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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Amati Vct | LSE:ATI | London | Ordinary Share | GB00B05N8X20 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 96.75 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMATI
RNS Number : 5588F
Amati VCT PLC
18 May 2017
Amati VCT plc
ANNUAL REPORT & FINANCIAL STATEMENTS
For the year ended 28 February 2017
The Annual Report and Financial Statements including the Notice of Annual General Meeting ("Annual Report") for the year ended 28 February 2017 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 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 PDF of the Annual Report.
The Investment Objectives of the Company are 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.
The dividend policy of the Company is to pay between five and six percent of the year end net asset value.
-- NAV Total Return for the year was 22.6%.
-- Proposed final dividend of 2.5p per share bringing the total declared in respect of the year to 4.0p per share.
-- Tax free yield of 5.6% on year end share price. -- The Top Up Share Issue launched on 8 November 2016 has been fully subscribed raising GBP4.1m. -- GBP2m invested in qualifying holdings during the year.
Key data
Hot Features
Premium
28/02/17 29/02/16
----------------------------------- ----------- -----------
Net Asset Value ("NAV") GBP44.7m GBP36.8m
Shares in issue 59,297,428 55,801,407
NAV per share 75.4p 65.9p
Share price 70.8p 63.3p
Market capitalisation GBP42.0m GBP35.3m
Share price discount to NAV 6.1% 3.9%
NAV Total Return for the year
(assuming re-invested dividends) 22.6% 0.6%
Numis Alternative Markets Total
Return Index 31.8% -1.1%
Ongoing charges* 2.5% 2.4%
Dividends proposed/paid in
respect of the year 4.0p 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
2017 4.00p 55.30p 4.61p
-------------------------- ---------- ----------- ----------
Table of investor returns to 28 February 2017 from a sample of share issues
NAV Total NAV Total
Return Return
excluding including
full
Price subscription subscription
gross Price Price costs costs
of net of gross and and
after
Date costs costs tax rebate# tax rebate tax rebate#
------------ ------- -------- ------------ ------------- -------------
Initial
Offer 100.0p 94.8p 60.0p 55.1% 144.8%
------------ ------- -------- ------------ ------------- -------------
4 January
2006 111.2p 105.4p 66.7p 40.6% 122.1%
------------ ------- -------- ------------ ------------- -------------
4 April
2006 123.5p 117.0p 74.1p 25.5% 98.3%
------------ ------- -------- ------------ ------------- -------------
21 March
2007 133.0p 130.3p 93.1p 10.6% 54.8%
------------ ------- -------- ------------ ------------- -------------
4 April
2008 96.5p 91.7p 67.6p 41.9% 92.5%
------------ ------- -------- ------------ ------------- -------------
6 October
2008 79.6p 75.7p 55.7p 72.1% 133.5%
------------ ------- -------- ------------ ------------- -------------
17 October
2008** 67.4p 67.4p 67.4p 92.9% 92.9%
------------ ------- -------- ------------ ------------- -------------
3 April
2009 54.5p 51.8p 38.2p 145.8% 233.6%
------------ ------- -------- ------------ ------------- -------------
3 April
2010 79.2p 75.2p 55.4p 60.1% 117.3%
------------ ------- -------- ------------ ------------- -------------
5 April
2011 93.2p 88.1p 65.2p 29.1% 74.3%
------------ ------- -------- ------------ ------------- -------------
5 April
2012 81.8p 77.7p 57.3p 37.3% 86.3%
------------ ------- -------- ------------ ------------- -------------
5 April
2013 72.6p 69.0p 50.8p 44.1% 95.6%
------------ ------- -------- ------------ ------------- -------------
4 April
2014 85.8p 81.5p 60.0p 13.8% 54.4%
------------ ------- -------- ------------ ------------- -------------
2 April
2015 71.6p 70.8p 50.1p 22.6% 73.4%
------------ ------- -------- ------------ ------------- -------------
5 April
2016 68.3p 67.6p 47.8p 19.5% 69.1%
------------ ------- -------- ------------ ------------- -------------
# 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 28 February 2017 from shares issued under the Dividend Re-investment Scheme
NAV Total NAV Total
Return Return
excluding including
full
subscription subscription
Price costs costs
gross and and
after
Date Price* tax rebate# tax rebate tax rebate#
------------- ------- ------------ ------------- -------------
4 July 2007 135.1p 94.6p 2.3% 46.2%
------------- ------- ------------ ------------- -------------
7 December
2007 111.3p 77.9p 22.1% 74.4%
------------- ------- ------------ ------------- -------------
15 February
2008 94.3p 66.0p 38.0% 97.2%
------------- ------- ------------ ------------- -------------
5 December
2008 58.0p 40.6p 119.6% 213.7%
------------- ------- ------------ ------------- -------------
17 August
2009 61.1p 42.7p 101.5% 187.9%
------------- ------- ------------ ------------- -------------
11 December
2009 68.6p 48.0p 75.6% 150.8%
------------- ------- ------------ ------------- -------------
13 August
2010 73.3p 51.3p 58.7% 126.7%
------------- ------- ------------ ------------- -------------
10 December
2010 85.1p 59.6p 33.4% 90.6%
------------- ------- ------------ ------------- -------------
12 August
2011 74.3p 52.0p 47.6% 110.9%
------------- ------- ------------ ------------- -------------
13 February
2012 74.4p 52.1p 43.4% 104.9%
------------- ------- ------------ ------------- -------------
14 August
2012 67.9p 47.5p 50.7% 115.3%
------------- ------- ------------ ------------- -------------
7 December
2012 66.9p 46.8p 48.6% 112.3%
------------- ------- ------------ ------------- -------------
12 August
2013 69.5p 48.7p 37.0% 95.7%
------------- ------- ------------ ------------- -------------
6 December
2013 71.6p 50.2p 29.4% 84.8% ------------- ------- ------------ ------------- ------------- 15 August 2014 75.9p 53.1p 17.6% 67.9% ------------- ------- ------------ ------------- ------------- 5 December 2014 71.0p 49.7p 22.2% 74.6% ------------- ------- ------------ ------------- ------------- 14 August 2015 70.6p 49.4p 17.9% 68.4% ------------- ------- ------------ ------------- ------------- 11 December 2015 69.9p 48.6p 15.6% 65.1% ------------- ------- ------------ ------------- ------------- 12 August 2016 68.2p 47.8p 13.0% 61.5% ------------- ------- ------------ ------------- ------------- 16 December 2016 68.7p 48.1p 9.7% 56.7% ------------- ------- ------------ ------------- -------------
# 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 Company's portfolio has made strong gains during the year to 28 February 2017. A 10% return in the first half, punctuated by the Brexit vote, was followed up by a similar gain in the second half, disturbed only briefly by another major political event, this time across the Atlantic.
The slowdown in the number of qualifying investment opportunities on AIM, which was predicted a year ago, came to pass in the first half but has been easing in the second half of the financial year as advisers and company directors become more familiar with the detail of the new VCT legislation. As a result, the Manager was able to invest GBP2m in qualifying holdings during the year, a figure which is nonetheless well below the historic norm. Where attractive opportunities arise, they tend to be smaller fund raisings than before and are likely to be in high demand from both VCT and EIS investors. For this reason, the previously stated ambition of making fewer but larger qualifying investments may be difficult to realise. Under the VCT tests at the year end the portfolio, including new cash raised, was 83.4% invested in qualifying holdings, well ahead of the minimum 70% level.
Meanwhile the strategy of holding the most successful qualifying investments for the longer term, rather than reducing the largest positions for shorter term profit generation, has resulted in the Company's portfolio having a greater weighting in mature, profitable businesses and this is showing through in the overall performance. This strategy has also, as expected, led to a lower turnover in holdings and enhances the Company's reputation as a long-term investor. At the same time, our decision to manage our non-qualifying holdings primarily through the TB Amati UK Smaller Companies Fund has also resulted in strong returns, with this fund rising 30.1% over the period.
Investment Performance and Dividend
The NAV Total Return for the financial year was 22.6%, set against the backdrop of a very strong performance for AIM in general. Further details are given in the Manager's review.
The dividend policy of the Company is to pay between five and six percent of year end net asset value, subject to the availability of liquidity and sufficient distributable reserves. At 28 February 2017 the net asset value was 75.39p per share. In line with this policy the Board is proposing a final dividend of 2.5p per share, to be paid on 11 August 2017 to shareholders on the register on 7 July 2017. This would make total dividends for the year of 4p per share.
The Company has historically used the FTSE AIM All-Share Total Return Index as a benchmark. This is a costly source of information and we have therefore been looking for an alternative for several years. Numis has recently decided to extend their well known range of UK smaller company indices to include an AIM index and Amati VCT and the Manager have agreed to subscribe to this index instead. As a result, this report and all future reports will use the Numis Alternative Markets Total Return Index as the comparator for performance. This will similarly track the performance of all the stocks on AIM on a market capitalisation weighted basis, but will be re-based annually rather than quarterly.
It is worth noting to shareholders that following a period of strong performance, the Company is now benefitting from the Manager having waived all rights to future performance fees in 2014. Had this not happened, we would now be accruing for a performance fee. Amati VCT remains unusual amongst VCTs in that it does not pay performance fees to the Manager.
Other Corporate Developments
The Company launched a series of top up Share Issues in November 2016, which were fully subscribed raising around GBP4m, with the final allotments from this amount due to be made in July.
Investors wishing to make further investments in the Company may wish to consider joining the Dividend Reinvestment Scheme ("DRIS"), which remains open to all members. Please contact the Company's registrar, Share Registrars, if you wish to join or leave the DRIS.
The Company's original investment policy was drafted in 2005 and having added only minor amendments since that date has become outdated. This is because the original investment policy not only provided for investments which are no longer allowed by the VCT legislation, but also established an investment framework which at the time was appropriate for the Company being a new VCT with only a small number of qualifying investments. The Board would like to update the investment policy and a revised proposed policy is set out on page 51 for approval by shareholders at the Annual General Meeting ("AGM"). These changes will not alter the current investment approach of the Company or the investment manager, but they more accurately reflect the current regulations applying to VCTs and bring the non-qualifying investment policy into line with the wording of the legislation, allowing us to use the limited range of freedoms for which it provides.
