TIDMAAM
RNS Number : 5048X
Artemis VCT PLC
19 December 2019
Artemis VCT plc (the 'Company')
Legal Entity Identifier: 549300R6443VUTMRCP48
Annual Financial Report for the year ended 30 September 2019
This announcement contains regulated information
Financial Highlights
- Net asset value total return of (18.2)% and share price total return of (33.2)%.
- Declared special dividend of 4.00 pence per share and a second
interim dividend of 2.00 pence per share.
- Total dividends paid and declared for the year of 12.00 pence per share.
Year ended Year ended
Total returns (including reinvestments 30 September 30 September
of dividends paid) 2019 2018
--------------------------------------- ------------- -------------
Net assets value* (18.2%) 21.1%
Share price* (33.2%) 42.7%
As at As at
30 September 30 September
Capital 2019 2018
-------------------------------------- ------------- -------------
Net assets GBP21.8m GBP34.2m
Net asset value per ordinary share 41.48p 64.40p
Share price 37.50p 71.00p
(Discount)/premium to net asset value (9.6)% 10.2%
VCT qualifying percentage 91.6% 99.4%
Year ended Year ended
30 September 30 September
Returns for the year 2019 2018
---------------------------------------- ------------- -------------
Revenue return (0.18)p (0.18)p
Capital return (10.83)p 13.98p
Total return (11.01)p 13.80p
Dividend per ordinary share(++) 4.00p 4.00p
Special dividend per ordinary share(++) 8.00p 17.00p
Cumulative dividends per ordinary
share since inception(++) 125.20p 113.20p
Alternative Performance Measure.
* Source: Artemis Fund Managers Limited ('Artemis').
(++) Includes declared special dividend of 4.00 pence per share
and a second interim dividend of 2.00 pence per share in respect of
the year ended 30 September 2019. These were paid on 29 November
2019.
Return for the period ended 30 September 2019
Total
dividends
Opening paid in Closing
NAV the period NAV Return*
-------- ------------ -------- --------
1 year 64.40p 12.00p 41.48p (17.0)%
3 years 71.92p 55.00p 41.48p 34.2%
5 years 72.61p 82.00p 41.48p 70.1%
10 years 64.09p 113.00p 41.48p 141.0%
*Source: Artemis Fund Managers Limited ('Artemis').
Strategic Report
Chairman's Statement
Performance
The year to 30 September 2019 proved challenging. Returns have
not been as strong as we might have wished with the Company's net
asset value at 30 September 2019 sitting at 41.48 pence. Having
started the year at 64.40 pence and with dividends paid in the year
amounting to 12.00 pence, a total return of (11.01) pence per share
has been borne by shareholders over the year. This is equivalent to
(18.2)% of the starting net asset value.
Over the five years to 30 September 2019 total dividends paid to
shareholders amount to 84.00 pence per share. Over the life of the
Company total dividends paid and declared now stands at 125.20
pence per share.
Results and dividends
The net asset value total return for the year, assuming
dividends re-invested, brought a loss of 18.2% versus the FTSE AIM
All Share Index loss of 19.4%. Stock specific factors along with
the effect on the market of the continuing political uncertainty
have led to a nervous and tentative year. More details are included
within your Investment Manager's Review.
The Company has now paid special dividends for a number of
years. These dividends have arisen as a result of the Investment
Manager's distribution of cash proceeds realised from the portfolio
as the investments have appreciated and profits have been taken.
VCT regulations mean excess cash needs to be distributed or
re-invested within a limited timeframe. As the Investment Manager
has considered that there has been a lack of suitable reinvestment
opportunities, the Board has, as in previous years, continued to
distribute this cash as special dividends to ensure that the
Company's VCT tax status is maintained. Changes to the VCT
regulations have reduced both the types of companies VCTs can
invest in and the ability to invest further in existing
holdings.
The Board, throughout the year, has declared dividends in total
of 12.00 pence per share for the year ended 30 September 2019
(2018: 21.00 pence per share).
Deal flow
The Company has made no new qualifying investments during the
twelve month period. Whilst there have been new VCT qualifying
companies coming to the market, these have been found to be too
immature and loss making and, as such, have not met our investment
criteria. More detail on the investment activity and the
performance of the investment holdings can be found in the
Investment Manager's Review.
Share buybacks
The Company's premium of 10.2% at the start of the year became a
discount of 9.6% as at 30 September 2019. Buybacks of the Company's
shares have been carried out in line with the Company's buyback
policy at a 10% discount to net asset value.
The premium/discount is monitored and all buybacks follow the
guidelines set by the Board. Share buybacks remain subject to the
Company having the necessary shareholder authorities in place and
having sufficient cash available for this purpose, taking into
account future cash requirements for investing activities, the
payment of dividends and operating expenses.
The Board regularly reviews the buyback policy to ensure any
discount of share price to the net asset value is actively managed.
As detailed in the Directors' Report, the Investment Management fee
of the company is linked to the share price.
Further details regarding this are provided in the Share capital
section of the Strategic Report in the Annual Financial Report.
VCT Status
The Company has complied with all VCT tests throughout the year.
