Annual Report • Dec 31, 2017
Annual Report
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A VENTURE CAPITAL TRUST
Annual Report & Financial Statements for the year ended 31 December 2017
Mobeus Income & Growth 4 VCT plc, ("MIG4", the "Company" or the "Fund") is a Venture Capital Trust ("VCT") advised by Mobeus Equity Partners LLP ("Mobeus"), investing primarily in established, unquoted companies.
The Objective of the Company is to provide investors with a regular income stream by way of tax-free dividends and to generate capital growth through portfolio realisations which can be distributed by way of additional tax-free dividends, while continuing at all times to qualify as a VCT.
The Company seeks to pay dividends at least annually out of income and capital as appropriate, and subject to fulfilling certain regulatory requirements.
| Contents | |
|---|---|
| Financial Highlights | 1 |
| Chairman's Statement | 2 |
| Strategic Report | 4 |
| - Objective - Summary of Investment Policy - The Company and its Business Model - Summary of VCT Regulation - Performance and Key Performance Indicators - Investment Review - Principal Investments in the Portfolio at 31 December 2017 by Valuation - Investment Portfolio Summary - Key Policies - Investment Policy - Principal risks, management and regulatory environment |
4 4 4 4 5 8 12 16 22 22 23 |
| Reports of the Directors | 25 |
| - Board of Directors - Directors' Report - Corporate Governance Statement - Report of the Audit Committee - Directors' Remuneration Report - Statement of Directors' Responsibilities |
25 26 29 32 34 38 |
| Independent Auditor's Report | 39 |
| Financial Statements | 42 |
| Information for Shareholders | 65 |
| - Shareholder Information - Notice of the Annual General Meeting - Corporate Information |
65 67 70 |
Annual results for the year ended 31 December 2017
Net assets: £58.41 million Net Asset Value ("NAV") per share: 86.57 pence
Net Asset Value ("NAV") Total Return per share of 6.5% for the year.
Share Price Total Return per share of 7.2% for the year.
Shareholders received a total of 28.00 pence per share in dividends during the year. Cumulative dividends paid to date now stand at 101.20 pence per share.
£4.27 million1 was invested into four new and two existing growth capital investments during the year.
A total of £12.98 million cash proceeds was received primarily from two profitable realisations and loan stock repayments.
1 Includes £2.09 million previously held in companies preparing to trade.
The longer term trend of performance on this measure is shown in the chart below:-
Cumulative total shareholder return per share (NAV basis)*
* Cumulative total shareholder return (NAV basis) is net asset value plus cumulative dividends paid since 1999 to 31 December 2017.
The chart above shows the recent past performance of the original funds raised in 1999. The original subscription price was 200p per share before the benefit of income tax relief. Subscription prices from subsequent fundraisings and historic performance data from 2008 are shown in the Performance Data on the Company's website, www.mig4vct.co.uk, where they can be downloaded by clicking on "table" under "Reviewing the performance of your investment" on the home page.
On 31 July 2006, Mobeus became sole Investment Adviser to the Company. The cumulative NAV total return at this date was 122.51 pence.
I am pleased to present the annual results of Mobeus Income & Growth 4 VCT plc for the year ended 31 December 2017.
This has been another year of solid performance by the Company. Returns to shareholders have again been positive due to profitable portfolio investment realisations as well as a good income return. Further comment can be found under the 'Performance' section below and in the Investment Review on page 8.
The Company and the Investment Adviser have responded well to the significant changes to the VCT Rules introduced by the Finance (No 2) Act 2015, having completed twelve growth capital investments that reflect the change in the Company's investment policy in May 2016. The Investment Adviser has continued to recruit experienced growth capital investors into the team and reports a healthy pipeline of investments.
Most recently, additional changes to VCT legislation were proposed in the 2017 Autumn Budget. Your Board has no reason to believe that the changes will materially affect the Company's existing strategic objectives. Further details can be found under the 'Industry and Regulatory Developments' section of my Statement below.
The NAV total return per share for the year was 6.5%. (2016: 0.6%) (being the closing NAV plus dividends paid in the year, divided by the opening NAV) while the share price total return was up to 7.2% (2016: 3.3%). As a result of this performance, the NAV cumulative total return per share (being the closing NAV plus total dividends paid to date) rose during the year by 3.9% from 180.77 pence to 187.77 pence. The NAV at 31 December 2017 was 86.57 pence. For details of these calculations, please refer to the Strategic Report.
The rise in NAV total return over the year was primarily due the realisation of two investments (Entanet and Gro-Group) as well as a strong income return.
For more details on the performance of your investment in the Company, please consult the Investor Performance Appendix on the Company's website.
As announced in my Half-Year Statement, the Company launched an Offer for Subscription on 6 September 2017 to raise up to £15 million. I am pleased to report that the Offer closed on 13 March 2018 having raised the full amount.
A total of 16,658,350 shares were allotted to shareholders under the Offer at prices ranging between 85.54 pence and 94.30 pence. The Board appreciates the continued support from existing shareholders and welcomes new shareholders.
The Board has declared two interim dividends in respect of the year ended 31 December 2017. The first was 18.00 pence per share and was paid on 11 September 2017. The second was 3.00 pence per share and was paid on 21 December 2017. This brought dividends paid in respect of the year ended 31 December 2017 to 21.00 pence (2016: 9.00 pence) per share and cumulative dividends paid since inception to 101.20 pence (2016: 73.20 pence) per share. Given the size of these interim dividends, no final dividend is being proposed.
The Company's target of paying a dividend of at least 4.00 pence per share in respect of each financial year has been exceeded in each of the last seven years. While the Board still believes in the attainment of the dividend target, the steady move of the portfolio to growth capital investments is likely to result, at least in the medium term, in lower dividends than have been paid in the recent past.
A chart showing the dividends paid in respect of each of the last five years and cumulative dividends on the same basis is included in the Strategic Report.
For the year under review, the portfolio as a whole achieved a net increase of £4.14 million on investments realised but a decrease of £0.79 million on investments still held. Investment realisations produced £3.98 million in capital gains over the original investment costs. On a like for like basis (adding back realisations and excluding new investments) the portfolio produced a positive return of 8.6% over the year. Including companies preparing to trade, the portfolio under
management at the year-end was valued at £31.48 million (2016: £38.93 million) representing 94.9% of cost.
During the year £4.27 million, £2.09 million of which was previously held in companies preparing to trade, was invested in four new companies and two existing portfolio companies. The new growth capital investments included: £0.58 million into Tapas Revolution, a leading Spanish restaurant chain; £0.53 million into Buster + Punch, a London based interiors retailer; £0.47 million into MyTutorweb, an online tutoring business; and £2.33 million into Wetsuit Outlet, a leading online retailer in the water sports market. In addition, two follow-on investments were made into existing portfolio companies; £0.14 million into BookingTek, a provider of enterprise software to major hotel groups and £0.22 million was invested into MPB, an online marketplace for used camera and video equipment.
Shortly after the year-end £0.34 million was invested into Proactive Investors, a provider of investor media services, £0.52 million was invested into Hemmels, a classic car restorer, £0.49 million was invested into SuperCarers, an online carer matching service and a further £0.34 million was invested into MPB.
It is important to note that several of these growth investments are loss-making, as one would expect from most early stage investment opportunities. Early receipts from dividends or interest payments are therefore likely to be limited while the companies build long term value. Also, some valuations are now revenue based rather than earnings based.
Cash proceeds totalling £12.98 million were received; £7.65 million from the realisation of two investments; £4.68 million from loan repayments; and other receipts of £0.65 million. Of the realisation total, £4.89 million was received as cash from the disposal of Entanet Holdings Limited, (realising a gain of 5.48 pence per share) generating a return on the original investment of 2.5 times at completion. This may increase upon receipt of potential deferred consideration. A further £2.76 million was received following a profitable disposal of Gro-Group realising a gain of 1.76 pence per share representing a return on the original investment of 2.2 times.
Full details of the investment activity during the year and a summary of the performance highlights can be found in the Investment Review on pages 8 – 21 of this Annual Report.
As referred to in my Half-Year Statement, the UK Government has undertaken a Patient Capital Review ("the Review") to identify and tackle factors considered to be adversely affecting the supply of longer term capital to small and developing firms. The consultation period closed on 22 September 2017 and strong representations were made on behalf of the VCT industry by Mobeus as Investment Adviser, the Venture Capital Trust Association and the Association of Investment Companies.
The 2017 Autumn Budget Statement outlined the key findings from the Review including a number of legislative changes to the VCT scheme, the earliest of which came into effect from 15 March 2018. These changes are designed to exclude tax-motivated investments where capital is not at risk (that is, transactions principally seeking to preserve an investor's capital) and to encourage VCTs to put their money to work faster.
Your Board notes the initiatives behind these changes. Whilst some of these changes place further restrictions on the way investments may be structured, the Board has no reason to believe that they will materially affect the Company's existing investment policy or strategic objectives.
A summary of the current VCT regulations and those proposed in the Autumn Budget is included on page 4 of this Annual Report.
During the year ended 31 December 2017, the Company bought back 1.1% of the issued share capital of the Company which was subsequently cancelled. Further details of the purchases are included in the Directors' Report on page 26.
The annual shareholder event was held on Tuesday 30 January 2018 at the Royal Institute of British Architects in central London. This annual event included presentations on the Mobeus advised VCTs' investment activity and
performance including presentations from investee companies. There were separate day-time and evening sessions, and feedback from those who attended, circa 300, found it to be informative and worthwhile. The next shareholder event will be held in February 2019.
The Annual General Meeting of the Company will be held at 11.30 am on Friday, 11 May 2018 at The Clubhouse, 8 St James's Square, London SW1Y 4JU. Both the Board and the Investment Adviser look forward to welcoming shareholders to the meeting which will include a presentation from the Investment Adviser on the investment portfolio and provide an opportunity to ask questions of the Board and the Investment Adviser. The Notice of the meeting is included in the Annual Report and an explanation of the resolutions to be proposed can be found in the Directors' Report on page 28 of this Annual Report.
Your Board has carefully monitored how Mobeus has expanded its investment team to adapt to the new rules for VCTs and believe that your Company is well positioned to find advantageous investments in this new environment.
Your Board would again like to caution investors that investing in earlier stage companies involves increased risk as such companies need longer to achieve scale. Returns may take longer to achieve and will be less predictable. On the other hand the new adventurous investment policy imposed on the Company may result in some investments producing much higher returns and the success of the recent fundraising means that cash and investment requirements will be covered for the medium term. The twelve growth capital investments already completed reflect exciting business opportunities and the pipeline for future investments is active.
Apart from the vagaries of being in a transition period for VCTs there are obvious uncertainties facing the UK particularly, and the world economy. Statistically the current investment cycle is well advanced. There is much one could comment on regarding the UK's unsatisfactory, indeed at times
embarrassing, political situation but this is amply covered elsewhere. All UK investment, not just the VCT sector, could suffer if improved delivery cannot be achieved.
The Board's and Mobeus's response is to concentrate on those investment disciplines which have served investors well to date and will, in the Board's view, continue to do so in the future. Investment in the unquoted sector is not a short term exercise.
Finally, I would like to express my thanks once again to shareholders for their support.
Chairman
20 March 2018
The Objective of the Company is to provide investors with a regular income stream by way of tax-free dividends and to generate capital growth through portfolio realisations which can be distributed by way of additional tax-free dividends, while continuing at all times to qualify as a VCT.
The VCT's policy is to invest primarily in a diverse portfolio of UK unquoted companies. Investments are generally
To maintain its status as a VCT, the Company must meet a number of conditions, the most important of which are that:-
structured as part loan and part equity in order to receive regular income, to generate capital gain upon sale and to reduce the risk of high exposure to equities. To spread the risk further, investments are made in a number of businesses across different industry sectors.
The Company's cash and liquid resources are held in a range of investments which can be of varying maturities, subject to the overriding criterion that the risk of loss of capital be minimised.
The Company seeks to make investments in accordance with the requirements of VCT regulation. A summary of this is set out below.
retain more than 15% of its income from shares and securities in a year;
To be a VCT qualifying holding, new investments must be in companies:-
The full text of the Company's Investment Policy is available on page 22 of this Strategic Report.
The Company is a Venture Capital Trust ("VCT"). Its Objective and its Investment Policy are designed to ensure that the VCT continues to qualify and is approved as a VCT by HM Revenue & Customs ("HMRC") whilst maximising returns to shareholders from both income and capital.
To assist shareholders, the following tables contain a summary of the most important rules that determine VCT approval.
companies the lifetime limit is £20 million, and from 6 April 2018 the annual limit is £10 million), from VCTs and similar sources of State Aid funding; and
From the date of Royal Assent (15 March 2018):
● VCTs may no longer offer secured loans to investee companies, and any returns on loan capital above 10% must represent no more than a commercial return on the principal.
From 6 April 2018:
From 6 April 2019:
● The period for reinvestment of proceeds on disposal of qualifying holdings investments will increase from 6 to 12 months.
For accounting periods beginning on or after 6 April 2019:
● The proportion of VCT funds that must be held in qualifying holdings will increase from 70% to 80%.
Please note that the above changes are not exhaustive.
The Board has identified six key performance indicators that are used in its own assessment of the Company's progress. It is intended that these will provide shareholders with sufficient information to assess how the Company has performed against its Objective in the year to 31 December 2017, and over the longer term, through the application of its investment and other principal policies:
The Company does not consider it appropriate to set a specific annual and cumulative return per share target for the year. However, shareholders should note that the Board assesses these returns against the Company's ability to meet its current annual dividend target of 4.00 pence per share.
The Net Asset Value (NAV) and share price total returns per share for the year ended 31 December 2017 were 6.5% and 7.2% respectively, as shown below:
| NAV basis (p) |
Share price basis (p) |
|||
|---|---|---|---|---|
| Closing NAV per share | 86.57 | Closing share price* | 76.00 | |
| Total | Plus: dividends paid in year | 28.00 | Plus: dividends paid in year | 28.00 |
| return | Total for year | 114.57 | Total for year | 104.00 |
| (p) | Less: opening NAV per share | (107.57) | Less: opening share price | (97.00) |
| Return for year per share | +7.00 | Return for year per share | +7.00 | |
| % return for year | +6.5% | % return for year | +7.2% |
| NAV basis (p) |
Share price basis (p) |
||
|---|---|---|---|
| Closing NAV per share | 86.57 | Closing share price* | 76.00 |
| Plus: dividends paid in year | 28.00 | Plus: dividends paid in year | 28.00 |
| Total for year | 114.57 | Total for year | 104.00 |
| Less: opening NAV per share | (107.57) | Less: opening share price | (97.00) |
| Return for year per share | +7.00 | Return for year per share | +7.00 |
| % return for year | +6.5% | % return for year | +7.2% |
| NAV basis (p) |
Share price basis (p) |
|||
|---|---|---|---|---|
| Cumulative | Closing NAV per share | 86.57 | Closing share price* | 76.00 |
| Plus: cumulative dividends paid to date | 101.20 | Plus: cumulative dividends paid to date | 101.20 | |
| total | Closing cumulative total return | 187.77 | Closing cumulative total return | 177.20 |
| return (p) | Less: opening cumulative total return | (180.77) | Less: opening cumulative total return | (170.20) |
| Increase in cumulative return for year | +7.00 | Increase in cumulative return for year | +7.00 |
*Source: Panmure Gordon & Co (mid-market price)
Taking into account initial income tax relief, founder shareholders who invested in 1999 have now seen, as at 31 December 2017, an overall gain on net investment cost of 17.4% (2016: 13.0%) since the launch of the Company. This is on a NAV return basis and assumes a net investment cost of 160.00 pence per share after initial income tax relief of 40.00 pence per share (both figures restated for the 2 for 1 share consolidation in 2006). Original shareholders who also took advantage of the enhanced buyback offer made in 2013 have now seen an overall gain over net investment cost on this basis of 51.8%.
Both NAV and share price returns for the year are considered to be satisfactory by the Board reflecting the benefit of two profitable realisations.
| Original investment cost (pence per share) |
Income tax relief | Cost net of income tax (p) |
Internal Rate of Return |
|
|---|---|---|---|---|
| With benefit of Income Tax Relief 2006/7 shareholders 1999 shareholders |
120.9 200.0 |
30% 20% |
84.6 160.0 |
8.4% 0.9% |
| Without benefit of Income Tax Relief 2006/7 shareholders 1999 shareholders |
120.9 200.0 |
n/a n/a |
n/a n/a |
4.1% (0.4)% |
The table above shows internal rates of return of shareholders' investment for those founder shareholders who invested in 1999 alongside those shareholders who invested in 2006/7, shortly after the date at which Mobeus took over as sole Investment Adviser.
The internal rate of return is the annual discount rate that equates the original investment cost per share with the value of subsequent dividends received and the latest NAV.
The Board places emphasis on the Company's performance against a peer group of VCTs. Using the benchmark of NAV total return on an investment of £100, the VCT is ranked 21 out of 45 (2016: 14 out of 49) over three years, and 14 out of 40 (2016: 16 out of 44) over five years amongst generalist VCTs by the Association of Investment Companies (AIC) (based on statistics prepared by Morningstar) at 31 December 2017. The Board considers performance against its peer group to be satisfactory.
The Company has an annual target dividend of paying not less than 4.00 pence per share in respect of each financial year. It has met or exceeded this target in respect of its last eight financial years.
During the year the Company paid a first interim dividend of 18.00 pence per share, comprising 17.00 pence from capital and 1.00 penny from income per share. The Directors declared and paid a second interim dividend of 3.00 pence per share comprising 2.00 pence from capital and 1.00 penny from income. Following the payment of this second interim dividend, cumulative dividends paid to shareholders since launch now total 101.20 pence per share.
The ability of the Company to pay dividends in the future cannot be guaranteed and will be subject to performance and available cash and reserves. While the Board still believes in the attainment of the dividend target, the gradual move of the portfolio to growth capital investments is likely to result in annual dividend payments being less than in recent years.
The Board paid a first interim dividend of 18.00 pence per share on 11 September 2017 and a second interim dividend of 3.00 pence per share, on 21 December 2017. This increased cumulative dividends paid to 101.20 pence per share.
In order to comply with VCT legislation, the Company must meet a number of tests set by HMRC as set out in the table headed 'Summary of VCT Regulation' on page 4. For the year ended 31 December 2017, the Company continued to meet these tests.
Subject to the Company having sufficient available funds and distributable reserves, it is the Board's current intention to pursue a buyback policy with the objective of maintaining the discount to the latest published NAV per share at which the shares trade at approximately 10% It has succeeded in carrying out this objective in the year.
The Board considers that a 10% discount currently represents a fair balance between assisting investors who wish to sell shares and the majority of investors who wish to continue to invest in a portfolio of investments in unquoted shares.
The Board intends to continue with the above buyback policy. Any future repurchases will be subject to the Company having appropriate authorities from shareholders and sufficient funds available for this purpose. Share buybacks will also be subject to the Listing Rules and any applicable law at the relevant time. Shares bought back in the market are always cancelled.
The discount of approximately 10%. has been maintained for the whole of the last five years, since the Board stated its intent to pursue this policy.
Shareholders granted the Directors authority to buyback up to 7.4 million of the Company's shares, representing 14.99% of the shares in issue at the date of the notice of the meeting, at the AGM held on 8 May 2017. Shares bought back under this authority are cancelled and the Directors do not intend to exercise this authority unless they believe to do so would result in an increase in net assets per share which would be in the interests of shareholders generally. Continuing shareholders benefit from the difference between the NAV per share and the price at which the shares are bought back and cancelled. A resolution to renew this authority will be proposed at the forthcoming AGM. The resolution will grant authority for the Company to buyback up to 10.3 million of the Company's own shares representing 14.99% of the shares in issue and will normally expire at the AGM to be held in 2019.
During the year ended 31 December 2017, shareholders holding 524,730 shares expressed their desire to sell their holdings. The Company instructed its brokers, Panmure Gordon, to purchase these shares at prices representing discounts of approximately 10% to the previously announced NAV per share. The Company subsequently purchased these shares at prices of between 76.00 and 90.86 pence per share and cancelled them.
In total, the Company bought back 1.1% of the issued share capital of the Company at the beginning of the year, as calculated by reference to the issued share capital on 1 January 2017.
Continuing shareholders benefit from the difference between the NAV and the price at which the shares are bought back and cancelled.
The Board monitors costs using the Ongoing Charges Ratio*, which is as follows:
| 2017 | 2016 | |
|---|---|---|
| Ongoing charges | 2.95% | 2.81% |
| Performance fee | 0.00% | 0.00% |
| Ongoing charges plus accrued performance fee | 2.95% | 2.81% |
* The Ongoing Charges Ratio has been calculated, using the AIC recommended methodology. This figure shows shareholders the annual percentage reduction in shareholder returns as a result of recurring operational expenses, assuming markets remain static and the portfolio is not traded. Although the Ongoing Charges figure is based upon historic information, it provides shareholders with an indication of the likely level of costs that will be incurred in managing the fund in the future.
The Ongoing Charges Ratio replaces the Total Expense Ratio reported previously. The Total Expense Ratio still forms the basis of any expense cap that may be borne by the Investment Adviser. For the purpose of calculating this ratio, actual running costs are capped at 3.4% of closing net assets but exclude any irrecoverable VAT and exceptional costs. There was no breach of the expense cap for the year ended 31 December 2017 (31 December 2016: £nil).
The rise in the Ongoing Charges ratio reflects a lower average level of net assets in 2017.
Investment Adviser fees charged to both revenue and capital have marginally fallen by £0.05 million over the year to £1.17 million. Other expenses have increased by £0.05 million to £0.42 million. This is due to higher trail commission arising from higher eligible shares arising from the Offer for Subscription as well as higher subscription fees resulting from dividend investment scheme allotments.
Further details of these are contained in the financial statements on pages 48 and 49 of this Annual Report.
This has been a year of continued progress within the portfolio with the addition of four new growth capital investments totalling £3.91 million, two existing investments receiving follow-on funding totalling £0.36 million, and two significant, profitable disposals. One disposal (Entanet) generated net proceeds of £4.89 million resulting in a 2.5 times multiple over cost over the three and a half year life of the investment, while the second (Gro-Group) generated net proceeds of £2.76 million representing a 2.2 times multiple over cost over the period of the investment. Total cash proceeds were £12.98 million, comprising the two realisations above, loan repayments of £4.68 million and £0.65 million of other receipts.
