REG - British Smaller Co's - Half-year Report
25/11/2022 09:30
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RNS Number : 6244H British Smaller Companies VCT PLC 25 November 2022
British Smaller Companies VCT plc
Unaudited Interim Results and Interim Management Report
for the six months ended 30 September 2022
British Smaller Companies VCT plc (the "Company") today announces its
unaudited interim results for the six months ended 30 September 2022.
HIGHLIGHTS
· Total Return increased by 1.3p to 253.4p per share
· Realisations of investments generated total proceeds of £15.0
million in the period, realising a gain of £2.8 million over the opening
carrying value and £6.3 million over the original cost.
· One new investment and six follow-on investments totalling £8.4
million were completed during the period. Subsequent to the period end, two
follow-on investments and two new investments totalling £7.1 million have
been completed, bringing the total invested this year to £15.5 million,
following the £9.8 million invested in the full year to 31 March 2022
· Net Asset Value at 30 September 2022 of 85.0p per share (31 March
2022: 85.7p) following payment of a 2.0p dividend per share on 12 July 2022
· The Board has paid a second interim dividend of 2.0p per share on
3 October 2022 and declared a special dividend of 4.5p per share in respect of
the year ending 31 March 2023, which will bring total dividends paid in the
current financial year to 8.5p per share
CHAIRMAN'S STATEMENT
It gives me great pleasure to set out my first Chairman's Statement for
British Smaller Companies VCT plc, having been appointed as Chair at the
Company's AGM in September. I thank my predecessor, Helen Sinclair, for her
exemplary service to the Company over 14 years, both as Director and Chair.
It is undoubtedly a turbulent time for the UK economy, characterised by high
rates of inflation and rising interest rates, coupled with a period of
political instability. This has fed through to equity markets, where
decreasing share prices have reduced the underlying multiples that the Company
applies to value its investments.
It is therefore pleasing to note that the Company has achieved a positive
total return in the period, increasing by 1.3 pence, from 252.1 pence per
ordinary share at 31 March 2022 to 253.4 pence per ordinary share at 30
September 2022.
The resilience of the Company's investment valuations predominantly arises
from two aspects. First, there have been positive revaluations upon the sale
of two portfolio companies, Springboard and Intelligent Office; and second,
underlying revenue growth continues to be seen within portfolio companies,
which has helped to negate the impact of lower valuation multiples.
As a Board we remain watchful for further impacts from the economic
environment and will continue to monitor and adjust portfolio valuations to
reflect changes observed.
We also consider the Company's position as a provider of long term funding to
businesses with growth potential that can deliver value through economic
cycles to be a positive in such an environment, and expect further
opportunities to deploy the Company's capital in both new and existing
portfolio companies over the coming months.
Over the past six months, the Company has completed six further investments
into existing portfolio companies, totalling £6.9 million. At the same
time, the Company has added one new investment of £1.5 million. Subsequent to
the period end, a further £3.2 million has also been invested in aggregate
into portfolio companies Unbiased and Wooshii, and two new investments have
been made totalling £3.9 million, taking the total invested so far this year
to £15.5 million, following the £9.8 million invested in the full year to 31
March 2022.
Realisations in the Period
Realisations of investments generated total proceeds of £15.0 million in the
period, realising a gain of £2.8 million over the opening carrying value and
£6.3 million over the original cost.
The realisation of Springboard generated proceeds of £8.7 million,
representing a capital profit over cost of £5.9 million, an uplift of 30.7
per cent or £2.0 million on the carrying value at the beginning of the year.
Including income, the total return from this investment was £9.9 million over
a nearly eight year holding period, producing an internal rate of return of 23
per cent and a multiple of 4.1x cost. There is the prospect of further
consideration in 2023 based on performance targets, no value has been taken on
these potential payments at this time.
The sale of Intelligent Office generated proceeds of £6.1 million,
representing a capital profit over cost of £3.2 million, an uplift of 21.1
per cent or £1.1 million on the carrying value at the beginning of the year.
Including income, the total return from this investment was £7.6 million over
an eight and a half year holding period, producing an internal rate of return
of 14 per cent and a multiple of 2.6x cost.
Financial Results
The investment portfolio generated a return of £3.5 million in the period,
driven by the two successful realisations and positive revaluations from a
number of companies. The movement in net asset value ("NAV") per ordinary
share and the dividends paid are set out in the table below.
Pence per ordinary share £000
NAV at 31 March 2022 85.7p 159,534
Net gain arising from investment portfolio 1.9p 3,499
Net operating costs (0.6p) (1,074)
Issue/buy-back of new shares - (101)
Total Return in period 1.3p 2,324
NAV before the payment of dividends 87.0p 161,858
Dividends paid (2.0p) (3,725)
NAV at 30 September 2022 85.0p 158,133
Cumulative dividends paid 168.4p
Total Return: At 30 September 2022 253.4p
At 31 March 2022 252.1p
Investments made since the changes to the VCT rules in November 2015 now
comprise 83 per cent by value of the unquoted portfolio at 30 September 2022
(£82.1 million, cost of £52.5 million), with 17 per cent by value of
investments made prior to the rule changes (£16.9 million, cost of £6.8
million). These more recent additions to the portfolio are typically
equity-based instruments and are focused on investing for growth.