The Board continues to closely monitor the VCT status in light of
the introduction of a new 80% threshold (up from 70%) of qualifying
holdings from 1 October 2019. The qualifying percentage as at 30
September 2019 was 91.6%. The extension in the time period to
distribute sales proceeds to twelve months took effect from 6 April
2019 and has given welcome flexibility.
Annual General Meeting (AGM)
The AGM, which alternates between Edinburgh and London, will be
held at 11.00 a.m. on 5 February 2019, at Cassini House, 57-59 St
James's Street, London, SW1A 1LD. The Notice of Meeting, containing
full details of the business to be conducted at the meeting, is set
out in the Annual Financial Report.
The fund manager, Andy Gray, will make a short presentation at
the meeting and shareholders will then have an opportunity to meet
both him and the Directors. The Board would welcome your attendance
at the AGM as it provides shareholders with an opportunity to ask
questions of the Board and the fund manager. For those shareholders
who are unable to attend, I would encourage you to make use of your
proxy votes by completing and returning the form of proxy enclosed
with the Annual Financial Report.
Outlook
As I have highlighted in this and prior Chairman's Statements,
the new VCT regulations have resulted in a significant reduction in
suitable deal flow for the Company. This situation therefore limits
opportunities to continue to develop and refresh the portfolio on
an ongoing basis. Our current working assumption is that there are
unlikely to be any new investments made by the Company.
In addition, where realisations from the existing portfolio are
made in the normal course of business, a significant proportion of
these proceeds have been distributed to shareholders rather than
re-invested in the portfolio. This has been necessary in order for
the Company to continue to comply with the VCT regulations, but it
does have the effect of reducing the Company's assets.
Against this background the Board has decided that it should
formally explore options for the future of the Company. These are
at an early stage and I would expect to provide shareholders with
an update on these discussions in due course. In the meantime the
Board will continue to ensure that the Company operates in a manner
conducive to maximising returns for shareholders.
The Board and the Investment Manager continue to monitor the
impact of both Brexit and the general election held on the 12th of
this month.
Contact us
The Board is always keen to hear from shareholders. Should you
wish to, you can contact me at vctchairman@artemisfunds.com. You
can also find regularly updated information on the Company,
including a factsheet and performance data, on the Company's
website at artemisfunds.com/vct.
Fiona Wollocombe
Chairman
19 December 2019
Investment Manager's Review
Performance
We won't disguise the fact that this has been a disappointing
year for performance. The Company's net asset value fell from 64.40
pence per share at the start of the year to 41.48 pence by 30
September. With 12 pence of dividends having been paid, this brings
the capital return for the year to (17.0)%. All of the damage was
done in the final calendar quarter of 2018; the portfolio delivered
a marginally positive return over the remaining nine months.
We have, over the years, repeatedly stressed our preference for
a longer-term perspective when assessing performance. And, over the
longer term, returns have been much better. Total returns for the
last three and five years are 36.9% and 72.8% respectively. Over 10
years, meanwhile, we have achieved a total return of 130.3%.
Review
Five largest stock contributors
Contribution
Company % of net assets %
------------------ --------------- ------------
Judges Scientific 6.4 3.3
AB Dynamics 3.9 2.7
Instem 5.8 1.6
Cohort 4.8 1.2
Pelatro* 0.0 0.6
*Sold during the year
Five largest stock detractors
Contribution
Company % of net assets %
----------------------------- --------------- ------------
ULS Technology 2.6 (3.1)
Fulcrum Utility Services 2.8 (3.1)
Cambridge Cognition Holdings 0.9 (2.8)
Mycelx 1.5 (2.3)
Dods Group 4.2 (2.0)
The single biggest negative this year was ULS Technology. It
continued to languish under the cloud of Brexit as subdued activity
in the housing market made for a tough market backdrop. This was
compounded by its failure to renew a customer contract in September
during a re-tender. While this was disappointing, the company
continues to win work elsewhere and its new DigitalMove product is
receiving encouraging feedback.
Political uncertainty was also cited as a reason for the poor
final quarter of Dods' financial year. In our view, its acquisition
of Merit Group in June has diversified the business into a wider
range of more rapidly growing markets. It also bolsters recurring
revenues that are expected to increase to over half of the group's
revenues.
Fulcrum Utility Services has faced difficulties on a number of
fronts in the last 12 months. As we discussed in our interim
report, its acquisition of Dunamis has been problematic. A change
in accounting policy then delayed its full-year results by several
months. Although this change did not affect cashflows, it required
an unprecedented amount of analysis to restate historic balance
sheets. For investors, the delay and associated uncertainty was
unsettling and, coupled with a challenging construction market, the
shares remained under pressure. Focus can now, once again, turn to
exploiting its multi-utility capabilities. That will, however, have
to happen under new leadership. The CEO stepped down in early
October.
After being one of our largest positive contributors in the
first half of the year Mycelx Technologies has suffered a sharp
reversal of fortunes. After a strong first quarter of 2019 the
business has encountered delays in contract signings. Costs are
being cut, allowing it to remain profitable. Had the company not
raised funds in February, the financial position could have been
even worse.
Cambridge Cognition followed a similar pattern: a fundraising
earlier in the year followed by a profit warning only months later.
Here too, contract deferrals were to blame.
