Correction: Interim Management Statement
THIS ANNOUNCEMENT SHOULD BE DISREGARDED
IN FAVOUR OF THE SUBSEQUENT RNS RELEASED
9 February 2024
HARGREAVE HALE AIM VCT PLC
(the “Company”)
Interim Management Statement
Q1 2024
Introduction
This interim management statement covers the first quarter of
the 2023/24 financial year, 1 October 2023 to 31 December 2023.
Investment performance measures contained in this report are
calculated on a pence per share basis and include realised and
unrealised gains and losses.
Overview
The inflation outlook continued to moderate in the UK, US and
elsewhere in the quarter, with headline inflation falling more
quickly than many had expected. Dovish comments from the Federal
Reserve raised the prospect of potential cuts in the base rate as
early as March 2024. Improving sentiment and substantially easier
financial conditions helped to push markets higher in the run up to
Christmas.
Whilst still high, UK wage growth has started to moderate,
falling from a high of 8.5% in July to 6.5% in November 2023. Along
with steep falls in the cost of energy, this has taken UK inflation
(Consumer Price Index, CPI) sharply lower to 4.0% in December
2023.
UK consumer confidence continues to recover as the cost of
living crisis abates and the outlook for the mortgage market
improves. ONS data painted a mixed picture over Christmas with
robust consumer spending focused on food and leisure and weaker
spending on non-food items such as durable goods and clothing. The
combination of stronger trading over the Black Friday weekend and
weakness over the Christmas period suggests consumers were focused
on value. UK unemployment remains well contained.
The UK economy continues to outperform very modest expectations,
albeit still flirting with recession. Purchasing Managers’ Index
(PMI) reports, which offer a view on the prevailing economic
trends, indicate some strengthening of the economy in November and
December with the UK composite PMI, which draws together the
individual sectors, signaling an expansion in business activity
with strength in the dominant services sector more than offsetting
weakness in manufacturing and construction. Post period end, the
Bank of England made minor positive revisions to its growth outlook
for 2024 whilst paring back its inflation forecast, potentially
paving the way for rate cuts in Summer 2024. The futures market
neatly illustrates this change in expectations. At the start of
this financial year, the markets were forecasting rates to remain
unchanged at 5.25% through to September 2024. In contrast, as at 31
January 2024, the markets were forecasting that the Bank of England
would cut three times to 4.5% by September 2024. If this plays out,
and it should be noted that these forecasts can be quite volatile,
then it will significantly help UK households, the broader economy
and, we hope, the appetite for risk assets.
After two very difficult years on AIM, we are pleased to be able
to finally report a period of positive performance on AIM, which
rose by 5.7% in the three months to December 2023. Whilst it is
early days and it is arguable that the ‘pivot rally’ went too far
too fast, it is encouraging to see some early signs of a return of
investor interest in small UK companies. That having been said,
investor appetite is yet to trickle down to the smallest companies
on AIM and the flow picture for UK equity funds remains very
challenging.
Performance
In the 3 months to 31 December 2023, the unaudited NAV per share
increased by 0.06 pence from 46.34 pence to 46.40 pence, with no
dividends paid in the quarter, giving a total return of +0.1%.
The qualifying investments made a net loss of -0.68 pence per
share whilst the non-qualifying investments made a gain of 0.51
pence per share. The adjusting balance was the net of the
Marlborough Special Situations Fund, running costs and investment
income.
Qualifying Investments
Shares in Zoo Digital (+62.5%, +0.32 pence per share) recovered
following agreements to end the actors and screenwriters strikes
that severely limited the production of new content for
distribution by the streaming platforms. The supply of content to
Zoo Digital for localisation was severely constrained and financial
performance has remained weak with the company issuing a further
downward revision to expectations for the year to 31 March 2024
post period end. Despite this, the company remains optimistic that
it will return to substantial growth in its next financial
year.
Shares in Learning Technology Group (+26.3%, +0.22 pence per
share) started to recover as investor sentiment improved following
the publication of results for the 6 months to 30 June 2023 and
confirmation that the company continued to trade in line with
expectations. This was followed by a full year trading update post
period end in which the company confirmed it had met expectations
for revenues and profits whilst materially outperforming on cash
generation.
The period began with another significant downgrade to Maxcyte’s
(+38.0%, +0.21 pence per share) FY23 revenue guidance, reflecting
continued weakness in the US life science sector. Subsequently, the
company went on to achieve notable milestones with the first
regulatory approvals in the US and UK for a new gene editing
therapy for sick cell disease developed by Vertex and Crispr on the
company’s flow electroporation platform. The approvals triggered
the payment of a large milestone and will generate future royalty
payments. As a result, the company was able to upgrade FY23
guidance very substantially, reversing a significant amount of
previous downgrade. Alongside this, the company announced the
retirement of long-term CEO Doug Doerfler.
Surface Transforms (-60.2%, -0.48 pence per share) warned that
its production ramp was being constrained by production line
issues. Whilst it was confident that bringing in new equipment to
address single points of failure and changes to maintenance
schedules would address the issues, revenue growth would fall short
of expectations. The company is guiding to very substantial revenue
growth in FY24 as production ramps.
