Albion Venture Capital Trust PLC
LEI number: 213800JKELS32V2OK421
As required by the�Financial Conduct Authority’s Disclosure Guidance and Transparency Rules 4.1 and 6.3, Albion Venture Capital Trust PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 March 2021.
This announcement was approved for release by the Board of Directors on 21 June 2021.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 31 March 2021 (which have been audited), will shortly be sent to shareholders. Copies of the full Annual Report and Financial Statements will be shown via the Albion Capital Group LLP website by clicking www.albion.capital/funds/AAVC/31Mar2021.pdf.
Investment policy
Albion Venture Capital Trust PLC (the Company) is a Venture Capital Trust and the investment policy is intended to produce a regular dividend stream with an appreciation in capital value.
The Company will invest in a broad portfolio of smaller, unquoted growth businesses across a variety of sectors including higher risk technology companies. Investments may take the form of equity or a mixture of equity and loans.
Allocation of funds will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified both 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.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within Venture Capital Trust qualifying industry sectors. The maximum amount which the Company will invest in a single portfolio company is 15 per cent. 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.
Gearing
The Company’s maximum exposure in relation to gearing is restricted to 10 per cent. of the adjusted share capital and reserves.
Financial calendar
| Record date for first interim dividend and special dividend | 9 July 2021 |
| Payment of first interim dividend and special dividend | 30 July 2021 |
| Annual General Meeting | Noon on 7 September 2021 |
| Announcement of Half-yearly results for the six months ending 30 September 2021 | December 2021 |
| Payment of second dividend (subject to Board approval) | 31 January 2022 |
Financial highlights
| 7.10p | Basic and diluted total return per share for the year ended 31 March 2021 |
| 4.24p | Total tax-free dividend per share paid during the year ended 31 March 2021 |
| 73.13p | Net asset value per share as at 31 March 2021 |
| 237.17p | Total shareholder value to 31 March 2021 |
| 15.00p | Special dividend declared of 15.00 pence per share payable on 30 July 2021 to shareholders on the register on 9 July 2021 |
| 6.3% | Annualised return since launch (without tax relief) |
These are considered APMs, see note 2 on in the Strategic report for further explanation.
| 31 March 2021 | 31 March 2020 | |
| (pence per share) | (pence per share) | |
| Opening net asset value | 70.13 | 79.00 |
| Capital return/(loss) | 5.64 | (5.98) |
| Revenue return | 1.46 | 1.88 |
| Total return/(loss) | 7.10 | (4.10) |
| Impact from share capital movements | 0.14 | 0.23 |
| Dividends paid | (4.24) | (5.00) |
| Net asset value | 73.13 | 70.13 |
| Total dividends paid to 31 March 2021 | 164.04 |
| Net asset value on 31 March 2021 | 73.13 |
| Total shareholder value to 31 March 2021 | 237.17 |
A more detailed breakdown of the dividends paid per year can be found at www.albion.capital/funds/AAVC under the Dividend History section.
The financial summary above is for the Company, Albion Venture Capital Trust PLC Ordinary shares only. Details of the financial performance of the C shares and Albion Prime VCT PLC, which have been merged into the Company, can be found at www.albion.capital/funds/AAVC under the Financial summary for previous funds section.
In addition to the dividends summarised above, the Board has declared a first dividend for the year ending 31 March 2022 of 1.83 pence per share to be paid on 30 July 2021 to shareholders on the register on 9 July 2021. The Board has also declared a special dividend of 15.00 pence per share, also payable on 30 July 2021 to shareholders on the register on 9 July 2021. Further details can be found in the Chairmans statement on below.
Chairmans statement
Introduction
I am delighted to announce that your Company has achieved a positive total return for the year of 7.10 pence per share representing a 10.12% return on opening Net Asset Value (NAV). This is against the backdrop of a very challenging year for many businesses as a result of the Coronavirus pandemic which continues to disrupt our economy. This result was primarily due to the sale of the Companys three care homes for the elderly generating proceeds of £29.6 million in March 2021, which the Manager successfully managed to negotiate with a 2.4x return on exit against the worst conditions the care home sector has experienced in many years. Although the full implications of the Covid-19 pandemic are still unknown, I am optimistic that our portfolio companies will continue to add value, and we can still find new investment opportunities which will increase shareholder value over the longer term.
Results and dividends
As at 31 March 2021, the NAV was £72.7 million or 73.13 pence per share, compared to £70.6 million or 70.13 pence per share as at 31 March 2020, after the payment of total tax-free dividends of 4.24 pence per share. The total return before taxation was £7.3 million compared to a loss of £3.8 million for the previous year. The positive progress of several of our portfolio companies is discussed later in this statement and in the Strategic report below.
In line with the variable dividend policy targeting around 5% of NAV per annum, announced last year, the Company paid dividends totalling 4.24 pence per share during the year to 31 March 2021 (31 March 2020: 5.00 pence per share).
The successful sale of the Companys three care homes generated substantial cash proceeds for the Company. These disposals represented a significant proportion of the Companys NAV and thus, their disposal has increased the cash balances of the Company to £43.6 million at 31 March 2021, representing 61% of NAV.
It is clear to the Board that whilst it is important for a Venture Capital Trust, which by its nature has illiquid investments, to hold sufficient cash to manage operating costs, to service dividends and buy-backs and, most importantly, to make follow on and new investments as opportunities arise, this must be balanced against the requirements of a Venture Capital Trust to meet a minimum threshold of 80% invested in qualifying investments.
As a result of these significant disposals and the additional liquidity they generated, to maintain the Companys qualifying VCT status, the Board has concluded that a substantial special dividend should be paid to shareholders. The Board is therefore pleased to declare a special dividend of 15.00 pence per share which will be paid in addition to the first interim dividend for the year ending 31 March 2022 of 1.83 pence per share to be paid on 30 July 2021 to shareholders on the register on 9 July 2021. The combined dividend will result in a total of £16.7 million being paid to shareholders, which is 23% of the 31 March 2021 NAV.
Whilst this reduces the Companys assets, it provides a significant return to shareholders and, for those that wish to take it, an opportunity to re-invest the combined special dividend and first interim dividend in the Company via the Dividend Reinvestment Scheme (DRIS) as described below.
The Board will continue to monitor the Companys qualifying holdings requirement throughout the year in order to maintain its status under VCT legislation. If required, any additional special dividend will be announced in December 2021 as part of the Half-yearly Report to 30 September 2021. This will provide the Board more time to clarify the Companys cash position in the context of the HMRC qualifying holdings requirements, which is dependent on several factors, including the new investment rate, the level of share buybacks and the operating expenses of the Company.
Investment realisations
The strong return for the year was primarily driven by a number of successful exits which generated proceeds of £31.9 million for the Company. As noted above, the bulk of the proceeds came from the sale of the Companys three care homes for the elderly; Active Lives Care, Ryefield Court Care, and Shinfield Lodge Care. The first investments in the homes were made over 5 years ago and the sale generated proceeds of £29.6 million which represents a 2.4x return on cost (including interest received), an excellent result for the Company. The homes were trading at mature occupancy levels.
The sale of G.Network Communications was also completed in December 2020, with a strong headline total return on all monies invested of 3.8x cost, although the terms of the sale will see proceeds being received in three years time. In the current year, this still reflects a substantial £1.1 million of realised gains. In addition to this, Clear Review was sold during the year, generating 2.1x return on cost. Further details on realisations can be found in the table on page 26 of the full Annual Report and Financial Statements.
Investment performance and progress
Some of our portfolio companies have performed well despite the Covid-19 pandemic and this, including realised gains on disposals, has contributed to the total uplift in value of £6.5 million to the Companys investments for the year. Our womens health clinic, The Evewell (Harley Street), has been trading well following its re-opening in May 2020 and contributed to a £1.0 million uplift for the year. Other investments with uplifts in the year were Phrasee (£0.9 million) which continues to trade well and Healios (£0.3 million) which has been revalued due to a recent funding round.