The investment and divestment activity completed during the year has increased the proportion of the growth capital element of the investment portfolio to 39%. Within this, at the year-end, the Company holds growth capital investments valued at £8.34 million that were invested since the introduction of the VCT regulations in 2015.
The valuations of the existing portfolio decreased by £0.79 million during the year under review. This net decrease in value was primarily due to reductions in the valuations of Veritek Global, Media Business Insight and Virgin Wines, which outweighed uplifts achieved elsewhere in the portfolio such as Master Removers Group and Biosite (a growth investment). A small number of new, growth investments have shown initial uplifts from cost, due in large part to the structure of the company investment, but also due to the underlying investee company performance. On the whole, we are encouraged by the early performance
of the investments in the growth portfolio.
Demand for growth capital investment remains strong and there is a large pipeline of investment opportunities. We also expect that follow on funding into existing companies to support growth plans will be a significant feature over the coming months and year.
We are pleased to have made six investments in the year, totalling £4.27 million. This comprised new investments into Tapas Revolution, Buster + Punch, MyTutorweb and Wetsuit Outlet, as well as follow on investments into BookingTek and MPB, existing portfolio growth companies. After the year-end, a further four investments have been made with a total value of £1.69 million. Further details are set out below.
| Company | Business | Date of investment |
Amount of new investment (£m) |
|---|---|---|---|
| Tapas Revolution | Restaurant | January 2017 | 0.58 |
Based in London, Ibericos Etc. Limited (which trades as Tapas Revolution) is a leading Spanish restaurant chain in the casual dining sector focussing on shopping centres sites with high footfall. Having opened its first restaurant in Shepherd's Bush Westfield, the business has since opened a further six restaurants. The investment provided growth capital to a high-calibre team with significant restaurant rollout experience which has spent the past five years building and refining its offer and is now well placed to capitalise on a strong pipeline of new sites. The company's latest accounts for the year ended 25 October 2016 show a turnover of £4.25 million and loss before interest, tax and amortisation of goodwill of £0.25 million.
| Company | Business | Date of investment |
Amount of new investment (£m) |
|---|---|---|---|
| Buster + Punch | Retailer | March 2017 | 0.53* |
Buster and Punch Holdings Limited (formerly Chatfield Services Limited) is a London-based interiors brand founded in 2012 by architect and industrial designer Massimo Buster Minale. Buster + Punch (www.busterandpunch.com) started in a small garage in East London, where it built the "world's first designer LED light bulb" (the Buster Bulb) and made its name with its industrial-inspired lighting. Its products are now sold in over 50 countries, both directly to end-consumers, designers and architects, and through well-known retailers including John Lewis, Harvey Nichols and Harrods. The investment will support the business's international expansion plans and the broadening of its product range. The company's latest accounts for the year ended 31 March 2017 show turnover of £3.43 million and profit before interest, tax and amortisation of goodwill of £0.40 million.
* £1.13 million previously held in Chatfield Services Limited, a company preparing to trade, was used for this investment into Buster + Punch. This resulted in a net repayment to the Company of £0.60 million. The company subsequently changed its name to Buster and Punch Holdings Limited.
| My Tutorweb | Online tutoring | May 2017 | 0.47 | ||
|---|---|---|---|---|---|
| -- | -- | ------------- | ----------------- | ---------- | ------ |
My Tutorweb Limited is a digital marketplace that connects school pupils who are seeking private one-to-one tutoring with university students. The business is satisfying a growing demand from both schools and parents to improve pupils' exam results to enhance their academic and career prospects. This investment supports an opportunity to consolidate the sizeable £2bn UK tutoring market, grow My Tutorweb's market presence and drive technological development within the company. The company's latest accounts for the year ended 31 December 2016 show turnover of £0.21 million and a loss before interest, tax and amortisation of goodwill of £0.79 million.
Wetsuit Outlet Retailer July 2017 2.33*
B2C Holdings Limited (trading as Wetsuit Outlet) has established itself as a leading online retailer in the water sports market, stocking an impressive brand portfolio including Musto, Billabong, Rip Curl, O'Neill, Red Paddle (an existing Mobeus VCT investment) and Gul. The investment is to fund working capital and growth in the existing activity and enter two new markets. Established in 2005, the company, has developed into a successful and profitable business with revenues of £11.51 million and £1.77 million net profit before interest, tax and amortisation of goodwill in the financial year ended 31 March 2017.
* £2.02 million held in Manufacturing Services Investment Limited, a company preparing to trade, was used for the investment into Wetsuit Outlet. This resulted in a net repayment to the Company of £0.46 million. A further £0.77 million was invested directly by the Company into Wetsuit Outlet.
| New investments post year end | ||||
|---|---|---|---|---|
| Proactive Investors | Investor media services | January 2018 | 0.34 |
Proactive Investors specialises in up-to-the-minute multi-media news provision, events organisation, digital services and investor research. Proactive provides breaking news, commentary and analysis on hundreds of small-cap listed companies and pre-IPO businesses across the globe, 24/7. The investment will enable Proactive to expand its services into the US market, which is the largest global market for investor media services in the world. The company's accounts for the year ended 30 June 2017 show turnover of £3.99 million and a profit before interest, tax and amortisation of goodwill of £0.53 million.
| Company | Business | Date of investment |
Amount of new investment (£m) |
|---|---|---|---|
| SuperCarers Limited |
Online care provision | March 2018 | 0.49 |
SuperCarers provides an online platform connecting people seeking home care, typically family members seeking care for their elderly parents, from experienced independent carers. Carers and care-seekers manage care directly thus reducing the administrative burden and the need for care managers, enabling care to be delivered in a less rigid and formal fashion. The company's accounts for the year ended 31 March 2017 generated revenues of £0.18 million and a net loss before interest, tax and amortisation of £0.72 million.
| Hemmels Limited | Classic car restoration | March 2018 | 0.52 | |
|---|---|---|---|---|
| -- | ----------------- | ------------------------- | ------------ | ------ |
Hemmels specialises in the sourcing, restoration, selling and servicing of high value classic cars. Hemmels currently focuses on classic Mercedes Benz, but plan to expand into the Porsche marque under a separate brand, RYKRR. The investment will enable Hemmels to proceed with their expansion plans and secure sufficient development stock. Hemmels generated £1.21 million of revenues and (£0.28 million) net loss before interest, tax and amortisation for the year ended 31 December 2017, surpassing revenue forecast by £0.11 million.
| Company | Business | Date of investment(s) |
Amount of new investment (£m) |
|---|---|---|---|
| BookingTek | A provider of direct booking systems to major hotel groups |
March 2017 / November 2017 |
0.14 |
London-based BookingTek provides software that enables hotels to reduce their reliance on third-party booking systems through an enterprise-grade, real-time booking platform for meeting rooms and restaurant reservations. BookingTek's existing clients include two of the world's top 10 hotel groups and the UK's largest hotel group. The company's latest accounts for the year ended 31 July 2016 show turnover of £2.03 million and a loss before interest, tax and amortisation of goodwill of £0.29 million.
| MPB Group | Online marketplace for used camera and video equipment |
September 2017 / December 2017 |
0.22* |
|---|---|---|---|
| ----------- | -------------------------------------------------------------- | -------------------------------------- | ------- |
MPB is Europe's leading online marketplace for used camera and video equipment. Based in Brighton, its custom-designed pricing technology enables MPB to offer both buy and sell services through the same platform and offers a one-stop shop for all its customers. The investment is to provide expansion of its platform globally, with launches into both the US and German markets. The company's latest audited accounts for the year ended 31 March 2017 show turnover of £13.20 million and loss before interest, tax and amortisation of goodwill of £0.45 million. * A further £0.34 million was invested into MPB on 27 February 2018 following the year end.
There were two realisations during the year under review, namely: Entanet Holdings Limited and Gro-Group Holdings Limited as set out below:
| Company | Business | Period of investment |
Total cash proceeds over the life of the investment / Multiple over cost |
|---|---|---|---|
| Entanet | Wholesale voice and data communications provider |
February 2014 to August 2017 |
£5.53 million 2.5 times cost |
The Company sold its investment in Entanet to AIM quoted CityFibre Infrastructure Holdings Limited for £4.89 million in August 2017. Deferred consideration of up to £0.50 million is potentially payable over the next two years. Excluding this deferred consideration, the Company has so far realised a gain over the life of the investment of £3.36 million, a multiple of 2.5 times cost and has returned an IRR of 39% to date - an excellent outcome.
| Gro-Group | Baby sleep products | March 2013 to December 2017 |
£3.48 million 2.2 times cost |
|---|---|---|---|
The Company sold its investment in Gro-Group for £2.76 million in December 2017. Deferred consideration of up to £0.09 million is potentially payable over the next year. Excluding this deferred consideration, the Company has so far realised a gain over the life of the investment of £1.90 million, a multiple of 2.2 times cost and has returned an IRR of 21% to date.
As a result of the successful fundraising (£13.63 million raised in 2017), divestments referred to above (£4.89 million) and loan stock repayments of £4.68 million, cash and other liquid investments amounted to £24.34 million. Of this £2.85 million is held as cash in bank accounts, and the balance is placed in AAA rated money market funds. The returns on these funds remain very low, but the Board retains its policy of seeking above all to preserve capital for its uninvested funds.
Tovey Management Limited (trading as Access IS) www.access-is.com
Cost £2,469,000
Basis of valuation Earnings multiple
Equity % held 9.7%
Income receivable in year £188,725
Business Data capture and scanning
hardware
Reading
Original transaction Management buyout
Year ended 31 December 20161 Turnover £12,375,000 Operating profit £1,346,000 Net assets £6,517,000
Year ended 31 December 20151 Turnover £11,488,000 Operating profit £1,526,000 Net assets £5,236,000
1 The financial information quoted above is for Access Limited, the trading entity of Tovey Management.
None.
Manufacturing Services Investment Limited (trading as Wetsuit Outlet) www.wetsuitoutlet.co.uk
| Cost | £2,333,000 |
|---|---|
| Valuation | £2,333,000 |
|---|---|
| Basis of valuation Recent investment price |
|
| Equity % held 6.4% |
|
| Income receivable in year £45,600 |
Business Online retailer in the water sports market
Location Southend on Sea, Essex Original transaction Growth capital
Year ended 31 March 20171 Turnover £11,511,000 Operating profit £1,981,000 Net assets £3,980,000
Year ended 31 March 20161 Turnover £8,635,000 Operating profit £1,646,000 Net assets £3,795,000
1 The financial information quoted above is for B2C Distribution Limited prior to the investment into Wetsuit Outlet which completed in July 2017.
New investment made in July 2017.
| www.virginwines.co.uk Cost £1,931,000 Valuation £2,173,000 Basis of valuation Earnings multiple Equity % held 9.7% Income receivable in year £184,340 Business Online wine retailer |
Virgin Wines Holding Company | |||
|---|---|---|---|---|
Location Norwich Original transaction Management buyout
| Year ended |
|---|
| lurnover |
| Operating pro |
| Net assets |
Year ended 30 June 2016 Turnover £38,005,000 Operating profit £2,036,000 Net assets £3,329,000
Year ended 30 June 2015 Turnover £37,117,000 Operating profit £2,424,000 Net assets £1,465,000
Movements during the year
None.
Further details of the investments in the portfolio may be found on the Mobeus website: www.mobeusequity.co.uk. Operating profit is stated before charging amortisation of goodwill where appropriate for all investee companies.
www.aslh.co.uk
Cost £1,934,000
Equity % held 9.5%
Income receivable in year £159,969
Business Printer and photocopier services
| Year ended | 30 September 2016 |
|---|---|
| Turnover | £16,096,000 |
| Operating profit | £1,715,000 |
| Net liabilities | £(2,813,000) |
| Year ended | 30 September 2015 |
| Turnover | £15,361,000 |
| Operating profit | £1,713,000 |
Net liabilities £(2,450,000)
| Cost | £2,723,000 |
|---|---|
Location London Original transaction Management buyout
| Year ended Turnover Operating profit Net assets |
31 December 2016 £12,668,000 £683,000 £1,212,000 |
|---|---|
| Year ended | 31 December 20151 |
| Turnover | £8,768,000 |
| Operating profit | £508,000 |
| Net assets | £1,867,000 |
1 The financial information quoted above is for Media Business Insight Limited, the trading subsidiary of Media Business Insight Holdings Limited.
None.
None.
| Vian Marketing Limited | |
|---|---|
| (trading as Red Paddle Co) | |
| www.tushingham.com |
Basis of valuation Earnings multiple
Equity % held 7.1%
Income receivable in year £56,465
Design, manufacture and sale of stand-up paddleboards and windsurfing sails
Totnes, Devon
Original transaction Growth capital and equity release
| Year ended | 28 February 20171 |
|---|---|
| Turnover | £11,185,000 |
| Operating profit | £982,000 |
| Net assets | £3,220,000 |
| Year ended | 28 February 20161 |
| Turnover | £9,602,000 |
| Operating profit | £523,000 |
| Net assets | £2,340,000 |
1 The financial information quoted above relates to the operating subsidiary, Red Paddle Co Limited (formerly Tushingham Sails Limited).
None.
| Outdoor Technologies) www.equipuk.com |
EOTH Limited (trading as Equip | Tharstern Group Limited www.tharstern.com |
||
|---|---|---|---|---|
| Cost £951,000 |
Cost £1,092,000 |
|||
| Valuation | £1,405,000 | Valuation | £1,401,000 | |
| Basis of valuation Earnings multiple |
Basis of valuation Earnings multiple |
|||
| Equity % held 1.7% |
Equity % held 12.2% |
3.8% | ||
| Income receivable in year £72,743 |
Income receivable in year £88,720 |
£Nil | ||
| Business Branded outdoor equipment and clothing |
Business Software-based Management Information Systems to the print sector |
Business | ||
| Location Alfreton, Derbyshire |
Location Colne, Lancashire |
Location London |
||
| Original transaction Growth capital |
Original transaction Management buyout |
|||
| Audited financial information | Audited financial information | |||
| Year ended Turnover Operating profit |
31 January 2017 £44,382,000 £5,755,000 |
Year ended Turnover Operating profit |
31 January 2017 £4,852,000 £437,000 |
Operating profit £5,755,000 Net assets £14,787,000 Year ended 31 January 2016
Turnover £37,826,000 Operating profit £1,662,000 Net assets £11,090,000
None.
Operating profit £799,000 Net assets £1,146,000
Net assets £482,000
Year ended 31 January 2016 Turnover £4,460,000
| Turner TopCo Limited (trading as ATG Media) www.antiquestradegazette.com |
|||
|---|---|---|---|
| Cost | £1,529,000 | ||
| Valuation | £1,293,000 | ||
| Basis of valuation Earnings multiple Equity % held 3.8% |
|||
| Income receivable in year £Nil |
|||
| Business Publisher and online auction platform operator |
|||
| Location London Original transaction Secondary buyout |
Year ended 30 September 2016 Turnover £20,600,000 Operating profit £2,809,000 Net liabilities £(18,826,000)
Year ended 30 September 2015 Turnover £18,918,000 Operating profit £1,151,000 Net liabilities £(10,011,000)
Movements during the year
Movements during the year
Movements during the year
None.
Further details of the investments in the portfolio may be found on the Mobeus website: www.mobeusequity.co.uk. Operating profit is stated before charging amortisation of goodwill where appropriate for all investee companies.
None.
Basis of valuation Earnings multiple
Equity % held
Income receivable in year £104,872
Business Vehicle cleaning and valet services
Laindon, Essex Original transaction Management buyout
| Year ended | 31 March 2017 |
|---|---|
| Turnover | £52,655,000 |
| Operating profit | £592,000 |
| Net liabilities | £(80,000) |
| Year ended | 31 March 2016 |
Turnover £49,632,000 Operating profit £1,952,000 Net assets £1,607,000
None
| Cost at | Ordinary shares Valuation at |
(loan stock/preference shares) Cost at |
Other investments1 Valuation at |
Total cost at |
|
|---|---|---|---|---|---|
| Mobeus Equity Partners Portfolio | 31 December 2017 £ |
31 December 2017 £ |
31 December 2017 £ |
31 December 2017 £ |
31 December 2017 £ |
| Tovey Management Limited (trading as Access IS) Provider of data capture and scanning hardware |
891,576 | 316,094 | 1,577,437 | 2,442,532 | 2,469,013 |
| Manufacturing Services Investment Limited (trading as Wetsuit Outlet)2 Online retailer in the water sports market |
1,166,551 | 1,166,551 | 1,166,551 | 1,166,551 | 2,333,102 |
| Virgin Wines Holding Company Limited Online wine retailer |
45,915 | 288,509 | 1,884,898 | 1,884,898 | 1,930,813 |
| ASL Technology Holdings Limited Printer and photocopier services |
343,992 | 110,590 | 1,589,599 | 1,938,968 | 1,933,591 |
| Media Business Insight Holdings Limited A publishing and events business focussed on the creative production industries |
1,089,103 | - | 1,633,657 | 1,663,142 | 2,722,760 |
| Vian Marketing Limited (trading as Red Paddle Co) Design, manufacture and sale of stand-up paddleboards and windsurfing sails |
271,683 | 520,473 | 627,391 | 896,273 | 899,074 |
| EOTH Limited (trading as Equip Outdoor Technologies) Distributor of branded outdoor equipment and clothing |
95,147 | 473,250 | 856,324 | 932,228 | 951,471 |
| Tharstern Group Limited MIS & Commercial print software solutions |
338,861 | 322,601 | 753,025 | 1,078,760 | 1,091,886 |
| Turner Topco Limited (trading as ATG Media) Publisher and online auction platform operator |
4,472 | - | 1,524,603 | 1,292,718 | 1,529,075 |
| Fullfield Limited (trading as Motorclean) Vehicle cleaning and valet services |
462,184 | 57,795 | 669,260 | 1,127,722 | 1,131,444 |
| Master Removers Group Limited (formerly Leap New Co Limited (trading as Anthony Ward Thomas, Bishopsgate and Aussie Man & Van)) A specialist logistics, storage and removals business |
511,620 | 1,173,348 | 235 | - | 511,855 |
| CGI Creative Graphics International Limited Vinyl graphics to global automotive, recreation vehicle and aerospace markets |
476,612 | - | 973,134 | 1,087,900 | 1,449,746 |
| Pattern Analytics Limited (trading as Biosite) Workforce management and security services for the construction industry |
640,171 | 960,257 | - | - | 640,171 |
| Preservica Limited Seller of proprietary digital archiving software |
679,617 | 929,117 | - | - | 679,617 |
| Redline Worldwide Limited Provider of security services to the aviation industry and other sectors |
269,190 | 124,106 | 569,187 | 773,883 | 838,377 |
| BookingTek Limited Software for hotel groups |
582,300 | 797,420 | 69,837 | 69,837 | 652,137 |
| Bourn Bioscience Limited Management of In-vitro fertilisation clinics |
323,577 | 9,485 | 808,944 | 808,944 | 1,132,521 |
| TPSFF Holdings Limited (formerly The Plastic Surgeon Holdings Limited) Snagging and finishing of domestic and commercial properties |
45,884 | 193,470 | 144,583 | 616,469 | 190,467 |
| MPB Group Limited Online marketplace for used photographic equipment |
359,022 | 440,749 | 336,582 | 336,582 | 695,604 |
| RDL Corporation Limited Recruitment consultants for the pharmaceutical, business intelligence and IT industries |
173,932 | - | 826,068 | 632,005 | 1,000,000 |
| Ibericos Etc. Limited (trading as Tapas Revolution) Spanish restaurant chain |
348,269 | 348,269 | 232,200 | 232,200 | 580,469 |
1 'Other investments' comprise principally loan stock instruments, and/or relatively small amounts of preference shares.
