For immediate release 27 February 2020
Seneca Growth Capital VCT Plc
Annual Report and Financial Statements
for the year ended 31 December 2019
and
Notice of Annual General Meeting
The Directors are pleased to announce the audited results of the Company for the year ended 31 December 2019. A copy of the Annual Report and Financial Statements will be made available to shareholders shortly, and extracts are now set out below.
In addition, the Notice of Annual General Meeting (“AGM”) is attached at the end of the Report and Financial Statements. The Company’s AGM will be held at 11.00 a.m. on Tuesday 28 April 2020 at the Greater Manchester Chamber of Commerce, Elliot House, 151 Deansgate, Manchester, M3 3WD. A copy of both documents will be available on the Company’s website: www.senecavct.co.uk
Financial Headlines
| Ordinary Shares | |
| 82.7p | Ordinary share NAV plus cumulative dividends paid at 31 December 2019 (“Total Return”) |
| 30.4p | Ordinary share NAV at 31 December 2019 |
| 28.0p | Interim capital dividends paid per Ordinary share during year |
| B Shares | |
| £2.3m | Amount raised during the year from the issue of B shares |
| £2.25m | Amount invested during the year into four new investee companies by B share pool |
| 96.1p | B share NAV plus cumulative dividends paid at 31 December 2019 |
| 93.1p | B share NAV at 31 December 2019 |
| 3.0p | Interim dividends paid per B share during year |
Financial Summary
| Year to 31 December 2019 Ordinary share pool | Year to 31 December 2019 B share pool | Year to 31 December 2018 Ordinary share pool | Year to 31 December 2018 B share pool | |
| Net assets (£’000s) | 2,463 | 5,921 | 5,282 | 3,999 |
| Return on ordinary activities after tax (£’000s) | (547) | (168) | 102 | (36) |
| Earnings per share (p) | (6.7) | (3.2) | 1.3 | (0.9) |
| Net asset value per share (p) | 30.4 | 93.1 | 65.1 | 99.1 |
| Dividends paid since inception (p) | 52.25 | 3.0 | 24.25 | - |
| Total return (NAV plus cumulative dividends paid) (p) | 82.65 | 96.1 | 89.35 | 99.1 |
Financial Calendar
The Company’s financial calendar is as follows:
28 April 2020 Annual General Meeting will be held at 11.00 a.m. at Greater Manchester Chamber of Commerce, Elliot House, 151 Deansgate, Manchester, M3 3WD
September 2020 Half-yearly results to 30 June 2020 published
February 2021 Annual results for the year to 31 December 2020 announced and Annual Report and Financial Statements published
For further information, please contact:
John Hustler, Seneca Growth Capital VCT Plc at john.hustler@btconnect.com
Richard Manley, Seneca Growth Capital VCT Plc at Richard.Manley@senecapartners.co.uk
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014
Please note: page references in the extracts below refer to the page numbers in the Annual Report and Financial Statements.
Chairman’s Statement
I am pleased to present the 2019 Annual Report on behalf of the Board to shareholders.
Overview
Following the changes that the Company made in 2018, which included the appointment of Seneca as Investment Manager and the launch of the Company’s B share class, I am happy to report that the Company has continued to develop during 2019. We have ended the year well placed to deliver on the key objectives of building an attractive portfolio of growth capital investments in the Company’s B share pool whilst also continuing to realise investments in the Ordinary share pool when the opportunity arises.
I have set out below the progress made by each of the Company’s share classes during the year. The Ordinary shares are covered first with the B shares further below.
Ordinary Share Pool
Following the sale of the Ordinary share pool’s investment in Hallmarq in December 2018, realising £2.9 million, which included a further £38,000 received during the year as previously reported, we were very happy to be able to pay dividends totalling 28p per Ordinary share during the year. The Total Return in relation to the Ordinary shares is now 82.65p comprising cumulative distributions of 52.25p per Ordinary share and a residual NAV per Ordinary share of 30.4p as at 31 December 2019. No further Ordinary share investments were realised during the year.
Ordinary Share Pool Results and Dividends
As at 31 December 2019 the NAV per Ordinary share was 30.4p (2018: 65.1p), after accounting for the two dividends paid during the year, which totalled 28p and a negative capital return of 6.7p per Ordinary share.
The Total Return (NAV plus cumulative dividends paid) as stated on page 1 in the Financial Summary was 82.65p as at 31 December 2019 (2018: 89.35p). The reduction in Total Return of 6.7p results from the negative capital return of 6.7p per Ordinary share (2018: positive capital return of 2.0p).
The negative capital return of 6.7p per Ordinary share noted above is principally a result of an overall reduction in the value of one of the Ordinary share pool’s AIM quoted investments in addition to a reduction in the carrying value of two of the Ordinary share pool’s unquoted investments and a reduction in the associated accrued Ordinary share pool performance fee, which totalled £53,000 (2018: £190,000) as at 31 December 2019.
The bid price of shares in Scancell fell to 7.0p per share as at 31 December 2019 (2018: 9.0p per share), whilst the bid price of shares in Omega Diagnostics plc increased to 14p per share as at 31 December 2019 (2018: 12.5p per share). In addition, the value of the Ordinary share pool’s investment in OR Productivity Limited (“ORP”) was reduced to £233,000 (2018: £664,000) due to a new fund raise to raise £2.5 million at a significant discount to the previous valuation and Microarray Limited (“Microarray”) was reduced to £nil (2018: £67,000) during the year due to unfavourable clinical results for a key wound care product. That being said, Microarray is continuing to develop its wound diagnostic products, working with the Welsh Wounds Innovation Centre and data analysis of the latest set of samples is expected to be completed in the first half of 2020.
Further details in relation to the Ordinary share pool’s investment portfolio are included in the Investment Manager’s Report on pages 12 to 24.
Ordinary Share Investment Portfolio
The Ordinary share portfolio represents the original Hygea vct plc assets. The portfolio was valued at £2.1 million as at 31 December 2019, a reduction of £0.7 million during the year for the reasons noted above.
The performance of the Ordinary share investment portfolio remains heavily influenced by the share price of Scancell, with the Company’s holding of 13,049,730 shares representing approximately 37% of the Ordinary share pool’s NAV as at 31 December 2019. The Board remains confident that the market continues to undervalue Scancell and is encouraged by the company’s progress during 2019 with further details being contained in the Investment Manager’s Report.
Details of progress in the Ordinary share pool’s unquoted portfolio are also included in the Investment Manager’s Report on pages 12 to 24. The most significant movement was ORP. Whilst ORP continues to report progress in its ambitions within the hospital operating environment, it has recently written to shareholders expressing confidence in the company’s technology but explaining that it lacks adequate funds to enable the commercialisation of Freehand to proceed. Its efforts to raise sufficient funds over the last two years has not been successful and this, it believes, is due to the valuation placed on the company, which has formed the basis of our valuation of the investment over that period. It is worth noting that some investors were willing to support the company at that price, underpinning our decision to hold the investment at the price of the last funding round. However, ORP have now, therefore, commenced a new fund raising to raise £2.5 million at a significant discount to the previous valuation; accordingly, we have written down our valuation at 31 December 2019 to reflect the new pre-money valuation. The net effect of this reduction in our year end net asset value, after taking account of the consequent reduction in the accrued performance fee, is £345,000.
Ordinary Share Portfolio Outlook
The Board remains focused on identifying exit opportunities for the remainder of the Ordinary share pool investment portfolio and whilst we remain confident that, overall, there remains the opportunity to realise further value for Ordinary shareholders, we do not see any immediate opportunities for further realisations.
No investments into new investee companies will be made by the Ordinary share pool: however the Company may make a follow-on investment into an existing Ordinary share portfolio company where the Board believes this will protect the Ordinary share pool’s existing investment and/or improve the overall prospects of a timely exit from the investee company.
Ordinary shareholders will however recall that following the appointment of Seneca as Investment Manager in August 2018, the Ordinary share pool incur no running costs until July 2021.
B Share Pool
The Company’s maiden B share offer closed during the year and it was pleasing to see that a total of £5.4 million was raised. The Company launched a further B share Offer in July 2019 and to date a further £0.9 million has been raised under that Offer taking the total raised for the B share pool to approaching £6.3 million. Seneca completed four new investments in the year, deploying £2.25 million in the process and taking the number of investments in the B share pool to five. Seneca are also progressing due diligence in relation to several further investment opportunities and expect to add to the B share portfolio of investments in the coming months.
B Share Results and Dividends
As at 31 December 2019 the NAV per B share was 93.1p (2018: 99.1p) after accounting for the two dividends paid in the year, which totalled 3.0p. There was a further reduction in net asset value per share in 2019 of 3.0p, which was principally due to the impact of the Company’s running costs on the B share pool and investee company revaluations during the year. These also resulted in a negative revenue return of 2.54p per B share (2018: negative 0.45p) and a negative capital return of 0.65p per B share (2018: negative 0.45p).
The negative revenue return noted above of 2.54p per B share was principally a result of the impact of the Company’s running costs on the B share pool. The Company’s running expenses are however capped at 3% of the B share NAV until July 2021 (thereafter the total running costs will continue to be capped at 3% with general expenses being allocated to the Ordinary share pool and the B share pool pro-rata to their respective NAVs) and as a result Seneca reduced their annual management fee for 2019 from £103,000 to £28,000 to ensure the Company’s annual running expenses stayed within this 3% limit.
The negative capital return of 0.65p per B share noted above was principally due to the combination of the allocation of a portion of Seneca’s investment management fee as a capital cost in the year, a reduction in the bid price of the B share pool’s AIM quoted investment in SkinBioTherapeutics Plc (“SkinBio”), which decreased to 14.0p as at 31 December 2019, compared to a cost price of 16p per share, offset by an increase in the carrying value of the B share pool’s investment in Fabacus Holdings Limited (“Fabacus”) to £0.563 million, being the price of its recent fund raising, compared to a cost price of £0.5 million.
Despite being slightly below original cost at 31 December 2019, as noted above, the share price of SkinBio increased above the Company’s cost price for periods during 2019 and Seneca were able to sell £28,000 worth of the B share pool’s holding for £42,000, realising a profit of £14,000 and a return of 1.5x, effectively reducing the capital loss, which has partially offset the impact of the 31 December 2019 bid price falling below purchase price.
Further details of the current B share pool investment portfolio are included in the Investment Manager’s Report on pages 12 to 24.
B Share Investment Portfolio Review
As at 31 December 2019, the B share portfolio comprised five companies, one of which is quoted on AIM, at a total net investment cost of £2.72 million. As at 31 December 2019 this portfolio was valued at £2.69 million, a deficit of £27,000 compared to cost for the reasons noted above.
Seneca are happy with the development of the B share portfolio investments which remain held at cost, with the exception of SkinBio and Fabacus, as noted above.
Outlook for B Shares
The Board is pleased with the progress that Seneca have made since their appointment as Investment Manager on 23 August 2018, both in terms of funds raised and new investments made.
Since the launch of the B shares, the Investment Manager has invested £2.75 million into five companies, and has also made a small partial realisation as noted above. This is in line with their expectations for deploying the capital raised and indicative of the healthy pipeline of growth capital investment opportunities which Seneca maintains as a result of the VCT and the EIS funds which they manage.
Seneca expect to increase the funds raised under the current Offer and add new growth capital investments to the B share portfolio during the course of 2020 from the pool of investments they currently have in the later stages of due diligence.
Fund Raising
During the year the Company has allotted 2,325,078 B shares raising £2.3 million in the process. The current Offer will remain open until July 2020.
Changes to the Composition of the Board
As envisaged in the 2018 Annual Report published in April 2019, the Company appointed a new non-executive Director in the year to fill the vacancy left by Charles Breese who did not stand for re-election at the Company’s 2019 AGM.
After conducting a search of suitable candidates, which included a shortlist of four individuals including one female candidate, the Board were delighted that Alex Clarkson agreed to become a non-executive Director of the Company and accordingly he was appointed to the Board and to the Audit Committee with effect from 9 December 2019. Alex has extensive public and private company corporate finance experience and we are pleased that he has joined the Board. Biographical details for Alex can be found on page 31.
Annual General Meeting (“AGM”)
The Company’s AGM will be held at 11.00 a.m. on Tuesday 28 April 2020 at the Greater Manchester Chamber of Commerce, Elliot House, 151 Deansgate, Manchester, M3 3WD and we look forward to welcoming you to the meeting.
To ensure that more shareholders have the opportunity to meet the Board through attending an AGM, this year’s AGM is being held in Manchester.
