ProVen Growth and Income VCT plc: Annual Financial Report
*P**roVen** Growth and Income VCT plc*
*A**nnual** F**inancial** R**eport*
*Y**ear Ended 28 February 2023*
ProVen Growth and Income VCT plc, managed by Beringea LLP, today announces the final results for the year ended 28 February 2023. These results were approved by the Board of Directors on 9 June 2023.
You may, in due course, view the Annual Financial Report in full at www.proveninvestments.co.uk. All other statutory information can also be found there.
*F**und Overview*
Ordinary Shares as at: *28 February 202**3*
*28 February 2022*Net asset value per Ordinary Share 54.2p 67.3p
Dividends paid since class launch (originally as ‘C’ Shares) 75.4p 70.7p
Total return (net asset value plus dividends paid since ‘C’ Share class launch) 129.6p 138.0p
*Year on year change in:*
Net asset value per Ordinary Share (adjusted for dividends paid in the year)
Dividends paid/payable in respect of year
Dividend yield (12.4)%
3.25p
5.1% 14.3%
4.75p
7.9%
*Chair’s Statement*
I am pleased to present the Annual Report for ProVen Growth and Income VCT plc (the “Company”) for the year ended 28 February 2023. The financial year under review was impacted by many macroeconomic and geopolitical challenges. Despite this backdrop, your Company delivered several profitable exits. However, the overall portfolio valuation suffered owing to the significant market volatility, with the valuation of three companies being fully written down in the period. This is reflected in a negative total return (net asset value (“NAV”) per share plus dividends) for the year to 28 February 2023.
*Results for the year*
For the year, there was a negative total return of 12.4%, which was largely attributable to three significant realised losses in the period, namely MYCS, Festicket and Thread, which together accounted for 6.4% of this loss.
The loss on ordinary activities for the year was £23.8 million, or 8.3p per share (2022: profit of £22.4 million, or 9.4p per share), comprising a revenue loss of £1.2 million, or 0.4p per share (2022: revenue loss of £1.4 million, or 0.6p per share) and a capital loss of £22.6 million, or 7.9p per share (2022: profit of £23.8 million, or 10.0p per share). This capital loss was predominantly driven by realised and unrealised losses in the portfolio of £10.9 million and £9.1 million respectively.
*Dividends*
During the year ended 28 February 2023, the Company paid final and special dividends of 1.5p and 1.75p per share respectively on 5 August 2022 to Shareholders on the register at 15 July 2022. These dividends were paid in respect of the year ended 28 February 2022. The Company also paid an interim dividend in respect of the year ended 28 February 2023 of 1.5p per share on 2 December 2022 to Shareholders on the register at 11 November 2022.
Your Board is proposing a final dividend for the year ended 28 February 2023 of 1.75p per share to be paid on 4 August 2023 to Shareholders on the register on 7 July 2023. The payment of this dividend will result in an equivalent reduction in the Company’s NAV per share.
The total tax-free dividends of 3.25p per share for the year ended 28 February 2023 represents a cash return to Shareholders of 5.1% on the opening NAV per share at 1 March 2022, after deducting the prior year’s final and special dividends of 3.25p per share in total.
*Portfolio activity and valuation*
The Company invested a total of £21.4 million in the year (2022: £32.7 million), with six new companies added to the portfolio at a cost of £14.9 million, and follow-on investments totalling £6.5 million in nine existing portfolio companies. This active year of investing has provided further diversification to your Company’s investment portfolio and it is pleasing to note that several of the new additions have already shown strong commercial performance since investment, for example, Lucky Saint and Dash. These additions to the portfolio are discussed in more detail in the Investment Manager’s Review.
The Company also saw strong exit activity within the portfolio, with the partial realisation of Zoovu completing at the beginning of the year, followed by the full realisations of Blis, Sealskinz and Firefly. These companies provided a combined profit against initial cost of £20.8 million. After the year end, two further profitable exits occurred, from Monica Vinader and Aistemos.
The financial year began against a backdrop of economic turbulence due to the invasion of Ukraine by Russia, which set in motion a series of macroeconomic challenges. International supply chains, which had only recently shown signs of recovery following the COVID pandemic, faced huge disruption, affecting both businesses and consumers. In addition, inflation increased to levels not seen for decades, caused primarily by a surge in energy prices. Interest rates increased globally in response and there was a general tightening of liquidity in both debt and equity markets.
These challenges had a significant impact across the portfolio, most notably with three write-downs that have been treated as realised losses in these accounts:
· MYCS was adversely impacted by loan providers introducing new lending caps in March 2022, coupled with a sharp decline in consumer confidence. These factors prompted the company to merge with another private equity-backed business. As part of this transaction, the Company disposed of its interest in MYCS for a nominal amount, with potential for some proceeds in the future should the buyer secure a sale for the enlarged group;· Festicket, an online platform which packaged festival tickets together with travel, accommodation and add-ons to provide complete festival experiences, was badly impacted by the COVID-19 pandemic, leaving the company with a weakened balance sheet. An erratic reopening of the festival market in 2021, followed by the failure of several festivals in 2022, resulted in highly challenging cash-flow dynamics for Festicket. This led to the company entering administration during the year; and· Thread, a menswear e-commerce site, had been pursuing a high growth strategy, including an entry into the US market, which had delivered a significant increase in revenues since the Company’s investment. However, increased risk-aversion among investors resulted in Thread being unable to raise further capital to fund its high growth strategy, which led to the business entering administration during the year.
The profits and write-downs referred to above reflect the early-stage, high-growth profile of the investments in your Company's portfolio. Early-stage businesses carry inherent risk, meaning that some will be very successful, and some will fail. When substantial write-downs such as these do occur, your Board conducts extensive reviews with the Investment Manager to understand whether there are any learning points to be applied to future investment activities. The risk of individual investments is balanced by your Company’s diversified portfolio of more than fifty companies. Historically, the successes in the Company’s portfolio have significantly outweighed the losses over the medium term, although past performance is not a guide to the future.
The unsettled market conditions also affected the unrealised portfolio, which fell in value by £9.1 million. The valuations of Papier, an online personalised stationery retailer, and Fnatic, an esports organisation, were particularly affected by declining market comparables (used as a basis for valuations), as well as a softening in trading performance, and together account for an unrealised loss in the period of £10.0 million. Apart from these companies, however, performance across the portfolio has generally been satisfactory.
*Fundraising activities *
As communicated in the Company’s Half Year Report, a combined offer for subscription with ProVen VCT plc launched on 11 January 2022 to raise up to a total of £20 million per company, with an over-allotment facility of up to a further £20 million per company. It closed to further applications on 12 August 2022 with £29.4 million of gross proceeds raised for the Company.
