REG - British Smaller Co's - Annual Financial Report
14/06/2024 12:30
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240614:nRSN5418Sa&default-theme=true
RNS Number : 5418S British Smaller Companies VCT PLC 14 June 2024
British Smaller Companies VCT plc
Annual Financial Report Announcement
for the year ended 31 March 2024
British Smaller Companies VCT plc (the "Company") today announces its audited
results for the year ended 31 March 2024.
HIGHLIGHTS
l 4.7 per cent return on opening net assets, before dividends of 4.0 pence paid
in the year, driven by both underlying revenue growth in portfolio companies
and positive realisations.
l Net asset value at 31 March 2024 of 83.6 pence per share (2023: 83.7 pence per
share), with 3.9 pence increase in Total Return to 262.5 pence per share.
l Realisations generated total proceeds of £16.5 million in the year, a gain of
£4.6 million over the opening carrying value and £11.3 million over cost, a
blended return of 3.1x cost.
l Two new investments and six follow-on investments totalling £9.1 million
completed during the year. Two new investments totalling £4.7 million
completed since the year end.
l Total dividends paid during the year ended 31 March 2024 of 4.0 pence per
share (2023: 8.5 pence per share), bringing total cumulative dividends paid
since inception to 178.9 pence per share at 31 March 2024 (2023: 174.9 pence
per share).
l £62.4 million raised in the year. £44.3 million raised in 2022/23 and
allotted in April 2023, £18.1 million raised in 2023/24 and allotted in
January 2024. An additional £36.8 million raised in 2023/24 and allotted
post-year-end in April 2024.
l The Board is declaring an interim dividend of 2.0 pence per share in respect
of the year ending 31 March 2025. The dividend will be paid on 26 July 2024 to
shareholders on the register on 28 June 2024.
Chair's Statement
I am pleased to present the 2024 annual report and financial statements
of British Smaller Companies VCT plc (the "Company"), which highlight steady
progress for the Company despite a challenging global economic and political
environment.
The year has been characterised by the US, UK and European economies tackling
persistently high inflation. UK interest rates were still rising in the
early part of the Company's financial year, reaching a peak of 5.25 per cent
by August. While rates of inflation have come down since, they remain
stubbornly above central bank target rates, resulting in delayed cuts to
interest rates which continue to weigh on the economy.
Across this period the Company has generated a 4.7 per cent return on its
opening net asset value in the year. Over the same period, the FTSE Small Cap
rose by 4.4 per cent, while the AIC's index of generalist VCTs rose by 0.3 per
cent on a Share Price Total Return basis.
Two continuing trends have driven this positive return. First, portfolio
companies have adapted well to market conditions and, while focused on capital
efficiency, are still achieving good growth rates in most cases. Of the 24
portfolio companies valued on a revenue basis, all but five have demonstrated
positive revenue growth over the last 12 months, and nine have delivered
growth of over 40 per cent. This growth has helped to offset the impact of
lower valuation multiples, and leaves the portfolio well placed for further
growth as market conditions improve.
Second, the portfolio continues to achieve positive realisations in a market
where many firms have struggled to convert book values into cash. In the year
the Company fully realised four investments and partially realised a further
two for combined proceeds of £16.5 million at a blended return of 3.1 times
cost; these were pleasing outcomes for the Company and reflect the Company's
ethos of working closely with management teams to generate positive returns
from all of its investments.
Financial Performance
In 2024, the Company delivered a 3.9 pence per ordinary share increase in
Total Return which, as noted above, is equivalent to 4.7 per cent of the
opening net asset value at 31 March 2023. Total Return is now 262.5 pence per
ordinary share.
The portfolio drove the positive performance, which generated a return of
£10.6 million, 8.6 per cent over its opening value with £4.6 million of the
return from realised investments and £6.0 million from unrealised
investments. New and follow-on investments totalling £9.1 million were
completed in the year.
Realisations in the Year
Realisations of portfolio investments generated total proceeds of £16.5
million, a gain of £4.6 million over the opening carrying value and £11.3
million over the original cost. There were four full realisations in the year:
Ncam, E2E, MacroArt and DisplayPlan; and two partial realisations: KeTech and
Arcus.
The investment in Ncam was realised in April 2023, generating initial proceeds
of £1.4 million (0.6x cost), with the potential for additional receipts of up
to £1.2 million over the coming years, which would see the Company fully
recover its investment. £0.3 million of deferred proceeds have been
recognised at the year-end.
In November 2023 the Company exited its investment in E2E for £2.0 million,
representing a 2.5x return on the Company's cost; and MacroArt for £1.5
million, representing a 2.0x return on cost.
To maximise shareholder value, the KeTech business was split into its two
component parts, Rail and Defence. The Defence business was subsequently
sold in January 2024, generating proceeds of £1.5 million. To date, the
Company has realised proceeds of £4.1 million from its KeTech investment, a
2.0x return on cost, while still retaining its investment in the Rail
business, which at the year-end was valued at £1.2 million.
In January 2024 the Company realised part of its investment in Arcus,
generating proceeds of £0.3 million, while still retaining its investment in
the remaining restructured business which at the year-end was valued at £1.0
million. This combined £1.3 million of value to date equates to 0.4x cost.
In February 2024, the Company sold its investment in Displayplan for £9.0
million. Total proceeds received over the life of the investment are £12.5
million, an excellent 9.6x return on the Company's cost. There is the
potential for further deferred proceeds in due course with £0.6 million of
deferred proceeds recognised at the year-end.
New Investments
The Company invested £9.1 million in the year into the portfolio. Two new
investments were made in the year, totalling £4.9 million. In our continued
support of the portfolio, six companies received follow-on funding in the
year, totalling £4.2 million.
The new investments are:
Investment Sector
GEEIQ Data
and market intelligence platform in the gaming space
Workbuzz SaaS based
employee engagement, survey and insights platform
Financial Results
The movement in net asset value ("NAV") per ordinary share and the dividends
paid in the year are set out in the table below:
Pence per £000
ordinary share
NAV at 31 March 2023 83.7 157,032
Increase in value 2.3 6,045
Gain on disposal of investments 1.7 4,475
Net underlying change in investment portfolio 4.0 10,520
Net operating income - 98
Total Return in period 4.0 10,618
Issue/buy-back of new shares (0.1) 61,585
NAV before the payment of dividends 87.6 229,235
Dividends paid (4.0) (9,635)
NAV at 31 March 2024 83.6 219,600
Cumulative dividends paid 178.9
Total Return: at 31 March 2024 262.5
at 31 March 2023 258.6
The charts on page 11 of the annual report show the movement in Total Return
and Net Asset Value over time in greater detail.
The portfolio investments held at the beginning of the financial year,
amounting to £123.4 million, delivered a return over the year of £10.6
million. There was a gain of £0.1 million arising from prior year
realisations, and the realisation of the listed investments generated a value
reduction of £0.2 million.
The current portfolio's net valuation increased by £6.0 million. Within this
there were gains of £14.8 million, offset by £8.8 million of downward
movements.
Treasury
Due to the nature of its structure, a proportion of the Company's net assets
will be held in cash and cash equivalents at any point in time. As interest
rates have risen, the Company has taken an active approach to generating a
good return on liquid funds, whilst remaining focused on the primary goal of
capital preservation.
A portion of the Company's liquid assets are held across a diversified range
of Triple-A rated money market funds, managed by global institutions, while
the balance is held as readily accessible cash, all of which is held at Tier 1
Financial Institutions (A2 rated or above).
The Company's small externally managed listed portfolio was exited in the
period, due to the better risk-adjusted return profile available in money
market funds and cash deposits.
In the year, the Company generated a return of £2.8 million on its liquid
assets, and at year-end was generating a weighted run-rate return on these
assets of around 4.8 per cent per annum.
Dividends
Dividends paid in the year totalled 4.0 pence per ordinary share. These
comprised interim dividends of 4.0 pence per ordinary share for the year ended
31 March 2024. Cumulative dividends paid as at 31 March 2024 were 178.9 pence
per ordinary share.
An interim dividend for the year ending 31 March 2025 of 2.0 pence per
ordinary share will be paid on 26 July 2024, to shareholders on the register
at 28 June 2024.
Dividend Re-investment Scheme ("DRIS")
The Company operates a DRIS, which gives shareholders the opportunity to
re-invest any cash dividends received; it is open to all shareholders,
including those who invested under the recent offers. The main advantages of
the DRIS are:
1 the dividends remain tax free; and
2 any DRIS investment attracts income tax relief at
the rate of 30 per cent.
For the financial year ended 31 March 2024, £2.0 million was re-invested by
way of the DRIS, from overall dividends paid of £9.6 million.
Fundraising
During the year the Company received net proceeds of £44.3 million from its
2022/23 fundraising, allotted in April 2023; and £18.1 million from the first
allotment of its 2023/24 fundraising, allotted in January 2024.
Shareholder Relations
Investor workshop
The annual shareholder workshop held on 20 June 2023 was well attended.
Attendees heard from Tom Dunlop, CEO of Summize, and Philip Hunt, Chair of
Vuealta.
The Company also hosted an online webinar on 27 November 2023, which included
presentations from Tom Whicher, CEO of DrDoctor, and Mal Barritt, CEO of
TravelTek.
We are pleased to confirm that the next in-person shareholder workshop will be
held jointly with British Smaller Companies VCT2 plc on 20 June 2024 at One
Great George Street, Westminster, London SW1 3AA.
The electronic communications policy continues to be a success, with 82 per
cent of shareholders now receiving communications in this way. Documents such
as the annual report are published on the website www.bscfunds.com
(http://www.bscfunds.com) rather than by post, saving on printing costs, as
well as being more environmentally friendly.
The Company's website, www.bscfunds.com (http://www.bscfunds.com) ., is
refreshed on a regular basis and provides a comprehensive level of information
in what I hope is a user-friendly format.
Annual General Meeting
The Annual General Meeting of the Company will be held at 9:30 am on 10
September 2024 at Thomas House, 84 Ecclestone Square, London SW1V 1PX. Full
details of the agenda for this meeting are included in the Notice of the
Annual General Meeting on page 92 of the annual report.
Events After the Balance Sheet Date
On 3 April 2024 the Company allotted the final shares from its fully
subscribed 2023/24 share offer. Gross proceeds of £36.8 million were
raised, resulting in the issue of 42,588,037 ordinary shares. This increased
the number of ordinary shares in issue to 305,247,398.
Subsequent to the year end, £4.7 million has been invested into two new
investments, Fuuse and Ohalo.
Outlook
While rates of inflation have come down in recent months, central banks remain
wary of its persistence, which is seeing interest rates remaining at elevated
levels for longer than originally anticipated. Ongoing geopolitical
instability, particularly in Ukraine and the Middle East, may negatively
impact western economies, while upcoming US and UK elections may also provide
some uncertainty.
Portfolio companies have performed well while maintaining a focus on capital
efficiency over the past 12 months. They are therefore now well placed to
take on further funding to accelerate growth, and we anticipate significant
opportunities to deploy capital into the Company's most promising investments
over the course of the next year. The Company's 2023/24 fundraising leaves
it well placed to provide this support, as well as adding new companies to the
portfolio in the coming year.
