Hargreave Hale AIM VCT 2 Plc
Unaudited Interim Results for the six month period ending 31 August 2017
FINANCIAL HIGHLIGHTS
| Ordinary Shares (as at 31 August): | 31 August 2017 | 31 August 2016 | 28 February 2017* |
| Net asset value per share | 115.47p | 104.58p | 109.86p |
| Cumulative distributions paid per share since launch | 53.00p | 47.00p | 49.00p |
| Total return per share | 168.47p | 151.58p | 158.86p |
| Half Yearly/Annual Returns per share (basic and diluted): | |||
| Revenue return | (0.18)p | (0.09)p | (0.43)p |
| Capital return | 9.75p | 7.04p | 14.97p |
| Combined return | 9.57p | 6.95p | 14.54p |
| Dividends per share: | |||
| Interim proposed/paid | 2.00p | 2.00p | 2.00p |
| Final paid | 4.00p | 4.00p | 4.00p |
| Ongoing expense ratio** | 2.10% | 2.09% | 1.82% |
| Performance Benchmark: | |||
| FTSE AIM All-share Index (rebased to 100 at 6 April 2007) | 87.34 | 68.38 | 78.38 |
* 28 February 2017 financial highlights represent annual results
** Calculated as total expenses (annualised for half yearly results) minus ad hoc legal costs, divided by period end net assets
INVESTMENT OBJECTIVE
The objective of the VCT is to achieve long term capital growth and to maximise tax free distributions to shareholders by investing in a diversified portfolio of small UK companies primarily traded on AIM. At least 70% of the Company's funds must be invested in qualifying holdings within three years of raising the funds. The balance of the Company's funds will be invested in liquid assets (such as fixed income securities and bank deposits) and non-qualifying equity investments on an opportunistic basis. The Company is managed as a Venture Capital Trust in order that shareholders in the Company may benefit from the tax relief available.
CHAIRMAN'S STATEMENT
INTRODUCTION
In the first half of the financial year the Net Asset Value per share (NAV) increased from 109.86 pence to 115.47 pence equivalent to an increase of 8.7% after adding back the 4 pence dividend distributed in July 2017. During the same period the FTSE 100 Total Return Index gained 4.7% and the FTSE AIM All Share Total Return Index gained 12.2%.
RESULTS
The gain per share for the period was 9.57 pence per share (comprising revenue losses of 0.18 pence and capital gains of 9.75 pence). At 31 August 2017 the total return since inception was 168.47 pence.
INVESTMENTS
The investment manager, Hargreave Hale Limited, invested a further £4.37 million in 12 qualifying companies during the period. The fair value of qualifying investments at 31 August 2017 was £26.52 million invested in 58 AIM companies and 10 private companies. The balance of the funds was held in a mix of cash, fixed income and other non-qualifying equities.
At 31 August 2017 the VCT was 89.3% invested in qualifying companies calculated in accordance with HMRC guidelines.
DIVIDEND
A final dividend for the year ended 28 February 2017 of 4 pence was paid on 25 July 2017.
The Directors continue to maintain their policy of targeting a tax free dividend yield equivalent to 5% of the year end NAV. An interim dividend of 2 pence (2016 - 2p) will be paid on 1 December 2017, with an ex-dividend date of 9 November 2017 and a record date of 10 November 2017.
BUYBACKS
We have been able to maintain our policy of offering our shareholders an efficient exit route through the buyback scheme. In total, 430,945 shares were repurchased during the six month period ending 31 August 2017 at a weighted average price of 109.28 pence per share. Since the period end a further 75,978 shares have been purchased at a cost of £85,845.
The Board continues to target a share price discount of 5% of the NAV per share (as measured against the mid-price) for market purchases. It should be emphasised that this target is non-binding and dependent on circumstances including the Company's liquidity from time to time and market conditions.
JOINT OFFER FOR SUBSCRIPTION
The Directors of the Company announced on 14 December 2016 the launch of a joint offer for subscription for shares in both Hargreave Hale AIM VCTs to raise up to £10 million in Hargreave Hale AIM VCT 1 plc and up to £10 million in the Company. The offer was approved by shareholders of the Company at a general meeting on 12 January 2017 and was open to both new and existing shareholders.
The offer was fully subscribed and resulted in gross funds being received of £10 million and the issue of 8.96 million new shares in the Company.
On 18 September 2017 the Company announced its intention to re-open the Offer by making the Over-Allotment facility available and increasing the facility from £5 million to £7.5 million. A Supplementary Prospectus was published on 2 October 2017 as increasing the offer amount constitutes a significant event under the Prospectus Rules.
The Offer will close on 17 November 2017 unless fully subscribed before then.
AUDIT TENDER
As announced in the annual report and accounts for the year ended 28 February 2017 mandatory audit tendering legislation states that the maximum period for which a firm can be appointed auditor of a public listed entity is 10 years. BDO LLP were approaching the maximum term permitted and as such an audit tender has been completed.
The process was led by the Audit Committee who invited several firms to participate in the tender process. Companies were chosen based on their reputation or by recommendation/personal experience and where it was known they had specific knowledge and experience of VCT/investment trust auditing.
The Committee documented the Company's objectives and agreed on a selection criteria and scorecard to enable them to assess each applicant on a fair basis. Proposals and presentations were reviewed by the committee and a recommendation made to the Board.
I am pleased to announce that the Board agreed BDO LLP were the strongest candidate and re-appointed them as statutory auditor for the Company.
OUTLOOK
The progress we have made in recent months in identifying and increasing our investment in the qualifying portfolio has encouraged us to re-open our December 2016 share offer. In particular, we have completed investments in a number of early stage private companies, many of whom have exciting and 'disruptive' business plans. The potential of some of these is considerable but we recognise their higher risk profiles and illiquidity and will proceed cautiously with this part of the fund.
Given the ever increasing uncertainty with domestic politics we are a little surprised at how benign equity markets have been over recent months and, as our fund manager states in his report, 'we remain cautious'. Nonetheless, as long term investors we will continue to build our qualifying portfolio when the right opportunities present themselves.
DAVID HURST-BROWN
Chairman
Date: 19 October 2017
INVESTMENT MANAGER'S REPORT
This report covers the first half of the financial year, 1 March 2017 to 31 August 2017. The manager's report contains references to movements in the Net Asset Value (NAV) per share and Total Return per share (NAV per share plus distributed earnings per share). Movements in the NAV per share do not necessarily mirror the earnings per share (EPS) reported in the accounts and elsewhere, which convey the profit after tax within the company within the reported period as a function of the weighted average number of shares in issue for the period.
INVESTMENT REPORT
The period under review has been generally positive with global equity markets advancing off the back of strong corporate earnings and encouraging economic data. In contrast, the FTSE 100 was volatile over the period and ended flat as investors grappled with the implications of the election result for Sterling, for inflation and for Government policy in several areas, most obviously our path out of the European Union. That aside, small and mid-caps continued to make ground as robust corporate news flow helped feed investors' appetite for growth companies with large and global addressable markets, which in turn fed through to some strong performance in the junior indices.
As we look towards the second half of the financial year we remain cautious given the potential headwinds approaching. UK inflation has risen to 3% and the Bank of England has insinuated that a rate rise is possible this year. The potential impact on consumer spending and corporate investment is unknown but potentially negative. We have witnessed weaker trading from several 'high street' brands, particularly in retail and casual dining, as companies struggle to manage margin pressure (input price inflation, higher business rates and the living wage) against the backdrop of an increasingly cautious consumer. In parallel, the UK government continues to try and navigate a way out of the EU. We still feel it is too early to know the impact (if any) of Brexit on our portfolio; that seems unlikely to change in the short term. By and large we have left the portfolio of qualifying and non-qualifying investments untouched. While we are cautious of certain sectors, consumer discretionary for example, we continue to find interesting investment opportunities in qualifying companies that we believe can grow regardless of the outcome. To that end, we intend to continue with business as usual while keeping a close eye on events as they unfold and, perhaps, reducing at the margin some of our non-qualifying equity risk.
Performance was good in the six months to 31 August 2017 with the NAV increasing from 109.86p to 115.47p and the payment of a 4 pence per share dividend. The total return of 9.61 pence per share translates to a gain of 8.7%. During the same period the FTSE AIM All-Share Total Return gained 12.2%.
