Seneca Growth Capital VCT Plc
Company No: 04221489
For the year ended 31 December 2021
Annual Report
and Financial Statements
Seneca Growth Capital VCT Plc
Annual Report & Financial Statements for the year ended 31 December 2021
Contents
Financial Headlines
...............................................................
01
Financial Summary
................................................................
03
Strategic Report
...................................................................
05
Our Strategy
......................................................................
06
Chairman’s Statement
..............................................................
09
Investments
......................................................................
13
Investment Manager’s Report
.......................................................
14
Business Review
...................................................................
34
Governance
......................................................................
39
Details of Directors
................................................................
40
Directors’ Report
..................................................................
41
Corporate Governance
.............................................................
46
Statutor
y R
eports
................................................................
51
Audit Committee Report
...........................................................
52
Directors’ Remuneration Report and Policy
..........................................
54
Directors’ Responsibilities Statement
................................................
58
Auditor’s Report
..................................................................
59
Independent Auditor’s Report to the Members of Seneca Growth Capital VCT plc
.........
60
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67
Combined Income Statement
.......................................................
68
Ordinary Share Income Statement (Non-statutory Analysis)
............................
69
B Share Income Statement (Non-statutory Analysis)
...................................
70
Combined Balance Sheet
...........................................................
71
Ordinary Share Balance Sheet (Non-statutory Analysis)
................................
72
B Share Balance Sheet (Non-statutory Analysis)
.......................................
73
Combined Statement of Changes in Equity
...........................................
74
Ordinary Shares Statement of Changes in Equity (Non-statutory Analysis)
................
75
B Shares Statement of Changes in Equity (Non-statutory Analysis)
......................
76
Combined Statement of Cash Flows
.................................................
77
Ordinary Shares Statement of Cash Flows (Non-statutory Analysis)
......................
78
B Shares Statement of Cash Flows (Non-statutory Analysis). . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79
Notes to the Financial Statements
...................................................
80
Shareholder Information and Contact Details
.........................................
96
Directors and Advisers
.............................................................
98
Notice of Annual General Meeting
...................................................
99
Seneca Growth Capital VCT Plc
Annual Report & Financial Statements for the year ended 31 December 2021
Financial
Headlines
Seneca Growth Capital VCT Plc
01
FINANCIAL HEADLINES
Annual Report & Financial Statements for the year ended 31 December 2021
B Shares
Ordinar
y Shares
£5.7m
108.2p
£4.5m
38.9p
109
.1p
4.0p
100.1p
3.0p
Amount raised during the year from the issue of B shares
Ordinary share NAV plus cumulative dividends paid a
t 31 December 2021 (“T
otal Return”)
Amount invested during the year into seven new investee companies by B share pool
Ordinary share NAV at 31 December 2021
B share NA
V plus cumulative dividends paid at 31 December 2021 (“T
otal Return”)
Interim capital dividends paid per Ordinary share during year
B share NA
V at 31 December 2021
Interim dividends paid per B share during year
FINANCIAL HEADLINES
Seneca Growth Capital VCT Plc
02
Annual Report & Financial Statements for the year ended 31 December 2021
Financial Calendar
Financial Summar
y
The Company’s financial calendar is as follows:
Y
ear to 31 December 2021
Y
ear to 31 December 2020
Ordinar
y share
pool
B share
pool
Ordinary share
pool
B share
pool
Net assets (£’000s)
3,157
14,606
2,453
8,317
Return on ordinary activities after
tax (£’000s)
1,029
1,067
1,045
252
Earnings per share (p)
12.6
8.9
12.8
3.5
Net asset value per share (p)
38.9
100.1
30.2
91.8
Dividends paid since inception (p)
69.25
9.00
65.25
6.00
T
otal return (NAV plus
cumulative dividends paid) (p)
108.15
109.10
95.
45
97
.80
27 April 2022
Annual General Meeting will be held at 10.
