Final Results

To:                   PRNewswire
From:              Strategic Equity Capital plc
Date:               14 September 2017

Results for the year ended 30 June 2017

The Directors of Strategic Equity Capital plc are pleased to announce the Company’s results for the year ended 30 June 2017.

The key points are as follows:

• The Company made good progress in the year to 30 June 2017, delivering very strong growth in both share price and net asset value (“NAV”).

• As at 30 June 2017, the Company had net assets of £176.3m (256.0 pence per share). On a total return basis, the Company’s NAV per share increased by 29.6%, which was ahead of the FTSE Small Cap ex Investment Trusts Total Return Index (“FTSE Small Cap Index”) which increased by 28.4%. The share price total return during the year was 26.1%.

• Over the past three years the Company has delivered a NAV total return per share of 49.0%, exceeding the 34.1% total return from the FTSE Small Cap Index by 14.9%. Notably, growth in the Company’s NAV has been delivered without the use of gearing and with relatively low volatility.

The Chairman, Richard Hills, said:

“Introduction

I am pleased to report that the Company made good progress in the year to 30 June 2017, delivering very strong growth in both share price and net asset value (“NAV”). The Investment Manager’s long standing approach in applying private equity investment techniques to public markets and focusing on a concentrated portfolio of high quality smaller companies continues to deliver positive performance. Further details on the Company’s portfolio are included in the Investment Manager’s Report below.

Performance

As at 30 June 2017, the Company had net assets of £176.3m (256.00 pence per share). This represented an increase of 29.3% in NAV per share over the period. On a total return basis, the Company’s NAV per share increased by 29.6%, which was ahead of the FTSE Small Cap ex Investment Trusts Total Return Index (“FTSE Small Cap Index”) which increased by 28.4%. The share price total return during the year was 26.1%.

The Company has delivered a NAV total return per share of 49.0% over the past three years, exceeding the 34.1% total return from the FTSE Small Cap Index by 14.9%. The five year NAV total return per share growth of 162.5% has exceeded the return from the Index by 29.6%. Notably, growth in the Company’s NAV has been delivered without the use of gearing and with relatively low volatility.

Discount Management

The average discount to NAV at which the Company’s shares have traded over the past 12 months was 11.0%. This masks volatility in the share ratings of both the Company and the broader UK Smaller Company investment trust sector as a whole. At the start of the financial year, the discount of 10.1% narrowed sharply before widening back to 11.4% as reported in the Company’s Interim Accounts for the period to 31 December 2016. Following the change in lead portfolio manager announced in early February, the discount again widened, but has since settled at the level of the peer group average and the Company’s shares ended the period trading at a discount of 12.7%.

Over the period, the Board has made use of the power granted by shareholders to buy back its shares. The Company has bought back a total of 975,419 Ordinary shares for an aggregate consideration of £2.1 million.

The Board continues to monitor closely the discount to NAV at which the Company’s shares trade. Notwithstanding that the average discount to NAV over the period exceeded 10%, the Board does not believe that the reintroduction of the tender offer is the best way forward, perceiving it to be a blunt tool which is unlikely to have a long term impact on the Company’s share rating. Nevertheless, the Board will listen to the views expressed by the Company’s shareholders as a whole in formulating its policy in this area. The Board will continue to use share buy-backs in normal market conditions, believing, as it does, that the ability to buy the Company’s portfolio at these discount levels represents an excellent investment opportunity.

Investment Manager’s Fees

The Board has entered into discussions with the Investment Manager on the level of fees payable.

Dividend

The Directors continue to expect that returns for shareholders will derive primarily from the capital appreciation of the Company’s shares rather than from their dividends. However, in order to qualify as an investment trust, no more than 15% of the income which the Company derives from its investments can be retained in any financial year. Accordingly, the Board is proposing an unchanged final dividend of 0.78p per Ordinary Share for the year ending 30 June 2017 (0.78p in 2016), payable on 15 November 2017 to shareholders on the register as at 13 October 2017.

Development of the Company

The Board is delighted that your Company has grown its NAV per share by 29.3% over the past 12 months. This growth is a tribute to those who have worked hard to produce strong returns in the period. Jeff Harris and Adam Khanbhai are an excellent team, supported by the infrastructure of GVQ Investment Management. They are part of a well-resourced and highly competent group of investment professionals who should be able to maintain the current momentum of the Company into the future.

The Board

Your Board is both cohesive and collegiate and we are enthusiastic about the prospects for the Company. The composition of the Board did not change throughout the year. Although Sir Clive Thompson had indicated that he would step down at the 2017 Annual General Meeting (“AGM”) he was asked by the Board to consider staying on for one more year. We all greatly appreciate Sir Clive’s clear thinking and sound judgement. I am pleased to say that we shall indeed enjoy the benefit of Sir Clive’s wise counsel for a further 12 months until the 2018 AGM. In the spring of next year we shall begin a recruitment process for Sir Clive’s replacement.

Gearing and Cash Management

The Company has maintained its policy of operating without a banking loan facility. This policy is periodically reviewed by the Board in conjunction with the Investment Manager.

The Board, together with the Investment Manager, has a conservative approach to gearing because of the concentrated nature of the portfolio. No gearing has been in place at any point during the period. Cash balances are generally maintained to take advantage of suitable investment opportunities as they arise.

Annual General Meeting

We hope that as many shareholders as possible will attend the Company’s Annual General Meeting, which will be held at the offices of Canaccord Genuity Limited, 88 Wood Street, London EC2V 7QR on 8 November 2017. This will be an opportunity to meet the Board and to receive a presentation from the Company’s Investment Manager.

Outlook

The Board shares the Investment Manager’s belief in the quality of the constituents of the portfolio.

With the Investment Manager’s detailed private equity derived research process and long term investment horizon, we believe that the Company is well placed to deliver positive future returns.

The Board would like to thank you for your continued support.”

The Investment Manager’s Report:

“Investment Strategy

Our strategy is to invest in publicly quoted companies which we believe will increase their value through strategic, operational or management change. We follow a practice of constructive corporate engagement and aim to work with management teams in order to enhance shareholder value. We aim to build a consensus with other stakeholders and prefer to work alongside like-minded co-investors as leaders, followers or supporters. We try to avoid confrontation with investee companies as we believe that there is strong evidence that overtly hostile activism generally produces poor returns for investors.

We are long-term investors and typically aim to hold companies for the duration of rolling three-year investment plans that include an entry and exit strategy and a clearly identified route to value creation. The duration of these plans can be shortened by transactional activity or lengthened by adverse economic conditions. Before investing we undertake an extensive due diligence process, assessing market conditions, management and stakeholders. Our investments are underpinned by valuations, which we derive using private equity-based techniques. These include a focus on cash flows, the potential value of the company to trade or financial buyers and potentially beneficial changes in capital structure over the investment period.