At a General Meeting in December 2016 shareholders approved the proposed reorganisation of share capital and cancellation of share premium and capital redemption reserve accounts. This has now been approved by the Court of Session and, subject to VCT regulations, the reserves can be used to support the Company's existing dividend and share buyback policies.
Outlook
The portfolio is now concentrated around the most successful and mature of the qualifying investments. We believe that these companies have scope for significant further growth and will therefore become attractive to a wider group of investors. The Board is also pleased to see some new additions to the portfolio during 2016/17, several of which have already made a positive contribution to performance. The Company is well placed to add new investments selectively, without being under any undue pressure to do so.
AGM
The AGM will again be held at the Guildhall School of Music and Drama, starting at 1.30pm on Wednesday 28 June 2017 at Milton Court Theatre, The 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 fourth 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. RSVP to rachel.lederf@amatiglobal.com if you would like to attend.
Peter Lawrence
Chairman
18 May 2017
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
The year under review was dominated by two major political events, the UK's vote to leave the European Union and the election of Donald Trump to the office of US President. In both cases stock markets fell sharply and then recovered quickly. A good deal of political point scoring has been carried out on the back of the strong rally. In our view, the strong stock market should be seen as the result of a long term policy of low interest rates and quantitative easing ("QE") which has had the effect of normalising the bank lending environment, and forcing money into risk assets, both of which are strongly stimulative for the economy. In 2016 evidence emerged that this policy had done its job, but investors delayed entering the stock market due to the uncertainty created by these political events. Once they were completed, even though the results were unexpected and may cause many problems in the future, the cash awaiting investment waited no longer.
In the case of the EU referendum, the leave result triggered a dramatic fall in the value of sterling, and it has so far remained weak. This in turn led to a strong performance from UK large caps with a bias towards overseas earnings. Small caps also posted impressive gains following a second half recovery. AIM reversed its recent trend of underperformance versus the full list indices. The 'junior' market is increasingly being dominated by a small group of very large companies, which in the main posted strong gains in 2016 and set the tempo for the overall performance of the index. Together with the recovery in commodity prices (particularly in sterling terms), which translated into a reversal of the share price declines in the Oil and Gas and Basic Materials sectors, this provided a further catalyst for AIM outperformance.
Performance
The Company returned a NAV total return of 22.6% for the year to 28 February 2017.
The greatest contributor to performance was Quixant, the designer and manufacturer of hardware and software for gaming machines, with a further share price rise of 99% during the period. Quixant upgraded its forecasts with demand from gaming customers exceeding expectations and a maiden contribution from the acquisition of Densitron, a supplier of electronic displays. Quixant's success has enabled its evolution from a small AIM business with a limited audience to a business capitalised at around GBP230m at the period end that is attracting the interest of a large pool of AIM investors. Continuing this theme, Keywords Studios ("Keywords") climbed 184%. This was the consequence of two factors. Firstly, Keywords made a series of earnings enhancing acquisitions, thus increasing prospective earnings per share from 11 pence to 18 pence. Secondly, Keywords has become a favourite of a wide pool of AIM investors, and has seen a re-rating as a result, with the price to earnings (P/E) ratio rising from 23x to 33x over the year (source: FactSet). Shares in Craneware, the provider of software to US hospitals, gained 60% over the year. With almost 100% of revenues booked in US Dollars, Craneware benefited from a weak sterling, whilst returning to double digit sales growth and signing deals with two large hospital groups. The company's core software is business critical for its customers and its expanding portfolio of software products is growing the group's total addressable market and increasing revenues per customer.
Other notable performers were AB Dynamics, the designer of test equipment for vehicle suspension, steering, noise and vibration, which ended the year 74% ahead; Ideagen, the provider of governance, risk and compliance software to regulated industries, with a share price rise of 69%; IDOX, the software supplier to local authorities, which gained 41%; and Science in Sport, the supplier of sports nutrition products, which climbed 87%. The TB Amati UK Smaller Companies Fund also made a valuable contribution to performance, following a 30% increase in value over the year.
The most significant detractor from performance was Bilby, the gas heating, electrical and building services business that was the prior year's greatest contributor to performance. Unfortunately, the gains that were enjoyed in 2015 were reversed in 2016 following a delay to anticipated work with a large, long standing public sector customer. This was followed by the announcement of a restatement of its prior year financial statements due to additional, unrecognised costs and disputed revenues, which had a material impact on the previously reported profit. The consequence was a share price fall of 58% over the year. Sprue Aegis, the designer of smoke and carbon monoxide detectors, endured a difficult year, which ended with its shares down 38%. An issue was identified in certain batteries sourced from a third party and installed in some of its smoke alarm models, which were causing erroneous battery warning signals. This issue was compounded by weaker sales in Germany, which were blamed on product certification delays. Also weak was Crawshaw Group, the operator of butcher shops throughout Yorkshire, Humberside, Nottinghamshire and Lincolnshire. The shares fell 79% over the year, with most of the damage inflicted following a poor trading update in September, which attributed sustained reductions in like for like sales on an even more price-focussed consumer post-Brexit, and aggressive price promotions by supermarket competitors. TLA Worldwide, the sports management and marketing agency, fell 40% following the withdrawal of a takeover bid from a Nasdaq listed cash shell. The residual value in the convertible loan to Polyhedra Group was written down to nil following the failure of the group to renew a contract with a customer that represents most of its turnover. The convertible loans in Rame Energy ("RAME) were also written off. RAME was unable to fulfil its promise of becoming a niche independent power producer in Latin America and entered administration, a process that is unlikely to yield much value for creditors.
Transactions
The Company completed four material new qualifying investments during the year under review, investing GBP1.6 million in the process. The Company participated in two IPOs, the first of which was LoopUp Group ("LoopUp"), a provider of high quality remote meeting technology. LoopUp addresses the frustrations that are familiar to regular participants in conference calls such as getting all the right participants on a call, background noise, sharing content and security. Amongst its features, LoopUp's software can call each participant, rather than waiting for them to join, enables screen sharing and identifies who is talking and who is on the call at any stage. These features have already attracted nearly 2,000 customers globally, in a market that is growing at 15% per annum. The second IPO in which we participated was FreeAgent Holdings ("FreeAgent"), a developer of accounting software for small businesses. Specifically, FreeAgent has targeted the freelancer market and companies with up to ten employees. It has built an intuitive and unintimidating user interface that was designed by non-accountants for non-accountants. FreeAgent has two routes to market: direct to the end customer; and sales via accountancy practices that specialise in advising very small businesses. Like many software products, revenues are 'sticky', meaning that customers tend to renew year after year due to increasing familiarity with the functionality. Revenues have been growing at over 30 per cent per annum. Besides these IPOs we made two new investments in existing AIM listed companies that raised capital. The first was Faron Pharmaceuticals ("Faron"), which raised capital in a secondary placing to fund safety trials for the US development of its lead product, Traumakine, for the treatment of Acute Respiratory Distress Syndrome (ARDS), a severe form of lung injury with a mortality rate of 30-40% and no current cure. The defining moment for Faron will be the publication of Phase III trials in mid-2017. The Company also participated in a placing for Genedrive, a point of care diagnostics business. Since the Company's investment, Genedrive has made progress with its Hepatitis C test and CE Marking submission, to allow the distribution of this product in Europe, the approval of which is imminent following encouraging performance results. However, the tuberculosis test has so far fared poorly, with end user sales in India having been challenging and Genedrive is working to address some issues customers are experiencing around the preparation of samples, which they believe are holding back repeat orders.
Small follow-on investments totalling GBP0.2 million were made in Fox Marble Holdings, the Kosovo-based producer of high quality marble, which recently commissioned its cutting and polishing factory; Sabien Technology, the designer of boiler efficiency technology; Microsaic Systems, the developer of smaller-scale mass spectrometry instruments; and Ilika, the material sciences business.
A total of GBP1.4 million was realised from the sale of qualifying investments, predominantly due to the sale of TLA Worldwide ("TLA"). During the failed bid period we were able to reduce the Company's holding in TLA and continued to sell following the withdrawal of the bid. We also exited the VCT's holding in Deltex Medical shares following the redemption of the convertible loan note position.
Within the non-qualifying portfolio we continued to add to the Company's position in the TB Amati UK Smaller Companies Fund (the "Fund"). The Fund performed strongly over the year, showing a total return of 30.1%, which compares to a return of 21.0% for its peer group (IA UK Smaller Companies) and a return of 23.6% for its benchmark (Numis Smaller Companies Index, plus AIM, excluding Investment Companies).
The Company's non-qualifying holdings in Brooks Macdonald Group, the AIM listed wealth manager and Hiscox, the mid cap commercial and personal lines insurance group, were sold to raise cash for qualifying investments.
Outlook
The year ahead is likely to be characterised by more volatility now that Article 50 has been triggered, a snap election called in the UK, as European elections run their course and as an unpredictable administration goes about its business Stateside. Investor sentiment will ebb and flow with this volatility and there is little we can do to respond to it. If we sell a qualifying holding in a good quality company, we can't buy it back in the future. As ever, therefore, we need to be confident that the stocks that we buy, and those that we hold, are in companies that we believe can perform over the long term.
Alongside volatility, another headwind for 2017 is inflation, which is already creeping into most areas of the economy but its full force is yet to be felt by consumers and businesses. If this does happen, the companies with real pricing power will endure and should emerge stronger. The chief underlying threat is of interest rates rising in an uncontrolled fashion. After such a long period of ultra low rates, no portfolio can be immune from this. However, whilst we are cognisant of the macro risks, we believe that smaller dynamic growth companies remain some of the most compelling investment propositions, and this is what we seek to buy and hold for the long term for the Company.
Dr Paul Jourdan, Douglas Lawson and David Stevenson
Amati Global Investors Limited
18 May 2017
AMATI GLOBAL INVESTORS
Amati Global Investors is a specialist fund management business based in Edinburgh. It focuses on UK small and mid-sized companies, with a universe ranging from fully listed constituents of the FTSE Mid 250 and FTSE Small Cap indices, to stocks quoted on the Alternative Investment Market. It is the manager of Amati VCT, Amati VCT 2, the TB Amati UK Smaller Companies Fund, and it also offers an AIM IHT portfolio service. It is 51% owned by its staff, and 49% owned by Mattioli Woods plc, which invested in the company in February 2017. Amati Global Investors is a Tier 1 signatory to the UK Stewardship Code.
