Strategic Equity Capital Plc - Final Results
Annual Report and Financial Statements for the year ended
The Board of
Highlights for the year ended
-- Net Asset Value (NAV) per ordinary share up +15.9% to 396.87p (30 June
2023 : 342.47p)
-- NAV Total Return increase +16.6% (30 June 2023 : +9.2%)
-- Share Price Total Return growth of +19.2% (30 June 2023 : +11.2%)
-- Highly focused portfolio with 16 holdings and top 10 accounting for
c.84% of NAV and c. 5% of NAV held in cash at period end
Encouraging progress has been made to continue addressing the share price discount to NAV and implementation of the marketing strategy to broaden the shareholder base:
-- Average discount to NAV of the Company’s shares during the period was
steady at 7.6% vs 7.4% for the year to 30 June 2023 .
-- Ongoing measures include the following:
o A share buy-back policy aimed at returning up to 50% of proceeds from
profitable realisations, conducted at a discount of more than 5% on a
continuing basis in each financial year. For the year ending 30 June
2024 , 1,839,261 shares were repurchased and held in Treasury at a cost
of £5.8 million.
o A standing commitment from the investment manager to reinvest 50% of its quarterly management fee in Company shares, if the shares trade at an average discount of greater than 5% for the quarter.Gresham House currently holds approximately 10% of the Company.
o The deferral of an annual continuation vote in favour of offering shareholders a 100% realisation opportunity inNovember 2025 .
o Successful sale by the Company’s largest shareholder of 10% of the Company, which was placed with variousUK wealth managers, increasing the diversification of the shareholder register which should help to improve the liquidity of the Company in addition to reducing the discount over time.
-- Differentiation is being communicated through a range of marketing
activities including a retail-focused advertising campaign, an extensive
PR campaign, content creation throughout the period, plus regular
commentaries and webinars to keep shareholders and prospective investors
up to date with portfolio developments and performance.
Top performance contributors during the period were:
-- XPS Pensions Group, which saw successive analyst upgrades throughout the
period and accounted for 22.9% of the Company’s NAV at year end;
-- Fintel, a regulatory technology service provider, which completed a
number of strategic acquisitions expected to significantly increase the
capabilities, scale and IP of the organisation;
-- The Property Franchise Group, a lettings-focused franchised estate
agency business, which completed two transformational acquisitions in
the period augmented by strong organic growth;
-- Wilmington, a professional media provider, which demonstrated strong
operating fundamentals and forecast upgrades whilst successfully
refocusing the business on a digital first strategy in the governance,
risk and compliance market was exited in full during the year; and
-- Tribal Group, a provider of technology products and services to the
education, learning and training markets, which amicably settled an
ongoing contractual dispute (at a significant discount to the
counterparty’s claimed damages) following strong full-year results, and
the announcement (albeit the transaction eventually lapsed
post-shareholder vote) of a Recommended Cash Offer in early October at a
42% spot premium.
“Against a challenging volatile market backdrop, the Board are pleased to report that the Company achieved a 16.6% increase in net asset value (NAV) per share on a total return basis for the year ending
Over the past three years, the NAV per share has grown by 15.6%, significantly outpacing the FTSE Small Cap (ex Investment Trusts) Total Return Index’s 0.8% growth.
Looking forward, our differentiated investment strategy continues to deliver results for our shareholders. Under the leadership of our Fund Manager,
“The year to
Despite the uncertain backdrop our portfolio has performed robustly, supported by strong fundamentals and a focus on sectors with long-term growth potential. Many of our holdings outperformed expectations, reaffirming their resilience and our confidence in their ability to deliver consistent returns.
We believe that our focus on business fundamentals will continue to deliver long-term outperformance. We see many opportunities to back high-quality growth companies at attractive valuations, especially in smaller, nimble businesses with strong management teams that can gain market share and build sustainable value over time.
Looking ahead, we remain optimistic. With attractive valuations and solid growth drivers, our portfolio is well placed to navigate ongoing market challenges and deliver strong returns. We remain focused on building a high-conviction portfolio of less cyclical, high-quality businesses that can thrive regardless of broader economic conditions.”
FINANCIAL SUMMARY
______________________________________________________________________________ | |As at |As at | | | | | | | |Capital Return |30 June |30 June |% change| | | | | | | |2024 |2023 | | |_______________________________________________|__________|__________|________| |Net asset value (“NAV”) per Ordinary share+ |396.87p |342.47p |15.9% | |_______________________________________________|__________|__________|________| |Ordinary share price |365.50p |309.00p |18.3% | |_______________________________________________|__________|__________|________| |Comparative index++ |5,687.19 |4,970.43 |14.4% | |_______________________________________________|__________|__________|________| |Discount of Ordinary share price to NAV1 |(7.9)% |(9.8)% | | |_______________________________________________|__________|__________|________| |Average discount of Ordinary share price to NAV|(7.6)% |(7.4)% | | |for the year1 | | | | |_______________________________________________|__________|__________|________| |Total assets (£’000) |191,683 |170,784 |12.2% | |_______________________________________________|__________|__________|________| |Equity shareholders’ funds (£’000) |189,965 |170,223 |11.6% | |_______________________________________________|__________|__________|________| |Ordinary shares in issue with voting rights |47,865,450|49,704,711| | |_______________________________________________|__________|__________|________|
___________________________________________________________________ | |Year ended|Year ended| | | | | |Performance |30 June |30 June | | | | | | |2024 |2023 | |_____________________________________________|__________|__________| |NAV total return for the year1 |16.6% |9.2% | |_____________________________________________|__________|__________| |Share price total return for the year1 |19.2% |11.2% | |_____________________________________________|__________|__________| |Comparative index++ total return for the year|18.5% |(0.4)% | |_____________________________________________|__________|__________| |Ongoing charges1 |1.20% |1.22% | |_____________________________________________|__________|__________| |Ongoing charges (including performance fee)1 |2.03% |1.22% | |_____________________________________________|__________|__________| |Revenue return per Ordinary share |4.15p |3.53p | |_____________________________________________|__________|__________| |Dividend yield1 |0.96% |0.81% | |_____________________________________________|__________|__________| |Proposed final dividend for the year |3.50p |2.50p | |_____________________________________________|__________|__________|
______________________________________ |Year’s Highs/Lows |High |Low | |______________________|_______|_______| |NAV per Ordinary share|396.98p|317.93p| |______________________|_______|_______| |Ordinary share price |370.00p|290.00p| |______________________|_______|_______|
+ Net asset value or NAV, the value of total assets less current liabilities. The net asset value divided by the number of shares in issue produces the net asset value per share.
