Kings Arms Yard VCT PLC
LEI Code 213800DK8H27QY3J5R45
As required by the UK Listing Authority�s Disclosure Guidance and Transparency Rules 4.1 and 6.3, Kings Arms Yard VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 December 2020.
The 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/KAY/31Dec2020.pdf.
The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure Guidance and Transparency Rule�s, including Rule 4.1.
Investment policy
Kings Arms Yard VCT PLC is a Venture Capital Trust and the investment policy is intended to produce a regular and predictable dividend stream with an appreciation in capital value.
The Company will invest in a broad portfolio of higher growth businesses across a variety of sectors of the UK economy including higher risk technology companies. 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 both in terms of sector and stage of maturity of company.
Funds held pending investment or for liquidity purposes are held as cash on deposit or similar instruments with banks or other financial institutions with high credit ratings assigned by international credit rating agencies.
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 the amount equal to its adjusted capital and reserves.
Financial calendar
| Record date for first dividend
� |
16 April 2021 |
| Payment date for first dividend
� |
30 April 2021 |
| Annual General Meeting
� |
Noon on 10 June 2021 |
| Announcement of half-yearly results for the six months ending 30 June 2021
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September 2021 |
Financial highlights
| 21.84p �� | �Net asset value per share as at 31 December 2020 |
| � | � |
| 0.91p | �Basic and diluted return per share |
| � | � |
| 1.11p | Total tax free dividends per share paid in the year to 31 December 2020 |
| � | � |
| 0.60p | �First tax free dividend per share declared for the year to 31 December 2021 payable on 30 April 2021 |
| � | � |
| 4.24% | Shareholder return for the year ended 31 December 2020� |
�Shareholder return is calculated by the movement in total shareholder value for the year divided by the opening net asset value.
| � | 31 December 2020 (pence per share) | 31 December 2019 (pence per share) |
| Opening net asset value | 22.02 | 22.78 |
| Capital return/(loss) | 0.59 | (0.02) |
| Revenue return | 0.32 | 0.44 |
| Total return | 0.91 | 0.42 |
| Dividends paid | (1.11) | (1.20) |
| Impact from share capital movements | 0.02 | 0.02 |
| Net asset value | 21.84 | 22.02 |
|
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Shareholder return and shareholder value � |
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�
(pence per share) |
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| Shareholder return from launch to 1 January 2011 | � | � | ||
| Subscription price per share at launch | � | 100.00 | ||
| Total dividends paid to 1 January 2011 | � | 58.66 | ||
| Decrease in net asset value | � | (83.40) | ||
| Total shareholder value to 1 January 2011 | � | 75.26 | ||
| � | � | � | ||
| Shareholder return from 1 January 2011 to 31 December 2020 (period that Albion Capital has been investment manager): | � | � | ||
| Total dividends paid | � | 10.18 | ||
| Increase in net asset value | � | 5.24 | ||
| Total shareholder return from 1 January 2011 to 31 December 2020 | � | 15.42 | ||
| � | � | � | ||
| Shareholder value since launch: | � | � | ||
| Total dividends paid to 31 December 2020 | � | 68.84 | ||
| Net asset value as at 31 December 2020 | � | 21.84 | ||
| Total shareholder value as at 31 December 2020 | � | 90.68 | ||
The Directors have declared a first dividend of 0.60 pence per share for the year ending 31 December 2021, which will be paid on 30 April 2021 to shareholders on the register on 16 April 2021.
The above financial summary is for the Company, Kings Arms Yard VCT PLC only. Details of the financial performance of the various Quester, SPARK and Kings Arms Yard VCT 2 PLC companies, which have been merged into the Company, can be found at www.albion.capital/funds/KAY under the �Financial summary for previous funds� section.
Chairman�s statement
Introduction
The Covid-19 pandemic made 2020 a challenging year for every business but our Company has emerged in a stronger state than might have been predicted twelve months ago, with a positive return on our opening net asset value. As I will elaborate below, the proportion of our assets held in the legacy portfolio selected by previous managers has declined to less than 9% of our total and the remainder of our portfolio, selected since January 2011, has performed strongly. Within 2020 and since the year end we have seen some significant improvements in value and a number of very positive asset realisations.
Results and performance
The total return for the year was 0.91 pence per share, which is a 4.2% return on opening net asset value (excluding dividends paid). Realised and unrealised gains on investments amounted to �3.3 million for the year. Key contributors were the uplifts in the valuations of Proveca (�2.4m), which continues to trade well both within the UK and EU, OmPrompt Holdings (�1.7m), which was sold after the year end, and Quantexa (�1.6m), which has been revalued after a successful further funding round. This was offset by write downs in Perpetuum (�1.8m) and Elateral Group (�1.2m).
Net asset value per share decreased by 0.18 pence to 21.84 pence over the year to 31 December 2020, after allowing for the payment of dividends totalling 1.11 pence per share. It is worthy of note that this aggregate performance was the result of an overall gain of 1.81 pence per share from investments made since the appointment of Albion Capital as Manager in January 2011 and a loss of 0.91 pence per share from the continually shrinking legacy portfolio.
Investment realisations
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 �0.9 million of realised gains, with the proceeds having been appropriately discounted. Another strong exit returning 2.1 times cost was our holding in Clear Review, which was sold to Advanced Computer Software Group. Further details on realisations can be found in the realisations table on page 25 of the full Annual Report and Financial Statements.
Following the year end, in March 2021, the Company completed the sale of its three care homes for the elderly; Active Lives Care, Ryefield Court Care, and Shinfield Lodge Care. These homes were trading at mature occupancy levels. The first investments in the homes were made over 5 years ago and the sale will generate a 2.4 times return on cost (including interest received) and an internal rate of return of 20% p.a., an excellent result for the Company. The Company also completed the sale of OmPrompt Holdings in March 2021 realising proceeds of �3.0 million. If the full escrow amount is received, we will have generated a 2.6 times return on cost (including interest received) and an internal rate of return of 19% p.a..
Following these investment realisations, which result in a significant cash holding, the Company is well placed to take advantage of the strong pipeline of investment opportunities which have been, and will be, identified by the Manager. The Board intends to monitor the new investment activity, and the requirement to comply with the HMRC 80% qualifying investments level, over the coming months. An update will be provided to shareholders in the Half-yearly Financial Report, including the potential payment of a special dividend.
Portfolio
The Company holds a widely diversified selection of businesses, with key investments in the healthcare (including digital healthcare), renewable energy, software and other technology sectors.
During the year a total of �4.0 million was invested into new and existing portfolio companies. Of this, �1.6 million was invested into 6 new portfolio companies, the majority of which are software businesses. Follow on investments were made into 12 existing portfolio companies and accounted for �2.4 million of cash.
The portfolio now comprises a total of 66 companies of which 13 are legacy investments made before the present Manager was appointed in January 2011.
The Board has reassessed the carrying value of all portfolio investments and has revalued those wherever trading performance or market conditions made this appropriate. The overall outcome shows a net positive gain on investments of �3.3 million.
For a detailed review of these additions, disposals and other developments in the business please see the Strategic report below.
Dividend
The Company paid dividends totalling 1.11 pence per share during the year ended 31 December 2020 (2019: 1.20 pence per share).
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 are intended to be 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).
The Board is therefore pleased to declare a first dividend for the year ending 31 December 2021 of 0.60 pence per share (2020: 0.60 pence per share) being 2.5% of the net asset value rounded up to the nearest tenth of a penny to be paid on 30 April 2021 to shareholders on the register on 16 April 2021. In declaring this dividend the Board is very conscious of our target annual dividend yield of 5% and of the positive developments since the year end.
