29th Jun 2022 17:00
MOBEUS INCOME & GROWTH 2 VCT PLC LEI: 213800LY62XLI1B4VX35
ANNUAL FINANCIAL RESULTS OF THE COMPANY FOR THE YEAR ENDED 31 MARCH 2022
Mobeus Income & Growth 2 VCT plc (the "Company") announces the final results for the year ended 31 March 2022. These results were approved by the Board of Directors on 29 June 2022.
You may, in due course, view the Annual Report & Financial Statements, comprising the statutory accounts of the Company by visiting www.mig2vct.co.uk.
FINANCIAL HIGHLIGHTS As at 31 March 2022: Net assets: £77.51 million Net asset value ("NAV") per share: 96.37 pence
- Net Asset Value ("NAV") total return1 per share was 13.3%. - Share Price total return1 per share was 23.4%. - Dividends paid and declared in respect of the year amounted to 12.00 pence per share. Cumulative dividends paid1 amount to 134.00 pence per share. - £4.61 million was invested into three new growth capital investments and seven existing portfolio companies during the year. - Strong portfolio performance generated £9.55 million of unrealised gains. - The Company realised investments totalling £6.37 million of cash proceeds and generated net realised gains of £2.54 million
1 Definitions of key terms and alternative performance measures("APMs") Key Performance Indicators ("KPIs") shown above and throughout are provided in the Glossary of terms within the Annual Report & Financial Statements.
PERFORMANCE SUMMARY
The table below shows the recent past performance of the current share class, first raised in 2005/06 at an original subscription price of 100 pence per share, before the benefit of income tax relief. Performance data for all fundraising rounds are shown in the Annual Report & Financial Statements.
1 - Definitions of key terms and alternative performance measures ("APMs") Key Performance Indicators ("KPIs") shown above and throughout are provided in the Glossary of Terms within the Annual Report & Financial Statements. 2 - Source: Panmure Gordon & Co (mid-market price).
CHAIRMAN'S STATEMENT
I am pleased to present the annual results of Mobeus Income & Growth 2 VCT plc for the year ended 31 March 2022.
Overview Following on from last year's record performance, your Company has experienced another year of strong trading and growth in the value of its portfolio at 31 March 2022. The Company achieved an NAV total return per share of 13.3% for the year (2021: 47.8%).
Although the year under review was marked by many challenges, the portfolio proved to be resilient and adaptive in facing them. The threat from global supply issues in logistics, materials and labour resulting from COVID-19 disruption is expected to remain for some months and the unfolding geopolitical events relating to the war in Ukraine has added to the uncertainty. We are starting to see the impact of inflationary pressures on consumer confidence although, for the most part, trading for your Company's largely service and software- based portfolio remains robust.
Despite Brexit concerns and considerable COVID-19 related restrictions across the year, M&A activity remained buoyant and the Investment Adviser continues to see healthy deal flow. The Company deployed £4.61 million of investment capital and generated £6.37 million in realisation proceeds as in that time, it realised two of its investments and added three new and seven follow-on investments to the portfolio.
Shareholders should note that following the listing on AIM of two portfolio companies shortly before the previous year-end 7.8% of the portfolio value is in AIM listed entities. This increases the potential volatility in the value of the Company's portfolio and subsequent NAV returns. The initial uplift in value following their IPOs in March 2021 has been eroded after a number of unfavourable trading statements led to a significant reduction in their share prices. The remainder of the portfolio largely demonstrated strong performance and growth over the same period.
We are witnessing a clear demonstration of the benefits of what is now a diverse and maturing portfolio. Following the 2015 VCT rule change, the revised investment strategy is bearing fruit as more of these young growth investments start to achievesignificant scale and value. Several third-party investments have validated this view, resulting in significant positive re-ratings in values of portfolio businesses, such as MPB, MyTutor and Bella & Duke. The Company has also provided support for the scaling of investments such as Preservica, with significant further funding in November 2021. Additional information on value movements is given in the Investment Adviser's Review.
The Company launched an Offer for Subscription on 20 January 2022 alongside the three other Mobeus VCTs ("Offers") and the Board was very pleased to see that unprecedented demand meant that the target of £7.5 million was reached in less than 24 hours, at which point no further applications were accepted. It was gratifying that approximately half of the applications received were from existing Shareholders in the Company. The subsequent allotment of shares has now bolstered the Company's capital to deploy in new and exciting investment opportunities.
The Board acknowledges that not all of our existing Shareholders were able to subscribe to the Offer due to the unexpectedly rapid response and were disappointed. Consequently, the Board will explore several options in order to give all Shareholders the same opportunity to invest whether electronically, by email or by post for any future fundraise.
Performance NAV total return, expressed on a pence per share basis, was derived as follows:
The Company's NAV total return per share was 13.3% for the year to 31 March 2022 (2021: 47.8%) being the closing NAV per share of 96.37 pence plus18.00 pence of dividends paid in the year (this includes 6.00p interim dividend for the year ended 31 March 2021), divided by the opening NAV per share of 100.91 pence. The share price total return was 23.4% (2021: 31.2%). The difference between the share price and NAV total returns arises principally due to the timing of NAV announcements, which are usually made on a date following the date to which they relate and is explained more fully under Performance in the Strategic Report. The positive NAV total return for the year was principally the result of unrealised gains in the value of investments still held, as well as realised gains achieved via exits and partial realisations of several portfolio companies. The continued strong NAV performance, in addition to dividends paid in excess of the agreed target rate has resulted in a performance incentive fee amounting to £1,014,703 payable to the Investment Adviser for the year (for further details please refer to Note 4b in the Annual Report).
At the year-end, the Company was ranked 7th out of 41 Generalist VCTs over five years and 1st out of 31 Generalist VCTs over ten years, in the Association of Investment Companies' ("AIC") analysis of Cumulative NAV Total Return. Shareholders should note that the AIC's rankings are based on the latest available published NAVs and therefore did not reflect the NAV per share of the Company at 31 March 2022. For further details on the performance of the Company, please refer to the Strategic Report.
