TIDMMIG4
RNS Number : 5592V
Mobeus Income & Growth 4 VCT PLC
06 April 2023
MOBEUS INCOME & GROWTH 4 VCT PLC
LEI: 213800IFNJ65R8AQW943
Annual Report & Financial Statements for the Year Ended 31
December 2022
Results Announcement
The Company has today published on its website Mobeus Income
& Growth 4 VCT plc the Annual Report and Financial Statements
for the year ended 31 December 2022. The highlights Include:
As at 31 December 2022:
Net assets: GBP83.54 million
Net asset value ("NAV") per share: 80.05 pence
Net asset value ("NAV") total return(1) per share was
(15.5)%.
Share price total return(1) per share was (8.4)%.
Dividends paid and declared in respect of the financial year
totalled 10.00 pence per share. Cumulative dividends paid to date
since inception in 2004 stand at 153.20 pence per share.
GBP3.78 million was invested into four new growth capital
investments and six existing portfolio companies during the
year.
Net unrealised losses were GBP(15.45) million in the year.
The Company realised investments totalling GBP8.70 million of
cash proceeds and generated net realised gains in the year of
GBP0.74 million.
(1) Definitions of key terms and alternative performance
measures shown above and throughout the report are shown in the
Glossary of Terms in the Annual Report
CHAIR'S STATEMENT
I present the Annual Report of Mobeus Income & Growth 4 VCT
plc for the year ended 31 December 2022.
Overview
The high point for many technology and growth markets was seen
towards the end of 2021 - after which they were impacted by global
events such as the Russian invasion of Ukraine, the highest rates
of inflation for over a decade and accompanying interest rate
increases, political turmoil in the UK and across Europe and the
increasing cost of living. The recent UK Budget sought to stimulate
the economy, but we can expect continuing challenges for portfolio
companies particularly with respect to increased costs and subdued
consumer demand.
The Mobeus VCTs' joint fundraise which was launched in January
2022 and reached its application capacity in less than 24 hours.
Given the level of investor demand, and a continuing pipeline of
investment opportunities, your Board agreed later in that year,
that a further fundraise would be appropriate. This was issued
across all four Mobeus VCTs in October 2022 and also reached its
capacity in a short timeframe, securing GBP16 million for the
Company (including the GBP5 million over-allotment facility) early
in November 2022. This outstanding level of support is a very
encouraging demonstration of the confidence that investors have in
the Company and your Board is delighted to welcome an equal mix of
further investment from our valued existing Shareholders and also
from new investors in the Company. These additional cash resources
will enable the Company to take advantage of new and follow-on
investment opportunities as previous experience has shown that
investing through the cycle can create excellent returns over
time.
It appears that higher inflation and the Russian war in Ukraine
have now become daily news events. Post the year-end, inflation
remained stubbornly high although, against almost all predictions,
the UK economy has so far avoided going into recession.
Challenges for portfolio companies are expected to continue
during 2023, with a combination of inflationary pressures and lower
customer demand. Your Company is well prepared for most scenarios
with its strong liquidity available to support the portfolio and
from the extensive planning and preparation with each of the
portfolio company's management teams by Gresham House. The Company
has continued to provide finance to new and existing investee
companies with two notable exit events during the year under review
in the form of Media Business insight (MBI) and Equip Outdoor
Technologies (EOTH). The recent equity disposal of EOTH in November
contributing to a 6.9x return to date was a particular high point
as we anticipate a quieter exit environment in 2023 than in
previous years.
The Board was pleased to hear of the UK Government's commitment
to extend the VCT 'sunset clause' beyond the end date of 5 April
2025. Without an extension, investor income tax relief on new VCT
share subscriptions will expire after that date. Shareholders
should note however that, to date, the VCT industry has seen no
further detail on this subject and any extension of the date will
probably require parliamentary approval.
Performance
For the year ended 31 December 2022, the Company experienced a
negative NAV total return per share of (15.5)% (2021: +42.7%) and a
negative share price total return of (8.4)% (2021: +50.4%). 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 later than the date to which they relate and
is explained more fully under Performance in the Strategic Report
of the Annual Report. The negative NAV total return for the year
was principally a result of the unrealised loss in the value of
investments still held, partially offset by realised gains achieved
above previous carrying values.
The reduction in net asset value resulted from falls in the
valuation of the portfolio over the financial year. This has
primarily been driven by lower benchmark market comparables and,
more recently, by softening investee company trading performance.
As is usually the case, markets quickly factored in the expected
impact of inflation and higher interest rates on consumer spending
and business investment. The full extent of the impact of these on
portfolio company trading will emerge over time.
At the end of the year under review the Company was ranked 4th
over five years and 9th over ten years periods (out of 37 and 31
Generalist VCTs respectively) in the Association of Investment
Companies' analysis of NAV Cumulative Total Return. Shareholders
should note that the AIC's rankings are based on the latest
available published NAVs and therefore do not fully reflect the NAV
per share decrease reported by the Company up to 31 December 2022.
Nevertheless, it is pleasing that your Company has shown resilience
over the medium and longer terms when measured against other sector
participants. For further details on the performance of the
Company, please refer to the Strategic Report of the Annual
Report.
