Annual Report • Feb 29, 2016
Annual Report
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Annual Report and Accounts Year ended 29 February 2016
| Page | |
|---|---|
| Financial Highlights | 2 |
| Chairman's Statement | 3 |
| Board of Directors | 5 |
| Strategic Report | 6 |
| Investment Manager's Report | 10 |
| Investment Portfolio Summary | 12 |
| Top Ten Investments | 16 |
| Directors' Report | 19 |
| Directors' Remuneration Report | 23 |
| Corporate Governance | 27 |
| Statement of Directors' Responsibilities | 33 |
| Independent Auditor's Report | 34 |
| Statement of Comprehensive Income | 38 |
| Statement of Financial Position | 39 |
| Statement of Changes in Equity | 40 |
| Statement of Cash Flows | 41 |
| Notes to the Financial Statements | 42 |
| Glossary of Terms | 53 |
| Company Information | 54 |
| Notice of AGM | 55 |
The objective of the VCT is to achieve long term capital growth and to maximise tax free distributions to shareholders by investing in a diversified portfolio of small UK Companies primarily traded on AIM. At least 70% of the Company's funds must be invested in qualifying holdings within three years of raising the funds. The balance of the Company's funds will be invested in liquid assets (such as gilts, other fixed interest and bank deposits) and non-qualifying equity investments on an opportunistic basis to boost the fund's performance. The Company is managed as a Venture Capital Trust in order that shareholders in the Company may benefit from the tax relief available.
The Company's daily share price can be found on various financial websites under the TIDM code "HHVT" or on our dedicated website at http://www.hargreaveaimvcts.co.uk
| Ordinary Shares (as at 29 February): | 2016 | 2015 |
|---|---|---|
| Net asset value per share | 101.18p | 110.33p |
| Cumulative distributions paid per share since launch | 43.00p | 37.00p |
| Total return per share | 144.18p | 147.33p |
| Annual Returns per share (basic and diluted): | ||
| Revenue return | (0.98)p | (1.09)p |
| Capital return | (2.41)p | (1.88)p |
| Combined return | (3.39)p | (2.97)p |
| Dividends per share: | ||
| Interim paid | 2.00p | 2.00p |
| Final proposed/paid | 4.00p | 4.00p |
| Total dividend for year | 6.00p | 6.00p |
| Ongoing Expense Ratio* | 2.28% | 2.10% |
| Performance Benchmark: | ||
| FTSE AIM All-share Index (results rebased to 100 at 6 April 2007) | 66.01 | 67.25 |
* Calculated as total expenses minus ad hoc legal costs, divided by year-end net assets.
The Glossary of Terms can be found on page 53 of the report.
The Company performed steadily during a year which experienced some major swings in Stock Market sentiment and growing geopolitical uncertainty.
At 29 February 2016 the net asset value ("NAV") was 101.18 pence which after adjusting for the dividends paid gives a total return since inception of 144.18 pence. The loss per ordinary share for the year was 3.39 pence per share (comprising a revenue loss of 0.98 pence and capital losses of 2.41 pence). Total return for the period fell by 2.14% compared to a loss of 1.84% in the FTSE AIM All-share Total Return Index and 12.2% in the FTSE 100 Index.
The investment manager, Hargreave Hale Limited, invested a further £3.27 million in 17 qualifying companies during the year. The fair value of Qualifying Investments at 29 February 2016 was £13.36 million invested in 57 AIM companies and 4 unquoted companies. £16.66 million was held in a mix of cash, fixed income and other non-qualifying equities; more detail can be found in the investment manager's report on page 10.
An interim dividend of 2.00 pence was paid on 11 December 2015 (Interim 2015: 2.00 pence).
A final dividend of 4.00 pence is proposed (2015: 4.00 pence) which, subject to shareholder approval at the Annual General Meeting will be paid on 20 July 2016, to ordinary shareholders on the register on 10 June 2016. The Board's decision to maintain the dividend in full despite the small decline in NAV during the year reflects the c.5% improvement in NAV since the year-end.
Provided the underlying investment performance of the Company remains acceptable and the liquidity position allows, it remains our policy to target a 5% distribution yield referenced to the year end NAV per share of the Company.
In total, 366,182 shares were purchased during the year at a weighted average price of 100.84 pence per share. A further 144,045 shares have been purchased since the year end at a weighted average price of 99.61 pence.
The Board continues to target a share price discount of 5% of the NAV per share (as measured against the mid-price) for market purchases. It should be emphasised that this target is non-binding and dependent on circumstances including the Company's liquidity from time to time and market conditions.
On 18 August 2015 the joint offer for subscription for new shares in Hargreave Hale AIM VCT1 plc and AIM VCT2 plc (launched in October 2014) was closed fully subscribed with £10m raised for Hargreave Hale AIM VCT2 plc.
The Directors of the Company announced on 2 December 2015 the launch of a new joint offer for subscription for shares in both Hargreave Hale AIM VCTs to raise up to £15 million in Hargreave Hale AIM VCT1 plc and up to £10 million in the Company. The offer was approved by shareholders of the Company at a General Meeting on 12 January 2016 and is open to both new and existing shareholders.
Since its launch, the offer has resulted in gross funds being received of £9.57 million and the issue of 9.01 million new shares in the Company. The offer will close at 12pm on 16 November 2016 or earlier if the maximum subscription has been reached before then.
To maintain its VCT qualifying status we must invest at least 70% of the net funds raised in any one accounting period in Qualifying Investments by the start of the accounting period containing the third anniversary of the date on which the funds were raised. I am pleased to report that we continue to make good progress against this test and, at the year end, we had achieved 88.17% and have satisfied all the relevant tests.
You may be aware that considerable changes have been made to the VCT rules in order for the VCT scheme to be granted a State Aid exemption by the EU. We have examined the effects that these new regulations will have on your company and have concluded that the changes will not have a major effect on the continued implementation of our investment policies. We think that the main change that will affect us will be an inability to invest our non-qualifying funds in unlisted shares including AIM companies.
Further successful fundraising during the past year has increased our net assets as at the present date to around £35m for the first time. This has led to greater diversity in the portfolio and should lead in the future to some reduction in the expense ratio.
By international standards the UK economy has continued to perform well which is important to most of our investee companies. However there are signs that this growth is moderating and geopolitical uncertainty, including the EU Referendum, provides a worrying backdrop. Fortunately, as a result of our ongoing fundraising we have good cash balances available for deployment. New technology is creating many business opportunities in the UK and we are hopeful this phenomena will continue to deliver a stream of attractive new investments.
David Hurst-Brown Chairman
Date: 10 June 2016
David worked for over 25 years in the investment banking industry starting as an investment analyst with Rowe and Pitman and becoming a partner of the firm in 1985. Following takeovers by SG Warburg and Swiss Bank Corporation and the subsequent merger with Union Bank of Switzerland, David worked in the corporate finance division of UBS Warburg. In this capacity, amongst his various duties, he was responsible for establishing a smaller companies business unit. He was a consultant to UBS from 1999 to 2002. In addition to his chairmanship of Hargreave Hale AIM VCT 2 plc, David is presently non-executive chairman of Foresight Solar VCT plc.
Giles Hargreave is the chairman of Hargreave Hale. After leaving Cambridge in 1969, Giles began his career as a trainee analyst with James Capel before moving to Management Agency and Music Plc as a private fund manager in 1974. In 1986 he founded Hargreave Investment Management, which merged with Hargreave Hale & Co in 1988. In 1998, Giles took over as the fund manager of the Marlborough Special Situations Fund. He also co-manages the Marlborough UK Micro Cap Growth Fund, the Marlborough UK Nano-Cap Growth Fund and both VCTs. Giles heads up Hargreave Hale's investment committee and chairs the weekly meetings in which the team reviews existing and potential investments.
Philip has over 20 years' experience in managing engineering and high-tech industries and has worked in both the UK and the USA. He spent almost 30 years in the venture capital industry, playing a major part in the development of the YFM Group into the most active investor in UK SME's. He retired from all YFM Group business in April 2008 following its disposal. Philip has been responsible for a wide range of venture capital deals in a variety of industries including software, computer maintenance, engineering, printing, safety equipment, design and textiles. In addition to his directorship of Hargreave Hale AIM VCT 2 plc, Philip is a non-executive director of Pressure Technologies plc, British Smaller Companies VCT plc, Howmac Limited and FCFM Group Limited.
The report has been prepared by the Directors in accordance with the requirements of Section 414A of the Companies Act 2006. The Company's independent auditor is required by law to report on whether the information given within the strategic report is consistent with the financial statements. The auditor's report is set out on pages 34 to 37.
The Company's investment objectives are:
The Company will have a range of investments in four distinct asset classes:
The Company is managed by Hargreave Hale Limited, a fund manager with approximately £6.3 billion under administration and £5.5 billion under managed accounts. Hargreave Hale has been managing investments in UK Small and Micro Cap companies for 18 years and VCTs for 12 years. It has a long established reputation that stems from its management of the Marlborough Special Situations Fund and the Marlborough UK Micro Cap Fund, and more recently the VCTs. It has won numerous awards for its management of small cap funds. In accordance with the investment policy, both Hargreave Hale AIM VCT 1 and Hargreave Hale AIM VCT 2 have made investments in the Marlborough Special Situations Fund, which has returned 2,066% (to 29 February 2016) since Giles Hargreave took responsibility for it in July 1998.
The investments of the Company are co-managed by Giles Hargreave and Oliver Bedford, with support from the rest of the firm's investment team together comprising a total investment team of 14. The investment team manages approximately £3.1 billion, of which approximately £2.2 billion is invested in small companies, many of which are quoted on AIM. The breadth of the investment team, the scale of investment in small companies and the investment manager's track record help attract deal flow.
The investment manager will maintain a diversified and fully invested portfolio of Qualifying Investments, primarily in small UK companies with a quotation on AIM. The primary purpose of the investment strategy is to ensure the Company maintains its status as a VCT. To achieve this, the Company must have 70% of all funds raised from the issue of shares invested in Qualifying Investments throughout accounting periods of the VCT beginning no later than three years after the date on which those shares are issued.
Although VCTs are required to invest and maintain a minimum of 70% of their funds invested in Qualifying Investments as measured by the VCT rules, it is likely that the investment manager will target a higher threshold of approximately 80% in order to provide some element of protection against an inadvertent breach of the VCT rules. The Company's maximum exposure to a single Qualifying Investment is limited to 15% of net assets.
The key selection criteria used in deciding which Qualifying Investments to make include, inter alia:
The investment manager follows a stock specific, rather than sector specific, investment approach and is more likely to provide expansionary capital than seed capital.
The investment manager will primarily focus on investments in companies with a quotation on AIM or plans to trade on AIM. The investment manager prefers to participate in secondary issues of companies that are quoted on AIM as such companies have an established track record that can be more readily assessed and greater disclosure of financial performance. Secondary issues are often priced at an attractive discount to the market price.
The Company will have additional non-qualifying equity exposure to UK and international equities through targeted investments made on an opportunistic basis to boost the performance of the Company. This will vary in accordance with the investment manager's view of the equity markets and may fluctuate between nil and 30% of the net assets of the Company. The investment manager will also invest in gilts, other fixed income securities and cash.
The investment manager may invest up to 75% of the net proceeds of any issue of new shares into the Marlborough Special Situations Fund subject to a maximum of 20% of the gross assets of the Company. This will enable the Company to maintain their exposure to small companies indirectly, whilst the investment manager identifies opportunities to invest directly into small UK companies through a suitable number of Qualifying Investments.
The allocation between asset classes in the non-qualifying portfolio will vary depending upon opportunities that arise with a maximum exposure of 100% of the non-qualifying portfolio to any individual asset class.
It is not the Company's present intention to have any borrowings. The Company does, however, have the ability to borrow a maximum amount up to 15% of the "Adjusted Capital and Reserves" amount (as such term is defined in the Articles of Association of the Company), which is effectively the aggregate of the nominal capital of the Company issued and paid up and the amount standing to the credit of the consolidated reserves of the Company, less specified adjustments, exclusions and deductions. There are no plans to utilise this ability at the current time.
A review of the Company's business during the year and consideration of its future development and prospects are contained in the chairman's statement and investment manager's report. The financial position of the Company at 29 February 2016 was strong with no debt or gearing.
In the financial year under review, net assets increased from £24.1m to £29.9m. In this period the NAV per share decreased from 110.33p to 101.18p. This resulted in a loss to ordinary shareholders of 3.15 pence per share after adjusting for dividends paid of 6.00 pence per share.
An interim dividend of 2.00 pence was paid on 11 December 2015 and a final dividend of 4.00p has been proposed.
In total, 366,182 shares were purchased during the year at an average price of 100.84 pence per share.
As a whole, during the year, the qualifying portfolio increased from £13.0m to £13.4m. The Company made 18 qualifying investments at a cost of £3.3m, of which six were investments into new Qualifying Companies.
For further details please refer to the investment manager's report on page 10.
The Company's loss per share for the year ended 29 February 2016 was -3.39 pence per year (2015: -2.97p).
The ongoing charges of the Company for the financial year under review represented 2.28% (2015: 2.10%) of average net assets. Shareholders should note that this ratio has been calculated as total expenses minus ad hoc legal costs, divided by year-end net assets.
At each board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives. The key performance indicators (KPIs) are established industry measures and are as follows:
Commentary on the performance of these KPIs has been discussed in the chairman's statement and investment manager's report on pages 3-4 and 10-11 respectively. In addition to the above, the Board considers peer group comparative performance. Performance is also measured against the Company's closest benchmark, The FTSE AIM Allshare Index. The performance measures for the year are included in the financial highlights on page 2.