Dividends
An interim dividend of 2.0 pence per ordinary share in respect of the year
ending 31 March 2023 was paid on 12 July 2022, and subsequent to the period
end a second interim dividend of 2.0 pence per ordinary share for the year
ending 31 March 2023 was paid on 3 October 2022, bringing the cumulative
dividends paid to date to 170.4 pence per ordinary share.
Your Board has proposed a special dividend of 4.5 pence per ordinary share for
the year ending 31 March 2023 which, when combined with the above dividends,
will bring total dividends paid in the current financial year to 8.5 pence per
ordinary share (2022: 9.0 pence per ordinary share). The special dividend
will be paid on 11 January 2023 to shareholders on the register on 18 November
2022.
Shareholder Relations
The shareholder workshop held on 29 June 2022 was well attended. Attendees
heard from economist and author Paul Collier; Ben Hookway, CEO of Relative
Insight, one of the Company's recent investments; and Matthew Scullion of
Matillion. The Matillion interview and the slides from the event can be
viewed on the website www.bscfunds.com (http://www.bscfunds.com) .
We will be hosting a further event by video platform on 1 December 2022.
Documents such as the annual report are now received electronically by 81 per
cent of shareholders, rather than by post, which helps to meet the Board's
impact objectives and reduces printing costs. The Board continues to encourage
all shareholders to take up this option.
The Company's website is refreshed on a regular basis and provides a
comprehensive level of information in what I hope is a user-friendly format.
Board Changes
As previously announced, Purvi Sapre joined the Board on 6 June 2022. Purvi
has over 15 years investment experience in the UK and International markets,
investing on behalf of debt, equity, and investment funds.
As noted above, Helen Sinclair retired as Chairman and a Director of the Board
at the Company's AGM on 16 September 2022.
Registrars
The Company changed its registrar from Link Group to The City Partnership over
the weekend of 21-23 October 2022. The City Partnership has issued further
correspondence on this to all shareholders.
Regulatory Developments
On 23 September 2022 the then Chancellor announced that the Sunset Clause
would be extended beyond the current expiry date of April 2025. The Sunset
Clause applies to both EIS and VCT initial tax reliefs, it comes into effect
in April 2025 and would have the effect of removing the upfront tax reliefs on
investment unless it is extended. The announcement of the extension is
welcomed. In the period there have been no regulatory changes that impact the
Company; the Manager continues to monitor for any amendments.
Most new portfolio investments are now self-assured as VCT qualifying on a
case-by-case basis and always with confirmation from professional advisers
that they are Qualifying Investments. Advance assurance is sought where
there is an element of uncertainty over the application of the rules.
Fundraising
On 2 August 2022, the Company announced its intention to launch a new joint
offer for subscription for the tax year 2022-23 later this year, alongside
British Smaller Companies VCT2 plc. A prospectus with full details of the
proposed offer will be published on or around 30 November 2022.
Share Premium Cancellation
Following approval at the Company's Annual General meeting, and subsequent
approval by the High Court, subsequent to the period end the Company cancelled
the balance of its share premium account, £63.6 million, which will be
transferred to the Capital reserve. This will give the Company greater
flexibility to continue to pay regular dividends to shareholders and to
provide its periodic offer to buy back shares from shareholders. As set out
below, this will become available for distribution at various times over the
period to 1 April 2026.
Outlook
The portfolio companies have proven themselves to be adaptable and
resilient. In the past, when faced with the combination of high inflation,
increasing interest rates and slowing economies we have seen demand for equity
capital increase from the UK's smaller innovative businesses. Such conditions
often prove to be an opportune time to invest long term capital in fast
growing businesses, and therefore the planned fundraising by the Company will
ensure it is well placed to take advantage of new opportunities.
I thank shareholders for their continued support.
Rupert Cook
Chairman
OBJECTIVES AND STRATEGY
The Company's objective is to maximise Total Return and provide investors with
a long-term tax free dividend yield whilst maintaining the Company's status as
a venture capital trust.
The investment strategy of the Company is to invest in UK businesses across a
broad range of sectors that blends a mix of businesses operating in
established and emerging industries that offer opportunities in the
application and development of innovation in their products and services.
These investments will all meet the definition of a Qualifying Investment and
be primarily in unquoted UK companies. It is anticipated that the majority of
these businesses will be re-investing their profits for growth and the
investments will comprise mainly equity investments.
The Company seeks to build a diversified portfolio which ensures compliance
with the VCT guidelines.
INVESTMENT REVIEW
The Company's portfolio at 30 September 2022 had a value of £99.0 million.
Investments made since the VCT rule changes in 2015 comprised £82.1 million
(83 per cent of the total value of the portfolio). The top ten investments
represented 46.5 per cent of the net asset value with the largest representing
15.5 per cent of the net asset value.
The Company's portfolio delivered a positive performance over the period,
generating a return of £4.2 million, of which £2.9 million was realised and
£1.3 million arose from the residual portfolio. As noted below, there was a
fall in value of £0.7 million from the quoted investments.
There were upward revaluations from Displayplan, Outpost, ACC and Wakefield
Acoustics, offset by more difficult trading conditions at Arcus Global and
Elucidat. Matillion's valuation reduced due to decreases in valuation
multiples of comparable public companies.