Judges Scientific was our strongest contributor over the year.
Our decision not to sell our holding, which we outlined in our
interim report, proved to be a good one: the shares rose by almost
50% in the second half of the year. Interim results in September
revealed 27% profit growth on the back of solid growth in sales,
high gross margins and tight control of costs.
While Judges Scientific's acquisition activity has been muted in
recent times (its purchase of Oxford Cryosystems took place more
than two years ago) it remains a central plank of its strategy. We
are sure there are more deals to come and we back the management
team's patient, disciplined approach.
Acquisitions are also on the agenda for AB Dynamics. Since its
IPO, the company has grown organically, with sales of GBP8.9
million in 2012 rising to GBP37 million in 2018. New CEO James
Routh announced an updated strategy in February with selective
acquisitions being one of five key priorities. In May, the company
raised GBP45 million to support this strategy and two acquisitions
have been completed since. Both Kangaloosh and Dynamic Research are
existing supply partners and, as such, are well known to the
company.
We hope AB Dynamic's deals can match the success of Cohort's
dealmaking. On 12 December 2018, Cohort announced the acquisition
of Chess Technologies ('Chess') adding a fifth standalone business
to its portfolio. Founded in 1993, Chess is a world leader in
advanced integrated systems and technologies for detecting,
tracking and disrupting a wide range of potential threats from air,
land and sea. The announcement gave the example of their
"anti-unmanned aerial vehicles defence system" - drone detection to
you and me. Just a week later, Gatwick Airport was closed and
hundreds of flights were cancelled after a series of drone
sightings. Chess had signed a contract and had a drone-detection
system operational within days.
Instem also continues to evaluate acquisition opportunities in a
fragmented industry. Although no deals have been completed this
year, organic growth has remained strong and the shift towards
recurring sources of revenue is improving the quality of
earnings.
The year also started out well for Pelatro, which integrated its
acquisition of Danateq and won a series of contracts. A trading
update confirmed that revenues and profits for 2018 were in line
with expectations. Its full-year results in March, however,
revealed a high level of unbilled revenue. This unnerved us
somewhat. At the same time, the strength of its share price had
made Pelatro one of the Company's top holdings. So we started to
reduce our weighting. As the year progressed, we continued to see
contract announcements but they were in aggregate below our own
expectations and the level of visibility began to track below the
level seen in the previous year. So we became increasingly
uncomfortable. As our confidence waned we continued to sell and by
the end of August had exited entirely.
Investment activity
We made no new qualifying investments in the last 12 months, a
feature that requires, if not an excuse, then an explanation.
Although we regularly assess potential investments we have found
that the companies are typically too early-stage. By that we mean
their revenues (if they exist at all) are modest. As such, these
businesses are typically many years from becoming profitable and
cash-generative. Given that the tightening of the VCT rules was
intended to steer investment in this direction, this is not a
surprise. In the odd exception when companies are more mature and
meet our quality threshold we have found valuations have been too
rich for us. This is a consequence of the volume of VCT fundraising
in recent years driving up demand. We have therefore opted to stay
on the sidelines. With no obligation to invest we intend to remain
selective.
The lack of new investments has meant that transaction activity
has focused on which stocks, - if any - we should sell. These sales
typically fall into one of the following three categories:
1. Deteriorating fundamentals
2. Profit-taking on valuation grounds
3. Portfolio management
We have had examples of all three over the past year.
We have seen more of the first category - deteriorating
fundamentals - than we would have liked. We addressed the events at
Yu Group in our interim report six months ago. A review of the
accounting policies by the new finance director led to a
restatement of results and a radical reassessment of the business.
Although we admire the efforts of the remaining management team,
the economics of the business are too uncertain for our taste. We
took advantage of strength of the share price at the time of the
company's final results to exit our remaining holding at a healthy
profit. The Company's total realised gain was over GBP2.6
million.
Velocity Composites has had a chequered history since its IPO.
Although the business has developed more slowly than expected it
was actually the ongoing dispute between the board of directors and
the company's founders that led us to sell our holding. We put a
great deal of emphasis on the importance of strong stewardship in
our investment approach and the dysfunctional relationship made us
deeply uncomfortable. In this case we realised a loss of GBP373k on
our investment.
Pelatro was a relatively new investment for us. We participated
in the IPO in December 2017 and again in a fundraising in August
2018. Although we consider ourselves to be long-term, patient
investors we took the difficult decision, as outlined earlier, to
exit our holding in full realising a gain of GBP302k on our GBP1
million investment.
The second category (profit taking) included the partial
disposal of holdings in Craneware, AB Dynamics and Abcam. With
strong fundamentals and large addressable markets, these companies
are well regarded by investors - and by us. We are, though,
conscious that their valuations leave little room for error so we
have regularly booked profits over the years. A profit warning from
Craneware in June served as a reminder that things can and will go
wrong for even the strongest companies and that valuations here
offer little margin of safety.
