate to a venture capital trust and relevant to its size and operational complexity, to comply with the principles and recommendations of the Association of Investment Companies' Code of Corporate Governance issued in July 2016 ("AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies ("AIC Guide") available on the AIC website www.theaic.co.uk
The AIC Code as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code issued by the Financial Reporting Council ("FRC"), as well as setting out additional principles and recommendations on issues which are of specific relevance to the Company.
The UK Corporate Governance Code can be found on the website of the FRC at www.frc.org.uk.
The Board considers that reporting against the principles and recommendations of the AIC Code and by reference the AIC Guide (which incorporates the UK Corporate Governance Code), will provide better information to shareholders.
The Company is committed to maintaining the highest standards of corporate governance and during the year to 31 March 2018 complied with the recommendations of the AIC Code and relevant provisions of the UK Corporate Governance Code, except as set out below.
The UK Corporate Governance Code includes provisions relating to the appointment of a chief executive and a recognised senior independent non-executive director, the presumption concerning the Chairman's independence and the need for an internal audit function. For reasons set out in the AIC Guide, and in the preamble to the UK Corporate Governance Code, the Board considers these provisions are not relevant to the position of British Smaller Companies VCT plc, which is an externally advised venture capital trust. The Company has therefore not reported further in respect of these provisions.
An investment advisory agreement between the Company and YFM Private Equity Limited sets out the matters over which the Investment Adviser has authority. This includes monitoring of the Company's assets and the provision of accounting, company secretarial, administration and some marketing services. All other matters are reserved for the approval of the Board. A formal schedule of matters reserved to the Board for decision has been approved. This includes determination and monitoring of the Company's investment objectives and policy and its future strategic direction, gearing policy, management of the capital structure, appointment and removal of third party service providers, review of key investment and financial data and the Company's corporate governance, risk control and custody arrangements.
The Board meets at least quarterly and additional meetings are arranged as necessary. Full and timely information is provided to the Board to enable it to function effectively and to allow directors to discharge their responsibilities.
There is an agreed procedure for directors to take independent professional advice if necessary and at the Company's expense. This is in addition to the access that every director has to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that applicable rules and regulations are complied with and that Board procedures are followed. The Company indemnifies its directors and officers and has purchased insurance to cover its directors. Neither the insurance nor the indemnity provide cover if the director has acted fraudulently or dishonestly.
The Board consists of three non-executive directors including the Chairman, all of whom are regarded by the Board as independent and also as independent of the Company's Investment Adviser. The independence of the Chairman was assessed upon her appointment. Although The UK Corporate Governance Code presumes that the chairman of a company is deemed not to be an independent director, the remaining directors, having considered the nature of the role in the Company, are satisfied that Ms H Sinclair fulfils the criteria for independence as a non-executive director. On 1 August 2017 Mr P S Cammerman retired as a director and Mr R Cook was appointed as a director.
The directors have a breadth of investment, business and financial skills and experience relevant to the Company's business and provide a balance of power and authority including recent and relevant financial experience. Brief biographical details of the current directors are set out on page 31.
A review of Board composition and balance is included as part of the annual performance evaluation of the Board, details of which are given below.
There are no executive officers of the Company. Given the structure of the Board and the fact that the Company's administration is conducted by YFM Private Equity Limited, the Company has not appointed a chief executive officer or a senior independent non-executive director. In addition, the directors consider that the role of a senior independent non-executive director is taken on by all of the directors. Shareholders are therefore able to approach any director with any queries they may have.
The Board is committed to ensuring that the Company is run in the most effective manner. Consequently the Board monitors the diversity of all directors to ensure an appropriate level of experience and qualification.
The Board believes in the value and importance of diversity in the boardroom but does not consider that it is appropriate or in the best interests of the Company and its shareholders to set prescriptive targets for gender or nationality on the Board.
Diversity of thought, experience and approach are all important and the directors will always seek to appoint on merit against objective criteria.
Directors are initially appointed until the following Annual General Meeting when, under the Company's Articles of Association, it is required that they be elected by shareholders. Thereafter, it is the Board's policy that a director's appointment will run for a term of one year until the next Annual General Meeting. Subject to the performance evaluation carried out each year, the Board will agree whether it is appropriate for the director to seek a further term. The Board does not believe that length of service in itself necessarily disqualifies a director from seeking reelection but, when making a
recommendation, the Board will take into account the ongoing requirements of The UK Corporate Governance Code, including the need to refresh the Board and its Committees.
The Board seeks to maintain a balance of skills and the directors are satisfied that as currently composed the balance of experience and skills of the individual directors is appropriate for the Company, in particular with regards to investment appraisal and investment risk management.
The terms and conditions of directors' appointments are set out in formal letters of appointment, copies of which are available for inspection on request at the Company's registered office and at the Annual General Meeting. All appointments are terminable by the relevant director or the Company on three months' notice.
The directors recommend the re-election of Ms H Sinclair, Mr C W E R Buchan and Mr R Cook at this year's Annual General Meeting, because of their commitment, experience and continued contribution to the Company.
The Board delegates certain responsibilities and functions to Committees. Directors who are not members of Committees may attend at the invitation of the Chairman.
The table below details the number and function of the meetings attended by each director.
During the year there were five formal Board meetings, three Audit Committee meetings, one Remuneration and Nominations Committee meeting and one General meeting and no Allotment Committee meetings. The directors met via telephone and electronic conferences on 34 other occasions.
In addition there was one DRIS allotment meeting which the directors were not required to attend, but which was attended by the Company Secretary.
On appointment, the Investment Adviser and Company Secretary provide all directors with induction training. Thereafter, regular briefings are provided on changes in regulatory requirements that affect the Company and its directors. Directors are encouraged to attend industry and other seminars covering issues and developments relevant to VCTs.
The performance of the Board has been evaluated during the financial year ended 31 March 2018. The Board, led by Mr C W E R Buchan, has conducted a performance evaluation to determine whether it and individual directors are functioning effectively.
The factors taken into account were based on the relevant provisions of The UK Corporate Governance Code and included attendance and participation at Board and Committee meetings, commitment to Board activities and the effectiveness of their contribution. The results of the overall
| Meetings attended | |||||
|---|---|---|---|---|---|
| Ms H Sinclair |
Mr C W E R Buchan |
Mr P S Cammerman |
Mr R Cook |
Total | |
| Board meetings | 5 | 5 | 2 | 3 | 5 |
| Audit Committee | 3 | 3 | 1 | 2 | 3 |
| Remuneration and Nominations Committee |
1 | 1 | 1 | - | 1 |
| General meeting | 1 | 1 | - | 1 | 1 |
| Telephone and electronic conferences * |
30 | 34 | 9 | 24 | 34 |
| Total | 40 | 44 | 13 | 30 | 44 |
* primarily related to the business of the Investment Committee.
evaluation process are communicated to the Board. Performance evaluation continues to be conducted on an annual basis.
The Chairman has confirmed that the performance of the other directors being proposed for re-election continues to be effective and that they continue to show commitment to the role. The independent directors have similarly appraised the performance of the Chairman. They considered that the performance of Ms H Sinclair continues to be effective and that she continues to demonstrate a strong commitment to the role.
The Company has a combined Remuneration and Nominations Committee, which consists of the three non-executive directors, who are considered by the Board to be independent of the Investment Adviser. Mr C W E R Buchan is Chairman of the Remuneration and Nominations Committee. The Remuneration and Nominations Committee reviews the Company's remuneration policy so as to determine and agree the remuneration to be paid to each director of the Company and is responsible for the production of the Directors' Remuneration Report which may be found on pages 41 to 43.
In considering appointments to the Board, the Remuneration and Nominations Committee takes into account the ongoing requirements of the Company and the need to have a balance of skills and experience within the Board.
In light of Mr P S Cammerman's decision to retire from the Board during the year the Remuneration and Nominations Committee has conducted a full and thorough recruitment process using external advisers resulting in the appointment of Mr R Cook to the Board on 1 August 2017.
The Audit Committee consists of the three non-executive directors and meets at least three times each year. The directors consider that it is appropriate that the
Chairman of the Committee should be Mr C W E R Buchan. The members of the Committee consider that they have the requisite skills and experience to fulfil the responsibilities of the Committee, and that the Chair of the Committee meets the requirements of The UK Corporate Governance Code as to recent and relevant financial experience.
The Audit Committee's terms of reference include the following roles and responsibilities:
It reviews the terms of the investment advisory agreement and examines the effectiveness of the Company's internal control and risk management systems, receives information from the Investment Adviser's compliance department and reviews the scope and results of the external audit, its cost effectiveness and the independence and objectivity of the external auditor.
The directors' statement on the Company's system of internal control is set out on pages 39 and 40.
The Audit Committee has written terms of reference which define clearly its responsibilities, copies of which are available for inspection on request at the Company's registered office and at the Annual General Meeting, and also on the Company's website at www.bscfunds.com.
The Company does not have an independent internal audit function as it is not deemed appropriate given the size of the Company and the nature of the Company's business. However the Committee considers annually whether there is a need for such a function and, if so, would recommend this to the Board.
During the year ended 31 March 2018 the Audit Committee discharged its responsibilities by:
The key areas of risk that have been identified and considered by the Audit Committee in relation to the business activities and financial statements of the Company are as follows:
These issues were discussed with the Investment Adviser and the auditor at the pre-year end audit planning meeting and at the conclusion of the audit of the financial statements.
The Audit Committee reviewed the estimates and judgements made in the investment valuations and was satisfied that they were appropriate. The Investment Adviser and the auditor confirmed to the Audit Committee that the investment valuations had been carried out consistently with prior periods and in accordance with the published industry guidelines, taking account of the latest available information about investee companies and current market data, and the auditor's review of the valuations was considered.
The Investment Adviser confirmed to the Audit Committee that the conditions for maintaining the Company's status as an approved venture capital trust had been complied with throughout the year. The position was also reviewed by the Company's VCT status adviser.
The Investment Adviser confirmed to the Audit Committee that it was not aware of any material unadjusted misstatements. Having reviewed the reports received from the Investment Adviser and the auditor, the Audit Committee is satisfied that the key areas of risk and judgement have been appropriately addressed in the financial statements and that the significant assumptions used in determining the value of assets and liabilities and revenue recognition have been properly appraised
and are sufficiently robust. The Committee considers that BDO LLP has carried out its duties as auditor in a diligent and professional manner.
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 committee meetings, where appropriate, and also meets with the Committee and its Chairman without the representatives of the Investment Adviser being present.
The Committee undertakes a review of the external auditor's effectiveness of the audit process. The Committee considers whether the auditor has:
The Board regularly reviews and monitors the external auditor's independence and objectivity. As part of this process it reviews the nature and extent of services supplied
by the auditor to ensure that independence is maintained. It is the Company's policy to contract the external auditors to perform audit-related services only.
The auditor prepares an audit strategy document on an annual basis. This provides information on the audit team and timetable, audit scope and objectives, evaluation of materiality, initial assessment of key audit and accounting risks, confirmation of independence and proposed fees. This is reviewed and approved by the Committee with an opportunity to consider the audit approach and to raise any queries with the auditor.
The outcome of the review together with any actions that have arisen are formally minuted and a summary is submitted to the Board for consideration.
The Committee assesses the effectiveness of the external audit process annually and makes a recommendation to the Board on the re-appointment of the auditor. This is considered by the Board prior to agreeing the recommendation to shareholders for the re-appointment of the auditor at each Annual General Meeting of the Company. As part of its review, the Committee considers the performance of the auditor and whether it has met the agreed audit plan, the quality of its reporting in its management letter and the cost effectiveness of the services provided as well as the manner in which it has handled key audit issues and responded to the Committee's questions.
As part of the review of audit effectiveness and independence, BDO LLP has confirmed that it is independent of the Company and has complied with applicable auditing standards. BDO LLP has held office for five years; in accordance with professional guidelines the engagement partner will be rotated after at most five years, and the current partner has served for two years. The committee notes that the last tender process was performed in the year ended 31 March 2014.
The Committee concluded that the reappointment of BDO LLP as auditor was in the best interests of the Company and of shareholders and its recommendation was endorsed by the Board. No non-audit services were provided by BDO LLP during the year.
The Investment Committee currently consists of the three non-executive directors. The Chairman of the Committee is Mr R Cook.
