Full year Results and Notice of AGM

18 December 2024

HARGREAVE HALE AIM VCT PLC

(the "Company” or the "VCT”)

Full Year Results and Notice of AGM

Hargreave Hale AIM VCT plc announces its results for the year ended 30 September 2024.

The Company also announces that its 2025 Annual General Meeting will be held at 12.30pm on 6 February 2025 at 88 Wood Street, London, EC2V 7QR.

The Company's Annual Report and Financial Statements for the year ended 30 September 2024 and the formal Notice of the Annual General Meeting will be posted to shareholders who have elected to receive hard copies and in accordance with UK Listing Rule 6.4.1 copies of the documents will shortly be available to view on the Company's corporate website at https://www.hargreaveaimvcts.co.uk and have also been submitted to the UK Listing Authority and will be available for inspection from the National Storage Mechanism at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

Strategic report

The report has been prepared by the Directors in accordance with the requirements of Section 414A of the Companies Act 2006.

Financial highlights for the year ended 30 September 2024

•     100% invested by VCT tax value in Qualifying Investments at 30 September 2024.

•     Final dividend of 1.25 pence per share proposed for the year end and special dividend of 1.50 pence per share approved by the Board.

•     Offer for subscription closed having raised £20.3 million. The Board decided to utilise the over-allotment facility only to the extent that valid applications were received by 5pm on 22 March 2024.

•     New Offer for subscription launched on 9 October 2024 to raise up to £20 million.

Introduction

Once again, I would like to welcome Shareholders who joined us as a result of the recent offers for subscription. As always, we are grateful to new and existing Shareholders who continue to support the VCT, despite the difficult times we continue to live through.

For much of the 2024 financial year, investor sentiment improved as UK inflation (Consumer Price Index) returned to the Bank of England's target of 2%, drawing to a close a 3-year inflation cycle that was very difficult for UK consumers and households and bringing with it hope that the United Kingdom can finally move on from the cost-of-living crisis. The economy has withstood the pressure better than many had predicted. All the same, businesses and households had to navigate an immensely difficult period of high inflation and stagnating economic activity. With inflation now on target and the Bank of England starting to reduce interest rates, many businesses and households can look forward to reduced borrowing costs.

Although the Investment Association continues to report sustained outflows from UK equity funds, there was an improvement in the flow dynamic within UK small companies after the UK economy returned to growth in early 2024 and UK inflation returned to target. More recent updates highlight a deteriorating trend in the run up to the 2024 Autumn Budget as markets responded to the Government's very negative messaging and potential changes to fiscal policy. It is premature to take a definitive position on the impact of the Government's 2024 Autumn Budget on our portfolio companies. Clearly, changes to National Insurance Contributions are going to weigh heavily on certain companies, particularly those in high service, low margin industries such as those in leisure and hospitality. There are a number of portfolio companies that will feel the impact. However, their response is likely to include price increases, less employment and downward pressure on wages as companies look to mitigate the additional tax burden. However, for most our investments, the change will not significantly impact performance. As ever, profits and losses will (for the most part) be determined by the success of management teams as they seek to develop and then commercialise new products and services.

After a period of improving economic activity, the economy notably softened through the summer with economic indicators and news flow clearly signalling that we were working our way through a soft patch. Falls in business and consumer confidence ahead of the budget gave an early indication of the likely impact of higher taxation. That having been said, the significant increase in Government spending announced at the budget is expected to lift the economy in 2025 and 2026, albeit at a cost.

Consistent with our updates of the last few years, generating performance remains very difficult in the short term. Whilst we entered the second half of the financial year with grounds for optimism, the uncertainty created by the election, the potential for a radically different approach to fiscal policy by the new Government and its stark messaging again undermined confidence in UK small companies. Whilst we believe investors still recognise the value opportunity within the UK stock market, and specifically within small companies, many adopted a wait and see approach pending the outcome of the 2024 Autumn Budget. Three years of outflows from UK funds have weighed heavily on performance. We continue to believe that the sector is in deep value territory. There is a saying within the stock market that 'value will out'; unfortunately, it is proving very difficult to forecast when that might happen. For the time being, we will need to remain patient.

The fog of uncertainty that hung over the UK markets ahead of the 2024 Autumn Budget continues to weigh on the primary markets through which companies raise new capital. With valuations so depressed and very little capital available for investment (away from VCTs), very few companies have undertaken an initial public offering ("IPO”). On AIM there were just two VCT qualifying IPOs within the year. Ironically, neither IPO succeeded in raising any funds from the established AIM VCTs. After a difficult third quarter, we are pleased to report a stronger final quarter in which we deployed capital into VCT qualifying companies in line with our revised budget. The improved activity levels have continued into the new financial year and the Investment Manager reports that its network of investment banks and corporate advisers are signalling that interest in IPOs is starting to recover and activity is expected to pick up in 2025.

