TIDMBSV
RNS Number : 5297D
British Smaller Companies VCT PLC
26 June 2019
BRITISH SMALLER COMPANIES VCT PLC
Annual Financial Report Announcement for
the Year to 31 March 2019
British Smaller Companies VCT plc (the "Company") today
announces its audited results for the year ended 31 March 2019.
HIGHLIGHTS
-- Total Return increasing by 5.7 pence to 221.7 pence per
ordinary share, an increase of 7.2 per cent over opening net asset
value.
-- The underlying growth in the investment portfolio was GBP6.5
million, an increase of 10.1 per cent.
-- Realisations of investments and loan repayments generated
total proceeds of GBP18.8 million in the year, a gain of GBP4.3
million over the opening carrying value and GBP9.6 million over
cost.
-- Three new investments and three follow-on investments
totalling GBP5.7 million were completed during the year. Three
further new investments and one follow-on investment totalling
GBP7.8 million have been completed since the year end.
-- Net asset value at 31 March 2019 of 74.3 pence per ordinary
share (2018 79.6 pence per ordinary share).
-- Total dividends paid in the year of 11.0 pence per ordinary
share (2018: 5.75 pence per ordinary share). The directors are not
proposing the payment of a final dividend for the year ended 31
March 2019.
-- Total cumulative dividends paid since inception of 147.4
pence per ordinary share at 31 March 2019 (2018: 136.4 pence per
ordinary share).
-- Interim dividend for the year ending 31 March 2020 of 4.0
pence per ordinary share paid on 12 June 2019, taking cumulative
dividends paid to date to 151.4 pence per ordinary share.
-- Successful prospectus offer raising approximately GBP21.3
million. Shares were allotted in April 2019.
Chairman's Statement
I am pleased to report that your Company has made good progress
during the year, with realised gains delivered on the sale of three
portfolio companies in December 2018 and also net overall valuation
gains across the rest of the portfolio. As a result, Total Return
in the year was 5.7 pence per ordinary share, which equates to 7.2
per cent of the net asset value at 31 March 2018. Total Return is
now 221.7 pence per ordinary share.
Your Company's investment portfolio delivered a strong
performance over the year, generating a return of 10.1 per cent
over its opening value, and new and follow-on investments totalling
GBP5.71 million have also been completed.
Realisations in Year
Realisations and loan repayments generated total proceeds of
GBP18.85 million which was a realised gain of GBP4.29 million over
the opening carrying value and GBP9.61 million over cost. In
December 2018 there were three successful realisations:
The sale of the Company's investment in GTK (Holdco) Limited
generated proceeds of GBP3.75 million. The total return (including
income) from this investment was GBP5.91 million, a multiple of
3.4x cost.
The sale of the Company's investment in Mangar Health Limited
generated proceeds of GBP5.51 million. The total return (including
income) from this investment was GBP6.59 million, a multiple of
2.7x cost.
The sale of the Company's investment in Gill Marine Holdings
Limited generated proceeds of GBP3.80 million. The total return
(including income) from this investment was GBP4.96 million, a
multiple of 2.0x cost.
This was a very pleasing outcome for your Company, but naturally
it reduces the proportion of "old" style investments in the
portfolio.
Following these highly successful realisations your Company paid
a special interim dividend for the year ended 31 March 2019 of 7.0
pence per ordinary share on 15 February 2019.
New Investments
During the year your Company completed new investments totalling
GBP4.92 million:
During May 2018 GBP1.80 million was invested into Arcus Global
Limited, a provider of cloud-based software solutions to local and
national public-sector organisations. The funding will support the
continued growth of the business; building resource in technology
development, sales and customer services. Subsequent to the
year-end your Company completed a further investment enabling Arcus
to continue expanding its range of software solutions which assists
the public sector via improved use of digital technologies.
In March 2019 GBP1.80 million was invested into Frescobol
Carioca Limited, the luxury men's resort wear and lifestyle brand.
The funds will be used to support the continued growth of the
business, especially focussing on furthering the global customer
base, and developing e-commerce opportunities.
In April 2018 your Company made an investment of GBP1.32 million
into Hutchinson Networks Limited, a leading provider of
multi-vendor IT and network solutions to clients globally. See
below for further details on this company.
Follow-on investments totalling GBP0.79 million were made into
Traveltek Group Holdings Limited, Biz2Mobile Limited and Ncam
Technologies Limited respectively.
Investments made since the introduction of the new VCT rules in
November 2015 made up 38 per cent of the portfolio's value at 31
March 2019.
Realisations since the year end
In April 2019 the Company sold its investment in Leengate
Holdings Limited for GBP1.94 million.
In May 2019 Matillion Limited successfully raised $35 million to
support its continued international expansion. At the same time
your Company realised part of its investment for $2.75 million
(GBP2.10 million) at an attractive valuation of $160 million. This
equates to the cost of the first investment in November 2016 while
retaining 4.96 per cent of the ordinary share capital.
Financial Results
The movement in Total Return(1) is set out in the table
below:
Pence per
Total Return(1) ordinary share
Cumulative dividends to 31 March 2018 136.4
NAV at 31 March 2018 79.6
---
Total Return at 31 March 2018 216.0
Net underlying increase in investment portfolio 5.9
Net result after expenses (0.1)
Issue/buy-back of shares (0.1)
------------------------------------------------------ -------- --------
Increase in Total Return 5.7
------------------------------------------------------ -------- --------
Total Return at 31 March 2019 221.7
------------------------------------------------------ -------- --------
1. Total Return is an Alternative Performance Measure.
The increase in Total Return comprised a 5.9 pence per ordinary
share uplift in the value of the investment portfolio of which 3.9
pence per ordinary share derived from realised gains. There was a
0.2 pence per ordinary share reduction in the Total Return from
other items.
As part of your Board's commitment to maintaining a sustainable
level of dividends, supplemented by distributing the proceeds of
realisations, interim dividends of 4.0 pence per ordinary share and
7.0 pence per ordinary share in respect of the year ended 31 March
2019 were paid in the period, bringing the cumulative dividends
paid to 31 March 2019 to 147.4 pence per ordinary share.
The resultant movements in net asset value ("NAV") per ordinary
share and cumulative dividends paid are set out in the table
below:
Pence per ordinary GBP000
share
NAV at 31 March 2018 79.6 86,137
Net underlying increase in investment
portfolio 5.9 6,544
Net result after expenses (0.1) (139)
Issue/buy-back of new shares (0.1) 1,356
5.7 7,761
Dividends paid (11.0) (11,875)
----------- -------- --------- --------
(5.3) (4,114)
NAV at 31 March 2019 74.3 82,023
--------- --------
Cumulative dividends paid 147.4
Total Return: at 31 March 2019 221.7
at 31 March 2018 216.0
----------------------------------------- ----------- -------- --------- --------
The charts on page 13 of the annual report show in greater
detail the movement in Total Return and net asset value over
time.
The investment portfolio, valued at GBP64.09 million at the
start of the financial year, delivered a realised and unrealised
return of GBP6.54 million, equivalent to an increase in value for
shareholders of 5.9 pence per ordinary share.
The three realisations delivered a gain of GBP3.37 million over
the opening value and a GBP7.88 million gain over cost.
The residual portfolio also saw a positive overall gain of
GBP2.14 million, but this included a higher volatility of movement
that is beginning to reflect the changing nature of the portfolio.
Overall there were GBP10.91 million of valuation increases and
GBP8.77 million of decreases. There were strong performances from
ACC Aviation Group Limited, Matillion Limited, Deep-Secure Ltd and
Business Collaborator Limited. These were in part offset by the
impact of difficult trading conditions at Hutchinson Networks
Limited (see below), Traveltek Group Holdings Limited, Ncam
Technologies Limited, e2E Engineering Limited and Seven
Technologies Holdings Limited. In a number of these latter cases
your Company has made further investments which in many cases have
been accompanied by additions and enhancements to the boards and
management teams of the underlying businesses. The nature of the
younger businesses, which made up 38 per cent of the portfolio at
31 March 2019, is likely to mean that this pattern will continue
over the period in which your Company is invested. Overall these
earlier stage investments are held at a value of GBP21.29 million,
a 5.0 per cent increase over cost. Three of these investments are
valued at cost or above (original cost of GBP7.46 million) and the
remaining eight investments are valued at less than cost (original
cost of GBP12.81 million).
The investment into Hutchinson Networks Limited was intended to
support additional marketing and operational resources to
accelerate international growth. Whilst the business did expand in
the latter part of the year it suffered from contract delays
impacting its cash flows. Subsequently the business was unable to
raise sufficient additional funding to allow it to continue to
trade; the investment was fully impaired (GBP1.32 million) as at 31
March 2019 and has subsequently gone into administration.
Dividends
Dividends paid in the year comprise interim dividends of 4.0 and
7.0 pence per ordinary share in respect of the financial year just
ended, totalling 11.0 pence per ordinary share. This takes the
cumulative dividends paid to 147.4 pence per ordinary share at 31
March 2019.
On 12 June 2019 the Company paid an interim dividend of 4.0
pence per ordinary for the year ending 31 March 2020, taking
cumulative dividends paid to date to 151.4 pence per ordinary
share. The Board is not proposing a final dividend for the year
ended 31 March 2019.
Dividend Re-investment Scheme ("DRIS")
Your Company operates a DRIS, which gives shareholders the
opportunity to re-invest any cash dividends and is open to all
shareholders, including those who invested under the recent offers.
The three advantages of the DRIS are:
1 the dividends remain tax free;
2 any DRIS investment attracts income tax relief at the rate of 30 per cent; and
3 the investment is made at a 5 per cent discount to the last
reported net asset value.
For the financial year ended 31 March 2019 dividends totalling
GBP3.39 million were invested in your Company by way of the
DRIS.
Fundraising
On 27 November 2018 your Company launched a new share offer with
British Smaller Companies VCT2 plc to raise in aggregate up to
GBP30 million, with an over-allotment facility of GBP5 million. I
am delighted that due to strong demand the offer closed on 11
February 2019 raising total gross proceeds for both companies of
GBP35 million. The allotment of 28,769,702 new ordinary shares took
place on 1 April 2019, subsequent to which your Company received
net proceeds of GBP21.31 million.