Board continuity
This year�s AGM will mark my 12th anniversary as Chairman of this Company and I will be stepping down at the end of the General Meeting. I am delighted to say that Fiona Wollocombe has agreed to take the Chair on my departure. Kings Arms Yard is now a very different company from that of which I joined the Board in 2009, and I would like to take this opportunity to thank my board colleagues and our Manager, Albion Capital, for all they have done to make it the thriving investment opportunity that I now believe it to be.
In order to provide the Board with more capacity for succession planning, a resolution is being proposed at the forthcoming Annual General Meeting (�AGM�) to increase the cap on Directors remuneration from �100,000 to �125,000 per annum. There is no current intention of increasing Directors fees materially in the near term, but the new level proposed under the Articles of Association provides extra flexibility in the case, for example, of an additional Board member being appointed prior to the retirement of an existing Director.
VCT qualifying status
As at 31 December 2020, the HMRC value of qualifying investments of our portfolio (which includes a 12 month disregard for disposals) was 98% (2019: 100%). The Board continues to monitor this and all the VCT qualification requirements very carefully in order to ensure that all requirements are met and that qualifying investments comfortably exceed the current minimum threshold of 80% which is required for the Company to continue to benefit from VCT tax status.
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 15 February 2021 that, following strong demand, it would utilise the over-allotment facility, bringing the total to be raised to �15 million. The Offer was fully subscribed and closed to further applications on 26 February 2021.
The proceeds are being used to provide support to our existing portfolio companies and to enable us to take advantage of new investment opportunities. The first allotment of the shares under the Offer was on 26 February 2021. Details of share allotments made during and after the financial year end can be found in notes 15 and 19 respectively.
Share buy-backs
It remains the Board�s primary objective to maintain sufficient resources for investment in new and existing portfolio companies and for the continued payment of dividends to shareholders. The Board�s policy is to buy back shares in the market, subject to the overall constraint that such purchases are in the Company�s interest. It is the Board�s intention for such buy-backs to be in the region of a 5 per cent. discount to net asset value, so far as market conditions and liquidity permit. The Board continues to review the use of buy-backs and is satisfied that it is an important means of providing market liquidity for shareholders.
Annual General Meeting
The Board has been considering the current rules around the Covid-19 pandemic on the arrangements for our forthcoming 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 has decided not to delay the AGM, as the roadmap is clear that data rather than dates are the true driver of restrictions. Were we to schedule a conventional AGM in the last few days of June and restrictions on mixing not be lifted as we all hope, we might face a scramble at very short notice to inform shareholders of Covid complying arrangements. The Board consider last years� AGM to have been satisfactorily live streamed, and therefore we will plan for something similar at an AGM to be held at noon on 10 June 2021, at the Company�s registered office, 1 Benjamin Street, London, EC1M 5QL.
The quorum for the meeting is two, therefore two shareholders who are also 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. As Covid-19 restrictions will still be in place at the time of the AGM, no other shareholders will be allowed entry into the building where the AGM is held. Our Articles of Association do not currently allow hybrid or wholly virtual AGMs, but as outlined below a resolution is being proposed to allow this in the future.
The AGM will include a presentation from the Manager, formal business and the answering of questions from shareholders. We will do all we can to improve on the shareholder engagement that we attempted last year. Registration details for the live stream will be available at www.albion.capital/funds/KAY prior to the Meeting.
We always welcome questions from our shareholders at the AGM, and, while we will make every attempt to allow the real time submission and answering of questions this cannot yet be guaranteed, so we request that shareholders submit questions to the Board in advance of the AGM. Shareholders can submit questions up until noon on 8 June 2021 by email to: [email protected]. If we are able to offer additional interactive questions and answers details will be posted on www.albion.capital/funds/KAY prior to the Meeting along with the registration details. Following the Meeting, a summary of responses will be published at www.albion.capital/funds/KAY. �
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.
Full details of the business to be conducted at the AGM are given in the Notice of the Meeting on pages 71 to 73 and in the Directors� report on pages 35 and 36 of the full Annual Report and Financial Statements.
Virtual and hybrid Annual General Meetings
As noted above, the Company�s 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 Board�s attention the importance of the ability to continue to interact with shareholders during unprecedented times and, more generally, of improving communication with those shareholders who find it difficult to attend a physical meeting. 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.
Risks and uncertainties
2020 brought in a period of economic and social uncertainty rarely experienced in living memory. There may still also be further potential implications of the UK�s 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.
The Manager has a clear focus to allocate resources to those sectors and opportunities where it believes growth can be both resilient and sustainable, with provision of cash to assist some portfolio companies in these extreme market conditions being a priority.
A detailed analysis of the other risks and uncertainties facing the business is shown in the Strategic report below.
Outlook and prospects
Your Board has been pleased with the strength our Company has demonstrated during the events of the past fifteen months. No one can tell what other surprises the future will deal us but we continue to believe that investing in a diversified portfolio of fast growing young companies with new ideas and a bias towards technology is an attractive strategy and we remain confident of its long term prospects.
Robin Field
Chairman
26 March 2021
Strategic report
Investment policy
Kings Arms Yard VCT PLC is a Venture Capital Trust and the investment policy is intended to produce a regular and predictable dividend stream with an appreciation in capital value.
The Company will invest in a broad portfolio of higher growth businesses across a variety of sectors of the UK economy including higher risk technology companies. 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 both in terms of sector and stage of maturity of company.
The full investment policy can be found above.
Review of business and future changes
As outlined below, the Company has recorded a capital uplift during the year as a result of realised and unrealised gains of �3.3 million. Key individual investment movements included a �2.4m uplift in Proveca Limited, a �1.7m uplift in OmPrompt Holdings Limited, and a �1.6m uplift in Quantexa Limited. This was partially offset by a reduction in the valuation of Perpetuum Limited of �1.8m and a further write down in the valuation of Elateral Group Limited of �1.2m.
Details of significant events which have occurred since the end of the financial year are listed in note 18. Details of transactions with the Manager are shown in note 4.
Results and dividends
| � | �'000 |
| Net capital return for the year ended 31 December 2020 | 2,201 |
| Net revenue return for the year ended 31 December 2020 | 1,183 |
| Total return for the year ended 31 December 2020 | 3,384 |
| Dividend of 0.60 pence per share paid on 30 April 2020 | (2,256) |
| Dividend of 0.51 pence per share paid on 30 October 2020 | (1,910) |
| Unclaimed dividends returned to the Company | 16 |
| Transferred from reserves | (766) |
| � | � |
| Net assets as at 31 December 2020 | 81,709 |
| � | � |
| Net asset value per share as at 31 December 2020 (pence) | 21.84p |
The Company paid dividends of 1.11 pence per share during the year ended 31 December 2020 (2019: 1.20 pence per share). As described in the Chairman�s 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 of 0.60 pence per share (2020: 0.60 pence per share) for the year ending 31 December 2021, which will be paid on 30 April 2021 to shareholders on the register on 16 April 2021.
As shown in the Income statement, investment income has decreased to �1,922,000 (2019: �2,144,000) due to loan stock income decreasing to �1,678,000 (2019: �1,855,000). The capital gain of �2,201,000 for the year (2019: loss of �90,000) was primarily due to the uplifts in the valuations of Proveca, OmPrompt Holdings, and Quantexa, offset by the portion of the management fee charged to capital and the decrease in valuation of Perpetuum and Elateral Group.
The total return for the year was �3,384,000 (2019: �1,359,000), equating to a return of 0.91 pence per share (2019: 0.42 pence per share).
The Balance sheet shows that the net asset value has decreased over the last year to 21.84 pence per share (2019: 22.02 pence per share).
There has been a net cash inflow of �1,399,000 for the year (2019: �2,382,000), 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.
Cash and cash equivalents at the year-end increased to �11.3 million (2019: �9.9 million), representing 14% of net asset value.