++ FTSE Small Cap (ex Investment Trusts) Index.
1 Alternative Performance Measures. Please refer to pages 75 and 76 of the 2024 Annual Report.
The full Annual Report and Financial Statements can be accessed via the Company’s website at: www.strategicequitycapital.com or by contacting the Company Secretary as below.
Copies of the announcement, annual reports, quarterly update presentations and other corporate information can be found on the Company’s website at: www.strategicequitycapital.com
For further information, please contact:
Strategic Equity Capital plc (via Juniper Partners )
William Barlow (Chairman) +44 (0)131 378 0500
Liberum Capital Limited (Corporate Broker)
Chris Clarke
+44 (0)20 3100 2000
Darren Vickers Owen Matthews Juniper Partners Limited (Company Secretary)
+44 (0)131 378 0500
Steven Davidson KL Communications (PR Adviser)
Charles Gorman gh@kl-communications.comAdam Westall
+44 (0)203 882 6644
Charlotte Francis
Chairman’s Statement
I am pleased to report that, despite challenging and volatile market conditions, the Company’s NAV per share (on a total return basis) increased by 16.6% during the 12 months to
Nevertheless, the NAV performance for the period was encouraging, with the majority of portfolio investments delivering positive returns. This reflects the Manager’s continued focus on higher quality companies that are positioned in areas of structural growth and/or have self-help levers to drive value creation. The Board remains confident that prioritising companies with resilient business fundamentals and strong balance sheets will enable the Company to continue to outperform over the medium to long term.
The Company’s NAV per share (on a total return basis) over the three years to
An overview of the reporting period, performance, and portfolio is discussed in detail in the Investment Manager’s Report below.
As a direct result of our deliberate and distinctive investment process, the Company provides notable benefits for investors:
Performance
The performance of
Performance Fee
The Company’s performance is assessed over rolling three-year periods ending on 30 June each year, with the NAV total return per share compared to the total return performance of the FTSE SmallCap (ex Investment Companies) Index. Given the strong three year performance, a capped performance fee of £1,409,000 has been earned by the Investment Manager in the period under review. Specifically, the NAV total return per share, prior to any performance fee accrual, surpassed both the Target NAV per share (which includes the FTSE SmallCap Index return plus an additional 2.0% per annum) and the high watermark – the highest NAV per Share for which a performance fee has previously been paid. As a result, the Investment Manager is entitled to 10% of the outperformance above the higher of these two benchmarks. Any performance fee is capped at 1.4% per annum of the Company’s NAV at the end of the relevant financial period. Further details of the performance fee arrangements are detailed on page 33 of the 2024 Annual Report.
Risk Management
For investors looking for high quality small cap
Valuation
-- UK equities stand at a substantial discount to global markets, currently
at levels previously seen in the 1990s;
-- Within the UK market, smaller capitalisation stocks trade at a notable
discount to large caps;
-- The SEC portfolio of companies are both lower valued and higher quality
than UK small cap indices; and
-- Investors are today able to purchase SEC shares at a discount to NAV.
Discount and Discount Management
The average discount to NAV of the Company’s shares during the period was 7.6%, compared to the equivalent 7.4% figure from the prior year. The discount range was 2.9% to 11.6%.
Encouraging progress continues to be made to address the persistent share price discount to NAV experienced by the Company. Following on from the measures implemented in 2022 the discount has narrowed, in the current period from 9.8% at the beginning to 7.9% at the end. For comparison, over the same period the average
Some of these measures remain ongoing. These include: a buy back policy to return up to 50 per cent. of proceeds from profitable realisations, at greater than a 5 per cent. discount on an ongoing basis, in each financial year; an ongoing commitment by
Marketing
The Board continues to oversee the implementation of the marketing plan and strategy to broaden the shareholder base by increasing awareness of the Company, and to ensure a clear investment proposition is presented to the market.
During the year the Board oversaw the sale by the Company’s largest shareholder of 10% of the Company, which was placed with various
Increased diversification of the shareholder register should help to improve the liquidity of the Company in addition to reducing the discount over time.
Communicating differentiation through a range of marketing activities has included a retail-focused advertising campaign, an extensive PR campaign and content creation throughout the period. There have also been regular commentaries and webinars to keep shareholders and prospective investors up to date with portfolio developments and performance. The Investment Manager has also spoken at retail investor events to raise the profile of the Company.
All these activities have provided the opportunity to highlight the Investment Manager’s distinctive and highly disciplined private equity approach to public markets, coupled with constructive, active corporate engagement.
This messaging is reflected in all communications including on the Company’s webpage ( www.strategicequitycapital.com ).
The Board values the importance of Marketing and Distribution more broadly, to build the profile and positioning of the Company over time.
Gearing and Cash Management
The Company has maintained its policy of operating without a banking loan facility. This policy is periodically reviewed by the Board in conjunction with the Investment Manager and remains under review.
