Annual Report • Dec 31, 2018
Annual Report
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for the year ended 31 December 2018
Transforming small businesses bscfunds.com
British Smaller Companies VCT2 plc was formed in 2000 and invests in a combination of businesses operating in established and emerging industries that offer opportunities in the application and development of innovation.
A diverse existing portfolio of 40 active investments reduces the exposure to particular markets and individual companies. The current investment portfolio has a valuation of £38.1 million as at 31 December 2018.
| ABOUT US | |
|---|---|
| Investment Adviser | British Smaller Companies VCT2 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 Company's investment policy is to create a portfolio that blends a mix of businesses operating in established and emerging industries that offer opportunities in the application and development of innovation in their products and services. Investing across a range of companies and sectors reduces exposure to particular markets and individual companies. |
| The Company invests in 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 venture capital 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. 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 Company expects to be able to pay smaller regular dividends along with special dividends as investments are realised. |
| 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. |
| Scheme ("DRIS") | Dividend Re-Investment 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 |
|---|---|
| Financial Calendar | 3 |
| Five Year Summary | 3 |
| Your Portfolio | 4 |
| Chairman's Statement | 5 |
|---|---|
| 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 | 18 |
| Investment Portfolio Summary at 31 December 2018 | 19 |
| Disposal History to 31 December 2018 | 20 |
| Summary of Investment Portfolio Movement since 31 December 2017 | 21 |
| Investee Company Information | 22 |
| Risk Factors | 28 |
| Other Matters | 30 |
| 31 |
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| 33 |
| 37 |
| 43 |
| 46 |
| 47 Independent Auditor's Report |
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| ------------------------------------ |
| Statement of Comprehensive Income | 52 |
|---|---|
| Balance Sheet | 53 |
| Statement of Changes in Equity | 54 |
| Statement of Cash Flows | 56 |
| Notes to the Financial Statements | 57 |
Notice of the Annual General Meeting 79 Form of Proxy 83
Company Advisers 85
| Results Announced | 22 March 2019 |
|---|---|
| Ex-dividend Date | 4 April 2019 |
| Record Date | 5 April 2019 |
| DRIS Election Date | 25 April 2019 |
| Annual General Meeting | 7 May 2019 |
| Dividend Paid | 10 May 2019 |
| Year ended 31 December 2018 |
Year ended 31 December 2017 |
Year ended 31 December 2016 |
Year ended 31 December 2015 |
Year ended 31 December 2014 |
|
|---|---|---|---|---|---|
| Income £000 | 1,637 | 1,413 | 1,937 | 1,953 | 1,272 |
| Profit before and after taxation £000 | 4,454 | 2,069 | 1,412 | 4,132 | 1,157 |
| Net assets attributable to ordinary shares £000 | 64,054 | 59,056 | 56,109 | 54,850 | 39,333 |
| Profit per ordinary share | 4.17p | 2.07p | 1.51p | 4.96p | 2.00p |
| Dividends per ordinary share paid in the year | 3.0p | 3.0p | 4.5p | 4.5p | 4.5p |
| Net asset value per ordinary share | 59.9p | 58.8p | 59.7p | 62.9p | 62.9p |
| Total Shareholder Return per ordinary share1 | 118.4p | 114.3p | 112.2p | 110.9p | 106.4p |
| Increase in Total Shareholder Return per ordinary share1 |
4.1p | 2.1p | 1.3p | 4.5p | 1.8p |
| Cumulative 3 year increase in Total Shareholder Return per ordinary share1 |
7.5p | ||||
| Cumulative 5 year increase in Total Shareholder Return per ordinary share1 |
13.8p |
1 These are Alternative Performance Measures. The Board considers Total Shareholder Return to be the primary measure of shareholder value.
The Company is pleased to present its Strategic Report for the year ended 31 December 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.
I am pleased to report that your Company has made good progress during the year, with gains on the sale of three portfolio companies in December 2018 and net overall valuation gains across the rest of the portfolio. As a result, Total Shareholder Return in the year was 4.1 pence per ordinary share, which equates to 7.0 per cent of the net asset value at 31 December 2017. Total Shareholder Return is now 118.4 pence per ordinary share.
Your Company's portfolio delivered a strong performance over the year, generating a return of 11.1 per cent over its opening value, while new and follow-on investments totalling £5.65 million have also been completed.
Realisations of investments and loan repayments generated total proceeds of £12.99 million, a gain of £3.10 million over the opening carrying value and £6.30 million over cost. There were three successful realisations, all completing in December:
The Company realised its investment in GTK (Holdco) Limited generating proceeds of £2.46 million. The total return (including income) from this investment is £3.89 million, a multiple of 3.4x cost.
The Company realised its investment in Mangar Health Limited generating proceeds of £3.68 million. The total return (including income) from this investment is £4.39 million, a multiple of 2.7x cost.
The Company realised its investment in Gill Marine Holdings Limited generating proceeds of £2.84 million. The total return (including income) from this investment is £3.7 million, a multiple of 2.0x cost.
Following these divestments your Company paid a special dividend for the year ending 31 December 2019 of 5.0 pence per ordinary share on 15 February 2019.
During the year your Company has completed investments totalling £5.65 million comprising four new investments and three follow-on investments. These were:
In March 2018 £0.98 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 funds will be used to support the development of new products, invest in the team, and help the business extend its reach into new territories.
Also in March 2018 your Company invested £2.00 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 has used the investment to
build a new state of the art studio in Los Angeles, which became operational in December 2018, as well as continuing to invest in the development of technology to enhance the service delivery to customers.
In April 2018 your Company made a new investment of £0.88 million into Hutchinson Networks Limited, a leading provider of multi-vendor IT and network solutions to clients globally. Hutchinson will utilise the money to fund additional marketing and operational resources to accelerate international growth in a growing market. Due to additional working capital requirements of recent contract wins Hutchinson is seeking additional funding. As a precaution against Hutchinson being unable to raise these funds the original investment has been impaired.
During May 2018 £1.20 million was invested into Arcus Global Limited, a provider of cloud-based software solutions to local and national public-sector organisations. The funding will support the continued growth of the business; building resource in technology development, sales and customer services. Your Company is proposing to make a further investment to enable Arcus to continue expanding its range of software solutions to help the public sector to increase its use of digital technologies and transform services.
Follow-on investments were made into three existing portfolio companies, including an additional investment of £0.38 million into Matillion Limited which was part of a large secondary funding round supported by two well-known US investors.
The Annual General Meeting of the Company will be held at 12:00 noon on 7 May 2019 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 79.
The movement in Total Shareholder Return1 is set out in the table below:
| Pence per ordinary share |
|
|---|---|
| Total Shareholder Return1 Cumulative dividends to 31 December 2017 Net asset value to 31 December 2017 |
55.5 58.8 |
| Total Return at 1 January 2018 Net underlying increase in portfolio Issue/buy-back of shares |
114.3 4.2 (0.1) |
| Increase in Total Shareholder Return | 4.1 |
| Total Shareholder Return at 31 December 2018 | 118.4 |
1 Total Shareholder Return is an Alternative Performance Measure.
In the year to 31 December 2018 your Company's Total Shareholder Return increased by 4.1 pence per ordinary share to 118.4 pence per ordinary share, driven by gains on the disposal of three investments and underlying value growth in the investment portfolio. This equates to an increase of 7.0 per cent on the opening net asset value at 31 December 2017.
As part of your Board's commitment to maintaining a sustainable level of
dividends a final dividend of 1.5 pence per ordinary share in respect of the year ended 31 December 2017 and an interim dividend of 1.5 pence per ordinary share in respect of the year ended 31 December 2018 were paid in the period, bringing the cumulative dividends paid to 31 December 2018 to 58.5 pence per ordinary share.
The movement in net asset value ("NAV") per ordinary share and the dividends paid are set out in the table below:
| Pence per ordinary share |
£000 | |
|---|---|---|
| NAV at 31 December 2017 Net underlying increase in portfolio Net income after expenses Issue/buy-back of new shares |
58.8 4.2 - (0.1) |
59,056 4,479 (25) 3,769 |
| Dividends paid | 4.1 (3.0) |
8,223 (3,225) |
| NAV at 31 December 2018 Cumulative dividends paid |
1.1 59.9 58.5 |
4,998 64,054 |
| Total Shareholder Return: at 31 December 2018 at 31 December 2017 |
118.4 114.3 |
The charts on page 11 of these financial statements show in greater detail the movement in Total Shareholder Return and net asset value over time.
The investments held at 31 December 2017, amounting to £40.42 million, delivered a return over the year of £4.48 million, equivalent to an increase in value for shareholders of 4.2 pence per ordinary share. This return comprises a net gain on the revaluation of the portfolio of £1.38 million and a net gain over the opening value from the realisation of investments and deferred proceeds of £3.10 million.
Within the current portfolio there were £7.31 million of unrealised gains offset by £5.93 million of unrealised losses. There were strong performances from ACC Aviation, Matillion Limited, Deep-Secure Ltd, KeTech Enterprises Limited and Business Collaborator Limited, which in part were offset by the performances of DisplayPlan Holdings Limited, Traveltek Group Holdings Limited, e2E Engineering Limited, Hutchinson Networks Limited and Immunobiology Limited.
Dividends paid in the year comprise a final dividend of 1.5 pence per ordinary share in respect of the year ended 31 December 2017, and an interim dividend of 1.5 pence per ordinary share in respect of the financial year just ended, totalling 3.0 pence per ordinary share. This takes the cumulative dividends paid to 58.5 pence per ordinary share at 31 December 2018. Following the realisations in December 2018 the Company paid a special dividend of 5.0 pence per ordinary share in respect of the year ending 31 December 2019 on 15 February 2019, bringing cumulative dividends paid to date to 63.5 pence per ordinary share.
The VCT rules introduced and implemented in 2015 have led to more investments in earlier stage businesses and the unquoted portfolio as at 31 December 2018 comprised £12.86 million (35 per cent of the total value) of investments made since these changes.
The Board is proposing a final dividend of 1.5 pence per ordinary share for the year ended 31 December 2018. This final dividend is subject to approval by the shareholders at the forthcoming Annual General Meeting and if approved will then be paid on 10 May 2019 to shareholders on the register at 5 April 2019. The exdividend date is 4 April 2019.
Your Company operates a DRIS, which gives shareholders the opportunity to reinvest any cash dividends and is open to all shareholders, including those who invested under the recent offers. The three advantages of the DRIS are:
For the financial year ended 31 December 2018 dividends totalling £0.72 million were invested in your Company by way of the DRIS.
During the first half of the financial year your Company raised net proceeds of £4.3 million through a "top-up" offer.
On 27 November 2018 your Company launched a new share offer with British Smaller Companies VCT plc to raise in
aggregate up to £30 million, with an overallotment facility of £5 million. I am delighted that due to strong demand the offer closed on 11 February 2019 raising total gross proceeds of £35 million. The allotment of new ordinary shares is expected to take place between 1 and 5 April 2019, subsequent to which your Company will receive net proceeds of approximately £13.0 million.
The electronic communications policy continues to be a great success, with 83 per cent of shareholders now receiving communications in this way. Documents such as the annual report are published on 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 next Investor Workshop will take place on 20 June 2019 and is being held at Gibson Hall, 13 Bishopgate, London EC2N 3BA.
As previously announced, after seventeen years' service, I have decided to stand down as Chairman and director of your Company at the 2019 Annual General Meeting. Having considered the level of experience and expertise that will be needed in the future the Board has decided that it would be in shareholder's best interest for Peter Waller, currently a non-executive director, to take on the role of Chairman. I know that Peter will be an excellent Chairman and I wish him well in his new role.
I am delighted that Roger McDowell joined the Board as a non-executive director on 6 March 2019. Roger has considerable experience as a Chairman and nonexecutive director of a wide range of technology, business services and manufacturing businesses. Through his achievements Roger has gained considerable trust in the City and is highly regarded by shareholders for his record of investment returns. He brings a wealth of knowledge to your Company. As is normal practice, Roger will stand for re-election at the Annual General Meeting.
The revised rules introduced in the November 2015 and November 2017 budgets have had a major impact on deal structuring, with equity instruments making up 79 per cent of all investments since 2015. In addition, due to the earlier development stage of most investments, the interest on the debt instruments is largely rolled until exit or the loan repayment date. The combination of these two factors means that the Company's income stream will reduce over time and the receipt of interest income will be later in the lifetime of an investment.
In December 2016 HMRC published a consultation on improving the advance assurance process with the major proposal being for VCTs to self-assure as much as possible. At the time there was little guidance from HMRC on how this would operate in practice and, in particular, how inadvertent errors would be dealt with. The Investment Adviser and other VCT advisers have been working closely with HM Treasury and HMRC to clarify the guidance and there has now been a major step forward. As a result, your Company has decided that it will, subject to professional advice, self-assure on investments that can easily be defined as a Qualifying Investment.
As a result of the realisations in December 2018 a special dividend of 5.0 pence per ordinary share in respect of the year ending 31 December 2019 was paid on 15 February 2019. On the same date 2,248,286 ordinary shares were issued under the Company's DRIS.
The Board and the Investment Adviser have agreed changes to the Investment Adviser's remuneration that will benefit shareholders, including a reduced Investment Adviser Fee of 1 per cent on cash in excess of £10 million with effect from 1 January 2019. This will help offset the low level of interest that can be earned on cash balances, especially now that your Company can deposit cash for no longer than seven days. Further details on this can be found in Note 3 to the accounts on page 61.
Although the outcome of the UK's withdrawal from the EU is still to be finalised, recent experience seems to indicate that there has been little impact on your Company's activities. The three realisations in December 2018 were to a variety of purchasers, including a UK plc and two overseas buyers and the level of new opportunities has continued to improve. In addition, the ability to selfassure on certain new investments puts your Company on a more competitive footing.
The Board believes that the UK's withdrawal from the European Union will have minimal direct effect on the portfolio, but it would not be immune to any worsening in the overall economic environment that this may cause.
The Board wishes to thank existing and new shareholders for making a success of the joint fundraising with British Smaller Companies VCT plc and this has given your Company the resources to continue building the portfolio and deliver shareholder value.
The portfolio continues to evolve, with four new investments and three divestments during 2018. As a result, investments made in the past two years now constitute 35 per cent of the unquoted portfolio's value, almost double the level of the previous year. The Board expects this evolution to continue in 2019, with some portfolio companies in realisation phase and a number of good quality new investment opportunities currently under review.
