Tag: Edge VCT

ShareSoc VCT Webinar Report

I attended a webinar organised by the VCT Investors Group of ShareSoc last night, and spoke on the panel. This is a very brief report on what was certainly a useful event for anyone invested in Venture Capital Trusts. There should be a recording of the event available from the ShareSoc web site to Members in due course.

There were good presentations on some problematic VCTs – the Edge Performance VCTs and the Ventus VCTs. ShareSoc was involved in campaigns on those companies. The former, which have multiple share classes, showed poor performance on all but one share class, and poor corporate governance resulting in shareholders demanding some changes. There are two Ventus VCTs that specialise in renewable energy which no longer qualifies for VCT investment. The directors are now proposing to wind up the companies.

Another “problem” case I spoke about was Chrysalis VCT which was another company that got into a difficult situation. Assets declining making it look unviable with high fixed costs and the portfolio consisting of dubious holdings such as Coolabi (also a holding in the Edge VCTs). Shareholders decided to wind up the company on the recommendation of the directors in October 2020 even though there were some investors who claimed capital gains deferral on their investment way back in time, which will now mean they get a big tax bill.  I sold my holding in Chrysalis VCT in 2018 as I could see the way the wind was blowing and had been through a similar experience with Rensburg AIM VCT in 2015/16. In that case they did manage to merge with another VCT who took over management of the portfolio.

Both the Edge and Ventus VCTs were not likely to be attractive to merger partners or acquirers though. But an administration process is going to be long-winded, costly and in essence painful.

As I said in the webinar, if you are holding shares in a VCT that is getting into difficulties, or is unlikely to be able to raise new funds from investors, best to get out sooner rather than later. Regrettably the directors and fund managers of such companies seem keen to keep the companies alive, and postpone tough decisions for too long.

Or if you think the VCT is revivable, or can survive, then pursue a revolution such as changing the directors and/or fund manager.

The seminar included a good analysis of the performance of VCTs by Mark Lauber. He suggests they can give a good return if you take into account the tax relief you get from investing in them, and the tax-free dividends. They do provide an alternative asset class to most FTSE shares, being effectively private equity investment trusts investing in smaller companies.

Are they good investments at this point in time? This is uncertain given that the type of companies they can invest in has changed recently. No more asset backed companies for example. They can hold diversified portfolios, but the fund performance depends a great deal on the competence of the fund manager.

There are few alternatives on which you can obtain tax relief. EIS companies are even more risky. With stock markets being buoyant of late, my view is that there are fewer reasons to invest in VCTs at present where management costs are high and corporate governance often leaves a lot to be desired. You also have to keep a close eye on them and understand the complex tax rules. It might be best to wait and see how the new VCT rules work out in terms of investment returns.

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

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JD Wetherspoon Results and Directors Reappointed at Edge Performance VCT

JD Wetherspoon (JDW) published their results for the year on Friday (13/9/2019). The revenue figures were very positive with like-for-like sales up 6.8%, overall revenue up 7.4% and earnings up 9.2% (after exceptional items).

There was an extensive diatribe from Executive Chairman and founder Tim Martin on two issues: 1) Brexit and 2) Corporate Governance standards.

Mr Martin’s stance on Brexit is well known. He is a Brexit party supporter and sees no problem with a “hard” Brexit. He says “Elite remainers are ignoring the big picture regarding lower input costs and more democracy, and are mistakenly concentrating on assumed short-term problems, such as delays at Channel ports”.

On corporate governance he dislikes the requirement for non-executive directors to step down after nine years. He says his company’s stance “is that experience is extremely important and the so-called nine-year rule is perverse and counterproductive”. He has a number of other complaints about the UK Corporate Governance standards. It looks like there may be a battle on some of these issues at the forthcoming AGM.

I agree with Tim Martin on Brexit but not altogether on corporate governance. I don’t like directors serving for more than 9 years simply from past experience of directors becoming stale and sycophantic over time. But he is right to criticise the “excessive focus on achieving financial or other targets”.

It’s well worth reading the announcement, but this is clearly one of those companies where shareholders have to have faith in the leadership of Tim Martin.

I do not hold the shares, but not for any prejudice against Mr Martin.

