Albion Development VCT PLC
LEI Code 213800FDDMBD9QLHLB38
As required by the UK Listing Authority’s Disclosure Guidance and Transparency Rules 4.1 and 6.3, Albion Development VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 December 2020.
This announcement was approved for release by the Board of Directors on 26 March 2021.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 31 December 2020 (which have been audited), will shortly be sent to shareholders. Copies of the full Annual Report and Financial Statements will be shown via the Albion Capital Group LLP website by clicking www.albion.capital/funds/AADV/31Dec2020.pdf. The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure Guidance and Transparency Rules, including Rule 4.1.
Investment policy
The Company will invest in a broad portfolio of higher growth businesses with a stronger focus on technology companies across a variety of sectors of the UK economy. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified in terms of sector and stage of maturity of company.
Funds held pending investment or for liquidity purposes will be held as cash on deposit or up to 8 per cent. of its assets, at the time of investment, in liquid open-ended equity funds providing income and capital equity exposure (where it is considered economic to do so).
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within Venture Capital Trust qualifying industry sectors using a mixture of securities. The maximum amount which the Company will invest in a single portfolio company is 15 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.
The Company’s maximum exposure in relation to gearing is restricted to 10 per cent. of the adjusted share capital and reserves.
Background to the Company
The Company is a Venture Capital Trust which raised a total of �33.3 million through the issue of shares between 1999 and 2004. The C shares merged with the Ordinary shares in 2007. A further £6.3 million was raised through an issue of new D shares in 2010. The D shares converted to Ordinary shares in 2015.
An additional £54.5 million has been raised for the Ordinary shares through the Albion VCTs Top Up Offers since January 2011.
Financial calendar
| Record date for first dividend | 7 May 2021 |
| Annual General Meeting | Noon on 12 May 2021 |
| Payment of first dividend | 28 May 2021 |
| Announcement of Half-yearly results for the six months ending 30 June 2021 | August 2021 |
Financial highlights
| 186.91p | Total shareholder value per Ordinary share from launch to 31 December 2020 |
| 3.82% | Shareholder return for the year ended 31 December 2020 |
| 4.24p | Tax-free dividend per Ordinary share for the year ended 31 December 2020 |
| 82.42p | Net asset value per Ordinary share as at 31 December 2020 |
Shareholder return is calculated by the movement in total shareholder value for the year divided by the opening net asset value.
| Ordinary shares | ||||
| 31 December 2020 pence per share | 31 December 2019 pence per share | |||
| Opening net asset value | 83.47 | 84.70 | ||
| Capital return | 3.15 | 2.55 | ||
| Revenue return | 0.02 | 0.73 | ||
| Total return | 3.17 | 3.28 | ||
| Dividends paid | (4.24) | (4.50) | ||
| Impact from share capital movements | 0.02 | (0.01) | ||
| Net asset value | 82.42 | 83.47 | ||
Total shareholder value to 31 December 2020:
| Ordinary shares (pence per share) | ||
| Total dividends paid during the year ended: | 31 December 1999 | 1.00 |
| 31 December 2000 | 2.90 | |
| 31 December 2001 | 3.95 | |
| 31 December 2002 | 4.20 | |
| 31 December 2003 | 4.50 | |
| 31 December 2004 | 4.00 | |
| 31 December 2005 | 5.20 | |
| 31 December 2006 | 3.00 | |
| 31 December 2007 | 5.00 | |
| 31 December 2008 | 12.00 | |
| 31 December 2009 | 4.00 | |
| 31 December 2010 | 8.00 | |
| 31 December 2011 | 5.00 | |
| 31 December 2012 | 5.00 | |
| 31 December 2013 | 5.00 | |
| 31 December 2014 | 5.00 | |
| 31 December 2015 | 5.00 | |
| 31 December 2016 | 5.00 | |
| 31 December 2017 | 4.00 | |
| 31 December 2018 | 4.00 | |
| 31 December 2019 | 4.50 | |
| 31 December 2020 | 4.24 | |
| Total dividends paid to 31 December 2020 | 104.49 | |
| Net asset value as at 31 December 2020 | 82.42 | |
| Total shareholder value to 31 December 2020 | 186.91 | |
The financial summary above is for the Company, Albion Development VCT PLC Ordinary shares only. Details of the financial performance of the C shares and D shares, which have been merged into the Ordinary shares, can be found at www.albion.capital/funds/AADV under the Financial summary for previous funds section.
In addition to the dividends paid above, the Board has declared a first dividend for the year ending 31 December 2021 of 2.06 pence per Ordinary share payable on 28 May 2021 to shareholders on the register on 7 May 2021.
Notes
Total shareholder value for every 100 pence invested on initial allotment. The table above excludes tax benefits upon subscription.
Chairmans statement
Introduction
I am pleased to announce that the Company has achieved a positive total return for the year of 3.17 pence per Ordinary share, in what has been a particularly difficult year for so many businesses and individuals. This return represents a 3.80% gain on opening net asset value. The year saw a difficult first half, whilst the Company and its portfolio companies came to terms with the initial Covid-19 lockdown with a total loss of 2.34%. The second half has been rather better with the Company benefitting from the resilience of its portfolio in several of its healthcare and software businesses despite the healthcare pandemic. 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.
Investment performance and progress
There have been several realisations during the year totalling £3.2 million (2019: £10.5 million). The sale of G.Network Communications has been completed, with a strong headline total return of 3.8 times 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 £1.3 million of realised gains. Another strong exit returning 2.1 times cost was our holding in Clear Review, which was sold to the Advanced Computer Software Group. Further details on realisations can be found in the realisations table on page 23 of the full Annual Report and Financial Statements. I am also pleased to announce the Company has completed the sale of OmPrompt Holdings after the year end, which reflects a total return of 2.2 times cost. The sales proceeds have been received by the Company and this uplift is accounted for in the net asset value.
The Manager took the decision to dispose of the Companys investment in the SVS Albion OLIM UK Equity Income Fund following a period of poor performance, with the fund being impacted by the Covid-19 driven falls of UK quoted equities and the negative outlook for the UK Equity Income sector. It is the Boards intention that the sale proceeds shall be redeployed into innovative unquoted growth companies where the Company is seeing resilient growth. This has resulted in a disappointing £0.8 million loss on cost, after allowing for dividends received and reduction in management fees over the life of the investment.
The results for the year showed net valuation gains on investments of £4.1 million, an increase from £3.1 million in the previous year. The key contributors were the uplift on Quantexa, which has been revalued after a further externally led funding round and Proveca, which continues to trade well both within the UK and EU. Egress Software Technologies has also contributed to this uplift, after winning some key new contracts during the Covid-19 pandemic, such as track and trace in higher education. OmPrompt Holdings also contributed to the valuation gain, due to the sale which completed post year end. However, Covid-19 has impacted some of our portfolio companies negatively, and there were write-downs including Mirada Medical, due to the current difficulties selling to overstretched hospitals, and Sandcroft Avenue (trading as Hussle), which has been impacted by the ongoing closure of gyms.