Performance

As described in more detail in the Investment Manager's report, this has been a third year of difficult performance. After notable rallies in UK small companies (including those on AIM) in late 2023 and the early summer of 2024, the tone in the market changed in late May with the calling of the UK General Election. The final quarter was a difficult one for companies on AIM, in particular those favoured by investors looking for Business Property (IHT) Relief or where investors had accumulated significant gains. Trading volumes on AIM increased by 99% in the 3 months to 30 September 2024 when compared to the same period in 2023 as many investors chose to exit the market. This selling pressure weighed on our portfolio of AIM investments in the final quarter of the financial year and, as a result, we are disappointed to report small losses across the year from that element of the portfolio. There was also a slight downward adjustment to the value of the qualifying investments held in private companies; however, this was not a significant factor in performance more broadly. The portfolio of investments in private companies is quite heavily skewed towards the UK consumer discretionary sector, where peer group valuations remain low.

At 30 September 2024, the NAV per share was 40.55 pence which, after adjusting for the dividends paid in the year of 4.00 pence, gives a NAV total return for the year of -3.86%⁽¹⁾ which compares with +3.90% in the FTSE AIM All-Share Index Total Return (calculated on a dividends Index reinvested basis). The Directors consider this to be the most appropriate benchmark from a Shareholder's perspective, however, due to the range of assets held within the investment portfolio and the investment restrictions placed on a VCT it is not wholly comparable.

The earnings per share total return for the year was a loss of 1.86 pence (comprising a revenue profit of 0.20 pence and a capital loss of 2.06 pence). Revenue income increased by 8.9% to £2.9m as a result of a full-year contribution from the non‑qualifying investment grade corporate bonds, unit trust accumulations and bank interest. There was a reduction in the interest accrued on loan note instruments after the Investment Manager (acting on behalf of the VCT) agreed to convert some of the outstanding Kidly loan notes and reduce the balance of accrued interest in exchange for new preference shares in Kidly as part of a refinancing plan. Income received into the revenue account exceeded expenses, resulting in a revenue profit for the year of 0.20 pence per share (FY23: 0.27 pence per share).

The share price decreased from 43.00 pence to 39.00 pence over the reporting period which, after adjusting for dividends paid of 4.00 pence per share, gives a share price total return of nil⁽¹⁾.

Investments

The Investment Manager invested £9.2 million into seven Qualifying Companies during the period. The fair value of Qualifying Investments at 30 September 2024 was £82.8 million (56.0% of NAV) invested in 55 AIM companies and 8⁽²⁾ unquoted companies. At the year end, the fair value of non-qualifying equities, the IFSL Marlborough UK Micro-Cap Growth Fund and the IFSL Marlborough Special Situations Fund were £12.0 million (8.1% of NAV), £10.4 million (7.0% of NAV) and £9.4 million (6.3% of NAV) respectively, with most of the non-qualifying equities listed within the FTSE 350 and offering good levels of liquidity should the need arise. £19.1 million (12.9% of NAV) was held in short-dated investment grade corporate bonds, £0.7 million (0.4% of NAV) was invested in VanEck Gold Miners UCITS exchange traded fund and £13.7 million⁽³⁾ (9.3% of NAV) held in cash at the period end (including £8.8m held with the Custodian). Further information can be found in the Investment Manager's report.

Dividend

The Directors continue to maintain their policy of targeting a tax free dividend yield equivalent to 5% of the year end NAV per share.

In the 12-month period to 30 September 2024, the Company paid dividends totalling 4.00 pence (2023: 5.00 pence). A final dividend of 1.50 pence (2022: 2.00 pence) in respect of the 2023 financial year was paid on 15 February 2024 and an interim dividend of 1 penny along with a special dividend of 1.50 pence (2023: 1 penny) was paid on 26 July 2024. The payment of the special dividend reflected the receipt of proceeds from the sale of Abcam plc and Instem plc.

A final dividend of 1.25 pence is proposed (2023: 1.50 pence) which, subject to Shareholder approval at the forthcoming AGM, will be paid on 14 February 2025 to ordinary Shareholders on the register on 3 January 2025. A special dividend of 1.50 pence per share has been approved by the Board. The distribution will return to Shareholders the proceeds from various exits and disposals. The special dividend will be paid together with the final dividend on 14 February 2025.

Dividend re-investment scheme ("DRIS”)

Shareholders may elect to reinvest their dividend by subscribing for new shares in the Company. Further information can be found in the Shareholder Information section.

