Interim Management Statement for the 3 months to 30 November 2016 and Fourth Quarter Update
This report covers the third quarter of the 2016/17 financial year, 1 September 2016 to 30 November 2016.
Investment Report The period under review was dominated by the US election. Trump's plans to cut taxes, boost infrastructure spending and reduce regulations were seen as positive for developed market growth and inflation expectations, sparking a rally in global equities. In the UK, fears over the consequences of the UKs Brexit decision retreated as third quarter GDP growth came in ahead of expectations and consumer spending remained stronger than many had predicted. Looking ahead we believe the UK trading environment continues to look attractive with good evidence of strong and sustainable growth in the economy this year, supported by high levels of employment and consumer confidence. Although the medium-term outlook is difficult to forecast, the UK continues to benefit from loose monetary policy and a Government that has signalled its willingness to provide further support through fiscal policy if the need arises. Aside certain sectors which have struggled with the depreciation in sterling and higher import costs, our corporates continue to report encouraging news flow.
Performance In the three months to 30 November 2016, the NAV decreased from 104.58p to 104.45p. No dividends were paid, giving investors a total return of -0.13 pence per share, which translates to a loss of 0.12%. During the same period the FTSE AIM All-Share Total Return gained 4.01%, whilst the FTSE 100 Total Return gained 0.79%.
The qualifying investments made a net contribution of 0.08 pence per share with twenty-nine out of the sixty eight making gains, nine unchanged and thirty losing ground. The balance was the net of non-qualifying portfolio gains, running costs and investment income.
Quixant (+39.1%, +0.67 pence per share) announced a very strong set of 2016 interims demonstrating strong organic sales growth, a better than expected contribution from the Densitron acquisition and cash flows ahead of expectations. Management remain confident on the full year outlook and analysts upgraded. Fulcrum Utility (+37.0%, +0.39 pence per share) also performed very well. Interims demonstrated significant progress with strong growth in headline financials and new wins coming across multi-utility. Maxcyte (+61.0%, +0.33 pence per share) and Animal Care (+21.0%, +0.28 pence per share) also contributed meaningfully to the NAV.
The biggest losses within the period came from TrakM8 (-53.3%, -1.42 pence per share) which saw its shares fall significantly after a poor set of interims flagging worse than expected revenue growth and poor cash generation. Other losses came from TLA (-35.2%, -0.41 pence per share), Intercede (-43.7%, -0.36 pence per share) and Hardide (-30.0%, -0.27 pence per share).
We invested £1.2m into six qualifying investments over the period, including three further investments into existing qualifying companies; one IPO; one secondary placing into a listed company and one private investment.
Within the qualifying portfolio we reduced our positions in Directa Plus and Surface Transforms.
Portfolio Structure The VCT is comfortably through the HMRC defined investment test and ended the period at 86.22% invested as measured by the HMRC investment test. By market value, the VCT had a 47.2% weighting to qualifying investments.
The allocation to non-qualifying equity investments decreased from 19.0% to 15.7%. We continued to make use of the Marlborough Special Situations Fund as a temporary home for proceeds from fundraising; the allocation decreased from 11.0% to 9.3%. The non-qualifying investments contributed +0.25 pence per share to the overall gains. Fixed income as a percentage of the fund decreased from 2.1% to 0.4% and cash increased from 22.7% to 27.7%.
The HMRC investment tests are set out in Chapter 3 of Part 6 Income Tax Act 2007, which should be read in conjunction with this section of the interim management statement. Funds raised by VCTs are first included in the investment tests from the start of the accounting period containing the third anniversary of the date on which the funds were raised. Therefore, the allocation of qualifying investments as defined by the legislation can be different to the portfolio weighting as measured by market value relative to the net assets of the VCT.
Joint Offer for Subscription of Ordinary Shares On 14 December 2016 the Directors of Hargreave Hale AIM VCT 1 plc and Hargreave Hale AIM VCT 2 plc announced the launch of a new joint offer for subscription of new shares in both VCT's to raise up to £10 million into Hargreave Hale AIM VCT 1 plc and £10 million into Hargreave Hale AIM VCT 2 plc.
Since its launch on 14 December 2016 and the date of this report the offer has resulted in funds being received of £9.42 million by Hargreave Hale AIM VCT 2, and the issue of 8.45 million shares. A further £0.58 million is pending allotment in the 2017/18 tax year. The offer is now fully subscribed.
Buybacks In total, 101,778 ordinary shares were purchased between 1 September 2016 and 30 November 2016, at a total value of £100,825. Since the period end, a further 26,298 ordinary shares were purchased at a total value of £27,427.
Dividends There were no dividends paid out in the 3 months to 30 November 2016, an interim dividend of 2 pence per ordinary shares was paid on 2 December 2016.
Fourth Quarter Update Performance was strong in the fourth quarter, with the NAV gaining 7.09% after adjusting for the 2p interim dividend paid on 2 December 2016. Deal flow was strong with a further five qualifying investments made in My 1st Years, Zappar, Creo Medical, ECSC and Faron Pharmaceuticals. These new qualifying investments helped lift the percentage invested in qualifying investments as at 28 February 2017 to 88.88% (unaudited) as measured by the HMRC investment test.
For further information, please contact:
| Stuart Brookes |
| Company Secretary |
| Hargreave Hale AIM VCT 2 plc |
| 01253 754740 |
Date: 30 March 2017