The typical investee company, at the time of initial investment, is too small to be considered for inclusion in the FTSE 250 index. We believe that smaller companies provide the greatest opportunity for our investment style as they are relatively under-researched, often have more limited resources, and frequently can be more attractively valued.

We believe that this approach, if properly executed, has the potential to generate favourable risk adjusted returns for shareholders over the long term.

Market Background

The period began not long after the result of the EU Referendum. The initial market response was more positive than had been feared. Companies with overseas earnings saw these benefit from the material depreciation in sterling and supportive economic data alleviated investors’ concerns. Earnings progression was positive over the past 12 months with the share price performance of more cyclically focused sectors such as construction and materials and industrial engineering particularly benefiting. The stock market continued a surge upwards post the US election result with the hope that President Trump would prove a boon for global growth. The first half of this calendar year stood by this optimism with strong PMI data across the globe.

The period drew to a close in a more sober mood. The ‘snap’ UK General Election appears to have further destabilised the political picture and the ‘Brexit’ negotiations continue to create uncertainty. The consumer environment in the UK remains weak with real wage growth running behind inflation, which has spiked in part as a result of the depreciation of sterling. Trading statements from DFS, AO World and Safestyle reflect the challenging consumer environment.

Performance over the year was strongest at the lower end of the size spectrum. The FTSE Small Cap Index produced a total return of 28.4% compared with the FTSE 250 Index of 22.2% and the FTSE 100 Index of 16.9%. The FTSE AIM All-Share Index delivered a total return of 38.5% and appears to be benefiting from continued inflows into IHT relief qualifying investment funds.

After predominantly seeing outflows for a number of months, smaller companies funds saw inflows in the first few months of 2017 as measured by the Investment Association fund flow data. The index has undergone a small re-rating, entering the period with a low teens median forward price-to-earnings multiple and modest mid single digit growth expectations.

Mergers and Acquisitions (“M&A”) activity was strong throughout the year and across the market cap spectrum, with the likes of ARM Holdings, Sky, Berendsen and Exova among those being acquired by overseas buyers. The weak position of sterling relative to history provides a discount to potential overseas buyers. The NAV of the Company benefited from the takeover of E2V Technologies by Teledyne at a c.48% premium in early December. This provided a good case study for investing in covetable assets. Where public markets often misvalue companies based on short term factors, an anomaly can quickly close.

Performance Review

Performance across the portfolio was strong with seven companies delivering total share returns over 40% and a further six companies in excess of 20%. Pertinently, only two holdings delivered a negative share price return, which is pleasing as capital preservation remains a key focus for the portfolio.

In aggregate, the portfolio saw a modest re-rating from a lower base post the referendum, supplemented by strong growth in earnings and cash flow. Operationally, portfolio companies continued to demonstrate progress and provide confident future outlook statements.

Top 5 Contributors to Performance

					Valuation at
					period end		Period attribution
Company					£’000		(basis points)
Equiniti					20,130		455
Tribal					14,928		402
E2V Technologies					–		391
Clinigen					13,166		359
Servelec					18,467		312

Equiniti was a new investment made in early 2016 at, what we believe, was a very attractive valuation. It is our view that there had been concern around the level of gearing following the IPO at the end of 2015 and that the stock had suffered owing to negative ‘read-across’ from the specific problems of other companies in the support services sector. On both of these issues we had (and continue to have) a different view. Equiniti ended the year as the largest holding. The business had been very well invested through private ownership and bore significantly higher debt levels through the crisis without needing any equity injection. This is largely due to its resilience in providing ‘critical but non-core’ services, with average customer tenure in share registration of over 20 years. It is also markedly different from other support services companies in having limited public exposure to multi-billion pound ‘cliffedge’ contracts. Despite headwinds of a cut in base rates and a slower IPO market, the company delivered solid growth in sales and profit. Total shareholder return of 60% over the year was supported by a re-rating as the market took account of the strong nature of the business model and exposure to growth areas including regulation technology (“RegTech”) and the need for customers to have cost effective solutions. Towards the end of the period, Capita sold its share registration administration division to an international acquirer at a reported 13x EBITDA. This business has similarities to Equiniti’s Investment Solutions division which accounts for approximately a third of the group and implies material valuation upside to the whole group.

Tribal delivered a total shareholder return of 56% over the year. We have been engaged with the company as it undertakes a strategy to overcome poor integration and a high cost base and build on a business with strong positions in attractive education and learning markets. Initial progress is encouraging. The company has delivered significant cost savings, identifying £9m of annualised efficiencies (on full year sales of c.£90m), the balance sheet has net cash and contract momentum is returning. We undertook further diligence over the year, visiting company sites and customers in Australia which reaffirmed our positive view of the company. The next steps for the business are to continue the transition towards a purer application software business, thereby improving the recurring revenue base and operating margins.

E2V Technologies delivered a total shareholder return of 37% over the year. The shares initially performed strongly given the significant US$ sales exposure of the group, but fell following delays in contract awards in space imaging at the time of interim results in November. Soon after, in early December an agreed bid from larger US peer Teledyne Technologies Inc. was announced at an all time high share price, and a premium of 48% to the prior day closing share price. The takeover was a positive culmination to an investment which involved a significant amount of engagement since first investment in late 2009.

Clinigen recovered from a depressed share price (and rating), delivering a total shareholder return of 42% over the year. Concerns over the timing of orders were addressed and the company reported strong growth in profit and cash flow in its full year results. The company held a capital markets day where the newly promoted CEO outlined the long term opportunities for the enlarged business given the significant shortage of access to medicines across much of the world. The acquisition of Link Healthcare in 2015 has provided access to a wider customer base and increased distribution to healthcare professionals in Africa, Asia and Australasia. In addition, the ongoing upgrade in the technology platform should improve operations and customer interaction.

Servelec delivered a total shareholder return of 33% over the year. The price initially recovered well from the surprise profit warning and downgrade in June last year. The shares were volatile driven by low liquidity and sentiment towards the timing of public sector spending. At the end of 2016, the company was awarded a previously delayed contract by Centrica to remotely operate an offshore gas platform. Full year results highlighted good order book progression and we recently increased our holding at a discounted valuation to historical levels.

Outside of the top five contributors, there was strong performance from Gooch & Housego delivering a total return of 59% over the year. It remains a very good quality business with strong growth, however it has re-rated to a very high valuation and as a result, the position has been materially reduced. A new position was initiated in Medica on its IPO in late March 2017 (see page 7 of the Annual Report for further details). Its market displays positive long term prospects and the shares delivered a total return of 67%. The position in Tyman was increased in March 2017 and the shares delivered a total return of 42% over the year.