The Directors acknowledge that they are responsible for the effectiveness of the Company's risk management and internal controls and periodically review the principal risks faced by the Company at the quarterly board meetings. The Board may exercise these responsibilities through delegation to Hargreave Hale Limited as it considers appropriate.
The principal risks facing the Company relate to the Company's investment activities and include risks stated below:
iii. Discount volatility: Venture Capital Trust shares tend to trade at discounts to their underlying net asset values, which can fluctuate considerably. To minimise the impact of such fluctuations, the Company has a share buyback policy whereby the Company purchases shares for cancellation.
Additional risks and further details of the above risks and how they are managed are explained in Note 16 of the financial statements. Trends affecting future developments are discussed in the Chairman's Statement on page 3 and in the investment manager's report on page 10.
In accordance with provision C.2.2 of the 2014 revision of the Code, the Directors have assessed the prospect of the Company over a longer period than the 12 months required by the 'Going Concern' provision. The Board conducted this review for a period of five years, which was selected because it:
The Directors have taken account of the Company's current position and the potential impact of the principal risks documented in this report. Based on this assessment the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years.
In making this statement the Directors have considered the current position of the Company, carried out a robust assessment of the principal risks facing the Company in severe but reasonable scenarios and the effect of any mitigating actions and considered the potential impact of these risks on the business model, future performance and liquidity of the Company.
The Company had no employees during the year and all Directors are male.
As a UK quoted company, the VCT is required to report on its greenhouse gas emissions. As it outsources all of its activities to third parties and does not have any physical assets, property, employees or operations, the Company is not directly responsible for any greenhouse gas emissions.
By order of the Board of Directors.
STUART BROOKES Company Secretary
Date: 10 June 2016
This report covers the financial year 1 March 2015 to 29 February 2016. The manager's report contains references to movements in the Net Asset Value per share (NAV) and Total Return per share (net asset value per share plus distributed dividends per share). Movements in the NAV per share do not necessarily mirror the earnings per share (EPS) reported in the accounts and elsewhere, which convey the profit after tax within the Company within the reported period as a function of the weighted average number of shares in issue for the period.
The year under review included another period of sustained underperformance by global equities, particularly in the run up to the year end. Four main factors weighed on markets: further falls in commodity prices; US Dollar strength; downward revisions to global growth; Chinese credit markets. The pressure was not limited to global equities with evidence of distress also showing up in FX and credit markets. UK small caps were, I am sorry to say, not immune to this contagion and the VCT had a difficult time in in January and February. I am pleased to report that matters have improved since.
So where does this leave us? Broadly speaking, the UK economy remains reasonably robust. Clearly, there remain pockets of weakness. Energy is one such example. More recently, it has become clear that the consumer has retrenched to some degree with many retailers and restaurants reporting more challenging trading conditions. High employment, low inflation and real wage growth (boosted by the living wage), should be supporting the sector, suggesting other factors may be undermining consumer confidence. We know, for example, that the IMF recently reduced its UK growth projections citing the uncertain environment and risk to business investment ahead of the Brexit vote. We have exposure to the consumer discretionary sector through Mexican Grill, Tasty and Everyman Media Group; however, those companies are focused as much on expanding their UK footprint as they are on increasing annual sales from existing outlets. These companies are classic examples of secular growth, of the type we have referred to in our previous reports.
We expect the current volatility to remain for some time yet, or at least until we know with greater certainty the outcome of the US presidential election, that the UK will remain in the EU, and that the Chinese economy will not collapse. We are running a significant cash weighting and will continue to deploy it as and when we see an opportunity for profit, either through short-term trading in non-qualifying equities or longer term investments in qualifying companies.
We saw a marked reduction in the number of good quality qualifying investment opportunities since the New Year. It is difficult to clearly identify the reasons for this, but we suspect the difficult equity markets were as much a factor as the transition to the new VCT legislation. If this is so, then deal flow should start to improve and we are encouraged by what we have seen more recently.
In the twelve months to 29 February 2016, the NAV decreased from 110.33p to 101.18p. Dividends of 6.00p were paid, giving investors a total return of -3.15 pence per share, which translates to a loss of -2.9%. During the same period the FTSE AIM All-Share Total Return fell 1.8%, whilst the FTSE 100 fell 12.2% (-8.47% on a total return basis).
The qualifying investments made a net contribution of -2.62 pence per share with 24 out of the 64 making gains, 2 unchanged and 38 losing ground. The balance was the net of non-qualifying portfolio gains, running costs and investment income.
Trakm8 was the top performing qualifying investment (+117.0%, +3.67 pence per share). The company reported very strong trading that was ahead of expectations at the time of their interim results. Trakm8 continues to attract significant growth in its telematics solutions division, increasing the recurring proportion of its revenues. Learning Technologies Group also performed well (+71.4%, +1.42 pence per share). Partnered with KPMG, the company won a very large three year contract to provide learning and development services for the UK Civil Service. The company reported 33% revenue growth for the year ending 31 December 2015 and remain well-positioned in a highly fragmented and rapidly growing market for e-learning products and services. Other stocks that made a significant contribution included Vision Direct (takeover, +113.1%, +1.05 pence per share), DP Poland (reduced losses and new stores, +7.2%, +0.64 pence per share) and Fulcrum Utility (profit upgrade, +162.2%, +0.60 pence per share).
The biggest losses within the period came from Advanced Power Components (profit warning, -74.0%, -1.23 pence per share), Premaitha Health (patent dispute, -61.4%, -1.16 pence per share), Flow Group (product launch delay, -56.1%, -0.94 pence per share) and Audioboom (revenue downgrade, -66.7%, -0.75 pence per share).
We invested £3.3m into 18 qualifying investments over the year, including 14 further investments into existing qualifying companies; three secondary placings into listed companies and one private investment.
Within the qualifying portfolio, Vista Partners completed their acquisition of Advanced Computer Software, realising a gain of £492,000 (+724%), and Essilor completed their acquisition of Vision Direct, realising a gain of £430,617 (+326%). Following strong runs we reduced the size of our investments in Trakm8 and Imaginatik to help maintain sensible individual weightings within the portfolio. We exited Proxama and sold stock in Nektan and Tangent Communications following poor updates. Tangent has since been acquired through a management buyout.
The VCT is comfortably through the HMRC defined investment test and ended the period at 88.17% invested as measured by the HMRC investment test. By market value, the VCT had a 44.8% weighting to qualifying investments.
The allocation to non-qualifying equity investments increased from 10.4% to 18.4%. We continued to make use of the Marlborough Special Situations Fund as a temporary home for proceeds from fundraising; the allocation increased from 6.3% (2/2015) to 13.1% (2/2016). The non-qualifying investments contributed +1.79 pence per share to the overall gains. Fixed income as a percentage of the fund fell from 2.2% to 0.9% and cash fell from 27.3% to 22.8%.
The HMRC investment tests are set out in Chapter 3 of Part 6 Income Tax Act 2007, which should be read in conjunction with this section of the investment manager's report. Funds raised by VCTs are first included in the investment tests from the start of the accounting period containing the third anniversary of the date on which the funds were raised. Therefore, the allocation of qualifying investments as defined by the legislation can be different to the portfolio weighting as measured by market value relative to the net assets of the VCT.
Deal flow has been strong since year end and six additional qualifying investments were made in Maxcyte, Medaphor, Osirium, Surface Transforms, Laundrapp and Portr.
We were able to exit Tangent through an MBO. TLA Worldwide is also subject to a bid at a 200% premium to our cost.
The NAV has increased by 4.6% to 105.83 since the year end.
For further information please contact:
STUART BROOKES Company Secretary
Registered office: Hargreave Hale AIM VCT2 plc Accurist House 44 Baker Street London W1U 7AL 01253 754740
Date: 10 June 2016
| Cost | Valuation | Valuation | |
|---|---|---|---|
| Qualifying investments | £000 | £000 | % |
| Mexican Grill Ltd (A Preference Shares)** | 277 | 1,154 | 5.01 |
| Trakm8 Holdings plc | 91 | 952 | 4.13 |
| Learning Technologies Group plc | 534 | 916 | 3.98 |
| Ideagen plc | 190 | 646 | 2.81 |
| DP Poland plc | 332 | 553 | 2.40 |
| Science in Sport plc | 518 | 462 | 2.01 |
| Quixant plc | 120 | 457 | 1.98 |
| Portr Ltd** | 410 | 410 | 1.78 |
| AnimalCare Group plc | 100 | 367 | 1.60 |
| Eagle Eye Solutions plc | 385 | 341 | 1.48 |
| Intercede Group plc | 91 | 339 | 1.47 |
| TLA Worldwide plc | 150 | 315 | 1.37 |
| CentralNic Group plc | 207 | 290 | 1.26 |
| Lombard Risk Management plc | 92 | 259 | 1.12 |
| Sanderson Group plc | 200 | 255 | 1.11 |
| Premaitha Health plc | 330 | 245 | 1.07 |
| Fulcrum Utility Services Ltd | 100 | 242 | 1.05 |
| Clearstar Inc | 360 | 234 | 1.01 |
| Belvoir Lettings plc | 335 | 227 | 0.99 |
| Mirada plc | 393 | 222 | 0.96 |
| Angle plc | 252 | 219 | 0.95 |
| Reneuron Group plc | 262 | 219 | 0.95 |
| Tristel plc | 79 | 219 | 0.95 |
| Hardide plc | 77 | 217 | 0.94 |
| Kalibrate Technologies plc | 161 | 206 | 0.89 |
| Electric Word plc | 185 | 196 | 0.85 |
| Plastics Capital plc | 202 | 194 | 0.84 |
| ULS Technology plc | 139 | 191 | 0.83 |
| Flowgroup plc | 268 | 183 | 0.79 |
| Everyman Media Group plc | 172 | 181 | 0.79 |
| Electrical Geodesics Inc | 145 | 174 | 0.76 |
| MartinCo plc | 113 | 157 | 0.68 |
| E G Solutions plc | 200 | 154 | 0.67 |
| Gfinity plc | 197 | 148 | 0.64 |
| Microsaic Systems plc | 272 | 137 | 0.60 |
| Mexican Grill Ltd (Ordinary Shares)** | 31 | 128 | 0.56 |
| Omega Diagnostics Group plc | 129 | 125 | 0.54 |
| Porta Communications plc | 200 | 115 | 0.50 |
| EKF Diagnostics Holdings plc | 150 | 110 | 0.48 |
| APC Technology Group plc | 350 | 109 | 0.48 |
| Satellite Solutions Worldwide plc | 103 | 109 | 0.47 |
| Synety Group plc | 234 | 104 | 0.45 |
| Verona Pharma plc | 72 | 97 | 0.42 |
| Midatech Pharma plc | 150 | 96 | 0.42 |
| Audioboom plc | 126 | 95 | 0.41 |
| Lidco Group plc | 146 | 91 | 0.40 |
| Fusionex International plc | 69 | 59 | 0.26 |
| Qualifying investments (continued) | Cost £000 |
Valuation £000 |
Valuation % |
|---|---|---|---|
| Paragon Entertainment Ltd | 200 | 56 | 0.24 |
| Ilika plc | 53 | 52 | 0.22 |
| Haydale Graphene Industries plc | 64 | 50 | 0.22 |
| Imaginatik plc | 105 | 44 | 0.19 |
| Sphere Medical Holdings plc | 241 | 44 | 0.19 |
| Synairgen plc | 90 | 38 | 0.16 |
| WANDisco plc | 53 | 34 | 0.15 |
| Tangent Communications plc | 98 | 27 | 0.12 |
| TP Group plc | 125 | 25 | 0.11 |
| Outsourcery plc | 300 | 24 | 0.10 |
| Nektan plc | 32 | 21 | 0.09 |
| Mporium Group plc | 150 | 14 | 0.06 |
| Mycelx Technologies Corporation plc (D1 shares) | 150 | 7 | 0.03 |
| Brigantes Energy Ltd** | 25 | 5 | 0.02 |
| Corfe Energy Ltd** | 25 | 5 | 0.02 |
| Total qualifying investments | 11,410 | 13,365 | 58.03 |
| UK Treasury Stock 2.5% 2024 121 120 0.52 Total: UK Gilts 121 120 0.52 Scottish Amicable Finance 8.5% 2049 154 158 0.69 Total: Corporate Bonds 154 158 0.69 MFM Special Situations Fund 3,524 3,899 16.93 Total: Unit Trusts 3,524 3,899 16.93 Cohort plc 176 346 1.51 BP plc 288 300 1.30 Halfords Group plc 302 299 1.30 Crawshaw Group plc 220 279 1.21 FCFM Group Ltd** 150 257 1.12 ARM Holdings plc 231 249 1.08 British Polythene Industries plc 225 232 1.01 Babcock International Group plc 238 229 0.99 Atkins (WS) plc 183 188 0.81 Lloyds Banking Group plc 171 181 0.79 Royal Dutch Shell plc 157 164 0.71 Learning Technologies Group plc 80 159 0.69 Melrose Industries plc 136 147 0.64 Dart Group plc 129 140 0.61 Skyepharma plc 129 135 0.59 Vertu Motors plc 76 128 0.56 Finsbury Food Group plc 70 126 0.55 Newmont Mining Corp 125 123 0.54 Barrick Gold Corp 126 122 0.53 Fulcrum Utility Services Ltd 58 121 0.53 Goldcorp Inc 124 109 0.48 Dixons Carphone plc 108 109 0.47 K3 Business Tech Group plc 61 103 0.45 Flowgroup plc 200 102 0.44 |
Non-Qualifying investments | |||
|---|---|---|---|---|
| Idox plc | 69 | 102 | 0.44 |
| Non-qualifying investments (continued) | Cost £000 |
Valuation £000 |
Valuation % |
|---|---|---|---|
| Horizon Discovery Group plc | 124 | 101 | 0.44 |
| Worldpay Group plc | 101 | 93 | 0.40 |
| Legal and General Group plc | 101 | 91 | 0.39 |
| RPC Group plc | 72 | 89 | 0.39 |
| Everyman Media Group plc | 85 | 88 | 0.38 |
| Midatech Pharma plc | 134 | 85 | 0.37 |
| Amerisur Resources plc | 167 | 83 | 0.36 |
| Egdon Resources plc | 140 | 61 | 0.26 |
| The Fulham Shore plc | 38 | 56 | 0.24 |
| Be Heard Group plc | 42 | 49 | 0.21 |
| ReNeuron Group plc | 41 | 45 | 0.20 |
| Eagle Eye Solutions plc | 44 | 42 | 0.18 |
| NAHL Group plc | 67 | 40 | 0.17 |
| Plethora Solutions Holdings plc | 93 | 33 | 0.14 |
| Audioboom plc | 31 | 28 | 0.12 |
| Plexus Holdings plc | 125 | 20 | 0.09 |
| Mycelx Technologies Corporation plc (D1 shares) | 170 | 17 | 0.07 |
| Mexican Grill Ltd (A Preference Shares)** | 3 | 10 | 0.04 |
| Genagro Ltd** | 22 | 8 | 0.03 |
| Microsaic Systems Ltd* | 1 | 0 | 0.00 |
| Mycelx Technologies Corporation plc (S+ shares)* | 8 | 0 | 0.00 |
| Paragon Entertainment Ltd* | 1 | 0 | 0.00 |
| Premaitha Health plc* | 1 | 0 | 0.00 |
| Verona Pharma plc* | 1 | 0 | 0.00 |
| Total – non-qualifying equities | 5,444 | 5,489 | 23.83 |
| Total – non-qualifying investments | 9,243 | 9,666 | 41.97 |
| Total investments | 20,653 | 23,031 | 100.00 |
*Actual holdings of less than £500.