The qualifying investments made a net contribution of 5.54 pence per share with the non-qualifying investments adding a further 4.83 pence per share. The balance was a mixture of costs, income and small gains made through share buy backs.
Zoo Digital, a recent investment, was the top performing qualifying investment (+166.7%, +1.90 pence per share) as the shares responded to strong revenue growth and a significantly improved balance sheet. Gfinity also performed well (+76.7%, +0.76 pence per share) after announcing broadcasting agreements with BT Sport and the BBC and a partnership with Formula 1 to deliver the Formula 1 ESports Series. Other stocks that made a significant contribution included Faron Pharmaceuticals (+100.0%, +0.74 pence per share), Eagle Eye (+91.7%, +0.69 pence per share) and Tristel (+79.4%, +0.60 pence per share).
The biggest loss within the period came from Portr (-30.0%, -0.75 pence per share), which we marked to the price of a recent funding round that saw a large UK listed company make a strategic investment into the company. Although the new mark was lower than the prior round, it remains above our entry price. Commercial progress has been made through Portr's partnership with British Airways and we look forward to news of progress with other airlines over the coming months. Other losses came from DP Poland (-27.2%, -0.64 pence per share) following a consolidation in the share price despite recent reports of strong trading; Science in Sport (-14.1%, -0.28 pence per share), TLA (-50.0%, -0.26 pence per share) and Creo Medical (-14.4%, -0.22 pence per share).
We made 12 qualifying investments over the period, which included 6 additional investments into existing qualifying companies (1 private company), 2 IPOs, 2 secondary placings into listed companies and 2 private investments. We invested a total of £4.37 million into qualifying investments over the period.
Within the qualifying portfolio, we reduced our investments in Gfinity, Faron Pharma and Hardide following strong runs in their share prices. We exited Electrical Geodesics, Kalibrate and Electric Word through M&A activity and disposed of all our shares in ECSC, Haydale Graphene, Audioboom, Directa Plus and Synairgen following prolonged periods of poor news flow. We also sold our shares in Free Agent after a disappointing update that hinted at potential weakness in their model.
PORTFOLIO STRUCTURE
The VCT is comfortably through the HMRC defined investment test and ended the period at 89.3% invested as measured by the HMRC investment test. By market value, the VCT had a 52.4% weighting to qualifying investments.
The allocation to non-qualifying equity investments increased marginally from 20.6% to 21.5%. We continued to make use of the Marlborough Special Situations Fund as a temporary home for proceeds from fundraising; the allocation increased from 12.0% to 14.8%. Fixed income as a percentage of the fund decreased from 0.4% to 0.3% and cash fell from 20.3% to 11.4%.
The HMRC investment tests are set out in Chapter 3 of Part 6 Income Tax Act 2007, which should be read in conjunction with this section of the investment manager's report. Funds raised by VCTs are first included in the investment tests from the start of the accounting period containing the third anniversary of the date on which the funds were raised. Therefore, the allocation of qualifying investments as defined by the legislation can be different to the portfolio weighting as measured by market value relative to the net assets of the VCT.
POST PERIOD END UPDATE
Deal flow has been good since period end with 4 additional qualifying investments being made in Gfinity, Laundrapp, Faron Pharma and Angle. There are a number of deals in the pipeline which we expect to complete in the coming weeks. .
For further information, please contact:
| STUART BROOKES |
| Company Secretary |
| Hargreave Hale AIM VCT 2 plc |
Date: 19 October 2017
INVESTMENT PORTFOLIO SUMMARY
As at 31 August 2017
| Qualifying Investments | Cost £000 | Valuation £000 | Valuation % | Net Assets % | Sector |
| Zoo Digital Group plc | 501 | 1,333 | 2.96 | 2.63 | Information Technology |
| Ideagen plc | 190 | 1,238 | 2.75 | 2.44 | Information Technology |
| Learning Technologies Group plc | 534 | 1,195 | 2.65 | 2.36 | Information Technology |
| Mexican Grill Ltd (A Preference Shares)** | 277 | 1,154 | 2.56 | 2.28 | Consumer Discretionary |
| Quixant plc | 120 | 1,096 | 2.43 | 2.16 | Consumer Discretionary |
| SCA Investments Ltd (Gousto)** | 1,002 | 1,000 | 2.22 | 1.97 | Consumer Discretionary |
| Eagle Eye Solutions Ltd | 811 | 997 | 2.21 | 1.97 | Information Technology |
| DP Poland plc | 574 | 955 | 2.12 | 1.89 | Consumer Discretionary |
| Portr Ltd** | 689 | 770 | 1.71 | 1.52 | Information Technology |
| Science in Sport plc | 518 | 760 | 1.69 | 1.50 | Consumer Staples |
| Zappar Ltd** | 701 | 700 | 1.55 | 1.38 | Information Technology |
| Gfinity plc | 255 | 693 | 1.54 | 1.37 | Information Technology |
| AnimalCare Group plc | 100 | 687 | 1.53 | 1.36 | Health Care |
| Escape Hunt plc | 618 | 658 | 1.46 | 1.30 | Consumer Discretionary |
| Hardide plc | 224 | 656 | 1.46 | 1.30 | Materials |
| Tristel plc | 81 | 591 | 1.31 | 1.17 | Health Care |
| Creo Medical Group plc | 559 | 565 | 1.25 | 1.12 | Health Care |
| Fulcrum Utility Services Ltd | 100 | 525 | 1.17 | 1.04 | Utilities |
| Faron Pharmaceuticals Oy | 201 | 518 | 1.15 | 1.02 | Health Care |
| Honest Brew Ltd** | 501 | 500 | 1.11 | 0.99 | Consumer Discretionary |
| Infinity Reliance Ltd (My 1st Years)** | 501 | 500 | 1.11 | 0.99 | Consumer Discretionary |
| Maxcyte Inc Com Stk USD0.01 (DI) | 142 | 487 | 1.08 | 0.96 | Health Care |
| Loopup Group plc | 236 | 420 | 0.93 | 0.83 | Information Technology |
| E G Solutions plc | 200 | 415 | 0.92 | 0.82 | Information Technology |
| ULS Technology plc | 139 | 411 | 0.91 | 0.81 | Information Technology |
| Aquis Exchange Ltd** | 401 | 400 | 0.89 | 0.79 | Information Technology |
| Laundrapp Ltd** | 301 | 384 | 0.85 | 0.76 | Information Technology |
| FairFX Group plc | 295 | 370 | 0.82 | 0.73 | Information Technology |
| TrakM8 Holdings plc | 91 | 352 | 0.78 | 0.69 | Information Technology |
| CentralNic Group plc | 207 | 347 | 0.77 | 0.69 | Information Technology |
| Velocity Composites plc | 332 | 331 | 0.74 | 0.65 | Industrials |
| Clearstar Inc | 360 | 322 | 0.72 | 0.64 | Industrials |
| Everyman Media Group plc | 172 | 320 | 0.71 | 0.63 | Consumer Discretionary |
| Surface Transforms plc | 301 | 318 | 0.71 | 0.63 | Industrials |
| Osirium Technologies plc | 301 | 269 | 0.60 | 0.53 | Information Technology |
| Belvoir Lettings plc | 335 | 257 | 0.57 | 0.51 | Real Estate |
| Lombard Risk Management plc | 92 | 247 | 0.55 | 0.49 | Information Technology |
| Sanderson Group plc | 200 | 240 | 0.53 | 0.47 | Information Technology |
| EKF Diagnostics Holdings plc | 150 | 235 | 0.52 | 0.46 | Health Care |
| Plastics Capital plc | 202 | 220 | 0.49 | 0.43 | Materials |
| WANDisco plc | 53 | 216 | 0.48 | 0.43 | Information Technology |
| Premaitha Health plc | 330 | 190 | 0.42 | 0.37 | Health Care |
| Omega Diagnostics Group plc | 129 | 189 | 0.42 | 0.37 | Health Care |
| Cloudcall Group plc | 234 | 181 | 0.40 | 0.36 | Telecommunication Services |
| Satellite Solutions Worldwide Group plc | 103 | 166 | 0.37 | 0.33 | Telecommunication Services |
| Paragon Entertainment Ltd | 200 | 156 | 0.35 | 0.31 | Industrials |