Dr Paul Jourdan is an award winning fund manager, with a strong track record in small cap investment. He co-founded Amati Global Investors ("Amati") 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 2000 at which time Paul became manager of what is now TB Amati UK Smaller Companies Fund. In early 2005 he launched a venture capital trust which later became Amati VCT and, he also manages Amati VCT 2 after the investment management contract moved to Amati Global Investors in 2010. In September 2014 Amati launched the Amati AIM IHT Portfolio Service, which Paul co-manages with Douglas Lawson and David Stevenson. 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 and a director of Sistema 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, Amati VCT 2 since 2010 and the Amati AIM IHT Portfolio Service since 2014. Douglas started his career at Ernst & Young in London, where he qualified as a Chartered Accountant in 2002. He is a director of Amati.
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 and the Amati AIM IHT Portfolio Service since 2014.
INVESTMENT PORTFOLIO
as at 28 February 2017
Market Dividend
Cost Valuation Cap Yield Fund
(4)
GBP'000 GBP'000 GBPm Sector Status % %
------------------------- -------- ------------ -------- ---------------- ------------- --------- -------
TB Amati
UK Smaller
Companies
Fund(3) 3,294 4,775 - Financials OEIC 1.5 10.7
Quixant
plc(2,3) 418 3,232 232.9 Technology AIM 0.6 7.2
IDOX plc(1,3) 299 2,732 292.0 Technology AIM 1.6 6.1
Craneware
plc(2) 298 2,586 324.6 Technology AIM 1.5 5.8
Keywords
Studios
plc(2,3) 488 2,463 338.4 Industrials AIM 0.2 5.5
Ideagen
plc(2,3) 565 2,023 146.0 Technology AIM 0.2 4.5
AB Dynamics
plc(2,3) 304 1,983 107.4 Industrials AIM 0.5 4.4
Learning
Technologies
Group plc(1,3) 871 1,772 180.0 Industrials AIM 0.5 4.0
GB Group
plc(2,3) 237 1,761 403.8 Technology AIM 0.8 4.0
Tristel Health
plc(2,3) 543 1,674 73.5 care AIM 1.9 3.7
Top Ten 7,317 25,001 55.9
------------------------- -------- ------------ -------- ---------------- ------------- --------- -------
Frontier
Developments Consumer
plc(2,3) 594 1,568 95.9 goods AIM - 3.5
Science
in Sport Consumer
plc(2,3) 811 1,489 40.4 goods AIM - 3.3
Sprue Aegis
plc(1,3) 106 1,174 85.9 Industrials AIM 4.8 2.6
Anpario Health
plc(2,3) 277 964 64.0 care AIM 1.9 2.2
Universe
Group plc(1,3) 260 919 18.8 Industrials AIM - 2.1
Premier
Technical
Services
Group plc(2,3) 473 912 89.5 Industrials AIM 1.3 2.0
Hardide
plc(1,3) 373 837 15.7 Basic materials AIM - 1.9
Fox Marble
Holdings
plc Ordinary
shares &
8% Convertible
Loan Series(1,3) 881 753 18.1 Basic materials AIM/Unquoted - 1.7
LoopUp Group
plc(1,3) 490 741 62.0 Technology AIM - 1.7
SRT Marine
Systems
plc(1,3) 709 717 46.9 Technology AIM - 1.6
Top Twenty 12,291 35,075 78.5
------------------------- -------- ------------ -------- ---------------- ------------- --------- -------
Faron Pharmaceuticals Health
Limited(1,3) 491 662 93.3 care AIM - 1.5
Bilby plc(2,3) 676 632 21.5 Industrials AIM 2.9 1.4
FreeAgent
Holdings
plc(1,3) 389 568 49.9 Technology AIM - 1.3
Water Intelligence
plc(2,3) 181 557 15.9 Industrials AIM - 1.3
Solid State
plc(2,3) 258 536 42.5 Industrials AIM 3.0 1.2
Brady plc(2) 331 510 65.5 Technology AIM - 1.1
Hiscox Limited(3) 395 504 3,099.9 Financials AIM 2.6 1.1
FairFX Group
plc(1,3) 537 504 42.8 Financials AIM - 1.1
Belvoir
Lettings
plc(1,3) 404 412 33.0 Financials AIM 6.6 0.9
MirriAd
Limited(1,3) 524 306 34.5 Technology Unquoted - 0.7
Kalibrate
Technologies
plc(1,3) 363 279 20.6 Technology AIM - 0.6
Venn Life
Sciences
Holdings Health
plc(1,3) 311 241 10.2 care AIM - 0.5
Brighton
Pier Group Consumer
(The) plc(1,3) 314 228 36.9 services AIM - 0.5
EU Supply
plc(1,3) 351 225 9.8 Technology AIM - 0.5
Property
Franchise
Group (The)
plc(2,3) 155 219 35.9 Financials AIM 5.2 0.5
Ilika plc(1,3) 208 177 38.2 Oil & gas AIM - 0.4
Genedrive Health
plc(1,3) 326 168 7.7 care AIM - 0.4
Crawshaw Consumer
Group plc(2,3) 432 154 11.8 services AIM - 0.4
Sabien Technology
Group plc(2,3) 698 133 1.9 Industrials AIM - 0.3
MyCelx Technologies
Corporation(1,3) 440 131 5.3 Oil & gas AIM - 0.3
Consumer
Mirada plc(1,3) 483 114 3.5 services AIM - 0.3
Rosslyn
Data Technologies
plc(1,3) 385 75 4.9 Technology AIM - 0.2
Microsaic
Systems
plc(1,3) 423 61 5.2 Industrials AIM - 0.1
Invocas
Group plc(1) 332 21 1.6 Financials Unquoted - -
Nujira Limited(1,3) 127 10 2.3 Technology Unquoted - -
Investments
held at
nil value 4,912 - - - - -
------------------------- -------- ------------ -------- ---------------- ------------- --------- -------
Total investments 26,737 42,502 95.1
------------------------- -------- ------------ -------- ---------------- ------------- --------- -------
Net current
assets 2,200 4.9
------------------------- -------- ------------ -------- ---------------- ------------- --------- -------
Net assets 26,737 44,702 100.0
------------------------- -------- ------------ -------- ---------------- ------------- --------- -------
(1) Qualifying holdings.
(2) Part qualifying holdings.
(3) These investments are also held by other funds managed by Amati.
(4) Next Twelve Months Consensus Estimates (house broker forecast for Bilby plc). Source: FactSet.
The Manager rebates the management fee of 0.75% on the TB Amati UK Smaller Companies 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(1,3) ,China Food Company plc(3,) Rame Energy plc(1,3) , Rated People Limited(1,3) , Rivington Street Holdings plc, Sorbic International plc(3) , TCOM Limited(1) , TMO Renewables Limited(2,3) , Vicorp Group plc(3) and Vitec Global Limited(1,3) ,
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 83.42%.
OBJECTIVES AND KEY POLICIES
Investment Policy
Below is the current Investment Policy of the Company. The Company is seeking shareholder authority to amend its Investment Policy. An explanation for the reasons behind the change in Investment Policy is included on page 5 and the full text of the proposed new Investment Policy is included on page 51.
Investment Objectives
The Investment Objectives of the Company are 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 28 February 2017 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 2. -- Share price. See key data on page 1. -- The relative performance against the relevant AIM indices. See graph on page 1. -- Ongoing charges ratio. See key data on page 1. -- Compliance with HMRC VCT regulations to1maintain the Company's VCT status. See page 16.
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 GBP69,000 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 is 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 prohibited 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 GBP15 million of gross assets at the time of investment and GBP16 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 GBP5 million from all sources of state-aided capital within the 12 months prior to and including the date of investment.
(v) No investment may be made by a VCT in a company that causes that company to receive more than GBP12 million (GBP20 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.
(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.
(viii) Since 6 April 2016 a VCT must not make "non-qualifying" investments except for certain specified investments held for liquidity purposes and redeemable within seven days. These include investments in UCITS (Undertakings for Collective Investments in Transferable Securities) funds, AIF (Alternative Investment Funds) and in shares and securities purchased on a Regulated Market. In each of these cases the restrictions in (iv) - (vii) above are not applied. Non-qualifying investments in AIM-quoted shares are not permitted as AIM is not a Regulated Market.
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 has 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 relationship is likely to change as a result of Britain's triggering of Article 50 starting the process of leaving the EU, and it 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 now very complex 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 has a premium listing 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 public companies. In addition, the board and the Manager receive regular updates on new regulation from the auditors, lawyers and other professional advisors.
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. However, changes to the VCT legislation have meant that the Company can no longer make investments in derivatives for hedging or any other purpose, and the Board have proposed changes to the investment policy accordingly for consideration by shareholders at this year's AGM.
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 17 to 20 to the financial statements on pages 47 and 48.
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 2022, 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 five years is a suitable time period to assess. 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, and the diversification of its portfolio. The Company mitigates investment risk by holding a diversified portfolio across a broad range of sectors. As at 28 February 2017 the Company held investments in 55 companies. Cash forecasts were prepared to provide visibility over the liquidity of the Company by analysing cash, liquid investments and running costs. The Board is satisfied that the Company has sufficient cash and liquid investments to meet its liabilities over the next five years as they fall due.
The directors have also given consideration to the continuation period of the Company when assessing the viability of the Company. In June 2014 a Special Resolution was passed to extend the life of the Company to 2020. The directors intend to propose to shareholders to extend the life of the Company for a further five years in June 2019.
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
18 May 2017
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. He is also a director of 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 January 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 a mid-market investment bank. Since 2004 she has been an independent consultant, chairman and non-executive director to companies across a broad range of sectors. Previous 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 in July 2013.