**Unquoted companies
The majority of investments held within the portfolio are listed and/or headquartered in the UK with the exception of the following:
| Listed | Headquartered | Registered | |
|---|---|---|---|
| AIM listed Investments: | |||
| Audioboom plc | UK | UK | Jersey |
| Barrick Gold Corp | UK | Canada | Canada |
| Clearstar Inc | UK | Cayman Islands | Cayman Islands |
| Electrical Geodesics Inc | UK | USA | USA |
| Fulcrum Utility Services plc | UK | UK | Cayman Islands |
| Fusionex International plc | UK | UK | Jersey |
| Goldcorp Inc | UK | Canada | Canada |
| Mycelx Technologies Corporation plc | UK | USA | USA |
| Nektan plc | UK | Gibraltar | Gibraltar |
| Newmont Mining Corp | UK | USA | USA |
| Paragon Entertainment Ltd | UK | Jersey | Cayman Islands |
| Royal Dutch Shell plc | UK | Netherlands | UK |
| WANDisco plc | UK | UK | Jersey |
| Unlisted private companies: | |||
| Brigantes Energy Ltd | – | UK | UK |
| Corfe Energy Ltd | – | UK | UK |
| FCFM Group Ltd | – | UK | UK |
| Genagro Ltd | – | Jersey | Jersey |
| Mexican Grill Ltd | – | UK | UK |
| Portr Ltd | – | UK | UK |
| Authorised unit trust: | |||
| Marlborough Special Situations Fund | – | UK | UK |
The top 10 equity investments are shown below; each is valued by reference to the bid price, or in the case of unquoted companies, values are either based on the last arm's length transaction or valuation techniques, such as earnings multiples. Forecasts, where given, are drawn from a combination of broker research and/or Bloomberg consensus forecasts and exclude amortisation, share based payments and exceptional items. Forecasts are in relation to a period end for which the company results are yet to be released. Forecasts are not shown for private companies. The net asset figures are drawn from audited accounts and net cash values are from published accounts in most cases.
| Mexican Grill Ltd | Price 8550.0p | |||
|---|---|---|---|---|
| Investment date | October 2009 | Results for year to | December 2014 | |
| Equity held | 4.25% | Turnover (£'000) | 15,221 | |
| Av. Purchase Price | 2059.0p | Profit before tax (£'000) | -147 | |
| Cost (£'000) | 311 | Net Cash (£'000) | -1,943 | |
| Valuation (£'000) | 1,292 | Net Assets 31 December 2014 (£'000) | 4,797 |
Mexican Grill is a private company that operates 28 fast casual California-Mexican restaurants that provide fresh, made to order cuisine for eat in or take-away, making it among the largest chains within its niche.
| Trakm8 Holdings plc | Price 230.0p | ||
|---|---|---|---|
| Investment date | October 2013 | Forecasts for year to | March 2016 |
| Equity held | 1.29% | Turnover (£'000) | 26,500 |
| Av. Purchase Price | 22.0p | Profit before tax (£'000) | 3,800 |
| Cost (£'000) | 91 | Net Cash (£'000) | -2,103 |
| Valuation (£'000) | 952 | Net Assets 31 March 2015 (£'000) | 6,995 |
Trakm8 provides market leading Fleet Management Solutions and Vehicle Tracking Systems, Engineering Services and Telematics Devices to organisations worldwide. Trakm8's customers range from corporate fleets to small businesses that all benefit from improved operational efficiency, driver safety and fuel economy from utilising Trakm8's products and services.
| Learning Technologies Group plc | Price 36.0p | |||
|---|---|---|---|---|
| Investment date | November 2014 | Forecasts for year to | December 2016 | |
| Equity held | 0.61% | Turnover (£'000) | 33,000 | |
| Av. Purchase Price | 20.6p | Profit before tax (£'000) | 6,100 | |
| Cost (£'000) | 614 | Net Cash (£'000) | 7,300 | |
| Valuation (£'000) | 1,075 | Net Assets 31 December 2015 (£'000) | 25,479 |
Learning Technologies Group (LTG) provides a comprehensive and integrated range of e-learning services and technologies to corporate and government clients. LTG is making good progress towards its goal of establishing a substantial global organisation of specialist digital learning businesses from Europe, US, Latin America and Asia to form a market-leading technologies agency.
| Ideagen plc | Price 47.0p | ||
|---|---|---|---|
| Investment date | March 2011 | Forecasts for year to | April 2016 |
| Equity held | 0.77% | Turnover (£'000) | 21,800 |
| Av. Purchase Price | 13.8p | Profit before tax (£'000) | 5,700 |
| Cost (£'000) | 190 | Net Cash (£'000) | 5,400 |
| Valuation (£'000) | 646 | Net Assets 30 April 2015 (£'000) | 31,189 |
Ideagen is a supplier of compliance based information management software with operations in the UK and the United States. The company specialises in enterprise governance, risk and compliance and healthcare solutions for organisations operating within highly regulated industries. Ideagen provides complete content lifecycle solutions that enable organisations to meet their regulatory and quality compliance standards, helping them to reduce costs and improve efficiency.
| DP Poland plc | Price 26.0p | ||
|---|---|---|---|
| Investment date | December 2012 | Forecasts for year to | December 2016 |
| Equity held | 1.63% | Turnover (£'000) | 4,500 |
| Purchase Price | 15.6p | Profit before tax (£'000) | -2,200 |
| Cost (£'000) | 332 | Net Cash (£'000) | 6,988 |
| Valuation (£'000) | 553 | Net Assets 31 December 2015 (£'000) | 9,677 |
DP Poland (Domino's Pizza Poland) is a fast food company that operates a sub-franchise of the Domino's Pizza brand in Poland. The company operate in five Polish cities, with 15 corporate and 8 sub-franchised stores. They continue to roll out and anticipate finishing this year with a significantly larger estate, led by corporate store openings piloting the launch of Domino's Pizza in new towns and cities.
| Science in Sport Ltd | Price 48.0p | |||
|---|---|---|---|---|
| Investment date | April 2014 | Forecasts for year to | December 2016 | |
| Equity held | 2.23% | Turnover (£'000) | 12,002 | |
| Av. Purchase Price | 53.92p | Profit before tax (£'000) | -994 | |
| Cost (£'000) | 519 | Net Cash (£'000) | 8,704 | |
| Valuation (£'000) | 462 | Net Assets 31 December 2015 (£'000) | 12,016 |
SiS (Science in Sport) manufactures and sells premium sports nutrition products. The company develops and distributes food, nutritional supplements and beverages which are formulated to hydrate, energise, recover, and enhance sports performance. SiS is currently the official sports nutrition supplier to Team Sky, Team Wiggins, Katarina Johnson-Thompson, GB Rowing and Spartan Race.
| Quixant plc | Price 175.0p | |||
|---|---|---|---|---|
| Investment date | May 2013 | Forecasts for year to | December 2016 | |
| Equity held | 0.40% | Turnover (\$'000) | 80,200 | |
| Purchase Price | 46.0p | Profit before tax (\$'000) | 13,000 | |
| Cost (£'000) | 120 | Net Cash (\$'000) | -7,877 | |
| Valuation (£'000) | 457 | Net Assets 31 December 2015 (\$'000) | 25,651 |
Founded in 2005, Quixant designs and manufactures complete advanced hardware and software solutions for the pay-for-play gaming and slot machine industry. Quixant's specialised products provide an all-in-one solution, based on PC technology but with additional hardware features and operating software developed specifically to address the requirements of the gaming industry.
| Portr Ltd | Price 5.99p | |||
|---|---|---|---|---|
| Investment date | July 2015 | Forecasts for year to | December 2016 | |
| Equity held | 2.98% | Turnover (£'000) | not available | |
| Purchase Price | 5.99p | Profit before tax (£'000) | not available | |
| Cost (£'000) | 410 | Net Cash (£'000) | not available | |
| Valuation (£'000) | 410 | Net Assets (£'000) | not available |
Portr is an early stage private company with a technology led on-demand luggage transfer service for the B2C market that is currently operating across London's Heathrow, Gatwick and City Airports. In its most basic form, Portr transfer a traveller's luggage (to or) from the airport terminal to their overnight destination through a flexible and cost efficient solution. They are looking to launch a new service with industry partners this year that will enable passengers departing from London on certain airlines to check in baggage from any location in London with one of their vetted drivers.
| AnimalCare Group plc | Price 202.0p | ||
|---|---|---|---|
| Investment date | December 2007 | Forecasts for year to | June 2016 |
| Equity held | 0.86% | Turnover (£'000) | 13,800 |
| Purchase Price | 2850.0p | Profit before tax (£'000) | 2,900 |
| Cost (£'000) | 100 | Net Cash (£'000) | 6,098 |
| Valuation (£'000) | 367 | Net Assets 30 June 2015 (£'000) | 20,991 |
AnimalCare is a leading supplier of generic veterinary medicines and animal identification products to companion animal veterinary markets. It develops and sells goods and services to veterinary professionals principally for use in companion animals, operating directly in the UK and through distribution and development partners in key markets in Western Europe. Its principal product lines are licensed veterinary medicines and companion animal identification products and services.
| Eagle Eye Solutions plc | Price 169.0p | ||
|---|---|---|---|
| Investment date | April 2014 | Forecasts for year to | June 2016 |
| Equity held | 0.91% | Turnover (£'000) | 8,000 |
| Av. Purchase Price | 189p | Profit before tax (£'000) | -1,000 |
| Cost (£'000) | 429 | Net Cash (£'000) | 2,726 |
| Valuation (£'000) | 383 | Net Assets 30 June 2015 (£'000) | 7,242 |
Eagle Eye Solutions is a leading UK provider of digital consumer engagement solutions, enabling the retail and hospitality industries to deliver real-time digital promotions. The company provides a digital transaction platform, Eagle Eye AIR, for the secure, real-time, multi-channel issuance, management and redemption of digital offers, vouchers and rewards, replacing previously used paper-based methods.
As at 29 February 2016, other funds managed by Hargreave Hale Ltd were also invested in all of the investments held within the Company's portfolio with the exception of the following: Electric Word plc, Omega Diagnostics Group plc, Paragon Entertainment Ltd, Tristel plc and Genagro Ltd.
The Directors present their report together with the audited financial statements of the Company for the year from 1 March 2015 to 29 February 2016.
The Company was incorporated and registered in England and Wales on 20 September 2006 under the Companies Act 1985, registered number 5941261.
The Company has been approved as a Venture Capital Trust by HMRC under section 259 of the Income Taxes Act 2007. The shares of the Company were first admitted to the Official List of the UK Listing Authority and trading on the London Stock Exchange on 6 April 2007.
On 20 September 2007, the Company revoked its investment company status to facilitate the payment of dividends out of capital profits.
The Company's principal activity is to invest in a diversified portfolio of qualifying small UK based companies, primarily trading on AIM, with a view to maximising tax free dividend distributions to shareholders.
The Directors have managed and continue to manage the Company's affairs in such a manner as to comply with Section 259 of the Income Taxes Act 2007.
The revenue loss after tax for the year amounted to £247,629 (2015: £186,239). An interim ordinary dividend of 2.00 pence per ordinary share was paid on 11 December 2015 (2014: 2.00 pence per share). The final dividend of 4.00 pence per share for the year ended 29 February 2016 is due to be paid on 20 July 2016 (2015: 4.00 pence per share).
On 29 February 2016, the bid price and the net asset value per ordinary share were 96.00 pence and 101.18 pence respectively.
Hargreave Hale Limited is the Company's appointed investment manager. The principal terms of the Company's agreement with Hargreave Hale Limited are set out in Note 3 to the financial statements.
Following an initial period of three years, the appointment may be terminated by either party on giving one year's notice. The Directors review the investment manager's performance at each board meeting.
Hargreave Hale Limited also provides administration services, custody services, company secretarial services and one non-executive director, Giles Hargreave.
The Company's capital structure is summarised in Note 1 to the financial statements.