Keywords Studios falls somewhere in between. Shareholders with
long memories may remember the issues Keywords encountered shortly
after its IPO, when customer demand stalled in anticipation of a
new cycle in the games console market. That was six years ago and
we are nearing that point in the cycle again. To be fair, the
company weathered the last bout of volatility well and recovered
strongly - but its valuation today is markedly higher. As such, we
feel the balance between risk and reward is less attractive this
time so we have erred on the side of caution and sold our remaining
shares. We would like to take this opportunity to thank CEO Andrew
Day and his management team. They have delivered handsomely in that
time and we wish them continued success. Our GBP800k investment six
years ago has delivered a gain of over GBP4.3 million. The disposal
of Keywords Studios leaves us with a portfolio comprising 25
companies.
The third category consists of disposals that we deemed
necessary for risk-management purposes rather than being any
reflection of our confidence in the prospects for the businesses in
question. Judges Scientific and Instem both continue to perform
well. Recent meetings with the respective management teams have
reinforced our confidence that they remain well-placed for
continued growth, both organically and via acquisition. The
strength in the share prices meant that each accounted for almost
10% of the Company's assets at one point - a level we feel is too
high for a balanced portfolio.
Outlook
It is now well over 12 months since making our last qualifying
investment. Looking forward it is becoming increasingly apparent
that our investment approach is difficult with the current VCT
qualifying rules. So, we are faced with a choice. Should we
compromise our investment criteria and "lower the bar"? We believe
not. Investing in early stage companies is risky. An investor
subscribing to a new VCT fundraising today gets upfront tax relief
to compensate them for that risk, and rightly so. Indeed our
shareholders bore that same risk when they invested over a decade
ago. Today though our portfolio is markedly different. Comprising,
in the main, profitable cash generative companies our current
portfolio's maturity sits in stark contrast to the speculative
nature of the new deal flow we typically see. As a result we think
it is right to remain selective and prudent to assume we may not
make any new investments going forward. This does though have a
couple of implications.
One consequence is increased portfolio concentration. At the
start of this financial year the portfolio consisted of twenty nine
companies. As at 30 September 2019 this had fallen to twenty five.
Two more holdings having been sold since the year end. We are
comfortable with this. The portfolio remains well diversified and
our portfolio is, by and large, concentrated into those companies
where our conviction is highest, as it should be.
Another implication though is a smaller asset base. From 1
October 2019 we are required to have at least 80% of our total
investments in qualifying holdings (up from 70%). Without the
ability to re-invest proceeds we are limited to shareholder
distributions in order to comply. With dividends being tax-free
this is, in itself, no bad thing and is a strategy we have adopted
frequently in recent years. It does though mean that over time we
would expect the net asset value to continue reducing.
We would therefore draw your attention to the Chairman's
Statement and the decision to formally explore options for the
future of the Company. We will, in the meantime, continue to manage
the portfolio in the same conservative way we have to date.
Andy Gray
Fund Manager
19 December 2019
Strategy and Business Review
This Strategic Report has been prepared in accordance with the
Companies Act 2006 (Strategic Report and Directors' Report)
Regulations 2013.
Corporate strategy and operating environment
The Company is incorporated in Scotland and its business as a
venture capital trust ('VCT') is to buy and sell investments with
the aim of achieving the corporate policy outlined below.
Objective and investment policy
The objective of the Company is to achieve long-term capital and
income growth and to generate tax free capital and income
distributions. The Company's investment policy is to invest in a
diversified portfolio of growth orientated companies across a broad
range of industries, with a particular emphasis on companies whose
shares will be traded on AIM. Investments will also be in companies
whose shares are traded on ISDX and unquoted companies. The
Company's portfolio is managed in order to meet the investment
requirements of Section 274 of the Income Tax Act 2007 ('s274') (as
amended) that, inter alia, requires at least 80% (increased from
70% with effect from 6 April 2019) of the investments to be
qualifying holdings. Subject to maintaining a prudent margin of
safety over the 80% level, the Company's remaining assets may be
invested in cash or money market deposits, fixed interest
securities, unit trusts or UK listed securities without regard to
the market capitalisation of such companies.
Operating environment
The Company operates as a VCT and has to satisfy the
requirements of s274 (as outlined in the objective and investment
policy) on an ongoing basis. The Directors have managed, and
continue to manage, the business in order to comply with the
legislation applicable to VCTs so as to continue to meet these
conditions. As at 30 September 2019 the Company had 91.58% of its
assets in VCT qualifying holdings. Compliance is monitored through
regular reports from the Investment Manager and Administrator. In
addition, the Board has appointed a tax advisor to provide further
independent assurance of compliance with venture capital tax
legislation and to provide guidance on changes in tax legislation
affecting the Company.
The Company has no employees and delegates most of its
operational functions to a number of service providers, details of
which are set out later in the report.
Current and future developments
A summary of the Company's developments during the year ended 30
September 2019, together with its prospects for the future and the
Board's decision to formally explore the options available, are set
out in the Chairman's Statement and the Investment Manager's
Review. The Board's principal focus remains the delivery of
positive returns for shareholders. This will be dependent on the
success of the investment strategy, in the context of both economic
and stock market conditions. The investment strategy, and factors
that may have an influence on it, are discussed regularly by the
Board and the Investment Manager. The Board regularly considers the
ongoing development and strategic direction of the Company,
including the effectiveness of communication with shareholders.