Richard Last Chairman 22 March 2019
The Company's objective is to maximise Total Shareholder Return and 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 established and emerging industries that offer opportunities in the application and development of innovation in their products and services. Investing across a range of companies and sectors reduces exposure to particular markets and individual companies. The changes to the venture capital trust legislation in November 2015 and those announced in the November 2017 Budget mean that there is greater emphasis on earlier stage growth businesses 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 venture capital 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. In order to limit the risk to the portfolio that is derived from any particular investment, at the point of investment no more than 15 per cent of the Company by value will be in any one investment.
The Company funds the investment programmes out of its own resources and has no borrowing facilities for this purpose.
British Smaller Companies VCT2 plc and British Smaller Companies VCT plc ("the VCTs") have in aggregate first choice of 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 40 per cent to the Company and 60 per cent to British Smaller Companies VCT plc. The Board of the Company has discretion as to whether or not to take up or, where British Smaller Companies VCT 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. 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 43.
Details of the Company's policies on the payment of dividends, the DRIS and the buy-back of shares are given on the inside 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 deem 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.
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 November 2000. 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 amount equivalent to 20 per cent of the amount by which the cumulative dividends per ordinary share paid as at the last business day in December in any year, plus the average of the middle market price per ordinary share on the five dealing days prior to that day, exceeds 120 pence per ordinary share, multiplied by the number of ordinary shares issued and the ordinary shares under option (if any) (the "Hurdle"). Under the terms of the Subscription Rights Agreement, once the Hurdle has been exceeded it is reset at that value going forward, which becomes the new Hurdle. Any subsequent exercise of these rights will only occur once the new Hurdle has been exceeded. The subscription rights are exercisable in the ratio 95:5 between the Investment Adviser and Chord Capital Limited. Further details are given in note 3 to the financial statements.
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.
Total Shareholder Return, calculated by reference to the cumulative dividends paid plus net asset value (excluding tax reliefs received by shareholders), is the primary measure of performance in the VCT industry.
The evaluation of comparative success of the Company's Total Shareholder 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. A comparison and explanation of the calculation of this return is shown in the Directors' Remuneration Report on page 45.
Total Shareholder Return is an Alternative Performance Measure and the Board considers it to be the primary measure of shareholder value. The table below shows the cumulative dividends, the Total Shareholder Return on each fundraising round per ordinary share and the IRR if a shareholder had not opted to participate in the Company's DRIS. The cumulative dividend, total return and IRR figures in this table exclude the benefits of all tax reliefs.
| Year of issue | NAV at 31 December 2018 |
Cumulative dividends paid since fundraising |
Total Shareholder Return to date1 |
Offer price2 | IRR3 |
|---|---|---|---|---|---|
| Pence | Pence | Pence | Pence | % | |
| 2001 | 59.9 | 58.5 | 118.4 | 100.0 | 1.2% |
| 2002 | 59.9 | 58.5 | 118.4 | 100.0 | 1.3% |
| 2010 | 59.9 | 36.5 | 96.4 | 77.3 | 3.3% |
| 2011 | 59.9 | 32.5 | 92.4 | 70.3 | 4.6% |
| 2012 | 59.9 | 28.5 | 88.4 | 70.5 | 4.2% |
| 2013 | 59.9 | 24.0 | 83.9 | 68.0 | 4.5% |
| 2014 | 59.9 | 19.5 | 79.4 | 68.0 | 3.9% |
| 2015 | 59.9 | 15.0 | 74.9 | 65.0 | 4.4% |
| 2016 | 59.9 | 10.5 | 70.4 | 63.0 | 4.2% |
| 2017 | 59.9 | 6.0 | 65.9 | 62.2 | 3.1% |
Notes
1 Total Shareholder Return to date is cumulative dividends paid plus the 31 December 2018 net asset value in pence per ordinary share.
2 The offer price for the relevant year excluding the benefit of income tax relief available to investors at the time of the offer.
3 IRR is the unaudited annual rate of return that equates the offer price at the date of the original investment, with the value of subsequent dividends plus the 31 December 2018 net asset value per ordinary share. This excludes the benefit of any initial tax relief.
The ongoing charges figure, as calculated in line with the AIC recommended methodology, is an Alternative Performance Measure used by the Board to monitor expenses. This figure shows
shareholders 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 Company in the future.
| Expenses | Year to 31 December 2018 (%) |
Year to 31 December 2017 (%) |
|---|---|---|
| Ongoing Charges figure | 2.49 | 2.48 |
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 62. 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 VCT legislative tests set out below have been met, where required.
Further restrictions placed on VCTs are:
The Finance Act 2014 introduced a restriction with respect to the use of monies in respect of VCTs. In particular, no dividends can be paid out of cancelled share premium arising from shares allotted on or after 6 April 2014 until at least three full financial years have elapsed from the date of allotment.
Of amounts relating to cancelled share premium £7.24 million remains undistributable until on or after 1 January 2020.
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. (80 per cent for accounting periods commencing after 5 April 2019). |
| For shares issued in accounting periods beginning on or after 6 April 2018, at least 30 per cent of those share issues must be invested in Qualifying Holdings of investee companies by the anniversary of the accounting period in which those shares are issued. |
|
| Eligible Shares Test | At least 70 per cent of the Company's Qualifying Holdings must be represented throughout the period by holdings of non-preferential shares. |
| Investments made before 6 April 2018 from funds raised before 6 April 2011 are excluded from this requirement. |
|
| At least 10 per cent of the Company's total investment in each Qualifying Investment must be in eligible shares. |
|
| In addition, monies are not permitted to be used to finance buy-outs or otherwise to acquire existing businesses or shares. |
|
| 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 has, at any time in the period, not represented 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 65 per cent of the portfolio valuation being held for more than 3 years, whilst 82 per cent is held at cost or above. 40 per cent of the portfolio's value is held in income generating financial instruments.
Investment Instrument
Also included below is a profile of the investment portfolio by industry sector and the breakdown of the portfolio between investments made before and after the VCT rule changes in 2015.
Portfolio Diversity
Rule Change
The portfolio delivered a strong performance in the year, with a return of £4.5 million on the opening value and income of £1.6 million.
The portfolio as a whole delivered an increased value of £4.48 million in the year, as shown in Table A below. A value gain of £1.38 million has come from the portfolio with strong performances from ACC Aviation, Matillion Limited and DeepSecure Ltd offset by the impact of difficult trading conditions at DisplayPlan Holdings Limited, Hutchinson Networks Limited and Traveltek Group Holdings Limited. A gain of £3.10 million arose from the realisation of investments in the year, including £2.62 million from the disposal of GTK (Holdco) Limited, Mangar Health Limited and Gill Marine Holdings Limited.
| TABLE A | ||
|---|---|---|
| Investment portfolio | £million | % |
| Gain in fair value | 1.38 | 31 |
| Gain on disposal over opening value | 2.75 | 61 |
| 4.13 | 92 | |
| Gain from deferred proceeds | 0.35 | 8 |
| Total value movement | 4.48 | 100 |
At 31 December 2018 the investment portfolio was valued at £38.10 million, representing 59.5 per cent of net assets (68.4 per cent at 31 December 2017). While cash at 31 December 2018 of £25.10 million represented 39.2 per cent of net assets (29.9 per cent at 31 December 2017), this would be approximately 25 per cent of net assets after adjusting for the £9.41 million of proceeds (including outstanding interest) from the three disposals in December 2018.
It is disappointing that the 2018 budget has retained the rule that prevents your Company from holding deposits with more than seven days' notice but the Board continues to review alternative investments that would generate a higher level of income while minimising the level of risk to capital.
During the year ended 31 December 2018 the Company completed seven investments totalling £5.65 million. This comprised four new investments of £5.06 million and three follow-on investments of £0.59 million. The analysis of these investments is shown in Table B. The case study on page 18 gives more information on the investment in Arcus Global Limited.
| TABLE B | ||||
|---|---|---|---|---|
| Date | Company | New | Investments made £million Follow-on |
Total |
| Mar-18 | Ncam Technologies Limited | 0.98 | - | 0.98 |
| Mar-18 | Matillion Limited | - | 0.38 | 0.38 |
| Mar-18 | Eikon Holdco Limited | 2.00 | - | 2.00 |
| Apr-18 | Hutchinson Networks Limited | 0.88 | - | 0.88 |
| May-18 | Arcus Global Limited | 1.20 | - | 1.20 |
| Jun-18 | Immunobiology Limited | - | 0.10 | 0.10 |
| Nov-18 | Traveltek Group Holdings Limited | - | 0.11 | 0.11 |
| Invested in the year | 5.06 | 0.59 | 5.65 | |
| Capitalised interest, dividends and proceeds |
0.48 | |||
| Total additions in the year | 6.13 |
During the year to 31 December 2018 the Company received proceeds from disposals, repayments of loans/preference shares and deferred consideration of £12.99 million. This included the very successful realisations of GTK (Holdco) Limited, Mangar Health Limited and Gill Marine Holdings Limited which delivered exit multiples on original cost of 3.4x, 2.7x and 2.0x respectively and produced realised gains of £5.33 million.
The total value gain on disposal of investments was £3.10 million above the 31 December 2017 valuations as set out in Table C. The case study on page 18 gives some insight into the value created from the investment in GTK (Holdco) Limited.
The quoted portfolio delivered proceeds of £1.89 million with a profit on cost of £0.98 million.
Further analysis of all investments sold in the year can be found in note 7 to the financial statements on page 68.
As at 31 December 2018 the portfolio had a value of £38.10 million which comprised £37.02 million in unquoted investments (97 per cent) and £1.08 million in quoted investments (3 per cent). An analysis of the movements in the year is shown on page 65.
The portfolio remains well diversified, with 19 of 40 investments having a value greater than £0.5 million, compared to 24 a year earlier, with the single largest investment representing 8.2 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 December 2018 by industry sector, age of investment, investment instrument and the valuation compared to cost. This demonstrates representation across a wide range of industry sectors.
Unquoted investments are valued in accordance with the valuation policy set out in note 1 on pages 57 and 58, 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 December 2018 the value of investments falling into each valuation category is shown in Table D.
With continued investment in 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.
After a number of years of significant rule changes it was pleasing that there were very few changes in the 2018 budget. HMRC and the VCT industry have been working with the new rules for a couple of years now and, as ever, it has taken some time for these to bed in. During the year the Investment Adviser and other VCT investment advisers have worked closely with HMRC to refine HMRC's guidance on
the new rules and it is pleasing that this has resulted in an environment whereby your Company can decide to self-assure businesses as Qualifying Investments in the knowledge that its status as a VCT would not be withdrawn.
In 2018 we introduced an assessment of the positive and negative impact the companies we invest in have on the environment, people and society as part of our investment appraisal process and we have introduced a structured framework to assess these impacts within the portfolio.
This approach has already led to a number of activities to improve impact in a variety of areas such as reducing energy usage and raw material usage, re-designing products to make them more environmentally sustainable, recycling, charitable activities and volunteering, providing work experience and career guidance to students, improving staff welfare such as addressing mental health in the workplace, increasing staff engagement and investing in staff training and development.
There is a continual dialogue with HM Treasury and HMRC regarding the VCT rules and hopefully this will result in further improvements to the regulatory environment.
Your Company made three significant realisations at the end of 2018 at substantial uplifts on their values at the start of the year, demonstrating the value in the portfolio and it is hoped that there will be further realisations in 2019.
Your Company has seen a good flow of investment opportunities during the year and this has continued into 2019.
The Investment Adviser has strengthened and expanded its team again this year and is seeking to add further resource in 2019 so that the portfolio continues to be managed pro-actively, whether that is by managing exit processes, developing management teams or further fundraisings. The nature of the investments in the portfolio is shifting towards younger, scale-up businesses that need to build out their infrastructure as they grow and the Investment Adviser and your Company are well resourced to meet these needs.
David Hall YFM Private Equity Limited
22 March 2019
| TABLE D | ||
|---|---|---|
| Valuation Policy | Valuation £million |
% of portfolio by value |
| Earnings multiple | 19.90 | 52 |
| Sales multiple | 11.21 | 29 |
| Cost, reviewed for change in fair value | 5.13 | 14 |
| Price of recent investment, reviewed for change in fair value | 0.78 | 2 |
| Quoted investments at bid price | 1.08 | 3 |
| Total | 38.10 | 100 |
Amount invested by the Company £1.15 million
• Backing an ambitious management team to grow the business
• A well established supplier with identified growth opportunities
Amount invested by the Company £1.20 million
| No | Page Name of Company | Date of initial investment |
Location | Industry Sector | Current cost |
Valuation at 31 December 2018 |
Proceeds to date |
Realised & unrealised value to date* |
|---|---|---|---|---|---|---|---|---|
| £000 | £000 | £000 | £000 | |||||
| Unquoted portfolio | ||||||||
| 22 | ACC Aviation (via NewAcc (2014) Limited) |
Nov-14 | Reigate | Business Services | 145 | 5,248 | 1,233 | 6,481 |
| 23 | Matillion Limited | Nov-16 | Manchester | Software, IT & Telecommunications 1,778 | 5,180 | - | 5,180 | |
| 23 | Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) |
May-14 | Alloa | Business Services | 1,956 | 2,992 | - | 2,992 |
| 24 | KeTech Enterprises Limited | Nov-15 | Nottingham | Software, IT & Telecommunications 1,500 | 2,329 | 500 | 2,829 | |
| 24 | Business Collaborator Limited | Nov-14 | Reading | Software, IT & Telecommunications 1,340 | 2,284 | - | 2,284 | |
| 25 | Eikon Holdco Limited | Mar-18 | London | Software, IT & Telecommunications 2,000 | 2,080 | - | 2,080 | |
| 25 | Deep-Secure Ltd | Dec-09 | Malvern | Software, IT & Telecommunications | 500 | 2,028 | - | 2,028 |
| 26 | Springboard Research Holdings Limited |
Oct-14 | Milton Keynes | Business Services | 1,824 | 1,674 | - | 1,674 |
| 26 | Leengate Holdings Limited | Dec-13 | Derbyshire | Manufacturing & Industrial | 716 | 1,240 | 385 | 1,625 |
| 27 | Friska Limited | Jul-17 | Bristol | Retail & Brands | 1,200 | 1,208 | - | 1,208 |
| 27 | Arcus Global Limited | May-18 | Cambridge | Software, IT & Telecommunications 1,200 | 1,200 | - | 1,200 | |
| 27 | Sipsynergy (via Hosted Network Services Limited) |
Jun-16 | Hampshire | Software, IT & Telecommunications 1,309 | 1,091 | - | 1,091 | |
| Wakefield Acoustics (via Malvar Engineering Limited) |
Dec-14 | Heckmondwike | Manufacturing & Industrial | 720 | 770 | 41 | 811 | |
| Ncam Technologies Limited | Mar-18 | London | Software, IT & Telecommunications | 977 | 733 | - | 733 | |
| Macro Art Holdings Limited | Jun-14 | Cambridgeshire | Business Services | 480 | 682 | 359 | 1,041 | |
| Biz2Mobile Limited | Oct-16 | Oxfordshire | Software, IT & Telecommunications 1,000 | 624 | - | 624 | ||
| Traveltek Group Holdings Limited | Oct-16 | East Kilbride | Software, IT & Telecommunications 1,092 | 591 | - | 591 | ||
| DisplayPlan Holdings Limited | Jan-12 | Baldock | Business Services | 70 | 563 | 820 | 1,383 | |
| SP Manufacturing Services Limited | Apr-15 | Leeds | Manufacturing & Industrial | 500 | 559 | - | 559 | |
| Other investments £0.5 million and below | 9,735 | 3,943 | 1,311 | 5,254 | ||||
| Total unquoted investments | 30,042 | 37,019 | 4,649 | 41,668 | ||||
| Quoted portfolio investments £0.5 million and below | 754 30,796 |
1,083 38,102 |
1,997 6,646 |
3,080 44,748 |
||||
| Full disposals to date | 28,763 | - | 40,438 | 40,438 | ||||
| Total investment portfolio | 59,559 | 38,102 | 47,084 | 85,186 |
* represents proceeds received to date plus the unrealised valuation at 31 December 2018.
