Seneca Growth Capital VCT Plc
(formerly Hygea vct plc)
Annual Report and Financial Statements
For the year ended 31 December 2018
Company No: 04221489
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Contents
Financial Headlines
Financial Summary
Shareholder Information and Contact Details
Strategic Report
Our Strategy
Chairman’s Statement
Investment Manager’s Report
Business Review
Details of Directors
Directors’ Report
Corporate Governance
Audit Committee Report
Directors’ Remuneration Report and Policy
Directors’ Responsibilities Statement
Report of the Independent Auditor to the Members of Seneca Growth Capital VCT Plc
Income Statement
Ordinary Share Income Statement (non-statutory analysis)
B Share Income Statement (non-statutory analysis)
Statement of Changes in Equity
Ordinary Shares - Statement of Changes in Equity
B Shares - Statement of Changes in Equity
Balance Sheet
Ordinary Share Balance Sheet (non-statutory analysis)
B Share Balance Sheet (non-statutory analysis)
Statement of Cash Flows
Ordinary Shares Statement of Cash Flows
B Shares Statement of Cash Flows
Notes to the Financial Statements
Notice of Annual General Meeting
Directors and Advisers
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About Seneca Growth Capital VCT Plc
Seneca Growth Capital VCT Plc (“the Company” or “Seneca Growth Capital”) is a Venture Capital Trust and
was launched in 2001. Until 23 August 2018 the Company was called Hygea vct plc, had only one Ordinary
share class and had raised a total of £7.8m through its initial offer for subscription and its subsequent
top-up offers.
On 9 May 2018 the Company launched an offer for subscription for a new B share class to raise, in aggregate,
up to £10 million with an over-allotment facility of up to a further £10 million (before issue costs) (the
“Offer”).
The Company made an initial allotment of B shares on 23 August 2018, at which point Seneca Partners
Limited (“Seneca”) was appointed as the Company’s Investment Manager and, as at 31 December 2018, the
Company had allotted a total of 4,036,370 B shares under the Offer, raising £4.0m.
Whilst Seneca has been appointed as the Company’s Investment Manager and will be responsible for the
management of the Company’s B share pool investments, responsibility for the management of the Ordinary
share pool investments has been delegated to those members of the board of directors who served immediately
prior to 23 August 2018.
On 19 January 2018, shareholders approved a change in investment policy for the Company, expanding the
range of qualifying investments that the Company can make, in anticipation of the launch of the Offer and the
appointment of Seneca as Investment Manager.
There has however been no change in the way the Ordinary share pool’s assets are managed and the Directors do
not envisage making any new investments from the assets in this share pool (apart from any follow investments
in existing portfolio companies), and continue to seek to return to Ordinary shareholders over time the proceeds
from any realisations in the form of dividends or by means of a return of capital.
The funds raised from the issue of B shares under the Offer and any subsequent fundraisings will not be limited
to being invested in any specific sector. Instead, the Company is targeting well managed businesses with strong
leadership that can demonstrate established and proven concepts, and are seeking an injection of growth capital
to support their continued development.
Venture Capital Trusts (VCTs)
VCTs were introduced by the UK Government in 1995 to encourage individuals to invest in UK smaller companies.
The Government achieved this by offering VCT investors a series of tax benefits.
The Company has been approved as a VCT by HM Revenue & Customs (HMRC). In order to maintain its approval
the Company must comply with certain requirements on a continuing basis which are discussed further in the
Business Review. The Company has continued its compliance with these requirements during the year, and prior
to launching the Offer, received from HMRC confirmation that the issue of B shares by the Company will not affect
the provisional approval which was previously granted to the company under Chapter 3 Part 6 of the Income Tax
Act 2007, and that the new B shares, and the existing Ordinary shares in the Company will be eligible shares as
defined by section 273 ITA 2007.
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Financial Headlines
Ordinary Shares
£2.9m
Amount realised during the year from sale of Ordinary share pool investment in Hallmarq
Veterinary Imaging Limited
89.35p
Ordinary share Net Asset Value (“NAV”) plus cumulative dividends paid at 31 December 2018
Ordinary share NAV at 31 December 2018
Interim capital dividend declared per Ordinary share during year
65.1p
10.0p
B Shares
£4.0m
Amount raised during the year from the issue of B shares
£0.5m
Amount invested during the year into new investee company by B share pool
99.1p
B share NAV as at 31 December 2018 (no dividends paid or declared on the B shares at that date)
Financial Summary
Year to 31
December
2018 Ordinary
share pool
Year to 31
December 2018
B share pool
Year to 31
December 2017
(Ordinary share
pool only)
Net assets (£’000s)
5,282
Return on ordinary activities after tax (£’000s)
102
Earnings per share
Net asset value per share
Dividends paid since inception
1.3p
65.1p
24.25p
Total return (NAV plus cumulative dividends paid)
89.35p
3,999
(36)
(0.9p)
99.1p
-
99.1p
5,180
(367)
(4.5p)
63.8p
24.25p
88.05p
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Shareholder Information and Contact Details
Financial Calendar
The Company’s financial calendar is as follows:
10 June 2019
Annual General Meeting will be held at 11.00 a.m. at the Offices of Howard Kennedy LLP,
1 London Bridge, London SE1 9BG
September 2019
Half-yearly results to 30 June 2019 published
April 2020
Annual results for year to 31 December 2019 announced and
Annual Report and Financial Statements published
Dividends
Dividends will be paid by the Registrar on behalf of the Company. Shareholders who wish to have dividends paid
directly into their bank account rather than by cheque to their registered address should contact the Company’s
Registrar, Neville Registrars Limited (“Neville”), whose details can be found on page 75. Other queries relating to
dividends and shareholdings should also be directed to Neville.
Share Price
The share price of both the Company’s Ordinary shares and B shares are published daily on the London Stock
Exchange’s website (www.londonstockexchange.com), and other financial websites, and can also be accessed
through the Company’s website (www.senecavct.co.uk). The Ordinary share price may be found using the TIDM/
EPIC code HYG, and the B share price may be found using the TIDM/EPIC code SVCT.
Latest mid-market share price (25 April 2019)
Ordinary shares
35.0p per share
B shares
98.0p per share
Buying and selling shares
The Company’s Ordinary and B shares, which are listed on the London Stock Exchange, can be bought and sold in
the same way as any other company quoted on a recognised stock exchange via a stockbroker. There may be tax
implications in respect of all or part of your holdings, so shareholders should contact their independent financial
adviser if they have any queries.
The Company does not currently operate a share buyback policy for its Ordinary shares, but is authorised to buy
back its B shares (within approved limits). If you are considering selling your shares or trading in the secondary
market, please contact the Company’s Corporate Broker, Panmure Gordon (UK) Limited as follows:
Chris Lloyd
020 7886 2716
chris.lloyd@panmure.com
Paul Nolan
020 7886 2717
paul.nolan@panmure.com
Notification of change of address
Communications with shareholders are mailed to the registered address held on the share register unless
shareholders have agreed to be contacted via e-mail. In the event of a change of address or other amendment
this should be notified to Neville, under the signature of the registered holder.
Other information for Shareholders
Previously published Annual Reports and Half-yearly Reports are available for viewing on the Company’s website
at www.senecavct.co.uk, and in line with current trends all future communications will be also be made available
there. The Company has introduced e-communication for its shareholders, as many people now prefer this
method of contact, and it helps to keep the Company’s cost base down.
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Strategic Report
The Directors are required by the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2014
to include a Strategic Report to shareholders.
The following sections form part of the Strategic Report:
• Our Strategy
• Chairman’s Statement
•
• Business Review
Investment Manager’s Report
Our Strategy
On 9 May 2018 the Company launched an offer for subscription for a new B share class to raise, in aggregate, up
to £10 million with an over-allotment facility of up to a further £10 million (before issue costs). In anticipation of
the launch of the Offer a revised investment policy was approved by shareholders at the General Meeting on 19
January 2018 – this is included in full further below.
The Company made an initial allotment of B shares pursuant to the Offer on 23 August 2018, at which point
Seneca was appointed as the Company’s Investment Manager.
Whilst Seneca has been appointed as the Company’s Investment Manager and will be responsible for the
management of the Company’s B share pool investments, responsibility for the management of the Ordinary
share pool investments has been delegated to those members of the board of directors who served immediately
prior to 23 August 2018.
There has however been no change in the way the Ordinary share pool’s assets are managed and the Directors do
not envisage making any new investments from the assets in this share pool (apart from any follow on investments
in existing portfolio companies), and continue to seek to return to Ordinary shareholders over time the proceeds
from any realisations in the form of dividends or by means of a return of capital.
The funds raised from the issue of B shares under the Offer and any subsequent fundraisings will not be limited
to being invested in any specific sector. Instead, in line with the revised Investment Policy which was approved by
shareholders at the General Meeting on 19 January 2018, the Company is targeting well managed businesses with
strong leadership that can demonstrate established and proven concepts, and are seeking an injection of growth
capital to support their continued development.
The Directors have controlled the overall risk of the Ordinary share pool investment portfolio by ensuring that the
Company has exposure to a diversified range of quoted and unquoted companies from the MedTech sector. The
assets attributable to the B share class will not be restricted to any particular sector. The Directors will continually
monitor the investment process and ensure compliance with both the relevant VCT regulations for qualifying
investments, summarised below, and the Company’s Investment Policy, included further below.
Qualifying Investments
Compliance with required rules and regulations is considered with all investment decisions made. The Company
is further monitored on a continual basis to ensure compliance on an ongoing basis. The main criteria to which
the company must adhere include:
• At least 70% (80% from 1 January 2020) of investments must be made in qualifying shares or securities;
• At least 70% of qualifying investments must be invested into ordinary shares with no preferential rights
(investments made before 6 April 2018 from funds raised before 6 April 2011 are excluded);
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• At least 30% of funds raised after 31 December 2018 must be invested in qualifying investments by the
anniversary of the end of the accounting period in which those funds were raised;
• No single investment made can exceed 15% of the total HMRC company value at the time the investment is
made.
In respect of VCT shares issued on or after 6 April 2014, VCT status will be withdrawn if a dividend is paid (or other
forms of distribution or payments are made to investors) from the capital received by the VCT from that issue
within three years of the end of the accounting period in which shares were issued to investors.
Qualifying investments can only be made in small and medium sized trading companies which fall within the
following limits:
• have fewer than 250 full time equivalent employees (500 if a knowledge intensive company); and
• have less than £15 million of gross assets at the time of investment and no more than £16 million immediately
post investment; and
• be less than seven years old (or 10 years if a knowledge intensive company) if raising State Aided funds for
the first time; and
• have raised no more than £5 million of State Aided funds in the previous 12 months and less than the lifetime
limit of £12 million (or £20 million if a knowledge intensive company); and
• produce a business plan to show that its funds are being raised for growth.
Finance Act 2018 introduced a new “risk-to-capital” condition for qualifying investments, designed to focus
investments towards earlier stage, growing businesses, and away from investments which could be regarded as
lower risk. The Board is satisfied that the Company’s Investment Policy is in line with this “risk-to-capital” condition.
The revised Investment Policy as approved by shareholders on 19 January 2018 is set out below and includes
the sections titled Investment Policy, Qualifying Investments, Non-Qualifying Investments, Risk Management,
Borrowing and Changes to the Investment Policy:
Investment Policy
The Company’s objective is to provide shareholders with an attractive income and capital return by investing its
funds in a portfolio of both unquoted and AIM/NEX quoted UK companies which meet the relevant criteria under
the VCT rules.
The Company will target well managed businesses with strong leadership that can demonstrate established and
proven concepts, and are seeking an injection of growth capital to support their continued development.
At least the minimum required percentage of the Company’s assets will be invested in Qualifying Investments as
required by the VCT rules, with the remainder held in cash and money market securities.
Qualifying Investments
Compliance with required rules and regulations is to be considered with all investment decisions made. The
Company is further monitored on a continual basis to ensure compliance.
Non-Qualifying Investments
An active approach will be taken to manage any cash held, both prior to its investment in Qualifying Companies
and to any remaining cash after all investment qualification targets in the VCT rules have been satisfied. All cash
will be invested in accordance with VCT rules for Non-qualifying Investments. Such Non-qualifying Investments
may include liquid AIFs, UCITS or other money market funds including those managed by Seneca Investment
Managers.
Risk Management
The Directors control the overall risk of the portfolio by ensuring that the Company has exposure to a diversified
range of unquoted and AIM/NEX quoted companies. In order to limit concentration risk in the portfolio that is
derived from any particular investment, at the point of investment or addition to an existing investment no more
than 15% of the Company by VCT value will be in any one investment. In addition, investments may also be made
by way of loan stock and/or redeemable preference shares as well as ordinary shares to generate income, whilst
ensuring compliance with whatever VCT rules apply at the time.
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Borrowing
Whilst the Board does not intend that the Company will borrow funds (other than to manage short term cash
requirements), the Company is entitled to do so subject to the aggregate principal amount at the time of borrowing
not exceeding 25% of the value of the adjusted capital and reserves of the Company (being, in summary, the
aggregate of the issued share capital, plus any amount standing to the credit of the Company’s reserves, deducting
any distributions declared and intangible assets and adjusting for any variations to the above since the date of the
relevant balance sheet).
Changes to the Investment Policy
The Company will not make any material changes to its investment policy without Shareholder approval.
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Strategic Report
Chairman’s Statement
I am pleased to present the 2018 Annual Report to Shareholders.
Overview
2018 has been a successful year of change for the Company. Following the initial allotment of B Shares under
the Offer launched on 9 May 2018, we are delighted that Seneca was appointed as the Company’s Investment
Manager. Funds raised under the Offer totalled £5.5 million and five investments have already been made, details
of which are set out in the Investment Manager’s report. The Offer is now closed and I would like to take this
opportunity of welcoming all our new B shareholders. Shareholders may have seen the recent announcement,
prior to the last allotment, that the NAV at 31 March 2019 of the Ordinary shares is 51.1p per share and of the B
shares is 98.9p per share.
As intimated in my last Chairman’s Statement accompanying the 2017 accounts, we anticipated a liquidity event
and were delighted to report that in December 2018 we sold the Company’s Ordinary share portfolio holding in
Hallmarq Veterinary Imaging Limited (‘Hallmarq’). This realised a profit over cost of £1,807,000 and over carrying
value of £894,000. As announced at the time of the realisation, it was also possible the Company would receive
a small amount of further proceeds that had been deferred at completion and I am pleased to confirm that a
further £37,666 was received in April 2019 and will be accounted for in the 2019 accounts. We are delighted that
this realisation has allowed us to pay an interim dividend of 10p per Ordinary share and our further intentions
regarding dividends are detailed below.
Details of the Ordinary share pool’s remaining portfolio companies are included below and also in the Investment
Manager’s Report. The Net Asset Value of the Ordinary shares at 31 December 2018 has now increased to 65.1p
per share and the Total Return is now 89.35p per share. As Ordinary shareholders will recall, following the raising
of the minimum subscription of B shares in August 2018, the Ordinary share pool will suffer no running costs until
July 2021. In addition, the Company’s bank loan, which was a liability of the Ordinary share pool, has been repaid
using proceeds from the Hallmarq sale and the debenture released.
Details of the B share investment made during the year along with details of the B share investments made
since the year end are included in the Investment Manager’s Report. The Net Asset Value of the B shares at 31
December 2018 was 99.1p and at that date no dividends had been paid in relation to the B shares.
The Board is also encouraged that as of today’s date, the Investment Manager has already invested £2.75m of
the funds raised under the Offer into 5 companies. This is in line with their expectations for deploying the capital
raised under the Offer and indicative of the healthy pipeline of growth capital investment opportunities which
Seneca maintains as a result of not only their appointment as the Company’s Investment Manager, but also as an
active growth capital investor through the EIS funds which they manage. We expect to issue a prospectus for a
further B share offer shortly and look forward to the Investment Manager continuing to build a portfolio of diverse
growth capital investments which will be attractive to the VCT investment community.
Results and Dividends
During the year, our revenue return on ordinary activities saw a loss of 0.72p per Ordinary share and a loss of
0.45p per B share, both principally as a result of the impact of the Company’s running costs. The comparative
loss for 2017, which related solely to the Ordinary shares, amounted to 1.5p per share. The Company’s running
expenses are capped at 3% of the B share NAV until July 2021 and as a result, an amount of £18,000 was due to
the Company from the Investment Manager at 31 December 2018 which will be deducted from future payments
falling due to Seneca.
The Capital return on the Ordinary share portfolio amounted to 2p per share driven by the profit generated on
the disposal of our holding in Hallmarq, details of which I referred to above, net of changes to the valuations of
some other Ordinary share pool investments. There is no change in the value of the B share portfolio since the
first investment only completed on 31 December 2018.
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During the year, the nominal value of the Ordinary shares was reduced from 50p per share to 1p per share and
the majority of the balance standing to the credit of the Company’s share premium account arising on the issue of
B shares was reduced. Both of these transactions have given rise to a credit to the Special Distributable Reserve
which may be used for the payment of dividends. Further details are included in note 14 on page 68. Your original
Ordinary share certificates remain valid.
As previously stated, it is the Board’s intention to distribute the majority of the proceeds generated by the Hallmarq
exit to Ordinary shareholders, after repayment of the bank loan and retention of an appropriate proportion
to cover small follow on investments in the existing Ordinary share portfolio and any costs attributable to the
Ordinary share pool. In line with this intention, an interim dividend of 10p per Ordinary share was declared
on 28 December 2018 and it is the current intention of the Board to declare a further interim dividend of 18p
per Ordinary share in early May (following the filing of the Company’s 2018 accounts at Companies House) for
payment shortly thereafter.