Shareholder Relations
The electronic communications policy continues to be a great
success, with 84 per cent of shareholders now receiving
communications in this way. Documents such as the annual report are
published on the website www.bscfunds.com rather than by post,
saving on printing costs, as well as being more environmentally
friendly.
Your Company's website 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.
The Investor Workshop, which was held on 20 June 2019 at Gibson
Hall, 13 Bishopsgate, London EC2N 3BA, was attended by around 200
people. Shareholders saw presentations from Friska Limited,
Matillion Limited and Frescobol Carioca Limited.
Board Composition
As previously announced, after nine years on the Board Edward
Buchan will be standing down as a non-executive director at the
Company's next Annual General Meeting.
The Board has commenced the process of recruiting a new
non-executive director and details of any appointment will be made
at the appropriate time.
Regulatory Developments
As I have previously noted, the new VCT rules have restricted
the level of debt instruments that can be used in new investments.
The impact of this is reflected in the level of interest received
which was 18 per cent lower than the previous year.
In December 2016 HMRC published a consultation on improving the
advance assurance process with the major proposal being for VCTs to
self-assure as much as possible and since then the Investment
Adviser and other VCT advisers have worked closely with HM Treasury
and HMRC to clarify HMRC's guidance. As a result your Company has
decided that it will, subject to professional advice, self-assure
on investments that can easily be defined as Qualifying
Investments.
Post Balance Sheet Events
Your Company allotted 28,769,702 ordinary shares arising from
the above fundraising on 1 April 2019, subsequent to which net
proceeds of GBP21.31 million were received.
An interim dividend of 4.0 pence per ordinary share in respect
of the year ending 31 March 2020 was paid on 12 June 2019. On the
same date 2,397,364 ordinary shares were issued under the Company's
DRIS.
Investments totalling GBP7.77 million have been made into
Elucidat Limited, Wooshii Limited, Tonkotsu Limited and a follow-on
investment into Arcus Global Limited. Your Company has received
total proceeds of GBP4.67 million since the year end.
Investment Adviser Remuneration
The Board and the Investment Adviser have agreed changes to the
Investment Adviser's remuneration that will benefit shareholders,
including a reduced Investment Adviser Fee of 1.0 per cent on cash
in excess of GBP15 million with effect from 1 April 2019. This will
help offset the low level of interest that is earned on cash
balances. Further details on this can be found below.
Performance Incentive
Following a period of successful realisations over many years
the terms of a revised Performance Incentive have been agreed with
the Investment Adviser, based on a combination of Total Return and
minimum annual dividends, and were approved by shareholders on 7
January 2019. The agreement requires an increase of 12.6 pence per
ordinary share in Total Return, increased annually by a further 5.1
pence per ordinary share, indexed for changes in RPI, before any
incentive becomes payable and any payment is also dependent on
annual dividends exceeding a minimum amount. No performance
incentive payment will be made in respect of the year ended 31
March 2019. Further details can be found below.
Outlook
Mangar, Gill Marine and GTK, three significant businesses, were
sold in December 2018 and a number of the other investments made
prior to November 2015 can be expected to mature over the next few
years. It is to be expected that the proportion of investments in
earlier stage companies will continue to increase year on year.
While resolution of the UK's withdrawal from the EU has been
further delayed this appears to have had limited impact on your
Company's activities. With GBP7.77 million invested after the
balance sheet date including three new investments this indicates
that good quality opportunities are available, notwithstanding that
competition for deals has increased entry prices. The three
realisations in December 2018 demonstrate that there are a variety
of potential buyers of good quality assets in the market.
Although the Board believes that the UK's withdrawal from the
European Union may have limited direct effect on the portfolio, any
adverse economic impact resulting from this would undoubtedly have
some consequences.
I would like to thank shareholders for supporting the successful
joint fundraising with British Smaller Companies VCT2 plc and for
their continued support.
Helen Sinclair
Chairman
Objectives and Key Policies
The Company's objective is to maximise Total Return and provide
investors with an attractive long-term tax-free dividend yield
while maintaining the Company's status as a venture capital
trust.
Investment Policy
The Company's investment policy is to create a portfolio 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. Investing
across a range of companies and sectors reduces exposure to
particular markets and individual companies. The changes to the
venture capital trust legislation in November 2015 and those
announced in the November 2017 Budget mean that there is greater
emphasis on earlier stage growth businesses focussing on the
application and development of innovation.
To this end, the Company will invest in UK businesses across a
broad range of sectors including but not limited to software,
information technology and telecommunications, retail and brands,
business services, manufacturing and industrial services and
healthcare. These investments will primarily be in unquoted UK
companies which meet the definition of a Qualifying Investment, in
order to maintain the Company's venture capital status. It is
anticipated that the majority of these businesses will be
re-investing their profits for growth and the investments will,
therefore, comprise mainly equity instruments. In order to limit
the risk to the portfolio that is derived from any particular
investment, at the point of investment no more than 15 per cent of
the Company by value will be in any one investment.
Borrowing
The Company funds the investment programmes out of its own
resources and has no borrowing facilities for this purpose.
Co-investment
British Smaller Companies VCT plc and British Smaller Companies
VCT2 plc ("the VCTs") have in aggregate first choice of all
investment opportunities meeting the VCT qualifying criteria that
require up to GBP4.5 million of equity. Amounts above GBP4.5
million will be allocated one third to YFM's co-investment funds
and two thirds to the VCTs. Where there are opportunities for the
VCTs to co-invest with each other the basis for allocation is 60
per cent to the Company and 40 per cent to British Smaller
Companies VCT2 plc. The Board of the Company has discretion as to
whether or not to take up or, where British Smaller Companies VCT2
plc does not take its allocation, increase its allocation in such
co-investment opportunities.
Asset mix
Pending investment in VCT-qualifying securities, surplus cash is
primarily held in interest bearing instant access, short-notice
bank accounts and investment funds listed on a recognised stock
exchange (including FCA authorised and regulated UCITS funds).
Subsequent to the Finance (No. 2) Act 2015 investments can no
longer be made in non-qualifying quoted investments traded on an
unregulated exchange. This change therefore now excludes most AIM
investments in this category.
Remuneration Policy
The Company's policy on the remuneration of its directors, all
of whom being non-executive directors, can be found on page 50 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 the Company's anti-bribery and
environmental and social responsibilities policies can be found on
page 36 of the annual report.
Processes and Operations
The Investment Adviser is responsible for the sourcing and
screening of initial enquiries, carrying out suitable due diligence
investigations and making submissions to the Board regarding
potential investments. Once approved, further due diligence is
carried out and HMRC clearance is obtained as the Board deems
necessary for approval as a Qualifying Holding.
The Board approves all investment and divestment decisions save
in that new investments up to GBP250,000 in companies whose
securities are traded on a regulated stock exchange and where the
decision is required urgently, in which case the Chairman of the
Board of Directors, if appropriate, may act in consultation with
the Investment Adviser, provided papers have first been circulated
to the Chairman of the Investment Committee. With regard to the
realisation of quoted holdings the Investment Adviser is authorised
to implement the Company's exit strategy for the holding in
question within parameters previously agreed by the directors.
The Board regularly monitors the performance of the portfolio
and the investment requirements set by the relevant VCT
legislation. Reports are received from the Investment Adviser
regarding the trading and financial position of each investee
company and senior members of the Investment Advisory Team
regularly attend the Company's Board meetings. Monitoring reports
are also received at each Board meeting on compliance with VCT
regulations so that the Board can monitor that the Venture Capital
Trust status of the Company is maintained and take corrective
action if appropriate.
The Board reviews the terms of YFM Private Equity Limited's
appointment as Investment Adviser on a regular basis.
YFM Private Equity Limited has performed investment advisory,
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
below.
Performance Incentive
Under the terms of the incentive agreement in place at the start
of the year, the Investment Adviser would have received an
incentive payment equal to 20 per cent of the amount by which
dividends paid in the relevant accounting period exceeded 4.0 pence
per ordinary share (increasing in line with RPI) once cumulative
dividends of 10.0 pence per ordinary share from 1 April 2009 have
been paid. These incentive payments were subject to cumulative
shortfalls in any prior accounting periods being made up and the
average adjusted net asset value per ordinary share in the relevant
accounting period being not less than 94.0 pence per ordinary
share, as adjusted for the impact of share issues and buy-backs.
More detail on the agreement as amended from time to time is given
in note 3 below.
No payment could have been made in respect of the year to 31
March 2019 under this Incentive Agreement unless the average
quarterly adjusted net asset value of the Company was a minimum of
92.2 pence per ordinary share and, in addition, at least 5.3 pence
per ordinary share in dividends had been paid to shareholders. The
total dividends paid in the year are 11.0 pence per ordinary share
and the average quarterly adjusted net asset value for the year is
77.9 pence per ordinary share. As a result, the Investment Adviser
would not have met the targets for the year under review.
At a general meeting of the Company on 7 January 2019 revisions
to the incentive agreement between the Company and the Investment
Adviser were approved by shareholders. The major revisions,
effective from 7 January 2019 are:
-- the incentive fee will be subject to achieving a target level
of Total Return, replacing the previous requirement to achieve an
average adjusted Net Asset Value ("NAV") per ordinary share as set
out above;
-- an incentive fee will be payable once a Total Return of at
least 228.6 pence per ordinary share has been achieved. This is
12.6 pence per ordinary share higher than the Total Return at 31
March 2018 (216.0 pence per ordinary share) and represented 15.8
per cent of NAV at 31 March 2018;
-- there will be an annual increase to the Total Return per
ordinary share that must be achieved in order for an incentive fee
to be paid. This annual increase is the minimum level of dividends
required in order to pay an incentive fee under the previous
arrangements, as set out above; and
-- if the required Total Return is achieved the incentive fee
can only be paid if the actual dividends paid exceed the minimum
requirement, calculated on the same basis as the previous
scheme.