| Name of Company | Date of initial investment |
Date of disposal |
Industry sector | Cost £000 |
Capital proceeds to date £000 |
Capital multiple x |
Gains return (losses) on disposal £000 |
|---|---|---|---|---|---|---|---|
| Mangar Health Limited | Jan-14 | Dec-18 | Healthcare | 1,640 | 3,675 | 2.24 | 2,035 |
| GTK (Holdco) Limited | Oct-13 | Dec-18 | Manufacturing | 1,150 | 3,669 | 3.19 | 2,519 |
| Cozart plc | Jul-04 | Oct-07 | Healthcare | 1,566 | 2,978 | 1.90 | 1,412 |
| Gill Marine Holdings Limited | Sep-13 | Dec-18 | Retail & brands | 1,870 | 2,844 | 1.52 | 974 |
| Sarian Systems Limited | Dec-05 | Apr-08 | Telecoms | 928 | 2,605 | 2.81 | 1,677 |
| DxS Limited | Apr-04 | Sep-09 | Healthcare | 163 | 2,515 | 15.43 | 2,352 |
| Vibration Technology Limited | Mar-02 | Sep-06 | Industrial | 1,061 | 2,328 | 2.19 | 1,267 |
| Primal Pictures Limited | Dec-05 | Aug-12 | Medical instruments | 961 | 2,258 | 2.35 | 1,297 |
| Sirigen Group Limited | Jun-10 | Aug-12 | Medical technology | 517 | 1,962 | 3.79 | 1,445 |
| Amino Technologies plc | Sep-01 | Nov-04 | Electronics | 415 | 1,872 | 4.51 | 1,457 |
| Waterfall Services Limited | Feb-07 | Dec-14 | Business services | 483 | 1,422 | 2.94 | 939 |
| Selima Holding Company Ltd | Mar-12 | May-17 | Software | 300 | 1,389 | 4.63 | 1,089 |
| Harvey Jones Holdings Limited | May-07 | Aug-17 | Retail & brands | 1,193 | 1,310 | 1.10 | 117 |
| Digital Healthcare Limited | Jun-05 | Aug-13 | Medical instruments | 3,072 | 1,285 | 0.42 | (1,787) |
| Callstream Group Limited | Sep-10 | Mar-16 | Software | 500 | 1,050 | 2.10 | 550 |
| Gooch & Housego plc | Jan-15 | Oct-18 | Manufacturing | 397 | 884 | 2.23 | 487 |
| Insider Technologies (Holdings) Limited | Aug-12 | Oct-15 | Software | 780 | 773 | 0.99 | (7) |
| Pressure Technologies plc | Jun-07 | Jul-15 | Industrial | 302 | 657 | 2.18 | 355 |
| The ART Technology Group Inc. | Apr-03 | Oct-09 | Software | 275 | 638 | 2.32 | 363 |
| Gamma Communications plc | Oct-14 | Dec-18 | Software | 168 | 568 | 3.38 | 400 |
| Brady plc | Dec-10 | Apr-16 | Software | 603 | 484 | 0.80 | (119) |
| Tamesis Limited | Jul-01 | Sep-07 | Software | 150 | 317 | 2.11 | 167 |
| Optos plc | Dec-05 | Jan-14 | Healthcare | 152 | 316 | 2.08 | 164 |
| Tekton Group Limited | Dec-05 | Dec-06 | Software | 103 | 296 | 2.87 | 193 |
| Tikit Group plc | May-11 | Jan-13 | Software | 198 | 283 | 1.43 | 85 |
| Oxonica plc | May-02 | Sep-09 | Chemical | 241 | 258 | 1.07 | 17 |
| Group NBT plc | May-11 | Nov-11 | IT support | 197 | 256 | 1.30 | 59 |
| Vianet Group plc | Oct-06 | Sep-14 | Business services | 243 | 176 | 0.72 | (67) |
| Patsystems plc | Sep-07 | Jan-12 | Software | 317 | 164 | 0.52 | (153) |
| Hargreaves Services plc | Aug-12 | Jun-15 | Transport | 325 | 160 | 0.49 | (165) |
| Cambridge Cognition Holdings plc | May-02 | Jun-15 | Healthcare | 240 | 157 | 0.65 | (83) |
| May Gurney Integrated Services plc | May-11 | Mar-13 | Construction | 211 | 141 | 0.67 | (70) |
| Cambrian Park & Leisure Homes Limited (via Cambrian Lodges Holdings Limited) |
Oct-14 | Mar-17 | Manufacturing | 1,200 | 128 | 0.11 | (1,072) |
| Allergy Therapeutics plc | Oct-04 | Jun-18 | Healthcare | 350 | 124 | 0.35 | (226) |
| Arakis Limited | Mar-04 | Aug-05 | Healthcare | 14 | 108 | 7.71 | 94 |
| 22,285 | 40,050 | 17,765 | |||||
| Proceeds £0.1 million and below | 6,478 | 388 | (6,090) | ||||
| Total | 28,763 | 40,438 | 11,675 |
n Investment acquired solely from the merger with British Smaller Technology Companies VCT plc in December 2005 n Investment made prior to 31 December 2003
| Name of Company | Investment valuation at 31 December 2017 £000 |
Disposal proceeds £000 |
Additions including capitalised interest, dividends and proceeds £000 |
Valuation gains including profits / (losses) on disposal £000 |
Investment valuation at 31 December 2018 £000 |
|---|---|---|---|---|---|
| Unquoted portfolio | |||||
| ACC Aviation (via Newacc (2014) Limited) | 3,119 | (615) | - | 2,744 | 5,248 |
| Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) |
3,307 | - | - | (315) | 2,992 |
| KeTech Enterprises Limited | 2,336 | (500) | - | 493 | 2,329 |
| Business Collaborator Limited | 1,802 | - | - | 482 | 2,284 |
| Deep-Secure Ltd | 1,276 | - | - | 752 | 2,028 |
| Springboard Research Holdings Limited | 1,930 | - | 59 | (315) | 1,674 |
| Leengate Holdings Limited | 1,522 | (385) | - | 103 | 1,240 |
| Wakefield Acoustics (via Malvar Engineering Limited) | 1,058 | - | - | (288) | 770 |
| Macro Art Holdings Limited | 912 | (43) | - | (187) | 682 |
| Displayplan Holdings Limited | 1,109 | - | - | (546) | 563 |
| SP Manufacturing Services Limited | 500 | - | - | 59 | 559 |
| Immunobiology Limited | 806 | - | 100 | (408) | 498 |
| Bagel Nash Group Limited | 507 | - | - | (18) | 489 |
| TeraView Limited | 557 | - | - | (278) | 279 |
| Seven Technologies Holdings Limited | 619 | - | - | (378) | 241 |
| Mangar Health Limited | 2,641 | (3,675) | - | 1,034 | - |
| GTK (Holdco) Limited | 1,950 | (2,614) | - | 664 | - |
| Gill Marine Holdings Limited | 1,922 | (2,844) | - | 922 | - |
| Other investments £0.5 million and below | 3,308 | - | - | (1,022) | 2,286 |
| Investments made prior to November 2015 | 31,181 | (10,676) | 159 | 3,498 | 24,162 |
| Matillion Limited | 2,222 | - | 378 | 2,580 | 5,180 |
| Eikon Holdco Limited | - | - | 2,000 | 80 | 2,080 |
| Friska Limited | 1,200 | - | - | 8 | 1,208 |
| Arcus Global Limited | - | - | 1,200 | - | 1,200 |
| Sipsynergy (via Hosted Network Services Ltd) | 1,074 | - | - | 17 | 1,091 |
| Ncam Technologies Limited | - | - | 977 | (244) | 733 |
| Biz2Mobile Limited | 863 | - | - | (239) | 624 |
| Traveltek Group Holdings Limited | 1,001 | - | 112 | (522) | 591 |
| e2E Engineering Limited | 600 | - | - | (450) | 150 |
| Hutchinson Networks Limited | - | - | 880 | (880) | - |
| Investments made after November 2015 | 6,960 | - | 5,547 | 350 | 12,857 |
| Total unquoted investments | 38,141 | (10,676) | 5,706 | 3,848 | 37,019 |
| Quoted portfolio | |||||
| Iomart Group plc | 529 | (128) | - | (71) | 330 |
| Other quoted investments £0.5 million and below | 1,753 | (1,770) | 424 | 346 | 753 |
| Total quoted investments | 2,282 | (1,898) | 424 | 275 | 1,083 |
| Total | 40,423 | (12,574) | 6,130 | 4,123 | 38,102 |
* 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 £1.0 million in order of valuation at 31 December 2018. The Company's voting rights in an investee company are the same as the percentage of equity held for each investment detailed below.
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: | £145,000 | Year ended 31 December | 2017 | 2016 |
|---|---|---|---|---|
| Valuation: | £5,248,000 | £million | £million | |
| Date of initial investment: Equity held: Valuation basis: Interest: Dividends: |
November 2014 18.00% Earnings multiple £13,955 (2017 £36,910) £nil (2017 £67,724) |
Sales EBITA Profit before tax Retained profits Net assets |
93.05 3.63 2.14 0.17 3.21 |
60.89 3.30 2.19 0.91 1.58 |
Matillion develops cloud-native data transformation products for platforms including Amazon Web Services, Google Big Query and Snowflake. The products allow customers to harness the power of these platforms to rapidly transform and interrogate large quantities of data.
| Cost: | £1,778,000 | Year ended 31 December | 2017 | 2016* |
|---|---|---|---|---|
| Valuation: | £5,180,000 | £million | £million | |
| Date of initial investment: Equity held: Valuation basis: |
November 2016 7.19% Sales multiple |
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 year.
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: Date of initial investment: Equity held: Valuation basis: Interest: |
£1,956,000 £2,992,000 May 2014 17.77% Earnings multiple £39,316 |
Year ended 30 September Sales EBITA (Loss) profit before tax Retained losses |
2017 £million 26.24 1.30 (0.69) (1.78) |
2016 £million 29.12 1.67 0.06 (0.87) |
|---|---|---|---|---|
| Dividends: | (2017 £39,316) £84,594 (2017 £84,594) |
Net assets | 7.03 | 7.16 |
KeTech has refined its product range to become a specialist manufacturer and distributor of 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.
| Cost: Valuation: |
£2,000,000 £2,329,000 |
Year ended 31 August | 2017 £million |
2016* £million |
|---|---|---|---|---|
| Date of initial investment: Equity held: Valuation basis: |
November 2015 15.22% Earnings multiple |
Sales EBITA |
4.77 0.47 |
7.13 0.44 |
| Interest: Dividends: |
£102,762 (2017 £104,885) £48,300 (2017 £48,168) |
* Adjusted to reflect underlying performance as a full year's trading results have not been filed. |
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: | £1,340,000 | Year ended 30 November | 2017 | 2016 |
|---|---|---|---|---|
| Valuation: | £2,284,000 | £million | £million | |
| Date of initial investment: Equity held: Valuation basis: Interest: |
November 2014 19.38% Sales multiple £117,400 (2017 £117,400) |
Sales (LBITA) EBITA (Loss) profit before tax Retained losses Net assets |
3.68 (0.54) (0.87) (0.80) 0.33 |
3.80 0.29 0.05 (0.25) 0.23 |
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.
| Cost: | £2,000,000 | Year ended 31 October | 2017 | 2016 |
|---|---|---|---|---|
| Valuation: | £2,080,000 | £million | £million | |
| Date of initial investment: | March 2018 | Sales | 6.51 | 4.05 |
| Equity held: | 5.83% | EBITA | 1.52 | 0.87 |
| Valuation basis: | Earnings multiple | Profit before tax | 1.22 | 0.73 |
| Interest: | £46,192 | Retained profits | 1.64 | 0.34 |
| Dividends: | £92,384 | Net assets | 2.50 | 1.20 |
Accounts for the trading company Eikon Group Limited are shown as Eikon Holdco Limited has not yet published a full year's accounts.
| Cost: £500,000 |
|
|---|---|
| developed a market leading approach in a strong growth sector. The company has invested heavily in sales and marketing resource which is seeing it expand outside of its traditional sectors of government and defence. |
|
| Deep-Secure specialises in high security network gateway products, known as Content Threat Removal and has |
| Cost: | £500,000 | Year ended 31 December | 2017 | 2016 |
|---|---|---|---|---|
| Valuation: | £2,028,000 | £million | £million | |
| Date of initial investment: Equity held: Valuation basis: Interest: |
December 2009 7.95% Sales multiple £54,000 (2017 £54,000) |
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) |
Cost: £1,824,000 Valuation: £1,674,000 Date of initial investment: October 2014 Equity held: 12.95%
Interest: £83,568
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.