In addition the Board was pleased to have declared an interim dividend of 1.5p per B share on 6 March 2019,
which was paid in April 2019, reducing the NAV of a B share to 97.4p. The Board hopes to be able to continue to
declare periodic dividends on the B shares as the B share investment portfolio develops.
Ordinary Share Investment Portfolio Review
The remaining Ordinary share portfolio has seen a reduction in value during the period. As at 31 December
2018 the value stood at £2.79m (having been at £3.535m at the end of the prior year excluding Hallmarq) with a
large proportion of the reduction in the year resulting from the decline in the share price of AIM quoted Scancell
Holdings plc (“Scancell’) and Omega Diagnostics plc (“Omega”) during the year. However, in the Board’s opinion,
the intrinsic values of both Scancell and Omega remain and we are firmly of the view that the potential upside in
these assets merits their continued presence in the portfolio.
The value of the quoted and unquoted sections of the remaining Ordinary share portfolio were roughly equal
at 31 December 2018. Scancell, valued at the bid price of 9p, represented 42% of the Ordinary share portfolio
as at 31 December 2018. However, by the 31 March 2019 the bid price had reduced to 5.5p and accordingly the
percentage of the entire Ordinary share portfolio represented by Scancell has fallen to 30.6%. This was the primary
reason for the reduction in the NAV of an Ordinary share (in addition to the dividend of 10p per share that was
paid on 25 January 2019) as at 31 March 2019. Details of progress in the Ordinary share pool unquoted portfolio
are included in the Investment Manager’s Report but the only significant investment, based on the valuations as
at 31 December 2018, is OR Productivity Limited which continues to report success in its ambitions within the
hospital operating environment.
We have written down the value of Exosect Limited (‘Exosect’), which was placed into Administration on 18
October 2018, to nil and reduced the value of Arecor Limited (‘Arecor’) following their recent fund raising at a
discounted price compared to our carrying value. We continue to hold a full provision against our investment in
Immunobiology Limited due to share preferences held by other investors. Whilst we are unlikely to recover any
value from Exosect, we would hope that the opportunities available to both Arecor and Immunobiology have the
potential to realise further value for the Ordinary share portfolio.
The Board remains confident that, overall, the remaining Ordinary share portfolio has the opportunity to realise a
significant gain for shareholders but we do not see any immediate opportunities for further realisations.
B Share Investment Portfolio Review
We are delighted to report that the new B share portfolio has now made 5 investments and invested £2.75 million.
This is a very positive start to the development of the B share investment portfolio and demonstrates that Seneca
has access to considerable deal flow with exciting opportunities. Full details are included in their Investment
Manager’s report.
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Annual General Meeting
The Company’s AGM will be held at 11.00 a.m. on Monday 10 June 2019 at the offices of Howard Kennedy LLP, 1
London Bridge, London SE1 9BG and we look forward to welcoming you to the meeting.
Following the appointment of Seneca as Investment Manager, Charles Breese has indicated that he does not
wish to seek re-election to the Board at the AGM. However we are pleased that he has agreed to continue as
a consultant until the end of this year in order to facilitate an orderly handover of the relationships with the
remaining companies in the Ordinary share portfolio. Charles has been a member of the Company’s Board since
its inception in 2001 and we thank him very much for his considerable advice and input, especially the benefit of
his investment experience, during that time.
The Board has reviewed my performance and has asked me to continue as Chairman. A resolution for my re-
election is included in the AGM Notice. A resolution for the re-election of Richard Manley, who was appointed
during the year as Seneca’s representative, is also included in the AGM Notice.
The Board is currently in the process of identifying a new non-executive Director.
As the Company has now paid interim dividends in respect of both the Ordinary shares and the B shares and
is required to pay a further Ordinary share dividend before 12 June 2019 in order to satisfy VCT rules following
disposal of the Hallmarq investment on 13 December 2018, no resolutions are included in respect of dividends.
The Notice of the AGM includes resolutions empowering the Directors to issue further B shares and Ordinary
shares which will primarily be used to facilitate the launch of another B share offer for the 2019/2020 and
2020/2021 tax years referred to above which requires authorisation for the Directors to be able to allot up to a
further 25,000,000 B Shares. Including these resolutions in the AGM business will avoid the Company having to
produce and send out a separate circular.
A summary of the resolutions to be proposed by the Company at its Annual General Meeting is included on page 32.
VCT Qualifying Status
Philip Hare & Associates provides the Board with advice on the ongoing compliance with HMRC rules and regulations
concerning VCTs; they have confirmed that we remain within all the appropriate VCT qualifying regulations as at
31 December 2018.
Fund Administration
Our administration remains unchanged at present but, as the B share portfolio increases, much of this will migrate
to Seneca’s Haydock offices, to where we have already moved the Company’s Registered Office. Neville Registrars
(‘Nevilles’) will continue to maintain the Register. Our website has now changed to www.senecavct.co.uk which
includes all information in respect of both share classes including Annual Reports and notices of meetings. We
would remind shareholders who have not opted for electronic communications that this is more efficient and
ecologically friendly than receiving paper copies by post. If you wish to take advantage of this facility, please
contact Nevilles whose details are on page 75.
Resignation of Auditor
As already announced, James Cowper Kreston (”JCK”), the Company’s previous auditor, have decided to withdraw
from auditing Public Interest Entities (which includes VCTs) for the time being due to the increasing regulatory
landscape and associated costs. As a result JCK have resigned from their role as auditor to the Company. The
Company carried out a tender process for the appointment of a new auditor, and the Board, on the recommendation
of the Audit Committee, appointed UHY Hacker Young LLP (“UHY”) to fill the casual vacancy that had arisen. UHY
have audited the Company’s annual results for the year ending 31 December 2018, and shareholders will be asked
to reappoint them at the AGM for the audit of the accounts for the year ending 31 December 2019.
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Future Prospects
As I have previously indicated, we regard the prospects for the remaining Ordinary share portfolio as good but
once again I need to seek shareholders’ patience following the significant distributions returned (and intended to
be returned) to them in 2019 whilst we await further realisation opportunities for the remaining investments in
the Ordinary share portfolio.
We are pleased with the support we have received from existing and new shareholders in respect of the B share
fund raising and will be issuing our new prospectus in the near future. Seneca is confident that there remains
significant demand from potential investee companies for the type of growth capital that the Company can
provide from its B share pool. As such, the Board remains confident of continuing to increase the B share fund in
the 2019/20 tax year and foresees being able to invest these funds profitably well within the time limits imposed
on VCTs.
Your Board continues to view the future of our Company with confidence.
John Hustler
Chairman
26 April 2019
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Investment Manager’s Report
Seneca Partners were delighted to be formally appointed as the Company’s Investment Manager on 23 August
2018 following the successful first allotment of shares under the B share offer, which was launched on 9 May 2018
to raise in aggregate up to £10m.
We are active growth capital investors and since 2012 have invested in excess of £50m of growth capital into more
than 40 investee companies.
As many of the Company’s B shareholders will know, Seneca are head-quartered in the North West of England
and as a result of our position as active growth capital investors across the UK we maintain a strong pipeline of
investment opportunities. From this pipeline of potential investments we have moved quickly to make our first
investments from the Company’s B share pool and started the process of building a diverse portfolio of growth
capital investments which we hope will provide attractive returns for the benefit of the Company’s B shareholders.
We are happy to report that a total of £5.5m was raised under the new B share offer in our first year of fundraising
of which £0.5m had been invested into one investee company as at 31 December 2018.
This first investment was made into the fast growing e-commerce business, SilkFred Limited, which specialises
in independent ladies’ fashion brands. Seneca first invested in this business via EIS funds which we manage in
March 2018 and since that time we have been impressed with the progress it has made and rate with which
the business is growing. The December 2018 investment made from the Company’s B share pool was part of a
larger investment round totalling c.£4m and will provide the working capital the business requires to support its
continued growth.
Since this first B share pool investment on 31 December 2018 we have also now completed a further 4 investments
from the B share pool deploying an additional £2.25m and in all of these instances the B share pool has co-invested
alongside EIS funds also managed by Seneca. This is a key feature of the B share pool’s early investments and
brings an ability for the B share pool to participate in larger deals into more established companies than would be
possible at this point if the Company’s B share pool were to invest on a standalone basis.
Our current investment portfolio is summarised in the table below with additional detail in relation to each
investee company included thereafter.
We are very happy with the diverse nature of these initial 5 B share pool investee companies and as it is our
intention that the B share portfolio has exposure to both private and AIM quoted companies we are also particularly
pleased that we have been able to include an AIM quoted company in these initial investments.
It is our intention to launch another prospectus for a further B share offer in the 2019/2020 tax year in the near
future and to continue to raise funds to support the ongoing development of the existing portfolio and to fund
new investments.
Shareholders will recall that whilst Seneca Partners are the Company’s Investment Manager, responsibility for
the management of the Ordinary share pool investments remain with those members of the Board who were
serving at the point of Seneca’s appointment on 23 August 2018. During the year to 31 December 2018 a profit
over original cost of £1,807k was realised on the sale of the Ordinary share portfolio’s holding in Hallmarq. A
further £19k profit over cost was realised when 200,000 Scancell shares were sold for liquidity management
purposes. During the year former Ordinary share pool investee company Glide was dissolved and the carrying
value of the Ordinary share pool’s investment in Exosect was written down to nil following the company entering
administration in October 2018.
Further details in relation to both Ordinary share pool and B share pool investee companies are included below.
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Investment Portfolio – Ordinary shares
Unquoted Investments
Equity
held
%
Investment
at cost
£’000
Unrealised
profit/(loss)
£’000
Carrying value at
31 December 2018
£’000
OR Productivity plc
Fuel 3D Technologies Limited
Arecor Limited
Insense Limited
Microarray Limited
ImmunoBiology Limited
Exosect Limited
10.3
<1.0
1.3
4.6
1.8
2.0
1.4
765
299
142
509
132
868
270
(101)
(23)
63
(389)
(65)
(868)
(270)
664
276
205
120
67
-
-
Total unquoted investments
2,985
(1,653)
1,332
Movement
in the year to
31 December 2018
£’000
-
-
(47)
-
-
-
(120)
(167)
Quoted Investments
Shares
held
Investment
at cost
£’000
Unrealised
profit/(loss)
£’000
Carrying value at
31 December 2018
£’000
Movement
in the year to
31 December 2018
£’000
Scancell plc
13,049,730 789
Omega Diagnostics plc
2,293,868
328
Total quoted investments
Total investments
1,117
4,102
385
(41)
344
(1,309)
1,174
287
1,461
2,793
(482)
(92)
(574)
(741)
Investment Portfolio – B shares
Unquoted Investments
Equity
held
%
Investment
at cost
£’000
Unrealised
profit/(loss)
£’000
Carrying value at
31 December 2018
£’000
Movement
in the year to
31 December 2018
£’000
Silkfred Limited
<1.0
Total unquoted investments
500
500
-
-
500
500
-
-
15
Ordinary Share Pool – Investment Portfolio – Unquoted Investments
1. OR Productivity Limited
Initial investment
date:
March 2011
Cost:
£765,000
Valuation:
£664,000
Equity held:
10.3%
Last statutory
accounts:
31 March 2018
At the end of 2011, Freehand 2010 (a Seneca Growth Capital
Ordinary share investee) was acquired by OR Productivity plc
(ORP) in exchange for ORP shares.
Freehand 2010 owns the intellectual property to technology
incorporated in a product, FreeHand, for robotically controlling
the laparoscope (part of the camera system) used in the growing
sector that is keyhole surgery. The business model is built upon
free placement of the system with recurring revenue then
being generated from the subsequent sale of a consumable per
operation.
Turnover:
£163,000
Progress made by the company in 2018 includes:
Loss before tax:
£762,000
•
Net assets:
£(1,248,000)
Valuation method:
Price of last
fundraise
The publishing by Salisbury Hospital in May 2018 of
information comparing the outcomes from surgery using
FreeHand held cameras with the results of surgery done
with a human held camera. Of particular note was a 22%
average reduction in operating time of 35 minutes and
a 25% average reduction in post-operative stay from 2
days to 1.5 days when using FreeHand held cameras
which are significant reductions, particularly at a time
when the NHS is experiencing staff and bed shortages;
• A strategic decision to focus sales efforts on accounts
capable of undertaking c.1,000 operations p.a. with
one such account already having been secured; and
• Progress being made with the company’s Development
Management Services offering with the completion of the
first stage of a development project for a medical device
delivering laser ablation of tumors. The project saw the
development of a robotic assistant (based on FreeHand
technology) taking instructions from both MRI and CT
imaging modalities and other such projects are in the
pipeline.
16
2. Fuel 3D Technologies Limited
Initial investment
date:
March 2010
Cost:
£299,000
Valuation:
£276,000
Equity held:
< 1%
Last statutory
accounts:
31 December 2017
Turnover:
£665,000
Loss before tax:
£9.6 million
Net assets:
£4.7 million
Valuation method:
Price of last
fundraise
3. Arecor Limited
Initial investment
date:
January 2008
Cost:
£142,000
Valuation:
£205,000
Equity held:
1.3%
Last statutory
accounts:
31 May 2018
Turnover:
£1,272,000
Loss before tax:
£1,176,000
Net assets:
£679,000
Valuation method:
Price of last
fundraise
In 2014 Fuel 3D was formed to acquire the computer 3D imaging
IP of Seneca Growth Capital Ordinary share investee company,
Eykona. The initial application for this IP targeted by Eykona
was measuring the volume of chronic wounds, however this
has since developed and the current application focus is on a)
measuring tumours in animals used in drug development via
a product called BioVolume and b) enabling the manufacture
of products to fit a particular individual eg masks used to treat
certain medical conditions.
BioVolume is Fuel 3D’s lead product and improves measurement
accuracy,
inter-operator consistency, animal welfare, cost
efficiencies, compliance and the success of pre-clinical oncology
research.
Progress made by
the company
in 2018
includes:
• Continued development of BioVolume by combining 3D
imaging with thermal imaging and paid for trials are now
being undertaken with a number of pharma companies; and
• Using its technology in conjunction with 3D printing to make
products to fit a particular individual and a development
project is now underway with a third party to facilitate the
manufacture of masks for a medical application.
Arecor was a spin-out from Insense (a Seneca Growth Capital
Ordinary share investee company – see below) to commercialise
technology developed by Insense for enabling biologics to
maintain their integrity without the need for refrigeration
- this both reduces cost and also helps supply chain logistics
in developing countries where temperature monitored cold
storage facilities are in short supply.
Progress made by the company in 2018 includes:
•
•
In their financial year to 31 May 2018 they invested £2.1m in
R&D associated with their own product development; and
The company also raised £6.0m of equity in September
2018 to fund the continued development of Arecor’s own
products for diabetes care and during 2018, the company
also filed a Clinical Trial Application to conduct a Phase
I study in Type 1 diabetes patients of Arecor’s ultra-rapid
acting insulin product.
17
4. Insense Limited
Initial investment
date:
Cost:
July 2003
£509,000
Valuation:
£120,000
Equity held:
4.6%
Last statutory
accounts:
31 December 2017
Turnover:
£18,000
Loss before tax:
£255,000
Net assets:
£322,000
Valuation method:
Price of last
fundraise
5. Microarray Limited
Initial investment
date:
January 2011
Cost:
£132,000
Valuation:
£67,000
Equity held:
1.8%
Last statutory
accounts:
31 December 2017
Turnover:
£58,000
Loss before tax:
£1.1 million
Net assets:
£(2.3 million)
Valuation method: Directors’ valuation
Insense is an innovative, biotechnology company and was spun-
out from Unilever’s R&D laboratory in 2001.
It has since had two successful spin-outs, namely Arecor
(see above) and Microarray (see below) and current Insense
development activity is concentrated on dermatology products
for both professional and consumer applications.
Progress made by the company in 2018 includes:
• work continuing in conjunction with a leading microbiologist
to prepare its leading dermatology product (fungal nail
treatment) for efficacy and usability tests with the aim of
finalising product specification for first-in-man trials.
Microarray Ltd is a UK-based specialist wound healing company.
Founded in 2000, Microarray was merged with Archimed,a spin-
out from Insense (see above) the company is now privately
owned.
The company has access to wide ranging expertise in the
fields of wound dressing product development, marketing and
sales; electrochemistry and diagnostic sensor technologies;
iodine chemistry; enzymology,
biochemistry, oxygen and
research and
immunology and
development activities are concentrated on
innovative,
electrochemically-active wound dressings for the treatment of
chronic wounds and on wound care diagnostics.
inflammation. Current
Microarray owns and continues to develop new intellectual
property in its specialist fields. It works independently and with
expert academic and industrial partners.
Progress made by the company in 2018 includes:
• wound sample material being obtained from a Wounds
Innovation Centre, where the company is working with a
world leading wound clinician; and
•
interim data from a sizeable trial ongoing with data due in
2019, and the design expected to be frozen in Q3 2019.
18
6. ImmunoBiology Limited
Initial investment
date:
November 2005
Cost:
£868,000
Valuation:
£nil
Equity held:
2.0%
Last statutory
accounts:
31 May 2018
ImmunoBiology is a biotechnology company that is focused
on developing treatments for illnesses such as meningitis,
tuberculosis,
influenza and hepatitis C. The company’s
technology is based on the discovery that a group of proteins
known as ‘heat shock proteins’ has a pivotal role in controlling
the normal immune response to infections.
The focus is currently on a vaccine for Pneumococcal Disease,
for which the challenge is that there are >90 strains in circulation
but present treatments address only a small proportion. In 2016
a first in human study demonstrated safety in adults.