Dividend
For the year ended
Realisation Opportunity
As announced by the Company on
Board Composition
In addition, the timing of the 2025 Realisation Opportunity will take in to consideration the Board’s long-term succession planning, so as to allow shareholders to make an informed decision with certainty over the ongoing Board composition. In the first instance
Outlook
The global macroeconomic and geopolitical environment continues to demonstrate volatility. Domestically, the
Across the portfolio, the Investment Manager has been encouraged by the positive news flow, with the majority of the portfolio showing solid performance. Valuations remain attractive when compared to historical levels, large-cap
In addition, the enhanced marketing programme and ongoing share buybacks are expected to support the Company’s ability to maintain a structurally narrower share price discount to NAV over the coming year, building on the positive momentum since the appointment of the current Investment Manager in 2020.
With the
The Board, once again, thanks you for your continued support.
Chairman
Investment Manager’s Report for the year ended 30
1) Overview
The period from
In the
Internationally, newsflow has been dominated by escalating geopolitical tensions, fears over US inflation persistence and implications for yields, and continued weakness in European industrial activity. Alongside this, political volatility has been a recurring theme following a number of major election cycles.
Despite this volatility, our portfolio has continued to demonstrate considerable resilience, anchored by strong fundamental characteristics that we seek in our bottom-up investment approach. Many of our holdings are strategically positioned within structural growth trends or have significant self-help opportunities, enabling them to perform robustly despite broader economic uncertainties. We have deliberately avoided sectors more sensitive to economic cycles and exogenous variables, such as banks, oil & gas, and mining companies.
News flow over the period from our portfolio companies has been largely positive, with a number of companies delivering one or more earnings upgrades versus market expectations, reinforcing our confidence in the quality and growth potential of the portfolio. Despite this strong fundamental performance,
Attractive valuations of
We continue to focus on bottom-up stock selection and on opportunities where structural growth themes and/or self-help levers dilute the impact of broader economic and market fluctuations. Our consistent investment philosophy, strong relationships with company management teams, and extensive specialist network continue to underpin our confidence in the portfolio. We remain committed to high-quality businesses with clear value creation strategies, long-term demand drivers, and durable competitive advantages.
2) Detailed Performance Overview
The net asset value (“NAV”) increased 16.6%, on a total return basis, over the twelve months to the end of June, closing at 396.87p per share. This increase in NAV reflected the positive returns delivered by the majority of portfolio companies throughout the period, despite volatile equity market conditions as geopolitical and macroeconomic concerns weighed on investor sentiment.
Despite a strong absolute performance the Company underperformed its comparator during the period, as the FTSE Smaller Companies (ex Investment Trusts) Index grew by 18.5%. The underperformance against the index was primarily due to the decision to avoid investing in cyclical sectors within the index.
Despite the market volatility experienced over the year, we remain confident about the resilient underlying fundamentals of the portfolio companies and their ability to withstand the macroeconomic headwinds that look set to persist through the current financial year.
Top Five Absolute Contributors to Performance
_____________________________________________________ | |Valuation|Period | | | | | | |30 June |Contribution | |Security | | | | |2024 |to return | | | | | | |£’000 |(basis points)| |____________________________|_________|______________| |XPS Pensions Group |43,477 |1,251 | |____________________________|_________|______________| |Fintel |17,373 |541 | |____________________________|_________|______________| |The Property Franchise Group|12,481 |175+ | |____________________________|_________|______________| |Wilmington |- |171 | |____________________________|_________|______________| |Tribal Group |9,026 |158 | |____________________________|_________|______________|
+
All-share merger with
XPS Pensions Group , a pensions consulting, advisory and administration services provider, which delivered results in excess of market expectations, saw successive analyst upgrades throughout the period, and which divested a non-core business at a significantly accretive valuation multiple to the wider group. XPS Pensions Group accounted for 22.9% of the Company’s Net Asset Value at the end of the year. Following the period end this was reduced by an amount equivalent to 11.1% of Net Asset Value; Fintel , a provider of tech-enabled regulatory services, following a number of strategic acquisitions which will significantly increase the capabilities, scale and IP of the organisation; The Property Franchise Group , a lettings-focused franchised estate agency business, which completed two transformational acquisitions in the period augmented by strong organic growth; Wilmington , a professional media provider, which demonstrated strong operating fundamentals and forecast upgrades whilst successfully refocusing the business on a digital first strategy in the governance, risk and compliance market exited in full during the year; Tribal Group , a provider of technology products and services to the education, learning and training markets, following strong full year results, the amicable settlement of an ongoing contractual dispute (at a significant discount to the counterparty’s claimed damages), and the announcement (albeit the transaction eventually lapsed post-shareholder vote) of a Recommended Cash Offer in early October at a 42% spot premium.
Bottom Five Absolute Contributors to Performance
_______________________________________________ | |Valuation|Period | | | | | | |30 June |Contribution | |Security | | | | |2024 |to return | | | | | | |£’000 |(basis points)| |______________________|_________|______________| |R&Q Insurance Holdings|5 |(505) | |______________________|_________|______________| |Iomart Group |18,246 |(240) | |______________________|_________|______________| |Inspired |7,420 |(192) | |______________________|_________|______________| |Ricardo |14,584 |(111) | |______________________|_________|______________| |Carr’s Group |- |(38) | |______________________|_________|______________|
The largest performance detractor in the period was R&Q Insurance Holdings , a global non-life specialty insurance company, following a prolonged process to separate its two businesses (“Accredited” and “Legacy”), a convertible equity raise (to bolster capital adequacy), and weaker than expected trading.
