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 2022.
This announcement was approved for release by
the Board of Directors on 6 April 2023.
This announcement has not been audited.
The Annual Report and Financial Statements for
the year ended 31 December 2022 (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/31Dec2022.pdf.
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.
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.
Financial calendar
Record date for first
dividend |
5 May 2023 |
|
|
Annual General Meeting |
Noon on 30 May 2023 |
|
|
Payment of first dividend |
31 May 2023 |
|
|
Announcement of Half-yearly
results for the six months ending 30 June 2023 |
September 2023 |
Financial summary
202.22p |
Total shareholder value as at 31 December 2022† (2021: 203.84p)
†† |
|
|
(1.71)% |
Shareholder return for the year ended 31 December 2022†† (2021:
gain of 20.54%) |
|
|
4.71p
|
Tax-free dividend per share for the year ended 31 December 2022
(2021: 4.37p) |
|
|
88.65p |
Net asset value per share as at 31 December 2022 (2021:
94.98p) |
†Total shareholder value at 31 December 2022 is calculated using
net asset value per share at 31 December 2022 plus dividends paid
per Ordinary share since launch to 31 December 2022.††These are
considered Alternative Performance Measures, see note 3 in the
KPI’s and APM’s section of the Strategic report for further
explanation.
Movements in net asset value
|
31 December 2022pence per
share |
31 December 2021pence per share |
|
|
|
Opening net asset value |
94.98 |
82.42 |
Capital (loss)/return |
(2.36) |
16.74 |
Revenue return |
0.49 |
0.46 |
Total (loss)/return |
(1.87) |
17.20 |
Dividends paid |
(4.71) |
(4.37) |
Impact from share capital
movements |
0.25 |
(0.27) |
Net
asset value |
88.65 |
94.98 |
Total shareholder value
|
Ordinary shares |
|
(pence per
share) |
Total dividends paid to 31 December
2022 |
113.57 |
Net asset
value as at 31 December 2022 |
88.65 |
Total shareholder value to 31 December
2022 |
202.22 |
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.
The Board has declared
a first dividend for the year ending 31 December
2023 of
2.22 pence per
share payable on 31 May
2023 to
shareholders on the register on
5 May
2023.
Chairman’s Statement
IntroductionDuring the year,
the Company’s portfolio has faced a difficult macroeconomic and
geopolitical backdrop, including the war in Ukraine, high
inflation, rising interest rates and political instability. This
has had an adverse impact for the Company resulting in a loss, of
1.87 pence per share, for the year ended 31 December 2022,
representing a 2.0% loss on opening net asset value.
Despite this loss and in the context of the
considerable uncertainty the Company has faced, the Board continues
to be encouraged by the progress being made by many of the
portfolio companies, demonstrating their resilience despite
challenging market conditions. The Board recognises the importance
of evaluating the returns of the Company over the longer-term,
because a venture capital portfolio can, by its nature, experience
periods of short term volatility.
Results and dividends As at 31
December 2022 the net asset value was 88.65 pence per share
compared to 94.98 pence per share as at 31 December 2021. The total
loss before taxation was £2.3 million compared to a gain of £17.5
million for the previous year.
In line with our variable dividend policy
targeting 5% of NAV per annum, the Company paid dividends totalling
4.71 pence per share during the year to 31 December 2022 (2021:
4.37 pence per share). The Company will pay a first dividend for
the financial year to 31 December 2023 of 2.22 pence per share on
31 May 2023 to shareholders on the register on 5 May 2023, being
2.5% of this 31 December 2022 NAV.
Investment performance and
progressThe results for the year showed net losses on
investments of £0.6 million, compared with net gains of £20.6
million for the previous year. The net loss in the current year was
driven by net unrealised losses across the portfolio. The largest
write downs were in Black Swan Data which decreased by £1.6
million, Oviva by £1.1 million and uMotif by £0.8 million, as a
result of difficult trading conditions. These losses have been
offset by gains in the investment portfolio, including a realised
gain on MyMeds&Me of £1.7 million and unrealised gains on
Convertr of £0.9 million and Solidatus of £0.7 million. Quantexa,
the largest company within our portfolio (13% of net asset value),
continues to show strong revenue growth which has counterbalanced
the well-publicised reduced technology sector valuations and
therefore has not seen a valuation movement during the year. After
the year end Quantexa completed an externally led Series E
fundraising, and further details can be found in the Updated NAV
announcement section that follows.
There have been several realisations during the
year totalling £7.7 million (2021: £6.3 million), leading to a net
realised gain of £2.4 million. The sales delivering the majority of
the returns were MyMeds&Me, which delivered a 3.4 times return
on cost, Phrasee, which delivered a 3.5 times return on cost, and
Credit Kudos, which delivered a 5.2 times return on cost. Against
this, there were realised losses including the write-off of
Sandcroft Avenue (T/A Hussle) with a realised loss of £1.3 million,
and Concirrus with a realised loss of £0.6 million. Further details
on the above disposals, and other realisations, can be found in the
realisations table on page 29 of the full Annual Report and
Financial Statements.
The three largest investments in the Company’s
portfolio, being Quantexa, Egress Software Technologies and
Proveca, are valued at £31.6 million and represent 27.6% of the
Company’s net asset value.
The Company has been an active investor during
the year investing a total of £15.6 million. Of this, £8.7 million
was invested into fifteen new portfolio companies, all of which are
expected to require further investment as the companies prove
themselves and grow. The five largest new investments include:
- £1.4 million into Peppy Health, a
platform providing expert support for underserved areas of health
and wellness (e.g., menopause) via content, video, chat support as
an employment benefit for employees
- £1.4 million into Toqio FinTech
Holdings, a provider of embedded FinTech solutions
- £0.9 million into PeakData, a
software platform providing insights and analytics to
pharmaceutical companies
- £0.7 million into GX Molecular (T/A
CS Genetics), a developer of single-cell sequencing solutions
- £0.6 million into OutThink, a
software platform to measure and manage human risk for
enterprises
A further £6.9 million was invested into
existing portfolio companies, the largest being: £1.1 million into
Healios; £1.1 million into Black Swan Data; and £0.8 million into
Runa Network (previously WeGift).
