Albion Development VCT PLC: Annual Financial Report
Albion Development VCT PLC
LEI Code
213800FDDMBD9QLHLB38
As required by the UK Listing Authority's
Disclosure Guidance and Transparency Rules 4.1 and 6.3, Albion
Development VCT PLC today makes public its information relating to
the Annual Report and Financial Statements for the year ended 31
December 2021.
This announcement was approved for release by
the Board of Directors on 24 March 2022.
This announcement has not been audited.
The Annual Report and Financial Statements for
the year ended 31 December 2021 (which have been audited), will
shortly be sent to shareholders. Copies of the full Annual Report
and Financial Statements will be shown via the Albion Capital Group
LLP website by clicking
www.albion.capital/funds/AADV/31Dec2021.pdf.
Investment
policy
The Company will invest in a broad portfolio of
higher growth businesses with a stronger focus on technology
companies across a variety of sectors of the UK economy. Allocation
of assets will be determined by the investment opportunities which
become available but efforts will be made to ensure that the
portfolio is diversified in terms of sector and stage of maturity
of company.
Funds held pending investment or for liquidity
purposes will be held as cash on deposit or up to 8% of its assets,
at the time of investment, in liquid open-ended equity funds
providing income and capital equity exposure (where it is
considered economic to do so).
Risk diversification and maximum
exposuresRisk is spread by investing in a number of
different businesses within Venture Capital Trust qualifying
industry sectors using a mixture of securities. The maximum amount
which the Company will invest in a single portfolio company is 15%
of the Company's assets at cost thus ensuring a spread of
investment risk. The value of an individual investment may increase
over time as a result of trading progress and it is possible that
it may grow in value to a point where it represents a significantly
higher proportion of total assets prior to a realisation
opportunity being available.
The Company's maximum exposure in relation to
gearing is restricted to 10% of the adjusted share capital and
reserves.
Background to the Company
The Company is a Venture Capital Trust which
raised a total of £33.3 million through the issue of shares between
1999 and 2004. The C shares merged with the Ordinary shares in
2007. A further £6.3 million was raised through an issue of new D
shares in 2010. The D shares converted to Ordinary shares in
2015.
An additional £67.3 million has been raised for
the Ordinary shares through the Albion VCTs Top Up Offers since
January 2011.
Financial calendar
| Record date for first
dividend |
6 May 2022 |
| |
|
| Annual General Meeting |
Noon on 10 May 2022 |
| |
|
| Payment of first dividend |
31 May 2022 |
| |
|
| Announcement of Half-yearly
results for the six months ending 30 June 2022 |
September 2022 |
Financial highlights
|
203.84p |
Total shareholder value per share from launch to 31 December
2021† |
| |
|
|
20.54% |
Shareholder return for the year ended 31 December 2021† |
| |
|
|
4.37p
|
Tax-free dividend per share for the year ended 31 December
2021 |
| |
|
|
94.98p |
Net asset value per share as at 31 December 2021 |
†These are considered Alternative Performance
Measures, see notes 2 and 3 in the Strategic report below for
further explanation.
|
|
31 December 2021pence per
share |
31 December 2020pence per share |
| |
|
|
| Opening net asset value |
82.42 |
83.47 |
| Capital return |
16.74 |
3.15 |
| Revenue return |
0.46 |
0.02 |
| Total return |
17.20 |
3.17 |
| Dividends paid |
(4.37) |
(4.24) |
| Impact from share capital
movements |
(0.27) |
0.02 |
| Net
asset value |
94.98 |
82.42 |
|
|
Ordinary shares |
|
|
(pence per share) |
|
Total dividends paid to 31 December 2021 |
108.86 |
| Net asset
value as at 31 December 2021 |
94.98 |
|
Total shareholder value to 31 December 2021 |
203.84 |
The financial summary above is for the Company,
Albion Development VCT PLC Ordinary shares only. Details of the
financial performance of the C shares and D shares, which have been
merged into the Ordinary shares, can be found at
www.albion.capital/funds/AADV under the ‘Financial summary for
previous funds’ section.
A more detailed breakdown of the dividends paid
per year can be found at www.albion.capital/funds/AADV under the
‘Dividend History’ section.
In addition to the
dividends paid above, the Board has declared a
first dividend for the year ending 31 December
2022 of
2.37
pence per share payable on 31
May 2022
to shareholders on the register
on 6 May
2022.
Chairman’s statement
Introduction
I am pleased to report that the Company has achieved a positive
total return of 17.2 pence per share and a shareholder return of
20.5% for the year, after an encouragingly strong year for several
of our portfolio companies. The Company continues to benefit from
the resilience of its portfolio, particularly of its healthcare and
software businesses, many of which have seen strong growth. We
continue to see investment opportunities in the health technology
and enterprise software sectors where the Manager has developed
deep expertise.
Results and dividends As at 31
December 2021 the net asset value was 94.98 pence per share
compared to 82.42 pence per share as at 31 December 2020. The total
return before taxation was £17.5 million compared to £2.9 million
for the previous year. The positive progress of a number of our
portfolio companies is discussed later in this statement and in the
Strategic report below. These excellent results for the year have
resulted in a performance incentive fee payable to the Manager of
£1.8 million (2020: £42,000). More detail on the calculation of
this fee can be found in the Strategic report below.
In line with our variable dividend policy
targeting 5% of NAV per annum the Company paid dividends totalling
4.37 pence per share during the year to 31 December 2021 (2020:
4.24 pence per share). The Company will pay a first dividend for
the financial year to 31 December 2022 of 2.37 pence per share on
31 May 2022 to shareholders on the register on 6 May 2022, being
2.5% of the latest reported NAV.
Investment
performance and
progressThere have been several realisations
during the year totalling £6.3 million (2020: £3.2 million). The
sale of OmPrompt Holdings delivered a 2.3 times return on cost and
proceeds of £2.3 million. The sale of Innovation Broking Group
delivered a 10.3 times return on cost and proceeds of £0.9 million.
Further details on realisations can be found in the realisations
table on page 26 of the full Annual Report and Financial
Statements. I am also pleased to announce that, following the year
end, the Company completed the sale of Phrasee generating proceeds
of £2.1 million and a return of 3.0 times cost. In addition to
this, the Company completed the sale of Credit Kudos generating
proceeds of £1.6 million.
The results for the year showed net valuation
gains on investments of £20.6 million, an increase from £4.1
million in the previous year. The key contributors were the uplifts
on Quantexa and Oviva, both of which have been revalued after
further externally led funding rounds and Egress Software
Technologies and Proveca, both of which continue to grow. Phrasee
and Credit Kudos also contributed to the valuation gain, due to
their sales which completed post year end. However, our investments
in Mirada Medical, Concirrus and Avora have seen write-downs
following difficult trading conditions, in part because of the
Covid-19 pandemic. We have also written-off our investment in
Xperiome which went into administration following the year end.
The three largest investments in the Company’s
portfolio, being Quantexa, Egress Software Technologies and
Proveca, are valued at £31.9 million and represent 32.7 per cent of
the Company’s net asset value.
The Company has been an active investor during
the year investing a total of £7.0 million. Of this, £2.6 million
was invested into five new portfolio companies, all of which are
expected to require further investment as the companies prove
themselves and grow:
- £1.2 million into Threadneedle
Software Holdings (trading as Solidatus) a provider of data lineage
software to enterprise customers in regulated sectors, which allows
them to rapidly discover, visualise, catalogue and understand how
data flows through their organisations;
- £0.5 million into Gravitee TopCo
(trading as Gravitee.io) an application programming interface (API)
management platform;
- £0.4 million into NuvoAir Holdings
a provider of digital therapeutics and decentralised clinical
trials for respiratory conditions;
- £0.3 million into Brytlyt which
uses patented software and artificial intelligence (AI), combined
with the superior computation power of graphics processing units
(GPUs), to derive insights 1,000s of times faster than legacy
systems; and
- £0.2 million into Accelex
Technology, a data extraction and analytics technology for private
capital markets.
A further £4.4 million was invested into
existing portfolio companies, the largest being: £1.5 million into
Oviva, as part of its Series C fundraise; £0.6 million into Black
Swan Data, to support the restructure of its business to focus
primarily on predictive analytics for consumer brands; and £0.6
million into Healios to support its growth.
A full list of the Company’s investments and
disposals, including their movements in value for the year, can be
found in the Portfolio of investments section on pages 24 to 26 of
the full Annual Report and Financial Statements.
Risks and uncertainties
In addition to the risks around Covid-19, which
have been a major factor for the past 2 years, there is now
considerable uncertainty over the future course, and global impact,
of Russia’s invasion of Ukraine. Our investment portfolio,
while concentrated mainly in the technology and healthcare sectors,
remains diversified in terms of both sub-sector and stage of
maturity and, importantly, we believe to be appropriately valued.
While we would expect these valuations to be robust within the
tolerance of normal market fluctuations, the potential, though
unknown, scale of any further adverse events arising out of the
Ukraine invasion remain a major risk factor.
A detailed analysis of the other risks and
uncertainties facing the business is shown in the Strategic report
below.
Share buy-backs
It remains the Board’s primary objective to
maintain sufficient resources for investment in existing and new
portfolio companies and for the continued payment of dividends to
shareholders. The Board’s policy is to buy back shares in the
market, subject to the overall constraint that such purchases are
in the Company’s interest.
It is the Board’s intention for such buy-backs
to be in the region of a 5% discount to net asset value, so far as
market conditions and liquidity permit. Details of shares bought
back during the year can be found in note 15.
Albion VCTs Prospectus
Top Up Offers
Your Board, in conjunction with the boards of
the other five VCTs managed by Albion Capital Group LLP, launched a
prospectus top up offer of new Ordinary shares on 6 January 2022.
The Board announced on 3 March 2022 that, following strong demand,
it would utilise the over-allotment facility, bringing the total to
be raised to £21 million. The Offer was fully subscribed and closed
to further applications on 23 March 2022.
The proceeds are being used to provide support
to our existing portfolio companies and to enable us to take
advantage of new investment opportunities. The first allotment of
the shares under the Offer was on 25 February 2022. Details of
share allotments made during and after the financial year end can
be found in notes 15 and 19 respectively.
Annual General Meeting
(“AGM”)Based on
the success of last year’s live webcast AGM, the Board has decided
to adopt a virtual format for the AGM again this year. The AGM will
be held at noon on 10 May 2022 via the Lumi platform. Information
on how to participate in the live webcast can be found on the
Manager’s website www.albion.capital/vct-hub/agms-events.
The Board welcome questions from shareholders at
the AGM and shareholders will be able to ask questions using the
Lumi platform during the AGM. Alternatively, shareholders can email
their questions to AADVchair@albion.capital prior to the
Meeting.
Shareholders' views are important, and the Board
encourages shareholders to vote on the resolutions.
Further details on the format and business to be
conducted at the AGM can be found in the Directors’ report on pages
36 and 37 and in the Notice of the Meeting on pages 71 to 74 of the
full Annual Report and Financial Statements.