Not surprisingly our hotel at Stansted Airport, owned by Kew Green (VCT) Stansted, continues to be affected by the ongoing international travel disruption caused by the Covid-19 pandemic. As a result of this, the valuation has been written down by a further £0.5 million. In addition to this, the valuation of Avora has been written down by £0.5 million due to its progress being behind plan.
The Company has been an active investor during the year with £5.0 million invested into portfolio companies, of which £3.5 million was invested across five new portfolio companies, all of which are expected to require further investment as the companies prove themselves and grow. These are:
Following these new and follow on investments made, software and other technology now accounts for 33% of our portfolio (excluding cash), an increase from 22% last year.
A full list of the Companys investments and disposals, including their movements in value for the year, can be found in the Portfolio of investments section on pages 25 and 26 of the full Annual Report and Financial Statements.
Risks and uncertainties
The wide reaching implications of the Covid-19 crisis continues to be the key risk facing the Company, including its impact on the UK and Global economies. There may still also be further potential implications of the UKs departure from the European Union which may adversely affect our underlying portfolio companies. The Manager is continually assessing the exposure to such risks for each portfolio company, and where possible appropriate mitigating actions are being taken.
A detailed analysis of the other risks and uncertainties facing the business is shown in the Strategic report below.
Dividend Reinvestment Scheme (DRIS)
The Company continues to offer a DRIS whereby shareholders can elect to receive dividends in the form of new shares. For shareholders not currently in the DRIS, the Company is offering shareholders the option to elect for a one-off sign up to have this combined special dividend and first interim dividend reinvested into new shares through the DRIS. Shareholders can take advantage of this by emailing AAVCchair@albion.capital before midday on 14 July 2021. To elect for the reinvestment, please ensure your email contains your full name, Shareholder Reference Number, telephone number and confirms you have read the DRIS terms and conditions.
By re-investing the combined special dividend and first interim dividend in the capital of the Company, shareholders would be expected to broadly maintain the level of relative income they have been receiving from the Company under the variable dividend policy. The terms and conditions for the DRIS can be found on the Companys webpage on the Managers website at www.albion.capital/funds/AAVC under the Fund reports section.
Share buy-backs
It remains the Boards policy to buy-back shares in the market, subject to the overall constraint that such purchases are in the Companys interest. This includes the maintenance of sufficient cash resources for investment in new and existing portfolio companies and the continued payment of dividends to shareholders.
It is the Boards intention that such buy-backs should be at around a 5% discount to net asset value, in so far as market conditions and liquidity permit. The Board continues to review the use of buy-backs and is satisfied that it is an important means of providing market liquidity for shareholders.
Details of the Companys share buy-backs during the year can be found in note 15.
Annual General Meeting
The Board has been considering the current rules around the Covid-19 pandemic on the arrangements for our forthcoming Annual General Meeting (AGM). These arrangements may be subject to change, and we will keep shareholders up to date on our Manager’s website at www.albion.capital/vct-hub/agms-events.
We are required by law to hold an AGM within six months of our financial year end. Whilst the roadmap announced by the government gives a new delayed target of 19 July 2021 as the date all legal limits on mixing will be lifted, it is clear that data rather than dates are the true driver of restrictions. The Board is also acutely aware that this is a fast-moving situation, with new variants further complicating any removal on restrictions in the short and medium term. Given the level of uncertainty still being experienced and likely to continue throughout 2021, and noting the success of last years live streamed AGM with some 3 times more engagement than in previous years, in the interests of continued caution, the Board has decided to repeat the process again this year. The AGM will be held at noon on 7 September 2021, at the registered office being 1 Benjamin Street, London, EC1M 5QL. Shareholders will be able to attend the event via the free platform, Hopin.
Full details of the business to be conducted at the Annual General Meeting are given in the Notice of the Meeting on pages 69 and 70 and in the Directors report on pages 35 and 36 of the full Annual Report and Financial Statements.
As with last years AGM, the Directors will attend in person to meet the quorum and allow the continuation of this AGM. There will also be a representative of Albion Capital Group LLP as Company Secretary. At least two weeks prior to the AGM registration details will be sent to all shareholders who have an email address registered with Computershare. Shareholders who do not have an email address registered with Computershare should get in touch with marketing@albion.capital for information. In order to maximise shareholder engagement, the AGM will include a presentation from the Manager, the formal business of the AGM and answering questions we receive from shareholders.
Shareholders can submit their questions to the Board in advance of the AGM up until noon on 6 September 2021 by emailing AAVCchair@albion.capital. Alternatively there is a facility on the Hopin platform to submit questions whilst attending the event. The Chairman will cover as many questions as possible in the time allocated. Following the AGM, a summary of responses will be published on the Managers website at www.albion.capital/funds/AAVC.
Shareholders views are important, and the Board encourages shareholders to vote on the resolutions using the proxy form enclosed with this Annual Report and Financial Statements, or electronically at www.investorcentre.co.uk/eproxy. The Board has carefully considered the business to be approved at the Annual General Meeting and recommends shareholders to vote in favour of all the resolutions being proposed.
Outlook and prospects
As a result of the significant investment disposals and special dividend detailed above, the Board undertook a detailed review of the various options available to the Company for the best interests of shareholders as a whole. Through this detailed review, the Board concluded that it was in the best interest of shareholders to continue to operate as a smaller independent VCT and grow its NAV through continued positive investment performance and future fundraisings. The Company has delivered strong returns for shareholders over 25 years, and we continue to invest in exciting businesses that have not only shown resilience through the current healthcare pandemic, but in many cases growth, with many of our companies continuing to provide products and services that are considered innovative and essential by their customers. Having successfully sold our first technology investment during the year in Clear Review, which generated a 2.1 times return in the space of 17 months, this illustrated the potential future returns we could deliver to shareholders through focussing on our investment policy over the medium to long term.
Over time our portfolio will be both diversified and targeted at sectors such as software and healthcare which have proved resilient during the Covid-19 pandemic. Although there is still much uncertainty around the longer-term impact of the pandemic, I am confident that our portfolio companies are well positioned to grow, providing products and services critical to their customers, and therefore well placed to continue to deliver long term value to our shareholders.
Richard Glover
Chairman
21 June 2021
Strategic report
Investment policy
The Company will invest in a broad portfolio of smaller, unquoted growth businesses across a variety of sectors including higher risk technology companies. Investments may take the form of equity or a mixture of equity and loans.
Allocation of funds will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified both 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.
The full investment policy can be found above.
Current portfolio analysis
The pie charts at the end of this announcement show the split of the portfolio valuation as at 31 March 2021 by: sector; sector (excluding cash and net assets); stage of investment; and number of employees. This is a useful way of assessing how the Company and its portfolio is diversified across sector, investee companies’ maturity measured by revenues and their size measured by the number of people employed. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 25 and 26 of the full Annual Report and Financial Statements.
Direction of portfolio
During the year the Company sold a number of its asset-backed businesses which has resulted in asset-based investments decreasing as a proportion of the portfolio. The cash proceeds received from the disposals during the year was £30.6 million. These disposals have resulted in cash and cash equivalents accounting for 61% of the net asset value as at 31 March 2021 (2020: 30%). As outlined in the Chairmans statement, a first interim dividend and a special dividend have been declared for a total of 16.83 pence per share. The quantum of this dividend is c.£16.7 million (23% of the net assets) and will be paid to shareholders on 30 July 2021.
In line with the Companys investment policy, the majority of the remaining funds will be invested into healthcare (including digital healthcare) and software and other technology businesses. These areas represent 48% of the portfolio (excluding cash) and we expect this percentage to continue to increase in the coming years.