The Investment Committee is authorised to make investment decisions (including new investment, further investment, variation and realisation decisions) on behalf of the Board. Where an urgent decision is required in respect of a potential new quoted investment, the Investment Adviser in conjunction with the Chairman is permitted to make a decision up to an investment level of £250,000, provided that papers have first been circulated to at least the Chairman of the Committee. With regard to the realisation of quoted holdings, the Investment Adviser is authorised to implement the Company's existing strategy for the holding in question within parameters previously agreed by the directors.
The Investment Committee has written terms of reference which define clearly its responsibilities, copies of which are available for inspection on request at the Company's registered office and on the Company's website at www.bscfunds.com.
The Company has an Allotment Committee which consists of the directors who are considered by the Board to be independent of the Investment Adviser. The quorum for Committee meetings is one director, unless otherwise determined by the Board. In addition the Company Secretary has an authority to allot shares under the DRIS.
The Committee considers and, if appropriate, authorises the allotment of shares. The Committee ensures that the total number of shares to be issued does not exceed the authority given by the shareholders. There are no written terms of reference.
The Board regularly monitors the shareholder profile of the Company. It aims to provide shareholders with a full understanding of the Company's activities and performance, and reports formally to shareholders twice a year by way of the Annual Report and the Interim Report. This is supplemented by the daily publication on its website of the Company's share price and the publication for the two quarters of the year where an Annual Report and the Interim Report is not issued (30 June and 31 December), through the London Stock Exchange, of the net asset value of the Company together with a factsheet detailing developments for the Company in that quarter.
All shareholders have the opportunity, and are encouraged, to attend the Company's Annual General Meeting at which the directors and representatives of the Investment Adviser are available in person to meet with and answer shareholders' questions. In addition representatives of the Investment Adviser periodically hold shareholder workshops which review the Company's performance and industry developments, and which give shareholders a further opportunity to meet members of the Board and chief executives or chairmen of some of the investee companies. During the year the Company's Investment Adviser has held regular discussions with shareholders. The directors are made fully aware of shareholders' views. The Chairman and directors make themselves available, as and when required, to address shareholder queries. The directors may be contacted through the Company Secretary whose details are shown on page 83.
The Company's Annual Report is published in time to give shareholders at least 21 clear days' notice of the Annual General Meeting. Shareholders wishing to raise questions in advance of the meeting are encouraged to write to the Company Secretary at the address shown on page 83. Separate resolutions are proposed for each separate issue. Proxy votes will be counted and the results announced at the Annual General Meeting for and against each resolution.
There was a good response to last year's shareholder survey with more than 1,000 responses and the key findings were highlighted at the shareholder workshop on 16 May 2018.
Under an agreement dated 28 February 1996, as varied by agreements dated 1 July 2009, 16 November 2012, 17 October 2014 and 24 August 2015, certain functions of the Company have been sub-contracted to YFM Private Equity Limited. The Board receives operational and financial reports on the current state of the business and on appropriate strategic, financial, operational and compliance issues. These matters include, but are not limited to:
The Board confirms the procedures to implement the guidance detailed in section C.2: "Risk Management & Internal Control" of The UK Corporate Governance Code and those identified in the Principles 13 and 15 of the AIC Code were in place throughout the year ended 31 March 2018 and up to the date of this report. A detailed review of the risks faced by the Company and the techniques used to mitigate these risks can be found in the Strategic Report on pages 28 and 29.
The Board acknowledges that it is responsible for overseeing the Company's system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.
The Board arranges its meeting agenda so that risk management and internal control is considered on a regular basis and a full robust risk and control assessment takes place no less frequently than twice a year. There is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place for longer than the year under review and up to the date of approval of the Annual Report. The process is formally reviewed bi-annually by the Board. However, due to the size and nature of the Company, the Board has concluded that it is not necessary at this stage to set up an internal audit function. This decision will be kept under review. The directors are satisfied that the systems of risk management that they have introduced are sufficient to comply with the FRC Guidance on Risk Management, Internal Control and Related Financial and Business Reporting.
In particular the Board, together with the Audit Committee, is responsible for overseeing and reviewing internal controls concerning financial reporting. In addition to those controls sub-contracted as listed on page 39 the following controls have been in place throughout the year:
for subscription issued by the Company in connection with the issue of new share capital.
Following the FCA's registration of the Company as a Small Registered Alternative Investment Fund Manager in 2014 the Company holds its own investments. All investments made for the accounts of and monies received for the Company will be deposited in the name of the Company or will be held by a custodian or the Company's solicitors. All certificates and other documents evidencing title (whether or not in registered form) will be received by the Company and will be held in the Company's name or forwarded directly to the custodian or the Company's solicitors. No third party custodian has been appointed. The Company will take legal ownership of its assets.
The Board has reviewed the effectiveness of the Company's systems of internal control and risk management for the year and up to the date of this Report. The Board is of the opinion that the Company's systems of internal, financial, and other controls are appropriate to the nature of its business activities and methods of operation given the size of the Company, and the Board has a reasonable expectation that the Company will continue in operational existence for the foreseeable future.
The directors have declared any conflicts or potential conflicts of interest to the Board which has the authority to authorise such situations if appropriate. The Company Secretary maintains the Register of Directors' Interests which is reviewed quarterly by the Board, when changes are notified, and the directors advise the Company Secretary and the Board as soon as they become aware of any conflicts of interest. Directors who have conflicts of interest which have been approved by the Board do not take part in discussions or decisions which relate to any of their conflicts. Details of all related party transactions are shown in note 15 on page 72.
The Company delegates responsibility for monitoring its investments to its Investment Adviser whose policy, which has been noted by the Board, is as follows:
YFM Private Equity Limited is committed to introducing corporate governance standards into the companies in which its clients invest. With this in mind, the Company's investment agreements contain contractual terms specifying the required frequency of management board meetings and of annual shareholders' meetings, and for representation at such meetings through YFM Private Equity Limited. In addition, provision is made for the preparation of regular and timely management information to facilitate the monitoring of an investee company performance in accordance with best practice in the private equity sector.
Typically the Company invests alongside other venture capital funds and other private equity funds advised or managed by the Investment Adviser, such syndication spreading investment risk. Details of the amounts invested in individual companies are set out in the Strategic Report. Coinvestments are detailed in note 7 to the financial statements on pages 68 and 69.
The Board has delegated the monitoring of the investment portfolio to the Investment Adviser.
This report was approved by the Board on 26 June 2018 and signed on its behalf by
Helen Sinclair Chairman British Smaller Companies VCT plc Registered number 03134749
The Board has prepared this report in accordance with the requirements of the Large and Medium Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. An ordinary resolution for the approval of this report will be put to the members at the forthcoming Annual General Meeting.
The law requires the Company's auditor, BDO LLP, to audit certain information included in this report. Where disclosures have been audited, they are indicated as such. The auditor's opinion is included in the Independent Auditor's Report on pages 45 to 49.
This statement of the Directors' Remuneration Policy took effect following approval by shareholders at the Annual General Meeting held on 1 August 2017. A resolution to approve the Directors' Remuneration Policy will be put to shareholders every three years.
The Board currently comprises three directors, all of whom are non-executive. The Company currently has an independent Remuneration and Nominations Committee, which is comprised of the full Board and of which Mr C W E R Buchan is the independent Chairman.
The Board has not retained external advisors in relation to remuneration matters but has access to information about directors' fees paid by other companies of a similar size and nature. Shareholders' views in respect of the directors' remuneration are communicated at the Company's AGM and are taken into consideration in formulating the Directors' Remuneration Policy.
At the last AGM over 94 per cent of shareholders who exercised their voting rights voted for the resolution approving the Directors' Remuneration Report, showing significant shareholder approval.
The Board's policy is that the remuneration of non-executive directors should reflect the experience of the Board as a whole, be fair and comparable to that of other relevant venture capital trusts that are similar in size and have similar investment objectives and structures. Furthermore, the level of remuneration should be sufficient to attract and retain the directors needed to oversee properly the Company and to reflect the duties and responsibilities of the directors and the value and amount of time committed to the Company's affairs.
It is not considered appropriate that directors' remuneration should be performance-related, and as such the directors are not eligible for bonuses, share options, pension benefits, long-term incentive schemes or other benefits in respect of their services as non-executive directors of the Company.
It is the Board's policy that directors do not have service contracts, but new directors are provided with a letter of appointment. The terms of directors' appointments provide that directors should retire and be subject to election at the first Annual General Meeting after their appointment. Thereafter, it has been agreed that all directors will offer
themselves for re-election on an annual basis. All directors have a 3 month notice period, and any director who ceases to hold office is not entitled to receive any payment other than accrued fees (if any) for past services. There were no payments for loss of office made during the period.
The policy will continue to be applied in the forthcoming year.
Brief biographical notes on the directors are given on page 31.
The directors' fees payable by the Company have been fixed at June 2014 by the Board at £40,000 per annum for the Chairman and £25,000 per annum for the other Directors. In accordance with the Directors' Remuneration Policy the directors' fees were reviewed in June 2017 by the Board who agreed that they should be held constant and reviewed again in a year's time.
The directors who served in the year received the following emoluments in the form of fees, which represent the entire remuneration payable to directors (see Table A):
There are no executive directors (2017: none).
The directors of the Company at 31 March 2018 and their beneficial interests in the share capital of the Company (including those of immediate family members) were as shown in Table B:
None of the directors held any options to acquire additional shares at the year end.
The Company has not set out any formal requirement or guidelines concerning their ownership of shares in the Company.
Directors' remuneration, dividend distribution to shareholders and share buy-backs are shown in Table C.
The Company does not have any employees. Accordingly, the disclosures required under paragraph 38 and 39 of Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 are not required.
| Total fees paid (audited) | TABLE A | |
|---|---|---|
| 2018 £ |
2017 £ |
|
| H Sinclair | 40,000 | 40,000 |
| C W E R Buchan | 25,000 | 25,000 |
| R Cook | 16,667 | - |
| P S Cammerman | 10,417 | 25,000 |
| 92,084 | 90,000 |
| Directors and their interests (audited) | TABLE B | |||
|---|---|---|---|---|
| Number of ordinary shares at 31 March 2018 |
31 March 2017 |
31 March 2018 |
% voting rights at 31 March 2017 |
|
| H Sinclair | 23,062 | 23,062 | 0.02% | 0.02% |
| C W E R Buchan | 22,280 | 22,280 | 0.02% | 0.02% |
| R Cook | - | - | - | - |
| TABLE C | |
|---|---|
| 2018 £ |
2017 £ |
| 6,150,000 | 21,226,000 |
| 871,000 | 404,000 |
| 92,084 | 90,000 |
VCT Generalist Share Price Total Return* BSC Share Price Total Return*
* assumes dividends re-invested
The Board is responsible for the Company's investment strategy and performance, although the management of the Company's investment portfolio is delegated to the Investment Adviser through the advisory agreement, as referred to in the Directors' Report.
Net asset value total return (calculated by reference to the net asset value and cumulative dividends paid, as set out in note 13 of these financial statements and excluding tax reliefs received by shareholders) is the primary recognised measure of performance in the VCT industry. This measure is shown on page 11. In accordance with the requirements of the Companies Act 2006 the graph above shows a comparison over the last nine years of the movements in both the Company's share price total return and the share price total return for approximately 45 Generalist VCTs as published by the Association of Investment Companies (the AIC). In line with the AIC index all the relative performance measures have been rebased to 100 as at March 2009. The directors consider this to be the most appropriate published index on which to report on comparative performance.
This report was approved by the Board and signed on its behalf on 26 June 2018.
Helen Sinclair Chairman
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare the financial statements for each financial year. Under that law the directors are required to prepare the financial statements and have elected to prepare the Company's financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for the Company for that period.
In preparing these financial statements, the directors are required to:
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company's website at www.bscfunds.com in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the directors. The directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.
The directors confirm to the best of their knowledge:
Having taken advice from the Audit Committee, the Board considers the annual report and accounts, taken as a whole, are fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
The names and functions of all the directors are stated on page 31.
This statement was approved by the Board and signed on its behalf on 26 June 2018.
Helen Sinclair Chairman
We have audited the financial statements of British Smaller Companies VCT plc ("the Company") for the year ended 31 March 2018 which comprise the Statement of Comprehensive Income, Balance Sheet, Statement of Changes in Equity, Statement of Cash Flows and Notes to the Financial Statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards ("IFRSs") as adopted by the European Union.
