Interim Management Statement


Investment Manager’s Report

This report covers the first quarter of the financial year, 1 March 2014 to 31 May 2014.

Investment Report

We previously wrote that periods of strong NAV growth (as witnessed in the second half of the last financial year) are usually followed by a period of consolidation. And so it has played out. Whilst not good news in the short-term, the minor correction we are witnessing ought to prove helpful in the long term, ensuring the balance of power lies with investors and not vendors; important when it comes to maintaining market discipline. Whilst AIM has suffered most, the setback has been fairly widespread across the market: the Small-Caps, Mid-Caps and some FTSE 100 stocks have all been hit. For the most part, the underperformance has come from highly rated growth stocks and some cyclicals. By and large, the defensive stocks have performed well. Growth companies that have missed market expectations have been hit particularly hard, irrespective of their size. The strength of Sterling has not helped and is becoming an increasingly common theme in our meetings with export orientated companies. It is also possible that the glut of primary issuance is depressing prices in the secondary markets; there is simply too much stock for the market to comfortably absorb. Despite all this, the on-going global recovery and the breadth and depth of qualifying issuance, which continues to grow in volume, leaves us confident about the medium term outlook.

In the three months to 31 May 2014, the NAV decreased from 120.24p to 116.88p. No dividends were paid, giving investors a total return of -3.36 pence per share, which translates to a loss of -2.8%. During the same period, the FTSE 100 gained 0.5% whilst the FTSE AIM All-Share fell 8.69%.

The qualifying investments made a net contribution of -2.50 pence per share with 22 out of the 49 making gains, 7 marking time and 20 losing ground.

Audioboom (+200.0%, +1.20 pence per share), one of our most recent investments, was the top performing qualifying investment. Although it remains a very small company (market cap £16m), there is considerable excitement about the company’s audio content platform, which aggregates ‘spoken word’ programming from more than 3000 channels (including BBC, Channel 4, Sky News, CBS, ESPN and LBC) for distribution through mobile devices. Other stocks that made a significant contribution included Hardide (42.9%, 1.02 pence per share), TrakM8 (29.3%, 0.79 pence per share), Ideagen (21.5%, 0.53 pence per share), Tristel (77.5%, +0.39 pence per share) and Flowgroup (9.7%, +0.25 pence per share).

The biggest losses within the period came from Wandisco (-63.1%, -1.64 pence per share) and Outsourcery (-50.0%, -0.94 pence per share). Wandisco suffered a dramatic fall in its share price as highly rated tech stocks came under pressure, although in this instance the potential need for additional funding has further undermined the share price. There has been no substantial news to suggest the business is in trouble and management continue to be confident of signing additional long term deals. Frustrating as the recent falls have been, the shares still remain over 160% higher than our entry price. Outsourcery is another to be hit by Balance Sheet issues, although in this case the problem has been compounded by slower than anticipated customer acquisition, which is primarily driven by their channel partners (such as Vodafone). Whilst the channel partner model gives the company great reach into the market in a cost efficient manner; it also reduces management’s ability to control the activity of their sales teams and leaves them at the mercy of slow moving behemoths.

We made 6 qualifying investments over the quarter, which included one additional investment into an existing qualifying company; four secondary placing’s into listed companies and one IPO.

The company that already featured within the qualifying portfolio was Imaginatik, the Innovation management software consultancy firm that raised a further £1.3m to provide additional working capital to fund their transition to profit. The qualifying investments in previously listed companies included Audioboom; Verona Pharma, a respiratory disease drug discovery company; Synety, a cloud software and integrated communications provider; and Science in Sports, a sports nutrition company. The IPO investment was in Eagle Eye, a mobile wallet, mobile marketing and m-commerce specialist with strong ties to Tesco.

We made no complete or partial exits from the qualifying portfolio over the quarter.

Portfolio Structure

The VCT is comfortably through the HMRC defined investment test and ended the period at 90.44% invested as measured by the HMRC investment test. By market value, the VCT had a 58.8% weighting to qualifying investments.

The allocation to non-qualifying equity investments increased from 9.4% to 12.8%, representing the funds small participation in non-qualifying equity issues and IPOs at attractive valuations. In line with the investment policy, we increased our investment in the Marlborough Special Situations Fund from 8.2% to 11.9%. Both these changes were largely due to the receipt of proceeds from the 2013/2014 offer pending investment into suitable qualifying opportunities. The non-qualifying investments contributed -0.33 pence per share to the overall losses. Fixed income as a percentage of the fund fell from 4.2% down to 3.9%. Cash ended the quarter at 13.0%, marginally down from 16.3%.

Post Quarter Update

Deal flow has continued to be strong since period end. We have made five additional qualifying investments.

Joint Offer for Subscription of Ordinary Shares

On 1 November 2013 the Directors of Hargreave Hale AIM VCT 1 plc and Hargreave Hale AIM VCT 2 plc announced the launch of a new joint offer for subscription of new shares in both VCT’s to raise up to £10 million into each company.

Since its launch on 1 November 2013 and the date of this report the offer has resulted in funds being received of £6.79m by Hargreave Hale AIM VCT 2, and the issue of 5.93 million shares.


In total, 8,383 ordinary shares were purchased between 1 March 2014 and the date of this report, at a total value of £9,904.


There were no dividends paid out over the quarter. The next dividend was announced on 27 May 2014 for 4.0p per ordinary share and was paid on 10 July 2014.

For further information please contact:

Stuart Brookes
Company Secretary
Hargreave Hale AIM VCT2 plc
01253 754740

Date: 15 July 2014

Short Name: Hargreave Hale AIM 2
Category Code: IMS
Sequence Number: 424595
Time of Receipt (offset from UTC): 20140715T083710+0100


Hargreave Hale AIM 2


Hargreave Hale AIM 2