Outlook and prospects
These positive results demonstrate the
resilience of our portfolio of companies at different stages of
maturity and targeted at sectors such as software and healthcare.
These are companies which provide products and services that are
considered innovative and essential to their customers. I am
confident that our portfolio companies are well positioned to grow,
despite the uncertainty around the longer-term impact of the
pandemic and an increasingly volatile geopolitical backdrop. The
Board believes the Company is well placed to continue to deliver
long term value to our shareholders, though remains mindful of the
considerable uncertainty over the Global economy arising out of any
future events caused by the invasion of Ukraine.
Ben LarkinChairman24 March
2022
Strategic report
Investment policyThe Company
will invest in a broad portfolio of higher growth businesses with a
stronger focus on technology companies across a variety of sectors
of the UK economy. Allocation of assets will be determined by the
investment opportunities which become available but efforts will be
made to ensure that the portfolio is diversified in terms of sector
and stage of maturity of company.
The full investment policy can be found
above.
Current portfolio sector allocation
The pie charts at the end of this announcement
show the split of the portfolio valuation as at 31 December 2021
by: sector; stage of investment; and number of employees. This is a
useful way of assessing how the Company and its portfolio is
diversified across sector, portfolio companies’ maturity measured
by revenues and their size measured by the number of people
employed. As the Company continues to invest in software and other
technology companies, FinTech (which is technology specifically
applicable to financial services companies) becomes a more
prominent investment, and therefore is included as a subsector
below. Details of the principal investments made by the Company are
shown in the Portfolio of investments on pages 24 and 25 of the
full Annual Report and Financial Statements.
Direction of portfolio
After the year end, the cash balance has
increased due to the 2021/22 Prospectus Top Up Offer share issuance
on 25 February 2022. These funds will be invested predominantly
into higher growth technology companies, and therefore the shift
away from asset based companies will continue. The Company has a
significant speciality in FinTech investing, which can be seen as a
growing part of the portfolio, represented by a 7% increase this
year. Healthcare technology is another area of particular strength,
which has increased by 5% over the last year.
Results and dividends
| |
£’000 |
| |
|
| Net capital gain for the
year |
16,988 |
| Net revenue return for the
year |
466 |
| Total return for the year
ended 31 December 2021 |
17,454 |
| Dividend of 2.06 pence per share
paid on 28 May 2021 |
(2,126) |
| Dividend of 2.31 pence per share
paid on 30 September 2021 |
(2,383) |
| Unclaimed dividends |
7 |
| |
|
| Transferred
to reserves |
12,952 |
| Net assets as at 31 December
2021 |
97,639 |
| Net asset value per share
as at 31 December 2021
(pence) |
94.98 |
The Company paid dividends totalling 4.37 pence
per share (2020: 4.24 pence per share). The Board has a variable
dividend policy which targets an annual dividend yield of around 5%
on the prevailing net asset value. As a result the Board has
declared a first interim dividend for the year ending 31 December
2022 of 2.37 pence per share payable on 31 May 2022 to shareholders
on the register on 6 May 2022.
As shown in the Income statement, the total
investment income increased to £988,000 (2020: £692,000). This is a
result of Radnor House repaying a portion of the previously
capitalised interest. The revenue return to equity holders has
subsequently increased to £466,000 (2020: £17,000). This is
substantially due to the increased percentage of investment
management fees and performance incentive fees allocated to the
realised capital reserve, to better align with the Board’s
expectation that over the long term the majority of the Company’s
investment returns will be in the form of capital gains. Further
information can be found in the Notes to the Financial
Statements.
The capital return for the year has increased to
£16,988,000 (2020: £2,896,000). As discussed in the Chairman’s
statement, this is mainly attributable to the uplifts in the
valuations of Quantexa, Oviva, Proveca and Egress. This was partly
offset by the reductions in Mirada Medical and Xperiome. This
resulted in a total return of 17.20 pence per share (2020: 3.17
pence per share), and an increase in net asset value to 94.98 pence
per share (2020: 82.42 pence per share). We remain confident that
the portfolio will deliver value over the longer term.
There was a net cash inflow for the Company of
£1,387,000 for the year (2020: £1,116,000), mainly resulting from
the issue of Ordinary shares under the Albion VCTs Top Up Offers
2020/21. Cash inflow from fundraising has been utilised by
investments into new and existing portfolio companies.
Trade and other payables at the year end
amounted to £2,459,000 (2020: £541,000). This increase was
primarily due to the management performance incentive fee accrued
as a result of the Company’s strong return for the year. Further
details on this can be found below.
Review of business and
future changesA detailed review of the Company’s
business during the year is contained in the Chairman’s statement.
The results for the year to 31 December 2021 show total shareholder
value of 203.84 pence per share since launch (2020: 186.91 pence
per share).
There is a continuing focus on growing the
FinTech, healthcare and other software and technology sectors. The
majority of these investment returns are delivered through equity
and capital gains, and we therefore expect our investment income to
continue to be similar to the current level, as most of this is
derived from the existing renewable energy sector of our
portfolio.
Details of significant events which have
occurred since the end of the financial year are listed in note 19.
Details of transactions with the Manager are shown in note 5.
Future prospects
The Company’s financial results for the year
demonstrates that the portfolio remains well balanced across
sectors and risk classes, despite the effects of the pandemic so
far. Many of the companies in the portfolio have continued to grow
throughout the pandemic and have been providing products and
services that are considered essential to their customers. Although
there remains much uncertainty, the Manager has a strong pipeline
of investment opportunities in which the Company’s cash can be
deployed. The Board considers that the pipeline will continue to
enable the Company to maintain a predictable stream of dividend
payments to shareholders, and ultimately continue to deliver long
term growth.
Key
Performance
Indicators
(“KPIs”) and Alternative Performance
Measures (“APMs”)The Directors believe that the following
KPIs and APMs, which are typical for Venture Capital Trusts, used
in its own assessment of the Company, will provide shareholders
with sufficient information to assess how effectively the Company
is applying its investment policy to meet its objectives. The
Directors are satisfied that the results shown in the following
KPIs and APMs give a good indication that the Company is achieving
its investment objective and policy. These are:
1. Total
shareholder value relative to FTSE All-Share Index total returnThe
graph on page 4 of the full Annual Report and Financial Statements
shows the total shareholder value against the FTSE All-Share Index
total return, in both instances with dividends reinvested. The FTSE
All-Share index is considered a reasonable benchmark as the Company
is classed as a generalist UK VCT investor, and this index includes
over 600 companies listed in the UK, including small-cap, covering
a range of sectors. Details on the performance of the net asset
value and return per share for the year are shown in the Chairman’s
statement.
2. Net asset
value per share and total shareholder valueTotal return to
shareholders increased by 20.5% on opening net asset value to
203.84 pence per share for the year ended 31 December 2021 as a
result of the positive total return of 16.93 pence per share.
3. Movement
in shareholder value in the year†
|
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
|
4.6% |
6.9% |
5.4% |
4.1% |
6.5% |
10.0% |
20.3% |
3.8% |
3.8% |
20.5% |
†Methodology: Calculated by the movement in
total shareholder value for the year divided by the opening net
asset value.
The table above shows that total shareholder
value has continued to increase over the last 10 years, with an
average return of 8.7% per annum.
4. Dividend
distributions
Dividends paid in respect of the year ended 31
December 2021 were 4.37 pence per share (2020: 4.24 pence per
share). Cumulative dividends paid since inception are 108.86 pence
per share.
5. Ongoing
charges The ongoing charges ratio for the year to 31 December 2021
was 2.5% (2020: 2.5%). The ongoing charges ratio has been
calculated using The Association of Investment Companies’ (“AIC”)
recommended methodology. This figure shows shareholders the total
recurring annual running expenses (including investment management
fees charged to capital reserve) as a percentage of the average net
assets attributable to shareholders. The ongoing charges cap is
2.5%, which has resulted in a saving of £86,000 to shareholders
during the year (2020: £97,000).
6. VCT
regulation*The investment policy is designed to ensure that the
Company continues to qualify and is approved as a VCT by HMRC. In
order to maintain its status under Venture Capital Trust
legislation, a VCT must comply on a continuing basis with the
provisions of Section 274 of the Income Tax Act 2007, details of
which are provided in the Directors’ report on pages 34 and 35 of
the full Annual Report and Financial Statements.
The relevant tests to measure compliance have
been carried out and independently reviewed for the year ended 31
December 2021. These showed that the Company has complied with all
tests and continues to do so.
*VCT compliance is not a numerical measure of
performance and thus cannot be defined as an APM.
Operational arrangementsThe
Company has delegated the investment management of the portfolio to
Albion Capital Group LLP, which is authorised and regulated by the
Financial Conduct Authority. Albion Capital Group LLP also provides
company secretarial and other accounting and administrative support
to the Company.
Management agreementUnder the
Investment Management agreement, the Manager provides investment
management, secretarial and administrative services to the Company.
The Management agreement may be terminated by either party on 12
months’ notice and is subject to earlier termination in the event
of certain breaches or on the insolvency of either party. The
Manager is paid an annual fee equal to 2.25% of the net asset value
of the Company paid quarterly in arrears.
Total annual ongoing expenses, including the
management fee but excluding any performance incentive fee, are
limited to 2.5% of the net asset value, as per the resolution
passed at the General Meeting in 2019.
The Manager is also entitled to an arrangement
fee, payable by each portfolio company, of approximately 2% on each
investment made and also monitoring fees where the Manager has a
representative on the portfolio company’s board. Further details of
the Manager’s fee can be found in note 5.
Management performance
incentiveIn order to align the interests of the Manager
and the shareholders with regards to generating positive returns,
the Company has a Management performance incentive arrangement with
the Manager. Under the incentive arrangement, the Company will pay
an incentive fee to the Manager of an amount equal to 20% of such
excess return that is calculated for each financial year.
The performance fee hurdle requires that the
growth of the aggregate of the net asset value per share and
dividends paid by the Company compared with the previous accounting
date exceeds RPI plus 2%. The hurdle will be calculated every year,
based on the previous year’s closing net asset value per share. The
starting net asset value is 84.70 pence per share, being the
audited net asset value at 31 December 2018. If the target return
is not achieved in a period, the cumulative shortfall is carried
forward to the next accounting period and has to be made up before
an incentive fee becomes payable.
As at 31 December 2021, the total return since 1
January 2019 was 108.09 pence, and the hurdle was 99.03 pence,
resulting in an excess of 9.06 pence per share. As a result, a
performance incentive fee is payable to the Manager of £1,838,000
(2020: £42,000).
Evaluation of the ManagerThe
Board has evaluated the performance of the Manager based on:
- the returns generated by the
Company;
- the continuing achievement of the
80% qualifying holdings investment requirement for VCT status;
- the long term prospects of the
current portfolio of investments;
- the management of treasury,
including use of buy back and participation in fund raising;
- a review of the Management
agreement and the services provided therein; and
- benchmarking the performance of the
Manager to other service providers including the performance of
other VCTs that the Manager is responsible for managing.