The Board has reviewed my performance and has asked me to continue as Chairman. A resolution for my re-election is included in the AGM Notice. Resolutions for the re-election of Alex Clarkson, Richard Manley and Richard Roth are also included in the AGM Notice.
The Notice of the AGM includes resolutions empowering the Directors to issue further B shares and Ordinary shares following the date of the AGM, which will primarily be used for the issue of B shares under the current Offer and for the launch of another B share offer for the 2020/2021 and 2021/2022 tax years, which requires authorisation for the Directors to be able to allot up to a further 35,000,000 B shares. Including these resolutions in the AGM business will avoid the Company having to produce and send out a separate circular to convene a separate general meeting.
A summary of the resolutions to be proposed by the Company at the AGM is included on page 36.
VCT Qualifying Status
Philip Hare & Associates LLP provides the Board with advice on the ongoing compliance with HMRC rules and regulations concerning VCTs; they have confirmed that we remain within all the appropriate VCT qualifying regulations as at 31 December 2019.
Fund Administration
Our administration is conducted by Seneca at the Company’s registered address. Neville Registrars Limited (“Neville”) continue to maintain the shareholder register. All information in respect of both share classes including Annual Reports and notices of meetings can be found on our website www.senecavct.co.uk. We would remind shareholders who have not opted for electronic communications that this is more efficient and ecologically friendly than receiving paper copies by post. If you wish to take advantage of this facility, please contact Neville whose details are on page 82.
Auditor
UHY have audited the Company’s annual results for the year ending 31 December 2019, and shareholders will be asked to reappoint them at the AGM for the audit of the accounts for the year ending 31 December 2020.
Future Prospects
As I have previously indicated, we regard the prospects for the remaining Ordinary share portfolio as good but once again I need to seek shareholders’ patience whilst we await further realisation opportunities for the remaining investments in the Ordinary share portfolio.
We are pleased with the development of the B share portfolio and the support we have received from existing and new shareholders in respect of the B share fundraising to date. Seneca is confident that there remains significant demand from potential investee companies for the type of growth capital that the Company can provide from its B share pool. As such, the Board remains confident in continuing to raise new funds into the B share pool and anticipates that these can be invested profitably, well within the time limits imposed on VCTs.
Your Board continues to view the future of our Company with confidence.
John Hustler
Chairman
26 February 2020
Investment Manager’s Report
We are pleased to set out in this section further details in relation to the development of both the Ordinary and B share pools and their respective investee companies during 2019.
Shareholders will recall that whilst Seneca are the Company’s Investment Manager, responsibility for the management of the Ordinary share pool investments continues to rest with those remaining members of the Board of Directors who were serving at the point of Seneca’s appointment on 23 August 2018. This no longer includes Charles Breese who resigned on 10 June 2019.
The Ordinary Share Pool
There were no further realisations of Ordinary share pool investments, nor any follow on investments made, in 2019; however, following the sale of the Ordinary share pool’s investment in Hallmarq in December 2018, realising £2.9m, the Company was pleased to be able to pay dividends totalling 28p per Ordinary share during the year.
The Total Return in relation to the Ordinary shares is now 82.65p comprising cumulative distributions of 52.25p per Ordinary share and a residual NAV per Ordinary share of 30.4p as at 31 December 2019.
The Ordinary share pool’s AIM quoted investments are valued at their respective bid prices as at 31 December 2019 with full details included in the Chairman’s statement. The Ordinary share pool’s investments in private companies have been valued in line with their carrying values as at 31 December 2018, with the exception of the value of the Ordinary share pool’s investment in ORP, which was reduced to £233,000 (2018: £664,000) as a result of a new fund raise to raise £2.5 million at a significant discount to the previous valuation, and Microarray which was reduced to £nil (2018: £67,000) during the year due to unfavourable clinical results for a key wound care product.
The B Share Pool
Our first B share offer was concluded during 2019 and under which we raised a total of £5.4 million. We followed this up by launching a further Offer for B shares in July 2019, under which we had raised a further £0.9 million by 31 December 2019. Our fund-raising efforts continue in 2020 and we remain focused on increasing the size of the B share pool, which will in turn allow us to increase the number and diversity of new investments that we make.
The Company paid two interim dividends to B shareholders in the year totalling 3.0p per B share and the Company has sufficient distributable reserves to enable the continued declaration of dividends over the medium term subject to Board approval, the B share pool investment pipeline and liquidity levels. B shareholders will recall that the availability of adequate distributable reserves to enable the potential ongoing declaration of dividends in respect of the B shares whilst the B share investment portfolio matures was a key attraction of Seneca’s preference to work with the Company to launch a new B share class rather than launch a new VCT from scratch.
More generally we continue to develop Seneca’s position in the market as an active growth capital investor and as at 31 December 2019, Seneca had invested over £60 million of growth capital funds across 46 investee companies. The majority of these investments have been made from EIS funds which Seneca manage, but it also includes the five investments totalling £2.75 million made by the B share pool since launch, with four of these, Fabacus, Old St Labs Limited, Qudini Limited and SkinBio, totalling £2.25 million, being made in 2019.
The five investments in the B share portfolio as at 31 December 2019 are co-investments with EIS funds managed by Seneca. The opportunity for the Company’s B share pool to co-invest with EIS funds that we also manage provides the B share pool with a number of advantages including being able to participate in a higher number of investments, of a larger scale, into more established businesses than would be possible for the B share pool on a standalone basis.
As a result of our position in the UK market as an active growth capital investor we maintain a strong pipeline of investment opportunities, particularly in the North of England, with a focus on well managed businesses with strong leadership teams that can demonstrate established and proven concepts in addition to growth potential. We aim to invest in both private and AIM quoted companies and are pleased to have been able to include AIM quoted SkinBio in the B share pool’s initial five investments. We currently have a number of new investments in the later stages of due diligence and expect to add to the portfolio of B share investments in the coming months.
We have included updates in relation to all of the B share pool and Ordinary share pool investments later in this Investment Manager’s Report but note in particular the progress being made by SilkFred Limited (“SilkFred”) and Fabacus.
SilkFred was the B share pool’s first investment and is an online marketplace which specialises in independent ladies’ fashion brands. Seneca first invested in this business via its EIS funds in March 2018 and since that time Silkfred has gone from strength to strength. Silkfred have grown Gross Marketplace Value (total sales value sold through the Silkfred platform) by approximately 50% to around £57.5 million in the year to December 2019 compared to the year to December 2018 and the business has also continued to demonstrate the benefits associated with enhanced scale and improved returns on investment of marketing spend. In 2019, SilkFred also began to test the market in some key overseas territories where it sees attractive growth potential and achieved over £1.0 million of international sales from a standing start in 2019. SilkFred are looking to the future with confidence. Notwithstanding the continued improvement in trading performance, we believe that the original investment cost remains the most appropriate indicator of fair value for this investment whilst we await transformation of the top line growth into bottom line profitability.
We were also pleased by the progress made by Fabacus in the year which included raising £1.0 million from investors in October 2019 at a premium of 12.6% to the price at which the B share pool originally invested in February 2019. Given the quantum raised and recent timing of this fund raising, it is the Board’s view that the price of the October 2019 fund raising is the most appropriate indicator of the fair value of the B share pool’s investment in Fabacus as at 31 December 2019 and therefore its carrying value has been increased accordingly.
Having initially invested in SkinBio in February 2019, we sold 175,000 shares in early June 2019 (3.7% of the B share pool’s original holding of 4,677,107 shares) in SkinBio reducing the remaining holding to 4,502,107 shares. These were sold at a net average price of 24p per share providing a return in the region of 1.5x on the original cost of the shares. Whilst the SkinBio share price closed on 31 December 2019 slightly below our original cost price of 16p per share, the business is well funded, and we remain confident in its long-term prospects of success. Please see the investment summary further below for more details in relation to SkinBio and the other B share pool investee companies.
We look forward to continuing to increase the funds raised under the current Offer and adding new growth capital investments to the B share portfolio.
Investment Portfolio – Ordinary shares
| Unquoted Investments | Equity held % | Investment at cost £'000 | Unrealised profit/(loss) £'000 | Carrying value at 31 December 2019 £'000 | Movement in the year to 31 December 2019 £'000 |
| Fuel 3D Technologies Limited | <1.0 | 299 | (23) | 276 | - |
| OR Productivity Limited | 7.9 | 765 | (532) | 233 | (431) |
| Arecor Limited | 1.3 | 142 | 63 | 205 | - |
| Insense Limited | 4.6 | 509 | (389) | 120 | - |
| Microarray Limited | 1.8 | 132 | (132) | - | (67) |
| ImmunoBiology Limited | 1.2 | 868 | (868) | - | - |
| Exosect Limited | 1.4 | 270 | (270) | - | - |
| Total unquoted investments | 2,985 | (2,151) | 834 | (498) | |
| Quoted Investments | Shares held | Investment at cost £'000 | Unrealised profit/(loss) £'000 | Carrying value at 31 December 2019 £'000 | Movement in the year to 31 December 2019 £'000 |
| Scancell plc | 13,049,730 | 789 | 124 | 913 | (261) |
| Omega Diagnostics plc | 2,293,868 | 328 | (7) | 321 | 34 |
| Total quoted investments | 1,117 | 117 | 1,234 | (227) | |
| Total investments | 4,102 | (2,034) | 2,068 | (725) |
Investment Portfolio – B shares
| Unquoted Investments | Equity held % | Investment at cost £'000 | Unrealised profit/(loss) £'000 | Carrying value at 31 December 2019 £'000 | Movement in the year to 31 December 2019 £'000 |
| Silkfred Limited | <1.0 | 500 | - | 500 | - |
| Fabacus Holdings Limited | 2.0 | 500 | 63 | 563 | 63 |
| Old St Labs Limited | 3.5 | 500 | - | 500 | - |
| Qudini Limited | 2.2 | 500 | - | 500 | - |
| Total unquoted investments | 2,000 | 63 | 2,063 | 63 | |
| Quoted Investments | Shares held | Investment at cost £'000 | Unrealised profit/(loss) £'000 | Carrying value at 31 December 2019 £'000 | Movement in the year to 31 December 2019 £'000 |
| SkinBioTherapeutics Plc | 4,502,107 | 720 | (90) | 630 | (90) |
| Total quoted investments | 4,502,107 | 720 | (90) | 630 | (90) |
| Total investments | 2,720 | (27) | 2,693 | (27) |
Ordinary Share Pool – Investment Portfolio – Unquoted Investments
1. Fuel 3D Technologies Limited
| Initial investment date: | March 2010 | In 2014 Fuel 3D was formed to acquire the computer 3D imaging IP of Seneca Growth Capital Ordinary share investee company, Eykona. The initial application for this IP targeted by Eykona was measuring the volume of chronic wounds, however this has since developed and the current application focus is on a) measuring tumours in animals used in drug development via a product called BioVolume and b) enabling the manufacture of products to fit a particular individual eg masks used to treat certain medical conditions. BioVolume is Fuel 3D’s lead product and improves measurement accuracy, inter-operator consistency, animal welfare, cost efficiencies, compliance and the success of pre-clinical oncology research. Progress made by the company in 2019 includes:
|
| Cost: | £299,000 | |
| Valuation: | £276,000 | |
| Equity held: | < 1% | |
| Last statutory accounts: | 31 December 2018 | |
| Turnover: | £147,000 | |
| Loss before tax: | £5.2 million | |
| Net assets: | £3.9 million | |
| Valuation method: | Price of last fundraise |
2. OR Productivity Limited
| Initial investment date: | March 2011 | At the end of 2011, Freehand 2010 (a Seneca Growth Capital Ordinary share investee) was acquired by OR Productivity plc (ORP) in exchange for ORP shares. Freehand 2010 owns the intellectual property to technology incorporated in a product, FreeHand, for robotically controlling the laparoscope (part of the camera system) used in the growing sector that is keyhole surgery. The business model is built upon free placement of the system with recurring revenue then being generated from the subsequent sale of a consumable per operation. Progress made by the company in 2019 includes:
|
| Cost: | £765,000 | |
| Valuation: | £233,000 | |
| Equity held: | 7.9% | |
| Last statutory accounts: | 31 March 2019 | |
| Turnover: | £303,000 | |
| Loss before tax: | £676,000 | |
| Net liabilities: | £(1.3 million) | |
| Valuation method: | Price of current fundraise |
3. Arecor Limited
| Initial investment date: | January 2008 | Arecor was a spin-out from Insense (a Seneca Growth Capital Ordinary share investee company – see below) to commercialise technology developed by Insense for enabling biologics to maintain their integrity without the need for refrigeration - this both reduces cost and also helps supply chain logistics in developing countries where temperature monitored cold storage facilities are in short supply. Progress made by the company in 2019 includes:
|
| Cost: | £142,000 | |
| Valuation: | £205,000 | |
| Equity held: | 1.3% | |
| Last statutory accounts: | 31 May 2019 | |
| Turnover: | £748,000 | |
| Loss before tax: | £2,695,000 | |
| Net assets: | £4,231,000 | |
| Valuation method: | Price of last fundraise |
4. Insense Limited
| Initial investment date: | July 2003 | Insense is an innovative, biotechnology company and was spun-out from Unilever’s R&D laboratory in 2001. It has since had two successful spinouts, namely Arecor (see above) and Archimed, from which Microarray (see below) was also spun-out. Current Insense development activity is concentrated on dermatology products for both professional and consumer applications. Progress made by the company in 2019 includes: ● working on the specification of the UV lamp that will be used in a first-in-man trial and on preparation for further formulation and stability testing. |