Our investment thesis was predicated on the significant latent value potential in R&Q, particularly on a sum of the parts basis, as the business transformed from a capital intensive specialist insurance business to a faster growth and more cash generative services business model. This value potential was corroborated somewhat by the all-cash takeover approach received (but later withdrawn) in 2022 that valued the company at £482m. Whilst the company made positive steps to realise this value by separating its two businesses and announcing the sale of its Accredited division to
Whilst the Investment Manager was able to mitigate some downside through selling shares ahead of this process, having exhausted attempts to rectify the situation in collaboration with other shareholders and the Board, the conclusion has been a loss of principal for the remaining holding following the liquidation process, and a 505bps negative performance contribution in the 12 months to
The Investment Manager acknowledges that, notwithstanding the portfolio’s strong aggregate performance over the period, this investment led to a deeply disappointing outcome for the Company. Whilst the Investment Manager follows a bottom-up investment approach that places great focus on business fundamentals and downside protection, in this instance we underestimated the extent to which balance sheet complexity in this business could have led to financial stress in a downside scenario. Going forwards, even greater scrutiny on balance sheet simplicity will be adopted by the Investment Manager.
The next three largest detractors, by contrast, suffered from share price weakness in response to short term developments that, we believe, do not fundamentally change the long term values of the holdings.
These detractors included
Iomart Group
, a hybrid cloud managed services provider, which despite delivering in-line full year results experienced some small consensus downgrades reflecting organic growth expectations and the ability to pass-through cost increases from
Finally the fifth largest detractor,
Carr’s Group
, was an investment that was fully exited during the period. Carr’s Group was a new investment for the Company in the latter half of the prior reporting period, which shortly following our investment experienced a significant share price rally up to
3) Portfolio Overview
The portfolio remained highly focused with a total of 16 holdings and the top 10 accounted for around 84% of the NAV at the end of the period, with c.5% of NAV held in cash at the period end.
The Investment Manager made a number of new investments during the period, including into
In addition to new investments, the Company also made a number of follow-on investments into existing holdings where the Investment Manager sought to capitalise on attractive valuation opportunities and/or greater levels of conviction in the returns potential. These included
Over the period, positions in
1 Annualised IRR based on a <12 month holding period
2
“Exited” in an all-share merger with The Property Franchise Group plc (“TPFG”), another holding of the Company, such that the Company’s shares in
3
12% reflects the IRR from the Company’s initial investment in
4
9% reflects the IRR from the Company’s initial investment in Hostelworld in 2019. 35% reflects the IRR since
5
8% reflects the IRR from the Company’s initial investment in Hostelworld in 2019. 43% reflects the IRR since
The Company currently has a number of key holdings that the Investment Manager believes trade at material valuation discounts to comparable private market transaction values, which provides a strong margin of safety underpinning the long term upside potential of the portfolio.
Changes in sector weightings have seen exposure to Healthcare decrease from 21.6% to 0%, which reflects the exit of
4) Where We Engaged
Iomart Group
Engagement case study: Governance / Chair Recruitment
Engagement focus: Governance / Chair Recruitment
How we engaged: Meetings with executive management and significant shareholder, introduction to potential chair candidate
Who we collaborated with: Significant shareholder
One of our investee companies required a new chair following a change in Board roles. Based on our knowledge of the sector and our network we identified a credible chair candidate with a blend of sector, plc and value creation experience.
We introduced the candidate to the board and to the company’s significant shareholder, and that candidate was put forward for consideration as part of the board’s formal search programme.
Outcome: Following the board’s search programme our preferred candidate was selected to be appointed as chair
5) Outlook – Year Ahead
We saw green shoots of economic improvement towards the end of the period and are cautiously optimistic that positive trends can continue into the next period.
However, the Investment Manager is mindful of the recent change in
Turning to
On a similarly positive note, the Investment Manager has seen a growing number of ‘early look’ and formal pre-IPO meetings during the last calendar quarter, which marks a welcome change from the previous theme of de-equitisation and lack of investor appetite for quoted equity issuance. While equity capital market activity during 2024 has primarily focused on existing listed businesses, notable larger
6) Final Thoughts
Despite positive recent macroeconomic green shoots, the Investment Manager’s core planning assumption is that continued geopolitical and macroeconomic uncertainty will drive market volatility in the next year. It is likely that increasing focus on company fundamentals and valuation discipline will be required to outperform in this environment, which plays to the strengths of the Company’s investment strategy and the Investment Manager’s approach.
Elevated levels of takeover activity within the
We continue to believe that our fundamentals-focused investment style has the potential to continue outperforming over the long term. We see significant opportunities for long-term investors to back quality growth companies at attractive valuations in an environment where agile smaller businesses with strong management teams can take market share and build strong long-term franchises. We will maintain our focus on building a high-conviction portfolio of less cyclical, high-quality, strategically valuable businesses, which we believe can deliver strong returns through the market cycle regardless of the performance of the wider economy.