Charles Pinney was until November 2016 a director of Baronsmead VCT 5 plc. He was also chairman of ProVen Health VCT plc until 2013. From 1994 until 2003 he was 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 January 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 with a number of non-executive and advisory appointments. 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 110 George Street, Edinburgh EH2 4LH. 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, Julia Henderson, Charles Pinney and Brian Scouler. Brief biographical details of the directors are given on page 19. All directors will retire at the AGM in 2017 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 2.5p per share for the year ended 28 February 2017 payable on 11 August 2017.
Share Capital
The Company has an authorised share capital of 75,500,000 ordinary shares of 10p each, of which 59,297,428 were in issue at the year end. During the year 6,416,231 shares in the Company were allotted at an average price of 70.6p per share raising GBP4.5m.
During the year 2,920,210 shares in the Company were bought back for an aggregate consideration of GBP1.9m at an average price of 65.2p per share (representing 5.2% of the shares in issue at 29 February 2016). All of the shares were cancelled after purchase. The purpose of the share buybacks was to satisfy demand from those shareholders who sought to sell their shares during the period, given that there is a very limited secondary market for shares in Venture Capital Trusts generally. It remains the Board's policy to buy back shares in the market, subject to the overall constraint that such purchases are in the Company's interest including the maintenance of sufficient resources for investment in new and existing investee companies and the continued payment of dividends to shareholders. At the Company's year end, authority remains for the Company to buy back 6,939,810 shares.
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.
Annual General Meeting
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 GBP3,500,000. This authority expires on 7 March 2018 therefore a resolution to allot shares for a further five year period is included in the Notice of Annual General Meeting.
New Investment Policy
The Company is also seeking members' approval to amend the Investment Policy of the Company at the AGM in June, the full text of the new Investment Policy is detailed on page 51.
Share Capital Reorganisation
At a General Meeting in December 2016 shareholders approved the proposed reorganisation of share capital and cancellation of share premium and capital redemption reserve accounts and on 2 May 2017 the Court of Session approved the petition in respect of the proposals. The amount reorganised has been transferred to a special reserve which will be available, subject to any constraints imposed on VCTs by law or regulation (and in particular section 281 of the Income Tax Act 2007), to support the Company's existing dividend and share buyback policies.
Substantial Shareholdings
28 February 2017 As at the date
of this report
--------------------- ------------------------ ------------------------
No of % of shares No of % of shares
ordinary in issue ordinary in issue
shares shares
held held
--------------------- ---------- ------------ ---------- ------------
Hargreaves Lansdown
(Nominees) Limited 2,857,618 4.82% 2,706,278 4.46%
--------------------- ---------- ------------ ---------- ------------
Auditor
A resolution to re-appoint KPMG LLP as auditor will be proposed at the AGM to be held on 28 June 2017.
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 16 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.
Corporate Governance
The Statement of Corporate Governance is included on pages 22 to 25 and forms part of this report.
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 17 to 20 on pages 47 and 48.
Future Developments
Significant events which have occurred after the year end are detailed in Note 14 on page 44. 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
18 May 2017
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 more relevant 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 a detailed questionnaire circulated by the chairman of the Nomination committee. The Board discussed the results of the questionnaire at a board meeting and are considering any changes to the operations of the Company that may be required to address the points raised. 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. The board is satisfied that Charles Pinney has recent and relevant financial experience. He is a fellow of the Association of Chartered Certified Accountants. In addition, the board is satisfied that the committee as a whole has competence relevant to the venture capital trust sector.
During the year ended 28 February 2017 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;
-- undertook an audit tender and following presentations agreed to recommend the re-appointment of KPMG LLP as auditor to the Company; 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 16.
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 11 years; in accordance with professional guidelines the senior statutory auditor is rotated after at most five years, rotation took place in 2016 and the current senior statutory auditor started working with the Company this year. Due to changing guidelines on audit tender, the Company carried out an audit tender in October 2016 and agreed to recommend the re-appointment of KPMG LLP to the shareholders.
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 and the 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. 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 28 February 2017.
Remuneration
and Management
Engagement Nomination
Audit Committee Committee Committee
Board meetings Meetings meetings 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 and each other 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 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 Guidance on Risk Management, Internal Control and Related Financial and Business Reporting published by the Financial Reporting Council in 2014, 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
18 May 2017
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;
-- 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; and
-- in the opinion of the directors, the Annual Report taken as a whole is fair, balanced and understandable and it provides the information necessary to assess the Company's position and performance, business model and strategy.
Peter Lawrence
Chairman
18 May 2017
DIRECTORS' REMUNERATION REPORT
Introduction
This report has been prepared 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 AGM on 28 June 2017.
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 2017 at a meeting of the remuneration and management engagement committee where it was resolved that directors fees would be increased, in line with 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. Directors' fees are set with a view to attracting and retaining 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 Company's Articles of Association provide for a maximum level of total remuneration of GBP100,000 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.
This policy was last approved by the members at the AGM in 2014, and is included as a resolution to be voted on by the members at the AGM to be held on 28 June 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 Due date
appointment for re-election/election
---------------- ----------------- --------------------------
Peter Lawrence 24 January 2005 2017 AGM
Julia Henderson 1 July 2013 2017 AGM
Charles Pinney 24 January 2005 2017 AGM
Brian Scouler 25 October 2011 2017 AGM
---------------- ----------------- --------------------------
Directors' fees for the year (Audited)
The fees payable to individual directors in respect of the year ended 28 February 2017 are shown in the table below.
2017 2016
Director GBP GBP
----------------- ------- -------
Peter Lawrence 24,325 23,825
Julia Henderson 21,550 21,050
Charles Pinney 22,050 21,050
Brian Scouler 21,550 21,050
----------------- ------- -------
89,475 86,975
----------------- ------- -------
The emoluments payable to Peter Lawrence are invoiced by and paid to ECO Animal Health Group plc.
Directors are remunerated exclusively by fixed fees and do not receive bonuses, share options, long term incentives, pension or other benefits.
Relative importance of spend on pay
The table below shows the remuneration paid to directors and shareholder distributions in the year to 28 February 2017 and the prior year:
2017 2016
GBP GBP Percentage
(decrease)/
increase
----------------------- ---------- ---------- --------------
Total dividend
paid to shareholders 2,563,951 2,695,317 (4.9)%
Total directors'
fees 89,475 86,975 2.9%
----------------------- ---------- ---------- --------------
Directors' shareholdings (audited)
The directors who held office during the year and their interests in the shares of the Company (including beneficial and family interests) were:
28 February 29 February
2017 2016
Shares held Shares held
----------------- ------------ ------------
Peter Lawrence 655,298 269,044
Julia Henderson 11,683 11,683
Charles Pinney* 43,329 85,459
Brian Scouler 51,118 47,919
----------------- ------------ ------------
*Under the Market Abuse Regulation the definitions of associated people have changed which has resulted in a decrease of 42,130 shares in Charles Pinney's beneficial holdings during the year.
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 of the Annual Report compares the Company's share price with dividends added back at the ex-dividend date to the Numis Alternative Markets 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 23 June 2016 proxy votes were received as follows in respect of the resolution approving the Directors' Remuneration Report, 75% of shareholders voted for, 25% voted against and 35,312 shares were withheld.
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. Ordinary resolutions for the approval of the Directors Remuneration Policy and the Directors' Remuneration Report will be put to shareholders at the forthcoming AGM.
The Board notes the significant percentage of proxy votes cast against the resolution to approve the Directors' Remuneration Report at the Annual General Meeting held in 2016. The Board is aware that, similar to the prior year, one shareholder's vote represented a significant percentage of the proxy vote against this resolution. The Chairman of the Company has engaged with the shareholder and notes his comments. The Board look forward to continuing an open and constructive dialogue with shareholders.
On behalf of the board
Brian Scouler
Chairman of the Remuneration and Management Engagement Committee
18 May 2017
Independent Auditor's Report to the members of Amati VCT plc only
Opinions and conclusions arising from our audit
1 Our opinion on the financial statements is unmodified
We have audited the financial statements of Amati VCT plc for the year ended 28 February 2017 set out on pages 32 to 49. In our opinion the financial statements:
-- give a true and fair view of the state of the Company's affairs as at 28 February 2017 and of its profit for the year then ended;
-- have been properly prepared in accordance with UK Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland; and
-- have been prepared in accordance with the requirements of the Companies Act 2006.
2 Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the greatest effect on our audit were as follows:
Valuation of Unquoted Investments (GBP0.9m)
Refer to page 23 (Audit Committee Report), page 37 (accounting policy) and pages 45 and 46 (financial disclosures)
-- The risk - 2.0% of the Company's total assets (by value) are held in investments where no quoted market price is available. Unquoted investments are measured at fair value, which is established in accordance with the International Private Equity and Venture Capital Valuation Guidelines by using measurements of value such as prices of recent orderly transactions, earnings multiples, and net assets. There is a significant risk over the valuation of these investments and this is the key judgemental area that our audit focused on.
-- Our response - our procedures included:
-- documenting and assessing the design and implementation of the investment valuation processes and controls in place;
-- challenging the Investment Manager on key judgements affecting investee company valuations in the context of observed industry best practice and the provisions of the International Private Equity and Venture Capital Valuation Guidelines. In particular, we:
-- challenged the appropriateness of the valuation basis selected as well as the underlying assumptions, such as discount factors;
-- compared key underlying financial data inputs to external sources, investee company audited accounts and management information as applicable;
-- challenged the assumptions around sustainability of earnings based on the plans of the investee companies and whether these were achievable;
-- obtained an understanding of existing and prospective investee company cashflows to understand whether borrowings can be serviced or whether refinancing may be required; and
-- obtained an understanding of the circumstances surrounding the transaction, where a recent transaction had been used to value a holding, to determine whether the transactions were considered to be on an arms-length basis and suitable as an input into the valuations. Our work included consideration of events which occurred subsequent to the year end up until the date of this audit report.
-- attending the year-end Audit Committee meeting where we assessed the effectiveness of the Audit Committee's challenge and approval of unlisted investment valuations; and
-- consideration of the appropriateness, in accordance with relevant accounting standards, of the disclosures in respect of unquoted investments and the effect of changing one or more inputs to reasonably possible alternative valuation assumptions.
