Amati VCT plc

ANNUAL REPORT & FINANCIAL STATEMENTS

For the year ended 29 February 2016

 

The Annual Report and Financial Statements for the year ended 29 February 2016 and the Notice of Annual General Meeting will be posted to shareholders shortly and is available in electronic format for download on Amati Global Investors website www.amatiglobal.com.  Copies of the Annual Report and Financial Statements will be submitted to the UK Listing Authority's National Storage Mechanism and will be available at www.hemscott.com/nsm.do.

 

Page numbers and cross-references in this announcement below refer to page numbers and cross-references in the Annual Report and Financial Statements.

 

·   NAV Total Return for the year was +0.6% which compares to -1.8% for the FTSE AIM All-Share Total Return Index.

·   Proposed final dividend of 3p per share bringing the total declared in respect of the year to 5p per share which is 7.6% of year end NAV.

·   The Offer for Subscription launched on 28 October 2015 together with Amati VCT 2 plc has raised £2.7m for the Company as at 3 May 2016.

·   £2m invested in qualifying holdings during the year.

 

 

Fund performance

 

Amati VCT NAV Total Return assuming re-invested dividends and FTSE AIM All-Share Total Return Index, see graph on page 1.

 

Key data

	29/02/16	28/02/15
Net Asset Value ("NAV")	£36.8m	£36.4m
Shares in issue	55,801,407	51,663,729
NAV per share	65.9p	70.4p
Share price	63.3p	67.0p
Market capitalisation	£35.3m	£34.6m
Share price discount to NAV	3.9%	4.8%
NAV Total Return for the year (assuming re-invested dividends)	0.6%	-5.9%
FTSE AIM All-Share Total Return Index	-1.8%	-19.0%
Ongoing charges*	2.4%	2.5%
Dividends proposed/paid in respect of the year	5.0p	5.0p

*Ongoing charges calculated in accordance with the Association of Investment Companies' ("AIC's") guidance.

 

 

Dividends per share paid and recommended since launch
			Average
	Total	Cumulative	total annual
	dividends	dividends	dividends
	declared	declared	declared
In respect of year ended 28/29 February
2006	3.30p	3.30p	3.30p
2007	4.25p	7.55p	3.78p
2008	6.25p	13.80p	4.60p
2009	3.50p	17.30p	4.33p
2010	4.00p	21.30p	4.26p
2011	5.00p	26.30p	4.38p
2012	5.00p	31.30p	4.47p
2013	5.00p	36.30p	4.54p
2014	5.00p	41.30p	4.59p
2015	5.00p	46.30p	4.63p
2016	5.00p	51.30p	4.66p

 

Table of investor returns to 29 February 2016 from a sample of share issues

				NAV Total Return	NAV Total Return
				excluding	including full
	Price			subscription	subscription
	gross of	Price net of	Price gross after	costs and	costs and
Date	costs	costs	tax rebate#	tax rebate	tax rebate#
Initial Offer	100.0p	94.8p	60.0p	26.5%	99.7%
4 January 2006	111.2p	105.4p	66.7p	14.7%	81.2%
4 April 2006	123.5p	117.0p	74.1p	2.4%	61.7%
21 March 2007	133.0p	130.3p	93.1p	-9.8%	26.3%
4 April 2008	96.5p	91.7p	67.6p	15.7%	57.1%
6 October 2008	79.6p	75.7p	55.7p	40.4%	90.5%
17 October 2008**	67.4p	67.4p	67.4p	57.4%	57.4%
3 April 2009	54.5p	51.8p	38.2p	100.5%	172.1%
3 April 2010	79.2p	75.2p	55.4p	30.6%	77.2%
5 April 2011	93.2p	88.1p	65.2p	5.3%	42.2%
5 April 2012	81.8p	77.7p	57.3p	12.0%	52.0%
5 April 2013	72.6p	69.0p	50.8p	17.6%	59.5%
4 April 2014	85.8p	81.5p	60.0p	-7.2%	26.0%
2 April 2015	71.6p	70.8p	50.1p	0.0%	41.4%

# assumes full recovery of tax relief (y/e 5 April 2006 - 40%; subsequent years - 30%)

**shares issued to Noble Income & Growth VCT plc shareholders as a result of the asset acquisition

 

Table of returns to 29 February 2016 from shares issued under the Dividend Re-investment Scheme

			NAV Total Return	NAV Total Return
			excluding	including full
			subscription	subscription
		Price gross after	costs and	costs and
Date	Price*	tax rebate#	tax rebate	tax rebate#
4 July 2007	135.1p	94.6p	-16.5%	19.3%
7 December 2007	111.3p	77.9p	-0.4%	42.3%
15 February 2008	94.3p	66.0p	12.6%	60.9%
5 December 2008	58.0p	40.6p	79.1%	155.9%
17 August 2009	61.1p	42.7p	64.4%	134.9%
11 December 2009	68.6p	48.0p	43.2%	104.6%
13 August 2010	73.3p	51.3p	29.5%	85.0%
10 December 2010	85.1p	59.6p	8.9%	55.5%
12 August 2011	74.3p	52.0p	20.4%	72.0%
13 February 2012	74.4p	52.1p	17.0%	67.2%
14 August 2012	67.9p	47.5p	23.0%	75.7%
7 December 2012	66.9p	46.8p	21.3%	73.2%
12 August 2013	69.5p	48.7p	11.7%	59.6%
6 December 2013	71.6p	50.2p	5.6%	50.8%
15 August 2014	75.9p	53.1p	-4.1%	37.0%
5 December 2014	71.0p	49.7p	-0.3%	42.5%
14 August 2015	70.6p	49.4p	-3.8%	37.4%
11 December 2015	69.9p	48.6p	-5.7%	34.7%

# assumes full recovery of tax relief (y/e 5 April 2006 - 40%; subsequent years - 30%)

* shares allotted under the Dividend Re-investment Scheme are issued without cost

 

 

STRATEGIC REPORT

The purpose of the Strategic Report is to inform shareholders and help them to assess how the directors have performed in their duty to promote the success of the Company.  This report has been prepared by the directors in accordance with the requirements of Section 414 of the Companies Act 2006.

 

CHAIRMAN'S STATEMENT

 

Overview

The year under review has seen some significant developments for the Company.  The change in non-qualifying investment policy, approved by shareholders in December 2014, has been implemented and a significant holding has been established in the TB Amati UK Smaller Companies Fund (the "Amati Fund"), which I am pleased to say has performed strongly, rising by 16.1% in the period under review.  There were some major changes to the VCT legislation during 2015 which have imposed new restrictions on both qualifying and non-qualifying investment.  These came into force in November.  However, regulated funds such as the Amati Fund are specifically exempted from the new investment restrictions, making this shift in the Company's investment policy very timely. 

During the year the Manager, encouraged by the board, moved to making fewer but larger qualifying investments, targeting cash generative, profitable, dividend paying, stable companies which have the ability to grow over the longer term. We believe such companies will also attract the attention of a flow of investors coming to AIM, many of whom are seeking Inheritance Tax Relief on their holdings. The Manager has increased the emphasis on companies which fit this profile. This approach paid off during the year, with more recent investments, Bilby, Premier Technical Services Group and Learning Technologies Group all performing strongly. 

Following the changes to the VCT legislation in November, the Manager anticipated a hiatus in which few qualifying investments would be made while the new rules are being digested and while the detailed guidance is published.  By the second half of 2016 an adequate flow of VCT qualifying opportunities of the type the Manager is looking for is expected to resume.  AIM continues to attract many of the best UK growth companies and identifying these and investing in them, remains the core strategy for the Manager.  Under the relevant tests, the Company was 84.5% invested in qualifying holdings at the year end, so there is no short-term pressure to make further qualifying investments in order to satisfy the 70% minimum test.

 

Investment Performance and Dividend

Overall the Company finished the year 2.4% ahead of the FTSE AIM All-Share Total Return Index (the "AIM Index"). The Company made an NAV Total Return of 0.6% (taking into account 5p per share of dividends paid) over the year.  As reported at the interim stage, the first half of the year saw positive returns for the Company, but the performance nonetheless slightly lagged the AIM Index.  The second half also started with gains, but most of these were given back by the end of the period, although this still represented outperformance against the AIM Index which declined sharply.   The performance was held back by three holdings being written down to zero.  Two were investments via convertible loans in AIM traded Chinese companies made in 2010.  The other was an investment in an unquoted business, also via a convertible loan.  All are still trading and whilst every effort will be made to recover the loans, the lack of visibility over repayment in each case led the Board to take a prudent view of valuation and make full provisions.  The fact that the portfolio still outperformed the AIM Index reflects the underlying strength of the core portfolio positions. 

 

The dividend policy of the Company is to pay interim and final dividends totalling between 5% and 6% of year-end net asset value. Taking into account the board's confidence in the longer term outlook for the portfolio, however, the board is proposing to pay a final dividend such that the total dividends paid for the year is in line with previous years. Therefore the board is recommending a final dividend of 3.0p per share, to be paid on 12 August 2016 to shareholders on the register on 8 July 2016. The interim dividend paid on 11 December 2015 was 2.0p per share.  Total dividends of 5.0p per share represent 7.6% of year end NAV.

 

VCT Legislation

The changes to the VCT legislation outlined in the July 2015 Budget (and reported in the Company's interim results) became effective following Royal Assent in November 2015.  The changes focus State Aid funding towards businesses where the Government believes there is a funding gap and ensures that the UK's tax efficient investment schemes fall within EU legislation on State Aid funding.  The changes relate to: the purpose of the investment (specifically, the capital provided can no longer be used to fund the acquisition of a company and investment must be made for the purpose of development and growth only); the maximum age of a potential investee company; and the introduction of a lifetime limit on the amount of capital a company may raise from State Aid sources.  Whilst the rule changes to the legislation are complex they do not affect the terms of a shareholder's investment in a VCT.  Rather, it is the responsibility of the directors and the Manager to ensure that the new legislation is adhered to and that the investment strategy can be pursued within the new constraints imposed by it. 

As suggested in the Company's half-yearly report we believe that AIM VCTs will be well placed to operate under the new regime.  The Manager is working with AIM brokers and nominated advisers to ensure that good quality investment opportunities that satisfy the new legislation continue to become available.

In the March 2016 budget, the Chancellor announced a further measure which will affect VCTs, placing further limits on the non-qualifying investments which VCTs can make. The draft Finance Bill stipulates that non-qualifying investments will be restricted to investments in regulated collective investment schemes (UCITS or AIF) and securities bought on a Recognised Stock Exchange (which would exclude AIM).  If enacted as expected this will mean that some of the options in the Company's non-qualifying investment policy will become redundant and in due course the board will bring forward proposals to amend the Company's investment policy to reflect the new legislation.  In the meantime the investment policy as given in full on pages 12 and 13 should be read in the light of these new restrictions.  In practice, however, this will make no material difference to the way in which the Company currently operates in respect of non-qualifying investments.

 

Other Corporate Developments

A joint top up offer (the "Offer") with Amati VCT 2 was launched in October 2015.  Total subscriptions received for Amati VCT were £2.7m as at 3 May 2016.  The Offer in respect of tax year 2016/17 is expected to close on Friday 15 July 2016.  The capacity of the Offer will be subject to the rules governing non-prospectus offers, which are set out in the Offer document.

 

The Offer document is available on Amati Global Investors' website at: http://amatiglobal.com/avct_share_offer.php

 

The board has reviewed the Articles of Association in respect of the continuation vote which is due to be held in 2020 and every five years thereafter.  The requirement for this vote has been in the Articles since the formation of the Company, but in practice it has always been postponed on the basis that the Company has issued shares each year to subscribers who invested in good faith that they will be able to hold the shares for five years as a VCT.  If a continuation vote failed to be passed as the Articles stand it may be difficult or impossible to adequately protect the interests of the shareholders who had subscribed for shares less than five years previously.  As a result, rather than postponing the vote each year, the board is proposing a resolution at the AGM to make changes to the Articles such that the principle of having a continuation vote on whether the Company should continue as a VCT stands, but that if the resolution is not passed, the consequences would be different.  Under the proposed amendment if the vote is not passed the Company would cease to make further share issues (except explicitly on the basis that such further shares may not be eligible for full VCT reliefs or that they may be withdrawn on such further shares), and the board would bring forward proposals for the Company to cease to be a VCT after the fifth anniversary of the latest share allotment prior to the vote, with a further vote being held annually in the meantime to confirm this decision.  This will mean that the continuation vote can be held without jeopardising the tax status of recent investors in any way.  We hope that shareholders will agree that this is an improved position on the current one. 

 

Outlook

Over the year under review, the Company's exposure to earlier stage opportunities has been reduced in favour of more mature businesses.  As a consequence, the largest qualifying holdings are now dominated by profitable, cash generative, dividend paying companies.  This type of business tends to perform better on AIM than more speculative, cash consuming businesses.  We believe that the Company has ended the year with an attractive portfolio of UK growth stocks holding excellent potential and we look forward to the Company's future with optimism.

 

Annual General Meeting ("AGM")

The AGM will again be held at the Guildhall School of Music and Drama, starting at 2.00pm on Thursday 23 June 2016 at Rehearsal Room 3, Milton Court, Guildhall School of Music and Drama, Silk Street, Barbican, London, EC2Y 9BH (the entrance is on the corner of Milton Street and Silk Street).  This will be followed by further events and presentations, including the third Amati Guildhall Creative Entrepreneurs Award, to which shareholders are invited, details of which are being sent to you with this report.  I do hope that as many shareholders as possible will be able to join us.  Please RSVP to rachel.lederf@amatiglobal.com if you would like to attend.

 

Peter Lawrence

Chairman

4 May 2016

 

For any matters relating to your shareholding in the Company, dividend payments, or the Dividend Re-investment Scheme please contact Share Registrars on 01252 821390, or by email at enquiries@shareregistrars.uk.com.  For any other matters please contact Amati Global Investors ("Amati") on 0131 503 9115 or by email at vct-enquiries@amatiglobal.com.  Amati maintains an informative website for the Company - www.amatiglobal.com - on which monthly investment updates, performance information, and past company reports can be found. 