Target Return The Board's current target is to achieve an average NAV total return of 8.0% per annum. This year's 13.3% (2021: 47.8%) has contributed to an average over five years of 14.9% per annum, in excess of the target.
The Board reminds Shareholders that investment portfolio returns and dividend payments should always be viewed over the longer term.
Dividends The Board continues to be committed to providing an attractive dividend stream to Shareholders. In respect of the year ended 31 March 2022, the Company has declared and paid a dividend of 12.00 pence per share to Shareholders. This dividend was paid on 7 January 2022 to Shareholders on the register on 10 December 2021. To date, cumulative dividends paid since inception total 134.00 pence per share.
The Company has now met or exceeded the Board's annual dividend target of paying at least 5.00 pence per share, of the last twelve financial years.
As Shareholders have been advised previously, the gradual move of the portfolio to younger growth capital investments as well as the realisations of older, more mature companies that have provided a good income yield, are likely to make dividends harder to achieve from income and capital returns alone in any given year. The Board aims to distribute realised profits (such as income and gains from realisations) achieved in a year as dividends but notes that a reduction in income received by the Company was seen during the year. The Board, therefore, continues to monitor the sustainability of the annual dividend target. Shareholders should also note that there may continue to be circumstances where the Company is required to pay dividends in order to maintain its regulatory status as a VCT, for example, to stay above the minimum percentage of assets required to be held in qualifying investments.
Such dividends paid in excess of net income and capital gains achieved will cause the Company's NAV per share to reduce by a corresponding amount.
Investment and portfolio performance The portfolio valuation movements for the year were as follows:
During the year, the Company invested a total of £4.61 million into three new and seven existing portfolio companies (2021: £5.39 million; five new, eight existing). New investments totalling £1.73 million were made into Legatics (a SaaS LegalTech software business), Vet's Klinic (a veterinary clinic roll out) and Proximity Insight (a retail platform). This investment into Proximity Insight is the first investment made since the acquisition of the Mobeus VCT investment advisory business by Gresham House and the Company's investment was made alongside the other VCTs advised and managed by Gresham House (the three other MobeusVCTs and the two Baronsmead VCTs). In accordance, with the agreed allocation policy, the Company contributed £0.56 million towards a total Gresham House supported investment of £5.00 million.
Additional funding of £2.88 million was provided across seven existing portfolio companies: Bella & Duke (a frozen raw dog food provider), Caledonian Leisure (a UK Leisure Breaks provider), Tapas Revolution (a Spanish restaurant chain), MyTutor (an online tutoring marketplace), Andersen EV (a producer of premium EV chargers), ActiveNav (a provider of enterprise-level file analysis software), and Preservica (a proprietary digital archiving software provider).
The Company generated £5.06 million in proceeds from the realisation of its investments in Proactive Group (£1.60 million) and Red Paddle (£3.46 million) during the year. In addition to proceeds received from the partial realisation of MyTutor (£0.52 million), together with loan repayments and deferred proceeds totalling £0.79 million, the Company generated total proceeds of £6.37 million in the year to 31 March 2022.
The portfolio has performed well over the Company's financial year. The portfolio achieved £12.09 million (2021: £25.36 million) in realised and unrealised gains in the year, being 28.9% (2021: 115.3%) of the opening portfolio value. The portfolio was valued at £52.16 million at the year-end (2021: £41.83 million).
Within net realised gains, the principal contributors were the full realised gains of Proactive Group and Red Paddle (total of £2.21 million). Total proceeds received over the life of investments in Proactive Group (£1.63 million) and Red Paddle (£3.86 million) generated multiples of cost of 2.6x (IRR: 33.0%) and 5.4x (33.2%) respectively. Further realised gains were also generated from the partial realisation of MyTutor (£0.26 million).
The portfolio's valuation at the year-end demonstrates the continued beneficial impact of changes in UK consumer and business behaviour brought on by the pandemic and lockdown restrictions, particularly for those businesses operating direct-to-consumer models. However, it also underscores the success of portfolio companies in adapting to a rapidly changing environment, becoming more efficient and diversifying their product offering in order to take advantage of opportunities that have arisen. This level of resilience has enabled the portfolio to continue to trade well in what have been challenging global market conditions in the second half of the Company's financial year.
As anticipated, the Company's quoted stocks such as Virgin Wines and Parsley Box are subject to stock market movements and have brought an additional level of volatility to a portion of the portfolio. In the second half of the year, these investments saw a significant value decline in the face of changing market sentiment and announcement of results which were below market expectations. Your Board remains confident in the future prospects of both these AIM quoted businesses.
In contrast, there have been pleasing unquoted valuation increases, supported by a sizeable further investment from the Mobeus VCTs in the case of Preservica, and by third-party investment transactions in the cases of MyTutor, MPB and Bella & Duke.
The portfolio achieved a net increase in unrealised valuations of £9.55 million for the year in investments still held, with the biggest value increases in Preservica, Bella & Duke and Media Business Insight partially offset by valuation falls at Virgin Wines and Parsley Box, as well as modest falls at Bleach London and ActiveNav. For further information on portfolio valuation movements, see the Investment Adviser's Review. Further details of the Company's investment activity (including transactions that have occurred after the year-end) and the performance of the portfolio are contained in the Investment Adviser's Review and the Investment Portfolio Summary.
Liquidity and Fundraising Cash and cash equivalents held by the Company as at 31 March 2022 amounted to £26.26 million, or 33.9% of net assets.
On 20 January 2022, the Company launched an Offer for Subscription of £7.50 million, alongside Offers from the other Mobeus VCTs. As previously stated in my Overview, the Offers experienced unprecedented demand such that the Company received subscriptions amounting to the full amount sought within 24 hours of launching and was subsequently then closed to further applications. In accordance with the Offers' prospectus, the allotment of all shares under the offer took place on 9 March 2022, and generated net funds (after costs) of £7.26 million. In consideration of environmental factors and cost savings, the Company elected to release the Prospectus digitally, with hard copies available on request, and invite applications to be submitted online via a digital portal. This method provided increased security and efficiency in the application process and the Board strongly recommends that Shareholders wishing to subscribe to any future offers opt to submit their applications via the online facility.