The minimum requirement is therefore annual dividends of at
least 4.0 pence per ordinary 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 2019 the requirement is 5.3 pence
per ordinary share.
The total dividends paid in the year are 11.0 pence per ordinary
share and the Total Return hurdle for the year ended 31 March 2019
was 233.9 pence per ordinary share while the Total Return at 31
March 2019 was 221.7 pence per ordinary share, a shortfall of 12.2
pence per ordinary share. As a result, the Investment Adviser has
not met the targets for the year under review and no performance
fee has accrued to the Investment Adviser (31 March 2018: GBPnil).
If the annual incentive fee exceeds a certain threshold 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.
In the opinion of the directors the continuing appointment of
YFM Private Equity Limited as Investment Adviser is in the
interests of the shareholders as a whole in view of its experience
in advising venture capital trusts and in making, managing and
exiting investments of the kind falling within the Company's
investment policies.
Administration of the Listed Investment Funds Portfolio
Reporting to the Investment Adviser, this portfolio is managed
by Brewin Dolphin Limited on a discretionary basis. The Board
receives regular reports on the make-up and market valuation of
this portfolio.
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.
Total Return
The chart on page 13 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
approximately 47 Generalist VCTs as published by the Association of
Investment Companies ("the AIC"). 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
52 of the annual report.
Total Return with DRIS
The chart on page 13 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.
Returns
Total Return is an Alternative Performance Measure and the Board
considers it to be the primary measure of shareholder value. The
table below shows the cumulative dividends, the Total Return on
each fundraising round per ordinary share and the Internal Rate of
Return ("IRR") if a shareholder had not opted to participate in the
Company's DRIS. The cumulative dividend, Total Return and IRR
figures in this table exclude the benefits of all tax reliefs.
Year of issue NAV at Cumulative Total Offer IRR(3)
31 March dividends Return price
2019 paid since to date(1) (2)
fundraising
---------- ------------- ------------ ------- -------
Pence Pence Pence Pence %
-------------------- ---------- ------------- ------------ ------- -------
1996 74.3 147.4 221.7 100.0 4.9%
1997 74.3 144.4 218.7 100.0 5.0%
1998 74.3 140.7 215.0 105.0 4.8%
2005 (C share) (4) 83.6 127.0 210.6 100.0 6.9%
2006 74.3 117.0 191.3 99.5 7.5%
2007 74.3 112.5 186.8 102.5 7.4%
2008 74.3 107.5 181.8 106.3 7.3%
2010 74.3 97.5 171.8 97.3 9.9%
2011 74.3 91.2 165.5 128.0 4.8%
2012 74.3 68.2 142.5 99.8 6.8%
2013 74.3 63.2 137.5 95.8 8.1%
2014 74.3 56.7 131.0 100.8 7.0%
2015 74.3 48.7 123.0 99.5 7.0%
2016 74.3 38.7 113.0 102.3 4.1%
2017 74.3 16.7 91.0 84.6 4.1%
---------- ------------- ------------ ------- -------
Notes
1. Total Return to date is cumulative dividends paid plus the 31
March 2019 net asset value in pence per ordinary share.
2. The offer price for the relevant year excluding the benefit
of income tax relief available to investors at the time of the
offer.
3. IRR is the unaudited annual rate of return that equates the
offer price at the date of the original investment with the value
of subsequent dividends plus the 31 March 2019 net asset value per
ordinary share. This excludes the benefit of any initial tax
relief.
4. All figures have been adjusted for conversion of C shares into ordinary shares in May 2007.
Expenses
Ongoing Charges
The Ongoing Charges figure, as calculated in line with the AIC
recommended methodology, is an Alternative Performance Measure used
by the Board to monitor expenses. This figure shows shareholders
the annual percentage reduction in net asset value as a result of
recurring operational expenses which, whilst based on historical
information, provides an indication of the likely level of costs
that will be incurred in managing the Company in the future.
Year to 31 Year to 31
March 2019 March 2018
(%) (%)
Ongoing Charges figure 2.54 2.48
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
The main business risk facing the Company is the retention of
VCT qualifying status. The Board receives regular reports on
compliance with the VCT legislative tests from its Investment
Adviser. In addition the Board receives formal reports from its VCT
Status Adviser 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 a further five 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 Holdings Test
At least 70 per cent by value of the Company's investments must
be represented throughout the period by shares or securities
comprised in Qualifying Holdings of investee companies (80 per cent
for accounting periods commencing after 5 April 2019).
For shares issued in accounting periods beginning on or after 6
April 2018, at least 30 per cent of the proceeds of those share
issues must be invested in Qualifying Holdings 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 Holdings 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.
There is also an annual limit for each investee company which
provides that they may not raise more than GBP5 million of state
aid investment (including from VCTs) in the 12 months ending on the
date of each investment (GBP10 million for Knowledge Intensive
Companies).
Maximum Single Investment Test
The value of any one investment has not, at any time in the
period, represented more than 15 per cent of the Company's total
investment value. This is calculated at the time of investment and
further additions and therefore 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 by 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.
Cancelled share premium of GBP16.07 million remains
undistributable by the Company until on or after 1 April 2019 (see
page 63 of the annual report).
Other
The Finance (No. 2) Act 2015 imposes further conditions in
respect of investments, including those regarded as non-qualifying
investments, including:
i) an aggregate limit of GBP12 million (or GBP20 million for
Knowledge Intensive Companies) on the amount of State Aid Risk
Finance investment a business can receive during its lifetime;
and
ii) 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.
Portfolio structure and diversity
Portfolio Structure
The charts on page 17 of the annual report illustrate the broad
range of the portfolio with 62 per cent of the portfolio valuation
being held for more than 3 years, whilst 75 per cent is held at
cost or above. 37 per cent of the portfolio's value is held in
income generating financial instruments.
Portfolio Diversity
Also included on page 18 of the annual report is a profile of
the portfolio by industry sector and the breakdown of the portfolio
between investments made before and after the VCT rule changes in
2015.
Investment Review
The portfolio delivered a good performance in the year, with a
total return of GBP8.4 million, comprising a GBP6.4 million uplift
on the opening value and income of GBP2.0 million.
Your Residual Portfolio
GBP57.0 million Fair value of the (2018: GBP61.8
portfolio million)
Number of portfolio
companies with value
of GBP1.0 million
17 or more (2018: 20)
---------------------- ---------------
GBP2.0 million Income from the (2018: GBP2.1
portfolio million)
---------------------- ---------------
GBP5.7 million Level of investment (2018: GBP8.2
million)
---------------------- ---------------
GBP6.4 million Return from portfolio (2018: GBP3.6
million)
---------------------- ---------------
The portfolio as a whole delivered an increased value of GBP6.40
million in the year, as shown in Table A below. A value gain of
GBP2.02 million was derived from the unquoted portfolio with strong
performances from ACC Aviation Group Limited, Matillion Limited,
Deep-secure Ltd and Business Collaborator Limited. These were
partly offset by the impact of difficult trading conditions at
Hutchinson Networks Limited, Traveltek Group Holdings Limited, Ncam
Technologies Limited, e2E Engineering Limited and Seven
Technologies Holdings Limited.
Whilst the level of investment was a little lower than in the
previous year, this was in part a result of the timing of completed
investments, with a number of investments in a due diligence
process at 31 March 2019 subsequently completing after the balance
sheet date.
A gain of GBP3.59 million arose from the realisation of
portfolio investments in the year, including GBP3.37 million from
the disposal of GTK (Holdco) Limited, Mangar Health Limited and
Gill Marine Holdings Limited.
Table A
Investment portfolio GBPmillion %
------------------------------------------ ----------- ----
Unquoted value gain* 2.02 32
Quoted value gain 0.12 2
----------- ----
Portfolio value gain 2.14 34
Gain on disposal over opening value (see
Table C) 3.59 56
----------- ----
5.73 90
Gain from deferred proceeds 0.67 10
----------- ----
Total portfolio gain 6.40 100
Gain on disposal of other investments 0.02
Gain in value of other investments 0.12
----------- ----
Total investment gain 6.54
----------- ----
* The GBP2.02 million gain includes an uplift of GBP2.72 million
from investments made before November 2015 and a reduction of
GBP0.70 million from investments made since that date.
At 31 March 2019 the portfolio was valued at GBP57.02 million,
representing 69.5 per cent of net assets (71.7 per cent at 31 March
2018). Cash (including fixed term deposits) and gilt investments at
31 March 2019 totalled GBP21.00 million representing 25.6 per cent
of net assets (22.9 per cent at 31 March 2018). Following the year
end the Company raised GBP21.31 million, received GBP4.67 million
from realisations, paid a dividend of GBP3.97 million (net of DRIS)
and has completed investments totalling GBP7.77 million.
One of the changes brought about in 2015 through the VCT
legislation was to determine that any additional funds deposited
for longer than seven days would be deemed to be a non-qualifying
investment. As a consequence any cash deposits must be held
effectively on an instant access account. Whilst lobbying has
continued to seek to relax this rule to date there has been no
inclination from HMRC or HMT to change their position. The Board
continually reviews opportunities to generate a higher level of
income, without significantly changing the risk profile of the
funds held.
To this end, in 2018 the Board decided to invest in a small
portfolio of listed investment funds. At 31 March 2019 this
portfolio was valued at GBP2.49 million, or 3.0 per cent of net
assets (2.7 per cent at 31 March 2018).
Other Significant Investment Movements
Investments
During the year ended 31 March 2019 the Company completed six
investments totalling GBP5.71 million comprising three new
investments of GBP4.92 million and three follow-on investments of
GBP0.79 million.
The analysis of these investments is shown in Table B below. The
case study on page 24 of the annual report gives more information
on the investment into Frescobol Carioca Limited.