The Board believes that it is in the interests
of shareholders as a whole, and of the Company, to continue the
appointment of the Manager for the forthcoming year.
Alternative Investment Fund
Managers Directive (“AIFMD”)The Board appointed
Albion Capital Group LLP as the Company’s AIFM in 2014 as required
by the AIFMD. The Manager is a full-scope Alternative Investment
Fund Manager under the AIFMD. Ocorian Depositary (UK) Limited is
the appointed Depositary and oversees the custody and cash
arrangements and provides other AIFMD duties with respect to the
Company.
Companies Act 2006 Section 172 Reporting Under
Section 172 of the Companies Act 2006, the Board has a duty to
promote the success of the Company for the benefit of its members
as a whole in both the long and short term, having regard to the
interests of other stakeholders in the Company, such as suppliers,
and to do so with an understanding of the impact on the community
and environment and with high standards of business conduct, which
includes acting fairly between members of the Company.
The Board is very conscious of these wider
responsibilities in the ways it promotes the Company’s culture and
ensures, as part of its regular oversight, that the integrity of
the Company’s affairs is foremost in the way the activities are
managed and promoted. This includes regular engagement with the
wider stakeholders of the Company and being alert to issues that
might damage the Company’s standing in the way that it operates.
The Board works very closely with the Manager in reviewing how
stakeholder issues are handled, ensuring good governance and
responsibility in managing the Company’s affairs, as well as
visibility and openness in how the affairs are conducted.
The Company is an externally managed investment
company with no employees, and as such has nothing to report in
relation to employee engagement but does keep close attention to
how the Board operates as a cohesive and competent unit. The
Company also has no customers in the traditional sense and,
therefore, there is also nothing to report in relation to
relationships with customers.
The table below sets out the key stakeholders
and details how the Board has engaged with these key stakeholders
and the effect of these considerations on the Company’s decisions
and strategies during the year.
|
Stakeholder |
Engagement with Stakeholder |
Outcome and decisions based on
engagement |
|
Shareholders |
The key methods of engaging with Shareholders are as follows:
- Annual General Meeting (“AGM”)
- Shareholder seminar
- Annual report and Financial
Statements, Half-yearly financial report, and Interim management
statements
- RNS announcements for all key
decisions including the publication of a Prospectus
- Website redesigned in the year to
make it more user accessible
|
- Shareholders’ views are important
and the Board encourages Shareholders to exercise their right to
vote on the resolutions at the AGM. The Company’s AGM is typically
used as an opportunity to communicate with investors, including
through a presentation made by the investment management team. In
light of the Covid-19 pandemic, the Board took the decision to
update the Company’s Articles of Association to allow for
virtual/hybrid events in order for the 2021 AGM to be live streamed
for Shareholders. The Board was able to take questions from
Shareholders at the AGM enabling maximum shareholder engagement in
the absence of a face-to-face event. Following last year’s success
and the overwhelming positive feedback from shareholders, the Board
has decided that this year’s AGM will again be held as a virtual
event to facilitate shareholder participation.
- Shareholders are also encouraged to
attend the annual Shareholders’ Seminar. This year’s event took
place on 12 November 2021. The seminar included Quantexa and
Healios sharing insights into their businesses and also
presentations from Albion executives on some of the key factors
affecting the investment outlook, as well as a review of the past
year and the plans for the year ahead. Representatives of the Board
attend the seminar. The Board considers this an important
interactive event, and expects to continue to run this in
2022.
- The Board recognises the importance
to Shareholders of maintaining a share buy-back policy, in order to
provide market liquidity, and considered this when establishing the
current policy. The Board closely monitors the discount to the net
asset value to ensure this is in the region of 5%.
- The Board seeks to create value for
Shareholders by generating strong and sustainable returns to
provide shareholders with regular dividends and the prospect of
capital growth. The Board takes this into consideration when making
the decision to pay dividends to Shareholders. The variable
dividend policy has been enacted, and has resulted in a dividend
yield of 5.3% on opening net asset value.
- During the year, the decision to
publish a Prospectus was taken, in order to raise more funds for
deployment into new and existing portfolio companies. The Board
carefully considered whether further funds were required, whether
the VCT tests would continue to be met, and whether it would be in
the interest of Shareholders, before agreeing to publish the
Prospectus. On allotment, an issue price formula based on the
prevailing net asset value was used to ensure there was no dilution
to existing Shareholders.
- Cash management and liquidity of
the Company are key quarterly discussions amongst the Board, with
focus on deployment of cash for future investments, dividends and
share buy-backs.
- The Board decided to propose a
special resolution at the 2021 AGM to increase the Company’s
distributable reserves by way of a reduction of share premium
account and capital redemption reserve. This resolution was
approved with 96.5% of Shareholders voting in favour of the
resolution. Further details on this can be found in the Directors
report on page 36 of the full Annual Report and Financial
Statements.
|
|
Suppliers |
The key suppliers with regular engagement from the Manager are:
- Corporate broker
- VCT taxation adviser
- Depositary
- Registrar
- Auditor
- Lawyer
|
- The Manager is in regular contact
with the suppliers and the contractual arrangements with all the
principal suppliers to the Company are reviewed regularly and
formally once a year, alongside the performance of the suppliers in
acquitting their responsibilities.
- The Board reviews the performance
of the providers annually in line with the Manager, and was
satisfied with their performance.
|
|
Manager |
The performance of Albion Capital Group LLP is essential to the
long term success of the Company, including achieving the
investment policy and generating returns to shareholders, as well
as the impact the Company has on Environment, Social and Governance
practice. |
- The Manager meets with the Board at
least quarterly to discuss the performance of the Company, and is
in regular contact in between these meetings, e.g. to share
investment papers for new and follow-on investments. All strategic
decisions are discussed in detail and minuted, with an open
dialogue between the Board and the Manager.
- The performance of the Manager in
managing the portfolio and in providing company secretarial,
administration and accounting services is reviewed in detail each
year, which includes reviewing comparator engagement terms and
portfolio performance. Further details on the evaluation of the
Manager, and the decision to continue the appointment of the
Manager for the forthcoming year, can be found in this report.
- During the
year, the Board has reviewed the current Management Agreement, and
a new agreement was signed which updated the agreement for new
regulatory requirements, such as GDPR and AIFMD, but did not change
any commercial terms with the Manager.
- Details of the Manager’s
responsibilities can be found in the Statement of corporate
governance on pages 39 and 40 of the full Annual Report and
Financial Statements.
|
|
Portfolio companies |
The portfolio companies are considered key stakeholders, not least
because they are principal drivers of value for the Company.
However, as discussed in the Environmental, Social and Governance
(“ESG”) report on pages 18 to 20 of the full Annual Report and
Financial Statements, the portfolio companies’ impact on their
stakeholders is also important to the Company. |
- The Board aims to have a
diversified portfolio in terms of sector and stage of investment.
Further details of this can be found in the pie charts at the end
of this announcement.
- In most cases, an Albion executive
has a place on the board of a portfolio company, in order to help
with both business operation decisions, as well as good ESG
practices.
- The Manager ensures good dialogue
with portfolio companies, and often puts on events in order to help
portfolio companies benefit from the Albion network.
|
|
Community and environment |
The Company, with no employees, has no effect itself on the
community and environment. However, as discussed above, the
portfolio companies’ ESG impact is extremely important to the
Board. |
- The Board receives reports on ESG
factors within its portfolio from the Manager as it is a signatory
of the United Nations Principles for Responsible Investment (“UN
PRI”). Further details of this are set out in the ESG report below.
ESG, without its specific definition, has always been at the heart
of the responsible investing that the Company engages in and in how
the Company conducts itself with all of its stakeholders.
|
Environmental, Social, and Governance (“ESG”)
report
The Board and the Company’s Manager, Albion
Capital Group LLP, take ESG very seriously and more detail can be
found on this in the ESG report on page 18 to 20 of the full Annual
Report and Financial Statements.
Social and community issues, employees
and human rights
The Board recognises the requirement under
section 414C of the Act to detail information about social and
community issues, employees and human rights; including any
policies it has in relation to these matters and effectiveness of
these policies. As an externally managed investment company with no
employees, the Company has no formal policies in these matters,
however, it is at the core of its responsible investment strategy
as detailed above.
Further policiesThe Company has adopted a
number of further policies relating to:
- Environment
- Global greenhouse gas
emissions
- Anti-bribery
- Anti-facilitation of tax
evasion
- Diversity
These are set out in the Directors’ report on page 35 of the
full Annual Report and Financial Statements.
General Data Protection Regulation
The General Data Protection Regulation has the
objective of unifying data privacy requirements across the European
Union, and continues to apply in the United Kingdom after Brexit.
The Manager continues to take action to ensure that the Manager and
the Company are compliant with the regulation.
Risk managementThe Board
carries out a regular review of the risk environment in which the
Company operates, together with changes to the environment and
individual risks. The Board also identifies emerging risks which
might impact on the Company. In the period the most noticeable risk
has been the global pandemic which has impacted not only public
health and mobility but also has had an adverse impact on the
economy, the full impact of which is likely to be uncertain for
some time.
The Board has carried out a robust assessment of
the Company’s principal risks and uncertainties and seeks to
mitigate these risks through regular reviews of performance
and monitoring progress and compliance. The Board applies the
principles detailed in the Financial Reporting Council’s Guidance
on Risk Management, Internal Control and Related Financial and
Business Reporting, in the mitigation and management of these
risks. More information on specific mitigation measures for the
principal risks and uncertainties are explained below:
|
Risk |
Possible consequence |
Risk assessment during the year |
Risk management |
|
Investment, performance and valuation risk |
Investment in smaller unquoted growth businesses carries a higher
degree of risk and is more volatile than investing in larger,
long-established businesses. This could negatively impact
shareholder returns. The Company relies on the judgement and
reputation of the Manager to provide strong investment returns and
valuations for shareholders.The Company’s investment valuation
methodology is based on fair value, which for smaller unquoted
growth businesses can be difficult to determine due to the lack of
observable market data and the limitation of external reference
points. |
No change. |
The Board places reliance upon the skills and expertise of the
Manager and its track record of making successful investments in
higher growth technology businesses. The Manager operates a
structured investment appraisal and due diligence process. This
includes a review from one external investment professional and
comments from non-executive Directors of the Company on matters
discussed at the Investment Committee meetings.Investments are
monitored by the Manager, through monthly portfolio updates and
typically an investment manager sitting on portfolio company
boards. The Board receives detailed reports on each investment and
their valuation as part of their quarterly board meetings.Review
and oversight of the non-executive Directors ensures that the risk
to the Company’s and Manager’s reputation is kept to a
minimum.Investments are valued in accordance with the International
Private Equity and Venture Capital Valuation Guidelines, which
represent current best practice for investment valuation and are
reviewed by the Manager’s Valuation Committee. |
|
VCT approval and regulatory change risk |
Any breach of section 274 of the Income Tax Act 2007, including any
legislative changes, could result in the loss of the Company’s HMRC
qualifying status and tax reliefs for investors. |
No change. |
The Company’s VCT qualifying status is monitored monthly by the
Manager and quarterly by the Board. The Board has appointed Philip
Hare & Associates LLP as its taxation adviser, who
independently confirms compliance, highlights areas of risk and
informs on any legislative changes, including those which may arise
from the withdrawal from the European Union. |
|
Regulatory and compliance risk |
The Company is listed on The London Stock Exchange and is required
to comply with the rules of the UK Listing Authority, as well as
with the Companies Act, Accounting Standards and other legislation.