Realisation of Investments
During the six months to 30 September 2022 the Company generated £15.0
million from disposals, a profit of £2.8 million over the opening carrying
value and a gain of £6.3 million on cost. Further details, including
movements from quoted funds, are given in note 6.
Investments
During the six months ended 30 September 2022, the Company completed seven
investments, totalling £8.4 million. This comprised one new investment of
£1.5 million and six follow-on investments totalling £6.9 million. The
breakdown of these investments is shown below:
Company Investments made £million
New Follow-on Total
Quality Clouds 1.5 - 1.5
Outpost - 3.0 3.0
Vypr - 1.8 1.8
Vuealta - 0.9 0.9
Force24 - 0.7 0.7
Wooshii - 0.4 0.4
Other follow-on investments - 0.1 0.1
Invested in the period 1.5 6.9 8.4
Quality Clouds, a tool for the control and governance of critical SaaS
platforms within corporations, will be supported to recruit and grow their
sales teams in the UK and US. The follow-on investments into: Outpost will
help the company develop new studios in London and Mumbai, building their
technology; Vypr will assist in the strategic sales and product development;
Vuealta the development of software to enhance the consultancy business;
Force24 will aid the expansion in sales, marketing and product-led growth; and
Wooshii assist in expanding the product and service offering.
Subsequent to the period end the Company has invested £3.9 million into two
new companies and also invested a further £3.2 million, in aggregate, into
portfolio companies Unbiased and Wooshii.
Cash Deposits
Under the revised VCT legislation it is no longer possible to deposit funds
for longer than seven days, which has reduced the Company's interest income
from cash deposits. The Board continually review opportunities to generate a
higher level of income, whilst seeking to maintain capital over the medium
term. As part of this, the Company has invested into a small, diversified
portfolio of listed investment funds with a focus on capital preservation,
whilst generating some yield. At 30 September 2022 this quoted portfolio was
valued at £4.2 million, or 2.6 per cent of net assets; this reduced in value
by £0.7 million in the period, predominantly driven by a reduction in the
valuation of its bond investments.
In addition, the Company has also invested into a number of money market funds
which can be converted back into cash with immediate notice. These funds are
included within Current asset investments. At 30 September 2022 these funds
were valued at £7.5 million, or 4.7 per cent of net assets.
PORTFOLIO
The top 10 investments had a combined value of £73.6 million, 74.3 per cent
of the total portfolio.
Name of Company Sector First Current Value at Proceeds Capital return to date
investment cost 30 September to date*
2022
£000 £000 £000 £000
Matillion Limited Data Nov 16 1,778 24,530 7,071 31,601
Outpost VFX Limited New Media Feb 21 4,500 8,203 - 8,203
Displayplan Holdings Limited Business Services Jan 12 130 7,367 1,521 8,888
Unbiased EC1 Limited Tech-enabled Services Dec 19 2,946 6,495 - 6,495
Wooshii Limited New Media May 19 4,059 5,478 - 5,478
Force24 Ltd Application Software Nov 20 3,150 4,781 - 4,781
ACC Aviation Group Limited* Business Services Nov 14 220 4,702 1,848 6,550
Elucidat Ltd Application Software May 19 2,700 4,054 - 4,054
SharpCloud Software Limited Data Oct 19 3,407 4,002 - 4,002
Vypr Validation Technologies Limited Tech-enabled Services Jan 21 3,300 3,991 - 3,991
Total top 10 investments 26,190 73,603 10,440 84,043
Remaining portfolio
Vuealta Group Limited Tech-enabled Services Sep 21 2,954 3,157 - 3,157
Relative Insight Limited Tech-enabled Services Mar 22 3,000 3,099 - 3,099
Ncam Technologies Limited New Media Mar 18 2,512 2,184 131 2,315
Tonkotsu Limited Retail & Brands Jun 19 2,388 2,059 - 2,059
Frescobol Carioca Ltd Retail & Brands Mar 19 1,800 1,849 - 1,849
Sipsynergy Cloud & DevOps Jun 16 2,654 1,830 - 1,830
(via Hosted Network Services Limited)
KeTech Enterprises Limited Tech-enabled Services Nov-15 10 1,714 1,775 3,489
Traveltek Group Holdings Limited Application Software Oct 16 1,716 1,576 - 1,576
Panintelligence (via Paninsight Limited) Data Nov 19 1,500 1,500 - 1,500
Quality Clouds Limited Cloud & DevOps May 22 1,500 1,500 - 1,500
e2E Engineering Limited Business Services Sep 17 900 1,148 - 1,148
Wakefield Acoustics (via Malvar Engineering Limited) Advanced Manufacturing Dec 14 1,080 779 - 779
£0.75 million and below 11,060 3,012 8,469 11,481
Total portfolio 59,264 99,010 20,815 119,825
Full disposals to date 69,367 - 129,247 129,247
Total portfolio 128,631 99,010 150,062 249,072
* Additional ordinary dividends of £2.9 million have also been
received
OUR PORTFOLIO AT A GLANCE
The charts on pages 13 and 14 of the interim report illustrate the broad range
of the investment portfolio.