Table B
Investments
Date Company Investments made GBPmillion
New Follow-on Total
-------------- ---------------------------------- -------- ------------- -------
Apr -18 Hutchinson Networks Limited 1.32 - 1.32
May-18 Arcus Global Limited 1.80 - 1.80
Mar-19 Biz2Mobile Limited - 0.16 0.16
Mar-19 Frescobol Carioca Limited 1.80 - 1.80
Mar-19 Traveltek Group Holdings Limited - 0.19 0.19
Mar-19 Ncam Technologies Limited - 0.44 0.44
---------------------------------- -------- ------------- -------
Invested in the year 4.92 0.79 5.71
------------------------------------------------- -------- ------------- -------
Capitalised interest, dividends
and proceeds 0.71
------------------------------------------------- -------- ------------- -------
Total additions in the year 6.42
------------------------------------------------- -------- ------------- -------
Unfortunately Hutchinson Networks ran into cash flow
difficulties and was unable to raise additional funding, leading to
the appointment of administrators in May 2019. A full impairment
was taken against this investment at 31 March 2019.
Disposal of Investments
During the year to 31 March 2019 the Company received proceeds
from disposals, repayments of loans/preference shares and deferred
consideration of GBP18.85 million. This included the very
successful realisations of GTK (Holdco) Limited, Mangar Health
Limited and Gill Marine Holdings Limited which delivered exit
multiples on original cost of 3.4x, 2.7x and 2.0x respectively and
produced combined realised gains of GBP7.88 million.
The total value gain on disposal of investments was GBP4.29
million above the 31 March 2018 valuations as set out in Table C.
The case study on page 25 of the annual report gives some insight
into the value created from the investment in Mangar Health
Limited.
Table C
Disposal of Investments Net proceeds Opening value Gain on opening
from sale 31 March 2018 value
of investments
GBPmillion GBPmillion GBPmillion
---------------- --------------- ----------------
Unquoted investments 15.15 12.04 3.11
Quoted investments 1.74 1.26 0.48
---------------- --------------- ----------------
Sale of portfolio investments 16.89 13.30 3.59
Deferred proceeds received 0.84 0.17 0.67
---------------- --------------- ----------------
Total from portfolio 17.73 13.47 4.26
Fixed income securities 0.71 0.71 -
Listed investment funds 0.41 0.38 0.03
---------------- --------------- ----------------
Total investment disposals 18.85 14.56 4.29
---------------- --------------- ----------------
The quoted portfolio delivered proceeds of GBP1.74 million with
a profit on cost of GBP1.36 million.
Further analysis of all investments sold in the year can be
found in note 7 below.
Portfolio Composition
As at 31 March 2019 the portfolio had a value of GBP57.02
million which comprised GBP55.34 million in unquoted investments
(97 per cent) and GBP1.68 million in quoted investments (3 per
cent). An analysis of the movements in the year is shown below.
The portfolio remains well diversified, with 17 investments
having a value equal to or greater than GBP1.0 million (31 March
2018: 20), with the single largest investment representing 10.0 per
cent of the net asset value.
The charts on pages 17 and 18 of the annual report show the
composition of the portfolio as at 31 March 2019 by industry
sector, age of investment, investment instrument and the valuation
compared to cost. This demonstrates the diversity of the portfolio
including its representation across a wide range of industry
sectors.
As at 31 March 2019 72 per cent (2018: 75 per cent) of the
portfolio was held at a value above cost; 3 per cent (2018: 16 per
cent) was held at cost and 25 per cent (2018: 9 per cent) below
cost.
Valuation Policy
Unquoted investments are valued in accordance with the valuation
policy set out in note 1 on pages 66 and 67 of the annual report,
which takes account of current industry guidelines for the
valuation of venture capital portfolios. Adjustments to fair value
are made where an investment is significantly under-performing. As
at 31 March 2019 the value of investments falling into each
valuation category is shown in Table D. Now that the focus of new
investments is on younger businesses that are investing for growth
a higher proportion of valuations are based on a multiple of sales.
This is likely to continue to increase as the more mature companies
in the portfolio are divested.
Table D 2019 2018
Valuation policy Valuation % of portfolio % of portfolio
GBPmillion by value by value
----------------------------------------- ------------ ----------------- -----------------
Earnings multiple 24.32 42 53
Sales multiple 13.61 24 16
Price of recent investment, reviewed
for change in fair value 8.37 15 9
Cost, reviewed for change in fair value 6.84 12 18
Discounted cash flows from investment 2.20 4 -
Quoted investments at bid price 1.68 3 4
----------------------------------------- ------------ ----------------- -----------------
Total 57.02 100 100
----------------------------------------- ------------ ----------------- -----------------
Regulatory Changes
After a number of years of significant rule changes it was
pleasing that there were very few changes in the 2018 Budget. HMRC
and the VCT industry have been working under the new rules for a
couple of years now and, as ever, it has taken some time for these
to bed in. During the year the Investment Adviser and other VCT
investment advisers have worked closely with HMRC to refine HMRC's
guidance on the new rules and it is pleasing that this has resulted
in an environment whereby your Company may, under guidance from our
VCT Status Adviser, decide to self-assure businesses as Qualifying
Investments in the knowledge that its status as a VCT will not be
withdrawn.
Impact
The Company's aim is to invest in smaller UK businesses to help
them grow with the primary objective of delivering strong financial
returns. However, your Company and the Investment Adviser are
increasingly mindful of the impact, both positive and negative,
that our activities and those of the businesses in the portfolio
have on the environment, their employees, communities and society
at large.
The Company believes that its investment activities have many
positive benefits beyond the returns we deliver for shareholders.
In the vast majority of cases the investments in the Company's
portfolio help fund growth, create new employment, develop new
technologies and products, improve productivity, help grow UK
exports and lead to increased tax revenues, all of which contribute
to the UK economy and have benefit to those employed in those
businesses and their supply chains.
However, as a responsible investor, your Company has been
seeking to do more in this area and to this end during the
financial year your Company has been looking at ways in which it
can improve the impact of our activities and help our portfolio
companies do the same.
This has resulted in your Company along with the Investment
Adviser introducing the following:
-- An assessment of the positive and negative impact the
portfolio companies invested in have on the environment, people and
society is now carried out pre-investment during the investment
appraisal process; and
-- A structured framework to regularly assess the positive and
negative impacts that the portfolio has on the environment, people
and society. The Investment Adviser is committed to pro-actively
working with portfolio companies on an ongoing basis to put Impact
on their agenda and help improve their performance in these areas,
through the introduction of specific initiatives and sharing of
best practice across the portfolio.
This approach has only recently been implemented, but it has
already resulted in many of our portfolio companies committing to
projects or to making changes to their businesses to improve their
Impact in a variety of areas. Examples of some of these activities
include:
-- Commitments to monitor and reduce energy usage and transportation;
-- Projects to reduce raw material usage or re-design products
to make them more environmentally sustainable;
-- Projects to reduce waste and encourage re-use and recycling;
-- Encouragement of charitable activities and volunteering
across their organisations and partnering with charities;
-- Initiatives to work with local schools and other educational
establishments to help mentor and provide work experience and
career guidance to students;
-- Initiatives to improve staff welfare such as addressing
mental health in the workplace; increase staff engagement, and
enhance staff pay and conditions; and
-- Investment in staff training and development.
Summary and Outlook
HMRC's revised guidance has allowed your Company to self-assure
on a number of recent investments and this has undoubtedly
increased the speed at which investments can be completed.
As the most recent investments demonstrate we are seeing a
pipeline of good quality opportunities and we expect there to be an
increasing level of follow-on funding into recent investments as
they continue to grow and evolve.
There has been a lot of change in the portfolio this year, with
several new investments undertaken and three disposals achieved. We
continue to help to set agendas at portfolio companies, whether it
is to add to, enhance and support the management teams, encourage
realisations, or support further fundraisings. The balance of the
portfolio is changing, with younger businesses now making up close
to half its value.
David Hall
YFM Private Equity Limited
Portfolio Summary at 31 March 2019
Name of company Date Location Industry Current Valuation Proceeds Realised
of initial Sector cost at to date &
investment 31 March unrealised
2019 value to
date*
GBP000 GBP000 GBP000 GBP000
Unquoted portfolio
Software,
IT &
Matillion Limited Nov-16 Manchester Telecommunications 2,666 8,233 - 8,233
ACC Aviation Business
Group Limited Nov-14 Reigate Services 220 8,160 1,848 10,008
Intelligent Office
UK (IO Outsourcing
Limited t/a Intelligent Business
Office) May-14 Alloa Services 2,934 4,531 - 4,531
Software,
IT &
Deep-Secure Ltd Dec-09 Malvern Telecommunications 1,000 4,217 - 4,217
Software,
Business Collaborator IT &
Limited Nov-14 Reading Telecommunications 2,010 3,662 - 3,662
Software,
Eikon Holdco IT &
Limited Mar-18 London Telecommunications 3,000 3,142 - 3,142
Software,
KeTech Enterprises IT &
Limited Nov-15 Nottingham Telecommunications 1,500 2,231 500 2,731
Springboard Research Milton Business
Holdings Limited Oct-14 Keynes Services 2,736 2,162 - 2,162
Leengate Holdings Manufacturing
Limited Dec-13 Derbyshire & Industrial 1,074 1,936 577 2,513
Frescobol Carioca Retail &
Limited Mar-19 London Brands 1,800 1,800 - 1,800
Retail &
Friska Limited Jul-17 Bristol Brands 1,800 1,743 - 1,743
Software,
Arcus Global IT &
Limited May-18 Cambridge Telecommunications 1,800 1,691 - 1,691
Sipsynergy (via Software,
Hosted Network IT &
Services Limited) Jun-16 Hampshire Telecommunications 1,770 1,504 - 1,504
Software,
Ncam Technologies IT &
Limited Mar-18 London Telecommunications 1,902 1,479 - 1,479
Wakefield Acoustics
(via Malvar Engineering Manufacturing
Limited) Dec-14 Heckmondwike & Industrial 1,080 1,160 75 1,235
DisplayPlan Holdings Business
Limited Jan-12 Baldock Services 130 1,136 1,521 2,657
Software,
IT &
Biz2Mobile Limited Oct-16 Oxfordshire Telecommunications 1,658 1,060 - 1,060
RMS Group Holdings Manufacturing
Limited Jul-07 Hull & Industrial 180 823 897 1,720
Other investments
GBP0.75 million
and below 11,574 4,671 2,466 7,137
----------------------------------------------------------------------------------- -------- ---------- --------------- -----------
Total unquoted investments 40,834 55,341 7,884 63,225
Quoted portfolio investments
GBP0.75 million and
below 984 1,678 1,681 3,359
----------------------------------------------- ------------------ -------------- -------- ---------- --------------- -----------
41,818 57,019 9,565 66,584
-------------------- ------------------ ---------------------------------------- -------- ---------- --------------- -----------
Full disposals
since 31 March
2002 39,785 - 88,736 88,736
Full disposals
prior to 31 March
2002 5,748 - 1,899 1,899
----------------------------------------------------------------------------------- -------- ---------- --------------- -----------
Total portfolio 87,351 57,019 100,200 157,219
----------------------------------------------- ------------------ -------------- -------- ---------- --------------- -----------
* represents proceeds received to date plus the unrealised
valuation at 31 March 2019.