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 sectors, 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 23 to 25 of the full Annual Report and Financial Statements.
Direction of portfolio
As at 31 December 2020 the portfolio remains well balanced in terms of sectors and stage of maturity, with software and other technology being the largest element of the portfolio. During the year, a greater focus has been given to growth and technology investments, which has resulted in a decrease of asset-based investments as a percentage of the portfolio. Following the sale of the Company�s three care homes after the year end, which make up the majority of the Healthcare services sector, the Company will continue to invest into higher growth businesses in line with the Company�s investment policy.
Future prospects
The Company�s performance record reflects the success of the strategy outlined above and has enabled the Company to maintain a predictable stream of dividend payments to shareholders. The world is currently navigating a global pandemic, which will likely leave no company unaffected. The Company�s portfolio is well balanced across sectors and risk classes and the Board believes that the Company has the potential to continue to deliver returns to shareholders. �Further details on the Company�s outlook and prospects can be found in the Chairman�s statement.
Key Performance Indicators (�KPIs�) and Alternative Performance Measures (�APMs�)
The Directors believe that the following KPIs and APMs, which are typical for Venture Capital Trusts, used in their 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 strong performance of the Company�s total shareholder value against the FTSE All-Share Index total return, with dividends reinvested, from the appointment of Albion Capital Group LLP on 1 January 2011.�
The Directors consider the FTSE All-Share Index to be the most appropriate indicative benchmark for the Company as it contains a large range of sectors within the UK economy similar to a generalist VCT. Investors should, however, be reminded that shares in VCTs generally trade at a discount to their net asset values.
2. Net asset value per share and total shareholder value
Total shareholder value since inception increased by 0.93 pence per share (4.2% on opening NAV) to 90.68 pence per share for the year ended 31 December 2020.
3. Movement in shareholder value in the year�
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
| 4.6% | 19.2% | 13.5% | (0.7%) | 9.3% | 11.4% | 5.6% | 11.0% | 1.9% | 4.2% |
� Calculated as the movement in total shareholder value for the year divided by the opening net asset value.
Source: Albion Capital Group LLP
4. Dividend distributions
Dividends paid in respect of the year ended 31 December 2020 were 1.11 pence per share (2019: 1.20 pence per share).
As noted in the Half-yearly Financial Report to 30 June 2020, the Board considered it more appropriate to move to a new variable dividend policy targeting an annual dividend yield of around 5%. Semi-annual dividends are now paid calculated as 2.5% of the most recently announced net asset value when the dividend is declared. This annual dividend target for the 2021 financial year will remain in line with this new policy. The cumulative dividend paid since inception is 68.84 pence per share.
5. Ongoing charges
The ongoing charges ratio for the year to 31 December 2020 was 2.4% (2019: 2.4%). The ongoing charges ratio has been calculated using The Association of Investment Companies (�AIC�) recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to be approximately 2.4%.
6. VCT regulation*
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors� report on pages 33 and 34 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.
Investment progress
During the year, �4.0 million of cash was invested in new and existing portfolio companies, predominantly in the healthcare and technology sectors. New investments were made in 6 companies and totalled �1.6 million during the year and included:
- Seldon Technologies (�418,000), a software company that enables enterprises to deploy Machine Learning models in production;
- The Voucher Market (T/A WeGift) (�361,000), a cloud platform that enables corporates to purchase digital gift cards and to distribute them to employees and customers;
- Concirrus (�308,000), a software provider bringing real-time behavioural data analytics to the marine and transport insurance industries;
- Credit Kudos (�185,000), a challenger credit bureau helping lenders optimise and automate their affordability and risk assessments;
- TransFICC (�156,000), a provider of a connectivity solution, connecting financial institutions with trading venues via a single API; and
- uMedeor (T/A uMed) (�152,000), a middleware technology platform that enables life science organisations to conduct medical research programmes.
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Follow-on investments were made in 12 portfolio companies and totalled �2.4 million during the year. The three largest being: �891,000 into Quantexa, following an externally led fundraising round to support the growth of its analytics platform which helps detect and protect against financial crime; �274,000 into Phrasee, a provider of an AI platform that generates optimised marketing campaigns; and �236,000 into Black Swan Data, a company that provides predictive analytics for consumer brands.
During the year the Company sold its entire holding in G. Network Communications, although terms of the sale will see proceeds being received in three years� time. In the current year, this still reflects a substantial �0.9 million of realised gains, with the proceeds having been appropriately discounted. The Company also sold its holding in Clear Review generating proceeds of �0.4 million and a realised gain on cost of �0.2 million. Other realisations can be found in the realisations table on page 25 of the full Annual Report and Financial Statements.
The pie chart at the end of this announcement outlines the different sectors in which the Company�s assets, at carrying value, are currently invested.
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 Investment Management Agreement, Albion Capital Group LLP provides investment management, company secretarial and administrative services to the Company. Albion Capital Group LLP is entitled to an annual management fee of 2% of net asset value of the Company, payable quarterly in arrears, along with an annual administration fee of �50,000.�
The aggregate payable for management and administration (normal running costs) are subject to an aggregate annual cap of 3% of the year end closing net asset value, for accounting periods commencing after 31 December 2011.
The Investment Management Agreement can 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 also entitled to an arrangement fee on investment, payable by each portfolio company, of approximately 2% of each investment made and monitoring fees where the Manager has a representative on the portfolio company�s board. Further details of the Manager�s fee can be found in note 4.
Performance incentive fee
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 hurdle is equal to the greater of the Starting NAV of 20 pence per share, increased by the increase in RPI plus 2% per annum from the Start Date of 1 January 2014 (calculated on a simple and not compound basis) and the highest Total Return for any earlier period after the Start Date (the �high watermark�). An annual fee (in respect of each share in issue) of an amount equal to 15% of any excess of the Total Return (this being NAV per share plus dividends paid after the Start Date) as at the end of the relevant accounting period over the performance hurdle will be due to the Manager.
There was no management performance incentive payable during the year (2019: �nil). As at 31 December 2020, the total return of the Company since 1 January 2014 (the performance incentive fee start date) was 29.35 pence per share, compared to a performance hurdle rate of 29.46 pence per share, resulting in a shortfall of 0.11 pence per share. This amount needs to be made up in future accounting periods before any incentive fee becomes payable.
Evaluation of the Manager
The Board has evaluated the performance of the Manager based on the returns generated by the Company from the management and sale of existing investments, the continuing achievement of the 80% (70% pre 1 January 2020) qualifying investment holdings requirement for the Venture Capital Trust status, the making of new investments in accordance with the investment policy, the long term prospects of current portfolio investments, a review of the Investment Management Agreement and the services provided therein and benchmarking the performance of the Manager to other service providers.
The Board believes that it is in the interests of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.
Alternative Investment Fund Managers Directive (�AIFMD�)
The Board appointed Albion Capital Group LLP as the Company�s AIFM in 2014 as required by the AIFMD. The Manager is a full-scope Alternative Investment Fund Manager under the AIFMD. Ocorian Depositary (UK) Limited is the appointed Depositary and oversees the custody and cash arrangements and provides other AIFMD duties with respect to the Company.
Companies Act 2006 Section 172 Reporting
Under Section 172 of the Companies Act 2006, the Board has a duty to promote the success of the Company for the benefit of its members as a whole, 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.
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The Board is very conscious of these wider responsibilities in the way it promotes the Company�s culture and ensures, as part of its regular oversight, that the integrity of the Company�s affairs is foremost in the way the activities are managed and promoted. This includes regular engagement with the wider stakeholders of the Company and being alert to issues that might damage the Company�s standing in the way that it operates. The Board works very closely with the Manager in reviewing how stakeholder issues are handled, ensuring good governance and responsibility in managing the Company�s affairs, as well as visibility and openness in how the affairs are conducted.
