Pembroke VCT plc
Annual Report 2017

Plain-text annual report

ANNUAL REPORT for the year ended 31 March 2017 AND FINANCIAL STATEMENTSContents Financial Summary and Investment Objective Chairman’s Statement The Board Investment Adviser’s Review Investment Portfolio Investment Review Strategic Report Directors’ Report Directors’ Remuneration Report Corporate Governance Statement Statement of Directors’ Responsibilities Independent Auditor’s Report Income Statement Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements Notice of Annual General Meeting Corporate Information 04 05 06 08 10 12 26 28 30 34 37 39 43 44 46 48 50 62 64 Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 03 Financial Summary and Investment Objective Financial Summary Year ended 31.03.17 Ordinary shares Year ended 31.03.17 B Ordinary shares Year ended 31.03.17 total Year ended 31.03.16 Ordinary shares Year ended 31.03.16 B Ordinary shares Year ended 31.03.16 total Net assets £20,706,329 £15,679,533 £36,385,862 £20,124,959 £8,558,027 £28,682,986 Number of shares in issue 18,092,297 15,285,811 33,378,108 18,091,202 8,116,777 26,207,979 Net asset value per share 114.45p 102.58p n/a 111.24p 105.44p n/a Investment income £601,998 £603,037 £1,205,035 £621,233 £183,441 £804,674 (Loss)/profit before tax Revenue Capital Total Return per share Revenue Capital Total £(412,942) £254,506 £(158,436) £368,902 £103,031 £471,933 £1,327,698 £(329,829) £997,869 £1,088,170 £530,538 £1,618,708 £914,756 £(75,323) £839,433 £1,457,072 £633,569 £2,090,641 (2.13)p 7.34p 5.21p 1.65p (2.49)p (0.84)p n/a n/a n/a 1.72p 6.17p 7.89p 1.47p 9.32p 10.79p n/a n/a n/a Investment Objective Pembroke VCT plc (the “Company”) is a generalist VCT focused on early stage investments in the leisure and luxury brands sectors. The Company invests in a diversified portfolio of small, principally unquoted companies, and selects those which Oakley Investment Managers LLP (the “Investment Adviser”) believes provide the opportunity for value appreciation. The Board of Directors of the Company (the “Board”) believe that the Company can benefit from leveraging the previous sector experience of the Investment Adviser and also that there are likely to be synergistic advantages from grouping similar businesses. Consequently, most investments fall within one of four sectors: • Health and Fitness • Hospitality • Apparel and Accessories • Media and Technology 04 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Chairman’s Statement I am pleased to present my report for the year ended 31 March 2017. We continued to put investors’ funds to work throughout the year, deploying £6.8 million in new and follow‑on investments having raised a total of £6.9 million in the prior B Ordinary share offer closing September 2016. Our new B Ordinary share offer commenced in November 2016 and achieved strong traction in the VCT market, raising £11.1 million at 31 March 2017. The offer was closed on 30 June 2017 having raised a total of £13.9 million, underlining the progress Pembroke has made in establishing itself as a distinctive growth investment choice among advisers and individual investors. During the period the Total Return (net asset value (“NAV”) plus cumulative dividends paid) of the Ordinary shares rose from 114.84 pence per share at 31 March 2016 to 120.25 pence per share at 31 March 2017. Over the same period the Total Return of the B Ordinary shares fell from 105.44 pence per share to 104.58 pence per share. Investment Overview During the year we made five new investments (Bel‑Air Inc, Alexa Chung, Wishi, Unbolted and KX U) and had the opportunity to re‑invest in a further sixteen constituents of the portfolio. There have been a number of valuation changes across the portfolio, with the overall impact, including new investments funded by the B Ordinary share offer being a rise in the total value of investments including accrued interest from £24.5 million at 31 March 2016 to £32.9 million at 31 March 2017, of which organic equity value increases totalled £2.6 million. The fund made one disposal during the year, with the sale of Penfield in September 2016. In addition our investment in Zenos Cars had to be written off following the company entering administration in January 2017. Proceeds to Pembroke from the sale of the Zenos assets will arrive later this year. For further details please see the Investment Adviser’s Review and Investment Portfolio on pages 8 to 24. Dividends In October 2016 the Company paid a dividend of 2 pence per Ordinary share and 2 pence per B Ordinary share in relation to the financial year ending 31 March 2016. For the financial year under review, the Company paid an interim dividend of 1 pence per Ordinary and 1 pence per B Ordinary share in June 2017. The Board now recommends that the shareholders approve, at the forthcoming Annual General Meeting, the payment of a final dividend of 2 pence per Ordinary share and 2 pence per B Ordinary share. Results The Company made a profit of £0.8 million in the year to 31 March 2017 (year ending 31 March 2016: £2.1 million), representing a weighted return per Ordinary share of 5.21 pence (2016: 7.89 pence) and loss per B Ordinary share of 0.84 pence (2016: return: 10.79 pence). Income arose from the realised losses and unrealised revaluation of investments of £1.3 million (2016: £1.8 million), comprised of unrealised gains on equity and loan stock of £1.3 million, with transfers between unrealised and realised losses of £0.5 million, alongside income principally from loan notes provided to portfolio companies of £1.2 million (£0.8 million). This was offset by Investment Adviser fees of £0.4 million (2016: £0.3 million) and other expenses totalling £1.3 million (2016: £0.3 million) of which the principal component was interest foregone on loans of £1.0 million (2016: £nil) including where loan balances have converted to equity holdings. Total running costs of the Company are capped at 0.5% of NAV per quarter. NAV at 31 March 2017 was £36.4 million (2016: £28.7 million), equivalent to 114.45 pence (2016: 111.24 pence) per Ordinary share and 102.58 pence (2016: 105.44 pence) per B Ordinary share. This includes the impact on NAV of the issue expenses of the offer and dividends paid to the balance sheet date. Outlook Funds raised in the recently closed B Ordinary share offer will be deployed in a continuation of the current strategy of investing in high quality opportunities and selective follow‑on investments in the existing portfolio. The management team continue to evaluate a wide range of new opportunities, seeing the existing strategy is capable of producing strong investments in a sector in which we have significant domain expertise. We have seen a number of changes to the VCT sector in light of the modification of the VCT Rules in November 2015, which aimed to eliminate management buyout strategies and later‑stage replacement capital from State Aid funded companies. Pembroke’s strategy has remained unchanged throughout this transition, having been a supporter of early stage, high growth businesses since its inception. Annual General Meeting The Annual General Meeting (“AGM”) will be held at the Company’s offices at 3 Cadogan Gate, London SW1X 0AS on 7 September 2017 at 9.30 am. Jonathan Djanogly Chairman 28 July 2017 Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 05 The Board Jonathan Djanogly Independent non‑ executive Chairman Laurence Blackall Independent non‑ executive Director Jonathan is a non‑practising solicitor and was, for over ten years, a corporate partner at City law firm SJ Berwin LLP. He specialised in mergers and acquisitions, private equity and joint ventures as well as fund raising on public markets. Jonathan has been a Member of Parliament since 2001, in which capacity he served for approximately four years as a Member of the Trade and Industry Select Committee. He also served on the Opposition front bench as shadow Solicitor General and as a shadow Minister for Trade and Industry with responsibility for employment law and corporate governance. From 2010 Jonathan served as a Justice Minister for over two years. He currently chairs the All Party Parliamentary Group on Corporate Governance. Laurence has had a 30‑year career in the information, media and communication industries. After an early career at Virgin and the SEMA Group he was a director of Frost & Sullivan before moving to McGraw Hill where he was a vice‑president in its computer and communications group. He then went on to found AIM listed Internet Technology Group plc in 1995 and successfully negotiated its sale in 2000 for a consideration of almost £150 million. Laurence was also instrumental in the creation of Pipex Communications plc. He has interests in a range of leisure and TMT businesses and currently holds a number of directorships in public and private UK companies. He is a Governor of the University of Kingston. Peter Dubens Non‑ independent non‑ executive Director Peter Dubens is a British entrepreneur, best known for founding the Oakley Capital Group, a privately owned asset management and advisory group comprising private equity, venture capital, corporate finance and capital introduction operations, managing £1.6 billion. The vision of Oakley Capital has always been to encourage and back entrepreneurship. To that end, Oakley Capital Private Equity, invests in and supports the continued growth and development of some of Europe’s leading companies, including the iconic sailing brand, North Sails and Facile, Italy’s leading price comparison website. Oakley Capital currently advises Oakley Fund 1, 2 and 3 for its Limited Partners as well as Oakley Capital Investments Limited, a London, AIM‑listed investment vehicle that invests in Oakley’s private equity funds. Pembroke VCT was established by Oakley Capital in 2013 to support the growth of smaller, early‑stage high growth businesses that the group encountered. It capitalises on the origination and institutional asset management strengths of Oakley Capital to provide retail investors access to entrepreneurial opportunities in consumer branded goods and services. Having invested in 28 businesses to date, Pembroke’s assets range across the fitness, fashion, hospitality and media sectors. It now offers a well‑recognised venture financing solution for high growth brand‑led companies with a foundation in the UK. Oakley Capital is also the founding partner of PROfounders Capital a venture capital fund for entrepreneurs powered by entrepreneurs who invest in and support new businesses in the mobile, internet and technology space with capital, proactive advice and expertise in order to create long‑term value and promote entrepreneurism. 06 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Investments Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 07 Investment Adviser’s Review on these opportunities presented in the Investment Review on pages 12 to 24. The Company exited two investments during the year. Penfield, the outdoor- focused clothing brand in which the Company held equity plus a preferred debt position, was sold in September 2016 to a trade buyer able to provide additional working capital and distribution capabilities to the business. The Company achieved a full return on its accrued loan position, however net returns to our equity holding were £0.3 million below cost after accounting for transaction expenses. The year also saw Zenos Cars enter administration following the failure of a sales arrangement with a Far Eastern buyer. The Company’s equity investment of £0.5 million was written off in the quarter ending 31 December 2016, while the final amount of our recovery from the Company’s secured loan position will be known later in 2017. Since the year end the Company has made investments totalling £1.9 million in five companies including one new investment of £0.7 million and four follow‑on investments of £1.2 million in aggregate. Our new investment was in Heist, an innovative producer of premium hosiery offering a disruptive product which has already achieved significant sales and has the potential to gain wider traction in a large but previously static global market. Follow‑on investments of £1.2 million post the year end were made in existing portfolio companies Boom Cycle (£0.3 million), Alexa Chung (£0.3 million), Plenish (£0.2 million) and Sourced Market (£0.4 million). All investments post year end were made by the B Ordinary share fund. Investment Performance Companies that have performed well and justified upwards revaluations during the year of the equity held include Second Home, which consolidated its position in the shared working space with confirmations of a move from one to four sites, including a new location in Lisbon. This growth was funded via a well subscribed equity raise, in which the Company participated to maintain its stake in what is an attractive growth opportunity with clear routes to exit. Boat International continued to make progress against its objective of being a multi‑channel portal into aspirational luxury, accessed via the superyacht lifestyle. Blaze’s success in being specified as an integral part of London’s Santander Cycle scheme has led to further overseas city bike hire interest in their technology, complementing the consumer offering from their innovative laser lights. The manager has also been pleased to see continued growth at Plenish, where the well regarded cold press juices have been joined by a nut milk range that has achieved significant sales success across independents, multiple retailers and online. Owing to their trading performance, we have also assessed the fair value of Troubadour Goods and Stillking Films to be higher than at March 2016. A number of our portfolio investments have had further funding rounds conducted at a premium to the previous price at which they were last valued, often the result of strong underlying performance being recognised by new investors wishing to participate in the next stage of growth. Overview The Company made five new investments and made follow‑on investments in sixteen companies in the year to 31 March 2017, spanning the Company’s expertise in the health and fitness, hospitality, apparel and accessories, and media and technology sectors. At the year end, the portfolio comprised 26 investments with a cost of £26.5 million and a fair value of £32.9 million, representing a 23.8% increase over cost. Portfolio Review The Company invested £1.8 million in the five new investments made during the year and has invested a further £5.0 million in the form of debt and equity investments in the sixteen existing portfolio companies. The five new investments were KX U, Bel‑Air Inc, Alexa Chung, Wishi and Unbolted, all of which are unquoted, with investments made in the form of new ordinary equity with full voting rights. The sixteen follow‑on investments comprise nine further equity commitments to support further growth in Boom Cycle, Plenish, Second Home, Sourced Market, ME+EM, Rated People, Zenos Cars, Blaze and Penfield, alongside the extension of loans to provide working capital to ten investee companies (Boom Cycle, Dilly & Wolf, La Bottega, Chucs Bar & Grill, Kat Maconie, Bella Freud and Bella Freud Parfum, ME+EM, Boat International and Penfield). All investments were made by the B Ordinary share class. The new investments capitalise on our insights into the sectors in which we invest. KX U is a premium pay‑as‑ you‑go gym operator, established with the brand ethos of the KX Gym and occupying a favourable site in an area of London enjoying high disposable incomes. Alexa Chung formed one of the most notable fashion launches of the last year and has seen a positive reception to its inaugural collection from press and wholesale buyers alike. Smaller investments of £0.2‑0.3 million were made in Bel‑Air Inc, Wishi and Unbolted to establish Pembroke’s participation at an earlier stage of each company’s evolution, with further detail 08 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Investment Adviser’s Review continued Since March 2016 the Company has recognised Chucs at nil equity value. While efforts were made during the year to deliver the wholesale revenues required to sustain the brand, including the appointment of a new CEO and creative team and the repositioning of the product in line with its luxury menswear offering, it was determined that the capital required to enlarge the company to profitability was excessive. As a result the retail operations were halted in February 2017, with a view to exploiting the inherent value of the Chucs brand in other ventures, including the restaurant operator Chucs Bar & Grill. Interest foregone on loans due from Chucs amounted to £0.1 million (see Note 8 to the Financial Statements on page 52). La Bottega, which operates in the casual dining sector, has responded to continued rental pressure on several of its London sites by closing less profitable stores while reinvesting in others to improve ambience and service levels. While this process is underway, we choose to write down the value of the debt to reflect the fundamental value of the business (see Note 8 to the Financial Statements on page 52). We have also judged it prudent to write down to nil the value of Dilly & Wolf, the healthy foods business, following disappointing sales performance in the wider snacking marketplace. Finally we have opted to reduce the equity valuation of Chucs Bar & Grill to recognise the debt incurred by the business during its expansion to a second successful site over the last year. We believe the future for the Chucs dining offer is bright and continue to support its expansion with two significant new openings scheduled for late 2017 and early 2018. There have been a number of instances in the portfolio where loans to investments have undergone conversion into equity in line with their contractual provisions. In such cases, the carrying value, including accrued interest not foregone, is converted to new equity, with the value of interest foregone recognised as an expense in the accounts. This is the case for Boom Spin, Second Home and ME+EM. Further details of interest foregone are detailed in Note 8 to the Financial Statements. Four investments are held at cost (KX U, Bel‑Air Inc, Wishi and Unbolted) which we consider to be fair value, given that evidence of significant movement from the original investment appraisal has not yet been observed. Further details may be found in the Investment Portfolio and Investment Review on pages 10 to 24. Valuation Investments held by the Company have been valued in accordance with the International Private Equity and Venture Capital (IPEVC) valuation guidelines developed by the British Venture Capital Association and other organisations. Through these guidelines, investments are valued as defined at ‘fair value’. Ordinarily, unquoted investments will be valued at cost for a limited period following the date of acquisition, being the most suitable approximation of fair value unless there is an impairment or significant accretion in value during the period. The portfolio valuations are prepared by the Investment Adviser, reviewed and approved by the Board and subject to audit annually. In determining fair value, the Investment Adviser uses various valuation approaches, including a combination of the price of recent investment and a market‑based approach. The market approach ascribes a value to a business interest or shareholding by comparing it to similar businesses, using the principle of substitution: that is, that a prudent purchaser would pay no more for an asset than it would cost to acquire a substitute asset with the same utility and income earning potential. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 09 Investment Portfolio as at 31 March 2017 Ordinary shares Health and Fitness Boom Cycle KX Gym Plenish Dilly & Wolf Hospitality Chilango Five Guys UK La Bottega Chucs Bar & Grill Second Home Sourced Market Apparel and Accessories Kat Maconie Troubadour Goods Bella Freud Bella Freud Perfume Chucs Penfield Media and Technology Boat International Media Rated People Zenos Cars Blaze Stillking Films Investments before interest Interest rolled up in fixed income investments* Total investments Net current assets Net assets As at 31.03.17 Fair value £ Cost £ % of net assets As at 31.03.16 Fair value £ Cost £ % of net assets 429,460 700,000 325,000 270,000 549,850 1,512,800 1,960,000 614,278 525,074 830,000 320,000 590,000 400,000 190,000 990,039 – 2,100,000 585,738 500,000 200,000 1,451,770 349,860 827,835 1,416,375 – 729,792 3,179,495 885,808 591,729 3,249,446 903,612 711,233 1,171,722 983,333 122,500 73,118 – 1,741,491 458,648 – 284,920 2,112,862 15,044,009 19,793,779 483,420 483,420 15,527,429 429,130 20,277,199 429,130 1.7 4.0 6.8 – 3.5 15.3 4.3 2.9 15.7 4.4 3.4 5.7 4.7 0.6 0.4 – 8.4 2.2 – 1.4 10.2 95.6 2.3 97.9 2.1 429,460 700,000 325,000 270,000 549,850 1,512,800 1,960,000 614,278 525,074 830,000 320,000 590,000 400,000 190,000 990,039 614,400 2,100,000 585,738 500,000 200,000 1,451,770 412,487 733,344 1,392,664 270,000 729,792 3,211,687 1,090,000 822,170 1,433,633 760,353 711,233 1,106,265 983,333 190,000 340,000 404,817 1,315,824 486,053 500,000 200,000 1,542,641 15,658,409 18,636,296 1,099,753 1,099,753 16,758,162 388,910 19,736,049 388,910 2.1 3.7 6.9 1.3 3.6 16.0 5.4 4.1 7.1 3.8 3.5 5.5 4.9 0.9 1.7 2.0 6.5 2.4 2.5 1.0 7.7 92.6 5.5 98.1 1.9 15,956,559 20,706,329 100.0 17,147,072 20,124,959 100.0 *Added to investments in Financial Statements Segment analysis The charts below show the segment analyses of the investment portfolio based on cost at 31 March 2017. Pembroke Ordinary Pembroke B Ordinary 11% Health and Fitness 40% Hospitality 17% Apparel and Accessories 32% Media and Technology 19% Health and Fitness 36% Hospitality 25% Apparel and Accessories 20% Media and Technology 10 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Investment Portfolio as at 31 March 2017 continued B Ordinary shares Health and Fitness Boom Cycle Plenish Dilly & Wolf KX U Hospitality Chilango Five Guys UK La Bottega Chucs Bar & Grill Second Home Sourced Market Bel‑Air Inc Apparel and Accessories Kat Maconie Troubadour Goods Bella Freud Bella Freud Perfume Chucs Penfield ME+EM Alexa Chung Cheekfrills Media and Technology Boat International Media Rated People Zenos Cars Blaze Wishi Unbolted Investments before interest Interest rolled up in fixed income investments* Total investments Net current assets Net assets As at 31.03.17 Fair value £ Cost £ % of net assets As at 31.03.16 Fair value £ Cost £ % of net assets 724,979 850,004 125,000 480,000 85,000 570,400 550,000 1,045,011 960,022 650,000 300,000 200,000 150,000 800,000 50,000 225,000 – 800,000 650,000 – 1,300,000 55,480 175,000 352,697 153,433 250,033 724,979 854,590 – 480,000 85,000 1,198,986 – 935,192 1,623,551 561,825 300,000 200,000 158,859 800,000 50,000 26,882 – 974,403 1,000,000 – 1,300,000 52,698 – 413,134 153,433 250,033 4.6 5.5 – 3.1 0.5 7.6 – 6.0 10.4 3.6 1.9 1.3 1.0 5.1 0.3 0.2 – 6.2 6.4 – 8.3 0.3 – 2.6 1.0 1.6 – 250,000 100,000 – 85,000 570,400 250,000 375,011 510,034 250,000 – – 150,000 – – – 324,733 200,000 – 205,000 500,000 – – 290,000 – – – 250,000 100,000 – 85,000 1,211,124 250,000 375,011 662,072 250,000 – – 150,000 – – – 232,790 289,028 – – 500,000 – – 290,000 – – 11,502,059 12,143,565 77.5 4,060,178 4,645,025 453,210 453,210 11,955,269 3,082,758 12,596,775 3,082,758 2.9 80.4 19.6 124,197 124,197 4,184,375 3,788,805 4,769,222 3,788,805 – 2.9 1.2 – 1.0 14.2 2.9 4.4 7.7 2.9 – – 1.8 – – – 2.7 3.4 – – 5.8 – – 3.4 – – 54.3 1.4 55.7 44.3 15,038,027 15,679,533 100.0 7,973,180 8,558,027 100.0 *Added to investments in Financial Statements Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 11 Investment Review as at 31 March 2017 Health and Fitness Boom Cycle KX Gym Boom Cycle is an indoor cycling concept which offers a fun, high intensity cardiovascular workout. The business currently has four studios based in London (Shoreditch, Holborn, Hammersmith and Battersea) where they combine indoor spin cycling with various exercise classes for both upper and lower body work‑outs. Boom Cycle is one of the foremost dedicated spinning studios in London, and is on track to replicate the success of some larger players in the US. KX Gym, founded in 2002, is a private members’ gym and spa, which includes a restaurant and clubroom, located in Chelsea, London. KX offers members an exclusive holistic approach to wellbeing, incorporating fitness, diet and relaxation. Cost Valuation £1,154,439 Cost £1,074,839 Valuation Interest rolled up in fixed income investment £nil Interest rolled up in fixed income investment Basis of valuation Equity holding Multiples Basis of valuation 31.6% Equity holding Investment in the year at cost £699,979 Investment in the year at cost Total income recognised in the year Interest forgiven in the year £36,254 £37,271 Total income recognised in the year £700,000 £827,835 £nil Multiples 11.8% £nil £nil 12 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Investment Review as at 31 March 2017 continued Plenish Dilly & Wolf Plenish, founded in 2012, is one of the leading cold‑pressed juicing businesses in the UK, offering 100% raw organic (unpasteurised) juice. Cold‑press juicing is a convenient way to pack a large amount of vegetables and fruit into your diet. The company has supplemented its juice range with four varieties of nut milk, which has been well received by the wholesale and retail markets. Founded in 2013, Dilly & Wolf is a new premium snack brand. The company produces tasty and nourishing food using globally inspired recipes such as kabuki beans, quinoa and fava beans. Cost Valuation £1,175,004 Cost £2,270,965 Valuation Interest rolled up in fixed income investment £11,979 Interest rolled up in fixed income investment Basis of valuation Equity holding Last equity raise Basis of valuation 37.4% Equity holding Investment in the year at cost £600,004 Investment in the year at cost Total income recognised in the year £11,976 Total income recognised in the year Interest forgiven in the year £395,000 £nil £nil Fair value 27.0% £25,000 £14,283 £33,477 Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 13 Investment Review as at 31 March 2017 continued Health and Fitness continued Hospitality KX Urban Chilango KX Urban (KX U) is a pay‑as‑you‑go development of the established KX luxury gym brand. It will offer a range of classes alongside a high quality traditional gym environment. It has secured a site in London’s Sloane Square with the opening of its first site scheduled for Q3 2017. Chilango is a fast‑casual Mexican restaurant chain based on successful US business models. There are currently eleven restaurants across high footfall areas of London, plus a Manchester outlet that forms the basis for the brand’s regional roll‑out. Cost Valuation £480,000 £480,000 Cost Valuation Interest rolled up in fixed income investment Basis of valuation Equity holding £2,466 Cost 11.3% Interest rolled up in fixed income investment Basis of valuation Equity holding Investment in the year at cost £480,000 Investment in the year at cost Total income recognised in the year £2,466 Total income recognised in the year £634,850 £814,792 £nil Last equity raise 3.0% £nil £nil 14 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Investment Review as at 31 March 2017 continued Five Guys UK La Bottega Five Guys was founded in the US. The company serves a range of hand‑made burgers made with fresh locally sourced beef and cooked on a grill, along with fresh‑cut fries, served with unlimited toppings. It now has 74 outlets in the UK with plans for further growth. La Bottega is an Italian chain of delicatessens in London, which serve high‑quality authentic Italian food and coffee. Currently there are four shops trading in London in Chelsea, Belgravia, South Kensington and Pont Street. Cost Valuation £2,083,200 Cost £4,378,481 Valuation Interest rolled up in fixed income investment Basis of valuation Equity holding Investment in the year at cost £261,606 Multiples 2.1% £nil Interest rolled up in fixed income investment Basis of valuation Equity holding Investment in the year at cost Total income recognised in the year £261,606 Total income recognised in the year Interest forgiven in the year £2,510,000 £885,808 £nil Multiples 40.0% £150,000 £267,600 £735,827 Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 15 Investment Review as at 31 March 2017 continued Hospitality continued Chucs Bar & Grill Second Home Chucs Bar & Grill is a restaurant concept reflecting the style and branding of the Chucs retail brand. The first restaurant is located on Dover Street in Mayfair, the second on Westbourne Grove, with further sites under development. Second Home offers flexible and modern office space for fast-growing technology firms and creative businesses. Combining architectural design with first class amenities, Second Home provides users with a unique and impressive office environment in which to locate their business for short, medium and long‑term. Cost Valuation £1,659,289 Cost £1,526,921 Valuation £1,485,096 £4,872,997 Interest rolled up in fixed income investment £210,356 Interest rolled up in fixed income investment £nil Basis of valuation Equity holding Last equity raise Basis of valuation Last equity raise 26.6% Equity holding Investment in the year at cost Total income recognised in the year £370,000 £131,513 Investment in the year at cost Total income recognised in the year Interest forgiven in the year 16 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 4.6% £449,988 £5,369 £13,208 Investment Review as at 31 March 2017 continued Sourced Market Bel-Air Inc Sourced Market, launched in 2007, is a retail, café and restaurant concept that offers a curated selection of locally sourced fresh produce replicating the products and ambience found at a farmers market. The company’s flagship site is in St Pancras International in King’s Cross has been complemented by three further sites in Marylebone, Victoria and Barbican. Established in 2015 Bel‑Air Inc is a Californian‑inspired café offering distinctive fresh meats, fish and salads to the premium London breakfast and lunchtime dining market. Its mission is to deliver delicious fresh food that is nutritious and packed with whole foods. Bel-Air’s first site in Shoreditch has been joined by two further outlets in office locations in Holborn and the City. Cost Valuation £1,480,000 Cost £1,465,437 Valuation Interest rolled up in fixed income investment £3,616 Interest rolled up in fixed income investment Basis of valuation Equity holding Multiples Basis of valuation 26.0% Equity holding Investment in the year at cost £400,000 Investment in the year at cost Total income recognised in the year £21,972 Total income recognised in the year £300,000 £300,000 £nil Cost 7.7% £300,000 £nil Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 17 Investment Review as at 31 March 2017 continued Apparel and Accessories Kat Maconie Troubadour Kat Maconie, founded in 2008, designs and manufactures ladies’ shoes which are sold online, in department stores and in boutiques globally. In 2017, the company collaborated with a Korean cosmetics major, resulting in significant expansion in sales to a new geography subsequent to the year end. Troubadour Goods is a London‑based luxury men’s accessories brand specialising in designing and creating superior handcrafted leather and textile goods. Cost Valuation £520,000 Cost £911,233 Valuation £740,000 £1,330,581 Interest rolled up in fixed income investment £5,425 Interest rolled up in fixed income investment £nil Basis of valuation Equity holding Last equity raise Basis of valuation Last equity raise 22.3% Equity holding 37.8% £nil £nil Investment in the year at cost £200,000 Investment in the year at cost Total income recognised in the year £5,425 Total income recognised in the year 18 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Investment Review as at 31 March 2017 continued Bella Freud Bella Freud Perfume Bella Freud is a fashion designer and manufacturer producing a range of high‑end men’s and women’s clothing, focusing on knitwear. Currently her products are available at her flagship store on Chilton Street in London, via her e‑commerce site and through a range of luxury boutiques and department stores in UK, Asia and the US. With the continuing success of her fashion brand, Bella Freud, in cooperation with perfumer Azzi Glasser, has launched a series of fragrances with three scents blending modernity and heritage, including Je t’aime Jane, Ginsberg is God and the 1970. Bella Freud Perfume is now stocked in a range of boutiques and department stores globally. Cost Valuation £1,200,000 Cost £1,783,333 Valuation Interest rolled up in fixed income investment £101,104 Interest rolled up in fixed income investment £240,000 £172,500 £28,077 Basis of valuation Equity holding Last equity raise Basis of valuation Last equity raise 27.8% Equity holding Investment in the year at cost Total income recognised in the year £50,000 £29,070 Investment in the year at cost Total income recognised in the year 22.5% £50,000 £15,344 Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 19 Investment Review as at 31 March 2017 continued Apparel and Accessories continued Chucs ME+EM Chucs represents a luxury brand of men’s leisure wear. The company will seek routes to realise value in the Chucs brand through commercial partnerships where available. ME+EM, founded in 2008, is a contemporary womenswear brand founded by Claire Hornby, designing and producing its collections primarily through catalogues and online, with one retail site in Connaught Street. The range now consists of dresses, knitwear, denim, separates and accessories. The brand targets women aged 30‑55 who are busy and fashion conscious, offering a classic authentic look with designer quality at an affordable price. Cost Valuation £1,215,039 Cost £100,000 Valuation Interest rolled up in fixed income investment £nil Interest rolled up in fixed income investment £800,000 £974,403 £nil Basis of valuation Equity holding Investment in the year at cost Total income recognised in the year Interest forgiven in the year Fair value Basis of valuation Last equity raise 11.7% £nil £49,427 £115,463 Equity holding Investment in the year at cost Total income recognised in the year Interest forgiven in the year 12.4% £600,000 £15,689 £15,689 20 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Investment Review as at 31 March 2017 continued Alexa Chung The iconic model and designer, launched her own fashion label in May 2017. It offers accessible luxury womenswear and has already achieved substantial first season wholesale orders. It will produce four in‑season collections per year internationally, with stockists in over fifteen countries. Cost Valuation £650,000 £1,000,000 Interest rolled up in fixed income investment £nil Basis of valuation Equity holding Investment in the year at cost Total income recognised in the year Last equity raise 15.1% £650,000 £nil Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 21 Investment Review as at 31 March 2017 continued Media and Technology Boat International Media Rated People Recognised as a significant worldwide media group serving the superyacht industry, Boat International Media provides information and services across traditional print, digital media and high quality events. In 2016 the team re‑branded Show Boats magazine under the Boat International USA title. Rated People, founded in 2005, is one of the UK’s leading online market places for homeowners to find tradesmen for home improvement jobs. Cost Valuation £3,400,000 Cost £3,041,491 Valuation Interest rolled up in fixed income investment Basis of valuation Equity holding £312,001 Multiples 21.6% Equity holding Interest rolled up in fixed income investment Basis of valuation Last equity raise £641,218 £511,346 £nil 1.6% £55,480 £nil Investment in the year at cost Total income recognised in the year £600,000 £209,309 Investment in the year at cost Total income recognised in the year 22 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Investment Review as at 31 March 2017 continued Blaze Stillking Films Blaze designs products which enhance bike safety. Their flagship product is the Blaze Laserlight, which projects a laser image five to six metres on the ground ahead of the cyclist to ensure other road users know that you are present. The company has entered the global cycle hire market with a broadened product offer, being featured throughout London’s Santander Cycle fleet. Stillking Films is a prolific producer of commercials, TV series, feature films and music videos. The company has created commercials