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 27 to 29 of
the full Annual Report and Financial Statements.
Updated NAV
announcementOn 2 March 2023, a post year end NAV
update was announced with a pleasing 5.25 pence per share uplift,
representing a 5.92% increase on the 31 December 2022 NAV. This
uplift has resulted from a portfolio company, Quantexa, undergoing
an external fundraising process after the year end. This
transaction has since completed and was announced by Quantexa on 4
April 2023.
Risks and uncertaintiesThe
Company faces a number of significant risks, including rising
interest rates, high levels of inflation, the ongoing impact of
Russia’s invasion of Ukraine, and an expected period of economic
stagnation, or even recession, in the UK.
Our investment portfolio, while concentrated
mainly in the technology and healthcare sectors, remains
diversified in terms of both sub-sector and stage of maturity.
A detailed analysis of the other risks and
uncertainties facing the business is shown in the Strategic report
below.
Share
buy-backsIt 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 Offer (including the over-allotment facility) of £21 million
was fully subscribed and closed to further applications on 23 March
2022.
A second prospectus Top Up Offer was launched on
10 October 2022. The Board announced on 4 January 2023 that,
following strong demand, it would opt to exercise its
over-allotment facility, bringing the total amount to be raised to
£13 million. On 9 March 2023 the offers were fully subscribed and
closed to further applications.
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 2 December 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”)The AGM will be held virtually at
noon on 30 May 2023 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
49 and 50 and in the Notice of the Meeting on pages 90 to 94 of the
full Annual Report and Financial Statements.
Outlook and prospectsThere remains many
uncertainties facing the Company, including higher levels of
inflation and the war in Ukraine, which makes it difficult to be
entirely confident about what lies ahead. However, the portfolio
remains well diversified, with companies at different stages of
maturity and targeted in sectors such as healthcare, software and
FinTech, with minimal exposure to consumer expenditure. We believe
that these sectors can continue to provide opportunities for
resilient growth, yielding positive results for the Company and its
shareholders in the longer-term. Given this context, the recently
announced NAV uplift is encouraging.
Ben LarkinChairman6 April
2023
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 2022
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 sector, 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 27 and
28 of the full Annual Report and Financial Statements.
Direction of portfolio Due to
the share allotments under the 2021/22 and 2022/23 Prospectus Top
Up Offers, and a number of exits during the year, cash is a
significant proportion of the portfolio at 25%. The Manager has a
deep sector knowledge in healthcare, FinTech and software
investing, and these funds will be invested predominantly into
higher growth technology companies within these sectors.
Results and dividends
|
£’000 |
|
|
Net capital loss for the
year |
(2,843) |
Net revenue return for the
year |
591 |
Total
loss for the year ended 31 December
2022 |
(2,252) |
Dividend of 2.37 pence per share
paid on 31 May 2022 |
(2,925) |
Dividend of 2.34 pence per share
paid on 30 September 2022 |
(2,892) |
Unclaimed dividends |
7 |
|
|
Transferred
from reserves |
(8,062) |
Net assets as at 31 December
2022 |
114,458 |
Net asset value per share
as at 31 December
2022 (pence) |
88.65 |
The Company paid dividends totalling 4.71 pence
per share (2021: 4.37 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 dividend for the year ending 31 December 2023 of
2.22 pence per share payable on 31 May 2023 to shareholders on the
register on 5 May 2023.
As shown in the Income statement, the total
investment income increased to £1,194,000 (2021: £988,000). This is
a result of dividend income increasing to £172,000 (2021: £23,000),
including a dividend declared by Memsstar immediately prior to the
disposal in the year, and bank interest increasing to £106,000
(2021: £1,000) due to higher interest rates. These increases were
partially offset by loan stock income decreasing slightly to
£916,000 (2021: £964,000). The revenue return to equity holders has
subsequently increased to £591,000 (2021: £466,000).
The net capital loss for the year was £2,843,000
(2021: net return of £16,988,000). The net loss was largely due to
a fall in the unrealised value of investments, offset partially by
gains on disposals. Key valuation movements during the year are
outlined in the investment portfolio section of the Chairman’s
statement. The total loss for the year was 1.87 pence per share
(2021: gain of 17.20 pence per share).
There was a net cash inflow for the Company of
£9,459,000 for the year (2021: £1,387,000), mainly resulting from
the issue of Ordinary shares under the Albion VCTs Top Up Offers,
disposal proceeds and loan stock income, offset by new investments,
dividends paid, share buy-backs and ongoing expenses. 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 £722,000 (2021: £2,459,000). This decrease was
primarily due to the management performance incentive fee, which
was paid in 2022 as a result of the Company’s strong return for the
previous 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 2022 show total shareholder
value of 202.22 pence per share since launch (2021: 203.84 pence
per share).
There is a continuing focus on growing the
FinTech, healthcare (including digital healthcare) and other
software and technology sectors. The majority of these investment
returns are delivered through equity and capital gains, and will be
the key driver of success for the Company. Investment income, which
is received primarily from our renewable energy investments, is
expected to remain steady over the coming years.
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 prospectsThe Company’s
financial results for the year demonstrates that the portfolio
remains well balanced across sectors and risk classes, despite the
impacts of the ongoing global issues caused as a result of high
levels of interest rates and inflation, due in part to the Russian
invasion of Ukraine, however the full effects of these issues will
continue to be felt in years to come. Although there remains much
uncertainty, the Board considers that the current portfolio has the
potential to deliver long term growth, whilst maintaining a
predictable stream of dividend payments to shareholders. Further
details of the Company’s outlook and prospects can be found in the
Chairman’s statement.