The 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; the community and the environment in the way that investments are made and managed. The Board also considers the portfolio companies to be stakeholders in the long-term success of the Company. By the nature of venture capital investment, the Manager is closely involved with all the portfolio companies.
The Company�s 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 a strong, predictable dividend flow 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 Chairman�s statement. The new variable policy has the advantage of avoiding unsustainably high dividends if the net asset value falls, whilst rewarding shareholder more immediately if the net asset value rises.
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 buyback policy is an important means of providing market liquidity for Shareholders and the Company bought back �1.1 million of shares during the year.
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Shareholders� views are important and the Board encourages shareholders to vote on the resolutions at the Annual General Meeting. The Company�s Annual General Meeting is used typically as an opportunity to communicate with investors, including through a presentation made by the investment management team. However, due to the impact of the coronavirus (Covid-19) pandemic, special circumstances are required again for this year�s Annual General Meeting and further details are in the Chairman�s statement.
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 nothing to report in relation to relationships with customers.
The Company�s 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 Manager�s and Board�s responsibilities can be found in the Statement of corporate governance on pages 38 and 39 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.
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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.
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The Board, although non-executive, is fully engaged in both oversight and the general strategic direction of the Company. During the year the Board�s main strategic discussions focussed around cash management and deployment of cash for future investments, dividends and share buybacks, 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 coronavirus (Covid-19) pandemic on the Company�s portfolio.
Environmental, Social, and Governance (�ESG�)
The Company�s 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 world�s 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 company�s 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 Company�s�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 Company�s 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 Manager�s 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 Companies Act 2006 (the �Act�) to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and effectiveness of these policies. As an externally managed investment company with no employees, the Company has no formal policies in these matters, however, it is at the core of its responsible investment strategy as detailed above.
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.
Further policies
The Company has adopted a number of further policies relating to:
?������������� Environment
?������������� Global greenhouse gas emissions
?������������� Anti-bribery
?������������� Anti-facilitation of tax evasion
?������������� Diversity
and these are set out in the Directors� report on page 34 of the full Annual Report and Financial Statements.
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.
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The Directors have carried out a robust assessment of the Company�s 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 Company�s current and future valuations.
� By nature, smaller unquoted businesses, such as those that qualify for Venture Capital Trust purposes, are more volatile than larger, long established businesses. � Investments in open-ended equity funds result in exposure to market risk through movements in price per unit. � The Company�s investment valuation methodology is reliant on the accuracy and completeness of information that is issued by portfolio companies. In particular, the Directors may not be aware of or take into account certain events or circumstances which occur after the information issued by such companies is reported. |
To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years of making successful investments in this segment of the market. In addition, the Manager operates a formal and structured investment appraisal and review process, which includes an Investment Committee, comprising investment professionals from the Manager for all investments, and at least one external investment professional for investments greater than �1 million in aggregate across all the Albion managed VCTs. The Manager also invites and takes account of comments from non-executive Directors of the Company on matters discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Manager�s report at quarterly board meetings. The Board and Manager regularly review the deployment of investments and cash resources available to the Company in assessing liquidity required for servicing the Company�s buy-backs, dividend payments and operational expenses.
� The unquoted investments held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines as 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.
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To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in Venture Capital Trust management, and are 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 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.
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| Regulatory and compliance risk | The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company�s shares, or other penalties under the Companies Act or from financial reporting oversight bodies. | 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, including legislation on the management of the Company, from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager�s compliance officer, and any issues arising from compliance or regulation are reported to its own board on a monthly basis. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Manager�s compliance officer. The report on controls is also evaluated by the internal auditors. |
| Operational and internal control risk | The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager�s business could place 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 Manager�s 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 duties as a full-scope Alternative Investment Fund Manager under 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 Company�s investment 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 Company�s prospects in a number of ways. This also includes risks of social upheaval, including from infection and population re-distribution, as well as economic risk challenges as a result of healthcare pandemics/infection.
� 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 Company�s 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.66 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, including the ability to exercise share buybacks. Accordingly, the market price of the Ordinary shares may not fully reflect their underlying net asset value. | The Company operates a share buyback 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 and could not renew any buyback 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 losses. | 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. |
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Viability statement
In accordance with the FRC UK Corporate Governance Code published in 2018 and provision 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 31 December 2023. The Directors believe that three years is a reasonable period in which they can assess the ability of the Company to continue to operate and meet its liabilities as they fall due 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 Company�s 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 Manager�s 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
Robin Field
Chairman
26 March 2021
Responsibility statement
In preparing these Financial Statements for the year to 31 December 2020, the Directors of the Company, being Robin Field, Thomas Chambers, Martin Fiennes and Fiona Wollocombe, confirm to the best of their knowledge:
- summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 31 December 2020 for the Company has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law) and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
� - the Chairman�s statement and Strategic report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces.
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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 asses the Company�s position, performance, business model and strategy.
A detailed �Statement of Directors� responsibilities� is contained on page 37 of the full Annual Report and Financial Statements.
For and on behalf of the Board
Robin Field
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 | 2 | - | 3,333 | 3,333 | - | 1,002 | 1,002 | |
| Investment income | 3 | 1,922 | - | 1,922 | 2,144 | - | 2,144 | |
| Investment management fee | 4 | (377) | (1,132) | (1,509) | (364) | (1,092) | (1,456) | |
| Other expenses | 5 | (362) | - | (362) | (331) | - | (331) | |
| Profit/(loss) on ordinary activities before tax | � | 1,183 | 2,201 | 3,384 | 1,449 | (90) | 1,359 | |
| Tax on ordinary activities | 7 | - | - | - | - | - | - | |
| Profit/(loss) and total comprehensive income attributable to shareholders | � | 1,183 | 2,201 | 3,384 | 1,449 | (90) | 1,359 | |
| Basic and diluted return/(loss) per share (pence)* | 9 | 0.32 | 0.59 | 0.91 | 0.44 | (0.02) | 0.42 | |
| � | � | � | � | � | � | � | � | |
*adjusted for treasury shares
The accompanying notes form an integral part of these Financial Statements.
The total column of this Income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns have been prepared in accordance with The Association of Investment Companies� Statement of Recommended Practice.