Share Buybacks During the year, the Company bought back and cancelled 697,498 of its own shares (2021: 387,471), representing 1.0% of the shares in issue at the beginning of the year (2021: 0.7%), at a total cost of £0.64 million, inclusive of expenses (2021: £0.29 million). It is the Company's policy to cancel all shares bought back in this way. The Board regularly reviews its buyback policy and currently seeks to maintain the discount at which the Company's shares trade at no more than 5% below the latest published NAV.
Shareholder Communications and Annual General Meeting May I remind you that the Company has its own website containing useful information for Shareholders at: www.mig2vct.co.uk.
The Investment Adviser held a virtual Shareholder Event on the morning of 25 February 2022. A presentation was provided by representatives of each of the Mobeus VCT Boards as well as the Investment Adviser and the key executives of two portfolio companies, Virgin Wines and Media Business Insight. A recording of the event is available here: https://mvcts.connectid.cloud/.
Your Board is pleased to be able to hold the next Annual General Meeting ("AGM") of the Company in person at 11.00 am on Wednesday, 21 September 2022 at the offices of Shakespeare Martineau LLP, 6th Floor, 60 Gracechurch Street, London, EC3V 0HR. A webcast will also be available at the same time for those Shareholders who cannot attend in person. However, please note that you will not be able to vote via this method and so are encouraged to return your proxy form before the deadline of 11:00 am on Monday, 19 September 2022. Information setting out how to join the meeting by virtual means will be shown on the Company's website. For further details, please see the Notice of the Meeting which can be found at the end of the Annual Report & Financial Statements.
Board Composition & Succession The Board comprised three directors throughout the year. After considering and reviewing its composition, the Board agreed that the directors have the breadth and depth of relevant knowledge and experience plus the appropriate skill sets. The Board consists of two male and one female directors. Adam Kingdon has advised of his wish to retire as a director of the Company immediately following the AGM in September 2022. Adam has provided an invaluable contribution to the Board whilst a director of the Company, for which we are very grateful. The Board will be considering its composition and succession in light of this.
Fraud Warning We are aware that Shareholders are being contacted in connection with sophisticated but fraudulent financial scams which purport to come from the Company or to be authorised by it. This is often by a phone call or an email usually originating from outside of the UK, claiming or appearing to be from a corporate finance firm offering to buy your shares at an inflated price.
The Board strongly recommends Shareholders take time to read the Company's Fraud Warning section, including details of who to contact, contained within the Information for Shareholders section of the Annual Report.
Environmental, Social and Governance ("ESG") The Board and the Investment Adviser believe that the consideration of environmental, social and corporate governance ("ESG") factors throughout the investment cycle will contribute towards enhanced shareholder value.
Following the novation of the investment advisory agreement to Gresham House, who have a dedicated team which is focused on sustainability, the Board views this as an opportunity to enhance the Company's existing protocols and procedures through the adoption of the highest industry standards. Under the new enlarged investment team, each investment executive is responsible for their own individual ESG objectives in support of the wider overarching ESG goals of the Investment Adviser. For further details, Gresham House published its inaugural Sustainable Investment Report in 2022, which can be found on its website at: www.greshamhouse.com.
Your Board would like to assure Shareholders that ESG matters form a key consideration in investment decisions. The FCA reporting requirements consistent with the Task Force on Climate-related Financial Disclosures commencing from 1 January 2021 do not currently apply to the Company but will be kept under review, the Board being mindful of any recommended changes.
Outlook The year under review can be characterised as a continuation of the challenging environment created for businesses by COVID-19 pandemic and Brexit. However, much in the same way that we were able to report on its remarkable recovery one year ago, the Company has continued to achieve success in creating opportunities and building on them. This has been exemplified by strong trading performances and value growth across the portfolio and continued strong levels of investment activity.
However, we anticipate that the indirect effects of the COVID-19 pandemic and Brexit will continue to impact the UK economy and bring an element of uncertainty for some time to come, most notably in the form of supply chain and inflationary pressures. More recently, the distressing invasion of Ukraine has sent shockwaves through global financial markets. Whilst the portfolio has limited direct exposure to Eastern Europe, Russia's action has introduced a disruptive factor which cannot yet be fully measured. This combination of factors is causing a shortage of many resources and supply chain disruption. Furthermore, confidence is being eroded as inflation and interest rates increase. Nonetheless, despite its caution your Board considers that your Company is well positioned to adapt as necessary.
The Board was very pleased to have witnessed such a positive response to the launch of the Company's Offer for subscription in January and would like to thank all Shareholders for their interest in applying for the Company's shares. The Board has been satisfied with the Company's ability to maintain a high rate of investment in quality opportunities over the year. It believes that the additional fundraising will provide the necessary capital to continue to create value growth for Shareholders in what has, to date, proven to be a successful investment strategy.
I would like to take this opportunity once again to thank all Shareholders for your continued support and to extend a warm welcome to new Shareholders.
Ian Blackburn Chairman 29 June 2022
INVESTMENT POLICY The Company's policy is designed to meet the Company's Objective to provide investors with a regular income stream, arising both from the income generated by the companies selected for the portfolio and from realising any growth in capital, while continuing to qualify as a VCT.
Investments The Company invests primarily in a diverse portfolio of UK unquoted companies. Investments are made selectively across a number of sectors, principally in established companies. Investments are generally structured as part loan and part equity in order to produce a regular income stream and to generate capital gain from realisations.
There are a number of conditions within the VCT legislation which need to be met by the Company and which may change from time to time. The Company will seek to make investments in accordance with the requirements of prevailing VCT legislation.