In our opinion, the financial statements:
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard, as applied to
listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to you whether we have anything material to add or draw attention to:
the directors' statement set out on page 32 in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the directors' identification of any material uncertainties to the Company's ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;
whether the directors' statement relating to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We consider the valuation of investments to be the most significant audit area as there is a high level of estimation uncertainty involved in determining the unquoted investment valuations.
There is an inherent risk of management override arising from the unquoted investment valuations being prepared by the Investment Adviser, who is remunerated based on the net asset value of the Company.
The Company's accounting policy for assessing the fair value of unquoted investments is disclosed on page 55 in note 1 and disclosures regarding the fair value estimates are given on page 62 in note 7.
We selected a sample of unquoted investments for audit testing.
For all investments in our sample we:
For investments sampled that were valued using less subjective valuation techniques (cost and price of recent investment reviewed for changes in fair value) we:
For investments sampled that were valued using more subjective techniques (earnings and sales multiples) 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.
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions,
could reasonably influence the economic decisions of 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 as a whole.
The application of these key considerations gives rise to different levels of materiality, the quantum and purpose of which are tabulated below. In setting materiality, we had regard to the nature and disposition of the investment portfolio.
| Materiality Measure [Basis] |
Purpose | Key considerations | 2018 Quantum (£) |
2017 Quantum (£) |
|
|---|---|---|---|---|---|
| Financial Statement | Assessing whether the financial statements as | • | The value of investments | 1,290,000 | 1,130,000 |
| Materiality | a whole present a true and fair view. We consider this to be the key measurement for |
• | The level of judgement | ||
| [2% value of investments] | shareholders. | inherent in the valuation | |||
| The range of reasonable alternative valuations |
|||||
| Performance Materiality | The maximum error in an individual balance or | The value of investments | 970,000 | 850,000 | |
| [75% of materiality] | class of transaction that we would be prepared to accept and still conclude that the result from |
• | The level of judgement inherent in the valuation |
||
| an audit procedure has achieved our objective. | • | The range of reasonable alternative valuations |
|||
| Specific Materiality – classes of transactions and balances which impact on revenue profits |
Assessing those classes of transactions, balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a |
• | The level of net income return |
120,000 | 100,000 |
| whole could reasonably be expected to [10% revenue return before influence the economic decisions of users tax] taken on the basis of the financial statements. |
We agreed with the Audit Committee that we would report to the committee all individual audit differences in excess of £5,500 (2017: £10,000) as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
Our audit approach was developed by obtaining an understanding of the Company's activities, the key functions undertaken by the Board 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 and focussed our audit approach on these areas.
The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:
• Fair, balanced and understandable set out on page 44 – the statement given by the directors that they consider the annual report and financial statements 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, is materially inconsistent with our knowledge obtained in the audit; or
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:
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 Directors' Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
As explained more fully in the Statement of Directors' Responsibilities set out on page 44, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
We consider that the audit procedures we have undertaken in accordance with ISAs (UK) have provided us with reasonable assurance that irregularities, including fraud, would have been detected to the extent that they could have resulted in material misstatements in the financial statements. Our audit was not designed to identify misstatement or other irregularities that would not be considered to be material to the financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Following a recommendation of the Audit Committee, we were reappointed by The Board of Directors on 1 August 2017 to audit the financial statements for the year ended 31 March 2018 and subsequent financial periods. The period of total uninterrupted engagement is 5 years, covering the years ending 31 March 2014 to 31 March 2018.
The non-audit services prohibited by the FRC's Ethical Standard were not provided to the Company and we remain independent of the Company in conducting our audit.
Our audit opinion is consistent with the additional report to the Audit Committee.
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.
For and on behalf of BDO LLP, statutory auditor London 26 June 2018
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
| 2018 | 2017 | ||||||
|---|---|---|---|---|---|---|---|
| Notes | Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
|
| Gains on investments held at fair value | 7 | - | 3,218 | 3,218 | - | 5,053 | 5,053 |
| Income | 2 | 2,152 | - | 2,152 | 2,813 | - | 2,813 |
| Gain on disposal of investments | 7 | - | 229 | 229 | - | 2,763 | 2,763 |
| Total income | 2,152 | 3,447 | 5,599 | 2,813 | 7,816 | 10,629 | |
| Administrative expenses: | |||||||
| Investment Adviser's fee | (430) | (1,290) | (1,720) | (477) | (1,431) | (1,908) | |
| Incentive fee | - | - | - | - | (3,649) | (3,649) | |
| Other expenses | (515) | - | (515) | (543) | - | (543) | |
| 3 | (945) | (1,290) | (2,235) | (1,020) | (5,080) | (6,100) | |
| Profit before taxation | 1,207 | 2,157 | 3,364 | 1,793 | 2,736 | 4,529 | |
| Taxation | 4 | (125) | 125 | - | (201) | 201 | - |
| Profit for the year | 1,082 | 2,282 | 3,364 | 1,592 | 2,937 | 4,529 | |
| Total comprehensive income for the year | 1,082 | 2,282 | 3,364 | 1,592 | 2,937 | 4,529 | |
| Basic and diluted earnings | |||||||
| per ordinary share | 6 | 1.00p | 2.10p | 3.10p | 1.64p | 3.01p | 4.65p |
The accompanying notes on pages 55 to 76 are an integral part of these financial statements.
The Total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. The supplementary Revenue and Capital columns are prepared under the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in November 2014 and updated in February 2018 with consequential amendments – "SORP") published by the AIC.
At 31 March 2018
| Notes | 2018 £000 |
2017 £000 |
|---|---|---|
| Assets | ||
| Non-current assets | ||
| Investments | 61,756 | 56,519 |
| Listed investment funds | 2,336 | - |
| Fixed income Government securities | 706 | 1,444 |
| Financial assets at fair value through profit or loss 7 |
64,798 | 57,963 |
| Trade and other receivables 8 |
1,284 | 1,160 |
| 66,082 | 59,123 | |
| Current assets | ||
| Trade and other receivables 8 |
1,733 | 5,068 |
| Cash on fixed term deposit 9 |
9,001 | 13,023 |
| Cash and cash equivalents 9 |
10,057 | 14,847 |
| 20,791 | 32,938 | |
| Liabilities | ||
| Current liabilities | ||
| Trade and other payables 10 |
(736) | (3,989) |
| Net current assets | 20,055 | 28,949 |
| Net assets | 86,137 | 88,072 |
| Shareholders' equity | ||
| Share capital 11 |
11,342 | 11,101 |
| Share premium account | - | 35,519 |
| Capital redemption reserve | - | 221 |
| Capital reserve | 53,422 | 23,686 |
| Investment holding gains and losses reserve | 18,146 | 15,400 |
| Revenue reserve | 3,227 | 2,145 |
| Total shareholders' equity | 86,137 | 88,072 |
| Net asset value per ordinary share 12 |
79.6p | 82.3p |
The accompanying notes on pages 55 to 76 are an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board of Directors and were signed on its behalf on 26 June 2018.
Helen Sinclair Chairman
| Share capital £000 |
Share premium account £000 |
Capital redemption reserve £000 |
Capital reserve £000 |
Investment holding gains and losses reserve £000 |
Revenue reserve £000 |
Total equity £000 |
|
|---|---|---|---|---|---|---|---|
| Balance at 31 March 2016 | 9,935 | 27,231 | 221 | 37,418 | 18,878 | 2,040 | 95,723 |
| Revenue return for the year before tax | - | - | - | - | - | 1,793 | 1,793 |
| Capital expenses | - | - | - | (5,080) | - | - | (5,080) |
| Gain on investments held at fair value | - | - | - | - | 5,053 | - | 5,053 |
| Gain on disposal of investments in | |||||||
| the year | - | - | - | 2,763 | - | - | 2,763 |
| Taxation | - | - | - | 201 | - | (201) | - |
| Total comprehensive (expense) | |||||||
| income for the year | - | - | - | (2,116) | 5,053 | 1,592 | 4,529 |
| Issue of share capital | 501 | 3,748 | - | - | - | - | 4,249 |
| Issue costs | - | (133) | - | (4) | - | - | (137) |
| Issue of shares – DRIS | 665 | 4,702 | - | - | - | - | 5,367 |
| Issue costs – DRIS | - | (29) | - | - | - | - | (29) |
| Purchase of own shares | - | - | - | (404) | - | - | (404) |
| Dividends | - | - | - | (19,786) | - | (1,440) | (21,226) |
| Total transactions with owners | 1,166 | 8,288 | - | (20,194) | - | (1,440) | (12,180) |
| Transfer between reserves | - | - | - | 47 | - | (47) | - |
| Realisation of prior year | |||||||
| investment holding gains | - | - | - | 8,531 | (8,531) | - | - |
| Balance at 31 March 2017 | 11,101 | 35,519 | 221 | 23,686 | 15,400 | 2,145 | 88,072 |
| Revenue return for the year before tax | - | - | - | - | - | 1,207 | 1,207 |
| Capital expenses | - | - | - | (1,290) | - | - | (1,290) |
| Gain on investments held at fair value | - | - | - | - | 3,218 | - | 3,218 |
| Gain on disposal of investments in the year | - | - | - | 229 | - | - | 229 |
| Taxation | - | - | - | 125 | - | (125) | - |
| Total comprehensive (expense) | |||||||
| income for the year | - | - | - | (936) | 3,218 | 1,082 | 3,364 |
| Issue of shares – DRIS | 241 | 1,505 | - | - | - | - | 1,746 |
| Issue costs – DRIS | - | (14) | - | - | - | - | (14) |
| Cancellation of share premium | |||||||
| account – net of costs | - | (37,010) | (221) | 37,221 | - | - | (10) |
| Purchase of own shares | - | - | - | (871) | - | - | (871) |
| Dividends | - | - | - | (6,150) | - | - | (6,150) |
| Total transactions with owners | 241 | (35,519) | (221) | 30,200 | - | - | (5,299) |
| Realisation of prior year | |||||||
| investment holding gains | - | - | - | 472 | (472) | - | - |
| Balance at 31 March 2018 | 11,342 | - | - | 53,422 | 18,146 | 3,227 | 86,137 |
The accompanying notes on pages 55 to 76 are an integral part of these financial statements.
Reserves available for distribution
Under the Companies Act 2006 the capital reserve and the revenue reserve are distributable reserves. The table below shows amounts that are available for distribution.
| Capital reserve £000 |
Revenue reserve £000 |
Total £000 |
||
|---|---|---|---|---|
| Distributable reserves as opposite | 53,422 | 3,227 | 56,649 | |
| Less | : Interest and dividends not yet distributable | - | (1,881) | (1,881) |
| : Cancelled share premium not yet distributable | (39,103) | - | (39,103) | |
| Reserves available for distribution1 | 14,319 | 1,346 | 15,665 |
The capital reserve and revenue reserve are both distributable reserves. The reserves total £56,649,000 representing an increase of £30,818,000 during the year. The directors also take into account the level of the investment holding gains and losses reserve and the future requirements of the Company when determining the level of dividend payments. On 18 May 2018 an interim dividend for the year ending 31 March 2019 (4.0 pence per ordinary share) was paid which has reduced these reserves by approximately £4,328,000.
Of the potentially distributable reserves of £56,649,000 shown above, £1,881,000 relates to interest and dividends not yet distributable and £39,103,000 relates to share premium which becomes distributable from 1 April 2018 onwards (see below).
The total amount held in the share premium account at 30 June 2017 (£37,010,000) was cancelled on 21 September 2017. This reduction enables the Company to create distributable reserves which may be used for the purposes of buy-backs of the Company's shares, thereby improving the liquidity of its shares and minimising their discount to net asset value, and for other corporate purposes capable of being undertaken by the Company from time to time.