00 a.m.
at 9 The Parks, Haydock, WA12 0JQ
July 2022
Half-yearly results to 30 June 2022 published
March 2023
Annual results for the year to 31 December 2022
announced and Annual Report and Financial
Statements published
Seneca Growth Capital VCT Plc
03
FINANCIAL HEADLINES
Annual Report & Financial Statements for the year ended 31 December 2021
Seneca Growth Capital VCT Plc (“the Company”
or “Seneca Growth Capital”) is a Venture Capital
Trust, launched in 2001, which now aims to
generate returns from a diverse portfolio of both
unquoted and AIM/AQSE quoted growth capital
investments. Until 23 August 2018 the Company
was called Hygea vct plc. On 9 May 2018, the
Company launched an oer for subscription for
a new B share class and made an initial allotment
of B shares on 23 August 2018, at which point
the Company’s name was changed to Seneca
Growth Capital VCT and Seneca Partners Limited
(“Seneca”) was appointed as the Company’s
Investment Manager
.
The Company has raised £14.5m under the
Company’s B share oers as at 31 December 2021.
It launched a new oer of B shares on 29 October
2021 to raise, in aggregate, up to £10 million with
an over-allotment facility of up to a further £10
million (before issue costs) (the “Oer”) and had
About Seneca Growth Capital
VCT Plc
already raised £0.9 million under this Oer by the
year end.
The Company’s Investment Manager, Seneca, is
registered as a small UK Alternative Investment Fund
Manager (AIFM). The Company’s Board is composed
of four non-executive directors, three of whom are
independent.
As the Company’s Investment Manager, Seneca is
responsible for the management of the Company’s B
share pool investments, whilst 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, namely John Hustler and Richard Roth.
The Company continues to manage both share
classes in accordance with its investment policy,
having expanded the range of qualifying investments
in 2018.
STRA
TEGIC REPORT
Seneca Growth Capital VCT Plc
04
Annual Report & Financial Statements for the year ended 31 December 2021
Strategic Report
The Directors are required by the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 201
4
to include a Strategic Report to shareholders.
The following sections form part of the Strategic Report:
Our Strategy
Chairman’s Statement
Investment Manager’s Report
Business Review
The funds raised from the issue of B shares under
the Oer and any subsequent fund raisings are not
limited to being invested in any specific sector
.
Instead, the Company’s B share pool is targeting
well managed businesses with strong leadership that
can demonstrate established and proven concepts
and which are seeking an injection of growth capital
to support their continued development. Eight
investments were made into seven new investee
companies by the B share pool during the year
,
details of which are included on pages 13 to 25. The
Company intends to distribute a proportion of the
net profits it receives from realisations by way of
special tax-free dividends. This is intended to provide
investors with an attractive income stream whilst
also maintaining a relatively stable Net Asset Value
(“NA
V”) per B share, subject to the requirements and
best interests of the Company.
The Directors 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. During the year
, the Company
realised a further 8% of its holding in Scancell
Holdings Plc (“Scancell”) which enabled the payment
of a further 4.
0p of dividends per Ordinar
y share
during the year
. The Company was particularly
encouraged that Arecor Therapeutics Plc (“
Arecor”),
a long-standing Ordinary share pool unquoted
investee company, floated on AIM in May 2021.
The Board considered the terms of the fundraise
to be attractive and in order to support the IPO
the Ordinary share pool purchased a further 37
,611
shares in Arecor at £2.26 per share. Following a share
reorganisation prior to flotation, the Ordinary share
pool’s existing shares were converted to 186,366
shares and the Ordinary share pool now holds a total
of 223,977 shares in Ar
ecor valued at £829k.
V
enture Capital T
rusts (VCT
s)
VCT
s were introduced by the UK Government in
1995 to encourage individuals to invest in UK smaller
companies. The Government achieved this by
oering 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 on pages 34
to 38. The Company has continued its compliance
with these requirements during the year
, and both
share classes in the Company are eligible shares as
defined by section 273 IT
A 2007
.
Seneca Growth Capital VCT Plc
05
STRA
TEGIC REPORT
Annual Report & Financial Statements for the year ended 31 December 2021
Seneca was appointed as the Company’s Investment
Manager in August 2018 and is specifically 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 remaining members of the Board
of Directors who served immediately prior to 23
August 2018, namely John Hustler and Richard Roth.
There has been no change during the year in the
way the Ordinary share pool’s assets are managed.