Failure to comply with these regulations could result in a
delisting of the Company’s shares, or other penalties under the
Companies Act or from financial reporting oversight bodies. |
No change. |
The Board and the Manager receive regular updates on new
regulation, including legislation on the management of the Company,
from its auditor, lawyers and other professional bodies. The
Company is subject to compliance checks through the Manager’s
compliance officer, and any issues arising from compliance or
regulation are reported to its own board on a monthly basis. The
Boardensures the Company is compliant as part of its quarterly
Board meetings.The Board reviews the quarterly reports prepared by
Ocorian Depositary (UK) Limited (the Company’s Depositary) to
ensure the Manager is adhering to the AIFMD requirements. |
|
Operational and internal control risk (including cyber and data
security) |
The Company relies on a number of third parties, in particular the
Manager, for the provision of investment management and
administrative functions. Failures in key IT systems and controls
within the Manager’s business could place assets of the Company at
risk, resulting in inaccurate information being passed to the Board
or shareholders. This could additionally result in losses for the
Company and its shareholders. |
No change. |
The Company’s operations and IT systems are subject to rigorous
internal controls which are reviewed on a regular basis and
reported to the Board. The Audit Committee reviews the Internal
Audit Reports prepared by the Manager’s internal auditors, Azets
and has access to their internal audit partner to whom it can ask
specific detailed questions in order to satisfy itself that the
Manager has strong systems and controls in place including those in
relation to risk management, business continuity and cyber
security. The Board reviews the systems and processes (including
cyber and data security) in place for the Company’s key suppliers
to ensure that there is an appropriate risk mitigation in
place. |
|
Economic and political risk |
Events such as the Covid-19 pandemic, the impact of Brexit, an
economic recession, fluctuation in inflation and interest rates, or
significant political events could adversely affect the companies
within the portfolio and consequently the Company’s net asset
value. |
Increased (due to ongoing Covid-19 uncertainty and the geopolitical
risks from the invasion of Ukraine). |
The Company invests in a diversified portfolio of c.60 companies,
predominantly in the United Kingdom, and has a policy of minimising
any external bank borrowings within portfolio companies. Exogenous
risks over which the Company has no control are always a risk and
the Company does what it can to address these risks. The inherent
long-term nature of the portfolio helps to mitigate these
exogeneous risks.The Board and Manager are continuously assessing
the resilience of the portfolio as a result of the ongoing economic
and political risks, to ascertain where support is required. The
Company has sufficient cash resources to cope with any such exigent
and unexpected pressures. Exposure is relatively small to at-risk
sectors that include leisure, hospitality, retail and travel (1% of
NAV).The Company’s investment policy and the Board’s scrutiny of
the investment portfolio ensures that this increased risk continues
to be mitigated where possible. |
|
Liquidity risk |
The Company may not have sufficient cash available to meet its
financial obligations. The Company’s portfolio is primarily in
smaller unquoted companies, which are inherently illiquid as there
is no readily available market, and thus it may be difficult to
realise their fair value at short notice. |
No change. |
The Board reviews the Company’s three year cash flow forecasts on a
quarterly basis. These include potential investment realisations
(which are closely monitored by the Manager), Top Up Offers,
dividend payments and operational expenditure. This ensures that
there are sufficient cash resources available for the Company’s
liabilities as they fall due. |
|
Environmental, social and governance (“ESG”) risk |
An insufficient ESG policy could lead to an increased negative
impact on the environment, including the Company’s carbon
footprint.Non-compliance with reporting requirements could lead to
a fall in demand from investors, reputational damage and
penalties. |
Increased (due to the new guidance issued on climate change
reporting and increased importance to stakeholders). |
The Manager is a signatory of the UN PRI and the Board is kept
appraised of the evolving ESG policies at quarterly Board meetings.
Full details of the specific procedures and risk mitigation can be
found in the ESG report on pages 18 to 20 of the full Annual Report
and Financial Statements.These procedures ensure that this
increased risk continues to be mitigated where possible. |
Viability statementIn
accordance with the FRC UK Corporate Governance Code published in
2018 and provision 36 of the AIC Code of Corporate Governance, the
Directors have assessed the prospects of the Company over three
years to 31 December 2024. The Directors believe that three years
is a reasonable period in which they can assess the ability of the
Company to continue to operate and meet its liabilities as they
fall due. This is the period used by the Board as part of its
strategic planning process, which includes: the estimated timelines
for finding, assessing and completing investments; the potential
impact of any new regulations; and the availability of cash.
The Board has carried out a robust assessment of
the principal and emerging risks facing the Company, including
those that could threaten its business model, future performance,
solvency or liquidity, and focused on the major factors which
affect the economic, regulatory and political environment. The
Board carefully assessed, and were satisfied with, the risk
management processes in place to avoid or reduce the impact of
these risks. The Board has carried out robust stress testing of
cashflows which included; assessing the resilience of portfolio
companies, including the requirement for any future financial
support.
The Board has additionally considered the
ability of the Company to comply with the ongoing conditions to
ensure it maintains its VCT qualifying status under its current
investment policy. As a result of the Board’s quarterly valuation
reviews, it has concluded that the portfolio is well balanced and
geared towards delivering long term growth and strong returns to
shareholders.
The Board has concluded that there is a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the three
year period to 31 December 2024. The Board is mindful of the
ongoing risks and will continue to ensure that appropriate
safeguards are in place, in addition to monitoring the quarterly
cashflow forecasts to ensure the Company has sufficient
liquidity.
This Strategic report of the Company for the
year ended 31 December 2021 has been prepared in accordance with
the requirements of section 414A of the Companies Act 2006 (the
“Act”). The purpose of this report is to provide Shareholders with
sufficient information to enable them to assess the extent to which
the Directors have performed their duty to promote the success of
the Company in accordance with Section 172 of the Act.
For and on behalf of the Board
Ben LarkinChairman24 March 2022
Responsibility statement
In preparing these Financial Statements for the
year ended 31 December 2021, the Directors of the Company, being
Ben Larkin, Lyn Goleby, Lord O’Shaughnessy and Patrick Reeve,
confirm that to the best of their knowledge:
- summary financial information
contained in this announcement and the full Annual Report and
Financial Statements for the year ended 31 December 2021 for the
Company has been prepared in accordance with United Kingdom
Generally Accepted Accounting Practice (UK Accounting Standards and
applicable law) and give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company;
and
- the Chairman's statement and
Strategic report include a fair review of the development and
performance of the business and the position of the Company,
together with a description of the principal risks and
uncertainties it faces.
We consider that the Annual Report and Financial
Statements, taken as a whole, are fair, balanced, and
understandable and provide the information necessary for
shareholders to assess the Company’s position, performance,
business model and strategy.
A detailed "Statement of Directors'
responsibilities” is contained on page 38 within the full audited
Annual Report and Financial Statements.
On behalf of the Board,
Ben LarkinChairman24 March
2022
Income statement
|
|
|
Year ended 31 December
2021 |
Year ended 31 December 2020 |
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Note |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
Gains on investments |
3 |
- |
20,592 |
20,592 |
- |
4,073 |
4,073 |
|
Investment income |
4 |
988 |
- |
988 |
692 |
- |
692 |
|
Investment Manager’s fees* |
5 |
(196) |
(3,604) |
(3,800) |
(393) |
(1,177) |
(1,570) |
| Other
expenses |
6 |
(326) |
- |
(326) |
(282) |
- |
(282) |
|
Profit on ordinary activities before tax |
|
466 |
16,988 |
17,454 |
17 |
2,896 |
2,913 |
| Tax on
ordinary activities |
8 |
- |
- |
- |
- |
- |
- |
|
Profit and total comprehensive income attributable to
shareholders |
|
466 |
16,988 |
17,454 |
17 |
2,896 |
2,913 |
|
Basic and diluted return per share
(pence)** |
10 |
0.46 |
16.74 |
17.20 |
0.02 |
3.15 |
3.17 |
*For more information on the allocation of the
split between revenue and capital please see the accounting
policies below.
** adjusted for treasury
shares
The accompanying notes form an integral part of
these Financial Statements.
The total column of this Income statement
represents the profit and loss account of the Company. The
supplementary revenue and capital columns have been prepared in
accordance with The Association of Investment Companies’ Statement
of Recommended Practice.
Balance
sheet
|
|
|
31 December 2021 |
31 December 2020 |
|
|
Note |
£’000 |
£’000 |
|
|
|
|
|
|
Fixed asset investments |
11 |
80,500 |
58,998 |
|
|
|
|
|
|
Current assets |
|
|
|
| Trade and
other receivables |
13 |
2,566 |
1,757 |
| Cash and
cash equivalents |
|
17,032 |
15,645 |
|
|
|
19,598 |
17,402 |
|
|
|
|
|
|
Total assets |
|
100,098 |
76,400 |
|
|
|
|
|
|
Payables: amounts falling due within one year |
|
|
|
| Trade and
other payables |
14 |
(2,459) |
(541) |
|
|
|
|
|
|
Total assets less current liabilities |
|
97,639 |
75,859 |
|
|
|
|
|
|
Equity attributable to equity holders |
|
|
|
| Called-up
share capital |
15 |
1,167 |
1,040 |
| Share
premium |
|
- |
44,978 |
| Capital
redemption reserve |
|
- |
12 |
|
Unrealised capital reserve |
|
36,048 |
18,020 |
| Realised
capital reserve |
|
7,344 |
12,886 |
| Other
distributable reserve |
|
53,080 |
(1,077) |
|
Total equity shareholders’ funds |
|
97,639 |
75,859 |
|
|
|
|
|
|
Basic and diluted net asset value per share
(pence)* |
16 |
94.98 |
82.42 |
* excluding treasury shares
The accompanying notes form an integral part of
these Financial Statements.
