TIDMAAM
RNS Number : 3400O
Artemis VCT PLC
16 May 2018
ARTEMIS VCT PLC
Half-Yearly Report (unaudited) for the six months ended 31 March
2018
This announcement contains regulated information
Chairman's statement
Performance
I am pleased to report another period of excellent performance
and strong returns for shareholders. The Company's net asset value
total return was 13.9% for the six months to 31 March 2018. This
compares to a rise in the FTSE AIM All-Share Index of 1.6% over the
same period.
Portfolio
During the six month period the Investment Manager made
disposals totalling GBP6.7 million. The largest sale was of Yu
Group which had enjoyed a period of strong share price performance.
GBP3.1 million was sold generating a profit of GBP2.5 million. Of
the GBP6.7 million of sales, gains of GBP5.5 million were
realised.
As has been the case for previous years there have been limited
investment opportunities. During the period there was one new
investment made, GBP750,000 was invested in Pelatro, a company
providing targeted marketing software which enables telecoms
companies to optimise their campaign results.
Further details of the Company's investment activities are
provide in the Investment Manager's review which follows on pages 6
to 8.
Dividend
The six month period to 31 March 2018 has seen further strong
cash generation from disposals. During the period the Board and
Investment Manager discussed the level of cash held in the Company.
As a result of the lack of near term attractive investment
opportunities, and in line with its objective of returning excess
cash to shareholders, the Board decided to declare a special
dividend of 8.00 pence per share which was paid on 11 May to
shareholders on the register on 13 April.
An interim dividend of 2.0 pence per share has been declared
which will be paid to shareholders on 29 June 2018, to those
shareholders on the register on 8 June 2018. In aggregate these
dividends will result in a total payment of GBP5.3 million.
Along with an annual 4.00 pence per share dividends the Company
has paid special dividends of 58.00 pence per share, including the
8.00p paid to shareholders this month. Changes to the VCT
regulations restricting the ability to make follow on investments
and reducing the universe of companies in which VCTs may invest
along with the limited investment opportunities have resulted in
increasing cash balances which the Company is required to
distribute. The Board, however, continues with the view that new
investments will take priority over the payment of special
dividends should suitable investment opportunities arise.
Therefore, special dividends may not be paid in future.
Share buybacks
There were no buybacks in the six months to 31 March 2018. The
Company's discount narrowed from 6.6% at the last year end to 1.0%.
Should the discount widen, the Company will buy back shares within
guidelines set by the Board. Share buybacks remain subject to the
Company having the necessary shareholder authorities in place and
having sufficient cash available for this purpose, taking into
account future cash requirements for investing activities, the
payment of dividends and operating expenses.
Outlook
In November 2017 the Chancellor announced his Autumn Statement,
where it was widely expected that VCT regulations would be
targeted. The announcements relating to VCTs were generally
positive and, of most relevance to the Company, were changes to the
minimum qualifying percentage which will increase to 80% (currently
70%) and the period for the disposal of qualifying holdings which
will increase from 6 months to 12 months. These changes are
effective from 6 April 2019 and the Board does not expect them to
have any significant impact on the Company and its Investment
Policy.
The first part of 2018 has been challenging for markets with
rising interest rates and the risk of a trade war. However, global
economic growth and earnings growth remain strong. It remains the
case that the Company's well diversified portfolio of companies,
which are in a strong position financially, should continue to
perform well despite the uncertain market conditions.
And finally ...
I look forward to providing further updates on your Company's
performance in the Annual Report and Accounts published in
December.
In the meantime, shareholders can keep up to date with
developments between formal reports by visiting the Company's
website at artemisvct.co.uk. In addition, the Board is always keen
to hear from shareholders. Should you wish to, you can e-mail me at
vctchairman@artemisfunds.com.
Fiona Wollocombe
Chairman
16 May 2018
Investment Manager's review
Performance
With equity markets proving more challenging over the last six
months we are pleased to be able report continued growth with the
Company's net asset value growing from 73.60 pence to 75.27 pence
in the period. This growth was achieved despite the payment of 8.00
pence in dividends that, once added back, translates to a total
return of 13.9%. Although we are pleased with this result we
continue to favour longer term performance metrics and these
continue to be strong with total returns over one, three and five
years of 31.5%, 119.5% and 217.2% respectively. For the avoidance
of doubt, these figures are after the deduction of all expenses and
transaction costs.