Rupert Cook
Chair
14 June 2024
Objectives and Key Policies
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.
Investment Strategy
The Company seeks to build a broad portfolio of investments in early-stage
companies focused on growth, with the aim of spreading the maturity profiles
and maximising return, as well as ensuring compliance with VCT Regulations.
The Company predominantly invests in unquoted smaller companies and expects
that this will continue to make up the significant majority of the portfolio.
It will also retain holdings in cash or near-cash investments to provide a
reserve of liquidity which will maximise the Company's flexibility as to the
timing of investment acquisitions and disposals, dividend payments and share
buy-backs.
Unquoted investments are structured using various investment instruments,
including ordinary shares, preference shares, convertible securities and very
occasionally loan stock, to achieve an appropriate balance of income and
capital growth, having regard to the VCT Regulations. The portfolio is
diversified by investing in a broad range of industry sectors. The normal
investment period into the portfolio companies is expected to be typically
between the range of five to seven years.
Investment Policy
The investment policy 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 will be re-investing their profits for growth and the investments will
comprise mainly equity instruments.
The Company seeks to build a broad portfolio of investments in early-stage
companies focused on growth with the aim of spreading the maturity profiles
and maximising return as well as ensuring compliance with the VCT guidelines.
Borrowing
The Company does not borrow and has no borrowing facilities, choosing to fund
investments from its own resources.
Co-investment
British Smaller Companies VCT plc and British Smaller Companies VCT2 plc
(together "the VCTs") typically co-invest in investments, allocating such
investments 60 per cent to the Company and 40 per cent to British Smaller
Companies VCT2 plc. However, the Board of the Company has discretion as to
whether or not to take up its allocation; where British Smaller Companies VCT2
plc does not take its allocation, the Board may opt to increase the Company's
allocation in such opportunities.
The VCTs may invest alongside co-investment funds managed by YFM, the Manager
of the VCTs. The VCTs have first priority on all equity investment
opportunities meeting the VCT qualifying criteria. Non-VCT qualifying
investments are allocated to YFM's co-investment funds.
Asset Mix
Cash which is pending investment in VCT-qualifying securities is held in money
market funds and interest bearing instant access and short-notice bank
accounts.
Remuneration Policy
The Company's policy on the remuneration of its directors, all of whom are
non-executive, can be found on page 49 of the annual report.
Other Key Policies
Details of the Company's policies on the payment of dividends, the DRIS and
the buy-back of shares are given on page 1 of the annual report. In addition
to these, details of the Company's anti-bribery and environmental and social
responsibilities policies can be found on page 35 of the annual report.
Processes and Operations
The Manager is responsible for the sourcing and screening of investment
opportunities, carrying out suitable due diligence investigations and making
submissions to the Board regarding potential investments.
Post investment, the Manager works intensively with the businesses and
management teams in which the Company is invested, monitoring progress,
effecting change and, where applicable, redefining strategies with a view to
maximising values through structured exit processes.
The Board regularly monitors the performance of the portfolio and the
investment requirements set by the relevant VCT legislation. Reports are
received from the Manager regarding the trading and financial position of each
investee company and senior members of the Manager regularly attend the
Company's Board meetings. Monitoring reports on compliance with VCT
regulations are also received at each Board meeting so that the Board can
monitor that the Venture Capital Trust status of the Company is maintained and
take corrective action if appropriate. Monitoring reports carrying out an
independent review of this compliance are received twice a year.
The Board reviews the terms of YFM Private Equity Limited's appointment as
Manager on a regular basis.
YFM Private Equity Limited has performed investment advisory/management,
administrative and secretarial services for the Company since its inception on
28 February 1996. The principal terms of the agreement under which these
services are performed are set out in note 3 to the financial statements.
In the opinion of the directors, the continuing appointment of YFM Private
Equity Limited as Manager is in the interests of the shareholders as a whole,
in view of its experience in managing venture capital trusts and in making,
managing and exiting investments of the nature falling within the Company's
investment policies.
Key Performance Indicators
Total Return, calculated by reference to the cumulative dividends paid plus
net asset value (excluding tax reliefs received by shareholders), is the
primary measure of performance in the VCT industry.
The chart on page 11 of the annual report shows how the Total Return
of your Company has developed over the last ten years.
The evaluation of comparative success of the Company's Total Return is by way
of reference to the Share Price Total Return for an index of generalist VCTs
that are members of the AIC (based on figures provided by Morningstar). This
is the Company's stated benchmark index. A comparison and explanation of the
calculation of this return is shown in the Directors' Remuneration Report on
page 51 of the annual report.
The second chart on page 11 of the annual report illustrates the Total
Return (excluding tax reliefs received by shareholders) for investors who
subscribed to the first fundraising in 1996 who have re-invested their
dividends.
Shareholder Returns
The Board considers Total Return to be the primary measure of shareholder
value. The IRR returns from the offers over the last ten years are set out on
page 12 of the annual report. IRR is the annual rate of return that equates
the cost at the date of the original investment, with the value of subsequent
dividends plus the audited 31 March 2024 Net Asset Value per share. This
excludes the benefit of any initial tax relief.
The IRRs shown are based on fundraisings and offer prices during the relevant
calendar year whilst the second graph shows specific financial periods to 31
March 2024. Note, there were no fundraisings in 2018 and 2020 and it is too
soon to give meaningful returns for the fundraising in 2023 and 2024.
Also set out on page 12 of the annual report is the annualised return over
10, 5, 3, 2 and 1 years to 31 March 2024. The annualised return is calculated
with reference to the cumulative dividends paid in the period plus the audited
NAV at 31 March 2024, compared to the NAV at the beginning of the relevant
period.
Expenses
Ongoing Charges
The Ongoing Charges figure, as calculated in line with the AIC recommended
methodology, is used by the Board to monitor expenses. This figure shows
shareholders the costs of the Company's recurring operational expenses,
expressed as a percentage of the average net asset value. Whilst based on
historical information, this provides an indication of the likely level of
costs that will be incurred in managing the Company in the future.
Year to Year to
31 March 31 March
2024 2023
(%) (%)
Ongoing Charges figure* 1.85 2.12
* Alternative Performance Measure.
Shareholders benefit from the Company's agreement with the Manager to pay a
lower level of management fee of 1 per cent on surplus cash. The Company's
ongoing charges ratio is one of the lowest in the VCT industry.
Expenses Cap
The total costs incurred by the Company in the year (excluding any performance
related fees, trail commission payable to financial intermediaries and VAT) is
capped at 2.9 per cent of the total net asset value as at the relevant year
end. The treatment of costs in excess of the cap is described in note 3 below.
There was no breach of the expenses cap in the current or prior year.
Compliance with VCT Legislative Tests
A principal risk facing the Company is the retention of its VCT qualifying
status. The Board receives regular reports on compliance with the VCT
legislative tests from the Manager. In addition, the Board receives formal
reports from its VCT Tax Adviser (Philip Hare & Associates LLP) twice a
year. The Board can confirm that during the period, all of the VCT legislative
tests have been met.
Under Chapter 3 Part 6 of the Income Tax Act 2007, in addition to the
requirement for a VCT's ordinary share capital to be listed in the Official
List on a European regulated market throughout the period, there are further
specific tests that VCTs must meet following the initial three year
provisional period.
Income Test
The Company's income in the period must be derived wholly or mainly (70 per
cent) from shares or securities.
Retained Income Test
The Company must not retain more than 15 per cent of its income from shares
and securities.
Qualifying Investments Test
At least 80 per cent by value of the Company's investments must be represented
throughout the period by shares or securities comprised in Qualifying
Investments of investee companies.
For shares issued in accounting periods beginning on or after 6 April 2018, at
least 30 per cent of those share issues must be invested in Qualifying
Investments of investee companies by the anniversary of the accounting period
in which those shares are issued.
Eligible Shares Test
At least 70 per cent of the Company's Qualifying Investments must be
represented throughout the period by holdings of non-preferential shares.
Investments made before 6 April 2018 from funds raised before 6 April 2011 are
excluded from this requirement.
At least 10 per cent of the Company's total investment in each Qualifying
Investment must be in eligible shares.
In addition, monies are not permitted to be used to finance buy-outs or
otherwise to acquire existing businesses or shares.
Investment Limits
There is an annual limit for each investee company which provides that they
may not raise more than £5 million of state aided investment (including from
VCTs) in the 12 months ending on the date of each investment (£10 million for
Knowledge Intensive Companies).
There is also a lifetime limit that a business may not raise more than £12
million of state aided investment (including from VCTs); the limit for
Knowledge Intensive Companies is £20 million.
Maximum Single Investment Test
The value of any one investment must not, at any time in the period, represent
more than 15 per cent of the Company's total investment value. This is
calculated at the time of investment and updated should there be further
additions; as such, it cannot be breached passively.
The Board can confirm that during the period, all of the VCT legislative tests
set out above have been met, where required.
Further restrictions placed on VCTs are:
Dividends from Cancelled Share Premium
The Finance Act 2014 introduced a restriction with respect to the use of
monies in respect of VCTs. In particular, no dividends can be paid out of
cancelled share premium arising from shares allotted on or after 6 April 2014
until at least three full financial years have elapsed from the date of
allotment.
In October 2022 the Company cancelled the balance of its Share Premium, £63.6
million, of which £30.0 million is now distributable. The remaining £33.6
million will become distributable over the period to 1 April 2026, as set out
on page 63 of the annual report.
Other
No more than seven years can have elapsed since the first commercial sale
achieved by the business (ten years in the case of a Knowledge Intensive
Company), unless:
a. The business has previously received an investment
from a source that has received state aid; or
b. The investment comprises more than 50 per cent of the
average of the previous five years' turnover and the funds are to be used in
the business to fund growth into new product markets and/or new geographies.
Wherever possible, the Company self-assures that an investment is a Qualifying
Investment, subject to the receipt of professional advice.
Portfolio Structure and Analysis
Portfolio Structure
The broad range of the portfolio is illustrated on page 15 of the annual
report, with 35 per cent of the portfolio valuation being held for more than
five years, while 93 per cent is valued at cost or above. 9 per cent of the
portfolio value is held in loans and preference shares, and loans account for
only 3 per cent of the value.
Portfolio Analysis
Also included on page 16 of the annual report is a profile of the portfolio by
industry sector.
Investment Review
The movements in the investment portfolio are set out in Table A below:
Table A
Investment Portfolio
Portfolio Listed Total
£million Investment £million
Funds
£million
Opening fair value at 1 April 2023 123.4 4.0 127.4
Additions 9.1 0.3 9.4
Disposal proceeds (16.5) (4.1) (20.6)
Valuation movement 10.6 (0.2) 10.4
Closing fair value at 31 March 2024 126.6 - 126.6
Accrued income 2.1 - 2.1
Financial assets - investments 128.7 - 128.7
At 31 March 2024 the portfolio was valued at £126.6 million, representing
57.6 per cent of net assets (78.6 per cent at 31 March 2023). Cash and cash
equivalents at 31 March 2024 of £89.8 million represented 40.9 per cent of
net assets (18.0 per cent at 31 March 2023).