At the Edge Performance VCT (EDGH and EDGI) the sole remaining director Terry Back has reappointed two of the directors removed by votes at the recent AGM. This I consider most atrocious behaviour. The last time I saw this happen was at the bun fight over the future of Victoria (VCP) and that was soon overturned and a new board put in place.

It is of course essential to have more than one director in a public company because of the listing rules and for other reasons. It can of course be difficult to recruit new directors at short notice, particularly when a company is in difficulties. Potential directors fear they are at reputational risk. But reappointing directors removed by a vote of shareholders is simply not acceptable. Shareholders have a strong interest in improving matters so it should not be impossible to find some volunteers. I have suggested that ShareSoc line up some nominees to put the board on the spot. Investors need some new independent directors, not the same old guard.

As I said in this previous blog post: https://roliscon.blog/2019/09/02/edge-performance-vct-sorted/, I have long considered this VCT to be a basket case of the first order. The situation should not be allowed to continue.

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

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Edge Performance VCT Sorted

The Edge Performance VCT (EDGH and EDGI) I have long considered to be a basket case of the first order. VCTs are typically owned only by private shareholders but I am always astonished by how those shareholders put up with dire performance and excessive management costs over many years. But in the case of Edge they have finally taken action – namely removed all but one of the directors at the AGM and voted down other resolutions. It was not even apparently necessary to call a poll as the resolutions were defeated on a show of hands vote according to the RNS announcement of the result, but the proxy votes were clearly of the same mind.

The sole remaining director is now apparently considering what to do next. See this report by ShareSoc on the meeting: https://www.sharesoc.org/blog/vcts/edge-another-vct-problem-case/

I would suggest the answer is simple: ask for volunteers with relevant experience from the shareholders to serve as directors before deciding on any future plans.

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

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Chrysalis VCT AGM Report

Last week (27/2/2018) I attended the Annual General Meeting of Chrysalis VCT Plc (CYS) in the City of London. Here’s a brief report on the event. There were about half a dozen ordinary shareholders present, the three directors and fund management representatives despite the difficult travel conditions.

Chrysalis is of course a venture capital trust but somewhat different to many VCTs. It has a good performance record in recent years but does not undertake share buy-backs. As a result the shares trade at a high discount to NAV (about 20% at the time of writing). With a dividend yield of about 8% (and no tax on VCT dividends), many of the current shareholders may have purchased their shares in the market although some of my holdings date back to the year 2000 when I claimed capital gains roll-over relief.

The company is relatively small in size for a VCT, and the new VCT rules which require such companies to focus on early stage investments are causing the board some concerns apparently. There is reference in the Annual Report to “a review of the options available to the Company” and there was considerable discussion on that topic at the AGM.

Should the company wind-up? Or simply become an ordinary investment company rather than a VCT? Or perhaps look for a merger with another VCT? As regards the latter possibility, this company seems to be getting into the same situation as Rensburg AIM VCT which eventually merged with Unicorn but rather late in the day and after a lot of encouragement from me to take action. I likewise encouraged the directors of this company to make decisions fairly soon on the future of the company.

One matter discussed at the AGM was the company’s large investment in Coolabi where they hold debt repayable in 2020. Having looked at the Annual Report of that company available from Companies House before the meeting, I have a pretty jaundiced view of the value of that business. Although Chrysalis increased the valuation of their loan in the accounts, they actually wrote down their equity stake to zero it transpired (holders of Edge VCT who have a big equity stake in Coolabi should note). However, fund manager Chris Kay did make some very positive comments about the value of the intellectual property in Coolabi.

Chris also commented on the difficulty of making new investments at present with small companies now valued very highly and lots of competition for the good ones. The new VCT rules are making it more difficult and it seems that there are still long delays on getting pre-approval (advance clearance) from HMRC (now 3 to 6 months).

Obviously what the company decides to do affects different shareholders in different ways, depending on their tax status, whether they claimed roll-over relief on investment, and their desire to convert their holdings into cash. The company may do a survey of shareholders but they are not sure they will get a good response.

Those present gave their views on the situation and there were some differences. I plan to write to the Chairman giving my views in more detail. For example, I will probably suggest a “shareholder committee” that might act as a consultative group.

If you are holding shares in Chrysalis, are interested in discussing the future of this company, or would like a copy of my letter to the Chairman, you can contact me via this web page (my company’s web site): http://www.roliscon.com/contact.html

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

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