Five largest stock contributors
% of Contribution
Company net assets (%)
Yu Group 2.8 4.6
AB Dynamics 4.6 2.2
ULS Technology 7.0 1.5
Craneware 3.2 1.2
Instem 3.5 1.2
Five largest stock detractors
% of Contribution
Company net assets (%)
Cambridge Cognition Holdings 2.0 (0.7)
Omega Diagnostics Group 1.1 (0.6)
Synectics 0.9 (0.4)
Cohort 2.1 (0.4)
Gear4music Holdings 1.3 (0.4)
Review
As we entered the current financial year energy supplier Yu
Group was our largest holding representing 6.3% of the Company's
net asset value. It was also our strongest contributor with the
shares rising by over 75% in the period. We highlighted the
potential for the company in our last annual report so it has been
pleasing to see our confidence rewarded. Having listed on AIM two
years ago 2017 marked the first full year as a public company and
it was a successful one. Revenue almost trebled to GBP47 million
and with the contracted order book for 2018 already standing at
over GBP50 million they are well placed for continued growth,
supported by a recent GBP12 million fundraising.
This is somewhat reminiscent of our investment in Gear4music
that was our largest holding and strongest contributor a year ago.
The company continues to trade exceptionally well and had another
successful Christmas period in which they grew market share in both
the UK and Europe as they expand their footprint. Given this
underlying performance it is perhaps a surprise to see the shares
sitting amongst our largest detractors. This is a good example of
our wariness of over-reliance on short term performance measurement
- despite the recent weakness the shares still sit almost 25%
higher than they were a year ago.
ULS Technology was amongst our strongest contributors and stood
as our largest holding at the period end. Technology is driving
increased price transparency across a range of sectors whether it
be musical equipment or property conveyancing. Despite being a
leading technology platform ULS Technology still services less than
5% of the conveyancing market. We think this leaves a long runway
of growth and the opportunity exists to drive the market share
substantially higher as new distribution partners are added and
recently signed partners mature. Whilst we were disappointed to
hear of the departure of CEO Ben Thompson in early April we think
he has positioned the company well for the future and the company
is in good hands.
There is also change underway at the top of AB Dynamics and
Omega Diagnostics. At the end of February 2018 Tim Rogers stepped
down as CEO of AB Dynamics after five successful years with the
business including the company's listing on AIM. A new CEO has yet
to be announced but founder Tony Best remains at the helm as
Executive Chairman to ensure a smooth transition. An update at the
end of March confirmed trading remains strong leaving a solid
foundation for the new Chief Executive as and when he arrives.
A new CEO was also announced by Omega Diagnostics in
mid-December with Chief Operating Officer Colin King taking over
from founder Andrew Shepherd. Recent trading has been more
challenging for the company of late forcing a strategic review of
operations in early April. The proposed closure of two loss-making
sites is an unfortunate but necessary step although the weak
balance sheet remains a cause for concern.
A strong balance sheet is, in our opinion, an invaluable
resource for small companies allowing management teams the scope to
invest when required and deal with any near term trading
volatility. Instem plc is a good example. Additional investment,
along with contract deferrals, were to blame for a difficult 2017
but having cash on the balance sheet allowed them to weather the
storm and 2018 has started on a much brighter note. Fears of a
profit warning were misplaced with a positive trading update well
received in January alongside a large contract win. The company
has, in recent years, successfully positioned itself as the leading
expert in the field of electronic data submissions to the Food and
Drug Administration ("FDA") in the US and this now looks likely to
deliver the anticipated benefits marking a sharp reversal of
fortunes for the group.
Cambridge Cognition experienced a similar pattern. The deferral
of two large contracts towards the end of the year impacted profits
for 2017. However with a year-end cash balance of almost GBP2
million the company was able to manage the shortfall and the larger
of the two trials has since been signed.
Investment activity
The last few years has seen us make, on average, one new
qualifying investment every six months and this rate continued in
the period with our investment in Pelatro in December.
Pelatro offers targeted marketing software enabling telecoms
companies to optimise their campaigns. Analysis of behavioural
data, gathered directly from the customer's networks, identifies
customers with similar behaviours and segments them in order to
help the telecom service providers create and then deliver the most
appropriate, and therefore attractive, campaigns and offers.
Increasing response rates in turn drive higher revenues from the
existing customer base. The company has demonstrated good
commercial traction, despite limited resources, with eight
customers signed to date delivering more than $3 million revenue in
2017. The fundraising will allow Pelatro to invest in increased
sales and marketing to drive further growth.