Summary of Portfolio Movement since 31 March 2018
Name of Company Investment Disposal Additions Valuation Investment
Valuation proceeds including gains valuation
at 31 capitalised including at 31 March
March interest, profits 2019
2018 dividends / (losses)
and proceeds on disposal
GBP000 GBP000 GBP000 GBP000 GBP000
Unquoted portfolio
ACC Aviation Group Limited
(1) 4,673 (922) - 4,409 8,160
Intelligent Office UK (IO
Outsourcing Limited t/a Intelligent
Office) 4,868 - - (337) 4,531
Deep-Secure Ltd 2,861 - - 1,356 4,217
Business Collaborator Limited 2,798 - - 864 3,662
KeTech Enterprises Limited
(1) 2,488 (500) - 243 2,231
Springboard Research Holdings
Limited 2,765 - 89 (692) 2,162
Leengate Holdings Limited
(1) 2,226 (577) - 287 1,936
Wakefield Acoustics (via
Malvar Engineering Limited) 1,389 - - (229) 1,160
DisplayPlan Holdings Limited 1,863 - - (727) 1,136
RMS Group Holdings Limited 541 - - 282 823
Macro Art Holdings Limited(1) 1,313 (26) - (685) 602
Seven Technologies Holdings
Limited 992 - - (792) 200
Mangar Health Limited (1+2) 4,156 (5,513) - 1,357 -
Gill Marine Holdings Limited(1+2) 2,608 (3,802) - 1,194 -
GTK (Holdco) Limited(2) 2,937 (3,751) - 814 -
Other investments GBP0.75
million and below(1) 4,804 (57) - (1,518) 3,229
----------- ---------- -------------- ------------- -------------
Investments made prior to
November 2015 43,282 (15,148) 89 5,826 34,049
----------- ---------- -------------- ------------- -------------
Matillion Limited 4,938 - - 3,295 8,233
Eikon Holdco Limited 3,000 - - 142 3,142
Frescobol Carioca Limited - - 1,800 - 1,800
Friska Limited 1,800 - - (57) 1,743
Arcus Global Limited - - 1,800 (109) 1,691
Sipsynergy (via Hosted Network
Services Limited) 1,475 - - 29 1,504
Ncam Technologies Limited 1,466 - 436 (423) 1,479
Biz2Mobile Limited 1,166 - 158 (264) 1,060
Traveltek Group Holdings
Limited 1,538 - 190 (1,313) 415
e2E Engineering Limited 900 - - (675) 225
Hutchinson Networks Limited - - 1,320 (1,320) -
Investments made after November
2015 16,283 - 5,704 (695) 21,292
Total unquoted investments 59,565 (15,148) 5,793 5,131 55,341
----------- ---------- -------------- ------------- -------------
Total quoted investments
GBP0.75 million and below(2) 2,191 (1,740) 631 596 1,678
----------- ---------- -------------- ------------- -------------
Total movement 61,756 (16,888) 6,424 5,727 57,019
----------- ---------- -------------- ------------- -------------
1- Loan repayments / preference share redemption
2- Equity disposals
Risk Factors
The Board carries out a regular and robust review of the risk
environment in which the Company operates. The 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 principal risks by setting
policy, regularly reviewing performance and monitoring progress and
compliance. In the mitigation and management of these risks, the
Board applies rigorously the principles detailed in section C.2:
"Risk Management & Internal Control" of The UK Corporate
Governance Code issued by the Financial Reporting Council in April
2016. Details of the Company's internal controls are contained in
the Corporate Governance Internal Control section on pages 48 and
49 of the annual report and further information on exposure to
risks including those associated with financial instruments is
given in note 17a of the financial statements.
Loss of Approval as a VCT
Risk
The Company must comply with Chapter 3 Part 6 of the Income
Tax Act 2007 which allows it to be exempted from corporation
tax on capital gains. Any breach of these rules may lead
to the Company losing its approval as a VCT, qualifying
shareholders who have not held their shares for the designated
holding period having to repay the income tax relief they
obtained and future dividends paid by the Company becoming
subject to tax. The Company would also lose its exemption
from corporation tax on capital gains.
Mitigation
One of the Key Performance Indicators monitored by the Company
is the compliance with legislative tests. Details of how
the Company manages these requirements can be found under
the heading "Compliance with VCT Legislative Tests" above.
Economic
Risk
Events such as recession and interest rate fluctuations
could affect investee companies' performance and valuations.
Mitigation
As well as the response to 'Investment and Strategic' risk
below the Company has a clear investment policy (summarised
above) and a diversified portfolio operating in a range
of sectors. The Investment Adviser actively monitors investee
performance which provides quality information for monthly
reviews of the portfolio.
Investment and Strategic
Risk
Inappropriate strategy, poor asset allocation or consistently
weak stock allocation may lead to under performance and
poor returns to shareholders. The quality of enquiries,
investments, investee company management teams and monitoring,
and the risk of not identifying investee under performance
might also lead to under performance and poor returns to
shareholders.
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.
The Investment Adviser carries out due diligence on potential
investee companies and their management teams and utilises
external reports where appropriate to assess the viability
of investee businesses before investing. Wherever possible
a non-executive director will be appointed to the board
of the investee on behalf of the Company.
Regulatory
Risk
The Company is required to comply with the Companies Act
2006, the rules of the UK Listing Authority, the Prospectus
Rules made by the Financial Conduct Authority and International
Financial Reporting Standards as adopted by the European
Union and is subject to the EU's Alternative Investment
Fund Manager's Directive. Breach of any of these might lead
to suspension of the Company's Stock Exchange listing, financial
penalties or a qualified audit report.
Mitigation
The Investment Adviser and the Company Secretary have procedures
in place to ensure recurring Listing Rules requirements
are met and actively consult with brokers, solicitors and
external compliance advisers as appropriate. The key controls
around regulatory compliance are explained on pages 48 and
49 of the annual report.
Reputational
Risk
Inadequate or failed controls might result in breaches of
regulations or loss of shareholder trust.
Mitigation
The Board is comprised of directors with suitable experience
and qualifications who report annually to the shareholders
on their independence. The Investment Adviser is well-respected
with a proven track record and has a formal recruitment
process to employ experienced investment staff. Allocation
rules relating to co-investments with other funds managed/advised
by the Investment Adviser, have been agreed between the
Investment Adviser and the Company. Advice is sought from
external advisors where required. Both the Company and the
Investment Adviser maintain appropriate insurances.
Operational
Risk
Failure of the Investment Adviser's and administrator's
accounting systems or disruption to its business might lead
to an inability to provide accurate reporting and monitoring.
Mitigation
The Investment Adviser has a documented business continuity
plan, which provides for back-up services in the event of
a system breakdown. The Investment Adviser's systems are
protected against viruses and other cyber-attacks.
Financial
Risk
Inadequate controls might lead to misappropriation of assets.
Inappropriate accounting policies might lead to misreporting
or breaches of regulations.
Mitigation
The key controls around financial reporting are described
on pages 48 and 49 of the annual report.
Market/Liquidity
Risk
Lack of liquidity in both the venture capital and public
markets. Investment in unquoted and AIM quoted companies,
by their nature, involve a higher degree of risk than investment
in companies trading on the main market. In particular,
smaller companies often have limited product lines, markets
or financial resources and may be dependent for their management
on a smaller number of key individuals. The fact that a
share is traded on AIM or on the main market does not guarantee
its liquidity. The spread between the buying and selling
price of such shares may be wide and thus the price used
for valuation may not be achievable. In addition, the market
for stock in smaller companies is often less liquid than
that for stock in larger companies, bringing with it potential
difficulties in acquiring, valuing and disposing of such
stock.
Mitigation
Overall liquidity risks are monitored on an ongoing basis
by the Investment Adviser and on a quarterly basis by the
Board.
Other Matters
Environment
The Board recognises the requirement under Section 414C of the
Companies Act 2006 to detail information about environmental
matters (including the impact of the Company's business on the
environment), employee, human rights, social and community issues,
including information about any policies it has in relation to
these matters and the effectiveness of these policies.
The Company seeks to ensure that its business is conducted in a
manner that is responsible to the environment, and has introduced
an electronic communications policy. This policy has led to a
significant increase in the number of such communications, with a
commensurate reduction in the distribution of hard copy documents.
The management and administration of the Company is undertaken by
the Investment Adviser. YFM Private Equity Limited recognises the
importance of its environmental responsibilities, monitors its
impact on the environment and implements policies to reduce any
damage that might be caused by its activities. Initiatives of the
Investment Adviser designed to minimise its and the Company's
impact on the environment include recycling and reducing energy
consumption.
Given the size and nature of the Company's activities and the
fact that it has no employees, the Board considers there is limited
scope to develop and implement social and community policies. More
details of the work that the Investment Adviser has done in this
area are set out on page 22 of the annual report.