Further details on portfolio companies can be found in the Portfolio of investments on page 25 of the full Annual Report and Financial Statements.
| Results and dividends | Ordinary shares £’000 | |
| Net capital return for the year ended 31 March 2021 | 5,690 | |
| Net revenue return for the year ended 31 March 2021 | 1,468 | |
| Total return for the year ended 31 March 2021 | 7,158 | |
| Dividend of 2.50 pence per share paid on 31 July 2020 | (2,541) | |
| Dividend of 1.74 pence per share paid on 29 January 2021 | (1,745) | |
| Unclaimed dividends returned to the Company | 23 | |
| Transferred to reserves | 2,895 | |
| Net assets as at 31 March 2021 | 72,688 | |
| Net asset value as at 31 March 2021 (pence per share) | 73.13 |
The Company paid dividends totalling 4.24 pence per share during the year ended 31 March 2021 (2020: 5.00 pence per share). The Board has declared a first dividend for the year ending 31 March 2022, of 1.83 pence per share, and a special dividend of 15.00 pence per share to be paid on 30 July 2021 to shareholders on the register on 9 July 2021.
As shown in the Companys Income statement, the total return for the year was 7.10 pence per share (2020: loss of 4.10 pence per share). Investment income decreased to £2,467,000 (2020: £2,858,000). The Company will continue to receive income from its renewable energy portfolio for the foreseeable future, however investment income is expected to be much lower over the next few years as a result of the care homes sale.
The capital return on investments for the year of £6,508,000 (2020: loss of £4,925,000), has been discussed in the Chairmans statement. This has led to an increase in net asset value to 73.13 pence per share (2020: 70.13 pence per share), which can be seen on the Balance sheet. This increase in net asset value is after taking account of the payment of 4.24 pence per share of dividends during the year.
There was a net cash inflow for the Company of £21,782,000 for the year (2020: net inflow of £15,577,000), from the disposal of fixed asset investments, offset by the investment in fixed asset investments, dividends paid, operating activities and the buy-back of shares.
Review of business and future changes
A detailed review of the Companys business during the year is contained in the Chairmans statement. The total return before tax for the year was £7.3 million (2020: loss of £3.8 million).
There is a continuing focus on growing the healthcare (including digital healthcare) and software and other technology sectors. The majority of these investment returns are delivered through equity and capital gains and therefore, coupled with the sale of our three care homes, we expect our investment income to significantly reduce in future 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 prospects
After the payment of a substantial special dividend, the Companys portfolio remains well balanced across sectors and risk classes, and has largely weathered the pandemic so far. Although there remains much uncertainty, the Manager has a strong pipeline of investment opportunities in which the Companys cash can be deployed. The Board considers that the current portfolio and the pipeline of opportunities should enable the Company to maintain a predictable stream of dividend payments to shareholders, as well as delivering long term growth for shareholders.
Key performance indicators (KPIs) and Alternative Performance Measures (APMs)
The Directors believe that the following KPIs and APMs, which are typical for Venture Capital Trusts, used in its own assessment of the Company, will provide shareholders with sufficient information to assess how effectively the Company is applying its investment policy to meet its objectives. The Directors are satisfied that the results shown in the following KPIs and APMs give a good indication that the Company is achieving its investment objective and policy. These are:
1. Total shareholder value relative to FTSE All Share Index total return
The graph on page 4 of the full Annual Report and Financial Statements shows the Companys 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 Chairmans statement.
2. Net asset value per share and total shareholder value
Total shareholder value increased by 7.24 pence per Ordinary share for the year ended 31 March 2021 (gain of 10.3 per cent. on opening net asset value).
3. Shareholder value in the year
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
| 3.2% | 1.4% | 2.8% | 7.4% | 7.5% | 11.8% | 7.4% | 10.5% | (4.9)% | 10.3% |
Source: Albion Capital Group LLP
Methodology: Shareholder return is 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 March 2021 were 4.24 pence per share (2020: 5.00 pence per share). Cumulative dividends paid since inception amount to 164.04 pence per Ordinary share.
5. Ongoing charges
The ongoing charges ratio for the year ended 31 March 2021 was 2.4% (2020: 2.4%). The ongoing charges ratio has been calculated using The Association of Investment Companies (AIC) recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to increase slightly to approximately 2.5% due to the reduction in the net asset value of the Company after the payment of the significant special dividend. The cap on the ongoing charges ratio is 2.5%.
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 33 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 March 2021. These showed that the Company has complied with all tests and continues to do so.
*VCT compliance is not a numerical measure of performance and thus cannot be defined as an APM.
Gearing
As defined by the Articles of Association, the Companys maximum exposure in relation to gearing is restricted to 10 per cent. of the adjusted share capital and reserves. The Directors do not currently have any intention to utilise gearing for the Company.
Operational arrangements
The 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 agreement
Under the Management agreement, the Manager provides investment management, secretarial and administrative services to the Company. The Management agreement can be terminated by either party on 12 months notice. The Management agreement 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 1.9 per cent. of the net asset value of the Company, and an annual secretarial and administrative fee of £54,000 (2020: £53,000) increased annually by RPI. These fees are payable quarterly in arrears. Total annual expenses, including the management fee, are limited to 2.5% of the net asset value.
In line with common practice, the Manager is also entitled to an arrangement fee, payable by each new portfolio company, of approximately 2 per cent. on each new investment made and any applicable monitoring fees.
Management performance incentive
In order to align the interests of the Manager and the shareholders with regards to generating positive returns, the Manager is entitled to charge an incentive fee in the event that the returns exceed minimum target levels.
The performance 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 years closing NAV per Share. The starting NAV is 79.00 pence per share, being the audited net asset value at 31 March 2019. 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.
There was no management performance incentive fee payable during the year. As at 31 March 2021 the cumulative shortfall of the target return was 2.72 pence per share (31 March 2020: shortfall of 7.53 pence per share) and this amount needs to be made up in following accounting periods before an incentive fee becomes payable.
Investment and co-investment
The Company co-invests with other Venture Capital Trusts and funds managed by Albion Capital Group LLP. Allocation of investments is on the basis of an allocation agreement which is based, inter alia, on the ratio of funds available for investment.
Evaluation of the Manager
The Board has evaluated the performance of the Manager based on the returns generated by the Company, the continuing achievement of the 80 per cent. qualifying holdings investment requirement for Venture Capital Trust status, the long term prospects of the current portfolio of investments, a review of the Management agreement and the services provided therein, and benchmarking the performance of the Manager to other service providers including the performance of other VCTs that the Manager is responsible for managing.
The Board believes that it is in the interests of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.
Alternative Investment Fund Managers Directive (AIFMD)
The Board appointed Albion Capital Group LLP as the Companys 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 Companys culture and ensures, as part of its regular oversight, that the integrity of the Companys 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 Companys 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 Companys 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 stakeholders the Board considers most relevant, details how the Board has engaged with these key stakeholders and the effect of these considerations on the Companys decisions and strategies during the year.
| Stakeholders | Engagement with Stakeholders | Decision outcomes based on engagement |
| Shareholders | The key methods of engaging with Shareholders are as follows:
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| Suppliers | The key suppliers with regular engagement from the Manager are:
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| 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. |
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| 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) section, the portfolio companies impact on their stakeholders is also important to the Company. |
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| 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. |
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Environmental, Social, and Governance (ESG)
The Companys Manager, Albion Capital Group LLP, takes the concept of sustainable and responsible investment very seriously for existing investments and in reviewing new investment opportunities. In turn, the Board is kept appraised of ESG issues in connection with both the portfolio and in how Company affairs are conducted more generally as a regular part of Board oversight.
Albion Capital Group LLP is a signatory of the UN PRI. The UN PRI is the worlds leading proponent of responsible investment, working to understand the investment implications of ESG factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.