Total share premium cancelled (including £2,093,000 previously cancelled) will be available for distribution from the following dates.
| Cancelled share premium not yet distributable | 39,103 |
|---|---|
| 1 April 2021 | 1,491 |
| 1 April 2020 | 8,288 |
| 1 April 2019 | 6,295 |
| 1 April 2018 | 23,029 |
| £000 |
On filing these financial statements at Companies House the reserves available for distribution will be approximately £34,366,000.
for the year ended 31 March 2018
| Notes | 2018 £000 |
2017 £000 |
|
|---|---|---|---|
| Net cash outflow from operating activities | (3,475) | (951) | |
| Cash flows from (used in) investing activities | |||
| Cash maturing from fixed term deposit | 4,023 | 3,028 | |
| Purchase of financial assets at fair value through profit or loss | 7 | (10,586) | (6,491) |
| Proceeds from sale of financial assets at fair value through profit or loss | 7 | 6,144 | 16,968 |
| Deferred consideration | 7 | 269 | 11 |
| Net cash outflow (used in) from investing activities | (150) | 13,516 | |
| Cash flows from (used in) financing activities | |||
| Issue of ordinary shares | 4,245 | - | |
| Costs of ordinary share issues* | (118) | (72) | |
| Purchase of own ordinary shares | (871) | (404) | |
| Share premium cancellation costs | (10) | - | |
| Dividends paid | 5 | (4,411) | (15,861) |
| Net cash outflow used in financing activities | (1,165) | (16,337) | |
| Net decrease in cash and cash equivalents | (4,790) | (3,772) | |
| Cash and cash equivalents at the beginning of the year | 14,847 | 18,619 | |
| Cash and cash equivalents at the end of the year | 9 | 10,057 | 14,847 |
* Issue costs include both fundraising costs and expenses incurred from the Company's DRIS.
| 2018 £000 |
2017 £000 |
|
|---|---|---|
| Profit before taxation | 3,364 | 4,529 |
| (Decrease) increase in trade and other payables | (3,142) | 2,642 |
| Decrease in trade and other receivables | (161) | (197) |
| Gain on disposal of investments | (229) | (2,763) |
| Gains on investments held at fair value | (3,218) | (5,053) |
| Capitalised interest and dividends | (89) | (109) |
| Net cash outflow from operating activities | (3,475) | (951) |
The accompanying notes on pages 55 to 76 are an integral part of these financial statements.
The accounts have been prepared on a going concern basis and in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements have been prepared under the historical cost basis as modified by the measurement of investments at fair value through profit or loss.
The accounts have been prepared in compliance with the recommendations set out in the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the Association of Investment Companies (issued in November 2014 and updated in February 2018 with consequential amendments – "SORP") to the extent that they do not conflict with IFRSs as adopted by the European Union.
The financial statements are prepared in accordance with IFRSs and interpretations in force at the reporting date. New standards coming into force during the year have not had a material impact on these financial statements.
Standards, amendments to standards and interpretations have been issued which will be effective for future reporting periods but have not been adopted early in these financial statements. These include IFRS 9, IFRS 15, and amendments to IFRS 2 and IFRS 10. The Company has carried out an assessment and considers that these standards, amendments and interpretations, issued but not yet effective, will not affect the Company's accounting policies, results or net assets. In particular the Company will be able to continue to classify its investments at fair value through profit and loss under IFRS 9, and will consequently not need to apply the impairment model.
The financial statements are presented in sterling and all values are rounded to the nearest thousand (£000), except where stated.
Financial assets designated as at fair value through profit or loss at inception are those that are managed and whose performance is evaluated on a fair value basis, in accordance with the documented investment strategy of the Company. Information about these financial assets is provided internally on a fair value basis to the Company's key management. The Company's investment strategy is to invest cash resources in venture capital investments as part of the Company's long-term capital growth strategy. Consequently, all investments are classified as held at fair value through profit or loss.
All investments are measured at fair value on the whole unit of account basis with gains and losses arising from changes in fair value being included in the Statement of Comprehensive Income as gains or losses on investments held at fair value.
Transaction costs on purchases are expensed immediately through profit or loss.
Redemption premiums are designed to protect the value of the Company's investment. These are accrued daily on an effective rate basis and included within the capital valuation of the investment (and thus classified under "Gain or loss on investments held at fair value" in the Statement of Comprehensive Income).
Although the Company holds more than 20 per cent of the equity of certain companies, it is considered that the investments are held as part of the investment portfolio, and their value to the Company lies in their marketable value as part of that portfolio. These investments are therefore not accounted for using equity accounting, as permitted by IAS 28 'Investments in associates' and IFRS 11 'Joint arrangements' which give exemptions from equity accounting for venture capital organisations.
Under IFRS 10 "Consolidated Financial Statements", control is presumed to exist when the Company has power over an investee (whether or not used in practice); exposure or rights; to variable returns from that investee, and ability to use that power to affect the reporting entities returns from the investees. The Company does not hold more than 50 per cent of the equity of any of the companies within the portfolio. The Company does not control any of the companies held as part of the investment portfolio. It is not considered that any of the holdings represent investments in subsidiary undertakings.
Unquoted investments are valued in accordance with IFRS 13 "Fair Value Measurement" and, where appropriate, the International Private Equity and Venture Capital (IPEV) Valuation Guidelines ("the Guidelines") issued in December 2015. Quoted investments are valued at market bid prices. A detailed explanation of the valuation policies of the Company is included overleaf.
Financial assets are initially measured at fair value. The best estimate of the initial fair value of a financial asset that is either quoted or not quoted in an active market is the transaction price (i.e. cost).
The Guidelines identify six of the most widely used valuation methodologies for unquoted investments. The Guidelines advocate that the best valuation methodologies are those that draw on external, objective market based data in order to derive a fair value.
Discounted cash flows and industry valuation benchmarks are only likely to be reliable as the main basis of estimating fair value in limited situations. Their main use is to support valuations derived using other methodologies and for assessing reductions in fair value.
Where an independent third party valuation exists, this will be used as the basis to derive the gross attributable enterprise value of the company. In other cases, the most suitable valuation technique, as set out above, is used to determine this value. This value is then apportioned appropriately to reflect the respective amounts accruing to each financial instrument holder in the event of a sale at that level at the reporting date.
Unquoted investments held in the form of loan investments are valued at fair value using the appropriate methodologies as used for valuing equity investments, primarily being price of recent investment, earnings multiple and sales multiple.
Quoted investments and listed investment funds are valued at active market bid price. An active market is defined as one where transactions take place regularly with sufficient volume and frequency to determine price on an ongoing basis. Where the Company judges that the level of trading does not meet these requirements one of the methodologies above will be used to value the investment. No methodology other than active market bid price has been applied as at 31 March 2018.
Dividend income on unquoted equity shares is recognised at the time when the right to the income is established. Interest on loan stock and dividends on preference shares are accrued daily on an effective rate basis. Provision is made against this income where recovery is doubtful. Where interest and preference dividends are rolled up and/or payable at redemption then they are recognised as income unless there is reasonable doubt as to their receipt.
Expenses are accounted for on an accruals basis. Expenses are charged through the Revenue column of the Statement of Comprehensive Income, except for the Investment Adviser's fee and incentive fees. Of the Investment Adviser's fees 75 per cent are allocated to the Capital column of the Statement of Comprehensive Income, to the extent that these relate to an enhancement in the value of the investments and in line with the Board's expectation that over the long term 75 per cent of the Company's investment returns will be in the form of capital gains. The incentive fee payable to the Investment Adviser (as set out in note 3) is charged wholly through the Capital column.
Tax relief is allocated to the Capital Reserve using a marginal basis.
Cash and cash equivalents include cash at hand as this meets the definition in IAS 7 'Statement of cash flows' of a short term highly liquid investment that is readily convertible into known amounts of cash and subject to insignificant risk of change in value.
Balances held in fixed term deposits are not classified as cash and cash equivalents, as they do not meet the definition in IAS 7 'Statement of cash flows' of short-term highly liquid investments.
Cash flows classified as "operating activities" for the purposes of the Statement of Cash Flows are those arising from the Revenue column of the Income Statement, together with the items in the Capital column that do not fall to be easily classified under the headings for "Investing Activities" given by IAS 7 'Statement of cash flows', being advisory and incentive fees payable to the Investment Adviser. The capital cash flows relating to acquisition and disposal of investments are presented under "investing activities" in the Statement of Cash Flows in line with both the requirements of IAS 7 and the positioning given to these headings by general practice in the industry.
This reserve contains the nominal value of all shares allotted under offers for subscription.
This reserve contains the excess of gross proceeds less issue costs over the nominal value of shares allotted under offers for subscription, to the extent that it has not been cancelled.
The nominal value of shares bought back and cancelled is held in this reserve, so that the Company's capital is maintained.
The following are included within this 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.
This reserve includes all income from investments along with any costs associated with the running of the Company – less 75 per cent of the advisory fee expense as detailed in the Capital Reserve above.
Due to the Company's status as a venture capital trust and the continued intention to meet the conditions required to comply with Chapter 3 Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company's investments which arises. Deferred tax is recognised on all temporary differences that have originated, but not reversed, by the balance sheet date.
Deferred tax assets are only recognised to the extent that they are regarded as recoverable. Deferred tax is calculated at the tax rates that are expected to apply when the asset is realised. Deferred tax assets and liabilities are not discounted.
Dividends payable are recognised only when an obligation exists. Interim and special dividends are recognised when paid and final dividends are recognised when approved by shareholders in general meetings.
In accordance with IFRS 8 'Operating segments' and the criteria for aggregating reportable segments, segmental reporting has been determined by the directors based upon the reports reviewed by the Board. The directors are of the opinion that the Company has engaged in a single operating segment - investing in equity and debt securities within the United Kingdom - and therefore no reportable segmental analysis is provided.
The preparation of financial statements in conformity with generally accepted accounting practice requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are those used to determine the fair value of investments at fair value through profit or loss, as disclosed in note 7 to the financial statements.
The fair value of investments at fair value through profit or loss is determined by using valuation techniques. As explained above, the Board uses its judgement to select from a variety of methods and makes assumptions that are mainly based on market conditions at each balance sheet date.
| 2018 £000 |
2017 £000 |
|
|---|---|---|
| Dividends from unquoted companies | 503 | 763 |
| Dividends from AIM quoted companies | 16 | 28 |
| Interest on loans to unquoted companies | 1,440 | 1,728 |
| Income from investment portfolio | 1,959 | 2,519 |
| Dividends from listed investment funds | 23 | - |
| Interest from listed investment funds | 7 | - |
| Fixed interest Government securities | 12 | 16 |
| Income from investments held at fair value through profit or loss | 2,001 | 2,535 |
| Interest on bank deposits | 151 | 278 |
| 2,152 | 2,813 |
The above is stated net of £415,000 (2017: £353,000) of income in relation to loan interest and preference dividends, which has not been recognised.
| 2018 £000 |
2017 £000 |
|
|---|---|---|
| Investment Adviser's fee | 1,720 | 1,908 |
| Incentive fee | - | 3,649 |
| Administration fee | 62 | 61 |
| Total payable to YFM Private Equity Limited | 1,782 | 5,618 |
| Other expenses: | ||
| Trail commission paid to financial intermediaries | 137 | 168 |
| Directors' remuneration | 102 | 101 |
| General expenses | 79 | 83 |
| Listing and registrar fees | 45 | 49 |
| Auditor's remuneration (excluding irrecoverable VAT): | ||
| - audit of the statutory financial statements |
28 | 26 |
| - audit related assurance services |
- | 8 |
| Irrecoverable VAT | 21 | 24 |
| Printing | 41 | 23 |
| 2,235 | 6,100 | |
| Ongoing charges figure | 2.48% | 2.43% |
Directors' remuneration comprises only short term benefits including social security contributions of £8,000 (2017: £9,000).
The directors are the Company's only key management personnel.
No fees are payable to the auditor in respect of non-audit services supplied pursuant to legislation (2017: £nil).
YFM Private Equity Limited provides Investment Advisory services to the Company under an Administrative and Investment Advisory agreement (IAA) dated 28 February 1996 as varied by agreements dated 16 November 2012, 17 October 2014 and 24 August 2015. The agreement may be terminated by not less than 12 months' notice given by either party at any time. No notice has been issued to or by YFM Private Equity Limited terminating the contract as at the date of this Report.
Following the Financial Conduct Authority's registration of the Company as a Small Registered Alternative Investment Fund Manager in 2014, the Company has retained responsibility for the custody of its investments.