Balance sheet
| � | � | 31 December 2020 | 31 December 2019 |
| � | Note | ��000 | ��000 |
| � | � | � | � |
| � | � | � | � |
| Fixed assets investments | 10 | 69,652 | 63,960 |
| � | � | � | � |
| Current assets | � | � | � |
| Trade and other receivables | 12 | 1,293 | 115 |
| Cash and cash equivalents | � | 11,266 | 9,867 |
| � | � | 12,559 | 9,982 |
| � | � | � | � |
| Total assets | � | 82,211 | 73,942 |
| � | � | � | � |
| Payables: amounts falling due within one year | � | � | � |
| Trade and other payables | 13 | (502) | (486) |
| � | � | � | � |
| � | � | � | � |
| Total assets less current liabilities | � | 81,709 | 73,456 |
| � | � | � | � |
| Equity attributable to equityholders | � | � | � |
| Called-up share capital | 14 | 4,346 | 3,883 |
| Share premium | � | 45,481 | 35,825 |
| Capital redemption reserve | � | 11 | 11 |
| Unrealised capital reserve | � | 16,786 | 14,707 |
| Realised capital reserve | � | 9,322 | 9,200 |
| Other distributable reserve | � | 5,763 | 9,830 |
| � | � | � | � |
| Total equity shareholders� funds | � | 81,709 | 73,456 |
| � | � | � | � |
| Basic and diluted net asset value per share (pence)* | 15 | 21.84 | 22.02 |
| � | � | � | � |
*excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
The Financial Statements were approved by the Board of Directors and authorised for issue on 26 March 2021 and were signed on its behalf by:
Robin Field
Chairman
Company number: 03139019
Statement of changes in equity
| � | Called-up �share capital | Share premium |
�
Capital redemption reserve |
Unrealised capital� reserve | Realised capital reserve* | Other distributable reserve* | Total |
| � | ��000 | ��000 | ��000 | ��000 | ��000 | ��000 | ��000 |
| At 1 January 2020 | 3,883 | 35,825 | 11 | 14,707 | 9,200 | 9,830 | 73,456 |
| Profit/(loss) and total comprehensive income for the period | - | - | - | 3,013 | (812) | 1,183 | 3,384 |
| Transfer of previously unrealised gains on disposal of investments | - | - | - | (934) | 934 | - | - |
| Purchase of own shares for treasury | - | - | - | - | - | (1,100) | (1,100) |
| Issue of equity | 462 | 9,892 | - | - | - | - | 10,354 |
| Cost of issue of equity | - | (236) | - | - | - | - | (236) |
| Dividends paid | - | - | - | - | - | (4,150) | (4,150) |
| At 31 December 2020 | 4,346 | 45,481 | 11 | 16,786 | 9,322 | 5,763 | 81,709 |
| At 1 January 2019 | 3,519 | 27,896 | 11 | 15,358 | 8,639 | 13,727 | 69,150 |
| Profit/(loss) and total comprehensive income for the period | - | - | - | 274 | (364) | 1,449 | 1,359 |
| Transfer of previously unrealised gains on disposal of investments | - | - | - | (925) | 925 | - | - |
| Purchase of own shares for treasury | - | - | - | - | - | (1,367) | (1,367) |
| Issue of equity | 364 | 8,120 | - | - | - | - | 8,484 |
| Cost of issue of equity | - | (191) | - | - | - | - | (191) |
| Dividends paid | - | - | - | - | - | (3,979) | (3,979) |
| At 31 December 2019 | 3,883 | 35,825 | 11 | 14,707 | 9,200 | 9,830 | 73,456 |
*These reserves amount to �15,085,000 (2019: �19,030,000) which is considered distributable.
The accompanying notes form an integral part of these Financial Statements.
Statement of cash flows
| � | � |
Year ended 31 December 2020 |
Year ended 31 December 2019 |
| � | � | ��000 | ��000 |
| � | � | � | � |
| Cash flow from operating activities | � | � | � |
| Investment income received | � | 1,467 | 2,000 |
| Deposit interest received | � | 25 | 35 |
| Dividend income received | � | 220 | 254 |
| Investment management fee paid | � | (1,499) | (1,425) |
| Performance incentive fee paid** | � | - | (637) |
| Other cash payments | � | ��������������� (359) | (309) |
| UK corporation tax paid | � | - | - |
| � | � | � | � |
| Net cash flow from operating activities | � | (146) | (82) |
| � | � | � | � |
| Cash flow from investing activities | � | � | � |
| Purchase of fixed asset investments | � | (3,990) | (5,637) |
| Disposal of fixed asset investments | � | 639 | 5,172 |
| � | � | � | � |
| Net cash flow from investing activities | � | (3,351) | (465) |
| � | � | � | � |
| Cash flow from financing activities | � | � | � |
| � | � | � | � |
| Issue of share capital | � | 9,588 | 7,804 |
| Cost of issue of equity | � | (4) | (4) |
| Purchase of own shares (including costs) | � | (1,100) | (1,367) |
| Equity dividends paid* | � | (3,588) | (3,504) |
| � | � | � | � |
| � | � | � | � |
| Net cash flow from financing activities | � | 4,896 | 2,929 |
| � | � | � | � |
| Increase in cash and cash equivalents | � | 1,399 | 2,382 |
| � | � | � | � |
| Cash and cash equivalents at start of the year | � | 9,867 | 7,485 |
| � | � | � | � |
| � | � | � | � |
| Cash and cash equivalents at end of the year | � | 11,266 | 9,867 |
* The equity dividends paid shown in the cash flow are different to the dividends disclosed in note 8 as a result of the non-cash effect of the Dividend Reinvestment Scheme.
** The performance incentive fee for the year ended 31 December 2018 was paid in the year ended 31 December 2019.
The accompanying notes form an integral part of these Financial Statements.
Notes to the Financial Statements
1. Accounting policies
Basis of accounting
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 32 and 33 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 below.
Company information can be found on page 2 of the full Annual Report and Financial Statements.
Fixed asset investments
The Company�s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.
In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20% of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at FVTPL.
Upon initial recognition (using trade date accounting) investments, including loan stock, are designated by the Company as FVTPL and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the Income statement).
Subsequently, the investments are valued at �fair value�, which is measured as follows:
- Investments listed on recognised exchanges are valued at their bid prices at the end of the accounting period or otherwise at fair value based on published price quotations.
� - Unquoted investments, where there is not an active market, are valued using an appropriate valuation technique in accordance with the IPEV Guidelines. Indicators of fair value are derived using established methodologies including earnings multiples, revenue multiples, the level of third party offers received, cost or price of recent investment rounds, net assets and industry valuation benchmarks. Where price of recent investment is used as a starting point for estimating fair value at subsequent measurement dates, this has been benchmarked using an appropriate valuation technique permitted by the IPEV guidelines.
� - In situations where cost or price of recent investment is used, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, the investment in question is valued at the amount reported at the previous reporting date. Examples of events or changes that could indicate a diminution include:
�- the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
- a significant adverse change either in the portfolio company�s business or in the technological, market, economic, legal or regulatory environment in which the business operates; or
- market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.
Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.
Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the Income statement 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 Company�s right to receive payment and expect settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.
Bank interest income
Interest income is recognised on an accruals basis using the rate of interest agreed with the bank.
Investment management fee, performance incentive fee and other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the other distributable reserve except the following which are charged through the realised capital reserve:
- 75% of management fees and performance incentive fees, if any, are allocated to the realised capital reserve. This is in line with the Board�s expectation that over the long term 75% of the Company�s investment returns will be in the form of capital gains; and
� - expenses which are incidental to the purchase or disposal of an investment 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 shares.
Share premium
This reserve accounts for the difference between the price paid for the Company�s shares and the nominal value of those shares, less issue costs.
Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is diminished through the repurchase and cancellation of the Company�s own shares.
Unrealised capital 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:
��������������� gains and losses compared to cost on the realisation of investments or permanent diminution in value;
��������������� expenses, together with the related taxation effect, charged in accordance with the above policies; and
��������������� dividends paid to equity holders where paid out by capital.
Other distributable 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.
| 2.� Gains on investments |
Year ended 31 December 2020 ��000 |
Year ended 31 December 2019 ��000 |
| Unrealised gains on fixed asset investments | 3,013 | 647 |
| Unrealised losses on current asset investments | - | (373) |
| Realised gains on fixed asset investments | 320 | 728 |
| � | 3,333 | 1,002 |
| 3.� Investment income |
Year ended 31 December 2020 ��000 |
Year ended 31 December 2019 ��000 |
| Loan stock interest | 1,678 | 1,855 |
| Dividends | 220 | 254 |
| Bank interest | 24 | 35 |
| � | 1,922 | 2,144 |
| 4.� Investment management fee |
Year ended 31 December 2020 ��000 |
Year ended 31 December 2019 ��000 |
| Investment management fee charged to revenue | 377 | 364 |
| Investment management fee charged to capital | 1,132 | 1,092 |
| � | 1,509 | 1,456 |
Further details of the Management agreement under which the investment management fee and performance incentive fee are paid is given in the Strategic report.
During the year, services with a value of �1,509,000 (2019: �1,456,000) and �50,000 (2019: �50,000) were purchased by the Company from Albion Capital Group LLP in respect of management and administration fees respectively. There was no performance incentive fee due during the year (2019: �nil). At the financial year end, the amount due to Albion Capital Group LLP in respect of these services disclosed within payables was �400,000 (2019: �391,000).