Bottom 5 Contributors to Performance

					Valuation at
					period end		Period attribution
Company					£’000		(basis points)
Equiniti					20,130		455
Tribal					14,928		402
E2V Technologies					–		391
Clinigen					13,166		359
Servelec					18,467		312

After a very strong prior year, IFG Group delivered a negative total shareholder return of 6%. The company’s SIPP platform business, James Hay, was impacted by the cut in base rates in August last year which materially reduced interest income. In addition, continuing investment to improve back office functions and service levels has further depressed profits as highlighted in their full year results. Progress has been demonstrated in the growth in the average size of customer and the improving relationships with larger advisers. The wealth management business Saunderson House continues to grow strongly and is widening its discretionary management offering. Both businesses appear to be trading at a significant discount to precedent transaction multiples. The position was meaningfully increased after the final results in March.

Wilmington’s share price has been volatile and delivered a negative total return of 4% over the year. Good progress in the risk and compliance divisions has been offset by legacy issues in financial training and legal businesses. The company performed in-line with market expectations over the period, however, the shares have de-rated significantly to what we view as a material discount to fair value.

The holding in Volution was realised in full a few weeks into the period.

A small investment was made in Dialight towards the end of the period.

Northbridge was a small holding throughout the period and was recently fully exited.

The average cash balance held by the Company was 12.0% over the period. The approach of the Board and Investment Manager is one of no gearing and to retain sufficient cash to enable the ability to participate in liquidity events without being a forced seller of existing holdings. The ending cash balance was 7.6% compared with 9.5% at the beginning of the period.

Dealing activity

The level of portfolio activity was higher than in recent years, driven largely by M&A. Disposals netted £45.5m (excluding distributions from unquoted investments) representing c.29% of the weighted average NAV. In addition, £0.6m of distributions were received from unquoted investments and £42.3m of purchases were made, representing 27% of the weighted average NAV.

The first part of the period saw significant selling activity leading to a very high cash balance at the end of September of around 17%. Cash was deployed into existing holdings which were weaker towards the end of the year but the cash balance was supplemented following the takeover of E2V. Until the consideration was paid in late March, the cash plus E2V (accounting for c.9.5%of NAV) was around 20% of NAV. As a result, there has been significant redeployment of capital in the second half of the reporting period.

New investments were made in three companies. As detailed in the Interim Report, an investment was made in Harworth Group soon after the EU Referendum. The company is one of the UK’s largest land and property regeneration companies across the North of England and the Midlands, owning and managing over 22,000 acres across 140 sites. We had performed diligence on the company earlier in the year but the valuation at the time prevented investment. The price discount to net asset value (“NAV”) subsequently widened materially to 35% and a seller provided liquidity for the initial £3.6m investment (with a further £1.0m invested later in the year). Harworth is modestly geared for a property company and we believe its regeneration and improvement model has the potential to generate long term NAV per share growth of 10-12% across the economic cycle.

We participated in the IPO of Medica, a UK market leader in the provision of outsourced teleradiology services to hospitals. Medica enables hospital radiology departments to send MRI, CT and X-ray images to an off-site Medica (NHS qualified) radiologist who can remotely interpret the scan. It has grown strongly owing to the growth in scanning activity driven by demographics and healthcare guidelines alongside the shortage of radiologists in A&E departments. The IPO was heavily oversubscribed and we received a high allocation investing £7.3m over the period with the vast majority at the IPO price. Although higher growth than a typical investment, we believe the business is very high quality with many long term structural growth drivers and has the possibility to move into other therapeutic areas.

A further new £6.2m investment was made in Alliance Pharma, the AIM listed UK pharmaceutical company. The company has a mature, diversified portfolio of niche prescription and branded over-the-counter (OTC) products built up over a long period of time. Growth has not been dependent on research and development and the company has limited exposure to the economic cycle. Post a large acquisition in 2015, the company has extended the product range and international footprint providing future opportunity. However, this also increased debt levels, which we believe has concerned investors and depressed the rating. The business is highly cash generative and is forecast to de-gear rapidly. The high free cash flow yield at investment is very attractive and, in our view, unreflective of the potential opportunities.

Material investments were made in existing holdings including Equiniti (£5.6m), IFG (£4.4m) and Servelec (£4.2m). A £3.5m top-up investment was made in Tyman at the end of February as the rating screened anomalously low on a growth and cash flow basis. Earnings have since been upgraded alongside a slight re-rating but the valuation remains attractive.

The longstanding holding in E2V was fully realised with £15.9m of cash received following the acquisition by Teledyne. Small investments in Volution (£1.7m), Iomart (£0.6m) and Northbridge (£0.5m) were sold in full.

The position in Gooch and Housego was materially reduced by £6.8m throughout the course of the year. The shares performed very strongly driven by good growth and cash flow and a significant re-rating. Although the company has rich intellectual property in photonics and is exposed to growing markets, we believe the valuation is a material premium in absolute and relative terms and prices in a high level of continuing future growth. Other sales of note included Clinigen (£4.8m) and 4imprint (£3.0m) earlier in the period post the US$ strengthening and Brooks MacDonald (£1.2m).

Portfolio Review

The portfolio remains highly focused with a total of 18 holdings. The top 10 holdings accounted for 76% of the NAV at the end of the financial period. 99.2% was invested in quoted companies. The percentage of the portfolio invested in unquoted securities fell from 1.2% to 0.8%. 7.6% of the NAV was invested in cash at the period end.

There have been changes in sector weightings with NAV exposure to Electronics reducing from 15.1% to 1.4%, following the realisation of E2V and the reduced investment in Gooch & Housego. Healthcare has increased from 9.5% to 17.6% as a result of new investments in Medica and Alliance Pharma and there is 3.1% exposure to property through Harworth.

Exposure to the UK has increased through new investments in Medica and Alliance Pharma and the increased weights in Equiniti and IFG Group, along with the realisation of E2V and the reduced holding in Gooch and Housego, both of which have international exposure.

We screen for potential investments based on a long standing process focusing on ‘four drivers’ of equity returns; growth, value, corporate activity and de-gearing. We believe this combines the best aspects of public market and private equity investing and improves the chance of delivering shareholder value creation. Our focus is on specific companies as opposed to a ‘top-down’ overlay. Through the underlying holdings, we believe that the current portfolio is exposed to multi-year investment themes including the growth in regulation and compliance, digital health, non-R&D based pharmaceuticals, the growth in the pensions and savings market and infrastructure and building.