Top 10 Investee Company Review
(as at
______________________________________________________________________________ |Company |Investment Thesis |Developments | |_______________________|__________________________|___________________________| | | | -- Delivered FY24 | | | -- Highly defensive –| results ahead of | | | high degree of | market expectations| | | revenue visibility| with >20% revenue, | | | and largely | EBITDA and EPS | | | non-discretionary,| growth and further | | | regulation driven | forecast upgrades, | | | client activity | in addition to | |XPS Pensions Group | -- Significant | gaining FTSE 250 | | | inflation | inclusion from 24 | |22.9% of NAV | pass-through | June 2024 | | | ability | -- An amount | |Business Services | -- Highly fragmented | equivalent to 11.1%| | | sector with recent| of SEC’s year-end | | | M&A activity, | Net Asset Value was| | | providing | divested post | | | opportunity to XPS| period-end | | | as a consolidator | generating a | | | and potential | positive return of | | | target | 268.3%, relative to| | | | cost and an IRR of | |_______________________|__________________________|________29.9%______________| | | | -- Reported Q4 2023 | | | | fund flows which | | | | comprised a | | | | sequential increase| | | -- Opportunity to | in gross inflows | | | leverage | and decrease in | | | operational | gross outflows, | | | investments to | such that year-end | | | grow margin and | funds under | | | continue strong | management had | |Brooks Macdonald | cash flow | increased 7% | | | generation | year-on-year | |9.9% of NAV | -- A consolidating | despite the | | | market; | challenging macro | |Financial Services | opportunity for | environment | | | Brooks as both | -- Also announced the | | | consolidator and | retirement of CEO | | | potential target | Andrew Shepherd to | | | with recent | be replaced by | | | takeover interest | current CFO (and | | | for sector peers | former CRO of | | | | Aviva) Andrea | | | | Montague, effective| | | | October 2024 | | | | following an | |_______________________|__________________________|________orderly_handover___| | | -- Provides both | | | | self-managed | | | | infrastructure and| -- Delivered in-line | | | cloud-managed | results but | | | services, with the| experienced some | |Iomart Group | latter being a key| small consensus | | | strategic focus | downgrades | |9.6% of NAV | area | reflecting organic | | | -- Highly cash | growth expectations| |Technology | generative with | and the ability to | | | significant | pass-through cost | | | recurring revenue | increases from | | | -- Structural growth | VMWare | | | opportunity from | | | | hybrid cloud | | |_______________________|________adoption__________|___________________________| | | -- Strategically | -- Reported strong | | | valuable | full year results | | | technology | which demonstrated | |Fintel | platform with | 240bps of margin | | | opportunity to | expansion, and | |9.1% of NAV | drive material | announced two | | | growth in revenues| further strategic | |Business Services | and margins | bolt-ons that | | | through supporting| broaden the | | | customers’ | capabilities that | | | digitisation | Fintel can provide | |_______________________|________journeys__________|________to_intermediaries__| | | -- Ongoing strategic | -- Announced a full | | | transformation to | year trading update| | | refocus and | which illustrated | | | prioritise the | strong H2 2023 | |Ricardo | business towards | performance | | | higher growth, | following some | |7.8% of NAV | higher margin and | weakness earlier in| | | less capital | the year, with | |Industrial Goods & | intensive | particularly | |Services | activities | encouraging | | | -- Strong market | performance in its | | | position | strategically core | | | underpinned by | divisions (Energy &| | | significant sector| Environment, and | |_______________________|________expertise_________|________Rail)______________| | | -- Structurally | | | | growing UK | -- Announced a | | | residential | strategic | |The Property Franchise | lettings market | acquisition (The | |Group | -- Exceptional | Guild of Property | | | quality of | Professionals and | |6.6% of NAV | earnings due to | Fine & Country) in | | | franchisees’ bias | addition to | |Business Services | towards lettings | providing a trading| | | revenues, and | update with | | | TPFG’s franchise | lettings revenues | | | fee revenue model | up 9% YTD and sales| | | -- Capital light and | revenues up 20% YTD| |_______________________|________cash_generative___|___________________________| | | | -- Announced H1’24 | | | | trading in line | | | -- Leading | with expectations, | | | independent video | with good progress | | | game publisher and| being made on | | | developer | previously | |Team 17 Group | -- Earnings | announced cost | | | significantly | actions following | |5.7% | underpinned by | the temporary | | | back-book | deterioration in | |Technology | franchises | trading in the | | | -- Significant | prior period. | | | founder ownership | Positive new | | | and experienced | release performance| | | management team | from H1’24 | | | | launches, with a | | | | number of releases | |_______________________|__________________________|________planned_for_H2_____| | | | -- Announced a | | | -- Strong defensive | Recommended Cash | | | characteristics | Offer from Ellucian| | | with high | (strategic bidder | | | visibility of | backed by | | | earnings | Blackstone and | | | -- Transition to | Vista Equity | |Tribal Group | cloud-based | Partners) at a 41% | | | platform has | spot premium, which| |4.8% | potential to drive| did not receive | | | growth, margins | sufficient | |Technology | and rating | shareholder support| | | -- Low valuation | -- Later announced the| | | relative to | successful | | | software sector | settlement of an | | | averages and | outstanding | | | sector transaction| customer dispute | | | multiples | which had | | | | previously been | |_______________________|__________________________|________provided_for_______| |Alpha Financial Markets| | -- Announced a | |Consultancy | | Recommended Cash | | | -- N/A – exited | Offer from | |4.1% | post-period via | Bridgepoint private| | | takeover | equity at a 50% | |Financial Services | | premium to the | | | | undisturbed share | |_______________________|__________________________|________price______________| | | -- Leading player in | | | | a fragmented | -- Reported full year | | | industry; | results which | | | significant | demonstrated 20% | |Inspired | opportunity to | EBITDA growth, with| | | gain market share | revenue growth | |3.9% | through client | across all | | | wins, proposition | divisions. | |Business Services | extension and M&A | Subsequently | | | -- Valued at a | announced that all | | | substantial | deferred | | | discount to | consideration will | | | comparable private| be cash settled in | | | market transaction| 2024 | |_______________________|________multiples_________|___________________________|
Portfolio as at
% of % of
invested invested
portfolio portfolio
at at
Date of Cost Valuation 30 June 30 June % of
first net
Company Sector Investment £’000 £’000 2024 2023 assets
Classification
XPS Business
Pensions Services Jul 2019 16,851 43,477 23.8% 15.0% 22.9%
Group
Brooks Financial Jun 2016 18,115 18,796 10.3% 7.0% 9.9%
Macdonald Services
Iomart Technology Mar 2022 21,941 18,246 10.0% 5.4% 9.6%
Group
Fintel Business Oct 2020 10,400 17,373 9.5% 6.4% 9.1%
Services
Industrial
Ricardo Goods & Sep 2021 14,585 14,864 8.2% 6.8% 7.8%
Services
The
Property Business Oct 2023 9,125 12,481 6.8% - 6.6%
Franchise Services
Group
Team 17 Technology Dec 2023 8,648 10,879 6.0% - 5.7%
Group
Tribal Technology Dec 2014 11,742 9,026 4.9% 3.9% 4.8%
Group
Alpha FMC Financial Mar 2024 5,471 7,846 4.3% - 4.1%
Services
Inspired Business Jul 2020 13,754 7,420 4.1% 6.1% 3.9%
Services
Industrial
Benchmark Goods & Jun 2019 6,734 6,893 3.8% 3.6% 3.6%
Services
Trufin Technology Jul 2023 4,111 5,422 3.0% - 2.9%
Netcall Technology Mar 2023 4,367 3,979 2.2% 1.8% 2.1%
Costain Business Jun 2024 3,846 3,834 2.1% - 2.0%
Group Services
Halfords Consumer Jun 2024 1,899 1,823 1.0% - 1.0%
Group
R&Q Financial
Insurance Services Jun 2022 6,817 5 0.0% 4.3% 0.0%
Holdings
Total 182,364 96.0%
investments
Cash 9,153 4.8%
Net current (1,552) (0.8%)
liabilities
Total shareholders’ funds 189,965 100.0%
Statement of Comprehensive Income
Year ended 30 June 2024
Revenue Capital
return return Total
£'000 £'000 £'000
Investments
Gains on investments held at fair value
- 24,099 24,099
through profit or loss
- 24,099 24,099
Income
Dividends 3,997 2,111 6,108
Interest 55 - 55
Total income 4,052 2,111 6,163
Expenses
(1,270) - (1,270)
Investment Manager’s base fee
Investment Manager’s performance fee - (1,409) (1,409)
Other expenses (756) - (756)
Total expenses (2,026) (1,409) (3,435)
Net return before taxation 2,026 24,801 26,827
Taxation - - -
Net return and total comprehensive income for the year 2,026 24,801 26,827
pence pence pence
Return per Ordinary share 4.15 50.84 54.99
The total column of this statement represents the Statement of Comprehensive Income prepared in accordance with IFRS. The supplementary revenue and capital return columns are both prepared under guidance published by the AIC. All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.
Statement of Comprehensive Income
Year ended 30 June 2023
Revenue Capital
return return Total
£'000 £'000 £'000
Investments
Gains on investments held at fair value
- 10,602 10,602
through profit or loss
- 10,602 10,602
Income
Dividends 3,782 - 3,782
Interest 78 - 78
Total income 3,860 - 3,860
Expenses
(1,228) - (1,228)
Investment Manager’s base fee
Other expenses (803) - (803)
Total expenses (2,031) - (2,031)
Net return before taxation 1,829 10,602 12,431
Taxation - - -
Net return and total comprehensive income for the year 1,829 10,602 12,431
Return per Ordinary share 3.53p 20.44p 23.97p
Balance Sheet
As at As at
30 June 2024 30 June 2023
£'000 £'000
Non-current assets
Investments held at fair value though profit or 182,364 169,274
loss
Current assets
Trade and other receivables 166 268
Cash and cash equivalents 9,153 1,242
9,319 1,510
Total assets 191,683 170,784
Current liabilities
Trade and other payables (1,718) (561)
Net assets 189,965 170,223
Capital and reserves
Share capital 6,353 6,353
Share premium account 11,300 11,300
Special reserve - 3,590
Capital reserve 165,489 142,952
Capital redemption reserve 2,897 2,897
Revenue reserve 3,926 3,131
Total shareholders’ equity 189,965 170,223
pence pence
Net asset value per share 396.87 342.47
number number
Ordinary shares in issue 47,865,450 49,704,711
The financial statements were approved by the Board of Directors of
They were signed on its behalf by
Chairman
Company Number: 05448627
Statement of Changes in Equity
For the year Share premium Special Capital
ended Share Capital redemption Revenue Total
capital account reserve reserve reserve reserve
30 June 2024
£’000 £’000 £’000 £’000 £’000 £’000 £’000
1 July 2023 6,353 11,300 3,590 142,952 2,897 3,131 170,223
Net return
and total
comprehensive - - - 24,801 - 2,026 26,827
income for
the year
Dividends - - - - - (1,231) (1,231)
paid
Share - - (3,590) (2,264) - - (5,854)
buy-backs
30 June 2024 6,353 11,300 - 165,489 2,897 3,926 189,965
For the year Share premium Special Capital
ended Share Capital redemption Revenue Total
capital account reserve reserve reserve reserve
30 June 2023
£’000 £’000 £’000 £’000 £’000 £’000 £’000
1 July 2022 6,353 11,300 19,767 132,350 2,897 2,363 175,030
Net return
and total
comprehensive - - - 10,602 - 1,829 12,431
income for
the year
Dividends - - - - - (1,061) (1,061)
paid
Share - - (16,177) - - - (16,177)
buy-backs
30 June 2023 6,353 11,300 3,590 142,952 2,897 3,131 170,223
All profits are attributable to the equity owners of the Company and there are no minority interests.