| (2017 £83,223) | |
|---|---|
| Dividends: | £59,136 |
| (2017 £59,136) | |
Valuation basis: Earnings multiple
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.
| Retained profits 1.11 0.79 (2017 £71,456) 1.69 Net assets 1.37 Dividends: £17,237 (2017 £22,416) |
Cost: Valuation: Date of initial investment: Equity held: Valuation basis: Interest: |
£716,000 £1,240,000 December 2013 7.00% Earnings multiple £56,101 |
Year ended 31 December Sales EBITA Profit before tax |
2017 £million 9.57 1.39 0.52 |
2016 £million 8.23 1.42 0.55 |
|---|---|---|---|---|---|
| ----------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------------------------------------------ | ------------------------------------------ |
www.friskafood.com Bristol
Friska is a chain of "food to go" restaurants centred in Bristol with a "feel good food" ethos reflected in high quality well sourced food, engaging store environments and leading customer service levels.
| Cost: | £1,200,000 | Year ended 30 September | 2017 | 2016 |
|---|---|---|---|---|
| Valuation: | £1,208,000 | £million | £million | |
| Date of initial investment: Equity held: Valuation basis: Interest: |
July 2017 14.40% Earnings multiple £54,000 (2017 £25,447) |
Sales LBITA Loss before tax Retained losses Net liabilities |
4.34 (0.41) (0.49) (0.73) (0.22) |
3.67 (0.15) (0.20) (0.25) - |
www.arcusglobal.com Cambridge
Arcus is a provider of cloud-based software solutions to local authorities and public sector organisations. The company delivers a proprietary Software-as-a-Service (SaaS) platform that enables customers to transform end-to-end service delivery in areas such as digital transactions, planning, building control, regulatory services and waste management.
| Cost: | £1,200,000 | Year ended 30 June | 2018* | 2017 |
|---|---|---|---|---|
| Valuation: | £1,200,000 | £million | £million | |
| Date of initial investment: Equity held: Valuation basis: |
May 2018 7.20% Cost, reviewed for change in fair value |
Sales LBITA Loss before tax Retained losses Net liabilities |
13.09 (1.11) (1.20) (6.17) (2.16) |
9.68 (3.43) (3.51) (5.46) (4.75) |
* The 2018 figures above are not yet filed and may still be subject to change
www.sipynergy.co.uk Hampshire
Sipsynergy is a market-leading provider of cost-effective cloud collaboration and unified communications solutions to SME's. The company has partnered with Cisco to create a solution sold on a white label basis through telecoms and IT resellers and managed service providers.
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 41 and 42 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.
or financial resources 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 December 2018 29
Risk - The Company is required to comply with the Companies Act 2006, the rules of the UK Listing Authority, the Prospectus Rules made by the Financial Conduct Authority and 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.
Mitigation - The Investment Adviser and the Company Secretary have procedures in place to ensure recurring Listing Rules requirements are met and actively consult with brokers, solicitors and external compliance advisers as appropriate. The key controls around regulatory compliance are explained on pages 41 and 42.
Risk - Inadequate or failed controls might result in breaches of regulations or loss of shareholder trust.
Mitigation - The Board is comprised of directors with suitable experience and qualifications who report annually to the shareholders on their independence. The 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.
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.
Market/Liquidity
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,
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 41 and 42.
Mitigation - Overall liquidity risks are monitored on an ongoing basis by the Investment Adviser and on a quarterly basis by the Board.
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 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.
More details of the work that the Investment Adviser has done in this area are set out on page 17.
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. Following the appointment of Mr R S McDowell as a non-executive director on 6 March 2019 the Board is composed of four male non-executive directors, though this will reduce to the previous level of three following the retirement of Mr R Last at the forthcoming Annual General Meeting. 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
Richard Last Chairman
22 March 2019
Name Background and Experience
Richard Last (appointed 16 November 2000) is a Fellow of the Institute of Chartered Accountants in England and Wales with substantial experience in the IT software and services sectors and is chairman and non-executive director of ITE Group plc which is listed on the main market of the London Stock Exchange. He is also a chairman and non-executive director of Gamma Communications plc, Lighthouse Group plc, Tribal Group plc and Arcontech Group plc and non–executive director of Corero Network Security plc, all AIM listed. It is Mr Last's intention to resign from the board with effect from the forthcoming Annual General Meeting.
Robert Pettigrew (appointed 16 November 2000) has more than 30 years' experience in the development of emerging businesses and, in particular, the commercial exploitation of new technologies. He co-founded The Generics Group of companies (renamed Science Group plc) in 1986, which is one of the country's leading technology consulting and investment groups and was a key member of the team that took the company public in December 2000. He retired from The Generics Group at the end of 2002 to pursue independent investment activities. He is currently an investordirector and non-executive chairman of Sunamp Limited, 4 T 2 Sensors Ltd and Pervasid Limited, and a director and non-executive chairman of Cambridge Touch Technologies Limited.
Peter Waller (appointed 1 November 2010) is an experienced chairman and director with extensive UK and international executive experience in the IT technology, software and services sector. He initially worked with IBM and Hitachi then with Spring plc, at that time one of the UK's largest recruitment and training businesses. He is currently chairman of KeyPoint Technologies (UK) Limited, and director and founder of Turnberry Management Company Limited. For the past decade Peter has worked as a board member with a succession of early stage and early growth private and public companies. His particular skills are in sales and marketing and working with companies to develop successful sales growth strategies. Following the resignation of Mr Last , Peter will take on the role of Chairman.
Roger McDowell (appointed 6 March 2019) has considerable experience as a chairman and nonexecutive director of a wide range of technology, business services and manufacturing businesses. Following the flotation of his family's business and subsequent trade sale, he began his plural career in 2000, when he took board roles in three private equity backed technology businesses. He is chairman of Hargreaves Services Plc and Avingtrans Plc and non-executive director of Tribal Group Plc, D4t4 Solutions Plc, Proteome Sciences Plc, Augean Plc and Swallowfield Plc. Roger is Chair of the audit committee at Tribal and Proteome Sciences.
The City Partnership (UK) Limited 5th Floor 110 George Street Valiant Building Edinburgh 14 South Parade EH2 4LH Leeds
Registered No: SC269164 Registered No: 04084003
LS1 5QS
For the year ended 31 December 2018
The directors present their report and audited financial statements of British Smaller Companies VCT2 plc ("the Company") for the year ended 31 December 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 52. The profit before and after taxation for the year amounted to £4,454,000 (2017: £2,069,000).
During the year the Company paid a total of £3,225,000 (2017: £3,020,000) in dividends totalling 3.0 pence per ordinary share (2017: 3.0 pence). A detailed review can be found in note 5 on page 63.
The directors recommend the payment of a final dividend of 1.5 pence per ordinary share (2017: 1.5 pence). A resolution to this effect will be proposed at the Annual General Meeting to be held on 7 May 2019.
The net asset value per ordinary share at 31 December 2018 was 59.9 pence (2017: 58.8 pence). The transfer to and from reserves is given in the Statement of Changes in Equity on page 54.
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. The VCT rules require newly raised funds to be invested within three years and as a result 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, its recent fundraising, 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 37 to 42 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 ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
As shown in note 11 of 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 6 May 2016) 2,152,210 ordinary shares of 10 pence each in the market (as disclosed in the table below) for aggregate consideration of £1,194,000. These shares are held in treasury.
Under the existing authority, which expires on the conclusion of the Company's Annual General meeting in 2019 or on 6 May 2019, whichever is the later, the Company has the power to purchase shares up to 14.99 per cent of the Company's ordinary share capital as at 24 March 2016, being 13,932,647 ordinary shares. This authority is recommended for renewal at this year's Annual General Meeting (with all existing authorities to make market purchases of the Company's shares being revoked).
During the year to 31 December 2018 a total of 8,680,455 ordinary shares were issued. As a result of the offer for subscription 7,366,700 shares were issued, while 1,313,755 were issued under the Company's DRIS. Further details are given in note 11 on page 73.
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 expiring on 7 May 2019 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 £4,000,000 at this year's Annual General Meeting.
In addition, the directors have separate unconditional authorities to allot shares and waive pre-emption rights in the Company in connection with the Company's DRIS until 3 December 2019. These authorities are recommended for renewal at this year's Annual General Meeting.
| 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 March 2018 | 415,000 | 0.38% | 56.36 |
| 22 June 2018 | 559,500 | 0.52% | 55.32 |
| 27 September 2018 | 684,652 | 0.64% | 54.94 |
| 19 December 2018 | 493,058 | 0.46% | 55.70 |
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 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 December 2018, their interests and contracts of significance are set out in the Directors' Remuneration Report on pages 43 to 45.
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 December 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.
The only non-audit service provided by BDO LLP during the year was a review of the unaudited interim report for the nine months ended 30 September 2018.
Details of the financial instruments held by the Company and the risks associated with them are set out on pages 74 to 78 and this information is accordingly incorporated into the Directors' Report by reference.
The employment policies of the Company are set out on page 44.
On 15 February 2019 the Company paid an interim dividend of 5.0 pence per ordinary share. On the same date the Company allotted a total of 2,248,386 ordinary shares pursuant to its DRIS.
Shareholders will find the Notice of the Annual General Meeting on pages 79 to 82 of these financial statements.
Resolution 6 proposes the re-appointment of Roger McDowell who joined the Board on 6 March 2019.
Resolution 8 is proposed to ensure the directors retain the authority to allot shares in the Company until the later of 7 August 2020 or the date of the 2020 Annual General Meeting up to an aggregate nominal amount of £4,000,000 (representing approximately 36.6 per cent of the issued ordinary share capital of the Company as at 22 March 2019, excluding treasury shares).
Resolution 9 will give the directors authority to allot shares in the Company in connection with the Company's dividend re-investment scheme up to an aggregate nominal amount of £2,000,000 representing approximately 18.3 per cent of the Company's issued share capital as at 22 March 2019 (excluding treasury shares) during the period commencing on the passing of this resolution and expiring on the fifth anniversary of this resolution.
Resolution 10 is proposed to empower the directors to allot shares under the authority granted by resolution 8 and to sell treasury shares without regard to any rights of pre-emption on the part of the existing shareholders.
Resolution 11 will give the directors authority to allot shares under the authority granted by resolution 9 without regard to any rights of pre-emption on the part of the existing shareholders. This authority will expire on the fifth anniversary of the passing of this resolution.
Resolution 12 is proposed to empower the directors to buy back up to 16,379,154 ordinary shares.
This report was approved by the Board on 22 March 2019 and signed on its behalf by
Richard Last Chairman
British Smaller Companies VCT2 plc. Registered number 04084003
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 December 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 nonexecutive director, those relating to the establishment of an independent Remuneration Committee, 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 VCT2 plc, which is an externally advised venture capital trust. The Company has therefore not reported further in respect of these provisions.
In accordance with The UK Corporate Governance Code issued in April 2016 section C.3.1 the Board should establish an Audit Committee of at least three independent non-executive directors and the Chairman of the Company should not be chair of this Committee. The Company has not complied with this criteria as the chair of the Audit Committee is Mr R Last. Given the size and nature of the Company and the significant experience of Mr R Last at performing this duty it was felt that adequate controls were in place to ensure the Audit Committee remained independent.
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.
Following the appointment of Mr R S McDowell the Board consists of four nonexecutive directors, all of whom are regarded by the Board as independent and also as independent of the Company's
Investment Adviser, including the Chairman. The independence of the Chairman was assessed upon his 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 Mr R Last fulfils the criteria for independence as a non-executive 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 each director are set out on pages 31 and 32.
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 re-election 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. There are no set minimum notice periods for Mr R Last or Mr R M Pettigrew, though Mr P C Waller's and Mr R S McDowell's appointment are terminable by either the director or the Company on three months' notice.
Mr R Last is retiring as non-executive director and chairman at this year's Annual General Meeting. The directors recommend the re-election of Mr P C Waller, Mr R M Pettigrew, and Mr R S McDowell at this year's Annual General Meeting, because of their commitment, experience and 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 eight formal Board meetings, three Audit Committee meetings, one Allotment Committee meeting, two Nominations Committee meetings and one General meeting. The directors met via telephone and electronic conferences on 25 other occasions.
| Meetings attended | ||||
|---|---|---|---|---|
| Mr R Last |
Mr P C Waller |
Mr R M Pettigrew |
Total | |
| Board meetings | 8 | 7 | 7 | 8 |
| Audit Committee | 3 | 3 | 3 | 3 |
| Allotment Committee | 1 | - | - | 1 |
| Nominations Committee | 2 | 2 | 2 | 2 |
| Telephone and electronic conferences |
24 | 25 | 23 | 25 |
| General meeting | 1 | 1 | 1 | 1 |
| Total | 39 | 38 | 36 | 40 |
As set out on page 41 the quorum for the Allotment Committee is one director.
In addition there were two DRIS allotment meetings which the directors were not required to attend, but which were 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 in respect of the financial year ended 31 December 2018. The Board, led by the Chairman, 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 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 Mr R Last continues to be effective.
Due to the size of the Board and the remuneration procedures currently in place, in the directors' opinion, there is no role for an independent Remuneration Committee. The Directors' Remuneration Report may be found on pages 43 to 45.
The Audit Committee consists of Mr R Last, Mr R M Pettigrew and Mr P C Waller and meets at least three times each year. The directors consider that it is currently appropriate that the Chairman of the Committee should be Mr R Last due to his experience in the role. 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:
making recommendations to the Board in relation to the appointment, re-appointment and removal of the external auditor and approving the remuneration and terms of engagement of the external auditor;
reviewing and monitoring the external auditor's independence and objectivity and effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements;
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 41 and 42.
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 December 2018 the Audit Committee discharged its responsibilities by:
• reviewing and approving the external auditor's terms of engagement, remuneration and independence;
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 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 a report from the auditor on the audit including key audit findings in respect of the valuations was discussed.
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 advisers.
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.
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 was appointed as the result of a competitive tendering process in 2016. As a consequence, this is their third year of office as auditor; in accordance with professional guidelines the engagement partner will be rotated after at most five years and the current partner has served for three.
Having completed its review the Audit Committee is satisfied that BDO LLP remained effective and independent in carrying out its responsibilities up to the date of signing this report and its recommendation for reappointment is endorsed by the Board. The only non-audit services provided by BDO LLP during the year was a review of the unaudited interim report for the nine months ended 30 September 2018.