Turnover:
£nil
Progress made by the company in 2018 includes:
Loss before tax:
£665,000
Net assets:
£532,000
• Preparation for a significant fundraise to finance a
PnuBioVax Phase II clinical trial, with the objective of a
successful outcome leading to a shareholder exit and in
early 2019 also concluded a regional licensing agreement.
Valuation method: Directors’ valuation
7.
Exosect Limited
Initial investment
date:
January 2010
Cost:
£270,000
Valuation:
Equity held:
Last statutory
accounts:
£nil
1.4%
31 December 2017
Turnover:
£83,000
Loss before tax:
£2.4 million
Net assets:
£(370,000)
Valuation method:
Investment fully
written down
Exosect was spun-out of Southampton University in 2001 to
commercialise innovative pest control technology and reduce
the use of insecticides.
Until 2015, it sought to develop its own pesticide products.
However, following a change of CEO, the strategy was changed
whereby the company regarded its technology as a platform
for helping pesticide manufacturers target their products more
accurately and thereby achieve environmental benefits (through
enabling a 50% reduction in active ingredients required as
currently more than 50% of applied agrochemicals do not reach
their intended target) with resulting cost savings.
Unfortunately this change in strategy ultimately proved to
be unsuccessful and administrators were appointed to the
company on 18 October 2018, with no return being anticipated
to shareholders.
19
Ordinary Share Pool – Investment Portfolio - AIM Quoted Investments
1. Scancell plc
Initial investment
date:
December 2003
Cost:
£789,000
Valuation:
£1,174,000
Equity held:
3.4%
Last statutory
accounts:
30 April 2018
Turnover:
£nil
Loss before tax:
£4.9 million
Net assets:
£13.9 million
Valuation method:
Bid price of 9.0p per
share
Scancell is an AIM listed biotechnology company that is
developing a pipeline of therapeutic vaccines to target various
types of cancer, with the first target being melanoma.
The Immunobody platform technology, in effect, educates
the immune system how to respond – this means that the
technology can also be licensed to pharmaceutical companies
to assist the development of their own therapeutic vaccines,
which is an area of emerging importance for which a number of
big pharmas do not have in-house technology.
In addition, in 2012 a second platform technology, Moditope,
was announced and is based on exploiting the normal immune
response to stressed cells, and is complementary to the
Immunobody platform.
Progress made by the company in 2018 includes:
•
•
•
•
The announcement of a Clinical Development Partnership
with Cancer Research UK (CRUK) to develop SCIB2, for the
treatment of patients with solid tumours, including non-
small cell lung cancer. CRUK will fund and sponsor a UK-
based Phase I/II clinical trial of SCIB2 in combination with a
checkpoint inhibitor;
The announcement of a collaboration with BioNTech for
the Moditope product being developed for the treatment of
lung, triple-negative breast cancer, ovarian and endometrial
cancers. BioNTech is one of Europe’s new immuno-oncology
power-houses;
The appointment of a new CEO in January 2018. He was VP
Business Development at Arana when it acquired Scancell’s
monoclonal antibody business in 2006; and
The initiation of preparations for a) a SCIB1- checkpoint
inhibitor Phase II US combination study in late stage
melanoma (the study is expected to start in H2 2019), and
b) a First-in-Human study with Modi-1 in patients with triple
negative breast cancer, ovarian cancer and sarcoma.
20
2. Omega Diagnostics plc
Initial investment
date:
August 2007
Cost:
£328,000
Valuation:
£287,000
Equity held:
1.8%
Last statutory
accounts:
31 March 2018
Turnover:
£13.6 million
Loss before tax:
£6.9 million (incl £5.9
million exceptional
charge)
Net assets:
£17.1 million
Omega Diagnostics plc (“Omega”) is quoted on AIM and
specialises in Food Intolerance Testing, Allergy Testing and HIV
Point-of-Care (POC) Testing.
Progress made by the company in 2018:
•
In December 2017 the founding CEO stepped down and
was replaced by the COO who had joined in August 2015,
having previously been Managing Director of Axis-Shield
Diagnostics. Following a strategic review by the new CEO, a
restructuring took place in order to position the group with
a profitable core business with attractive organic growth
potential (Food Intolerance Testing), and two products
under development with significant growth potential
(Allergy Testing, and HIV POC Testing). The restructuring
involved the closure of the manufacturing site in India and
the manual allergy testing business, eliminating EBITDA
losses of c.£800,000 in 2017/18 in addition to the sale of the
low growth/low margin infectious diseases business; and
Valuation method:
Bid price of 12.5p
per share
•
In addition to the completion of the restructuring, the first
sales have been achieved in relation to the automated
allergy tests project and the first sales have also been
achieved with regard to the HIV POC Testing CD4 350 test
(on which development started in 2012 and CE marking was
achieved in 2017). CE marking of the second test, CD4 200
(which is anticipated to have the greater market potential)
was achieved in March 2019.
21
B Share Pool – Investment Portfolio – Unquoted Investments as at 31 December 2018
1. SilkFred Limited
Initial investment
date:
December 2018
Cost:
£500,000
Valuation:
£500,000
Equity held:
<1%
Last statutory
accounts:
31 December 2017
Turnover:
Not disclosed
Loss before tax:
Not disclosed
Net assets:
£3.5 million
Valuation method:
At cost
Silkfred is an online marketplace for independent ladies’
fashion brands. The business was founded in 2011 with the
aim of creating an efficient marketplace for emerging fashion
designers to bring products to market and establish their brand
in the sector. The business now works with c.600 independent
brands, selling to over 500k customers.
Silkfred acts as a central marketing and sales platform for these
brands, charging commission in exchange for these services,
and as a result the business itself takes minimal inventory /
working capital risk on new brands, lines or products.
The business model revolves around a market leading and
scalable customer service platform, and as such Silkfred are
continually investing in core infrastructure and constantly
the customer
seeking
experience.
innovative methods
to enhance
B Share Pool – Investment Portfolio – Additional Unquoted Investments as at 26 April 2019
1. Fabacus Holdings Limited
Initial investment
date:
February 2019
Cost:
£500,000
Equity held:
2.2%
Last statutory
accounts:
31 December 2018
Turnover:
Not disclosed
Loss before tax:
Not disclosed
Net assets:
£4.6 million
is an
independent software company that has
Fabacus
developed a Complete Product Lifecycle Solution: Xelacore,
aimed at bringing transparency to supply chain networks, with
an initial focus on resolving the interaction and information
flow between global licensors and their licensees.
Currently, there is a fundamentally flawed data capture process
between licensors and licensees; and a disconnection from
the framework of retail standards that have underpinned and
continue to enable the retail value chain. This has resulted in an
inability to correctly address known shortcomings in respect to
data management and hinder the needed digital transformation
of licensors in the digitally evolving retail landscape.
Fabacus’s solution, Xelacore, is a modular, Software as a Service
(“SaaS”) solution with an intuitive interface and proprietary
data aggregation and management engine that allows all
stakeholders to operate on a single unified and collaborative
platform. It bridges the gaps in an inefficient process within the
current retail ecosystem by creating authenticated, enriched
universal records that unlock opportunities, reduce risk and
drive performance for both licensors and licensees.
22
2. Old St Labs Limited
Initial investment
date:
March 2019
Cost:
£500,000
Equity held:
3.44%
Last statutory
accounts:
31 March 2018
Turnover:
Not disclosed
Loss before tax:
Not disclosed
Net assets:
(£0.7) million
3. Qudini Limited
Initial investment
date:
April 2019
Cost:
£500,000
Equity held:
2.22%
Last statutory
accounts:
31 December 2018
Turnover:
Not disclosed
Loss before tax:
Not disclosed
Net assets:
£1.7 million
Old St Labs is a provider of cloud based, supplier collaboration
tools for large, blue chip customers, enabling them to manage
key supplier relationships and strategic project work. The core
product, Vizibl, seeks to make supplier collaboration much
more straight forward, with key focus on compliance, savings /
efficiency and driving growth across the business.
Vizibl is the only SaaS workspace that supports collaborative
supplier relationships, bringing all points of contact together
in one place, providing visibility across the company and
eliminating duplication of efforts. Vizibl’s real-time reporting
speeds up decision making, drawing on and sharing the
expertise of the community in the process. The offering taps
into a growing trend in supplier collaboration, having moved on
from the initial focus on compliance, to an increased emphasis
on savings / efficiency, and recent developments highlighting the
benefits in terms of wider growth strategy for large customers.
Vizibl provides the infrastructure, governance and reporting
capabilities to optimise present supplier performance and acts
as a springboard for those collaborative supplier relationships.
The product is CRM / ERP agnostic, working alongside all major
software providers to ensure the collaboration software is
insightful and informative.
Founded in 2012, Qudini is a B2B software company that
provides customer experience SaaS solutions to organisations
in retail, hospitality, the public sector and healthcare.
Qudini provides a software solution for appointment bookings,
queue management, event management and task management
– enabling businesses to improve shop floor operations by
managing staff activity, breaks and performance, and by
assigning tasks at store or head office level.
Qudini is aiming to revolutionise digital queue and appointment
management. It achieves this through deployment of its data-
centric, cloud-based (Amazon Web Services), cross-platform
service, which improves a business’ ability to manage the flow
of customers awaiting service, using algorithms to provide
accurate, live data, such as estimated wait times. Wait times
are relayed to the customer typically via an SMS/text sent from
the Qudini platform. Through integration with various software
platforms and compatible with wide variety of hardware, Qudini
enables detailed analytics focused on customer trends, and
provides a unique insight into areas such as customer footfall,
peak demand times, and wait times.
23
B Share Pool – Investment Portfolio – Additional Quoted Investments as at 26 April 2019
1. SkinBioTherapeutics Plc
Initial investment
date:
February 2019
Cost:
£750,000
Equity held:
Last statutory
accounts:
3.7%
- 4,677,107 shares
30 June 2018
Turnover:
Nil
Loss before tax:
£0.9 million
Net assets:
£3.4 million
SkinBioTherapeutics is a life science company focused on
skin health. The Company’s proprietary platform technology,
SkinBiotix®, is based upon discoveries made by CEO Dr. Cath
O’Neill and Professor Andrew McBain.
SkinBioTherapeutics’ platform applies research discoveries
made on the activities of lysates derived from probiotic
bacteria when applied to the skin. The Company has shown
that the SkinBiotix® platform can improve the barrier effect
of skin models, protect skin models from infection and repair
skin models. Proof of principle studies have shown that the
SkinBiotix® platform has beneficial attributes applicable to
each of these areas.
The aim of the Company is to develop its SkinBiotix® technology
into commercially successful products supported by a strong
scientific evidence base. SkinBioTherapeutics’ commercial
strategy is to engage health and wellbeing and/or pharmaceutical
companies in early dialogue to build up relationships and
maintain communication on technical progress until one or
more commercial deals can be secured.
24
Business Review
Company Performance
The Board is responsible for the Company’s investment strategy and performance.
The graph below compares the NAV return (rebased to 100) of the Company’s Ordinary shares over the period
from October 2001 to December 2018, with the total return from a notional investment (rebased to 100) in the
FTSE All-Share index over the same period. This index is considered to be the most appropriate broad equity
market index for comparative purposes. However, the Directors wish to point out that VCTs have very restrictive
investment criteria in their observance of the VCT rules. A graph making a similar comparison for the NAV return
of the Company’s B shares has not been included as the first B share pool investment was only completed in
December 2018.
* Based on notional investment on 1 October 2001
AIC methodology: The NAV Total Return to the investor, including the original amount invested (rebased to 100p) from
launch, assuming the dividends paid were re-invested at the NAV of the Company at the time the shares were quoted.
Results
Year ended
31 December 2018
Year ended
31 December 2017
Net return attributable to Ordinary shareholders
Net return attributable to B shareholders
Total
25
£’000
102
(36)
66
£’000
(367)
-
(367)
Key Performance Indicators (KPIs)
The Board uses a number of measures to assess the Company’s success in meeting its objectives. The KPIs it
monitors are:
•
•
Total Return (NAV plus cumulative dividends paid) per share for both share classes; and
The total expenses of the Company as a proportion of shareholders’ funds.
The Total Return for the Ordinary shares and B Shares are included in the Financial Summary on page 5.
For a three year period with effect from 1 July 2018, expenses of the Company are capped at 3% of the weighted
average net asset value of the B shares, including the management fee (but excluding any performance fee).
Accordingly Seneca reduced its management fee by £42,000 in the year to 31 December 2018 (2017: n/a) to keep
expenses in line with this cap.
Viability Statement
In accordance with provision C.2.2 of The UK Corporate Governance Code 2014 the Directors have assessed the
prospects of the Company over a longer period than the 12 months required by the “Going Concern” provision.
The Board regularly considers the Company’s strategy, including investor demand for the Company’s shares, and
a three year period is considered to be a reasonable time horizon for this.
The Board has carried out a robust assessment of the principal risks facing the Company and its current position,
including those which may adversely impact its business model, future performance, solvency or liquidity. The
principal risks faced by the Company and the procedures in place to monitor and mitigate them are set out below.
The Board has also considered the Company’s cash flow projections and found these to be realistic and reasonable.
Based on the above assessment the Board confirms that it has a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall due over the three year period to 31 December 2021.
Principal risks, risk management and regulatory environment
The Board carries out a regular review of the risk environment in which the Company operates. The main areas of
risk identified by the Board are as follows:
VCT qualifying status risk: the Company is required at all times to observe the conditions laid down in the Income
Tax Act 2007 for the maintenance of approved VCT status: these rules have subsequently been updated on several
occasions. The loss of such approval could lead to the Company losing its exemption from corporation tax on
capital gains, to investors being liable to pay income tax on dividends received from the Company and, in certain
circumstances, to investors being required to repay the initial income tax relief on their investment.
The Board keeps the Company’s VCT qualifying status under regular review. The Board has also engaged Philip
Hare & Associates LLP as VCT Status advisor.
The main specific regulations that must have been met, and which the Directors are confident have been complied
with, are:
a) The Company’s income in the period has been derived wholly or mainly (70% plus) from shares or securities.
b) The Company has not retained more than 15% of its income from shares and securities.
c) At least 70% (80% from 1 January 2020) by value of the Company’s investments has been represented
throughout the period by shares or securities comprised in qualifying holdings of the company. New funds
raised are included in this requirement from the beginning of the accounting period in which the third
anniversary of the share issue date falls. As at the end of December 2018 the percentage is 100%.
26
d) At least 70% by value of the Company’s qualifying holdings has been represented throughout the period by
holdings of eligible shares (investments made before 6 April 2018 from funds raised before 6 April 2011 are
excluded).
e) At least 30% of funds raised after 31 December 2018 must be invested in qualifying investments by the
anniversary of the accounting period in which those funds were raised.
f) No holding in any company has at any time in the period represented more than 15% by value of the Company’s
investments at the time of investment or when the holding is added to.
g) The Company’s ordinary capital has throughout the period been listed on a regulated European market.
h) No investment made by the VCT has caused the investee company to receive more than £5m (or £10m for
knowledge intensive companies) of State Aid investment in the year ended on the date of the VCT’s investment,
nor more than the lifetime limit of £12m (or £20m for knowledge intensive companies). Furthermore the use
of funds has not been contrary to the EU State Aid guidelines.
Investment risk: the majority of the Company’s investments are in smaller quoted and unquoted companies which
are VCT qualifying holdings, which by their nature entail a higher level of risk and lower liquidity than investments
in large quoted companies. The Directors aim to limit the risk attached to the portfolio as a whole by careful
selection and timely realisation of investments, by carrying out due diligence procedures and by maintaining a
spread of holdings in terms of financing stage. The Board reviews the investment portfolio on a regular basis.
Financial risk: by its nature, as a VCT, the Company is exposed to market price risk, credit risk, liquidity risk, fair
value and cash flow risks. All of the Company’s income and expenditure is denominated in sterling and hence the
Company has no direct foreign currency risk. The indirect risk results from investees doing business overseas. The
Company is financed through equity. The Company does not use derivative financial instruments.
Cash flow risk: the risk that the Company’s available cash will not be sufficient to meet its financial obligations is
managed by frequent budgeting and close monitoring of available cash resources.
Liquidity risk: the Company’s investments may be difficult to realise. The spread between the buying and selling
price of shares may be wide and thus the price used for the valuation may not be achievable.
Regulatory risk: the Company is required to comply with the Companies Acts, the rules of the UK Listing Authority
and United Kingdom Accounting Standards. Breach of any of these might lead to suspension of the Company’s
Stock Exchange listing, financial penalties or a qualified audit report.
Reputational risk: inadequate or failed controls might result in breaches of regulation or loss of shareholder trust.
Internal control risk: the Board reviews annually the system of internal controls, financial and non-financial,
operated by the Company. These include controls designed to ensure that the Company’s assets are safeguarded
and that proper accounting records are maintained.
The Board seeks to mitigate the internal risks by setting policy, regular review of performance, enforcement of
contractual obligations and monitoring progress and compliance. In the mitigation and management of these
risks, the Board applies rigorously the principles detailed in the Financial Reporting Council’s Guidance on Risk
Management, Internal Controls and Related Financial and Business Reporting. Details of the Company’s internal
controls are contained in the Corporate Governance section starting on page 34.
Due to the nature of the Company, environmental, social, employee and human rights’ issues do not apply and
therefore no disclosures in respect of these have been included in the Directors’ report.
Further details of the Company’s financial risk management policies are provided in note 16 to the Financial
Statements.
27
Gender and Diversity
The Board currently comprises four male Non-Executive Directors with considerable experience of the VCT
industry. The gender and diversity of the constitution of the Board will continue to be reviewed on an annual basis.