C4X Discovery (-52.2%, -0.28 pence per share) issued results for
the year to July 2023. The company benefits from a strong funding
position following the receipt post period end of £16m for the sale
of its Orexin-1 program to Indivior and $11m following the
completion of a pre-clinical milestone on its NRF2 Activator
programme (oral therapy for the treatment of inflammatory and
respiratory diseases), now under development by AstraZeneca
following a license agreement signed in November 2022.
Equipmake (-11.1%, -0.25 pence per share) reported results for
the year to May 2023 with revenues growing by 38% to £5.1m. Post
period, the company published its results for the 6 months to
November 2023. Although the company has been successful in winning
new contracts, revenue guidance for the year to May 2024 was
reduced to a more manageable level. The company has appointed a new
and very experienced COO to support its expansion as it looks to
open up new markets.
Non-Qualifying Investments
On the Beach’s (+65.2%, +0.11 pence per share) full year results
to September 2023 highlighted a period of much improved trading,
benefitting from strong growth in long-haul and premium. Profits
were also ahead of expectations due to lower marketing spend.
Strong cash generation coupled with the £75.8m of cash on the
balance sheet (ex. customer deposits) allowed the company to
reinstate its dividend.
Hollywood Bowl (+23.6%, +0.10 pence per share) results for the
year to September 2023 confirmed another year of robust trading.
The company has a strong balance sheet, which supports the dividend
(4.2% yield) and a £10m share buy-back.
Chemring (+26.3%, +0.10 pence per share) continues to benefit
from very strong demand across the global defence market, with FY23
revenues increasing by 18% to £473m and a record order book.
Underlying profits grew 16% to £69m.
Shortly after providing a robust outlook alongside the release
of its results for the 6 months to June 2023, XP Power (-42.5%,
-0.08 pence per share) surprised the market with a significant
downward revision to its guidance for FY23, citing softer
semiconductor demand and customer deferrals. The weaker financial
performance threatened a breach of the company’s debt covenants
which was addressed by a fundraise, cost cuts and the suspension of
the company’s dividend policy. A subsequent update confirmed the
company has traded in line with its revised outlook.
Portfolio structure
The VCT is comfortably above the HMRC defined investment test
and ended the period at 92.25% invested as measured by the HMRC
investment test. By market value, the weighting to qualifying
investments decreased from 58.70% to 51.50%.
Qualifying investment activity remains very weak with £0.5m
invested in Eden Research, an existing portfolio company. Eden is a
sustainable biopesticides developer and manufacturer, which has a
proprietary plastic free encapsulation technology for use in
agriculture protection.
We made full exits from Abcam, Osirium and Instem following
their acquisitions in the quarter. Velocys was also subject to a
bid which completed post period end. We also exited Renalytix and
reduced our investment in Blackbird, in both cases following
periods of sustained underperformance.
We made modest adjustments to the non-qualifying portfolio in
response to company updates. We added new non-qualifying
investments into short-dated investment grade bonds and sold the
investment into short-dated UK Government bonds (iShares UK Gilts
0-5 years). Following the receipt of proceeds from the offer for
subscription, we moderately increased the investment in the
Marlborough Special Situations Fund and made series of investments
in the Marlborough Micro-Cap Growth Fund. The combined investment
across the two funds amounts to 10.2% of net assets.
There were no substantial changes to the allocation to
non-qualifying equities, fixed income or cash, which respectively
represented 9.6%, 13.2% and 15.4% of net assets.
The HMRC investment tests are set out in Chapter 3 of Part 6
Income Tax Act 2007, which should be read in conjunction with this
interim management statement. Funds raised by VCTs are first
included in the investment tests from the start of the accounting
period containing the third anniversary of the date on which the
funds were raised. Therefore, the allocation of qualifying
investments as defined by the legislation can be different to the
portfolio weighting as measured by market value relative to the net
assets of the VCT.
Share Buy Backs & Discount Control
2,150,497 shares were acquired in the quarter at an average
price of 42.86 pence per share. The share price increased from
46.34p to 46.40p within the quarter and traded at a discount of
9.91% following the publication of the 31 December 2023 NAV on 9
January 2024.
Post Period End
The unaudited NAV per share decreased from 46.40 pence to 46.16
pence in the month to 31 January 2024, a decrease of 0.52%. The
FTSE AIM All-Share index decreased by 1.02%.
We completed a £2.0m follow on investment into Strip Tinning
post period end.
Co-Manager Appointment
Lucy Bloomfield has been a member of the VCT fund management
team since joining Canaccord Genuity Asset Management in October
2018 as a deputy fund manager. We are delighted to report that
following her promotion to fund manager, Lucy was appointed
Co-manager of the Company on 8 February 2024. Oliver Bedford will
continue as Lead Manager and remains a Non-Executive Director of
the Company.
Anna Salim has been a member of the VCT fund management team
since joining Canaccord Genuity Asset Management in April 2018 as
an investment analyst. Reflecting her knowledge and experience,
Anna Salim was recently promoted to portfolio manager. She remains
a member of the VCT fund management team.
END
For further information please contact:
Oliver Bedford, Canaccord Genuity Asset Management
Tel: 020 7523 4837
LEI:
213800LRYA19A69SIT31
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