| The Property Franchise Group | 113 | 152 | 0.34 | 0.30 | Real Estate |
| Lidco Group plc | 146 | 142 | 0.32 | 0.28 | Health Care |
| Angle plc | 252 | 142 | 0.31 | 0.28 | Health Care |
| Reneuron Group plc | 262 | 139 | 0.31 | 0.27 | Health Care |
| Intercede Group plc | 91 | 135 | 0.30 | 0.27 | Information Technology |
| Mexican Grill Ltd (Ordinary Shares)** | 31 | 128 | 0.28 | 0.25 | Consumer Discretionary |
| Ilika plc | 203 | 126 | 0.28 | 0.25 | Industrials |
| Imaginatik plc | 215 | 124 | 0.28 | 0.24 | Information Technology |
| Maxcyte Inc Com Stk USD0.01 (DI/REG S) | 141 | 123 | 0.27 | 0.24 | Health Care |
| APC Technology Group plc | 350 | 114 | 0.25 | 0.22 | Information Technology |
| TLA Worldwide plc | 150 | 113 | 0.25 | 0.22 | Consumer Discretionary |
| Medaphor Group plc | 251 | 78 | 0.17 | 0.15 | Consumer Discretionary |
| Verona Pharma plc | 71 | 75 | 0.17 | 0.15 | Health Care |
| Mycelx Technologies Corporation plc (Com SHS $0.025 REG S+ shares) | 150 | 64 | 0.14 | 0.13 | Industrials |
| Porta Communications plc | 200 | 60 | 0.13 | 0.12 | Consumer Discretionary |
| TP Group plc | 125 | 57 | 0.13 | 0.11 | Industrials |
| Genedrive plc | 140 | 56 | 0.12 | 0.11 | Health Care |
| Midatech Pharma plc | 150 | 50 | 0.11 | 0.10 | Health Care |
| Mirada plc | 95 | 42 | 0.09 | 0.08 | Information Technology |
| Fusionex International plc** | 69 | 29 | 0.06 | 0.06 | Information Technology |
| Mporium Group plc | 23 | 15 | 0.03 | 0.03 | Information Technology |
| Microsaic Systems plc | 20 | 11 | 0.02 | 0.02 | Information Technology |
| Flowgroup plc | 54 | 10 | 0.02 | 0.02 | Industrials |
| Brigantes Energy Ltd* | - | - | - | - | Energy |
| Total Qualifying Investments | 17,865 | 26,519 | 58.85 | 52.35 | |
| Non-Qualifying Investments | Cost £000 | Valuation £000 | Valuation % | Net Assets % | Sector |
| Scottish Amicable 8.5% 2049 | 154 | 159 | 0.35 | 0.31 | |
| Total - Corporate bonds | 154 | 159 | 0.35 | 0.31 | |
| Marlborough Special Situations Fund** | 5,742 | 7,487 | 16.62 | 14.78 | |
| Total - Unit Trusts | 5,742 | 7,487 | 16.62 | 14.78 | |
| NMC Health plc | 426 | 757 | 1.68 | 1.50 | Health Care |
| Melrose Industries plc | 444 | 682 | 1.51 | 1.35 | Industrials |
| Royal Dutch Shell plc | 582 | 648 | 1.44 | 1.28 | Energy |
| Dechra Pharmaceuticals plc | 461 | 612 | 1.36 | 1.21 | Health Care |
| BP plc | 596 | 579 | 1.28 | 1.14 | Energy |
| On the Beach Group plc | 391 | 574 | 1.28 | 1.13 | Consumer Discretionary |
| Anglo American plc | 373 | 421 | 0.93 | 0.83 | Materials |
| Sanne Group plc | 292 | 413 | 0.92 | 0.82 | Financials |
| Ascential plc | 326 | 403 | 0.90 | 0.80 | Consumer Discretionary |
| Merlin Entertainments plc | 386 | 401 | 0.89 | 0.79 | Consumer Discretionary |
| Cohort plc | 176 | 394 | 0.87 | 0.78 | Industrials |
| Wizz Air Holdings plc | 220 | 353 | 0.78 | 0.70 | Consumer Discretionary |
| Medica Group plc | 213 | 340 | 0.75 | 0.67 | Health Care |
| RPC Group plc | 289 | 296 | 0.66 | 0.59 | Materials |
| Hilton Food Group plc | 252 | 291 | 0.65 | 0.57 | Consumer Discretionary |
| XP Power Ltd | 292 | 286 | 0.64 | 0.56 | Industrials |
| FCFM Group Ltd** | 150 | 283 | 0.63 | 0.56 | Financials |
| Renishaw plc | 276 | 274 | 0.61 | 0.54 | Information Technology |
| Clipper Logistics plc | 234 | 267 | 0.59 | 0.53 | Consumer Discretionary |
| JD Sports Fashion plc | 274 | 259 | 0.57 | 0.51 | Consumer Discretionary |
| Fulcrum Utility Services Ltd | 56 | 256 | 0.57 | 0.50 | Utilities |
| Lloyds Banking Group plc | 285 | 255 | 0.57 | 0.50 | Financials |
| Sportech plc | 209 | 230 | 0.51 | 0.45 | Consumer Discretionary |
| Learning Technologies Group plc | 80 | 207 | 0.46 | 0.41 | Information Technology |
| Micro Focus International plc | 121 | 196 | 0.44 | 0.39 | Information Technology |
| Horizon Discovery Group plc | 124 | 167 | 0.37 | 0.33 | Health Care |
| Everyman Media Group plc | 85 | 155 | 0.34 | 0.31 | Consumer Discretionary |
| Eurocell plc | 119 | 135 | 0.30 | 0.27 | Industrials |
| Finsbury Food Group plc | 70 | 129 | 0.29 | 0.26 | Consumer Staples |
| Alfa Financial Software Holdings plc | 92 | 128 | 0.29 | 0.25 | Information Technology |
| Just Eat plc | 82 | 100 | 0.22 | 0.20 | Information Technology |
| Egdon Resources plc | 140 | 69 | 0.15 | 0.14 | Energy |
| Eagle Eye Solutions Ltd | 44 | 64 | 0.14 | 0.13 | Information Technology |
| The Fulham Shore plc | 38 | 57 | 0.13 | 0.11 | Consumer Discretionary |
| Amerisur Resources plc | 167 | 45 | 0.10 | 0.09 | Energy |
| Midatech Pharma plc | 134 | 44 | 0.10 | 0.09 | Health Care |
| Regent Pacific Group Ltd | 93 | 43 | 0.09 | 0.08 | Health Care |
| Mycelx Technologies Corporation plc (Com SHS $0.025 + (D1) shares) | 170 | 40 | 0.09 | 0.08 | Industrials |
| Reneuron Group plc | 41 | 29 | 0.06 | 0.06 | Health Care |
| Mexican Grill Ltd (A Preference Shares)** | 3 | 10 | 0.02 | 0.02 | Consumer Discretionary |
| Genagro Ltd** | 22 | 2 | - | - | Industrials |
| Mycelx Technologies Corporation plc (Com SHS $0.025 REG S+ shares) | 8 | 2 | - | - | Industrials |
| Total - Non-Qualifying equities | 8,836 | 10,896 | 24.18 | 21.53 | |
| Total -Non-Qualifying Investments | 14,732 | 18,542 | 41.15 | 36.62 | |
| Total investments | 32,597 | 45,061 | 100.00 | 88.97 | |
| Cash at bank | 5,773 | 11.40 | |||
| Prepayments & Accruals | (186) | (0.37) | |||
| Net Assets | 50,648 | 100.00 |
* Unquoted Company holding of less than £500
**Unquoted Companies
The majority of investments held within the portfolio are listed and/or headquartered in the UK with the exception of the following:
| Listed | Headquartered | Registered | |
| AIM listed Investments: | |||
| Clearstar Inc | UK | Cayman Islands | Cayman Islands |
| DP Poland | UK | Poland | UK |
| Faron Pharmaceuticals Oy | UK | Finland | Finland |
| Fulcrum Utility Services Ltd | UK | UK | Cayman Islands |
| Maxcyte Inc | UK | USA | USA |
| Mycelx Technologies Corporation plc | UK | USA | USA |
| Paragon Entertainment Ltd | UK | UK | Cayman Islands |
| Regent Pacific Group Ltd | Hong Kong | Hong Kong | Cayman Islands |
| Royal Dutch Shell plc | UK | Netherlands | UK |
| Sanne Group plc | UK | Jersey | Jersey |
| WANDisco plc | UK | UK and USA | Jersey |
| Wizz Air Holdings plc | UK | Switzerland | Jersey |
| XP Power Ltd | UK | Singapore | Singapore |
| Unlisted private companies: | |||
| Aquis Exchange Ltd | - | UK | UK |
| Brigantes Energy Ltd | - | UK | UK |
| FCFM Group Ltd | - | UK | UK |
| Fusionex International plc | - | UK | Jersey |
| Genagro Ltd | - | Jersey | Jersey |
| Honest Brew Ltd | - | UK | UK |
| Infinity Reliance Ltd (My 1st Years) | - | UK | UK |
| Laundrapp Ltd | - | UK | UK |
| Mexican Grill Ltd | - | UK | UK |
| Portr Ltd | - | UK | UK |
| SCA Investments Ltd (Gousto) | - | UK | UK |
| Zappar Ltd | - | UK | UK |
| Authorised unit trust: | |||
| Marlborough Special Situations Fund | - | UK | UK |
TOP TEN INVESTMENTS
As at 31 August 2017 (By Market Value)
The top 10 equity investments are shown below; each is valued by reference to the bid price, or, in the case of unquoted companies, values are either based on the last arm's length transaction or valuation techniques, such as earnings multiples. Forecasts, where given, are drawn from a combination of broker research and/or Bloomberg consensus forecasts and exclude amortisation, share based payments and exceptional items. Forecasts are in relation to a period end for which the company results are yet to be released. The net cash values are drawn from published accounts in most cases.