Details of the voting rights in the Company's shares as at the date of this report are given in the Notice of Annual General Meeting on page 58.
In November 2014, the Company appointed Philip Hare & Associates LLP (formerly Robertson Hare LLP) as advisors on compliance with legislative requirements. The Directors monitor the Company's VCT status through regular reports from Philip Hare & Associates LLP. Prior to this appointment, PricewaterhouseCoopers LLP provided this service.
At 29 February 2016, there were two holdings of 3% and over of the Company's ordinary share capital. These holdings related to Hargreave Hale Nominees Limited and Hargreaves Lansdown (Nominees) Limited, which were 6.98% and 6.48% respectively.
The present directors are listed in the Director's Remuneration Report on page 24.
The Directors' interests (including those of connected persons) in the issued share capital of the Company are outlined in the Director's Remuneration Report on page 26. There is no minimum holding requirement that the Directors need to adhere to.
There have been no changes to the beneficial interests of Directors between 29 February 2016 and the date of this report.
During the year, the Company repurchased 366,182 ordinary shares (nominal value £3,662) at a cost of £371,795. The repurchased shares represent 1.67% of ordinary shares in issue on 1 March 2015. All repurchased shares were cancelled. A further 144,045 ordinary shares (nominal value £1,440) have been purchased since the year end at a total cost of £144,577.
The buyback scheme as detailed in the prospectus is offered to shareholders as a means to provide an opportunity for shareholders to sell their shares back to the Company through the buyback scheme if an exit route is desired.
The Directors believe it is in the Shareholders' best interest to target a reduced buyback discount. As a guide, and subject to the Boards' discretion and providing that, in the opinion of the Board, there is adequate surplus cash available, the Company will consider buying back shares at a 5% discount to the last published NAV per share. The target of a share price discount of 5% of the NAV per share (as measured against the mid-price) is non-binding and at the Board's discretion.
On 18 August 2015 the joint offer for subscription for new shares in Hargreave Hale AIM VCT1 plc and AIM VCT2 plc (launched in October 2014) was closed fully subscribed with £10m raised for Hargreave Hale AIM VCT2 plc.
The Directors of the Company announced on 2 December 2015 the launch of a new joint offer for subscription for new shares in both Hargreave Hale AIM VCTs to raise up to £15 million in Hargreave Hale AIM VCT 1 plc and £10 million in Hargreave Hale AIM VCT 2 plc.
The offer was approved by shareholders of the Company at the General Meeting on 12 January 2016 and is open to both new and existing shareholders.
During the year, the Company issued 7,993,992 ordinary shares of 1 pence per share (nominal value £79,940) which resulted in funds being received of £8,615,541. The 3.5% premium of £301,544 was payable to Hargreave Hale Limited to cover the cost of additional shares allotted of £131,870 and introducer commission of £150 resulting in net fees payable to Hargreave Hale Limited of £169,524.
Post Balance Sheet Events are disclosed in Note 18 to the financial statements on page 52.
Consideration of the Company's future development and prospects are contained in the chairman's statement and investment manager's report on pages 4 and 11 respectively.
All Directors and officers benefit from qualifying third party indemnity insurance cover.
No Director is under contract of service with the Company and, other than as disclosed in Note 15, no contract existed during or at the end of the year in which any Director was materially interested and which was significant in relation to the Company's business.
The Company's financial instruments and principal risks are disclosed in Note 16 to the accounts.
A resolution proposing the reappointment of BDO LLP as auditors to the Company and authorising the Directors to determine their remuneration will be put at the forthcoming Annual General Meeting.
The Directors who held office at the date of approval of this director's report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditors are unaware, and each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information, and to establish that the Company's auditors are aware of that information.
The statement on corporate governance set out on pages 27 to 32 is included in the directors' report by reference.
As a UK quoted company, the VCT is required to report on its greenhouse gas emissions. As it outsources all of its activities to third parties and does not have any physical assets, property, employees or operations, the Company is not directly responsible for any greenhouse gas emissions.
The Annual General Meeting will be held at Accurist House, 44 Baker Street, London, W1U 7AL at 10.30 am on 12 July 2016. The notice of the Annual General Meeting is at the end of this document.
The proxy form enclosed with this annual report and financial statements permits shareholders to disclose votes 'for', 'against', and 'withheld'. A vote 'withheld' is not a vote in law and will not be counted in proportion of the votes for and against the resolution.
Resolutions relating to the following items of special business will be proposed at the forthcoming Annual General Meeting for which shareholder approval is required in order to comply either with the Companies Act 2006 or the Listing Rules of the Financial Conduct Authority.
Ordinary resolution number 8 will request the authority to allot up to an aggregate nominal amount of £180,000. This resolution replaces the authority given to the Directors at the General Meeting on 12 January 2016. The authority sought at the forthcoming Annual General Meeting will expire 15 months from the date that this resolution is passed, or at the conclusion of the next Annual General Meeting of the Company, whichever is earlier.
Special resolution number 9 will request the authority for the Directors to allot equity securities for cash without first being required to offer such securities to existing members. This will include the sale on a non pre-emptive basis of any shares the Company holds in treasury for cash. The authority relates to a maximum aggregate of £180,000 of the nominal value of the share capital.
The power being sought under this resolution is in substitution for any existing powers, with the exception of that power obtained at the general meeting of the Company held on 12 January 2016. The authority sought at the forthcoming Annual General Meeting will expire 15 months from the date that this resolution is passed or at the conclusion of the next Annual General Meeting of the Company, whichever is earlier.
Special resolution number 10 will request the authority to purchase approximately 14.99 per cent. of the Company's issued Ordinary share capital at, or between, the minimum and maximum prices specified in resolution 10. Shares bought back under this authority may be cancelled and up to 10 per cent may be held in treasury.
The Board believes that it is helpful for the Company to continue to have the flexibility to buy its own shares and this resolution seeks authority from shareholders to do so.
This resolution would renew the 2015 authority, which was on similar terms. During the financial year under review, the Company purchased 366,182 ordinary shares which were then cancelled.
The authority sought at the forthcoming Annual General Meeting will expire 15 months from the date that this resolution is passed, or at the conclusion of the next Annual General Meeting of the Company, whichever is earlier.
The Board believes that the passing of the resolutions above are in the best interests of the Company and its shareholders as a whole, and unanimously recommends that you vote in favour of these resolutions, as the Directors intend to do in respect of their own beneficial shareholdings of 145,792 shares.
By order of the Board of Directors.
STUART BROOKES
Company Secretary
Registered office: Hargreave Hale AIM VCT2 plc Accurist House 44 Baker Street London W1U 7AL
Date: 10 June 2016
The Board presents this report which has been prepared in accordance with the requirements of The Companies Act 2006 and the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2013. Shareholders are encouraged to vote on the remuneration report annually at the Annual General Meeting and on the remuneration policy at least every three years.
Your Company's independent auditor is required to audit certain disclosures provided in this report. Where disclosures have been audited, they are indicated in this report. The auditor's opinion is included in their report on pages 34 to 37.
The Board is mindful of its obligation to set remuneration at levels which attract and maintain an appropriate calibre of individuals whilst simultaneously protecting the interests of shareholders.
In light of the obligations set out above, the Board has reviewed its existing remuneration levels. These have remained unchanged since the Company was formed 10 years ago. During the intervening period, the Company's net assets have increased by more than 500%, whilst the regulatory burden has increased and become more complex. Having regard to these factors and remuneration across the VCT industry, the Board decided in June 2015 to increase the annual remuneration of the non-executive Directors to £18,000 (from £15,000) and of the Chairman to £22,500 (from £18,000). It was agreed that this change would take effect from 1 March 2015.
As the Board consists entirely of non-executive directors it is considered appropriate that matters relating to remuneration are considered by the Board as a whole, rather than a separate remuneration committee. All directors are considered independent with the exception of Giles Hargreave who is chairman of Hargreave Hale Limited and is not therefore independent.
The remuneration policy is set by the Board, which considers whether the remuneration policy is fair and in line with comparable VCTs, together with the remuneration of each of the directors. The Board deals with all matters relating to directors remuneration and reporting thereon and has established clear terms of reference.
The Company has no employees, so the Board's policy is that the remuneration of directors should be fair and reasonable in relation to the time committed and responsibilities of the directors and in line with the remuneration paid by other listed Venture Capital Trusts and investment trusts. The Board aims to review directors' remuneration from time to time.
Fees for the Directors are determined by the Board within the limits stated in the Company's Articles of Association. The maximum permitted by the Company's Articles of Association is £200,000 per annum. The Directors are not eligible for bonuses, pension benefits, share options, other incentives or benefits or payment on loss of office.
It is the Board's policy that none of the Directors has a service contract. Each of the Directors has entered into an agreement with the Company when appointed. David Hurst-Brown was appointed on 8 December 2006, Giles Hargreave was appointed on 12 August 2009 when an agreement was made with Hargreave Hale Limited to provide the directorship service and Philip Cammerman was appointed on 28 September 2010. The terms of appointment provide that a Director shall retire and be subject to re-election at the first Annual General Meeting after appointment and at least every three years thereafter. In accordance with Listing Rule 15.2.13A, Giles Hargreave shall retire and be subject to re-election on an annual basis as he is a director of the VCT and the manager. Either party can terminate the agreement by giving to the other at least 3 months' notice in writing.
All of the Directors are non-executive and considered to be independent with the exception of Giles Hargreave, who is not independent. It is not considered appropriate to relate any portion of their remuneration to the performance of the Company and performance conditions have not been set in determining their level of remuneration. As the Company has no employees, it is not possible to take account of the pay and employment conditions of the employees when determining the levels of the Directors' remuneration.
The table below shows the expected maximum payment that can be received per annum by each director for the year to 28 February 2017, together with a summary of the Company's strategy and how this is supported by the current remuneration policy.
| Director | Role | Components of Pay Package |
Expected fees for the year to 28 February 2017 |
Performance Conditions |
Company Strategy |
Remuneration Policy |
|---|---|---|---|---|---|---|
| David Hurst-Brown | Chairman | £22,500 | To achieve long term capital growth and to |
The levels of remuneration are considered to be fair and |
||
| Philip Cammerman Director | Basic Salary | £18,000 £18,000 |
N/A | maximise tax free distributions to shareholders by investing in |
reasonable in relation to the time committed and responsibilities |
|
| Giles Hargreave | Director | a diversified portfolio of small UK companies primarily traded on AIM. |
of the Directors and in line with the remuneration paid by other VCTs and investment trusts. |
The purpose of this report is to demonstrate the method by which the Board has implemented the Company's remuneration policy and provide shareholders with specific information in respect of the Directors' remuneration.
Under CA06 s439, the rules require companies to ask shareholders to approve the annual remuneration paid to directors every year and to formally approve the directors' remuneration policy on an annual or on a three yearly basis. Any change to the directors' remuneration policy will require shareholder approval. As in prior years, the vote on the directors' remuneration report is an advisory vote, whilst the vote on the directors' remuneration policy is binding. Accordingly ordinary resolutions will be put to shareholders at the forthcoming Annual General Meeting to be held on 12 July 2016, to receive and adopt the directors' remuneration report and to receive and approve the directors' remuneration policy.
At the Annual General Meeting held on 21 August 2015 the following votes were cast on the remuneration report:
| Number of votes |
% of votes cast |
|
|---|---|---|
| For | 2,479,820 | 93.9% |
| Against | 50,845 | 1.9% |
| Discretionary | 111,920 | 4.2% |
| Total votes cast | 2,642,585 | 100.0% |
| Number of votes withheld | 52,237 |
The remuneration policy was approved by shareholders at the Annual General Meeting held on 21 August 2015. Votes were cast as follows:
| Number of votes |
% of votes cast |
|
|---|---|---|
| For | 2,209,968 | 83.6% |
| Against | 69,075 | 2.6% |
| Discretionary | 365,965 | 13.8% |
| Total votes cast | 2,645,008 | 100.0% |
| Number of votes withheld | 49,814 |
The Company was incorporated on 20 September 2006 and commenced trading on 6 April 2007. The performance chart below charts the Company's Ordinary share NAV Total Return rebased to 100 and share price rebased to 100 over the last seven years compared to the Total Return of a notional investment in the FTSE AIM All-Share Index over the same period. This index reflects the performance of the AIM equity market in which the Company is principally invested. The graph has been plotted at half yearly intervals.
The total emoluments of each person who served as a director during the year are set out in the table below. David Hurst-Brown is entitled to a higher fee due to his role as Chairman.
The table below compares Director's remuneration to shareholder distributions (through dividend payments and share buybacks) in respect of the financial year ended 29 February 2016 and the preceding financial year:
| Year ended 29 February 2016 £ |
Year ended 28 February 2015 £ |
Growth % |
|
|---|---|---|---|
| Directors' remuneration | 58,500 | 48,000 | 21.9 |
| Dividend paid | 1,502,646 | 957,412 | 56.9 |
| Share buybacks | 371,795 | 70,531 | 527.1 |
| 2016 Fees Fees £ |
2016 Benefits in Kind £ |
2016 Total £ |
2015 Fees £ |
2015 Benefits in Kind £ |
2015 Total £ |
|
|---|---|---|---|---|---|---|
| David Hurst-Brown (Chairman) | 22,500 | – | 22,500 | 18,000 | – | 18,000 |
| Giles Hargreave | 18,000 | – | 18,000 | 15,000 | – | 15,000 |
| Philip Cammerman | 18,000 | – | 18,000 | 15,000 | – | 15,000 |
| Total | 58,500 | – | 58,500 | 48,000 | – | 48,000 |
The Directors' interests (including those of connected persons) in the issued share capital of the Company are outlined below. There is no minimum holding requirement that the Directors need to adhere to.
| Ordinary Shares | ||
|---|---|---|
| 2016 | 2015 | |
| David Hurst-Brown | 45,836 | 45,836 |
| Giles Hargreave | 117,201 | 164,151 |
| Philip Cammerman | 8,190 | 8,190 |
There have been no changes to the beneficial interests of Directors between 29 February 2016 and the date of this report.