| Cost: | £509,000 | |
| Valuation: | £120,000 | |
| Equity held: | 4.6% | |
| Last statutory accounts: | 31 December 2018 | |
| Turnover: | Not Disclosed | |
| Loss before tax: | Not Disclosed | |
| Net assets: | £156,000 | |
| Valuation method: | Price of last fundraise |
5. Microarray Limited
| Initial investment date: | January 2011 | Microarray Ltd is a UK-based specialist wound healing company. Founded in 2000, Microarray was de-merged from Archimed, a spin-out from Insense (see above): the company is now privately owned. The company has access to wide ranging expertise in the fields of wound dressing product development, marketing and sales; electrochemistry and diagnostic sensor technologies; biochemistry, oxygen and iodine chemistry; enzymology, immunology and inflammation. Current research and development activities are concentrated on innovative wound care diagnostics. Microarray owns and continues to develop new intellectual property in its specialist fields. It works independently and with expert academic and industrial partners. Progress made by the company in 2019 includes
|
| Cost: | £132,000 | |
| Valuation: | £nil | |
| Equity held: | 1.8% | |
| Last statutory accounts: | 31 December 2018 | |
| Turnover: | Not Disclosed | |
| Loss before tax: | Not Disclosed | |
| Net liabilities: | £(3.3 million) | |
| Valuation method: | Investment fully written down |
6. ImmunoBiology Limited
| Initial investment date: | November 2005 | ImmunoBiology (“ImmBio”) is a biotechnology company that is focused on developing treatments for illnesses such as meningitis, tuberculosis, influenza and hepatitis C. The company’s technology is based on the discovery that a group of proteins known as ‘heat shock proteins’ has a pivotal role in controlling the normal immune response to infections. The focus is currently on a vaccine for Pneumococcal Disease, for which the challenge is that there are >90 strains in circulation but present treatments address only a small proportion. In 2016 a first in human study demonstrated safety in adults. ImmBio has a complex equity structure which has impacted the investment valuation. As such, the Board does not believe that the Company’s investment currently has any value Progress made by the company in 2019 includes:
|
| Cost: | £868,000 | |
| Valuation: | £nil | |
| Equity held: | 1.2% | |
| Last statutory accounts: | 31 May 2019 | |
| Turnover: | £450,000 | |
| Loss before tax: | £308,000 | |
| Net assets: | £570,000 | |
| Valuation method: | Investment fully written down |
7. Exosect Limited
| Initial investment date: | January 2010 | Exosect was spun-out of Southampton University in 2001 to commercialise innovative pest control technology and reduce the use of insecticides. Until 2015, it sought to develop its own pesticide products. However, following a change of CEO, the strategy was changed whereby the company regarded its technology as a platform for helping pesticide manufacturers target their products more accurately and thereby achieve environmental benefits (through enabling a 50% reduction in active ingredients required as currently more than 50% of applied agrochemicals do not reach their intended target) with resulting cost savings. Unfortunately, this change in strategy ultimately proved to be unsuccessful and administrators were appointed to the company on 18 October 2018, with no return to shareholders. The company was dissolved on 25 January 2020. |
| Cost: | £270,000 | |
| Valuation: | £nil | |
| Equity held: | 1.4% | |
| Last statutory accounts: | 31 December 2017 | |
| Turnover: | £83,000 | |
| Loss before tax: | £2.4 million | |
| Net liabilities: | £(370,000) | |
| Valuation method: | Investment fully written down |
Ordinary Share Pool – Investment Portfolio - AIM Quoted Investments as at 31 December 2019
1. Scancell plc
| Initial investment date: | December 2003 | Scancell is an AIM listed biotechnology company that is developing a pipeline of therapeutic vaccines to target various types of cancer, with the first target being melanoma. The Immunobody platform technology, in effect, educates the immune system how to respond – this means that the technology can also be licensed to pharmaceutical companies to assist the development of their own therapeutic vaccines, which is an area of emerging importance for which a number of big pharmas do not have in-house technology. In addition, in 2012 a second platform technology, Moditope, was announced and is based on exploiting the normal immune response to stressed cells and is complementary to the Immunobody platform. Having established the AvidiMab platform in 2018 (through the acquisition of monoclonal antibody technology which allows direct tumour killing), a research agreement was entered into during 2019 (see below for details). Progress made by the company in 2019 includes: ● The company received the necessary regulatory and ethical approvals in April 2019 to initiate the UK arm of the SCIB1 clinical trial. ● Raising gross proceeds of £3.9m by the issue of 77.6 million new ordinary shares to Vulpes Life Sciences Fund in June 2019, following which, Martin Diggle, Co-Founder and Portfolio Manager of Vulpes Investment Management, was appointed to the Scancell’s Board of Directors as a non-executive Director. ● The company signing 2 collaboration and non-exclusive research agreements with a leading antibody technology company and a Chinese biotechnology company to assess its pipeline of monoclonal antibodies targeting tumour-associated glycans that have been enhanced with the company’s new proprietary AvidiMab™ technology (with a third collaboration and non-exclusive research agreement being signed in January 2020 with a US-based, clinical stage antibody company). ● The strengthening of the company’s senior team in January 2019 by appointing Dr Samantha Paston as Head of Research and Dr Adrian Parry as Head of Manufacturing. |
| Cost: | £789,000 | |
| Valuation: | £913,000 | |
| Equity held: | 2.8% | |
| Last statutory accounts: | 30 April 2019 | |
| Turnover: | £nil | |
| Loss before tax: | £6.7 million | |
| Net assets: | £9.3 million | |
| Valuation method: | Bid price of 7.0p per share |
2. Omega Diagnostics plc
| Initial investment date: | August 2007 | Omega Diagnostics plc (“Omega”) is quoted on AIM and provides high quality in-vitro diagnostics products for use in hospitals, clinics, laboratories and healthcare practitioners in over 75 countries and specialises in the areas of allergy and autoimmune, food intolerance and infectious disease. We note below the progress made by the company in the six months to September 2019 (which reflect the actions taken by Omega last year as part of the Board’s strategic review to divest the non-core infectious disease business and to close the German allergy business). Financial Highlights:
Operational Highlights:
|
| Cost: | £328,000 | |
| Valuation: | £321,000 | |
| Equity held: | 1.5% | |
| Last statutory accounts: | 31 March 2019 | |
| Turnover: | £9.8 million | |
| Profit before tax: | £1.2 million (incl £1.7 million exceptional credit) | |
| Net assets: | £18.2 million | |
| Valuation method: | Bid price of 14.0p per share |
B Share Pool – Investment Portfolio – Unquoted Investments as at 31 December 2019
1. SilkFred Limited
| Initial investment date: | December 2018 | Silkfred is an online marketplace for independent ladies’ fashion brands. The business was founded in 2011 with the aim of creating an efficient marketplace for emerging fashion designers to bring products to market and establish their brand in the sector. The business now works with c.600 independent brands, selling to over 500k customers. Silkfred acts as a central marketing and sales platform for these brands, charging commission in exchange for these services, and as a result the business itself takes minimal inventory / working capital risk on new brands, lines or products. The business model revolves around a market leading and scalable customer service platform, and as such Silkfred are continually investing in core infrastructure and constantly seeking innovative methods to enhance the customer experience. Progress made by the company in 2019 includes:
|
| Cost: | £500,000 | |
| Valuation: | £500,000 | |
| Equity held: | <1% | |
| Last statutory accounts: | 31 December 2018 | |
| Turnover: | Not disclosed | |
| Loss before tax: | Not disclosed | |
| Net assets: | £6.4 million | |
| Valuation method: | At cost |
2. Fabacus Holdings Limited
| Initial investment date: | February 2019 | Fabacus is an independent software company that has developed a complete product lifecycle solution: Xelacore, aimed at bringing transparency to supply chain networks, with an initial focus on resolving the interaction and information flow between global licensors and their licensees. Currently, there is a fundamentally flawed data capture process between licensors and licensees; and a disconnection from the framework of retail standards that have underpinned and continue to enable the retail value chain. This has resulted in an inability to correctly address known shortcomings in respect to data management and hinder the needed digital transformation of licensors in the digitally evolving retail landscape. Fabacus’s solution, Xelacore, is a modular, Software as a Service solution with an intuitive interface and proprietary data aggregation and management engine that allows all stakeholders to operate on a single unified and collaborative platform. It bridges the gaps in an inefficient process within the current retail ecosystem by creating authenticated, enriched universal records that unlock opportunities, reduce risk and drive performance for both licensors and licensees. Progress made by the company in 2019 includes: ● Signing up and going live with its first three clients with over 200 licensees between them and developing a pipeline of global licensors with over 15,000 licensees. ● Continuing to develop its partnership with International Management Group, a leading global licensing agency managing c.100 clients covering c.130 actual brands and engaging with more than c.5.5k licensees. ● Completing a c.£1m fundraise in Q4 2019 resulting in a c.12% uplift in the B share pool’s carrying value of its investment in Fabacus Holdings Limited. |
| Cost: | £500,000 | |
| Valuation: | £563,000 | |
| Equity held: | 2.0% | |
| Last statutory accounts: | 31 August 2019 | |
| Turnover: | Not disclosed | |
| Loss before tax: | Not disclosed | |
| Net assets: | £7.6 million | |
| Valuation method: | Price of last fundraise |
3. Old St Labs Limited
| Initial investment date: | March 2019 | Old St Labs is a provider of cloud based, supplier collaboration tools for large, blue chip customers, enabling them to manage key supplier relationships and strategic project work. The core product, Vizibl, seeks to make supplier collaboration much more straight forward, with key focus on compliance, savings / efficiency and driving growth across the business. Vizibl is the only SaaS workspace that supports collaborative supplier relationships, bringing all points of contact together in one place, providing visibility across the company and eliminating duplication of efforts. Vizibl’s real-time reporting speeds up decision making, drawing on and sharing the expertise of the community in the process. The offering taps into a growing trend in supplier collaboration, having moved on from the initial focus on compliance, to an increased emphasis on savings / efficiency, and recent developments highlighting the benefits in terms of wider growth strategy for large customers. Vizibl provides the infrastructure, governance and reporting capabilities to optimise present supplier performance and acts as a springboard for those collaborative supplier relationships. The product is CRM / ERP agnostic, working alongside all major software providers to ensure the collaboration software is insightful and informative. Progress made by the company in 2019 includes:
|
| Cost: | £500,000 | |
| Valuation: | £500,000 | |
| Equity held: | 3.5% | |
| Last statutory accounts: | 31 March 2019 | |
| Turnover: | Not disclosed | |
| Loss before tax: | Not disclosed | |
| Net assets: | £1.5 million | |
| Valuation method: | At cost |
4. Qudini Limited
| Initial investment date: | April 2019 | Founded in 2012, Qudini is a B2B software company that provides customer experience SaaS solutions to organisations in retail, hospitality, the public sector and healthcare. Qudini provides a software solution for appointment bookings, queue management, event management and task management – enabling businesses to improve shop floor operations by managing staff activity, breaks and performance, and by assigning tasks at store or head office level. Qudini is aiming to revolutionise digital queue and appointment management. It achieves this through deployment of its data-centric, cloud-based (Amazon Web Services), cross-platform service, which improves a business’ ability to manage the flow of customers awaiting service, using algorithms to provide accurate, live data, such as estimated wait times. Wait times are relayed to the customer typically via an SMS/text sent from the Qudini platform. Through integration with various software platforms and compatible with wide variety of hardware, Qudini enables detailed analytics focused on customer trends, and provides a unique insight into areas such as customer footfall, peak demand times, and wait times. Progress made by the company in 2019 includes:
|
| Cost: | £500,000 | |
| Valuation: | £500,000 | |
| Equity held: | 2.2% | |
| Last statutory accounts: | 31 December 2018 | |
| Turnover: | £2.1 million | |
| Loss before tax: | Not disclosed | |
| Net assets: | £1.3 million | |
| Valuation method: | At cost |
B Share Pool - Investment Portfolio - AIM Quoted Investments as at 31 December 2019
- SkinBioTherapeutics Plc
| Initial investment date: | February 2019 | SkinBioTherapeutics is a life science company focused on skin health. The Company's proprietary platform technology, SkinBiotix®, is based upon discoveries made by Dr. Cath O'Neill and Professor Andrew McBain. SkinBioTherapeutics' platform applies research discoveries made on the activities of lysates derived from probiotic bacteria when applied to the skin. The Company has shown that the SkinBiotix® platform can improve the barrier effect of skin models, protect skin models from infection and repair skin models. Proof of principle studies have shown that the SkinBiotix® platform has beneficial attributes applicable to each of these areas. The aim of the Company is to develop its SkinBiotix® technology into commercially successful products supported by a strong scientific evidence base. SkinBioTherapeutics’ commercial strategy is to engage health and wellbeing and/or pharmaceutical companies in early dialogue to build up relationships and maintain communication on technical progress until one or more commercial deals can be secured. Progress made by the company in 2019 includes:
|
| Cost: | £720,337 | |
| Valuation: | £630,000 | |
| Equity held: | 3.5% | |
| Last statutory accounts: | 30 June 2019 | |
| Turnover: | £nil | |
| Loss before tax: | £1.4 million | |
| Net assets: | £3.7 million | |
| Valuation method: | Bid price of 14p per share |
Directors’ Report
The Directors present their Report and the audited Financial Statements for the year ended 31 December 2019.