| Learning Technology Group plc | 47.0p | ||
| Investment date | April 2014 | Forecasts for the year to | December 2017 |
| Equity held | 0.52% | Turnover (£'000) | 51,500 |
| Av Purchase Price | 20.6p | Profit/(loss) before tax (£'000) | 11,300 |
| Cost (£'000) | 614 | Net Cash (£'000) | (8,486) |
| Valuation (£'000) | 1,402 | Net Assets December 2016 (£'000) | 30,710 |
| COMPANY DESCRIPTION | |||
| Learning Technologies Group (LTG) provides a comprehensive and integrated range of e-learning services and technologies to corporate and government clients. LTG is making good progress towards its goal of establishing a substantial global organisation of specialist digital learning businesses from Europe, US, Latin America and Asia to form a market-leading technologies agency. | |||
| Zoo Digital Group plc | 24.0p | ||
| Investment date | April 2017 | Forecasts for the year to | March 2018 |
| Equity held | 7.56% | Turnover ($'000) | 20,988 |
| Av Purchase Price | 9.0p | Profit/(loss) before tax ($'000) | 347 |
| Cost (£'000) | 501 | Net Cash ($'000) | (300) |
| Valuation (£'000) | 1,333 | Net Assets March 2017 ($'000) | 2,561 |
| COMPANY DESCRIPTION | |||
| Zoo is a leading provider of subtitling and digital distribution services for the global entertainment industry. Zoo combine their own technology with talented client teams across the globe to translate original video programmes into more than 50 foreign languages. Their technology helps process the edited digital materials to meet the technical delivery requirements of a growing number of online video services. | |||
| Mexican Grill Ltd | 8,550.0p | ||
| Investment date | October 2009 | Results for the year to | December 2016 |
| Equity held | 4.25% | Turnover (£'000) | 25,327 |
| Av Purchase Price | 2,059.0p | Profit/(loss) before tax (£'000) | (1,025) |
| Cost (£'000) | 311 | Net Cash (£'000) | (2,862) |
| Valuation (£'000) | 1,292 | Net Assets December 2016 (£'000) | 3,312 |
| Income recognised in period (£) | 0 | ||
| COMPANY DESCRIPTION | |||
| Mexican Grill is a private company that operates 33 fast casual California-Mexican restaurants that provide fresh, made to order cuisine for eat in or take-away, making it among the largest chains within its niche. | |||
| Ideagen plc | 90.0p | ||
| Investment date | March 2011 | Forecasts for the year to | April 2018 |
| Equity held | 0.69% | Turnover (£'000) | 34,900 |
| Av Purchase Price | 13.8p | Profit/(loss) before tax (£'000) | 9,700 |
| Cost (£'000) | 190 | Net Cash (£'000) | 4,205 |
| Valuation (£'000) | 1,238 | Net Assets April 2017 (£'000) | 46,419 |
| COMPANY DESCRIPTION | |||
| Ideagen is a supplier of compliance based information management software with operations in the UK and the United States. The company specialises in enterprise governance, risk and compliance and healthcare solutions for organisations operating within highly regulated industries. Ideagen provides complete content lifecycle solutions that enable organisations to meet their regulatory and quality compliance standards, helping them to reduce costs and improve efficiency. | |||
| Quixant plc | 420.0p | ||
| Investment date | May 2013 | Forecasts for the year to | December 2017 |
| Equity held | 0.40% | Turnover ($'000) | 102,300 |
| Av Purchase Price | 46.0p | Profit/(loss) before tax ($'000) | 15,800 |
| Cost (£'000) | 120 | Net Cash ($'000) | (69) |
| Valuation (£'000) | 1,096 | Net Assets December 2016 ($'000) | 34,306 |
| COMPANY DESCRIPTION | |||
| Quixant designs and manufactures complete advanced hardware and software solutions for the pay-for-play gaming and slot machine industry. Quixant's specialised products provide an all-in-one solution, based on PC technology but with additional hardware features and operating software developed specifically to address the requirements of the gaming industry. | |||
| Eagle Eye Solutions plc | 255.0p | ||
| Investment date | April 2014 | Forecasts for the year to | June 2018 |
| Equity held | 1.64% | Turnover (£'000) | 15,900 |
| Av Purchase Price | 205.7 | Profit/(loss) before tax (£'000) | (3,600) |
| Cost (£'000) | 855 | Net Cash (£'000) | 3,724 |
| Valuation (£'000) | 1,061 | Net Assets June 2017 (£'000) | 8,862 |
| COMPANY DESCRIPTION | |||
| Eagle Eye Solutions plc operates in the e-commerce industry. The Company provides a digital platform that enables retailers to connect with customers to deliver offers, rewards and services that can be redeemed. | |||
| SCA Investments Ltd (Gousto) | 2,988.0p | ||
| Investment date | July 2017 | Results for the year to | December 2016 |
| Equity held | 1.53% | Turnover (£'000) | 12,755 |
| Av Purchase Price | 2,994.0p | Profit/(loss) before tax (£'000) | (6,739) |
| Cost (£'000) | 1,002 | Net Cash (£'000) | 5,407 |
| Valuation (£'000) | 1,000 | Net Assets December 2016 (£'000) | 6,512 |
| Income recognised in period (£) | 0 | ||
| COMPANY DESCRIPTION | |||
| Founded in February 2012, Gousto is an e-commerce company offering recipe kit boxes which include fresh ingredients for step-by-step chef designed recipes to be made at home. Shoppers select meals from a variety of options on Gousto's e-commerce platform. Gousto then delivers the pre-proportioned ingredients to the doorstep, along with instructions on how to prepare the meal. | |||
| DP Poland plc | 40.8p | ||
| Investment date | November 2012 | Forecasts for the year to | December 2017 |
| Equity held | 1.57% | Turnover (£'000) | 11,000 |
| Av Purchase Price | 24.5p | Profit/(loss) before tax (£'000) | (2,000) |
| Cost (£'000) | 574 | Net Cash (£'000) | 6,001 |
| Valuation (£'000) | 955 | Net Assets December 2016 (£'000) | 11,210 |
| COMPANY DESCRIPTION | |||
| DP Poland (Domino's Pizza Poland) is a fast food company that operates a sub-franchise of the Domino's Pizza brand in Poland. The company operate in 14 Polish cities, with 16 corporate and 23 sub-franchised stores. They continue to roll out and anticipate finishing the current year with 50 operational sites, with a longer-term ambition of 100 stores by 2020. | |||
| Fulcrum Utility Services Ltd | 52.5p | ||
| Investment date | December 2009 | Forecasts for the year to | March 2018 |
| Equity held | 0.85% | Turnover (£'000) | 41,600 |
| Av Purchase Price | 10.5p | Profit/(loss) before tax (£'000) | 7,400 |
| Cost (£'000) | 156 | Net Cash (£'000) | 12,561 |
| Valuation (£'000) | 781 | Net Assets March 2017 (£'000) | 10,446 |
| COMPANY DESCRIPTION | |||
| Fulcrum Utility Services provides utility infrastructure solutions. The company offers solutions that include gas connection, multi utility, meter installation, outlet pipe work, and gas disconnection services, renewable energy solutions and consulting services. | |||
| Portr Ltd | 741.0p | ||
| Investment date | July 2015 | Results for the year to | December 2016 |
| Equity held | 3.64% | Turnover (£'000) | - |
| Av Purchase Price | 662.4p | Profit/(loss) before tax (£'000) | (4,824) |
| Cost (£'000) | 689 | Net Cash (£'000) | 825 |