On 15 February 2024, 1,100,783 ordinary shares were allotted at a price of 44.58 pence per share, which was calculated in accordance with the terms and conditions of the DRIS, on the basis of the last reported NAV per share as at 26 January 2024, to shareholders who elected to receive shares as an alternative to the final dividend for the year ended 30 September 2023 announced on 19 December 2023.

On 26 July 2024, 2,235,192 ordinary shares were allotted at a price of 42.49 pence per share, which was calculated in accordance with the terms and conditions of the DRIS, on the basis of the last reported NAV per share as at 5 July 2024, to Shareholders who elected to receive shares as an alternative to the interim and special dividend for the year ended 30 September 2024.

Share buybacks

To maintain compliance with the discount control and management of share liquidity policy, the Company purchased through share buybacks 10,657,350 ordinary shares (nominal value £106,574) during the 2024 financial year at a cost of £4,472,418 (average price: 41.97 pence per share).

As at 17 December 2024, a further 3,559,262 shares have been repurchased post the year end at a cost of £1,361,156 (average price: 38.24 pence per share).

Share price discount

The Company aims to improve liquidity and to maintain a discount of approximately 5 per cent. to the last published NAV per share (as measured against the mid-price) by making secondary market purchases of its shares in accordance with parameters set by the Board.

We continued to operate the discount control and management of share liquidity policy effectively during the period. As at 30 September 2024, the Company had one and five year average share price discounts of 5.46%⁽¹⁾ and 5.79%⁽¹⁾ respectively.

The Company's share price was trading at a discount of 3.82%⁽¹⁾ as at 30 September 2024 compared to a discount of 7.21%⁽¹⁾ as at 30 September 2023, this being calculated using the closing mid-price of the Company's shares on 30 September 2024 as a percentage of the year end NAV per share, as published on 10 October 2024.

As at 17 December 2024, the discount to NAV was 4.69% of the last published NAV per share.

Offer for subscription

The Directors of the Company announced on 7 September 2023 the launch of an offer for subscription for shares to raise up to £20 million, together with an over-allotment facility of up to a further £20 million. On 22 March 2024, the Company announced it had received valid applications of approximately £20 million. The Board decided to utilise the over-allotment facility only to the extent that valid applications under the offer were received by 5pm on 22 March 2024. The offer closed on 22 March 2024 at 5pm.

The offer resulted in gross funds being received of £20.3 million and the issue of 44.5 million shares.

New offer for subscription

The Directors of the Company announced on 9 October 2024 the launch of a new 2024/2025 offer for subscription for shares to raise up to £20 million. The offer was approved by shareholders of the Company at a general meeting on 12 November 2024.

By 17 December 2024, the Company had allotted 5.9 million shares raising gross proceeds of £2.4 million. As at the date of this document, the Company has received valid applications for a further £0.2 million.

Cost efficiency

The Board reviews costs incurred by the Company on a regular basis and is focused on maintaining a competitive OCR. The year end OCR was 2.43%⁽¹⁾ (FY23: 2.24%⁽¹⁾) when calculated in accordance with the Association of Investment Companies' ("AIC”) "Ongoing Charges” methodology.

The increase in the OCR is principally driven by the fall in the average net assets across the year that followed the drop in the NAV per share and the payment of special dividends. Other material factors include increases in some of the fixed costs of the Company such as the administration, auditor and company secretarial fees, and the increased investment in the IFSL Marlborough UK Micro‑Cap Growth Fund and the IFSL Marlborough Special Situations Funds. The Ongoing Charges methodology divides ongoing expenses by average net assets.

Board remuneration

Following a review of Board remuneration, and taking into account peer group analysis and inflation, the Board has agreed to increase its remuneration by 3.2%, effective from 1 October 2024. The annual remuneration of the Chair will increase to £42,500, the independent non-executive directors to £33,000 and the non-independent non-executive director, Oliver Bedford, to £30,500.

An additional fee of £1,500 will continue to be paid to the Chair of the MSPEC. The Chair of the Audit Committee will continue to receive an additional fee of £3,000.

Annual General Meeting

Shareholders are invited to attend the Company's AGM to be held at 12.30 pm on 6 February 2025 at 88 Wood Street, London, EC2V 7QR.

Those Shareholders who are unable to attend the AGM in person are encouraged to raise any questions in advance with the Company Secretary at [email protected]. The deadline for the advance submission of questions is 5.00 p.m. on 30 January 2025. Answers will be published on the Company's website on 6 February 2025.