The Company launched a further combined offer for subscription with ProVen VCT plc on 19 October 2022 to raise up to £20 million per company, with an over-allotment facility of £20 million per company. As at the date of the Annual Report, the current offer has raised £8.3 million of gross proceeds for the Company and has been extended to 28 July 2023 (or such earlier date as the offer is fully subscribed).
*Share buybacks*
The Company has a policy of buying back shares that become available in the market at a discount of approximately 5% to the latest published net asset value, subject to the Company having sufficient liquidity. The Company retains Panmure Gordon to act as its corporate broker. Shareholders who are considering selling their shares should contact Panmure Gordon who will be able to provide details of the price at which the Company is buying shares.
During the year, the Company bought back 8,929,292 Ordinary Shares at an average price of 58.5p per share and for an aggregate consideration of £5,222,000. This represented 3.5% of the Company’s issued share capital at the start of the year. All shares were subsequently cancelled.
A special resolution to allow the Company to continue to make market purchases of its own shares of up to 14.99% of the share capital for cancellation will be proposed at the forthcoming Annual General Meeting (“AGM”).
*Performance Fee*
The Company’s performance incentive arrangements are an important aid for the Investment Manager in recruiting and retaining talented investment professionals against competition from other investment management companies. The performance fee structure is designed to align the interests of the Investment Manager with those of Shareholders and encourages capital growth as well as significant payments to Shareholders by means of tax-free dividends, as determined by the Directors.
However, at 28 February 2023, the relevant performance hurdles were not met and therefore no performance fee is payable for the year under review.
The payment of a performance fee in future years and the amount thereof, if any, will be dependent on both the performance of the Company and the level of dividends paid to Shareholders.
*Environmental, Social & Governance (ESG)*
The Board notes the Investment Manager’s commitment to ensuring Environmental, Social and Governance (ESG) principles are high on the agenda for the early-stage companies in which your Company invests. Further detail on the Investment Manager’s approach to ESG, including its role as Chair of ESG_VC, can be found in the Investment Manager’s Review.
*Annual General Meeting*
The next AGM of the Company will be held at the offices of Beringea LLP, at Charter House, 55 Drury Lane, London, WC2B 5SQ at 10:30am on Wednesday 12 July 2023. Those intending to attend the AGM are asked to register their intention by emailing info@beringea.co.uk in advance of the meeting.
The Board values the opportunity to meet Shareholders in person and I would encourage Shareholders to attend the AGM in person. However, we also understand that attendance in person may not be possible or desirable for all who wish to attend. Therefore, this year, the Company will also offer Shareholders the option to follow proceedings of the meeting online. Any Shareholders who wish to listen to the meeting remotely, should email info@beringea.co.uk for joining instructions.
Please note that Shareholders will not be able to vote or ask questions at the AGM when joining remotely. Shareholders are encouraged, even if they are planning to attend the AGM in person, to exercise their votes by submitting their proxy electronically via their Signal Shares account at www.signalshares.com and to appoint the Chair of the AGM as their proxy with their voting instructions.
Shareholders who wish to submit questions in advance of the AGM may do so via e-mail to info@beringea.co.uk and the Board will respond to questions raised at the meeting.
*Shareholder event*
The Company’s Annual Shareholder Event continues to be well received and provides an important opportunity for Shareholders to hear from the Investment Manager on topics such as performance and investment activity, to ask questions of your Board, and to receive insights and updates from the portfolio companies.
During the COVID pandemic these events were conducted virtually. Last year the Investment Manager experimented with a hybrid event. The majority of Shareholders attending last year’s event elected to do so virtually. Consequently, it has been decided that we will revert to hosting a fully virtual event in 2023. This will enable any Shareholder to join without the need for travel into Central London. This has been scheduled for 10:30am to 12.30pm on Thursday, 16 November 2023 and I would encourage you to join us for the session. You can RSVP to events@beringea.co.uk.
*VCT r**egulatory developments*
Shareholders may be aware that in 2015, owing to EU rules in relation to notified state aid, the Government was required to introduce a “Sunset Clause” into the VCT legislation. Unless legislation to extend or remove the Sunset Clause is enacted, income tax relief will no longer be available for new VCT subscriptions made on or after 6 April 2025. The Government announced in September 2022 its commitment to extending the VCT scheme beyond 2025, which the Company welcomed in its Half Year Report and continues to do so.
No further details of how the removal of the Sunset Clause will be enacted have been announced to date. The VCT industry, along with other influential bodies such as the BVCA, continues to press the Government to implement the removal of the Sunset Clause as soon as possible, in order to ensure that VCTs are able to continue their support for early-stage UK companies.
Another development worthy of note is that HMRC has recently started to adopt a stricter interpretation of the Financial Health Test. This is a test in the VCT legislation designed to ensure that VCT funds are only invested in companies of adequate financial health. In the opinion of your Board and the Investment Manager, HMRC’s new interpretation of this test is too rigorous, and is preventing VCTs from providing follow-on funding to some existing portfolio companies. The VCT industry, through the Venture Capital Trust Association, has made representations to HMRC to highlight the potentially damaging effect that their new interpretation of this test is having on UK scale-up businesses.
*Consumer Duty*
The Financial Conduct Authority (FCA) has established a new consumer duty (the ‘Consumer Duty’), which will come into force in July 2023 for products and services open to retail customers. The Consumer Duty sets higher and clearer standards of consumer protection across financial services, and requires firms to put their customers’ needs first.
VCTs are not directly subject to the new Consumer Duty. However, the Investment Manager as an FCA-regulated firm, is subject to the Consumer Duty and has completed a Consumer Duty review in advance of the new rules coming into effect later this year. The Consumer Duty highlights the FCA’s drive to protect the interests of retail customers and the Board will be monitoring the actions put in place by the Investment Manager to ensure our Shareholders continue to be put at the heart of our business.
*U**nsolicited Communication with Shareholders*
While we are not aware of any instances in the last year, we have in prior years been informed that some Shareholders in ProVen Growth and Income VCT plc have received unsolicited phone calls, in which the caller has sought to discuss their shareholdings. We have previously advised all Shareholders that these calls may be associated with an attempted fraud, and Shareholders should not engage with the caller. If you do receive a suspect call, we strongly suggest that you hang up as soon as possible, and contact the Investment Manager. The FCA has published useful guidance for shareholders on how to protect themselves from scams, which you may wish to read. You can find it online at: https://www.fca.org.uk/consumers/protect-yourself-scams.