The continued strong performance of the portfolio has once again
led to sizable disposal proceeds as we continue to take profits and
manage our exposure to individual investments. Over the last six
months we made disposals totalling GBP6.7 million generating net
realised gains of GBP5.5 million.
As the performance review identified, Yu Group had an
exceptional six months and starting the period, as it did, as our
largest holding it soon represented over 8% of the fund. We
continue to like the company's proposition and long term
opportunity but the share price, in our view, now more fairly
reflects the company's prospects.
With a more balanced risk/reward profile a lower weighting in
the fund seemed appropriate to us mirroring the approach we took
with Gear4music a year ago. We sold almost three-quarters of our
holding in the period generating proceeds of a little over GBP3
million. The value of our current holding in Yu Group still exceeds
our initial investment in the company at IPO.
The bulk of the remaining sales reflected profit-taking with
material sales including Advanced Medical Solutions (GBP0.6m),
Keywords Studios (GBP0.6m), Judges Scientific (GBP0.6m), Craneware
(GBP0.4m), AB Dynamics (GBP0.4m) and Abcam (GBP0.2m).
A profit warning from defence peer Ultra Electronics coupled
with concerns over Ministry of Defence spending led us to trim our
position in Cohort around the turn of the year and we also further
reduced our position in ECSC plc after disappointing interim
results.
Outlook
We would currently describe ourselves as cautiously optimistic.
Our optimism is reinforced by our regular contact with company
management teams. We feel we have a portfolio of well-managed,
entrepreneurial companies with attractive growth prospects across a
range of end-markets. Our caution, though, flows from the
valuations some stocks trade on. Whilst we can argue the valuation
case for many stocks we hold it is not universal and a number, in
our view, already discount a fair degree of continued success. We
will continue to manage portfolio weightings with that balance in
mind.
Andy Gray
Fund Manager
16 May 2018
Responsibility statement of the Directors in respect of the
Half-Yearly Financial Report
The Directors confirm that to the best of their knowledge in
respect of the Half-Yearly Financial Report for the six months
ended 31 March 2018:
- the condensed set of financial statements has been prepared in
accordance with the Financial Reporting Standard ('FRS') 104:
'Interim Financial Reporting';
- having considered the expected cash flows and operational
costs of the Company for the 18 months from the period end, the
Directors are satisfied that the Company has adequate resources to
continue in operational existence for the foreseeable future. For
this reason the going concern basis of accounting continues to be
used in the preparation of the Half-Yearly Financial Report;
- the Chairman's statement to shareholders and Investment
Manager's review includes a fair review of the information required
by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of the important events that have occurred during the
first six months of the financial year and their impact on the
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period, and any changes in the related party transactions
described in the last annual financial report that could do so.
The Half-Yearly Financial Report for the six months ended 31
March 2018 was approved by the Board and the above responsibility
statement has been signed on its behalf by:
Fiona Wollocombe
Chairman
16 May 2018
Condensed income statement
For the six months ended 31 March 2018
Six months ended Six months ended Year ended
30 September
31 March 2018 31 March 2017 2017
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on
investments - 5,432 5,432 - 7,031 7,031 - 13,096 13,096
Investment
income 146 - 146 148 - 148 357 - 357
Other income 6 - 6 8 - 8 - - -
Investment
management
fee (81) (243) (324) (79) (235) (314) (156) (469) (625)
Other expenses (121) (1) (122) (119) (1) (120) (241) (1) (242)
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(Loss)/return
on ordinary
activities
before
taxation (50) 5,188 5,138 (42) 6,795 6,753 (40) 12,626 12,586
Taxation
on ordinary
activities - - - - - - - - -
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(Loss)/return
on ordinary
activities
after taxation (50) 5,188 5,138 (42) 6,795 6,753 (40) 12,626 12,586
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(Loss)/return
per ordinary
share (0.09)p 9.76p 9.67p (0.8)p 12.76p 12.68p (0.8)p 23.73p 23.65p
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Notes:
The total column of this statement represents the profit and
loss account of the Company.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the period.
The net (loss)/return for the periods disclosed above represents
the Company's total comprehensive income.