 

 

FUND MANAGER'S REVIEW

 

Market review

News over the last year has been dominated by the unsettling events in Syria, from the increasing influence and territorial gains of ISIS to the ensuing humanitarian crisis that has witnessed an estimated 9 million Syrians fleeing their homes.  In economics, it was the Chinese slowdown that preoccupied commentators and led to questions over the sustainability of global growth without a strong contribution from emerging markets.  In the US, the first interest rise for 9 years should have been a signal of confidence by the Federal Reserve.  Instead they have been variously criticised for acting too slowly, failing to give markets sufficiently clear guidance, or even at risk of having to reverse their decision in the light of slowing US data.  These geopolitical and economic events had a varied effect on asset values, the most marked feature of which was a savage decline in commodity prices.  The oil price fall was the most significant and led to drastic earnings downgrades for companies in the sector.  For the UK consumer, the falling oil price was a boon.  The resultant lower petrol prices and utility bills, alongside the return of wage inflation and a continued policy of low interest rates, served to increase household cash flows.  Companies in the retail and leisure sectors were the predictable beneficiaries.  As a consequence, stock market indices which are heavily resource weighted, such as the FTSE 100, endured a disappointing year, whereas those less focused on these sectors, such as the UK Mid and Small cap indices, fared better.

 

 

Performance

Having enjoyed a strong calendar year to December 2015, gains were pared back by a difficult start to 2016 for equities.  The Company returned a NAV total return of 0.6% for the year to 29 February 2016, against a total return of -1.8% for the FTSE AIM All-Share Index. 

 

The greatest contributor to performance was Bilby, an investment made at Initial Public Offering ("IPO") in February 2015, which benefited from a share price rise of 120%.  Bilby is a provider of gas heating and general building maintenance services to social housing clients in the South-East of England.  Having started with a sensibly priced IPO, Bilby has paid a significant dividend; made an earnings enhancing acquisition of an electrical contractor based in Essex more than doubling the number of properties now serviced by Bilby to 230,000; and won the largest new social housing gas maintenance contract tender in the South East of England.  This has given the company a very strong start on AIM, and we believe there remains a significant opportunity for Bilby to consolidate the market in its chosen geography.  GB Group, the identity intelligence data and software provider, continued its progress with a share price rise of 54%.  GB Group is a UK technology success story.  Headquartered in Chester, it has 18 offices globally and a market capitalisation of over £300 million.  Its products and services have the ability to conduct KYC (Know Your Customer) checks for individuals in 40 countries.  Craneware, the leading provider of revenue integrity software to the US healthcare market, continued to generate organic growth, with a high level of recurring sales and good cash generation. The shares responded with a gain of 45%. AB Dynamics, the designer and manufacturer of test equipment for vehicle suspension, steering, noise and vibration, also enjoyed another year of strong organic growth as its customers continued to invest in automotive research and development. The shares rose 77%. Other notable performers included IDOX, the document management software provider to local authorities; Tristel, the manufacturer of infection, contamination and hygiene control products; Learning Technologies Group, the e-learning provider, which was added to the portfolio during the year and is detailed further in the 'Transactions' section below; and Quixant, the supplier of specialised computing platforms and monitors for gaming and slot machine applications.

 

On the negative side, the most significant detractors to performance were from two holdings in unquoted companies, and two loans made to AIM quoted Chinese companies which were written down to zero in the first half.  The latter were Sorbic International ("Sorbic"), the Chinese manufacturer of food preservative, and China Food Company.  Our advisers are working with Sorbic to structure a mechanism for the repayment of this loan but our experiences in dealing with this company have taught us to take nothing at face value.  China Food Company is also still trading at break even, and the underlying operations have improved a little, but we don't have visibility on how and when our loan might be repaid.   Of the two unquoted companies, one, Polyhedra Group ("PHG"), also involves a loan which has been written down to zero.  PHG is a services business that collects, documents and destroys expired and recalled pharmaceutical products in Italy under an exclusive contract with the national association of drug manufacturers.  PHG attempted to expand its range of services by acquiring companies in related fields.  This strategy proved ill-fated and the consequence has been an erosion of group profits, recently exacerbated by a decline in a key revenue stream within the original business.  The majority of the Company's investment was made in a convertible loan.  The downturn in trading has been sufficient to impact PHG's ability to service this loan and a write-down to nil value was deemed prudent.  We continue to work with PHG in an attempt to recover the full value of the loan.  The second company was MirriAd, the technology provider of in-video advertising services, which completed a rescue funding round that severely diluted existing investors.  However, MirriAd's technology has great promise and we participated in a small way in the funding of a newco, MirriAd Advertising, into which MirriAd's trade and assets were transferred.  This investment was made alongside IP Group, a leading early stage technology company investor, which has subsequently led two further significant funding rounds, leaving the company well placed to realise its ambitions.  Other weak performances during the period came from AIM quoted holdings in Hardide, the manufacturer of specialist coatings for engineering components, which suffered trading headwinds from the downturn in the oil and gas sector; and Solid State, the manufacturer and designer of electronic and computing products for use in harsh environments, which was impacted by the termination of a Ministry of Justice contract for prisoner tagging hardware.

 

Over the course of the year the TB Amati UK Smaller Companies Fund (the "Amati Fund") gave a return of 16.1%, which compares to a return of -1.6% for its benchmark, the Numis Smaller Companies Total Return Index (including AIM, excluding Investment Trusts), and 4.5% for the IA sector average for UK smaller company funds.

 

Transactions

 

Qualifying portfolio

During the year the company invested £2.0 million in the qualifying portfolio.  The majority of this sum was invested in two secondary share placings by companies already quoted on AIM (but not already held in the portfolio); and one follow-on investment in an existing AIM-listed portfolio holding.

 

The first placing in which the Company participated during the year was Learning Technologies Group ("LTG").  LTG operates in the fast growing e-learning market and has been extending its capabilities and sector reach into areas such as Governance, Risk and Compliance through organic growth and a series of acquisitions.  The second investment by way of a placing during the year was in Venn Life Sciences ("Venn"), a Clinical Research Organisation providing clinical trial management and resourcing to pharmaceutical and biotechnology clients.  Venn has operations throughout Europe and has been benefiting from an increased trend amongst its customer base to outsource non-core activities such as clinical trials. 

 

The follow-on investment involved Science in Sport ("SiS").  The original position was taken in SiS in an earlier funding round in 2014.  Since completing this initial investment, SiS has delivered strong top-line growth as it has further cemented its position as a leading provider of sports nutrition products.  SiS decided to raise further funds in order to capitalise on the growing global demand for its products, which is being driven by the increase in popularity of sports such as running, cycling and triathlon, coupled with an increased interest amongst professional and amateur athletes in how diet can influence performance. In addition, small follow on investments were made in FairFX Group, MirriAd Advertising, Belvoir Lettings and Sabien Technology Group.

 

A total of £1.7 million was realised from the qualifying portfolio through the sale of four holdings and a reduction in the Company's exposure to a further six positions.  The most significant sale was DXI, an unlisted software solution provider to call centres, which we exited at a small profit via a trade sale to 8x8, a US provider of Voice over Internet Protocol technologies.   AIM-listed Ubisense Group, the location intelligence software and services business, was also exited via the market. In addition, a £1.0 million convertible loan in medical device manufacturer, Deltex Medical, was redeemed in full at the end of February this year.

 

Non-qualifying portfolio

In line with the amended non-qualifying investment policy, we increased the Company's exposure to the Amati Fund.  The Amati Fund performed well against its peer group (IA UK Smaller Companies) and its benchmark (Numis Smaller Companies Index, plus AIM, excluding Investment Companies) over the year and gives the Company exposure to Amati Global Investors' entire portfolio of UK small and mid cap stocks. 

 

A position was also taken in Hiscox, a mid cap insurance group covering commercial and personal markets as well as speciality lines in technology, aerospace, marine, fire and political risk, amongst other areas.     

 

Three non-qualifying positions were exited during the year, DX (Group), the parcel logistics group, Assura Group, the UK's leading healthcare Real Estate Investment Trust, and Novae, the insurance group.

 

Outlook

Having endured a torrid start to 2016, stock markets began to rally in February.  As ever, it is difficult to predict the direction of travel from here.  Many of the issues which created the nervousness and sharp falls in January remain unresolved.  Central bank policy has been a key driver in the pricing of financial assets since the global crisis of 2008 and there is a fear that capital markets will adjust unpredictably when accommodative policies begin to be withdrawn.  There is also a headwind created by the short-term uncertainty surrounding Britain's membership of the EU.  Despite this, the UK remains an attractive destination for equity investment, and one of the best environments in which to nurture a small business.  Furthermore, our belief is that selective small companies operating in niche growing markets are more in control of their own destiny and less at the mercy of wider stock market trends.

 

The portfolio has evolved considerably over recent years and is now dominated by more established, mature, profitable companies.  Our experience and analysis suggests to us that these are the stocks which, over time, become attractive to a wider investment universe, beyond the realm of VCTs.  As this happens, the increased interest in such companies can create a 're-rating' effect where the multiple of earnings at which a stock is valued starts to rise.  Alongside earnings growth, this provides a second catalyst for share price appreciation.  Therefore we continue to believe that the smaller end of AIM, which is relatively little-known and under-researched, is a highly promising market in which to build a portfolio of long-term growth-company investments for the Amati VCTs.

 

Dr Paul Jourdan, Douglas Lawson and David Stevenson

Amati Global Investors Limited

4 May 2016

 

Amati Global Investors - Fund Manager Biographies

Paul Jourdan is an award-winning fund manager, with a strong track record in small cap investment. He co-founded Amati Global Investors following the management buyout of Noble Fund Managers from Noble Group in 2010, having joined Noble in 2007 as Head of Equities. His fund management career began in 1998 with Stewart Ivory, which was taken over by First State in 2010 at which time Paul became manager of what is now TB Amati UK Smaller Companies Fund. In early 2005 he launched what is now Amati VCT plc and he also manages Amati VCT 2 after the investment management contract moved to Amati Global Investors in 2010. Prior to 1998 Paul worked as a professional violinist, including a four year period with the City of Birmingham Symphony Orchestra. He is CEO of Amati Global Investors, and also a Governor of the Royal Conservatoire of Scotland.

 

Douglas Lawson co-founded Amati Global Investors with Paul Jourdan. Prior to this he worked in corporate finance and private equity, initially focusing on middle market UK private equity and listed company M&A at British Linen Advisors, and latterly as an investment manager in the private equity team at Noble. Douglas has co-managed the TB Amati UK Smaller Companies Fund and Amati VCT since 2009, and Amati VCT 2 since 2010. Douglas started his career at Ernst & Young in London, where he qualified as a Chartered Accountant in 2002. He is a director of Amati Global Investors.

 

David Stevenson joined Amati in 2012. In 2005 he was a co-founding partner of investment boutique Cartesian Capital, which managed a range of retail and institutional UK equity funds in long only and long/short strategies. Prior to that he was Assistant Director at SVM, where he also managed equity products including the UK Opportunities small/midcap fund which was ranked top decile for the 5 year period from inception to 2005. David started his career at KPMG where he qualified as a Chartered Accountant. He latterly specialised in corporate finance, before moving into private equity with Dunedin Fund Managers. David has co-managed the TB Amati UK Smaller Companies Fund and the Amati VCTs since 2012.

 

INVESTMENT PORTFOLIO

as at 29 February 2016

 

	Cost	Valuation	Market Cap			Dividend Yield *	Fund
	£'000	£'000	£m	Sector	Status	%	%
TB Amati UK Smaller Companies Fund3	2,519	2,944	-	Financials	OEIC	1.5	8.0
IDOX plc1,3	299	1,938	182.3	Technology	AIM	1.9	5.3
Sprue Aegis plc1,3	106	1,879	137.5	Industrials	AIM	4.0	5.1
Quixant plc2,3	418	1,622	115.5	Technology	AIM	0.8	4.4
Craneware plc2	298	1,615	201.8	Technology	AIM	2.1	4.4
Learning Technologies Group plc1,3	871	1,523	153.0	Industrials	AIM	0.6	4.1
Bilby plc2,3	676	1,489	43.8	Industrials	AIM	1.8	4.0
GB Group plc2,3	237	1,484	311.5	Technology	AIM	0.8	4.0
Frontier Developments plc2,3	594	1,287	78.7	Consumer Goods	AIM	-	3.5
Ideagen plc2,3	565	1,195	84.5	Technology	AIM	0.4	3.2
Top Ten	6,583	16,976					46.0
AB Dynamics plc2,3	304	1,137	55.9	Industrials	AIM	0.7	3.1
Tristel plc2,3	543	1,109	48.4	Health care	AIM	2.5	3.0
TLA Worldwide plc2,3	522	1,096	60.0	Consumer Services	AIM	2.1	3.0
Anpario plc2,3	277	1,058	67.1	Health care	AIM	2.3	2.9
Universe Group plc2,3	284	1,033	19.4	Industrials	AIM	-	2.8
Fox Marble Holdings plc Ordinary shares & 8% Convertible Loan Series1,3	1,246	964	18.2	Basic Materials	AIM/Unquoted	-	2.6
Keywords Studios plc2,3	488	866	117.8	Industrials	AIM	0.6	2.4
Science in Sport2,3	811	794	20.1	Consumer Goods	AIM	-	2.2
Premier Technical Services Group plc2,3	473	762	73.8	Industrials	AIM	1.6	2.1
Crawshaw Group2,3	432	743	57.0	Consumer Services	AIM	-	2.0
Top Twenty	11,963	26,538					72.1
Hardide plc1	373	735	12.0	Basic Materials	AIM	-	2.0
Rame Energy plc Ordinary shares, 8% Convertible Unsecured Loan Stock, 2019 Unsecured Loan & Warrants1,3	742	678	-	Industrials	AIM/Unquoted	-	1.8
Hiscox Limited3	565	646	2,768.5	Financials	AIM	2.8	1.8
Kalibrate Technologies plc1,3	363	472	34.7	Technology	AIM	-	1.3
Brooks Macdonald Group plc3	303	448	239.3	Financials	AIM	1.8	1.2
Belvoir Lettings plc1,3	404	410	29.1	Financials	AIM	6.2	1.1
Software Radio Technology plc1,3	709	390	25.5	Technology	AIM	-	1.1
Solid State plc2,3	258	372	29.2	Industrials	AIM	3.8	1.0
Brady plc2	331	371	47.5	Technology	AIM	1.1	1.0
FairFX Group plc1,3	537	333	20.9	Financials	AIM	-	0.9
Venn Life Sciences Holdings plc1,3	311	276	11.7	Health care	AIM	-	0.8
Water Intelligence plc2,3	181	261	6.6	Industrials	AIM	-	0.7
Mirada plc1,3	483	246	7.5	Consumer Services	AIM	-	0.7
MartinCo plc2,3	155	219	31.3	Financials	AIM	4.4	0.6
Microsaic Systems plc1,3	372	212	13.9	Industrials	AIM	-	0.6
Sabien Technology Group plc2,3	647	181	2.5	Industrials	AIM	-	0.5
Ilika plc1,3	156	154	39.0	Oil & Gas	AIM	-	0.4
MirriAd Advertising Limited1,3	524	148		Technology	Unquoted	-	0.4
Rosslyn Data Technologies plc1,3	385	118	7.8	Technology	AIM	-	0.3
Eclectic Bar Group plc1,3	314	103	8.5	Consumer Services	AIM	-	0.3
EU Supply plc1,3	351	62	2.7	Technology	AIM	-	0.2
Deltex Medical Group plc1	252	50	10.6	Health care	AIM	-	0.1
MyCelx Technologies Corporation1,3	440	42	1.7	Oil & Gas	AIM	-	0.1
Invocas Group plc1	332	36	2.8	Financials	Unquoted	-	0.1
Nujira Limited1,3	135	5		Technology	Unquoted	-	-
Investments held at nil value1,2,3	4,891	-	-	-	-	-	-
Total investments	26,477	33,506					91.1
Net current assets		3,288					8.9
Net assets	26,477	36,794					100.0

 

¹ Qualifying holdings.