Dividends
The Board continues to be committed to providing an attractive
dividend stream to Shareholders and was pleased to announce an
interim dividend of 4.00 pence per share which was paid on 8 July
2022 to Shareholders on the register on 6 June 2022. A second
interim dividend of 6.00 pence per share, was paid on 7 November
2022 to Shareholders on the register on 23 September 2022 and
together, this brings the total dividends paid in respect of the
financial year ended 31 December 2022 to 10.00 pence per share. To
date, cumulative dividends paid since inception total 153.20 pence
per share. The Company has now met or exceeded the Board's dividend
target of paying at least 4.00 pence per share in respect of each
financial year over the last ten years.
As Shareholders have been advised previously, the reorientation
of the portfolio under the VCT rules to younger growth capital
investments as well as the realisations of older, more mature
companies that have formerly provided a good income yield, are
likely to make dividends harder to achieve from income 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 contracted loan interest income was
seen during the year by the Company. 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.
Dividend Investment Scheme
The Company's Dividend Investment Scheme ("DIS") provides
Shareholders with the opportunity to reinvest their cash dividends
into new shares in the Company at the latest published NAV per
share. New VCT shares attract the same tax reliefs as shares
purchased through an Offer for Subscription. As part of the 4.00
pence per share dividend paid on 8 July 2022, 586,156 Ordinary
shares were allotted to participants of the DIS at a price of 98.96
pence per share. For the further 6.00 pence per share dividend paid
on 7 November 2022, 1,129,699 Ordinary shares were allotted at a
price of 80.50 pence per share to DIS members.
Shareholders wishing to take advantage of the scheme for any
future dividends can join the DIS by completing a mandate form
available on the Company's website, under the 'Dividends' heading,
at: www.mig4vct.co.uk., or alternatively, existing DIS members can
opt-out by contacting Link Group, using their details provided
under Corporate Information of the Annual Report.
Investment portfolio
The portfolio movements across the year were as follows:
2022 2021
GBPm GBPm
Opening portfolio value 65.58 41.68
New and further investments 3.78 6.23
Disposal proceeds (8.70) (12.23)
Net realised gains 0.74 4.19
Valuation movements (15.45) 25.71
Net investment portfolio
(losses)/gains (14.71) 29.90
Portfolio value at 31
December 45.95 65.58
A number of investee companies have experienced a decline in
consumer confidence with the resultant impact on trading during the
recent challenging environment. There was a fall of GBP14.71
million in the overall value of the portfolio across the year to 31
December 2022 (2021: increase of GBP29.90 million), or a fall of
22.4% on a like-for-like basis compared to the value of the
portfolio at the start of the year.
Notably, a significant amount of the fall of GBP14.71 million
relates to Virgin Wines which declined by GBP6.89 million. Virgin
Wines is an AIM-listed investment, which has suffered from the
negative sentiment of its sector, despite positive news flows and
the relative outperformance versus its peers by the company itself.
It is worth noting that in addition to the unrealised equity
holding, the Company has received over 1.7x its original investment
in realised returns to date.
The negative NAV total return for the year principally comprised
unrealised falls in the value of investments still held of GBP15.45
million, (primarily Virgin Wines, Buster and Punch and MyTutor)
which were partially mitigated by an uplift in Tharstern together
with the exit proceeds received from EOTH and MBI, which
contributed to net realised gains of GBP0.74 million.
During the year, the Company invested a total of GBP3.78 million
into four new and six existing portfolio companies (2021: GBP6.23
million; four new, nine existing). New investments totalling
GBP2.03 million were made into:
Proximity Insight: retail technology software;
Bidnamic: a marketing technology business;
FocalPoint: a GPS enhancement software supplier; and
Orri: an intensive day care provider for adults
with eating disorders
Additional portfolio funding totalling GBP1.75 million was
provided to six existing portfolio companies:
Caledonian Leisure: a provider of UK leisure and experience
breaks
Northern Bloc: a dairy and allergen-free ice cream brand
Rotageek: a workforce management software system
Andersen EV: a provider of premium EV chargers
Vivacity: an AI and Urban Traffic Control busines
Bleach London: a hair colourants brand
The Company generated total proceeds of GBP8.70 million in the
year to 31 December 2022 comprising GBP8.25 million from full or
partial realisations as well as other capital receipts of GBP0.45
million. Further details are provided below:
In June 2022, the Company realised its investment in MBI
generating proceeds of GBP3.98 million from the sale (including
deferred proceeds and loan repayments made earlier in the year)
resulting in a realised gain in the year of GBP0.42 million. This
exit contributed to returns received over the life of the
investment amounting to GBP6.11 million, which is a 2.2x multiple
of cost and an IRR of 13.8%.
In October 2022, Andersen EV, the electric vehicle charger
provider, entered into administration as a result of a substantial
deterioration in its trading conditions which resulted in a
realised loss of GBP0.44 million being recognised during the year.
This was particularly disappointing as the Company made a follow-on
investment into the company in May 2022 alongside the other Mobeus
VCTs. The company had secured some impressive clients and funding
was provided to drive product development in a premium brand which
operated in the emerging electric car charging market. Over the
summer months however, a combination of global supply issues,
inflationary cost increases and the removal of Government consumer
support for the purchase of EV chargers swiftly impacted the
company's ability to continue trading and so necessitated the
appointment of administrators.
In a similarly disappointing development, in December 2022,
following repeated and substantial falls in its share price,
Parsley Box Group PLC delisted from the AIM market and the shares
were cancelled. It has subsequently re-registered as a private
company.