The Portfolio
£126.6 million Fair value of the portfolio (2023: £123.4 million)
25 Number of portfolio companies with an investment value of more than £1.0 (2023: 27)
million
£1.1 million Income from the portfolio (2023: £1.4 million)
£9.1 million Level of investment (2023: £28.4 million)
£10.6 million Return from the portfolio (2023: £14.2 million)
The portfolio showed robust performance in the period, adding £10.6
million of value on the opening fair value of £123.4 million. The composition
of investments continues to show its dynamism, with £9.1 million invested in
the period and cash proceeds of £16.5 million received.
Fair value changes
Table B
Gain from Investment Portfolio
£million %
Gain in fair value from the portfolio 6.0 57
Gain on disposal over opening value from the portfolio 4.6 43
Gain arising from the portfolio 10.6 100
Loss on disposal of listed investment funds (0.2)
Valuation movement from the investment portfolio 10.4
Deferred consideration from prior year realisation 0.1
Gain arising from the investment portfolio 10.5
Of the £10.6 million gain from the portfolio in the year, £4.6 million arose
from investments which were realised, including Displayplan (£1.7 million),
Macro Art (£0.9 million), the partial realisation of KeTech (£0.9 million),
and E2E (£0.8 million). Further details can be found in the Chair's Statement
and note 7 to the financial statements.
The ongoing portfolio delivered a net value gain of £6.0 million in the year,
which arose across a range of companies, including Unbiased, Matillion,
SharpCloud, Traveltek and Vypr.
Some decreases in value have been seen, notably Outpost, Relative Insight and
Wooshii; as with all portfolio companies, the Manager continues to work
closely with the companies' management teams to aid their progress and growth.
Other Significant Investment Movements
Investments
During the year ended 31 March 2024, the Company invested £9.1 million across
8 companies.
Two new companies were added to the portfolio, receiving aggregate investment
of £4.9 million; while a further £4.2 million was invested across six
existing portfolio companies. The analysis of these investments is shown in
Table C.
Table C
Investments
Company Investments made
New Follow-on Total
£million £million £million
Workbuzz 2.6 - 2.6
GEEIQ 2.3 - 2.3
Outpost - 1.3 1.3
Relative Insight - 1.2 1.2
Force24 - 0.7 0.7
Vuealta - 0.5 0.5
Elucidat - 0.3 0.3
SharpCloud - 0.2 0.2
Portfolio 4.9 4.2 9.1
Listed investment funds 0.3
Total additions in the year 9.4
Disposal of Investments
As set out in Table D below, during the year to 31 March 2024 the Company
received proceeds from disposals of £20.7 million, a net gain of £4.5
million over the opening carrying value at the beginning of the year, and an
overall net gain of £10.5 million over cost. This included the successful
realisations of Displayplan, E2E, Macro Art, Ncam and KeTech (partial).
Further details are given in the Chair's statement above.
Table D
Disposal of Investments
Net Opening Gain/(loss)
proceeds value on opening
from sale of 31 March value
investments 2023 £million
£million £million
Portfolio 16.5 11.9 4.6
Deferred consideration 0.1 - 0.1
Listed investment funds* 4.1 4.3 (0.2)
Total investment disposals 20.7 16.2 4.5
* opening value includes additions of £0.3 million made during the year.
Further analysis of all investments sold in the year can be found in note 7 to
the financial statements below.
Investment Portfolio Composition
As at 31 March 2024, the portfolio was valued at £126.6 million, comprising
wholly of unquoted investments. An analysis of the movements in the year is
shown below.
The portfolio has 25 investments valued above £1.0 million, with the single
largest investment, Matillion, representing 12.5 per cent of the NAV.
The charts on pages 15 and 16 of the annual report show the diversity of the
portfolio, split by industry sector, investment instrument, age of investment,
and the valuation compared to cost.
Under VCT legislation, it is not possible to deposit funds for longer than
seven days, which means that cash deposits must be available on very short
notice. The Company takes an active approach to cash management, whilst
pursuing its primary aim of capital preservation. This is effected through the
use of a pool of money market funds (which can be converted back to cash with
immediate notice) and cash deposits held with tier one banking institutions.
£2.8 million of income was earned from money market funds and bank deposits
during the year. At 31 March 2024, the Company was achieving a weighted
average return on liquid assets of 4.8 per cent.
During the year, the Company realised its small diversified quoted portfolio
of listed investment funds, managed by Brewin Dolphin, held as part of its
previous treasury operations. This sale generated proceeds of £4.1 million.
Valuation Policy
Unquoted investments are valued in accordance with both IFRS 13 'Fair Value
Measurement' and International Private Equity and Venture Capital Guidelines,
December 2022 edition (IPEV Guidelines).
Initially, at the first quarter-end following investment, investments are
valued at the price of the funding round; following this, the valuation
switches to a new primary basis for all subsequent periods.
The valuation methodology applied depends upon the facts and circumstances of
each individual investment. This may be with reference to revenue multiples,
earnings multiples, net assets, discounted cash flows or calibrated from the
price of the most recent investment.
The full valuation policy is set out in note 1 on pages 66 and 67 of the
annual report.
Table E shows the value of investments within each valuation category as at 31
March 2024; no investments are valued using discounted cash flow
methodologies.
With continued investment in earlier stage businesses that are investing for
growth, the majority of valuations continue to be based on revenue multiples.
Table E
Valuation Policy
Valuation 2024 2023
£million % of % of
portfolio portfolio
by value by value
Revenue multiple 114.6 91 79
Earnings multiple 9.2 7 13
Net assets, reviewed for change in fair value 2.5 2 2
Cost or price of recent investment, reviewed for change in fair value 0.3 - 4
Sale proceeds - - 2
Total 126.6 100 100
Sustainable Investment and Environmental, Social and Governance ("ESG")
Management
Whilst not Impact investors, the Company backs small UK businesses to help
them to grow and produce strong financial returns for shareholders with the
additional aim of building better businesses that are ultimately more
sustainable.
In order to deliver more sustainable businesses, and to meet its commitments
under the United Nation's Principles for Responsible Investment (PRI), the
Manager has continued to develop its processes in this area.
The Manager's approach is based on the belief that good businesses:
• Grow our economy;
• Improve our society;
• Value their people; and
• Protect the environment.
These aims are consistent with the Company's financial aims because
businesses which improve in these areas also strengthen their resilience and
value creation potential through their increased attractiveness to customers,
employees, suppliers and eventual future owners and investors.
Sustainable Investment Principles
This set of principles guides the Manager's investment process:
• To seek to understand the ESG related impacts and potential impacts
of investments, aiming to grow and enhance positive impacts and to avoid,
reduce or minimise any negative impacts over an investment's lifetime, leaving
them overall better businesses;
• To play a positive role in the investor, business and wider
communities by promoting good practice in ESG management, and by being
transparent in the way that investments are made and how the Manager behaves;
• To increase focus on the challenge of climate change both as it may
be affected by our investments, and as it may impact on them and their
resilience to possible climate change scenarios;
• To show leadership by managing the Manager's own business' ESG
impacts to the best of their ability; and
• To be a proactive signatory to the PRI and to integrate its
principles into the Manager's business practices.
In line with the PRI the Manager has developed processes to help the portfolio
businesses to be better in each of these spheres, by assessing them in terms
of creating positive impacts and outcomes and preventing or minimising
negative ones.
The Manager has developed and integrated the following ESG management
processes:
Pre-investment Phase:
Structured processes at the pre-investment stage to identify areas of
potential ESG improvement and risk as part of the due diligence and
pre-investment deliberations. Appropriate data is collected and assessed on
each business against ESG criteria at the point of investment as a benchmark
against which to evaluate future progress.
Portfolio Phase:
For those investments made since 2020, based on the data collected at the
point of investment at the start of the portfolio phase, bespoke areas for
improvement are agreed with each management team together with consequent
objectives and targets. A similar process has been applied to the significant
majority of investments made prior to 2020. Improvements are then measured
and recorded against a set of ESG criteria using the Manager's bespoke ESG
framework, refreshing targets annually and placing focus on any new issues as
they become more material in the management of the company and in meeting the
expectations of its stakeholders.
Reporting:
Annual reports will be produced, using the Manager's ESG framework for
consistency, recording the ESG KPI performance of each company and providing
an overview of progress across the Manager's portfolios.
Note that Investment Companies are not within scope for reporting under the
Task Force on Climate-Related Financial Disclosures (TCFD); and the Company
does not use more than 40,000kWh of energy and therefore is not required to
report on its energy usage within Streamlined Energy and Carbon Reporting
regulations.
ESG Performance Data and Reporting
ESG KPI data analysis
The Manager has developed its own ESG KPI data collation process. It has
established a data set reflecting the above ESG themes and a means of
collecting this to make year on year comparisons for each company and across
the portfolio. Where possible baseline data has been collected from the date
of investment with a view to showing where the Manager's support has made a
difference during the hold period to the reporting date.
Annual company specific ESG performance progress report
The annual data collection allows a detailed report to be prepared on each
company's progress across a broad range of ESG KPI's. As well as using this
for portfolio reporting to investors it is used as an engagement tool with the
senior management teams of each company, allowing the Manager to identify and
agree programmes of action with each business
2023 ESG KPI Report for Investments held in YFM's VCT funds
Growing our economy
• £74 million of R&D investment during 2023
• £115 million of export sales achieved in 2023
• 750 new jobs were created from date of investment to 2023
representing a 50 per cent increase
Improving our society
• 95 per cent of companies were independently chaired in 2023
• 45 per cent of companies had female directors on boards, with 15 per
cent having a female CEO/MD
• 65 per cent of businesses had a designated board member with
responsibility for improving ESG issues
Valuing our people
• 35 per cent of the portfolio workforce was female in 2023
• 60 per cent had mental wellbeing programmes in place and 80 per cent
held regular employee engagement surveys
• 43,000 hours of non-statutory training was given to employees
Protecting our environment
• 20 per cent formally measure their carbon footprint
• 10 per cent offset all or a defined portion of their carbon impact
• 15 per cent formally set a target date and strategy for achieving
net zero carbon emissions
Summary and Outlook
The portfolio continues to deliver good underlying revenue growth, while also
demonstrating good levels of capital efficiency over the past 12 months.
Portfolio companies continue to navigate difficult macroeconomic conditions
well, with the portfolio well placed to benefit from a hoped for improvement
in the economic environment in 2024.
We continue to see a good pipeline of potential investments in a range of
growth companies, as well as opportunities to further support the continued
growth of the current portfolio. We thank investors for their continuing
support in the Company's 2023/24 fundraising, and are looking forward to
putting the funds raised to work.