Portfolio as at 30 June 2017 – Top 10 Largest Investments

Company	Sector Classification	Date of first Investment	Cost £’000	Valuation £’000	% of invested portfolio at 30 June 2017	% of invested portfolio at 30 June 2016	% of net assets
Equiniti Group	Support Services	Mar 2016	13,793	20,130	12.4	6.6	11.4
Servelec Group	Software & Computer Services	Dec 2013	14,917	18,467	11.3	8.5	10.5
Tribal Group	Software & Computer Services	Dec 2014	13,661	14,928	9.2	7.4	8.5
IFG Group	Financials	Apr 2015	11,976	13,429	8.2	7.5	7.6
Clinigen Group	Healthcare	Jul 2014	7,746	13,166	8.1	10.5	7.5
EMIS Group	Software & Computer Services	Mar 2014	10,075	11,715	7.2	9.2	6.6
Medica Group	Healthcare	Mar 2017	7,045	11,372	7.0	-	6.5
Wilmington Group	Media	Oct 2010	8,981	10,867	6.7	9.5	6.1
Tyman	Industrials	Apr 2007	5,210	9,911	6.1	4.3	5.6
4imprint Group	Support Services	Feb 2006	1,868	9,572	5.9	7.7	5.4

Portfolio as at 30 June 2017 – Sector split by industry

Sector	Percentage
Software & Computer Services	27.1%
Healthcare	17.6%
Support Services	16.8%
Financials	9.8%
Net cash	7.6%
Media	6.1%
Industrials	5.6%
Consumer Services	4.1%
Property	3.1%
Electronics	1.4%
Unquoted investments	0.8%

Portfolio as at 30 June 2017 – Size split by market capitalisation

Size	Percentage
£100m - £300m	42.7%
Greater than £500m	31.2%
£300m - £500m	12.1%
Net cash	7.6%
Less than £100m	5.6%
Unquoted Investments	0.8%

Portfolio Characteristics as at 30 June 2017

Consensus Median portfolio characteristics	Strategic Equity Capital	FTSE Small Cap ex Investment Trusts	FTSE Small Cap ex Investments Trusts ex Resources and financials
Price/Earnings ratio (FY1)	16.8x	12.5x	12.8x
Dividend yield	2.2%	3.1%*	3.1%*
Price/Book ratio	2.6x	1.5x	n/a
Price/Sales ratio	2.0x	0.7x	n/a
Price/Cashflow ratio	16.6x	n/a	n/a
GVQIM Cash flow yield **	8.3%	n/a	n/a
Forecast earnings growth (FY1)	14.0%	6.9%	6.3%
Forecast net debt to EBITDA	0.0x	1.4x	1.0x

SOURCE: FACTSET PORTFOLIO ANALYSIS SYSTEM, PEEL HUNT. INDEX STATISTICS INCLUDE LOSS MAKERS. * DIVIDEND YIELD FPR THE INDICES EXCLUDES NON-PAYERS.

** GVQIM CASHFLOW YIELD: (12 MONTH FORWARD CASH EBITDA MINUS MAINTENANCE CAPEX)/(MARKET CAPITALISATION PLUS 12 MONTH FORWARD NET DEBT).

Consistent with previous periods, the portfolio’s aggregate valuation (in terms of the P/E ratio) is higher than the constituents of the broader FTSE Small Cap Index. However, the portfolio companies enjoy less geared balance sheets and are forecast to grow earnings much faster. It is worth noting that the relatively high dividend yield of the broader indices reflects the exclusion of companies which do not pay a dividend.

Unquoted Investments

Over the period, the Company received a capital distribution of £0.6m from Vintage I. The outstanding commitment relating to Vintage I is €1,560,000 and its adviser has communicated that it does not expect to make any further net draw downs.

Outlook

Over recent years, periods of uncertainty have become a feature in global political and financial systems, but rarely can there have been as many notable shifts as in the past 12 months, which have been well-trailed. Looking out, many issues remain: geopolitical tension between the global superpowers; terrorism; disunity in the UK political system; with a lack of clarity over the short and long term landscape and the prevalence of cyber crime to name but a few. In these situations, it is easy to lose focus. As investors, we continually consider the impact of events on companies and their customers, on capital flows and on valuations. Our approach is to continue to adopt a very disciplined and well-entrenched approach to investment focusing on:

– High quality business models;

– A cash flow based valuation methodology; and

– Retaining conviction based on companies’ positions in long term structural growth markets.

The last of these, conviction, is key. Strategic Equity Capital is a high conviction portfolio. We believe in the virtues of investing for the long term. That is not to say we aren’t scrutinous with the existing portfolio. We continually monitor and actively engage with existing holdings, assessing whether our detailed core investment theses remains valid. Away from the portfolio, we continue to meet several new companies every year. Few meet our strictly defined quality criteria and fewer still are what we consider investable. It is common that we follow companies for months and sometimes years before we feel the time is right to deploy new capital.

A challenge is distilling the abundance of information today. Our ‘top-down’ view is best informed from our numerous company interactions and considering how businesses are trading. As we stand, companies are trading as expected (and often better) and not seeing any meaningful sign of slowdown in their end markets. We remain cautious but cerebral.

As ever, there is a great deal of uncertainty to contend with. The spectre of the vast swathes of US Dollar denominated debt is coming in to focus again and there is still the longer term challenge of restricting the impact of ‘tightening’ on the global economy. In the UK, the household savings ratio is at the lowest rate since records began back in 1963, with real household disposable incomes falling for the third consecutive quarter. We are consciously avoiding stocks exposed to UK discretionary spending. The foreign exchange benefit of the devaluation of sterling from this time last year has largely played out and may become a slight earnings headwind with sterling above $1.30 at the time of writing. Hereon in, companies will need to demonstrate ‘real’ growth.

On the positive side, the global economy is enjoying a fairly broad based and synchronised upswing continuing the long and shallow growth cycle. Corporate balance sheets are improving with companies continuing to deleverage since the start of 2016. The median aggregate gearing of the Company’s underlying holdings is 0.0x net debt to EBITDA. Although the market has re-rated from historic lows, the median small cap forward price to earnings multiple of around 14x doesn’t feel stretching. On a relative basis, equities aren’t overtly expensive. The spread between UK equity dividend and credit yields is at a multi year low. The first half of 2017 has seen private equity deal volumes at the highest level since 2007. The new period has started where it left off with M&A activity involving Worldpay, Novae, Paysafe and Cape. We believe this will be a continuing feature and note the recent proclamation from the Chief Executive of Meggitt, the FTSE 250 aerospace company, that ‘British companies are probably the most attractive in the world to take over’. We invest in what we believe are highly covetable assets with limited impediment to potential acquisition.