The Company has been an active investor during the year investing a total of £5.2 million. Of this, £2.1 million was invested into six new portfolio companies, all of which are targeted to require further investment as the companies prove themselves and grow:
A further £3.1 million was invested into existing portfolio companies, including: £1.4 million into Quantexa to support the growth of its analytics platform which helps detect and protect against financial crime; £334,000 into uMotif, to continue to grow their clinical trials technology platform; and £301,000 into Phrasee to support its growth.
For a review of business and future prospects please see the Strategic report below.
Dividends and results
The Company paid dividends totalling 4.24 pence per share during the year ended 31 December 2020 (2019: 4.50 pence per share). The total return after tax was £2.9 million compared to £2.7 million in the year to 31 December 2019.
As set out in the Half-yearly Financial Report to 30 June 2020, the Board considered it appropriate to move to a variable dividend policy targeting an annual dividend yield of around 5%, based on prevailing net asset value rather than at a fixed rate, as it has been in the past. Semi-annual dividends will be paid, calculated as 2.5% of the most recently announced net asset value when the dividend is declared (in most cases this will be the net asset value announced in the Half-yearly Financial Report or in the Annual Report and Financial Statements). Therefore, the Board has declared a first dividend for the financial year ending 31 December 2021 of 2.06 pence per Ordinary share payable on 28 May 2021 to shareholders on the register on 7 May 2021.
Risks and uncertainties
The wide reaching implications of the Covid-19 crisis is 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.
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.
Albion VCTs Prospectus Top Up Offers
Your Board, in conjunction with the boards of four of the other VCTs managed by Albion Capital Group LLP, launched a prospectus top up offer of new Ordinary shares on 5 January 2021. The Board announced on 26 January 2021 that, following strong demand, it would utilise the over-allotment facility, bringing the total to be raised to £10 million. The Offer was fully subscribed and closed to further applications on 11 February 2021.
The proceeds are being used to provide support to our existing portfolio companies during the current pandemic and to enable us to take advantage of new investment opportunities. The first allotment of the shares under the Offer was on 26 February 2021. Details of share allotments made during and after the financial year end can be found in notes 15 and 19 respectively.
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 target of no earlier than 21 June 2021 as the date all legal limits on mixing will be lifted, the Board is hesitant to delay the AGM, as the roadmap is clear that data rather than dates are the true driver of restrictions. The Board also consider last years AGM to have been successfully live streamed, and therefore the AGM will be held at noon on 12 May 2021, at the registered office being 1 Benjamin Street, London, EC1M 5QL.
Full details of the business to be conducted at the Annual General Meeting are given in the Notice of the Meeting on pages 67 to 70 of the full Annual Report and Financial Statements and in the Directors report on pages 32 and 33 of the full Annual Report and Financial Statements.
Covid-19 social distancing restrictions will still be in place, and consequently it will not be possible to allow shareholders entry into the building where the AGM is held. The quorum for the meeting is two, therefore two Directors will attend in person to allow the continuation of this AGM. There will also be a representative of Albion Capital Group LLP as Company Secretary. Our Articles of Association do not currently allow hybrid or wholly virtual AGMs, however, as outlined below a resolution is being proposed to allow this in the future.
As discussed above, following the success of the live streamed AGM last year, and in order to maintain shareholder engagement, the Board have decided to again live stream the AGM, which will include a presentation from the Manager, the formal business of the AGM and answering questions we receive from shareholders. Registration details for the live stream will be available at www.albion.capital/funds/AADV prior to the Meeting.
We always welcome questions from our shareholders at the AGM, and again this year we request that shareholders submit their questions to the Board in advance of the AGM. Shareholders can submit questions up until noon on 10 May 2021 by emailing your questions to: AADVchair@albion.capital. Following the Meeting, a summary of responses will be published on the Managers website at www.albion.capital/funds/AADV.
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 AGM and recommends shareholders to vote in favour of all the resolutions being proposed.
Virtual and Hybrid Annual General Meetings
As noted above, the Companys Articles of Association do not currently allow for hybrid or virtual meetings. The Covid-19 pandemic, and the resulting social distancing rules, have brought to the Boards attention the importance of the ability to continue to interact with shareholders during unprecedented times. A resolution will be proposed at the upcoming AGM to update the Articles of Association to allow the Company to have the flexibility to hold hybrid or virtual meetings in the future, if required.
Outlook and prospects
This has been an extraordinary year, with the impact of Covid-19 heavily impacting the wider economy and some of our portfolio companies. However, we have also seen resilience in the portfolio, with some companies performing well despite the challenging times. We have also seen several new investments in companies continuing to grow through innovation and with the ambition to have a positive impact on the society in which they operate. We continue to support our portfolio companies to make investments and consider that the portfolio is well positioned to drive further long term growth.
Ben Larkin
Chairman
26 March 2021
Strategic report
Investment policy
The Company will invest in a broad portfolio of higher growth businesses with a stronger focus on technology companies across a variety of sectors of the UK economy. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified in terms of sector and stage of maturity of company.
The full investment policy can be found above.
Current portfolio sector allocation
The pie charts at the end of this announcement show the split of the portfolio valuation as at 31 December 2020 by: sector; stage of investment; and number of employees. This is a useful way of assessing how the Company and its portfolio is diversified across sector, portfolio companies maturity measured by revenues and their size measured by the number of people employed. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 21 and 22 of the full Annual Report and Financial Statements.
Direction of portfolio
With six new portfolio companies this year focused in the digital health and software sectors, we continue to see the asset based part of the portfolio reduce. We consider the portfolio to be well balanced, in both sector and stage of investment, given the restrictions the VCT rules place on investments. The cash balance of 22%, which has increased with the allotment on 26 February 2021 leaves the Company able to support our existing portfolio during the ongoing Covid-19 pandemic, as well as continuing to find new investments to add value to shareholders.
Results and dividend policy
| Ordinary shares | |||
| £000 | |||
| Net capital gain for the year | 2,896 | ||
| Net revenue return for the year | 17 | ||
| Total return for the year ended 31 December 2020 | 2,913 | ||
| Dividend of 2.25 pence per share paid on 29 May 2020 | (2,077) | ||
| Dividend of 1.99 pence per share paid on 30 September 2020 | (1,843) | ||
| Unclaimed dividends | 4 | ||
| Transferred from reserves | (1,003) | ||
| Net assets as at 31 December 2020 | 75,859 | ||
| Net asset value per share as at 31 December 2020 (pence) | 82.42 |
The Company paid dividends totalling 4.24 pence per Ordinary share (2019: 4.50 pence per Ordinary share). As described in the Chairmans statement, the Board has moved to a variable dividend policy which targets an annual dividend yield of around 5% on the prevailing net asset value. As a result the Board has declared a first dividend for the year ending 31 December 2021 of 2.06 pence per Ordinary share payable on 28 May 2021 to shareholders on the register on 7 May 2021.