Angela Henderson has notified the Board of her intention not to seek re-election as an Independent Non-Executive Director of the Company at the forthcoming AGM. I wish to take this opportunity to thank Angela for her valuable contribution over the years. The Company has decided that, due to the current size of the Board, there is no intention to appoint an additional Non-Executive Director at the present time.

Shareholder engagement

Shareholder engagement is given a high priority by the Board. The Company provides a significant amount of information, including recorded content, about its activities and performance through its website (www.hargreaveaimvcts.co.uk).

The website also allows Shareholders to request (by email) updates on Shareholder events, the performance of the fund (interim management statements, fact sheets and video updates) and information on the Company's fundraising activities.

Reflecting our wish to improve the flow of information to our Shareholders whilst simultaneously reducing costs and waste, we launched a major drive to upgrade and expand our database of Shareholders who opt in for email and digital communications. Please do register your consent with us through the website.

Whilst the Board strongly encourages Shareholders to make use of everything the website has to offer, the Directors recognise that it is not for everyone. Should you prefer, you can of course continue to communicate with the Chair, any other member of the Board or the Investment Manager by writing to the Company, for the attention of the Company Secretary.

The Board also wants to provide Shareholders with regular opportunities to meet directly with the Directors and the CGAM VCT investment management team. As a result, the Company held four in-person events (including the 2024 Annual General Meeting) and a webinar in the 12 months to 30 September 2024.

The first of these was our annual Shareholder event on 28 November 2024, once again held at Everyman Cinema Broadgate, City of London. The event included a presentation by the Investment Manager covering the 12 months to 30 September 2024, along with presentations, pre-recorded interviews and a panel discussion with several guest speakers and a number of portfolio companies. The event concluded with the screening of a feature film. Summary recordings of the Investment Manager's presentations are available to view on the Company's website (www.hargreaveaimvcts.co.uk).

In the new financial year, we expect to hold 3 in-person events (including the Annual General Meeting) and two webinars. The next Shareholder events include the forthcoming AGM to be held at the Investment Manager's offices at 88 Wood Street, London EC2V 7QR at 12.30 pm on 6 February 2025 and a separate Shareholder webinar at 4.30 pm on Monday 10 February 2025. Shareholders are asked to register their interest in attending Shareholder events through the Company's website

(www.hargreaveaimvcts.co.uk) or by emailing [email protected].

Electronic communications and digital dividends

As ever, we are asking Shareholders to opt in to electronic communications and update their dividend payment preference from cheque to bank transfer.

With this in mind, we intend to bring to a close the use of bank cheques for the payment of dividends. The last dividend payment by bank cheque will be in July 2025. Thereafter, all future dividends will be paid by bank transfer. We are therefore asking all Shareholders currently receiving dividends by bank cheque to provide their bank account details ahead of the payment of the final dividend in respect of the year to 30 September 2025, due in February 2026.

Switching to the digital delivery of Shareholder communications and dividend distributions is more cost efficient, secure and faster whilst also helping to reduce our environmental footprint.

The Company no longer prints and distributes interim reports to Shareholders. The interim results continue to be available for download on the Company's website (www.hargreaveaimvcts.co.uk) and a summary of the results are published via a Regulatory Information Service on the London Stock Exchange. Where necessary, the Administrator can produce and send out a hard copy.

Shareholders are also encouraged to make use of the shareview portal operated by the Registrar, which can be used to monitor their investment, review their transaction history, see information on dividend payments and update their communication preferences.

Electronic voting

Electronic proxy voting is available for Shareholders to register the appointment of a proxy and voting instructions for any general meeting of the Company once notice has been given. This service assists the Company to make further printing and production cost savings, reduce our environmental footprint and streamline the voting process for investors.

Regulatory update

There were no major changes to VCT legislation during the period under review.

Through the Finance Act 2024, the Government extended the sunset clause for the VCT scheme from 5 April 2025 to 5 April 2035, allowing investors to claim income tax relief for subscriptions for new VCT shares for a further 10 years. The Treasury Order was laid before Parliament on 3 September 2024, meaning the sunset clause has now been officially extended to 5 April 2035.

Administration agreement

With effect from 1 October 2024, the administration agreement was novated from CGWL to CGAM. Under the terms of the novation agreement, the administration fees paid by the Company were unchanged at £250,000 (plus VAT). Notwithstanding the novation, CGWL will continue to receive a fee of £30,000 per annum in relation to its appointment as the Custodian. Any future initial or trail commissions paid to Financial Intermediaries will be paid by CGAM.

Consumer duty

The Consumer Duty regulation is designed to improve the standard of care provided by firms that are involved in the manufacture or supply of products and services to retail clients.

