1). In view of the fall in value of many quoted companies this year, has this a) reduced the number of new AIM quoted investment opportunities and b) improved entry values?
Matt Currie:
I would agree with the question in some ways as there has been a reduction in activity on AIM across the board at a Macro level. I think therefore, it’s the poorer quality businesses with poorer quality processes that haven’t delivered, haven’t made it onto the market or haven’t raised the full amount.
I think the top-quality businesses are getting exactly what they need out of AIM, and as the question points out, there has been a softening of values in some respect. What that means for us is that we’re still able to invest in the more attractive of the IPO processes and secondary fundraises at a slightly reduced entry value. So from our perspective the reduction in activity isn’t necessarily a bad thing and we’re still able to access those higher quality businesses on the way in.
2). Did the recent mini-budget have any impact on the Company?
John Hustler:
Before I pass over to Richard on this, many of you may know, that when we got out of Europe, the state A rules had a finish date for VCT’s for effectively 2025 and Kwasi Kwarteng’s budget erased/ extended that and so that is good news. Richard do you want to follow up on that?
Richard Manley:
Yeah there’s not much to add John other than as you said it’s 2025 which was the end of the sunset clause which has now been removed. Obviously a lot of Kwasi Kwarteng’s mini-budget was effectively reversed, but that’s one element of the legislation which hasn’t been. So we’re waiting for further details, but the headline is absolutely as you say John, that 2025 deadline, which was beginning to cast a bit of a shadow towards the both the EIS and VCT sectors, has now been removed.
John Hustler:
Yes, it continues our confidence that the government likes the VCT sector and has no intention currently of changing it dramatically.
3). In view of the positive news from Scancell last week does this present an exit opportunity for the Ordinary share holding to help fund a further dividend?
John Hustler:
I mentioned this before, but my answer to this is yes obviously it does, if we can realise a sufficient amount of shares. The directors don’t think that the current level presents a good enough opportunity, and I don’t think that there really is enough appetite in the market for a significant enough sale to be able to pay a proper dividend. But yes we are very much on the case and yes we hope it does.
4). In addition to the previous question, when will the next Ordinary dividend be?
John Hustler:
The straightforward answer is when we manage to find enough appetite in the AIM market to realise a significant amount of shares in either Arecor or Scancell.
5). Do you think the current economic woes including increasing costs at a time of increasing interest rates will have a negative impact on the Company?
Richard Manley:
Yeah I think it’s interesting, there’s probably two parts to the question, the easier part is the direct impact on the company of increasing costs and interest rates. The company itself has got very modest overheads and doesn’t have leverage as such, so for the VCT fund itself there is minimal direct impact.
I think the premise of the question goes beyond the company, and probably talks to our underlying investments and any stresses we may start to see in that investment base. I think at the moment, the impact we’re seeing is we’re nervous around businesses who rely on discretionary consumer spending so that’s one impact that we’re taking away from increasing cost base.
I think the other obvious point is this focus on cash, Matt took us through the detail earlier about the level of cash on the balance sheet of some of these businesses in times of economic turmoil. We had it in Covid, it’s something we spoke to then, we look to back and invest in well capitalised businesses. We don’t want to get to a position whereby we work with some of the best businesses but they’re struggling to raise more money because of economic turmoil, so it’s very important these businesses are well funded. A lot of the businesses that we’ve backed, as you’ve seen earlier in this presentation, are very well funded. So I think cash is something to keep an eye on.
Interest rates is an interesting one actually, considering interest rates and the impact on our businesses, I think directly the increase in interest rates will have less impact on our portfolio businesses. It’s really a function of how these businesses are capitalised and funded. They tend to be equity funded businesses, without significant external debt, they’re typically not mature enough and don’t have the free cash flows to have an external debt burden. So whilst an increasing in interest rates will have secondary impacts on these businesses and the sectors we operate in, the direct impact, I think they are to a degree insulated by the fact they don’t have much external debt.
So yes there have been some difficult market conditions and we have to be very alert to the impact that they have on our investment portfolio and we will continue to work in close quarters with all our portfolio companies.
John Hustler:
Yes, we are backing good entrepreneurs, and good entrepreneurs see good opportunities in this sort of market as well. So with the cash that we’ve got and the pipeline, I think we’re in a good position. Matt, do you want to add anything to that?
Matt Currie:
I’d just echo Richards views, there will be some headwinds as you say from a Macro perspective, particularly in the consumer space or anything impacted by household spending. Obviously the cost of living crisis is becoming higher and higher up on the agenda and people have to be cognisant of that as we look forward but the businesses we’ve got are certainly as protected we could hope they would be in the current climate.