28
Details of Directors
John Hustler (Non-Executive Chairman – Age 72)
John joined Peat Marwick, now KPMG, in 1965 and became a Partner in 1983. Since leaving KPMG in 1993 to form
Hustler Venture Partners Limited, he has advised and been a director of a number of growing companies. He is
presently Chairman of Octopus Titan VCT plc. He was also a member of the Council of The Institute of Chartered
Accountants in England and Wales and Chairman of its Corporate Finance Faculty from 1997-2000, and was a
member of the Council of the British Venture Capital Association from 1989-1991.
John has a beneficial interest in Scancell.
Charles Breese (Non-Executive Director – Age 72)
Charles has over 30 years of experience of investing in start-up, early stage and quoted smaller companies
harnessing technology to derive competitive advantage. He worked for KPMG from 1969 until 1982. He joined
Larpent Newton Holdings Limited in 1982 and was appointed Managing Director in 1986. Larpent Newton provides
the resources required to assist technology-based companies seeking to develop from being unquoted through
to an AIM listing, and ultimately to achieving a trade sale. He has developed an Investment Template which has
proved successful in identifying early stage companies which have delivered attractive long-term returns.
Charles has a beneficial interest in OR Productivity, Scancell, and Omega Diagnostics.
Richard Roth (Non-Executive Director – Age 55)
Richard is a director of all the Oxford Technology Venture Capital Trusts and Chairman of Oxford Technology
2 Venture Capital Trust Plc. He is a Chartered Management Accountant and worked in the airline industry for a
number of companies including easyJet and was CFO of RoyalJet. He has subsequently had a number of consulting
assignments, in particular helping companies determine their strategy, and implementing business improvements.
Richard has been a VCT investor for nearly 20 years. He has invested in a number of small (mainly unquoted)
companies and has also advised several potential start-up businesses – mainly travel-related.
Richard has a beneficial interest in Scancell, and Fuel3D.
Richard Manley (Non-Executive Director – Age 39)
Richard is CEO of Seneca Partners Limited. He qualified as a chartered accountant with KPMG in 2004, joined NM
Rothschild’s Leveraged Finance team in Manchester in 2007 before joining Cenkos Fund Managers in 2008.
Richard joined Seneca on launch in 2010 and has been involved in the development of all areas of Seneca’s
business and played a key role in its journey from start up to managing more than £100m by end December 2018.
He has been a continuous member of Seneca’s investment and credit committees and has been involved in all of
Seneca’s EIS and VCT growth capital investments to date. Richard became Managing Partner of Seneca Partners
Limited in 2016 and CEO in 2017.
Richard has a beneficial interest in Scancell.
29
Directors’ Report
The Directors present their Report and the audited Financial Statements for the year ended 31 December 2018.
The Directors consider that the Annual Report and Financial Statements, taken as a whole are fair, balanced and
understandable and provides the information necessary for shareholders to assess the Company’s performance,
business model and strategy.
Review of Business Activities
The Directors are required by s417 of the Companies Act 2006 to include a Business Review to shareholders. This
is set out on page 25 and forms part of the Strategic Report. The Chairman’s Statement on page 10 to 13, and the
Investment Manager’s Report on pages 14 to 24 also form part of the Strategic Report.
The purpose of this review is to provide shareholders with a snapshot summary setting out the business objectives
of the Company, the Board’s strategy to achieve those objectives, the risks faced, the regulatory environment and
the key performance indicators used to measure performance.
Directors’ Shareholdings – Ordinary shares
The Directors of the Company during the period and their interests (in respect of which transactions are notifiable
under Disclosure and Transparency Rule 3.1.2R) in the issued Ordinary shares of 1p (2017: nominal value 50p) are
shown in the table below:
John Hustler
Charles Breese
Richard Roth
Richard Manley
31 December 2018
Number of Shares
31 December 2017
Number of Shares
190,000
105,000
209,612
-
190,000
105,000
209,612
-
All of the Directors’ shares were held beneficially. There have been no changes in the Directors’ Ordinary share
interests between 31 December 2018 and the date of this report.
Directors’ Shareholdings – B Shares
The Directors of the Company during the period and their interests (in respect of which transactions are notifiable
under Disclosure and Transparency Rule 3.1.2R) in the issued B shares of 1p are shown in the table below:
John Hustler
Charles Breese
Richard Roth
Richard Manley
31 December 2018
Number of Shares
31 December 2017
Number of Shares
-
-
15,000
24,750
-
-
-
-
All of the Directors’ shares were held beneficially. There have been no changes in the Directors’ B share interests
between 31 December 2018 and the date of this report.
Directors’ and Officers’ Liability Insurance
The Company has maintained directors’ and officers’ liability insurance cover on behalf of the Directors and
Company Secretary.
30
Whistleblowing
The Board has approved a Whistleblowing Policy for the Company, its directors and any employees, consultants
and contractors, to allow them to raise concerns, in confidence, in relation to possible improprieties in matters of
financial reporting and other matters.
Bribery Act
The Board has approved an Anti-Bribery Policy to ensure full compliance with the Bribery Act 2010 and to ensure
that the highest standards of professional and ethical conduct are maintained.
Management
On 23 August 2018 Seneca was appointed as the Company’s Investment Manager.
Whilst Seneca has been appointed as the Company’s Investment Manager and will be responsible for the
management of the Company’s B share pool investments, responsibility for the management of the Ordinary
share pool investments has been delegated to those members of the board of directors who served immediately
prior to 23 August 2018.
Share Issues
During the year, the Company did not issue any Ordinary shares (2017: nil). During the year, the Company issued
4,036,370 B shares raising £4.0m (2017: nil). Subsequently an additional 1,351,294 B shares have been issued
under the Offer.
Share Capital
The Company’s issued Ordinary share capital as at 31 December 2018 was 8,115,376 Ordinary shares of 1p each
(31 December 2017: 8,115,376 of 50p each) and 4,036,370 B shares of 1p each (31 December 2017: nil).
Directors
Biographical details of the Directors are shown on page 29.
In accordance with the Articles, John Hustler who has been a director for more than nine years will retire and offer
himself for re-election at the forthcoming AGM. Richard Manley has been appointed since the last AGM and will
therefore retire and offer himself for re-election at the forthcoming AGM.
The Board is satisfied that, following individual performance appraisals, both the Chairman and Richard Manley,
who are retiring, continue to be effective and demonstrate commitment to their roles and therefore offer
themselves for re-election with the support of the Board.
Following the appointment of Seneca as Investment Manager, Charles Breese has indicated that he does not
wish to seek re-election to the Board at the AGM. However we are pleased that he has agreed to continue as
a consultant until the end of this year in order to facilitate an orderly handover of the relationships with the
remaining companies in the Ordinary share portfolio.
The Board is cognisant of shareholders’ preference for Directors not to sit on the boards of too many listed
companies (“over-boarding”). As part of their assessment as to his suitability, the Directors considered Richard
Roth’s other directorships at the time of his appointment, given that he also sits on the boards of the four Oxford
Technology (“OT”) VCTs. The Directors noted that those four funds have a common board, and there is an element
of overlap in the workload across the four entities, such that the time required is less than would be necessary
for four totally separate and listed companies. They also note that Seneca Growth Capital has a number of shared
portfolio companies with the OT VCTs. The Board was satisfied that Richard Roth had the time to focus on the
requirements of the Company, and this has proven to be the case.
31
International Financial Reporting Standards
As the Company is not part of a group it is not mandatory for it to comply with International Financial Reporting
Standards. The Company does not anticipate that it will voluntarily adopt International Financial Reporting
Standards. The Company has adopted Financial Reporting Standard 102 – The Financial Reporting Standard
Applicable in the United Kingdom and Republic of Ireland.
Environmental Policy
The Company always makes a full effort to conduct its business in a manner that is responsible to the environment.
Going Concern
The Company’s business activities and the factors likely to affect its future performance and position are set out in
the Chairman’s Statement and Investment Manager’s Report on pages 10 to 13 and pages 14 to 24. Further details
on the management of financial risk may be found in note 16 to the Financial Statements.
The Board receives regular reports from the Administration Manager and the Directors believe that, as no material
uncertainties leading to significant doubt about going concern have been identified, it is appropriate to continue
to adopt the going concern basis in preparing the Financial Statements.
As at 31 December 2018 the Company had more than £6m of cash and in addition, the other assets of the
Company consist mainly of securities, some of which are readily realisable. As such, the Company has adequate
financial resources to continue in operational existence for the foreseeable future.
Substantial Shareholdings
At 31 December 2018, two disclosures of major shareholdings had been made to the Company under Disclosure
and Transparency Rule 5 (Vote Holder and Issuer Notification Rules).
•
James Leek has disclosed a shareholding of 4.57% (555,340 shares).
• David Blundell has disclosed a shareholding of 3.04% (369,900 shares).
Annual General Meeting
The Notice convening the 2019 Annual General Meeting (“AGM”) of the Company is set out at the end of this
document (and a form of proxy in relation to the meeting is enclosed separately). Part of the business of the AGM
will be to consider resolutions in relation to the following matters:
Resolution 6 will seek the re-appointment of UHY Hacker Young LLP as Independent Auditor to the Company.
Resolution 8 will authorise the Directors to allot further B Ordinary shares and Ordinary shares. This would
enable the Directors until the next AGM to allot up to 31,000,000 B Ordinary shares in connection with any offer(s)
for subscription (and any subsequent top up offer of B Ordinary shares) and up to 405,800 Ordinary shares (for
any miscellaneous offers of such shares), representing approximately 575% of the Company’s issued B Ordinary
share capital and approximately 5% of its issued Ordinary share capital as at 25 April 2019.
Resolution 9 will, under sections 570 of the Act, disapply pre-emption rights in respect of any allotment of the B
Ordinary shares and/or Ordinary shares authorised under Resolution 8.
Resolution 10 will authorise the Board, pursuant to the Act, to make one or more market purchases of up to
14.99% of the issued B Ordinary share capital of the Company from time to time. The price paid must not be less
than 1p per B Ordinary share, nor more than 5% above the average middle market price of a B Ordinary share
for the preceding five business days. Any B Ordinary shares bought back under this authority may be cancelled
by the Board.
Resolution 11 will authorise the cancellation of the share premium account of the Company. This share premium
account will arise on the issue of further B Ordinary Shares pursuant to any offer for subscription. All of the share
32
premium account at the date of the order made by the Court confirming such cancellation will be cancelled, and
will be used to establish a new reserve which may be treated as distributable and which can be used, among other
things, to fund the Company’s buy-back of shares and the payment of future dividends. In accordance with the
VCT Rules, such distributable reserves cannot, however, be utilised for such purposes until after three years from
the end of the accounting period in which the relevant shares were issued.
The Directors intend to use the authorities in Resolutions 8 and 9 for the purposes of a further offer for subscription
of B Ordinary Shares, though may also subsequently utilise the authorities for further offer(s) for subscription
or issue of B Ordinary Shares. The Directors have no current intention to utilise the authority in relation to the
Ordinary Shares.
By Order of the Board
Craig Hunter
Company Secretary
26 April 2019
33
Corporate Governance
The Board has considered the principles and recommendations of the AIC Code of Corporate Governance (AIC
Code) by reference to the AIC Corporate Governance Guide for Investment Companies (AIC Guide), as applied to
companies reporting as at 31 December 2018.
The AIC Code, as explained by the AIC Guide, addresses all the principles set out in The UK Corporate Governance
Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to
the Company.
The Board will report against the updated AIC Code at the end of the current financial year.
Board of Directors
The Company has a Board of four non-executive Directors. They meet on a regular basis to review the investment
performance and monitor compliance with the investment policy laid down by the Board as set out in the Strategic
Report on page 7.
The Board has a formal schedule of matters specifically reserved for its decision which include:
•
•
•
•
•
the consideration and approval of future developments or changes to the investment policy, including risk
and asset allocation;
consideration of corporate strategy;
approval of the appropriate dividend to be paid to the shareholders;
the appointment, evaluation, removal and remuneration of the Investment Manager and Administration
Manager;
the performance of the Company, including monitoring of the discount of the share price to net asset value;
and
• monitoring shareholder profiles and considering shareholder communications.
The Chairman leads the Board in the determination of its strategy and in the achievement of its objectives. The
Chairman is responsible for organising the business of the Board, ensuring its effectiveness and setting its agenda.
He facilitates the effective contribution of the Directors and ensures that they receive accurate, timely and clear
information and that the Company communicates effectively with shareholders.
The Company Secretary is responsible for advising the Board through the Chairman on all governance matters.
All of the Directors have access to the advice and services of the Company Secretary, who has administrative
responsibility for the meetings of the Board and its Committees. Directors may also take independent professional
advice at the Company’s expense where necessary in the performance of their duties.
The Company’s Articles of Association and the schedule of matters reserved to the Board for decision provide that
the appointment and removal of the Company Secretary is a matter for the full Board.
34
Attendance at Board, Audit Committee and Management meetings during the year were as follows:
Board
meetings attended
(13 held in year)
Audit Committee
meetings attended
(3 held in year)
Management
meetings attended
(3 held in year)
John Hustler
Charles Breese
Richard Roth
Richard Manley*
13
13
13
5
3
3
3
-
3
3
3
-
*Richard Manley was appointed to the Board on 23 August 2018. He attended all meetings following his
appointment.
In addition to formal Management meetings, the Board communicates on a regular basis in carrying out its
responsibilities in managing the Company.
Performance Evaluation
In accordance with the AIC Code and guidance (“the Guide to Performance Appraisals for Non-executive directors
of Investment Companies”) each year a formal performance evaluation is undertaken of the Board as a whole, its
Committees and the directors in the form of one-to-one meetings between the Chairman and each director. The
directors were made aware of the annual performance evaluation on their appointment. The Chairman provides
a summary of the findings to the Board, which are discussed at the next meeting and an action plan agreed. The
performance of the Chairman was evaluated by the other Directors.
Audit Committee
The Board has appointed an Audit Committee to make recommendations to the Board in line with its terms of
reference.
The committee is chaired by Richard Roth and consists of all four Directors. The Audit Committee believes Mr Roth
possesses appropriate and relevant financial experience as per the requirements of the AIC Code. The Board
considers that the members of the Committee have collectively the skills and experience required to discharge
their duties effectively.
The Audit Committee’s terms of reference, and how it discharges its duties are listed on pages 37 and 38.
Internal Control
The Directors have overall responsibility for keeping under review the effectiveness of the Company’s systems of
internal controls. The purpose of these controls is to ensure that proper accounting records are maintained, the
Company’s assets are safeguarded and the financial information used within the business and for publication is
accurate and reliable; such a system can only provide reasonable and not absolute assurance against material
misstatement or loss. The system of internal controls is designed to manage rather than eliminate the risk of failure
to achieve the business objectives. The Board continually reviews financial results and investment performance.
Pennywise Accounting Limited continued their role as Administration Manager during the year having been
appointed by the Board on 1 April 2017. Following the appointment of Seneca as Investment Manager, City
Partnership, who also acted as receiving agent in relation to the B share Offer during the year, will become the
custodian of the documents of title relating to the Company’s unquoted investments, taking over from Larpent
Newton & Co Ltd.
The Directors confirm that they have established a continuing process throughout the year and up to the date of
this report for identifying, evaluating and managing the significant potential risks faced by the Company and have
reviewed the effectiveness of the internal control systems. As part of this process an annual review of the internal
control systems is carried out in accordance with the FRC’s Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting.
35
The risk management and internal control systems include the production and review of monthly bank statements
and quarterly management accounts. All outflows made from the Company’s accounts require the authority of
signatories from the Board or Administration Manager. The Company is subject to a full annual audit. Further to
this, the Audit Partner has open access to the Directors of the Company.
Financial Risk Management Objectives and Policies
The Company is exposed to the risks arising from its operational and investment activities. Further details can be
found in note 16 to the Financial Statements.
Relations with Shareholders
Shareholders have the opportunity to meet the Board at the AGM. In addition the Board is available to answer
any questions a shareholder may have and is also happy to respond to any written queries made by shareholders
during the course of the year and can be contacted at the Company’s registered office: 12 The Parks, Haydock,
Newton-Le-Willows WA12 0JQ.
Compliance Statement
As previously indicated, the Board considers that reporting against the principles and recommendations of the
AIC Code, and by reference to the AIC Guide (which incorporates the UK Corporate Governance Code), will provide
better information to shareholders.
The Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK
Corporate Governance Code, except as set out below:
1. The Company does not have a Chief Executive Officer or a senior independent Director. The Board does not
consider this necessary as it does not have any executive directors.
2. New Directors do not receive a full, formal and tailored induction on joining the Board. Such matters are
addressed on an individual basis as they arise.
3. The Company conducts a formal review as to whether there is a need for an internal audit function. However,
the Directors do not consider that an internal audit would be an appropriate control for this VCT at this time.
4. The Company does not have a Remuneration Committee as it does not have any executive directors.
5. The Company does not have a Nomination Committee as these matters are dealt with by the Board.
For the reasons set out in the AIC Guide, and as explained in the UK Corporate Governance Code, the Board
considers the above provisions are not relevant to the position of the Company, being an investment company
managed by the Board. In particular, all of the Company’s day-to-day administrative functions are outsourced to
third parties. As a result the Company has no executive directors, employees or internal operations.
By Order of the Board
Craig Hunter
Company Secretary
26 April 2019
36
Audit Committee Report
This report is submitted in accordance with The UK Corporate Governance Code in respect of the year ended 31
December 2018 and describes the work of the Audit Committee in discharging its responsibilities.