² Part qualifying holdings.

³These investments are also held by other funds managed by Amati.

The Manager rebates the management fee of 0.75% on the Amati Fund and this is included in the yield.

All holdings are in ordinary shares unless otherwise stated.

Investments held at nil value: Polyhedra Group plc, China Food Company plc; Music Festivals plc, TMO Renewables Ltd, Sorbic International plc, Vicorp Group plc, Vitec Global Limited, Rated People Limited, Rivington Street Holdings plc, TCOM Limited.

*Source: Capital IQ at 12 April 2016; next twelve months consensus dividend estimates

As at the year end, the percentage of the Company's assets raised from all share issues held in qualifying holdings for the purposes of Section 274 of the Income and Corporation Taxes Act 2007 is 84.50%.

 

OBJECTIVES AND KEY POLICIES

 

Investment Policy

 

Investment Objective

The investment objective of the Company is to generate tax free capital gains and income on investors' funds through investment primarily in AIM-traded companies whilst mitigating risk appropriately within the framework of the structural requirements imposed on all VCTs.

 

Risk Diversification

Portfolio risk will be mitigated through appropriate diversification of holdings within the relevant portfolio.  As at 29 February 2016 the Company held investments in 55 companies. 

 

The Manager may use exchange-traded or over-the-counter derivatives with a view to reducing overall market risk in the portfolio as a whole.  The Manager shall only seek to hedge a limited amount of market risk and shall always be covered by the assets of the portfolio.  The use of derivatives is on a strictly controlled basis only and is part of a total risk mitigation exercise, not a separate investment policy.  The Company's overriding investment principle in relation to the use of derivatives is to seek to reduce any potential capital loss in the equity portions of the Qualifying and Non-Qualifying investment portfolios in a falling market.

 

Asset Allocation

The Manager intends that, by the date from which all funds raised are required to meet the VCT qualifying rules, the Company's investment profile (as defined by the valuation methodology set out in sections 278-9 of the Income Tax Act 2007 in which assets are valued on the basis of the last purchase price rather than by market price) will be approximately:

(i)            Between 70% and 85% in Qualifying Investments, whether equity or non-equity securities in (a) companies traded on AIM or on ISDX, (b) companies likely to seek a quotation on AIM or on ISDX or (c) likely to be the subject of a trade sale within a 24 month period.

(ii)           Between 0% and 30% in Non-Qualifying Investments in small and mid-sized companies where such companies are either (a) quoted in London, (b) constituents of the TB Amati UK Smaller Companies Fund, (c) likely to seek a quotation in London within a 24 month period, or (d) likely to be the subject of a trade sale within a 24 month period.  Investments may also include derivative instruments.

(iii)          Between 0% and 30% in cash or cash equivalents (including money funds) or government or investment grade bonds.

 

Consistent with the conditions for eligibility as an investment company under the 2006 Act, any holdings by the Company in shares or other securities in a company will not represent more than 15% by value of the Company's investments.

 

While Qualifying Investments are being sourced, the assets of the portfolio which are not in Qualifying Companies will be actively invested by the Manager in a combination of the above (always ensuring that not more than 15% of the Company's funds are invested in any one entity).

 

As described above, the Manager will also have the facility to seek to reduce market risk from the equity portfolio held by the Company through the use of derivatives.  The derivatives used will either be traded on an over-the-counter market or will be exchange-traded.  They will be in highly liquid markets bearing a reasonable level of correlation to the FTSE AIM All-Share Total Return index, ensuring that the value is normally transparent and enabling positions to be closed rapidly when needed.

 

Strategy for Achieving Objectives

Qualifying Investments Strategy

The construction of the portfolio of Qualifying Investments is driven by the availability of suitable opportunities.  The Manager may co-invest in companies in which other funds managed by Amati Global Investors invest, in accordance with the qualifying investments strategy.

 

The ability of VCTs to mitigate market risk is restricted by the requirement to maintain a minimum of 70% of their assets (as defined by the methodology set out in sections 278-9 of the Income Tax Act 2007) in Qualifying Investments after an initial three year period.  A VCT's ability to invest and mitigate risk is therefore restricted in three important respects:

(i)    Qualifying Companies are likely to be small, liable to be highly illiquid and their prospects can improve or deteriorate very rapidly.  The liquidity risk itself cannot be adequately diversified because larger, more liquid stocks cannot be purchased in the qualifying portion of a VCT's portfolio;

(ii)   Qualifying Investments have to be purchased as opportunities arise.  This is a long-term process, the pace of which cannot be determined solely by the Manager; and

(iii)  VCTs are less able to respond readily to the changing risk environment in the market as a whole because the ability to sell Qualifying Investments may be dependent on the opportunity to replace that holding with another qualifying investment, and an appropriate opportunity may not be available at the right time.

 

The Company seeks to address these issues through the Non-Qualifying Investment strategy set out below.  In addition the Company benefits from an existing Qualifying Investment portfolio of some maturity, in which, due to strong performance, the most successful companies have tended to become the largest holdings.  This mature portfolio serves to mitigate the risks for subscribers for New Ordinary Shares, as new Qualifying Investments purchased with the proceeds of subscriptions will sit alongside well established ones.  

 

Non-Qualifying Investments Strategy

While Qualifying Investments are being sourced, the assets of the portfolio which are not in Qualifying Companies will be actively invested by the Manager in a combination of the following (although ensuring that no more than 15% of the Company's funds are invested in any one entity):

(i)            direct equity and non-equity investments in small and mid-sized companies quoted in London or likely to seek a quotation in London, or to be sold within a 24 month period;

(ii)           investment in the TB Amati UK Smaller Companies Fund;

(iii)          government or investment grade corporate bonds; and

(iv)          money market funds.

 

The Manager seeks to adjust the Non-Qualifying portfolio to reflect the nature of Qualifying Investments as they are purchased, such that the portfolio remains well balanced and diversified.  If the Manager holds a negative outlook on the equity markets then funds may be invested in cash or bonds as outlined above and, in addition, the Manager may seek to reduce market risk in the equity portfolio with the use of suitable derivative instruments.  Asset allocation between these categories will remain flexible.

 

In relation to the use of derivatives, the directors and the Manager believe that their use under the controlled and prudent parameters which have been put in place in relation to the Company helps to reduce the total risk facing investors in relation to their investments.  The Company has made limited use of derivative instruments to date.

 

The use of derivatives will not prevent the Company from losing money overall in a falling market.  However, insofar as derivatives are used, the Manager's objective will be partially to reduce losses and also to provide cash for investment at moments when the market is weak.  The Company will only enter into such transactions for the purposes of efficient portfolio management in line with conventional practice.

 

Strict internal guidelines on the use of derivatives have been put in place by the Manager.  Additionally, such derivatives as are used are required to offer both good liquidity and, in the Manager's opinion, reasonable correlation to the AIM market.  Your attention is drawn to the risk factors relating to the use of derivatives set out on page 12 of this document. 

 

The Manager is under no obligation to use any one of these approaches and provides no guarantee that market risk management will be in place during a falling market.  The use of any or all of these instruments will reflect the Manager's view of the market risks which may be taken at any time.  

 

Key Performance Indicators

The board monitors on a regular basis a number of key performance indicators which are typical for VCTs, the main ones being:

·      Net asset value and total return to shareholders (the aggregate of net asset value and cumulative dividends paid to shareholders).  See graph on page 1.

·      Dividend distributions.  See table of investor returns on page 3.

·      Share price.  See key data on page 1.

·      Performance versus the FTSE AIM All-Share Total Return Index.  See graph on page 1.

·      Ongoing charges ratio. See key data on page 1.

·      Compliance with HMRC VCT regulations to maintain the Company's VCT status. See page 17.  

 

FUND MANAGEMENT AND KEY CONTRACTS

 

Management Agreement

Amati Global Investors Limited is the fund manager ("Manager") to the Company. Under an Investment Management and Administration Agreement ("IMA") dated 3 April 2007 the Manager has agreed to manage the investments and other assets of the Company on a discretionary basis subject to the overall policy of the directors, novated from the agreement that was in place between the Company and First State AIM Investments Limited dated 7 February 2005.  The Company will pay to the Manager under the terms of the IMA a quarterly fee of 0.4375% of the net asset value of the Company in arrears.  Annual running costs are capped at 3.5% of the Company's net assets, any excess being met by the Manager by way of a reduction in future management fees.  The annual running costs include the directors' and Manager's fees, professional fees and the costs incurred by the Company in the ordinary course of business (but excluding any commissions paid by the Company in relation to any offers for subscription, irrecoverable VAT and exceptional costs, including winding-up costs).  No performance fee is payable as the Manager has waived all performance fees from 28 February 2014 onwards. 

 

Administration Arrangements

Under the IMA, the Manager has also agreed to provide secretarial and administration services for the Company.  The Manager has engaged The City Partnership (UK) Limited to act as company secretary and Capita Asset Services to act as fund administrator.  A fee increased in line with the retail prices index is payable by the Company to the Manager for these services and the current fee is £67,030 per annum.   The appointment of the Manager as investment manager and/or administrator and company secretary may be terminated on 12 months' written notice.

 

Fund Manager's Engagement

The board regularly appraises the performance and effectiveness of the managerial and secretarial arrangements of the Company.  As part of this process, the board will consider the arrangements for the provision of investment management and other services to the Company on an ongoing basis and a formal review is conducted annually.  In the opinion of the board, the continuing appointment of the Manager, on the terms agreed, is in the interests of shareholders.  The directors are satisfied that the Manager will continue to manage the Company in a way which will enable the Company to achieve its objectives.

 

VCT Status Adviser

Philip Hare & Associates LLP ("Philip Hare & Associates") are engaged to advise the Company on compliance with VCT requirements.  Philip Hare & Associates reviews new investment opportunities, as appropriate, and reviews regularly the investment portfolio of the Company.  Philip Hare & Associates works closely with the Manager but reports directly to the board to independently confirm compliance.  Philip Hare & Associates have reported to the board that the VCT has met the necessary requirements during the year.

 

OTHER MATTERS

 

VCT REGULATION

 

The Company's investment policy is designed to ensure that it meets the requirements of HM Revenue & Customs to qualify and to maintain approval as a VCT. 

(i)    The Company must, within three years of raising funds, maintain at least 70% of its investments by VCT value (cost, or the last price paid per share, if there has been an addition to the holding) in shares or securities comprised in qualifying holdings, of which at least 70% by VCT value must be ordinary shares which carry no preferential rights (for funds raised prior to April 2011 at least 30% by VCT value must be in ordinary shares which carry no preferential rights).

(ii)   It may not invest more than 15% of its investments in a single company and it must have at least 10% by VCT value of its total investments in any qualifying company in qualifying shares approved by HM Revenue & Customs.

(iii)  To be classed as a VCT qualifying holding, companies in which investments are made must have no more than £15 million of gross assets at the time of investment and £16 million after investment; they must be carrying on a qualifying trade and satisfy a number of other tests including those outlined below; the investment must also be made for the purpose of promoting growth or development. 

(iv)  VCTs may not invest new capital in a company which has raised in excess of £5 million from all sources of state-aided capital within the 12 months prior to and including the date of investment, regardless of whether this investment is qualifying or non-qualifying.

(v)   No investment may be made by a VCT in a company that causes that company to receive more than £12 million (£20 million if the company is deemed to be a Knowledge Intensive Company) of state aid investment (including from VCTs) over the company's lifetime. A subsequent acquisition by the investee company of another company that has previously received State Aid Risk Finance can cause the lifetime limit to be exceeded.

From November 2015:

(vi)  No investment can be made by a VCT in a company whose first commercial sale was more than 7 years prior to date of investment, except where previous State Aid Risk Finance was received by the company within 7 years (10 years in each case for Knowledge Intensive Company) or where both a turnover test is satisfied and the money is being used to enter a new product or geographical market.

(vii) No funds received from an investment into a company can be used to acquire another existing business or trade.  

From 6 April 2016:

(viii)                A VCT is only able to make non-qualifying investments in UCITS (Undertakings for Collective Investments in Transferable Securities) funds, AIF (Alternative Investment Funds) and in securities purchased on a Recognised Stock Exchange.  In each of these cases the restrictions in (iv) - (vii) above are not applied.

 

Prior to making any qualifying investment the Manager requests HMRC VCT clearance letters from investee companies and takes advice from Philip Hare & Associates to ensure the documentation regarding the investment does not contravene the qualifying status of the investment.  The Manager monitors compliance with VCT qualifying rules on a day to day basis through a combination of automated and manual compliance checks in place within the business.  Philip Hare & Associates also review the portfolio bi-annually to ensure the Manager has complied with regulations and have reported to the board that the VCT has met the necessary requirements during the year.

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

The board considers that the Company faces the following major risks and uncertainties:

 

Investment Risk

A substantial portion of the Company's investments are in small AIM-traded companies as well as some unquoted companies.  By their nature these investments involve a higher degree of risk than investment in larger fully listed companies.  These investments tend to have limited product lines and niche markets.  They can be reliant on a few key individuals.  They can be dependent on securing further financing.  In addition, the liquidity of these shares can be low and the share prices volatile.

 

To reduce this risk, the board places reliance upon the skills and expertise of the Manager and its strong track record for investing in this segment of the market.  Investments are actively and regularly monitored by the Manager and the board receives detailed reports on the portfolio in addition to the Manager's report at regular board meetings.  The Manager also seeks to limit these risks through building a highly diversified portfolio with companies in different sectors and markets at different stages of development.