for almost all Dow Jones and FTSE advertisers. They have co-produced a number of successful feature films, including Casino Royale, Narnia, Mission Impossible 4 and The Bourne Identity and created music videos for artists including Beyoncé, Kanye West, Blur, Madonna and One Direction. Cost Valuation £552,697 £698,054 Cost Valuation Interest rolled up in fixed income investment £nil Interest rolled up in fixed income investment Basis of valuation Equity holding Fair value Basis of valuation 6.5% Equity holding Investment in the year at cost £62,697 Investment in the year at cost Total income recognised in the year £nil Total income recognised in the year £1,451,770 £2,112,862 £nil Multiples 5.0% £nil £nil Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 23 Investment Review as at 31 March 2017 continued Media and Technology continued Wishi Fashion Unbolted Wishi is an innovative fashion technology business that brings together personal styling and online wardrobe management functionality to help fully exploit an individual’s current wardrobe and provide new clothing suggestions personalised to their look. Unbolted provides a platform for peer‑to‑peer secured lending, offering short term liquidity to individuals seeking bridging facilities or advance sale loans for personal or small business use. Cost Valuation £153,433 £153,433 Cost Valuation Interest rolled up in fixed income investment Basis of valuation Equity holding £nil Cost 3.1% Interest rolled up in fixed income investment Basis of valuation Equity holding Investment in the year at cost £153,433 Investment in the year at cost Total income recognised in the year £nil Total income recognised in the year £250,033 £250,033 £nil Cost 4.4% £250,033 £nil 24 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Statutory Reports Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 25 Strategic Report Statutory Reports This report has been prepared by the Directors in accordance with the requirements of Section 414 of the Companies Act 2006 and incorporates the Financial Summary, Chairman’s Statement and Investments section. The aim of the Strategic Report is to provide shareholders with the ability to assess how the Directors have performed their duty to promote the success of the Company for shareholders’ collective benefit. Investment strategy The Investment objective of the Company is to generate tax free capital gains and income on investors’ funds through investment primarily in companies within the leisure and luxury brands sectors, whilst mitigating risk appropriately within the framework of the structural requirements imposed on all VCTs. Investment policy The Company will continue to invest primarily in unquoted companies, across a diverse range of businesses; predominantly those which the Investment Adviser considers are capable of organic growth and, in the long term, sustainable cash flow generation. The investments will be focused towards consumer‑facing businesses with an established brand or where brand development opportunities exist. The Company will continue its strategy of investing in a small portfolio of qualifying investments where, in most cases, the Investment Adviser is able to exert influence over key elements of each investee company’s strategy and operations. Investee companies may be at any stage in their development from start‑up to established businesses, however the Company aims to invest broadly 60% in established and 40% in early‑stage businesses. It is expected that a substantial proportion of the qualifying investments will be in the form of ordinary shares, and in some cases preference shares or loans. It is anticipated that, at any time, up to 30% of investments will be held in non‑qualifying investments, recognising that no single investment will represent more than 15% of net assets (at the time of investment). Until suitable qualifying investments are identified, up to 30% of net assets will be invested in a portfolio of investments which may include quoted companies, money market securities and cash deposits. The portfolio of non‑qualifying investments will be managed with the intention of generating a positive return. Business review A detailed review of the Company’s development and performance during the year and consideration of its future prospects may be obtained by reference to this Report, the Chairman’s Statement (page 5) and the Investment Adviser’s Review (pages 8 and 9). Details of the investments made by the Company are given in the Investment Portfolio summary (pages 10 and 11) and the Investment Review report (pages 12 to 24). A summary of the Company’s key financial measures is given on page 4. Management agreement Under an investment management agreement entered into on 15 February 2013, novated to the Investment Adviser in July 2014 and variation on 3 October 2014 (the “IMA”), the Investment Adviser provides discretionary and advisory investment management services to the Company in respect of its portfolio of investments. Under the IMA, the Investment Adviser and the Company have agreed to fix the annual running costs of the Company at 2.0% of the Company’s net asset value (and to the extent that they exceeded that cap, the Investment Adviser would bear those costs). The Investment Adviser is entitled to an annual management fee of the amount by which the annual running costs (other than the annual management fee) are less than 2.0%. It is therefore expected that the annual running costs payable by the Company each year will be 2.0% of its net asset value. The annual management fee is payable quarterly in advance based on projected Annual Running Costs and subject to a final balancing adjustment payment either way. Annual running costs include the regular ordinary course of business running costs of the Company but do not include costs 26 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 related to extraordinary events or significant discretionary corporate events and do not include any Performance Fee payable (as described below). As is customary in the venture capital industry, the Investment Adviser will receive a performance fee when the Company has performed well. The performance fee payable by the Company is 20% (exclusive of VAT) of any amounts distributed to shareholders in excess of £1 per share. In order to ensure that the interests of the Investment Adviser and shareholders are aligned, and to provide a strong incentive to the Investment Adviser, the performance fee will not be payable until distributions (whether of capital or income) to shareholders have exceeded certain hurdles. The hurdle in respect of the Ordinary Shares is that Ordinary shareholders must have received in aggregate a return equivalent to at least 8% per annum per share on the amount subscribed per share as from 20 January 2014 in respect of Ordinary shares issued pursuant to the launch offer and from 31 March 2014 in respect of Ordinary shares issued under the 2014 top up offer. The hurdle in respect of the B Ordinary shares is that B Ordinary shareholders must have received in aggregate a return equivalent to at least 3% per annum per share on the amount subscribed per share as from (i) the date of the last allotment under the offer of B Ordinary shares on the basis of the October 2014 prospectus in respect of shares issued under that prospectus or (ii) the date of the issue of relevant B Ordinary shares under any subsequent offer of B Ordinary shares, and in either case up to the date of proposed payment of the relevant Performance Incentive Fee. Where, at the time of a distribution there have been previous distributions to the relevant class of shareholders, for the purposes of determining if the hurdle on the relevant shares has been met, the return will be calculated from the day after the previous distribution date for the relevant shares on the total amount subscribed per relevant share by shareholders but reduced by the aggregate amount of such previous distributions made on the relevant shares on a per share basis. Strategic Report continued The performance fee will be calculated separately on the Ordinary shares and the B Ordinary Shares. For example, in respect of Ordinary shares, once total paid or declared dividends have reached £1.00 per Ordinary share plus 8 pence per Ordinary share per annum, the Investment Adviser will be paid 20% (exclusive of VAT) of any amounts distributed to shareholders in excess of £1.00 per Ordinary share, with the remaining 80% being distributed as a dividend to Ordinary shareholders. In respect of B Ordinary shares, once total paid or declared dividends have reached £1.00 per B Ordinary share plus 3 pence per B Ordinary share per annum, the Investment Adviser will be paid 20% (exclusive of VAT) of any amounts distributed to shareholders in excess of £1.00 per share, with the remaining 80% being distributed as a dividend to B Ordinary shareholders. The Investment Adviser’s appointment under the IMA will continue until terminated on 12 months’ notice given by either party at any time. The Directors are of the opinion that the Investment Adviser continues to raise, invest and manage funds for the Company effectively and that the continuing appointment of the Investment Adviser on the terms agreed is in the interest of all shareholders. Venture Capital Trust status The Company was granted approval as a Venture Capital Trust by HM Revenue & Customs under section 274 of the Income Tax Act 2007. The Directors have managed the affairs of the Company in compliance with this section throughout the year under review and intend to continue to do so. Risk management The Board has carried out a robust assessment of the principal risks facing the Company through a risk management programme whereby it continually identifies the principal risks and uncertainties faced by the Company, including those that would threaten its business model, future performance, solvency or liquidity and reviews both the nature and effectiveness of the internal controls adopted to protect the Company from such risks as far as is possible. The principal risks facing the Company are Venture Capital Trust status risk and investment valuation and liquidity risk. Venture Capital Trust status risk The Company is required to fulfil certain criteria in order to maintain its VCT status. Where full approval as a VCT is not maintained, this could potentially result in the loss of tax relief (i.e. capital gains and income tax relief) which have been provided to both the Company and investors alike. The Investment Adviser continually monitors compliance with the relevant VCT regulations, and has engaged Philip Hare & Associates LLP to provide periodic reports to ensure compliance. Investment valuation and liquidity risk The Company invests in small to medium sized businesses, some of which are start‑up companies. As such, there is an inherent degree of risk and lower liquidity than is the case when investing in larger, established quoted companies. The Investment Adviser performs in‑house due diligence on all investments, and also engages independent third‑party providers when the investments are of a certain size or complexity. In addition, the Company aims to diversify its portfolio by investing in a range of industries and companies at varying stages of development. Internal control risk Failures in key controls – in particular those designed to mitigate Venture Capital Trust status risk and investment valuation and liquidity risk – within the Board or within the Investment Adviser’s business, could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. The Board seeks to mitigate the internal control risk by setting policy, regular reviews of performance, enforcement of contractual obligations and monitoring progress and compliance. Details of the Company’s internal controls are included within the Corporate Governance Statement. Economic risk Events such as economic recession and movement in interest rates can affect investor sentiment towards liquidity risk, and hence have a negative impact on the valuation of smaller companies. The Investment Adviser seeks to mitigate this risk by seeking to adopt a suitable investment style for the current point in the business cycle, and to diversify the exposure to geographic end markets. Operational risk Failure of the Investment Adviser’s, or other contracted third‑parties’ accounting systems or disruption to their businesses might lead to an inability to provide accurate reporting and monitoring or loss to shareholders. The Investment Adviser regularly reviews the performance of third‑party suppliers at management meetings and the Directors review the performance of the Investment Adviser at Board meetings. Social, environmental, community and human rights issues The Company had no employees during the year and the Company has three Directors, all of whom are male. The Company, being an externally managed investment company with no employees, has no policies in relation to environmental matters, social, community and human rights issues. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 27 Strategic Report continued Statement on Long Term Viability In accordance with the UK Corporate Governance Code in 2014 (the “2014 Code”), the Directors have carried out a robust assessment of the prospects of the Company for the period to 31 March 2020, taking into account the Company’s current position and principal risks, and are of the opinion that, at the time of approving the financial statements there is a reasonable expectation that the Company will be able to continue in operation and meet liabilities as they fall due. The Directors consider that for the purpose of this exercise a three year period is an appropriate time frame, as it allows for reasonable forecasts to be made to allow the Board to provide shareholders with reasonable assurance over the viability of the Company. In making their assessment, the Directors have taken into account the nature of the Company’s business and investment policy, its risk management policies, the diversification of its portfolio and the Company’s cash position. The Company has appointed its Investment Adviser as its AIFM. The Company’s Investment Adviser was entered on the register of small registered UK AIFMs in February 2014. As an AIFM, the Investment Adviser is required to submit an annual report to the FCA setting out various information relating mainly to the Company’s investments, principal exposures and liquidity. Alternative Investment Fund Managers Directive (“AIFMD”) In July 2013 the AIFMD was implemented, a European directive affecting the regulation of VCTs. By Order of the Board The City Partnership (UK) Limited Company Secretary 28 July 2017 Directors’ Report This Directors’ Report incorporates the Corporate Governance Statement on pages 35 to 36 and the Statement of Directors’ Responsibilities on page 37. Principal activity and status The Company is registered as a public limited company in England and Wales under registration number 08307631. The Directors have managed and intend to continue to manage the Company’s affairs in such a manner as to comply with section 274 of the Income Tax Act 2007. Directors The Directors of the Company during the period under review were Jonathan Djanogly, Laurence Blackall and Peter Dubens. Brief biographical details of the Directors are given on page 6. In accordance with the Listing Rules of the Financial Conduct Authority, Peter Dubens, as a member of the Company’s Investment Adviser, is not considered independent and will therefore be subject to annual re‑election by shareholders. In accordance with the Articles of Association, Jonathan Djanogly and Laurence Blackall retire and are subject to re‑election at the AGM to be held on 7 September 2017. Dividends In October 2016 the Company paid an interim dividend of 2.0 pence per Ordinary share and 2.0 pence per B Ordinary share. On 21 March 2017, the Board declared a further dividend of 1.0 pence per Ordinary share and 1.0 pence per B Ordinary share, which was paid on 7 June 2017. The Board is recommending a final dividend for the year ended 31 March 2017 of 2 pence per Ordinary share and 2 pence per B Ordinary share payable on 26 October 2017. Share capital There were 18,092,297 Ordinary shares and 15,285,811 B Ordinary shares in issue at the year end. During the year 1,095 Ordinary shares were allotted at an average price of 109.5 pence per Ordinary share raising £1,199 under the Dividend Investment Scheme (“DIS”) and 7,169,034 B Ordinary shares were allotted at an average price of 105.1 pence per B Ordinary share raising £7.5 million net of issue costs. Since the year end 876 Ordinary shares and 10,060,927 B Ordinary shares have been issued, please refer to Note 22 on page 61 for further details. 