As the Company is not regulated by the FCA, it falls outside of the Consumer Duty regulation. However, CGAM and CGWL are regulated companies and were in scope, respectively as the designated manufacturer and distributor of the Company during the financial year. In its capacity as manufacturer, CGAM has conducted a fair value assessment and a target market assessment. Having reviewed both reports, the Board is satisfied that CGAM and CGWL continued to comply with their obligations throughout the period.

As a consequence of the novation of the administration agreement, CGAM became both the designated manufacturer and distributor of the Company with effect from 1 October 2024.

VCT status

I am pleased to report that the Company continues to perform well against the requirements of the VCT Rules and at the period end, the investment test was 100% (2023: 91.65%) against an 80% requirement when measured using HMRC's methodology. The increase in the investment test percentage reflects progress made in deploying capital into Qualifying Companies and the return of capital to Shareholders through the payment of a 1.50 pence per share special dividend on 26 July 2024 following receipt of proceeds from the sale of Abcam plc and Instem plc. The Company satisfied all other tests relevant to its status as a Venture Capital Trust.

Key information document ("KID”)

In accordance with the PRIIPs regulations, the Company's KID is published on the Company's website at www.hargreaveaimvcts.co.uk/ document-library/.

Risk review

The Board has reviewed the risks facing the Company. Further detail can be found in the principal and emerging risks and uncertainties section.

Outlook

Once again, we have endured a difficult start to the financial year, albeit for very different reasons. The Government's unhelpfully stark messaging in the run up to the budget has weighed on economic activity with GDP data and PMI surveys both highlighting a notable softening in UK economy through the late Summer and Autumn. Measures of UK consumer and business confidence both dipped, suggesting that households and companies were becoming increasingly cautious ahead of and subsequent to the Autumn 2024 Budget. However, in large part due to the very significant increase in public spending expected next year, we expect to see economic activity pick up as we head into next year. The Office for Budget Responsibility forecasts GDP to increase from 1.1% in 2024 to 2.0% in 2025.

The FTSE AIM All-Share Index has been noticeably weak post period end with potential changes to Business Property Relief weighing heavily on the index ahead of the Autumn 2024 Budget. In the end, when viewed through the narrow lens that we apply to the VCT, the budget was substantially better than many had feared. That is not to downplay the pain that many households and businesses will feel. However, the changes to National Insurance Contributions ("NICs”), the source of much post-budget commentary, is unlikely to be a major factor in shaping the outcomes for many of our investments with the impact muted by the spread of investments we hold.

We are pleased to report that deal flow has started to improve. Post period end, we have invested £1.8 million across 3 qualifying investments. We are active on a large number of deals across both public and private markets, including a limited number of IPOs. It is too early to say that the tide has turned decisively but we can see clear evidence that green shoots might finally start to emerge.

David Brock

Chair

17 December 2024

The Company and its business model

The Company was incorporated and registered in England and Wales on 16 August 2004 under the Companies Act 1985, registered number 05206425.

The Company has been approved as a Venture Capital Trust by HMRC under Section 259 of the Income Taxes Act 2007. The shares of the Company were first admitted to the Official List of the UK Listing Authority and trading on the London Stock Exchange on 29 October 2004 and can be found under the TIDM code "HHV”. The Company is premium listed.

In common with many other VCTs, the Company revoked its status as an investment company, as defined in Section 266 of the Companies Act 1985, on 23 May 2006 to facilitate the payment of dividends out of capital profits.

The Company's principal activity is to invest in a diversified portfolio of qualifying small UK based companies, primarily trading on AIM, with a view to generating capital returns and income from its portfolio and to make distributions from capital and income to Shareholders whilst maintaining its status as a VCT.

The Company is registered as a small UK AIFM with a Board comprising six non-executive directors, five of whom are independent. CGAM acts as Investment Manager and (from 1 October 2024) Administrator, whilst CGWL acts as Custodian (and, until 30 September 2024, the Administrator) of the Company. JTC (UK) Limited is engaged as the Company Secretary.

The Board has overall responsibility for the Company's affairs including the determination of its investment policy. However, the Board exercises these responsibilities through delegation to the Investment Manager, the Administrator, the Custodian and the Company Secretary as it considers appropriate.

The Directors have managed and continue to manage the Company's affairs in such a manner as to comply with Section 259 of the Income Taxes Act 2007.

Investment objectives, policy and strategy

Investment objectives

The investment objectives of the Company are to generate capital gains and income from its portfolio and to make distributions from capital or income to Shareholders whilst maintaining its status as a Venture Capital Trust.

Investment policy

The Company intends to achieve its investment objectives by making Qualifying Investments in companies listed on AIM, private companies and companies listed on the AQSE Growth Market, as well as Non-Qualifying Investments as allowed by the VCT Rules.