 

Legislative Risk

VCT legislation is the subject of ongoing scrutiny by the European Commission over its compliance with EU State Aid legislation.  This could lead to adverse changes in the VCT legislation.  In addition VCT legislation is the subject of frequent adjustment and refinement by Parliament, and in the future legislation could be altered in ways that limit the investment opportunities available to the Company.

 

Venture Capital Trust Approval Risk

The current approval as a VCT allows investors to take advantage of income tax reliefs on initial investment and ongoing tax-free capital gains and dividend income. Failure to meet the qualifying requirements could result in investors losing the income tax relief on initial investment and loss of tax relief on any tax-free income or capital gains received. In addition, failure to meet the qualifying requirements could result in a loss of listing of the shares.

 

To reduce this risk, the board has appointed the Manager, which has significant experience in venture capital trust management and is used to operating within the requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the board has appointed Philip Hare & Associates as taxation adviser to the Company.

 

Compliance Risk

The Company is listed on the London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company's shares or other penalties under the Companies Act or from financial reporting oversight bodies.

 

In July 2013 the Alternative Investment Fund Managers Directive ("AIFMD"), a European directive affecting the regulation of VCTs, was implemented.  Amati VCT plc has been entered in the register of small registered UK AIFMs on the Financial Services register at the Financial Conduct Authority ("FCA"). As a registered firm there are a number of regulatory obligations and reporting requirements which must be met in order to maintain its status as an AIFM.

 

Board members and the Manager have considerable experience of operating at senior levels within quoted businesses. In addition, the board and the Manager receive regular updates on new regulation from the auditors, lawyers and other professional bodies.

 

Internal Control Risk

Failures in key controls within the board, within the Manager's business or within other contracted third parties' businesses could put assets of the Company at risk or result in reduced or inaccurate information being passed to the board or to shareholders. 

 

The board seeks to mitigate the internal risks by setting policy, regular reviews of performance, enforcement of contractual obligations and monitoring progress and compliance.  Details of the Company's policy on internal controls are on page 25.

 

Financial Risk

The Company's investment mandate allows for the use of derivatives in order to hedge market risk from the portfolio.  While this allows the Manager to rapidly de-risk the portfolio, the derivatives used cannot provide an exact hedge on the portfolio and their use may introduce additional risks into the portfolio.

 

By its nature, as a VCT, the Company is exposed to market price risk, credit risk, liquidity risk and interest rate risk. The Company's policies for managing these risks are outlined in full in notes 18 to 21 to the financial statements on pages 45 and 46.

 

The Company is financed through equity.

 

Liquidity Risk

The Company's investments may be difficult to realise.  As a closed-end vehicle the Company has the long-term funding appropriate to make investments in illiquid companies.  However, if the underlying investee companies run into difficulties then their shares can become illiquid for protracted periods of time.  In these circumstances the Manager would work with the investee company and its advisers to seek appropriate solutions.

 

Market Risk

Investment in AIM-traded and unquoted companies, by its nature, involves a higher degree of risk than investment in companies on the main market.  In particular, smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals.  At times of adverse market sentiment the shares of small companies can become very difficult to sell, and values can fall rapidly.  The Company's closed-end structure is important in this regard, in that it is less likely to become a forced seller at such points.  The Company's investment policy also allows the Manager to invest in much larger more liquid companies through non-qualifying holdings.  These can provide liquidity in times of market adversity. 

 

Economic Risk

Events such as economic recession, not only in the UK but also in the core markets relevant to our investee companies, together with a movement in interest rates can affect investor sentiment towards liquidity risk, and hence have a negative impact on the valuation of smaller companies.  The Manager seeks to mitigate this risk by seeking to adopt a suitable investment style for the current point in the business cycle, and to diversify the exposure to geographic end markets. 

 

Reputational Risk

Inadequate or failed controls might result in breaches of regulations or loss of shareholder trust.  The Manager operates a robust risk management system which is reviewed regularly to ensure the controls in place are effective in reducing or eliminating risks to the Company.  Details of the Company's internal controls are on page 25.

 

Operational Risk

Failure of the Manager's, or other contracted third parties', accounting systems or disruption to their businesses might lead to an inability to provide accurate reporting and monitoring or loss to shareholders.  The Manager and the board regularly review the performance of third party suppliers at monthly management meetings and quarterly board meetings of the Manager.

 

STATEMENT ON LONG-TERM VIABILITY

In accordance with the revisions to the UK Corporate Governance Code in 2014 (the "2014 Code"), the directors have carried out a robust assessment of the prospects of the Company for the period to February 2019, taking into account the Company's current position and principal risks, and are of the opinion that, at the time of approving the financial statements there is a reasonable expectation that the Company will be able to continue in operation and meet liabilities as they fall due over that period.

 

The directors consider that for the purpose of this exercise it is not practical or meaningful to look forward over a period of more than three years. This time frame allows for reasonable forecasts to be made to allow the board to provide shareholders with reasonable assurance over the viability of the Company. In making their assessment the directors have taken into account the nature of the Company's business and Investment Policy, its risk management policies, the diversification of its portfolio, the cash holdings and the liquidity of non-qualifying investments 

 

Other Disclosures

 

The Company had no employees during the year and has four non-executive directors, three of whom are male and one is female.  The Company, being an investment company with no employees, has no policies in relation to environmental matters, social, community and human rights issues. 

 

On behalf of the board

 

Peter Lawrence

Chairman

4 May 2016

 

BOARD OF DIRECTORS

 

Peter Lawrence is chairman of ECO Animal Health Group plc and a director of Anpario plc which are both traded on AIM and, Higher Nature Ltd and Algatechnologies Ltd, which is backed by private equity. He is also chairman of Baronsmead Venture Trust plc.  He has been a director of the Company since its inception in 2005.

 

Julia Henderson has specialised in advising quoted and unquoted companies for over thirty years. Her corporate finance career began at ANZ Merchant Bank after which she became a co-founder of Beeson Gregory Limited (now part of Investec), a mid-market investment bank.  Over the last ten years she has been an independent consultant, chairman and non-executive director to companies across a broad range of sectors.  Recent non-executive directorships include ECO Animal Health Group plc, GTL Resources plc, Alkane Energy plc and TP Group plc.  She was appointed a director of the Company on 1 July 2013. 

 

Charles Pinney is a director of Baronsmead VCT 5 plc and was chairman of ProVen Health VCT plc until its merger with ProVen Growth & Income VCT plc in 2013.  He was, from 1994 until 2003, a director of Barclays Private Bank Limited with overall responsibility for the operations of the investment department.  From 2003 to 2009 he was a consultant to Rathbones Investment Management.  He is a fellow of both the Association of Chartered Certified Accountants and the Chartered Institute for Securities & Investment and is a former director of APCIMS (Association of Private Client Investment Managers and Stockbrokers).  He has been a director of the Company since its inception in 2005.

 

Brian Scouler spent 25 years in Private Equity with Charterhouse, Royal Bank of Scotland and Dunedin. He has wide experience of buying and selling private companies and investment portfolio management, sitting on numerous investee company boards. He was formerly manager of a quoted investment trust and a member of the steering committee of LPEQ, the listed private equity group. He is a chartered accountant and advisor to a number of private equity managers and professional services businesses.  He was appointed a director of the Company in October 2011.

 

DIRECTORS' REPORT

 

Principal Activity and Status

The Company is registered as a public limited company under the Companies Act 2006 (Registration number SC278722 Scotland).  The address of the registered office is Thistle House, 21 Thistle Street, Edinburgh EH2 1DF.  The directors have managed and intend to continue to manage the Company's affairs in such a manner as to comply with section 274 of the Income Tax Act 2007.  A review of the Company's business during the year is contained in the Chairman's Statement and Fund Manager's Review.

 

Directors

The directors of the Company during the year under review were Peter Lawrence, Charles Pinney, Brian Scouler and Julia Henderson.  Brief biographical details of the directors are given on page 19.  All directors will retire at the AGM in 2016 and being eligible, offer themselves for re-election.

 

Management

The board has delegated the management of the investment portfolio to the Manager and the Manager also provides or procures the provision of company secretarial and administrative services for the Company.

 

Dividend

The board is recommending a final dividend of 3.0p per share for the year ended 29 February 2016 payable on 12 August 2016.

 

Share Capital

The Company has an authorised share capital of 75,500,000 ordinary shares of 10p each, of which 55,801,407 were in issue at the year end.   During the year 1,396,000 shares in the Company were bought back for an aggregate consideration of £0.9m at an average price of 67.3p per share.  All of the shares were cancelled after purchase.  During the year 5,533,678 shares in the Company were allotted at an average price of 70.33p per share raising £3.9m. 

 

The rights and obligations attached to the Company's ordinary shares are set out in the Company's Articles of Association, copies of which can be obtained from Companies House.  The holders of ordinary shares are entitled to receive dividends when declared, to receive the Company's report and accounts, to attend and speak at general meetings, to appoint proxies and to exercise voting rights.  There are no restrictions on the voting rights attaching to the Company's shares or the transfer of securities in the Company.

 

Authority to allot shares

At a general meeting of the Company held on 7 March 2013 the directors were authorised pursuant to Section 551 of the Companies Act 2006 to allot relevant securities up to a maximum aggregate nominal value of £3,500,000.  This authority expires on 7 March 2018.

 

Substantial Shareholdings

 

	29 February 2016		As at the date of this report
	No of ordinary shares held	% of shares in issue	No of ordinary shares held	% of shares in issue
Hargreaves Lansdown (Nominees) Limited	2,495,983	4.5%	2,508,720	4.4%

 

Auditor

A resolution to re-appoint KPMG LLP as auditor will be proposed at the AGM to be held on 23 June 2016.

 

Global Greenhouse Gas Emissions

All of the Company's activities are outsourced to third parties. The Company therefore has no direct greenhouse gas emissions to report from its operations.

 

Going Concern

In accordance with FRC Guidance for directors on going concern and liquidity risk the directors are of the opinion that, at the time of approving the financial statements, the Company has adequate resources to continue in business for the foreseeable future. In reaching this conclusion the directors took into account the nature of the Company's business and Investment Policy, its risk management policies, the diversification of its portfolio, the cash holdings and the liquidity of non-qualifying investments.  The Company's business activities, together with the factors likely to affect its future development, performance and position including the financial risks the Company is exposed to, are set out in the Strategic Report on pages 12 to 18.  As a consequence, the directors believe that the Company has sufficient cash and liquid investments to continue to operate and that together with funds raised after the end of the financial year under the new offer the Company is well placed to manage its business risks successfully.  The directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future.  Thus the directors believe it is appropriate to continue to apply the going concern basis in preparing the financial statements.

 

Accountability and audit

The directors' responsibility statement in respect of the financial statements is set out on page 26 of this report.  The independent auditor's report is set out on pages 29 to 31 of this report.  The directors who were in office on the date of approval of these financial statements have confirmed that, as far as they were aware, there is no relevant audit information of which the auditors are unaware.  The directors have each taken all the steps they ought to have taken as directors in order to make themselves aware of any relevant audit information that has been communicated to the auditors.

 

Financial Instruments

The Company's financial instruments comprise equity and fixed interest investments, cash balances and liquid resources including debtors and creditors.  Further details, including details about risk management, are set out in the Strategic Report and in Notes 18 to 21 on pages 45 and 46.

 

Future Developments

Significant events which have occurred after the year end are detailed in Note 15 on page 42.  Future developments which could affect the Company are discussed in the outlook sections of the Chairman's Statement and Fund Manager's Review.

 

By order of the board

 

The City Partnership (UK) Limited

Company Secretary

4 May 2016

 

STATEMENT OF CORPORATE GOVERNANCE

 

Background

The board of Amati VCT plc has considered the principles and recommendations of the Association of Investment Companies' Code of Corporate Governance ("AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies ("AIC Guide").  The AIC Code, as explained by the AIC Guide, addresses all the principles set out in UK Corporate Governance Code, as well as setting out additional principles and recommendations on issues which are of specific relevance to the Company.

 

The board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Corporate Governance Code), will provide better information to shareholders.

 

The Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Corporate Governance Code except as set out below.

 

The UK Corporate Governance Code includes provisions relating to:

·      The role of the chief executive.

·      Executive directors' remuneration.

·      The need for an internal audit function.

 

For the reasons set out in the AIC Guide, and in the preamble to the UK Corporate Governance Code, the board considers these provisions are not relevant to the position of the Company, being an investment company. The Company has therefore not reported further in respect of these provisions.

 

Board of Directors

The Company has a board of four directors, all of whom are independent non-executive directors. The chairman is Peter Lawrence. The board has not appointed a senior independent director as it does not consider it necessary given the small size of the board. Biographical details of all directors are shown on page 19.

 

As all directors have acted in the interests of the Company throughout the period of their appointment and demonstrated commitment to their roles the board recommends they be re-elected at the AGM.  No director has a contract of service with the Company.  All of the directors have been provided with letters of appointment which are available for inspection by shareholders immediately before and after the Company's AGM.

 

Directors are provided with key information on the Company's activities including regulatory and statutory requirements and internal controls by the Manager.  The Manager, in the absence of explicit instructions from the board, is empowered to exercise discretion in the use of the Company's voting rights.  All shareholdings are voted, where appropriate, in accordance with the Manager's own corporate governance policy, which is to seek to maximise shareholder value by constructive use of votes at company meetings and by endeavouring to use its influence as an investor with a principled approach to corporate governance. 

 

The AIC Code states that the board should have a formal schedule of matters specifically reserved to it for decision, to ensure that it has firm direction and control of the Company. This is achieved by a management agreement between the Company and the Manager, which sets out the matters over which the Manager has authority and the limits above which board approval must be sought. All other matters including strategy, investment and dividend policies, gearing and corporate governance proceedings are reserved for the approval of the board of directors. All the directors are equally responsible for the proper conduct of the Company's affairs.  In addition, the directors are responsible for ensuring that the policies and operations are in the best interests of the Company's shareholders and that the best interests of creditors and suppliers to the Company are properly considered.  The chairman and the company secretary establish the agenda for each board meeting. The necessary papers for each meeting are distributed well in advance of each meeting ensuring all directors receive accurate, timely and clear information. 

 

Independence of Directors

The board regularly reviews the independence of each director and of the board as a whole.  The directors recognise the value of refreshing, and succession planning for, company boards and the board's composition is reviewed annually.  The board notes that Peter Lawrence and Charles Pinney have been directors of the Company since inception but in accordance with the AIC Code the board is of the view that length of service does not compromise the independence or contribution of directors of a venture capital trust, where continuity and experience can be a benefit to the board.  During the year the board considered the independence of the directors and the board believes that each director has demonstrated that he or she is independent in character and judgment and there are no relationships or circumstances which could affect their objectivity. 