The key features of the IAA are:
When the Company makes investments into its unquoted portfolio the Investment Adviser charges that investee an advisory or arrangement fee, calculated by applying a percentage to the investment amount. The Company and the Investment Adviser have agreed that, if the average of the relevant fees during the Company's financial year exceeds 3.0 per cent of the total invested into new portfolio
companies and 2.0 per cent into follow-on holdings this excess will be rebated to the Company. As at 31 March 2018, the Company was due a rebate from the Investment Adviser of £nil (2017: £nil).
Following approval of the relevant resolution at the Annual General Meeting of the Company held in August 2009, the incentive scheme set out in the Subscription Rights Agreement was replaced by a revised incentive agreement dated 7 July 2009, as varied by agreements dated 15 August 2014 and 13 October 2014 ("the Incentive Agreement"). Under the Incentive Agreement the Investment Adviser will receive an incentive payment equal to 20 per cent of the amount by which dividends paid in the relevant accounting period exceed 4 pence per ordinary share (increasing in line with RPI) once cumulative dividends of 10 pence per ordinary share from 1 April 2009 have been paid. These incentive payments are also subject to cumulative shortfalls in any prior accounting periods being made up and the average adjusted net asset value per ordinary share in the relevant accounting period being not less than 94.0 pence per ordinary share, as adjusted for the impact of share issues and buy-backs. The terms and operations of the Incentive Agreement are due to be reviewed with effect from 7 July 2019.
No payment can be made in respect of the year to 31 March 2018 under the Incentive Agreement unless the average quarterly adjusted net asset value of the Company is a minimum of 92.2 pence per ordinary share and in addition at least 5.1 pence per ordinary share in dividends has been paid to shareholders. Payment is made five business days after the relevant Annual General Meeting at which the audited accounts are presented to shareholders.
The amount of the incentive payment paid to the Investment Adviser for any one year shall, when taken with all other relevant costs, ensure that the Total Expenses Ratio is no greater than 5 per cent of the net asset value at the end of the financial year (as adjusted for all realised gains that have been distributed during that year). Any unpaid incentive payment will be carried over to subsequent financial years and be included in the calculation of the Total Expenses Ratio. The maximum fee payable in any 12 month period cannot exceed an amount which would represent 25 per cent or more of the net asset value or market capitalisation of the Company.
The Investment Adviser has not met these targets in the current year although they were exceeded in the prior year. Consequently £nil has been accrued within trade and other payables (2017: £3,648,873) in respect of the year ended 31 March 2018. Of the amount accrued at 31 March 2017 £3,125,568 was paid following the Annual General Meeting on 1 August 2017. The remaining unpaid incentive amount of £523,305 remains accrued within trade and other payables and will be paid following the Annual General Meeting in 2018.
There are also provisions for a compensatory fee in circumstances where the Company is taken over or the Incentive Agreement is terminated, which is calculated as a percentage of the fee that would otherwise be payable under the Incentive Agreement by reference to the accounting period following its termination. In this instance 80 per cent is payable in the first accounting period after such an event, 55 per cent in the second, 35 per cent in the third and nothing is payable thereafter.
The total remuneration payable to YFM Private Equity Limited under the IAA and the Incentive Agreement in the period was £1,782,000 (2017: £5,618,000).
Monitoring and directors' fees the Investment Adviser receives from the investee companies are limited to a maximum of £40,000 (excluding VAT) per annum per company.
Under the IAA, YFM Private Equity Limited is entitled to receive fees from investee companies in respect of the provision of nonexecutive directors and other advisory services. YFM Private Equity Limited is responsible for paying the due diligence and other costs incurred in connection with proposed investments which for whatever reason do not proceed to completion. In the year ended 31 March 2018 the fees receivable by YFM Private Equity Limited from investee companies which were attributable to advisory and directors' and monitoring fees amounted to £680,000 (2017: £627,000).
Under the terms of the offer launched on 10 February 2017, YFM Private Equity Limited was entitled to 5.0 per cent of gross subscriptions from execution brokers and 3.0 per cent of gross subscriptions for applications through intermediaries offering financial advice or directly from applicants. The net amount payable to YFM Private Equity Limited under this offer for the year ended 31 March 2017 amounted to £133,287.
The Investment Adviser met all costs and expenses arising from these offers out of these fees, including any payment or re-investment of initial intermediary commissions.
The details of directors' remuneration are set out in the Directors' Remuneration Report on page 42 under the heading "Directors' Remuneration for the year ended 31 March 2018 (audited)".
| 2018 | 2017 | |||||
|---|---|---|---|---|---|---|
| Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
|
| Profit before taxation | 1,207 | 2,157 | 3,364 | 1,793 | 2,736 | 4,529 |
| Profit before taxation multiplied by standard rate of corporation tax in UK of 19% (2017: 20%) |
229 | 410 | 639 | 359 | 547 | 906 |
| Effect of: | ||||||
| UK dividends received | (104) | - | (104) | (158) | - | (158) |
| Non-taxable profits on investments | - | (655) | (655) | - | (1,563) | (1,563) |
| Excess advisory expenses | - | 120 | 120 | - | 815 | 815 |
| Tax charge (credit) | 125 | (125) | - | 201 | (201) | - |
The Company has no provided or unprovided deferred tax liability in either year.
Deferred tax assets of £1,628,000 (2017: £1,521,000) calculated at 17% in respect of unrelieved management expenses (£9.58 million as at 31 March 2018 (2017: £8.95 million)) have not been recognised as the directors do not currently believe that it is probable that sufficient taxable profits will be available against which assets can be recovered.
Due to the Company's status as a venture capital trust and the continued intention to meet with the conditions required to comply with Section 274 of the Income Tax Act 2007, the Company has not provided for deferred tax on any capital gains or losses arising on the revaluation or realisation of investments.
Amounts recognised as distributions to equity holders in the period to 31 March:
| 2018 | 2017 | |||||
|---|---|---|---|---|---|---|
| Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
|
| Final dividend for the year ended 31 March 2016 of 3.5p per ordinary share |
- | - | - | 844 | 2,503 | 3,347 |
| Special interim dividend for the year ended 31 March 2017 of 2.0p per ordinary share |
- | - | - | - | 1,913 | 1,913 |
| Interim dividend for the year ended 31 March 2018 of 5.75p (2017: 16.5p) per ordinary share |
- | 6,150 | 6,150 | 596 | 15,370 | 15,966 |
| - | 6,150 | 6,150 | 1,440 | 19,786 | 21,226 | |
| Shares allotted under DRIS | (1,746) | (5,367) | ||||
| Unclaimed dividends | 7 | 2 | ||||
| Dividends paid in Statement of Cash Flows | 4,411 | 15,861 |
The interim dividend of 5.75 pence per ordinary share was paid on 26 May 2017 to shareholders on the register as at 5 May 2017.
During the year the Company has received £nil (2017: £28,000) from the Registrars in respect of unclaimed dividends. The Company has made efforts to contact the relevant shareholders, with the result that £7,000 (2017: £30,000) has been paid to shareholders in the year. The unclaimed balance is held in a separate bank account until contact can be made with the shareholders affected.
The basic and diluted earnings per ordinary share is based on the profit after tax attributable to shareholders of £3,364,000 (2017: £4,529,000) and 108,702,504 (2017: 97,454,019) ordinary shares being the weighted average number of ordinary shares in issue during the year.
The basic and diluted revenue earnings per ordinary share is based on the profit for the year attributable to shareholders of £1,082,000 (2017: £1,592,000) and 108,702,504 (2017: 97,454,019) ordinary shares being the weighted average number of ordinary shares in issue during the year.
The basic and diluted capital earnings per ordinary share is based on the capital profit for the year attributable to shareholders of £2,282,000 (2017: £2,937,000) and 108,702,504 (2017: 97,454,019) ordinary shares being the weighted average number of ordinary shares in issue during the year.
During the year the Company allotted 2,407,686 new ordinary shares in respect of its DRIS.
The Company has also repurchased 1,177,019 of its own shares in the year, and these shares are held in the capital reserve. The total of 5,225,018 treasury shares has been excluded in calculating the weighted average number of ordinary shares for the period. The Company has no securities that would have a dilutive effect and hence basic and diluted earnings per ordinary share are the same.
The Company has no securities that would have a dilutive effect in either period and hence the basic and diluted earnings per ordinary share are equivalent for both of the years ended 31 March 2018 and 31 March 2017.
IFRS13, in respect of financial instruments that are measured in the balance sheet at fair value, requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
Each investment is reviewed at least quarterly to ensure that it has not ceased to meet the criteria of the level in which it is included at the beginning of each accounting period. The change in fair value for the current and previous year is recognised through profit or loss.
There have been no transfers between these classifications in either period.
All items held at fair value through profit or loss were designated as such upon initial recognition.
Full details of the methods used by the Company are set out in note 1 of these financial statements. Where investments are held in quoted stocks, fair value is set at the market bid price.
| IFRS 13 measurement classification | Level 3 | Level 1 | Level 1 | Level 1 | ||
|---|---|---|---|---|---|---|
| Unquoted Investments £000 |
Quoted Equity Investments £000 |
Total Quoted and Unquoted £000 |
Listed Investment Funds £000 |
Fixed Income Securities £000 |
Total Investments £000 |
|
| Opening cost | 40,277 | 862 | 41,139 | - | 1,424 | 42,563 |
| Opening investment holding gain | 13,802 | 1,578 | 15,380 | - | 20 | 15,400 |
| Opening fair value at 1 April 2017 | 54,079 | 2,440 | 56,519 | - | 1,444 | 57,963 |
| Additions at cost | 8,155 | - | 8,155 | 2,431 | - | 10,586 |
| Capitalised interest and dividends | 89 | - | 89 | - | - | 89 |
| Disposal proceeds | (5,840) | (689) | (6,529) | - | (725) | (7,254) |
| Net profit (loss) on disposal* | 163 | 36 | 199 | - | (3) | 196 |
| Change in fair value | 2,919 | 404 | 3,323 | (95) | (10) | 3,218 |
| Closing fair value at 31 March 2018 | 59,565 | 2,191 | 61,756 | 2,336 | 706 | 64,798 |
| Closing cost | 42,793 | 732 | 43,525 | 2,431 | 696 | 46,652 |
| Closing investment holding gain (loss) | 16,772 | 1,459 | 18,231 | (95) | 10 | 18,146 |
| Closing fair value at 31 March 2018 | 59,565 | 2,191 | 61,756 | 2,336 | 706 | 64,798 |
Movements in investments at fair value through profit or loss during the year to 31 March 2018 are summarised as follows:
* The net profit on disposal in the table above is £196,000 whereas that shown in the Statement of Comprehensive Income is £229,000. The difference comprises deferred proceeds of £33,000 in respect of assets which have been disposed of and are not included within the investment portfolio at the year-end (see page 66).
There were no individual reductions in fair value during the year that exceeded 5 per cent of the total assets of the Company (2017: £nil).
Level 3 valuations include assumptions based on non-observable market data, such as discounts applied either to reflect change in fair value of financial assets held at the price of recent investment, or to adjust earnings multiples. IFRS 13 requires an entity to disclose quantitative information about the significant unobservable inputs used. Of the Company's Level 3 investments, 56 per cent are held on an earnings multiple basis and 17 per cent on a sales multiple basis, and therefore have significant judgement applied to the valuation inputs.