Key Performance Indicators ('KPIs')
The performance of the Company is reviewed regularly by the
Board and it uses a number of KPIs to assess the Company's success
in meeting its objective. The KPIs which have been established for
this purpose are set out below.
-- Net asset value performance . The Board monitors the
performance of the net asset value of the Company through regular
updates from the Investment Manager on the performance of the
companies in the portfolio.
-- Share price performance . The Board monitors the performance
of the share price of the Company to ensure that it reflects the
performance of the net asset value. The Board believes this can
best be achieved by establishing a discount policy at which the
Company will buyback shares.
-- Dividends. The Board is aware of the attractiveness of
tax-free dividends for shareholders. The Board monitors the gains
realised by the Company and against this determines the dividends
to be paid by the Company to shareholders, while also being mindful
of retaining cash within the Company for potential future
investment opportunities.
-- Performance against the peer group. The Board monitors the
performance of the Company against the net asset value and share
price total returns from the Association of Investment Companies
('AIC') VCT AIM Quoted sector. These returns are provided below for
the period ended 30 September 2019.
Net asset value total return
Sector Sector Sector
1 year ranking 3 years ranking 5 years ranking
------------------------ ------- -------- ------- -------- ------- --------
Artemis VCT plc (18.5)% 7/8 35.4% 2/8 95.2% 1/8
Peer group
- Size weighted average (14.8)% 11.4% 35.7%
- Highest return (7.4)% 41.3% 95.2%
- Lowest return (18.7)% (5.2)% (1.6)%
Share price total return
Sector Sector Sector
1 year ranking 3 years ranking 5 years ranking
------------------------ ------- -------- ------- -------- ------- --------
Artemis VCT plc (33.2)% 8/8 39.6% 1/8 108.8% 1/8
Peer group
- Size weighted average (13.1)% 15.1% 39.7%
- Highest return 2.1% 39.6% 108.8%
- Lowest return (33.2)% 3.0% 17.0%
Total return is capital appreciation (or depreciation) and any
dividends paid by the Company which are deemed to be
reinvested.
Source: Artemis/AIC.
-- Ongoing charges . The Board is mindful of the ongoing costs
to shareholders of running the Company and monitors operating
expenses on a regular basis. The Company's current ongoing charges
figure is 2.7% (2018: 2.4%).
Alternative Performance Measure
Principal risks and risk management
The Board, in conjunction with the Investment Manager, has
developed a risk map which sets out the principal risks faced by
the Company. It is used to monitor these risks and to review the
effectiveness of the controls established to mitigate them. As a
VCT, the principal risks faced by the Company relate to the nature
of the individual investments and the investment activities
generally.
A summary of the other key areas of risk and uncertainties are
set out below, along with the controls in place to manage these
which are highlighted for each risk.
- Strategic: investment objective and policy not appropriate in
the current market and not favoured by investors.
The investment objective and policy of the Company is set by the
Board and is subject to ongoing review and monitoring in
conjunction with the Investment Manager.
- Investment: as the Company has a focus on AIM traded
companies, as well as general market price risk, market liquidity
in such companies can be limited and it may not always be possible
to realise investment positions in their entirety at prices which
the Investment Manager considers to be representative of their fair
value.
The nature of the investment universe of companies can carry a
higher degree of risk than investment in companies that are larger
and have more established businesses. Changes in economic
conditions and changes in interest rates can impact these
businesses and their valuation.
Investment risk is addressed through having a diversified
portfolio across a number of industrial sectors. New investments
are discussed with the Board. Investment decisions include a focus
on long term market liquidity. The Board has concluded the
portfolio, barring the three level 2 stocks, can be considered
liquid. The Board discusses the investment portfolio and
performance with the Investment Manager at each Board meeting.
- Regulatory: failure to comply with the requirements of a
framework of regulation and legislation, within which the Company
operates.
The Board receives regular regulatory updates from the Company
Secretary, Investment Manager, and its VCT tax adviser, to ensure
ongoing compliance with relevant regulations and legislation.
The Company, and consequently its shareholders, can benefit from
certain tax reliefs extended to VCTs. The tax regulatory
environment is complex and, as noted earlier, the requirements that
need to be met to ensure compliance have become more restrictive.
Any breaches of these regulations could result in a loss of tax
benefits. Failure by the Company to meet the requirements of s274
could result in the Company becoming liable for tax on the net
capital gains it generates from the sale of investments and
shareholders would not be able to receive tax-free dividends.
The Board receives regular updates from the Company Secretary
and Investment Manager and its VCT tax adviser in order to monitor
compliance with applicable tax regulations.
Failure to comply with appropriate accounting standards could
result in a reporting error or breach of regulations or
legislation.
The Board receives regulatory updates from the Company Secretary
and Investment Manager to raise awareness of any changes in
corporate governance and accounting standards. Any changes in
accounting treatment are discussed and agreed by the Board. The
Company's Independent Auditor also provides an annual update on any
accounting changes that affect the Company.
- Operational: disruption to, or failure of, the Investment
Manager's and/or any third party service providers' systems which
could result in an inability to accurately report and monitor the
Company's financial position.
The Investment Manager has established a business continuity
plan to facilitate continued operation in the event of a major
service disruption or disaster and carries out oversight and
monitoring of third party service providers.