The Directors consider that the Annual Report and Financial Statements, taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy.
Review of Business Activities
The Directors are required by section 417 of the Companies Act 2006 to include a Business Review to shareholders. This is set out on page 25 and forms part of the Strategic Report. The purpose of the Business Review is to inform members of the Company and help them assess how the Directors have performed their duty under section 172 of the Companies Act 2006 (duty to promote the success of the Company). The Company’s section 172 Statement on page 5, the Chairman's Statement on page 7 to 11, and the Investment Manager’s Report on pages 12 to 24 also form part of the Strategic Report.
The purpose of this review is to provide shareholders with a snapshot summary setting out the business objectives of the Company, the Board’s strategy to achieve those objectives, the risks faced, the regulatory environment and the key performance indicators used to measure performance.
Directors’ Shareholdings – Ordinary shares
The Directors of the Company during the period and their interests (in respect of which transactions are notifiable under Disclosure and Transparency Rule 3.1.2R) in the issued Ordinary shares of 1p are shown in the table below:
| 31 December 2019 | 31 December 2018 | |
| Number of Shares | Number of Shares | |
| John Hustler | 190,000 | 190,000 |
| Charles Breese* | n/a | 105,000 |
| Alex Clarkson* | - | n/a |
| Richard Manley | - | - |
| Richard Roth | 209,612 | 209,612 |
* Charles Breese resigned from the Board on 10 June 2019 and Alex Clarkson was appointed to the Board on 9 December 2019.
All of the Directors’ shares were held beneficially. There have been no changes in the Directors’ Ordinary share interests between 31 December 2019 and the date of this report.
Directors’ Shareholdings – B Shares
The Directors of the Company during the period and their interests (in respect of which transactions are notifiable under Disclosure and Transparency Rule 3.1.2R) in the issued B shares of 1p are shown in the table below:
| 31 December 2019 | 31 December 2018 | |
| Number of Shares | Number of Shares | |
| John Hustler | - | - |
| Charles Breese* | - | - |
| Alex Clarkson* | - | n/a |
| Richard Manley | 51,010 | 24,750 |
| Richard Roth | 15,000 | 15,000 |
* Charles Breese resigned from the Board on 10 June 2019 and Alex Clarkson was appointed to the Board on 9 December 2019.
All of the Directors’ B shares were held beneficially. There have been no changes in the Directors’ B share interests between 31 December 2019 and the date of this report.
Directors’ and Officers’ Liability Insurance
The Company has maintained directors’ and officers’ liability insurance cover on behalf of the Directors, Company Secretary and Investment Manager.
Whistleblowing
The Board has approved a Whistleblowing Policy for the Company, its Directors and any employees, consultants and contractors, to allow them to raise concerns, in confidence, in relation to possible improprieties in matters of financial reporting and other matters.
Bribery Act
The Board has approved an Anti-Bribery Policy to ensure full compliance with the Bribery Act 2010 and to ensure that the highest standards of professional and ethical conduct are maintained.
Management
Seneca as the Company’s Investment Manager is responsible for the management of the Company’s B share pool investments. Responsibility for the management of the Ordinary share pool investments has been delegated to those members of the Board of Directors who served immediately prior to 23 August 2018, with exception to Charles Breese who resigned on 10 June 2019.
The strategies and policies which govern the Investment Manager have been set by the Board in accordance with section 172 of the Companies Act 2006.
Corporate Governance Statement
The Board has considered the principles and recommendations of the AIC Code of Corporate Governance as applied to companies reporting as at 31 December 2019 (the “2019 AIC Code”). The Company’s Corporate Governance policy is set out on pages 37 to 41.
The 2019 AIC Code is available on the AIC website (www.theaic.co.uk). It includes an explanation of how the 2019 AIC Code adapts the Principles and Provisions set out in the UK Code to make them relevant for investment companies.
The Company has complied with the recommendations of the 2019 AIC Code and the relevant provisions of the UK Corporate Governance Code, except as set out below:
- The Company does not have a Chief Executive Officer or a Senior Independent Director. The Board does not consider this necessary as it does not have any executive directors.
- New Directors do not receive a formal induction on joining the Board, though they do receive one tailored to them on an individual basis.
- The Company conducts a formal review as to whether there is a need for an internal audit function. However, the Directors do not consider that an internal audit would be an appropriate control for this VCT at this time.
- The Company does not have a Remuneration Committee as it does not have any executive directors.
- The Company does not have a Nomination Committee as these matters are dealt with by the Board.
For the reasons set out in the AIC Guide, and as explained in the UK Corporate Governance Code, the Board considers the above provisions are not relevant to the position of the Company, being an investment company run by the Board and managed by the Investment Manager. In particular, all of the Company’s day-to-day administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations.
Directors
Biographical details of the Directors are shown on page 31.
In accordance with the Articles of Association and good governance, John Hustler, Richard Manley and Richard Roth will retire and offer themselves for re-election at the forthcoming AGM. Alex Clarkson having been appointed since the last AGM will also retire and offer himself for re-election at the forthcoming AGM.
The Board is satisfied that, following individual performance appraisals, the Directors who are retiring continue to be effective and demonstrate commitment to their roles and therefore offer themselves for re-election with the support of the Board.
The Board did not identify any conflicts of interest between the Chairman’s interest and those of the shareholders, especially with regard to the relationship between the Chairman and the Investment Manager.
Charles Breese retired following the AGM on 10 June 2019. No concerns about the operation of the Board or the Company were raised by any Director during the period or by Charles Breese upon resignation and had any been raised they would be mentioned in the minutes or in writing to the Chairman to be circulated to the Board in accordance with Provision 8 of the UK Corporate Governance Code (the “UK Code”).
The Board is cognisant of shareholders’ preference for Directors not to sit on the boards of too many listed companies (“over-boarding”). As part of their assessment as to his suitability, the Directors considered Richard Roth’s other directorships at the time of his appointment, given that he also sits on the boards of the four Oxford Technology (“OT”) VCTs. The Directors noted that those four funds have a common board, and there is an element of overlap in the workload across the four entities, such that the time required is less than would be necessary for four totally separate and listed companies. They also note that Seneca Growth Capital has a number of shared portfolio companies with the OT VCTs. The Board was satisfied that Richard Roth had the time to focus on the requirements of the Company, and this has proven to be the case.
International Financial Reporting Standards
As the Company is not part of a group it is not mandatory for it to comply with International Financial Reporting Standards (“IFRS”). The Company does not anticipate that it will voluntarily adopt IFRS. The Company has adopted Financial Reporting Standard 102 – The Financial Reporting Standard Applicable in the United Kingdom and the Republic of Ireland.
Environmental Policy
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 and human rights, social and community issues, including information about any policies it has in relation to these matters and effectiveness of these policies.
Given the size and nature of the Company’s activities and the fact that it has no employees and only four non-executive Directors, the Board considers there is limited scope to develop and implement social and community policies. However, the Board has taken into account the requirement of section 172(1) of the Companies Act 2006 when making decisions which could impact shareholders, stakeholders and the wider community. The Company’s Section 172(1) statement has been provided in the Strategic Report on page 5, where the Directors consider the information to be of strategic importance to the Company.
For the financial year beginning 1 January 2020 and future periods, the Company will consider the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, which came into force on 1 April 2019 (for accounting periods beginning after this date), in relation to energy consumption disclosure.
Going Concern
The Company’s business activities and the factors likely to affect its future performance and position are set out in the Chairman’s Statement and Investment Manager’s Report on pages 7 to 11 and pages 12 to 24. Further details on the management of the principal risks are set out on pages 28 to 29 and financial risks may be found in note 16 to the Financial Statements.
The Board receives regular reports from the Administration Manager, who also acts as the Investment Manager, and the Directors believe that, as no material uncertainties leading to significant doubt about going concern have been identified, it is appropriate to continue to adopt the going concern basis in preparing the Financial Statements.
As at 31 December 2019 the Company had more than £3.9 million of cash and in addition, the other assets of the Company consist mainly of securities, some of which are readily realisable. As such, the Company has adequate financial resources to continue in operational existence for the foreseeable future.
Share Capital
As disclosed on page 80 the Board has authority to make market purchases of the Company’s own B shares. No shares were purchased by the Company during the year.
At the 2019 AGM held on 10 June 2019, the Board received authority to allot up to 31,000,000 B shares in connection with any offer(s) for subscription (and any subsequent top up offer of B shares) and up to 405,800 Ordinary shares (for any miscellaneous offers of such shares), which represented approximately 575% of the Company’s issued B share capital and approximately 5% of its issued Ordinary share capital as at 10 June 2019.
During the year, the Company did not issue any Ordinary shares (2018: nil). During the year, the Company issued 2,325,078 B shares raising £2.3 million (2018: 4,036,370 shares and £4.0 million) No further shares have been issued between 31 December 2019 and the date of this report.
The Company’s issued Ordinary share capital as at 31 December 2019 was 8,115,376 Ordinary shares of 1p each (31 December 2018: 8,115,376 Ordinary shares of 1p each) and 6,361,448 B shares of 1p each (31 December 2018: 4,036,370 B shares of 1p each).
The total number of shares in issue for both the Ordinary shares and B shares of 1p each as at 31 December 2019 and 26 February 2020 was 14,476,824 (31 December 2018: 12,151,746) with each share having one vote.
In accordance with Schedule 7 of the Large and Medium Size Companies and Groups (Accounts and Reports) Regulations 2008, as amended, the Directors disclose the following information:
- The Company’s capital structure and voting rights are summarised above, and there are no restrictions on voting rights nor any agreement between holders of securities that result in restrictions on the transfer of securities or on voting rights;
- There exist no securities carrying special rights with regard to the control of the Company;
- The rules concerning the appointment and replacement of directors, amendment of the Articles of Association and powers to issue or buy back of the Company’s shares are contained in the Articles of Association of the Company and the Companies Act 2006;
- The Company does not have an employee share scheme;
- There are no agreements to which the Company is party that may affect its control following a takeover bid; and
- There are no agreements between the Company and its Directors providing for compensation for loss of office that may occur following a takeover bid or for any other reason, apart from their normal notice period and any fees potentially due under the performance fee arrangements set out on page 45 and note 6.
Substantial Shareholdings
At 31 December 2019 and at the date of this report, there were two holdings of 3% and over of the Company’s ordinary share capital. These holdings related to Share Nominees Ltd and James Leek, which were 3.78% and 3.13% respectively.
Annual General Meeting
The Notice convening the 2020 Annual General Meeting (“AGM”) of the Company is set out at the end of this document (and a form of proxy in relation to the meeting is enclosed separately). Part of the business of the AGM will be to consider resolutions in relation to the following matters:
Resolutions 3 to 6 will seek the re-election of the existing four members of the Board as non-executive Directors of the Company.