The table below sets out the range of Price Earnings multiples, Sales multiples and discounts applied in arriving at investments valued on these bases. 18 per cent are recent deals held at cost. The remaining 9 per cent are valued based on previous investment round reviewed for impairment.
| Earnings multiple inputs | Software, IT & Telecoms |
Business Services |
Manufacturing & Industrial Services |
Healthcare | Retail & Brands |
|
|---|---|---|---|---|---|---|
| 2018 | PE Multiple Range | 27.16 | 17.50 – 19.33 | 10.60 – 27.16 | 25.97 | 15.48 – 17.36 |
| PE Multiple Weighted Average | 27.16 | 18.79 | 22.59 | 25.97 | 15.71 | |
| 2017 | PE Multiple Range | 28.42 – 34.50 | 20.74 – 24.68 | 20.74 – 32.90 | 27.72 | 15.41 – 27.04 |
| PE Multiple Weighted Average | 32.88 | 23.54 | 27.16 | 27.72 | 18.63 | |
| 2018 | Combined PE and/or Marketability Discount Range |
68% | 40% - 68% | 28% - 68% | 56% | 40% - 52% |
| Combined PE and/or Marketability Discount Weighted Average |
68% | 53% | 59% | 56% | 41% | |
| 2017 | Combined PE and/or Marketability Discount Range |
46% - 68% | 52% - 68% | 48% - 68% | 64% | 48% - 70% |
| Combined PE and/or Marketability Discount Weighted Average |
62% | 62% | 65% | 64% | 56% | |
| Sales multiple inputs | Software, IT & Telecoms |
|||||
| 2018 | Sales Multiple Range | 4.32 – 6.52 | ||||
| (2017: none) Sales Multiple Weighted Average | 5.17 | |||||
| Combined PE and/or Marketability Discount Range |
36% - 68% | |||||
| Combined PE and/or Marketability Discount Weighted Average |
54% |
The standard also requires disclosure, by class of financial instruments, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. Each unquoted portfolio company has been reviewed in order to identify the sensitivity of the valuation methodology to using alternative assumptions. Where discounts have been applied (for example to Earnings Levels, Sales levels or PE ratios) alternatives have been considered which still fall within the IPEV Guidelines (see page 56). For each unquoted investment, two scenarios have been modelled: more prudent assumptions (downside case) and more optimistic assumptions (upside case). Applying the downside alternative the value of the unquoted investments would be £4.0 million or 6.7 per cent lower. Using the upside alternative the value would be increased by £5.1 million or 8.6 per cent.
| Annual Report and Accounts for the year ended 31 March 2018 | |
|---|---|
| 65 | |
Movements in investments at fair value through profit or loss during the year to 31 March 2017 are summarised as follows:
| IFRS 13 measurement classification | Level 3 | Level 1 | Level 1 | ||
|---|---|---|---|---|---|
| Unquoted Investments £000 |
Quoted Equity Investments £000 |
Total Quoted and Unquoted £000 |
Fixed Income Securities £000 |
Total Investments £000 |
|
| Opening cost | 38,934 | 1,004 | 39,938 | 1,424 | 41,362 |
| Opening investment holding gain | 17,599 | 1,253 | 18,852 | 26 | 18,878 |
| Opening fair value at 1 April 2016 | 56,533 | 2,257 | 58,790 | 1,450 | 60,240 |
| Additions at cost | 6,491 | - | 6,491 | - | 6,491 |
| Capitalised interest and dividends | 109 | - | 109 | - | 109 |
| Disposal proceeds | (15,986) | (696) | (16,682) | - | (16,682) |
| Net profit on disposal* | 2,634 | 118 | 2,752 | - | 2,752 |
| Change in fair value | 4,298 | 761 | 5,059 | (6) | 5,053 |
| Closing fair value at 31 March 2017 | 54,079 | 2,440 | 56,519 | 1,444 | 57,963 |
| Closing cost | 40,277 | 862 | 41,139 | 1,424 | 42,563 |
| Closing investment holding gain | 13,802 | 1,578 | 15,380 | 20 | 15,400 |
| Closing fair value at 31 March 2017 | 54,079 | 2,440 | 56,519 | 1,444 | 57,963 |
* The net profit on disposal in the table above is £2,752,000 whereas that shown in the Statement of Comprehensive Income is £2,763,000. The difference comprises deferred proceeds of £11,000 in respect of assets which have been disposed of and are not included within the investment portfolio at the year-end (see page 67).
The following disposals and loan repayments took place in the year:
| Net proceeds from sale** |
Cost | Opening carrying value as at 1 April 2017 |
Profit (loss) on disposal |
|
|---|---|---|---|---|
| £000 | £000 | £000 | £000 | |
| Unquoted investments: | ||||
| Selima Holding Company Ltd* | 2,064 | 600 | 1,417 | 647 |
| GTK (Holdco) Limited | 679 | 679 | 679 | - |
| Harvey Jones Holdings Limited | 970 | 735 | 975 | (5) |
| Macro Art Holdings Limited | 156 | 156 | 156 | - |
| PowerOasis Limited | 45 | 45 | 45 | - |
| ACC Aviation (via Newacc (2014) Limited) | 926 | 926 | 926 | - |
| Fairlight Bridge Limited | 1,000 | 1,000 | 1,000 | - |
| The Heritage Window Company Holdco Limited | - | 1,587 | 479 | (479) |
| Quoted investments: | ||||
| AB Dynamics plc | 392 | 67 | 400 | (8) |
| Gamma Communications plc | 120 | 35 | 91 | 29 |
| Mattioli Woods plc | 177 | 28 | 162 | 15 |
| Total from disposals in the year | 6,529 | 5,858 | 6,330 | 199 |
| Deferred proceeds: | ||||
| Callstream Group Limited | 33 | - | - | 33 |
| Total from quoted and unquoted investments | 6,562 | 5,858 | 6,330 | 232 |
| Fixed income securities | 725 | 728 | 728 | (3) |
| Total | 7,287 | 6,586 | 7,058 | 229 |
* Includes potential deferred proceeds of £110,000. There is the potential for total contingent consideration of up to a maximum of £1,410,000, subject to the achievement of agreed milestones over the period to 30 November 2019.
**The total from disposals in the table above is £7,287,000 whereas that shown in the Statement of Cash Flows is £6,144,000. This is due to the timing differences arising between the recognition of the deferred income and its receipt in cash.
The following disposals and loan repayments took place in the year to 31 March 2017:
| Net proceeds from sale* |
Cost | Opening carrying value as at |
Profit (loss) on disposal |
|
|---|---|---|---|---|
| £000 | £000 | 1 April 2016 £000 |
£000 | |
| Unquoted investments: | ||||
| Bagel Nash Group Limited | 10 | 10 | 10 | - |
| Cambrian Park & Leisure Homes Limited (via Cambrian Lodges Holdings Limited) | 67 | 1,675 | 1,876 | (1,809) |
| Dryden Human Capital Group Limited | - | 609 | 37 | (37) |
| GO Outdoors TopCo Limited | 14,314 | 245 | 9,387 | 4,927 |
| GTK (Holdco) Limited | 640 | 336 | 574 | 66 |
| Harvey Jones Holdings Limited | 469 | 469 | 469 | - |
| Lightmain Company Limited | 90 | 150 | - | 90 |
| Macro Art Holdings Limited | 156 | 156 | 156 | - |
| Ness (Holdings) Limited | 180 | 1,547 | 783 | (603) |
| Wakefield Acoustics (via Malvar Engineering Limited) | 60 | 60 | 60 | - |
| Quoted investments: | ||||
| AB Dynamics plc | 371 | 79 | 308 | 63 |
| Mattioli Woods plc | 325 | 63 | 270 | 55 |
| Total from disposals in the year | 16,682 | 5,399 | 13,930 | 2,752 |
| Deferred proceeds: | ||||
| Callstream Group Limited | 11 | - | - | 11 |
| Total from quoted and unquoted investments | 16,693 | 5,399 | 13,930 | 2,763 |
* The total from disposals in the table above is £16,693,000 whereas that shown in the Statement of Cash Flows is £16,968,000. The difference comprises deferred proceeds of £275,000 which had not been received at 31 March 2017.
YFM Private Equity Limited, the Company's Investment Adviser, also acts as investment adviser or manager to certain other funds that have invested in some of the companies within the current portfolio of the Company. Details of these investments are summarised in the tables on pages 68 and 69.
At 31 March 2018 the Company held a significant holding of at least 20 per cent of the issued ordinary share capital, either individually or alongside commonly advised/managed funds, in the following companies:
| Company | Principal activity | No of shares held by the Company |
Percentage of class held by the Company* |
Percentage of class held by commonly advised/ managed funds* |
|---|---|---|---|---|
| ACC Aviation (via Newacc (2014) Limited)** | Business Services | 21,780,000 | 20% | 50% |
| Bagel Nash Group Limited | Food Retail and Manufacturing | 49,648 | 7% | 40% |
| Biz2Mobile Limited | Software, IT & Telecomms | 2,542,372 | 16% | 27% |
| Business Collaborator Limited** | Software, IT & Telecomms | 189,000 | 29% | 48% |
| Deep-Secure Ltd | Software, IT & Telecomms | 99,357 | 16% | 57% |
| DisplayPlan Holdings Limited** | Business Services | 2,340 | 23% | 35% |
| EL Support Services Limited** | Business Services | 3,500 | 50% | 100% |
| e2E Engineering Limited | Software, IT & Telecomms | 450,344 | 14% | 23% |
| Friska Limited** | Retail & Brands | 90,348 | 22% | 36% |
| Gill Marine Holdings Limited | Retail & Brands | 184,675 | 18% | 66% |
| GTK (Holdco) Limited** | Manufacturing & Industrial | 22,222,200 | 27% | 48% |
| Harris Hill Holdings Limited | Business Services | 65,714 | 10% | 36% |
| The Heritage Window Company Holdco Limited** | Manufacturing & Industrial | 15,000 | 30% | 50% |
| Intamac Systems Limited | Software, IT & Telecomms | 500,000 | 4% | 34% |
| Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office)** |
Business Services | 159,913 | 27% | 44% |
| KeTech Enterprises Limited | Software, IT & Telecomms | 128,333 | 15% | 46% |
| Macro Art Holdings Limited** | Business Services | 150,000 | 21% | 35% |
| Mangar Health Limited** | Healthcare | 117,832 | 26% | 48% |
| Matillion Limited | Software, IT & Telecomms | 38,756 | 11% | 21% |
| NB Technology Services Limited** | Software, IT & Telecomms | 3,500 | 50% | 100% |
| Ncam Technologies Limited | Software, IT & Telecomms | 27,059 | 17% | 38% |
| OC Engineering Services Limited** | Manufacturing & Industrial | 3,500 | 50% | 100% |
| RMS Group Holdings Limited | Manufacturing & Industrial | 153,293 | 15% | 21% |
| Seven Technologies Holdings Limited | Software, IT & Telecomms | 992,175 | 10% | 38% |
| SH Healthcare Services Limited** | Healthcare | 3,500 | 50% | 100% |
| Sipsynergy (via Hosted Network Services Limited)** | Software, IT & Telecomms | 443,748 | 20% | 50% |
| SP Manufacturing Services Limited** | Manufacturing & Industrial | 3,500 | 50% | 100% |
| Springboard Research Holdings Limited | Business Services | 257,840 | 19% | 32% |
| Wakefield Acoustics (via Malvar Engineering Limited)** |
Manufacturing & Industrial | 74,400 | 25% | 41% |
* Fully diluted holding.
**The registered office of these significant holdings is given on page 84.
In a number of cases the issued ordinary share capital of an investee company is split into different classes of shares and thus the percentages given above do not necessarily represent the Company's (or other commonly managed funds') percentage holding of an investee company's total equity.