*Outlook *
While it is disappointing to report a loss for the year under review, your Board is encouraged by the resilience shown by most companies within the portfolio. Despite a very challenging operating environment, most companies in the portfolio have continued to grow their revenues, and exit activity has shown the potential of the portfolio to deliver positive returns in spite of economic headwinds.
At the time of writing there are mixed signals from the economy, with a recession avoided to date but inflation remaining stubbornly high and interest rates likely to rise further. Despite this, the ambitious entrepreneurs in your Company’s portfolio continue to seek out and take advantage of growth opportunities. Your Investment Manager continues to work closely with and support the leadership teams at investee companies to help them navigate the challenges and opportunities of scaling their businesses.
Looking ahead, your Board anticipates that the next twelve months will continue to be challenging but hopes to see some of the economic pressures easing. We remain confident that the Company’s large and diverse portfolio will yield solid growth over the medium-term, and the Investment Manager will continue to identify attractive new investment opportunities to bring into the portfolio, enabling the Company to deliver the target returns to Shareholders.
*Marc Vlessing OBE*
Chair
*Investment Manager’s Review*
We are pleased to present our annual review for the year ended 28 February 2023. Through a year that was characterised by economic and geopolitical disruption, the investment rate remained strong with a total of £21.4 million deployed into six new and nine existing portfolio companies. However, challenging market conditions led to the write-downs of three significant holdings, and portfolio valuations overall were tempered by declining market comparables.
The year also saw a good run of investment realisations, with aggregate disposal proceeds of £30.6 million resulting in realised gains over cost of £14.5 million. Against a backdrop of economic uncertainty, this demonstrated the strength of the investment portfolio and the potential for continued returns. Furthermore, the Company completed two more exits shortly after the end of the financial year, with the sales of Monica Vinader and Aistemos completing in March 2023 and returning 11.8x and 1.7x on cost respectively.
However, despite the profits realised on exits during the year, three significant losses, namely MYCS, Festicket and Thread, contributed to a net realised loss for the year of £10.9m, and a total loss of £23.8 million.
At 28 February 2023, the Company’s venture capital portfolio comprised 52 investments at a cost of £114.8 million and a valuation of £116.2 million, an overall increase of 1.2% on cost.
Since the year end, the Company has issued 7,144,716 Ordinary Shares for an aggregate gross consideration of £4.0 million under the combined offer for subscription with ProVen VCT plc which launched on 19 October 2022. Net proceeds for the Company after share issue costs were £3.8 million. This, coupled with the previous offer, means the Company remains well capitalised to take advantage of new investment opportunities and to support existing portfolio companies where appropriate.
*Investment activity*
New investments
After a record year for new investments in the previous financial year, a high volume of deal flow continued in the period, with a strong pipeline of opportunities translating into £14.9 million of investment into six new portfolio companies in the year. More details on the four largest new investments are given below.
The largest investment in the period was made in June 2022 in WiredScore (£3.5 million), a company that assesses, certifies and improves digital connectivity and smart technology in offices and homes globally.
In December 2022 the Company invested £3.3 million into Dash, a leading brand of sparkling zero-calorie seltzer water infused with flavours from real fruit.
Two further new investments were made in August 2022 for £2.2 million each:
· Chattermill, a cloud-based customer experience management solution that helps businesses collect, manage and analyse customer feedback across chats, emails, app store reviews, surveys, social interactions and other channels; and· Lucky Saint, an award-winning alcohol-free beer company.
Follow-on investments
The Company also continued to support the development and growth of its existing portfolio companies, providing further funding to nine companies during the year.
In April 2022, the Company invested £1.2 million into CreativeX as part of a $25m funding round. CreativeX helps marketers measure their digital content against four indicators of long-term brand growth: creative quality, brand consistency, compliance, and representation.
The Company also invested £1.0 million in July 2022 into each of Social Value Portal and Second Nature to support their continued growth. A further £1.0 million was invested into Litta in December 2022.
Other follow-on investments were made in Lumar (formerly Deepcrawl) (£734,000), MYCS (£551,000), Arctic Shores (£459,000), Commonplace (£370,000) and Plum Guide (£88,000).
Investment disposals
The Company experienced an increase in exit activity during the previous financial year and this continued through to 28 February 2023, as detailed below.
In March 2022, there was a partial disposal of the Company’s holding in Zoovu. The Company received proceeds of £17.5 million, a return of 5.1x against the cost of the shares sold. Having performed well since the initial investment by the Company in August 2017, Zoovu had been exploring options for additional fundraising. It agreed on an offer which saw the Company sell 70% of its holding and roll over its remaining shares. Zoovu also raised additional primary capital to fund further expansion as part of the transaction.
In June 2022, the Company disposed of its entire holding in Blis for proceeds of £7.2 million, in a transaction with Lloyds Development Capital. This resulted in a return against cost of 6.7x.
In November 2022, the Company exited Sealskinz for proceeds of £3.9 million and a return against cost of 1.2x. In January 2023 the Company’s full holding in Firefly Learning was sold for initial proceeds of £0.7 million and the potential for further proceeds in the future.
Unfortunately, MYCS was heavily impacted by adverse market conditions. Following the Russian invasion of Ukraine there was a sharp decline in consumer confidence in the company’s key markets and therefore a slowdown in sales. MYCS’ lenders also introduced new caps on the amount they would advance at the end of March 2022. These two developments led to the company merging with another private equity-backed business. As part of this transaction, the Company disposed of its interest in MYCS for a nominal amount, with potential for some additional proceeds in the future should the buyer secure a sale for the enlarged group. During the year the Company also disposed of its holding in Exonar which had been fully written down in a prior year.
Key developments at existing portfolio companies
The financial year opened with economic turbulence due to the invasion of Ukraine by Russia, which at the time of writing is still ongoing. In addition, inflation increased to levels not seen for decades, with interest rates rising globally in an attempt to moderate this inflation. The valuations of many quoted technology stocks have also declined significantly during a period of correction following the high valuations seen over the last few years.
These factors have had varying levels of impact across the portfolio, most notably with significant write-downs in the valuation of two companies during the period under review, which combined resulted in £7.5 million in realised losses for the Company.
Festicket, an online platform which packaged festival tickets together with travel, accommodation and add-ons to provide complete festival experiences, was badly impacted by the COVID pandemic, leaving the company with a weakened balance sheet. An erratic reopening of the festival market in 2021, followed by the failure of several festivals in 2022, resulted in highly challenging cash-flow dynamics for Festicket. This led to the company entering administration during the year.