- Economic risk: In addition to the above risks, at the date of
this report the outcome of the UK Government's Brexit negotiations
with the European Union remain unclear. The risk for the Company is
principally in relation to the potential impact of Brexit on the UK
companies within the investment portfolio. The Investment Manager
continues to monitor the situation and will respond to any economic
fluctuations as required.
Further information on risks and uncertainties and the
management of them are set out in the Directors' Report.
Other matters
Viability statement
In accordance with the AIC's Code of Corporate Governance (the
'AIC Code'), the Board has considered the longer term prospects for
the Company.
The Directors are not expecting there to be any significant
changes in the current principal risks or the adequacy of
mitigating controls in place. However, the Directors have
highlighted the effect the new VCT regulations have had on deal
flow and the Company's ability to re-invest realised gains;
changing the strategy of the Company and its long term viability.
Accordingly, the period assessed is to the next continuation vote
scheduled for 2022.
As part of its assessment of the viability of the Company, the
Board has considered each of the principal risks above and the
impact of a ten per cent fall in UK markets along with the
restricted investment opportunities as mentioned above. The Board
has also considered the liquidity of the Company's portfolio to
ensure that it will be able to meet its liabilities as they fall
due.
The conclusion of this review is that the Board has a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period to the
Annual General Meeting in February 2022.
Life of the Company
In accordance with the Company's Articles, the Directors are
required to put forward an ordinary resolution for the continuation
of the Company as a VCT every five years. The next continuation
vote is due to be held in 2022.
Share capital
The Board monitors the activity in the Company's shares and the
discount to net asset value at which they may trade. The secondary
market for VCT shares remains limited and any significant sales may
have an adverse effect on the Company's share price and therefore
the discount. In order to address and mitigate this, the Company
may make periodic purchases of its own shares within guidelines
established by the Board from time to time for this purpose. The
current policy is to buy back shares at approximately a 10%
discount to the last published net asset value.
During the financial year ended 30 September 2019, the Company
bought back 657,000 ordinary shares (2018: Nil), representing 1.2%
of share capital as at 30 September 2018.
A resolution for the Company to continue to be authorised to buy
back shares will be put to shareholders at the AGM on Wednesday, 5
February 2020. Approval of this resolution by shareholders will
allow the Directors to continue to manage the liquidity of the
Company's shares by buying back shares. Share buybacks will remain
subject to the Company having the necessary shareholder authorities
in place and having sufficient funds available for this purpose,
taking into account the ongoing cash requirements for investment
activities, the payment of dividends and operating expenses.
Directors
Each of the Directors held office throughout the year under
review.
No Director has a contract of service with the Company.
Appointments to the Board will be made on merit with due regard
to the benefits of diversity, including gender, skills and
experience. The priority in appointing a new director is to
identify the candidate with the best range of skills and experience
to complement existing directors.
The Board is currently comprised of one female and two male
Directors.
Modern Slavery Act 2015
The Company does not fall within the scope of the Modern Slavery
Act 2015 as its turnover is less than GBP36 million. Therefore no
slavery and human trafficking statement is included in the Annual
Financial Report.
Social and environmental matters
The Company has delegated the management of the Company's
investments to Artemis Fund Managers Limited ('Artemis') which, in
its capacity as Investment Manager, has a Corporate Governance and
Shareholder Engagement policy which sets out a number of principles
that are intended to be considered in the context of its
responsibility to manage investments in the financial interests of
shareholders. Artemis undertakes extensive evaluation and
engagement with company management on a variety of matters such as
strategy, performance, risk, dividend policy, governance and
remuneration. All risks and opportunities are considered as part of
the investment process in the context of enhancing the long-term
value of shareholders' investments. This will include matters
relating to material environmental, human rights and social
considerations that may, ultimately, impact the profitability of a
company or its stock market rating and hence these matters are an
integral part of Artemis' thinking as institutional investors.
As the Company has delegated the investment management and
administration of the Company to third party service providers, and
has no fixed premises, there are no greenhouse gas emissions to
report from its operations, nor does it have responsibility for any
other emissions-producing sources under the Companies Act 2006
(Strategic Report and Directors' Report) Regulations 2013,
including those within the underlying investment portfolio.
Leverage
Leverage is defined in the Alternative Investment Fund Managers
Directive ('AIFMD') as any method by which the Company can increase
its exposure by borrowing cash or securities, or from leverage that
is embedded in derivative positions, neither of which the Company
currently uses. The Company is permitted by its Articles to borrow
up to 15% of its net assets (115% under the Commitment and Gross
ratios used in the AIFMD). The Company is permitted to have
additional leverage of up to 100% of its net assets, which results
in permitted total leverage of 215% under both ratios. The
Alternative Investment Fund Manager (the 'AIFM'), Artemis, monitors
leverage values on a daily basis and reviews the limits annually.
No changes were made to these limits during the year ended 30
September 2019. At 30 September 2019, the Commitment ratio was
76.39% and the Gross ratio was 100.01%.