These Financial Statements were approved by the Board of
Directors, and authorised for issue on 24 March 2022 and were
signed on its behalf by
Ben LarkinChairmanCompany
number: 03654040
Statement of changes in equity
|
|
Called-up
sharecapital |
Share premium |
Capital redemption reserve |
Unrealised capital reserve |
Realised capital reserve* |
Other distributable reserve* |
Total |
|
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
As at 1 January 2021 |
1,040 |
44,978 |
12 |
18,020 |
12,886 |
(1,077) |
75,859 |
|
Profit and total comprehensive income for the year |
- |
- |
- |
19,786 |
(2,798) |
466 |
17,454 |
|
Transfer of unrealised gains on disposal of
investments |
- |
- |
- |
(1,758) |
1,758 |
- |
- |
|
Purchase of shares for treasury |
- |
- |
- |
- |
- |
(1,661) |
(1,661) |
|
Issue of equity |
127 |
10,626 |
- |
- |
- |
- |
10,753 |
|
Cost of issue of equity |
- |
(264) |
- |
- |
- |
- |
(264) |
|
Reduction of share premium and capital redemption reserve |
- |
(55,340) |
(12) |
- |
- |
55,352 |
- |
|
Dividends paid |
- |
- |
- |
- |
(4,502) |
- |
(4,502) |
|
As at 31 December
2021 |
1,167 |
- |
- |
36,048 |
7,344 |
53,080 |
97,639 |
|
As at 1 January 2020 |
938 |
36,712 |
12 |
14,702 |
15,151 |
2,168 |
69,683 |
|
Profit and total comprehensive income for the year |
- |
- |
- |
4,595 |
(1,699) |
17 |
2,913 |
|
Transfer of unrealised gains on disposal of investments |
- |
- |
- |
(1,277) |
1,277 |
- |
- |
|
Purchase of shares for treasury |
- |
- |
- |
- |
- |
(1,189) |
(1,189) |
|
Issue of equity |
102 |
8,478 |
- |
- |
- |
- |
8,580 |
|
Cost of issue of equity |
- |
(212) |
- |
- |
- |
- |
(212) |
|
Dividends paid |
- |
- |
- |
- |
(1,843) |
(2,073) |
(3,916) |
|
As at 31 December 2020 |
1,040 |
44,978 |
12 |
18,020 |
12,886 |
(1,077) |
75,859 |
* Included within these reserves is an amount of
£28,992,000 (2020: £11,809,000) which is considered distributable.
Over the next four years an additional £29,635,000 will become
distributable. This is due to the HMRC requirement that the Company
cannot use capital raised in the past three years to make a payment
or distribution to shareholders. On 1 January 2022, £2,701,000
became distributable in line with this.
Statement of cash flows
|
|
Year ended 31 December
2021£’000 |
Year ended 31 December 2020£’000 |
|
Cash flow from operating activities |
|
|
| Loan
stock income received |
736 |
583 |
| Deposit
interest received |
1 |
35 |
| Dividend
income received |
24 |
191 |
|
Investment Manager’s fees paid |
(1,877) |
(1,475) |
| Other
cash payments |
(326) |
(283) |
|
Corporation tax paid |
- |
- |
|
Net cash flow from operating activities |
(1,442) |
(949) |
|
|
|
|
|
Cash flow from investing activities |
|
|
| Purchase
of current asset investments |
- |
(1,190) |
| Purchase
of fixed asset investments |
(7,500) |
(5,156) |
| Disposal
of current asset investments |
- |
3,945 |
| Disposal
of fixed asset investments |
6,003 |
1,201 |
|
Net cash flow from investing activities |
(1,497) |
(1,200) |
|
|
|
|
|
Cash flow from financing activities |
|
|
| Issue of
share capital |
9,767 |
7,737 |
| Cost of
issue of shares |
(35) |
(33) |
| Equity
dividends paid* |
(3,744) |
(3,251) |
| Purchase
of own shares (including costs) |
(1,662) |
(1,188) |
|
Net cash flow from financing activities |
4,326 |
3,265 |
|
|
|
|
|
Increase in cash and cash equivalents |
1,387 |
1,116 |
| Cash and
cash equivalents at start of period |
15,645 |
14,529 |
|
Cash and cash equivalents at end of period |
17,032 |
15,645 |
*The dividends paid shown in the cash flow are
different to the dividends disclosed in note 9 as a result of the
non-cash effect of the Dividend Reinvestment Scheme.
Notes to the Financial Statements
1. Basis of
preparationThe Financial Statements have been
prepared in accordance with applicable United Kingdom law and
accounting standards, including Financial Reporting Standard 102
(“FRS 102”), and with the Statement of Recommended Practice
“Financial Statements of Investment Trust Companies and Venture
Capital Trusts” (“SORP”) issued by The Association of Investment
Companies (“AIC”). The Financial Statements have been prepared on a
going concern basis and further details can be found in the
Directors’ report on pages 33 and 34 of the full Annual Report and
Financial Statements.
The preparation of the Financial Statements
requires management to make judgements and estimates that affect
the application of policies and reported amounts of assets,
liabilities, income and expenses. The most critical estimates and
judgements relate to the determination of carrying value of
investments at Fair Value Through Profit and Loss (“FVTPL”) in
accordance with FRS 102 sections 11 and 12. The Company values
investments by following the International Private Equity and
Venture Capital Valuation (“IPEV”) Guidelines as updated in 2018
and further detail on the valuation techniques used are outlined in
note 2 below.
Company information can be found on page 2 of
the full Annual Report and Financial Statements.
2. Accounting
policiesFixed asset
investmentsThe Company’s business is investing in
financial assets with a view to profiting from their total return
in the form of income and capital growth. This portfolio of
financial assets is managed and its performance evaluated on a fair
value basis, in accordance with a documented investment policy, and
information about the portfolio is provided internally on that
basis to the Board.
In accordance with the requirements of FRS 102,
those undertakings in which the Company holds more than 20% of the
equity as part of an investment portfolio are not accounted for
using the equity method. In these circumstances the investment is
measured at FVTPL.
Upon initial recognition (using trade date
accounting) investments, including loan stock, are designated by
the Company as FVTPL and are included at their initial fair value,
which is cost (excluding expenses incidental to the acquisition
which are written off to the Income statement).
Subsequently, the investments are valued at
‘fair value’, which is measured as follows:
- Investments listed on recognised
exchanges are valued at their bid prices at the end of the
accounting period, including a discount for any restricted sales of
shares, or otherwise at fair value based on published price
quotations.
- Unquoted investments, where there
is not an active market, are valued using an appropriate valuation
technique in accordance with the IPEV Guidelines. Indicators of
fair value are derived using established methodologies including
earnings multiples, revenue multiples, the level of third party
offers received, cost or price of recent investment rounds, net
assets and industry valuation benchmarks. Where price of recent
investment is used as a starting point for estimating fair value at
subsequent measurement dates, this has been benchmarked using an
appropriate valuation technique permitted by the IPEV
guidelines.
- In situations where cost or price
of recent investment is used, consideration is given to the
circumstances of the portfolio company since that date in
determining fair value. This includes consideration of whether
there is any evidence of deterioration or strong definable evidence
of an increase in value. In the absence of these indicators, the
investment in question is valued at the amount reported at the
previous reporting date. Examples of events or changes that could
indicate a diminution include:
- the performance and/or prospects of
the underlying business are significantly below the expectations on
which the investment was based;
- a significant adverse change either
in the portfolio company’s business or in the technological,
market, economic, legal or regulatory environment in which the
business operates; or
- market conditions have
deteriorated, which may be indicated by a fall in the share prices
of quoted businesses operating in the same or related sectors.
Investments are recognised as financial assets
on legal completion of the investment contract and are
de-recognised on legal completion of the sale of an investment.
Dividend income is not recognised as part of the
fair value movement of an investment, but is recognised separately
as investment income through the other distributable reserve when a
share becomes ex-dividend.
Current assets and payables
Receivables (including debtors due after more than one year),
payables and cash are carried at amortised cost, in accordance with
FRS 102. Debtors due after more than one year meet the definition
of a financing transaction held at amortised cost, and interest
will be recognised through capital over the credit period using the
effective interest method. There are no financial liabilities other
than payables.
Investment incomeEquity
incomeDividend income is included in revenue when the investment is
quoted ex-dividend.
Unquoted loan stock incomeFixed returns on
non-equity shares and debt securities are recognised when the
Company’s right to receive payment and expect settlement is
established. Where interest is rolled up and/or payable at
redemption then it is recognised as income unless there is
reasonable doubt as to its receipt.
Bank interest incomeInterest income is
recognised on an accruals basis using the rate of interest agreed
with the bank.
Investment management fee, performance
incentive fee and expensesAll expenses have been accounted
for on an accruals basis. Expenses are charged through the other
distributable reserve except the following which are charged
through the realised capital reserve:
- 90% of management fees and 100% of
performance incentive fees if any, are allocated to the realised
capital reserve. This has changed from 75% for both management fees
and performance incentive fees in the year ended 31 December 2020,
to better align with the Board’s expectation that over the long
term the majority of the Company’s investment returns will be in
the form of capital gains.
- expenses which are incidental to
the purchase or disposal of an investment are charged through the
realised capital reserve.
TaxationTaxation is applied on
a current basis in accordance with FRS 102. Current tax is tax
payable/(refundable) in respect of the taxable profit/(tax loss)
for the current period or past reporting periods using the tax
rates and laws that have been enacted or substantively enacted at
the financial reporting date. Taxation associated with capital
expenses is applied in accordance with the SORP.
Deferred tax is provided in full on all timing
differences at the reporting date. Timing differences are
differences between taxable profits and total comprehensive income
as stated in the Financial Statements that arise from the inclusion
of income and expenses in tax assessments in periods different from
those in which they are recognised in the Financial Statements. As
a VCT the Company has an exemption from tax on capital gains. The
Company intends to continue meeting the conditions required to
obtain approval as a VCT in the foreseeable future. The Company
therefore, should have no material deferred tax timing differences
arising in respect of the revaluation or disposal of investments
and the Company has not provided for any deferred tax.
Share capital and
reservesCalled-up share capitalThis
reserve accounts for the nominal value of the Company’s shares.
Share premiumThis reserve accounts for the
difference between the price paid for the Company’s shares and the
nominal value of those shares, less issue costs and transfers to
the other distributable reserve.
Capital redemption reserveThis reserve accounts
for amounts by which the issued share capital is diminished through
the repurchase and cancellation of the Company’s own shares.
Unrealised capital reserveIncreases and
decreases in the valuation of investments held at the year end
against cost are included in this reserve.
Realised capital reserveThe following are
disclosed in this reserve:
- gains and losses compared to cost
on the realisation of investments, or permanent diminutions in
value (including gains recognised on the realisation of investment
where consideration is deferred that are not distributable as a
matter of law);
- finance income in respect of the unwinding of the discount on
deferred consideration that is not distributable as a matter of
law;
- expenses, together with the related
taxation effect, charged in accordance with the above policies;
and
- dividends paid to equity holders
where paid out by capital.
Other distributable reserveThe special reserve,
treasury share reserve and the revenue reserve were combined in
2012 to form a single reserve named other distributable
reserve.
This reserve accounts for movements from the
revenue column of the Income statement, the payment of dividends,
the buy-back of shares and other non-capital realised
movements.
DividendsDividends by the
Company are accounted for when the liability to make the payment
(record date) has been established.Going
concernThe Board has assessed the Company’s operation as a
going concern. The Company has sufficient cash and liquid
resources, its portfolio of investments is well diversified in
terms of sector, and the major cash outflows of the Company (namely
investments, buy-backs and dividends) are within the Company’s
control. Cash flow forecasts are discussed quarterly at Board level
with regards to going concern. The cash flow forecasts have been
updated and stress tested. Accordingly, after making diligent
enquiries, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence
over a period of at least twelve months from the date of approval
of the Financial Statements. For this reason, the Directors have
adopted the going concern basis in preparing the accounts. The
Directors do not consider there to be any material uncertainty over
going concern.