The Committee’s key objective is the provision of effective governance of the appropriateness of the Company’s
financial reporting, the performance of the auditor and the management of the internal control and business risks
systems. The Directors forming the Audit Committee can be found on page 35.
The Audit Committee’s terms of reference include the following responsibilities:
•
•
•
•
reviewing and making recommendations to the Board in relation to the Company’s published Financial
Statements and other formal announcements relating to the Company’s financial performance;
advising the Board on whether the Annual Report and Financial Statements, taken as a whole, is fair, balanced
and understandable;
advising the Board on whether the Annual Report and Financial Statements provides necessary information
for shareholders to assess performance, business model and strategy;
reviewing and making recommendations to the Board in relation to the Company’s internal control (including
internal financial control) and risk management systems;
• periodically considering the need for an internal audit function;
• making recommendations to the Board in relation to the appointment, re-appointment and removal of the
•
external auditor and approving the remuneration and terms of engagement of the external auditor;
reviewing and monitoring the external auditors’ independence and objectivity and the effectiveness of the
audit process, taking into consideration relevant UK professional regulatory requirements; and
• monitoring the extent to which the external auditor is engaged to supply non-audit services.
As part of the process of working with the Board to maximise effectiveness, meetings of the Committee usually
take place immediately prior to a Board meeting when appropriate and a report is provided on relevant matters
to enable the Board to carry out its duties.
The Committee reviews its terms of reference and its effectiveness periodically and recommends to the Board any
changes required as a result of the review. The terms of reference are available on request from the Company
Secretary. The Committee meets at least twice each year and on an ad hoc basis as necessary. It has direct
access to the Company’s external auditor. In October 2018, James Cowper Kreston tendered their resignation as
auditors, as they had decided to withdraw from auditing Public Interest Entities (which includes VCTs) for the time
being due to the increasing regulatory landscape and associated costs. Following a competitive tender instigated
by the Committee, the Board appointed UHY Hacker Young LLP to fill the casual vacancy to audit the accounts
for the year to 31 December 2018, and is happy to recommend UHY Hacker Young LLP for reappointment at
the AGM in relation to the audit for the year ending 31 December 2019. UHY Hacker Young LLP do not provide
any other non-audit services and as such, the Committee does not believe there is any risk that these-non audit
services can influence their independence or objectivity due to the associated fee. When considering whether
to recommend the reappointment of the external auditor the Committee takes into account the tenure of the
current auditor in addition to comparing the fees charged by similar sized audit firms. Once the Committee has
made a recommendation to the Board in relation to the appointment of the external auditor, this is then ratified
at the AGM through an Ordinary Resolution.
The effectiveness of the external audit is assessed as part of the Board evaluation conducted annually and by
the quality and content of the Audit Plan and Report provided to the Committee by the Auditor and the resultant
discussions on topics raised. The Committee also challenges the Auditor when present at a Committee meeting
if appropriate.
The Company does not have an independent internal audit function as it is not deemed appropriate given the size
of the Company and the nature of the Company’s business. However, the Committee considers annually whether
there is a need for such a function and if so would recommend this to the Board.
37
The Committee will monitor the significant risks at each meeting and the Administration Manager will work closely
with the Auditors to mitigate the risks and the resultant impact.
During the period ended 31 December 2018, the Audit Committee discharged its responsibilities by:
•
•
•
•
•
•
•
reviewing and approving the external auditor’s terms of engagement and remuneration including appointing
a new audit firm following a competitive tender after the resignation of the James Cowper Kreston;
reviewing the external auditor’s plan for the audit of the Company’s Financial Statements, including
identification of key risks and confirmation of auditor independence;
reviewing Pennywise’s statement of internal controls in relation to the Company’s business and assessing the
effectiveness of those controls in minimising the impact of key risks;
reviewing the appropriateness of the Company’s accounting policies;
reviewing the Company’s draft Annual Financial and Interim results statements prior to Board approval;
reviewing the Company’s going concern status as referred to on page 32; and
reviewing the external auditor’s Audit Findings Report to the Committee on the annual Financial Statements.
The Committee has considered the Report and Financial Statements for the year ended 31 December 2018 and
has reported to the Board that it considers them to be fair, balanced and understandable and providing the
information necessary for shareholders to assess the Company’s performance, business model and strategy.
Significant Risks
The Audit Committee is responsible for considering and reporting on any significant risks that arise in relation to
the audit of the Financial Statements. The Committee and the Auditors have identified the most significant risks
for the Company as:
• Valuation and ownership of investment portfolio: The Auditors give special audit consideration to the valuation
and ownership of investments and the supporting data provided by Pennywise and the Board of Seneca
Growth Capital. The impact of this risk could be a large movement in the Company’s net asset value. The
valuations are supported by investee company audited Financial Statements and/or third party evidence.
These give comfort to the Audit Committee.
• Management override of financial controls: The Auditors specifically review all significant accounting estimates
that form part of the Financial Statements and consider any material judgements applied by the Board or
Investment Manager during the preparation of the Financial Statements.
• Compliance with HMRC conditions for maintenance of approved VCT status: Philip Hare & Associates LLP
provide the Company with advice on the on-going compliance with the HMRC rules and regulations concerning
VCTs.
• Recognition of revenue from investments: Revenue is recognised when the Company’s right to the return is
established in accordance with the Statement of Recommended Practice. The Company had no revenue in
2018, and Pennywise has confirmed this to the Audit Committee.
These issues were discussed with Pennywise, the Board of Seneca Growth Capital and the Auditor at the conclusion
of the audit of the Financial Statements.
The Audit Committee is also responsible for considering and reporting on any significant issues that arise in
relation to the audit of the Financial Statements. The Audit Committee can confirm that there were no significant
issues to report to the shareholders in respect of the audit of the Financial Statements for the year ended 31
December 2018.
Richard Roth
Audit Committee Chairman
26 April 2019
38
Directors’ Remuneration Report and Policy
Introduction
This report is submitted in accordance with the requirements of s420-422 of the Companies Act 2006, in respect of
the year ended 31 December 2018. A resolution to approve the Directors’ Remuneration Policy and the Directors’
Remuneration Report will be proposed at the Annual General Meeting on 10 June 2019. The statement of Directors’
Remuneration Policy was last approved by shareholders at the Annual General Meeting on 2 June 2016, with the
Directors’ Remuneration Report approved at last year’s AGM.
The Company’s independent auditor, UHY Hacker Young LLP, is required to give its opinion on certain information
included in this report as indicated below. Their report on these and other matters is set out on pages 42 to 46.
Consideration by the Directors of Matters Relating to Directors’ Remuneration
The Board as a whole considers Directors’ remuneration and has not appointed a separate committee in this
respect.
Statement of the Company’s policy on Directors’ Remuneration
The Board manages the Company and consists of four Directors, who meet formally as a Board at least four times
a year and on other occasions as necessary, to deal with the important aspects of the Company’s affairs. Seneca
was appointed as the Company’s Investment Manager on 23 August 2018 and are responsible for the management
of the investments made from the B share pool, although management of the investments in the Company’s
Ordinary share pool has been delegated to the members of the Board of the Company serving immediately prior
to the appointment of Seneca (the Commercial Advisory Committee or “CAC”). Directors are appointed with the
expectation that they will serve for a period of at least three years. All Directors retire at the first general meeting
after election and thereafter one third of all Directors are subject to retirement by rotation at subsequent Annual
General Meeting. Directors who have served for more than nine years are subject to annual re-election in line with
practices recommended in the AIC Corporate Governance Code. Re-election will be recommended by the Board
but is dependent upon a shareholder vote.
Each Director has received a letter of appointment. A Director may resign by notice in writing to the Board at any
time. With effect from 7 October 2015, the Directors who served prior to that date are entitled to compensation
payable upon early termination of their contract in respect of any unexpired notice period and a pro rata proportion
of any performance fees payable to the Commercial Advisory Committee accruing at the date of resignation up to
five years from the date of resignation.
Each Director’s annual fee is currently £12,750 per annum inclusive of all expenses. It is intended that Directors’
fees will be reviewed contemporaneously with the appointment of at least one more new Director.
The performance incentive fee relevant to those Directors serving up to 7 October 2015 were revised under an
agreement dated 7 October 2015. The new arrangements froze the sum due to those Directors serving up to 7
October 2015 at £702,000 (the accrued liability as disclosed in the 2014 audited Financial Statements) which will
only start to become payable once a further 55.75p of dividends have been paid in respect of each share (such that
original subscribing shareholders will have received 80p per share in dividends): of this 55.75p of dividends, 10p
was paid on 25 January 2019 and the Board has indicated its intention to approve a further dividend of 18p in the
near future. This liability will then be paid at the rate of 25% of subsequent dividends until a liability of £702,000
has been discharged; this is in keeping with the original approved arrangement. No liability will be payable to any
relevant Director after five years from his resignation from the Company. Following the payment of this liability,
any further performance fee in the future will be payable at the reduced rate of 10% of total distributions above
the audited total return at 31 December 2014, with the outstanding balance subject to a hurdle rate of 6% per
annum, and will be split between the CAC based on a formula driven by relative length of service starting from 7
October 2015. Further details of the revised arrangements are set out in note 6 to the Financial Statements.
39
The Directors may at their discretion pay additional sums in respect of specific tasks carried out by individual
Directors on behalf of the Company. In this context, an additional one off payment has been made to Richard
Roth of £5,000 as compensation for work undertaken in relation to the setting up of the new B share pool and
preparation of the prospectus associated with the offer for subscription for new B shares launched on 9 May
2018. Half of this was charged directly to the Company, and half was paid by Seneca.
Company Performance
The Board is responsible for the Company’s investment strategy and performance. The performance table on
page 25 shows the performance of the Company.
Directors’ Emoluments (Information Subject to Audit)
Amount of each Director’s emoluments:
Directors’ fees
John Hustler (Chairman)
Charles Breese
Richard Roth
Richard Manley
Total
Year ended
31 December 2018
£
Year ended
31 December 2017
£
12,750
12,750
15,250
-
40,750
12,750
12,750
12,750
-
38,250
Richard Manley, a director of the Investment Manager, has elected to waive his Director’s fee, until the operating
costs are less than the expenses cost cap.
The Directors did not receive any other form of emoluments in addition to the directors’ fees during the year.
John Hustler, Charles Breese and Richard Roth, as members of the CAC, may be entitled to performance fees in
the future as referred to above. Directors may be entitled to fees from investee companies when acting on the
Company’s behalf as Director, Observer or Consultant to those investees.
By order of the Board
Craig Hunter
Company Secretary
26 April 2019
40
Directors’ Responsibilities Statement
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with
applicable laws and regulations.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law
the Directors have elected to prepare the Financial Statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws). Under company law
the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair
view of the state of affairs and profit or loss of the Company for that period.
In preparing these Financial Statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
•
• make judgements and estimates that are reasonable and prudent;
•
state whether applicable UK Accounting Standards have been followed, subject to any material departures
disclosed and explained in the Financial Statements; and
• prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the
Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company
and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included
on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of
Financial Statements may differ from legislation in other jurisdictions.
Each of the Directors confirms that, to the best of their knowledge:
•
•
•
•
there is no relevant audit information of which the Company’s auditor is unaware;
the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant
audit information and to establish that the auditor is aware of that information;
the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true
and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
the Investment Manager’s Report Business Review and Directors’ Report includes a fair review of the
development and performance of the business and the position of the Company, together with a description
of the principal risks and uncertainties that it faces.
On behalf of the Board
John Hustler
Chairman
26 April 2019
41
Report of the Independent Auditor to the Members of
Seneca Growth Capital VCT Plc
Opinion
We have audited the Financial Statements of Seneca Growth Capital VCT Plc for the year ended 31 December 2018
which comprise the Statement of Comprehensive Income, the Balance Sheet, the Statement of Changes in Equity,
the Cash Flow Statement and the related notes to the Financial Statements, including a summary of significant
accounting policies. The financial reporting framework that has been applied in their preparation is applicable law
and United Kingdom Accounting Standards, including Financial Reporting Standard 102 “The Financial Reporting
standard applicable in the UK and Republic of Ireland”.
In our opinion the Financial Statements:
•
give a true and fair view of the state of the Company’s affairs as at 31 December 2018 and of the Company’s
return for the year then ended;
• have been properly prepared in accordance with United Kingdom generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the
audit of the Financial Statements section of our report. We are independent of the Company in accordance with
the ethical requirements that are relevant to our audit of the Financial Statements in the UK, including the FRC’s
Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the Annual Report, in relation to which the
ISAs (UK) require us to report to you whether we have anything material to add or draw attention to:
•
•
•
the disclosures in the Annual Report set out on pages 26 to 27 that describe the principal risks and explain
how they are being managed or mitigated;
the Directors’ confirmation set out on page 26 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 Directors’ statement set out on page 32 in the Financial Statements about whether the Directors considered
it appropriate to adopt the going concern basis of accounting in preparing the Financial Statements and the
Directors’ 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;
• whether the Directors’ statement relating to going concern required under the Listing Rules in accordance
•
with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit;
the Directors’ explanation set out on page 32 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.
42
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit
of the Financial Statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
We identified the following risks that we believe had the greatest impact on our audit strategy and scope:
Key risks
Approach taken for the assessed risks
The carrying value of the investments and the
recognition of realised and unrealised gains and
losses. The investment portfolio and associated
realised and unrealised gains and losses are the key
driver to the financial performance of the Company
and have the greatest impact on both the income
statement and balance sheet.
Compliance with the VCT rules is necessary to
maintain the VCT status and associated tax benefits.
For quoted shares, we tested the value of the year-
investments by reference to market price
end
information at the year-end.
Measurement of the value of unquoted investments
included significant assumptions and judgement.
Our audit work included, but was not restricted to,
obtaining an understanding of how the valuations
were performed, consideration of whether they
were made in accordance with published guidance,
discussions with management, and
reviewing
and challenging the basis and reasonableness of
assumptions made by management in conjunction
with available supporting information.
The purchase and sale of investments were agreed
to contract notes and cash movements on a sample
basis. The realised gains and losses on the sale
of investments were re-calculated for both the
individual transactions on a sample basis and for the
total portfolio.
Our audit work in respect of the compliance with
the VCT rules involved testing the conditions for
maintaining approval as a VCT as set out by HMRC.
Each of the conditions was tested in turn in order to
assess whether it had been met as at the year-end.
Our application of materiality
We apply the concept of materiality in planning and performing our audit, in evaluating the effect of misstatements
on our audit and on the Financial Statements. We define financial statement materiality as the magnitude by which
misstatements, including omission, could influence the economic decisions taken on the basis of the Financial
Statements by reasonable users.
43
We also determine a level of performance materiality which we use to determine the extent of testing needed
to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality for the Financial Statements as a whole.
We determine materiality for the Financial Statements as a whole to be £190,000. In determining this we based
our assessment on an average of four key indicators, being turnover, the return before tax, the net assets and
gross assets of the Company. On the basis of our risk assessment, together with our assessment of the Company’s
control environment, our judgement is that performance materiality for the Financial Statements should be 75%
of materiality, being £142,500.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess
of £9,500 which is set at 5% of planning materiality, as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both quantitative
measures of materiality discussed above and in light of other relevant qualitative considerations in forming our
opinion.
An overview of the scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the
Financial Statements. In particular, we looked at where the Directors made subjective judgements, for example in
respect of significant accounting estimates that involved making assumptions and considering future events that
are inherently uncertain.
We tailored the scope of our audit to ensure that we performed sufficient work to be able to give an opinion on
the Financial Statements as a whole, taken into account an understanding of the structure of the Company, its
activities, the accounting processes and controls, and the industry in which it operates. Our planned audit testing
was directed accordingly and was focused on areas where we assessed there to be the highest risk of material
misstatement. During the audit we reassessed and re-evaluated audit risks and tailored our approach accordingly.
The audit testing included 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, the effectiveness
of controls and the management of specific risks.
We communicated with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant findings, including any significant deficiencies in internal control that we
identified during the audit.
Other information
The Directors are responsible for the other information. The other information comprises the information included
in the Annual Report, other than the Financial Statements and our auditor’s report thereon. Our opinion on the
Financial Statements does not cover the other information and, except to the extent otherwise explicitly stated in
our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the Financial Statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the Financial Statements or
our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement of the Financial Statements or a material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material misstatement of this other information; we are
required to report that fact. We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following
items in the other information and to report as uncorrected material misstatements of the other information
where we conclude that those items meet the following conditions:
44
•
Fair, balanced and understandable set out on page 30 – the statement given by the Directors that they
consider the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess the Company’s performance, business
model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit Committee reporting set out on pages 37 and 38 – the section describing the work of the Audit
Committee does not appropriately address matters communicated by us to the Audit Committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 36 – the
parts of the Directors’ statement required under the Listing Rules relating to the Company’s compliance with
the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance
with Listing Rule 9.8.10R (2) do not properly disclose a departure from a relevant provision of the UK Corporate
Governance Code.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
•
•
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006; and
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.
Matters on which we are required to report by exception
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.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires
us to report to you if, in our opinion:
•
•
adequate accounting records have not been kept, or returns adequate for our audit have not been reviewed
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.
Responsibilities of Directors
As explained more fully in the Directors’ Responsibilities Statement set out on page 41, the Directors are responsible
for the preparation of the Financial Statements and for being satisfied that they give a true and fair view, and for
such internal control as the Directors determine is necessary to enable the preparation of Financial Statements
that are free from material misstatement, whether due to fraud or error.
In preparing the Financial Statements, the Directors are responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud
45
or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these Financial Statements.