Asset allocation and risk diversification policies, including the size and type of investments the Company makes, are determined in part by the requirements of prevailing VCT legislation. No single investment may represent more than 15% (by VCT tax value) of the Company's total investments at the date of investment.
The Company will seek to make investments in accordance with the requirements of prevailing VCT legislation. A summary of this is set out in the table "Summary of VCT Regulation" in the Annual Report.
Liquidity The Company's cash and liquid funds are held in a portfolio of readily realisable interest-bearing investments, deposit and current accounts, of varying maturities, subject to the overriding criterion that the risk of loss of capital be minimised.
Borrowing The Company's Articles of Association permit borrowings of amounts up to 10% of the adjusted capital and reserves (as defined therein).
However, the Company has never borrowed and the Board would only consider doing so in exceptional circumstances.
INVESTMENT ADVISER'S REVIEW
Portfolio Review Having recovered from the COVID-19 related decline in value by the start of the Company's financial year, the portfolio continues on a positive trajectory.
Widespread volatility of global markets and negative sentiment have hampered the ability of businesses to sustain the exceptional performance of the previous financial year. Nevertheless, a continuation of steady underlying trading by the majority of investee companies bolstered by a small number of significant re-ratings has ensured that the portfolio has nonetheless been able to record portfolio value growth of 28.9% over the year, with combined net unrealised and realised gains of £12.09 million.
A limited number of portfolio companies experienced disruption as a result of the UK lockdowns, but it is pleasing to report that a significant proportion have benefited from what appears to be a structural change in consumer purchasing habits. Indeed, the majority of the portfolio companies is now trading above their pre COVID-19 levels. Overall, the majority of the portfolio has demonstrated a high degree of resilience, with the vast majority of companies by number showing revenue and/or earnings progression over the previous two years. Investments classified as Retailers now comprise over 44% of the portfolio by value, all of which are demonstrating the success of the direct-to-consumer business model.
Significant positive re-ratings in the unquoted portfolio have been a consistent feature across the year, with third-party investment driving value uplifts in MPB (£0.63 million) and Bella & Duke (£3.00 million), and a sizeable further investment from the Mobeus VCTs doing the same in the case of Preservica (£5.02 million). Whilst the portfolio has limited exposure to more challenging sectors such as hospitality and overseas travel, software and other technology-enabled businesses have performed strongly. A small number of companies have struggled, though they are in the minority and their impact on overall shareholder return is minimal.
Furthermore, some of these companies, such as Media Business Insight and RDL, have fundamentally re-engineered their businesses, which should provide a more positive outlook.
It is noted that Preservica and Bella & Duke currently account for a significant proportion of the invested portfolio's value (27.9% of the portfolio value, 18.8% of net assets), with 7.8% of the portfolio now held in AIM-listed investments (which equates to 5.2% of net assets).
The AIM market has witnessed some volatility in the second half of the Company's financial year, with negative market sentiment compounding a period of challenging customer recruitment to result in value reductions for both Virgin Wines and Parsley Box. In line with market practice, in both cases the Company's shareholdings are subject to lock-up arrangements for a period post-flotation.
Strong trading activity levels have created investment opportunities for the Company as portfolio companies sought to enhance their positions by building capability in light of demand. A number of further investments were therefore made into the portfolio during the year. Gresham House continues to review the opportunities for follow-on investments. M&A sentiment also remained buoyant with a continuing stream of attractive realisations throughout the year. The outlook for both follow-on investment and realisations continues to be positive.
The Company made investments totalling £4.61 million (2021: £5.39 million), comprising £1.73 million (2021: £2.37 million) into three new investments and £2.88 million (2021: £3.02 million) into seven existing investments. This level of new and follow-on investment is pleasing given the continued uncertainty and lockdown restrictions during the year under review.
A strong track record for the growth investments has emerged which validates the strategic change arising from the amendment to VCT rules in 2015. Overall, it is reassuring to see that the more traditional investments, as well as the growth investments, are continuing to make good progress.
The portfolio's valuation changes in the year are summarised as follows:
New investments during the year A total of £1.73 million was invested into three new investments during the year, as detailed below:
Further investments during the year A total of £2.88 million was invested into seven existing portfolio companies during the year, as detailed below:
Portfolio valuation movements The portfolio generated net unrealised gains of £9.55 million in the year. The scale of the valuation increases was underpinned by the Company's growth portfolio, many of which have direct-to- consumer business models which have grown significantly since the onset of the COVID-19 pandemic. Despite ongoing uncertainties relating to COVID-19, Gresham House believes that the pandemic has accelerated existing trends in consumer behaviour and, in many cases, companies have experienced strong growth in demand. Over this period, some older style MBO portfolio companies with similar business practices have also benefited. However, the volatility of markets and fall in consumer confidence towards the end of the Company's financial year have had an impact on valuations of quoted assets as well as sector PE multiples, making this a more challenging environment for the portfolio. The portfolio has nevertheless proven to be resilient.
Total valuation increases were £14.91 million. The main valuation increases were:
Preservica, Bella & Duke and MyTutor have benefitted from significant re-rating as part of a further funding rounds and increased scale. Media Business Insight has continued to reap the rewards of the success of its diversification to online income streams and a more flexible cost base, whilst Master Removers Group has been effective in taking advantage of strong property markets and a structural shift in demand for storage and logistics.
Total valuation decreases were £(5.36) million. The main valuation decreases were:
Virgin Wines and Parsley Box have been impacted by negative market sentiment compounded by more challenging customer recruitment over the year.
Bleach has had a challenging yearhaving had to delay its US launch and having experienced normalised D2C revenues post UK lockdown. Active Nav has had slower revenue growth than anticipated, but other avenues for sales growth are in the process of being established. Portfolio Realisations during the year The Company realised two investments during the year, as detailed below.