Thread, a menswear e-commerce site, had been pursuing a high growth strategy, including an entry into the US market, which had delivered a significant increase in revenues since the Company’s investment. However, increased risk-aversion among investors led to Thread being unable to raise further capital to fund its high growth strategy, which led to the business entering administration during the year.
These two companies have been recognised as realised losses in the Company’s income statement due to them both entering administration during the year.
The valuations of Papier, an online personalised stationery retailer, and Fnatic, an esports organisation, were particularly affected by declining market comparables, as well as a softening in trading performance, and together account for an unrealised loss in the period of £10.0 million. The valuation of Zoovu also fell (decrease of £2.5 million) owing to lower market comparables. Elsewhere in the portfolio, despite the challenges noted above, most companies showed resilience in trading performance during the year.
Notable increases in valuation in the year were seen in Asterra (increase of £2.1 million), Cogora (increase of £1.5 million) and Social Value Portal (increase of £1.5 million). All increases were due to robust trading performance outweighing the impact of weakening market comparables.
*Other News & Developments*
Portfolio Value-Add Initiative
The Investment Manager’s Portfolio Value-Add Initiative, aimed at supporting companies in overcoming barriers to growth and harnessing commercial opportunities, has developed further in the past year. The initiative is led by Harry Thomas, the Manager’s Portfolio Director, with support from Vanessa Evanson-Goddard (General Counsel), and Henry Philipson (Director of Marketing and Communications). Together, the team provides both ad-hoc and structured support on a range of topics from recruitment to marketing and fundraising.
The Beringea Scale-Up Academy is one of the primary pillars of the Value-Add Initiative, offering a year-round programme of events for portfolio leadership teams. In 2022, the Academy delivered ten webinars to portfolio company senior managers, providing valuable insight and training on topics such as pricing strategy, accessing R&D tax credits, and hiring.
The Investment Manager’s Portfolio Value-Add Initiative also offers a range of services to support portfolio companies in their growth journey. These services include: identifying existing and potential service providers and negotiating group discounts; establishing a central database of information and contacts related to key operational and strategic concerns for companies; hosting in-person and online events for sharing knowledge and ideas; building relationships with external stakeholders, including investors, customers and suppliers; helping to identify potential acquisition or exit opportunities; and encouraging companies to consider and adopt ESG initiatives.
Environmental, Social and Governance
The Investment Manager has further expanded its initiatives focused on driving improved performance across environmental, social and governance (“ESG”) factors.
To evaluate impact and improvement in its internal operations, the Investment Manager has developed an ESG committee responsible for assessing and strengthening the firm’s approach to sustainability, diversity and inclusion, and governance. The Manager has performed particularly strongly in its diversity-focused initiatives, and it is now certified as a Level 2 firm under the Diversity VC Standard, an industry accreditation for diversity and inclusion best practice. The Investment Manager is also a signatory of the Investing in Women Code, submitting annual data on the diversity of companies in the portfolio and investment pipeline.
The Investment Manager’s ongoing role as Chair of ESG_VC, an industry initiative that brings together more than 200 leading VC firms across the UK and Europe, has also provided valuable opportunities for the firm and the portfolio. As a result of its pivotal role within ESG_VC, the Investment Manager was shortlisted among the leading firms for ESG in venture capital at the Real Deals Awards 2022, and Henry Philipson, Director of Marketing and Communications, was named among the Future 40 ESG Innovators.
*Post year* *end developments*
Between 28 February 2023 and the date of this report, the Company issued 7,144,716 Ordinary Shares for an aggregate consideration of £4.0 million under the combined offer for subscription with ProVen VCT plc which launched on 19 October 2022. Share issue costs thereon amounted to £0.2 million.
In March 2023, the Company disposed of its holding in Monica Vinader for initial proceeds of £2.4 million, representing an 11.8x return on cost, with potential for future proceeds. A strong performer in the Company’s portfolio for several years, Monica Vinader had been exploring funding options and agreed a strategic sale to Bridgepoint Development Capital IV. After originally investing in Monica Vinader in 2010, the Company sold 60% of its holding in February 2016 for proceeds of £2.0 million and a multiple on cost of 5.2x.
The Company also disposed of its holding in Aistemos in March 2023, with proceeds of £2.9 million, representing a multiple on cost of 1.7x.
*Outlook*
Despite signs that inflation and energy prices are stabilising, the outlook for the UK economy, and indeed the global economy, continues to be uncertain. While some economic constraints may begin to loosen, there are still challenges ahead as evidenced by the turbulence seen recently in the global banking sector.
Your Company backs young, growing companies, a contingent that can be particularly affected by an unsettled economic environment. Conversely though, smaller companies tend to be agile and innovative, and therefore able to navigate challenges quickly and effectively, and this has been demonstrated in several portfolio companies over the year. We continue to work closely with our portfolio companies to support them through challenges as they arise. Proceeds from the current and previous offers, as well as from successful exit activity over the last twelve months, means we are well placed to provide further investment to the portfolio where appropriate.
We also continue to look for compelling new investment opportunities, and we are well placed to take advantage of these when they arise. Given recent market dynamics, however, we expect the rate of new investment in the current year to be lower than in the year to 28^th February 2023.
*Beringea LLP*
Investment Manager
*Investment activity *
*Investment activity during the year is summarised as follows:*
*Additions*
*Cost*
*£’000*
WS HoldCo, PBC (t/a WiredScore) 3,494
Dash Brands Ltd 3,282
Not Another Beer Co Ltd (t/a Lucky Saint) 2,202
Chattermill Analytics Limited 2,199
Gorillini NV (t/a Gorilla) 1,949
Doctify Limited 1,778
Picasso Labs, Inc. (t/a CreativeX) 1,185
Second Nature Healthy Habits Ltd 1,042
Social Value Portal Ltd 1,042
Litta App Limited 990
DeepCrawl Holding Company, Inc. (t/a Lumar) 734
Mycs GmbH 551
Arctic Shores Limited 459
Commonplace Digital Limited 370
Plu&m Limited (t/a Plum Guide)
88
*Total* *21,365*
The total cost of additions in the year of £21,365,000 as shown above is lower than the ‘Purchase of investments’ cashflow figure of £21,359,000 as recorded in the Statement of Cash Flows due to £6,000 of legal costs associated with the purchase of an investment which were recognised in the previous year but paid in the year under review.