The Board and Manager have exercised conscious principles in making responsible investments throughout the life of the Company, not least in providing finance for promising companies in a variety of important sectors such as technology, healthcare and renewable energy. In making the investments, the Manager is directly involved in the oversight and governance of these investments, including ensuring standards of reporting and visibility on business practices, all of which are reported to the Board of the Company. By its nature, not least in making qualifying investments which fulfil the criteria set by HMRC, the Company has focused on sustainable and longer-term investment propositions, some of which will fail (in the nature of all small companies), but some of which will grow and serve important societal demands. One of the most important drivers of performance is the quality of the investment portfolio, which goes beyond the individual valuations and examines the prospects of each of the portfolio companies, as well as the sectors in which they operate all requiring a longer- term view.
In the nature of venture capital investment, Albion Capital Group LLP is more intimately involved in the affairs of portfolio companies than might be the case for funds invested in listed securities. As such, Albion Capital Group LLP is in a position to influence good governance and behaviour in the portfolio companies, many of which are relatively small companies without the support of a larger companys administration and advisory infrastructure.
The Company adheres to the principles of the AIC Code of Corporate Governance and is also aware of other governance and corporate conduct guidance which it meets as far as practical, including in the constitution of a diversified and independent Board capable of providing constructive challenge.
The Company’s portfolio is currently invested in healthcare, renewable energy, education, software and other technology (which includes cyber security and data protection), with the most significant percentage of the Companys portfolio invested in sectors and companies which would be seen by many measures to be both sustainable and socially aware on the services they render.
Albion Capital Group LLP incorporates ESG considerations into its investment decisions. These form part of its process to create value for investors and develop sustainable long-term strategies for portfolio companies. Albion Capital Group LLP reports ESG criteria to UN PRI annually and to the Board quarterly.
ESG principles are integrated at the pre-investment, investment and exit stages. This is reflected in transparency of reporting, governance principles adopted by the Company and the portfolio companies, and increasingly in the positive environmental or socially impactful nature of investments made. Albion Capital Group LLP, where relevant, considers climate-specific issues in its investment policies and activities. However, as the majority of the Companys portfolio consists of small (2-250 full time employees), private, typically software companies with limited environmental impact, climate change is not considered to be a significant risk, and actions are proportionate to that risk.
Pre-investment stage
An exclusion list is used to rule out investments in unsustainable areas, or in areas which might be perceived as socially detrimental. ESG due diligence is performed on each potential portfolio company to identify any sustainability risks associated with the investment. Identified sustainability risks are ranked from low to high and are reported to the relevant investment committee. The investment committee considers each potential investment. If sustainability risks are identified, mitigations are assessed and, if necessary, mitigation plans are put in place. If this is not deemed sufficient, the committee would consider the appropriate level and structure of funding to balance the associated risks. If this is not possible, investment committee approval will not be provided, and the investment will not proceed.
Investment stage
All new and existing portfolio companies are asked to report against an ESG Balanced Score Card annually. The ESG Balanced Score Card contains a number of sustainability factors against which a portfolio company will be assessed in order to determine the potential sustainability risks and opportunities arising from the investment. The score cards form part of the Managers internal review meetings alongside discussions around other risk factors, and any outstanding issues are addressed in collaboration with the portfolio companies senior management.
Exit stage
Albion Capital Group LLP aims to ensure that good ESG practices remain in place following exit. For example, by ensuring that the company creates a self-sustaining ESG management system during our period of ownership, wherever feasible.
Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the Act to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and effectiveness of these policies. As an externally managed investment company with no employees, the Company has no formal policies in these matters, however, it is at the core of its responsible investment strategy as detailed above.
Further policies
The Company is not required to have any formal policies, however it has adopted a number of further policies relating to:
and these are set out in the Directors report on pages 33 and 34 of the full Annual Report and Financial Statements.
General Data Protection Regulation
The General Data Protection Regulation has the objective of unifying data privacy requirements across the European Union, and continues to apply in the United Kingdom after Brexit. The Manager continues to take action to ensure that the Manager and the Company are compliant with the regulation.
Risk management
The Board carries out a regular review of the risk environment in which the Company operates, together with changes to the environment and individual risks. The Board also identifies emerging risks which might impact on the Company. In the period the most noticeable risk has been the global pandemic which has impacted not only public health and mobility but also has had an adverse impact on the economy, the full impact of which is likely to be uncertain for some time.
The Directors have carried out a robust assessment of the Companys principal risks and uncertainties, and explain how they are being mitigated as follows. They are satisfied that there has not been a material change in the Companys exposure against each of the identified risks below.
| Risk | Possible consequence | 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 Companys 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 Companys 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. | 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 Managers 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 Companys 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 2018. 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. | 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 Companys shares, or other penalties under the Companies Act or from financial reporting oversight bodies. | 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 Managers compliance officer, and any issues arising from compliance or regulation are reported to its own board on a monthly basis. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Managers 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 Managers business could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. | The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year, and receives reports from the Manager on its internal controls and risk management, including on matters relating to cyber security. The Audit Committee reviews the Internal Audit Reports prepared by the Managers internal auditors, PKF Littlejohn LLP and has access to the internal audit partner of PKF Littlejohn LLP to provide an opportunity to 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. Ocorian Depositary (UK) Limited is the Companys 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 Albion Capital 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 Companys 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. |
| 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 Companys 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. The political risk with the most uncertainty for the future of the UK economy, which the Company largely operates in, is Brexit. The current significant exogenous risk to the Company, the wider population and economy, is the Covid-19 pandemic. | 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 Company largely operates within the UK, and increasingly the US, and therefore impacts from Brexit are reduced as there are few cross-border transactions with Europe. Since 2016, the portfolio of companies has not seen any significant impacts from the uncertainty around Brexit, nor since the end of the transition period (1 January 2021). The Board and Manager are continuously assessing the resilience of the portfolio, the Company and its operations and the robustness of the Companys external agents during the health crisis, 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.35 companies which are diversified as discussed above. Exposure is relatively small to at-risk sectors that include leisure, hospitality, retail and travel. |
| Emerging risks | The Boards meets at least four times a year to discuss current affairs and any potential emerging risks which could affect the Company. The key emerging risk affecting the Company is the Environmental (including climate change), Social and Governance requirements, both from a regulatory and investor preferences standpoint. There is the risk of loss of funding from investors, as well as the risk of penalties from regulatory non-compliance. | The ESG section is this report details the Companys work towards these risks, and highlights the importance of these, above the statutory reporting requirements, to the Company. 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 respect to the Company, a key operation is increasing the use of electronic communications with Shareholders, where that preference has been specified. |
| Market value of Ordinary shares | The market value of Ordinary shares can fluctuate. The market value of an Ordinary share, as well as being affected by its net asset value and prospective net asset value, also takes into account its dividend yield and prevailing interest rates. As such, the market value of an Ordinary share may vary considerably from its underlying net asset value. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the net asset value at different times, depending on supply and demand, market conditions, general investor sentiment and other factors. Accordingly, the market price of the Ordinary shares may not fully reflect their underlying net asset value. | The Company operates a share buy-back policy, which is designed to limit the discount at which the Ordinary shares trade to around 5% to net asset value, by providing a purchaser through the Company in absence of market purchasers. From time to time buy-backs cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust any buy-back authorities. The Companys corporate broker, appointed during the year, helps to ensure that the discount is appropriate. New Ordinary shares are issued at sufficient premium to net asset value to cover the costs of issue and to avoid asset value dilution to existing investors. |
| Reputational risk | The Company relies on the judgement and reputation of the Manager which is itself subject to the risk of loss. | The Board regularly questions the Manager on its ethics, procedures, safeguards and investment philosophy, which should consequently result in the risk to reputational damage being minimised. |
Viability statement
In accordance with the FRC UK Corporate Governance Code published in 2018 and principle 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 31 March 2024. The Directors believe that three years is a reasonable period in which they can assess the future of the Company to continue to operate and meet its liabilities as they fall due and is also the period used by the Board in the strategic planning process and is considered reasonable for a business of our nature and size. The three year period is considered the most appropriate given the forecasts that the Board requires from the Manager and the estimated timelines for finding, assessing and completing investments. The three year period also takes account of the potential impact of new regulations, should they be imposed, and how they may impact the Company over the longer term, and the availability of cash, but cannot take into account the full extent of the exogenous risks that are impacting on global economies at the date of these accounts.