For a long time, we have argued that global flows haven’t reflected the positive prospects for equities. With recent reports of investors oversubscribing for ‘century bonds’, the prospects for permanent capital destruction are real. Pleasingly, there has been evidence to support our investment approach. Recent data from Preqin has showed that Private Equity ‘dry powder’ (funds available for investment), stood at $906bn, a new industry record. In addition, 2017 has seen the return of inflows into the IA UK Smaller Companies sector, with April seeing the strongest month for inflows since March 2014.

We believe the opportunity set in smaller companies remains highly attractive. There is growing evidence of a small cap ‘liquidity discount’ where the smaller, less liquid part of the stock market suffers from lower valuations. The Company continues to adopt a longer term approach with the ability to take advantage of transitory pricing anomalies. Furthermore, it is oft-cited that smaller companies are ‘under-researched’. This is even more valid further down the smaller company spectrum. Our ‘sweet-spot’ is genuine smaller companies (sub-£500m market capitalisation at the time of investment) and analyst coverage here is lower and could potentially reduce post the changes that will be brought about with the introduction of MiFID II at the start of 2018. In this environment, we believe we are well placed with our detailed, multi-stage, long-focused research process.

In the absence of a ‘black swan’ event, markets tend to climb a wall of worry. Rather than being ebullient, investors remain skittish. Our view on fundamental characteristics is that the combination of growth and cash flow of over 20% is positive and provides us with assurance over medium term portfolio returns.

Our favourable outlook is framed by the underlying quality of the Company’s portfolio of holdings. We are often asked what we mean when we talk of ‘quality’. We look to take a share of businesses with genuine intellectual property, providing products or services that cannot be offered by many others. This confers on them market leadership or pricing power and the consequent ability to generate durable returns. The portfolio gives exposure to companies with leading positions in structurally growing markets. As such, our outlook over the medium term is positive. Uncertainty exists today as it has done over recent history and will undoubtedly exist in future periods. The constitution of the Company with underlying holdings of requisite quality at attractive valuations provides us with confidence over the Company’s long term prospects.

Top 10 Investee Company Review (as at 30 June 2017)

4imprint Group is a leading direct marketer of promotional products with an international network of companies in North America and the UK. It processed over one million customised orders in 2016. We have been involved with the company since a change of management in 2003. Following the disposal of Brand Addition, virtually all of the profits of the group are generated by the fast growing US business. The company has a significant net cash balance. Funds managed by the

Investment Manager currently hold approximately 3% of the company’s equity.

Clinigen Group is a speciality pharmaceutical and services company. It has three business units – Clinical Trial Services, Unlicensed Medicines and Commercial Medicines. Activities undertaken by these businesses include: acquiring, licencing and revitalising hospital-only critical care medicines; and providing patient access to its own or other pharmaceutical companies’ products, whether to meet unmet medical needs or for use in clinical trials. The company has grown rapidly since its IPO in 2012, both organically and through targeted acquisitions. In April 2015 it acquired Idis, a peer, for £225m through a mixture of debt and equity and in September 2015, acquired Link Healthcare, a specialist pharmaceutical and medical business focused on the Asia, Africa and Australasia region. We believe the cash flow characteristics are underappreciated which should see the company de-gear rapidly over the next two years. The company has a leading position in a multi-year growth market. Funds managed by the Investment Manager hold c.3% of the company’s equity.

EMIS Group is a specialist healthcare software and services provider. It is the UK market leader in the provision of electronic patient records for GPs, with a 55% market share, and over 80% of total revenues are recurring. It also supplies electronic patient records to other healthcare organisations including community pharmacies, community and mental health trusts and accident & emergency departments. With solutions across every major healthcare setting, we believe EMIS is uniquely positioned to benefit from the NHS’s connected care strategy. During the reporting period, the company announced additional investment into Patient, an online platform with 18 million unique monthly users to provide high quality healthcare information and solutions. EMIS is highly cash generative with a strong balance sheet providing future opportunity. Funds managed by the Investment Manager currently hold c.4% of the company’s equity.

Equiniti is a business services company providing administration, processing payments services and technology products typically to FTSE 350 companies and large public sector organisations. It is one of the three main share registrars for UK quoted companies. It administers company benefits schemes and share savings schemes. It also provides software and services to help manage the administration of company and public sector pension funds. We believe the business has a strong combination of stable, long-term repeatable non-discretionary corporate services alongside offering technology based solutions to growing regulatory requirements. The business was founded with the buyout of Lloyds TSB Share Registrars by private equity house Advent International in 2007. Following the buyout the company added to its product and service capability through a number of targeted acquisitions. The company IPO’d in October 2015. Whilst it was well invested under private equity ownership, there are significant medium to long term opportunities through rationalising its UK office footprint as well as offshoring more activities to its base in India. Together with moderate organic growth we believe that the company has the potential to deliver high single digit/low double digit earnings growth, which should not be significantly impacted by the broad market cycle. Despite its quality, the company trades at a moderate rating. The recently announced acquisition of Wells Fargo’s Share Services business in North America is a positive development in our view. Funds managed by the Investment Manager currently hold c.5% of the company’s equity.

IFG Group is a financial services holding company with two operating assets. London-based Saunderson House is a wealth manager with almost £5bn of assets under advice. James Hay is an investment platform, originally a pioneer in the provision of Self-Invested Pension Plans (“SIPPs”). Over the past few years, IFG has sold a number of other activities to focus on Saunderson House and James Hay. We believe that both of these businesses offer long-term structural sales growth, as well as scope to make higher margins. The shares are dual-listed in Dublin and London, with the primary listing in Dublin. Comparative M&A multiples suggest that IFG shares trade at a considerable discount to its Sum-of-Parts valuation. Funds managed by the Investment Manager currently hold 8% of the company’s equity.

Medica Group is the leading provider of teleradiology services in the UK. The company provides outsourced interpretation and reporting of MRI, CT and plain film x-ray images. This is delivered through three primary services to UK hospital radiology departments: Nighthawk out-of-hours service; Routine cross-sectional reporting on MRI and CT scans; and Routine plain film reporting on x-ray images. Teleradiology as a service aims to improve patient care through faster response and overcoming the challenge hospitals face in the increasing volume in scanning activity. Medica was previously owned by Close Brothers Private Equity following a 2013 buyout. The company was IPO’d in March 2017 on the LSE and admitted to the FTSE Small Cap index in June 2017. Funds managed by the Investment Manager currently hold c.5% of the company’s equity.

Servelec Group is a UK technology company with three key divisions. The health and social care software division is a market leader in the design and operation of electronic patient records for NHS mental and community trusts. The controls division specifies, designs, assembles, installs and maintains safety and remote control systems for process industries. The technologies division provides software, hardware and systems for industrial telemetry and SCADA applications. It was listed in November 2013, having previously been owned by a Singaporean-listed group. The company has strong cash generation and a robust balance sheet and has utilised this effectively through acquisitions to augment the proposition. We believe the company has strong positions in markets exposed to long term structural change. Funds managed by the Investment Manager currently hold 9% of the company’s equity.