More positively, the end of the year brought an equity
realisation of EOTH, trading as both RAB and Lowe Alpine, with
amounts received on completion of GBP5.05 million including
preference share dividends, generating a realised gain in the year
of GBP0.36 million. Total proceeds received over the life of this
investment are GBP6.56 million to date, a 6.9x multiple of cost and
an IRR of 23.2%. The Company has retained its interest yielding
loan stock to continue to generate income in the future.
Also received in the year were deferred proceeds from Red Paddle
and Vectair, both investments realised in a previous year
generating further realised gains totalling GBP0.40 million.
During these challenging times, the management of the portfolio
is undeniably critical, and the Investment Adviser has been, and
is, focused on deploying its Talent Management team to support the
investments. Follow-on investments are expected to remain a
significant feature of growth capital investee companies as they
seek to achieve scale and move to profitability. Follow-on
investment requests are always subject to the same scrutiny as new
deals and both rely on certain criteria being met, including the
HMRC Financial Health Test.
In respect of the Financial Health Test, Shareholders should be
advised that a tightening by HMRC of policy and practice in a
technical aspect of the VCT financing rules is now resulting in the
restriction of potential follow-on investments to support certain
portfolio companies, where more than half their subscribed share
capital has been lost. In respect of some portfolio companies this
may result in the Company not being able to make follow-on
investments even where a compelling business case exists, which in
turn could impact the prospects of these businesses. The Board
continues to monitor developments in the interpretation of this
area of legislation carefully.
Further details of the Company's investment activity and the
performance of the portfolio are contained in the Investment
Adviser's Review and the Investment Portfolio Summary in the Annual
Report.
Since the year-end, the Company has invested a total of GBP0.75
million into two new investment companies, Connect Earth and
Cognassist in March 2023. Also following the year-end, again in
March 2023, the sale of the Company's investment in Tharstern Group
Limited was completed achieving a 2.6x return against cost over the
life of the investment.
Liquidity & Fundraising
Cash and cash equivalents held by the Company as at 31 December
2022 amounted to GBP37.71 million, or 45.1% of net assets. The
Board continues to prioritise the security and protection of the
Company's capital by monitoring credit risk in respect of its cash
and near cash resources.
In January 2022, the Company completed a fundraise of GBP7.5
million for the 2021/2022 tax year which was fully subscribed in
less than 24 hours. This level of demand was very pleasing although
the Board became aware that a number of investors were not able to
subscribe before the fundraise closed and were therefore
disappointed. Later in the year, on considering the future cash
requirements of the Company and the potential demand for the
Company's shares, the Board approved a fundraise for the 2022/23
tax year. Having provided a period of time between the launch of
the prospectus and acceptance of applications, the Board was
pleased that the initial amount of GBP11 million (including an
over-allotment facility of a further GBP5 million), launched on 5
October 2022, was fully subscribed by 8 November 2022. Shares were
allotted on 16 November 2022 and on 6 February 2023 and your
Company extends a warm welcome to both existing and new
Shareholders.
The fundraising that was launched in October 2022 was to ensure
that the Company retained adequate levels of liquidity to continue
to take advantage of new investment opportunities, support the
existing portfolio, and fund further expansion of the businesses in
its investment portfolio where required. The funds will also assist
the delivery of attractive returns for its Shareholders, including
the payment of dividends over the medium term as well as to help
facilitate share buybacks from those Shareholders who wished to
sell shares.
Further details of the Company's investment activity and the
performance of the portfolio are contained in the Investment
Adviser's Review and the Investment Portfolio Summary in the Annual
Report.
Share buy-backs
During the year, the Company bought back and cancelled 1,796,536
of its own shares (2021: 1,303,349), representing 2.2% of the
shares in issue at the beginning of the year (2021: 1.6%), at a
total cost of GBP1.46 million, inclusive of expenses (2021: GBP1.23
million). It is the Company's policy to cancel all shares bought
back in this way. The Board reviews its buyback policy quarterly
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 & Annual General Meeting
May I remind you that the Company has its own website which is
available at: www.mig4vct.co.uk .
Following the well-received virtual Shareholder Event held on 25
February 2022, the Investment Adviser held another successful
virtual Shareholder Event with a live Q&A session on 23 March
2023. Numbers either viewing or participating online were close to
totals attending such events in person before the Covid pandemic,
and a recording is available on the Company's website for those who
were not able to see the event live.
Your Board is pleased to be able to hold the next Annual General
Meeting ("AGM") of the Company at 2.30 pm on Wednesday, 24 May 2023
at the offices of Shoosmiths LLP, 1 Bow Churchyard, London EC4M
9DQ. The Board is aware that a number of Shareholders hold shares
in the Company and another Mobeus VCT, Mobeus Income & Growth
VCT plc (MIG VCT). To aid Shareholder attendance at the AGMs of
both companies, given the common financial year ends, the Boards of
the companies have decided to hold both AGMs on the same day with a
presentation from the companies' Investment Adviser taking place in
between the two meetings, during which a light lunch will be
available. The MIG VCT AGM will take place earlier on 24 May 2023,
commencing at 1.00pm and will be followed by the joint Investment
Adviser presentation at 1.30 pm. Shareholders are welcome to join
us for the Investment Adviser presentation if not already attending
the earlier MIG VCT AGM.
A webcast will also be available from 1.30 pm for those
Shareholders who cannot attend in person. However, please note that
you will not be able to vote at the AGM via this method and you are
encouraged to return your proxy form before the deadline of 22 May
2023. 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.