*Disposals*
*Cost*
*£’000*
*Market value at 01/03/**2**2*
*£**’000*
*Disposal*
*proceeds *
*£’000*
*Realised gain/ (loss) against cost*
*£’000* *Realised gain/ (loss) during the year*
*£’000*
Zoovu Limited (t/a SmartAssistant) 3,449 17,471 17,464 14,015 (7)
Blis Global Ltd 1,083 6,138 7,246 6,163 1,108
Firefly Learning Limited 857 959 737 (120) (222)
Sealskinz Holdings Limited 3,116 3,116 3,882 766 766
Lupa Foods Limited 357 464 464 107 -
Rapid Charge Grid Limited 220 220 220 - -
Contact Engine - - 41 41 41
Netcall plc 324 335 279 (45) (56)
InSkin - - 119 119 119
Response Tap - - 78 78 78
D30 - - 34 34 34
Exonar Limited 1,602 - - (1,602) -
Mycs GmbH 5,038 6,001 (2) (5,040) (6,003)
*Total* *16,046* *34,704* *30,56**2* *14,51**6* *(4,14**2**)*
Of the disposals above, ContactEngine Limited, Response Tap Limited, InSkin Media Limited and D30 Holdings Limited were realised in prior periods, but deferred proceeds were recognised in the current period in excess of the amounts previously accrued.
The disposal proceeds above for Blis Global Ltd and Firefly Learning Limited include amounts of deferred proceeds which have been recognised in these accounts but have not yet been received.
Total disposal proceeds of £30,562,000 as shown above is higher than the ‘Sale of investments’ cashflow figure of £30,468,000 as recorded in the Statement of Cash Flows. The difference arises due to a deferred proceeds debtor of
£632,000 held at the year end, partly offset by a loan repayment debtor of £538,000 at the previous year end which was received in the year under review.
*Investment Portfolio*
*As at 28 February 202**3*
The following investments were held at 28 February 2023:
*Valuation * *% of*
*Cost* *Valuation* * movement in year* *portfolio by value*
*£’000* *£’000* *£’000*
*Venture capital investments (by value)*
Picasso Labs, Inc. (t/a CreativeX) 4,546 10,794 (1,336) 6.7%
Luxury Promise Limited 6,020 8,268 (1,477) 5.1%
Social Value Portal Ltd 2,542 5,012 1,454 3.1%
Been There Done That Global Limited 3,149 4,825 1,190 3.0%
Papier Ltd 4,703 4,703 (5,524) 2.9%
DeepCrawl Holding Company, Inc. (t/a Lumar) 4,033 4,600 241 2.9%
MPB Group Limited 1,194 4,561 339 2.8%
Utilis Israel Ltd (t/a Asterra) 2,144 4,384 2,136 2.7%
Infinity Reliance Limited (t/a My 1st Years) 2,769 3,974 (645) 2.5%
Second Nature Healthy Habits Ltd 3,842 3,842 (179) 2.4%
WS HoldCo, PBC (t/a WiredScore) 3,494 3,627 133 2.2%
Dash Brands Ltd 3,282 3,282 - 2.0%
Arctic Shores Limited 2,909 3,026 117 1.9%
Aistemos Limited 1,681 2,852 1,173 1.8%
Litchfield Media Limited* 1,420 2,737 1,118 1.7%
Monica Vinader Limited** 204 2,687 (349) 1.7%
Lupa Foods Limited 646 2,597 1,058 1.6%
Zoovu Limited (t/a SmartAssistant) 847 2,579 (2,462) 1.6%
Commonplace Digital Limited 1,870 2,573 185 1.6%
Sannpa Limited (t/a Fnatic) 6,718 2,376 (4,518) 1.5%
YardLink Ltd 2,319 2,319 - 1.4%
Dealroom.co B.V. 2,012 2,255 287 1.4%
EMS Operations Ltd (t/a Archdesk) 2,234 2,234 - 1.4%
Not Another Beer Co Ltd (t/a Lucky Saint) 2,202 2,202 - 1.4%
Chattermill Analytics Limited 2,199 2,199 - 1.4%
Litta App Limited 2,053 2,052 (1) 1.3%
Gorillini NV (t/a Gorilla) 1,949 1,958 9 1.2%
Access Systems, Inc. 1,783 1,935 (66) 1.2%
Cogora Group Limited** 1,320 1,851 1,539 1.1%
Doctify Limited 1,778 1,778 - 1.1%
Stylescape Limited (t/a EDITED) 1,500 1,734 (158) 1.1%
DeepStream Technologies Limited 2,744 1,638 (1,106) 1.0%
Enternships Limited (t/a Learnerbly) 1,575 1,575 - 1.0%
CG Hero Ltd 1,249 1,249 - 0.8%
Moonshot CVE Ltd 1,112 1,178 (96) 0.7%
Plu&m Limited (t/a Plum Guide) 2,851 1,148 (1,702) 0.7%
Andcrafted Ltd (t/a Plank Hardware) 1,087 1,087 - 0.7%
Rapid Charge Grid Limited* 933 799 23 0.5%
Disposable Cubicle Curtains Limited (t/a Hygenica)** 3,561 529 (10) 0.3%
Simplestream 690 465 (310) 0.3% *95,**1**64* *115,**4**84* * (8,9**37**)* *71.**7**%*
Other venture capital investments 19,623 679 (6,973) 0.4%
*Total venture capital investments* *114,7**87* *116,1**63* *72.**1**%*
Cash at bank and in hand *45,**058* 27.9%
*Total Investments* *161,**22**1* *100.0%*
Valuation movement in the year excludes the cost of investments made in the year. Other venture capital investments at 28 February 2023 comprise:
Buckingham Gate Financial Services Limited, , Dryden Holdings Limited*, Festicket Ltd, Honeycomb.TV Limited*, InContext Solutions Limited, Lantum Limited, Poq Studio Ltd, Thread, Inc., Senselogix Limited, Skills Matter Limited**, Vigilant Applications Limited* and Whistle Sports, Inc.
* Non-qualifying investment
** Partially non-qualifying investment
† Investee company 100% owned by the Company but not consolidated as held exclusively for resale as part of an investment portfolio.
All venture capital investments are unquoted.
All venture capital investments are registered in England and Wales except for Access Systems, Inc., DeepCrawl Holding Company, Inc. (t/a Lumar), InContext Solutions, Inc., Picasso Labs, Inc. (t/a CreativeX), Thread, Inc., Whistle Sports, Inc., WS HoldCo, PBC (t/a WiredScore) which are Delaware registered corporations in the United States of America, Utilis Israel Limited (t/a Asterra), which is registered in Israel, Dealroom.co B.V., which is registered in the Netherlands and Gorillini NV (t/a Gorilla), which is registered in Belgium.