Condensed balance sheet
As at 31 March 2018
As at As at As at
31 March 31 March 30 September
2018 2017 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Non-current assets
Investments 31,737 31,934 32,207
Current assets
Debtors 32 31 91
Cash and cash equivalents 8,622 7,902 7,041
----------------------------- ------------ ------------ -------------
Total assets 40,391 39,867 39,341
----------------------------- ------------ ------------ -------------
Creditors (amounts failing
due within one year) (387) (204) (223)
----------------------------- ------------ ------------ -------------
Net assets 40,004 39,663 39,118
----------------------------- ------------ ------------ -------------
Capital and reserves
Share capital 5,315 5,315 5,315
Share premium 2,828 2,828 2,817
Capital reserve - realised 12,067 14,600 11,015
Capital reserve - unrealised 17,315 14,393 17,431
Capital redemption reserve 2,569 2,569 2,569
Revenue reserve (90) (42) (40)
----------------------------- ------------ ------------ -------------
Equity shareholders'
funds 40,004 39,663 39,118
----------------------------- ------------ ------------ -------------
Net asset value per share 75.27p 74.62p 73.60p
----------------------------- ------------ ------------ -------------
Condensed statement of changes in equity
For the six months ended 31 March 2018
Capital Capital Capital
Share Share reserve reserve redemption Revenue
capital premium - realised* - unrealised reserve reserve* Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 September
2017 5,315 2,828 11,015 17,431 2,569 - 39,118
Repurchase
of shares
for cancellation - - - - - - -
Return on
ordinary
activities
after taxation - - 1,438 3,750 - (50) 5,138
Transfer
on disposal
of investments - - 3,866 (3,866) - - -
Dividends
paid - - (4,252) - - - (4,252)
------------------ -------- -------- ------------ ------------- ----------- --------- --------
At 31 March
2018 5,315 2,828 12,067 17,315 2,569 (90) 40,004
------------------ -------- -------- ------------ ------------- ----------- --------- --------
Capital Capital Capital
Share Share reserve reserve redemption Revenue
capital premium - realised* - unrealised reserve reserve* Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 September
2016 5,336 2,828 17,422 10,243 2,548 - 38,377
Repurchase
of shares
for cancellation (21) - (141) - 21 - (141)
Return on
ordinary
activities
after taxation - - 1,625 5,169 - (42) 6,752
Transfer
on disposal
of investments - - 1,019 (1,019) - - -
Dividends
paid - - (5,325) - - - (5,325)
------------------ -------- -------- ------------ ------------- ----------- --------- --------
At 31 March
2017 5,315 2,828 14,600 14,393 2,569 (42) 39,663
------------------ -------- -------- ------------ ------------- ----------- --------- --------
Capital Capital Capital
Share Share reserve reserve redemption Revenue
capital premium - realised* - unrealised reserve reserve* Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 September
2016 5,336 2,828 17,422 10,243 2,548 - 38,377
Repurchase
of shares
for cancellation (21) - (142) - 21 - (142)
Return on
ordinary
activities
after taxation - - 4,253 8,373 - (40) 12,586
Transfer
on disposal
of investments - - 1,85 (1,185) - - -
Dividends
paid - - (11,703) - - - (11,703)
------------------ -------- -------- ------------ ------------- ----------- --------- --------
At 30 September
2017 5,315 2,828 11,015 17,431 2,569 (40) 39,118
------------------ -------- -------- ------------ ------------- ----------- --------- --------
* The aggregate of these reserves, being GBP11,977,000,
represents the distributable reserves of the Company at 31 March
2018 (31 March 2017: GBP14,558,000; 30 September 2017:
GBP10,975,000).
Condensed statement of cash flows
For the six months ended 31 March 2018
Six months Six months
ended ended Year ended
31 March 31 March 30 September
2018 2017 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Cash used in operations (112) (253) (496)
Interest received 6 8 13
---------------------------- ------------ ------------ -------------
Net cash generated from
operating activities (106) (245) (483)
---------------------------- ------------ ------------ -------------
Cash flow from investing
activities
Purchases of investments (750) (850) (1,316)
Sales of investments 6,689 7,747 13,968
Net cash from investing
activities 5,939 6,897 12,652
----------------------------
Cash flow from financing
activities
Repurchase of shares for
cancellation - (176) (176)
Dividends paid (4.252) (5,325) (11,703)
Net cash used in financing
activities (4,252) (5,501) (11,879)
Net increase in cash and
cash equivalents 1,581 1,151 290
---------------------------- ------------ ------------ -------------
Cash and cash equivalents
at the start of the period 7,041 6,751 6,751
Increase in cash in the
period 1,581 1,151 290
---------------------------- ------------ ------------ -------------
Cash and cash equivalents
at the end of the period 8,622 7,902 7,041
---------------------------- ------------ ------------ -------------
Notes to the Half-Yearly Financial Report
1. Accounting policies
The condensed financial statements for the six months to 31
March 2018 comprise the statements set out on pages 13 to 16
together with the related notes on pages 17 to 18. The financial
statements have been prepared in accordance with the Company's
accounting policies as set out in the Annual Financial Report for
the year ended 30 September 2017 and are presented in accordance
with the Companies Act 2006 (the 'Act'), FRS 104 and the
requirements of the Statement of Recommended Practice 'Financial
Statements of Investment Trust Companies and Venture Capital
Trusts' ('SORP') issued by the Association of Investment Companies
(the 'AIC') in November 2014 and updated in February 2018.
