Hargreave Hale AIM 1 Interim Management Statement

 
TIDMHHV 
 
 
   Interim Management Statement 
 
   Introduction 
 
   This interim management statement covers the first half of the 2019/20 
financial year, 1 October 2019 to 31 March 2020. Investment performance 
measures contained in this report are calculated on a pence per share 
basis and include realised and unrealised gains and losses. 
 
   Investment report 
 
   The financial year started with global equity markets performing well 
and US indices hitting new highs. Markets also found support from the 
more dovish stance adopted by many central banks and, in the case of the 
UK and elsewhere, talk of fiscal stimulus. The General Election produced 
some clarity on how and when the UK will exit the EU. We started 2020 
with an optimistic outlook for the small domestically orientated 
companies that we invest in. Since then, all of us have had to adjust to 
a profoundly different way of life and we now contemplate the most 
significant reduction in global activity in living memory.  How we 
emerge from this crisis is yet to become clear although, after an 
initial wave of indiscriminate selling, the market is now starting to 
apply some filters.  Whilst there will be many losers, some companies 
will emerge in a stronger position than when they entered the crisis. 
It also seems some emerging or existing trends will accelerate and 
become more entrenched: deglobalisation, digitisation, remote 
working/learning and e-commerce are some obvious examples.  These will 
throw up opportunities for those with relevant service propositions and 
those companies able to adjust quickly to the new world we find 
ourselves in. 
 
   Performance 
 
   In the six months to 31 March 2020 the unaudited net asset value (NAV) 
decreased from 70.60p to 56.70p. A special dividend of 1.75p was paid on 
28 November 2019 and a final dividend of 2.25p was paid on 11 February 
2020.  Adjusting for the total distribution within the period of 4.0 
pence per share results in a total return to investors of -9.90 pence 
per share, which translates to a loss of 14.0%. During the same period, 
the FTSE AIM All-Share Total Return index lost 21.3%, whilst the FTSE 
All Share Total Return index lost 22.0%. The qualifying investments made 
a net contribution of -5.28 pence per share whilst the non-qualifying 
investments returned -4.11 pence per share. The adjusting balance was 
the net of running costs and investment income. 
 
   Gousto was the top performing qualifying investment (+65.1%, +1.45 pence 
per share) following continued strong performance and a substantial 
equity raise to fund further investment in technology, infrastructure 
and proposition to position itself for delivery of its medium term 
growth objectives.  Gousto is now the largest investment within the VCT, 
representing 6.5% of net assets. Other positive contributors included 
Learning Technologies Group (+18.4%, +0.60 pence per share), Faron 
Pharma (+354.5%, +0.53 pence per share) and Diaceutics (+31.9%, +0.29 
pence per share), which enjoyed a strong debut year as a public company. 
Post period end, Faron Pharma announced that one of its experimental 
drugs (Traumakine) for the treatment of Acute Respiratory Disease 
Syndrome had been included in a global trial that would include CV-19 
patients.  Other parts of our healthcare/life sciences portfolio have 
also performed well (performance to 30 Apr 20): (1) EKF (+17%) and 
Yourgene (+61%) are supplying reagents for CV-19 testing programmes; (2) 
Omega Diagnostics (+387%) is working as part of a UK consortium with 
Oxford University and others to develop an antibody test; (3) Synairgen 
(+71%), a very recent addition to the portfolio, is conducting a UK 
trial on a potential treatment for CV-19 patients; (4) Lidco (+88%) is 
supplying haemodynamic monitors and (5) Tristel (+74%) is providing 
disinfectant products to hospitals globally. 
 
   The biggest detractors within the period came from some of our larger 
investments such as Hardide (-68.9%, -1.42 pence per share) and Zoo 
Digital (-31.6%, -0.57 pence per share).  Escape Hunt (-92.7%, -0.50 
pence per share) was hit particularly hard by the winding up of its 
largest shareholder.  Post period end, Zoo Digital's shares have 
recovered back to pre-crisis levels. 
 
   Within the period, we invested GBP7.6m into 11 qualifying companies, 
comprising 7 follow on investments into existing portfolio (including 
one private) companies, 3 secondary placings into new portfolio 
companies, and one new investment into a private company.  Within the 
qualifying portfolio, we reduced our investments in Faron Pharma, 
Learning Technologies Group and Blackbird, in all cases as a result of 
strong share price performance.   APC Technology and Synnovia (formerly 
Plastic Capital)  were acquired through private equity backed bids. We 
also made complete exits from LoopUp and Genedrive. 
 
   Portfolio structure 
 
   The VCT is comfortably through the HMRC defined investment test and 
ended the period at 94.5% (subject to confirmation) invested as measured 
by the HMRC investment test. By market value, the VCT had a 64.3% 
weighting to qualifying investments. The allocation to non-qualifying 
equity investments decreased from 20.1% to 19.2%. We continued to reduce 
the investment in the Marlborough Special Situations Fund to release 
capital for investment into qualifying companies, taking it down from 
7.9% to 4.1% of net assets. The period ended with no non-qualifying 
fixed income investments and cash reduced from 17.1% to 12.8%. 
 
   The HMRC investment tests are set out in Chapter 3 of Part 6 Income Tax 
Act 2007, which should be read in conjunction with this interim 
management statement. Funds raised by VCTs are first included in the 
investment tests from the start of the accounting period containing the 
third anniversary of the date on which the funds were raised. Therefore, 
the allocation of qualifying investments as defined by the legislation 
can be different to the portfolio weighting as measured by market value 
relative to the net assets of the VCT. 
 
   Share Buy Backs 
 
   In total, 1,991,947 shares (nominal value 19,919) were purchased during 
the period at a cost of GBP1,326,339 and an average price of 66.59 pence 
per share. The Board continues to target a share price discount of 5% to 
the NAV per share (as measured against the mid-price) for market 
purchases. It should be emphasised that this target is non-binding and 
depends upon a range of factors, including the Company's liquidity, its 
shareholder permissions and market conditions. 
 
   Post period end update 
 
   The unaudited NAV increased from 56.70 pence to 62.51 pence in the month 
to 30 April 2020, equivalent to a gain of 10.3%.  We have been able to 
deploy capital into qualifying companies substantially ahead of budget 
despite the lack of IPO activity on AIM, investing a further GBP5.2m 
into seven qualifying companies in April, a record for a single month. 
With investment activity ahead of plan, we took the opportunity to exit 
eleven legacy qualifying investments.  We further reduced the investment 
in the Marlborough Special Situations Fund to 2.4%.  Cash fell to 9.9% 
of net assets. 
 
   As of 11 May 2020, the share price of 55.25p pence represented a 
discount of 11.6% to the last published NAV. 
 
   For further information please contact: 
 
 
 
 
 
  Canaccord Genuity Wealth Limited 
Company Secretary 
Registered office: 
 Hargreave Hale AIM VCT plc, 
 41 Lothbury 
 London 
 EC2R 7AE 
 01481 733908 
 
 
 
 
   Date: 12 May 2020 
 
 
 
 

(END) Dow Jones Newswires

May 12, 2020 11:54 ET (15:54 GMT)

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