| Valuation (£'000) | 770 | Net Assets December 2016 (£'000) | 1,100 |
| Income recognised in period (£) | 0 | ||
| COMPANY DESCRIPTION | |||
| Portr run's AirPortr, London's same day luggage transfer service. In its most basic form they deliver luggage from London Airports to your hotel, office or home and vice versa. They recently launched an off airport check in solution in partnership with British Airways, allowing you to check in your bag from your house, hotel or office for an outbound flight from London airports. | |||
| CO-INVESTMENT As at 31 August 2017, other funds managed by Hargreave Hale Ltd were also invested in all of the investments held within the Company's portfolio with the exception of the following: Omega Diagnostics Group plc, Paragon Entertainment Ltd, Scottish Amicable 8.5% 2049 and Tristel plc. |
For further information please contact:
STUART BROOKES
Company Secretary
Hargreave Hale AIM VCT 2 plc
01253 754740
Date: 19 October 2017
STATEMENT OF DIRECTOR'S RESPONSIBILITIES
in respect of the half-yearly financial report
In accordance with Disclosure Transparency Rule (DTR) 4.2.10, David Hurst-Brown (Chairman), Philip Cammerman and Oliver Bedford, the Directors, confirm that to the best of their knowledge:
- The half yearly financial results have been prepared in accordance with UK GAAP and give a true and fair review of the assets, liabilities, financial position and profit of the Company as at 31 August 2017 as required by DTR 4.2.4;
- The interim management report included within the chairman's statement, investment manager's report, investment portfolio summary and notes to the half yearly report includes a fair review of the information required by the Financial Conduct Authority Disclosure and Transparency Rules, being;
- an indication of the important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements;
- a description of the principal risks and uncertainties for the remaining six months of the year; and
- a description of related party transactions that have taken place in the first six months of the current financial year, that may have materially affected the financial position or performance of the Company during that period and any changes in the related party transactions described in the last annual report that could do so.
On behalf of the Board
DAVID HURST-BROWN
Chairman
Date: 19 October 2017
CONDENSED INCOME STATEMENT
for the six month period to 31 August 2017 (unaudited)
| For the six month period to | For the six month period to | |||||
| 31 August 2017 (unaudited) | 31 August 2016 (unaudited) | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Realised gains on investments held at fair value through profit or loss | - | 626 | 626 | - | 228 | 228 |
| Unrealised gains on investments held at fair value through profit or loss | - | 3,936 | 3,936 | - | 2,328 | 2,328 |
| Income | 184 | - | 184 | 164 | - | 164 |
| ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | |
| 184 | 4,562 | 4,746 | 164 | 2,556 | 2,720 | |
| Management fee | (93) | (280) | (373) | (60) | (179) | (239) |
| Other expenses | (172) | (13) | (185) | (134) | - | (134) |
| ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | |
| (265) | (293) | (558) | (194) | (179) | (373) | |
| ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | |
| (Loss)/gain on ordinary activities before taxation | (81) | 4,269 | 4,188 | (30) | 2,377 | 2,347 |
| Taxation | - | - | - | - | - | - |
| ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | |
| (Loss)/gain on ordinary activities after taxation | (81) | 4,269 | 4,188 | (30) | 2,377 | 2,347 |
| ----------- | ---------- | ---------- | ----------- | ---------- | ---------- | |
| (Loss)/gain per share basic and diluted (Note 2) | (0.18)p | 9.75p | 9.57p | (0.09)p | 7.04p | 6.95p |
The total column of this statement is the income statement of the Company. All revenue and capital items in the above statement derive from continuing operations. The Company has no other comprehensive income other than the results for the six month period as set out above. The accompanying notes are an integral part of these financial statements.
CONDENSED INCOME STATEMENT
for the year ended 28 February 2017 (audited)
| For the year to | |||
| 28 February 2017 (audited) | |||
| Revenue | Capital | Total | |
| £000 | £000 | £000 | |
| Realised (losses) on investments held at fair value through profit or loss | - | (339) | (339) |
| Unrealised gains on investments held at fair value through profit or loss | - | 5,876 | 5,876 |
| Income | 286 | 15 | 301 |
| ----------- | ----------- | ----------- | |
| 286 | 5,552 | 5,838 | |
| Management fee | (129) | (387) | (516) |
| Other expenses | (305) | (28) | (333) |
| ----------- | ----------- | ----------- | |
| (434) | (415) | (849) | |
| ----------- | ----------- | ----------- | |
| (Loss)/gain on ordinary activities before taxation | (148) | 5,137 | 4,989 |
| Taxation | - | - | - |
| ----------- | ----------- | ----------- | |
| (Loss)/gain after taxation | (148) | 5,137 | 4,989 |
| ----------- | ----------- | ----------- | |
| (Loss)/gain per share basic and diluted (Note 2) | (0.43)p | 14.97p | 14.54p |
The total column of this statement is the income statement of the Company. All revenue and capital items in the above statement derive from continuing operations. The Company has no other comprehensive income other than the results for the year as set out above. The accompanying notes are an integral part of these financial statements.
CONDENSED BALANCE SHEET
as at 31 August 2017 (unaudited)
| 31 August | 31 August | 28 February | |
| 2017 | 2016 | 2017 | |
| (unaudited) | (unaudited) | (audited) | |
| £000 | £000 | £000 | |
| Fixed assets | |||
| Investments at fair value through profit or loss | 45,061 | 27,757 | 36,359 |
| ----------- | ----------- | ----------- | |
| Current assets | |||
| Prepayments and accrued income | 68 | 54 | 37 |
| Cash at bank | 5,773 | 8,096 | 9,190 |
| ----------- | ----------- | ----------- | |
| 5,841 | 8,150 | 9,227 | |
| Creditors: amounts falling due within one year | |||
| Accruals and deferred income | (254) | (183) | (219) |
| ----------- | ----------- | ----------- | |
| Net current assets | 5,587 | 7,967 | 9,008 |
| ----------- | ----------- | ----------- | |
| Net assets | 50,648 | 35,724 | 45,367 |
| ----------- | ----------- | ----------- | |
| Capital and Reserves | |||
| Called up share capital | 439 | 342 | 413 |
| Share premium | - | 26,509 | 34,246 |
| Capital redemption reserve | 14 | 9 | 10 |
| Special reserve | 38,200 | 3,699 | 2,891 |
| Capital reserve - realised | 961 | 1,416 | 628 |
| Capital reserve - unrealised | 12,465 | 4,981 | 8,529 |
| Revenue reserve | (1,431) | (1,232) | (1,350) |
| ----------- | ----------- | ----------- | |
| Total shareholders' funds | 50,648 | 35,724 | 45,367 |
| ----------- | ----------- | ----------- | |
| Net asset value per share basic and diluted (Note 4) | 115.47p | 104.58p | 109.86p |
The accompanying notes are an integral part of these financial statements.