Anti-Bribery and Corruption Policy
The Company has a zero-tolerance approach to bribery. The
following is a summary of its policy:
-- it is the Company's policy to conduct all of its business in
an honest and ethical manner. The Company is committed to acting
professionally, fairly and with integrity in all its business
dealings and relationships;
-- the directors of the Company, the Investment Adviser and any
other service providers must not promise, offer, give, request,
agree to receive or accept financial or other advantage in return
for favourable treatment, to influence a business outcome or gain
any business advantage on behalf of the Company or encourage others
to do so; and
-- the Company has communicated its anti-bribery policy to the
Investment Adviser and its other service providers.
The Company had no employees during the year. The Board is
composed of three non-executive directors; one female and two male.
For a review of the policies used when appointing directors to the
Board of the Company please refer to the Directors' Remuneration
Report in the annual report.
Director's Responsibilities Statement
The directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare the financial
statements for each financial year. Under that law the directors
are required to prepare the financial statements and have elected
to prepare the Company's financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. Under company law the directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and of the profit or loss for the Company for that
period.
In preparing these financial statements, the directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with
IFRSs as adopted by the European Union, subject to any material
departures disclosed and explained in the financial statements;
and
-- prepare a strategic report, directors' report and directors'
remuneration report which comply with the requirements of the
Companies Act 2006.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Website Publication
The directors are responsible for ensuring the annual report and
the financial statements are made available on a website. Financial
statements are published on the Company's website at
www.bscfunds.com in accordance with legislation in the United
Kingdom governing the preparation and dissemination of financial
statements, which may vary from legislation in other jurisdictions.
The maintenance and integrity of the Company's website is the
responsibility of the directors. The directors' responsibility also
extends to the ongoing integrity of the financial statements
contained therein.
Directors' Responsibilities pursuant to DTR4
The directors confirm to the best of their knowledge:
-- the financial statements have been prepared in accordance
with IFRSs as adopted by the European Union and give a true and
fair view of the assets, liabilities, financial position and profit
and loss of the Company; and
-- the annual report includes a fair review of the development
and performance of the business and the financial position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
Having taken advice from the Audit Committee, the Board
considers the annual report and accounts, taken as a whole, are
fair, balanced and understandable and that it provides the
information necessary for shareholders to assess the Company's
performance, business model and strategy.
The names and functions of all the directors are stated in note
14.
Statement of Comprehensive Income
For the year ended 31 March 2019
2019 2018
Notes
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain on disposal of
investments 7 - 4,286 4,286 - 229 229
Income 2 2,202 97 2,299 2,339 - 2,339
Gains on investments
held at fair value 7 - 2,258 2,258 - 3,218 3,218
Total income 2,202 6,641 8,843 2,339 3,447 5,786
Administrative expenses:
------------ ------------ --------- ---------- ---------- -----------
Investment Adviser's
fee (428) (1,286) (1,714) (430) (1,290) (1,720)
Other expenses (680) (44) (724) (702) - (702)
------------ ------------ --------- ---------- ---------- -----------
3 (1,108) (1,330) (2,438) (1,132) (1,290) (2,422)
Profit before taxation 1,094 5,311 6,405 1,207 2,157 3,364
Taxation 4 (72) 72 - (125) 125 -
Profit for the year 1,022 5,383 6,405 1,082 2,282 3,364
---------------------------- -------- ------------ ------------ --------- ---------- ---------- -----------
Total comprehensive
income for the year 1,022 5,383 6,405 1,082 2,282 3,364
---------------------------- -------- ------------ ------------ --------- ---------- ---------- -----------
Basic and diluted earnings
per ordinary share 6 0.94p 4.94p 5.88p 1.00p 2.10p 3.10p
---------------------------- -------- ------------ ------------ --------- ---------- ---------- -----------
The accompanying notes on pages 65 to 90 of the annual report
are an integral part of these financial statements.
The Total column of this statement represents the Company's
Statement of Comprehensive Income, prepared in accordance with
International Financial Reporting Standards ('IFRSs') as adopted by
the European Union. 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 November 2014 and updated in February 2018 with
consequential amendments - "SORP") published by the AIC.
Balance Sheet
At 31 March 2019
Notes 2019 2018
GBP000 GBP000
Assets
Non-current assets at fair value through
profit or loss
Investments 7 57,019 61,756
Listed investment funds 7 2,494 2,336
Fixed income Government securities 7 - 706
--------------------------------------------- ------ -------- --------
Financial assets at fair value through
profit or loss 7 59,513 64,798
Accrued income and other assets 656 1,284
--------------------------------------------- ------ -------- --------
60,169 66,082
Current assets
Accrued income and other assets 1,023 1,733
Cash on fixed term deposit 6,970 9,001
Cash and cash equivalents 14,030 10,057
22,023 20,791
Liabilities
Current liabilities
Trade and other payables (169) (736)
Net current assets 21,854 20,055
Net assets 82,023 86,137
--------------------------------------------- ------ -------- --------
Shareholders' equity
Share capital 11,833 11,342
Share premium account 2,868 -
Capital reserve 49,556 53,422
Investment holding gains and losses reserve 15,250 18,146
Revenue reserve 2,516 3,227
Total shareholders' equity 82,023 86,137
--------------------------------------------- ------ -------- --------
Net asset value per ordinary share 8 74.3p 79.6p
--------------------------------------------- ------ -------- --------
The accompanying notes on pages 65 to 90 of the annual report
are an integral part of these financial statements.
The financial statements were approved and authorised for issue
by the Board of Directors and were signed on its behalf on x June
2019.
Statement of Changes in Equity
For the year ended 31 March 2019
Share Investment
Share premium Capital Capital holding Revenue Total
capital account redemption reserve gains reserve equity
reserve and losses
reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- ---------- -------------- ---------------- -------------- ----------------- -------------- -------------
Balance at 31
March
2017 11,101 35,519 221 23,686 15,400 2,145 88,072
--------------- ---------- -------------- ---------------- -------------- ----------------- -------------- -------------
Revenue return
for the year
before
tax - - - - - 1,207 1,207
Capital
expenses - - - (1,290) - - (1,290)
Gain on
investments
held at fair
value - - - - 3,218 - 3,218
Gain on
disposal
of
investments
in the year - - - 229 - - 229
Taxation - - - 125 - (125) -
--------------- ---------- -------------- ---------------- -------------- ----------------- -------------- -------------
Total
comprehensive
(expense)
income
for the year - - - (936) 3,218 1,082 3,364
--------------- ---------- -------------- ---------------- -------------- ----------------- -------------- -------------
Issue of
shares
- DRIS 241 1,505 - - - - 1,746
Issue costs -
DRIS - (14) - - - - (14)
Cancellation
of
share premium
account
- net of
costs - (37,010) (221) 37,221 - - (10)
Purchase of
own
shares - - - (871) - - (871)
Dividends - - - (6,150) - - (6,150)
--------------- ---------- -------------- ---------------- -------------- ----------------- -------------- -------------
Total
transactions
with owners 241 (35,519) (221) 30,200 - - (5,299)
Realisation of
prior year
investment
holding gains - - - 472 (472) - -
--------------- ---------- -------------- ---------------- -------------- ----------------- -------------- -------------
Balance at 31
March
2018 11,342 - - 53,422 18,146 3,227 86,137
--------------- ---------- -------------- ---------------- -------------- ----------------- -------------- -------------
Revenue return
for the year
before
tax - - - - - 1,094 1,094
Capital return
for the year
before
tax - - - (1,233) - - (1,233)
Gain on
investments
held at fair
value - - - - 2,258 - 2,258
Gain on
disposal
of
investments
in the year - - - 4,286 - - 4,286
Taxation - - - 72 - (72) -
--------------- ---------- -------------- ---------------- -------------- ----------------- -------------- -------------
Total
comprehensive
income for
the
year - - - 3,125 2,258 1,022 6,405
--------------- ---------- -------------- ---------------- -------------- ----------------- -------------- -------------
Issue of
shares
- DRIS 491 2,900 - - - - 3,391
Issue costs -
DRIS - (32) - - - - (32)
Unclaimed
dividends - - - 6 - - 6
Purchase of
own
shares - - - (2,009) - - (2,009)
Dividends - - - (10,142) - (1,733) (11,875)
--------------- ---------- -------------- ---------------- -------------- ----------------- -------------- -------------
Total
transactions
with owners 491 2,868 - (12,145) - (1,733) (10,519)
Realisation of
prior year
investment
holding gains - - - 5,154 (5,154) - -
--------------- ---------- -------------- ---------------- -------------- ----------------- -------------- -------------
Balance at 31
March
2019 11,833 2,868 - 49,556 15,250 2,516 82,023
--------------- ---------- -------------- ---------------- -------------- ----------------- -------------- -------------
The accompanying notes on pages 65 to 90 of the annual report
are an integral part of these 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
GBP000 GBP000 GBP000
Distributable reserves as opposite 49,556 2,516 52,072
--------------------------------------------------------- ---------- ---------- ---------
Less : Interest, dividends and proceeds
not yet distributable (1,101) (1,323) (2,424)
: Revaluation losses (1,935) - (1,935)
: Cancelled share premium not yet distributable
(see below) (16,074) - (16,074)
--------------------------------------------------------- ---------- ---------- ---------
Reserves available for distribution(1) 30,446 1,193 31,639
--------------------------------------------------------- ---------- ---------- ---------
1. Subject to filing these financial statements at Companies House.
The capital reserve and revenue reserve are both distributable
reserves. The reserves total GBP52,072,000 representing a decrease
of GBP4,577,000 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. On 12 June 2019 an interim dividend
for the year ending 31 March 2020 (4.0 pence per ordinary share)
was paid which has reduced these reserves by GBP5,565,000.
Of the potentially distributable reserves of GBP52,072,000 shown
above, GBP2,424,000 relates to interest, dividends and other
proceeds not yet distributable and GBP16,074,000 relates to share
premium which became distributable from 1 April 2019 onwards (see
below). In addition revaluation losses of GBP1,935,000 included
within the Investment holding gains and losses reserve are not
considered to be recoverable.