Votes Against Dis-application of Pre-emption Rights
At the General Meeting of the Company held on 12 October 2022,
over 20% of the votes received were lodged against the composite
resolution to approve the allotment of shares and disapply
pre-emption rights to support the 2022/2023 fundraise. It appears
that we did not make it sufficiently clear that the proposed
dis-application of the pre-emption rights was in respect of the
fundraise only. The resulting feedback received will be taken into
consideration for future fundraises and communications.
The General Meeting resolution was in addition to the already
approved dis-application of pre-emption rights given at the AGM
held on 17 May 2022 because the funds being raised under the
2022/23 offer exceeded the previous authorities obtained and
therefore additional shareholder authority was required as well as
providing authority to allot the greater number of shares.
As required under the AIC Code of Corporate Governance Code,
those Shareholders that voted against the resolution were contacted
to ascertain their reasons. I thank those Shareholders who
responded to my request for their reasons for voting against the
resolution. It became clear that the key factor was Shareholders'
concern about new shareholders being added to the Register of
Members thereby diluting their holding and potential dividend
income. By the issuance of shares to new investors, this:
-- maximises the pool of potential VCT investors thereby
increasing the probability that the full offer amount is raised
allowing the Company:
-- to continue to take advantage of new investment opportunities
and to support existing portfolio companies as deemed appropriate;
and
-- seeks the delivery of attractive returns for its
Shareholders, including the payment of dividends over the
medium-term.
The Board is of the opinion that the benefit to the Company's
Shareholders in having sufficient liquidity to meet its investment
objectives and the potential to generate enhanced returns in the
future, as well as the ability to make dividend payments, greatly
outweighs any potential short-term dilutive impact of individual
shareholder returns.
The allotments in November 2022 and February 2023 saw a roughly
equal balance of existing and new investors and all existing
Shareholders were able to subscribe for shares as the Offer
remained open for applications from 17 October to 8 November 2022
when it became fully subscribed. A small number of applicants who
applied thereafter were unable to be accommodated in the final
allotment on 6 February 2023.
We will once again, at the Annual General Meeting of the
Company, propose a resolution to dis-apply pre-emption rights
although this authority is not expected to be utilised except in
respect of the Dividend Investment Scheme.
Fraud Warning
Shareholders continue to be contacted in connection with
sophisticated but fraudulent financial scams which purport to come
from or to be authorised by the Company. This is often by a phone
call or an email usually originating from outside 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.
Board Composition
At the start of the year under review, the Board comprised four
directors prior to Helen Sinclair's retirement after the AGM in
February 2023. On 1 March 2022, Chris Burke was appointed as a
member of both the Audit & Risk Committee and the Nomination
& Remuneration Committees, he was also appointed as Chair of
the Investment Committee. After considering and reviewing its
composition at that time, the Board agreed that the recruitment of
another Non-Executive Director was not necessary.
In the Half-Year Report dated 13 September 2022, I stated my
intention to retire as a director and Chair of the Company
following the conclusion of the Company's Annual General Meeting in
May 2023. The Board intends to appoint Graham Paterson as Chair of
the Company to succeed me. An in-depth third party led recruitment
process commenced at the latter end of the year to secure a
Non-Executive Director to succeed Graham as Chair of the Audit
& Risk and Nomination and Remuneration Committees following the
AGM. Having given careful consideration to the diversity of skills,
experience, gender and background of the wider Board, we were
delighted that Lindsay Dodsworth agreed to join as a director and
she was appointed on 1 January 2023. Lindsay will stand for
election at the forthcoming AGM.
The directors remain committed to increasing diversity of
representation and will take this fully into account alongside the
skills required to serve Shareholders well in the specialist VCT
sector for any future appointments.
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.
Gresham House has a team which is focused on sustainability and
the Board views this as an opportunity to enhance the Company's
existing protocols and procedures through the adoption of the
highest industry standards.
The future FCA reporting requirements consistent with the Task
Force on Climate-related Financial Disclosures, which commenced on
1 January 2021 currently do not apply to the Company but will be
kept under review, the Board being mindful of any recommended
changes.
Consumer Duty
The Directors are cognisant of the Investment Adviser's
obligations to comply with the FCA's Consumer Duty rules and
principles introduced in 2022 and coming into force in 2023.
Companies that are subject to Consumer Duty must ensure they are
acting to deliver good outcomes and that this is reflected in their
strategies, governance, leadership and policies. The Investment
Adviser is currently undergoing a review of its existing practices
in order to ensure these fulfil the Consumer Duty principles. The
Company is not directly captured by Consumer Duty, however we are
working together with the Investment Adviser to achieve the
forthcoming obligations.
Outlook
Significant uncertainties lie ahead due to multiple geopolitical
and economic factors, and this was exemplified by the recent rescue
of Silicon Valley Bank (SVB") based in California which had a UK
subsidiary. One of the VCT's portfolio companies had funds
deposited with SVB in the UK but these were unaffected following
SVB UK's acquisition by HSBC. The quantum of the investee's deposit
was not material to the overall value of the portfolio.
Nevertheless, across the whole VCT sector and beyond, the event has
underpinned the importance of spreading liquidity risk.