As shown in the Income statement below, the total investment income decreased to £692,000 (2019: £1,294,000). This is substantially due to Radnor House capitalising interest, in order to fund future capital expenditure and the repayment of the G.Network Communications loan, including the interest that had been rolled up, in the prior year. The revenue return to equity holders has subsequently decreased to £17,000 (2019: £593,000).
The capital return for the year has increased to £2,896,000 (2019: £2,080,000). As discussed in the Chairmans statement above, this is mainly attributable to the uplifts in the valuations of Quantexa, Proveca, Egress and OmPrompt. This was partly offset by the reductions in Mirada Medical and Sandcroft Avenue (trading as Hussle). We remain confident that the portfolio will deliver over the longer term, and we consider that the Company has performed well to show positive capital returns in a year where Covid-19 has had such a devastating impact on the economy.
The total return was 3.17 pence per share (2019: 3.28 pence per share). The Balance sheet below shows that the net asset value has marginally decreased over the year to 82.42 pence per share (2019: 83.47 pence per share), which is primarily as a result of the dividends paid in the year totalling 4.24 pence per share.
There was a net cash inflow for the Company of £1,116,000 for the year (2019: £5,340,000), mainly resulting from the issue of Ordinary shares under the Albion VCTs Top Up Offers 2019/20. Cash inflow from fundraising has been utilised by investments into new and existing portfolio companies, dividends paid, operating activities and the buy-back of shares.
Review of business and future changes
The results for the year to 31 December 2020 show total shareholder value of 186.91 pence per Ordinary share since launch (2019: 183.72 pence per share).
Following changes to the VCT regulations in 2017, the asset-based investments are decreasing as a proportion of the portfolio. As a result, revenue returns will remain a small proportion of overall returns, with the majority of future returns coming from capital gains.
A detailed review of the Companys business during the year is contained in the Chairmans statement above.
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
As detailed in the Chairmans statement, the ongoing impact of Covid-19 remains unknown, however, the Board believes that the Companys portfolio is well balanced across sectors and risk classes, which has been shown by the increase in shareholder value during the year and continues to have the potential to deliver returns to shareholders over the long term.
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 total shareholder value against the FTSE All-Share Index total return, in both instances with dividends reinvested. 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 return
Total shareholder value is net asset value plus cumulative dividends paid since launch to 31 December 2020.
Total return to shareholders increased by 3.82% on opening net asset value to 186.91 pence per Ordinary share for the year ended 31 December 2020 as a result of the positive total return of 3.19 pence per share.
3. Movement in shareholder value in the year
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
| 7.1% | 4.6% | 6.9% | 5.4% | 4.1% | 6.5% | 10.0% | 20.3% | 3.8% | 3.8% |
Source: Albion Capital Group LLP
Calculated as the movement in total shareholder value for the year divided by the opening net asset value.
4. Dividend distributions
Dividends paid in respect of the year ended 31 December 2020 were 4.24 pence per share (2019: 4.50 pence per share). Cumulative dividends paid since inception are 104.49 pence per share.
5. Ongoing charges
The ongoing charges ratio for the year to 31 December 2020 was 2.5% (2019: 2.5%). The ongoing charges ratio has been calculated using The Association of Investment Companies (AIC) recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve) as a percentage of the average net assets attributable to shareholders. The ongoing charges cap is 2.5%, which has resulted in a saving of £97,000 to shareholders during the year (2019: £105,000).
6. VCT regulation*
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors report on page 30 of the full Annual Report and Financial Statements.
The relevant tests to measure compliance have been carried out and independently reviewed for the year ended 31 December 2020. These showed that the Company has complied with all tests and continues to do so.
*VCT compliance is not a numerical measure of performance and thus cannot be defined as an APM.
Operational 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 may be terminated by either party on 12 months notice and is subject to earlier termination in the event of certain breaches or on the insolvency of either party. The Manager is paid an annual fee equal to 2.25% of the net asset value of the Company paid quarterly in arrears.
Additionally, for the period that the Company held the investment in the SVS Albion OLIM UK Equity Income Fund (OUEIF), Albion agreed to reduce that proportion of its management fee relating to the OUEIF by 0.75% per annum, which represents the OUEIF management fee charged by OLIM to avoid any double charging for the investment exposure.
Total annual expenses, including the management fee, are limited to 2.5% of the net asset value, as per the resolution passed at the General Meeting in 2019.
The Manager is also entitled to an arrangement fee, payable by each portfolio company, of approximately 2% on each investment made and also monitoring fees where the Manager has a representative on the portfolio companys board.
Management performance incentive
As an incentive to maximise the return to investors, the Manager is entitled to charge an incentive fee in the event that the returns exceed minimum target levels.
The performance fee hurdle requires that the growth of the aggregate of the net asset value per share and dividends paid by the Company compared with the previous accounting date exceeds RPI plus 2%. The hurdle will be calculated every year, based on the previous years closing net asset value per share. The starting net asset value is 84.70 pence per share, being the audited net asset value at 31 December 2018. The Manager continues to receive an amount equal to 20% of the returns achieved in excess of the hurdle. If the target return is not achieved in a period, the cumulative shortfall is carried forward to the next accounting period and has to be made up before an incentive fee becomes payable.
As at 31 December 2020, the total return since 1 January 2019 was 91.16 pence, and the hurdle was 90.93 pence, resulting in an excess of 0.23 pence per share. As a result, a performance incentive fee is payable to the Manager of £42,000 (2019: £nil).
Investment and co-investment
The Company co-invests with other Albion Capital Group LLP managed Venture Capital Trusts and funds. Allocation of investments is on the basis of an allocation agreement which is based, inter alia, on the ratio of funds available for investment and the HMRC VCT qualifying tests.
Evaluation of the Manager
The Board has evaluated the performance of the Manager based on:
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, 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 way 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 Board considers its significant stakeholder groups to be: its shareholders; suppliers, including direct agents of the Company such as the Manager to whom most executive functions are delegated; its portfolio companies; the community and the environment in the way that investments are made and managed.
The Companys shareholders are key to the success of the Company. The Board seeks to create value for shareholders by generating strong and sustainable returns to provide shareholders with regular dividends and the prospect of capital growth. During the year, the Board has approved a new dividend policy, further details of which can be found in the Chairmans statement above.
