TIDMHHV
21 November 2023
HARGREAVE HALE AIM VCT PLC
(the "Company")
Interim Management Statement
Q4 2023
Introduction
This interim management statement covers the fourth quarter of
the 2022/23 financial year, 1 July 2023 to 30 September 2023.
Investment performance measures contained in this report are
calculated on a pence per share basis and include realised and
unrealised gains and losses.
Overview
Inflation and interest rates here, in the US and elsewhere have
continued to dominate news flow. Towards the end of the period,
movements in the US 10-year Treasury yield became an area of focus
for many.
Inflation has come down significantly as food prices, supply
chains and employment markets all eased. UK wage growth remains
stubbornly high with the Bank of England now warning unemployment
may have to climb above 5% to ease wage pressure.
UK inflation fell from 7.9% in June to 6.7% in September. Post
period, UK inflation fell sharply to 4.7%. The fall in inflation
from its peak of 11.1% in October 2022 will significantly ease the
pressure on households and companies. However, the same model
forecasts inflation will not fall into line with the Bank of
England's 2% target until 2025, helping to explain why interest
rates are expected to stay higher for longer. For now, the markets
are increasingly confident that we may have reached peak interest
rates with the Bank of England currently expected to stay on hold
until June 2024.
UK consumer confidence remains low, albeit substantially better
than at the start of the financial year. However, the September
reading did surprise on downside, suggesting that higher interest
rates might finally start to take their toll. There are other signs
too that tighter monetary policy is starting to have an impact on
the economy, with retail sales weakening and unemployment starting
to trend higher, albeit from a very low base.
Although the UK economy continues to outperform very modest
expectation, Purchasing Managers' Index (PMI) reports, which offer
a view on the prevailing economic trends, continue to indicate a
slowing economy with both the manufacturing and services indices
signalling contraction. Other economic data is signalling a sharp
contraction in UK construction.
AIM continues to endure a particularly difficult period, having
now fallen by 42% in the two years to 30 September 2023. By any
measure, this is a long and uncomfortable bear market. Although
trading varies quite significantly by sector, price action is
heavily influenced by the continued flow of capital out of UK
equity funds.
Performance
In the 3 months to 30 September 2023, the unaudited NAV per
share decreased by 3.5 pence to 46.34 pence. A one penny interim
dividend was paid in July, giving a total return of -6.9%. AIM fell
by 3.2% over the same period.
The qualifying investments made a net loss of -3.49 pence per
share whilst the non-qualifying equity investments made a gain of
0.12 pence per share. The adjusting balance was the net of the
Marlborough Special Situations Fund, running costs and investment
income.
Qualifying Investments
Intelligent Ultrasound reported (+33.3%, +0.13 pence per share)
underlying revenue growth of 35% in the 6 months to June. The
partnership with GE Healthcare, a world leader in women's health,
continues to expand with more of GE's ultrasound machines now
offering the company's AI-based real time image analysis software
for use by sonographers during prenatal scanning. The partnership
presents a significant opportunity for high margin royalty
revenues.
Diaceutics (+22.6%, +0.12 pence per share) reported good revenue
growth in the 6 months to June. Recurring revenues continue to grow
rapidly as more customers signed annual or multi-year licences for
their DXRX platform. The company also announced a change of
leadership with the chief executive moving into a business
development role, to be replaced by the chief operating
officer.
Instem (+33.1%, +0.11 pence per share) received a takeover bid
from private equity valuing the company at GBP203m. Although
trading is more difficult in the short-term, we were confident in
the senior leadership team and would have preferred to see the
company remain in public ownership.
Zoo Digital (-67.5%, -1.11 pence per share) continued to be
heavily affected by the dispute between Hollywood studios and
unions representing actors and screen writers. Revenue and profit
guidance was revised lower again, the third time this year. Post
period, the studios and unions reached an agreement to end the
118-day strike. The proposed deal will now go to the two union
memberships for ratification. The company expects to emerge from
this dispute in a strong position.
Eden Research (-51.6%, -0.33 pence per share) announced a first
order for the new seed treatment that was jointly developed with
Corteva Agriscience, a large US listed agricultural company.
Ecovelex uses plant derived chemistries to address the loss of
Maize seed to birds and is designed as a replacement for
conventional chemicals that are now banned in the UK and EU.