The Ordinary share pool does not envisage making
any new investments from the funds in this share
pool, apart from any follow-on investment in
existing portfolio companies, which it has done in
the year
. The Ordinary share pool made a follow-on
investment into Arecor to support the IPO with a
purchase of a further 37
,611 shares. Following a share
reorganisation prior to flotation, the Ordinary share
pool’s existing shares converted to 186,366 shares,
resulting in a new total holding of 223,977 valued a
t
£829k as at 31 December 2021, with an unrealised
gain in value of £539k in the period. The Ordinary
share pool made one realisation in the period from
its AIM quoted investments, selling 1,000
,000 shares
in Scancell. The fair value of the Ordinary share
pool’s unquoted investment in Fuel 3D was reduced
in line with the most recent fundraise, resulting in
an unrealised loss of £78k. The Directors maintain
that it is unlikely that any new investment would be
made into a new investee company but will continue
to monitor portfolio companies for any follow-on
investment opportunities should they arise, 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 Company’s latest Oer for new B shares opened
on 29 October 2021 seeking to raise up to £10
million, with an over-allotment facility of up to a
further £10 million (before issue costs). The funds
raised from the issue of B shares will not be limited
to being invested in any specific sector
. Instead,
in line with the Company’s investment policy, the
Company is targeting well managed businesses with
strong leadership that can demonstrate established
and proven concepts, and which are seeking an
injection of growth capital to support their continued
development.
The Company fosters a culture of innovation, risk
mitigation and collaboration supported by policies,
practices and behaviours to further our purpose
as an investment company, seeking to provide
growth capital to well managed leading UK SMEs
which share our values, in order to deliver on our
investment strategy and objectives as described
below. The Directors will continually monitor
Our Strategy
and assess 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. These robust internal controls are discussed
in the Business Review on page 38, the Corporate
Governance policy on pages 46 to 49 and within the
Audit Committee Report on pages 52 to 53.
Qualifying Investments
Compliance with required VCT tax rules and
regulations is considered with all investment
decisions made. The Company is further monitored
on a continual basis by Shoosmiths LLP to ensure
compliance on an ongoing basis. The main criteria to
which the Company must adhere include:
At least 80% of investments must be made in
qualifying shares or securities;
At least 70% of qualifying investments must be
invested into Ordinary shares with no prohibited
preferential rights (investments made before 6
April 2018, from funds raised before 6 April 2011
are excluded);
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; and
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);
Have no more than £15 million of gross assets
at the time of investment and no more than £16
million immediately post investment;
Its first commercial sale must be less than seven
years old (or ten years if a knowledge intensive
company) if raising State Aided funds for the first
time subject to certain exceptions;
Have raised no more than £5 million of State
Aided funds in the previous 12 months (or £10
million if a knowledge intensive company) and
STRA
TEGIC REPORT
Seneca Growth Capital VCT Plc
06
Annual Report & Financial Statements for the year ended 31 December 2021
less than the lifetime limit of £12 million (or £20
million if a knowledge intensive company);
Produce a business plan to show that its funds
are being raised for growth and development;
Be an unquoted company or listed on AIM;
Have a permanent establishment in the United
Kingdom;
Not be under the control of any other company
,
nor control any company which is not a
qualifying subsidiary of the company; and
Are operating a trade which is not an “excluded
activity”.
The Finance Act 2018 introduced a “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 investment policy, as approved by shar
eholders
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 investment objective is to provide
shareholders with an attractive income and capital
return by investing its funds in a portfolio of both
unquoted and AIM/AQSE 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 which 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 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.
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/AQSE quoted
companies. In order to limit risk in the portfolio that
is derived from any particular investment accounting
for too much of the fund, at the point of investment
or addition to an existing investment no more than
15% of the portfolio 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.
Key Information Document
New EU PRIIPs regulations came into eect in
January 2018. The intent of the regulations is to
increase customer protection by improving the
functioning of financial markets and in this instance
through the Key Information Document (“KID”) to
provide shareholders with more information about
the risks, potential returns and charges within VCT
s.