The Board temporarily suspended buy-backs on 18 March 2020 due to the increasing uncertainty of the net asset value at the time. Buy-backs were resumed from 22 April 2020 after the announcement of the Interim Management Statement which included the net asset value for 31 March 2020. The buy-back policy is an important means of providing market liquidity for shareholders.
Shareholders views are important and the Board encourages shareholders to vote on the resolutions at the AGM. The Companys AGM is typically used as an opportunity to communicate with investors, including through a presentation made by the investment management team. However, due to the ongoing impact of the coronavirus outbreak, special circumstances are again required for this years AGM and further details are in the Chairmans statement above.
Shareholders are also encouraged to attend the annual Shareholders Seminar. The seminar includes some of the portfolio companies sharing insights into their businesses and also presentations from Albion executives on some of the key factors affecting the investment outlook, as well as a review of the past year and the plans for the year ahead. Details of the seminar event are placed on the Managers website. Representatives of the Board attend the seminar.
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 Companys suppliers are fundamental to the operations of the Company, particularly Albion Capital Group LLP as the Manager, given that day-to-day management responsibilities are sub-contracted to the Manager. The Board takes close account of how the Manager operates, with very close contact during the year and not just at scheduled Board meetings. Details of the Managers and Boards responsibilities can be found in the Statement of corporate governance on pages 36 to 40 of the full Annual Report and Financial Statements.
The contractual arrangements with all the principal suppliers to the Company are reviewed regularly and formally once a year, alongside the performance of the suppliers in acquitting their responsibilities. The performance of the Manager in managing the portfolio and in providing company secretarial, administration and accounting services is reviewed in detail each year, which includes reviewing comparator engagement terms and portfolio performance. Further details on the evaluation of the Manager, and the decision to continue the appointment of the Manager for the forthcoming year, can be found in this report above.
The portfolio companies are considered key stakeholders, not least because they are principal drivers of value for the Company. As discussed in the Environmental, Social and Governance (ESG) section below, the portfolio companies impact on their stakeholders is also important to the Company. In most cases, an Albion executive has a place on the board of a portfolio company, in order to help with both business operation decisions, as well as good ESG practice.
The Board receives reports on ESG factors within its portfolio from the Manager as it is a signatory of the UN Principles for Responsible Investment (UN PRI). Further details of this are set out below. ESG, without its specific definition, has always been at the heart of the responsible investing that the Company engages in and in how the Company conducts itself with all of its stakeholders.
The Board, although non-executive, is fully engaged in both oversight and the general strategic direction of the Company. During the year the Boards main strategic discussions focused around cash management and deployment of cash for future investments, dividends and share buy-backs, resulting in the decision to participate in the Albion VCTs Top Up Offers 2020/21. Time was also spent in ensuring the Board met Corporate Governance requirements which continue to evolve. During the year the Board held a further meeting in addition to its scheduled quarterly meetings to discuss the effect of the Covid-19 pandemic on the Companys portfolio.
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 has adopted a number of further policies relating to:
These are set out in the Directors report on page 31 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:
| 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 UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the 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. From 1 October 2018, Ocorian Depositary (UK) Limited was appointed as Depositary 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 regularly 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, such as the impact of Brexit, 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 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 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.60 companies which are diversified as discussed above. Exposure is relatively small to at-risk sectors that include leisure, hospitality, retail and travel. |
| 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 per cent 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. 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 December 2023. 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 December 2023.
This Strategic report of the Company for the year ended 31 December 2020 has been prepared in accordance with the requirements of section 414A of the Companies Act 2006 (the Act). The purpose of this report is to provide shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their duty to promote the success of the Company in accordance with Section 172 of the Act.
For and on behalf of the Board
Ben Larkin
Chairman
26 March 2021
Responsibility statement
In preparing these Financial Statements for the year to 31 December 2020, the Directors of the Company, being Ben Larkin, Lyn Goleby, Lord OShaughnessy and Patrick Reeve, confirm that 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 35 within the full audited Annual Report and Financial Statements.
On behalf of the Board,
Ben Larkin
Chairman
26 March 2021
Income statement
| Year ended 31 December 2020 | Year ended 31 December 2019 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £000 | £000 | £000 | £000 | £000 | £000 | |
| Gains on investments | 3 | – | 4,073 | 4,073 | – | 3,074 | 3,074 |
| Investment income | 4 | 692 | – | 692 | 1,294 | – | 1,294 |
| Investment management fee | 5 | (382) | (1,146) | (1,528) | (357) | (1,070) | (1,427) |
| Performance incentive fee | 5 | (11) | (31) | (42) | – | – | – |
| Other expenses | 6 | (282) | – | (282) | (268) | – | (268) |
| Profit on ordinary activities before tax | 17 | 2,896 | 2,913 | 669 | 2,004 | 2,673 | |
| Tax (charge)/credit on ordinary activities | 8 | – | – | – | (76) | 76 | – |
| Profit and total comprehensive income attributable to shareholders | 17 | 2,896 | 2,913 | 593 | 2,080 | 2,673 | |
| Basic and diluted return per share (pence)* | 10 | 0.02 | 3.15 | 3.17 | 0.73 | 2.55 | 3.28 |
* 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 December 2020 | 31 December 2019 | ||
| Note | £000 | £000 | |
| Fixed asset investments | 11 | 58,998 | 51,406 |
| Current assets | |||
| Current asset investments | 13 | – | 3,878 |
| Trade and other receivables | 13 | 1,757 | 304 |
| Cash and cash equivalents | 15,645 | 14,529 | |
| 17,402 | 18,711 | ||
| Total assets | 76,400 | 70,117 | |
| Payables: amounts falling due within one year | |||
| Trade and other payables less than one year | 14 | (541) | (434) |
| Total assets less current liabilities | 75,859 | 69,683 | |
| Equity attributable to equity holders | |||
| Called-up share capital | 15 | 1,040 | 938 |
| Share premium | 44,978 | 36,712 | |
| Capital redemption reserve | 12 | 12 | |
| Unrealised capital reserve | 18,020 | 14,702 | |
| Realised capital reserve | 12,886 | 15,151 | |
| Other distributable reserve | (1,077) | 2,168 | |
| Total equity shareholders funds | 75,859 | 69,683 | |
| Basic and diluted net asset value per share (pence)* | 16 | 82.42 | 83.47 |
* 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 26 March 2021 and were signed on its behalf by
Ben Larkin
Chairman
Company number: 03654040
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 | ||
| As at 1 January 2020 | 938 | 36,712 | 12 | 14,702 | 15,151 | 2,168 | 69,683 | |
| Profit and total comprehensive income for the year | – | – | – | 4,595 | (1,699) | 17 | 2,913 | |
| Transfer of unrealised gains on disposal of investments | – | – | – | (1,277) | 1,277 | – | – | |
| Purchase of shares for treasury | – | – | – | – | – | (1,189) | (1,189) | |
| Issue of equity | 102 | 8,478 | – | – | – | – | 8,580 | |
| Cost of issue of equity | – | (212) | – | – | – | – | (212) | |
| Dividends paid | – | – | – | – | (1,843) | (2,073) | (3,916) | |
| As at 31 December 2020 | 1,040 | 44,978 | 12 | 18,020 | 12,886 | (1,077) | 75,859 | |
| As at 1 January 2019 | 839 | 28,406 | 12 | 16,234 | 11,539 | 6,348 | 63,378 | |
| Profit and total comprehensive income for the year | – | – | – | 1,667 | 413 | 593 | 2,673 | |
| Transfer of unrealised gains on disposal of investments | – | – | – | (3,199) | 3,199 | – | – | |
| Purchase of shares for treasury | – | – | – | – | – | (1,013) | (1,013) | |
| Issue of equity | 99 | 8,521 | – | – | – | – | 8,620 | |
| Cost of issue of equity | – | (215) | – | – | – | – | (215) | |
| Dividends paid | – | – | – | – | – | (3,760) | (3,760) | |
| As at 31 December 2019 | 938 | 36,712 | 12 | 14,702 | 15,151 | 2,168 | 69,683 | |
* These reserves amount to £11,809,000 (2019: £17,319,000) which is considered distributable.