Resolution 7 will seek the re-appointment of UHY Hacker Young LLP as Independent Auditor to the Company.
Resolution 9 will authorise the Directors to allot further B shares and Ordinary shares. This would enable the Directors until the next AGM to allot up to 35,000,000 B shares in connection with any offer(s) for subscription (and any subsequent top up offer of B shares) and up to 405,800 Ordinary shares (for any miscellaneous offers of such shares), representing approximately 550% of the Company’s issued B share capital and approximately 5% of its issued Ordinary share capital as at 26 February 2020.
Resolution 10 will authorise the Board, pursuant to the Act, to make one or more market purchases of up to 14.99% of the issued B share capital of the Company from time to time. The price paid must not be less than 1p per B share, nor more than 5% above the average middle market price of a B share for the preceding five business days. Any B shares bought back under this authority may be cancelled by the Board.
Resolution 11 will, under sections 570 of the Act, disapply pre-emption rights in respect of any allotment of the B shares and/or Ordinary shares authorised under Resolution 9.
The Directors intend to use the authorities in Resolutions 9 and 11 for the purposes of the current Offer and a further offer for subscription of B shares, though may also subsequently utilise the authorities for further offer(s) for subscription or issue of B shares. The Directors have no current intention to utilise the authority in relation to the Ordinary shares.
Recommendation
The Board believes that the passing of the resolutions above are in the best interests of the Company and its shareholders as a whole and unanimously recommends that you vote in favour of these resolutions.
By Order of the Board
Craig Hunter
Company Secretary
26 February 2020
Income Statement
| Combined Year to 31 December 2019 | Combined Year to 31 December 2018 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Gain on disposal of fixed asset investments | 10 | - | 52 | 52 | - | 903 | 903 |
| Loss on valuation of fixed asset investments | 10 | - | (752) | (752) | - | (716) | (716) |
| Income | 2 | - | - | - | - | - | - |
| Performance fee | 6 | - | 136 | 136 | - | (26) | (26) |
| Investment management fee net of cost cap | 3 | (7) | (21) | (28) | 36 | (18) | 18 |
| Other expenses | 4 | (123) | - | (123) | (113) | - | (113) |
| Return on ordinary activities before tax | (130) | (585) | (715) | (77) | 143 | 66 | |
| Taxation on return on ordinary activities | 7 | - | - | - | - | - | - |
| Return on ordinary activities after tax | (130) | (585) | (715) | (77) | 143 | 66 | |
| Return on ordinary activities after tax attributable to: | |||||||
| Owners of the fund | (130) | (585) | (715) | (77) | 143 | 66 | |
There was no other Comprehensive Income recognised during the year
- The ‘Total’ column of the income statement and statement of comprehensive income is the profit and loss account of the Company; the supplementary revenue return and capital return columns have been prepared under guidance published by the Association of Investment Companies.
- All revenue and capital items in the above statement derive from continuing operations.
- The Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds.
The Company has no recognised gains or losses other than the results for the year as set out above.
The accompanying notes are an integral part of the Financial Statements.
Ordinary Share Income Statement
(non-statutory analysis)
| Ordinary shares Year to 31 December 2019 | Ordinary shares Year to 31 December 2018 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||
| Note | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||
| Gain on disposal of fixed asset investments | 10 | - | 38 | 38 | - | 903 | 903 | |
| Loss on valuation of fixed asset investments | 10 | - | (725) | (725) | - | (716) | (716) | |
| Income | 2 | - | - | - | - | - | - | |
| Performance fee | 6 | - | 136 | 136 | - | (26) | (26) | |
| Investment management fee | 3 | - | - | - | - | - | - | |
| Other expenses | 4 | 4 | - | 4 | (59) | - | (59) | |
| Return on ordinary activities before tax | 4 | (551) | (547) | (59) | 161 | 102 | ||
| Taxation on return on ordinary activities | - | - | - | - | - | - | ||
| Return on ordinary activities after tax | 4 | (551) | (547) | (59) | 161 | 102 | ||
| Return on ordinary activities after tax attributable to: | ||||||||
| Owners of the fund | 4 | (551) | (547) | (59) | 161 | 102 | ||
| Earnings per share – basic and diluted | 8 | 0.0p | (6.7)p | (6.7)p | (0.7)p | 2.0p | 1.3p | |
B Share Income Statement (non-statutory analysis)
| B shares Year to 31 December 2019 | B shares Year to 31 December 2018 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Gain on disposal of fixed asset investments | 10 | - | 14 | 14 | - | - | - |
| Loss on valuation of fixed asset investments | 10 | - | (27) | (27) | - | - | - |
| Income | 2 | - | - | - | - | - | - |
| Performance fee | 6 | - | - | - | - | - | - |
| Investment management fee net of cost cap | 3 | (7) | (21) | (28) | 36 | (18) | 18 |
| Other expenses | 4 | (127) | - | (127) | (54) | - | (54) |
| Return on ordinary activities before tax | (134) | (34) | (168) | (18) | (18) | (36) | |
| Taxation on return on ordinary activities | - | - | - | - | - | - | |
| Return on ordinary activities after tax | (134) | (34) | (168) | (18) | (18) | (36) | |
| Return on ordinary activities after tax attributable to: | |||||||
| Owners of the fund | (134) | (34) | (168) | (18) | (18) | (36) | |
| Earnings per share – basic and diluted | 8 | (2.54)p | (0.65)p | (3.19)p | (0.45)p | (0.45)p | (0.9)p |
Statement of Changes in Equity
| Share capital | Share premium | Special distributable reserve | Capital redemption reserve | Capital reserve gains/ (losses) | Capital reserve holding gains/ (losses) | Revenue reserve | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| As at 1 January 2018 | 4,058 | - | 3,397 | 38 | (432) | 9 | (1,890) | 5,180 |
| B share issue | 40 | 3,995 | - | - | - | - | - | 4,035 |
| Capital restructuring | (3,977) | - | - | 3,977 | - | - | - | - |
| Capital reduction | - | (3,427) | 7,442 | (4,015) | - | - | - | - |
| Revenue return on ordinary activities after tax | - | - | - | - | - | - | (77) | (77) |
| Expenses charged to capital | - | - | - | - | (18) | - | - | (18) |
| Performance fee allocated as capital expenditure | - | - | - | - | (26) | - | - | (26) |
| Current period gains on disposal | - | - | - | - | 903 | - | - | 903 |
| Current period losses on fair value of investments | - | - | - | - | - | (716) | - | (716) |
| Prior years’ unrealised losses now realised | - | - | - | - | 602 | (602) | - | - |
| Balance as at 31 December 2018 | 121 | 568 | 10,839 | - | 1,029 | (1,309) | (1,967) | 9,281 |
| B share issue | 24 | 2,238 | - | - | - | - | - | 2,262 |
| Revenue return on ordinary activities after tax | - | - | - | - | - | - | (130) | (130) |
| Expenses charged to capital | - | - | - | - | (21) | - | - | (21) |
| Performance fee allocated as capital expenditure | - | - | - | - | 136 | - | - | 136 |
| Dividends paid | - | - | (2,444) | - | - | - | - | (2,444) |
| Current period gains on disposal | - | - | - | - | 52 | - | - | 52 |
| Current period losses on fair value of investments | - | - | - | - | - | (752) | - | (752) |
| Balance as at 31 December 2019 | 145 | 2,806 | 8,395 | - | 1,196 | (2,061) | (2,097) | 8,384 |
The accompanying notes are an integral part of the Financial Statements.
Ordinary Shares - Statement of Changes in Equity
| Share capital | Share premium | Special distributable reserve | Capital redemption reserve | Capital reserve gains/ (losses) | Capital reserve holding gains/ (losses) | Revenue reserve | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| As at 1 January 2018 | 4,058 | - | 3,397 | 38 | (432) | 9 | (1,890) | 5,180 |
| Capital restructuring | (3,977) | - | - | 3,977 | - | - | - | - |
| Capital reduction | - | - | 4,015 | (4,015) | - | - | - | - |
| Revenue return on ordinary activities after tax | - | - | - | - | - | - | (59) | (59) |
| Performance fee allocated as capital expenditure | - | - | - | - | (26) | - | - | (26) |
| Current period gains on disposal | - | - | - | - | 903 | - | - | 903 |
| Current period losses on fair value of investments | - | - | - | - | - | (716) | - | (716) |
| Prior years’ unrealised gains now realised | - | - | - | - | 602 | (602) | - | - |
| Balance as at 31 December 2018 | 81 | - | 7,412 | - | 1,047 | (1,309) | (1,949) | 5,282 |
| Revenue return on ordinary activities after tax | - | - | - | - | - | - | 4 | 4 |
| Performance fee allocated as capital expenditure | - | - | - | - | 136 | - | - | 136 |
| Dividends paid | - | - | (2,272) | - | - | - | - | (2,272) |
| Current period gains on disposal | - | - | - | - | 38 | - | - | 38 |
| Current period losses on fair value of investments | - | - | - | - | - | (725) | - | (725) |
| Balance as at 31 December 2019 | 81 | - | 5,140 | - | 1,221 | (2,034) | (1,945) | 2,463 |
B Shares - Statement of Changes in Equity
| Share capital | Share premium | Special distributable reserve | Capital redemption reserve | Capital reserve gains/ (losses) | Capital reserve holding gains/ (losses) | Revenue reserve | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| As at 1 January 2018 | - | - | - | - | - | - | - | - |
| B share issue | 40 | 3,995 | - | - | - | - | - | 4,035 |
| Capital reduction | - | (3,427) | 3,427 | - | - | - | - | - |
| Revenue return on ordinary activities after tax | - | - | - | - | - | - | (18) | (18) |
| Expenses charged to capital | - | - | - | - | (18) | - | - | (18) |
| Balance as at 31 December 2018 | 40 | 568 | 3,427 | - | (18) | - | (18) | 3,999 |
| B share issue | 24 | 2,238 | - | - | - | - | - | 2,262 |
| Revenue return on ordinary activities after tax | - | - | - | - | - | - | (134) | (134) |
| Expenses charged to capital | - | - | - | - | (21) | - | - | (21) |
| Dividends paid | - | - | (172) | - | - | - | - | (172) |
| Current period gains on disposal | - | - | - | - | 14 | - | - | 14 |
| Current period losses on fair value of investments | - | - | - | - | - | (27) | - | (27) |
| Balance as at 31 December 2019 | 64 | 2,806 | 3,255 | - | (25) | (27) | (152) | 5,921 |
| | Combined as at 31 December 2019 | Combined as at 31 December 2018 | ||||
| Note | £'000 | £'000 | £'000 | £'000 | ||
| Fixed asset investments* | 10 | 4,761 | 3,293 | |||
| Current assets: | ||||||
| Debtors | 11 | 3 | 23 | |||
| Cash at bank and in hand | 3,909 | 6,446 | ||||
| Creditors: amounts falling due within one year | 12 | (236) | (291) | |||
| Net current assets | 3,676 | 6,178 | ||||
| Creditors: amounts falling due after more than one year | 12 | (53) | (190) | |||
| Net assets | 8,384 | 9,281 | ||||
| Called up equity share capital | 13 | 145 | 121 | |||
| Share premium | 14 | 2,806 | 568 | |||
| Special distributable reserve | 14 | 8,395 | 10,839 | |||
| Capital redemption reserve | 14 | - | - | |||
| Capital reserve – realised gains and losses | 14 | 1,196 | 1,029 | |||
| – holding gains and losses | 14 | (2,061) | (1,309) | |||
| Revenue reserve | 14 | (2,097) | (1,967) | |||
| Total equity shareholders' funds | 8,384 | 9,281 | ||||
Balance Sheet
*At fair value through profit and loss
The accompanying notes are an integral part of the Financial Statements.