Albion Capital Group LLP is, from time-to-time, eligible to receive arrangement fees and monitoring fees from portfolio companies. During the year ended 31 December 2020, fees of �183,000 (31 December 2019: �200,000) attributable to the investments of the Company were paid pursuant to these arrangements.
Albion Capital Group LLP, its partners and staff hold 1,429,708 Ordinary shares in the Company as at 31 December 2020.
The Company has entered into an offer agreement relating to the Offers with the Company�s 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.
| 5.� Other expenses |
Year ended 31 December 2020 ��000 |
Year ended 31 December 2019 ��000 |
| Directors� fees (inc. NIC) | 99 | 91 |
| Auditor�s remuneration for statutory audit services (excluding VAT) | 31 | 29 |
| Secretarial and administration fee | 50 | 50 |
| �Other administrative expenses | 182 | 161 |
| � | 362 | 331 |
| 6.� Directors� fees |
Year ended 31 December 2020 ��000 |
Year ended 31 December 2019 ��000 |
|
| Directors� fees | 91 | 84 | |
| National insurance | 8 | 7 | |
| � | 99 | 91 | |
The Company�s key management personnel are the Directors. Further information regarding Directors� remuneration can be found in the Directors� remuneration report on pages 43 to 45 of the full Annual Report and Financial Statements.
|
7.� Tax on ordinary activities
� |
Year ended 31 December 2020 ��000 |
Year ended 31 December 2019 ��000 |
| UK Corporation tax payable | - | - |
|
�
� � Reconciliation of profit on ordinary activities to taxation charge |
�
Year ended |
�
Year ended |
| Return on ordinary activities before taxation | 3,384 | 1,359 |
| � | � | � |
| Tax charge on profit at the effective UK corporation tax rate of 19.00% (2019: 19.00%) | 643 | 258 |
| Effects of: | � | � |
| Non-taxable gains | (633) | (190) |
| Non-taxable income | (42) | (48) |
| Unutilised management expenses/(Prior year excess management expenses utilised) | 32 | (20) |
| � | - | - |
The tax charge for the year shown in the Income statement is lower than the effective rate of corporation tax in the UK of 19.00% (2019: 19.00%). The differences are explained above.
The Company has excess management expenses of �11,601,000 (2019: �11,431,000) that are available for offset against future profits. A deferred tax asset of �2,204,000 (2019: �1,943,000) has not been recognised in respect of those losses as they will be recoverable only to the extent that the Company has sufficient future taxable profits.
| 8.� Dividends |
Year ended 31 December 2020 ��000 |
Year ended 31 December 2019 ��000 |
| First dividend of 0.60 pence per share paid on 30 April 2019 | - | 2,010 |
| Second dividend of 0.60 pence per share paid on 31 October 2019 | - | 2,005 |
| First dividend of 0.60 pence per share paid on 30 April 2020 | 2,256 | - |
| Second dividend of 0.51 pence per share paid on 30 October 2020 | 1,910 | - |
| Unclaimed dividends returned to the Company | (16) | (36) |
| � | 4,150 | 3,979 |
The Directors have declared a first dividend of 0.60 pence per share for the year ending 31 December 2021, which will amount to approximately �2,645,000. This dividend will be paid on 30 April 2021 to shareholders on the register on 16 April 2021.
| 9.� Basic and diluted return/(loss) per share | � | � | |||||||
| � | Year ended 31 December 2020 | Year ended 31 December 2019 | � | ||||||
| � | Revenue | Capital | Total | Revenue | Capital | Total | � | ||
| Return/(loss) attributable to shareholders (��000) | 1,183 | 2,201 | 3,384 | 1,449 | (90) | 1,359 | � | ||
| Weighted average shares in issue (adjusted for treasury shares) | 372,282,416 | 327,246,191 | � | � | |||||
| Return/(loss) attributable per equity share (pence) | 0.32 | 0.59 | 0.91 | 0.44 | (0.02) | 0.42 | � | ||
The weighted average number of Ordinary shares is calculated after adjusting for treasury shares of 60,491,609 (2019: 54,723,000).
There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted return per share are the same.
|
10.� 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 |
51,072 | 44,833 |
| Unquoted loan stock | 18,580 | 19,127 |
| � | 69,652 | 63,960 |
| � |
31 December 2020 ��000 |
31 December 2019 ��000 |
| Opening valuation | 63,960 | 61,639 |
| Purchases at cost | 3,991 | 6,136 |
| Disposal proceeds | (1,842) | (5,043) |
| Realised gains | 320 | 728 |
| Movement in loan stock accrued income | 210 | (147) |
| Movement in unrealised gains | 3,013 | 647 |
| Closing valuation | 69,652 | 63,960 |
| Movement in loan stock accrued income | � | � |
| Opening accumulated loan stock accrued income | 579 | 726 |
| Movement in loan stock accrued income | 210 | (147) |
| Closing accumulated loan stock accrued income | 789 | 579 |
| Movement in unrealised gains | � | � |
| Opening accumulated unrealised gains | 14,695 | 14,973 |
| Transfer of previously unrealised gains to realised reserve on disposal of investments | (934) | (925) |
| Movement in unrealised gains | 3,013 | 647 |
| Closing accumulated unrealised gains | 16,774 | 14,695 |
| Historical cost basis | � | � |
| Opening book cost | 48,686 | 45,940 |
| Purchases at cost | 3,991 | 6,136 |
| Sales at cost | (588) | (3,390) |
| Closing book cost | 52,089 | 48,686 |
Amounts shown as cost represent the acquisition cost in the case of investments made by the Company and/or the valuation attributed to the investments acquired from other VCTs at the dates of merger, plus any subsequent acquisition cost.
Purchases and disposals detailed above may not agree to purchases and disposals in the Statement of cash flows due to restructuring of investments, conversion of convertible loan stock and settlement of receivables and payables.
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 impaired and past due assets are covered by the value of security held for these loan stock investments.
Unquoted investments are valued in accordance with the IPEV guidelines as follows:
|
�
Valuation Methodologies |
31 December 2020 ��000 |
31 December 2019 ��000 |
| Revenue multiple | 20,597 | 4,156 |
| Discounted offer price | 19,252 | - |
| Cost and price of recent investment (reviewed for impairment or uplift) | 14,585 | 30,035 |
| Third party valuation � Discounted cash flow | 11,413 | 11,523 |
| Earnings multiple | 3,152 | 3,926 |
| Net assets | 653 | 231 |
| Third party valuation � Earnings multiple | - | 14,089 |
| � | 69,652 | 63,960 |
When using the cost or price of recent investment in the valuations, the Company looks to re-calibrate this price at each valuation point by reviewing progress within the investment, comparing against the initial investment thesis, assessing if there are any significant events or milestones that would indicate the value of the investment has changed and considering whether a market-based methodology (i.e. Using multiples from comparable public companies) or a discounted cashflow forecast would be more appropriate.
The main inputs into the calibration exercise, and for the valuation models using multiples, are revenue, EBITDA and P/E multiples (based on the most recent revenue, EBITDA or earnings achieved and equivalent corresponding revenue, EBITDA or earnings multiples of comparable companies), quality of earnings assessments and comparability difference adjustments. Revenue multiples are often used, rather than EBITDA or earnings, due to the nature of the Company�s investments, being in growth and technology companies which are not normally expected to achieve profitability or scale for a number of years. Where an investment has achieved scale and profitability the Company would normally then expect to switch to using an EBITDA or earnings multiple methodology.