CONDENSED STATEMENT OF CHANGES IN EQUITY
for the six month period to 31 August 2017 (unaudited)
| Ordinary Shares | Called up | Share | Capital | Special | Capital | Capital | Revenue | Total |
| share | premium | redemption | reserve | reserve | reserve | reserve | ||
| capital | reserve | realised | unrealised | |||||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| At 1 March 2017 | 413 | 34,246 | 10 | 2,891 | 628 | 8,529 | (1,350) | 45,367 |
| Share buybacks | (4) | 4 | (475) | (475) | ||||
| Share issues | 30 | 3,378 | 3,408 | |||||
| Issue costs | (81) | (81) | ||||||
| Capital Reduction | (37,543) | 37,543 | - | |||||
| Equity dividends paid | (1,759) | (1,759) | ||||||
| Realised gains on investments | 626 | 626 | ||||||
| Unrealised gains on investments | 3,936 | 3,936 | ||||||
| Management fee charged to capital | (280) | (280) | ||||||
| Due diligence investment costs | (13) | (13) | ||||||
| Revenue loss after taxation for the period | (81) | (81) | ||||||
| Total profit after taxation | 333 | 3,936 | (81) | 4,188 | ||||
| ---------- | ----------- | ----------- | ----------- | ---------- | ----------- | ----------- | ---------- | |
| At 31 August 2017 | 439 | - | 14 | 38,200 | 961 | 12,465 | (1,431) | 50,648 |
| ---------- | ----------- | ----------- | ----------- | ---------- | ----------- | ----------- | ---------- |
The distributable reserves are capital reserve realised, special reserve and revenue reserve. Total distributable reserves at 31 August 2017 were £37.73 million of which £6.91 million is available to pay dividends now. The accompanying notes are an integral part of these financial statements.
CONDENSED STATEMENT OF CHANGES IN EQUITY
for the six month period to 31 August 2016 (unaudited)
| Ordinary Shares | Called up | Share | Capital | Special | Capital | Capital | Revenue | Total |
| share | premium | redemption | reserve | reserve | reserve | reserve | ||
| capital | reserve | realised | unrealised | |||||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| At 1 March 2016 | 295 | 21,484 | 7 | 5,250 | 1,367 | 2,653 | (1,202) | 29,854 |
| Share buybacks | (2) | 2 | (198) | (198) | ||||
| Share issues | 49 | 5,153 | 5,202 | |||||
| Issue costs | (128) | (128) | ||||||
| Equity dividends paid | (1,353) | (1,353) | ||||||
| Realised gains on investments | 228 | 228 | ||||||
| Unrealised gains on investments | 2,328 | 2,328 | ||||||
| Management fee charged to capital | (179) | (179) | ||||||
| Revenue loss after taxation for the period | (30) | (30) | ||||||
| Total loss after taxation | 49 | 2,328 | (30) | 2,347 | ||||
| ---------- | ----------- | ----------- | ----------- | ---------- | ----------- | ----------- | ---------- | |
| At 31 August 2016 | 342 | 26,509 | 9 | 3,699 | 1,416 | 4,981 | (1,232) | 35,724 |
| ---------- | ----------- | ----------- | ----------- | ---------- | ----------- | ----------- | ---------- | |
Reserves available for distribution are capital reserve realised, special reserve and revenue reserve. Total distributable reserves at 31 August 2016 were £3.88 million. The accompanying notes are an integral part of these financial statements.
CONDENSED STATEMENT OF CHANGES IN EQUITY
for the year ended 28 February 2017 (audited)
| Ordinary Shares | Called up | Share | Capital | Special | Capital | Capital | Revenue | Total | |
| share | premium | redemption | reserve | reserve | reserve | reserve | |||
| capital | reserve | realised | unrealised | ||||||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | ||
| At 1 March 2016 | 295 | 21,484 | 7 | 5,250 | 1,367 | 2,653 | (1,202) | 29,854 | |
| Share buybacks | (3) | 3 | (313) | (313) | |||||
| Share issues | 121 | 13,034 | 13,155 | ||||||
| Issue costs | (272) | (272) | |||||||
| Equity dividends paid | (2,046) | (2,046) | |||||||
| Realised gains on investments | (339) | (339) | |||||||
| Unrealised gains on investments | 5,876 | 5,876 | |||||||
| Management fee charged to capital | (387) | (387) | |||||||
| Arrangement Fee Income | 15 | 15 | |||||||
| Due Diligence investment cost | (28) | (28) | |||||||
| Revenue loss after taxation for the period | (148) | (148) | |||||||
| Total loss after taxation | (739) | 5,876 | (148) | 4,989 | |||||
| ---------- | ----------- | ----------- | ----------- | ---------- | ----------- | ----------- | ---------- | ||
| At 28 February 2017 | 413 | 34,246 | 10 | 2,891 | 628 | 8,529 | (1,350) | 45,367 | |
| ---------- | ----------- | ----------- | ----------- | ---------- | ----------- | ----------- | ---------- |
Reserves available for distribution are capital reserve realised, special reserve and revenue reserve. Total distributable reserves at 28 February 2017 were £2.17 million. The accompanying notes are an integral part of these financial statements.
CONDENSED STATEMENT OF CASH FLOWS
for the six month period to 31 August 2017 (unaudited)
| 31 August 2017 | 31 August 2016 | 28 February 2017* | |
| (unaudited) | (unaudited) | (audited) | |
| £000 | £000 | £000 | |
| Return on ordinary activities after taxation | 4,188 | 2,347 | 4,989 |
| Realised (gain)/loss on investments | (626) | (228) | 339 |
| Unrealised (gain) on investments | (3,936) | (2,328) | (5,876) |
| (Increase) in debtors | (31) | (34) | (17) |
| Increase/(decrease) in creditors | 35 | (8) | 28 |
| ----------- | ----------- | ----------- | |
| Net cash (outflow) from operating activities | (370) | (251) | (537) |
| Cash flows from investing activities | |||
| Purchase of investments | (9,359) | (7,309) | (16,778) |
| Sale of investments | 5,219 | 5,139 | 8,987 |
| ----------- | ----------- | ----------- | |
| Net cash (outflow) from investing activities | (4,140) | (2,170) | (7,791) |
| Cash flows from financing activities | |||
| Proceeds from share issues | 3,408 | 5,202 | 13,155 |
| Share issue costs | (81) | (128) | (272) |
| Share buybacks | (475) | (198) | (313) |
| Dividends paid | (1,759) | (1,353) | (2,046) |
| ----------- | ----------- | ----------- | |
| Net cash from financing activities | 1,093 | 3,523 | 10,524 |
| ----------- | ----------- | ----------- | |
| Increase in cash | (3,417) | 1,102 | 2,196 |
| ----------- | ----------- | ----------- | |
| Analysis of net funds | |||
| Opening cash | 9,190 | 6,994 | 6,994 |
| Cash movement | (3,417) | 1,102 | 2,196 |
| Closing cash | 5,773 | 8,096 | 9,190 |
* 28 February 2017 cash flow represents annual results
The accompanying notes are an integral part of these financial statements
EXPLANATORY NOTES
for the six month period to 31 August 2017 (unaudited)
- ACCOUNTING POLICIES
Basis of preparation
The Company has prepared its half-yearly financial results for the six month period ending 31 August 2017 in accordance with Financial Reporting Standard 104 (FRS104) and the Statement of Recommended Practice for "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (the SORP).
The same accounting policies and methods of computation are followed in the half-yearly financial results as compared with the most recent annual financial statements.
Investments
All investments are classified as fair value through profit or loss. Investments are measured initially and subsequently at fair value which is deemed to be bid market prices for listed investments and investments traded on AIM. Unquoted investments are valued using the most appropriate methodology recommended by the International Private Equity Venture Capital ("IPEV") guidelines.
Where the classification of a financial instrument requires it to be stated at fair value, this is determined by reference to the quoted bid price in an active market wherever possible. Where no such active market exists for the particular asset or liability the Company holds the investment at cost for a period where there is considered to be no change in fair value.
Valuations of unquoted investments are reviewed on a six monthly basis and more frequently if events occur that could have a material impact on the investment. Where cost is no longer considered appropriate the Company will use a value indicated by a material arms-length transaction by an independent third party in the shares of a company. Where no such transaction exists, the Company will use the most appropriate valuation technique including discounted cash flow analysis, earnings multiples, net assets and industry valuation benchmarks. All inputs are market observable with the exception of level C financial instruments.
Investments are recognised and derecognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional. Transaction costs are included in the initial book cost or deducted from the disposal proceeds as appropriate.