Eamon Nolan
YFM Private Equity Limited
14 June 2024
Portfolio Summary at 31 March 2024
Name of Date of Location Industry Amount Valuation at Recognised Realised &
company initial Sector invested 31 March income/ unrealised
investment £000 2024 proceeds value to date*
£000 to date £000
£000
Matillion Limited Nov-16 Manchester Data 2,666 27,415 7,071 34,486
Unbiased EC1 Limited Dec-19 London Tech-enabled Services 5,596 12,829 - 12,829
Outpost VFX Limited Feb-21 Bournemouth New Media 5,750 9,518 53 9,571
Elucidat Ltd May-19 Brighton Application Software 4,260 5,933 347 6,280
Force24 Ltd Nov-20 Leeds Application Software 3,900 5,835 41 5,876
SharpCloud Software Limited Oct-19 London Data 3,577 5,375 - 5,375
Vypr Validation Technologies Limited Jan-21 Manchester Tech-enabled Services 3,300 5,317 - 5,317
ACC Aviation Group Limited Nov-14 Reigate Business Services 2,068 4,725 5,280 10,005
Wooshii Limited May-19 London New Media 4,644 4,151 683 4,834
Quality Clouds Limited May-22 London Cloud & DevOps 3,916 4,019 - 4,019
DrDoctor (via ICNH Ltd) Feb-23 London Application Software 3,565 3,565 - 3,565
Workbuzz Analytics Limited Jun-23 Nottingham Tech-enabled Services 2,577 3,447 - 3,447
Traveltek Group Holdings Limited Oct-16 East Kilbride Application Software 1,716 3,401 975 4,376
AutomatePro Limited Dec-22 London Cloud & DevOps 2,225 3,229 - 3,229
Tonkotsu Limited Jun-19 London Retail & Brands 2,388 3,090 - 3,090
GEEIQ (via Checkpoint GG Limited) Sep-23 London Data 2,358 2,827 - 2,827
Vuealta Holdings Limited Sep-21 London Tech-enabled Services 3,580 2,459 4,619 7,078
Summize Limited Oct-22 Manchester Application Software 1,800 2,421 - 2,421
Frescobol Carioca Ltd Mar-19 London Retail & Brands 1,800 2,072 - 2,072
Plandek Limited Oct-22 London Cloud & DevOps 2,070 2,070 - 2,070
Xapien (via Digital Insight Technologies Ltd) Mar-23 London Application Software 1,740 2,014 - 2,014
Biorelate Limited Nov-22 Manchester Application Software 1,560 1,691 - 1,691
Panintelligence (via Paninsight Limited) Nov-19 Leeds Data 1,500 1,606 - 1,606
Relative Insight Limited Mar-22 Lancaster Tech-enabled Services 4,200 1,598 - 1,598
KeTech Technology Holdings Limited Nov-15 Nottingham Tech-enabled Services 2,000 1,176 4,059 5,235
Arcus Global Limited May-18 Cambridge Application Software 3,075 952 332 1,284
Sipsynergy (via Hosted Network Services Limited) Jun-16 Hampshire Cloud & DevOps 2,654 848 1 849
Other investments £0.75 million and below 8,077 3,009 6,807 9,816
Total unquoted investments 88,562 126,592 30,268 156,860
Full disposals to date 80,135 - 167,596 167,596
Total portfolio 168,697 126,592 197,864 324,456
* represents recognised income and
proceeds received to date plus the unrealised valuation at 31 March 2024.
Summary of Portfolio Movement since 31 March 2023
Investment Disposal Additions Valuation Investment
Name of Company valuation at proceeds including gains valuation
31 March £000 capitalised including at 31 March
2023 income profits (losses) 2024
£000 £000 on disposal £000
£000
Unbiased EC1 Limited 9,976 - - 2,853 12,829
Matillion Limited 25,193 - - 2,222 27,415
SharpCloud Software Limited 3,404 - 170 1,801 5,375
Displayplan Holdings Limited 7,901 (9,636) - 1,735 -
Traveltek Group Holdings Limited 2,049 - - 1,352 3,401
Vypr Validation Technologies Limited 4,051 - - 1,266 5,317
Arcus Global Limited 239 (300) - 1,013 952
Macro Art Holdings Limited 558 (1,484) - 926 -
Workbuzz Analytics Limited - - 2,577 870 3,447
KeTech Holdings Limited/KeTech Technology Holdings Limited 1,786 (1,461) - 851 1,176
E2E Engineering Limited 1,200 (1,960) - 760 -
AutomatePro Limited 2,557 - - 672 3,229
Other investments £0.75 million and below 2,346 - - 663 3,009
Summize Limited 1,885 - - 536 2,421
GEEIQ (via Checkpoint GG Limited) - - 2,358 469 2,827
Tonkotsu Limited 2,666 - - 424 3,090
Force24 Ltd 4,757 - 750 328 5,835
Xapien (via Digital Insight Technologies Ltd) 1,740 - - 274 2,014
Biorelate Limited 1,570 - - 121 1,691
Panintelligence (via Paninsight Limited) 1,500 - - 106 1,606
Frescobol Carioca Ltd 1,995 - - 77 2,072
Ncam Technologies Limited 1,659 (1,682) - 23 -
DrDoctor (via ICNH Ltd) 3,565 - - - 3,565
Plandek Limited 2,070 - - - 2,070
Quality Clouds Limited 4,074 - - (55) 4,019
Vuealta Holdings Limited/Vuealta Group Limited 2,126 - 535 (202) 2,459
Sipsynergy (via Hosted Network Services Limited) 1,464 - - (616) 848
Elucidat Ltd 6,277 - 300 (644) 5,933
ACC Aviation Group Limited 5,398 - - (673) 4,725
Outpost VFX Limited 9,420 - 1,250 (1,152) 9,518
Relative Insight Limited 2,794 - 1,200 (2,396) 1,598
Wooshii Limited 7,141 - - (2,990) 4,151
Total portfolio 123,361 (16,523) 9,140 10,614 126,592
Deferred consideration* - (96) - 96 -
Total 123,361 (16,619) 9,140 10,710 126,592
Accrued income 2,070
Financial assets - investments 128,662
* Wakefield Acoustics (trading as Malvar Engineering Limited), see note 7.
Risk Factors
The Board carries out a regular review of the risk environment in which the
Company operates. The emerging and principal risks and uncertainties
identified by the Board and techniques used to mitigate these risks are set
out in this section.
The Board seeks to mitigate its emerging and principal risks by setting
policy, regularly reviewing performance and monitoring progress and
compliance. In the mitigation and management of these risks, the Board
rigorously applies the principles detailed in section 8: "Audit, Risk and
Internal Control" of the AIC Code. Details of the Company's internal controls
are contained in the Corporate Governance Internal Control section on pages 47
and 48 of the annual report and further information on exposure to risks,
including those associated with financial instruments, can be found in note 16
of the financial statements.
The Board carries out a regular review of the risk environment in which the
Company operates, together with changes to the operational environment. The
Board also seeks to identify emerging risks which might impact on the Company.
In the period the most notable emerging risks have been:
• Geopolitical instability: geopolitical tensions, such as the
conflicts in the Middle East and Ukraine can create uncertainty, disrupt
global markets and create market volatility.
• Global trade: ongoing global trade tensions between major economies
have the potential to disrupt global supply chains which could cause a
slowdown in economic activity.
• Rising interest rates: whilst interest rates appear to be
stabilising, higher interest rates can increase borrowing costs for businesses
and consumers, potentially leading to reduced spending and investment, and
ultimately economic growth.
The principal risks the Company faces are considered in more detail below.
VCT Qualifying Status:
Risk - A failure to meet the VCT qualifying criteria could result in the loss
of approved VCT status. The loss of such approval could lead to investors
losing the various tax benefits associated with VCT investments.
Mitigation - The Manager tracks the Company's VCT qualifying status on an
ongoing and continual basis. Furthermore, external independent experts have
been retained and report on the VCT qualifying status regularly throughout the
year.
The Manager reports to the Board on a quarterly basis.
Further information on these requirements can be found under the heading
"Compliance with VCT Legislative Tests" above.
Change - No overall change in risk exposure.
Economic:
Risk - Macroeconomic events such as geopolitical developments, external shocks
and economic recession could adversely affect smaller companies' valuations,
as they may be more vulnerable to changes in trading conditions or the sectors
in which they operate. This could lead to a reduction in the Company's share
price, resulting in capital losses for Shareholders.
Mitigation - The Board, in conjunction with the Manager, regularly assesses
the resilience of the portfolio. The Company has a clear Investment Policy
(summarised above) and invests in a diverse portfolio of companies across a
range of sectors, which helps to mitigate against the impact on any one
sector. The Manager also seeks to maintain adequate liquidity to ensure it can
provide follow-on investment to those portfolio companies which require
funding when supported by the individual investment case.
Change - Increased. Growing international tensions with the potential to deter
investment, disrupt markets and re-awaken inflationary pressures.
Investment Performance:
Risk - The Company invests in small and medium-sized VCT qualifying companies,
which, by their nature, entail a higher level of risk and shorter cash runway
than investments in larger quoted companies. Poor performance could reduce
returns for shareholders through downward valuations.
Mitigation - The Board comprises individuals experienced in assessing suitable
investment opportunities. The Manager has significant experience, expertise
and a strong track record of investing in early-stage unquoted companies. The
Manager has a rigorous and robust formal process in selecting new companies
which includes appropriate due diligence and approval by an Investment
Committee made up of the senior members of the Manager's investment team.
Change - No overall change in risk exposure.
Strategy:
Risk - The Board fails to set appropriate strategic objectives and fails to
monitor the Company's implementation of the strategy, which leads to poor
performance.
Mitigation - The Board reviews strategy annually. At each of the Board
meetings, the directors review the appropriateness of the Company's objectives
and stated strategy in response to changes in the operating environment and
peer group activity. It also reviews compliance of the Manager with the stated
investment strategy.
Change - No overall change in risk exposure.
Legislative & Regulatory:
Risk - The Company fails to comply with applicable laws and regulations
including VCT Rules, UK Listing Authority Rules, AIC Code on Corporate
Governance, Stewardship Code, Companies Act, Bribery Act, Market Abuse
Regulations, data protection rules, Criminal Finances Act and relevant Taxes
Acts and as a result loses its approval as a VCT.
Changes to the UK legislation, in particular relating to the VCT Rules, could
have an adverse effect on the Company's ability to achieve satisfactory
investment returns.
Mitigation - The Manager ensures that it has suitably qualified members of
staff who are experienced with regulatory requirements and relevant accounting
standards. The Manager and the Company Secretary have procedures in place to
ensure recurring Listing Rules requirements are met.
The Board and Manager review corporate governance, regulatory legislative
change and political developments on a continual basis and seek additional
advice as and when required.
The Manager is a member of the Venture Capital Trust Association which engages
with the Government to help shape future legislation.
Change - No overall change in risk exposure. Albeit a slight reduction in this
risk, as result of the ten year extension of the VCT legislation sunset clause
to 6 April 2035, continuing shareholders' rights to Income Tax relief on newly
issued shares. The extension has been agreed by HMRC, however this needs to be
ratified by the EU.
Operational:
Risk - Key service providers, such as the Manager, have inadequate procedures
for the identification, evaluation and management of risks putting the
Company's assets and data at risk.