In the calibration exercise and in determining the valuation for the Company�s equity instruments, comparable trading multiples are used. In accordance with the Company�s policy, appropriate comparable companies based on industry, size, developmental stage, revenue generation and strategy are determined and a trading multiple for each comparable company identified is then calculated. The multiple is calculated by dividing the enterprise value of the comparable group by its revenue, EBITDA or earnings. The trading multiple is then adjusted for considerations such as illiquidity, marketability and other differences, advantages and disadvantages between the portfolio company and the comparable public companies based on company specific facts and circumstances.
Fair value investments had the following movements between valuation methodologies between 31 December 2019 and 31 December 2020:
|
Change in valuation methodology (2019 to 2020) |
Value as at 31 December 2020 ��000 |
Explanatory Note | |
| Cost and price of recent investment (reviewed for impairment) to revenue multiple | 18,037 | Discounted revenue multiple more relevant based on current trading | |
| Third party valuation � Earnings multiple to discounted offer price | 14,948 | Third party offer accepted and completed after the year end | |
| Cost and price of recent investment (reviewed for impairment) to discounted offer price | 4,304 | Third party offer accepted | |
| Cost and price of recent investment (reviewed for impairment) to net assets | 304 | Covid-19 impact on portfolio company has led to revaluation | |
| Revenue multiple to net assets | 139 | Covid-19 impact on portfolio company has led to revaluation | |
| � | � | � | |
The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. The Directors believe that, within these parameters, these are the most appropriate methods of valuation 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 FVTPL in a fair value hierarchy. The table below sets out fair value hierarchy definitions using FRS 102 s.11.27.
| Fair value hierarchy | Definition |
| Level 1 | The unadjusted quoted price in an active market |
| Level 2
� |
Inputs to valuations are from observable sources and are directly or indirectly derived from prices |
| Level 3
� |
Inputs to valuations not based on observable market data |
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 ��000 |
31 December 2019 ��000 |
| Opening valuation | 63,960 | 60,714 |
| Purchases at cost | 3,991 | 6,136 |
| Unrealised gains | 3,013 | 647 |
| Movement in loan stock accrued income | 210 | (147) |
| Realised net gains on disposal | 320 | 443 |
| Disposal proceeds | (1,842) | (3,832) |
| Closing valuation | 69,652 | 63,960 |
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. 63% of the portfolio of investments, consisting of equity and loan stock, is based on recent investment price, discounted offer price and 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 81% 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 fair value of investments (��000) | Change in NAV (pence per share) |
| Revenue multiple | Software and other technology | Revenue multiple | Range | 1,037 | 0.28 |
| (1,010) | (0.27) | ||||
| Third party valuation � Discounted cash flow | Renewable energy | Discount rate� | 5.8% | 112 | 0.03 |
| (101) | (0.03) | ||||
| Earnings multiple | Software and other technology | Earnings multiple | 7.7x | 143 | 0.04 |
| (124) | (0.03) |
*As detailed in the accounting policies, the base case is based on market comparables, discounted where appropriate for marketability, in accordance with the IPEV guidelines.
The impact of these changes could result in an overall increase in the valuation of the equity investments by �1,497,000 (2.9%) or a decrease in the valuation of equity investments by �1,438,000 (2.8%).
11.� Significant holdings
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 ordinarily take a controlling interest or become involved in the management. The size and structure of companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement.
The Company has interests of greater than 20% of the nominal value of any class (some of which are non-voting) of the allotted shares in the portfolio companies as at 31 December 2020 as described below. The investments listed below are held as part of an investment portfolio and therefore, as permitted by FRS 102, they are measured at fair value and are not accounted for using the equity method.
| Company | Registered address and country of incorporation | Profit/(loss) before tax ��000 |
Aggregate capital and reserves ��000 |
% class and share type | % total voting rights | ||||
| Academia Inc. | CA 94108, USA | n/a | n/a | 23.2% Preferred shares | 3.0% | ||||
| Active Lives Care Limited | EC1M 5QL, UK | (274) | (2,562) | 20.3% Ordinary shares | 20.3% | ||||
| Antenova Limited | EC4A 3TW, UK | n/a* | 2,515 | 22.0% Preferred shares; 33.0% Ordinary shares | 28.7% | ||||
| Elateral Group Limited | GU9 7XX, UK | (1,396) | (9,284) | 48.1% Ordinary shares; 46.5% Preferred shares | 47.9% | ||||
| Sift Limited | BS1 4EX, UK | n/a* | 74 | 42.1% Ordinary shares | 42.1% | ||||
*The company files filleted accounts which does not disclose this information.
12.� Current assets
| � | ||
| Trade and other receivables |
31 December 2020 ��000 |
31 December 2019 ��000 |
| Other receivables | - | 29 |
| Prepayments and accrued income | 19 | 15 |
| Deferred consideration under one year | 124 | 71 |
| Deferred consideration over one year | 1,150 | - |
| � | 1,293 | 115 |
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 1.
The Directors consider that the carrying amount of receivables is not materially different to their fair value.
|
13.� Payables: amounts falling due within one year
� |
31 December 2020 ��000 |
31 December 2019 ��000 |
| Trade payables | 15 | 22 |
| Accruals and deferred income | 487 | 464 |
| � | 502 | 486 |
The Directors consider that the carrying amount of payables is not materially different to their fair value.
14. Called-up share capital
| Allotted, called-up and fully paid | ��000 |
| 388,335,260 Ordinary shares of 1 penny each at 31 December 2019 | 3,883 |
| 46,222,217 Ordinary shares of 1 penny each issued during the year | 462 |
| 434,557,477 Ordinary shares of 1 penny each at 31 December 2020 | 4,346 |
| � | � |
| 54,723,000 Ordinary shares of 1 penny each held in treasury at 31 December 2019 | (547) |
| 5,768,609 Ordinary shares purchased during the year to be held in treasury | (58) |
| 60,491,609 Ordinary shares of 1 penny each held in treasury at 31 December 2020 | (605) |
| � | � |
| 374,065,868 Ordinary shares of 1 penny each in circulation* at 31 December 2020 | 3,741 |
*Carrying one vote each
During the year the Company purchased 5,768,609 Ordinary shares (2019: 6,450,000) representing 1.3% of the issued Ordinary share capital as at 31 December 2020, at a cost of �1,100,000 (2019: �1,367,000), including stamp duty, to be held in treasury. The Company holds a total of 60,491,609 Ordinary shares in treasury, representing 13.9% of the issued Ordinary share capital as at 31 December 2020.
Under the terms of the Dividend Reinvestment Scheme Circular dated 19 April 2011, the following new Ordinary shares of nominal value 1 penny per share 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) |
| 30 April 2020 | 1,521,895 | 15 | 19.19 | 290 | 18.50 |
| 30 October 2020 | 1,220,692 | 12 | 19.79 | 240 | 18.80 |
| � | 2,742,587 | 27 | � | 530 | � |
During the period from 1 January 2020 to 31 December 2020, the Company issued the following new Ordinary shares of nominal value 1 penny each under the Albion VCT Prospectus Top Up Offers 2019/20:
|
Date of allotment
� |
Number of shares allotted |
Aggregate nominal value of shares (��000) |
Issue price �(pence per share) |
�
Net consideration received |
Opening market price on allotment date (pence per share) |
| 31 January 2020 | 5,082,101 | 51 | 22.40 | 1,121 | 21.10 |
| 31 January 2020 | 1,019,398 | 10 | 22.50 | 225 | 21.10 |
| 31 January 2020 | 36,336,304 | 363 | 22.70 | 8,042 | 21.10 |
| 30 April 2020 | 418,451 | 4 | 19.50 | 80 | 18.50 |
| 30 April 2020 | 623,376 | 6 | 19.70 | 120 | 18.50 |
| � | 43,479,630 | 435 | � | 9,588 | � |
15.� 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 | � | 21.84 | 22.02 |
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 374,065,868 Ordinary shares as at 31 December 2020 (2019: 333,612,260).