Statement of cash flows
| Year ended 31 December 2020 £000 | Year ended 31 December 2019 £000 | |
| Cash flow from operating activities | ||
| Loan stock income received | 583 | 1,131 |
| Deposit interest received | 35 | 49 |
| Dividend income received | 191 | 151 |
| Investment management fees paid | (1,475) | (1,435) |
| Performance incentive fee paid | – | (420) |
| Other cash payments | (283) | (253) |
| Corporation tax paid | – | – |
| Net cash flow from operating activities | (949) | (777) |
| Cash flow from investing activities | ||
| Purchase of current asset investments | (1,190) | (2,400) |
| Purchase of fixed asset investments | (5,156) | (5,675) |
| Disposal of current asset investments | 3,945 | – |
| Disposal of fixed asset investments | 1,201 | 10,560 |
| Net cash flow from investing activities | (1,200) | 2,485 |
| Cash flow from financing activities | ||
| Issue of share capital | 7,737 | 7,807 |
| Cost of issue of shares | (33) | (30) |
| Equity dividends paid* | (3,251) | (3,132) |
| Purchase of own shares (including costs) | (1,188) | (1,013) |
| Net cash flow from financing activities | 3,265 | 3,632 |
| Increase in cash and cash equivalents | 1,116 | 5,340 |
| Cash and cash equivalents at start of period | 14,529 | 9,189 |
| Cash and cash equivalents at end of period | 15,645 | 14,529 |
*The dividends paid shown in the cash flow are different to the dividends disclosed in note 9 as a result of the non-cash effect of the Dividend Reinvestment Scheme.
Notes to the Financial Statements
1. Basis of 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 pages 29 and 30 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 and current 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.
Investment income
Equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.
Unquoted loan stock income
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 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 the Companys shares and the nominal value of those 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 December 2020 £000 | Year ended 31 December 2019 £000 | |
| Unrealised gains on fixed asset investments | 4,595 | 1,431 |
| Unrealised gains on current asset investments | – | 236 |
| Realised gains on fixed asset investments | 601 | 1,407 |
| Realised losses on current asset investments | (1,123) | – |
| 4,073 | 3,074 |
4. Investment income
| Year ended 31 December 2020 £000 | Year ended 31 December 2019 £000 | |
| Loan stock interest and other fixed returns | 584 | 977 |
| Dividend income | 74 | 268 |
| Bank deposit interest | 34 | 49 |
| 692 | 1,294 |
5. Investment management fees
| Year ended 31 December 2020 £000 | Year ended 31 December 2019 £000 | |
| Investment management fee charged to revenue | 382 | 357 |
| Investment management fee charged to capital | 1,146 | 1,070 |
| Performance incentive fee charged to revenue | 11 | – |
| Performance incentive fee charged to capital | 31 | – |
| 1,570 | 1,427 |
Further details of the Management agreement under which the investment management fee and performance incentive fee are paid is given in the Strategic report above.
During the year, services of a total value of £1,528,000 (2019: £1,427,000) were purchased by the Company from Albion Capital Group LLP in respect of management fees. There is a performance incentive fee of £42,000 payable this year (2019: £nil). At the financial year end, the amount due to Albion Capital Group LLP in respect of these services disclosed as accruals was £443,000 (2019: £347,000). The total annual running costs of the Company are capped at an amount equal to 2.5% of the Companys net assets, with any excess being met by Albion Capital Group LLP by way of a reduction in management fees. During the year, the management fee was reduced by £97,000 as a result of this cap (2019: £105,000).
During the year, the Company was not charged by Albion Capital Group LLP in respect of Patrick Reeves services as a Director (2019: £nil).
Albion Capital Group LLP, its partners and staff hold 680,066 Ordinary shares in the Company as at 31 December 2020.
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 December 2020, fees of £168,000 attributable to the investments of the Company were received by Albion Capital Group LLP pursuant to these arrangements (2019: £198,000).
The Company has entered into an offer agreement relating to the Offers with the Companys investment manager Albion Capital Group LLP, pursuant to which Albion Capital will receive a fee of 2.5% of the gross proceeds of the Offers and out of which Albion Capital will pay the costs of the Offers, as detailed in the Prospectus.
The SVS Albion OLIM UK Equity Income Fund (OUEIF) was disposed of in October 2020. Prior to the disposal an amount of £1,190,000 was invested during the year in the OUEIF (2019: £2,400,000), and to avoid double charging, Albion agreed to reduce its management fee relating to the investment in the OUEIF by 0.75% per annum, which represents the OUEIF management fee charged by OLIM. This resulted in a further reduction of the management fee of £21,000 (2019: £20,000). Further details on the SVS Albion OLIM UK Equity Income Fund disposal can be found in the Chairmans statement above.
6. Other expenses
| Year ended 31 December 2020 £000 | Year ended 31 December 2019 £000 | |
| Directors fees (including NIC) | 75 | 74 |
| Auditors remuneration for statutory audit services (excluding VAT) | 34 | 31 |
| Other administrative expenses | 173 | 163 |
| 282 | 268 |
7. Directors fees
The amounts paid to and on behalf of the Directors during the year are as follows:
| Year ended 31 December 2020 £000 | Year ended 31 December 2019 £000 | |
| Directors fees | 69 | 69 |
| National insurance | 6 | 5 |
| 75 | 74 |
The Companys key management personnel are the non-executive Directors. Further information regarding Directors remuneration can be found in the Directors remuneration report on pages 41 and 42 of the full Annual Report and Financial Statements.