*Strategic Report*
The Directors present the Strategic Report for the year ended 28 February 2023. The Board prepared the Annual Report & Accounts in accordance with the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013.
*Principal objectives and strategy*
The Company’s investment objective is to achieve long-term returns greater than those available from investing in a portfolio of quoted companies, by investing in:
· a portfolio of carefully selected qualifying investments in small and medium sized unquoted companies with excellent growth prospects; and
· a portfolio of non-qualifying investments permitted for liquidity management purposes,
within the conditions imposed on all VCTs, and to minimise the risk of each investment and the portfolio as a whole.
The Company has been approved by HM Revenue and Customs (“HMRC”) as a Venture Capital Trust in accordance with Part 6 of the Income Tax Act 2007 and, in the opinion of the Directors, the Company has conducted its affairs so as to enable it to continue to maintain approval. Approval for the year ended 28 February 2023 is subject to review should there be any subsequent enquiry under corporation tax self-assessment.
The Directors consider that the Company was not, at any time, up to the date of the Annual Report & Accounts, a close company for the purpose of the Income Tax Act 2007.
*Business model*
The business acts as an investment company, investing in a portfolio of carefully selected smaller companies. The Company operates as a Venture Capital Trust to ensure that its Shareholders can benefit from tax reliefs available and has outsourced the portfolio management and administration duties.
*Business review and developments*
The Company began the year with £145.4 million of venture capital investments and ended with £116.2 million spread over a portfolio of 52 companies. Of these companies, 49 investments with a value of £112.9 million were VCT qualifying (or part qualifying).
The loss on ordinary activities after taxation for the year was £23.8 million, comprising a revenue loss of £1.2 million and a capital loss of £22.6 million. The Ongoing Charges ratio (which is calculated in line with the AIC methodology as recurring operational expenses excluding performance fees, trail commission and recoverable VAT divided by the Company’s average net assets in the period) is an Alternative Performance Measure used by the Board to monitor expenses. Recurring operational expenses for the year ended 28 February 2023, excluding trail commission of £180,000, were £4,011,000, and the average net assets over the year were £168,944,000. Therefore, the Ongoing Charges ratio in respect of the year ended 28 February 2023 was 2.4% (2022: 2.4%) and was within the Company’s cap of 3.6%.
The Company’s business review and developments during the year are reviewed further within the Chair’s Statement, Investment Manager’s Review and Review of Investments.
*Investment policy*
The Company’s investment policy covers several areas as follows:
Qualifying investments
The Company seeks to make investments in VCT-qualifying companies with the following characteristics:
· a strong, balanced and well-motivated management team with a proven track record of achievement;
· a defensible market position;
· good growth potential;
· an attractive entry price for the Company; and
· a clearly identified route for a profitable realisation within a three to four year period.
The Company invests in companies at various stages of development, including those requiring capital for expansion, but not in start-ups or in management buy-outs or businesses seeking to use funding to acquire other businesses. Investments are spread across a range of different sectors.
Other investments
Funds not invested in qualifying investments may be invested in non-qualifying investments permitted for liquidity management purposes, which include cash, alternative investment funds (“AIFs”) and UCITS which may be redeemed on no more than 7 days’ notice, or ordinary shares or securities in a company that are acquired on a regulated market.
Borrowings
It is not the Company’s intention to have any borrowings. The Company, does, however, have the ability to borrow a maximum amount equal to the nominal capital of the Company and its distributable and non-distributable reserves which, at 28 February 2023, was equal to £161.1 million (2022: £169.6 million). There are no plans for the Company to borrow at the current time.
Maximum exposures
No investment will constitute more than 15% of the Company's portfolio by value at the time of investment.
*Listing Rules *
In accordance with the Listing Rules:
(i) the Company may not invest more than 10%, in aggregate, of the value of the total assets of the Company at the time an investment is made in other listed closed-ended investment funds except listed closed-ended investment funds which have published investment policies which permit them to invest no more than 15% of their total assets in other listed closed-ended investment funds;
(ii) the Company must not conduct any trading activity which is significant in the context of the Company; and
(iii) the Company must, at all times, invest and manage its assets in a way which is consistent with its objective of spreading investment risk and in accordance with its published investment policy set out in this document. This investment policy is in line with Chapter 15 of the Listing Rules and Part 6 Income Tax Act 2007.
*Venture capital trust regulations*
The Company has engaged Philip Hare & Associates LLP to advise it on compliance with VCT requirements, including evaluation of investment opportunities as appropriate and regular review of the portfolio. Although Philip Hare & Associates LLP works closely with the Investment Manager, they report directly to the Board.
Compliance with the main VCT regulations as at 28 February 2023 and for the year then ended is summarised as follows:
(i) the Company holds at least 80 per cent. of its investments in qualifying companies (as defined by Part 6 of the Income Tax Act 2007); Complied (ii) at least 70 per cent. in the case of funds raised after 5 April 2011 of the Company’s qualifying investments (by value) are held in “eligible shares” (“eligible shares” generally being ordinary share capital); Complied (iii) the Company’s ordinary share capital has throughout the period been listed on a regulated European market; Complied (iv) no investment in a company constitutes more than 15 per cent. of the Company’s portfolio (by value at time of investment); Complied (v) the Company’s income for each financial year is derived wholly or mainly from shares and securities; Complied (vi) the Company distributes sufficient revenue dividends to ensure that not more than 15 per cent. of the income from shares and securities in any one year is retained; Complied (vii) the Company has not made a prohibited payment to Shareholders derived from an issue of shares since 6 April 2014; Complied (viii) no investment made by the Company causes an investee company to receive more than the permitted investment from State Aid sources (including from VCTs); Complied (ix) since 18 November 2015, the Company has not made an investment in a company which exceeds the maximum permitted age requirement; Complied (x) the funds invested by the Company in another company since 18 November 2015 have not been used to make a prohibited acquisition; Complied (xi) since 6 April 2016, the Company has not made a prohibited non-qualifying investment; and (xii) of funds raised on or after 1 March 2019, at least 30% has been invested in qualifying holdings by the anniversary of the end of the accounting period in which the shares were issued. Complied
Complied
*Investment management and administration fees*
Beringea provides investment management services to the Company for an annual fee of 2.0% of the net assets per annum. Beringea is also entitled to receive performance incentive fees as described below. The investment management agreement is terminable by either party at any time by one year’s prior written notice. The total fees relating to this service amounted to £3,444,000 (2022: £5,386,000), comprising a management fee of £3,444,000 (2022: £3,256,000) and performance incentive fees as described below of £nil (2022: £2,130,000). At the year end, an amount of £nil (2022: £2,130,000) was outstanding.
