Hargreave Hale AIM VCT 2 plc announced its results for the year ended 28 February 2017 on 5 June 2017. The full Financial Statements can be accessed on the Company's website http://www.hargreaveaimvcts.co.uk or alternatively by following the link at the bottom of this report.
FINANCIAL HIGHLIGHTS
| Ordinary Shares (as at 28/29 February): | 2017 | 2016 |
| Net asset value per share | 109.86p | 101.18p |
| Cumulative distributions paid per share since launch | 49.00p | 43.00p |
| Total return per share | 158.86p | 144.18p |
| Annual Returns per share (basic and diluted): | ||
| Revenue return | (0.43)p | (0.98)p |
| Capital return | 14.97p | (2.41)p |
| Combined return | 14.54p | (3.39)p |
| Dividends per share: | ||
| Interim paid | 2.00p | 2.00p |
| Final proposed/paid | 4.00p | 4.00p |
| Total dividend for year | 6.00p | 6.00p |
| Ongoing Expense Ratio* | 1.82% | 2.28% |
| Performance Benchmark: | ||
| FTSE AIM All-share Index (results rebased to 100 at 6 April 2007) | 78.38 | 66.01 |
| *Calculated as total expenses minus ad hoc legal costs and adjusted for trail commission written off, divided by year-end net assets |
CHAIRMAN'S STATEMENT
INTRODUCTION
Following the success of our joint offer for subscription I would like to welcome a large number of new shareholders.
At 28 February 2017 the Net Asset Value (NAV) was 109.86 pence which after adjusting for the dividends paid gives a total return since inception of 158.86 pence. The gain per ordinary share for the year was 14.54 pence per share (comprising a revenue loss of 0.43 pence and capital gains of 14.97 pence). Total return for the period increased by 10.2% compared to a gain of 33.1% in the FTSE AIM All-share Total Return Index. Given the constraints placed on managers of VCT funds we are pleased with this performance.
INVESTMENTS
The investment manager, Hargreave Hale Limited, invested a further £5.52 million in 21 qualifying companies during the year. The fair value of Qualifying Investments at 28 February 2017 was £21.39 million invested in 64 AIM companies and 7 unquoted companies. £24.16 million was held in a mix of cash, fixed income and other non-qualifying equities; more detail can be found in the investment manager's report.
DIVIDEND
An interim dividend of 2.00 pence was paid on 2 December 2016 (Interim 2016: 2.00 pence).
A final dividend of 4.00 pence is proposed (2016: 4.00 pence) which, subject to shareholder approval at the Annual General Meeting will be paid on 25 July 2017, to ordinary shareholders on the register on 16 June 2017.
Provided the underlying investment performance of the Company remains acceptable and the liquidity position allows, it remains our policy to target a 5% distribution yield referenced to the year end NAV per share of the Company.
BUYBACKS
In total, 312,908 shares were purchased during the year at a weighted average price of 99.25 pence per share. A further 341,473 shares have been purchased since the year end at a weighted average price of 109.70 pence.
The Board continues to target a share price discount of 5% to the NAV per share (as measured against the mid-price) for market purchases. It should be emphasised that this target is non-binding and dependent on circumstances including the Company's liquidity from time to time and market conditions.
JOINT OFFER FOR SUBSCRIPTION - 2015
On 17 November 2016 the joint offer for subscription for new shares in Hargreave Hale AIM VCT 1 plc and Hargreave Hale AIM VCT 2 plc (launched in December 2015) was closed with £11.5 million raised for Hargreave Hale AIM VCT 2 plc.
JOINT OFFER FOR SUBSCRIPTION - 2016
The Directors of the Company announced on 14 December 2016 the launch of a new joint offer for subscription for shares in both Hargreave Hale AIM VCTs to raise up to £10 million in Hargreave Hale AIM VCT 1 plc and up to £10 million in the Company. The offer was approved by shareholders of the Company at a general meeting on 12 January 2017 and was open to both new and existing shareholders.
The offer was fully subscribed and resulted in gross funds being received of £10 million and the issue of 8.96 million new shares in the Company.
VCT STATUS
To maintain its VCT qualifying status we must invest at least 70% of the net funds raised in any one accounting period in Qualifying Investments by the start of the accounting period containing the third anniversary of the date on which the funds were raised. I am pleased to report that we continue to make good progress against this test and, at the year end, we had achieved 88.88% and have satisfied all the relevant tests.
VCT REGULATION
In order to comply with EU regulations regarding State Aid, the VCT rules were subject to substantial changes in the budget on 8 July 2015, which came into effect on 18 November 2015. In the round we do not think these rules have greatly affected the Company, although we will no longer be able to make non-qualifying investments in companies listed on AIM or UK government bonds. We are able to continue to invest via the Marlborough Special Situations Fund and we are free to invest in companies listed on the main market.
BOARD CHANGES
Giles Hargreave stepped down as a director of the Company on 13 December 2016. I would like to take this opportunity to thank Giles for all his hard work on the Board. Following the resignation of Giles Hargreave, Oliver Bedford was appointed as a non-executive director of the Company on 13 December 2016.
ELECTRONIC COMMUNICATIONS
Following approval at a general meeting on 12 January 2017, the Company has adopted electronic communications. Your Board believes this is beneficial to the Company and its shareholders and will result in substantial cost savings and improved timeliness and transparency of communications.
CAPITAL REDUCTION
Following approval at a general meeting on 12 January 2017 the balance of the share premium account was cancelled on 18 May 2017 resulting in £37.5 million being transferred to the special reserve Reserves available for distribution as at the date of this document are £7.9 million.
AUDIT TENDER
Mandatory audit tendering legislation states that the maximum period for which a firm can be appointed auditor of a public listed entity is 10 years. BDO LLP are approaching the maximum term and as such a tender process will be completed in the current financial year.
OUTLOOK
The year has started well with a further increase in NAV up until 31 May 2017 of 9.72 pence equivalent to 8.8%. Further successful fundraising during the past year has increased our net assets as at the present date to around £45m for the first time. This has led to greater diversity in our portfolio.
So far the investment climate post Brexit has remained surprisingly benign. However, it would be dangerous to be too complacent. Company valuations have benefited from the steady economic upswing of the past few years and AIM in particular has attracted interest, and consequently higher valuations, from investors seeking Inheritance Tax relief.
Less than half of our net assets at 28 February were invested in qualifying assets. Our main challenge therefore is to identify and invest in more high quality, VCT qualifying, opportunities. To this end we have been more active investing in private companies which now account for 8.8% of the portfolio. We are seeing some exciting opportunities in this field but will take a measured approach recognising that the work involved in this style of investment is more time consuming and these investments are typically early stage high risk companies; also there is rarely any secondary market liquidity until there is a change of control or a public market listing.
David Hurst-Brown
Chairman
Date: 5 June 2017
For further information, please contact:
Stuart Brookes
Company Secretary
Hargreave Hale AIM VCT 2 Plc
01253 754740