8. Tax on ordinary activities
| Year ended 31 December 2020 £000 | Year ended 31 December 2019 £000 | |
| UK corporation tax charge in respect of current year | – | – |
| – | – |
| Factors affecting the tax charge: | Year ended 31 December 2020 £000 | Year ended 31 December 2019 £000 |
| Profit on ordinary activities before taxation | 2,913 | 2,673 |
| Tax charge on profit at the average companies rate of 19 per cent. (2019: 19 per cent.) | 553 | 508 |
| Factors affecting the charge: | ||
| Non-taxable gains | (774) | (584) |
| Income not taxable | (14) | (51) |
| Excess management expenses carried forward | 235 | 127 |
| – | – |
The tax charge for the year shown in the Income statement is lower than the average companies rate of corporation tax in the UK of 19 per cent. (2019: 19 per cent.). The differences are explained above.
Notes
(i) Venture Capital Trusts are not subject to corporation tax on capital gains.
(ii) Tax relief on expenses charged to capital has been determined by allocating tax relief to expenses by reference to the applicable corporation tax rate and allocating the relief between revenue and capital in accordance with the SORP
(iii) The Company has excess management expenses of £3,882,000 (2019: £2,652,000) that are available for offset against future profits. A deferred tax asset of £738,000 (2019: £451,000) has not been recognised in respect of these losses as they will be recoverable only to the extent that the Company has sufficient future taxable profits.
9. Dividends
| Year ended 31 December 2020 | Year ended 31 December 2019 | |
| £000 | £000 | |
| Dividend of 2.25p per Ordinary share paid on 31 May 2019 | – | 1,880 |
| Dividend of 2.25p per Ordinary share paid on 30 September 2019 | – | 1,885 |
| Dividend of 2.25p per Ordinary share paid on 29 May 2020 | 2,077 | – |
| Dividend of 1.99p per Ordinary share paid on 30 September 2020 | 1,843 | – |
| Unclaimed dividends | (4) | (5) |
| 3,916 | 3,760 |
Details of the consideration issued under the Dividend Reinvestment Scheme included in the dividends above can be found in note 15.
In addition to the dividends summarised above, the Board has declared a first dividend of 2.06 pence per share for the year ending 31 December 2021, payable on 28 May 2021 to shareholders on the register on 7 May 2021. The details of the new dividend policy can be found in the Chairmans statement above. The total dividend will be approximately £2,129,000.
10. Basic and diluted return per share
| Year ended 31 December 2020 | Year ended 31 December 2019 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| Profit attributable to equity shares (£000) | 17 | 2,896 | 2,913 | 593 | 2,080 | 2,673 |
| Weighted average shares in issue (adjusted for treasury shares) | 91,755,964 | 81,487,820 | ||||
| Return attributable per equity share (pence) | 0.02 | 3.15 | 3.17 | 0.73 | 2.55 | 3.28 |
The weighted average number of Ordinary shares is calculated after adjusting for treasury shares of 11,938,106 (2019: 10,350,156).
There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted return per share are the same.
11. Fixed asset investments
| 31 December 2020 £000 | 31 December 2019 £000 | |
| Investments held at fair value through profit or loss | ||
| Unquoted equity and preference shares | 44,350 | 37,372 |
| Unquoted loan stock | 14,648 | 14,012 |
| Quoted equity | – | 22 |
| 58,998 | 51,406 |
| 31 December 2020 £000 | 31 December 2019 £000 | |
| Opening valuation | 51,406 | 52,663 |
| Purchases at cost | 5,577 | 6,595 |
| Disposal proceeds | (3,181) | (10,519) |
| Realised gains | 601 | 1,407 |
| Movement in loan stock accrued income | – | (171) |
| Unrealised gains | 4,595 | 1,431 |
| Closing valuation | 58,998 | 51,406 |
| Movement in loan stock accrued income | ||
| Opening accumulated loan stock accrued income | 113 | 284 |
| Movement in loan stock accrued income | – | (171) |
| Closing accumulated loan stock accrued income | 113 | 113 |
| Movement in unrealised gains | ||
| Opening accumulated unrealised gains | 14,447 | 16,215 |
| Transfer of previously unrealised gains to realised reserve on disposal of investments | (1,199) | (3,199) |
| Movement in unrealised gains | 4,595 | 1,431 |
| Closing accumulated unrealised gains | 17,843 | 14,447 |
| Historic cost basis | ||
| Opening book cost | 36,846 | 36,164 |
| Purchases at cost | 5,577 | 6,595 |
| Sales at cost | (1,381) | (5,913) |
| Closing book cost | 41,042 | 36,846 |
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 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.
Unquoted fixed asset investments are valued at fair value in accordance with the IPEV guidelines as follows:
| Valuation methodology | 31 December 2020 £000 | 31 December 2019 £000 |
| Cost and price of recent investment (reviewed for impairment or uplift) | 21,624 | 33,479 |
| Revenue multiple | 20,499 | 2,969 |
| Third party valuation discounted cash flow | 9,063 | 9,104 |
| Third party valuation – earnings multiple | 2,625 | 2,723 |
| Net assets | 2,395 | 2,347 |
| Discounted offer price | 2,202 | – |
| Earnings multiple | 590 | 762 |
| 58,998 | 51,384 |
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 December 2019 and 31 December 2020:
| Change in valuation methodology (2019 to 2020) | Value as at 31 December 2020 £000 | Explanatory note |
| Cost or price of recent investment to revenue multiple | 19,056 | Discounted revenue multiple more relevant based on current trading |
| Cost or price of recent investment to discounted offer price | 2,202 | Third party offer accepted and completed after the year end |
| Price of recent investment to net assets | 387 | Covid-19 impact on portfolio company has lead to revaluation |
| Revenue multiple to net assets | 174 | Covid-19 impact on portfolio company has lead to revaluation |
| Quoted bid price to net assets | 22 | Company delisted and in liquidation |
The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. The Directors believe that, within these parameters, these are the most relevant methods of valuation which would be reasonable as at 31 December 2020.
FRS 102 and the SORP requires the Company to disclose the inputs to the valuation methods applied to its investments measured at fair value through profit or loss in a fair value hierarchy. The table below sets out fair value hierarchy definitions using FRS102 s.11.27.
| Fair value hierarchy | Definition |
| Level 1 | Unadjusted quoted prices in an active market |
| Level 2
| Inputs to valuations are from observable sources and are directly or indirectly derived from prices |
| Level 3
| Inputs to valuations not based on observable market data |
Quoted investments are valued according to Level 1 valuation methods. Unquoted equity, preference shares and loan stock are all valued according to Level 3 valuation methods.