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.
1. Total
shareholder value relative to FTSE All-Share Index total returnThe
graph on page 8 of the full Annual Report and Financial Statements
shows the Company’s total shareholder value relative to the FTSE
All-Share Index total return, 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 decreased by 1.7% on opening net asset value to 202.22
pence per share for the year ended 31 December 2022 as a result of
the negative total return of 1.87 pence per share.
3. Movement
in shareholder value in the year†
The table below shows the total shareholder
value over the last 10 years, with an average return of 8.0% per
annum.
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
6.9% |
5.4% |
4.1% |
6.5% |
10.0% |
20.3% |
3.8% |
3.8% |
20.5% |
(1.7%) |
†Methodology: Calculated by the movement in
total shareholder value for the year divided by the opening net
asset value.
4. Dividend
distributions
Dividends paid in respect of the year ended 31
December 2022 were 4.71 pence per share (2021: 4.37 pence per
share). Cumulative dividends paid since inception are 113.57 pence
per share.
5. Ongoing
charges The ongoing charges ratio for the year to 31 December 2022
was 2.50% (2021: 2.50%). The ongoing charges ratio has been
calculated using The Association of Investment Companies’ (“AIC”)
recommended methodology. This figure shows shareholders the total
recurring annual operational 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 2.50%, which has resulted in a saving of £41,000 to
shareholders during the year (2021: £86,000).
6. VCT
compliance*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 page 46 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 2022. 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.
GearingAs defined by the
Articles of Association, the Company’s maximum exposure in relation
to gearing is restricted to 10% of the share capital and reserves
adjusted for any dividends declared. Although the investment policy
permits the Company to borrow, the Directors do not currently have
any intention of utilising long-term gearing and have not done so
in the past.
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, Albion Capital Group LLP provides
investment management, company 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.
In some instances, the Manager is entitled to an
arrangement fee, payable by a portfolio company in which the
Company invests, in region of 2% of the investment made, and also
monitoring fees where the Manager has a representative on the
portfolio company’s board; these fees are payable by the portfolio
company. Further details of the Manager’s fee can be found in note
5 to the financial statements.
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 any
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 2022, the total return since 1
January 2019 was 106.47 pence, and the hurdle was 122.75 pence,
resulting in a shortfall of 16.28 pence per share. As a result, no
performance incentive fee is payable to the Manager for the year
(2021: £1,838,000).
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
HMRC tests 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;
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.
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
- Albion Capital website, social
media pages, as well as publishing Albion news shareholder
magazine.
|
- 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. The
use of the Lumi platform enabled engagement with a wider audience
of shareholders from across the country, and gave shareholder the
opportunity to ask questions and vote during the virtual AGM last
year.
- Shareholders are also encouraged to
attend the in person annual Shareholders’ Seminar. This year’s
event took place on 23 November 2022 at the Royal College of
Surgeons. The seminar included Speechmatics and Ophelos sharing
insights into their businesses and also a Q&A 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 2023.
- 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 resulted in a dividend yield of 5.3% on opening
net asset value.
- During the year, the Board made the
decision to participate in the Albion Prospectus Top Up Offers,
launched on 6 January 2022 and 10 October 2022, 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.
- Shareholders can contact the
Chairman using the email AADVchair@albion.capital
|
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.
- Details of the Manager’s
responsibilities can be found in the Statement of corporate
governance on pages 52 and 53 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.
|
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 35 to 38 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 AlbionVC platform team provide
access to deep expertise on growth strategy alignment, leadership
team hiring, organisational scaling and founder leader
development.
- 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. 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.
|
Social and community issues,
employees and human rights
The Board recognises the requirement under
section 414C of the Companies Act 2006 (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 pages 47 and 48 of
the full Annual Report and Financial Statements.
General Data Protection
Regulation
The General Data Protection Regulation (“GDPR")
has the objective of unifying data privacy requirements across the
European Union. GDPR forms part of the UK law after Brexit, now
known as UK GDPR. 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
risks have been the emergence of rising interest rates and
inflation, caused in part as a result of the Russian invasion of
Ukraine, whilst the pandemic has continued to impact on mobility,
public health and have an adverse influence on the economy. The
full impacts of these risks are likely to continue 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 in the following
table:
Risk |
Possible consequence |
Risk assessment during the year |
Risk management |
Investment, performance and valuation risk |
The risk of investment in poor quality businesses, which could
reduce the returns to shareholders and could negatively impact on
the Company’s current and future valuations. By nature, smaller
unquoted businesses, such as those that qualify for Venture Capital
Trust purposes, are more volatile than larger, long-established
businesses. The Company’s investment valuation methodology is
reliant on the accuracy and completeness of information that is
issued by portfolio companies. In particular, the Directors may not
be aware of or take into account certain events or circumstances
which occur after the information issued by such companies is
reported. |
Increased in the year due to the heightened economic and
geopolitical issues as referred to in the Chairman’s
statement. |
To reduce this risk, the Board places reliance upon the skills and
expertise of the Manager and its track record over many years of
making successful investments in this segment of the market. In
addition, the Manager operates a formal and structured investment
appraisal and review process, which includes an Investment
Committee, comprising investment professionals from the Manager for
all investments, and at least one external investment professional
for investments greater than £1 million in aggregate across all the
Albion managed VCTs. The Manager also invites and takes account of
comments from non-executive Directors of the Company on matters
discussed at the Investment Committee meetings.Investments are
actively and regularly monitored by the Manager (investment
managers normally sit on portfolio company boards), including the
level of diversification in the portfolio, and the Board receives
detailed reports on each investment as part of the Manager’s report
at quarterly board meetings. The Board and Manager regularly review
the deployment of investments and cash resources available to the
Company in assessing liquidity required for servicing the Company’s
buy-backs, dividend payments and operational expenses. The unquoted
investments held by the Company are designated at fair value