Notwithstanding the foregoing, challenging and uncertain times can
give rise to opportunities for efficient investment into businesses
with significant potential for the future. Further to the
successful realisation of EOTH in November, and Tharstern in March
of this year, the exit environment is likely to become more
restrained. This is not seen as a significant issue given that the
Company is not time-limited. The combined impact of high inflation,
high interest rates and Government spending restrictions can be
expected to impact both consumer and business confidence. We
therefore anticipate that further stresses will become evident
across UK-based businesses over the forthcoming year. Your Company
is invested in a diverse portfolio of businesses managed by a
resourceful and professional investment team. Notwithstanding the
challenges already described, the Company is well positioned to
take advantage of investment opportunities to deliver attractive
returns over the medium and longer term.
I would like to once again thank all our Shareholders for their
continued support.
Jonathan Cartwright
Chair
5 April 2023
Investment Adviser's Review
Portfolio Review
In the year to 31 December 2022 many quoted market values have
declined significantly and the current economic conditions continue
to create challenging circumstances. UK business has seen both
demand and operating margins come under pressure in the face of
widely reported increases in inflation, interest rates and the
associated threat of recession. The impact of this is now being
seen on consumer confidence and business investment.
In the early half of 2022 portfolio value change was therefore
characterised by declining market multiples with relatively stable
company level trading performance carried over in part by the
momentum gained during 2021. However, in the latter part of 2022
and into 2023, the situation has reversed. Markets and multiples
appear to be stabilising while value change has been driven by the
challenging economic conditions which have started to feed through
to portfolio company trading performance. The Company's investment
values have been insulated partially from market movements by the
defensive investment structures employed in many of the portfolio
companies. These act to moderate valuation swings and the net
result is a more modest decline in portfolio value.
Whilst inflation is moderating following the rises in base
rates, it is still at a very high level and therefore a recession
risk remains in the UK during 2023 - albeit recent comment suggests
this may be shallower and shorter than originally feared. There are
also early signs that supply chains are returning to normality,
that the labour market is easing and that there are pockets of
positive market sentiment. In February 2023, the FTSE 100 index
reached an all-time high, although this should be viewed with
caution as many large companies included in that index generate
substantial earnings overseas. The outlook is therefore mixed, and
the emphasis is therefore on robust funding structures and on being
prepared for all foreseeable eventualities. The Gresham House
non-executive directors who sit on each portfolio company board
have responded by working with their boards to ensure that
appropriate scenario planning has been done to achieve the best
results during these uncertain times. There is also now a greater
focus on cash management and capital efficiency. With ample
liquidity following the recent fundraise, the Company is also well
placed to support portfolio companies with follow-on funding where
it is appropriate and can be done on attractive terms.
There are some specific highs in the portfolio such as
Preservica which continues to see strong trading and is
out-performing budget. The partial exit from EOTH was also an
excellent result after a long running process which had to
negotiate numerous economic and geo-political hurdles. By contrast,
there were also some significant falls. The largest was at Virgin
Wines, where market sentiment shifted heavily against the whole
sector despite Virgin Wines itself outperforming its peers. MyTutor
was also impacted by declining sector multiples combined with
slower than anticipated growth over the year.
During the year, the Company made four new growth capital
investments totalling GBP2.03 million and made follow-on
investments into six portfolio companies totalling GBP1.75 million,
a breakdown of these is included later in this Review. The GBP2.03
million of new investments represent the Company's allocated
investment share across all six VCTs managed or advised by Gresham
House, including the two Baronsmead VCTs.
Two strong exits were achieved during the year from MBI and
EOTH. On MBI, the Company received a total of GBP3.98 million in
proceeds during the year generating a realised gain of GBP0.42
million. For EOTH the Company received a total of GBP4.27 million
in proceeds during the year producing a realised gain of GBP0.36
million and the interest yielding loan stock was also retained.
These were both extremely successful investments which, over their
lifetime, produced returns of 2.2x and 6.9x as a multiple of the
original investment cost.
As well as these successes, it was disappointing that Andersen
EV went into administration towards the end of the year despite
securing some large clients such as Porsche and JLR. Andersen
encountered very difficult trading conditions with substantially
reduced demand, supply chain issues, cost pressures and the removal
of government consumer support for the purchase of EV chargers. A
realised loss of GBP0.42 million was recognised during the
financial year as a result.
The investment and divestment activity during the year has
further increased the proportion of the portfolio comprised of
investments made since the 2015 VCT rule change to 80.0% by value
at the year-end (31 December 2021: 63.8%).