A further description of our responsibilities for the audit of the Financial Statements is located on the Financial
Reporting Council’s website at: www.frc.org.uk/auditors/audit-assurance. This description forms part of our
auditor’s report.
Other matters which we are required to address
We were appointed by Seneca Growth Capital VCT Plc on 16 November 2018. The non-audit services prohibited
by the FRC’s Ethical Standard were not provided to the Company and we remain independent of the Company in
conducting our audit.
Our audit opinion is consistent with the additional report to the Audit Committee.
Use of our report
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 auditors’ 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.
Daniel Hutson (Senior Statutory Auditor)
For and on behalf of
UHY Hacker Young
Chartered Accountants
Statutory Auditors
Quadrant House
4 Thomas More Square
London, E1W 1YW
26 April 2019
46
Income Statement
Combined Year to 31
December 2018
Combined Year to 31
December 2017
Revenue Capital
Total Revenue Capital
Total
Note
£’000
£’000
£’000
£’000
£’000
£’000
Gain on disposal of fixed asset investments
Loss on valuation of fixed asset investments
Income
Performance fee
Investment management fee net of cost cap
Other expenses
Return on ordinary activities before tax
Taxation on return on ordinary activities
10
10
2
6
3
4
7
-
-
-
-
903
903
(716)
(716)
-
-
(26)
(26)
36
(18)
18
-
-
-
-
-
(113)
-
(113)
(118)
19
19
(359)
(359)
-
91
-
-
-
91
-
(118)
(77)
143
-
-
66
-
66
(118)
(249)
(367)
-
-
-
(118)
(249)
(367)
Return on ordinary activities after tax
(77)
143
Return on ordinary activities after tax
attributable to:
Owners of the fund
(77)
143
66
(118)
(249)
(367)
There was no other Comprehensive Income recognised during the year
•
The ‘Total’ column of the income statement and statement of comprehensive income is the profit and loss
account of the Company; the supplementary revenue return and capital return columns have been prepared
under guidance published by the Association of Investment Companies.
• All revenue and capital items in the above statement derive from continuing operations.
•
The Company has only one class of business and derives its income from investments made in shares and
securities and from bank and money market funds.
The Company has no recognised gains or losses other than the results for the year as set out above.
The accompanying notes are an integral part of the Financial Statements.
47
Ordinary Share Income Statement
(non-statutory analysis)
Ordinary shares
Year to 31 December 2018
Ordinary shares
Year to 31 December 2017
Revenue Capital
Total Revenue Capital
Total
Note
£’000
£’000
£’000
£’000
£’000
£’000
Gain on disposal of fixed asset investments
10
Loss on valuation of fixed asset investments
10
Income
Performance fee
Investment management fee
Other expenses
Return on ordinary activities before tax
Taxation on return on ordinary activities
2
6
3
4
7
-
-
-
-
-
(59)
(59)
903
903
(716)
(716)
-
-
(26)
(26)
-
-
-
(59)
(118)
-
-
-
-
-
19
19
(359)
(359)
-
91
-
-
-
91
-
(118)
161
102
(118)
(249)
(367)
-
-
-
-
-
-
Return on ordinary activities after tax
(59)
161
102
(118)
(249)
(367)
Return on ordinary activities after tax
attributable to:
Owners of the fund
(59)
161
102
(118)
(249)
(367)
Earnings per share – basic and diluted
8
(0.7)p
2.0p
1.3p
(1.5)p
(3.0)p
(4.5p)
48
B Share Income Statement (non-statutory analysis)
B shares
Year to 31 December 2018
B shares
Year to 31 December 2017
Revenue Capital
Total Revenue Capital
Total
Note
£’000
£’000
£’000
£’000
£’000
£’000
Gain on disposal of fixed asset investments
10
Loss on valuation of fixed asset investments
10
Income
Performance fee
Investment management fee net of cost cap
Other expenses
Return on ordinary activities before tax
Taxation on return on ordinary activities
2
6
3
4
7
-
-
-
-
-
-
-
-
-
-
-
-
36
(18)
18
(54)
-
(54)
(18)
(18)
(36)
-
-
-
Return on ordinary activities after tax
(18)
(18)
(36)
Return on ordinary activities after tax
attributable to:
Owners of the fund
(18)
(18)
(36)
Earnings per share – basic and diluted
8
(0.45)p (0.45)p
(0.9)p
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
49
Statement of Changes in Equity
Share
capital
£’000
Share
premium
£’000
Special
distributable
reserve
£’000
Capital
redemption
reserve
£’000
Capital
reserve
gains/
(losses)
£’000
Capital
reserve
holding
gains/
(losses)
£’000
Revenue
reserve Total
£’000 £’000
3,397
38
(121)
(53)
(1,772) 5,547
As at 1 January 2017
4,058
Revenue return on
ordinary activities after
tax
-
-
Performance fee allocated
as capital expenditure
Current period gains on
disposal
Current period losses on
fair value of investments
Prior years’ unrealised
losses now realised
-
-
-
Balance as at 31
December 2017
4,058
-
-
-
-
-
-
-
B share issue
40
3,995
Capital restructuring
(3,977)
-
-
-
-
-
-
3,397
-
-
Capital reduction
Revenue return on
ordinary activities after
tax
Expenses charged to
capital
-
-
-
-
Performance fee allocated
as capital expenditure
Current period gains on
disposal
Current period losses on
fair value of investments
Prior years’ unrealised
losses now realised
-
-
-
(3,427)
7,442
-
-
-
-
-
-
-
-
-
-
-
-
Balance as at 31
December 2018
121
568
10,839
-
-
-
-
-
38
-
3,977
(4,015)
-
-
-
-
-
-
-
-
91
19
-
-
-
-
(359)
(421)
421
(118)
(118)
-
-
-
-
91
19
(359)
-
(432)
9
(1,890) 5,180
-
-
-
-
(18)
(26)
903
-
-
-
-
-
-
-
-
(716)
602
(602)
- 4,035
-
-
-
-
(77)
(77)
-
-
-
-
-
(18)
(26)
903
(716)
-
1,029
(1,309)
(1,967) 9,281
Refer to note 14 for details of the share restructure and capital reduction undertaken in the year.
The accompanying notes are an integral part of the Financial Statements.
50
Ordinary Shares - Statement of Changes in Equity
Share
capital
£’000
Share
premium
£’000
Special
distributable
reserve
£’000
Capital
redemption
reserve
£’000
Capital
reserve
gains/
(losses)
£’000
Capital
reserve
holding
gains/
(losses)
£’000
Revenue
reserve Total
£’000 £’000
As at 1 January 2017
4,058
Revenue return on
ordinary activities after
tax
-
-
Performance fee allocated
as capital expenditure
Current period gains on
disposal
Current period losses on
fair value of investments
Prior years’ unrealised
losses now realised
-
-
-
Balance as at 31
December 2017
4,058
Capital restructuring
(3,977)
Capital reduction
Revenue return on
ordinary activities after
tax
Expenses charged to
capital
-
-
-
-
Performance fee allocated
as capital expenditure
Current period gains on
disposal
Current period losses on
fair value of investments
Prior years’ unrealised
gains now realised
Balance as at 31
December 2018
-
-
-
81
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,397
38
(121)
(53)
(1,772) 5,547
-
-
-
-
-
-
-
-
-
-
-
91
19
-
-
-
-
(359)
(421)
421
(118)
(118)
-
-
-
-
91
19
(359)
-
3,397
38
(432)
9
(1,890) 5,180
-
-
-
-
(26)
903
-
-
-
-
-
-
-
(716)
602
(602)
-
-
-
-
(59)
(59)
-
-
-
-
-
-
(26)
903
(716)
-
1,047
(1,309)
(1,949) 5,282
-
4,015
3,977
(4,015)
-
-
-
-
-
-
-
-
-
-
-
-
-
7,412
51
B Shares - Statement of Changes in Equity
Share
capital
£’000
Share
premium
£’000
Special
distributable
reserve
£’000
Capital
redemption
reserve
£’000
Capital
reserve
gains/
(losses)
£’000
Capital
reserve
holding
gains/
(losses)
£’000
Revenue
reserve Total
£’000 £’000
As at 1 January 2018
B share issue
Capital reduction
Revenue return on
ordinary activities after
tax
Expenses charged to
capital
Balance as at 31
December 2018
-
40
-
-
-
-
3,995
(3,427)
-
-
-
-
3,427
-
-
40
568
3,427
-
-
-
-
-
-
-
-
-
-
(18)
(18)
-
-
-
-
-
-
-
-
- 4,035
-
-
(18)
(18)
-
(18)
(18) 3,999
52
Balance Sheet
Fixed asset investments*
Current assets:
Debtors
Cash at bank and in hand/(Bank overdraft)
Creditors: amounts falling due within one
year
Combined as at
31 December 2018
Combined as at
31 December 2017
£’000
5,564
Note
£’000
£’000
£’000
3,293
10
11
12
23
6,446
(291)
7
(160)
(67)
Net current assets
6,178
(220)
Creditors: amounts falling due after more
than one year
12
(190)
(164)
Net assets
Called up equity share capital
Share premium
Special distributable reserve
Capital redemption reserve
Capital reserve – realised gains and losses
– holding gains and losses
Revenue reserve
Total equity shareholders’ funds
*At fair value through profit and loss
13
14
14
14
14
14
14
9,281
121
568
10,839
-
1,029
(1,309)
(1,967)
9,281
5,180
4,058
-
3,397
38
(432)
9
(1,890)
5,180
The accompanying notes are an integral part of the Financial Statements.
The statements were approved by the Directors and authorised for issue on 26 April 2019 and are signed on their
behalf by:
John Hustler
Chairman
Company No: 04221489
53
Ordinary Share Balance Sheet (non-statutory analysis)
Fixed asset investments*
Current assets:
Debtors
Cash at bank and in hand/(Bank overdraft)
Creditors: amounts falling due within one
year
Ordinary shares as at
31 December 2018
Ordinary Shares as at
31 December 2017
£’000
5,564
Note
£’000
£’000
£’000
2,793
10
11
12
-
2,738
(59)
7
(160)
(67)
Net current assets
2,679
(220)
Creditors: amounts falling due after more
than one year
12
(190)
(164)
5,282
81
-
7,412
-
1,047
(1,309)
(1,949)
5,282
65.1p
5,180
4,058
-
3,397
38
(432)
9
(1,890)
5,180
63.8p
Net assets
Called up equity share capital
Share premium
Special distributable reserve
Capital redemption reserve
Capital reserve – realised gains and losses
– holding gains and losses
Revenue reserve
Total equity shareholders’ funds
Net asset value per share
*At fair value through profit and loss
13
14
14
14
14
14
14
9
54
B Share Balance Sheet (non-statutory analysis)
B shares as at
31 December 2018
B shares as at
31 December 2017
Note
£’000
£’000
£’000
£’000
Fixed asset investments*
Current assets:
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one
year
Net current assets
Creditors: amounts falling due after more
than one year
Net assets
Called up equity share capital
Share premium
Special distributable reserve
Capital redemption reserve
Capital reserve – realised gains and losses
– holding gains and losses
Revenue reserve
Total equity shareholders’ funds
Net asset value per share
*At fair value through profit and loss
23
3,708
(232)
-
500
3,499
3,999
40
568
3,427
-
(18)
-
(18)
3,999
99.1p
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10
11
12
12
13
14
14
14
14
14
14
9
55
Statement of Cash Flows
Combined Year to
31 December 2018
Combined Year to
31 December 2017
Note
£’000
£’000
Cash flows from operating activities
Return on ordinary activities before tax
66
(367)
Adjustments for:
Increase in debtors
Increase/(Decrease) in creditors
Gain on disposal of fixed assets
Loss on valuation of fixed asset investments
Cash from operations
Income taxes paid
Net cash used in operating activities
Cash flows from investing activities
Purchase of fixed asset investments
Sale of fixed asset investments
Total cash flows from investing activities
Cash flows from financing activities
Issue of B shares
Awaiting B share issue
Total cash flows from financing activities
Increase in cash and cash equivalents
Opening cash and cash equivalents
Closing cash and cash equivalents
11
12
10
10
7
10
10
(16)
31
(903)
716
(106)
-
(106)
(500)
2,958
2,458
4,035
219
4,254
6,606
(160)
6,446
(3)
(79)
(19)
359
(109)
-
(109)
-
134
134
-
-
-
25
(185)
(160)
The accompanying notes are an integral part of the Financial Statements.
56
Ordinary Shares Statement of Cash Flows
Ordinary shares
Year to
31 December 2018
Ordinary shares
Year to
31 December 2017
Note
£’000
£’000
Cash flows from operating activities
Return on ordinary activities before tax
102
(367)
Adjustments for:
Decrease/(Increase) in debtors
Increase/(Decrease) in creditors
Gain on disposal of fixed assets
Loss on valuation of fixed asset investments
Cash from operations
Income taxes paid
Net cash used in operating activities
Cash flows from investing activities
Purchase of fixed asset investments
Sale of fixed asset investments
Total cash flows from investing activities
Cash flows from financing activities
Total cash flows from financing activities
Increase in cash and cash equivalents
Opening cash and cash equivalents
Closing cash and cash equivalents
11
12
10
10
7
10
10
7
18
(903)
716
(60)
-
(60)
-
2,958
2,958
-
2,898
(160)
2,738
(3)
(79)
(19)
359
(109)
-
(109)
-
134
134
-
25
(185)
(160)
57
B Shares Statement of Cash Flows
B shares
Year to
31 December 2018
B shares
Year to
31 December 2017
Note
£’000
£’000
Cash flows from operating activities
Return on ordinary activities before tax
Adjustments for:
Increase in debtors
Increase/(Decrease) in creditors
Gain on disposal of fixed assets
Loss on valuation of fixed asset investments
Cash from operations
Income taxes paid
Net cash used in operating activities
Cash flows from investing activities
Purchase of fixed asset investments
Sale of fixed asset investments
Total cash flows from investing activities
Cash flows from financing activities
Issue of B shares
Awaiting B share issue
Total cash flows from financing activities
Increase in cash and cash equivalents
Opening cash and cash equivalents
Closing cash and cash equivalents
11
12
10
10
7
10
10
58
(36)
(23)
13
-
-
(46)
-
(46)
(500)
-
(500)
4,035
219
4,254
3,708
-
3,708
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Notes to the Financial Statements
1. Principal Accounting Policies
Basis of preparation
The Financial Statements have been prepared under the historical cost convention, except for the measurement
at fair value of certain financial instruments, and in accordance with UK Generally Accepted Accounting Practice
(“GAAP”), including FRS 102 and with the Companies Act 2006 and the Statement of Recommended Practice (SORP)
‘Financial Statements of Investment Trust Companies and Venture Capital Trusts (revised 2014)’.
The principal accounting policies have remained materially unchanged from those set out in the Company’s 2017
Annual Report and Financial Statements, apart from an addition to the policy on allocating expenses partly to
capital as a result of the introduction of an investment management fee for the B shares, and clarifying the split of
costs between the two share pools. A summary of the principal accounting policies is set out below.
The Company held all fixed asset investments at fair value through profit or loss. Accordingly, all interest income,
fee income, expenses and gains and losses on investments are attributable to assets held at fair value through
profit or loss.
The most important policies affecting the Company’s financial position are those related to investment valuation
and require the application of subjective and complex judgements, often as a result of the need to make estimates
about the effects of matters that are inherently uncertain and may change in subsequent periods. These are
discussed in more detail below.
Going Concern
After reviewing the Company’s forecasts and expectations, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence for the foreseeable future. The Company
therefore continues to adopt the going concern basis in preparing its Financial Statements.
Key judgements and estimates
The preparation of the Financial Statements requires the Board to make judgements and estimates regarding the
application of policies affecting the reported amounts of assets, liabilities, income and expenses. Estimates and
assumptions mainly relate to the fair valuation of the fixed asset investments particularly unquoted investments.
Estimates are based on historical experience and other assumptions that are considered reasonable under the
circumstances. The estimates and the assumptions are under continuous review with particular attention paid to
the carrying value of the investments.
Investments are regularly reviewed to ensure that the fair values are appropriately stated. Unquoted investments
are valued in accordance with current International Private Equity and Venture Capital Valuation (IPEV) guidelines,
which can be found on their website at www.privateequityvaluation.com, although this does rely on subjective
estimates such as appropriate sector earnings multiples, forecast results of investee companies, asset values of
investee companies and liquidity or marketability of the investments held.
Although the Directors believe that the assumptions concerning the business environment and estimate of future
cash flows are appropriate, changes in estimates and assumptions could result in changes in the stated values.
This could lead to additional changes in fair value in the future.
Functional and presentational currency
The Financial Statements are presented in Sterling (£). The functional currency is also Sterling (£).
59
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid
investments with original maturities of three months or less and bank overdrafts.
Fixed asset investments
The Company’s principal financial assets are its investments and the policies in relation to those assets are set out
below.
Purchases and sales of investments are recognised in the Financial Statements at the date of the transaction
(trade date).
These investments will be managed and their performance evaluated on a fair value basis and information about
them is provided internally on that basis to the Board. Accordingly, as permitted by FRS 102, the investments are
measured as being fair value through profit or loss on the basis that they qualify as a group of assets managed,
and whose performance is evaluated, on a fair value basis in accordance with a documented investment strategy.
The Company’s investments are measured at subsequent reporting dates at fair value.
In the case of investments quoted on a recognised stock exchange, fair value is established by reference to the
closing bid price on the relevant date or the last traded price, depending upon convention of the exchange on
which the investment is quoted. In the case of AIM quoted investments this is the closing bid price. In the case of
unquoted investments, fair value is established by using measures of value such as the price of recent transactions,
earnings multiple, discounted cash flows and net assets. These are consistent with the IPEV guidelines.