2 £2,016,900 held in Manufacturing Services Investment Limited, a company preparing to trade, was used for the investment into Wetsuit Outlet. This resulted in a net repayment to the Company of £456,400. A further £772,602 was invested directly by the Company into Wetsuit Outlet.
| Total valuation at 31 December 2016 |
Total additional investments |
Total valuation at 31 December 2017 |
Unrealised gains/(losses) in year |
Net realised gains in year |
Net proceeds in year |
% of equity held |
% of portfolio by value |
|---|---|---|---|---|---|---|---|
| £ | £ | £ | £ | £ | £ | ||
| 2,601,197 | - | 2,758,626 | 157,429 | - | - | 9.7% | 8.7% |
| 2,016,900 | 772,602 | 2,333,102 | - | - | 456,400 | 6.4% | 7.3% |
| 2,685,675 | - | 2,173,407 | (512,268) | - | - | 9.7% | 6.9% |
| 2,082,980 | - | 2,049,558 | (33,422) | - | - | 9.5% | 6.5% |
| 2,218,152 | - | 1,663,142 | (555,010) | - | - | 15.7% | 5.3% |
| 1,188,439 | - | 1,416,746 | 228,307 | - | - | 7.1% | 4.5% |
| 1,197,945 | - | 1,405,478 | 207,533 | - | - | 1.7% | 4.5% |
| 1,217,396 | - | 1,401,361 | 183,965 | - | - | 12.2% | 4.5% |
| 1,330,326 | - | 1,292,718 | (37,608) | - | - | 3.8% | 4.1% |
| 1,459,525 | - | 1,185,517 | (274,008) | - | - | 9.8% | 3.8% |
| 734,387 | - | 1,173,348 | 438,961 | - | - | 4.3% | 3.7% |
| 1,311,572 | - | 1,087,900 | (223,672) | - | - | 6.6% | 3.5% |
| 640,171 | - | 960,257 | 320,086 | - | - | 4.8% | 3.0% |
| 679,617 | - | 929,117 | 249,500 | - | - | 8.6% | 3.0% |
| 838,377 | - | 897,989 | 59,612 | - | - | 6.7% | 2.9% |
| 512,137 | 140,000 | 867,257 | 215,120 | - | - | 3.5% | 2.8% |
| 864,082 | - | 818,429 | (45,653) | - | - | 7.7% | 2.6% |
| 902,329 | - | 809,939 | 229,773 | - | 322,163 | 8.7% | 2.6% |
| 471,216 | 224,388 | 777,331 | 81,727 | - | - | 5.3% | 2.5% |
| 926,025 | - | 632,005 | (294,020) | - | - | 9.1% | 2.0% |
| - | 580,469 | 580,469 | - | - | - | 5.8% | 1.8% |
| Cost at | Ordinary shares Valuation at |
Cost at | Other investments1 (loan stock/preference shares) Valuation at |
Total cost at |
|
|---|---|---|---|---|---|
| Mobeus Equity Partners Portfolio | 31 December 2017 £ |
31 December 2017 £ |
31 December 2017 £ |
31 December 2017 £ |
31 December 2017 £ |
| Veritek Global Holdings Limited Maintenance of imaging equipment |
43,527 | - | 1,576,559 | 547,806 | 1,620,086 |
| Buster and Punch Holdings Limited (formerly Chatfield Services Limited)2 Industrial inspired lighting and interiors retailer |
373,073 | 373,073 | 157,319 | 157,319 | 530,392 |
| My Tutorweb Limited Digital marketplace connecting school pupils seeking one-to-one online tutoring |
466,639 | 466,639 | - | - | 466,639 |
| Hollydale Management Limited Company seeking to carry on a business in the food sector |
438,200 | 175,280 | 262,920 | 262,920 | 701,120 |
| Vectair Holdings Limited Designer and distributor of washroom products |
24,643 | 303,144 | 89 | 89 | 24,732 |
| Omega Diagnostics Group plc3 In-vitro diagnostics for food intolerance, auto-immune diseases and infectious diseases |
200,028 | 274,849 | - | - | 200,028 |
| Jablite Holdings Limited Manufacturer of expanded polystyrene products |
339,974 | 179,959 | 36,109 | 49,824 | 376,083 |
| Backhouse Management Limited Company seeking to carry on a business in the motor sector |
453,600 | 90,720 | 136,080 | 136,080 | 589,680 |
| Creasy Marketing Services Limited Company seeking to carry on a business in the textile sector |
453,600 | 90,720 | 136,080 | 136,080 | 589,680 |
| McGrigor Management Limited Company seeking to carry on a business in the pharmaceutical sector |
453,600 | 90,720 | 136,080 | 136,080 | 589,680 |
| Barham Consulting Limited Company seeking to carry on a business in the catering sector |
453,600 | 90,720 | 136,080 | 136,080 | 589,680 |
| Blaze Signs Holdings Limited Manufacturer and installer of signs |
183,005 | 186,371 | 7,626 | 7,626 | 190,631 |
| Lightworks Software Limited Provider of software for CAD and CAM vendors |
9,329 | 33,847 | - | - | 9,329 |
| BG Training Limited City-based provider of specialist technical training |
- | - | 10,625 | 5,313 | 10,625 |
| Racoon International Group Limited Supplier of hair extensions, hair care products and training |
419,959 | - | 64,388 | - | 484,347 |
| Newquay Helicopters (2013) Limited (in creditors' voluntary liquidation) Helicopter service operator |
7,617 | - | - | - | 7,617 |
| CB Imports Group Limited (trading as Country Baskets) Importer and distributor of artificial flowers, floral sundries and home décor products |
175,000 | - | - | - | 175,000 |
| Watchgate Limited Holding company |
1,000 | - | - | - | 1,000 |
| Disposals in year | |||||
| Entanet Holdings Limited Wholesale communications provider |
- | - | - | - | - |
| Gro-Group Holdings Limited Baby sleep products |
- | - | - | - | - |
| Deferred proceeds from companies realised in previous years 4 | - | - | - | - | - |
| Total | 13,616,072 | 10,588,126 | 18,903,470 | 20,556,829 | 32,519,542 |
1 'Other investments' comprise principally loan stock instruments, and/or relatively small amounts of preference shares.
2 £1,134,000 held in Chatfield Services, a company preparing to trade, was used for the investment into Buster and Punch. This resulted in a net repayment to the Company of £603,608. The company subsequently changed its name to Buster and Punch Holdings Limited.
3 Quoted on AIM.
4 The deferred proceeds figure of £101,859 consists of £86,140 received in respect of Focus Pharma, £12,982 from Higher Nature and £2,737 from Machineworks.
| % of equity portfolio held by value |
Net proceeds in year £ |
£ | Net realised gains in year |
Unrealised gains/(losses) in year £ |
Total valuation at 31 December 2017 £ |
Total additional investments £ |
Total valuation at 31 December 2016 £ |
|---|---|---|---|---|---|---|---|
| 11.9% | - | - | (735,235) | 547,806 | - | 1,283,041 | |
| 4.5% | 603,608 | - | - | 530,392 | - | 1,134,000 | |
| 4.5% | - | - | - | 466,639 | 466,639 | - | |
| 11.0% | 657,300 | - | - | 438,200 | - | 1,095,500 | |
| 2.1% | - | - | 119,504 | 303,233 | - | 183,729 | |
| 1.3% | - | - | (16,833) | 274,849 | - | 291,682 | |
| 9.1% | - | - | (377,215) | 229,783 | - | 606,998 | |
| 11.3% | 907,200 | - | - | 226,800 | - | 1,134,000 | |
| 11.3% | 907,200 | - | - | 226,800 | - | 1,134,000 | |
| 11.3% | 907,200 | - | - | 226,800 | - | 1,134,000 | |
| 11.3% | 453,600 | - | - | 226,800 | - | 680,400 | |
| 5.7% | - | - | (86,947) | 193,997 | - | 280,944 | |
| 4.2% | - | - | (1,078) | 33,847 | - | 34,926 | |
| 0.0% | 3,542 | - | (5,313) | 5,313 | - | 14,167 | |
| 8.0% | - | - | (38,771) | - | - | 38,771 | |
| 2.5% | 4,725 | 4,725 | - | - | - | - | |
| 5.8% | - | - | - | - | - | - | |
| 33.3% | - | - | - | - | - | - | |
| 0.0% | 4,892,454 | 2,638,319 | - | - | - | 2,254,135 | |
| 0.0% | 2,758,765 | 1,397,472 | - | - | - | 1,361,293 | |
| 0.0% | 101,859 | 101,859 | - | - | - | - | |
| - | 12,976,016 | 4,142,375 | (745,536) | 31,144,955 | 2,184,098 | 38,540,034 |
| Cost at | Ordinary shares Valuation at |
Cost at | Other investments1 (loan stock/preference shares) Valuation at |
Total cost at |
|
|---|---|---|---|---|---|
| Mobeus Equity Partners Portfolio | 31 December 2017 £ |
31 December 2017 £ |
31 December 2017 £ |
31 December 2017 £ |
31 December 2017 £ |
| Former Elderstreet Private Equity Portfolio | |||||
| Cashfac Limited Provider of virtual banking application software solutions to corporate customers |
260,101 | 339,098 | - | - | 260,101 |
| Sparesfinder Limited Supplier of industrial spare parts online |
250,854 | - | - | - | 250,854 |
| Sift Group Limited Developer of business-to-business internet communities |
135,391 | - | - | - | 135,391 |
| Total | 646,346 | 339,098 | - | - | 646,346 |
| Investment Adviser's Total | 14,262,418 | 10,927,224 | 18,903,470 | 20,556,829 | 33,165,888 |
1 'Other investments' comprise principally loan stock instruments, and/or relatively small amounts of preference shares.
| % of portfolio by value |
% of equity held |
Net proceeds in year £ |
Net realised gains in year £ |
Unrealised gains/(losses) in year £ |
Total valuation at 31 December 2017 £ |
Total additional investments £ |
Total valuation at 31 December 2016 £ |
|---|---|---|---|---|---|---|---|
| 1.1% | 2.9% | - | - | 50,166 | 339,098 | - | 288,932 |
| 0.0% | 2.0% | - | - | (64,067) | - | - | 64,067 |
| 0.0% | 1.3% | - | - | (33,401) | - | - | 33,401 |
| 1.1% | - | - | - | (47,302) | 339,098 | - | 386,400 |
| 100.0% | - | 12,976,016 | 4,142,375 | (792,838) | 31,484,053 | 2,184,098 | 38,926,434 |
The Board has put in place the following policies to be applied to meet the Company's overall Objective and to cover specific areas of the Company's business.
The Investment Policy is designed to meet the Company's objective.
The Company invests primarily in a diverse portfolio of UK unquoted companies. Investments are made selectively across a number of sectors, principally in established companies. Investments are usually structured as part loan stock and part equity in order to produce a regular income stream and to generate capital gains from realisations.
There are a number of conditions within the VCT legislation which need to be met by the Company and which may change from time to time. The Company will seek to make investments in accordance with the requirements of prevailing VCT legislation.
Asset allocation and risk diversification policies, including the size and type of investments the Company makes, are determined in part by the requirements of prevailing VCT legislation. No single investment may represent more than 15% (by VCT tax value) of the Company's total investments at the date of investment.
The Company's cash and liquid funds are held in a portfolio of readily realisable interest bearing investments, deposit and current accounts, of varying maturities, subject to the overriding criterion that the risk of loss of capital be minimised.
The Company's articles of association permit borrowings of amounts up to 10% of the adjusted capital and reserves (as defined therein). However, the Company has never borrowed and the Board would only consider doing so in exceptional circumstances.
The Directors have considered diversity in relation to the composition of the Board and have concluded that its membership is diverse in relation to gender and breadth of experience. The Board comprises two men and one woman. The Company does not have any senior managers or employees. The Board has made a commitment to consider diversity in making future appointments.
In addition to the Investment Policy, the Diversity Policy and the policies on payment of dividends and share buybacks, which were discussed earlier in this section (see pages 6 and 7), the Company has adopted a number of further policies relating to:
further details of which are set out in the Directors' Report on pages 26 to 28.
The Directors acknowledge the Board's responsibilities for the Company's internal control systems and have instigated systems and procedures for identifying, evaluating and managing the significant risks faced by the Company. This includes a key risk management review which takes place at each quarterly Board meeting. Further details of these are contained in the corporate governance section of the Directors' Report on pages 29 to 30. The principal risks identified by the Board are set out below:
| Risk | Possible consequence | How the Board manages risk |
|---|---|---|
| Economic | Events such as an economic recession and movement in interest rates could affect trading conditions for smaller companies and consequently the value of the Company's qualifying investments. |
The Board monitors the portfolio as a whole to (1) ensure that ● the Company invests in a diversified portfolio of companies and (2) ensure that developments in the macro-economic environment such as movements in interest rates are monitored. |
| Loss of approval as a Venture Capital Trust |
The Company must comply with section 274 of the Income Tax Act 2007 ("ITA") which allows it to be exempted from capital gains tax on investment gains. Any breach of these rules may lead to the Company losing its approval as a Venture Capital Trust (VCT), qualifying shareholders who have not held their shares for the designated holding period having to repay the income tax relief they obtained and future dividends paid by the Company becoming subject to tax. The Company would also lose its exemption from corporation tax on capital gains. |
The Company's VCT qualifying status is continually reviewed ● by the Investment Adviser. The Board receives regular reports from its VCT Status Adviser ● who has been retained by the Board to monitor the VCT's compliance with the VCT Rules. |
| Investment | Investment in unquoted small companies involves a higher degree of risk than investment in fully listed companies. Smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals. This may lead to variable investment returns. Following the introduction of the VCT Rules in 2015 the Company is no longer permitted to invest in MBOs. The focus of investment has therefore moved to providing capital development investment to younger companies. |
The Board regularly reviews the Company's investment ● strategy. Careful selection and review of the investment portfolio on ● a regular basis. The Investment Adviser has provided a growing pipeline of ● compliant investment opportunities following a continuing strengthening of its investment team. |
| Regulatory | The Company is required to comply with the Companies Act, the listing rules of the UK Listing Authority and United Kingdom Accounting Standards. Changes to and breach of any of these might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report. |
Regulatory and legislative developments are kept under ● review by the Company's solicitors and the Board. Please see the Chairman's Statement on page 3 for the latest details of the impact of recent VCT legislation. |
| Financial and operating |
Failure of the systems at any of the third party service providers that the Company has contracted with could lead to inaccurate reporting or monitoring. Inadequate controls could lead to the misappropriation or insecurity of assets. |
The Board carries out an annual review of the internal ● controls in place and reviews the risks facing the Company at each quarterly Board meeting and receives reports by exception. It reviews the performance of the service providers annually. ● |
| Market | Movements in the valuations of the VCT's investments will, inter alia, be connected to movements in UK Stock Market indices. |
The Board receives quarterly valuation reports from the ● Investment Adviser. The Investment Adviser alerts the Board about any adverse ● movements. |
| Asset liquidity | The Company's investments may be difficult to realise. | The Board receives reports from the Investment Adviser and ● reviews the portfolio at each quarterly Board meeting. It carefully monitors investments where a particular risk has been identified. |
| Market liquidity |
Shareholders may find it difficult to sell their shares at a price which is close to the net asset value given the limited secondary market in VCT shares. |
The Board has a share buyback policy which seeks to ● mitigate market liquidity risk. This policy is reviewed at each quarterly Board meeting. |
| Counterparty | A counterparty may fail to discharge an obligation or commitment that it has entered into with the Company. This may lead to financial loss for the Company. |
The Board regularly reviews and agrees policies for managing ● these risks. Further details can be found under 'credit risk' in Note 15 to the accounts on pages 58 and 59. |
The risk profile of the Company has changed as a result of changes to VCT legislation. As the Company is required to focus its new investment activity on development capital investments in younger companies it is anticipated that investment returns will be more volatile and have a higher risk profile. The Board remain confident that the Investment Adviser has the resources to adapt to these changing investment requirements, although the early stage investment process remains unproven. The combination of high liquidity levels in the Company and the challenge of new VCT rules may also result in continuing high liquidity which may be a drag on performance. The Board continues to manage excess liquidity through dividend distributions where appropriate. These issues will be monitored by the Board during the year.
The Board has assessed the Company's operation as a going concern. The Company's business activities, together with the factors likely to affect its future development, performance and position are set out in this Strategic Report above on pages 5 to 11. The Directors have satisfied themselves that the Company continues to maintain a significant cash position. The majority of companies in the portfolio continue to trade profitably and the portfolio taken as a whole remains resilient and well diversified. The major cash outflows of the Company (namely investments, share buybacks and dividends) are within the Company's control. The Board's assessment of liquidity risk and details of the Company's policies for managing its capital and financial risks are shown in Note 15 on pages 57 to 64. Accordingly, the Directors consider it appropriate to adopt the going concern basis for a period of at least twelve months from the date of approval of the financial statements.
Furthermore, the Directors have considered whether there are any material uncertainties that the Company may face during the twelve months from the date of approval of the financial statements that may impact on its ability to operate as a going concern. In particular, the Directors have continued to consider the impact of changes to VCT legislation. No further material uncertainties have been identified by the Board.
The UK Corporate Governance Code includes a requirement for companies to include a "Viability Statement" in the Annual Report addressed to shareholders with the intention of providing an improved and broader assessment of long term solvency and liquidity. The Code does not define "long term" but expects the period to be longer than twelve months with individual companies choosing a period appropriate to the nature of their own businesses. The Directors have chosen a period of three years, as explained further below.
The Directors have carried out a robust assessment of the principal risks facing the Company and these are listed on page 23. Subsequent to this review they have a reasonable expectation that the Company will continue to operate and meet its liabilities, as they fall due, for the next three years. This period has been chosen, as a period longer than three years creates a level of future uncertainty for which a Viability Statement cannot, in the Directors' view, currently be made meaningfully. The Directors believe that a three year period is appropriate given the frequency with which it is necessary to review and assess the impact of past, current and proposed regulatory changes. The Directors' assessment has been made with reference to the Company's current position and prospects, the Company's present strategy, the Board's risk appetite and the Company's principal risks and how these are managed, as described on page 23. The Board is mindful of the risks contained therein, but considers that its actions to manage those risks provide reasonable assurance that the Company's affairs are safeguarded for the stated period.
The Directors have reached this conclusion after giving careful consideration to the Company's strategy. They believe the Company's current strategy of "providing investors with a regular income stream by way of tax-free dividends and to generate capital growth through portfolio realisations" remains valid. The Board has focused upon the range of future investments that the Company will be permitted to fund under the latest VCT legislation.
In compliance with the VCT Rules, the Board has focused on financing growth capital investment opportunities. At 31 December 2017, the Company holds 39% (£12.34 million) of its portfolio in growth capital investments, £8.34 million of which was invested since the introduction of the new VCT rules in 2015.
The Board will continue to monitor returns from capital growth investments on a regular basis and the prospective returns thereon over the next three years. The Board considers that the Company has sufficient liquidity to maintain its present investment role in the short to medium term.
Shareholders should be aware that, under the Company's Articles, it is required to hold a continuation vote at the next AGM falling after the fifth anniversary of last allotting shares. As shares were last allotted in March 2018 (under the Offer for Subscription), this factor has not affected the Board's assumptions for the next three years.
For a discussion of the Company's future prospects (both short and medium term), please see the Chairman's Statement on pages 2 to 3 and the Investment Review on pages 8 to 11.
20 March 2018
Date of appointment: 1 April 2002
Experience: Christopher has considerable experience of the venture capital industry. After completing a law degree and qualifying as a chartered accountant with Price Waterhouse, he worked for Robert Fleming Inc., Lazards, Jardine Fleming and then Robert Fleming, latterly as a main board director from 1986 to 1995. During this period he was involved in various unquoted and venture capital investments and remained chairman of Fleming Ventures Limited, an international venture capital fund, until the fund's final distribution in 2003. His roles have included acting as senior adviser to the chairman of Lloyds and chairing the successful turnaround of a quoted industrial group. Until May 2010, he was a director of Matrix Income & Growth VCT plc ("MIG") and until September 2010 he was a director of The Income & Growth VCT plc ("I&G"). He was also a director of Matrix Income & Growth 3 VCT plc until it merged with MIG in 2010.
Date of appointment: 1 August 2010
Experience: Andrew qualified as a Chartered Accountant in 1984. From 1984 to 1997, he worked in corporate finance at Robert Fleming & Co Limited, becoming a director. Following a four year term in charge of the finances of the National Gallery, he joined Société Générale as a director in the London M&A department. He subsequently became finance director of the eFinancial group, a group specialising in financial publishing and online recruitment. He now works as a business adviser to small companies. Andrew has over 17 years' experience as a non-executive director, including with investment companies. He is currently an executive director of First Integrity Limited (from December 2006) and a nonexecutive director of Peckwater Limited (from August 2008), Shires Income PLC (from May 2008) and JP Morgan Smaller Companies Investment Trust PLC (from 2007). Andrew was a non-executive director of Edinburgh UK Smaller Companies Tracker Trust PLC from 1998 to 2006, a non-executive director of M&G Equity Investment Trust plc from 2007 until 2011 and a non-executive director of British Empire Trust plc from 2008 to 2017.
Experience: Helen has extensive experience of investing in a wide range of small and medium sized businesses. She graduated in economics from Cambridge University and began her career in banking. After an MBA at INSEAD business school, Helen worked from 1991 to 1998 at 3i plc, based in their London office. She was a founding director of Matrix Private Equity Limited when it was established in early 2000 and helped raise Mobeus Income & Growth 2 VCT plc (formerly Matrix e-Ventures VCT plc). She is a non-executive director of Gresham House Strategic plc, North East Finance (Holdco) Limited and is chairman of British Smaller Companies VCT plc. Helen is a director of both I&G and MIG 4 and, as both are advised by Mobeus, is deemed not to be an independent director under the Listing Rules.
For details of the share interest and remuneration of the Directors please see page 34 of the Directors' Remuneration Report. Details of the attendance record of the Directors is reported in the Directors' Remuneration Report on page 37.
The Board believes that the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
The principal activity of the Company is to operate as a Venture Capital Trust, making investments in the equity and loan stock of primarily unquoted companies, in compliance with VCT legislation.
The Company is registered in England and Wales as a Public Limited Company (registration number 03707697).
The Company has satisfied the requirements for full approval as a Venture Capital Trust under section 274 of the Income Tax Act 2007 ("the ITA"). It is the Directors' intention to continue to manage the Company's affairs in such a manner as to comply with section 274 of the ITA.
To enable capital profits to be distributed by way of dividends, the Company revoked its status as an investment company as defined by section 833 of the Companies Act 2006 ("the Companies Act") on 28 July 2008. The Company does not intend to re-apply for such status.
Statements relating to dividends and future developments are included in the Chairman's Statement on pages 2 and 3 and the Strategic Report on pages 4 to 7 of the Annual Report.
The Company's ordinary shares of 1.00 penny each are listed on the London Stock Exchange ("LSE").
During the year under review, the Company issued a total of 18,956,783 (2016: 938,291) shares. Of this total, 15,472,097 shares were issued under the Company's Offer for Subscription launched on 6 September 2017. Shortly after the year-end a further 1,186,253 shares were issued under the Offer, bringing the total number of shared issued under the Offer to 16,658,350, following which the Offer was
closed. A total of 3,484,686 shares (2016: 938,291) were issued under the Company's Dividend Investment Scheme, as detailed below.
The issued share capital of the Company as at 31 December 2017 was £674,751 (2016: £490,430) and the number of shares in issue at this date was 67,475,086 (2016: 49,043,033).
The Company also bought back 524,730 (2016: 251,468) of its own shares at a total cost of £408,125 (2016: £244,575) including expenses. These shares represented 1.1% of the issued share capital at the beginning of the year. All shares bought back by the Company during the year were subsequently cancelled.
At the Annual General Meeting held on 8 May 2017, shareholders authorised the Directors to allot new Ordinary Shares to participating shareholders. The dividend payments made in the year were eligible for the Scheme and the following shares were allotted:
| Dividend payment date | Dividend amount (p) |
No. of new Ordinary Shares allotted under the Scheme |
Allotment date | Issue price (p) |
|---|---|---|---|---|
| 17 March 2017 | 7.00 | 706,138 | 17 March 2017 | 90.86 |
| 11 September 2017 | 18.00 | 2,225,865 | 11 September 2017 | 79.25 |
| 21 December 2017 | 3.00 | 552,683 | 21 December 2017 | 76.00 |
| Total | 28.00 | 3,484,686 |
Shareholders wishing to join or leave the Scheme should submit a mandate form, if joining, or submit a written instruction requesting to leave the Scheme to Link Asset Services, the Scheme Administrator. Link Asset Services can be contacted on +44 (0) 371 664 0324. Telephone lines are open 9.00 am – 5.30 pm Mon – Fri excluding public holidays in England and Wales.
A copy of the Scheme rules and Scheme mandate form can be obtained from the Company's website, www.mig4vct.co.uk.