through profit or loss and valued in accordance with the
International Private Equity and Venture Capital Valuation
Guidelines updated in 2022. These guidelines set out
recommendations, intended to represent current best practice on the
valuation of venture capital investments. The valuation takes into
account all known material facts up to the date of approval of the
Financial Statements by the Board. |
VCT approval risk |
The Company must comply with section 274 of the Income Tax Act 2007
which enables its investors to take advantage of tax relief on
their investment and on future returns. Breach of any of the rules
enabling the Company to hold VCT status could result in the loss of
that status. |
No change in the year. |
To reduce this risk, the Board has appointed the Manager, which has
a team with significant experience in Venture Capital Trust
management, used to operating within the requirements of the
Venture Capital Trust legislation. In addition, to provide further
formal reassurance, the Board has appointed Philip Hare &
Associates LLP as its taxation adviser, who report quarterly to the
Board to independently confirm compliance with the Venture Capital
Trust legislation, to highlight areas of risk and to inform on
changes in legislation. Each investment in a new portfolio company
is also pre-cleared with our professional advisers or H.M. Revenue
& Customs. The Company monitors closely the extent of
qualifying holdings and addresses this as required. |
Regulatory and compliance risk |
The Company is listed on The London Stock Exchange and is required
to comply with the rules of the Financial Conduct 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 in the year. |
Board members and the Manager have experience of operating at
senior levels within or advising quoted companies. In addition, the
Board and the Manager receive regular updates on new regulation
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 every two months. These
controls are also reviewed as part of the quarterly Board meetings,
and also as part of the review work undertaken by the Manager’s
compliance officer. The report on controls is also evaluated by the
internal auditors. |
Operational and internal control risk |
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 systems and controls
within the Manager’s business could put assets of the Company at
risk or result in reduced or inaccurate information being passed to
the Board or to shareholders. |
No change in the year. |
The Company and its operations are subject to a series of rigorous
internal controls and review procedures exercised throughout the
year. The Board receives reports from the Manager on its internal
controls and risk management.The Audit and Risk 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 business continuity and cyber
security, as mentioned below. Ocorian Depositary (UK)
Limited is the Company’s Depositary, appointed to oversee the
custody and cash arrangements and provide other AIFMD duties. The
Board reviews the quarterly reports prepared by Ocorian Depositary
(UK) Limited to ensure that the Manager is adhering to its policies
and procedures as required by the AIFMD. In addition, the Board
annually reviews the performance of its key service providers,
particularly the Manager, to ensure they continue to have the
necessary expertise and resources to deliver the Company’s
investment objective and policy. The Manager and other service
providers have also demonstrated to the Board that there is no
undue reliance placed upon any one individual. |
Cyber and data security risk |
A cyber-attack on one of the Company's third party suppliers could
result in the security of, potentially sensitive, data being
compromised, leading to financial loss, disruption or damage to the
reputation of the Company. |
Increased in the year, due to an increase in cyber-attacks
worldwide. |
The Manager outsources some of its IT services, including hardware
and software procurement, server management, backup provision and
day-to-day support through an outsourcing arrangement with an IT
consultant. In house IT support is also provided.In addition, the
Manager also has a business continuity plan which includes off-site
storage of records and remote access provisions. This is revised
and tested annually and is also subject to Compliance, Group Risk
and Internal Audit reporting. Penetration tests are also carried
out to ensure that IT systems are not susceptible to any
cyber-attacks.The Manager’s Internal Auditor performs reviews on IT
general controls and data confidentiality and makes recommendations
where necessary. The most recent internal audit focused
specifically on IT systems, and was completed in February
2023. |
Economic, political and social risk |
Changes in economic conditions, including, for example, interest
rates, rates of inflation, industry conditions, competition,
political and diplomatic events, and other factors could
substantially and adversely affect the Company’s prospects in a
number of ways. This also includes risks of social upheaval,
including from infection and population re-distribution, as well as
economic risk challenges as a result of healthcare
pandemics/infection. |
Increased in the year, due to the high levels of inflation, rising
interest rates and the geopolitical risks from the invasion of
Ukraine. |
The Company invests in a diversified portfolio of companies across
a number of industry sectors and in addition often invests in a
mixture of instruments in portfolio companies and has a policy of
minimising any external bank borrowings within portfolio
companies.At any given time, the Company has sufficient cash
resources to meet its operating requirements, including share
buy-backs and follow-on investments.In common with most commercial
operations, exogenous risks over which the Company has no control
are always a risk and the Company does what it can to address these
risks where possible, not least as the nature of the investments
the Company makes are long term. The Board and Manager are
continuously assessing the resilience of the portfolio, the Company
and its operations and the robustness of the Company’s external
agents, as well as considering longer term impacts on how the
Company might be positioned in how it invests and operates.
Ensuring liquidity in the portfolio to cope with exigent and
unexpected pressures on the finances of the portfolio and the
Company is an important part of the risk mitigation in these
uncertain times. The portfolio is structured as an all-weather
portfolio with c.65 companies which are diversified as discussed
above. Exposure is relatively small to at-risk sectors that include
leisure, hospitality, retail and travel. |
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 in the year. |
To reduce this risk, 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.
Climate risks could also negatively impact on the value of
portfolio investments. |
No change in the year. |
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 35 to 38 of the full Annual Report
and Financial Statements. These procedures ensure that this risk
continues to be mitigated where possible.Whilst the Company itself
has limited impact on climate change, due to no employees nor
greenhouse gas emissions, the Board works closely with the Manager
to ensure the Manager themselves are working towards reducing their
impact on the environment, and that the Manager takes account of
ESG factors, including climate change, when making new investment
decisions. With specific reference to the Company, a key objective
is increasing the use of electronic communications with
Shareholders, where that preference has been specified. |
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 2025. 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; factoring in high levels of inflation
when budgeting for future expenses, only including proceeds from
investment disposals where there is a high probability of
completion, whilst also assessing the resilience of portfolio
companies given the current decline in the global economy,
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 2025. 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.