The Company has a Nominations Committee which consists of Mr R Last, Mr R M Pettigrew and Mr P C Waller, all of whom are considered by the Board to be independent of the Investment Adviser. The Chairman of the Board acts as Chairman of the Committee.
In considering appointments to the Board, the 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.
Meetings are held as and when required. There were two Nominations Committee meetings during the year.
The Board has determined that, due to the investment procedures currently in place, in its opinion there is no role for an independent Investment Committee.
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 at least twice a year by way of the Annual Report and the Interim Report. This is supplemented by the daily publication of the Company's share price and the publication for the two quarters of the year where an Annual or Interim Report is not normally issued (31 March and 30 September), 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. As the Company was issuing a prospectus in relation to the fundraising with British Smaller Companies VCT plc launched on 27 November 2018, the Company published an additional Interim Report covering the period to 30 September 2018 and consequently a separate factsheet was not issued for that period.
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 85.
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 85. 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.
Under an agreement dated 28 November 2000, superseded by an agreement dated 31 October 2005 and as varied by agreements dated 8 December 2010, 26 October 2011, 16 November 2012, 17 October 2014 and 7 August 2015, certain functions of the Company have been subcontracted 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 recommendations made by the Investment Adviser;
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 December 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 above the following controls have been in place throughout the year:
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 74.
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. Co-investments are detailed in note 7 to the financial statements on pages 70 and 71.
The Board has delegated the monitoring of the investment portfolio to the Investment Adviser.
This report was approved by the Board on 22 March 2019 and signed on its behalf by
Richard Last Chairman
British Smaller Companies VCT2 plc Registered number 04084003
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. Ordinary resolutions for the approval of this report and the Directors' Remuneration Policy 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 47 to 51.
This statement of the Directors' Remuneration Policy took effect following approval by shareholders at the Annual General Meeting held on 10 May 2017. A resolution to approve the Directors' Remuneration Policy will be put to shareholders every three years.
Following the appointment of Mr R S McDowell on 6 March 2019 the Board currently comprises four directors, all of whom are non-executive, though this will reduce to the previous level of three nonexecutive directors following the retirement of Mr R Last at this year's Annual General meeting. The Board does not have a separate Remuneration Committee due to the size of the Board and the remuneration procedures currently in place. In the directors' opinion and under the Listing Rules, there is no requirement for an independent Remuneration Committee.
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 Annual General Meeting 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, to 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. There is no notice period other than for Mr P C Waller and Mr R S McDowell, whose appointments are terminable by each director or the Company on three months' notice. 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 pages 31 and 32.
The directors' fees payable by the Company have been fixed from 1 April 2018 by the Board at £40,000 per annum for the Chairman and £24,000 per annum for the other directors. In accordance with the Directors' Remuneration Policy the directors have agreed that they should be reviewed again in May 2019.
The directors have agreed to forego the ability to reclaim certain expenses and the level of their fees compensates for this. The cap on aggregate fees is £100,000, which provides the flexibility to recruit new directors in the future.
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).
| TABLE A Total fees paid (audited) |
2018 | 2017 |
|---|---|---|
| £ | £ | |
| R Last | 38,500 | 34,000 |
| R M Pettigrew | 23,125 | 20,500 |
| P C Waller | 23,125 | 20,500 |
| 84,750 | 75,000 |
Directors and their Interests (audited)
The directors of the Company at 31 December 2018 and their beneficial interests in the share capital of the Company (including those of immediate family members) were as shown in Table B:
The 2018 figures include the first period of the fee increase effective from 1 April 2018. The annual salaries from that date are: R Last - £40,000, R M Pettigrew £24,000 and P Waller £24,000. The annual salary of P Waller from the date of his appointment as Chairman will be £40,000 and the annual salary of R S McDowell from the date of his appointment as a non-executive director is £24,000.
| TABLE B | ||||
|---|---|---|---|---|
| Directors and their interests (audited) | ||||
| Percentage of voting rights: | ||||
| 31 December | 31 December | 31 December | 31 December | |
| 2018 | 2017 | 2018 | 2017 | |
| R Last | 134,632 | 134,632 | 0.13% | 0.13% |
| R M Pettigrew | 80,333 | 80,333 | 0.08% | 0.08% |
| P C Waller | 35,560 | 35,560 | 0.03% | 0.04% |
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.
The directors will be allotted additional shares under the recently closed prospectus offer.
| 2018 £ |
2017 £ |
|---|---|
| 3,225,000 | 3,020,000 |
| 1,194,000 | 814,000 |
| 84,750 | 75,000 |
Directors' remuneration, dividend distribution 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.
VCT Generalist 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 Shareholder 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.
The graph above shows a comparison over the last ten years of the movements in both the Company's Share Price Total Shareholder 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 December 2008. The directors consider this to be the most appropriate published index on which to report on comparative performance.
BSC2 Share Price Total Shareholder Return (Dividends re-invested since inception)*
This report was approved by the Board and signed on its behalf on 22 March 2019.
Richard Last 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 pages 31 and 32.
This statement was approved by the Board and signed on its behalf on 22 March 2019.
Richard Last Chairman
TO THE MEMBERS OF BRITISH SMALLER COMPANIES VCT2 PLC
We have audited the financial statements of British Smaller Companies VCT2 plc (the 'Company') for the year ended 31 December 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 33 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, including 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 investments is disclosed on page 57 in note 1 and disclosures regarding the fair value estimates are given on page 64 in note 7.
Our sample for the testing of unquoted investments was stratified according to risk considering, inter alia, the value of individual investments, the nature of the investment, the extent of the fair value movement and the subjectivity of the valuation technique. A breakdown of the investment portfolio valuation technique is shown below.
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. For planning, 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 two 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 Materiality 2% value of investments |
Assessing whether the financial statements as a whole present a true and fair view. We consider this to be the key measurement for shareholders. |
• The value of investments • The level of judgement inherent in the valuation • The range of reasonable alternative valuation |
775,000 | 800,000 |
| Performance Materiality 75% of materiality |
The maximum error in an assertion that we would be prepared to accept and still conclude that the result from an audit procedure has achieved our objective. |
• The value of investments • The level of judgement inherent in the valuation • The range of reasonable alternative valuation |
580,000 | 600,000 |
| Specific Materiality – classes of transactions and balances which impact on revenue profits 10% revenue return before tax |
Assessing those classes of transactions, balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. |
• The level of net income return |
91,000 | 65,000 |
We agreed with the Audit Committee that we would report to the committee all individual audit differences in excess of £4,000 (2017: £3,000) 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.
We obtained an understanding of the legal and regulatory framework applicable to the entity which includes but is not limited to the Companies Act 2006, the UK Listing rules, the DTR rules, IFRS accounting standards, VAT and other taxes. We considered compliance with this framework through discussions with the Audit Committee and performed audit procedures on these areas as considered necessary.
We gained an understanding of the legal and regulatory framework applicable to the Company and the industry in which it operates, and considered the risk of acts by the Company which were contrary to applicable laws and regulations, including fraud.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion.
There are inherent limitations in an audit of financial statements and the further removed noncompliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. As in all of our audits we also addressed the risk of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
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 the 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:
• Directors' statement of compliance with the UK Corporate Governance Code set out on page 37 – the parts of the directors' statement required under the Listing Rules relating to the Company's compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.
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:
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or
As explained more fully in the Directors' Responsibilities Statement set out on page 46, 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.
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 the recommendation of the Audit Committee, we were appointed by the Board on 22 December 2016 to audit the financial statements for the year ended 31 December 2016 and subsequent financial periods. In respect of the year ended 31 December 2018, we were reappointed by the members of the Company at the Annual General Meeting held on 9 May 2018. The period of total uninterrupted engagement is 3 years, covering the years ended 31 December 2016 to 31 December 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'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 United Kingdom 22 March 2019
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
For the year ended 31 December 2018
| 2018 | 2017 | |||||
|---|---|---|---|---|---|---|
| Notes | Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
| 7 | - | 3,103 | 3,103 | - | 40 | 40 |
| 7 | - | 1,376 | 1,376 | - | 2,209 | 2,209 |
| 2 | 1,563 | 74 | 1,637 | 1,413 | - | 1,413 |
| 1,563 | 4,553 | 6,116 | 1,413 | 2,249 | 3,662 | |
| (306) | (917) | (1,223) | (289) | (866) | (1,155) | |
| (439) | - | (439) | (438) | - | (438) | |
| 3 | (745) | (917) | (1,662) | (727) | (866) | (1,593) |
| 818 | 3,636 | 4,454 | 686 | 1,383 | 2,069 | |
| 4 | (57) | 57 | - | (73) | 73 | - |
| 761 | 3,693 | 4,454 | 613 | 1,456 | 2,069 | |
| 761 | 3,693 | 4,454 | 613 | 1,456 | 2,069 | |
| 2.07p | ||||||
| 6 | 0.71p | 3.46p | 4.17p | 0.61p | 1.46p |
The accompanying notes on pages 57 to 78 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.
| Notes | 2018 £000 |
2017 £000 |
|---|---|---|
| Assets | ||
| Non-current assets at fair value through profit and loss | ||
| Financial assets 7 |
38,102 | 40,423 |
| Accrued income and other assets 8 |
467 | 825 |
| 38,569 | 41,248 | |
| Current assets | ||
| Accrued income and other assets 8 |
552 | 392 |
| Cash on fixed term deposit 9 |
1,988 | 1,988 |
| Cash and cash equivalents 9 |
23,115 | 15,681 |
| 25,655 | 18,061 | |
| Liabilities | ||
| Current liabilities | ||
| Trade and other payables 10 |
(170) | (253) |
| Net current assets | 25,485 | 17,808 |
| Net assets | 64,054 | 59,056 |
| Shareholders' equity | ||
| Share capital 11 |
11,318 | 10,450 |
| Share premium account | 4,351 | 257 |
| Capital redemption reserve | 88 | 88 |
| Other reserve | 2 | 2 |
| Merger reserve | 5,525 | 5,525 |
| Capital reserve | 33,694 | 32,198 |
| Investment holding gains and losses reserve | 7,335 | 9,090 |
| Revenue reserve | 1,741 | 1,446 |
| Total shareholders' equity | 64,054 | 59,056 |
| Net asset value per ordinary share 12 |
59.9p | 58.8p |
The accompanying notes on pages 57 to 78 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 22 March 2019.
Richard Last Chairman
| Share capital |
Share premium account |
Other reserves* |
Capital reserve |
Investment holding gains and losses |
Revenue reserve |
Total equity |
|
|---|---|---|---|---|---|---|---|
| £000 | £000 | £000 | £000 | reserve £000 |
£000 | £000 | |
| Balance at 31 December 2016 | 9,652 | 16,902 | 5,615 | 15,621 | 7,077 | 1,242 | 56,109 |
| Revenue return for the year Capital expenses |
- - |
- - |
- - |
- (866) |
- - |
686 - |
686 (866) |
| Investment holding gain on investments held at fair value |
- | - | - | - | 2,209 | - | 2,209 |
| Realisation of investments in the year Taxation |
- - |
- - |
- - |
40 73 |
- - |
- (73) |
40 - |
| Total comprehensive (expense) income for the year |
- | - | - | (753) | 2,209 | 613 | 2,069 |
| Issue of share capital | 679 | 3,571 | - | - | - | - | 4,250 |
| Issue costs ** Cancellation of share |
- | (176) | - | (10) | - | - | (186) |
| premium account, net of costs | - | (20,579) | - | 20,569 | - | - | (10) |
| Purchase of own shares Issue of shares – DRIS |
- 119 |
- 539 |
- - |
(814) - |
- - |
- - |
(814) 658 |
| Dividends | - | - | - | (2,611) | - | (409) | (3,020) |
| Total transactions with owners | 798 | (16,645) | - | 17,134 | - | (409) | 878 |
| Realisation of prior year investment holding gains |
- | - | - | 196 | (196) | - | - |
| Balance at 31 December 2017 | 10,450 | 257 | 5,615 | 32,198 | 9,090 | 1,446 | 59,056 |
| Revenue return for the year | - | - | - | - | - | 818 | 818 |
| Capital return Investment holding gain on |
- | - | - | (843) | - | - | (843) |
| investments held at fair value | - | - | - | - | 1,376 | - | 1,376 |
| Realisation of investments in the year Taxation |
- - |
- - |
- - |
3,103 57 |
- - |
- (57) |
3,103 - |
| Total comprehensive | |||||||
| income for the year | - | - | - | 2,317 | 1,376 | 761 | 4,454 |
| Issue of share capital | 737 | 3,663 | - | - | - | - | 4,400 |
| Issue costs ** | - | (156) | - | (6) | - | - | (162) |
| Unclaimed dividends | - | - | - | 7 | - | - | 7 |
| Purchase of own shares | - | - | - | (1,194) | - | - | (1,194) |
| Issue of shares – DRIS Dividends |
131 - |
587 - |
- - |
- (2,759) |
- - |
- (466) |
718 (3,225) |
| Total transactions with owners | 868 | 4,094 | - | (3,952) | - | (466) | 544 |
| Realisation of prior year investment holding gains |
- | - | - | 3,131 | (3,131) | - | - |
| Balance at 31 December 2018 | 11,318 | 4,351 | 5,615 | 33,694 | 7,335 | 1,741 | 64,054 |
The accompanying notes on pages 57 to 78 are an integral part of these financial statements.
Under the Companies Act 2006 the capital reserve and the revenue reserve are distributable reserves. The table below shows amounts that are available for distribution.
| Capital | Revenue | Total | |
|---|---|---|---|
| reserve | reserve | equity | |
| £000 | £000 | £000 | |
| Distributable reserves as shown on page 54 | 33,694 | 1,741 | 35,435 |
| Less : Interest, dividends and proceeds not yet distributable | (424) | (878) | (1,302) |
| : Cancelled share premium not yet distributable | (20,237) | - | (20,237) |
| Reserves available for distribution*** | 13,033 | 863 | 13,896 |
* Other reserves include the capital redemption reserve, the merger reserve and the other reserve, which are non-distributable. The other reserve was created upon the exercise of warrants, the capital redemption reserve was created for the purchase and cancellation of own shares, and the merger reserve was created on the merger with British Smaller Technologies Company VCT plc.
** Issue costs include both fundraising costs and costs incurred from the Company's DRIS.
*** Subject to filing these financial statements at Companies House, see table below.
The merger reserve was created to account for the difference between the nominal and fair value of shares issued as consideration for the acquisition of the assets and liabilities of British Smaller Technology Companies VCT plc. The reserve was created after meeting the criteria under section 131 of the Companies Act 1985 and the provisions of the Companies Act 2006 for merger relief. The merger reserve is a non-distributable reserve.