The names of and brief biographical details on each of the Directors are given on page 25 of this Annual Report.
So far as each of the Directors in office at 31 December 2017 are aware, there is no relevant audit information of which the auditor is unaware. They have individually taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.
The Directors have individually entered into Deeds of indemnity with the Company which indemnifies each Director, subject to the provisions of the Companies Act 2006 and the limitations set out in each deed, against any liability arising out of any
claim made against him or her in relation to the performance of their duties as Directors of the Company. Copies of each Deed of indemnity entered into by the Company for the Directors are available at the registered office of the Company.
The Company maintains a Directors' and Officers' liability insurance policy. The policy does not provide cover for fraudulent or dishonest actions by the Directors.
The Board recognises its obligations under Section 414c of the Companies Act to provide information in this respect about environmental matters (including the impact of the Company's business on the environment), human rights and social and community issues, including information
Reports of the Directors about any policies the Company has in relation to these matters and the effectiveness of these policies.
The Board seeks to maintain high standards of conduct in respect of ethical, environmental, governance and social issues and to conduct the Company's affairs responsibly. It considers relevant social and environmental matters when appropriate and particularly with regard to investment decisions. The Investment Adviser encourages good practice within the companies in which the VCT invests. The Board seeks to avoid investing in certain areas which it considers to be unethical and does not invest in companies which do not operate within relevant ethical, environmental and social legislation or otherwise fail to comply with appropriate industry standards. Environmental, social and governance issues are identified by the Investment Adviser prior to each investment and are drawn to the attention of the Board where appropriate.
The Company does not have any employees or officers and the Board therefore believes that there is limited scope for developing environmental, social or community policies. The Company has however adopted electronic communications for shareholders as a means of reducing the volume of paper that the Company uses to produce its reports. It uses mixed source paper from well-managed forests as endorsed by the Forest Stewardship Council for the printing of its circulars and annual and half-year reports. The Investment Adviser is conscious of the need to reduce its impact on the environment and has taken a number of initiatives in its offices including recycling and the reduction of its energy consumption.
The Board seeks to conduct the Company's affairs responsibly and gives full consideration to the human rights implications of its decisions, particularly with regard to investment decisions.
The VCT has adopted a zero tolerance approach to bribery. The following is a summary of the Company's policy:
• It is the Company's policy to conduct all of its business in an honest and ethical manner. The Company is
committed to acting professionally, fairly and with integrity in all its business dealings and relationships where it operates.
The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013, (including those within the Company's underlying investment portfolio).
The Board has considered the recommendation made in the UK Corporate Governance Code with regard to a policy on whistleblowing and has reviewed the arrangements at the Investment Adviser under which staff may, in confidence, raise concerns. It has concluded that adequate arrangements are in place at the Investment Adviser for the proportionate and independent investigation of such matters and, where necessary, for appropriate follow-up action to be taken by the Investment Adviser. The Board has also asked each of its service providers to confirm that they have a suitable whistleblowing policy in place.
The Company has adopted a zero tolerance approach towards the criminal facilitation of tax evasion and the corporate criminal offence of failing to take reasonable steps to prevent the facilitation of tax evasion in compliance with the Criminal Finances Act
The main risks arising from the Company's financial instruments are due to fluctuations in market prices, investment risk, liquidity risk, interest rates and credit risk. The Board regularly reviews and agrees policies for managing these risks and full details can be found in Note 15 to the Financial Statements on pages 57 to 63 of this Annual Report.
For a full list of the post balance sheet events that have occurred since 31 December 2017, please see Note 18 to the Accounts on page 64.
The Company may amend its articles of association ("the Articles") by special resolution in accordance with section 21 of the Companies Act 2006.
As at the date of this report the Company had not been notified of any beneficial interest exceeding 3% of the issued share capital.
The European Union's Packaged Retail Investment and Insurance based Products ("PRIIP"s) Regulations cover VCTs and require boards to prepare a key information document ("KID") in respect of their companies. Your Company's KID is available on the Company's website. Investors should note that the processes for calculating the risks, costs and potential returns in the KID are prescribed by EU law and the Company has no discretion over the format or content of the document. The illustrated performance returns in the KID cannot be guaranteed and, together with the prescribed cost calculation and risk categorisation, may not reflect figures for the Company derived using other methods. Accordingly the Board recommends that investors also take account of information from other sources, including the Annual Report.
The Notice of the Annual General Meeting (AGM), which will be held at 11.30 am on Friday 11 May 2018 at The Clubhouse, 8 St James's Square, London SW1Y 4JU, is set out on pages 69 to 71 of this Annual Report. A proxy form for the meeting is enclosed separately with shareholders' hard copies of this Annual Report. Proxy votes may also be submitted electronically via the Link Shareholder Portal www.signalshares.com.
Resolutions 1 to 8 are being proposed as ordinary resolutions requiring more than 50% of the votes cast at the meeting to be in favour and resolutions 9 and 10 will be proposed as special resolutions requiring the approval of at least 75% of the votes cast at the meeting.
The following is an explanation of the main Resolutions to be proposed at the meeting:
These two resolutions grant the Directors the authority to allot shares for cash to a limited and defined extent otherwise than pro rata to existing shareholders.
Resolution 8 will enable the Directors to allot new shares up to an aggregate nominal value of £287,323, representing approximately 41.85% of the Company's existing issued share capital as at the date of the notice convening the AGM.
Under section 561(1) of the Companies Act, if the Directors wish to allot new shares or sell or transfer treasury shares for cash they must first offer such shares to existing shareholders in proportion to their current holdings. It is proposed by Resolution 9 to sanction the disapplication of such pre-emption rights in respect of the allotment of equity securities:
(iii) otherwise than pursuant to (i) and (ii) above, of equity securities with an aggregate nominal value of up to, but not exceeding, 10% of the issued share capital of the Company from time to time,
in each case where the proceeds may be used in whole or in part to purchase the Company's shares in the market.
The Company does not currently hold any shares as treasury shares.
Both of these authorities, unless previously renewed, varied or revoked, will expire on the date falling fifteen months after the passing of the resolution or, if earlier, on the conclusion of the annual general meeting of the Company to be held in 2019. However, the Directors may allot securities after the expiry dates specified above in pursuance of offers or agreements made prior to the expiration of these authorities. Both resolutions renew previous general authorities approved by shareholders at the Annual General Meeting of the Company held on 8 May 2017.
This resolution authorises the Company to purchase its own shares pursuant to section 701 of the Companies Act. The authority is limited to the purchase of an aggregate of 10,292,334 shares representing approximately 14.99% of the issued share capital of the Company as at the date of the Notice of the Meeting or, if lower, such number of shares (rounded down to the nearest whole share) as shall equal 14.99% of the issued share capital at the date the resolution is passed. The maximum price that may be paid for a share will be the higher of (i) an amount that is not more than 5% above the average of the middle market quotations of the shares as derived from the Daily Official List of the UK Listing Authority for the five business days preceding the date such shares are contracted to be purchased and (ii) the price stipulated by Article 5(1) of the Buy-back and Stabilisation Regulation. The minimum price that may be paid for a share is 1 penny, being the normal value thereof.
Market liquidity in VCTs is normally very restricted. The passing of this resolution will enable the Company to purchase its own shares thereby providing a
mechanism by which the Company may enhance the liquidity of its shares and seek to manage the level and volatility of the discount to NAV at which its shares may trade.
It is the Directors' intention to cancel any shares bought back under this authority. Shareholders should note that the Directors do not intend to exercise this authority unless they believe that to do so would result in an increase in net assets per share which would be in the interests of shareholders generally. This resolution will expire on the date falling fifteen months after the passing of this resolution or, if earlier, on the conclusion of the Company's annual general meeting to be held in 2019 except that the Company may purchase its own shares after this date in pursuance of a contract or contracts made prior to the expiration of this authority.
The Board recommends that shareholders vote in favour of the resolutions to be proposed at the Annual General Meeting, as the Directors intend to do in respect of their own beneficial holdings of 86,679 shares (representing 0.13% of the issued share capital as at 20 March 2018, this being the latest practicable date prior to publication of this document).
At general meetings of the Company, each shareholder has one vote on a show of hands, and one vote per share held on a poll. No member shall be entitled to vote or exercise any rights at a general meeting unless all shares held by them have been paid up in full. Any instrument of proxy must be deposited at the place specified by the Directors no later than 48 hours before the time fixed for the meeting (ignoring any part of a day that is not a working day).
There are no restrictions on voting rights and no agreements between holders of securities that may prevent or restrict the transfer of securities or voting rights.
By order of the Board
Mobeus Equity Partners LLP Company Secretary
20 March 2018
The Directors have adopted the Association of Investment Companies (AIC) Code of Corporate Governance 2016 ("the AIC Code") for the financial year ended 31 December 2017. The Board has considered the principles and recommendations of the AIC Code by reference to the AIC Corporate Governance Guide for investment companies ("AIC Guide"). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code ("the UK Code"), as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company.
The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Code), will provide the most appropriate information to shareholders.
The AIC Code was endorsed by the Financial Reporting Council (FRC) on 14 July 2016. In adopting the AIC Code, the Company will therefore meet its obligations in relation to the UK Code and paragraph 9.8.6 of the Listing Rules.
This statement has been compiled in accordance with the FCA's Disclosure and Transparency Rule (DTR) 7.2 on Corporate Governance Statements.
The Board considers that the Company has complied with the recommendations of the AIC Code and relevant provisions of the UK Code throughout the year under review. A table providing further explanations of how the Company has complied with the AIC Code during the year is available in the Corporate Governance section of the Company's website: www.mig4vct.co.uk.
As an externally managed VCT, most of the Company's operations are delegated to third parties and the Company has no executive directors, employees or internal operations. The Board has therefore concluded, for the reasons set out in the AIC Guide, that not all the provisions of the UK Code are relevant to the Company. Firstly, as the Company does not employ a chief executive, nor any executive directors, the provisions of the AIC Code relating to the rate of the chief executive and executive director's remuneration are not relevant to the Company. Secondly,
the systems and procedures of the Investment Adviser, the provision of VCT monitoring services by Philip Hare & Associates LLP, as well as the size of the Company's operations, give the Board full confidence that an internal audit function is not necessary. The Company has therefore not reported further in respect of these provisions.
Additional information relevant to the corporate governance of the Company is set out on the following pages:
The Board acknowledges that it is responsible for the Company's system of internal control and for reviewing its effectiveness. Internal control systems are designed to manage the particular needs of the Company and the risks to which it is exposed and can by their nature only provide reasonable and not absolute assurance against material misstatement or loss.
The Company's internal control system aims to ensure the maintenance of proper accounting records, the reliability of the finance information used for publication and upon which business decisions are made, and that the assets of the Company are safeguarded. The financial controls operated by the Board include regular reviews of signing authorities, quarterly management accounts and the processes by which investments in the portfolio are valued. The Board also provides authorisation of the Investment Policy and regular reviews of the financial results and investment performance.
The Board has put in place ongoing procedures for identifying, evaluating and managing the significant risks faced by the Company. As part of this process an annual review of the control systems is carried out. The review covers a consideration of the key business, operational, compliance and financial risks facing the Company and includes a review of the risks in relation to the financial reporting process. The Board reviews a schedule of key risks and the management accounts at each quarterly Board meeting. It is assisted by the Audit Committee in respect of the Annual and Half-Year Reports and other published financial information.
The Board has delegated, contractually to third parties, the management of the investment portfolio, the day-to-day
accounting, company secretarial and administration requirements and the registration services. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of services offered, including the financial control systems in operation at the service providers in so far as they relate to the affairs of the Company. The Board regularly monitors these controls from a risk perspective and receives reports from the Registrar and Investment Adviser and Administrator when appropriate.
The Board, assisted by the Audit Committee, carries out separate assessments in respect of the Annual and Half-Year Reports and other published financial information. As part of these reviews, the Board appraises all the relevant risks ensuing from the internal control process referred to above. The main aspects of the internal controls which have been in place throughout the year in relation to financial reporting are:
The system of internal control and the procedure for the review of control systems has been in place and operational throughout the year under review and up to the date of this Report. The Audit Committee and the Board carried out an assessment of the effectiveness of internal controls in managing risk was conducted on the basis of reports from the relevant service providers. The last review took place on 13 March 2018. The Board has identified no significant problems with the Company's internal control mechanisms.
The fees paid to the Investment Adviser are set out in Note 4 to the Financial Statements on page 48.
In addition, the Investment Adviser received fees totalling £285,904 (2016: £219,348) during the year ended 31 December 2017, being £99,523 (2016: £62,480) for arrangement fees, and £186,381 (2016: £156,868) for acting as non-executive directors on a number of investee company boards. These amounts are the share of such fees attributable to investments made by the Company and are paid by the investee company.
The Board appointed the Company as its own AIFM in compliance with the European Commission's Alternative Investment Fund Management Directive with effect from 22 July 2014. The Company is registered as a small AIFM, and is therefore exempt from the principal requirements of the Directive. Mobeus continues to provide investment advisory and administrative services to the Company. However, in order for the Company to continue to discharge its safekeeping responsibilities for the documents of title to its investments, Mobeus company secretarial staff are now directly responsible to the Board, under its instruction, for accessing and dealing with these documents.
The powers of the Directors have been granted by company law, the Company's articles of association ("the Articles") and resolutions passed by the Company's members in general meeting. Resolutions are proposed annually at each annual general meeting of the Company to authorise the Directors to allot shares, disapply the pre-emption rights of members and buyback the Company's own shares on behalf of the Company. These authorities are currently in place and resolutions to renew them will be proposed at the Annual General Meeting of the Company to be held on 11 May 2018.
The Board (Chaired by Christopher Moore) has agreed a schedule of matters specifically reserved for decision by the Board. These include compliance with the requirements of the Companies Act 2006 and the Income Tax Act 2007, the UK Listing Authority and the London Stock Exchange; strategy and management of the Company; changes relating to the Company's capital structure or its status as a plc; financial reporting and controls; board and committee appointments as recommended by the Nomination and Remuneration Committee and terms of reference of committees; material contracts of the Company and contracts of the Company not in the ordinary course of business.
Christopher Moore and Helen Sinclair have both served on the Board for more than nine years and in accordance with the recommendation of the AIC Code of Corporate Governance and the Company's Policy on tenure, have agreed to stand for re-election annually. Andrew Robson in conjunction with his fellow Directors also offers himself for re-election at the forthcoming Annual General Meeting.
Following the performance evaluation of the Directors during the year, the Board confirms that each of Christopher Moore, Helen Sinclair, and Andrew Robson continue to demonstrate commitment to their roles and to be effective in carrying out their duties on behalf of the Company.
Copies of the Directors' appointment letters will be available for inspection at the place of the Annual General Meeting for at least fifteen minutes prior to and during the meeting.
The Board has established three Committees, the Nomination and Remuneration Committee, the Investment Committee and the Audit Committee, each with responsibilities for specific areas of its activity. Each of the Committees have written terms of reference, which detail their authority and duties. Shareholders may obtain copies of these by making a written request to the Company Secretary or by downloading these documents from the Company's website: www.mig4vct.co.uk .
The Board has satisfied itself that each of its Committees has sufficient resources to undertake its duties.
The Nomination and Remuneration Committee is chaired by Andrew Robson and comprises all three Directors.
A full description of the work of the Committee with regard to remuneration is included within the Directors' Remuneration Report on page 34.
In considering nominations, the Committee is responsible for making recommendations to the Board concerning new appointments of Directors to the Board and its committees; the periodic review of the composition of the Board and its committees; and the annual performance review of the Board, the Directors and the Chairman. This includes the ongoing review of each Director's actual or potential conflicts of interest which may arise as a result of the external business activities of Board members. No appointments were made during the year under review. The Board has made a commitment to consider diversity, including gender as part of the recruitment process for future appointments.
The Investment Committee is chaired by Helen Sinclair and comprises all three Directors.
The Committee meets as necessary to consider the investment proposals put forward by the Investment Adviser. The Committee advises the Board on the development and implementation of the Investment Policy and leads the process for the ongoing monitoring of investee companies and the Company's investment therein. Investment guidance has been issued to the Investment Adviser and the Committee ensures that this guidance is adhered to. New investments and divestments are approved by written resolution of the Committee following discussion between Committee members and are subsequently ratified by the Board. Investment matters are discussed extensively at Board meetings. During the year, the Committee formally approved all investments, divestments and variation decisions and met informally on numerous occasions.
The Committee considers and agrees, on the advice of the Investment Adviser for recommendation to the Board, all unquoted investment valuations. Investments are valued in accordance with the International Private Equity and Venture Capital (IPEV) Valuation Guidelines under which investments are valued at fair value as defined in those guidelines. Any AIM or other quoted investment will be valued at the closing bid price of its shares as at the relevant reporting date, in accordance with generally accepted accounting practice.
The main risks arising from the Company's financial instruments are due to investment risk, liquidity risk, credit risk, fluctuations in market prices (market price risk), cash flow interest rate risk and currency risk. The Board regularly reviews and agrees policies for managing these risks and full details can be found in Note 15 to the Accounts on pages 57 to 6 3 of this Annual Report.
Mobeus acts as Investment Adviser and provides administrative and company secretarial services to the Company.
The Directors carry out an Annual Review of the performance of and contractual arrangements with the Investment Adviser. The annual review of the Investment Adviser forms part of the Board's overall internal control procedures as discussed elsewhere. As part of this review, the Board considers the quality and continuity of the investment management team, investment performance, quality of information provided to the Board, remuneration of the Investment Adviser, the investment process and the results achieved to date. A review of the performance of the Company is included in the Strategic Report on pages 4 to 24. The Board concluded that the Investment Adviser has performed consistently well over the medium term and has returned a [good] performance in respect of the year under review. The Company's investment portfolio has performed well and the Investment Adviser has been proactive in responding to the changes to VCT regulation. Compared to the prior year, there has been an increase in both the number of investments made and the pipeline of available investment opportunities.
The Board places significant emphasis on the Company's performance against its peers and further information on this has been included in the Strategic Report on page 6. The Board further considered the Investment Adviser's commitment to the promotion of the Company and was satisfied that this was highly prioritised by the Investment Adviser as evidenced by, inter alia, the Mobeus fundraisings which had taken place between 2010 and 2018 and the annual shareholder events.
The Board considers that the Investment Adviser continues to exercise independent judgment while producing valuations which reflect fair value. Overall, the Board continues to believe that the Investment Adviser possesses the experience, knowledge and resources that are required to support the Board in achieving the Company's long term investment objectives. The Directors therefore believe that the continued appointment of Mobeus as Investment Adviser to the Company on terms currently agreed is in the interests of shareholders and this was formally approved by the Board on 13 March 2018.
The principal terms of the Company's Investment Management Agreement dated 12 November 2010 and the previous contractual arrangements prior to this date are set out in Note 4 to the Accounts on page 48 of this Annual Report. The Board seeks to ensure that the terms of these Agreements represent an appropriate balance between cost and incentivisation of the Investment Adviser.
By order of the Board
Company Secretary 20 March 2018
The Audit Committee is chaired by Andrew Robson and comprises all three Directors. A summary of the Audit Committee's principal activities for the year to 31 December 2017 is provided below:
Following the disengagement of BDO from the provision of Tax Compliance Services in respect of years ending 31 December 2017 onwards as a result of EU Regulation, tenders have been sought from other audit firms for the provision of this work. As a result of the tender process Philip Hare & Associates LLP has been appointed to provide such services for the coming financial year.
The Half-Year and Annual Reports to shareholders were thoroughly reviewed by the Committee prior to submission to the Board for approval.
The Committee has monitored the system of internal controls throughout the year under review as described in more detail in this Report on page 29. It receives a report by exception on the Company's progress against its internal controls at its annual and half-year results meetings and reviews a schedule of key risks at each meeting. A full review of the internal controls in operation by the Company was undertaken by the Committee on 13 March 2018.
The Investment Adviser prepared valuations of the investments in the portfolio at the end of each quarter and these were considered in detail and agreed by the Investment Committee for recommendation to the Board. The Audit Committee continued to monitor the adequacy of the controls over the preparation of these valuations. As part of this process, it focused on ensuring that both the bases of the valuations and any assumptions used were reasonable and in accordance with the IPEV Valuation Guidelines. The Committee received a report on the valuations from the external auditor as part of both the year-end audit process and the half-year review. These reports were discussed by the Committee with the Auditor and the Investment Adviser before a recommendation to
approve the valuations was made to the Board.
The valuation methodology in respect of the capital growth investments has been under discussion during the year. Following consultations, a valuation methodology has been arrived at, in respect of certain of the growth investments, the valuation methodology is now turnover based rather than earnings based. This is an evolving process and is subject to periodic review.
The key accounting and reporting issues considered by the Committee in addition to those described above during the year included:
The Committee monitors the Company's resources at each quarterly board meeting and has satisfied itself that the Company has an adequate level of resources for the foreseeable future. It has assessed the viability of the Company for three years and beyond. Consideration is given to the cash balances and holdings in money market funds, together with the ability of the Company to realise its investments. See page 24 of the Strategic Report for further details.
If an investment has been impaired such that there is no realistic expectation that there will be a full return from the investment, the loss is treated as a permanent impairment and is recognised as a realised loss in the Financial Statements. The Committee reviews the appropriateness and completeness of such impairments.
The Company engages the services of a VCT Status Adviser (Philip Hare & Associates LLP) to advise on its ongoing compliance with the legislative requirements relating to VCTs. A report on the Company's compliance supported by the tests carried out is produced by the VCT Status Adviser on a bi-annual basis and reviewed by the Committee for recommendation to the Board. The Committee has continued to consider the risk and compliance aspects of changes to the VCT Rules introduced by the Finance Act (No 2) 2015 and the recent measures contained in the Autumn Budget of
November 2017. As an essential part of this work, the Committee has held ongoing discussions with the Company's VCT Status Adviser throughout the year.
The Committee notes that revenue from loan stock and dividends may be uncertain given the type of companies in which the VCT invests. Dividends in particular may be difficult to predict. The payments received however have a direct impact on the level of income dividends the Company is able to pay to shareholders. The Committee agrees policies for revenue recognition and reviews their application at each of its meetings. It considers schedules of income received and receivable from each of the investee companies and assesses, in consultation with the Investment Adviser, the likelihood of receipt of each of the amounts.