The Directors who served during the year received no taxable benefits in the year.
The Directors who served during the year received no variable pay relating to the performance of the Company in the year.
The Directors who served during the year received no pension benefits in the year.
The remuneration levels are designed to reflect the duties and responsibilities of the roles and the value of time spent in carrying these out. The Board will obtain independent advice where it considers it necessary. No such advice was taken during the year under review. This policy would be used when agreeing the remuneration of any new director.
The directors' remuneration report on pages 23 to 26 was approved by the Board of Directors on 10 June 2016 and will be further subject to an advisory vote at the Annual General Meeting being held on 12 July 2016 and every year thereafter.
Signed on behalf of the Board of Directors.
David Hurst-Brown Chairman
10 June 2016
The Board has put in place arrangements which it considers appropriate for a VCT to ensure proper corporate governance.
The Company has taken note of and implemented the 2014 UK Corporate Governance Code. During the year under review, the Board considers that the Company has complied with the recommendations of the Code except as disclosed below.
The Board comprises three directors, all of whom are non-executive and all of whom are considered independent of the investment manager with the exception of Giles Hargreave. Giles Hargreave is chairman of Hargreave Hale Limited and is not therefore independent of the investment manager.
The Directors have a range of business, financial and asset management skills and experiences relevant to the direction and control of the Company. Brief biographical details of the members of the Board are shown on page 5.
The Chairman is David Hurst-Brown, a non-executive director, who has no conflicting relationships. The other directors are all non-executive. The Company does not have a Chief Executive Officer as the responsibilities for the day to day management and administration of the Company has been delegated to Hargreave Hale Limited in their capacity as the investment manager and administrator to the Company.
The administrator ensures the Directors have timely access to all relevant management, financial and regulatory information to enable informed decisions to be made. The Board meets on a regular basis at least four times each year and additional meetings are arranged as necessary. Regular contact is maintained between the investment manager and the Board outside of formal meetings.
Board meetings follow a formal agenda which includes a review of the investment portfolio. A report is produced by the investment manager and includes information on the current investment position and outlook, strategic direction, performance against stock market indices, the Company's peer group, cash management, revenue forecasts for the financial year, marketing and shareholder relations, corporate governance and industry and other issues.
Due to the size of the Board, the Board has not set up separate nomination and remuneration committees (as required by Code B.2.1 and D.2.1 respectively) on the grounds that the Board as a whole considers these matters. As all directors are non-executives, the Board has not appointed a senior independent non-executive director (Code A.4.1) as the Chairman performs the role.
The Directors have adopted a formal schedule of matters reserved for the Board that cannot be delegated to a committee or to any other party. These reserved matters include approval of annual and half yearly reports and accounts, circulars and other shareholder communications, appointment and removal of board members and officers of the Company, changes to the Company's objectives and accounting policies, and the use of gearing for investment purposes.
The Directors have delegated to the investment manager responsibility for the day to day investment management decisions of the Company. The provision of administration and custodian services has also been delegated to Hargreave Hale Limited.
The Board has direct access to the Company Secretary who is responsible for ensuring that the board procedures are followed. The Company Secretary is also responsible for ensuring the timely delivery of information and reports, and that the statutory obligations of the Company are met.
All nomination responsibilities are carried out by the Board. These responsibilities include reviewing the size, structure and skills of the Board and considering any changes necessary or new appointments. No director has a contract of employment with the Company.
The Articles of Association require that each director retires and stands for election at the Company's first Annual General Meeting and then retires at an Annual General Meeting every three years after appointment or (as the case may be) last reappointment, and may offer himself for re-election. No director serves a term of more than three years before re-election.
David Hurst-Brown is required to stand for election at this year's Annual General Meeting. The Chairman confirms that the performance of all directors continues to be effective and demonstrates commitment to their respective roles.
Giles Hargreave is required to stand for election at this year's Annual General Meeting. The Chairman confirms that the performance of all directors continues to be effective and demonstrates commitment to their respective roles.
Philip Cammerman is required to stand for election at the Annual General Meeting to be held in 2017.
The Articles of Association of the Company and the Directors' letters of appointment will be available at the Annual General Meeting and can be inspected at the registered office of the Company.
On appointment to the Board, directors are fully briefed as to their responsibilities and are kept regularly informed of industry and regulatory developments.
The Board has formalised arrangements under which the Directors in the furtherance of their duties, may seek independent professional advice at the expense of the Company. The Company also maintains Directors and Officer's liability insurance to cover legal expenses.
The Board as a whole reviews directors' remuneration on a regular basis. Details of the Company's policy on directors' remuneration and of payments to directors are given in the directors' remuneration report on pages 23 to 26.
The Directors' responsibilities for the Company's accounting records and financial statements are set out on page 33. The independent auditor's report appears on pages 34 to 37.
The Directors recognise the importance of the Code (B.6) in terms of evaluating the performance of the Board as a whole and the individual directors. As the directors of the Company are non-executive their role is to ensure that the Company is managed by the investment manager and administrator to the best of their ability and make changes to the management if they are not acting in the best interests of the shareholders. The Directors' role is to review the performance of the management and ensure this is the case. The Directors' performance is reviewed on an ongoing basis by the Board on attendance to board meetings, input at the board meetings and ability to continue in their role as a non-executive director of the Company. This is formalised in the retirement process as detailed in the Articles of Association where each director retires every three years and stands for re-election by the shareholders at the Annual General Meeting.
The Directors complete an annual board evaluation questionnaire for each director covering performance appraisal of the Board, the Chairman and the Directors. The questionnaires were completed during the year and on review the Board is satisfied with the results and finds that the Board, the Chairman and the Directors are suitably qualified to undertake their responsibilities and perform their duties in respect of managing the Company.
The Committee consists of two members appointed by the Board, these members are Philip Cammerman (Chairman) and David Hurst-Brown. The terms of reference for the committee setting out roles and responsibilities (Code C.3.2) were approved at the Board Meeting on 8 February 2011. The responsibilities of the committee are as follows:
The clarity of disclosures;
Compliance with accounting standards; and
The committee reviews its terms of reference and its effectiveness annually and recommends to the Board any changes post review. The terms of reference are available on the Company's website http://www.hargreaveaimvcts.co.uk and by request from the Company Secretary. The audit committee ordinarily meets twice a year and has direct access to BDO LLP, the Company's external auditor. The Board considers that the members of the committee are both independent and collectively have the skills and experience to discharge their duties effectively, and that the Chairman of the committee meets the requirements of the UK Corporate Governance Code as to recent and relevant financial experience.
During the year ended 29 February 2016 the audit committee discharged its responsibilities by:
The key areas of risk identified 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 manager and the auditor at the audit planning meeting and at the board meeting prior to sign off of the financial statements. The committee concluded:
■ Venture Capital status – The investment manager confirmed to the audit committee that the conditions for maintaining the Company's status had been complied with throughout the year. The Company's status is also reviewed by the Company's tax advisors Philip Hare & Associates LLP (formerly Robertson Hare LLP) and further half yearly reconciliations are carried out. The committee reviewed the reports and were satisfied with the reports produced.
The Investment Manager and the Company's auditor confirmed to the audit committee that they were not aware of any material misstatements to the financial statements. Having reviewed the financial statements and the report produced by the auditor, the audit committee were satisfied that key areas of risks and judgement were appropriately addressed.
As part of the review of auditor effectiveness and independence, BDO LLP confirmed it is independent to the Company and continues to comply with applicable audit standards.
The committee considered the appointment of the current auditors and confirmed that it is satisfied with the standard of service received. Should the committee be dissatisfied, a tender process would be undertaken. A tender was last undertaken when the Company was incorporated in 2006, although there was rotation of the engagement partners in the prior year in accordance with the Auditors' Ethical Standards. A tender has not been undertaken since this date as the committee has been satisfied with the performance of the external auditor.
The Company's capital structure is summarised in Note 1 to the accounts.
The Directors acknowledge that they are responsible for the Company's systems of internal financial and non-financial controls, which have been in place throughout the year. The controls are operating effectively and continue to be in place up to the date of this report.
The effectiveness of the Company's operations is reviewed annually by the Board and accords with the guidance set out in the FRC's "Risk Management and Internal Control and Related Financial and Business Reporting" document. In particular, it has reviewed the process for identifying and evaluating the significant risks affecting the Company and the policies and procedures by which these risks are managed.
A detailed risk map has been prepared which identifies the significant risks faced by the Company and the key controls to manage these risks. This ensures that consideration is given regularly to the nature and extent of the risks facing the Company and that they are being actively monitored. Where changes in risk have been identified during the year they also provide a mechanism to assess whether further action is required to manage the risks identified.
Since investment management, custody of assets and all administrative services are provided by a third party, the Company's system of internal control also includes the monitoring of services provided by the third party, including the operational controls maintained by them, to ensure they meet the Company's objectives.
Since the appointment of Hargreave Hale Limited as administrators, the method of controlling company payments has changed. The Directors and the Company Secretary are authorised signatories. Each cheque must be signed by two authorised signatories, including one that is independent of Hargreave Hale.
The Board has approved electronic payments up to £10,000 to be authorised by either Stuart Brookes or David Hurst-Brown, payments over £10,000 must be dual authorised. Copy documentation to support all payments is circulated to the Directors for review.
The control systems have been designed to provide reasonable, but not absolute, assurance against material misstatement or loss and to manage, rather than eliminate, risk of failure to achieve business objectives.
The Company does not have an internal audit function. All of the Company's management functions (investment management, custody and administration) are performed by Hargreave Hale Limited and are segregated by department and location. The internal controls of Hargreave Hale Limited are reviewed and approved by the Board. It is therefore felt that there is no need for the Company to have an internal audit function, however, this will be reviewed annually.
During the year fees of £2,563 were paid for non-audit services (2015: £nil).
The Directors are considered to have a good attendance record at board meetings of the Company. The following table sets out the number of formal board meetings held during the year under review and the number of meetings attended by each director.
| Ordinary Business No of Board Meetings |
||
|---|---|---|
| Held | Attended | |
| David Hurst-Brown (Chairman) | 5 | 5 |
| Giles Hargreave | 5 | 4 |
| Philip Cammerman | 5 | 4 |
| Fundraising and Share Allotments No of Board Meetings |
||
|---|---|---|
| Held | Attended | |
| David Hurst-Brown (Chairman) | 16 | 12 |
| Giles Hargreave | 16 | 15 |
| Philip Cammerman | 16 | 6 |
| No of Audit Meetings | ||
|---|---|---|
| Held | Attended | |
| Philip Cammerman (Chairman) | 2 | 2 |
| David Hurst-Brown | 2 | 2 |
Shareholder relations are given high priority by the Board. The prime medium by which the Company communicates with shareholders is through the Interim and Annual Report and Accounts, which aim to provide shareholders with a full understanding of the Company's activities and its results. This information is supplemented by the weekly calculation of the NAV of the Company's ordinary shares, which is published via the Stock Exchange and on our website at http://www.hargreaveaimvcts.co.uk. Shareholders have the opportunity to communicate directly with the Board at the Annual General Meeting. All shareholders are encouraged to attend the Annual General Meeting.
The Company's Articles of Association may be amended by the members of the Company by special resolution (requiring a majority of at least 75% of the persons voting on the relevant resolution).
In April 2015 the Company became aware of certain recent breaches in relation to the Listing Rules, the Model Code and the Disclosure and Transparency Rules. The Company immediately sought advice from its sponsors and lawyers and conducted an extensive review exercise which found other historic breaches where notifications and announcements had not been made in respect of dealings in the Company by PDMRs and their connected persons.
The Company notified the UK Listing Authority on a voluntary basis at the beginning of May of all such breaches. The Company has also undergone a comprehensive review of its procedures, systems and controls and implemented appropriate procedures to ensure that it complies with its obligations going forward. The Board and relevant employees of the investment manager have attended mandatory refresher training to ensure they fully understand their responsibilities and obligations under the Listing Rules, the DTRs and the Model Code. Following a response from the UK Listing Authority the Company made an announcement of all relevant dealings that were not announced at the time that they were made but should have been under the DTRs and this was released on 29 May 2015.
After making enquires, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
Approved on behalf of the Board of Directors.
David Hurst-Brown Chairman
Date: 10 June 2016
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. 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 Financial Reporting Standard 102 (FRS102) (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for the Company for that period.
In preparing these financial statements, the Directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for ensuring that the annual report and accounts, taken as a whole, are fair, balanced, understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.
David Hurst-Brown (Chairman), Philip Cammerman and Giles Hargreave, the Directors, confirm to the best of their knowledge that:
In our opinion the Hargreave Hale AIM VCT2 plc Financial Statements for the year ended 29 February 2016 , which have been prepared by the Directors in accordance with applicable law and United Kingdom Accounting Standards including Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' :
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Our audit opinion on the financial statements covers the:
As explained more fully in the report of the Directors, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council's (FRC's) Ethical Standards for Auditors.
A description of the scope of an audit of Financial Statements is provided on the FRC's website at www.frc.org.uk/auditscopeukprivate
Our audit approach was developed by obtaining an understanding of the Company's activities, the key functions undertaken on behalf of the Board by the investment manager and administrator and the overall control environment. Based on this understanding we assessed those aspects of the Company's transactions and balances which were most likely to give rise to a material misstatement.
The outcome of our risk assessment was that the valuation of investments was considered to be the area with the greatest effect on the overall audit strategy including the allocation of resources in the audit.
The valuation of investments is a key accounting estimate where there is an inherent risk of management override arising from the investment valuations being prepared by the investment manager, who is remunerated based on the net asset value of the Company.