The portfolio valuation changes in the year are summarised as
follows:
Investment Portfolio Capital Movement 2022 2021
GBPm GBPm
----------------------------------------------------- ------- ------
Increase in the value of unrealised investments 1.08 27.19
Decrease in the value of unrealised investments (16.53) (1.48)
----------------------------------------------------- ------- ------
Net (decrease)/increase in the value of
unrealised investments (15.45) 25.71
----------------------------------------------------- ------- ------
Realised gains 1.18 4.26
Realised losses (0.44) (0.07)
----------------------------------------------------- ------- ------
Net realised gains in the year 0.74 4.19
----------------------------------------------------- ------- ------
Net investment portfolio movement in the
year (14.71) 29.90
----------------------------------------------------- ------- ------
The portfolio movements in the year are summarised below:
2022 2021
GBPm GBPm
-------- --------
Opening portfolio value 65.58 41.68
-------- --------
New and follow-on investments 3.78 6.23
-------- --------
Disposal proceeds (8.70) (12.23)
-------- --------
Net investment portfolio movement in
the year (14.71) 29.90
-------- --------
Portfolio value at 31 December 45.95 65.58
-------------------------------------- -------- --------
New Investments during the year
The Company made four new investments totalling GBP2.03 million
during the year, as detailed below:
Amount of new
Date of Investment
Company Business investment (GBPm)
------------------ ---------------- --------------
Proximity Insight Retail software February 2022 0.61
------------------ ---------------- -------------- -------------
Proximity Insight (proximityinsight.com) is a retail technology
business that offers a 'Super-App' that is used by the
customer-facing teams of brands and retailers to engage, inspire
and transact with customers. Headquartered in London with offices
in New York and Sydney, Proximity Insight has a global client base
that includes over 20 brands, boutiques and department stores in
fashion, beauty, jewellery, electronics and homewares. These
clients use Proximity Insight's platform to integrate the lines
between physical and digital retail, enhancing the customer
experience and improving the lifetime value of their customers by
upwards of 35%. The business grew annual recurring revenue by 117%
to GBP2.2 million in 2021, and the investment will support
Proximity Insight's continued product development and international
growth.
Marketing technology
Bidnamic business May 2022 0.48
---------------------
Lads Store Limited, trading as "Bidnamic" (bidnamic.com) is a
marketing technology business that offers a Software-as-a-Service
platform for online retailers to manage their search engine
marketing spend. The technology was all developed internally and
uses bespoke machine learning algorithms to automate the management
and optimisation of online retail customers' Google shopping spend.
The ARR of the business has grown substantially over the last two
years and this is projected to continue. The investment round will
be used to further enhance the product's capabilities and drive
continued ARR growth through expanding the sales & marketing
team and building a presence in North America.
GPS enhancement September
FocalPoint software provider 2022 0.50
-------------------
Focal Point Positioning Limited (focalpointpositioning.com) is a
deep tech business with a growing IP and software portfolio. Its
proprietary technology applies advanced physics and machine
learning to dramatically improve the satellite-based location
sensitivity, accuracy, and security of devices such as smartphones,
wearables and vehicles and reduce costs.
Specialists in
eating disorder September
Orri support 2022 0.44
Orri Limited (orri-uk.com) is an intensive day care provider for
adults with eating disorders. Orri provides an alternative to
expensive residential in-patient treatment and lighter-touch
outpatient services by providing highly structured day and half day
sessions either online or in-person at its clinic on Hallam Street,
London. Orri opened its current clinic on Hallam Street, London in
February 2019 which provides a homely environment in a converted
4-storey house but which is operating at capacity. The plan sees a
larger site being leased nearby with Hallam Street being used to
provide a step-down outpatient service.
Further investments during the year
A total of GBP1.75 million was invested into six existing
portfolio companies during the year, as detailed below:
Date of Amount of further
Company Business investment investment (GBPm)
UK Leisure and January / February
Caledonian Leisure experience breaks 2022 0.22
-------------------
Caledonian Leisure works with accommodation providers, coach
businesses and other experienced providers (such as entertainment
destinations and theme parks) to deliver UK-based leisure and
experience breaks to its customers. It comprises two brands,
Caledonian Travel (caledoniantravel.com) and UK Breakaways
(ukbreakaways.com). The domestic leisure and experience travel
market was devastated by the COVID-19 pandemic, but the company was
well-placed to expand as lockdown and travel restrictions eased. A
series of planned investment tranches has helped the company
prepare for and capitalise on the strong demand for UK staycation
holidays.
Dairy and allergen-free
Northern Bloc ice cream producer April 2022 0.12
------------------------
Northern Bloc Ice Cream (northern-bloc.com) is an established
food brand in the emerging and rapidly growing vegan market. By
focusing on chef quality and natural ingredients, Northern Bloc has
carved out an early mover position in the dairy and allergen-free
ice cream sector. The company's focus on plant-based alternatives
has strong environmental credentials as well as it being the first
ice cream brand to move wholly into sustainable packaging.
Following the initial investment in December 2020, Northern Bloc
has grown and strengthened its prospects against a challenging
market backdrop. This further investment provides additional
working capital and funds a new production facility to increase its
resilience, flexibility and margins in the future.
Andersen EV Premium EV chargers May 2022 0.24
--------------------
Muller EV Limited (trading as Andersen EV) (andersen-ev.com) was
a design-led manufacturer of premium electric vehicle (EV)
chargers. Incorporated in 2016, this business secured high profile
partnerships with household brands, establishing an attractive
niche position in charging points for the high-end EV market. This
follow-on funding was to further support its premium brand and
product positioning whilst ensuring all new and existing products
met the most recent and highest safety and compliance standards.
Unfortunately, external factors caused its market and trading
prospects to worsen rapidly, including substantially reduced
demand, global supply chain issues, inflation and the removal of
government consumer support for the purchase of EV chargers. The
company therefore entered administration before the year-end.
Workforce management
RotaGeek software June 2022 0.22
---------------------
RotaGeek (rotageek.com) is a provider of cloud-based enterprise
software to help larger retail, leisure and healthcare
organisations to schedule staff effectively. RotaGeek has proven
its ability to solve the scheduling issue for large retail clients
effectively competing due to the strength of its technologically
advanced proposition. The company has made significant commercial
progress since the VCTs first investment nearly doubling Annual
Recurring Revenues (ARR). This investment aims to boost ARR and
enable the company to take advantage of further large client
opportunities.