The statements were approved by the Directors and authorised for issue on 26 February 2020 and are signed on their behalf by:
John Hustler
Chairman
Company No: 04221489
Ordinary Share Balance Sheet (non-statutory analysis) | |||||
| Ordinary shares as at 31 December 2019 | Ordinary shares as at 31 December 2018 | ||||
| Note | £'000 | £'000 | £'000 | £'000 | |
| Fixed asset investments* | 10 | 2,068 | 2,793 | ||
| Current assets: | |||||
| Debtors | - | - | |||
| Cash at bank and in hand | 470 | 2,738 | |||
| Creditors: amounts falling due within one year | (22) | (59) | |||
| Net current assets | 448 | 2,679 | |||
| Creditors: amounts falling due after more than one year | 12 | (53) | (190) | ||
| Net assets | 2,463 | 5,282 | |||
| Called up equity share capital | 13 | 81 | 81 | ||
| Share premium | - | - | |||
| Special distributable reserve | 5,140 | 7,412 | |||
| Capital redemption reserve | - | - | |||
| Capital reserve – realised gains and losses | 1,221 | 1,047 | |||
| – holding gains and losses | (2,034) | (1,309) | |||
| Revenue reserve | (1,945) | (1,949) | |||
| Total equity shareholders' funds | 2,463 | 5,282 | |||
| Net asset value per share | 9 | 30.4p | 65.1p | ||
*At fair value through profit and loss
Statement of Cash Flows
| Note | Combined Year to 31 December 2019 £'000 | Combined Year to 31 December 2018 £'000 | |
| Cash flows from operating activities | |||
| Return on ordinary activities before tax | (715) | 66 | |
| Adjustments for: | |||
| Decrease/(Increase) in debtors | 11 | 20 | (16) |
| (Decrease)/Increase in creditors | 12 | (143) | 31 |
| Gain on disposal of fixed asset investments | 10 | (52) | (903) |
| Loss on valuation of fixed asset investments | 10 | 752 | 716 |
| Cash from operations | (138) | (106) | |
| Income taxes paid | 7 | - | - |
| Net cash used in operating activities | (138) | (106) | |
| Cash flows from investing activities | |||
| Purchase of fixed asset investments | 10 | (2,248) | (500) |
| Sale of fixed asset investments | 10 | 80 | 2,958 |
| Total cash (outflow)/inflow from investing activities | (2,168) | 2,458 | |
| Cash flows from financing activities Dividend paid | (2,444) | - | |
| Issue of B shares | 2,262 | 4,035 | |
| Awaiting B share issue | (49) | 219 | |
| Total cash (outflow)/inflow from financing activities | (231) | 4,254 | |
| (Decrease)/Increase in cash and cash equivalents | (2,537) | 6,606 | |
| Opening cash and cash equivalents | 6,446 | (160) | |
| Closing cash and cash equivalents | 3,909 | 6,446 |
The accompanying notes are an integral part of the Financial Statements.
Ordinary Shares Statement of Cash Flows
(non-statutory analysis)
| Note | Ordinary shares Year to 31 December 2019 £'000 | Ordinary shares Year to 31 December 2018 £'000 | |
| Cash flows from operating activities | |||
| Return on ordinary activities before tax | (547) | 102 | |
| Adjustments for: | |||
| Decrease in debtors | - | 7 | |
| (Decrease)/Increase in creditors | (174) | 18 | |
| Gain on disposal of fixed asset investments | 10 | (38) | (903) |
| Loss on valuation of fixed asset investments | 10 | 725 | 716 |
| Cash from operations | (34) | (60) | |
| Income taxes paid | 7 | - | - |
| Net cash used in operating activities | (34) | (60) | |
| Cash flows from investing activities | |||
| Sale of fixed asset investments | 10 | 38 | 2,958 |
| Total cash inflow from investing activities | 38 | 2,958 | |
| Cash flows from financing activities Dividend paid | (2,272) | ||
| Total cash outflow from financing activities | (2,272) | - | |
| (Decrease)/Increase in cash and cash equivalents | (2,268) | 2,898 | |
| Opening cash and cash equivalents | 2,738 | (160) | |
| Closing cash and cash equivalents | 470 | 2,738 |
B Shares Statement of Cash Flows
(non-statutory analysis)
| Note | B shares Year to 31 December 2019 £'000 | B shares Year to 31 December 2018 £'000 | |
| Cash flows from operating activities | |||
| Return on ordinary activities before tax | (168) | (36) | |
| Adjustments for: | |||
| Decrease/(Increase) in debtors | 20 | (23) | |
| Increase in creditors | 31 | 13 | |
| Gain on disposal of fixed asset investments | 10 | (14) | - |
| Loss on valuation of fixed asset investments | 10 | 27 | - |
| Cash from operations | (104) | (46) | |
| Income taxes paid | 7 | - | - |
| Net cash used in operating activities | (104) | (46) | |
| Cash flows from investing activities | |||
| Purchase of fixed asset investments | 10 | (2,248) | (500) |
| Sale of fixed asset investments | 10 | 42 | - |
| Total cash outflow from investing activities | (2,206) | (500) | |
| Cash flows from financing activities Dividend paid | (172) | - | |
| Issue of B shares | 2,262 | 4,035 | |
| Awaiting B share issue | (49) | 219 | |
| Total cash inflow from financing activities | 2,041 | 4,254 | |
| (Decrease)/Increase in cash and cash equivalents | (269) | 3,708 | |
| Opening cash and cash equivalents | 3,708 | - | |
| Closing cash and cash equivalents | 3,439 | 3,708 |
Notes to the Financial Statements
1. Principal Accounting Policies
Basis of preparation
The Financial Statements have been prepared under the historical cost convention, except for the measurement at fair value of certain financial instruments, and in accordance with UK Generally Accepted Accounting Practice (“GAAP”), including FRS 102 and with the Companies Act 2006 and the Statement of Recommended Practice (SORP) ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts (revised 2014)’.
The principal accounting policies have remained materially unchanged from those set out in the Company’s 2018 Annual Report and Financial Statements. A summary of the principal accounting policies is set out below.
The Company is a public company and is limited by shares. The Company held all fixed asset investments at fair value through profit or loss. Accordingly, all interest income, fee income, expenses and gains and losses on investments are attributable to assets held at fair value through profit or loss.
The most important policies affecting the Company’s financial position are those related to investment valuation and require the application of subjective and complex judgements, often as a result of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods. These are discussed in more detail below.
Going Concern
After reviewing the Company’s forecasts and expectations, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. The Company therefore continues to adopt the going concern basis in preparing its Financial Statements.
Key judgements and estimates
The preparation of the Financial Statements requires the Board to make judgements and estimates regarding the application of policies affecting the reported amounts of assets, liabilities, income and expenses. Estimates and assumptions mainly relate to the fair valuation of the fixed asset investments particularly unquoted investments. Estimates are based on historical experience and other assumptions that are considered reasonable under the circumstances. The estimates and the assumptions are under continuous review with particular attention paid to the carrying value of the investments.
Investments are regularly reviewed to ensure that the fair values are appropriately stated. Unquoted investments are valued in accordance with current International Private Equity and Venture Capital Valuation (IPEV) guidelines, which can be found on their website at www.privateequityvaluation.com, although this does rely on subjective estimates such as appropriate sector earnings or revenue multiples, forecast results of investee companies, asset values of investee companies and liquidity or marketability of the investments held. The material factors affecting the returns and net assets attributable to shareholders of the different share classes are the valuations of the Ordinary and B share pools and ongoing general expenses.
Although the Directors believe that the assumptions concerning the business environment and estimate of future cash flows are appropriate, changes in estimates and assumptions could result in changes in the stated values. This could lead to additional changes in fair value in the future.
Functional and presentational currency
The Financial Statements are presented in Sterling (£). The functional currency is also Sterling (£).
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts.
Fixed asset investments
The Company’s principal financial assets are its investments and the policies in relation to those assets are set out below.
Purchases and sales of investments are recognised in the Financial Statements at the date of the transaction (trade date).
These investments will be managed and their performance evaluated on a fair value basis and information about them is provided internally on that basis to the Board. Accordingly, as permitted by FRS 102, the investments are measured as being fair value through profit or loss on the basis that they qualify as a group of assets managed, and whose performance is evaluated, on a fair value basis in accordance with a documented investment strategy. The Company's investments are measured at subsequent reporting dates at fair value.
In the case of investments quoted on a recognised stock exchange, fair value is established by reference to the closing bid price on the relevant date or the last traded price, depending upon convention of the exchange on which the investment is quoted. In the case of AIM quoted investments this is the closing bid price. In the case of unquoted investments, fair value is established by using measures of value such as the price of recent transactions, earnings or revenue multiples, discounted cash flows and net assets. These are consistent with the IPEV guidelines.
Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve - holding gains/(losses).
In the preparation of the valuations of assets the Directors are required to make judgements and estimates that are reasonable and incorporate their knowledge of the performance of the investee companies.
Fair value hierarchy
Paragraph 34.22 of FRS 102 regarding financial instruments that are measured in the balance sheet at fair value requires disclosure of fair value measurements dependent on whether the stock is quoted and the level of the accuracy in the ability to determine its fair value. The fair value measurement hierarchy is as follows:
For quoted investments:
Level 1: quoted prices in active markets for an identical asset. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if 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 market price used for financial assets held is the bid price at the Balance Sheet date.
Level 2: where quoted prices are not available (or where a stock is normally quoted on a recognised stock exchange that no quoted price is available), the price of a recent transaction for an identical asset, providing there has been no significant change in economic circumstances or a significant lapse in time since the transaction took place. The Company held no such investments in the current or prior year.
For investments not quoted in an active market:
Level 3: the fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable data (eg: the price of recent transactions, earnings/revenue multiple, discounted cash flows and/or net assets) where it is available and rely as little as possible on entity specific estimates.
There have been no transfers between these classifications in the year (2018: none). The change in fair value for the current and previous year is recognised through the profit and loss account.
Current asset investments
No current asset investments were held at 31 December 2019 or 31 December 2018. Should current assets be held, gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve - gains/(losses) on disposal.
Income
Investment income includes interest earned on bank balances and from unquoted loan note securities, and dividends. Fixed returns on debt are recognised on a time apportionment basis so as to reflect the effective yield, provided it is probable that payment will be received in due course.
The Company has not generated any income in 2019 (2018: £nil).
Expenses
All expenses are accounted for on an accruals basis. Expenses are charged wholly to revenue with the exception of the performance fee, which is charged 100% to the capital reserve. In addition, the investment management fee charged to the B shares has been split 25% revenue and 75% capital, in line with industry practice and to reflect the Board’s estimated split of investment returns which will be achieved by the company’s B shares over the long term. Expenses and liabilities not specific to a share class are allocated to the B share pool for a period of three years from 1 July 2018 in line with the Articles of Association.
Revenue and capital
The revenue column of the Income Statement includes all income and revenue expenses of the Company. The capital column includes gains and losses on disposal and holding gains and losses on investments, as well as those expenses that have been charged as capital costs. Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the appropriate capital reserve on the basis of whether they are realised or unrealised at the balance sheet date.
Taxation
Current tax is recognised for the amount of income tax payable in respect of the taxable profit for the current or past reporting periods using the applicable tax rate. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue return on the "marginal" basis as recommended in the SORP.
Deferred tax is recognised on an undiscounted basis in respect of all timing differences that have originated but not reversed at the balance sheet date, except as otherwise indicated.
Deferred tax assets are only recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.
Financial instruments
The Company’s principal financial assets are its investments and its cash and the policies in relation to those assets are set out above. Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities. Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument.
Capital management is monitored and controlled using the internal control procedures set out on page 40 of this report. The capital being managed includes equity and fixed-interest investments, cash balances and liquid resources including debtors and creditors.
The Company does not have any externally imposed capital requirements.
Reserves
Called up equity share capital represents the nominal value of shares that have been issued.
Share premium account includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium.
Special distributable reserve includes cancelled share premium and capital redemption reserves available for distribution and may be used to cover dividend payments.
Capital reserve – holding gains and losses created when the Company revalues the investments still held during the period with any gains or losses arising being credited/ charged to the Capital reserve.
Capital reserve – gains and losses on disposal created when an investment is sold. Any balance held in the Capital reserve – holding gains and losses is transferred to the Capital reserve – gains and losses on disposal and recognised as a movement in reserves.
Revenue reserve – represents the aggregate value of accumulated realised profits (excluding capital profits), less losses and dividends.
Dividends Payable
Dividends payable are recognised as distributions in the Financial Statements when the Company’s liability to make payment has been established. This liability is established for interim dividends when they are declared by the Board, and for final dividends when they are approved by shareholders.
2. Income
| Year to 31 December 2019 | Year to 31 December 2018 | |
| £’000 | £’000 | |
| Dividends received | - | - |
| Loan note interest receivable | - | - |
| - | - |
Investment income includes interest earned on bank balances and dividends.
The Company has not generated any income in the period and as such we have not included any segmental reporting. In the event the Company had generated income, we would disclose information about the Company’s operating segments and the geographical areas in which they operate, which is currently in the United Kingdom.