Companies Act 2006This
Strategic report of the Company for the year ended 31 December 2022
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 LarkinChairman6 April 2023
Responsibility statement
In preparing these Financial Statements for the
year ended 31 December 2022, 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 2022 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 51 within the full audited
Annual Report and Financial Statements.
On behalf of the Board,
Ben LarkinChairman6 April
2023
Income statement
|
|
Year ended 31 December
2022 |
Year ended 31 December 2021 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Note |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Net (losses)/gains on investments |
3 |
- |
(636) |
(636) |
- |
20,592 |
20,592 |
Investment income |
4 |
1,194 |
- |
1,194 |
988 |
- |
988 |
Investment Manager’s fees |
5 |
(245) |
(2,207) |
(2,452) |
(196) |
(3,604) |
(3,800) |
Other
expenses |
6 |
(358) |
- |
(358) |
(326) |
- |
(326) |
Profit/(loss) on ordinary activities
before tax |
|
591 |
(2,843) |
(2,252) |
466 |
16,988 |
17,454 |
Tax on
ordinary activities |
8 |
- |
- |
- |
- |
- |
- |
Profit/(loss) and total comprehensive
income attributable to shareholders |
|
591 |
(2,843) |
(2,252) |
466 |
16,988 |
17,454 |
Basic and diluted return/(loss)
per share (pence)* |
10 |
0.49 |
(2.36) |
(1.87) |
0.46 |
16.74 |
17.20 |
*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 2022 |
31 December 2021 |
|
Note |
£’000 |
£’000 |
|
|
|
|
Fixed asset investments |
11 |
86,286 |
80,500 |
|
|
|
|
Current assets |
|
|
|
Trade and
other receivables |
13 |
2,403 |
2,566 |
Cash in
bank and in hand |
|
26,491 |
17,032 |
|
|
28,894 |
19,598 |
|
|
|
|
Payables: amounts falling due within one year |
|
|
|
Trade and
other payables |
14 |
(722) |
(2,459) |
|
|
|
|
Net current assets |
|
28,172 |
17,139 |
|
|
|
|
Total assets less current
liabilities |
|
114,458 |
97,639 |
|
|
|
|
Equity attributable to equity holders |
|
|
|
Called-up
share capital |
15 |
1,456 |
1,167 |
Share
premium |
|
26,837 |
- |
Capital
redemption reserve |
|
- |
- |
Unrealised capital reserve |
|
32,516 |
36,048 |
Realised
capital reserve |
|
8,032 |
7,344 |
Other
distributable reserve |
|
45,617 |
53,080 |
Total equity shareholders’ funds |
|
114,458 |
97,639 |
|
|
|
|
Basic and diluted net asset value per share
(pence)* |
16 |
88.65 |
94.98 |
* 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 6 April 2023 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
2022 |
1,167 |
- |
- |
36,048 |
7,344 |
53,080 |
97,639 |
(Loss)/profit and total comprehensive income for the year |
- |
- |
- |
(3,258) |
415 |
591 |
(2,252) |
Transfer of unrealised gains on disposal of
investments |
- |
- |
- |
(273) |
273 |
- |
- |
Purchase of shares for treasury |
- |
- |
- |
- |
- |
(2,244) |
(2,244) |
Issue of equity |
288 |
27,509 |
- |
- |
- |
- |
27,797 |
Cost of issue of equity |
- |
(672) |
- |
- |
- |
- |
(672) |
Reduction of share premium and capital redemption reserve |
- |
- |
- |
- |
- |
- |
- |
Dividends paid |
- |
- |
- |
- |
- |
(5,810) |
(5,810) |
As at 31
December
2022 |
1,456 |
26,837 |
- |
32,516 |
8,032 |
45,617 |
114,458 |
As at 1 January 2021 |
1,040 |
44,978 |
12 |
18,020 |
12,886 |
(1,077) |
75,859 |
Profit/(loss) 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 |
* Included within these reserves is an amount of
£24,619,000 (2021: £28,992,000) which is considered distributable.
Over the next three years an additional £26,933,000 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 2023, £8,306,000
became distributable in line with this.
Statement of cash flows
|
Year ended 31 December
2022£’000 |
Year ended 31 December 2021£’000 |
Cash flow from operating activities |
|
|
Loan
stock income received |
996 |
736 |
Deposit
interest received |
106 |
1 |
Dividend
income received |
133 |
24 |
Investment Manager’s fees paid |
(4,216) |
(1,877) |
Other
cash payments |
(338) |
(326) |
Corporation tax paid |
- |
- |
Net cash flow from operating activities |
(3,319) |
(1,442) |
|
|
|
Cash flow from investing activities |
|
|
Purchase
of fixed asset investments* |
(14,235) |
(7,500) |
Proceeds
from disposals of fixed asset investments* |
7,946 |
6,003 |
Net cash flow from investing activities |
(6,289) |
(1,497) |
|
|
|
Cash flow from financing activities |
|
|
Issue of
share capital |
26,132 |
9,767 |
Cost of
issue of equity** |
(36) |
(35) |
Equity
dividends paid*** |
(4,785) |
(3,744) |
Purchase
of own shares |
(2,244) |
(1,662) |
Net cash flow from financing activities |
19,067 |
4,326 |
|
|
|
Increase in cash in bank and in
hand |
9,459 |
1,387 |
Cash in
bank and in hand at start of period |
17,032 |
15,645 |
Cash in bank and in hand
at end of period |
26,491 |
17,032 |
* Purchases and disposals detailed above do not
agree to note 11 due to restructuring of investments, conversion of
convertible loan stock and settlement of receivables and
payables.