The Board has identified the key risks faced by the Company and established appropriate controls (as disclosed in the Strategic Report on page 23). The Committee monitors these controls and reviews any incidences of noncompliance. Further details are set out in the section of this report that discusses the Company's system of internal controls (page 29).
The Board has sought assurances during the year from both the Investment Adviser and the Registrars and other service providers concerning their cyber security procedures and policies. Assurances had been provided by these principal service providers.
In compliance with The Criminal Finances Act 2017 the Company adopted a zero tolerance towards the criminal facilitation of tax evasion. An outline of the policy is available on page 27 of the Annual Report.
The Committee is responsible for overseeing the relationship with the external Auditor, assessing the effectiveness of the external audit process and making recommendations on the
appointment and removal of the external Auditor. It makes recommendations to the Board on the level of audit fees and the terms of engagement for the Auditor. The external Auditor is invited to attend Audit Committee meetings, where appropriate, and also meets with the Committee and its Chairman without representatives of the Investment Adviser being present.
The Committee undertook an audit tender process in 2016 in compliance with the requirements on audit firm rotation under the European Audit Regulation Directive. As a consequence of that process, BDO were reappointed. BDO, or its predecessor firms, has been the independent auditor to the Company since 2008.
The Audit Committee also undertakes an annual review of the external Auditor and the effectiveness of the audit process on an annual basis. When assessing the effectiveness of the process, the Committee considers whether the Auditor:
This review constituted the Audit Committee's annual assessment of the effectiveness of the external audit process. The Audit Committee concluded that the re-appointment of BDO LLP is in the best interest of the Company and shareholders and the Board recommends their re-appointment by shareholders at the forthcoming AGM.
The Board regularly reviews and monitors the external Auditor's independence and objectivity. As part of this it reviews the nature and extent of services supplied by the Auditor to ensure that independence is maintained.
The Committee has reviewed the implications of the Financial Reporting Council's ("FRC") Ethical Reporting Standard 2016 which includes a list of prohibited non-audit services that cannot be provided by the external Auditor.
The Audit Committee has, on the advice of the external Auditor, concluded that it is in the interests of the Company to purchase certain non-audit services, such as tax compliance services, from a separate firm. BDO will continue to provide some non-audit services, namely, iXBRL tagging and a review of the Half-Year Report. The services paid for during the year were tax compliance services and iXBRL tagging in respect of the prior year and the half-year report. Arising from the review above and after consultation with the Auditor, the agreement to receive tax compliance services from the auditor was terminated before the year end and Philip Hare & Associates LLP has been appointed to provide tax compliance services in respect of the current financial year.
Subsequent to its review, the Audit Committee was satisfied that the audit independence had been maintained as the fees involved were relatively small compared to those for the audit. Also, with the exception of the half-year review the work is undertaken by separate teams and none of the services involved undertaking any management role in preparing the information reported in the Financial Statements.
Disclosures required by certain publiclytraded companies as set out in Part 6 of Schedule 7 of the Large and Mediumsized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended 2013) are contained in the Directors' Report on page 27.
By order of the Board
Company Secretary 20 March 2018
This Report has been prepared by the Directors in accordance with the requirements of Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, the Companies Act 2006 and the Listing Rules of the UK Listing Authority ("the Listing Rules").
The Company's independent auditor is required to give its opinion on the information provided on Directors' emoluments and Director's interests on pages 36 and 37 of this Annual Report and this is explained further in the Auditor's report to shareholders on pages 39 to 41.
The resolution to approve the Directors' Remuneration Policy as set out in the Annual Report for the year ended 31 December 2016 was approved by shareholders at the Annual General Meeting of the Company held on 8 May 2017. It was agreed that this policy would be subject to shareholder approval every three years, therefore a resolution to approve Remuneration Policy will next be put to shareholders at the Annual General Meeting of the Company in 2020.
The resolution to approve the Directors' Annual Remuneration Report as set out in the Annual Report for the year ended 31 December 2016 was approved by shareholders at the Annual General Meeting of the Company held on 8 May 2017. An ordinary resolution will be proposed at the forthcoming Annual General Meeting of the Company to be held on 11 May 2018 for the approval of the Annual Remuneration Report as set out below.
This report sets out the Company's forward looking Directors' Remuneration Policy and the Annual Remuneration Report which describes how this policy has been applied during the year.
The Committee has reviewed the fees paid in the year ended 31 December 2017 which have remained at the current level for four years. Following consideration it was decided to make changes to the level of fees paid. As part of this review it considered information on the fees paid
to directors of a peer group of VCTs of a similar size operating in its sector.
In recognition of the increased level of regulation and size of the Company, the Committee have recommended, with effect from 1 July 2018, an increase in Director's fees, from £25,000 to £27,000 for the Chairman, and £20,000 to £21,000 for Directors, as well as an increased supplement for the members of the Audit committee from £2,500 to £5,000. This is the first amendment to Directors' remuneration since 2013. Board members will continue to receive an unchanged supplement of £6,000 for membership of the Investment Committee.
Chairman of the Nomination and Remuneration Committee 20 March 2018
The remuneration policy is set by the Board on the recommendation of the Nomination and Remuneration Committee and is unchanged from last year. In determining the Company's remuneration policy, the Committee seeks to determine a level of fees appropriate to attract and retain individuals of sufficient calibre to lead the Company in achieving its strategy. When considering the level of Directors' fees, it takes account of the required workload and responsibilities of each role and the value and amount of time that a Director is required to commit to the Company. It further considers remuneration levels elsewhere in the Venture Capital Trust industry for companies of a similar size and structure, together with other relevant information.
The level of fees paid to each of the Directors is reviewed annually by the Nomination and Remuneration Committee which makes recommendations to the Board.
The Committee has access to independent advice where and when it considers appropriate. However, it was not considered necessary to take any such advice during the year under review.
In addition to the £20,000 paid to Directors (£25,000 paid to Christopher Moore as Chairman) supplements are paid to the Directors in respect of their
membership of the Investment (£6,000) and Audit (£2,500) Committees. The Directors may at their discretion pay additional sums in respect of specific tasks carried out by individual Directors on behalf of the Company.
Since all the Directors are non-executive, the Company is not required to comply with the executive director's provisions of the Listing Rules, the UK Corporate Governance Code and the AIC Code of Corporate Governance in respect of Directors' remuneration, except in so far as they relate specifically to non-executive directors.
Whilst it is a key element of this policy to recruit directors of the calibre required to lead the Company in achieving its short and long-term objectives no component of the fees paid is directly related to performance.
All the Directors are non-executive and the Company does not provide pension benefits to any of the Directors.
The Company does not have any schedules in place to pay bonuses or benefits to the Directors. No arrangements have been entered into between the Company and the Directors to entitle any of the Directors to compensation for loss of office. The Company has not granted any Director any options over the share capital of the Company.
Remuneration of any new Director, who may subsequently be appointed to the Board, will be in line with the Remuneration Policy set out in this Report and the levels of remuneration stated therein, as modified from time to time.
The Board prioritises the views of shareholders and encourages an open discussion at general meetings of the Company. It takes shareholders' views into account, where appropriate, when formulating its remuneration policy.
This policy applied throughout the year ended 31 December 2017 and will continue to apply to the current year ending 31 December 2018.
Christopher Moore and Helen Sinclair have agreed to offer themselves for re-election annually as both of these Directors have served on the Board for more than nine years and Helen Sinclair is considered to be a non-independent Director as explained on page 34. Andrew Robson has also agreed to offer himself for re-election annually.
All of the Directors are non-executive and none of the Directors has a service contract with the Company.
All Directors receive a formal letter of appointment setting out the terms of their appointment and their specific duties and responsibilities and the fees pertaining to their appointment. A Director's appointment may be terminated on three months' notice being given by the Company and in certain other circumstances. New Directors are asked to undertake that they have sufficient time to carry out their responsibilities to the Company and to discover their other significant time commitments to the Board before appointment.
New Directors are asked to undertake that they will have sufficient time to carry out their responsibilities to the Company and to disclose their other significant time commitments to the Board before appointment.
A resolution to approve the Directors' Remuneration Policy as set out in the Annual Report for the year ended 31 December 2016 was approved unanimously by shareholders on a show of hands at the Annual General Meeting held on 8 May 2017. The Company also received proxy votes in favour of the resolution representing 92.25% (including those who appointed the Chairman to vote at his discretion) of the votes received (against 7.75%).
The Board is required to ask shareholders to approve the Remuneratiuon Policy every three years. The Directors will
therefore recommend that shareholders approve the Policy again at the Annual General Meeting of the Company to be held in 2020.
This policy applied throughout the financial year ended 31 December 2017 and will continue to apply to the current financial year ended 31 December 2018.
The table below illustrates how the Company's Objective is supported by its Remuneration Policy. It sets out details of each component of the pay package and the maximum amount receivable per annum by each Director. The Nomination and Remuneration Committee and the Board review the fees paid to Directors annually in accordance with the Remuneration Policy set out on page 34 and may decide that an increase in fees is appropriate in respect of subsequent years. In recognition of the increased level of regulation and size of the Company, the Committee have recommended, with effect from 1 July 2018, an increase in Director's fees, from £25,000 to £27,000 for the Chairman, and £20,000 to £21,000 for Directors, as well as an increased supplement for the members of the Audit committee from £2,500 to £5,000. This is the first amendment to Directors' remuneration since 2013. Board members will continue to receive an unchanged supplement of £6,000 for membership of the Investment Committee.
| Director Role |
Director's fees | Components of Pay Package Supplements payable to: Audit Investment Committee Committee Members Members |
Revised annual remuneration for the forthcoming year |
Performance conditions |
|||
|---|---|---|---|---|---|---|---|
| Christopher Moore Chairman |
£27,000 | £5,000 | £6,000 | £38,000 | None | ||
| Andrew Robson Chairman, Audit and Nomination & Remuneration Committees |
£21,000 | £5,000 | £6,000 | £32,000 | None | ||
| Helen Sinclair Chairman, Investment Committee |
£21,000 | £5,000 | £6,000 | £32,000 | None | ||
| Total fees payable | £69,000 | £15,000 | £18,000 | £102,000 |
To provide investors with an attractive return, by maximising the stream of dividend distributions from the income and capital gains generated by a diverse and carefully selected portfolio of investments, while continuing at all times to qualify as a VCT.
To ensure that the levels of remuneration paid are sufficient to attract, retain and motivate directors of the quality required to manage the Company in order to achieve the Company's Objective
The Directors' Remuneration Policy as set out on pages 34 and 35 of this Annual Report applied throughout the year ended 31 December 2017 and will continue to apply to the current year ending 31 December 2018.
A resolution to approve the Annual Remuneration Report was approved on a show of hands at the Annual General Meeting held on 8 May 2017. The Company received proxy votes in favour of the resolution representing 92.25% (including those who appointed the Chairman to vote at his discretion) of the votes received (against 7.75%).
The Committee comprises the full Board and is chaired by Andrew Robson. All members of the Committee are considered to be independent of the Investment Adviser with the exception of Helen Sinclair under the AIC Code (see the Corporate Governance section of the Company's website www.mig4vct.co.uk for further details). The Committee meets at least once a year and is responsible for making recommendations to the Board on remuneration policy and reviewing the policy's ongoing appropriateness and relevance. It carries out an annual review of the remuneration of the Directors and makes recommendations to the Board on
the level of Directors' fees. The Committee may, at its discretion, recommend to the Board that individual Directors should be awarded further payments in respect of additional work undertaken on behalf of the Company. It is responsible for the appointment of remuneration consultants, if this should be considered necessary, including establishing the selection criteria and terms of reference for such an appointment. However, it was not considered necessary to take any such advice during the year under review. The Committee met once during the year under review with full attendance from all its members. The Committee's duties in respect of Nominations to the Board are outlined on page 30 of the Annual Report.
| Year ended | |||||||
|---|---|---|---|---|---|---|---|
| 31 December 2017 £ |
31 December 2016 £ |
||||||
| Christopher Moore | 33,500 | 33,500 | |||||
| Andrew Robson | 28,500 | 28,500 | |||||
| Helen Sinclair | 28,500 | 28,500 | |||||
| Total | 90,500 | 90,500 |
£28,500 (2016: £28,500) of Christopher Moore's annual fee was paid to his consultancy business, The Moore Corporation.
The Company does not require the Directors to hold shares in the Company.
The Directors, however, believe that it is in the best interests of the Company and its shareholders for each Director to maintain an interest in the Company. The Directors who held office throughout the year under review and their interests as at 31 December 2017 were:
| 31 December 2017 | 31 December 2016 | ||||||
|---|---|---|---|---|---|---|---|
| Percentage of | Percentage of | ||||||
| Director | Shares held |
issued share capital |
Shares held |
issued share capital |
|||
| Christopher Moore | 52,529 | 0.08 | 41,359 | 0.08 | |||
| Andrew Robson | 19,288 | 0.03 | 14,820 | 0.02 | |||
| Helen Sinclair | 14,862 | 0.03 | 14,862 | 0.03 |
There have been no further changes to the Directors' share interests between the year-end and the date of this Annual Report.
| Year to 31 December 2017 |
Year to 31 December 2016 |
Percentage Increase/ (decrease) |
|
|---|---|---|---|
| £ | £ | % | |
| Total directors' fees |
90,500 | 90,500 | - |
| Dividends paid/payable in respect of the year |
10,970,781 | 4,412,802 | 148.6 |
| Share Buybacks |
408,125 | 244,575 | 66.9 |
The table below sets out the Directors' attendance at quarterly Board meetings and Committee meetings held during the year to 31 December 2017. In addition to the quarterly Board meetings, the Board met on other occasions to consider specific issues as they arose.
| Directors | Board Meetings (4) | Audit Committee Meetings (3) |
Nomination & Remuneration Committee Meetings (1) |
||||
|---|---|---|---|---|---|---|---|
| Eligible | Attended | Eligible | Attended | Eligible | Attended | ||
| Christopher Moore | 4 | 4 | 3 | 3 | 1 | 1 | |
| Andrew Robson | 4 | 4 | 3 | 3 | 1 | 1 | |
| Helen Sinclair | 4 | 4 | 3 | 3 | 1 | 1 |
The graph below charts the total shareholder return of the Company's shares on a share price basis (assuming all dividends are re-invested and excluding the tax relief available to shareholders) over the past nine years compared with that of an index of all VCTs and an index of generalist VCTs which are members of the AIC (based on figures provided by Morningstar). The Board considers these indices to be the most appropriate to use to measure the Company's relative performance over the medium to long term. The total shareholder returns have each been rebased to 100 pence at 31 January 2009.
share price plus cumulative dividends paid per share assuming the dividends paid were re-invested on the date on which the shares were quoted ex-dividend in respect of each dividend. An explanation of the performance of the
The share price total return comprises the
Company is given in the Chairman's Statement on pages 2 and 3, the Performance section of the Strategic Report on pages 4 to 6 and in the Investment Review and Investment Portfolio Summary on pages 16 to 21.
By order of the Board
Company Secretary 20 March 2018
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each financial year and the Directors have elected to prepare the Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these Financial Statements, the Directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for ensuring the Annual Report and the Financial Statements are made available on a website. Financial Statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of Financial Statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the Financial Statements contained therein.
The Directors confirm to the best of their knowledge that:
(a) The Financial Statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and the profit of the Company.
(b) The Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
Having taken advice from the Audit Committee, the Board considers the Annual Report and Financial Statements, taken as a whole, as fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
Neither the Company nor the Directors accept any liability to any person in relation to the Annual Report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A and schedule 10A of the Financial Services and Markets Act 2000.
The names and functions of the Directors are stated on page 25.
For and on behalf of the Board
Chairman
20 March 2018
We have audited the financial statements of Mobeus Income & Growth 4 VCT plc ("the Company") for the year ended 31 December 2017 which comprise the Income Statement, Balance Sheet, Statement of Changes in Equity, Statement of Cash Flows and Notes to the Financial Statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
In our opinion, the financial statements:
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard, as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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.
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to you whether we have anything material to add or draw attention to:
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We consider the valuation of investments to be the most significant audit area as there is a high level of estimation uncertainty involved in determining the unquoted investment valuations.
There is an inherent risk of management override arising from the unquoted investment valuations being prepared by the Investment Adviser, who is remunerated based on the net asset value of the Company.
The Company's accounting policy for assessing the fair value of investments is disclosed on page 52 in note 8 along with disclosures regarding the fair value estimates.
Our sample for the testing of unquoted investments was stratified according to risk considering, inter alia, the value of individual investments, the nature of the investment, the extent of the fair value movement and the subjectivity of the valuation technique. A breakdown of the investment portfolio valuation technique is shown below.
For all Investments in our sample we:
● Challenged whether the valuation methodology was the most appropriate in the circumstances under the International Private Equity and Venture Capital Valuation ("IPEV") Guidelines and FRS 102;
For investments sampled that were valued using less subjective valuation techniques (cost and price of recent investment reviewed for changes in fair value) we:
companies;
● Recalculated the value attributable to the Company, having regard to the application of enterprise value across the capital structures of the investee
For investments sampled that were valued using more subjective techniques (earnings and revenue multiples) we:
● Challenged and corroborated the inputs to the valuation with reference to management information of investee companies, market data and
our own understanding and assessed the impact of the estimation uncertainty concerning these assumptions and the disclosure of these uncertainties in the financial statements;
Where appropriate, we performed a sensitivity analysis by developing our own point estimate where we considered that alternative input assumptions could reasonably have been applied and we considered the overall impact of such sensitivities on the portfolio of investments in determining whether the valuations as a whole are reasonable and free from bias.
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could reasonably influence the economic decisions of users that are taken on the basis of the financial statements.
Importantly, misstatements below this level will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
The application of these key considerations gives rise to two measures of materiality, the quantum and purpose of which are tabulated below. In setting materiality, we had regard to the nature and disposition of the investment portfolio.
Our audit approach was developed by obtaining an understanding of the Company's activities, the key functions undertaken by the Board and the overall control environment. Based on this understanding we assessed those aspects
| Materiality measure Basis |
Purpose | Key considerations | 2017 Quantum (£) |
2016 Quantum (£) |
|---|---|---|---|---|
| Financial Statement | Assessing whether the financial | The value of investments | 600,000 | 770,000 |
| Materiality 2% value of |
statements as a whole present a true and fair view. We consider this to be the key measurement for |
The level of judgement inherent in the valuation |
||
| investments | shareholders. | The range of reasonable alternative valuation |
||
| Specific Materiality – classes of transactions and balances which impact on revenue profits [10% revenue return before tax] |
Assessing those classes of transactions, balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. |
The level of net income return |
170,000 | 125,000 |
Performance materiality is application of materiality at the individual account or balance level set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessment together with our assessment of the Company's overall control environment, our judgment was that overall performance materiality for the Company should be 75% (2016: 75%) of materiality, namely £450,000 (2016: £578,000).
We agreed with the Audit Committee that we would report to the committee all individual audit differences in excess of £11,000 (2016: £9,000) as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no
Auditor's responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes
realistic alternative but to do so.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor's report.
decisions of users taken on the basis of
these financial statements.
Following a recommendation of the Audit Committee, we were appointed by The Board of Directors to audit the financial statements for the year ended 31 January 2008 and subsequent financial periods. We were reappointed as auditors in respect of the year ended 31 December 2016 by the Board. The period of total uninterrupted engagement is 11 years, covering the years ending 31 January 2008 to 31 December 2017.
The non-audit services prohibited by the FRC's Ethical Standard were not provided to the Company and we remain independent of the Company in conducting our audit.
Our audit opinion is consistent with the additional report to the Audit Committee.
(Senior Statutory Auditor) For and on behalf of BDO LLP, statutory auditor London, UK
Date 20 March 2018
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
of the Company's transactions and balances which were most likely to give rise to a material misstatement.
The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:
with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.
In our opinion, the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the
| Notes | Revenue | Year ended 31 December 2017 Capital |
Total | Revenue | Year ended 31 December 2016 Capital |
Total | |
|---|---|---|---|---|---|---|---|
| £ | £ | £ | £ | £ | £ | ||
| Unrealised losses on investments | 8 | - | (792,838) | (792,838) | - | (377,677) | (377,677) |
| Realised gains on investments | 8 | - | 4,142,375 | 4,142,375 | - | 381,087 | 381,087 |
| Income | 3 | 2,381,649 | - | 2,381,649 | 2,019,579 | - | 2,019,579 |
| Investment Adviser's fees | 4a | (293,312) | (879,937) (1,173,249) | (304,628) | (913,884) | (1,218,512) | |
| Other expenses | 4d | (422,206) | - | (422,206) | (370,899) | - | (370,899) |
| Profit/(loss) on ordinary activities | |||||||
| before taxation | 1,666,131 | 2,469,600 | 4,135,731 | 1,344,052 | (910,474) | 433,578 | |
| Taxation on profit/(loss) on ordinary activities | 5 | (286,870) | 169,388 | (117,482) | (212,864) | 182,776 | (30,088) |
| Profit/(loss) for the year and total | |||||||
| comprehensive income | 1,379,261 | 2,638,988 4,018,249 | 1,131,188 | (727,698) | 403,490 | ||
| Basic and diluted earnings per ordinary share | 6 | 2.60p | 4.99p | 7.59p | 2.32p | (1.49)p | 0.83p |
The revenue column of the Income Statement includes all income and expenses. The capital column accounts for the unrealised losses and realised gains on investments and the proportion of the Investment Adviser's fee charged to capital.
The total column is the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ("FRS"). In order to better reflect the activities of a VCT and in accordance with the 2014 Statement of Recommended Practice ("SORP") issued by the Association of Investment Companies ("AIC") and updated in January 2017, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The revenue column of profit attributable to equity shareholders is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 274 Income Tax Act 2007.
All the items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the year.
The notes on pages 47 to 64 form part of these Financial Statements.
| Notes | 31 December 2017 £ |
31 December 2016 £ |
|
|---|---|---|---|
| Fixed assets | |||
| Investments at fair value | 8 | 31,484,053 | 38,926,434 |
| Current assets | |||
| Debtors and prepayments | 10 | 3,166,996 | 860,011 |
| Current investments | 11 | 21,494,921 | 9,511,810 |
| Cash at bank | 11 | 2,847,849 | 3,662,074 |
| 27,509,766 | 14,033,895 | ||
| Creditors: amounts falling due within one year | 12 | (582,179) | (205,173) |
| Net current assets | 26,927,587 | 13,828,722 | |
| Net assets | 58,411,640 | 52,755,156 | |
| Capital and reserves | |||
| Called up share capital | 13 | 674,751 | 490,430 |
| Share premium reserve | 29,895,865 | 13,540,891 | |
| Capital redemption reserve | 14,589 | 9,342 | |
| Revaluation reserve | 517,952 | 1,152,007 | |
| Special distributable reserve | 20,029,787 | 31,646,338 | |
| Realised capital reserve | 6,346,235 | 4,702,557 | |
| Revenue reserve | 932,461 | 1,213,591 | |
| Equity shareholders' funds | 58,411,640 | 52,755,156 | |
| Basic and diluted net asset value per ordinary share | 14 | 86.57p | 107.57p |
The notes on pages 47 to 64 form part of these Financial Statements.