16. Capital and financial instruments risk management
The Company�s capital comprises Ordinary shares as described in note 14. The Company is permitted to buy back its own shares for cancellation or treasury purposes and this policy is described in more detail in the Chairman�s statement.
The Company�s financial instruments comprise equity and loan stock investments in unquoted companies, cash balances and liquid cash instruments and short term receivables and payables which arise from its operations. The main purpose of these financial instruments is to generate cash flow, revenue and capital appreciation for the Company�s operations. The Company has no gearing or other financial liabilities apart from short term payables. The Company does not use any derivatives for the management of its Balance sheet.
The principal financial instrument risks arising from the Company�s operations are:
- investment (or market) risk (which comprises investment price and cash flow interest rate risk);
- credit risk; and
- liquidity risk.
The Board regularly reviews and agrees policies for managing each of these risks. There have been no changes in the nature of the risks that the Company has faced during the past year and there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below.
Investment risk
As a Venture Capital Trust, it is the Company�s specific nature to evaluate and control the investment risk in its portfolio in unquoted and quoted investments, details of which are shown on pages 23 and 24 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 fair 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 �69,652,000 (2019: �63,960,000). Fixed asset investments form 85% of the net asset value as at 31 December 2020 (2019: 87%).
More details regarding the classification of fixed asset investments are shown in note 10.
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. As a Venture Capital Trust the Company invests in unquoted companies in accordance with the investment policy. 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 Manager�s compliance with the investment policy, review and agree policies for managing this risk and monitor the overall level of risk on the investment portfolio on a regular basis.
Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV guidelines. Details of the sectors in which the Company is currently invested are shown in the pie chart at the end of this announcement.
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 �6,965,000. Further sensitivity analysis on fixed asset investments is included in note 10.
Interest rate risk
It is the Company�s policy to accept a degree of interest rate risk on its financial assets through the effect of interest rate changes. On the basis of the Company�s analysis, it is estimated that a rise of 1% in all interest rates would have increased total return before tax for the year by approximately �70,000 (2019: �86,000). Furthermore, it is considered that a material fall of interest rates below current levels during the year would have been unlikely.
The weighted average effective interest rate applied to the Company�s fixed rate assets during the year was approximately 9.8% (2019: 10.2%). The weighted average period to maturity for the fixed rate assets is approximately 7.7 years (2019: 8.4 years).
The Company�s financial assets and liabilities, denominated in 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 | - | - | 51,072 | 51,072 | - | - | 44,833 | 44,833 |
| Unquoted loan stock | 17,301 | 584 | 695 | 18,580 | 17,877 | 609 | 641 | 19,127 |
| Receivables* | - | - | 1,274 | 1,274 | - | - | 101 | 101 |
| Payables | - | - | (502) | (502) | - | - | (486) | (486) |
| Cash | - | 11,266 | - | 11,266 | - | 9,867 | - | 9,867 |
| Total net assets | 17,301 | 11,850 | 52,539 | 81,690 | 17,877 | 10,476 | 45,089 | 73,442 |
*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 instruments prior to investment and as part of its ongoing monitoring of investments. For investments made prior to 6 April 2018, which account for 96 per cent. of loan stock value, typically loan stock instruments will have a fixed or floating charge, which may or may not be subordinated, over the assets of the portfolio company in order to mitigate the gross credit risk.
The Manager receives management accounts from portfolio companies and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment specific credit risk.
The Manager and the Board formally review credit risk (including receivables) and other risks, both at the time of initial investment and at quarterly Board meetings.
The Company�s total gross credit risk at 31 December 2020 was limited to �18,580,000 (2019: �19,127,000) of unquoted loan stock instruments, �11,266,000 (2019: �9,867,000) cash on deposit with banks and �1,293,000 (2019: �115,000) of other receivables.
As at the Balance sheet date, cash and liquid investments held by the Company are held with the National Westminster Bank plc, Scottish Widows Bank plc (part of Lloyds Banking Group plc), and Barclays Bank plc. Credit risk on cash transactions is mitigated by transacting with counterparties that are regulated entities subject to regulatory supervision, with high credit ratings assigned by international credit-rating agencies.
The credit profile of unquoted loan stock is described under liquidity risk below.
Liquidity risk
Liquid assets are held as cash on current account, deposit or short term money market accounts or similar instruments.� Under the terms of its Articles, the Company has the ability to borrow an amount equal to its adjusted capital and reserves of the latest published audited Balance sheet, being �79,064,000 (2019: �71,200,000). As at 31 December 2020, the Company had no actual short term or long term gearing (2019: �nil). The Directors do not currently have any intention to utilise gearing.
The Company has no committed borrowing facilities as at 31 December 2020 (2019: �nil) and had cash of �11,266,000 (2019: �9,867,000). The Company had no investment commitments as at 31 December 2020 (2019: �nil).
There are no externally imposed capital requirements other than the minimum statutory share capital requirements for public limited companies.
The main cash outflows are for new investments, the 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. The Company�s financial liabilities at 31 December 2020 are short term in nature and total �502,000 (2019: �486,000).
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 |
Past due ��000 |
Valued below cost ��000 |
Total ��000 |
Fully performing��000 | Past due ��000 |
Valued below cost ��000 |
Total ��000 |
| Less than one year | 8,783 | 307 | 102 | 9,192 | 6,100 | 265 | 102 | 6,467 |
| 1-2 years | 1,602 | 34 | 35 | 1,671 | 2,233 | - | - | 2,233 |
| 2-3 years | 86 | - | 440 | 526 | 1,528 | - | 61 | 1,589 |
| 3-5 years | 395 | 28 | 90 | 513 | 347 | 1,362 | 123 | 1,832 |
| 5 + years | 6,540 | 138 | - | 6,678 | 6,824 | 154 | 28 | 7,006 |
| Total | 17,406 | 507 | 667 | 18,580 | 17,032 | 1,781 | 314 | 19,127 |
Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms. The cost of loan stock valued below cost is �3,132,000 (2019: �517,000).
�������������
In view of the factors identified above, the Board considers that the Company is subject to low liquidity risk.
Fair values of financial assets and financial liabilities
All the Company�s 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 Company�s financial liabilities are all non-interest bearing. It is the Directors� opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year.
17.� Commitments, contingencies and guarantees
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).
18.� Post balance sheet events
Since the year end, the Company made the following investment transactions:
- Proceeds of �15.4 million were received for the sale of the Company�s three care homes; Active Lives Care Limited, Ryefield Court Care Limited and Shinfield Lodge Care Limited;
- Proceeds of �3.0 million were received for the sale of OmPrompt Holdings Limited;
- Investment of �917,000 in a new portfolio company, Threadneedle Software Holding Limited (T/A Solidatus);
- Investment of �468,000 in an existing portfolio company, Healios Limited;
- Proceeds of �360,000 were received for the sale of SBD Automotive Limited;�and
- Investment of �46,000 in an existing portfolio company, ePatient Network Limited (T/A Raremark).
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 | 5,412,326 | 54 | 21.6 | 1,151 | 20.10 | |
| 26 February 2021 | 1,536,392 | 15 | 21.7 | 327 | 20.10 | |
| 26 February 2021 | 59,778,526 | 598 | 21.8 | 12,706 | 20.10 | |
| � | 66,727,244 | 667 | � | 14,184 | � | |
�������������
19.� Related party transactions
Other than transactions with the Manager as disclosed in note 4, and the Directors� remuneration disclosed in the Directors� remuneration report on page 44 of the full Annual Report and Financial Statements there are no related party transactions or balances requiring disclosure.
20. 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.
21. Publication
The full audited Annual Report an 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/KAY/31Dec2020.pdf.
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