Statement of
Cash Flows
Year Ended 30 June Year Ended 30 June
2024 2023
£’000 £’000
Operating activities
Net return before taxation 26,827 12,431
Adjustment for gains on investments (24,099) (10,602)
Operating cash flows before movements in 2,728 1,829
working capital
Decrease in receivables 102 374
Increase in payables 1,134 22
Purchases of portfolio investments (67,433) (30,473)
Sales of portfolio investments 78,465 30,463
Net cash flow from operating activities 14,996 2,215
Financing activities
Equity dividend paid (1,231) (1,061)
Shares bought back in the year (5,854) (16,275)
Net cash outflow from financing activities (7,085) (17,336)
Increase/(decrease) in cash and cash 7,911 (15,121)
equivalents for year
Cash and cash equivalents at the start of 1,242 16,363
the year
Cash and cash equivalents at 30 June 9,153 1,242
Principal and Emerging Risks
The Board believes that the overriding risks to shareholders are events and developments which can affect the general level of share prices, including, for instance, inflation or deflation, economic recessions and movements in interest rates and currencies which are outside of the control of the Board.
The Board believes that there is an emerging risk faced by the Company in relation to the conflicts in the
The Directors continue to work with the agents and advisers to the Company to try and manage the risks, including emerging risks. The central aims remain to preserve value in the Company’s portfolio and liquidity in the Company’s shares. The Directors aim to ensure that the Company maintains its investment strategy, has operational resilience, meets its regulatory requirements as an investment trust (and in particular in the provision of regular information to the market) and tries to navigate the financial and economic circumstances in these very uncertain times.
The principal risks and uncertainties are set out on pages 22 to 24 of the 2024 Annual Report.
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; and
-- the Strategic Report includes a fair review of the development and
performance of the business and the position of the issuer, together
with a description of the principal risks and uncertainties that it
faces.
We consider the Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.
Going Concern
In assessing the Company’s ability to continue as a going concern the Directors have also considered the Company’s investment objective, detailed on the inside front cover of the 2024 Annual Report, risk management policies, detailed on pages 22 to 24 of the 2024 Annual Report, capital management (see note 17 of the 2024 Annual Report), the nature of its portfolio and expenditure projections and believe that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and for at least 12 months from the date of this Report. In addition, the Board has had regard to the Company’s investment performance (see page 3 of the 2024 Annual Report) and the price at which the Company’s shares trade relative to their NAV (see page 3 of the 2024 Annual Report).
The Directors performed an assessment of the Company’s ability to meet its liabilities as they fall due. In performing this assessment, the Directors took into consideration:
-- cash and cash equivalents balances and, from a liquidity perspective,
the portfolio of readily realisable securities which can be used to meet
short-term funding commitments;
-- the ability of the Company to meet all of its liabilities and ongoing
expenses from its assets;
-- revenue and operating cost forecasts for the forthcoming year;
-- the ability of third-party service providers to continue to provide
services;
-- potential downside scenarios including stress testing the Company’s
portfolio for a 25% fall in the value of the investment portfolio; a 50%
fall in dividend income and a buy back of 5% of the Company’s ordinary
share capital, the impact of which would leave the Company with a
positive cash position; and
-- the 2025 100% realisation opportunity.
Based on this assessment, the Directors are confident that the Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements, and therefore have prepared the financial statements on a going concern basis.
Related Party Transactions and Transactions with the Investment Manager
Fees paid to Directors are disclosed in the Directors‘ Remuneration Report on page 45 of the 2024 Annual Report. Full details of Directors‘ interests are set out on page 45 of the 2024 Annual Report.
The amounts payable to the Investment Manager, which is not considered to be a related party, are disclosed in notes 3 and 4 on page
62 of the 2024 Annual Report. The amount due to the Investment Manager for management fees at 30
The Investment Manager, directly and indirectly through its in-house funds, has continued to purchase shares in the Company.
Notes
1.1 Corporate information
The Company carries on business as an investment trust within the meaning of Sections 1158/1159 of the
The financial statements of
1.2 Basis of preparation and statement of compliance
The financial statements of the Company have been prepared in accordance with International Accounting Standards in conformity with the requirements of
The financial statements of the Company have been prepared on a going concern basis.
The Directors performed an assessment of the Company’s ability to meet its liabilities as they fall due. In performing this assessment, the Directors took into consideration:
-- cash and cash equivalents balances and the portfolio of readily
realisable securities which can be used to meet shortterm funding
commitments;
-- the ability of the Company to meet all of its liabilities and ongoing
expenses from its assets;
-- revenue and operating cost forecasts for the forthcoming year;
-- the ability of third-party service providers to continue to provide
services;
-- potential downside scenarios including stress testing the Company’s
portfolio for a 25% fall in the value of the investment portfolio; a 50%
fall in dividend income and a buy-back of 5% of the Company’s Ordinary
share capital, the impact of which would leave the Company with a
positive cash position; and
-- the realisation opportunity in 2025.
Based on this assessment, the Directors are confident that the Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements, and therefore have prepared the financial statements on a going concern basis.
2. Income
Year ended 30 June
2024
Revenue Capital
return return Total
£'000 £'000 £'000
Income from investments
UK dividend income 3,997 2,111 6,108
3,997 2,111 6,108
Other operating income
Liquidity interest 55 - 55
4,052 - 4,052
Year ended 30 June
2023
Revenue Capital
return return Total
£'000 £'000 £'000
Income from investments
UK dividend income 3,782 - 3,782
3,782 - 3,782
Other operating income
Liquidity interest 78 - 78
3,860 - 3,860
3. Investment Manager’s base fee
Year ended 30 June
2024 Revenue Capital
return return Total
£'000 £'000 £'000
Base fee 1,270 - 1,270
1,270 - 1,270
Year ended 30 June
2023 Revenue Capital
return return Total
£'000 £'000 £'000
Base fee 1,228 - 1,228
1,228 - 1,228
A basic management fee was payable to the Investment Manager at an annual rate of 0.75% of the NAV of the Company. The basic management fee accrues daily and is payable quarterly in arrears. The Investment Manager is also entitled to a performance fee, details of which are given in the Report of the Directors on page 33 of the 2024 Annual Report.