Mitigation - The Board regularly reviews the system of internal controls, both
financial and non-financial operated by the Company and the Manager. These
include controls designed to ensure that the Company's assets are safeguarded
and proper accounting records are maintained.
Change - No overall change in risk exposure.
Cyber Security and Information Technology:
Risk - A failure in IT systems and controls might lead to business
interruption, loss of data, the inability of the Manager to provide accurate
reporting and monitoring or the loss of Company records.
Mitigation - The Manager has in place significant cybersecurity controls,
including multifactor authentication, email protection software, monitored
firewalls and regularly updated electronic devices. Staff at the Manager
regularly receive training in relation to their cybersecurity obligations. The
Manager is Cyber Essentials Plus certified.
Due diligence is conducted on other service providers, including a review on
their controls for information security.
Change - No overall change on balance, although cyber threat remains a
significant risk area faced by all service providers, with ever increasing
sophistication of attacks.
Liquidity:
Risk -
a. The Company may not have sufficient liquidity
available to meet its financial obligations.
b. The VCT invests in smaller unquoted companies, which
by their nature are illiquid, therefore they may be difficult to realise, at
fair market value, at short notice
Mitigation - The Company's overall liquidity risks and cashflow forecasts are
monitored on an ongoing basis by the Manager and on a quarterly basis by the
Board.
The Company's valuation methodology takes account of potential liquidity
restrictions in the markets in which it invests.
For any publicly listed investments, accounting standards require an ongoing
assessment of the liquidity of the stock.
The Manager regularly reviews its exit plans for investee companies to allow
it to identify the optimal point at which to seek a sale. As part of a planned
exit, the assistance of a third party adviser will normally be sought, with a
view to identifying the largest number of possible purchasers.
Change - Increased. A small increase to reflect the potential impacts of
economic uncertainty, including the impacts on fundraising and ability to exit
investments.
Other Matters
Section 172 Statement
This Section 172 Statement should be read in conjunction with the other
contents of the Strategic Report, on pages 5 to 35 of the annual report.
Section 172 of the Companies Act 2006 requires that a director must act in a
way that they consider, in good faith, would be most likely to promote the
success of the company for the benefit of its members as a whole, and in doing
so have regard (amongst other matters) to:
• The likely consequences of any decision in the long
term;
• The interests of the company's employees;
• The need to foster the company's business
relationships with suppliers, customers and others;
• The impact of the company's operations on the
community and the environment;
• The desirability of the company maintaining a
reputation for high standards of business conduct; and
• The need to act fairly as between members of the
company.
The Company takes a number of steps to understand the views of investors and
other key stakeholders and considers these, along with the matters set out
above, in Board discussions and decision making.
Key Stakeholders
As an investment company with no employees, the Company's key stakeholders are
its investors, its service providers and its portfolio companies.
Investors
The Board engages and communicates with shareholders in a variety of ways.
The Company encourages shareholders to attend its Annual General Meeting.
Along with British Smaller Companies VCT2 plc, the Company held two Investor
Workshops during the year. An in-person workshop was held on 20 June 2023 and
an online webinar was hosted on 27 November 2023. Both were well attended.
Maintaining the Company's status as a VCT is critical to meeting the Company's
objective to maximise Total Return and provide investors with an attractive
long-term tax-free dividend yield. The Company receives regular reports on
this issue from the Manager and has taken various steps in the year to ensure
that the relevant tests are met.
The Board also aims for investors to continue to have tax efficient
opportunities to invest in the Company, and to generate tax-free returns from
both capital appreciation and ongoing dividends.
After carefully considering its funding needs, on 20 September 2023 the
Company issued a prospectus, alongside British Smaller Companies VCT2 plc, to
raise up to £90 million in aggregate for the 2023/24 tax year.
During the year the Board kept its arrangements for dividends, share buy-backs
and the dividend re-investment scheme under constant review. Normal dividends
totalling 4.0 pence per ordinary share were paid in the year ended 31 March
2024.
Manager
The Company's most important service provider is its Manager. There is regular
contact with the Manager, and members of the Manager's board attend all of the
Company's Board meetings. There is also an annual strategy meeting with the
Manager, alongside the board of British Smaller Companies VCT2 plc.
The Manager maintains strong relationships with relevant media publications
and a wide range of distributors for the Company's shares, including wealth
managers, independent financial advisers and execution-only brokers. RAM
Capital acts as a promoter of the Company's shares to smaller distributors.
The Company is a member of the Association of Investment Companies which
promotes the interests of investment companies, including VCTs. The Manager is
a founder member of the Venture Capital Trust Association, which promotes the
interests of VCTs in a variety of ways.
Portfolio Companies
The Company holds minority investments in its portfolio companies and has
delegated the management of the portfolio to the Manager. The Manager provides
the Board with regular updates on the performance of each portfolio company at
least quarterly and the Board is made aware of all major issues.
The Manager has a dedicated Portfolio team to assist the portfolio companies
with the challenges that they face as fast-growing companies. The Manager
promotes ongoing sustainable growth within the businesses; this often involves
improving systems and processes, as well as significant job creation.
Employees
The Company has no employees. The Board is composed of four non-executive
directors. For a review of the policies used when appointing directors to the
Board of the Company, please refer to the Directors' Remuneration Report.
Environment and Community
The Company seeks to ensure that its business is conducted in a manner that is
responsible to the environment. The management and administration of the
Company is undertaken by the Manager, YFM Private Equity Limited, which
recognises the importance of its environmental responsibilities and is a
signatory of the United Nations' Principles for Responsible Investment.
More details of the work that the Manager has achieved in this area are set
out above. Its Sustainable Investment Policy can be found at
www.yfmep.com/who-we-are/our_impact/.
Business Conduct
The Company has a zero tolerance approach to bribery and corruption. The
following is a summary of the controls in place:
· The Company conducts all 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;
· The Company prohibits the offering, the giving, the solicitation
or the acceptance of any bribe;
· The Company has communicated its Anti-Bribery & Corruption
Policy to the Manager and its other service providers; and
· The Manager has its own Anti-Bribery & Corruption and
Anti-Slavery Policies and monitors portfolio companies' compliance with their
legal obligations.
Rupert Cook
Chair
14 June 2024
Statement of Comprehensive Income
For the year ended 31 March 2024
Notes 2024 2023
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gains on investments
held at fair value 7 - 6,045 6,045 - 8,152 8,152
Gain on disposal of investments 7 - 4,475 4,475 - 5,213 5,213
Gain arising from the investment portfolio - 10,520 10,520 - 13,365 13,365
Income 2 4,045 - 4,045 1,994 - 1,994
Total income 4,045 10,520 14,565 1,994 13,365 15,359
Administrative expenses:
Manager's fee (795) (2,384) (3,179) (696) (2,086) (2,782)
Incentive fee - - - - (125) (125)
Other expenses (768) - (768) (215) - (215)
3 (1,563) (2,384) (3,947) (911) (2,211) (3,122)
Profit before taxation 2,482 8,136 10,618 1,083 11,154 12,237
Taxation 4 - - - - - -
Profit for the year 2,482 8,136 10,618 1,083 11,154 12,237
Total comprehensive income for the year 2,482 8,136 10,618 1,083 11,154 12,237
Basic and diluted earnings per ordinary share 6 1.01p 3.33p 4.34p 0.58p 5.96p 6.54p
The notes on pages 65 to 91 of the annual report are an integral part of the
financial statements.
The Total column of this statement represents the Company's 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 July 2022 -
"SORP") published by the AIC.
Balance Sheet
At 31 March 2024
Notes 2024 2023
£000 £000
ASSETS
Non-current assets at fair value through profit and loss
Financial assets at fair value through profit or loss 7 128,662 127,406
Accrued income and other assets - 1,556
128,662 128,962
Current assets
Accrued income and other assets 1,382 161
Current asset investments 53,500 7,501
Cash at bank 36,304 20,766
91,186 28,428
LIABILITIES
Current liabilities
Trade and other payables (248) (358)
Net current assets 90,938 28,070
Net assets 219,600 157,032
Shareholders' equity
Share capital 28,830 20,969
Share premium account 58,293 1,700
Capital reserve 79,171 82,893
Investment holding gains and losses reserve 49,207 49,215
Revenue reserve 4,099 2,255
Total shareholders' equity 219,600 157,032
Net asset value per ordinary share 8 83.6p 83.7p
The notes on pages 65 to 91 of the annual report are an integral part of the
financial statements.
The financial statements were approved and authorised for issue by the Board
of Directors and were signed on its behalf on 14 June 2024.
Rupert Cook
Chair
Statement of Changes in Equity
For the year ended 31 March 2024
Share Share Capital Investment Revenue Total
capital premium reserve holding gains reserve equity
account and losses
reserve
£000 £000 £000 £000 £000 £000
Balance at 31 March 2022 20,510 62,123 33,620 41,982 1,299 159,534
Revenue return for the year - - - - 1,083 1,083
Expenses charged to capital - - (2,211) - - (2,211)
Investment holding gain on investments held at fair value - - - 8,152 - 8,152
Realisation of investments in the year - - 5,213 - - 5,213
Total comprehensive income for the year - - 3,002 8,152 1,083 12,237
Issue of shares - DRIS 459 3,245 - - - 3,704
Issue costs * - (62) - - - (62)
Share premium cancellation - (63,606) 63,606 - - -
Purchase of own shares - - (2,497) - - (2,497)
Dividends - - (15,757) - (127) (15,884)
Total transactions with owners 459 (60,423) 45,352 - (127) (14,739)
Realisation of prior year investment holding gains - - 919 (919) - -
Balance at 31 March 2023 20,969 1,700 82,893 49,215 2,255 157,032
Revenue return for the year - - - - 2,482 2,482
Expenses charged to capital - - (2,384) - - (2,384)
Investment holding gain on investments held at fair value - - - 6,045 - 6,045
Realisation of investments in the year - - 4,475 - - 4,475
Total comprehensive income for the year - - 2,091 6,045 2,482 10,618
Issue of share capital 7,612 57,237 - - - 64,849
Issue of shares - DRIS 249 1,769 - - - 2,018
Issue costs * - (2,413) - - - (2,413)
Purchase of own shares - - (2,869) - - (2,869)
Dividends - - (8,997) - (638) (9,635)
Total transactions with owners 7,861 56,593 (11,866) - (638) 51,950
Realisation of prior year investment holding gains - - 6,053 (6,053) - -
Balance at 31 March 2024 28,830 58,293 79,171 49,207 4,099 219,600
The notes on pages 65 to 91 of the annual report are an integral part of the
financial statements.
Reserves available for distribution
Under the Companies Act 2006 the capital reserve and the revenue reserve are
distributable reserves. The table below shows amounts that are available for
distribution.
Capital Revenue Total
reserve reserve
£000 £000 £000
Distributable reserves as shown above 79,171 4,099 83,270
Income/proceeds not yet distributable (1,003) (2,131) (3,134)
Cancelled share premium not yet distributable (33,612) - (33,612)
Reserves available for distribution** 44,556 1,968 46,524
* Issue costs include both fundraising costs and
costs incurred from the Company's DRIS.