 

Board Performance

The performance evaluation took the form of an open discussion with all directors led by the Chairman.  Any requests for further training or action were complied with.  The non-executive directors evaluated the performance of the Chairman and can confirm that they are happy with his performance and with his leadership of the board.  The directors seek to ensure that the board has an appropriate balance of skills, experience and length of service.  The biographies of the directors shown on page 19 demonstrate the wide range of investment, commercial and professional experience that they contribute.  The size and composition of the board and its committees is considered adequate for the effective governance of the Company.

 

Board Committees

Copies of the terms of reference of the Company's board committees are available from the company secretary and can be found on Amati's website: www.amatiglobal.com/avct_the_board.php.

 

Report of the Audit Committee

 

The audit committee comprises Charles Pinney (chairman), Julia Henderson, Peter Lawrence and Brian Scouler.  In accordance with the UK Corporate Governance Code the board is satisfied that Charles Pinney has recent and relevant financial experience.  He is a fellow of the Association of Chartered Certified Accountants and is a non-executive director of another VCT as noted in his biography on page 19.

 

During the year ended 29 February 2016 the audit committee met twice and:

·      reviewed all financial statements released by the Company (including the annual and half-yearly report);

·      reviewed the Company's accounting policies;

·      monitored the effectiveness of the system of internal controls and risk management;

·      approved the external auditor's plan and fees;

·      received a report from the external auditor following their detailed audit work, and discussed key issues arising from that work;

·      reviewed and monitored the independence of the external auditor; and

·      reviewed its own terms of reference.

 

The audit committee considers the main risk that arises in relation to the financial statements to be the valuation of quoted and unquoted investments held by the Company.

 

Valuation of quoted investments - the audit committee discussed the controls in place in respect of valuation of quoted investments and are satisfied that the controls in place at Capita Asset Services who act as the fund administrator are appropriate.

 

Valuation of unquoted investments - the Manager confirmed to the audit committee that the basis of valuation for unquoted companies was consistent with the prior year and in accordance with published industry guidelines, taking account of the latest available information about investee companies and current market data.  A comprehensive report on the valuation of unquoted investments is presented and discussed at every board meeting; directors are also consulted about material changes to those valuations between board meetings.

 

The audit committee considers the main risk in respect of the business activities of the Company to be compliance with HM Revenue & Customs to maintain the Company's VCT status.  The VCT status of the Company is monitored regularly by the Manager and discussed with the Manager at the audit meeting held to discuss the annual financial statements.  The Manager confirmed to the audit committee that the conditions for maintaining the Company's status have been complied with throughout the year.  The Company's VCT status is also reviewed by the Company's tax adviser, Philip Hare & Associates, as described on page 15.

 

These matters are monitored regularly by the Manager, and reviewed by the board at every board meeting.  They were also discussed with the Manager at the audit meeting held to discuss the annual financial statements.  

 

The Manager and the auditor confirmed to the audit committee that they were not aware of any material misstatements.  Having reviewed the reports received from the Manager and auditor, the audit committee is satisfied that the key areas of risk and judgement have been properly addressed in the financial statements and that the significant assumptions used in determining the value of assets and liabilities have been properly appraised and are sufficiently robust.

 

The audit committee has managed the relationship with the external auditor and assessed the effectiveness of the audit process.  When assessing the effectiveness of the process for the year under review the committee considered the auditor's technical knowledge and that they have a clear understanding of the business of the Company; that the audit team is appropriately resourced; that the auditor provided a clear explanation of the scope and strategy of the audit and that the auditor maintained independence and objectivity.  As part of the review of auditor effectiveness and independence, KPMG LLP has confirmed that it is independent of the Company and has complied with applicable accounting standards.  KPMG LLP has held office as auditor for 10 years; in accordance with professional guidelines the engagement partner is rotated after at most five years, and the current partner has been in place for 5 years, having signed accounts since the year to February 2012.

 

The audit committee is satisfied that KPMG LLP, the Company's auditor, is independent and that it has adequate policies and safeguards in place to ensure that its objectivity and independence is maintained.  The auditor does not provide any non-audit services to the Company and the audit committee must approve the appointment of the external auditor for any non-audit services.

 

Following the review as noted above the audit committee is satisfied with the performance of KPMG LLP and recommends the services of KPMG LLP to the shareholders in view both of that performance and the firm's extensive experience in auditing Venture Capital Trusts.

 

Remuneration and Management Engagement Committee

The Remuneration and Management Engagement Committee comprises Brian Scouler (chairman), Julia Henderson, Peter Lawrence and Charles Pinney.  During the year the remuneration and management engagement committee reviewed the terms of the advisers' contracts, in particular focusing on the performance of the investment manager, terms of the investment management contract and it also reviewed peer group remuneration in order to make a recommendation to the board about the level of directors' remuneration.

 

The committee's annual report can be found on pages 27 and 28 of this report.

 

Nomination Committee

The Nomination Committee comprises Brian Scouler (chairman), Julia Henderson, Peter Lawrence and Charles Pinney.  In accordance with the AIC Code Brian Scouler, who is an independent non-executive director, was appointed chairman of the nomination committee.  During the year the nomination committee reviewed the board structure, size and composition with respect to succession planning and approved the directors' re-election at the forthcoming AGM.

 

The nomination committee has considered the recommendations of the UK Corporate Governance Code concerning gender diversity and welcomes initiatives aimed at increasing diversity generally.  The nomination committee believes, however, that all appointments should be made on merit rather than positive discrimination.  The nomination committee is clear that maintaining an appropriate balance round the board table through a diverse mix of skills, experience, knowledge and background is of paramount importance and gender diversity is a significant element of this.  Any search for new board candidates is conducted, and appointments made, on merit, against objective selection criteria having due regard, among other things, to the benefits of diversity on the board, including gender.

 

Board and Committee Meetings

The following table sets out the directors' attendance at full board and committee meetings held during the year ended 29 February 2016.

	Board meetings		Audit Committee Meetings		Remuneration and Management Engagement Committee meetings		Nomination Committee meetings
Director	held	attended	held	attended	held	Attended	held	attended
Peter Lawrence	5	5	2	2	1	1	1	1
Julia Henderson	5	5	2	2	1	1	1	1
Charles Pinney	5	5	2	2	1	1	1	1
Brian Scouler	5	5	2	2	1	1	1	1

 

The board is in regular contact with the Manager between board meetings.

 

Relations with Shareholders

The Company welcomes the views of shareholders and places great importance on communication with its shareholders. Shareholders have the opportunity to meet the board at the AGM. All shareholders are welcome to attend the meeting and to ask questions of the directors. The board is also happy to respond to any written queries made by shareholders during the course of the year. All communication from shareholders is recorded and reviewed by the board to ensure that shareholder enquiries are promptly and adequately resolved.

 

The notice of the AGM accompanies this annual report, which is sent to shareholders. Separate resolutions are proposed for each substantive issue. The board and representatives of the Manager are available to answer any questions shareholders may have.

 

The Company also communicates with shareholders through annual and half-yearly reports, which appear on the Company's website (http://www.amatiglobal.com/avct_literature.php). The board as a whole approves the terms of the Chairman's Statement and Fund Manager's Review which form part of these reports in order to ensure that they present a balanced and understandable assessment of the Company's position.

 

Internal Control

The board acknowledges that it is responsible for the Company's internal control systems and for reviewing their effectiveness.  In accordance with the AIC Code and the updated Turnbull guidance published by the Financial Reporting Council in 2005, the board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. Internal controls are designed to manage the particular needs of the Company and the risks to which it is exposed. The internal control systems aim to ensure the maintenance of proper accounting records, the reliability of the financial information upon which business decisions are made and which is used for publication, and that the assets of the Company are safeguarded. They can by their nature only provide reasonable and not absolute assurance against material misstatement or loss. The financial controls operated by the board include the authorisation of the investment strategy and regular reviews of the results and investment performance.

 

The board has delegated contractually to third parties, as set out on page 15, the management of the investment portfolio, the custodial services, including the safeguarding of the assets, the day-to-day accounting, company secretarial and administration requirements and registration services.  Each of these contracts was entered into after full and proper consideration by the board of the quality and cost of services offered. The board receives and considers regular reports from the Manager. Ad hoc reports and information are supplied to the board as required. It remains the role of the board to keep under review the terms of the management agreement with the Manager.

 

A bi-annual review of the control systems is carried out which covers consideration of the key risks in three major areas: corporate strategy and compliance with laws and regulations; financial management and company reporting: and relationships with service providers. Each risk is considered with regard to the controls exercised at board level, reporting by service providers and controls relied upon by the board.  The company secretary reviews the annual statutory financial accounts to ensure compliance with Companies Acts, the Listing Rules and the AIC Code and the audit committee reviews financial information prior to its publication.  The principal features of the internal control systems which the Company has in place in respect of financial reporting include segregation of duties between the review and approval of unquoted investment valuations and the recording of these valuations in the accounting records.  Bank reconciliations, cash forecasts and investment valuations are produced on a weekly basis for review by the Manager.  Quarterly management accounts are produced for review and approval by the Manager and the board.  

 

On behalf of the board

 

Peter Lawrence

Chairman

4 May 2016

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

in respect of the Annual Report and the Financial Statements

 

The directors are responsible for preparing the Annual Report and the 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 FRS 102 The Financial Reporting Standard applicable in the UK and 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 these 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 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 directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.  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:

·      the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company taken as a whole; and

·      the strategic report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

 

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

 

Peter Lawrence

Chairman

4 May 2016

 

DIRECTORS' REMUNERATION REPORT

 

Introduction

The board has prepared this report in accordance with the requirements of the Companies Act 2006 and The Large and Medium-sized Company and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the "Regulations").  An ordinary resolution for the approval of the Directors' Remuneration Report will be put to the members at the forthcoming AGM.

 

The law requires that the Company's auditor audit certain disclosures. Where disclosures have been audited, they are indicated as such. The auditor's opinion is included in the Independent Auditor's Report on pages 29 to 31.

 

Annual statement from the Chairman of the Remuneration and Management Engagement Committee

The membership of the remuneration and management engagement committee comprises the non-executive directors. The current members are Brian Scouler (chairman), Julia Henderson, Peter Lawrence and Charles Pinney.  The secretary to the committee is The City Partnership (UK) Limited which is also the secretary to the Company.

 

Directors' fees were reviewed by the board in April 2016 at a meeting of the remuneration and management engagement committee where it was resolved that directors fees would be increased, taking account of CPI.  Directors' fees are reviewed annually and the levels are compared to a peer group of VCTs with net asset values of a similar size to the Company and are set by the committee to attract individuals with the appropriate range of skills and experience.  In determining the level of fees the duties and responsibilities of the directors are considered, together with the level of time commitment required in preparing for and attending meetings. 

 

Directors' Remuneration Policy

The Company's policy is that the remuneration of directors should reflect the experience of the board as a whole, be fair and comparable with that of other companies that are similar in size and nature to the Company and have similar objectives and structures.  Furthermore, the level of remuneration should be sufficient to attract and retain the directors required to oversee effectively the Company and to reflect the specific circumstances of the Company, the duties and responsibilities of the directors and the value and amount of time committed to the Company's affairs.  It is the intention of the board that, unless any revision to this policy is deemed necessary, this policy will continue to apply in the forthcoming and subsequent financial years.   The board has not received any views from the Company's shareholders in respect of the levels of Directors' remuneration.

 

The fees for the directors are set within maximum limits determined from time to time by the Company in general meeting. At present, the maximum aggregate remuneration is as contained in the Company's Articles, which limit the fees payable to the directors to £100,000 per annum in aggregate.  The directors are not eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits.  No arrangements have been entered into between the Company and the directors to entitle any of the directors to compensation for loss of office.

 

The Directors' Remuneration policy which was approved by the members at the AGM in 2014 was in place for the year ending 29 February 2016 and will continue for subsequent years.  In accordance with the Regulations, a binding ordinary resolution to approve the Directors' Remuneration policy will be put to shareholders at least once every three years, therefore a resolution to approve the Directors' Remuneration policy will next be put to shareholders at the AGM to be held in 2017.

 

Directors' Annual Report on Remuneration

 

Terms of appointment

No director has a contract of service with the Company.  All of the directors have been provided with letters of appointment.  The letters of appointment provide that directors are appointed for a period of up to three years and are subject to re-election by shareholders at the first annual general meeting after their appointment.  In accordance with corporate governance best practice, the board have resolved that all directors will stand for re-election on an annual basis.  Their re-election is subject to shareholder approval.  The letters of appointment are available for inspection on request.  There is no period of notice to be given to terminate the letters of appointment and no provision for compensation upon early termination of appointment.

 

The following table shows, for each director, the original appointment date and the annual general meeting at which they may stand for re-election.

 

Director	Date of original appointment	Due date for re-election/election
Julia Henderson	1 July 2013	2016 AGM
Peter Lawrence	24 January 2005	2016 AGM
Charles Pinney	24 January 2005	2016 AGM
Brian Scouler	25 October 2011	2016 AGM

 

Directors' fees for the year (Audited)

The fees payable to individual directors in respect of the year ended 29 February 2016 are shown in the table below.

	2016	2015
Director	£	£
Julia Henderson	21,050	21,050
Peter Lawrence †	23,825	23,825
Charles Pinney	21,050	21,050
Brian Scouler	21,050	21,050
	86,975	86,975

†The emoluments payable to Peter Lawrence are invoiced by and paid to ECO Animal Health Group plc.

                                                                                                                                                                                                                                              

No taxable benefits were paid to the directors, no pension related benefits were paid to the directors and no money or other assets were received or receivable by the directors for the relevant financial year.  No payments were made to past directors or any payments made for loss of office. No element of the directors' remuneration is performance related. The Company has not awarded any share options or long-term performance incentives to any of the directors.

 

Relative importance of spend on pay

The table below shows the remuneration paid to directors and shareholder distributions in the year to 29 February 2016 and the prior year:

	2016 £	2015 £	Percentage increase
Total dividend paid to shareholders	2,695,317	2,542,474	6.0%
Total directors' fees	86,975	86,975	0.0%

 

Directors' shareholdings

The directors who held office during the year and their interests in the shares of the Company (including beneficial and family interests) were:

	29 February 2016	28 February 2015
	Shares held	Shares held
Julia Henderson	11,683	11,683
Peter Lawrence	269,044	165,708
Charles Pinney	85,459	82,617
Brian Scouler	47,919	44,687

 

The Company confirms that it has not set out any formal requirements or guidelines for a director to own shares in the Company.