The regulation requires the Company to publish
a KID. Retail investors must now be directed to
this before buying shares in the Company. The
KID is published on the Company website www.
senecavct.co.uk/key-documents. The KID has been
prepared using the methodology prescribed in the
PRIIPS regulation. Although well intended, there are
widespread concerns about the application of some
aspects of the prescribed methodologies to VCT
s.
Specifically, there ar
e concerns that:
1.
the risk score may be understating the level of
risk; and
2.
investment performance scenarios may indicate
future returns for shareholders that are too
optimistic.
The Association of Investment Companies (“
AIC”) has
engaged on this matter and it is hoped that these
issues will be resolved in the future. In the meantime,
the Board recommends shareholders continue to
classify VCT
s as a high-risk investment.
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). The Company did not borrow any
funds in 2021.
Seneca Growth Capital VCT Plc
07
STRA
TEGIC REPORT
Annual Report & Financial Statements for the year ended 31 December 2021
members of the Investment Manager’s Growth
Capital investment team attend all of the Company’s
Board meetings. There is also an annual timetable
agreed with the Investment Manager and the
Company for matters related to the annual timetable
which are discussed at each Board Meeting. The
Company and Investment Manager also work
together to maintain ecient operation of the VCT
as detailed in the Key Performance Indicators on
page 36.
Portfolio Companies
The Company holds minority investments in its
portfolio companies and it has appointed the
Investment Manager to manage the B share portfolio,
and responsibility for the management of the
Ordinary share pool investments has been delegated
to those remaining members of the Board of
Directors who served immediately prior to 23 August
2018, namely John Hustler and Richard Roth. While
the Board has little day-to-day involvement with the
B share and Ordinary share portfolio, the Investment
Manager provides updates on the B share portfolio
at least quarterly and John Hustler and Richard Roth
also provide updates on the Ordinary share portfolio
at least quarterly.
There were seven investee company additions to
the B share portfolio, a follow-on investment into B
share unquoted company Solascure Ltd (“Solascure”)
and the Ordinary share pool supported the unquoted
company Arecor’s IPO with an additional investment
in the period. The Company achieved five exits in
total, including four from the B share pool and one
from the Ordinary share pool, as detailed in the
Chairman’s Statement on pages 9 to 12 and the
Investment Manager’s Report on pages 14 to 33.
The Board and Investment Manager believe that
the full realisations and partial realisations from
each share pool were in the best interests of all key
stakeholders.
Environment and Community
The Company seeks to ensure that its business is
conducted in a manner that is responsible to the
environment as far as is practicable given the nature
of the business as an investment company. The
management and administration of the Company
is undertaken by the Investment Manager
, who
recognises the importance of its environmental
responsibilities, monitors its impact on the
environment and implements policies to reduce
any damage that might be caused by its activities.
Initiatives of the Investment Manager designed
to minimise its and the Company’s impact on the
environment include recycling and reducing energy
consumption. More details of the work that the
Investment Manager has done in this area are set out
on page 43.
Changes to the Investment Policy
The Company will not make any material changes to
its investment policy without shareholder approval.
Section 172(1) Statement
The Directors discharge their duties under section
172 of the Companies Act 2006 to act in good faith
and to promote the success of the Company for the
benefit of shareholders as a whole as set out in the
Business Review from page 34. As an investment
company, Seneca Growth Capital has no employees.
The Directors assessed the impact of the Company’s
activities on other stakeholders, in particular
shareholders and our third-party advisers, as well as
the portfolio of companies.
The Board’s decision-making process incorporates,
as part of the Company’s investment policy
and investment objectives as set out on page 7
,
considerations for supporting the Company’s
business relationships with the Investment Manager
,
shareholders, advisers and registrar
, independent
financial advisers and the impact of the Company’s
operations on the community and the environment,
which by nature of the business, only extends to the
holdings in portfolio companies.
Key Stakeholders
Investors
Outside of general meetings, the Company engages
with shareholders through regulatory news service
announcements, interim and annual reports as well
as regular correspondence with shareholders and
their advisers to address any queries that arise.
The Company has also introduced regular
shareholder presentations in addition to the AGM,
in order to engage directly with shareholders. At the
September 2021 Shareholder Update Presentation,
we had the opportunity to address five queries put
forward by shareholders, the answers to which
are available on our website at www.senecavct.
co.uk/shareholder-qa/. It was a great opportunity
to engage directly with shareholders and discuss
the current portfolio, investment process and
objectives as well as the wider investment market.