** Following the circulation of the Annual Report to
shareholders.
The capital reserve and revenue reserve are both distributable reserves. The
reserves total £83,270,000, representing a decrease of £1,878,000 during the
year. The directors also take into account the level of the investment holding
gains and losses reserve and the future requirements of the Company when
determining the level of dividend payments.
Of the potentially distributable reserves of £83,270,000 shown above,
£3,134,000 relates to income and proceeds not yet distributable and
£33,612,000 relates to cancelled share premium which will become
distributable from the dates shown in the table below.
Following shareholder approval at the 2022 Annual General Meeting, in October
2022 the Company cancelled the balance of its Share Premium, £63,606,000, of
which £29,994,000 is now distributable. The remaining share premium cancelled
will be available for distribution from the following dates:
£000
1 April 2025 32,128
1 April 2026 1,484
Cancelled share premium not yet distributable 33,612
Statement of Cash Flows
For the year ended 31 March 2024
Notes 2024 2023
£000 £000
Net cash outflow from operating activities (744) (2,277)
Cash flows generated from (used in) investing activities
Cash maturing from fixed term deposits - 6,970
Purchase of financial assets at fair value through profit or loss 7 (9,390) (28,832)
Proceeds from sale of financial assets at fair value through profit or loss 7 19,625 20,716
Deferred consideration 7 96 -
Net cash inflow (outflow) from investing activities 10,331 (1,146)
Cash flows from (used in) financing activities
Issue of ordinary shares 64,849 -
Costs of ordinary share issues* (2,413) (62)
Purchase of own ordinary shares (2,869) (2,497)
Dividends paid 5 (7,617) (12,180)
Net cash inflow (outflow) from financing activities 51,950 (14,739)
Net increase (decrease) in cash and cash equivalents 61,537 (18,162)
Cash and cash equivalents at the beginning of the year 28,267 46,429
Cash and cash equivalents at the end of the year 89,804 28,267
* Issue costs include both fundraising costs and
expenses incurred from the Company's DRIS
Cash and cash equivalents comprise 2024 2023
£000 £000
Money market funds 53,500 7,501
Cash at bank 36,304 20,766
Cash and cash equivalents at the end of the year 89,804 28,267
Reconciliation of Profit before Taxation to
Net Cash Outflow from Operating Activities
2024 2023
£000 £000
Profit before taxation* 10,618 12,237
Decrease in trade and other payables (110) (429)
Increase in accrued income and other assets (732) (660)
Gain on disposal of investments (4,475) (5,213)
Gains on investments held at fair value (6,045) (8,152)
Capitalised income - (60)
Net cash outflow from operating activities (744) (2,277)
* Includes cash inflow from dividends of £341,000 (2023: £1,117,000) and
interest of £2,899,000 (2023: £700,000).
The notes on pages 65 to 91 of the annual report are an integral part of the
financial statements.
Notes to the Financial Statements
1. Principal Accounting Policies
Basis of Preparation
The accounts have been prepared on a going concern basis as set out in the
Directors Report on pages 37 and 38 of the annual report and in accordance
with UK adopted international accounting standards.
The directors have carefully considered the issue of going concern in view of
the Company's activities and associated risks. The Company has a
well-diversified portfolio with businesses in a variety of sectors, many of
which are well funded. Some portfolio companies may require additional funding
in the near- to medium-term; the Company is well placed to provide this, where
appropriate.
The Company has a significant level of liquidity, which was enhanced by the
final allotment of the 2023/24 fundraising post-year-end, in April 2024. In
addition, the Board has control over, and can flex as appropriate, the
Company's major outgoings, which predominantly comprise investments, dividends
and share buy-backs.
The directors have also assessed whether material uncertainties exist and
their potential impact on the Company's ability to continue as a going
concern; they have concluded that no such material uncertainties exist.
Taking all of the above into consideration, the directors are satisfied that
the Company has sufficient resources to meet its obligations for at least 12
months from the date of this report and therefore believe that it is
appropriate to continue to apply the going concern basis of accounting in
preparing the financial statements.
The financial statements have been prepared under the historical cost basis as
modified by the measurement of investments at fair value through profit or
loss.
The accounts have been prepared in compliance with the recommendations set out
in the Statement of Recommended Practice 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts' issued by the Association of
Investment Companies (issued in July 2022 - "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 (International Financial Reporting
Standards ("IFRS") and International Accounting Standards ("IAS")) and
interpretations in force at the reporting date. From 1 January 2023 IAS 1 has
been amended introducing the concept Material Accounting Policy Information.
The Company has performed a review of its existing accounting policies and
updated where relevant. Other new standards coming into force during the year
and future standards that come into effect after the year-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.
Financial Assets held at Fair Value through Profit or Loss - Investments
Financial assets designated as at fair value through profit or loss ("FVPL")
at inception are those that are managed and whose performance is evaluated on
a fair value basis, in accordance with the documented investment strategy of
the Company. Information about these financial assets is provided internally
on a fair value basis to the Company's key management. The Company's
investment strategy is to invest cash resources in venture capital investments
as part of the Company's long-term capital growth strategy. Consequently, all
investments are classified as held at fair value through profit or loss.
All investments are measured at fair value on the whole unit of account basis
with gains and losses arising from changes in fair value being included in the
Statement of Comprehensive Income as gains or losses on investments held at
fair value. Accrued income on loans/preference shares that is rolled to exit
and is not past due, forms part of the investment's fair value.
Transaction costs on purchases are expensed immediately through profit or
loss.
Although the Company holds more than 20 per cent of the equity of certain
companies, it is considered that the investments are held as part of the
investment portfolio, and their value to the Company lies in their marketable
value as part of that portfolio. These investments are therefore not accounted
for using equity accounting, as permitted by IAS 28 'Investments in
associates' and IFRS 11 'Joint arrangements' which give exemptions from equity
accounting for venture capital organisations.
Under IFRS 10 "Consolidated Financial Statements", control is presumed to
exist when the Company has power over an investee (whether or not used in
practice); exposure or rights; to variable returns from that investee, and
ability to use that power to affect the reporting entities returns from the
investees. The Company does not hold more than 50 per cent of the equity of
any of the companies within the portfolio. The Company does not control any of
the companies held as part of the investment portfolio. It is not considered
that any of the holdings represent investments in subsidiary undertakings.
Due to the above factors, the Company has applied the IFRS 10 investment
entity consolidation exemption and has not prepared consolidated financial
statements.
Valuation of Investments
Unquoted investments are valued in accordance with IFRS 13 "Fair Value
Measurement" and using the International Private Equity and Venture Capital
Valuation Guidelines ("the IPEV Guidelines") updated in December 2022. Quoted
investments are valued at market bid prices. A detailed explanation of the
valuation policies of the Company is included below.
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 IPEV 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.
Unquoted Investments
· Revenue multiples. 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.
· Net assets. The value of the business is derived
by using appropriate measures to value the assets and liabilities of the
investee company.
· Discounted cash flows of the underlying business.
The present value of the underlying business is derived by using reasonable
assumptions and estimations of expected future cash flows and the terminal
value, and discounted by applying the appropriate risk-adjusted rate that
quantifies the risk inherent in the company.
· Discounted cash flows from the investment. Under
this method, the discounted cash flow concept is applied to the expected cash
flows from the investment itself rather than the underlying business as a
whole.
· Price of recent investment. This may represent
the most appropriate basis where a significant amount of new investment has
been made by an independent third party. This is adjusted, if necessary, for
factors relevant to the background of the specific investment such as
preference rights and will be benchmarked against other valuation techniques.
In line with the IPEV Guidelines the price of recent investment will usually
only be used for the initial period following the round and after this an
alternative basis will be found.
Due to the significant subjectivity involved, discounted cash flows are only
likely to be reliable as the main basis of estimating fair value in limited
situations. Their main use is to support valuations derived using other
methodologies and for assessing reductions in fair value.
One of the valuation methods described above is used to derive the gross
attributable enterprise value of the company after which adjustments are then
made to reflect specific circumstances. This value is then apportioned
appropriately to reflect the respective debt and equity instruments in the
event of a sale at that level at the reporting date.
Listed Investment Funds
Listed investment funds are valued at active market bid price. An active
market is defined as one where transactions take place regularly with
sufficient volume and frequency to determine price on an ongoing basis. There
were no listed investment funds held at 31 March 2024.
Income
Dividends and interest are received from financial assets measured at fair
value through profit and loss and are recognised on the same basis in the
Statement of Comprehensive Income. This includes interest and preference
dividends rolled up and/or payable at redemption. Interest income is also
received on cash, cash equivalents and current asset investments. Dividend
income from unquoted equity shares is recognised at the time when the right to
the income is established.
Expenses
Expenses are accounted for on an accruals basis. Expenses are charged through
the Revenue column of the Statement of Comprehensive Income, except for the
Manager's fee and incentive fees. Of the Manager's fees 75 per cent are
allocated to the Capital column of the Statement of Comprehensive Income, to
the extent that these relate to an enhancement in the value of the investments
and in line with the Board's expectation that over the long term 75 per cent
of the Company's investment returns will be in the form of capital gains. The
incentive fee payable to the Manager (as set out in note 3) is charged wholly
through the Capital column.
Tax relief is allocated to the Capital Reserve using a marginal basis.
Incentive Fee
The incentive fee is accounted for on an accruals basis. As further detailed
in note 3, a performance incentive fee is payable to the Manager subject to
the Company achieving both a target level of Total Return (the "Total Return
Hurdle") and dividends ("Dividend Hurdle"). Subject to meeting the Total
Return Hurdle, the Manager will receive an amount equivalent to 20 per cent of
the amount by which dividends paid per share exceeds the Dividend Hurdle,
multiplied by the number of shares in issue at the year end. The incentive
fee in any financial year will be subject to a cap if the excess of dividends
paid over the Dividend Hurdle is greater than the sum of the excess of the
Total Return over the Total Return Hurdle divided by 1.2. At the end of each
reporting period, an accrual is recognised based upon the dividends paid
during the financial year to date and the Total Return at the end of the
reporting period. The incentive fee is charged wholly through the Capital
column.
Cash, Cash Equivalents and Current Asset Investments
Cash at bank comprises cash at hand and bank deposits with an original
maturity of less than three months, readily convertible to a known amount of
cash and subject to an insignificant risk of changes in value.
Current asset investments comprise money market funds.
Cash and cash equivalents include cash at hand, money market funds and bank
deposits repayable on up to three months' notice as these meet the definition
in IAS 7 'Statement of cash flows' of a short-term highly liquid investment
that is readily convertible into known amounts of cash and subject to
insignificant risk of change in value.
Balances held in fixed term deposits which mature after three months are not
classified as cash and cash equivalents, as they do not meet the definition in
IAS 7 'Statement of cash flows' of short-term highly liquid investments.
Cash and cash equivalents are valued at amortised cost, which equates to fair
value.