Gains and losses arising from changes in fair value of investments are recognised as part of the capital return
within the Income Statement and allocated to the capital reserve - holding gains/(losses).
In the preparation of the valuations of assets the Directors are required to make judgements and estimates that
are reasonable and incorporate their knowledge of the performance of the investee companies.
Fair value hierarchy
Paragraph 34.22 of FRS 102 regarding financial instruments that are measured in the balance sheet at fair value
requires disclosure of fair value measurements dependent on whether the stock is quoted and the level of the
accuracy in the ability to determine its fair value. The fair value measurement hierarchy is as follows:
For quoted investments:
Level 1: quoted prices in active markets for an identical asset. The fair value of financial instruments traded
in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active
if quoted prices are readily and regularly available, and those prices represent actual and regularly occurring
market transactions on an arm’s length basis. The quoted market price used for financial assets held is the bid
price at the Balance Sheet date.
Level 2: where quoted prices are not available (or where a stock is normally quoted on a recognised stock exchange
that no quoted price is available), the price of a recent transaction for an identical asset, providing there has been
no significant change in economic circumstances or a significant lapse in time since the transaction took place.
The Company holds no such investments in the current or prior year.
For investments not quoted in an active market:
Level 3: the fair value of financial instruments that are not traded in an active market is determined by using
valuation techniques. These valuation techniques maximise the use of observable data (eg: the price of recent
transactions, earnings multiple, discounted cash flows and/or net assets) where it is available and rely as little as
possible on entity specific estimates.
60
There have been no transfers between these classifications in the year (2017: none). The change in fair value for
the current and previous year is recognised through the profit and loss account.
Current asset investments
No current asset investments were held at 31 December 2018 or 31 December 2017. Should current assets be
held, gains and losses arising from changes in fair value of investments are recognised as part of the capital return
within the Income Statement and allocated to the capital reserve - gains/(losses) on disposal.
Income
Investment income includes interest earned on bank balances and from unquoted loan note securities, and
dividends. Fixed returns on debt are recognised on a time apportionment basis so as to reflect the effective yield,
provided it is probable that payment will be received in due course.
Expenses
All expenses are accounted for on an accruals basis. Expenses are charged wholly to revenue with the exception
of the performance fee, which is charged 100% to the capital reserve. In addition, the investment management fee
charged to the B shares has been split 25% revenue and 75% capital, in line with industry practice and to reflect
the Board’s estimated split of investment returns which will be achieved by the company’s B shares over the long
term. Expenses and liabilities not specific to a share class are allocated to the B share pool for a period of three
years from 1 July 2018 in line with the Articles of Association.
Revenue and capital
The revenue column of the Income Statement includes all income and revenue expenses of the Company. The
capital column includes gains and losses on disposal and holding gains and losses on investments, as well as
those expenses that have been charged as capital costs. Gains and losses arising from changes in fair value
of investments are recognised as part of the capital return within the Income Statement and allocated to the
appropriate capital reserve on the basis of whether they are realised or unrealised at the balance sheet date.
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 current tax rate. 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.
Deferred tax is recognised on an undiscounted basis in respect of all timing differences that have originated but
not reversed at the balance sheet 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.
Financial instruments
The Company’s principal financial assets are its investments and its cash and the policies in relation to those
assets are set out above. Financial liabilities and equity instruments are classified according to the substance of
the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest
in the assets of the entity after deducting all of its financial liabilities. Where the contractual terms of share capital
do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument.
Capital management is monitored and controlled using the internal control procedures set out on page 35 of
this report. The capital being managed includes equity and fixed-interest investments, cash balances and liquid
resources including debtors and creditors.
The Company does not have any externally imposed capital requirements.
61
Reserves
Called up equity share capital – represents the nominal value of shares that have been issued.
Share premium account – includes any premiums received on issue of share capital. Any transaction costs
associated with the issuing of shares are deducted from share premium.
Special distributable reserve – includes cancelled share premium and capital redemption reserves available for
distribution.
Capital reserve – holding gains and losses – when the Company revalues the investments still held during the
period with any gains or losses arising being credited/ charged to the Capital reserve – holding gains and losses.
Capital reserve – gains and losses on disposal – when an investment is sold any balance held on the Capital reserve
– holding gains and losses is transferred to the Capital reserve – gains and losses on disposal, as a movement in
reserves.
Revenue reserve – represents the aggregate value of accumulated realised profits, less losses and dividends.
Dividends Payable
Dividends payable are recognised as distributions in the Financial Statements when the Company’s liability to
make payment has been established. This liability is established for interim dividends when they are declared by
the Board, and for final dividends when they are approved by the shareholders.
2. Income
Dividends received
Loan note interest receivable
3. Investment Management Fee for B shares
Gross Investment management fee
Cost cap refund from Seneca
Investment management fee net
of cost cap
Year to
31 December 2018
£’000
Year to
31 December 2017
£’000
-
-
-
-
-
-
Year to
31 December 2018
£’000
Year to
31 December 2017
£’000
24
(42)
(18)
-
-
-
Following its appointment on 23 August 2018, Seneca has received a fee of 2% of the weighted average net asset
value of the B shares (2017: n/a). Seneca will also be entitled to certain monitoring fees from investee companies
and the Board reviews the amounts.
Seneca are entitled to receive a performance incentive fee in relation to the B share pool of an amount equal to
20% of the Shareholder Proceeds arising in respect of any performance period, provided that the payment of
such a fee shall also be conditional upon (i) a return being generated on the B share pool for B Shareholders in
respect of that performance period of more than 5% per annum (pro-rated if that period is less than a year) and
(ii) that such a return calculated for the period from 23 August 2018 to the end of the relevant performance period
exceeds 5% per annum.
62
Shareholder Proceeds are, in relation to the B shares and calculated on a per share basis in relation to the relevant
share, all amounts paid by way of dividend or other distributions, share buy backs, proceeds on a sale or liquidation
of the Company and any other proceeds or value received or deemed to be received by the holders of the relevant
shares (excluding any income tax relief on subscription).
For a three year period with effect from 1 July 2018, expenses are capped at 3% of the weighted average net asset
value of the B shares, including the management fee (but excluding any performance fee). (Following this initial
period, expenses are capped at 3% of the Company’s total net asset value, including the assets in the Ordinary share
pool). Accordingly Seneca reduced its management fee by £42,000 in the year to 31 December 2018 (2017: n/a).
Expenses are charged wholly to revenue with the exception of the (gross) investment management fee which has
been charged 75% to the capital reserve in line with industry practice.
4. Other Expenses
Directors’ remuneration
Fees payable to the Company’s auditor for the audit of the
Financial Statements
Fees payable to the Company’s auditor for other services –
tax compliance
Legal and professional expenses
Accounting and administration services
Other expenses
Year to
31 December 2018
£’000
Year to
31 December 2017
£’000
41
14
-
38
9
11
113
38
8
1
41
14
16
118
All expenses were charged to the Ordinary shares for the period to 30 June 2018. In line with the offer for
subscription for B shares, and following the initial allotment of B shares on 23 August 2018, all the Company’s
general expenses are chargeable to the B share pool for a period of three years from 1 July 2018 (subject to the
cost cap discussed in note 3). Any expenditure related specifically to assets in one pool is chargeable to that pool.
5. Directors’ Remuneration
Directors’ emoluments:
John Hustler (Chairman)
Charles Breese
Richard Roth
Richard Manley
Year to
31 December 2018
£
Year to
31 December 2017
£
12,750
12,750
15,250
-
40,750
12,750
12,750
12,750
-
38,250
Richard Manley, a director of the Investment Manager, has elected to waive his Director’s fee, until the Company’s
operating costs are less than the expenses cost cap.
Included in the figure above for Richard Roth is £2,500 for work undertaken in relation to the setting up of the new
B share structure and preparation of the offer for subscription as detailed in the Directors’ Remuneration Report.
Apart from this, none of the Directors received any other remuneration from the Company during the year.
63
Certain Directors may become entitled to receive a share of the Performance Incentive Fee related to the Ordinary
share pool as detailed in the Directors’ Remuneration Report on page 39 and in note 6.
The Company has no employees other than non-executive Directors. The average number of non-executive
Directors in the year was three (2017: three). Richard Manley joined the Board on 23 August 2018 which increased
the number of directors for the remainder of the year from 3 to 4.
6. Performance fees for Ordinary shares
The Commercial Advisory Committee took over management of the Company’s investments on 30 July 2007, and
at that time, a revised Performance Incentive Scheme was implemented, such that its members would be entitled
to 20% of all cash returns above the initial net cost to subscribing shareholders of 80p.
On 7 October 2015, this scheme was varied such that any returns above the 31 December 2014 levels would be
subject to a hurdle, and the share to the CAC reduced from 20% to 10%. The hurdle is a compound 6% per annum
on any amounts below the latest hurdle still due to be paid to shareholders (i.e. in recognition of dividends paid,
actual returns to shareholders will be subtracted from the compounding threshold in the year these are paid).
The Total Gross Return at 31 December 2014 on which the performance fee liability of £702,000 was calculated
was 123.3p, resulting in the quoted net asset value of 114.6p. For the purposes of this note 6, Total Gross Return
is defined as the total return made by the fund, before the deduction of any dividend payments or accruals and/
or payments made relating to any potential (or actual) performance incentive fee.
Any dividends paid above 80p will be split 80% to shareholders and 20% to the members of the CAC as at 31
December 2014 (i.e. 25% of all dividends paid to shareholders), until shareholders have received dividends
totalling 114.6p.
A performance fee may be payable on any further dividends above this level, but only if the hurdle applicable at
that time has been met.
As at 31 December 2018, the Total Gross Return is 91.68p, and so 2.34p per share totalling £190,000 has been
accrued (31 December 2017, 90.1p, 2.02p and £164,000).
Assuming the only dividends paid on the Ordinary shares in the year are the 10p dividend per share paid on 25
January 2019, and the 18p per share expected to be declared soon after this Annual Report has been submitted
to Companies House, the Total Gross Return would need to exceed 152.9p at 31 December 2019 before any fee
above £702,000 could be due, and at that time, it would be 10% of any cash payments made above this threshold.
If such a performance fee is not triggered (as it has not been in this financial year) the hurdle, net of dividends
paid, increments by a compound annual growth rate of 6%, applied quarterly.
64
7.
Tax on Ordinary Activities
The corporation tax charge for the period was £nil (2017: £nil).
The current rate of tax is the small companies’ rate of corporation tax at 19% (2017: 19.25 %)
Current tax reconciliation:
Return on Ordinary activities before tax
Current tax at 19% (2017: 19.25%)
Gains/losses not subject to tax
Excess management expenses carried forward
Total current tax charge and tax on results of ordinary activities
Year to
31 December 2018
£’000
Year to
31 December 2017
£’000
66
13
(36)
23
-
(367)
(71)
65
6
-
The company has excess management expenses of £2,741,000 (2017: £2,619,000) to carry forward to offset
against future taxable profits.
Approved VCTs are exempt from tax on capital gains within the Company. Since the Directors intend that the
Company will continue to conduct its affairs so as to maintain its approval as a VCT, no current deferred tax has
been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments.
8. Earnings per Share
The earnings per Ordinary share is based on 8,115,376 (31 December 2017: 8,115,376) shares, being the weighted
average number of Ordinary shares in issue during the year, and a return for the year totalling £102,000 (31
December 2017: (£367,000)).
The earnings per B share is based on 3,412,545 (31 December 2017: nil) shares, being the weighted average
number of B shares in issue since 23 August 2018, and a return for the year totalling (£36,000) (31 December 2017:
nil).
There are no potentially dilutive capital instruments in issue and, therefore, no diluted returns per share figures
are relevant. The basic and diluted earnings per share are therefore identical.
9. Net Asset Value per Share
The calculation of NAV per Ordinary share as at 31 December 2018 is based on 8,115,376 Ordinary shares in issue
at that date (31 December 2017: 8,115,376).
The calculation of NAV per B share as at 31 December 2018 is based on 4,036,370 B shares in issue at that date
(31 December 2017: nil).
65
10.
Fixed Asset Investments
Ordinary shares
Valuation and net book amount:
Book cost as at 1 January 2018
Cumulative revaluation
Valuation at 1 January 2018
Movement in the year:
Purchases at cost
Disposal proceeds
Gain/(loss) on disposal
Revaluation in year
Valuation at 31 December 2018
Book cost at 31 December 2018
Revaluation to 31 December 2018
Valuation at 31 December 2018
B Shares
Valuation and net book amount:
Book cost as at 1 January 2018
Cumulative revaluation
Valuation at 1 January 2018
Movement in the year:
Purchases at cost
Disposal proceeds
Gain/(loss) on disposal
Revaluation in year
Valuation at 31 December 2018
Book cost at 31 December 2018
Revaluation to 31 December 2018
Valuation at 31 December 2018
Level 1:
AIM-quoted
investments
£’000
Level 3:
Unquoted
investments
£’000
Total
investments
£’000
1,129
906
2,035
-
(31)
6
(549)
1,461
1,117
344
1,461
4,426
(897)
3,529
-
(2,927)
897
(167)
1,332
2,985
(1,653)
1,332
5,555
9
5,564
-
(2,958)
903
(716)
2,793
4,102
(1,309)
2,793
Level 1:
AIM-quoted
investments
£’000
Level 3:
Unquoted
investments
£’000
Total
investments
£’000
-
-
-
-
-
-
-
-
-
-
-
-
-
500
-
-
-
500
500
-
500
-
-
-
500
-
-
-
500
500
-
500
Further details of the fixed asset investments held by the Company are shown within the Investment Manager’s
Report on pages 14 to 24.
66
All investments are initially measured at fair value through profit or loss, and all capital gains or losses on
investments are so measured. The changes in fair value of such investments recognised in these Financial
Statements are treated as unrealised holding gains or losses.
11. Debtors
Prepayments and accrued income
12. Creditors
Amounts falling due within one year
Accruals
Trade creditors
Awaiting B share issue
Other creditors
Total amounts falling due within one year
Amounts falling due after one year
Accruals
Total amounts falling due after one year
31 December 2018
£’000
31 December 2017
£’000
23
23
7
7
31 December 2018
£’000
31 December 2017
£’000
43
-
219
29
291
190
190
34
4
-
29
67
164
164
The amount falling due after more than one year relates to the potential liability for a performance fee on the
Ordinary share portfolio. More details are in note 6.
13. Share Capital
Allotted and fully paid up:
8,115,376 Ordinary shares of 1p (2017: 8,115,376 shares of 50p)
4,036,370 B Ordinary shares of 1p (2017 : nil)
31 December 2018
£’000
31 December 2017
£’000
81
40
121
4,058
-
4,058
The capital of the Company is managed in accordance with its investment policy with a view to the achievement of
its investment objective as set on page 8. During the year, the Company did not issue, nor buy back, any Ordinary
shares. On 5 April 2018, following approval at the Company’s annual general meeting, the nominal value of the
Ordinary shares was reduced from 50p to 1p. More details are included in the Chairman’s Statement on page 10
and in note 14.
The Company issued a total of 4,036,370 B Ordinary shares at prices between 99.7p and 105.8p per B Ordinary
share. pursuant to an offer for subscription for B shares launched on 9 May 2018 to raise, in aggregate, up to £10
million with an over-allotment facility of up to a further £10 million (before issue costs). The Company has not
bought back any B Ordinary shares.
67
14. Movement in Shareholders’ Funds
Shareholders’ funds at start of year
Return on ordinary activities after tax
Increase due to issue of B shares
Shareholders’ funds at end of year
Year ended
31 December 2018
£’000
Year ended
31 December 2017
£’000
5,180
66
4,035
9,281
5,547
(367)
-
5,180
The analysis of changes in equity by the various reserves are shown in the Statement of Changes in Equity on page 50.
When the Company revalues its investments during the period, any gains or losses arising are credited/charged
to the Income Statement. Changes in fair value of investments held are then transferred to the capital reserve -
holding gains/(losses). When an investment is sold any balance held on the capital reserve - holding gains/(losses)
reserve is transferred to the capital reserve – gains/(losses) on disposal as a movement in reserves.
The purpose of the special distributable reserve was to create a reserve which will be capable of being used by
the Company to pay dividends and for the purpose of making repurchases of its own shares in the market with
a view to narrowing the discount at which the Company’s shares trade to net asset value, providing shareholder
authority has been granted.
During 2010, the Company revoked investment company status in order to allow payment of dividends from
distributable reserves. During 2018, the Company effected a capital reduction exercise, whereby the nominal
value of its Ordinary shares was reduced from 50p to 1p, creating a capital redemption reserve. The Company
also issued 4,036,370 B shares at a premium. On 7 December 2018, following shareholder approval, the Company
sought, and received approval from the High Court to the reduction of the amount standing to the credit of the
Capital Redemption Reserve of the Company by £4,014,135 and of the Share Premium Account of the Company
by £3,427,184, thereby creating additional distributable reserves of £7,441,319. Distributable reserves are
represented by the special distributable reserve, the capital reserve gains/(losses) on disposal and the revenue
reserve reduced by negative holding reserves (if any) which total £8,592,000 as at 31 December 2018 (2017:
£1,075,000). Although the distributable reserves total £8,592,000 as at 31 December 2018, only £5,181,000 is
actually able to be distributed as the reserves contain £ 3,427,000 from the cancellation of the share premium
account on the newly issued B shares, which cannot be distributed until the beginning of 2022 without breaching
VCT rules.
An interim capital dividend of 10 pence per Ordinary share for the year to 31 December 2018 was paid on 25
January 2019, reducing shareholder funds by £811,537.60.