Valuation of Quoted Investments (GBP41.6m)
Refer to page 23 (Audit Committee Report), page 37 (accounting policy) and pages 45 and 46 (financial disclosures)
The risk - The Company's portfolio of quoted investments makes up 92.3% of the Company's total assets (by value) and is considered to be one of the key drivers of performance results. We do not consider these investments to be at high risk of significant misstatement, or to be subject to a significant level of judgement because they comprise liquid, quoted investments. However, due to their materiality in the context of the financial statements as a whole, they are considered to be one of the areas which had the greatest effect on our overall audit strategy and allocation of resources in planning and completing our audit.
-- Our response - Our procedures over the completeness, valuation and existence of the Company's quoted investment portfolio included, but were not limited to:
-- documenting and assessing the processes in place to record investment transactions and to value the portfolio;
-- agreeing the valuation of 100% of investments in the portfolio to externally quoted prices; and
-- agreeing 100% of investment holdings in the portfolio to independently received third party confirmations.
3 Our application of materiality and an overview of the scope of our audit
The materiality for the financial statements as a whole was set at GBP451,493 (2016: GBP370,359), determined with reference to a benchmark of total assets, of which it represents 1%, reflecting industry consensus levels (2016: 1%).
In addition, we applied materiality of GBP3,223 to income from investments, for which we believe misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the Company's members' assessment of the financial performance of the Company.
We report to the Audit & Risk Committee any corrected and uncorrected identified misstatements exceeding GBP22,575 (2016: GBP18,517), in addition to other identified misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified above and was all performed at the Manager's, Amati Global Investors Limited, head office in Edinburgh and at the administrator's, Capita Asset Services, in Exeter.
4 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion:
-- the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
-- the information given in the Strategic Report and the Directors' Report for the financial year is consistent with the financial statements.
Based solely on the work required to be undertaken in the course of the audit of the financial statements and from reading the Strategic report and the Directors' report:
-- we have not identified material misstatements in those reports; and -- in our opinion, those reports have been prepared in accordance with the Companies Act 2006.
5 We have nothing to report on the disclosures of principal risks
Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to:
-- the directors' statement of longer-term viability on page 18, concerning the principal risks, their management, and, based on that, the directors' assessment and expectations of the Company's continuing in operation over the 5 years to February 2022; or
-- the disclosures in note 1 of the financial statements concerning the use of the going concern basis of accounting.
6 We have nothing to report in respect of the matters on which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
-- we have identified material inconsistencies between the knowledge we acquired during our audit and the directors' statement that they consider that the annual report and financial statements 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; or
-- the Report of the Audit Committee does not appropriately address matters communicated by us to the audit committee.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
-- adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
-- the financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
-- the directors' statements, set out on pages 18 and 21, in relation to going concern and longer-term viability; and
-- the part of the Corporate Governance Statement on pages 22 to 25 relating to the Company's compliance with the eleven provisions of the 2014 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope and responsibilities
As explained more fully in the Directors' Responsibilities Statement set out on page 26, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the Company's members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.
John Waterson, (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Saltire Court
20 Castle Terrace
Edinburgh
EH1 2EG
18 May 2017
INCOME STATEMENT
for the year ended 28 February 2017
Note 2017 2017 2017 2016 2016 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Gain on investments 8 - 8,370 8,370 - 290 290
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Income 2 540 - 540 839 - 839
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Investment
management
fees 3 (170) (510) (680) (160) (480) (640)
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Other (expenses)/income 4 (306) (2) (308) (274) 5 (269)
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Profit/(loss)
on ordinary
activities
before taxation 64 7,858 7,922 405 (185) 220
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Taxation on 5 - - - - - -
ordinary activities
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Profit/(loss)
and total comprehensive
income attributable
to shareholders 64 7,858 7,922 405 (185) 220
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Basic and diluted
earnings/(loss)
per Ordinary
share 7 0.11p 13.76p 13.87p 0.75p (0.34p) 0.41p
-------------------------- ----- --------- --------- --------- --------- --------- ---------
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: Financial Statements of Investment Trust Companies and Venture Capital Trusts ("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 49 form part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
for the year ended 28 February 2017
Non-distributable reserves Distributable reserves
Capital
Called Capital reserve Capital
up Share redemption (non- Special reserve Revenue Total
share premium reserve distributable) reserve (distributable) reserve reserves
capital GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
GBP'000
--------------- --------- --------- ------------ ---------------- --------- ----------------- ---------- ----------
Opening
balance as at
1
March 2016 5,580 12,884 816 7,047 17,564 (7,502) 405 36,794
Shares issued 642 3,889 - - - - - 4,531
Share issue
expenses - (56) - - - - - (56)
Repurchase of
shares (292) - 292 - (1,914) - - (1,914)
Other capital
expenses - - - - (11) - - (11)
Dividends paid - - - - (2,159) - (405) (2,564)
Profit/(loss)
and total
comprehensive
income for
the year - - - 8,733 - (875) 64 7,922
Closing
balance as at
28
February 2017 5,930 16,717 1,108 15,780 13,480 (8,377) 64 44,702
--------------- --------- --------- ------------ ---------------- --------- ----------------- ---------- ----------
for the year ended 29 February 2016
Non-distributable reserves Distributable reserves
Capital
Called Capital reserve Capital
up Share redemption (non- Special reserve Revenue Total
share premium reserve distributable) reserve (distributable) reserve reserves
capital GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
GBP'000
--------------- --------- --------- ------------ ---------------- --------- ----------------- --------- -----------
Opening
balance as at
1
March 2015 5,166 9,590 676 5,735 20,992 (6,005) 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)
Profit/(loss)
and total
comprehensive
income for
the year - - - 1,312 - (1,497) 405 220
Closing
balance as at
29
February 2016 5,580 12,884 816 7,047 17,564 (7,502) 405 36,794
--------------- --------- --------- ------------ ---------------- --------- ----------------- --------- -----------
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 28 February 2017, the amount of reserves deemed distributable is GBP5,167,000 (29 February 2016: GBP10,467,000), a net negative movement in the year of GBP5,300,000.
A final dividend for the year ended 28 February 2017 of 2.5p per share has been proposed to be paid on 11 August 2017. The proposed final dividend is subject to approval by shareholders at the annual general meeting.
BALANCE SHEET
as at 28 February 2017
Note 2017 2016
GBP'000 GBP'000
--------------------------------------- ----- --------- ---------
Fixed assets
--------------------------------------- ----- --------- ---------
Investments held at fair value 8 42,502 33,506
--------------------------------------- ----- --------- ---------
Current assets
--------------------------------------- ----- --------- ---------
Debtors 9 990 125
--------------------------------------- ----- --------- ---------
Cash at bank 1,658 3,351
--------------------------------------- ----- --------- ---------
Investments - liquidity funds - 54
--------------------------------------- ----- --------- ---------
Total current assets 2,648 3,530
--------------------------------------- ----- --------- ---------
Current liabilities
--------------------------------------- ----- --------- ---------
Creditors: amounts falling due
within one year 10 (448) (242)
--------------------------------------- ----- --------- ---------
Net current assets 2,200 3,288
--------------------------------------- ----- --------- ---------
Total assets less current liabilities 44,702 36,794
--------------------------------------- ----- --------- ---------
Capital and reserves
--------------------------------------- ----- --------- ---------
Called up share capital* 11 5,930 5,580
--------------------------------------- ----- --------- ---------
Share premium account* 16,717 12,884
--------------------------------------- ----- --------- ---------
Capital redemption reserve* 1,108 816
--------------------------------------- ----- --------- ---------
Capital reserve (non-distributable)* 15,780 7,047
--------------------------------------- ----- --------- ---------
Special reserve 13,480 17,564
--------------------------------------- ----- --------- ---------
Capital reserve (distributable) (8,377) (7,502)
--------------------------------------- ----- --------- --------- Revenue reserve 64 405 --------------------------------------- ----- --------- --------- Equity shareholders' funds 44,702 36,794 --------------------------------------- ----- --------- --------- Net asset value per share 12 75.39p 65.94p --------------------------------------- ----- --------- ---------
* These reserves are not distributable.
The financial statements on pages 32 to 49 were approved and authorised for issue by the board of directors on 18 May 2017 and were signed on its behalf by
Peter Lawrence
Chairman
Company Number SC278722
The accompanying notes on pages 36 to 49 are an integral part of the balance sheet.
STATEMENT OF CASH FLOWS
for the year ended 28 February 2017
2017 2016
GBP'000 GBP'000
------------------------------------------ --------- ---------
Cash flows from operating activities
------------------------------------------ --------- ---------
Investment income received 634 817
------------------------------------------ --------- ---------
Deposit interest received 10 13
------------------------------------------ --------- ---------
Investment management fees (648) (643)
------------------------------------------ --------- ---------
Other operating costs (311) (269)
------------------------------------------ --------- ---------
Net cash outflow from operating
activities (315) (82)
------------------------------------------ --------- ---------
Cash flows from investing activities
------------------------------------------ --------- ---------
Purchase of investments (2,610) (3,725)
------------------------------------------ --------- ---------
Sale of liquidity funds 54 149
------------------------------------------ --------- ---------
Disposals of investments 2,065 4,644
------------------------------------------ --------- ---------
Net cash (outflow)/inflow from investing
activities (491) 1,068
------------------------------------------ --------- ---------
Net cash (outflow)/inflow before
financing activities (806) 986
------------------------------------------ --------- ---------
Cash flows from financing activities
------------------------------------------ --------- ---------
Net proceeds of share issues 3,517 3,962
------------------------------------------ --------- ---------
Net cost of share buybacks (1,822) (944)
------------------------------------------ --------- ---------
Legal costs in respect of share (11) -
reconstruction
------------------------------------------ --------- ---------
Equity dividends paid (2,564) (2,695)
------------------------------------------ --------- ---------
Net cash (outflow)/inflow from financing
activities (880) 323
------------------------------------------ --------- ---------
(Decrease)/increase in cash (1,686) 1,309
------------------------------------------ --------- ---------
Reconciliation of net cash flow
to movement in net cash
------------------------------------------ --------- ---------
(Decrease)/increase in cash during
the year (1,686) 1,309
------------------------------------------ --------- ---------
Net cash at 1 March 3,351 2,037
------------------------------------------ --------- ---------
Currency (losses)/gains (7) 5
------------------------------------------ --------- ---------
Net cash at 28/29 February 1,658 3,351
------------------------------------------ --------- ---------
Reconciliation of profit on ordinary activities
before taxation to net cash outflow from operating
activities
----------------------------------------------------------------
Profit on ordinary activities before
taxation 7,922 220
------------------------------------------ --------- ---------
Net gain on investments (8,370) (290)
------------------------------------------ --------- ---------
Increase/(decrease)in creditors,
excluding corporation tax payable 24 (1)
------------------------------------------ --------- ---------
Decrease/(increase) in debtors 102 (6)
------------------------------------------ --------- ---------
Currency losses/(gains) 7 (5)
------------------------------------------ --------- ---------
Net cash outflow from operating
activities (315) (82)
------------------------------------------ --------- ---------
The accompanying notes on pages 36 to 49 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 updated in January 2017 with consequential amendments and on the assumption that the Company maintains VCT status.