Tribal is a global provider of products and services to the international education, training and learning markets. Today, the company focuses its activities on student records and administration systems and quality review inspection services. It has a high market share in a number of product niches and geographies. We believe that the company has the potential to grow through increasing its international sales, as well as updating and upselling to its existing UK customer base. Since November 2015 the company’s board has been substantially refreshed, a non-core subsidiary sold and equity raised to strengthen the balance sheet. The company is one year in to a three year strategy and has effectively reduced its overhead and is developing its next generation software platform. Funds managed by the Investment Manager currently hold just below 10% of the company’s equity.

Tyman is a leading international supplier of engineered components to the door and window industry in the new build and repair and maintenance (RMI) markets. We originally invested in the company following the fall in residential activity around the financial crisis in 2009. Under the current management team, the company has, through organic and inorganic investment, increased its market leadership, strengthened the product proposition and delivered significant cost and sales synergies. We believe future upside exists in the company’s ability to replicate its North American manufacturing template to its operations in Europe and the Rest of the World to achieve material efficiencies, and in the recovery of U.S. single family housing activity to long term historical levels. Funds managed by the Investment Manager currently hold c.6% of the company’s equity.

Wilmington Group provides business information and training services to professional business customers in the financial services, medical and white-collar professional service sectors. More than 80% of revenues in the main publishing and information divisions are delivered digitally, typically on a subscription basis, and with high levels of client retention. The company is highly cash generative. Growth has been held back over recent years by a significant fall, and no recovery, in its legal training market and the decline in some legacy print publications. This has masked strong growth in the rest of the business, in particular in Risk and Compliance. The company’s strong cash flow has enabled it to make value-enhancing acquisitions again. In January 2017, it acquired Health Service Journal (HSJ) from Ascential to bolster the Healthcare division. Funds managed by the Investment Manager currently hold 5% of the company’s equity.

For further information, please contact:

GVQ Investment Management Limited                     0203 824 4500

Investment:                 Jeff Harris

Investor relations:        Theresa Russell

Canaccord Genuity Limited (Corporate broker)        020 7523 8000

Andrew Zychowski / Robbie Robertson / Lucy Lewis

Lansons Communications on behalf of                      020 7294 3687

GVQ Investment Management Limited

David Masters

The Company’s Statement of Comprehensive Income, Statement of Changes in Equity, Balance Sheet, and Statement of Cash Flows follow.

Statement of Comprehensive Income

	Year ended 30 June 2017
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Investments
Gains on investments held at fair value through profit or loss	-	41,587	41,587
	-	41,587	41,587
Income
Dividends	2,955	-	2,955
Interest	36	-	36
Other income	-	-	-
Total income	2,991	-	2,991
Expenses Investment Manager’s fee	(1,418)	-	(1,418)
Investment Manager’s performance fee	-	(1,856)	(1,856)
Other expenses	(583)	-	(583)
Total expenses	(2,001)	(1,856)	(3,857)
Net return before taxation	990	39,731	40,721
Taxation	(75)	-	(75)
Net return and total comprehensive income for the year	915	39,731	40,646
Return per Ordinary share	1.31p	56.98p	58.29p
The total column of this statement represents the Statement of comprehensive income. The supplementary revenue and capital return columns are both prepared under guidance published by the AIC. All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.

Statement of Comprehensive Income

	Year ended 30 June 2016
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Investments
Losses on investments held at fair value through profit or loss	-	(13,784)	(13,784)
	-	(13,784)	(13,784)
Income
Dividends	2,306	-	2,306
Interest	74	-	74
Other income	21	-	21
Total income	2,401	-	2,401
Expenses Investment Manager’s fee	(1,419)	-	(1,419)
Other expenses	(632)	-	(632)
Total expenses	(2,051)	-	(2,051)
Net return before taxation	350	(13,784)	(13,434)
Taxation	(48)	-	(48)
Net return and total comprehensive income for the year	302	(13,784)	(13,482)
Return per Ordinary share	0.44p	(20.07p)	(19.63p)

Balance Sheet

			As at 30 June 2017			As at 30 June 2016
			£'000			£'000
Non-current assets
Investments held at fair value though profit or loss			162,931			125,157
Current assets
Trade and other receivables			354			356
Cash and cash equivalents			15,891			13,303
Total assets			16,245			13,659
Current liabilities
Trade and other payables			(2,832)			(455)
Total assets less current liabilities			176,344			138,361
Net assets			176,344			138,361
Capital and reserves
Share capital			6,986			6,986
Share premium account			31,737			31,737
Special reserve			36,814			38,932
Capital reserve			97,305			57,574
Capital redemption reserve			2,264			2,264
Revenue reserve			1,238			868
Total shareholders’ equity			176,344			138,361
Ordinary shares in issue			68,883,472			69,858,891
Net asset value per share			256.00p			198.06p

Statement of Changes in Equity

For the year ended 30 June 2017	Share capital	Share premium account	Special reserve	Capital reserve	Capital redemption reserve	Revenue reserve	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
Balance as at 1 July 2016	6,986	31,737	38,932	57,574	2,264	868	138,361
Net return and total comprehensive income for the year	-	-	-	39,731	-	915	40,646
Dividends paid	-	-	-	-	-	(545)	(545)
Share buy-backs	-	-	(2,118)	-	-	-	(2,118)
Balance as at 30 June 2017	6,986	31,737	36,814	97,305	2,264	1,238	176,344
For the year ended 30 June 2016	Share capital	Share premium account	Special reserve	Capital reserve	Capital redemption reserve	Revenue reserve	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
Balance as at 1 July 2015	6,258	16,330	38,932	71,358	2,264	1,100	136,242
Net return and total comprehensive income for the year	-	-	-	(13,784)	-	302	(13,482)
Dividends paid	-	-	-	-	-	(534)	(534)
Share issues	728	15,769	-	-	-	-	16,497
Share issue costs	-	(362)	-	-	-	-	(362)
Balance as at 30 June 2016	6,986	31,737	38,932	57,574	2,264	868	138,361

Statement of Cash Flows

	Year Ended 30 June	Year Ended 30 June
	2017	2016
	£’000	£’000
Operating activities
Net return before taxation	40,721	(13,434)
Adjustment for (gains)/ losses on investments	(41,587)	13,784
Irrecoverable withholding tax	(75)	(48)
Operating cash flows before movements in working capital	(941)	302
(Increase)/ decrease in receivables	(76)	37
Increase/(decrease) in payables	2,262	(2,324)
Purchase of portfolio investments	(42,186)	(43,867)
Sales of portfolio investments	46,197	26,243
Net cash flow from operating activities	5,256	(19,609)
Financing activities
Equity dividend paid	(545)	(534)
Shares bought back in the year	(2,116)	-
Shares issued	-	16,497
Share issue expenses	-	(362)
Net cash flow from financing activities	(2,661)	15,601
Increase/(decrease) in cash and cash equivalents for year	2,595	(4,008)
Cash and cash equivalents at the start of the year	13,303	17,312
Revaluation of foreign currency balances	(7)	(1)
Cash and cash equivalents at 30 June	15,891	13,303

Principal Risks and Uncertainties

The Board believes that the overriding risks to shareholders are events and developments which can affect the general level of share prices, including, for instance, inflation or deflation, economic recessions and movements in interest rates and currencies which are outside of the control of the Board.