Investments held at fair value through profit or loss (Level 3) had the following movements:
| 31 December 2020 | 31 December 2019 | |
| £000 | £000 | |
| Opening balance | 51,384 | 52,532 |
| Additions | 5,577 | 6,595 |
| Movement from Level 1 to Level 3* | 22 | – |
| Disposals | (3,181) | (10,513) |
| Accrued loan stock interest | – | (171) |
| Realised gains | 601 | 1,510 |
| Unrealised gains | 4,595 | 1,431 |
| Closing balance | 58,998 | 51,384 |
*This relates to the investment in Mi-Pay Group PLC changing from Level 1 to Level 3 in the fair value hierarchy, as this is in liquidation, and no longer listed.
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. 61% of the portfolio of investments, consisting of equity and loan stock, is based on recent investment price, discounted offer price, net assets and cost, and as such the Board believe that changes to reasonable possible alternative input assumptions (by adjusting the earnings and revenue multiples) for the valuation of the remainder of the portfolio could lead to a significant change in the fair value of the portfolio. Therefore, for the remainder of the portfolio, the Board has adjusted the inputs for a number of the largest portfolio companies (by value) resulting in a total coverage of 83% of the portfolio of investments. The main inputs considered for each type of valuation is as follows:
| Valuation technique | Portfolio company sector | Input | Base Case* | Change in input | Change in fair value of investments (£000) | Change in NAV (pence per share) |
| Revenue multiple | Software & other technology | Revenue multiple | 5.4x | +0.5 | 690 | 0.75 |
| -0.5 | (690) | (0.75) | ||||
| Revenue multiple | Software & other technology | Revenue multiple | 4.5x | +0.5 | 624 | 0.68 |
| -0.5 | (624) | (0.68) |
*As detailed in the accounting policies above, the base case is based on market comparables, discounted where appropriate for marketability, in accordance with the IPEV guidelines.
The impact of these changes could result in an overall increase in the valuation of the equity investments by £1,313,000 (3.0%) or a decrease in the valuation of equity investments by £1,313,000 (3.0%).
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. 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 consolidated as a subsidiary.
The Company has interests of greater than 20% of the nominal value of any class of the allotted shares in the portfolio company as at 31 December 2020 as described below:
| Company | Registered address and country of incorporation | Principal activity | Aggregate capital and reserves £000 | % class and share type | % total voting rights held by the Company | Profit/(loss) before tax £000 |
| Albion Investment Properties Limited | EC1M 5QL, UK | Former owner of residential property | (706) | 68.2% A Ordinary | 68.2% | n/a* |
* The company files filleted accounts which does not disclose this information.
13. Current assets
| Current asset investments | 31 December 2020 | 31 December 2019 |
| £000 | £000 | |
| SVS Albion OLIM UK Equity Income Fund | – | 3,878 |
For further details on the disposal of the SVS Albion OLIM UK Equity Income Fund, please see the Chairmans statement above.
| Trade and other receivables | 31 December 2020 | 31 December 2019 |
| £000 | £000 | |
| Prepayments and accrued income | 23 | 17 |
| Other receivables | 3 | 156 |
| Deferred consideration under one year | 192 | 131 |
| Deferred consideration over one year | 1,539 | – |
| 1,757 | 304 |
The deferred consideration over one year relates to the sale of G.Network Communications Limited in December 2020. These proceeds are receivable in January 2024, and have been discounted to present value at the prevailing market rate, including a provision for counterparty risk. This constitutes a financing transaction, and has been accounted for using the policy disclosed in note 2.
The Directors consider that the carrying amount of receivables is not materially different to their fair value.
14. Payables: amounts falling due within one year
| 31 December 2020 | 31 December 2019 | |
| £000 | £000 | |
| Accruals and deferred income | 519 | 417 |
| Trade payables | 22 | 17 |
| 541 | 434 |
The Directors consider that the carrying amount of payables is not materially different to their fair value.
15. Called-up share capital
| Allotted, called-up and fully paid shares: | £000 | |
| 93,828,305 Ordinary shares of 1 penny each at 31 December 2019 | 938 | |
| 10,146,199 Ordinary shares of 1 penny each issued during the year | 102 | |
| 103,974,504 Ordinary shares of 1 penny each at 31 December 2020 | 1,040 | |
| 10,350,156 Ordinary shares of 1 penny each held in treasury at 31 December 2019 | (104) | |
| 1,587,950 Ordinary shares of 1 penny each purchased during the year to be held in treasury | (16) | |
| 11,938,106 Ordinary shares of 1 penny each held in treasury at 31 December 2020 | (120) | |
| Voting rights of 92,036,398 Ordinary shares of 1 penny each at 31 December 2020 | 920 | |
The Company purchased 1,587,950 Ordinary shares (2019: 1,278,000) at a cost of £1,189,000 including stamp duty (2019: £1,013,000) to be held in treasury during the year to 31 December 2020. Total share buy-backs in 2020 represents 1.5% (2019: 1.4%) of called-up share capital as at 31 December 2020.
The Company holds a total of 11,938,106 shares (2019: 10,350,156) in treasury representing 11.5% (2019: 11.0%) of the issued Ordinary share capital at 31 December 2020.
Under the terms of the Dividend Reinvestment Scheme, the following new Ordinary shares of nominal value 1 penny each were allotted during the year:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£000) | Issue price (pence per share) | Net invested (£000) | Opening market price on allotment date (pence per share) |
| 29 May 2020 | 467,957 | 5 | 75.41 | 336 | 72.00 |
| 30 September 2020 | 401,094 | 4 | 77.31 | 294 | 73.50 |
| 869,051 | 9 | 630 |
Under the terms of the Albion VCTs Prospectus Top Up Offers 2019/20, the following new Ordinary shares of nominal value 1 penny each, were allotted during the year:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£000) | Issue price (pence per share) | Net consideration received (£000) | Opening market price on allotment date (pence per share) |
| 31 January 2020 | 1,843,797 | 18 | 84.80 | 1,540 | 79.50 |
| 31 January 2020 | 401,498 | 4 | 85.30 | 336 | 79.50 |
| 31 January 2020 | 6,789,082 | 68 | 85.70 | 5,674 | 79.50 |
| 30 April 2020 | 137,627 | 1 | 78.90 | 106 | 74.50 |
| 30 April 2020 | 105,144 | 1 | 79.70 | 81 | 74.50 |
| 9,277,148 | 93 | 7,737 |
16. Basic and diluted net asset value per share
| 31 December 2020 (pence per share) | 31 December 2019 (pence per share) | ||
| Basic and diluted net asset value per Ordinary share | 82.42 | 83.47 |
The basic and diluted net asset values per share at the year end are calculated in accordance with the Articles of Association and are based upon total shares in issue (adjusting for treasury shares) of 92,036,398 Ordinary shares as at 31 December 2020 (2019: 83,478,149).