The amounts shown below are the net cost of investments as at 31 March 2018 and exclude those companies which are in receivership or liquidation.
| British Smaller Companies VCT plc £000 |
British Smaller Companies VCT2 plc £000 |
British Smaller Companies EIS Fund £000 |
The Chandos Fund LP £000 |
Other commonly managed funds £000 |
Total £000 |
|
|---|---|---|---|---|---|---|
| AB Dynamics plc | 68 | 49 | - | - | - | 117 |
| ACC Aviation (via Newacc (2014) Limited) | 1,142 | 760 | - | - | 952 | 2,854 |
| Bagel Nash Group Limited | 944 | 630 | - | 2,185 | - | 3,759 |
| Biz2Mobile Limited | 1,500 | 1,000 | - | - | - | 2,500 |
| Business Collaborator Limited | 2,010 | 1,340 | - | - | - | 3,350 |
| Deep-Secure Ltd | 1,000 | 500 | - | 2,571 | 429 | 4,500 |
| DisplayPlan Holdings Limited | 130 | 70 | - | - | - | 200 |
| E2E Engineering Limited | 900 | 600 | - | - | - | 1,500 |
| Eikon Holdco Limited | 3,000 | 2,000 | - | - | 1,000 | 6,000 |
| EKF Diagnostics plc | 448 | 437 | - | - | - | 885 |
| EL Support Services Limited | 500 | 500 | - | - | - | 1,000 |
| Friska Limited | 1,800 | 1,200 | - | - | - | 3,000 |
| Gamma Communication plc | 104 | 72 | - | - | - | 176 |
| Gill Marine Holdings Limited | 2,500 | 1,870 | 600 | 4,000 | - | 8,970 |
| GTK (Holdco) Limited | 222 | 146 | 250 | - | - | 618 |
| Harris Hill Holdings Limited | 600 | - | - | 2,349 | - | 2,949 |
| The Heritage Window Company Holdco Limited | 615 | 410 | - | - | 300 | 1,325 |
| Intamac Systems Limited | 302 | 905 | - | 2,422 | - | 3,629 |
| Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) |
2,934 | 1,956 | - | - | - | 4,890 |
| KeTech Enterprises Limited | 2,000 | 2,000 | - | - | 1,000 | 5,000 |
| Leengate Holdings Limited | 1,401 | 934 | - | - | - | 2,335 |
| Macro Art Holdings Limited | 746 | 497 | - | - | - | 1,243 |
| Mangar Health Limited | 2,460 | 1,640 | 500 | - | - | 4,600 |
| Matillion Limited | 2,666 | 1,778 | - | - | 635 | 5,079 |
| NB Technology Services Limited | 500 | 500 | - | - | - | 1,000 |
| Ncam Technologies LImited | 1,466 | 977 | - | - | 921 | 3,364 |
| OC Engineering Services Limited | 500 | 500 | - | - | - | 1,000 |
| PowerOasis Limited | 445 | 594 | - | 1,186 | - | 2,225 |
| RMS Group Holdings Limited | 180 | 70 | - | - | - | 250 |
| Seven Technologies Holdings Limited | 1,984 | 1,238 | 370 | 4,491 | 500 | 8,583 |
| SH Healthcare Services Limited | 500 | 500 | - | - | - | 1,000 |
| SP Manufacturing Services Limited | 500 | 500 | - | - | - | 1,000 |
| Springboard Research Holdings Limited | 2,647 | 1,765 | - | - | - | 4,412 |
| Sipsynergy (via Hosted Network Services Limited) | 1,770 | 1,309 | - | - | 921 | 4,000 |
| TeraView Limited | 377 | 377 | - | - | - | 754 |
| Traveltek Group Holdings Limited | 1,470 | 980 | - | - | 1,250 | 3,700 |
| Wakefield Acoustics (via Malvar Engineering Limited) | 1,080 | 720 | - | - | - | 1,800 |
| 2018 £000 |
2017 £000 |
|
|---|---|---|
| Non-current assets: | ||
| Trade receivables | 1,284 | 1,160 |
| Current assets: | ||
| Trade receivables | 1,897 | 1,216 |
| Less: Allowances for credit losses on trade receivables | (228) | (448) |
| Trade receivables - net | 1,669 | 768 |
| Other debtors | - | 4,245 |
| Prepayments and accrued income | 64 | 55 |
| 1,733 | 5,068 | |
| Allowance for credit losses on trade receivables: | ||
| Allowances as at 1 April | 448 | 95 |
| Trade receivable written off | (320) | - |
| Unused amount reversed – credited to Statement of Comprehensive Income | - | (44) |
| Additions – charged to Statement of Comprehensive Income | 100 | 397 |
| Allowances as at 31 March | 228 | 448 |
Trade receivables are assessed for reduction in fair value when older than 90 days or where there is reasonable doubt that payment will be received in due course. As of 31 March 2018, there was £84,000 of trade receivables that were past due but not impaired (2017: £nil). These were received by the end of May 2018.
The carrying amounts of the Company's trade and other receivables are denominated in sterling.
The maximum exposure to credit risk at the reporting date in respect of trade and other receivables is the carrying value of each class of receivables mentioned above. The Company does not hold any collateral as security.
Other debtors at 31 March 2017 represents the net proceeds arising from the allotment of ordinary shares on 29 March 2017 which were received in April 2017.
| 2018 £000 |
2017 £000 |
|
|---|---|---|
| Cash at bank | 10,057 | 14,847 |
| Cash and Cash Equivalents | 10,057 | 14,847 |
At 31 March 2018 a further £9.0 million (2017: £13.0 million) is also held in notice and fixed term deposit accounts with a notice period of 95 days. In accordance with the definition of cash and cash equivalents the amounts in both the current and prior year are shown separately as a current asset on the face of the balance sheet.
| 2018 £000 |
2017 £000 |
|
|---|---|---|
| Incentive fee | 523 | 3,649 |
| Accrued expenses | 213 | 340 |
| 736 | 3,989 |
An amount of £523,305 has been accrued within trade and other payables in relation to the performance incentive fee for the year ended 31 March 2017, as explained further in note 3. This will be paid following the Annual General Meeting on 5 September 2018.
| 2018 Allotted, Called-up and Fully paid £000 |
2017 Allotted, Called-up and Fully paid £000 |
|
|---|---|---|
| Ordinary shares of 10 pence | ||
| Issued: 113,415,182 (2017: 111,007,496) including 5,225,018 shares held in treasury (2017: 4,047,999). | 11,342 | 11,101 |
The movements in the year were as follows:
| Price pence |
Date | Number of shares |
Share Capital £000 |
||
|---|---|---|---|---|---|
| Total as at 1 April 2017 Issue of shares |
DRIS | 72.53 | 26 May 2017 | 111,007,496 2,407,686 |
11,101 241 |
| As at 31 March 2018 (including treasury shares) | 113,415,182 | 11,342 | |||
| As at 31 March 2018 (excluding treasury shares) | 108,190,164 |
During the year the Company purchased 1,177,019 (2017: 458,334) of its own shares and these shares are held on the balance sheet in the Capital Reserve. Full details of the share purchases are set out in the Directors' Report under the heading 'Buy-back and Issue of Shares'. The treasury shares have been included in calculating the number of ordinary shares in issue, and excluded in calculating the number of ordinary shares with voting rights in issue at 31 March 2018 and 31 March 2017.
The movement in the previous year to 31 March 2017 was as follows:
| Price pence |
Date | Number of shares |
Share Capital £000 |
||
|---|---|---|---|---|---|
| Total as at 1 April 2016 | 99,345,335 | 9,935 | |||
| Issue of shares | DRIS | 93.10 | 5 August 2016 | 847,016 | 85 |
| Issue of shares | DRIS | 91.20 | 5 August 2016 | 494,088 | 49 |
| Issue of shares | DRIS | 77.71 | 18 January 2017 | 5,312,221 | 531 |
| Issue of shares | Fundraising | 84.64 - 86.34 | 29 March 2017 | 5,008,836 | 501 |
| As at 31 March 2017 (including treasury shares) | 111,007,496 | 11,101 | |||
| As at 31 March 2017 (excluding treasury shares) | 106,959,497 |
The basic and diluted net asset value per ordinary share is calculated on attributable assets of £86,137,000 (2017: £88,072,000) and 108,190,164 (2017: 106,959,497) ordinary shares in issue at the year end.
The treasury shares have been excluded in calculating the number of ordinary shares in issue at 31 March 2018 and 31 March 2017.
The Company has no securities that would have a dilutive effect in either period and hence the basic and diluted net asset values per ordinary share are the same.
The total return per ordinary share is calculated on cumulative dividends paid of 136.4 pence per ordinary share (2017: 130.7 pence per ordinary share) plus the net asset value as calculated per note 12.
There are no financial commitments at 31 March 2018.
There are no related party transactions.
On 18 May 2018 the Company paid an interim dividend for the year ending 31 March 2019 of 4.0 pence per ordinary share with 1,751,747 ordinary shares being issued under the Company's DRIS.
In April 2018 the Company made a new investment of £1.32 million into Hutchinson Networks Limited with a further £1.80 million invested into Arcus Global Limited during May 2018.
In May 2018 the Company has received a total of £1.9 million in deferred consideration and loan repayments from Fairlight Bridge Limited and ACC Aviation.
The Company has no derivative financial instruments and has no financial asset or liability for which hedge accounting has been used in either year. The Company classifies its financial assets as either fair value through profit or loss or loans and receivables, and its financial liabilities, primarily accrued expenses, as fair value through profit or loss.
It is the directors' opinion that the carrying value of trade receivables and trade payables approximates their fair value. Therefore, the directors consider all assets and liabilities to be carried at a valuation which equates to fair value.
Investments are made in a combination of equity, fixed rate and variable rate financial instruments so as to comply with VCT legislation and provide potential future capital growth. Surplus funds are held in bank deposits until suitable qualifying investment opportunities arise.
In accordance with IAS 39, the Company has reviewed all contracts for embedded derivatives that are required to be separately accounted for if they do not meet certain criteria set out in the standard. No embedded derivatives have been identified by the Company. The accounting policies for financial instruments have been applied to the items below:
| 2018 | 2017 | |||
|---|---|---|---|---|
| Loans and receivables |
Assets at fair value through profit or loss |
Loans and receivables |
Assets at fair value through profit or loss |
|
| Non-current assets | £000 | £000 | £000 | £000 |
| Financial assets at fair value through profit and loss | - | 64,798 | - | 57,963 |
| Accrued income | 1,284 | - | 1,160 | - |
| Current assets | ||||
| Cash and cash equivalents | 10,057 | - | 14,847 | - |
| Cash on fixed term deposit | 9,001 | - | 13,023 | - |
| Trade and other receivables | 1,669 | - | 768 | - |
| Other debtors | - | - | 4,245 | - |
| 22,011 | 64,798 | 34,043 | 57,963 | |
| Other assets – not financial instruments | 64 | - | 55 | - |
| 22,075 | 64,798 | 34,098 | 57,963 |
Assets classified as fair value through profit or loss were designated as such upon initial recognition. The Company has not reclassified financial assets between any of the categories detailed in IAS 39, either in current or prior periods.
| 2018 Other financial liabilities £000 |
2017 Other financial liabilities £000 |
|
|---|---|---|
| Trade and other payables | (736) | (3,989) |
The Company's investing activities expose it to various types of risk that are associated with the financial instruments and markets in which it invests. The most important types of financial risk to which the Company is exposed are market risk, credit risk and liquidity risk. The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Company are discussed below. There have been no changes since last year in the objectives, policies, and processes for managing and measuring risks facing the Company.
The Company invests in new and expanding businesses, the shares of which may not be traded on the stock market. Consequently, exposure to market factors, in relation to many investments, stems from market based measures that may be used to value unlisted investments. The Company also holds a number of quoted investments.
The market also defines the value at which investments may be sold. Returns are therefore maximised when investments are bought or sold at appropriate times in the economic cycle.
Market price risk arises from uncertainty about the future prices of financial instruments held in accordance with the Company's investment objectives. It represents the potential loss that the Company might suffer through holding market positions in the face of market movements. In addition, the ability of the Company to purchase or sell investments is also constrained by requirements set down for VCTs.
Of the Company's financial assets at fair value through profit or loss, 3 per cent are quoted on AIM (2017: 4 per cent) and 4 per cent (2017: none) are investment funds listed on the main market of the London Stock Exchange (including FCA authorised and regulated UCITS funds). A 5 per cent increase in stock prices as at 31 March 2018 would have increased the net assets attributable to the Company's shareholders and the total profit for the year by £226,000 (2017: £122,000). An equal change in the opposite direction would have decreased the net assets attributable to the Company's shareholders and the total profit for the year by an equal amount.
Of the Company's financial assets at fair value through profit or loss, 92 per cent are in unquoted companies held at fair value (2017: 96 per cent). The valuation methodology for these investments includes the application of externally produced sales multiples and FTSE® PE multiples. Therefore the value of the unquoted element of the portfolio is also indirectly affected by price movements on the listed market. Investments have been valued in line with the valuation guidelines described within Note 1. Those using earnings and sales multiple methodologies include judgements regarding the level of discount applied to that multiple. A 10 per cent decrease in the discount applied would have increased the net assets attributable to the Company's shareholders and the total profit for the year by £3,966,000 (4.6 per cent of net assets). An equal change in the opposite direction would have decreased net assets attributable to the Company's shareholders and the total profit for the year by £3,687,000 (4.3 per cent of net assets).
Other valuations are valued at the price of recent investment, reviewed and discounted where the fair value of the investment no longer equates to the cost of the recent investment. A 10 per cent decrease in the discount applied would have increased the net assets attributable to the Company's shareholders and the total profit for the year by £1,211,000 (1.4 per cent of net assets).