PRINCIPAL RISKS AND UNCERTAINTIES
In accordance with DTR 4.2.7, the Board confirms that the principal risks and
uncertainties facing the Company have not materially changed from those
identified in the Annual Report and Accounts for the year ended 31 March 2022.
The Board acknowledges that there is regulatory risk and continues to manage
the Company's affairs in such a manner as to comply with section 274 of the
Income Tax Act 2007.
In summary, the principal risks are:
• Loss of approval as a Venture Capital Trust;
• Economic;
• Investment and strategic;
• Regulatory;
• Reputational;
• Operational;
• Cyber/IT;
• Climate;
• Financial; and
• Market/liquidity.
Full details of the principal risks can be found in the financial statements
for the year ended 31 March 2022 on pages 32 to 34, a copy of which is
available at www.bscfunds.com.
DIRECTORS' RESPONSIBILITIES STATEMENT
The directors of British Smaller Companies VCT plc confirm that, to the best
of their knowledge, the condensed set of financial statements in this interim
report have been prepared in accordance with International Accounting Standard
34 "Interim Financial Reporting" as adopted by the UK, and give a true and
fair view of the assets, liabilities, financial position and profit and loss
of British Smaller Companies VCT plc, and that the interim management report
includes a true and fair review of the information required by DTR 4.2.7R and
DTR 4.2.8R.
The directors of British Smaller Companies VCT plc are listed in note 10.
By order of the Board
Rupert Cook
Chairman
UNAUDITED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 September 2022
Unaudited 6 months ended Unaudited 6 months ended
30 September 2022 30 September 2021
Notes Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gains on disposal of investments 6 - 2,849 2,849 - 2,518 2,518
Gains on investments held at fair value 6 - 650 650 - 23,071 23,071
- 3,499 3,499 - 25,589 25,589
Income 2 658 - 658 613 - 613
Total income 658 3,499 4,157 613 25,589 26,202
Administrative expenses:
Manager's fee (351) (1,052) (1,403) (261) (780) (1,041)
Other expenses (329) - (329) (237) - (237)
(680) (1,052) (1,732) (498) (780) (1,278)
(Loss) profit before taxation (22) 2,447 2,425 115 24,809 24,924
Taxation 3 - - - - - -
(Loss) profit for the period (22) 2,447 2,425 115 24,809 24,924
Total comprehensive (expense) income for the period (22) 2,447 2,425 115 24,809 24,924
Basic and diluted (loss) earnings per ordinary share 5 (0.01p) 1.31p 1.30p 0.08p 17.04p 17.12p
The Total column of this statement represents the Company's Unaudited
Statement of Comprehensive Income, prepared in accordance with UK adopted
international accounting standards. The supplementary Revenue and Capital
columns are prepared under the Statement of Recommended Practice 'Financial
Statements of Investment Trust Companies and Venture Capital Trusts' (issued
in April 2021 - "SORP") published by the Association of Investment Companies.
UNAUDITED BALANCE SHEET
as at 30 September 2022
Notes Unaudited Unaudited Audited
30 September 30 September 31
2022 2021 March 2022
£000 £000 £000
ASSETS
Non-current assets at fair value through profit and loss
Investments 6 99,010 98,614 101,159
Listed investment funds 6 4,181 4,979 4,706
Financial assets at fair value through profit or loss 6 103,191 103,593 105,865
Accrued income and other assets 1,014 856 907
104,205 104,449 106,772
Current assets
Accrued income and other assets 6,386 204 150
Current asset investments 14,471 9,471 14,471
Cash and cash equivalents 33,217 17,714 38,928
54,074 27,389 53,549
LIABILITIES
Current liabilities
Trade and other payables (146) (109) (787)
Net current assets 53,928 27,280 52,762
Net assets 158,133 131,729 159,534
Shareholders' equity
Share capital 20,612 16,233 20,510
Share premium account 62,861 30,626 62,123
Capital reserve 34,245 41,990 33,620
Investment holding gains and losses reserve 39,138 41,437 41,982
Revenue reserve 1,277 1,443 1,299
Total shareholders' equity 158,133 131,729 159,534
Net asset value per ordinary share 7 85.0p 90.9p 85.7p
Signed on behalf of the Board
Rupert Cook
Chairman
UNAUDITED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2022
Share Share Capital Investment Revenue Total
capital premium reserve holding reserve equity
account gains and
losses reserve
£000 £000 £000 £000 £000 £000
At 31 March 2021 16,131 29,995 41,106 18,944 4,184 110,360
Revenue return for the period - - - - 115 115
Expenses charged to capital - - (780) - - (780)
Investment holding gain on investments held at fair value - - - 23,071 - 23,071
Realisation of investments in the period - - 2,518 - - 2,518
Total comprehensive income for the period - - 1,738 23,071 115 24,924
Issue of shares - DRIS 102 652 - - - 754
Issue costs - (21) - - - (21)
Purchase of own shares - - (1,376) - - (1,376)
Dividends - - (116) - (2,796) (2,912)
Total transactions with owners 102 631 (1,492) - (2,796) (3,555)
Realisation of prior year investment holding gains - - 638 (578) (60) -
At 30 September 2021 16,233 30,626 41,990 41,437 1,443 131,729
Revenue loss for the period - - - - (144) (144)