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 29 of the Directors report of the full Annual Report and Financial Statements.
The Companys financial instruments comprise equity and loan stock investments in unquoted companies, deferred receipts on disposal of fixed asset investments, cash balances and receivables and payables which arise from its operations. The main purpose of these financial instruments is to generate cashflow and revenue and capital appreciation for the 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 apart from where noted below, there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below.
Investment risk
As a Venture Capital Trust, it is the Companys specific nature to evaluate and control the investment risk of its portfolio in unquoted companies, details of which are shown on pages 21 to 23 of the full Annual Report and Financial Statements. Investment risk is the exposure of the Company to the revaluation and devaluation of investments. The main driver of investment risk is the operational and financial performance of the portfolio company and the dynamics of market quoted comparators. 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 Manager and the Board formally review investment risk (which includes market price 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.
The maximum investment risk as at the Balance sheet date is the value of the fixed asset investment portfolio which is £58,998,000 (2019: £55,284,000). Fixed asset investments form 78% of net asset value as at 31 December 2020 (2019: 79%).
More details regarding the classification of fixed asset investments are shown in note 11.
Investment price risk
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 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 Portfolio of investments section on pages 21 to 23 of the full Annual Report and Financial Statements and in the Strategic report.
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 £5,899,800. Further sensitivity analysis on fixed asset investments is included in note 11.
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 is estimated that a rise of a percentage point in all interest rates would have increased total return before tax for the year by approximately £151,000 (2019: £121,000). Furthermore, it was considered that a material fall in interest rates below current levels during the year would have been unlikely.
The weighted average effective interest rate applied to the Companys fixed rate assets during the year was approximately 4.5% (2019: 7.0%). The weighted average period to maturity for the fixed rate assets is approximately 5.2 years (2019: 6.0 years).
The Companys financial assets and liabilities, all denominated in pounds sterling, consist of the following:
| 31 December 2020 | 31 December 2019 | |||||||
| 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 | – | – | 44,350 | 44,350 | – | – | 37,372 | 37,372 |
| Quoted equity | – | – | – | – | – | – | 22 | 22 |
| Unquoted loan stock | 13,752 | 185 | 711 | 14,648 | 12,913 | 193 | 906 | 14,012 |
| Current asset investments | – | – | – | – | – | – | 3,878 | 3,878 |
| Receivables* | – | – | 1,734 | 1,734 | – | – | 289 | 289 |
| Current liabilities | – | – | (541) | (541) | – | – | (434) | (434) |
| Cash | – | 15,645 | – | 15,645 | – | 14,529 | – | 14,529 |
| Total | 13,752 | 15,830 | 46,254 | 75,836 | 12,913 | 14,722 | 42,033 | 69,668 |
*The receivables do not reconcile to the Balance sheet as prepayments 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 85% of loan stock by value, typically loan stock instruments have a first fixed charge or a fixed and floating charge 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 at 31 December 2020 was limited to £14,648,000 (2019: £14,012,000) of unquoted loan stock instruments, £15,645,000 (2019: £14,529,000) of cash deposits with banks and £1,757,000 (2019: £304,000) of other receivables.
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 exposure to a maximum of 20% of net asset value for any one counterparty.
The credit profile of unquoted loan stock is described under liquidity risk shown below.
Liquidity risk
Liquid assets are held as cash on current account, cash on deposit or short term money market account. Under the terms of its Articles, the Company has the ability to borrow up to 10% of its adjusted capital and reserves of the latest published audited Balance sheet, which amounts to £7,373,000 as at 31 December 2020 (2019: £6,760,000).
The Company had no committed borrowing facilities as at 31 December 2020 (2019: nil) and the Company had cash balances of £15,645,000 (2019: £14,529,000). The main cash outflows are for new investments, buy-back of shares and dividend payments, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis, as part of its review of management accounts and forecasts. All of the Companys financial liabilities are short term in nature and total £541,000 (2019: £434,000).
The carrying value of loan stock investments, analysed by expected maturity dates is as follows:
| 31 December 2020 | 31 December 2019 | |||||||
| Redemption date | Fully performing £000 | Valued below cost £000 | Past due £000 | Total £000 | Fully performing £000 | Valued below cost £000 | Past due £000 | Total £000 |
| Less than one year | 2,160 | 736 | 1,738 | 4,634 | 1,515 | 613 | 1,618 | 3,746 |
| 1-2 years | 1,887 | 38 | 94 | 2,019 | 608 | 113 | – | 721 |
| 2-3 years | 175 | 136 | – | 311 | 1,658 | 112 | – | 1,770 |
| 3-5 years | 1,948 | – | 78 | 2,026 | 1,825 | 211 | – | 2,036 |
| 5 + years | 5,555 | – | 103 | 5,658 | 5,623 | – | 116 | 5,739 |
| Total | 11,725 | 910 | 2,013 | 14,648 | 11,229 | 1,049 | 1,734 | 14,012 |
Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms.
The cost of loan stock investments valued below cost is £1,036,000 (2019: £1,682,000).
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 December 2020 are stated at fair value as determined by the Directors, with the exception of receivables (including debtors due after more than one year), payables and cash which are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables. The 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. Contingencies and commitments
As at 31 December 2020, the Company had no financial commitments (2019: £nil).
There were no contingent liabilities or guarantees given by the Company as at 31 December 2020 (2019: £nil).
19. Post balance sheet events
The following are the post balance sheet events since 31 December 2020:
The following new Ordinary shares of nominal value 1 penny each were allotted under the Albion VCTs Prospectus Top Up Offers 2020/21 after 31 December 2020:
| 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) | ||
| 26 February 2021 | 1,932,052 | 19 | 83.30 | 1,585 | 78.00 |
| 26 February 2021 | 515,665 | 5 | 83.80 | 424 | 78.00 |
| 26 February 2021 | 8,866,225 | 89 | 84.20 | 7,279 | 78.00 |
| 11,313,942 | 113 | 9,288 |
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 pages 41 and 42 of the full Annual Report and Financial Statements, there are no other related party transactions or balances requiring disclosure.
21. Other Information
The information set out in this announcement does not constitute the Company’s statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended 31 December 2020 and 31 December 2019, and is derived from the statutory accounts for those financial years, which have been, or in the case of the accounts for the year ended 31 December 2020, 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/AADV, where the Report can be accessed as a PDF document via a link in the ‘Financial Reports and Circulars’ section.
Attachment
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