Loan stock repayments and other gains in the year During the year, the Company received loan repayments from MPB (£0.27 million), Red Paddle (£0.18 million), and Media Business Insight (£0.50 million; realised gain of £0.04 million). There was also further partial realisation of MyTutor which generated £0.52 million proceeds for the Company and a realised gain in the year of £0.26 million. In addition to the above, the Company received further deferred proceeds of £0.02 million bringing the total proceeds received in the year to £6.37 million. Portfolio income and yield In the year under review, the Company received the following amounts in loan interest and dividend income:
1 Total portfolio income for the year is generated solely from investee companies within the portfolio.
New investment made after the year-end The Company made one new investment of £0.43 million after the year-end, as detailed below:
Further investments made after the year-end The Company made further investments totalling £0.57 million into three existing portfolio companies after the year-end as detailed below:
Realisation after the year-end The Company realised one of its investments after the year end, generating proceeds of £2.77 million, as detailed below:
Environmental, Social, Governance considerations Following the novation of the advisory agreement to Gresham House on 30 September 2021, a market leader that is well-resourced with knowledge and expertise in sustainability, the Investment Advisor has moved to establish ESG procedures and protocols of the highest standards as set out and informed by Gresham House plc. The first tangible example of this revised approach is that that the individual members of the investment team now have their own individual ESG objectives set which align with the wider ESG goals of the Investment Adviser.
Gresham House is committed to sustainable investment as an integral part of its business strategy. During 2021, the Investment Adviser has taken further steps to formalise its approach to sustainability and has put in place several processes to ensure environmental, social and governance ("ESG") factors and stewardship responsibilities are built into asset management across all funds and strategies, including venture capital trusts.
Gresham House believes the "G" (Governance) of ESG is the most important factor in its investment processes. Board composition, governance, control, company culture, alignment of interests, shareholder ownership structure and remuneration policy are important elements that will feed into the analysis and the valuation of portfolio companies.
The "E" and "S" (Environmental and Social) will be assessed as risk factors during due diligence to screen companies that face environmental and social risks that cannot be mitigated through engagement and governance changes.
Where material ESG risks are identified, these will be reviewed by the Adviser and a decision on how to proceed will be documented. The Adviser will then proactively follow up with the investee company management team and ensure appropriate corrective and preventative action is taken and any material issues or incidents are recorded by the Adviser.
Gresham House published its second Sustainable Investment Report in April 2022 that, along with existing asset specific policies, including the Public Equity Policy, can be found on its website (www.greshamhouse.com). These reports and policies cover the Investment Adviser's sustainable investment commitments, how the investment processes meet these commitments and the application of the sustainable investment framework. The Gresham House Board and General Management Committee assess the adherence to the commitments in the Sustainable Investment Policies on an annual basis.
In a changing world, the Investment Adviser believes that this approach will contribute towards the enhancement of shareholder value going forward. Outlook Whilst the year under review has been marked with volatility and uncertainty as a result of a number of factors affecting both the global and UK economy, the portfolio has continued to trade well. Even so, negative market sentiment has impacted valuations towards the end of the year, particularly those of the AIM-listed stocks, and we are now for the first time starting to see a noticeable impact on consumer confidence. The tragic events unfolding in Ukraine have amplified the uncertainty and shocked financial markets around the world however there had been no material impact on the valuation of the portfolio at the year-end. In spite of these challenges, the Company has achieved a positive net return for the year and investment activity has remained buoyant. The Investment Adviser therefore remains cautiously optimistic that the portfolio is well positioned
Gresham House Asset Management Limited Investment Adviser 29 June 2022
Investment Portfolio Summary as at 31 March 2022
PRINCIPAL RISKS The Directors acknowledge the Board's responsibilities for the Company's internal control systems and have instigated systems and procedures for identifying, evaluating and managing the significant and emerging risks faced by the Company. This includes a key risk management review which takes place at each quarterly Board meeting. Further details of these are contained in the Corporate Governance section of the Directors' Report in the Annual Report. The principal risks and the emerging risk identified by the Board are set out below:
The risk profile of the Company changed as a result of changes to VCT legislation 2015. As the Company is required to focus its new investment activity on growth capital investments in younger companies it is anticipated that investment returns will be more volatile and have a higher risk profile. The Board also discusses emerging risks as and when they arise, such as the war in Ukraine and COVID-19 pandemic, and puts in place mitigating actions to manage the risk. In an environment of low interest rates, returns on liquidity may impact overall performance. This factor is monitored by the Board with the objective of optimising returns on liquid funds whilst minimising capital risk.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
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 the directors are required to prepare the financial statements and have elected to prepare the company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland ('FRS 102') and applicable law). 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 for 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 accounting estimates that are reasonable and prudent; ● state whether the Financial Statements have been prepared in accordance with United Kingdom accounting standards, subject to any material departures disclosed and explained in the Financial Statements; ● prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; ● prepare a Strategic Report, a Director's Report and Directors' Remuneration Report which comply with the requirements of the Companies Act 2006.
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 are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Website publication The Directors are responsible for ensuring the Annual Report and the Financial Statements are made available on a website. Financial Statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of Financial Statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the Financial Statements contained therein.
Directors' responsibilities pursuant to Disclosure and Transparency Rule 4 of the UK Listing Authority The Directors confirm to the best of their knowledge that:
a) the Financial Statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice give a true and fair view of the assets, liabilities, financial position and the profit of the Company; and
b) the Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
Having taken advice from the Audit Committee, the Board considers the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company's position, performance, business model and strategy.
Neither the Company nor the Directors accept any liability to any person in relation to the Annual Report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A and schedule 10A of the Financial Services and Markets Act 2000.
The names and functions of the Directors are stated in the Annual Report.