Provider of artificial
intelligence & urban
traffic control
Vivacity systems July 2022 0.62
-----------------------
Vivacity (vivacitylabs.com) develops camera sensors with
on-board video analytics software that enables real-time anonymised
data gathering of road transport system usage. It offers city
transport authorities the ability to manage their road
infrastructure more effectively, enabling more efficient monitoring
of congestion and pollution levels as well as planning for other
issues, such as the changing nature of road usage (e.g. the
increasing number of cyclists). The technology and software
represent a significant leap forward for local planning authorities
which have traditionally relied upon manual data collection
methods. This new investment will help boost the company's revenues
through development of new functionality to enhance its product
suite which can also be installed into the existing asset base.
Hair Colourants
Bleach brand August 2022 0.33
----------------
Bleach London Holdings ("Bleach") (bleachlondon.com) is an
established brand which develops and markets a range of innovative
haircare and colouring products. Bleach is regarded as a leading
authority in the hair colourant market having opened one of the
world's first salons focused on colouring and subsequently launched
its first range of products in 2013. This further investment was
part of a wider GBP5.5 million investment round alongside existing
Shareholders and a strategic partner. The funds will be used to
drive further expansion into the strategically important North
American market and to consolidate the brand's position in the
UK.
Portfolio valuation movements
Across the portfolio, comparable market multiples that are used
as the basis of valuation have declined over the year, some by over
30%, but the levels at the year-end reflect a degree of
stabilisation over the final quarter of 2022. Together with several
downward revisions to trading forecasts in the latter half of the
year, this has driven a general decline in investee company values.
As noted, the defensive investment structures used in many of the
portfolio companies serve to moderate the impact of such company
value movements on VCT value. The need to protect and develop value
going forwards in such an uncertain environment underlines the need
for portfolio readiness and planning, robust funding and close
monitoring by the Gresham House team.
The main reductions within total valuation decreases of
GBP(16.53) million, were:
- GBP(6.89) million
* Virgin Wines
- GBP(1.73) million
* MyTutor
- GBP(1.30) million
* Buster and Punch
- GBP(1.15) million
* Wetsuit Outlet
- GBP(1.01) million
* Active Navigation
Virgin Wines has suffered its sector's negative sentiment
notwithstanding the outperformance of its peers. More recently, it
also experienced some short term operational difficulties
particularly in the last quarter of the 2022. MyTutor's growth has
slowed post COVID coupled with a decline in market multiples.
Buster and Punch and Wetsuit Outlet are both consumer facing
businesses that have experienced challenging trading conditions
which resulted in profit downgrades. ActiveNav has developed a new
business line which has gained significant traction and offers
potential but the core business has grown more slowly than planned
which has led to an overall reduction in its valuation.
The uplifts within the total valuation increase of GBP1.08
million were:
- GBP0.44 million
* Tharstern
- GBP0.30 million
* Bella & Duke
- GBP0.22 million
* Orri
- GBP0.12 million
* Preservica
Tharstern has continued to deliver strong trading performance.
Bella & Duke has seen improvements in revenues, Preservica
continues to build its high retention, long contract SaaS business,
improving recurring revenues year on year. Orri is performing as
planned and the valuation uplift simply reflects the first time
recognition of the preferential investment structure.
Portfolio Realisations during the year
The Company realised two investments, one of which was a partial
realisation, as detailed below:
Total cash proceeds
over the life
of the investment/
Period of Multiple over
Company Business investment cost
Publishing and January 2015 GBP6.11 million
MBI events business to June 2022 2.2x cost
------------------
The Company realised its whole investment in MBI for GBP3.98
million (realised gain in the year: GBP0.42 million) including
deferred proceeds received since completion. Total proceeds
received over the life of the investment were GBP6.11 million
compared to an original investment cost of GBP2.72 million,
representing a multiple on cost of 2.2x and an IRR of 13.8%.
Total cash proceeds
over the life
of the investment/
Period of Multiple over
Company Business investment cost
----------- ---------------- --------------
Branded clothing October 2011
(Rab and Lowe to November GBP6.56 million
EOTH Alpine) 2022 6.9x cost
----------- ------------------ ------------ -------------------
The Company realised its equity investment in EOTH for GBP5.05
million (realised gain in the year: GBP0.36 million) including
preference dividends. Total proceeds received to date over the life
of the investment were GBP6.56 million compared to an original
investment cost of GBP0.95 million, representing a multiple on cost
of 6.9x and an IRR of 23.2%. The Company has retained its interest
yielding loan stock investment. Once repaid, this should increase
the multiple on cost to 7.9x .
Loan stock repayments and other gains/(losses) during the
year
The Company also received loan repayments totalling GBP0.05
million from Jablite Holdings Limited.
In addition, deferred consideration totalling GBP0.40 million in
realised gains was received in respect of investments realised in a
previous year. Conversely, as discussed earlier, Muller EV (trading
as Andersen EV) generated a realised loss in the year of GBP(0.44)
million.
Portfolio income and yield
In the year under review, the Company received the following
amounts in loan interest and dividend income:
Investment Portfolio Yield 2022 2021
GBPm GBPm
Interest received in the year 0.71 0.98
Dividends received in the year 0.93 0.35
Total portfolio income in the year(1) 1.64 1.33
--------------------------------------------------- ----- -----
Portfolio Value at 31 December 45.95 65.58
Portfolio Income Yield (Income as a % of Portfolio
value at 31 December) 3.6% 2.0%
--------------------------------------------------- ----- -----
(1) Total portfolio income in the year is generated solely from
investee companies within the portfolio.