The Financial Statements were approved and authorised for issue by the Board of Directors on 20 March 2018 and were signed on its behalf by:
Christopher Moore
Chairman
| Notes | Called up share capital £ |
Share reserve £ |
Non-distributable reserves Capital premium redemption Revaluation reserve £ |
reserve £ |
Special distributable reserve (note a) £ |
Distributable reserves Realised capital reserve (note b) £ |
Revenue reserve (note b) £ |
Total £ |
|
|---|---|---|---|---|---|---|---|---|---|
| At 1 January 2017 Comprehensive income for the year |
490,430 13,540,891 | 9,342 | 1,152,007 | 31,646,338 | 4,702,557 | 1,213,591 52,755,156 | |||
| (Loss)/profit for the year | - | - | - | (792,838) | - | 3,431,826 | 1,379,261 | 4,018,249 | |
| Total comprehensive income for the year |
- | - | - | (792,838) | - | 3,431,826 | 1,379,261 | 4,018,249 | |
| Contributions by and distributions to owners Shares issued via Offer for Subscription (note c) |
13 | 154,721 | 13,570,259 | - | - | (94,364) | - | - | 13,630,616 |
| Dividends re-invested into new shares Shares bought back |
13 | 34,847 | 2,784,715 | - | - | - | - | - | 2,819,562 |
| (note d) Dividends paid |
13 7 |
(5,247) - |
- - |
5,247 - |
- - |
(408,125) (10,403,513) |
- (2,339,914) |
- | (408,125) (1,660,391) (14,403,818) |
| Total contributions by and distributions to owners |
184,321 16,354,974 | 5,247 | - (10,906,002) (2,339,914) (1,660,391) | 1,638,235 | |||||
| Other movements Realised losses transferred to special reserve (note a below) Realisation of previously unrealised depreciation |
- - |
- - |
- - |
- 158,783 |
(710,549) - |
710,549 (158,783) |
- - |
- - |
|
| Total other movements | - | - | - | 158,783 | (710,549) | 551,766 | - | - | |
| At 31 December 2017 | 674,751 29,895,865 | 14,589 | 517,952 | 20,029,787 | 6,346,235 | 932,461 58,411,640 |
Note a: The Special distributable reserve also provides the Company with a reserve to absorb any existing and future realised losses and, when considered by the Board to be in the interests of shareholders, to fund share buybacks and for other corporate purposes. All of this reserve originates from funds raised prior to 6 April 2014. The transfer of £710,549 to the special reserve from the realised capital reserve above is the total of realised losses incurred by the Company in the year.
Note b: The realised capital reserve and the revenue reserve together comprise the Profit and Loss Account of the Company.
Note c: Under the 2017/18 Offer, 15,472,097 shares were allotted between September and November 2017, raising net funds of £13,630,616 for the Company.
Note d: During the year, the Company purchased 524,730 of its own shares at the prevailing market price for a total cost of £408,125, which were subsequently cancelled.
| Non-distributable reserves | Distributable reserves | |||||||
|---|---|---|---|---|---|---|---|---|
| Notes | Called up share capital £ |
Share reserve £ |
Capital reserve £ |
reserve £ |
Special premium redemption Revaluation distributable reserve £ |
Realised capital reserve £ |
Revenue reserve £ |
Total £ |
| At 1 January 2016 Comprehensive income for the year |
483,562 12,629,944 | 6,827 | 1,545,364 | 32,622,021 | 8,422,420 | 1,297,644 57,007,782 | ||
| Profit for the year | - | - | - | (377,677) | - | (350,021) | 1,131,188 | 403,490 |
| Total comprehensive income for the year |
- | - | - | (377,677) | - | (350,021) | 1,131,188 | 403,490 |
| Contributions by and distributions to owners Shares issued via Offer for Subscription Dividends re-invested |
- | - | - | - | - | - | - | - |
| into new shares Shares bought back |
9,383 (2,515) |
910,947 - |
- 2,515 |
- - |
- (244,575) |
- - |
- - |
920,330 (244,575) |
| Dividends paid | - | - | - | - | - | (4,116,630) | (1,215,241) | (5,331,871) |
| Total contributions by and distributions to owners |
6,868 | 910,947 | 2,515 | - | (244,575) (4,116,630) (1,215,241) (4,656,116) | |||
| Other movements Realised losses transferred to special reserve Realisation of previously unrealised appreciation |
- - |
- - |
- - |
- (15,680) |
(731,108) - |
731,108 15,680 |
- - |
- - |
| Total other movements | - | - | - | (15,680) | (731,108) | 746,788 | - | - |
| At 31 December 2016 | 490,430 13,540,891 | 9,342 | 1,152,007 | 31,646,338 | 4,702,557 | 1,213,591 52,755,156 |
The composition of each of these reserves is explained below:
Called up share capital - The nominal value of shares originally issued increased for subsequent share issues either via an Offer for Subscription or Dividend Investment Scheme or reduced due to shares bought back by the Company.
Share premium reserve - This reserve contains the excess of gross proceeds less issue costs over the nominal value of shares allotted under recent Offers for Subscription and the Company's Dividend Investment Scheme.
Capital redemption reserve - The nominal value of shares bought back and cancelled is held in this reserve, so that the company's capital is maintained.
Revaluation reserve - Increases and decreases in the valuation of investments held at the year-end are accounted for in this reserve, except to the extent that the diminution is deemed permanent.
In accordance with stating all investments at fair value through profit and loss (as recorded in note 8), all such movements through both revaluation and realised capital reserves are shown within the Income Statement for the year.
Special distributable reserve - The cost of share buybacks is charged to this reserve. In addition, any realised losses on the sale or impairment of investments (excluding transaction costs), and 75% of the Investment Adviser fee expense, and the related tax effect, are transferred from the realised capital reserve to this reserve. The cost of any IFA facilitation fee payable as part of the Offer for Subscription is also charged to this reserve.
Realised capital reserve - The following are accounted for in this reserve:
Revenue reserve - Income and expenses that are revenue in nature are accounted for in this reserve together with the related tax effect, as well as income dividends paid that are classified as revenue in nature.
The notes on pages 47 to 64 form part of these Financial Statements.
| Notes | Year ended 31 December 2017 £ |
Year ended 31 December 2016 £ |
|
|---|---|---|---|
| Cash flows from operating activities | |||
| Profit for the financial year | 4,018,249 | 403,490 | |
| Adjustments for: | |||
| Net unrealised losses on investments | 792,838 | 377,677 | |
| Net gains on realisations of investments | (4,142,375) | (381,087) | |
| Tax charge for the current year | 117,482 | 30,088 | |
| Increase in debtors | (128,689) | (22,813) | |
| Increase/(decrease) in creditors | 289,612 | (102,175) | |
| Net cash inflow from operations | 947,117 | 305,180 | |
| Corporation tax paid | (30,088) | - | |
| Net cash inflow from operating activities | 917,029 | 305,180 | |
| Cash flows from investing activities | |||
| Sale of investments | 8 | 10,217,251 | 2,402,008 |
| Purchase of investments | 8 | (1,603,629) | (2,883,610) |
| Decrease in bank deposits with a maturity over three months | - | 85,130 | |
| Net cash inflow/(outflow) from investing activities | 8,613,622 | (396,472) | |
| Cash flows from financing activities | |||
| Share issued as part of Offer for Subscription (net of issue costs) | 13 | 13,630,616 | - |
| Equity dividends paid | 7 | (11,584,256) | (4,411,541) |
| Purchase of own shares | (408,125) | (243,995) | |
| Net cash inflow/(outflow) from financing activities | 1,638,235 | (4,655,536) | |
| Net increase/(decrease) in cash and cash equivalents | 11,168,886 | (4,746,828) | |
| Cash and cash equivalents at start of year | 11,173,884 | 15,920,712 | |
| Cash and cash equivalents at end of year | 22,342,770 | 11,173,884 | |
| Cash and cash equivalents comprise: | |||
| Cash at bank and in hand | 11 | 2,847,849 | 3,662,074 |
| Cash equivalents | 11 | 19,494,921 | 7,511,810 |
The notes on pages 47 to 64 form part of these Financial Statements.
Mobeus Income and Growth 4 VCT plc is a public limited company incorporated in England, registration number 03707697. The registered office is 30 Haymarket, London, SW1Y 4EX.
A summary of the principal accounting policies, all of which have been applied consistently throughout the year are set out next to the related disclosure throughout the Notes to the Financial Statements. All accounting policies are included within an outlined box at the top of each relevant note.
These financial statements have been prepared in accordance with applicable United Kingdom accounting standards, including Financial Reporting Standard 102 ("FRS102"), with the Companies Act 2006 and the 2014 Statement of Recommended practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('the SORP') (updated in January 2017) issued by the Association of Investment Companies. The company has a number of financial instruments which are disclosed under FRS102 s11/12 as shown in note 15.
Dividends receivable on quoted equity shares are brought into account on the ex-dividend date. Dividends receivable on unquoted equity shares are brought into account when the Company's right to receive payment is established and there is no reasonable doubt that payment will be received.
Interest income on loan stock is accrued on a daily basis. Provision is made against this income where recovery is doubtful or where it will not be received in the foreseeable future. Where the loan stocks only require interest or a redemption premium to be paid on redemption, the interest and redemption premium is recognised as income or capital as appropriate once redemption is reasonably certain.
When a redemption premium is designed to protect the value of the instrument holder's investment rather than reflect a commercial rate of revenue return, the redemption premium is recognised as capital. The treatment of redemption premiums is analysed to consider if they are revenue or capital in nature on a company by company basis. Accordingly, the redemption premium recognised in the year ended 31 December 2017 has been classified as capital and has been included within gains on investments.
| 2017 £ |
2016 £ |
|
|---|---|---|
| Income from bank deposits | 28,578 | 48,157 |
| Income from investments | ||
| – from equities | 176,448 | 106,043 |
| – from overseas based OEICs | 25,097 | 47,986 |
| – from loan stock | 2,145,824 | 1,817,393 |
| – from interest on preference share dividend arrears | 92 | - |
| 2,347,461 | 1,971,422 | |
| Other income | 5,610 | - |
| Total income | 2,381,649 | 2,019,579 |
| Total income comprises | ||
| Dividends | 201,545 | 154,029 |
| Interest | 2,174,494 | 1,865,550 |
| Other income | 5,610 | - |
| 2,381,649 | 2,019,579 |
Total loan stock interest due but not recognised in the year was £257,512 (2016: £446,862).
All expenses are accounted for on an accruals basis.
25% of the Investment Adviser's fees are charged to the revenue column of the Income Statement, while 75% is charged against the capital column of the Income Statement. This is in line with the Board's expected long-term split of returns from the investment portfolio of the Company.
100% of any performance incentive fee payable for the year is charged against the capital column of the Income Statement, as it is based upon the achievement of capital growth.
| Revenue | Capital | Total | Revenue | Capital | Total | |
|---|---|---|---|---|---|---|
| 2017 | 2017 | 2017 | 2016 | 2016 | 2016 | |
| £ | £ | £ | £ | £ | £ | |
| Mobeus Equity Partners LLP | 293,312 | 879,937 | 1,173,249 | 304,628 | 913,884 | 1,218,512 |
Under the terms of a revised investment management agreement dated 12 November 2010, Mobeus Equity Partners LLP ("Mobeus LLP") (formerly Matrix Private Equity Partners LLP ("MPEP") provides investment advisory, administrative and company secretarial services to the Company, for a fee of 2% per annum of closing net assets, calculated on a quarterly basis by reference to the net assets at the end of the preceding quarter, plus a fixed fee of £115,440 per annum, the latter being subject to indexation, if applicable. In 2013, Mobeus agreed to waive such further increases due to indexation, until otherwise agreed with the Board.
The Investment Adviser fee includes provision for a cap on expenses excluding irrecoverable VAT and exceptional items set at 3.4% of closing net assets at the year-end. In accordance with the investment management agreement, any excess expenses are borne by the Investment Adviser. The excess expenses during the year amounted to £nil (2016: £nil).
The Company is responsible for external costs such as legal and accounting fees, incurred on transactions that do not proceed to completion ("abort expenses") subject to the cap on total annual expenses referred to above.
In line with common practice, Mobeus Equity Partners LLP retain the right to charge arrangement and syndication fees and Directors' or monitoring fees to companies in which the Company invests. The Investment Adviser received fees totalling £285,904 (2016: £219,348) during the year ended 31 December 2017, being £99,523 (2016: £62,480) for arrangement fees, and £186,381 (2016: £156,868) for acting as non-executive directors on a number of investee company boards. These fees attributable to MIG 4 VCT are based upon the investment allocation to MIG4 VCT which applied at the time of each investment. These figures are not part of these financial statements.
Under the terms of a separate agreement dated 1 November 2006, from the end of the accounting period ending on 31 January 2009 and in each subsequent accounting period throughout the life of the company, the Investment Adviser will be entitled to receive a performance related incentive fee of 20% of the dividends paid in excess of a "Target Rate" comprising firstly, an annual dividend target of 6% of the net asset value per share at 5 April 2007 (indexed each year for RPI) and secondly a requirement that any cumulative shortfalls below the 6 per cent hurdle must be made up in later years, while any excess is not carried forward, whether a fee is payable for that year or not. Payment of a fee is also conditional upon the average Net Asset Value ("NAV") per share for each such year equalling or exceeding the average Base NAV per share for the same year. The performance fee will be payable annually. No incentive fee is payable to date.
| 2017 £(m) |
2016 £(m) |
|
|---|---|---|
| Funds raised by MIG4 VCT | 13.96 | - |
| Offer costs payable to Mobeus at 3.25% of funds raised by MIG4 VCT | 0.45 | - |
Under the terms of an Offer for Subscription, with the other Mobeus advised VCTs, launched on 6 September 2017, Mobeus is entitled to fees of 3.25% of the investment amount received from investors. This amount totalled £1.96 million for the first five allotments which took place between September and November 2017 across all four VCTs, out of which all the costs associated with the allotments were met, excluding any payments to advisers facilitated under the terms of the Offer.
Expenses are charged wholly to revenue, with the exception of expenses incidental to the acquisition or disposal of an investment, which are written off to the capital column of the Income Statement or deducted from the disposal proceeds as appropriate.
| 2017 | 2016 | |
|---|---|---|
| £ | £ | |
| Directors' remuneration (including NIC of £8,313 (2016: £8,327) (note i) | 98,813 | 98,827 |
| IFA trail commission | 86,124 | 73,779 |
| Broker's fees | 12,000 | 12,000 |
| Auditor's fees – Audit of Company (excluding VAT) | 23,832 | 21,525 |
| – audit related assurance services (excluding VAT) - note ii) | 4,562 | 4,203 |
| – tax compliance services (excluding VAT) note ii) | 1,358 | 3,752 |
| Registrar's fees | 65,302 | 40,518 |
| Printing | 42,480 | 38,171 |
| Legal & professional fees | 7,174 | 10,686 |
| VCT monitoring fees | 9,600 | 9,600 |
| Directors' insurance | 8,152 | 8,350 |
| Listing and regulatory fees | 53,507 | 40,680 |
| Sundry | 9,302 | 8,808 |
| Other expenses | 422,206 | 370,899 |
Note i): See analysis in Directors' Remuneration table on page 37, which excludes the NIC above. The key management personnel are the three non-executive directors. The Company has no employees.
Note ii): The Directors consider the Auditor was best placed to provide the audit related assurance services disclosed above relating to the audit of the Financial Statements of the Half Year Report. The Audit Committee reviews the nature and extent of these services to ensure that auditor independence is maintained. In this regard, compliance tax services, with effect from the current year, are to be carried out by another firm, so are included within legal and professional fees.
The tax expense for the year comprises current tax and is recognised in profit or loss. The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date.
Any tax relief obtained in respect of adviser fees allocated to capital is reflected in the capital reserve – realised and a corresponding amount is charged against revenue. The tax relief is the amount by which corporation tax payable is reduced as a result of these capital expenses.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Company's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in the tax assessments in periods different from those in which they are recognised in the financial statements.
Deferred tax is measured at the average tax rates that are expected to apply in the years in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax is measured on a non-discounted basis.
A deferred tax asset would be recognised only to the extent that it is more likely than not that future taxable profits will be available against which the asset can be utilised.
| 2017 Revenue £ |
2017 Capital £ |
2017 Total £ |
2016 Revenue £ |
2016 Capital £ |
2016 Total £ |
|
|---|---|---|---|---|---|---|
| a) Analysis of tax charge: | ||||||
| UK Corporation tax on profits for the year | 286,870 | (169,388) | 117,482 | 212,864 | (182,776) | 30,088 |
| Total current tax charge | 286,870 | (169,388) | 117,482 | 212,864 | (182,776) | 30,088 |
| Corporation tax is based on a rate of 19.25% (2016: 20%) |
||||||
| b) Profit/(loss) on ordinary activities | ||||||
| before tax | 1,666,131 | 2,469,600 | 4,135,731 | 1,344,052 | (910,474) | 433,578 |
| Profit/(loss) on ordinary activities multiplied | ||||||
| by company rate of corporation tax in the UK | ||||||
| of 19.25% (2016: 20%) | 320,730 | 475,398 | 796,128 | 268,810 | (182,095) | 86,715 |
| Effect of: | ||||||
| UK dividends not taxable | (33,966) | - | (33,966) | (21,209) | - | (21,209) |
| Unrealised losses/(gains) not taxable | - | 152,621 | 152,621 | - | 75,535 | 75,535 |
| Realised gains not taxable | - | (797,407) | (797,407) | - | (76,216) | (76,216) |
| Losses brought forward | - | - | - | (34,737) | - | (34,737) |
| Unrelieved expenditure | 106 | - | 106 | - | - | - |
| Actual tax charge | 286,870 | (169,388) | 117,482 | 212,864 | (182,776) | 30,088 |
Tax relief relating to investment adviser fees is allocated between revenue and capital where such relief can be utilised.
No asset or liability has been recognised for deferred tax in relation to capital gains or losses on revaluing investments as the Company is exempt from corporation tax in relation to capital gains or losses as a result of qualifying as a Venture Capital Trust.
There is no potential liability to deferred tax (2016: £nil). There is no unrecognised deferred tax asset in 2017 (2016: £nil).
| 2017 £ |
2016 £ |
|
|---|---|---|
| Total earnings after taxation: | 4,018,249 | 403,490 |
| Basic and diluted earnings per share (note a) | 7.59p | 0.83p |
| Net revenue return from ordinary activities after taxation | 1,379,261 | 1,131,188 |
| Basic and diluted revenue return per share (note b) | 2.60p | 2.32p |
| Net unrealised capital losses | (792,838) | (377,677) |
| Net realised capital gains | 4,142,375 | 381,087 |
| Capital expenses (net of taxation) | (710,549) | (731,108) |
| Total capital return | 2,638,988 | (727,698) |
| Basic and diluted capital return per share (note c) | 4.99p | (1.49)p |
| Weighted average number of shares in issue in the year | 52,973,939 | 48,793,978 |
a) Basic earnings per share is total earnings after taxation divided by the weighted average number of shares in issue.
b) Revenue earnings per share is the revenue return after taxation divided by the weighted average number of shares in issue.
c) Capital earnings per share is the total capital profit after taxation divided by the weighted average number of shares in issue.
d) There are no instruments that will increase the number of shares in issue in future. Accordingly, the above figures currently represent both basic and diluted returns.
Dividends payable are recognised as distributions in the financial statements when the Company's liability to pay them has been established. This liability is established for interim dividends when they are paid, and for final dividends when they are approved by the shareholders, usually at the Company's annual general meeting.
A key judgement in applying the above accounting policy is in determining the amount of minimum income dividend to be paid in respect of a year. The Company's status as a VCT means it has to comply with Section 259 of the Income Tax Act 2007, which requires that no more than 15% of the income from shares and securities in a year can be retained from the revenue available for distribution for the year.
| Dividend | Type | For year ended 31 December |
Pence per share |
Date Paid | 2017 £ |
2016 £ |
|---|---|---|---|---|---|---|
| Final | Income | 2015 | 1.50p | 25/05/2016 | - | 725,346 |
| Final | Capital | 2015 | 7.50p | 25/05/2016 | - | 3,626,735 |
| Interim | Income | 2016 | 1.00p | 08/09/2016 | - | 489,895 |
| Interim | Capital | 2016 | 1.00p | 08/09/2016 | - | 489,895 |
| Second interim | Income | 2016 | 1.00p | 17/03/2017 | 490,434 | - |
| Second interim | Capital* | 2016 | 6.00p | 17/03/2017 | 2,942,602 | - |
| Interim | Income | 2017 | 1.00p | 11/09/2017 | 497,394 | - |
| Interim | Capital | 2017 | 2.00p | 11/09/2017 | 994,788 | - |
| Interim | Capital* | 2017 | 15.00p | 11/09/2017 | 7,460,911 | - |
| Second interim | Income | 2017 | 1.00p | 21/12/2017 | 672,563 | - |
| Second interim | Capital | 2017 | 2.00p | 21/12/2017 | 1,345,126 | - |
| 14,403,818** | 5,331,871 |
Amounts recognised as distributions to equity shareholders in the year:
* - 6.00p of the dividend paid on 17 March 2017, and 15.00p of the dividend paid on 11 September 2017, were paid out of the Company's special distributable reserve.