For and on behalf of the Board
Ian Blackburn Chairman 29 June 2022
FINANCIAL STATEMENTS
Notes a) The Company's special reserve is available to fund buybacks of shares as and when it is considered by the Board to be in the interests of Shareholders, and to absorb any existing and future realised losses and for other corporate purposes. At 31 March 2022, the Company has a special reserve of £12,033,364, all of which arises from shares issued more than three years ago. Reserves originating from share issues are not distributable under VCT rules if they arise from share issues that are within three years of the end of an accounting period in which shares were issued. The total transfer of £2,250,926 from the realised capital reserve to the special distributable reserve above is the total of realised losses incurred by the Company in the year. b) The realised capital reserve and the revenue reserve together comprise the Profit and Loss Account of the Company. c) Under an Offer for Subscription launched on 20 January 2022, 7,893,544 ordinary shares were allotted on 9 March 2022, raising net funds of £7,260,679 for the Company. This figure is net of issue costs of £188,224 and facilitation fees of £51,097. d) During the year, the Company purchased 697,498 of its own shares at the prevailing market price for a total cost of £643,810, which were subsequently cancelled.
The composition of each of these reserves is explained below:
Called up share capital The nominal value of shares originally issued, increased for subsequent share issues either via an Offer for Subscription or reduced due to shares bought back by the Company.
Capital redemption reserve The nominal value of shares bought back and cancelled is held in this reserve, so that the Company's capital is maintained.
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Notes to the Financial Statements for the year ended 31 March 2022
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1 | Company information |
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| Mobeus Income and Growth 2 VCT plc is a public limited company incorporated in England, registration number 03946235. The registered office is 5 New Street Square, London, EC4A 3TW.
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2 | Basis of preparation |
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A summary of the principal accounting policies, all of which have been applied consistently throughout the year are set out at the start of the related disclosure throughout the Notes to the Financial Statements. All accounting policies are included within an outlined box at the top of each relevant Note.
These Financial Statements have been prepared in accordance with applicable United Kingdom accounting standards, including Financial Reporting Standard 102 ("FRS102"), with the Companies Act 2006 and the 2014 Statement of Recommended practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('the SORP') (updated in April 2021) issued by the Association of Investment Companies ("AIC"). The Company has a number of financial instruments which are disclosed under FRS102 s 11/12 as shown in Note 15 of the Annual Report.
After performing the necessary enquiries, the Directors have undertaken an assessment of the Company's ability to meet its liabilities as they fall due. The Company has significant cash and liquid resources and no external debt or capital commitments. The Company's cash flow forecasts, which consider levels of anticipated new and follow-on investment, as well as investment income and annual running cost projections, are discussed at each quarterly Board meeting and, in particular, have been considered in light of the ongoing impact of the COVID-19 pandemic, the war in Ukraine and rising inflationary pressures. The Directors have also received assurances that the Company's key suppliers' ability to continue to service the Company has not been materially impacted by the COVID-19 pandemic. Following this assessment, the Directors have a reasonable expectation that the Company will have adequate resources to continue to meet its liabilities for at least 12 months from the date of these Financial Statements. The Directors therefore consider the preparation of these financial statements on a going concern basis to be appropriate.
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3 | Income |
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Dividends receivable on quoted equity shares are brought into account on the ex-dividend date. Dividends receivable on unquoted equity shares are brought into account when the Company's right to receive payment is established and there is no reasonable doubt that payment will be received.
Interest income on loan stock is accrued on a daily basis. Provision is made against this income where recovery is doubtful or where it will not be received in the foreseeable future. Where the loan stocks only require interest or a redemption premium to be paid on redemption, the interest and redemption premium is recognised as income or capital as appropriate once redemption is reasonably certain. When a redemption premium is designed to protect the value of the instrument holder's investment rather than reflect a commercial rate of revenue return, the redemption premium is recognised as capital. The treatment of redemption premiums is analysed to consider if they are revenue or capital in nature on a company-by-company basis. Accordingly, the redemption premium recognised in the year ended 31 March 2022 has been classified as capital and has been included within gains on investments.
Total loan stock interest due but not recognised in the year was £336,436 (2021: £481,136). This decrease is due to the removal of a number of investee company provisions that were considered appropriate in the previous year in light of the COVID-19 pandemic.
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4 | Investment Adviser's fees and performance fees |
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All expenses are accounted for on an accruals basis.
a) Investment Adviser's fees 25% of the Investment Adviser's fees are charged to the revenue column of the Income Statement, while 75% is charged against the capital column of the Income Statement. This is in line with the Board's expected long-term split of returns from the investment portfolio of the Company.
100% of any performance incentive fee payable for the year is charged against the capital column of the Income Statement. This is because although the incentive fee is linked to an annual dividend target, it is ultimately based upon the achievement of capital growth.
¹ On 30 September 2021, Mobeus sold its VCT fund and Investment management business to Gresham House. As a result, the Company's Investment advisory arrangements have been novated from Mobeus to Gresham House. The entire core management, investment and operational teams involved with the Company all transferred to Gresham House in connection with this transaction.
Under the terms of a revised investment management agreement dated 10 September 2010, (as amended and restated on 15 September 2016) Mobeus (from 1 October 2021, Gresham House) provides investment advisory, administrative and company secretarial services to the Company, for a fee of 2% per annum calculated on a quarterly basis by reference to the net assets at the end of the preceding quarter, plus a fee of £113,589 per annum, the latter being subject to changes in the retail prices index each year. In 2013, Mobeus has agreed to waive such further increases due to indexation, until otherwise agreed with the Board. In accordance with the policy statement published under "Management and Administration" in the Company's prospectus dated 10 May 2000, the Directors have charged 75% of the investment management expenses to the capital account. This is in line with the Board's expectation of the long-term split of returns from the investment portfolio of the Company.
Under the terms of the management agreement the total Investment Adviser and administration expenses of the Company excluding any irrecoverable VAT, exceptional costs and any performance incentive fee, are linked to a maximum of 3.6% of the value of the Company's closing net assets. For the year ended 31 March 2022, the expense cap has not been breached (2021: £nil).
In accordance with general market practice, the Investment Adviser earned arrangement fees and fees for supplying Directors and/or monitoring services from investee companies. The share of such fees attributable to the investments made by the Company were £98,172 (2021: £137,298) and £190,095 (2021: £177,839) respectively. The fees for supplying directors and/or monitoring services were from 33 (2021: 36) investee companies during the year.
b) Performance Fees
c) Offer for Subscription fees
Under the terms of an Offer for Subscription, with the other Mobeus VCTs, launched on 20 January 2022, Mobeus was entitled to fees of 3.00% of the investment amount received from investors. This amount totalled £1.05 million across all four VCTs, out of which all the costs associated with the allotment were met, excluding any payments to advisers facilitated under the terms of the Offer.
