Questions & Answers
Q1: There has been some confusion as to which share pool was receiving the latest dividend payment made on 28 August 2020. Could the Board please consider revising the format of future correspondence and consider providing only combined information to those Shareholders invested in both the Ordinary Shares and B Shares?
A1: We apologise for any confusion the formatting of the most recent Shareholder letter might have caused in relation to which share pool was receiving the 28 August 2020 dividend payment. We are very conscious of this and will take it on board.
Going forward we will ensure that the formatting and information provided is presented differently in order to minimise any possible confusion.
In terms of separate share pool communications, we feel it is in the best interests of all Shareholders to be kept informed of all developments relating to each share class, and we will endeavour to improve the clarity of the communications in order to avoid any further confusion.
Q2: The B Share pool seems to have done relatively well recently with regard to its AIM quoted investments – do Seneca expect the flow of similarly attractive AIM quoted investment opportunities to continue?
A2: We have a fantastic relationship with the vast majority of brokers in the UK, providing us with access to the majority of VCT qualifying investment opportunities available on AIM. Whether it’s IPOs or existing AIM deals, we are continuing to see a steady flow of opportunities. So yes, we are expecting to see and are currently looking at attractive AIM quoted investments.
AIM has always played and will continue to play a key role in Seneca’s investment philosophy as evidenced by some of the successful quoted company exits we have achieved through our EIS investing and also the successful full and partial quoted company VCT exits that we have already achieved to date.
Q3: Will existing Ordinary and B Shareholders be given an incentive to invest in the upcoming B Share offer?
A3: Yes, we have always provided enhanced incentives for all existing Shareholders to further support the B Share pool and it will be something that we will continue to provide under the new B Share offer. We are keen to see investment from all Shareholders in the company regardless of the share class they currently own, so it will be available to all existing Shareholders. Further details will be provided when we launch the prospectus pertaining to our next offer.
Our existing Shareholders are very important to us, and we are keen to reward their loyalty through the provision of enhanced incentives.
Q4: How is Seneca finding deal flow at the moment? Has Covid-19 had an impact on pricing and investee company funding requirements?
A4: We are still seeing the same number of deals that we saw pre-Covid-19; however, we are seeing a marginal decrease in valuations in terms of the opportunities we receive. For some companies the decrease in valuation is driven by the need for funds to support them through Covid-19. Whereas others, where valuations have remained steady, are raising funds to support growth strategies that have been enhanced by Covid-19, which is one of our key areas of focus for our future investment activities.
In terms of the new opportunities arising as a result of Covid-19, we believe that we are well placed in the market due to our ability to unlock certain deals that perhaps others are unable to unlock.
In general, the funding requirements of the investment opportunities we are receiving remains relatively unchanged.
Q5: Is there a deadline for investing the c. £3m which has not yet been deployed?
A5: Yes, at least 30% of funds raised must be invested in qualifying investments by the anniversary of the end of the accounting period in which those funds were raised. The most immediate test is at 31 December 2020. Based on funds raised in the accounting period ended 31 December 2019, c.£685,000 must be invested by 31 December 2020. As at 30 June 2020, c.£900,000 (39%) had been invested so we are already through the required investment threshold. In respect to funds raised in the accounting period ending 31 December 2020, as at 30 June 2020 the Company had invested £235,000, 28% of the monies required to be invested by 31 December 2021. As such, we are not driven by any pending deadlines for the deployment of new funds raised and will continue to support the existing B Share investment portfolio and add attractive new private and AIM quoted growth capital investments to the B Share portfolio from the strong pipeline of opportunities currently in due diligence. In addition, there are other VCT qualifying tests that the Company continually monitors, and we are comfortable that there is sufficient headroom and time to meet those other tests given the pipeline of investment opportunities and the make-up of the existing portfolio.
Q6: Why did you make the full exit when the company value had grown by more than 100% in less than two years?
A6: We have assumed that this question is in relation to the Company’s B Share pool exit from Genedrive Plc. Given the volatility in the company’s share price, coupled with the execution risk of the company’s strategy, we considered a 2x return to be a good result for the VCT.
Q7: Please explain what the Chairman John Hustler meant by ‘will continue to be realised’.
A7: The Ordinary Share pool’s objective is to continue to identify realisation opportunities as they arise, in order to maximise value for investors. This has been the Ordinary Share pool’s strategy for the last few years, long before the introduction of the B Share pool and will continue to be so until the Ordinary Share pool has been fully realised. A good example of this strategy is the sale of the majority of the Company’s shares in Omega Diagnostics Group Plc after it gained significant traction following its involvement in a partnership to develop a C-19 antibody tests. The share price rose substantially since December 2019 when it was 14p, enabling us to sell at an average share price of 36.5p, which allowed the Company to realise some long-awaited gains. This then enabled the Company to pay out the 8p per Ordinary Share dividend on 28 August 2020.
Q8: On the question of merging Ordinary and B class shareholdings, what would that mean for Ordinary Shareholders? Will shares get converted to B class?
A8: It is possible that one way of concluding the life of the Ordinary share pool would be to merge it with the B share pool. Under the existing articles however this is only likely to be considered when the NAV per Ordinary share is below 5p. It follows therefore that this would only be possible once the Ordinary share pool investments have been substantially realised as the latest published NAV of the Ordinary Shares was 30.2p per share, less the dividend of 8p per Ordinary Share you will have received in August 2020.
At present, therefore, the merger is not anticipated in the foreseeable future.
We set out below the Article of Association which is relevant to the conversion.
The Articles also provide that Ordinary Shares may convert, on a relative net asset value basis in accordance with the provisions of the Articles, into New “B” Shares. The conversion will be at the absolute discretion of the Directors, and will be subject to either (i) the latest published NAV per Ordinary Share being less than 5p per Share; or (ii) a special resolution (proposed by the Board) being passed at a separate class meeting of the Ordinary Shareholders confirming that is in the interests of the Ordinary Shareholders for the conversion of the Ordinary Shares to commence.
Q9: Thank you for the informative webinar. I have one question. If the prospects for Qudini sound so positive, why was it necessary to make such a big write down of the value
A9: We are excited and encouraged by the opportunities in the current market for Qudini, which have significantly increased as a result of a softening of lockdown rules. However, we remain cautious of exposure to the uncertainties in the wider retail market and the impact that could have on Qudini’s customer base when Government support decreases/ends and the potential for further periods of lockdown/high street closures if Covid-19 cases significantly increase. In summary, we are optimistic about Qudini’s proposition and believe the business is in a good place; however based on the macro-factors noted above we believed it is prudent to maintain provisions at their current levels at 30 June 2020 and we will continue to review them on an ongoing basis.
Q10: How do you ensure Cyber resilience of investments and IP protection in case of any open source reciprocal licensing?
A10: Cyber security and IP protection is a Board agenda point for most companies these days and forms part of our overall due diligence process, where applicable. Cyber resilience is an evolving risk and forms part of our ongoing monitoring along with any developments which may impact an investment’s IP.