** The cost of issue of equity does not agree to
the Statement of changes in equity due to prospectus fundraising
amounts being received net of fees.
*** The equity dividends paid shown in the cash
flow are different to the dividends disclosed in the Statement of
changes in equity and note 9 as a result of the non-cash effect of
the Dividend Reinvestment Scheme.
The accompanying notes form an integral part of
these Financial Statements.
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 page
45 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 2022
and further detail on the valuation techniques used are outlined
below.
Company information can be found on page 4 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, other
valuation techniques are employed to conclude on the fair value as
at the measurement 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.
- 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. Net
(losses)/gains
on investments
|
Year ended 31 December
2022£’000 |
Year ended 31 December 2021£’000 |
Unrealised (losses)/gains on fixed asset investments |
(3,258) |
19,786 |
Realised gains on fixed asset
investments |
2,322 |
549 |
Unwinding of discount on
deferred consideration |
300 |
257 |
|
(636) |
20,592 |
4. Investment income
|
Year ended 31
December
2022£’000 |
Year ended 31 December 2021£’000 |
Loan stock interest |
916 |
964 |
Dividend income |
172 |
23 |
Bank deposit interest |
106 |
1 |
|
1,194 |
988 |
5. Investment
Manager’s fees
|
Year ended31
December
2022£’000 |
Year ended 31 December 2021£’000 |
Investment management fee charged to revenue |
245 |
196 |
Investment management fee
charged to capital |
2,207 |
1,766 |
Performance incentive fee charged
to capital |
- |
1,838 |
|
2,452 |
3,800 |
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
£2,452,000 (2021: £1,962,000) were purchased by the Company from
Albion Capital Group LLP (“Albion”) in respect of management fees.
There is no performance incentive fee payable in the year (2021:
£1,838,000). At the financial year end, the amount due to Albion in
respect of these services disclosed as accruals was £618,000 (2021:
£2,366,000). 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 £41,000 as
a result of this cap (2021: £86,000).
During the year, the Company was not charged by
Albion in respect of Patrick Reeve’s services as a Director (2021:
£nil).
Albion, its partners and staff (including
Patrick Reeve) held 1,134,269 Ordinary shares in the Company as at
31 December 2022.
Albion is, from time-to-time, eligible to
receive arrangement fees and monitoring fees from portfolio
companies. During the year ended 31 December 2022, fees of £257,000
attributable to the investments of the Company were received by
Albion pursuant to these arrangements (2021: £187,000).
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
2022£’000 |
Year ended 31 December 2021£’000 |
Directors’ fees (including NIC) |
84 |
75 |
Auditor’s remuneration for
statutory audit services (excluding VAT) |
48 |
38 |
Other administrative
expenses |
226 |
213 |
|
358 |
326 |
7. Directors’ feesThe amounts
paid to and on behalf of the Directors during the year are as
follows:
|
Year ended
31 December
2022£’000 |
Year ended 31 December 2021£’000 |
Directors’ fees |
77 |
69 |
National insurance |
7 |
6 |
|
84 |
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 59 to 62 of the full Annual Report and Financial
Statements.
8. Tax on ordinary
activities
|
Year ended 31
December
2022£’000 |
Year ended 31 December 2021£’000 |
UK corporation tax charge in respect of current year |
- |
- |
|
- |
- |
Factors affecting the tax charge: |
Year ended 31
December
2022£’000 |
Year ended 31 December 2021£’000 |
(Loss)/profit on ordinary activities before taxation |
(2,252) |
17,454 |
|
|
|
Tax charge on profit at the
average companies rate of 19% (2021: 19%) |
(428) |
3,316 |
|
|
|
Factors affecting the
charge: |
|
|
Non-taxable
gains/(losses) |
121 |
(3,912) |
Income not taxable |
(33) |
(4) |
Excess management expenses
carried forward |
340 |
600 |
|
- |
- |
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% (2021: 19%). The differences are explained
above. From April 2023, the Company’s rate of corporation tax will
increase in the UK from 19% to 25%.
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 £8,814,000 (2021: £7,026,000) that
are available for offset against future profits. A deferred tax
asset of £2,204,000 (2021: £1,757,000) 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
2022 |
Year ended31 December 2021 |
|
£’000 |
£’000 |
First dividend of 2.37p per
share paid on 31 May 2022 (28 May 2021: 2.06p per share) |
2,925 |
2,126 |
Second dividend of 2.34p per
share paid on 30 September 2022 (30 September 2021: 2.31p per
share) |
2,892 |
2,383 |
Unclaimed dividends |
(7) |
(7) |
|
5,810 |
4,502 |
Details of the consideration issued under the
Dividend Reinvestment Scheme included in the dividends above can be
found in note 15.
The Board has declared a first dividend of 2.22
pence per share for the year ending 31 December 2023, payable on 31
May 2023 to shareholders on the register on 5 May 2023. The total
dividend will be approximately £3,025,000.
10. Basic and diluted
return per share
|
Year ended 31 December
2022 |
Year ended 31 December 2021 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
|
|
|
|
Profit/(loss) attributable to
equity shares (£’000) |
591 |
(2,843) |
(2,252) |
466 |
16,988 |
17,454 |
Weighted average shares in
issue (adjusted for treasury shares) |
120,150,815 |
101,474,066 |
Return/(loss) attributable per
equity share (pence) |
0.49 |
(2.36) |
(1.87) |
0.46 |
16.74 |
17.20 |
The weighted average number of Ordinary shares
is calculated after adjusting for treasury shares of 16,468,548
(2021: 13,946,475).