Qualifying Investments

The Investment Manager will maintain a diversified portfolio of Qualifying Investments which may include equities and fixed income securities as permitted by the VCT Rules. Investments will primarily be made in companies listed on AIM but may also include private companies that meet the Investment Manager's criteria and companies listed on the AQSE Growth Market. These small companies have a permanent establishment in the UK and, whilst of high risk, will have the potential for significant capital appreciation.

To maintain its status as a VCT, the Company must have 80 per cent. by value, as measured by the VCT Rules, of all of its investments in Qualifying Investments throughout accounting periods of the VCT beginning no later than three years after the date on which those shares are issued. To provide some protection against an inadvertent breach of this rule, the Investment Manager targets a threshold of approximately 85 per cent.

Non-Qualifying Investments

Non-Qualifying Investments must be permitted by the VCT Rules and may include equities and exchange traded funds listed on the main market of the London Stock Exchange, fixed income securities, bank deposits that are readily realisable, the IFSL Marlborough Special Situations Fund and the IFSL Marlborough UK Micro-Cap Growth Fund. Subject to the investment controls below, the allocation to each of these investment classes will vary to reflect the Investment Manager's view of the market environment and the deployment of funds into Qualifying Companies. The market value of the Non‑Qualifying Investments (excluding bank deposits) will vary between nil and 50 per cent. of the net assets of the Company.

The value of funds held in bank deposits will vary between nil and 30 per cent. of the net assets of the Company.

Investment controls

The Company may make co-investments in investee companies alongside other funds, including other funds managed by the Investment Manager.

Other than bank deposits, no individual investment shall exceed 10 per cent. of the Company's net assets at the time of investment.

Borrowings

The Articles permit the Company to borrow up to 15 per cent. of its adjusted share capital and reserves (as defined in the Articles). However, it is not anticipated that the Company will have any borrowings in place and the Directors do not intend to utilise this authority.

To the extent that any future changes to the Company's investment policy are considered to be material, Shareholder consent to such changes will be sought. Such consent applies to the formal investment policy described above and not the investment process set out below.

Investment process and strategy

The Investment Manager follows a stock specific investment approach based on fundamental analysis of the investee company.

The Investment Manager's fund management team has significant reach into the market and meets with large numbers of companies each week. These meetings provide insight into investee companies, their end markets, products and services, and competition. Investments are monitored closely and the Investment Manager usually meets or engages with their senior leadership team at least twice each year. Where appropriate, the Company may co-invest alongside other funds managed by the Investment Manager.

The key selection criteria used in deciding which investments to make include, inter alia:

•     the strength and depth of the management team;

•     the business strategy;

•     a prudent approach to financial management and forecasting;

•     a strong balance sheet;

•     profit margins, cash flows and the working capital cycle;

•     barriers to entry and the competitive landscape; and

•     the balance of risk and reward over the medium and long term.

Qualifying Investments

Investments are made to support the growth and development of a Qualifying Company. The Investment Manager will maintain a diversified portfolio that balances opportunity with risk and liquidity. Qualifying Investments will primarily be made in companies listed on AIM but may also include private companies and companies listed on the AQSE Growth Market. Seed funding is rarely provided and only when the senior leadership team includes proven business leaders known to the Investment Manager.

Working with advisers, the Investment Manager will screen opportunities, often meeting management teams several times prior to investment to gain a detailed understanding of the company. Investments will be sized to reflect the risk and opportunity over the medium and long term. In many cases, the Investment Manager will provide further funding as the need arises and the investment matures. When investing in private companies, the Investment Manager will shape the investment to meet the investee company's needs whilst balancing the potential for capital appreciation with risk management.

Investments will be held for the long term unless there is a material adverse change, evidence of structural weakness, or poor governance and leadership. Partial realisations may be made where necessary to balance the portfolio or, on occasion, to capitalise on significant mispricing within the stock market.

Non-Qualifying Investments

The Investment Manager's VCT team works closely with the Investment Manager's wider fund management team to deliver the investment strategy when making Non-Qualifying Investments, as permitted by the VCT Rules. The Investment Manager will vary the exposure to the available asset classes to reflect its view of the equity markets, balancing the potential for capital appreciation with risk management, liquidity and income.

The Non-Qualifying Investments will typically include a focused portfolio of direct investments in companies listed on the main market of the London Stock Exchange. The portfolio will mix long term structural growth with more tactical investment to exploit short term mispricing within the market. The use of the IFSL Marlborough Special Situations Fund and the IFSL Marlborough UK Micro-Cap Fund enables the Company to maintain its exposure to small UK companies whilst the Investment Manager identifies opportunities to invest the proceeds of fundraisings into Qualifying Companies.