The Board is satisfied with Beringea’s approach and procedures in providing investment management services to the Company. The Directors have therefore concluded that the continuing appointment of Beringea as Investment Manager remains in the best interests of Shareholders.
Throughout the year ended 28 February 2023, Beringea also provided administration services to the Company. In the year, total administration fees amounted to £63,000 (2022: £58,000).
The annual running costs (excluding any performance fees payable) of the Company are subject to a cap of 3.6% of the Company’s net assets at the end of the year. Any running costs in excess of this are borne by Beringea.
Beringea also received arrangement fees in respect of investments made by the Company and other VCTs managed by Beringea totalling £305,000 (2022: £348,000) and director and monitoring fees of £501,000 (2022: £605,000) during the year ended 28 February 2023. These fees are payable by the investee companies into which the Company invests and are not a direct liability or expense of the Company.
*Performance incentive fees*
The Investment Manager is entitled to receive an annual performance incentive fee in respect of the shares in issue at 29 February 2012 (the “Original Offer”) and each share offer made by the Company since the Original Offer (each being a “Relevant Offer”), if the Performance Value of the Relevant Offer achieves a Hurdle Amount.
The “Performance Value” is calculated on an annual basis based on the latest annual audited NAV, plus cumulative dividends and any previous performance fees paid in respect of the Relevant Offer since 29 February 2012.
The “Hurdle Amount” is represented by the higher of: (i) 1.25 times the initial share offer NAV; and (ii) the initial share offer NAV compounded by the annual Bank of England base rate plus 1%. Please note the hurdle amount for the Original Offer is calculated differently but based on similar principles.
For each Relevant Offer, if the Hurdle Amount is not met, no performance incentive fee will be payable. Once the Hurdle Amount has been met, the performance incentive fee payable in relation to a financial year is 20% of the amount by which the Performance Value exceeds the initial NAV of the Relevant Offer, less any performance fees paid previously.
Performance fees will be reduced, if necessary, to ensure that i) the cumulative performance fee per share payable to the Investment Manager in respect of a Relevant Offer does not exceed 20% of the relevant cumulative dividends paid in respect of that share; ii) the cumulative performance fee per share payable to the Investment Manager in respect of a Relevant Offer does not exceed 50% of the amount by which the Relevant Offer Performance Value exceeds the Relevant Offer Hurdle; and iii) the audited net asset value per share at the relevant financial year end plus the relevant cumulative dividends is at least equal to the relevant respective Hurdle Amount.
Performance fees for the year ended 28 February 2023 amounted to £nil (2021: £2,130,000).
*Key performance indicators*
At each Board meeting, the Directors consider a number of performance measures to assess the Company’s success in meeting its objective of delivering long term returns. Some of these are classified as alternative performance measures (“APMs”) in line with Financial Reporting Council (“FRC”) guidance. The Board believes the Company’s key performance indicators are:
• total return (net asset value plus dividends paid since launch)*;
• dividends paid and the dividend yield;
• change in net asset value per share (adjusted for dividends paid in the year)*;
• ongoing charges ratio*; and
• VCT compliance.
*Classified as an APM.
The total return is calculated by the net asset value per share plus the cumulative dividends paid to date. This is a performance measure of the fund and used to evaluate the total value generated for Shareholders.
The following table shows the total return, annual return shown as the movement in net asset value per share, dividends paid in respect of each year and the dividend yield.
*28/02/201**9* *2**9**/02/20**20* *2**8**/02/202**1* *28/02/202**2* *28/02/202**3*
*Total return* *129.3* *123**.0* *129.2* *138.0* *1**29.6*
Change in net asset value per share (adjusted for dividends paid in the year)^ 1
Opening NAV per share (p) 72.1 68.4 58.6 61.5 67.3
Closing NAV per share (p) 68.4 58.6 61.5 67.3 54.2
*(Decrease)/increase **in NAV per share (p)* *(**3.7)* *(9.8)* *2.9* *5.8* *(13.1)*
Dividends paid per share in the year (p) 6.5 3.5 3.3 3.0 4.75
*Increase/(decrease) in NAV per share (adjusted for dividends paid in the year) (p)* *2.8* *(6.3)* *6.**2* *8.8* *(8.**35**)*
*Increase/(decrease) in NAV per share (adjusted for dividends paid in the year) (%)* *3.9%* *(9.2**)**%* *10.6%* *14.3%* *(12.4)**%*
Dividends
Opening NAV per share (p) 72.1 68.4 58.6 61.5 67.3
Less: final/special dividend(s) paid per share in relation to prior year (p) 2.5 2.0 1.75 1.5 3.25
*Adjusted opening NAV per share (p)* *69.6* *66.**4* *5**6.85* *60.0* *64.05*
Dividends paid and payable in respect of year(p)
Dividends paid per share 6.5 3.25 3.0 4.75 3.25
*Dividend yield*^*2* *9.**3**%* *4.9**%* *5.**3**%* *7.9**%* *5**.1%*
^1 Calculated as the change in total return in the year divided by the opening net asset value.
^2 Calculated as the total dividends paid in respect of the financial year divided by the opening net asset value, adjusted for the final dividend paid in respect of the previous year.
The change in net asset value per share (adjusted for dividends paid in the year) is defined as an APM and the Board considers it to be the primary measure of shareholder value.
*Risk and risk management*
The Board carries out a regular review of the risk environment in which the Company operates, and reviews the mitigating controls and actions applicable to those risks. In the period the most noticeable change to the risks faced by the Company have been as a result of the economic turbulence due to the invasion of Ukraine by Russia and rising interest rates and inflation globally. The full impacts of these risks are likely to continue to be uncertain for some time.
Emerging risks
The Board also discusses emerging risks as they arise and puts in place appropriate procedures to monitor and, where possible, mitigate the effects of these emerging risks on the Company and the portfolio. The following are some of the potential emerging risks the Investment Manager and the Board are currently monitoring:
• adverse changes in global macroeconomic environment; and
• geo-political instability.
*Principal risks*
*Risk* *Mitigation* *Change during period*
Investment risk
By nature, companies that qualify for venture capital trust purposes have a higher level of risk than larger quoted companies and poor performance could reduce returns for Shareholders through downward valuations. The Directors place reliance on the Investment Manager’s experience and expertise in adding new companies to the portfolio. The Investment Manager has a rigorous and robust formal process in selecting new companies which includes financial and legal due diligence and review by an Investment Committee made up of senior investors, whilst also
drawing on the expertise of the Directors. In addition, a member of the Manager’s team is usually appointed to the board of each portfolio company on investment.