We performed initial analytical procedures to determine the extent of our work considering, inter alia, the value of individual investments, the nature of the investment and the extent of the fair value movement. A breakdown of the investment portfolio by nature of instrument type and valuation method is shown below.
In respect of equity investments quoted on AIM and other listed exchanges, we confirmed that bid or set price had been used and that there were no contra indicators, such as liquidity considerations, to suggest the price was not the most appropriate indication of fair value. Of the portfolio 91% is valued at bid price.
Of the portfolio 9% is in unlisted private company investments. In respect of these investments, we:
We also considered revenue recognition to be a significant risk. Revenue consists of dividends receivable from the portfolio companies and interest earned on cash balances and gilts. Revenue recognition is a significant audit risk as it is one of the key drivers of dividend returns to investors. In particular, in unlisted companies, dividends receivable can be difficult to predict.
We assessed the design and the implementation of the controls relating to revenue recognition and we developed expectations for interest income receivable based on loan instruments and investigated any variations in amounts recognised to ensure they were valid.
In respect of dividends receivable, we reviewed the income arising for a sample of the listed shares held and agreed the income received to dividend history from Bloomberg. We note no dividend income was received from unlisted companies. We also tested the categorisation of dividends received from the portfolio companies between the revenue and capital.
The audit committee's consideration of their key issues is set out on pages 29 to 30.
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. For planning, we consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. Importantly, misstatements below this level will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements. The application of these key considerations gives rise to two levels of materiality, the quantum and purpose of which are tabulated below.
| Materiality measure | Purpose | Key considerations and benchmarks |
Quantum (£) |
|---|---|---|---|
| Financial statement materiality – Based on 2% of invested assets |
Assessing whether the financial statements as a whole present a true and fair view |
The value of investments ■ The level of judgement ■ inherent in the valuation The range of reasonable ■ alternative valuation |
460,000 |
| Specific materiality – classes of transactions and balances which impact on revenue profits – Based on 10% of the gross expenditure |
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 |
70,000 |
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £5,000 as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
In our opinion:
We have nothing material to add or to draw attention to in relation to:
Under the International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the Directors' statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the Audit Committee which we consider should have been disclosed.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Under the Listing Rules we are required to review:
We have nothing to report in respect of these matters.
For and on behalf of BDO LLP, statutory auditor London United Kingdom
Date 10 June 2016
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127)
For the year ended 29 February 2016
| Note | Revenue £000 |
Capital £000 |
Total £000 |
|
|---|---|---|---|---|
| Net loss on investments held at fair value | ||||
| through profit or loss | 7 | – | (300) | (300) |
| Income | 2 | 146 | – | 146 |
| 146 | (300) | (154) | ||
| Management fee | 3 | (103) | (308) | (411) |
| Other expenses | 4 | (291) | – | (291) |
| (394) | (308) | (702) | ||
| (Loss) on ordinary activities before taxation | (248) | (608) | (856) | |
| Taxation | 5 | – | – | – |
| (Loss) after taxation | (248) | (608) | (856) | |
| (Loss) per share basic and diluted | 6 | (0.98)p | (2.41)p | (3.39)p |
| Revenue | Capital | Total | ||
|---|---|---|---|---|
| Note | £000 | £000 | £000 | |
| Net loss on investments held at fair value | ||||
| through profit or loss | 7 | – | (117) | (117) |
| Income | 2 | 116 | – | 116 |
| 116 | (117) | (1) | ||
| Management fee | 3 | (68) | (206) | (274) |
| Other expenses | 4 | (234) | – | (234) |
| (302) | (206) | (508) | ||
| (Loss) on ordinary activities before taxation | (186) | (323) | (509) | |
| Taxation | 5 | – | – | – |
| (Loss) after taxation | (186) | (323) | (509) | |
| (Loss) per share basic and diluted | 6 | (1.09)p | (1.88)p | (2.97)p |
The total column of these statements is the income statement of the Company. All revenue and capital items in the above statements derive from continuing operations. There are no recognised gains or losses other than the loss for the year.
The accompanying notes are an integral part of these financial statements.
Company registration number: 5941261 (in England and Wales)
| Note | 2016 £000 |
2015 £000 |
|
|---|---|---|---|
| Fixed assets | |||
| Investments at fair value through profit or loss | 7 | 23,031 | 17,544 |
| Current assets | |||
| Debtors | 9 | 20 | 26 |
| Cash at bank | 12 | 6,994 | 6,709 |
| 7,014 | 6,735 | ||
| Creditors: amounts falling due within one year | 10 | (191) | (141) |
| Net current assets | 6,823 | 6,594 | |
| Total assets less current liabilities | 29,854 | 24,138 | |
| Capital and reserves | |||
| Called up share capital | 11 | 295 | 219 |
| Share premium | 21,484 | 13,118 | |
| Capital redemption reserve | 7 | 3 | |
| Special reserve | 5,250 | 7,124 | |
| Capital reserve – realised | 1,367 | (1) | |
| Capital reserve – unrealised | 2,653 | 4,629 | |
| Revenue reserve | (1,202) | (954) | |
| Total shareholders' funds | 29,854 | 24,138 | |
| Net asset value per share | 13 | 101.18p | 110.33p |
These financial statements were approved and authorised for issue by the Board of Directors on 10 June 2016 and signed on its behalf by
Chairman
The accompanying notes are an integral part of these financial statements.
For the year ended 29 February 2016
| Called up Share Capital £000 |
Share Premium £000 |
Capital Redemption Reserve £000 |
Special Reserve £000 |
Capital Reserve Realised £000 |
Capital Reserve Unrealised £000 |
Revenue Reserve £000 |
Total £000 |
|
|---|---|---|---|---|---|---|---|---|
| At 1 March 2015 | 219 | 13,118 | 3 | 7,124 | (1) | 4,629 | (954) | 24,138 |
| Share buybacks | (4) | 4 | (372) | (372) | ||||
| Share Issues | 80 | 8,536 | 8,616 | |||||
| Issue Costs | (170) | (170) | ||||||
| Equity dividends paid | ||||||||
| (Note 18) | (1,502) | (1,502) | ||||||
| Realised gains on | ||||||||
| investments | 1,676 | 1,676 | ||||||
| Unrealised losses on | ||||||||
| investments | (1,976) | (1,976) | ||||||
| Management fee charged to | ||||||||
| capital | (308) | (308) | ||||||
| Revenue loss after taxation | ||||||||
| for the year | (248) | (248) | ||||||
| Total loss after taxation | 1,368 | (1,976) | (248) | (856) | ||||
| At 29 February 2016 | 295 | 21,484 | 7 | 5,250 | 1,367 | 2,653 | (1,202) | 29,854 |
Reserves available for distribution are capital reserve realised, special reserve and revenue reserve. Total distributable reserves at 29 February 2016 were £5.42 million. The accompanying notes are an integral part of these financial statements.
| Share Capital £000 |
Share Premium £000 |
Capital Redemption Reserve £000 |
Special Reserve £000 |
Capital Reserve Realised £000 |
Capital Reserve Unrealised £000 |
Revenue Reserve £000 |
Total £000 |
|
|---|---|---|---|---|---|---|---|---|
| At 1 March 2014 | 139 | 4,217 | 2 | 8,152 | (108) | 5,059 | (768) | 16,693 |
| Share buybacks | (1) | 1 | (71) | (71) | ||||
| Share issues | 81 | 9,073 | 9,154 | |||||
| Issue costs | (172) | (172) | ||||||
| Equity dividends paid (Note 18) |
(957) | (957) | ||||||
| Realised gains on | ||||||||
| investments | 313 | 313 | ||||||
| Unrealised gains on investments |
(430) | (430) | ||||||
| Management fee charged to capital |
(206) | (206) | ||||||
| Revenue loss after taxation for the year |
(186) | (186) | ||||||
| Total loss after taxation | 107 | (430) | (186) | (509) | ||||
| At 28 February 2015 | 219 | 13,118 | 3 | 7,124 | (1) | 4,629 | (954) | 24,138 |
Reserves available for distribution are capital reserve realised, special reserve and revenue reserve. Total distributable reserves at 28 February 2015 were £6.17 million. The accompanying notes are an integral part of these financial statements.
| Note | 2016 £000 |
2015 £000 |
|
|---|---|---|---|
| Total profit on ordinary activities before taxation | (856) | (509) | |
| Realised (gain) on investments | (1,676) | (313) | |
| Unrealised loss on investments | 1,976 | 430 | |
| Decrease in debtors | 6 | (2) | |
| Increase in creditors | 50 | 32 | |
| Net cash (outflow) from operating activities | (500) | (362) | |
| Purchase of investments | (11,321) | (6,609) | |
| Sale of investments | 5,534 | 3,009 | |
| Net cash (outflow) from investment activities | (5,787) | (3,600) | |
| Share buybacks | (372) | (71) | |
| Issue of share capital | 8,446 | 8,982 | |
| Dividends paid | 17 | (1,502) | (957) |
| Net cash inflow from financing activities | 6,572 | 7,954 | |
| Increase in cash | 12 | 285 | 3,992 |
| Opening cash | 12 | 6,709 | 2,717 |
| Cash movement | 285 | 3,992 | |
| Closing cash | 6,994 | 6,709 |
A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below:
The financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments, and in accordance with FRS 102 and with the Statement of Recommended Practice (SORP) for "Financial Statements of Investment Trust Companies" issued in January 2009. This is the first period in which the Financial Statements have been prepared under FRS 102 which became mandatory for companies with a financial year beginning on or after 1 January 2015. The transition to FRS 102 has not led to a material change in value so has not led to a restatement of comparatives.
Listed investments and investments traded on AIM are stated at closing bid market prices. Investments are recognised and derecognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned, and are measured initially at fair value.
These investments will be managed and their performance evaluated on a fair value basis in accordance with a documented investment strategy and information about them is provided internally on that basis to the Board. Accordingly, as prescribed by FRS 102 s.11 and s.12, the investments are designated as fair value through profit or loss. Subsequent to initial recognition, investments are valued at fair value which is deemed to be bid market prices.
Gains and losses arising from changes in fair value (realised and unrealised) are included in the net profit or loss for the period as a capital item in the income statement and are ultimately recognised in the unrealised capital reserve or realised capital reserve as appropriate.
If an investment has been impaired such that there is no realistic expectation that there will be a full return from the investment, the loss is treated as a permanent impairment and is recognised as a realised loss in the financial statements.
Where the classification of a financial instrument requires it to be stated at fair value, this is determined by reference to the quoted bid price in an active market wherever possible. Where no such active market exists for the particular asset or liability, the Company uses a valuation technique to arrive at the fair value, including the use of prices obtained in recent arms-length transactions, discounted cash flow analysis and other valuation techniques commonly used by market participants. The fair value of such assets or liabilities will be reviewed on a six monthly basis and more frequently if events occur that could have a material impact on the investment. All inputs are market observable with the exception of level C financial instruments (Note 7).
Equity dividends are taken into account on the ex-dividend date, net of any associated tax credit. Fixed returns on non-equity shares and debt securities are recognised on a time apportionment basis so as to reflect the effective yield, provided there is no reasonable doubt that payment will be received in due course. All other income, including deposit interest receivable, is recognised on an accruals basis.
All expenditure is accounted for on an accruals basis. Of investment management fees, 75% are allocated to the capital reserve realised and 25% to the revenue account in line with the Board's expected long term split of investment returns in the form of capital gains to the capital column of the income statement. All other expenditure is charged to the revenue account.
Realised profits and losses on the disposal of investments, losses realised on investments considered to be permanently impaired and 75% of investment management fees are accounted for in the capital reserve realised.
Increases and decreases in the valuation of investments held at the year end are accounted for in the capital reserve unrealised.
The tax effect of expenditure is allocated between capital and revenue on the same basis as the particular item to which it relates, using the Company's effective rate of tax for the accounting year. Any liability to corporation tax is based on net revenue for the year.
Only dividends paid during the year are deducted from revenue or capital reserves. Dividends which are declared subsequent to the balance sheet date will not be shown as a liability in the balance sheet.
In accordance with FRS 102 s.30, the Company is required to nominate a functional currency, being the currency in which the Company predominantly operates. The Board has determined that sterling is the Company's functional currency. Sterling is also the currency in which these accounts are presented.
The cost of repurchasing shares into Treasury, including the related stamp duty and transaction costs, is charged to capital reserves and dealt with in the Statement of Changes in Equity. Share repurchase transactions are accounted for on a trade date basis. Where shares held in Treasury are subsequently cancelled, the nominal value of those shares is transferred out of share capital and into capital redemption reserve.
Should shares held in Treasury be reissued, the sale proceeds will be treated as a realised profit up to the amount of the purchase price of those shares and will be transferred to capital reserves. The excess of the sale proceeds over the purchase price will be transferred to share premium.
Ordinary shares are classed as equity. The ordinary shares in issue have a nominal value of one pence and carry one vote each. Substantial holdings in the Company are disclosed in the directors' report on page 19.
This reserve represents the difference between the issue price of shares and the nominal value of shares at the date of issue, net of related issue costs.
This reserve is used for the cancellation of shares bought back under the buyback facility.
Distributable reserve used to pay dividends and re-purchase shares under the buyback facility.
Gains and losses on realisation of investments.
Unrealised gains and losses on investments.
Net revenue profits and losses of the Company.