The Investment Manager may use certain exchange traded funds listed on the Main Market of the London Stock Exchange to gain exposure to asset classes not otherwise accessible to the Company.

Environmental, social and governance considerations

Approach

The Company regards the development of a clearly defined and integrated ESG management system as an important pillar for the long-term success of its business, as well as for its investee companies.

The Investment Manager believes that companies with strong governance, durable business models and balanced workforces are more likely to create value over the long term whilst reducing investment risk, benefiting the wider UK economy and society and generating positive Shareholder returns.

ESG in the investment process

Holding meaningful stakes in investee companies provides the Investment Manager with the opportunity and responsibility to positively influence investee company behaviour, both at the point of investment and during the time in which the Company is a shareholder.

Due diligence

The Investment Manager assesses ESG factors across the portfolio. For Qualifying Companies, the Investment Manager will use the information provided to develop, over time, an individualised ESG risk map to identify issues and track behavioural themes. The Investment Manager regularly engages with senior management teams and boards to identify and raise issues of note, provide a forum for positive feedback and promote change where necessary.

Engagement, exclusions and divestment policies

As part of its investment strategy, the Company has adopted policies covering exclusions and divestment to describe behaviours that fall outside of the Company's expectations of investee companies. The Investment Manager has adopted an engagement policy to create a clear framework that defines how it will interact with investee companies.

The Investment Manager

The Investment Manager adheres to its own ESG investment and stewardship policies. These include an ESG Policy, an Engagement Policy, a Conflicts of Interest Policy and a Stewardship Policy that, together with the investment mandate and the Company's ESG approach, inform the Company's approach.

CGAM is a signatory of the United Nations Principles of Responsible Investment and HM Treasury's Women in Finance Charter.

Risk management

The structure of the Company's investment portfolio and its investment strategy has been developed to mitigate risk where possible. Key risk mitigation strategies are as follows:

•     The Company has a broad portfolio of investments to reduce stock specific risk;

•     Flexible allocations to non-qualifying equities, exchange traded funds listed on the Main Market of the London Stock Exchange, fixed income securities, bank deposits that are readily realisable, the IFSL Marlborough Special Situations Fund and the IFSL Marlborough UK Micro-Cap Fund allow the Investment Manager to adjust portfolio risk without compromising liquidity;

•     Regular meetings with investee companies aid the close monitoring of investments to identify potential risks and allow corrective action where possible; and

•     Regular Board meetings and dialogue with the Directors, along with policies to control conflicts of interest and co-investment with the IFSL Marlborough fund mandates support strong governance.

Key performance indicators

The Directors consider the following KPIs to assess whether the Company is achieving its strategic objectives. The Directors believe these measures help Shareholders assess how effectively the Company is applying its investment policy and are satisfied the results give a fair indication of whether the Company is achieving its investment objectives and policy. The KPIs are established industry measures.

Further commentary on the performance of these KPIs has been provided in the Chair's statement and Investment Manager's report.

1        NAV and share price total returns

The Board monitors NAV and share price total return to assess how the Company is meeting its objective of generating capital gains and income from its portfolio and making distributions to Shareholders. The NAV per share decreased from 46.34 pence to 40.55 pence resulting in a loss to ordinary Shareholders of -1.79 pence per share (-3.86%)⁽¹⁾ after adjusting for dividends paid in the year.

The Board considers peer group and benchmark comparative performance. Due to the very low number of AIM VCTs, the Board reviews performance against the generalist VCTs as well as the AIM VCTs to provide a broader peer group for comparison purposes. Performance is also measured against the FTSE AIM All-Share Index Total Return. With 48.3% of the NAV in companies listed on AIM, the Directors consider this to be the most appropriate benchmark. However, HMRC derived investment restrictions and investments in private companies, main market listed companies and bonds mean that the index is not a wholly comparable benchmark for performance.

(1)         Reflecting the significant return of capital through regular and special dividends in recent years, which materially exceeds the dividends paid by the FTSE AIM All-Share Index, the Board of the view that it is more accurate to report performance against the benchmark on a (simple) total return basis rather than on a dividends re-invested basis. The Board also notes that approximately 90% of Shareholders do not participate in the Company's DRIS, making the simple total return (without dividends reinvested) more reflective of Shareholder returns as experienced by the vast majority of Shareholders. The definition and illustration of this alternative performance measure can be found in this report.

(2)     The NAV total return (dividends reinvested) and share price total return (dividends reinvested) measures have been included to improve comparability with the FTSE AIM All-Share Index Total Return which is also calculated on that basis. The definitions and illustrations of these alternative performance measures can be found in this report.