** - £14,403,818 (2016: £5,331,871) disclosed above differs to that shown in the Statement of Cash Flows of £11,584,256 (2016: £4,411,541) due to £2,819,562 (2016: £920,330) of new shares issued as part of the DIS scheme.
| Type | For year ended 31 December |
Pence per share |
Date Payable | 2017 £ |
2016 £ |
|
|---|---|---|---|---|---|---|
| Second interim Second interim |
Income Capital |
2016 2016 |
1.00 6.00 |
17/03/2017 17/03/2017 |
- - |
490,434 2,942,602 |
| - | 3,433,036 |
Any proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
Set out below are the total income dividends payable in respect of the financial year, which is the basis on which the requirements of section 274 of the Income Tax Act 2007 are considered.
| Dividend | Type | For year ended 31 December |
Pence per share |
Date paid/payable | 2017 £ |
2016 £ |
|---|---|---|---|---|---|---|
| Revenue available for distribution by way of dividends for the year | 1,379,261 | 1,131,188 | ||||
| Interim | Income | 2016 | 1.00p | 08/09/2016 | - | 489,895 |
| Second interim | Income | 2016 | 1.00p | 17/03/2017 | - | 490,434 |
| Interim | Income | 2017 | 1.00p | 11/09/2017 | 497,394 | - |
| Second interim | Income | 2017 | 1.00p | 21/12/2017 | 672,563 | - |
| Total income dividends for the year | 1,169,957 | 980,329 |
The most critical estimates, assumptions and judgements relate to the determination of the carrying value of investments at "fair value through profit and loss" (FVTPL). All investments held by the Company are classified as "fair value through profit and loss" ("FVTPL") and measured in accordance with the International Private Equity and Venture Capital Valuation ("IPEV") guidelines, as updated in December 2015. This classification is followed as the Company's business is to invest in financial assets with a view to profiting from their total return in the form of capital growth and income.
For investments actively traded on organised financial markets, fair value is generally determined by reference to Stock Exchange market quoted bid prices at the close of business on the balance sheet date. Purchases and sales of quoted investments are recognised on the trade date where a contract of sale exists whose terms require delivery within a time frame determined by the relevant market. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional. Where the terms of a disposal state that consideration may be received at some future date and, subject to the conditionality and materiality of the amount of deferred consideration, an estimate of the fair value, discounted for the time value of money may be recognised through the Income Statement. In other cases, the proceeds will only be recognised once the right to receive payment is established and there is no reasonable doubt that payment will be received.
Unquoted investments are stated at fair value by the Directors in accordance with the following rules, which are consistent with the IPEV guidelines:
All investments are held at the price of a recent investment for an appropriate period where there is considered to have been no change in fair value. Where such a basis is no longer considered appropriate, each investment is considered as a whole on a 'unit of account' basis, alongside consideration of:
or:-
Capital gains and losses on investments, whether realised or unrealised, are dealt with in the profit and loss and revaluation reserves, and movements in the period are shown in the Income Statement.
All investments are initially recognised and subsequently measured at fair value. Changes in fair value are recognised in the Income Statement.
A key judgement made in applying the above accounting policy relates to investments that are permanently impaired. Where the value of an investment has fallen permanently below cost, the loss is treated as a permanent impairment and as a realised loss, even though the investment is still held. The Board assesses the portfolio for such investments and, after agreement with the Investment Adviser, will agree the values that represent the extent to which an investment loss has become realised. This is based upon an assessment of objective evidence of that investment's future prospects, to determine whether there is potential for the investment to recover in value.
The methods of fair value measurement are classified into hierarchy based on the reliability of the information used to determine the valuation.
Movements in investments during the year are summarised as follows:
| Traded on AIM |
Unquoted equity shares |
Unquoted preference shares |
Loan stock | Total | |
|---|---|---|---|---|---|
| £ | £ | £ | £ | £ | |
| Cost at 31 December 2016 | 200,028 | 13,111,998 | 15,144 | 25,036,502 | 38,363,672 |
| Unrealised gains/(losses) at 31 December 2016 | 91,654 | (2,887,001) | (728) | 3,948,082 | 1,152,007 |
| Permanent impairment in value of investments as at 31 December 2016 |
- | (20,110) | (1,649) | (567,486) | (589,245) |
| Valuation at 31 December 2016 | 291,682 | 10,204,887 | 12,767 | 28,417,098 | 38,926,434 |
| Purchases at cost (Note b overleaf) | - | 1,657,673 | - | 526,425 | 2,184,098 |
| Sale proceeds (Note c overleaf) | - | (4,515,316) | (1,810) | (8,458,890) | (12,976,016) |
| Reclassification at value (Note d overleaf) | - | 393,851 | 98 | (393,949) | - |
| Net realised gains in the year | - | 2,445,389 | - | 1,696,986 | 4,142,375 |
| Unrealised (losses)/gains in the year (Note e overleaf) | (16,833) | 465,891 | 443,034 | (1,684,930) | (792,838) |
| Valuation at 31 December 2017 | 274,849 | 10,652,375 | 454,089 | 20,102,740 | 31,484,053 |
| Cost at 31 December 2017 | 200,028 | 14,062,390 | 13,432 | 18,890,038 | 33,165,888 |
| Unrealised gains/(losses) at 31 December 2017 | 74,821 | (1,274,615) | 440,657 | 1,277,089 | 517,952 |
| Permanent impairment in value of investments at 31 December 2017 (Note f overleaf) |
- | (2,135,400) | - | (64,387) | (2,199,787) |
| Valuation at 31 December 2017 | 274,849 | 10,652,375 | 454,089 | 20,102,740 | 31,484,053 |
Details of investment transactions such as disposal proceeds, valuation movements cost and carrying value at the end of previous year are contained in the Investment Portfolio Summary on pages 16 to 21.
Note a) Disposals of investment portfolio companies during the year were:
| Company | Type | Investment cost £ |
Disposal proceeds £ |
Valuation at 31 December 2016 £ |
Realised gain in year £ |
|---|---|---|---|---|---|
| Entanet Holdings Limited | Realisation | 2,167,662 | 4,892,454 | 2,254,135 | 2,638,3191 |
| Gro-Group Holdings Limited | Realisation | 1,577,977 | 2,758,765 | 1,361,293 | 1,397,472 |
| Manufacturing Services | |||||
| Investment Limited | Share buyback | 456,400 | 456,400 | 456,400 | - |
| Chatfield Services Limited | Share buyback and loan repayment | 603,608 | 603,608 | 603,608 | - |
| Backhouse Management Limited Loan repayment | 544,320 | 907,200 | 544,320 | - 2 | |
| Barham Consulting Limited | Loan repayment | 272,160 | 453,600 | 272,160 | - 2 |
| Creasy Marketing Services | |||||
| Limited | Loan repayment | 544,320 | 907,200 | 544,320 | - 2 |
| McGrigor Management Limited | Loan repayment | 544,320 | 907,200 | 544,320 | - 2 |
| Hollydale Management Limited | Loan repayment | 394,380 | 657,300 | 394,380 | - 2 |
| Others | 276,735 | 432,289 | 325,705 | 106,584 | |
| 7,381,882 | 12,976,016 | 7,300,641 | 4,142,375 |
1 – Deferred contingent consideration of £0.50 million is potentially receivable over the next 12-18 months. There are conditions attached to this deferred consideration such that the amount receivable is uncertain and so has not been recognised in the current year's financial statements.
2 – The gain on the loan repayments above of £1,533,000 has been set off against an equivalent permanent impairment in the equity instrument of the investments in these companies (see note f overleaf). Thus, no gain or loss resulted.
Note b) Purchases above of £2,184,098 are more than that shown in the Statement of Cash Flows of £1,603,629, by £580,469. This relates to the Tapas Revolution investment that completed on 4 January 2017. These funds were shown as part of opening debtors at the beginning of the year.
Note c) The cash flow from investment proceeds shown above of £12,976,016 differs from the sale proceeds shown in the Statement of Cash flows of £10,217,251, by £2,758,765. These are funds due from the disposal of Gro-Group and are held in debtors at the year end.
Note d) During the year, two investee companies were reorganised whereby loan stocks held at a value of £393,949 were reclassified as ordinary shares, and ordinary shares of value £98 were reclassified as preference shares.
Note e) The major components of the decrease in unrealised valuations of £792,838 in the year were decreases of £735,235 in Veritek Global Limited, £555,010 in Media Business Insight Holdings Limited, and £512,268 in Virgin Wines Holding Company Limited. This fall was partly offset by increases of £438,961 in Master Removers Group Limited (formerly Leap New Co), £320,086 in Pattern Analytics Limited (trading as Biosite), and £249,500 in Preservica Limited.
The decrease in unrealised valuations of the loan stock investments above reflects the changes in the entitlement to loan premiums, and/or in the underlying enterprise value of the investee company. The increase does not arise from assessments of credit risk or market risk upon these instruments.
Note f) During the year, permanent impairments of the cost of investments have increased from £589,245 to £2,199,787. The increase of £1,610,542 is due the impairments of equity of five investee companies referred to in note 2 to note a) above, and the impairment of £77,542 of another company's remaining investment cost.
At 31 December 2017 the Company held significant investments, amounting to 3% or more of the equity capital of an undertaking, in the following companies:
| Equity investment (ordinary shares) £ |
Investment in loan stock and preference shares £ |
Total investment (at cost) £ |
Percentage of investee company's total equity |
% of equity held by all funds managed by Mobeus1 |
|
|---|---|---|---|---|---|
| Media Business Insight Holdings Limited2 | 1,089,103 | 1,633,657 | 2,722,760 | 15.7% | 67.5% |
| Tovey Management Limited (trading as Access IS)3 | 891,576 | 1,577,437 | 2,469,013 | 9.7%* | 43.4% |
| Manufacturing Services Investment Limited | |||||
| (trading as Wetsuit Outlet) | 1,166,551 | 1,166,551 | 2,333,102 | 6.4% | 27.5% |
| ASL Technology Holdings Limited | 343,992 | 1,589,599 | 1,933,591 | 9.5%* | 47.5% |
| Virgin Wines Holding Company Limited | 45,915 | 1,884,898 | 1,930,813 | 9.7% | 42.0% |
| Veritek Global Limited | 43,527 | 1,576,559 | 1,620,086 | 11.9%* | 50.8% |
| Turner Topco Limited (trading as ATG Media) | 4,472 | 1,524,603 | 1,529,075 | 3.8% | 17.1% |
| CGI Creative Graphics International Limited | 476,612 | 973,134 | 1,449,746 | 6.6% | 28.1% |
| Bourn Bioscience Limited | 323,577 | 808,944 | 1,132,521 | 7.7% | 23.8% |
| Fullfield Limited (trading as Motorclean) | 462,184 | 669,260 | 1,131,444 | 9.8% | 46.0% |
| Tharstern Group Limited | 338,861 | 753,025 | 1,091,886 | 12.2%* | 52.5% |
| RDL Corporation Limited | 173,932 | 826,068 | 1,000,000 | 9.1%* | 45.2% |
| Vian Marketing Limited (trading as Red Paddle Co) | 271,683 | 627,391 | 899,074 | 7.1%* | 31.5% |
| Redline Worldwide Limited | 269,190 | 569,187 | 838,377 | 6.7% | 30.0% |
| Hollydale Management Limited | 438,200 | 262,920 | 701,120 | 11.0% | 50.0% |
| MPB Group Limited | 359,022 | 336,582 | 695,604 | 5.3%* | 23.5% |
| Preservica Limited | 679,617 | - | 679,617 | 8.6%* | 37.9% |
| BookingTek Limited | 582,300 | 69,837 | 652,137 | 3.5%* | 14.9% |
| Pattern Analytics Limited (trading as Biosite) | 640,171 | - | 640,171 | 4.8%* | 20.5% |
| Backhouse Management Limited | 453,600 | 136,080 | 589,680 | 11.3% | 50.0% |
| Creasy Marketing Services Limited | 453,600 | 136,080 | 589,680 | 11.3% | 50.0% |
| McGrigor Management Limited | 453,600 | 136,080 | 589,680 | 11.3% | 50.0% |
| Barham Consulting Limited | 453,600 | 136,080 | 589,680 | 11.3% | 50.0% |
| Ibericos Etc. Limited (trading as Tapas Revolution) | 348,269 | 232,200 | 580,469 | 5.8% | 25.0% |
| Buster and Punch Holdings Limited | 373,073 | 157,319 | 530,392 | 4.5% | 20.0% |
| Master Removers Group (formerly Leap New Co Limited | |||||
| (trading as Anthony Ward Thomas, Bishopsgate and | |||||
| Aussie Man & Van)) | 511,620 | 235 | 511,855 | 4.3%* | 18.4% |
| My Tutorweb Limited | 466,639 | - | 466,639 | 4.5%* | 19.3% |
| Racoon International Group Limited | 419,959 | - | 419,959 | 8.0%* | 36.0% |
| Jablite Holdings Limited | 339,974 | 36,109 | 376,083 | 9.1% | 40.1% |
| Blaze Signs Holdings Limited | 183,005 | 7,626 | 190,631 | 5.7% | 52.5% |
| TPSFF Holdings Limited | 45,884 | 144,583 | 190,467 | 8.7% | 38.0% |
| CB Imports Group Limited | 175,000 | - | 175,000 | 5.8%* | 23.2% |
| Lightworks Software Limited | 9,329 | - | 9,329 | 4.2%* | 45.0% |
| Watchgate Limited | 1,000 | - | 1,000 | 33.3% | 100.0% |
1 – Mobeus Equity Partners LLP also advises The Income and Growth VCT plc, Mobeus Income and Growth VCT plc and Mobeus Income & Growth 2 VCT plc.
2 – Includes a loan of £674,755 to Media Business Insight Limited.
3 – Includes a loan of £239,513 to Access IS Limited.
* - The percentage of equity held for these companies is the fully diluted figure in the event that, for example, management of the investee company exercises share options, where available.
It is considered that, under FRS102 s9.9, "Consolidated and Separate Financial Statements", the above investments are held as part of an investment portfolio and that accordingly, their value to the Company lies in their marketable value as part of that portfolio and as such are not required to be consolidated. Also, the above investments are considered to be associates that are held as part of an investment portfolio and are accounted for in accordance with FRS 14.4B.
All of the above companies are incorporated in the United Kingdom.
| 2017 £ |
2016 £ |
|
|---|---|---|
| Amounts due within one year: | ||
| Accrued income | 392,879 | 264,015 |
| Prepayments | 15,352 | 15,527 |
| Other debtors | 2,758,765 | - |
| Monies held in solicitor's client account | - | 580,469 |
| 3,166,996 | 860,011 |
Other debtors includes £2,758,765 receivable in relation to the disposal of Gro-Group in December 2017. £580,469 funds were held in a solicitor's client account at the 2016 year end pending completion of an investment in January 2017.
Cash equivalents, for the purposes of the Statement of Cash flows, comprises bank deposits repayable on up to three months' notice and funds held in OEIC money-market funds. Current asset investments are the same but also include bank deposits that mature after three months. Current asset investments are disposable without curtailing or disrupting the business and are readily convertible into known amounts of cash at their carrying values at immediate or up to three months' notice. Cash, for the purposes of the Statement of Cash Flows is cash held with banks in accounts subject to immediate access. Cash at bank in the Balance Sheet is the same.
| 2017 £ |
2016 £ |
|
|---|---|---|
| OEIC Money market funds | 19,494,921 | 7,511,810 |
| Cash equivalents per Statement of Cash Flows Bank deposits that mature after three months |
19,494,921 2,000,000 |
7,511,810 2,000,000 |
| Current asset investments | 21,494,921 | 9,511,810 |
| Cash at bank | 2,847,849 | 3,662,074 |
| 2017 £ |
2016 £ |
|
|---|---|---|
| Trade creditors Other creditors Corporation tax |
267,261 8,564 117,482 |
9,504 11,973 30,088 |
| Accruals | 188,872 | 153,608 |
| 582,179 | 205,173 |
| 2017 £ |
2016 £ |
|
|---|---|---|
| Allotted, called-up and fully paid: Ordinary shares of 1p each: 67,475,086 (2016: 49,043,033) |
674,751 | 490,430 |
During the year, the Company purchased 524,730 (2016: 251,468) of its own shares for cash (representing 1.1% (2016: 0.5%) of the shares in issue at the start of the year) at the prevailing market price for a total cost of £408,125 (2016: £244,575). These shares were subsequently cancelled by the Company.
Under the terms of the Dividend Investment Scheme, 3,484,686 (2016: 938,291) shares were allotted during the year for a non-cash consideration of £2,819,562 (2016: £920,330).
Under the 2017/18 Offer, 15,472,097 (2016: nil) shares were allotted during the year, raising net funds of £13,630,616 for the Company at offer prices ranging from 87.69p to 94.30p.
Net asset value per Ordinary Share is based on net assets at the end of the year, and on 67,475,086 (2016: 49,043,033) Ordinary shares, being the number of Ordinary shares in issue on that date.
There are no instruments that will increase the number of shares in issue in future. Accordingly, the figures currently represent both basic and diluted net asset value per share.
The Company's financial instruments predominantly comprise investments held at fair value through profit and loss, namely equity and preference shares and fixed and floating rate interest securities that are held in accordance with the Company's investment objective.
Other financial instruments are held at amortised cost comprising loans and receivables being cash at bank, current asset investments and short term debtors, and financial liabilities being creditors, all that arise directly from the Company's operations.
The principal purpose of these financial instruments is to generate revenue and capital appreciation for the Company's operations, although cash and current asset investments are held to yield revenue return only. The Company has no gearing or other financial liabilities apart from short-term creditors. It is, and has been throughout the year under review, the Company's policy that no trading in derivative financial instruments shall be undertaken.
The accounting policy for determining the fair value of investments is set out in Note 8 to the Financial Statements. The composition of investments held is shown below and in Note 8.
Loans and receivables and other financial liabilities are stated at amortised cost which the Directors consider is equivalent to fair value.
The Company held the following categories of financial instruments at 31 December 2017:
| 2017 (Fair value) £ |
2016 (Fair value) £ |
|
|---|---|---|
| Assets at fair value through profit and loss: | ||
| Investment portfolio | 31,484,053 | 38,926,434 |
| Loans and receivables held at amortised cost | ||
| Accrued income | 392,879 | 264,015 |
| Cash at bank | 2,847,849 | 3,662,074 |
| Current asset investments | 21,494,921 | 9,511,810 |
| Other debtors | 2,758,765 | 580,469 |
| Liabilities at amortised cost or equivalent | ||
| Other creditors | (464,697) | (175,085) |
| Total for financial instruments | 58,513,770 | 52,769,717 |
| Non-financial instruments | (102,130) | (14,561) |
| Total net assets | 58,411,640 | 52,755,156 |
There are no differences between book value and fair value disclosed above.
The investment portfolio principally consists of unquoted investments 99.1% (2016: 99.3%). The investment portfolio has a 100% (2016: 100%) concentration of risk towards small UK based, sterling denominated companies, and represents 53.9% (2016: 73.8%) of net assets at the year-end.
Current asset investments are money market funds, and bank deposits which, along with cash are discussed under credit risk below, which represent 41.7% (2016: 25.0%) of net assets at the year-end.
The main risks arising from the Company's financial instruments are the investment risk, and the liquidity risk, of the unquoted portfolio. Other important risks are credit risk, fluctuations in market prices (market price risk), and cash flow interest rate risk, although currency risk is also discussed below. The Board regularly reviews and agrees policies for managing each of these risks and they are summarised below. These have been in place throughout the current and preceding years.
The Company's investment portfolio is made up of predominantly UK companies which are not quoted on any recognised stock exchange. The companies held in the portfolio are usually smaller than those companies which are quoted on a stock exchange. They are therefore usually regarded as carrying more risk compared to larger companies, as they are more sensitive to changes in key financial indicators, such as a reduction in its turnover or an increase in costs. The Board is of the view that the Investment Adviser mitigates this risk as the investment in an investee company is held as part of a portfolio of such companies so that the performance of one company does not significantly affect the value of the portfolio as a whole. The Investment Adviser also usually takes a seat on the Board of each investee company such that it is able to monitor its progress on a regular basis and contribute to the strategic direction of the company.
The investments in equity and fixed interest stocks of unquoted companies that the Company holds are not traded and therefore they are not readily realisable. The ability of the Company to realise the investments at their carrying value may at times not be possible if there are no willing purchasers and, as the Company owns minority stakes, could require a number of months and the co-operation of other shareholders to achieve at a reasonable valuation. The Company's ability to sell investments may also be constrained by the requirements set down for VCTs. The maturity profile of the Company's loan stock investments disclosed within the consideration of credit risk below indicates that these assets are also not readily realisable until dates up to five years from the year-end.
To counter these risks to the Company's liquidity, the Investment Adviser maintains sufficient cash and money market funds to meet running costs and other commitments. The Company invests its surplus funds in high quality money market funds and bank deposits of £21,494,921 (2016: £9,511,810), which are all accessible at varying points over the next 12 months. The Board also receives regular cash flow projections in order to manage this liquidity risk.
The table below shows a maturity analysis of financial liabilities:
| Financial liabilities | <3 months £ |
3-6 months £ |
6-12 months £ |
over 12 months £ |
2017 Total £ |
|---|---|---|---|---|---|
| Other creditors | 375,651 | 89,046 | - | - | 464,697 |
| Financial liabilities | <3 months £ |
3-6 months £ |
6-12 months £ |
over 12 months £ |
2016 Total £ |
|---|---|---|---|---|---|
| Other creditors | 93,815 | 81,270 | - | - | 175,085 |
The Company does not have any derivative financial liabilities.
Credit risk is the risk that a counterparty will fail to discharge an obligation or commitment that it has entered into with the Company.
The Company's maximum exposure to credit risk is:
| 2017 £ |
2016 £ |
|
|---|---|---|
| Loan stock investments | 20,102,740 | 28,417,098 |
| Current asset investments | 21,494,921 | 9,511,810 |
| Accrued income | 392,879 | 264,015 |
| Other debtors | 2,758,765 | 580,469 |
| Cash at bank | 2,847,849 | 3,662,074 |
| 47,597,154 | 42,435,466 |
The Company has an exposure to credit risk in respect of the loan stock investments it has made into investee companies, most of which have no security attached to them, and where they do, such security ranks beneath any bank debt that an investee company may owe. The loan stock is held in companies with turnover under £50 million, which may be considered less stable than larger, longer established businesses. The Investment Adviser undertakes extensive financial and commercial due diligence before recommending an investment to the Board. The Investment Adviser usually takes a seat on the Board of each investee company and the Board of the VCT receives regular updates on each company at each quarter end.
The accrued income shown above of £392,879 was all due within five months of the year-end.