Segmental reportingThe
Directors are of the opinion that the Company is engaged in a
single operating segment of business, being investment in smaller
companies principally based in the UK.
3. Gains on investments
|
|
Year ended 31 December
2021£’000 |
Year ended 31 December 2020£’000 |
|
Unrealised gains on fixed asset investments |
19,786 |
4,595 |
| Realised gains on fixed asset
investments |
549 |
601 |
| Unwinding of discount on
deferred consideration |
257 |
- |
| Realised losses on current
asset investments |
- |
(1,123) |
| |
20,592 |
4,073 |
4. Investment income
|
|
Year ended 31 December
2021£’000 |
Year ended 31 December 2020£’000 |
|
Loan stock interest |
964 |
584 |
| Dividend income |
23 |
74 |
| Bank deposit interest |
1 |
34 |
| |
988 |
692 |
5. Investment
Manager’s fees
|
|
Year ended31 December
2021£’000 |
Year ended 31 December 2020£’000 |
|
Investment management fee charged to revenue |
196 |
382 |
| Investment management fee
charged to capital |
1,766 |
1,146 |
| Performance incentive fee charged
to revenue |
- |
11 |
| Performance incentive fee charged
to capital |
1,838 |
31 |
| |
3,800 |
1,570 |
Further details of the Management agreement
under which the investment management fee and performance incentive
fee are paid is given in the Strategic report.
During the year, services of a total value of
£1,962,000 (2020: £1,528,000) were purchased by the Company from
Albion Capital Group LLP (“Albion”) in respect of management fees.
There is a performance incentive fee of £1,838,000 payable this
year (2020: £42,000). At the financial year end, the amount due to
Albion in respect of these services disclosed as accruals was
£2,366,000 (2020: £443,000). The total annual running costs of the
Company are capped at an amount equal to 2.5% of the Company’s net
assets, with any excess being met by Albion by way of a reduction
in management fees. During the year, the management fee was reduced
by £86,000 as a result of this cap (2020: £97,000).
During the year, the Company was not charged by
Albion in respect of Patrick Reeve’s services as a Director (2020:
£nil).Albion, its partners and staff hold 800,470 Ordinary shares
in the Company as at 31 December 2021.
Albion is, from time-to-time, eligible to
receive arrangement fees and monitoring fees from portfolio
companies. During the year ended 31 December 2021, fees of £187,000
attributable to the investments of the Company were received by
Albion pursuant to these arrangements (2020: £168,000).
The Company has entered into an offer agreement
relating to the Offers with the Company’s investment manager
Albion, pursuant to which Albion will receive a fee of 2.5% of the
gross proceeds of the Offers and out of which Albion will pay the
costs of the Offers, as detailed in the Prospectus.
6. Other expenses
|
|
Year ended31 December
2021£’000 |
Year ended 31 December 2020£’000 |
|
Directors’ fees (including NIC) |
75 |
75 |
| Auditor’s remuneration for
statutory audit services (excluding VAT) |
38 |
34 |
| Other administrative
expenses |
213 |
173 |
| |
326 |
282 |
7. Directors’ feesThe amounts
paid to and on behalf of the Directors during the year are as
follows:
|
|
Year ended 31
December
2021£’000 |
Year ended 31 December 2020£’000 |
|
Directors’ fees |
69 |
69 |
| National insurance |
6 |
6 |
| |
75 |
75 |
The Company’s key management personnel are the
non-executive Directors. Further information regarding Directors’
remuneration can be found in the Directors’ remuneration report on
pages 45 and 46 of the full Annual Report and Financial
Statements.
8. Tax on ordinary
activities
|
|
Year ended 31 December
2021£’000 |
Year ended 31 December 2020£’000 |
|
UK corporation tax charge in respect of current year |
- |
- |
| |
- |
- |
|
Factors affecting the tax
charge: |
Year ended 31 December
2021£’000 |
Year ended 31 December 2020£’000 |
|
Profit on ordinary activities before taxation |
17,454 |
2,913 |
| |
|
|
| Tax charge on profit at the
average companies rate of 19% (2020: 19%) |
3,316 |
553 |
| |
|
|
| Factors affecting the
charge: |
|
|
| Non-taxable gains |
(3,912) |
(774) |
| Income not taxable |
(4) |
(14) |
| Excess management expenses
carried forward |
600 |
235 |
| |
- |
- |
The tax charge for the year shown in the Income
statement is lower than the average companies rate of corporation
tax in the UK of 19% (2020: 19%). The differences are explained
above.
Notes (i)
Venture Capital
Trusts are not subject to corporation tax on capital gains.(ii)
Tax relief on
expenses charged to capital has been determined by allocating tax
relief to expenses by reference to the applicable corporation tax
rate and allocating the relief between revenue and capital in
accordance with the SORP.
(iii)
The Company has
excess management expenses of £7,026,000 (2020: £3,882,000) that
are available for offset against future profits. A deferred tax
asset of £1,757,000 (2020: £738,000) has not been recognised in
respect of these losses as they will be recoverable only to the
extent that the Company has sufficient future taxable profits.
9. Dividends
| |
Year ended31 December
2021 |
Year ended31 December 2020 |
|
|
£’000 |
£’000 |
| First interim dividend of
2.06p per share paid on 28 May 2021 (29 May 2020: 2.25p per
share) |
2,126 |
2,077 |
| Second interim dividend of
2.31p per share paid on 30 September 2021 (30 September 2020: 1.99p
per share) |
2,383 |
1,843 |
| Unclaimed dividends |
(7) |
(4) |
| |
4,502 |
3,916 |
Details of the consideration issued under the
Dividend Reinvestment Scheme included in the dividends above can be
found in note 15.
In addition to the dividends summarised above,
the Board has declared a first interim dividend of 2.37 pence per
share for the year ending 31 December 2022, payable on 31 May 2022
to shareholders on the register on 6 May 2022. The total dividend
will be approximately £2,742,000.
10. Basic and diluted
return per share
|
|
Year ended 31 December
2021 |
Year ended 31 December 2020 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
|
|
|
|
|
| Profit attributable to equity
shares (£’000) |
466 |
16,988 |
17,454 |
17 |
2,896 |
2,913 |
| Weighted average shares in
issue (adjusted for treasury shares) |
101,474,066 |
91,755,964 |
| Return attributable per equity
share (pence) |
0.46 |
16.74 |
17.20 |
0.02 |
3.15 |
3.17 |
The weighted average number of Ordinary shares
is calculated after adjusting for treasury shares of 13,946,475
(2020: 11,938,106).
There are no convertible instruments,
derivatives or contingent share agreements in issue so basic and
diluted return per share are the same.
11. Fixed asset
investments
|
|
31 December
2021£’000 |
31 December 2020£’000 |
|
Investments held at fair value through profit or
loss |
|
|
| Unquoted equity and preference
shares |
66,082 |
44,350 |
| Unquoted loan stock |
13,227 |
14,648 |
| Quoted equity |
1,191 |
- |
| |
80,500 |
58,998 |
|
|
31 December
2021£’000 |
31 December 2020£’000 |
|
Opening valuation |
58,998 |
51,406 |
| Purchases at cost |
6,983 |
5,577 |
| Disposal proceeds |
(6,043) |
(3,181) |
| Realised gains |
549 |
601 |
| Movement in loan stock accrued
income |
227 |
- |
| Unrealised gains |
19,786 |
4,595 |
| Closing
valuation |
80,500 |
58,998 |
| |
|
|
| Movement in loan stock
accrued income |
|
|
| Opening accumulated loan stock
accrued income |
113 |
113 |
| Movement in loan stock accrued
income |
227 |
- |
| Closing accumulated
loan stock accrued income |
340 |
113 |
| |
|
|
| Movement in unrealised
gains |
|
|
| Opening accumulated unrealised
gains |
17,843 |
14,447 |
| Transfer of previously
unrealised gains to realised reserve on disposal of
investments |
(1,758) |
(1,199) |
| Movement in unrealised
gains |
19,786 |
4,595 |
| Closing accumulated
unrealised gains |
35,871 |
17,843 |
| |
|
|
| Historic cost
basis |
|
|
| Opening book cost |
41,042 |
36,846 |
| Purchases at cost |
6,983 |
5,577 |
| Sales at cost |
(3,737) |
(1,381) |
| Closing book
cost |
44,288 |
41,042 |
Purchases and disposals detailed above do not
agree to the Statement of cash flows due to restructuring of
investments, conversion of convertible loan stock and settlement of
receivables and payables.
Fixed asset investments are valued at fair value in accordance
with the IPEV guidelines as follows:
|
Valuation methodology |
31 December
2021£’000 |
31 December 2020£’000 |
| Cost and price of recent
investment (reviewed for impairment or uplift) |
34,857 |
21,624 |
| Revenue multiple |
25,488 |
20,499 |
| Third party valuation –
discounted cash flow |
8,498 |
9,063 |
| Discounted offer price |
6,316 |
2,202 |
| Third party valuation -
earnings multiple |
3,287 |
2,625 |
| Bid price |
1,191 |
- |
| Net assets |
809 |
2,395 |
| Earnings multiple |
54 |
590 |
| |
80,500 |
58,998 |
When using the cost or price of recent
investment in the valuations, the Company looks to re-calibrate
this price at each valuation point by reviewing progress within the
investment, comparing against the initial investment thesis,
assessing if there are any significant events or milestones that
would indicate the value of the investment has changed and
considering whether a market-based methodology (i.e. Using
multiples from comparable public companies) or a discounted
cashflow forecast would be more appropriate.
The main inputs into the calibration exercise,
and for the valuation models using multiples, are revenue, EBITDA
and P/E multiples (based on the most recent revenue, EBITDA or
earnings achieved and equivalent corresponding revenue, EBITDA or
earnings multiples of comparable companies), quality of earnings
assessments and comparability difference adjustments. Revenue
multiples are often used, rather than EBITDA or earnings, due to
the nature of the Company’s investments, being in growth and
technology companies which are not normally expected to achieve
profitability or scale for a number of years. Where an investment
has achieved scale and profitability the Company would normally
then expect to switch to using an EBITDA or earnings multiple
methodology.
In the calibration exercise and in determining
the valuation for the Company’s equity instruments, comparable
trading multiples are used. In accordance with the Company’s
policy, appropriate comparable companies based on industry, size,
developmental stage, revenue generation and strategy are determined
and a trading multiple for each comparable company identified is
then calculated. The multiple is calculated by dividing the
enterprise value of the comparable group by its revenue, EBITDA or
earnings. The trading multiple is then adjusted for considerations
such as illiquidity, marketability and other differences,
advantages and disadvantages between the portfolio company and the
comparable public companies based on company specific facts and
circumstances.