The capital reserve and revenue reserve are both distributable reserves. The reserves total £35,435,000 representing an increase of £1,791,000 during the year. The directors also take into account the level of the investment holding gains and losses reserve and the future requirements of the Company when determining the level of dividend payments.
Of the potentially distributable reserves of £35,435,000 shown above, £1,302,000 relates to interest, dividends and proceeds not yet distributable and £20,237,000 of cancelled share premium which becomes distributable from 1 January 2019 onwards (see below).
Total share premium previously cancelled is available for distribution from the following dates.
| £000 | |
|---|---|
| 1 January 2019 – now distributable | 12,995 |
| 1 January 2020 | 3,565 |
| 1 January 2021 | 3,677 |
| Cancelled share premium not yet distributable | 20,237 |
For the year ended 31 December 2018
| Notes | 2018 | 2017 |
|---|---|---|
| £000 | £000 | |
| Net cash inflow (outflow) from operating activities | 222 | (211) |
| Cash flows from (used in) investing activities | ||
| Purchase of financial assets at fair value through profit or loss 7 |
(5,647) | (2,371) |
| Proceeds from sale of financial assets at fair value through profit or loss 7 |
12,224 | 3,479 |
| Deferred consideration 7 |
189 | 34 |
| Cash maturing from fixed term deposit | - | 1,049 |
| Net cash inflow from investing activities | 6,766 | 2,191 |
| Cash flows from (used in) financing activities | ||
| Issue of ordinary shares | 4,379 | 4,230 |
| Costs of ordinary share issues* | (141) | (166) |
| Purchase of own ordinary shares | (1,194) | (814) |
| Share premium cancellation costs | - | (10) |
| Dividends paid 5 |
(2,598) | (2,365) |
| Net cash inflow from financing activities | 446 | 875 |
| Net increase in cash and cash equivalents | 7,434 | 2,855 |
| Cash and cash equivalents at the beginning of the year | 15,681 | 12,826 |
| Cash and cash equivalents at the end of the year 9 |
23,115 | 15,681 |
* Issue costs include both fundraising costs and expenses incurred from the Company's DRIS.
| 2018 £000 |
2017 £000 |
|
|---|---|---|
| Profit before taxation | 4,454 | 2,069 |
| Increase (decrease) in trade and other payables | 14 | (45) |
| Decrease in accrued income and other assets | 366 | 73 |
| Gain on disposal of investments | (3,103) | (40) |
| Gains on investments held at fair value | (1,376) | (2,209) |
| Capitalised interest and dividends | (133) | (59) |
| Net cash inflow (outflow) from operating activities | 222 | (211) |
The accompanying notes on pages 57 to 78 are an integral part of these financial statements.
For the year ended 31 December 2018
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.
The Company has carried out an assessment of accounting standards, amendments and interpretations that have been issued by the IASB and that are effective for the current reporting period. These include IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. The Company has determined that the transitional effects of the standards do not have a material impact. The adoption of IFRS 9 resulted in changes to accounting policies and disclosures but no adjustment to the amounts recognised in the financial statements.
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 ("FVPL") at inception are those that are managed and whose performance is evaluated on a fair value basis, in accordance with the documented investment strategy of the Company. Information about these financial assets is provided internally on a fair value basis to the Company's key management. The Company's investment strategy is to invest cash resources in venture capital investments as part of the Company's long-term capital growth strategy. Consequently, all investments are classified as held at fair value through profit or loss.
All investments are measured at fair value on the whole unit of account basis with gains and losses arising from changes in fair value being included in the Statement of Comprehensive Income as gains or losses on investments held at fair value.
Transaction costs on purchases are expensed immediately through profit or loss.
Redemption premiums are designed to protect the value of the Company's investment. These are accrued daily on an effective rate basis and included within the capital valuation of the investment (and thus classified under "Gains on investments held at fair value" in the Statement of Comprehensive Income).
Although the Company holds more than 20 per cent of the equity of certain companies, it is considered that the investments are held as part of the investment portfolio, and their value to the Company lies in their marketable value as part of that portfolio. These investments are therefore not accounted for using equity accounting, as permitted by IAS 28 'Investments in associates' and IFRS 11 'Joint arrangements' which give exemptions from equity accounting for venture capital organisations.
Under IFRS 10 "Consolidated Financial Statements", control is presumed to exist when the Company has power over an investee (whether or not used in practice); exposure or rights; to variable returns from that investee, and ability to use that power to affect the reporting entities returns from the investees. The Company does not hold more than 50 per cent of the equity of any of the companies within the portfolio. The Company does not control any of the companies held as part of the investment portfolio. It is not considered that any of the holdings represent investments in subsidiary undertakings.
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 below.
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 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 December 2018.
Dividends and interest are received from financial assets measured at fair value through profit and loss and are recognised on this basis in the Statement of Comprehensive Income. This includes interest and preference dividends rolled up and/or payable at redemption. Interest income is also received on cash, cash equivalents and cash deposits. Dividend income on unquoted equity shares is recognised at the time when the right to the income is established.
Expenses are accounted for on an accruals basis. Expenses are charged through the Revenue column of the Statement of Comprehensive Income, except for 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, unless they are due for maturity within three months, as they do not meet the definition in IAS 7 'Statement of cash flows' of short-term highly liquid investments.
Cash flows classified as "operating activities" for the purposes of the Statement of Cash Flows are those arising from the Revenue column of the Income Statement, together with the items in the Capital column that do not fall to be easily classified under the headings for "Investing Activities" given by IAS 7 'Statement of cash flows', being 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 | 500 | 290 |
| Dividends from AIM quoted companies | 91 | 17 |
| Interest on loans to unquoted companies | 920 | 989 |
| Income from investments held at fair value through profit or loss | 1,511 | 1,296 |
| Interest on bank deposits | 126 | 117 |
| 1,637 | 1,413 |
| 2018 £000 |
2017 £000 |
|
|---|---|---|
| Investment Adviser's fee | 1,223 | 1,155 |
| Administration fee | 66 | 63 |
| Total payable to YFM Private Equity Limited | 1,289 | 1,218 |
| Other expenses: | ||
| Directors' remuneration | 93 | 82 |
| Trail commission | 87 | 120 |
| General expenses | 64 | 57 |
| Listing and registrar fees | 43 | 47 |
| Printing | 33 | 26 |
| Auditor's remuneration - audit fees (excluding irrecoverable VAT) |
28 | 25 |
| - audit related assurance services | 7 | - |
| Irrecoverable VAT | 18 | 18 |
| 1,662 | 1,593 | |
| Ongoing charges figure | 2.49% | 2.48% |
Directors' remuneration comprises only short term benefits including social security contributions of £8,000 (2017: £7,000).
The directors are the Company's only key management personnel.
No fees are payable to the auditor in respect of other services (2017: £nil) apart from those shown above.
YFM Private Equity Limited has acted as Investment Adviser and performed administrative and secretarial duties for the Company under an agreement dated 28 November 2000, superseded by an agreement dated 31 October 2005 and as varied by agreements dated 8 December 2010, 26 October 2011, 16 November 2012, 17 October 2014 and 7 August 2015 (the "IAA"). The agreement may be terminated by not less than twelve months' notice given by either party at any time. 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 agreement are:
When the Company makes investments into its unquoted portfolio the Investment Adviser charges that investee an advisory fee. With effect from 1 October 2013 if the average of relevant fees exceeds 3.0 per cent of the total invested into new portfolio companies and 2.0 per cent into follow-on investments over the Company's financial year, this excess will be rebated to the Company. As at 31 December 2018, the Company was due a rebate from the Investment Adviser of £nil (2017: £nil).
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.
The total remuneration payable to YFM Private Equity Limited under the IAA in the year was £1,289,000 (2017: £1,218,000).
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 December 2018 the fees receivable by YFM Private Equity Limited from investee companies which were attributable to advisory and directors' and monitoring fees amounted to £576,000 (2017: £385,000).
Under the Subscription Rights Agreement dated 23 November 2001 between the Company, YFM Private Equity Limited and Chord Capital Limited ("Chord" formerly Generics Asset Management Limited), as amended by an agreement between those parties dated 31 October 2005, YFM Private Equity Limited and Chord have a performance-related incentive, structured so as to entitle them to an amount equivalent to 20 per cent of the amount by which the cumulative dividends per ordinary share paid as at the last business day in December in any year, plus the average of the middle market price per ordinary share on the five dealing days prior to that day, exceeds 120 pence per ordinary share, multiplied by the number of ordinary shares issued and the ordinary shares under option (if any) (the "Hurdle"). Under the terms of the Subscription Rights Agreement, once the Hurdle has been exceeded it is reset at that value going forward, which becomes the new Hurdle. Any subsequent exercise of these rights will only occur once the new Hurdle has been exceeded. The subscription rights are exercisable in the ratio 95:5 between the Investment Adviser and Chord Capital Limited.
By a Deed of Assignment dated 19 December 2003 (together with a supplemental agreement dated 5 October 2005), the benefit of the YFM Private Equity Limited subscription right was assigned to YFM Private Equity Limited Carried Interest Trust (the "Trust"), an employee benefit trust formed for the benefit of certain employees of YFM Private Equity Limited and associated companies. Pursuant to a deed of variation dated 16 November 2012 between the Company, the trustees of the Trust and Chord, the Subscription Rights Agreement was varied so that the subscription rights will be exercisable in the ratio of 95:5 between the trustees of the Trust and Chord. Pursuant to a deed of variation dated 5 August 2014 the Subscription Rights Agreement was varied so that the recipient was changed from the Trust to YFM Private Equity Limited.
As at 31 December 2018 the total of cumulative cash dividends paid and mid-market price was 114.5 pence per ordinary share.
Under the terms of the offer launched on 11 January 2018, YFM Private Equity Limited was entitled to 4.5 per cent of gross subscriptions from execution brokers and 2.5 per cent of gross subscriptions for applications through intermediaries offering financial advice or directly from applicants, less the cost of re-investment of intermediary commission. The net amount paid to YFM Private Equity Limited under this offer amounted to £129,777.
The Investment Adviser met all costs and expenses arising from this offer out of this fee, 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 44 under the heading "Directors' Remuneration for the year ended 31 December 2018 (audited)".
| 2018 | 2017 | |||||
|---|---|---|---|---|---|---|
| Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
|
| Profit before taxation | 818 | 3,636 | 4,454 | 686 | 1,383 | 2,069 |
| Profit before taxation multiplied by standard rate of corporation tax in UK of 19% (2017 19.25%) |
155 | 691 | 846 | 132 | 266 | 398 |
| Effect of: | ||||||
| UK dividends received | (98) | (14) | (112) | (59) | - | (59) |
| Non-taxable profits on investments | - | (851) | (851) | - | (433) | (433) |
| Excess advisory expenses | - | 117 | 117 | - | 94 | 94 |
| Tax charge (credit) | 57 | (57) | - | 73 | (73) | - |
The Company has no provided or unprovided deferred tax liability in either year.
Deferred tax assets of £701,000 (2017: £596,000) calculated at 17% in respect of unrelieved management expenses (£4.12 million as at 31 December 2018 and £3.51 million as at 31 December 2017) 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 December:
| 2018 | 2017 | |||||
|---|---|---|---|---|---|---|
| Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
|
| Final dividend for the year ended 31 December 2017 of 1.5p (2016: 1.5p) per ordinary share |
265 | 1,347 | 1,612 | 177 | 1,334 | 1,511 |
| Interim dividend for the year ended 31 December 2018 of 1.5p (2017: 1.5p) per ordinary share |
201 | 1,412 | 1,613 | 232 | 1,277 | 1,509 |
| 466 | 2,759 | 3,225 | 409 | 2,611 | 3,020 | |
| Shares allotted under DRIS | (718) | (658) | ||||
| Unclaimed dividends | 91 | 3 | ||||
| Dividends paid in Statement of Cash Flows | 2,598 | 2,365 |
The final year-end dividend of 1.5 pence per ordinary share in respect of the year to 31 December 2017 was paid on 11 May 2018 to shareholders on the register at 3 April 2018.
The interim dividend of 1.5 pence per ordinary share was paid on 28 September 2018 to shareholders on the register as at 31 August 2018.
A final dividend of 1.5 pence per ordinary share in respect of the year to 31 December 2018 is proposed. This dividend has not been recognised in the year ended 31 December 2018 as the obligation did not exist at the balance sheet date.
During the year the Company has received £nil (2017: £nil) from the Registrars in respect of unclaimed dividends. The Company has made efforts to contact the relevant shareholders, with the result that £nil (2017: £3,000) has been paid to shareholders in the year. The unclaimed balance of £91,000 was returned to the Registrars during the year.
The basic and diluted earnings per ordinary share is based on the profit after tax attributable to shareholders of £4,454,000 (2017: £2,069,000) and 106,692,574 (2017: 99,981,803) 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 £761,000 (2017: £613,000) and 106,692,574 (2017: 99,981,803) 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 £3,693,000 (2017: £1,456,000) and 106,692,574 (2017: 99,981,803) ordinary shares being the weighted average number of ordinary shares in issue during the year.
During the year the Company allotted 7,366,700 new ordinary shares from a top up offer, and 1,313,755 new ordinary shares in respect of its DRIS.
The Company has also repurchased 2,152,210 of its own shares in the year, and these shares are held in the capital reserve. The total of 6,158,561 treasury shares has been excluded in calculating the weighted average number of ordinary shares for the period. The Company has no securities that would have a dilutive effect and hence basic and diluted earnings per ordinary share are the same.
The Company has no potentially dilutive shares and consequently, basic and diluted earnings per ordinary share are equivalent in both the year ended 31 December 2018 and 31 December 2017.
IFRS 13, in respect of financial instruments that are measured in the balance sheet at fair value, requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
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.