The Directors have carried out a robust assessment of the emerging and principal risks facing the Company as explained above, including those that could threaten its business model, future performance, solvency or liquidity. The Board also considered the procedures in place to identify emerging risks and the risk management processes in place to avoid or reduce the impact of the underlying risks. The Board focused on the major factors which affect the economic, regulatory and political environment, including any potential impact from Brexit. The Board, after careful consideration, believes that Brexit will have no major impact on the going concern of the Company, primarily due to the markets our portfolio companies target, which in most cases are the UK and increasingly, the US, for our software and technology businesses. Portfolio companies targeting European markets have also shown resilience so far. The coronavirus (Covid-19) pandemic therefore remains the largest uncertainty impacting on the Company. In light of this continuing uncertainty, robust stress tested cashflows, process resilience and contingencies have been examined in trying to deal with the principal risks faced by the Company.
The Board assessed the ability of the Company to raise finance and deploy capital, as well as the existing cash resources of the Company. The portfolio is well balanced and geared towards long term growth, delivering dividends and capital growth to shareholders. In assessing the prospects of the Company, the Directors have considered the cash flow by looking at the Companys income and expenditure projections and funding pipeline over the assessment period of three years and they appear realistic.
Taking into account the processes for mitigating risks, monitoring costs, share buy-backs and issuance, the Managers compliance with the investment objective, policies and business model and the balance of the portfolio, the Directors have 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 March 2024.
This Strategic report of the Company for the year ended 31 March 2021 has been prepared in accordance with the requirements of section 414A of the Companies Act 2006 (the Act). The purpose of this report is to provide shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their duty to promote the success of the Company in accordance with Section 172 of the Act.
Richard Glover
Chairman
21 June 2021
Responsibility statement
In preparing these Financial Statements for the year to 31 March 2021, the Directors of the Company, being Richard Glover, John Kerr, Ann Berresford and Richard Wilson, confirm to the best of their knowledge:
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 Companys position, performance, business model and strategy.
A detailed Statement of Directors responsibilities is contained on page 37 of the full Annual Report and Financial Statements.
For and on behalf of the Board
Richard Glover
Chairman
21 June 2021
Income statement
| Year ended 31 March 2021 | Year ended 31 March 2020 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £000 | £000 | £000 | £000 | £000 | £000 | |
| Gains/(losses) on investments | 3 | – | 6,508 | 6,508 | – | (4,925) | (4,925) |
| Investment income | 4 | 2,467 | – | 2,467 | 2,858 | – | 2,858 |
| Investment management fee | 5 | (337) | (1,010) | (1,347) | (340) | (1,020) | (1,360) |
| Other expenses | 6 | (363) | – | (363) | (375) | – | (375) |
| Profit/(loss) on ordinary activities before tax | 1,767 | 5,498 | 7,265 | 2,143 | (5,945) | (3,802) | |
| Tax (charge)/credit on ordinary activities | 8 | (299) | 192 | (107) | (333) | 194 | (139) |
| Profit/(loss) and total comprehensive income attributable to shareholders | 1,468 | 5,690 | 7,158 | 1,810 | (5,751) | (3,941) | |
| Basic and diluted return/(loss) per share (pence)* | 10 | 1.46 | 5.64 | 7.10 | 1.88 | (5.98) | (4.10) |
* adjusted for treasury shares
The accompanying notes below 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 March 2021 | 31 March 2020 | ||
| Note | £000 | £000 | |
| Fixed asset investments | 11 | 28,355 | 49,243 |
| Current assets | |||
| Trade and other receivables | 13 | 1,561 | 252 |
| Cash and cash equivalents | 43,562 | 21,782 | |
| 45,123 | 22,034 | ||
| Total assets | 73,478 | 71,277 | |
| Payables: amounts falling due within one year | |||
| Trade and other payables | 14 | (790) | (649) |
| Total assets less current liabilities | 72,688 | 70,628 | |
| Equity attributable to equity holders | |||
| Called-up share capital | 15 | 1,165 | 1,148 |
| Share premium | 40,668 | 39,477 | |
| Capital redemption reserve | 7 | 7 | |
| Unrealised capital reserve | 3,588 | 13,178 | |
| Realised capital reserve | 21,829 | 6,549 | |
| Other distributable reserve | 5,431 | 10,269 | |
| Total equity shareholders funds | 72,688 | 70,628 | |
| Basic and diluted net asset value per share (pence)* | 16 | 73.13 | 70.13 |
* excluding treasury shares
The accompanying notes below form an integral part of these Financial Statements.
These Financial Statements were approved by the Board of Directors and authorised for issue on 21 June 2021, and were signed on its behalf by
Richard Glover
Chairman
Company number: 03142609
Statement of changes in equity
| Called–up share capital | Share premium | Capital redemption reserve | Unrealised capital reserve | Realised capital reserve* | Other distributable reserve* | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| At 1 April 2020 | 1,148 | 39,477 | 7 | 13,178 | 6,549 | 10,269 | 70,628 |
| Return/(loss) and total comprehensive income for the year | – | – | – | 1,831 | 3,859 | 1,468 | 7,158 |
| Transfer of previously unrealised gains on realisations of investments | – | – | – | (11,421) | 11,421 | – | – |
| Purchase of treasury shares | – | – | – | – | – | (2,043) | (2,043) |
| Issue of equity | 17 | 1,225 | – | – | – | – | 1,242 |
| Cost of issue of equity | – | (34) | – | – | – | – | (34) |
| Net dividends paid (note 9) | – | – | – | – | – | (4,263) | (4,263) |
| At 31 March 2021 | 1,165 | 40,668 | 7 | 3,588 | 21,829 | 5,431 | 72,688 |
| At 1 April 2019 | 970 | 26,042 | 7 | 19,327 | 6,151 | 15,050 | 67,547 |
| (Loss)/return and total comprehensive income for the year | – | – | – | (5,217) | (534) | 1,810 | (3,941) |
| Transfer of previously unrealised gains on realisations of investments | – | – | – | (932) | 932 | – | – |
| Purchase of treasury shares | – | – | – | – | – | (1,866) | (1,866) |
| Issue of equity | 178 | 13,751 | – | – | – | – | 13,929 |
| Cost of issue of equity | – | (316) | – | – | – | – | (316) |
| Net dividends paid (note 9) | – | – | – | – | – | (4,725) | (4,725) |
| At 31 March 2020 | 1,148 | 39,477 | 7 | 13,178 | 6,549 | 10,269 | 70,628 |
* These reserves amount to £27,260,000 (2020: £16,818,000) which is considered distributable.
Statement of cash flows
| Year ended 31 March 2021 | Year ended 31 March 2020 | |
| £000 | £000 | |
| Cash flow from operating activities | ||
| Loan stock income received | 2,985 | 2,810 |
| Deposit interest received | 14 | 87 |
| Dividend income received | 24 | 50 |
| Investment management fee paid | (1,337) | (1,345) |
| Other cash payments | (378) | (360) |
| UK Corporation tax paid | (204) | (178) |
| Net cash flow from operating activities | 1,104 | 1,064 |
| Cash flow from investing activities | ||
| Purchase of fixed asset investments | (5,040) | (4,650) |
| Disposal of fixed asset investments | 30,620 | 12,129 |
| Net cash flow from investing activities | 25,580 | 7,479 |
| Cash flow from financing activities | ||
| Issue of share capital | 668 | 13,019 |
| Cost of issue of equity | (17) | (32) |
| Dividends paid* | (3,714) | (4,087) |
| Purchase of own shares (including costs) | (1,841) | (1,866) |
| Net cash flow from financing activities | (4,904) | 7,034 |
| Increase in cash and cash equivalents | 21,780 | 15,577 |
| Cash and cash equivalents at start of the year | 21,782 | 6,205 |
| Cash and cash equivalents at end of the year | 43,562 | 21,782 |
*The equity dividends paid shown in the cash flow are different to the dividends disclosed in note 9 as a result of the non-cash effect of the Dividend Reinvestment Scheme and the timing of unclaimed dividends.
