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Annual & Half-Yearly Accounts, Pembroke Key Information Documents, Prospectus & Circular
Please find below links to all of our yearly and half-yearly financial reports, 18/19 & 19/20 Prospectus, Key Information Documents and Circular
I am pleased to present my report for the year ended 31 March 2018.
We continued to put investors’ funds to work throughout the year, deploying £8.7 million in new and follow-on investments having raised a total of £13.9 million in the prior B Ordinary share offer closing in June 2017. Our new B Ordinary share offer commenced in December 2017 raising £1.4 million at 31 March 2018. The offer was closed on 30 June 2018 having raised a total of £6.4 million, underlining the progress Pembroke has made in
establishing itself as a distinctive growth investment choice among advisers and individual investors.
During the year, the total return (NAV plus cumulative dividends paid) of the Ordinary shares rose from 120.05 pence per share at 31 March 2017 to 132.63 pence per share at 31 March 2018. Over the year, the total return of the B Ordinary shares rose from 104.58 pence per share to 113.12 pence per share.
During the year, we made four new investments (Heist, PlayerLayer, Stylindex and Popsa) and had the opportunity to re-invest in a further nine constituents of the portfolio.
There have been a number of valuation changes across the portfolio, with the overall impact, including new investments funded by the B Ordinary share offer being a rise in the total value of investments including accrued interest from £32.9 million at 31 March 2017 to £46.5 million at 31 March 2018, of which organic net increases on equity and debt values totalled £4 million.
The fund made no disposals during the year. However we wrote off our £0.3 million investment in Bel-Air Inc during the year as the company appointed liquidators on 8 December 2017. For further details please see the Investment Adviser’s review and investment portfolio on pages 12 to 31.
In June 2017 the Company paid an interim dividend of 1 pence per Ordinary share and 1 pence per B Ordinary share and in October 2017 paid a final dividend of 2 pence per Ordinary share and 2 pence per B Ordinary share in relation to the financial year ending 31 March 2017. The Board now recommends that shareholders approve, at the forthcoming annual general meeting, the payment of a final dividend of 3 pence per Ordinary share and 3 pence per B Ordinary share.
The Company made a profit of £4.1 million in the year to 31 March 2018 (year ending 31 March 2017: £0.8 million), representing a weighted return per Ordinary share of 12.58 pence (2017: 5.21 pence) and a return per B Ordinary share of 7.10 pence (2017: loss: 0.84 pence).
Income arose from the realised losses and unrealised revaluation of investments of £4.1 million (2017: £1.3 million) alongside income principally from loan notes provided to portfolio companies of £0.9 million (2017: £1.2 million) and dividends from portfolio companies of £0.2 million (2017: £nil). This was offset by Investment Adviser fees of £0.7 million (2017: £0.4 million) and other expenses totalling £0.4 million (2017: £1.3 million).
NAV at 31 March 2018 was £51.2 million (2017: £36.4 million), equivalent to 124.03 pence (2017: 114.45 pence) per Ordinary share and 108.12 pence (2017: 102.58 pence) per B Ordinary share. This includes the impact on NAV of the issue expenses of the offer and dividends paid to the balance sheet date.
Funds raised in the recently closed B Ordinary share offer will be deployed in a continuation of the current strategy of investing in high quality opportunities and selective follow-on investments in the existing portfolio. The management team continues to evaluate a wide range of new opportunities, seeing the existing strategy is capable of producing strong investments in a sector in which we have significant domain expertise.
We have seen a number of changes to the VCT sector in light of the modification of the VCT Rules in November 2017, which aimed to further the rule changes made in November 2015. Pembroke’s strategy has remained unchanged throughout this transition, having been a supporter of early stage, high growth businesses since its inception and as such is unaffected by the new rules.
Annual general meeting
The annual general meeting will be held at the Company’s offices at 3 Cadogan Gate, London SW1X 0AS on 27 September 2018 at 8.30 am.
12 July 2018
Investment Adviser’s Review
For the year ended 31 March 2018
The Company made four new investments and nine follow-on investments in companies in the year to 31 March 2018, spanning the Company’s expertise in the health and fitness, hospitality, apparel and accessories, and media and technology sectors. At the year end, the portfolio comprised 30 investments with a cost of £35.3 million and a fair value of £46.5 million, representing a 32% increase over cost.
The Company invested £3.9 million in the four new investments made during the year and has invested a further £4.8 million in the form of debt and equity investments in the nine existing portfolio companies.
The four new investments were Heist, PlayerLayer, Stylindex and Popsa all of which are unquoted, with investments made in the form of new ordinary equity with full voting rights. The new investments capitalise on our insights into the sectors in which we invest.