The principal risks and uncertainties are set out on pages 17 and 18 of the Annual Report for the year ended 30 June 2017, which is available at www.strategicequitycapital.com.

Responsibility statement of the Directors in respect of the Annual Financial Report

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company; and

• the strategic report/includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

Going Concern

The Company has adequate financial resources to meet its investment commitments and, as a consequence, the Directors believe that the Company is well placed to manage its business risks. After making appropriate enquiries and due consideration of the Company’s cash balances, the liquidity of the Company’s investment portfolio and the cost base of the Company, the Directors have a reasonable expectation that the Company has adequate available financial resources to continue in operational existence for the foreseeable future and accordingly have concluded that it is appropriate to continue to adopt the going concern basis in preparing the Annual Financial Report, consistent with previous periods.

Related Party Transactions

The Investment Manager may draw upon advice from the IAP of which Sir Clive Thompson, a Director of the Company, is a member. The IAP was established to provide advice to the Investment Manager in relation to the strategy, operations and management of potential investee companies.

The amounts payable to the Investment Manager are disclosed in Note 3 on page 46 of the Annual Financial Report. The amount due to the Investment Manager for management fees at 30 June 2017 was £728,000 (2016: £350,000). The amount due to the Investment Manager for performance fees at 30 June 2017 was £1,856,000 (2016: £Nil).

Fees paid to Directors are disclosed in the Directors’ Remuneration Report on page 31 of the Annual Financial Report. Full details of Directors’ interests are set out on page 32 of the Annual Financial Report.

Notes

1.1 Corporate information

Strategic Equity Capital plc is a public limited company incorporated and domiciled in the United Kingdom and registered in England and Wales under the Companies Act 2006 whose shares are publicly traded. The Company is an investment company as defined by Section 833 of the Companies Act 2006.

The Company carries on business as an investment trust within the meaning of Sections 1158/1159 of the UK Corporation Tax Act 2010.

1.2 Basis of preparation and statement of compliance

The financial statements of the Company have been prepared in accordance with IFRS issued by the International Accounting Standards Board (as adopted by the EU), interpretations issued by the International Financial Reporting Interpretations Committee, and applicable requirements of United Kingdom company law, and reflect the following policies which have been adopted and applied consistently. Where presentational guidance set out in the Statement of Recommended Practice (“SORP”) for investment trusts issued by the AIC is applied to the extent it is consistent with the requirements of IFRS, the Directors have sought to prepare financial statements on a basis compliant with the recommendations of the SORP.

The financial statements of the Company have been prepared on a going concern basis, on the assumption the continuation vote is passed by Shareholders at the forthcoming Annual General Meeting.

Convention

The financial statements are presented in Sterling, being the currency of the Primary Economic Environment in which the Company operates, rounded to the nearest thousand, unless otherwise stated to the nearest one pound.

Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business.

1.3 Accounting policies

The accounting policies used in the preparation of the Annual Financial Report can be found on pages 43 to 45 of the Report for the year ended 30 June 2017.

1.4 New standards and interpretations not applied

IASB and IFRIC have issued the following standards and interpretations which are not effective for the year ended 30 June 2017 and have not been applied in preparing these financial statements.

International Accounting Standards (IAS/IFRS)         Effective date*

IFRS 9 Financial Instruments                                     1 January 2018†

IFRS 15 Revenue from Contracts with Customers   1 January 2018†

IFRS 16 Leasing                                                         1 January 2019

* Years beginning on or after.

† Early adoption permitted.

2. Income

	Year ended 30 June 2017
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Income from investments:
UK dividend income	2,582	-	2,582
Overseas dividend income	373	-	373
	2,955	-	2,955
Liquidity interest	36	-	36
	2,991	-	2,991
Total income comprises:
Dividends	2,955	-	2,955
Interest	36	-	36
	2,991	-	2,991
Income from investments:
Listed UK	2,582	-	2,582
Listed overseas	373		373
Liquidity interest	36		36
	2,991	-	2,991

	Year ended 30 June 2016
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Income from investments:
UK dividend income	2,048	-	2,048
Overseas dividend income	258	-	258
	2,306	-	2,306
Liquidity interest	74	-	74
	2,380	-	2,380
Other income:
Underwriting commission	21	-	21
	2,401	-	2,401
Total income comprises:
Dividends	2,306	-	2,306
Interest	74		74
Underwriting commission	21	-	21
	2,401	-	2,401
Income from investments:
Listed UK	2,048	-	2,048
Listed overseas	258		258
Liquidity interest	74		74
	2,380	-	2,380

3. Investment Manager’s fee

	Year ended 30 June 2017
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Management fee	1,418	-	1,418
Performance fee	-	1,856	1,856
	1,418	1,856	3,274

	Year ended 30 June 2016
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Management fee	1,419	-	1,419
Performance fee	-	-	-
	1,419	-	1,419

A basic management fee is payable to the Investment Manager at the lower of (i) the annual rate of 1.0% of the NAV of the Company or (ii) 1.0% per annum of the market capitalisation of the Company. The basic management fee accrues daily and is payable quarterly in arrears.

The Investment Manager is also entitled to a performance fee, details of which are set out below.

The Company’s performance is measured over rolling three-year periods ending on 30 June each year, by comparing the NAV total return per share over a performance period against the total return performance of the FTSE SmallCap (ex Investment Companies) Index. A performance fee is payable if the NAV total return per share (calculated before any accrual for any performance fee to be paid in respect of the relevant performance period) at the end of the relevant performance period exceeds both: (i) the NAV per share at the beginning of the relevant performance period as adjusted by the aggregate amount of (a) the total return on the FTSE SmallCap (ex Investment Companies) Index (expressed as a percentage) and (b) 2.0% per annum over the relevant performance period (“Benchmark NAV”); and (ii) the high watermark (which is the highest NAV per share by reference to which a performance fee was previously paid).