Expenses charged to capital - - (1,573) - - (1,573)
Investment holding gain on investments held at fair value - - - 2,444 - 2,444
Realisation of investments in the period - - 2,613 - - 2,613
Total comprehensive income (expense) for the period - - 1,040 2,444 (144) 3,340
Issue of share capital 3,952 30,676 - - - 34,628
Issue of shares - DRIS 325 2,338 - - - 2,663
Issue costs - (1,517) - - - (1,517)
Purchase of own shares - - (1,122) - - (1,122)
Dividends - - (10,187) - - (10,187)
Total transactions with owners 4,277 31,497 (11,309) - - 24,465
Realisation of prior year investment holding gains - - 1,899 (1,899) - -
At 31 March 2022 20,510 62,123 33,620 41,982 1,299 159,534
Revenue loss for the period - - - - (22) (22)
Expenses charged to capital - - (1,052) - - (1,052)
Investment holding gain on investments held at fair value - - - 650 - 650
Realisation of investments in the period - - 2,849 - - 2,849
Total comprehensive income (expense) for the period - - 1,797 650 (22) 2,425
Issue of shares - DRIS 102 760 - - - 862
Issue costs - (22) - - - (22)
Purchase of own shares - - (941) - - (941)
Dividends - - (3,725) - - (3,725)
Total transactions with owners 102 738 (4,666) - - (3,826)
Realisation of prior year investment holding gains - - 3,494 (3,494) - -
At 30 September 2022 20,612 62,861 34,245 39,138 1,277 158,133
Reserves available for distribution
Under the Companies Act 2006, the capital reserve and the revenue reserve are
distributable reserves. The table below shows amounts that are available for
distribution.
Capital reserve Revenue reserve Total
£000 £000 £000
Distributable reserves as above 34,245 1,277 35,522
Less: Income not yet distributable - (1,150) (1,150)
Reserves available for distribution* 34,245 127 34,372
* subject to filing these interim financial statements at Companies House.
The capital reserve and the revenue reserve are both distributable reserves.
These reserves total £35,522,000, representing a decrease of £603,000 in the
period since 31 March 2022. The directors also consider the level of the
investment holding gains and losses reserve and the future requirements of the
Company when determining the level of dividend payments.
Of the potentially distributable reserves of £35,522,000 shown above,
£1,150,000 relates to income not yet receivable.
Total share premium cancelled subsequent to the period end is available for
distribution from the following dates:
£000
Once the annual report for the year ended 31 March 2023 is circulated to 22,838
shareholders
1 April 2024 7,157
1 April 2025 32,128
1 April 2026 738
Share premium account at 30 September 2022 62,861
1 April 2026 - arising on 3 October 2022 dividend 746
Cancelled share premium account not yet distributable 63,607
UNAUDITED STATEMENT OF CASH FLOWS
for the six months ended 30 September 2022
Notes Unaudited Unaudited Audited
6 months 6 months year
ended ended ended
30 September 30 September 31 March 2022
2022 2021
£000 £000 £000
Profit before taxation 2,425 24,924 28,264
(Decrease) increase in trade and other payables (641) (77) 601
(Increase) decrease in accrued income and other assets (224) 384 387
Gains on disposal of investments (2,849) (2,518) (5,131)
Gains on investments held at fair value (650) (23,071) (25,515)
Capitalised income - - (89)
Net cash outflow from operating activities (1,939) (358) (1,483)
Cash flows (used in) from investing activities
Purchase of financial assets at fair value through profit or loss 6 (8,778) (6,516) (10,465)
Proceeds from sale of financial assets at fair value through profit or loss 6 8,832 7,246 14,069
Deferred consideration 6 - 240 240
Net cash inflow from investing activities 54 970 3,844
Cash flows from (used in) financing activities
Issue of ordinary shares - - 34,628
Costs of ordinary share issues* (22) (21) (1,538)
Purchase of own shares (941) (1,376) (2,498)
Dividends paid 4 (2,863) (2,158) (9,682)
Net cash (outflow) inflow from financing activities (3,826) (3,555) 20,910
Net (decrease) increase in cash and cash equivalents (5,711) (2,943) 23,271
Cash and cash equivalents at the beginning of the period 46,429 23,158 23,158
Cash and cash equivalents at the end of the period 40,718 20,215 46,429
Cash and cash equivalents comprise 7,501 2,501 7,501
Money market funds
Cash at bank 33,217 17,714 38,928
Cash and cash equivalents at the end of the period 40,718 20,215 46,429
*Issue costs include both fundraising costs and expenses incurred from the
Company's DRIS.
EXPLANATORY NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
1 General Information, Basis of Preparation and Principal
Accounting Policies
These half year statements have been approved by the directors whose names
appear at note 10, each of whom has confirmed that to the best of their
knowledge:
• the interim management report includes a fair review of the information
required by rules 4.2.7 and 4.2.8 of the Disclosure Rules and the Transparency
Rules; and
• the half year statements have been prepared in accordance with IAS 34
'Interim financial reporting' and the Disclosure and Transparency Rules of the
Financial Conduct Authority.