3. Investment Management Fees for B shares
| Year to 31 December 2019 | Year to 31 December 2018 | ||
| £’000 | £’000 | ||
| Gross Investment management fee | 103 | 24 | |
| Cost cap refund from Seneca | (75) | (42) | |
| Investment management fee net of cost cap | 28 | (18) | |
Seneca is entitled to an annual management fee of 2% of the weighted net asset value of the B share pool (2018: 2%) and, with effect from 1 August 2019, is also entitled to an annual fee of £9,000 (plus VAT, if applicable) in relation to management accounting services. These fees are payable quarterly in arrears. Seneca will also be entitled to certain monitoring fees from investee companies and the Board reviews the amounts (please see note 19).
Seneca are also entitled to receive a performance related incentive fee (the “Performance Incentive Fee”) in relation to the B share pool of an amount equal to 20% of the shareholder proceeds arising, provided that the payment of such a fee shall also be conditional upon (i) a return being generated on the B share pool for B shareholders in respect of that performance period of more than 5% per annum (pro-rated if that period is less than a year) and (ii) that such a return calculated for the period from 23 August 2018 to the end of the relevant performance period exceeds 5% per annum.
Shareholder proceeds are, in relation to the B shares and calculated on a per share basis, all amounts paid by way of dividend or other distributions, share buy backs, proceeds on a sale or liquidation of the Company and any other proceeds or value received or deemed to be received by the holders of the relevant shares (excluding any income tax relief on subscription).
For the avoidance of doubt, no Performance Incentive Fee will be payable to the extent that the shareholder proceeds paid by the Company to the holders of the B shares have been justified by reference to distributable reserves otherwise attributable to the Ordinary share pool (as permitted in accordance with the Articles).
For a three-year period with effect from 1 July 2018, expenses of the Company are capped at 3% of the weighted average net asset value of the B shares, including the management fee (but excluding any performance fee). Following this initial period, expenses are capped at 3% across both the Ordinary share pool and the B share pool pro-rata to their respective net asset values.
The Investment Manager will indemnify the Company for any excess over the cost cap, with an amount equal to such excess either being paid by Seneca to the Company or refunded by way of a reduction to its fees. Accordingly, Seneca reduced its management fee by £75,000 in the year to 31 December 2019 (2018: reduced by £42,000).
Expenses are charged wholly to revenue with the exception of the (net) investment management fee which has been charged 75% to the capital reserve in line with industry practice.
4. Other Expenses
| Year to 31 December 2019 | Year to 31 December 2018 | |
| £'000 | £'000 | |
| Directors’ remuneration | 33 | 41 |
| Fees payable to the Company’s auditor for the audit of the Financial Statements | 15 | 14 |
| Legal and professional expenses | 49 | 38 |
| Accounting and administration services | 12 | 9 |
| Other expenses | 14 | 11 |
| 123 | 113 |
All expenses were charged to the Ordinary shares for the period to 30 June 2018. In line with the offer for subscription for B shares, and following the initial allotment of B shares on 23 August 2018, all the Company’s general expenses are chargeable to the B share pool for a period of three years from 1 July 2018 (subject to the cost cap discussed in note 3). Any expenditure related specifically to assets in one pool is chargeable to that pool. It should be noted that the only items specifically relating to the Ordinary share pool relate to a £4k release of accrued advisory fees, which were no longer deemed to be required.
5. Directors’ Remuneration
| Year to 31 December 2019 | Year to 31 December 2018 | |
| £ | £ | |
| Directors’ emoluments: | ||
| John Hustler (Chairman) | 12,897 | 12,750 |
| Charles Breese | 6,375 | 12,750 |
| Richard Roth | 12,897 | 15,250 |
| Alex Clarkson | 981 | N/A |
| Richard Manley | - | - |
| 33,150 | 40,750 |
Richard Manley, a director of the Investment Manager, has elected to waive his Director’s fee, until the Company’s operating costs are less than the expenses cost cap.
Included in the 2018 figures above for Richard Roth is £2,500 for work undertaken in relation to the setting up of the new B share structure and preparation of the offer for subscription as detailed in the Directors' Remuneration Report. Apart from this, none of the Directors received any other remuneration from the Company during the year.
Certain Directors may become entitled to receive a share of the Performance Incentive Fee related to the Ordinary share pool as detailed in the Directors’ Remuneration Report on page 45 and in note 6.
The Company has no employees other than non-executive Directors. The average number of non-executive Directors in the year was four (2018: three). Charles Breese left the Board on 10 June 2019 and Alex Clarkson joined the Board on 9 December 2019.
6. Performance Fees for Ordinary shares
The performance incentive fees are calculated separately on the Ordinary shares and the B shares. Performance incentive fees in relation to the Ordinary shares are potentially payable to past and current members of the CAC. The current members of the CAC are John Hustler and Richard Roth.
The CAC entered into an agreement to take over management of the Company’s investments on 30 July 2007 (the “2007 Agreement”), and at that time, a revised performance incentive scheme was implemented, such that its members would be entitled to 20% of all cash returns above the initial net cost to subscribing shareholders of 80p.
On 7 October 2015, the performance incentive fee structure was further amended as follows. In respect of the period to 31 December 2014, the Accrued Performance Incentive Fee on the Ordinary share class of up to £702,000 shall be payable to James Otter (a former director of the Company who was also a member of the CAC), Charles Breese (a former director of the Company who was also a member of the CAC) and John Hustler, in equal proportions (with the liability to pay a director his share of such fee being extinguished if the fee is due for payment five years after his ceasing to be a member of the CAC. Such extinguished fees are credited back to the Company).
The amount of the Accrued Performance Incentive Fee shall be 25% of any dividends and capital distributions returned to shareholders, which in total exceed the sum of 80p per Ordinary share (the "Hurdle"). This includes dividends paid to date on the Ordinary shares, being 52.25p per share. As a result of this, for every £1 potentially distributable in excess of the Hurdle, 80p shall be distributed to shareholders and 20p shall be paid as the Accrued Performance Incentive Fee, up until an amount of 114.65p per Ordinary share has been distributed to Ordinary shareholders, after which no further payment is payable in respect of the Accrued Performance Incentive Fee or otherwise under the terms of the 2007 Agreement (as amended). The Accrued Performance Incentive Fee shall be paid at the same time as payments are made to the Ordinary shareholders. All distributions by way of dividends and capital distributions in relation to the Ordinary share class shall count towards the Accrued Performance Incentive Fee and where non-cash dividends are declared, the Company's auditors shall assess their value by reference to a distribution per share. Following payment in full of the Accrued Performance Incentive Fee, the Further Performance Incentive Fee may become payable to the CAC in relation to the period after 7 October 2015.
Following the amendment on 7 October 2015, any returns above the 31 December 2014 levels are subject to a further hurdle (the “Further Hurdle”), and the Further Performance Incentive Fee reduces the share to the CAC to 10% of sums returned to Ordinary shareholders by way of dividends and capital distributions of whatever nature, which in total exceed the Further Hurdle (excluding any initial tax relief on the subscription for the Ordinary shares). The "Base Figure" for the Further Hurdle shall be 90.4p per Ordinary share and shall be increased by a sum equal to notional interest thereon, at the rate of 1.467% per quarter from 1 January 2015, compounded with quarterly rests. For the purposes of determining the increase in the Base Figure, the amount on which notional interest is to accrue in each quarter shall be reduced by the amount of all sums returned to Ordinary shareholders by way of dividends and capital distributions in the previous quarter. Shareholders will need to have received distributions of 114.65p per Ordinary share, together with the amount to take account of notional interest as calculated above, before any Further Performance Incentive Fee is payable.
As at 31 December 2019, the Total Gross Return in respect of the Ordinary shares is 83.25p, and so 0.65p per share totalling £53,000 has been accrued (31 December 2018: 91.68p, 2.34p and £190,000) in respect of the Performance Incentive Fee.
Assuming no dividends are paid on the Ordinary shares in the year, the Total Gross Return would need to exceed 158.4p at 31 December 2020 before any Further Performance Incentive Fee could be due, and at that time, it would be 10% of any dividends or capital distributions made above this threshold. If the Further Performance Incentive Fee is not triggered (as it has not been in this financial year) the Further Hurdle, net of dividends paid, increments by a compound annual growth rate of 6%, applied quarterly as described above.
If the CAC consider it necessary to engage external advisors in support of managing its portfolio, the costs of this will be borne by the Ordinary share pool. The Further Performance Incentive Fee shall be divided among such members of the CAC (past, present and future) who have been members of that committee since the 7 October 2015, on a pro rata basis, linked to the relative amount of time since the date of the 7 October 2015 agreement for which each individual has been a member of the CAC. An individual will not be entitled to payment of any of Further Performance Incentive Fee if he ceased to be a member of the CAC in certain conditions, or ceased to be a member of the CAC more than five years before the payment of any amount of Further Performance Incentive Fee becomes due and any such fees will be credited back to the Company. For the purposes of the Further Performance Incentive Fee, the method of determining distributions will follow that used in calculating the Accrued Performance Incentive Fee.
7. Tax on Ordinary Activities
The corporation tax charge for the period was £nil (2018: £nil).
The current rate of tax is the small companies’ rate of corporation tax at 19% (2018: 19%)
| Current tax reconciliation: | Year to 31 December 2019 | Year to 31 December 2018 | |
| £’000 | £’000 | ||
| Return on Ordinary activities before tax | (715) | 66 | |
| Current tax at 19% (2018: 19%) | (136) | 13 | |
| Gains/losses not subject to tax | 133 | (36) | |
| Excess management expenses carried forward | 3 | 23 | |
| Total current tax charge and tax on results of ordinary activities | - | - | |
The company has excess management expenses of £2,755,000 (2018: £2,741,000) to carry forward to offset against future taxable profits.
Approved VCTs are exempt from tax on capital gains within the Company. Since the Directors intend that the Company will continue to conduct its affairs so as to maintain its approval as a VCT, no current deferred tax has been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments.
8. Earnings per Share
The earnings per Ordinary share is based on 8,115,376 (31 December 2018: 8,115,376) shares, being the weighted average number of Ordinary shares in issue during the year, and a return for the year totalling (£547,000) (31 December 2018: £102,000).
The earnings per B share is based on 5,269,973 (31 December 2018: 3,412,545) shares, being the weighted average number of B shares in issue during the year, and a return for the year totalling (£168,000) (31 December 2018: (£36,000)).
There are no potentially dilutive capital instruments in issue and, therefore, no diluted returns per share figures are relevant. The basic and diluted earnings per share are therefore identical.
9. Net Asset Value per Share
The calculation of NAV per Ordinary share as at 31 December 2019 is based on 8,115,376 Ordinary shares in issue at that date (31 December 2018: 8,115,376).
The calculation of NAV per B share as at 31 December 2019 is based on 6,361,448 B shares in issue at that date (31 December 2018: 4,036,370).
10. Fixed Asset Investments
Ordinary Shares
| Level 1: AIM-quoted investments | Level 3: Unquoted investments | Total investments | |
| £’000 | £’000 | £’000 | |
| Valuation and net book amount: | |||
| Book cost as at 1 January 2019 | 1,117 | 2,985 | 4,102 |
| Cumulative revaluation | 344 | (1,653) | (1,309) |
| Valuation at 1 January 2019 | 1,461 | 1,332 | 2,793 |
| Movement in the year: | |||
| Purchases at cost | - | - | - |
| Disposal proceeds | - | (38) | (38) |
| Gain/(loss) on disposal | - | 38 | 38 |
| Revaluation in year | (227) | (498) | (725) |
| Valuation at 31 December 2019 | 1,234 | 834 | 2,068 |
| Book cost at 31 December 2019 | 1,117 | 2,985 | 4,102 |
| Revaluation to 31 December 2019 | 117 | (2,151) | (2,034) |
| Valuation at 31 December 2019 | 1,234 | 834 | 2,068 |
B Shares
| Level 1: AIM-quoted investments | Level 3: Unquoted investments | Total investments | |
| £’000 | £’000 | £’000 | |
| Valuation and net book amount: | |||
| Book cost as at 1 January 2019 | - | 500 | 500 |
| Cumulative revaluation | - | - | - |
| Valuation at 1 January 2019 | - | 500 | 500 |
| Movement in the year: | |||
| Purchases at cost | 748 | 1,500 | 2,248 |
| Disposal proceeds | (42) | - | (42) |
| Gain/(loss) on disposal | 14 | - | 14 |
| Revaluation in year | (90) | 63 | (27) |
| Valuation at 31 December 2019 | 630 | 2,063 | 2,693 |
| Book cost at 31 December 2019 | 720 | 2,000 | 2,720 |
| Revaluation to 31 December 2019 | (90) | 63 | (27) |
| Valuation at 31 December 2019 | 630 | 2,063 | 2,693 |
Further details of the fixed asset investments held by the Company are shown within the Investment Manager’s Report on pages 12 to 24.