The largest single concentration of risk relates to the Company's investment in Matillion Limited which constitutes 5.7 per cent (2017: ACC Aviation (via Newacc (2014) Limited) at 6.1 per cent) of the net assets attributable to the Company's shareholders. The Board seeks to mitigate this risk by diversifying the portfolio and monitors the status of all investments on an ongoing basis. The average investment (excluding those managed on a discretionary basis by Brewin Dolphin Securities Limited) is 1.9 per cent (2017: 1.7 per cent) of the value of net assets.
The table below shows a comparison of the realised proceeds to the unrealised valuations one year prior to sale, for all disposals of unquoted investments over the last ten years.
| 40,695 | 24,361 | 16,334 | ||
|---|---|---|---|---|
| Other | December 2009 to January 2017 | 172 | 124 | 48 |
| Harvey Jones Holdings Limited | August 2017 | 970 | 1,113 | (143) |
| Selima Holding Company Ltd* | May 2017 | 2,064 | 923 | 1,141 |
| Ness (Holdings) Limited* | March 2017 | 180 | 764 | (584) |
| Cambrian Park & Leisure Homes Limited | March 2017 | - | 1,876 | (1,876) |
| GO Outdoors Topco Limited | November 2016 & April 2011 | 20,849 | 9,932 | 10,917 |
| Callstream Group Limited | March 2016 | 785 | 773 | 12 |
| Insider Technologies (Holdings) Limited | October 2015 | 1,159 | 880 | 279 |
| President Engineering Group Limited | July 2015 | 7,534 | 4,071 | 3,463 |
| Waterfall Services Limited | December 2014 | 3,854 | 1,952 | 1,902 |
| Fishawack Limited | March 2013 | 1,303 | 896 | 407 |
| Primal Pictures Limited | August 2012 | 537 | 307 | 230 |
| Sheet Piling (UK) Limited | March 2010 | 1,288 | 750 | 538 |
| Full disposal | Date of Disposal | Sale proceeds £000 |
Valuation £000 |
Gain (loss) £000 |
* includes estimated value of deferred consideration on exit or liquidation.
The Company's venture capital investments include £21,213,000 (2017: £21,719,000) of loan stock in unquoted companies. The majority of this loan stock at 31 March 2018 is at fixed rates to guard against fluctuations in interest rates. As a result the Company is exposed to cash flow interest rate risk on £750,000 (2017: £1,650,000) of its loan stock portfolio.
The Company holds a fixed income Government security. The value of the holding is inversely linked to movements in market interest rates and as such this portfolio is subject to fair value interest rate risk. The Board believes this risk to be satisfactorily mitigated.
The Company has some exposure to interest rates as a result of interest earned on bank deposits. Other financial assets (being accrued income) and other financial liabilities (being accrued expenses) attract no interest and have an expected maturity date of less than one year. A sensitivity analysis has not been performed as the amounts involved are not considered to be significant.
| 2018 | 2017 | |||||
|---|---|---|---|---|---|---|
| £000 | Weighted average interest rate % |
Weighted average time for which rate is fixed Months |
£000 | Weighted average interest rate % |
Weighted average time for which rate is fixed Months |
|
| Fixed rate loan stock and preference shares | 30,157 | 8.8 | 23 | 27,834 | 8.9 | 26 |
| Fixed income securities | 706 | 1.3 | 4 | 1,444 | 1.1 | 11 |
| Cash on fixed term deposit | 9,001 | 1.1 | 2 | 13,023 | 0.9 | 2 |
| Combined | 39,864 | 6.9 | 18 | 42,301 | 6.2 | 18 |
The Company has no significant direct exposure to exchange rate risk.
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Investment Adviser has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. The carrying amounts of financial assets excluding equity investments total £56,229,000 (2017: £60,541,000) which best represents the maximum credit risk exposure at the balance sheet date.
The Company does not invest in floating rate instruments other than, on occasion, unquoted loan stock. Credit risk on unquoted loan stock held within unlisted investments is considered to be part of market risk as disclosed above.
The fair value of the loans and receivables is not regarded as having changed due to the changes in credit risk in either year.
Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the high credit quality of the brokers used. The Board monitors the quality of service provided by the brokers used to further mitigate this risk. Bankruptcy or insolvency of the broker may cause the Company's rights with respect to securities held by the broker to be delayed or limited. The Investment Adviser monitors the Company's risk by reviewing the broker's internal control reports on a regular basis.
The cash held by the Company is held across a number of banks to spread the risk. Bankruptcy or insolvency of these banks may cause the Company's rights with respect to the cash held by the bank to be delayed or limited. The banks and financial adviser used by the Company are large and reputable. Should the credit quality or the financial position of the banks deteriorate significantly the Investment Adviser will move the cash holdings to another bank.
The Company holds a number of listed investment funds. Market disruption could delay the Company's ability to redeem these investments and their values may fall. The Investment Adviser and the Board monitor these investments on a regular basis in conjunction with the Company's Financial Adviser. The holdings are intended as medium to long-term investments but they could be sold on the market if necessary.
The maturities of the loan stock portfolio are as follows:
| 2018 £000 | 2017 £000 | |||||||
|---|---|---|---|---|---|---|---|---|
| <1 year | 1-2 years | 2-5 years | >5 years | <1 year | 1-2 years | 2-5 years | >5 years | |
| Unquoted loan | ||||||||
| investments | 8,432 | 5,806 | 6,498 | 477 | 2,405 | 10,458 | 8,856 | - |
The past due maturity dates of the loan stock portfolio are as follows:
Included within unquoted loan investments are £1,178,000 of loans which are past their due date but have been re-negotiated.
An aged analysis of the unquoted loan 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 date under the loan's contractual terms (such as payment of interest) is received late or missed. The full value of the loan is given even though, in some cases, the only default is in respect of interest.
| 2018 £000 0-6 months |
2017 £000 0-6 months |
|
|---|---|---|
| Loans to investee companies past due | 5,033 | 3,914 |
The risk to the Company relates to liabilities which fall due within one year. These liabilities are deemed immaterial and as such the risk associated with them is minimal.
The Company needs to retain enough liquid resources to support the financing needs of its investment businesses. To meet this aim the Company places its surplus funds in a mixture of Government gilts, bank interest deposit accounts and listed investment funds. Investments in liquid funds are held for the purpose of liquidity whilst waiting for suitable qualifying investment opportunities to arise. The quoted investments and listed investment funds are closely monitored and could be realised at short notice if required, although there is some risk that redemptions could be suspended in extreme market conditions.
The Company's liquidity risk is managed on an ongoing basis by the Investment Adviser in accordance with policies and procedures in place. The cash requirements of the Company in respect of each investment are assessed at monthly portfolio meetings.
The Company's overall liquidity risks are monitored on a quarterly basis by the Board. The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses. Of the Company's assets 15.2 per cent (2017: 18.5 per cent) are in the forms of liquid cash and readily realisable securities. There are no undrawn committed borrowing facilities at either year end. The Company does not have a material amount of liabilities at the year end.
The Company's objectives when managing capital are:
The Company has no external debt; consequently all capital is represented by the value of share capital, distributable and other reserves. Total shareholder equity at 31 March 2018 was £86.14 million (2017: £88.07 million).
In order to maintain or adjust its capital structure the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets.
There have been no changes in capital management objectives or the capital structure of the business from the previous year. The Company is not subject to any externally imposed capital requirements.
NOTICE IS HEREBY GIVEN that the ANNUAL GENERAL MEETING of the Company will be held at 33 St James Square, London, SW1Y 4JS on 5 September 2018 at 11:00 am for the following purposes:
To consider and, if thought fit, pass the following resolutions:
By order of the Board
Company Secretary
26 June 2018
Registered office: 5th Floor, Valiant Building, 14 South Parade, Leeds LS1 5QS
Information regarding the Annual General Meeting, including the information required by section 311A of the Companies Act 2006, is available from www.bscfunds.com.
answering the question would interfere unduly with the preparation for the Annual General Meeting or involve the disclosure of confidential information;
the answer has already been given on a website in the form of an answer to a question; or
Link Asset Services PXS1 34 Beckenham Road Beckenham BR3 4ZF;
such shares registered in their name at the relevant time. Changes to entries on the Register of Members after close of business on 3 September 2018 or, in the event that the Annual General Meeting is adjourned, on the Register of Members less than 48 hours before the time of any adjourned meeting, shall be disregarded in determining the right of any person to attend and vote at the Annual General Meeting.
I/We _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________being a member/members of the above named Company entitled to attend and vote at the Annual General Meeting of the Company hereby appoint the Chairman of the Annual General Meeting or (see notes (2) to (6)) _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________of
_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on 5 September 2018 at 11:00 am and at any adjournment thereof.
Please tick here if this proxy is one of multiple proxy appointments being made (see note 2) n
My/our proxy is to vote on the resolutions as indicated below. Please indicate with an "x" how you wish your vote to be cast. If no voting indication is given, your proxy will vote or abstain from voting on the resolutions at their discretion.
| FOR | AGAINST | WITHHELD | ||
|---|---|---|---|---|
| Ordinary Resolutions | ||||
| 1. | To receive the annual report and accounts | n | n | n |
| 2. | To approve the Directors' Remuneration Report | n | n | n |
| 3. | To re-elect Ms H Sinclair as a director | n | n | n |
| 4. | To re-elect Mr C W E R Buchan as a director | n | n | n |
| 5. | To re-elect Mr R W Cook as a director | n | n | n |
| 6. | To re-appoint BDO LLP as auditor | n | n | n |
| 7. | To authorise the directors to allot shares | n | n | n |
| 8. | To grant authority to allot shares pursuant to the dividend re-investment scheme for a further period |
n | n | n |
| Special Resolutions | ||||
| 9. | To waive pre-emption rights in respect of the allotment of shares | n | n | n |
| 10. | To authorise the directors to waive pre-emption rights in relation to the allotment of shares pursuant to the dividend re-investment scheme for a further period |
n | n | n |
Please refer to notes overleaf.
Please complete, sign and date, detach and return the Form of Proxy in the pre-paid envelope provided OR alternatively submit your proxy vote using the on-line facility at www.signalshares.com. You will be asked to enter your investor code, surname and postcode to be able to lodge your vote. Your investor code can be found on your share certificate or recent tax voucher.
To be used at the Annual General Meeting of the Company to be held at 33 St James Square, London, SW1Y 4JS on 5 September 2018 at 11:00 am
YFM Private Equity Limited 5th Floor, Valiant Building 14 South Parade Leeds LS1 5QS
Link Asset Services The Registry 34 Beckenham Road Beckenham BR3 4TU
Howard Kennedy LLP No. 1 London Bridge London SE1 9BG
Panmure Gordon (UK) Limited One New Change London EC4M 9AF
Brewin Dolphin Limited 34 Lisbon Street Leeds LS1 4LX
BDO LLP 55 Baker Street London W1U 7EU
Philip Hare & Associates LLP Suite C, First Floor 4-6 Staple Inn Holborn London WC1V 7QH
Santander UK plc 44 Merrion Street Leeds LS2 8JQ
The City Partnership (UK) Limited 110 George Street Edinburgh EH2 4LH
Belgrave House, 39-43 Monument Hill, Weybridge, Surrey, KT13 8RN
Business Collaborator Limited Reading Bridge House, George Street, Reading, RG1 8LS
Clare House, High Street, Baldock, Hertfordshire, SG7 6BE
NB Technology Services Limited, OC Engineering Services Limited, SH Healthcare Services Limited, SP Manufacturing Services Limited: 5th Floor, Valiant Building, 14 South Parade, Leeds, LS1 5QS
S1, Bristol & Exeter House, Lower Approach Road, Bristol, England, BS1 6QS
Unit C2 Antura Bond Close, Basingstoke, Hampshire, RG24 8PZ
Randlesdown Road, London, SE6 3BX
(IO Outsourcing Limited t/a Intelligent Office) 60 Chiswell Street, London, England, EC1Y 4AG
Eltisley Business Park Potton Road, Abbotsley, St. Neots, Cambridgeshire, PE19 6TX
Presteigne Industrial Estate, Presteigne, Powys, LD8 2UF
Wessex House, Upper Market Street, Eastleigh, Hampshire, England, SO50 9FD
Flush Mills Westgate, Heckmondwike, Wakefield, West Yorkshire, WF16 0EN
5th Floor, Valiant Building 14 South Parade Leeds LS1 5QS
Telephone 0113 244 1000 Email [email protected]
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