Notes to the Financial Statements
1. Basis of preparation
The 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 32 of the full Annual Report and Financial Statements.
The preparation of the Financial Statements requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The most critical estimates and judgements relate to the determination of carrying value of investments at Fair Value Through Profit and Loss (FVTPL) in accordance with FRS 102 sections 11 and 12. The Company values investments by following the International Private Equity and Venture Capital Valuation (IPEV) Guidelines as updated in 2018 and further detail on the valuation techniques used are outlined in note 2 below.
Company information is shown on page 2 of the full Annual Report and Financial Statements.
2. Accounting policies
Fixed asset investments
The Companys 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 per cent. 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 classified 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 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.
Gains and losses on investments
Gains and losses arising from changes in the fair value of the investments are included in the Income statement for the year as a capital item and allocated to the unrealised capital reserve.
Investment income
Equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.
Unquoted loan stock
Fixed returns on non-equity shares and debt securities are recognised when the Companys 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 income
Interest income is recognised on an accruals basis using the rate of interest agreed with the bank.
Investment management fee, performance incentive fee and other expenses
All 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:
Taxation
Taxation 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.
Reserves
Called-up share capital
This reserve accounts for the nominal value of the Companys shares.
Share premium
This reserve accounts for the difference between the price paid for shares and the nominal value of the shares, less issue costs and transfers to the other distributable reserve.
Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is diminished through the repurchase and cancellation of the Companys own shares.
Unrealised capital reserve
Increases and decreases in the valuation of investments held at the year end against cost are included in this reserve.
Realised capital reserve
The following are disclosed in this reserve:
Other distributable reserve
The 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.
Dividends
Dividends by the Company are accounted for in the period in which the dividend is paid or approved at the Annual General Meeting.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single operating segment of business, being investment in smaller companies principally based in the UK.
3. Gains/(losses) on investments
| Year ended 31 March 2021 | Year ended 31 March 2020 | |
| £000 | £000 | |
| Unrealised gains/(losses) on fixed asset investments | 1,831 | (5,217) |
| Realised gains on fixed asset investments | 4,677 | 292 |
| 6,508 | (4,925) |
4. Investment income
| Year ended 31 March 2021 | Year ended 31 March 2020 | |
| £000 | £000 | |
| Loan stock interest | 2,432 | 2,719 |
| Dividend income | 24 | 50 |
| Bank interest | 11 | 89 |
| 2,467 | 2,858 |
5. Investment management fee
| Year ended 31 March 2021 £000 | Year ended 31 March 2020 £000 | |
| Investment management fee charged to revenue | 337 | 340 |
| Investment management fee charged to capital | 1,010 | 1,020 |
| 1,347 | 1,360 |
Further details of the Management agreement under which the investment management fee and any performance incentive fee is paid are given in the Strategic report.
During the year, services of a total value of £1,401,000 (2020: £1,413,000), were purchased by the Company from Albion Capital Group LLP; this includes £1,347,000 (2020: £1,360,000) of investment management fee and £54,000 (2020: £53,000) of secretarial and administration fee. At the financial year end, the amount due to Albion Capital Group LLP in respect of these services disclosed within payables was £359,000 (2020: £349,000).
Albion Capital Group LLP is, from time to time, eligible to receive arrangement fees and monitoring fees from portfolio companies. During the year ended 31 March 2021, fees of £193,000 attributable to the investments of the Company were received by Albion Capital Group LLP pursuant to these arrangements (2020: £232,000).
Albion Capital Group LLP, its partners and staff hold a total of 912,780 shares in the Company as at 31 March 2021.
In October 2019, the Company entered into an offer agreement relating to the Offers with the Companys investment manager Albion Capital Group LLP (Albion), pursuant to which Albion received a fee of 2.5 per cent. of the gross proceeds of the Offers and out of which Albion paid the costs of the Offers, as detailed in the Prospectus.
6. Other expenses
| Year ended 31 March 2021 | Year ended 31 March 2020 | |
| £000 | £000 | |
| Directors fees (including NIC) | 101 | 106 |
| Auditors remuneration for statutory audit services (excluding VAT) | 37 | 34 |
| Secretarial and administration fee | 54 | 53 |
| Other administrative expenses | 171 | 182 |
| 363 | 375 |
7. Directors fees
The amounts paid to and on behalf of Directors during the year are as follows:
| Year ended 31 March 2021 | Year ended 31 March 2020 | |
| £000 | £000 | |
| Directors fees | 93 | 97 |
| National insurance | 8 | 9 |
| 101 | 106 |
The Companys key management personnel are the Directors. Further information regarding Directors remuneration can be found in the Directors remuneration report on page 44 of the full Annual Report and Financial Statements.
8. Tax charge/(credit) on ordinary activities
| Year ended 31 March 2021 | Year ended 31 March 2020 | |||||
| Revenue £000 | Capital | Total | Revenue £000 | Capital £000 | Total | |
| UK corporation tax in respect of current year | 332 | (192) | 140 | 397 | (194) | 203 |
| UK corporation tax in respect of prior year | (33) | – | (33) | (64) | – | (64) |
| 299 | (192) | 107 | 333 | (194) | 139 | |
Factors affecting the tax charge:
| Year ended 31 March 2021 £000 | Year ended 31 March 2020 £000 | |
| Return/(loss) on ordinary activities before taxation | 7,265 | (3,802) |
| Tax charge/(credit) on profit/(loss) at the standard rate of 19% (2020: 19%) | 1,380 | (722) |
| Factors affecting the charge: | ||
| Non-taxable (gains)/losses | (1,236) | 935 |
| Income not taxable | (4) | (10) |
| Consortium relief in respect of prior years | (33) | (64) |
| 107 | 139 |
The tax charge for the year shown in the Income statement is lower than the standard rate of corporation tax in the UK of 19 per cent. (2020: 19 per cent.). The differences are explained above.
Consortium relief is recognised in the accounts in the period in which the claim is submitted to HMRC and is shown as tax in respect of prior year.
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) No deferred tax asset or liability has arisen in the year.
9. Dividends
| Year ended 31 March 2021 | Year ended 31 March 2020 | |||||
| £000 | £000 | |||||
| Dividend of 2.50p per share paid on 31 July 2020 (31 July 2019: 2.50p per share) | 2,541 | 2,382 | ||||
| Dividend of 1.74p per share paid on 29 January 2021 (31 January 2020: 2.50p per share) | 1,745 | 2,365 | ||||
| Unclaimed dividends | (23) | (22) | ||||
| 4,263 | 4,725 | |||||
In addition to the dividends summarised above, the Board has declared a first dividend for the year ending 31 March 2022 of 1.83 pence per share to be paid on 30 July 2021 to shareholders on the register on 9 July 2021. The total dividend will be approximately £1,819,000.
The Board has also declared a special dividend of 15.00 pence per share, payable on 30 July 2021 to shareholders on the register on 9 July 2021. The total dividend will be approximately £14,909,000.
During the year, unclaimed dividends older than twelve years of £23,000 (2020: £22,000) were returned to the Company in accordance with the terms of the Articles of Association and have been accounted for on an accruals basis.
10. Basic and diluted return/(loss) per share
| Year ended 31 March 2021 | Year ended 31 March 2020 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| Return/(loss) attributable to equity shares (£000) | 1,468 | 5,690 | 7,158 | 1,810 | (5,751) | (3,941) |
| Weighted average shares in issue (adjusted for treasury shares) | 100,836,952 | 96,167,014 | ||||
| Return/(loss) attributable per equity share (pence) | 1.46 | 5.64 | 7.10 | 1.88 | (5.98) | (4.10) |
The weighted average number of shares is calculated after adjusting for treasury shares of 17,153,431 (2020: 14,084,031).