The Investment Manager is entitled to 15% of any excess of the NAV total return over the higher of the Benchmark NAV per share and the high watermark. Payment of a performance fee that has been earned will be deferred to the extent that the amount payable exceeds 1.75% per annum of the Company’s NAV at the end of the relevant performance period (amounts deferred will be payable when, and to the extent that, following any later performance period(s) with respect to which a performance fee is payable, it is possible to pay the deferred amounts without causing that cap to be exceeded or the relevant NAV total return per share to fall below the relevant Benchmark NAV per share and/or the relevant high watermark).

A performance fee of £1,856,000 is payable in respect of the rolling three-year period ended 30 June 2017 (2016: £nil).

4. Other expenses

	Year ended 30 June 2017
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Secretarial services	120	-	120
Current Auditors’ remuneration for:
Audit services*	20	-	20
Directors’ remuneration	135	-	135
Other expenses	308	-	308
	583	-	583

	Year ended 30 June 2016
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Secretarial services	98	-	98
Current Auditors’ remuneration for:
Audit services*	20	-	20
Previous Auditors’ services*	2	-	2
Directors’ remuneration	129	-	129
Other expenses	383	-	383
	632	-	632

*No non-audit fees were incurred during the year

5. Taxation

	Year ended 30 June 2017
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Overseas dividend withholding tax*	75	-	75
	75	-	75

	Year ended 30 June 2016
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Overseas dividend withholding tax*	48	-	48
	48	-	48

The Company is subject to corporation tax at 19.75%. As at 30 June 2017 the total current taxation charge in the Company’s revenue account is lower than the standard rate of corporation tax in the UK.

* IFG Group withholding tax paid £74,603 (2016: £48,094).

6. Return per Ordinary share

	Year ended 30 June 2017
	Revenue	Capital
	return	return	Total
	pence	pence	Pence
Return per Ordinary share	1.31	56.98	58.29
	1.31	56.98	58.29
	Year ended 30 June 2016
	Revenue	Capital
	return	return	Total
	pence	pence	Pence
Return per Ordinary share	0.44	(20.07)	(19.63)
	0.44	(20.07)	(19.63)

Returns per Ordinary share are calculated based on 69,731,772 (30 June 2016: 68,687,443) being the weighted average number of Ordinary shares, excluding shares held in treasury, in issue throughout the year.

7. Investments

	30 June 2017 £’000
Investment portfolio summary:
Listed investments at fair value through profit or loss	161,579
Unlisted investments at fair value through profit or loss	1,352
	162,931

	30 June 2016 £’000
Investment portfolio summary:
Listed investments at fair value through profit or loss	123,509
Unlisted investments at fair value through profit or loss	1,648
	125,157

The Company is required to classify fair value measurements using a fair value hierarchy that reflects the subjectivity of the inputs used in measuring the fair value of each asset. The fair value hierarchy has the following levels:

Investments whose values are based on quoted market prices in active markets are classified within level 1 and include active listed equities. The Company does not adjust the quoted price for these instruments.

The definition of level 1 inputs refers to ‘active markets’, which is a market in which transactions take place with sufficient frequency and volume for pricing information to be provided on an ongoing basis. Due to the liquidity levels of the markets in which the Company trades, whether transactions take place with sufficient frequency and volume is a matter of judgement, and depends on the specific facts and circumstances. The Manager has analysed trading volumes and frequency of the Company’s portfolio and has determined these investments as level 1 of the hierarchy.

Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within level 2. As level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

Level 3 instruments include private equity, as observable prices are not available for these securities the Company has used valuation techniques to derive the fair value. In respect of unquoted instruments, or where the market for a financial instrument is not active, fair value is established by using recognised valuation methodologies, in accordance with IPEV Valuation Guidelines.

Level 3 investments consist of an investment in a private equity fund of funds managed by 3i (‘the Fund’) and is valued at the Company’s attributable proportion of the reported Fund Net Asset Value in accordance with the IPEV Valuation Guidelines. The Net Asset Value of the Fund is derived from the Fair Value of the underlying funds based on the most recent financial statements of the underlying funds adjusted for any subsequent cash movements to and from the underlying funds.

The underlying funds primarily invest in private companies which are recorded at cost or Fair Value derived from private equity valuation models and techniques. The main inputs into the valuation models of the underlying funds include industry performance, company performance, quality of management, the price of the most recent financing round or prospects for the next financing round, exit opportunities which are available, liquidity preference and net present value analysis.

The level in the fair value hierarchy within which the fair value measurement is categorised is determined on the basis of the lowest level input that is significant to the fair value of the investment.

The following table analyses within the fair value hierarchy the Company’s financial assets and liabilities (by class) measured at fair value at 30 June 2017.

Financial instruments at fair value through profit or loss as at 30 June 2017

30 June 2017	Level 1 £’000	Level 2 £’000	Level 3 £’000	Total  £’000
Equity investments and limited partnership interests	161,579	-	1,352	162,931
Liquidity funds	-	15,443	-	15,443
Total	161,579	15,443	1,352	178,374

30 June 2016	Level 1 £’000	Level 2 £’000	Level 3 £’000	Total  £’000
Equity investments and limited partnership interests	123,509	-	1,648	125,157
Liquidity funds	-	12,091	-	12,091
Total	123,509	12,091	1,648	137,248

The below table presents the movement in level 3 instruments for the year ended 30 June 2017

by class of financial instrument.

			Total equity  investments  £’000
Opening balance at 1 July 2016			1,648
Proceeds from disposals during the year			(616)
Gains on disposals during the year			582
Total losses for the year included in the Statement of comprehensive income			(262)
Closing balance at 30 June 2017			1,352

8. Share capital

	Number	£’000
Allotted, called up and fully paid Ordinary shares of 10p each:
At 1 July 2016	69,858,891	6,986
Share buy-backs to be held in Treasury	(975,419)	(98)
Ordinary shares in issue per Balance Sheet	68,883,472	6,888
Shares held in Treasury	975,419	98
Ordinary shares in circulation at 30 June 2017	69,858,891	6,986

9. Capital commitments and contingent liabilities

The Company has a commitment to invest €1,560,000 in Vintage I (30 June 2016: €1,560,000).

These are not statutory accounts in terms of Section 434 of the Companies Act 2006.  Full audited accounts for the year to 30 June 2017 will be sent to shareholders in September 2017 and will be available for inspection at 1 Finsbury Circus, London EC2M 7SH, the registered office of the Company. The full annual report and accounts will be available on the Company’s website www.strategicequitycapital.com

The audited accounts for the year ended 30 June 2017 will be lodged with the Registrar of Companies.