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
2022£’000 |
31 December 2021£’000 |
Investments held at fair value through profit or
loss |
|
|
Unquoted equity and preference
shares |
70,536 |
66,082 |
Unquoted loan stock |
15,194 |
13,227 |
Quoted equity |
556 |
1,191 |
|
86,286 |
80,500 |
|
31 December
2022£’000 |
31 December 2021£’000 |
Opening valuation |
80,500 |
58,998 |
Purchases at cost |
14,917 |
6,983 |
Disposal proceeds |
(8,114) |
(6,043) |
Realised gains |
2,322 |
549 |
Movement in loan stock accrued
income |
(80) |
227 |
Unrealised (losses)/gains |
(3,258) |
19,786 |
Closing
valuation |
86,286 |
80,500 |
|
|
|
Movement in loan stock
accrued income |
|
|
Opening accumulated loan stock
accrued income |
340 |
113 |
Movement in loan stock accrued
income |
(80) |
227 |
Closing accumulated
loan stock accrued income |
260 |
340 |
|
|
|
Movement in unrealised
gains |
|
|
Opening accumulated unrealised
gains |
35,871 |
17,843 |
Transfer of previously
unrealised gains to realised reserve on disposal of
investments |
(273) |
(1,758) |
Movement in unrealised
(losses)/gains |
(3,258) |
19,786 |
Closing accumulated
unrealised gains |
32,341 |
35,871 |
|
|
|
Historic cost
basis |
|
|
Opening book cost |
44,288 |
41,042 |
Purchases at cost |
14,917 |
6,983 |
Sales at cost |
(5,520) |
(3,737) |
Closing book
cost |
53,684 |
44,288 |
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
2022£’000 |
31 December 2021£’000 |
Cost and price of recent
investment (calibrated and reviewed for impairment) |
46,204 |
34,857 |
Revenue multiple |
23,084 |
25,488 |
Third party valuation -
discounted cash flow |
8,632 |
8,498 |
Third party valuation -
earnings multiple |
3,962 |
3,287 |
Earnings multiple |
2,840 |
54 |
Net assets |
998 |
809 |
Bid price |
556 |
1,191 |
Discounted offer price |
10 |
6,316 |
|
86,286 |
80,500 |
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, milestones or other
background to the transaction 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
background to the transaction is also considered when the price of
investment may not be an appropriate measure of fair value, for
example, disproportionate dilution of existing investors from a new
investor coming on board or the market conditions at the time of
investment no longer being a true reflection of fair value.
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 2021
and 31 December 2022:
Change in valuation methodology
(2021
to
2022) |
Value as at 31 December
2022£’000 |
Explanatory note |
Discounted offer price to
earnings multiple |
2,840 |
Sale did not materialise |
Cost and price of recent
investment (calibrated and reviewed for impairment) to revenue
multiple |
2,271 |
Revenue multiple more relevant
based on current trading |
Revenue multiple to cost and
price of recent investment (calibrated and reviewed for
impairment) |
1,924 |
Recent funding
round |
Cost and price of recent
investment (calibrated and reviewed for impairment) to third party
valuation – earnings multiple |
942 |
Third party valuation
conducted |
Cost and price of recent
investment (calibrated and reviewed for impairment) to offer
price |
10 |
Third party offer received |
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 2022.
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 FRS 102 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
2022£’000 |
31 December 2021£’000 |
Opening balance |
79,309 |
58,998 |
Additions |
14,917 |
6,983 |
Movement from Level 3 to Level
1* |
- |
(1,191) |
Disposals |
(7,906) |
(6,043) |
Accrued loan stock
interest |
(80) |
227 |
Realised gains |
2,399 |
549 |
Unrealised (losses)/gains |
(2,908) |
19,786 |
Closing balance |
85,730 |
79,309 |
* This relates to Arecor Therapeutics PLC, which
listed on the AIM stock exchange during the prior 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.
71% 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 21% of the
portfolio. This has resulted in a total coverage of 92% 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 |
5.0x |
+0.5 |
897 |
0.69 |
-0.5 |
(897) |
(0.69) |
Revenue multiple |
Healthcare (including digital healthcare) |
Revenue multiple |
5.4x |
+0.5 |
665 |
0.51 |
-0.5 |
(665) |
(0.51) |
Earnings multiple |
Healthcare (including digital healthcare) |
Earnings multiple |
7.5x |
+0.5 |
109 |
0.08 |
-0.5 |
(109) |
(0.08) |
Third party valuation – discounted cash flow |
Renewable energy |
Discount rate |
5.5% |
-0.5% |
71 |
0.06 |
+0.5% |
(65) |
(0.05) |
*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
£1,742,000 (2.5%) or a decrease in the valuation of equity
investments by £1,736,000 (2.4%).
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 2022.
13. Current assets
Trade and other receivables |
31 December
2022£’000 |
31 December 2021£’000 |
Prepayments and accrued income |
30 |
24 |
Other receivables |
142 |
520 |
Deferred consideration under one
year |
134 |
226 |
Deferred consideration over one
year |
2,097 |
1,796 |
|
2,403 |
2,566 |
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
2022£’000 |
31 December 2021£’000 |
Accruals and deferred income |
722 |
2,453 |
Trade payables |
- |
6 |
|
722 |
2,459 |
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 |
116,747,394 Ordinary shares of 1 penny each at 31 December
2021 |
1,167 |
28,834,906 Ordinary shares of
1 penny each issued during the year |
288 |
145,582,300
Ordinary shares of 1
penny each at 31
December
2022 |
1,456 |
|
|
13,946,475 Ordinary shares of
1 penny each held in treasury at 31 December 2021 |
(139) |
2,522,073 Ordinary shares of 1
penny each purchased during the year to be held in treasury |
(25) |
16,468,548
Ordinary shares of 1 penny each held in
treasury at 31 December
2022 |
(165) |
|
|
Voting rights of
129,113,752
Ordinary shares of 1 penny each
at 31 December
2022 |
1,291 |
The Company purchased 2,522,073 shares (2021:
2,008,369) to be held in treasury at a nominal value of £25,221 and
a cost of £2,244,000 (2021: £1,661,000) representing 1.7% of the
shares in issue on 31 December 2022, leading to a balance of
16,468,548 shares (2021: 13,946,475) in treasury representing 11.3%
of the shares in issue on 31 December 2022.