68
15. Financial Instruments
The Company’s financial instruments comprise equity investments, cash balances and liquid resources including
debtors and creditors.
Classification of financial instruments
The Company held the following categories of financial instruments, all of which are included in the balance sheet
at fair value, at 31 December 2018 and 31 December 2017:
31 December 2018
£’000
31 December 2017
£’000
Financial assets at fair value through profit or loss
Fixed asset investments
Total
Financial assets measured at amortised cost
Cash at bank and in hand
Debtors
Total
Financial liabilities measured at amortised cost
Bank Overdraft
Creditors
Total
3,293
3,293
6,446
23
6,469
-
(29)
(29)
5,564
5,564
-
7
7
(160)
(33)
(193)
Fixed asset investments (see note 10) are valued at fair value. Unquoted investments are carried at fair value as
determined by the Directors in accordance with current venture capital industry guidelines. The fair value of all
other financial assets and liabilities is represented by their carrying value in the balance sheet. The Directors
believe that the fair value of the assets held at the year end is equal to their book value.
The Company’s creditors and debtors are recognised at fair value which is usually the transaction cost or net
realisable value if lower.
As at 31 December 2017, the Company had an overdraft facility of £200,000 with the Royal Bank of Scotland, which
was converted into a loan in April 2018, both of which were secured by a debenture. The loan was a liability of the
Ordinary share pool and was repaid at the end of August 2018 once the company had access to the funds from
the initial allotment of B shares, and the debenture was released. The funds in the B share pool have since been
replenished from the proceeds from the Ordinary share pool’s sale of its investment in Hallmarq.
16. Financial Risk Management
In carrying on its investment activities, the Company is exposed to various types of risk associated with the financial
instruments and markets in which it invests. The most significant types of financial risk facing the Company
are market risk, credit risk and liquidity risk. The Company’s approach to managing these risks is set out below
together with a description of the nature and amount of the financial instruments held at the balance sheet date.
Market risk
The Company’s strategy for managing investment risk is determined with regard to the Company’s investment
objective, as outlined on page 8. The management of market risk is part of the investment management process.
The Company’s portfolio is managed with regard to the possible effects of adverse price movements and with the
objective of maximising overall returns to shareholders in the medium term. Investments in unquoted companies,
by their nature, usually involve a higher degree of risk than investments in companies quoted on a recognised
69
stock exchange, though the risk can be mitigated to a certain extent by diversifying the portfolio across business
sectors and asset classes. The overall disposition of the Company’s assets is regularly monitored by the Board.
Details of the Company’s investment portfolio at the balance sheet date are set out on page 15.
19.7% (2017: 68.1%) by value of the Company’s net assets comprise investments in unquoted companies held at
fair value. The valuation methods used by the Company include the application of a price/earnings ratio derived
from listed companies with similar characteristics, and consequently the value of the unquoted element of the
portfolio can be indirectly affected by price movements on the London Stock Exchange. A 10% overall increase in
the valuation of the unquoted investments at 31 December 2018 would have increased net assets and the total
return for the year by £183,000 (2017: £353,000) disregarding the impact of the performance fee; an equivalent
change in the opposite direction would have reduced net assets and the total return for the year by the same
amount.
15.7% (2017: 39.3%) by value of the Company’s net assets comprises equity securities quoted on AIM. A 10%
increase in the bid price of these securities as at 31 December 2018 would have increased net assets and the total
return for the year by £146,000 (2017: £204,000) disregarding the impact of the performance fee; a corresponding
fall would have reduced net assets and the total return for the year by the same amount.
Credit risk
There were no significant concentrations of credit risk to counterparties at 31 December 2018 or 31 December
2017.
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment
that it has entered into with the Company. The Board carries out a regular review of counterparty risk. The carrying
values of financial assets represent the maximum credit risk exposure at the balance sheet date.
Liquidity risk
The Company’s financial assets include investments in unquoted equity securities which are not traded on a
recognised stock exchange and which generally are illiquid. They also include investments in AIM-quoted
companies, which, by their nature, involve a higher degree of risk than investments on the main market. As
a result, the Company may not be able to realise some of its investments in these instruments quickly at an
amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such
as deterioration in the creditworthiness of any particular issuer.
The Company’s liquidity risk is managed and monitored on a continuing basis by the Board in accordance with
policies and procedures laid down by the Board.
17. Events After the Balance Sheet Date
Since 31 December 2018:
Pursuant to the Offer, the Company has made the following allotments of B shares:
Date
7 March 2019
3 April 2019
5 April 2019
25 April 2019
Number of shares allotted
Allotment price range
643,278
442,148
241,485
24,383
99.1p to 102.2p per share
99.1p to 104.9p per share
97.6p to 103.3p per share
102.5p per share
As at 26 April 2019, the Company had a total of 5,387,664 B shares in issue
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The Company has also made the following new investments from the B share pool
Company Name
Date of Investment
Amount subscribed
Fabacus Holdings
Limited
15 February 2019
£500,000
SkinBioTherapeutics Plc
21 February 2019
£750,000
Old St Labs Limited
28 March 2019
£500,000
Qudini Limited
4 April 2019
£500,000
18. Contingencies, Guarantees and Financial Commitments
There were no contingencies, guarantees or financial commitments as at 31 December 2018 (2017: £nil).
19. Related Party Transactions
The Board acted as the investment manager of the Company until Seneca were appointed on 23 August 2018.
No remuneration has been paid to the Board during the year in its capacity as investment manager. Certain
Directors are entitled to participate in a performance bonus as detailed in note 6. Seneca have earnt £24,000
in management fees since 23 August 2018 (2% of the weighted average net assets of the B share portfolio). No
payment has been made to Seneca, as £42,000 is recoverable from Seneca as a result of the cost cap, as detailed
in note 3. Therefore at the year end, £18,000 was due from Seneca, which will be deducted from fees to be paid
to them for services in 2019 (2017: nil).
Seneca accrued £19,997 (2017: £nil) transaction fees and directors’ fees from investee companies. Seneca may also
become entitled to a performance fee. See note 3 to the financial statements for more information on these fees.
As detailed in the offer for subscription document dated 9 May 2018, Seneca (as promoters of the offer) are
entitled to charge the Company up to 5.5% of investors’ subscriptions. A total of £40,596 has been paid to Seneca,
based on the allotments of £4,035,000 as at 31 December 2018 (2017: n/a).
Charles Breese is a director of OR Productivity and received £nil from OR Productivity in fees for his support
during the year (2017: £nil).
71
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of Seneca Growth Capital VCT Plc (“the Company”) will be held at the
offices of Howard Kennedy LLP, No 1 London Bridge, London SE1 9BG on Monday 10 June 2019 at 11.00 am for the following
purposes:
To consider and if thought fit, pass the following as Ordinary Resolutions:
1. THAT the Directors’ Annual Report and Financial Statements and the auditors’ report thereon for the year ended 31
December 2018 be received.
2. THAT the Remuneration Policy set out on pages 39 and 40 of the 2018 Annual Report which will take effect from the
conclusion of the Meeting be received and approved.
3. THAT the Directors’ Remuneration Report in respect of the year ended 31 December 2018 be approved.
4. THAT John Hustler aged 72, be re-elected as a Director of the Company.
5. THAT Richard Manley aged 39, be re-elected as a Director of the Company.
6. THAT UHY Hacker Young LLP be re-appointed as auditors of the Company until the conclusion of the next Annual General
Meeting of the Company at which accounts are laid before the Members.
7. THAT the Directors be authorised to determine the auditor’s remuneration.
8. AUTHORITY TO ALLOT RELEVANT SECURITIES
THAT, in addition to existing authorities, the Directors be and are 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:
a) B ordinary shares of 1p each in the capital of Company (“B Ordinary Shares”) up to an aggregate nominal amount of
£250,000 in connection with offer(s) for subscription;
b) B Ordinary Shares for cash and otherwise than pursuant to sub-paragraph a. above, up to an aggregate nominal
amount of £60,000; and
c) ordinary shares of 1p each in the capital of Company (“Ordinary Shares”) for cash, up to an aggregate nominal amount
of £4,058
provided that this authority shall expire at the later of the conclusion of the Company’s Annual General Meeting next
following the passing of this resolution and the expiry of 15 months from the passing of this resolution (unless previously
revoked, varied or extended by the Company in a general meeting) but so that such authority shall allow the Company to
make offers or agreements before the expiry thereof which would or might require relevant securities to be allotted after
the expiry of such authority and the Directors shall be entitled to allot shares pursuant to any such offers or agreements
as if the authority conferred by this resolution had not expired.
To consider and, if thought fit, pass the following as Special Resolutions:
9. EMPOWERMENT TO MAKE ALLOTMENTS OF EQUITY SECURITIES
THAT, in addition to existing authorities, the Directors pursuant to section 570(1) of the Act be and are hereby empowered
to allot or make offers or agreements to allot equity securities (as defined in section 560(1) of the Act) for cash pursuant
to the authority referred to in Resolution 8 as if section 561 (1) of the Act did not apply to any such allotments and so that:
a)
reference to allotment in this resolution shall be construed in accordance with section 560(2) of the Act; and
b)
the power conferred by this resolution shall enable the Company to make any offer or agreement before the expiry
of the 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 in pursuance of such offer or agreement notwithstanding the expiry of such
power
and this power, unless previously varied, revoked or renewed, shall come to an end at the conclusion of the Annual
General Meeting of the Company next following the passing of this resolution or, if earlier, on the expiry of 15 months
from the passing of this resolution.
10. AUTHORITY TO PURCHASE RELEVANT SECURITIES
THAT the Company be and is hereby generally and unconditionally authorised within the meaning of section 701 of the Act
to make one or more market purchases (within the meaning of section 693(4) of the Act) of B Ordinary Shares provided that:
a)
the maximum number of B Ordinary Shares hereby authorised to be purchased is an amount equal to 14.99% of the
issued B Ordinary Share capital of the Company from time to time;
b)
the minimum price which may be paid for a B Ordinary Share is 1 pence per share, the nominal amount thereof;
72
c)
d)
e)
the maximum price which may be paid for a B Ordinary Share is an amount equal to the higher of:
(i) 105% of the average of the middle market prices shown in the quotations for a B Ordinary Share in The London
Stock Exchange Daily Official List for the five business days immediately preceding the day on which that share is
purchased; and
(ii) the amount stipulated by Article 5(6) of Market Abuse Regulation (596/2014/EU);
the authority hereby conferred shall (unless previously renewed or revoked) expire on the earlier of the conclusion of
the Company’s Annual General Meeting next following the passing of this resolution and the date which is 15 months
after the date on which this resolution is passed; and
the Company may make a contract or contracts to purchase its own 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 B Ordinary Shares in pursuance of any such contract or contracts as if the authority conferred
hereby had not expired.
11. CANCELLATION OF THE SHARE PREMIUM ACCOUNT
THAT, subject to the approval of the High Court of Justice, the amount standing to the credit of the share premium
account of the Company, at the date the Court Order is made confirming such cancellation, be and is hereby cancelled.
By order of the Board
Craig Hunter
Company Secretary
26 April 2019
NOTES:
Registered Office:
12 The Park
Haydock
Newton-Le-Willows
WA12 0JQ
i)
Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, entitlement to attend and vote at the meeting (and the
number of votes that may be cast thereat), will be determined by reference to the Register of Members of the Company at the close of
business on the day which is two days before the day of the meeting or of the adjourned meeting. Changes to the Register of Members of
the Company after the relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the meeting.
ii) A member entitled to attend and vote at the meeting is entitled to appoint a proxy or proxies to attend, speak and vote on his or her
behalf. A proxy need not also be a member but must attend the meeting to represent the appointer. Details of how to appoint the
chairman of the meeting or another person as a proxy using the Form of Proxy are set out in the notes on the Form of Proxy. If the
member wishes his or her proxy to speak on their behalf at the meeting then the member will need to appoint their own choice of proxy
(not the chairman) and give their instructions directly to the proxy.
iii) A member may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. A member
may not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy, a member may
copy the proxy form, clearly stating on each copy the shares to which the proxy relates, or alternatively contact the Company’s registrars,
Neville Registrars Limited, on 0121 585 1131 to request additional copies of the proxy form. For legal reasons Neville Registrars Limited
will be unable to give advice on the merits of the proposals or provide financial, legal, tax or investment advice. The member will need
to indicate in the box next to the proxy holder’s name the number of shares in relation to which they are authorised to act as proxy, and
will also need to indicate on the form (by ticking the box provided) if the proxy instruction is one of multiple instructions being given. All
forms must be signed and returned together in the same envelope.
iv) Any person to whom this notice is sent who is a person nominated under section 146 of the Act to enjoy information rights (a “Nominated
Person”) may, under an agreement between him/her and the member by whom he/she was nominated, have a right to be appointed
(or to have someone else appointed) as a proxy for the meeting. If a Nominated Person has no such proxy appointment right or does
not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of
voting rights.
v)
vi)
The statement of the rights of members in relation to the appointment of proxies in paragraphs (ii) to (iii) above does not apply to
Nominated Persons. The rights described in these paragraphs can only be exercised by members of the Company.
If the recipient of this document has been nominated to receive general shareholder communications directly from the Company, it is
important to remember that the member’s main contact in terms of their investment remains as it was (being the registered shareholder,
or perhaps custodian or broker, who administers the investment on their behalf). Therefore, any changes or queries relating to a member’s
personal details and holding (including any administration thereof) must continue to be directed to that member’s existing contact at
their investment manager or custodian. The Company cannot guarantee that it will deal with any matters that are directed to it in error.
The only exception to this is where the Company, in exercising one of its powers under the Act, writes to a member directly for a response.
vii) A reply-paid Form of Proxy is enclosed with this document. To be valid, the enclosed Form of Proxy for the meeting, together with the
power of attorney or other authority, if any, under which it is signed or a notarially certified or office copy thereof, must be deposited at
the offices of the Company’s registrar, Neville Registrars Limited, Neville House, Steelpark Road, Halesowen B62 8HD so as to be received
not later than 11.00 a.m. on 8 June 2019 or 48 hours before the time appointed for any adjourned meeting or, in the case of a poll taken
subsequent to the date of the meeting or adjourned meeting, so as to be received no later than 24 hours before the time appointed for
taking the poll.
viii) Appointment of a proxy will not preclude a member from subsequently attending and voting at the meeting should he or she subsequently
decide to do so. A member can only appoint a proxy using the procedure set out in these notes and the notes to the Form of Proxy.
ix) As at 26 April 2019 (being the last business day prior to the publication of this notice), the Company’s issued share capital comprised
8,115,376 Ordinary Shares and 5,387,664 B Ordinary Shares, all of which carry one vote each. Therefore, the total voting rights in the
Company as at 26 April 2019 was 13,503,040.
x) Copies of the directors’ letters of appointment, the Register of Directors’ Interests in shares of the Company and copies of the Articles
will be available for inspection at the registered office of the Company during usual business hours on any weekday (Saturday and Public
Holidays excluded) from the date of this notice, until the end of the Annual General Meeting and at the place of the Annual General
Meeting for at least 15 minutes prior to and during the meeting.
73
xi)
If a corporate shareholder has appointed a corporate representative, the corporate representative will have the same powers as
the corporation could exercise if it were an individual member of the Company. If more than one corporate representative has been
appointed, on a vote on a show of hands on a resolution, each representative will have the same voting rights as the corporation would
be entitled to. If more than one authorised person seeks to exercise a power in respect of the same shares, if they purport to exercise
the power in the same way, the power is treated as exercised; if they do not purport to exercise the power in the same way, the power is
treated as not exercised.
xii) At the meeting, Shareholders have the right to ask questions relating to the business of the meeting and the Company is obliged under
section 319A of the Act to answer such questions, unless; to do so would interfere unduly with the preparation of the meeting or would
involve the disclosure of confidential information, if the information has been given on the Company’s website, www.hygeavct.com in the
form of an answer to a question, or if it is undesirable in the interests of the Company or the good order of the meeting that the question
be answered.
xiii) Further information, including the information required by section 311A of the Act, regarding the meeting is available on the Company’s
website, www.senecavct.co.uk.
74
Directors and Advisers
Board of Directors
John Hustler (Chairman)
Charles Breese
Richard Manley
Richard Roth
Company Number
Registered in England & Wales
No 04221489
Secretary and Registered Office
Craig Hunter
12 The Parks, Haydock,
Newton-Le-Willows
WA12 0JQT
Administration Manager
Pennywise Accounting Ltd
Dickhurst House
Rodgate Lane
Haslemere
GU27 2EW
Corporate Broker
Panmure Gordon (UK) Limited
One New Change
London
EC4M 9AF
Tel: 020 7886 2500
Investment Manager
Seneca Partners Limited
12 The Parks
Haydock
WA12 0JQ
Tel: 01942 271746
Independent Auditor
UHY Hacker Young LLP
Quadrant House
4 Thomas More Square
London
E1W 1YW
VCT Adviser
Philip Hare & Associates LLP
Suite C – First Floor, 4-6 Staple Inn, Holborn
London WC1V 7QH
Bankers
The Royal Bank of Scotland plc
62/63 Threadneedle Street
London
EC2R 8LA
Registrars
Neville Registrars Limited
Neville House
Steelpark Road
Halesowen
B62 8HD
Tel: 0121 585 1131
www.nevilleregistrars.co.uk
Financial Adviser
Beaumont Cornish Limited
2nd Floor, Bowman House
29 Wilson Street
London
EC2M 2SJ
75
12 The Parks
Haydock WA12 0JQ
01942 271 746
www.senecavct.co.uk