Movements in investments at fair value through profit or loss during the year to 31 December 2018 are summarised as follows:
| IFRS 13 measurement classification | Level 3 | Level 1 | |
|---|---|---|---|
| Unquoted Investments £000 |
Quoted Equity Investments £000 |
Total Investments £000 |
|
| Opening cost | 30,115 | 1,248 | 31,363 |
| Opening investment holding gain | 8,026 | 1,034 | 9,060 |
| Opening fair value at 1 January 2018 | 38,141 | 2,282 | 40,423 |
| Additions at cost | 5,647 | - | 5,647 |
| Capitalised interest, dividends and proceeds | 59 | 424 | 483 |
| Disposal proceeds | (10,676) | (1,898) | (12,574) |
| Net profit on disposal* | 2,446 | 301 | 2,747 |
| Change in fair value | 1,402 | (26) | 1,376 |
| Closing fair value at 31 December 2018 | 37,019 | 1,083 | 38,102 |
| Closing cost | 30,042 | 754 | 30,796 |
| Closing investment holding gain** | 6,977 | 329 | 7,306 |
| Closing fair value at 31 December 2018 | 37,019 | 1,083 | 38,102 |
* The net profit on disposal in the table above is £2,747,000 whereas that shown in the Statement of Comprehensive Income is £3,103,000. The difference comprises deferred proceeds of £356,000 in respect of assets which have been disposed of in prior years and are not included within the investment portfolio at 1 January 2018 (see page 68).
** Following the merger between the Company and British Smaller Technologies Company VCT plc a total of £975,000 of negative goodwill was recognised in the investment holding gains and losses reserve in respect of the investments acquired. The relevant amount per investment is realised at the point of disposal to the capital reserve. At 31 December 2018 a total of £30,000 (2017: £30,000) was held on investments yet to be realised in the investment holdings gains and losses reserve.
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, 54 per cent are held on an earnings multiple basis and 30 per cent on a sales multiple basis, which have significant judgement applied to the valuation inputs. The table on page 66 sets out the range of Price Earnings (PE) multiple, Sales multiples (SM) and discounts applied in arriving at investments valued on these bases. 14 per cent are recent deals held at cost, reviewed for change in fair value. The remaining 2 per cent are valued based on previous investment round reviewed for change in fair value.
| Earnings multiple inputs | Software, IT & Telecoms |
Business Services |
Manufacturing & Industrial Services |
Healthcare | Retail & Brands |
|
|---|---|---|---|---|---|---|
| 2018 | PE Multiple Range | 14.50-24.18 | 18.47 – 20.08 | 9.27 – 23.09 | - | 17.19 – 22.32 |
| PE Multiple Weighted Average | 19.85 | 19.23 | 19.62 | - | 21.46 | |
| 2017 | PE Multiple Range | 29.44-54.72 | 19.13 – 28.34 | 14.74 – 32.07 | 33.86 | 20.46 – 23.99 |
| PE Multiple Weighted Average | 38.37 | 25.57 | 27.81 | 33.86 | 23.58 | |
| 2018 | Combined PE and/or Marketability Discount Range |
40% - 68% | 40% - 68% | 28% - 64% | - | 20% - 44% |
| Combined PE and/or Marketability Discount Weighted Average |
55% | 56% | 59% | - | 24% | |
| 2017 | Combined PE and/or Marketability Discount Range |
60% - 68% | 56% - 68% | 40% - 72% | 68% | 56% - 60% |
| Combined PE and/or Marketability Discount Weighted Average |
65% | 62% | 67% | 68% | 56% | |
| Sales multiple inputs | Software, IT & Telecoms |
|||||
| 2018 | Sales Multiple Range | 4.33 – 9.87 | ||||
| Sales Multiple Weighted Average | 7.19 | |||||
| 2017 | Sales Multiple Range | 3.83 – 6.50 | ||||
| Sales Multiple Weighted Average | 4.77 | |||||
| 2018 | Combined SM and/or Marketability Discount Range |
20% - 72% | ||||
| Combined SM and/or Marketability | ||||||
| Discount Weighted Average | 38% | |||||
| 2017 | Combined SM and/or Marketability Discount Range |
44% - 68% | ||||
| Combined SM 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 or PE ratios) alternatives have been considered which still fall within the IPEV Guidelines (see page 58). 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 £2.2 million or 5.9 per cent lower. Using the upside alternative the value would be increased by £2.4 million or 6.5 per cent.
| IFRS 13 measurement classification | Level 3* | Level 1 | |
|---|---|---|---|
| Unquoted Investments £000 |
Quoted Equity Investments £000 |
Total Investments £000 |
|
| Opening cost | 30,853 | 1,419 | 32,272 |
| Opening investment holding gain | 6,394 | 653 | 7,047 |
| Opening fair value at 1 January 2017 | 37,247 | 2,072 | 39,319 |
| Additions at cost | 2,371 | - | 2,371 |
| Capitalised interest and dividends | 59 | - | 59 |
| Disposal proceeds | (2,903) | (638) | (3,541) |
| Net (loss) profit on disposal* | (87) | 93 | 6 |
| Change in fair value | 1,454 | 755 | 2,209 |
| Closing fair value at 31 December 2017 | 38,141 | 2,282 | 40,423 |
| Closing cost | 30,115 | 1,248 | 31,363 |
| Closing investment holding gain* | 8,026 | 1,034 | 9,060 |
| Closing fair value at 31 December 2017 | 38,141 | 2,282 | 40,423 |
Movements in investments at fair value through profit or loss during the previous year to 31 December 2017 are summarised as follows:
* The net profit on disposal in the table above is £6,000 whereas that shown in the Statement of Comprehensive Income is £40,000. The difference comprises deferred proceeds of £34,000 in respect of assets which have been disposed of in prior years and are not included within the investment portfolio at 1 January 2017.
The following disposals took place in the year (all companies are unquoted except where otherwise indicated):
| Net proceeds from sale |
Cost | Opening carrying value as at 1 January 2018 |
Profit (loss) on disposal |
|
|---|---|---|---|---|
| £000 | £000 | £000 | £000 | |
| Unquoted investments: | ||||
| ACC Aviation (via Newacc (2014) Limited) | 615 | 615 | 615 | - |
| Gill Marine Holdings Limited | 2,844 | 1,870 | 1,922 | 922 |
| GTK (Holdco) Limited | 2,614 | 295 | 1,950 | 664 |
| KeTech Enterprises Limited | 500 | 500 | 500 | - |
| Leengate Holdings Limited | 385 | 218 | 298 | 87 |
| Macro Art Holdings Limited | 43 | 43 | 43 | - |
| Mangar Health Limited | 3,675 | 1,640 | 2,641 | 1,034 |
| PowerOasis Limited | - | 594 | 258 | (258) |
| Seven Technologies Holdings Limited | - | 4 | 3 | (3) |
| Total from unquoted investments | 10,676 | 5,779 | 8,230 | 2,446 |
| Quoted investments: | ||||
| AB Dynamics plc | 511 | 42 | 405 | 106 |
| Allergy Therapeutics plc | 124 | 350 | 132 | (8) |
| EKF Diagnostics plc | 236 | 201 | 197 | 39 |
| Gamma Communications plc | 316 | 71 | 247 | 69 |
| Iomart Group plc | 128 | 32 | 144 | (16) |
| Gooch & Housego plc | 583 | 221 | 472 | 111 |
| Total from quoted investments | 1,898 | 917 | 1,597 | 301 |
| Total from disposals in the year* | 12,574 | 6,696 | 9,827 | 2,747 |
| Deferred proceeds: | ||||
| Ness (Holdings) Limited | 5 | - | 42 | (37) |
| Selima Holding Company Ltd** | 413 | - | 20 | 393 |
| Deferred proceeds received | 418 | - | 62 | 356 |
| Total from quoted and unquoted investments | 12,992 | 6,696 | 9,889 | 3,103 |
* The total from disposals in the year in the table above is £12,574,000 whereas that shown in the Statement of Cash Flows is £12,224,000. The difference comprises proceeds of £350,000 which were received in the form of shares in a company listed on AIM.
** Includes agreed deferred proceeds of £229,000.
The following disposals took place in the previous year to 31 December 2017:
| Total from quoted and unquoted investments | 3,575 | 5,363 | 3,535 | 40 |
|---|---|---|---|---|
| Deferred proceeds received | 34 | - | - | 34 |
| Silistix Limited | 1 | - | - | 1 |
| Callstream Group Limited | 33 | - | - | 33 |
| Deferred proceeds: | ||||
| Total from disposals in the year | 3,541 | 5,363 | 3,535 | 6 |
| Gooch & Housego plc | 146 | 74 | 106 | 40 |
| Gamma Communications plc | 83 | 24 | 59 | 24 |
| AB Dynamics plc | 409 | 73 | 380 | 29 |
| Quoted investments: | ||||
| The Heritage Window Company Holdco Limited | - | 1,058 | 554 | (554) |
| Selima Holding Company Ltd | 996 | 300 | 586 | 410 |
| PowerOasis Limited | 60 | 60 | 60 | - |
| Ness (Holdings) Limited | 120 | 1,031 | - | 120 |
| Macro Art Holdings Limited | 104 | 104 | 104 | - |
| Harvey Jones Holdings Limited | 559 | 442 | 622 | (63) |
| GTK (Holdco) Limited | 446 | 446 | 446 | - |
| Cambrian Park & Leisure Homes Limited (via Cambrian Lodges Holdings Limited) | - | 1,133 | - | - |
| Unquoted investments: ACC Aviation (via Newacc (2014) Limited) |
618 | 618 | 618 | - |
| £000 | £000 | 2017 £000 |
£000 | |
| Net proceeds from sale |
Cost | Opening carrying value as at 1 January |
Profit (loss) on disposal |
|
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 below.
At 31 December 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 | 220,000 | 18% | 68% |
| Bagel Nash Group Limited | Food Retail and Manufacturing | 33,091 | 5% | 40% |
| Biz2Mobile Limited | Software, IT & Telecomms | 1,694,916 | 11% | 27% |
| Business Collaborator Limited | Software, IT & Telecomms | 126,000 | 19% | 48% |
| Deep-Secure Ltd | Software, IT & Telecomms | 49,678 | 8% | 56% |
| DisplayPlan Holdings Limited | Business Services | 1,260 | 12% | 35% |
| e2E Engineering Limited | Manufacturing & Industrial | 348 | 9% | 23% |
| EL Support Services Limited** | Business Services | 3,500 | 50% | 100% |
| Friska Limited | Retail & Brands | 60,232 | 14% | 36% |
| The Heritage Window Company Holdco Limited** | Manufacturing & Industrial | 10,000 | 20% | 50% |
| Immunobiology Limited** | Healthcare | 53,285,280 | 25% | 25% |
| Intamac Systems Limited | Software, IT & Telecomms | 1,500,000 | 12% | 36% |
| Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) |
Business Services | 106,609 | 18% | 44% |
| KeTech Enterprises Limited | Software, IT & Telecomms | 128,333 | 15% | 46% |
| Macro Art Holdings Limited | Business Services | 100,000 | 14% | 35% |
| Matillion Limited | Software, IT & Telecomms | 25,837 | 7% | 21% |
| NB Technology Services Limited** | Software, IT & Telecomms | 3,500 | 50% | 100% |
| Ncam Technologies Limited | Software, IT & Telecomms | 899,823 | 11% | 38% |
| OC Engineering Services Limited** | Retail & Brands | 3,500 | 50% | 100% |
| RMS Group Holdings Limited | Manufacturing & Industrial | 59,619 | 6% | 21% |
| Seven Technologies Holdings Limited | Software, IT & Telecomms | 619,130 | 13% | 60% |
| SH Healthcare Services Limited** | Healthcare | 3,500 | 50% | 100% |
| Sipsynergy (via Hosted Network Services Limited) | Software, IT & Telecomms | 369,546 | 16% | 50% |
| SP Manufacturing Services Limited** | Manufacturing & Industrial | 3,500 | 50% | 100% |
| Springboard Research Holdings Limited | Business Services | 171,892 | 13% | 32% |
| Wakefield Acoustics (via Malvar Engineering Limited) | Manufacturing & Industrial | 49,600 | 16% | 41% |
* Fully diluted holding.
** The registered office of these significant holdings is given on page 85.
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 December 2018 and exclude those companies which are in receivership or liquidation.
| British Smaller Companies VCT2 plc |
British Smaller Companies VCT plc |
Other commonly managed/ advised funds |
Total | |
|---|---|---|---|---|
| £000 | £000 | £000 | £000 | |
| AB Dynamics plc | 7 | 20 | - | 27 |
| ACC Aviation (via Newacc (2014) Limited) | 145 | 220 | 185 | 550 |
| Arcus Global Limited | 1,200 | 1,800 | - | 3,000 |
| Bagel Nash Group Limited | 630 | 944 | 2,185 | 3,759 |
| Biz2Mobile Limited | 1,000 | 1,500 | - | 2,500 |
| Business Collaborator Limited | 1,340 | 2,010 | - | 3,350 |
| Deep-Secure Ltd | 500 | 1,000 | 3,000 | 4,500 |
| DisplayPlan Holdings Limited | 70 | 130 | - | 200 |
| e2E Engineering Limited | 600 | 900 | - | 1,500 |
| Eikon Holdco Limited | 2,000 | 3,000 | 1,000 | 6,000 |
| EKF Diagnostics plc | 236 | 242 | - | 478 |
| EL Support Services Limited | 500 | 500 | - | 1,000 |
| Friska Limited | 1,200 | 1,800 | - | 3,000 |
| The Heritage Window Company Holdco Limited | 410 | 615 | 300 | 1,325 |
| Hutchinson Networks Limited | 880 | 1,320 | - | 2,200 |
| Intamac Systems Limited | 905 | 302 | 2,422 | 3,629 |
| Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) | 1,956 | 2,934 | - | 4,890 |
| KeTech Enterprises Limited | 1,500 | 1,500 | 1,000 | 4,000 |
| Leengate Holdings Limited | 716 | 1,074 | - | 1,790 |
| Macro Art Holdings Limited | 480 | 720 | - | 1,200 |
| Matillion Limited | 1,778 | 2,666 | 635 | 5,079 |
| Ncam Technologies Limited | 977 | 1,466 | 921 | 3,364 |
| NB Technology Services Limited | 500 | 500 | - | 1,000 |
| OC Engineering Services Limited | 500 | 500 | - | 1,000 |
| Renalytix plc | 74 | 97 | - | 171 |
| RMS Group Holdings Limited | 70 | 180 | - | 250 |
| Seven Technologies Holdings Limited | 1,234 | 1,692 | 6,861 | 9,787 |
| SH Healthcare Services Limited | 500 | 500 | - | 1,000 |
| SP Manufacturing Services Limited | 500 | 500 | - | 1,000 |
| Springboard Research Holdings Limited | 1,824 | 2,735 | - | 4,559 |
| Sipsynergy (via Hosted Network Services Ltd) | 1,309 | 1,770 | 921 | 4,000 |
| TeraView Limited | 377 | 377 | - | 754 |
| Traveltek Group Holdings Limited | 1,092 | 1,638 | 1,393 | 4,123 |
| Volex plc | 352 | 535 | - | 887 |
| Wakefield Acoustics (via Malvar Engineering Limited) | 720 | 1,080 | - | 1,800 |
| 2018 £000 |
2017 £000 |
|
|---|---|---|
| Non-current assets: | ||
| Accrued income on financial assets | 467 | 825 |
| Current assets: | ||
| Accrued income on financial assets | 471 | 325 |
| Accrued income on cash, cash equivalents and cash deposits | 33 | 17 |
| Prepayments | 48 | 50 |
| 552 | 392 |
Non-current assets relates to loan interest receivable on exit from the relevant investee company where this is expected to be more than one year from the balance sheet date.