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) |
31 May 2022 |
548,418 |
5 |
94.78 |
501 |
90.00 |
30 September 2022 |
559,250 |
6 |
91.21 |
492 |
87.00 |
|
1,107,668 |
|
|
993 |
|
Under the terms of the Albion VCTs Prospectus
Top Up Offers 2021/22, 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) |
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 |
10,532 |
91.00 |
31 March 2022 |
7,756,832 |
78 |
97.50 |
7,374 |
91.00 |
11 April 2022 |
162,918 |
2 |
96.50 |
155 |
91.00 |
11 April 2022 |
24,223 |
- |
97.00 |
23 |
91.00 |
11 April 2022 |
709,442 |
7 |
97.50 |
674 |
91.00 |
|
21,554,599 |
|
|
20,491 |
|
Under the terms of the Albion VCTs Prospectus
Top Up Offers 2022/23, 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) |
2 December 2022 |
1,417,019 |
14 |
92.80 |
1,295 |
87.00 |
2 December 2022 |
278,687 |
3 |
93.20 |
255 |
87.00 |
2 December 2022 |
4,476,933 |
45 |
93.70 |
4,090 |
87.00 |
|
6,172,639 |
|
|
5,640 |
|
16.
Basic and diluted net asset value
per share
|
|
31 December
2022
(pence per share) |
31 December 2021 (pence per share) |
Basic and diluted net asset
value per share |
|
88.65 |
94.98 |
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 129,113,752 Ordinary shares as at 31 December
2022 (2021: 102,800,919).
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 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 £8,629,000. 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 £86,286,000 (2021: £80,500,000). Fixed asset investments
form 75% of net asset value as at 31 December 2022 (2021: 82%).
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
£218,000 (2021: £163,000). 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 6.4% (2021: 7.7%). The weighted average period to
maturity for the fixed rate assets is approximately 4.4 years
(2021: 4.9 years).
The Company’s financial assets and liabilities,
all denominated in pounds sterling, consist of the following:
|
31 December
2022 |
31 December 2021 |
|
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 |
- |
- |
70,536 |
70,536 |
- |
- |
66,082 |
66,082 |
Quoted equity |
- |
- |
556 |
556 |
- |
- |
1,191 |
1,191 |
Unquoted loan stock |
14,261 |
175 |
758 |
15,194 |
12,594 |
175 |
458 |
13,227 |
Receivables* |
- |
- |
2,373 |
2,373 |
- |
- |
2,542 |
2,542 |
Current liabilities |
- |
- |
(722) |
(722) |
- |
- |
(2,459) |
(2,459) |
Cash |
- |
26,491 |
- |
26,491 |
- |
17,032 |
- |
17,032 |
Total |
14,261 |
26,666 |
73,501 |
114,428 |
12,594 |
17,207 |
67,814 |
97,615 |
*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 83% 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 2022 was limited to £15,194,000 (2021: £13,227,000) of
unquoted loan stock instruments, £26,491,000 (2021: £17,302,000) of
cash deposits with banks and £2,373,000 (2021: £2,542,000) of other
receivables.
At the Balance sheet date, the cash in bank and
in hand held by the Company were held with Lloyds Bank plc,
Scottish Widows Bank plc (part of Lloyds Banking Group), Barclays
Bank plc, Bank of Montreal, 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 £11,143,000 as at 31 December 2022 (2021:
£9,490,000).
The Company had no committed borrowing
facilities as at 31 December 2022 (2021: nil) and the Company had
cash balances of £26,491,000 (2021: £17,032,000). 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 £722,000 (2021:
£2,459,000).
The carrying value of loan stock investments,
analysed by expected maturity dates is as follows:
|
31 December
2022 |
31 December 2021 |
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 |
5,643 |
- |
1,612 |
7,255 |
6,055 |
689 |
- |
6,744 |
1-2 years |
297 |
- |
76 |
373 |
175 |
1 |
- |
176 |
2-3 years |
105 |
- |
- |
105 |
261 |
7 |
- |
268 |
3-5 years |
2,629 |
- |
123 |
2,752 |
762 |
- |
97 |
859 |
5 + years |
4,709 |
- |
- |
4,709 |
5,180 |
- |
- |
5,180 |
Total |
13,383 |
- |
1,811 |
15,194 |
12,433 |
697 |
97 |
13,227 |
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 £29,000 (2021: £1,202,000).
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 2022 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 2022, the Company had no
financial commitments (2021: £nil).
There were no contingent liabilities or guarantees given by the
Company as at 31 December 2022 (2021: £nil).
19. Post balance sheet
eventsSince the year end, the Company has not made any
material investment transactions.
On 2 March 2023, a post year end NAV update was
announced with a pleasing 5.25 pence per share uplift, representing
a 5.92% increase on the 31 December 2022 NAV. This uplift has
resulted from a portfolio company, Quantexa, undergoing an external
fundraising process after the year end. This transaction has since
completed and was announced by Quantexa on 4 April 2023.
The following new Ordinary shares of nominal
value 1 penny each were allotted under the Albion VCTs Prospectus
Top Up Offers 2022/23 after 31 December 2022:
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) |
31 March 2023 |
7,134,319 |
7 |
96.40 |
6,706 |
89.50 |
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 59 to 62 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 2022 and 31
December 2021, 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 2022, 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/31Dec2022.pdf.
- AADV - Split of portfolio by sector, stage of investment and
number of employees
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