Revenues are likely to remain modest until receipt of market
approvals in the UK and EU.
To address performance issues that emerged following the 2022
FDA clearance of its lung imaging product, Polarean (-58.7%, -0.30
pence per share) appointed a new and experienced CEO to drive
adoption. Commercial progress remains slow and the company will
need additional funding in 2024.
Non-Qualifying Investments
XP Power (+20.0%, +0.04 pence per share) published results for
the 6m to July 2023 that were in line with expectations. Post
period end, the company provided an unscheduled trading update that
flagged weaker training and warned that it was in danger of
breaching debt covenants. Planned dividend payments were cancelled.
Subsequent updates confirmed the company was performing in line
with the revised guidance and announced that it had raised GBP45m
to strengthen its Balance Sheet.
TP ICAP (+12.5%, +0.03 pence per share) reported results for the
6m to 30 June 2023 that were in line with expectations. Good cash
generation allowed the company to announce a well-received GBP30m
share buyback programme.
Energean (+11.6%, +0.03 pence per share) reported results for
the 6m to 30 June that were in line with expectations. Post period,
the attack on Israel and the war in Gaza has depressed the share
price. The production platform is 100km offshore and operations are
currently unaffected.
WH Smith (-13.2%, -0.05 pence per share) issued a full year
trading update for the 12m to August that was in line with market
expectations. The travel business continues to perform well whilst
the UK High Street business was stable.
The announcement that Rolex was to acquire a key competitor and,
through it, open up a new direct to consumer channel raised
concerns that Rolex might undermine or change its relationship with
Watches of Switzerland (-12.5%, -0.03 pence per share) and increase
the competitive threat.
Ashtead (-8.1%, -0.03 pence per share) issued third quarter
results that were in line with expectations. Whilst the outlook for
the USA remains strong, management tempered the outlook for the
much smaller UK operation.
Portfolio structure
The VCT is comfortably above the HMRC defined investment test
and ended the period at 91.65% invested as measured by the HMRC
investment test. By market value, the weighting to qualifying
investments decreased from 58.90% to 58.70%.
Qualifying investment activity remains subdued with GBP2m
invested across three qualifying companies. This included a new
investment into Tan Delta, which manufacturers sensors that provide
real time monitoring of oil condition in mission critical and high
value equipment. The investment was made at the time of its initial
public offering. We also made two follow on investments into
BiVitrix and Rosslyn Data.
We modestly reduced our investment in Equipmake following some
strong share price performance and Blackbird following a weak
update. We made a full exit from Yourgene following its acquisition
by another company listed on AIM.
We made minor adjustments to the non-qualifying portfolio in
response to company updates. We made no changes to the
non-qualifying fixed income portfolio but did reduce the investment
in the Marlborough Special Situations Fund to fund investments into
qualifying companies, taking the weighting down from 8.3% to
5.4%.
There were no substantial changes to the allocation to
non-qualifying equities, fixed income or cash, which respectively
represented 10%, 11% and 13% of net assets.
The HMRC investment tests are set out in Chapter 3 of Part 6
Income Tax Act 2007, which should be read in conjunction with this
interim management statement. Funds raised by VCTs are first
included in the investment tests from the start of the accounting
period containing the third anniversary of the date on which the
funds were raised. Therefore, the allocation of qualifying
investments as defined by the legislation can be different to the
portfolio weighting as measured by market value relative to the net
assets of the VCT.
Share Buy Backs & Discount Control
2,644,366 shares were acquired in the quarter at an average
price of 46.66 pence per share. The share price decreased from 46p
to 43p within the quarter and traded at a discount of 6.8%
following the publication of the 30 September 2023 NAV on 5 October
2023.
Post Period End
The unaudited NAV per share decreased from 46.34 pence to 44.60
pence in the 6 weeks to 10 November 2023, a decrease of 3.8%. The
FTSE AIM All-Share index decreased by 3.2%. There was one new
qualifying investment made into Eden Research with GBP0.5m
invested. This investment was part of a larger funding round
announced on 28 July 2023.
END
For further information please contact:
Oliver Bedford, Canaccord Genuity Asset Management
Tel: 020 7523 4837
LEI: 213800LRYA19A69SIT31
(END) Dow Jones Newswires
November 21, 2023 02:00 ET (07:00 GMT)
Copyright (c) 2023 Dow Jones & Company, Inc.
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