These investments will be managed and their performance evaluated on a fair value basis in accordance with a documented investment strategy and information about them is provided internally on that basis to the Board.
Gains and losses arising from changes in fair value (realised and unrealised) are included in the net profit or loss for the period as a capital item in the income statement and are taken to the unrealised capital reserve or realised capital reserve as appropriate.
If an investment has been impaired such that there is no realistic expectation that there will be a full return from the investment, the loss is treated as a permanent impairment and transferred to the capital reserve realised.
Financial Instruments - fair value measurement hierarchy
FRS 102 requires certain disclosures which require the classification of financial assets and financial liabilities measured at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurement.
The fair value hierarchy has the following levels:
| Level | Methodology |
| (a) | The best evidence of fair value is a quoted price for an identical asset in an active market. Quoted in an active market in this context means quoted prices are readily and regularly available and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted price is usually the current bid price. |
| (b) | When quoted prices are unavailable, the price of a recent transaction for an identical asset provides evidence of fair value as long as there has not been a significant change in economic circumstances or a significant lapse of time since the transaction took place. If the entity can demonstrate that the last transaction price is not a good estimate of fair value (e.g. because it reflects the amount that an entity would receive or pay in a forced transaction, involuntary liquidation or distress sale), that price is adjusted. |
| (c) | If the market for the asset is not active and recent transactions of an identical asset on their own are not a good estimate of fair value, an entity estimates the fair value by using a valuation technique. The objective of using a valuation technique is to estimate what the transaction price would have been on the measurement date in an arm's length exchange motivated by normal business considerations. |
| Level (a) Investments £'000 | Level (b) Investments £'000 | Level (c) Investments £'000 | Total Investments £'000 | |
| Six months ended 31 August 2017 (unaudited) | 33,242 | 7,487 | 4,332 | 45,061 |
| Year ended 28 February 2017 (audited) | 26,469 | 5,462 | 4,428 | 36,359 |
| Six months ended 31 August 2016 (unaudited) | 21,421 | 3,921 | 2,415 | 27,757 |
Key judgements and estimates
The preparation of the financial statements requires the Board to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Key estimation uncertainties mainly relate to the fair valuation of unquoted investments, which are based on historical experience and other factors that are considered reasonable including the transfer price of the most recent transaction on an arm's length basis. The estimates are under continuous review with particular attention paid to the carrying value of the investments. The process of estimation is also affected by the determination of the fair value hierarchy.
Income
Equity dividends are taken into account on the ex-dividend date, net of any associated tax credit. Fixed returns on non-equity shares and debt securities are recognised on a time apportionment basis so as to reflect the effective yield, provided there is no reasonable doubt that payment will be received in due course. All other income, including deposit interest receivable, is recognised on an accruals basis. All revenue and capital items in the unaudited income statement derive from continuing operations. There are no other items of comprehensive income other than those disclosed in the unaudited income statement.
Expenditure
All expenditure is accounted for on an accruals basis. 75% of management fees are allocated to the capital reserve realised and 25% to the revenue account in line with the Board's expected long term split of investment returns in the form of capital gains to the capital column of the income statement. All other expenditure is charged to the revenue account.
Trail commission
Trail commission previously due is held as a creditor until such time as claims are made by the relevant intermediary and supporting documentation provided. If claims are not received these amounts are written off after a period of six years.
Capital reserves
Realised profits and losses on the disposal of investments, due diligence costs and income in relation to private company investments, losses realised on investments considered to be permanently impaired and 75% of investment management fees are accounted for in the capital reserve realised.
Increases and decreases in the valuation of investments held at the year end are accounted for in the capital reserve unrealised.
Operating Segments
There is considered to be one operating segment as reported to the chief operating decision maker being investment in equity and debt securities.
Taxation
Deferred tax is recognised in respect of all timing differences that have originated but not yet reversed at the balance sheet date. Deferred tax assets are only recognised to the extent that recovery is probable in the foreseeable future.
Current tax is expected tax payable on the taxable revenue for the period using the current tax rate. The tax effect of different items of income and expenditure is allocated between capital and revenue on the same basis as the particular item to which it relates.
Approved VCTs are exempt from tax on capital gains from the sale of fixed asset investments. The Directors intend that the Company will continue to conduct its affairs to maintain its VCT status, no deferred tax has been provided in respect of any capital gains or losses arising from the revaluation or disposal of investments.
Dividends
Only dividends recognised during the period are deducted from revenue or capital reserves. Final and interim dividends are recognised in the accounts when the Company's liability to pay them has been established.
Summary of dividends paid in the six months to 31 August 2017 and the financial year ending 28 February 2017 are detailed below:
| Six months ended 31 August 2017 (unaudited) £'000 | Year ended 28 February 2017 (audited) £'000 | |
| Final capital dividend of 4 pence per share for the year ended 29 February 2016 paid on 20 July 2016 | - | 1,353 |
| Interim capital dividend of 2 pence per share for the half year ended 31 August 2016 paid on 2 December 2016 | - | 693 |
| Final capital dividend of 4 pence per share for the year ended 28 February 2017 paid on 25 July 2017 | 1,759 | - |
| Total | 1,759 | 2,046 |
Functional Currency
In accordance with FRS 102 s.30, the Company is required to nominate a functional currency, being the currency in which the Company predominantly operates. The Board has determined that sterling is the Company's functional currency. Sterling is also the currency in which these accounts are presented.
Repurchase of shares to hold in Treasury
The cost of repurchasing shares into treasury, including the related stamp duty and transaction costs is charged to the special reserve and dealt with in the statement of changes in equity. Share repurchase transactions are accounted for on a trade date basis. Where shares held in treasury are subsequently cancelled, the nominal value of those shares is transferred out of share capital and into capital redemption reserve.
Should shares held in treasury be reissued, the sale proceeds will be treated as a realised profit up to the amount of the purchase price of those shares and will be transferred to capital reserves. The excess of the sale proceeds over the purchase price will be transferred to share premium.
Contingencies, guarantees and financial commitments
There were no contingencies, guarantees or financial commitments of the Company at the 31 August 2017.
Legal form and principal activities
The Company was incorporated and registered in England and Wales on 20 September 2006 under the Companies Act 1985, registered number 05941261.
The Company has been approved as a Venture Capital Trust by HMRC under section 259 of the Income Taxes Act 2007. The shares of the Company were first admitted to the Official List of the UK Listing Authority and trading on the London Stock Exchange on 16 April 2007 and can be found under the TIDM code "HHVT". The Company is premium listed.
The Company's principal activity is to invest in a diversified portfolio of qualifying small UK based companies, primarily trading on AIM, with a view to maximising tax free dividend distributions to shareholders.
The Company is an externally managed fund with a Board comprising of three non-executive directors. Hargreave Hale Limited acts as investment manager, administrator and custodian to the Company and provide the company secretary.
The Board has overall responsibility for the Company's affairs including the determination of its investment policy, however, the Board may exercise these responsibilities through delegation to Hargreave Hale as it considers appropriate.
The Directors have managed and continue to manage the Company's affairs in such a manner as to comply with Section 259 of the Income Taxes Act 2007.
The Company's registered office is Accurist House, 44 Baker Street, London, W1U 7AL.
CAPITAL STRUCTURE
Share capital
Ordinary shares are classed as equity. The ordinary shares in issue have a nominal value of one pence and carry one vote each.
Reserves
A description of each of the reserves follows:
Share premium
This reserve represents the difference between the issue price of shares and the nominal value of shares at the date of issue, net of related issue costs.
Capital redemption reserve
This reserve is used for the cancellation of shares bought back under the buyback facility.
Special reserve
Distributable reserve used to pay dividends and re-purchase shares under the buyback facility.
Capital reserve realised
Gains/losses on disposal of investments, due diligence costs and income from private company investments, permanent impairment of financial assets and 75% of the investment management fee are accounted for in the capital reserve realised.
Capital reserve unrealised
Unrealised gains and losses on investments held at the year-end arising from movements in fair value are taken to the capital reserve unrealised.
Revenue reserve
Net revenue returns and losses of the Company.