 

Company Performance

The board is responsible for the Company's investment strategy. The management of the Company's investment portfolio is delegated to the Manager through an investment management agreement. The board regularly reviews the portfolio and its valuation. Details of the Company's performance during the year are provided in the Chairman's Statement and Fund Manager's Review.

 

The graph on page 28 compares the Company's share price with dividends added back at the ex-dividend date to the FTSE AIM All-Share Total Return Index for the period from the launch of the Company.  This index was chosen for comparison purposes, as it is used for investment performance measurement purposes.

 

Shareholder voting

At the last AGM held on 25 June 2015 proxy votes were received as follows in respect of the resolution approving the Directors' Remuneration Report, 76% of shareholders voted for, 24% voted against and 59,931 shares were withheld.  An ordinary resolution for the approval of the Directors' Remuneration Report will be put to shareholders at the forthcoming AGM.  At the AGM held on 26 June 2014 proxy votes were received as follows in respect of the resolution approving the Directors' Remuneration Policy 93.9% of shareholders voted for, 6.1% voted against and 59,265 shares were withheld. 

 

On behalf of the board

 

Brian Scouler

Chairman of the Remuneration and Management Engagement Committee

 

4 May 2016

 

INCOME STATEMENT

for the year ended 29 February 2016

 

	Note	2016 Revenue £'000	2016 Capital £'000	2016 Total £'000	2015 Revenue £'000	2015 Capital £'000	2015 Total £'000
Gain/(loss) on investments	8	-	290	290	-	(2,065)	(2,065)
Income	2	839	-	839	686	-	686
Investment management fees	3	(160)	(480)	(640)	(169)	(508)	(677)
Other (expenses)/income	4	(274)	5	(269)	(306)	4	(302)
Profit/(loss) on ordinary activities before taxation		405	(185)	220	211	(2,569)	(2,358)
Taxation on ordinary activities	5	-	-	-	-	-	-
Profit/(loss) and total comprehensive income attributable to shareholders		405	(185)	220	211	(2,569)	(2,358)
Basic and diluted earnings/(loss) per Ordinary share	7	0.75p	(0.34p)	0.41p	0.41p	(5.05p)	(4.64p)

The total column of this Income Statement represents the profit and loss account of the Company. The supplementary revenue and capital columns have been prepared in accordance with The Association of Investment Companies' Statement of Recommended Practice ("SORP"). There is no other comprehensive income other than the results for the year discussed above. Accordingly a Statement of total comprehensive income is not required.

All the items above derive from continuing operations of the Company. 

The notes on pages 36 to 46 form part of these financial statements.

 

STATEMENT OF CHANGES IN EQUITY

for the year ended 29 February 2016

 

	Non-distributable reserves			Distributable reserves
	Called up share capital £'000	Share premium £'000	Capital redemption reserve £'000	Special reserve £'000	Capital reserve# £'000	Revenue reserve £'000	Total reserves £'000
Opening balance as at 1 March 2015	5,166	9,590	676	20,992	(270)	211	36,365
Shares issued	554	3,338	-	-	-	-	3,892
Share issue expenses	-	(44)	-	-	-	-	(44)
Repurchase of shares	(140)	-	140	(944)	-	-	(944)
Dividends paid	-	-	-	(2,484)	-	(211)	(2,695)
(Loss)/profit and total comprehensive income for the year	-	-	-	-	(185)	405	220
Closing balance as at 29 February 2016	5,580	12,884	816	17,564	(455)	405	36,794

 

for the year ended 28 February 2015

	Non-distributable reserves			Distributable reserves
	Called up share capital £'000	Share premium £'000	Capital redemption reserve £'000	Special reserve £'000	Capital reserve# £'000	Revenue reserve £'000	Total reserves £'000
Opening balance as at 1 March 2014	4,963	7,245	533	24,372	2,299	235	39,647
Shares issued	346	2,422	-	-	-	-	2,768
Share issue expenses	-	(77)	-	-	-	-	(77)
Repurchase of shares	(143)	-	143	(1,073)	-	-	(1,073)
Dividends paid	-	-	-	(2,307)	-	(235)	(2,542)
(Loss)/profit and total comprehensive income for the year	-	-	-	-	(2,569)	211	(2,358)
Closing balance as at 28 February 2015	5,166	9,590	676	20,992	(270)	211	36,365

 

# These reserves are not wholly distributable.

 

At 29 February 2016, the capital reserve constitutes realised losses of £7,502,000 (28 February 2015: £6,005,000) and unrealised investment holding gains of £7,047,000 (28 February 2015: £5,735,000). Distributable reserves comprise the special reserve, the revenue reserve and the capital reserve realised (the unrealised is not included as it is a positive balance).  At 29 February 2016, the amount of reserves deemed distributable is £10,467,000 (28 February 2015: £15,198,000), a net negative movement in the year of £4,731,000. 

 

A final dividend for the year ended 29 February 2016 of 3p per share has been proposed to be paid on 12 August 2016.  The proposed final dividend is subject to approval by shareholders at the annual general meeting.

 

BALANCE SHEET

as at 29 February 2016

	Note	2016 £'000	2015 £'000
Fixed assets
Investments held at fair value	8	33,506	34,795
Current assets
Debtors	9	125	256
Cash at bank		3,351	2,037
Investments - liquidity funds		54	203
Total current assets		3,530	2,496
Current liabilities
Creditors: amounts falling due within one year	10	(242)	(926)
Net current assets		3,288	1,570
Total assets less current liabilities		36,794	36,365
Capital and reserves
Called up share capital*	11	5,580	5,166
Share premium account*		12,884	9,590
Capital redemption reserve*		816	676
Special reserve		17,564	20,992
Capital reserve#		(455)	(270)
Revenue reserve		405	211
Equity shareholders' funds		36,794	36,365
Net asset value per share	12	65.94p	70.39p

* These reserves are not distributable.

# These reserves are not wholly distributable.

 

The financial statements on pages 32 to 46 were approved and authorised for issue by the board of directors on 4 May 2016 and were signed on its behalf by

 

Peter Lawrence

Chairman

Company Number SC278722

 

The accompanying notes on pages 36 to 46 are an integral part of the balance sheet.

 

STATEMENT OF CASH FLOWS

for the year ended 29 February 2016

 

	2016 £'000	2015 £'000
Cash flows from operating activities
Investment income received	817	601
Deposit interest received	13	11
Investment management fees	(643)	(692)
Other operating costs	(269)	(298)
Net cash outflow from operating activities	(82)	(378)
Cash flows from investing activities
Purchase of investments	(3,725)	(8,155)
Sale of liquidity funds	149	149
Disposals of investments	4,644	8,509
Net cash inflow from financial investment	1,068	503
Dividends
Payment of dividends	(2,695)	(2,542)
Net cash outflow before financing	(1,709)	(2,417)
Cash flows from financing activities
Net proceeds of share issues & buybacks	3,018	1,485
Equity dividends paid	(2,695)	(2,542)
Net cash inflow/(outflow) from financing	323	(1,057)
Increase/(decrease)in cash	1,309	(932)
Reconciliation of net cash flow to movement in net cash
Increase/(decrease) in cash during the year	1,309	(932)
Net cash at 1 March	2,037	2,965
Currency gains	5	4
Net cash at 29/28 February	3,351	2,037
Reconciliation of profit/(loss) on Ordinary Activities before Taxation to Net Cash Outflow from Operating Activities
Profit/(loss) on ordinary activities before taxation	220	(2,358)
Net (gain)/loss on investments	(290)	2,065
Decrease in creditors, excluding corporation tax payable	(1)	(8)
Increase in debtors	(6)	(73)
Currency gains	(5)	(4)
Net cash outflow from operating activities	(82)	(378)

 

The accompanying notes on pages 36 to 46 are an integral part of the statement.

 

NOTES TO THE FINANCIAL STATEMENTS

 

1           Accounting Policies

 

Basis of Accounting

             The financial statements have been prepared under FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and in accordance with the SORP issued by the Association of Investment Companies ("AIC") in November 2014 and on the assumption that the Company maintains VCT status. There are no significant changes to the Company's accounting policies or previous reported financial position and performance as a result of the adoption of FRS 102 which became mandatory for companies with a financial year beginning on or after 1 January 2015.

The financial statements have been prepared on a going concern basis.

            

             Income

             Dividends on quoted shares are recognised as income on the date that the related investments are marked ex dividend and where no dividend date is quoted, when the Company's right to receive payment is established.

            

Income from fixed interest securities, other investment income and deposit income are included on an accruals basis provided there is no reasonable doubt that payment will be received in due course.

            

             Expenses

             All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the income statement, all expenses have been prescribed as revenue items except as follows:

 

Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated.  Accordingly the investment management fee is currently allocated 25% to revenue and 75% to capital, which reflects the directors' expected long-term view of the nature of the investment returns of the Company.

            

             Issue Costs

             Issue costs in respect of ordinary shares issued by the Company are deducted from the share premium account.

 

             Taxation

             Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date. Deferred tax assets are only recognised when they arise from timing differences where recovery in the foreseeable future is regarded as probable.  Timing differences are differences arising between the Company's taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods.

 

Current tax is expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the Balance Sheet date and any adjustment to tax payable in respect of previous years.  The tax effect of different items of expenditure is allocated between revenue and capital on the same basis as a particular item to which it relates, using the Company's effective rate of tax, as applied to those items allocated to revenue, for the accounting period.

 

No tax liability arises on gains from sales of fixed asset investments by the Company by virtue of its VCT status.

 

             Investments

             Investments are classified at fair value through the income statement. Financial assets designated at fair value through the income statement are measured at subsequent reporting dates at fair value.

 

               

Investments that are listed on London Stock Exchange and traded on AIM or ISDX, are generally valued at bid prices at close of business on the Balance Sheet date.

 

             Unquoted investments are shown at fair value as assessed by the directors in accordance with International Private Equity Venture Capital Valuation ("IPEV") guidelines.  Valuations of unquoted investments are reviewed quarterly.

•           the shares may be valued by using the most appropriate methodology recommended by the IPEV guidelines, including cost, earnings multiples, net assets, discounted cashflows and industry valuation benchmarks.

•           alternatively where a value is indicated by a material arms-length transaction by a third party in the shares of the company the valuation will normally be based on this.

 

Convertible loan stock instruments are valued using present value of future payments discounted at a market value of interest for a similar loan and valuing the option at fair value.

The valuation of the Company's investment in TB Amati UK Smaller Companies Fund is based on the published fund mid price NAV. The NAV is provided by the Authorised Corporate Director of the fund, T Bailey Fund Managers Limited.

 

Realised and unrealised surpluses or deficits on the disposal of investments, the revaluation of investments and permanent impairments in the value of investments are taken to the capital reserve.

 

Transaction costs on acquisition are included within the initial book cost and transaction costs on disposal are deducted from the disposal proceeds received.

 

Financial Instruments

The Company classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement.  Financial instruments are recognised on trade date when the Company becomes a party to the contractual provisions of the instrument.  Financial instruments are held at fair value through profit or loss with changes in the fair value recognised in the Income Statement and allocated to capital.

 

Financial instruments are derecognised on the trade date when the Company is no longer a party to the contractual provisions of the instrument.

 

Foreign Currency

Foreign currency assets and liabilities are translated into sterling at the exchange rates ruling at the balance sheet date. Transactions during the year are converted into sterling at the rates ruling at the time the transactions are executed. All exchange differences are reflected in the income statement.  The functional currency is sterling.  This is appropriate for the Company as the majority of the portfolio is invested in sterling, including income generated from investments, and all of the fund's expenses are paid in sterling.

 

Short-term Debtors and Creditors

Debtors and creditors with no stated interest rate and receivable within one year are recorded at transaction price. Any losses arising from impairment are recognised in the income statement in other operating expenses.

 

Segmental Reporting

The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business.

 

Judgements and Key Sources of Estimation Uncertainty

The preparation of the Financial Statements requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The nature of estimation means that the actual outcomes could differ from those estimates, possibly significantly. The most critical estimates and judgements relate to the determination of carrying value of investments at fair value through profit or loss. The Company values investments by following the IPEV guidelines.

 

2              Income

	Year to	Year to
	29 February	28 February
	2016	2015
	£'000	£'000
Income:
Dividends from UK companies	439	387
Dividends from overseas companies	-	-
UK loan stock interest	388	284
Interest from liquidity funds	1	1
Interest from deposits	7	14
Interest on tax refund	4	-
	839	686

                                                                    

3        Investment Management Fees

The Manager provides investment management and secretarial services to the Company under an investment management agreement.  Details of this agreement are given on page 15.

 

Investment management fees for the year were as follows:

	Year to	Year to
	29 February	28 February
	2016	2015
	£'000	£'000
Due to the Manager by the Company at 1 March	158	173
Management fee charge to revenue and capital for the year	640	677
Fees paid to the Manager during the year	(643)	(692)
Due to the Manager by the Company at 29/28 February	155	158

                                           

Annual running costs, being the directors' and manager's fees, professional fees and the costs incurred by the Company in the ordinary course of its business (but excluding any performance fee payable to the Manager, irrecoverable VAT and exceptional costs, including wind-up costs), are capped at 3.5% of the Company's average Net Asset Value during the period.  Any excess is met by the Manager by way of reduction in future management fees.

 

4              Other Expenses

	Year to	Year to
	29 February	28 February
	2016	2015
	£'000	£'000
Directors' remuneration	87	87
Auditor's remuneration	18	16
Legal and professional services and other expenses	101	136
Administration and secretarial services	68	67
	274	306

The Company has no employees.

 

Details of directors' remuneration are provided in the Directors' Remuneration Report on page 27.

 

Capital other income of £5,000 (28 February 2015 expense of £4,000) relates to the exchange gain on revaluing the bank account.