All investments are initially measured at their transaction price. Subsequently, at each reporting date, the investments are valued at fair value through profit or loss, and all capital gains or losses on investments are so measured. The changes in fair value of such investments recognised in these Financial Statements are treated as unrealised holding gains or losses.
11. Debtors
| 31 December 2019 | 31 December 2018 | |
| £’000 | £’000 | |
| Prepayments and accrued income | 3 | 23 |
12. Creditors
| 31 December 2019 | 31 December 2018 | |
| £’000 | £’000 | |
| Amounts falling due within one year | ||
| Accruals | 36 | 43 |
| Trade creditors | 8 | - |
| Awaiting B share allotment | 170 | 219 |
| Other creditors | 22 | 29 |
| Total amounts falling due within one year | 236 | 291 |
| Amounts falling due after one year | ||
| Accruals | 53 | 190 |
| Total amounts falling due after one year | 53 | 190 |
The amount falling due after more than one year relates to the potential liability for a performance fee on the Ordinary share portfolio. More details are in note 6.
13. Share Capital
| 31 December 2019 | 31 December 2018 | |
| £’000 | £’000 | |
| Allotted and fully paid up: | ||
| 8,115,376 Ordinary shares of 1p (2018: 8,115,376 shares of 1p) 6,361,448 B shares of 1p (2018 : 4,036,370) | 81 64 | 81 40 |
| 145 | 121 |
The capital of the Company is managed in accordance with its investment policy with a view to the achievement of its investment objective as set on page 4.
During the year, the Company did not issue, nor buy back, any Ordinary shares.
The Company issued a total of 2,325,078 B shares at prices between 95.2p to 104.9p per B share during the year. These were issued pursuant to the original offer for subscription for B shares launched on 9 May 2018 and a further offer for subscription for B shares launched on 16 July 2019 to raise, in aggregate, up to £10 million with an over-allotment facility of up to a further £10 million (before issue costs). The Company has not bought back any B shares.
The total proceeds received for the shares issued in the period was £2,282,490 (net of facilitated fees, gross of Seneca’s promoter fee) for the B share pool.
Share Rights
As regards Income: shareholders shall be entitled to receive such dividends as the Directors resolve to pay out in accordance with the Articles. Under the Articles of the Company, all the assets of the Company and all the liabilities of the Company will be allocated either to the Ordinary share pool or the B share pool. The Ordinary shares will be entitled to the economic benefit of the assets allocated to the Ordinary share pool and the B shares will be entitled to the economic benefit of assets allocated to the B share pool. Therefore, although the rules in the CA 2006 and elsewhere in relation to the payment of distributions will be applicable to the Company on a company-wide basis, the income arising on the portfolios will belong to one or the other of the share classes depending on which portfolio generated the income.
As regards Capital: similarly, the capital assets of the Company will be allocated to either the Ordinary share pool or the B share pool. On a return of capital on a winding-up or on a return of capital (other than on a purchase by the Company of its shares) the surplus capital shall be divided amongst the holders of the relevant share class pro rata according to the number of shares of the relevant class held and the aggregate entitlements of that share class. The Ordinary shares will not be entitled to any capital assets held in the B share pool and the B shares will not be entitled to any capital assets held in the Ordinary share pool. In relation to the purchase by the Company of its shares, the purchase of Ordinary shares may only be financed by assets in the Ordinary share pool and the purchase of the B shares may only be financed by assets in the B share pool.
As regards voting and general meetings: subject to disenfranchisement in the event of noncompliance with a statutory notice requiring disclosure as to beneficial ownership, each shareholder present in person or by proxy shall on a poll have one vote for each share of which he/she is the holder. The Ordinary shareholders may not be entitled to vote on certain matters which concern the B share class only and vice versa.
As regards Redemption: none of the B shares or the Ordinary shares are redeemable. The Articles provide that reserves (whether created upon the cancellation of the share premium account arising from the issue of Ordinary shares or B shares or otherwise) may also be used for the benefit of the other share class. While this will not transfer any net asset value between the different share classes, it will permit those reserves to be treated as distributable profits on a Company-wide basis such that on an accounting basis dividends and share buybacks in respect of both share classes may be facilitated by the availability of those reserves.
14. Movement in Shareholders’ Funds
| Year ended 31 December 2019 | Year ended 31 December 2018 | ||
| £’000 | £’000 | ||
| Shareholders’ funds at start of year | 9,281 | 5,180 | |
| Return on ordinary activities after tax | (715) | 66 | |
| Increase due to issue of B shares | 2,262 | 4,035 | |
| Dividend paid | (2,444) | - | |
| Shareholders’ funds at end of year | 8,384 | 9,281 | |
The analysis of changes in equity by the various reserves are shown in the Statement of Changes in Equity on page 57.
When the Company revalues its investments during the period, any gains or losses arising are credited/charged to the Income Statement. Changes in fair value of investments held are then transferred to the capital reserve - holding gains/(losses). When an investment is sold any balance held on the capital reserve - holding gains/(losses) reserve is transferred to the capital reserve – gains/(losses) on disposal as a movement in reserves.
The purpose of the special distributable reserve was to create a reserve which will be capable of being used by the Company to pay dividends and for the purpose of making repurchases of its own shares in the market with a view to narrowing the discount at which the Company’s shares trade to net asset value, providing shareholder authority has been granted.
During 2010, the Company revoked investment company status in order to allow payment of dividends from distributable reserves. During 2018, the Company effected a capital reduction exercise, whereby the nominal value of its Ordinary shares was reduced from 50p to 1p, creating a capital redemption reserve.
The Company also issued 4,036,370 B shares at a premium. On 7 December 2018, following shareholder approval, the Company sought, and received approval from the High Court to the reduction of the amount standing to the credit of the Capital Redemption Reserve of the Company by £4,014,000 and of the Share Premium Account of the Company by £3,427,000, thereby creating additional distributable reserves of £7,441,000. Distributable reserves are represented by the special distributable reserve, the capital reserve gains/(losses) on disposal and the revenue reserve reduced by negative holding reserves (if any) which total £5,433,000 as at 31 December 2019 (2018: £8,592,000). Although the distributable reserves total £5,433,000 as at 31 December 2019, only £2,006,000 is actually able to be distributed as the reserves contain £3,427,000 from the cancellation of the share premium account on the newly issued B shares, which cannot be distributed until the beginning of 2022 without breaching VCT rules.
An interim capital dividend of 10 pence per Ordinary share for the year to 31 December 2018 was paid on 25 January 2019. A further interim capital dividend of 18 pence per Ordinary share for the year to 31 December 2019 was paid on 7 June 2019.
An interim dividend of 1.5 pence per B share for the year to 31 December 2019 was paid on 18 April 2019. A second interim dividend of 1.5 pence per B share for the year to 31 December 2019 was paid on 13 December 2019.
15. Financial Instruments
The Company's financial instruments comprise equity investments, cash balances and liquid resources including debtors and creditors.
Classification of financial instruments
The Company held the following categories of financial instruments, all of which are included in the balance sheet at fair value, at 31 December 2019 and 31 December 2018:
| 31 December 2019 | 31 December 2018 | |
| £’000 | £’000 | |
| Financial assets at fair value through profit or loss | ||
| Fixed asset investments | 4,761 | 3,293 |
| Total | 4,761 | 3,293 |
| Financial assets measured at amortised cost | ||
| Cash at bank and in hand | 3,909 | 6,446 |
| Debtors | 3 | 23 |
| Total | 3,912 | 6,469 |
| Financial liabilities measured at amortised cost | ||
| Creditors Accruals | 30 36 | 29 44 |
| Total | 66 | 73 |
Fixed asset investments (see note 10) are valued at fair value. Unquoted investments are carried at fair value as determined by the Directors in accordance with current venture capital industry guidelines. The fair value of all other financial assets and liabilities is represented by their carrying value in the balance sheet. The Directors believe that the fair value of the assets held at the year-end is equal to their book value.
The Company’s creditors and debtors are initially recognised at fair value, which is usually the transaction price, and then thereafter at amortised cost.
16. Financial Risk Management
In carrying on its investment activities, the Company is exposed to various types of risk associated with the financial instruments and markets in which it invests. The most significant types of financial risk facing the Company are market risk, credit risk and liquidity risk. The Company's approach to managing these risks is set out below together with a description of the nature and amount of the financial instruments held at the balance sheet date.
Market risk
The Company’s strategy for managing investment risk is determined with regard to the Company’s investment objective, as outlined on page 4. The management of market risk is part of the investment management process. The Company's portfolio is managed with regard to the possible effects of adverse price movements and with the objective of maximising overall returns to shareholders in the medium term. Investments in unquoted companies, by their nature, usually involve a higher degree of risk than investments in companies quoted on a recognised stock exchange, though the risk can be mitigated to a certain extent by diversifying the portfolio across business sectors and asset classes. The overall disposition of the Company's assets is regularly monitored by the Board.
Details of the Company’s investment portfolio at the balance sheet date are set out on pages 14 to 24.
34.5% (2018: 19.7%) by value of the Company’s net assets comprise investments in unquoted companies held at fair value. The valuation methods used by the Company include the application of a price/earnings ratio derived from listed companies with similar characteristics, and consequently the value of the unquoted element of the portfolio can be indirectly affected by price movements on the London Stock Exchange. A 10% overall increase in the valuation of the unquoted investments at 31 December 2019 would have increased net assets and the total return for the year by £290,000 (2018: £183,000) disregarding the impact of the performance fee; an equivalent change in the opposite direction would have reduced net assets and the total return for the year by the same amount.
22.2% (2018: 15.7%) by value of the Company’s net assets comprises equity securities quoted on AIM. A 10% increase in the bid price of these securities as at 31 December 2019 would have increased net assets and the total return for the year by £186,000 (2018: £146,000) disregarding the impact of the performance fee; a corresponding fall would have reduced net assets and the total return for the year by the same amount.
Credit risk
There were no significant concentrations of credit risk to counterparties at 31 December 2019 or 31 December 2018.
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Board carries out a regular review of counterparty risk. The carrying values of financial assets represent the maximum credit risk exposure at the balance sheet date.
Liquidity risk
The Company’s financial assets include investments in unquoted equity securities which are not traded on a recognised stock exchange and which generally are illiquid. They also include investments in AIM-quoted companies, which, by their nature, involve a higher degree of risk than investments on the main market. As a result, the Company may not be able to realise some of its investments in these instruments quickly at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer.
The Company’s liquidity risk is managed and monitored on a continuing basis by the Board in accordance with policies and procedures laid down by the Board.
17. Events After the Balance Sheet Date
Exosect Limited was dissolved on 24 January 2020 following the company going into administration in October 2018 and the investment having been fully written down. However, this does not impact the profit and loss account of the Company as it has already been fully provided for.
We are not aware of any other post balance sheet events to bring to your attention.
18. Contingencies, Guarantees and Financial Commitments
There were no contingencies, guarantees or financial commitments as at 31 December 2019 (2018: £nil).
19. Related Party Transactions
The Board acted as the investment manager of the Company until Seneca were appointed on 23 August 2018. Certain Directors are entitled to participate in a performance bonus as detailed in note 6. During the year, Seneca have earnt £103,000 in management fees (2% of the weighted average net assets of the B share portfolio). However, only £28,000 is recoverable by Seneca as a result of the cost cap, as detailed in note 3. Therefore, at the year end, the Company owed Seneca £10,000, which appeared as a creditor, representing the net effect of the 2018 management fee debit balance of £18,000 and the 2019 management fee credit balance of (£28,000).
Seneca as Investment Manager accrued £138,132 (2018: £19,997) transaction fees and directors’ fees from investee companies in relation to the arrangement and monitoring of investments. As a related party, we believe that this transaction is disclosable, and we ensure it is managed from a conflicts of interest point of view. Seneca may also become entitled to a performance fee. See note 3 to the financial statements for more information on these fees.
As detailed in the offer for subscription document dated 16 July 2019, Seneca (as promoters of the Offer) are entitled to charge the Company up to 5.5% of investors’ subscriptions. A total of £20,294 has been accrued to Seneca, based on the allotments of £2,282,490 (net of facilitated fees, gross of the promoter fee) as at 31 December 2019 (2018: £40,596).