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
| Investments held at fair value through profit or loss | 31 March 2021 £000 | 31 March 2020 £000 |
| Unquoted equity | 17,563 | 25,773 |
| Unquoted loan stock | 10,792 | 23,470 |
| 28,355 | 49,243 |
| 31 March 2021 £000 | 31 March 2020 £000 | ||||
| Opening valuation | 49,243 | 61,459 | |||
| Purchases at cost | 5,040 | 5,090 | |||
| Disposal proceeds | (31,883) | (12,295) | |||
| Realised gains | 4,677 | 292 | |||
| Movement in loan stock accrued income | (553) | (86) | |||
| Unrealised gains/(losses) | 1,831 | (5,217) | |||
| Closing valuation | 28,355 | 49,243 | |||
| Movement in loan stock accrued income | |||||
| Opening accumulated loan stock accrued income | 752 | 838 | |||
| Movement in loan stock accrued income | (553) | (86) | |||
| Closing accumulated loan stock accrued income | 199 | 752 | |||
| Movement in unrealised gains | |||||
| Opening accumulated unrealised gains | 13,178 | 19,327 | |||
| Transfer of previously unrealised gains to realised reserve on realisations of investments | (11,421) | (932) | |||
| Unrealised gains/(losses) | 1,831 | (5,217) | |||
| Closing accumulated unrealised gains | 3,588 | 13,178 | |||
| Historic cost basis | |||||
| Opening book cost | 35,313 | 41,294 | |||
| Purchases at cost | 5,040 | 5,090 | |||
| Sales at cost | (15,785) | (11,071) | |||
| Closing book cost | 24,568 | 35,313 | |||
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 debtors and creditors.
The Company does not hold any assets as a result of the enforcement of security during the period, and believes that the carrying values for both impaired and past due assets are covered by the value of security held for these loan stock investments.
Unquoted fixed asset investments are valued at fair value in accordance with the IPEV guidelines as follows:
| 31 March 2021 | 31 March 2020 | |
| Valuation methodology | £000 | £000 |
| Cost and price of recent investment (reviewed for impairment or uplift) | 11,408 | 6,607 |
| Third party valuation Discounted cash flow | 9,835 | 9,968 |
| Third party valuation – Earnings multiple | 2,196 | 28,110 |
| Net assets | 1,850 | 2,034 |
| Earnings multiple | 1,666 | – |
| Revenue multiple | 1,400 | 2,524 |
| 28,355 | 49,243 |
When using the cost or price of a recent investment in the valuations the Company looks to re-calibrate this price at each valuation point by reviewing progress within the investment, comparing against the initial investment thesis, assessing if there are any significant events or milestones that would indicate the value of the investment has changed and considering whether a market-based methodology (i.e. using multiples from comparable public companies) or a discounted cashflow forecast would be more appropriate.
The main inputs into the calibration exercise, and for the valuation models using multiples, are revenue, EBITDA and P/E multiples (based on the most recent revenue, EBITDA or earnings achieved and equivalent corresponding revenue, EBITDA or earnings multiples of comparable companies), quality of earnings assessments and comparability difference adjustments. Revenue multiples are often used, rather than EBITDA or earnings, due to the nature of the Companys 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 Companys equity instruments, comparable trading multiples are used. In accordance with the Companys 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 March 2020 and 31 March 2021:
| Change in valuation methodology (2020 to 2021) | Value as at 31 March 2021 £000 | Explanatory note |
| Revenue multiple to cost and price of recent investment (reviewed for impairment or uplift) | 1,946 | Funding round led to new methodology |
| Cost and price of recent investment (reviewed for impairment or uplift) to earnings multiple | 1,666 | More appropriate valuation methodology |
| Net assets to cost and price of recent investment (reviewed for impairment or uplift) | 356 | External funding round led to new methodology |
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, there are no other more relevant methods of valuation which would be reasonable as at 31 March 2021.
FRS 102 and the SORP requires the Company to disclose the inputs to the valuation methods applied to its investments measured at FVTPL in a fair value hierarchy. The table below sets out fair value hierarchy definitions using FRS102 s.11.27.
| Fair value hierarchy | Definition |
| Level 1 | The unadjusted quoted price 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 |
All fixed asset investments (unquoted equity, preference shares and loan stock) are valued according to Level 3 valuation methods. The Level 3 valuation movements are therefore the same as the fixed asset investment valuation movements above.
FRS 102 requires the Directors to consider the impact of changing one or more of the inputs used as part of the valuation process to reasonable possible alternative assumptions. 75% of the portfolio of investments, consisting of equity and loan stock, is based on recent investment 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 the inputs (by adjusting the discounts rates, earnings and revenue multiples) could lead to a change in fair value of the portfolio. The Board has reviewed the Managers adjusted inputs for a number of the largest portfolio companies (by value) which covers 18% of the portfolio. This has resulted in a total coverage of 93% 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) |
| Third party valuation Discounted cashflow | Renewable energy | Discount rate | 5.5% | +1.0% | 196 | 0.20 |
| -1.0% | (191) | (0.19) | ||||
| Earnings multiple | Software & other technology | Earnings multiple | 8.0x | +1.0 | 109 | 0.11 |
| -1.0 | (109) | (0.11) | ||||
| Revenue multiple | Healthcare (including digital healthcare) | Revenue multiple | 6.0x | +1.4 | 330 | 0.33 |
| -2.0 | (467) | (0.47) |
*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 £636,000 (3.6%) or a decrease in the valuation of equity investments by £767,000 (4.4%).
12. Significant interests
The 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 take a controlling interest or become involved in the management of a portfolio company. The size and structure of the 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 investment listed below is held as part of an investment portfolio and therefore, as permitted by FRS 102 section 9.9B, it is measured at fair value through profit and loss and not accounted for using the equity method.
The Company has interests of greater than 20 per cent. of the nominal value of any class (some of which are non-voting) of the allotted shares in the portfolio companies as at 31 March 2021 as described below.
| Company | Registered address and country of incorporation | Profit/(loss) before tax £000 | Aggregate capital and reserves | Results for 16 month period ended | % class and share type | % total voting |
| Kew Green VCT (Stansted) Limited | EC1M 5QL, UK | n/a* | 4,091 | 31 December 2019 | 45.2% Ordinary | 45.2% |
*The company files filleted accounts which do not disclose this information.
13. Current assets
| 31 March 2021 | 31 March 2020 | |
| Trade and other receivables | £000 | £000 |
| Other receivables | 107 | 172 |
| UK corporation tax receivable | 97 | 64 |
| Prepayments and accrued income | 21 | 16 |
| Deferred consideration over one year | 1,336 | – |
| 1,561 | 252 |
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 March 2021 | 31 March 2020 | |
| £000 | £000 | |
| Trade payables | 219 | 13 |
| UK Corporation tax payable | 140 | 203 |
| Accruals and deferred income | 431 | 433 |
| 790 | 649 |
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 | £000 |
| 114,789,539 Ordinary shares of 1 penny each at 31 March 2020 | 1,148 |
| 1,759,986 Ordinary shares of 1 penny each issued during the year | 17 |
| 116,549,525 Ordinary shares of 1 penny each at 31 March 2021 | 1,165 |
| 14,084,031 Ordinary shares of 1 penny each held in treasury at 31 March 2020 | (141) |
| 3,069,400 Ordinary shares purchased during the year to be held in treasury | (31) |
| 17,153,431 Ordinary shares of 1 penny each held in treasury at 31 March 2021 | (172) |
| 99,396,094 Ordinary shares of 1 penny each in circulation* at 31 March 2021 | 994 |
* Carrying one vote each
The Company purchased 3,069,400 Ordinary shares (2020: 2,566,843) to be held in treasury at a cost of £2,043,000 (2020: £1,866,000) representing 2.6 per cent. (2020: 2.2 per cent.) of its issued share capital as at 31 March 2021. The shares purchased for treasury were funded from the other distributable reserve.