The half year statements are unaudited and have not been reviewed by the
auditors pursuant to the International Standard on Review Engagements (UK and
Ireland) 2410 guidance on Review of Interim Financial Information performed by
the independent Auditor of the entity. They do not constitute full financial
statements as defined in section 435 of the Companies Act 2006. The
comparative figures for the year ended 31 March 2022 do not constitute full
financial statements and have been extracted from the Company's financial
statements for the year ended 31 March 2022. Those accounts were reported upon
without qualification by the auditors and have been delivered to the Registrar
of Companies.
The accounting policies and methods of computation followed in the half year
statements are the same as those adopted in the preparation of the audited
financial statements for the year ended 31 March 2022. They do not include all
disclosures that would otherwise be required in a complete set of financial
statements and should be read in conjunction with the 2022 annual report.
The accounts have been prepared on a going concern basis as set out below and
in accordance with UK adopted international accounting standards.
The accounts have been prepared under the historical cost basis as modified by
the measurement of investments at fair value through profit or loss.
The accounts have been prepared in compliance with the recommendations set out
in the Statement of Recommended Practice 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts' issued by the Association of
Investment Companies (issued in April 2021 - "SORP") to the extent that they
do not conflict with UK adopted international accounting standards.
The financial statements are prepared in accordance with UK adopted
international accounting standards (IFRSs) and interpretations in force at the
reporting date. New standards coming into force during the period and future
standards that come into effect after the period-end have not had a material
impact on these financial statements.
The Company has carried out an assessment of accounting standards, amendments
and interpretations that have been issued by the IASB and that are effective
for the current reporting period. The Company has determined that the
transitional effects of the standards do not have a material impact.
The financial statements are presented in sterling and all values are rounded
to the nearest thousand (£000), except where stated.
Going Concern: The directors have carefully considered the issue of going
concern and are satisfied that the Company has sufficient resources to meet
its obligations as they fall due for a period of at least twelve months from
the date these half year statements were approved. As at 30 September 2022 the
Company held cash balances, fixed term deposits and other liquid resources
with a combined value of £51,869,000. Cash flow projections show the Company
has sufficient funds to meet both its contracted expenditure and its
discretionary cash outflows in the form of share buy-backs and the dividend
policy. In the year ended 31 March 2022 the Company's costs and
discretionary expenditures were:
£'000
Administrative expenses (before incentive fee) 2,826
Share buybacks 2,498
Dividends (before DRIS) 13,099
Total 18,423
The directors therefore believe that it is appropriate to continue to apply
the going concern basis of accounting in preparing these half year statements.
2 Income
Unaudited Unaudited
6 months 6 months
ended ended
30 September 30 September
2022 2021
£000 £000
Income from investments
- Interest on loans to unquoted companies 297 204
- Dividends from unquoted companies 172 321
Income from unquoted portfolio 469 525
Income from listed investment funds 54 54
Income from investments held at fair value through profit or loss 523 579
Interest on bank deposits/money market funds 135 34
658 613
3 Taxation
Unaudited 6 months ended Unaudited 6 months ended
30 September 2022 30 September 2021
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Loss (profit) before taxation (22) 2,447 2,425 115 24,809 24,924
Loss (profit) before taxation multiplied by the standard small company rate of (4) 465 461 22 4,714 4,736
corporation tax in UK of 19.0% (2021: 19.0%)
Effect of:
UK dividends received (35) - (35) (65) - (65)
Non-taxable profits on investments - (665) (665) - (4,862) (4,862)
Deferred tax not recognised 39 200 239 43 148 191
Tax charge - - - - - -
The Company has no provided, or unprovided, deferred tax liability in either
period.
Deferred tax assets in respect of losses have not been recognised as the
directors do not currently believe that it is probable that sufficient taxable
profits will be available against which the assets can be recovered.
Due to the Company's status as a venture capital trust, and the continued
intention to meet the conditions required to comply with Chapter 3 Part 6 of
the Income Tax Act 2007, the Company has not provided deferred tax on any
capital gains or losses arising on the revaluation or realisation of
investments.
4 Dividends
Amounts recognised as distributions to equity holders in
the period:
Unaudited Unaudited Audited
6 months ended 6 months ended Year ended
30 September 2022 30 September 2021 31 March 2022
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000 £000 £000 £000
Interim dividend for the year ending 31 March 2023 of 2.0p (2022: 2.0p) per - 3,725 3,725 2,796 116 2,912 2,796 116 2,912
ordinary share
Second interim dividend for the year ended 31 March 2022 of 5.0p per ordinary - - - - - - - 7,244 7,244
share
Third interim dividend for the year ended 31 March 2022 of 2.0p per ordinary - - - - - - - 2,943 2,943
share
- 3,725 3,725 2,796 116 2,912 2,796 10,303 13,099
Shares allotted under DRIS (862) (754) (3,417)
Dividends paid in the Statement of Cash Flows 2,863 2,158 9,682
The interim dividend of 2.0 pence per ordinary share was paid on 12 July 2022
to shareholders on the register as at 10 June 2022.
A second interim dividend of 2.0p per ordinary share amounting to
approximately £2.9 million was paid on 3 October 2022 to shareholders on the
register at 2 September 2022, and a special dividend of 4.5 pence per ordinary
share, amounting to approximately £8.4 million, is proposed. These dividends
have not been recognised in these half year financial statements as the
obligations did not exist at the balance sheet date.