Cash flows classified as "operating activities" for the purposes of the
Statement of Cash Flows are those arising from the Revenue column of the
Statement of Comprehensive Income, together with the items in the Capital
column that do not fall to be easily classified under the headings for
"investing activities" given by IAS 7 'Statement of cash flows', being
management and incentive fees payable to the Manager. The capital cash flows
relating to the acquisition and disposal of investments are presented under
"investing activities" in the Statement of Cash Flows in line with both the
requirements of IAS 7 and the positioning given to these headings by general
practice in the industry.
Share Capital and Reserves
Share Capital
This reserve contains the nominal value of all shares allotted under offers
for subscription.
Share Premium Account
This reserve contains the excess of gross proceeds less issue costs over the
nominal value of shares allotted under offers for subscription, to the extent
that it has not been cancelled.
Capital Reserve
The following are included within this reserve:
· Gains and losses on realisation of investments;
· Realised losses upon permanent diminution in
value of investments;
· Capital income from investments;
· 75 per cent of the Manager's fee expense,
together with the related taxation effect to this reserve in accordance with
the policy on expenses in note 1 above;
· Incentive fee payable to the Manager;
· Capital dividends paid to shareholders;
· Applicable share issue costs;
· Purchase and holding of the Company's own shares;
and
· Credits arising from the cancellation of any
share premium account.
Investment Holding Gains and Losses 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.
Revenue Reserve
This reserve includes all revenue income from investments along with any costs
associated with the running of the Company - less 75 per cent of the Manager's
fee expense as detailed in the Capital Reserve above.
Taxation
Due to the Company's status as a venture capital trust and the continued
intention to meet the conditions required to comply with Chapter 3 Part 6 of
the Income Tax Act 2007, no provision for taxation is required in respect of
any realised or unrealised appreciation of the Company's investments which
arises. Deferred tax is recognised on all temporary differences that have
originated, but not reversed, by the balance sheet date.
Deferred tax assets are only recognised to the extent that they are regarded
as recoverable. Deferred tax is calculated at the tax rates that are expected
to apply when the asset is realised. Deferred tax assets and liabilities are
not discounted.
Dividends Payable
Dividends payable are recognised only when an obligation exists. Interim and
special dividends are recognised when paid and final dividends are recognised
when approved by shareholders in general meetings.
Segmental Reporting
In accordance with IFRS 8 'Operating segments' and the criteria for
aggregating reportable segments, segmental reporting has been determined by
the directors based upon the reports reviewed by the Board. The directors are
of the opinion that the Company has engaged in a single operating segment -
investing in equity and debt securities within the United Kingdom - and
therefore no reportable segmental analysis is provided.
Critical Accounting Estimates and Judgements
The preparation of financial statements in conformity with generally accepted
accounting practice requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Although these estimates are based on management's best
knowledge of the amount, event or actions, actual results may ultimately
differ from those estimates. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are those used to
determine the fair value of investments at fair value through profit or loss,
as disclosed in note 7 to the financial statements.
The fair value of investments at fair value through profit or loss is
determined by using valuation techniques. As explained above, the Board uses
its judgement to select from a variety of methods and makes assumptions that
are mainly based on market conditions at each balance sheet date.
The Board uses its judgement to select the appropriate method for determining
the fair value of investments through profit or loss.
2. Income
2024 2023
£000 £000
Dividends from unquoted companies 907 1,102
Interest on loans to unquoted companies 218 263
Income from unquoted portfolio 1,125 1,365
Income from listed investment funds 97 300
Income from investments held at fair value through profit or loss 1,222 1,665
Interest from bank deposits/money market funds 2,823 329
4,045 1,994
3. Administrative Expenses
2024 2023
£000 £000
Manager's fee 3,179 2,782
Administration fee 85 75
Total payable 3,264 2,857
Incentive fee - 125
Other expenses:
Trail commission paid to financial intermediaries 142 92
Directors' remuneration 138 141
General expenses 136 149
Listing and registrar fees 89 80
Auditor's remuneration - audit of the financial statements
(excluding irrecoverable VAT) 66 64
Printing 60 51
Irrecoverable VAT 52 46
3,947 3,605
Fair value movement related to credit risk - (483)
3,947 3,122
Ongoing charges figure 1.85% 2.12%
Directors' remuneration comprises only short-term benefits including social
security contributions of £12,000 (2023: £13,000).
The directors are the Company's only key management personnel.
No fees are payable to the auditor in respect of other services (2023: £nil).
YFM Private Equity Limited provides management services to the Company under
an investment agreement (IA) dated 28 February 1996 as varied by agreements
dated 1 July 2009, 16 November 2012, 17 October 2014, 24 August 2015 and 18
November 2019. The agreement may be terminated by not less than 12 months'
notice given by either party at any time. No notice has been issued to or by
YFM Private Equity Limited terminating the contract as at the date of this
Report.
The key features of the IA are:
· YFM Private Equity Limited receives a Manager's fee, calculated
at half-yearly intervals as at 31 March and 30 September, at the rate of 2.0
per cent of gross assets less current liabilities. The fee is allocated
between capital and revenue as described in note 1. The fee is payable
quarterly in advance;
· With effect from 1 April 2019 the annual fee payable to the
Manager is 1.0 per cent on all surplus cash, defined as all cash above £7.5
million. The annual fee on all other assets will be 2.0 per cent of net assets
per annum. Based on the Company's net assets at 31 March 2024 of £219,600,000
and cash and cash equivalents of £89,804,000 at that date, this equates to
approximately £3,569,000 per annum;
· Under the IA YFM Private Equity Limited also provides
administrative and secretarial services to the Company for a fee of £35,000
per annum (at 28 February 1996) plus annual adjustments to reflect movements
in the Retail Prices Index. This fee is charged fully to revenue, and
totalled £85,000 for the year ended 31 March 2024 (2023: £75,000); and
· YFM Private Equity Limited shall bear the annual operating costs
of the Company (including the fees set out above but excluding any payment of
the performance incentive fee, details of which are set out below and
excluding VAT and trail commissions payable to financial intermediaries) to
the extent that those costs exceed 2.9 per cent of the net asset value of the
Company. The excess expenses during the year payable to the Company from YFM
Private Equity Limited amounted to £nil (2023: £nil).
When the Company makes investments into its unquoted portfolio the Manager
charges that investee an advisory fee or arrangement fee, calculated by
applying a percentage to the investment amount. The Company and the Manager
have agreed that, if the average of the relevant fees during the Company's
financial year exceeds 3.0 per cent of the total invested into new portfolio
companies and 2.0 per cent into follow-on holdings this excess will be rebated
to the Company. As at 31 March 2024, the Company was due a rebate from the
Manager of £nil (2023: £1,320).
The total remuneration payable to YFM Private Equity Limited under the IA in
the period was £3,264,000 (2023: £2,857,000).
Monitoring and directors' fees the Manager receives from the investee
companies are limited to a maximum of £40,000 (excluding VAT) per annum per
company.
Under the IA, YFM Private Equity Limited is entitled to receive fees from
investee companies in respect of the provision of non-executive directors and
other advisory services. YFM Private Equity Limited is responsible for paying
the due diligence and other costs incurred in connection with proposed
investments which for whatever reason do not proceed to completion. In the
year ended 31 March 2024 the fees receivable by YFM Private Equity Limited
from investee companies which were attributable to advisory and directors' and
monitoring fees amounted to £1,535,000 (2023: £1,355,000).
A performance incentive fee is payable to the Manager subject to the Company
achieving both a target level of Total Return (the "Total Return Hurdle") and
dividends ("Dividend Hurdle"). Subject to meeting the Total Return Hurdle,
the Manager will receive an amount equivalent to 20 per cent of the amount by
which dividends paid per share exceeds the Dividend Hurdle, multiplied by the
number of shares in issue at the year end. The incentive fee in any
financial year will be subject to a cap if the excess of dividends paid over
the Dividend Hurdle is greater than the sum of the excess of the Total Return
over the Total Return Hurdle divided by 1.2. With effect from 31 March 2019
the Total Return Hurdle was 228.6 pence per share and the annual increase is
equivalent to 4.0 pence per share, as increased or decreased by the percentage
increase or decrease (if any) in RPI from 1 April 2009. For the year ended
31 March 2024 the annual increase in the Total Return Hurdle was 7.0 pence per
share.
The Dividend Hurdle was 4.0 pence per share (increasing in line with RPI) from
1 April 2009. For the year ended 31 March 2024 the Dividend Hurdle was 7.0
pence per share.
The incentive fees payable for the years ended 31 March 2024 and 31 March 2023
were calculated as follows:
2024 2023
Total Return Hurdle (p) 265.50 258.20
Actual Total Return per Share before incentive fee (p) 262.50 258.60
(Shortfall) Excess over Total Return Hurdle (p) (3.00) 0.40
Dividend Hurdle (p) 7.00 6.10
Actual Dividends per share (p) 4.00 8.50
(Shortfall) Excess over Dividend Hurdle (p) (3.00) 2.40
Lower excess of the two hurdles (p) - 0.40
Fee impact reduction (divide by 1.2) (p) - 0.333
Performance fee per share at 20% of adjusted excess (p) - 0.067
Number of shares in issue ('000) 262,659 187,679
Incentive fee payable (£'000) - 125
The Total Return Hurdle for the year ending 31 March 2025 is 272.75 pence per
share. The Dividend Hurdle is 7.25 pence per share.
If the annual incentive fee exceeds £5.0 million then the excess is deferred
until following the next year's Annual General Meeting. Payment of the
remainder is made five Business Days after the relevant Annual General Meeting
at which the audited accounts are presented to shareholders.
The amount of the incentive payment paid to the Manager for any one year
shall, when taken with all other relevant costs, ensure that the Company's
total costs in a single year do not exceed 5 per cent of net assets. Any
excess over the 5 per cent is carried forward to be included in the
calculation of the amount that can be paid in future years. Except with
shareholder approval the maximum fee payable in any 12 month period will not
exceed £7.5 million.
There are also provisions for a compensatory fee in circumstances where the
Company is taken over or the Incentive Agreement is terminated, which is
calculated as a percentage of the fee that would otherwise be payable under
the Incentive Agreement by reference to the accounting period following its
termination. In this instance 80 per cent is payable in the first accounting
period after such an event, 55 per cent in the second, 35 per cent in the
third and nothing is payable thereafter.
Under the terms of the offer launched with British Smaller Companies VCT2 plc
on 30 November 2022, YFM Private Equity Limited was entitled to 3.0 per cent
of gross subscriptions, (3.5 per cent for Applications received from
Applicants who did not invest their money through a financial intermediary
advisor and invested directly into the Company) less commissions payable to an
execution-only broker or platform. The net amount paid to YFM Private Equity
Limited under this offer amounted to £1,383,000.
Under the terms of the offer launched with British Smaller Companies VCT2 plc
on 20 September 2023, YFM Private Equity Limited was entitled to 3.0 per cent
of gross subscriptions, (3.5 per cent for Applications received from
Applicants who did not invest their money through a financial intermediary
advisor and invested directly into the Company) less commissions payable to an
execution-only broker or platform. The net amount paid to YFM Private Equity
Limited under this offer amounted to £1,645,000.