The Company holds a total of 17,153,431 shares (2020: 14,084,031) in treasury at a nominal value of £172,000, representing 14.7 per cent. of the issued Ordinary share capital as at 31 March 2021.
Under the terms of the Dividend Reinvestment Scheme Circular dated 10 July 2008, 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 | Issue price (pence per | Net invested | Opening market price on allotment date |
| £000 | share) | £000 | (pence per share) | ||
| 31 July 2020 | 494,534 | 5 | 67.63 | 318 | 65.00 |
| 29 January 2021 | 329,463 | 3 | 67.85 | 222 | 64.00 |
| 823,997 | 8 | 540 |
During the year, the Company issued the following new Ordinary shares of nominal value 1 penny each under the Albion VCTs Prospectus Top Up Offers 2019/20:
| 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) | ||
| 30 April 2020 | 193,917 | 2 | 72.50 | 138 | 63.50 |
| 30 April 2020 | 742,072 | 7 | 73.20 | 530 | 63.50 |
| 935,989 | 9 | 668 |
16. Basic and diluted net asset value per share
| 31 March 2021 | 31 March 2020 | |
| Basic and diluted net asset value per share (pence) | 73.13 | 70.13 |
The basic and diluted net asset value per share at the year end are calculated in accordance with the Articles of Association and are based upon total shares in issue (adjusted for treasury shares) of 99,396,094 Ordinary shares (2020: 100,705,508).
17. Capital and financial instruments risk management
The Companys capital comprises Ordinary shares as described in note 15. The Company is permitted to buy back its own shares for cancellation or treasury purposes, and this is described in more detail on page 36 of the full Annual Report and Financial Statements in the Directors report.
The Companys financial instruments comprise equity and loan stock investments in unquoted companies, cash balances and short term receivables and payables which arise from its operations. The main purpose of these financial instruments is to generate cash flow, revenue and capital appreciation for the Companys 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 risks arising from the Companys operations are:
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 risk
As a Venture Capital Trust, it is the Companys specific nature to evaluate the market risk of its portfolio in unquoted companies, details of which are shown on page 25 of the full Annual Report and Financial Statements. 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 £2,836,000. 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 Managers 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 on the balance sheet date is the value of the fixed asset investment portfolio which is £28,355,000 (2020: £49,243,000). Fixed asset investments form 39 per cent. of the net asset value on 31 March 2021 (2020: 70 per cent.).
Interest rate risk
It is the Companys 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 Companys analysis, it was estimated that a rise of 1 per cent. in all interest rates would have increased total return before tax for the year by approximately £327,000 (2020: £222,000). Furthermore, it was considered that a fall of interest rates below current levels during the year would have been unlikely.
The weighted average effective interest rate applied to the Companys fixed rate assets during the year was approximately 11.9 per cent. (2020: 12.8 per cent.). The weighted average period to maturity for the fixed rate assets is approximately 6.9 years (2020: 6.0 years).
The Companys financial assets and liabilities, all denominated in Sterling, consist of the following:
| 31 March 2021 | 31 March 2020 | |||||||
| Fixed rate £000 | Floating rate £000 | Non-interest bearing £000 | Total £000 | Fixed rate £000 | Floating rate £000 | Non-interest bearing £000 | Total £000 | |
| Unquoted equity | – | – | 17,563 | 17,563 | – | – | 25,773 | 25,773 |
| Unquoted loan stock | 10,233 | 247 | 312 | 10,792 | 22,730 | 257 | 483 | 23,470 |
| Receivables * | – | – | 1,443 | 1,443 | – | – | 175 | 175 |
| Payables* | – | – | (650) | (650) | – | – | (446) | (446) |
| Cash | – | 43,562 | – | 43,562 | – | 21,782 | – | 21,782 |
| 10,233 | 43,809 | 18,668 | 72,710 | 22,730 | 22,039 | 25,985 | 70,754 | |
* The receivables and payables do not reconcile to the Balance sheet as prepayments and tax receivable/(payable) are not included in the above table.
Credit risk
Credit 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 and other similar instruments prior to investment, and as part of its ongoing monitoring of investments. In doing this, it takes into account the extent and quality of any security held. For loan stock investments made prior to 6 April 2018, which account for 83.8 per cent. of loan stock by value, typically loan stock instruments have a fixed or floating charge, which may or may not have been 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.
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 Companys total gross credit risk as at 31 March 2021 was limited to £10,792,000 of unquoted loan stock instruments (2020: £23,470,000), £43,562,000 cash deposits with banks (2020: £21,782,000) and £1,561,000 of other receivables (2020: £252,000).
At the Balance sheet date, the cash held by the Company was held with Lloyds Bank plc, Scottish Widows Bank plc (part of Lloyds Banking Group), Barclays Bank plc 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 and floating rate note exposure to a maximum of 20 per cent. of net asset value for any one counterparty.
The credit profile of the unquoted loan stock is described under liquidity risk.
Impaired loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the portfolio company and the Board estimate that the security value approximates to the carrying value.
Liquidity risk
Liquid assets are held as cash on current account, on deposit or short term money market account. Under the terms of its Articles, the Company has the ability to borrow up to 10 per cent. of its adjusted capital and reserves of the latest published audited Balance sheet, which amounts to £5,596,000 as at 31 March 2021 (2020: £6,809,000).
The Company has no committed borrowing facilities as at 31 March 2021 (2020: £nil) and had cash balances of £43,562,000 (2020: £21,782,000). 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 the Companys financial liabilities are short term in nature and total £790,000 for the year to 31 March 2021 (2020: £649,000).
The carrying value of loan stock investments as analysed by expected maturity dates is as follows:
| 31 March 2021 | 31 March 2020 | ||||||||
| Redemption date | Fully performing £000 | Past due £000 | Valued below cost £000 | Total £000 | Fully performing £000 | Past due £000 | Valued below cost £000 | Total £000 | |
| Less than one year | 864 | 486 | 916 | 2,266 | 7,643 | 488 | 917 | 9,048 | |
| 1-2 years | – | 806 | – | 806 | 2,110 | – | – | 2,110 | |
| 2-3 years | – | – | – | – | 544 | – | – | 544 | |
| 3-5 years | 1,618 | – | 5 | 1,623 | 1,511 | – | – | 1,511 | |
| 5+ years | 5,649 | 448 | – | 6,097 | 9,809 | 448 | – | 10,257 | |
| 8,131 | 1,740 | 921 | 10,792 | 21,617 | 936 | 917 | 23,470 | ||
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 valued below cost is £1,045,000 (2020: £1,026,000).
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 liabilities
All the Companys financial assets and liabilities as at 31 March 2021 are stated at fair value as determined by the Directors, with the exception of receivables, payables and cash which are carried at amortised cost. There are no financial liabilities other than payables. The Companys 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. Commitments and contingencies
The Company had no financial commitments in respect of investments at 31 March 2021 (2020: £nil).
There are no contingent liabilities or guarantees given by the Company as at 31 March 2021 (2020: £nil).
19. Post balance sheet events
Since 31 March 2021 the Company has had the following post balance sheet events:
20. Related party transactions
Other than transactions with the Manager as disclosed in note 5, and the Directors remuneration disclosed in the Directors remuneration report on page 44 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 Companys statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended 31 March 2021 and 31 March 2020, and is derived from the statutory accounts for those financial years, which have been, or in the case of the accounts for the year ended 31 March 2021, which will be, delivered to the Registrar of Companies. The Auditor reported on those accounts; the reports were unqualified and did not contain a statement under s498 (2) or (3) of the Companies Act 2006.
22. Publication
The 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/AAVC/31Mar2021.pdf.
Attachment
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