Heist is an innovative producer of premium hosiery offering a disruptive product which has already achieved significant sales and has the potential to gain wider traction in a large but previously static global market. We also made a further follow on investment in Heist in February 2018 at a higher valuation following significant success of the business to facilitate further expansion.
PlayerLayer designs and manufactures customised sports kit for universities, sports clubs and schools. Since it was founded in 2008, it has become a leader in the premium education market. Customers include universities, schools, local and professional clubs, such as the British Speed Skating team, England Lacrosse, London Blitz American football team and some of Holland’s top hockey clubs.
Stylindex is a platform that helps content producers find the best models, creative talent, and production resources for photoshoots, videos, and events. Stylindex’s cloud-based platform allows brand teams to manage shoots and assets in one place.
Popsa is a photobook app that, through the use of proprietary machine learning algorithms, has reduced the time it takes for customers to produce photobooks from 2 hours to an average of just 6 minutes. Popsa operates in a £5 billion global industry that has been built on a clunky and frustrating process – by automating the selection of a customer’s most relevant photos, Popsa’s disruptive software removes this frustration and makes the whole process much easier and more fun.
The nine follow-on investments comprise five further equity commitments to support further growth in Alexa Chung, Plenish, Bella Freud, Chucs Bar & Grill and Boom Cycle alongside the extension of loans to provide working capital to seven investee companies (Sourced Market, Boom Cycle, La Bottega, KX U, Alexa Chung, Kat Maconie and Chucs Bar & Grill). All investments were made by the B Ordinary share class.
The year also saw Bel-Air Inc enter administration following some tight cash flow issues as the roll out of sites continued. The Company’s equity investment of £0.3 million was written off in the quarter ending 31 December 2017 following notification of the administration process.
Since the year end the Company has made investments totalling £1.4 million in 4 companies all as follow-on investments.
Companies that have performed well and justified upwards revaluations during the year of the equity held include Plenish, which has taken full advantage of its position in the nut milks market to see significant growth in this area. This growth was funded via an equity raise in July 2017 at a higher valuation, in which the Company participated in what is an attractive growth opportunity with clear routes to exit. Blaze’s success continues and the laser lights are now installed on many of the London Santander Cycles with further development of the company’s cycle hire technologies offering coming to fruition. We are also pleased to see the growth of Chucs Bar & Grill over the past 12 months as it has increased its footprint from two to four restaurants with new openings in Harrods and the Serpentine, having secured further funding from third party investors.
Owing to their trading performance, we have also assessed the fair value of KX Gym, Chilango and Stillking Films to be higher than at March 2017. A number of our other portfolio investments have had further funding rounds conducted at a premium to the previous price at which they were last valued, often the result of strong underlying performance being recognised by new investors wishing to participate in the next stage of growth.
La Bottega, which operates in the casual dining sector, has responded to continued rental pressure on several of its London sites by closing less profitable stores with the company now operating three sites in London. While this process was underway, we chose to further write down the value of the debt and cease to recognise any accrued interest due, to reflect the fundamental value of the business. During the year ended 31 March 2017 all interest previously accrued on the debt was forgone (see Note 8 to the Financial Statements on page •). We have also judged it prudent to write down the valuation of Boom Cycle’s initial equity investments following an investment round with a lower share price as a result of slower than expected sales growth after opening two new sites however we believe this could be reversed if their sales performance in 2018 continues.
Eight investments are held at cost (KXU, Sourced Market, PlayerLayer, Boat, Wishi, Unbolted, Stylindex and Popsa) which we consider to be fair value, given that evidence of significant movement from the original investment appraisal has not yet been observed. Further details may be found in the Investment Portfolio and Investment Review on pages 12 to 31.
There have been a number of instances in the portfolio where loans to portfolio companies have undergone conversion into equity in line with their contractual provisions. In such cases, the carrying value, including accrued interest not foregone, is converted to new equity. This is the case for KX U and Sourced Market.
Investments held by the Company have been valued in accordance with the International Private Equity and Venture Capital (IPEVC) valuation guidelines developed by the British Venture Capital Association and other organisations. Through these guidelines, investments are valued as defined at ‘fair value’. Ordinarily, unquoted investments will be valued at cost for a limited period following the date of acquisition, being the most suitable approximation of fair value unless there is an impairment or significant increase in value during the period. The portfolio valuations are prepared by the Investment Adviser, reviewed and approved by the Board and subject to audit annually.
In determining fair value, the Investment Adviser uses various valuation approaches, including a combination of the price of recent investment and a market-based approach. The market approach ascribes a value to a business interest or shareholding by comparing it to similar businesses, using the principle of substitution: that is, that a prudent purchaser would pay no more for an asset than it would cost to acquire a substitute asset with the same utility and income earning potential.