4. Investment Manager’s performance fee
Year ended 30 June
2024
Revenue Capital
return return Total
£'000 £'000 £'000
Performance fee - 1,409 1,409
- 1,409 1,409
Year ended 30 June
2023
Revenue Capital
return return Total
£'000 £'000 £'000
Performance fee - - -
- - -
Details of the Performance fee calculation are noted in the Chairman’s Statement on page 4 of the 2024Annual Report and in the Report of the Directors on page 33 of the 2024 Annual Report.
5. Other expenses
Year ended 30 June
2024
Revenue Capital
return return Total
£'000 £'000 £'000
Secretarial services 181 - 181
Auditors’ remuneration for:
Audit services* 39 - 39
Directors’ remuneration 175 - 175
Other expenses 361 - 361
756 - 756
Year ended 30 June
2023
Revenue Capital
return return Total
£'000 £'000 £'000
Secretarial services 171 - 171
Auditors’ remuneration for:
Audit services* 65 - 65
Directors’ remuneration 161 - 161
Other expenses 406 - 406
803 - 803
All expenses include VAT where applicable, apart from audit services which is shown net.
*No non-audit fees were incurred during the year
6. Taxation
Year ended 30 June
2024
Revenue Capital
return return Total
£'000 £'000 £'000
Corporation tax at 25.00% - - -
- - -
Year ended 30 June
2023
Revenue Capital
return return Total
£'000 £'000 £'000
Corporation tax at 20.50% - - -
- - -
As at
7. Dividends
Under the requirements of Sections 1158/1159 of the Corporation Tax Act 2010 no more than 15% of total income may be retained by the Company. These requirements are considered on the basis of dividends declared in respect of the financial year as shown below.
30 June 30
June
2024 2023
£'000 £'000
Final dividend proposed of 3.50p (2023: 2.50p) per share 1,657 1,231
The following dividends were declared and paid by the Company in the financial year:
30 June 30
June
2024 2023
£'000 £'000
Final dividend: 2.50p per share (2023: 2.00p) 1,231 1,061
Dividends have been solely paid out of the Revenue reserve.
8. Return per Ordinary share
Year ended 30 June
2024
Revenue Capital
return return Total
pence pence pence
Return per Ordinary share 4.15 50.84 54.99
4.15 50.84 54.99
Year ended 30 June
2023
Revenue Capital
return return Total
pence pence pence
Return per Ordinary share 3.53 20.44 23.97
3.53 20.44 23.97
Returns per Ordinary share are calculated based on 48,778,400 (
9. Investments
30 June 2024
£’000
Investment portfolio summary
Quoted investments at fair value through profit or loss 182,364
182,364
30 June 2023
£’000
Investment portfolio summary
Quoted investments at fair value through profit or loss 169,274
169,274
Under IFRS 13, the Company is required to classify fair value measurements using a fair value hierarchy that reflects the subjectivity of the inputs used in measuring the fair value of each asset. The fair value hierarchy has the following levels:
Investments whose values are based on quoted market prices in active markets are classified within level 1 and include active quoted equities.
The definition of level 1 inputs refers to ‘active markets’, which is a market in which transactions take place with sufficient frequency and volume for pricing information to be provided on an ongoing basis. Due to the liquidity levels of the markets in which the Company trades, whether transactions take place with sufficient frequency and volume is a matter of judgement, and depends on the specific facts and circumstances. The Investment Manager has analysed trading volumes and frequency of the Company’s portfolio and has determined these investments as level 1 of the hierarchy.
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within level 2. As level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Level 3 instruments include private equity, as observable prices are not available for these securities the Company has used valuation techniques to derive the fair value. In respect of unquoted instruments, or where the market for a financial instrument is not active, fair value is established by using recognised valuation methodologies, in accordance with IPEV Valuation Guidelines.
The level in the fair value hierarchy within which the fair value measurement is categorised is determined on the basis of the lowest level input that is significant to the fair value of the investment.
The following table analyses within the fair value hierarchy the Company’s financial assets and liabilities (by class) measured at fair value at
Financial instruments at fair value through profit or loss
Level 1 Level 2 Level 3 Total
30 June 2024
£’000 £’000 £’000 £’000
Equity investments 178,480 3,884 - 182,364
Liquidity funds - 1 - 1
Total 178,480 3,885 - 182,365
Level 1 Level 2 Level 3 Total
30 June 2023
£’000 £’000 £’000 £’000
Equity investments 169,274 - - 169,274
Liquidity funds - 1 - 1
Total 169,274 1 - 169,275
There were no transfers between levels for the year ended 30
Listed investments included in Level 2 are deemed to be illiquid. An investment is categorised as illiquid when historic trading data indicates it would take more than 250 days to liquidate. The fair value of these investments has been determined by reference to their quoted prices at the reporting date.
10. Nominal Share capital
Number £’000
Allotted, called up and fully paid Ordinary shares
of 10p each:
Ordinary shares in circulation at 30 June 2023 63,529,206 6,353
Shares held in Treasury at 30 June 2023 (13,824,495) (1,382)
Ordinary shares in issue per Balance Sheet at 30 June 2023 49,704,711 4,971
Shares bought back during the year to be held in Treasury (1,839,261) (184)
Ordinary shares in issue per Balance Sheet at 30 June 2024 47,865,450 4,787
Shares held in Treasury at 30 June 2024 15,663,756 1,566
Ordinary shares in circulation at 30 June 2024 63,529,206 6,353
These are not statutory accounts in terms of Section 434 of the Companies Act 2006.
Full audited accounts for the year to
The audited accounts for the year ended