The Board reviews the investment portfolio and its performance at least on a quarterly basis. Increased due to the economic and geopolitical disruption referred to above.
VCT qualifying status
A breach of the VCT rules and loss of approval as a VCT could lead to Shareholders losing tax benefits associated with VCT investments. VCT qualification monitoring reports are prepared by the Administration Manager and approved by the Board on a quarterly basis. On a bi-annual basis, the Company’s VCT status adviser reports to the Audit Committee in relation to compliance with the VCT legislation. The report for the year ended 28 February
2023 showed compliance with all aspects of the VCT regulations. The Investment Manager regularly liaises with the Company’s VCT status adviser in relation to VCT qualification on individual investments and addresses any recommended actions to ensure compliance. No change
Valuation
The companies within the portfolio are valued in accordance with the International Private Equity and Venture Capital (IPEV) guidelines but establishing fair value can be difficult and is reliant on the accuracy and completeness of information provided. The unquoted investment valuations are prepared by the Investment Manager and agreed by the Board on a quarterly basis although new valuations may be
prepared and agreed as required in the event of a material movement in the valuations. On an annual basis, at the year end, the Company’s Auditor, BDO
LLP, reports to, and discusses with, the Audit Committee their findings and any concerns arising from their review of the investment valuations. Increased due to the economic and geopolitical disruption referred to above.
Legislative and Regulatory
The Company operates in a complex regulatory environment, failure to comply could lead to suspension from the Stock Exchange, penalties and damage to the Company’s reputation. A change in VCT regulation could also restrict the ability for the Company to invest. The Investment Manager ensures that it hires suitably qualified members of staff who are experienced with regulatory requirements and relevant accounting standards and the Investment Manager and the Company Secretary have procedures in place to ensure recurring Listing Rules requirements are met. Legislative and regulatory developments are also kept under review with the Company’s solicitor and specialist compliance consultants. The Investment
Manager is also a member of the Venture Capital Trust Association which engages with the Government to help shape future legislation. No change
Economic
Economic changes such as the war in Ukraine, higher interest rates, economic
recession, social upheaval from events such as COVID and Brexit and change in Government could affect trading conditions for smaller companies and consequently the value of the Company’s qualifying investments. The Board and Investment Manager continuously assess the resilience of the portfolio, and ongoing discussions and planning are held with the portfolio companies to provide assistance and support, particularly during periods of economic uncertainly. The Company has a clear investment policy and a diversified portfolio operating in a range of sectors which helps to mitigate against sector specific impacts. Additionally, ensuring adequate liquidity to cope with unexpected pressures on the finances of the portfolio and allow the Company to make follow-on investments where suitable is an important part of the risk mitigation in times of economic uncertainty. Increased due to the high levels of inflation, rising interest rates and the geopolitical risks from the invasion of Ukraine.
Operational
The Company is reliant on a number of third parties, in particular the Investment Manager, for management and administration services. Failure of the operational systems and controls of third parties could result in an inability to provide accurate reporting and monitoring. The Investment Manager has a documented business continuity plan, which provides for back-up services in the event of a system breakdown. The Investment Manager’s systems are protected against viruses and other cyber-attacks and appropriate insurances are maintained. The Board reviews the performance of all service providers at least annually and the Investment Manager conducts due diligence on all new service providers to ensure that third parties have adequate operational systems in place. No change
Cyber security & IT
Outsourcing and the increase in remote working could give rise to cyber and data security risk. Failure in key IT systems and controls might lead to business interruption, loss of data or loss of access to systems. The Investment Manager has significant cybersecurity controls, including two factor authentication, email protection software, monitored firewalls and staff regularly receive training in relation to their cybersecurity obligations. Due diligence is conducted on service providers including a review of controls, to reduce the risk of business interruption due to insufficient cyber security controls of third parties. The Investment Manager has a robust cyber insurance to ensure that financial liabilities are mitigated in the event of a cyber-attack. No change
ESG
Failure to comply with current and future requirements and recommended practices could result in reduced investor attraction which may affect the level of capital the Company has available to meet its investment objectives. The Investment Manager has further expanded its initiatives focused on driving improved performance across environmental, social and governance (“ESG”) factors, both internally and across the portfolio. To evaluate impact and improvement in its internal operations, the Investment Manager has developed an ESG committee responsible for assessing and strengthening the firm’s approach to sustainability, diversity and inclusion, and governance. No change
Foreign exchange
The Company has made a number of its initial investments in a foreign currency; most often in Euros or US Dollars. Furthermore, some
companies may function, in part, in a currency other than GBP. The portfolio is therefore exposed, to some extent, to foreign exchange risk and specifically that of transaction risk and translation risk. The Investment Manager and the Board regularly review the exposure to foreign currency movement to make sure the level of risk is appropriately managed.
Investments are primarily made in GBP, EUR and USD so exposure is limited to a small number of currencies.
On realisation of investments held in foreign currencies, cash is translated to GBP shortly after receiving the proceeds to limit the amount of time exposed to foreign currency fluctuations. No change
Liquidity
The Company invests into smaller unquoted companies, which are inherently illiquid as there is no readily available market for these shares. Therefore, these may be difficult to realise for their fair market value at short notice. The Company’s liquidity risk is managed by the Investment Manager in line with guidance agreed with the Board and is reviewed by the Board at regular intervals. The Company always holds sufficient levels of funds as cash in order to meet expenses and other cash outflows as required. For these reasons, the Board believes that the Company’s exposure to liquidity risk is minimal. No change
*Going concern*
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the twelve months from the date of sign off of these financial statements. In its assessment of the Company’s activities as a going concern, the Board has reviewed the risks to future performance and considered the potential impacts of those on the Company’s future ability to continue as a going concern. The Company’s cash resources are currently healthy, and the portfolio of investments is diverse and not reliant on any one sector. All significant cash outflows, including dividends, share buybacks and investments, are all within the Company’s control. Therefore, the Board expects that the Company has sufficient cash resources to withstand any reasonable stress scenario, for example if the Company was unable to raise further funds, and believes that it is appropriate to continue to adopt the going concern basis of accounting in preparing these financial statements.
*Viability statement*
The Board has assessed the Company’s prospects over the three-year period to 28 February 2026. A three-year period has been considered appropriate as it broadly aligns with the time frame during which the Investment Manager will be required to invest 80% of the funds from the most recent offer for subscription in qualifying investments.
In order to support this statement, the Board has carried out a robust assessment of the principal and emerging risks faced by the Company, as detailed above, including tho