Unicorn AIM VCT Annual General Meeting and APC Technology

Yesterday I attended the AGM of Unicorn AIM VCT (UAV) which is of course a Venture Capital Trust. I am generally not wildly keen on AIM VCTs from past experience – they tend to buy shares in companies from IPOs and Placings when the prospects for the company are being puffed up by promoters, and then they have no ability to intervene when problems arise as do VCTs who invest in unlisted shares and with onerous shareholder agreements. Neither can they get out easily because selling large blocks of shares in the market of such companies is not easy. You can see this from the portfolio of shares they hold – 75 “qualifying” shares including what I consider to be such dogs as Crawshaw and Grafenia. Lots of “zombies” in there – walking dead companies going nowhere fast.

From the presentation it transpired that UAV cannot even now fund such companies further if they get into difficulties because of the new VCT rules which emphasize investment in younger, growing companies. Indeed a presentation from one of the investee companies later in the meeting (from APC Technology) was a great example of the risks and problems of investing in early stage businesses (original cost £3.1 million, now valued at £226,000!)

However AIM VCTs have been doing better of later as the AIM market total return was 24.4% last year (some of the really hot stocks would not be VCT qualifying though). In comparison UAV achieved a total return of 7.4% last year which is not brilliant, and was much less than that from another AIM VCT I hold.

The meeting commenced with the formal business. One director absent with flu. All resolutions passed by large majority of votes and little opposition on the “show of hands”.

I did raise the question of the two directors on the board who have served for more than 9 years (Chairman Peter Dicks, aged 75, who is not the most loved of VCT directors from the events at Foresight VCTs) and Jocelin Harris, and the impact of the proposed new UK Corporate Governance Code which is tougher in this area. The answer I got was they were looking at board succession, but the Company Secretary claimed they can ignore the UK Corporate Governance Code because they follow the AIC Code. I disputed that they could do this and I spoke at length with him on the subject later. VCTs are fully listed companies and hence in my view need to adhere to the UK Corporate Governance Code. Their claim to be able to refer solely to the AIC Code, based on an ambiguous letter from the FRC Chairman who probably did not have the power to amend the rules for investment companies, is dubious in the extreme. I did say to him that in my view all directors of VCTs should be “independent” and although I have no reason to question any impropriety in this company, retirement after 9 years is a good principle.

Note that apparently only 6.8% of shareholders submitted proxy votes (there were over 50 in the meeting). I am not surprised the turnout is so low when I had great difficulty in voting myself. No paper notice of AGM, proxy voting form or Annual Report sent even though I am on the register, just a simple letter sent via email saying I could vote on-line. Bearing in mind I have never authorised them to use my email address for that purpose, I complained to Link (formerly known as Capita) about this. They are amending their records. Could I have voted on-line? Perhaps but having had numerous past difficulties with the Capita system for that I did not even attempt to try.

After the formal business, we had a presentation from APC Technology by CEO Richard Hodgson. He covered the history of the company. It ran into difficulties before he took over when it had a problem with high debt and aggressive actions by their bankers HSBC. The business used to be in fire and pest control but is now focused on distribution of electronic components. They tried a failed diversification but then decided to “stop doing the stupid stuff” and are now profitable. He mentioned they are into “smart buildings” which I have an interest in, but they are not sure who is going to pay for it – tenant or landlord. They also seem to like to make acquisitions of niche businesses where the owners wish to retire (a bit like the Judges Scientific model but smaller).

The last financial figures for APC are revenue £15.6m, profit before tax £0.2m (to August 2017). Is this an exciting business going somewhere? I doubt it on the cursory information provided and it’s in a sector which I have found tricky in the past and hence one I generally avoid.

We then had a presentation from fund manager Chris Hutchinson. He admitted total return was not the greatest this year and other VCTs had done better. But they did raise £48 million in new capital of which £12m had already been invested in 6 new investments. (Note: it is wrong to judge any investment company by its performance over one year – you need to look at the long term track record). As other VCTs have warned, under the new rules new investments are likely to be in earlier stage companies and returns might therefore be more volatile and lumpy.

I won’t cover his talk in depth nor the questions that arose, apart from the fact that one shareholder raised the issue of IDOX – one of the VCTs larger holdings (and one I hold directly). Chris said his view was that it was not “holed below the water” but there may be more negative adjustments to come. Sounds like they will be holding for a recovery, but then one gets the impression that they hold onto companies through thick and thin. I would prefer that they got rid of some of the dogs and had a more focused portfolio – 75 qualifying companies plus some non-qualifying is a large portfolio when small companies need a lot of monitoring.

In summary a useful meeting if unexciting.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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