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d) Other expenses Expenses are charged wholly to revenue, with the exception of expenses incidental to the acquisition or disposal of an investment, which are written off to the capital column of the Income Statement or deducted from the disposal proceeds as appropriate.
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a) Directors' remuneration is a related party transaction, see analysis of Directors' fees payable and their interests in the shares of the Company in the Directors' Remuneration Report, which excludes NIC above. The key management personnel are the three non-executive Directors. The Company has no employees. There were no amounts outstanding and due to the Directors at 31 March 2022 (2021: £nil). b) Included within this figure is £7,073 (2021: £6,868) relating to advanced audit procedures in respect of the Financial Statements carried out at the Half-Year. The Audit Committee reviews the nature and extent of these services to ensure that auditor independence is maintained. |
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5 | Taxation on ordinary activities |
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The tax expense for the year comprises current tax and is recognised in profit or loss. The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date.
Any tax relief obtained in respect of Investment Adviser fees allocated to capital is reflected in the realised capital reserve and a corresponding amount is charged against revenue. The tax relief is the amount by which corporation tax payable is reduced as a result of these capital expenses.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Company's taxable profits and its results as stated in the Financial Statements that arise from the inclusion of gains and losses in the tax assessments in periods different from those in which they are recognised in the Financial Statements.
Deferred tax is measured at the average tax rates that are expected to apply in the years in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax is measured on a non-discounted basis.
A deferred tax asset would be recognised only to the extent that it is more likely than not that future taxable profits will be available against which the asset can be utilised.
Tax relief relating to Investment Adviser fees is allocated between revenue and capital where such relief can be utilised.
No asset or liability has been recognised for deferred tax in relation to capital gains or losses on revaluing investments as the Company is exempt from corporation tax in relation to capital gains or losses as a result of qualifying as a Venture Capital Trust.
There is no potential liability to deferred tax (2021: £nil). There is an unrecognised deferred tax asset of £733,172 (2021 (restated): £127,053). The deferred tax asset relates to unrelieved management expenses and is not recognised because the Company may not generate sufficient taxable income in the foreseeable future to utilise these expenses.
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6 | Dividends paid and payable |
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A key judgement in applying the above accounting policy is in determining the amount of minimum income dividend to be paid in respect of a year. The Company's status as a VCT means it has to comply with Section 274 of the Income Tax Act 2007, which requires that no more than 15% of the income from shares and securities in a year can be retained from the revenue available for distribution for the year.
* These dividends were paid out of the Company's special distributable reserve.
Set out below are the total income dividends payable in respect of the financial year, which is the basis on which the requirements of section 274 of the Income Tax Act 2007 are considered.
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7 | Basic and diluted earnings per share |
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Notes: a) Basic earnings per share is total earnings after taxation divided by the weighted average number of shares in issue. b) Basic revenue earnings per share is the revenue return after taxation divided by the weighted average number of shares in issue. c) Basic capital earnings per share is the total capital return after taxation divided by the weighted average number of shares in issue. d) There are no instruments that will increase the number of shares in issue in future. Accordingly, the above figures currently represent both basic and diluted returns.
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8 | Investments at fair value |
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The most critical estimates, assumptions and judgements relate to the determination of the carrying value of investments at "fair value through profit and loss" (FVTPL). All investments held by the Company are classified as FVTPL and measured in accordance with the International Private Equity and Venture Capital Valuation ("IPEV") guidelines, as updated in December 2018. This classification is followed as the Company's business is to invest in financial assets with a view to profiting from their total return in the form of capital growth and income.
Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional. For investments actively traded on organised financial markets, fair value is generally determined by reference to Stock Exchange market quoted bid prices at the close of business on the balance sheet date. Purchases and sales of quoted investments are recognised on the trade date where a contract of sale exists whose terms require delivery within a time frame determined by the relevant market. Where the terms of a disposal state that consideration may be received at some future date and, subject to the conditionality and materiality of the amount of deferred consideration, an estimate of the fair value discounted for the time value of money may be recognised through the Income Statement. In other cases, the proceeds will only be recognised once the right to receive payment is established and there is no reasonable doubt that payment will be received.
Unquoted investments are stated at fair value by the Directors at each measurement date in accordance with appropriate valuation techniques, which are consistent with the IPEV guidelines:-
i. Each investment is considered as a whole on a 'unit of account' basis, i.e. that the value of each portfolio company is considered as a whole, alongside consideration of:-
The price of new or follow-on investments made, if deemed to be made as part of an orderly transaction, are considered to be at fair value at the date of the transaction. The inputs that derived the investment price are calibrated within individual valuation models and at every subsequent quarterly measurement date, are reconsidered for any changes in light of more recent events or changes in the market performance of the investee company. The valuation bases used are the following:
- a multiple basis. The enterprise value of the investment may be determined by applying a suitable price-earnings ratio, revenue or gross profit multiple to that company's historic, current or forecast post-tax earnings before interest, depreciation and amortisation, or revenue, or gross profit (the ratio used being based on a comparable sector but the resulting value being adjusted to reflect points of difference identified by the Investment Adviser compared to the sector including, inter alia, scale and liquidity). or:-
- where a company's underperformance against plan indicates a diminution in the value of the investment, provision against the price of a new investment is made, as appropriate.
ii. Premiums, to the extent that they are considered capital in nature, and that they will be received upon repayment of loan stock investments are accrued at fair value when the Company receives the right to the premium and when considered recoverable.
iii. Where a multiple or the price of recent investment less impairment basis is not appropriate and overriding factors apply, a discounted cash flow, net asset valuation, realisation proceeds, or a weighted average of these bases may be applied.