The carrying amounts of the Company's accrued income are denominated in sterling.
| 2018 £000 |
2017 £000 |
|
|---|---|---|
| Cash at bank | 23,115 | 15,681 |
| Cash and Cash Equivalents | 23,115 | 15,681 |
At 31 December 2018 a further £1.99 million (2017: £1.99 million) was also held in fixed term deposit accounts which are due to mature in April 2019. 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 |
|
|---|---|---|
| Amounts payable within one year: | ||
| Accrued expenses | 170 | 253 |
| 170 | 253 |
| 2018 Allotted, called-up and fully paid £000 |
2017 Allotted, called-up and fully paid £000 |
|||
|---|---|---|---|---|
| Ordinary shares of 10 pence | ||||
| Issued: 107,018,820 (2017: 104,496,926) including 6,158,561 shares held in treasury (2017: 4,006,351) | 11,318 | 10,450 | ||
| The movement in the year was as follows: | ||||
| Price pence |
Date | Number of shares |
Share Capital |
| As at 31 December 2018 (excluding treasury shares) | 107,018,820 | ||||
|---|---|---|---|---|---|
| As at 31 December 2018 (including treasury shares) | 113,177,381 | 11,318 | |||
| Issue of shares | DRIS | 54.44 | 28 September 2018 | 658,086 | 66 |
| Issue of shares | DRIS | 54.82 | 11 May 2018 | 655,669 | 65 |
| Issue of shares | Fundraising | 59.385-60.571 | 16 February 2018 | 7,366,700 | 737 |
| Total as at 1 January 2018 | 104,496,926 | 10,450 | |||
| £000 |
The movement in the previous year to 31 December 2017 was as follows:
| Price pence |
Date | Number of shares |
Share Capital £000 |
||
|---|---|---|---|---|---|
| Total as at 1 January 2017 | 96,520,060 | 9,652 | |||
| Issue of shares | Fundraising | 62.165-63.407 | 10 February 2017 | 6,787,231 | 679 |
| Issue of shares | DRIS | 55.96 | 12 May 2017 | 583,201 | 58 |
| Issue of shares | DRIS | 54.63 | 29 September 2017 | 606,434 | 61 |
| As at 31 December 2017 (including treasury shares) | 104,496,926 | 10,450 | |||
| As at 31 December 2017 (excluding treasury shares) | 100,490,575 |
During the year the Company purchased 2,152,210 (2017: 1,460,605) 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 December 2018 and 31 December 2017.
The basic and diluted net asset value per ordinary share is calculated on attributable assets of £64,054,000 (2017: £59,056,000) and 107,018,820 (2017: 100,490,575) ordinary shares in issue at the year end.
The treasury shares have been excluded in calculating the number of ordinary shares in issue at 31 December 2018.
The Company has no potentially dilutive shares and consequently, basic and diluted net asset values per ordinary share are equivalent in both the year ended 31 December 2018 and 31 December 2017.
The Total Shareholder Return per ordinary share is calculated on cumulative dividends paid of 58.5 pence per ordinary share (2017: 55.5 pence per ordinary share) plus the net asset value as calculated per note 12.
There are no financial commitments at 31 December 2018 or 31 December 2017.
Mr R Last is chairman and non-executive director of Gamma Communications plc, in which he has a 0.06 per cent equity stake. During the year to 31 December 2018 he received remuneration of £78,000 from Gamma in respect of his services.
On 15 February 2019 the Company paid a special dividend of 5.0 pence per ordinary share. On the same date the Company allotted a total of 2,248,386 ordinary shares pursuant to its DRIS.
In March 2019 the Company invested £1.2 million into Frescobol Carioca, a luxury men's resort wear and lifestyle brand.
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 at amortised cost, and its financial liabilities, primarily accrued expenses, at amortised cost.
It is the directors' opinion that the carrying value of financial assets and liabilities 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.
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 |
||||
|---|---|---|---|---|
| Other assets £000 |
Assets at fair value through profit or loss £000 |
Other assets £000 |
Assets at fair value through profit or loss £000 |
|
| Non-current assets at fair value through profit and loss | ||||
| Financial assets on financial assets | - | 38,102 | - | 40,423 |
| Accrued income on financial assets | - | 467 | - | 825 |
| Current assets | ||||
| Cash and cash equivalents | 23,115 | - | 15,681 | - |
| Cash on fixed term deposit | 1,988 | - | 1,988 | - |
| Accrued income on financial assets | - | 471 | - | 325 |
| Accrued income on cash, cash equivalents and cash deposits | 33 | - | 17 | - |
| 25,136 | 39,040 | 17,686 | 41,753 | |
| Other assets – not financial instruments | 48 | - | 50 | - |
| 25,184 | 39,040 | 17,736 | 41,573 |
| 2018 Other financial liabilities £000 |
2017 Other financial liabilities £000 |
|
|---|---|---|
| Trade and other payables | (170) | (253) |
| (170) | (253) |
Assets classified as fair value through profit or loss were designated as such upon initial recognition.
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 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 investments, 3 per cent are quoted on AIM (2017: 6 per cent). A 5 per cent increase in stock prices as at 31 December 2018 would have increased the net assets attributable to the Company's shareholders and the total profit for the year by £54,000 (2017: £114,000). 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 investments, 97 per cent are in unquoted companies held at fair value (2017: 94 per cent). The valuation methodology for these investments includes the application of externally produced 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 an earnings multiple methodology 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 £2,300,000 (3.6 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 the same amount.
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 less than 0.5 per cent of net assets.
The largest single concentration of risk relates to the Company's investment in ACC Aviation (via Newacc (2014) Limited) which constitutes 8.2 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 that have had their fair value reduced to nil, is 1.7 per cent (2017: 1.8 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.
| Date of Disposal | Sale proceeds to date £000 |
Valuation one year earlier £000 |
Increase (decrease) £000 |
|
|---|---|---|---|---|
| DxS Limited | Sep-09 | 2,515 | 320 | 2,195 |
| Silistix Limited | Dec-10 | 10 | 387 | (377) |
| Primal Pictures Limited | Aug-12 | 1,916 | 1,008 | 908 |
| Sirigen Group Limited | Aug-12 | 1,962 | 517 | 1,445 |
| Digital Healthcare Limited | Aug-13 | 1,285 | 1,156 | 129 |
| Waterfall Services Limited | Jan-14 | 964 | 489 | 475 |
| Insider Technologies (Holdings) Limited | Oct-15 | 773 | 587 | 186 |
| Callstream Group Limited | Mar-16 | 785 | 773 | 12 |
| Cambrian Park & Leisure Homes Limited | Mar-17 | - | 1,251 | (1,251) |
| Ness (Holdings) Limited* | Mar-17 | 83 | 509 | (426) |
| Selima Holding Company Ltd* | May-17 | 1,389 | 462 | 927 |
| Harvey Jones Holdings Limited | Aug-17 | 559 | 617 | (58) |
| PowerOasis Limited | Sep-18 | - | 365 | (365) |
| GTK (Holdco) Limited | Dec-18 | 2,465 | 1,801 | 664 |
| Mangar Health limited | Dec-18 | 3,675 | 2,641 | 1,034 |
| Gill Marine Holdings Limited | Dec-18 | 2,844 | 1,922 | 922 |
| 21,225 | 14,805 | 6,420 |
* Includes estimated value of deferred consideration on exit or liquidation.
The Company's venture capital investments include £9,396,000 (2017: £14,098,000) of loan stock in unquoted companies. The majority of this loan stock at 31 December 2018 is at fixed rates to guard against fluctuations in interest rates. As a result the Company is only exposed to cash flow interest rate risk on £700,000 (2017: £750,000) of its loan stock portfolio.
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. 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 | 14,208 | 8.7 | 23 | 18,017 | 8.5 | 20 |
| Cash on fixed term deposit | 1,988 | 1.5 | 3 | 1,988 | 1.5 | 3 |
| Combined | 16,196 | 7.8 | 21 | 20,005 | 7.8 | 19 |
The Company has no significant 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 £41,222,000 (2017: £37,764,000) 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 other assets 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 only significant assets not held at fair value are cash, cash equivalents and cash on fixed term deposit. 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 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 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 | 2,124 | 2,849 | 3,209 | 1,214 | 3,989 | 7,015 | 2,757 | 337 |
The past due maturity dates of the loan stock portfolio are as follows:
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 | 2,394 | 1,799 |
Included within unquoted loan investments are £557,000 (2017: £757,000) of loans which are past their due date but have been renegotiated.
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 bank interest deposit accounts. Investments in liquid funds are held for the purpose of liquidity whilst waiting for suitable qualifying investment opportunities to arise.
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 36.1 per cent (2017: 26.6 per cent) are in the form of liquid cash. 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 December 2018 was £64.05 million (2017: £59.06 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 7 May 2019 at 12:00 noon for the following purposes:
To consider and, if thought fit, pass the following resolutions:
(10) That the directors be and are hereby empowered in accordance with Section 570(1) of the Act during the period commencing on the passing of this Resolution and expiring at the conclusion of the Company's next Annual General Meeting, or on the expiry of 15 months following the passing of this Resolution, whichever is the later, (unless previously revoked, varied or extended by the Company in general meeting), to allot equity securities (as defined in Section 560 of the Act) for cash pursuant to the general authority conferred upon the directors in Resolution 8 above as if Section 561 of the Act did not apply to any such allotment provided that this power is limited to the allotment of equity securities in connection with the allotment for cash of equity securities up to an aggregate nominal amount of £4,000,000, but so that this authority shall allow the Company to make offers or agreements before the expiry and the directors may allot securities in pursuance of such offers or agreements as if the powers conferred hereby had not so expired. This power applies in relation to a sale of shares which is an allotment of equity securities by virtue of Section 560(3) of the Act as if in the first paragraph of this Resolution the words "pursuant to the general authority conferred upon the directors in Resolution 8 above" were omitted.
The City Partnership (UK) Limited
Company Secretary
22 March 2019
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.
(a) Any member of the Company entitled to attend and vote at the Annual General Meeting is also entitled to appoint one or more proxies to attend, speak and vote instead of that member. Any such appointment can only be made using the procedures set out in these notes and the notes of the Form of Proxy. A member may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that member. A proxy may demand, or join in demanding, a poll. A proxy need not be a member of the Company but must attend the Annual General Meeting in order to represent his appointer. A member entitled to attend and vote at the Annual General Meeting may appoint the Chairman or another person as his proxy although the Chairman will not speak for the member. A member who wishes his proxy to speak for him should appoint his own choice of proxy (not the Chairman) and give instructions directly to that person. If you are not a member of the Company but you have been nominated by a member of the Company to enjoy information rights, you do not have a right to appoint any proxies under the procedures set out in these notes. Please read note (k) below. Under section 319A of the Companies Act 2006, the Company must answer any question a member asks relating to the business being dealt with at the Annual General Meeting unless:
| Link Asset Services | |
|---|---|
| PXS1 | |
| 34 Beckenham Road | |
| Beckenham | |
| BR3 4ZF; |
(h) Copies of the directors' Letters of Appointment, the Register of Directors' Interests in the ordinary shares of the Company, a copy of the amended articles of association (marked up to show the changes) and a copy of the current articles of association of the Company will be available for inspection at the registered office of the Company during usual business hours on any weekday (weekends and public holidays excluded) from the date of this Notice, until the end of the Annual General Meeting and at the Annual General Meeting venue itself for at least 15 minutes prior to and during the meeting.
(i) Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the Company has specified that only those holders of the Company's shares registered on the Register of Members of the Company as at close of business on 2 May 2019 or, in the event that the Annual General Meeting is adjourned, on the Register of Members at close of business on the day two days before the time of any adjourned meeting, shall be entitled to attend and vote at the said Annual General Meeting in respect of such shares registered in their name at the relevant time. Changes to entries on the Register of Members after close of business on 2 May 2019 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 7 May 2019 at 12:00 noon 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 a final dividend of 1.5 pence per ordinary share | n | n | n |
| 3 | To approve the Directors' Remuneration Report | n | n | n |
| 4. | To re-elect Mr P C Waller as a director | n | n | n |
| 5. | To re-elect Mr R M Pettigrew as a director | n | n | n |
| 6. | To re-elect Mr R S McDowell as a director | n | n | n |
| 7. | To re-appoint BDO LLP as auditor | n | n | n |
| 8. | To authorise the directors to allot shares | n | n | n |
| 9. | To grant authority to allot shares pursuant to the DRIS for a further period | n | n | n |
| Special Resolutions | ||||
| 10. | To waive pre-emption rights in respect of the allotment of shares | n | n | n |
| 11. | To authorise the directors to waive pre-emption rights in respect of the allotment of shares pursuant to the DRIS for a further period |
n | n | n |
| 12. | To authorise the directors to make purchases of its own shares | 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.
Signature Dated 2019
To be used at the Annual General Meeting of the Company to be held at 33 St James Square, London, SW1Y 4JS on 7 May 2019 at 12:00 noon
YFM Private Equity Limited 5th Floor, Valiant Building 14 South Parade Leeds LS1 5QS
Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU
Howard Kennedy LLP 1 London Bridge London SE1 9BG
Panmure Gordon (UK) Limited One New Change London EC4M 9AF
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
EL Support Services Limited 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
Unit 23 Bellingham Trading Estate Randlesdown Road London SE6 3BX
Babraham Research Campus Babraham Cambridge CB22 3AT
5th Floor, Valiant Building 14 South Parade Leeds LS1 5QS
Telephone 0113 244 1000 Email [email protected]
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