The details of directors' remuneration are set out in the Directors'
Remuneration Report on page 50 of the annual report under the heading
"Directors' Remuneration for the year ended 31 March 2024 (audited)".
4. Taxation
2024 2023
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Profit before taxation 2,482 8,136 10,618 1,083 11,154 12,237
Profit before taxation multiplied by standard rate of corporation
tax in UK of 19% (2023: 19%) 471 1,546 2,017 206 2,119 2,325
Effect of:
UK dividends received (172) - (172) (297) - (297)
Non-taxable profits on investments - (1,999) (1,999) - (2,539) (2,539)
Deferred tax not recognised (299) 453 154 91 420 511
Tax charge - - - - - -
The Company has no provided or unprovided deferred tax liability in either
year.
Deferred tax assets of £4.98 million (2023: £4.75 million) calculated at 25%
(2023: 25%) in respect of unrelieved management expenses (£19.93 million as
at 31 March 2024 and £19.01 million as at 31 March 2023) have not been
recognised as the directors do not currently believe that it is probable that
sufficient taxable profits will be available against which assets can be
recovered.
Due to the Company's status as a venture capital trust and the continued
intention to meet with the conditions required to comply with Section 274 of
the Income Tax Act 2007, the Company has not provided for deferred tax on any
capital gains or losses arising on the revaluation or realisation of
investments.
5. Dividends
Amounts recognised as distributions to equity holders in the period to 31
March:
2024 2023
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Interim dividend for the year ended 31 March 2024 of 2.0p (2023: 2.0p) per 638 4,178 4,816 - 3,725 3,725
ordinary share
Second interim dividend for the year ended 31 March 2024 of 2.0p (2023: 2.0p) - 4,819 4,819 - 3,736 3,736
per ordinary share
Third interim dividend for the year ended 31 March 2023 of 4.5p per ordinary - - - 127 8,296 8,423
share
638 8,997 9,635 127 15,757 15,884
Shares allotted under DRIS (2,018) (3,704)
Dividends paid in Statement of Cash Flows 7,617 12,180
The first interim dividend of 2.0 pence per ordinary share was paid on 28 July
2023 to shareholders on the register as at 30 June 2023.
The second interim dividend of 2.0 pence per ordinary share was paid on 8
December 2023 to shareholders on the register as at 10 November 2023.
An interim dividend of 2.0 pence per ordinary share, in respect of the year
ending 31 March 2025, will be paid on 26 July 2024 to shareholders on the
register on 28 June 2024. This dividend was not recognised in the year ended
31 March 2024 as the obligation did not exist at the balance sheet date.
6. Basic and Diluted Earnings per Ordinary Share
The basic and diluted earnings per ordinary share is based on the profit after
tax attributable to shareholders of £10,618,000 (2023: £12,237,000) and
244,463,235 (2023: 187,113,203) ordinary shares being the weighted average
number of ordinary shares in issue during the year.
The basic and diluted revenue earnings per ordinary share is based on the
revenue profit for the year attributable to shareholders of £2,482,000 (2023:
£1,083,000) and 244,463,235 (2023: 187,113,203) ordinary shares being the
weighted average number of ordinary shares in issue during the year.
The basic and diluted capital earnings per ordinary share is based on the
capital profit for the year attributable to shareholders of £8,136,000 (2023:
£11,154,000) and 244,463,235 (2023: 187,113,203) ordinary shares being the
weighted average number of ordinary shares in issue during the year.
During the year the Company allotted 2,490,239 new ordinary shares in respect
of its DRIS and 76,120,499 new ordinary shares from its fundraising.
The Company has also repurchased 3,630,656 of its own shares in the year, and
these shares are held in the capital reserve. The total of 25,638,421 treasury
shares has been excluded in calculating the weighted average number of
ordinary shares for the period. The Company has no securities that would have
a dilutive effect and hence basic and diluted earnings per ordinary share are
the same.
The Company has no potentially dilutive shares and consequently, basic and
diluted earnings per ordinary share are equivalent in both the year ended 31
March 2024 and 31 March 2023.
7. Financial Assets at Fair Value through Profit or Loss -
Investments
2024 2023
£000 £000
Investment portfolio 126,592 127,406
Accrued income and other assets* 2,070 -
Financial assets at fair value through profit and loss 128,662 127,406
* Relates to accrued income which is not past due which has been disclosed as
part of the investment value. Prior year income was not included as it was not
material.
IFRS 13, in respect of financial instruments that are measured in the balance
sheet at fair value, requires disclosure of fair value measurements by level
of the following fair value measurement hierarchy:
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. An active 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 fixed income securities classified as held at fair value through
profit or loss. The Company held no such investments at 31 March 2024.
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 revenue and earnings multiples. If one
or more of the significant inputs is not based on observable market data, the
instrument is included in level 3. All of the Company's investments fall into
this category at 31 March 2024.
Each investment is reviewed at least quarterly to ensure that it has not
ceased to meet the criteria of the level in which it is included at the
beginning of each accounting period. The change in fair value for the current
and previous year is recognised through profit or loss.
There have been no transfers between these classifications in either period.
All items held at fair value through profit or loss were designated as such
upon initial recognition.
Valuation of Investments
Full details of the methods used by the Company are set out in note 1. Where
investments are held in listed investment funds, fair value is set at the
market bid price.
Movements in investments at fair value through profit or loss during the year
to 31 March 2024 are summarised as follows:
IFRS 13 measurement classification Level 3 Level 1
Unquoted Listed Total
Investments Investment Investments
Funds
£000 £000 £000
Opening cost 73,515 4,676 78,191
Opening investment holding gain (loss) 49,846 (631) 49,215
Opening fair value at 1 April 2023 123,361 4,045 127,406
Additions at cost 9,140 250 9,390
Disposal proceeds (16,523) (4,105) (20,628)
Net profit (loss) on disposal* 4,569 (190) 4,379
Change in fair value 6,561 - 6,561
Foreign exchange loss (516) - (516)
Closing fair value at 31 March 2024 126,592 - 126,592
Closing cost 77,385 - 77,385
Closing investment holding gain 49,207 - 49,207
Closing fair value at 31 March 2024 126,592 - 126,592
* The net profit on disposal in the table above is £4,379,000 whereas that
shown in the Statement of Comprehensive Income is £4,475,000. The difference
comprises the change in the value of deferred proceeds totalling £96,000 in
respect of assets which have been disposed of and are not included within the
investment portfolio at 1 April 2023.
There were no individual reductions in fair value during the year that
exceeded 5 per cent of the total assets of the Company (2023: £nil).
The following disposals took place in the year:
Net proceeds Cost Opening
from sale carrying Profit (loss)
value as at on disposal
1 April 2023
£000 £000 £000 £000
Unquoted investments:
Displayplan Holdings Limited 9,636 130 7,901 1,735
E2E Engineering Limited 1,960 900 1,200 760
Ncam Technologies Limited 1,682 2,512 1,659 23
Macro Art Holdings Limited 1,484 481 558 926
KeTech Holdings Limited* 1,461 - 593 868
Arcus Global Limited* 300 1,245 43 257
Total from portfolio 16,523 5,268 11,954 4,569
Wakefield Acoustics (via Malvar Engineering Limited) 96 - - 96
Deferred consideration 96 - - 96
Listed investment funds** 4,105 4,928 4,295 (190)
Total from investment portfolio*** 20,724 10,196 16,249 4,475
* Partial realisation.
** Opening value includes further investments made during
the year.
*** The total from disposals in the year in the table above
is £20,724,000 whereas that shown in the Statement of Cash flows is
£19,721,000. The difference comprises deferred proceeds of £1,003,000 which
will be received in subsequent years.
8. 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 £219,600,000 (2023: £157,032,000) and 262,659,361
(2023: 187,679,279) ordinary shares in issue at the year end.
The treasury shares have been excluded in calculating the number of ordinary
shares in issue at 31 March 2024.
The Company has no potentially dilutive shares and consequently, basic and
diluted net asset values per ordinary share are equivalent in both the years
ended 31 March 2024 and 31 March 2023.
9. Total Return per Ordinary Share
The Total Return per ordinary share is calculated on cumulative dividends paid
of 178.9 pence per ordinary share (2023: 174.9 pence per ordinary share) plus
the net asset value as calculated per note 8.
10. Financial Commitments
There are no financial commitments at 31 March 2024 or 31 March 2023.
11. Events after the Balance Sheet Date
On 3 April 2024 the Company allotted the final shares from its fully
subscribed 2023/24 share offer. Gross proceeds of £36.8 million were
raised, resulting in the issue of 42,588,037 ordinary shares. This increased
the number of ordinary shares issued with voting rights to 305,247,398.
Subsequent to the year end, £4.7 million has been invested into two new
investments, Fuuse and Ohalo.
12. Related Party Transactions
Fees payable during the year to the directors and their interests in the
shares of the Company are disclosed within the Directors' Remuneration Report
on page 50 of the annual report. There were no amounts outstanding and due to
the directors at 31 March 2024 (2023: £nil).
13. Annual Report and Accounts
Copies of the statutory accounts for the year ended 31 March 2024 will shortly
be submitted to the National Storage Mechanism and will be available to the
public for viewing online at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) . They can also
shortly be viewed on the Company's website at www.bscfunds.com
(http://www.bscfunds.com) . Hard copies of the statutory accounts for the
year to 31 March 2024 will be distributed by post or electronically to
shareholders and will thereafter be available to members of the public from
the Company's registered office.
14. Directors
The directors of the Company are Mr R Cook, Mr A C N Bastin, Mr J H Cartwright
and Ms P Sapre.
15. Annual General Meeting
The Annual General Meeting of the Company will be held at 9:30 am on 10
September 2024 at Thomas House, 84 Ecclestone Square, London SW1V 1PX. Full
details of the agenda for this meeting are included in the Notice of the
Annual General Meeting on page 92 of the annual report.
16. Interim Dividend for the Year Ending 31 March 2025
The directors are pleased to announce the payment of an interim dividend for
the year ending 31 March 2025 of 2.0 pence per ordinary share ("Interim
Dividend").
The Interim Dividend will be paid on 26 July 2024 to those shareholders on the
Company's register at the close of business on 28 June 2024. The ex-dividend
date will be 27 June 2024.
The directors are not proposing a final dividend for the year ended 31 March
2024.
17. Dividend Re-investment Scheme
The Company operates a dividend re-investment scheme ("DRIS"). The latest
date for receipt of new or updated DRIS elections in respect of the Interim
Dividend is the close of business on 12 July 2024.
18. 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:
Dan Perkins YFM Private Equity Limited Tel: 0113
244 1000
Alex Collins Panmure Gordon (UK) Limited Tel: 0207 886 2767
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR FLFILRRISLISRecent news on British Smaller Companies VCT
See all newsREG - Official List - Official List Notice
AnnouncementREG - British Smaller Co's - Transaction in Own Shares
AnnouncementREG - British Smaller Co's - Annual Financial Report
AnnouncementREG - British Smaller Co's - Issue of Equity and Close of Offers
AnnouncementREG - British Smaller Co's - Transaction in Own Shares and Total Voting Rights
Announcement