The Directors have made the decision to present the split of distributable and non-distributable capital reserve within the Statement of Changes in Equity. This is merely a presentational change, as the figures were previously disclosed in the narrative underneath the Statement of Changes in Equity, and does not affect the overall financial position or performance of the Company as previously reported.
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 fully listed on London Stock Exchange or are traded on AIM, 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. Investments 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. The Company primarily invests in companies listed in the UK.
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.
Share Premium
The share premium account is a non-distributable reserve which represents the accumulated premium paid on the issue of shares in previous periods over the nominal value net of any expenses.
Capital Redemption Reserve
The capital redemption reserve is a non-distributable reserve which is created when shares are repurchased for cancellation resulting in a reduction of share capital.
Special Reserve
The special reserve is a distributable reserve which is created by the authorised reduction of the share premium account and can be applied in any manner in which the Company's profits available for distribution (as determined in accordance with the Companies Act 2006) are able to be applied.
Capital Reserve
The following are taken to the capital reserve:
-- gains and losses on the disposal of investments -- increase and decrease in the value of investments held at the year end -- expenses allocated to this reserve in accordance with the above policies.
Revenue Reserve
The revenue reserve represents accumulated profits and losses and any surplus profit is distributable by way of dividends.
2 Income
Year Year
to to
28 February 29 February
2017 2016
GBP'000 GBP'000
----------------------------------- ------------ ------------
Income:
----------------------------------- ------------ ------------
Dividends from UK companies 413 439
----------------------------------- ------------ ------------
Dividends from overseas companies 27 -
----------------------------------- ------------ ------------
UK loan stock interest 90 388
----------------------------------- ------------ ------------
Interest from liquidity funds - 1
----------------------------------- ------------ ------------
Interest from deposits 10 7
----------------------------------- ------------ ------------
Interest on tax refund - 4
----------------------------------- ------------ ------------
540 839
----------------------------------- ------------ ------------
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 Year
to to
28 February 29 February
2017 2016
GBP'000 GBP'000
----------------------------------- ------------ ------------
Due to the Manager by the Company
at 1 March 155 158
----------------------------------- ------------ ------------
Management fee charge to revenue
and capital for the year 680 640
----------------------------------- ------------ ------------
Fees paid to the Manager during
the year (648) (643)
----------------------------------- ------------ ------------
Due to the Manager by the Company
at 28/29 February 187 155
----------------------------------- ------------ ------------
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 Year
to to
28 February 29 February
2017 2016
GBP'000 GBP'000
----------------------------------------- ------------ ------------
Directors' remuneration 90 87
----------------------------------------- ------------ ------------
Auditor's remuneration 17 18
----------------------------------------- ------------ ------------
Legal and professional services
and other expenses 130 101
----------------------------------------- ------------ ------------
Administration and secretarial services 69 68
----------------------------------------- ------------ ------------
306 274
----------------------------------------- ------------ ------------
The Company has no employees.
Details of directors' remuneration are provided in the Directors' Remuneration Report on page 27.
Also included in the Income Statement are capital expenses of GBP2,000 (29 February 2016 income of GBP5,000) relating to the exchange loss on revaluing the US dollar bank account during the year.
Auditor's remuneration can be broken down into:
Year Year
to to
28 February 29 February
2017 2016
GBP'000 GBP'000
------------------------------------- ------------ ------------
Audit of these financial statements 17 17
------------------------------------- ------------ ------------
Tax services - 1
------------------------------------- ------------ ------------
17 18
------------------------------------- ------------ ------------
5 Tax on Ordinary Activities
5a Analysis of charge for the year
Year Year
to to
28 February 29 February
2017 2016
GBP'000 GBP'000
------------------------ ------------ ------------
Net charge for the year - -
------------------------ ------------ ------------
5b Factors affecting the tax charge for the year
The tax charge for the year is reconciled below to the expected charge arising on profits at the standard rate of corporation tax in the UK for a company:
Year to 28 February Year to 29 February
2017 2016
------------------------ ------------------------------- -------------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ --------- --------- --------- --------- --------- ---------
Profit/(loss)
on ordinary
activities
before taxation 64 7,858 7,922 405 (185) 220
------------------------ --------- --------- --------- --------- --------- ---------
Theoretical
tax at UK corporation
tax rate of
20% (2016:
20.08%) 13 1,572 1,585 81 (37) 44
------------------------ --------- --------- --------- --------- --------- ---------
Effect of:
------------------------ --------- --------- --------- --------- --------- ---------
Non-taxable
gains on capital
items - (1,674) (1,674) - (58) (58)
------------------------ --------- --------- --------- --------- --------- ---------
Movement in
excess management
expenses 69 102 171 7 95 102
------------------------ --------- --------- --------- --------- --------- ---------
Non-taxable
dividends (82) - (82) (88) - (88)
------------------------ --------- --------- --------- --------- --------- ---------
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 28 February 2017, the Company had unrelieved losses of GBP6,941,000 (29 February 2016: GBP6,093,000). 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
Amounts recognised as distributions paid to equity holders during the year:
2017 2016
GBP'000 GBP'000
---------------------------------------- --------- ---------
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
---------------------------------------- --------- ---------
Final dividend for the year ended
29 February 2016 of 3.0p per Ordinary
share - paid on 12 August 2016 1,707 -
---------------------------------------- --------- ---------
Interim dividend for the year ended
28 February 2017 of 1.5p per Ordinary
share - paid on 16 December 2016 857 -
---------------------------------------- --------- ---------
2,564 2,695
---------------------------------------- --------- ---------
Dividends paid and proposed during the financial year, which is the basis on which the requirements of Section 274 of the Income Tax Act are considered:
2017 2016
GBP'000 GBP'000
---------------------------------------- --------- ---------
Interim dividend for the year ended
29 February 2016 of 2.0p per Ordinary
share - paid on 11 December 2015 - 1,083
---------------------------------------- --------- ---------
Final dividend for the year ended
29 February 2016 of 3.0p per Ordinary
share - paid on 12 August 2016 - 1,707
---------------------------------------- --------- ---------
Interim dividend for the year ended
28 February 2017 of 1.5p per Ordinary
share - paid on 16 December 2016 857 -
---------------------------------------- --------- ---------
Final dividend for the year ended
28 February 2017 of 2.5p per Ordinary
share - to be paid on 11 August 2017 1,512 -
---------------------------------------- --------- ---------
2,369 2,790
---------------------------------------- --------- ---------
7 Earnings per Share
Year to 28 February Year to 29 February
2017 2016
Net Weighted Earnings Net Weighted Earnings
profit average per profit/(loss) average per
GBP'000 shares share GBP'000 shares share
pence pence
--------- --------- ----------- --------- --------------- ----------- ---------
Revenue 64 57,123,199 0.11p 405 54,009,962 0.75p
Capital 7,858 57,123,199 13.76p (185) 54,009,962 (0.34p)
Total 7,922 57,123,199 13.87p 220 54,009,962 0.41p
--------- --------- ----------- --------- --------------- ----------- ---------
8 Investments
Level Level Level
a* c i)* c ii)*
Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- -------- --------- --------
Cost at 1 March 2016 19,459 475 6,543 26,477
------------------------------------- -------- -------- --------- --------
Transfers between quoted
and unquoted (157) 185 (28) -
------------------------------------- -------- -------- --------- --------
Purchases 2,691 - - 2,691
------------------------------------- -------- -------- --------- --------
Disposals - proceeds received (2,057) (8) - (2,065)
----------- ------------------------ -------- -------- --------- --------
- realised losses
on disposal (61) - - (61)
------------------------------------ -------- -------- --------- --------
- realisation of
revaluation movements
from previous years 415 - (720) (305)
------------------------------------ -------- -------- --------- --------
Cost at 28 February 2017 20,290 652 5,795 26,737
------------------------------------- -------- -------- --------- --------
Unrealised gains/(losses)
at 1 March 2016 12,712 (470) (5,213) 7,029
------------------------------------- -------- -------- --------- --------
Unrealised gains/(losses)
on investments during
the year 9,011 134 (714) 8,431
------------------------------------- -------- -------- --------- --------
Realisation of revaluation
movements from previous
years (415) - 720 305
------------------------------------- -------- -------- --------- --------
Unrealised gains/(losses)
at 28 February 2017 21,308 (336) (5,207) 15,765
------------------------------------- -------- -------- --------- --------
Valuation at 1 March
2016 32,171 5 1,330 33,506
------------------------------------- -------- -------- --------- --------
Valuation at 28 February
2017 41,598 316 588 42,502
------------------------------------- -------- -------- --------- --------
Equity shares 41,598 316 21 41,935
------------------------------------- -------- -------- --------- --------
Loan stock - - 567 567
------------------------------------- -------- -------- --------- --------
Total investments at
valuation 41,598 316 588 42,502
------------------------------------- -------- -------- --------- --------
* refer to Note 16 for definitions.
2017 2016
GBP'000 GBP'000
------------------------------------- -------- --------
Realised (losses)/gains on disposal (61) 113
------------------------------------- -------- --------
Unrealised gains on investments
during the year 8,431 177
------------------------------------- -------- --------
Net gain on investments 8,370 290
------------------------------------- -------- --------
Transaction Costs
During the year the Company incurred transaction costs of GBPnil (29 February 2016: GBP2,000) and GBP6,000 (29 February 2016: GBP7,000) on purchases and sales of investments respectively. These amounts are included in gain/(loss) on investments as disclosed in the income statement.