 

Auditor's remuneration can be broken down into:

	Year to	Year to
	29 February	28 February
	2016	2015
	£'000	£'000
Audit of these financial statements	17	17
Audit of financial statements prior year over accrual	-	(1)
Tax services	1	-
	18	16

 

5              Tax on Ordinary Activities

5a            Analysis of charge for the year

	Year to	Year to
	29 February	28 February
	2016	2015
	£'000	£'000
Net charge for the year	-	-

 

5b            Factors affecting the tax charge for the year                        

The tax charge for the year is higher than the standard rate of corporation tax in the UK for a company.  The differences are explained below:                                                                                         

	Year to 29 February 2016			Year to 28 February 2015
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Profit/(loss) on ordinary activities before taxation	405	(185)	220	211	(2,569)	(2,358)
Theoretical tax at UK corporation tax rate of 20.08% (2015: 21.17%)	81	(37)	44	45	(544)	(499)
Effect of:
Non-taxable (gains)/losses on capital items	-	(58)	(58)	-	436	436
Movement in excess management expenses	7	95	102	37	108	145
Non-taxable dividends	(88)	-	(88)	(82)	-	(82)
Tax charge for the year (note 5a)	-	-	-	-	-	-

 

Due to the Company's tax status as an approved VCT, deferred tax has not been provided on any net capital gains arising on the disposal of investments as such gains are not taxable.

 

At 29 February 2016, the Company had unrelieved losses of £6,093,000 (28 February 2015: £5,581,000).  It is unlikely that the Company will generate sufficient taxable income in the future to use these expenses and to reduce future tax charges and therefore no deferred tax asset has been recognised.

 

6              Dividends Paid

	2016 £'000	2015 £'000
Final dividend for the year ended 28 February 2014 of 3.0p per Ordinary share - paid on 15 August 2014	-	1,519
Interim dividend for the year ended 28 February 2015 of 2.0p per Ordinary share - paid on 5 December 2014	-	1,023
Final dividend for the year ended 28 February 2015 of 3.0p per Ordinary share - paid on 15 August 2015	1,612	-
Interim dividend for the year ended 29 February 2016 of 2.0p per Ordinary share - paid on 11 December 2015	1,083	-
	2,695	2,542

 

7              Earnings per Share

	Year to 29 February 2016			Year to 28 February 2015
	Net profit/(loss) £'000	Weighted average shares	Earnings per share pence	Net profit/(loss) £'000	Weighted average shares	Earnings per share pence
Revenue	405	54,009,962	0.75p	211	50,902,981	0.41p
Capital	(185)	54,009,962	(0.34p)	(2,569)	50,902,981	(5.05p)
Total	220	54,009,962	0.41p	(2,358)	50,902,981	(4.64p)

 

8              Investments

		Level a*	Level c i)*	Level c ii)*
					Total
		£'000	£'000	£'000	£'000
Cost at 1 March 2015		19,800	703	8,570	29,073
Transfers between quoted and unquoted		-	260	(260)	-
Purchases		2,906	-	143	3,049
Disposals	- proceeds received	(2,713)	(491)	(1,424)	(4,628)
	- realised gains/(losses) on disposal	72	101	(60)	113
	- realisation of revaluation movements from previous years	(606)	(98)	(426)	(1,130)
Cost at 29 February 2016		19,459	475	6,543	26,477
Unrealised gains/(losses) at 1 March 2015		9,854	(355)	(3,777)	5,722
Unrealised gains/(losses) on investments during the year		2,252	(213)	(1,862)	177
Realisation of revaluation movements from previous years		606	98	426	1,130
Unrealised gains/(losses) at 29 February 2016		12,712	(470)	(5,213)	7,029
Valuation at 1 March 2015		29,654	348	4,793	34,795
Valuation at 29 February 2016		32,171	5	1,330	33,506
Equity shares		32,171	5	184	32,360
Loan stock		-	-	1,146	1,146
Total investments at valuation		32,171	5	1,330	33,506

 

	2016	2015
	£'000	£'000
Realised gains on disposal	113	307
Unrealised gains/(losses) on investments during the year	177	(2,372)
Net gain/(loss) on investments	290	(2,065)

 

Transaction Costs

During the year the Company incurred transaction costs of £2,000 (28 February 2015: £8,000) and £7,000 (28 February 2015: £23,000) on purchases and sales of investments respectively.  These amounts are included in gain/(loss) on investments as disclosed in the income statement.

 

9              Debtors

	2016	2015
	£'000	£'000
Prepayments and accrued income	125	241
Receivable for investments sold	-	15
	125	256

 

10            Creditors: Amounts Falling Due Within One Year

	2016	2015
	£'000	£'000
Payable for investments bought	-	676
Related party payables (due to Manager)	155	158
Fund raising costs	-	92
Other creditors	87	-
	242	926

 

11            Called Up Share Capital

	2016		2015
Ordinary shares (10p shares)	Number	£'000	Number	£'000
Allotted, issued and fully paid at 1 March	51,663,729	5,166	49,631,773	4,963
Issued during the year	5,533,678	554	3,461,183	346
Repurchase of own shares for cancellation	(1,396,000)	(140)	(1,429,227)	(143)
At 29 February	55,801,407	5,580	51,663,729	5,166

The shares issued during the year were Ordinary shares of nominal value 10p each.  During the year a total of 1,396,000 Ordinary shares of 10p each were repurchased for cancellation by the Company at an average price of 67.3p per share.

 

12            Net Asset Value per Ordinary Share

		2016			2015
	Net assets £'000	Ordinary shares	NAV per share pence	Net assets £'000	Ordinary shares	NAV per share pence
Ordinary share	36,794	55,801,407	65.94	36,365	51,663,729	70.39

 

13            Significant Interests

The Company has the following significant interests (amounting to an investment of 3% or more of the equity capital of an undertaking):

	Nominal	% held
Sabien Technology Group plc	3,147,064	7.2
Hardide plc	81,777,219	6.1
Universe Group plc	12,331,504	5.3
Science In Sport	1,596,729	4.0
Water Intelligence plc	419,370	4.0
Vicorp Group plc*	15,966,954	3.6
Bilby plc	1,165,259	3.4
Mirada plc	4,580,000	3.3

*The holding in Vicorp Group plc is included in the investments held at nil value in the Investment Portfolio on page 11.

 

14            Unquoted Investments                      

The increase in value of some of the Company's material convertible loan stock holdings is attributable to gains in the share prices of the underlying companies.  The effect of a share price rise on a convertible loan is an increase in the value of the conversion option.

 

15            Post Balance Sheet Events

The following transactions have taken place between 29 February 2016 and the date of this report: 2,013,480 shares were allotted raising net proceeds of £1.4m.

 

16            Related Parties

The Company holds 344,509 shares in Anpario plc, an AIM traded company, of which Mr Peter Lawrence is a non-executive director.  Mr Lawrence's charitable trust holds 27,950 shares in Anpario plc. 

 

The Company holds 3,633,510 shares and 551,700 convertible loan series in Fox Marble Holdings plc, an AIM traded company of which Paul Jourdan is a non-executive director.

 

The Company retains Amati Global Investors Limited as its Manager. Details of the agreement with the Manager are set out on page 15.  The number of ordinary shares (all of which are held beneficially) by certain members of the management team of the Manager are:

	29 February 2016 shares held
Paul Jourdan	282,506
Douglas Lawson	17,277
David Stevenson	14,134

 

Related party transaction

 Save as disclosed in this paragraph there is no conflict of interest between the Company, the duties of the directors, the directors of the Manager and their private interests and other duties.

 

17 Financial Instruments

The Company's financial instruments comprise equity and fixed interest investments, cash balances and liquid resources including debtors and creditors.  The Company holds financial assets in accordance with its investment policy to invest in qualifying investments predominantly in AIM traded companies or companies to be traded on AIM.

 

Fixed asset investments are valued at fair value through profit or loss.  For quoted securities this is the bid price or last traded price. As explained in note 1,in respect of unquoted investments, these are valued by the directors using rules consistent with International Private Equity and Venture Capital Association ("IPEV") guidelines.  The fair value of all other financial assets and liabilities is represented by their carrying value in the balance sheet.

 

The Company's investing activities expose it to various types of risk that are associated with the financial instruments and markets in which it invests.  The most important types of financial risk to which the Company is exposed are market risk, credit risk and liquidity risk.  The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Company are discussed below. 

 

In order to provide further information on the valuation techniques used to measure assets carried at fair value, the measurement basis has been categorised into a "fair value hierarchy" as follows:

 

- Quoted market prices in active markets - "Level a"

 Inputs to Level a fair values are quoted prices in active markets. An active market is one in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The Company's investments classified within this category are AIM traded companies, fully listed companies and ISDX traded companies.

 

- Valued using models with significant observable market parameters - "Level b"

Inputs to Level b fair values are inputs other than quoted prices included within Level a that are observable for the asset, either directly or indirectly.

 

- Valuation technique; - "Level c i) & ii)"

i)              Fair value is measured using a valuation technique that is based on data from an observable market; or

ii)             Fair value is measured using a valuation technique that is not based on data from an observable market.

 

Financial assets at fair value

At 29 February 2016

	Level a	Level c i)	Level c ii)	Total
	£'000	£'000	£'000	£'000
Equity shares	32,171	5	184	32,360
Loan stock	-	-	1,146	1,146
	32,171	5	1,330	33,506

 

Level c financial assets at fair value

At 29 February 2016

	Ordinary shares £'000	Preference shares £'000	Loan stock investments £'000	Total £'000
Opening balance at 1 March 2015	824	-	4,317	5,141
Transfers (from)/to Level c	-	-	-	-
Purchases	143	-		143
Disposal - proceeds	(552)	-	(1,363)	(1,915)
Realised gains/(losses) in the year	137	-	(96)	41
Unrealised losses in the year	(363)	-	(1,712)	(2,075)
Closing balance at 29 February 2016	189	-	1,146	1,335

 

There were no transfers to or from level c during the year.

 

Changing one or more valuation inputs to reasonably possible alternative assumptions would result in a difference ranging between £187k lower than the total value of Level c holdings and £112k more than the total value of Level c holdings.

 

Financial assets at fair value

At 28 February 2015

	Level a	Level c i)	Level c ii)	Total
	£'000	£'000	£'000	£'000
Equity shares	29,654	348	476	30,478
Loan stock	-	-	4,317	4,317
	29,654	348	4,793	34,795

 

Level c financial assets at fair value

At 28 February 2015

 

	Ordinary	Preference	Loan stock
	shares	shares	investments	Total
	£'000	£'000	£'000	£'000
Opening balance at 1 March 2014	1,016	275	6,982	8,273
Transfers (from)/to Level c	261	(275)	(633)	(647)
Purchases	278	-	585	863
Disposal proceeds	-	-	(115)	(115)
Unrealised losses on investments in the year	(731)	-	(2,502)	(3,233)
Closing balance at 28 February 2015	824	-	4,317	5,141

 

 The following stocks moved from Level c to Level a during last year:

Rosslyn Analytics became Rosslyn Data Technologies and moved from Level c to Level a (29 July 2014 Preference Shares £275,000 and Ordinary Shares £30,000).

 

Hardide loan notes converted to Ordinary Shares and moved from Level c to Level a (11 March 2014 £200,000, 9 June 2014, £100,000; 1 August 2014 £333,000).

 

Bglobal plc converted to B shares, delisted and received a cash distribution (£118,000) moving from Level a to Level c (1 September 2014). As at 28 February 2015 the B shares were held in the portfolio at nil value.

 

Changing one or more valuation inputs to reasonably possible alternative assumptions would result in a difference ranging between £187k lower than the total value of Level 3 holdings and £112k more than the total value of Level c holdings.

 

18            Market Risk

Market risk embodies the potential for losses and includes interest rate risk and price risk.

 

The Company's strategy on the management of investment risk is driven by the Company's investment objective as outlined in the investment objective on page 12.  The management of market risk is part of the investment management process.  The portfolio is managed in accordance with policies and procedures in place as described in more detail in the Strategic Report on pages 12 and 13, with an awareness of the effects of adverse price movements through detailed and continuing analysis, with an objective of maximising overall returns to shareholders.  Investments in unquoted stocks and AIM traded companies, by their nature, involve a higher degree of risk than investments in the main market.  Some of that risk can be mitigated by diversifying the portfolio across business sectors and asset classes.  The Company's overall market positions are monitored by the board on a quarterly basis.

 

Details of the Company's investments at the balance sheet date are disclosed in the Investment Portfolio on pages 10 and 11. FRS 102 requires the Directors to consider the impact of changing one or more of the inputs used as part of the valuation process to reasonable possible alternative assumptions. 

 

Of the Company's investments, 96% are traded on AIM or fully listed (28 February 2015: 85%).  A 10% increase in stock prices as at 29 February 2016 would have increased the net assets attributable to the Company's shareholders and the total profit for the year by £3,217,000 (28 February 2015: £2,009,000); an equal change in the opposite direction would have decreased the net assets attributable to the Company's shareholders and the total profit for the year by an equal amount.

 

Of the Company's investments, 4% are in unquoted companies held at fair value (28 February 2015: 15%).  A 10% increase in the valuations of unquoted investments at 29 February 2016 would have increased the net assets attributable to the Company's shareholders and the total profit for the year by £134,000 (28 February 2015: £898,000); an equal change in the opposite direction would have decreased the net assets attributable to the Company's shareholders and the total profit for the year by an equal amount. 

 

19            Interest Rate Risk

 

Fixed rate

Four of the Company's financial assets are interest bearing at a fixed rate (28 February 2015: eleven).  The valuation of these loans is based on an assessment of fair value which takes into account current interest rates in its assumptions.  As a result, the Company has indirect exposure to fluctuations in the prevailing levels of market interest rates.  A change in interest rates would have an impact on the fair values of the loan instruments in the portfolio.  The quantum of the impact cannot be directly measured but an indicative range has been set out on page 44 where the impact of adopting different interest rate assumptions (along with other inputs) has been disclosed. 

 

The total current market value of these stocks is £1,146,000, the weighted average interest rate is 13.6% and the average time to maturity is 1.9 years.

 

Floating rate

Any cash balances held by the Company are also subject to floating rates.  There is some impact on the interest earned on the cash balances held at banks but the impact of a different set of interest rates on the interest income is not significant in the context of the financial statements.  The Company has no overdraft facility currently. 

 

The Company received an average interest rate of 0.3% on the Global liquidity fund managed by Deutsche Bank.

 

20         Credit Risk

Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company.  The Manager has in place a monitoring procedure in respect of counterparty risk which is revised on an ongoing basis.  The carrying amount of financial assets best represents the maximum credit risk exposure at the balance sheet date.  At 29 February 2016, the financial assets exposed to credit risk amounted to £125,000 (28 February 2015: £256,000).

 

Credit risk on the unquoted loan stock held within unlisted investments is considered to be part of market risk.

 

Credit risk arising on transactions with brokers relates to transactions awaiting settlement.  Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the high credit quality of the brokers used.  The board monitors the quality of service provided by the brokers used to further mitigate this risk.

 

All the assets of the Company which are traded on AIM are held by Jarvis Investment Management ("Jarvis"), the Company's custodian.  Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed or limited. 