For and on behalf of the Board
Fiona Wollocombe
Chairman
19 December 2019
Statement of Directors' Responsibilities in respect of the
Annual Financial Report
Management Report
Listed companies are required by the Financial Conduct
Authority's Disclosure Guidance and Transparency Rules (the
'Rules') to include a management report in their annual financial
statements. The information required to be in the management report
for the purpose of the Rules is included in the Strategic Report.
Therefore no separate management report has been included.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Financial
Report and the Company's Financial Statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law they have
elected to prepare the Financial Statements in accordance with UK
Accounting Standards, including Financial Reporting Standard
('FRS') 102 The Financial Reporting Standard applicable in the UK
and the Republic of Ireland.
Under company law the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that period. In preparing the Financial
Statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable UK Accounting Standards have been
followed, subject to any material departures being disclosed and
explained in the Financial Statements; and
-- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the Financial Statements comply with the Companies Act 2006. They
have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Company and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations.
The Financial Statements are published on a website,
artemisfunds.com/vct, maintained by the Company's Investment
Manager, Artemis. The maintenance and integrity of the corporate
and financial information relating to the Company is the
responsibility of the Investment Manager. Legislation in the UK
governing the preparation and dissemination of Financial Statements
may differ from legislation in other jurisdictions.
Responsibility Statement of the Directors in respect of the
Annual Financial Report
We confirm that, to the best of our knowledge:
(a) the Financial Statements, prepared in accordance with
applicable accounting standards, give a true and fair view of the
assets, liabilities and financial position of the Company as at 30
September 2019 and of the profit for the year then ended; and
(b) the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
We consider the Annual Financial Report, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance,
business model and strategy.
For and on behalf of the Board
Fiona Wollocombe
Chairman
19 December 2019
Financial Statements
Statement of Comprehensive Income
Year ended 30 September
2019 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Losses)/gains on
investments - (5,403) (5,403) - 7,924 7,924
Income 264 - 264 323 - 323
Investment management
fee (109) (327) (436) (164) (491) (655)
Other expenses (253) (1) (254) (252) (2) (254)
------- ------- ------- ------- ------- -------
(Loss)/return on
ordinary
activities before
taxation (98) (5,731) (5,829) (93) 7,431 7,338
Taxation on ordinary
activities - - - - - -
------- ------- ------- ------- ------- -------
(Loss)/return on
ordinary activities
after taxation (98) (5,731) (5,829) (93) 7,431 7,338
------- ------- ------- ------- ------- -------
(Loss)/return per
share (pence) (0.18) (10.83) (11.01) (0.18) 13.98 13.80
------- ------- ------- ------- ------- -------
The total column of this statement is the profit and loss
account of the Company.
All revenue and capital items in this statement derive from
continuing operations. No operations were acquired or discontinued
during the year.
The net (loss)/return for the year disclosed above represents
the Company's total comprehensive income.
Statement of Financial Position
As at 30 September
2019 2018
GBP'000 GBP'000
Non-current assets
Investments 16,752 28,226
-------- --------
Current assets
Debtors 9 44
Cash and cash equivalents 5,179 6,202
-------- --------
5,188 6,246
-------- --------
Total assets 21,940 34,472
Creditors - amounts falling due within
one year (167) (241)
-------- --------
Net assets 21,773 34,231
-------- --------
Capital and reserves
Share capital 5,249 5,315
Share premium 2,828 2,828
Capital reserve - realised 6,298 9,411
Capital reserve - unrealised 4,994 14,241
Capital redemption reserve 2,635 2,569
Revenue reserve (231) (133)
-------- --------
Equity shareholders' funds 21,773 34,231
-------- --------
Net asset value per share (pence) 41.48 64.40
-------- --------
These financial statements were approved by the Board of
Directors and signed on its behalf on 19 December 2019.
Fiona Wollocombe
Chairman
Statement of Changes in Equity
Year ended 30 September 2019
Capital Capital Capital
Share Share reserve reserve redemption Revenue
capital premium - realised* - unrealised reserve reserve* Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------- ------- ----------- ------------ ---------- ----------------- -------
At 30 September 2018 5,315 2,828 9,411 14,241 2,569 (133) 34,231
Repurchase of shares for
cancellation (66) - (281) - 66 - (281)
Loss on ordinary activities after
taxation - - (198) (5,533) - (98) (5,829)
Transfer on disposal of
investments - - 3,714 (3,714) - - -
Dividends paid - - (6,348) - - - (6,348)
------- ------- ----------- ------------ ---------- ----------------- -------
At 30 September 2019 5,249 2,828 6,298 4,994 2,635 (231) 21,773
------- ------- ----------- ------------ ---------- ----------------- -------
Year ended 30 September 2018
Capital Capital Capital
Share Share reserve reserve redemption Revenue
capital premium - realised* - unrealised reserve reserve* Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------- ------- ----------- ------------ ---------- ----------------- --------
At 30 September 2017 5,315 2,828 11,015 17,431 2,569 (40) 39,118
Return/(loss) on ordinary
activities
after taxation - - 3,116 4,315 - (93) 7,338
Transfer on disposal of
investments - - 7,505 (7,505) - - -
Dividends paid - - (12,225) - - - (12,225)
------- ------- ----------- ------------ ---------- ----------------- --------
At 30 September 2018 5,315 2,828 9,411 14,241 2,569 (133) 34,231
------- ------- ----------- ------------ ---------- ----------------- --------
* The aggregate of these reserves, being GBP6,067,000,
represents the distributable reserves of the Company at 30
September 2019 (30 September 2018: GBP9,278,000).