9 Debtors
2017 2016
GBP'000 GBP'000
-------------------------------- -------- --------
Prepayments and accrued income 23 125
Receivable for shares issued 967 -
990 125
-------------------------------- -------- --------
10 Creditors: Amounts Falling Due Within One Year
2017 2016
GBP'000 GBP'000
----------------------------------------- -------- --------
Payable for investments bought 173 -
Related party payables (due to Manager) 187 155
Fund raising costs 10 -
Other creditors 78 87
----------------------------------------- -------- --------
448 242
----------------------------------------- -------- --------
11 Called Up Share Capital
2017 2016
Ordinary shares (10p shares) Number GBP'000 Number GBP'000
------------------------------ ------------ -------- ------------ --------
Allotted, issued and fully
paid at 1 March 55,801,407 5,580 51,663,729 5,166
Issued during the year 6,416,231 642 5,533,678 554
Repurchase of own shares
for cancellation (2,920,210) (292) (1,396,000) (140)
At 28/29 February 59,297,428 5,930 55,801,407 5,580
------------------------------ ------------ -------- ------------ --------
The shares issued during the year were Ordinary shares of nominal value 10p each. During the year a total of 2,920,210 Ordinary shares of 10p each were repurchased for cancellation by the Company at an average price of 65.23p per share.
Further details of the Company's share capital and associated rights are shown in the Directors' Report on page 20.
12 Net Asset Value per Ordinary Share
2017 2017 2017 2016 2016 2016
Net NAV Net NAV
assets Ordinary per assets Ordinary per
GBP'000 shares share GBP'000 shares share
pence pence
---------- --------- ----------- ------- --------- ----------- -------
Ordinary
share 44,702 59,297,428 75.39 36,794 55,801,407 65.94
---------- --------- ----------- ------- --------- ----------- -------
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
----------------------------- ----------- -------
Vicorp Group plc* 15,966,954 8.3
----------------------------- ----------- -------
Sabien Technology Group plc 4,425,171 7.1
----------------------------- ----------- -------
Hardide plc 81,777,219 5.3
----------------------------- ----------- -------
Universe Group plc 11,306,873 4.9
----------------------------- ----------- -------
Science in Sport plc 1,596,729 3.7
----------------------------- ----------- -------
Water Intelligence plc 419,290 3.5
----------------------------- ----------- -------
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 Post Balance Sheet Events
The following transactions have taken place between 28 February 2017 and the date of this report:
On 2 May 2017 the Court of Session approved the cancellation of the share premium reserve of GBP17,929,322 and capital redemption reserve of GBP1,156,309 in order to create a special reserve to fund future dividend distributions and buybacks.
1,818,204 shares were allotted raising net proceeds of GBP1.4m.
15 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 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:
28 February
2017
shares
held
----------------- ------------
Paul Jourdan 282,506
Douglas Lawson 19,763
David Stevenson 14,134
----------------- ------------
The remuneration of the Directors, who are key management personnel of the Company, is disclosed in the Directors' Remuneration Report on page 27.
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.
16 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 28 February 2017
Level Level Level Total
a c i) c ii)
GBP'000 GBP'000 GBP'000 GBP'000
Equity shares 41,598 316 21 41,935
Loan stock - - 567 567
--------------- -------- -------- -------- --------
41,598 316 588 42,502
--------------- -------- -------- -------- --------
Level c financial assets at fair value
At 28 February 2017
Ordinary Preference Loan
shares shares stock Total
GBP'000 GBP'000 investments GBP'000
GBP'000
Opening balance at
1 March 2016 189 - 1,146 1,335
Transfers (from)/to
Level c 157 - - 157
Purchases - - - -
Disposal - proceeds (8) - - (8)
Realised gains in - - - -
the year
Unrealised losses
in the year (1) - (579) (580)
Closing balance at
28 February 2017 337 - 567 904
--------------------- --------- ----------- ------------- ----------
During the year Rame Energy was moved into Level c investments due to its suspension from AIM and subsequent appointment of Administrators.
Changing one or more valuation inputs to reasonably possible alternative assumptions would result in a difference ranging between GBP88k lower than the total value of Level c holdings and GBP77k more than the total value of Level c holdings.
Financial assets at fair value
At 29 February 2016
Level Level Level Total
a c i) c ii)
GBP'000 GBP'000 GBP'000 GBP'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 Preference Loan
stock
shares shares investments Total
GBP'000 GBP'000 GBP'000 GBP'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)
Unrealised losses on
investments in the year 137 - (96) 41
Closing balance at 29
February 2016 (363) - (1,712) (2,075)
-------------------------- --------- ----------- ------------ --------
189 - 1,146 1,335
-------------------------- --------- ----------- ------------ --------
There were no transfers to or from Level c investments during last year.
Changing one or more valuation inputs to reasonably possible alternative assumptions would result in a difference ranging between GBP98k lower than the total value of Level c holdings and GBP131k more than the total value of Level c holdings.
17 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 Objectives as outlined in the Investment Objectives 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.
As at 28 February 2017, 98% (29 February 2016: 96%) of the Company's investments are traded. A 10% increase in stock prices as at 28 February 2017 would have increased the net assets attributable to the Company's shareholders and the total profit for the year by GBP4,160,000 (29 February 2016: GBP3,217,000); 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, 2% are in unquoted companies held at fair value (29 February 2016: 4%). A 10% increase in the valuations of unquoted investments at 28 February 2017 would have increased the net assets attributable to the Company's shareholders and the total profit for the year by GBP90,000 (29 February 2016: GBP134,000); 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.
18 Interest Rate Risk
Fixed rate
One of the Company's financial assets is interest bearing at a fixed rate (29 February 2016: four). The valuation of the Company's 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 46 where the impact of adopting different interest rate assumptions (along with other inputs) has been disclosed.
The total current market value of the interest bearing loan instrument is GBP567,000, the weighted average interest rate is 8.0% and the average time to maturity is 0.5 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.
19 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 28 February 2017, the financial assets exposed to credit risk amounted to GBP990,000 (29 February 2016: GBP125,000).
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 28 February 2017, approximately 90% 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 28 February 2017 was $nil (29 February 2016: $85,000).
There were no significant concentrations of credit risk to counterparties at 28 February 2017 or 29 February 2016. No individual investment exceeded 11.2% of the Company's portfolio at 28 February 2017 (29 February 2016: 8.8%).
20 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 28 February 2017, these investments were valued at GBP2,625,000 (29 February 2016: GBP3,405,000).
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.
The structure of the Company's capital is described in note 11 and details of the Company's reserves are shown in the Statement of Changes in Equity on page 33.
The Company is subject to externally imposed capital requirements:
a. as a public limited company, the Company is required to have a minimum share capital of GBP50,000; and
b. in accordance with the provisions of the Income Tax Act 2007, the Company as a Venture Capital Trust:
i) is required to make a distribution each year such that it does not retain more than 15% of income from shares and securities; and
ii) is required to derive 70% of its income from shares and securities.
These requirements are unchanged since last year and the Company has complied with them at all times.
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 28 February 2017 was 75.4p. 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 2017 Annual report for the year ended 28 February 2017 to be circulated to shareholders
28 June 2017 Annual general meeting
October 2017 Half-yearly Report for the six months ending 31 August 2017 to be circulated to shareholders
28 February 2018 Year-end
Annual General Meeting
The annual general meeting of the Company will be held at 1.30pm on 28 June 2017 at Milton Court Theatre, The 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 52 to 56 of this report. The annual general meeting will be accompanied by an investor event.
SUPPLEMENTARY INFORMATION FOR THE ANNUAL GENERAL MEETING
As explained on page 12 the Company is seeking shareholder authority to amend the Investment Policy of the Company. The proposed new Investment Policy is set out below.
A. Investment Policy
Unless specified otherwise, defined terms shall have the meaning given to them in the FCA Handbook from time to time.
"ITA" means the Income Tax Act 2007 (as amended).
"Manager" means Amati Global Investors Limited.
"VCT" means a venture capital trust under section 842AA of the Income and Corporation Taxes Act 1988.
"Qualifying Investment" means an investment in shares in, or securities of a company or group carrying on a qualifying trade wholly or mainly in the UK satisfying the conditions in Chapter 4 of Part 6 of ITA, and held by a VCT which meets the requirements described in Part 6 of ITA.
Investment Objectives
The investment objectives of the Company are to generate tax free capital gains and regular dividend income for its shareholders, primarily through Qualifying Investments in AIM-traded companies and through non-qualifying investments as allowed by the VCT legislation. The Company will manage its portfolio to comply with the requirements of the rules and regulations applicable to VCTs from time to time. The Company's policy is to hold a diversified portfolio across a broad range of sectors to mitigate risk.
Investment Parameters
Whilst the objective is to make Qualifying Investments primarily in companies traded on AIM or on NEX, the Company may also make Qualifying Investments in companies likely to seek a quotation on AIM or NEX. With regard to the non-qualifying portfolio the Company makes investments which are permitted under the VCT regulations, including shares or units in an Alternative Investment Fund (AIF) or an Undertakings for Collective Investment in Transferable Securities (UCITS) fund, and shares in other companies which are listed on a regulated market such as the Main Market of the London Stock Exchange. For continued approval as a VCT under the ITA the Company must, within three years of raising funds, maintain at least 70% of its value (based on cost price, or last price paid per share if there is an addition to the holding) in qualifying investments. Any investments by the Company in shares or securities of another company must not represent more than 15% of the Company's net asset value at the time of purchase.
B. Strategy for Achieving Objectives
The strategy for achieving the Investment Objectives which follows is not part of the formal Investment Policy. Any material amendment to the formal Investment Policy may only be made with shareholder consent, but that consent applies only to the formal Investment Policy above and not any part of the Strategy for Achieving Objectives or Key Performance Indicators below.