 

At 29 February 2016, approximately 60% of the cash held by the Company was held with Jarvis who bank with National Westminster Bank Plc. The remainder of the cash is invested in the UBS Third Party Cash Deposit Service, a Global liquidity fund managed by Deutsche Bank. Bankruptcy or insolvency of any of these institutions may cause the Company's rights with respect to the cash held by them to be delayed or limited.  It was considered appropriate to spread this risk by maintaining the cash with more than one institution whilst also mitigating the risk that the Company could breach VCT rules by receiving less than 70% of income from qualifying sources.  Any income from the chosen fund is qualifying income for VCT rules purposes. Should the credit quality or the financial position of any of these institutions deteriorate significantly the Company has the ability to move the cash at short notice.  Jarvis is the main settlement account but cash is transferred into the UBS Third Party Deposit Service when balances are high in Jarvis.  The cash is transferred back to Jarvis to cover trades and payments of expenses.

 

The Company also has one foreign bank account held with Jarvis.  Foreign exchange risk is not considered material as volumes on this account are minimal.  The closing balance as at 29 February 2016 was $85,000 (28 February 2015: $85,000). 

 

There were no significant concentrations of credit risk to counterparties at 29 February 2016 or 28 February 2015.  No individual investment exceeded 8.8% of the Company's portfolio at 29 February 2016 (28 February 2015: 6.1%).

 

21            Liquidity Risk

The Company's financial instruments include investments in unlisted equity investments which are not traded in an organised public market and which generally may be illiquid.  As a result, the Company may not be able to liquidate quickly some of its investments in these instruments at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer.  The majority of the Company's holdings are in equity investments which are traded on the Alternative Investment Market ("AIM") and the Official List of the London Stock Exchange.  A listing on these exchanges provides a company with liquidity in its shares although trading may be infrequent due to the small size of these companies.

 

The Company's liquidity risk is managed on an ongoing basis by the Manager in accordance with policies and procedures in place as described in the Strategic Report on page 17.  The Company's overall liquidity risks are monitored on a quarterly basis by the board.

 

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses.  At 29 February 2016, these investments were valued at £3,405,000 (28 February 2015: £2,240,000).

 

22         Capital Management Policies and Procedures

The Company's capital management objectives are:

·   to ensure that it will be able to continue as a going concern;

·   to satisfy the relevant HMRC requirements; and

·   to provide returns to its shareholders.

 

As a VCT, the Company must have, within 3 years of raising its capital, at least 70% by value of its investments in VCT qualifying holdings, which are relatively high risk UK based smaller companies.  In satisfying this requirement, the Company's capital management scope is restricted.  The Company does have the option of maintaining or adjusting its capital structure by varying dividends, returns to shareholders, issuing new shares or selling assets to maintain a certain level of liquidity.  There has been no change in the objectives, policies or processes for managing capital from the previous year.

 

SHAREHOLDER INFORMATION

……………………………………………………………………………………………………………………

 

Share Price

The Company's shares are listed on the London Stock Exchange. The bid price of the Company's shares can be found on Amati Global Investors' website: http://www.amatiglobal.com/avct.php.

 

 

Net Asset Value per Share

The Company's net asset value per share as at 29 February 2016 was 65.9p. The Company normally announces its net asset value on a weekly basis. Net asset value per share information can be found on Amati Global Investors' website: http://www.amatiglobal.com/avct.php

 

Dividends

Shareholders who wish to have future dividends reinvested in the Company's shares or wish to have dividends paid directly into their bank account rather than sent by cheque to their registered address should contact Share Registrars Limited on 01252 821 390 or email enquiries@shareregistrars.uk.com.

 

Financial Calendar

May 2016                               Annual report for the year ended 29 February 2016 to be circulated to shareholders

23 June 2016                           Annual general meeting

October 2016                          Half-yearly Report for the six months ending 31 August 2016 to be circulated to shareholders

28 February 2017                   Year-end

 

Annual General Meeting

The annual general meeting of the Company will be held at 2.00pm on 23 June 2016 at Rehearsal Room 3, Milton Court, Guildhall School of Music & Drama, Silk Street, Barbican, London EC2Y 9BH.  The notice of the meeting, together with the enclosed proxy form, is included on pages 48 to 52 of this report. The annual general meeting will be accompanied by an investor event.

 

NOTICE OF ANNUAL GENERAL MEETING

 

It is the board's opinion that all resolutions are in the best interests of shareholders as a whole and the board recommends that shareholders should vote in favour of all resolutions. Any shareholder who is in any doubt as to what action to take should consult an appropriate independent adviser authorised under the Financial Services and Markets Act 2000.

 

If you have sold or transferred all your Shares in the Company, please forward this document, together with the forms of proxy, to the purchaser, transferee, stockbroker or other agent through whom the sale or transfer was effected, for transmission to the purchaser or transferee.

 

Notice is hereby given that the annual general meeting of Amati VCT plc (the "Company") will be held at 2.00pm on Thursday 23 June 2016 at Rehearsal Room 3, Milton Court, Guildhall School of Music & Drama, Silk Street, Barbican, London EC2Y 9BH (the "Meeting") for the transaction of the following business:

 

Ordinary Business

To consider and, if thought fit, to pass the following Resolutions 1 to 10 as Ordinary Resolutions of the Company:

 

Ordinary Resolutions

 

1.     To receive and adopt the Directors' Report and financial statements of the Company for the financial year ended 29 February 2016 together with the Independent Auditor's Report thereon.

 

2.     To approve the Directors' Remuneration Report for the financial year ended 29 February 2016.

 

3.     To approve a final dividend of 3p per share payable on 12 August 2016 to shareholders on the register at 8 July 2016.

 

4.     To re-appoint KPMG LLP of Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2EG as auditor of the Company from the conclusion of the Meeting until the conclusion of the next annual general meeting of the Company to be held in 2017 at which financial statements are laid before the Company.

 

5.     To authorise the directors to fix the remuneration of the auditor.

 

6.     To re-elect Peter Lawrence as a director of the Company.

 

7.     To re-elect Charles Pinney as a director of the Company.

 

8.     To re-elect Brian Scouler as a director of the Company.

 

9.     To re-elect Julia Henderson as a director of the Company.

 

10.   To approve the renewal of the Investment Management and Administration Agreement between the Company and Amati Global Investors.

 

Special Business

Special Resolutions

To consider, and if thought fit, to pass the following Resolutions as Special Resolutions of the Company:

 

11.   THAT in substitution for any existing authorities, the directors be and hereby are empowered pursuant to sections 570 and 573 of the 2006 Act to allot or make offers or agreements to allot equity securities (which expression shall have the meaning subscribed to it in section 560 of the 2006 Act) for cash pursuant to the authority given in accordance with section 551 of the 2006 Act by the resolution passed at the general meeting on 7 March 2013 as if section 561(1) of the 2006 Act did not apply to any such allotment, up to an aggregate nominal amount of £3,500,000.  The authority hereby conferred (unless previously renewed or revoked) by this resolution shall expire on the earlier of the date of the annual general meeting of the Company to be held in 2017 and the date which is 15 months after the date on which this resolution is passed.

 

12.   THAT, in substitution for existing authorities, the Company be and is hereby empowered to make one or more market purchases within the meaning of Section 701 of CA 2006, of the Ordinary Shares (either for cancellation or for the retention of treasury shares for future re-issue or transfer) provided that:

(i)      the maximum aggregate number of Ordinary Shares authorised to be purchased is such number thereof being 14.99% of the issued ordinary share capital of the Company as at the date of this resolution;

(ii)           the minimum price which may be paid per Ordinary Share is 10p per share, the nominal amount thereof;

(iii)    the maximum price (exclusive of expenses) which may be paid per Ordinary Share is an amount equal to 105% of the average of the middle market quotation of such Ordinary Share taken from the London Stock Exchange daily official list for the five business days immediately preceding the day on which such Ordinary Share is purchased;

(iv)    the authority hereby conferred shall expire on the earlier of the annual general meeting of the Company to be held in 2017 and the date which is 15 months after the date on which this Resolution is passed; and

(v)     the Company may make a contract or contracts to purchase its own Ordinary Shares under the authority conferred by this resolution prior to the expiry of such authority which will or may be executed wholly or partly after the expiration of such authority, and may make a purchase of such Ordinary Shares pursuant to any such contract.

 

13.   THAT the Articles of Association of the Company be amended by deletion of Articles 163.1 and 163.2 in their entirety and replacing them with the following:

"163.1     The board shall procure that at the annual general meeting of the Company held in 2020 and at every fifth annual general meeting thereafter an ordinary resolution will be proposed to the effect that the Company shall continue in being a venture capital trust (the "Continuation Resolution").  If, at any such meeting, such resolution is not passed then, subject to article 163.2 below:

(i)  the Company shall not issue any further shares except explicitly on the basis that they may not qualify for full VCT reliefs or that those reliefs may be withdrawn (the "Restriction on Issue")

(ii) the board shall within the period of nine months after the fifth anniversary of the last share issue by the Company done prior to the Continuation Resolution convene a general meeting of the Company at which a special resolution shall be proposed to wind up the Company voluntarily (the "Liquidation Proposals").

The board may as part of the Liquidation Proposals make proposals for the reconstruction of the Company (including for the avoidance of doubt for a rollover of any assets of the Company into any successor vehicle) provided that the proposals would, if approved, also provide shareholders with the opportunity to realise their investments in the Company for cash on a basis not materially less favourable than would be available in a simple winding up.

163.2       At each annual general meeting following a Continuation Resolution not being passed, the board shall procure that a further Continuation Resolution is proposed and if that Continuation Resolution is passed then the obligations in relation to the Restriction on Issue and the Liquidation Proposals shall cease and the next Continuation Resolution to be proposed shall revert to being in accordance with article 163.1 (i.e. five yearly from 2020)."

 

By order of the board                                                                             Registered office:

The City Partnership (UK) Limited                                                   Thistle House, 21 Thistle Street

Secretary                                                                                                 Edinburgh EH2 1DF

 

4 May 2016

 

Notes

 

1.     A member entitled to attend and vote at the Meeting convened by the above Notice is entitled to appoint one or more proxies to attend and, on a poll, to vote in his place.  A proxy need not be a member of the Company.

 

2.     To appoint a proxy you may use the Form of Proxy enclosed with this Notice of annual general meeting.  To be valid, the Form of Proxy, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified or office copy of the same, must be deposited by 2.00pm on 21 June 2016 to Share Registrars, Suite E, First Floor, 9 Lion and Lamb Yard, Farnham, Surrey GU9 7LL.  Completion of the Form of Proxy will not prevent you from attending and voting in person.

 

3.     Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, only shareholders registered in the register of members of the Company on 21 June 2016 (48 hours before the time appointed for the Meeting) shall be entitled to attend and vote at the annual general meeting in respect of the number of shares registered in their name at such time.  If the Meeting is adjourned, the time by which a person must be entered on the register of members of the Company in order to have the right to attend and vote at the adjourned Meeting is 48 hours before the time appointed for the adjourned Meeting.  Changes to the register of members after the relevant times shall be disregarded in determining the rights of any person to attend and vote at the Meeting.

 

4.     You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares.  You may not appoint more than one proxy to exercise rights attached to any one share.  To appoint more than one proxy, you should photocopy the proxy form. Please indicate in the box next to the proxy holder's name the number of securities in relation to which they are authorised to act as your proxy. Please also indicate by ticking the box provided if the proxy instruction is one of multiple instructions being given.  All forms must be signed and returned together in the same envelope.   A corporate shareholder has the ability to appoint one or more corporate representatives.

 

5.     A reply paid form of proxy is enclosed with members' copies of this document.  To be valid, it should be lodged with the Company's registrars, Share Registrars, Suite E, First Floor, 9 Lion and Lamb Yard, Farnham, Surrey GU9 7LL so as to be received not later than 48 hours before the time appointed for the Meeting or any adjourned meeting or, in the case of a poll taken subsequent to the date of the Meeting or adjourned meeting, so as to be received no later than 24 hours before the time appointed for taking the poll.

 

6.     As at 4 May 2016 (being the last business day prior to the publication of this Notice) the Company's issued share capital consists of 56,711,559 shares of 10p each, carrying one vote each at an annual general meeting of the Company. Therefore, the total voting rights in the Company as at 4 May 2016 are 56,711,559.

 

7.     Appointment of a proxy will not preclude a member from subsequently attending, voting and speaking at the Meeting should he or she subsequently decide to do so.  You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form.

 

8.     Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights (a "Nominated Person") may, under an agreement between the Nominated Person and the member by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the Meeting.  If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights.

 

9.     The statement of the rights of members in relation to the appointment of proxies in paragraphs 3 to 5 above does not apply to Nominated Persons. The rights described in these paragraphs can only be exercised by members of the Company.

 

10.   The Register of Directors' Interests will be available for inspection at the Meeting.

 

11.   Except as provided above, members who have general queries about the Meeting should use the following means of communication (no other methods of communication will be accepted);

 

·     Calling Doreen Nic of The City Partnership (UK) Limited, Company Secretary on 0131 243 7210 or

·     Emailing vct-enquiries@amatiglobal.com

 

You may not use any electronic address provided either in this notice of Meeting or any related documents (including the chairman's letter and proxy form) to communicate with the Company for any purpose other than those expressly stated.

 

CORPORATE INFORMATION

……………………………………………………………………………………………………………………

 

Directors	Registrar
Peter Lawrence	Share Registrars
Julia Henderson	Suite E, First Floor
Charles Pinney	9 Lion and Lamb Yard
Brian Scouler	Farnham, Surrey
	GU9 7LL
all of:
Thistle House, 21 Thistle Street
Edinburgh	Auditor
EH2 1DF	KPMG LLP
	Saltire Court
Secretary	20 Castle Terrace
The City Partnership (UK) Limited	Edinburgh
Thistle House, 21 Thistle Street	EH1 2EG
Edinburgh
EH2 1DF	Custodian
Telephone: 0131 243 7210	Jarvis Investment Management Limited
	78 Mount Ephraim
	Tunbridge Wells
Fund Manager	Kent
Amati Global Investors Limited	TN4 8BS
18 Charlotte Square
Edinburgh
EH2 4DF	Solicitors
Email: vct-enquiries@amatiglobal.com	Nimmo W.S.
	8 Walker Street
VCT Tax Adviser	Edinburgh
Philip Hare & Associates LLP	EH3 7LH
Suite C, First Floor
4-6 Staple Inn
Holborn London WC1V 7QH