New investment made after the year-end
GBP0.75 million was invested into a new investment after the
year-end, as detailed below:
Amount of new
Company Business Date of investment investment (GBPm)
Environmental
Connect Earth data provider March 2023 0.25
-------------- --------------- ------------------- ------------------
Founded in 2021, Connect Earth (connect.earth) is a London-based
environmental data company that democratises easy access to
sustainability data. With its carbon tracking API technology,
Connect Earth supports financial institutions in offering their
customers transparent insights into the climate impact of their
daily spending and investment decisions. Connect Earth's defensible
and scalable product platform suite has the potential to be a
future market winner in the nascent but rapidly growing carbon
emission data market, for example, by enabling banks to provide end
retail and business customers with carbon footprint insights of
their spending. This funding round is designed to facilitate the
delivery of the technology and product roadmap to broaden the
commercial reach of a proven product.
Amount of new
Company Business Date of investment investment (GBPm)
Education and
neuro-inclusion
Cognassist software March 2023 0.50
----------- ----------------- ------------------- ------------------
Cognassist (cognassist.com) is an education and neuro-inclusion
solutions company that provides a Software-as-a-Service (SaaS)
platform focused on identifying and supporting individuals with
hidden learning needs. The business is underpinned by extensive
scientific research and a vast cognitive dataset. Founded in 2019
by Chris Quickfall, Cognassist has scaled its underlying business
within the education market, enabling apprentices to unlock
government funding and helping diverse minds to thrive. This
investment will empower Cognassist to continue its growth within
the education market and penetrate the enterprise market, where
demand for neuro-inclusive solutions to adequately support
employees is rapidly emerging.
Realisations after the year-end
Total cash proceeds
over the life
Period of of the investment/Multiple
Company Business investment over cost:
Software based
management information July 2014 GBP3.01 million
Tharstern systems to March 2023 / 2.6x cost
--------- ----------------------- -------------- ---------------------------
The Company realised its investment in Tharstern Group for
GBP2.14 million. Total proceeds received over the life of the
investment were GBP3.01 million compared to an original cost of
GBP1.16 million, representing a multiple on cost of 2.6x and an IRR
of 15.0%.
Environmental, Social and Governance considerations
The Board and the Investment Adviser believe that the
consideration of environmental, social and corporate governance
("ESG") factors throughout the investment cycle should contribute
towards enhanced Shareholder value.
The Investment Adviser has a team which is focused on
sustainability as well as the Investment Adviser's Sustainability
Committee who provide oversight and accountability for the
Investment Adviser's approach to sustainability across its
operations and investment practices. This is viewed as an
opportunity to enhance the Company's existing protocols and
procedures through the adoption of the highest industry standards.
Each investment executive is responsible for setting and achieving
their own individual ESG objectives in support of the wider
overarching ESG goals of the Investment Adviser. The Investment
Adviser's Private Equity division has its own Sustainable
Investment Policy, in which it commits to:
-- Ensuring its team understands the imperative for effective
ESG management and is equipped to carry this out through management
support and training.
-- Conduct regular monitoring of ESG risks, opportunities and
performance in its investments.
-- Incorporate ESG into its monitoring processes.
Outlook
With inflation, political uncertainty and the threat of
recession impacting consumer confidence and business investment,
the number of UK businesses experiencing financial stress is set to
increase. This will impact all sectors and businesses to varying
degrees and may present attractive opportunities for a selective
investor with the advantage of being able to take a longer-term
view such as your Company. However, the economic backdrop will also
impact our existing portfolio companies and would present a
challenge to less experienced management teams and their advisers .
Markets are volatile and uncertain and business planning is acutely
difficult. As such, the experience of seasoned investment managers
will be increasingly important in the coming year as they seek to
support their portfolio management teams in navigating through some
particularly challenging short-term trading conditions. In this
respect, Gresham House feels well placed in having one of the
largest and most experienced portfolio teams in the industry with
an average of over [18] years relevant industry experience. The
Company has ample liquidity to provide further support to its
portfolio businesses through this period and is keen to make such
investments where there is a commercial case to do so over the
medium to long-term.
Gresham House Asset Management Limited
Investment Adviser
5 April 2023
Annual General Meeting
The AGM will be held on Wednesday, 24 May 2023 at the offices of
Shoosmiths LLP, 1 Bow Churchyard, London EC4M 9DQ and will also be
webcast for those Shareholders who are unable to attend in person.
Details of how to join the meeting by virtual means will be shown
on the Company's website. Shareholders joining virtually should
note you will not be able to vote at the meeting and therefore you
are encouraged to lodge your proxy form. For further details,
please see the Notice of the Meeting which can be found at the end
of the Annual Report & Financial Statements.
Further Information
The Annual Report and Accounts for the year ended 31 December
2022 will be available shortly on Mobeus Income & Growth 4 VCT
plc .
It will also be submitted shortly in full unedited text to the
Financial Conduct Authority's National Storage Mechanism and will
be available for inspection at
data.fca.org.uk/#/nsm/nationalstoragemechanism in accordance with
DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure
Guidance and Transparency Rules.
Contact
Gresham House Asset Management Limited
Company Secretary
mobeusvcts@greshamhouse.com
+44 20 7382 0999
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