Capital gains and losses on investments, whether realised or unrealised, are dealt with in the profit and loss and revaluation reserves and movements in the period are shown in the Income Statement. All figures are shown net of any applicable transaction costs incurred by the Company.
All investments are initially recognised and subsequently measured at fair value. Changes in fair value are recognised in the Income Statement.
A key judgement made in applying the above accounting policy relates to investments that are permanently impaired. Where the value of an investment has fallen permanently below the price of recent investment, the loss is treated as a permanent impairment and as a realised loss, even though the investment is still held. The Board assesses the portfolio for such investments and, after agreement with the Investment Adviser, will agree the values that represent the extent to which an investment loss has become realised. This is based upon an assessment of objective evidence of that investment's future prospects, to determine whether there is potential for the investment to recover in value.
Accounting standards classify methods of fair value measurement as Levels 1, 2 and 3. This hierarchy is based upon the reliability of information used to determine the valuation. All of the unquoted investments are Level 3, i.e. fair value is measured using techniques using inputs that are not based on observable market data.
Movements in investments during the year are summarised as follows:
Net realised gains on investments of £2,538,270 together with net unrealised gains on investments of £9,557,514 equal net investment portfolio gains of £12,095,784 shown on the Income Statement.
A breakdown of the increases and the decreases in unrealised valuations of the portfolio is shown in the Investment Portfolio Summary.
Major movements in investments
Note a) Disposals of investment portfolio companies during the year were:
Note b) The sale proceeds shown above of £6,374,117 is £2,073,716 less than that shown on the Statement of Cash Flows of £8,447,833 due to proceeds received from the partial realisations of MPB Group Limited and Parsley Box Group Plc (formerly Parsley Box Limited), as well as additional proceeds due from Vectair Holdings Limited at the beginning of this year. The difference between the purchases at cost above of £4,607,394 and the cash flow statement of £4,728,594 is the follow-on investment in Northern Bloc Ice Cream Limited which completed shortly after the year-end. Note c) The major components of the net increase in unrealised valuations of £9,557,514 in the year were increases of £5,022,119 in Preservica Limited, £2,995,533 in Bella & Duke Limited, £1,828,144 in Media Business Insight Holdings Limited, £1,078,424 in MyTutorWeb Limited (trading as MyTutor) and £1,047,722 in Master Removers Group 2019 Limited (trading as Anthony Ward Thomas, Bishopsgate and Aussie Man & Van). These increases were partly offset by falls of £3,016,498 in Virgin Wines UK Plc, £1,722,244 in Parsley Box Group plc and £196,346 in Bleach London Holdings Limited. Note d) The amount of £453,891 transferred from unquoted loan stock to unquoted equity shares represents the conversion of the loans held in two portfolio companies into equity shares during the year.
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9 | Current asset investments and Cash at bank |
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Cash equivalents, for the purposes of the Statement of Cash Flows, comprise bank deposits repayable on up to three months' notice and funds held in OEIC money-market funds. Current asset investments are the same but also include bank deposits that mature after three months. Current asset investments are disposable without curtailing or disrupting the business and are readily convertible into known amounts of cash at their carrying values at immediate of up to one year's notice. Cash, for the purposes of the Statement of Cash Flows is cash held with banks in accounts subject to immediate access. Cash at bank in the Balance Sheet is the same.
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10 | Called up share capital |
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Under the Offer for Subscription launched on 20 January 2022 7,893,544 ordinary shares were allotted on 9 March 2022 at an average effective offer price of 95.01 pence per share, raising net funds of £7,260,679. During the year the Company repurchased 697,498 (2021: 387,471) of its own ordinary shares (representing 1.0% (2021: 0.7%) of the ordinary shares in issue at the start of the year) at the prevailing market price for a total cost of £643,810 (2021: £292,568). These shares were subsequently cancelled by the Company.
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11 | Basic and diluted net asset value per share |
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12 | Post balance sheet events |
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On 6 April 2022, a further investment of £0.12 million was made into Northern Bloc Ice Cream Limited, an existing portfolio company.
On 5 May 2022, a new investment of £0.43 million was made into Lads Store Limited (trading as Bidnamic).
On 23 May 2022, a further investment of £0.27 million was made into Muller EV Limited (trading as Andersen EV), an existing portfolio company.
On 9 June 2022, the Company realised its investment in Media Business Insight Holdings Limited, generating proceeds of £2.77 million.
On 15 June 2022, a further investment of £0.18 million was made into Rota Geek Limited, an existing portfolio company.
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13 Statutory information The financial information set out in these statements does not constitute the Company's statutory accounts for the year ended 31 March 2022 but is derived from those accounts. Statutory accounts will be delivered to the Registrar of Companies after the Annual General Meeting. The auditors have reported on these accounts and their report was unqualified and did not contain a statement under section 498(2) of the Companies Act 2006.
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14 Annual Report & Financial Statements The Annual Report & Financial Statements will be published on the Company's website at www.mig2vct.co.uk shortly and will be posted to those Shareholders who have requested a copy. Following the adoption of electronic communications by the Company, those Shareholders who have elected to receive e-communications will shortly receive notification from the Company on how to download a pdf of the Report from the website. Shareholders and members of the public who wish to receive a hard copy of the Annual Report, may request a copy by writing to the Company Secretary, Gresham House Asset Management Limited by email at [email protected].
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15 Annual General Meeting The Company's next Annual General Meeting will be held on Wednesday, 21 September 2022 at the offices of Shakespeare Martineau LLP, 6th Floor, 60 Gracechurch Street, London EC3R OHR and by webcast, the link is available on the Company's website at: www.mig2vct.co.uk. However, please note that Shareholders will not be able to vote via the webcast and so are encouraged to return their proxy form before the deadline of 19 September 2022.
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Contact details for further enquiries Gresham House Asset Management Limited (the Company Secretary) on 020 7382 0999 or by email to: info@greshamhouse.com.
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DISCLAIMER Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
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Related Shares:
MIG.L