Any shareholder queries that arise throughout
the year are discussed by the Board and factored
into any decision-making and responses are made
available to shareholders as appropriate. The Board
uses a number of measures to assess the Company’s
success in meeting its strategic objectives with
regard to shareholder interests as detailed in the Key
Performance Indicators on page 36.
Investment Manager
The Company’s most important business relationship
is with the Investment Manager
. There is regular
contact with the Investment Manager
, and all
STRA
TEGIC REPORT
Seneca Growth Capital VCT Plc
08
Annual Report & Financial Statements for the year ended 31 December 2021
I am pleased to present the 2021 Annual Report on
behalf of the Board to shareholders.
Overview
The last year saw dicult trading conditions
continuing to challenge UK businesses as the
government sought to combat new and existing
strains of Covid-19
. Despite those challenges, I
am pleased to report that both share pools have
performed very well. The T
otal Return (NAV per share
plus cumulative dividends per share) for each share
class increased during the year with the B share
increasing by 11.6% to 109
.1p (2020: 1.8% to 97
.8p)
and the Ordinary share increasing by 13.3% to 108.2p
(2020: 15.5% to 95.5p). Indeed, since the start of the
Covid-19 pandemic in March 2020, we are pleased to
report that the B share pool has seen a 37% increase
in the NA
V (inclusive of dividends paid) from 79
.5p to
109.1p a
t 31 December 2021.
I am also pleased to be able to report that Seneca
continued the development of the B share pool
during the year both in terms of fundraising and
investment activity. In October 2021, the Company
launched its fourth oer for B shares and has now
raised £14
.5 million following the recent allotment
of £0.9 million o
f shares in December 2021. I would
like to welcome all new shareholders and thank both
existing and new shareholders for their support. The
share oer will remain open until 26 October 2022
unless it reaches its total target of £20 million before
then.
The Company made eight investments into seven
new B share pool investee companies in the year in
addition to achieving one full exit and three partial
exits. As a result, the Company’s B share pool closed
the year with sixteen investments valued at £8
million compared to ten investments valued at £4
million at 31 December 2020.
The Ordinary share pool made a partial realisation in
the year from one of its two remaining AIM quoted
investments. During the year
, the Scancell share
price remained generally up from the previous
period close of 13.5p, ending the year at 19
.5p as a
result of positive progress made with various clinical
trials. The Ordinary share pool was able to realise
1,000
,000 shares at an average price of 21.
7p per
share during the year providing an average weighted
return of 3.
6x over original investment cost. Scancell
accounts for 68% of the Ordinary share pool’s NAV a
t
the year end.
Chairman’s Statement
Full details of the B share pool and Ordinary share
pool portfolios are included in the Investment
Manager’s Report on pages 14 to 33.
With 46% of the B share pool’s NA
V as at 31
December 2021 represented by cash, the Company’s
B share pool has ended the year well placed to take
advantage of the growing number of AIM quoted
and private company investment opportunities being
reviewed by Seneca.
I have set out below the progress made by each of
the Company’s share classes during the year
.
B Share Pool
B Shares - Results
The key items to impact the NA
V of the B share pool
during the year were as follows:
The full realisation of one B share pool unquoted
investment generating a 1.8x return;
The partial exit of three B share pool AIM quoted
investments generating a weighted average
return of 2.3x;
An unrealised gain in investment values of £0.3
million in the period;
T
wo dividends paid during the year totalling 3.0p
per B share; and
The Company’s running costs (capped at 3% of
B share NA
V).
The net result of the above was an overall increase
in the T
otal Return per B share to 109.1p as at 31
December 2021 (2020: 97
.8p). This represents a
weighted average positive capital return of 10.
6p per
B share (2020: 5.7p) and a weighted average negative
revenue return of 1.7p per B share (2020: negative
2.2p).
Whilst the negative revenue return of 1.7p per B share
is principally a result of the impact of the Company’s
running costs on the B share pool, shareholders will
recall that the Company’s total running expenses are
capped at 3% of the B share NA