The preparation of the financial statements requires the Board to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Key estimation uncertainties mainly relate to the fair valuation of unquoted investments, which are based on historical experience and other factors that are considered reasonable including the transfer price of the most recent transaction on an arm's length basis. The estimates are under continuous review with particular attention paid to the carrying value of the investments. The process of estimation is also affected by the determination of fair value hierarchy described in note 7 to the Financial Statements.
| 2016 £000 |
2015 £000 |
|
|---|---|---|
| Income from investments: | ||
| UK dividends | 130 | 71 |
| Unfranked investment income | 16 | 43 |
| 146 | 114 | |
| Other income: | ||
| Deposit interest | – | 2 |
| Total income | 146 | 116 |
| 2016 Revenue £000 |
2016 Capital £000 |
2016 Total £000 |
2015 Revenue £000 |
2015 Capital £000 |
2015 Total £000 |
|
|---|---|---|---|---|---|---|
| Management fees | 103 | 308 | 411 | 68 | 206 | 274 |
| 103 | 308 | 411 | 68 | 206 | 274 |
The investment management agreement terminates on a 12 calendar months' notice, subject to earlier termination in certain circumstances. No notice had been given by the investment manager or by the Board to terminate the agreement as at the date of approval of these accounts.
The investment manager receives an investment fee of 1.5 per cent per annum of the NAV of the Company, calculated and payable quarterly in arrears. At 29 February 2016, £114,167 (2015: £80,111) was owed in respect of management fees. Hargreave Hale Limited has agreed to indemnify the Company against annual running costs (such costs excluding VAT, any performance incentive fee and any trail commissions the payment of which is the responsibility of the Company) exceeding 3.5% of its net assets. No fees were waived between 1 March 2015 and 29 February 2016 and no fees were waived between 1 March 2014 and 28 February 2015 under the indemnity.
A performance related incentive fee will be payable at the rate of 20 per cent. of any dividends paid to shareholders in excess of 6p per ordinary share per annum, provided that the NAV per share is at least 95p and any cumulative shortfalls below 6p per ordinary share per annum having to be made up in subsequent years before the incentive fee becomes payable. No performance related incentive fee is payable as at 29 February 2016.
| 2016 £000 |
2015 £000 |
|
|---|---|---|
| General expenses: | ||
| Administration Fee | 35 | 35 |
| Legal & Professional | 27 | 6 |
| Other expenses | 149 | 128 |
| Directors' remuneration | 59 | 48 |
| Auditors' remuneration | ||
| – for audit services | 21 | 17 |
| 291 | 234 |
The maximum aggregate directors' emoluments authorised by the Articles of Association are £200,000 per annum.
The Company's key management personnel are the Directors listed in the directors' remuneration report on page 24. For the year ended 29 February 2016, the Directors' aggregate pay was £58,500 and aggregate National Insurance contributions were zero.
The tax charge for the year is based on the standard rate of UK Corporation Tax of 20.0%.
| 2016 Total £000 |
2015 Total £000 |
|
|---|---|---|
| (Loss) on ordinary activities before taxation | (856) | (509) |
| UK Corporation Tax 20.0% (2015: 21%) | (171) | (107) |
| Effect of non taxable gains/losses on investments | 60 | 25 |
| Effect of non taxable UK dividend income | (26) | (15) |
| Effect of current year losses carried forward | 137 | 97 |
| Current tax charge | – | – |
Tax losses carried forward at the balance sheet date were £2,464,610 (2015: £1,778,525).
There is no taxation charge in relation to capital gains or losses. No asset or liability has been recognised in relation to capital gains or losses on revaluing investments. The Company is exempt from such tax as a result of its intention to maintain its status as a Venture Capital Trust.
| 2016 Revenue (£000) |
2016 Capital (£000) |
2016 Total (£000) |
2015 Revenue (£000) |
2015 Capital (£000) |
2015 Total (£000) |
|
|---|---|---|---|---|---|---|
| Income | 146 | – | 146 | 116 | – | 116 |
| Management Fee | (103) | (308) | (411) | (68) | (206) | (274) |
| Other expenses | (291) | – | (291) | (234) | – | (234) |
| (Loss) on investments | – | (300) | (300) | – | (117) | (117) |
| (Loss) for the period | (248) | (608) | (856) | (186) | (323) | (509) |
| (Loss) per ordinary share (basic and diluted) |
(0.98) | (2.41) | (3.39) | (1.09) | (1.88) | (2.97) |
Revenue loss per ordinary share is based on a net revenue loss on ordinary activities after taxation of £247,629 (2015: £186,239) and on 25,200,417 (2015: 17,152,222) ordinary shares, being the weighted average number of ordinary shares in issue during the year.
Capital loss per ordinary share is based on a net capital loss of £608,113 (2015: £322,543) for the year and on 25,200,417 (2015: 17,152,222) ordinary shares, being the weighted average number of ordinary shares in issue during the year.
Total loss per ordinary share is based on a net loss of £855,742 for the year and on 25,200,417 (2015: 17,152,222) ordinary shares, being the weighted average number of ordinary shares in issue during the year.
| AIM Quoted Investments |
Unquoted Investments |
Other Quoted Investments |
Total Investments |
|||||
|---|---|---|---|---|---|---|---|---|
| 2016 £000 |
2015 £000 |
2016 £000 |
2015 £000 |
2016 £000 |
2015 £000 |
2016 £000 |
2015 £000 |
|
| Investments | 16,877 | 13,725 | 5,876 | 3,276 | 278 | 543 | 23,031 | 17,544 |
| Movement in year: Opening Valuation |
13,725 | 11,055 | 3,276 | 2,313 | 543 | 693 | 17,544 | 14,061 |
| Re-Classification Purchases at cost |
– 8,748 |
83 5,648 |
– 2,573 |
(83) 961 |
– – |
– – |
– 11,321 |
– 6,609 |
| Sale proceeds Realised gains / (losses) |
(4,722) 1,243 |
(2,200) 296 |
(562) 431 |
(676) 31 |
(250) 2 |
(133) (14) |
(5,534) 1,676 |
(3,009) 313 |
| Unrealised (losses) / gains | (2,117) | (1,157) | 158 | 730 | (17) | (3) | (1,976) | (430) |
| Closing valuation | 16,877 | 13,725 | 5,876 | 3,276 | 278 | 543 | 23,031 | 17,544 |
| Closing cost | 15,634 | 10,366 | 4,468 | 2,026 | 275 | 523 | 20,377 | 12,915 |
| Closing unrealised | 1,243 | 3,359 | 1,408 | 1,250 | 3 | 20 | 2,654 | 4,629 |
| Realised gain/(loss) on sales Unrealised (loss)/gain on |
1,243 | 296 | 431 | 31 | 2 | (14) | 1,676 | 313 |
| investments | (2,117) | (1,157) | 158 | 730 | (17) | (3) | (1,976) | (430) |
| (Loss)/gain on investments | (874) | (861) | 589 | 761 | (15) | (17) | (300) | (117) |
FRS 102 requires the classification of financial assets and financial liabilities according to a fair value hierarchy that reflects the significance of inputs used in making the fair value measurement.
The fair value hierarchy has the following levels:
The fair value of the investment has been maintained at £85.50, reflecting the transfer price of the most recent transaction in the shares (on an arm's length basis) in December 2014. The valuation is tested against a peer group by comparing the EV/EBITDA ratios in the current financial year, although we note the limited number of listed comparators of an equivalent size and maturity.
The fair value of the investment has been maintained at 9.0p. The price continues to reflect the dramatic decrease in the price of oil and extensive working capital constraints on the company.
The fair value of the investment has been maintained at 9.5p. The price continues to reflect the dramatic decrease in the price of oil and extensive working capital constraints on the company.
The fair value of the investment was marked up from the cost of £717 per share to £1,230 per share, reflecting the transfer price of the most recent transaction in the shares (on an arm's length basis) in February 2016.
The fair value is drawn from the company's unaudited estimated NAV per share as disclosed in the company's interim accounts to 30 June 2015.
The fair value of the investment has been maintained at cost, £5.99 per share, in accordance with EVCA guidelines for investments of less than one year.
The Company disposed of its entire holding in February 2016 through a successful bid at £1.24 per share.
| 2016 | 2016 | 2016 | 2016 | 2015 | 2015 | 2015 | 2015 | |
|---|---|---|---|---|---|---|---|---|
| Level A | Level B | Level C | Total | Level A | Level B | Level C | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Investments | 17,155 | 3,899 | 1,977 | 23,031 | 14,268 | 1,528 | 1,748 | 17,544 |
| 2016 £'000 |
2015 £'000 |
|
|---|---|---|
| Balance Brought Forward | 1,528 | 1,368 |
| Re-Classification | – | – |
| Acquisitions | 2,164 | 811 |
| Sale Proceeds | – | (676) |
| Realised Gains/Losses | – | 31 |
| Movements Unrealised | 207 | (6) |
| Balance Carried Forward | 3,899 | 1,528 |
| 2016 £'000 |
2015 £'000 |
|
|---|---|---|
| Balance Brought Forward | 1,748 | 945 |
| Re-Classification * | – | (83) |
| Acquisitions | 410 | 150 |
| Sale Proceeds | (563) | – |
| Realised Gains/Losses | 431 | – |
| Movements Unrealised | (49) | 736 |
| Balance Carried Forward | 1,977 | 1,748 |
* The Re-Classification transfer represents Nektan Ltd which is now listed.
At the year end the Company held 3% or more of the issued share capital of the following investments:
| Mexican Grill Ltd plc | 4.24% |
|---|---|
| Mirada plc | 3.04% |
| 2016 £000 |
2015 £000 |
|
|---|---|---|
| Prepayments and accrued income | 20 | 26 |
| 2016 £000 |
2015 £000 |
|
|---|---|---|
| Trade creditors | 20 | 20 |
| Accruals and deferred income | 171 | 121 |
| 191 | 141 |
| 2016 £000 |
2015 £000 |
|
|---|---|---|
| Allotted, called-up and fully paid: 29,507,084 (2015: 21,879,274) ordinary shares of 1p each. |
295 | 219 |
During the year 366,182 ordinary shares were purchased through the buyback facility at a cost of £371,795. The acquired shares have been cancelled.
During the year, the Company issued 3,284,809 ordinary shares (nominal value £32,848) in a joint offer for subscription which resulted in gross funds being received of £3,676,712. As marketing adviser and receiving agent to the Company, and in return for covering the costs of the joint offer, Hargreave Hale Limited was entitled to 3.5% of the gross proceeds (£128,685), often referred to as the 'premium'. From this, Hargreave Hale Limited paid for the allotment of additional shares to investors with a value of £39,755 and introducer commission of £150, resulting in net fees payable to Hargreave Hale of £88,780. The offer closed on 18 August 2015.
During the year, the Company issued 4,709,183 ordinary shares (nominal value £47,092) in a joint offer for subscription which resulted in gross funds being received of £4,938,829. As marketing adviser and receiving agent to the Company, and in return for covering the costs of the joint offer, Hargreave Hale Limited was entitled to 3.5% of the gross proceeds (£172,859), often referred to as the 'premium'. From this, Hargreave Hale Limited paid for the allotment of additional shares to investors with a value of £92,115, resulting in net fees payable to Hargreave Hale of £80,744. The offer will close at 12pm on 16 November 2016, unless previously extended beyond this date, or earlier if the maximum subscription has been reached before then.
The revenue earnings of the Company are available for distribution to holders of ordinary shares by way of interim, final and special dividends (if any) as may from time to time be declared by the Directors.
The capital reserve realised and special reserve of the Company are available for distribution to holders of ordinary shares by way of interim, final and special dividends (if any) as may from time to time be declared by the Directors.
Each ordinary shareholder is entitled to one vote on a show of hands, and on a poll to one vote for each ordinary share held. Notices of Meetings and Proxy Forms set out the deadlines for valid exercise of voting rights and, other than with regard to directors not being permitted to vote on matters upon which they have an interest, there are no restrictions on the voting rights of ordinary shareholders.
There are no restrictions on transfers except dealings by directors, persons discharging managerial responsibilities and their connected persons which may constitute insider dealing or is prohibited by the rules of the UKLA.
The Company is not aware of any agreements with or between shareholders which restrict the transfer of ordinary shares, or which would take effect or alter or terminate in the event of a change of control of the Company.
| At 1 March 2015 £000 |
Cash Flows £000 |
At 29 February 2016 £000 |
|
|---|---|---|---|
| Cash at bank | 6,709 | 285 | 6,994 |
| At 1 March 2014 £000 |
Cash Flows £000 |
At 28 February 2015 £000 |
|
|---|---|---|---|
| Cash at bank | 2,717 | 3,992 | 6,709 |
The NAV per ordinary share and the net asset values attributable at the year end were as follows:
| Net asset value per share | Net assets attributable | |||
|---|---|---|---|---|
| 2016 pence |
2015 pence |
2016 £000 |
2015 £000 |
|
| Ordinary shares – Basic | 101.18 | 110.33 | 29,854 | 24,138 |
Net asset value per share is based on net assets at the year end and on 29,507,084 (2015: 21,879,274) ordinary shares being the number of shares in issue at year end.
There were no contingencies, guarantees or financial commitments of the Company at the year end (2015: nil).
Hargreave Hale Limited is considered to be a related party to the Company. Giles Hargreave, a non-executive director of the Company and a member of its key management personnel, is the chairman of Hargreave Hale Limited and has an interest in excess of 7% in that company. In addition Hargreave Hale Limited acts as investment manager, administrator and custodian to the Company and it provides the company secretary. All of the support functions performed by Hargreave Hale Limited are segregated by department and location and are independent of each other.
Hargreave Hale Limited in its capacity as investment manager of the fund receives annual fees of 1.5% per annum of the net asset value of the Company, calculated and payable quarterly in arrears. Fees for the year are £411,258 (2015: £274,418) as detailed in Note 3. In relation to the other support functions described above, Hargreave Hale Limited received fees of £80,000 (2015: £77,000). Of those combined fees, £120,835 (2015: £86,528) was still owed at the year end.