5 Basic and Diluted (Loss) Earnings per Ordinary Share
The basic and diluted earnings per ordinary share is based
on the profit after tax attributable to equity shareholders of £2,425,000 (30
September 2021: £24,924,000) and 186,454,862 (30 September 2021: 145,575,164)
ordinary shares being the weighted average number of ordinary shares in issue
during the period.
The basic and diluted revenue (loss) earnings per
ordinary share is based on the revenue loss attributable to equity
shareholders of £22,000 (30 September 2021: profit of £115,000) and
186,454,862 (30 September 2021: 145,575,164) ordinary shares being the
weighted average number of ordinary shares in issue during the period.
The basic and diluted capital earnings per ordinary
share is based on the capital profit attributable to equity shareholders of
£2,447,000 (30 September 2021: £24,809,000) and 186,454,862 (30 September
2021: 145,575,164) ordinary shares being the weighted average number of
ordinary shares in issue during the period.
During the period the Company allotted 1,029,555 new
ordinary shares in respect of its DRIS.
The Company has also repurchased 1,176,943 of its own shares in the period and
these shares are held in the capital reserve. The total of 20,011,925 treasury
shares has been excluded in calculating the weighted average number of
ordinary shares during the period.
The Company has no dilutive shares and consequently,
basic and diluted earnings per ordinary share are equivalent at 30 September
2022, 31 March 2022 and 30 September 2021.
6 Financial Assets at Fair Value through Profit or Loss
IFRS 13 and IFRS 7, in respect of financial instruments
that are measured in the balance sheet at fair value, require disclosure of
fair value measurements by level within the following fair value measurement
hierarchy:
• Level 1: quoted prices in active markets for identical
assets or liabilities. The fair value of financial instruments traded in
active markets is based on quoted market prices at the balance sheet date. A
market is defined as a market in which transactions for the asset or liability
take place with sufficient frequency and volume to provide pricing information
on an ongoing basis. The quoted market price used for financial assets held by
the Company is the current bid price. These instruments are included in Level
1 and comprise listed investment funds classified as held at fair value
through profit or loss.
• Level 2: the fair value of financial instruments that
are not traded in an active market is determined by using valuation
techniques. These valuation techniques maximise the use of observable market
data where it is available and rely as little as possible on entity specific
estimates. If all significant inputs required to fair value an instrument are
observable, the instrument is included in Level 2. The Company held no such
instruments in the current or prior year.
• Level 3: the fair value of financial instruments that
are not traded in an active market (for example, investments in unquoted
companies) is determined by using valuation techniques such as earnings or
revenue multiples. If one or more of the significant inputs is not based on
observable market data, the instrument is included in Level 3. The majority of
the Company's investments fall into this category.
Each investment is reviewed at least quarterly to
ensure that it has not ceased to meet the criteria of the level in which it
was included at the beginning of each accounting period. There have been no
transfers between these classifications in the period (2021: none).
The change in fair value for the current and previous year is recognised
through profit or loss. All items held at fair value through profit or loss
were designated as such upon initial recognition.
Valuation of Investments
Unquoted investments are valued in accordance with IFRS 13
"Fair Value Measurement" and using the International Private Equity and
Venture Capital ("IPEVC") Valuation Guidelines ("the Guidelines") issued in
December 2018.
Initial measurement
The best estimate of the initial fair value of an unquoted investment is the
cost of the investment. Unless there are indications that this is
inappropriate, an unquoted investment will be held at this value within the
first three months of investment.
Subsequent measurement
Based on the Guidelines we have identified six of the most widely used
valuation methodologies for unquoted investments. The Guidelines advocate that
the best valuation methodologies are those that draw on external, objective
market-based data in order to derive a fair value.
Full details of the methods used by the Company were set out on pages 66 and
67 of the financial statements for the year ended 31 March 2022, a copy of
which can be found at www.bscfunds.com (http://www.bscfunds.com) .
The primary methods used for valuing non-quoted investments, and the key
assumptions relating to them are:
Unquoted Investments
> revenue multiple. An appropriate multiple, given the risk profile and
revenue growth prospects of the underlying company, is applied to the revenue
of the company. The multiple is adjusted to reflect any risk associated with
lack of marketability and to take account of the differences between the
investee company and the benchmark company or companies used to derive the
multiple.
> earnings multiple. An appropriate multiple, given the risk profile and
earnings growth prospects of the underlying company, is applied to the
maintainable earnings of the company. The multiple is adjusted to reflect any
risk associated with lack of marketability and to take account of the
differences between the investee company and the benchmark company or
companies used to derive the multiple.