28 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Financial instruments Information on the principal financial instruments held by the Company, including details about risk management, may be found in the Investment Review forming part of the Strategic Report and at Note 20 to the Financial Statements. Global greenhouse gas emissions The Company has no direct greenhouse gas emissions to report from its operations, being an externally managed investment company. Requirements of the Listing Rules Listing Rule 9.8.4 requires the Company to include certain information in a single identifiable section of the annual report or a cross reference table indicating where this information is set out. The Directors confirm that there are no disclosures required to be made in this regard. By Order of the Board The City Partnership (UK) Limited Company Secretary 28 July 2017 Directors’ Report continued The rights and obligations attaching to the Company’s Ordinary shares and B Ordinary shares are set out in the Company’s Articles of Association, copies of which can be obtained from Companies House. The holders of Ordinary shares and B Ordinary shares are entitled to receive dividends when declared, to receive the Company’s report and accounts, to attend and speak at general meetings, to appoint proxies and to exercise voting rights. There are no restrictions on the voting rights attaching to the Company’s shares or the transfer of securities in the Company. The Company will consider requests to buy back shares but is mindful that investment in the Company was promoted as comparatively long‑term with venture capital portfolios typically taking from five to seven years to mature. During the year to 31 March 2017 no shares were bought back. Substantial shareholdings As at the date of this report the Company was aware of the following individual shareholdings exceeding 3% of the issued share capital: • Roy Nominees Limited 9.6% • UBS Private Banking Nominees Ltd 10.4% Independent Auditor A resolution to re‑appoint Grant Thornton UK LLP as Independent Auditor will be proposed at the forthcoming AGM. Accountability and audit The Statement of Directors’ Responsibilities in respect of the Financial Statements is set out on page 37 of this report. The report of the Independent Auditor is set out on pages 39 to 41 of this report. The Directors who were in office on the date of approval of these Financial Statements have confirmed that, as far as they were aware, there is no relevant audit information of which the auditors are unaware. Each of the Directors have taken all the steps they ought to have taken as Directors in order to make themselves aware of any relevant audit information that has been communicated to the auditors. Future developments The primary focus will continue to be on the development of an investment portfolio which will deliver attractive returns over the medium to longer term. The Company will continue to provide support for the ongoing development of investee companies and the Company’s Investment Adviser will continue to work closely with all investee companies towards accelerating their growth and identifying possible exits in the short to mid‑term. Further details on the Company’s future prospects may be found in the Outlook paragraph in the Chairman’s Statement on page 5. Details of post‑balance‑sheet events may be found at Note 22 to the Financial Statements. Going concern In accordance with FRC Guidance for Directors on going concern and liquidity risk the Directors have assessed the prospects of the Company for the foreseeable future and are of the opinion that, at the time of approving the financial statements, the Company has adequate resources to continue in business. In reaching this conclusion the Directors took into account the nature of the Company’s business and Investment Policy, its risk management policies, the diversification of its portfolio and the cash holdings. The Company’s business activities, together with the factors likely to affect its future development, performance and position including the financial risks the Company is exposed to are set out in the Strategic Report on page 27. As a consequence, the Directors have a reasonable expectation that the Company has sufficient cash to continue to operate and that together with funds raised after the end of the financial year from the recently closed offer the Company is well placed to manage its business risks successfully and meet its liabilities as they fall due. Thus the Directors believe it is appropriate to continue to apply the going concern basis in preparing the financial statements. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 29 Directors’ Remuneration Report This report has been prepared by the Directors in accordance with The Large and Medium‑sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended) (the “Regulations”). Ordinary resolutions for the approval of the Directors’ Remuneration Policy and the Directors’ Annual Report on Remuneration will be put to members at the forthcoming AGM. The Company’s auditor, Grant Thornton UK LLP, is required to give its opinion on certain information included in this report. The disclosures which have been audited are indicated as such. The auditor’s opinion on these and other matters is set out in their report on pages 39 to 41. Annual statement from the Chairman of the Company All of the Directors began their term on 27 November 2012. There have been no changes to Directors’ remuneration during the year. Directors’ fees are reviewed annually and are set by the Board to attract individuals with the appropriate range of skills and experience. In determining the level of fees, their duties and responsibilities are considered, together with the level of time commitment required in preparing for and attending meetings. As all the Directors are non‑executive, it is not considered appropriate to appoint a nomination or remuneration committee. Any decisions on the appointment of new directors and remuneration are taken by the Board as a whole. The use of formal advertisements and external consultants is not considered cost effective given the Company’s size. Directors’ remuneration policy The Board considers that Directors’ fees should reflect the time commitment required and the high level of responsibility borne by Directors, and should be broadly comparable to the fees paid by similar companies while ensuring that the fees payable are appropriate to retain individuals of sufficient calibre to lead the Company in achieving its short and long term strategy. The Company’s Articles of Association place an overall limit of £100,000 on Directors’ remuneration. None of the Directors is eligible for pension benefits, share options, bonuses or other benefits in respect of their services as non‑executive Directors of the Company. The Board has not received any views from the Company’s shareholders in respect of the levels of Directors’ remuneration. This policy was last approved by members at the AGM in 2014 and a resolution is included for approval of the policy by members at the AGM to be held on 7 September 2017. Terms of appointment None of the Directors has a service contract with the Company. On being appointed, all Directors received a letter from the Company setting out the terms of their appointment, details of the fees payable and their specific duties and responsibilities. A Director’s appointment may be terminated by the Director or by the Company on the expiry of three months’ notice in writing given by the Director or the Company as the case may be. No arrangements have been entered into between the Company and the Directors to entitle any of the Directors to compensation for loss of office. The letters of appointment are available for inspection on request from the company secretary. The Company’s Articles of Association provide that the Directors will be subject to election at the first annual general meeting after their appointment and at least every three years thereafter. Peter Dubens, as a non‑independent Director, is subject to re‑election at the AGM in 2017. Brief biographical details of these Directors are given on page 6. 30 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Directors’ Remuneration Report continued Directors’ Annual Report on Remuneration Directors’ fees for the year (audited) The fees payable to individual Directors in respect of the year ended 31 March 2017 are shown in the table below. Jonathan Djanogly Laurence Blackall Peter Dubens* Total annual fee £ Total fee paid for year ended 31.03.17 £ Total fee paid for year ended 31.03.16 £ 20,000 15,000 15,000 20,000 15,000 – 20,000 15,000 – *Peter Dubens has waived his right to a fee for the years ended 31 March 2017 and 31 March 2016. No taxable benefits were paid to the Directors, no pension related benefits were paid to the Directors and no money or other assets were received or receivable by the Directors for the relevant financial year. There were no fees payable to past directors or payments made for loss of office. Fees are not specifically related to the Directors’ performance, either individually or collectively. Peter Dubens, as a member of the Investment Adviser, will benefit from performance related fees paid to the Investment Adviser. Details of these incentive fees are disclosed within the Strategic Report and Note 7 to the Financial Statements. Relative importance of spend on pay The table below shows the total remuneration paid to the Directors and shareholder distributions in the year to 31 March 2017 and the prior year: Year ended 31.03.17 £ Year ended 31.03.16 £ Increase/ (decrease) % Total Directors’ fees Dividend Repurchase of own shares 35,000 611,466 – 35,000 108,847 53,896 – 461.8 (100.0) Directors’ shareholdings (audited) The beneficial interests of the Directors in the shares of the Company at the year end were as follows: As at 31.03.17 % of Ordinary shares in issue B Ordinary shares held % of B Ordinary shares in issue Ordinary shares held Director Jonathan Djanogly Laurence Blackall Peter Dubens 25,000 200,000 400,000 0.14 1.11 2.21 25,000 100,000 400,000 0.16 0.65 2.62 As at 31.03.16 % of Ordinary shares in issue B Ordinary shares held % of B Ordinary shares in issue 0.14 1.11 2.21 25,000 100,000 400,000 0.31 1.23 4.93 Ordinary shares held 25,000 200,000 400,000 Subsequent to the year end Peter Dubens bought 186,689 B Ordinary shares under the Offer. The Company confirms that it has not set out any formal requirements or guidelines for a Director to own shares in the Company. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 31 Directors’ Remuneration Report continued Company performance The Board is responsible for the Company’s investment strategy and performance, although the management of the Company’s investment portfolio is delegated to the Investment Adviser through a management agreement. The Directors consider that a comparison of investment performance against the FTSE UK Small Cap Index is the best available metric, although readers should note that the differences between the scale, capital structure and liquidity of investments in the two differ markedly. The graphs below compare the Company’s Ordinary and B Ordinary share prices, net asset values and total return per share with the total return from a notional investment of 100 pence in the FTSE UK Small Cap Index over the same period. At the last AGM held on 29 September 2016, 93% of shareholders voted for, 7% of shareholders voted against and 5,000 shares were withheld in respect of the resolution approving the Directors’ remuneration report. At the AGM held in 2015 100% of shareholders voted for and nil shares were withheld in respect of the resolution approving the Directors’ remuneration policy. Ordinary resolutions for the approval of the Directors’ Remuneration Policy and the Directors’ Annual Report on Remuneration will be put to shareholders at the forthcoming AGM. On behalf of the Board Jonathan Djanogly, Director 28 July 2017 Ordinary Shares 160p 150p 140p 130p 120p 110p 100p 90p 5 Apr 2013 30 Sep 2013 31 Mar 2014 30 Sep 2014 31 Mar 2015 30 Sep 2015 31 Mar 2016 30 Sep 2016 31 Mar 2017 B Ordinary Shares Ordinary Shares (above) Pembroke VCT Ord Total return per Share (inc. 30% tax rebate) FTSE UK Small Cap Total Return Index Pembroke VCT Ord Total Return per Share Pembroke VCT Ord NAV per Share Pembroke VCT Ord Share Price Š B Ordinary Shares (right) Pembroke VCT B Ord Total return per Share (inc. 30% tax rebate) FTSE UK Small Cap Total Return Index Pembroke VCT B Ord Total Return per Share Pembroke VCT B Ord NAV per Share Pembroke VCT B Ord Share Price 140p 135p 130p 125p 120p 115p 110p 105p 100p 95p 90p 31 Mar 2015 30 Sep 2015 30 Sep 2016 31 Mar 2016 31 Mar 2017 32 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Governance Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 33 Corporate Governance Statement The Directors of Pembroke VCT plc confirm that the Company has taken appropriate action to enable it to comply with the Principles of the UK Corporate Governance Code (the “Code”) issued by the Financial Reporting Council in September 2014. As a Venture Capital Trust, most of the Company’s day‑to‑day responsibilities are delegated to third parties and the Directors are all non‑executive. Thus, not all the provisions of the Code are directly applicable to the Company. Apart from the matters referred to in the following paragraphs, the requirements of the Code were complied with throughout the year ended 31 March 2017. In view of its non‑executive nature and the requirements of the Company’s Articles of Association that all Directors are subject to election by shareholders at the first annual general meeting after their appointment and thereafter every third annual general meeting, the Board considers that it is not appropriate for the Directors to be appointed for a specific term as recommended by the Code. Full details of duties and obligations are provided at the time of appointment and are supplemented by further details as necessary. In light of the responsibilities retained by the Board and the Audit Committee and of the responsibilities delegated to the Investment Adviser, the VCT status adviser and the company secretary, the Company has not appointed a chief executive, deputy chairman or a senior independent non‑executive Director. There is no formal induction programme for Directors but any newly appointed Director will be given a comprehensive introduction to the Company’s business, including meeting the Company’s advisers. Being an externally managed investment company, the Company does not have an independent internal audit function. Such a function is thought by the Board to be unnecessary given the size of the Company and the nature of its business. Board of Directors The Company has a Board of three non‑executive Directors, two of whom are considered to be independent. The third Director, Peter Dubens, is also a member of the Investment Adviser. The Company has no employees. All non‑executive Directors have signed letters confirming the terms of their appointment as non‑executive Directors with effect from 5 April 2013. Directors are provided with key information on the Company’s activities including regulatory and statutory requirements and internal controls by the Company’s VCT status adviser, Philip Hare & Associates LLP, and by the company secretary, The City Partnership (UK) Limited. The Board has direct access to corporate governance advice and compliance services through the company secretary, which is responsible for ensuring that Board procedures are followed and compliance requirements are met. All Directors may take independent professional advice in furtherance of their duties as necessary. The Board is responsible to shareholders for the proper management of the Company and looks to meet on at least four occasions each year. It has formally adopted a schedule of matters which must be brought to it for decision, thus ensuring that it maintains full and effective control over appropriate strategic, financial, operational and compliance issues. Those matters include the appointment or removal of the Investment Adviser and monitoring the performance of the Investment Adviser and investee companies. The Chairman and the company secretary establish the agenda for each Board meeting and all necessary papers are distributed in advance of the meetings. Board performance The Board aims to carry out performance evaluations of the Board and the Audit Committee and, consequently, individual Directors each coming year. Due to the size of the Company, the fact that all Directors are non‑executive and the costs involved, external facilitators will not be used in the evaluation. A performance evaluation of the Board, the Audit Committee and individual directors was led by Jonathan Djanogly. The Directors concluded that the balance of skills is appropriate and all Directors contribute fully to discussion in an open, constructive and objective way. The size and composition of the Board is considered adequate for the effective governance of the Company. As all directors have acted in the interests of the Company throughout the period of their appointment and demonstrated commitment to their roles the Board recommends they be re‑elected at the AGM. 34 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Corporate Governance Statement continued Audit Committee The Audit Committee operates within clearly defined written terms of reference which are available on request from the company secretary. The Audit Committee comprises two independent Directors. The members of the committee are Laurence Blackall (chairman) and Jonathan Djanogly. A quorum shall be two members. During the year ended 31 March 2017 and up to the date of signing the Annual Report and Financial Statements, the Audit Committee discharged its responsibilities by: • Reviewing the content and monitoring the integrity of the financial statements of the Company, including the fair value of investments as determined by the Investment Adviser, calculation of the management fee and allocation of expenses between revenue and capital, and making recommendations to the Board; • Reviewing the Company’s accounting policies; • Reviewing internal controls and assessing the effectiveness of those controls in minimising the impact of key risks; • Reviewing and approving the statements to be included in the annual report concerning the internal control and risk management; • Reviewing the need to appoint an internal audit function; • Reviewing and approving the Independent Auditor’s terms of engagement, including remuneration; • Reviewing and monitoring the independence and objectivity of the auditor and the effectiveness of the audit process; • Reviewing and approving the Independent Auditor’s audit plan; Investment Adviser’s confirmation and considered it appropriate. • Recommending to the Board and shareholders the ongoing appointment of and fee payable to Grant Thornton UK LLP; and • Reviewing the arrangements for staff of the Investment Adviser to raise concerns in confidence about possible improprieties in financial reporting or other matters and ensuring that those arrangements allow proportionate and independent investigation of such matters and appropriate follow up actions. The key areas of risk identified by the Audit Committee in relation to the business activities and Financial Statements of the Company are: • Compliance with HM Revenue & Customs rules – in particular s274 of the Income Tax Act 2007 – to maintain the Company’s VCT status; and • Valuation of unquoted investments. These risks were discussed with the Investment Adviser at the Audit Committee meeting before sign‑off of the Financial Statements. The Committee concluded: Venture Capital status – the Investment Adviser confirmed to the Audit Committee that the conditions for maintaining the Company’s status had been complied with throughout the year. Valuation of unquoted investments – the Investment Adviser confirmed to the Audit Committee that the basis of valuation for unquoted companies was in accordance with published industry guidelines, taking account of the latest available information about investee companies and current market data. The Audit Committee examined the The Investment Adviser and auditor confirmed to the Audit Committee that they were not aware of any material misstatements. Having reviewed the Company’s financial statements and reports received from the Investment Adviser and auditor, the Audit Committee is satisfied that the key areas of risk and judgment have been appropriately addressed in the Financial Statements and that the significant assumptions used in determining the value of assets and liabilities have been properly appraised and are sufficiently robust. The Audit Committee has managed the relationship with the auditor and assessed the effectiveness of the audit process. When assessing the effectiveness of the process for the period under review the Committee considered the auditors’ technical knowledge and that they have a clear understanding of the business of the Company; that the audit team is appropriately resourced; that the auditor provided a clear explanation of the scope and strategy of the audit and maintained independence and objectivity. As part of the review of auditor effectiveness and independence, Grant Thornton UK LLP has confirmed that it is independent of the Company and has complied with applicable auditing standards. Grant Thornton UK LLP does not provide any non‑audit services to the Company and the Audit Committee must approve the appointment of the external auditor for any non‑audit services. Grant Thornton UK LLP has held office as auditor for four years; in accordance with ethical standards the engagement partner is rotated after at most five years, and the current partner has served for one year. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 35 Corporate Governance Statement continued Attendance at Board and committee meetings During the year ended 31 March 2017 there were: Director • 4 full Board meetings; and • 2 Audit Committee meetings. The Directors’ attendance at these meetings is noted here. Jonathan Djanogly Laurence Blackall Peter Dubens Review of internal control The process adopted by the Board for identifying, evaluating and managing the risks faced by the Company includes an annual review of the control systems. The review covers a consideration of the significant risks in each of three areas: statutory and regulatory compliance; financial reporting; and investment strategy and performance. Each risk is considered with regard to: the likelihood of occurrence, the probable impact on the Company, and the controls exercised at source, through reporting and at Board level. The Board has identified no problems with the Company’s internal controls. Internal control The Board has established a process for the identification, evaluation and management of the significant risks faced by the Company. The Board acknowledges that it is responsible for the Company’s internal control systems and for reviewing their effectiveness. Internal controls are designed to manage the particular needs of the Company and the risks to which it is exposed. The internal control systems aim to ensure the maintenance of proper accounting records, the reliability of the financial information on which business decisions are made and which is used for publication, and that the assets of the Company are safeguarded. They can by their nature provide only reasonable and not absolute assurance against material misstatement or loss. The financial controls operated by the Board include the authorisation of investments and regular reviews of both the financial results and investment performance. The Board has delegated to third parties the provision of: investment advisory services; VCT status advisory services; broking services; day‑to‑day accounting, company secretarial and administration services; and share registration services. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of services offered. The Board receives and considers regular reports from the Investment Adviser. Ad hoc reports and information are supplied to the Board as required. The Board keeps under review the terms of the agreement with the Investment Adviser. 36 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Board Audit Committee 4 4 1 2 2 n/a Relations with shareholders The Board welcomes the views of shareholders and puts a premium on effective communication with the Company’s members. All written communication with shareholders is reviewed by the Board to ensure that shareholder enquiries are promptly and adequately resolved. Shareholders are encouraged to attend the Company’s Annual General Meeting where the Directors and representatives of the Company’s advisers will be available to answer any questions members may have. The notice of the Annual General Meeting forms part of this report. The Board also communicates with shareholders through the half‑yearly and annual reports and financial statements which will include a Chairman’s statement and an investment adviser’s report both of which are reviewed and approved by the Board to ensure that they present a fair assessment of the Company’s position and future prospects. On behalf of the Board Jonathan Djanogly Director 28 July 2017 Directors’ responsibilities pursuant to DTR4 We confirm that to the best of our knowledge: • the Financial Statements, prepared in accordance with UK GAAP, give a true and fair view of the assets, liabilities, financial position and return or loss of the Company; • the Annual Report includes a fair review of the development and performance of the business and the financial position of the Company together with a description of the principal risks and uncertainties that it faces. The names of the Directors undersigning this Statement of Responsibilities may be found in the Directors’ Report on page 28. On behalf of the Board Jonathan Djanogly Director 28 July 2017 Statement of Directors’ Responsibilities The Directors are responsible for preparing the Strategic Report, Directors’ Report, Directors’ Remuneration Report and the Financial Statements in accordance with applicable laws and regulations. The Directors have chosen to prepare the Financial Statements for the Company in accordance with United Kingdom Generally Accepted Accounting Practice (“UK GAAP”). Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view in accordance with UK GAAP of the state of affairs of the Company as at the end of the financial year and of the profit or loss of the Company for that period and which comply with UK GAAP and the Companies Act 2006. In preparing these Financial Statements, the Directors are required to: • Select suitable accounting policies and then apply them consistently; • Make judgments and estimates that are reasonable and prudent; • State whether all applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements respectively; • Prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and • Prepare a Strategic Report, a Directors’ 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 which enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for the system of internal control, for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors consider that the Annual Report and Financial Statements of the Company for the year ended 31 March 2017 as a whole is fair, balanced and understandable and provides the information necessary for the members of the Company to assess the Company’s position and performance, business model and strategy. 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. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 37 Independent Auditor’s Report 38 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Independent Auditor’s Report Our opinion on the financial statements is unmodified In our opinion the financial statements: • give a true and fair view of the state of the Company’s affairs as at 31 March 2017 and of its profit for the year then ended; • have been properly prepared in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’; and • have been prepared in accordance with the requirements of the Companies Act 2006. Who we are reporting to This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. What we have audited Pembroke VCT plc’s financial statements for the year ended 31 March 2017 comprise the Income Statement, the Balance Sheet, the Statement of Changes in Equity, the Cash Flow Statement and the related Notes. The financial reporting framework that has been applied in their preparation is United Kingdom Generally Accepted Accounting Practice including FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’. Overview of our audit approach • Overall materiality: £364,000 which represents 1% of the Company’s net assets; and • Key audit risk was identified as valuation of unquoted investments. Our assessment of risk In arriving at our opinions set out in this report, we highlight the following risks that, in our judgment, had the greatest effect on our audit: Audit risk – Valuation of unquoted investments The investment strategy of the Company is to generate tax free capital gains and income on investors’ funds through investment primarily in companies within the leisure and luxury brands sectors. These investments which amount, by value, to approximately 90% of equity, comprise unquoted shares and loans and, therefore, no quoted market price is available. The investments in unquoted shares are measured at fair value, which is established in accordance with the International Private Equity and Venture Capital (IPEVC) valuation guidelines by using measurements of value such as price of recent investment and earnings multiples which are subjective and include significant assumptions. The investments held as loans are measured at fair value, which is established by discounting expected future contractual payments at a market rate of interest. We therefore identified valuation of unquoted investments as a significant risk that requires special audit consideration. the relevant investee company management accounts and evaluating whether the valuation methodology applied was consistent with published guidance, in particular the IPEVC valuation guidelines; • where the price of a recent transaction had been used to value a holding, we obtained an understanding of the circumstances relating to it and whether it was appropriate to be considered as an arms‑length transaction that could be used as a valuation input; • where an investment was continued to be carried at cost, we considered the specific circumstances of the investment and the time elapsed since the investment was made in determining whether cost remains an appropriate basis of valuation; • for loans made to investee companies we obtained a copy of the loan agreements and compared the forecast of future cash flows made by the investment adviser to the contractual terms; obtained an understanding of the factors considered in determining the market rate of interest to use and considered whether the rate used was appropriate; and considered events which occurred subsequent to the year end up until the date of this report; and How we responded to the risk • attending the year end audit Our audit work included, but was not restricted to: • assessing whether the Company’s accounting policy for unquoted investments is in accordance with United Kingdom Generally Accepted Accounting Practice and the Association of Investment Companies Statement of Recommended Practice (the AIC SORP) and testing whether the Company has accounted for unquoted investments in accordance with the policy; • challenging the reasonableness of both the valuation model used and the assumptions made by the investment adviser to value the unquoted shares that had been valued using a valuation model, including corroboration of financial inputs to committee meeting where we assessed the effectiveness and rigour of the audit committee’s challenge and appraisal of the valuation of the unquoted investments; and considering the appropriateness, in accordance with relevant accounting standards, of the disclosures relating to the unquoted investments. The Company’s accounting policy on investments, including the valuation of unquoted investments, is shown in Note 5(a) and related disclosures are included in Note 12. The audit committee also identified the valuation of unquoted investments as a key area of risk in its report on page 35, where the committee also described the action that it has taken to address this risk. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 39 Independent Auditor’s Report continued Our application of materiality and an overview of the scope of our audit Materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our work and in evaluating the results of that work. We determined materiality for the audit of the financial statements as a whole to be £364,000 which is 1% of the Company’s net assets. This benchmark is considered the most appropriate because net assets, which are primarily composed of the Company’s investment portfolio, is considered to be a key driver of the Company’s total return performance. Materiality for the current year is higher than the level that we determined for the year ended 31 March 2016 to reflect the increase in the value of underlying net assets. We use a different level of materiality, performance materiality, to drive the extent of our testing and this was set at 75% of financial statement materiality for the audit of the financial statements. We also determine a lower level of specific materiality for certain areas such as management fees and directors’ remuneration. We determined the threshold at which we will communicate misstatements to the audit committee to be £18,000. In addition we will communicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. Overview of the scope of our audit A description of the generic scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/ auditscopeukprivate. We conducted our audit in accordance with ISAs (UK and Ireland). Our responsibilities under those standards are further described in the ‘Responsibilities for the financial statements and the audit’ section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We are independent of the Company in accordance with the Auditing Practices Board’s Ethical Standards for Auditors, and we have fulfilled our other ethical responsibilities in accordance with those Ethical Standards. Our audit approach was based on a thorough understanding of the Company’s business and is risk based. The day‑to‑day management of the Company’s investment portfolio, the custody of its investments and the maintenance of the Company’s accounting records is outsourced to third‑party service providers. Accordingly, our audit work included: • obtaining an understanding of, and evaluating, internal controls at the Company and the third‑party service providers, and inspecting records and documents held by the third‑party service provider; and • undertaking substantive testing on significant transactions, balances and disclosures, the extent of which was based on various factors such as our overall assessment of the control environment and the management of specific risks. Other reporting required by regulations Our opinions on other matters prescribed by the Companies Act 2006 are unmodified In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. 40 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Matter on which we are required to report under the Companies Act 2006 In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. Matters on which we are required to report by exception Under the Companies Act 2006 we are required to report to you if, in our opinion: • adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or • the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Under the Listing Rules, we are required to review: • the Directors’ statements in relation to going concern and longer‑term viability, set out on pages 29 and 28 respectively; and • the part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is: • materially inconsistent with the information in the audited financial statements; or • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired in the course of performing our audit; or • otherwise misleading. Independent Auditor’s Report continued In particular, we are required to report to you if: Responsibilities for the financial statements and the audit • we have identified any inconsistencies What the Directors are responsible for: As explained more fully in the Statement of Directors’ Responsibilities set out on page 37 the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. What we are responsible for: Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Andrew Heffron Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London 31 July 2017 between our knowledge acquired during the audit and the directors’ statement that they consider the annual report is fair, balanced and understandable; or • the annual report does not appropriately disclose those matters that were communicated to the audit committee which we consider should have been disclosed. We have nothing to report in respect of the above. We also confirm that we do not have anything material to add or to draw attention to in relation to: • the Directors’ confirmation in the annual report that they have carried out a robust assessment of the principal risks facing the Company including those that would threaten its business model, future performance, solvency or liquidity; • the disclosures in the annual report that describe those risks and explain how they are being managed or mitigated; • the Directors’ statement in the financial statements about whether they have considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the Company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; and • the Directors’ explanation in the annual report as to how they have assessed the prospects of the Company, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 41 Financial Statements 42 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Income Statement for the year ended 31 March 2017 Realised/unrealised gains and losses on investments Income Investment adviser’s fees Other expenses (Loss)/profit before tax Tax Year ended 31.03.17 Year ended 31.03.16 Note Revenue £ Capital £ Total £ Revenue £ Capital £ Total £ 12 5,6 7 8 9 – 1,300,433 1,300,433 – 1,821,992 1,821,992 1,205,035 – 1,205,035 804,674 – 804,674 (97,522) (292,564) (390,086) (65,458) (196,371) (261,829) (1,265,949) (10,000) (1,275,949) (267,283) (6,913) (274,196) (158,436) 997,869 839,433 471,933 1,618,708 2,090,641 (22,646) 22,077 (569) (75,000) 40,000 (35,000) (Loss)/profit attributable to equity shareholders (181,082) 1,019,946 838,864 396,933 1,658,708 2,055,641 Return per share Ordinary shares B Ordinary shares 11 11 (2.13)p 7.34p 5.21p 1.65p (2.49)p (0.84)p 1.72p 1.47p 6.17p 9.32p 7.89p 10.79p The total column of this Income Statement represents the profit and loss account of the Company, prepared in accordance with Financial Reporting Standard 102 (“FRS 102”). The supplementary revenue and capital return columns are prepared in accordance with the Statement of Recommended Practice, “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“SORP”) revised in November 2014 and updated in January 2017. A separate Statement of Comprehensive Income has not been prepared as all comprehensive income is included in the Income Statement. All the items above derive from continuing operations of the Company. Unaudited Non‑Statutory Analysis between the Ordinary and B Ordinary shares Realised/unrealised gains and losses on investments Income Investment adviser’s fees Other expenses (Loss)/profit before tax Tax Ordinary shares B Ordinary shares Note Revenue £ Capital £ Total £ Revenue £ Capital £ Total £ 12 5,6 7 8 9 – 1,514,066 1,514,066 – (213,633) (213,633) 601,998 – 601,998 603,037 – 603,037 (62,123) (186,368) (248,491) (35,399) (106,196) (141,595) (952,817) – (952,817) (313,132) (10,000) (323,132) (412,942) 1,327,698 914,756 254,506 (329,989) (75,323) 27,239 – 27,239 (49,885) 22,077 (27,808) (Loss)/profit attributable to equity shareholders (385,703) 1,327,698 941,995 204,621 (307,752) (103,131) The accompanying notes on pages 50 to 61 are an integral part of the Financial Statements. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 43 Balance Sheet as at 31 March 2017 Fixed assets Investments Current assets Debtors Cash at bank and in hand Note 12 14 As at 31.03.17 £ As at 31.03.16 £ 32,873,974 24,505,271 2,087,936 2,105,465 2,154,677 2,306,940 4,242,613 4,412,405 Creditors: amounts falling due within one year 15 (730,725) (234,690) Net current assets Net assets Capital and reserves Called up share capital Share premium account Capital redemption reserve Special reserve Capital reserves Revenue reserves Total shareholders’ funds Net asset value per Ordinary share Net asset value per B Ordinary share 3,511,888 4,177,715 36,385,862 28,682,986 16,17 333,781 262,080 17 17 17 17 17 18 18 16,856,191 9,452,414 500 500 14,669,638 15,281,104 4,176,297 3,156,351 349,485 530,537 36,385,862 28,682,986 114.45p 111.24p 102.58p 105.44p The Financial Statements were approved by the Directors and authorised for issue on 28 July 2017 and signed on their behalf by: Jonathan Djanogly Director The accompanying notes on pages 50 to 61 are an integral part of the Financial Statements. 44 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Balance Sheet as at 31 March 2017 Unaudited Non‑Statutory Analysis between the Ordinary and B Ordinary Share Funds As at 31.03.17 As at 31.03.16 Note Ordinary shares £ B Ordinary shares £ Total £ Ordinary shares £ B Ordinary shares £ Total £ 12 20,277,199 12,596,775 32,873,974 19, 736,049 4,769,222 24,505,271 14 46,786 2,041,150 2,087,936 58,604 2,046,861 2,105,465 Fixed assets Investments Current assets Debtors Cash at bank and in hand 653,658 1,501,019 2,154,677 488,973 1,817,967 2,306,940 700,444 3,542,169 4,242,613 547,577 3,864,828 4,412,405 Creditors: amounts falling due within one year Net current assets Net assets Capital and reserves 15 (271,314) (459,411) (730,725) (158,667) (76,023) (234,690) 429,130 3,082,758 3,511,888 388,910 3,788,805 4,177,715 20,706,329 15,679,533 36,385,862 20,124,959 8,558,027 28,682,986 Called up share capital 16,17 180,923 152,858 333,781 180,912 81,168 262,080 Share premium account Capital redemption reserve Special reserve Capital reserves Revenue reserves 17 17 17 17 17 1,600,912 15,255,279 16,856,191 1,599,724 7,852,690 9,452,414 500 – 500 500 14,919,280 (249,642) 14,669,638 15,281,104 – – 500 15,281,104 3,944,166 232,131 4,176,297 2,616,468 539,883 3,156,351 60,548 288,907 349,455 446,251 84,286 530,537 Total shareholders’ funds 20,706,329 15,379,533 36,385,862 20,124,959 8,558,027 28,682,986 Net asset value per share 18 114.65p 102.58p n/a 111.24p 105.44p n/a The accompanying notes on pages 50 to 61 are an integral part of the Financial Statements. The accompanying notes on pages XX to XX are an integral part of the Financial Statements. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 45 Statement of Changes in Equity for the year ended 31 March 2017 for the year ended 31 March 2017 Opening balance as at 1 April 2016 Called up share capital £ Share premium £ Capital redemption reserve £ Special reserve £ Capital reserve £ Revenue reserve £ Total reserves £ 262,080 9,452,414 500 15,281,104 3,156,351 530,537 28,682,986 Shares issued 71,701 7,468,378 – – – (64,601) – – – – – – – – (611,466) – – – – – – 7,540,079 (64,601) (611,466) – 1,019,946 (181,082) 838,864 Share issue expenses Dividends paid Profit/(Loss) for the year Closing balance as at 31 March 2017 333,781 16,856,191 500 14,669,638 4,176,297 349,455 36,385,862 for the year ended 31 March 2016 Called up share capital £ Share premium £ Capital redemption reserve £ Special reserve £ Capital reserve £ Revenue reserve £ Total reserves £ Opening balance as at 1 April 2015 201,206 3,519,742 Shares issued 61,374 6,083,346 – – Shares bought back (500) – 500 (53,896) 15,443,847 1,497,643 133,604 20,796,042 – – (108,847) – – – – – – – – 6,144,720 (53,896) (150,674) (108,847) – 1,658,708 396,933 2,055,641 – – – (150,674) – – – – – Share issue expenses Dividends paid Profit for the year Closing balance as at 31 March 2016 262,080 9,452,414 500 15,281,104 3,156,351 530,537 28,682,986 46 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Statement of Changes in Equity for the year ended 31 March 2017 Unaudited Non‑Statutory Analysis between the Ordinary and B Ordinary Share Funds Ordinary Shares Opening balance as at 1 April 2016 Shares issued Dividends paid Profit/(Loss) for the year Closing balance as at 31 March 2017 Called up share capital £ Share premium £ Capital redemption reserve £ Special reserve £ Capital reserve £ Revenue reserve £ Total reserves £ 180,912 1,599,724 500 15,281,104 2,616,468 446,251 20,124,959 11 – – 1,188 – – – – – – (361,824) – – – – 1,199 (361,824) – 1,327,698 (385,703) 941,995 180,923 1,600,912 500 14,919,280 3,944,166 60,548 20,706,329 B Ordinary Shares Called up share capital £ Share premium £ Capital redemption reserve £ Special reserve £ Capital reserve £ Revenue reserve £ Total reserves £ Opening balance as at 1 April 2016 81,168 7,852,690 Shares issued 71,690 7,467,190 Share issue expenses Dividends paid (Loss)/Profit for the year Closing balance as at 31 March 2017 – – – (64,601) – – 152,858 15,255,279 – – – – – – – – – (249,642) 539,883 84,286 8,558,027 – – – – – – 7,538,880 (64,601) (249,642) – (307,752) 204,621 (103,131) (249,642) 232,131 288,907 15,679,533 Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 47 Cash Flow Statement for the year ended 31 March 2017 Operating activities Investment income received – qualifying Deposit and similar interest received – non‑qualifying Investment adviser’s fees paid Company secretarial fees paid Cash paid to and on behalf of Directors Other cash payments Year ended 31.03.17 £ Year ended 31.03.16 £ Note 530,496 1,756 13,123 3,594 (239,402) (286,901) – (109,642) (33,864) (37,606) (172,219) (183,186) Net cash inflow/(outflow) from operating activities 19 86,767 (600,618) Cash flows from investing activities Purchase of investments Disposal of investments Long term loans made Short term loans made Long term loans repaid Net cash outflow from investing activities (3,927,888) (2,062,036) 552,898 – (2,645,000) (2,234,800) (1,461,825) (1,850,000) 764,400 100,000 (6,717,415) (6,046,836) Net cash outflow before financing (6,630,648) (6,647,454) Cash flows from financing activities Net proceeds from share issues Share buybacks paid Equity dividends paid Net cash inflow from financing (Decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 7,089,851 5,901,985 – (53,626) (611,466) (108,847) 6,478,385 5,739,512 (152,263) (907,942) 2,306,940 3,214,882 2,154,677 2,306,940 The accompanying notes on pages 50 to 61 are an integral part of the Financial Statements. The accompanying notes on pages XX to XX are an integral part of the Financial Statements. 48 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Cash Flow Statement for the year ended 31 March 2017 Unaudited Non‑Statutory Analysis between the Ordinary and B Ordinary Share Funds Year ended 31.03.17 Year ended 31.03.16 Ordinary Shares £ B Ordinary Shares £ Total £ Ordinary Shares £ B Ordinary Shares £ Total £ Operating activities Investment income received – qualifying 430,151 100,345 530,496 13,123 – 13,123 Deposit and similar interest received – non‑qualifying 82 1,674 1,756 2,010 1,584 3,594 Investment adviser’s fees paid (159,384) (80,018) (239,402) (239,548) (47,353) (286,901) Company secretarial fees paid – – – (93,469) (16,173) (109,642) Cash paid to and on behalf of Directors (19,643) (14,221) (33,864) (30,185) (7,421) (37,606) Other cash payments (114,864) (57,355) (172,219) (143,938) (39,248) (183,186) Net cash inflow/(outflow) from operating activities Cash flows from investing activities Purchase of investments Disposal of investments Long term loans made Short term loans made Loans repaid Net cash inflow/(outflow) from investing activities 136,342 (49,575) 86,767 (492,007) (108,611) (600,618) – (3,927,888) (3,927,888) (136,658) (1,925,378) (2,062,036) 106,583 446,315 552,898 – – – – (2,645,000) (2,645,000) (100,000) (2,134,800) (2,234,800) – (1,461,825) (1,461,825) – (1,850,000) (1,850,000) 250,000 514,400 764,400 100,000 – 100,000 356,583 (7,073,998) (6,717,415) (136,658) (5,910,178) (6,046,836) Net cash inflow/(outflow) before financing 492,925 (7,123,573) (6,630,648) (628,665) (6,018,789) (6,647,454) Cash flows from financing activities Net proceeds from share issues 7,105 7,082,746 7,089,851 (17,573) 5,919,558 5,901,985 Share buybacks paid Equity dividends paid – – – (53,626) (361,824) (249,642) (611,466) (108,847) – – (53,626) (108,847) Net cash (outflow)/inflow from financing (354,719) 6,833,104 6,478,385 (180,046) 5,919,558 5,739,512 Increase/(decrease) in cash 138,206 (290,469) (152,263) (808,711) (99,231) (907,942) The accompanying notes on pages XX to XX are an integral part of the Financial Statements. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 49 Notes to the Financial Statements 1. Company information The Company is a Public Limited Company incorporated in England and Wales. The registered address is 3 Cadogan Gate, London SW1X 0AS. The principal activity is investing in private equity type transactions. 2. Basis of preparation These financial statements have been prepared in accordance with applicable United Kingdom accounting standards, including Financial Reporting Standard 102 – ‘The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland’ (‘FRS 102’), and with the Companies Act 2006 and in accordance with the SORP issued by the Association of Investment Companies (“AIC”) in November 2014 and updated in January 2017. The Company has early adopted the amendments made to FRS 102 paragraph 34.22 issued in March 2016, revising the fair value hierarchy disclosure requirements. The financial statements have been prepared on the historical cost basis except for the modification to a fair value basis for certain financial instruments as specified in the accounting policies below. The financial statements are prepared in pounds sterling, which is the functional currency of the Company. 3. Going concern The Board of Directors is satisfied that the Company has adequate availability of funding in order to continue as a going concern. Therefore, the Company continues to adopt the going concern basis in preparing these financial statements. 4. Significant judgments and estimates The availability of valuation techniques and observable inputs can vary from investment to investment and are affected by a wide variety of factors, including the type of investment, whether the investment is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the investments existed. Accordingly, the degree of judgment exercised by the management in determining fair value is greatest for unquoted investments. In some circumstances, the inputs used to measure fair value might be categorised within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorised in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. 5. Accounting policies A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below. a) Investments The Company did not hold any listed investments at any time during the period under review. Investments in unlisted companies are held at fair value through profit or loss by the Directors. Information about the portfolio is provided internally to the Directors on that basis and the Directors consider the basis to be consistent with the Company’s investment strategy, with reference to the International Private Equity and Venture Capital Valuation Guidelines (“IPEVCV guidelines”). The IPEVCV guidelines include the following: All unquoted equity are held at the price of a recent investment for an appropriate period where there is considered to have been no change in fair value. Where such a basis is no longer considered appropriate, the following factors will be considered: (i) Where a value is indicated by a material arms‑length transaction by an independent third party in the shares of a company, this value will be used. (ii) In the absence of (i), and depending upon both the subsequent trading performance and investment structure of an investee company, the valuation basis will usually move to either: a) an earnings multiple basis. The shares may be valued by applying a suitable price‑earnings ratio to that company’s historical, current or forecast post‑tax earnings before interest and amortisation (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 with the sector including, inter alia, a lack of marketability); or b) an assessment of other relevant, objective evidence. (iii) Where an earnings multiple or other objective evidence is not appropriate and overriding factors apply, discounted cash flow or net asset valuation bases may be applied. 50| Pembroke VCT plc Annual Report for the year ended 31 March 2017 (iv) Loan stock investments are recognised at their fair value which is measured at the present value of expected future cash flows discounted at a market rate of interest. Loan stock investments receivable within the next 12 months are classified as short term. Realised surpluses or deficits on the disposal of investments are taken to realised capital reserves, and unrealised surpluses and deficits on the revaluation of investments are taken to unrealised capital reserves. Those venture capital investments that may be categorised as associated undertakings are carried at fair value as determined by the Directors in accordance with the Company’s normal policy. Carrying investments at fair value is specifically permitted under FRS102 section 14.4. b) Income Dividends receivable on listed equity shares are brought into account on the ex‑dividend date. Dividends receivable on unlisted equity shares are brought into account when the Company’s right to receive payment is established and it is probable that payment will be received. Special dividends receivable are treated as a revenue receipt or a capital receipt depending on the facts and circumstances of each particular case. Fixed returns on non‑equity shares and debt securities are recognised on an accruals basis using the effective interest method. Such amounts are recognised in the revenue column provided that it is probable that payment will be received in due course. c) Expenses All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the income statement, all expenses have been accounted for as revenue items except as follows: Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated, and accordingly the investment management fee is currently allocated 25% to revenue and 75% to capital, which reflects the Directors’ expected long-term view of the nature of the investment returns of the Company. d) Debtors Short term debtors (including short term loans) are measured at transaction price, less any impairment. e) Creditors Short term trade creditors are measured at the transaction price. f) Taxation Current tax is recognised for the amount of income tax payable in respect of the taxable profit for the current or past reporting periods using the tax rates and laws that that have been enacted or substantively enacted by the reporting date. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue return on the “marginal” basis as recommended in the SORP. Any tax relief obtained in respect of management fees allocated to capital is reflected in the capital column of the Statement of Comprehensive Income and a corresponding amount is charged against the revenue column. 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 at the reporting date, except as otherwise indicated. Deferred tax assets are only recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Deferred tax is calculated using the tax rates and laws that that have been enacted or substantively enacted by the reporting date that are expected to apply to the reversal of the timing difference. The tax expense/(income) is presented either in the Income Statement or Statement of Changes in Equity depending on the transaction that resulted in the tax expense/(income). Deferred tax liabilities are presented within provisions for liabilities and deferred tax assets within debtors. g) Financial instruments The Company has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments. The Company’s financial instruments comprise its investment portfolio, cash balances and most debtors and creditors. These financial assets and financial liabilities are carried either at fair value or, in the case of debtors, creditors and cash, using the cost which is considered to be a reasonable approximation of their fair value. h) Events after the balance sheet date Dividends declared and approved by the Company after the balance sheet date have not been recognised as a liability of the Company at the balance sheet date. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 51 Notes to the Financial Statements continued 6. Income Interest receivable – revenue ‑ from bank deposits ‑ from loan stock ‑ arrangement fees received 7. Investment Adviser’s fees Oakley Investment Managers LLP 2017 £ 1,756 1,189,539 13,740 1,205,035 2016 £ 3,434 795,220 6,020 804,674 2017 £ 2016 £ 390,086 261,829 Oakley Investment Managers LLP has been appointed as the Company’s Investment Adviser. This appointment shall continue until terminated by the expiry of not less than twelve months’ notice in writing given by either party. The appointment may also be terminated in circumstances of material breach by either party. Details of the appointment may be found in the Strategic Report on pages 26 and 27. No performance fee is due in respect of the year ended 30 April 2017 (2016: £nil). 8. Other expenses Other expenses include: Company secretarial fees Auditor’s remuneration – audit of statutory financial statements Additional prior year audit fees Printing and stationery Marketing Insurance Investment acquisition costs Employers’ NI on Directors’ remuneration Other costs Interest forgone on loan investments Irrecoverable VAT The Company has no employees other than the Directors. 2017 £ 65,591 38,986 – 31,311 24,213 19,197 10,000 2,591 35,565 975,149 37,495 2016 £ 61,659 35,000 10,000 29,452 26,540 8,753 6,013 1,888 24,480 – 35,411 Information relating to Directors’ remuneration can be found in the audited section of the Directors’ Remuneration Report on page 31. Interest forgone on loan investments includes the amounts foregone on loans to the following investee companies: Boom Cycle Dilly & Wolf La Bottega Second Home Chucs ME+EM Zenos Cars 2017 37,271 33,477 735,827 13,208 115,463 15,689 24,214 975,149 More details relating to these investments is included in the Investment Adviser’s Review on pages 8 to 24. 52 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Notes to the Financial Statements continued 9. Tax a) Analysis of tax charge Current year charge Revenue charge Credited to capital return Current tax charge (Note (b)) Prior year charge Revenue charge Credited to capital return Total current and prior year tax charge b) Factors affecting tax charge for the year Total return before tax Effect of: Corporation tax at 19% (2016: 20%) Non‑taxable gains on investments Movement in excess management expenses Other movements Tax charge for year (Note (a)) 2017 £ – – – 569 – 569 2016 £ 35,000 – 35,000 – – 35,000 839,433 2,090,641 159,492 (247,082) 87,590 – 418,128 (364,398) (21,900) 3,170 – 35,000 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. No deferred tax asset has been recognised on surplus expenses carried forward as it is not envisaged that any such tax will be recovered in the foreseeable future. The value of the unrecognised deferred tax is £78,000 (2016: £nil). 10. Dividends paid Dividends recognised as distributions paid to equity holders during the year: Final dividend on Ordinary and B Ordinary shares for the year ended 31 March 2016 of 2.0 pence per share Final dividend on Ordinary and B Ordinary shares for the year ended 31 March 2015 0.6 pence per share Dividends paid or payable in respect of the financial year: 2017 £ 611,466 – 611,466 2017 £ 2016 £ – 108,847 108,847 2016 £ Final dividend on Ordinary and B Ordinary shares for the year ended 31 March 2016 of 2.0 pence per share – paid 31 October 2016 – 611,466 Interim dividend on Ordinary and B Ordinary shares for the year ended 31 March 2017 of 1.0 pence per share – paid 7 June 2017 Final dividend on Ordinary and B Ordinary shares for the year ended 31 March 2017 of 2.0 pence per share – payable on 26 October 2017 427,839 856,057 – – 1,283,896 611,466 All dividends are paid from the special reserve. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 53 Boom Cycle Dilly & Wolf La Bottega Second Home Chucs ME+EM Zenos Cars 2017 37,271 33,477 735,827 13,208 115,463 15,689 24,214 975,149 Notes to the Financial Statements continued 11. Return per share 2017 2016 Revenue Capital Total Revenue Capital Total (Loss)/earnings per Ordinary share (2.13)p 7.34p 5.21p Earnings/(loss) per B Ordinary share 1.65p (2.49)p (0.84)p 1.72p 1.47p 6.17p 9.32p 7.89p 10.79p Basic revenue return per Ordinary share is based on the net revenue loss after taxation of (£385,703) (2016: Return: £311,902) and on 18,091,658 (2016: 18,133,662) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. Basic capital return per Ordinary share is based on the net capital gain after taxation of £1,327,698 (2016: £1,118,170) and on £18,091,658 (2016: 18,133,662) Ordinary shares, being the weighted average number of shares in issue during the year. Basic revenue return per B Ordinary share is based on the net revenue gain after taxation of £204,621 (2016: £85,031) and on 12,383,649 (2016: 5,798,035) B Ordinary shares, being the weighted average number of shares in issue during the year. Basic capital return per B Ordinary share is based on the net capital loss after taxation of £(307,752) (2016: Gain: £540,538) and on 12,383,649 (2016: 5,798,035) Ordinary shares, being the weighted average number of shares in issue during for the year. 12. Investments Movements in investments during the year are summarised as follows: Shares £ Loan stock £ Total £ Opening valuation: Cost at 31 March 2016 Unrealised gains at 31 March 2016 Interest rolled up in fixed income investments 13,280,986 3,562,735 6,437,600 19,718,586 – 1,223,950 – 3,562,735 1,223,950 Valuation at 31 March 2016 16,843,721 7,661,550 24,505,271 Movements in the year: Purchases at cost Disposals – proceeds Loan repaid Loans converted to equity Transferred from short term to long term loans Unrealised gains on equity investments Unrealised losses on loan stock Net realised losses Interest rolled up in fixed income investments 4,177,888 (552,898) – 875,000 – 2,626,208 2,645,000 – (764,400) (875,000) 1,850,000 – 6,822,888 (552,898) (764,400) – 1,850,000 2,626,208 – (1,304,192) (1,304,192) (21,583) – – (287,320) (21,583) (287,320) Total movements in the year 7,104,615 1,264,088 8,368,703 Closing valuation: Cost at 31 March 2017 Unrealised gains at 31 March 2017 Unrealised losses on loan notes at 31 March 2017 Interest rolled up in fixed income investments 17,252,868 6,695,468 9,293,200 26,546,068 – 6,695,468 – – (1,304,192) (1,304,192) 936,630 936,630 Valuation at 31 March 2017 23,948,336 8,925,638 32,873,974 54 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Notes to the Financial Statements continued The realised/unrealised gains and losses on investments of £1,300,433 in the income statement is comprised unrealised gains on equity investments of £2,626,208, less unrealised losses on loan stock of £1,304,192 and net realised losses of £21,583. Net realised losses in the year are comprised realised losses of £528,108 less £506,525 which was included as unrealised at 31 March 2016. During the year the Company disposed of an equity investment in Penfield Limited for £552,898. The original cost of the investment was £876,008. The holding value as at 31 March 2016 was £273,204 and further investment of £301,277 at cost was made after 31 March 2016 prior to the investment’s disposal. An equity investment in Cheek Frills Limited was concluded during the year following the company entering liquidation in December 2015, resulting in a realised loss of £205,000. The original cost of Cheekfrills at 31 March 2016 was £205,000 and the holding value at 31 March 2016 was £nil. As at 31 March 2017, the Company had no arrangements in place to dispose of any of its holdings. The Company is required to report the category of fair value measurements used in determining the value of its investments, to be disclosed by the source of inputs, using a three‑level hierarchy: Quoted market prices in active markets – “Level 1” Inputs to Level 1 fair values are quoted prices in active markets for identical assets. An active market is one in which quoted prices are readily and regularly available and those prices represent actual and regular occurring market transactions on an arm’s length basis. The Company has no investments classified in this category. Valued using models with significant observable market parameters – “Level 2” Inputs to Level 2 fair values are inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly. The Company has no investments classified in this category. Valued using models with significant unobservable market parameters – “Level 3” Inputs to Level 3 fair values are unobservable inputs for the asset. Unobservable inputs may have been used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset at the measurement date (or market information for the inputs to any valuation models). As such, unobservable inputs reflect the assumptions the Company considers that market participants would use in pricing the asset. The Company’s unquoted equities and loan stock are classified within this category. As explained in Note 5, unquoted investments are valued in accordance with the IPEVCV guidelines. The fair value of all investments is assessed by the Company and, where appropriate, a revaluation against cost is made. The basis of revaluation may be based on a sales or profit multiple, or on market information that supersedes that held at the time of acquiring the investment. Details of the basis of revaluation are included in the Investment Review on pages 12 to 24. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 55 Notes to the Financial Statements continued 13. Significant interests As at the balance sheet date and from the dates of making the investments the Company has held 3% or more of the ordinary shares of: Investment Percentage equity holding Boom Cycle (Boom Spin Limited) KX Gym (KX Group Holding Limited) Plenish (Plenish Cleanse Limited) Dilly & Wolf (Dilly and Wolf Limited) KX U (KX U Limited) Chilango (Mucho Mas Limited) La Bottega (LBID Holdings Limited) Chucs Bar & Grill (Chucs Bar & Grill Limited) Second Home (Second Homes Limited) Sourced Market (SP Market Limited) Bel‑Air Inc (Bel‑Air Inc Limited) Kat Maconie (Kat Maconie Limited) Troubadour Goods (Troubadour Goods Limited) Bella Freud (Bella Freud Limited) Chucs (Chucs Limited) Bella Freud Parfum (Bella Freud Parfum Limited) ME+EM (Me and Em Limited) Alexa Chung (Alpha Charlie Limited) Boat International Media (Boat International Limited) Blaze (SMIDSY Limited) Stillking Films UK (2020 Group Limited) Wishi (Wishi Fashion Limited) Unbolted (Open Access Finance Ltd) 31.6 11.8 37.4 27.0 11.3 3.0 40.0 26.6 4.6 26.0 7.7 22.3 37.8 27.8 11.7 22.5 12.4 15.1 21.6 6.5 5.0 3.1 4.4 Details of holdings may be found in the Investment Portfolio summary and Investment Review on pages 10 to 24. 14. Debtors Amounts falling due within one year: Short terms loan and accrued interest Sundry debtors and prepayments 15. Creditors: amounts falling due within one year Sundry creditors and accruals Deferred income Corporation tax Fixed asset investment deferred payment 56 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 2017 £ 2016 £ – 2,087,936 1,907,658 197,807 2,087,936 2,105,465 2017 £ 437,136 8,020 35,569 250,000 730,725 2016 £ 185,680 14,010 35,000 – 234,690 Notes to the Financial Statements continued 16. Called up share capital Allotted, called‑up and fully paid at 1 April 2016: Issued during the year At 31 March 2017 *Ordinary shares of 1 pence each **B Ordinary shares of 1 pence each Number of Ordinary shares* 18,091,202 1,095 Number of B Ordinary shares** Total 8,116,777 7,169,034 26,207,979 7,170,129 18,092,297 15,285,811 33,378,108 During the year, the Company issued 1,095 Ordinary shares as detailed below: Allotted, called up and fully paid: Number of Ordinary shares Nominal value £ Consideration received £ Ordinary shares issued on 31 October 2016 1,095 11 1,199 During the year, the Company issued 7,169,034 B Ordinary shares as detailed below: Allotted, called up and fully paid: B Ordinary shares issued on 5 April 2016 B Ordinary shares issued on 4 August 2016 B Ordinary shares issued on 30 September 2016 B Ordinary shares issued on 14 October 2016 B Ordinary shares issued on 31 October 2016 B Ordinary shares issued on 3 February 2017 During the year, the Company repurchased no shares. Number of B Ordinary shares 3,084,856 757,913 522,545 51,622 6,914 2,745,184 7,169,034 Nominal value £ Consideration received £ 30,849 7,579 5,225 516 69 27,452 71,690 3,143,650 810,500 558,000 55,000 7,080 2,964,650 7,538,880 17. Reserves Called‑up share capital represents the nominal value of shares that have been issued. Share premium account includes any premiums received on issue of share capital less any transaction costs associated with the issuing of shares and any amounts transferred to the special reserve. Special reserve include amounts transferred from the share premium account on 26 March 2014. The special reserve distributable and is mainly used for payment of dividends. Capital reserves includes all current and prior period realised and unrealised movements in the fair value of investments and all costs which are considered capital in nature. As at 31 March 2017 there were realised losses of £1,197,505 (2016 losses: 388,909) which are distributable the balance is unrealised and non‑distributable. Revenue reserve includes all current and prior period retained profits and losses. The balance on the account is distributable. The total distributable reserves of the Company at 31 March 2017 is £13,821,588 (2016: £15,811,641) Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 57 Notes to the Financial Statements continued 18. Net asset value per share The net asset values per share at the year‑end were as follows: 2017 Net asset values attributable Net assets per share Net assets 2016 Net asset values attributable Net assets per share Net assets Ordinary shares B Ordinary shares 20,706,329 15,379,533 114.45p 102.58p £20,124,959 £8,558,027 111.24p 105.44p Net asset value per Ordinary share is based on net assets at the year end and on 18,092,297 (2016: 18,091,202) Ordinary shares, being the number of Ordinary shares in issue at the year end. Net asset value per B Ordinary share is based on net assets at the year end and on 15,285,811 (2016: 8,116,777) B Ordinary shares, being the number of B Ordinary shares in issue at the year end. 19. Reconciliation of profit before taxation to net cash outflow from operating activities Profit before taxation for the year Net gains on investments Decrease/(increase) in debtors (excluding share issue proceeds and short term loans) Decrease/(increase) in interest rolled up in fixed income investments Increase/(decrease) in creditors and accruals (excluding share issue expenses, short term loans and fixed asset investment balances) Net cash outflow from operating activities 2017 £ 839,433 (1,300,433) 30,571 287,320 2016 £ 2,090,641 (1,821,992) (60,812) (740,070) 229,876 (68,385) 86,767 (600,618) 20. Financial instruments The Company’s financial instruments comprise: (i) Equity and fixed-interest investments that are held in accordance with the Company’s investment objectives as set out in the Directors’ Report; and (ii) Cash, liquid resources, short term debtors and creditors that arise directly from the Company’s operations. Investments are made in a combination of equity and loans. Surplus funds are held on bank deposit. It is not the Company’s policy to trade in financial instruments or derivatives. Fixed asset investments are valued at fair value through profit or loss. Unquoted investments are valued by the Directors using rules consistent with International Private Equity and Venture Capital Association (“IPEV”) guidelines. The fair value of all other financial assets and liabilities is represented by their carrying value in the balance sheet. Further details of the bases on which financial instruments, including investments, are held may be found at Notes 5 and 12 and in the investment adviser review on pages 8 to 24. 58 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Notes to the Financial Statements continued The Company held the following categories of financial instruments, all of which are included in the balance sheet at fair value, at 31 March 2017: 2017 2016 Assets at fair value through profit and loss: Equity investments Loan stock Short term loans Assets measured at amortised cost: Short term loans accrued interest Other debtors Liabilities measured at amortised cost: Creditors Cash at bank Cost £ Fair value £ Cost £ Fair value £ 17,252,868 10,229,830 – 23,948,336 8,925,638 – 13,280,986 7,661,550 1,850,000 16,843,721 7,661,550 1,850,000 – 2,040,569 – 2,040,569 57,658 141,624 57,658 141,624 (730,725) 2,154,677 (730,725) 2,154,677 (234,690) 2,306,940 (234,690) 2,306,940 30,947,219 36,338,495 25,064,068 28,626,803 Loans to investee companies are treated as fair value through profit and loss and are included in the investment portfolio. Unquoted investments account for 100% of the investment portfolio by value. The investment portfolio has a 100% concentration of risk towards small UK based, sterling denominated companies and represents 90.3% (2016: 85.4%) of net assets at the year end. All financial liabilities are due within one year and are expected to be settled within six months of the period and in accordance with normal credit terms. The main risks arising from the Company’s financial instruments are credit risk, investment valuation risk, interest rate risk and liquidity risk. All assets and liabilities are denominated in sterling, hence there is no currency risk. Credit risk The Company has exposure to credit risk in respect of its loan stock investments. This risk is managed through the due diligence process adopted when making loan investments to unquoted companies and through regular monitoring of the investee companies by the Investment Adviser. The selection of credit institution at which to hold cash balances is made by the Investment Adviser and monitored by the Board. The credit risk is managed by ensuring cash is held with an institution or institutions with a Standard & Poors long term credit rating of BBB or better. The maximum exposure to credit risk at the balance sheet date was £13,120,884 (2016: £12,017,772). Investment valuation risk The Board manages the investment valuation risk inherent in the Company’s portfolio by maintaining an appropriate spread of risk and by ensuring full and timely access to relevant information from the Investment Adviser. The Board reviews the investment performance and financial results, as well as compliance with the Company’s investment objectives. The Board seeks to ensure that an appropriate proportion of the Company’s portfolio is invested in cash and readily realisable securities which are sufficient to meet any funding commitments which may arise. The Company does not use derivative instruments to hedge against market risk. The equity and fixed interest stocks of the Company’s unquoted investee companies are very seldom traded and, as such, their prices are more uncertain than those of more frequently traded stocks. It is estimated that a 15% fall in the carrying value of the Company’s unquoted investments would reduce profit before tax for the year and the Company’s net asset value per share by £4,931,096 and 14.8 pence (2016: £3,675,791 and 14.0p) respectively. A 15% estimate is considered to be an appropriate illustration given historical volatility and market expectations of future performance. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 59 Notes to the Financial Statements continued 20. Financial instruments (continued) Interest rate risk The Company’s financial assets include loan stock and bank deposits which are interest bearing, at a mix of fixed and variable rates. As a result, the Company is exposed to interest rate risk due to fluctuations in prevailing levels of market interest rates. The Board seeks to mitigate this risk through regular monitoring of the Company’s interest bearing investments. The Company does not use derivative instruments to hedge against interest rate risk. As at 31 March 2017, the Company’s financial assets by value, excluding short-term debtors and creditors which are not exposed to interest rate risk, comprised: Financial assets £ Venture capital investments Ordinary shares Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Loan stock Bank deposits 23,948,336 111,979 402,466 2,344,806 885,808 405,534 63,151 164,109 410,477 337,085 253,616 104,932 100,493 60,371 58,892 60,948 121,238 221,743 227,912 300,000 178,077 73,118 26,882 507,968 610,795 441,556 451,682 2,154,677 35,028,651 Interest rate n/a Fixed Fixed Fixed Fixed Fixed Fixed Fixed Fixed Fixed Fixed Fixed Fixed Floating Floating Fixed Floating Fixed Fixed Fixed Floating Fixed Fixed Fixed Fixed Fixed Fixed Floating % 68.4 0.3 1.1 6.7 2.5 1.2 0.2 0.5 1.2 1.0 0.7 0.3 0.3 0.2 0.2 0.2 0.3 0.6 0.6 0.9 0.5 0.2 0.1 1.4 1.7 1.3 1.3 6.1 100.0 Weighted average interest rate % n/a 12.0 9.0 12.0 15.0 12.0 12.0 12.0 12.0 12.0 8.0 12.0 12.0 8.0 8.0 12.0 11.5 8.0 12.0 12.0 11.5 12.0 12.0 12.0 12.0 12.0 12.0 0.15 Fixed term years n/a 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 n/a 5.0 5.0 5.0 1.0 n/a It is estimated that, if the floating interest rate fell to 0%, pre-tax profit for the year would fall by 0.61% (2016: 1.37%) on an annualised basis. The risk from future fluctuations in interest rate movements should be mitigated by the Company’s intention to complete its investment strategy and to hold a majority of its investments in instruments which are not exposed to market interest rate changes. Liquidity risk The investments in equity and fixed interest stocks of unquoted companies that the Company holds are not traded and thus are not readily realisable. At times, the Company may be unable to realise its investments at their carrying values because of an absence of willing buyers. The Company’s ability to sell investments may also be constrained by the requirements set down for VCTs. To counter such liquidity risk, sufficient cash and money market funds are held to meet running costs and other commitments. 60 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Notes to the Financial Statements continued 21. Management of capital The Board of Directors considers the Company’s net assets to be its capital and the Company does not have any externally imposed capital requirements. The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern, satisfy the relevant HMRC requirements and provide at least adequate returns for shareholders. As a VCT, the Company must have, and must continue to have, within three years of raising its capital at least 70% by value of its investments in VCT qualifying holdings which are a relatively high risk asset class of small UK companies. In satisfying this requirement, the Company’s capital management scope is restricted. Subject to this restriction, the Company directs investment policy and may adjust dividends, return capital to shareholders, issue new shares or sell assets to maintain the level of liquidity to remain a going concern. 22. Post balance sheet events Since 31 March 2017 the Company has made investments of £1,937,234, of which £748,242 represented new investments and £1,188,992 follow‑on investments in existing holdings. The Company has no other investment commitments at the balance sheet date. Since the Company’s year end, the Company has allotted the following shares under the Offer for Subscription which is now closed: • 8,826,567 B Ordinary shares on 5 April 2017 for £9,661,355; • 579,211 B Ordinary shares on 3 May 2017 for £628,750; and • 636,569 B Ordinary shares on 6 July 2017 for £691,400. On 7 June 2017 the Company allotted 876 Ordinary shares and 18,580 B Ordinary shares under the Dividend Investment Scheme. 23. Geographical analysis The operations of the Company are wholly in the United Kingdom. 24. Related parties The Company retains Oakley Investment Managers LLP (“OIM”) as its Investment Adviser. Peter Dubens, a non‑executive Director of the Company, is a member of OIM. During the year ended 31 March 2017, £390,086 was payable to OIM for investment adviser services of which £194,368 was owed to OIM at the year end (2016: £261,829, of which £43,683 was owed at the year end). During the year OIM paid expenses on behalf of the Company amounting to £nil (2016: £nil), of which £nil (2016: £nil) was outstanding at the year end. Oakley Capital Limited (“OCL”), a company over which Peter Dubens has significant control, acted as promoter for the offer during the year. The fees in the year amounted to £159,344 (31 March 2016: £150,674) out of which OCL cover the costs of the offer. The costs paid by the Company in the year amounted to £279,559. OCL were paid £50,000 in fees, resulting in a balance of £311,839 owed from OCL to the Company at the year end (2016: OCL owed the Company £141,624). Following the year end, additional promoter fee income of £185,433 was recognised and as at the date of signing the Financial Statements OCL owed the Company £126,406. The number of Ordinary shares (all of which are held beneficially) by employees of OIM as at 31 March 2017 are: 2017 2016 Ordinary shares held B Ordinary shares held Ordinary shares held B Ordinary shares held Peter Dubens Director Stewart Porter Investment Adviser 400,000 75,000 400,000 – 400,000 75,000 200,000 – The remuneration of the Directors, who are key management personnel of the Company, is disclosed in the Directors’ Remuneration Report on page 31. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 61 Notice of Annual General Meeting It is the Board’s opinion that all resolutions are in the best interests of shareholders as a whole and the Board recommends that shareholders should vote in favour of all resolutions. Any shareholder who is in doubt as to what action to take should consult an appropriate independent financial adviser authorised under the Financial Services and Markets Act 2000. If you have sold or transferred all your Shares in the Company, please forward this document, together with the forms of proxy to the purchaser, transferee, stockbroker or other agent through whom the sale or transfer was effected, for transmission to the purchaser or transferee. Notice is hereby given that the third annual general meeting of Pembroke VCT plc will be held at 9.30am on Thursday 7 September 2017 at 3 Cadogan Gate, London, SW1X 0AS for the purpose of considering and, if thought fit, passing the following Resolutions (of which, Resolutions 1 to 10 will be proposed as Ordinary Resolutions and and Resolutions 11 and 12 will be proposed as Special Resolutions): Ordinary Business 1. To receive the Directors’ and the Independent Auditor’s Reports and the Company’s financial statements for the year ended 31 March 2017. 2. To approve final dividends of 2 pence per Ordinary share and 2 pence per B Ordinary share in respect of the year ended 31 March 2017 with a payment date of 26 October 2017 and a record date of 22 September 2017. 3. To approve the Directors’ Remuneration Policy. 4. To receive and approve the Directors’ Remuneration Report for the year ended 31 March 2017. 5. To re-appoint Grant Thornton UK LLP as auditors of the Company to hold office until the conclusion of the next annual general meeting at which accounts are laid before the Company. 6. To authorise the Directors to fix the remuneration of the auditor. 7. To re‑elect Peter Dubens as a Director of the Company. 8. To re‑elect Jonathan Djanogly as a Director of the Company. 9. To re‑elect Laurence Blackall as a Director of the Company. 10. That, in accordance with article 147 of the Company’s Articles of Association and in addition to existing authorities, the Directors of the Company be and hereby generally and unconditionally authorised in accordance with section 551 of the Companies Act 2006 (the “Act”) to exercise all the powers of the Company to allot and issue Ordinary and B Ordinary shares pursuant to the terms and conditions of the dividend investment scheme adopted by the Company on 3 December 2015 and in connection with any dividend declared or paid in the period commencing on the date of this Resolution 10 and ending on the date of the next AGM or the date falling 15 months after the date of the passing of this resolution: a. Ordinary shares of 1 pence each in the capital of the Company (“Ordinary Shares”) up to an aggregate nominal amount representing 10% of the issued Ordinary Share capital from time to time (approximately 1,809,317 Ordinary shares); and b. B Ordinary shares of 1 pence each in the capital of the Company (“B Ordinary Shares”) up to an aggregate nominal amount representing 10% of the issued B Ordinary Share capital from time to time (approximately 2,534,673 B Ordinary shares). Special Resolutions 11. That, in accordance with section 570(1) of the Act, the Directors be and are hereby given power to allot or make offer or agreements to allot equity securities (as defined in section 560 of the Act) for cash pursuant to the authorities conferred by resolution 10 above as if section 561 of the Act did not apply to any such allotment, and so that: a. Reference to the allotment in this resolution shall be construed with section 560 of the Act; and b. The power conferred by this resolution shall enable the Company to make offers or agreements before the expiry of said power which would or might require equity securities to be allotted after the expiry of the said power and the Directors may allot equity securities of such offers or agreements notwithstanding the expiry of such power. 12. That the Company be and is hereby generally and unconditionally authorised within the meaning of Section 701 of the Act to make market purchases of Ordinary and B Ordinary Shares of 1 pence each in the capital of the Company (“Ordinary and B Ordinary Shares”) provided that: (i) the maximum number of Ordinary and B Ordinary Shares hereby authorised to be purchased is an amount equal to 14.99% of the issued Ordinary and 14.99% of the issued B Ordinary Share capital of the Company from time to time; (ii) the minimum price which may be paid for an Ordinary or B Ordinary Share is 1 pence per share, the nominal amount thereof; (iii) the maximum price which may be paid for an Ordinary or B Ordinary Share is an amount equal to 105% of the average of the middle market prices shown in the quotations for an Ordinary or B Ordinary Share as applicable in The London Stock Exchange Daily Official List for the five business days immediately preceding the day on which that share is purchased; (iv) the authority hereby conferred shall (unless previously renewed or revoked) expire on the earlier of the annual general meeting of the Company to be held in 2018 and the date which is 15 months after the date on which this resolution is 62 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Notice of Annual General Meeting continued passed; and (v) the Company may make a contract or contracts to purchase its own Ordinary or B Ordinary Shares under this authority before the expiry of the authority which will or may be executed wholly or partly after the expiry of the authority, and may make a purchase of its own Ordinary or B Ordinary Shares in pursuance of any such contract or contracts as if the authority conferred hereby had not expired. By Order of the Board The City Partnership (UK) Limited Company Secretary 28 July 2017 Notes 1. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001 and paragraph 18(c) of The Companies Act 2006 (Consequential Amendments) (Uncertificated Securities) Order 2009, only shareholders registered in the register of members of the Company as at 9.30am on 5 September 2017 (48 hours, excluding non‑working days, before the time appointed for the meeting) shall be entitled to attend and vote at the AGM in respect of the number of shares registered in their name at such time. If the meeting is adjourned, the time by which a person must be entered in the register of members in order to have the right to attend and vote at the adjourned meeting is 48 hours before the time of any adjourned meeting. 2. As a member of the Company, you are entitled to appoint a proxy to exercise all or any of your rights to attend and vote at the meeting and you should have received a Form of Proxy with this notice of meeting. You can appoint a proxy only by using the procedures set out in these notes and the notes to the Form of Proxy. A proxy does not need to be a member of the Company but must attend the meeting to represent you. 3. To appoint a proxy you may use the Form of Proxy enclosed with this Notice of AGM. To be valid, the Form of Proxy must be deposited by 9.30am on 5 September 2017, or if this meeting is adjourned, by no later than 48 hours, excluding non‑working days, prior to the time and date set for the adjourned meeting, using one of the following methods: • By sending a signed completed hard copy of the Form of Proxy to Share Registrars Limited, The Courtyard, 17 West Street, Farnham, GU9 7DR; or • By sending a legible scan of the completed hard copy of the form of proxy to proxies@shareregistrars.uk.com. 4. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You may not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy you should photocopy the Form of Proxy. Please indicate alongside the proxy holder’s name, the number of shares in relation to which they are authorised to act as your proxy. The notes to the Form of Proxy explain how to direct your proxy to vote on each resolution or withhold their vote. 5. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the first-named being the most senior). 6. In order to revoke a proxy instruction you will need to inform the Company using one of the following methods: • By sending hard copy notice clearly stating your intention to revoke your proxy appointment to Share Registrars Limited, The Courtyard, 17 West Street, Farnham, Surrey GU9 7DR. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power or authority) must be included with the revocation notice; or • By sending an email, clearly stating your intention to revoke your proxy appointment, to proxies@shareregistrars.uk.com. 7. Appointment of a proxy does not preclude you from attending the meeting and voting in person. If you have appointed a proxy and attend the Meeting in person, your proxy appointment will automatically be terminated. 8. The issued share capital of the Company at the date of this notice is 18,093,173 Ordinary Shares and 25,346,738 B Ordinary Shares, therefore the total number of voting rights in the Company as at the date of this notice is 43,439,911. 9. The following documents are available for inspection at the registered office of the Company: • The Directors’ letters of appointment • Register of the Directors’ interests in the share capital of the Company. 10. You may not use any electronic address provided either in this notice of meeting or any related documents, to communicate with the Company for any purposes other than those expressly stated. Pembroke VCT plc Annual Report for the year ended 31 March 2017 | 63 Corporate Information Directors (all non-executive) Independent Not independent Jonathan Simon Djanogly (Chairman) Peter Adam Daiches Dubens Laurence Charles Neil Blackall All of the registered office and principal place of business 3 Cadogan Gate London SW1X 0AS www.pembrokevct.com Investment Adviser Oakley Investment Managers LLP 3 Cadogan Gate London SW1X 0AS Secretary The City Partnership (UK) Limited 110 George Street Edinburgh EH2 4LH Independent Auditor Grant Thornton UK LLP 30 Finsbury Square London EC2P 2YU Registrar The City Partnership (UK) Limited c/o Share Registrars Limited The Courtyard 17 West Street Farnham Surrey GU9 7DR Bankers Barclays Bank plc 1st Floor 99 Hatton Garden London EC1N 8DN VCT Status Adviser Philip Hare & Associates Suite C First Floor 4‑6 Staple Inn London WC1V 7QH Reporting Calendar for year ending 31 March 2018 Results announced: Interim – October 2017 Annual – July 2018 64 | Pembroke VCT plc Annual Report for the year ended 31 March 2017 Designed by addtotaste.com and printed by Portman Lodge Limited 3 Cadogan Gate, London SW1X 0ASIncorporated in England and Waleswith registered number 08307631

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