Reflecting the difficult market conditions that continued to weigh on the NAV through the financial year, and in common with the AIM VCT peer group, the Company reported a modest reduction in the NAV per share. The NAV total return fell behind the benchmark over one and three years; however, it remains ahead of the benchmark over five years but behind the average of the AIM VCT peer group over the same time horizons. The steep falls in valuations of companies listed on AIM, which have heavily impacted the performance of the Company and its AIM VCT peers, have not been mirrored in the Generalist VCT sector, which has reported an average gain of +3.47% over the period under review (source: Morningstar). The divergence of performance across the two peer groups is particularly notable across the three years since the start of the bear market with the AIM VCT sector returning an average loss of -42.9% against the average gain within the Generalist VCT sector of +3.35%. AIM has fallen by -39.7% over the same three-year period. It is difficult to account for the strongly divergent performance although the possible use of preferred investment structures not accessible to investors in public companies may account for some of the difference. The steady sell-off of investments on AIM ahead of the 2024 Autumn Budget will have also been a factor.

Further detailed information on peer group performance is available through Morningstar

(https://www.morningstar.co.uk) and the AIC (https://www.theaic.co.uk/aic/find-compare-investment-companies).

2.     Share price discount to NAV per share

The Company uses secondary market purchases of its shares to improve the liquidity in its shares and support the discount. The discount to NAV per share is an important influence on a selling Shareholder's eventual return. The Company aims to maintain a discount of approximately 5 per cent. to the last published NAV per share (as measured against the mid-price).

The Company's shares traded at a discount of 3.82%⁽¹⁾ as at 30 September 2024 (2023: 7.21%⁽¹⁾) when calculated with reference to the 30 September 2024 NAV per share. The one and five year average share price discounts were 5.46%⁽¹⁾ and 5.79⁽¹⁾ respectively.

The Company's shares are priced against the last published NAV per share with the market typically adjusting the price to reflect the NAV after its publication. In line with the Company's valuation policy, the Company aims to publish the quarter end NAV per share within seven business days of the period end to allow time for the Investment Manager and Board to review and agree the valuation of the private companies held within the investment portfolio.

The Company's share price on 30 September 2024 reflected the last published NAV per share prior to the year end, which was released on 1 October 2024. The 30 September 2024 NAV was reported on 10 October 2024, following the review of the valuations of the private companies.

As at 17 December 2024, the discount to NAV was 4.69% of the last published NAV per share.

3.     Ongoing charges ratio

The ongoing charges of the Company were 2.43%⁽¹⁾ (2023: 2.24%⁽¹⁾) of the average net assets of the Company during the financial year to 30 September 2024.

The increase in the OCR is principally driven by the fall in the average net assets across the year that followed the drop in the NAV per share and the payment of special dividends. Other material factors include increases in some of the fixed costs of the Company such as administration, auditor and company secretarial fees, along with the increased investment in the IFSL Marlborough UK Micro-Cap Growth Fund and the IFSL Marlborough Special Situations Funds. The Ongoing Charges methodology divides ongoing expenses by average net assets.

The Company's OCR remains competitive against the wider VCT industry but marginally higher than the other AIM VCTs. This ratio is calculated using the AIC's "Ongoing Charges” methodology and, although based on historical information, it provides Shareholders with an indication of the likely future cost of managing the fund.

Cost control and efficiency continues to be a key focus for the Board. Although the OCR increased within the year, the Board is pleased to report that the Company's expenses incurred within the year were below budget.

4.     Dividends per share

The Company's policy is to target a tax free dividend yield equivalent to 5% of the year end NAV per share. The Board remains committed to maintaining a steady flow of dividend distributions to Shareholders.

A total of 4.00 pence per share (2023: 5.00 pence) of dividends was paid during the year, comprising a final dividend of 1.50 pence in respect of the previous financial year (2022: 2.00 pence) paid on 15 February 2024, a special dividend of 1.50 pence per share paid on 26 July 2024 and an interim dividend of 1 penny (2023: 1 penny) also paid on 26 July 2024.

A final dividend of 1.25 pence per share will be proposed at the forthcoming AGM. If approved by Shareholders, the payment of the interim, final and special dividends in respect of the financial year to 30 September 2024 would represent a distribution to Shareholders of 9.2% of the 30 September 2024 NAV per share. A special dividend of 1.50 pence per share has been approved by the Board. The distribution will return to Shareholders proceeds from various exits and disposals. The special dividend will be paid together with the final dividend on 14 February 2025.

The below table demonstrates how the Board has been able to consistently pay dividends in line with the 5% target and the Company's dividend policy.