Fair value investments had the following
movements between valuation methodologies between 31 December 2020
and 31 December 2021:
|
Change in valuation methodology
(2020
to
2021) |
Value as at 31 December
2021£’000 |
Explanatory note |
| Cost to discounted offer
price |
4,204 |
Third party offers received |
| Price of recent investment to
revenue multiple |
3,199 |
Revenue multiple more relevant
based on current trading |
| Revenue multiple to price of
recent investment |
2,196 |
External investment round led to
revaluation of investment |
| Revenue multiple to discounted
offer price |
2,112 |
Third party offer received |
| Net assets to bid price |
1,191 |
Company listed on AIM in
period |
| Revenue multiple to net
assets |
9 |
Covid-19 impact on portfolio
company has lead to revaluation |
The valuation will be the most appropriate
valuation methodology for an investment within its market, with
regard to the financial health of the investment and the IPEV
Guidelines. The Directors believe that, within these parameters,
these are the most relevant methods of valuation which would be
reasonable as at 31 December 2021.
FRS 102 and the SORP requires the Company to
disclose the inputs to the valuation methods applied to its
investments measured at fair value through profit or loss in a fair
value hierarchy. The table below sets out fair value hierarchy
definitions using FRS102 s.11.27.
|
Fair value hierarchy |
Definition |
|
Level 1 |
Unadjusted quoted prices in an active market |
|
Level 2 |
Inputs to valuations are from observable sources and are directly
or indirectly derived from prices |
|
Level 3 |
Inputs to valuations not based on observable market data |
Quoted investments are valued according to Level
1 valuation methods. Unquoted equity, preference shares and loan
stock are all valued according to Level 3 valuation methods.
Investments held at fair value through profit or loss (Level 3)
had the following movements:
|
|
31 December
2021£’000 |
31 December 2020£’000 |
|
Opening balance |
58,998 |
51,384 |
| Additions |
6,983 |
5,577 |
| Movement from Level 1 to Level
3* |
- |
22 |
| Movement from Level 3 to Level
1** |
(1,191) |
- |
| Disposals |
(6,043) |
(3,181) |
| Accrued loan stock
interest |
227 |
- |
| Realised gains |
549 |
601 |
| Unrealised gains |
19,786 |
4,595 |
| Closing balance |
79,309 |
58,998 |
*This relates to the investment in Mi-Pay Group
PLC changing from Level 1 to Level 3 in the fair value hierarchy,
as this was in liquidation, and no longer listed.** This relates to
Arecor Therapeutics PLC, which listed on the AIM stock exchange
during the period.
The Directors are required to consider the
impact of changing one or more of the inputs used as part of the
valuation process to reasonable possible alternative assumptions.
66% of the portfolio of investments, consisting of equity and loan
stock, is based on recent investment price, discounted offer price,
net assets and cost. For the remainder of the portfolio, the Board
has considered the reasonable possible alternative input
assumptions on the valuation of the portfolio and believes that
changes to inputs (by adjusting the earnings and revenue multiples)
could lead to a change in the fair value of the portfolio. The
Board has reviewed the Manager’s adjusted inputs for a number of
the largest portfolio companies (by value) which covers 20% of the
portfolio. This has resulted in a total coverage of 86% of the
portfolio of investments. The main inputs considered for each type
of valuation is as follows:
|
Valuation technique |
Portfolio company sector |
Input |
Base Case* |
Change in input |
Change in fair
value of
investments (£’000) |
Change in NAV (pence per share) |
|
Revenue multiple |
Software & other technology |
Revenue multiple |
6.0x |
+0.5 |
769 |
0.75 |
|
-0.5 |
(769) |
(0.75) |
|
Revenue multiple |
Healthcare (including digital healthcare) |
Revenue multiple |
5.2x |
+0.5 |
665 |
0.65 |
|
-0.5 |
(665) |
(0.65) |
|
Third party valuation – discounted cash flow |
Renewable energy |
Discount rate |
5.5% |
-0.5% |
77 |
0.07 |
|
+0.5% |
(70) |
(0.07) |
*As detailed in the accounting policies, the
base case is based on market comparables, discounted where
appropriate for marketability, in accordance with the IPEV
guidelines.
The impact of these changes could result in an
overall increase in the valuation of the equity investments by
£1,511,000 (2.3%) or a decrease in the valuation of equity
investments by £1,503,000 (2.3%).
12. Significant interestsThe
principal activity of the Company is to select and hold a portfolio
of investments in unquoted securities. Although the Company,
through the Manager, will, in some cases, be represented on the
board of the portfolio company, it will not ordinarily take a
controlling interest or become involved in the management. The size
and structure of companies with unquoted securities may result in
certain holdings in the portfolio representing a participating
interest without there being any partnership, joint venture or
management consortium agreement.
The Company has no interests of greater than 20%
of the nominal value of any class of the allotted shares in the
portfolio companies as at 31 December 2021.
13. Current assets
|
Trade and other receivables |
31 December
2021£’000 |
31 December 2020£’000 |
|
Prepayments and accrued income |
24 |
23 |
| Other receivables |
520 |
3 |
| Deferred consideration under one
year |
226 |
192 |
| Deferred consideration over one
year |
1,796 |
1,539 |
| |
2,566 |
1,757 |
The deferred consideration over one year relates
to the sale of G.Network Communications Limited in December 2020.
These proceeds are receivable in January 2024, and have been
discounted to present value at the prevailing market rate,
including a provision for counterparty risk. This constitutes a
financing transaction, and has been accounted for using the policy
disclosed in note 2.
The Directors consider that the carrying amount
of receivables is not materially different to their fair value.
14.
Payables: amounts falling due within one
year
|
|
31 December 2021£’000 |
31 December 2020£’000 |
|
Accruals and deferred income |
2,453 |
519 |
| Trade payables |
6 |
22 |
| |
2,459 |
541 |
The Directors consider that the carrying amount
of payables is not materially different to their fair value.
15.
Called-up share
capital
|
Allotted, called-up and fully paid shares: |
£’000 |
|
103,974,504 Ordinary shares of 1 penny each at 31 December
2020 |
1,040 |
| 12,772,890 Ordinary shares of
1 penny each issued during the year |
127 |
|
116,747,394 Ordinary
shares of 1 penny each at 31
December
2021 |
1,167 |
|
|
|
| 11,938,106 Ordinary shares of
1 penny each held in treasury at 31 December 2020 |
(119) |
| 2,008,369 Ordinary shares of 1
penny each purchased during the year to be held in treasury |
(20) |
|
13,946,475 Ordinary
shares of 1 penny each held in treasury at 31 December
2021 |
(139) |
|
|
|
|
Voting rights of 102,800,919
Ordinary shares of 1 penny each at 31
December
2021 |
1,028 |
The Company purchased 2,008,369 shares (2020:
1,587,950) to be held in treasury at a nominal value of £20,084 and
a cost of £1,661,000 (2020: £1,189,000) representing 1.7% of the
shares in issue on 31 December 2021, leading to a balance of
13,946,475 shares (2020: 11,938,106) in treasury representing 11.9%
(2020: 11.5%) of the shares in issue on 31 December 2021.
Under the terms of the Dividend Reinvestment
Scheme, the following new Ordinary shares of nominal value 1 penny
each were allotted during the year:
|
Date of allotment |
Number of shares allotted |
Aggregate nominal value
of shares (£’000) |
Issue price (pence per share) |
Net invested
(£’000) |
Opening market price on allotment date (pence per
share) |
|
28 May 2021 |
434,384 |
4 |
82.01 |
339 |
78.00 |
|
30 September 2021 |
444,130 |
4 |
90.10 |
383 |
86.00 |
|
|
878,514 |
|
|
722 |
|
Under the terms of the Albion VCTs Prospectus
Top Up Offers 2020/21, the following new Ordinary shares of nominal
value 1 penny each, were allotted during the year:
|
Date of allotment |
Number of shares allotted |
Aggregate nominal value of shares (£’000) |
Issue price (pence per share) |
Net consideration received (£’000) |
Opening market price on allotment date (pence per
share) |
|
26 February 2021 |
1,932,052 |
19 |
83.30 |
1,585 |
78.00 |
|
26 February 2021 |
515,665 |
5 |
83.80 |
424 |
78.00 |
|
26 February 2021 |
8,866,225 |
89 |
84.20 |
7,279 |
78.00 |
|
9 April 2021 |
202,566 |
2 |
83.70 |
167 |
78.50 |
|
9 April 2021 |
32,777 |
- |
84.20 |
27 |
78.50 |
|
9 April 2021 |
345,091 |
3 |
84.60 |
285 |
78.50 |
|
|
11,894,376 |
|
|
9,767 |
|
16.
Basic and diluted net asset value
per share
|
|
|
31 December
2021
(pence per share) |
31 December 2020 (pence per share) |
| Basic and diluted net asset
value per share |
|
94.98 |
82.42 |
The basic and diluted net asset values per share
at the year end are calculated in accordance with the Articles of
Association and are based upon total shares in issue (adjusting for
treasury shares) of 102,800,919 Ordinary shares as at 31 December
2021 (2020: 92,036,398).
17.
Capital and financial instruments risk managementThe
Company’s capital comprises Ordinary shares as described in note
15. The Company is permitted to buy back its own shares for
cancellation or treasury purposes, and this is described in more
detail in the Chairman’s statement.
The Company’s financial instruments comprise
equity and loan stock investments in quoted and unquoted companies,
deferred receipts on disposal of fixed asset investments, cash
balances and receivables and payables which arise from its
operations. The main purpose of these financial instruments is to
generate cashflow and revenue and capital appreciation for the
Company’s operations. The Company has no gearing or other financial
liabilities apart from short term payables. The Company does not
use any derivatives for the management of its Balance sheet.
The principal financial instrument risks arising
from the Company’s operations are:
- Market and investment risk (which
comprises investment price and cash flow interest rate risk);
- credit risk; and
- liquidity risk.
The Board regularly reviews and agrees policies
for managing each of these risks. There have been no changes in the
nature of the risks that the Company has faced during the past year
and there have been no changes in the objectives, policies or
processes for managing risks during the past year. The key risks
are summarised below.
Market riskAs a Venture Capital
Trust, it is the Company’s specific nature to evaluate the market
risk of its portfolio in unquoted companies. Market risk is the
exposure of the Company to the revaluation and devaluation of
investments as a result of macroeconomic changes. The main driver
of market risk is the dynamics of market quoted comparators, as
well as the financial and operational performance of portfolio
companies. The Board seeks to reduce this risk by having a spread
of investments across a variety of sectors. More details on the
sectors the Company invests in can be found in the pie chart at the
end of this announcement.
The Manager and the Board formally review market
risk, both at the time of initial investment and at quarterly Board
meetings.
The Board monitors the prices at which sales of
investments are made to ensure that profits to the Company are
maximised, and that valuations of investments retained within the
portfolio appear sufficiently prudent and realistic compared to
prices being achieved in the market for sales of unquoted
investments.