Hargreave Hale Limited has agreed to indemnify the Company against annual running costs (such costs excluding VAT, any performance incentive fee and any trail commissions the payment of which is the responsibility of the Company) exceeding 3.5% of its net assets. No fees were waived between 1 March 2015 and 29 February 2016 under the indemnity.
The investment objective of the Company is to achieve long term capital growth and to maximise tax free distributions to shareholders by investing in a diversified portfolio of small UK companies primarily trading on AIM. At least 70% of the Company's funds have been invested in qualifying holdings during the year. The balance of the Company's fund will be invested in liquid assets (such as gilts, other fixed interest securities and bank deposits). The Company is managed as a VCT in order that shareholders in the Company may benefit from the tax relief available.
This strategy exposes the Company to certain risks which are summarised below.
The structure in place to manage these risks is set out in the corporate governance report on pages 27 to 32 of the annual report and accounts. The Board meets quarterly to review accounts and monitor all risks.
A detailed review of the investment portfolio is contained in the chairman's statement and investment manager's report on pages 3 and 10 respectively.
The investments at year end comprise two types of financial instrument. The basis of valuation is set out below:
Other financial assets comprise cash at bank of £6,993,554 (2015: £6,708,847) and accrued income and debtors of £20,560, which is classified as 'loans and receivables measured at amortised cost'. Financial liabilities consist of trade creditors and accruals of £191,052 (2015: £140,645) which are classified as 'financial liabilities measured at amortised cost'.
Market price risk arises from any fluctuations in the value of investments held by the Company. Adherence to investment policies mitigates the risk of excessive exposure to any particular type of security or issuer. In particular no more than 15% of the investment portfolio is invested in any one equity. However by their nature the investments are in small companies traded on the AIM market; therefore, they carry more risk than large-capitalisation investment portfolios.
Market risk is monitored by the Board on a quarterly basis and on an ongoing basis through the investment manager.
The following table summarises exposure to price risk by asset class at year end date:
| 2016 £000 |
2015 £000 |
||
|---|---|---|---|
| Equity | Fair value | 18,854 | 15,473 |
| Authorised unit trust | Fair value | 3,899 | 1,528 |
| Gilts/Bonds | Fair value | 278 | 543 |
| 23,031 | 17,544 |
A 10% increase or decrease in the investment portfolio would have a £2,303,100 (2015: £1,754,400) impact on the profit and loss account.
The Company is exposed to currency risk when disposing of investments in foreign currencies between the date the transaction was entered into and settlement. These transactions are made infrequently in order to minimise the impact of exposure.
The Company is fully funded through equity and has no debt therefore interest rate risk is not considered a material risk.
The Company's financial assets and liabilities are denominated in sterling as follows:
| 29 February 2016 | ||||
|---|---|---|---|---|
| Fixed Rate £000 |
Variable Rate £000 |
Non-Interest Bearing £000 |
Total £000 |
|
| Investments | 278 | – | 22,753 | 23,031 |
| Cash and cash equivalents | – | 6,994 | – | 6,994 |
| Other currents assets and current liabilities (net) | – | – | (171) | (171) |
| Net assets | 278 | 6,994 | 22,582 | 29,854 |
| 28 February 2015 | ||||
|---|---|---|---|---|
| Fixed Rate £000 |
Variable Rate £000 |
Non-Interest Bearing £000 |
Total £000 |
|
| Investments | 543 | – | 17,001 | 17,544 |
| Cash and cash equivalents | – | 6,709 | – | 6,709 |
| Other currents assets and current liabilities (net) | – | – | (115) | (115) |
| Net assets | 543 | 6,709 | 16,886 | 24,138 |
Interest rate risk exposure relates to UK Gilts and corporate bonds with fixed determinable payments and cash and cash equivalents (bank deposits) where interest income is primarily linked to bank base rates. Interest rate risk exposure on debt instruments is reflected in the market risk and since these securities are valued at fair value, no additional disclosure is made in this respect. Movements in interest rates on cash and cash equivalents are not considered a material risk.
Liquidity risk is the risk that the Company is unable to meet obligations as they fall due. As the Company has no debt or other financial liabilities other than trade creditors and accruals of £191,052, liquidity risk is not considered material. As at 29 February 2016 the Company held £6,993,554 on bank deposit.
Credit risk relates to the risk of default by a counterparty. No assets are past due date for payment or impaired. There have been no changes in the financial value of the Company during the year that are attributable to credit risk.
An asset is considered to be impaired in the case of investments if the investee company makes continued losses or defaults on any payment.
The maximum credit risk exposure equates to the carrying value of assets at the balance sheet date:
| 2016 £000 |
2015 £000 |
|
|---|---|---|
| Investments – (UK gilts and corporate bonds) | 278 | 543 |
| Cash and cash equivalents | 6,994 | 6,709 |
| 7,272 | 7,252 |
Cash balances were held on deposit with RBS at 29 February 2016.
Equity investments and UK gilts are held at fair value. No investments are held for trading purposes only.
The current policy is to fund investments through equity. No future change to this policy is envisaged. As a public limited company, the Company is required to hold a minimum £50,000 share capital.
The Company's capital is summarised in Note 11 to these accounts. The Company has no debt and is fully funded by equity.
| 2016 Ord £000 |
2015 Ord £000 |
|
|---|---|---|
| Paid per share: | ||
| Final capital dividend of 4 pence for year ended 28 February 2014 Paid per share: |
– | 633 |
| Interim capital dividend of 2 pence for year ended 28 February 2015 Paid per share: |
– | 324 |
| Final capital dividend of 4 pence for year ended 28 February 2015 Paid per share: |
1,002 | – |
| Interim capital dividend of 2 pence for year ended 29 February 2016 | 500 | – |
| 1,502 | 957 | |
| Proposed per share: | ||
| Final capital dividend of 4.00 pence for year ended 29 February 2016 | 1,347 | – |
| Proposed per share: | ||
| Final capital dividend of 4 pence for year ended 28 February 2015 | – | 1,002 |
Joint Offer for Subscription of Ordinary Shares
Following the year end, the offer for subscription has resulted in an additional 4,305,245 ordinary shares being issued, raising gross proceeds of £4,626,738. The total raised to date under the offer is £9,565,567. The offer will close at 12pm on 16 November 2016 unless previously extended beyond this date, or earlier if the maximum subscription has been reached before then.
The Net Asset Value (NAV) is the amount by which total assets exceed total liabilities, i.e. the difference between what the company owns and what it owes. It is equal to shareholders equity, sometimes referred to as shareholders' funds.
A Qualifying Investment consists of shares or securities first issued to the VCT (and held by it ever since) by a company satisfying certain conditions. The conditions are detailed but include that the company must be a Qualifying Company, have gross assets not exceeding £15 million immediately before and £16 million immediately after the investment, apply the money raised for the purposes of a qualifying trade within a certain time period and not be controlled by another company. In any twelve month period the company can receive no more than £5 million from VCT funds and Enterprise Investment Schemes, and any other European State-aided risk capital source. The company must have fewer than 250 full time (or equivalent) employees at the time of making the investment. VCT funds raised after 5 April 2012 cannot be used by a Qualifying Company to fund the purchase of shares in another company
The sum of the published NAV per share plus all dividends paid per share over the lifetime of the Company. This allows performance comparisons to be made between venture capital trusts.
A Venture Capital Trust or VCT is a company, broadly similar to an investment trust, which has been approved by HMRC and which subscribes for shares in, (or lends money to), small unquoted companies, including those quoted on AIM or certain ISDX (formally PLUS) markets. Under the VCT scheme, VCTs and their investors enjoy certain tax reliefs. The VCT scheme is designed to encourage investment in small unquoted companies. Individuals invest by holding shares in a VCT.
Stuart Brookes Accurist House 44 Baker Street London W1U 7AL
Hargreave Hale Limited Accurist House 44 Baker Street London W1U 7AL
Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA
Howard Kennedy No. 1 London Bridge London SE1 9BG
BDO LLP 55 Baker Street London W1U 7EU
Philip Hare and Associates LLP 4-6 Staple Inn London WC1V 7QH
Singer Capital Markets Limited One Hanover Street London W1S 1YZ
05941261 in England and Wales
NOTICE IS HEREBY GIVEN that the ANNUAL GENERAL MEETING of Hargreave Hale AIM VCT 2 plc ("the Company") will be held at Accurist House, 44 Baker Street, London W1U 7AL on 12 July 2016 at 10.30am for the purposes of considering and, if thought fit, passing the following resolutions, of which resolutions 1 to 8 will be proposed as ordinary resolutions and 9 and 10 as special resolutions:
THAT, the directors be and are hereby empowered pursuant to section 570 and section 573 of the Act during the period commencing on the passing of this resolution and expiring on the conclusion of the Company's next annual general meeting in 2017 or on the expiry of 15 months from the date of the passing of this resolution, whichever is the earlier (unless previously revoked, varied or renewed by the Company in general meeting), to allot equity securities (as defined in section 560 of the Act) for cash pursuant to the authority given to directors pursuant to resolution 8 above, or by way of sale of treasury shares, as if section 561 of the Act did not apply to any such allotment or sale, save that this authority shall allow the Company to make offers or agreements before the expiry which would or might require Ordinary Shares to be allotted or sold and the directors may allot equity securities or sell shares after the expiry in pursuance of such offers or agreements as if the powers conferred hereby had not so expired. The power being sought under this resolution is in substitution for any existing powers, with the exception of that power obtained at the general meeting of the Company held on 12 January 2016.
By order of the Board of Directors.
Company Secretary
Registered Office: Accurist House 44 Baker Street London W1U 7AL
Date: 10 June 2016
Information regarding the Annual General Meeting, including the information required by section 311A of the Act, is available from http://hargreaveaimvcts.co.uk.
A member entitled to attend and vote at this meeting may appoint a proxy or proxies to attend and vote instead of him or her. A proxy need not also be a member of the Company. To be effective, forms of proxy together with the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy or a copy certified in accordance with the Powers of Attorney Act 1971 of that power or authority must be lodged with the Company's Registrar, Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof. Lodgement of the form of proxy will not preclude a member from attending the meeting and voting in person.
A member may appoint more than one proxy, provided each proxy is appointed to exercise rights attached to different shares. Members may not appoint more than one proxy to exercise rights attached to any one share.
The right to appoint a proxy does not apply to persons whose shares are held on their behalf by another person and who have been nominated to receive communications from the Company in accordance with section 146 of the Act ("nominated persons"). Nominated persons may have a right under an agreement with the member who holds the shares on their behalf to be appointed (or to have someone else appointed) as a proxy. Alternatively, if nominated persons do not have such a right, or do not wish to exercise it, they may have a right under such an agreement to give instructions to the person holding the shares as to the exercise of voting rights.
The Company, pursuant to Regulation 41 of the Uncertified Securities Regulations 2001 specifies that only those members registered in the register of members of the Company as at 6.30pm on 8 July 2016 or, in the event that the meeting is adjourned, on the register of members at 6.30pm on the day 2 days (excluding non-working days) prior to the reconvened meeting, shall be entitled to attend or vote at the aforesaid annual general meeting in respect of the number of shares registered in their name at that time. Changes to entries on the relevant register of securities after 6.30pm on 8 July 2016 (or in the event that the meeting is adjourned, as at 6.30pm two days prior to the adjourned meeting) shall be disregarded in determining the rights of any person to attend or vote at the meeting notwithstanding any provisions in any enactment, the articles of association of the Company or any other instrument to the contrary.
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the meeting and any adjournment(s) thereof by using the procedures described in the CREST Manual (www.euroclear.com). CREST personal members or other CREST sponsored members who have appointed a voting service provider(s) should refer to their CREST sponsor or voting service provider(s), who will be able to take appropriate action on their behalf. In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a "CREST proxy instruction") must be properly authenticated in accordance with Euroclear's specifications and must contain the information required for such instructions, as described in the CREST Manual. The message must be transmitted so as to be received by Equiniti, the Company's Registrar (ID RA19), not later than 48 hours before the time appointed for the meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which Equiniti is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST.
CREST members and where applicable their CREST sponsors or voting service provider(s) should note that Euroclear does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will, therefore, apply in relation to the input of CREST proxy instructions. It is the responsibility of the CREST member concerned to take (or if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service provider(s) are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, the proxy will vote or abstain from voting at his or her discretion. The proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the meeting.
The Company may treat as invalid a CREST proxy instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
Under section 319A of the Companies Act 2006, the Company must answer at the annual general meeting any question a member asks relating to the business being dealt with at the annual general meeting unless:
In accordance with section 311A of the Companies Act 2006, the contents of this notice of meeting, details of the total number of shares in respect of which members are entitled to exercise voting rights at the annual general meeting and, if applicable, any members' statements, members' resolutions or members' matters of business received by the Company after the date of this notice will be available on the Company's website http://hargreaveaimvcts.co.uk.
Members satisfying the thresholds in section 527 of the Companies Act 2006 can require the Company to publish a statement on its website setting out any matter relating to the audit of the Company's accounts (including the auditor's report and the conduct of the audit) that are to be laid before the annual general meeting that the members propose to raise at the meeting. The Company cannot require the members requesting the publication to pay its expenses. Any statement required to be placed on the website must also be sent to the Company's auditor no later than the time it makes its statement available on the website. The business which may be dealt with at the meeting includes any statement that the Company has been required to publish on its website.
Shareholders (and any proxy or representatives they appoint) agree, by attending the meeting, that they are expressly requesting that they are willing to receive any communications (including communications relating to the Company's securities) made at the meeting.
You may not use any electronic address provided either in this notice of meeting or any related documents (included in the form of proxy) to communicate with the Company for any purpose other than those expressly stated.
Hargreave Hale AIM VCT 2 plc (incorporateD in England and Wales
under the Companies Act 1985 with registered number 05941261)
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