Movements in investments at fair value through profit or loss during the six
months to 30 September 2022 are summarised as follows:
IFRS 13 measurement classification Level 3 Level 1 Total Investments
Unquoted Listed Investment Funds
Investments
£000 £000 £000
Opening cost 59,265 4,618 63,883
Opening valuation gain 41,894 88 41,982
Opening fair value at 1 April 2022 101,159 4,706 105,865
Additions at cost 8,425 353 8,778
Disposal proceeds (14,792) (159) (14,951)
Net profit (loss) on disposals 2,863 (14) 2,849
Change in fair value 1,355 (705) 650
Closing fair value at 30 September 2022 99,010 4,181 103,191
Closing cost 59,264 4,789 64,053
Closing valuation gain (loss) 39,746 (608) 39,138
Closing fair value at 30 September 2022 99,010 4,181 103,191
Level 3 valuations include assumptions based on non-observable data, such as
discounts applied either to reflect changes in the fair value of financial
assets held at the price of recent investment, or to adjust revenue or
earnings multiples.
IFRS13 requires disclosure, by class of financial instruments, if the effect
of changing one or more inputs to reasonably possible alternative assumptions
would result in a significant change to fair value measurement. Each unquoted
portfolio company has been reviewed and both downside and upside alternative
assumptions have been identified and applied to the valuation of each of the
unquoted investments. Applying the downside alternative the value of the
unquoted investments would be £4,518,000 (4.6 per cent) lower. Using the
upside alternative the value would be increased by £4,420,000 (4.5 per cent).
96 per cent of the Company's investments are in unquoted companies held at
fair value. The valuation methodology for these investments includes the
application of externally produced revenue and earnings multiples. Therefore
the value of the unquoted element of the portfolio is also indirectly affected
by price movements on the listed market. Those using revenue and earnings
multiple methodologies include judgements regarding the level of discount
applied to that multiple. The effect of changing the level of discounts
applied to the multiples is considered above.
4 per cent of the Company's investments are investment funds listed on the
main market of the London Stock Exchange (including FCA authorised and
regulated UCITS funds). A 5 per cent increase in stock prices as at 30
September 2022 would have increased the net assets attributable to the
Company's shareholders and the total profit by £209,000. An equal change in
the opposite direction would have decreased the net assets attributable to the
Company's shareholders and the total profit by an equal amount.
There have been no individual fair value adjustments downwards during the
period that exceeded 5 per cent of the total assets of the Company (31 March
2022: none).
The following disposals took place during the period.
Net Cost Opening Gain (loss)
proceeds carrying over
from sale value as at opening
1 April carrying
2022 value
£000 £000 £000 £000
Unquoted investments
Springboard Research Holdings Limited 8,673 2,822 6,638 2,035
Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) 6,119 2,934 5,051 1,068
Arraco Global Markets Limited* - 2,670 240 (240)
Total from portfolio 14,792 8,426 11,929 2,863
Listed investment funds 159 182 173 (14)
Total from investment portfolio 14,951 8,608 12,102 2,849
* opening carrying value includes addition in the period.
The total from disposals in the table above is £14,951,000 whereas that shown
in the Statement of Cash Flows is £8,832,000. This is due to the timing
differences between the recognition of the deferred income and its receipt in
cash.
7 Basic and Diluted Net Asset Value per Ordinary Share
The basic and diluted net asset value per ordinary share is
calculated on attributable assets of £158,133,000 (30 September 2021 and 31
March 2022: £131,729,000 and £159,534,000 respectively) and 186,112,757 (30
September 2021 and 31 March 2022: 144,873,228 and 186,260,145 respectively)
ordinary shares in issue at 30 September 2022.
The treasury shares have been excluded in calculating
the number of ordinary shares in issue at 30 September 2022.
The Company has no potentially dilutive shares and
consequently, basic and diluted net asset values are equivalent at 30
September 2022, 31 March 2022 and 30 September 2021.
8 Total Return
Total Return per ordinary share is calculated on cumulative
dividends paid of 168.4 pence per ordinary share (30 September 2021: 159.4
pence per ordinary share and 31 March 2022: 166.4 pence per ordinary share)
plus the net asset value as calculated in note 7.
9 Post Balance Sheet Events
Subsequent to the period end the Company has invested £3.9 million into two
new companies and also invested a further £3.2 million, in aggregate, into
portfolio companies Unbiased and Wooshii.
10 Directors
The directors of the Company are: Rupert Cook, Adam Bastin,
Jonathan Cartwright and Purvi Sapre.
11 Other Information
Copies of the interim report can be obtained from the
Company's registered office: 5th Floor, Valiant Building, 14 South Parade,
Leeds, LS1 5QS or from www.bscfunds.com (http://www.bscfunds.com) .
12 Special Dividend for the year ending 31 March 2023
The directors have previously announced the payment of a special dividend for
the year ending 31 March 2023 of 4.5 pence per ordinary share ("Special
Dividend").
The Special Dividend will be paid on 11 January 2023 to those shareholders on
the Company's register at the close of business on 18 November 2022. The
ex-dividend date will be 17 November 2022.
13 Dividend Re-investment Scheme
The Company operates a DRIS. The latest date for receipt of DRIS elections
so as to participate in the DRIS in respect of the Special Dividend is the
close of business on 2 December 2022.
14 Inside Information
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulations
(EU No. 596/2014). Upon the publication of this announcement via Regulatory
Information Service this inside information is now considered to be in the
public domain.
For further information, please contact:
David Hall YFM Private
Equity Limited Tel: 0113 244
1000
Alex Collins Panmure Gordon
(UK) Limited Tel: 0207 886 2767
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