As required under FRS 102 the Board is required
to illustrate by way of a sensitivity analysis the extent to which
the assets are exposed to market risk. The Board considers that the
value of the fixed asset investment portfolio is sensitive to a
change of 10% based on the current economic climate. The impact of
a 10% change has been selected as this is considered reasonable
given the current level of volatility observed. When considering
the appropriate level of sensitivity to be applied, the Board has
considered both historic performance and future expectations.
The sensitivity of a 10% increase or decrease in
the valuation of the fixed asset investment portfolio (keeping all
other variables constant) would increase or decrease the net asset
value and return for the year by £8,050,000. Further sensitivity
analysis on fixed asset investments is included in note 11.
Investment risk
(including investment price risk)Investment risk
(including investment price risk) is the risk that the fair value
of future investment cash flows will fluctuate due to factors
specific to an investment instrument or to a market in similar
instruments. The management of risk within the venture capital
portfolio is addressed through careful investment selection, by
diversification across different industry segments, by maintaining
a wide spread of holdings in terms of financing stage and by
limitation of the size of individual holdings. The Manager receives
management accounts from portfolio companies and members of the
investment management team often sit on the boards of unquoted
portfolio companies; this enables the close identification,
monitoring and management of investment risk. The Directors monitor
the Manager’s compliance with the investment policy, review and
agree policies for managing this risk and monitor the overall level
of risk on the investment portfolio on a regular basis.
Valuations are based on the most appropriate
valuation methodology for an investment within its market, with
regard to the financial health of the investment and the IPEV
Guidelines. Details of the industries in which investments have
been made are contained in the pie chart at the end of this
announcement.
The maximum investment risk as at the Balance
sheet date is the value of the fixed asset investment portfolio
which is £80,500,000 (2020: £58,998,000). Fixed asset investments
form 82% of net asset value as at 31 December 2021 (2020: 78%).
More details regarding the classification of
fixed asset investments are shown in note 11.
Interest rate
riskIt is the Company’s policy to accept a degree of
interest rate risk on its financial assets through the effect of
interest rate changes. On the basis of the Company’s analysis, it
is estimated that a rise of 1% in all interest rates would have
increased total return before tax for the year by approximately
£163,000 (2020: £151,000). Furthermore, it was considered that a
material fall in interest rates below current levels during the
year would have been unlikely.
The weighted average effective interest rate
applied to the Company’s fixed rate assets during the year was
approximately 7.7% (2020: 4.5%). The weighted average period to
maturity for the fixed rate assets is approximately 4.9 years
(2020: 5.2 years).
The Company’s financial assets and liabilities,
all denominated in pounds sterling, consist of the following:
|
|
31 December
2021 |
31 December 2020 |
|
|
Fixed rate £’000 |
Floating rate £’000 |
Non-interest bearing£’000 |
Total£’000 |
Fixed rate £’000 |
Floating rate £’000 |
Non-interest bearing£’000 |
Total£’000 |
|
Unquoted equity |
- |
- |
66,082 |
66,082 |
- |
- |
44,350 |
44,350 |
| Quoted equity |
- |
- |
1,191 |
1,191 |
- |
- |
- |
- |
| Unquoted loan stock |
12,594 |
175 |
458 |
13,227 |
13,752 |
185 |
711 |
14,648 |
| Receivables* |
- |
- |
2,542 |
2,542 |
- |
- |
1,734 |
1,734 |
| Current liabilities |
- |
- |
(2,459) |
(2,459) |
- |
- |
(541) |
(541) |
| Cash |
- |
17,032 |
- |
17,032 |
- |
15,645 |
- |
15,645 |
| Total |
12,594 |
17,207 |
67,814 |
97,615 |
13,752 |
15,830 |
46,254 |
75,836 |
*The receivables do not reconcile to the Balance
sheet as prepayments are not included in the above table.
Credit riskCredit risk is the
risk that the counterparty to a financial instrument will fail to
discharge an obligation or commitment that it has entered into with
the Company. The Company is exposed to credit risk through its
receivables, investment in unquoted loan stock and through the
holding of cash on deposit with banks.
The Manager evaluates credit risk on loan stock
instruments prior to investment and as part of its ongoing
monitoring of investments. For investments made prior to 6 April
2018, which account for 94% of loan stock value, typically loan
stock instruments will have a fixed or floating charge, which may
or may not be subordinated, over the assets of the portfolio
company in order to mitigate the gross credit risk.
The Manager receives management accounts from
portfolio companies and members of the investment management team
often sit on the boards of unquoted portfolio companies; this
enables the close identification, monitoring and management of
investment specific credit risk.
Bank deposits are held with banks with high
credit ratings assigned by international credit rating agencies.
The Company has an informal policy of limiting counterparty banking
exposure to a maximum of 20% of net asset value for any one
counterparty.
The Manager and the Board formally review credit
risk (including receivables) and other risks, both at the time of
initial investment and at quarterly Board meetings.
The Company’s total gross credit risk at 31
December 2021 was limited to £13,227,000 (2020: £14,648,000) of
unquoted loan stock instruments, £17,302,000 (2020: £15,645,000) of
cash deposits with banks and £2,542,000 (2020: £1,757,000) of other
receivables.
At the Balance sheet date, the cash and cash
equivalents held by the Company were held with Lloyds Bank plc,
Scottish Widows Bank plc (part of Lloyds Banking Group), Barclays
Bank plc, Société Générale S.A. and National Westminster Bank plc.
Credit risk on cash transactions was mitigated by transacting with
counterparties that are regulated entities subject to prudential
supervision, with high credit ratings assigned by international
credit-rating agencies.
The Company has an informal policy of limiting
counterparty banking exposure to a maximum of 20% of net asset
value for any one counterparty.
The credit profile of unquoted loan stock is described under
liquidity risk shown below.
Liquidity riskLiquid assets are
held as cash on current account, cash on deposit or short term
money market account. Under the terms of its Articles, the Company
has the ability to borrow up to 10% of its adjusted capital and
reserves of the latest published audited Balance sheet, which
amounts to £9,490,000 as at 31 December 2021 (2020:
£7,373,000).
The Company had no committed borrowing
facilities as at 31 December 2021 (2020: nil) and the Company had
cash balances of £17,032,000 (2020: £15,645,000). The main cash
outflows are for new investments, buy-back of shares and dividend
payments, which are within the control of the Company. The Manager
formally reviews the cash requirements of the Company on a monthly
basis, and the Board on a quarterly basis, as part of its review of
management accounts and forecasts. All of the Company’s financial
liabilities are short term in nature and total £2,459,000 (2020:
£541,000).
The carrying value of loan stock investments,
analysed by expected maturity dates is as follows:
| |
31 December
2021 |
31 December 2020 |
|
Redemption date |
Fully performing£’000 |
Valued below cost£’000 |
Past due £’000 |
Total£’000 |
Fully performing£’000 |
Valued below cost£’000 |
Past due £’000 |
Total£’000 |
|
Less than one year |
6,055 |
689 |
- |
6,744 |
2,160 |
736 |
1,738 |
4,634 |
| 1-2 years |
175 |
1 |
- |
176 |
1,887 |
38 |
94 |
2,019 |
| 2-3 years |
261 |
7 |
- |
268 |
175 |
136 |
- |
311 |
| 3-5 years |
762 |
- |
97 |
859 |
1,948 |
- |
78 |
2,026 |
| 5 + years |
5,180 |
- |
- |
5,180 |
5,555 |
- |
103 |
5,658 |
| Total |
12,433 |
697 |
97 |
13,227 |
11,725 |
910 |
2,013 |
14,648 |
Loan stock can be past due as a result of
interest or capital not being paid in accordance with contractual
terms.
The cost of loan stock investments valued below
cost is £1,202,000 (2020: £1,036,000).
The Company does not hold any assets as the
result of the enforcement of security during the period, and
believes that the carrying values for both those valued below cost
and past due assets are covered by the value of security held for
these loan stock investments.
In view of the availability of adequate cash
balances and the repayment profile of loan stock investments, the
Board considers that the Company is subject to low liquidity
risk.
Fair values of financial assets and
financial liabilitiesAll the Company’s financial assets
and liabilities as at 31 December 2021 are stated at fair value as
determined by the Directors, with the exception of receivables
(including debtors due after more than one year), payables and cash
which are carried at amortised cost, in accordance with FRS 102.
There are no financial liabilities other than payables. The
Company’s financial liabilities are all non-interest bearing. It is
the Directors’ opinion that the book value of the financial
liabilities is not materially different to the fair value and all
are payable within one year.
18. Contingencies
and
commitments
As at 31 December 2021, the Company had no
financial commitments (2020: £nil).
There were no contingent liabilities or guarantees given by the
Company as at 31 December 2021 (2020: £nil).
19. Post balance sheet
eventsSince the year end, the Company made the following
material investment transactions:
- Proceeds of £2,141,000 received for
the sale of Phrasee Limited;
- Proceeds of £1,647,000 received for
the sale of Credit Kudos Limited:
- Investment of £721,000 in an
existing portfolio company, Black Swan Data Limited;
- Investment of £684,000 in an
existing portfolio company, TransFICC Limited;
- Investment of £517,000 in a new
portfolio company, PerchPeek Limited; and
- Investment of £391,000 in an
existing portfolio company, Cantab Research Limited (trading as
Speechmatics).
The following new Ordinary shares of nominal
value 1 penny each were allotted under the Albion VCTs Prospectus
Top Up Offers 2021/22 after 31 December 2021:
|
Date of allotment |
Number of shares allotted |
Aggregate nominal value of shares |
Issue price (pence per |
Net consideration received |
Opening market price on allotment date |
|
|
|
£’000 |
share) |
£’000 |
(pence per share) |
|
25 February 2022 |
1,360,570 |
14 |
96.50 |
1,293 |
91.00 |
|
25 February 2022 |
462,648 |
5 |
97.00 |
440 |
91.00 |
|
25 February 2022 |
11,077,966 |
111 |
97.50 |
10,531 |
91.00 |
|
|
12,901,184 |
|
|
12,264 |
|
20.
Related party transactionsOther than transactions with the
Manager as disclosed in note 5, and the Directors’ remuneration
disclosed in the Directors’ remuneration report on pages 45 and 46
of the full Annual Report and Financial Statements, there are no
other related party transactions or balances requiring
disclosure.
21. Other Information The
information set out in this announcement does not constitute the
Company's statutory accounts within the terms of section 434 of the
Companies Act 2006 for the years ended 31 December 2021 and 31
December 2020, and is derived from the statutory accounts
for those financial years, which have been, or in the case of the
accounts for the year ended 31 December 2021, which will be,
delivered to the Registrar of Companies. The Auditor reported on
those accounts; the reports were unqualified and did not contain a
statement under s498 (2) or (3) of the Companies Act 2006.
22. PublicationThe full audited
Annual Report and Financial Statements are being sent to
shareholders and copies will be made available to the public at the
registered office of the Company, Companies House, the National
Storage Mechanism and also electronically at
www.albion.capital/funds/AADV, where the Report can be accessed as
a PDF document via a link in the 'Financial Reports and Circulars'
section.
- Split of Portfolio by sector, stage of investment and number of
employees
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