The following table shows the maturity of the loan stock investments referred to above. In some cases, the loan maturities are not the contractual ones, but are the best estimate using management's expectations of when it is likely that such loans may be repaid.
| Repayable within | 2017 £ |
2016 £ |
|---|---|---|
| 0 to 1 year | 812,553 | 5,277,333 |
| 1 to 2 years | 5,324,102 | 6,582,192 |
| 2 to 3 years | 7,169,585 | 8,950,579 |
| 3 to 4 years | 3,480,378 | 5,595,287 |
| 4 to 5 years | 3,316,122 | 2,011,707 |
| Total | 20,102,740 | 28,417,098 |
Included within loan stock investments above are two loans with values of £1,563,164 that are now past their repayment date but have not yet been renegotiated. The loan stock investments are made as part of the qualifying investments within the investment portfolio, and the risk management processes applied to the loan stock investments have already been set out under market price risk below.
An aged analysis of the value of loan stock investments included above, which are past due but not individually impaired, is set out below. For this purpose, these loans are considered to be past due when any payment due under the loan's contractual terms (such as payment of interest or redemption date) is received late or missed. We are required to report in this format and include the full value of the loan even though in some cases it is only in respect of interest that they are in default.
| 0-6 months | 6-12 months | over 12 months | 2017 Total | |
|---|---|---|---|---|
| £ | £ | £ | £ | |
| Loans to investee companies past due | 1,179,811 | - | 2,594,301 | 3,774,112 |
| 0-6 months | 6-12 months | over 12 months | 2016 Total | |
| £ | £ | £ | £ | |
| Loans to investee companies past due | 931,159 | 2,256,923 | 926,025 | 4,114,107 |
Credit risk also arises from cash and cash equivalents, deposits with banks and amounts held in liquidity funds. There is a risk of liquidity fund defaults such that there could be defaults within their underlying portfolios that could affect the values at which the Company could sell its holdings. The five OEIC money market funds holding £19,494,921 are all triple A rated funds and, along with bank deposits of £4,138,592 at six well-known financial institutions, credit risk is considered to be relatively low in current circumstances. The Board manages credit risk in respect of these money market funds and cash by ensuring a spread of such investments such that none should exceed 15% of the Company's total investment assets. The Company's current account totalling £709,257 is held with NatWest Bank plc, so the risk of default is considered to be low.
There could also be a failure by counter-parties to deliver securities which the Company has paid for, or pay for securities which the Company has delivered. This risk is considered to be small as most of the Company's investment transactions are in unquoted investments, where investments are conducted through solicitors, to ensure that payment matches delivery. In respect of any quoted investment transactions that are undertaken, the Company uses brokers with a high credit quality, and these trades usually have a short settlement period. Accordingly, counterparty risk is considered to be relatively low.
Market price risk arises from uncertainty about the future valuations of the unquoted portfolio held in accordance with the Company's investment objectives. These future valuations are determined by many factors but include the operational and financial performance of the underlying investee companies (Investment risk), as well as market perceptions of the future performance of the UK economy and its impact upon the economic environment in which these companies operate. This risk represents the potential loss that the Company might suffer through holding its investment portfolio in the face of market movements, which was a maximum of £31,484,053 at the year-end, representing the fair value of the investment portfolio.
The investments in equity and fixed interest stocks of unquoted companies that the Company holds are not traded and as such the prices are more uncertain than those of more widely traded securities. As, in a number of cases, the unquoted investments are valued by reference to price earnings ratios prevailing in quoted comparable sectors (discounted for points of difference from quoted comparators), their valuations are exposed to changes in the price earnings ratios that exist in the quoted markets.
The Board's strategy in managing the market price risk inherent in the Company's portfolio of equities and loan stock investments is determined by the requirement to meet the Company's Objective, as set out on page 4 in the Strategic Report. As part of the investment management process, the Board seeks to maintain an appropriate spread of market risk, and also has full and timely access to relevant information from the Investment Adviser. No single investment is permitted to exceed 15% of total investment assets at the point of investment. The Investment Committee meets regularly and reviews the investment performance and financial results, as well as compliance with the Company's objectives. The Company does not use derivative instruments to hedge against market risk.
The Board believes that the Company's assets are mainly exposed to market price risk, as the Company is required to hold most of its assets in the form of sterling denominated investments in small companies.
Although a small part of these assets are quoted on AIM, nearly all of these assets are unquoted. All of the investments made by the Investment Adviser in unquoted companies, irrespective of the instruments the Company actually holds, (whether shares, preference shares or loan stock) carry a full market risk, even though some of the loan stocks may be secured on assets, but behind any prior ranking bank debt in the investee company.
The Board considers that the value of investments in equity and loan stock instruments are ultimately sensitive to changes in their trading performance (discussed under investment risk above) and to changes in quoted share prices, insofar as such changes eventually affect the estimated enterprise value of the portfolio's unquoted companies. The table below shows the impact on profit and net assets if there were to be a 20% (2016: 20%) movement in overall share prices, and has used a 20% change in the quoted market comparator multiple as a proxy for this.
The sensitivity analysis below assumes the actual portfolio of investments held by the Company is perfectly correlated to this overall movement in share prices. However, Shareholders should note that this level of correlation is unlikely to be the case in reality, particularly in the case small, unquoted companies which may have other factors which may influence the extent of the valuation change, e.g. a strong niche brand may limit the valuation fall compares to comparators, or may be more affected by external market factors than larger companies.
For each of the companies in the investment portfolio that are valued on a multiple basis, the calculation below has applied plus and minus 20% to the earnings or revenue multiple derived from quoted market comparators that are used to value the companies. The companies valued on a multiple basis represent £25.99 million of the total investment portfolio of £31.48 million. The remainder of the portfolio is valued at either price of recent of investment or net asset value, as shown below.
The impact of a change of 20% (2016: 20%) has been selected as this is considered reasonable given the level of volatility observed both on a historical basis and market expectations for future movement.
| 2017 Profit and net assets £ |
2016 Profit and net assets £ |
|
|---|---|---|
| If overall share prices rose/fell by 20% (2016: 20%), with all other variables held constant – increase/(decrease) |
3,630,947 / (3,973,621) | 4,051,614 / (4,568,222) |
| Increase/(decrease) in earnings, and net asset value, per ordinary share (in pence) | 5.38p / (5.89)p | 8.26p / (9.31)p |
The Company's fixed and floating rate interest securities, its equity and preference equity investments and net revenue may be affected by interest rate movements. Investments are often in relatively small businesses, which are relatively high risk investments sensitive to interest rate fluctuations.
Due to the short time to maturity of some of the Company's floating rate investments, it may not be possible to re-invest in assets which provide the same rates as those currently held.
The Company's assets include fixed and floating rate interest instruments, as shown below. The rate of interest earned is regularly reviewed by the Board, as part of the risk management processes applied to these instruments, already disclosed under market price risk above.
The interest rate profile of the Company's financial net assets at 31 December 2017 was:
| Financial net assets on which no interest paid |
Fixed rate financial assets |
Variable rate financial assets |
Total | Weighted average interest rate |
Average period to maturity |
|
|---|---|---|---|---|---|---|
| £ | £ | £ | £ | % | (years) | |
| Equity shares | 10,927,224 | - | - | 10,927,224 | ||
| Preference shares | - | 454,089 | - | 454,089 | 6.3 | 4.0 |
| Loan stocks | - | 19,295,500 | 807,240 | 20,102,740 | 7.9 | 2.7 |
| Current investments | - | - | 21,494,921 | 21,494,921 | 0.4 | |
| Cash | - | - | 2,847,849 | 2,847,849 | 0.3 | |
| Debtors | 3,151,644 | - | - | 3,151,644 | ||
| Creditors | (464,697) | - | - | (464,697) | ||
| Total for financial instruments | 13,614,171 | 19,749,589 | 25,150,010 | 58,513,770 | ||
| Non-financial instruments | (102,130) | - | - | (102,130) | ||
| Total net assets | 13,512,041 | 19,749,589 | 25,150,010 | 58,411,640 |
The interest rate profile of the Company's financial net assets at 31 December 2016 was:
| Financial net assets on which no interest paid |
Fixed rate financial assets |
Variable rate financial assets |
Total | Weighted average interest rate |
Average period to maturity |
|
|---|---|---|---|---|---|---|
| £ | £ | £ | £ | % | (years) | |
| Equity shares | 10,496,569 | - | - | 10,496,569 | ||
| Preference shares | - | 12,767 | - | 12,767 | - | 1.4 |
| Loan stocks | - | 23,069,458 | 5,347,640 | 28,417,098 | 5.8 | 2.2 |
| Current investments | - | - | 9,511,810 | 9,511,810 | 0.5 | |
| Cash | - | - | 3,662,074 | 3,662,074 | 0.3 | |
| Debtors | 844,484 | - | - | 844,484 | ||
| Creditors | (175,085) | - | - | (175,085) | ||
| Total for financial instruments | 11,165,968 | 23,082,225 | 18,521,524 | 52,769,717 | ||
| Non-financial instruments | (14,561) | - | - | (14,561) | ||
| Total net assets | 11,151,407 | 23,082,225 | 18,521,524 | 52,755,156 |
Note: Weighted average interest rates above are derived by calculating the expected annual income that would be earned on each asset (but only for those sums that are currently regarded as collectible and would therefore be recognised), divided by the values for each asset class at the balance sheet date.
Variable rate cash earns interest based on LIBOR rates.
The Company's investments in equity shares have been excluded from the interest rate risk profile as they do not yield interest and have no maturity date. Their inclusion would distort the weighted average period information above.
Although the Company holds investments in loan stocks that pay interest, the Board does not consider it appropriate to assess the impact of interest rate changes in isolation upon the value of the unquoted investment portfolio, as interest rate changes are only one factor affecting the market price movements that are discussed above under market price risk. However, as the Company has a substantial proportion of its assets in money market funds, the table below shows the sensitivity of income earned to changes in interest rates:
| 2017 Profit and net assets £ |
2016 Profit and net assets £ |
|
|---|---|---|
| If interest rates rose/fell by 1%, with all other variables held constant – increase/ (decrease) |
203,086 / (203,086) | 148,172 /(148,172) |
| Increase/(decrease) in earnings, and net asset value, per Ordinary share (in pence) | 0.30p / (0.30)p | 0.30p / (0.30)p |
All assets and liabilities are denominated in sterling and therefore there is no currency risk, although a number of investee companies do trade overseas, so do face some exposure to currency risk in their operations.
The table below sets out fair value measurements using FRS102 s11.27 fair value hierarchy. The Company has one class of financial assets, being at fair value through profit and loss.
| Financial assets at fair value through profit and loss At 31 December 2017 |
Level 1 £ |
Level 2 £ |
Level 3 £ |
Total £ |
|---|---|---|---|---|
| Equity investments | 274,849 | - | 10,652,375 | 10,927,224 |
| Preference shares | - | - | 454,089 | 454,089 |
| Loan stock investments | - | - | 20,102,740 | 20,102,740 |
| Total | 274,849 | - | 31,209,204 | 31,484,053 |
| Financial assets at fair value through profit and loss | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| At 31 December 2016 | £ | £ | £ | £ |
| Equity investments | 291,682 | - | 10,204,887 | 10,496,569 |
| Preference shares | - | - | 12,767 | 12,767 |
| Loan stock investments | - | - | 28,417,098 | 28,417,098 |
| Total | 291,682 | - | 38,634,752 | 38,926,434 |
There are currently no financial liabilities at fair value through profit and loss.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:
The valuation techniques used by the company are explained in the accounting policy in Note 8 to these Financial Statements.
There have been no transfers during the year between Levels 1 and 2. A reconciliation of fair value measurements in Level 3 is set out below:
| Equity investments £ |
Preference shares £ |
Loan stock investments £ |
Total £ |
|
|---|---|---|---|---|
| Opening balance at 1 January 2017 | 10,204,887 | 12,767 | 28,417,098 | 38,634,752 |
| Purchases | 1,657,673 | - | 526,425 | 2,184,098 |
| Sales | (4,515,316) | (1,810) | (8,458,890) | (12,976,016) |
| Reclassification at Value | 393,851 | 98 | (393,949) | - |
| Total (losses)/gains included in gains/(losses) on | ||||
| investments in the Income Statement: | - | |||
| - on assets sold or impaired | 2,445,389 | - | 1,696,986 | 4,142,375 |
| - on assets held at the year end | 465,891 | 443,034 | (1,684,930) | (776,005) |
| Closing balance at 31 December 2017 | 10,652,375 | 454,089 | 20,102,740 | 31,209,204 |
As detailed in the accounting policy for note 8, where investments are valued on an earnings-multiple basis, the main input used for this basis of valuation is a price-earnings ratio taken from a comparable sector on the quoted market which is then appropriately adjusted for points of difference. Thus any change in share prices can have a significant effect on the value measurements of the Level 3 investments, as they may not be wholly offset by the adjustment for points of difference.
Level 3 unquoted equity and loan stock investments are valued in accordance with the IPEV guidelines as follows:
| 31 December 2017 £ |
31 December 2016 £ |
|
|---|---|---|
| Valuation methodology | ||
| Cost (reviewed for impairment) | - | 38,771 |
| Discounted realisation proceeds | 5,313 | 14,167 |
| Net asset value | 229,783 | - |
| Recent investment price | 5,256,002 | 11,470,318 |
| Multiple of earnings, revenue or gross margin as appropriate | 25,718,106 | 27,111,496 |
| 31,209,204 | 38,634,752 |
The unquoted equity and loan stock investments had the following movements between valuation methodologies between 31 December 2016 and 31 December 2017:
| Change in valuation methodology | Carrying value as at 31 December 2017 £ |
Explanatory note |
|---|---|---|
| Recent investment price to multiple basis | 3,533,962 | Sufficient time has elapsed since investment to move to a valuation based upon the financial performance demonstrated by the investment |
| Earnings multiple to net asset value | 229,783 | Earnings multiple no longer appropriate |
The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the December 2015 IPEV guidelines. The Directors believe that, within these parameters, there are no other possible methods of valuation which would be reasonable as at 31 December 2017.
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern, so that it can continue to provide returns for shareholders. It aims to provide an adequate return to shareholders by allocating its capital to assets commensurate with the level of risk.
By its nature, the Company has an amount of capital, at least 70% (as measured under the tax legislation) of which is and must remain, invested in the relatively high risk asset class of small UK companies within three years of that capital being subscribed. The Company accordingly has limited scope to manage its capital structure in the light of changes in economic conditions and the risk characteristics of the underlying assets. Subject to this overall constraint upon changing the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets if so required to maintain a level of liquidity to remain a going concern.
Although, as the Investment Policy implies, the Board would consider levels of gearing, there are no current plans to do so. It regards the net assets of the Company as the Company's capital, as the levels of liabilities are small and the management of them is not directly related to managing the return to shareholders. There has been no change in this approach from the previous year.
The operations of the Company are wholly in the United Kingdom, from one class of business.
On 18 January 2018, the Company invested £0.34 million into Proactive Investors
On 24 January 2018 and 13 March 2018, 1,186,253 ordinary shares were allotted under the Company's Offer for Subscription, raising net funds of £1.00 million for the Company. Having allotted applications totalling £15 million, the full amount sought, the Offer is therefore closed.
On 27 February 2018, the Company invested £0.34 million into MPB, an existing portfolio company.
On 7 March 2018, the Company invested £0.49 million into SuperCarers Limited.
On 13 March 2018, the Company invested £0.52 million into Hemmels Limited.
We aim to communicate regularly with our shareholders. In addition to the Half-Year and Annual Reports, shareholders receive a twiceyearly VCT newsletter from the Investment Adviser, approved by the Board. The May annual general meeting provides a useful platform for the Board to meet shareholders and exchange views. Your Board welcomes your attendance at general meetings to give you the opportunity to meet your Directors and representatives of the Investment Adviser. The Company releases Interim Management Statements in respect of those quarters where it does not publish half or full year accounts. The Investment Adviser holds an annual shareholder event, the most recent of which was held on 30 January 2018.
Shareholders wishing to follow the Company's progress can visit its website at www.mig4vct.co.uk. The website includes up-to-date details on fund performance and dividends as well as publicly available information on the Company's portfolio of investments and copies of company reports. There is also a link to the London Stock Exchange's website at: www.londonstockexchange.com where shareholders can obtain details of the share price and latest NAV announcements, etc.
Shareholders can check the performance of the VCT by visiting the Investment Adviser's website at www.mobeusequity.co.uk. This is regularly updated with information on your investment including case studies of portfolio companies.
The Company's next Annual General Meeting will be held at 11.30 am on Friday 11 May 2018 at, The Clubhouse, 8 St James's Square, London SW1Y 4JU. A copy of the notice of the meeting can be found on pages 67 to 69. A proxy form for the meeting is included with shareholders' copies of this Annual Report.
Shareholders who wish to have dividends paid directly into their bank account rather than sent by cheque to their registered address can complete a mandate for this purpose. Mandates can be obtained by contacting the Company's Registrars, Link Asset Services, at the address given on page 70.
Shareholders are encouraged to ensure that the Registrars have the correct up-to-date details for their accounts and to check that they have received all dividend payments. This is particularly important if a shareholder has recently moved house or changed their bank. We are aware that a number of dividends remain unclaimed by shareholders and whilst we will endeavour to contact them, we cannot guarantee that we will be able to do so if the Registrars do not have an up-todate postal address or email address.
The Scheme is a convenient, easy and cost effective way to build up your shareholding in the Company. Instead of receiving cash dividends, you can elect to receive new shares in the Company. By opting to receive your dividend in this manner, there are three benefits to shareholders:
Shareholders who wish to join the Scheme should contact the Scheme Administrator, Link Asset Services, at the address given on page 70 or download an application form from the Company's website on the dividend page.
The Company's shares are listed on the London Stock Exchange and as such they can be sold in the same way as any other quoted company through a stockbroker. However, to ensure that you obtain the best price, you are strongly advised to contact the Company's stockbroker, Panmure Gordon, by telephoning 020 7886 2717 before agreeing a price with your stockbroker. Shareholders are also advised to discuss their individual tax position with their financial advisor before deciding to sell their shares.
For details on your individual shareholding and to manage your account, online shareholders may log into or register with the Link Asset Services Shareholder Portal at: www.signalshares.com. You can use the Shareholder Portal to change and update your preferences including changing your address details, check your holding balance and transactions, view the dividends you have received, add and amend your bank details and manage how you receive communications from the Company.
Tax legislation was introduced with effect from 1st January 2016 under the Organisation for Economic Co-operation and Development Common Reporting Standard for Automatic Exchange of Financial Account Information. The legislation requires investment trust companies to provide personal information to HMRC on certain investors who purchase shares . As an affected entity, the Company has to provide information annually to HMRC relating to a number of non-UK based certificated shareholders who are deemed to be resident for tax purposes in any of the 90 plus countries who have joined CRS. All new shareholders, excluding those whose shares are held in CREST, entered onto the share register from 1 January 2016 will be asked to provide the relevant information. Additionally, HMRC's policy on FATCA now mean that, as a result of the restricted secondary market in VCT shares, the Company's shares are not considered to be "regularly traded". The Company is therefore also an affected entity for the purposes of this legislation and so has to provide information annually to HMRC relating to shareholders who are resident for tax purposes in the United States.
For further information, please see HMRC's Quick Guide: Automatic Exchange of Information – information for account holders:
https://www.gov.uk/government/publications/exchange-of-information-account-holders.
For enquiries concerning the investment portfolio or the Company in general, please contact the Investment Adviser, Mobeus Equity Partners. To contact the Chairman or any member of the Board, please contact the Company Secretary, also Mobeus Equity Partners LLP, in the first instance at [email protected].
The Registrars, Link Asset Services, may be contacted via their Shareholder Portal, by post or telephone for queries relating to your shareholding including dividend payments, dividend mandate forms, change of address, etc.
Full contact details for each of Mobeus and Link Asset Services are included under Corporate Information on page 70 of this Annual Report.
NOTICE IS HEREBY GIVEN that an Annual General Meeting of Mobeus Income & Growth 4 VCT plc ("the Company") will be held at 11.30 am on Friday 11 May 2018 at The Clubhouse, 8 St James's Square, London SW1Y 4JU for the purpose of considering and, if thought fit, passing the following resolutions of which resolutions numbered 1 to 8 will be proposed as ordinary resolutions and resolutions 9 and 10 will be proposed as special resolutions. An explanation of the main business to be proposed is included in the Directors' Report on page 28.
in each case where the proceeds of the allotment may be used, in whole or part, to purchase the Company's Shares in the market and provided that this authority shall (unless renewed, varied or revoked by the Company in general meeting) expire on the date falling fifteen months after the passing of this resolution or, if earlier, on the conclusion of the annual general meeting of the Company to be held in 2019, except that the Company may, before the expiry of this authority, make offers or agreements which would or might require equity securities to be allotted after such expiry and the directors of the Company may allot equity securities in pursuance of such offers or agreements as if the authority conferred by this resolution had not expired.
BY ORDER OF THE BOARD
30 Haymarket Company Secretary London SW1Y 4EX
Registered Office Mobeus Equity Partners LLP
Dated: 20 March 2018
Christopher Moore (Chairman) Andrew Robson Helen Sinclair
Mobeus Equity Partners LLP 30 Haymarket London SW1Y 4EX
30 Haymarket London SW1Y 4EX
03707697 LEI No: 213800IFNJ65R8AQW943
Mobeus Equity Partners LLP 30 Haymarket London SW1Y 4EX Telephone: 020 7024 7600 www.mobeusequity.co.uk
www.mig4vct.co.uk
BDO LLP 55 Baker Street London W1U 7EU
The City Partnership (UK) Limited Thistle House 21 Thistle Street Edinburgh EH2 1DF
Howard Kennedy Corporate Services LLP 1 London Bridge Walk London W1A 2AW
Shakespeare Martineau LLP No 1 Colmore Square Birmingham B4 6AA
Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU
Shareholder Portal www.signalshares.com
Tel: +44 (0) 371 644 0324
Panmure Gordon (UK) Limited 1 New Change London EC4M 9AF
Philip Hare & Associates LLP 4-6 Staple Inn High Holborn London WC1V 7QH
National Westminster Bank plc City of London Office PO Box 12258 1 Princes Street London EC2R 8PA
Mobeus Equity Partners LLP 30 Haymarket London SW1Y 4EX
020 7024 7600 www.mig4vct.co.uk
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