Total share premium cancelled will be available for distribution
from the following dates.
GBP000
1 April 2019 - now distributable 6,295
1 April 2020 8,288
1 April 2021 1,491
Cancelled share premium not yet distributable at 31
March 2019 16,074
----------------------------------------------------- -------
Statement of Cash Flows
For the year ended 31 March 2019
Notes 2019 2018
GBP000 GBP000
Net cash outflow from operating activities (204) (3,475)
------------------------------------------------------ ------ ------------ -----------
Cash flows from (used in) investing activities
Cash maturing from fixed term deposit 2,031 4,023
Purchase of financial assets at fair value
through profit or loss 7 (6,126) (10,586)
Proceeds from sale of financial assets at fair
value through profit or loss 7 17,471 6,144
Deferred consideration 7 1,374 269
Net cash inflow (outflow) from investing activities 14,750 (150)
------------------------------------------------------ ------ ------------ -----------
Cash flows from (used in) financing activities
Issue of ordinary shares - 4,245
Costs of ordinary share issues* (32) (118)
Purchase of own ordinary shares (2,009) (871)
Share premium cancellation costs - (10)
Dividends paid 5 (8,532) (4,411)
Net cash outflow used in financing activities (10,573) (1,165)
------------------------------------------------------ ------ ------------ -----------
Net increase (decrease) in cash and cash equivalents 3,973 (4,790)
Cash and cash equivalents at the beginning
of the year 10,057 14,847
Cash and cash equivalents at the end of the
year 14,030 10,057
------------------------------------------------------ ------ ------------ -----------
*Issue costs include both fundraising costs and expenses
incurred from the Company's DRIS.
Reconciliation of Profit before Taxation to Net Cash Outflow
from Operating Activities
2019 2019
GBP000 GBP000
Profit before taxation 6,405 3,364
Decrease in trade and other payables (514) (3,142)
Decrease (increase) in trade and other receivables 635 (161)
Gain on disposal of investments (4,286) (229)
Gains on investments held at fair value (2,258) (3,218)
Capitalised interest and dividends (186) (89)
---------------------------------------------------------- -------- ----------
Net cash outflow from operating activities (204) (3,475)
---------------------------------------------------------- -------- ----------
The accompanying notes on pages 65 to 90 of the annual report
are an integral part of these financial statements.
Notes to the Financial Statements
1. Principal Accounting Policies
Basis of Preparation
The accounts have been prepared on a going concern basis and in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and those parts of the Companies
Act 2006 applicable to companies reporting under IFRS.
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 November 2014 and updated in February 2018 with
consequential amendments - "SORP") to the extent that they do not
conflict with IFRSs as adopted by the European Union.
The financial statements are prepared in accordance with IFRSs
and interpretations in force at the reporting date. New standards
coming into force during the year 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.
These include IFRS 9 Financial Instruments and IFRS 15 Revenue from
Contracts with Customers. The Company has determined that the
transitional effects of the standards do not have a material
impact. The adoption of IFRS 9 resulted in changes to accounting
policies and disclosures but no adjustment to the amounts
recognised in the financial statements.
The financial statements are presented in sterling and all
values are rounded to the nearest thousand (GBP000), except where
stated.
2. Income
2019 2018
GBP000 GBP000
Dividends from unquoted companies 697 628
Dividends from AIM quoted companies 117 16
Interest on loans to unquoted companies 1,235 1,502
-------------------------------------------- ------- -------
Income from investment portfolio* 2,049 2,146
Dividends from listed investment funds 61 23
Interest from listed investment funds 11 7
Fixed interest Government securities 3 12
Income from investments held at fair value
through profit or loss 2,124 2,188
Interest on bank deposits 175 151
2,299 2,339
-------------------------------------------- ------- -------
* GBP187,000 of income previously recognised now impaired was
disclosed as a deduction from income in the 2018 Annual report (see
note 3).
3. Administrative Expenses
2019 2018
GBP000 GBP000
Investment Adviser's fee 1,714 1,720
Administration fee 64 62
------------------------------------------------------------- ------- -------
Total payable to YFM Private Equity Limited 1,778 1,782
Other expenses:
General expenses 125 79
Directors' remuneration 99 102
Trail commission paid to financial intermediaries 88 137
Listing and registrar fees 47 45
Auditor's remuneration (excluding irrecoverable
VAT):
* audit of the statutory financial statements 29 28
9 -
* other services
Irrecoverable VAT 28 21
Printing 39 41
------------------------------------------------------------- ------- -------
2,242 2,235
Fair value movement related to credit risk* 196 187
------------------------------------------------------------- ------- -------
2,438 2,422
------------------------------------------------------------- ------- -------
Ongoing charges figure 2.54% 2.48%
------------------------------------------------------------- ------- -------
* The GBP187,000 shown for the year ended 31 March 2018 was
previously disclosed as a deduction from income in the 2018 Annual
report.
Directors' remuneration comprises only short-term benefits
including social security contributions of GBP7,000 (2018:
GBP8,000).
The directors are the Company's only key management
personnel.
No fees are payable to the auditor in respect of other services
(2018: GBPnil) apart from those shown above.
YFM Private Equity Limited provides Investment Advisory services
to the Company under an Administrative and Investment Advisory
agreement (IAA) dated 28 February 1996 as varied by agreements
dated 16 November 2012, 17 October 2014 and 24 August 2015. 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.
Following the Financial Conduct Authority's registration of the
Company as a Small Registered Alternative Investment Fund Manager
in 2014, the Company has retained responsibility for the custody of
its investments.
The key features of the IAA are:
Ø YFM Private Equity Limited receives an Investment Adviser 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 Investment Advisory fee is allocated between
capital and revenue as described in note 1. The fee is payable
quarterly in advance.
Ø With effect from 1 April 2019 the annual advisory fee payable
to the Investment Adviser will be 1.0 per cent on all surplus cash,
defined as all cash above GBP15 million, unless an incentive fee
has been paid under the new agreement in which case the amount
determined to be surplus will be the excess over GBP7.5 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
2019 of GBP82,023,000 and cash of GBP21,000,000 at that date, this
equates to GBP1,580,000 per annum, a reduction of GBP60,000 from
the annual fee which would have been payable prior to the
amendment;
Ø Under the IAA YFM Private Equity Limited also provides
administrative and secretarial services to the Company for a fee of
GBP35,000 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 GBP64,000 for the year ended
31 March 2019 (2018: GBP62,000); and
Ø YFM Private Equity Limited shall bear the annual operating
costs of the Company (including the advisory fee 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 GBPnil (2018: GBPnil).
When the Company makes investments into its unquoted portfolio
the Investment Adviser charges that investee an advisory fee or
arrangement fee, calculated by applying a percentage to the
investment amount. The Company and the Investment Adviser 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
2019, the Company was due a rebate from the Investment Adviser of
GBPnil (2018: GBPnil).
Under the terms of the incentive agreement in place at the start
of the year, the Investment Adviser would have received an
incentive payment equal to 20 per cent of the amount by which
dividends paid in the relevant accounting period exceeded 4.0 pence
per ordinary share (increasing in line with RPI) once cumulative
dividends of 10.0 pence per ordinary share from 1 April 2009 have
been paid. These incentive payments were subject to cumulative
shortfalls in any prior accounting periods being made up and the
average adjusted net asset value per ordinary share in the relevant
accounting period being not less than 94.0 pence per ordinary
share, as adjusted for the impact of share issues and
buy-backs.
No payment could have been made in respect of the year to 31
March 2019 under this Incentive Agreement unless the average
quarterly adjusted net asset value of the Company was a minimum of
92.2 pence per ordinary share and, in addition, at least 5.3 pence
per ordinary share in dividends had been paid to shareholders. The
total dividends paid in the year are 11.0 pence per ordinary share
and the average quarterly adjusted net asset value for the year is
77.9 pence per ordinary share. As a result, the Investment Adviser
would not have met the targets for the year under review.
At a general meeting of the Company on 7 January 2019 revisions
to the incentive agreement between the Company and the Investment
Adviser were approved by shareholders. The major revisions,
effective from 7 January 2019 are:
Ø the incentive fee will be subject to achieving a target level
of Total Return, replacing the previous requirement to achieve an
average adjusted Net Asset Value ("NAV") per ordinary share as set
out above;
Ø an incentive fee will be payable once a Total Return of at
least 228.6 pence per ordinary share has been achieved. This is
12.6 pence per ordinary share higher than the Total Return at 31
March 2018 (216.0 pence per ordinary share) and represented 15.8
per cent of NAV at 31 March 2018;
Ø there will be an annual increase to the Total Return per
ordinary share that must be achieved in order for an incentive fee
to be paid. This is the minimum level of dividends required in
order to pay an incentive fee under the previous arrangements, as
set out above; and
Ø if the required Total Return is achieved the incentive fee can
only be paid if the actual dividends paid exceed the minimum
requirement, calculated on the same basis as the previous
scheme.
The minimum requirement is therefore annual dividends of at
least 4.0 pence per ordinary 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 2019 the requirement is 5.3 pence
per ordinary share.
The total dividends paid in the year are 11.0 pence per ordinary
share and the Total Return hurdle for the year ended 31 March 2019
was 233.9 pence per ordinary share while the Total Return at 30
March 2019 was 221.7 pence per ordinary share, a shortfall of 12.2
pence per ordinary share and as a result, the Investment Adviser
has not met the targets for the year under review and no
performance fee has accrued to the Investment Adviser (31 March
2018: GBPnil). If the annual incentive fee exceeds a certain
threshold 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 Investment
Adviser for any one year shall, when taken with all other relevant
costs, ensure that the Total Expenses Ratio is no greater than 5
per cent of the net asset value at the end of the financial year
(as adjusted for all realised gains that have been distributed
during that year). Any unpaid incentive payment will be carried
over to subsequent financial years and be included in the
calculation of the Total Expenses Ratio. The maximum fee payable in
any 12-month period cannot exceed an amount which would represent
25 per cent or more of the net asset value or market capitalisation
of the Company.