The financial information contained within this Half-Yearly
Financial Report does not constitute statutory accounts as defined
in Sections 434 to 436 of the Act. The financial information for
the year ended
30 September 2017 has been extracted from the statutory accounts
which have been filed with the Registrar of Companies. The
Auditor's report on those accounts was not qualified and did not
contain statements under sections 498(2) or (3) of the Act.
2. (Loss)/return per share
(Loss)/return per ordinary share has been calculated based on
the weighted average number of ordinary shares in issue for the six
months ended 31 March 2018 being 53,150,516 ordinary shares (31
March 2017: 53,254,260; 30 September 2017: 53,202,246).
3. Dividends
A special dividend for the six months ended 31 March 2018 of
8.00 pence per ordinary share (2017: 10.00 pence) has been declared
and was paid on 11 May 2018 (2017: 30 June 2017) to shareholders on
the register at close of business on 13 April 2018 (2017: 9 June
2017).
An interim dividend for the six months ended 31 March 2018 of
2.00 pence per ordinary share
(2017: 2.00 pence) has been declared and will be paid on 29 June
2018 (2017: 30 June 2017) to those shareholders on the register at
close of business on 8 June 2018 (2017: 9 June 2017).
4. Fair value hierarchy
All investments are designated at fair value through profit or
loss on initial recognition in accordance with FRS 102. The
following table provides an analysis of these investments based on
the fair value hierarchy as described below which reflects the
reliability and significance of the information used to measure
their fair value.
The disclosure is split into the following categories:
Level 1 - Investments with unadjusted quoted prices in an active
market;
Level 2 - Investments whose fair value is based on inputs other
than quoted prices that are either directly or indirectly
observable;
Level 3 - Investments whose fair value is based on inputs that
are unobservable (i.e. for which market data is unavailable).
30 September
31 March 31 March 2017
2018 2017 GBP'000
GBP'000 GBP'000
Level 1 30,555 31,934 31,050
Level 2 1,182 - 1,157
---------------------------- ----------- ----------- -------------
Total value of investments 31,737 31,934 32,207
---------------------------- ----------- ----------- -------------
5. Share capital
The net asset value per ordinary share has been calculated based
on 53,150,516 ordinary shares in issue (31 March 2017: 53,150,516;
30 September 2017: 53,150,516).
In the six months ended 31 March 2018, no ordinary shares were
bought back and cancelled (six months ended 31 March 2017: 209,301
ordinary shares were bought back and cancelled at a total cost of
GBP142,000; year ended 30 September 2017: 209,301 ordinary shares
were bought back and cancelled at a total cost of GBP142,000).
6. Related party transactions
There were no related party transactions during the period.
7. Transactions with the Investment Manager
The investment management fee payable to Artemis Fund Managers
Limited for the six months ended 31 March 2018 was GBP324,000 (31
March 2017: GBP314,000; 30 September 2017: GBP625,000) of which
GBP321,000 (31 March 2017: GBP154,000; 30 September 2017:
GBP149,000) was outstanding at the period end.
8. Principal risks and uncertainties
Pursuant to DTR 4.2.7R of the Disclosure and Transparency Rules,
the principal risks faced by the Company include general market
price risk, liquidity risk, regulatory risk and operational
risk.
These risks, which have not materially changed since the Annual
Financial Report for the year ended 30 September 2017, and the way
in which they are managed, are described in more detail in the
Annual Financial Report which is available on the Company's website
at artemisvct.co.uk.
Copies of the Half-Yearly Financial Report will be posted to
shareholders shortly and may also be obtained from the Company's
website at artemisvct.co.uk.
For further information, please contact:
Artemis Fund Managers Limited
Company Secretary
0131 225 7300
This information is provided by RNS
The company news service from the London Stock Exchange
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