Statement of Cash Flows
Year ended 30 September
2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
Cash used in operations (494) (576)
Interest received 29 20
------- --------
Net cash generated from
operating activities (465) (556)
Cash flow from investing
activities
Purchase of investments - (1,387)
Sale of investments 6,071 13,329
------- --------
Net cash from investing
activities 6,071 11,942
Cash flow from financing
activities
Repurchase of shares
for cancellation (281) -
Dividends paid (6,348) (12,225)
------- --------
Net cash used in financing
activities (6,629) (12,225)
------- --------
Net decrease in cash
and cash equivalents (1,023) (839)
------- --------
Cash and cash equivalents
at start of the year 6,202 7,041
Decrease in cash in the
year (1,023) (839)
------- --------
Cash and cash equivalents
at end of the year 5,179 6,202
------- --------
Notes to the Financial Statements
1. Accounting policies
The financial statements have been prepared on a going concern
basis and in accordance with UK Generally Accepted Accounting
Practice ('UK GAAP'), including Financial Reporting Standard
('FRS') 102, and the Statement of Recommended Practice: Financial
Statements for Investment Trust Companies and Venture Capital
Trusts (the 'SORP') issued in November 2014 and updated in February
2018 by the Association of Investment Companies (the 'AIC').
The Company is not an investment company within the meaning of
Section 833 of the Companies Act 2006 (the 'Act'), having revoked
investment company status on 5 March 2008 in order to permit the
distribution of realised capital gains. The financial statements
are presented in accordance with Part 15 of the Act, and the
requirements of the SORP, where the requirements of the SORP are
consistent with the Act.
No significant estimates or judgements have been made in the
preparation of the financial statements.
2. Return per share
Year ended 30 September Year ended 30 September
2019 2018
---------------------------- ----------------------------
Revenue Capital Total Revenue Capital Total
-------- -------- -------- --------- --------- ------
(Loss)/return
per share (pence) (0.18) (10.83) (11.01) (0.18) 13.98 13.80
======== ======== ======== ========= ========= ======
Revenue loss per share is based on the net revenue loss
attributable to shareholders of GBP98,000 and on 52,926,190 shares,
being the weighted average number of shares in issue during the
year (2018: GBP93,000 and on 53,150,516 shares).
Capital loss per share is based on net capital losses
attributable to shareholders of GBP5,731,000 and on 52,926,190
shares, being the weighted average number of shares in issue during
the year (2018: returns GBP7,431,000 and on 53,150,516 shares).
Total loss per share is based on the total loss attributable to
shareholders of GBP5,829,000 and on 52,926,190 shares, being the
weighted average number of shares in issue during the year (2018:
return GBP7,338,000 and on 53,150,516 shares).
3. Net asset value per share
The net asset value per share at the year end is calculated in
accordance with the Company's Articles and is as follows:
As at As at
30 September 30 September
2019 2018
------------ ------------
Net asset value per share (pence) 41.48 64.40
------------ ------------
The net asset value per share is based on net assets of
GBP21,773,000 and 52,493,516 shares, being the number of shares in
issue at 30 September 2019 (2018: net assets of GBP34,231,000 and
53,150,516 shares in issue).
4. Transactions with the Investment Manager and related
parties
The amounts paid to the Investment Manager and amounts
outstanding at the year end are disclosed in the Annual Financial
Report. However, the existence of an independent Board of Directors
demonstrates that the Company is free to pursue its own financial
and operating policies and therefore, under guidance from the AIC
SORP, the Investment Manager is not considered to be a related
party.
Fees payable during the year to the Directors and their
interests in shares of the Company are considered to be related
party transactions and are disclosed within the Directors'
Remuneration Report included in the Annual Financial Report.
5. Annual Financial Report
This Annual Financial Report announcement does not constitute
the Company's statutory accounts for the years ended 30 September
2019 and 30 September 2018 but is derived from those accounts.
Statutory accounts for the year ended 30 September 2018 have been
delivered to the Registrar of Companies. The statutory accounts for
the year ended 30 September 2018 and the year ended 30 September
2019 both received an audit report which was unqualified and did
not include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying the report and did
not include statements under Section 498 of the Act respectively.
The statutory accounts for the year ended 30 September 2019 have
not yet been delivered to the Registrar of Companies and will be
delivered following the AGM.
The audited Annual Financial Report for the year ended 30
September 2019, will be posted to shareholders shortly. Copies may
be obtained from the Company's registered office at 6(th) Floor,
Exchange Plaza, 50 Lothian Road, Edinburgh, EH3 9BY or at the
Company's website, artemisfunds.com/vct
The Annual General Meeting of the Company will be held on
Wednesday, 5 February 2020.
For further information, please contact:
Company Secretary
Tel: 0131 225 7300
Artemis Fund Managers Limited
19 December 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EAFANFFSNFFF
(END) Dow Jones Newswires
December 19, 2019 06:20 ET (11:20 GMT)
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