The Investment Adviser has not met these targets in the current
year or the prior year although they were exceeded in the year to
31 March 2017. Consequently GBPnil has been accrued within trade
and other payables (2018: GBP523,305) in respect of the year ended
31 March 2019. The amount accrued at 31 March 2018, which related
to the final payment of the incentive fee arising in the year to 31
March 2017, was paid following the Annual General Meeting on 5
September 2018.
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.
The total remuneration payable to YFM Private Equity Limited
under the IAA and the Incentive Agreement in the period was
GBP1,778,000 (2018: GBP1,782,000).
Monitoring and directors' fees the Investment Adviser receives
from the investee companies are limited to a maximum of GBP40,000
(excluding VAT) per annum per company.
Under the IAA, 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 2019 the fees receivable by YFM Private Equity Limited
from investee companies which were attributable to advisory and
directors' and monitoring fees amounted to GBP734,000 (2018:
GBP680,000).
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 2019 (audited)".
4. Taxation
2019 2018
---------------------------- ---------------------------
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- -------- -------- -------- -------- -------- -------
Profit before taxation 1,094 5,311 6,405 1,207 2,157 3,364
--------------------------- -------- -------- -------- -------- -------- -------
Profit before taxation
multiplied by standard
rate of corporation tax
in UK of 19% (2018: 19%) 208 1,009 1,217 229 410 639
Effect of:
UK dividends received (136) - (136) (104) - (104)
Non-taxable profits on
investments - (1,261) (1,261) - (655) (655)
Excess advisory expenses - 180 180 - 120 120
--------------------------- -------- -------- -------- -------- -------- -------
Tax charge (credit) 72 (72) - 125 (125) -
--------------------------- -------- -------- -------- -------- -------- -------
The Company has no provided or unprovided deferred tax liability
in either year.
Deferred tax assets of GBP1,784,000 (2018: GBP1,628,000)
calculated at 17% in respect of unrelieved management expenses
(GBP10.49 million as at 31 March 2019 (2018: GBP9.58 million)) 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:
2019 2018
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- -------- -------- -------- -------- -------- ----------
Interim dividend for the year
ended 31 March 2019 of 4.0p
(2018: 5.75p) per ordinary
share 940 3,388 4,328 - 6,150 6,150
Special interim dividend for
the year ended 31 March 2019
of 7.0p per ordinary share 793 6,754 7,547 - - -
1,733 10,142 11,875 - 6,150 6,150
------------------------------- -------- -------- -------- -------- -------- ----------
Shares allotted under DRIS (3,391) (1,746)
Unclaimed dividends 48 7
------------------------------- -------- -------- -------- -------- -------- ----------
Dividends paid in Statement
of Cash Flows 8,532 4,411
------------------------------- -------- -------- -------- -------- -------- ----------
The interim dividend of 4.0 pence per ordinary share was paid on
18 May 2018 to shareholders on the register as at 20 April
2018.
The special interim dividend of 7.0 pence per ordinary share was
paid on 15 February 2019 to shareholders on the register as at 18
January 2019.
During the year the Company has received GBPnil (2018: GBPnil)
from the Registrars in respect of unclaimed dividends. The Company
has made efforts to contact the relevant shareholders, with the
result that GBP1,000 (2018: GBP7,000) has been paid to shareholders
in the year. The unclaimed balance of GBP47,000 was returned to the
Registrars during the year.
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 GBP6,405,000
(2018: GBP3,364,000) and 108,988,846 (2018: 108,702,504) 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 profit for the year attributable to shareholders of
GBP1,022,000 (2018: GBP1,082,000) and 108,988,846 (2018:
108,702,504) 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 GBP5,383,000 (2018: GBP2,282,000) and 108,988,846
(2018: 108,702,504) ordinary shares being the weighted average
number of ordinary shares in issue during the year.
During the year the Company allotted 4,917,789 new ordinary
shares in respect of its DRIS.
The Company has also repurchased 2,750,155 of its own shares in
the year and these shares are held in the Capital Reserve. The
total of 7,975,173 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 hence the
basic and diluted earnings per ordinary share are equivalent for
both of the years ended 31 March 2019 and 31 March 2018.
7. Financial Assets at Fair Value through Profit or Loss
Movements in investments at fair value through profit or loss
during the year to 31 March 2019 are summarised as follows:
IFRS 13 Level 3 Level 1 Level 1 Level 1
measurement
classification
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Unquoted Quoted Equity Total Quoted Listed Fixed Income Total
Investments Investments and Unquoted Investment Securities Investments
Funds
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Opening cost 42,793 732 43,525 2,431 696 46,652
Opening
investment
holding gain
(loss) 16,772 1,459 18,231 (95) 10 18,146
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Opening fair
value at 1
April 2018 59,565 2,191 61,756 2,336 706 64,798
Additions at
cost 5,704 - 5,704 422 - 6,126
Capitalised
dividends and
proceeds 89 631 720 - - 720
Disposal
proceeds (15,148) (1,740) (16,888) (412) (705) (18,005)
Net profit
(loss) on
disposal* 3,114 478 3,592 25 (1) 3,616
Change in fair
value 2,017 118 2,135 123 - 2,258
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Closing fair
value at 31
March 2019 55,341 1,678 57,019 2,494 - 59,513
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Closing cost 40,834 984 41,818 2,445 - 44,263
Closing
investment
holding gain 14,507 694 15,201 49 - 15,250
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Closing fair
value at 31
March 2019 55,341 1,678 57,019 2,494 - 59,513
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
*The net profit on disposal in the table above is GBP3,616,000
whereas that shown in the Statement of Comprehensive Income is
GBP4,286,000. The difference comprises the change in the value of
deferred proceeds totalling GBP670,000 in respect of assets which
have been disposed of and are not included within the investment
portfolio at 1 April 2018.
The following disposals and loan repayments took place in the
year:
Net proceeds Cost Opening Profit
from sale** carrying (loss)
value on disposal
as at
1 April
2018
GBP000 GBP000 GBP000 GBP000
------------------------------------- ------------- ------- ------------- -------------
Unquoted investments:
ACC Aviation Group Limited 922 922 922 -
GTK (Holdco) Limited 3,751 222 2,937 814
Gill Marine Holdings Limited 3,802 2,500 2,608 1,194
Harris Hill Holdings Limited 57 57 57 -
KeTech Enterprises Limited 500 500 500 -
Leengate Holdings Limited 577 327 457 120
Macro Art Holdings Limited 26 26 26 -
Mangar Health Limited 5,513 2,460 4,156 1,357
PowerOasis Limited - 445 78 (78)
Seven Technologies Holdings Limited - 293 293 (293)
Quoted investments:
AB Dynamics plc 972 68 603 369
EKF Diagnostics plc 310 207 272 38
Gamma Communications plc 458 104 387 71
Total from disposals in the year 16,888 8,131 13,296 3,592
------------------------------------- ------------- ------- ------------- -------------
Deferred proceeds:
Ness (Holdings) Limited 7 - 64 (57)
Selima Holding Company Ltd* 837 - 110 727
------------------------------------- ------------- ------- ------------- -------------
Total from quoted and unquoted
investments 17,732 8,131 13,470 4,262
Fixed income securities 705 696 706 (1)
Listed Investment Funds 412 408 387 25
------------------------- ------- ------ ------- ------
Total** 18,849 9,235 14,563 4,286
------------------------- ------- ------ ------- ------
*Includes agreed deferred proceeds of GBP470,000 which will be
received over the period to 30 November 2019.
**The total from disposals in the table above is GBP18,849,000
whereas that shown in the Statement of Cash Flows (including
deferred consideration) is GBP18,845,000. This is due to the timing
differences between the recognition of the deferred income and its
receipt in cash.
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 GBP82,023,000 (2018:
GBP86,137,000) and 110,357,798 (2018: 108,190,164) 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 2019 and 31 March 2018.
The Company has no potentially dilutive shares and hence the
basic and diluted net asset values per ordinary share are the
same.
9. Total Return per Ordinary Share
The Total Return per ordinary share is calculated on cumulative
dividends paid of 147.4 pence per ordinary share (2018: 136.4 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 2019 or 31 March
2018.
11. Related Party Transactions
There are no related party transactions.
12. Events after the Balance Sheet Date
The Company allotted 28,769,702 ordinary shares arising from the
fundraising on 1 April 2019, subsequent to which net proceeds of
GBP21.31 million were received.
An interim dividend of 4.0 pence per ordinary share in respect
of the year ending 31 March 2020 was paid on 12 June 2019. On the
same date 2,397,364 ordinary shares were issued under the Company's
DRIS.
Investments totalling GBP7.77 million have been made into
Elucidat Limited, Wooshii Limited, Tonkotsu Limited and a follow-on
investment into Arcus Global Limited. The Company has received
total proceeds of GBP4.67 million since the year end.
13. Annual Report and Accounts
Copies of the statutory accounts for the year ended 31 March
2019 will shortly be submitted to the National Storage Mechanism
and will be available to the public for viewing online at
www.morningstar.co.uk/uk/NSM. They can also shortly be viewed on
the Company's website at www.bscfunds.com. Hard copies of the
statutory accounts for the year to 31 March 2019 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: Ms H Sinclair, Mr R Cook and
Mr CWER Buchan.
15. Annual General Meeting
The Annual General Meeting of the Company will be held at 10:30
am on 11 September 2019 at 33 St James Square, London, SW1Y
4JS.
16. Final Dividend for the Year Ended 31 March 2019
The directors are not proposing a final dividend for the year
ended 31 March 2019.
17. Inside Information
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU No. 596/2014). Upon the
publication of this announcement via Regulatory Information Service
this inside information is now considered to be in the public
domain.
For further information, please contact:
David Hall YFM Equity Partners Limited Tel: 0113 244 1000
Robert Naylor Panmure Gordon (UK) Limited Tel: 0207 886 2768
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 or visit www.rns.com.
END
FR FMGZVZVVGLZM
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