Qualifying Investments Strategy
The Company is likely to be a long term investor in most Qualifying Investments, with sales generally only being made where an investment case has deteriorated or been found to be flawed, or to realise profits, adjust portfolio weightings, fund new investments or pay dividends. Construction of the portfolio of Qualifying Investments is driven by the historic investments made by the Company and by the availability of suitable new investment opportunities. The Manager may co-invest in companies in which other funds managed by Amati Global Investors invest.
Non-Qualifying Investments Strategy
The assets of the portfolio which are not in Qualifying Investments will be invested by the Manager in investments which are allowable under the rules applicable to VCTs. Currently cash not needed in the short term is invested in a combination of the following (though ensuring that no more than 15% of the Company's funds are invested in any one entity at the time of purchase):
(i) the TB Amati UK Smaller Companies Fund (which is a UCITS fund), or other UCITS funds approved by the Board;
(ii) direct equity investments in small and mid-sized companies and debt securities in each case listed on the Main Market of the London Stock Exchange; and
(iii) cash or cash equivalents (including money market funds) which are redeemable within 7 days.
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 1.30pm on Wednesday 28 June 2017 at Milton Court Theatre, The 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 13 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 28 February 2017 together with the Independent Auditor's Report thereon.
2. To approve the Directors' Remuneration policy. 3. To approve the Directors' Remuneration Report for the financial year ended 28 February 2017.
4. To approve a final dividend of 2.5p per share payable on 11 August 2017 to shareholders on the register at 7 July 2017.
5. 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 2018 at which financial statements are laid before the Company.
6. To authorise the directors to fix the remuneration of the auditor. 7. To re-elect Peter Lawrence as a director of the Company. 8. To re-elect Charles Pinney as a director of the Company. 9. To re-elect Brian Scouler as a director of the Company. 10. To re-elect Julia Henderson as a director of the Company.
11. To approve the renewal of the Investment Management and Administration Agreement between the Company and Amati Global Investors.
12. That, in substitution for any existing authorities, but without prejudice to the exercise of any such authority prior to the date of the passing of this resolution, the Directors be and hereby are authorised in accordance with section 551 of the Companies Act 2006 (the "2006 Act"), as amended, to exercise all powers of the Company to allot shares of 10p each in the capital of the Company and to grant rights to subscribe for or to convert any security into shares up to an aggregate nominal amount of GBP3,500,000, provided that the authority conferred by this resolution shall expire on the fifth anniversary of the date of the passing of this resolution unless renewed, varied or revoked by the Company in general meeting, save that the Company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the board may allot relevant securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired.
13. That the proposed amendments to the Company's Investment Policy be approved and the revised Investment Policy as detailed in the Annual Report and Financial Statements, a copy of which is initialled for the purpose of identification by the Chairman of the Annual General Meeting and produced to the Annual General Meeting, be and is hereby approved and adopted with effect from 28 June 2017 as the Company's Investment Policy in place of its existing Investment Policy.
Special Business
Special Resolutions
To consider, and if thought fit, to pass the following Resolutions as Special Resolutions of the Company:
14. 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 resolution 11 above as if section 561(1) of the 2006 Act did not apply to any such allotment, up to an aggregate nominal amount of GBP3,500,000. 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 2018 and the date which is 15 months after the date on which this resolution is passed.
15. 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 2018 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.
By order of the board Registered office:
The City Partnership (UK) Limited 110 George Street
Secretary Edinburgh EH2 4LH
18 May 2017
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 1.30pm on 26 June 2017 to Share Registrars, The Courtyard, 17 West Street, Farnham, Surrey GU9 7DR. 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 26 June 2017 (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, The Courtyard, 17 West Street, Farnham, Surrey GU9 7DR 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 17 May 2017 (being the last business day prior to the publication of this Notice) the Company's issued share capital consists of 60,467,458 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 17 May 2017 are 60,467,458.
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.
Amati VCT plc
Form of Proxy for the Annual General Meeting
on 28 June 2017
I/We .....................................................................................................................................................
(block capitals please)
of
.....................................................................................................................................................
being a member of Amati VCT plc, hereby appoint (see notes 1 and 2)
.....................................................................................................................................................
or failing him/her the chairman of the meeting to be my/our proxy and exercise all or any of my/our rights to attend, speak and vote for me/us in respect of my/our voting entitlement on my/our behalf at the Annual General Meeting of the Company to be held at Milton Court Theatre, The Guildhall School of Music & Drama, Silk Street, Barbican, London EC2Y 9BH on Wednesday 28 June 2017 at 1.30pm, notice of which was dated 18 May 2017, and at any adjournment thereof. The proxy will vote as indicated below in respect of the resolution set out in the notice of meeting:
o Please indicate by placing an X in this
box if this proxy appointment is one of
multiple appointments being made (see note
2 below).
Resolution For Against Vote
Withheld
----------------------------------------- --- ------- ---------
1 To receive the Directors' Report
and Financial Statements together
with the Independent Auditor's
Report
----------------------------------------- --- ------- ---------
2 To approve the Directors' Remuneration
Policy
----------------------------------------- --- ------- ---------
3 To approve the Directors' Remuneration
Report
----------------------------------------- --- ------- ---------
4 To approve a final dividend
of 2.5p per share
----------------------------------------- --- ------- ---------
5 To re-appoint KPMG LLP as auditor
----------------------------------------- --- ------- ---------
6 To authorise the directors to
fix the remuneration of the
auditor
----------------------------------------- --- ------- ---------
7 To re-elect Peter Lawrence as
a director of the Company
----------------------------------------- --- ------- ---------
8 To re-elect Charles Pinney as
a director of the Company
----------------------------------------- --- ------- ---------
9 To re-elect Brian Scouler as
a director of the Company
----------------------------------------- --- ------- ---------
10 To re-elect Julia Henderson
as a director of the Company
----------------------------------------- --- ------- ---------
11 To approve the renewal of the
investment management and administration
agreement
----------------------------------------- --- ------- ---------
12 To approve the proposed amendments
to the Company's Investment
Policy
----------------------------------------- --- ------- ---------
13 To renew the directors' authority
to allot shares
----------------------------------------- --- ------- ---------
14 To renew the directors' authority
to disapply pre-emption rights
----------------------------------------- --- ------- ---------
15 To authorise the directors to
buy back shares
----------------------------------------- --- ------- ---------
Please refer to the notes overleaf
Attendance indication
If you wish to attend the Investor Event please either complete the attendance indication on the enclosed covering letter or contact Rachel Le Derf at rachel.lederf@amatiglobal.com or by phone on 0131 503 9104 to register your interest.
Signed: Date: ......................................................... ........................................................2 ................................... 017
Amati VCT plc
Notes relating to Form of Proxy
1 Every member has the right to appoint some other person(s) of his/her choice, who need not be a member, as his/her proxy to exercise all or any of his/her rights to attend, speak or vote on his/her behalf at the meeting. A member wishing to appoint a person other than the chairman of the meeting as proxy should insert the name of such person in the space provided. If the proxy is being appointed in relation to less than your full voting entitlement, please enter alongside the proxy holder's name the number of shares in relation to which they are authorised to act as your proxy. If left blank your proxy will be deemed to be authorised in respect of your full voting entitlement (or if this proxy form has been issued in respect of a designated account for a shareholder, the full voting entitlement for that designated account). Any alteration or deletion must be signed or initialled.
2 A member may appoint more than one proxy in relation to a meeting, provided that the proxy is appointed to exercise the rights attached to a different share or shares held by him/her. To appoint more than one proxy, please contact Share Registrars Limited on 01252 821 390 for (an) additional form(s), or you may photocopy this form. Please indicate alongside the proxy holder's name the number of shares in relation to which the proxy holder is authorised to act as your proxy. Please also indicate by placing an X in 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.
3 Use of the form of proxy does not preclude a member from attending and voting in person.
4 Where the form of proxy is executed by an individual it must be signed by that individual or his or her attorney.
5 Where the form of proxy is executed by joint shareholders it may be signed by any of the members, but the vote of the member whose name stands first in the register of members of the Company will be accepted to the exclusion of the votes of the other joint holders.
6 Where the form of proxy is executed by a corporation it must be either under its seal or under the hand of an officer or attorney duly authorised.
7 If the form of proxy is signed and returned without any indication as to how the proxy shall vote, the proxy will exercise his/her discretion as to whether and how he/she votes, as he/she will on any other matters to arise at the meeting.
8 Online voting: alternatively, you may register your votes electronically by visiting the website of the Company's registrar. You will need to register in order to be able to use this service. To register, please visit www.shareregistrars.uk.com and click on "Register" under the title Account Log In. If you have already registered, log in and click on "My Meeting Votes".
9 To be valid, the form of proxy, together with, if applicable, the power of attorney or other authority under which it is signed, or a certified copy thereof, must be sent or delivered to Share Registrars Limited, The Courtyard, 17 West Street, Farnham, Surrey GU9 7DR or by fax to 01252 719 232 or by scan and email to proxies@shareregistrars.uk.com to be received no later than 1.30pm on 26 June 2017.
10 The "vote withheld" option is provided to enable a member to abstain from voting on the resolution; however, it should be noted that a "vote withheld" is not a vote in law and will not be counted in the calculation of the proportion of the votes "for" and "against" the resolution.
CORPORATE INFORMATION
Directors Registrar
Peter Lawrence Share Registrars
Julia Henderson The Courtyard
Charles Pinney 17 West Street
Brian Scouler Farnham, Surrey
GU9 7DR
all of:
110 George Street
Edinburgh Auditor
EH2 4LH KPMG LLP
Saltire Court
Secretary 20 Castle Terrace
The City Partnership (UK) Edinburgh
Limited
110 George Street EH1 2EG
Edinburgh
EH2 4LH Custodian
Jarvis Investment Management
Limited
78 Mount Ephraim
Tunbridge Wells
Fund Manager Kent
Amati Global Investors TN4 8BS
Limited
18 Charlotte Square
Edinburgh
EH2 4DF Solicitors
Email: vct-enquiries@amatiglobal.com Rooney Nimmo
8 Walker Street
VCT Tax Adviser Edinburgh
Philip Hare & Associates EH3 7LH
LLP
Suite C, First Floor
4-6 Staple Inn
Holborn London
WC1V 7QH
This information is provided by RNS
The company news service from the London Stock Exchange
END
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