- EARNINGS PER SHARE (BASIC AND DILUTED)
The gain per ordinary share of 9.57 pence at 31 August 2017 (31 August 2016: gain 6.95 pence and 28 February 2017: gain 14.54 pence) is based on a net gain for the period of £4,187,739 (31 August 2016: gain £2,347,000 and 28 February 2017: gain £4,989,474) and the weighted average number of ordinary shares in issue over the period of 43,776,326 (31 August 2016: of 33,764,458 and 28 February 2017: 34,327,158).
- CAUTIONARY STATEMENT
The results should not be taken as a guide to the results for the financial period ending 28 February 2018. This report may contain forward looking statements with regards to the financial condition and results of the Company, which are made in the light of current economic and business circumstances. Nothing in this report should be considered as a profit forecast.
- NET ASSET VALUE PER SHARE
The net asset value per ordinary share at 31 August 2017 of 115.47 pence (31 August 2016: 104.58 pence and 28 February 2017: 109.86 pence) is based on net assets of £50,648,374 (31 August 2016: £35,723,815 and 28 February 2017: £45,366,681) and on 43,863,946 shares (31 August 2016: 34,159,249 shares and 28 February 2017: 41,296,035 shares), being the number of ordinary shares in issue as at 31 August 2017.
- PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information contained in the 31 August 2017 income statement, balance sheet, statement of cash flows and statement of changes in equity does not constitute full financial statements and has not been audited.
- PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks facing the Company relate to the Company's investment activities and include venture capital trust approval, investment, discount volatility, compliance, economic, fraud, operational, reputational, liquidity and outsourcing risk. Other risks faced by the Company include market, currency, interest rate and credit risk. These risks and the way in which they are managed are described in more detail in the Company's annual report and accounts for the year ended 28 February 2017. The Company's principal risks and uncertainties have not changed materially since the date of that report.
7. TRANSACTIONS IN SHARES
Buybacks
In total, the Company repurchased 430,945 shares during the six month period ending 31 August 2017 at a total cost of £474,473. The repurchased shares represent 1.04% of ordinary shares in issue on 1 March 2017. The acquired shares have been cancelled.
Share Issues
In total, the Company issued 2,998,856 new shares during the six month period ending 31 August 2017 raising net proceeds of £3,326,563.
- RELATED PARTY TRANSACTIONS
Hargreave Hale Limited is considered to be a related party to the Company. Oliver Bedford, a non-executive director of the Company and a member of its key management personnel, is an employee of Hargreave Hale Limited. In addition, Hargreave Hale Limited acts as investment manager, administrator and custodian to the Company and it provides the company secretary. All of the support functions performed by Hargreave Hale Limited are segregated by department and location and are independent of each other.
Hargreave Hale Limited in its capacity as investment manager of the fund receives annual fees of 1.5% per annum of the net assets of the Company, calculated and payable quarterly in arrears. Fees for the half-year are £373,557 (2016: £238,524). In relation to the other support functions described above, Hargreave Hale Limited also provides administration services, custody services, company secretarial services and one non-executive director and receive fees of £50,000 per half-year (2016: £40,000) in relation to these services. Of those fees, £192,975 (2016: £137,010) was still owed at the half-year end.
Hargreave Hale Limited has agreed to indemnify the Company against annual running costs (such costs excluding VAT, any performance incentive fee and any trail commissions the payment of which is the responsibility of the Company) exceeding 3.5% of its net assets. No fees were waived by Hargreave Hale in the first half of the financial year under the indemnity.
During the half year, the Company issued 2,998,856 ordinary shares (nominal value £29,989) in a joint offer for subscription which resulted in gross funds being received of £3,407,743. As marketing adviser and receiving agent to the Company, and in return for covering the costs of the joint offer, Hargreave Hale Limited was entitled to 3.5% of the gross proceeds (£119,271), often referred to as the 'premium'. From this, Hargreave Hale Limited paid for the allotment of additional shares to investors with a value of £38,091 and introducer commission of £990, resulting in net fees payable to Hargreave Hale of £80,190.
- GOING CONCERN
After making enquires, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
- POST BALANCE SHEET EVENTS
Buybacks
Since the period end, a further 75,978 ordinary shares have been repurchased at a total value of £85,845.
New investments
An investment in the following company has been made since the period end:
Charter Court Financial Services Group plc
Qualifying companies
The Company has made additional investments into the following qualifying companies since the period end:
Gfinity plc (£60k)
Laundrapp Ltd (£501k)
Faron Pharmaceuticals Oy (£469k)
Angle plc (£100k)
SHAREHOLDER INFORMATION
The Company's ordinary shares (Code: HHVT) are listed on the London Stock Exchange. Shareholders can visit the London Stock Exchange website, www.londonstockexchange.com, for the latest news and share prices of the Company. Further information for the Company can be found on its website at www.hargreaveaimvcts.co.uk.
NET ASSET VALUE PER SHARE
The Company's NAV per share as at 13 October 2017 was 120.80 pence per share. The Company publishes its unaudited NAV per share on a weekly basis.
DIVIDENDS
The Board has approved the payment of an interim dividend of 2 pence in respect of the six months ended 31 August 2017.
Shareholders who wish to have future dividends paid directly into their bank account rather than sent by cheque to their registered address can complete a mandate for this purpose. Mandates can be obtained by contacting the Company's registrar, Equiniti.
SELLING YOUR SHARES
Hargreave Hale AIM VCT 2 plc operates a share buy-back policy to improve the liquidity in its ordinary shares. Share buy-back policies are subject to the Act, the Listing Rules and tax legislation, which may restrict the VCTs' ability to buy shares back in. The policy is non-binding and is at the discretion of the Board.
The buy-back policy targets a 5% discount to the last published NAV per share as announced on the London Stock Exchange through a regulatory news service provider. The discount is measured against the mid-price per share as listed on the London Stock Exchange and reflects the price at which the Company buys its shares off the market makers. The Company publishes its unaudited NAV per share on a weekly basis.
VCT share disposals settle two business days post trade if the shares are already dematerialised or placed into CREST ahead of the trade, or ten days post trade if the stock is held in certificated form.
VCT share disposals are exempt of capital gains tax when the disposal is made at arms' length, which means a shareholder must sell their shares to a market maker through a stockbroker or another share dealing service. Hargreave Hale has particular expertise in the sale of VCT shares and is able to act for VCT shareholders who wish to sell their shares. However, you are free to nominate any stockbroker or share dealing service to act for you. If you would like Hargreave Hale to act for you as their client (as opposed to a shareholder in the Company) then please contact Andrew Pang for further information (020 7009 4900, andrew.pang@hargreave.com).
Please note that Hargreave Hale will need to be in possession of the share certificate and a completed CREST transfer form before executing the sale. If you have lost your share certificate, then you can request a replacement certificate from the Company's registrar Equiniti. The registrar will send out an indemnity form, which you will need to sign. The indemnity form will also need to be countersigned by a UK insurance company or bank that is a member of the Association of British Insurers. Since indemnification is a form of insurance, the indemnifying body will ask for a payment to reflect their risk. Fees will reflect the value of the potential liability.
SHAREHOLDER ENQUIRIES:
For general Shareholder enquiries, please contact Hargreave Hale Limited on 01253 754755 or by e-mail to aimvct@hargreave.com.
For enquiries concerning the performance of the Company, please contact the investment manager on 0207 009 4937 or by e-mail to aimvct@hargreave.com.
Electronic copies of this report and other published information can be found on the Company's website at www.hargreaveaimvcts.co.uk.
CHANGE OF ADDRESS
To notify the Company of a change of address please contact the Company's registrar.
COMPANY INFORMATION
| SECRETARY AND REGISTERED OFFICE Stuart Brookes Accurist House 44 Baker Street London W1U 7AL | DIRECTORS David Hurst-Brown, Chairman Philip Cammerman Oliver Bedford |
| MANAGER Hargreave Hale Limited Accurist House 44 Baker Street LONDON W1U 7AL | AUDITORS BDO LLP 55 Baker Street London W1U 7EU |
| REGISTRARS Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA | VCT STATUS ADVISER Philip Hare & Associates LLP 4-6 Staple Inn High Holborn London WC1V 7QH |
| SOLICITORS Howard Kennedy No. 1 London Bridge London SE1 9BG | BROKERS Singer Capital Markets Limited One Hanover Street London W1S 1YZ |
| COMPANY REGISTRATION NUMBER 05941261 in England and Wales |